UNITED ~~STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549~~STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

S		Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
		For the fiscal year ended December 31, 2011
or
£		Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

x	Annual Report Pursuant to Section 13 or 15(d) of the Securities 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

Commission File Number 000-51270

APPLE REIT SIX, INC.~~(Exact name of registrant as specified in its charter)~~

Virginia(State of Organization)		20-0620523(I.R.S. Employer Identification Number)
814 East Main StreetRichmond, Virginia(Address of principal executive offices)		23219(Zip Code)
(804) 344-8121(Registrant’s telephone number, including area code)

(Exact name of registrant as specified in its charter)

VIRGINIA	20-0620523
(State of Organization)	(I.R.S. Employer Identification Number)

814 EAST MAIN STREET RICHMOND, VIRGINIA	23219
(Address of principal executive offices)	(Zip Code)

(804) 344-8121

(Registrant’s telephone number, including area code)

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

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

Units (Each Unit is equal to one common share, no par value, and one Series A preferred share)

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

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

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 S x 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). Yes S x No £ ¨

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

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

Large accelerated filer £¨ Accelerated filer £¨ Non-accelerated filer Sx (Do not check if a smaller reporting company) 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 £ ¨ No S x

There is currently no established public trading market in which the Company’s common shares are traded. Based upon the price that ~~Apple~~the ~~REIT Six, Inc.~~Company’s common equity last sold, which was $11, on June 30, ~~2011~~2012, the aggregate market value of the voting common equity held by non-affiliates of the ~~registrant~~ Company on such date was approximately $1,~~006~~003,~~569~~255,000. The Company does not have any non-voting common equity.

~~Number~~The number of ~~registrant’s~~ common shares outstanding as of ~~March~~February 115, ~~2012:~~2013 was 91,~~050~~226,~~957~~580.

Documents Incorporated by Reference

~~The~~Portions ~~information~~of ~~required~~our definitive proxy statement for the 2013 Annual Meeting of Shareholders are incorporated by ~~Part~~reference into Part III of this report or, toin the ~~extent~~event we do not ~~set~~prepare ~~forth~~and ~~herein,~~file issuch ~~incorporated~~proxy bystatement, ~~reference~~such ~~from~~information ~~the~~shall ~~registrant’s~~be ~~definitive~~filed ~~proxy~~as ~~statement~~an ~~for~~amendment ~~the~~to ~~annual~~this ~~meeting~~Form of10-K. ~~shareholders~~Such toinformation shall be ~~held~~filed onno ~~May~~later than April 1730, ~~2012~~ 2013.

~~APPLE REIT SIX, INC.FORM 10-KIndex~~Index

			Page
Part I
	Item 1.	Business		2
	Item 1A.	Risk Factors		7
	Item 1B.	Unresolved Staff Comments		10
	Item 2.	Properties		10
	Item 3.	Legal Proceedings		13
	Item 4.	Mine Safety Disclosures		14
Part II
	Item 5.	Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities		15
	Item 6.	Selected Financial Data		17
	Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		20
	Item 7A.	Quantitative and Qualitative Disclosures about Market Risk		31
	Item 8.	Financial Statements and Supplementary Data		32
	Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure		52
	Item 9A.	Controls and Procedures		52
	Item 9B.	Other Information		52
Part III
	Item 10.	Directors, Executive Officers and Corporate Governance		53
	Item 11.	Executive Compensation		53
	Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters		53
	Item 13.	Certain Relationships and Related Transactions, and Director Independence		53
	Item 14.	Principal Accounting Fees and Services		53
Part IV
	Item 15.	Exhibits, Financial Statement Schedules		54
Signatures

APPLE REIT SIX, INC.

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

1Index

			Page
Part I
	Item 1.	Business	3
	Item 1A.	Risk Factors	9
	Item 1B.	Unresolved Staff Comments	12
	Item 2.	Properties	13
	Item 3.	Legal Proceedings	15
	Item 4.	Mine Safety Disclosures	16

Part II
	Item 5.	Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities	17
	Item 6.	Selected Financial Data	20
	Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	23
	Item 7A.	Quantitative and Qualitative Disclosures about Market Risk	37
	Item 8.	Financial Statements and Supplementary Data	38
	Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	59
	Item 9A.	Controls and Procedures	59
	Item 9B.	Other Information	59

Part III
	Item 10.	Directors, Executive Officers and Corporate Governance	60
	Item 11.	Executive Compensation	60
	Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters	60
	Item 13.	Certain Relationships and Related Transactions, and Director Independence	60
	Item 14.	Principal Accounting Fees and Services	60

Part IV
	Item 15.	Exhibits, Financial Statement Schedules	61

Signatures

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

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PART I

This Annual Report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements are typically identified by use of terms such as “may,” “believe,” “expect,” “anticipate,” “intend,” “estimate,” “project,” “target,” “goal,” “plan,” “should,” “will,” “predict,” “potential,” and similar expressions that convey the uncertainty of future events or outcomes. Such statements involve known and unknown risks, uncertainties, and other factors which may cause the actual results, performance, or achievements of Apple REIT Six, Inc. (“the “Company”) to be materially different from future results, performance or achievements expressed or implied by such forward-looking statements. Such factors include, but are not limited to, the ability of the Company to implement its acquisition strategy and operating strategy; the Company’s ability to manage planned growth; changes in economic cycles; financing risks; the outcome of current and future litigation, regulatory proceedings or inquiries; changes in laws or regulations or interpretations of current laws and regulations that impact the Company’s business, assets or classification as a real estate investment trust; and competition within the hotel and real estate industry. Although the Company believes that the assumptions underlying the forward-looking statements contained herein are reasonable, any of the assumptions could be inaccurate, and therefore there can be no assurance that such statements included in this Annual Report will prove to be accurate. In light of the significant uncertainties inherent in the forward-looking statements included herein, the inclusion of such information should not be regarded as a representation by the Company or any other person that the results or conditions described in such statements or the objectives and plans of the Company will be achieved. In addition, the Company’s qualification as a real estate investment trust involves the application of highly technical and complex provisions of the Internal Revenue Code. Readers should carefully review the Company’s financial statements and the notes thereto, as well as the risk factors described in the Company’s filings with the Securities and Exchange Commission (“SEC”) and Item 1A in this report. Any forward-looking statement that the Company makes speaks only as of the date of this report. The Company undertakes no obligation to publicly update or revise any forward-looking statements or cautionary factors as a result of new information, future events or otherwise, except as required by law.

Item 1. Business

The Company is a Virginia corporation that was formed in January 2004 to invest in income-producing real estate in the United States. Initial capitalization occurred on January 20, 2004 and operations began on May 28, 2004 when the Company acquired its first hotel. The Company completed its best-efforts offering of Units (each Unit consists of one common share and one Series A preferred share) in March 2006. As of December 31, ~~2011~~2012, the Company owned 66 hotels operating in 18 states.

The Company ishas elected to be treated as a real estate investment trust (“REIT”) ~~which~~for ~~owns~~federal ~~hotels~~income intax ~~the United States~~purposes. The Company has wholly-owned taxable REIT subsidiaries which lease all of the Company’s hotels from wholly-owned qualified REIT subsidiaries. The hotels are operated and managed by affiliates of Marriott International, Inc. (“Marriott”), Stonebridge Realty Advisors, Inc. (“Stonebridge”), Hilton Worldwide (“Hilton”), Western International (“Western”), Larry Blumberg & Associates (“LBA”), White Lodging Services Corporation (“White”), Inn Ventures, Inc. (“Inn Ventures”), and Newport Hospitality Group, Inc. (“Newport”) under separate hotel management agreements.

The Company has no foreign operations or assets and its operating structure includes only one segment. The consolidated financial statements include the accounts of the Company and its subsidiaries. All ~~inter-company~~intercompany ~~transactions~~accounts and ~~balances~~transactions have been eliminated ~~upon consolidation~~. Refer to Part II, Item 8 of this report, for the consolidated financial statements.

Merger

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holder of any New Preferred Shares to redeem all or a portion of such holder’s New Preferred Shares at the liquidation preference, plus any accumulated and unpaid dividends, after 7-1/2 years following the issuance of the New Preferred Shares in connection with the Merger and an initial dividend rate of 7% per share. The New Preferred Shares will also be redeemable by BRE Select Hotels Corp at any time at the liquidation preference, plus any accumulated and unpaid dividends, and will have limited voting rights. The dividend rate on the New Preferred Shares will increase to 11% per share if the New Preferred Shares are not redeemed within five years following the issuance of the New Preferred Shares in connection with the Merger. The initial liquidation preference of $1.90 per share will be subject to downward adjustment should net costs and payments relating to certain legacy litigation and regulatory matters exceed $3.5 million.

The Company’s dividend reinvestment and Unit redemption programs were suspended upon the execution of the Merger Agreement. Also, in accordance with the Merger Agreement, the Company suspended dividend payments. A shareholder meeting is planned for the second quarter of 2013 to vote on the transaction. The Merger Agreement contains various closing conditions, including shareholder approval. As a result, there can be no assurance that the Merger will close. If the closing conditions are satisfied, it is anticipated that the Merger could close during the second quarter of 2013. Under the Merger Agreement, the Company may terminate the Merger Agreement in certain circumstances. However the Company may be required to pay a fee of $20 million to an affiliate of BRE Select Hotels, plus certain expenses not to exceed $5 million. In certain other circumstances, the Merger Agreement provides for an affiliate of BRE Select Hotels to pay the Company a fee of $35 million upon termination of the Merger Agreement, plus certain expenses not to exceed $5 million.

Website Access

The address of the Company’s Internet website is www.applereitsix.com. The Company makes available free of charge through its Internet website its annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to ~~Section~~ section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, as soon as reasonably practicable after the Company electronically files such material with, or furnishes it to, the SEC. Information contained on the Company’s website is not incorporated by reference ~~into~~in this report.

Business Objectives

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

Financing

The Company has ~~five~~two notes payable, ~~outstanding~~one ~~assumed~~that inwas ~~conjunction~~assumed with the acquisition of ~~hotels.~~the ~~These~~hotel ~~notes have maturity dates ranging from January 2013 to December 2014,~~ and ~~stated~~one ~~interest~~that ~~rates~~was ~~ranging~~originated ~~from~~during 62012.4% toThese ~~6.93%.~~notes ~~The~~have ~~Company also has~~ a ~~$60~~total million unsecured credit facility with a commercial bank that is utilized for working capital, hotel renovations, and other general corporate funding purposes, including the payment of redemptions and distributions. The Company refinanced the credit facility in September 2011 with its existing lender. The outstanding ~~principal~~ balance of ~~the~~ ~~credit facility was~~ $4323.79 million at December 31, ~~2011~~2012, ~~which~~maturity ~~matures~~dates onranging ~~September~~from 8,December ~~2013~~2014 ~~and may be prepaid without penalty. Interest payments are due monthly and the applicable interest rate is equal~~ to ~~the~~October ~~applicable LIBOR (the London Interbank Offered Rate) plus 3.5%. The LIBOR floor under the previous agreement was removed~~2022, ~~therefore~~and ~~reducing~~stated ~~the Company’s effective~~ interest ~~rate.~~rates ~~The effective interest rate for borrowings under the credit facility at December 31, 2011 was 3.82%. The credit facility also has an unused fee~~ of 04.357% ~~if the average outstanding quarterly balance is greater than $30 million~~ and 06.54% ~~if the average outstanding quarterly balance is less than $30 million~~. ~~The~~During ~~Company anticipates that cash flow from operations and the credit facility will be adequate to meet its anticipated liquidity requirements~~2012, ~~including debt service, capital improvements, required distributions to shareholders (~~the Company isextinguished ~~not~~four ~~required~~mortgage toloans ~~make distributions at its current rate for REIT purposes) and planned Unit redemptions. The Company intends to maintain a relatively stable distribution rate~~ with ~~varying~~an ~~economic~~outstanding ~~cycles.~~balance If cash flow from operations and the credit facility are not adequate to meet liquidity requirements, the Company will attempt if necessary to utilize additional financing to achieve this objective. Although the Company has relatively low levels of ~~debt, there can be no assurances it will be successful with this strategy and may need to reduce its distributions to required levels~~$13.1 Ifmillion ~~the~~when ~~Company were unable to extend its maturing debt in future periods or if it were to default on its debt it may be unable to make distributions or redemptions~~retired. ~~The Company’s bylaws require board approval and review of any debt financing obtained by the Company.~~

~~Industry~~The Company also has a $60 million unsecured credit facility with a commercial bank that is utilized for working capital, hotel renovations, and ~~Competition~~other general corporate funding purposes, including the payment of redemptions and distributions. The outstanding principal balance is required to be paid by the maturity date of September 8, 2013 and may be prepaid without penalty. Interest payments are due monthly and the interest rate is equal to the applicable LIBOR (the London Interbank Offered Rate) plus 3.5%. The credit facility also has an unused fee of 0.35% if the average outstanding quarterly balance is greater than $30 million and 0.5% if the average outstanding quarterly balance is less than $30 million. The outstanding balance on the credit facility as of December 31, 2012 was $34.5 million and its interest rate was 3.75%.

Index

Operating cash flow from the properties owned and the $60 million credit facility are the Company’s principal sources of liquidity. The Company anticipates that cash flow from operations and the credit facility will be adequate to meet its anticipated liquidity requirements, including debt service, capital improvements, required distributions to shareholders, and planned Unit redemptions, if the Merger does not occur. It has been the Company’s practice, and if the Merger does not occur, it is the Company’s intention to maintain a relatively stable distribution rate with varying economic cycles. If cash flow from operations and the credit facility are not adequate to meet liquidity requirements, the Company will attempt, if necessary, to utilize additional financing to achieve this objective. Although the Company has relatively low levels of debt, there can be no assurances it will be successful with this strategy. If the Company were unable to refinance its maturing debt in future periods or if it were to default on its debt, it may be unable to make distributions or redemptions.

Hotel Industry and Competition

The hotel industry is highly competitive. Each of the Company’s hotels is located in a developed area that includes other hotels and competes for guests primarily with other hotels in the Company’s immediate vicinity and secondarily with other hotels in the Company’s geographic market. An increase in the number of competitive hotels in a particular area could have a material adverse effect on the occupancy, average daily rate (“ADR”) and revenue per available room (“RevPAR”) of the Company’s hotels in that area. The Company believes that brand recognition, location, price and quality (of both the hotel and the services provided) are the principal competitive factors affecting the Company’s hotels. Additionally, general economic conditions in a particular market and nationally impact the performance of the hotel industry.

Hotel Operating Performance

As of December 31, ~~2011~~2012, the Company owned 66 hotels consisting of ~~fourteen~~14 Hilton Garden Inn hotels, ten Residence Inn hotels, ten Courtyard hotels, seven SpringHill Suites hotels, six Homewood Suites hotels, five TownePlace Suites hotels, five Fairfield Inn hotels, four Hampton Inn hotels, three Hampton Inn & Suites hotels and two full service Marriott hotels. They are located in 18 states and, in aggregate, consist of 7,658 rooms. The Company sold two hotels located in Tempe, Arizona in June 2011. The results of operations of these two hotels are classified as discontinued operations.

Room revenue from continuing operations totaled $~~220~~235.26 million in ~~2011~~2012, and the hotels achieved average occupancy of 7273%, ADR of $~~110~~115 and RevPAR of $7984, compared with $~~206~~220.62 million of room revenue, average occupancy of 72%, ADR of $110 and RevPAR of $79 in 2011. Hotel performance is impacted by many factors including the economic conditions in the United States as well as each locality. During the period from the second half of 2008 through 2010, the overall weakness in the U.S. economy had a considerable negative impact on both consumer and business travel. However, economic conditions have shown evidence of improvement in 2011 and continued in 2012. As a result, the industry and the Company have experienced improvements in its hotel occupancy levels, as reflected in the overall increase of the Company’s occupancy during the past two years. In addition, also signifying a progressing economy, the Company experienced an increase in ADR during 2012 and 2011 as compared to the prior years. With continued improvement in both demand and room rates, the Company and industry are forecasting a mid-single digit percentage increase in revenue for 2013 as compared to 2012. The Company’s hotels continue to be leaders in their respective markets. The Company’s average Market Yield for 2012 and 2011 was 121 and 120, respectively. The Market Yield is a measure of each hotel’s RevPAR compared to the average in the market, with 100 being the average (the index excludes hotels under renovation) and is provided by Smith Travel Research, Inc.®, an independent company that tracks historical hotel performance in most markets throughout the world. The Company will continue to pursue market opportunities to improve revenue. See the Company’s complete financial statements in Part II, Item 8 of this report.

occupancy of 71%, ADR of $104 and RevPAR of $74 in 2010. Hotel performance is impacted by many factors including the economic conditions in the United States as well as each locality. During the period from the second half of 2008 through 2010, the overall weakness in the U.S. economy had a considerable negative impact on both consumer and business travel. As a result, revenue in most markets in the United States declined from levels of 2007 and the first half of 2008. However, economic conditions have shown evidence of improvement in 2011. Although the industry in general has revenue below pre-recession levels, during the past two years the industry and the Company have experienced an increase in demand, as shown by improved occupancy rates during this period. In addition, also signifying a stabilizing economy, the Company experienced an increase in ADR of 6% during 2011 as compared to the prior year. With continued improvement, in both demand and room rates the Company and industry are forecasting a mid single digit percentage increase in revenue for 2012 as compared to 2011. While reflecting the impact of post-recessionary levels of single-digit growth in national economic activity, the Company’s hotels on average also continue to be leaders in their respective markets. The Company’s average Market Yield was 121 in both 2011 and 2010. The Market Yield is a measure of each hotel’s RevPAR compared to the average in the market, with 100 being the average (the index excludes hotels under renovation) and is provided by Smith Travel Research, Inc.Ò, an independent company that tracks historical hotel performance in most markets throughout the world. The Company will continue to pursue market opportunities to improve revenue. See the Company’s complete financial statements in Item 8 of this report.

Management and Franchise Agreements

Each of the Company’s 66 hotels are operated and managed, under separate management agreements, by affiliates of one of the following companies: Marriott, Stonebridge, Hilton, Western, LBA, White, Inn Ventures or Newport. The agreements have remaining terms generally ranging from 1 to 2322 years. Fees associated with the agreements generally include the payment of base management fees, incentive management fees, accounting fees, and other fees for centralized services which are allocated among all of the hotels that receive the benefit of such services. Base management fees are calculated as a ~~percentage~~ ~~of gross revenues. Incentive management fees are calculated as a~~ percentage of operating profit in excess of a priority return to the Company, as defined in the management agreements. The Company has the option to terminate the management agreements if specified performance thresholds are not satisfied. During the years ended December 31, 2011, 2010 and 2009, the Company incurred approximately $8.0 million, $7.0 million and $6.6 million in management fees for continuing operations.

Stonebridge, Western, LBA, White, Inn Ventures and Newport are not affiliated with either Marriott or Hilton, and as a result, the hotels managed by these companies were required to obtain separate franchise agreements with each respective franchisor. The Hilton franchise agreements generally provide for an initial term of 13 to 20 years. Fees associated with the Hilton agreements generally include the payment of royalty fees and program fees based on room revenues. The Marriott franchise agreements provide for an initial term of 15 to 20 years. Fees associated with the Marriott agreements include the payment of royalty fees, marketing fees, reservation fees and a communications support fee based on room revenues. During the years ended December 31, 2011, 2010 and 2009, the Company incurred approximately $9.9 million, $9.3 million and $8.8 million in franchise fees for continuing operations.5

Index

gross revenues. Incentive management fees are calculated as a percentage of operating profit in excess of a priority return to the Company, as defined in the management agreements. The Company has the option to terminate the management agreements if specified performance thresholds are not satisfied. For the years ended December 31, 2012, 2011 and 2010, the Company incurred approximately $8.7 million, $8.0 million and $7.0 million in management fees for continuing operations.

Stonebridge, Western, LBA, White, Inn Ventures and Newport are not affiliated with either Marriott or Hilton, and as a result, the hotels they manage were required to obtain separate franchise agreements with each respective franchisor. The Hilton franchise agreements generally provide for an initial term of 13 to 20 years. Fees associated with the Hilton agreements generally include the payment of royalty fees and program fees based on room revenues. The Marriott franchise agreements generally provide for an initial term of 15 to 20 years. Fees associated with the Marriott agreements include the payment of royalty fees, marketing fees, reservation fees and a communications support fee based on room revenues. For the years ended December 31, 2012, 2011 and 2010, the Company incurred approximately $10.6 million, $9.9 million and $9.3 million in franchise fees for continuing operations.

The franchise and/or management agreements provide a variety of benefits for the Company, which include national advertising, publicity, and other marketing programs designed to increase brand awareness, training of personnel, continuous review of quality standards, centralized reservation systems and best practices within the industry.

Hotel Maintenance and Renovation

The Company’s hotels have an ongoing need for renovation and refurbishment. Under various hotel management agreements, the Company has agreed to fund expenditures for periodic repairs, replacement or refurbishment of furniture, fixtures and equipment for the hotels in an amount equal to a certain percentage of gross revenues. In addition, other capital improvement projects are directly funded by the Company. During ~~2011~~2012 and ~~2010~~2011, the Company’s ~~spent~~capital improvements were approximately $1412.13 million and $814.21 million, ~~on capital improvements~~respectively.

Employees

During ~~2011~~2012, all employees involved in the day-to-day operation of the Company’s hotels were employed by third party management companies engaged pursuant to the hotel management agreements. At December 31, ~~2011~~2012, Apple Fund Management, LLC, a subsidiary of the Company ~~(Apple Fund Management~~, ~~LLC)~~ had 50 49 employees. These employees not only provide support to the Company, but as discussed below, they also provide support to various related parties.

Environmental Matters

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

Seasonality

The hotel industry historically has been seasonal in nature. Seasonal variations in occupancy at the Company’s hotels may cause quarterly fluctuations in its revenues. Generally, occupancy rates and hotel revenues are greater in the second and third quarters than in the first and fourth quarters. To the extent that cash flow from operations is insufficient during any quarter, due to temporary or seasonal fluctuations in revenue, the Company expects to utilize cash on hand or available credit to make distributions if the Merger is not completed.

Related Parties

The Company has, and is expected to continue to engage in, significant transactions with related parties. These transactions cannot be construed to be at arm’s length and the results of the Company’s operations may be different if these transactions were conducted with non-related parties. The Company’s independent members of the Board of Directors oversee and annually review the Company’s related party relationships (which include the relationships discussed in this section) and are required to approve any significant modifications to the contracts, as well as any new significant related party transactions. There were no changes to the contracts discussed in this section and no new significant related party transactions during the year ended December 31, 2011. The Board of Directors is not required to approve each individual transaction that falls under the related party relationships. However, under the direction of the Board of Directors, at least one member of the Company’s senior management team approves each related party transaction.

The Company has a contract with Apple Six Realty Group (“A6RG”), a related party, to provide brokerage services for the acquisition and disposition of the Company’s real estate assets. In accordance with the contract, A6RG is paid a fee of 2% of the gross purchase price of any acquisitions or gross sale price of any dispositions of real estate investments, subject to certain conditions plus certain reimbursable costs. As of December 31, 2011, payments to A6RG for services under the terms of this contract have totaled $16.9 million since inception which were capitalized as a part of the purchase price of the hotels. No fees were incurred during 2011, 2010 and 2009 under the contract.

The Company is party to an advisory agreement with Apple Six Advisors, Inc. (“A6A”), pursuant to which A6A provides management services to the Company. An annual fee ranging from 0.1% to 0.25% of total equity proceeds received by the Company, in addition to certain reimbursable expenses, are payable for these services. Total advisory fees incurred by the Company under the advisory agreement are included in general and administrative expenses and totaled $1.5 million for each of the three years ended December 31, 2011, 2010 and 2009.

Inc. A7A provides day to day advisory and administrative functions for Apple REIT Seven, Inc. A8A provides day to day advisory and administrative functions for Apple REIT Eight, Inc. A9A provides day to day advisory and administrative functions for Apple REIT Nine, Inc. A10A provides day to day advisory and administrative functions for Apple REIT Ten, Inc. ASRG provides real estate brokerage services to Apple REIT Seven, Inc., Apple REIT Eight, Inc., Apple REIT Nine, Inc. and Apple REIT Ten, Inc. Each of these companies has agreed to reimburse the Company for its costs in providing these services. A6RG, ASRG, A6A, A7A, A8A, A9A and A10A are 100% owned by Glade Knight, the Company’s Chairman and Chief Executive Officer. For the years ended December 31, 2011, 2010 and 2009, the Company received reimbursement of its costs totaling $7.2 million, $6.1 million and $5.9 million from the participating entities. The Company’s net allocated cost for these support services was approximately $1.5 million, $1.7 million and $1.9 million for the years ended December 31, 2011, 2010 and 2009. As part of this arrangement, the day to day transactions may result in amounts due to or from the noted related parties. To effectively manage cash disbursements, the individual companies may make payments for any or all of the related companies. The amounts due to or from the related companies are reimbursed or collected and are not significant in amount.

Although there is a potential conflict on time allocation of personnel due to the fact that a senior manager, officer or staff member will provide services to more than one company, the Company believes that the executives and staff compensation sharing arrangement allows the companies to share costs yet attract and retain superior executives and staff. The cost sharing structure also allows each entity to maintain a much more cost effective structure than having separate staffing arrangements. Amounts reimbursed to the Company include both compensation for personnel and “overhead” (office rent, utilities, benefits, office supplies, etc.) utilized by the companies. AFM receives its direction for staffing and compensation from the advisory companies (A6A, A7A, A8A, A9A, A10A, ASRG, and A6RG) each of which is wholly owned by Glade M. Knight. Since the employees of AFM may also perform services for the advisors, individuals, including executive officers, have received and may receive consideration directly from the advisors. The allocation of costs is made by the management of the several REITs and is reviewed at least annually by the Compensation Committees of the several REITs. In making the allocation, management and the Compensation Committee consider all relevant facts related to the Company’s level of business activity and the extent to which the Company requires the services of particular personnel. The costs allocated are actual costs and do not include any profit/markup for the Company. Such payments are not based on formal record keeping regarding the time these personnel devote to the Company, but are based on a good faith estimate by the employee and/or his or her supervisor of the time devoted by the employee to each Company.

Including A6RG, ASRG, A6A, A7A, A8A, A9A and A10A discussed above, Mr. Knight is also Chairman and Chief Executive Officer of Apple REIT Seven, Inc., Apple REIT Eight, Inc., Apple REIT Nine, Inc. and Apple REIT Ten, Inc. Members of the Company’s Board of Directors are also on the boards of Apple REIT Seven, Inc., Apple REIT Eight, Inc. and Apple REIT Nine, Inc.

Included in other assets, net on the Company’s consolidated balance sheet, is a 26% equity investment in Apple Air Holding, LLC (“Apple Air”). The other members of Apple Air are Apple REIT Seven, Inc., Apple REIT Eight, Inc. and Apple REIT Nine, Inc. Through its equity investment the Company has access to Apple Air’s aircraft for asset management and renovation purposes. The Company’s equity investment in Apple Air was approximately $1.7 million and $1.8 million at December 31, 2011 and 2010, respectively. The Company has recorded its share of income or losses of the entity under the equity method of accounting and adjusted its investment in Apple Air accordingly. For the years ended December 31, 2011 and 2010, the Company recorded a loss of approximately $0.2 million and $0.9 million as its share of the net loss of Apple Air, which primarily relates to the depreciation of the aircraft and the reduction in basis of the aircraft in 2010 due to the planned trade in for one new airplane in 2011, and is included in general and administrative expense in the Company’s consolidated statements of operations. Apple Air owned two aircraft during 2010, but reduced its ownership to one aircraft during the first quarter of 2011.

The Company has incurred legal fees associated with the Legal Proceedings and Related Matters discussed herein. The Company also incurs other professional fees such as accounting, auditing and reporting. These fees are included in general and administrative expense in the Company’s consolidated statements of operations. To be cost effective, these services received by the Company are shared as applicable across the other Apple REIT Companies (Apple REIT Seven, Inc., Apple REIT Eight, Inc., Apple REIT Nine, Inc., and Apple REIT Ten, Inc.). The professionals cannot always specifically identify their fees for one company therefore management allocates these costs across the companies that benefit from the services.

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Related Parties

The Company has, and is expected to continue to engage in, significant transactions with related parties. These transactions cannot be construed to be at arm’s length and the results of the Company’s operations may be different if these transactions were conducted with non-related parties. The Company’s independent members of the Board of Directors oversee and annually review the Company’s related party relationships (which include the relationships discussed in this section) and are required to approve any significant modifications to these contracts, as well as any new significant related party transactions. There were no changes to the contracts discussed in this section and no new significant related party transactions during 2012 (other than the agreements executed as a result of the Merger as discussed below). The Board of Directors is not required to approve each individual transaction that falls under the related party relationships. However, under the direction of the Board of Directors, at least one member of the Company’s senior management team approves each related party transaction.

The Company has a contract with Apple Six Realty Group (“A6RG”) to provide brokerage services for the acquisition and disposition of the Company’s real estate assets. A6RG is wholly owned by the Company’s Chairman and Chief Executive Officer, Glade M. Knight. In accordance with the contract, A6RG is paid a fee of 2% of the gross purchase price of any acquisitions or gross sale price of any dispositions of real estate investments, subject to certain conditions plus certain reimbursable costs. As of December 31, 2012, payments to A6RG for services under the terms of this contract have totaled $16.9 million since inception. During 2012, the Company paid approximately $16,000 in fees to A6RG for the purchase of the land located at the Residence Inn hotel in Columbus, Georgia, which had previously been leased from a third party. No fees were incurred during 2011 and 2010 under the contract.

The Company is party to an advisory agreement with Apple Six Advisors, Inc. (“A6A”), pursuant to which A6A provides management services to the Company. An annual fee ranging from 0.1% to 0.25% of total equity proceeds received by the Company, in addition to certain reimbursable expenses, are payable for these services. Total advisory fees incurred by the Company under the advisory agreement are included in general and administrative expenses and totaled approximately $2.5 million, $1.5 million and $1.5 million for each of the three years ended December 31, 2012, 2011 and 2010. The increase in 2012 is due to the Company reaching the top tier of the fee range under the advisory agreement due to improved operating results.

Through its wholly-owned subsidiary, Apple Fund Management, LLC (“AFM”), the Company provides support services to A6RG, Apple Suites Realty Group, Inc. (“ASRG”), A6A, Apple Seven Advisors, Inc. (“A7A”), Apple REIT Seven, Inc., Apple Eight Advisors, Inc. (“A8A”), Apple REIT Eight, Inc., Apple Nine Advisors, Inc. (“A9A”), Apple REIT Nine, Inc., Apple Ten Advisors, Inc. (“A10A”) and Apple REIT Ten, Inc. A7A provides day-to-day advisory and administrative functions for Apple REIT Seven, Inc. A8A provides day-to-day advisory and administrative functions for Apple REIT Eight, Inc. A9A provides day-to-day advisory and administrative functions for Apple REIT Nine, Inc. A10A provides day-to-day advisory and administrative functions for Apple REIT Ten, Inc. ASRG provides real estate brokerage services to Apple REIT Seven, Inc., Apple REIT Eight, Inc., Apple REIT Nine, Inc. and Apple REIT Ten, Inc. Each of these companies has agreed to reimburse the Company for its costs in providing these services. A6RG, ASRG, A6A, A7A, A8A, A9A and A10A (collectively the “Advisors”) are 100% owned by Glade M. Knight, the Company’s Chairman and Chief Executive Officer. For the years ended December 31, 2012, 2011 and 2010, the Company received reimbursement of its costs totaling approximately $8.0 million, $7.2 million and $6.1 million from the participating entities. The Company’s net allocated cost for these support services was approximately $1.8 million, $1.5 million and $1.7 million for the years ended December 31, 2012, 2011 and 2010. As part of this arrangement, the day to day transactions may result in amounts due to or from the noted related parties. To effectively manage cash disbursements, the individual companies may make payments for any or all of the related companies. The amounts due to or from the related companies are reimbursed or collected and are not significant in amount.

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Advisors. Since the employees of AFM may also perform services for the Advisors, individuals, including executive officers, have received and may receive consideration directly from the Advisors. The allocation of costs is made by the management of the REITs and is reviewed at least annually by the Compensation Committees of the REITs. In making the allocation, management and the Compensation Committee consider all relevant facts related to the company’s level of business activity and the extent to which the company requires the services of particular personnel. The costs allocated are actual costs and do not include any profit/markup for the Company. Such payments are not based on formal record keeping regarding the time these personnel devote to the company, but are based on a good faith estimate by the employee and/or his or her supervisor of the time devoted by the employee to each company.

In addition to the Advisors discussed above, Mr. Knight is also Chairman and Chief Executive Officer of Apple REIT Seven, Inc., Apple REIT Eight, Inc., Apple REIT Nine, Inc. and Apple REIT Ten, Inc. Members of the Company’s Board of Directors are also on the boards of Apple REIT Seven, Inc., Apple REIT Eight, Inc. and Apple REIT Nine, Inc.

The Company has incurred legal fees associated with the Legal Proceedings discussed herein. The Company also incurs other professional fees such as accounting, auditing and reporting. These fees are included in general and administrative expense in the Company’s consolidated statements of operations. To be cost effective, these services received by the Company are shared as applicable across the other Apple REIT Companies (Apple REIT Seven, Inc., Apple REIT Eight, Inc., Apple REIT Nine, Inc., and Apple REIT Ten, Inc.). The professionals cannot always specifically identify their fees for one company therefore management allocates these costs across the companies that benefit from the services. As a result of the Merger, the Company entered into a formal agreement with the other Apple REIT Companies for its share of costs associated with the Legal Proceedings and the SEC investigation referred to below where the Company will pay 20% of the total costs related to the Legal Proceedings and 25% of the total costs related to the SEC investigation. See Item 7 Management’s Discussion and Analysis of Expenses for the years 2012 and 2011 for more information on legal fees incurred.

In connection with the Merger Agreement, on November 29, 2012, the Company entered into an assignment and transfer agreement with A9A for the transfer of the Company’s interest in AFM. The assignment and transfer is expected to occur immediately after the closing of the Merger. As part of the assignment, AFM, A9A and the other Advisors agreed to indemnify BRE Select Hotels and related parties for any liabilities related to AFM. If a closing occurs, no additional costs of AFM will be allocated to the Company.

Also on November 29, 2012, in connection with the Merger Agreement, Apple REIT Nine, Inc. entered into a transfer agreement with the Company for the potential acquisition of the Apple REIT Companies’ and Advisors’ headquarters in Richmond, Virginia (“Headquarters”), currently owned by the Company, and the assignment of the Fort Worth, Texas office lease agreement from the Company for approximately $4.5 million which is expected to close immediately prior to the closing of the Merger. Also, as part of the purchase, Apple REIT Nine, Inc. agreed to release the Company and related parties from any liabilities related to the Headquarters or office lease. If a closing occurs, no additional costs associated with the Headquarters and office lease will be allocated to the Company.

Included in other assets, net on the Company’s consolidated balance sheet, is a 26% equity investment in Apple Air Holding, LLC (“Apple Air”). The other members of Apple Air are Apple REIT Seven, Inc., Apple REIT Eight, Inc. and Apple REIT Nine, Inc. Through its equity investment, the Company has access to Apple Air’s aircraft for asset management and renovation purposes. The Company’s equity investment was approximately $1.5 million and $1.7 million at December 31, 2012 and 2011. The Company has recorded its share of income and losses of the entity under the equity method of accounting and adjusted its investment in Apple Air accordingly. For the years ended December 31, 2012, 2011, and 2010, the Company recorded a loss of approximately $0.2 million, $0.2 million and $0.9 million, respectively, as its share of the net loss of Apple Air, which primarily relates to the depreciation of the aircraft and the reduction in basis of the aircraft in 2010 due to the planned trade in for one new airplane in 2011, and is included in general and administrative expense in the Company’s consolidated statements of operations. Apple Air owned two aircraft during 2010, but reduced its ownership to one aircraft during the first quarter of 2011.

On December 5, 2012, in connection with the Merger Agreement, Apple REIT Ten, Inc. entered into a membership interest purchase agreement with the Company for the transfer of the Company’s 26% membership interest in Apple Air for approximately $1.45 million that is expected to close immediately prior

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to the closing of the Merger. Also as part of the purchase, Apple REIT Ten, Inc. agreed to indemnify BRE Select Hotels and related parties for any liabilities related to the membership interest.

Item 1A. Risk Factors

The following describes several risk factors which are applicable to the Company. There are many factors that may affect the Company’s business and results of operations., which would affect the Company’s operating cash flow and value. You should carefully consider, in addition to the other information contained in this report, the risks described below.

Merger

Completion of the Merger is subject to the satisfaction of various conditions, including approval of the Merger Agreement by the Company’s shareholders and the other conditions described in the Merger Agreement. The Company cannot guarantee when or if these conditions will be satisfied or that the Merger will be successfully completed on the terms disclosed in the Merger Agreement or at all. In the event that the Merger is not completed, the Company may be subject to several risks, including, a decrease in the amount of time and attention that the Company’s management and employees’ devote to day-to-day business while devoting its attention to completing the proposed Merger; the Company’s relationships with its property managers may be substantially disrupted as a result of uncertainties with regard to its business and prospects; significant transaction costs incurred by the Company related to the Merger as well as a potential termination fee paid to the buyer in certain circumstances; and provisions contained in the Merger Agreement that could discourage a potential competing acquirer of the Company to submit an alternative acquisition proposal or that could result in any competing acquisition proposal being at a lower price than it might otherwise have offered.

Hotel Operations

The Company’s hotels are subject to all of the risks common to the hotel industry. These risks could adversely affect hotel occupancy and the rates that can be charged for hotel rooms as well as hotel operating expenses, and generally include:

• increases in supply of hotel rooms that exceed increases in demand; • increases in energy costs and other travel expenses that reduce business and leisure travel; • reduced business and leisure travel due to continued geo-political uncertainty, including terrorism; • adverse effects of declines in general and local economic activity; and • adverse effects of a downturn in the hotel industry.

•

increases in energy costs and other travel expenses that reduce business and leisure travel;

•

reduced business and leisure travel due to continued geo-political uncertainty, including terrorism;

•

adverse effects of declines in general and local economic activity; and

•

adverse effects of a downturn in the hotel industry.

General Local and National Economic Conditions

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

Current General Economic Environment in the Lodging Industry

The United States continues to be in a ~~post-recessionary~~ low-growth economic environment, ~~which~~and ~~has~~continues ~~experienced~~to experience historically high levels of unemployment. Uncertainty over the depth and duration of this economic environment continues to have a negative impact on the lodging industry. Although ~~There~~operating isresults ~~some general~~have ~~consensus among economists that the economy in the United States emerged from a recessionary environment in 2009~~improved, ~~but~~ high ~~unemployment~~ levels of unemployment and sluggish business and consumer travel trends ~~were~~have been evident induring ~~both 2010 and 2011. As a result,~~ the ~~Company~~past ~~and~~three ~~the industry continue to experience reduced revenue as compared to pre-recessionary periods~~years. Accordingly, the Company’s financial results have been impacted by the economic environment, and future financial results and growth could be further ~~harmed~~depressed until a more expansive national economic environment is prevalent. A weaker than anticipated economic recovery, or a return to a recessionary national economic environment, could result in low or decreased levels of business and consumer travel, negatively impacting the lodging industry. Such an economic outcome could also negatively impact the Company’s future growth prospects and results of operations.

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to a recessionary national economic environment, could result in low or decreased levels of business and consumer travel, negatively impacting the lodging industry, and in turn, negatively impacting the Company’s future growth prospects and results of operations.

Hospitality Industry

The success of the Company’s properties will depend largely on the property operators’ ability to adapt to dominant trends in the hotel industry as well as greater competitive pressures, increased consolidation, industry overbuilding, dependence on consumer spending patterns and changing demographics, the introduction of new concepts and products, availability of labor, price levels and general economic conditions. The success of a particular hotel brand, the ability of a hotel brand to fulfill any obligations to operators of its business, and trends in the hotel industry may affect the Company’s income and the funds it has available to distribute to shareholders.

The hospitality industry could also experience a significant decline in occupancy and average daily rates due to a reduction in both business and leisure travel. General economic conditions, increased fuel costs, natural disasters and terrorist attacks are a few factors that could affect an individual’s willingness to travel. The Company’s property insurance will typically cover losses for property damage due to terrorist attacks or natural disasters (subject to policy deductibles). However, the Company is not insured against the potential negative effect a terrorist attack or natural disaster would have on the hospitality industry as a whole.

natural disasters (subject to policy deductibles). However, the Company is not insured against the potential negative effect a terrorist attack or natural disaster would have on the hospitality industry as a whole.

Seasonality

The hotel industry is seasonal in nature. Generally, occupancy rates and hotel revenues are greater in the second and third quarters than in the first and fourth quarters. As a result, there may be quarterly fluctuations in results of operations and the Company may need to enter into short-term borrowing arrangements in certain periods in order to offset these fluctuations in revenues and to make distributions to shareholders.

Franchise Agreements

The Company’s wholly-owned taxable REIT subsidiaries operate all of the properties pursuant to franchise or license agreements with nationally recognized hotel brands. These franchise agreements contain specific standards for, and restrictions and limitations on, the operation and maintenance of the Company’s properties in order to maintain uniformity within the franchisor system. These standards could potentially conflict with the Company’s ability to create specific business plans tailored to each property and to each market.

Competition

~~Transferability~~Illiquidity of Shares

There is and will be no public trading market for the common shares and the Series A preferred shares for an indefinite period of time, if ever. Therefore, the Units are and will be highly illiquid and very difficult to trade. There is no definite time frame to provide liquidity. There also is no definite value for the Units when a liquidity event occurs. In addition, there are restrictions on the transfer of the common shares. In order to qualify as a REIT, the shares must be beneficially owned by 100 or more persons and no more than 50% of the value of the Company’s issued and outstanding shares may be owned directly or indirectly by five or fewer individuals. Therefore, the Company’s bylaws provide that no person may own more than 9.8% of the issued and outstanding Units. Any purported transfer of ~~our~~the Company’s shares that would result in a violation of either of these limits will be declared null and void.

Qualification as a REIT

The rules governing a REIT are highly technical and complex. They require ongoing compliance with and interpretation of a variety of tests and regulations that depend on, among other things, future operations. While the Company expects to satisfy these tests, it cannot ensure it will qualify as a REIT for any particular year. There is also the risk that the applicable laws governing a REIT could be changed, which could adversely affect the Company and its shareholders.

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While the Company expects to satisfy these tests, it cannot ensure it will qualify as a REIT for any particular year. There is also the risk that the applicable laws governing a REIT could be changed, which could adversely affect the Company and its shareholders.

Distributions to Shareholders

Under the terms of the Merger Agreement, the Company suspended distributions to shareholders. In the event that the Merger does not occur, the Company intends to reinstate its monthly distributions to shareholders. If the Company’s properties do not generate sufficient revenue to meet operating expenses, the Company’s cash flow and the Company’s ability to make distributions to shareholders may be adversely affected. Additionally, the costs of pursuing the Merger could reduce the Company’s ability to make distributions. The Company is subject to all operating risks common to hotels. These risks might adversely affect occupancy or room rates. Increases in operating costs due to inflation and other factors may not necessarily be offset by increased room rates. The local, regional and national hotel markets may limit the extent to which room rates may be increased to meet increased operating expenses without decreasing occupancy rates. While the Company intends to make monthly distributions to shareholders if the Merger does not occur, there can be no assurance that the Company will be able to make distributions at any particular time or rate, or at all. Further, there is no assurance that a distribution rate achieved for a particular period will be maintained in the future. Also, while management may establish goals as to particular rates of distribution or have an intention to make distributions at a particular rate, there can be no assurance that such goals or intentions will be realized.

The Company’s objective in setting a distribution rate is to project a rate that will provide consistency over the life of the Company, taking into account acquisitions and capital improvements, ramp up of new properties and varying economic cycles. The Company anticipates that it may need to utilize debt, offering proceeds and cash from operations to meet this objective. If the Merger is not completed and the Company reinitiates distributions, the Company will evaluate the distribution rate on an ongoing basis and may make changes at any time if the Company feels the rate is not appropriate based on available cash resources.

8If the Merger is not completed and the Company reinitiates distributions, the Company will generally seek to make distributions from its operating cash flows, distributions may be made (although there is no obligation to do so) in certain circumstances in part from financing proceeds or other sources, such as proceeds from the offering of Units. While distributions from such sources would result in the shareholder receiving cash, the consequences to the shareholder would differ from a distribution from operating cash flows. For example, if financing is the source of a distribution, that financing would have to be repaid, and if proceeds from the offering of Units are distributed, those proceeds would not then be available for other uses (such as property acquisitions or improvements).

properties and varying economic cycles. The Company anticipates that it may need to utilize debt, offering proceeds and cash from operations to meet this objective. The Company evaluates the distribution rate on an ongoing basis and may make changes at any time if the Company feels the rate is not appropriate based on available cash resources.

While the Company generally seeks to make distributions from its operating cash flows, distributions may be made (although there is no obligation to do so) in certain circumstances in part from financing proceeds or other sources, such as proceeds from the offering of Units. While distributions from such sources would result in the shareholder receiving cash, the consequences to the shareholder would differ from a distribution from operating cash flows. For example, if financing is the source of a distribution, that financing would have to be repaid, and if proceeds from the offering of Units are distributed, those proceeds would not then be available for other uses (such as property acquisitions or improvements).

Financing Risks

Although the Company anticipates maintaining low levels of debt, it may periodically use short-term financing to perform renovations to its properties, and if the Merger is not completed make shareholder distributions or ~~planned~~ Unit redemptions in periods of fluctuating income from its properties. The debt markets have been volatile and subject to increased regulation and, as a result, the Company may not be able to use debt to meet its cash requirements, including refinancing any scheduled debt maturities.

Securities Class Action Lawsuits and Governmental Regulatory Oversight Risks

As a result of regulatory inquiries or other regulatory actions, or as a result of being publicly held, the Company may become subject to lawsuits. The Company is currently subject to one securities class action lawsuit and other suits may be filed against the Company in the future. Due to the uncertainties related to litigation, the Company is unable at this time to evaluate the likelihood of either a favorable or unfavorable outcome or to estimate the range of potential exposure. If the outcome is unfavorable, the Company may be required to pay damages and/or change its business practices, any of which could have a material adverse effect on the Company’s financial condition, results of operations and cash flows. The ability of the Company to access capital markets, including commercial debt markets, could be negatively impacted by unfavorable, or the possibility of unfavorable, outcomes to lawsuits or adverse regulatory actions.

AsThe ~~a result of regulatory inquiries or other regulatory actions, or as a result of being publicly held, the~~ Company ~~may~~has ~~become~~been ~~subject to lawsuits. A subsidiary of the Company is currently subject to one securities class action lawsuit~~ and ~~other suits~~ may becontinue ~~filed against the Company in the future. Due~~ to the preliminary status of the lawsuit and uncertainties related to litigation, the Company is unable at this time to evaluate the likelihood of either a favorable or unfavorable outcome or to estimate the range of potential exposure. If the outcome is unfavorable, the Company may be ~~required~~subject to ~~pay~~ ~~damages~~regulatory ~~and/or change its business practices~~inquiries, ~~any of~~ which ~~could~~ have aresulted ~~material~~in ~~adverse effect on the Company’s financial condition, results of operations~~ and ~~cash~~which ~~flows.~~could ~~The~~continue ~~ability of the Company~~ to ~~access~~result ~~capital~~in ~~markets,~~costs ~~including~~and ~~commercial~~personnel ~~debt~~time ~~markets,~~commitment ~~could be negatively impacted by unfavorable, or the possibility of unfavorable, outcomes~~ to ~~lawsuits~~respond. It ormay ~~adverse~~also ~~regulatory actions.~~be

The Company has been and may continue to be subject to regulatory inquiries, which have resulted in and which could continue to result in costs and personnel time commitment to respond. It may also be subject to action by governing regulatory agencies, as a result of its activities, which could result in costs to respond and fines or changes in the Company’s business practices, any of which could have a material adverse effect on the financial condition, results of operations, liquidity and capital resources, and cash flows of the Company.11

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

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

9Technology is used in operations, and any material failure, inadequacy, interruption or security failure of that technology could harm the business

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

Potential losses not covered by Insurance

The Company maintains comprehensive insurance coverage for general liability, property, business interruption and other risks with respect to all of its hotels. These policies offer coverage features and insured limits that the Company believes are customary for similar types of properties. There are no assurances that coverage will be available at reasonable rates. Also, various types of catastrophic losses, like earthquakes, hurricanes, or certain types of terrorism, may not be insurable or may not be economically insurable. Even when insurable, these policies may have high deductibles and/or high premiums. There also can be risks such as certain environmental hazards that may be deemed to fall outside the coverage. In the event of a substantial loss, the Company’s insurance coverage may not be sufficient to cover the full current market value or replacement cost of its lost investment. Should an uninsured loss or a loss in excess of insured limits occur, the Company could lose all or a portion of the capital it has invested in a hotel, as well as the anticipated future revenue from the hotel. In that event, the Company might nevertheless remain obligated for any mortgage debt or other financial obligations related to the hotel. Inflation, changes in building codes and ordinances, environmental considerations and other factors might also keep the Company from using insurance proceeds to replace or renovate a hotel after it has been damaged or destroyed. The Company also may encounter challenges with an insurance provider regarding whether it will pay a particular claim that the Company believes to be covered under its policy.Under those circumstances, the insurance proceeds the Company receives might be inadequate to restore its economic position on the damaged or destroyed hotel, which could have a material adverse effect on the Company.

Item 1B. Unresolved Staff Comments

Not ~~applicable.~~Applicable

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Item 2. Properties

As of December 31, ~~2011~~2012, the Company owned 66 hotels located in 18 states with an aggregate of 7,658 rooms, consisting of the following:

Brand	Total ~~byBrand~~by Brand			Number of Rooms		~~Number ofRooms~~
Hilton Garden Inn		14	14		1,793		~~1,793~~
Residence Inn		10	10		1,247		~~1,247~~
Courtyard		10	10		993		~~993~~
SpringHill Suites		7	7		738		~~738~~
Homewood Suites		6	6		713		~~713~~
TownePlace Suites		5	5		647		~~647~~
Fairfield Inn		5	5		351		~~351~~
Hampton Inn		4	4		454		~~454~~
Hampton Inn & Suites		3	3		303		~~303~~
Marriott		2	2		419		~~419~~
Total		66	66		7,658		~~7,658~~

The following table includes the location of each hotel, the date of construction, the date acquired, encumbrances (if any), initial acquisition cost, gross carrying value and the number of rooms of each hotel.

1013

~~REAL ESTATE AND ACCUMULATED DEPRECIATIONAs of December 31, 2011(dollars in thousands)~~Index

Real Estate and Accumulated Depreciation

As of December 31, 2012

City	State	Brand	Encumbrances			Initial Cost						SubsequentlyCapitalized			TotalGross Cost			AccDeprec				Date ofConstruction		DateAcquired	DepreciableLife		# ofRooms
						Land(1)			Bldg./FF&E/Other			BldgImp. & FF&E
Birmingham	Alabama	Fairfield Inn		$	—		$	347		$	2,064		$	291		$	2,702		$	(506	)		1995	Aug-05		3 - 39 yrs.		63
Dothan	Alabama	Courtyard			—			1,262			7,150			1,371			9,783			(1,935	)		1996	Aug-05		3 - 39 yrs.		78
Dothan	Alabama	Hampton Inn & Suites			—			837			8,134			203			9,174			(1,867	)		2004	Jun-05		3 - 39 yrs.		85
Huntsville	Alabama	Fairfield Inn			2,605			502			4,817			296			5,615			(962	)		1999	Sep-05		3 - 39 yrs.		79
Huntsville	Alabama	Residence Inn			—			941			7,638			1,558			10,137			(2,128	)		2002	Jun-05		3 - 39 yrs.		78
Montgomery	Alabama	SpringHill Suites			3,256			956			6,334			301			7,591			(1,238	)		1998	Sep-05		3 - 39 yrs.		79
Tuscaloosa	Alabama	Courtyard			—			—			7,953			1,431			9,384			(1,907	)		1996	Aug-05		3 - 39 yrs.		78
Tuscaloosa	Alabama	Fairfield Inn			—			—			4,240			302			4,542			(876	)		1996	Aug-05		3 - 39 yrs.		63
Anchorage	Alaska	Hampton Inn			—			1,216			10,505			2,553			14,274			(3,437	)		1997	Mar-05		3 - 39 yrs.		101
Anchorage	Alaska	Hilton Garden Inn			—			4,217			14,801			1,910			20,928			(4,030	)		2002	Oct-04		3 - 39 yrs.		125
Anchorage	Alaska	Homewood Suites			—			1,797			11,052			842			13,691			(2,860	)		2004	Oct-04		3 - 39 yrs.		122
Phoenix	Arizona	Hampton Inn			—			1,417			5,213			2,050			8,680			(1,817	)		1998	Oct-04		3 - 39 yrs.		99
Arcadia	California	Hilton Garden Inn			—			1,716			10,197			2,398			14,311			(3,590	)		1999	Oct-04		3 - 39 yrs.		124
Arcadia	California	SpringHill Suites			—			1,623			6,469			937			9,029			(2,033	)		1999	Oct-04		3 - 39 yrs.		86
Bakersfield	California	Hilton Garden Inn			—			1,159			10,572			313			12,044			(2,658	)		2004	Mar-05		3 - 39 yrs.		120
Folsom	California	Hilton Garden Inn			—			1,516			16,994			1,415			19,925			(3,815	)		1999	Nov-05		3 - 39 yrs.		100
Foothill Ranch	California	Hampton Inn			—			1,051			6,504			1,017			8,572			(1,933	)		1998	Apr-05		3 - 39 yrs.		84
Lake Forest	California	Hilton Garden Inn			—			1,533			9,433			356			11,322			(2,492	)		2004	Oct-04		3 - 39 yrs.		103
Milpitas	California	Hilton Garden Inn			—			2,555			16,544			2,192			21,291			(4,387	)		1999	Nov-05		3 - 39 yrs.		161
Roseville	California	Hilton Garden Inn			—			2,355			18,944			1,840			23,139			(4,486	)		1999	Nov-05		3 - 39 yrs.		131
San Francisco	California	Hilton Garden Inn			—			1,994			9,558			2,309			13,861			(3,361	)		1999	Jan-06		3 - 39 yrs.		169
Boulder	Colorado	Marriott			—			3,058			27,833			2,442			33,333			(6,896	)		1997	May-05		3 - 39 yrs.		157
Glendale	Colorado	Hampton Inn & Suites			4,929			3,627			11,235			1,465			16,327			(3,268	)		1999	Oct-04		3 - 39 yrs.		133
Lakewood	Colorado	Hampton Inn			—			2,490			8,108			2,527			13,125			(2,587	)		2003	Oct-04		3 - 39 yrs.		170
Farmington	Connecticut	Courtyard			—			1,792			15,436			139			17,367			(3,056	)		2005	Oct-05		3 - 39 yrs.		119
Rocky Hill	Connecticut	Residence Inn			—			1,469			11,287			137			12,893			(2,321	)		2005	Aug-05		3 - 39 yrs.		96
Wallingford	Connecticut	Homewood Suites			—			1,412			12,079			310			13,801			(2,615	)		2005	Jul-05		3 - 39 yrs.		104
Clearwater	Florida	SpringHill Suites			—			—			7,214			66			7,280			(1,476	)		2006	Feb-06		3 - 39 yrs.		79
Lake Mary	Florida	Courtyard			—			685			5,573			2,490			8,748			(2,160	)		1995	Mar-05		3 - 39 yrs.		86
Lakeland	Florida	Residence Inn			—			1,512			8,707			1,417			11,636			(2,362	)		2001	Jun-05		3 - 39 yrs.		78
Orange Park	Florida	Fairfield Inn			—			850			6,984			283			8,117			(1,281	)		1998	Nov-05		3 - 39 yrs.		83
Panama City	Florida	Courtyard			—			1,399			8,225			120			9,744			(1,681	)		2006	Mar-06		3 - 39 yrs.		84
Pensacola	Florida	Courtyard			—			1,181			10,733			1,766			13,680			(2,309	)		1997	Aug-05		3 - 39 yrs.		90
Pensacola	Florida	Fairfield Inn			—			467			4,706			300			5,473			(953	)		1995	Aug-05		3 - 39 yrs.		63
Pensacola	Florida	Hampton Inn & Suites			—			1,241			8,361			126			9,728			(1,919	)		2005	Jul-05		3 - 39 yrs.		85
Tallahassee	Florida	Hilton Garden Inn			—			1,096			10,137			1,147			12,380			(2,531	)		1997	Mar-05		3 - 39 yrs.		99
Albany	Georgia	Courtyard			—			1,246			7,665			191			9,102			(1,765	)		2004	Jun-05		3 - 39 yrs.		84
Columbus	Georgia	Residence Inn			—			—			8,184			222			8,406			(1,768	)		2003	Jun-05		3 - 39 yrs.		78
Savannah	Georgia	SpringHill Suites			2,638			687			5,105			300			6,092			(1,020	)		1999	Sep-05		3 - 39 yrs.		79
Valdosta	Georgia	Courtyard			—			1,030			7,535			1,248			9,813			(1,879	)		2002	Oct-05		3 - 39 yrs.		84
Mt. Olive	New Jersey	Residence Inn			—			1,407			11,334			288			13,029			(2,443	)		2005	Sep-05		3 - 39 yrs.		123
Somerset	New Jersey	Homewood Suites			—			1,807			16,807			398			19,012			(3,450	)		2005	Aug-05		3 - 39 yrs.		123
Saratoga Springs	New York	Hilton Garden Inn			—			2,391			15,893			1,630			19,914			(3,558	)		1999	Sep-05		3 - 39 yrs.		112
Roanoke Rapids	North Carolina	Hilton Garden Inn			—			2,457			15,714			35			18,206			(2,157	)		2008	Mar-08		3 - 39 yrs.		147
Hillsboro	Oregon	Courtyard			5,877			1,869			9,494			2,454			13,817			(2,360	)		1996	Mar-06		3 - 39 yrs.		155
Hillsboro	Oregon	Residence Inn			—			2,656			13,304			479			16,439			(2,750	)		1994	Mar-06		3 - 39 yrs.		122
Hillsboro	Oregon	TownePlace Suites			—			2,140			9,725			1,343			13,208			(2,610	)		1999	Dec-05		3 - 39 yrs.		136
Portland	Oregon	Residence Inn			—			4,390			38,697			3,590			46,677			(8,652	)		2001	Dec-05		3 - 39 yrs.		258
Pittsburgh	Pennsylvania	Residence Inn			—			1,155			10,273			1,950			13,378			(2,969	)		1998	Sep-05		3 - 39 yrs.		156
Myrtle Beach	South Carolina	Courtyard			—			1,857			7,631			1,337			10,825			(2,601	)		1999	Jun-04		3 - 39 yrs.		135
Nashville	Tennessee	Homewood Suites			—			1,170			7,177			1,788			10,135			(2,055	)		1999	May-05		3 - 39 yrs.		121
Arlington	Texas	SpringHill Suites			—			1,114			6,657			1,358			9,129			(1,749	)		1998	Jun-05		3 - 39 yrs.		122
Arlington	Texas	TownePlace Suites			—			1,027			6,379			316			7,722			(1,488	)		1999	Jun-05		3 - 39 yrs.		95
Dallas	Texas	SpringHill Suites			—			1,367			18,742			641			20,750			(4,051	)		1997	Dec-05		3 - 39 yrs.		148
Fort Worth	Texas	Homewood Suites			—			1,152			8,210			2,517			11,879			(2,902	)		1999	May-05		3 - 39 yrs.		137
Fort Worth	Texas	Residence Inn			—			1,873			15,586			208			17,667			(3,407	)		2005	May-05		3 - 39 yrs.		149
Ft. Worth	Texas	SpringHill Suites			—			2,125			11,619			198			13,942			(2,852	)		2004	May-04		3 - 39 yrs.		145
Laredo	Texas	Homewood Suites			—			1,112			9,787			255			11,154			(2,130	)		2005	Nov-05		3 - 39 yrs.		106

(dollars in thousands)

									Subsequently
					Initial Cost				Capitalized		Total
							Bldg./		Bldg		Gross		Acc			Date of	Date	Depreciable	# of
City	State	Brand	Encumbrances		Land		FF&E /Other		Imp. & FF&E		Cost(1)		Deprec			Construction	Acquired	Life	Rooms
Birmingham	Alabama	Fairfield Inn	$	0	$	347	$	2,064	$	479	$	2,890	$	(618	)	1995	Aug-05	3 - 39 yrs.		63
Dothan	Alabama	Courtyard		0		1,262		7,150		1,468		9,880		(2,307	)	1996	Aug-05	3 - 39 yrs.		78
Dothan	Alabama	Hampton Inn & Suites		0		837		8,134		336		9,307		(2,147	)	2004	Jun-05	3 - 39 yrs.		85
Huntsville	Alabama	Fairfield Inn		0		502		4,817		351		5,670		(1,136	)	1999	Sep-05	3 - 39 yrs.		79
Huntsville	Alabama	Residence Inn		0		941		7,638		1,599		10,178		(2,523	)	2002	Jun-05	3 - 39 yrs.		78
Montgomery	Alabama	SpringHill Suites		0		956		6,334		324		7,614		(1,450	)	1998	Sep-05	3 - 39 yrs.		79
Tuscaloosa	Alabama	Courtyard		0		0		7,953		1,555		9,508		(2,287	)	1996	Aug-05	3 - 39 yrs.		78
Tuscaloosa	Alabama	Fairfield Inn		0		0		4,240		458		4,698		(1,040	)	1996	Aug-05	3 - 39 yrs.		63
Anchorage	Alaska	Hampton Inn		0		1,216		10,505		2,574		14,295		(3,993	)	1997	Mar-05	3 - 39 yrs.		101
Anchorage	Alaska	Hilton Garden Inn		0		4,217		14,801		1,931		20,949		(4,642	)	2002	Oct-04	3 - 39 yrs.		125
Anchorage	Alaska	Homewood Suites		0		1,797		11,052		1,855		14,704		(3,403	)	2004	Oct-04	3 - 39 yrs.		122
Phoenix	Arizona	Hampton Inn		0		1,417		5,213		2,141		8,771		(2,212	)	1998	Oct-04	3 - 39 yrs.		99
Arcadia	California	Hilton Garden Inn		0		1,716		10,197		2,513		14,426		(4,129	)	1999	Oct-04	3 - 39 yrs.		124
Arcadia	California	SpringHill Suites		0		1,623		6,469		1,021		9,113		(2,296	)	1999	Oct-04	3 - 39 yrs.		86
Bakersfield	California	Hilton Garden Inn		0		1,159		10,572		390		12,121		(2,978	)	2004	Mar-05	3 - 39 yrs.		120
Folsom	California	Hilton Garden Inn		0		1,516		16,994		1,592		20,102		(4,460	)	1999	Nov-05	3 - 39 yrs.		100
Foothill Ranch	California	Hampton Inn		0		1,051		6,504		1,059		8,614		(2,216	)	1998	Apr-05	3 - 39 yrs.		84
Lake Forest	California	Hilton Garden Inn		0		1,533		9,433		410		11,376		(2,771	)	2004	Oct-04	3 - 39 yrs.		103
Milpitas	California	Hilton Garden Inn		0		2,555		16,544		2,325		21,424		(5,118	)	1999	Nov-05	3 - 39 yrs.		161
Roseville	California	Hilton Garden Inn		0		2,355		18,944		1,923		23,222		(5,219	)	1999	Nov-05	3 - 39 yrs.		131
San Francisco	California	Hilton Garden Inn		0		1,994		9,558		2,442		13,994		(3,937	)	1999	Jan-06	3 - 39 yrs.		169
Boulder	Colorado	Marriott		0		3,058		27,833		2,641		33,532		(7,917	)	1997	May-05	3 - 39 yrs.		157
Glendale	Colorado	Hampton Inn & Suites		0		3,627		11,235		1,532		16,394		(3,702	)	1999	Oct-04	3 - 39 yrs.		133
Lakewood	Colorado	Hampton Inn		0		2,490		8,108		2,602		13,200		(3,141	)	2003	Oct-04	3 - 39 yrs.		170
Farmington	Connecticut	Courtyard		0		1,792		15,436		167		17,395		(3,547	)	2005	Oct-05	3 - 39 yrs.		119
Rocky Hill	Connecticut	Residence Inn		0		1,469		11,287		166		12,922		(2,673	)	2005	Aug-05	3 - 39 yrs.		96
Wallingford	Connecticut	Homewood Suites		0		1,412		12,079		444		13,935		(3,006	)	2005	Jul-05	3 - 39 yrs.		104
Clearwater	Florida	SpringHill Suites		0		0		7,214		86		7,300		(1,737	)	2006	Feb-06	3 - 39 yrs.		79
Lake Mary	Florida	Courtyard		0		685		5,573		2,554		8,812		(2,607	)	1995	Mar-05	3 - 39 yrs.		86
Lakeland	Florida	Residence Inn		0		1,512		8,707		1,468		11,687		(2,755	)	2001	Jun-05	3 - 39 yrs.		78
Orange Park	Florida	Fairfield Inn		0		850		6,984		338		8,172		(1,509	)	1998	Nov-05	3 - 39 yrs.		83
Panama City	Florida	Courtyard		0		1,399		8,225		133		9,757		(1,986	)	2006	Mar-06	3 - 39 yrs.		84
Pensacola	Florida	Courtyard		0		1,181		10,733		1,803		13,717		(2,815	)	1997	Aug-05	3 - 39 yrs.		90
Pensacola	Florida	Fairfield Inn		0		467		4,706		333		5,506		(1,119	)	1995	Aug-05	3 - 39 yrs.		63
Pensacola	Florida	Hampton Inn & Suites		0		1,241		8,361		177		9,779		(2,188	)	2005	Jul-05	3 - 39 yrs.		85
Tallahassee	Florida	Hilton Garden Inn		0		1,096		10,137		1,171		12,404		(2,936	)	1997	Mar-05	3 - 39 yrs.		99
Albany	Georgia	Courtyard		0		1,246		7,665		222		9,133		(2,008	)	2004	Jun-05	3 - 39 yrs.		84
Columbus	Georgia	Residence Inn		0		597		8,184		266		9,047		(2,020	)	2003	Jun-05	3 - 39 yrs.		78
Savannah	Georgia	SpringHill Suites		0		687		5,105		327		6,119		(1,201	)	1999	Sep-05	3 - 39 yrs.		79
Valdosta	Georgia	Courtyard		0		1,030		7,535		1,285		9,850		(2,254	)	2002	Oct-05	3 - 39 yrs.		84
Mt. Olive	New Jersey	Residence Inn		0		1,407		11,334		323		13,064		(2,826	)	2005	Sep-05	3 - 39 yrs.		123
Somerset	New Jersey	Homewood Suites		0		1,807		16,807		465		19,079		(3,987	)	2005	Aug-05	3 - 39 yrs.		123
Saratoga Springs	New York	Hilton Garden Inn		0		2,391		15,893		1,712		19,996		(4,179	)	1999	Sep-05	3 - 39 yrs.		112
Roanoke Rapids	North Carolina	Hilton Garden Inn		0		2,457		15,714		62		18,233		(2,726	)	2008	Mar-08	3 - 39 yrs.		147
Hillsboro	Oregon	Courtyard		5,709		1,869		9,494		2,525		13,888		(2,995	)	1996	Mar-06	3 - 39 yrs.		155
Hillsboro	Oregon	Residence Inn		0		2,656		13,304		693		16,653		(3,265	)	1994	Mar-06	3 - 39 yrs.		122
Hillsboro	Oregon	TownePlace Suites		0		2,140		9,725		1,374		13,239		(3,076	)	1999	Dec-05	3 - 39 yrs.		136
Portland	Oregon	Residence Inn		0		4,390		38,697		3,779		46,866		(10,182	)	2001	Dec-05	3 - 39 yrs.		258
Pittsburgh	Pennsylvania	Residence Inn		0		1,155		10,273		2,173		13,601		(3,442	)	1998	Sep-05	3 - 39 yrs.		156
Myrtle Beach	South Carolina	Courtyard		0		1,857		7,631		1,512		11,000		(2,933	)	1999	Jun-04	3 - 39 yrs.		135
Nashville	Tennessee	Homewood Suites		0		1,170		7,177		2,042		10,389		(2,539	)	1999	May-05	3 - 39 yrs.		121
Arlington	Texas	SpringHill Suites		0		1,114		6,657		1,427		9,198		(2,152	)	1998	Jun-05	3 - 39 yrs.		122
Arlington	Texas	TownePlace Suites		0		1,027		6,379		351		7,757		(1,713	)	1999	Jun-05	3 - 39 yrs.		95
Dallas	Texas	SpringHill Suites		0		1,367		18,742		2,399		22,508		(4,770	)	1997	Dec-05	3 - 39 yrs.		148
Fort Worth	Texas	Homewood Suites		0		1,152		8,210		2,637		11,999		(3,447	)	1999	May-05	3 - 39 yrs.		137
Fort Worth	Texas	Residence Inn		18,238		1,873		15,586		241		17,700		(3,864	)	2005	May-05	3 - 39 yrs.		149
Fort Worth	Texas	SpringHill Suites		0		2,125		11,619		1,654		15,398		(3,235	)	2004	May-04	3 - 39 yrs.		145
Laredo	Texas	Homewood Suites		0		1,112		9,787		306		11,205		(2,494	)	2005	Nov-05	3 - 39 yrs.		106
Laredo	Texas	Residence Inn		0		898		10,973		245		12,116		(2,729	)	2005	Sep-05	3 - 39 yrs.		109
Las Colinas	Texas	TownePlace Suites		0		1,195		6,266		409		7,870		(1,868	)	1998	Jun-05	3 - 39 yrs.		136
McAllen	Texas	Hilton Garden Inn		0		1,170		8,151		1,770		11,091		(2,871	)	2000	Jul-05	3 - 39 yrs.		104
Fredericksburg	Virginia	Hilton Garden Inn		0		1,821		15,363		339		17,523		(3,745	)	2005	Dec-05	3 - 39 yrs.		148
Richmond	Virginia	Corporate Office		0		684		1,038		5,726		7,448		(2,923	)	1893	Jun-04	3 - 39 yrs.		N/A
Kent	Washington	TownePlace Suites		0		1,831		10,731		1,713		14,275		(3,483	)	1999	Dec-05	3 - 39 yrs.		152
Mukilteo	Washington	TownePlace Suites		0		1,499		11,061		1,454		14,014		(3,318	)	1999	Dec-05	3 - 39 yrs.		128
Redmond	Washington	Marriott		0		9,504		56,168		3,585		69,257		(15,352	)	2004	Jul-04	3 - 39 yrs.		262
Renton	Washington	Hilton Garden Inn		0		1,272		14,679		2,329		18,280		(4,793	)	1998	Nov-05	3 - 39 yrs.		150
Deposits on Construction in Progress				0		0		0		854		854		0
			$	23,947	$	107,776	$	747,682	$	90,560	$	946,018	$	(216,910	)					7,658

~~REAL~~(1) ~~ESTATE~~The ~~AND~~gross ~~ACCUMULATED~~cost ~~DEPRECIATIONAs~~basis offor ~~December~~Federal ~~31,~~Income ~~2011(dollars~~Tax purposes approximates the basis used in ~~thousands)~~this schedule.

City	State	Brand	Encumbrances			Initial Cost						SubsequentlyCapitalized			TotalGross Cost			AccDeprec				Date ofConstruction		DateAcquired	DepreciableLife		# ofRooms
						Land(1)			Bldg./FF&E/Other			BldgImp. & FF&E
Laredo	Texas	Residence Inn		$	—		$	898		$	10,973		$	165		$	12,036		$	(2,365	)		2005	Sep-05		3 - 39 yrs.		109
Las Colinas	Texas	TownePlace Suites			—			1,195			6,266			354			7,815			(1,627	)		1998	Jun-05		3 - 39 yrs.		136
McAllen	Texas	Hilton Garden Inn			—			1,170			8,151			1,685			11,006			(2,432	)		2000	Jul-05		3 - 39 yrs.		104
Fredericksburg	Virginia	Hilton Garden Inn			—			1,821			15,363			299			17,483			(3,208	)		2005	Dec-05		3 - 39 yrs.		148
Richmond	Virginia	Corporate Office			—			684			1,038			3,925			5,647			(2,462	)		1893	Jun-04		3 - 39 yrs.		N/A
Kent	Washington	TownePlace Suites			—			1,831			10,731			1,612			14,174			(2,941	)		1999	Dec-05		3 - 39 yrs.		152
Mukilteo	Washington	TownePlace Suites			—			1,499			11,061			1,380			13,940			(2,804	)		1999	Dec-05		3 - 39 yrs.		128
Redmond	Washington	Marriott			—			9,504			56,168			2,144			67,816			(13,571	)		2004	Jul-04		3 - 39 yrs.		262
Renton	Washington	Hilton Garden Inn			—			1,272			14,679			2,252			18,203			(4,101	)		1998	Nov-05		3 - 39 yrs.		150
Deposits on Construction in Progress					—			—			—			171			171			—
				$	19,305		$	107,179		$	747,682		$	77,353		$	932,214		$	(185,860	)							7,658

~~(1) Land is owned fee simple unless cost is $0, which means the property is subject to a ground lease.~~Index

12Investment in real estate at December 31, 2012, consisted of the following (in thousands):

Investment in real estate at December 31, 2011, consisted of the following (in thousands):

Land	$	107,736
Building and Improvements		752,736
Furniture, Fixtures and Equipment		82,503
Franchise Fees		3,043
		946,018
Less Accumulated Depreciation		(216,910	)
Investment in Real Estate, net	$	729,108

Land	$	107,139
Building and Improvements		746,486
Furniture, Fixtures and Equipment		75,546
Franchise Fees		3,043
		932,214
Less Accumulated Depreciation		(185,860	)
Investment in Real Estate, net	$	746,354

For additional information about the Company’s properties, refer to Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Item 3. Legal Proceedings

The term the “Apple REIT Companies” means the Company, Apple REIT Seven, Inc., Apple REIT Eight, Inc., Apple REIT Nine, Inc. and Apple REIT Ten, Inc.

On December 13, 2011, the United States District Court for the Eastern District of New York ordered that three putative class actions, Kronberg, et al. v. David Lerner Associates, Inc., et al., Kowalski v. Apple REIT Ten, Inc., et al., and Leff v. Apple REIT Ten, Inc., et al., be consolidated and amended the caption of the consolidated matter to be In re Apple REITs Litigation. The District Court also appointed lead plaintiffs and lead counsel for the consolidated action and ordered lead plaintiffs to file and serve a consolidated complaint by February 17, 2012. The ~~parties agreed to a schedule for answering or otherwise responding to the complaint and that briefing on any motion to dismiss the complaint will be concluded by June 18, 2012. The~~ Company was previously named as a party in the Kronberg, et al. v. David Lerner Associates, Inc., et al. putative class action lawsuit, which was filed on June 20, 2011.

On February 17, 2012, lead plaintiffs and lead counsel in the In re Apple REITs Litigation, Civil Action No. 1:11-cv-02919-KAM-JO, filed an amended consolidated complaint in the United States District Court for the Eastern District of New York against the Company, Apple Suites Realty Group, Inc., Apple Eight Advisors, Inc., Apple Nine Advisors, Inc., Apple Ten Advisors, Inc., Apple Fund Management, LLC, Apple REIT Seven, Inc., Apple REIT Eight, Inc., Apple REIT Nine, Inc. and Apple REIT Ten, Inc., their directors and certain officers, and David Lerner Associates, Inc. and David Lerner. The consolidated complaint, purportedly brought on behalf of all purchasers of Units in the Company and the other Apple REIT Companies, or those who otherwise acquired these Units that were offered and sold to them by David Lerner Associates, Inc., or its affiliates and on behalf of subclasses of shareholders in New Jersey, New York, Connecticut and Florida, asserts claims under Sections 11, 12 and 15 of the Securities Act of 1933. The consolidated complaint also asserts claims for breach of fiduciary duty, aiding and abetting breach of fiduciary duty, negligence, and unjust enrichment, and claims for violation of the securities laws of Connecticut and Florida. The complaint seeks, among other things, certification of a putative nationwide class and the state subclasses, damages, rescission of share purchases and other costs and expenses.

On February 16, 2012, one shareholder of the Company and Apple REIT Seven, Inc., filed a putative class action lawsuit captioned Laurie Brody v. David Lerner Associates, Inc., et al., Case No. 1:12-cv-782-ERK-RER, in the United States District Court for the Eastern District of New York against the Company, Apple REIT Seven, Inc., Glade M. Knight, Apple Suites Realty Group, Inc., David Lerner Associates, Inc., and certain executives of David Lerner Associates, Inc. The complaint, purportedly brought on behalf of all purchasers of Units of the Company and Apple REIT Seven, Inc., or those who otherwise acquired these Units, asserts claims for breach of fiduciary duty and aiding and abetting breach of fiduciary duty, unjust enrichment, negligence, breach of written or implied contract (against the David Lerner Associates, Inc. defendants only), and for violation of New Jersey’s state securities laws. On ~~Counsel~~March ~~for~~13, ~~the~~2012, ~~plaintiff~~by inorder of the court, Laurie Brody v. David Lerner Associates, etInc., et al. ~~has~~was ~~consented~~consolidated ~~to consolidating this case~~ into the In re Apple REITs Litigation.

On April 18, 2012, the Company, and the other Apple REIT Companies, served a motion to dismiss the consolidated complaint in the In re Apple REITs Litigation. The Company and the other Apple REIT Companies accompanied their motion to dismiss the consolidated complaint with a memorandum of law in support of their motion to dismiss the consolidated complaint. The briefing period for any motion to dismiss was completed on July 13, 2012.

Index

The Company believes that any claims against it, its officers and directors and other Apple entities are without merit, and intends to defend against them vigorously. At this time, the Company cannot reasonably predict the outcome of these proceedings or provide a reasonable estimate of the possible loss or range of loss due to these proceedings, if any.

On October 22, 2012, the Financial Industry Regulatory Authority (“FINRA”) issued an order against David Lerner Associates, Inc. (“DLA”) and David Lerner, individually, requiring DLA to pay approximately $12 million in restitution to certain investors in Units of Apple REIT Ten, Inc. In addition, David Lerner, individually, was fined $250,000 and suspended for one year from the securities industry, followed by a two year suspension from acting as a principal. The Company relies on DLA for the administration of its Units and does not believe this settlement will affect the administration of its Units. The Company intends to continue to cooperate with regulatory or governmental inquiries.

Item 4. Mine Safety Disclosures

Not Applicable

1416

Index

PART II

Item 5. Market For Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities

Common Shares

There is currently no established public trading market in which the Company’s common shares are traded. As of December 31, ~~2011~~2012, there were 91.2 million Units outstanding. Each Unit consists of one common share, no par value, and one Series A preferred share of the Company. ~~The~~As ~~Company is currently selling shares to its existing shareholders at a price~~ of ~~$11.00~~February ~~per~~15, ~~share~~2013, ~~through~~the ~~its Dividend Reinvestment Plan. The~~ Units ~~are~~were held by approximately 19,~~900~~500 beneficial shareholders. In 2011, there was a tender offer made for the Units of the Company by a group of bidders. In December 2011, the bidders announced they acquired 8,107 Units for $5 a Unit. The Units acquired by the tender offer were approximately .009% of the Company’s outstanding shares. The weighted average price paid for shares through the tender offer and the Company’s Unit Redemption Program in 2011 was $10.96 per Unit. The bidders made another tender offer in February 2012 at $6 per Unit. The offer expires in April 2012.

On November 29, 2012, the Company entered into a definitive merger agreement (the “Merger Agreement”) to be acquired by BRE Select Hotels Corp (“BRE Select Hotels”), a newly formed affiliate of Blackstone Real Estate Partners VII L.P. (the “Merger”). Under the Merger Agreement, each issued and outstanding Unit and each share of Series B convertible preferred stock of the Company (on an as converted basis), other than any dissenting shares, will be converted into the right to receive consideration with a stated value of $11.10 per Unit consisting of (i) $9.20 in cash, without interest, and (ii) one share of 7% Series A Cumulative Redeemable Preferred Stock of BRE Select Hotels having an initial liquidation preference of $1.90 per share (the “New Preferred Shares”). The New Preferred Shares will include an option for the holder of any New Preferred Shares to redeem all or a portion of such holder’s New Preferred Shares at the liquidation preference, plus any accumulated and unpaid dividends, after 7-1/2 years following the issuance of the New Preferred Shares in connection with the Merger and an initial dividend rate of 7% per share. The New Preferred Shares will also be redeemable by BRE Select Hotels Corp at any time at the liquidation preference, plus any accumulated and unpaid dividends, and will have limited voting rights. The dividend rate on the New Preferred Shares will increase to 11% per share if the New Preferred Shares are not redeemed within five years following the issuance of the New Preferred Shares in connection with the Merger. The initial liquidation preference of $1.90 per share will be subject to downward adjustment should net costs and payments relating to certain legacy litigation and regulatory matters exceed $3.5 million.

A shareholder meeting is planned for the second quarter of 2013 to vote on the transaction. The Merger Agreement contains various closing conditions, including shareholder approval. As a result, there can be no assurance that the Merger will close. If the closing conditions are satisfied, it is anticipated that the Merger could close during the second quarter of 2013. Under the Merger Agreement, the Company may terminate the Merger Agreement in certain circumstances. However the Company may be required to pay a fee of $20 million to an affiliate of BRE Select Hotels, plus certain expenses not to exceed $5 million. In certain other circumstances, the Merger Agreement provides for an affiliate of BRE Select Hotels to pay the Company a fee of $35 million upon termination of the Merger Agreement, plus certain expenses not to exceed $5 million.

Upon entering into and as a requirement of the Merger Agreement, the Company suspended its Dividend Reinvestment Plan and Unit Redemption Program. Prior to entering into the Merger Agreement, the last price at which an unrelated person purchased the Units from the Company was $11 per Unit through its Dividend Reinvestment Plan. This price was not based on an appraisal or valuation of the Company or its assets.

During 2012 and 2011, there were three tender offers made for the Units of the Company by a group of the same bidders. The Units acquired, as reported by the bidders, through the three tender offers were 45,381 Units for $5.50 per Unit in December 2012, 95,711 Units for $6 per Unit in May 2012 and 8,107 Units for $5 per Unit in December 2011, representing in total approximately 0.16% of the Company’s outstanding Units at December 31, 2012. Also during 2012 and 2011, the Company redeemed Units totaling 1.6 million and 2.8 million at $11.00 per Unit. The weighted average price paid for Units through the applicable tender offers and the Company’s Unit Redemption Program was approximately $10.58 and $10.96 in 2012 and 2011, respectively. In February 2013, the bidders made another tender offer at $8.50 per Unit. The offer expires in March 2013.

Distribution Policy

To maintain its REIT status the Company is required to distribute at least 90% of its ordinary income. In accordance with the Merger Agreement, the Company suspended distributions to shareholders. In the event the Merger does not occur, the Company plans to reinstate its monthly distribution to shareholders. Under the Merger Agreement, the Company is generally prohibited from making distributions to shareholders. However, if necessary, the Company is permitted to make minimum distribution payments to maintain its

Index

REIT status. Distributions in 2012 totaled $66.1 million and were paid monthly at a rate of $0.066 per common share through November 2012. Distributions in 2011 totaled $71.2 million and were paid monthly at a rate of $0.066 per common share beginning in July 2011 and $0.064 per common share prior to that date. Distributions in 2010 totaled $72.3 million and were paid monthly at a rate of $0.064 per common share beginning in March 2010 and $0.075 per common share prior to that date. The amount and timing of distributions to shareholders are within the discretion of the Company’s Board of Directors. The amount and frequency of future distributions will depend on the Merger, as well as the Company’s results of operations, cash flow from operations, economic conditions, working capital requirements, cash requirements to fund investing and financing activities, capital expenditure requirements, including improvements to and expansions of properties and the acquisition of additional properties, as well as the distribution requirements under federal income tax provisions for qualification as a REIT. The Company’s line of credit loan agreement can potentially limit distributions to 105% of funds from operations.

Dividend Reinvestment Plan

In February 2006, the Company instituted a Dividend Reinvestment Plan for its shareholders. The plan provides a way to increase shareholder investment in the Company by reinvesting dividends to purchase additional Units of the Company. The uses of the proceeds from this plan may include purchasing Units under the Company’s Unit Redemption Program, enhancing properties, satisfying financing obligations and other expenses, increasing working capital, funding various corporate operations, and acquiring hotels. The Company has registered 20.0 million Units for potential issuance under the plan. AsSince inception of the plan through December 31, ~~2011~~2012, approximately 1618.74 million Units, representing $~~183~~202.61 million in proceeds to the Company, ~~have~~were ~~been~~ issued under the plan. AsDuring ofthe years ended December 31, 2012, 2011 and 2010, ~~the~~approximately ~~Company~~1.7 ~~had~~million ~~approximately~~Units, 28representing $18.5 million ~~and~~in 38proceeds to the Company, 2.15 million Units, ~~participating~~representing $27.1 million in proceeds to the ~~Dividend Reinvestment~~Company, ~~Plan~~and 2.8 ~~Since~~million ~~there~~Units, ~~continues~~representing to$30.5 bemillion ~~demand~~in ~~for~~proceeds to the ~~Units~~Company, atwere ~~$11~~issued ~~per~~under ~~Unit,~~ the plan. The Company’s ~~Board~~Dividend Reinvestment Plan was suspended upon the execution of ~~Directors~~the ~~does~~Merger ~~not~~Agreement. ~~believe~~As a result, the last offering ~~price~~ under the Dividend Reinvestment Plan ~~should~~occurred bein ~~changed~~November 2012 at ~~this~~$11 ~~time~~per Unit. ~~However,~~In the ~~Board~~event ofthe ~~Directors~~Merger ~~could~~does ~~change~~not occur, the ~~price~~Company asplans itto ~~determines appropriate~~reinstate the Dividend Reinvestment Plan.

Unit Redemption Program

In July 2005, the Company instituted a Unit Redemption Program to provide limited interim liquidity to its shareholders who have held their Units for at least one year. Shareholders may request redemption of Units for a purchase price equal to the lesser of: (1) the purchase price per Unit that the shareholder actually paid for the Unit; or (2) $11.00 per Unit. The Company reserves the right to change the purchase price of redemptions, reject any request for redemption, or otherwise amend the terms of, suspend, or terminate the Unit Redemption Program. The Unit Redemption Program was suspended upon the execution of the Merger Agreement. As a result, the last purchase under the Unit Redemption Program was in October 2012. In the event the Merger does not occur, the Company plans to reinstate the Unit Redemption Program. As noted below, ~~during~~since July 2011, the total redemption requests have exceeded the authorized amount of redemptions and the Board of Directors has and will continue to limit the amount of redemptions as it deems prudent.

Since inception of the program ~~though~~through December 31, ~~2011~~2012, the Company has redeemed approximately 1618.6 3 million Units representing $~~182~~200.45 million. During the year ended December 31, ~~2011~~2012, the Company redeemed approximately 21.86 million Units in the amount of $3018.20 million. As contemplated in the program, beginning with the July 2011 redemption, the Company redeemed Units on a pro-rata basis with approximately 17%, 7%, 4%, 4%, 3%, and 3% of the ~~amount~~amounts requested redeemed in the third ~~quarter~~and fourth quarters of 2011 and ~~approximately 7% of~~ the ~~amount~~first, ~~requested~~second, ~~redeemed~~third, inand ~~October~~fourth ~~2011~~quarters ~~(the~~of ~~last~~2012, ~~scheduled redemption date in 2011)~~respectively, leaving approximately 912.24 million Units requested but not redeemed as of the last scheduled redemption date in the fourth quarter of 2012 (October 2012). Prior to July 2011, the Company had redeemed 100% of redemption requests. The Company has a number of cash sources including cash from operations, dividend reinvestment plan proceeds, borrowings under its credit ~~facilities~~ facility and asset sales from which it can make redemptions. See the Company’s complete consolidated statements of cash flows for the years ended December 31, ~~2011~~2012, ~~2010~~2011 and ~~2009~~2010 in the Company’s audited financial statements in Item 8 of this Form 10-K for further description of the sources and uses of the Company’s cash flows. The following is a summary of Unit redemptions during ~~the fourth quarter of~~ 2011 ~~(no redemptions occurred in November~~ and ~~December 2011)~~2012:

1518

Index

Redemption Date	Requested Unit Redemptions		Units Redeemed		Redemption Requests not Redeemed
January 2011		606,064		606,064		0
April 2011		683,427		683,427		0
July 2011		4,412,066		737,284		3,674,782
October 2011		9,878,351		726,613		9,151,738
January 2012		11,591,274		459,736		11,131,538
April 2012		11,168,887		455,124		10,713,763
July 2012		12,547,425		361,351		12,186,074
October 2012		12,740,003		363,465		12,376,538

The following is a summary of redemptions during the fourth quarter of 2012 (no redemptions occurred in November and December 2012):

Issuer Purchases of Equity Securities

Period

(a)

(b)

(c)

(d)

(a)

(b)

(c)

(d)

Total Numberof UnitsPurchased

Average Price Paidper Unit

Total Number ofUnits Purchased asPart of PubliclyAnnounced Plansor Programs

Maximum Numberof Units that MayYet Be PurchasedUnder the Plans orPrograms

Period

Total Number of Units Purchased

Average Price Paid per Unit

Total Number of Units Purchased as Part of Publicly Announced Plans or Programs

Maximum Number of Units that May Yet Be Purchased Under the Plans or Programs

October 2011

726,613

10.98

726,613

(1)

October 2012

363,465

10.98

363,465

)

(1)	The maximum number of Units that may be redeemed in any 12 month period is limited to up to five percent (5.0%) of the weighted average number of Units outstanding from the beginning of the 12 month period, subject to the Company’s right to change the number of Units to be redeemed.

Series A Preferred Shares

The Series A preferred shares have no voting rights and no conversion rights. In addition, the Series A preferred shares are not separately tradable from the common shares to which they relate. The Series A preferred shares do not have any distribution rights except a priority distribution upon the sale of the Company’s assets. The priority distribution (“Priority Distribution”) ~~will~~is be equal to $11.00 per Series A preferred share, and will be paid before any distribution will be made to the holders of any other shares. Upon the Priority Distribution, the Series A preferred shares will have no other distribution rights.

Series B Convertible Preferred Shares

In January 2004, the Company issued 240,000 Series B convertible preferred shares to Glade M. Knight, the Company’s Chairman and Chief Executive Officer. There are no dividends payable on the Series B convertible preferred shares. Holders of more than two-thirds of the Series B convertible preferred shares must approve any proposed amendment to the Articles of Incorporation that would adversely affect the Series B convertible preferred shares. Upon liquidation, each holder of the Series B convertible preferred shares is entitled to a priority liquidation payment. However, the priority liquidation payment of the holder of the Series B convertible preferred shares is junior to the holders of the Series A preferred shares’ distribution rights. The holder of a Series B convertible preferred share is entitled to a liquidation payment of $11 per number of common shares into which each Series B convertible preferred share would convert. In the event that the liquidation of the Company’s assets results in proceeds that exceed the distribution rights of the Series A preferred shares and the Series B convertible preferred shares, the remaining proceeds will be distributed between the common shares and the Series B convertible preferred shares, on an as converted basis. The Series B convertible preferred shares are convertible into common shares of the Company upon and for 180 days following the occurrence of any of the following events: (1) substantially all of the Company’s assets, stock or business is sold or transferred through exchange, merger, consolidation, lease, share exchange or otherwise, other than a sale of assets in liquidation, dissolution or winding up of the Company’s business; or (2) the termination or expiration without renewal of the advisory agreement with Apple Six Advisors, Inc., or if the Company ceases to use Apple Six Realty Group, Inc. to provide property acquisition and disposition services; or (3) the Company’s common shares are listed on any securities exchange or quotation system or in any established market.

Index

or if the Company ceases to use Apple Six Realty Group, Inc. to provide property acquisition and disposition services; or (3) the Company’s common shares are listed on any securities exchange or quotation system or in any established market.

Preferred Shares

The Company’s articles of incorporation authorize issuance of up to 15 million additional preferred shares. No preferred shares other than the Series A preferred shares and the Series B convertible preferred shares (discussed above) have been issued. The Company believes that the authorization to issue additional preferred shares benefits the Company and its shareholders by permitting flexibility in financing additional growth, giving the Company additional financing options in corporate planning and in responding to developments in business, including financing of additional acquisitions and other general corporate purposes. Having authorized preferred shares available for issuance in the future gives the Company the ability to respond to future developments and allows preferred shares to be issued without the expense and delay of a special shareholders’ meeting. At present, the Company has no specific financing or acquisition plans involving the issuance of additional preferred shares and the Company does not propose to fix the characteristics of any series of preferred shares in anticipation of issuing preferred shares other than the Series A preferred shares and Series B convertible preferred shares discussed above. The Company cannot now predict whether or to what extent, if any, additional preferred shares will be used or if so used what the characteristics of a particular series may be. The voting rights and rights to distributions of the holders of common shares will be subject to the prior rights of the holders of any subsequently-issued preferred shares. Unless otherwise required by applicable law or regulation, the preferred shares would be issuable without further authorization by holders of the common shares and on such terms and for such consideration as may be determined by the Board of Directors. The preferred shares could be issued in one or more series having varying voting rights, redemption and conversion features, distribution (including liquidating distribution) rights and preferences, and other rights, including rights of approval of specified transactions. A series of preferred shares could be given rights that are superior to rights of holders of common shares and a series having preferential distribution rights could limit common share distributions and reduce the amount holders of common shares would otherwise receive on dissolution.

preferred shares in anticipation of issuing preferred shares other than the Series A preferred shares and Series B convertible preferred shares discussed above. The Company cannot now predict whether or to what extent, if any, additional preferred shares will be used or if so used what the characteristics of a particular series may be. The voting rights and rights to distributions of the holders of common shares will be subject to the prior rights of the holders of any subsequently-issued preferred shares. Unless otherwise required by applicable law or regulation, the preferred shares would be issuable without further authorization by holders of the common shares and on such terms and for such consideration as may be determined by the Board of Directors. The preferred shares could be issued in one or more series having varying voting rights, redemption and conversion features, distribution (including liquidating distribution) rights and preferences, and other rights, including rights of approval of specified transactions. A series of preferred shares could be given rights that are superior to rights of holders of common shares and a series having preferential distribution rights could limit common share distributions and reduce the amount holders of common shares would otherwise receive on dissolution.

Distribution Policy

To maintain its REIT status the Company is required to distribute at least 90% of its ordinary income. Distributions in 2011 totaled $71.2 million and were paid monthly at a rate of $0.066 per common share beginning in July 2011 and $0.064 per common share prior to that date. Distributions in 2010 totaled $72.3 million and were paid monthly at a rate of $0.064 per common share beginning in March 2010 and $0.075 per common share prior to that date. Distributions in 2009 totaled $82.2 million and were paid monthly at a rate of $0.075 per common share. The amount and timing of distributions to shareholders are within the discretion of the Company’s Board of Directors. The amount and frequency of future distributions will depend on the Company’s results of operations, cash flow from operations, economic conditions, working capital requirements, cash requirements to fund investing and financing activities, capital expenditure requirements, including improvements to and expansions of properties and the acquisition of additional properties, as well as the distribution requirements under federal income tax provisions for qualification as a REIT. The Company’s line of credit loan agreement can potentially limit distributions to 105% of funds from operations.

Non-Employee Directors Stock Option Plan and Incentive Plan

The Company’s Board of Directors has adopted and the Company’s shareholders have approved a Non-Employee Directors Stock Option Plan and an Incentive Plan. The options issued under each plan, convert upon exercise, ~~convert~~ to Units. Each Unit consists of one common share and one Series A preferred share of the Company. As of December 31, ~~2011~~2012, options to purchase ~~507~~580,~~260~~116 Units were outstanding with a weighted average exercise price of $11 per Unit under the Directors Plan. No options have been issued under the Incentive Plan. The following is a summary of securities issued under the plans as of December 31, ~~2011~~2012:

Plan Category

Plan Category	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
Non-Employee Directors Stock Option Plan		580,116	$	11.00		1,019,429
Incentive Plan		—	$	—		4,029,318

Number of securities to beissued upon exercise ofoutstanding options,warrants and rights

Weighted-averageexercise price ofoutstanding options,warrants and rights

Number of securitiesremaining available forfuture issuance underequity compensationplans

Equity Compensation plans approved by security holders

Non-Employee Directors Stock Option Plan

507,260

11.00

1,092,285

Incentive Plan

—

4,029,318

Item 6. Selected Financial Data

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

1720

	For the yearendedDecember 31, 2011				For the yearendedDecember 31, 2010				For the yearendedDecember 31, 2009				For the yearendedDecember 31, 2008				For the yearendedDecember 31, 2007
(in thousands except per share and statistical data)
Revenues:
Room revenue		$	220,227			$	206,624			$	195,671			$	233,112			$	229,937
Other revenue			16,553				14,634				14,753				19,744				20,672
Reimbursed expenses			7,241				6,055				5,899				6,057				886
Total revenue			244,021				227,313				216,323				258,913				251,495
Expenses:
Hotel operating expenses			137,986				130,896				126,120				144,751				141,252
Taxes, insurance and other			12,133				12,143				13,248				13,438				13,250
Reimbursed expenses			7,241				6,055				5,899				6,057				886
General and administrative			6,151				6,072				4,935				5,397				5,637
Depreciation			32,432				30,806				30,417				30,411				27,201
Interest expense, net			3,617				3,800				2,312				1,784				1,853
Total expenses			199,560				189,772				182,931				201,838				190,079
Income from continuing operations			44,461				37,541				33,392				57,075				61,416
Income (loss) from discontinued operations			700				(3,157	)			(13	)			1,427				1,912
Net income		$	45,161			$	34,384			$	33,379			$	58,502			$	63,328
Per Share:
Income from continuing operations per common share		$	0.48			$	0.41			$	0.37			$	0.63			$	0.69
Income (loss) from discontinued operations per common share			0.01				(0.03	)			—				0.01				0.02
Net income per common share		$	0.49			$	0.38			$	0.37			$	0.64			$	0.71
Distributions paid per common share		$	0.78			$	0.79			$	0.90			$	0.90			$	0.88
Weighted-average common shares outstanding—basic and diluted			91,254				91,323				91,178				90,899				89,644
Balance Sheet Data (at end of period):
Cash and cash equivalents		$	32			$	—			$	—			$	935			$	33,261
Investment in real estate, net		$	746,354			$	764,557			$	801,646			$	823,463			$	820,468
Total assets		$	759,365			$	788,213			$	815,584			$	849,783			$	882,657
Notes payable		$	63,067			$	63,736			$	54,040			$	29,097			$	51,679
Shareholders’ equity		$	690,628			$	719,771			$	757,488			$	809,382			$	816,244
Net book value per share		$	7.57			$	7.87			$	8.28			$	8.82			$	9.04
Other Data:
Cash flow from (used in):
Operating activities		$	78,138			$	70,956			$	66,029			$	88,747			$	89,848
Investing activities		$	(2,721	)		$	(8,505	)		$	(6,571	)		$	(33,234	)		$	(15,627	)
Financing activities		$	(75,385	)		$	(62,451	)		$	(60,393	)		$	(87,839	)		$	(67,120	)
Number of hotels owned at end of period (including hotels held for sale)			66				68				68				68				67
Average Daily Rate (ADR)(b)(f)		$	110			$	104			$	107			$	117			$	113
Occupancy(f)			72	%			71	%			66	%			71	%			74	%
Revenue Per Available Room (RevPAR)(c)(f)		$	79			$	74			$	70			$	83			$	84
Total rooms sold(d)(f)			2,005,542				1,986,223				1,836,076				1,990,489				2,028,026
Total rooms available(e)(f)			2,792,055				2,791,708				2,791,698				2,795,278				2,737,692
Funds From Operations Calculation(a):
Net income		$	45,161			$	34,384			$	33,379			$	58,502			$	63,328
Loss on hotels held for sale			—				3,567				—				—				—
Depreciation of real estate owned			32,432				31,199				30,938				29,313				26,782
Funds from operations		$	77,593			$	69,150			$	64,317			$	87,815			$	90,110

Index

(a) Funds from operations (FFO) is defined as net income (computed in accordance with generally accepted accounting principles—GAAP) excluding gains and losses from sales of depreciable property, plus depreciation and amortization and the loss on hotels held for sale. The Company considers FFO in evaluating property acquisitions and its operating performance and believes that FFO should be considered along with, but not as an alternative to, net income and cash flows as a measure of the Company’s activities

	Year Ended			Year Ended			Year Ended			Year Ended			Year Ended
(in thousands except per share and statistical data)	December 31, 2012			December 31, 2011			December 31, 2010			December 31, 2009			December 31, 2008
Revenues:
Room revenue	$	235,630		$	220,227		$	206,624		$	195,671		$	233,112
Other revenue		16,837			16,553			14,634			14,753			19,744
Reimbursed expenses		7,965			7,241			6,055			5,899			6,057
Total revenue		260,432			244,021			227,313			216,323			258,913

Expenses:
Hotel operating expenses		144,026			137,986			130,896			126,120			144,751
Taxes, insurance and other		13,103			12,133			12,143			13,248			13,438
General and administrative		7,620			5,589			6,072			4,935			5,397
Merger transaction costs		4,037			562			-			-			-
Reimbursed expenses		7,965			7,241			6,055			5,899			6,057
Depreciation		31,054			32,432			30,806			30,417			30,411
Interest expense, net		3,084			3,617			3,800			2,312			1,784
Total expenses		210,889			199,560			189,772			182,931			201,838
Income from continuing operations		49,543			44,461			37,541			33,392			57,075
Income (loss) from discontinued operations		-			700			(3,157	)		(13	)		1,427
Net income	$	49,543		$	45,161		$	34,384		$	33,379		$	58,502

Per Share:
Income from continuing operations per common share	$	0.54		$	0.48		$	0.41		$	0.37		$	0.63
Income (loss) from discontinued operations per common share		-			0.01			(0.03	)		-			0.01
Net income per common share	$	0.54		$	0.49		$	0.38		$	0.37		$	0.64

Distributions paid per common share	$	0.73		$	0.78		$	0.79		$	0.90		$	0.90
Weighted-average common shares outstanding - basic and diluted		91,142			91,254			91,323			91,178			90,899

Balance Sheet Data (at end of period):
Cash and cash equivalents	$	-		$	32		$	-		$	-		$	935
Investment in real estate, net	$	729,108		$	746,354		$	764,557		$	801,646		$	823,463
Total assets	$	740,370		$	759,365		$	788,213		$	815,584		$	849,783
Notes payable	$	58,417		$	63,067		$	63,736		$	54,040		$	29,097
Shareholders' equity	$	674,647		$	690,628		$	719,771		$	757,488		$	809,382
Net book value per share	$	7.40		$	7.57		$	7.87		$	8.28		$	8.82

Other Data:
Cash flow from (used in):
Operating activities	$	81,176		$	78,138		$	70,956		$	66,029		$	88,747
Investing activities	$	(10,852	)	$	(2,721	)	$	(8,505	)	$	(6,571	)	$	(33,234	)
Financing activities	$	(70,356	)	$	(75,385	)	$	(62,451	)	$	(60,393	)	$	(87,839	)
Number of hotels owned at end of period (including hotels held for sale)		66			66			68			68			68
Average Daily Rate (ADR) (a)(f)	$	115		$	110		$	104		$	107		$	117
Occupancy (f)		73	%		72	%		71	%		66	%		71	%
Revenue Per Available Room (RevPAR) (b)(f)	$	84		$	79		$	74		$	70		$	83
Total rooms sold (c)(f)		2,056,557			2,005,542			1,986,223			1,836,076			1,990,489
Total rooms available (d)(f)		2,799,182			2,792,055			2,791,708			2,791,698			2,795,278

Modified Funds From Operations Calculation (e) :
Net income	$	49,543		$	45,161		$	34,384		$	33,379		$	58,502
Loss on hotels held for sale		-			-			3,567			-			-
Depreciation of real estate owned		31,054			32,432			31,199			30,938			29,313
Funds from operations		80,597			77,593			69,150			64,317			87,815
Merger transaction costs		4,037			562			-			-			-
Modified funds from operations	$	84,634		$	78,155		$	69,150		$	64,317		$	87,815

1821

in accordance with GAAP. The Company considers FFO as a supplemental measure of operating performance in the real estate industry, and along with the other financial measures included in this form 10-K, including net income, cash flow from operating activities, financing activities and investing activities, provides investors with an indication of the performance of the Company. The Company’s definition of FFO is not necessarily the same as such terms that are used by other companies. FFO is not necessarily indicative of cash available to fund cash needs. (b) Total room revenue divided by number of room nights sold. (c) ADR multiplied by occupancy percentage. (d) Represents the number of room nights sold during the period. (e) Represents the number of rooms owned by the Company multiplied by the number of nights in the period. (f) From continuing operations.Index

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

(b) ADR multiplied by occupancy percentage.

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

(e) Funds from operations (FFO) is defined as net income (computed in accordance with generally accepted accounting principles – GAAP) excluding gains and losses from sales of depreciable property, plus depreciation and amortization and the loss on hotels held for sale. Modified FFO (MFFO) excludes costs associated with merger transactions. The Company considers FFO and MFFO in evaluating property acquisitions and its operating performance and believes that FFO and MFFO should be considered along with, but not as an alternative to, net income and cash flows as a measure of the Company’s activities in accordance with GAAP. The Company considers FFO and MFFO as supplemental measures of operating performance in the real estate industry, and along with the other financial measures included in this Form 10-K, including net income, cash flow from operating activities, financing activities and investing activities, they provide investors with an indication of the performance of the Company. The Company's definition of FFO and MFFO are not necessarily the same as such terms that are used by other companies. FFO and MFFO are not necessarily indicative of cash available to fund cash needs.

(f) From continuing operations.

Index

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

This Annual Report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements are typically identified by use of terms such as “may,” “believe,” “expect,” “anticipate,” “intend,” “estimate,” “project,” “target,” “goal,” “plan,” “should,” “will,” “predict,” “potential,” and similar expressions that convey the uncertainty of future events or outcomes. Such statements involve known and unknown risks, uncertainties, and other factors which may cause the actual results, performance, or achievements of the Company to be materially different from future results, performance or achievements expressed or implied by such forward-looking statements. Such factors include, but are not limited to, the ability of the Company to implement its acquisition strategy and operating strategy; the Company’s ability to manage planned growth; changes in economic cycles; financing risks; the outcome of current and future litigation, regulatory proceedings, or inquiries; changes in laws or regulations or interpretations of current laws and regulations that impact the Company’s business, assets or classification as a real estate investment trust; and competition within the hotel and real estate industry. Although the Company believes that the assumptions underlying the forward- looking statements contained herein are reasonable, any of the assumptions could be inaccurate, and therefore there can be no assurance that such statements included in this Annual Report will prove to be accurate. In light of the significant uncertainties inherent in the forward-looking statements included herein, the inclusion of such information should not be regarded as a representation by the Company or any other person that the results or conditions described in such statements or the objectives and plans of the Company will be achieved. In addition, the Company’s qualification as a real estate investment trust involves the application of highly technical and complex provisions of the Internal Revenue Code. Readers should carefully review the Company’s financial statements and the notes thereto, as well as the risk factors described in the Company’s filings with the Securities and Exchange Commission and Item 1A in this report. Any forward-looking statement that the Company makes speaks only as of the date of this report. The Company undertakes no obligation to publicly update or revise any forward-looking statements or cautionary factors as a result of new information, future events or otherwise, except as required by law.

Overview

Apple REIT Six, Inc., together with its wholly owned subsidiaries (the “Company”), was formed ~~and~~to invest in income-producing real estate in the United States. The Company was initially capitalized on January 20, 2004, with its first investor closing on April 23, 2004. The Company ~~owns~~completed 66its ~~hotels~~best-efforts ~~within~~offering ~~different~~of ~~markets~~Units in(each ~~the~~Unit ~~United~~consists ~~States.~~of ~~The~~one ~~Company~~common isshare ~~treated~~and asone aSeries ~~Real Estate~~A ~~Investment~~preferred ~~Trust (“REIT”~~share) ~~for~~in ~~federal~~March ~~income tax purposes~~2006. The Company’s ~~first~~has ~~hotel~~elected ~~was~~to ~~acquired on May 28, 2004. Although hotel performance can~~ be ~~influenced~~treated byas ~~many~~a ~~factors~~real ~~including~~estate ~~local~~investment ~~competition,~~trust ~~local~~(“REIT”) ~~and~~for ~~general~~federal ~~economic~~income ~~conditions~~tax inpurposes. ~~the~~As ~~United States and the performance~~ of ~~individual~~ ~~managers~~December ~~assigned~~31, ~~to each hotel~~2012, ~~performance of~~ the ~~hotels~~Company asowned ~~compared~~66 ~~to other~~ hotels within ~~their~~different ~~respective local~~ markets, in ~~general, has met~~ the ~~Company’s expectations for the period owned. With the significant decline in economic conditions throughout the~~ United States. ~~beginning~~The ~~in the second half of 2008 through 2010, the~~ Company’s ~~experienced~~first ahotel ~~decline~~was inacquired ~~revenue~~on asMay ~~compared to 2008~~28, ~~but an increase in revenue from continuing operations of 7% as compared to 2010~~2004. ~~Although there is no way to predict future general economic conditions, the Company anticipates mid single digit percentage revenue increases for 2012 as compared to 2011.~~

Merger

On November 29, 2012, the Company entered into a definitive merger agreement (the “Merger Agreement”) to be acquired by BRE Select Hotels Corp (“BRE Select Hotels”), a newly formed affiliate of Blackstone Real Estate Partners VII L.P. (the “Merger”). Under the Merger Agreement, each issued and outstanding Unit and each share of Series B convertible preferred stock of the Company (on an as converted basis), other than any dissenting shares, will be converted into the right to receive consideration with a stated value of $11.10 per Unit consisting of (i) $9.20 in cash, without interest, and (ii) one share of 7% Series A Cumulative Redeemable Preferred Stock of BRE Select Hotels having an initial liquidation preference of $1.90 per share (the “New Preferred Shares”). The stated value of the transaction based on the outstanding Units and as converted Series B convertible stock at December 31, 2012 is approximately $1.1 billion, including approximately $64.4 million related to the Series B convertible preferred stock. The New Preferred Shares will include an option for the holder of any New Preferred Shares to redeem all or a portion of such holder’s New Preferred Shares at the liquidation preference, plus any accumulated and unpaid dividends, after 7-1/2 years following the issuance of the New Preferred Shares in connection with the Merger and an initial dividend rate of 7% per share. The New Preferred Shares will also be redeemable by BRE Select Hotels Corp at any time at the liquidation preference, plus any accumulated and unpaid dividends, and will have limited voting rights. The dividend rate on the New Preferred Shares will increase to 11% per share if the New Preferred Shares are not redeemed within five years following the issuance of the New Preferred Shares in

Index

connection with the Merger. The initial liquidation preference of $1.90 per share will be subject to downward adjustment should net costs and payments relating to certain legacy litigation and regulatory matters exceed $3.5 million.

The Company’s dividend reinvestment and share redemption programs were suspended upon the execution of the Merger Agreement. Also, in accordance with the Merger Agreement, the Company suspended dividend payments. A shareholder meeting is planned for the second quarter of 2013 to vote on the transaction. The Merger Agreement contains various closing conditions, including shareholder approval. As a result, there can be no assurance that the Merger will close. If the closing conditions are satisfied, it is anticipated that the Merger could close during the second quarter of 2013. Under the Merger Agreement, the Company may terminate the Merger Agreement in certain circumstances. However the Company may be required to pay a fee of $20 million to an affiliate of BRE Select Hotels, plus certain expenses not to exceed $5 million. In certain other circumstances, the Merger Agreement provides for an affiliate of BRE Select Hotels to pay the Company a fee of $35 million upon termination of the Merger Agreement, plus certain expenses not to exceed $5 million. All costs related to the proposed Merger transaction are being expensed in the period they are incurred and are included in Merger transaction costs in the Company’s consolidated statements of operations. In connection with these activities, the Company incurred $3.2 million in expenses for the year ended December 31, 2012.

Hotel Operations

Although hotel performance can be influenced by many factors including local competition, local and general economic conditions in the United States and the performance of individual managers assigned to each hotel, performance of the hotels as compared to other hotels within their respective local markets, in general, has met the Company’s expectations for the period owned. Beginning in 2011 and continuing through 2012, the hotel industry and Company’s revenues and operating income have shown improvement from the significant decline in the industry during 2008 through 2010. Although there is no way to predict future general economic conditions, and there are several key factors that continue to negatively affect the economic recovery in the United States and add to general market uncertainty, including but not limited to, the continued high levels of unemployment, the slow pace of the economic recovery in the United States and the uncertainty surrounding the fiscal policy of the United States, the Company and industry are forecasting a mid-single digit percentage increase in revenue for 2013 as compared to 2012.

In evaluating financial condition and operating performance, the most important indicators on which the Company focuses are revenue measurements, such as average occupancy, average daily rate (“ADR”), revenue per available room (“RevPAR”), and market yield, which compares an individual hotel’s results to others in its local market, and expenses, such as hotel operating expenses, general and administrative and other expenses described below.

The Company continually monitors the profitability of its properties and attempts to maximize shareholder value by timely disposal of properties. During the third quarter of 2010 the Company committed to sell two underperforming assets., ~~These properties were~~ the Tempe, Arizona TownePlace Suites and SpringHill Suites. The Company ~~entered into a contract to sell the properties in January 2011 and~~ completed the sale of ~~the~~these ~~properties~~two hotels in June 2011. The results of these properties have been included in discontinued operations for the period owned and are not included in the summary below. The following is a summary of the Company’s results from continuing operations:

2024

~~The following is a summary of the Company’s results from continuing operations:~~Index

(in thousands except statistical data)	Year endedDecember 31, 2011							Percent ofHotel Revenue							Year endedDecember 31, 2010					Percent ofHotel Revenue			PercentChange
	Years Ended December 31,
Total hotel revenue		$		236,780							100	%				$		221,258			100	%		7	%
(in thousands except statistical data)	2012				Percent of Revenue				2011				Percent of Revenue				Percent Change
Hotel operating expenses				137,986							58	%						130,896			59	%		5	%
Total hotel revenue	$	252,467				100	%		$	236,780				100	%			7	%
Taxes, insurance and other expense				12,133							5	%						12,143			5	%		—	%
Hotel operating expenses		144,026				57	%			137,986				58	%			4	%
General and administrative expense				6,151							3	%						6,072			3	%		1	%
Taxes, insurance and other expense		13,103				5	%			12,133				5	%			8	%
Depreciation				32,432														30,806						5	%
General and administrative expense		7,620				3	%			5,589				2	%			36	%
Interest expense, net				3,617														3,800						−5	%
Merger transaction costs		4,037								562								N/A
Number of hotels				66														66						—	%
Depreciation		31,054								32,432								-4	%
Average Market Yield(1)				121														121						—	%
Interest expense, net		3,084								3,617								-15	%
ADR		$		110												$		104						6	%
Number of hotels		66								66								0	%
Occupancy				72	%													71	%					1	%
Average Market Yield (1)		121								120								1	%
RevPAR		$		79												$		74						7	%
ADR	$	115							$	110								5	%
Occupancy		73	%							72	%							1	%
RevPAR	$	84							$	79								6	%

(1) Calculated from data provided by Smith Travel Research, Inc.Ò® Excludes ~~properties~~hotels under ~~renovations~~renovation during the applicable periods.

Legal Proceedings ~~and Related Matters~~

The term the “Apple REIT Companies” means the Company, Apple REIT Seven, Inc., Apple REIT Eight, Inc., Apple REIT Nine, Inc. and Apple REIT Ten, Inc.

On February 16, 2012, one shareholder of the Company and Apple REIT Seven, Inc., filed a putative class action lawsuit captioned Laurie Brody v. David Lerner Associates, Inc., et al., Case No. 1:12-cv-782-ERK-RER, in the United States District Court for the Eastern District of New York against the Company, Apple REIT Seven, Inc., Glade M. Knight, Apple Suites Realty Group, Inc., David Lerner Associates, Inc., and certain executives of David Lerner Associates, Inc. The complaint, purportedly brought on behalf of all purchasers of Units of the Company and Apple REIT Seven, Inc., or those who otherwise acquired these Units, asserts claims for breach of fiduciary duty and aiding and abetting breach of fiduciary duty, unjust enrichment, negligence, breach of written or implied contract (against the David Lerner Associates, Inc. defendants only), and for violation of New Jersey’s state securities laws. Counsel for the plaintiff in Laurie Brody v. David Lerner Associates et. al. has consented to consolidating this case into the In re Apple REITs Litigation.

2125

Index

and certain executives of David Lerner Associates, Inc. The complaint, purportedly brought on behalf of all purchasers of Units of the Company and Apple REIT Seven, Inc., or those who otherwise acquired these Units, asserts claims for breach of fiduciary duty and aiding and abetting breach of fiduciary duty, unjust enrichment, negligence, breach of written or implied contract (against the David Lerner Associates, Inc. defendants only), and for violation of New Jersey’s state securities laws. On March 13, 2012, by order of the court, Laurie Brody v. David Lerner Associates, Inc., et al. was consolidated into the In re Apple REITs Litigation.

Hotels Owned

The following table summarizes the location, brand, manager, date acquired, number of rooms and gross purchase price for each of the 66 hotels the Company owned at December 31, ~~2011~~2012. All dollar amounts are in thousands.

City

State

Brand

Manager

Date

Acquired

Rooms

Gross

Purchase

Price

Ft. Worth

Texas

SpringHill Suites

Marriott

5/28/04

145

13,340

Myrtle Beach

South Carolina

Courtyard

Marriott

6/8/04

135

9,200

Redmond

Washington

Marriott

7/7/04

262

64,000

Anchorage

Alaska

Hilton Garden Inn

Stonebridge

10/12/04

125

18,900

Anchorage

Alaska

Homewood Suites

Stonebridge

10/12/04

122

13,200

Phoenix

Arizona

Hampton Inn

Stonebridge

10/12/04

6,700

Arcadia

California

Hilton Garden Inn

Stonebridge

10/12/04

124

12,000

Arcadia

California

SpringHill Suites

Stonebridge

10/12/04

8,100

Lake Forest

California

Hilton Garden Inn

Stonebridge

10/12/04

103

11,400

Glendale

Colorado

Hampton Inn & Suites

Stonebridge

10/12/04

133

14,700

Lakewood

Colorado

Hampton Inn

Stonebridge

10/12/04

170

10,600

Anchorage

Alaska

Hampton Inn

Stonebridge

3/14/05

101

11,500

Bakersfield

California

Hilton Garden Inn

Hilton

3/18/05

120

11,500

Lake Mary

Florida

Courtyard

LBA

3/18/05

6,000

Tallahassee

Florida

Hilton Garden Inn

Hilton

3/18/05

10,850

Foothill Ranch

California

Hampton Inn

Stonebridge

4/21/05

7,400

Ft. Worth

Texas

Residence Inn

Western

5/6/05

149

17,000

Boulder

Colorado

Marriott

White

5/9/05

157

30,000

Nashville

Tennessee

Homewood Suites

Hilton

5/24/05

121

8,103

Ft. Worth

Texas

Homewood Suites

Hilton

5/24/05

137

9,097

Dothan

Alabama

Hampton Inn & Suites

LBA

6/24/05

8,673

Huntsville

Alabama

Residence Inn

LBA

6/24/05

8,288

Lakeland

Florida

Residence Inn

LBA

6/24/05

9,886

Albany

Georgia

Courtyard

LBA

6/24/05

8,597

Columbus

Georgia

Residence Inn

LBA

6/24/05

7,888

~~State~~26

~~Brand~~Index

Manager

City

State

Brand

Manager

Date

Acquired

Rooms

Gross

Purchase

Price

Arlington

Texas

SpringHill Suites

Western

6/30/05

122

7,486

Arlington

Texas

TownePlace Suites

Western

6/30/05

7,148

Las Colinas

Texas

TownePlace Suites

Western

6/30/05

136

7,178

Wallingford

Connecticut

Homewood Suites

White

7/8/05

104

12,780

McAllen

Texas

Hilton Garden Inn

Western

7/19/05

104

9,000

Pensacola

Florida

Hampton Inn & Suites

LBA

7/21/05

9,279

Rocky Hill

Connecticut

Residence Inn

White

8/1/05

12,070

Dothan

Alabama

Courtyard

LBA

8/11/05

8,016

Somerset

New Jersey

Homewood Suites

White

8/17/05

123

17,750

Birmingham

Alabama

Fairfield Inn

LBA

8/25/05

2,176

Tuscaloosa

Alabama

Courtyard

LBA

8/25/05

7,551

Tuscaloosa

Alabama

Fairfield Inn

LBA

8/25/05

3,982

Pensacola

Florida

Courtyard

LBA

8/25/05

11,369

Pensacola

Florida

Fairfield Inn

LBA

8/25/05

4,858

Pittsburgh

Pennsylvania

Residence Inn

White

9/2/05

156

11,000

Laredo

Texas

Residence Inn

Western

9/12/05

109

11,445

Mt. Olive

New Jersey

Residence Inn

White

9/15/05

123

12,070

Saratoga Springs

New York

Hilton Garden Inn

White

9/29/05

112

17,750

Huntsville

Alabama

Fairfield Inn

LBA

9/30/05

4,954

Montgomery

Alabama

SpringHill Suites

LBA

9/30/05

6,835

Savannah

Georgia

SpringHill Suites

LBA

9/30/05

5,407

Valdosta

Georgia

Courtyard

LBA

10/3/05

8,284

Farmington

Connecticut

Courtyard

White

10/20/05

119

16,330

Orange Park

Florida

Fairfield Inn

LBA

11/8/05

7,221

Folsom

California

Hilton Garden Inn

Inn Ventures

11/30/05

100

18,028

Milpitas

California

Hilton Garden Inn

Inn Ventures

11/30/05

161

18,600

Roseville

California

Hilton Garden Inn

Inn Ventures

11/30/05

131

20,759

Laredo

Texas

Homewood Suites

Western

11/30/05

106

10,500

Renton

Washington

Hilton Garden Inn

Inn Ventures

11/30/05

150

16,096

Dallas

Texas

SpringHill Suites

Western

12/9/05

148

19,500

Hillsboro

Oregon

TownePlace Suites

Inn Ventures

12/19/05

136

11,500

Portland

Oregon

Residence Inn

Inn Ventures

12/19/05

258

42,000

Kent

Washington

TownePlace Suites

Inn Ventures

12/19/05

152

12,000

Mukilteo

Washington

TownePlace Suites

Inn Ventures

12/19/05

128

12,000

Fredericksburg

Virginia

Hilton Garden Inn

Hilton

12/20/05

148

16,600

San Francisco

California

Hilton Garden Inn

White

1/30/06

169

12,266

Clearwater

Florida

SpringHill Suites

LBA

2/17/06

6,923

Hillsboro

Oregon

Courtyard

Inn Ventures

3/9/06

155

11,000

Hillsboro

Oregon

Residence Inn

Inn Ventures

3/9/06

122

15,500

Panama City

Florida

Courtyard

LBA

4/26/06

9,245

Roanoke Rapids

North Carolina

Hilton Garden Inn

Newport

3/10/08

147

17,764

Total

7,658

829,142

DateAcquired

Rooms

GrossPurchasePrice

Birmingham

Alabama

Fairfield Inn

LBA

8/25/05

2,176

Dothan

Alabama

Courtyard

LBA

8/11/05

8,016

Dothan

Alabama

Hampton Inn & Suites

LBA

6/24/05

8,673

Huntsville

Alabama

Fairfield Inn

LBA

9/30/05

4,954

Huntsville

Alabama

Residence Inn

LBA

6/24/05

8,288

Montgomery

Alabama

SpringHill Suites

LBA

9/30/05

6,835

Tuscaloosa

Alabama

Courtyard

LBA

8/25/05

7,551

Tuscaloosa

Alabama

Fairfield Inn

LBA

8/25/05

3,982

Anchorage

Alaska

Hampton Inn

Stonebridge

3/14/05

101

11,500

Anchorage

Alaska

Hilton Garden Inn

Stonebridge

10/12/04

125

18,900

Anchorage

Alaska

Homewood Suites

Stonebridge

10/12/04

122

13,200

Phoenix

Arizona

Hampton Inn

Stonebridge

10/12/04

6,700

Arcadia

California

Hilton Garden Inn

Stonebridge

10/12/04

124

12,000

Arcadia

California

SpringHill Suites

Stonebridge

10/12/04

8,100

Bakersfield

California

Hilton Garden Inn

Hilton

3/18/05

120

11,500

Folsom

California

Hilton Garden Inn

Inn Ventures

11/30/05

100

18,028

Foothill Ranch

California

Hampton Inn

Stonebridge

4/21/05

7,400

Lake Forest

California

Hilton Garden Inn

Stonebridge

10/12/04

103

11,400

Milpitas

California

Hilton Garden Inn

Inn Ventures

11/30/05

161

18,600

Roseville

California

Hilton Garden Inn

Inn Ventures

11/30/05

131

20,759

San Francisco

California

Hilton Garden Inn

White

1/30/06

169

12,266

Boulder

Colorado

Marriott

White

5/9/05

157

30,000

Glendale

Colorado

Hampton Inn & Suites

Stonebridge

10/12/04

133

14,700

Lakewood

Colorado

Hampton Inn

Stonebridge

10/12/04

170

10,600

Farmington

Connecticut

Courtyard

White

10/20/05

119

16,330

Rocky Hill

Connecticut

Residence Inn

White

8/1/05

12,070

Wallingford

Connecticut

Homewood Suites

White

7/8/05

104

12,780

Clearwater

Florida

SpringHill Suites

LBA

2/17/06

6,923

Lake Mary

Florida

Courtyard

LBA

3/18/05

6,000

Lakeland

Florida

Residence Inn

LBA

6/24/05

9,886

Orange Park

Florida

Fairfield Inn

LBA

11/8/05

7,221

Panama City

Florida

Courtyard

LBA

4/26/06

9,245

Pensacola

Florida

Courtyard

LBA

8/25/05

11,369

Pensacola

Florida

Fairfield Inn

LBA

8/25/05

4,858

Pensacola

Florida

Hampton Inn & Suites

LBA

7/21/05

9,279

Tallahassee

Florida

Hilton Garden Inn

Hilton

3/18/05

10,850

Albany

Georgia

Courtyard

LBA

6/24/05

8,597

Columbus

Georgia

Residence Inn

LBA

6/24/05

7,888

Savannah

Georgia

SpringHill Suites

LBA

9/30/05

5,407

Valdosta

Georgia

Courtyard

LBA

10/3/05

8,284

Mt. Olive

New Jersey

Residence Inn

White

9/15/05

123

12,070

Somerset

New Jersey

Homewood Suites

White

8/17/05

123

17,750

City

State

Brand

Manager

DateAcquired

Rooms

GrossPurchasePrice

Saratoga Springs

New York

Hilton Garden Inn

White

9/29/05

112

17,750

Roanoke Rapids

North Carolina

Hilton Garden Inn

Newport

3/10/08

147

17,764

Hillsboro

Oregon

Courtyard

Inn Ventures

3/9/06

155

11,000

Hillsboro

Oregon

Residence Inn

Inn Ventures

3/9/06

122

15,500

Hillsboro

Oregon

TownePlace Suites

Inn Ventures

12/19/05

136

11,500

Portland

Oregon

Residence Inn

Inn Ventures

12/19/05

258

42,000

Pittsburgh

Pennsylvania

Residence Inn

White

9/2/05

156

11,000

Myrtle Beach

South Carolina

Courtyard

Marriott

6/8/04

135

9,200

Nashville

Tennessee

Homewood Suites

Hilton

5/24/05

121

8,103

Arlington

Texas

SpringHill Suites

Western

6/30/05

122

7,486

Arlington

Texas

TownePlace Suites

Western

6/30/05

7,148

Dallas

Texas

SpringHill Suites

Western

12/9/05

148

19,500

Ft. Worth

Texas

Homewood Suites

Hilton

5/24/05

137

9,097

Ft. Worth

Texas

Residence Inn

Western

5/6/05

149

17,000

Ft. Worth

Texas

SpringHill Suites

Marriott

5/28/04

145

13,340

Laredo

Texas

Homewood Suites

Western

11/30/05

106

10,500

Laredo

Texas

Residence Inn

Western

9/12/05

109

11,445

Las Colinas

Texas

TownePlace Suites

Western

6/30/05

136

7,178

McAllen

Texas

Hilton Garden Inn

Western

7/19/05

104

9,000

Fredericksburg

Virginia

Hilton Garden Inn

Hilton

12/20/05

148

16,600

Kent

Washington

TownePlace Suites

Inn Ventures

12/19/05

152

12,000

Mukilteo

Washington

TownePlace Suites

Inn Ventures

12/19/05

128

12,000

Redmond

Washington

Marriott

7/7/04

262

64,000

Renton

Washington

Hilton Garden Inn

Inn Ventures

11/30/05

150

16,096

Total

7,658

829,142

Management and Franchise Agreements

Each of the Company’s 66 hotels are operated and managed, under separate management agreements, by affiliates of one of the following companies: Marriott International, Inc. (“Marriott”), Stonebridge Realty Advisors, Inc. (“Stonebridge”), Hilton Worldwide (“Hilton”), Western International (“Western”), Larry Blumberg & Associates (“LBA”), White Lodging Services Corporation (“White”), Inn Ventures, Inc. (“Inn Ventures”), or Newport Hospitality Group, Inc. (“Newport”). The agreements have remaining terms generally ranging from 1 to 2322 years. Fees associated with the agreements generally include the payment of base management fees, incentive management fees, accounting fees, and other fees for centralized services which are allocated among all of the hotels that receive the benefit of such services. Base management fees are calculated as a percentage of gross revenues. Incentive management fees are calculated as a percentage of operating profit in excess of a priority return to the Company, as defined in the management agreements. The Company has the option to terminate the management agreements if specified performance thresholds are not ~~satisfied. During the years ended December 31, 2011, 2010 and 2009, the Company incurred approximately $8.0 million, $7.0 million and $6.6 million in management fees for continuing operations.~~

23Index

~~Results~~satisfied. ofFor ~~Operations~~the ~~for~~years ~~Years~~ended December 31, 2012, 2011 and 2010, the Company incurred approximately $8.7 million, $8.0 million and $7.0 million in management fees for continuing operations.

AsStonebridge, ofWestern, ~~December 31~~LBA, ~~2011~~White, ~~the~~Inn ~~Company~~Ventures ~~owned~~and 66Newport ~~hotels~~are ~~with~~not ~~7,658~~affiliated ~~rooms.~~with ~~The~~either ~~Company’s~~Marriott ~~portfolio~~or ~~reflects~~Hilton, ~~the~~and ~~sale~~as ofa ~~two Tempe~~result, ~~Arizona~~the ~~properties~~hotels inmanaged ~~June~~by ~~2011.~~these ~~Hotel~~companies ~~performance~~were isrequired ~~impacted~~to byobtain ~~many~~separate ~~factors,~~franchise ~~including~~agreements ~~the~~with ~~economic~~each ~~conditions~~respective infranchisor. ~~the~~The ~~United~~Hilton ~~States,~~franchise asagreements ~~well~~generally asprovide ~~each~~for ~~locality. During~~an ~~the~~initial ~~period~~term ~~from the second half~~ of ~~2008~~13 ~~through~~to ~~2010,~~20 ~~the~~years. ~~overall~~Fees ~~weakness~~associated inwith the ~~U.S.~~Hilton ~~economy~~agreements ~~had~~generally ainclude ~~considerable~~the ~~negative~~payment ~~impact~~of onroyalty ~~both~~fees ~~consumer~~ and ~~business~~program ~~travel.~~fees Asbased aon ~~result,~~room ~~revenue~~revenues. inThe ~~most~~Marriott ~~markets~~franchise inagreements ~~the~~generally ~~United~~provide ~~States~~for ~~declined~~an ~~from~~initial ~~levels~~term of ~~2007~~15 ~~and~~to ~~the~~20 ~~first half of 2008~~years. ~~However, economic~~Fees ~~conditions~~associated ~~are~~with ~~showing~~the ~~evidence~~Marriott ofagreements ~~improvement~~include asthe ~~shown~~payment inof ~~the~~royalty ~~Company’s~~fees, ~~2011~~marketing ~~growth~~fees, inreservation ~~revenue~~fees ~~from~~and ~~continuing~~a ~~operations~~communications ofsupport 7%fee asbased ~~compared~~on toroom ~~2010~~revenues. ~~Although~~For the ~~Company~~years ~~expects~~ended ~~continued~~December 31, ~~improvement~~2012, in2011 ~~revenue~~ and ~~operating~~2010, ~~income~~the inCompany ~~2012,~~incurred itapproximately is$10.6 ~~not~~million, ~~anticipated~~$9.9 ~~that~~million ~~revenue~~ and ~~operating~~ ~~income will completely return to pre-recession levels~~$9.3 ~~The~~million ~~Company’s hotels~~ in ~~general~~franchise ~~have~~fees ~~shown results consistent with industry and brand averages~~ for ~~the~~continuing ~~period of ownership~~operations.

Results of Operations for Years 2012 and 2011

As of December 31, 2012, the Company owned 66 hotels with 7,658 rooms. The Company’s portfolio reflects the sale of two Tempe, Arizona properties in June 2011. Hotel performance is impacted by many factors, including the economic conditions in the United States, as well as each locality. During the period from the second half of 2008 through 2010, the overall weakness in the U.S. economy had a considerable negative impact on both consumer and business travel. However, economic conditions have shown evidence of improvement during the past two years. As a result, the Company expects continued improvement in revenue and operating income in 2013 as compared to 2012. The Company’s hotels in general have shown results consistent with industry and brand averages for the period of ownership.

Revenues

The Company’s principal source of revenue is hotel ~~room~~ revenue, consisting of room and other related revenue. For the years ended December 31, ~~2011~~2012 and ~~2010~~2011, the Company had total hotel revenue from continuing operations of $~~236~~252.85 million and $~~221~~236.38 million, respectively. For the years ended December 31, ~~2011~~ 2012 and ~~2010~~2011, the hotels achieved combined average occupancy of 7273% and 7172%, ADR of $~~110~~115 and $~~104~~110 and RevPAR of $7984 and $7479. ADR is calculated as room revenue divided by the number of rooms sold, and RevPAR is calculated as occupancy multiplied by ADR. These rates are consistent with industry and brand averages. Since the beginning of 2010 the Company has experienced an increase in RevPAR. The first component to improve was occupancy and as occupancy increases have stabilized, ADR has improved with a 6% increase in 2011 compared to 2010. With continued improvement in both demand and rates, the Company and industry are anticipating a mid single digit percentage increase in revenue for 2012, as compared to 2011. While reflecting the impact of post-recessionary levels of single-digit growth in national economic activity, the Company’s hotels on average also continue to be leaders in their respective markets. The Company’s average Market Yield for 2011 and 2010 was 121. The Market Yield is a measure of each hotel’s RevPAR compared to the average in the market; with 100 being the average (the index excludes hotels under renovation) and is provided by Smith Travel Research, Inc.Ò, an independent company that tracks historical hotel performance in most markets throughout the world.

During 2012, the Company experienced a modest increase in demand as demonstrated by the improvement in average occupancy. In addition, also signifying a progressing economy, the Company experienced an increase in ADR of 5% in 2012 as compared to 2011. With continued demand and room rate improvement, the Company and industry are forecasting a mid-single digit percentage increase in revenue for 2013 as compared to 2012. The Company’s hotels continue to be leaders in their respective markets. The Company’s average Market Yield for 2012 and 2011 was 121 and 120, respectively. The Market Yield is a measure of each hotel’s RevPAR compared to the average in the market; with 100 being the average (the index excludes hotels under renovation) and is provided by Smith Travel Research, Inc.®, an independent company that tracks historical hotel performance in most markets throughout the world. The Company will continue to pursue market opportunities to improve revenue.

Expenses

Hotel operating expenses consist of direct room expense, hotel administrative expense, sales and marketing expense, utilities expense, repair and maintenance expense, franchise fees and management fees. For the years ended December 31, ~~2011~~2012 and ~~2010~~2011, hotel operating expenses from continuing operations totaled $~~138~~144.0 million ~~and~~or ~~$130.9 million, respectively, representing 58~~57% of total hotel revenue inand ~~2011~~$138.0 ~~and~~million 59or 58% of total hotel revenue ~~in 2010~~. ~~Hotel~~Results ~~operating~~for ~~expenses~~the ~~consist~~year ofended ~~operating expense,~~December ~~hotel administrative expense~~31, ~~sales and marketing expense~~2012, ~~utilities expense, repair and maintenance expense, franchise fees and management fees. Hotel operational expenses for 2011~~ reflect the impact of increases in revenues at most of the Company’s hotels, and the Company’s efforts to control costs ~~in a challenging economic environment~~. Certain operating costs, such as management costs, certain utility costs and minimum supply and maintenance costs are relatively fixed in nature. The Company has been successful in reducing, relative to revenue increases, certain labor costs, hotel supply costs, maintenance costs, and utilities by continually monitoring and sharing utilization data across its hotels and management companies. Although operating expenses will increase as occupancy and revenue increases, the Company has and will continue to work with its management companies to reduce costs as a percentage of revenue aswhere ~~aggressively as~~ possible while maintaining quality and service levels at each property.

Taxes, insurance, and other expenses from continuing operations for the years ended December 31, 2011 and 2010 were $12.1 million for each period, or 5% of total hotel revenue. Taxes will likely increase if the economy continues to improve and localities reassess property values accordingly. Also, 2012 insurance rates have increased due to property and casualty carriers’ losses world-wide in the past year.

General and administrative expense for the years ended December 31, 2011 and 2010 was $6.2 million and $6.1 million, or 3% of total hotel revenue. The principal components of general and administrative expense are advisory fees and reimbursable expenses, legal fees, accounting fees, reporting expenses, and the Company’s share of the loss from its investment in Apple Air Holding, LLC. During 2011 and 2010, the Company incurred approximately $0.9 million and $0.5 million, respectively, in legal costs related to legal and related 28

24Index

~~matters~~2012 ~~discussed herein~~ and ~~continued~~2011 ~~costs~~totaled ~~related~~$13.1 tomillion ~~responding~~or to5% ~~Securities~~of ~~and~~total ~~Exchange~~hotel ~~Commission~~revenue ~~inquiries~~and $12.1 ~~The~~million ~~Company~~or ~~anticipates~~5% itof ~~will~~total ~~continue~~hotel torevenue. ~~incur~~Although ~~significant~~the ~~legal~~year ~~costs~~ended atDecember ~~least~~31, ~~during~~2012 included the ~~first~~benefit ~~half~~ of ~~2012.~~successful ~~Also~~appeals, ~~during~~property ~~the~~taxes ~~fourth~~have ~~quarter~~increased ofin ~~2011,~~2012 as the ~~Company~~economy ~~began~~has continued to ~~incur~~improve ~~costs associated~~and ~~with~~localities ~~its~~reassessed ~~evaluation~~property ofvalues aaccordingly. ~~potential~~Also, ~~consolidation~~2012 ~~transaction~~insurance ~~with~~rates ~~Apple~~have ~~REIT~~increased ~~Seven,~~due ~~Inc.,~~to ~~Apple~~property ~~REIT~~and ~~Eight,~~casualty ~~Inc.,~~carriers’ ~~and~~losses ~~Apple~~world-wide ~~REIT~~in ~~Nine,~~the ~~Inc~~past year. ~~Total~~With ~~costs~~the ~~incurred~~improved ~~were~~economy, ~~approximately~~the ~~$0.6~~Company ~~million.~~anticipates ~~These~~continued ~~costs~~increases ~~will~~in ~~increase~~property tax assessments in ~~2012~~2013 ifand a ~~transaction~~moderate isincrease ~~pursued~~in insurance rates.

~~Depreciation~~General and administrative expense from continuing operations for the years ended December 31, ~~2011~~2012 and ~~2010~~2011 ~~was~~totaled $327.46 million or 3% of total hotel revenue and $305.86 million or 2% of total hotel revenue. ~~Depreciation~~The principal components of general and administrative expense ~~represents~~are advisory fees and reimbursable expenses, legal fees, accounting fees, reporting expenses, and the ~~expense~~Company’s share of the 66loss ~~hotels~~from ~~included~~its investment in Apple Air Holding, LLC. Total advisory fees incurred by the Company’s ~~continuing~~increased ~~operations~~by approximately $1 million in 2012 as compared to the prior year due to the Company reaching the top tier of the fee range under the advisory agreement. During 2012 and 2011, the Company incurred approximately $1.6 million and $0.9 million, respectively, in legal costs related ~~personal~~to ~~property~~the ~~for~~legal ~~their~~matters ~~respective periods~~discussed ~~owned~~herein and continued costs related to responding to requests from the staff of the Securities and Exchange Commission (“SEC”). The ~~increase~~SEC instaff ~~depreciation~~has been conducting a non-public investigation, which is ~~due~~focused principally on the adequacy of certain disclosures in the Company’s filings with the SEC beginning in 2008, as well as the Company’s review of certain transactions involving the Company and the other Apple REIT Companies. The Company intends to ~~renovations~~continue ~~completed~~to ~~throughout~~cooperate ~~2010~~with the SEC staff, and ~~2011~~it is engaging in a dialogue with the SEC staff concerning these issues and the roles of certain officers. The Company does not believe the issues raised by the SEC staff affect the material accuracy of the Company's consolidated financial statements. At this time, the Company cannot predict the outcome of this investigation as to the Company or any of its officers, nor can it predict the timing associated with any such conclusion or resolution. As discussed below under Related Parties, the Company shares legal counsel with the other Apple REIT Companies. Total costs for these legal matters for all of the Apple REIT Companies was approximately $7.3 million in 2012. The Company anticipates it will continue to incur significant legal costs at least during the first half of 2013 related to these matters.

~~Interest~~Merger ~~expense~~transaction costs for the years ended December 31, ~~net~~2012 ~~was~~and 2011 totaled $34.60 million and $30.86 million. ~~for~~In ~~the~~connection ~~years~~with ~~ended~~the ~~December~~Merger, 31discussed herein, ~~2011~~the ~~and~~Company ~~2010.~~incurred ~~Interest~~approximately ~~expense~~$3.2 ~~relates~~million toin ~~debt~~expenses ~~assumed~~during ~~with~~fourth ~~certain~~quarter ~~properties~~of ~~acquired~~2012. Also, asduring ~~well~~the asfourth ~~borrowings~~quarter onof 2011, the Company’s ~~credit~~began ~~facility.~~to ~~Interest~~incur ~~expense~~costs ~~decreased~~associated ~~from~~with ~~2010~~its ~~due~~evaluation toof ~~the~~a ~~extinguishment of~~potential ~~one~~consolidation ~~mortgage~~transaction inwith ~~2011~~Apple ~~totaling~~REIT $4Seven, Inc.0, ~~million~~Apple REIT Eight, ~~one~~Inc., ~~mortgage~~and ~~extinguishment~~Apple inREIT ~~2010~~Nine, ~~totaling~~Inc. $2(the “other Apple REITs”).9 ~~million~~In ~~and~~May ~~the~~2012, ~~reduction~~it inwas determined by the ~~effective~~Board ~~interest~~of ~~rate~~Directors ~~under~~of the Company and each of the other Apple REIT’s ~~credit~~Board ~~facility.~~of ~~This~~Directors ~~was~~not ~~partially~~to ~~offset~~move byforward ~~increased~~with ~~borrowings~~the onpotential ~~the~~consolidation ~~Company’s~~transaction ~~credit~~at ~~facility~~that time. ~~The~~Total ~~Company~~costs ~~capitalized~~incurred ~~interest of~~during 2012 and 2011 were approximately $0.28 million and $0.16 million inrelated ~~2011~~to ~~and~~the ~~2010~~potential inconsolidation ~~conjunction with hotel renovations~~transaction.

~~Results~~Depreciation expense from continuing operations for the years ended December 31, 2012 and 2011 was $31.1 million and $32.4 million. Depreciation expense represents the expense of ~~Operations~~the 66 hotels included in the Company’s continuing operations and related personal property for ~~Years~~their ~~2010~~respective periods owned. The decrease in depreciation expense is due to an increase in the number of hotels whose personal property has become fully depreciated over the last quarter of 2011 and ~~2009~~throughout 2012, which was partially offset by the hotel renovations completed throughout 2012 and 2011.

Interest expense, net for the years ended December 31, 2012 and 2011 was $3.1 million and $3.6 million. Interest expense primarily arose from mortgage debt outstanding on certain properties, in addition to interest on borrowings under the Company’s credit facility. As of December 31, 2012, the Company had debt outstanding of $58.4 million, compared to $63.1 million at December 31, 2011. The decrease in interest expense from 2011 was due primarily to a reduction in the effective interest rate under the Company’s credit facility, as well as the extinguishment of four mortgage loans during 2012 totaling $13.1 million, which was partially offset by the origination of one mortgage loan totaling $18.3 million during the year. During the years ended December 31, 2012 and 2011, the Company capitalized interest of approximately $0.1 million and $0.2 million in 2012 and 2011 in conjunction with hotel renovations.

Results of Operations for Years 2011 and 2010

Revenues

For the years ended December 31, ~~2010~~2011 and ~~2009~~2010, the Company had total hotel revenue from continuing operations of $~~221~~236.38 million and $~~210~~221.43 million, respectively. For the years ended December 31, ~~2010~~2011 and 2009, the hotels achieved average occupancy of 71% and 66%, ADR of $104 and $107 and RevPAR of $74 and $70. These rates were consistent with industry and brand averages. The Company experienced an increase in demand, as shown by the improved occupancy rates in comparison to 2009. However, in addition to a stabilized economy, this improvement was a result of reduced room rates as reflected in the ADR decline in 2010 from comparable 2009 results. ADR for the fourth quarter of 2010 increased 1% from the fourth quarter of 2009. The Company’s hotels continued to be leaders in their respective markets. The Company’s average Market Yield for 2010 and 2009 was 120 for continuing hotels and excluding hotels under renovation during the period.

Index

2010, the hotels achieved average combined occupancy of 72% and 71%, ADR of $110 and $104 and RevPAR of $79 and $74. Since the beginning of 2010, the Company has experienced an increase in RevPAR. The first component to improve was occupancy and as occupancy increases have stabilized, ADR has improved with a 6% increase in 2011 as compared to 2010. The Company’s average Market Yield for 2011 and 2010 was 121 for continuing hotels and excludes hotels under renovation during the period.

Expenses

For the years ended December 31, ~~2010~~2011 and ~~2009~~2010, hotel operating expenses from continuing operations totaled $~~130~~138.90 million and $~~126~~130.19 million, respectively, representing 5958% of total hotel revenue in ~~2010~~2011 and 6059% of total hotel revenue in ~~2009~~2010. Hotel ~~With~~operational ~~the~~expenses ~~Company’s~~for ~~revenue~~2011 ~~decline~~reflect ~~in 2009,~~ the ~~Company~~ ~~and~~impact ~~its~~of ~~managers~~increases ~~were~~in ~~aggressively~~revenue ~~reducing~~at ~~expenses~~most ~~where~~of ~~possible~~the ~~while~~Company’s ~~still~~hotels, ~~maintaining~~and the ~~quality~~Company’s ~~and~~efforts ~~service~~to ~~levels~~control ofcosts ~~its~~in ~~properties~~a challenging economic environment. While certain costs of a hotel are fixed in nature, the Company was successful in reducing, ~~overall~~relative ~~payroll~~to ~~costs~~revenue increases, ~~food~~certain ~~and~~labor ~~supplies~~costs, ~~and~~hotel ~~utilities~~supply ~~relative~~costs, ~~to revenue~~maintenance ~~increases~~costs, and utilities by continually monitoring and sharing utilization data across its hotels and management companies.

Taxes, insurance, and other expenses from continuing operations for the years ended December 31, ~~2010~~2011 and ~~2009~~2010 were $12.1 million ~~and~~for ~~$13.2~~each ~~million~~period, or 5% ~~and 6%~~ of total hotel revenue. The decline was due to lower real estate property tax assessments at selected hotels, including the results of successful appeals of initial assessments for some locations. In addition, the Company experienced slightly lower property insurance expense for most hotel properties, in comparison to insurance rates in effect during 2009.

General and administrative expense for the years ended December 31, ~~2010~~2011 and ~~2009~~2010 was $65.16 million or 2% of total hotel revenue and $46.91 million, or 3% ~~and 2%~~ of total hotel revenue. ~~The~~During ~~increases~~2011 inand 2010, ~~were~~the ~~primarily~~Company ~~due~~incurred to approximately $0.459 million ~~of costs incurred related to reviewing~~ and ~~evaluating various strategic alternatives for the Company and to approximately~~ $0.455 million, ~~related to Apple Air’s loss from the contract to trade in its two jets for one new jet. Also~~respectively, in ~~2010~~legal ~~the~~costs ~~Company~~related ~~incurred~~to ~~approximately~~legal ~~$0.5~~matters ~~million~~discussed inherein ~~legal~~ and costs related ~~costs~~to responding to ~~Securities~~SEC ~~and~~inquiries, ~~Exchange~~as ~~Commission~~discussed ~~inquiries~~above.

25Merger transaction costs totaled $0.6 million for the year ended December 31, 2011. As discussed above, during the fourth quarter of 2011, the Company began to incur costs associated with its evaluation of a potential consolidation transaction with the other Apple REITs.

Depreciation expense from continuing operations for the years ended December 31, ~~2010~~2011 and ~~2009~~2010 was $3032.84 million and $30.48 million. The increase in depreciation is due to renovations completed throughout 2010 and 2011.

Interest expense, net was $3.86 million and $2.3.8 million for the years ended December 31, ~~2010~~2011 and ~~2009~~2010. Interest expense related to debt assumed with 14certain ~~of the~~ properties acquired, as well as aborrowings ~~line~~on ofthe Company’s credit ~~entered into in March 2008~~facility. ~~Total~~Interest ~~debt~~expense ~~assumed~~decreased ~~was~~from ~~approximately~~2010 ~~$54.1~~due ~~million.~~to ~~Seven~~the extinguishment of ~~the~~ 14one ~~assumed~~mortgage ~~mortgages,~~in or2011 totaling $234.20 million, ~~were~~one mortgage extinguished in ~~2008,~~2010 ~~and~~totaling ~~one additional mortgage, for~~ $2.9 million, ~~was~~and ~~extinguished~~the reduction in ~~2010.~~the ~~Interest~~effective ~~expense~~interest ~~increased~~rate ~~from~~under ~~year~~the toCompany’s ~~year~~credit ~~due~~facility. toThis was partially offset by increased borrowings on the Company’s ~~line of~~ credit facility. The Company capitalized interest of approximately $0.12 million and $0.31 million in ~~2010~~2011 and ~~2009~~2010 in conjunction with hotel renovations.

Related Parties

The Company has, and is expected to continue to engage in, significant transactions with related parties. These transactions cannot be construed to be at arm’s length and the results of the Company’s operations may be different if these transactions were conducted with non-related parties. The Company’s independent members of the Board of Directors oversee and annually review the Company’s related party relationships (which include the relationships discussed in this section) and are required to approve any significant modifications to ~~the~~these contracts, as well as any new significant related party transactions. There were no changes to the contracts discussed in this section and no new significant related party transactions during 2012 (other than the ~~year~~agreements ~~ended~~executed ~~December~~as ~~31,~~a ~~2011~~result of the Merger as discussed below). The Board of Directors is not required to approve each individual transaction that falls under the related party relationships. However, under the direction of the Board of Directors, at least one member of the Company’s senior management team approves each related party transaction.

The Company has a contract with Apple Six Realty Group (“A6RG”), ~~a related party,~~ to provide brokerage services for the acquisition and disposition of the Company’s real estate assets. A6RG is wholly owned by the Company’s Chairman and Chief Executive Officer, Glade M. Knight. In accordance with the contract, A6RG is paid a fee of 2% of the gross purchase price of any acquisitions or gross sale price of any dispositions of real estate investments, subject to certain conditions plus certain reimbursable costs. As of December 31, ~~2011~~2012, payments to A6RG for services under the terms of this contract have totaled $16.9 million since inception. ~~which~~During ~~were~~2012, ~~capitalized~~the asCompany apaid ~~part~~approximately of$16,000 in fees to A6RG for the purchase ~~price~~ of the ~~hotels.~~land Nolocated ~~fees~~at ~~were~~the ~~incurred~~Residence ~~during~~Inn ~~2011~~hotel in Columbus, ~~2010~~Georgia, ~~and~~which ~~2009~~had ~~under~~previously ~~the~~been ~~contract~~leased from a third party. No

Through its wholly-owned subsidiary, Apple Fund Management, LLC (“AFM”), the Company provides support services to A6RG, Apple Suites Realty Group, Inc. (“ASRG”), A6A, Apple Seven Advisors, Inc. (“A7A”), Apple REIT Seven, Inc., Apple Eight Advisors, Inc. (“A8A”), Apple REIT Eight, Inc., Apple Nine Advisors, Inc. (“A9A”), Apple REIT Nine, Inc., Apple Ten Advisors, Inc. (“A10A”) and Apple REIT Ten, Inc. A7A provides day to day advisory and administrative functions for Apple REIT Seven, Inc. A8A provides day to day advisory and administrative functions for Apple REIT Eight, Inc. A9A provides day to day advisory and administrative functions for Apple REIT Nine, Inc. A10A provides day to day advisory and administrative functions for Apple REIT Ten, Inc. ASRG provides real estate brokerage services to Apple REIT Seven, Inc., Apple REIT Eight, Inc., Apple REIT Nine, Inc. and Apple REIT Ten, Inc. Each of these companies has agreed to reimburse the Company for its costs in providing these services. A6RG, ASRG, A6A, A7A, A8A, A9A and A10A are 100% owned by Glade Knight, the Company’s Chairman and Chief Executive Officer. For the years ended December 31, 2011, 2010 and 2009, the Company received reimbursement of its costs totaling $7.2 million, $6.1 million and $5.9 million from the participating entities. The Company’s net allocated cost for these support services was approximately $1.5 million, $1.7 million and $1.9 million for the years ended December 31, 2011, 2010 and 2009. As part of this arrangement, the day to day transactions may result in amounts due to or from the noted related parties. To effectively manage cash disbursements, the individual companies may make payments for any or all of the related companies. The amounts due to or from the related companies are reimbursed or collected and are not significant in amount.Index

26fees were incurred during 2011 and 2010 under the contract.

~~Although~~The ~~there~~Company is aparty ~~potential~~to ~~conflict~~an onadvisory ~~time~~agreement ~~allocation~~with ofApple ~~personnel~~Six ~~due~~Advisors, toInc. ~~the fact that a senior manager~~(“A6A”), ~~officer~~pursuant orto ~~staff~~which ~~member~~A6A ~~will~~provides ~~provide~~management services to ~~more than one company,~~ the Company. ~~believes~~An ~~that~~annual ~~the~~fee ~~executives~~ranging ~~and~~from ~~staff~~0.1% ~~compensation sharing arrangement allows the companies~~ to ~~share costs yet attract and retain superior executives and staff~~0.25% ~~The~~of ~~cost~~total ~~sharing~~equity ~~structure~~proceeds ~~also~~received ~~allows~~by ~~each~~the ~~entity~~Company, toin ~~maintain~~addition ~~a much more cost effective structure than having separate staffing arrangements. Amounts reimbursed~~ to ~~the~~certain ~~Company~~reimbursable ~~include~~expenses, ~~both~~are ~~compensation~~payable for ~~personnel~~these ~~and~~services. ~~“overhead”~~Total ~~(office rent,~~advisory ~~utilities,~~fees ~~benefits,~~incurred ~~office supplies, etc.) utilized~~ by the ~~companies.~~Company ~~AFM~~under ~~receives its direction for staffing and compensation from~~ the advisory ~~companies~~agreement ~~(A6A,~~are ~~A7A,~~included ~~A8A,~~in ~~A9A,~~general ~~A10A, ASRG,~~ and ~~A6RG)~~administrative ~~each~~expenses ofand ~~which~~totaled isapproximately ~~wholly~~$2.5 ~~owned~~million, by$1.5 ~~Glade~~million Mand ~~Knight~~$1.5 ~~Since~~million ~~the~~for ~~employees~~each of ~~AFM~~the ~~may~~three ~~also perform~~years ~~services~~ended ~~for~~December ~~the advisors~~31, ~~individuals~~2012, ~~including~~2011 ~~executive officers, have received~~ and ~~may receive consideration directly from the advisors~~2010. The ~~allocation~~increase ofin ~~costs~~2012 is ~~made~~due by the management of the several REITs and is reviewed at least annually by the Compensation Committees of the several REITs. In making the allocation, management and the Compensation Committee consider all relevant facts related to the Company’s ~~level~~reaching ~~of business activity and~~ the ~~extent~~top totier ~~which the Company requires the services~~ of ~~particular personnel. The costs allocated are actual costs and do not include any profit/markup for~~ the ~~Company.~~fee ~~Such~~range ~~payments~~under ~~are not based on formal record keeping regarding~~ the ~~time~~advisory ~~these~~agreement ~~personnel~~due ~~devote~~ to ~~the~~improved ~~Company,~~operating ~~but are based on a good faith estimate by the employee and/or his or her supervisor of the time devoted by the employee to each Company~~results.

~~Including~~Through its wholly-owned subsidiary, Apple Fund Management, LLC (“AFM”), the Company provides support services to A6RG, Apple Suites Realty Group, Inc. (“ASRG”), A6A, Apple Seven Advisors, Inc. (“A7A”), Apple REIT Seven, Inc., Apple Eight Advisors, Inc. (“A8A”), Apple REIT Eight, Inc., Apple Nine Advisors, Inc. (“A9A”), ~~and~~Apple REIT Nine, Inc., Apple Ten Advisors, Inc. (“A10A”) ~~discussed~~and ~~above~~Apple REIT Ten, MrInc. ~~Knight~~A7A isprovides ~~also~~day-to-day ~~Chairman~~advisory and ~~Chief~~administrative ~~Executive~~functions ~~Officer~~for ofApple REIT Seven, Inc. A8A provides day-to-day advisory and administrative functions for Apple REIT Eight, Inc. A9A provides day-to-day advisory and administrative functions for Apple REIT Nine, Inc. A10A provides day-to-day advisory and administrative functions for Apple REIT Ten, Inc. ASRG provides real estate brokerage services to Apple REIT Seven, Inc., Apple REIT Eight, Inc., Apple REIT Nine, Inc. and Apple REIT Ten, Inc. ~~Members~~Each of these companies has agreed to reimburse the Company for its costs in providing these services. A6RG, ASRG, A6A, A7A, A8A, A9A and A10A (collectively the “Advisors”) are 100% owned by Glade M. Knight, the Company’s ~~Board~~Chairman ofand ~~Directors~~Chief ~~are~~Executive ~~also~~Officer. on For the ~~boards~~years ofended ~~Apple~~December ~~REIT~~31, ~~Seven~~2012, ~~Inc~~2011 and 2010, the Company received reimbursement of its costs totaling approximately $8.0 million, ~~Apple~~$7.2 ~~REIT~~million ~~Eight~~and $6.1 million from the participating entities. The Company’s net allocated cost for these support services was approximately $1.8 million, ~~Inc~~$1.5 million and ~~Apple~~$1.7 ~~REIT~~million ~~Nine~~for the years ended December 31, ~~Inc~~2012, 2011 and 2010. As part of this arrangement, the day to day transactions may result in amounts due to or from the noted related parties. To effectively manage cash disbursements, the individual companies may make payments for any or all of the related companies. The amounts due to or from the related companies are reimbursed or collected and are not significant in amount.

~~Included~~Although inthere ~~other~~is ~~assets,~~a ~~net~~potential conflict on ~~the~~time ~~Company’s~~allocation ~~consolidated~~of ~~balance~~personnel ~~sheet~~due isto the fact that a ~~26%~~senior ~~equity~~manager, ~~investment~~officer inor ~~Apple~~staff ~~Air~~member ~~Holding~~will provide services to more than one company, ~~LLC~~the ~~(“Apple~~Company ~~Air”).~~believes ~~The~~that ~~other~~the ~~members~~executives ofand ~~Apple~~staff ~~Air~~compensation ~~are~~sharing ~~Apple~~arrangement ~~REIT~~allows ~~Seven,~~the ~~Inc.,~~companies ~~Apple~~to ~~REIT~~share ~~Eight,~~costs ~~Inc.~~yet attract and ~~Apple~~retain ~~REIT~~superior ~~Nine,~~executives ~~Inc~~and staff. ~~Through~~The ~~its~~cost ~~equity~~sharing ~~investment~~structure ~~the Company~~also ~~has~~allows ~~access~~each entity to ~~Apple~~maintain ~~Air’s~~a ~~aircraft~~much ~~for~~more ~~asset~~cost ~~management~~effective ~~and~~structure ~~renovation~~than ~~purposes~~having separate staffing arrangements. ~~The~~Amounts ~~Company’s~~reimbursed ~~equity~~to ~~investment~~the ~~was~~Company ~~approximately~~include ~~$1.7~~both ~~million~~compensation for personnel and ~~$1.8~~“overhead” ~~million~~(office atrent, ~~December~~utilities, 31benefits, ~~2011~~office ~~and~~supplies, ~~2010~~etc.) ~~The~~utilized ~~Company~~by ~~has~~the ~~recorded~~companies. AFM receives its ~~share~~direction offor ~~income~~staffing and ~~losses~~compensation offrom the ~~entity~~Advisors. Since ~~under~~ the ~~equity~~em

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