UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 ~~FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2012~~

For the quarterly period ended March 31, 2013

o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _______ TO _______

Commission File Number 000-51270

~~APPLE~~Apple REIT ~~SIX~~Six, ~~INC~~Inc.

(Exact name of registrant as specified in its charter)

VIRGINIA		20-0620523
Virginia	20-0620523
(State or other jurisdiction of incorporation or organization)	(IRS Employer Identification No.)	~~(IRS. Employer Identification No.)~~
814 EAST MAIN STREET RICHMOND, VIRGINIA		23219
814 East Main Street Richmond, Virginia	23219
(Address of principal executive offices)	(Zip Code)	~~(Zip Code)~~

(804) 344-8121

(Registrant's telephone number, including area code)

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 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 x No ¨

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 x		Smaller reporting company ¨
				(Do not check if a 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 x

Number of registrant’s common shares outstanding as of ~~November~~May 1, ~~2012~~2013: 91,~~083~~226,~~006~~580

Index

APPLE REIT SIX, INC.

FORM 10-Q

INDEX

			Page Number
PART I. FINANCIAL INFORMATION
	Item 1.	Financial Statements (Unaudited)
		Consolidated Balance Sheets – September 30, 2012 and December 31, 2011	3
		Consolidated Balance Sheets – March 31, 2013 and December 31, 2012	3
		Consolidated Statements of Operations – Three and nine months ended September 30, 2012 and 2011	4
		Consolidated Statements of Operations – Three months ended March 31, 2013 and 2012	4
		Consolidated Statements of Cash Flows - Nine months ended September 30, 2012 and 2011	5
		Consolidated Statements of Cash Flows – Three months ended March 31, 2013 and 2012	5
		Notes to Consolidated Financial Statements	6
	Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	12
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	2122
	Item 4.	Controls and Procedures	2122
PART II. OTHER INFORMATION
	Item 1.	Legal Proceedings	2223
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	23
	Item 6.	Exhibits	24
~~Signatures~~	Signatures		25

This Form 10-Q 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.

Index

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

APPLE REIT SIX, INC.

CONSOLIDATED BALANCE SHEETS

Apple REIT Six, Inc.

Consolidated Balance Sheets

(in thousands, except share data)

	September 30,			December 31,
	March 31,			December 31,
	2012			2011
	2013			2012
	(unaudited)
ASSETS
Assets
Investment in real estate, net of accumulated depreciation of $209,379 and $185,860, respectively	$	730,833		$	746,354
Investment in real estate, net of accumulated depreciation of $224,313 and $216,910, respectively	$	726,894		$	729,108
Cash and cash equivalents		0			32
Restricted cash-furniture, fixtures and other escrows		947			1,459
Restricted cash-furniture, fixtures and other escrows		2,893			3,570
Due from third party manager, net		11,056			7,546
Due from third party manager, net		11,237			6,598
Other assets, net		2,176			2,257
Other assets, net		2,795			2,811
Total Assets	$	741,073		$	740,370
TOTAL ASSETS	$	747,758		$	759,365
Liabilities
LIABILITIES
Credit facility	$	25,470		$	34,470
Credit facility	$	26,270		$	43,690
Mortgage debt		23,805			23,947
Mortgage debt		32,366			19,377
Accounts payable and accrued expenses		7,249			7,306
Accounts payable and accrued expenses		8,008			5,670
Total Liabilities		56,524			65,723
TOTAL LIABILITIES		66,644			68,737
Shareholders' Equity
SHAREHOLDERS' EQUITY
Preferred stock, authorized 15,000,000 shares; none issued and outstanding		0			0
Series A preferred stock, no par value, authorized 200,000,000 shares; issued and outstanding 91,301,572 and 91,181,198 shares, respectively		0			0
Series A preferred stock, no par value, authorized 200,000,000 shares; issued and outstanding 91,226,580 and 91,226,580 shares, respectively		0			0
Series B convertible preferred stock, no par value, authorized 240,000 shares; issued and outstanding 240,000 shares		24			24
Common stock, no par value, authorized 200,000,000 shares; issued and outstanding 91,301,572 and 91,181,198 shares, respectively		900,776			899,345
Common stock, no par value, authorized 200,000,000 shares; issued and outstanding 91,226,580 and 91,226,580 shares, respectively		899,958			899,958
Distributions greater than net income		(~~219~~215,~~686~~433	)		(~~208~~225,~~741~~335	)
TOTAL SHAREHOLDERS' EQUITY		681,114			690,628
Total Shareholders' Equity		684,549			674,647
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY	$	747,758		$	759,365
Total Liabilities and Shareholders' Equity	$	741,073		$	740,370

See notes to consolidated financial statements.

Index

APPLE REIT SIX, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

Apple REIT Six, Inc.

Consolidated Statements of Operations

(Unaudited)

(in thousands, except per share data)

	Three months ended						Nine months ended
	Three Months Ended
	September 30,						September 30,
	March 31,
	2012			2011			2012			2011
	2013			2012
Revenues:
Room revenue	$	6654,~~513~~274		$	6153,~~646~~918		$	~~182,620~~		$	~~170,235~~
Other revenue		4,~~121~~007			4,~~160~~072			~~12,341~~			~~12,058~~
Reimbursed expenses		1,~~899~~893			1,~~824~~913			~~5,698~~			~~5,472~~
Total revenue		7260,~~533~~174			6759,~~630~~903			~~200,659~~			~~187,765~~
Expenses:
Operating expense		1615,~~931~~686			1615,~~343~~283			~~48,409~~			~~46,232~~
Hotel administrative expense		54,~~128~~837			4,~~955~~927			~~15,102~~			~~14,485~~
Sales and marketing		54,~~446~~881			54,~~051~~730			~~15,521~~			~~14,427~~
Utilities		2,~~825~~278			2,~~916~~261			~~7,341~~			~~7,528~~
Repair and maintenance		2,~~927~~775			2,~~857~~791			~~8,530~~			~~8,224~~
Franchise fees		2,~~980~~461			2,~~769~~413			~~8,198~~			~~7,661~~
Management fees		21,~~719~~950			21,~~398~~944			~~6,951~~			~~6,331~~
Taxes, insurance and other		3,232			2,833			9,731			8,928
Property taxes, insurance and other		3,226			3,047
General and administrative		1,~~806~~604			1,~~275~~716			~~6,052~~			~~3,975~~
Reimbursed expenses		1,899			1,824			5,698			5,472
Merger transaction costs		669			681
Depreciation expense		7,654			8,008			23,523			24,465
Reimbursed expenses		1,893			1,913
Total expenses		53,547			51,229			155,056			147,728
Depreciation expense		7,403			8,007
Operating income		18,986			16,401			45,603			40,037
Total expenses		49,663			49,713
Interest expense, net		(780	)		(937	)		(2,448	)		(2,894	)
Operating income		10,511			10,190
Income from continuing operations		18,206			15,464			43,155			37,143
Interest expense, net		(514	)		(822	)
Income from discontinued operations		0			26			0			697
Income before income taxes		9,997			9,368
Net income	$	18,206		$	15,490		$	43,155		$	37,840
Income tax expense		(95	)		(88	)
Basic and diluted net income per common share
Net income	$	9,902		$	9,280
From continuing operations	$	0.20		$	0.17		$	0.47		$	0.40
Basic and diluted net income per common share	$	0.11		$	0.10
From discontinued operations		0.00			0.00			0.00			0.01
Weighted average common shares outstanding - basic and diluted		91,227			91,082
Total basic and diluted net income per common share	$	0.20		$	0.17		$	0.47		$	0.41
Weighted average common shares outstanding - basic and diluted		91,167			91,250			91,117			91,314

See notes to consolidated financial statements.

Index

APPLE REIT SIX, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

Apple REIT Six, Inc.

Consolidated Statements of Cash Flows

(Unaudited)

(in thousands)

	Nine Months Ended
	Three Months Ended
	September 30,
	March 31,
	2012			2011
	2013			2012
Cash flows from operating activities:
Net income	$	439,~~155~~902		$	379,~~840~~280
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation		237,~~523~~403			248,~~465~~007
Amortization of deferred financing costs, fair value adjustments and other non-cash expenses, net		~~203~~57			~~431~~148
Changes in operating assets and liabilities:
Increase in due from third party managers, net		(43,~~639~~510	)		(4,~~148~~990	)
Increase in other assets		(462	)		(722	)
Increase (decrease) in other assets, net		302			(1,104	)
Increase in accounts payable and accrued expenses		21,~~666~~138			~~1,322~~751
Net cash provided by operating activities		6415,~~446~~292			5912,~~188~~092
Cash flows from investing activities:
Capital improvements, net		(8,264	)		(10,760	)
Capital improvements		(6,391	)		(3,056	)
Proceeds from sale of assets, net		0			10,755
Net decrease (increase) in cash restricted for property improvements		241			(54	)
Net decrease in cash restricted for property improvements		1,082			722
Net cash used in investing activities		(6,150	)		(3,110	)
Net cash provided by (used in) investing activities		(7,182	)		717
Cash flows from financing activities:
Net proceeds related to issuance of Units		~~15,363~~0			215,~~274~~399
Redemptions of Units		~~(14,023~~0	)		(225,~~255~~052	)
Distributions paid to common shareholders		~~(54,100~~0	)		(5318,~~214~~026	)
Payments on credit facility		(17,420	)		(786	)
Net proceeds from (payments on) credit facility		(9,000	)		8,850
Proceeds from mortgage debt		18,300			0
Payments of mortgage debt		(142	)		(185	)
Payments of mortgage debt		(5,261	)		(4,510	)
Net cash used in financing activities		(9,142	)		(9,014	)
Payments of financing costs related to borrowings		(155	)		(414	)
Net change in cash and cash equivalents		0			(32	)
Net cash used in financing activities		(57,296	)		(59,905	)
Cash and cash equivalents, beginning of period		0			32
Net change in cash and cash equivalents		(32	)		0
Cash and cash equivalents, beginning of period		32			0
Cash and cash equivalents, end of period	$	0		$	0

See notes to consolidated financial statements.

Index

~~Apple~~APPLE REIT ~~Six~~SIX, ~~Inc~~INC.

~~Notes~~NOTES toTO ~~Consolidated~~CONSOLIDATED ~~Financial~~FINANCIAL ~~Statements~~STATEMENTS

(Unaudited)

1. Organization and Summary of Significant Accounting Policies

Organization

Apple REIT Six, Inc., together with its wholly owned subsidiaries (the “Company”), is a Virginia corporation that has elected to be treated as a real estate investment trust (“REIT”) for federal income tax purposes. The Company was formed 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 concluded its best-efforts offering of Units (each Unit consists of one common share and one Series A preferred share) in March 2006. The Company’s fiscal year end is December 31. 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 intercompany accounts and transactions have been eliminated. As of ~~September~~March 3031, ~~2012~~2013, the Company owned 66 hotels located in 18 states with an aggregate of 7,658 rooms.

Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared in accordance with the rules and regulations for reporting on Form 10-Q. Accordingly, they do not include all of the information required by accounting principles generally accepted in the United States for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. These unaudited financial statements should be read in conjunction with the Company’s audited consolidated financial statements included in its ~~2011~~2012 Annual Report on Form 10-K. Operating results for the three ~~and nine~~ months ended ~~September~~March 3031, ~~2012~~2013 are not necessarily indicative of the results that may be expected for the twelve month period ending December 31, ~~2012~~2013.

Significant Accounting Policies

Use of Estimates

The preparation of the financial statements in conformity with United States generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates.

Reclassifications

Certain amounts in the 2012 consolidated financial statements have been reclassified to conform with the 2013 presentation with no effect on previously reported net income or shareholders’ equity.

Earnings per Common Share

Basic earnings per common share is computed based upon the weighted average number of shares outstanding during the period. Diluted earnings per common share is calculated after giving effect to all potential common shares that were dilutive and outstanding for the period. There were no potential common shares with a dilutive effect for the three ~~and nine~~ months ended ~~September~~March 3031, ~~2012~~2013 or ~~2011~~2012. As a result, basic and dilutive outstanding shares were the same. Series B convertible preferred shares are not included in earnings per common share calculations until such time that such shares are eligible to be converted to common shares.

Index

2. ~~Credit Facility and Mortgage Debt~~Merger

~~The~~On ~~Company~~November ~~has~~29, a2012, ~~$60~~the ~~million~~Company ~~unsecured~~entered ~~credit~~into ~~facility with~~ a ~~commercial~~definitive ~~bank~~merger ~~that~~agreement is(the ~~utilized~~“Merger ~~for~~Agreement”) ~~working~~to ~~capital,~~be ~~hotel~~acquired ~~renovations,~~by ~~and~~BRE ~~other~~Select ~~general~~Hotels ~~corporate~~Corp ~~funding~~(“BRE ~~purposes~~Select Hotels”), ~~including~~a ~~the~~newly ~~payment~~formed affiliate of ~~redemptions~~Blackstone ~~and~~Real ~~distributions.~~Estate ~~The~~Partners ~~Company~~VII ~~refinanced~~L.P. (the ~~credit~~“Merger”). ~~facility~~Under inthe ~~September~~Merger ~~2011~~Agreement, ~~with~~each ~~its~~issued ~~existing~~and ~~lender. The~~ outstanding ~~principal~~Unit isand ~~required~~each toshare beof ~~paid~~Series byB ~~the~~convertible ~~maturity~~preferred ~~date~~stock of ~~September~~the 8,Company ~~2013~~(on ~~and~~an ~~may~~as beconverted ~~prepaid~~basis), ~~without~~other ~~penalty.~~than ~~Interest~~any ~~payments~~dissenting ~~are~~shares, ~~due~~will ~~monthly~~be ~~and~~converted into the ~~interest~~right ~~rate~~to isreceive ~~equal~~consideration towith ~~the~~a ~~applicable~~stated ~~LIBOR~~value ~~(the~~of ~~London~~$11.10 ~~Interbank~~per ~~Offered~~Unit ~~Rate)~~consisting ~~plus~~of 3(i) $9.~~5%.~~20 ~~The~~in ~~credit~~cash, ~~facility~~without ~~also~~interest, ~~has~~and an(ii) ~~unused~~one ~~fee~~share of ~~0.35~~7% ifSeries ~~the~~A ~~average~~Cumulative ~~outstanding~~Redeemable ~~quarterly~~Preferred ~~balance~~Stock isof ~~greater~~BRE ~~than~~Select ~~$30~~Hotels ~~million~~having ~~and~~an ~~0.5%~~initial ifliquidation ~~the~~preference ~~average~~of ~~outstanding~~$1.90 ~~quarterly~~per ~~balance~~share is(the ~~less~~“New ~~than~~Preferred ~~$30 million~~Shares”). The ~~outstanding~~stated ~~balance~~value onof the ~~credit~~transaction ~~facility~~based ason ofthe ~~September~~outstanding ~~30,~~Units ~~2012~~ and ~~December~~as ~~31,~~converted ~~2011~~Series ~~was~~B ~~$26.3~~convertible ~~million~~preferred ~~and~~stock ~~$43.7~~at ~~million~~March ~~and~~31, ~~its~~2013 ~~interest~~is ~~rate~~approximately ~~was 3~~$1.~~75%~~1 ~~and 3.82%~~billion, ~~respectively.~~including ~~The~~approximately ~~credit~~$64.4 ~~facility~~million ~~has~~related ~~two~~to ~~primary~~the ~~financial~~Series ~~covenants.~~B ~~The~~convertible ~~Company~~preferred ~~was~~stock inwhich ~~compliance~~would ~~with~~be ~~each~~recorded ofas ~~these~~expense ~~covenants~~ at ~~September~~the ~~30,~~time ~~2012~~of the Merger.

OnThe ~~September~~New ~~14,~~Preferred ~~2012,~~Shares will include an option for the ~~Company~~holder ~~entered~~of ~~into~~any aNew ~~mortgage~~Preferred ~~loan~~Shares ~~agreement~~to ~~with~~redeem aall ~~commercial~~or ~~lender,~~a ~~secured~~portion byof ~~the~~such ~~Company~~holder’s ~~Fort~~New ~~Worth~~Preferred Shares at the liquidation preference, ~~Texas~~plus ~~Residence~~any ~~Inn~~accumulated ~~property~~and unpaid dividends, ~~for~~after ~~$18.3~~7-1/2 ~~million. Scheduled~~years ~~payments~~following the issuance of ~~interest~~the ~~and~~New ~~principal~~Preferred ~~are~~Shares ~~due~~in ~~monthly. The~~connection ~~mortgage~~with ~~loan~~the ~~has~~Merger aand ~~fixed~~an ~~annual~~initial ~~interest~~dividend rate of ~~4.73~~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 aunpaid ~~stated~~dividends, ~~maturity~~and ofwill ~~October~~have ~~2022~~limited voting rights. At ~~closing,~~The dividend rate on the ~~Company~~New ~~used~~Preferred ~~proceeds~~Shares ~~from~~will increase to 11% per share if the ~~loan~~New toPreferred ~~reduce~~Shares are not redeemed within five years following the ~~outstanding~~issuance ~~balance~~of onthe ~~its~~New ~~credit~~Preferred ~~facility~~Shares ~~and~~in ~~pay~~connection ~~transaction~~with ~~costs~~the Merger. ~~Loan~~ ~~origination~~The ~~costs~~initial ofliquidation ~~approximately~~preference of $01.290 ~~million~~per ~~are~~share ~~being~~will ~~amortized~~be assubject ~~interest~~to ~~expense~~downward ~~through~~adjustment ~~the~~should ~~October~~net ~~2022~~costs ~~maturity~~and ~~date~~payments relating to certain legacy litigation and regulatory matters exceed $3.5 million.

InThe ~~June~~Company’s ~~2012~~dividend reinvestment and share redemption programs were suspended upon the execution of the Merger Agreement. Also, in accordance with the Merger Agreement, the Company ~~retired~~suspended dividend payments. A shareholder meeting is scheduled for May 9, 2013 to vote on the ~~mortgage~~transaction. ~~secured~~The byMerger ~~its~~Agreement ~~Hampton~~contains ~~Inn~~various &closing ~~Suites~~conditions, ~~hotel~~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 will close during the second quarter of 2013. Under the Merger Agreement, the Company may terminate the Merger Agreement in ~~Glendale~~certain circumstances. However the Company may be required to pay a fee of $20 million to an affiliate of BRE Select Hotels, ~~Colorado~~plus ~~which~~certain ~~had~~expenses not to exceed $5 million. In certain other circumstances, the Merger Agreement provides for an ~~outstanding~~affiliate ~~balance~~of BRE Select Hotels to pay the Company a fee of $435 million upon termination of the Merger Agreement, plus certain expenses not to exceed $5 million.8 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 $0.7 million ~~when~~in ~~retired~~expenses for the three months ended March 31, 2013.

3. ~~Fair~~Credit ~~Value of Financial Instruments~~Facility

The Company ~~estimates~~has ~~the~~a ~~fair~~$60 ~~value~~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 ~~its~~redemptions ~~debt~~and bydistributions ~~discounting~~(as discussed above, under the ~~future~~Merger ~~cash~~Agreement ~~flows~~redemptions ofand ~~each~~distributions ~~instrument~~have atbeen ~~estimated~~suspended). ~~market~~The ~~rates~~outstanding ~~consistent~~principal ~~with~~is required to be paid by the maturity date of ~~the~~September ~~debt~~8, ~~obligation~~2013 ~~with~~and ~~similar~~may ~~credit~~be ~~terms~~prepaid ~~and~~without ~~credit~~penalty. ~~characteristics~~Interest ~~which~~payments are ~~Level~~due monthly and the interest rate is equal to the applicable LIBOR (the London Interbank Offered Rate) plus 3.5%. ~~inputs~~The credit facility also has an unused fee of 0.35% ~~Market~~if ~~rates~~the ~~take~~average ~~into~~outstanding ~~consideration~~quarterly ~~general~~balance ~~market~~is ~~conditions~~greater than $30 million and ~~maturity~~0.5% Asif ofthe ~~September~~average outstanding quarterly balance is less than $30, ~~2012,~~million. ~~the~~The ~~carrying~~outstanding ~~value~~balance ~~and~~on ~~estimated~~the ~~fair~~credit ~~value~~facility as of ~~the~~March ~~Company’s~~31, ~~debt~~2013 ~~was~~and ~~approximately~~December 31, 2012 was $5825.65 million and $5934.5 million and its interest rate was 3.75%. AsThe credit facility has two primary financial covenants, which are: a) at the end of ~~December~~each 31calendar quarter, ~~2011~~the shareholder payout ratio, as defined in the ~~carrying~~loan ~~value~~documents, ~~and~~cannot ~~estimated~~exceed ~~fair~~100%, ~~value~~and ofb) the Company’s ~~debt~~maintain ~~was~~a ~~$63.1~~minimum ~~million~~net ~~and~~worth, as defined in the loan documents, greater than $~~64.0~~500 million. The ~~carrying~~Company ~~value~~was in compliance with each of these covenants at March 31, 2013. In the event the Merger does not occur, the Company’s ~~other~~intends ~~financial~~to ~~instruments~~refinance ~~approximates~~the ~~fair~~credit ~~value~~facility. ~~due~~If the Company is unable to complete a refinancing the ~~short-term~~outstanding ~~nature~~balance of ~~these~~the ~~financial~~credit ~~instruments~~facility would be payable in September 2013 to the lender.

4. ~~Related~~Fair ~~Parties~~Value of Financial Instruments

The Company ~~has,~~estimates ~~and~~the isfair ~~expected~~value toof ~~continue~~its todebt ~~engage~~by ~~in,~~discounting ~~significant~~the ~~transactions~~future ~~with~~cash ~~related~~flows ~~parties. These~~of ~~transactions~~each ~~cannot~~instrument beat ~~construed~~estimated tomarket berates atconsistent ~~arms~~with ~~length, and~~ the ~~results~~maturity of the ~~Company’s~~debt ~~operations~~obligation ~~may~~with besimilar ~~different~~credit ifterms ~~these~~and ~~transactions~~credit ~~were~~characteristics ~~conducted~~which ~~with~~are ~~non-related~~Level ~~parties~~3 inputs. ~~The~~ ~~Company’s~~Market ~~independent~~rates ~~members~~take ofinto ~~the~~consideration ~~Board~~general ofmarket ~~Directors~~conditions ~~oversee~~ and ~~annually~~maturity. ~~review~~As ~~the~~of ~~Company’s~~March ~~related~~31, ~~party~~2013, ~~relationships (which include~~ the ~~relationships~~carrying ~~discussed~~value ~~in this section)~~ and ~~are~~estimated ~~required~~fair tovalue ~~approve~~of ~~any significant modifications to~~ the ~~contracts,~~Company’s asdebt ~~well~~was asapproximately ~~any~~$49.3 ~~new~~million ~~significant~~and ~~related~~$50.4 ~~party transactions~~million. ~~There~~As ~~were~~of noDecember ~~changes~~31, to2012, the ~~contracts~~carrying ~~discussed~~value ~~in this section~~ and noestimated ~~new~~fair ~~significant~~value ~~related~~of ~~party transactions during~~ the ~~nine~~Company’s ~~months~~debt ~~ended~~was ~~September 30, 2012~~$58. ~~The~~4 ~~Board~~million ofand ~~Directors~~$59.6 ~~is not required to approve each individual transaction that falls under the related party relationships~~million. ~~However,~~The ~~under~~carrying ~~the~~value ~~direction~~ of the ~~Board~~Company’s ofother ~~Directors,~~financial atinstruments ~~least~~approximates ~~one~~fair ~~member~~value ofdue to the ~~Company’s~~short-term ~~senior~~nature ~~management~~of ~~team~~these ~~approves~~financial ~~each related party transaction~~instruments.

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 $1.9 million and $1.1 million for the nine months ended September 30, 2012 and 2011. The increase is due to the Company reaching the top tier of the fee range under the advisory agreement.

Index

Through its wholly-owned subsidiary, Apple Fund Management, LLC (“AFM”), the Company provides support services to Apple Six Realty Group (“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 nine months ended September 30, 2012 and 2011, the Company received reimbursement of its costs totaling $5.~~7 million and $5.5 million from the participating entities.~~ ~~The~~Related Company’s net allocated cost for these support services was approximately $0.9 million and $1.0 million for the nine months ended September 30, 2012 and 2011. 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.Parties

~~Although~~The ~~there~~Company ishas, aand ~~potential~~is ~~conflict~~expected onto ~~time~~continue ~~allocation of personnel due~~ to ~~the~~engage ~~fact~~in, ~~that~~significant atransactions ~~senior~~with ~~manager,~~related ~~officer~~parties. orThese ~~staff~~transactions ~~member~~cannot ~~will~~be ~~provide~~construed ~~services~~ to ~~more~~be ~~than~~at ~~one~~arm’s ~~company~~length, ~~the~~and ~~Company believes that~~ the ~~executives~~results ~~and~~of ~~staff compensation sharing arrangement allows~~ the ~~companies~~Company’s tooperations ~~share~~may ~~costs~~be ~~yet~~different ~~attract~~if ~~and~~these ~~retain~~transactions ~~superior~~were ~~executives~~conducted ~~and~~with ~~staff~~non-related parties. The ~~cost~~Company’s ~~sharing~~independent ~~structure~~members ~~also~~of ~~allows~~the ~~each~~Board ~~entity~~of toDirectors ~~maintain~~oversee aand ~~much~~annually ~~more~~review ~~cost effective structure than having separate staffing arrangements. Amounts reimbursed to~~ the Company’s ~~include~~related ~~both~~party ~~compensation~~relationships ~~for personnel and “overhead”~~ (~~office~~which ~~rent,~~include ~~utilities, benefits, office supplies, etc.) utilized by~~ the ~~companies.~~relationships ~~AFM~~discussed ~~receives~~in ~~its~~this ~~direction~~section) ~~for staffing~~ and ~~compensation~~are ~~from~~required ~~the~~to ~~advisory~~approve ~~companies~~any ~~(A6A,~~significant ~~A7A,~~modifications ~~A8A,~~to ~~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~~contracts, ~~individuals,~~as ~~including~~well ~~executive~~as ~~officers,~~any ~~have~~new ~~received~~significant ~~and~~related ~~may~~party ~~receive consideration directly from the advisors~~transactions. ~~The~~ ~~allocation~~There ofwere ~~costs~~no ischanges ~~made~~to by the ~~management~~contracts ofdiscussed ~~the~~in ~~REITs~~this ~~and~~section ~~is reviewed at least annually by the Compensation Committees of the REITs. In making the allocation, management~~ and ~~the~~no ~~Compensation~~new ~~Committee~~significant ~~consider all relevant facts~~ related toparty ~~the~~transactions ~~Company’s~~during ~~level of business activity and~~ the ~~extent~~three tomonths ~~which~~ended ~~the~~March ~~Company~~31, ~~requires the services of particular personnel~~2013. The ~~costs~~Board ~~allocated~~of ~~are~~Directors ~~actual~~is ~~costs and do~~ not ~~include~~required ~~any~~to ~~profit/markup~~approve ~~for~~each ~~the~~individual ~~Company.~~transaction ~~Such~~that ~~payments~~falls ~~are~~under ~~not based on formal record keeping regarding~~ the ~~time~~related ~~these~~party ~~personnel~~relationships. ~~devote~~However, tounder the ~~Company,~~direction ~~but~~of ~~are based on a good faith estimate by~~ the ~~employee~~Board ~~and/or~~of ~~his~~Directors, orat ~~her~~least ~~supervisor~~one member of the ~~time~~Company’s ~~devoted~~senior bymanagement ~~the~~team ~~employee~~approves to each ~~Company~~related party transaction.

~~Including~~The ~~A6RG~~Company is party to an advisory agreement with Apple Six Advisors, Inc. (“A6A”), ~~A7A,~~pursuant ~~A8A,~~to ~~A9A~~which ~~and~~A6A ~~A10A~~provides ~~discussed~~management ~~above,~~services Mrto the Company. ~~Knight~~ isAn ~~also~~annual ~~Chairman~~fee ~~and~~ranging ~~Chief~~from ~~Executive~~0.1% ~~Officer~~to 0.25% of ~~Apple~~total ~~REIT~~equity ~~Seven,~~proceeds ~~Inc.,~~received ~~Apple~~by ~~REIT~~the ~~Eight~~Company, ~~Inc.,~~in ~~Apple~~addition ~~REIT~~to ~~Nine,~~certain ~~Inc.~~reimbursable ~~and~~expenses, ~~Apple~~are ~~REIT~~payable ~~Ten,~~for ~~Inc~~these services. ~~Members~~ ofTotal advisory fees incurred by the Company’s ~~Board~~under ofthe ~~Directors~~advisory agreement are ~~also~~included onin ~~the~~general ~~boards~~and ofadministrative ~~Apple~~expenses ~~REIT~~and ~~Seven,~~totaled ~~Inc~~$0.,6 ~~Apple~~million ~~REIT~~for ~~Eight,~~each ~~Inc.~~of ~~and~~the ~~Apple~~three ~~REIT~~months ~~Nine~~ended March 31, ~~Inc~~2013 and 2012.

~~Included~~Through inits ~~other~~wholly-owned ~~assets~~subsidiary, ~~net~~Apple onFund Management, LLC (“AFM”), the Company’s ~~consolidated~~provides ~~balance~~support ~~sheet~~services isto aApple ~~26%~~Six ~~equity~~Realty ~~investment~~Group in(“A6RG”), Apple ~~Air~~Suites ~~Holding~~Realty Group, ~~LLC~~Inc. (“ASRG”), A6A, Apple ~~Air~~Seven Advisors, Inc. (“A7A”)~~. The~~, ~~other~~Apple ~~members~~REIT ofSeven, Inc., Apple ~~Air~~Eight ~~are~~Advisors, Inc. (“A8A”), Apple REIT ~~Seven~~Eight, Inc., Apple Nine Advisors, Inc. (“A9A”), Apple REIT ~~Eight~~Nine, Inc., Apple Ten Advisors, Inc. (“A10A”) and Apple REIT ~~Nine~~Ten, Inc. ~~Through~~A7A ~~its~~provides ~~equity~~day ~~investment~~to ~~the~~day ~~Company~~advisory ~~has~~and ~~access~~administrative functions for Apple REIT Seven, Inc. A8A provides day to day advisory and administrative functions for Apple ~~Air’s~~REIT ~~aircraft~~Eight, Inc. A9A provides day to day advisory and administrative functions for ~~asset~~Apple ~~management~~REIT Nine, Inc. A10A provides day to day advisory and ~~renovation~~administrative ~~purposes~~functions for Apple REIT Ten, Inc. ~~The~~A6RG ~~Company’s~~provides ~~equity~~real ~~investment~~estate ~~was~~brokerage ~~approximately~~services $1to the Company.6 ~~million~~ASRG ~~and~~provides $1real estate brokerage services to Apple REIT Seven, Inc.7, ~~million~~Apple asREIT ofEight, ~~September~~Inc., 30Apple REIT Nine, ~~2012~~Inc. and ~~December~~Apple 31REIT Ten, ~~2011~~Inc. ~~The~~Each ~~Company~~of these companies has ~~recorded~~agreed to reimburse the Company for its ~~share~~costs ofin ~~income~~providing ~~and~~these ~~losses~~services. ofA6RG, ~~the~~ASRG, ~~entity~~A6A, ~~under~~A7A, A8A, A9A, and A10A (collectively the ~~equity~~“Advisors”) ~~method~~are of100% ~~accounting~~owned ~~and~~by ~~adjusted~~Glade ~~its~~Knight, ~~investment~~the inCompany’s ~~Apple~~Chairman ~~Air~~and ~~accordingly~~Chief Executive Officer. For ~~both~~ the ~~nine~~three months ended ~~September~~March 3031, ~~2012~~2013 and ~~2011~~2012, the Company ~~recorded~~received areimbursement ~~loss~~ of ~~approximately~~its costs totaling $~~158,000~~1.9 asmillion ~~its~~for ~~share~~each ofperiod from the participating entities. The Company’s net ~~loss~~allocated ofcost ~~Apple~~for ~~Air,~~these ~~which~~support ~~primarily~~services ~~relates~~was toapproximately ~~the~~$0.5 ~~depreciation~~million ofand $0.3 million for the ~~aircraft~~three months ended March 31, 2013 and is2012. ~~included~~As inpart ~~general~~of ~~and~~this ~~administrative~~arrangement, ~~expense~~the day to day transactions may result in amounts due to or from the ~~Company’s~~noted ~~consolidated~~related ~~statements~~parties. To effectively manage cash disbursements, the individual companies may make payments for any or all of ~~operations~~the related companies. The amounts due to or from the related companies are reimbursed or collected and are not significant in amount.

~~The~~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 ~~has~~believes ~~incurred~~that ~~legal~~the ~~fees~~executives ~~associated~~and ~~with~~staff compensation sharing arrangement allows the ~~Legal~~companies ~~Proceedings~~to ~~discussed~~share ~~herein~~costs yet attract and retain superior executives and staff. The ~~Company~~cost sharing structure also ~~incurs~~allows ~~other~~each ~~professional~~entity ~~fees~~to ~~such~~maintain asa ~~accounting,~~much ~~auditing~~more ~~and~~cost ~~reporting. These~~effective ~~fees~~structure ~~are~~than ~~included~~having inseparate ~~general~~staffing ~~and~~arrangements. ~~administrative~~Amounts ~~expense~~reimbursed into the Company’s ~~consolidated~~include ~~statements~~both ofcompensation ~~operations. To~~for bepersonnel ~~cost~~and ~~effective~~“overhead” (office rent, ~~these~~utilities, ~~services~~benefits, ~~received~~office supplies, etc.) utilized by the ~~Company~~companies. ~~are~~AFM ~~shared~~receives asits ~~applicable~~direction ~~across~~for staffing and compensation from the ~~other~~Advisors. ~~Apple~~Since ~~REIT~~the ~~Companies~~employees ~~(Apple~~of ~~REIT~~AFM ~~Seven~~may also perform services for the Advisors, ~~Inc.~~individuals, ~~Apple~~including ~~REIT~~executive ~~Eight~~officers, ~~Inc~~have received and may receive consideration directly from the Advisors., ~~Apple~~The ~~REIT~~allocation ~~Nine,~~of ~~Inc~~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 ~~Apple~~the ~~REIT~~Compensation ~~Ten,~~Committee ~~Inc~~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 ~~professionals~~costs ~~cannot~~allocated ~~always~~are ~~specifically~~actual ~~identify~~costs ~~their~~and ~~fees~~do not include any profit/markup for ~~one~~the ~~company;~~Company. ~~therefore~~Such ~~management~~payments ~~allocates~~are not based on formal record keeping regarding the time these ~~costs~~personnel ~~across~~devote to the ~~companies~~Company, ~~that~~but ~~benefit~~are ~~from~~based on a good faith estimate by the ~~services~~employee and/or his or her supervisor of the time devoted by the employee to each company.

Index

5In addition to owning the Advisors discussed above, Mr. Knight is Chairman and Chief Executive Officer of Apple REIT Seven, Inc., Apple REIT Eight, Inc., Apple REIT Nine, Inc. and Apple REIT Ten, Inc. ~~Shareholders~~Members of the Company’s ~~Equity~~Board of Directors are also on the boards of Apple REIT Seven, Inc., Apple REIT Eight, Inc. and Apple REIT Nine, Inc.

~~Unit~~The ~~Redemption~~Company ~~Program~~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 Company, Apple REIT Seven, Inc., Apple REIT Eight, Inc., Apple REIT Nine, Inc., and Apple REIT Ten, Inc. (“the Apple REIT Companies”). 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 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. Total costs for these legal matters (discussed further in Note 7) for all of the Apple REIT Companies was approximately $0.8 million for the three months ended March 31, 2013, of which $0.2 million was allocated to the Company.

In ~~July~~connection ~~2005,~~with the ~~Company~~Merger ~~instituted~~Agreement, aon ~~Unit~~November ~~Redemption~~29, ~~Program~~2012, tothe ~~provide~~Company ~~limited~~entered ~~interim~~into ~~liquidity~~an toassignment ~~its~~and ~~shareholders~~transfer ~~who~~agreement ~~have~~with ~~held~~A9A ~~their Units~~ for ~~at least one year. Shareholders may request redemption of Units for a purchase price equal to~~ the ~~lesser~~transfer of: ~~(1)~~ the ~~purchase~~Company’s ~~price~~interest ~~per~~in ~~Unit that the shareholder actually paid for the Unit; or (2) $11~~AFM.00 ~~per Unit.~~ The ~~Company~~assignment ~~reserves~~and ~~the~~transfer ~~right~~is expected to ~~change~~occur ~~the~~immediately ~~purchase~~after ~~price of redemptions, reject any request for redemption, or otherwise amend~~ the ~~terms~~closing of, ~~suspend, or terminate~~ the ~~Unit Redemption Program~~Merger. ~~Since~~As ~~inception~~part of the ~~program through September 30~~assignment, ~~2012~~AFM, ~~the~~A9A ~~Company has redeemed approximately 17.9 million Units representing $196.5 million, including 1.3 million Units in the amount of $14.0 million~~ and ~~2.0 million Units in~~ the ~~amount~~other ofAdvisors ~~$22.3~~agreed ~~million~~to ~~redeemed~~indemnify ~~during~~BRE ~~the~~Select ~~nine~~Hotels ~~months ended September 30, 2012~~ and ~~2011,~~related ~~respectively.~~parties Asfor ~~contemplated~~any inliabilities ~~the~~related ~~program,~~to ~~beginning~~AFM. ~~with~~If ~~the~~a ~~July~~closing ~~2011 redemption~~occurs, ~~the~~no ~~scheduled~~additional ~~redemption~~costs ~~date for the third quarter~~ of ~~2011,~~AFM ~~the~~will ~~Company~~be ~~redeemed~~allocated ~~Units on a pro-rata basis. Prior~~ to ~~July 2011,~~ the Company ~~redeemed 100% of redemption requests~~. ~~The following is a summary of the Unit redemptions during 2011 and the first nine months of 2012:~~

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

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.

AsIncluded ~~noted~~ in other assets, net on the ~~table~~Company’s ~~above~~consolidated balance sheet is a 26% equity investment in Apple Air Holding, ~~beginning~~LLC ~~with~~(“Apple ~~the~~Air”). ~~July~~The ~~2011~~other ~~redemption~~members of Apple Air are Apple REIT Seven, Inc., Apple REIT Eight, Inc. and Apple REIT Nine, Inc. Through its equity investment the ~~total~~Company ~~redemption~~has ~~requests~~access ~~exceeded~~to Apple Air’s aircraft for asset management and renovation purposes. The Company’s equity investment was approximately $1.5 million at both March 31, 2013 and December 31, 2012. The Company has recorded its share of income and losses of the ~~authorized~~entity ~~amount~~under the equity method of ~~redemptions~~accounting and adjusted its investment in Apple Air accordingly. For the three months ended March 31, as2013 aand ~~result~~2012, the ~~Board~~Company recorded a loss of ~~Directors~~approximately ~~has~~$57,000 and ~~will~~$42,000 ~~continue~~as toits ~~limit~~share of the ~~amount~~net loss of ~~redemptions~~Apple asAir, itwhich ~~deems~~primarily ~~prudent~~relates to the depreciation of the aircraft, and is included in general and administrative expense in the Company’s consolidated statements of operations.

~~Dividend~~On ~~Reinvestment~~December ~~Plan~~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 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.

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 million Units for potential issuance under the plan. During the nine months ended September 30, 2012 and 2011, approximately 1.4 million Units, representing $15.4 million in proceeds to the Company and 1.9 million Units, representing $21.3 million in proceeds to the Company, were issued under the plan. Since the inception of the plan through September 30, 2012, approximately 18.1 million Units, representing $198.9 million in proceeds to the Company, were issued under the plan.

Distributions

The Company’s annual distribution rate as of September 30, 2012 was $0.792 per common share, payable monthly. For the three months ended September 30, 2012 and 2011, the Company made distributions of $0.198 per common share for a total of $18.0 million and $18.1 million. For the nine months ended September 30, 2012 and 2011, the Company made distributions of $0.594 and $0.583 per common share for a total of $54.1 million and $53.2 million.

Index

6. ~~Legal~~Shareholders’ ~~Proceedings~~Equity

~~The~~Series ~~term~~B ~~the~~Convertible ~~“Apple~~Preferred ~~REIT Companies” means Apple REIT Six, Inc. (the “Company”), Apple REIT Seven, Inc., Apple REIT Eight, Inc., Apple REIT Nine, Inc. and Apple REIT Ten, Inc.~~Stock

OnThe ~~December~~Company 13has issued 240,000 ~~2011~~Series B convertible preferred shares to Glade M. Knight, ~~the~~Chairman ~~United~~and ~~States~~Chief ~~District~~Executive ~~Court~~Officer of the Company, in exchange for the ~~Eastern~~payment ~~District~~by him of ~~New~~$0.10 ~~York~~per ~~ordered~~Series ~~that~~B ~~three~~convertible ~~putative~~preferred ~~class actions~~share, ~~Kronberg,~~or etan ~~al.~~aggregate vof $24,000. ~~David~~Expense ~~Lerner~~related ~~Associates,~~to ~~Inc.,~~the etissuance ~~al.~~of 240,000 ~~Kowalski~~Series v.B ~~Apple~~convertible ~~REIT~~preferred ~~Ten,~~shares ~~Inc~~to Mr., etKnight ~~al.,~~will ~~and~~be ~~Leff~~recognized v.at ~~Apple~~such ~~REIT~~time ~~Ten,~~when ~~Inc.,~~the etnumber ~~al.,~~of common shares to be ~~consolidated~~issued for conversion of the Series B convertible preferred shares can be reasonably estimated and ~~amended~~the event triggering the ~~caption~~conversion of the ~~consolidated~~Series ~~matter~~B toconvertible bepreferred Inshares reto ~~Apple~~common ~~REITs~~shares ~~Litigation~~occurs. The ~~District~~expense ~~Court~~will ~~also~~be ~~appointed~~measured ~~lead~~as ~~plaintiffs~~the ~~and~~difference ~~lead~~between ~~counsel~~the fair value of the common stock for which the ~~consolidated~~Series ~~action~~B ~~and~~convertible ~~ordered~~preferred ~~lead~~shares ~~plaintiffs~~can tobe ~~file~~converted and ~~serve~~the aamounts ~~consolidated~~paid ~~complaint~~for bythe ~~February~~Series ~~17,~~B ~~2012~~convertible preferred shares. ~~The~~Under ~~Company~~the ~~was~~Merger ~~previously~~Agreement, ~~named~~if asthe atransaction ~~party~~is incompleted, ~~all~~the ~~three~~Series B convertible preferred shares will receive total consideration of approximately $64.4 million at the ~~above~~Merger’s ~~mentioned~~stated ~~class~~value ~~action~~of ~~lawsuits~~$11.10 per Unit.

Distributions and Redemptions

In accordance with the Merger Agreement, the Company suspended distributions and redemptions to shareholders in December 2012. In the event the Merger does not occur, the Company plans to reinstate its monthly distribution to shareholders, including its Dividend Reinvestment Plan and its quarterly Unit Redemption Program. Prior to the Merger Agreement, the Company’s annual distribution rate was $0.792 per common share and was paid monthly. For the three months ended March 31, 2012, the Company made distributions of $0.198 per common share for a total of $18.0 million, including the issuance of approximately 0.5 million Units, representing $5.4 million in proceeds to the Company, under its Dividend Reinvestment Plan. For the three months ended March 31, 2012, the Company redeemed 0.5 million Units in the amount of $5.1 million under the Unit Redemption Program.

7. 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 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 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 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.

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.

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.

7. Discontinued Operations

The Company completed the sale of two hotels on June 6, 2011; therefore these properties had no results of operations in 2012. The results of operations for these properties for the three and nine months ended September 30, 2011 have been classified in the consolidated statements of operations in the line item income from discontinued operations.

Index

~~The~~On ~~following~~February ~~table~~16, ~~sets~~2012, ~~forth~~one shareholder of the ~~components~~Company ofand ~~income~~Apple ~~from~~REIT ~~discontinued~~Seven, ~~operations~~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 ~~three~~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 ~~nine~~certain ~~months~~executives ~~ended~~of ~~September~~David 30Lerner Associates, ~~2011~~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 (inagainst ~~thousands~~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.

	Three months			Nine months
	ended			ended
	September 30, 2011			September 30, 2011
Total revenue	$	0		$	1,915
Hotel operating expenses		(2	)		1,108
Taxes, insurance and other		(24	)		110
Depreciation expense		0			0
Income from discontinued operations	$	26		$	697

On April 18, 2012, the Company, and the other defendants moved to dismiss the consolidated complaint in the In re Apple REITs Litigation. The briefing period for the motions to dismiss was completed on July 13, 2012.

8By Order entered on March 31, 2013 and opinion issued on April 3, 2013, the Court dismissed the consolidated complaint in its entirety with prejudice and without leave to amend. ~~Subsequent~~ ~~Events~~Plaintiffs filed a Notice of Appeal to the Second Circuit Court of Appeals on April 12, 2013. The Company believes that any claims against it, its officers and directors and other Apple REIT Companies 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.

InThe ~~October~~Securities ~~2012~~and Exchange Commission (“SEC”) staff has been conducting a non-public investigation, which is focused principally on the adequacy of certain disclosures in the Company's ~~declared~~filings ~~and~~with ~~paid~~the ~~approximately~~SEC ~~$6.0~~beginning ~~million~~in 2008, oras $0well as the Company's review of certain transactions involving the Company and the other Apple REIT Companies.~~066~~ ~~per~~The ~~outstanding~~Company ~~common~~intends ~~share~~to continue to cooperate with the SEC staff, and it is engaging in ~~distributions~~a todialogue ~~its~~with ~~common~~the ~~shareholders,~~SEC staff concerning these issues and the roles of ~~which~~certain ~~approximately~~officers. $1The Company does not believe the issues raised by the SEC staff affect the material accuracy of the Company's consolidated financial statements.6 ~~million~~At orthis ~~145~~time,~~000~~ ~~Units~~the ~~were~~Company ~~reinvested~~cannot ~~under~~predict the outcome of this investigation as to the Company’s ~~Dividend~~or ~~Reinvestment~~any ~~Plan~~of its officers, nor can it predict the timing associated with any such conclusion or resolution.

In October 2012, under the guidelines of the Company’s Unit Redemption Program, the Company redeemed approximately 363,000 Units in the amount of $4.0 million. As contemplated in the program, the Company redeemed Units on a pro-rata basis, whereby a percentage of each requested redemption was fulfilled at the discretion of the Company’s Board of Directors. This redemption was approximately 3% of the total 12.7 million requested Units to be redeemed, with approximately 12.4 million requested Units not redeemed.

In October 2012, the Company retired three mortgage loans secured by its Huntsville, Alabama Fairfield Inn, Savannah, Georgia SpringHill Suties, and Montgomery, Alabama SpringHill Suites hotels. The mortgage loans had an outstanding balance of $8.3 million when retired.

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.

Index

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Forward-Looking Statements

This quarterly 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~~obtain ~~its~~required ~~acquisition~~shareholder ~~strategy~~or other third-party approvals required to consummate the proposed merger with and into BRE Select Hotels Corp, a Delaware corporation (“BRE Select Hotels”); the satisfaction or waiver of other conditions in the merger agreement; a material adverse effect on the Company; the outcome of any legal proceedings that may be instituted against the Company and others related to the merger agreement; the failure to consummate debt financing arrangements set forth in a commitment letter received in connection with the merger; the ability of the Company to implement its 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 the quarterly 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”). 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 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 completed its best-efforts offering of Units (each Unit consists of one common share and one Series A preferred share) in March 2006. The Company has elected to be treated as a real estate investment trust (“REIT”) for federal income tax purposes. As of ~~September~~March 3031, ~~2012~~2013, the Company owned 66 hotels within different markets in the United States. The Company’s first hotel was acquired on May 28, 2004.

~~Hotel Operations~~Merger

~~Although~~On ~~hotel~~November ~~performance~~29, ~~can be influenced by many factors including local competition~~2012, ~~local~~the ~~and~~Company ~~general~~entered ~~economic~~into ~~conditions~~a indefinitive ~~the~~merger ~~United~~agreement ~~States and~~ (the ~~performance~~“Merger ofAgreement”) ~~individual managers assigned~~ to ~~each~~be ~~hotel,~~acquired ~~performance~~by ofBRE ~~the~~Select ~~hotels~~Hotels asCorp ~~compared~~(“BRE toSelect ~~other~~Hotels”), ~~hotels~~a ~~within~~newly ~~their~~formed ~~respective~~affiliate ~~local~~of ~~markets,~~Blackstone inReal ~~general,~~Estate ~~has~~Partners ~~met~~VII ~~the~~L.P. ~~Company’s expectations for~~ (the ~~period owned~~“Merger”). ~~Beginning~~Under ~~in 2011 and continuing through~~ the ~~first~~Merger ~~nine months of 2012~~Agreement, ~~the~~each ~~hotel~~issued ~~industry~~ and ~~Company’s~~outstanding ~~revenues~~Unit and ~~operating~~each ~~income~~share ~~have~~of ~~shown~~Series ~~improvement~~B ~~from~~convertible ~~the~~preferred ~~significant~~stock ~~decline~~of in the ~~industry~~Company ~~during~~(on ~~2008~~an ~~through~~as ~~2010.~~converted ~~Although~~basis), ~~there~~other isthan noany ~~way~~dissenting toshares, ~~predict~~will ~~future~~be ~~general~~converted ~~economic~~into ~~conditions,~~ the ~~Company~~right ~~anticipates~~to ~~mid~~receive ~~single~~consideration ~~digit~~with ~~revenue~~a ~~percentage~~stated ~~increases~~value ~~for the remainder~~ of ~~2012~~$11.10 asper ~~compared~~Unit toconsisting ~~2011~~of ~~and~~(i) ~~similar~~$9.20 ~~year over year increases~~ in ~~2013.~~cash, ~~Although~~without ~~the~~interest, ~~Company~~and ~~believes~~(ii) ~~that~~one ~~the~~share ~~hotel~~of ~~industry~~7% ~~will~~Series ~~continue~~A toCumulative ~~improve,~~Redeemable ~~several~~Preferred ~~key~~Stock ~~factors~~of ~~continue~~BRE toSelect ~~negatively~~Hotels ~~affect~~having ~~economic~~an ~~recovery~~initial ~~and~~liquidation ~~add~~preference toof ~~general~~$1.90 ~~market~~per ~~uncertainty,~~share ~~including~~(the ~~but~~“New ~~not~~Preferred ~~limited~~Shares”). ~~to,~~The ~~the~~stated ~~continued~~value ~~high levels~~ of ~~unemployment,~~ the ~~slow~~transaction ~~pace~~based ofon the ~~U.S.~~outstanding ~~economic~~Units ~~recovery~~ and ~~the~~as ~~uncertainty~~converted ~~surrounding~~Series ~~the~~B ~~U.S.~~convertible ~~fiscal~~stock ~~policy. Therefore,~~at ~~there~~March ~~can~~31, be2013 nois ~~assurance~~approximately ~~that~~$1.1 ~~revenue~~billion, atincluding ~~the~~approximately ~~hotel~~$64.4 ~~properties~~million ~~will~~related ~~continue~~ to ~~grow~~the atSeries ~~the~~B ~~current~~convertible ~~rate~~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 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.

Index

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 scheduled for May 9, 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 will 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 $0.7 million in expenses for the three months ended March 31, 2013.

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. The hotel industry and the Company continue to see improvement in both revenues and operating income as compared to the prior year. Although there is no way to predict future general economic conditions, and there are several key factors that may 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~~following ~~continually~~is ~~monitors~~a ~~the~~summary ~~profitability~~ of ~~its properties and attempts to maximize shareholder value by timely disposal of properties. During~~ the ~~third~~results ~~quarter~~ of ~~2010,~~ the ~~Company~~66 ~~committed~~hotels toowned ~~sell~~by ~~two underperforming assets,~~ the ~~Tempe, Arizona TownePlace Suites and SpringHill Suites. The~~ Company ~~completed~~for the ~~sale~~three ofmonths ~~these~~ended ~~two~~March ~~hotels~~31, in2013 ~~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~~2012:

	Three Months Ended September 30,															Nine Months Ended September 30,
	Three Months Ended March 31,
(in thousands except statistical data)	~~2012~~2013			Percent of Revenue			~~2011~~2012			Percent of Revenue			Percent Change			~~2012~~			~~Percent of Revenue~~			~~2011~~			~~Percent of Revenue~~			~~Percent Change~~
Total hotel revenue	$	7058,~~634~~281			100	%	$	6557,~~806~~990			100	%		71	%	$	~~194,961~~			~~100~~	%	$	~~182,293~~			~~100~~	%		7	%
Hotel operating expenses		3834,~~956~~868			5560	%		3734,~~289~~349			5759	%		42	%		~~110,052~~			56	%		~~104,888~~			58	%		5	%
Taxes, insurance and other expense		3,232			5	%		2,833			4	%		14	%		9,731			5	%		8,928			5	%		9	%
Property taxes, insurance and other expense		3,226			6	%		3,047			5	%		6	%
General and administrative expense		1,~~806~~604			3	%		1,~~275~~716			23	%		42-7	%		~~6,052~~			3	%		~~3,975~~			2	%		52	%
Depreciation		7,654						8,008						-4	%		23,523						24,465						-4	%
Merger transaction costs		669						681						-2	%
Interest expense, net		780						937						-17	%		2,448						2,894						-15	%
Depreciation		7,403						8,007						-8	%
Number of hotels		66						66						0	%		66						66						0	%
Interest expense, net		514						822						-37	%
Average Market Yield (1)		119						116						3	%		121						119						2	%
Income tax expense		95						88						8	%
ADR	$	120					$	114						5	%	$	115					$	111						4	%
Number of hotels		66						66						0	%
Occupancy		78	%					77	%					1	%		75	%					74	%					1	%
Average Market Yield (1)		121						122						-1	%
RevPAR	$	94					$	88						7	%	$	87					$	81						7	%
ADR	$	113					$	110						3	%
Total rooms sold (2)		547,238						538,632						2	%		1,568,992						1,528,182						3	%
Occupancy		70	%					70	%					0	%
Total rooms available (3)		699,556						699,556						0	%		2,084,450						2,077,323						0	%
RevPAR	$	79					$	77						3	%
(1) Calculated from data provided by Smith Travel Research, Inc.® Excludes hotels under renovation during the applicable periods.
Total rooms sold (2)		480,674						483,179						-1	%
(2) Represents the number of room nights sold during the period.
Total rooms available (3)		690,216						692,447						0	%
(3) Represents the number of rooms owned by the Company multiplied by the number of nights in the period.

~~Legal~~(1) ~~Proceedings~~Calculated from data provided by Smith Travel Research, Inc.® Excludes hotels under renovation during the applicable periods. (2) Represents the number of room nights sold during the period. (3) Represents the number of rooms owned by the Company multiplied by the number of nights in the period.

The term the “Apple REIT Companies” means Apple REIT Six, Inc. (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 Company was previously named as a party in all three of the above mentioned class action lawsuits.

Index

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 April 18, 2012, the Company, and the other ~~Apple~~defendants ~~REIT~~moved ~~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~~the ~~motion~~motions to dismiss was completed on July 13, 2012.

By Order entered on March 31, 2013 and opinion issued on April 3, 2013, the Court dismissed the consolidated complaint in its entirety with prejudice and without leave to amend. Plaintiffs filed a Notice of Appeal to the Second Circuit Court of Appeals on April 12, 2013. The Company believes that any claims against it, its officers and directors and other Apple ~~entities~~REIT Companies 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.

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 September 30, 2012. All dollar amounts are in thousands.

City

State

Brand

Manager

Date Acquired

Rooms

Gross Purchase Price

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

Index

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

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

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 March 31, 2013. All dollar amounts are in thousands.

City

State

Brand

Manager

Date

Acquired

Rooms

Gross

Purchase

Price

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

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

Index

Results of Operations

As of ~~September~~March 3031, ~~2012~~2013, 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~~Although ~~the~~hampered ~~period~~by ~~from~~government ~~the~~spending ~~second~~uncertainty ~~half~~economic ofindicators ~~2008~~in ~~through 2010,~~ the ~~overall~~United ~~weakness~~States inhave ~~the~~shown ~~U.S.~~evidence ~~economy~~of ~~had~~ a ~~considerable~~sustainable ~~negative~~recovery, ~~impact~~which oncontinues ~~both~~to ~~consumer~~overall ~~and~~positively ~~business~~impact ~~travel~~the lodging industry. As a result, ~~hotel revenue in most markets in~~ the ~~United~~Company’s ~~States~~revenue ~~declined~~and ~~from~~operating ~~levels~~income ofimproved ~~2007~~in ~~and~~ the first ~~half~~quarter of ~~2008.~~2013 ~~However,~~as ~~economic~~compared ~~conditions~~to ~~have shown evidence of improvement in 2011 and~~ the ~~first~~same ~~nine~~period ~~months~~ of 2012. ~~Although~~and the Company expects continued ~~improvements~~improvement ~~for~~in ~~the remainder of 2012 and into 2013, it is not anticipated that~~ revenue and operating income ~~will~~in ~~completely~~2013 ~~return~~as compared to ~~pre-recession levels in~~ 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 revenue, consisting of room and other related revenue. For the three months ended ~~September~~March 3031, ~~2012~~2013 and ~~2011~~2012, the Company had total hotel revenue ~~from continuing operations~~ of $7058.63 million and $6558.80 million, respectively. For the ~~nine months ended September 30, 2012 and 2011, the Company had total hotel revenue from continuing operations of $195.0 million and $182.3 million. For the~~ three months ended ~~September~~March 3031, ~~2012~~2013 and ~~2011~~2012, the hotels achieved combined average occupancy of 7870% ~~and 77%~~, ADR of $~~120~~113 and $~~114~~110 and RevPAR of $9479 and $8877. ~~For~~ ~~the nine months ended September 30, 2012 and 2011, the hotels achieved average occupancy of 75% and 74%,~~ ADR ~~of $115 and $111 and RevPAR of $87 and $81. ADR~~ is calculated as room revenue divided by the number of rooms sold, and RevPAR is calculated as occupancy multiplied by ADR.

~~Since~~During the ~~beginning~~first quarter of ~~2010 and continuing into 2012~~2013, the Company ~~has~~ experienced an increase in ~~demand, as demonstrated by the improvement in average occupancy. In addition, also signifying a stabilizing economy, the Company experienced an increase in~~ ADR of 53% ~~during the third quarter of 2012~~ as compared to the ~~third~~prior ~~quarter~~year ofwhile ~~2011~~maintaining ~~and~~stable anoccupancy ~~increase~~levels. Although ofcertain 4%markets ~~for~~have ~~the~~been ~~first~~negatively ~~nine~~impacted ~~months~~by ofreduced ~~2012~~government asspending, ~~compared~~with tostability ~~the same period~~ in ~~2011.~~overall ~~With continued~~ demand and continued room rate improvement, the Company and industry are forecasting a mid -single digit percentage increase in revenue for ~~the~~2013 ~~remainder of 2012~~ as compared to ~~2011,~~2012. ~~with~~Also during the ~~trend~~first ~~expected~~quarter toof ~~continue~~2013, inthe ~~2013.~~Company ~~While~~had ~~reflecting~~approximately ~~the~~10,000 ~~impact~~room nights out of ~~post-recessionary~~service ~~levels~~for ofsix ~~single-digit~~planned renovation projects which negatively impacted revenue growth inas ~~national~~compared ~~economic~~to ~~activity,~~2012. ~~the~~The Company’s hotels ~~also~~ continue to be leaders in their respective markets. The Company’s average Market Yield for the first ~~nine~~three months of ~~2012~~2013 and ~~2011~~2012 was 121 and ~~119~~122, 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 three months ended ~~September~~March 3031, ~~2012~~2013 and ~~2011~~2012, hotel operating expenses ~~from continuing operations~~ totaled $3934.09 million and $3734.3 million, respectively, representing 5560% and 5759% of total hotel revenue. For the nine months ended September 30, 2012 and 2011, hotel operating expenses from continuing operations totaled $110.1 million and $104.9 million, respectively, representing 56% and 58% of total hotel revenue. Results for the three ~~and nine~~ months ended ~~September~~March 3031, ~~2012~~2013 reflect the impact of modest increases in revenues at most of the Company’s hotels and the Company’s efforts to control costs. The Company’s operating expenses were also impacted by several hotel renovations during the period. 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. The slight increase in operating expenses as a percentage of revenue is due primarily to increases in labor benefit costs. These labor benefit costs are likely to continue to grow at increased rates due to the associated new government regulations surrounding healthcare. 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 where possible while maintaining quality and service levels at each property.

Index

~~Taxes~~Property taxes, insurance, and other expenses ~~from continuing operations~~ for the three months ended ~~September~~March 3031, ~~2012~~2013 and ~~2011~~2012 were $3.2 million and $23.80 million, respectively, or 56% and 4% of total hotel revenue. For the nine months ended September 30, 2012 and 2011, taxes, insurance, and other expenses from continuing operations totaled $9.7 million and $8.9 million, respectively, or 5% of total hotel revenue ~~for each period~~. Although the first ~~nine~~three months of 2012 included the benefit of successful appeals, property taxes have increased in ~~2012~~2013 as the economy has continued to improve and localities reassessed property values accordingly. Also, ~~2012~~2013 insurance rates have increased ~~due to property and casualty carriers’ losses world-wide in the past year~~modestly.

General and administrative expense ~~from continuing operations~~ for the three months ended ~~September~~March 3031, ~~2012~~2013 and ~~2011~~2012 was $1.86 million and $1.37 million, or 3% and ~~2% of total hotel revenue. For the nine months ended September 30, 2012 and 2011, general and administrative expense from continuing operations was $6.1 million and $4.0 million, or~~ 3% ~~and 2%~~ of total hotel revenue. The principal components of general and administrative expense are advisory fees and reimbursable expenses, legal fees, accounting fees, the Company’s share of the loss in its investment in Apple Air Holding, LLC, and reporting expenses. During the ~~nine~~three months ended ~~September~~March 3031, ~~2012~~2013 and ~~2011~~2012, the Company incurred approximately $10.32 million and $0.65 million, respectively, in legal costs, ~~an increase over the prior year~~ due to the legal matters discussed herein and continued costs related to responding to requests from the staff of the ~~Securities and Exchange Commission (“~~SEC”). The SEC staff has been conducting a non-public investigation, which is 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 continue to cooperate with the SEC staff, and ~~its~~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~~consolidated ~~Balance~~financial ~~Sheets, Consolidated Statements of Operations or Consolidated Statements of Cash Flows~~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. ~~The~~As ~~Company~~discussed ~~anticipates~~below itunder ~~will~~Related ~~continue to incur significant legal costs for at least the remainder of 2012 related to these matters and possibly into 2013. Also~~Parties, ~~during~~ the ~~fourth quarter of 2011, the~~ Company ~~began~~shares tolegal ~~incur~~counsel ~~costs associated~~ with ~~its~~the ~~evaluation~~other ~~of a potential consolidation transaction with~~ Apple REIT ~~Seven, Inc~~Companies., ~~Apple~~Total ~~REIT~~costs ~~Eight,~~for ~~Inc.,~~these ~~and~~legal ~~Apple~~matters ~~REIT~~for ~~Nine,~~all ~~Inc. Total~~of ~~costs incurred during~~ the ~~nine~~Apple ~~months~~REIT ~~ended~~Companies ~~September 30, 2012~~ were approximately $0.8 million~~. In~~ ~~May~~during ~~2012,~~the itthree ~~was~~months ~~determined~~ended byMarch ~~the~~31, ~~Board~~2013. ofThe ~~Directors of the~~ Company ~~and~~anticipates ~~each~~it ofwill ~~the~~continue ~~other Apple REIT’s Board of Directors not~~ to ~~move~~incur ~~forward~~costs associated with ~~the~~these ~~potential consolidation transaction at that time~~matters.

~~Depreciation~~Merger ~~expense~~transaction ~~from~~costs ~~continuing operations~~ for the three months ended ~~September~~March 3031, ~~2012~~2013 and ~~2011~~2012 ~~was~~totaled $70.7 million ~~and~~in $8both periods.0 ~~million~~Costs incurred during the three months ended March 31, ~~and~~2013 ~~$23.5~~were ~~million~~in ~~and~~connection ~~$24~~with the Merger discussed herein.5 ~~million~~Costs ~~for~~incurred during the ~~nine~~three months ended ~~September~~March 3031, 2012 ~~and~~were ~~2011.~~associated ~~Depreciation~~with ~~expense represents~~ the ~~expense~~Company’s evaluation of ~~the~~a 66potential ~~hotels~~consolidation ~~included~~transaction inwith ~~the~~Apple ~~Company’s~~REIT ~~continuing~~Seven, ~~operations~~Inc., ~~and~~Apple ~~related~~REIT ~~personal~~Eight, ~~property~~Inc., ~~for~~and ~~the~~Apple ~~respective~~REIT ~~periods~~Nine, ~~owned~~Inc. ~~The~~(the ~~decrease~~“other inApple ~~depreciation~~REITs”). ~~expense~~In isMay ~~due~~2012, toit anwas ~~increase~~determined inby the ~~number~~Board of ~~hotels~~Directors ~~whose~~of ~~personal~~the ~~property~~Company ~~has~~and ~~become~~each ~~fully~~of ~~depreciated~~the ~~over~~other ~~the~~Apple ~~last~~REIT’s ~~quarter~~Board of ~~2011~~Directors ~~and~~not ~~first~~to ~~nine~~move ~~months~~forward ofwith ~~2012~~the potential consolidation transaction at that time.

~~Interest~~Depreciation expense, ~~net~~ for the three months ended ~~September~~March 3031, ~~2012~~2013 and ~~2011, was $0.8 million and $0.9 million. Interest expense, net for the nine months ended September 30,~~ 2012 ~~and 2011,~~ was $27.4 million and $28.90 million. ~~Interest~~Depreciation expense ~~primarily~~represents ~~arose from mortgage debt outstanding on certain properties acquired, in addition to interest on borrowings under~~ the ~~Company’s~~expense ~~credit facility. As~~ of ~~September 30, 2012,~~ the ~~Company~~66 ~~had~~hotels ~~debt~~and ~~outstanding~~related ofpersonal ~~$58.6~~property ~~million~~for ~~compared~~the torespective ~~$58.3~~periods ~~million at September 30, 2011~~owned. The decrease in ~~interest~~depreciation expense ~~from~~is ~~2011 was~~ due ~~primarily~~ to ~~a reduction in the effective interest rate under the Company’s credit facility which was partially offset by~~ an increase in the ~~Company’s~~number ~~average~~of ~~outstanding~~hotels ~~balance~~whose ~~under~~personal ~~its~~property ~~credit~~has ~~facility.~~become ~~During~~fully ~~the~~depreciated ~~nine~~throughout ~~months ended September 30,~~ 2012 and ~~2011,~~first ~~the~~three ~~Company~~months ~~capitalized interest~~ of ~~approximately $45~~2013,~~000~~ ~~and~~which ~~$164,000~~was inpartially ~~conjunction~~offset ~~with~~by hotel renovations completed during this period.

Interest expense, net for the three months ended March 31, 2013 and 2012, was $0.5 million and $0.8 million. Interest expense primarily arose from mortgage debt outstanding on certain properties acquired, in addition to interest on borrowings under the Company’s credit facility. As of March 31, 2013, the Company had debt outstanding of $49.3 million compared to $71.7 million at March 31, 2012. The decrease in interest expense from 2012 was due primarily to a reduction in the Company’s average outstanding balance under its credit facility, as well as the extinguishment of four mortgage loans during 2012, which was partially offset by the origination of one mortgage loan at a lower effective rate. During the three months ended March 31, 2013 and 2012, the Company capitalized interest of approximately $158,000 and $34,000 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 ~~arms~~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 ~~nine~~three months ended ~~September~~March 3031, ~~2012~~2013. 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.

Index

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 $10.96 million ~~and~~for ~~$1.1~~each ~~million~~of ~~for~~ the ~~nine~~three months ended ~~September~~March 3031, ~~2012~~2013 and ~~2011~~2012. ~~The increase is due to the Company reaching the top tier of the fee range under the advisory agreement.~~

Through its wholly-owned subsidiary, Apple Fund Management, LLC (“AFM”), the Company provides support services to Apple Six Realty Group (“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. A6RG provides real estate brokerage services to the Company. 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 Knight, the Company’s Chairman and Chief Executive Officer. For the ~~nine~~three months ended ~~September~~March 3031, ~~2012~~2013 and ~~2011~~2012, the Company received reimbursement of its costs totaling $51.79 million ~~and~~for ~~$5.5~~each ~~million~~period from the participating entities. The Company’s net allocated cost for these support services was approximately $0.95 million and $1.0.3 million for the ~~nine~~three months ended ~~September~~March 3031, ~~2012~~2013 and ~~2011~~2012. 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~~Advisors. Since the employees of AFM may also perform services for the ~~advisors~~Advisors, individuals, including executive officers, have received and may receive consideration directly from the ~~advisors~~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~~company.

~~Including~~In ~~A6RG,~~addition ~~A6A,~~to ~~A7A,~~owning ~~A8A,~~the ~~A9A~~Advisors ~~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.

Index

~~Included~~The inCompany has incurred legal fees associated with the Legal Proceedings discussed herein. The Company also incurs other ~~assets~~professional fees such as accounting, ~~net~~auditing onand reporting. These fees are included in general and administrative expense in the Company’s consolidated ~~balance~~statements ~~sheet~~of isoperations. To abe ~~26%~~cost ~~equity~~effective, ~~investment~~these inservices ~~Apple~~received ~~Air~~by ~~Holding,~~the ~~LLC~~Company ~~(“Apple~~are ~~Air”). The~~shared ~~other~~as ~~members~~applicable ofacross ~~Apple~~the ~~Air~~Company, ~~are~~ Apple REIT Seven, Inc., Apple REIT Eight, Inc., ~~and~~ Apple REIT Nine, Inc., ~~Through~~and ~~its~~Apple ~~equity~~REIT ~~investment~~Ten, Inc. (“the ~~Company~~Apple ~~has~~REIT ~~access~~Companies”). The toprofessionals ~~Apple~~cannot ~~Air’s~~always ~~aircraft~~specifically identify their fees for ~~asset~~one ~~management~~company; ~~and~~therefore ~~renovation~~management ~~purposes.~~allocates ~~The~~these ~~Company’s~~costs ~~equity~~across ~~investment~~the ~~was~~companies ~~approximately~~that ~~$1.6~~benefit ~~million~~from ~~and~~the $1services.7 ~~million~~As asa result of ~~September~~the 30Merger, ~~2012~~the ~~and~~Company ~~December~~entered ~~31,~~into ~~2011.~~a ~~The~~formal ~~Company~~agreement ~~has~~with ~~recorded~~the other Apple REIT Companies for its share of ~~income~~costs ~~and~~associated ~~losses~~with of the ~~entity~~Legal ~~under~~Proceedings and the ~~equity~~SEC ~~method~~investigation ofwhere ~~accounting~~the ~~and~~Company ~~adjusted~~will ~~its~~pay ~~investment~~20% inof ~~Apple~~the ~~Air~~total ~~accordingly.~~costs ~~For~~related ~~both~~to the ~~nine~~Legal ~~months~~Proceedings ~~ended~~and ~~September~~25% ~~30,~~of ~~2012~~the ~~and~~total ~~2011,~~costs ~~the~~related ~~Company~~to ~~recorded~~the aSEC ~~loss~~investigation. ofTotal ~~approximately~~costs ~~$158,000~~for asthese ~~its~~legal ~~share~~matters ofdiscussed ~~the~~above ~~net~~for ~~loss~~all of the Apple ~~Air,~~REIT ~~which~~Companies ~~primarily~~was ~~relates~~approximately to$0.8 ~~the~~million ~~depreciation~~for of the ~~aircraft,~~three ~~and~~months isended ~~included~~March in31, ~~general~~2013, ~~and~~of ~~administrative~~which ~~expense~~$0.2 inmillion ~~the~~was ~~Company’s~~allocated ~~consolidated~~to ~~statements~~the ~~of operations~~Company.

~~The~~In ~~Company~~connection ~~has incurred legal fees associated~~ with the ~~Legal~~Merger ~~Proceedings~~Agreement, ~~discussed~~on ~~herein. The~~November ~~Company~~29, ~~also~~2012, ~~incurs~~the ~~other~~Company ~~professional~~entered ~~fees~~into ~~such~~an asassignment ~~accounting, auditing~~ and ~~reporting. These~~transfer ~~fees~~agreement ~~are~~with ~~included~~A9A infor ~~general~~the ~~and~~transfer ~~administrative~~of ~~expense in~~ the Company’s ~~consolidated~~interest ~~statements~~in ~~of operations~~AFM. To beThe ~~cost~~assignment ~~effective,~~and ~~these~~transfer ~~services~~is ~~received~~expected byto ~~the~~occur ~~Company~~immediately ~~are~~after ~~shared~~the asclosing ~~applicable~~of ~~across~~ the ~~other~~Merger. ~~Apple~~As ~~REIT~~part ~~Companies~~of ~~(Apple~~the ~~REIT Seven~~assignment, ~~Inc.~~AFM, ~~Apple~~A9A ~~REIT~~and ~~Eight,~~the ~~Inc.,~~other ~~Apple~~Advisors ~~REIT~~agreed ~~Nine,~~to ~~Inc.,~~indemnify ~~and~~BRE ~~Apple~~Select ~~REIT~~Hotels ~~Ten,~~and ~~Inc.). The~~related ~~professionals~~parties ~~cannot~~for ~~always~~any ~~specifically~~liabilities ~~identify~~related ~~their~~to ~~fees~~AFM. ~~for~~If ~~one~~a ~~company;~~closing ~~therefore~~occurs, ~~management~~no ~~allocates~~additional ~~these~~ costs ~~across~~of ~~the~~AFM ~~companies~~will ~~that~~be ~~benefit~~allocated ~~from~~to the ~~services~~Company.

~~Liquidity~~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 ~~Capital~~Advisors’ ~~Resources~~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.

~~The~~Included ~~Company~~in ~~has~~other ~~a $60 million unsecured credit facility with a commercial bank that is utilized for working capital~~assets, ~~hotel~~net ~~renovations,~~on ~~and other general corporate funding purposes including~~ the ~~payment~~Company’s ofconsolidated ~~redemptions~~balance ~~and~~sheet ~~distributions.~~is ~~The~~a ~~Company~~26% ~~refinanced~~equity ~~the~~investment ~~credit facility~~ in ~~September~~Apple ~~2011~~Air ~~with~~Holding, ~~its~~LLC ~~existing~~(“Apple ~~lender~~Air”). The ~~outstanding~~other ~~principal~~members isof ~~required~~Apple toAir beare ~~paid~~Apple byREIT ~~the~~Seven, ~~maturity~~Inc., ~~date~~Apple ofREIT ~~September 8~~Eight, ~~2013~~Inc. and ~~may~~Apple beREIT ~~prepaid~~Nine, ~~without penalty~~Inc. ~~Interest~~Through ~~payments~~its ~~are~~equity ~~due~~investment ~~monthly and~~ the ~~applicable~~Company ~~interest~~has ~~rate~~access ~~is equal~~ to ~~the~~Apple ~~applicable~~Air’s ~~LIBOR~~aircraft ~~(the~~for ~~London~~asset ~~Interbank~~management ~~Offered~~and ~~Rate)~~renovation ~~plus 3~~purposes.~~5%.~~ ~~With~~The ~~the availability of this credit facility, the~~ Company’s ~~maintains~~equity ~~little~~investment ~~cash~~was onapproximately ~~hand,~~$1.5 ~~accessing~~million ~~the~~at ~~facility~~both asMarch ~~necessary. As a result~~31, ~~cash~~2013 onand ~~hand~~December ~~was $0 at September 30~~31, 2012. The ~~outstanding~~Company ~~balance~~has onrecorded ~~the~~its ~~credit~~share ~~facility as~~ of ~~September~~income ~~30,~~and ~~2012~~losses ~~was~~of ~~$26.3~~the ~~million~~entity ~~and~~under ~~its~~the ~~interest~~equity ~~rate~~method ~~was~~of ~~3.75%.~~accounting ~~The~~and ~~credit~~adjusted ~~facility~~its ~~has~~investment ~~two~~in ~~primary~~Apple ~~financial~~Air ~~covenants,~~accordingly. ~~which~~For ~~are:~~the a)three atmonths ~~the~~ended ~~end~~March of31, ~~each~~2013 ~~calendar~~and ~~quarter~~2012, the ~~shareholder~~Company ~~payout~~recorded ~~ratio,~~a asloss ~~defined~~of inapproximately ~~the~~$57,000 ~~loan~~and ~~documents~~$42,000 ~~cannot~~as ~~exceed~~its ~~the~~share ~~Company’s~~of ~~funds from operations for~~ the ~~immediately~~net ~~preceding~~loss ~~twelve~~of ~~month~~Apple ~~period~~Air, which isprimarily ~~105%~~relates ~~through~~to ~~December~~the ~~31,~~depreciation ~~2012~~of ~~and~~the ~~100% thereafter~~aircraft, and b)is ~~the~~included ~~Company~~in ~~must~~general ~~maintain~~and aadministrative ~~minimum~~expense ~~net worth, as defined~~ in the ~~loan documents, greater than $500 million at all times. The~~ Company’s ~~was~~consolidated instatements ~~compliance with each~~ of ~~these covenants at September 30, 2012~~operations.

~~Operating~~On ~~cash~~December 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 requirements5, ~~including debt service~~2012, ~~capital~~in ~~improvements,~~connection ~~required~~with ~~distributions to shareholders (~~the ~~Company~~Merger isAgreement, ~~not~~Apple ~~required to make distributions at its current rate for~~ REIT ~~purposes)~~Ten, ~~and planned Unit redemptions~~Inc. ~~The~~entered ~~Company~~into ~~intends to maintain~~ a ~~relatively~~membership ~~stable~~interest ~~distribution~~purchase ~~rate~~agreement with ~~varying~~the ~~economic~~Company ~~cycles.~~for ~~If cash flow from operations and~~ the ~~credit~~transfer ~~facility~~of ~~are not adequate to meet liquidity requirements,~~ the Company’s ~~will~~26% ~~attempt,~~membership ifinterest ~~necessary,~~in toApple ~~utilize~~Air ~~additional~~for ~~financing~~approximately ~~to achieve this objective~~$1.45 ~~Although~~million ~~the~~that ~~Company~~is ~~has~~expected ~~relatively low levels of debt, there can be no assurances it will be successful with this strategy and may need~~ to ~~reduce~~close ~~its~~immediately ~~distributions~~prior to ~~required~~the ~~levels.~~closing Ifof the ~~Company~~Merger. ~~were~~Also ~~unable~~as topart ~~refinance~~of ~~its~~the ~~maturing~~purchase, ~~debt~~Apple inREIT ~~future periods or if it were to default on its debt~~Ten, itInc. ~~may~~agreed ~~be unable~~ to ~~make~~indemnify ~~distributions~~BRE orSelect ~~redemptions.~~Hotels ~~The Company’s bylaws require board approval~~ and ~~review~~related ofparties for any ~~debt~~liabilities ~~financing~~related ~~obtained~~to by the ~~Company~~membership interest.

To maintain its REIT status the Company is required to distribute at least 90% of its ordinary income. 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. Distributions in the first nine months of 2012 totaled $54.1 million and were paid monthly at a rate of $0.066 per common share. For the same period the Company’s cash generated from operations was $64.4 million. The Company intends to continue paying distributions on a monthly basis. However, since there can be no assurance of the ability of the Company’s properties to provide income at this level, there can be no assurance as to the classification or duration of distributions at the current rate. The Board of Directors monitors the Company’s distribution rate relative to the performance of the hotels on an ongoing basis and may make adjustments to the distribution rate as determined to be prudent in relation to other cash requirements of the Company.

Index

~~The~~Liquidity ~~Company has on-going capital commitments to fund its capital improvements. The Company is required, under all of the hotel management agreements~~ and ~~under~~Capital certain loan agreements, to make available for the repair, replacement and refurbishing of furniture, fixtures, and equipment a percentage of gross revenues provided that such amount may be used for the Company’s capital expenditures with respect to the hotels. The Company expects that this amount will be adequate to fund required repair, replacement, and refurbishments and to maintain the Company’s hotels in a competitive condition. The Company invested approximately $8.3 million in capital expenditures during the first nine months of 2012. The Company anticipates total capital expenditures of approximately $15 million for the full year of 2012 in connection with renovations and brand initiatives. The Company currently does not have any existing or planned projects for new development.Resources

InCapital 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. Since inception of the program through September 30, 2012, the Company has redeemed approximately 17.9 million Units representing $196.5 million, including 1.3 million Units in the amount of $14.0 million and 2.0 million Units in the amount of $22.3 million redeemed during the nine months ended September 30, 2012 and 2011, respectively. As contemplated in the program, beginning with the July 2011 redemption, the scheduled redemption date for the third quarter of 2011, the Company redeemed Units on a pro-rata basis. Prior to July 2011, the Company redeemed 100% of redemption requests. The following is a summary of the Unit redemptions during 2011 and the first nine months of 2012:Resources

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

The Company has a $60 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 (as discussed above, under the Merger Agreement redemptions and distributions have been suspended). The outstanding principal 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. With the availability of this credit facility, the Company maintains little cash on hand, accessing the facility as necessary. As a result, cash on hand was $0 at March 31, 2013. The outstanding balance on the credit facility as of March 31, 2013 was $25.5 million and its interest rate was 3.75%. The credit facility has two primary financial covenants, which are: a) at the end of each calendar quarter, the shareholder payout ratio, as defined in the loan documents, cannot exceed 100%, and b) the Company maintain a minimum net worth, as defined in the loan documents, greater than $500 million. The Company was in compliance with each of these covenants at March 31, 2013. In the event the Merger does not occur, the Company intends to refinance the credit facility. If the Company is unable to complete a refinancing the outstanding balance of the credit facility would be payable in September 2013 to the lender.

AsCapital noted in the table above, beginning with the July 2011 redemption, the total redemption requests exceeded the authorized amount of redemptions and, as a result, the Board of Directors has and will continue to limit the amount of redemptions as it deems prudent. Currently, the Company plans to redeem under its Unit Redemption Program approximately 2% of weighted average Units during 2012.Uses

InOperating ~~February~~cash ~~2006,~~flow from the ~~Company~~properties ~~instituted~~owned aand ~~Dividend~~the ~~Reinvestment~~$60 ~~Plan~~million ~~for~~credit ~~its~~facility ~~shareholders~~are the Company’s principal sources of liquidity. The ~~plan~~Company ~~provides~~anticipates athat ~~way~~cash toflow ~~increase~~from ~~shareholder~~operations ~~investment~~and in the ~~Company~~credit byfacility ~~reinvesting~~will ~~dividends~~be adequate to ~~purchase~~meet ~~additional~~its ~~Units~~anticipated ofliquidity ~~the~~requirements, ~~Company.~~including ~~The~~debt ~~uses~~service, ofcapital ~~the~~improvements, ~~proceeds~~required ~~from~~distributions ~~this~~to ~~plan~~shareholders, ~~may~~and ~~include~~planned ~~purchasing~~Unit ~~Units~~redemptions ~~under~~if the ~~Company’s~~Merger ~~Unit~~does ~~Redemption~~not ~~Program,~~occur. ~~enhancing~~If ~~properties,~~cash ~~satisfying~~flow ~~financing~~from ~~obligations~~operations and ~~other~~the ~~expenses,~~credit ~~increasing~~facility ~~working~~are ~~capital,~~not ~~funding~~adequate ~~various~~to ~~corporate~~meet ~~operations~~liquidity requirements, ~~and~~the ~~acquiring hotels. The~~ Company ~~has~~will ~~registered~~attempt, 20if ~~million~~necessary, ~~Units~~to ~~for~~utilize ~~potential~~additional ~~issuance~~financing ~~under~~to ~~the~~achieve ~~plan~~this objective. As ofAlthough ~~September~~the ~~30,~~Company ~~2012,~~has ~~approximately~~relatively ~~18.1~~low ~~million~~levels ~~Units~~of debt, ~~representing~~there ~~$198.9~~can ~~million~~be inno ~~proceeds~~assurances toit ~~the~~will ~~Company,~~be ~~have~~successful ~~been~~with ~~issued~~this ~~under~~strategy. If the ~~plan,~~Company ~~including~~were ~~1.4~~unable ~~million~~to ~~Units~~refinance ~~and~~its ~~1.9~~maturing ~~million~~debt ~~Units,~~in ~~representing~~future ~~$15.4~~periods ~~million~~or ~~and~~if ~~$21.3~~it ~~million~~were into ~~proceeds~~default toon ~~the~~its ~~Company~~debt, ~~during~~it ~~the~~may ~~nine~~be ~~months~~unable ~~ended~~to ~~September~~make ~~30,~~distributions ~~2012~~or ~~and 2011~~redemptions.

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 distributions 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 the minimum distribution payments to maintain its REIT status. No distributions were made during the first three months of 2013. If the Merger does not occur, it is the Company’s intention to maintain a relatively stable distribution rate with varying economic cycles. 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 Board of Directors monitors the Company’s distribution rate relative to the performance of the hotels on an ongoing basis and may make adjustments to the distribution rate as determined to be prudent in relation to other cash requirements of the Company. Prior to the execution of the Merger Agreement, distributions were paid at a monthly rate of $0.066 per common share. Total distributions in the first three months of 2012 were $18.0 million or $0.198 per common share.

The Company has on-going capital commitments to fund its capital improvements. The Company is required, under all of the hotel management agreements and under certain loan agreements, to make available for the repair, replacement and refurbishing of furniture, fixtures, and equipment a percentage of gross revenues provided that such amount may be used for the Company’s capital expenditures with respect to the hotels. The Company invested approximately $6.4 million in capital expenditures during the first three months of 2013. The Company anticipates total capital expenditures of approximately $16 to $18 million for the full year of 2013 in connection with renovations and brand initiatives. The Company currently does not have any existing or planned projects for new development.

Index

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 October 2012. In the event the Merger does not occur, the Company plans to reinstate the Unit Redemption Program. Since inception of the program through March 31, 2013, the Company has redeemed approximately 18.3 million Units representing $200.5 million, including 0.5 million Units in the amount of $5.1 million redeemed during the three months ended March 31, 2012.

The Company’s Dividend Reinvestment Plan was suspended upon the execution of the Merger Agreement. As a result, the last offering under the Dividend Reinvestment Plan occurred in November 2012. In the event the Merger does not occur, the Company plans to reinstate the Dividend Reinvestment Plan. During the three months ended March 31, 2012, approximately 0.5 million Units, representing $5.4 million in proceeds to the Company, were issued under the plan. Since the inception of the plan through March 31, 2013, approximately 18.4 million Units, representing $202.1 million in proceeds to the Company, have been issued under the plan.

Impact of Inflation

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

Business Interruption

Being in the real estate industry, the Company is exposed to natural disasters on both a local and national scale. Although management believes there is adequate insurance to cover this exposure, there can be no assurance that such events will not have a material adverse effect on the Company’s financial position or results of operations.

Index

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, if necessary, any available other financing sources to make distributions.

~~Subsequent Events~~21

In October 2012, the Company declared and paid approximately $6.0 million, or $0.066 per outstanding common share, in distributions to its common shareholders, of which approximately $1.6 million or 145,000 Units were reinvested under the Company’s Dividend Reinvestment Plan.Index

Item 3. Quantitative and Qualitative Disclosures About Market Risk

The Company does not engage in transactions in derivative financial instruments or derivative commodity instruments. As of ~~September~~March 3031, ~~2012~~2013, the Company’s financial instruments were not exposed to significant market risk due to foreign currency exchange risk, commodity price risk or equity price risk. The Company will be exposed to interest rate risk due to possible changes in short term interest rates as it invests its cash or borrows on its credit facility. Based on the balance of the Company’s credit facility at ~~September~~March 3031, ~~2012~~2013 of $2625.35 million, every 100 basis points change in interest rates could impact the Company’s annual net income by $~~263~~255,000, all other factors remaining the same. The Company’s cash balance at ~~September~~March 3031, ~~2012~~2013 was $0.

Item 4. Controls and Procedures

Senior management, including the Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the Company’s disclosure controls and procedures as of the end of the period covered by this report. Based on this evaluation process, the Chief Executive Officer and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures were effective as of ~~September~~March 3031, ~~2012~~2013. There have been no changes in the Company’s internal control over financial reporting that occurred during the last fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

2122

Index

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

The term the “Apple REIT Companies” means ~~Apple REIT Six, Inc. (~~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 Company was previously named as a party in ~~all~~the ~~three~~Kronberg, ofet ~~the~~al. ~~above~~v. ~~mentioned~~David Lerner Associates, Inc., et al. putative class action ~~lawsuits~~lawsuit, which was filed on June 20, 2011.

Index

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

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. As noted below, during 2011 and the first nine months of 2012, the total redemption requests 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 through September 30, 2012, the Company has redeemed approximately 17.9 million Units representing $196.5 million. During the nine months ended September 30, 2012 the Company redeemed approximately 1.3 million Units in the amount of $14.0 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%, and 3% of the amounts requested redeemed in the third and fourth quarters of 2011 and the first, second, and third quarters of 2012, respectively, leaving approximately 12.2 million Units requested but not redeemed as of the last scheduled redemption date in the third quarter of 2012 (July 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 facility and asset sales from which it can make redemptions. See the Company’s complete consolidated statements of cash flows for the nine months ended September 30, 2012 and 2011 in the Company’s interim financial statements in Item 1 of this Form 10-Q for further description of the sources and uses of the Company’s cash flows. The following is a summary of redemptions during the third quarter of 2012 (no redemptions occurred in August and September 2012):

Issuer Purchases of Equity Securities

(a)

(b)

(c)

(d)

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

July 2012

361,351

10.99

361,351

(1)

(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.

Index

Item 6. Exhibits

Exhibit Number	~~Description of Documents~~	Description of Documents
3.1	~~Articles of Incorporation of the Registrant. (Incorporated by reference to Exhibit 3.1 to the Registrant’s registration statement on Form S-11 (SEC File No. 333-112169) effective April 23, 2004)~~	Articles of Incorporation of the Registrant. (Incorporated by reference to Exhibit 3.1 to the Registrant’s registration statement on Form S-11 (SEC File No. 333-112169) effective April 23, 2004)
3.2	~~Bylaws of the Registrant. (Incorporated by reference to Exhibit 3.2 to the Registrant’s Post-Effective Amendment No. 4 to Form S-11 (SEC File No. 333-112169) effective June 14, 2005)~~	Bylaws of the Registrant. (Incorporated by reference to Exhibit 3.2 to the Registrant’s Post-Effective Amendment No. 4 to Form S-11 (SEC File No. 333-112169) effective June 14, 2005)
31.1	~~Certification of the Company’s Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (FILED HEREWITH)~~	Certification of the Company’s Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (FILED HEREWITH)
31.2	~~Certification of the Company's Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (FILED HEREWITH)~~	Certification of the Company's Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (FILED HEREWITH)
32.1	Certification of the Company's Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (FILED HEREWITH)	Certification of the Company's Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (FILED HEREWITH)
101	The following materials from Apple REIT Six, Inc.’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2012 formatted in XBRL (eXtensible Business Reporting Language): (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Operations, (iii) the Consolidated Statements of Cash Flows, and (iv) related notes to these financial statements, tagged as blocks of text and in detail (FURNISHED HEREWITH)	The following materials from Apple REIT Six, Inc.’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2013 formatted in XBRL (eXtensible Business Reporting Language): (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Operations, (iii) the Consolidated Statements of Cash Flows, and (iv) related notes to these financial statements, tagged as blocks of text and in detail (FURNISHED HEREWITH)

Index

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

APPLE REIT SIX, INC.
By:	/s/ GLADE M. KNIGHT	Date: May 6, 2013	~~Date: November 6, 2012~~
	Glade M. Knight,
	Chairman of the Board and Chief Executive Officer (Principal Executive Officer)
By:	/s/ BRYAN PEERY	Date: May 6, 2013	~~Date: November 6, 2012~~
	Bryan Peery,
	Chief Financial Officer (Principal Financial and Principal Accounting Officer)

Index

Filing Compare · APPLE REIT SIX INC