BRE Select Hotels Corp - FORM 10-K

BRE Select Hotels Corp - FORM 10-K - March 18, 2016

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

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

For the fiscal year ended December 31, 2015

¨	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 333-186090

BRE SELECT HOTELS CORP

(Exact name of registrant as specified in its charter)


Delaware		35-2464254
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

c/o Blackstone Real Estate Partners VII L.P. 345 Park Avenue New York, New York		10154
(Address of principal executive offices)		(Zip Code)

(212) 583-5000

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨ No x

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

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 ¨ No x

(Note: As a voluntary filer, the registrant has not been subject to the filing requirements of Section 13 or 15(d) of the Exchange Act for the past 90 days. The registrant has filed all reports required under Section 13 or 15(d) of the Exchange Act during the preceding 12 months.)

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 x No ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x

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.

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

There is currently no established public trading market in which the Company’s common shares are traded, and all common shares are held by an affiliate of the Company. The number of common shares outstanding as of March 18, 2016 was 100.

BRE SELECT HOTELS CORP

FORM 10-K

Index


			Page

Part I

	Item 1.	Business		3
	Item 1A.	Risk Factors		7
	Item 1B.	Unresolved Staff Comments		14
	Item 2.	Properties		15
	Item 3.	Legal Proceedings		16
	Item 4.	Mine Safety Disclosures		16

Part II

	Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities		17
	Item 6.	Selected Financial Data		18
	Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		19
	Item 7A.	Quantitative and Qualitative Disclosures About Market Risk		29
	Item 8.	Financial Statements and Supplementary Data		30
	Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure		48
	Item 9A.	Controls and Procedures		48
	Item 9B.	Other Information		48

Part III

	Item 10.	Directors, Executive Officers and Corporate Governance		49
	Item 11.	Executive Compensation		50
	Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters		50
	Item 13.	Certain Relationships and Related Transactions, and Director Independence		50
	Item 14.	Principal Accountant Fees and Services		51

Part IV

	Item 15.	Exhibits and Financial Statement Schedules		52

Signatures

This Form 10-K includes references to certain trademarks or service marks. The SpringHill Suites^® by Marriott, TownePlace Suites^® by Marriott, Fairfield Inn^® by Marriott, Courtyard^® by Marriott, Residence Inn^® by Marriott and Marriott Suites^® 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 Holdings Inc. or one or more of its affiliates. For convenience, the applicable trademark or service mark symbol has been omitted for uses other than in this paragraph but will be deemed to be included wherever the above referenced terms are used.

PART I

This Annual 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 (“Exchange Act”). Forward-looking statements are typically identified by use of terms such as “may,” “believe,” “expect,” “anticipate,” “intend,” “estimate,” “project,” “target,” “goal,” “plan,” “should,” “will,” “predict,” “potential,” “forecast” and similar expressions that convey the uncertainty of future events or outcomes. Such statements involve known and unknown risks, uncertainties, and other factors which may cause the actual results, performance, or achievements of BRE Select Hotels Corp, together with its wholly-owned subsidiaries (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; risks associated with the Company’s indebtedness; financing risks; the outcome of current and future litigation, regulatory proceedings or inquiries; changes in laws or regulations or interpretations of current laws and regulations that impact the Company’s business, assets or classification as a real estate investment trust; competition within the hotel and real estate industry; and the factors discussed in the section entitled “Risk Factors” in this report. 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 this 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 Item 1A in this report. Any forward-looking statement that the Company makes herein speaks only as of the date of this report. The Company undertakes no obligation to publicly update or revise any forward-looking statements or cautionary factors as a result of new information, future events or otherwise, except as required by law.

Except where context suggests otherwise, the Company defines certain terms in this Annual Report on Form 10-K as follows:

•

“the Company,” “BRE Select Hotels,” “we” or “our” refer to BRE Select Hotels Corp, together with its wholly-owned subsidiaries, and refer to Apple REIT Six, Inc. (“Apple Six”) for the periods prior to the Merger (as defined below);

•

“our hotels” refers to the 62 hotels owned by us as of December 31, 2015;

•

“Occupancy” represents the total number of hotel rooms sold in a given period divided by the number of hotel rooms available;

•

“Average Daily Rate”, or ADR, represents the average room price at a hotel or group of hotels and is computed by dividing total hotel room revenues by the total number of rooms sold in a given period.

•

“Revenue Per Available Room”, or RevPAR, is the product of occupancy and ADR;

Item 1.

Business

Overview

We are a Delaware corporation that was formed on November 28, 2012 to invest in income-producing real estate in the United States through the acquisition of Apple Six on behalf of BRE Select Hotels Holdings LP (“BRE Holdings”), a Delaware limited partnership and an affiliate of the Company. All of the common stock of the Company is owned by BRE Holdings, which is an affiliate of Blackstone Real Estate Partners VII L.P. (the “Sponsor”). The acquisition of Apple Six was completed on May 14, 2013 (the “Acquisition Date”). As of December 31, 2015, we owned 62 hotels located in 18 states with an aggregate of 7,346 rooms.

We made an election, through the filing of Form 1120-REIT for 2012, to qualify as a real estate investment trust, or REIT, for federal income tax purposes. We have wholly-owned taxable REIT subsidiaries which lease all of our hotels from wholly-owned qualified REIT subsidiaries. The hotels are operated and managed by affiliates of Marriott International, Inc. (“Marriott”), Western International (“Western”), Larry Blumberg & Associates (“LBA”), White Lodging Services Corporation (“White”), Inn Ventures, Inc. (“Inn Ventures”), Interstate Hotels & Resorts, Inc. (“Interstate”), OTO Development, LLC (“OTO”), or Sage Hospitality (“Sage”) under separate hotel management agreements.

We do not distinguish or group our operations on a geographical basis for purposes of measuring performance. Accordingly, we have a single reportable segment for disclosure purposes in accordance with U.S. GAAP. All of our operations and assets are located within the United States, and no single hotel comprises more than 10% of our total revenue. The consolidated financial statements include the accounts of the Company and its subsidiaries. All intercompany accounts and transactions among the Company and its subsidiaries have been eliminated. Refer to Part II, Item 8 of this report, for the consolidated financial statements.

Merger. On May 14, 2013, we completed our acquisition of Apple Six, pursuant to the Agreement and Plan of Merger, dated as of November 29, 2012 (the “Merger Agreement”), by and between us, BRE Holdings and Apple Six, pursuant to which Apple Six merged with and into us (the “Merger”). As a result of the Merger, we acquired 100% of the controlling interest of Apple Six. Each of Apple Six’s issued and outstanding common shares and related Series A preferred shares was exchanged for (i) $9.20 in cash and (ii) one share of our 7% Series A Cumulative Redeemable Preferred Stock (“Series A Preferred Stock”) with an initial liquidation preference of $1.90 per share. The Merger was funded by a net cash contribution of $214.9 million indirectly made by the Sponsor and its affiliates, Series A Preferred Stock with an aggregate initial liquidation preference of $184.4 million, and $775.0 million of debt.

The initial liquidation preference of $1.90 per share will be subject to downward adjustment should net costs and payments relating to certain legacy litigation and regulatory matters exceed $3.5 million from the date of the Merger Agreement. The legacy litigation and regulatory matters to which Apple Six was a party at the time the Merger and in which we became involved following completion of the Merger include, among other matters, the litigation referred to below and the legacy SEC investigation disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2014, which investigation was settled in 2014.

As disclosed in our prior filings with the SEC, Apple Six was named with others in a consolidated class action litigation called In re Apple REITs Litigation, Civil Action No. 1:11-cv-02919-KAM-JO in the United States District Court for the Eastern District of New York (the “District Court”). Following the District Court’s dismissal of plaintiffs’ claims, plaintiffs appealed to the United States Court of Appeals for the Second Circuit, which court affirmed the District Court’s dismissal of certain claims and vacated and remanded others for further consideration. On remand, on March 25, 2015, the District Court granted defendants’ renewed motion to dismiss in full, with prejudice. The time to file a notice of appeal of that decision has expired, and no such notice has been filed.

We recognize changes in the redemption value immediately as they occur and adjust the carrying amount of the Series A Preferred Stock to equal the redemption value at the end of each reporting period. As of December 31, 2015, the initial liquidation preference had not been adjusted, and we do not expect that the initial liquidation preference will be adjusted.

Debt. On December 3, 2014, we obtained an $830.0 million mortgage loan at an initial interest rate equal to the one-month London interbank offered rate for deposits, or LIBOR, plus a margin rate of 2.80%. $763.9 million of the loan proceeds were used to pay the outstanding balance on the mortgage and mezzanine loans obtained in connection with the Merger at an interest rate of LIBOR plus a margin rate ranging from 3.34% to 6.95%. In addition, $47.5 million of the loan proceeds were used to redeem approximately 25% of the outstanding 7% Series A Preferred Shares from shareholders on a pro-rata basis on December 31, 2014, consisting of $46.8 million of shares redeemed and $0.7 million of accrued dividends.

Business Strategy. Our primary objective is to enhance shareholder value by increasing funds from operations and cash available for distributions through internal growth and selective hotel renovation. This strategy includes utilizing our asset management expertise to improve the performance of our hotels by aggressively managing room rates, partnering with industry leaders in hotel management and franchising the hotels with leading brands, thereby improving revenue and operating performance of each hotel in its individual market. When cost effective, we renovate our properties to increase their ability to compete in particular markets. Although there are many factors that influence profitability, including national and local economic conditions, we believe our planned renovations and strong asset management of our portfolio will increase each hotel’s performance in its individual market, although there can be no assurance of such results.

We sold four hotels in 2014, and the results of operations of these four hotels are classified as discontinued operations in the consolidated financial statements.


Hotel		Sale Date
Fairfield Inn - Orange Park, Florida		April 23, 2014
Fairfield Inn - Birmingham, Alabama		May 8, 2014
SpringHill Suites - Savannah, Georgia		June 2, 2014
SpringHill Suites - Montgomery, Alabama		September 4, 2014

Brand Affiliations. Our hotels operate under strong, premium brands with 100% operating under relationships with Marriott or Hilton Worldwide Holdings Inc. or its affiliates (“Hilton”). The following table sets forth the brand affiliations of our hotels as of December 31, 2015:


Brand Affiliations	Number of Hotels		Percentage of Total			Number of Rooms		Percentage of Total
Marriott
Courtyard		10		16.1	%		990		13.5	%
Fairfield Inn		3		4.8	%		204		2.7	%
Marriott		2		3.2	%		419		5.7	%
Residence Inn		10		16.1	%		1,247		17.0	%
SpringHill Suites		5		8.1	%		579		7.9	%
TownePlace Suites		5		8.1	%		645		8.8	%

Subtotal		35		56.4	%		4,084		55.6	%
Hilton
Hampton Inn / Hampton Inn & Suites		7		11.3	%		757		10.3	%
Hilton Garden Inn		14		22.6	%		1,793		24.4	%
Homewood Suites		6		9.7	%		712		9.7	%

Subtotal		27		43.6	%		3,262		44.4	%

Total		62		100.0	%		7,346		100.0	%

Hotel Operating Performance. The following table sets forth certain operating information for our hotels, excluding discontinued operations, for the years ended December 31, 2015, 2014 and 2013 (Successor), and for the period from January 1, 2013 through May 13, 2013 (Predecessor):


	Successor									Predecessor
	For the year ended December 31,									Period from January 1, through
Statistical Data	2015			2014			2013			May 13, 2013
Number of hotels		62			62			62			62
Number of rooms		7,346			7,347			7,347			7,354
Occupancy (1)		75.4	%		76.3	%		76.1	%		72.5	%
ADR (1)	$	133.69		$	126.20		$	123.23		$	115.64
RevPAR (1)	$	100.80		$	96.29		$	93.79		$	83.84
RevPAR Index (1)		118			119			120			121

(1)	Excludes Homewood Suites Ft. Worth for period from June 4, 2015 through October 26, 2015 due to the property closure due to flood damage.

Hotel performance is impacted by many factors including the economic conditions in the United States as well as each locality. Economic conditions continued to improve in 2015 compared to recent years. Our strong ADR increase was due to our ability to increase rates, in particular at our newly renovated properties, along with overall strong demand within the upscale limited service segment of the industry. Occupancy decreased by 1.2% in 2015 from the prior year largely due to out-of-service rooms at hotels undergoing renovations. With continued improvement in both demand and room rates, we and the industry are forecasting a mid-single digit percentage increase in revenue for 2016 as compared to 2015.

Our hotels continue to be leaders in their respective markets, as evidenced by the RevPAR Index figures listed above. RevPAR Index is another commonly used metric in the lodging industry, and measures each hotel’s market share in relation to its competitive set with 100 being the average (the index excludes hotels under renovation) and is provided by Smith Travel Research, Inc.^®, an independent company that tracks historical hotel performance in most markets throughout the world. The RevPAR Index for a particular hotel is calculated as the quotient of (1) the subject hotel’s RevPAR divided by (2) the average RevPAR of the hotels in the subject’s competitive set, multiplied by 100. We expect to continue to pursue opportunities to improve revenue and gain market share.

Hotel Industry and Competition. The hotel industry is highly competitive. Each of our hotels is located in a developed area that includes other hotels and competes for guests primarily with other hotels in our immediate vicinity and secondarily with other hotels in our geographic market. Competitive advantage is based on a number of factors, including brand recognition, location, room rates, customer service, and range of guest amenities offered. An increase in the number of competitive hotels in a particular area could have a material adverse effect on the occupancy, ADR and RevPAR of our hotels in that area.

Hotel Maintenance and Renovation. Our hotels have an ongoing need for renovation and refurbishment. We are required, under all of our hotel franchise agreements and under our loan agreements, to make a percentage of the gross revenues from each hotel available for the repair, replacement and refurbishing of furniture, fixtures, and equipment at such hotel, provided that such amounts may be used for certain of our capital expenditures with respect to the hotels.

Hotel Operating Agreements

We have entered into various franchise and/or management agreements, which provide us with a variety of benefits including national advertising, publicity, and other marketing programs designed to increase brand awareness, training of personnel, continuous review of quality standards, centralized reservation systems and best practices within the industry. Below are general descriptions of our management, franchise and lease agreements:

Management Agreements. Each of our 62 hotels are operated and managed under separate management agreements, by affiliates of one of the following companies: Marriott, Western, LBA, White, Inn Ventures, Interstate, OTO or Sage. During 2015, we changed the management of certain hotels with no material impact to us. Our hotel managers generally have sole responsibility and authority for the day to day operations of each hotel, which include providing all hotel employees, overseeing operations, and providing us with financial projections. The agreements have remaining terms generally ranging from less than one to 18 years. The agreements with less than one year remaining in their term generally automatically renew on annual or month-to-month terms unless either party to the agreement gives prior notice of the termination thereof. Fees associated with the agreements generally include the payment of base management fees, incentive management fees, accounting fees, and other fees for centralized services which are allocated among all of the hotels that receive the benefit of such services. Base management fees are calculated as a percentage of gross revenues. Incentive management fees are calculated as a percentage of operating profit in excess of a priority return to us, as defined in the management agreements. We have the option to terminate the management agreements if specified performance thresholds are not satisfied.

Franchise Agreements. Western, LBA, White, Inn Ventures, Interstate, OTO or Sage is not affiliated with either Marriott or Hilton, and as a result, the hotels they manage were required to obtain separate franchise agreements with each respective franchisor. The Hilton franchise agreements generally provide for an initial term of 13 to 20 years. Fees associated with the Hilton agreements generally include the payment of royalty fees and program fees based on room revenues. The Marriott franchise agreements generally provide for an initial term of 15 to 20 years. Fees associated with the Marriott agreements include the payment of royalty fees, marketing fees, reservation fees and a communications support fee based on room revenues.

Taxable REIT Subsidiary (“TRS”) Lease Agreements. Our lease agreements are intercompany agreements between the TRS lessees and our property-owning subsidiaries. These agreements generally contain terms which are customary for third-party lease agreements, including terms for rent payments and other expenses. All related rental income and expense related to the TRS lease agreements net to zero and have no impact on the consolidated financial statements.

Seasonality

Regulation

Our hotels are subject to various laws, ordinances and regulations, including regulations relating to common areas and fire and safety requirements. We believe each of our hotels has the necessary permits and approvals to operate its business, and is appropriately covered by insurance.

Americans with Disabilities Act. All of our hotels are required to comply with the Americans with Disabilities Act (“ADA”). The ADA has separate compliance requirements for “public accommodations” and “commercial facilities,” but generally requires that buildings be made accessible to people with disabilities. Compliance with the ADA requirements could require removal of access barriers, and noncompliance could result in imposition of fines by the United States government or an award of damages to private litigants, or both. Although we believe that the hotels in our portfolio substantially comply with the present requirements of the ADA, the obligation in regards to the ADA is an ongoing one and we will continue to assess our hotels and make appropriate adjustments as needed.

Environmental Matters. In connection with each of our hotel acquisitions, we obtained a Phase I Environmental Report and additional environmental reports and surveys, as were necessitated by the preliminary report. Based on the reports, we are not aware of any environmental situations requiring remediation at our properties. No material remediation costs have occurred or are expected to occur. Under various laws, owners as well as tenants and operators of real estate may be required to investigate and clean up or remove hazardous substances present at or migrating from properties they own, lease or operate and may be held liable for property damage or personal injuries that result from hazardous substances. These laws also expose us to the possibility that we may become liable to reimburse governments for damages and costs we incur in connection with hazardous substances.

Insurance

We carry comprehensive insurance, including general liability, property, rental loss and umbrella liability coverage on all of our hotels. In addition, we carry flood coverage on certain hotels when available on commercially reasonable terms for hotels where we believe such coverage is warranted or required under the terms of our debt agreements. We have selected policy specifications and insured limits which we believe to be appropriate given the relative risk of loss, the cost of the coverage and industry practice, and as such believe our hotels are adequately insured.

Employees

We have no employees. During 2015, all employees involved in the day-to-day operation of our hotels were employed by third party management companies engaged pursuant to the hotel management agreements. Corporate services are provided by another management company engaged pursuant to a corporate services agreement.

Available Information

Our Internet website address is www.bre-select-hotels.com. We make available free of charge through our Internet website our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. Information contained on our website is not incorporated by reference in this report.

Item 1A.

Risk Factors

In addition to the other information set forth in this report, you should carefully consider the following factors which could materially adversely affect our business, financial condition, results of operations (including revenues and profitability), operating cash flow and value. Our business is also subject to general risks and uncertainties that may broadly affect companies, including us. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also could materially adversely affect our business, financial condition, results of operations (including revenues and profitability), operating cash flow and value.

Risks Related to Our Business

We are subject to the business, financial, and operating risks inherent to the hotel industry, any of which could reduce profits and limit opportunities for growth.

The success of our properties will depend largely on the property operators’ ability to adapt to dominant trends in the hotel industry as well as greater competitive pressures, increased consolidation, industry overbuilding, dependence on consumer spending patterns and changing demographics, the introduction of new concepts and products, availability of labor, price levels and general economic conditions. The success of a particular hotel brand, the ability of a hotel brand to fulfill any obligations to operators of its business, and trends in the hotel industry may affect our income and the funds we have available to distribute to shareholders. Additionally, each of our properties is affiliated with a national or international hotel chain. Changes in public perception of the chain or deterioration in the financial health of the franchisor may affect the income generated by our properties.

The hospitality industry could also experience a significant decline in occupancy and average daily rates due to a reduction in business or leisure travel. General economic conditions, increased fuel costs, natural disasters and terrorist attacks are a few factors that could affect an individual’s willingness to travel.

Market conditions and other factors beyond our control may reduce operating results and the value of our properties.

Changes in general local or national economic or market conditions, increased costs of energy, increased costs of insurance, increased costs of products, increased costs and shortages of labor, competitive factors, fuel shortages, quality of management, the ability of a hotel chain to fulfill any obligations to operators of its hotel business, limited alternative uses for the building, changing consumer habits, condemnation or uninsured losses, changing demographics, changing traffic patterns, inability to remodel outmoded buildings as required by the franchise or lease agreement and other factors beyond our control may reduce operating results and the value of properties that we own. Additionally, these items, among others, may reduce the availability of capital to us. As a result, cash available to make distributions to shareholders may be affected.

The United States continues to be in a post-recessionary low-growth environment, which has experienced historically high levels of unemployment. Uncertainty over the depth and duration of this economic environment continues to have a negative impact on the lodging industry. There is some general consensus among economists that the economy in the United States emerged from a recessionary environment in 2009, but high unemployment levels and sluggish business and consumer travel trends were evident in 2010 through 2013. As a result, we and the industry may, among other things, experience reductions in revenue. Accordingly, our financial results are impacted by the economic environment, and future financial results and growth could be further harmed until a more expansive national economic environment is prevalent. A weaker than anticipated economic recovery, or a return to a recessionary national economic environment, could result in low or decreased levels of business and consumer travel, negatively impacting the lodging industry. Such an economic outcome could also negatively impact our future growth prospects and results of operations.

The hospitality industry is subject to seasonal volatility, which may contribute to fluctuations in our results of operations.

The hotel industry is seasonal in nature. Generally, occupancy rates and hotel revenues are greater in the second and third quarters than in the first and fourth quarters. As a result, there may be quarterly fluctuations in results of operations, which may affect revenues and our ability to make distributions to shareholders.

The franchise, management and license agreements pursuant to which our properties operate contain restrictions and limitations that may adversely affect our business.

Our subsidiaries operate all of the properties pursuant to franchise, management or license agreements with nationally recognized hotel brands. These agreements contain specific standards for, and restrictions and limitations on, the operation and maintenance of our properties in order to maintain uniformity within the franchisor system. These standards could potentially conflict with our ability to create specific business plans tailored to each property and to each market. The existence of construction or renovation at a property may make a property less attractive to guests, and accordingly have a negative impact on cash flows. Additionally, such construction or renovations may not be completed or may not be completed in the contemplated time frame. Upon completion, such construction or renovation may not improve the operations at, or increase the value of, the subject property.

The hotel industry is highly competitive, and we might not be able to compete effectively.

The hotel industry is highly competitive. Each of our hotels is located in a developed area that includes other hotels and competes for guests primarily with other hotels in our immediate vicinity and secondarily with other hotels in our geographic market. An increase in the number of competitive hotels in a particular area could have a material adverse effect on the occupancy, average daily rate and revenue per available room of our hotels in that area.

Our business could be materially adversely affected if we incur legal liability.

As a result of regulatory inquiries or other regulatory actions, we may become subject to lawsuits. Our ability to access capital markets, including commercial debt markets, could be negatively impacted by unfavorable, or the possibility of unfavorable, outcomes to lawsuits or adverse regulatory actions.

We may become subject to regulatory inquiries, which could result in costs and personnel time commitment in connection with responding. We may also become subject to action by governing regulatory agencies as a result of our activities, which could result in costs to respond and fines or changes in the our business practices, any of which could have a material adverse effect on our financial condition, results of operations, liquidity, capital resources, and cash flows.

Real estate property investments are illiquid, and it may not be possible to dispose of assets when appropriate or on favorable terms.

Real estate property investments generally cannot be disposed of quickly, and a return of capital and realization of gains, if any, from an investment generally occur upon the disposition or refinancing of the underlying property. We may be unable to realize our investment objectives by sale, other disposition or refinancing at attractive prices or within any desired period of time. The ability to sell assets could also be restricted by certain covenants in the debt agreements. As a result, we may be required to dispose of assets on less than favorable terms, if at all, and we may be unable to vary our portfolio in response to economic or other conditions, which could adversely affect our financial position.

Environmental conditions could result in significant unexpected costs.

We are subject to federal, state and local environmental regulations that apply generally to the ownership of real property and the operations conducted on real property. Under various federal, state and local laws, ordinances and regulations, we may be considered an owner or operator of real property or may have arranged for the disposal or treatment of hazardous or toxic substances or petroleum product releases at a property and, therefore, may become liable for the costs of removal or remediation of certain hazardous substances released on or in our property or disposed of by us, as well as certain other potential costs which could relate to hazardous or toxic substances (including governmental fines and injuries to persons and property). Such liability may be imposed whether or not we knew of, or were responsible for, the presence of these hazardous or toxic substances. The cost of investigation, remediation or removal of such substances may be substantial, and the presence of such substances, or the failure to properly remediate such substances, may adversely affect our ability to sell such property or to borrow using such property as collateral.

There may also be asbestos-containing materials at some of our properties. While we do not expect the environmental conditions at our properties, considered as a whole, to have a material adverse effect, there can be no assurance that this will be the case. Further, no assurance can be given that any environmental studies performed have identified or will identify all material environmental conditions that may exist with respect to any of the properties that we own.

Compliance with the Americans with Disabilities Act and fire, safety and other regulations may require us to make expenditures that adversely affect our cash flows.

All of the properties that we own are required to comply with the ADA. The ADA has separate compliance requirements for “public accommodations” and “commercial facilities,” but generally requires that buildings be made accessible to people with disabilities. Compliance with the ADA requirements could require removal of access barriers, and noncompliance could result in imposition of fines by the United States government or an award of damages to private litigants, or both. As a result, we could be required to expend funds to comply with the provisions of the ADA, which could adversely affect our results of operations and financial condition. In addition, we are required to operate the properties in compliance with fire and safety regulations, building codes and other land use regulations, as they may be adopted by governmental agencies and bodies and become applicable to the properties. We may be required to make substantial capital expenditures to comply with those requirements, and these expenditures could have a material adverse effect on our ability to meet our financial obligations, to sell such property or to borrow using such property as collateral.

Our real estate assets may be subject to impairment charges.

On a periodic basis, we assess whether there are any indicators that the value of our real estate assets may be impaired. Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate the carrying value of an asset may not be recoverable. Recoverability of assets to be held and used is determined by a comparison of the carrying amount of the assets to the future undiscounted net cash flow expected to be generated by the asset. If the carrying value of such assets exceeds such cash flows, the assets are considered impaired. The impairment charge to be recognized is measured by the amount by which carrying value exceeds fair value. Fair value is determined by using management’s best estimate of discounted net cash flows over the remaining life of the asset, including proceeds from the eventual disposition of the asset.

We are required to use estimates and assumptions that affect the reported value of these assets and these assessments will have a direct impact on our earnings because recording an impairment charge results in an immediate negative adjustment to earnings. There can be no assurance that we will not take charges in the future related to the impairment of our assets. Any future impairment could have a material adverse effect on our results of operations in the period in which the charge is taken.

Technology is used in operations, and any material failure, inadequacy, interruption or security failure of that technology could harm our business.

We and our hotel managers and franchisors rely on information technology networks and systems, including the Internet, to process, transmit and store electronic information, and to manage or support a variety of business processes, including financial transactions and records, personal identifying information, reservations, billing and operating data. Some of the information technology is purchased from vendors, on whom the systems depend. We and our hotel managers and franchisors may rely on commercially available and internally developed systems, software, tools and monitoring to provide security for processing, transmission and storage of confidential operator and other customer information, such as individually identifiable information, including information relating to financial accounts. Although we and our hotel managers and franchisors have taken steps necessary to protect the security of our and their information systems and the data maintained in those systems, it is possible that the safety and security measures taken will not be able to prevent the systems’ improper functioning or damage, or the improper access or disclosure of personally identifiable information such as in the event of cyber-attacks. Security breaches, including physical or electronic break-ins, computer viruses, attacks by hackers and similar breaches, can create system disruptions, shutdowns or unauthorized disclosure of confidential information. Any failure to maintain proper function, security and availability of information systems could interrupt operations, damage reputation, subject us to liability claims or regulatory penalties and could have a material adverse effect on our business, financial condition and results of operations.

Certain perils could adversely affect our business.

Concentrations of properties in particular geographic areas or regions of the United States may increase the risk that adverse economic or other developments or natural disasters (e.g., earthquakes, floods, hurricanes or events such as the platform explosion and subsequent oil spill that occurred in the Gulf of Mexico in 2010) affecting a particular region of the country could adversely impact our business. Some of our properties are located in areas, such as California, Oregon and Washington, which are high-risk geographical areas for earthquakes. In addition, we have properties that are located in coastal counties which may be more susceptible to wind or flood damage than properties in other parts of the country. Some of the properties are also located in or near major urban areas which could be the target of future terrorist acts. Depending upon its magnitude, an earthquake, hurricane, severe storm or terrorist act could severely damage one or more of our properties, which would adversely affect our business. We maintain property insurance for our properties and the resulting business interruption. Although our properties are insured to the extent and at levels consistent with insurance carried by institutional owners of hotels, there is no assurance that any loss incurred will be of a type covered by such insurance and will not exceed the limits of such insurance. Additionally, any earthquake, wind, flood or terrorist peril, whether or not insured, could have an adverse effect on our results of operations and financial condition.

Our subsidiaries have a substantial amount of indebtedness and may not be able to make the required payments on their debt or refinance their indebtedness when it comes due.

As of December 31, 2015, we had $847.0 million of mortgage debt outstanding. Our substantial leverage subjects us to a number of risks, including the following:

•

a decrease in our net operating cash flow or an increase in our expenses could make it difficult for us or our subsidiaries to satisfy our or their respective debt service requirements or force us to modify our operations;

•

the indebtedness is secured by mortgage liens on all of our properties, reducing our ability to obtain additional financing;

•

our ability to obtain additional financing for working capital, capital expenditures or other purposes may be impaired or any such financing may not be available on terms favorable to us;

•

interest expense reduces the funds that would otherwise be available to us for our operations and future business opportunities or for distributions to the holders of the Series A Preferred Stock or other shareholders;

•

the substantial leverage increases our vulnerability to general economic downturns and adverse industry conditions, or we may be unable to carry out capital spending that is important to our growth and the maintenance of our properties;

•

the substantial leverage could limit our flexibility in planning for, or reacting to, changes in our business and our industry in general;

•

the substantial leverage may cause us to make non-strategic divestitures; and

•

the substantial leverage and the amount required to pay our debt obligations could place us in a competitive disadvantage to our competitors that are less highly-leveraged because, among other things, it may restrict our ability to make competitive upgrades to our existing buildings.

Our substantial consolidated indebtedness exposes our assets to the possibility of foreclosure, which could result in the loss of our investment in one or more properties.

Sixty-one of our sixty-two properties secure $830 million of cross-collateralized and cross-defaulted mortgage debt (which we refer to herein as the “debt financing”). One remaining property secures a separate mortgage loan. If our subsidiaries that are borrowers under the debt financing, are unable to meet the required debt service payments under the debt financing, the holder of the mortgage could foreclose on the cross-defaulted and cross-collateralized properties, resulting in a loss of our investment. Alternatively, if we decide to cause the sale of properties to raise funds to meet debt service obligations, it is possible that such properties would be disposed of at a loss.

We may not be able to make the required payments on our debt or refinance our debt when it comes due, and we may be forced to take other actions to satisfy our obligations under our debt, which may or may not be successful.

The debt financing is not subject to any mandatory amortization payments. Indebtedness with a substantial remaining principal balance on its stated maturity involves a greater risk of non-payment at maturity than a fully amortizing loan. When the remaining principal balance under the debt financing becomes due, borrowers may not have enough cash to repay the outstanding indebtedness under the debt financing and may not be able to obtain new financing to repay the outstanding indebtedness under the debt financing or the terms of any new financing may not be as favorable as the terms of the debt financing. If the interest rate on any new debt is higher than the rate on the debt financing, the borrowers’ costs will increase. The borrowers’ ability to refinance the debt financing and the terms on which they might refinance will depend upon economic conditions, conditions in the capital markets and in the hotel industry and on the performance of the properties owned by borrowers. The recent economic downturn has resulted in the tightening of lending standards and a substantial reduction in capital available to refinance commercial mortgage loans. These factors have increased the risks in refinancing commercial mortgage loans. There is no guarantee that we will be able to refinance or cause the repayment of the outstanding indebtedness under the debt financing or any of our loans at maturity. If principal payments due at maturity cannot be refinanced, extended or paid with proceeds of other capital transactions, cash flows may not be sufficient in all years to repay all maturing debt at the relevant time(s) and one or more properties or ownership interests in the mortgage borrowers may be foreclosed upon or we may be forced to dispose of properties on disadvantageous terms.

Covenants and other restrictions in our debt financing arrangement will limit our operations and activities.

The loan documents related to the debt financing (which we refer to herein as the “debt agreements”) contain, and the terms of any future indebtedness may contain, certain financial, operating and other covenants that restrict our ability to finance future operations or capital needs or engage in other activities that may be in our interest. Such restrictions affect, and in many respects limit or prohibit, among other things, our or certain of our subsidiaries’ ability to:

•

incur additional secured or unsecured indebtedness;

•

make cash distributions at any time that the debt yield, representing the quotient (expressed as a percentage) calculated by dividing the annualized net operating income of the properties subject to the debt agreements by the outstanding principal amount of the indebtedness under the debt agreements, is less than 7.50% during the first four years of the debt agreements and 7.75% during the fifth year of the debt agreements or if there is a default continuing under the loan, until such time as the debt yield is equal to or greater than 7.50% during the first four years of the debt agreements) and 7.75% during the fifth year of the debt agreements or the loan default has been cured;

•

make investments or acquisitions;

•

use assets as security in other transactions;

•

sell assets (except that the borrowers are permitted to sell assets so long as the debt yield is not reduced, subject to payment of applicable prepayment premiums and other property release requirements);

•

guarantee other indebtedness; and

•

consolidate, merge or transfer all or substantially all of our assets.

A breach of any of these covenants could result in an event of default and/or accelerate some or all our indebtedness under the debt agreements. If an event of default occurs under the debt agreements, the lenders could elect to declare all borrowings outstanding under the debt agreements, together with any accrued and unpaid interest, immediately due and payable, or require us to apply all of our available cash to repay these borrowings.

Risks Related to Series A Preferred Stock

We are a holding company dependent upon the assets and operations of our subsidiaries, and because of our structure, we may not be able to generate the funds necessary to make payments on the Series A Preferred Stock.

We are a holding company with no assets other than the capital stock of our subsidiaries. These subsidiaries conduct all of our operations and are our only source of income. Accordingly, we are dependent on dividends and other distributions from our subsidiaries to generate the funds necessary to make payments on the Series A Preferred Stock, including payments of dividends and amounts due upon redemption. The debt agreements contain covenants that restrict the ability of our subsidiaries to pay dividends or make other distributions to us, which may impair our ability to make cash payments on the Series A Preferred Stock. Any of our or our subsidiaries’ future indebtedness will likely include restrictions with similar effects. The Series A Preferred Stock is solely our obligation and no other entity has any obligation, contingent or otherwise, to make any payments in respect of the Series A Preferred Stock.

The Series A Preferred Stock effectively ranks junior to any of our or our subsidiaries’ indebtedness.

The Series A Preferred Stock effectively ranks junior to the debt financing and any other of our or our subsidiaries’ indebtedness. We and our subsidiaries had $847.0 million of indebtedness outstanding as of December 31, 2015. The debt financing is secured by liens on substantially all of the assets of our subsidiaries. This permits the lenders under the debt financing to be paid from the proceeds of our assets before any of our other creditors or equity holders, including holders of Series A Preferred Stock, may be paid. In addition, the certificate of designations governing the Series A Preferred Stock permits us and our subsidiaries to incur up to $800 million of indebtedness without the consent of the holders of the Series A Preferred Stock. We may, however, incur more than $800 million of indebtedness without the consent of the holders of Series A Preferred Stock to the extent the proceeds of such additional indebtedness are used to redeem or purchase Series A Preferred Stock.

Under certain circumstances, we may be prevented from paying dividends on the Series A Preferred Stock, or dividends may be paid in additional Series A Preferred Stock instead of cash.

Although dividends on Series A Preferred Stock are cumulative and accrue in arrears until paid, holders are entitled to dividends only when, as and if declared by our board of directors, and will not receive cash dividends if we do not have funds legally available for such payment, or if such payment is prohibited by law or by the terms of any of our or our subsidiaries’ indebtedness.

Under Delaware law, our board of directors may declare dividends on our capital stock, including the Series A Preferred Stock, only out of our surplus. If we have no surplus, the board may declare dividends out of our net profits for the year in which a dividend is declared or for the immediately preceding fiscal year. In order to pay dividends in cash, we must have surplus or net profits equal to the full amount of the cash dividend at the time the dividend is declared and paid. We cannot predict what the value of our assets or the amount of our liabilities will be in the future. Thus, we cannot guarantee that we will be able to pay cash dividends on the Series A Preferred Stock.

The debt agreements contain covenants that may impair our ability to pay cash dividends. To the extent that (i) we are unable to declare or pay full cash dividends on the Series A Preferred Stock as a result of the terms of any of our or our subsidiaries’ indebtedness, including the debt financing, or (ii) insufficient funds are legally available to us for the payment in full of such cash dividends, we may elect to instead pay such dividends in additional Series A Preferred Stock.

Dividends will accumulate at the specified applicable rate on the liquidation preference per share (as it may be adjusted from time to time). If we are dissolved, liquidated or wound up at a time when the Series A Preferred Stock remain outstanding, the holders of the Series A Preferred Stock will be entitled to receive only an amount equal to the liquidation preference (as it may be adjusted from time to time), plus any accumulated and unpaid dividends, to the extent that we have funds legally available. Any remaining assets will be distributable to holders of our other equity securities.

The Series A Preferred Shares are redeemable at our election at any time.

We have the right to redeem all or any portion of the Series A Preferred Shares at any time without the consent of holders for an amount in cash equal to the liquidation preference (as it may be adjusted from time to time), plus any accumulated and unpaid dividends (subject to the right of holders of record on any dividend record date to receive the related dividend payment). Upon such redemption, a holder of the Series A Preferred Shares may be required to recognize capital gains for federal income tax purposes as a result thereof.

The holders of Series A Preferred Shares have limited rights to require us to redeem these shares, and we may not be able to redeem Series A Preferred Shares if required.

Although we may elect to redeem all or any portion of the Series A Preferred Stock at any time, we are required to redeem the Series A Preferred Stock only under limited circumstances and only if funds are legally available.

Specifically, we are required to redeem, in cash out of any legally available funds, all of the Series A Preferred Stock for the applicable redemption price not later than the 60th day following any change of control (or, under certain circumstances, upon the occurrence of such change of control). In addition, on or after November 14, 2020, any holder of Series A Preferred Stock may require us to redeem, in cash out of any legally available funds, all or any portion of such holder’s Series A Preferred Stock at the redemption price not later than the quarterly dividend payment date next following such redemption request.

For these purposes, a “change of control” occurs (i) if BRE Holdings and its affiliates cease to (x) beneficially own at least 50% of the total voting power of all of our shares entitled to vote generally in the election of directors or (y) have the right to appoint a majority of the members of our board of directors or (ii) upon the sale, lease, conveyance or other transfer, directly or indirectly, of all or substantially all of our property and assets. Accordingly, BRE Holdings and its affiliates may sell a significant portion of our common stock or property and assets without being required to redeem any Series A Preferred Stock.

We may not have sufficient legally available funds to redeem the Series A Preferred Stock if required to do so following any change of control or pursuant to any redemption request. In addition, the debt agreements contain covenants that may impair our ability to redeem Series A Preferred Stock.

The Series A Preferred Stock does not and will not have a trading market and is subject to restrictions on ownership and transfer.

No public market for the Series A Preferred Stock currently exists and we do not expect that one will develop at any time in the future. The Series A Preferred Stock is not listed on any securities exchange. In addition, we must comply with certain requirements to qualify as a REIT under the Internal Revenue Code of 1986, as amended. Accordingly, our certificate of incorporation provides that to the extent that any transfer of stock would jeopardize our status as a REIT, cause us to be “pension-held,” or cause us not to be “domestically controlled” (which we refer to herein as “prohibited events”), then the number of shares that otherwise would result in a prohibited event will be deemed to have been transferred to a trustee to be held in a trust established by our board of directors for the benefit of a charitable beneficiary. If the transfer to the charitable trust would not for any reason prevent the prohibited event, then the transfer of that number of shares that otherwise would cause the prohibited event will be void. In either case, the intended transferee (which we refer to herein as the “prohibited owner”) will not acquire any rights in such shares. A prohibited owner would receive net proceeds from the sale in accordance with our certificate of incorporation.

As a result of the lack of a trading market and the restrictions on transferability discussed above, holders of Series A Preferred Stock may not be able to sell the Series A Preferred Stock and, even if they sell Series A Preferred Stock, the price may be significantly less than their liquidation preference or their fair market value.

The Sponsor and its affiliates control us and may have conflicts of interest with us or holders of the Series A Preferred Stock.

The Sponsor and its affiliates control us. Through their ownership, they have the power to elect all of our directors and appoint new management. Subject to the limited rights of the holders of Series A Preferred Stock, the Sponsor and its affiliates also have the power to approve any action requiring the approval of our shareholders, including the adoption of amendments to our certificate of incorporation and our decisions to enter into any significant corporate transactions, including mergers and sales of substantially all of our assets.

So long as the Sponsor and its affiliates continue to directly or indirectly hold a significant amount of our equity interests, they will continue to be able to strongly influence or effectively control our decisions. Further, the Sponsor and its affiliates are in the business of making investments in companies and real estate assets and currently own, and may, from time to time, acquire and hold, in each case, interests in businesses or assets that compete directly or indirectly with us. In addition, certain affiliates of the Sponsor have significant influence over Hilton, which indirectly owns the entities that serve as franchisors and receive franchise fees for 27 of the hotels owned by us. In accordance with our certificate of incorporation, the Sponsor has no obligation to present any corporate opportunities to us or to conduct its other business and investment affairs in our or Series A Preferred shareholders’ best interests. In connection with the Sponsor’s and its affiliates’ business activities, the Sponsor, BRE Holdings or any of their affiliates, including, without limitation, Hilton, may from time to time enter into arrangements with us or our subsidiaries.

BRE Holdings and its affiliates may sell their shares in us, or cause us to sell significant portions of its property or assets, to any third party at any time without making any payment to the holders of Series A Preferred Stock, so long as such sale does not constitute a change of control.

BRE Holdings and any of its affiliates that may own our shares may sell their shares, or may cause us to sell significant portions of our property or assets, to any third party at any time without obtaining the consent of the holders of the Series A Preferred Stock. Holders of Series A Preferred Stock are not entitled to any redemption or other payment upon such sale unless it constitutes a change of control.

Series A Preferred shareholders are not protected from certain important corporate events, such as a reorganization, restructuring, merger or similar transaction, unless such transaction constitutes a change of control. Such a transaction may not involve a change in voting power or beneficial ownership or, even if it does, may not involve a change that constitutes a change of control that would trigger our obligation to redeem the Series A Preferred Stock.

We are a voluntary filer with the SEC and we may cease reporting at any time.

As a voluntary filer, we are not required to file periodic reports under the Exchange Act. If we were to cease to be a reporting company under the Exchange Act, and to the extent not required in connection with any debt or equity securities of the Company, the information now available to holders of Series A Preferred Stock in the annual, quarterly and other reports filed by us would not be available to holders of the Series A Preferred Stock.

Risks Related to Our Status as a REIT

Qualifying as a REIT involves highly complex and technical provisions of the tax code.

Our qualification as a REIT involves the application of highly complex and technical tax code provisions for which only limited judicial and administrative authorities exist. A technical or inadvertent violation could jeopardize our REIT qualification. In addition, new legislation, court decisions or administrative guidance, in each case possibly with retroactive effect, may make it more difficult or impossible for us to qualify as a REIT. Maintaining our qualification as a REIT will depend on our satisfaction of certain asset, income, organizational, distribution, shareholder ownership and other requirements on a continuing basis. Our ability to satisfy the REIT income and asset tests depends upon our analysis of the characterization and fair market values of our assets, some of which are not susceptible to a precise determination and for which we will not obtain independent appraisals, and upon our ability to successfully manage the composition of our income and assets on an ongoing basis. In addition, our ability to satisfy the requirements to maintain our qualification as a REIT depends in part on the actions of third parties over which we have no control or only limited influence.

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

The U.S. federal income tax rules governing a REIT are highly technical and complex. They require ongoing compliance with and interpretation of a variety of tests and regulations that depend on, among other things, future operations. Although we intend to operate as a REIT and expect to satisfy these tests, there can be no assurance that we will qualify as a REIT for any particular year. If we fail to qualify as a REIT for any taxable year, we would be subject to federal income tax at corporate rates and distributions to our shareholders would not qualify for the dividends paid deduction. This tax liability would reduce net earnings available for distribution to shareholders. In addition we would generally be disqualified from treatment as a REIT for the year in which we lose our REIT status and for the four taxable years following such year.

If our leases are not respected as true leases for federal income tax purposes, we would likely fail to qualify as a REIT.

To qualify as a REIT, we must satisfy two gross income tests, pursuant to which specified percentages of our gross income must be passive income, such as rent. For the rent paid pursuant to the hotel leases with our TRSs, which we currently expect will continue to constitute substantially all of our gross income, to qualify for purposes of the gross income tests, the leases must be respected as true leases for federal income tax purposes and must not be treated as service contracts, joint ventures or some other type of arrangement. We believe that the leases will be respected as true leases for federal income tax purposes. There can be no assurance, however, that the IRS will agree with this characterization. If the leases were not respected as true leases for federal income tax purposes, we would not be able to satisfy either of the two gross income tests applicable to REITs and would likely lose our REIT status.

If any hotel management companies that we engage do not qualify as “eligible independent contractors,” or if our hotels are not “qualified lodging facilities,” we would likely fail to qualify as a REIT.

Rent paid by a lessee that is a “related party tenant” of ours generally will not be qualifying income for purposes of the two gross income tests applicable to REITs. An exception is provided, however, for leases of “qualified lodging facilities” to a TRS so long as the hotels are managed by an “eligible independent contractor” and certain other requirements are satisfied. We intend to take advantage of this exception. We lease and expect to lease all of our hotels to TRS lessees, which are disregarded subsidiaries of the TRSs, and to engage hotel management companies that are intended to qualify as “eligible independent contractors.” While we believe that our hotel management companies all currently meet the various tests to qualify as eligible independent contractors, there can be no assurances that the requirements will be met in all cases in the future.

Dividends payable by REITs do not qualify for the reduced tax rates on dividend income from regular corporations.

The maximum marginal rate of tax payable by taxpayers taxed at individual rates on dividends received from a regular C corporation is 20%. This reduced tax rate, however, will not apply to dividends paid by a REIT on its stock, except for certain limited amounts.

Item 1B.

Unresolved Staff Comments

None

Item 2.

Properties

As of December 31, 2015, we owned 62 hotels located in 18 states with an aggregate of 7,346 rooms, consisting of the following:


City	State	Brand	Manager	Number of Rooms
Dothan	Alabama	Courtyard	LBA		78
Dothan	Alabama	Hampton Inn & Suites	LBA		85
Huntsville	Alabama	Fairfield Inn	LBA		79
Huntsville	Alabama	Residence Inn	LBA		78
Tuscaloosa	Alabama	Courtyard	LBA		78
Tuscaloosa	Alabama	Fairfield Inn	LBA		63
Anchorage	Alaska	Hampton Inn	Interstate		101
Anchorage	Alaska	Hilton Garden Inn	Interstate		125
Anchorage	Alaska	Homewood Suites	Interstate		122
Phoenix	Arizona	Hampton Inn	OTO		99
Arcadia	California	Hilton Garden Inn	OTO		124
Arcadia	California	SpringHill Suites	OTO		86
Bakersfield	California	Hilton Garden Inn	Interstate		120
Folsom	California	Hilton Garden Inn	Inn Ventures		100
Foothill Ranch	California	Hampton Inn	OTO		84
Lake Forest	California	Hilton Garden Inn	OTO		103
Milpitas	California	Hilton Garden Inn	Inn Ventures		161
Roseville	California	Hilton Garden Inn	Inn Ventures		131
San Francisco	California	Hilton Garden Inn	White		169
Boulder	Colorado	Marriott	White		157
Glendale	Colorado	Hampton Inn & Suites	Sage		133
Lakewood	Colorado	Hampton Inn	Sage		170
Farmington	Connecticut	Courtyard	White		119
Rocky Hill	Connecticut	Residence Inn	White		96
Wallingford	Connecticut	Homewood Suites	White		104
Clearwater	Florida	SpringHill Suites	Interstate		79
Lake Mary	Florida	Courtyard	Interstate		83
Lakeland	Florida	Residence Inn	LBA		78
Panama City	Florida	Courtyard	LBA		84
Pensacola	Florida	Courtyard	LBA		90
Pensacola	Florida	Fairfield Inn	LBA		62
Pensacola	Florida	Hampton Inn & Suites	LBA		85
Tallahassee	Florida	Hilton Garden Inn	Interstate		99
Albany	Georgia	Courtyard	LBA		84
Columbus	Georgia	Residence Inn	LBA		78
Valdosta	Georgia	Courtyard	LBA		84
Mt. Olive	New Jersey	Residence Inn	White		123
Somerset	New Jersey	Homewood Suites	White		123
Saratoga Springs	New York	Hilton Garden Inn	White		112
Roanoke Rapids	North Carolina	Hilton Garden Inn	Interstate		147
Hillsboro	Oregon	Courtyard	Inn Ventures		155
Hillsboro	Oregon	Residence Inn	Inn Ventures		122
Hillsboro	Oregon	TownePlace Suites	Inn Ventures		136
Portland	Oregon	Residence Inn	Inn Ventures		258
Pittsburgh	Pennsylvania	Residence Inn	White		156
Myrtle Beach	South Carolina	Courtyard	Marriott		135
Nashville	Tennessee	Homewood Suites	Interstate		121
Arlington	Texas	SpringHill Suites	Western		121
Arlington	Texas	TownePlace Suites	Western		94
Dallas	Texas	SpringHill Suites	Western		148
Fort Worth	Texas	Homewood Suites	Interstate		137
Fort Worth	Texas	Residence Inn	Western		149
Fort Worth	Texas	SpringHill Suites	Marriott		145
Laredo	Texas	Homewood Suites	Western		105
Laredo	Texas	Residence Inn	Western		109
Las Colinas	Texas	TownePlace Suites	Western		135
McAllen	Texas	Hilton Garden Inn	Western		104
Fredericksburg	Virginia	Hilton Garden Inn	Interstate		148
Kent	Washington	TownePlace Suites	Inn Ventures		152
Mukilteo	Washington	TownePlace Suites	Inn Ventures		128
Redmond	Washington	Marriott	Marriott		262
Renton	Washington	Hilton Garden Inn	Inn Ventures		150

Total number of rooms					7,346

Item 3.

Legal Proceedings

We are not presently involved in any material litigation arising outside the ordinary course of our business. However, we are involved in routine litigation arising in the ordinary course of business, none of which we believe, individually or in the aggregate, will have a material impact on our results of operations or financial condition.

Item 4.

Mine Safety Disclosures

Not Applicable

PART II

Item 5.

Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities

There is currently no established public trading market in which our common shares are traded. As of March 18, 2016, there were 100 common shares issued and outstanding, all of which were held by BRE Holdings.

Cash dividends declared per share on the common shares were as follows:


	2015		2014
First quarter	$	0.00	$	50,000.00
Second quarter	$	90,000.00	$	90,000.00
Third quarter	$	190,000.00	$	90,000.00
Fourth quarter	$	100,000.00	$	70,000.00

Cash dividends declared per share on the Series A Preferred Shares were as follows:


	2015		2014
First quarter	$	0.0333	$	0.0333
Second quarter	$	0.0333	$	0.0333
Third quarter	$	0.0333	$	0.0333
Fourth quarter	$	0.0333	$	0.0333

Distribution Information - Holders of the Series A Preferred Stock are entitled to receive, when, as and if declared by the board of directors of the Company out of any funds legally available, cumulative dividends (compounded quarterly) at a dividend rate of 7.00% per annum on the liquidation preference per share as adjusted from time to time, payable quarterly in cash in arrears on or before the 15^th day of each January, April, July and October of each year or, if not a business day, the next succeeding business day, without any interest or other payment in respect of such delay. The dividend rate will increase to 9.00% per annum in the event that dividends on the Series A Preferred Stock have not been paid in cash for any reason for more than six quarters, whether or not consecutive, and 11.00% per annum for any period after the earlier of (i) any change of control and (ii) May 14, 2018.

In order to maintain our qualification as a REIT, we must annually distribute to our shareholders at least 90% of our REIT taxable income (determined before the deduction for dividends paid and excluding any net capital gains). For federal income tax purposes, distributions we make may consist of ordinary income, capital gains, nontaxable return of capital or a combination of those items. Distributions that exceed our current and accumulated earnings and profits (calculated for tax purposes) constitute a return of capital rather than a dividend, which reduces a shareholder’s basis in its shares and will not be taxable to the extent that the distribution equals or is less than the shareholders’ basis in the shares. To the extent that a distribution exceeds both current and accumulated earnings and profits and the shareholders’ basis in its shares, that distribution will be treated as a gain from the sale or exchange of that shareholder’s shares. Every year, we notify shareholders of the taxable composition of distributions paid during the preceding year.

Characterization of Distributions - For income tax purposes, distributions paid consist of ordinary income, capital gains, return of capital or a combination thereof. Distributions paid per share were characterized as follows:


	2015					2014
	Amount		%			Amount		%
Common Stock:
Ordinary income	$	374,436.75		98.54	%	$	58,601.27		19.53	%
Return of capital		5,563.25		1.46	%		241,398.73		80.47	%

Total	$	380,000.00		100.00	%	$	300,000.00		100.00	%


Series A Preferred Stock:
Ordinary income (1) (2)	$	0.1332		100.00	%	$	0.1332		100.00	%

Total	$	0.1332		100.00	%	$	0.1332		100.00	%

(1)	The fourth quarter Series A Preferred dividend paid on January 15, 2015 is treated as a 2015 distribution for tax purposes.

(2)	The fourth quarter Series A Preferred dividend paid on January 15, 2016 is treated as a 2016 distribution for tax purposes.

Item 6.

Selected Financial Data

The following table sets forth selected financial data for the years ended December 31, 2015, 2014 and 2013 (Successor), and the period from January 1, 2013 through May 13, 2013 and the years ended December 31, 2012 and 2011 (Predecessor). Certain information in the table has been derived from the Company’s audited financial statements and notes thereto. This data should be read in conjunction with Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, and Item 8, the Consolidated Financial Statements and Notes thereto, appearing elsewhere in this Annual Report on Form 10-K.


	Successor									Predecessor
(in thousands except share and statistical data)	2015			2014			2013			Period from January 1, through May 13, 2013			2012			2011
Revenues:
Room revenue	$	268,272		$	258,223		$	159,859		$	82,063		$	230,623		$	215,321
Other revenue		18,743			18,298			11,151			6,212			16,771			16,488
Reimbursed expenses		-			-			-			2,838			7,965			7,241

Total revenue		287,015			276,521			171,010			91,113			255,359			239,050
Expenses:
Hotel operating expenses		157,076			153,216			94,679			51,728			140,123			134,183
Taxes, insurance and other		14,552			14,725			8,593			4,457			12,518			11,575
General and administrative		5,013			6,850			3,193			2,828			7,613			5,587
Merger transaction costs		-			-			21,537			67,633			4,037			562
Reimbursed expenses		-			-			-			2,838			7,965			7,241
Depreciation		33,775			27,412			16,359			10,651			30,322			31,692
Loss on disposals of investment in real estate		6,116			-			-			-			-			-
Interest expense, net		30,704			38,783			24,531			1,439			2,806			3,236
Extinguishment of mortgages payable and mezzanine loans		-			4,295			-			-			-			-
Loss (gain) on derivatives		59			735			(34	)		-			-			-
Income tax expense		2,409			2,742			826			140			391			371

Total expenses		249,704			248,758			169,684			141,714			205,775			194,447

Income (loss) from continuing operations		37,311			27,763			1,326			(50,601	)		49,584			44,603
Income (loss) from discontinued operations		-			(44	)		(286	)		18			(41	)		558

Net income (loss)		37,311			27,719			1,040			(50,583	)		49,543			45,161
Series A Preferred Stock dividends declared		(9,641	)		(12,797	)		(9,369	)		-			-			-

Net income (loss) available for common stockholders	$	27,670		$	14,922		($	8,329	)	($	50,583	)	$	49,543		$	45,161

Per Common Share:
Income (loss) from continuing operations, after Series A Preferred Stock dividends	$	276,700.00		$	149,660.00		($	80,430.00	)	($	0.55	)	$	0.54		$	0.48
Income (loss) from discontinued operations		0.00			(440.00	)		(2,860.00	)		0.00			0.00			0.01

Net income (loss) available to common stockholders	$	276,700.00		$	149,220.00		($	83,290.00	)	($	0.55	)	$	0.54		$	0.49

Distributions paid per common share	$	380,000.00		$	300,000.00		$	141,000.00		$	0.00		$	0.73		$	0.78
Weighted-average common shares outstanding - basic and diluted		100			100			100			91,270,197			91,142,011			91,253,834

Balance Sheet Data (at end of period):
Cash and cash equivalents	$	29,137		$	22,776		$	23,902		$	11,051		$	0		$	32
Investment in real estate, net	$	986,640		$	974,833		$	959,014		$	719,956		$	729,108		$	746,354
Total assets	$	1,167,065		$	1,182,364		$	1,181,583		$	741,893		$	740,370		$	759,365
Debt and redeemable preferred stock	$	984,192		$	984,613		$	976,680		$	49,048		$	58,417		$	63,067
Shareholders’ equity	$	166,872		$	177,202		$	192,450		$	688,432		$	674,647		$	690,628
Net book value per share	$	1,668.72		$	1,772.02		$	1,924.50		$	7.54		$	7.40		$	7.57

Other Data:
Cash flow from (used in):
Operating activities	$	88,749		$	66,735		$	19,371		($	42,191	)	$	81,176		$	78,138
Investing activities	($	34,326	)	($	21,461	)	($	917,496	)	($	1,756	)	($	10,852	)	($	2,721	)
Financing activities	($	48,062	)	($	46,400	)	$	922,027		$	54,998		($	70,356	)	($	75,385	)
Number of hotels owned at end of period (including hotels held for sale)		62			62			66			66			66			66
Average Daily Rate (ADR) (a) (e) (f)	$	134		$	126		$	123		$	116		$	116		$	111
Occupancy (e) (f)		75	%		76	%		76	%		73	%		74	%		72	%
Revenue per Available Room (RevPAR) (b) (e) (f)	$	101		$	96		$	94		$	84		$	86		$	80
Total rooms sold (c) (e)		2,006,637			2,046,198			1,297,229			709,621			1,990,833			1,940,377
Total rooms available (d) (e)		2,661,472			2,681,655			1,704,504			978,777			2,687,918			2,681,095

(a)	Total room revenue divided by number of room nights sold.

(b)	ADR multiplied by occupancy percentage.

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

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

(e)	From continuing operations.

(f)	Excludes Homewood Suites Ft. Worth for the period from June 4, 2015 through October 26, 2015 due to the property closure due to flood damage.

Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis should be read in conjunction with the accompanying consolidated financial statements, related notes included thereto and Item 1.A., “Risk Factors”, appearing elsewhere in this Annual Report on Form 10-K.

Overview

We were formed to invest in income-producing real estate in the United States through the acquisition of Apple Six. We intend to be treated as a REIT for federal income tax purposes. On May 14, 2013, we completed the acquisition of Apple Six pursuant to the Merger Agreement, by and between us, BRE Holdings and Apple Six, pursuant to which Apple Six merged with and into us. As of December 31, 2015, we owned 62 hotels located in 18 states with an aggregate of 7,346 rooms. See Item 2 – Properties for additional information about these hotels.

Certain merger transaction costs incurred prior to May 14, 2013 by us are included in the Successor period, as that period represents the commencement of Successor operations. Prior to May 14, 2013, we had no revenues, and expenses were comprised solely of merger related costs. Information presented as of December 31, 2015 and 2014, and for the twelve months ended December 31, 2015, 2014 and 2013, represents that of the Successor. Information presented for the period from January 1, 2013 through May 13, 2013 represents that of the Predecessor.

We made an election, through the filing of Form 1120-REIT for 2012, to qualify as a real estate investment trust, or REIT, for federal income tax purposes. In order to qualify as a REIT, we must meet a number of organizational and operational requirements, including a requirement that we distribute at least 90% of our adjusted taxable income to our shareholders, subject to certain adjustments and excluding any net capital gain. We currently intend to adhere to these requirements to qualify for REIT status. There can be no assurance that we will qualify as a REIT for any particular year, however. If we fail to qualify as a REIT for any taxable year, we would be subject to federal income tax at corporate rates and distributions to our shareholders would not qualify for the dividends paid deduction. This tax liability would reduce net earnings available for distribution to our shareholders. In addition, we would generally be disqualified from treatment as a REIT for the year in which we lose our REIT status and for the four taxable years following such year.

Key Indicators of Operating Performance

We use a variety of operating information and metrics to evaluate the operating performance of our hotels. These key indicators include financial information that is prepared in accordance with U.S. GAAP, along with other non-U.S. GAAP financial measures. In addition, we use industry standard statistical information and comparative data, some of which may not be financial in nature. In evaluating financial condition and operating performance, the most important indicators that we focus on are:

•

Occupancy-Occupancy represents the total number of hotel rooms sold in a given period divided by the total number of hotel rooms available, and is a key measure of the utilization of our hotels’ available capacity. Occupancy is a major driver of room revenue, as well as other revenue categories including food and beverage revenues. We use occupancy as a primary measure of demand at each of our hotels during a given period of time. Occupancy also guides us in determining achievable levels of ADR. Fluctuations in occupancy are accompanied by fluctuations in most categories of variable operating costs, such as utility cost and certain labor costs such as housekeeping, resulting in varying levels of hotel profitability.

•

Average Daily Rate (ADR)-ADR represents the average room price at a hotel or group of hotels and is computed by dividing total hotel room revenues by the total number of rooms sold in a given period. ADR trends provide information concerning the customer base and pricing environment at our hotels. Increases in ADR typically result in higher operating margins and overall profitability, since variable hotel expenses do not increase correspondingly. As a result, ADR trends are carefully monitored to manage pricing levels.

•

Revenue per Available Room (RevPAR)-RevPAR is the product of occupancy and ADR. It does not include non-room revenues such as food and beverage revenue or other ancillary revenues for guest services provided by the hotel. We use RevPAR to identify trend information for comparable properties and regions.

RevPAR Index is another commonly used metric in the lodging industry, and measures each hotel’s market share in relation to its competitive set with 100 being the average (the index excludes hotels under renovation) and is provided by Smith Travel Research, Inc.^®, an independent company that tracks historical hotel performance in most markets throughout the world. The RevPAR Index for a particular hotel is calculated as the quotient of (1) the subject hotel’s RevPAR divided by (2) the average RevPAR of the hotels in the subject’s competitive set, multiplied by 100.

One critical component of this calculation is the determination of a hotel’s competitive set, which consists of a small group of hotels within its relevant market. We work with each hotel’s management company to assess and agree on each hotel’s competitive set. Many factors are involved in determining each hotel’s competitive set, including geographic location, brand affiliation, and comparable service levels provided.

Executive Summary

Our hotel portfolio experienced continued improvement in revenues in 2015 as compared to the prior year, while operating income declined largely due to increased depreciation expense and loss on disposals of investment in real estate. 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 our hotels as compared to other hotels within their respective local markets, in general, continues to meet our expectations.

We believe 2016 will offer attractive growth for both the hotel industry and our portfolio because of the expected increased demand versus available supply. In addition, the aggressive renovation plan we started in 2014 for many of our hotels will continue into 2016. The resulting property improvements are expected to further improve our financial results through increased ADR at our properties.

During 2015, we changed the management of the following hotels:


City	State	Name	Old Manager	New Manager	Effective Date
Clearwater	Florida	SpringHill Suites	LBA	Interstate	1/30/2015
Lake Mary	Florida	Courtyard	LBA	Interstate	1/30/2015
Anchorage	Alaska	Hampton Inn	Stonebridge	Interstate	5/1/2015
Anchorage	Alaska	Hilton Garden Inn	Stonebridge	Interstate	5/1/2015
Anchorage	Alaska	Homewood Suites	Stonebridge	Interstate	5/1/2015
Phoenix	Arizona	Hampton Inn	Stonebridge	OTO	5/1/2015
Arcadia	California	Hilton Garden Inn	Stonebridge	OTO	5/1/2015
Arcadia	California	SpringHill Suites	Stonebridge	OTO	5/1/2015
Foothill Ranch	California	Hampton Inn	Stonebridge	OTO	5/1/2015
Lake Forest	California	Hilton Garden Inn	Stonebridge	OTO	5/1/2015
Glendale	Colorado	Hampton Inn & Suites	Stonebridge	Sage	5/1/2015
Lakewood	Colorado	Hampton Inn	Stonebridge	Sage	5/1/2015

We intend to continue to review the performance of our hotel portfolio and make management changes, if necessary, in order to optimize the financial performance of each property.

On June 5, 2015, we evacuated and temporarily closed the Homewood Suites in Fort Worth, Texas due to damage incurred from extensive flooding in the area during late May 2015. Remediation work was started immediately, and the hotel reopened on October 27, 2015. The insurance carriers were notified in June 2015 of the pending property insurance claim. For the year ended December 31, 2015, we received $1.0 million of business interruption insurance proceeds as a result of the closure of the hotel due to the property damage. We received $1.4 million in property insurance proceeds related to this claim, and have recorded an insurance receivable of $4.7 million for the remainder of the claim due to us. In addition, we received $0.7 million in property insurance proceeds and have recorded insurance receivables of $1.8 million for property insurance claims for other properties in Texas also impacted by the May 2015 flooding but which did not result in the temporary closures of these properties. For the year ended December 31, 2015, we recorded a total estimated loss due to property damage of $1.7 million, net of estimated property insurance recoveries of $8.6 million. The estimated insurance recoveries are preliminary, subject to final settlement of the respective claims with our insurance providers.

We continually monitor the profitability of our properties and attempt to maximize shareholder value by timely disposing of properties. During 2014, we sold the Birmingham, Alabama Fairfield Inn; Montgomery, Alabama SpringHill Suites; Orange Park, Florida Fairfield Inn; and Savannah, Georgia SpringHill Suites, as it was determined in connection with the Merger that these properties did not fit our long-term strategic plan. The results of operations of these four hotels are classified as discontinued operations in the 2014 consolidated financial statements and are not included in the financial results summarized below.

Results of Operations

Results of Operations for Years 2015 and 2014


(in thousands, except statistical data)	2015			Percent of Revenue			2014			Percent of Revenue

Total hotel revenue	$	287,015			100	%	$	276,521			100	%
Hotel operating expenses		157,076			55	%		153,216			55	%
Taxes, insurance and other expense		14,552			5	%		14,725			5	%
General and administrative expense		5,013			2	%		6,850			2	%
Depreciation		33,775						27,412
Loss on disposals of investment in real estate		6,116						-
Interest expense, net		30,704						38,783
Extinguishment of mortgages payable and mezzanine loans		-						4,295
Unrealized loss (gain) on derivatives		59						735
Income tax expense		2,409						2,742

Number of hotels		62						62
ADR	$	133.69					$	126.20
Occupancy		75.4	%					76.3	%
RevPAR	$	100.80					$	96.29
RevPAR Index		118						119
Total rooms sold		2,006,637						2,046,198
Total rooms available		2,661,472						2,681,655

Revenues

Our principal source of revenue is hotel revenue, consisting of room and other related revenue. Total revenue from continuing operations for the years ended December 31, 2015 and 2014 was $287.0 million and $276.5 million, respectively. For the years ended December 31, 2015 and 2014, the hotels achieved occupancy of 75.4% and 76.3%, ADR of $133.69 and $126.20 and RevPAR of $100.80 and $96.29, respectively. Our increase in revenues was largely due to a 5.9% increase in ADR in 2015 vs. 2014, which was due to our ability to increase rates, in particular at our newly renovated properties, along with overall strong demand within the upscale limited service segment of the industry. Occupancy decreased by 1.2% in 2015 from the prior year largely due to out-of-service rooms at hotels undergoing renovations. Our hotels continued to perform strongly in comparison to their direct local competition, as evidenced by our RevPAR index, which was 118 and 119 for the years ended December 31, 2015 and 2014, respectively. We work closely with our third party managers to monitor trends in ADR and occupancy, and changed managers for several hotels during 2015 where we believe we have an opportunity to increase revenues.

Expenses

Hotel operating expenses consist of direct room expense, hotel administrative expense, sales and marketing expense, utilities expense, repair and maintenance expense, franchise fees and management fees. Hotel operating expenses from continuing operations for the years ended December 31, 2015 and 2014 totaled $157.1 million and $153.2 million, respectively, representing 55% of total hotel revenue in each year. Results for the years ended December 31, 2015 and 2014 reflect the impact of increases in revenues at most of our hotels, along with our efforts to control costs. Certain operating costs, such as management costs, certain utility costs and minimum supply and maintenance costs are relatively fixed in nature. We work closely with our third party management companies to monitor hotel operating expenses, and meet regularly with them to ensure fluctuations in operating expenses correspond with forecasted occupancy and revenues while maintaining our high standards of quality and service at each hotel.

Taxes, insurance, and other expenses from continuing operations for the years ended December 31, 2015 and 2014 were $14.6 million and $14.7 million, respectively, representing 5% of total hotel revenue in each year. We continued to experience increased real estate taxes due to both regular yearly increase and increased assessments in selected markets, which was offset in 2015 by moderate declines in both insurance and other taxes.

General and administrative expense from continuing operations for the years ended December 31, 2015 and 2014 was $5.0 million and $6.9 million, respectively, or 2% of total hotel revenue in each year. The principal components of general and administrative expense are advisory fees and expenses, legal fees, accounting fees, and reporting expenses. The 2014 total included $3.2 million of advisory fees and expenses incurred in connection with a debt refinancing transaction in December 2014 that were not eligible for capitalization under generally accepted accounting principles. Excluding that non-recurring cost, general and administrative expense increased by $1.3 million in 2015 compared to 2014, largely due to increased advisory fees for operations support in order to manage our growing revenues and operations of our hotels.

Depreciation expense from continuing operations for the years ended December 31, 2015 and 2014 was $33.8 million and $27.4 million, respectively. Depreciation expense represents expenses incurred due to depreciation of the 62 hotels included in our continuing operations and related personal property for their respective periods owned. Depreciation expense increased in 2015 compared to the prior year as a result of increased in-service assets due the completion of capital projects over the last 18 months.

Loss on disposals of investment in real estate for the years ended December 31, 2015 and 2014 was $6.1 million and $0, respectively. We recorded loss on disposals of investments of real estate totaling $6.1 million in 2015, of which $4.4 million was due to disposal of furniture, fixtures, and equipment in connection with our capital improvement and renovation plans, and $1.7 million was due to property damage at several of our properties in Texas as a result of flooding.

Interest expense from continuing operations, net for the years ended December 31, 2015 and 2014 was $30.7 million and $38.8 million, respectively. In 2014, we incurred $4.3 million in extinguishment of mortgages payable and mezzanine debt, which primarily consisted of the acceleration of deferred loan fee amortization costs due to the loan payoff in December 2014. The remaining decrease in 2015 compared to 2014 was due to the lower interest rate on the new debt we obtained in December 2014. As of December 31, 2015, we had total debt outstanding of $847.0 million compared to $847.5 million at December 31, 2014. We capitalized interest of $0.4 million and $0 for the years ended December 31, 2015 and 2014, respectively, in conjunction with capital improvements and hotel renovations.

Income tax expense for the years ended December 31, 2015 and 2014 was $2.4 million and $2.8 million, respectively. Income taxes decreased in 2015 primarily due to a decrease in taxable income at the Company’s taxable REIT subsidiaries.

Results of Operations for Years 2014 and 2013


	Successor												Predecessor
(in thousands, except statistical data)	2014			Percent of Revenue			2013			Percent of Revenue			January 1, 2013 through May 13, 2013			Percent of Revenue

Total hotel revenue	$	276,521			100	%	$	171,010			100	%	$	88,275			100	%
Hotel operating expenses		153,216			55	%		94,679			55	%		51,728			59	%
Taxes, insurance and other expense		14,725			5	%		8,593			5	%		4,457			5	%
General and administrative expense		6,850			2	%		3,193			2	%		2,828			3	%
Merger transaction costs		-						21,537						67,633
Depreciation		27,412						16,359						10,651
Interest expense, net		38,783						24,531						1,439
Extinguishment of mortgages payable and mezzanine loans		4,295						-						-
Unrealized loss (gain) on derivatives		735						(34	)					-
Income tax expense		2,742						826						140

Number of hotels		62						62						62
ADR	$	126.20					$	123.23					$	115.64
Occupancy		76.3	%					76.1	%					72.5	%
RevPAR	$	96.29					$	93.79					$	83.84
RevPAR Index		119						120						121
Total rooms sold		2,046,198						1,297,229						709,621
Total rooms available		2,681,655						1,704,504						978,777

Revenues

Total revenue from continuing operations was $276.5 million for the year ended December 31, 2014, compared to $171.0 million for the period from May 14, 2013 through December 31, 2013 and $88.3 million for the period from January 1, 2013 through May 13, 2013. The hotels achieved occupancy of 76.3%, ADR of $126.20 and RevPAR of $96.29 for the year ended December 31, 2014. This compares to occupancy of 76.1% and 72.5%, ADR of $123.23 and $115.64, and RevPAR of $93.79 and $83.84 for the period from May 14, 2013 through December 31, 2013 and January 1, 2013 through May 13, 2013, respectively.

Our increase in revenues was largely due to a 4.7% increase in ADR in 2014 as compared to the combined 2013 results, accompanied by a 2.0% increase in occupancy in 2014 compared to the combined 2013 results. Our RevPAR index was 119 for the year ended December 31, 2014, compared to 120 and 121 for the periods from May 14, 2013 through December 31, 2013 and January 1, 2013 through May 13, 2013, respectively. The management company contracted to provide corporate services to us has bolstered its resources over the past year in the areas of asset management, e-commerce and information technology dedicated to our portfolio of hotels, in support of our expected revenue and profitability growth goals.

Expenses

Hotel operating expenses from continuing operations totaled $153.2 million, representing 55% of total hotel revenue, for the year ended December 31, 2014, compared to $94.7 million and $51.7 million, representing 55% and 59% of total hotel revenue for the periods from May 14, 2013 through December 31, 2013 and January 1, 2013 through May 13, 2013, respectively.

Results for the year ended December 31, 2014, as well as the period from May 14, 2013 through December 31, 2013 reflect the impact of increases in revenues at most of our hotels, and our efforts to control costs. Certain operating costs, such as management costs, certain utility costs and minimum supply and maintenance costs are relatively fixed in nature. We have been successful in reducing, relative to revenue increases, certain labor costs, hotel supply costs, maintenance costs and utilities by continually monitoring and sharing utilization data across our hotels and management companies. Although operating expenses will increase as occupancy and revenue increases, we have and will continue to work with our management companies to reduce costs as a percentage of revenue where possible while maintaining quality and service levels at each property.

Taxes, insurance, and other expenses from continuing operations were $14.7 million, or 5% of total hotel revenue, for the year ended December 31, 2014. This compares to taxes, insurance, and other operating expenses from continuing operations of $8.6 million and $4.5 million, or 5% and 5% of total hotel revenue for the periods from May 14, 2013 through December 31, 2013 and January 1, 2013 through May 13, 2013, respectively. The 2014 increase was equally attributable to increased real estate tax and property and liability expense. Real estate tax increases were due to both regular yearly increases and increased assessments at selected properties. Insurance rates increased modestly, largely because of overall insurance industry losses following world-wide catastrophic acts of mother nature in recent years.

General and administrative expense from continuing operations was $6.9 million, or 2% of total hotel revenue, for the year ended December 31, 2014. This compares to general and administrative expense from continuing operations of $3.2 million and $2.8 million, or 2% and 3% of total hotel revenue for the periods from May 14, 2013 through December 31, 2013 and January 1, 2013 through May 13, 2013, respectively.

The principal components of general and administrative expense are advisory fees and expenses, legal fees, accounting fees, and reporting expenses. Legal fees primarily relate to legacy matters of the Predecessor and its litigation cost sharing agreement with the other Apple REIT companies. General and administrative expense include $3.2 million of advisory fees and expenses incurred in connection with a debt refinancing transaction in December 2014 that were not eligible for capitalization under generally accepted accounting principles. The remaining general and administrative expense of $3.7 million reflects the continued downward trend in expenses since the Merger due to lower overhead costs for the Successor as compared to the Predecessor.

Merger transaction costs were $0 for the year ended December 31, 2014. This compares to merger transaction costs of $21.5 million and $67.6 million for the periods from May 14, 2013 through December 31, 2013 and January 1, 2013 through May 13, 2013, respectively. Merger costs incurred during in 2013 were in connection with the Merger discussed herein, and comprised primarily of legal and other professional services fees.

Depreciation expense from continuing operations was $27.4 million for the year ended December 31, 2014. This compares to depreciation expense from continuing operations of $16.4 million and $10.7 million for the periods from May 14, 2013 through December 31, 2013 and January 1, 2013 through May 13, 2013, respectively. Depreciation expense represents expenses incurred due to depreciation of the 62 hotels included in our continuing operations and related personal property for their respective periods owned, and increased in the second half of 2014 compared to the prior year as renovation work at our properties increased during that time period.

Interest expense from continuing operations, net was $38.8 million for the year ended December 31, 2014. This compares to interest expense from continuing operations, net of $24.5 million and $1.4 million for the periods from May 14, 2013 through December 31, 2013 and January 1, 2013 through May 13, 2013, respectively.

The interest expense increase in 2014 was largely due to 11 months of interest expense in 2014 for the mortgage and mezzanine loans obtained in connection with the Merger, compared to less than 6 months in 2013. In addition, we incurred $4.3 million in extinguishment of mortgages payable and mezzanine debt, which primarily consisted of the acceleration of deferred loan fee amortization costs due to the loan payoff in December 2014. Interest expense is expected to decrease significantly in 2015 due to the lower interest rate on the debt financing we obtained in December 2014. As of December 31, 2014, we had total debt outstanding of $847.5 million compared to $792.9 million at December 31, 2013. We capitalized interest of $0 for the year ended December 31, 2014, compared to $0 and $0.2 million for the period from May 14, 2013 through December 31, 2013 and January 1, 2013 through May 13, 2013, respectively, in conjunction with hotel renovations.

Operating Metrics and Non-U.S. GAAP Financial Measures

Below is a summary of our key operating metrics for the years ended December 31, 2015, 2014 and 2013, and the period from January 1, 2013 through May 13, 2013.


	Successor									Predecessor
	For the year ended December 31,									Period from January 1, through May 13, 2013
Statistical Data (1)	2015			2014			2013			Period from January 1, through May 13, 2013
Occupancy		75.4	%		76.3	%		76.1	%		72.5	%
ADR	$	133.69		$	126.20		$	123.23		$	115.64
RevPAR	$	100.80		$	96.29		$	93.79		$	83.84
RevPAR Index		118			119			120			121

(1)	Excludes Homewood Suites Ft. Worth for the period from June 4, 2015 through October 26, 2015 due to the property closure due to flood damage.

In addition, two key non-U.S. GAAP financial measures that we use to evaluate our performance are EBITDA and Adjusted EBITDA.

EBITDA - EBITDA is defined as net income or loss excluding interest, income taxes, and depreciation and amortization. We believe EBITDA is a useful measure to evaluate operating performance between periods, as it removes the impact of our capital structure (interest expense) and asset base (depreciation and amortization) from our operating results.

Adjusted EBITDA - We further adjust EBITDA for certain additional items, including extinguishment of mortgages payable and mezzanine loans, gain or loss on hotels held for sale, loss on disposals of investments in real estate, derivatives and merger transaction costs. We believe the Adjusted EBITDA provides additional useful supplemental information about our ongoing operating performance.

The following table is a reconciliation of our GAAP net income to EDITDA and Adjusted EBITDA for the years ended December 31, 2015, 2014 and 2013, and the period from January 1, 2013 through May 13, 2013 (in thousands):


	Successor							Predecessor
	Year ended December 31,							Period from January 1, through
	2015		2014		2013			May 13, 2013
Net income (1)	$	37,311	$	27,719	$	1,040		($	50,583	)
Depreciation and amortization		33,775		27,412		16,359			10,651
Interest expense, net		30,704		38,783		24,531			1,439
Income tax expense		2,409		2,742		826			140

EBITDA		104,199		96,656		42,756			(38,353	)
Extinguishment of mortgages payable and mezzanine loans		-		4,295		-			-
Loss on sale of hotels held for sale		-		150		-			-
Estimated selling costs on assets held for sale		-		-		340			-
Loss on disposals of investment in real estate		6,116		-		-			-
Loss (gain) on derivatives		59		735		(34	)		-
Merger transaction costs		-		-		21,537			67,633

Adjusted EBITDA	$	110,374	$	101,836	$	64,599		$	29,280

(1)	Includes net (loss) income from discontinued operations for the years ended December 31, 2014 and 2013, and for the period from January 1, 2013 through May 13, 2013.

Liquidity and Capital Resources

We anticipate that our cash flows from the sources listed below will provide adequate capital for the next 12 months for all anticipated uses, including all scheduled principal and interest payments on our outstanding indebtedness, ongoing capital commitments to fund capital improvements, dividends on the Series A Preferred Stock, distributions necessary to maintain our qualification as a REIT and other capital obligations associated with conducting our business. Our $830 million mortgage loan matures in December 2016. However, we plan to exercise the first of three one-year extensions permissible per the loan agreement.

Sources and Uses of Cash

Operating cash flow from our hotel properties is our principal source of liquidity. As of December 31, 2015, we had $29.1 million of cash and cash equivalents compared to $22.8 million at December 31, 2014.

Cash Flows from Operating Activities

For the year ended December 31, 2015, net cash flows provided by operating activities were $88.7 million compared to $66.7 million for the year ended December 31, 2014. The increased cash flows from operating activities are primarily due to our increase in net income, combined with higher non-cash depreciation charges resulting from the increase of in-service assets due to the completion of capital projects over the last 18 months, as well as loss on disposals of investment in real estate due to disposal of furniture, fixtures, and equipment in connection with these capital projects, and property damage at several of our properties in Texas as a result of flooding.

Cash Flows from Investing Activities

For the year ended December 31, 2015, net cash flows used in investing activities were $34.3 million compared to $21.5 million for the year ended December 31, 2014. Cash used in investing activities in 2014 was lower compared to 2015 due to the $9.4 million we received from the sale of four properties.

Cash Flows from Financing Activities

For the year ended December 31, 2015, net cash flows used in financing activities were $48.1 million, compared to $46.4 million for the year ended December 31, 2014. For 2015, dividends paid to Series A Preferred and common shareholders were the primary drivers. For 2014, the primary drivers were $775.4 million in mortgage and mezzanine debt payments, $46.8 million used for the Series A Preferred stock redemption, and $43.6 million in Series A Preferred and common dividends, partially offset by the $830.0 million net proceeds from the new mortgage borrowing. The mortgage loan proceeds, redemption of preferred stock, mezzanine loan payments, and the majority of mortgage loan payments were not applicable during 2015.

Mortgage Loans

On December 3, 2014, certain of our indirect wholly owned subsidiaries (the “Borrowers”) with commercial lenders (collectively, the “Lenders”) entered into a loan agreement, pursuant to which the Borrowers obtained an $830 million mortgage loan from the Lenders (the “Loan”). The Loan is secured by first-priority, cross-collateralized mortgage liens on 61 of the 62 properties owned or ground-leased by certain of our subsidiaries, all related personal property, reserves, a pledge of all income received by the Borrowers with respect to the properties, a pledge of the ownership interests in the operating lessee and a security interest in a cash management account.

As of December 31, 2015, we had $847.0 million in mortgages payable, comprised of $830.0 million under the Loan secured by 61 of our 62 properties, and $17.0 million secured by the Fort Worth, Texas Residence Inn property. The proceeds from the Loan were used to repay $763.9 million of mortgage and mezzanine loans outstanding which were obtained in connection with the Merger. In addition, $47.5 million of the loan proceeds were used to redeem approximately 25% of the outstanding 7% Series A Preferred Shares from shareholders on a pro-rata basis on December 31, 2014, consisting of $46.8 million of shares redeemed and $0.7 million of accrued dividends. The mortgage loan requires interest payments monthly. See the notes to our consolidated financial statements for additional information regarding our mortgage loans.

We had an effective interest rate of 3.06% for our long-term debt during 2015, compared to 4.10% during 2014. The decrease was due to the lower interest rate in connection with the Loan we obtained in December 2014 as compared to our merger debt. As of December 31, 2015, our weighted average interest rate on our long-term debt was 3.17% compared to 3.00% as of December 31, 2014. Future scheduled principal payments of debt obligations (assuming exercise of first extension option) as of December 31, 2015 are as follows (in thousands):


2016	$	440
2017		830,464
2018		487
2019		510
2020		534
Thereafter		14,597

Total	$	847,032

Capital Expenditures

We have ongoing capital commitments to fund capital improvements. We are required, under all of the hotel franchise agreements and under our loan agreements, to make a percentage of the gross revenues from each hotel available for the repair, replacement and refurbishing of furniture, fixtures, and equipment at such hotel, provided that under the loan agreements such amounts may be used for certain capital expenditures with respect to the hotels. Pursuant to the Loan, at closing we were required to make a one-time deposit $26.0 million into a restricted cash account which was used to fund a portion of our 2015 capital expenditures. In addition, we must deposit monthly in a lender escrow an amount equal to the sum of 4-5% of total revenue, excluding revenue from the Marriott managed hotels, per the terms of our franchise and management agreements. These funds can then be used for capital enhancements to the properties. We spent $56.4 million in 2015 in capital improvements across our portfolio of properties, and expect to spend approximately another $25.0 million in 2016.

Distributions

To qualify as a REIT, we are required to distribute at least 90% of our ordinary income. We intend to adhere to these distribution and the other requirements to qualify for REIT status.

BRE Holdings owns 100% of our issued and outstanding common stock. We paid the following dividends on our common stock in 2015 and 2014:


2015			2014
Date Paid	Per Share		Date Paid	Per Share
May 13, 2015	$	90,000.00	February 19, 2014	$	50,000.00
August 17, 2015	$	190,000.00	May 16, 2014	$	90,000.00
December 28, 2015	$	100,000.00	August 15, 2014	$	90,000.00
			November 17, 2014	$	70,000.00

On February 16, 2016, our Board of Directors declared a dividend on our common stock of $90,000 per share, which was paid on February 17, 2016.

We paid the following dividends on our Series A Preferred Stock in 2015 and 2014:


2015			2014
Date Paid	Per Share		Date Paid	Per Share
January 15, 2015	$	0.0333	January 15, 2014	$	0.0333
April 15, 2015	$	0.0333	April 15, 2014	$	0.0333
July 15, 2015	$	0.0333	July 15, 2014	$	0.0333
October 15, 2015	$	0.0333	October 15, 2014	$	0.0333

On December 18, 2015, our Board of Directors declared a dividend on our Series A Preferred Stock of $0.0333 per share, paid on January 15, 2016 to shareholders of record on January 1, 2016. Dividends for the Series A Preferred Stock are anticipated to be paid quarterly in January, April, July and October each year.

Repurchases

We and our affiliates and/or our stockholder and its respective affiliates, may from time to time repurchase our outstanding Series A Preferred Stock or debt through open market purchases, privately negotiated transactions or otherwise. Purchases or retirement of our Series A Preferred Stock or debt, if any, will depend on prevailing market conditions, liquidity requirements, contractual restrictions, and other factors. The amounts involved may be material.

Contractual Obligations

The following is a summary of our significant contractual obligations as of December 31, 2015 (in thousands):


			Amount of Commitments Expiring per Period
	Total		Less than 1 Year		2-3 Years		4-5 Years		Over 5 Years
Mortgages payable (a)	$	847,032	$	440	$	830,951	$	1,044	$	14,597
Interest on mortgages payable (a) (b)		55,551		26,828		26,028		1,455		1,240
Ground leases		1,352		275		446		350		281

Total contractual commitments	$	903,935	$	27,543	$	857,425	$	2,849	$	16,118

(a)	Assumes exercise of first extension option under the Loan.

(b)	For variable interest rate debt, interest obligations are estimated based on the LIBOR interest rate as of December 31, 2015.

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, we are not experiencing any material impact from inflation.

Seasonality

Demand in the lodging industry is impacted by recurring seasonal patterns. For properties located in non-resort markets, demand is generally lower in the winter months due to decreased travel and higher in the spring and summer months during peak travel season. Accordingly, 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. To the extent that cash flow from operations is insufficient during any quarter, due to temporary or seasonal fluctuations in revenue, we expect to utilize cash on hand or, if necessary, any available other financing sources to make distributions to shareholders.

Critical Accounting Policies

The preparation of the consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates. We have provided a summary of our significant accounting policies in the notes to the consolidated financial statements included elsewhere in this filing. We believe that the following accounting policies affect the most significant judgments and estimates used in the preparation of our consolidated financial statements:

Impairment of Investment in Real Estate - We periodically assess whether there are any indicators that the value of real estate assets may be impaired. Our investment in real estate is reviewed for impairment whenever events or changes in circumstances indicate the carrying value may not be recoverable. Indicators of impairment include: (1) a property with current or potential losses from operations, (2) when it becomes more likely than not that a property will be sold before the end of its previously estimated useful life or (3) when events, trends, contingencies or changes in circumstances indicate that a triggering event has occurred and an asset’s carrying value may not be recoverable. We monitor our properties on an ongoing basis by reviewing financial performance and consider each property individually for purposes of reviewing for indicators of impairment. As many indicators of impairment are subjective, such as general economic and market declines, we also prepare a quarterly quantitative analysis for each of our properties to assist with our evaluation of impairment indicators. The analysis compares each property’s current year actual and forecasted occupancy and revenue per available room (“RevPAR”) compared to the prior year. No triggering events have occurred to indicate the asset carrying values will not be recoverable as of December 31, 2015.

If events or circumstances change, such as the operating performance of a property declines substantially for an extended period of time, our carrying value for a particular property may not be recoverable and in such instances an impairment loss may be recorded. Recoverability of assets to be held and used is determined by a comparison of the carrying amount of the assets to the future undiscounted net cash flow expected to be generated by the asset. If the carrying value of such assets exceeds such cash flows, the assets are considered impaired. Impairment losses are measured as the difference between the asset’s fair value and its carrying value. Fair value is determined by using our best estimate of the discounted net cash flows over the remaining life of the asset.

Goodwill - Goodwill represents the excess of purchase price over fair value of assets acquired and liabilities assumed in business combinations, and is characterized by the intangible assets that do not qualify for separate recognition. In accordance with accounting guidance related to goodwill and other intangible assets, goodwill is not amortized, but instead reviewed for impairment at least annually. We perform our annual testing for impairment of goodwill during the fourth quarter of each year and in certain situations between those annual dates if indicators of impairment are present. The impairment analysis for goodwill is performed at the reporting unit level using a two-step approach. The first step is a comparison of the fair value of the reporting unit, determined using an income approach and validated by a market approach, to its carrying amount. If the carrying amount exceeds the fair value, the second step quantifies any impairment write-down by comparing the current implied value of goodwill to the recorded goodwill balance. There was no impairment of goodwill for any of the periods presented.

Income Taxes - We have elected to be taxed as a REIT, under Sections 856 through 860 of the Internal Revenue Code, as amended, beginning with our short taxable year ended December 31, 2012. In order to qualify as a REIT, we must meet a number of organizational and operational requirements, including a requirement that we distribute at least 90% of our adjusted taxable income to our shareholders, subject to certain adjustments and excluding any net capital gain. We intend to adhere to these requirements to qualify for REIT status, and assuming we do qualify for taxation as a REIT, we will generally not be subject to federal income taxes to the extent we distribute substantially all of our taxable income to our shareholders. However, our TRSs will generally be subject to federal, state, and local income taxes and the consolidated income tax provision includes those taxes.

New Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers. The update outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. The accounting update will become effective for accounting periods beginning after December 15, 2017 and for interim periods within those fiscal years, with early adoption permitted for periods beginning after December 15, 2016. We are currently assessing the impact this new guidance may have on our operations and financial results.

In August 2014, the FASB issued ASU 2014-15, Presentation of Financial Statements - Going Concern. The ASU requires management to evaluate relevant conditions, events and certain management plans that are known or reasonably knowable as of the evaluation date when determining whether substantial doubt about an entity’s ability to continue as a going concern exists. We will be required to make this evaluation for both annual and interim reporting periods. The standard states substantial doubt exists when relevant conditions and events, considered in the aggregate, indicate that it is probable that the entity will be unable to meet its obligations as they become due within one year after the date that the financial statements are issued. An entity must provide certain disclosures if conditions or events raise substantial doubt about the entity’s ability to continue as a going concern. We will be required to apply the provisions of ASU 2014-15 for accounting periods beginning after December 15, 2016 and for interim periods within those fiscal years. Subsequent to adoption, we will apply the assessment and disclosure requirements of ASU 2014-15 if a going concern evaluation is required.

In April 2015, the FASB issued ASU 2015-03, Interest - Imputation of Interest (Subtopic 835-30). ASU 2015-03 changes the presentation of debt issuance costs in the financial statements to present such costs as a direct deduction from the related debt liability rather than as an asset. These costs will continue to be amortized into interest expense. This standard is effective for annual reporting periods beginning after December 15, 2015 and for interim periods within those fiscal years. As a result of the adoption of the standard on January 1, 2016, approximately $4.8 million of debt issuance costs, previously presented within deferred financing costs, net, on the consolidated balance sheet, were reclassified as a direct deduction of mortgages payable.

In February 2016, the FASB issued ASU 2016-02, Leases. The new standard introduces a new lessee model which requires that substantially all leases be recorded on the balance sheet. We will be required to apply the provisions of ASU 2016-02 for accounting periods beginning after December 15, 2018 and for interim periods within those fiscal years. Earlier application is permitted. We are currently assessing the impact this new guidance may have on our operations and financial results.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

We are exposed to risks associated with market changes in interest rates. At December 31, 2015, our floating rate debt consisted of $830.0 million in mortgage debt (“Variable Mortgage Debt”) acquired in December 2014. No principal payments are required on the Variable Mortgage Debt, which matures in December 2016 with three one-year extension options for the borrower, subject to certain conditions. The Variable Mortgage Debt is in U.S. dollars and bears interest at LIBOR plus a fixed margin rate of 2.80%. Accordingly, we are vulnerable to changes in U.S. dollar based short-term interest rates, specifically LIBOR.

We acquired one interest rate cap, as required by the terms of the Variable Mortgage Debt, considered to be a derivative instrument. The agreement caps the base interest rate on the Variable Mortgage Debt, before applying the applicable margins on the loan, at 4.50%. We did not designate the derivative as a hedge for accounting purposes and, accordingly, account for the interest rate cap at fair value in the accompanying consolidated balance sheet in other assets with adjustments to fair value recorded in (loss) gain on derivatives in the consolidated statements of operations.

If the prevailing LIBOR on our Variable Mortgage Debt were to increase or decrease by 1.00%, or 100 basis points, the increase or decrease in interest expense on our Variable Mortgage Debt would increase or decrease future earnings by approximately $8.3 million annually excluding any impact of the interest rate cap if applicable. If interest rates were to change gradually over time, the impact would be spread over time.

Item 8.

Financial Statements and Supplementary Data

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholder of

BRE Select Hotels Corp

New York, New York

We have audited the accompanying consolidated balance sheets of BRE Select Hotels Corp and subsidiaries (the “Company”) as of December 31, 2015 and 2014, and the related consolidated statements of operations, shareholder’s equity, and cash flows for the years then ended. Our audits also included the financial statement schedule listed in the Index at Item 15. These financial statements and financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on the financial statements and financial statement schedule based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements referred to above present fairly, in all material respects, the financial position of BRE Select Hotels Corp and subsidiaries at December 31, 2015 and 2014, and the results of their operations and their cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein.

/s/ DELOITTE & TOUCHE LLP

Certified Public Accountants

Miami, Florida

March 18, 2016

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Shareholders of

BRE Select Hotels Corp

We have audited the accompanying consolidated statements of operations, changes in shareholder’s equity, and cash flows of BRE Select Hotels Corp for the year ended December 31, 2013 (Successor) and for the period from January 1, 2013 through May 13, 2013 (Predecessor) (Successor and Predecessor collectively, the Company). Our audits also included the financial statement schedule listed in the Index at Item 15. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.

In our opinion, the financial statements of BRE Select Hotels Corp present fairly, in all material respects, the consolidated results of their operations and their cash flows for the year ended December 31, 2013 (Successor), and the period from January 1, 2013 through May 13, 2013 (Predecessor), in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.

/s/ Ernst & Young LLP

New York, NY

March 28, 2014

BRE SELECT HOTELS CORP

CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)


	December 31, 2015		December 31, 2014
ASSETS
Investment in real estate, net of accumulated depreciation of $73,915 and $43,771, respectively	$	986,640	$	974,833
Cash and cash equivalents		29,137		22,776
Restricted cash		6,171		40,719
Due from third party managers, net		4,961		4,764
Insurance receivable		6,496		-
Prepaid expenses		1,729		2,166
Deferred financing costs, net		4,763		9,817
Goodwill		126,377		126,377
Other assets		791		912

TOTAL ASSETS	$	1,167,065	$	1,182,364


LIABILITIES
Accounts payable and accrued expenses		14,852		18,969
Due to third party managers, net		1,149		1,580
Mortgages payable		847,032		847,453

TOTAL LIABILITIES		863,033		868,002
Commitments and contingencies (Note 6)
7% Series A Cumulative Redeemable Preferred Stock, $1.90 initial liquidation preference, 120,000,000 shares authorized; 72,382,848 issued and outstanding at December 31, 2015 and December 31, 2014		137,160		137,160

SHAREHOLDER’S EQUITY
Preferred stock, $0.0001 par value, 30,000,000 shares authorized; none issued and outstanding at December 31, 2015 and December 31, 2014		-		-
Common stock, $0.01 par value, 100,000 shares authorized; 100 shares issued and outstanding at December 31, 2015 and December 31, 2014		-		-
Additional paid-in capital		166,872		177,202

TOTAL SHAREHOLDER’S EQUITY		166,872		177,202


TOTAL LIABILITIES AND SHAREHOLDER’S EQUITY	$	1,167,065	$	1,182,364

The accompanying notes are an integral part of these consolidated financial statements.

BRE SELECT HOTELS CORP

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except share data)


	Successor									Predecessor
	Year ended December 31,									Period from January 1, through
	2015			2014			2013			May 13, 2013
REVENUE
Room revenue	$	268,272		$	258,223		$	159,859		$	82,063
Other revenue		18,743			18,298			11,151			6,212
Reimbursed expenses		-			-			-			2,838

Total revenue		287,015			276,521			171,010			91,113

EXPENSES
Operating expense		69,669			66,373			40,909			23,167
Hotel administrative expense		22,166			22,191			13,939			7,159
Sales and marketing		21,824			21,009			13,096			7,407
Utilities		9,629			9,969			6,251			3,188
Repair and maintenance		10,918			10,789			6,700			4,081
Franchise fees		13,299			12,799			7,971			3,716
Management fees		9,571			10,086			5,813			3,010
Taxes, insurance and other		14,552			14,725			8,593			4,457
General and administrative		5,013			6,850			3,193			2,828
Merger transaction costs		-			-			21,537			67,633
Reimbursed expenses		-			-			-			2,838
Depreciation expense		33,775			27,412			16,359			10,651

Total expenses		210,416			202,203			144,361			140,135

Loss on disposals of investment in real estate		(6,116	)		-			-			-
Operating income (loss)		70,483			74,318			26,649			(49,022	)
Interest expense, net		(30,704	)		(38,783	)		(24,531	)		(1,439	)
Extinguishment of mortgages payable and mezzanine loans		-			(4,295	)		-			-
(Loss) gain on derivatives		(59	)		(735	)		34			-

Income (loss) from continuing operations before income tax expense		39,720			30,505			2,152			(50,461	)
Income tax expense		(2,409	)		(2,742	)		(826	)		(140	)

Income (loss) from continuing operations		37,311			27,763			1,326			(50,601	)
(Loss) income from discontinued operations, net of tax (Note 11)		-			(44	)		(286	)		18

Net income (loss)		37,311			27,719			1,040			(50,583	)
Series A Preferred Stock dividends declared		(9,641	)		(12,797	)		(9,369	)		-

Net income (loss) available for common stockholders	$	27,670		$	14,922		($	8,329	)	($	50,583	)

Basic and diluted net income (loss) per common share
From continuing operations, after Series A Preferred Stock dividends	$	276,700.00		$	149,660.00		($	80,430.00	)	($	0.55	)
From discontinued operations		0.00			(440.00	)		(2,860.00	)		0.00

Total basic and diluted net income (loss) per common share available to common stockholders	$	276,700.00		$	149,220.00		($	83,290.00	)	($	0.55	)

Weighted average common shares outstanding -basic and diluted		100			100			100			91,270,197

The accompanying notes are an integral part of these consolidated financial statements.

BRE SELECT HOTELS CORP

CONSOLIDATED STATEMENTS OF SHAREHOLDER’S EQUITY

(in thousands, except per share data)


	Successor
	Common Stock				Series B Preferred Stock						Additional Paid-in Capital			Distributions Greater than Net Income			Total Shareholder’s Equity
	Number of Shares		Amount		Number of Shares			Amount			Additional Paid-in Capital			Distributions Greater than Net Income			Total Shareholder’s Equity
Balance at December 31, 2012		-	$	-		-		$	-		$	-		$	-		$	-
Net proceeds from the issuance of common shares		100		-		-			-			-			-			-
Net proceeds from the sale of Series B Preferred Stock		-		-		113			113			-			-			113
Series B Preferred Stock redeemed		-		-		(113	)		(113	)		-			-			(113	)
Net capital contribution from the Sponsor		-		-		-			-			214,880			-			214,880
Net income		-		-		-			-			-			1,040			1,040
Merger costs allocated to Series A Preferred Stock		-		-		-			-			(1,223	)		-			(1,223	)
Cash dividends declared and paid to common shareholder ($141,000 per share)		-		-		-			-			(13,060	)		(1,040	)		(14,100	)
Preferred dividend earned ($0.0333 per share)		-		-		-			-			(8,147	)		-			(8,147	)

Balance at December 31, 2013		100	$	-		-		$	-		$	192,450		$	-		$	192,450

Net income		-		-		-			-			-			27,719			27,719
Cash dividends declared and paid to common shareholder ($300,000 per share)		-		-		-			-			(2,281	)		(27,719	)		(30,000	)
Preferred dividends earned ($0.1332 per share)		-		-		-			-			(12,967	)		-			(12,967	)

Balance at December 31, 2014		100	$	-		-		$	-		$	177,202		$	-		$	177,202

Net income		-		-		-			-			-			37,311			37,311
Cash dividends declared and paid to common shareholder ($380,000 per share)		-		-		-			-			(689	)		(37,311	)		(38,000	)
Preferred dividends earned ($0.1332 per share)		-		-		-			-			(9,641	)		-			(9,641	)

Balance at December 31, 2015		100	$	-		-		$	-		$	166,872		$	-		$	166,872


	Predecessor
	Common Stock				Series B Convertible Preferred Stock						Distributions Greater than Net Income			Total Shareholders’ Equity
	Number of Shares		Amount		Number of Shares			Amount			Distributions Greater than Net Income			Total Shareholders’ Equity
Balance at December 31, 2012		91,227	$	899,958		240		$	24		$	(225,335	)	$	674,647
Compensation expense relating to Series B convertible preferred stock		5,801		64,392		(240	)		(24	)		-			64,368
Net loss		-		-		-			-			(50,583	)		(50,583	)

Balance at May 13, 2013		97,028	$	964,350		-		$	-		$	(275,918	)	$	688,432

The accompanying notes are an integral part of these consolidated financial statements.

BRE SELECT HOTELS CORP

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)


	Successor									Predecessor
	Year ended December 31, 2015			Year ended December 31, 2014			Year ended December 31, 2013			Period from January 1, through May 13, 2013
Cash flows from operating activities:
Net income (loss)	$	37,311		$	27,719		$	1,040		($	50,583	)
Adjustments to reconcile net income (loss) to cash provided by operating activities:
Depreciation		33,775			27,412			16,401			10,912
Loss on disposals of investment in real estate		6,116			-			-			-
Estimated selling costs on hotels held for sale		-			-			340			-
Loss on sale of assets		-			150			-			-
Fair value adjustment of interest rate cap		59			735			(34	)		-
Amortization of deferred financing costs		5,054			5,464			3,309			93
Extinguishment of mortgages payable and mezzanine loans		-			4,295			-			-
Expense of financing fees for mortgage loan		-			3,217			-			-
Other non-cash expenses, net		(29	)		(29	)		(18	)		2
Changes in operating assets and liabilities:
Decrease (increase) in cash restricted for operating expenses		8,029			(6,884	)		(6,484	)		-
Decrease in cash restricted for operating expenses due to extinguishment of mortgage payable and mezzanine loans		-			2,390			-			-
(Increase) decrease in due to/from third party managers, net		(628	)		1,657			2,345			(1,001	)
Decrease (increase) in prepaid expenses and other assets		232			2,286			(2,016	)		(313	)
Increase in insurance receivable		(1,742	)		-			-			-
Increase (decrease) in accounts payable and accrued expenses		572			(1,677	)		4,488			(1,301	)

Net cash provided by (used in) operating activities		88,749			66,735			19,371			(42,191	)

Cash flows from investing activities:
Capital improvements		(61,112	)		(34,234	)		(4,345	)		(7,735	)
Proceeds from sale of assets, net		-			9,380			-			5,866
Property insurance proceeds		267			439			-			-
Cash paid for business acquisition, net of cash acquired		-			-			(881,652	)		-
(Increase) decrease in cash restricted for property improvements		26,519			(11,597	)		(31,499	)		113
Decrease in cash restriced for property improvements due to extinguishment of mortgage payable and mezzanine loans		-			14,551			-			-

Net cash used in investing activities		(34,326	)		(21,461	)		(917,496	)		(1,756	)

Cash flows from financing activities:
Net payment on credit facility		-			-			(30,970	)		(3,500	)
Net proceeds from borrowings on mortgage payable and mezzanine loans		-			830,000			775,000			-
Payments of mortgage debt		(421	)		(600,402	)		(223	)		(5,869	)
Payments of mezzanine debt		-			(175,000	)		-			-
Financing fees		-			(10,218	)		(15,884	)		-
Payment for interest rate cap		-			(328	)		-			-
Conversion of Series B convertible preferred stock		-			-			-			64,367
Net capital contribution from the Sponsor		-			-			214,880			-
Merger costs related to issuance of Series A Preferred Stock		-			-			(1,223	)		-
Redemption of Series A Preferred Stock		-			(46,835	)		-			-
Dividends paid to Series A Preferred shareholders		(9,641	)		(13,617	)		(5,453	)		-
Dividends paid to common shareholders		(38,000	)		(30,000	)		(14,100	)		-

Net cash (used in) provided by financing activities		(48,062	)		(46,400	)		922,027			54,998

Net increase (decrease) in cash and cash equivalents		6,361			(1,126	)		23,902			11,051

Cash and cash equivalents, beginning of period		22,776			23,902			-			-


Cash and cash equivalents, end of period	$	29,137		$	22,776		$	23,902		$	11,051


Supplemental Cash Flow Information, including Non-Cash Activities:
Interest paid	$	25,975		$	34,128		$	20,122		$	933
Taxes paid	$	2,498		$	3,184		$	1,247		$	367
Accrued capital improvements	$	6,624		$	11,284		$	-		$	-
Accrued 7% Series A Preferred Stock dividends	$	2,410		$	2,410		$	3,231		$	-
Insurance receivable for loss due to property damage	$	4,754		$	-		$	-		$	-

The accompanying notes are an integral part of these consolidated financial statements.

BRE SELECT HOTELS CORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Organization

BRE Select Hotels Corp, together with its wholly-owned subsidiaries (the “Company”), is a Delaware corporation that made an election, through the filing of Form 1120-REIT for 2012, to qualify as a real estate investment trust, or REIT, for federal income tax purposes. The Company was formed on November 28, 2012 to invest in income-producing real estate in the United States through the acquisition of Apple REIT Six, Inc. (“Apple Six”) on behalf of BRE Select Hotels Holdings LP (“BRE Holdings”), a Delaware limited partnership and an affiliate of the Company. All of the common stock of the Company is owned by BRE Holdings, which is an affiliate of Blackstone Real Estate Partners VII L.P. (the “Sponsor”). The acquisition of Apple Six (the “Merger”) was completed on May 14, 2013 (the “Acquisition Date”). As of December 31, 2015, the Company owned 62 hotels located in 18 states with an aggregate of 7,346 rooms.

For purposes of this annual report on Form 10-K, references to the Company for periods prior to the Acquisition Date shall be deemed to refer to Apple Six, unless the context indicates otherwise.

Summary of Significant Accounting Policies

Principles of Consolidation - The consolidated financial statements include all of the accounts of the Company and its subsidiaries. All material intercompany accounts and transactions have been eliminated in consolidation.

Basis of Presentation - The Company was determined to be the acquirer for accounting purposes and, therefore, the Merger was accounted for using the acquisition method of accounting. Accordingly, the purchase price of the Merger has been allocated to the Company’s assets and liabilities based upon their estimated fair values at the Acquisition Date. As used herein, the term “Predecessor” refers to the financial position and results of operations of Apple Six prior to the Acquisition Date. The term “Successor” refers to the financial position and results of operations of the Company on or after the Acquisition Date. Certain merger transaction costs incurred prior to May 14, 2013 by the Company are included in the Successor period, as that period represents the commencement of Successor operations. Prior to May 14, 2013, the Company had no revenues, and expenses were comprised solely of merger related costs. For accounting purposes, the purchase price allocation was applied on May 14, 2013.

Use of Estimates - The preparation of the consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates.

Cash and Cash Equivalents - Cash and cash equivalents primarily consist of cash in banks. Cash equivalents consist of investments with original maturities of three months or less at acquisition. The Company has deposits in excess of $250,000 within single financial institutions that are not insured by the Federal Deposit Insurance Corporation. The Company believes it mitigates this risk by depositing with major financial institutions.

Restricted Cash - Restricted cash consists of deposits held in escrow for the payment of certain required repairs, capital improvements and property taxes pursuant to the terms of the Company’s mortgages payable, as well as a repairs and improvements reserve required by the Marriott International Inc. or its affiliates (“Marriott”) management agreements. The Company’s policy is to present changes in restricted cash attributable to property taxes as a component of operating cash flows and changes in restricted cash attributable to repairs and capital improvements as a component of investing cash flows in the consolidated statements of cash flows.

Due from Third Party Managers, net - Due from third party managers, net, represents the net working capital advanced to and held by the hotel management companies for operation of the hotels.

Due to Third Party Managers, net - Due to third party managers, net, represents management fees due in excess of the net working capital advanced to and held by the hotel management companies for operation of the hotels.

Investment in Real Estate and Related Depreciation - Real estate is stated at cost, net of accumulated depreciation. Repair and maintenance costs are expensed as incurred while significant improvements, renovations, and replacements that extend the useful life of the real estate asset are capitalized and depreciated over the estimated useful life of the real estate asset. The Company recorded a loss on disposals of investment in real estate of $4.4 million in 2015, due to disposal of furniture, fixtures, and equipment in connection with the Company’s capital improvement and renovation plans. Additionally, the Company recorded a loss on disposals of investment in real estate of $1.7 million in 2015, due to property damage (see Note 6). Depreciation is computed using the straight-line method over the average estimated useful lives of the assets, which are 39 years for buildings, 10 years for land and building improvements and three to seven years for furniture and equipment.

The Company considers expenditures to be capital in nature based on the following criteria: (1) for a single asset, the cost must be at least $500, including all normal and necessary costs to place the asset in service, and the useful life must be at least one year; (2) for group purchases of 10 or more identical assets, the unit cost for each asset must be at least $50, including all normal and necessary costs to place the asset in service, and the useful life must be at least one year; and (3) for major repairs to a single asset, the repair must be at least $2,500 and the useful life of the asset must be substantially extended.

Impairment of Investment in Real Estate - The Company periodically assesses whether there are any indicators that the value of real estate assets may be impaired. Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate the carrying value of an asset may not be recoverable. Indicators of impairment include: (1) a property with current or potential losses from operations, (2) when it becomes more likely than not that a property will be sold before the end of its previously estimated useful life or (3) when events, trends, contingencies or changes in circumstances indicate that a triggering event has occurred and an asset’s carrying value may not be recoverable. The Company monitors its properties on an ongoing basis by reviewing financial performance and considers each property individually for purposes of reviewing for indicators of impairment. As many indicators of impairment are subjective, such as general economic and market declines, the Company also prepares a quarterly quantitative analysis for each of its properties to assist with its evaluation of impairment indicators. The analysis compares each property’s current year actual and forecasted occupancy and revenue per available room (“RevPAR”) compared to the prior year. No triggering events have occurred to indicate the asset carrying values will not be recoverable as of December 31, 2015.

If events or circumstances change, such as the operating performance of a property declines substantially for an extended period of time, the Company’s carrying value for a particular property may not be recoverable and in such instances an impairment loss may be recorded. Recoverability of assets to be held and used is determined by a comparison of the carrying amount of the assets to the future undiscounted net cash flow expected to be generated by the asset. If the carrying value of such assets exceeds such cash flows, the assets are considered impaired. Impairment losses are measured as the difference between the asset’s fair value and its carrying value. Fair value is determined by using management’s best estimate of the discounted net cash flows over the remaining life of the asset.

Goodwill - Goodwill represents the excess of purchase price over fair value of assets acquired and liabilities assumed in business combinations, and is characterized by the intangible assets that do not qualify for separate recognition. In accordance with accounting guidance related to goodwill and other intangible assets, goodwill is not amortized, but instead reviewed for impairment at least annually. The Company performs its annual testing for impairment of goodwill during the fourth quarter of each year and in certain situations between those annual dates if indicators of impairment are present. The impairment analysis for goodwill is performed at the reporting unit level using a two-step approach. The first step is a comparison of the fair value of the reporting unit, determined using an income approach and validated by a market approach, to its carrying amount. If the carrying amount exceeds the fair value, the second step quantifies any impairment write-down by comparing the current implied value of goodwill to the recorded goodwill balance. There was no impairment of goodwill for any of the periods presented.

Revenue Recognition - Revenue is recognized as earned, which is generally defined as the date upon which a guest occupies a room or utilizes the hotel’s services. Taxes collected from customers and submitted to taxing authorities are not recorded in revenue.

Sales and Marketing Costs - Sales and marketing costs are expensed when incurred. These costs represent the expense for franchise advertising under the terms of the hotel management and franchise agreements and general and administrative expenses that are directly attributable to advertising and promotion.

Income Taxes - The Company made an election, through the filing of Form 1120-REIT for 2012, to qualify as a REIT under the Internal Revenue Code of 1986, as amended, beginning with the Company’s short taxable year ended December 31, 2012. In order to qualify as a REIT, the Company must meet a number of organizational and operational requirements, including a requirement that it distributes at least 90% of its adjusted taxable income to its shareholder, subject to certain adjustments and excluding any net capital gain. The Company intends to adhere to these requirements to qualify for REIT status, and assuming it does qualify for taxation as a REIT, it will generally not be subject to federal income taxes to the extent it distributes substantially all of its taxable income to the Company’s shareholder. However, the Company’s taxable REIT subsidiaries (“TRS”) will generally be subject to federal, state, and local income taxes and the consolidated income tax provision includes those taxes.

Valuation of Deferred Tax Assets - A valuation allowance for deferred tax assets is provided when it is “more likely than not” that some portion or all of the deferred tax assets will not be realized. Realization is dependent upon the generation of future taxable income or the reversal of deferred tax liabilities during the periods in which those temporary differences become deductible. The Company considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in performing this assessment.

Loss per Common Share (Predecessor) - Basic loss per common share is computed based upon the weighted average number of shares outstanding during the period. Diluted loss per common share is calculated after giving effect to all potential common shares that were dilutive and outstanding for the period. Series B convertible preferred shares were converted on May 13, 2013 in connection with the Merger and included in the weighted average common shares calculation for the applicable period. There were no potential dilutive shares during the applicable period, and as a result, basic and dilutive outstanding shares were the same.

Income (loss) per Common Share (Successor) - Basic income (loss) per common share is computed based upon the weighted average number of shares outstanding during the period, after giving effect to the Series A Preferred Stock dividends declared during the period. There were no potential dilutive shares during the applicable periods, and as a result, basic and dilutive outstanding shares were the same.

Segment Information - The Company derives revenues and cash flows from its hotel portfolio. Hotel portfolio financial information is analyzed for purposes of assessing performance and allocating resources. Therefore, the Company has one operating segment consisting of its hotel portfolio.

New Accounting Pronouncements - In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers. The update outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. The accounting update will become effective for accounting periods beginning after December 15, 2017 and for interim periods within those fiscal years, with early adoption permitted for periods beginning after December 15, 2016. The Company is currently assessing the impact this new guidance may have on the Company’s operations and financial results.

In August 2014, the FASB issued ASU 2014-15, Presentation of Financial Statements - Going Concern. The ASU requires management to evaluate relevant conditions, events and certain management plans that are known or reasonably knowable as of the evaluation date when determining whether substantial doubt about an entity’s ability to continue as a going concern exists. Management will be required to make this evaluation for both annual and interim reporting periods. The standard states substantial doubt exists when relevant conditions and events, considered in the aggregate, indicate that it is probable that the entity will be unable to meet its obligations as they become due within one year after the date that the financial statements are issued. An entity must provide certain disclosures if conditions or events raise substantial doubt about the entity’s ability to continue as a going concern. The Company will be required to apply the provisions of ASU 2014-15 for accounting periods beginning after December 15, 2016 and for interim periods within those fiscal years. As a result of the adoption of the standard on January 1, 2016, approximately $4.8 million of debt issuance costs, previously presented within deferred financing costs, net, on the consolidated balance sheet, were reclassified as a direct deduction of mortgages payable.

In April 2015, the FASB issued ASU 2015-03, Interest – Imputation of Interest (Subtopic 835-30). ASU 2015-03 changes the presentation of debt issuance costs in the financial statements to present such costs as a direct deduction from the related debt liability rather than as an asset. These costs will continue to be amortized into interest expense. This standard is effective for annual reporting periods beginning after December 15, 2015 and for interim periods within those fiscal years. The Company adopted ASU 2015-03 on January 1, 2016 and adoption of ASU 2015-03 did not have a material impact on the Company’s consolidated financial position, results of operations, or cash flows.

In February 2016, the FASB issued ASU 2016-02, Leases. The new standard introduces a new lessee model which requires that substantially all leases be recorded on the balance sheet. The Company will be required to apply the provisions of ASU 2016-02 for accounting periods beginning after December 15, 2018 and for interim periods within those fiscal years. Earlier application is permitted. The Company is currently assessing the impact this new guidance may have on the Company’s operations and financial results.

Investment in Real Estate, net

Investment in real estate, net as of December 31, 2015 and 2014 consisted of the following (in thousands):


	December 31,
	2015			2014
Land and Improvements	$	154,855		$	154,353
Building and Improvements		835,335			805,183
Furniture, Fixtures and Equipment		49,020			34,947
Construction in Progress		21,345			24,121

		1,060,555			1,018,604
Less: Accumulated Depreciation		(73,915	)		(43,771	)

Investment in Real Estate, net	$	986,640		$	974,833

Mortgages Payable

Debt as of December 31, 2015 and 2014 was $847.0 million and $847.5 million, respectively, and comprised solely of mortgages payable.

On December 3, 2014, certain indirect wholly-owned subsidiaries (the “Borrowers”) of the Company entered into a loan agreement (the “Loan Agreement”) with commercial lenders (collectively, the “Lenders”), pursuant to which the Borrowers obtained an $830 million mortgage loan from the Lenders (the “Loan”). The Loan is secured by first-priority, cross-collateralized mortgage liens on 61 of the 62 properties owned or ground-leased by certain subsidiaries of the Company, all related personal property, reserves, a pledge of all income received by the Borrowers with respect to the properties, a pledge of the ownership interests in the operating lessee and a security interest in a cash management account.

A portion of the proceeds from the Loan were used to repay the mortgage and mezzanine loans obtained on May 14, 2013 by the Borrowers, as well as certain indirect wholly-owned subsidiaries of the Company that own direct and indirect interests in the Borrowers (the “Mezzanine Borrowers”), in the aggregate original principal amount of $775 million and with an aggregate outstanding principal amount of $763.9 million as of the date of repayment. Accordingly, on December 3, 2014, the Borrowers and Mezzanine Borrowers repaid in full, cancelled and terminated their respective mortgage and mezzanine loan agreements outstanding at that date without any penalties incurred.

The interest rate of the Loan is equal to the one-month London interbank offered rate for deposits, or LIBOR, plus a margin rate of 2.80%. In connection with the Loan, the Borrowers entered into an interest rate cap agreement, which caps the base interest rate before applying the applicable margins on the Loan, for an aggregate notional amount of $830 million, a termination date of December 9, 2016 and a strike rate of 4.50%. The Loan is scheduled to mature on December 9, 2016, with an option for the Borrowers to extend the initial term for three one-year extension terms, subject to certain conditions. The Company plans to exercise the first of the three one-year extensions permissible per the Loan Agreement. The Loan is not subject to any mandatory principal amortization.

The Loan contains various representations and warranties, as well as certain financial, operating and other covenants that will among other things, limit the Company’s ability to:

•

incur additional secured or unsecured indebtedness;

•

make cash distributions at any time that the debt yield, representing the quotient (expressed as a percentage) calculated by dividing the annualized net operating income of the properties subject to the Loan by the outstanding principal amount of the indebtedness under the Loan, is less than 7.50% during the first four years of the Loan and 7.75% during the fifth year of the Loan or if there is a default continuing under the Loan, until such time as the debt yield is equal to or greater than 7.50% during the first four years of the Loan and 7.75% during the fifth year of the Loan or the Loan default has been cured;

•

make investments or acquisitions;

•

use assets as security in other transactions;

•

sell assets (except that the Borrowers are permitted to sell assets so long as the debt yield is not reduced, subject to payment of applicable prepayment premiums and other property release requirements);

•

guarantee other indebtedness; and

•

consolidate, merge or transfer all or substantially all of the Company’s assets.

Defaults under the Loan include, among other things, the failure to pay interest or principal when due, material misrepresentations, transfers of the underlying security for the Loan without any required consent from the Lender, defaults under certain agreements relating to the properties, including franchise and management agreements, bankruptcy of a Borrower or any guarantor of the Loan, failure to maintain required insurance and a failure to observe other covenants under the Loan, in each case subject to any applicable cure rights. The Borrowers may prepay the Loan, in whole or in part, at any time without any prepayment penalty or fee.

In addition, the applicable Borrowers for the Loan and BSHH LLC, a Delaware limited liability company (the “Guarantor”) and an affiliate of BRE Holdings, will have recourse liability under the Loan for certain matters typical of a transaction of this type, including, without limitation, relating to losses arising out of actions by the Borrower, Guarantor, Sponsor or their respective affiliates controlled by the Sponsor which constitute fraud, intentional misrepresentation, misappropriation of funds (including insurance proceeds), removal or disposal of any property after an event of default under the Loan, a material violation of the due on sale/encumbrance covenants set forth in the loan agreements, willful misconduct that results in waste to any property and any material modification or voluntary termination of a ground lease without the Lender’s prior written consent if required under the loan agreements. The Borrowers will also have recourse liability for the Loan in the event any security instrument or loan agreement is deemed a fraudulent conveyance or a preference, and the Borrowers and the Guarantor will have recourse liability for the Loan in the event of a voluntary or collusive involuntary bankruptcy of any Borrower or any operating lessee of the properties or in the event Borrower, Guarantor, Sponsor or their respective affiliates controlled by the Sponsor consents to or joins in the application for the appointment of a custodian, receiver, trustee or examiner of any Borrower or the operating lessee of any of the properties or any property, provided, however, the liability of the Guarantor described in this sentence shall not exceed 15% of the principal amount of the Loan outstanding at the time the event occurred.

Concurrent with the execution of the documents reflecting the Loan, the Company executed an Indemnity Agreement in favor of the Guarantor pursuant to which the Company agrees to indemnify and hold the Guarantor harmless from any losses incurred by the Guarantor pursuant to the terms of the guaranty executed by the Guarantor in favor of the Lenders in connection with the Loan.

Deferred financing costs consist of amounts paid for direct and indirect costs associated with the origination of the Loan. Such costs are amortized on a straight-line basis (which approximates the effective interest method) over the term of the related debt. Amortization of deferred financing costs totaled $5.1 million, $5.5 million, and $3.3 million for the years ended December 31, 2015, 2014 and 2013 respectively, and is included in interest expense in the consolidated statements of operations.

In addition, during the year ended December 31, 2014, the Company capitalized $6.9 million of deferred financing costs associated with the Loan, and incurred $4.3 million of costs for extinguishment of mortgages payable and mezzanine loans, which represented the write-off of the applicable deferred financing costs incurred in connection with the origination of the mortgage and mezzanine loan agreements entered into at the time of the Merger since the loans were paid off in December 2014.

As part of the Merger, the Company assumed an existing loan with a commercial lender secured by the Company’s Fort Worth, Texas Residence Inn property. The loan matures on October 6, 2022 and carries a fixed interest rate of 4.73%. The outstanding principal balance as of December 31, 2015 and 2014 was $17.0 million and $17.5 million, respectively, and is included in mortgages payable in the consolidated balance sheets.

Interest expense, excluding amortization of deferred financing costs, was $25.7 million, $33.3 million, and $21.2 million for the years ended December 31, 2015, 2014 and 2013 respectively, and is included in interest expense, net in the consolidated statements of operations.

The Company had an effective interest rate of 3.06% and 4.10% for its debt during 2015 and 2014, respectively. As of December 31, 2015 and 2014, the Company’s weighted average interest rate on its debt was 3.17% and 3.00%, respectively. Future scheduled principal payments of debt obligations (assuming exercise of first extension option under the Loan Agreement) as of December 31, 2015 are as follows (in thousands):


2016	$	440
2017		830,464
2018		487
2019		510
2020		534
Thereafter		14,597

Total	$	847,032

Fair Value of Financial Instruments

In accordance with the authoritative guidance on fair value measurements and disclosures, the Company measures nonfinancial assets and liabilities subject to nonrecurring measurement and financial assets and liabilities subject to recurring measurement based on a hierarchy that prioritizes inputs to valuation techniques used to measure the fair value. Inputs used in determining fair value should be from the highest level available in the following hierarchy:

Level 1 — Inputs based on quoted market prices in active markets for identical assets or liabilities that the reporting entity has the ability to access.

Level 2 — Inputs based on quoted prices for similar assets or liabilities, quoted market prices in markets that are not active, or other inputs that are observable or can be corroborated by observable data for substantially the full term of the assets or liabilities.

Level 3 — Inputs are unobservable for the asset or liability and typically based on an entity’s own assumptions as there is little, if any, related market activity.

Determining estimated fair values of the Company’s financial instruments such as mortgages payable requires considerable judgment to interpret market data. The market assumptions and/or estimation methodologies used may have a material effect on estimated fair value amounts. Accordingly, the estimates presented are not necessarily indicative of the amounts by which these instruments could be purchased, sold, or settled.

The table excludes cash and cash equivalents, restricted cash, due from thirty party managers, net, accounts payable and accrued expenses, and due to third party managers, net, all of which had fair values approximating their carrying amounts due to the short maturities and liquidity of these instruments. Carrying amounts and estimated fair values of financial instruments, for periods indicated, were as follows (in thousands):


	December 31, 2015				December 31, 2014
	Carrying		Estimated		Carrying		Estimated
	Value		Fair Value		Value		Fair Value
Financial assets and liabilities measured at fair value on a recurring basis:
Interest rate caps	$	-	$	-	$	59	$	59

Financial liabilities not measured at fair value:
Mortgages payable	$	847,032	$	846,684	$	847,453	$	846,927

Interest rate caps - In December 2014, the Company acquired one interest rate cap agreement, as required by the terms of its Loan, considered to be a derivative financial instrument. The agreement caps the interest rate on the Loan. The Company did not designate the derivative as a hedge for accounting purposes and, accordingly, accounts for the interest rate cap at fair value in the accompanying consolidated balance sheets in other assets with adjustments to fair value recorded in gain (loss) on derivatives in the consolidated statements of operations. The interest rate cap was acquired at a cost of $0.3 million. Fair value is determined by using prevailing market data and incorporating proprietary models based on well recognized financial principles and reasonable estimates where applicable from a third party source. This is considered a Level 2 valuation technique. Fair value changes on the interest rate cap are classified as a component of cash flows from operations.

Mortgages payable - For fixed rate mortgage payable, fair value is calculated by discounting the future cash flows of each instrument at estimated market rates of debt obligations with similar maturities and credit profiles or quality. This is considered a Level 3 valuation technique. The estimated fair value of the mortgages payable in the table above includes the estimated fair value of the mortgage loan secured by the Company’s Fort Worth, Texas Residence Inn property, and the Company’s carrying value of the Loan. The fair value of the Loan cannot be reasonably estimated because it is not readily determinable without undue cost.

Commitments and Contingencies

Insurance - The Company carries comprehensive insurance, including general liability, property, rental loss and umbrella liability coverage on all of its hotels. In addition, the Company carries flood coverage on certain hotels when available on commercially reasonable terms for hotels where we believe such coverage is warranted or required under the terms of the Loan. On June 5, 2015, the Company evacuated and temporarily closed the Homewood Suites in Fort Worth, Texas due to damage incurred from extensive flooding in the area during late May 2015. Remediation work was started immediately, and the hotel reopened in October 2015. The insurance carriers were notified in June 2015 of the pending property insurance claim. For the year ended December 31, 2015, the Company received $1.0 million of business interruption insurance proceeds as a result of the closure of the hotel due to the property damage, which is included in other revenue in the consolidated statements of operations. The Company received $1.4 million in property insurance proceeds related to this claim, and has recorded an insurance receivable of $4.7 million for the remainder of the claim due to the Company. In addition, the Company received $0.7 million in property insurance proceeds and has recorded insurance receivables of $1.8 million for property insurance claims for other properties in Texas also impacted by the May 2015 flooding but which did not result in the temporary closures of these properties. For the year ended December 31, 2015, the Company recorded a total estimated loss due to property damage of $1.7 million, net of estimated property insurance recoveries of $8.6 million. The estimated insurance recoveries are preliminary, subject to final settlement of the respective claims with our insurance providers. The loss due to property damage is included within loss on disposal of investment in real estate in the consolidated statements of operations.

Litigation - The Company is subject to various legal proceedings, claims and administrative proceedings arising in the ordinary course of business, some of which are expected to be covered by liability insurance. Management makes assumptions and estimates concerning the likelihood and amount of any potential loss relating to these matters using the latest information available. The Company records a liability for litigation if an unfavorable outcome is probable and the amount of loss or range of loss can be reasonably estimated. If an unfavorable outcome is probable and a reasonable estimate of the loss is a range, the Company accrues the best estimate within the range. If no amount within the range is a better estimate than any other amount, the Company accrues the minimum amount within the range. If an unfavorable outcome is probable but the amount of the loss cannot be reasonably estimated, the Company discloses the nature of the litigation and indicates that an estimate of the loss or range of loss cannot be made. If an unfavorable outcome is reasonably possible and the estimated loss is material, the Company discloses the nature and estimate of the possible loss of the litigation. The Company does not disclose information with respect to litigation where an unfavorable outcome is considered to be remote or where the estimated loss would not be material. Based on current expectations, such matters, both individually and in the aggregate, are not expected to have a material adverse effect on the liquidity, results of operations, business or financial condition of the Company.

Franchise Agreements - As of December 31, 2015, the Company’s hotel properties, other than the Courtyard in Myrtle Beach, South Carolina, the SpringHill Suites in Fort Worth, Texas and the Marriott in Redmond, Washington, (the “Marriott Managed Properties”) were operated under franchise agreements between the Company’s TRS and Marriott or Hilton Worldwide Holdings Inc. or its affiliates (“Hilton”). The franchise agreements for these hotels allow the properties to operate under the brand identified in the applicable franchise agreements. The management agreements for each of the Marriott Managed Properties allow the Marriott Managed Properties to operate under the brand identified therein. Pursuant to the franchise agreements, the Company pays a royalty fee, generally between 4.5% and 6.0% of room revenue, which is included in franchise fees in the consolidated statements of operations. Program fees, which include additional fees for marketing, are included in sales and marketing expense, and central reservation system and other franchisor costs are included in operating expense in the consolidated statements of operations.

Management Agreements - As of December 31, 2015, each of the Company’s 62 hotels were operated and managed, under separate management agreements, by affiliates of the following companies: Marriott, Western International (“Western”), Larry Blumberg & Associates (“LBA”), White Lodging Services Corporation (“White”), Inn Ventures, Inc. (“Inn Ventures”), Interstate Hotels & Resorts, Inc. (“Interstate”), OTO Development, LLC (“OTO”), or Sage Hospitality (“Sage”). The management agreements require the Company to pay a monthly fee calculated as a percentage of revenues, generally between 2.0% - 7.0%, as well as annual incentive fees, if applicable, and are included in management fees in the consolidated statements of operations. The agreements have remaining terms generally ranging from less than one to 18 years. The agreements with less than one year remaining in their term generally automatically renew on annual or month-to-month terms unless either party to the agreement gives prior notice of the termination thereof. If the Company terminates a management agreement prior to its expiration, it may be liable for estimated management fees through the remaining term and liquidated damages. Additionally, the Company, from time to time, enters into management agreements to manage retail premises ancillary to its hotels. During 2015, the Company changed the management of certain hotels with no material financial impact to the Company.

TRS Lease Agreements - The Company’s lease agreements are intercompany agreements between the TRS lessees and our property-owning subsidiaries. These agreements generally contain terms which are customary for third-party lease agreements, including terms for rent payments and other expenses. All related rental income and expense related to the TRS lease agreements eliminate on a consolidated basis, and therefore have no impact on the consolidated financial statements.

Ground Leases - As of December 31, 2015, four of the Company’s hotel properties had ground leases with remaining terms ranging from two to eight years, which may be extended at the Company’s election. Two properties, the Courtyard in Tuscaloosa, Alabama and the Fairfield Inn in Tuscaloosa, Alabama, are leased to the Company pursuant to a single ground lease. The ground lease for the Residence Inn in Pittsburgh, Pennsylvania originated at the time of the Merger and has a term of 18 years. Payments under this lease are payable to a subsidiary of the Company and, therefore eliminated in consolidation and excluded from the table below. Each of the remaining two leases has the option for the Company to extend the lease. The Residence Inn in Portland, Oregon has a lease for parking space which is included in the table below. Ground lease expenses totaled $0.3 million, $0.3 million, and $0.2 million for the years ended December 31, 2015, 2014, and 2013, respectively, and are included in taxes, insurance and other in the consolidated statements of operations. The aggregate amounts of minimum lease payments under these lease agreements for the five years subsequent to December 31, 2015 and thereafter are as follows (in thousands):


2016	$	275
2017		240
2018		206
2019		206
2020		144
Thereafter		281

Total	$	1,352

7.7% Series A Cumulative Redeemable Preferred Stock

In connection with the Merger, the Company issued 97,032,848 shares of 7% Series A Cumulative Redeemable Preferred Stock (“Series A Preferred Stock”). The terms of these shares provide the Company with the right to redeem such shares at any time for an amount equal to the liquidation preference, plus any accumulated and unpaid dividends. In addition, the terms of these shares include an option for a holder of such shares to require the Company to redeem all or a portion of such holder’s shares on or after November 14, 2020 for an amount equal to the liquidation preference, plus any accumulated and unpaid dividends. The initial dividend rate on these shares is 7% per annum. The dividend rate will increase to 9% per annum if dividends are not paid in cash for more than six quarters, and to 11% per annum if they are not redeemed after the earlier of certain change of control events and May 14, 2018. Due to the put option provided to the holders of these shares, such shares have been classified outside of permanent shareholder’s equity.

On December 31, 2014, approximately $47.5 million of the proceeds of the Loan were used to redeem 24,650,000 shares of the Series A Preferred Stock. Shares were redeemed on a pro rata basis from each shareholder at a redemption price of $1.9281 per share, which was comprised of the $1.90 liquidation preference per share along with $0.0281 in accumulated and unpaid dividends earned through the December 31, 2014 redemption date.

On September 30, 2013, BRE Holdings purchased approximately 2.0 million shares of the Series A Preferred Stock for $1.30 per share as part of a tender offer extended to all shareholders. BRE Holdings currently owns approximately 1.5 million shares of the Series A Preferred Stock after the redemption.

Dividends were declared to be paid in cash for all four quarters of 2015, of which 100% were characterized as ordinary income. On December 18, 2015, the Board of Directors of the Company declared a dividend for the Series A Preferred Stock of $0.0333 per share, paid on January 15, 2016 to shareholders of record on January 1, 2016. As of December 31, 2015, the Company accrued $2.4 million for this dividend, which is included in accounts payable and accrued expenses in the consolidated balance sheets.

The table below reconciles the Series A Preferred Stock for the years ended December 31, 2015 and 2014 (amounts in thousands except per share data):


Ending balance as of December 31, 2013	$	183,825
Dividends declared in 2014		(12,797	)
Dividends earned in 2014		12,967
Redemption		(46,835	)

Ending balance as of December 31, 2014	$	137,160
Dividends declared in 2015		(9,641	)
Dividends earned in 2015		9,641

Ending balance as of December 31, 2015	$	137,160

Shareholder’s Equity

The Company is authorized to issue 150,100,000 shares of capital stock pursuant to its Amended and Restated Certificate of Incorporation, consisting of (i) 100,000 shares of common stock, par value $0.01 per share, and (ii) 150,000,000 shares of preferred stock, par value $0.0001 per share.

Holders of the Company’s common stock are entitled to one vote for each share of common stock held. At December 31, 2015 and 2014, there were 100 shares of common stock issued and outstanding. BRE Holdings owns 100% of the Company’s issued and outstanding common stock. Dividends were declared to be paid in cash for the second, third and fourth quarters of 2015, of which 98.54% were characterized as ordinary income and 1.46% were characterized as return of capital. Dividends were declared to be paid in cash for all four quarters of 2014, of which 19.53% were characterized as ordinary income and 80.47% were characterized as return of capital.

On February 16, 2016, the Company’s Board of Directors declared a dividend on the common stock of $90,000 per share, which was paid on February 17, 2016.

Income Taxes

The Company accounts for TRS income taxes using the asset and liability method. Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to the differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. The analysis utilized by the Company in determining the deferred tax valuation allowance involves considerable management judgment and assumptions.

The provision for income taxes differs from the amounts of income tax determined by applying the applicable U.S. statutory federal income tax rate to pretax income from continuing operations as a result of the following differences (in thousands):


	Year Ended December 31,
	2015					2014					2013
Statutory federal income tax provision	$	13,505		34.0	%	$	10,372		34.0	%	$	738		34.0	%
Adjustment for nontaxable income		(11,468	)	(28.9	%)		(8,150	)	(26.7	%)		(160	)	(7.3	%)
State income taxes, net of federal income tax benefit		390		1.0	%		370		1.2	%		242		11.3	%
Other		(18	)	0.0	%		150		0.5	%		6		0.4	%

Total income tax expense	$	2,409		6.1	%	$	2,742		9.0	%	$	826		38.4	%

The components of the Company’s income tax expense from continuing operations for the years ended December 31, 2015, 2014, and 2013 were as follows (in thousands):


	Year Ended December 31,
	2015			2014			2013
Income tax expense (benefit):
Current:
Federal	$	1,887		$	2,254		$	950
State		568			571			366
Deferred:
Federal		(42	)		(75	)		(449	)
State		(4	)		(8	)		(41	)

Total	$	2,409		$	2,742		$	826

The components of the consolidated TRS’s net deferred tax assets as of December 31, 2015 and 2014 were as follows (in thousands):


	December 31,
	2015			2014
Deferred tax balances:
Accrued expenses and other	$	623		$	549
Prepaid expenses and other		9			37
Net operating loss carryforward		935			935

		1,567			1,521
Valuation allowances		(935	)		(935	)

Net deferred tax assets	$	632		$	586

In assessing the realizability of deferred tax assets, the Company considers whether it is more likely than not that some or all of the deferred tax assets will not be realized. The $0.9 million valuation allowance recorded at December 31, 2015 and 2014 is for net operating loss (“NOL”) carryforwards where it is not considered more likely than not that the NOL carryforwards will be realized prior to expiration. The NOL carryforwards will begin to expire in 2034. Based on tax planning strategies and projections for future taxable income over the periods in which the deferred tax assets are deductible, the Company believes it is more likely than not that the remaining deferred tax assets will be realized.

A position taken or expected to be taken by the Company in a tax return is recognized, or derecognized, in the consolidated financial statements when it is more likely than not that the position would be sustained upon examination by tax authorities. A recognized tax position is measured at the largest amount of benefit that is greater than fifty percent likely of being realized upon ultimate settlement. As of December 31, 2015, the Company does not have any uncertain tax positions. The Company’s policy for interest and penalties, if any, on uncertain tax positions recognized in the consolidated financial statements is to classify these as interest expense and operating expense, respectively.

The Company conducts business and files tax returns in the United States and numerous states and local jurisdictions. The Company’s tax years are generally open after 2011.

10.

Related Party Transactions

The Sponsor and its affiliates are in the business of making investments in companies and real estate assets and currently own, and may, from time to time acquire and hold, in each case, interests in businesses or assets that compete directly or indirectly with the Company. In addition, certain affiliates of the Sponsor have significant influence over Hilton, which indirectly owns the entities that serve as franchisors and receive franchise fees for 27 of the hotels owned by the Company. In accordance with the Company’s certificate of incorporation, the Sponsor has no obligation to present any corporate opportunities to the Company or to conduct its other business and investment affairs in the best interests of the Company or holders of Series A Preferred Shares. In connection with the Sponsor’s and its affiliates’ business activities, the Sponsor, BRE Holdings or any of their affiliates, including, without limitation, Hilton or its subsidiaries, may from time to time enter into arrangements with the Company or its subsidiaries. These arrangements may be subject to restrictions on affiliate transactions contained in agreements entered into in connection with the Loan. The Company incurred $18.3 million and $17.5 million of franchise fees, marketing fees, and other expenses during the years ended December 31, 2015 and 2014, respectively, under agreements with Hilton or its subsidiaries. In addition, the Company uses Hilton to procure select capital improvements for its hotels. The Company paid Hilton $3.6 million and $1.0 million during the years ended December 31, 2015 and 2014, respectively, and owed Hilton $0 and $1.2 million as of December 31, 2015 and 2014, respectively, related to capital improvements, which is included in accounts payable and accrued expenses in the consolidated balance sheets.

A management company provided services to the Company including financial, accounting, administrative and other services that may be requested from time to time pursuant to a corporate services agreement. Affiliates of the Sponsor hold a management interest in this management company. The Company paid $2.4 million and $1.1 million to this management company during the years ended December 31, 2015 and 2014. In addition, the Company owed this management company $0.1 million and $0 as of December 31, 2015 and 2014, respectively which is included in accounts payable and accrued expenses in the consolidated balance sheets.

As a condition to the Lender entering into the Loan, BSHH LLC, an affiliate of BRE Holdings which is controlled by Sponsor and referred to herein as Guarantor, entered into a recourse guaranty with respect to the Loan (the “Guaranty”), pursuant to which the applicable Borrowers for the Loan and BSHH LLC will have recourse liability under the Loans for certain matters typical of a transaction of this type. Concurrent with the execution of the documents reflecting the Loan, including the Guaranty, the Company executed an Indemnity Agreement in favor of the Guarantor pursuant to which the Company agrees to indemnify and hold the Guarantor harmless from any losses incurred by the Guarantor pursuant to the terms of the Guaranty. There was no consideration for the posting of the Guaranty by the Guarantor.

11.

Discontinued Operations

The discontinued operations presented for the years ended December 31, 2014 and 2013 represent the individual sales of hotels which were sold prior to the Company’s adoption, on January 1, 2015, of a new accounting standard which revised the accounting definition of a discontinued operation. The Company expects that any future disposals of operating real estate assets would not qualify for discontinued operations reporting presentation, unless the disposals represent a strategic shift that has a major effect on the Company’s operations and financial results. There were no hotels sold during the year ended December 31, 2015, and there were no hotels held for sale at December 31, 2015 and 2014.

The Company sold four hotels during 2014 as summarized below (in thousands):


Hotel	Sale Date	Net Proceeds		Gain/ (Loss)
Fairfield Inn - Orange Park, Florida	April 23, 2014	$	2,978	($	67	)
Fairfield Inn - Birmingham, Alabama	May 8, 2014		1,509		223
SpringHill Suites - Savannah, Georgia	June 2, 2014		3,405		(285	)
SpringHill Suites - Montgomery, Alabama	September 4, 2014		1,488		(21	)

Total		$	9,380	($	150	)

The results of operations for these properties prior to the sale are classified as (loss) income from discontinued operations.

The following table sets forth the operating results from discontinued operations for the Successor and Predecessor periods (in thousands).


	Successor						Predecessor
							Period from
							January 1
	Year ended December 31,						through
	2014			2013			May 13, 2013
Total revenue	$	2,479		$	3,274		$	1,856
Hotel operating expenses		1,938			2,624			1,408
Taxes, insurance and other		102			149			168
General and administrative		67			104			-
Depreciation expense		-			42			262
Interest expense		328			317			-
Income tax (benefit) expense		(62	)		(16	)		-
Estimated selling costs		-			340			-
Gain (loss) from hotel dispositions		(150	)		-			-

(Loss) income from discontinued operations	($	44	)	($	286	)	$	18

The Company allocates interest expense to discontinued operations and has included such interest expense in computing income (loss) from discontinued operations. Interest expense was allocated by taking the loan release amounts for the discontinued operations, as a percentage of the total outstanding principal, multiplied by the interest expense for the period.

12.

Quarterly Financial Data (unaudited)


	Quarter Ended - 2015
	March 31			June 30			September 30			December 31 (a)
	(in thousands, except per share data)
Revenues	$	63,478		$	76,145		$	82,126		$	65,266
Net income		9,579			9,417			12,932			5,383
Series A Preferred Stock dividends declared		(2,410	)		(2,411	)		(2,410	)		(2,410	)
Net income available for common stockholders		7,169			7,006			10,522			2,973
Basic and diluted net income per common share available to common stockholders	$	71,690.00		$	70,060.00		$	105,220.00		$	29,730.00
Distributions declared and paid per common share	$	0.00		$	90,000.00		$	190,000.00		$	100,000.00

	Quarter Ended - 2014
	March 31			June 30			September 30			December 31 (b)
	(in thousands, except per share data)
Revenues	$	61,487		$	73,333		$	79,212		$	62,489
Income (loss) from continuing operations		6,570			11,127			13,325			(3,259	)
Income (loss) from discontinued operations		67			2			(162	)		49
Net income (loss)		6,637			11,129			13,163			(3,210	)
Series A Preferred Stock dividends declared		(3,231	)		(3,231	)		(3,231	)		(3,104	)
Net income (loss) available for common stockholders		3,406			7,898			9,932			(6,314	)
Basic and diluted net income (loss) per common share available to common stockholders	$	34,060.00		$	78,980.00		$	99,320.00		($	63,140.00	)
Distributions declared and paid per common share	$	50,000.00		$	90,000.00		$	90,000.00		$	70,000.00

(a)	Includes $1.7 million loss on disposals of investment in real estate due to property damage at four of the Company’s hotels located in Texas.

(b)	Includes $3.2 million of advisory fees and expenses and $4.3 million of extinguishment of mortgages and mezzanine loans in connection with the debt refinancing transaction in December 2014.

Item 9.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None

Item 9A.

Controls and Procedures

Evaluation of Disclosure Controls and Procedures

The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in the Company’s reports under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. Any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. The Company’s management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures as of the end of the period covered by this Form 10-K. Based upon that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that, as of December 31, 2015, the Company’s disclosure controls and procedures were effective to accomplish their objectives at the reasonable assurance level.

Management’s Annual Report on Internal Control Over Financial Reporting

The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) of the Exchange Act). The Company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. The Company’s internal control over financial reporting includes those policies and procedures that:

•

pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Company;

•

provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and

•

provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements.

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

The Company’s management assessed the effectiveness of its internal control over financial reporting as of December 31, 2015. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission, or COSO, in Internal Control-Integrated Framework (1992). Based on this assessment, management has concluded that, as of December 31, 2015, our internal control over financial reporting was effective.

This annual report does not include an attestation report of the Company’s registered public accounting firm, as non-accelerated filers are exempt from the auditor attestation requirements of section 404(b) of the Sarbanes-Oxley Act.

Changes in Internal Control Over Financial Reporting

There have been no changes in the Company’s internal control over financial reporting that occurred during the Company’s fourth fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

Item 9B.

Other Information

Pursuant to Section 219 of the Iran Threat Reduction and Syria Human Rights Act of 2012, which added Section 13(r) of the Exchange Act, the Company hereby incorporates by reference herein Exhibit 99.1 of this report, which includes disclosures publicly filed and/or provided to The Blackstone Group L.P. (“Blackstone”), an affiliate of the Company’s Sponsor, by Hilton Worldwide Holdings Inc. and Travelport Worldwide Limited, which may be considered the Company’s affiliates.

PART III

Item 10.

Directors, Executive Officers and Corporate Governance

The board of directors and executive officers of the Company are currently comprised of the following four individuals:


Name	Age	Service as Director	Executive Office
William Stein	53	Since 2012	Chief Executive Officer and Senior Managing Director
Brian Kim	36	Since 2012	Chief Financial Officer, Vice President and Managing Director
A.J. Agarwal	49	Since 2013	President and Senior Managing Director
Tyler Henritze	35	Since 2013	Secretary, Vice President and Senior Managing Director

William J. Stein - Mr. Stein, age 53, is the Company’s Chief Executive Officer and Senior Managing Director, and he has served as a director and officer of the Company since November 29, 2012. Mr. Stein is a Senior Managing Director and Global Head of Asset Management in the Real Estate Group of Blackstone, an affiliate of the Company. Since joining Blackstone in 1997, Mr. Stein has been involved in the direct asset management and asset management oversight of Blackstone’s global real estate assets. Before joining Blackstone, Mr. Stein was a Vice President at Heitman Real Estate Advisors and JMB Realty Corp. Mr. Stein received a B.B.A. from the University of Michigan and an M.B.A. from the University of Chicago. Mr. Stein serves on the Board of Directors of Hilton Worldwide Holdings Inc., Brixmor Property Group Inc., Extended Stay America, Inc. and Nevada Property 1 LLC (The Cosmopolitan of Las Vegas), where he serves on the audit committee. He previously served as a board member of La Quinta Holding Inc. until November 2014. In selecting Mr. Stein to serve as a director, the Company considered Mr. Stein’s tenure with Blackstone involving the direct asset management and asset management oversight of Blackstone’s global real estate assets, as well as his prior executive positions at other real estate advisory firms.

Brian Kim - Mr. Kim, age 36, is the Company’s Chief Financial Officer, Vice President and Managing Director, and he has served as a director and officer of the Company since November 29, 2012. Mr. Kim is a Managing Director in the Real Estate Group of Blackstone, an affiliate of the Company. Before joining Blackstone in 2008, Mr. Kim was an associate at Apollo Real Estate Advisors. Prior to that, Mr. Kim worked for Max Capital Management Corp., a New York City-based real estate investment and management firm, and before Max Capital, he was an analyst in the Investment Banking Group of Credit Suisse First Boston. Mr. Kim received an A.B. in Biology from Harvard College. He currently serves as a board member of La Quinta Holdings Inc. In selecting Mr. Kim to serve as a director, we considered his affiliation with Blackstone, his significant experience in working with companies controlled by private equity sponsors, particularly in the real estate industry, his experience in working with the management of various other companies owned by Blackstone’s funds, his experience with real estate investing and his extensive financial background.

A.J. Agarwal - Mr. Agarwal, age 49, is the Company’s President and Senior Managing Director, and he has served as a director and officer of the Company since May 17, 2013. Mr. Agarwal is a Senior Managing Director in the Real Estate Group of Blackstone, an affiliate of the Company. Mr. Agarwal oversees the global core and core plus real estate business for the Real Estate Group. Prior to joining the Real Estate Group in 2010, Mr. Agarwal was a member of Blackstone’s Financial Advisory Group, leading the firm’s advisory practice in a number of areas, including real estate and leisure/lodging. Mr. Agarwal graduated magna cum laude from Princeton University and received an M.B.A. from Stanford University Graduate School of Business. Mr. Agarwal previously served as a board member of Extended Stay America, Inc. until March 2015 and of Brixmor Property Group Inc. until July 2015. In selecting Mr. Agarwal to serve as a director, the Company considered Mr. Agarwal’s expertise as a Senior Managing Director in evaluating real estate acquisitions in the North American region and his financial advisory background in the real estate and leisure/lodging sector.

Tyler Henritze - Mr. Henritze, age 35, is the Company’s Secretary, Vice President and Senior Managing Director, and he has served as a director and officer of the Company since May 17, 2013. Mr. Henritze has been a senior managing director in the real estate group of Blackstone, an affiliate of the Company, since January 2013, and is currently the Co-head of US Acquisitions. Prior to being named a senior managing director at Blackstone, Mr. Henritze served as a managing director from January 2011 to December 2012 and as principal from January 2009 to December 2010. Since joining Blackstone in 2004, Mr. Henritze has been involved in over $50 billion of real estate investments across all property types. He played a key role in acquisitions including Motel 6, Duke Realty Office Portfolio, Valad Property Group, Extended Stay Hotels, Equity Office Properties Trust, CarrAmerica Realty, La Quinta and Wyndham International. Before joining Blackstone, Mr. Henritze worked at Merrill Lynch in the real estate investment banking group and was involved in a variety of debt, equity and M&A transactions. Mr. Henritze received a B.S. in Commerce from The McIntire School at the University of Virginia, where he graduated with distinction. He serves on the Board of Directors of Nevada Property 1 LLC (The Cosmopolitan of Las Vegas), where he serves on the audit committee. He previously served as a board member of Hilton Worldwide Holdings Inc. until May 2015. He is a member of the IREFAC Council of the American Hotel and Lodging Association and is active with City Year NY, serving on its investment community board. In selecting Mr. Henritze to serve as a director, the Company considered his affiliation with Blackstone, his significant experience in working with companies controlled by private equity sponsors, particularly in the real estate industry, his experience in working with the management of various other companies owned by Blackstone’s funds, his experience with real estate investing and his extensive financial background.

Code of Ethics

We do not have a code of ethics that applies to our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions. We have determined that a code of ethics would not be necessary because we do not have any employees, all of our executive officers are employees of an affiliate of the Sponsor, and we are not required to adopt a code of ethics because our securities are not listed on a national securities exchange. Although we do not have a code of ethics, we endeavor to carry out our responsibilities in accordance with applicable laws and regulations.

Audit Committee Financial Expert

While our board of directors has not designated any of its members as an audit committee financial expert, we believe that the board is qualified to address accounting or financial reporting issues that may come before it, and accordingly, an audit committee financial expert is not necessary.

Item 11.

Executive Compensation

We do not have any employees. All of our executive officers are employees of an affiliate of the Sponsor and do not receive compensation from us or from any of our subsidiaries for serving as our executive officers. Accordingly, we do not have employment agreements with our executive officers, we do not provide pension or retirement benefits, perquisites or other personal benefits to our executive officers and we do not have arrangements to make payments to our executive officers upon their termination or in the event of a change in control of the Company.

Additionally, our executive officers are not required to dedicate a specific amount of time to us. Accordingly, we cannot identify the portion of the compensation awarded to our executive officers that relates solely to their services to us, as our executive officers are not compensated specifically for such services.

Because our executive officers do not receive compensation from us or from any of our subsidiaries and because we cannot identify the portion of the compensation awarded to our executive officers that relates solely to their services to us, we do not provide executive compensation disclosure pursuant to Item 402 of Regulation S-K.

Item 12.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

BRE Holdings owns 100% of our issued and outstanding common stock, the Company’s voting securities. None of our executive officers or directors beneficially owns any equity securities of the Company.

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

Transactions with Related Persons

The Sponsor and its affiliates are in the business of making investments in companies and real estate assets and currently own, and may, from time to time acquire and hold, in each case, interests in businesses or assets that compete directly or indirectly with the Company. In addition, certain affiliates of the Sponsor have significant influence over Hilton, which indirectly owns the entities that serve as franchisors and receive franchise fees for 27 of the hotels owned by the Company. In accordance with the Company’s certificate of incorporation, the Sponsor has no obligation to present any corporate opportunities to the Company or to conduct its other business and investment affairs in the best interests of the Company or holders of Series A Preferred Shares. In connection with the Sponsor’s and its affiliates’ business activities, the Sponsor, BRE Holdings or any of their affiliates, including, without limitation, Hilton or its subsidiaries, may from time to time enter into arrangements with the Company or its subsidiaries. These arrangements may be subject to restrictions on affiliate transactions contained in agreements entered into in connection with the Loan. The Company incurred $18.3 million of franchise fees, marketing fees, and other expenses during the year ended December 31, 2015, under agreements with Hilton or its subsidiaries. In addition, the Company uses Hilton to procure select capital improvements for its hotels. The Company paid Hilton $3.6 million during the year ended December 31, 2015 related to capital improvements.

A management company provided services to the Company including financial, accounting, administrative and other services that may be requested from time to time pursuant to a corporate services agreement. Affiliates of the Sponsor hold a management interest in this management company. The Company paid $2.4 million to this management company during the year ended December 31, 2015. In addition, the Company owed this management company $0.1 million as of December 31, 2015, which is included in accounts payable and accrued expenses in the consolidated balance sheet.

As a condition to the Lender entering into the Loan described in Note 4 in the notes to the consolidated financial statements, BSHH LLC, an affiliate of BRE Holdings which is controlled by Sponsor and referred to herein as Guarantor, entered into a recourse guaranty with respect to the Loan (the “Guaranty”), pursuant to which the applicable Borrowers for the Loan and BSHH LLC will have recourse liability under the Loans for certain matters typical of a transaction of this type. Concurrent with the execution of the documents reflecting the Loan, including the Guaranty, the Company executed an Indemnity Agreement in favor of the Guarantor pursuant to which the Company agrees to indemnify and hold the Guarantor harmless from any losses incurred by the Guarantor pursuant to the terms of the Guaranty. There was no consideration for the posting of the Guaranty by the Guarantor.

Review, Approval or Ratification of Transactions with Related Persons

While we do not have a formal written policy, our board of directors will review and approve or ratify related party transactions on an as needed basis.

Board Composition

As a privately-held company with no securities listed on a national securities exchange, we are not required to have independent directors on our board of directors. Accordingly, we have not made any determinations of independence with respect to any of our directors.

Item 14.

Principal Accountant Fees and Services

The firm of Deloitte & Touche LLP served as the independent auditors for the Company’s last two fiscal years. The following table presents fees for professional services for the audit of our financial statements for 2015 and 2014, along with fees billed for other services rendered:


Year	Firm	Audit Fees		Audit-Related Fees		Tax Fees		All Other Fees
2015	Deloitte & Touche LLP	$	569,275	$	0	$	240,000	$	0
2014	Deloitte & Touche LLP	$	435,000	$	133,000	$	0	$	0

All services rendered by Deloitte & Touche LLP are permissible under applicable laws and regulations, and the annual audit and tax services of the Company were pre-approved by the board of directors of the Company. The nature of each of the services in the preceding table is described below.

Audit Fees - These fees are for professional services rendered for the audit of the Company’s annual financial statements, reviews of the financial statements included in the Company’s Form 10-Q filings or services normally provided by the independent auditor in connection with statutory or regulatory filings or engagements and other accounting and financial reporting work necessary to comply with the standards of the PCAOB and fees for services that only the Company’s independent auditor can reasonably provide.

Audit-Related Fees - These are fees for assurance and related services that are reasonably related to the performance of the audit or review of the Company’s financial statements. Such services including accounting consultations, internal control reviews, audits in connection with acquisitions, attest services related to financial reporting that are not required by statute or regulation and required agreed-upon procedure engagements.

Tax Fees - Such services represent tax compliance services.

Audit Committee Pre-Approval Policies and Procedures

The Company has not established an audit committee nor adopted an audit committee charter. Rather, it is the responsibility of the entire board of directors to serve the functions of an audit committee, with designated members assigned to pre-approve all audit and permitted non-audit services to be performed by the independent auditors, such approval to take place in advance of such services when required by law, regulation, or rule, subject to the de minimis exceptions for non-audit services described in Section 10A(i)(1)(B) of the Exchange Act that are approved by the board or its designated members prior to completion of the audit.

PART IV

Item 15.

Exhibits, Financial Statement Schedules

1. Financial Statements of BRE Select Hotels Corp

Report of Independent Registered Public Accounting Firm as of December 31, 2015 and 2014 and for each of the years then ended—Deloitte & Touche LLP

Report of Independent Registered Public Accounting Firm for the year ended December 31, 2013 (Successor) and for the period from January 1, 2013 through May 13, 2013 (Predecessor)—Ernst & Young LLP

Consolidated Balance Sheets as of December 31, 2015 and 2014

Consolidated Statements of Operations for the years ended December 31, 2015, 2014 and 2013 (Successor), and the period from January 1, 2013 through May 13, 2013 (Predecessor)

Consolidated Statements of Shareholder’s Equity for the years ended December 31, 2015, 2014 and 2013 (Successor) and the period from January 1, 2013 through May 13, 2013 (Predecessor)

Consolidated Statements of Cash Flows for the years ended December 31, 2015, 2014 and 2013 (Successor), and the period from January 1, 2013 through May 13, 2013 (Predecessor)

Notes to Consolidated Financial Statements

These financial statements are set forth in Item 8 of this Annual Report and are hereby incorporated by reference.

2. Financial Statement Schedules

Schedule III—Real Estate and Accumulated Depreciation (Included at the end of this Part IV of this Annual Report.)

Financial statement schedules not listed are either omitted because they are not applicable or the required information is shown in the consolidated financial statements or notes thereto.

3. Exhibits

Incorporated herein by reference are the exhibits listed under “Exhibits Index” to this Annual Report.

BRE SELECT HOTELS CORP

SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION

AS OF DECEMBER 31, 2015

(dollars in thousands)


					Initial Cost to Company (1)				Costs Capitalized Subsequent to Acquisition		Gross Cost at Which Carried at Close of Period (2) (3)
City	State	Brand	Encum- brances		Land		Building and Improve- ments		Land, Building and Improve- ments		Land		Bldg/ FF&E/ Other		Total		Acc Depr			Year of Construction		Date Acquired		Depreciable Life
Dothan	Alabama	Courtyard		5,954		810		8,690		1,074		822		9,752		10,574		(801	)		1996		May-13		3 -39 yrs.
Dothan	Alabama	Hampton Inn & Suites		9,325		1,110		6,700		110		1,111		6,809		7,920		(597	)		2004		May-13		3 -39 yrs.
Huntsville	Alabama	Fairfield Inn		4,232		910		6,470		1,446		910		7,916		8,826		(660	)		1999		May-13		3 -39 yrs.
Huntsville	Alabama	Residence Inn		5,882		1,280		8,300		713		1,306		8,987		10,293		(849	)		2002		May-13		3 -39 yrs.
Tuscaloosa	Alabama	Courtyard		9,540		0		7,690		268		14		7,944		7,958		(772	)		1996		May-13		3 -39 yrs.
Tuscaloosa	Alabama	Fairfield Inn		4,447		0		3,990		1,360		4		5,346		5,350		(375	)		1996		May-13		3 -39 yrs.
Anchorage	Alaska	Hampton Inn		12,266		2,020		12,980		1,566		2,071		14,495		16,566		(1,173	)		1997		May-13		3 -39 yrs.
Anchorage	Alaska	Hilton Garden Inn		21,161		2,530		20,780		1,955		2,579		22,686		25,265		(1,718	)		2002		May-13		3 -39 yrs.
Anchorage	Alaska	Homewood Suites		19,511		3,190		19,510		1,393		3,227		20,866		24,093		(1,853	)		2004		May-13		3 -39 yrs.
Phoenix	Arizona	Hampton Inn		9,899		3,930		7,190		476		3,942		7,654		11,596		(599	)		1998		May-13		3 -39 yrs.
Arcadia	California	Hilton Garden Inn		17,861		2,940		14,310		1,490		2,989		15,751		18,740		(1,231	)		1999		May-13		3 -39 yrs.
Arcadia	California	SpringHill Suites		10,401		2,610		9,130		2,519		2,662		11,597		14,259		(1,200	)		1999		May-13		3 -39 yrs.
Bakersfield	California	Hilton Garden Inn		9,468		1,260		10,490		306		1,264		10,792		12,056		(921	)		2004		May-13		3 -39 yrs.
Folsom	California	Hilton Garden Inn		8,536		1,310		11,000		1,293		1,335		12,268		13,603		(986	)		1999		May-13		3 -39 yrs.
Foothill Ranch	California	Hampton Inn		6,886		2,970		5,080		1,727		3,017		6,760		9,777		(598	)		1998		May-13		3 -39 yrs.
Lake Forest	California	Hilton Garden Inn		11,262		4,250		10,440		1,641		4,274		12,057		16,331		(902	)		2004		May-13		3 -39 yrs.
Milpitas	California	Hilton Garden Inn		32,977		6,600		22,190		951		6,604		23,137		29,741		(1,941	)		1999		May-13		3 -39 yrs.
Roseville	California	Hilton Garden Inn		8,249		2,470		4,260		181		2,515		4,396		6,911		(419	)		1999		May-13		3 -39 yrs.
San Francisco	California	Hilton Garden Inn		34,574		7,920		29,100		1,260		7,920		30,360		38,280		(2,389	)		1999		May-13		3 -39 yrs.


					Initial Cost to Company (1)				Costs Capitalized Subsequent to Acquisition		Gross Cost at Which Carried at Close of Period (2) (3)
City	State	Brand	Encum- brances		Land		Building and Improve- ments		Land, Building and Improve- ments		Land		Bldg/ FF&E/ Other		Total		Acc Depr			Year of Construction		Date Acquired		Depreciable Life
Boulder	Colorado	Marriott		41,174		6,360		51,230		3,356		6,360		54,586		60,946		(3,788	)		1997		May-13		3 -39 yrs.
Glendale	Colorado	Hampton Inn & Suites		14,131		3,480		17,090		2,581		3,490		19,661		23,151		(1,438	)		1999		May-13		3 -39 yrs.
Lakewood	Colorado	Hampton Inn		12,409		2,520		12,590		875		2,543		13,442		15,985		(1,220	)		2003		May-13		3 -39 yrs.
Farmington	Connecticut	Courtyard		13,199		2,600		15,030		2,001		2,610		17,021		19,631		(1,443	)		2005		May-13		3 -39 yrs.
Rocky Hill	Connecticut	Residence Inn		11,262		1,640		14,700		1,510		1,647		16,203		17,850		(1,307	)		2005		May-13		3 -39 yrs.
Wallingford	Connecticut	Homewood Suites		10,831		1,250		12,530		408		1,263		12,925		14,188		(1,087	)		2005		May-13		3 -39 yrs.
Clearwater	Florida	SpringHill Suites		4,734		0		7,600		1,073		12		8,661		8,673		(691	)		2006		May-13		3 -39 yrs.
Lake Mary	Florida	Courtyard		5,452		1,190		5,570		578		1,201		6,137		7,338		(593	)		1995		May-13		3 -39 yrs.
Lakeland	Florida	Residence Inn		10,903		630		9,740		1,717		643		11,444		12,087		(933	)		2001		May-13		3 -39 yrs.
Panama City	Florida	Courtyard		9,468		560		7,310		1,285		562		8,593		9,155		(843	)		2006		May-13		3 -39 yrs.
Pensacola	Florida	Courtyard		7,819		610		8,740		325		639		9,036		9,675		(913	)		1997		May-13		3 -39 yrs.
Pensacola	Florida	Fairfield Inn		3,443		530		4,060		1,086		531		5,145		5,676		(391	)		1995		May-13		3 -39 yrs.
Pensacola	Florida	Hampton Inn & Suites		8,321		540		6,540		1,542		543		8,079		8,622		(612	)		2005		May-13		3 -39 yrs.
Tallahassee	Florida	Hilton Garden Inn		10,616		2,270		9,780		1,322		2,271		11,101		13,372		(841	)		1997		May-13		3 -39 yrs.
Albany	Georgia	Courtyard		5,945		900		8,120		1,491		913		9,598		10,511		(947	)		2004		May-13		3 -39 yrs.
Columbus	Georgia	Residence Inn		6,456		1,190		7,600		1,471		1,195		9,066		10,261		(929	)		2003		May-13		3 -39 yrs.
Valdosta	Georgia	Courtyard		5,165		1,160		7,690		295		1,173		7,972		9,145		(789	)		2002		May-13		3 -39 yrs.
Mt. Olive	New Jersey	Residence Inn		12,768		2,930		14,860		1,641		2,933		16,498		19,431		(1,377	)		2005		May-13		3 -39 yrs.
Somerset	New Jersey	Homewood Suites		11,477		3,120		8,830		1,312		3,124		10,138		13,262		(809	)		2005		May-13		3 -39 yrs.
Saratoga Springs	New York	Hilton Garden Inn		19,439		960		17,020		682		960		17,702		18,662		(1,442	)		1999		May-13		3 -39 yrs.
Roanoke Rapids	North Carolina	Hilton Garden Inn		7,388		1,740		3,870		204		1,740		4,074		5,814		(358	)		2008		May-13		3 -39 yrs.
Hillsboro	Oregon	Courtyard		24,460		3,240		11,280		812		3,245		12,087		15,332		(1,269	)		1996		May-13		3 -39 yrs.
Hillsboro	Oregon	Residence Inn		26,540		3,790		16,540		3,511		3,805		20,036		23,841		(1,569	)		1994		May-13		3 -39 yrs.
Hillsboro	Oregon	TownePlace Suites		20,228		3,200		11,070		2,390		3,227		13,433		16,660		(1,107	)		1999		May-13		3 -39 yrs.
Portland	Oregon	Residence Inn		51,288		8,430		59,480		4,194		8,444		63,660		72,104		(4,457	)		2001		May-13		3 -39 yrs.
Pittsburgh	Pennsylvania	Residence Inn		17,502		3,550		19,730		4,351		3,555		24,076		27,631		(1,633	)		1998		May-13		3 -39 yrs.
Myrtle Beach	South Carolina	Courtyard		9,110		1,240		9,570		2,573		1,269		12,114		13,383		(1,256	)		1999		May-13		3 -39 yrs.


					Initial Cost to Company (1)				Costs Capitalized Subsequent to Acquisition			Gross Cost at Which Carried at Close of Period (2) (3)
City	State	Brand	Encum- brances		Land		Building and Improve- ments		Land, Building and Improve- ments			Land		Bldg/ FF&E/ Other		Total		Acc Depr			Year of Construction		Date Acquired		Depreciable Life
Nashville	Tennessee	Homewood Suites		15,350		1,010		10,670		272			1,034		10,918		11,952		(1,085	)		1999		May-13		3 -39 yrs.
Arlington	Texas	SpringHill Suites		7,962		1,300		5,890		635			1,352		6,473		7,825		(675	)		1998		May-13		3 -39 yrs.
Arlington	Texas	TownePlace Suites		3,434		1,380		5,060		2,700			1,405		7,735		9,140		(684	)		1999		May-13		3 -39 yrs.
Dallas	Texas	SpringHill Suites		15,709		1,200		14,660		655			1,200		15,315		16,515		(1,241	)		1997		May-13		3 -39 yrs.
Fort Worth	Texas	Homewood Suites		10,688		1,250		12,180		(321	)		1,257		11,852		13,109		(473	)		1999		May-13		3 -39 yrs.
Fort Worth	Texas	Residence Inn		17,032		3,850		16,740		2,273			3,850		19,013		22,863		(1,401	)		2005		May-13		3 -39 yrs.
Fort Worth	Texas	SpringHill Suites		10,258		1,780		13,820		501			1,780		14,321		16,101		(1,240	)		2004		May-13		3 -39 yrs.
Laredo	Texas	Homewood Suites		10,329		1,030		10,200		1,773			1,030		11,973		13,003		(990	)		2005		May-13		3 -39 yrs.
Laredo	Texas	Residence Inn		10,975		670		9,170		2,193			670		11,363		12,033		(1,171	)		2005		May-13		3 -39 yrs.
Las Colinas	Texas	TownePlace Suites		7,855		2,300		8,130		3,659			2,310		11,779		14,089		(1,246	)		1998		May-13		3 -39 yrs.
McAllen	Texas	Hilton Garden Inn		8,321		1,510		7,490		273			1,518		7,755		9,273		(682	)		2000		May-13		3 -39 yrs.
Fredericksburg	Virginia	Hilton Garden Inn		9,755		2,430		16,110		1,728			2,435		17,833		20,268		(1,235	)		2005		May-13		3 -39 yrs.
Kent	Washington	TownePlace Suites		14,992		2,180		13,140		2,037			2,213		15,144		17,357		(1,183	)		1999		May-13		3 -39 yrs.
Mukilteo	Washington	TownePlace Suites		13,127		3,020		11,920		1,740			3,042		13,638		16,680		(1,103	)		1999		May-13		3 -39 yrs.
Redmond	Washington	Marriott		50,355		19,260		46,340		714			19,260		47,054		66,314		(3,822	)		2004		May-13		3 -39 yrs.
Renton	Washington	Hilton Garden Inn		16,929		2,010		19,190		2,308			2,035		21,473		23,508		(1,658	)		1998		May-13		3 -39 yrs.

			$	847,032	$	153,920	$	817,180	$	89,455		$	154,855	$	905,700	$	1,060,555	($	73,915	)

(1)	Represents acquisition date fair value.

(2)	The gross cost basis for Federal Income Tax purposes approximates the basis used in this schedule.

(3)	Reconciliaiton of Real Estate and Accumulated Depreciation.

SCHEDULE III

Real Estate and Accumulated Depreciation

As of December 31, 2015

(dollars in thousands)


	Successor								Predecessor
	2015			2014		2013			Period from January 1, through May 13, 2013
Investment in real estate:
Beginning balance	$	1,018,604		$	975,373	$	-		$	946,018
Acquisitions		-			-		980,895			-
Improvements		56,452			43,231		4,345			6,133
Disposals and discontinued operations		(14,501	)		-		(9,867	)		(7,504	)
Ending balance	$	1,060,555		$	1,018,604	$	975,373		$	944,647


	Successor								Predecessor
	2015			2014		2013			Period from January 1, through May 13, 2013
Accumulated depreciation:
Beginning balance	$	43,771		$	16,359	$	-		$	216,910
Depreciation expense		33,775			27,412		16,401			7,781
Disposals and discontinued operations		(3,631	)		-		(42	)		-
Ending balance	$	73,915		$	43,771	$	16,359		$	224,691

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.


BRE SELECT HOTELS CORP

By:	/s/ WILLIAM J. STEIN	Date: March 18, 2016
	William J. Stein Chief Executive Officer and Senior Managing Director

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.


By:	/s/ WILLIAM J. STEIN	Date: March 18, 2016
	William J. Stein Director, Chief Executive Officer and Senior Managing Director (Principal Executive Officer)

By:	/s/ BRIAN KIM	Date: March 18, 2016
	Brian Kim Director, Chief Financial Officer, Vice President and Managing Director (Principal Financial Officer and Principal Accounting Officer)

By:	/s/ A.J. AGARWAL	Date: March 18, 2016
	A.J. Agarwal Director

By:	/s/ TYLER HENRITZE	Date: March 18, 2016
	Tyler Henritze Director


Exhibit Number		Description of Documents

2.1		Agreement and Plan of Merger, dated as of November 29, 2012, among Apple REIT Six, Inc., a Virginia corporation, BRE Select Hotels Holdings LP, a Delaware limited partnership, and BRE Select Hotels Corp, a Delaware corporation and a wholly-owned subsidiary of Buyer (incorporated by reference from Annex A of BRE Select Hotel Corp’s prospectus filed in accordance with Rule 424(b) of the Securities Act of 1933, as amended, on April 2, 2013 (File No. 333-186090)).

2.2		Plan of Merger merging Apple REIT Six, Inc., a Virginia corporation, with and into BRE Select Hotels Corp, a Delaware Corporation (incorporated by reference from Annex B of BRE Select Hotel Corp’s prospectus filed in accordance with Rule 424(b) of the Securities Act of 1933, as amended, on April 2, 2013 (File No. 333-186090)).

3.1		Amended and Restated Certificate of Incorporation of BRE Select Hotels Corp (incorporated by reference from Exhibit 3.1 of BRE Select Hotels Corp’s Form 8-K filed on May 20, 2013(File No. 333-186090)).

3.2		Amended and Restated Bylaws of BRE Select Hotels Corp (incorporated by reference from Exhibit 3.2 of BRE Select Hotels Corp’s Form 8-K filed on May 20, 2013 (File No. 333-186090)).

4.1		Form of Certificate of Designations of 7% Series A Cumulative Redeemable Preferred Stock of BRE Select Hotels Corp (incorporated by reference from Annex E of BRE Select Hotel Corp’s prospectus filed in accordance with Rule 424(b) of the Securities Act of 1933, as amended, on April 2, 2013 (File No. 333-186090)).

10.1		Loan Agreement dated as of December 3, 2014 by and among BRE Select Hotels Properties LLC, BRE Select Hotels Tuscaloosa LLC, BRE Select Hotels Redmond LLC, BRE Select Hotels AZ LLC, BRE Select Hotels TX L.P., BRE Select Hotels NC L.P., and BRE Select Hotels Clearwater LLC, collectively, as Borrower, and BRE Select Hotels Operating LLC, as Operating Lessee, and , Citigroup Global Markets Realty Corp., German American Capital Corporation, Goldman Sachs Mortgage Company, and JPMorgan Chase Bank, collectively, as Lender (incorporated by reference from Exhibit 10.1 of BRE Select Hotels Corp’s Annual Report on Form 10-K filed on March 20, 2015 (File No. 333-186090)).

10.2		Form of Fee and Leasehold Mortgage, Assignment of Leases and Rents and Security Agreement dated as of December 3, 2014 by Borrower and Operating Lessee, collectively, as Mortgagor, to Citigroup Global Markets Realty Corp., German American Capital Corporation, Goldman Sachs Mortgage Company, and JPMorgan Chase Bank, collectively, as Mortgagee (incorporated by reference from Exhibit 10.2 of BRE Select Hotels Corp’s Annual Report on Form 10-K filed on March 20, 2015 (File No. 333-186090)).

10.3		Guaranty Agreement executed as of December 3, 2014 by BSHH LLC in favor of Citigroup Global Markets Realty Corp., German American Capital Corporation, Goldman Sachs Mortgage Company, and JPMorgan Chase Bank, collectively, as Lender (incorporated by reference from Exhibit 10.3 of BRE Select Hotels Corp’s Annual Report on Form 10-K filed on March 20, 2015 (File No. 333-186090)).

12.1		Statement Regarding Computation of Ratio of Earnings to Fixed Charges.*

21.1		Subsidiaries of the registrant.*

31.1		Certification of the Company’s Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*

31.2		Certification of the Company’s Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*

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.**

99.1		Section 13(r) Disclosure.*

101		The following materials from BRE Select Hotels Corp’s Annual Report on Form 10-K for the fiscal year ended December 31, 2015 formatted in XBRL (eXtensible Business Reporting Language): (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Operations, (iii) the Consolidated Statements of Shareholder’s Equity, (iv) the Consolidated Statements of Cash Flows, and (v) related notes to these financial statements, tagged as blocks of text and in detail.*

*	Filed herewith

**	Furnished herewith

The agreements and other documents filed as exhibits to this report are not intended to provide factual information or other disclosure other than with respect to the terms of the agreements or other documents themselves, and you should not rely on them for that purpose. In particular, any representations or warranties made by us in these agreements or other documents were made solely within the specific context of the relevant agreement or document and may not describe the actual state of the affairs as of the date they were made or at any other time.

Large accelerated filer

Accelerated filer

Non-accelerated filer

x (Do not check if a smaller reporting company)

Smaller reporting company