Chatham Lodging Trust Annual Report 2012

← All annual reports

FY2012 Annual Report · Chatham Lodging Trust

Loading PDF…

2012 Annual Report

Hotel Locations

Chatham Lodging Trust

2012 Annual Report

2012 Chairman’s Letter

In 2012, Chatham Lodging Trust achieved significant success with strong operating performance, enhanced

by disciplined capital allocations and obtaining more attractive financing. We further delivered on our vision to
build the leading lodging real estate investment trust (REIT) focused on premium-branded, upscale, extended-
stay and select-service hotels. Chatham realized numerous noteworthy accomplishments during 2012, including:

•

Produced superior operating performance, among the best in the lodging REIT sector, encompassing
such key metrics as revenue per available room (“RevPAR”) growth; earnings before interest, taxes,
depreciation and amortization (“EBITDA”) margin and margin growth; operating flow-through and
adjusted funds from operation (“FFO”) per share.

• Amended our senior secured revolving credit facility that reduced borrowing costs by approximately

250 basis points and extended the maturity to 2016.

• Returned to shareholders dividends of approximately $0.78 per share on adjusted FFO per share of

$1.30; instituted a monthly dividend payment program and increased the dividend by nearly 8 percent
to $0.84 per share on an annualized basis for 2013.

• Resumed our acquisition strategy with the purchase of a hotel in late 2012, maintaining discipline
while our share price rebounded and allowed us to raise equity in early 2013 and make accretive
acquisitions. We have a significant pipeline of targeted acquisitions and look at 2013 as a year of
substantial growth for us.

Operating Performance

Our operating performance in 2012 was strong across our wholly-owned portfolio of 2,414 rooms with

internal growth generating excellent results and returns. RevPAR grew 8 percent, well above industry
performance, adjusted EBITDA rose 81 percent, EBITDA margins improved 160 basis points to an industry
leading 37.4 percent and adjusted FFO advanced 52 percent to $1.30 per share.

We devoted a lot of time, money, and effort in 2010 and 2011 improving the condition of our portfolio,
renovating two thirds of our portfolio, because we believe the hotel market is poised for a protracted up-cycle
and we are minimizing displacement in the coming years. Our strong 2012 operating results validated that
strategy. We grew our market share by approximately 4 percent and advanced our RevPAR premium to 21
percent. As the up-cycle continues, the quality of the physical condition of our portfolio puts us in the best
position to profit, as room rates become the primary driver of RevPAR gains and we will have minimal rooms
out of service for renovation. Our operating model is very efficient at driving revenue growth to the bottom line.
We produced a very strong operating leverage ratio of 1.7 times in 2012.

Our joint venture investment with Cerberus in which we acquired 64 hotels out of bankruptcy from
Innkeepers has been highly successful. We originally invested $37.0 million to obtain a 10.3 percent interest in
the joint venture. Today, our net investment stands at $15.8 million after receiving distributions of $21.2 million
during 2012 attributable to asset sales, new financing and cash flow. On the operating side, RevPAR growth in
the joint venture was up 10 percent in 2012. The joint venture portfolio generated adjusted FFO of $3.7 million
for Chatham in 2012, delivering a very strong cash-on-cash return.

Acquisitions

We remained on the investment sideline for most of 2012 as we waited patiently for the right opportunities
that met our stringent acquisition criteria. In late 2012, we acquired the recently opened 122-room Hampton Inn
Portland Downtown – Waterfront in Portland, Maine for $28 million, including an adjacent land parcel. The hotel

is located in the Old Port district and offers ready access to downtown Portland’s waterfront, historical
attractions, boutiques, many restaurants and bars. The property is the #1 rated hotel on TripAdvisor in Portland,
which is one of the top travel destinations in New England. We expect to be more active in 2013 as we anticipate
additional opportunities to make accretive acquisitions. In February 2013, we acquired the 197-room Courtyard
by Marriott Houston Medical Center hotel in Houston, Texas for $35 million.

Solid Balance Sheet and Capital Structure

At December 31, 2012, our leverage ratio was approximately 51 percent, based on our hotel investments at
cost and debt outstanding, net of cash. At this point of the hotel cycle, which we believe is in a protracted period
of RevPAR growth; we are comfortable with these leverage levels, and believe this leverage ratio will generate
the best risk-adjusted returns.

During the year, we amended our $115 million senior secured revolving credit facility. The amendment
extends the maturity date to 2016 and reduces our borrowing costs by approximately 250 basis points. During the
2013 first quarter, we further reduced our borrowing costs by refinancing several loans that had an annualized 6.0
percent interest rate with loans carrying an average rate of 4.6 percent.

Also early in 2013, we completed a follow-on public offering of our common stock, raising net proceeds of
approximately $51 million. These proceeds were used to fund the Portland and Houston acquisitions. Our capital
structure is very efficient with only common equity outstanding, floating rate debt through our credit facility and
fixed-rate debt at very attractive rates that can be assumed.

Outlook

We remain bullish on the lodging industry. The outlook for new hotel room supply, although increasing, is
still at historically low levels. The U.S. economy continues to modestly expand and unemployment continues its
slight decline. Chatham is well-positioned to benefit greatly as these metrics improve further since most of our
hotels have been renovated within the last several years and are in top physical condition, while in many markets
our competitors face the need for considerable renovations and upgrades. Our ability to generate excess cash flow
is very powerful given our industry leading operating margins.

Generating meaningful cash flow is the key to providing significant dividends. We realize that dividends are

the primary driver of lodging REIT equity returns. Our annual dividend of $0.84 is among the highest in the
lodging REIT industry and is well covered with 2013 adjusted FFO per share projected to be within a range of
$1.58 to $1.64, up approximately 25 percent from 2012.

Our primary goal remains to provide meaningful, superior returns to our shareholders. We have operated
successfully through many hotel economic cycles and have generated handsome returns for our shareholders over
the past 20 years. We know from experience that patience and discipline are requisite to support smart, risk-
adjusted growth. Doing so fortifies our business for the long-term and enables us to generate sustainable cash-
flow and pay attractive dividends. This, in turn, translates into increased net asset value, share price appreciation
and multiple expansion to provide the currency to create additional external growth and further enhance returns.

I thank you for your confidence in Chatham and for your continued support.

Sincerely,

Jeffrey H. Fisher
Chairman, Chief Executive Officer and President

March 19, 2013

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

È ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES

Form 10-K

EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2012

‘ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES

EXCHANGE ACT OF 1934
For the transition period from

Commission File Number 001-34693

Chatham Lodging Trust

(Exact name of registrant as specified in its charter)

Maryland
(State or Other Jurisdiction
of Incorporation or Organization)

50 Cocoanut Row, Suite 211
Palm Beach, Florida
(Address of Principal Executive Offices)

27-1200777
(IRS Employer
Identification No.)

33480
(Zip Code)

(561) 802-4477
(Registrant’s telephone number, including area code)

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

Title of Each Class

Name of Each Exchange on Which Registered

Common Shares of Beneficial Interest, par value $0.01 per
share

New York Stock Exchange

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 È 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 È 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 È No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant
was required to submit and post such files). È 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 the Form 10-K. È

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the

definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.:
Large accelerated filer ‘

Non-accelerated filer ‘ (Do not check if smaller reporting company)

Accelerated filer

Smaller reporting company ‘

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

The aggregate market value of the 13,908,907 common shares of beneficial interest held by non-affiliates of the registrant was $198,619,191.96 based on the

closing sale price on the New York Stock Exchange for such common shares of beneficial interest as of June 29, 2012.

The number of common shares of beneficial interest outstanding as of March 06, 2013 was 17,582,680.

Portions of the registrant’s Definitive Proxy Statement for its 2013 Annual Meeting of Shareholders (to be filed with the Securities and Exchange Commission on

or before May 17, 2013) are incorporated by reference into this Annual Report on Form 10-K in response to Part III hereof.

DOCUMENTS INCORPORATED BY REFERENCE

Chatham Lodging Trust

TABLE OF CONTENTS

Cautionary Note Regarding Forward-Looking Statements

1. Business
1A. Risk Factors
1B. Unresolved Staff Comments
Properties
2.
3.
Legal Proceedings
4. Mine Safety Disclosures

PART I

PART II

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

Securities

Selected Financial Data

6.
7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
7A. Quantitative and Qualitative Disclosures about Market Risk
8. Consolidated Financial Statements and Supplementary Data
9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
9A. Controls and Procedures
9B. Other Information

PART III
10. Trustees, Executive Officers and Corporate Governance
11. Executive Compensation
12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
13. Certain Relationships and Related Transactions, and Trustee Independence
14. Principal Accountant Fees and Services

15. Exhibits and Financial Statement Schedules

PART IV

Page

4
12
30
31
32
32

33
37
38
53
54
54
54
54

55
55
55
55
55

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This report contains forward-looking statements within the meaning of Section 27A of the Securities Act of

1933 and Section 21E of the Securities Exchange Act of 1934, and as such may involve known and unknown
risks, uncertainties and other factors which may cause our actual results, performance or achievements to be
materially different from future results, performance or achievements expressed or implied by such forward-
looking statements. Forward-looking statements, which are based on certain assumptions and describe our future
plans, strategies and expectations, are generally identified by our use of words, such as “intend,” “plan,” “may,”
“should,” “will,” “project,” “estimate,” “anticipate,” “believe,” “expect,” “continue,” “potential,” “opportunity,”
and similar expressions, whether in the negative or affirmative. All statements regarding our expected financial
position, business and financing plans are forward-looking statements. Factors which could have a material
adverse effect on our operations and future prospects include those discussed in “Business,” “Risk Factors,”
“Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and elsewhere in
this Annual Report on Form 10-K. These risks and uncertainties should be considered in evaluating any forward-
looking statement contained in this report or incorporated by reference herein.

All forward-looking statements speak only as of the date of this report or, in the case of any document
incorporated by reference, the date of that document. All subsequent written and oral forward-looking statements
attributable to us or any person acting on our behalf are qualified by the cautionary statements in this section. We
undertake no obligation to update or publicly release any revisions to forward-looking statements to reflect
events, circumstances or changes in expectations after the date of this report, except as required by law.

Item 1. Business

Overview

PART I

Chatham Lodging Trust (“we,” “us” or the “Company”) was formed as a Maryland real estate investment

trust (“REIT”) on October 26, 2009. The Company is internally-managed and was organized to invest primarily
in premium-branded upscale extended-stay and select-service hotels.

The Company completed its initial public offering (the “IPO”) on April 21, 2010. The IPO resulted in the
sale of 8,625,000 common shares at $20.00 per share, generating $172.5 million in gross proceeds. Net proceeds,
after underwriters’ discounts and commissions and other offering costs, were approximately $158.7 million.
Concurrently with the closing of the IPO, in a separate private placement pursuant to Regulation D under the
Securities Act of 1933, as amended (the “Securities Act”), the Company sold 500,000 of its common shares to
Jeffrey H. Fisher, the Company’s Chairman, President and Chief Executive Officer (“Mr. Fisher”), at the public
offering price of $20.00 per share, for proceeds of $10.0 million. On February 8, 2011, the Company completed a
follow-on common share offering of 4,000,000 shares, generating gross proceeds of $73.6 million and net
proceeds of approximately $69.4 million. On January 14, 2013, the Company completed a follow-on common
share offering of 3,500,000 shares, generating gross proceeds of approximately $51.5 million and net proceeds of
approximately $49.1 million. On January 31, 2013, the Company issued an additional 92,677 common shares
pursuant to the exercise of the underwriters’ over-allotment option in the offering that closed on January 14,
2013, generating gross proceeds of approximately $1.4 million and net proceeds of approximately $1.3 million.

The Company had no operations prior to the consummation of the IPO. Following the closing of the IPO,

the Company contributed the net proceeds from the IPO and the concurrent private placement, as well as the net
proceeds of our February 2011 offering and January 2013 offering, to Chatham Lodging, L.P. (the “Operating
Partnership”) in exchange for partnership interests in the Operating Partnership. Substantially all assets are held
by, and all of the Company’s operations are conducted through, the Operating Partnership. Chatham Lodging
Trust is the sole general partner of the Operating Partnership and owns 100% of the common units of limited
partnership interest in the Operating Partnership. Certain of our executive officers hold vested and unvested long-
term incentive plan (“LTIP”) units in the Operating Partnership, which are presented as noncontrolling interests
on the consolidated balance sheets.

As of December 31, 2012, the Company owned 19 hotels with an aggregate of 2,536 rooms and held a 10.3%

minority interest in a joint venture (the “JV”) with Cerberus Capital Management (“Cerberus”) which owns 55
hotels with an aggregate of 7,282 rooms. To qualify as a REIT, the Company cannot operate its hotels. Therefore,
the Operating Partnership and its subsidiaries lease the Company’s wholly owned hotels to taxable REIT subsidiary
lessees (“TRS Lessees”), which are wholly owned by one of the Company’s taxable REIT subsidiary (“TRS”)
holding companies. Each hotel is leased to a TRS Lessee under a percentage lease that provides for rental payments
equal to the greater of (i) a fixed base rent amount or (ii) a percentage rent based on hotel room revenue. The initial
term of each of the TRS leases is five years. Lease revenue from each TRS Lessee is eliminated in consolidation.
The TRS Lessees have entered into management agreements with third party management companies that provide
day-to-day management for the hotels. The Company indirectly owns its interest in 51 of the 55 JV hotels through
the Operating Partnership, and the Company’s interest in the remaining 4 JV hotels is held through one of the TRS
holding companies. All of the JV hotels are leased to TRS Lessees in which the Company indirectly owns a 10.3%
interest through one of the TRS holding companies. Island Hospitality Management Inc. (“IHM”), which is 90%
owned by Mr. Fisher, managed 17 of the Company’s wholly owned hotels at December 31, 2012 and Concord
Hospitality Enterprises Company manages two of the Company’s wholly owned hotels. All but one of the JV hotels
were managed by IHM at December 31, 2012. One JV hotel was managed by Dimension Development Company.
On January 1, 2013, IHM took over management of this hotel from Dimension Development Company. One
February 5, 2013, the Company acquired the 197 room Courtyard by Marriott Houston® Medical Center hotel in
Houston, TX for $34.8 million. The Company funded the acquisition with borrowings under its secured revolving
credit facility. The Houston hotel is managed by IHM.

Our wholly owned hotels includes upscale extended-stay hotels that operate under the Homewood Suites by

Hilton® brand (eight hotels) and Residence Inn by Marriott® brand (six hotels), as well as premium-branded
select-service hotels that operate under the Courtyard by Marriott® brand (one hotel), the Hampton Inn or
Hampton Inn and Suites by Hilton® brand (two hotels), the SpringHill Suites by Marriott® brand (one hotel) and
the Doubletree Suites by Hilton® brand (one hotel), which franchise agreement was terminated on January 31,
2013, is expected to be rebranded to a Residence Inn by Marriott® in May 2013.

As of December 31, 2012, we primarily invest in upscale extended-stay hotels such as Homewood Suites by
Hilton® or Residence Inn by Marriott®. Upscale extended-stay hotels typically have the following characteristics:

•

principal customer base includes business travelers who are on extended assignments and corporate
relocations;

services and amenities include complimentary breakfast and evening hospitality hour, high-speed
internet access, in-room movie channels, limited meeting space, daily linen and room cleaning service,
24-hour front desk, guest grocery services, and an on-site maintenance staff; and

physical facilities include large suites, quality construction, full separate kitchens in each guest suite,
quality room furnishings, pool, and exercise facilities.

We also invest in premium-branded select-service hotels such as Courtyard by Marriott®, Hampton Inn and

Suites® and SpringHill Suites by Marriott®. The service and amenity offerings of these hotels typically include
complimentary breakfast, high-speed internet access, local calls, in-room movie channels, and daily linen and
room cleaning service.

The following sets forth certain information with respect to our 19 wholly-owned hotels at December 31, 2012:

Property

Location

Management
Company

Date of
Acquisition

Year
Opened

Number of
Rooms

Purchase Price

Homewood Suites by Hilton Boston-
Billerica/ Bedford/ Burlington

Billerica,
Massachusetts

Island
Hospitality

April 23, 2010

1999

(Unaudited)
147

12.5 million

Purchase Price
per
Room

(Unaudited)
$ 85,714

Homewood Suites by Hilton

Minneapolis-Mall of America

Homewood Suites by Hilton Nashville-

Brentwood

Bloomington,
Minnesota

Brentwood,
Tennessee

Homewood Suites by Hilton Dallas-

Dallas, Texas

Market Center

Homewood Suites by Hilton Hartford-

Farmington

Homewood Suites by Hilton Orlando-

Maitland

Homewood Suites by Hilton Carlsbad

(North San Diego County)

Farmington,
Connecticut

Maitland,
Florida

Carlsbad,
California

Hampton Inn & Suites Houston-

Houston, Texas

Medical Center

Courtyard Altoona

Springhill Suites Washington

Residence Inn Long Island Holtsville

Residence Inn White Plains

Residence Inn New Rochelle

Residence Inn Garden Grove

Altoona,
Pennsylvania

Washington,
Pennsylvania

Holtsville,
New York

White Plains,
New York

Island
Hospitality

New Rochelle,
New York

Island
Hospitality

Garden Grove,
CA

Island
Hospitality

Residence Inn Mission Valley

San Diego, CA

Homewood Suites by Hilton San

Antonio River Walk

Doubletree Suites by Hilton

Washington DC (1)

Residence Inn Tysons Corner

San Antonio,
TX

Washington,
DC

Vienna, VA

Hampton Inn Portland Downtown

Portland, ME

Island
Hospitality

April 23, 2010

1998

April 23, 2010

1998

April 23, 2010

1998

April 23, 2010

1999

April 23, 2010

2000

November 3, 2010

2008

July 2, 2010

1997

Concord

August 24, 2010

2001

Concord

August 24, 2010

2000

August 3, 2010

2004

September 23, 2010 1982

October 5, 2010

2000

July 14, 2011

2003

July 14, 2011

2003

July 14, 2011

1996

July 14, 2011

1974

July 14, 2011

2001

December 27, 2012 2011

Mortgage
Debt
Balance

—

18.0 million

$125,000

11.3 million

$ 93,388

10.7 million

$ 78,102

11.5 million

$ 95,041

9.5 million

$ 66,433

32.0 million

$220,690

16.5 million

$137,500

11.3 million

$107,619

$ 6.6 million

12.0 million

$139,535

$ 5.1 million

21.3 million

$171,774

21.2 million

$159,398

—

21.0 million

$169,355

$15.4 million

43.6 million

$218,000

$32.4 million

52.5 million

$273,438

$39.6 million

32.5 million

$222,603

$18.2 million

29.4 million

$280,000

$ 19.7 million

37.0 million

$305,785

$ 22.7 million

28.0 million

$229,508

—

144

121

137

121

143

145

120

105

124

133

124

200

192

146

105

121

122

Total Average

2,536

$ 431.8 million

$170,268

$159.7 million

(1) The Doubletree franchise agreement was terminated on January 31, 2013 and is expected to be rebranded as a Residence Inn by Marriott

in May 2013.

Financial Information About Industry Segments

We evaluate all of our hotels as a single industry segment because all of our hotels have similar economic

characteristics and provide similar services to similar types of customers. Accordingly, we do not report segment
information.

Business Strategy

Our primary objective is to generate attractive returns for our shareholders through investing in hotel
properties (whether wholly owned or through a joint venture) at prices that provide strong returns on invested

capital, paying dividends and generating long-term value appreciation. We believe we can create long-term value
by pursuing the following strategies:

• Disciplined acquisition of hotel properties: We invest primarily in premium-branded upscale extended-
stay and select-service hotels with a focus on the 25 largest metropolitan markets in the United States.
We focus on acquiring hotel properties at prices below replacement cost in markets that have strong
demand generators and where we expect demand growth will outpace new supply. We also seek to
acquire properties that we believe are undermanaged or undercapitalized. We currently do not intend to
engage in new hotel development.

• Opportunistic hotel repositioning: We employ value-added strategies, such as re-branding, renovating,
or changing management, when we believe such strategies will increase the operating results and
values of the hotels we acquire.

• Aggressive asset management: Although as a REIT we cannot operate our hotels, we proactively

manage our third-party hotel managers in seeking to maximize hotel operating performance. Our asset
management activities seek to ensure that our third-party hotel managers effectively utilize franchise
brands’ marketing programs, develop effective sales management policies and plans, operate properties
efficiently, control costs, and develop operational initiatives for our hotels that increase guest
satisfaction. As part of our asset management activities, we regularly review opportunities to reinvest
in our hotels to maintain quality, increase long-term value and generate attractive returns on invested
capital.

• Flexible selection of hotel management companies: We are flexible in our selection of hotel

management companies and select managers that we believe will maximize the performance of our
hotels. We utilize both independent management companies, including IHM, a hotel management
company 90% owned by Mr. Fisher that currently manages 17 of our hotels and all but one of the
hotels owned by the JV. We believe this strategy increases the universe of potential acquisition
opportunities we can consider because many hotel properties are encumbered by long-term
management contracts.

•

Selective investment in hotel debt: We may consider selectively investing in debt collateralized by hotel
property if we believe we can foreclose on or acquire ownership of the underlying hotel property in the
relative near term. We do not intend to invest in any debt where we do not expect to gain ownership of
the underlying property or to originate any debt financing.

We plan to maintain a prudent capital structure and intend to maintain our leverage over the long term at a
ratio of net debt to investment in hotels (at cost) (defined as our initial acquisition price plus the gross amount of
any subsequent capital investment and excluding any impairment charges) to less than 35 percent measured at the
time we incur debt, and a subsequent decrease in hotel property values will not necessarily cause us to repay debt
to comply with this limitation. Our Board of Trustees believes that temporarily increasing our leverage limit at
this stage of the lodging cycle recovery is prudent to take advantage of the opportunity to buy hotels in the near
term. At December 31, 2012, our leverage ratio was 51 percent. Over time, we intend to finance our growth with
issuances of common and preferred shares and debt. Our debt may include mortgage debt collateralized by our
hotel properties and unsecured debt.

When purchasing hotel properties, we may issue limited partnership interests in our operating partnership as

full or partial consideration to sellers who may desire to take advantage of tax deferral on the sale of a hotel or
participate in the potential appreciation in value of our common shares.

Competition

We face competition for investments in hotel properties from institutional pension funds, private equity
investors, REITs, hotel companies and others who are engaged in hotel investments. Some of these entities have
substantially greater financial and operational resources than we have. This competition may increase the
bargaining power of property owners seeking to sell, reduce the number of suitable investment opportunities
available to us and increase the cost of acquiring our targeted hotel properties.

The lodging industry is highly competitive. Our hotels compete with other hotels for guests in each market
in which they operate. Competitive advantage is based on a number of factors, including location, convenience,
brand affiliation, room rates, range of services and guest amenities or accommodations offered and quality of
customer service. Competition is often specific to the individual markets in which our hotels are located and
includes competition from existing and new hotels. Competition could adversely affect our occupancy rates and
Revenue per Available Room (“RevPAR”), and may require us to provide additional amenities or make capital
improvements that we otherwise would not have to make, which may reduce our profitability.

Seasonality

Demand for our hotels is affected by recurring seasonal patterns. Generally, we expect that we will have
lower revenue, operating income and cash flow in the first and fourth quarters and higher revenue, operating
income and cash flow in the second and third quarters. These general trends are, however, influenced by overall
economic cycles and the geographic locations of our hotels. 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 borrowings under our credit facility to make distributions to our equity holders.

Regulation

Our properties are subject to various covenants, 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 each is adequately covered by insurance.

Americans with Disabilities Act

Our properties must comply with Title III of the Americans with Disabilities Act of 1990 (“ADA”) to the

extent that such properties are “public accommodations” as defined by the ADA. Under the ADA, all public
accommodations must meet federal requirements related to access and use by disabled persons. The ADA may
require removal of structural barriers to access by persons with disabilities in certain public areas of our
properties where such removal is readily achievable. Although we believe that the properties in our portfolio
substantially comply with present requirements of the ADA, we have not conducted a comprehensive audit or
investigation of all of our properties to determine our compliance, and one or more properties may not be fully
compliant with the ADA.

In March 2012, a substantial number of changes to the Accessibility Guidelines under the ADA took effect.

The new guidelines have caused some of our hotel properties to incur costs to become fully compliant.

If we are required to make substantial modifications to our hotel properties, whether to comply with the

ADA or other changes in governmental rules and regulations, our financial condition, results of operations, the
market price of our common shares and our ability to make distributions to our shareholders could be adversely
affected. The obligation to make readily achievable accommodations is an ongoing one, and we will continue to
assess our properties and to make alterations as appropriate.

Environmental Regulations

Under various federal, state and local laws, ordinances and regulations, an owner of real property may be
liable for the costs of removal or remediation of certain hazardous or toxic substances on or in such property.
Such laws often impose such liability without regard to whether the owner knew of or was responsible for, the
presence of such hazardous or toxic substances. The cost of any required remediation and the owner’s liability
therefore as to any property are generally not limited under such laws and could exceed the value of the property
and/or the aggregate assets of the owner. The presence of such substances, or the failure to properly remediate
contamination from such substances, may adversely affect the owner’s ability to sell the real estate or to borrow
funds using such property as collateral, which could have an adverse effect on our return from such investment.

Furthermore, various court decisions have established that third parties may recover damages for injury
caused by release of hazardous substances and for property contamination. For instance, a person exposed to
asbestos while working at or staying in a hotel may seek to recover damages if he or she suffers injury from the
asbestos. Lastly, some of these environmental issues restrict the use of a property or place conditions on various
activities. One example is laws that require a business using chemicals to manage them carefully and to notify
local officials if regulated spills occur.

Although it is our policy to require an acceptable Phase I environmental survey for all real property in which

we invest, such surveys are limited in scope and there can be no assurance that there are no hazardous or toxic
substances on such property that we would purchase. We cannot assure you that:

• There are not existing environmental liabilities related to our properties of which we are not aware

•

future laws, ordinances or regulations will not impose material environmental liability; or

the current environmental condition of a hotel will not be affected by the condition of properties in the
vicinity of the hotel (such as the presence of leaking underground storage tanks) or by third parties
unrelated to us.

Tax Status

We elected to be taxed as a REIT for federal income tax purposes commencing with our short taxable year

ended December 31, 2010 under the Internal Revenue Code of 1986, as amended (the “Code”). Our qualification
as a REIT depends upon our ability to meet, on a continuing basis, through actual investment and operating
results, various complex requirements under the Code relating to, among other things, the sources of our gross
income, the composition and values of our assets, our distribution levels and the diversity of ownership of our
shares of beneficial interest. We believe that we are organized in conformity with the requirements for
qualification as a REIT under the Code and that our current and intended manner of operation will enable us to
meet the requirements for qualification and taxation as a REIT for federal income tax purposes.

As a REIT, we generally will not be subject to federal income tax on our REIT taxable income that we
distribute currently to our shareholders. Under the Code, REITs are subject to numerous organizational and
operational requirements, including a requirement that they distribute each year at least 90% of their taxable
income, determined without regard to the deduction for dividends paid and excluding any net capital gains. If we
fail to qualify for taxation as a REIT in any taxable year and do not qualify for certain statutory relief provisions,
our income for that year will be taxed at regular corporate rates, and we will be disqualified from taxation as a
REIT for the four taxable years following the year during which we ceased to qualify as a REIT. Even if we
qualify as a REIT for federal income tax purposes, we may still be subject to state and local taxes on our income
and assets and to federal income and excise taxes on our undistributed income. Additionally, any income earned
by our TRS Lessees will be fully subject to federal, state and local corporate income tax. Moreover, our TRS
holding company that indirectly owns our interest in four of the JV hotels will be subject to federal, state and
local corporate income tax on its allocable share of all of the income from those hotels.

Hotel Management Agreements

Our management agreements with Concord, the manager of the Altoona, Pennsylvania Courtyard and the

Washington, Pennsylvania SpringHill Suites, provide for base management fees equal to 4% of the managed
hotel’s gross room revenue. The initial ten-year term of each management agreement expires on February 28,
2017 and will renew automatically for successive one-year terms unless terminated by our TRS lessee or the
manager by written notice to the other party no later than 90 days prior to the then current term’s expiration date.
The management agreements may be terminated for cause, including the failure of the managed hotel operating
performance to meet specified levels. If we were to terminate the management agreements during the first nine
years of the term other than for breach or default by the manager, we may be responsible for paying termination
fees to the manager.

Upon acquisition, we assumed the existing hotel management agreements in place at six of our hotels — the

Boston-Billerica Homewood Suites, Minneapolis-Bloomington Homewood Suites, Nashville-Brentwood
Homewood Suites, Dallas Homewood Suites, Hartford-Farmington Homewood Suites and Orlando-Maitland
Homewood Suites — all of which were managed by Promus Hotels, Inc., a subsidiary of Hilton Hotels
Worldwide (“Hilton”). Each of these management agreements was terminated and new management agreements
were entered into with IHM, which is 90% owned by Mr. Fisher.

All of our remaining hotels are managed by IHM, which is 90% owned by Mr. Fisher. Our management
agreements with IHM have an initial term of five years and may be renewed for two five-year periods at IHM’s
option by written notice to us no later than 90 days prior to the then current term’s expiration date. The IHM
management agreements provide for early termination at our option upon sale of any IHM-managed hotel for no
termination fee, with six months advance notice. The IHM management agreements may be terminated for cause,
including the failure of the managed hotel to meet specified performance levels. Management agreements with
IHM provide for a base management fee of 3% of the managed hotel’s gross revenues for the Hampton Inn &
Suites Houston, TX, Residence Inn Holtsville, NY, Residence Inn White Plains, NY, Residence Inn New
Rochelle, NY, Homewood Suites Carlsbad, CA and Hampton Inn Portland, ME; 2.5% of the managed hotel’s
gross revenues for the Residence Inn Garden Grove, CA, Residence Inn San Diego, CA, Homewood Suites San
Antonio, TX, Washington Guest Suites (which is expected to be re-branded as a Residence Inn in May 2013) in
Washington, DC and Residence Inn Tysons Corner, VA and 2% for the six hotels previously managed by Hilton.
Our management agreements with IHM provide for accounting fees of $1,000 per month per hotel, revenue
management fees up to $550 per month and, if certain financial thresholds are met or exceeded, an incentive
management fee equal to 10% of the hotel’s net operating income less fixed costs, base management fees and a
specified return threshold. The incentive management fee is capped at 1% of gross hotel revenues for the
applicable calculation.

Hotel Franchise Agreements

One of the Company’s TRS Lessees has entered into hotel franchise agreements with Promus Hotels, Inc., a

subsidiary of Hilton, for our eight Homewood Suites by Hilton® hotels. Each of the hotel franchise agreements
has an initial term ranging from 15-18 years. These Hilton hotel franchise agreements provide for a franchise
royalty fee up to 6% of the hotel’s gross room revenue and a program fee equal to 4% of the hotel’s gross room
revenue. The Hilton franchise agreements provide that the franchisor may terminate the franchise agreement in
the event that the applicable franchisee fails to cure an event of default, or in certain circumstances such as the
franchisee’s bankruptcy or insolvency, are terminable by Hilton at will.

One of the Company’s TRS Lessees has entered into franchise agreements with Marriott International, Inc.,
(“Marriott”), relating to our Residence Inn properties in Holtsville, New York, New Rochelle, New York, White
Plains, New York, Garden Grove, CA, San Diego, CA and Vienna, VA, our Courtyard property in Altoona,
Pennsylvania and Houston, TX and our SpringHill Suites property in Washington, Pennsylvania. These franchise
agreements have initial terms ranging from 15 to 20 years and will expire between 2025 and 2031. None of the
agreements has a renewal option. The Marriott franchise agreements provide for franchise fees ranging from
5.0% to 5.5% of the hotel’s gross room sales and marketing fees ranging from 2.0% to 3.0% of the hotel’s gross
room sales. The Marriott franchise agreements are terminable by Marriott in the event that the applicable
franchisee fails to cure an event of default or, in certain circumstances such as the franchisee’s bankruptcy or
insolvency, are terminable by Marriott at will. The Marriott franchise agreements provide that, in the event of a
proposed transfer of the hotel, our TRS Lessee’s interest in the agreement or more than a specified amount of the
TRS Lessee to a competitor of Marriott, Marriott has the right to purchase or lease the hotel under terms
consistent with those contained in the respective offer and may terminate if our TRS Lessee elects to proceed
with such a transfer.

One of the Company’s TRS Lessees has entered into franchise agreements with Hampton Inns Franchise LLC

(“Hampton Inns”), relating to the Hampton Inn & Suites® Houston-Medical Center and Hampton Inn® Portland
Downtown. The franchise agreement for the Houston hotel has an initial term of approximately 10 years and expires

on July 31, 2020. The franchise agreement for the Portland hotel has an initial term of approximately 20 years and
expires on February 29, 2032. Each of the Hampton Inns franchise agreements provides for a monthly program fee
equal to 4% of the hotel’s gross rooms revenue and a monthly royalty fees ranging from 5% to 6% of the hotel’s
gross rooms revenue. Neither of the agreements has a renewal option. Hampton Inns may terminate the franchise
agreement in the event that the franchisee fails to cure an event of default or, in certain circumstances such as the
franchisee’s bankruptcy or insolvency, Hampton Inns may terminate the agreement at will.

The franchise agreement with Doubletree Franchise LLC, relating to the Doubletree Guest Suites by Hilton

in Washington, DC was terminated with no penalty on January 31, 2013 in connection with the re-branding of
the hotel to a Residence Inn by Marriott, which is expected to be completed in May 2013. The Company expects
to incur $4.4 million to re-brand the hotel to a Residence Inn by Marriott. The term of the new agreement has
initial term of 20 years. The agreement does not have a renewal option. The Marriott franchise agreement
provides for franchise fee of 5.5% of the hotel’s gross room sales and marketing fees ranging of 2.5% of the
hotel’s gross room sales.

Ground Leases

The Altoona hotel is subject to a ground lease with an expiration date of April 30, 2029 with an option of up

to 12 additional terms of five years each. Monthly payments are determined by the quarterly average room
occupancy of the hotel. Rent is equal to approximately $7,000 per month when monthly occupancy is less than
85% and can increase up to approximately $20,000 per month if occupancy is 100%, with minimum rent
increased on an annual basis by two and one-half percent (2.5%).

At the New Rochelle Residence Inn, there is an air rights lease and garage lease that each expire on

December 1, 2104. The lease agreements with the City of New Rochelle cover the space above the parking garage
that is occupied by the hotel as well as 128 parking spaces in a parking garage that is attached to the hotel. The
annual base rent for the garage lease is the hotel’s proportionate share of the city’s adopted budget for the
operations, management and maintenance of the garage and established reserves fund for the cost of capital repairs.

The following is a schedule of the minimum future obligation payments required under the ground, air

rights and garage leases for the next five years and thereafter as of December 31, 2012 (in thousands):

2013
2014
2015
2016
2017
Thereafter

Total

Amount

205
207
210
212
214
11,445

$12,493

Employees

As of March 7, 2013, we had 25 employees, 19 of which are shared with or allocated to the JV. All persons

employed in the day-to-day operations of our hotels are employees of the management companies engaged by our
TRS Lessees to operate such hotels. None of our employees is represented by a collective bargaining agreement.

Available Information

Our Internet website is www.chathamlodgingtrust.com. We make available free of charge through our

website our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K,
Section 16 reports on Forms 3,4 and 5 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 such documents are electronically filed with, or furnished to, the Securities and Exchange Commission
(“SEC”). In addition, our website includes corporate governance information, including the charters for
committees of the Board of Trustees, our Corporate Governance Guidelines, Conflict of Interest Policy and our
Code of Business Conduct. This information is available in print to any shareholder who requests it by writing to
Investor Relations, Chatham Lodging Trust, 50 Cocoanut Row, Suite 211, Palm Beach, FL 33480. The
information on our website is not, and shall not be deemed to be, a part of this report or incorporated into any
other filings that we make with the SEC.

Item 1A. Risk Factors

Our business faces many risks. The risks described below may not be the only risks we face. Additional risks

that we do not yet know of or that we currently believe are immaterial may also impair our business operations.
If any of the events or circumstances described in the following risk factors actually occurs, our business,
financial condition or results of operations could suffer, our ability to make cash distributions to our
shareholders could be impaired and the trading price of our common shares could decline. You should know that
many of the risks described may apply to more than just the subsection in which we grouped them for the purpose
of this presentation.

Risks Related to Our Business

Our investment policies are subject to revision from time to time at our board’s discretion, which could
diminish shareholder returns below expectations.

Our investment policies may be amended or revised from time to time at the discretion of our Board of
Trustees, without a vote of our shareholders. Such discretion could result in investments that may not yield
returns consistent with investors’ expectations.

We depend on the efforts and expertise of our key executive officers whose continued service is not
guaranteed.

We depend on the efforts and expertise of our chief executive officer, as well as our other senior executives,
to execute our business strategy. The loss of their services, and our inability to find suitable replacements, could
have an adverse effect on our business.

If we are unable to successfully manage our growth, our operating results and financial condition could be
adversely affected.

Our ability to grow our business depends upon our senior executive officers’ business contacts and their
ability to successfully hire, train, supervise and manage additional personnel. We may not be able to hire and
train sufficient personnel or develop management, information and operating systems suitable for our expected
growth. If we are unable to manage any future growth effectively, our operating results and financial condition
could be adversely affected.

Our future growth depends on obtaining new financing and if we cannot secure financing in the future, our
growth will be limited.

The success of our growth strategy depends on access to capital through use of excess cash flow,

borrowings or subsequent issuances of common shares or other securities. Acquisitions of new hotel properties
will require significant additional capital and existing hotels require periodic capital improvement initiatives to
remain competitive. We may not be able to fund acquisitions or capital improvements solely from cash provided
from our operating activities because we must distribute at least 90% of our REIT taxable income (determined
before the deduction for dividends paid and excluding any net capital gains) each year to satisfy the requirements
for qualification as a REIT for federal income tax purposes. As a result, our ability to fund capital expenditures
for acquisitions through retained earnings is very limited. Our ability to grow through acquisitions of hotels will

be limited if we cannot obtain satisfactory debt or equity financing, which will depend on capital markets
conditions. We cannot assure you that we will be able to obtain additional equity or debt financing or that we will
be able to obtain such financing on favorable terms.

We may be unable to invest proceeds from offerings of our securities.

We will have broad authority to invest the net proceeds of any offering of our securities in any real estate

investments that we may identify in the future, and we may use those proceeds to make investments with which
you may not agree. In addition, our investment policies may be amended or revised from time to time at the
discretion of our Board of Trustees, without a vote of our shareholders. These factors will increase the
uncertainty, and thus the risk, of investing in our common shares. Our failure to apply the net proceeds of any
offering effectively or to find suitable hotel properties to acquire in a timely manner or on acceptable terms could
result in returns that are substantially below expectations or result in losses.

Until appropriate investments can be identified, we may invest the net proceeds of any offering of our

securities in interest-bearing short-term securities or money-market accounts that are consistent with our
intention to qualify as a REIT. These investments are expected to provide a lower net return than we seek to
achieve from our hotel properties. We may be unable to invest the net proceeds on acceptable terms, or at all,
which could delay shareholders from receiving an appropriate return on their investment. We cannot assure you
that we will be able to identify properties that meet our investment criteria, that we will successfully consummate
any investment opportunities we identify, or that investments we may make will generate income or cash flow.

We must rely on third-party management companies to operate our hotels in order to qualify as a REIT under
the Code and, as a result, we have less control than if we were operating the hotels directly.

In order for us to qualify as a REIT under the Code, third parties must operate our hotels. We lease each of
our hotels to our TRS Lessees. The TRS Lessees, in turn, have entered into management agreements with third
party management companies to operate our hotels. While we expect to have some input on operating decisions
for those hotels leased by our TRS Lessees and operated under management agreements, we have less control
than if we were managing the hotels ourselves. Even if we believe that our hotels are not being operated
efficiently, we may not be able to require an operator to change the way it operates our hotels. If this is the case,
we may decide to terminate the management agreement and potentially incur costs associated with the
termination. Additionally, Jeffrey H. Fisher, our chief executive officer, controls IHM, a hotel management
company that manages 17 of our hotels and all but one of the 55 hotels owned by the JV as of December 31,
2012, and may manage additional hotels that we acquire in the future. See “There are conflicts of interest
between us and affiliates owned by our Chief Executive Officer” below.

Our management agreements could adversely affect the sale or financing of hotel properties and, as a result,
our operating results and ability to make distributions to our shareholders could suffer.

While we would prefer to enter into flexible management contracts that will provide us with the ability to
replace hotel managers on relatively short notice and with limited cost, we may enter into, or acquire properties
subject to, management contracts that contain more restrictive covenants. For example, the terms of some
management agreements may restrict our ability to sell a property unless the purchaser is not a competitor of the
manager and assumes the related management agreement and meets specified other conditions. Also, the terms of
a long-term management agreement encumbering our properties may reduce the value of the property. If we
enter into or acquire properties subject to any such management agreements, we may be precluded from taking
actions that would otherwise be in our best interest or could cause us to incur substantial expense, which could
adversely affect our operating results and our ability to make distributions to shareholders. Moreover, the
management agreements that we use in connection with hotels managed by IHM were not negotiated on an
arm’s-length basis due to Mr. Fisher’s control of IHM and therefore may not contain terms as favorable to us as
we could obtain in an arm’s-length transaction with a third party. See “See there are conflicts of interest between
us and affiliates owned by our Chief Executive Officer” below.

Our franchisors could cause us to expend additional funds on upgraded operating standards, which may
reduce cash available for distribution to shareholders.

Our hotels operate under franchise agreements, and we may become subject to the risks that are found in

concentrating our hotel properties in one or several franchise brands. Our hotel operators must comply with
operating standards and terms and conditions imposed by the franchisors of the hotel brands under which our
hotels operate. Pursuant to certain of the franchise agreements, certain upgrades are required every five to six
years, and the franchisors may also impose upgraded or new brand standards, such as substantially upgrading the
bedding, enhancing the complimentary breakfast or increasing the value of guest awards under its ‘frequent
guest’ program, which can add substantial expense for the hotel. The franchisors also may require us to make
certain capital improvements to maintain the hotel in accordance with system standards, the cost of which can be
substantial and may reduce cash available for distribution to our shareholders.

Our franchisors may cancel or fail to renew our existing franchise licenses, which could adversely affect our
operating results and our ability to make distributions to shareholders.

Our franchisors periodically inspect our hotels to confirm adherence to the franchisors’ operating standards.
The failure of a hotel to maintain standards could result in the loss or cancellation of a franchise license. We rely
on our hotel managers to conform to operational standards. In addition, when the term of a franchise expires, the
franchisor has no obligation to issue a new franchise. The loss of a franchise could have a material adverse effect
on the operations or the underlying value of the affected hotel because of the loss of associated name recognition,
marketing support and centralized reservation systems provided by the franchisor. The loss of a franchise or
adverse developments with respect to a franchise brand under which our hotels operate could also have a material
adverse effect on our financial condition, results of operations and cash available for distribution to shareholders.

Fluctuations in our financial performance, capital expenditure requirements and excess cash flow could
adversely affect our ability to make and maintain distributions to our shareholders.

As a REIT, we are required to distribute at least 90% of our REIT taxable income each year to our
shareholders (determined before the deduction for dividends paid and excluding any net capital gains). In the
event of downturns in our operating results and financial performance or unanticipated capital improvements to
our hotels (including capital improvements that may be required by franchisors), we may be unable to declare or
pay distributions to our shareholders, or maintain our then-current dividend rate. The timing and amount of
distributions are in the sole discretion of our Board of Trustees, which considers, among other factors, our
financial performance, debt service obligations and applicable debt covenants (if any), and capital expenditure
requirements. We cannot assure you we will generate sufficient cash in order to continue to fund distributions.

Among the factors which could adversely affect our results of operations and distributions to shareholders

are reductions in hotel revenues; increases in operating expenses at the hotels leased to our TRS Lessees;
increased debt service requirements, including those resulting from higher interest rates on variable rate
indebtedness; cash demands from the joint venture and capital expenditures at our hotels, including capital
expenditures required by the franchisors of our hotels. Hotel revenue can decrease for a number of reasons,
including increased competition from new hotels and decreased demand for hotel rooms. These factors can
reduce both occupancy and room rates at hotels and could directly affect us negatively by:

•

reducing the hotel revenue that we recognize with respect to hotels leased to our TRS Lessees; and

correspondingly reducing the profits (or increasing the loss) of hotels leased to our TRS Lessees. We
may be unable to reduce many of our expenses in tandem with revenue declines, (or we may choose
not to reduce them for competitive reasons), and certain expenses may increase while our revenue
declines.

Future debt service obligations could adversely affect our overall operating results or cash flow and may
require us to liquidate our properties, which could adversely affect our ability to make distributions to our
shareholders and our share price.

We intend to use secured and unsecured debt to finance long-term growth. While we intend to target overall
debt levels of less than 35% of our investment in hotels (at cost) (defined as our initial acquisition price plus the
gross amount of any subsequent capital investment and excluding any impairment charges), our Board of
Trustees may change this financing policy at any time without shareholder approval. As a result, we may be able
to incur substantial additional debt, including secured debt, in the future. During 2011, our Board of Trustees
authorized an increase in our leverage above this target, excluding our pro rata share of assets and liabilities of
the JV. Incurring additional debt could subject us to many risks, including the risks that:

•

operating cash flow will be insufficient to make required payments of principal and interest;

our leverage may increase our vulnerability to adverse economic and industry conditions;

• we may be required to dedicate a substantial portion of our cash flow from operations to payments on
our debt, thereby reducing cash available for distribution to our shareholders, funds available for
operations and capital expenditures, future business opportunities or other purposes;

•

the terms of any refinancing will not be as favorable as the terms of the debt being refinanced; and

the terms of our debt may limit our ability to make distributions to our shareholders.

If we violate covenants in our debt agreements, we could be required to repay all or a portion of our
indebtedness before maturity at a time when we might be unable to arrange financing for such repayment on
attractive terms, if at all.

If we are unable to repay our debt obligations in the future, we may be forced to refinance debt or dispose of
or encumber our assets, which could adversely affect distributions to shareholders.

If we do not have sufficient funds to repay our outstanding debt at maturity or before maturity in the event
we breach our debt agreements and our lenders exercise their right to accelerate repayment, we may be required
to refinance the debt through additional debt or additional equity financings. Covenants applicable to our existing
and future debt could impair our planned investment strategy and, if violated, result in a default. If we are unable
to refinance our debt on acceptable terms, we may be forced to dispose of hotel properties on disadvantageous
terms, potentially resulting in losses. We have placed mortgages on certain of our hotel properties to secure our
credit facility, have assumed mortgages on other hotels we acquired and may place additional mortgages on
certain of our hotels to secure other debt. To the extent we cannot meet any future debt service obligations, we
will risk losing some or all of our hotel properties that are pledged to secure our obligations to foreclosure.

Interest expense on our debt may limit our cash available to fund our growth strategies and shareholder
distributions.

Higher interest rates could increase debt service requirements on debt under our credit facility and any

floating rate debt that we incur in the future and could reduce the amounts available for distribution to our
shareholders, as well as reduce funds available for our operations, future business opportunities, or other
purposes. Interest expense on our credit facility is based on floating interest rates.

Failure to hedge effectively against interest rate changes may adversely affect our results of operations and
our ability to make shareholder distributions.

We may obtain in the future one or more forms of interest rate protection — in the form of swap

agreements, interest rate cap contracts or similar agreements — to hedge against the possible negative effects of

interest rate fluctuations. However, such hedging implies costs and we cannot assure you that any hedging will
adequately relieve the adverse effects of interest rate increases or that counterparties under these agreement will
honor their obligations there under. Furthermore, any such hedge agreements would subject us to the risk of
incurring significant non-cash losses on our hedges due to declines in interest rates if our hedges were not
considered effective under applicable accounting standards.

Joint venture investments that we make could be adversely affected by our lack of sole decision-making
authority, our reliance on joint venture partners’ financial condition and disputes between us and our joint
venture partners.

We are co-investors with Cerberus in the JV, which owns 55 hotels, and we may invest in additional joint

ventures in the future. We may not be in a position to exercise sole decision-making authority regarding the
properties owned through the JV or other joint ventures. Investments in joint ventures may, under certain
circumstances, involve risks not present when a third party is not involved, including reliance on our joint
venture partners and the possibility that joint venture partners might become bankrupt or fail to fund their share
of required capital contributions, thus exposing us to liabilities in excess of our share of the investment. Joint
venture partners may have business interests or goals that are inconsistent with our business interests or goals,
and may be in a position to take actions contrary to our policies or objectives. Such investments may also have
the potential risk of impasses on decisions, such as a sale, because neither we nor the partner would have full
control over the partnership or joint venture. Any disputes that may arise between us and our joint venture
partners may result in litigation or arbitration that would increase our expenses and prevent our officers and/or
trustees from focusing their time and effort on our business. Consequently, actions by, or disputes with, our joint
venture partners might result in subjecting properties owned by the partnership or joint venture to additional risk.
In addition, we may in certain circumstances be liable for the actions of our third-party partners or co-venturers.

It may be difficult for us to exit a joint venture after an impasse with our co-venturer.

In our joint ventures, there will be a potential risk of impasse in some joint venture decisions because our
approval and the approval of each co-venturer will be required for some decisions. The types of decisions that
would require the approval of each co-venturer would be determined under the joint venture agreement between
the parties, but those types of decisions are likely to include borrowing above a certain level or disposing of
assets. In any joint venture, we may have the right to buy our co-venturer’s interest or to sell our own interest on
specified terms and conditions in the event of an impasse regarding a sale. However, it is possible that neither
party will have the funds necessary to complete such a buy-out. In addition, we may experience difficulty in
locating a third-party purchaser for our joint venture interest and in obtaining a favorable sale price for the
interest. As a result, it is possible that we may not be able to exit the relationship if an impasse develops. In
addition, there is no limitation under our declaration of trust and bylaws as to the amount of funds that we may
invest in joint ventures. Accordingly, we may invest a substantial amount of our funds in joint ventures which
ultimately may not be profitable as a result of disagreements with or among our co-venturers.

The Company does not have sole control of the JV and may be required to contribute additional capital in the
event of a capital call.

The Company’s ownership interest in the JV is subject to change in the event that either Chatham or

Cerberus calls for additional capital contributions to the JV necessary for the conduct of business, including
contributions to fund costs and expenses related to capital expenditures. Cerberus may also approve certain
actions by the JV without the Company’s consent, including certain property dispositions conducted at arm’s
length, certain actions related to the restructuring of the JV and the removal of the Company as managing
member in the event the Company fails to fulfill its material obligations under the joint venture agreement.

Our Operating Partnership acts as guarantor under certain debt obligations of the JV.

In connection with certain non-recourse Cerberus JV mortgage loans, our Operating Partnership could be

required to repay portions of the indebtedness, up to an amount commensurate with our 10.3% interest in the

Cerberus JV, in connection with certain customary non-recourse carve-out provisions such as environmental
conditions, misuse of funds and material misrepresentations.

We may from time to time make distributions to our shareholders in the form of our common shares, which
could result in shareholders incurring tax liability without receiving sufficient cash to pay such tax.

Although we have no current intention to do so, we may, if possible, in the future distribute taxable
dividends that are payable in cash or common shares at the election of each shareholder. Taxable shareholders
receiving such dividends will be required to include the full amount of the dividend as ordinary income to the
extent of our current and accumulated earnings and profits for federal income tax purposes. As a result,
shareholders may be required to pay income taxes with respect to such dividends in excess of the cash dividends
received. If a U.S. shareholder sells the common shares that it receives as a dividend in order to pay this tax, the
sales proceeds may be less than the amount included in income with respect to the dividend, depending on the
market price of our shares at the time of the sale. Furthermore, with respect to certain non-U.S. shareholders, we
may be required to withhold federal income tax with respect to such dividends, including in respect of all or a
portion of such dividend that is payable in common shares. In addition, if a significant number of our
shareholders determine to sell common shares in order to pay taxes owed on dividends, it may put downward
pressure on the trading price of our common shares.

Our conflict of interest policy may not be successful in eliminating the influence of future conflicts of interest
that may arise between us and our trustees, officers and employees.

We have adopted a policy that any transaction, agreement or relationship in which any of our trustees,

officers or employees has a direct or indirect pecuniary interest must be approved by a majority of our
disinterested trustees. Other than this policy, however, we have not adopted and may not adopt additional formal
procedures for the review and approval of conflict of interest transactions generally. As such, our policies and
procedures may not be successful in eliminating the influence of conflicts of interest.

There are conflicts of interest between us and affiliates owned by our Chief Executive Officer.

Our chief executive officer, Mr. Fisher, owns 90% of IHM, a hotel management company that manages

17 of our hotels and all but one of the 55 hotels own by the JV as of December 31, 2012, and may manage
additional hotels that we acquire or own in the future. Because Mr. Fisher is our Chief Executive Officer and
controls IHM, conflicts of interest may arise between us and Mr. Fisher as to whether and on what terms new
management contracts will be awarded to IHM, whether and on what terms management agreements will be
renewed upon expiration of their terms, enforcement of the terms of the management agreements and whether
hotels managed by IHM will be sold.

Risks Related to the Lodging Industry

The lodging industry has experienced significant declines in the past and failure of the lodging industry to
exhibit improvement may adversely affect our ability to execute our business strategy.

The performance of the lodging industry has historically been closely linked to the performance of the
general economy and, specifically, growth in U.S. GDP. It is also sensitive to business and personal discretionary
spending levels. Declines in corporate budgets and consumer demand due to adverse general economic
conditions, risks affecting or reducing travel patterns, lower consumer confidence or adverse political conditions
can lower the revenues and profitability of our future hotel properties and therefore the net operating profits of
our TRSs.

A substantial part of our business strategy is based on the belief that the lodging markets in which we invest

will continue to experience improving economic fundamentals in the future. We cannot predict the extent to
which lodging industry fundamentals will continue to improve. In the event conditions in the industry do not

continue to improve as we expect, or deteriorate, our ability to execute our business strategy would be adversely
affected, which could adversely affect our financial condition, results of operations, the market price of our
common shares and our ability to make distributions to our shareholders.

Our ability to make distributions to our shareholders may be affected by various operating risks common in
the lodging industry.

Hotel properties are subject to various operating risks common to the hotel industry, many of which are

beyond our control, including:

•

competition from other hotel properties in our prospective markets, some of which may have greater
marketing and financial resources;

an over-supply or over-building of hotel properties in our prospective markets, which could adversely
affect occupancy rates and revenues;

dependence on business and commercial travelers and tourism;

increases in energy costs and other expenses affecting travel, which may affect travel patterns and
reduce the number of business and commercial travelers and tourists;

increases in operating costs due to inflation and other factors that may not be offset by increased room
rates;

necessity for periodic capital reinvestment to repair and upgrade hotel properties;

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

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

unforeseen events beyond our control, such as terrorist attacks, travel related health concerns including
pandemics and epidemics such as H1N1 influenza (swine flu), avian bird flu and SARS, political
instability, regional hostilities, imposition of taxes or surcharges by regulatory authorities, travel
related accidents and unusual weather patterns, including natural disasters such as hurricanes, tsunamis
or earthquakes;

adverse effects of a downturn in the economy or in the hotel industry; and

risk generally associated with the ownership of hotel properties and real estate, as we discuss in detail
below.

These factors could reduce the net operating profits of our TRSs and the rental income we receive from our

TRS Lessees, which in turn could adversely affect our ability to make distributions to our shareholders.

Competition for acquisitions may reduce the number of properties we can acquire.

We compete for hotel investment opportunities with competitors that may have a different tolerance for risk
or have substantially greater financial resources than are available to us. This competition may generally limit the
number of hotel properties that we are able to acquire and may also increase the bargaining power of hotel
owners seeking to sell, making it more difficult for us to acquire hotel properties on attractive terms, or at all.

Competition for guests may lower our hotels’ revenues and profitability.

The upscale extended-stay and mid-price segments of the hotel business are highly competitive. Our hotels

compete on the basis of location, room rates and quality, service levels, reputation, and reservation systems,
among many other factors. Many competitors have substantially greater marketing and financial resources than

our operators or us. New hotels create new competitors, in some cases without corresponding increases in
demand for hotel rooms. The result in some cases may be lower revenue, which would result in lower cash
available for distribution to shareholders.

The seasonality of the hotel industry may cause fluctuations in our quarterly revenues that cause us to borrow
money to fund distributions to shareholders.

Some hotel properties have business that is seasonal in nature. This seasonality can be expected to cause

quarterly fluctuations in revenues. Quarterly earnings may be adversely affected by factors outside our control,
including weather conditions and poor economic factors. As a result, we may have to enter into short-term
borrowings in order to offset these fluctuations in revenue and to make distributions to shareholders.

The cyclical nature of the lodging industry may cause the return on our investments to be substantially less
than we expect.

The lodging industry is highly cyclical in nature. Fluctuations in lodging demand and, therefore, operating

performance, are caused largely by general economic and local market conditions, which subsequently affects
levels of business and leisure travel. In addition to general economic conditions, new hotel room supply is an
important factor that can affect the lodging industry’s performance and overbuilding has the potential to further
exacerbate the negative impact of an economic recession. Room rates and occupancy, and thus RevPAR, tend to
increase when demand growth exceeds supply growth. Decline in lodging demand, or a continued growth in
lodging supply, could result in returns that are substantially below expectations or result in losses, which could
have a material adverse effect on our business, financial condition, results of operations and our ability to make
distributions to our shareholders.

Due to our concentration in hotel investments, a downturn in the lodging industry would adversely affect our
operations and financial condition.

Our entire business is related to the hotel industry. Therefore, a downturn in the hotel industry, in general,

will have a material adverse effect on our revenues, net operating profits and cash available to distribute to
shareholders.

The ongoing need for capital expenditures at our hotel properties may adversely affect our financial condition
and limit our ability to make distributions to our shareholders.

Hotel properties have an ongoing need for renovations and other capital improvements, including

replacements, from time to time, of furniture, fixtures and equipment. The franchisors of our hotels also require
periodic capital improvements as a condition of keeping the franchise licenses. In addition, our lenders require us
to set aside amounts for capital improvements to our hotel properties. These capital improvements may give rise
to the following risks:

•

possible environmental problems;

construction cost overruns and delays;

possibility that revenues will be reduced temporarily while rooms or restaurants offered are out of
service due to capital improvement projects;

a possible shortage of available cash to fund capital improvements and the related possibility that
financing for these capital improvements may not be available on affordable terms;

uncertainties as to market demand or a loss of market demand after capital improvements have
begun; and

disputes with franchisors/managers regarding compliance with relevant management/franchise
agreements.

The costs of all these capital improvements could adversely affect our financial condition and amounts

available for distribution to our shareholders.

The increasing use of Internet travel intermediaries by consumers may adversely affect our profitability.

Some of our hotel rooms are booked through Internet travel intermediaries, including, but not limited to,
Travelocity.com, Expedia.com and Priceline.com. As Internet bookings increase, these intermediaries may be
able to obtain higher commissions, reduced room rates or other significant contract concessions from us and our
management companies. Moreover, some of these Internet travel intermediaries are attempting to offer hotel
rooms as a commodity, by increasing the importance of price and general indicators of quality (such as “three-
star downtown hotel”) at the expense of brand identification. These agencies hope that consumers will eventually
develop brand loyalties to their reservations system rather than to the brands under which our properties are
franchised. Although most of the business for our hotels is expected to be derived from traditional channels, if
the amount of sales made through Internet intermediaries increases significantly, room revenues may flatten or
decrease and our profitability may be adversely affected.

We and our hotel managers rely on information technology in our operations, and any material failure,
inadequacy, interruption or security failure of that technology could harm our business.

We and our hotel managers 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. We purchase some of our information technology from vendors, on whom our systems depend. We rely on
commercially available systems, software, tools and monitoring to provide security for processing, transmission
and storage of confidential customer information, such as individually identifiable information, including
information relating to financial accounts. Although we have taken steps to protect the security of our
information systems and the data maintained in those systems, it is possible that our safety and security measures
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 our information systems could interrupt our operations, damage our 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.

Future terrorist attacks or changes in terror alert levels could adversely affect travel and hotel demand.

Previous terrorist attacks and subsequent terrorist alerts have adversely affected the U.S. travel and
hospitality industries over the past several years, often disproportionately to the effect on the overall economy.
The impact that terrorist attacks in the U.S. or elsewhere could have on domestic and international travel and our
business in particular cannot be determined but any such attacks or the threat of such attacks could have a
material adverse effect on our business, our ability to finance our business, our ability to insure our properties
and our results of operations and financial condition.

Uninsured and underinsured losses could adversely affect our operating results and our ability to make
distributions to our shareholders.

We maintain comprehensive insurance on each of our hotel properties, including liability, terrorism, fire and

extended coverage, of the type and amount customarily obtained for or by hotel property owners. There can be
no assurance that such coverage will continue to be available at reasonable rates. Various types of catastrophic
losses, like earthquakes and floods and losses from foreign terrorist activities such as those on September 11,
2001 or losses from domestic terrorist activities such as the Oklahoma City bombing may not be insurable or

may not be insurable on reasonable economic terms. Lenders may require such insurance and failure to obtain
such insurance could constitute a default under loan agreements. Depending on our access to capital, liquidity
and the value of the properties securing the affected loan in relation to the balance of the loan, a default could
have a material adverse effect on our results of operations and ability to obtain future financing.

In the event of a substantial loss, insurance coverage may not be sufficient to cover the full current market

value or replacement cost of the lost investment. Should an uninsured loss or a loss in excess of insured limits
occur, we could lose all or a portion of the capital we invested in a hotel property, as well as the anticipated
future revenue from that particular hotel. In that event, we might nevertheless remain obligated for any mortgage
debt or other financial obligations related to the property. Inflation, changes in building codes and ordinances,
environmental considerations and other factors might also keep us from using insurance proceeds to replace or
renovate a hotel after it has been damaged or destroyed. Under those circumstances, the insurance proceeds we
receive might be inadequate to restore our economic position on the damaged or destroyed property.

Noncompliance with environmental laws and governmental regulations could adversely affect our operating
results and our ability to make distributions to shareholders.

Although it is our policy to require an acceptable Phase I environmental survey for all real property in which

we invest, such surveys are limited in scope and there can be no assurance that there are no hazardous or toxic
substances on such property that we would purchase. We cannot assure you:

• There are no existing liabilities related to our properties of which we are not aware;

•

that future laws, ordinances or regulations will not impose material environmental liability; or

that the current environmental condition of a hotel will not be affected by the condition of properties in
the vicinity of the hotel (such as the presence of leaking underground storage tanks) or by third parties
unrelated to us.

Compliance with the ADA and other changes in governmental rules and regulations could substantially
increase our cost of doing business and adversely affect our operating results and our ability to make
distributions to our shareholders.

Our hotel properties are subject to the ADA. Under the ADA, all places of public accommodation are
required to meet certain federal requirements related to access and use by disabled persons. Although we intend
to continue to acquire assets that are substantially in compliance with the ADA, we may incur additional costs of
complying with the ADA at the time of acquisition and from time-to-time in the future to stay in compliance with

any changes in the ADA. A number of additional federal, state and local laws exist that also may require
modifications to our investments, or restrict certain further renovations thereof, with respect to access thereto by
disabled persons. Additional legislation may impose further burdens or restrictions on owners with respect to
access by disabled persons. If we were required to make substantial modifications at our properties to comply
with the ADA or other changes in governmental rules and regulations, our ability to make expected distributions
to our shareholders could be adversely affected.

In March 2012, a substantial number of changes to the Accessibility Guidelines under the ADA took effect.

The new guidelines caused some of our hotel properties to incur costs to become fully compliant.

If we are required to make substantial modifications to our hotel properties, whether to comply with the

General Risks Related to Real Estate Industry

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

Because real estate investments are relatively illiquid, our ability to promptly sell one or more hotel

properties in our portfolio in response to changing economic, financial and investment conditions may be limited.
The real estate market is affected by many factors that are beyond our control, including:

•

adverse changes in international, national, regional and local economic and market conditions;

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

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

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

changes in operating expenses; and

civil unrest, acts of God, including earthquakes, floods and other natural disasters, which may result in
uninsured losses, and acts of war or terrorism.

We may seek to sell hotel properties in the future. There can be no assurance that we will be able to sell any

hotel property on acceptable terms.

If financing for hotel properties is not available or is not available on attractive terms, it will adversely

impact the ability of third parties to buy our hotels. As a result, we may hold our hotel properties for a longer
period than we would otherwise desire and may sell hotels at a loss.

We may be required to expend funds to correct defects or to make improvements before a hotel property can

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

Increases in our property taxes would adversely affect our ability to make distributions to our shareholders.

Hotel properties are subject to real and personal property taxes. These taxes may increase as tax rates
change and as the properties are assessed or reassessed by taxing authorities. In particular, our property taxes

could increase following our hotel purchases as the acquired hotels are reassessed. If property taxes increase, our
financial condition, results of operations and our ability to make distributions to our shareholders could be
materially and adversely affected and the market price of our common shares could decline.

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

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

Risks Related to Our Organization and Structure

Our rights and the rights of our shareholders to take action against our trustees and officers are limited,
which could limit your recourse in the event of actions not in your best interests.

Under Maryland law generally, a trustee is required to perform his or her duties in good faith, in a manner
he or she reasonably believes to be in our best interests and with the care that an ordinarily prudent person in a
like position would use under similar circumstances. Under Maryland law, trustees are presumed to have acted
with this standard of care. In addition, our declaration of trust limits the liability of our trustees and officers to us
and our shareholders for money damages, except for liability resulting from:

•

actual receipt of an improper benefit or profit in money, property or services; or

active and deliberate dishonesty by the trustee or officer that was established by a final judgment as
being material to the cause of action adjudicated

Our bylaws obligate us to indemnify our trustees and officers for actions taken by them in those capacities

to the maximum extent permitted by Maryland law. Our bylaws require us to indemnify each trustee or officer, to
the maximum extent permitted by Maryland law, in the defense of any proceeding to which he or she is made, or
threatened to be made, a party by reason of his or her service to us. In addition, we may be obligated to advance
the defense costs incurred by our trustees and officers. As a result, we and our shareholders may have more
limited rights against our trustees and officers than might otherwise exist absent the current provisions in our
declaration of trust and bylaws or that might exist with other companies.

Provisions of Maryland law may limit the ability of a third party to acquire control of our Company and may
result in entrenchment of management and diminish the value of our common shares.

Certain provisions of the Maryland General Corporation Law (“MGCL”) applicable to Maryland real estate

investment trusts may have the effect of inhibiting a third party from making a proposal to acquire us or of
impeding a change of control under circumstances that otherwise could provide our common shareholders with
the opportunity to realize a premium over the then-prevailing market price of such shares, including:

•

“Business combination” provisions that, subject to limitations, prohibit certain business combinations
between us and an “interested shareholder” (defined generally as any person who beneficially owns
10% or more of the voting power of our shares) or an affiliate of any interested shareholder for five
years after the most recent date on which the shareholder becomes an interested shareholder, and
thereafter imposes special appraisal rights and special shareholder voting requirements on these
combinations; and

•

“Control share” provisions that provide that our “control shares” (defined as shares which, when
aggregated with other shares controlled by the shareholder, entitle the shareholder to exercise one of
three increasing ranges of voting power in electing trustees) acquired in a “control share acquisition”
(defined as the direct or indirect acquisition of ownership or control of “control shares”) have no voting
rights except to the extent approved by our shareholders by the affirmative vote of at least two-thirds of
all the votes entitled to be cast on the matter, excluding all interested shares.

Additionally, Title 8, Subtitle 3 of the MGCL permits our Board of Trustees, without shareholder approval
and regardless of what is currently provided in our declaration of trust or bylaws, to implement certain takeover
defenses, such as a classified board, some of which we do not yet have. These provisions may have the effect of
inhibiting a third party from making an acquisition proposal for our company or of delaying, deferring or
preventing a change in control of our company under the circumstances that otherwise could provide our
common shareholders with the opportunity to realize a premium over the then current market price.

Provisions of our declaration of trust may limit the ability of a third party to acquire control of our Company
and may result in entrenchment of management and diminish the value of our common shares.

Our declaration of trust authorizes our Board of Trustees to issue up to 500,000,000 common shares and up

to 100,000,000 preferred shares. In addition, our Board of Trustees may, without shareholder approval, amend
our declaration of trust to increase the aggregate number of our shares or the number of shares of any class or
series that we have the authority to issue and to classify or reclassify any unissued common shares or preferred
shares and to set the preferences, rights and other terms of the classified or reclassified shares. As a result, our
Board of Trustees may authorize the issuance of additional shares or establish a series of common or preferred
shares that may have the effect of delaying or preventing a change in control of our company, including
transactions at a premium over the market price of our shares, even if shareholders believe that a change of
control is in their interest.

Failure to make required distributions would subject us to tax.

In order for federal corporate income tax not to apply to earnings that we distribute, each year we must
distribute to our shareholders at least 90% of our REIT taxable income, determined before the deductions for
dividends paid and excluding any net capital gain. To the extent that we satisfy this distribution requirement, but
distribute less than 100% of our taxable income, we will be subject to federal corporate income tax on our
undistributed REIT taxable income. In addition, we will be subject to a 4% nondeductible excise tax if the actual
amount that we pay out to our shareholders in a calendar year is less than a minimum amount specified under the
Code. Our only source of funds to make these distributions comes from distributions that we will receive from
our operating partnership. Accordingly, we may be required to borrow money, sell assets or make taxable
distributions of our capital shares or debt securities, to enable us to pay out enough of our REIT taxable income
to satisfy the distribution requirement and to avoid federal corporate income tax and the 4% nondeductible excise
tax in a particular year.

Failure to qualify as a REIT, or failure to remain qualified as a REIT, would subject us to federal income tax
and potentially to state and local taxes.

We elected to be taxed as a REIT for federal income tax purposes. However, qualification as a REIT

involves the application of highly technical and complex provisions of the Code, for which only a limited number
of judicial and administrative interpretations exist. Even an inadvertent or technical mistake could jeopardize our
REIT qualification. Our qualification as a REIT depends on our satisfaction of certain asset, income,
organizational, distribution, shareholder ownership and other requirements on a continuing basis.

Moreover, new tax legislation, administrative guidance or court decisions, in each instance potentially
applicable with retroactive effect, could make it more difficult or impossible for us to qualify as a REIT. If we
were to fail to qualify as a REIT in any taxable year, we would be subject to federal income tax, including any

applicable alternative minimum tax, on our taxable income at regular corporate rates, and distributions to
shareholders would not be deductible by us in computing our taxable income. We may also be subject to state
and local taxes if we fail to qualify as a REIT. Any such corporate tax liability could be substantial and would
reduce the amount of cash available for distribution to our shareholders, which in turn could have an adverse
impact on the value of our shares of beneficial interest. If, for any reason, we failed to qualify as a REIT and we
were not entitled to relief under certain Code provisions, we would be unable to elect REIT status for the four
taxable years following the year during which we ceased to so qualify, which would negatively impact the value
of our common shares.

Our TRS Lessee structure subjects us to the risk of increased hotel operating expenses that could adversely
affect our operating results and our ability to make distributions to shareholders.

Our leases with our TRS Lessees require our TRS Lessees to pay us rent based in part on revenues from our

hotels. Our operating risks include decreases in hotel revenues and increases in hotel operating expenses, which
would adversely affect our TRS Lessees’ ability to pay us rent due under the leases, including but not limited to
the increases in wage and benefit costs, repair and maintenance expenses, energy costs, property taxes, insurance
costs and other operating expenses.

Increases in these operating expenses can have a significant adverse impact on our financial condition,

results of operations, the market price of our common shares and our ability to make distributions to our
shareholders.

Our TRS structure increases our overall tax liability.

Our TRS Lessees are subject to federal, state and local income tax on their taxable income, which consists

of the revenues from the hotel properties leased by our TRS Lessees, net of the operating expenses for such hotel
properties and rent payments to us. Accordingly, although our ownership of our TRS Lessees allows us to
participate in the operating income from our hotel properties in addition to receiving rent, that operating income
is fully subject to income tax. The after-tax net income of our TRS Lessees is available for distribution to us.

Additionally, we own our interest in 4 of the JV hotels through one of our TRS holding companies. With

respect to those hotels the TRS holding company will pay federal, state and local income tax on its allocable
share of all of the income from those hotels.

Our ownership of TRSs is limited and our transactions with our TRSs will cause us to be subject to a 100%
penalty tax on certain income or deductions if those transactions are not conducted on arm’s-length terms.

A REIT may own up to 100% of the stock of one or more TRSs. A TRS may hold assets and earn income

that would not be qualifying assets or income if held or earned directly by a REIT, including gross operating
income from hotels that are operated by eligible independent contractors pursuant to hotel management
agreements. Both the subsidiary and the REIT must jointly elect to treat the subsidiary as a TRS. A corporation
of which a TRS directly or indirectly owns more than 35% of the voting power or value of the stock will
automatically be treated as a TRS. Overall, no more than 25% of the value of a REIT’s gross assets may consist
of stock or securities of one or more TRSs. In addition, the TRS rules limit the deductibility of interest paid or
accrued by a TRS to its parent REIT to assure that the TRS is subject to an appropriate level of corporate
taxation. The rules also impose a 100% excise tax on certain transactions between a TRS and its parent REIT that
are not conducted on an arm’s-length basis.

Our TRSs are subject to federal, foreign, state and local income tax on their taxable income, and their after-

tax net income is available for distribution to us but is not required to be distributed to us. We believe that the
aggregate value of the stock and securities of our TRSs is and will continue to be less than 25% of the value of
our total gross assets (including our TRS stock and securities). Furthermore, we will monitor the value of our
respective investments in our TRSs for the purpose of ensuring compliance with TRS ownership limitations. In

addition, we will scrutinize all of our transactions with our TRSs to ensure that they are entered into on arm’s-
length terms to avoid incurring the 100% excise tax described above. There can be no assurance, however, that
we will be able to comply with the 25% limitation discussed above or to avoid application of the 100% excise tax
discussed above.

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

To qualify as a REIT, we are required to 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 should 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 have
structured our leases, and intend to structure any future leases, so that the leases will be respected as true leases
for federal income tax purposes, but there can be no assurance that the IRS will agree with this characterization,
not challenge this treatment or that a court would not sustain such a challenge. 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 likely would fail to qualify for REIT status.

Dividends payable by REITs do not qualify for the reduced tax rates available for some dividends.

The maximum tax rate applicable to “qualified dividend income” payable to U.S. shareholders taxed at
individual rates is 20%. Dividends payable by REITs, however, generally are not eligible for the reduced rates.
The more favorable rates applicable to regular corporate qualified dividends could cause investors who are taxed
at individual rates to perceive investments in REITs to be relatively less attractive than investments in the stocks
of non-REIT corporations that pay dividends, which could adversely affect the value of the shares of REITs,
including our common shares.

If our hotel managers do not qualify as “eligible independent contractors,” we would fail to qualify as a REIT.

Rent paid by a lessee that is a “related party tenant” of ours will not be qualifying income for purposes of
the two gross income tests applicable to REITs. We lease substantially all of our hotels to our TRS Lessees. A
TRS Lessee will not be treated as a “related party tenant,” and will not be treated as directly operating a lodging
facility to the extent the TRS Lessee leases properties from us that are managed by an “eligible independent
contractor.” In addition, our TRS holding companies will fail to qualify as “taxable REIT subsidiaries” if they
lease or own a lodging facility that is not managed by an “eligible independent contractor.”

If our hotel managers do not qualify as “eligible independent contractors,” we would fail to qualify as a

REIT. Each of the hotel management companies that enters into a management contract with our TRS Lessees
must qualify as an “eligible independent contractor” under the REIT rules in order for the rent paid to us by our
TRS Lessees to be qualifying income for our REIT income test requirements and for our TRS holding companies
to qualify as “taxable REIT subsidiaries”. Among other requirements, in order to qualify as an eligible
independent contractor a manager must not own more than 35% of our outstanding shares (by value) and no
person or group of persons can own more than 35% of our outstanding shares and the ownership interests of the
manager, taking into account only owners of more than 5% of our shares and, with respect to ownership interests
in such managers that are publicly traded, only holders of more than 5% of such ownership interests. Complex
ownership attribution rules apply for purposes of these 35% thresholds. Although we intend to monitor
ownership of our shares by our property managers and their owners, there can be no assurance that these
ownership levels will not be exceeded.

Our ownership limitations may restrict or prevent you from engaging in certain transfers of our common
shares.

In order to satisfy the requirements for REIT qualification, no more than 50% in value of our outstanding shares
may be owned, directly or indirectly, by five or fewer individuals (as defined in the Code to include certain
entities) at any time during the last half of each taxable year beginning with our 2011 taxable year. To assist us to
satisfy the requirements for our REIT qualification, our declaration of trust contains an ownership limit on each
class and series of our shares. Under applicable constructive ownership rules, any common shares owned by
certain affiliated owners generally will be added together for purposes of the common share ownership limit, and
any shares of a given class or series of preferred shares owned by certain affiliated owners generally will be
added together for purposes of the ownership limit on such class or series.

If anyone transfers shares in a way that would violate the ownership limit, or prevent us from qualifying as a

REIT under the federal income tax laws, those shares instead will be transferred to a trust for the benefit of a
charitable beneficiary and will be either redeemed by us or sold to a person whose ownership of the shares will
not violate the ownership limit. If this transfer to a trust fails to prevent such a violation or our continued
qualification as a REIT, then the initial intended transfer shall be null and void from the outset. The intended
transferee of those shares will be deemed never to have owned the shares. Anyone who acquires shares in
violation of the ownership limit or the other restrictions on transfer in our declaration of trust bears the risk of
suffering a financial loss when the shares are redeemed or sold if the market price of our shares falls between the
date of purchase and the date of redemption or sale.

Complying with REIT requirements may limit our ability to hedge effectively and may cause us to incur tax
liabilities.

The REIT provisions of the Code substantially limit our ability to hedge our liabilities. Any income from a
hedging transaction we enter into to manage risk of interest rate changes with respect to borrowings made or to
be made to acquire or carry real estate assets does not constitute “gross income” for purposes of the 75% or 95%
gross income tests applicable to REITs. To the extent that we enter into other types of hedging transactions, the
income from those transactions is likely to be treated as non-qualifying income for purposes of both of the gross
income tests. As a result of these rules, we intend to limit our use of advantageous hedging techniques or
implement those hedges through a TRS. This could increase the cost of our hedging activities because our TRSs
would be subject to tax on gains or expose us to greater risks associated with changes in interest rates than we
would otherwise want to bear. In addition, losses in our TRSs will generally not provide any tax benefit, except
for being carried forward against future taxable income in the TRSs.

The ability of our Board of Trustees to revoke our REIT qualification without shareholder approval may
cause adverse consequences to our shareholders.

Our declaration of trust provides that our Board of Trustees may revoke or otherwise terminate our REIT

election, without the approval of our shareholders, if it determines that it is no longer in our best interest to
continue to qualify as a REIT. If we cease to qualify as a REIT, we would become subject to federal income tax
on our taxable income and would no longer be required to distribute most of our taxable income to our
shareholders, which may have adverse consequences on our total return to our shareholders.

The ability of our Board of Trustees to change our major policies may not be in our shareholders’ interest.

Our Board of Trustees determines our major policies, including policies and guidelines relating to our

acquisitions, leverage, financing, growth, operations and distributions to shareholders and our continued
qualification as a REIT. Our board may amend or revise these and other policies and guidelines from time to time
without the vote or consent of our shareholders. Accordingly, our shareholders will have limited control over
changes in our policies and those changes could adversely affect our financial condition, results of operations, the
market price of our common shares and our ability to make distributions to our shareholders.

If we fail to implement and maintain an effective system of internal controls, we may not be able to accurately
determine our financial results or prevent fraud. As a result, our investors could lose confidence in our
reported financial information, which could harm our business and the market value of our common shares.

Effective internal controls are necessary for us to provide reliable financial reports and effectively prevent

fraud. We may in the future discover areas of our internal controls that need improvement. Section 404 of the
Sarbanes-Oxley Act of 2002 requires us to evaluate and report on our internal controls over financial reporting
and have our independent auditors annually issue their opinion on our internal control over financial reporting.
As we rapidly grow our business and acquire new hotel properties with existing internal controls that may not be
consistent with our own, our internal controls will become more complex, and we will require significantly more
resources to ensure our internal controls remain effective. If we or our independent auditors discover a material
weakness, the disclosure of that fact, even if quickly remedied, could reduce the market value of our common
shares. In particular, we will need to establish, or cause our third party hotel managers to establish, controls and
procedures to ensure that hotel revenues and expenses are properly recorded at our hotels. The existence of any
material weakness or significant deficiency would require management to devote significant time and incur
significant expense to remediate any such material weaknesses or significant deficiencies and management may
not be able to remediate any such material weaknesses or significant deficiencies in a timely manner. Any such
failure could cause investors to lose confidence in our reported financial information and adversely affect the
market value of our common shares or limit our access to the capital markets and other sources of liquidity.

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

To qualify as a REIT for federal income tax purposes, we must continually satisfy tests concerning, among
other things, the sources of our income, the nature and diversification of our assets, the amounts we distribute to
our shareholders and the ownership of our shares of beneficial interest. In order to meet these tests, we may be
required to forego investments we might otherwise make. Thus, compliance with the REIT requirements may
hinder our performance.

In particular, we must ensure that at the end of each calendar quarter, at least 75% of the value of our gross

assets consists of cash, cash items, government securities and qualified real estate assets. The remainder of our
investment in securities (other than government securities, securities that constitute qualified real estate assets
and securities of our TRSs) generally cannot include more than 10% of the outstanding voting securities of any
one issuer or more than 10% of the total value of the outstanding securities of any one issuer. In addition, in
general, no more than 5% of the value of our gross assets (other than government securities, securities that
constitute qualified real estate assets and securities of our TRSs) can consist of the securities of any one issuer,
and no more than 25% of the value of our total gross assets can be represented by the securities of one or more
TRSs. If we fail to comply with these requirements at the end of any calendar quarter, we must correct the failure
within 30 days after the end of the calendar quarter or qualify for certain statutory relief provisions to avoid
losing our REIT qualification and suffering adverse tax consequences. As a result, we may be required to
liquidate otherwise attractive investments. These actions could have the effect of reducing our income and
amounts available for distribution to our shareholders.

We have not established a minimum distribution payment level and we may be unable to generate sufficient
cash flows from our operations to make distributions to our shareholders at any time in the future.

We are generally required to distribute to our shareholders at least 90% of our REIT taxable income each

year for us to qualify as a REIT under the Code, which requirement we currently intend to satisfy. To the extent
we satisfy the 90% distribution requirement but distribute less than 100% of our REIT taxable income, we will
be subject to federal corporate income tax on our undistributed taxable income. We have not established a
minimum distribution payment level, and our ability to make distributions to our shareholders may be adversely
affected by the risk factors described in this prospectus. Subject to satisfying the requirements for REIT

qualification, we intend over time to make regular quarterly distributions to our shareholders. Our Board of
Trustees has the sole discretion to determine the timing, form and amount of any distributions to our
shareholders. Our Board of Trustees makes determinations regarding distributions based upon, among other
factors, our historical and projected results of operations, financial condition, cash flows and liquidity,
satisfaction of the requirements for REIT qualification and other tax considerations, capital expenditure and other
expense obligations, debt covenants, contractual prohibitions or other limitations and applicable law and such
other matters as our Board of Trustees may deem relevant from time to time. Among the factors that could impair
our ability to make distributions to our shareholders are:

•

our inability to realize attractive returns on our investments;

unanticipated expenses that reduce our cash flow or non-cash earnings;

decreases in the value of the underlying assets; and

the fact that anticipated operating expense levels may not prove accurate, as actual results may vary
from estimates.

As a result, no assurance can be given that we will be able to continue to make distributions to our

shareholders or that the level of any distributions we do make to our shareholders will achieve a market yield or
increase or even be maintained over time, any of which could materially and adversely affect the market price of
our common shares. Distributions could be dilutive to our financial results and may constitute a return of capital
to our investors, which would have the effect of reducing each shareholder’s basis in its common shares. We also
could use borrowed funds or proceeds from the sale of assets to fund distributions.

In addition, distributions that we make to our shareholders are generally taxable to our shareholders as
ordinary income. However, a portion of our distributions may be designated by us as long-term capital gains to
the extent that they are attributable to capital gain income recognized by us or may constitute a return of capital
to the extent that they exceed our earnings and profits as determined for tax purposes. A return of capital is not
taxable, but has the effect of reducing the basis of a shareholder’s investment in our common shares.

The market price of our equity securities may vary substantially, which may limit your ability to liquidate your
investment.

The trading prices of equity securities issued by REITs have historically been affected by changes in market
interest rates. One of the factors that may influence the price of our shares in public trading markets is the annual
yield from distributions on our common or preferred shares as compared to yields on other financial instruments.
An increase in market interest rates, or a decrease in our distributions to shareholders, may lead prospective
purchasers of our shares to demand a higher annual yield, which could reduce the market price of our equity
securities.

Other factors that could affect the market price of our equity securities include the following:

•

actual or anticipated variations in our quarterly results of operations;

changes in market valuations of companies in the hotel or real estate industries;

changes in expectations of future financial performance or changes in estimates of securities analysts;

fluctuations in stock market prices and volumes;

issuances of common shares or other securities in the future;

the addition or departure of key personnel and

announcements by us or our competitors of acquisitions, investments or strategic alliances

Because we have a limited equity market capitalization and our common shares are traded in low volumes,
the stock market price of our common shares is susceptible to fluctuation to a greater extent than companies with
larger market capitalization. As a result, your ability to liquidate your investment may be limited and the sale of
common shares in this offering could cause the stock market price of our common shares to decline.

The number of shares available for future sale could adversely affect the market price of our common shares.

We cannot predict the effect, if any, of future sales of common shares, or the availability of common shares

for future sale, on the market price of our common shares. Sales of substantial amounts of common shares
(including shares issued to our trustees and officers), or the perception that these sales could occur, may
adversely affect prevailing market prices for our common shares.

We also may issue from time to time additional common shares or limited partnership interests in our
operating partnership in connection with the acquisition of properties and we may grant demand or piggyback
registration rights in connection with these issuances. Sales of substantial amounts of our common shares or the
perception that these sales could occur may adversely affect the prevailing market price for our common shares
or may impair our ability to raise capital through a sale of additional equity securities. Our Equity Incentive Plan
provides for grants of equity based awards up to an aggregate of 565,359 common shares and we may seek to
increase shares available under our Equity Incentive Plan in the future.

Future offerings of debt or equity securities ranking senior to our common shares or incurrence of debt
(including under our credit facility) may adversely affect the market price of our common shares.

If we decide to issue debt or equity securities in the future ranking senior to our common shares or

otherwise incur indebtedness (including under our credit facility), it is possible that these securities or
indebtedness will be governed by an indenture or other instrument containing covenants restricting our operating
flexibility and limiting our ability to make distributions to our shareholders. Additionally, any convertible or
exchangeable securities that we issue in the future may have rights, preferences and privileges, including with
respect to distributions, more favorable than those of our common shares and may result in dilution to owners of
our common shares. Because our decision to issue debt or equity securities in any future offering or otherwise
incur indebtedness will depend on market conditions and other factors beyond our control, we cannot predict or
estimate the amount, timing or nature of our future offerings or financings, any of which could reduce the market
price of our common shares and dilute the value of our common shares.

Item 1B. Unresolved Staff Comments

None

Item 2. Properties

The following table sets forth certain operating information for our wholly-owned hotels as of December 31, 2012:

Property

Location

Management
Company

Date of
Acquisition

Year
Opened

Number of
Rooms

Purchase
Price

Purchase
Price per
Room

Mortgage
Debt
Balance

(Unaudited)

Homewood Suites by
Hilton Boston-Billerica/
Bedford/ Burlington

Homewood Suites by
Hilton Minneapolis-Mall
of America

Homewood Suites by
Hilton Nashville-
Brentwood

Homewood Suites by
Hilton Dallas-Market
Center

Homewood Suites by
Hilton Hartford-
Farmington

Homewood Suites by
Hilton Orlando-Maitland

Homewood Suites by
Hilton Carlsbad (North
San Diego County)

Hampton Inn & Suites
Houston-Medical Center

Courtyard Altoona

Springhill Suites
Washington

Residence Inn Long
Island Holtsville

Residence Inn White
Plains

Residence Inn New
Rochelle

Residence Inn Garden
Grove

Residence Inn Mission
Valley

Homewood Suites by
Hilton San Antonio River
Walk

Doubletree Suites by
Hilton Washington
DC (1)

Residence Inn Tysons
Corner

Hampton Inn Portland
Downtown

Total Average

Billerica,
Massachusetts

Bloomington,
Minnesota

Brentwood,
Tennessee

Dallas, Texas

Farmington,
Connecticut

Maitland, Florida

Carlsbad, California

Houston, Texas

Altoona,
Pennsylvania

Washington,
Pennsylvania

Holtsville, New York

White Plains,
New York

New Rochelle,
New York

Garden Grove, CA

San Diego, CA

San Antonio, TX

Washington, DC

Vienna, VA

Island
Hospitality

April 23, 2010

1999

147

$ 12.5 million

$ 85,714

April 23, 2010

1998

144

$ 18.0 million

$125,000

April 23, 2010

1998

121

$ 11.3 million

$ 93,388

April 23, 2010

1998

137

$ 10.7 million

$ 78,102

April 23, 2010

1999

121

$ 11.5 million

$ 95,041

April 23, 2010

2000

143

9.5 million

$ 66,433

November 3, 2010

2008

145

$ 32.0 million

$220,690

July 2, 2010

1997

120

$ 16.5 million

$137,500

—

Concord

August 24, 2010

2001

105

$ 11.3 million

$107,619

$ 6.6 million

Concord

August 24, 2010

2000

$ 12.0 million

$139,535

$ 5.1 million

Island
Hospitality

Island

August 3, 2010

2004

124

$ 21.3 million

$171,774

September 23, 2010

1982

133

$ 21.2 million

$159,398

—

October 5, 2010

2000

124

$ 21.0 million

$169,355

$ 15.4 million

July 14, 2011

2003

200

$ 43.6 million

$218,000

$ 32.4 million

July 14, 2011

2003

192

$ 52.5 million

$273,438

$ 39.6 million

July 14, 2011

1996

146

$ 32.5 million

$222,603

$ 18.2 million

July 14, 2011

1974

105

$ 29.4 million

$280,000

$ 19.7 million

July 14, 2011

2001

121

$ 37.0 million

$305,785

$ 22.7 million

Portland, ME

Hospitality December 27, 2012

2011

122

2,536

$ 28.0 million

$229,508

—

$431.8 million

$170,268

$159.7 million

(1) The Doubletree franchise agreement was terminated on January 31, 2013 and is expected to be rebranded as a Residence Inn by Marriott

in May 2013.

We lease our headquarters located at 50 Cocoanut Row, Suite 211, Palm Beach, FL 33480. The Altoona
hotel is subject to a ground lease with an expiration of April 30, 2029 with an option of up to 12 additional terms
of five years each. In connection with the New Rochelle hotel, there are an air rights lease and garage lease that
each expire on December 1, 2104.

Item 3. Legal Proceedings

We are not presently subject to any material litigation nor, to our knowledge, is any material litigation
threatened against us or our properties, other than routine litigation arising in the ordinary course of business and
which is expected to pose no material financial risk to the Company and/or is expected to be covered by
insurance policies.

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

Market Information

Our common shares began trading on the New York Stock Exchange, (the “NYSE”), on April 16, 2010

under the symbol “CLDT”. The closing price of our common shares on the NYSE on December 31, 2012 was
$15.38 per share. The following table sets forth, for the periods indicated, the high and low closing sales prices
per share reported on the New York Stock Exchange as traded and the cash dividends declared per share:

2012

2011

First quarter
Second quarter
Third quarter
Fourth quarter

High

Low

Dividends

$13.58
14.40
14.81
15.38

$10.99
11.59
13.45
12.89

$0.175
0.200
0.200
0.200

High

Low

Dividends

$17.50
17.09
16.44
11.62

$16.00
15.47
9.34
9.20

$0.175
0.175
0.175
0.175

The Company’s Board of Trustees has authorized a monthly dividend payment of $0.07 per share. The first
monthly dividend for January will be paid on February 22, 2013, to shareholders of record on January 31, 2013.

Shareholder Information

On March 7, 2013, there were 15 registered holders of record of our common shares. This figure does not

include beneficial owners who hold shares in nominee name. However, because many of our common shares are
held by brokers and other institutions, we believe that there are more beneficial holders of our common shares
than record holders. In order to comply with certain requirements related to our qualification as a REIT, our
charter, subject to certain exceptions, limits the number of common shares that may be owned by any single
person or affiliated group to 9.8% of the outstanding common shares.

Initial
investment at
April 21, 2010

Value of initial
investment at
December 31, 2010

Value of initial
investment at
December 31, 2011

Value of initial
investment at
December 31, 2012

Chatham Lodging Trust
Russell 2000 Index
FTSE NAREIT All Equity REIT Index
FTSE NAREIT Lodging/Resorts Index

$100.00
$100.00
$100.00
$100.00

$ 87.94
$109.57
$110.50
$106.10

$ 58.07
$102.91
$119.69
$ 90.95

$ 87.52
$121.38
$142.97
$102.34

$155.00

$145.00

$135.00

$125.00

$115.00

$105.00

$95.00

$85.00

$75.00

$65.00

$55.00

April 21, 2010

December 31, 2010

December 31, 2011

December 31, 2012

CLDT

Russell 2000 Index

FTSE NAREIT All Equity

FTSE NAREIT Lodging

The above graph provides a comparison of the cumulative total return on our common shares from April 21,

2010, the date on which our shares began trading, to the NYSE closing price per share on December 31, 2012
with the cumulative total return on the Russell 2000 Index (the “Russell 2000”), the FTSE NAREIT All Equity
REIT Index (the “NAREIT All Equity”) and the NAREIT Lodging/Resorts Index (the “NAREIT Lodging”). The
total return values were calculated assuming a $100 investment on April 21, 2010 with reinvestment of all
dividends in (i) our common shares, (ii) the Russell 2000, (iii) the NAREIT All Equity and (iv) the NAREIT
Lodging. The total return values include any dividends paid during the period.

Distribution Information

In order to maintain our qualification as a REIT, we must make distributions to our stockholders each year

in an amount equal to at least:

•

90% of our REIT taxable income determined without regard to the dividends paid deduction and
excluding net capital gains, plus;

90% of the excess of our net income from foreclosure property over the tax imposed on such income
by the Code, minus

• Any excess non-cash income (as defined in the Code).

The following table sets forth information regarding the declaration, payment and income tax

characterization of our distributions by the Company on our common shares for the years ended December 31,
2011 and 2012 and respectively:

2012

Quarter to which
distribution relates

First quarter
Second quarter
Third quarter
Fourth quarter

2011

Quarter to which
distribution relates

First quarter
Second quarter
Third quarter
Fourth quarter

Record Date

Payment Date

3/30/2011
6/29/2012
9/28/2012
12/31/2012

4/27/2012
7/27/2012
10/26/2012
1/25/2013

Common
share
distribution
amount

$0.175
0.200
0.200
0.200

Ordinary
income

$0.092
$0.106
$0.106
$0.106

Return
of
capital

$0.083
0.094
0.094
0.094

$0.775

$0.410

$0.365

Record Date

Payment Date

3/31/2011
6/30/2011
9/30/2011
12/30/2011

4/15/2011
7/15/2011
10/14/2011
1/27/2012

Common
share
distribution
amount

$0.175
0.175
0.175
0.175

$0.700

Ordinary
income

Return of
capital

$0.01
$0.01
$0.01
$0.01

$0.04

$0.165
0.165
0.165
0.165

$0.660

Equity Compensation Plan Information

The following table provides information, as of December 31, 2012, relating to our Equity Incentive Plan
pursuant to which grants of common share options, share awards, share appreciation rights, performance units
and other equity-based awards options may be granted from time to time.

Number of Securities to be
Issued Upon Exercise of
Outstanding Options,
Warrants and Rights

Weighted-Average
Exercise Price of
Outstanding Options,
Warrants and Rights

Number of Securities
Remaining Available
for Future Issuance under
Equity Compensation
Plans

Equity compensation plans approved by

security holders(1)

Equity compensation plans not approved

by security holders

Total

—

69,571

—

69,571

(1) Our Equity Incentive Plan was approved by our company’s sole trustee and our company’s sole shareholder

prior to completion of our IPO.

Securities Sold

Concurrent with the closing of our IPO on April 21, 2010, we issued and sold an aggregate of 500,000
common shares to Jeffrey H. Fisher, our Chairman, President and Chief Executive Officer, in a private placement
exempt from registration pursuant to Regulation D under the Securities Act. The aggregate price for these shares
was $10,000,000, and there were no underwriting discounts or commissions. Mr. Fisher represented to us that he
is an “accredited investor” (as that term is defined in Rule 501(a) of Regulation D under the Securities Act).

Issuer Purchases of Equity Securities

We do not currently have a repurchase plan or program in place. However, we do provide employees, who

have been issued restricted common shares, the option of selling shares to us to satisfy the minimum statutory tax
withholding requirements on the date their shares vest. There were 0 and 915 common shares purchased in the
years ended December 31, 2012 and 2011, respectively, related to such repurchases. Pursuant to the terms of the
amended secured senior credit facility, we will no longer be able to repurchase shares in the future.

Item 6.

Selected Financial Data

The following tables present selected historical financial information as of and for the years ended
December 31, 2012, 2011 and 2010. The selected historical financial information as of and for the years ended
December 31, 2012, 2011 and 2010 has been derived from our audited consolidated financial statements. The
selected historical financial data should be read in conjunction with “Management’s Discussion and Analysis of
Financial Condition and Results of Operations,” and the financial statements and notes thereto, both included in
this Annual Report on Form 10-K.

Statements of Operations Data:
Total revenue

Hotel operating expenses
General and administrative
Hotel property acquisition costs
Property taxes and insurance
Depreciation and amortization
Reimbursed costs from unconsolidated real

estate entities

Total operating expenses

Operating income (loss)
Interest expense, including amortization of

deferred financing fees
Loss in unconsolidated entity
Interest and other income

Loss before income tax expense
Income tax expense

Net loss

Net loss attributable to common share, basic

and diluted

Weighted average number of common shares,

Year Ended
December 31,
2012

Year Ended
December 31,
2011

Year Ended
December 31,
2010

(In thousands, except share and per-share data)

100,464

73,096

25,470

55,030
7,565
236
7,088
14,273

1,622

85,814

14,650

(14,641)
(1,439)
55

(1,375)
(75)

(1,450)

(0.12)

42,167
5,802
7,706
5,321
11,971

—

72,967

129

(8,190)
(997)
22

(9,036)
(69)

(9,105)

(0.69)

15,025
3,547
3,189
1,606
2,564

—

25,931

(461)

(932)
—
193

(1,200)
(17)

(1,217)

(0.20)

basic and diluted

13,811,691

13,280,149

6,377,333

Other Data:

Cash provided by operating activities
Cash used in investing activities
Cash (used in) provided by financing

activities

Cash dividends declared per common share

15,280
(13,431)

8,946
(112,523)

5,274
(201,511)

(2,033)
0.775

103,489
0.70

200,981
0.35

Balance Sheet Data:

Investment in hotel properties, net
Cash and cash equivalents
Restricted cash
Investment in unconsolidated real estate

entities

Hotel receivables (net of allowance for

doubtful accounts)

Deferred costs, net
Prepaid expenses and other assets

As of
December 31,
2012

As of
December 31,
2011

As of
December 31,
2010

(In thousands)

$426,074
4,496
2,949

$402,815
4,680
5,299

$208,080
4,768
3,018

13,362

36,003

2,098
6,312
1,930

2,057
6,350
1,502

—

891
4,710
735

Total assets

$457,221

$458,706

$222,202

Debt
Accounts payable and accrued expenses
Distributions payable

Total liabilities

Total shareholders’ equity

Noncontrolling interest in operating

partnership

$239,246
8,488
2,875

250,609

205,001

$228,940
10,184
2,464

241,588

216,090

$ 50,133
5,248
1,657

57,038

164,739

1,611

1,028

425

Total liabilities and equity

$457,221

$458,706

$222,202

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

Overview

Chatham Lodging Trust (“we,” “us” or the “Company”) was formed as a Maryland real estate investment

trust (“REIT”) on October 26, 2009. The Company is internally-managed and was organized to invest primarily
in premium-branded upscale extended-stay and select-service hotels.

As of December 31, 2012, the Company owned 19 hotels with an aggregate of 2,536 rooms and held a

10.3% minority interest in a joint venture (the “JV”) with Cerberus Capital Management (“Cerberus”) which
owns 55 hotels with an aggregate of 7,282 rooms. To qualify as a REIT, the Company cannot operate its hotels.
Therefore, the Operating Partnership and its subsidiaries lease the Company’s wholly owned hotels to taxable
REIT subsidiary lessees (“TRS Lessees”), which are wholly owned by one of the Company’s taxable REIT

subsidiary (“TRS”) holding companies. Each hotel is leased to a TRS Lessee under a percentage lease that
provides for rental payments equal to the greater of (i) a fixed base rent amount or (ii) a percentage rent based on
hotel room revenue. The initial term of each of the TRS leases is five years. Lease revenue from each TRS
Lessee is eliminated in consolidation. The TRS Lessees have entered into management agreements with third
party management companies that provide day-to-day management for the hotels. The Company indirectly owns
its interest in 51 of the 55 JV hotels through the Operating Partnership, and the Company’s interest in the
remaining 4 JV hotels is held through one of the TRS holding companies. All of the JV hotels are leased to TRS
Lessees in which the Company indirectly owns a 10.3% interest through one of the TRS holding companies.
Island Hospitality Management Inc. (“IHM”), which is 90% owned by Mr. Fisher, managed 17 of the Company’s
wholly owned hotels at December 31, 2012 and Concord Hospitality Enterprises Company manages two of the
Company’s wholly owned hotels. All but one of the JV hotels were managed by IHM at December 31, 2012. One
JV hotel was managed by Dimension Development Company. On January 1, 2013, IHM took over management
of this hotel from Dimension Development Company. One February 5, 2013, the Company acquired the 197
room Courtyard by Marriott Houston® Medical Center hotel in Houston, TX for $34.8 million. The Company
funded the acquisition with borrowings under its secured revolving credit facility. The Houston hotel is managed
by IHM.

Financial Condition and Operating Performance Metrics

We measure financial condition and hotel operating performance by evaluating financial and operating

metrics such as:

• Revenue per Available Room (“RevPAR”),

• Average Daily Rate (“ADR”),

• Occupancy percentage,

•

Funds From Operations (“FFO”),

• Adjusted FFO,

• Earnings before interest, taxes, depreciation and amortization (“EBITDA”), and

• Adjusted EBITDA.

We evaluate the hotels in our portfolio and potential acquisitions using these metrics to determine each

hotel’s contribution towards providing income to our shareholders through increases in distributable cash flow
and increasing long-term total returns through appreciation in the value of our common shares. RevPAR, ADR
and Occupancy are hotel industry measures commonly used to evaluate operating performance. RevPAR, which
is calculated as total room revenue divided by total number of available rooms, is an important metric for
monitoring hotel operating performance.

“Non-GAAP Financial Measures” below provides a detailed discussion of our use of FFO, Adjusted FFO,

EBITDA and Adjusted EBITDA and a reconciliation of FFO, Adjusted FFO, EBITDA and Adjusted EBITDA to
net income or loss, measurements recognized by generally accepted accounting principles in the United States
(“GAAP”).

Results of Operations

Industry outlook

We believe that the hotel industry’s performance is correlated to the performance of the economy overall,
and with key economic indicators such as GDP growth, employment trends and corporate profits. We expect a
continuing improvement in the performance of the hotel industry. As reported by Smith Travel Research,
monthly industry RevPAR has been higher year over year since March 2010. As reported by Smith Travel

Research, industry RevPAR was up 5.5% in 2010, 8.2% in 2011 and 6.8% in 2012. Industry analysts such as
Smith Travel Research and PKF Hospitality are projecting industry RevPAR to grow 5-6% in 2013 based on
sustained economic growth, lack of new supply and increased business travel spending. Of the projected growth,
most expect ADR growth to comprise most of the expected RevPAR growth. We are currently projecting
RevPAR at our hotels to grow 4.5% in 2013 with ADR comprising most of our RevPAR growth. Industry
analysts and other public lodging companies have begun to refine their RevPar projections for 2013. Most expect
RevPar to continue to grow in 2013, albeit at levels less than what the industry experienced in 2011 and 2012.

Comparison Year ended December 31, 2012 to the Year ended December 31, 2011

Results of operations for the years ended December 31, 2012 and 2011 include the operating activities of the

19 hotels owned at December 31, 2012, which includes the Portland hotel acquired on December 27, 2012 and
the five hotels acquired in the third quarter of 2011 (the “5 Sisters”), compared to the results of operations for the
18 hotels that we owned for all or part of the year ended December 31, 2012.

As reported by Smith Travel Research, industry RevPar for the years ended December 31, 2012 and 2011

was up 6.8% and up 8.2%, respectively. RevPar at our hotels was up 8.0% and 2.8% in 2012 and 2011,
respectively, which includes periods prior to our ownership. Approximately one-half of our RevPar growth in
2012 was attributable to occupancy growth as some of our hotels are operating at high occupancy levels, their
future RevPar growth generally will be dependent on rate growth. Our RevPar growth in 2011 was less than the
industry due to significant renovations in 2011.

Revenue

Total revenue was $100.5 million for the year ended December 31, 2012 compared to total revenue of $73.1

million for the year ended December 31, 2011. Since all of our hotels are premium branded upscale extended-
stay hotels and select service, room revenue is the primary revenue source as these hotels do not have significant
food and beverage revenue or large group conference facilities. Room revenue was $94.6 and $70.4 million for
the years ended December 31, 2012 and 2011, respectively. The increased revenue is primarily due to $18.4
million of revenue from the 5 sisters for January to June 2012 since we did not own those hotels until July 2011.
The remainder is due to increased RevPar at the other comparable hotels.

Since room revenue is the primary component of total revenue, our revenue results are dependent on
maintaining and improving occupancy, ADR and RevPAR at our hotels. ADR at our hotels was up 3.6% as well
as increased occupancy of 4.3% for the year ended 2012. Occupancy, ADR, and RevPAR results are presented in
the following table in each period to reflect operations of the hotels regardless of ownership (a list of the hotel
acquisition dates can be found in the table in Item1):

Occupancy . . . . . . . . . . . . . . . . . . . . . . . . . .
ADR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
RevPar . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

81.8%

$130.73
$106.95

78.5%

$126.26
$ 99.08

For the year ended
December 31, 2012

For the year ended
December 31, 2011

Other operating revenue, comprised of meeting room, gift shop, in-room movie and other ancillary

amenities revenue, was $4.3 million and $2.7 million, respectively, for the years ended December 31, 2012 and
2011. As a percentage of total revenue, other operating revenue was 4.3% and 3.7%, respectively, for the years
ended December 31, 2012 and 2011 and the increase is due to the fact that other operating revenue at our 5
sisters is a higher percentage of revenue than at the remainder of our portfolio.

Cost reimbursements from unconsolidated real estate entities, comprised of payroll costs at the JV where the

Company is the employer, was $1.6 million and $0.0 million for the years ended December 31, 2012 and 2011,
respectively.

Hotel Operating Expenses

Hotel operating expenses increased $12.8 million to $55.0 million for the year ended December 31, 2012

compared to $42.2 million for the year ended December 31, 2011. As a percentage of total revenue, hotel
operating expenses were 55% for 2012 and 58% for 2011, which decrease is expected as ADR grows year over
year and fixed operating costs decrease as a percentage of revenue year over year when revenue increases.
Growth in revenues due to increases in ADR generally have less impact on hotel operating expenses than growth
in revenues due to increases in occupancy. Room expenses, which are the most significant component of hotel
operating expenses, increased $5.0 million from $16.0 million in 2011 to $21.0 million in 2012 or 21.9% and
20.9% of total revenue for the years ended December 31, 2011 and 2012, respectively. Other direct expenses,
which include management and franchise fees, insurance, utilities, repairs and maintenance, advertising and
sales, and hotel general and administrative expenses increased $8.0 million, from $26.1 million in 2011 to $34.1
million in 2012. The increase in operating expenses is due primarily to the fact that we only owned the 5 sisters
for approximately six months in 2011.

Depreciation and Amortization

Depreciation and amortization expense increased $2.3 million, from $12.0 million for the year ended
December 31, 2011 to $14.3 million for the year ended December 31, 2012. The increase is due to the fact that
we owned 18 hotels for all of 2012 but owned the 5 Sister hotels for only a portion of 2011, as well as the
disposition and replacement of furniture and fixtures at four hotels where major property improvement plans
were completed during the year ended December 31, 2012. Depreciation is recorded on our hotel buildings over
40 years from the date of acquisition. Depreciable lives of hotel furniture, fixtures and equipment are generally
three to ten years between the date of acquisition and the date that the furniture, fixtures and equipment will be
replaced. Amortization of franchise fees is recorded over the term of the respective franchise agreements.

Real Estate and Personal Property Taxes

Total property tax and insurance expenses increased $1.8 million, from $5.3 million for the year ended
December 31, 2011 to $7.1 million for the year ended December 31, 2012. $1.1 million of the increase is related
to the expense for the 5 sisters for an additional six months of 2012. As a percentage of revenue, property tax and
insurance expense decreased from 7.3% in 2011 to 7.1% in 2012.

Corporate General and Administrative

Corporate general and administrative expenses principally consist of employee-related costs, including base

payroll and amortization of restricted stock and awards of long-term incentive plan (“LTIP”) units. These
expenses also include corporate operating costs, professional fees and trustees’ fees. Total corporate general and
administrative expenses (excluding amortization of stock based compensation of $2.0 million and $1.6 million
for the years ended December 31, 2012 and 2011, respectively) increased $1.4 million to $5.6 million in 2012
from $4.2 million in 2011. The increases related to $0.6 million in compensation and benefits, $0.5 million in
fees to third party providers and $0.3 million in other costs.

Hotel Property Acquisition Costs

Hotel property acquisition costs decreased $7.5 million to $0.2 million for the year ended December 31,

2012 from $7.7 million for the year ended December 31, 2011. Expenses during the 2011 period related to our
acquisitions from Innkeepers USA Trust during the 2011 third quarter. Acquisition-related costs are expensed
when incurred.

Reimbursed Costs from Unconsolidated Real Estate Entities

Reimbursed costs from unconsolidated real estate entities, comprised of payroll costs at the JV where the

Company is the employer, were $1.6 million and $0.0 million for the years ended December 31, 2012 and 2011,
respectively. The JV was acquired in the 4th quarter of 2011.

Interest and Other Income

Interest and other income increased $33 thousand, from $22 thousand for the year ended December 31, 2011

to $55 thousand for the year ended December 31, 2012. This increase was due to miscellaneous income
associated with our San Antonio and Washington, D.C. hotels.

Interest Expense

Interest expense increased $6.4 million, from $8.2 million for the year ended December 31, 2011 to $14.6

million for the year ended December 31, 2012. A breakdown of interest expense is as follows:

Revolving credit facility interest
Mortgage loan interest
Other fees
Amortization of deferred financing fees

Total

2012

2011

$ 2,932
9,654
213
1,842

$1,417
4,899
296
1,578

$14,641

$8,190

Interest cost related to our secured revolving credit facility increased in 2012 due to an increase in weighted
average borrowings of $27.1 million, from $29.7 million in 2011 to $56.8 million in 2012. Mortgage loan interest
increases are due to the fact that six of the eight mortgage loans were acquired or assumed in the third quarter of
2011. Amortization of deferred financing fees increased $0.3 million in 2012 due to the six loans acquired or
assumed in 2011.

Loss from Unconsolidated Real Estate Entities

Loss from unconsolidated real estate entities increased $0.4 million, from $1.0 million for the year ended

December 31, 2011 to $1.4 million for the year ended December 31, 2012. We did not own an interest in the JV
until October 27, 2011.

Income Tax Expense

Income tax expense increased $6 thousand, from $69 thousand for the year ended December 31, 2011 to $75

thousand for the year ended December 31, 2012. We are subject to income taxes based on the taxable income of
our taxable REIT subsidiary holding companies at a combined federal and state tax rate of approximately 40%.

Net loss

Net loss was $1.5 million for the year ended December 31, 2012, compared to a net loss of $9.1 million for

the year ended December 31, 2011. This decrease in loss was due to the factors discussed above.

Material Trends or Uncertainties

We are not aware of any material trends or uncertainties, favorable or unfavorable, that may be reasonably

anticipated to have a material impact on either the capital resources or the revenues or income to be derived from
the acquisition and operation of properties, loans and other permitted investments, other than those referred to in
the risk factors identified in the “Risk Factors” section of this Annual Report on Form 10-K.

Comparison Year ended December 31, 2011 to the Year ended December 31, 2010

Results of operations for the years ended December 31, 2011 and 2010 include the operating activities of the

18 hotels owned at December 31, 2011, which includes the 5 Sister hotels acquired in the third quarter of 2011
compared to the results of operations for the 13 hotels that we owned for all or part of the year ended
December 31, 2010. The Company completed its IPO on April 21, 2010 and acquired the 13 hotels at varying
times during the second, third and fourth quarters of 2010.

As reported by Smith Travel Research, industry RevPar for the years ended December 31, 2011 and 2010

was up 8.2% and up 5.5% respectively. RevPar at our hotels was up 2.8% and 3.3% in 2011 and 2010, which
includes periods prior to our ownership. Our RevPar growth was adversely impacted because 13 of our 18 hotels
were undergoing renovations in 2011.

Revenue

Total revenue was $73.1 million for the year ended December 31, 2011 compared to total revenue of
$25.4 million for the 2010 period due to the increase in the number of hotels owned in 2011 from 13 to 18. We
owned 13 hotels for all of 2011 compared to owning zero hotels for all of 2010. Since all of our hotels are
premium branded upscale extended-stay hotels and select service, room revenue is the primary revenue source as
these hotels do not have significant food and beverage revenue or large group conference facilities. Room
revenue was $70.4 and $24.7 million for the years ended December 31, 2011 and 2010, respectively.

Since room revenue is the primary component of total revenue, our revenue results are dependent on
maintaining and improving occupancy, ADR and RevPAR at our hotels. Occupancy, ADR, and RevPAR results
are presented in the following table in each period to reflect operations of the hotels regardless of ownership:

For the year ended
December 31, 2011

For the year ended
December 31, 2010

Portfolio . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ADR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Occupancy . . . . . . . . . . . . . . . . . . . . . . . . . . .
RevPar . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$126.26

78.5%

$ 99.08

$124.19

77.6%

$ 96.37

Other operating revenue, comprised of meeting room, gift shop, in-room movie and other ancillary
amenities revenue, was $2.7 and $0.7 million, respectively, for the years ended December 31, 2011 and 2010.

Hotel Operating Expenses

Hotel operating expenses increased $27.2 million from $15.0 million for the year ended December 31, 2010
to $42.2 million for the year ended December 31, 2011 due to the increased number of hotels owned in the 2011
period and owning 13 hotels for all of 2011 compared to owning no hotels for all of 2010. As a percentage of
total revenue, hotel operating expenses were 58% for 2011 and 59% for 2010, a downward trend we hope will
continue as ADR growth comprises a larger component of RevPar increases in 2012. Room expenses, which are
the most significant component of hotel operating expenses, increased $10.0 million from $6.0 million in 2010 to
$16.0 million in 2011. Other direct expenses, which include management and franchise fees, insurance, utilities,
repairs and maintenance, advertising and sales, and hotel general and administrative expenses increased $17.1
million from $9.0 million in 2010 to $26.1 million in 2011.

Depreciation and Amortization

Depreciation and amortization expense increased $9.4 million from $2.6 million for the year ended

December 31, 2010 to $12.0 million for the year ended December 31, 2011. The increase is due to the increased
number of hotels owned during the 2011 period and the disposition and replacement of furniture and fixtures at
six hotels where major property improvement plans were completed during the year ended December 30, 2011.
Depreciation is recorded on our hotel buildings over 40 years from the date of acquisition. Depreciable lives of
hotel furniture, fixtures and equipment are generally three to ten years between the date of acquisition and the
date that the furniture, fixtures and equipment will be replaced. Amortization of franchise fees is recorded over
the term of the respective franchise agreement.

Real Estate and Personal Property Taxes

Total property tax and insurance expenses increased $3.7 million from $1.6 million for the year ended
December 31, 2010 to $5.3 million for the year ended December 31, 2011. The increase is due primarily to
increased number of hotels owned during the 2011 period and due to the fact the 2010 period comprised only
253 days. As a percentage of revenue, property tax and insurance expense increased from 6.3% in 2010 to
7.3% in 2011 as a result of the higher valued assets acquired during 2011 at a higher purchase price per room
than the 13 hotels owned at December 31, 2010.

Corporate General and Administrative

Corporate general and administrative expenses principally consist of employee-related costs, including base

payroll and amortization of restricted stock and awards of long-term incentive plan (“LTIP”) units. These
expenses also include corporate operating costs, professional fees and trustees’ fees. Total corporate general and
administrative expenses (excluding amortization of stock based compensation of $1.6 and $1.1 million for the
year ended December 31, 2011 and for the year ended December 31, 2010, respectively) increased $1.8 million
to $4.2 million in 2011 from $2.4 million in 2010. This increase was primarily due to the fact the 2010 period
comprised only 253 days.

Hotel Property Acquisition Costs

Hotel property acquisition costs increased $4.6 million from $3.1 million for the year ended December 31,

2010 to $7.7 million for the year ended December 31, 2011. The 2011 expenses relate to the acquisition of hotels
formerly owned by Innkeepers described in Note 3, Acquisition of Hotel Properties, in the notes to our
consolidated financial statements. The 2010 expenses represent costs associated with the purchase of the
13 hotels owned at December 31, 2010. These acquisition-related costs are expensed when incurred in
accordance with GAAP.

Interest and Other Income

Interest income on cash and cash equivalents decreased $171 thousand from $193 thousand for the year
ended December 31, 2010 to $22 thousand for the year ended December 31, 2011. This decrease was due to the
decrease in cash and cash equivalents in 2011. The Company had not fully invested the cash from its IPO in the
2010 period and the excess cash was held in an interest bearing account.

Interest Expense

Interest expense increased $7.3 million from $0.9 million for the year ended December 31, 2010 to $8.2

million for the year ended December 31, 2011. The increase is due primarily to the following: 1) assumption of
$134.2 million of loans on the five hotels acquired in July 2011 bearing interest at a rate of approximately 6%; 2)
increase in weighted average borrowings on our credit facility of $22.6 million from $7.1 million in 2010 to
$29.7 million in 2011; and debt issued in August 2011 on our New Rochelle hotel of $15.8 million at a rate of
5.75%. The interest rate on the senior secured revolving credit facility was 4.5% in 2010 and increased to
5.25% November 14, 2011.

Non-GAAP Financial Measures

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

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

We calculate FFO in accordance with standards established by the National Association of Real Estate
Investment Trusts (NAREIT), which defines FFO as net income or loss (calculated in accordance with GAAP),
excluding gains or losses from sales of real estate, impairment write-downs, items classified by GAAP as
extraordinary, the cumulative effect of changes in accounting principles, plus depreciation and amortization
(excluding amortization of deferred financing costs), and after adjustments for unconsolidated partnerships and joint
ventures following the same approach. We believe that the presentation of FFO provides useful information to
investors regarding our operating performance because it measures our performance without regard to specified
non-cash items such as real estate depreciation and amortization, gain or loss on sale of real estate assets and certain
other items that we believe are not indicative of the performance of our underlying hotel properties. We believe that
these items are more representative of our asset base and our acquisition and disposition activities than our ongoing
operations, and that by excluding the effects of the items, FFO is useful to investors in comparing our operating
performance between periods and between REITs that report FFO using the NAREIT definition.

We further adjust FFO for certain additional items that are not in NAREIT’s definition of FFO, including

hotel property acquisition costs and other charges, (including similar items within the unconsolidated real estate
entities). Other charges include costs related to Hurricane Sandy, severance costs for a former executive officer,
(2010) and other costs we believe do not represent recurring operations. We believe that Adjusted FFO provides
investors with another financial measure that may facilitate comparisons of operating performance between
periods and between REITs that make similar adjustments to FFO.

The following is a reconciliation of net loss to FFO and Adjusted FFO for the years ended December 31,

2012, 2011 and 2010 (in thousands, except share data):

Funds From Operations (“FFO”):
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gain on the sale of assets within the

unconsolidated real estate entity . . . . . . . . .
Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjustments for unconsolidated real estate

entity items . . . . . . . . . . . . . . . . . . . . . . . . .
FFO . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Hotel property acquisition costs and other

charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Other charges included in general and

administrative expenses . . . . . . . . . . . . . . .

Adjustments for unconsolidated real estate

entity items . . . . . . . . . . . . . . . . . . . . . . . . .
Adjusted FFO . . . . . . . . . . . . . . . . . . . .

Weighted average number of common

For the years ended
December 31,

2012

2011

2010

(1,450)

(9,105)

(1,217)

(257)
14,198

5,340
17,831

236

—

—
11,909

900
3,704

7,706

—

49
18,116

473
11,883

—
2,537

—
1,320

3,189

345

—
4,854

Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . .

13,811,691
13,937,726

13,280,149
13,324,584

6,377,333
6,430,151

We calculate EBITDA for purposes of the credit facility debt covenants as net income or loss excluding:

(1) interest expense; (2) provision for income taxes, including income taxes applicable to sale of assets;
(3) depreciation and amortization; and (4) unconsolidated real estate entity items including interest, depreciation
and amortization excluding gains or losses from sales of real estate. We believe EBITDA is useful to investors in
evaluating our operating performance because it helps investors compare our operating performance between
periods and between REITs by removing the impact of our capital structure (primarily interest expense) and asset
base (primarily depreciation and amortization) from our operating results. In addition, we use EBITDA as one
measure in determining the value of hotel acquisitions and dispositions.

We further adjust EBITDA for certain additional items, including hotel property acquisition costs and other
charges, (including similar items within the unconsolidated real estate entity). Other charges include costs related
to Hurricane Sandy, severance costs related to the departure of one of our executive officers in 2010 and other
costs we believe do not represent recurring operations and amortization of non-cash share-based compensation
which we believe are not indicative of the performance of our underlying hotel properties entities. We believe
that Adjusted EBITDA provides investors with another financial measure that may facilitate comparisons of
operating performance between periods and between REITs that report similar measures

The following is reconciliation of net income (loss) to EBITDA and Adjusted EBITDA for the years ended

December 31, 2012, 2011 and 2010 (in thousands):

For the years ended
December 31,

2012

2011

2010

Earnings Before Interest, Taxes, Depreciation and Amortization

(“EBITDA”):

Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gain on the sale of assets within the unconsolidated real estate entity . . . . . . . . . .
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjustments for unconsolidated real estate entity items . . . . . . . . . . . . . . . . . . . . .

$ (1,450) $ (9,105) $(1,217)
932
8,190
14,641
17
69
75
—
—
(257)
2,564
11,971
14,273
—
1,773
11,319

EBITDA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Hotel property acquisition costs and other charges . . . . . . . . . . . . . . . . . . . . . . . . .
Adjustments for unconsolidated real estate entity items . . . . . . . . . . . . . . . . . . . . .
Other charges included in general and administrative expenses . . . . . . . . . . . . . . .
Share based compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

38,601
236
49
—
2,004

12,898
7,706
473
—
1,571

2,296
3,189
—
345
1,070

Adjusted EBITDA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$40,890

$22,648

$ 6,900

Although we present FFO, Adjusted FFO, EBITDA and Adjusted EBITDA because we believe they are

useful to investors in comparing our operating performance between periods and between REITs that report
similar measures, these measures have limitations as analytical tools. Some of these limitations are:

•

FFO, Adjusted FFO, EBITDA and Adjusted EBITDA do not reflect our cash expenditures, or future
requirements, for capital expenditures or contractual commitments;

FFO, Adjusted FFO, EBITDA and Adjusted EBITDA do not reflect changes in, or cash requirements
for, our working capital needs;

FFO, Adjusted FFO, EBITDA and Adjusted EBITDA do not reflect funds available to make cash
distributions;

• EBITDA and Adjusted EBITDA do not reflect the significant interest expense, or the cash

requirements necessary to service interest or principal payments, on our debts;

• Although depreciation and amortization are non-cash charges, the assets being depreciated and

amortized may need to be replaced in the future, and FFO, Adjusted FFO, EBITDA and Adjusted
EBITDA do not reflect any cash requirements for such replacements;

• Non-cash compensation is and will remain a key element of our overall long-term incentive

compensation package, although we exclude it as an expense when evaluating our ongoing operating
performance for a particular period using Adjusted EBITDA;

• Adjusted FFO and Adjusted EBITDA do not reflect the impact of certain cash charges (including

acquisition transaction costs) that result from matters we consider not to be indicative of the underlying
performance of our hotel properties; and

• Other companies in our industry may calculate FFO, Adjusted FFO, EBITDA and Adjusted EBITDA

differently than we do, limiting their usefulness as a comparative measure.

In addition, FFO, Adjusted FFO, EBITDA and Adjusted EBITDA do not represent cash generated from

operating activities as determined by GAAP and should not be considered as alternatives to net income or loss,
cash flows from operations or any other operating performance measure prescribed by GAAP. FFO, Adjusted
FFO, EBITDA and Adjusted EBITDA are not measures of our liquidity. Because of these limitations, FFO,
Adjusted FFO, EBITDA and Adjusted EBITDA should not be considered in isolation or as a substitute for
performance measures calculated in accordance with GAAP. We compensate for these limitations by relying
primarily on our GAAP results and using FFO, Adjusted FFO, EBITDA and Adjusted EBITDA only
supplementally. Our consolidated financial statements and the notes to those statements included elsewhere are
prepared in accordance with GAAP.

Sources and Uses of Cash

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

As of December 31, 2012 and 2011, we had cash and cash equivalents of approximately $4.5 million and
$4.7 million, respectively. Additionally, we had $15.5 million available under our $95.0 million senior secured
revolving credit facility as of December 31, 2012.

For the year ended December 31, 2012, net cash flows provided by operations were $14.9 million, as our net
loss of $1.5 million was due in significant part to non-cash expenses, including $16.1 million of depreciation and
amortization, $2.0 million of share-based compensation expense and a $1.5 million impact from loss from
unconsolidated entities. In addition, changes in operating assets and liabilities due to the timing of cash receipts,
payments for real estate taxes, payments of corporate compensation and payments from our hotels resulted in net
cash outflow of $3.2 million. Net cash flows used in investing activities were $13.0 million. We spent
$8.6 million on improvements at our hotels and acquired the Portland hotel for $28.0 million. These outflows
were partially offset by distributions from unconsolidated real estate entities of $21.2 million consisting of
$11.7 million of net proceeds from mortgage financing, $4.4 million attributable to cash generated from the
operations of the JV and $5.1 million for the sale of assets and reimbursements from required escrows of
$2.4 million. Future distributions from unconsolidated real estate entities are contingent upon projected hotel
operations and the potential sale of assets. Net cash flows used in financing activities were $2.0 million,
comprised of principal payments on mortgage debt of $1.7 million, payment of deferred financing and offering
costs of $1.7 million and distributions to shareholders of $10.6 million, offset by net borrowings on our secured
credit facility of $12.0 million.

For the year ended December 31, 2011, net cash flows provided by operations were $8.9 million, as our net
loss of $9.1 million was due in significant part to non-cash expenses, including $13.5 million of depreciation and

amortization, $1.6 million of share-based compensation expense and a $1.0 million loss from unconsolidated
entities. In addition, changes in operating assets and liabilities due to the timing of cash receipts and payments
from our hotels resulted in net cash inflow of $1.9 million. Net cash flows used in investing activities were
$112.5 million, primarily related to the acquisition of the 5 Sisters of $62.0 million, investment in unconsolidated
entities of $37.0 million, additional capital improvements to the eighteen hotels of $12.7 million and $0.8 million
of funds placed into escrows for lender or manager required escrows. Net cash flows provided by financing
activities were $103.5 million, comprised primarily of proceeds generated from the February 2011 common share
offering, net of underwriting fees and offering costs paid or payable to third parties, of $69.4 million, proceeds
from a mortgage loan on our New Rochelle Residence Inn hotel of $15.8 million, net borrowings on our secured
credit facility of $29.7 million, offset by principal payments on mortgage debt of $0.9 million, payment of
financing costs associated with our amended secured revolving credit facility and the six new loans acquired or
assumed of $1.5 million and distributions to shareholders of $9.0 million.

For the year ended December 31, 2010, net cash flows provided by operations were $5.3 million, as our net
loss of $1.2 million was due in significant part to non-cash expenses, including $2.8 million of depreciation and
amortization and $1.2 million of share-based compensation expense. In addition, changes in operating assets and
liabilities due to the timing of cash receipts and payments from our hotels resulted in net cash inflow of $2.5
million. Net cash flows used in investing activities were $201.5 million, which represents the acquisition price
for thirteen hotels of $197.5 million as well as additional capital improvements to those hotels of $3.6 million
and $0.4 million of funds placed into escrows for lender and manager required escrows. Net cash flows provided
by financing activities were $201.0 million, comprised primarily of proceeds generated from the initial public
offering, net of underwriting fees and offering costs paid or payable to third parties, of $168.7 million and
borrowings on our secured credit facility of $37.8 million, offset by costs paid to issue debt of $3.8 million and
distributions to shareholders of $1.7 million.

We have paid regular quarterly dividends and distributions on common shares and LTIP units since the third

quarter of 2010. Dividends and distributions for each of the quarters of 2011 and the first quarter of 2012 were
$0.175 per common share and LTIP unit. Dividends and distributions for the second, third and fourth quarters of
2012 increased to $0.20 per common share and LTIP unit. On January 25, 2013, we paid an aggregate of $2.8
million in fourth quarter dividends on our common shares and distributions on our LTIP units.

Liquidity and Capital Resources

We intend to maintain our leverage over the long term at a ratio of net debt to investment in hotels (at cost)

(defined as our initial acquisition price plus the gross amount of any subsequent capital investment and excluding
any impairment charges) to less than 35 percent measured at the time we incur debt, and a subsequent decrease in
hotel property values will not necessarily cause us to repay debt to comply with this limitation. However, our
Board of Trustees believes that temporarily increasing our leverage limit at this stage of the lodging recovery
cycle is appropriate. We will continue to pay down borrowings on our secured revolving credit facility with
excess cash flow until we find other uses of cash such as investments in our existing hotels, hotel acquisitions or
further joint venture investments.

At December 31, 2012 and December 31, 2011, we had $79.5 million and $67.5 million, respectively, in
borrowings under our senior secured revolving credit facility. At December 31, 2012, there were ten properties in
the borrowing base under the credit agreement and the maximum borrowing availability under the revolving
credit facility was approximately $95.0 million. We also had mortgage debt on individual hotels aggregating
$159.7 million and $161.4 million at December 31, 2012 and December 31, 2011, respectively.

On February 5, 2013, we borrowed an additional $34.5 million under our senior secured revolving credit

facility. The funds were used for the acquisition of the Courtyard by Marriott Houston-Medical Center on
February 5, 2013.

We amended our senior secured revolving credit facility in May 2011. The amendment provides for an
increase in the allowable consolidated leverage ratio to 60 percent through 2012, reducing to 55 percent in 2013;

and a decrease in the consolidated fixed charge coverage ratio from 2.3x to 1.7x through March 2012, increasing
to 1.75x through December 2012 and 2.0x in 2013. Subject to certain conditions, the credit facility has an
accordion feature that provides the Company with the ability to increase the facility to $110 million. We further
amended the credit facility in November 2012. Costs associated with this amendment were approximately
$1.2 million. The amendment extends the maturity date to November 5, 2015 and includes an option to extend
the maturity date by an additional year. Other key terms amended were as follows:

Original Terms

Amended Terms

Facility amount
Accordion feature
LIBOR floor
Interest rate applicable margin

Unused fee

$85 million
Additional $25 million
1.25%
325-425 basis points, based on
leverage ratio
50 basis points

Minimum fixed charge coverage ratio

1.75-2.0x

$95 million
Additional $20 million
None
200-300 basis points, based on
leverage ratio
25 basis points if less than 50%
unused, 35 basis points if more
than 50% unused
1.5x

The credit facility contains representations, warranties, covenants, terms and conditions customary for
transactions of this type, including a maximum leverage ratio, a minimum fixed charge coverage ratio and
minimum net worth financial covenants, limitations on (i) liens, (ii) incurrence of debt, (iii) investments,
(iv) distributions, and (v) mergers and asset dispositions, covenants to preserve corporate existence and comply
with laws, covenants on the use of proceeds of the credit facility and default provisions, including defaults for
non-payment, breach of representations and warranties, insolvency, non-performance of covenants, cross-
defaults and guarantor defaults. The five mortgage loans we assumed in connection with the acquisition of the
5 Sisters, as well as the loan secured by the New Rochelle Residence Inn, do not contain any financial covenants.
We were in compliance with these financial covenants at December 31, 2012. We expect to meet all financial
covenants in 2013 based upon our current projections.

We expect to meet our short-term liquidity requirements generally through net cash provided by operations,
existing cash balances and, if necessary, short-term borrowings under our credit facility. We believe that our net
cash provided by operations will be adequate to fund operating obligations, pay interest on any borrowings and
fund dividends in accordance with the requirements for qualification as a REIT under the Code. We expect to
meet our long-term liquidity requirements, such as hotel property acquisitions and debt maturities or repayments
through additional long-term secured and unsecured borrowings, the issuance of additional equity or debt
securities or the possible sale of existing assets.

During January 2013, we issued 3,592,677 common shares, raising net proceeds of approximately
$50.4 million. The proceeds of this offering were used to repay debt borrowed under our senior secured credit
facility, including debt incurred to acquire the Portland hotel.

We intend to continue to invest in hotel properties only as suitable opportunities arise. We intend to finance

our future investments with the net proceeds from additional issuances of common and preferred shares,
issuances of units of limited partnership interest in our operating partnership or other securities or borrowings.
The success of our acquisition strategy depends, in part, on our ability to access additional capital through
issuances of equity securities and borrowings. There can be no assurance that we will continue to make
investments in properties that meet our investment criteria. Additionally, we may choose to dispose of certain
hotels that do not meet our long-term investment objectives as a means to provide liquidity.

Capital Expenditures

We intend to maintain each hotel property in good repair and condition and in conformity with applicable

laws and regulations and in accordance with the franchisor’s standards and any agreed-upon requirements in our
management and loan agreements. After we acquire a hotel property, we may be required to complete a property

improvement plan (“PIP”) in order to be granted a new franchise license for that particular hotel property. PIPs
are intended to bring the hotel property up to the franchisor’s standards. Certain of our loans require that we
escrow for property improvement purposes, at the hotels collateralizing these loans, amounts up to 5% of gross
revenue from such hotels. We intend to spend amounts necessary to comply with any reasonable loan or
franchisor requirements and otherwise to the extent that such expenditures are in the best interest of the hotel. To
the extent that we spend more on capital expenditures than is available from our operations, we intend to fund
those capital expenditures with available cash and borrowings under the revolving credit facility.

For the years ended December 31, 2012 and 2011, we invested approximately $10.5 million and $13.2
million, respectively, on capital investments in our hotels. We expect to invest an additional $4.5 million on
capital improvements in 2013 on our existing hotels and approximately $4.4 million on the conversion of our
Washington, D.C. hotel to a Residence Inn by Marriott.

Related Party Transactions

We have entered into transactions and arrangements with related parties that could result in potential
conflicts of interest. See “Risk Factors” and Note 14, “Related Party Transactions”, to our consolidated financial
statements included in this Annual Report on Form 10-K.

Contractual Obligations

The following table sets forth our contractual obligations as of December 31, 2012, and the effect these
obligations are expected to have on our liquidity and cash flow in future periods (in thousands). We had no other
material off-balance sheet arrangements at December 31, 2012 other than non-recourse debt associated with the
JV as discussed below.

Contractual Obligations

Corporate office lease
Revolving credit facility, including interest (1)
Ground leases
Property loans, including interest (1)

Payments Due by Period

Total

Less Than
One Year

One to Three
Years

Three to Five
Years

More Than Five
Years

103 $

39 $

86,545
12,493
200,302

2,415
205
11,585

64
84,130
417
27,599

$ —
—
426
144,573

$ —
—
11,445
16,545

$299,443 $14,244 $112,210

$144,999

$27,990

(1) Does not reflect additional borrowings under the revolving credit facility after December 31, 2012 and

interest payments are based on the interest rate in effect as of December 31, 2012. See Note 7, “Debt” to our
consolidated financial statements for additional information relating to our property loans.

On December 27, 2012, we entered into a contract to purchase the Courtyard by Marriott Houston Medical

Center located in Houston, Texas for a total purchase price of approximately $34.7 million, which is excluded
from the table above. The hotel was acquired on February 5, 2013.

Inflation

Operators of hotels, in general, possess the ability to adjust room rates daily to reflect the effects of
inflation. However, competitive pressures may limit the ability of our management companies to raise room
rates.

Critical Accounting Policies

We consider the following policies critical because they require estimates about matters that are inherently
uncertain, involve various assumptions and require management judgment. The preparation of the consolidated
financial statements in conformity with GAAP requires management to make estimates and assumptions that
affect the reported amount of assets and liabilities at the balance sheet date and the reported amounts of revenues
and expenses during the reporting period. Actual results may differ from these estimates and assumptions.

Investment in Hotel Properties

We allocate the purchase prices of hotel properties acquired based on the fair value of the acquired real

estate, furniture, fixtures and equipment, identifiable intangible assets and assumed liabilities. In making
estimates of fair value for purposes of allocating the purchase price, we utilize a number of sources of
information that are obtained in connection with the acquisition of a hotel property, including valuations
performed by independent third parties and information obtained about each hotel property resulting from pre-
acquisition due diligence. Hotel property acquisition costs, such as transfer taxes, title insurance, environmental
and property condition reviews, and legal and accounting fees, are expensed in the period incurred.

Our investment in hotel properties are carried at cost and are depreciated using the straight-line method over

the estimated useful lives of the assets, generally 40 years for buildings, 20 years for land improvements, 15
years for building improvements and two to seven years for furniture, fixtures and equipment. Renovations and/
or replacements at the hotel properties that improve or extend the life of the assets are capitalized and depreciated
over their useful lives, while repairs and maintenance are expensed as incurred. Upon the sale or retirement of
property and equipment, the cost and related accumulated depreciation are removed from the Company’s
accounts and any resulting gain or loss is recognized in the consolidated statements of operations.

We will periodically review our hotel properties for impairment whenever events or changes in
circumstances indicate that the carrying value of the hotel properties may not be recoverable. Events or
circumstances that may cause a review include, but are not limited to, adverse changes in the demand for lodging
at the properties due to declining national or local economic conditions and/or new hotel construction in markets
where the hotels are located. When such conditions exist, management will perform an analysis to determine if
the estimated undiscounted future cash flows, without interest charges, from operations and the proceeds from
the ultimate disposition of a hotel property exceed its carrying value. If the estimated undiscounted future cash
flows are less than the carrying amount, an adjustment to reduce the carrying amount to the related hotel
property’s estimated fair market value is recorded and an impairment loss recognized. As of December 31, 2012
and 2011, we had no hotels that were impaired.

We will consider a hotel property as held for sale when a binding agreement to purchase the property has
been signed under which the buyer has committed a significant amount of nonrefundable cash, no significant
financing contingencies exist which could cause the transaction not to be completed in a timely manner and the
sale is expected to occur within one year. If these criteria are met, depreciation and amortization of the hotel
property will cease and an impairment loss, if any will be recognized if the fair value of the hotel property, less
the costs to sell, is lower than the carrying amount of the hotel property. We will classify the loss, together with
the related operating results, as discontinued operations in the consolidated statements of operations and classify
the assets and related liabilities as held for sale in the consolidated balance sheets if we no longer have significant
continuing involvement. As of December 31, 2012, we had no hotel properties held for sale.

Investment in Unconsolidated Real Estate Entities

If it is determined that the Company do not have a controlling interest in a joint venture, either through its

financial interest in a VIE or in a voting interest entity, the equity method of accounting is used. Under this
method, the investment, originally recorded at cost, is adjusted to recognize the Company’s share of net earnings
or losses of the affiliates as they occur rather than as dividends or other distributions are received, limited to the
extent of its investment in, advances to and commitments for the investee.

Investment in unconsolidated real estate entities are accounted for under the equity method of accounting

and the Company records its equity in earnings or losses under the hypothetical liquidation of book value
(“HLBV”) method of accounting due to the structures and the preferences we receive on the distributions from
the joint ventures pursuant to the joint venture agreements. Under this method, the Company recognizes income
and loss in each period based on the change in liquidation proceeds we would receive from a hypothetical
liquidation of our investment based on depreciated book value. Therefore, income or loss may be allocated
disproportionately as compared to the ownership percentages due to specified preferred return rate thresholds and
may be more or less than actual cash distributions received and more or less than what the Company may receive
in the event of an actual liquidation.

The Company periodically reviews the carrying value of its investment in unconsolidated joint ventures to

determine if circumstances indicate impairment to the carrying value of the investment that is other than
temporary. When an impairment indicator is present, the Company will estimate the fair value of the investment.
The Company’s estimate of fair value takes into consideration factors such as expected future operating income,
trends and prospects, as well as other factors. This determination requires significant estimates by management,
including the expected cash flows to be generated by the assets owned and operated by the joint venture. To the
extent impairment has occurred, the loss will be measured as the excess of the carrying amount over the fair
value of the Company’s investment in the unconsolidated joint venture.

Revenue Recognition

Revenue from hotel operations is recognized when rooms are occupied and when services are provided.
Revenue consists of amounts derived from hotel operations, including sales from room, meeting room, gift shop,
in-room movie and other ancillary amenities. Sales, use, occupancy, and similar taxes are collected and presented
on a net basis (excluded from revenues) in the accompanying consolidated statements of operations.

Share-Based Compensation

We measure compensation expense for the restricted share awards and LTIP units based upon the fair
market value of our common shares at the date of grant. Compensation expense is recognized on a straight-line
basis over the vesting period and is included in general and administrative expense in the accompanying
consolidated statement of operations. We pay dividends on vested and nonvested restricted shares, except for
performance based shares for which dividends on unvested shares are not paid until these shares are vested.

Income Taxes

We elected to be taxed as a REIT for federal income tax purposes. In order to qualify as a REIT under the

Code, we must meet certain organizational and operational requirements, including a requirement to distribute at
least 90% of our annual REIT taxable income to our shareholders (which is computed without regard to the
dividends paid deduction or net capital gain and which does not necessarily equal net income as calculated in
accordance with GAAP). As a REIT, we generally will not be subject to federal income tax to the extent we
currently distribute our taxable income to our shareholders. If we fail to qualify as a REIT in any taxable year, we
will be subject to federal income tax on our taxable income at regular corporate income tax rates and generally
will not be permitted to qualify for treatment as a REIT for federal income tax purposes for the four taxable years
following the year during which qualification is lost unless the IRS grants us relief under certain statutory
provisions. Such an event could materially adversely affect our net income and net cash available for distribution
to shareholders. However, we believe we have been organized and that we operate in such a manner as to qualify
for treatment as a REIT.

Recently Issued Accounting Standards

In May 2011, the FASB issued ASU No. 2011-04, Fair Value Measurement (Topic 820): Amendments to

companies around the world and clarified existing guidance in U.S. GAAP. ASU 2011-04 is effective for the first
annual reporting period beginning after December 15, 2011. The Company adopted this standard and it did not
have any material effect on the consolidated financial statements.

In June 2011, the FASB issued ASU No. 2011-05, Comprehensive Income (Topic 220), Presentation of

Comprehensive Income. This update is intended to increase the prominence of other comprehensive income in
the financial statements by requiring public companies to present comprehensive income either as a single
statement detailing the components of net income and total net income, the components of other comprehensive
income and total other comprehensive income, and a total for comprehensive income or using a two statement
approach including both a statement of income and a statement of comprehensive income. The option to present
other comprehensive income in the statement of changes in equity has been eliminated. The amendments in this
update are effective for public companies for fiscal years, and interim periods beginning after December 15,
2011. Currently, the Company has no items of other comprehensive income in any periods presented.

Item 7A. Quantitative and Qualitative Disclosures about Market Risk

Interest rate risk

We may be exposed to interest rate changes primarily as a result of our assumption of long-term debt in
connection with our acquisitions. Our interest rate risk management objectives are to limit the impact of interest
rate changes on earnings and cash flows and to lower overall borrowing costs. To achieve these objectives, we
will seek to borrow primarily at fixed rates or variable rates with the lowest margins available and, in some cases,
with the ability to convert variable rates to fixed rates. With respect to variable rate financing, we will assess
interest rate risk by identifying and monitoring changes in interest rate exposures that may adversely impact
expected future cash flows and by evaluating hedging opportunities.

The Company estimates the fair value of its fixed rate debt by discounting the future cash flows of each

instrument at estimated market rates. Rates take into consideration general market conditions and maturity and
fair value of the underlying collateral. The estimated fair value of the Company’s fixed rate debt as of
December 31, 2012 and 2011 was $168.2 million and $159.4 million, respectively.

At December 31, 2012, our consolidated debt was comprised of floating and fixed interest rate debt. The fair

value of our fixed rate debt indicates the estimated principal amount of debt having the same debt service
requirements that could have been borrowed at the date presented, at then current market interest rates. The
following table provides information about our financial instruments that are sensitive to changes in interest rates
(in thousands):

Liabilities
Floating rate:
Debt

Average interest

rate (1)

Fixed rate:
Debt

Expected Maturities

2013

2014

2015

2016

2017

Thereafter

Total

Fair Value

$79,500

2.97%

$ 79,500 $ 79,504

2.97%

$1,981 $2,106 $ 6,786 $134,733 $ 378

$13,762

$159,746 $168,195

Average interest rate

5.95% 5.95% 5.88%

6.00% 5.75%

5.75%

5.97%

(1) LIBOR of 0.22 % plus a margin of 2.75% at December 31, 2012.

We estimate that a hypothetical one-percentage point increase in the variable interest rate would result in
additional interest expense of approximately $0.8 million annually. This assumes that the amount outstanding
under our floating rate debt remains at $79.5 million, the balance as of December 31, 2012.

Item 8. Consolidated Financial Statements and Supplementary Data

See our Consolidated Financial Statements and the Notes thereto beginning at page F-1 included in Item 15.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.

Item 9A. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Under the supervision and with the participation of our management, including our Chief Executive Officer

and Chief Financial Officer, we have evaluated the effectiveness of the design and operation of our disclosure
controls and procedures pursuant to Exchange Act Rule 13a-15(b) as of the end of the period covered by this
report. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that
these disclosure controls and procedures were effective to provide reasonable assurance that information required
to be disclosed by us in reports we file or submit under the Exchange Act is recorded, processed, summarized and
reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated
and communicated to our management to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

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

Management Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial

reporting. A company’s internal control over financial reporting is a process designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles.

Our management assessed the effectiveness of our internal control over financial reporting as of
December 31, 2012. In making this assessment, management used the criteria set forth by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO) in “Internal Control-Integrated
Framework”. Based on our assessment, management has concluded that, as of December 31, 2012, our internal
control over financial reporting is effective, based on those criteria.

The effectiveness of our internal control over financial reporting as of December 31, 2012, has been audited

by PricewaterhouseCoopers LLP, an independent registered certified public accounting firm as stated in their
report, which appears on page F-2 of this Annual Report on Form 10-K.

Item 9B. Other Information

None.

PART III

Item 10. Trustees, Executive Officers and Corporate Governance

The information required by this item is incorporated by reference to the Company’s Proxy Statement for

the 2013 Annual Meeting of Shareholders to be held on May 17, 2013.

Item 11. Executive Compensation

The information required by this item is incorporated by reference to the Company’s Proxy Statement for

the 2013 Annual Meeting of Shareholders to be held on May 17, 2013.

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

Matters

The information required by this item is incorporated by reference to the Company’s Proxy Statement for

the 2013 Annual Meeting of Shareholders to be held on May 17, 2013.

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

The information required by this item is incorporated by reference to the Company’s Proxy Statement for

the 2013 Annual Meeting of Shareholders to be held on May 17, 2013.

Item 14. Principal Accountant Fees and Services

The information required by this item is incorporated by reference to the Company’s Proxy Statement for

the 2013 Annual Meeting of Shareholders to be held on May 17, 2013.

PART IV

Item 15. Exhibits and Financial Statement Schedules

1. Financial Statements

Included herein at pages F-1 through F-26

2. Financial Statement Schedules

The following financial statement schedule is included herein at page F-27:

Schedule III – Real Estate and Accumulated Depreciation

All other schedules for which provision is made in Regulation S-X are either not required to be included herein
under the related instructions or are inapplicable or the related information is included in the footnotes to the
applicable financial statement and, therefore, have been omitted.

3. Exhibits

A list of exhibits required to be filed as part of this report on Form 10-K is set forth in the Exhibit Index, which
immediately precedes such exhibits.

4. Separate Financial Statements of Subsidiaries Not Consolidated

The following financial statements of INK Acquisition, LLC and affiliates are as follows:

Report of Independent Registered Certified Public Accounting Firm
Combined Balance Sheets at December 31, 2012 and 2011
Combined Statements of Operations for the year ended December 31, 2012 and the period from

October 27, 2011 (commencement of operations) to December 31, 2011

Combined Statements of Owners’ Equity for the year ended December 31, 2012 and the period from

October 27, 2011 (commencement of operations) to December 31, 2011

Combined Statements of Cash Flows for the year ended December 31, 2012 and the period from

October 27, 2011 (commencement of operations) to December 31, 2011

Notes to Combined Financial Statements

Page
No.

60
61

64
65

Exhibit
Number

Exhibit Description

EXHIBIT INDEX

3.1

3.2

3.3

Form of Amended and Restated Declaration of Trust of Chatham Lodging Trust(1)

Form of Bylaws of Chatham Lodging Trust(1)

Agreement of Limited Partnership of Chatham Lodging, L.P.(1)

10.1*

Chatham Lodging Trust Equity Incentive Plan(2)

10.2(a)*

Form of Employment Agreement between Chatham Lodging Trust and Jeffrey H. Fisher(1)

10.2(b)*

Form of Employment Agreement between Chatham Lodging Trust and Peter Willis(1)

10.2(c)*

Form of Employment Agreement between Chatham Lodging Trust and Dennis M. Craven(3)

10.3*

10.4*

10.5*

10.6*

10.7*

10.8*

10.9*

10.10*

10.11*

10.12*

10.13

10.14

10.15

10.16

Form of Indemnification Agreement between Chatham Lodging Trust and its officers and trustees(1)

Form of LTIP Unit Vesting Agreement(1)

Form of Share Award Agreement for Trustees(1)

Form of Share Award Agreement for Officers(2)

Share Award Agreement, dated as of February 23, 2012, between Chatham Lodging Trust and
Jeffery H. Fisher (Time-Based Share Awards)(4)

Share Award Agreement, dated as of February 23, 2012, between Chatham Lodging Trust and
Dennis M. Craven (Time-Based Share Awards)(4)

Share Award Agreement, dated as of February 23, 2012, between Chatham Lodging Trust and Peter
Willis (Time-Based Share Awards)(4)

Share Award Agreement, dated as of February 23, 2012, between Chatham Lodging Trust and
Jeffery H. Fisher (Performance-Based Share Awards)(4)

Share Award Agreement, dated as of February 23, 2012, between Chatham Lodging Trust and
Dennis M. Craven (Performance-Based Share Awards)(4)

Share Award Agreement, dated as of February 23, 2012, between Chatham Lodging Trust and Peter
Willis (Performance-Based Share Awards)(4)

Form of IHM Hotel Management Agreement(1)

Amended and Restated Credit Agreement, dated as of November 5, 2012, among Chatham Lodging
Trust, Chatham Lodging, L.P., as borrower, the lenders and other guarantors party thereto and
Barclays Bank PLC, as administrative agent

Form of Amended and Restated Limited Liability Company Agreement of INK Acquisition II LLC,
dated October 27, 2011, by and among CRE-Ink Member II Inc. and Chatham TRS Holding Inc(6)

Agreement of Purchase and Sale, dated as of May 3, 2011, by and among Chatham Lodging LP, as
purchaser, and KPA RIMV, LLC, KPA RIGG LLC, KPA Tysons Corner RI, LLC, KPA
Washington DC, LLC and KPA San Antonio, LLC, as sellers, for the Residence Inn, San Diego, CA,
Residence Inn, Anaheim, CA, Residence Inn Tysons Corner, VA, Double Tree Washington, DC and
Homewood Suites, San Antonio, TX (6)

Exhibit
Number

10.17

Exhibit Description

First Amendment to Agreement of Purchase and Sale, dated as of May 12, 2011, by and among
Chatham Lodging LP, as purchaser, and KPA RIMV, LLC, KPA RIGG LLC, KPA Tysons Corner
RI, LLC, KPA Washington DC, LLC and KPA San Antonio, LLC, as sellers, for the Residence
Inn, San Diego, CA, Residence Inn, Anaheim, CA, Residence Inn Tysons Corner, VA, Double
Tree Washington, DC and Homewood Suites, San Antonio, TX (6)

10.18

Amended and restated binding commitment agreement regarding the acquisition and restructuring
of certain subsidiaries of Innkeepers USA Trust dated as of May 16, 2011 (6)

21.1

23.1

23.2

31.1

31.2

32.1

List of Subsidiaries of Chatham Lodging Trust

PricewaterhouseCoopers LLP Consent to include Report on Financial Statements of Chatham
Lodging Trust

PricewaterhouseCoopers LLP Consent to include Report on Financial Statements of INK
Acquisitions LLC

Certification of Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a) of the Securities
Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002

Certification of Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a) of the Securities
Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002

Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101.INS** XBRL Instance Document

101.SCH** XBRL Taxonomy Extension Schema Document

101.CAL** XBRL Taxonomy Extension Calculation Linkbase Document

101.LAB** XBRL Taxonomy Extension Definition Linkbase Document

101.PRE** XBRL Taxonomy Extension Label Linkbase Document

Denotes management contract or compensation plan or arrangement in which trustees or officers are eligible
to participate.

** Furnished herewith. Pursuant to Rule 406T of Regulation S-T, the interactive data files on Exhibit 101

hereto are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or
12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the
Securities and Exchange Act of 1934, as amended, and otherwise are not subject to liability under those
sections.
Incorporated by reference to Amendment No. 4 to the Registrant’s Registration Statement on Form S-11
filed with the SEC on February 12, 2010 (File No. 333-162889).
Incorporated by reference to the Registrant’s Quarterly Report on Form 10-Q filed with the SEC on
August 13, 2010 (File No. 001-34693).
Incorporated by reference to the Registrant’s Registration Statement on Form S-11 filed with the SEC on
October 28, 2010 (File No. 333-170176).
Incorporated by reference to the Registrant’s Quarterly Report on Form 10-Q filed with the SEC on May 8,
2012 (File No. 001-34693).
Incorporated by reference to the Registrant’s Current Report on Form 8-K filed with the SEC on
October 18, 2010.
Incorporated by reference to the Registrant’s Quarterly Report on Form 10-Q filed with the SEC on
August 11, 2011 (File No. 001-34693).

(1)

(2)

(3)

(4)

(5)

(6)

INK Acquisition, LLC and Affiliates
Financial Statements
As of and For the Year Ended December 31, 2012 and As of and For the Period from
October 27, 2011 (commencement of operations) through December 31, 2011

With Report of Independent Registered Certified Public Accounting Firm

Report of Independent Registered Certified Public Accounting Firm

To the Partners of
Ink Acquisition, LLC and Affiliates

In our opinion, the accompanying combined balance sheet and the related combined statements of
operations, of owners’ equity and of cash flows present fairly, in all material respects, the financial position of
Ink Acquisition, LLC and Affiliates at December 31, 2012, and the results of their operations and their cash
flows for the year ended December 31, 2012 in conformity with accounting principles generally accepted in the
United States of America. These financial statements are the responsibility of the Company’s management. Our
responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit
of these statements in accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.

/s/ PricewaterhouseCoopers LLP
Fort Lauderdale, Florida
March 14, 2013

INK Acquisition, LLC & Affiliates
Combined Balance Sheets
(In thousands)

Assets:

Investment in hotel properties, net
Hotels held for sale
Cash and cash equivalents
Restricted cash
Hotel receivables (net of allowance for doubtful accounts of $417 and

$434, respectively)

Deferred costs, net
Prepaid expenses and other assets

Total assets

Liabilities and Owners’ Equity:

Debt
Hotels held for sale
Accounts payable and accrued expenses

Total liabilities

Commitments and contingencies

Owners’ Equity

Owners’ equity

Total owners’ equity

Total liabilities and owners’ equity

December 31,
2012

December 31,
2011

(unaudited)

$ 894,288
75,436
33,820
25,513

6,540
10,959
1,988

$862,747
13,338
26,554
25,798

3,553
10,630
6,276

$948,896

$1,048,544

$792,239
639
26,402

819,280

$ 675,000
1,834
21,796

698,630

129,616

349,914

$948,896

$1,048,544

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

INK Acquisition, LLC & Affiliates
Combined Statements of Operations
(In thousands)

Revenue:

Room
Other operating

Total revenue

Expenses:

Hotel operating expenses:

Room
Other operating

Total hotel operating expenses

Depreciation and amortization
Property taxes and insurance
General and administrative
Hotel property acquisition costs

Total operating expenses

Operating income (loss)

Interest and other income
Interest expense, including amortization of deferred fees

Loss from continuing operations
Income (loss) from discontinued operations
Gain on sale of assets from discontinued operations

Net income from discontinued operations

Net loss

For the year
ended
December 31,
2012

For the Period from
October 27, 2011
(Commencement of
Operations) to
December 31, 2011

(unaudited)

$234,576
17,036

251,612

$ 31,500
2,840

34,340

47,738
95,720

143,458
51,622
11,723
4,946
413

212,162

39,450
62
(55,605)

(16,093)
(404)
2,496

2,092

7,375
13,884

21,259
9,181
1,792
1,004
4,599

37,835

(3,495)
1,467
(8,404)

(10,432)
346
—

346

$ (14,001)

$(10,086)

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

INK Acquisition, LLC & Affiliates
Combined Statements of Owners’ Equity
(In thousands)

Commencement of operations

Balance at October 27, 2011 (unaudited)

Net loss (unaudited)

Balance at December 31, 2011 (unaudited)

Balance at January 1, 2012

Distributions
Net loss

Balance at December 31, 2012

Owners’
Equity

$ 360,000
(10,086)

349,914

349,914
(206,297)
(14,001)

$ 129,616

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

INK Acquisition, LLC & Affiliates
Combined Statements of Cash Flows
(In thousands)

For the year
ended
December 31,
2012

For the Period
from
October 27, 2011
(Commencement
of Operations) to
December 31,
2011

(unaudited)

Cash flows from operating activities:

Net loss
Adjustments to reconcile net loss to net cash provided by operating activities:

$ (14,001)

$ (10,086)

Depreciation
Amortization of deferred franchise fees
Amortization of deferred costs included in interest expense
Impairment on hotels classified as held for sale
Gain on sale of hotels included in discontinued operations

Changes in assets and liabilities:
Accounts receivables
Prepaid and inventory
Deferred expenses
Accounts payable and accrued expenses

Net cash provided by operating activities

Cash flows from investing activities:

Improvements and additions to hotel properties
Acquisition of hotels
Proceeds from sale of hotel properties
Changes in restricted cash

Net cash provided by (used in) investing activities

Cash flows from financing activities:

Proceeds from the issuance of long-term debt
Payments on debt issuance costs
Payments on debt
Payment of franchise obligation
Contributions from owners
Distributions to owners

Net cash provided by (used in) financing activities

Net change in cash and cash equivalents
Cash and cash equivalents, beginning of period

Cash and cash equivalents, end of period

Supplemental disclosure of cash flow information:
Cash paid for interest

Supplemental disclosure of non-cash information:

49,068
2,594
1,906
2,894
2,496

3,331
(4,299)
1,194
5,215

50,398

(24,893)
—
63,113
(284)

37,936

130,000
(4,771)
(12,761)
(1,804)
—

(206,297)

8,755
436
87
—
—

(1,278)
9,727
(2,865)
4,569

9,345

(2,055)
(335,096)
—
1,688

(335,463)

—
—
—
—

360,000

(95,633)

360,000

(7,299)
33,882

33,882
—

$ 26,583

$ 33,882

$ 53,131

5,419

Accrued improvements and additions to hotel properties

952

1,662

See Note 3 to the financial statements for a description of assets and liabilities acquired in connection with
the acquisition of 64 hotels from Innkeepers.

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

INK Acquisition, LLC & Affiliates
Notes to combined Financial Statements
(dollars in thousands)

1. Organization

INK Acquisition, LLC and a series of affiliated partnerships (see below) were formed in 2011 to acquire the

assets and associated operations of 64 hotels as a result of the bankruptcy reorganization plan of affiliates of
Innkeepers USA Trust (“Innkeepers”). The affiliated partnerships are as follows:

INK Acquisition II, LLC
INK Acquisition III, LLC
INK Acquisition IV, LLC
INK Acquisition V, LLC
INK Acquisition VI, LLC
INK Acquisition VII, LLC

INK Acquisition, LLC and the affiliated partnerships above (collectively “we,” “us,” or the “Company”) are

each owned 89.7% by CRE-Ink REIT Member, LLC and its affiliates (“Cerberus”) and 10.3% by Chatham
Lodging, LP (“Chatham”). In addition, an entity owned by Jeffrey H. Fisher, Chatham’s chief executive officer,
owns a 0.5% non-voting interest in CRE-Ink REIT Member, LLC. The Company had no substantive operations
until October 27, 2011 when the 64 hotels discussed above were acquired.

At December 31, 2012, the Company owned 55 hotels with an aggregate of 7,282 rooms located in 18

states. The hotels operate under the following brands: Residence Inn by Marriott (34 hotels), Hampton Inn by
Hilton (6 hotels), Hyatt House (5 hotels), Courtyard by Marriott (3 hotels), Stay Inn (3 hotels), Stay Inn (3
hotels), Four Points by Sheraton (1 hotel), Sheraton (1 hotel), TownePlace Suites (1 hotel), and Westin (1 hotel).
The day to day management of the hotels is provided pursuant to management agreements with Island
Hospitality Management (“IHM”). Jeffrey H. Fisher is the 90% majority owner of IHM.

As of December 31, 2012, the 55 hotels operate under the following brands: Residence Inn by Marriott (34
hotels), Hampton Inn by Hilton (6 hotels), Hyatt House (5 hotels), Courtyard by Marriott (3 hotels), Stay Inn (3
hotels), Four Points by Sheraton (1 hotel), Sheraton (1 hotel), TownePlace Suites (1 hotel), and Westin (1 hotel).

2. Summary of Significant Accounting Policies

Basis of Presentation

The combined financial statements have been prepared on the accrual basis of accounting in accordance

with accounting principles generally accepted in the United States of America. All intercompany accounts and
transactions have been eliminated. These financial statements are being presented on a combined basis as the
Company is under common management and control.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and

assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the balance sheet date and the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates. Significant estimates include the allocation of the purchase price of
hotels, the allowance for doubtful accounts and the fair value of hotels that are held for sale or impaired.

Fair Value of Financial Instruments

FASB guidance on fair value measurements and disclosures defines fair value for GAAP and establishes a

framework for measuring fair value as well as a fair value hierarchy based on the quality and nature of inputs
used to measure fair value. The term “fair value” in these financial statements is defined in accordance with
GAAP. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets
or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The
three levels of the fair value hierarchy are as follows:

Level 1 Inputs that reflect unadjusted quoted prices in active markets for identical assets or liabilities that
the Fund has the ability to access at the measurement date;

Level 2 Inputs other than quoted prices that are observable for the asset or liability either directly or
indirectly, including inputs in markets that are not considered to be active;

Level 3 Inputs that are unobservable.

The carrying value of the Company’s cash, accounts receivables, accounts payable and accrued expenses

approximate fair value because of the relatively short maturities of these instruments. The Company is not
required to carry any other assets or liabilities at fair value on a recurring basis other than its interest caps. The
interest rate caps are valued using Level 3 inputs and are valued at zero as of December 31, 2012 and 2011.
When the Company classifies an asset as held for sale, the Company assesses whether the asset’s carrying value
is greater than fair value less selling costs. If so, the asset is written down to fair value less selling costs on a
nonrecurring basis. The fair value determinations are based on Level 3 inputs as they are generally based on
broker quotes or other comparable sales information.

Investment in Hotel Properties

The Company allocates the purchase prices of hotel properties acquired based on the fair value of the
acquired real estate, furniture, fixtures and equipment, identifiable intangible assets and assumed liabilities. In
making estimates of fair value for purposes of allocating the purchase price, the Company utilizes a number of
sources of information that are obtained in connection with the acquisition of a hotel property, including
valuations performed by independent third parties and information obtained about each hotel property resulting
from pre-acquisition due diligence. Hotel property acquisition costs are expensed in the period incurred.

The Company’s investment in hotel properties are carried at cost and are depreciated using the straight-line

method over the estimated useful lives of the assets, generally 39 years for buildings, 20 years for land
improvements, 15 years for building improvements and three to ten years for furniture, fixtures and equipment.
Renovations and/or replacements at the hotel properties that improve or extend the life of the assets are
capitalized and depreciated over their useful lives, while repairs and maintenance are expensed as incurred. Upon
the sale or retirement of property and equipment, the cost and related accumulated depreciation are removed
from the Company’s accounts and any resulting gain or loss is recognized in the combined statements of
operations.

The Company periodically reviews its hotel properties for impairment whenever events or changes in

circumstances indicate that the carrying value of the hotel properties may not be recoverable. Events or
circumstances that may cause a review include, but are not limited to, adverse changes in the demand for lodging
at the properties due to declining national or local economic conditions and/or new hotel construction in markets
where the hotels are located. When such conditions exist, management performs an analysis to determine if the
estimated undiscounted future cash flows, without interest charges, from operations and the net proceeds from
the ultimate disposition of a hotel property exceed its carrying value. If the estimated undiscounted future cash
flows are less than the carrying amount, an adjustment to reduce the carrying amount to the related hotel
property’s estimated fair market value is recorded and an impairment loss recognized. As of December 31, 2012
and 2011, no impairment charges on hotels held for use were recorded.

The Company will consider a hotel property as held for sale when either the Company determines it will be
actively selling the hotel or a binding agreement to purchase the property has been signed under which the buyer
has committed a significant amount of nonrefundable cash, no significant financing contingencies exist which
could cause the transaction not to be completed in a timely manner and the sale is expected to occur within one
year. If these criteria are met, depreciation and amortization of the hotel property ceases and the carrying value of
each hotel is recorded at the lower of its carrying value or its estimated fair value less estimated costs to sell. The
Company classifies together with the related operating results, as discontinued operations in the combined
statements of operations and classifies the assets and related liabilities as held for sale in the combined balance
sheets for all periods presented. As of December 31, 2012, the Company has the following hotel properties held
for sale: Lombard, IL; Schaumburg, IL; Woburn, MA; and Fort Wayne, IN. As of December 31, 2012, the
Company recorded impairment charges of $2,894 related to three hotels for which the carrying value exceeded
the estimated fair value less estimated costs to sell.

Cash and Cash Equivalents

Cash and cash equivalents consist of cash on hand, demand deposits with financial institutions and short
term liquid investments with an original maturity of three months or less. Cash balances in individual banks may
exceed federally insurable limits.

Restricted Cash

Restricted cash represents escrows for reserves required pursuant to the Company’s loans or hotel

management agreements. Included in restricted cash on the accompanying combined balance sheet at
December 31, 2012 and December 31, 2011, respectively, are renovation, property tax and insurance escrows of
$25,798 and $25,513. Certain of the hotel mortgage loan agreements require the Company to fund 4% of gross
hotel revenues on a monthly basis for furnishings, fixtures and equipment and general repair maintenance
reserves (“Replacement Reserve”), property tax and insurance reserves into an escrow account held by Lender.

Hotel Receivables

Hotel receivables consist of amounts owed by guests staying at the Company’s hotels at year end and
amounts due from business and group customers. An allowance for doubtful accounts is provided and maintained
at a level believed to be adequate to absorb estimated losses. At December 31, 2012 and 2011, the allowance for
doubtful accounts was $417 and $434, respectively.

Deferred Costs

Deferred costs consisted of the following at December 31, 2012 and 2011:

Loan costs
Franchise fees
Other

Less accumulated amortization

Deferred costs, net

December 31, 2012

December 31, 2011

7,791
3,801
4,018

15,610
(4,980)

10,630

3,000
3,801
4,687

11,488
(529)

10,959

Loan costs are recorded at cost and amortized over a straight-line basis, which approximates the effective

interest rate method, over the term of the loan. Franchise fees are recorded at cost and amortized over a straight-
line basis over the term of the franchise agreements. For the years ended December 31, 2012 and 2011, other
deferred costs primarily relate to franchise conversion

costs of $3,494 and $3,494 respectively. For the years ended December 31, 2012 and 2011, amortization expense
related to franchise conversion fees and franchise fees of $2,594 and $436 respectively, is included in
depreciation and amortization in the combined statements of operations. Amortization expense related to loan
costs of $1,906 and $87 respectively, is included in interest expense in the combined statement of operations.

Prepaid Expenses and Other Assets

The Company’s prepaid expenses and other assets consist of prepaid insurance, deposits, hotel supplies

inventory and the fair value of the company’s interest rate caps.

Accounting for derivative instruments

The Company records its derivative instruments on the balance sheet at their estimated fair value. Changes

in the fair value of derivatives are recorded each period in current earnings or in other comprehensive income,
depending on whether a derivative is designated as part of a hedging relationship and, if it is, depending on the
type of hedging relationship. The Company’s interest rate caps are not designated as a hedge, but to eliminate the
incremental cost to the Company if one — month LIBOR interest rate were to exceed 3.0%. Accordingly, the
interest rate caps are recorded on the balance sheet at estimated fair value with realized and unrealized changes in
the fair value reported in the combined statement of operations.

Revenue Recognition

Revenue from hotel operations is recognized when rooms are occupied and when services are provided.

Revenue consists of amounts derived from hotel operations, including sales from room, meeting room,
restaurants, gift shop, in-room movie and other ancillary amenities. Sales, use, occupancy, and similar taxes are
collected and presented on a net basis (excluded from revenue) in the accompanying combined statements of
operations.

Income Taxes

The Company’s subsidiaries are treated as partnerships for federal and state income taxes. Each member

receives a partnership K-1 for tax purposes.

Segment Information

The Company evaluates all of its hotels as a single industry segment because all of the hotels have similar
economic characteristics and provide similar services to similar types of customers. Accordingly, the Company
does not report segment information.

Recently Issued Accounting Standards

In May 2011, the FASB issued ASU No. 2011-04, Fair Value Measurement (Topic 820): Amendments to

Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs
(“ASU 2011-04”). ASU 2011-04 created a uniform framework for applying fair value measurement principles
for companies around the world and clarified existing guidance in U.S. GAAP. ASU 2011-04 is effective for the
first reporting annual period beginning after December 15, 2011. The Company adopted this standard and it did
not have any material effect on the consolidated financial statements.

In June 2011, the FASB issued ASU No. 2011-05, Comprehensive Income (Topic 220), Presentation of

Comprehensive income. This update is intended to increase the prominence of other comprehensive income in

the financial statements by requiring public companies to present comprehensive income either as a single
statement detailing the components of net income and total net income, the components of other comprehensive
income and total other comprehensive income, and a total for comprehensive income or using a two statement
approach including both a statement of income and a statement of comprehensive income. The option to present
other comprehensive income in the statement of changes in equity has been eliminated. The amendments in this
update are effective for public companies for fiscal years, and interim periods beginning after December 15,
2011. Currently, the Company has no items of other comprehensive income in any periods presented.

3. Acquisition of Hotel Properties

On October 27, 2011, the Company acquired 64 hotels from Innkeepers for a purchase price of
approximately $1,020,000. Prior to the Innkeepers acquisition, the Company was funded with member
contributions of $360,000. The Company funded the acquisition with available cash, the assumption of debt of
$675,000 and the assumption of other liabilities of $15,073. The Company incurred acquisition costs of $5,012
related to the Innkeepers acquisition.

Hotel Purchase Price Allocation

The Company recorded the purchase price allocation related to the Innkeepers acquisition in accordance
with the business combination guidance. Subsequent to the initial purchase price allocation and within the one
year measurement period, new information was obtained about facts and circumstances that existed as of the
acquisition date. As such, the purchase price allocation of the Innkeepers acquisition was retroactively adjusted
to include the effect of this measurement period adjustment. The retroactively adjusted purchase price allocation
(including the payment of certain deferred loan and franchise costs required at closing to consummate the
transaction) is as follows:

Land
Building and improvements
Furniture, fixtures and equipment
Cash
Restricted Cash
Accounts Receivable
Prepaid & Other Assets
Deferred Expenses (including loan costs)
Debt
Accounts Payable & Accrued Expenses

Net assets acquired

Net assets acquired, net of cash

Innkeepers

$ 178,949
721,690
70,276
24,904
27,201
5,638
11,783
9,632
(675,000)
(15,073)

$ 360,000

$ 335,096

4. Allowance for Doubtful Accounts

The Company maintains an allowance for doubtful accounts at a level believed to be adequate to absorb

losses and is based on past loss experience, current economic and market conditions and other relevant factors.
The allowance for doubtful accounts was $417 and $434 as of December 31, 2012 and 2011, respectively.

Investment in Hotel Properties

Investment in hotel properties as of December 31, 2012 and 2011 consisted of the following:

Land and improvements
Building and improvements
Furniture, fixtures and equipment
Renovations in progress

Less accumulated depreciation

Investment in hotel properties, net

2012

2011

$158,164
689,633
68,000
4,773

$157,787
676,013
63,023
6,220

920,570
(57,823)

903,043
(8,755)

$862,747

$894,288

6. Debt

Debt is comprised of the following at December 31, 2012 and 2011:

Interest Rate Monthly Payment

(In thousands)

Principal Balance

(In thousands)

Property
Carrying Value

(In thousands)

2012

Amount Beginning

Maturity Date

2012

2011

2012

2011

6.7125% $3,809 11/09/11

07/09/17

$662,239 $675,000 $687,577 $727,139

4.6%
12.1%

359 3/9/2012
420 3/9/2012

03/09/15
03/09/15

90,000
40,000

— 127,060
56,472
—

—
—

$792,239 $675,000 $871,109 $727,139

Fixed rate debt
Mortgage loan(3)
Variable rate 10
hotel debt

Mortgage loan(1)
Mezzanine loan(2)

(1)

(2)

Interest only payments are due monthly. The interest rate is based on one month LIBOR plus 4.0%, subject
to a minimum LIBOR rate of 0.6% and the rate disclosed is based on the minimum aggregate rate of 4.6%.
The loan is subject to two one-year extensions at the Company’s option.
Interest only payments are due monthly. The interest rate is based on one month LIBOR plus 11.5%, subject
to a minimum LIBOR rate of 0.6% and the rate disclosed is based on the minimum rate of 12.1%. The loan
is subject to two one-year extensions at the Company’s option.

(3) Collateralized by 55 and 64 hotels as of December 31, 2012 and 2011, respectively. The loan assumed in

connection with the Innkeepers acquisition has predetermined allocable loan values by hotel for the sale of
any hotels that collateralize the loan and does not include prepayment penalties for any such prepayments in
connection with the hotel sales.

The company estimates the fair value of its fixed rate debt using an income approach valuation method by

discounting the future cash flows of each instrument at estimated market rates. Rates take into consideration
general market conditions, quality and estimated value of collateral and maturity of debt with similar credit terms
and are classified within level 3 of the fair value hierarchy. Level 3 typically consists of mortgages because of the
significance of the collateral value to the value of the loan. The estimated fair value of the Company’s fixed rate
debt as of December 31, 2012 and 2011 was $785,000 and $675,000, respectively.

As of December 31, 2012, the Company was in compliance with all of its financial covenants. Future
scheduled principal payments of debt obligations as of December 31, 2012, for each of the next five calendar
years and thereafter is as follows:

2013
2014
2015
2016
2017

Thereafter

Amount

—
—
130,000
—
662,239
—

$792,239

7. Owners’ Equity

The ownership of the Company at December 31, 2012 and 2011 was as follows:

Member’s Name

CRE — Ink REIT Member LLC
Chatham Lodging, LP

Total Contribution

12/31/2012

12/31/2011

89.70%
10.30%

100.00% 100.00%

8. Commitments and Contingencies

Litigation

The nature of the operations of the hotels exposes the hotels and the Company to the risk of claims and
litigation in the normal course of their business. The Company is not presently subject to any material litigation
nor, to the Company’s knowledge, is any material litigation threatened against the Company or its properties.

Hotel Ground Rent

The Courtyard by Marriott Ft. Lauderdale, FL hotel is subject to a ground lease with an expiration date of
August 1, 2034. Rent is equal to approximately $8,800 per month, with minimum rent subject to increase based
on increases in the consumer price index.

The Hampton Inn, Woburn, MA hotel is subject to a ground lease with an expiration date of October 3,

2084. Rent is equal to approximately $12,100 per month; with minimum rent increase every five years.

The following is a schedule of the minimum future obligation payments required under the ground leases:

2013
2014
2015
2016
2017
Thereafter

Total

Amount

254
257
261
267
302
14,170

$15,511

Hotel Management Agreements

As of December 31, 2012, all but one of the hotels is managed by IHM. The other hotel is managed by
Dimension Development Company (“Dimension”). The management agreements with IHM have an initial term
of five years. The IHM management agreements provide for early termination at the Company’s option upon sale
of any IHM-managed hotel for no termination fee, with thirty days advance notice. The IHM management
agreements may be terminated for cause, including the failure of the managed hotel to meet specified
performance levels. The management agreement with Dimension was terminated by the Company on
December 31, 2012. The Company retained IHM to manage the hotel beginning January 1, 2013.

Hotel Franchise Agreements

The TRS Lessee has entered into franchise agreements with Marriott International, Inc. (“Marriott”),
relating to thirty-four Residence Inns, three Courtyards by Marriott and one TownePlace Suites. These franchise
agreements expire between 2016 and 2028. The Marriott franchise agreements provide for franchise fees ranging
from 5.0% to 6.5% of the hotel’s gross room sales and marketing fees ranging from 1.5% to 2.5% of the hotel’s
gross room sales. The Marriott franchise agreements are terminable by Marriott in the event that the applicable
franchisee fails to cure an event of default or, in certain circumstances such as the franchisee’s bankruptcy or
insolvency, are terminable by Marriott at will. The Marriott franchise agreements provide that, in the event of a
proposed transfer of the hotel, the TRS Lessee’s interest in the agreement or more than a specified amount of the
TRS Lessee to a competitor of Marriott, Marriott has the right to purchase or lease the hotel under terms
consistent with those contained in the respective offer and may terminate if the TRS Lessee elects to proceed
with such a transfer.

The TRS Lessee has entered into franchise agreements with Hampton Inns Franchise LLC (“Hampton
Inns”), relating to eight Hampton Inns. The franchise agreements expire between 2016 and 2021. The Hampton
Inns franchise agreements provide for a monthly program fee equal to 4% of the hotel’s gross rooms revenue and
a royalty fees equal to 5% of the hotel’s gross rooms revenue. Hampton Inns may terminate the franchise
agreements in the event that the franchisee fails to cure an event of default or, in certain circumstances such as
the franchisee’s bankruptcy or insolvency.

The TRS Lessee has entered into franchise agreements with The Sheraton, LLC (“Sheraton”), relating to the

Fort Walton Beach — Sheraton Four Points, Fort Walton Beach, Florida hotel and the Rockville Sheraton,
Rockville, Maryland hotel. The franchise agreements have initial terms of 20 years and expires in 2031. Neither
of the agreements has a renewal option. The Sheraton franchise agreements provide for royalty fees ranging from
5.0% to 6.0% of gross rooms sales and royalty fees of 3% of gross food and beverage sales as to one of the
Sheratons. The agreements provide for marketing fees ranging from 1.0% to 1.25% of gross rooms sales.
Sheraton may terminate the franchise agreements in the event that the franchisee fails to cure an event of default
or, in certain circumstances such as franchisee’s bankruptcy or insolvency.

The TRS Lessee has entered into a franchise agreement with Westin Hotel Management, Inc. (“Westin”)

relating to the Morristown-Westin Governor Morris hotel. The franchise agreement has an initial term of 20
years and expires in 2031. It has no renewal option. The Westin franchise agreement provides for royalty fees of
7% of gross rooms sales and 3% of gross food and beverage sales. The agreement provides for marketing fees of
2% of gross rooms sales. Westin may terminate the franchise agreement in the event that the franchisee fails to
cure an event of default or, in certain circumstances such as franchisee’s bankruptcy or insolvency.

The TRS Lessee has entered into franchise agreements with Hyatt House Franchising, LLC (“Hyatt House”)

relating to five Hyatt House hotels. The franchise agreements have an initial term of 20 years and expires in
2022. Each has a renewal option of 10 years. The Hyatt House franchise agreements provide for royalty fees
ranging from 3% to 5% of gross rooms revenue and marketing fees of 3.5% of gross rooms revenue. Hyatt may
terminate the franchise agreements in the event that the franchisee fails to cure an event of default or, in certain
circumstances such as franchisee’s bankruptcy or insolvency.

9. Discontinued Operations

As of December 31, 2012, the Company has four hotel properties classified as held for sale. The four hotels

are the Stay Inns located in Lombard, IL; Schaumburg, IL; Woburn, MA and Fort Wayne, IN. As of
December 31, 2011, the Company had thirteen properties held for sale, of which nine were sold during 2012.
During the year ended December 31, 2012, the Company recognized a net gain on sale of the nine hotels for
$2,496.

The following table sets forth the components of discontinued operations for the year ended December 31,

2012 and through period from inception to December 31, 2011:

Hotel operating revenue
Hotel operating expenses
Depreciation
Amortization of franchise fees
Property taxes and insurance
General and administrative
Impairment on hotels classified as held for sale
Other charges
Income(loss) from discontinued operations
Realized Gain on sale of assets from discontinued operations

Net Income from discontinued operations

Land and improvements
Building and improvements
Furniture and equipment
Renovations in progress
Other assets

Total assets held for sale

Accounts payable and accrued expenses

Total liabilities hotels held for sale

2012

2011

17,155
(13,166)
—
(40)
(1,304)
(155)
(2,894)
—
(404)
2,496

2,092

3,003
8,310
1,834
—
191

4,050
(3,222)
—
(10)
(419)
(27)
—
(26)
346
—

346

21,162
45,697
7,255
167
1,155

13,338

75,436

639

1,834

10. Related Party Transactions

As of December 31, 2012, all but one of the 55 hotels are managed by IHM. Management, revenue

management and accounting fees paid by the Company to IHM for the year ended December 31, 2012 and period
from October 27, 2011 (commencement of operations) and December 31, 2011 were $6,562 and $949,
respectively. At December 31, 2012 and 2011, the amounts due to IHM were $568 and $499 respectively.

11. Subsequent Events

The Company has performed an evaluation of subsequent events since the balance sheet date through

March 14, 2013, the date of issuance of the financial statements.

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the

registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized

SIGNATURE

Dated: March 14, 2013

CHATHAM LODGING TRUST

/s/ JEFFREY H. FISHER
Jeffrey H. Fisher
Chairman of the Board, President and
Chief Executive Officer
(Principal Executive Officer)

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

SIGNATURE

TITLE

DATE

/s/ JEFFREY H. FISHER

Jeffrey H. Fisher

/s/ DENNIS M. CRAVEN
Dennis M. Craven

Chairman of the Board, President
and Chief Executive Officer
(Principal Executive Officer)

March 14, 2013

Executive Vice President and Chief
Financial Officer (Principal
Financial and Accounting Officer)

March 14, 2013

/s/ MILES BERGER

Trustee

March 14, 2013

Miles Berger

/s/ THOMAS J. CROCKER
Thomas J. Crocker

Trustee

March 14, 2013

/s/ JACK P. DEBOER

Trustee

March 14, 2013

Jack P. DeBoer

/s/ GLEN R. GILBERT
Glen R. Gilbert

/s/ C. GERALD GOLDSMITH
C. Gerald Goldsmith

Trustee

March 14, 2013

/s/ ROBERT PERLMUTTER

Trustee

March 14, 2013

Robert Perlmutter

/s/ ROLF E. RUHFUS

Trustee

March 14, 2013

Rolf E. Ruhfus

/s/ JOEL F. ZEMANS

Trustee

March 14, 2013

Joel F. Zemans

CHATHAM LODGING TRUST

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Report of Independent Registered Certified Public Accounting Firm
Consolidated Balance Sheets at December 31, 2012 and 2011
Consolidated Statements of Operations for the years ended December 31, 2012, 2011 and 2010
Consolidated Statements of Equity for the years ended December 31, 2012, 2011 and 2010
Consolidated Statements of Cash Flows for the years ended December 31, 2012, 2011 and 2010
Notes to Consolidated Financial Statements

Financial Statement Schedule
Schedule III — Real Estate and Accumulated Depreciation at December 31, 2012

Page
No.

F-2
F-3
F-4
F-5
F-6
F-7

F-27

F-1

Report of Independent Registered Certified Public Accounting Firm

To the Board of Trustees and Shareholders of
Chatham Lodging Trust:

In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of

operations, of equity and of cash flows present fairly, in all material respects, the financial position of Chatham
Lodging Trust and its subsidiaries at December 31, 2012 and 2011, and the results of their operations and their
cash flows for each of the three years in the period ended December 31, 2012 in conformity with accounting
principles generally accepted in the United States of America. In addition, in our opinion, the financial statement
schedule listed in the accompanying index presents fairly, in all material respects, the information set forth
therein when read in conjunction with the related consolidated financial statements. Also in our opinion, the
Company maintained, in all material respects, effective internal control over financial reporting as of
December 31, 2012, based on criteria established in Internal Control — Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s management is
responsible for these financial statements and financial statement schedule, for maintaining effective internal
control over financial reporting and for its assessment of the effectiveness of internal control over financial
reporting, included in Management’s Report on Internal Control over Financial Reporting appearing under
Item 9A. Our responsibility is to express opinions on these financial statements, on the financial statement
schedule, and on the Company’s internal control over financial reporting based on our audits (which were
integrated audits in 2012 and 2011). We conducted our audits in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards require that we plan and perform the
audits to obtain reasonable assurance about whether the financial statements are free of material misstatement
and whether effective internal control over financial reporting was maintained in all material respects. Our audits
of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements, assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. Our audit of internal control over
financial reporting included obtaining an understanding of internal control over financial reporting, assessing the
risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal
control based on the assessed risk. Our audits also included performing such other procedures as we considered
necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles. A company’s internal control over financial reporting
includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) 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 (iii) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the
company’s assets that could have a material effect on the financial statements.

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

/s/ PricewaterhouseCoopers LLP
Fort Lauderdale, Florida
March 14, 2013

F-2

CHATHAM LODGING TRUST
Consolidated Balance Sheets
(In thousands, except share and per share data)

December 31,
2012

December 31,
2011

Assets:

Investment in hotel properties, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restricted cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investment in unconsolidated real estate entities . . . . . . . . . . . . . . . . . . . . . . . . . .
Hotel receivables (net of allowance for doubtful accounts of $28 and

$17, respectively) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred costs, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid expenses and other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$426,074
4,496
2,949
13,362

$402,815
4,680
5,299
36,003

2,098
6,312
1,930

2,057
6,350
1,502

Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$457,221

$458,706

Liabilities and Equity:

Debt
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Revolving credit facility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts payable and accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Distributions payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$159,746
79,500
8,488
2,875

$161,440
67,500
10,184
2,464

Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

250,609

241,588

Commitments and contingencies
Equity:

Shareholders’ Equity:

Preferred shares, $0.01 par value, 100,000,000 shares authorized and

unissued at December 31, 2012 and 2011 . . . . . . . . . . . . . . . . . . . . . . . . .

—

Common shares, $0.01 par value, 500,000,000 shares authorized;

13,909,822 and 13,908,907 shares issued and outstanding, respectively
at December 31, 2012 and 13,820,854 and 13,819,939 shares issued and
outstanding,respectively at December 31, 2011 . . . . . . . . . . . . . . . . . . . .
Additional paid-in capital
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated deficit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

137
240,355
(35,491)

137
239,173
(23,220)

Total shareholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

205,001

216,090

Noncontrolling Interests:

Noncontrolling Interest in Operating Partnership . . . . . . . . . . . . . . . . . . . . . . . . .

1,611

1,028

Total equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

206,612

217,118

Total liabilities and equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$457,221

$458,706

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

F-3

CHATHAM LODGING TRUST
Consolidated Statements of Operations
(In thousands, except share and per share data)

For the years ended
December 31,
2011

2010

2012

Revenue:

Room . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other operating . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost reimbursements from unconsolidated real

94,566
4,276

estate entities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1,622

Total revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

100,464

Expenses:

Hotel operating expenses:
Room . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other operating . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Total hotel operating expenses . . . . . . . . . . . . . . . . . . . .
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . .
Property taxes and insurance . . . . . . . . . . . . . . . . . . . . . . . . .
General and administrative . . . . . . . . . . . . . . . . . . . . . . . . . .
Hotel property acquisition costs . . . . . . . . . . . . . . . . . . . . . . .
Reimbursed costs from unconsolidated real estate entities . .

Total operating expenses . . . . . . . . . . . . . . . . . . . . . . . .

Operating income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest and other income . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense, including amortization of deferred fees . . .
Loss from unconsolidated real estate entities . . . . . . . . . . . .

Loss before income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . .
Income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

20,957
34,073

55,030
14,273
7,088
7,565
236
1,622

85,814

14,650
55
(14,641)
(1,439)

(1,375)
(75)

(1,450)

Loss per Common Share — Basic:

Net loss attributable to common shareholders (Note 11) . . . .

(0.12)

Loss per Common Share — Diluted:

Net loss attributable to common shareholders (Note 11) . . . .

(0.12)

Weighted average number of common shares outstanding:

70,421
2,675

—

73,096

16,011
26,156

42,167
11,971
5,321
5,802
7,706
—

72,967

129
22
(8,190)
(997)

(9,036)
(69)

(9,105)

(0.69)

24,743
727

—

25,470

5,989
9,036

15,025
2,564
1,606
3,547
3,189
—

25,931

(461)
193
(932)
—

(1,200)
(17)

(1,217)

(0.20)

Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

13,811,691
13,811,691

13,280,149
13,280,149

6,377,333
6,377,333

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

F-4

CHATHAM LODGING TRUST
Consolidated Statements of Equity
(In thousands, except share and per share data)

Balance, January 1, 2010 . . . . . . . . . . . . . . . .
Issuance of shares, net of offering costs
of $13,752 . . . . . . . . . . . . . . . . . . . . .
Repurchase of common shares . . . . . . . .
Issuance of restricted shares . . . . . . . . . .
Forfeiture of restricted shares . . . . . . . .
Amortization of share based

compensation . . . . . . . . . . . . . . . . . . .

Dividends declared on common shares

($0 .35 per share) . . . . . . . . . . . . . . . .
Distributions declared on LTIP units ($0
.35 per unit) . . . . . . . . . . . . . . . . . . . .
Net loss . . . . . . . . . . . . . . . . . . . . . . . . .

Common Shares

Shares Amount

Additional
Paid-In
Capital

Accumulated
Deficit

Total
Shareholders’
Equity

Noncontrolling
Interest in
Operating
Partnership

Total
Equity

1,000

$—

$ —

9,125,000

(1,000) —
87,000 —
(3,250) —

168,657
(10)
—
—

—

—
—

—

—
—

432

—

—
—

—

—
—

—

168,748
(10)
—
—

432

(3,224)

—
(1,217)

—
—
—
—

515

—

(90)

168,748
(10)
—
—

947

(3,224)

(90)
(1,217)

Balance, December 31, 2010 . . . . . . . . . . . . .

9,208,750

$ 91

$169,089

$ (4,441)

$164,739

$ 425

$165,164

Issuance of shares pursuant to Equity

Incentive Plan . . . . . . . . . . . . . . . . . .
Issuance of shares, net of offering costs
of $4,153 . . . . . . . . . . . . . . . . . . . . . .

Repurchase of vested common

12,104 —

210

4,600,000

69,401

shares . . . . . . . . . . . . . . . . . . . . . . . . .

(915) —

Amortization of share based

compensation . . . . . . . . . . . . . . . . . . .

Dividends declared on common shares

($0 .70 per share) . . . . . . . . . . . . . . . .
Distributions declared on LTIP units ($0
.70 per unit) . . . . . . . . . . . . . . . . . . . .
Net loss . . . . . . . . . . . . . . . . . . . . . . . . .

—

—
—

—

—
—

(15)

488

—

—
—

—

210

69,447

(15)

488

(9,674)

—

783

—

—
(9,105)

(180)
—

210

69,447

(15)

1,271

(9,674)

(180)
(9,105)

Balance, December 31, 2011 . . . . . . . . . . . . . 13,819,939

$137

$239,173

$(23,220)

$216,090

$1,028

$217,118

Issuance of shares pursuant to Equity

Incentive Plan . . . . . . . . . . . . . . . . . .

27,592 —

Issuance of restricted time-based

shares . . . . . . . . . . . . . . . . . . . . . . . . .

61,376 —

Amortization of share based

compensation . . . . . . . . . . . . . . . . . . .

Dividends declared on common shares

($0 .775 per share) . . . . . . . . . . . . . . .

Distributions declared on LTIP

units ($0 .775 per unit) . . . . . . . . . . . .
Net loss . . . . . . . . . . . . . . . . . . . . . . . . .

—

—
—

—

—
—

300

—

882

—

—
—

—

300

—

882

(10,821)

—
(1,450)

—

781

—

(198)
0

300

—

1,663

(10,821)

(198)
(1,450)

Balance, December 31, 2012 . . . . . . . . . . . . . 13,908,907

$137

$240,355

$(35,491)

$205,001

$1,611

$206,612

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

F-5

For the years ended December 31,

2012

2011

2010

$ (1,450) $

(9,105) $

(1,217)

14,198
75
1,840
2,003
1,439

(41)
(148)
(428)
(2,603)

11,908
63
1,575
1,571
997

(1,022)
(96)
(633)
3,688

8,946

(12,721)
(61,981)
—
(37,000)
(821)

2,537
27
280
1,157
—

(336)
(1,218)
(76)
4,120

5,274

(3,610)
(197,525)

—
—
(376)

CHATHAM LODGING TRUST
Consolidated Statements of Cash Flows
(In thousands)

Cash flows from operating activities:

Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjustments to reconcile net loss to net cash provided by operating activities:

Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of deferred franchise fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of deferred financiing fees included in interest expense . . . . . . . . . . . . . . . . . .
Share based compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss from unconsolidated real estate entities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Changes in assets and liabilities:

Hotel receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid expenses and other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts payable and accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Net cash provided by operating activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

14,885

Cash flows from investing activities:

Improvements and additions to hotel properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquisition of hotel properties, net of cash acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Distributions from unconsolidated entities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investment in unconsolidated entities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restricted cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(8,590)
(27,998)
21,202
—
2,350

Net cash used in investing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(13,036)

(112,523)

(201,511)

Cash flows from financing activities:

Proceeds from the issuance of long-term debt
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Borrowings on revolving credit facility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Repayments on revolving credit facility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payments on debt
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payment of financing costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payment of offering costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from issuance of common shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
In-substance repurchase of vested common shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Distributions-common shares/units . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

—
38,500
(26,500)
(1,694)
(1,452)
(277)
—
—
(10,610)

15,800
127,500
(97,800)
(853)
(1,543)
(4,153)
73,600
(15)
(9,047)

Net cash (used in) provided by financing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(2,033)

103,489

—
37,800
—
(101)
(3,799)
(13,752)
182,490

—
(1,657)

200,981

Net change in cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash and cash equivalents, beginning of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(184)
4,680

Cash and cash equivalents, end of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 4,496

Supplemental disclosure of cash flow information:
Cash paid for interest
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash paid for income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 12,677
135
$

Supplemental disclosure of non-cash investing and financing information:

(88)
4,768

4,680

4,744
24

4,768

6,197
162

+$
$

527
27

$
$

On January 6, 2012, the Company issued 27,592 shares to its independent Trustees pursuant to the Company's Equity Incentive Plan as
compensation for services performed in 2011. On January 11, 2011, the Company issued 12,104 shares to its independent trustees
pursuant to the Company's Equity Incentive Plan as compensation for services performed in 2010.

As of December 31, 2012, the Company has accrued distributions payable of $2,875. These distributions were paid on January 25, 2013
except for $41 related to accrued but unpaid distributions on unvested performance shares (See Note 12). As of December 31, 2011, the
Company has accrued distributions payable of $2,464. These distributions were paid on January 27, 2012.

Accrued share based compensation of $300, $300 and $210 are included in Accounts payable and accrued expenses as of December 31,
2012, 2011 and 2010, respectively.

Accrued capital improvements of $869 and $528 are included in Accounts payable and accrued expenses as of December 31, 2012 and
2011, respectively

For the year ended December 31, 2011, the Company assumed the mortgages on the purchase of the 5 Sisters for $134,160 (Note 3). For the
year ended December 31, 2010, the Company assumed the mortgages on the purchase of the Altoona and Washington hotels for $12,434.

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

F-6

CHATHAM LODGING TRUST
Notes to the Consolidated Financial Statements

1. Organization

Chatham Lodging Trust (“we,” “us” or the “Company”) was formed as a Maryland real estate investment

trust (“REIT”) on October 26, 2009. The Company is internally-managed and was organized to invest primarily
in premium-branded upscale extended-stay and select-service hotels.

On February 8, 2011, the Company completed a follow-on common share offering generating gross

proceeds of $73.6 million and net proceeds of approximately $69.4 million, adding equity capital to the
Company’s balance sheet. Using these funds as well as borrowing capacity on its secured revolving credit
facility, on July 14, 2011, the Company acquired five hotels for an aggregate purchase price of $195 million,
including the assumption of five individual mortgage loans secured by the hotels totaling $134.2 million.
Additionally, the Company invested $37.0 million for an approximate 10.3% interest in the JV with Cerberus
Capital Management (“Cerberus”) that acquired 64 hotels from Innkeepers USA Trust (“Innkeepers”) on
October 27, 2011. The Company accounts for this investment under the equity method.

The Company had no operations prior to the consummation of the IPO. Following the closing of the IPO,

the Company contributed the net proceeds from the IPO and the concurrent private placement, as well as the
proceeds of the February 2011 offering, to Chatham Lodging, L.P. (the “Operating Partnership”) in exchange for
partnership interests in the Operating Partnership. Substantially all of the Company’s assets are held by, and all
of the Company’s operations are conducted through, the Operating Partnership. Chatham Lodging Trust is the
sole general partner of the Operating Partnership and owns 100% of the common units of limited partnership
interest in the Operating Partnership. Certain of the Company’s executive officers hold vested and unvested long-
term incentive plan units in the Operating Partnership, which are presented as noncontrolling interests on our
consolidated balance sheets.

As of December 31, 2012, the Company owned 19 hotels with an aggregate of 2,536 rooms located in
11 states and the District of Columbia and held a minority interest in the JV, which owns 55 hotels comprising an
aggregate of 7,282 rooms. To qualify as a REIT, the Company cannot operate the hotels. Therefore, the
Operating Partnership and its subsidiaries lease our wholly owned hotels to taxable REIT subsidiary lessees
(“TRS Lessees”), which are wholly owned by one of the Company’s taxable REIT subsidiary (“TRS”) holding
companies. The Company indirectly owns its interest in 51 of the 55 JV hotels through the Operating Partnership,
and owns its interest in the remaining 4 JV hotels through one of its TRS holding companies. All of the JV hotels
are leased to TRS Lessees in which the Company indirectly owns a 10.3% minority interests through one of its
TRS holding companies. Each hotel is leased to a TRS Lessee under a percentage lease that provides for rental
payments equal to the greater of (i) a fixed base rent amount or (ii) a percentage rent based on hotel room
revenue. The initial term of each of the TRS leases is five years. Lease revenue from each TRS Lessee is
eliminated in consolidation. The TRS Lessees have entered into management agreements with third party
management companies that provide day-to-day management for the hotels. Island Hospitality Management Inc.
(“IHM”), which is 90% owned by Mr. Fisher, manages 17 of the Company’s wholly owned hotels and Concord
Hospitality Enterprises Company manages two of the Company’s wholly owned hotels. All but one of the JV
hotels are managed by IHM. One JV hotel is managed by Dimension Development Company.

F-7

2. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying financial statements and related notes have been prepared in accordance with U.S.
generally accepted accounting principles (“GAAP”) and in conformity with the rules and regulations of the
Securities and Exchange Commission (“SEC”). These consolidated financial statements, in the opinion of
management, include all adjustments considered necessary for a fair presentation of the consolidated balance
sheets, consolidated statements of operations, consolidated statements of equity, and consolidated statements of
cash flows for the periods presented. The consolidated financial statements include all of the accounts of the
Company and its wholly owned subsidiaries. All intercompany balances and transactions are eliminated in
consolidation.

Use of Estimates

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

Fair Value of Financial Instruments

The Company’s financial instruments include cash and cash equivalents, restricted cash, hotel receivables,
accounts payable and accrued expenses, distributions payable and debt. Due to their relatively short maturities,
the carrying values reported in the consolidated balance sheets for these financial instruments approximate fair
value except for debt, the fair value of which is separately disclosed in Note 7.

Investment in Hotel Properties

The Company allocates the purchase prices of hotel properties acquired through a business combination
based on the fair value of the acquired real estate, furniture, fixtures and equipment, identifiable intangible assets
and assumed liabilities. In making estimates of fair value for purposes of allocating the purchase price, the
Company utilizes a number of sources of information that are obtained in connection with the acquisition of a
hotel property, including valuations performed by independent third parties and information obtained about each
hotel property resulting from pre-acquisition due diligence. Hotel property acquisition costs, such as transfer
taxes, title insurance, environmental and property condition reviews, and legal and accounting fees, are expensed
in the period incurred.

The Company’s investment in hotel properties are carried at cost and are depreciated using the straight-line

method over the estimated useful lives of the assets, generally 40 years for buildings, 20 years for land
improvements, 15 years for building improvements and two to seven years for furniture, fixtures and equipment.
Renovations and/or replacements at the hotel properties that improve or extend the life of the assets are
capitalized and depreciated over their useful lives, while repairs and maintenance are expensed as incurred. Upon
the sale or retirement of property and equipment, the cost and related accumulated depreciation are removed
from the Company’s accounts and any resulting gain or loss is recognized in the consolidated statements of
operations.

The Company will periodically review its hotel properties for impairment whenever events or changes in

F-8

the estimated undiscounted future cash flows, without interest charges, from operations and the proceeds from
the ultimate disposition of a hotel property exceed its carrying value. If the estimated undiscounted future cash
flows are less than the carrying amount, an adjustment to reduce the carrying amount to the related hotel
property’s estimated fair market value is recorded and an impairment loss recognized. As of December 31, 2012
and 2011, there were no hotel properties impaired.

The Company will consider a hotel property as held for sale when a binding agreement to purchase the
property has been signed under which the buyer has committed a significant amount of nonrefundable cash, no
significant financing contingencies exist which could cause the transaction not to be completed in a timely
manner and the sale is expected to occur within one year. If these criteria are met, depreciation and amortization
of the hotel property will cease and an impairment loss if any will be recognized if the fair value of the hotel
property, less the costs to sell, is lower than the carrying amount of the hotel property. The Company will classify
the loss, together with the related operating results, as discontinued operations in the consolidated statements of
operations and classify the assets and related liabilities as held for sale in the consolidated balance sheets if we no
longer have significant continuing involvement. As of December 31, 2012, the Company had no hotel properties
held for sale.

Investment in Unconsolidated Real Estate Entities

If it is determined that the Company do not have a controlling interest in a joint venture, either through its

Investment in unconsolidated real estate entities are accounted for under the equity method of accounting

The Company periodically reviews the carrying value of its investment in unconsolidated joint ventures to

Cash and Cash Equivalents

F-9

Restricted Cash

Restricted cash represents purchase price deposits held in escrow for potential hotel acquisitions under
contract and escrows for reserves required pursuant to the Company’s loans or hotel management agreements.
Included in restricted cash on the accompanying consolidated balance sheet at December 31, 2012 are
$2.9 million of renovation, property tax and insurance escrows and at December 31, 2011 are $5.3 million of
renovation, property tax and insurance escrows. Certain of the hotel mortgage loan agreements require the
Company to fund up to 5% of gross hotel revenues on a monthly basis for furnishings, fixtures and equipment
and general repair maintenance reserves (“Replacement Reserve”), property tax and/or insurance reserves into an
escrow account held by the lender.

Hotel Receivables

Hotel receivables consist of amounts owed by guests staying at the Company’s hotels at year end and
amounts due from business and group customers. An allowance for doubtful accounts is provided and maintained
at a level believed to be adequate to absorb estimated probable receivable losses. At December 31, 2012 and
2011, respectively, the allowance for doubtful accounts was $28 thousand and $17 thousand.

Deferred Costs

Deferred costs consist of franchise agreement fees for the Company’s hotels, loan costs related to the
Company’s senior secured revolving credit facility and mortgage loans and costs related to the Company’s share
offering.

Deferred costs consisted of the following at December 31, 2012 and 2011 (in thousands):

Loan costs
Franchise fees
Other

Less accumulated amortization

Deferred costs, net

December 31,
2012

December 31,
2011

$ 8,462
1,273
467

10,202
(3,890)

$ 7,010
1,198
116

8,324
(1,974)

$ 6,312

$ 6,350

Franchise fees are recorded at cost and amortized over a straight-line basis over the term of the franchise
agreements. Loan costs are recorded at cost and amortized over a straight-line basis, which approximates the
effective interest rate method, over the term of the loan. Offering costs of $0.1 million and $0.4 million,
classified as “Other” in 2011 and 2012 respectively, will be recorded as a reduction in additional paid-in capital
as shares are sold. For the years ended December 31, 2012, 2011 and 2010, amortization expense related to
franchise fees of $75 thousand, $62 thousand and $27 thousand , respectively, is included in depreciation and
amortization. Amortization expense related to loan costs of $1.8 million, $1.6 million and $0.3 million for the
years ended December 31, 2012, 2011 and 2010, respectively, is included in interest expense in the consolidated
statements of operations.

Prepaid Expenses and Other Assets

The Company’s prepaid expenses and other assets consist of prepaid insurance, prepaid property taxes,

deposits and hotel supplies inventory.

Revenue Recognition

F-10

in-room movie and other ancillary amenities. Sales, use, occupancy, and similar taxes are collected and presented
on a net basis (excluded from revenue) in the accompanying consolidated statements of operations.

Share-Based Compensation

The Company measures compensation expense for the restricted share awards based upon the fair market
value of its common shares at the date of grant. Compensation expense is recognized on a straight-line basis over
the vesting period and is included in general and administrative expense in the accompanying consolidated
statement of operations. The Company pays dividends on vested and nonvested restricted shares, except for
performance based shares, for which dividends on unvested shares are not paid until those shares are vested.

Earnings Per Share

A two class method is used to determine earnings per share. Basic earnings per share (“EPS”) is computed by
dividing net income (loss) available for common shareholders, adjusted for dividends on unvested share grants, by
the weighted average number of common shares outstanding for the period. Diluted EPS is computed by dividing
net income (loss) available for common shareholders, adjusted for dividends on unvested share grants, by the
weighted average number of common shares outstanding plus potentially dilutive securities such as share grants or
shares issuable in the event of conversion of operating partnership units. No adjustment is made for shares that are
anti-dilutive during the period. The Company’s restricted share awards and long-term incentive plan units are
entitled to receive dividends, if declared. The rights to dividends declared are non-forfeitable, and therefore, the
unvested restricted shares and long-term incentive plan units qualify as participating securities requiring the
allocation of earnings under the two-class method to calculate EPS. The percentage of earnings allocated to the
unvested restricted shares is based on the proportion of the weighted average unvested restricted shares outstanding
to the total of the basic weighted average common shares outstanding and the weighted average unvested restricted
shares outstanding. Basic EPS is then computed by dividing income less earnings allocable to unvested restricted
shares by the basic weighted average number of shares outstanding. Diluted EPS is computed similar to basic EPS,
except the weighted average number of shares outstanding is increased to include the effect of potentially dilutive
securities. Because the Company reported a net loss for the period, no allocation was made to the unvested restricted
shares or the long-term incentive plan units.

Income Taxes

The Company is currently subject to corporate federal and state income taxes. Prior to April 21, 2010, the

Company had no operating results subject to taxation.

The Company elected to be taxed as a REIT for federal income tax purposes. In order to qualify as a REIT

under the Internal Revenue Code of 1986, as amended, the Company must meet certain organizational and
operational requirements, including a requirement to distribute at least 90% of its annual REIT taxable income to
its shareholders (which is computed without regard to the dividends paid deduction or net capital gain and which
does not necessarily equal net income as calculated in accordance with GAAP). As a REIT, the Company
generally will not be subject to federal income tax to the extent the Company distributes its REIT taxable income
to its shareholders. If the Company fails to qualify as a REIT in any taxable year, the Company will be subject to
federal income tax on its REIT taxable income at regular corporate income tax rates and generally will not be
permitted to qualify for treatment as a REIT for federal income tax purposes for the four taxable years following
the year during which qualification is lost unless the IRS grants the Company relief under certain statutory
provisions. Such an event could materially adversely affect the Company’s net income and net cash available for
distribution to shareholders. However, the Company has been organized and operates in such a manner as to
qualify for treatment as a REIT.

The Company leases its wholly owned hotels to TRS Lessees, which are wholly owned by the Company’s

taxable REIT subsidiaries (each, a “TRS”) which, in turn are wholly owned by the Operating Partnership.

F-11

Additionally, the Company owns its interest in 51 of the 55 JV hotels through the Operating Partnership and
owns its interest in the remaining 4 JV hotels through one of its TRSs. Each TRS is subject to federal and state
income taxes and the Company accounts for taxes, where applicable, in accordance with the provisions of
Financial Accounting Standards Board Accounting Standards Codification 740 using the asset and liability
method which recognizes deferred tax assets and liabilities for future tax consequences arising from differences
between financial statement carrying amounts and income tax bases.

As of December 31, 2012, the Company is no longer subject to U.S federal income tax examinations for
years before 2010 and with few exceptions to state examinations before 2010. The Company evaluates whether a
tax position of the Company is more likely than not to be sustained upon examination, including resolution of
any related appeals or litigation processes, based on the technical merits of the position. For tax positions
meeting the more likely than not threshold, the tax amount recognized in the financial statements is reduced by
the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement with
the relevant taxing authority. The Company has reviewed its tax positions for open tax years and has concluded
no provisions for income taxes is required in the Company’s consolidated financial statements as of
December 31, 2012. Interest and penalties related to uncertain tax benefits, if any, in the future will be
recognized as operating expense.

Organizational and Offering Costs

The Company expenses organizational costs as incurred. Offering costs, which include selling commissions,
are recorded as a reduction in additional paid-in capital in shareholders’ equity as shares are sold. Costs related to
the Company’s potential share offerings are included in deferred costs at December 31, 2012 and December 31,
2011, respectively, and will be recorded as a reduction in additional paid-in capital as shares are sold.

Segment Information

We evaluate all of our hotels as a single industry segment because all of the hotels have similar economic

characteristics and provide similar services to similar types of customers. Accordingly, we do not report segment
information.

Recently Issued Accounting Standards

In May 2011, the FASB issued ASU No. 2011-04, Fair Value Measurement (Topic 820): Amendments to

In June 2011, the FASB issued ASU No. 2011-05, Comprehensive Income (Topic 220), Presentation of

Comprehensive income. This update is intended to increase the prominence of other comprehensive income in
the financial statements by requiring public companies to present comprehensive income either as a single
statement detailing the components of net income and total net income, the components of other comprehensive
income and total other comprehensive income, and a total for comprehensive income or using a two statement
approach including both a statement of income and a statement of comprehensive income. The option to present
other comprehensive income in the statement of changes in equity has been eliminated. The amendments in this
update are effective for public companies for fiscal years, and interim periods beginning after December 15,
2011. Currently, the Company has no items of other comprehensive income in any periods presented.

F-12

3. Acquisition of Hotel Properties

Acquisition of Hotel Properties

On December 27, 2012, the Company acquired the Hampton Inn Portland Downtown, Portland, ME (the
“Portland Hotel”) for a purchase price of $28.0 million, plus customary pro-rated amounts and closing costs. The
Company funded the acquisition with available cash and borrowings under the Company’s secured revolving
credit facility.

The Company incurred acquisition costs of $0.2 million and $7.7 million, respectively, during the years

ended December 31, 2012 and 2011.

Hotel Purchase Price Allocation

The following are the allocations of the purchase price of the acquisitions in 2012 and 2011, based on the

fair value on the date of acquisition (in thousands):

Portland, ME
Acquisition

Acquisition date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

12/27/12

Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Building and improvements . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . .
Furniture, fixtures and equipment
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts receivable, net
. . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid expenses and other assets . . . . . . . . . . . . . . . . . . . .
Accounts payable and accrued expenses . . . . . . . . . . . . . . .

4,315
22,664
1,021
1
9
8
(19)

Net assets acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 27,999

Net assets acquired, net of cash . . . . . . . . . . . . . . . . . . . . . .

$ 27,998

5 Sisters
Acquisition

Acquisition date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

07/14/11

Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Building and improvements . . . . . . . . . . . . . . . . . . . . . . . . .
Furniture, fixtures and equipment . . . . . . . . . . . . . . . . . . . . .
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restricted cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts receivable, net . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred costs, net
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid expenses and other assets . . . . . . . . . . . . . . . . . . . .
Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts payable and accrued expenses . . . . . . . . . . . . . . .

$ 35,231
150,764
7,399
26
1,460
144
1,639
134
(134,160)
(630)

Net assets acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 62,007

Net assets acquired, net of cash . . . . . . . . . . . . . . . . . . . . . .

$ 61,981

The amount of revenue and operating income of the 5 Sisters included in the consolidated income statement
for the years ended December 31, 2012 and 2011 are $36.9 million and $17.6 million, respectively, for 2012 and
$16.2 million and $7.6 million, respectively, for 2011.

F-13

Pro Forma Financial Information (unaudited)

The following condensed unaudited pro forma financial information presents the results of operations as if
the hotels acquired in 2010 and 2011 had taken place on January 1, 2010. Since the acquisition of the Portland
hotel was not significant, the pro forma numbers presented below do not include the operating results of the
Portland hotel prior to the acquisition date. The unaudited pro forma results below exclude acquisition costs of
$3.2 million incurred during the year ended December 31, 2011. The pro forma net loss for the year ended
December 31, 2010 was adjusted to include these costs. The unaudited pro forma results have been prepared for
comparative purposes only and are not necessarily indicative of what actual results of operations would have
been had the acquisitions taken place on January 1, 2010, nor do they purport to represent the results of
operations for future periods (in thousands, except share and per share data).

Pro forma total revenue . . . . . . . . . . . . . . . .

Pro forma net loss . . . . . . . . . . . . . . . . .

2012

100,464

(1,450)

Pro forma loss per share:

Basic and diluted . . . . . . . . . . . . .

(0.10)

Weighted average Common Shares

For the years ended
December 31,
2011

91,305

(9,290)

(0.67)

2010

83,122

(9,079)

(0.66)

Outstanding Basic and diluted . . . . .

13,819,939

As a result of the properties being treated as acquired as of January1, 2010, the Company assumed
approximately 13,819,939 shares were issued as of January 1, 2010 to fund the acquisition of the properties.
Consequently, the weighted average shares outstanding was adjusted to reflect this amount of shares being issued
on January 1, 2010 instead of the actual dates on which the shares were issued, and such shares were treated as
outstanding as of the beginning of the periods presented.

4. Allowance for Doubtful Accounts

The Company maintains an allowance for doubtful accounts at a level believed to be adequate to absorb
estimated losses. That estimate is based on past loss experience, current economic and market conditions and
other relevant factors. The allowance for doubtful accounts was $28 thousand and $17 thousand as of
December 31, 2012 and 2011 respectively.

Investment in Hotel Properties

Investment in hotel properties as of December 31, 2012 and 2011 consisted of the following (in thousands):

December 31, 2012

December 31, 2011

Land and improvements . . . . . . . . . . . . . . .
Building and improvements . . . . . . . . . . . .
Furniture, fixtures and equipment . . . . . . . .
Renovations in progress . . . . . . . . . . . . . . .

Less accumulated depreciation . . . . . . . . . .

$ 63,428
360,301
21,381
5,145

450,255
(24,181)

Investment in hotel properties, net

. . . . . . .

$426,074

$ 60,064
332,399
17,469
3,897

413,829
(11,014)

$402,815

F-14

Investment in Unconsolidated Entities

On October 27, 2011, the Company acquired a 10.3% interest in the JV with Cerberus. The JV initially

acquired 64 properties for a total purchase price of approximately $1.02 billion, including assumption of
approximately $675 million of mortgage debt secured by 45 of the hotels with an interest rate of 6.71% and
maturing in 2017. The Company’s original investment of $37 million in the JV was funded through borrowings
under the Company’s secured revolving credit facility. The Company accounts for this investment under the
equity method. During the years ended, December 31, 2012 and 2011, the Company received cash distributions
from the JV related to the following (in thousands):

Cash from operations
Cash from asset sales
Cash from financing activities

Total

2012

2011

$ 4,368 —
5,076 —
11,759 —
$21,203 —

The Company’s ownership interest in the JV is subject to change in the event that either the Company or

Cerberus calls for additional capital contributions to the JV necessary for the conduct of business, including
contributions to fund costs and expenses related to capital expenditures. The Company manages the JV and will
receive a promote interest if the JV meets certain return thresholds. Cerberus may also approve certain actions by
the JV without the Company’s consent, including certain property dispositions conducted at arm’s length, certain
actions related to the restructuring of the JV and removal of the Company as managing member in the event the
Company fails to fulfill its material obligations under the joint venture agreement.

In the Company’s 2011 Annual Report on Form 10-K, the Company disclosed the balance sheet and
statement of operations of the Innkeepers acquisition based on the preliminary purchase price allocation.
Subsequent to the issuance of the Company’s 2011 Annual Report on Form 10-K and within the one year
measurement period, new information was obtained about facts and circumstances that existed as of the
acquisition date. As such, the purchase price allocation of the Innkeepers acquisition was retroactively adjusted
to include the effect of this measurement period adjustment. This measurement period adjustment did not have a
material impact on the Company’s financial statements as of December 31, 2011 and for the year then ended.
The retroactively adjusted purchase price allocation and Innkeepers balance sheet and statement of operations as
of December 31, 2011 and for the period from October 27, 2011 to December 31, 2011 are included in Part IV
Item 15 Section 4 Separate Financial Statements of Subsidiaries Not Consolidated in this Form 10-K.

F-15

7. Debt

The Company’s mortgage loans and its senior secured revolving credit facility are collateralized by a first-

mortgage lien on the underlying properties. The mortgages are non-recourse except for instances of fraud or
misapplication of funds. The Company’s debt consisted of the following (in thousands):

Collateral

Interest
Rate

Maturity Date

12/31/12
Property
Carrying
Value

Balance Outstanding as of

December 31,
2012

December 31,
2011

Senior Secured Revolving Credit Facility
Courtyard by Marriott Altoona, PA
SpringHill Suites by Marriott Washington, PA
Residence Inn by Marriott New Rochelle, NY
Residence Inn by Marriott Garden Grove, CA
Residence Inn by Marriott San Diego, CA
Homewood Suites by Hilton San Antonio, TX
Doubletree Suite by Hilton Washington, DC
Residence Inn by Marriott Vienna, VA

2.97% November 5, 2015 $164,819
11,195
April 1, 2016
5.96%
12,273
5.84%
April 1, 2015
20,351
5.75% September 1, 2021
41,437
5.98% November 1, 2016
49,373
5.98% November 1, 2016
30,745
6.03% October 1, 2016
28,002
6.03% October 1, 2016
34,744
6.03% October 1, 2016

$ 79,500
6,572
5,104
15,450
32,417
39,557
18,184
19,752
22,710

$ 67,500
6,753
5,260
15,731
32,417
39,986
18,380
19,960
22,953

$392,939

$239,246

$228,940

In May 2011, the Company amended its $85 million senior secured revolving credit facility. The

amendment increases the allowable consolidated leverage ratio to 60 percent through 2012, reducing to
55 percent in 2013; and decreased the consolidated fixed charge coverage ratio from 2.3x to 1.7x through March
2012, increasing to 1.75x through December 2012 and 2.0x in 2013. Subject to certain conditions, including
lender approval, the credit facility has an accordion feature that provides the Company with the ability to increase
the aggregate principal amount of the facility.

The Company further amended is senior secured revolving credit facility on November 5, 2012. Costs
associated with this amendment were approximately $1.2 million. The November 2012 amendment extends the
maturity date to November 5, 2015 and includes an option to extend the maturity date by an additional year.
Certain other terms have been amended as noted below.

Original Terms

Amended Terms

Facility amount
Accordion feature
LIBOR floor
Interest rate applicable margin

Unused fee

$85 million
Additional $25 million
1.25%
325-425 basis points, based on
leverage ratio
50 basis points

$95 million
Additional $20 million
None
200-300 basis points, based on
leverage ratio
25 basis points if less than 50%
unused, 35 basis points if more than
50% unused

Minimum fixed charge coverage
ratio

1.75-2.0x

1.5x

At December 31, 2012 and December 31, 2011, the Company had $79.5 million and $67.5 million,
respectively, of outstanding borrowings under its secured revolving credit facility. Ten properties in the

F-16

borrowing base secure borrowings under the credit facility at December 31, 2012. At December 31, 2012, the
maximum borrowing availability under the revolving credit facility was $95.0 million. On February 5, 2013, we
borrowed an additional $34.5 million under our senior secured revolving credit facility. The funds were used for
the acquisition of the Courtyard by Marriott Medical Center on February 5, 2013.

The Company estimates the fair value of its fixed rate debt using an income approach valuation method by

The Company estimates the fair value of its variable rate debt by taking into account general market
conditions and the estimated credit terms it could obtain for debt with similar maturity and is classified within
level 3 of the fair value hierarchy. The Company’s only variable rate debt is under its senior secured revolving
credit facility. The estimated fair value of the Company’s variable rate debt as of December 31, 2012 and
December 31, 2011 was $79.5 million and $67.5 million, respectively. At December 31, 2012, the Company’s
consolidated fixed charge coverage ratio was 2.03.

2013
2014
2015
2016
2017
Thereafter

Amount

1,981
2,106
86,286
134,733
378
13,762

$239,246

8. Income Taxes

The Company’s TRSs are subject to federal and state income taxes (TRS 1 and TRS 2, respectively).

The components of income tax expense for the following periods are as follows (in thousands):

For the Years Ended
December 31,
2011

2012

2010

Current:

Federal
State

Current tax expense

Deferred:

Federal
State

Deferred tax expense

Total tax expense

$ 55
19

$ 74

—

$ 73
21

$ 94

$ 13
4

$ 17

$(21) —
(4) —

$(25) —

$ 75

$ 69

$ 17

F-17

The difference between total income tax expense and the amount computed by applying the statutory federal

income tax rate to the combined income of the Company’s TRSs before taxes were as follows (in thousands):

For the Years Ended
December 31,
2011

2012

2010

Book income (loss) before income taxes

$ 159

$ 143

$ (238)

Statutory rate of 34% applied to pre-tax income
Effect of state and local income taxes, net of federal tax

benefit
Other items

Total expense

Effective tax rate

20
1

7
14

—

47.17% 48.25% -7.14%

At December 31, 2012, TRS 1 had a gross deferred tax asset associated with future tax deductions of $0.2
million. TRS 1 has continued to record a full valuation allowance equal to 100% of the gross deferred tax asset
due to the uncertainty of realizing the benefit of its deferred assets due to the cumulative taxable losses incurred
by TRS 1 since its inception. TRS 2 has a gross deferred tax asset of $0.1 million as of December 31, 2012 and
no valuation allowance has been recorded in connection with the gross deferred tax assets of TRS 2 for
December 31, 2012 and 21011. Accordingly, the net deferred tax asset of the Company solely relates to the
deferred tax assets generated by TRS 2 during the years ended December 31, 2012 and 2011. The tax effect of
each type of temporary difference and carry forward that gives rise to the deferred tax asset as of December 31,
2012 and 2011 are as follows (in thousands):

Deferred tax assets:
Current:

Allowance for doubtful accounts
Net operating loss carryforwards
Other
Valuation allowance

Deferred tax asset current

Non-current

Total book/tax difference fixed assets

Net deferred tax asset

9. Dividends Declared and Paid

Dividend information for 2012 and 2011 is as follows:

For the Years Ended
December 31,

2012

2011

5
35
229
(245)

—
—

—
192
(148)

—
(25)

$ 24

$ 25

2012

Quarter to which
distribution relates

First quarter
Second quarter
Third quarter
Fourth quarter

Record
Date

3/30/2011
6/29/2012
9/28/2012
12/31/2012

Payment Date

4/27/2012
7/27/2012
10/26/2012
1/25/2013

Common
share
distribution
amount

$0.175
0.200
0.200
0.200

Ordinary
income

Return of
capital

$0.092
$0.106
$0.106
$0.106

$0.083
0.094
0.094
0.094

$0.775

$0.410

$0.365

F-18

2011

Quarter to which
distribution relates

First quarter
Second quarter
Third quarter
Fourth quarter

Record
Date

3/31/2011
6/30/2011
9/30/2011
12/30/2011

Payment Date

4/15/2011
7/15/2011
10/14/2011
1/27/2012

Common
share
distribution
amount

$0.175
0.175
0.175
0.175

$0.700

Ordinary
income

Return of
capital

$0.01
$0.01
$0.01
$0.01

$0.04

$0.165
0.165
0.165
0.165

$0.660

For the years ended December 31, 2012 and 2011, approximately 52.9% and 5.7% of the distributions paid

to stockholders were considered taxable income and approximately 47.1% and 94.3% were considered a return of
capital for federal income tax purposes, respectively.

10. Shareholders’ Equity

Common Shares

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

The Company completed a public offering of 4,600,000 common shares at a $16.00 price per share

generating $73.6 million in gross proceeds on February 8, 2011. Net proceeds were approximately $69.4 million
after underwriters’ discounts and commissions and other offering costs paid to third parties. As of December 31,
2012, 13,908,907 common shares were outstanding.

During the year ended December 31, 2011, the Company withheld 915 common shares of beneficial interest
that had vested to an executive in accordance with the Equity Incentive Plan, the shares were withheld at a value
of $16.43 per share to meet the minimum statutory tax withholding requirements of the executive which were
directly remitted by the Company to the appropriate taxing jurisdiction. The price per share is determined by
using the closing price of the common shares the day before they are withheld.

Preferred Shares

The Company is authorized to issue up to 100,000,000 preferred shares, $.01 par value per share. No

preferred shares were outstanding at December 31, 2012.

Operating Partnership Units

Holders of common units in the Operating Partnership, if and when issued, will have certain redemption
rights, which will enable the unit holders to cause the Operating Partnership to redeem their units in exchange
for, at the Company’s option, cash per unit equal to the market price of the Company’s common shares at the
time of redemption or for the Company’s common shares on a one-for-one basis. The number of shares issuable
upon exercise of the redemption rights will be adjusted upon the occurrence of share splits, mergers,
consolidations or similar pro-rata share transactions, which otherwise would have the effect of diluting the
ownership interests of limited partners or shareholders. As of December 31, 2012 and 2011, there were no
Operating Partnership common units held by unaffiliated third parties. At December 31, 2012 and 2011, an
aggregate of 257,775 LTIP Units, a special class of operating partnership units, were held by executive officers.
The LTIP Units receive per unit distributions equal to the per share distribution paid on common shares.

F-19

11. Earnings Per Share

The two class method is used to determine earnings per share because unvested restricted shares and

unvested long-term incentive plan units are considered to be participating shares. The following is a
reconciliation of the amounts used in calculating basic and diluted net income (loss) per share (in thousands,
except share and per share data):

For the years ended
December 31,
2011

2010

2012

Numerator:

Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Dividends paid on unvested shares . . . . . . . . . . . . . . .

Net loss attributable to common shareholders . . . . . . $

(1,450)
(272)

(1,722)

(9,105)
(41)

(9,146)

(1,217)
—

(1,217)

Denominator:

Weighted average number of common shares -

basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

13,811,691

13,280,149

6,377,333

Effect of dilutive securities:

Unvested shares (1) . . . . . . . . . . . . . . . . . . . . . . .

—

Weighted average number of common shares -

diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

13,811,691

13,280,149

6,377,333

Basic Earnings per Common Share:

Net loss attributable to common shareholders per

weighted average common share . . . . . . . . . . . . . . $

(0.12)

(0.69)

(0.20)

Diluted Earnings per Common Share:

Net loss attributable to common shareholders per

weighted average common share . . . . . . . . . . . . . . $

(0.12)

(0.69)

(0.20)

(1) Unvested restricted shares and unvested long-term incentive plan units that could potentially dilute basic

earnings per share in the future were not included in the computation of diluted earnings (loss) per share, for
the periods where a loss has been recorded, because they would have been anti-dulitive for the periods
presented.

12. Equity Incentive Plan

The Company maintains its Equity Incentive Plan to attract and retain independent trustees, executive
officers and other key employees and service providers. The plan provides for the grant of options to purchase
common shares, share awards, share appreciation rights, performance units and other equity-based awards. Share
awards under this plan generally vest over three to five years, though compensation for the Company’s
independent trustees includes shares granted that vest immediately. The Company pays dividends on unvested
shares and units, except for performance based shares, for which dividends on unvested shares are not paid until
those shares are vested. Certain awards may provide for accelerated vesting if there is a change in control. In
January 2012 and 2011, the Company issued 27,592 and 12,104 common shares, respectively, to its independent
trustees as compensation for services performed in 2011 and 2010. The quantity of shares was calculated based
on the average of the closing prices for the Company’s common shares on the New York Stock Exchange for the
last ten trading days preceding the reporting date. On January 15, 2013, the Company distributed 22,536 common
shares to its independent trustees for services performed in 2012. As of December 31, 2012, there were 69,571
common shares available for issuance under the 2010 Equity Incentive Plan.

F-20

Restricted Share Awards

On February 23, 2012, the Company granted 114,567 restricted common shares to the Company’s executive

officers pursuant to the Equity Incentive Plan, consisting of time-based awards of 61,376 shares that will vest
over a three-year period and 53,191 shares granted as performance-based equity. The performance-based shares
will be issued and vest over a three-year period only if and to the extent that long-term performance criteria
established by the Board of Trustees are met and the recipient remains employed by the Company on the vesting
date. The Company met its criteria for 2012, therefore, on January 15, 2013; the Company issued 17,731 shares
to its executive officers. Included in the 61,376 grant of time-based share awards are 8,184 share grants made to
certain employees not subject to employment agreements.

The Company measures compensation expense for time-based vesting restricted share awards based upon

the fair market value of its common shares at the date of grant. For the performance-based shares, compensation
expense is based on a valuation of $10.20 per performance share granted, which takes into account that some or
all of the awards may not vest if long-term performance criteria are not met during the vesting period.
Compensation expense is recognized on a straight-line basis over the vesting period and is included in general
and administrative expense in the accompanying consolidated statements of operations. The Company pays
dividends on nonvested restricted shares. Dividends for performance-based shares are accrued and paid annually
only if and to the extent that long-term performance criteria established by the Board are met and the recipient
remains employed by the Company.

A summary of the Company’s restricted share awards for the years ended December 31, 2012, 2011 and

2010 is as follows:

2012

Weighted -
Average Grant
Date Fair
Value

Number of
Shares

Nonvested at beginning of the

period . . . . . . . . . . . . . . . . . . . . . . .

51,029
Granted . . . . . . . . . . . . . . . . . . . . . . . . 114,567
(25,519)
Vested . . . . . . . . . . . . . . . . . . . . . . . . .
—
Forfeited . . . . . . . . . . . . . . . . . . . . . . .

Nonvested at end of the period . . . . . . 140,077

$19.04
11.28
19.04
—

$12.70

2011

Weighted -
Average Grant
Date Fair
Value

$19.04
—
19.04
—

$19.04

2010

Weighted -
Average Grant
Date Fair
Value

$19.02
—
18.86
18.86

$19.04

Number of
Shares

87,000
—
(7,200)
(3,250)

76,550

Number of
Shares

76,550
—
(25,521)
—

51,029

As of December 31, 2012 and 2011, respectively, there were $1.1 million and $0.7 million of unrecognized
compensation costs related to restricted share awards. As of December 31, 2012, these costs were expected to be
recognized over a weighted–average period of approximately 1.1 years. For the years ended December 31, 2012,
2011 and 2010, respectively, the Company recognized approximately $0.9 million, $0.5 million and $0.4 million
in expense related to the restricted share awards. This expense is included in general and administrative expenses
in the accompanying consolidated statement of operations. During 2012 and 2011, 25,519 and 25,521 shares
vested, respectively.

Long-Term Incentive Plan Units

LTIP Units are a special class of partnership interests in the Operating Partnership which may be issued to

eligible participants for the performance of services to or for the benefit of the Company. Under the Equity
Incentive Plan, each LTIP Unit issued is deemed equivalent to an award of one common share thereby reducing
the availability for other equity awards on a one-for-one basis. The Company does not receive a tax deduction for
the value of any LTIP Units granted to employees. LTIP Units, whether vested or not, receive the same per unit
profit distributions as other outstanding units of the Operating Partnership, which profit distribution will
generally equal per share dividends on the Company’s common shares. Initially, LTIP Units have a capital
account balance of zero, and do not have full parity with common Operating Partnership units with respect to

F-21

liquidating distributions. The Operating Partnership will revalue its assets upon the occurrence of certain
specified events and any increase in valuation will be allocated first to the holders of LTIP Units to equalize the
capital accounts of such holders with the capital accounts of the Operating Partnership unit holders. If such parity
is reached, vested LTIP Units may be converted by the holder, at any time, into an equal number of common
units of limited partnership interest in the Operating Partnership (“OP Units”), which may be redeemed, at the
option of the holder, for cash or at the Company’s option an equivalent number of the Company’s common
shares.

On April 21, 2010, the Company’s Operating Partnership granted 246,960 LTIP Units to the Company’s
executive officers pursuant to the Equity Incentive Plan, all of which are accounted for in accordance with FASB
Codification Topic (“ASC”) 718, “Stock Compensation”. On September 9, 2010, the Company’s Operating
Partnership granted 26,250 LTIP units to the Company’s then new Chief Financial Officer and 15,435 LTIP units
granted to the Company’s former Chief Financial Officer were forfeited. These LTIP Units vest ratably over a
five-year period beginning on the date of grant.

The LTIP Units’ fair value was determined by using a discounted value approach. In determining the
discounted value of the LTIP Units, the Company considered the inherent uncertainty that the LTIP Units would
never reach parity with the other OP Units and thus have an economic value of zero to the grantee. Additional
factors considered in reaching the assumptions of uncertainty included discounts for illiquidity; expectations for
future dividends; limited or no operating history as of the date of the grant; significant dependency on the efforts
and services of our executive officers and other key members of management to implement the Company’s
business plan; available acquisition opportunities; and economic environment and conditions. The Company used
an expected stabilized dividend yield of 5.0% and a risk free interest rate of 2.33% based on a five-year U.S.
Treasury yield.

The Company recorded $0.8 million, $0.8 million and $0.5 million in compensation expense related to the

LTIP Units for the years ended December 31, 2012, 2011 and 2010, respectively. As of December 31, 2012,
there was $1.8 million of total unrecognized compensation cost related to LTIP Units. This cost is expected to be
recognized over 2.3 years, which represents the weighted average remaining vesting period of the LTIP Units. As
of December 31, 2012, none of the LTIP Units had reached parity.

13. Commitments and Contingencies

Litigation

The nature of the operations of the hotels exposes the hotels, the Company and the Operating Partnership to

the risk of claims and litigation in the normal course of their business. The Company is not presently subject to
any material litigation nor, to the Company’s knowledge, is any material litigation threatened against the
Company or its properties.

Hotel Ground Rent

The Altoona hotel is subject to a ground lease with an expiration date of April 30, 2029 with an extension
option of up to 12 additional terms of five years each. Monthly payments are determined by the quarterly average
room occupancy of the hotel. Rent is equal to approximately $7,000 per month when monthly occupancy is less
than 85% and can increase up to approximately $20,000 per month if occupancy is 100%, with minimum rent
increased on an annual basis by two and one-half percent (2.5%).

At the New Rochelle Residence Inn, there are an air rights lease and garage lease that each expire on
December 1, 2104. The lease agreements with the City of New Rochelle cover the space above the parking
garage that is occupied by the hotel as well as 128 parking spaces in a parking garage that is attached to the hotel.
The annual base rent for the garage lease is the hotel’s proportionate share of the city’s adopted budget for the
operations, management and maintenance of the garage and established reserves fund for the cost of capital
repairs.

F-22

Future minimum rental payments under the terms of all non-cancellable operating ground leases under
which the Company is the lessee are expensed on a straight-line basis regardless of when payments are due.

The following is a schedule of the minimum future obligation payments required under the ground, air
rights and garage leases as of December 31, 2012, for each of the next five calendar years and thereafter (in
thousands):

2013
2014
2015
2016
2017
Thereafter

Total

Amount

205
207
210
212
214
11,445

$12,493

Management Agreements

The management agreements with Concord, the manager of the Altoona, Pennsylvania Courtyard and the

Washington, Pennsylvania SpringHill Suites, provide for base management fees equal to 4% of the managed
hotel’s gross room revenue. The initial ten-year term of each management agreement expires on February 28,
2017 and will renew automatically for successive one-year terms unless terminated by the TRS lessee or the
manager by written notice to the other party no later than 90 days prior to the then current term’s expiration date.
The management agreements may be terminated for cause, including the failure of the managed hotel operating
performance to meet specified levels. If the Company were to terminate the management agreements during the
first nine years of the term other than for breach or default by the manager, the Company would be responsible
for paying termination fees to the manager.

The Company assumed the existing hotel management agreements in place at six of its hotels — the Boston-

Billerica Homewood Suites, Minneapolis-Bloomington Homewood Suites, Nashville-Brentwood Homewood
Suites, Dallas Homewood Suites, Hartford-Farmington Homewood Suites and Orlando-Maitland Homewood
Suites — all of which were managed by Promus Hotels, Inc., a subsidiary of Hilton Hotels Worldwide
(“Hilton”). Each of these management agreements was terminated and new management agreements were
entered into with IHM, which is 90% owned by Mr. Fisher during 2012.

All of the remaining hotels are managed by IHM, which is 90% owned by Mr. Fisher. The management
agreements with IHM have an initial term of five years and may be renewed for two five-year periods at IHM’s
option by written notice to us no later than 90 days prior to the then current term’s expiration date. The IHM
management agreements provide for early termination at the Company’s option upon sale of any IHM-managed
hotel for no termination fee, with six months advance notice. The IHM management agreements may be
terminated for cause, including the failure of the managed hotel to meet specified performance levels.
Management agreements with IHM provide for a base management fee of 3% of the managed hotel’s gross
revenues for the Hampton Inn Houston, TX, Residence Inn Holtsville, NY, Residence Inn White Plains, NY,
Residence Inn New Rochelle, NY, Homewood Suites Carlsbad, CA and Hampton Inn Portland, ME and a 2.5%
of the managed hotel’s gross revenues for the Residence Inn Garden Grove, CA, Residence Inn San Diego, CA,
Homewood Suites San Antonio, TX, Doubletree Suites Washington, DC and Residence Inn Tysons Corner, VA
and 2% for the six hotels transitioned to IHM from Hilton. Management agreements with IHM also provide for
accounting fees of $1,000 per month per hotel, revenue management fees up to $550 per month and, if certain
financial thresholds are met or exceeded, an incentive management fee equal to 10% of the hotel’s net operating
income less fixed costs, base management fees and a specified return threshold. The incentive management fee is
capped at 1% of gross hotel revenues for the applicable calculation. Incentive management fees paid by the
Company to IHM for the years ended December 31, 2012, 2011 and 2010, respectively, were $16 thousand, $0
thousand and $0 thousand.

F-23

Management fees are recorded within hotel other operating expenses on the consolidated statements of

operations and totaled approximately $2.6 million and $2.0 million, respectively, for the years ended
December 31, 2012 and 2011, respectively.

Franchise Agreements

One of the Company’s TRS Lessees has entered into hotel franchise agreements with Promus Hotels, Inc., a

subsidiary of Hilton, for eight Homewood Suites by Hilton® hotels. Each of the hotel franchise agreements has
an initial term ranging from 15-18 years. These Hilton hotel franchise agreements provide for a franchise royalty
fee up to 6% of the hotel’s gross room revenue and a program fee equal to 4% of the hotel’s gross room revenue.
The Hilton franchise agreements provide that the franchisor may terminate the franchise agreement in the event
that the applicable franchisee fails to cure an event of default, or in certain circumstances such as the franchisee’s
bankruptcy or insolvency, are terminable by Hilton at will.

One of the Company’s TRS Lessees has entered into franchise agreements with Marriott International, Inc.,
(“Marriott”), relating to our Residence Inn properties in Holtsville, New York, New Rochelle, New York, White
Plains, New York, Garden Grove, CA, San Diego, CA and Vienna, VA, its Courtyard property in Altoona,
Pennsylvania and our SpringHill Suites property in Washington, Pennsylvania. These franchise agreements have
initial terms ranging from 15 to 20 years and will expire between 2025 and 2031. None of the agreements have a
renewal option. The Marriott franchise agreements provide for franchise fees ranging from 5.0% to 5.5% of the
hotel’s gross room sales and marketing fees ranging from 2.0% to 2.5% of the hotel’s gross room sales. The
Marriott franchise agreements are terminable by Marriott in the event that the applicable franchisee fails to cure
an event of default or, in certain circumstances such as the franchisee’s bankruptcy or insolvency, are terminable
by Marriott at will. The Marriott franchise agreements provide that, in the event of a proposed transfer of the
hotel, its TRS Lessee’s interest in the agreement or more than a specified amount of the TRS Lessee to a
competitor of Marriott, Marriott has the right to purchase or lease the hotel under terms consistent with those
contained in the respective offer and may terminate if our TRS Lessee elects to proceed with such a transfer.

One of the Company’s TRS Lessees has entered into franchise agreements with Hampton Inns Franchise LLC,

(“Hampton Inns”), relating to the Hampton Inn & Suites® Houston-Medical Center and Hampton Inn® Portland
Downtown The franchise agreement for the Houston-Medical Center hotel has an initial term of approximately
10 years and expires on July 31, 2020. The franchise agreement for the Portland hotel has an initial term of
approximately 20 years and expires on February 29, 2032.The Hampton Inns franchise agreement provides for a
monthly program fee equal to 4% of the hotel’s gross rooms revenue and a monthly royalty fees ranging from 5% to
6% of the hotel’s gross rooms revenue. None of the agreements have a renewal option. Hampton Inns may
terminate the franchise agreement in the event that the franchisee fails to cure an event of default or, in certain
circumstances such as the franchisee’s bankruptcy or insolvency, Hampton Inns may terminate the agreement at
will.

One of the Company’s TRS lessees has entered into a franchise agreement with Doubletree Franchise LLC

(“Doubletree”), relating to the Doubletree Guest Suites by Hilton in Washington, DC. The new hotel franchise
agreement has an initial term of 10 years and will expire on July 31, 2021. The franchise agreement is non-
renewable. The Doubletree hotel franchise agreement provides for a franchise royalty fee equal to 5% of the
hotel’s gross room revenue and a program fee equal to 4% of the hotel’s gross room revenue. The Doubletree
franchise agreement generally has no termination rights unless the franchisee fails to cure an event of default in
accordance with the franchise agreements. The Doubletree franchise agreement was terminated on January 31,
2013 and is expected to be re-branded as a Residence Inn by Marriott in May 2013.

Franchise fees are recorded within hotel other operating expenses on the consolidated statements of operations
and totaled approximately $7.5 million and $5.6 million, respectively, for the years ended December 31, 2012
and 2011, respectively.

F-24

14. Related Party Transactions

Mr. Fisher owns 90% of IHM. The Company has hotel management agreements with IHM to manage 17 of

its hotels as of December 31, 2012. During 2012, the Company terminated the management agreements of six
hotels previously operated by Hilton and entered into new management agreements with IHM under generally
the same fee structure as the Hilton agreements and terms consistent with the other IHM agreements. Of the 55
hotels owned by the JV, 54 are managed by IHM. Management and accounting fees paid by the Company to
IHM for the years ended December 31, 2012 and 2011 were $2.3 million and $1.3 million, respectively. At
December 31, 2012 and December 31, 2011, the amounts due to IHM were $0.4 and $0.3 million, respectively.

Cost reimbursements from unconsolidated real estate entities revenue represents reimbursements of costs
incurred on behalf of the JV. These costs relate primarily to payroll costs at the JV where the Company is the
employer. As the Company records cost reimbursements based upon costs incurred with no added markup, the
revenue and related expense has no impact on the Company’s operating income or net income. Cost
reimbursements from the JV are recorded based upon the occurrence of a reimbursed activity.

Mr. Fisher entered into a participation agreement with Cerberus by which Mr. Fisher acquired a less than

1% non-voting interest in the Cerberus percentage ownership of the JV.

15. Quarterly Operating Results (unaudited)

March 31

June 30

September 30

December 31

Quarter Ended - 2012

Total revenue
Total operating expenses
Operating income
Net income (loss) attributable to

common shareholders

Income (loss) per common share,

basic and diluted (1)

Weighted average number of common

shares outstanding:

22,827
20,180
2,647

(1,731)

(0.13)

(in thousands, except per share data)
27,002
$
21,774
5,228

26,359
21,943
4,416

1,157

0.08

1,498

0.10

16,850
21,917
2,359

(2,374)

(0.18)

Basic
Diluted

13,794,986
13,794,986

13,810,190
13,908,907

13,819,371
13,908,907

13,822,021
13,908,907

March 31

June 30

September 30

December 31

Quarter Ended- 2011

Total revenue
Total operating expenses
Operating income (loss)
Net loss attributable to common

shareholders

Loss per common share, basic and

diluted (1)

Weighted average number of common

shares outstanding:

12,487
11,737
750

(in thousands, except per share data)
23,578
$
21,390
2,188

14,902
16,190
(1,288)

(19)

0.00

(1,936)

(0.14)

(955)

(0.07)

22,129
23,650
(1,521)

(6,195)

(0.45)

Basic
Diluted

11,800,771
11,800,771

13,757,449
13,757,449

13,766,297
13,766,297

13,768,910
13,768,910

(1) The sum of per share amounts for the four quarters may differ from the annual per share amounts due to the

required method of computing weighted-average number of common shares outstanding in the respective periods.

F-25

16. Subsequent Events

On January 10, 2013, the Hampton Inn – Portland, Maine hotel was added to the secured revolving credit

facility borrowing base.

On January 14, 2013, the Company completed a follow-on common share offering that resulted in the sale

of 3,500,000 common shares at $14.70 per share, generating gross proceeds of $51.5 million. Net proceeds, after
underwriters’ discounts and commissions and other offering costs, were approximately $49.1 million. The funds
were used to pay down $47.5 million of debt on its secured revolving credit facility.

On January 18, 2013, the Company refinanced the mortgage loans for the Residence Inn Tysons Corner and

the Homewood Suites San Antonio hotel. The Residence Inn Tysons Corner loan amount is $24.2 million at an
interest rate of 4.49%. The Homewood Suites San Antonio hotel loan amount is $17.7 million at an interest rate
of 4.59%. Both loans have a 10 year term and a 30 year amortization payment schedule. There were no
prepayment penalties incurred with these transactions. Costs to complete these transactions were $0.3 million.

On January 31, 2013, the Company paid off the mortgage loan for the Doubletree Suites Washington, DC

for approximately $19.7 million. There was no prepayment penalty or significant costs incurred with this
transaction.

On January 31, 2013, the underwriters’ option to purchase additional shares associated with the January 14,

2013 offering were exercised for 92,677 shares at $14.70 per common share, generating gross proceeds of
$1.4 million. Net proceeds, after underwriters’ discounts and commissions and other offering costs, were
approximately $1.3 million.

On February 1, 2013, the Company refinanced the mortgage loan for the Residence Inn Mission Valley in

San Diego, CA. The loan amount is $30.9 million at an interest rate of 4.66%. The loan has a 10 year term and a
30 year amortization payment schedule. There was no prepayment penalty or significant costs incurred with this
transaction.

On February 5, 2013, the Company acquired the Courtyard by Marriott Houston Medical Center hotel for
approximately $34.8 million, plus customary pro-rated amounts and closing costs. The purchase was paid from
available cash and an additional borrowing under the secured revolving credit facility on February 5, 2013. The
hotel will be managed by IHM.

F-26

CHATHAM LODGING TRUST
SCHEDULE III — REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 2012
(in thousands)

Initial Cost

Gross Amount at End of
Year

Description

Homewood Suites Orlando — Maitland, FL
Homewood Suites Boston — Billerica, MA
Homewood Suites Minneapolis—Mall of America,

Year
of
Acqui-
sition

2010
2010

Encum-
brances

Land
Improve-
ments

Buildings &
Improve-
ments

(1) $ 1,800
1,470
(1)

7,200
10,555

Bloomington,

2010
2010
Homewood Suites Nashville — Brentwood, TN
Homewood Suites Dallas — Market Center, Dallas, TX 2010
2010
Homewood Suites Hartford — Farmington, CT
2010
Hampton Inn & Suites Houston — Houston, TX
2010
Residence Inn Holtsville — Holtsville, NY
2010
Courtyard Altoona — Altoona, PA
2010
SpringHill Suites Washington — Washington, PA
2010
Residence Inn White Plains — White Plains, NY
2010
Residence Inn New Rochelle — New Rochelle, NY
2010
Homewood Suites Carlsbad — Carlsbad, CA
2011
Residence Inn Garden Grove — Garden Grove, CA
2011
Residence Inn Mission Valley — San Diego, CA
2011
Homewood Suites San Antonio — San Antonio, TX
2011
Doubletree Suites Washington DC — Washington, DC
2011
Residence Inn Tyson's Corner — Vienna, VA
2012
Hampton Inn Portland Downtown — Portland, ME

(1)
(1)
(1)
(1)
(1)
(1)
6,572
5,104
(1)
15,450
(1)
32,417
39,557
18,184
19,752
22,710
—

3,500
1,525
2,500
1,325
3,200
2,200
—
1,000
2,200
—
3,900
7,109
9,652
5,905
5,981
5,634
4,315

Cost
Cap.
Sub.
To
Acq.
Land

$ 34
36

19
12
17
92

13,960
9,300
7,583
9,375

12,709 —
18,765 —
10,730 —
10,692 —
17,677 —
20,281 —
27,520 —
35,484 —
39,535 —
24,764
2
22,063 —
28,917 —
22,664 —

Cost
Cap.
Sub. To
Acq.
Bldg &
Improve-
ments

Buildings
&
Impro
vements

Land

Total

Bldg &
Impro
vements

Accum
ulated
Depre
ciation

Year of
Original
Const
ruction

Depre
ciation
Life

$ 1,061 $ 1,834 $

907

1,506

8,261 $ 10,095 $
11,462

12,968

8,261 $
11,462

568
851

2000
1999

40 Years
40 Years

888
721
887
885
548
724
840
697
1,095
886
82
61
85
72
58
30

—

3,519
1,537
2,517
1,417
3,200
2,200
—
1,000
2,200
—
3,900
7,109
9,652
5,907
5,981
5,634
4,315

14,848
10,021
8,470
10,260
13,257
19,489
11,570
11,389
18,772
21,167
27,602
35,545
39,620
24,836
22,121
28,947
22,664

18,367
11,558
10,987
11,677
16,457
21,689
11,570
12,389
20,972
21,167
31,502
42,654
49,272
30,743
28,102
34,581
26,979

14,848
10,021
8,470
10,260
13,257
19,489
11,570
11,389
18,772
21,167
27,602
35,545
39,620
24,836
22,121
28,947
22,664

1,080
737
648
766
828
1,187
689
680
1,043
1,257
1,491
1,307
1,459
917
817
1,065
8

1998
1998
1998
1999
1997
2004
2001
2000
1982
2000
2008
2003
2003
1996
1974
2001
2011

40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years
40 Years

Grand Total(s)

$63,216

$349,774

$212

$10,527 $63,428 $360,301 $423,729 $360,301 $17,398

(1) This property is pledged as collateral to borrowings made under the revolving credit facility obtained on October 12, 2010, which had outstanding borrowings of $79,500 as
of December 31, 2012.

Notes:

(a) The change in total cost of real estate assets for the year ended is as follows:

Balance at the beginning of the year
Acquisitions
Dispositions during the year
Capital expenditures and transfers from construction-in-progress

Investment in Real Estate

(b) The change in accumulated depreciation and amortization of real estate assets for the year ended is as follows:
Balance at the beginning of the year
Depreciation and amortization

Balance at the end of the year

2012

2011

2010

$392,463
26,979
(951)
5,238

$200,974
185,995

$ —
200,967

—
5,494

—

$423,729

$392,463

$200,974

8,394
9,004

1,901
6,493

$ —
1,901

$ 17,398

8,394

1,901

(c) The aggregate cost of properties for federal income tax purposes (in thousands) is approximately $426,074 as of December 31, 2012.

F-27

[THIS PAGE INTENTIONALLY LEFT BLANK]

Corporate Information

MANAGEMENT

BOARD OF TRUSTEES

Jeffrey H. Fisher
Chairman of the Board,
Chief Executive Officer
and President

Dennis Craven
Executive Vice President and
Chief Financial Officer

Peter Willis
Executive Vice President
and Chief Investment Officer

Miles Berger
Chairman and
Chief Executive Officer
Berger Management
Services LLC

Thomas J. Crocker
Chief Executive Officer
Crocker Partners, LLC

Jack P. DeBoer
Chairman
Consolidated Holdings, Inc.

Eric Kentoff
Vice President, General Counsel
and Secretary

Glen R. Gilbert
Private Investor

INDEPENDENT REGISTERED
CERTIFIED PUBLIC
ACCOUNTANTS

PricewaterhouseCoopers LLP
401 East Las Olas Boulevard
Suite 1800
Fort Lauderdale, FL 33301

C. Gerald Goldsmith
Private Investor

Robert Perlmutter
Executive Vice President
The Macerich Company

Rolf E. Ruhfus
Chairman and
Chief Executive Officer
LodgeWorks Corporation

Joel F. Zemans
Private Investor

SHAREHOLDER
INFORMATION

Investor Relations:
Chatham Lodging Trust
50 Cocoanut Row
Suite 211
Palm Beach, FL 33480
Tel: 561.802.4477
Fax: 561.650.0958

ANNUAL MEETING OF
SHAREHOLDERS

The Annual Meeting of
Shareholders Will Be Held
On Friday, May 17, 2013
at 9am EST

The Brazilian Court Hotel
301 Australian Avenue
Palm Beach, FL 33480

TRANSFER AGENT,
REGISTRAR

Wells Fargo Bank, N.A.
Wells Fargo Shareowner Services
161 North Concord Exchange
South St. Paul, Minnesota 55075

Chatham Lodging Trust

2012 Annual Report

50 Cocoanut Row • Suite 211 • Palm Beach, FL 33480
Phone: 561.802.4477 • Fax: 561.835.4125
Website: www.chathamlodgingtrust.com