UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

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

For the fiscal year ended December 31, 2018

☐	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 ☒

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 ☒ 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 ☒

(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 every Interactive Data File required to be submitted 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 such files). Yes ☒ 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. ☒

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


Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☒	Smaller reporting company	☐
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) 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 ☒

There is currently no established public trading market in which the Company’s shares of common stock are traded, and all shares of common stock are held by an affiliate of the Company. The number of shares of common stock outstanding as of March 28, 2019 was 100.

BRE SELECT HOTELS CORP

FORM 10-K

Index


			Page

Part I

	Item 1.	Business		3
	Item 1A.	Risk Factors		8
	Item 1B.	Unresolved Staff Comments		17
	Item 2.	Properties		18
	Item 3.	Legal Proceedings		19
	Item 4.	Mine Safety Disclosures		19

Part II

	Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities		20
	Item 6.	Selected Financial Data		21
	Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		22
	Item 7A.	Quantitative and Qualitative Disclosures About Market Risk		32
	Item 8.	Financial Statements and Supplementary Data		33
	Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure		55
	Item 9A.	Controls and Procedures		55
	Item 9B.	Other Information		55

Part III

	Item 10.	Directors, Executive Officers and Corporate Governance		56
	Item 11.	Executive Compensation		57
	Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters		57
	Item 13.	Certain Relationships and Related Transactions, and Director Independence		57
	Item 14.	Principal Accounting Fees and Services		58

Part IV

	Item 15.	Exhibits and Financial Statement Schedules		59
	Item 16.	Form 10-K Summary		63

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, risks inherent in the hospitality industry; adverse national and regional economic conditions; industry competition; the Company’s dependence on third-party management companies; segment concentration; limitations in the Company’s operating agreements; the Company’s dependence on other hospitality brands; consumers increasing use of travel intermediaries; seasonal volatility of the hospitality industry; illiquid nature of real estate property investments; risks related to ground leases; natural disasters or other perils; environmental issues; compliance with fire, safety and other regulations; risks associated with the employment of hotel personnel; risk of impairment of our real estate assets; renovations and capital improvements; material failure or inadequacy of technology used in operations; risks associated with the Company’s indebtedness; financing risks; risks related to litigation, regulatory proceedings or inquiries; risks related to climate change; changes in or interpretations of laws or regulations that impact the Company; risk related to the Company’s status as a real estate investment trust; 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;

•

“our hotels” refers to the 48 hotels owned by us as of December 31, 2018;

•

“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; and

•

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

Item 1.

Business

Overview

We are a real estate investment trust (“REIT”) focused on the ownership of upscale, extended-stay and select service hotels. Our hotels operate under the Homewood Suites by Hilton, Hilton Garden Inn, Hampton Inn, Hampton Inn & Suites, Courtyard by Marriott, Fairfield Inn by Marriott, Residence Inn by Marriott, SpringHill Suites by Marriott, TownePlace Suites by Marriott and Marriott brands. Our focus is on the ownership of high-quality real estate that generates attractive returns for our investors, and our strategy is to own primarily premium branded select service hotels concentrated in markets that offer multiple demand generators and high barriers to entry. As of December 31, 2018, our portfolio consisted of 48 hotels, containing a total of 5,662 rooms diversified among markets in 16 states.

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 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 was completed on May 14, 2013.

We have elected to be taxed as a 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 stockholders, subject to certain adjustments and excluding any net capital gain. Because federal income tax laws restrict REITs and their subsidiaries from operating or managing hotels, we do not operate or manage our hotels. Instead, we lease all of our hotels to our taxable REIT subsidiaries (“TRS”) lessees, and our TRS lessees retain unaffiliated third-party managers to operate our hotels pursuant to management agreements. As of December 31, 2018, the management companies engaged, and our hotels and rooms they managed, were as follows:


	Number of		Number of
Management Company	Hotels		Rooms
Inn Ventures, Inc.		10		1,493
Interstate Hotels & Resorts, Inc.		9		1,055
White Lodging Services Corporation		7		846
Larry Blumberg & Associates		9		719
Texas Western Hospitality		5		615
Marriott International, Inc.		1		135
OTO Development, LLC		5		496
Sage Hospitality		2		303

Total		48		5,662

We currently intend to adhere to the requirements to qualify for REIT status. There can be no assurance that we will qualify as a REIT for any particular year, and 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 stockholders would not qualify for the dividends paid deduction. This tax liability would reduce our net earnings available for distribution to our stockholders. 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.

We do not distinguish or group our operations on a geographical or other 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 material intercompany accounts and transactions have been eliminated in consolidation. Refer to Part II, Item 8 of this report, for our 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 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.

Debt. On July 7, 2017, we obtained an $800 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 2.15%. We used $732.6 million of the loan proceeds to pay the outstanding balance on our previous mortgage loan obtained on December 3, 2014. In addition, on August 6, 2017 (the “redemption date”) we used $54.5 million of the loan proceeds to redeem 28,560,947 shares of our Series A Preferred Stock on a pro-rata basis from each stockholder, representing approximately 39.458% of the total shares of Series A Preferred Stock outstanding on the redemption date. The redemption price was $1.9082 per share, which was comprised of the $1.90 liquidation preference per share and $0.082 in accumulated and unpaid dividends per share earned through the redemption date. We also have a $15.6 million loan secured by our Fort Worth, Texas Residence Inn property that matures in October 2022 and carries a fixed interest rate of 4.73%.

Business Strategy. Our primary objective is to enhance stockholder 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 during 2018 and designated three additional hotels as held for sale as of December 31, 2018, which were subsequently sold during the first two months of 2019.


Hotel		Date of Sale
Homewood Suites - Laredo, Texas		January 2019
Residence Inn - Laredo, Texas		February 2019
Courtyard - Dothan, Alabama		February 2019

Brand Affiliations. Our hotels operate under strong, premium brands with all of our hotels operating under relationships with Marriott International Inc. or its affiliates (“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, 2018:


Number of Hotels and Guest Rooms by Brand
Brand Affiliation	Number of Hotels		Number of Rooms
Marriott
Residence Inn		8		1,013
Courtyard		8		822
TownePlace Suites		3		416
SpringHill Suites		2		234
Fairfield Inn		1		63

Subtotal		22		2,548
Hilton
Hilton Garden Inn		13		1,645
Hampton Inn / Hampton Inn & Suites		7		757
Homewood Suites		6		712

Subtotal		26		3,114

Total		48		5,662

Hotel Industry and Competition. The hotel industry in the United States is highly competitive, consisting of both private and public entities operating in diversified markets. The key industry participants are owners, franchisors and managers. 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.

As of December 31, 2018, we owned 48 hotels with an aggregate of 5,662 rooms located in 16 states. The following table summarizes these hotels and rooms by state:


Number of Hotels and Guest Rooms by State
State	Number of Hotels		Number of Rooms
California		9		1,078
Florida		6		519
Texas		6		752
Alabama		4		304
Oregon		4		671
Alaska		3		348
Connecticut		3		319
Washington		3		430
Colorado		2		303
New Jersey		2		246
Arizona		1		99
Georgia		1		78
New York		1		112
North Carolina		1		147
South Carolina		1		135
Tennessee		1		121

Total		48		5,662

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 48 hotels are operated and managed under separate management agreements, by affiliates of the following companies: Marriott, Texas 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”). Our hotel managers generally have 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. As of December 31, 2018, the management agreements had remaining terms generally ranging from less than one year to 15 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. We are required to pay fees to the manager under these management agreements, and the 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 and Sage are not affiliated with either Marriott or Hilton and, as a result, were required to obtain approval from the respective franchisor of the hotels they manage. 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.

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

General. Our hotels are subject to various U.S. federal, state and local 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. In addition, states and local jurisdictions regulate the activities of hotels and restaurants, including safety and health standards, as well as the sale of liquor at such properties, where applicable, by requiring licensing, registration, disclosure statements and compliance with specific standards of conduct. Hotel operators are also subject to laws governing their relationship with employees, including minimum wage requirements, overtime, working conditions and work permit requirements. Our hotel management companies are responsible for compliance with these laws. Compliance with or changes in these laws could reduce the revenue and profitability of our properties and could otherwise adversely impact our operations.

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 have 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. 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 2018, all individuals 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 various risks inherent to the hospitality industry beyond our control, any of which could adversely affect our business, results of operations and value of our hotels.

Our business is subject to a number of business, financial and operating risks inherent to the hospitality industry and the agreements under which we operate, including, but not limited to:

•

significant competition from other hospitality providers and lodging alternatives;

•

an increase in supply of hotel rooms that exceeds increases in demand;

•

dependence on business and leisure travel;

•

governmental action and uncertainty resulting from U.S. and global political trends, including potential barriers to travel, trade and immigration;

•

increases in energy costs and other travel expenses, which may adversely affect travel patterns;

•

our relationships with and the performance of third-party managers and franchisors;

•

reduced travel due to geo-political uncertainty, including terrorism, legislation or executive policies, travel-related health concerns, including the widespread outbreak of infectious or contagious diseases in the U.S., inclement weather conditions, including natural disasters such as hurricanes and earthquakes, and airline strikes or disruptions;

•

reduced travel due to adverse national, regional or local economic and market conditions;

•

changes in desirability of geographic regions in which our hotels are located;

•

increases in operating costs, including increases in the cost of property insurance, utilities and real estate and personal property taxes, due to inflation and other factors that may not be offset by increased room rates;

•

labor shortages and increases in the cost of labor due to low unemployment rates or to government regulations surrounding wage rates, health care coverage and other benefits;

•

changes in governmental laws and regulations, fiscal policies and zoning ordinances and the related costs of compliance with applicable laws and regulations;

•

natural or man-made disasters, such as earthquakes, tornadoes, hurricanes, wildfires, mudslides and floods; and

•

any inability to remodel outmoded buildings as required by the franchise or lease agreement.

In addition, as our hotels are managed by third-party property managers, the success of our properties will depend largely on the property managers’ ability to address these factors. Any of the foregoing could adversely affect our revenues, limit opportunities for growth and the value of our properties. Additionally, these items, among others, may reduce the availability of our capital and the funds we have available to distribute to our stockholders.

Adverse national and regional economic conditions may adversely affect our business and financial performance.

The performance of the lodging industry has historically been closely linked to the performance of the general economy, both nationally and in local markets within the United States. The lodging industry is also sensitive to business, government and personal discretionary levels of spending. Declines in corporate and government budgets and consumer demand due to adverse general economic conditions can negatively impact travel patterns, which could lower the revenue and profitability of our hotels. A slowing of national and local economic growth or overall economic weakness could have an adverse effect on our revenue and negatively impact our profitability. Furthermore, even if the economy in the United States in general continues to improve, we cannot provide any assurances that demand for hotels will increase from current levels in the markets where our hotels are located.

In addition, certain expenses, such as management costs, certain utility costs, minimum supply and maintenance costs, interest expense, ground leases, property taxes and insurance, are relatively fixed in nature. During a period of overall economic weakness, if we are unable to substantially decrease these costs as demand for our hotels decreases, our financial results may be adversely affected.

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 competes for guests primarily with other hotels in our immediate vicinity and secondarily with other hotels in our geographic market. We also compete with numerous owners and operators of vacations ownership resorts, as well as alternative lodging companies, such as HomeAway and Airbnb, which operate websites

that market available furnished, privately-owned residential properties, including homes and condominiums, that can be rented on a nightly, weekly or monthly basis. An increase in the number of competitive hotels, vacation ownership resorts and alternative lodging arrangements 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.

We are dependent on the performance of the third-party management companies that manage the operations of each of our hotels and could be materially and adversely affected if such third-party managers do not manage our hotels in our best interests.

Because federal income tax laws restrict REITs and their subsidiaries from operating or managing hotels, we do not operate or manage our hotels. Instead, we lease all of our hotels to our TRS lessees, and our TRS lessees retain third-party managers to operate our hotels pursuant to management agreements. We have entered into individual hotel management agreements for all 48 of our hotels with eight different managers.

Under the terms of the hotel management agreements, the hotel managers are responsible for all aspects of the operations of our hotels, including ensuring those operations are conducted in accordance with applicable law and regulations and in our best interests, and our ability to participate in operating decisions regarding our hotels is limited to certain matters, including approval of the annual operating budget. While our TRS lessees closely monitor the performance and operations of our third-party managers, we cannot assure you that the mangers will manage our hotels in a manner that is consistent with their respective obligations under the applicable hotel management agreement or our obligations under our hotel franchise agreements. We also cannot assure you that our hotel managers will not be negligent in their performance, will not engage in criminal or fraudulent activity, or will not otherwise default on their respective management obligations to us. We do not have the authority to require any hotel to be operated in a particular manner, even if we believe that our hotels are not being operated efficiently or in our best interests, and our general recourse under the hotel management agreements is limited to termination upon advance notice. From time to time, disputes may arise between us and our third-party managers regarding their performance or compliance with the terms of the hotel management agreements, which in turn could adversely affect our results of operations. We generally will attempt to resolve any such disputes through discussions or negotiations; however, if we are unable to reach satisfactory results through discussions and negotiations, we may choose to terminate our management agreement, litigate the dispute or submit the matter to their party dispute resolution, the outcome of which may be unfavorable to us.

Our investments are concentrated in a single segment of the hotel industry.

We are focused on the ownership of upscale, extended-stay and select service hotels concentrated in markets that offer multiple demand generators and high barriers to entry. We are subject to risks inherent in concentrating investments in a single industry and in a specific market segment within that industry. The adverse effect on amounts available for distribution to stockholders resulting from a downturn in the hotel industry in general or the mid-scale segment in particular could be more pronounced than if we had diversified our investments outside of the hotel industry or in additional hotel market segments.

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.

All of our hotels operate under either Marriott or Hilton brands; therefore, we are subject to risks associated with concentrating our portfolio in just two brand families.

All of the hotels we owned as of December 31, 2018 operate under relationships with Marriott or Hilton. As a result, our success is dependent in part on the continued strength of the Marriott and Hilton brands. We believe strong premium brands provide value through increased demand and consumer loyalty. Consequently, if the market recognition or positive perception of Marriott and/or Hilton deteriorates or is compromised, the goodwill associated with their branded hotels in our portfolio may be adversely affected, and any decreased financial health of the franchisor could adversely affect the income generated by our properties.

Consumers’ increasing use of travel intermediaries may materially and adversely affect our profitability.

Although a majority of rooms booked are affected through websites maintained by the hotel franchisors, some of our hotel rooms will be booked through other channels or intermediaries. Typically, these travel intermediaries have access to room inventories at participating hotels and charge higher commissions, which reduces the hotel’s profitability. In addition, some of these travel intermediaries may attempt to offer hotel rooms as a commodity by increasing the importance of price and general indicators of

quality at the expense of brand identification. If consumers develop brand loyalties to alternate reservation systems rather than to the brands under which our hotels are franchised, the value of our hotels could decrease, and our business and profitability could be materially and adversely affected.

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. The seasonality causes periodic fluctuations in room revenues, occupancy levels, room rates and operating expenses in particular hotels. We can provide no assurances that our cash flows will be sufficient to offset any shortfalls that occur as a result of these fluctuations. As a result, there may be quarterly fluctuations in our results of operations, which may affect our revenues and our ability to make distributions to stockholders.

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

We continually monitor the profitability of our hotels, market conditions, and capital requirements and attempt to maximize stockholder value by timely and opportunistically disposing of assets. 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 or other disposition at attractive prices, within any desired period of time or at all. The ability to sell assets could also be restricted by certain covenants in our debt agreements. As a result, we may be required to dispose of assets on less than favorable terms or at less than desirable times, and we may be unable to vary our portfolio in response to economic or other conditions, which could adversely affect our financial position.

Certain hotels are subject to ground leases that may impact our ability to use the hotel or restrict our ability to sell the hotel.

As of December 31, 2018, two of our hotels were subject to ground leases. Accordingly, we only own a long-term leasehold, sub-leasehold or similar interest in those two hotels. Our ground lease agreements require the consent of the lessor or sub-lessor prior to transferring our interest in the ground lease. These provisions may impact our ability to sell our hotels which, in turn, could adversely impact the price realized from any such sale. If we are found to be in breach of a ground lease, we could lose the right to operate the hotel. In addition, unless we can purchase a fee interest in the underlying land or renew the terms of these leases before their expiration, as to which no assurances can be given, we will lose our right to operate these properties and our interest in the property, including any investment made in the property. Our ability to exercise any extension options relating to our ground leases is subject to, among other conditions, the condition that we are not in default under the terms of the ground lease at the time that we exercise such options, and we can provide no assurances that we will be able to exercise any available options at such time. If we were to lose the right to use a hotel due to a breach or non-renewal of a ground lease, we would be unable to derive income from such hotel.

Certain natural disasters or other 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 fires, 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, fire, or terrorist peril, whether or not insured, could have an adverse effect on our results of operations and financial condition.

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.

We are subject to the risks associated with the employment of hotel personnel.

Our third-party hotel management companies are responsible for hiring and maintaining the labor force at each of our hotels. Although we do not directly employ or manage the employees at our hotels, we still are subject to many of the costs and risks generally associated with the hotel labor force, particularly those hotels with unionized labor. From time to time, the hotel operations may be disrupted as a result of strikes, lockouts, public demonstrations or other negative actions and publicity. We also may incur increased legal costs and indirect labor costs as a result of contract disputes or other events. The resolution of labor disputes or re-negotiated labor contracts could lead to higher labor costs, either by increases in wages or benefits or by changes in work rules that raise hotel operating costs. We do not have the ability to affect the outcome of these negotiations.

Our real estate assets may be subject to impairment charges.

We assess on a periodic basis 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 or other indicators of fair value.

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. For example, in 2018, we recorded impairment charges of $24.0 million, and in 2017, we recorded impairment charges of $13.9 million. 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.

Renovations and capital improvements may result in disruptions to our hotels, strain management resources and materially and adversely affect our business.

Our hotels have an ongoing need for renovation and refurbishment. We are required, under all of our hotel franchise agreements, under our Marriott management 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. In addition, from time to time, we will need to make renovations and capital improvements to comply with applicable laws and regulations, to remain competitive with other hotels in our markets, and to maintain the economic value of our hotels. Occupancy and ADR are often affected by the maintenance and capital improvements at a hotel, especially in the event that the maintenance or improvements are not completed on schedule, or if the improvements require a significant disruption at the hotel. The costs of capital improvements we need or choose to make could reduce the funds available for other purposes and may reduce our profitability.

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.

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, 2018, we had $717.7 million of mortgage debt outstanding. Our substantial leverage subjects us to a number of risks, including the following:

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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;

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

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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;

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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 our stockholder;

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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;

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

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

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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 hotels.

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.

As of December 31, 2018, 47 of our 48 properties secured $702.1 million of cross-collateralized and cross-defaulted mortgage debt (which we refer to herein as the “debt financing”), and one remaining property secured a separate mortgage loan for $15.6 million. 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. 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:

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incur additional secured or unsecured indebtedness;

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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, for two consecutive quarters, less than (i) 8.00% during the initial two-year term, the first extension term and the second extension term of the debt agreements and (ii) 9.00% during the third, fourth and fifth extension terms of the debt agreements, in each case, until such time as the debt yield for two consecutive quarters is equal to or greater than 8.00% during the initial two-year term, the first extension term and second extension term of the debt agreements and 9.00% during the third, fourth and fifth extension terms of the debt agreements;

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make investments or acquisitions;

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use assets as security in other transactions;

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

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guarantee other indebtedness; and

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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.

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 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.

We face possible risks associated with the physical effects of climate change.

We are subject to risks associated with the physical effects of climate change, which could include more frequent or severe storms, droughts, hurricanes and flooding, any of which could have a material adverse effect on our properties, operations and business. To the extent climate change causes changes in weather patterns, our markets could experience increases in storm intensity and rising sea-levels causing damage to our properties. Over time, these conditions could result in declining hotel demand or our inability to operate the affected hotels at all. Climate change also may have indirect effects on our business by increasing the cost of (or making unavailable) property insurance on terms we find acceptable, as well as increasing the cost of renovations, energy, water and snow removal at our properties. We cannot predict with certainty whether climate change is occurring and, if so, at what rate, and therefore there can be no assurance that climate change will not have a material adverse effect on us.

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 $717.7 million of indebtedness outstanding as of December 31, 2018. 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 Stock is redeemable at our election at any time.

We have the right to redeem all or any portion of the Series A Preferred Stock 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 Stock may be required to recognize capital gains for federal income tax purposes as a result thereof.

The holders of Series A Preferred Stock have limited rights to require us to redeem these shares, and we may not be able to redeem Series A Preferred Stock 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 liquidation preference of the Series A Preferred Stock may be reduced in the future.

The initial liquidation preference of $1.90 per share of Series A Preferred Stock may be reduced significantly should net costs and payments relating to litigation and regulatory matters for alleged legacy acts exceed $3.5 million. On March 1, 2019, we entered into an agreement to settle litigation relating to alleged legacy acts for $3.75 million (see Part I., Item 3. “Legal Proceedings”). After giving effect to the payment of such settlement amount and related expenses, the net costs and payments relating to litigation and regulatory matters for alleged legacy acts exceed $3.5 million. Although the terms of the Series A Preferred Stock contemplate a reduction to the initial liquidation preference of the Series A Preferred Stock should such net costs and payments exceed $3.5 million, as part of the settlement agreement, the Company agreed to not reduce the liquidation preference of the Class A Preferred Stock as a result of the settlement amount and related expenses. Under the settlement agreement, such net costs and payments are deemed to equal $3.5 million upon the Company’s payment of the settlement amount to an escrow account for the class. The settlement remains subject to preliminary and final court approval. At this time, we cannot provide a reasonable estimate of any additional costs and payments relating to any such matters, but it is possible that the liquidation preference of the Series A Preferred Stock could be reduced to zero. Even if we are successful in addressing these legal matters, the costs associated with them may be significant, and the liquidation preference may therefore be reduced significantly below $1.90 per share.

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 stockholders, 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 26 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 stockholders’ 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 stockholders 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, stockholder 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 stockholders would not qualify for the dividends paid deduction. This tax liability would reduce net earnings available for distribution to stockholders. 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 TRS lessees, 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 TRS, 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. For taxable years beginning after December 31, 2017 and before January 1, 2026, under the recently enacted Tax Cuts and Jobs Act, non-corporate taxpayers may deduct up to 20% of certain pass-through business income, including “Ordinary REIT dividends” (generally, dividends received from a REIT that are not designated as capital gain dividends or qualified dividend income), subject to certain limitations, resulting in a maximum effective U.S. federal income tax rate of 29.6% on such income.

Item 1B. Unresolved Staff Comments

None

Item 2.

Properties

As of December 31, 2018, we owned 48 hotels located in 16 states with an aggregate of 5,662 rooms, consisting of the following:


				Number
City	State	Brand	Manager	of Rooms
Dothan	Alabama	Courtyard	LBA		78
Dothan	Alabama	Hampton Inn & Suites	LBA		85
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
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
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	Hampton Inn & Suites	LBA		85
Tallahassee	Florida	Hilton Garden Inn	Interstate		99
Columbus	Georgia	Residence Inn	LBA		78
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
Myrtle Beach	South Carolina	Courtyard	Marriott		135
Nashville	Tennessee	Homewood Suites	Interstate		121
Dallas	Texas	SpringHill Suites	Western		148
Fort Worth	Texas	Homewood Suites	Interstate		137
Fort Worth	Texas	Residence Inn	Western		149
Laredo	Texas	Homewood Suites	Western		105
Laredo	Texas	Residence Inn	Western		109
McAllen	Texas	Hilton Garden Inn	Western		104
Kent	Washington	TownePlace Suites	Inn Ventures		152
Mukilteo	Washington	TownePlace Suites	Inn Ventures		128
Renton	Washington	Hilton Garden Inn	Inn Ventures		150

Total number of rooms					5,662

Item 3.

Legal Proceedings

The Company, as the successor to Apple Six, is subject to claims for alleged acts of Apple Six that occurred prior to the Merger. On February 24, 2017, a putative class action, captioned Wilchfort v. Knight, et al., Civil Action No. 17-cv-01046 (E.D.N.Y.), was filed in the United States District Court for the Eastern District of New York against BRE Select Hotels Corp, as successor-in-interest to Apple REIT Six, Inc., Apple Hospitality REIT, Inc., Apple REIT Seven, Inc., Apple REIT Eight, Inc. (together with Apple REIT Six, Inc. and Apple REIT Seven, Inc., the “Apple REITs”), certain of the Apple REITs’ directors, officers and advisors, and Apple Fund Management, LLC. Plaintiff seeks to represent a class of all persons and entities who elected to participate in Apple REITs’ Dividend Reinvestment Plans (“DRIPs”) between July 17, 2007 and the later of the termination and/or suspension of the respective DRIPs or February 12, 2014. The complaint alleges, among other things, that the prices at which plaintiff and the purported class members purchased additional shares through the DRIPs were artificially inflated and not indicative of the true value of units in the Apple REITs. Plaintiff asserts claims for breach of contract, tortious interference with contract and tortious interference with business expectancy and breach of implied duty of good faith and fair dealing and seeks, among other things, damages and other costs and expenses. On March 30, 2018, the court granted in part and denied in part the Company’s motion to dismiss and, on April 13, 2018, plaintiffs filed an amended complaint, captioned Wilchfort et al. v. BRE Select Hotels Corp., Civil Action No. 17-cv-1046 (E.D.N.Y.). On May 31, 2018, plaintiff filed a Second Amended Class Action Complaint, captioned Battaglia v. BRE Select Hotels Corp., Civil Action No. 17-cv-01046 (E.D.N.Y.), which, among other things, narrowed the putative class period to February 24, 2011 through November 29, 2012. On June 4, 2018, plaintiff filed a motion for class certification. On June 27, 2018, the Company filed an Answer to the Second Amended Class Action Complaint. On March 1, 2019, the parties executed a settlement agreement to resolve all of plaintiff’s claims without any admission of wrongdoing for $3.75 million. Also, on March 1, 2019, the plaintiff filed a motion for preliminary approval of the settlement agreement. The settlement agreement is also subject to final approval by the court, and there can be no assurance that the court will approve such settlement. As of December 31, 2018, the Company had fully reserved for this settlement amount. For a discussion of the terms of the settlement agreement as it relates to the Series A Preferred Stock, see “Item 1A, Risk Factors – The liquidation preference of the Series A Preferred Stock may be reduced in the future.”

Item 4.

Mine Safety Disclosures

Not Applicable

PART II

Item 5.

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

There is currently no established public trading market in which our shares of common stock are traded. As of March 28, 2019, there were 100 shares of common stock issued and outstanding, all of which were held by BRE Holdings.

Distribution Information

The initial dividend rate on the Series A Preferred Stock was 7% per annum. The dividend rate increased from 7% per annum to 11% per annum on May 14, 2018. 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 11.00% 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.

In addition, in order to maintain our qualification as a REIT, we must annually distribute to our stockholders 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 stockholder’s basis in its shares and will not be taxable to the extent that the distribution equals or is less than the stockholder’s basis in the shares. To the extent that a distribution exceeds both current and accumulated earnings and profits and the stockholder’s basis in its shares, that distribution will be treated as a gain from the sale or exchange of that stockholder’s shares. Every year, we notify our stockholders 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:


	2018					2017
	Amount		%			Amount		%
Common Stock:
Ordinary income	$	2,482.59		1.42	%	$	131,954.41		27.96	%
Return of capital		172,517.41		98.58	%		339,933.30		72.04	%

Total	$	175,000.00		100.00	%	$	471,887.71		100.00	%

Series A Preferred Stock:
Ordinary income (1) (2)	$	0.1648		100.00	%	$	0.1332		100.00	%

Total	$	0.1648		100.00	%	$	0.1332		100.00	%

(1)	The fourth quarter Series A Preferred dividend paid on January 16, 2018 is treated as a 2018 distribution for tax purposes.

(2)	The fourth quarter Series A Preferred dividend paid on January 10, 2019 is treated as a 2019 distribution for tax purposes.

Item 6.

Selected Financial Data

The following table sets forth selected financial data for the years ended December 31, 2018, 2017, 2016, 2015 and 2014. 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.


(in thousands except share and statistical data)	2018			2017			2016			2015			2014
Revenues:
Room revenue	$	229,548		$	243,790		$	268,659		$	268,272		$	258,223
Other revenue		11,775			16,088			17,820			18,743			18,298

Total revenue		241,323			259,878			286,479			287,015			276,521

Expenses:
Hotel operating expenses		134,338			142,100			156,698			157,076			153,216
Taxes, insurance and other		14,013			15,153			15,449			14,552			14,725
General and administrative		13,356			9,157			5,164			5,013			6,850
Depreciation		33,459			35,668			38,507			33,775			27,412
Impairment of investment in real estate		23,971			13,911			17,694			-			-
(Gain) loss on sale of hotel properties		(786	)		(3,628	)		2,342			-			-
Loss on disposals of investment in real estate		-			4,981			-			6,116			-
Interest expense, net		37,003			31,722			32,144			30,704			38,783
Extinguishment of mortgages payable and mezzanine loans		-			-			-			-			4,295
Loss on derivatives		-			152			89			59			735
Income tax expense (benefit)		4,055			4,628			(1,198	)		2,409			2,742

Total expenses		259,409			253,844			266,889			249,704			248,758

(Loss) income from continuing operations		(18,086	)		6,034			19,590			37,311			27,763
Loss from discontinued operations		-			-			-			-			(44	)

Net (loss) income		(18,086	)		6,034			19,590			37,311			27,719
Series A Preferred Stock dividends declared		(8,054	)		(7,973	)		(9,641	)		(9,641	)		(12,797	)

Net (loss) income available for common stockholder	($	26,140	)	($	1,939	)	$	9,949		$	27,670		$	14,922


Per Common Share:
(Loss) income from continuing operations, after Series A Preferred Stock dividends	($	261,400.00	)	($	19,390.00	)	$	99,490.00		$	276,700.00		$	149,660.00
Loss from discontinued operations		0.00			0.00			0.00			0.00			(440.00	)

Net (loss) income available to common stockholder	($	261,400.00	)	($	19,390.00	)	$	99,490.00		$	276,700.00		$	149,220.00

Distributions paid per common share	$	175,000.00		$	471,887.71		$	540,000.00		$	380,000.00		$	300,000.00
Weighted-average common shares outstanding - basic and diluted		100			100			100			100			100


Balance Sheet Data (at end of period):
Cash	$	20,460		$	22,491		$	25,170		$	29,137		$	22,776
Investment in real estate, net	$	674,130		$	758,259		$	857,918		$	986,640		$	974,833
Total assets	$	851,220		$	974,512		$	1,067,084		$	1,162,302		$	1,182,364
Debt and redeemable preferred stock	$	798,086		$	891,093		$	930,276		$	979,429		$	984,613
Stockholder’s equity	$	30,068		$	73,548		$	122,821		$	166,872		$	177,202
Net book value per share	$	300.68		$	735.48		$	1,228.21		$	1,668.72		$	1,772.02


Other Data:
Cash flow from (used in):
Operating activities	$	49,623		$	63,544		$	77,572		$	80,720		$	71,229
Investing activities	$	74,030		$	37,008		$	35,932		($	60,845	)	($	24,415	)
Financing activities	($	123,139	)	($	100,116	)	($	117,646	)	($	48,062	)	($	46,400	)
Number of hotels owned at end of period (including hotels held for sale)		48			52			60			62			62
Average Daily Rate (ADR) (a) (b) (c)	$	139		$	138		$	135		$	134		$	126
Occupancy (a) (b) (c)		77	%		76	%		75	%		75	%		76	%
Revenue per Available Room (RevPAR) (a) (b) (c)	$	107		$	104		$	101		$	101		$	96
Total rooms sold (a) (b) (c)		1,576,570			1,736,347			1,987,184			2,006,637			2,046,198
Total rooms available (a) (b) (c)		2,042,432			2,300,595			2,647,667			2,661,472			2,681,655

(a)	From continuing operations.

(b)

Excludes Courtyard - Myrtle Beach, South Carolina and Courtyard - Panama City, Florida for the period from September 1, 2018 through November 30, 2018, and October 1, 2018 through December 31, 2018, respectively, due to the properties closures resulting from hurricane damage. Excludes Homewood Suites - Fort Worth, Texas for the period from June 4, 2015 through October 26, 2015 due to the property closure due to flood damage.

(c)	Includes hotels sold through the period owned in each respective period.

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 1A., “Risk Factors,” appearing elsewhere in this Annual Report on Form 10-K.

Overview

We are a real estate investment trust (REIT) focused on the ownership of upscale, extended-stay and select service hotels. Our hotels operate under the Homewood Suites by Hilton, Hilton Garden Inn, Hampton Inn, Hampton Inn & Suites, Courtyard by Marriott, Fairfield Inn by Marriott, Residence Inn by Marriott, SpringHill Suites by Marriott, TownePlace Suites by Marriott and Marriott brands. Our focus is on the ownership of high-quality real estate that generates attractive returns for our investors. As of December 31, 2018, our portfolio consisted of 48 hotels, containing a total of 5,662 rooms diversified among markets in 16 states.

We were formed to invest in income-producing real estate in the United States through our acquisition of Apple Six. 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 (the “Merger”).

Our strategy is to own primarily premium branded select service hotels, concentrated in markets that offer multiple demand generators and high barriers to entry. We believe that premium branded select service hotels offer attractive returns in their ability to generate high Revenue per Available Room (“RevPAR”) levels, combined with an efficient operating model to control costs and generate positive cash flows. All 48 of our hotel properties are Hilton or Marriott branded properties.

We actively monitor the profitability of our properties and aim to maximize stockholder value by evaluating opportunities to acquire or dispose of properties. As such, the composition and size of our hotel portfolio may change materially over time.

Our hotel portfolio experienced a decline in room revenue in 2018 compared to the prior year primarily due to the sale of eight properties during 2017 and four properties during 2018. Excluding the properties sold, for the year ended December 31, 2018, occupancy and Average Daily Rate (“ADR”) increased compared to 2017. Net income decreased for the year ended December 31, 2018 compared to the prior year primarily due to the sale of the twelve properties since January 2017 and the increase in impairments on investments in real estate in 2018 compared to 2017. Although our 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, the performance of our hotels as compared to other hotels within their respective local markets, in general, continues to meet our expectations.

We expect revenues for our portfolio, excluding the impact of sold hotels, to rise by approximately 1-2% in 2019, which is consistent with the RevPAR growth forecasted for the industry in 2019. We have renovated substantially all of our hotel portfolio since 2014, and these improvements have helped us to continue to perform well as we continue to face increased competition in most of our markets.

Recent Events

On March 26, 2019, the Board of Directors of the Company approved the redemption of 20,945,000 shares of Series A Preferred Stock from holders of record on March 29, 2019 (representing approximately 47.80% of the total Series A Preferred Stock outstanding) with the aggregate redemption price expected to be approximately $40.0 million. The shares of Series A Preferred Stock are scheduled to be redeemed on May 1, 2019 with payment for such redeemed shares to occur shortly thereafter. The foregoing disclosure does not constitute a notice of redemption of the Series A Preferred Stock.

In September 2018, we evacuated and temporarily closed the Courtyard in Myrtle Beach, South Carolina due to damage incurred from Hurricane Florence. In October 2018, Hurricane Michael struck the Florida Panhandle as a category 4 hurricane which resulted in widespread damage, flooding, and power outages. We evacuated and temporarily closed the Courtyard Panama City and three additional hotels were also impacted by the hurricane, but were able to remain open. We maintain insurance which is subject to a deductible of approximately $1.3 million related to these losses. We have recorded an insurance receivable of $12.0 million for the insurance claims as of December 31, 2018 and an impairment of investment in real estate of $4.8 million during the year ended December 31, 2018, which represents our estimate of property damage and remediation costs incurred up to our insurance policy deductibles. We also anticipate receiving proceeds from business interruption insurance to cover business lost as a result of the hurricanes.

In January 2018, we sold the Residence Inn – Huntsville, Alabama. In February 2018, we sold the Marriott – Redmond, Washington. In October 2018, we sold the Residence Inn – Pittsburgh, Pennsylvania. In December 2018, we sold the Springhill Suites – Fort Worth, Texas. In January 2017, we sold the Fairfield Inn – Huntsville, Alabama, TownePlace Suites – Arlington, Texas, Springhill Suites – Clearwater, Florida and TownePlace Suites – Las Colinas, Texas. In February 2017, we sold the Courtyard – Albany, Georgia. In March 2017, we sold the Springhill Sites – Arlington, Texas. In June 2017, we sold the Courtyard – Valdosta, Georgia. In July 2017, we sold the Fairfield Inn – Pensacola, Florida. The twelve hotels sold in 2017 and 2018 are collectively referred to as the “Sold Properties.”

In July 2017, we obtained an $800 million mortgage loan from commercial lenders. A portion of the proceeds from the new loan was used to repay the $732.6 million principal amount outstanding under the previous mortgage loan. Additionally, a portion of the proceeds was used to redeem 28,560,947 shares of our Series A Preferred Stock (representing approximately 39.458% of the total shares of Series A Preferred Stock outstanding on the redemption date) and pay accrued and unpaid dividends on such redeemed shares for an aggregate redemption price of approximately $54.5 million.

In February 2017, we received $1.4 million in proceeds from the Deepwater Horizon Economic and Property Damages Settlement Program arising out of damages suffered by four properties prior to the Merger. The proceeds are included in other revenue for the year ended December 31, 2017.

On or around June 5, 2015, we evacuated and temporarily closed the Homewood Suites in Fort Worth, Texas due to damage incurred from a major storm in the area in late May 2015. Remediation work commenced immediately, and while the hotel partially reopened on October 27, 2015, all rooms were not restored to service until April 2017. Three other hotels we own in the Dallas-Fort Worth area (SpringHill Suites Dallas Downtown, TownePlace Suites Las Colinas, and Residence Inn Fort Worth Cultural District) were significantly damaged in the same May 2015 storm. The remaining insurance receivables related to fiscal year 2015 property insurance claims totaled $5.1 million as of December 31, 2016. After negotiations with the insurance providers failed to resolve the dispute, we filed a lawsuit in August 2017 in order to collect the remaining amounts due from our insurance providers. Since the matter was subject to litigation and the collectability of the insurance receivable was no longer deemed probable and reasonably assured due to the uncertainty involved with the outcome of the litigation, during the fourth quarter of 2017, we recorded an allowance of $5.0 million against the insurance receivable and a corresponding loss on disposals of investment in real estate of $5.0 million for the year ended December 31, 2017. We collected $0 and $0.1 million of the insurance receivable during the years ended December 31, 2018 and 2017, respectively. On March 4, 2019, the Company and the property insurer defendants concluded a settlement agreement for $16.0 million, resolving the insurance coverage dispute between them with respect to the properties at issue in the coverage litigation. In addition, the Company and a separate pollution legal liability insurer defendant have reached an agreement-in-principle to settle their coverage dispute regarding the same relevant properties. We anticipate that the settlement agreement with the pollution legal liability insurer will be finalized and that the pending coverage litigation will thereafter be dismissed.

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.

Results of Operations

Comparable Operating Metrics

The follow table reflects key operating metrics for our 48 hotels owned as of December 31, 2018 (“Comparable Properties”). We define Comparable Properties as the results generated by the 48 hotels owned as of the end of the reporting period.


	For the year ended December 31,
Statistical Data (1)	2018			2017			2016
Occupancy		77.1	%		76.4	%		75.8	%
ADR	$	139.38		$	137.28		$	137.04
RevPAR	$	107.45		$	104.91		$	103.91
RevPAR Index		117			116			118

(1)

Excludes Courtyard – Myrtle Beach, South Carolina for the period from September 1, 2018 through December 31, 2018 and Courtyard – Panama City, Florida for the period from October 1^,2018 through December 31, 2018 due to the property closures resulting from damages sustained during Hurricane Florence and Hurricane Michael.

Results of Operations for Years 2018 and 2017 (in thousands):


				Percent						Percent
				of						of
	2018			Revenue			2017			Revenue
Total hotel revenue	$	241,323			100	%	$	259,878			100	%
Hotel operating expenses		134,338			56	%		142,100			55	%
Taxes, insurance and other expense		14,013			6	%		15,153			6	%
General and administrative expense		13,356			6	%		9,157			4	%
Depreciation		33,459						35,668
Impairment of investment in real estate		23,971						13,911
Gain on sale of hotel properties		(786	)					(3,628	)
Loss on disposals of investment in real estate		-						4,981
Interest expense, net		37,003						31,722
Loss on derivatives		-						152
Income tax expense		4,055						4,628

Revenues

Our principal source of revenue is hotel revenue, consisting of room and other related revenue. Total revenue for the years ended December 31, 2018 and 2017 was $241.3 million and $259.9 million, respectively. The decline in hotel revenue was largely due to $21.0 million in revenue attributable to the Sold Properties. In addition, there was a $1.4 million decrease during the year ended December 31, 2018 due to proceeds received during the year ended December 31, 2017 from the Deepwater Horizon Economic and Property Damages Settlement Program arising out of damages suffered by four properties prior to the Merger. The decreases were partially offset by an increase in revenues at the Comparable Properties during the year ended December 31, 2018. The increase in revenues was largely attributable to a 1.5% increase in ADR and a 0.7% increase in occupancy year over year at the Comparable Properties.

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 for the years ended December 31, 2018 and 2017 totaled $134.3 million and $142.1 million, respectively, representing 56% and 55% of our total hotel revenue, respectively. The decline was largely due to $12.7 million in expenses attributable to the Sold Properties that were incurred for the year ended December 31, 2017. These decreases were partially offset by higher payroll and benefits costs and repair and maintenance expense at the Comparable Properties for the year ended December 31, 2018.

Excluding the impact of the Sold Properties, our results for the year ended December 31, 2018 compared to the year ended December 31, 2017 reflect 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. Although operating expenses generally increase as occupancy and revenue increase, we have and expect to continue to work with our management companies to reduce costs as a percentage of revenue where possible while maintaining quality service levels at each property.

Taxes, insurance, and other expenses for the years ended December 31, 2018 and 2017 were $14.0 million and $15.2 million, respectively, representing 6% of total hotel revenue for each period. Excluding the impact of the Sold Properties, during the year ended December 31, 2017, we experienced higher costs due to property damage at certain properties, for which we are responsible for insurance deductibles before any eligible recovery amounts from insurance carriers.

General and administrative expense for the years ended December 31, 2018 and 2017 was $13.4 million and $9.2 million, respectively, representing 6% and 4% of total hotel revenue for each period, respectively. The principal components of general and administrative expense are advisory fees and expenses, legal fees, accounting fees and reporting expenses. The increase in 2018 compared to 2017 was primarily due to legal fees related to the Fort Worth insurance litigation during the year ended December 31, 2018 and $3.75 million related to the Apple Six litigation settlement agreement. The increase was partially offset by $1.8 million of professional fees and other costs we incurred during the year ended December 31, 2017 associated with the $800 million loan we obtained in July 2017 as well as higher advisory and legal fees in the year ended December 31, 2017 primarily due to hotel dispositions.

Depreciation expense for the years ended December 31, 2018 and 2017 was $33.5 million and $35.7 million, respectively. Depreciation expense represents expenses incurred due to depreciation of the hotels included in our operations and related personal property for their respective periods owned. The decrease in 2018 compared to 2017 was largely due to $3.7 million in depreciation expense attributable to the Sold Properties that was incurred during the year ended December 31, 2017, but not incurred in 2018 due to the disposition of the Sold Properties, offset by increases in 2018 depreciation expense related to fixed assets placed in service at the Comparable Properties since December 31, 2017.

Impairment of investment in real estate for the years ended December 31, 2018 and 2017 was $24.0 million and $13.9 million, respectively. During the year ended December 31, 2018, we recognized a non-cash impairment of investment in real estate of $14.3 million and $4.7 million, related to the Residence Inn – Pittsburgh, Pennsylvania property and the Hilton Garden Inn – McAllen, Texas property, respectively. The Residence Inn – Pittsburgh, Pennsylvania property was subsequently sold in October 2018.

During the year ended December 31, 2018, we recognized a non-cash impairment of investment in real estate of $1.7 million and $0.5 million, respectively, for the Homewood Suites – Laredo, Texas property and the Residence Inn – Laredo, Texas property. In the fourth quarter of 2018, we committed to sell the Homewood Suites – Laredo, Texas property and the Residence Inn – Laredo, Texas property and both properties were classified as held for sale as of December 31, 2018. The Homewood Suites – Laredo, Texas property was subsequently sold in January 2019 and the Residence Inn – Laredo, Texas property was sold in February 2019.

In the fourth quarter of 2018, we committed to sell the Courtyard – Dothan, Alabama property and it was classified as held for sale as of December 31, 2018, resulting in a $2.8 million non-cash impairment of investment in real estate. The Courtyard – Dothan, Alabama property was sold in February 2019.

During 2017, we committed to sell and ultimately sold in 2017 the Courtyard – Valdosta, Georgia and Fairfield Inn – Pensacola, Florida properties resulting in $2.5 million and $0.4 million in impairment charges, respectively, as a result of measuring these properties at the lower of carrying value or fair value, less costs to sell. In addition, during 2017, we committed to sell the Residence Inn – Huntsville, Alabama and Marriott – Redmond, Washington properties and classified them as held for sale as of December 31, 2017, resulting in $3.0 million and $7.9 million in impairment charges, respectively, as a result of measuring these properties at the lower of carrying value or fair value, less costs to sell.

Gain on sale of hotel properties for the years ended December 31, 2018 and 2017 was $0.8 million and $3.6 million, respectively.

During the year ended December 31, 2018, we recorded a gain on sale of hotel properties of $0.8 million for the settlement of the prorations related to the sale of the Marriott – Redmond, Washington property. We sold eight hotels in the year ended December 31, 2017 that resulted in a gain on sale of hotel properties of $3.6 million.

Loss on disposals of investment in real estate for the years ended December 31, 2018 and 2017 was $0 and $5 million, respectively. As a result of the litigation regarding the insurance receivable described in Item 7 Recent Events, we recorded a loss on disposals of investment in real estate of $5.0 million for the year ended December 31, 2017. We incurred no such losses in 2018.

Interest expense, net for the years ended December 31, 2018 and 2017 was $37.0 million and $31.7 million, respectively. The increase was primarily due to the amortization of deferred financing costs related to the new loan obtained in July 2017, as the deferred financing costs related to the previous loan were fully amortized in December 2016. In addition, there was an increase in the average London Interbank Offered Rate (“LIBOR”) during the year ended December 31, 2018 compared to the year ended December 31, 2017, which resulted in an increase in interest expense, partially offset by savings from a lower debt balance due to the sale of the Sold Properties.

Income tax expense for the years ended December 31, 2018 and 2017 was $4.1 million and $4.6 million, respectively. Income taxes decreased primarily due to a decline in operational income in 2018 due to property sales and was partially offset by a $6.6 million valuation allowance recorded during the fourth quarter 2018 for a TRS where the Company determined that it is more likely than not that the deferred tax assets would not be realized.

Results of Operations for Years 2017 and 2016 (in thousands):


				Percent						Percent
				of						of
	2017			Revenue			2016			Revenue
Total hotel revenue	$	259,878			100	%	$	286,479			100	%
Hotel operating expenses		142,100			55	%		156,698			55	%
Taxes, insurance and other expense		15,153			6	%		15,449			5	%
General and administrative expense		9,157			4	%		5,164			2	%
Depreciation		35,668						38,507
Impairment of investment in real estate		13,911						17,694
(Gain) loss on sale of hotel properties		(3,628	)					2,342
Loss on disposals of investment in real estate		4,981						-
Interest expense, net		31,722						32,144
Loss on derivatives		152						89
Income tax expense (benefit)		4,628						(1,198	)

Revenues

Our principal source of revenue is hotel revenue, consisting of room and other related revenue. Total revenue for the years ended December 31, 2017 and 2016 was $259.9 million and $286.5 million, respectively. The decline was primarily due to $27.8 million in revenue attributable to property dispositions during the years ended December 31, 2017 and 2016. The decline in total hotel revenue attributable to these sold properties was partly offset by $1.4 million in proceeds received from the Deepwater Horizon Economic and Property Damages Settlement Program arising out of damages suffered by four properties prior to the Merger.

The occupancy increases in 2017 compared to 2016 are primarily attributable to increases at hotels that were under renovation in 2016. The ADR decreases in 2017 compared to 2016 are primarily attributable to increased supply in certain markets where new competitors have recently entered the market.

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 for the years ended December 31, 2017 and 2016 totaled $142.1 million and $156.7 million, respectively, representing, 55% of our total hotel revenue for each period. The decline was largely due to $16.1 million in expenses attributable to property dispositions during the years ended December 31, 2017 and 2016.

Excluding the impact of the properties sold during the years ended December 31, 2017 and 2016, our results for the year ended December 31, 2017 compared to the year ended December 31, 2016 reflect 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. Although operating expenses generally increase as occupancy and revenue increase, we have and expect to continue to work with our management companies to reduce costs as a percentage of revenue where possible while maintaining quality service levels at each property.

Taxes, insurance, and other expenses for the years ended December 31, 2017 and 2016 were $15.2 million and $15.4 million, respectively, representing 6% and 5% of total hotel revenue respectively. Excluding the impact of property dispositions during the years ended December 31, 2017 and 2016, we experienced higher costs due to property damage at certain properties, for which we are responsible for insurance deductibles before any eligible recovery amounts from insurance carriers.

General and administrative expense for the years ended December 31, 2017 and 2016 was $9.2 million and $5.2 million, respectively, or 4% and 2% of total hotel revenue, respectively. The principal components of general and administrative expense are advisory fees and expenses, legal fees, accounting fees and reporting expenses. The increase in 2017 compared to 2016 was partially due to $1.8 million of professional fees and other costs we incurred during the year ended December 31, 2017 associated with the $800 million loan we obtained in July 2017. In addition, we have experienced higher advisory and legal fees in the year ended December 31, 2017 compared to 2016 due primarily to hotel dispositions.

Depreciation expense for the years ended December 31, 2017 and 2016 was $35.7 million and $38.5 million, respectively. Depreciation expense represents expenses incurred due to depreciation of the hotels included in our operations and related personal property for their respective periods owned. The decrease in 2017 compared to 2016 was largely due to $4.6 million in depreciation expense attributable to the properties sold during the years ended December 31, 2017 and 2016 that was incurred during the year ended December 31, 2016, but not incurred in 2017, offset by increases in 2017 depreciation expense related to fixed assets placed in service since December 31, 2016.

Impairment of investment in real estate for the years ended December 31, 2017 and 2016 was $13.9 million and $17.7 million, respectively. During 2017, we committed to sell and ultimately sold in 2017 the Courtyard – Valdosta, Georgia and Fairfield Inn – Pensacola, Florida properties resulting in $2.5 million and $0.4 million in impairment charges, respectively, as a result of measuring these properties at the lower of carrying value or fair value, less costs to sell. In addition, during 2017, we committed to sell the Residence Inn – Huntsville, Alabama and Marriott – Redmond, Washington properties and classified them as held for sale as of December 31, 2017, resulting in $3.0 million and $7.9 million in impairment charges, respectively, as a result of measuring these properties at the lower of carrying value or fair value, less costs to sell. During 2016, we entered into letters of intent, and ultimately sold two properties in 2016 which resulted in $8.5 million in impairment charges as a result of measuring these properties at the lower of carrying value or fair value, less costs to sell. In addition, during 2016, we committed to sell an additional six properties, which were ultimately sold in 2017, and classified them as held for sale as of December 31, 2016, resulting in $9.2 million in impairment charges on four of those properties, as a result of measuring these properties at the lower of carrying value or fair value, less costs to sell. We tested the properties for impairment and subsequently recorded the 2017 and 2016 impairment charges as a result of changes in the expected useful lives for these investments in real estate due to our execution of letters of intent to sell the properties during the respective periods.

Gain (loss) on sale of hotel properties for the years ended December 31, 2017 and 2016 was $3.6 million and ($2.3 million), respectively. We sold eight hotels in the year ended December 31, 2017 that resulted in a gain on sale of hotel properties, compared to two hotels sold in the year ended December 31, 2016 that resulted in a loss on sale of hotel properties.

Loss on disposals of investment in real estate for the years ended December 31, 2017 and 2016 was $5.0 million and $0, respectively. As a result of the litigation regarding the insurance receivable described at Item 7 Recent Events, we recorded a loss on disposals of investment in real estate of $5.0 million for the year ended December 31, 2017. We incurred no such losses in 2016.

Interest expense, net for the years ended December 31, 2017 and 2016 was $31.7 million and $32.1 million, respectively. The decrease for the year ended December 31, 2017 compared to prior year was due to $2.0 million less of amortization of deferred financing costs, as we capitalized deferred financing costs on the new loan in July 2017 and accordingly incurred amortization of deferred financing costs for only six months in 2017 (deferred financing costs on the previous loan were fully amortized in 2016). This was partially offset by increased interest expense due to higher interest rates in 2017 compared to 2016, as a result of the increase in LIBOR partially offset by the lower margin spread on the new loan as compared to the previous loan. We capitalized interest of $0.3 million and $0.4 million for the years ended December 31, 2017 and 2016, respectively, in conjunction with capital improvements and hotel renovations.

Income tax expense (benefit) for the years ended December 31, 2017 and 2016 was $4.6 million and ($1.2 million), respectively. Income taxes increased primarily due to prior year tax benefits that reversed in 2017 due to property sales, a $3.5 million

reduction to our net deferred tax assets due to the United States government’s Tax Cuts and Jobs Act, and the $3.4 million valuation allowance recorded during the fourth quarter 2017 for a TRS where the Company determined it is more likely than not that deferred tax assets will not be realized. This was partially offset by lower income taxes due to a decline in pre-tax book income attributable to the Sold Properties.

Non-U.S. GAAP Financial Measures

The 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 impairment of investment in real estate, extinguishment of mortgages payable and mezzanine loans, gain or loss on sale of hotel properties, loss on disposals of investments in real estate, derivatives and merger transaction costs. We believe that Adjusted EBITDA provides additional useful supplemental information about our ongoing operating performance.

The following table is a reconciliation of our GAAP net (loss) income to EBITDA and Adjusted EBITDA for the years ended December 31, 2018, 2017, and 2016 (in thousands):


	Year ended December 31,
	2018			2017			2016
Net (loss) income	($	18,086	)	$	6,034		$	19,590
Depreciation and amortization		33,459			35,668			38,507
Interest expense, net		37,003			31,722			32,144
Income tax expense (benefit)		4,055			4,628			(1,198	)

EBITDA		56,431			78,052			89,043
Impairment of investment in real estate		23,971			13,911			17,694
(Gain) loss on sale of hotels properties		(786	)		(3,628	)		2,342
Loss on disposals of investment in real estate		-			4,981			-
Loss on derivatives		-			152			89

Adjusted EBITDA	$	79,616		$	93,468		$	109,168

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.

Sources and Uses of Cash

Operating cash flow from our hotel properties is our principal source of liquidity. As of December 31, 2018, we had $32.1 million of cash and restricted cash as compared to $31.6 million at December 31, 2017.

Cash Flows from Operating Activities

For the year ended December 31, 2018, net cash flows provided by operating activities were $49.6 million compared to $63.5 million for the year ended December 31, 2017. The decreased cash flows from operating activities were primarily due the impact of four fewer hotels during the full twelve-month period in 2018 compared to 2017 due to the sale of the Sold Properties.

Cash Flows from Investing Activities

For the year ended December 31, 2018, net cash flows provided by investing activities were $74.0 million compared to $37.0 million for the year ended December 31, 2017. The increase was due primarily to $34.3 million more in proceeds from the sale of hotel properties in 2018 compared to 2017.

Cash Flows from Financing Activities

For the year ended December 31, 2018, net cash flows used in financing activities were $123.1 million, compared to $100.1 million for the year ended December 31, 2017. Cash used in financing activities in 2018 was higher due to $98.4 million in debt repayments for the Sold Properties in 2018 as compared to the net impact of the $800.0 million proceeds received from our July 7, 2017 mortgage loan borrowing, payoff of our previous mortgage loan of $776.9 million, payments for loan financing fees of $12.6 million, and Series A preferred stock redemption of $54.3 million. This increase was partially offset by $30.0 million less in dividends paid to our common stockholder and $1.7 million less in dividends paid to our Series A Preferred stockholders in 2018 as compared to 2017.

Mortgage Loans

On July 7, 2017, certain of our indirect wholly owned subsidiaries (the “Borrowers”) and Morgan Stanley Bank, N.A., Bank of America, N.A., Citigroup Global Markets Realty Corp., and JPMorgan Chase Bank, National Association (collectively, the “Lenders”) entered into a loan agreement, pursuant to which the Borrowers obtained a $800 million mortgage loan from the Lenders (the “Loan”). The Loan was secured by first-priority, cross-collateralized mortgage liens on 51 of the 52 properties owned or ground-leased by certain subsidiaries of the Company as of the date of the Loan, 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, BRE Select Hotels Operating LLC, a subsidiary of the Company, and a security interest in deposit accounts. The Loan is scheduled to mature on July 9, 2019, with an option for the Borrowers to extend the initial term for five one-year extension terms, subject to certain conditions. The Company will exercise the extension option as the Company anticipates it will be in compliance with all of the requirements of the Loan, and thereby have the ability to extend. The initial interest rate of the Loan is equal to the one-month London interbank offered rate for deposits, or LIBOR, plus a margin rate of 2.15%. 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 $800 million, a termination date of July 9, 2019 and a cap rate of 4.25%. The Loan is not subject to any mandatory principal amortization. A portion of the proceeds from the Loan was used to repay the $732.6 million principal amount outstanding under the previous mortgage loan, and the Borrowers repaid in full, cancelled and terminated the mortgage loan agreements outstanding relating to the previous mortgage loan without any penalties incurred. Additionally, a portion of the proceeds was used to redeem 28,560,947 shares of the Company’s Series A Preferred Stock and pay accrued and unpaid dividends on such redeemed shares for an aggregate redemption price of approximately $54.5 million.

As of December 31, 2018, we had $717.7 million in mortgages payable, comprised of $702.1 million under the Loan, and $15.6 million secured by the Fort Worth, Texas Residence Inn property.

In January and February of 2019, we sold three hotels and received sales proceeds, net of selling costs, of $25.3 million, which we used to repay $22.3 million of the Loan.

We had an effective interest rate of 4.20% for our debt during 2018, compared to 3.61% during 2017. The increase was due to a full year of the new Loan from 2017 and the steady increase in LIBOR since the beginning of 2017. As of December 31, 2018, our weighted average interest rate on our long-term debt was 4.61% compared to 3.65% as of December 31, 2017. Future scheduled principal payments of debt obligations (assuming the sale of the hotels held for sale as of December 31, 2018 during fiscal year 2019) as of December 31, 2018 are as follows (in thousands):


2019	$	702,580
2020		533
2021		562
2022		14,036
2023		-
Thereafter		-

Total	$	717,711

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, 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 $26.9 million in 2018 in capital improvements across our portfolio of properties and expect to spend approximately another $10.0 million in 2019. We expect to fund these capital expenditures primarily from funds available in our lender escrow accounts.

Distributions

To qualify as a REIT, we are required to distribute at least 90% of our ordinary income. We intend to adhere to these distributions 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 2018 and 2017 (in thousands):


2018			2017
Date Paid	Per Share		Date Paid	Per Share
February 9, 2018	$	40,000.00	February 13, 2017	$	100,000.00
May 15 and 21, 2018	$	60,000.00	May 15, 2017	$	142,500.00
August 17, 2018	$	20,000.00	July 14, 2017	$	64,387.71
November 14, 2018	$	55,000.00	August 3, 2017	$	100,000.00
			November 9, 2017	$	65,000.00

We paid the following dividends on our Series A Preferred Stock in 2018 and 2017:


2018			2017
Date Paid	Per Share		Date Paid	Per Share
January 16, 2018	$	0.0333	January 17, 2017	$	0.0333
April 16, 2018	$	0.0333	April 17, 2017	$	0.0333
July 16, 2018	$	0.0459	July 17, 2017	$	0.0333
October 17, 2018	$	0.0523	October 16, 2017	$	0.0333

On December 18, 2018, our Board of Directors declared a dividend on our Series A Preferred Stock of $0.0523 per share, paid on January 15, 2019 to stockholders of record on January 1, 2019. Dividends for the Series A Preferred Stock are anticipated to be paid quarterly in January, April, July and October each year. On May 14, 2018, on the fifth anniversary of the date that the Series A Preferred Stock was issued, the applicable rate of the dividend increased from 7% to 11%. Accordingly, the dividend increased from $0.0333 per share to $0.0523 per share.

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, 2018 (in thousands):


			Amount of Commitments Expiring per Period
Obligations and Commitments	Total		2019		2020		2021		2022		2023		Thereafter
Mortgages payable	$	717,711	$	702,580	$	533	$	562	$	14,036	$	-	$	-
Interest on mortgages payable (a)		19,428		17,472		716		688		552		-		-
Ground leases		152		107		45		-		-		-		-
Construction projects		4,496		4,496		-		-		-		-		-

Total contractual commitments	$	741,787	$	724,655	$	1,294	$	1,250	$	14,588	$	-	$	-

(a)	For variable interest rate debt, interest obligations are estimated based on the LIBOR interest rate as of December 31, 2018.

Impact of Inflation

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

Insurance

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 stockholders.

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. 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 RevPAR compared to the prior year.

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, or other indicators of fair value.

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.

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 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 stockholders, 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 stockholders. However, our TRS will generally be subject to federal, state, and local income taxes and the consolidated income tax provision includes those taxes.

Item 7A.

Quantitative and Qualitative Disclosures About Market Risk

We are exposed to risks associated with market changes in interest rates. At December 31, 2018, our floating rate debt consisted of $702.1 million in mortgage debt (“Variable Mortgage Debt”) acquired in July 2017 with subsequent paydowns during 2018. No principal payments are required on the Variable Mortgage Debt, which matures in July 2019 with five additional 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 2.15%. 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 at 4.25%. 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 prepaid expenses and other assets with adjustments to fair value recorded in loss 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 $7.0 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 Stockholder and the Board of Directors of

BRE Select Hotels Corp

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of BRE Select Hotels Corp and subsidiaries (the “Company”) as of December 31, 2018 and 2017, the related consolidated statements of operations, stockholder’s equity, and cash flows, for each of the three years in the period ended December 31, 2018, and the related notes and the schedule listed in the Index at Item 15 (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2018 and 2017, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2018, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB and in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting 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.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

/s/ Deloitte & Touche LLP

Chicago, Illinois

March 28, 2019

We have served as the Company’s auditor since 2014.

BRE SELECT HOTELS CORP

CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)


	December 31, 2018		December 31, 2017
ASSETS
Investment in real estate, net of accumulated depreciation of $130,231 and $116,180, respectively	$	674,130	$	758,259
Hotels held for sale		25,305		65,534
Cash and cash equivalents		20,460		22,491
Restricted cash		11,656		9,111
Due from third-party managers, net		4,802		4,284
Insurance receivable		11,958		-
Prepaid expenses and other assets		3,892		3,383
Goodwill		98,682		108,466
Deferred tax assets		335		2,984

TOTAL ASSETS	$	851,220	$	974,512


LIABILITIES
Accounts payable and accrued expenses		22,706		9,233
Due to third-party managers, net		360		638
Mortgages payable		692,882		738,148
Mortgages payable related to assets of hotels held for sale		22,324		69,905

TOTAL LIABILITIES		738,272		817,924

Commitments and contingencies (Note 8)

7% Series A Cumulative Redeemable Preferred Stock, $1.90 initial liquidation preference, 120,000,000 shares authorized; 43,821,901 shares issued and outstanding at December 31, 2018 and December 31, 2017		82,880		83,040

STOCKHOLDER’S EQUITY
Preferred stock, $0.0001 par value, 30,000,000 shares authorized; none issued and outstanding at December 31, 2018 and December 31, 2017		-		-
Common stock, $0.01 par value, 100,000 shares authorized; 100 shares issued and outstanding at December 31, 2018 and December 31, 2017		-		-
Additional paid-in capital		30,068		73,548

TOTAL STOCKHOLDER’S EQUITY		30,068		73,548


TOTAL LIABILITIES AND STOCKHOLDER’S EQUITY	$	851,220	$	974,512

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)


	Year ended December 31,
	2018			2017			2016
REVENUE
Room revenue	$	229,548		$	243,790		$	268,659
Other revenue		11,775			16,088			17,820

Total revenue		241,323			259,878			286,479

EXPENSES
Operating expense		56,066			60,205			65,437
Hotel administrative expense		21,201			22,989			26,260
Sales and marketing		20,101			21,239			22,311
Utilities		7,501			8,382			8,995
Repair and maintenance		10,389			9,388			10,841
Franchise fees		11,713			11,954			13,276
Management fees		7,367			7,943			9,578
Taxes, insurance and other		14,013			15,153			15,449
General and administrative		13,356			9,157			5,164
Depreciation expense		33,459			35,668			38,507

Total expenses		195,166			202,078			215,818


Impairment of investment in real estate		(23,971	)		(13,911	)		(17,694	)
Gain (loss) on sale of hotel properties		786			3,628			(2,342	)
Loss on disposals of investment in real estate		-			(4,981	)		-
Interest expense, net		(37,003	)		(31,722	)		(32,144	)
Loss on derivatives		-			(152	)		(89	)

(Loss) income before income tax (expense) benefit		(14,031	)		10,662			18,392

Income tax (expense) benefit		(4,055	)		(4,628	)		1,198


Net (loss) income		(18,086	)		6,034			19,590

Series A Preferred Stock dividends declared		(8,054	)		(7,973	)		(9,641	)


Net (loss) income available for common stockholder	$	(26,140	)	$	(1,939	)	$	9,949


Basic and diluted net (loss) income per common share
Basic and diluted net (loss) income per common share available to common stockholder	$	(261,400	)	$	(19,390	)	$	99,490


Weighted average common shares outstanding - basic and diluted		100			100			100

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

BRE SELECT HOTELS CORP

CONSOLIDATED STATEMENTS OF STOCKHOLDER’S EQUITY

(in thousands, except per share data)


	Common Stock				Series B Preferred Stock				Additional Paid-in Capital			Distributions Greater than Net Income			Total Stockholder’s Equity
	Number of				Number of
	Shares		Amount		Shares		Amount
Balance at December 31, 2015		100	$	-		-	$	-	$	166,872		$	-		$	166,872

Net income		-		-		-		-		-			19,590			19,590
Cash dividends declared and paid to common stockholder ($540,000 per share)		-		-		-		-		(34,410	)		(19,590	)		(54,000	)
Preferred dividends earned ($0.1332 per share)		-		-		-		-		(9,641	)		-			(9,641	)

Balance at December 31, 2016		100	$	-		-	$	-	$	122,821		$	-		$	122,821

Net income		-		-		-		-		-			6,034			6,034
Cash dividends declared and paid to common stockholder ($471,888 per share)		-		-		-		-		(41,155	)		(6,034	)		(47,189	)
Preferred dividends earned ($0.1332 per share)		-		-		-		-		(8,118	)		-			(8,118	)

Balance at December 31, 2017		100	$	-		-	$	-	$	73,548		$	-		$	73,548

Net loss		-		-		-		-		(18,086	)					(18,086	)
Cash dividends declared and paid to common stockholder ($175,000 per share)		-		-		-		-		(17,500	)		-			(17,500	)
Preferred dividends earned ($0.1802 per share)		-		-		-		-		(7,894	)		-			(7,894	)

Balance at December 31, 2018		100	$	-		-	$	-	$	30,068		$	-		$	30,068

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

BRE SELECT HOTELS CORP

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)


	Year ended December 31,
	2018			2017			2016
Cash flows from operating activities:
Net (loss) income	$	(18,086	)	$	6,034		$	19,590
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Depreciation		33,459			35,668			38,507
Impairment of investment in real estate		23,971			13,911			17,694
(Gain) loss on sale of hotel properties		(786	)		(3,628	)		2,342
Loss on disposals of investment in real estate		-			4,981			-
Fair value adjustment of interest rate cap		-			152			89
Amortization of deferred financing costs		5,570			2,673			4,678
Expense of financing fees for mortgage loan		-			1,845			-
Deferred income taxes		2,649			3,067			(5,419	)
Other non-cash expenses		-			-			(29	)
Changes in operating assets and liabilities:
(Increase) decrease in due to/from third-party managers, net		(796	)		(241	)		407
Decrease in insurance receivable		-			86			1,429
Increase in prepaid expenses and other assets		(509	)		(581	)		(1,202	)
Increase (decrease) in accounts payable and accrued expenses		4,151			(278	)		(659	)
(Decrease) increase in other liabilities		-			(145	)		145

Net cash provided by operating activities		49,623			63,544			77,572

Cash flows from investing activities:
Capital improvements		(26,901	)		(28,587	)		(38,983	)
Proceeds from sale of hotel properties		99,163			64,833			74,557
Property insurance proceeds		1,768			762			358

Net cash provided by investing activities		74,030			37,008			35,932

Cash flows from financing activities:
Proceeds from mortgage debt		-			800,000			-
Payments of mortgage debt		(98,417	)		(776,988	)		(53,916	)
Payments for financing fees		-			(12,593	)		-
Payment for interest rate cap		-			(156	)		(89	)
Redemption of Series A Preferred Stock		-			(54,265	)		-
Dividends paid to Series A Preferred stockholders		(7,222	)		(8,925	)		(9,641	)
Dividends paid to common stockholder		(17,500	)		(47,189	)		(54,000	)

Net cash used in financing activities		(123,139	)		(100,116	)		(117,646	)


Net increase (decrease) in cash and cash equivalents and restricted cash		514			436			(4,142	)

Cash and cash equivalents and restricted cash, beginning of period		31,602			31,166			35,308


Cash and cash equivalents and restricted cash, end of period	$	32,116		$	31,602		$	31,166


Supplemental Cash Flow Information, including Non-Cash Activities:
Interest paid	$	31,362		$	29,256		$	27,776
Taxes paid	$	1,162		$	2,318		$	5,151
Accrued capital improvements	$	5,905		$	2,984		$	5,055
Accrued 7% Series A Preferred Stock dividends	$	2,292		$	1,459		$	2,410
Insurance receivable for loss due to property damage	$	11,958			-		$	-

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

BRE SELECT HOTELS CORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, unless otherwise indicated)

Organization

BRE Select Hotels Corp, together with its wholly-owned subsidiaries (the “Company”), is a Delaware corporation that qualifies as a real estate investment trust, or REIT, for federal income tax purposes commencing in the year ended December 31, 2012. 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, 2018, the Company owned 48 hotels located in 16 states with an aggregate of 5,662 rooms.

Summary of Significant Accounting Policies

Basis of Presentation - The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and include all of the accounts of the Company and its subsidiaries. All material intercompany accounts and transactions have been eliminated in consolidation.

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 primarily consists of cash in banks. 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 following table provides detail regarding cash and restricted cash that sums to the total of such amounts presented in the accompanying consolidated statements of cash flows.


	December 31,
	2018		2017		2016
Cash	$	20,460	$	22,491	$	25,170
Restricted cash		11,656		9,111		5,996

Total cash and restricted cash	$	32,116	$	31,602	$	31,166

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. Depreciation is computed using the straight-line method over the average estimated useful lives of the assets, which are 39 years for buildings, 10 to 15 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. 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.

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, or other indicators of fair value.

During the years ended December 31, 2018 and 2017, respectively, the Company identified indicators of impairment for certain properties. As a result, a test for impairment of each property was performed with fair value determined based on the estimated sales proceeds for the property. The Company estimated the sales proceeds based on the agreement of purchase and sale (subject to certain terms) entered into for the properties, when applicable. The following tables summarize the impairments of investments in real estate recorded in 2018 and 2017, respectively:


Date of Impairment Charge	Property	Impairment
June 2018	Residence Inn - Pittsburgh, Pennsylvania	$	13,605
June 2018	Hilton Garden Inn - McAllen, Texas		4,702
September 2018	Residence Inn - Laredo, Texas		393
September 2018	Homewood Suites - Laredo, Texas		1,395
September 2018	Residence Inn - Pittsburgh, Pennsylvania		670
December 2018	Courtyard - Dothan, Alabama		2,777
December 2018	Residence Inn - Laredo, Texas		146
December 2018	Homewood Suites - Laredo, Texas		283

	Total impairments of investment in real estate - 2018	$	23,971


Date of Impairment Charge	Property	Impairment
June 2017	Fairfield Inn - Pensacola, Florida	$	444
June 2017	Courtyard - Valdosta, Georgia		2,544
December 2017	Residence Inn - Huntsville, Alabama		2,974
December 2017	Marriott - Redmond, Washington		7,949

	Total impairments of investment in real estate - 2017	$	13,911

Goodwill – Goodwill represents the excess of purchase price over fair value of assets acquired and liabilities assumed in business combinations, and is characterized by 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 loss 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.

The following table details the carrying amount of the Company’s goodwill at December 31, 2018 and 2017. The goodwill allocated to the sale of hotel properties as of December 31, 2017 represents the goodwill amounts allocated at the Acquisition Date to the Residence Inn – Huntsville, Alabama and Marriott – Redmond, Washington hotel properties which were classified as held for sale as of December 31, 2017 (see Note 5) and sold during the year ended December 31, 2018, and was included within the determination of gain on sale of hotel properties presented in the accompanying consolidated statement of operations and consolidated statement of cash flows for the year ended December 31, 2018.

The goodwill allocated to the sale of hotel properties during the year ended December 31, 2017 represents the goodwill amounts allocated at the Acquisition Date to the Fairfield Inn – Huntsville, Alabama, TownePlace Suites – Arlington, Texas, Springhill Suites – Clearwater, Florida, TownePlace Suites – Las Colinas, Texas, Courtyard – Albany, Georgia, Springhill Suites – Arlington, Texas, Courtyard – Valdosta, Georgia and Fairfield Inn – Pensacola, Florida hotel properties which were sold during the year ended December 31, 2017, and is included within the determination of gain on sale of hotel properties presented in the accompanying consolidated statement of operations and consolidated statement of cash flows for the year ended December 31, 2017.


Balance as of December 31, 2016	$	116,470
Allocated to sale of hotel properties		(8,004	)
Balance as of December 31, 2017		108,466
Allocated to sale of hotel properties		(9,784	)

Balance as of December 31, 2018	$	98,682

Revenue Recognition - In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers, which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The Company adopted ASU 2014-09 effective January 1, 2018, electing to utilize the modified retrospective transition method. The Company evaluated all of its revenue streams under the new model and determined that the standard did not materially impact the amount and timing of revenue recognition in the Company’s consolidated financial statements.

Room revenue is generated through contracts with customers whereby the customers agree to pay a daily rate for right to use a hotel room. The Company’s contract performance obligations are fulfilled at the end of the day that the customer is provided the room and revenue is recognized daily at the contract rate. Payment from the customer is secured at the end of the contract upon check-out by the customer from our hotel. The Company believes there are no significant judgments made in the recognition of room revenue.

Food and beverage revenue is generated through contracts with customers whereby the customer agrees to pay a contract rate for restaurant dining services or banquet services. The Company’s contract performance obligations are fulfilled at the time that the meal is provided to the customer or when the banquet facilities and related dining amenities are provided to the customer. The Company believes there are no significant judgments made in the recognition of food and beverage revenue. The Company recognized $7.3 million, $10.4 million, and $12.0 million of food and beverage revenue during the years ended December 31, 2018, 2017, and 2016, respectively. Food and beverage revenue is included in other revenue in the Company’s consolidated statements of operations.

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 qualifies as a REIT under the Internal Revenue Code of 1986, as amended, beginning with the Company’s 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 distribute at least 90% of its adjusted taxable income to its stockholder, subject to certain adjustments and excluding any net capital gain. The Company’s taxable REIT income and dividend requirements to maintain REIT status are determined on an annual basis. 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 stockholder. Dividends paid in excess of REIT taxable income for the year will generally not be taxable to the common stockholder. 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) income per Common Share - Basic (loss) income per common share is computed based upon the weighted average number of shares outstanding during the period, after giving effect to the 7% Series A Cumulative Redeemable Preferred Stock (“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.

Recent Accounting Pronouncements - In February 2016, the FASB issued ASU 2016-02, Leases, which will require organizations that lease assets to recognize the assets and liabilities for the rights and obligations created by those leases on their balance sheet. Additional disclosure regarding a company’s leasing activities will also be expanded under the new guidance. In July 2018, the FASB issued ASU 2018-11 which approved an amendment to ASU 2016-02 that allows a practical expedient for lessors from separating lease and non-lease components. Based on the review of our leases, we are a lessee on two ground leases, parking leases, hotel equipment leases and office space leases. Based on terms of our current leases, we have calculated the right-of-use asset and lease liability to be valued within a range of $0.6 million and $0.7 million as of January 1, 2019. We are currently determining the appropriate discount rate to utilize within our calculations of the right-of-use asset and lease liability, and, as such, we have not finalized our calculations as of December 31, 2018. We are still evaluating the impact this ASU will have on the accounting for our leasing arrangements as well as our disclosures within the notes to our consolidated financial statements. The provisions of the standard will be effective for the Company on January 1, 2019.

In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments. ASU 2016-15 reduces the existing diversity in practice in financial reporting across all industries by clarifying certain existing principles in Accounting Standards Codification (“ASC”) 230, Statement of Cash Flows, including providing additional guidance on how and what an entity should consider in determining the classification of certain cash flows. The adoption of this new guidance as of January 1, 2018 under the retrospective transition method did not impact the Company’s consolidated financial statements.

In October 2016, the FASB issued ASU 2016-16, Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory. ASU 2016-16 requires an entity to recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs, as opposed to waiting until the asset is sold to an outside party. The adoption of this new guidance on January 1, 2018 on a modified retrospective basis did not impact the Company’s consolidated financial statements.

In January 2017, the FASB issued ASU 2017-01, Clarifying the Definition of a Business. The amendments in ASU 2017-01 provide an initial screen to determine if substantially all of the fair value of the gross assets acquired (or disposed of) is concentrated in a single identifiable asset or a group of similar identifiable assets, in which case the transaction would be accounted for as an asset acquisition. In addition, ASU 2017-01 clarifies the requirements for a set of activities to be considered a business and narrows the definition of an output. The adoption of this new guidance on January 1, 2018 did not impact the Company’s consolidated financial statements.

In January 2017, the FASB issued ASU 2017-04, Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. ASU 2017-04 simplifies the accounting for goodwill impairment by eliminating the process of measuring the implied value of goodwill, known as step two, from the goodwill impairment test. Instead, if the carrying amount of a reporting unit exceeds its fair value, an impairment loss shall be recognized in an amount equal to that excess, limited to the total amount of goodwill allocated to that reporting unit. The Company will be required to apply the provisions of ASU 2017-04 for accounting periods beginning after December 15, 2019, including interim reporting periods within those fiscal years. Earlier application is permitted. The Company does not expect the new standard to impact its consolidated financial statements unless an impairment loss is determined to exist in a future period.

In February 2017, the FASB issued ASU 2017-05, Other Income – Gains and Losses from the Derecognition of Nonfinancial Assets (Subtopic 610-20), Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets, which clarifies the scope of ASC Subtopic 610-20 and adds guidance for the derecognition of nonfinancial assets. The standard was effective with ASU 2014-09, presented above. The adoption of this new guidance on January 1, 2018 on a modified retrospective approach did not impact the Company’s consolidated financial statements.

3. Investment in Real Estate, net

Investment in real estate, net as of December 31, 2018 and 2017 consisted of the following:


	December 31,			December 31,
	2018			2017
Land and Improvements	$	109,033		$	117,418
Building and Improvements		630,723			693,132
Furniture, Fixtures and Equipment		57,843			57,422
Construction in Progress		6,762			6,467

		804,361			874,439
Less: Accumulated Depreciation		(130,231	)		(116,180	)

Investment in Real Estate, net	$	674,130		$	758,259

4. Sale of Hotel Properties

During the year ended December 31, 2018, the Company sold four hotels as summarized below.


Hotel	Date of Sale		Proceeds		Gain/ (Loss)			Mortgage Payable Repaid
Residence Inn - Huntsville, Alabama		January 2018	$	7,587	$	-		$	7,587
Marriott - Redmond, Washington		February 2018		68,458		704			68,917
Residence Inn - Pittsburgh, Pennsylvania		October 2018		9,364		(5	)		7,709
Springhill Suites - Fort Worth, Texas		December 2018		13,754		87			13,720

Total			$	99,163	$	786		$	97,933

The Company received proceeds of $99.2 million from the sale of these hotels, which are net of $3.1 million in selling costs. Due to the sale of these hotels, the Company made an additional principal payment of $6.6 million in order to comply with the debt yield as required under the terms of the Company’s mortgage loan agreement. During the year ended December 31, 2017, the Company recorded a $10.9 million impairment associated with classifying the Residence Inn – Huntsville, Alabama property and the Marriott – Redmond, Washington property as held for sale (see Note 5).

During the year ended December 31, 2017, the Company sold eight hotels as summarized below.


Hotel	Date of Sale		Proceeds		Gain		Mortgage Payable Repaid
Fairfield Inn - Huntsville, Alabama		January 2017	$	4,575	$	-	$	4,444
TownePlace Suites - Arlington, Texas		January 2017		8,001		-		3,606
Springhill Suites - Clearwater, Florida		January 2017		5,767		-		4,971
TownePlace Suites - Las Colinas, Texas		January 2017		16,867		3,072		8,248
Courtyard - Albany, Georgia		February 2017		8,628		-		6,242
Springhill Suites - Arlington, Texas		March 2017		9,015		556		8,360
Courtyard - Valdosta, Georgia		June 2017		6,584		-		5,423
Fairfield Inn - Pensacola, Florida		July 2017		5,396		-		-

Total			$	64,833	$	3,628	$	41,294

The mortgage payable attributable to the Fairfield Inn – Pensacola, Florida property was repaid in connection with the July 7, 2017 mortgage loan refinancing described in Note 6. Accordingly, the Fairfield Inn – Pensacola, Florida property was unencumbered when sold on July 13, 2017.

The Company received proceeds of $64.8 million from the sales of these hotels, which are net of $2.4 million in selling costs. Due to the sale of some of these hotels, the Company made an additional principal payment of $2.6 million in order to comply with the debt yield as required under the terms of the Company’s previous mortgage loan agreement.

5. Hotels Held for Sale

During the fourth quarter of 2018, the Company committed to a plan to sell three hotels, and accordingly, the hotels were classified as hotels held for sale as of December 31, 2018. Hotels held for sale presented in the consolidated balance sheet consists of the investment in real estate of each hotel, which was measured at December 31, 2018 at the lower of carrying value or fair value, less costs to sell. Mortgages payable related to assets of hotels held for sale presented in the consolidated balance sheet represents the principal of the mortgages payable that the Company is contractually required to repay in connection with the sale of the hotels. There are no other major captions of assets or liabilities related to the hotels held for sale. The following is a summary of hotels held for sale as of December 31, 2018.


Hotel	Assets of Hotels Held for Sale
Homewood Suites - Laredo, Texas	$	9,748
Residence Inn - Laredo, Texas		9,252
Courtyard - Dothan, Alabama		6,305

Total	$	25,305

Subsequent to December 31, 2018, the Company sold the three hotels held for sale as summarized below:


Hotel	Date of Sale		Proceeds		Mortgage Payable Repaid
Homewood Suites - Laredo, Texas		January 2019	$	9,748	$	8,159
Residence Inn - Laredo, Texas		February 2019		9,252		7,149
Courtyard - Dothan, Alabama		February 2019		6,271		7,016

Total			$	25,271	$	22,324

During the fourth quarter of 2017, the Company committed to a plan to sell two hotels and accordingly the hotels were classified as hotels held for sale as of December 31, 2017. Hotels held for sale presented in the consolidated balance sheet consists of the investment in real estate of each hotel, which was measured at December 31, 2017 at the lower of carrying value or fair value, less costs to sell. Mortgages payable related to assets of hotels held for sale presented in the consolidated balance sheet represents the principal of the mortgages payable that the Company is contractually required to repay in connection with the sale of the hotels. There are no other major captions of assets or liabilities related to the hotels held for sale. The following is a summary of hotels held for sale as of December 31, 2017.


Hotel	Assets of Hotels Held for Sale
Residence Inn - Huntsville, Alabama	$	6,341
Marriott - Redmond, Washington		59,193

Total	$	65,534

Subsequent to December 31, 2017, the Company sold the two hotels held for sale as summarized below:


Hotel	Date of Sale		Proceeds		Mortgage Payable Repaid
Residence Inn - Huntsville, Alabama		January 2018	$	7,587	$	4,694
Marriott - Redmond, Washington		February 2018		67,753		65,211

Total			$	75,340	$	69,905

6. Mortgages Payable

Mortgages payable as of December 31, 2018 and 2017 consisted of the following:


	December 31,
	2018			2017
Mortgages payable before unamortized deferred financing costs	$	695,387		$	746,223
Unamortized deferred financing costs		(2,505	)		(8,075	)

Mortgages payable related to assets held and used	$	692,882		$	738,148

Mortgages payable related to assets of hotels held for sale		22,324			69,905

Total mortgages payable	$	715,206		$	808,053

On July 7, 2017, certain indirect wholly-owned subsidiaries (the “Borrowers”) of the Company entered into a loan agreement (the “Loan Agreement”) with Morgan Stanley Bank, N.A., Bank of America, N.A., Citigroup Global Markets Realty Corp., and JPMorgan Chase Bank, National Association (collectively, the “Lenders”), pursuant to which the Borrowers obtained an $800 million mortgage loan from the Lenders (the “Loan”). The Loan was secured by first-priority, cross-collateralized mortgage liens on 51 of the 52 properties then 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, BRE Select Hotels Operating LLC, a subsidiary of the Company (the “Operating Lessee”), and a security interest in deposit accounts.

A portion of the proceeds from the Loan was used to repay the mortgage loan obtained on December 3, 2014 by the Borrowers, in the aggregate original principal amount of $830 million (the “2014 Loan”) and with an aggregate outstanding principal amount of $732.6 million as of the date of repayment. Accordingly, on July 7, 2017, the Borrowers repaid in full, cancelled and terminated their respective mortgage loan agreements outstanding under the 2014 Loan at that date without any penalties incurred.

The initial interest rate of the Loan is equal to the one-month London interbank offered rate for deposits, or LIBOR, plus a margin rate of 2.15%. One-month LIBOR was 2.456% and 1.478% as of December 31, 2018 and December 31, 2017, respectively. 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 $800 million, a termination date of July 9, 2019 and a cap rate of 4.25%. The Loan is scheduled to mature on July 9, 2019, with an option for the Borrowers to extend the initial term for five one-year extension terms, subject to certain conditions. The Company anticipates that it will exercise the extension options as it is probable that the Company will be in compliance with all of the requirements of the Loan, and thereby have the ability to extend. 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. The Company believes it was in compliance with all applicable covenants as of December 31, 2018 and 2017.

In connection with the Loan, the Company capitalized deferred financing costs of $10.8 million, which consists of amounts paid for direct and indirect costs associated with the origination of the Loan. The Company additionally incurred $1.8 million of professional fees and other costs associated with the Loan that did not meet the criteria for capitalization as deferred financing costs, and were included in general and administrative expense in the consolidated statement of operations for the year ended December 31, 2017. Deferred financing costs were $2.5 million and $8.1 million as of December 31, 2018 and 2017, respectively, and are presented as a direct deduction of mortgages payable on the consolidated balance sheets. Such costs are amortized on a straight-line basis (which approximates the effective interest method) over the term of the related debt.

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 was $15.6 million and $16.1 million as of December 31, 2018 and 2017, respectively, and is included in mortgages payable in the consolidated balance sheets.

Components of interest expense for the years ended December 31, 2018, 2017, and 2016 were as follows:


	Year Ended December 31,
	2018			2017			2016
Mortgage debt	$	31,535		$	29,330		$	27,829
Amortization of deferred financing costs		5,570			2,673			4,678
Capitalized interest		(102	)		(281	)		(363	)

Total interest expense, net	$	37,003		$	31,722		$	32,144

The Company had an effective interest rate of 4.20%, 3.61% and 3.34% for its debt during 2018, 2017, and 2016, respectively. As of December 31, 2018 and 2017, the Company’s weighted average interest rate on its debt was 4.61% and 3.65%, respectively.

Future scheduled principal payments of debt obligations (including the sale of the hotels held for sale as of December 31, 2018 during fiscal year 2019) as of December 31, 2018 are as follows:


2019	$	702,580
2020		533
2021		562
2022		14,036
2023		-
Thereafter		-

Total	$	717,711

7. 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, restricted cash, due from third-party managers, net, insurance receivable, 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:


	December 31, 2018				December 31, 2017
	Carrying		Estimated		Carrying		Estimated
	Value		Fair Value		Value		Fair Value
Financial liabilities not measured at fair value:
Mortgages payable and mortgages payable related to assets of hotels held for sale	$	717,711	$	717,227	$	816,128	$	815,677

Interest rate caps – In July 2017, 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 prepaid expenses and other assets with adjustments to fair value recorded in loss on derivatives in the consolidated statements of operations. The interest rate cap was acquired at a cost of $0.2 million. Previously, upon exercise of the first one-year extension of the 2014 Loan, the Company acquired an interest rate cap agreement at a cost of

$0.1 million, which was terminated in July 2017 upon execution of the Loan. 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 and mortgages payable related to assets of hotels held for sale – 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 and mortgages payable related to assets of hotels held for sale 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 at December 31, 2018 and 2017, including carrying amounts related to assets of hotels held for sale, if applicable. The fair value of the Loan at December 31, 2018 and 2017 cannot be reasonably estimated because it is not readily determinable without undue cost.

Impairment of investment in real estate – The impairment determinations during the years ended December 31, 2018 and 2017 for the properties described in Note 2 were based on Level 2 fair value measurements.

8. Commitments and Contingencies

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 the Company believes such coverage is warranted or required under the terms of the Loan.

On or around June 5, 2015, the Company evacuated and temporarily closed the Homewood Suites in Fort Worth, Texas due to damage incurred from a major storm in the area in late May 2015. Remediation work commenced immediately, and while the hotel partially reopened on October 27, 2015, all rooms were not restored to service until April 2017. Three other hotels the Company owns in the Dallas-Fort Worth area (SpringHill Suites Dallas Downtown, TownePlace Suites Las Colinas, and Residence Inn Fort Worth Cultural District) were significantly damaged in the same May 2015 storm. The remaining insurance receivables related to fiscal year 2015 property insurance claims totaled $5.1 million as of December 31, 2016. After negotiations with the insurance providers failed to resolve the dispute, the Company filed a lawsuit in August 2017 in order to collect the remaining amounts due from the insurance providers. Since the matter was subject to litigation and the collectability of the insurance receivable was no longer deemed probable and reasonably assured due to the uncertainty involved with the outcome of the litigation, during the fourth quarter of 2017, the Company recorded an allowance of $5.0 million against the insurance receivable and a corresponding loss on disposals of investment in real estate of $5.0 million for the year ended December 31, 2017. The Company collected $0 and $0.1 million of the insurance receivable during the years ended December 31, 2018 and 2017, respectively. On March 4, 2019, the Company and the property insurer defendants concluded a settlement agreement for $16.0 million, resolving the insurance coverage dispute between them with respect to the properties at issue in the coverage litigation. In addition, the Company and a separate pollution legal liability insurer defendant have reached an agreement-in-principle to settle their coverage dispute regarding the same relevant properties. The Company anticipates that its settlement agreement with the pollution legal liability insurer will be finalized and that the pending coverage litigation will thereafter be dismissed.

In September 2018, the Company evacuated and temporarily closed the Courtyard in Myrtle Beach, South Carolina due to damage incurred from Hurricane Florence. In October 2018, Hurricane Michael struck the Florida Panhandle as a category 4 hurricane which resulted in widespread damage, flooding, and power outages. The Company evacuated and temporarily closed the Courtyard Panama City and three additional hotels were also impacted by the hurricane, but were able to remain open. The Company maintains insurance which is subject to a deductible of approximately $1.3 million. The Company recorded an insurance receivable of $12.0 million for the insurance claims as of December 31, 2018 and an impairment of investment in real estate of $4.8 million during the year ended December 31, 2018, which represents the Company’s estimate of property damage and remediation costs incurred up to the insurance policy deductibles. The Company also anticipates receiving proceeds from business interruption insurance to cover business lost as a result of the hurricanes.

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. Based on current expectations, such matters, both individually and in the aggregate, are not expected to have a material impact on the liquidity, results of operations, business or financial condition of the Company.

The Company, as the successor to Apple Six, is subject to claims for alleged acts of Apple Six that occurred prior to the Merger. On February 24, 2017, a putative class action, captioned Wilchfort v. Knight, et al., Civil Action No. 17-cv-01046 (E.D.N.Y.), was filed in the United States District Court for the Eastern District of New York against BRE Select Hotels Corp, as successor-in-interest to Apple REIT Six, Inc., Apple Hospitality REIT, Inc., Apple REIT Seven, Inc., Apple REIT Eight, Inc. (together with Apple REIT Six, Inc. and Apple REIT Seven, Inc., the “Apple REITs”), certain of the Apple REITs’ directors, officers and advisors, and Apple Fund Management, LLC. Plaintiff seeks to represent a class of all persons and entities who elected to participate in Apple REITs’ Dividend Reinvestment Plans (“DRIPs”) between July 17, 2007 and the later of the termination and/or suspension of the respective DRIPs or February 12, 2014. The complaint alleges, among other things, that the prices at which plaintiff and the purported class members purchased additional shares through the DRIPs were artificially inflated and not indicative of the true value of units in the Apple REITs. Plaintiff asserts claims for breach of contract, tortious interference with contract and tortious interference with business expectancy and breach of implied duty of good faith and fair dealing and seeks, among other things, damages and other costs and expenses. On March 30, 2018, the court granted in part and denied in part the Company’s motion to dismiss and, on April 13, 2018, plaintiffs filed an amended complaint, captioned Wilchfort et al. v. BRE Select Hotels Corp., Civil Action No. 17-cv-1046 (E.D.N.Y.). On May 31, 2018, plaintiff filed a Second Amended Class Action Complaint, captioned Battaglia v. BRE Select Hotels Corp., Civil Action No. 17-cv-01046 (E.D.N.Y.), which, among other things, narrowed the putative class period to February 24, 2011 through November 29, 2012. On June 4, 2018, plaintiff filed a motion for class certification. On June 27, 2018, the Company filed an Answer to the Second Amended Class Action Complaint. On March 1, 2019, the parties executed a settlement agreement to resolve all of plaintiff’s claims without any admission of wrongdoing for $3.75 million. Also, on March 1, 2019, the plaintiff filed a motion for preliminary approval of the settlement agreement. The settlement agreement is also subject to final approval by the court, and there can be no assurance that the court will approve such settlement. As of December 31, 2018, the company had fully reserved for this settlement amount. For a discussion of the terms of the settlement agreement as it relates to the Series A Preferred Stock, see “Item 1A, Risk Factors – The liquidation preference of the Series A Preferred Stock may be reduced in the future.”

In February 2017, the Company received $1.4 million in proceeds from the Deepwater Horizon Economic and Property Damages Settlement Program arising out of damages suffered by four properties prior to the Merger. The proceeds are included in other revenue in the consolidated statement of operations for the year ended December 31, 2017.

Franchise Agreements – As of December 31, 2018, the Company’s hotel properties, other than the Courtyard in Myrtle Beach, South Carolina, the SpringHill Suites in Fort Worth, Texas, which was sold in December 2018, and the Marriott in Redmond, Washington, which was sold in February 2018, (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, 2018, each of the Company’s 48 hotels were operated and managed, under separate management agreements, by affiliates of the following companies: Marriott, Texas 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 year to 15 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.

TRS Lease Agreements – The Company’s lease agreements are intercompany agreements between the TRS lessees and the Company’s 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, 2018, two of the Company’s hotel properties had ground leases with remaining terms of less than 2 years, which may be extended at the Company’s election. Ground lease expenses totaled $0.1 million, $0.1 million and $0.2 million for the years ended December 31, 2018, 2017, and 2016, 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, 2018 and thereafter are as follows:


2019	$	107
2020		45
2021		-
2022		-
Thereafter		-

Total	$	152

9. 7% Series A Cumulative Redeemable Preferred Stock

In connection with the Merger, the Company issued 97,032,848 shares of 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 was 7% per annum. The dividend rate increased from 7% per annum to 11% per annum on May 14, 2018. Due to the put option provided to the holders of these shares, such shares have been classified outside of permanent stockholder’s equity.

The initial liquidation preference of $1.90 per share will be subject to downward adjustment should net costs and payments relating to litigation and regulatory matters for alleged legacy acts exceed $3.5 million from the date of the Merger described in Note 1. On March 1, 2019, we entered into an agreement to settle litigation relating to alleged legacy acts for $3.75 million (see Part I, Item 3, “Legal Proceedings” for additional information regarding the litigation.) After giving effect to the payment of such settlement amount and related expenses, the net costs and payments relating to litigation and regulatory matters for alleged legacy acts exceed $3.5 million. Although the terms of the Series A Preferred Stock contemplate a reduction to the initial liquidation preference of the Series A Preferred Stock should such net costs and payments exceed $3.5 million, as part of the settlement agreement, the Company agreed to not reduce the liquidation preference of the Class A Preferred Stock as a result of the settlement amount and related expense. Under the settlement agreement, such net costs and payments are deemed to equal $3.5 million upon the Company’s payment of the settlement amount to an escrow account for the class. The settlement remains subject to preliminary and final court approval. The Company recognizes changes in the redemption value immediately as they occur and adjusts 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, 2018, the initial liquidation preference has not been adjusted.

On August 6, 2017 (the “redemption date”), the Company used proceeds from the Loan (see Note 6) in the amount of approximately $54.5 million to redeem 28,560,947 shares of Series A Preferred Stock, representing approximately 39.458% of the total shares of Series A Preferred Stock outstanding on the redemption date. The shares of Series A Preferred Stock were redeemed on a pro-rata basis from each stockholder at a redemption price of $1.9082 per share, which was comprised of the $1.90 liquidation preference per share and $0.082 in accumulated and unpaid dividends per share earned through the redemption date.

As of December 31, 2018 and 2017, BRE Holdings owned approximately 0.9 million shares of the Series A Preferred Stock, respectively.

Dividends were declared to be paid in cash for all four quarters of 2018, 2017 and 2016, of which 100% were characterized as ordinary income. During the year ended December 31, 2018, the Board of Directors of the Company declared the following dividends on the Series A Preferred Stock:


	Dividend		Dividend	Dividend
Declaration Date	Per Share		Record Date	Payment Date
March 26, 2018	$	0.0333	April 1, 2018	April 16, 2018
June 29, 2018	$	0.0459	July 1, 2018	July 16, 2018
October 12, 2018	$	0.0523	October 1, 2018	October 17, 2018
December 18, 2018	$	0.0523	January 1, 2019	January 10, 2019

As of December 31, 2018, the Company accrued $2.3 million for the dividend declared on December 18, 2018, which is included in accounts payable and accrued expenses in the consolidated balance sheet.

The table below reconciles the Series A Preferred Stock for the years ended December 31, 2018, 2017 and 2016:


Ending balance as of December 31, 2015	$	137,160
Dividends declared in 2016		(9,641	)
Dividends earned in 2016		9,641

Ending balance as of December 31, 2016	$	137,160
Dividends declared in 2017		(7,973	)
Dividends earned in 2017		8,118
Redemption of preferred shares		(54,265	)

Ending balance as of December 31, 2017	$	83,040
Dividends declared in 2018		(8,054	)
Dividends earned in 2018		7,894

Ending balance as of December 31, 2018	$	82,880

10. Stockholder’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, 2018 and 2017, 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 all four quarters of 2018, of which 1.42% were characterized as ordinary income and 98.58% were characterized as return on capital. During the year ended December 31, 2018, the Board of Directors of the Company declared the following dividends on the common stock:


	Dividend		Dividend	Dividend
Declaration Date	per Share		Record Date	Payment Date
February 8, 2018	$	40,000.00	February 8, 2018	February 9, 2018
May 11, 2018	$	60,000.00	May 11, 2018	May 15 and 21, 2018
August 17, 2018	$	20,000.00	August 17, 2018	August 17, 2018
October 30, 2018	$	55,000.00	November 14, 2018	November 14, 2018

Dividends were declared to be paid in cash for all four quarters of 2017, of which 27.96% were characterized as ordinary income and 72.04% were characterized as return of capital. During the year ended December 31, 2017, the Board of Directors of the Company declared the following dividends on the common stock:


	Dividend		Dividend	Dividend
Declaration Date	per Share		Record Date	Payment Date
February 10, 2017	$	100,000.00	February 10, 2017	February 13, 2017
May 12, 2017	$	142,500.00	May 12, 2017	May 15, 2017
July 13, 2017	$	64,387.71	July 13, 2017	July 14, 2017
August 2, 2017	$	100,000.00	August 2, 2017	August 3, 2017
November 8, 2017	$	65,000.00	November 8, 2017	November 9, 2017

11. 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 allowances 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 as a result of the following differences.


	Year Ended December 31,
	2018					2017					2016
Statutory federal income tax provision	($	3,041	)	21.0	%	$	3,625		34.0	%	$	6,253		34.0	%
Adjustment for nontaxable income		583		(4.0	%)		(6,012	)	(56.4	%)		(6,635	)	(36.1	%)
State income taxes, net of federal income tax benefit		(63	)	0.4	%		136		1.3	%		126		0.7	%
Contributions to TRS		-		0.0	%		-		0.0	%		(942	)	(5.1	%)
Change in federal tax rate		191		(1.3	%)		3,502		32.8	%		-		0.0	%
Valuation allowance		6,385		(44.1	%)		3,377		31.7	%		-		0.0	%
Other		-		0.0	%		-		0.0	%		-		0.0	%

Total income tax expense (benefit)	$	4,055		(28.0	%)	$	4,628		43.4	%	($	1,198	)	(6.5	%)

The components of the Company’s income tax expense (benefit) for the years ended December 31, 2018, 2017, and 2016 were as follows:


	Year Ended December 31,
	2018		2017		2016
Income tax expense (benefit):
Current:
Federal	$	1,025	$	1,452	$	3,353
State		380		254		728
Deferred:
Federal		2,488		2,685		(4,822	)
State		162		237		(457	)

Total	$	4,055	$	4,628	($	1,198	)

The components of the consolidated TRS’s net deferred tax assets and liabilities as of December 31, 2018 and 2017 were as follows:


	December 31,
	2018			2017
Deferred tax assets:
Accrued expenses and other	$	361		$	357
Prepaid expenses and other		-			2
Investment in real estate book-tax basis difference		2,851			4,292
Goodwill book-tax basis difference		2,511			1,096
Net operating loss carryforward		5,385			1,549

Total deferred tax assets before valuation allowances		11,108			7,296
Valuation allowances		(10,747	)		(4,312	)

Deferred tax assets	$	361		$	2,984

Deferred tax liabilities:
Prepaid expenses and other	($	26	)	$	-

Deferred tax asset, net	$	335		$	2,984

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 $10.7 million and $4.3 million valuation allowances recorded at December 31, 2018 and 2017, respectively, are 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, 2018, 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 2014.

On December 22, 2017, the United States (U.S.) government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the “Tax Act”). The Tax Act contains significant changes to existing tax law including, among other things, a reduction in the U.S. federal statutory tax rate from 34% to 21%.

As a result of the Tax Act, the Company has revised its effective federal statutory income tax rate to reflect a reduction in the rate from 34% to 21% effective January 1, 2018. The Company remeasured its U.S. federal net deferred tax assets as of December 31, 2018 at the lower effective tax rate and recorded a tax expense of $4.1 million for the year ended December 31, 2018.

12. 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 26 of the hotels owned by the Company. As of the end of May 2018, the Sponsor no longer has an equity investment in Hilton, however, an executive of the Sponsor is the Chairman of the Board of Directors of Hilton. 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 Stock. 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 $18.6 million, $18.1 million and $17.5 million of franchise fees, marketing fees, and other expenses during the years ended December 31, 2018, 2017 and 2016, respectively, under agreements with Hilton or its subsidiaries. No amounts were owed to Hilton at either December 31, 2018 or December 31, 2017.

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 $3.9 million, $2.2 million and $1.6 million to this management company during the years ended December 31, 2018, 2017 and 2016, respectively. In addition, the Company prepaid this management company $0.5 million and $0 at December 31, 2018 and 2017, respectively, which is included in prepaid expenses and other assets in the consolidated balance sheets.

13. Quarterly Financial Data (unaudited)


	Quarter Ended - 2018
	March 31			June 30			September 30			December 31 (a)
	(in thousands, except per share data)
Revenues	$	55,777		$	64,798		$	67,580		$	53,168
Net income (loss)		346			(8,552	)		4,453			(14,333	)
Series A Preferred Stock dividends declared		(1,459	)		(2,011	)		(2,292	)		(2,292	)
Net (loss) income available for common stockholder		(1,113	)		(10,563	)		2,161			(16,625	)
Basic and diluted net (loss) income per common share available to common stockholder	($	11,130.00	)	($	105,630.00	)	$	21,610.00		($	166,250.00	)
Distributions declared and paid per common share	$	40,000.00		$	60,000.00		$	20,000.00		$	55,000.00



	Quarter Ended - 2017
	March 31 (b)			June 30			September 30			December 31 (c)
	(in thousands, except per share data)
Revenues	$	61,320		$	69,923		$	71,747		$	56,888
Net income (loss)		9,210			6,905			5,242			(15,323	)
Series A Preferred Stock dividends declared		(2,410	)		(2,411	)		(1,693	)		(1,459	)
Net income (loss) available for common stockholder		6,800			4,494			3,549			(16,782	)
Basic and diluted net income (loss) per common share available to common stockholder	$	68,000.00		$	44,940.00		$	35,490.00		($	167,820.00	)
Distributions declared and paid per common share	$	100,000.00		$	142,500.00		$	164,387.71		$	65,000.00

(a)	Includes $3.75 million related to the Apple Six litigation settlement (see Note 8).

(b)	Includes $1.4 million in proceeds from the Deepwater Horizon Economic and Property Damages Settlement Program (see Note 8).

(c)	Includes $5.0 million loss on disposals of investment in real estate due to allowance recorded against the Company’s insurance receivable (see Note 8).

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, 2018, 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, 2018. 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, 2018, 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

None

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	56	Since 2012	Chief Executive Officer and Senior Managing Director
Brian Kim	39	Since 2012	Chief Financial Officer, Vice President and Managing Director
A.J. Agarwal	52	Since 2013	President and Senior Managing Director
Tyler Henritze	38	Since 2013	Secretary, Vice President and Senior Managing Director

William J. Stein – Mr. Stein, 56, 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 2012. Mr. Stein is a Senior Managing Director 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 platform with over $115 billion of investor capital under management. 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 currently serves on the Board of Directors of Invitation Homes Inc., Nevada Property 1 LLC (The Cosmopolitan of Las Vegas), and Edens Investment Trust and is a member of the University of Michigan Ross School of Business Advisory Board and the University of Michigan Real Estate Fund Advisory Board. He previously served as a board member of Hilton Worldwide Holdings Inc. until June 2017, Extended Stay America, Inc. until June 2017, La Quinta Holdings Inc. until November 2014 and Brixmor Property Group Inc. until August 2016. 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, 39, 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 May 2013. Mr. Kim is a Managing Director in the Real Estate Group of Blackstone and the Head of Acquisitions and Capital Markets at Blackstone Real Estate Income Trust, Inc. (“BREIT”), each affiliates of the Company. Since joining Blackstone in 2008, Mr. Kim has played a key role in a number of Blackstone’s real estate investments and the creation of Blackstone’s select service hotel platform. Prior to joining Blackstone, Mr. Kim worked at Apollo Real Estate Advisors, Max Capital Management Corp. and Credit Suisse First Boston. Mr. Kim received an A.B. in Biology from Harvard College with honors. He currently serves as a board member of CorePoint Lodging Inc. and previously served as a board member of LaQuinta Holdings Inc. until May 2018. 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, 52, is the Company’s President, and he has served as a director and officer of the Company since May 2013. Mr. Agarwal is a Senior Managing Director in the Real Estate Group of Blackstone and President and a director of BREIT, each affiliates of the company. Mr. Agarwal oversees Blackstone’s U.S. Core and Core+ real estate business. Prior to launching and leading Blackstone’s Core+ business in 2014, Mr. Agarwal was co-head of U.S. Acquisitions and oversaw more than $15 billion of equity commitments and $50 billion of transactions across all real estate asset classes. Mr. Agarwal joined Blackstone in 1992 and is a member of Blackstone’s Real Estate Investment Committee. Mr. Agarwal graduated magna cum laude from Princeton University and received an M.B.A. from Stanford University Graduate School of Business. Mr. Agarwal currently serves on the Board of Directors of BREIT. 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, 38, 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 2013. Mr. Henritze is a Senior Managing Director in Blackstone’s Real Estate Group and the Head of Blackstone’s Real Estate U.S. Acquisitions. Since joining Blackstone in 2004, Mr. Henritze has been involved in over $100 billion of real estate investments across all property types. Before joining Blackstone, Mr. Henritze worked at Merrill Lynch, where he was an Analyst in the Real Estate Investment Banking group. Mr. Henritze received a B.S. in Commerce from The McIntire School at the University of Virginia where he graduated with distinction. He currently serves as a board member of Nevada Property 1 LLC (The Cosmopolitan of Las Vegas). He previously served as a board member of Hilton Worldwide Holdings Inc. until May 2015 and Park Hotels and Resorts Inc. until December 2017. He also helped found and serves on the investment community board of City Year New York. 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

interest in this management company. The Company paid $3.9 million, $2.2 million and $1.6 million to this management company during the years ended December 31, 2018, 2017 and 2016, respectively. In addition, the Company prepaid this management company $0.5 million and $0 at December 31, 2018 and 2017, respectively, which is included in prepaid expenses and other assets in the consolidated balance sheets.

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 Accounting 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 2018 and 2017, along with fees billed for other services rendered:


Year	Firm	Audit Fees	Audit-Related Fees		Tax Fees		All Other Fees
2018	Deloitte & Touche LLP	$505,000	$	-	$	339,000	$	-
2017	Deloitte & Touche LLP	$592,743	$	-	$	339,950	$	-

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, 2018 and 2017 and each of the three years in the period ended December 31, 2018 — Deloitte & Touche LLP

Consolidated Balance Sheets as of December 31, 2018 and 2017

Consolidated Statements of Operations for the years ended December 31, 2018, 2017 and 2016

Consolidated Statements of Stockholder’s Equity for the years ended December 31, 2018, 2017 and 2016

Consolidated Statements of Cash Flows for the years ended December 31, 2018, 2017 and 2016

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


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 July 7, 2017 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., BRE Select Hotels Properties II LLC and BRE Select Hotels Properties II Sub LLC, collectively, as Borrower, and BRE Select Hotels Operating LLC, as Operating Lessee, and Morgan Stanley Bank, N.A., Bank of America, N.A., Citigroup Global Markets Realty Corp., and JPMorgan Chase Bank, National Association, collectively, as Lender (incorporated by reference to Exhibit 10.1 to the Registrant’s Form 10-Q for the quarterly period ended June 30, 2017 (File No. 333-186090)).

10.2		Form of Fee and Leasehold Mortgage, Assignment of Leases and Rents and Security Agreement by Borrower and Operating Lessee, collectively, as Mortgagor, to Morgan Stanley Bank, N.A., Bank of America, N.A., Citigroup Global Markets Realty Corp., and JPMorgan Chase Bank, National Association, collectively, as Mortgagee (incorporated by reference to Exhibit 10.2 to the Registrant’s Form 10-Q for the quarterly period ended June 30, 2017 (File No. 333-186090)).

10.3		Guaranty Agreement executed as of July 7, 2017 by BSHH LLC in favor of Morgan Stanley Bank, N.A., Bank of America, N.A., Citigroup Global Markets Realty Corp., and JPMorgan Chase Bank, National Association, collectively, as Lender (incorporated by reference to Exhibit 10.3 to the Registrant’s Form 10-Q for the quarterly period ended June 30, 2017 (File No. 333-186090)).

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.

101		The following materials from BRE Select Hotels Corp’s Annual Report on Form 10-K for the fiscal year ended December 31, 2018 formatted in XBRL (eXtensible Business Reporting Language): (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Operations, (iii) the Consolidated Statements of Stockholder’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

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.

BRE SELECT HOTELS CORP

SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION

AS OF DECEMBER 31, 2018

(dollars in thousands)


								Initial Cost to Company (1)				Costs Capitalized Subsequent to Acquisition (2)			Gross Cost at Which Carried at Close of Period (3) (4)
City		State		Brand		Encumbrances		Land		Building and Improvements		Land, Building and Improvements			Land		Bldg/FF&E/ Other		Total		Acc Depr			Year of Construction		Date Acquired		Depreciable Life
	Dothan		Alabama		Hampton Inn & Suites		9,123		1,110		6,700		1,774			1,115		8,469		9,584		(1,498	)		2004		May-13		3 -39 yrs.
	Tuscaloosa		Alabama		Courtyard		4,639		-		7,690		2,011			19		9,682		9,701		(1,873	)		1996		May-13		3 -39 yrs.
	Tuscaloosa		Alabama		Fairfield Inn		3,031		-		3,990		1,762			38		5,714		5,752		(1,207	)		1996		May-13		3 -39 yrs.
	Anchorage		Alaska		Hampton Inn		10,001		2,020		12,980		2,083			2,077		15,006		17,083		(3,013	)		1997		May-13		3 -39 yrs.
	Anchorage		Alaska		Hilton Garden Inn		15,137		2,530		20,780		2,857			2,583		23,584		26,167		(4,275	)		2002		May-13		3 -39 yrs.
	Anchorage		Alaska		Homewood Suites		14,934		3,190		19,510		2,059			3,335		21,424		24,759		(3,739	)		2004		May-13		3 -39 yrs.
	Phoenix		Arizona		Hampton Inn		13,920		3,930		7,190		1,880			3,942		9,058		13,000		(1,650	)		1998		May-13		3 -39 yrs.
	Arcadia		California		Hilton Garden Inn		18,853		2,940		14,310		2,544			3,001		16,793		19,794		(3,295	)		1999		May-13		3 -39 yrs.
	Arcadia		California		SpringHill Suites		13,785		2,610		9,130		2,692			2,674		11,758		14,432		(2,857	)		1999		May-13		3 -39 yrs.
	Bakersfield		California		Hilton Garden Inn		8,717		1,260		10,490		3,080			1,266		13,564		14,830		(2,569	)		2004		May-13		3 -39 yrs.
	Folsom		California		Hilton Garden Inn		10,677		1,310		11,000		1,988			1,343		12,955		14,298		(2,457	)		1999		May-13		3 -39 yrs.
	Foothill Ranch		California		Hampton Inn		7,433		2,970		5,080		2,077			3,019		7,108		10,127		(1,805	)		1998		May-13		3 -39 yrs.
	Lake Forest		California		Hilton Garden Inn		11,488		4,250		10,440		2,322			4,274		12,738		17,012		(2,676	)		2004		May-13		3 -39 yrs.
	Milpitas		California		Hilton Garden Inn		36,627		6,600		22,190		3,748			6,604		25,934		32,538		(4,468	)		1999		May-13		3 -39 yrs.
	Roseville		California		Hilton Garden Inn		12,974		2,470		4,260		3,713			2,515		7,928		10,443		(1,419	)		1999		May-13		3 -39 yrs.
	San Francisco		California		Hilton Garden Inn		38,992		7,920		29,100		3,440			7,942		32,518		40,460		(5,563	)		1999		May-13		3 -39 yrs.
	Glendale		Colorado		Hampton Inn & Suites		17,637		3,480		17,090		3,645			3,490		20,725		24,215		(4,019	)		1999		May-13		3 -39 yrs.
	Lakewood		Colorado		Hampton Inn		20,137		2,520		12,590		2,752			2,545		15,317		17,862		(2,931	)		2003		May-13		3 -39 yrs.
	Farmington		Connecticut		Courtyard		14,191		2,600		15,030		2,394			2,623		17,401		20,024		(3,646	)		2005		May-13		3 -39 yrs.
	Rocky Hill		Connecticut		Residence Inn		12,163		1,640		14,700		1,834			1,717		16,457		18,174		(3,262	)		2005		May-13		3 -39 yrs.
	Wallingford		Connecticut		Homewood Suites		10,812		1,250		12,530		2,235			1,336		14,679		16,015		(2,537	)		2005		May-13		3 -39 yrs.
	Lake Mary		Florida		Courtyard		7,433		1,190		5,570		1,898			1,206		7,452		8,658		(1,528	)		1995		May-13		3 -39 yrs.
	Lakeland		Florida		Residence Inn		9,798		630		9,740		2,145			655		11,860		12,515		(2,566	)		2001		May-13		3 -39 yrs.
	Panama City		Florida		Courtyard		9,460		560		7,310		1,096			578		8,388		8,966		(1,572	)		2006		May-13		3 -39 yrs.
	Pensacola		Florida		Courtyard		8,244		610		8,740		3,460			643		12,167		12,810		(1,874	)		1997		May-13		3 -39 yrs.
	Pensacola		Florida		Hampton Inn & Suites		9,528		540		6,540		1,751			557		8,274		8,831		(1,736	)		2005		May-13		3 -39 yrs.
	Tallahassee		Florida		Hilton Garden Inn		10,947		2,270		9,780		2,224			2,279		11,995		14,274		(2,116	)		1997		May-13		3 -39 yrs.
	Columbus		Georgia		Residence Inn		8,109		1,190		7,600		1,910			1,223		9,477		10,700		(2,315	)		2003		May-13		3 -39 yrs.
	Mt. Olive		New Jersey		Residence Inn		13,718		2,930		14,860		2,371			2,993		17,168		20,161		(3,472	)		2005		May-13		3 -39 yrs.
	Somerset		New Jersey		Homewood Suites		12,163		3,120		8,830		2,245			3,124		11,071		14,195		(2,201	)		2005		May-13		3 -39 yrs.
	Saratoga Springs		New York		Hilton Garden Inn		14,191		960		17,020		2,933			979		19,934		20,913		(3,380	)		1999		May-13		3 -39 yrs.
	Roanoke Rapids		North Carolina		Hilton Garden Inn		11,082		1,740		3,870		2,038			1,744		5,904		7,648		(862	)		2008		May-13		3 -39 yrs.
	Hillsboro		Oregon		Courtyard		24,732		3,240		11,280		3,445			3,259		14,706		17,965		(2,558	)		1996		May-13		3 -39 yrs.
	Hillsboro		Oregon		Residence Inn		30,476		3,790		16,540		3,949			3,809		20,470		24,279		(4,429	)		1994		May-13		3 -39 yrs.
	Hillsboro		Oregon		TownePlace Suites		24,462		3,200		11,070		2,495			3,237		13,528		16,765		(3,077	)		1999		May-13		3 -39 yrs.
	Portland		Oregon		Residence Inn		69,377		8,430		59,480		5,781			8,446		65,245		73,691		(11,035	)		2001		May-13		3 -39 yrs.
	Myrtle Beach		South Carolina		Courtyard		10,271		1,240		9,570		2,726			1,300		12,236		13,536		(2,642	)		1999		May-13		3 -39 yrs.
	Nashville		Tennessee		Homewood Suites		14,731		1,010		10,670		2,025			1,046		12,659		13,705		(2,156	)		1999		May-13		3 -39 yrs.
	Dallas		Texas		SpringHill Suites		14,191		1,200		14,660		1,440			1,210		16,090		17,300		(3,067	)		1997		May-13		3 -39 yrs.
	Fort Worth		Texas		Homewood Suites		12,163		1,250		12,180		8,763			1,269		20,924		22,193		(2,861	)		1999		May-13		3 -39 yrs.
	Fort Worth		Texas		Residence Inn		15,641		3,850		16,740		3,011			3,870		19,731		23,601		(3,745	)		2005		May-13		3 -39 yrs.
	McAllen		Texas		Hilton Garden Inn		5,879		1,510		7,490		(3,574	)		820		4,606		5,426		(120	)		2000		May-13		3 -39 yrs.
	Kent		Washington		TownePlace Suites		19,124		2,180		13,140		2,238			2,224		15,334		17,558		(3,110	)		1999		May-13		3 -39 yrs.
	Mukilteo		Washington		TownePlace Suites		11,961		3,020		11,920		1,950			3,046		13,844		16,890		(2,826	)		1999		May-13		3 -39 yrs.
	Renton		Washington		Hilton Garden Inn		22,435		2,010		19,190		4,311			2,059		23,452		25,511		(4,224	)		1998		May-13		3 -39 yrs.

						$	695,387	$	108,270	$	580,570	$	115,521		$	109,034	$	695,327	$	804,361		(130,231	)

(1)	Represents acquisition date fair value.

(2)	Amounts include impairment charges.

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

(4)	Reconciliation of Real Estate and Accumulated Depreciation.

SCHEDULE III

Real Estate and Accumulated Depreciation

As of December 31, 2018

(in thousands)


	2018			2017			2016
Investment in real estate:
Beginning balance	$	874,439		$	951,341		$	1,060,555
Improvements		28,026			25,755			37,548
Hotels held for sale		(32,808	)		(72,467	)		(49,426	)
Disposals and impairments		(65,296	)		(30,190	)		(97,336	)
Ending balance	$	804,361		$	874,439		$	951,341


	2018			2017			2016
Accumulated depreciation:
Beginning balance	$	116,180		$	93,423		$	73,915
Depreciation expense		33,459			35,668			38,507
Hotels held for sale		(7,503	)		(6,933	)		(6,330	)
Disposals and impairment		(11,905	)		(5,978	)		(12,669	)
Ending balance	$	130,231		$	116,180		$	93,423

Item 16.

Form 10-K Summary

None.

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 28, 2019
	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 28, 2019
	William J. Stein Director, Chief Executive Officer and Senior Managing Director (Principal Executive Officer)

By:	/s/ BRIAN KIM	Date: March 28, 2019
	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 28, 2019
	A.J. Agarwal Director

By:	/s/ TYLER HENRITZE	Date: March 28, 2019
	Tyler Henritze Director

BRE Select Hotels Corp 10-K