UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

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

For the quarterly period ended ~~September 30~~March 31, ~~2014~~2015

o¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number: 001-12073

W2007 GRACE ACQUISITION I, INC.

(Exact name of registrant as specified in its charter)

Tennessee		26-1187149
(State or other jurisdiction of incorporation or organization)		(IRS employer identification number)

6011 Connection Drive
Irving, Texas		75039
(Address of principal executive offices)		(Zip code)

(972) 368-2200

(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. o ~~Yes~~o þYes 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). o ~~Yes~~o þYes 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 (as defined in Rule 12b-2 of the Exchange Act):

Large accelerated filer o¨ Accelerated filer o¨ Non-accelerated filer þx Smaller reporting company o¨

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

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Common Stock, $0.01 par value per share		100
(Class)		Outstanding at ~~May~~June 2930, 2015

TABLE OF CONTENTS

		Page
PART I
Item 1. Condensed Consolidated Financial Statements		1
Condensed Consolidated Balance Sheets (Unaudited) as of September 30, 2014 and December 31, 2013		1
Condensed Consolidated Balance Sheets (Unaudited) as of March 31, 2015 and December 31, 2014		1
Condensed Consolidated Statements of Operations and Comprehensive Loss (Unaudited) for the Three Months Ended September 30, 2014 and September 30, 2013 and for the Nine Months Ended September 30, 2014 and September 30, 2013		2
Condensed Consolidated Statements of Operations and Comprehensive Loss (Unaudited) for the Three Months Ended March 31, 2015 and March 31, 2014		2
Condensed Consolidated Statement of Changes in Equity (Unaudited) for the Nine Months Ended September 30, 2014		3
Condensed Consolidated Statement of Changes in Equity (Unaudited) for the Three Months Ended March 31, 2015		3
Condensed Consolidated Statements of Cash Flows (Unaudited) for the Nine Months Ended September 30, 2014 and September 30, 2013		4
Condensed Consolidated Statements of Cash Flows (Unaudited) for the Three Months Ended March 31, 2015 and March 31, 2014		4
Notes to Condensed Consolidated Financial Statements (Unaudited)		5
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations		16
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		12
Item 3. Quantitative and Qualitative Disclosures About Market Risk		3116
Item 4. Controls and Procedures		3116
PART II
Item 1. Legal Proceedings		3216
Item 1A. Risk Factors		3317
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		3317
Item 3. Defaults Upon Senior Securities		3317
Item 4. Mine Safety Disclosures		3317
Item 5. Other Information		3317
Item 6. Exhibits		3318
Signatures		3420

EXPLANATORY NOTE ABOUT THIS DOCUMENT AND THE COMPANY; SUBSEQUENT EVENTS

This Quarterly Report on Form 10-Q (this 10-Q) is being filed in 2015 relating to the fiscal quarter ended September 30, 2014. Between September 30, 2014 and the date of this filing, there were very significant changes regarding W2007 Grace Acquisition I, Inc. (the Company), including (i) the completion of a transaction involving the sale of our entire hotel portfolio except for 10 hotels owned by Senior Mezz (defined hereinafter) and (ii) the entry into a stipulation of settlement with respect to certain litigation involving the preferred stock of the Company as described in “Part II – Other Information, Item 1. Legal Proceedings.”

These changes have had a substantial impact on the Company. As a result, the information presented in this 10-Q should be reviewed in light of the information presented in the Company’s Annual Report on Form 10-K for the year ended December 31, 2014 filed with the Securities and Exchange Commission (the SEC) on May 1, 2015, and all other filings made by the Company with the SEC in 2015 through date of filing of this 10-Q, including the Current Reports on Form 8-K or Form 8-K/A filed on March 5, 2015, March 19, 2015, March 30, 2015, April 22, 2015, May 1, 2015, May 11, 2015 and May 18, 2015. This 10-Q should be viewed as an historical account and should not be viewed as indicative, in any way, of any future results.

iii

Part 1 – Financial Information

Item 1. Financial Statements

W2007 GRACE ACQUISITION I, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except for share amount)

	September 30,			December 31,
	March 31,			December 31,
	2014			2013
	2015			2014
	(Unaudited)
ASSETS
INVESTMENTS IN REAL ESTATE, net	$	~~241,811~~—		$	1240,~~392,097~~830
INVESTMENT IN SENIOR MEZZ		53,~~186~~541			—4,920
CASH AND CASH EQUIVALENTS		1228,~~742~~861			12,~~404~~444
RESTRICTED CASH		21,~~799~~072			462,~~849~~809
ACCOUNTS RECEIVABLE, net		21,~~656~~140			81,~~453~~906
OTHER ASSETS		~~2,053~~951			~~6,492~~834
DEFERRED FINANCING COSTS, net of accumulated amortization of $1,739 and $36,309, respectively		422			614
DEFERRED FINANCING COSTS, net of accumulated amortization of $0 and $1,803, respectively		—			359
DEFERRED FRANCHISE FEES, net of accumulated amortization of $793 and $3,704, respectively		944			3,541
DEFERRED FRANCHISE FEES, net of accumulated amortization of $0 and $820, respectively		—			918
Total assets	$	~~268~~35,~~613~~565		$	1265,~~470,450~~020
LIABILITIES AND EQUITY
NOTES PAYABLE	$	~~203,980~~—		$	1203,~~161,725~~126
INVESTMENT IN ARC HOTELS, net		8,431			—
OTHER LIABILITIES:
Accounts payable and accrued liabilities		3927,~~038~~056			4133,~~986~~437
Accrued interest payable		1,005			16,529
Payable to affiliate		6,786			6,763
Total liabilities		244,023			1,220,240
Accrued interest payable		—			1,020
Total liabilities		42,273			244,346
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Preferred stock, $0.01 par value, 10,000,000 shares authorized:
Series B, 8.75%, $0.01 par value, $25.00 redemption value, 3,450,000 shares issued and outstanding		60,375			60,375
Series C, 9.00%, $0.01 par value, $25.00 redemption value,2,400,000 shares issued and outstanding		40,800			40,800
Series C, 9.00%, $0.01 par value, $25.00 redemption value, 2,400,000 shares issued and outstanding		40,800			40,800
Series D, 8.00%, $0.01 par value, $250.00 redemption value, 125 shares issued and outstanding		31			31
Common stock, $0.01 par value, 100,000,000 shares authorized, 100 shares issued and outstanding		—			—
Additional paid-in-capital		9,979			109,~~195~~979
Retained deficit		(7275,~~879~~563	)		(4774,~~484~~764	)
Total shareholders’ equity		3835,~~306~~622			6336,~~917~~421
NON-CONTROLLING EQUITY PURCHASE OPTION		—			175,000
NON-CONTROLLING INTEREST		(42,330	)		(15,747	)
NON-CONTROLLING INTEREST		(13,716	)		11,293
Total equity		(6,708	)		20,674
Total equity		24,590			250,210
Total liabilities and equity	$	35,565		$	265,020
Total liabilities and equity	$	268,613		$	1,470,450

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

W2007 GRACE ACQUISITION I, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(in thousands, except for share amount)

	Three Months Ended September 30,						Nine Months Ended September 30,
	Three Months Ended March 31,
	2014			2013			2014			2013
	2015			2014
	(Unaudited)						~~(Unaudited)~~
REVENUES:
Rooms	$	2011,~~101~~210		$	~~109~~103,~~321~~380		$	~~155,653~~		$	~~316,961~~
Food and beverage		~~386~~232			12,~~894~~160			~~3,159~~			~~6,169~~
Other		~~276~~305			1,~~729~~889			~~2,613~~			~~4,915~~
Total hotel revenues		2011,~~763~~747			~~112~~107,~~944~~429			~~161,425~~			~~328,045~~
OPERATING EXPENSES:
Direct hotel expenses:
Rooms		42,~~808~~978			2826,~~071~~069			~~38,182~~			~~80,210~~
Food and beverage		~~370~~254			21,~~000~~907			~~2,821~~			~~5,797~~
Other		~~178~~54			1,~~166~~097			~~1,537~~			~~3,324~~
Non-departmental		64,~~257~~163			3534,~~425~~477			~~50,363~~			~~102,402~~
Property tax, ground lease, insurance and property management fees		~~1,405~~979			78,~~939~~115			~~11,691~~			~~23,584~~
Corporate overhead		~~1,182~~691			1,~~623~~278			~~3,918~~			~~4,618~~
Asset management fees		~~353~~287			1,~~761~~910			~~2,733~~			~~5,264~~
Depreciation and amortization		34,~~525~~126			20,~~885~~926			~~29,936~~			~~62,327~~
Impairment charges		—			3,297			7,582			5,054
Total operating expenses		13,532			95,779
Total operating expenses		18,078			102,167			148,763			292,580
OPERATING INCOME (LOSS)		(1,785	)		11,650
OPERATING INCOME		2,685			10,777			12,662			35,465
Equity in loss from Senior Mezz		(1,376	)		—
Equity in income (loss) from Senior Mezz		79			—			(1,163	)		—
Interest income		12			23
Interest income		18			24			58			64
Interest expense		(1,888	)		(19,705	)
Interest expense		(2,971	)		(21,010	)		(28,348	)		(62,699	)
Other income		—			9
Other income		85			140			100			216
Transaction expenses		(9,038	)		—
Contingent loss on litigation settlement		—			—			(24,250	)		—
Loss on extinguishment of debt		(13,307	)		—
Gain on extinguishment of debt		—			—			13,199			—
NET LOSS		(27,382	)		(8,023	)
LOSS FROM CONTINUING OPERATIONS		(104	)		(10,069	)		(27,742	)		(26,954	)
Net loss attributable to non-controlling interest		26,583			7,804
Income from discontinued operations		—			582			—			490
NET LOSS ATTRIBUTABLE TO THE COMPANY	$	(799	)	$	(219	)
NET LOSS		(104	)		(9,487	)		(27,742	)		(26,464	)
NET LOSS ATTRIBUTABLE TO COMMON SHAREHOLDERS	$	(799	)	$	(219	)
Net (income) loss attributable to non-controlling interest		(670	)		9,167			2,347			25,554
COMPREHENSIVE LOSS ATTRIBUTABLE TO COMMON SHAREHOLDERS	$	(799	)	$	(219	)
NET LOSS ATTRIBUTABLE TO THE COMPANY	$	(774	)	$	(320	)	$	(25,395	)	$	(910	)
AMOUNTS ATTRIBUTABLE TO COMMON SHAREHOLDERS:
Loss from continuing operations	$	(774	)	$	(326	)	$	(25,395	)	$	(915	)
Income from discontinued operations		—			6			—			5
Net loss attributable to common shareholders	$	(774	)	$	(320	)	$	(25,395	)	$	(910	)
COMPREHENSIVE LOSS ATTRIBUTABLE TO COMMON SHAREHOLDERS	$	(774	)	$	(320	)	$	(25,395	)	$	(910	)

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

W2007 GRACE ACQUISITION I, INC.

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

(in thousands, except for share amount)

															Non-controlling
									Additional						Non-
									Additional						Equity			Non-
	Preferred Stock				Common Stock				Paid-in			Retained			controlling
	Preferred Stock				Common Stock				Paid-in			Retained			Purchase			controlling
	Shares		Dollars		Shares		Dollars		Capital			Deficit			Interest			Total
	Shares		Dollars		Shares		Dollars		Capital			Deficit			Option			Interest			Total
Balance at January 1, 2015		5,850,125	$	101,206		100	$	—	$	9,979		$	(74,764	)	$	(15,747	)	$	20,674
Balance at January 1, 2014		5,850,125	$	101,206		100	$	—	$	10,195		$	(47,484	)	$	175,000		$	11,293		$	250,210
Net loss		—		—		—		—		—			(799	)		(26,583	)		(27,382	)
Net loss		—		—		—		—		—			(25,395	)		—			(2,347	)		(27,742	)
Balance at March 31, 2015		5,850,125	$	101,206		100	$	—	$	9,979		$	(75,563	)	$	(42,330	)	$	(6,708	)
Distribution (1)		—		—		—		—		—			—			—			(15	)		(15	)
Forgiveness of accrued asset management fees		—		—		—		—		80			—			—			6,628			6,708
Exercise of Purchase Option		—		—		—		—		(296	)		—			(175,000	)		(29,275	)		(204,571	)
Balance at September 30, 2014		5,850,125	$	101,206		100	$	—	$	9,979		$	(72,879	)	$	—		$	(13,716	)	$	24,590

(1) Distribution to Grace I for corporate expenses incurred.

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

W2007 GRACE ACQUISITION I, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands, except for share amount)

	Nine Months Ended September 30,
	Three Months Ended March 31,
	2014			2013
	2015			2014
	(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(27,~~742~~382	)	$	(268,~~464~~023	)
Adjustments to reconcile net loss to net cash from operating activities:
Bad debt expense		787			~~165~~54
Accretion of notes payable fair value adjustment at acquisition		~~747~~147			~~912~~274
Amortization of deferred financing costs		~~192~~43			~~234~~64
Deductible on involuntary conversion claims		~~246~~—			~~387~~168
Depreciation and amortization		294,~~936~~126			6520,~~233~~926
Amortization of below market ground leases		73—			~~196~~65
Equity in loss from Senior Mezz		1,~~163~~376			—
Gain on extinguishment of debt		(13,199	)		—
Non-cash transaction expenses		1,795			—
Net loss on sale of investments in real estate		—			254
Loss on extinguishment of debt		13,307			—
Impairment charges		7,582			5,054
Contingent loss on litigation settlement		24,250			—
Changes in operating assets and liabilities:
Accounts receivable		~~(4,367~~596	)		(1,~~945~~392	)
Other assets		(~~2,575~~194	)		~~(381~~1,331	)
Accounts payable and accrued liabilities		5(7,~~942~~306	)		73,~~316~~289
Accrued interest payable		(21,~~325~~020	)		95,~~930~~544
Net cash from operating activities		20,001			60,891
Net cash from (used in) operating activities		(14,505	)		22,300
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to investments in real estate		(81,~~424~~599	)		(195,~~456~~069	)
Proceeds from property casualty insurance		~~1,365~~7			21,~~006~~262
Change in restricted cash		301,~~131~~737			(78,~~496~~863	)
Net proceeds from sale of investments in real estate		—			3,557
Net cash from (used in) investing activities		145			(12,670	)
Payment of initial franchise fees					(1,227	)
Net cash from (used in) investing activities		23,072			(22,616	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on notes payable		(958,492	)		(31,171	)
Proceeds from transaction with ARC Hospitality		247,038			—
Proceeds from notes payable		976,000			—
Principal payments on notes payable		(204,647	)		(1,087	)
Payment of deferred financing costs		(21,049	)		—
Payment of defeasance premiums		(11,617	)		—
Purchase of interest rate cap		(293	)		—
Cash distribution from Senior Mezz		3			—
Cash transferred in connection with the exercise of the equity purchase option		(38,901	)		—
Net cash from (used in) financing activities		30,777			(1,087	)
Net cash used in financing activities		(42,735	)		(31,171	)
NET CHANGE IN CASH AND CASH EQUIVALENTS		16,417			8,543
NET CHANGE IN CASH AND CASH EQUIVALENTS		338			7,104
CASH AND CASH EQUIVALENTS, beginning of period		12,444			12,404
CASH AND CASH EQUIVALENTS, beginning of period		12,404			13,051
CASH AND CASH EQUIVALENTS, end of period	$	28,861		$	20,947
CASH AND CASH EQUIVALENTS, end of period	$	12,742		$	20,155
SUPPLEMENTAL DISCLOSURES:
Interest paid	$	282,~~862~~718		$	5012,~~744~~951
Non-cash additions to investments in real estate included in accounts payable and accrued liabilities	$	2,163		$	2,946
Investment in real estate reclassified to investment in ARC hotels	$	239,520		$	—
Non-cash distributions to non-controlling interest	$	(15	)	$	(16	)
Non-cash additions to investments in real estate included in accounts payable and accrued liabilities	$	—		$	511

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

W2007 GRACE ACQUISITION I, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. ORGANIZATION:

W2007 Grace I, LLC (Grace I), a Tennessee limited liability company, was formed on June 20, 2007. Grace I is owned by W2007 Finance Sub, LLC, a Delaware limited liability company, and Whitehall Parallel Global Real Estate Limited Partnership 2007, a Delaware limited partnership (collectively, Whitehall). WNT Holdings, LLC (WNT), a Delaware limited liability company, was organized effective July 10, 2012. WNT is also owned by Whitehall. The general partner of Whitehall Parallel Global Real Estate Limited Partnership 2007 and the partnerships owning W2007 Finance Sub, LLC is a wholly-owned subsidiary of The Goldman Sachs Group, Inc. (GS Group) and, therefore, is an affiliate of GS Group. GS Group in turn also controls Goldman, Sachs & Co. (GS) and Goldman Sachs Mortgage Company (GSMC). Consequently, GS and GSMC are also affiliates of Whitehall.

Grace I, W2007 Grace Acquisition I, Inc. (Grace Acquisition I), Equity Inns, Inc. (Equity Inns), Grace II, L.P. (Grace II) and Equity Inns Partnership, L.P. (Equity LP) entered into an agreement and plan of merger (Merger Agreement) whereby Equity Inns would merge with and into Grace Acquisition I and Grace II would merge with and into Equity LP (Merger). The Merger was completed on October 25, 2007. Prior to the Merger, Grace Acquisition I had no operations other than its activities in anticipation of the Merger.

Prior to the Merger, Equity Inns was a public hotel company and had elected to be taxed as a real estate investment trust (REIT) for federal income tax purposes. Equity Inns, through its wholly owned subsidiary, Equity Inns Trust (Equity Trust), was the sole general partner of Equity LP. Equity Inns, Equity Trust and Equity LP (and its wholly owned subsidiaries) are hereinafter collectively referred to as Equity. Prior to the Merger, Equity owned 137 limited-service hotels located throughout the United States.

Subsequent to the Merger, Grace II changed its name to W2007 Equity Inns Partnership, L.P. (W2007 Equity LP). As of ~~September~~March 3031, ~~2014~~2015, Grace I owned all of the common shares of Grace Acquisition I and Grace Acquisition I owned a 1% general partnership interest in W2007 Equity LP (with Grace I owning a 1% general partnership interest and a 98% limited partnership interest). Grace Acquisition I and W2007 Equity LP (and its wholly owned subsidiaries) are hereinafter collectively referred to as the Company.

Following the Merger, the Company and Grace I entered into a Keepwell Agreement, effective as of the date of the Merger (the Keepwell Agreement), pursuant to which Grace I agreed to make such cash payments to the Company as are necessary to enable the Company to satisfy its obligations to the holders of the Company’s 8.75% Series B cumulative preferred stock (Series B preferred stock) and 9.00% Series C cumulative preferred stock (Series C preferred stock) in accordance with the Company’s charter when the Company determines, or is legally compelled, to satisfy such obligations. To date, no payments have been made and none are due under the Keepwell Agreement. The Keepwell Agreement may be terminated by Grace I at any time upon 30 days’ prior written notice. There are no third-party beneficiaries of the Keepwell Agreement.

On March 31, 2008, Grace Acquisition I, pursuant to Section 856(g)(2) of the Internal Revenue Code of 1986, as amended (the Code), revoked its election under Section 856(c)(1) of the Code to be a REIT for the taxable year ending on December 31, 2008. Consequently, subsequent to December 31, 2007, Grace Acquisition I became subject to income taxes at statutory corporate rates.

~~The~~In ~~Company~~July ~~leased~~2012, ~~substantially~~WNT ~~all~~acquired, offor ~~its~~$175,000,000, ~~hotels~~an tooption ~~subsidiaries~~ (~~TRS~~Purchase ~~Lessees~~Option) ofto purchase a 97% equity interest in W2007 Equity Inns ~~TRS~~Senior ~~Holdings~~Mezz, ~~Inc.~~LLC (~~TRS~~Senior ~~Holdings~~Mezz), a ~~taxable~~wholly ~~REIT~~owned subsidiary, ~~pursuant~~of tothe ~~certain~~Company, ~~percentage~~from ~~lease~~an ~~agreements~~affiliate ~~(the~~of ~~TRS Leases)~~GSMC. The ~~TRS~~Purchase ~~Leases~~Option ~~were~~was ~~necessary~~not ~~for~~effective ~~the~~or ~~Company~~exercisable tountil ~~comply with~~ certain ~~REIT~~notes ~~provisions~~payable of ~~the~~Senior ~~Code~~Mezz and its subsidiaries had been paid in full. AsOn ~~discussed~~April ~~above~~11, ~~the~~2014, ~~Company~~Senior ~~revoked~~Mezz and its ~~election~~subsidiaries torefinanced beits ~~taxed~~notes aspayable aand ~~REIT~~WNT exercised the Purchase Option. As a result of ~~December~~the 31loss of control of Senior Mezz, ~~2012~~effective April 11, ~~all~~2014, ofthe Company deconsolidated Senior Mezz and began recognizing its 3% interest in the ~~TRS~~entity ~~Leases~~using ~~had~~the ~~been~~equity ~~terminated~~method.

On February 27, 2015, 116 hotel assets, of which 20 were owned by subsidiaries of the Company and 96 were owned by subsidiaries of Senior Mezz, were transferred to affiliates of American Realty Capital Hospitality Trust, Inc. (ARC Hospitality) for a combined purchase price of $1.808 billion, of which $347 million related to the Company.

In the transaction, the Company received approximately $22.2 million in cash subject to a post-closing adjustment to reflect actual proration of certain operating items and all of the Company’s remaining notes payable were repaid at closing. The Company’s subsidiaries were issued preferred equity interests (the Preferred Equity Interests) with an initial capital balance of approximately $99.8 million in a newly-formed Delaware limited liability company, ARC Hospitality Portfolio II Holdco, LLC, which is the indirect owner of the 20 hotels transferred by the Company. The agreement with ARC Hospitality provides for the payment of up to $2.9 million to ARC Hospitality if the actual real estate taxes incurred by them exceed certain stipulated amounts over the years ended December 31, 2016, 2017 and 2018.

InAlso ~~July~~in ~~2012~~the transaction, ~~WNT~~Senior ~~acquired,~~Mezz ~~for~~received approximately $~~175,000,000,~~106.0 anmillion ~~option~~in ~~(Purchase~~cash ~~Option)~~subject to ~~purchase~~ a ~~97%~~post-closing ~~equity~~adjustment ~~interest~~to inreflect ~~W2007~~actual ~~Equity~~proration ~~Inns~~of ~~Senior~~certain ~~Mezz,~~operating ~~LLC (~~items. Senior Mezz), awas ~~wholly~~issued ~~owned~~preferred ~~subsidiary~~equity ofinterests ~~the~~with ~~Company,~~an ~~from~~initial ancapital ~~affiliate~~balance of ~~GSMC~~approximately $347. ~~The~~3 ~~Purchase~~million ~~Option~~in ~~was~~a ~~not~~newly-formed ~~effective~~Delaware orlimited ~~exercisable~~liability ~~until~~company, ~~certain~~ARC ~~notes~~Hospitality ~~payable~~Portfolio ofI ~~Senior Mezz and its subsidiaries had been paid in full. On April 11~~Holdco, ~~2014~~LLC, ~~Senior~~which ~~Mezz~~is ~~and~~the ~~its~~indirect ~~subsidiaries~~owner ~~refinanced~~of the GE96 ~~Mortgage~~hotels ~~Note~~transferred ~~Payable~~by ~~(see~~Senior ~~Note 3) and WNT exercised the Purchase Option~~Mezz. AsThe abuyers ~~result~~assumed ofapproximately ~~the~~$903.9 ~~loss~~million of ~~control~~existing ofmezzanine ~~Senior~~and ~~Mezz,~~mortgage ~~effective~~indebtedness ~~April~~of ~~11, 2014, the Company deconsolidated~~ Senior Mezz ~~and~~which ~~began~~indebtedness ~~recognizing its 3% interest in the entity using the equity method. This~~ is ~~reflected~~secured inby the ~~accompanying~~96 ~~condensed~~hotels ~~consolidated~~transferred ~~balance~~by ~~sheets under the caption investment in~~ Senior Mezz. ~~The net assets transferred to WNT and the net decrease in equity are as follows (in thousands):~~

Investments in real estate	$	1,119,302
Restricted cash		13,919
Cash and cash equivalents		38,901
Accounts receivable, net		14,505
Other assets		6,857
Interest rate derivative instrument		293
Deferred financing costs, net		21,049
Deferred franchise fees, net		3,663
Notes payable		(976,000	)
Accounts payable and accrued liabilities		(31,591	)
Net assets transferred		210,898
Recognition of investment in Senior Mezz		(6,327	)
Net decrease in equity	$	204,571

In connection with the transaction, an affiliate of GS Group received an advisory fee of $2.3 million from subsidiaries of the Company which is included in transaction expenses in the accompanying condensed consolidated statements of operations and comprehensive loss and $9.7 million from subsidiaries of Senior Mezz. Also in connection with the transaction, subsidiaries of the Company accrued a disposition fee of $1.7 million payable to Goldman Sachs Realty Management, L.P. (RMD), an affiliate of GS Group, which is included in payable to affiliate in the accompanying condensed consolidated balance sheets and in transaction expenses in the accompanying condensed consolidated statements of operations and comprehensive loss. Subsidiaries of Senior Mezz accrued a disposition fee of $7.3 million payable to RMD.

AOn ~~receivable~~March ~~from~~25, ~~the~~2015, ~~Company~~subsidiaries toof Senior Mezz ofentered ~~approximately~~into ~~$5,063,000~~an isagreement ~~included in accounts receivable above and, at September 30, 2014, the related payable from the Company~~ to ~~Senior~~sell ~~Mezz~~its ~~was~~remaining ~~included~~10 inhotels ~~accounts~~for ~~payable~~$100 ~~and~~million ~~accrued~~(see ~~liabilities~~Note in9 ~~the~~for ~~accompanying~~further ~~condensed consolidated balance sheets~~information).

As of September 30, 2014, the Company owned 20 hotels located in 13 states, which operate under franchise agreements with Marriott and Hilton. As of September 30, 2014, the managers of these hotels were as follows:

	Number of Hotels
Hilton Hotels Corporation		9
Gateway Lodging Co., Inc.		4
Pillar Hotels and Resorts, L.P.		3
McKibbon Hotel Group		2
Huntington Hotel Group		2
		20

In addition, as of September 30, 2014, the Company owned a 3% interest in Senior Mezz which indirectly owned 106 hotels located in 34 states, which operate under franchise agreements with Marriott, Hilton, Hyatt and Intercontinental. As of September 30, 2014, the managers of these hotels were as follows:

	Number of Hotels
Hilton Hotels Corporation		37
Pillar Hotels and Resorts, L.P.		21
McKibbon Hotel Group		19
Huntington Hotel Group		11
Other (represented by four different management companies)		18
		106

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

Basis of presentation

The unaudited condensed consolidated financial statements include the accounts of Grace Acquisition I, W2007 Equity LP and subsidiaries of W2007 Equity LP. Because Grace Acquisition I is the general partner of W2007 Equity LP and has control over its management and major operating decisions, the accounts of W2007 Equity LP are consolidated in the condensed consolidated financial statements of Grace Acquisition I. All significant intercompany balances and transactions have been eliminated.

The Company prepares its unaudited condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States for interim financial information. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of the Company, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. These financial statements and related notes should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2014 filed with the Securities and Exchange Commission (the SEC) on May 1, 2015 and all other filings made by the Company with the SEC in 2015 through date of filing of this Quarterly Report on Form 10-Q.

This Quarterly Report on Form 10-Q (this 10-Q) is being filed in 2015 relating to the fiscal quarter ended September 30, 2014. Between September 30, 2014 and the date of this filing, there were very significant changes regarding the Company, including (i) the completion of a transaction involving the sale of our entire hotel portfolio except for 10 hotels owned by Senior Mezz and (ii) the entry into a stipulation of settlement with respect to certain litigation involving the preferred stock of the Company (see Notes 8 and 9). These financial statements and related notes should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2014 filed with the Securities and Exchange Commission (the SEC) on May 1, 2015 and all other filings made by the Company with the SEC in 2015 through date of filing of this Form 10-Q.

Some of the Company’s hotel operations have historically been seasonal. This seasonality pattern causes fluctuations in the operating results. Consequently, operating results for the three and nine months ended September 30, 2014 are not indicative of the results for the year ending December 31, 2014.

Use of estimates

The Company prepares its financial statements in conformity with accounting principles generally accepted in the United States. This requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Investments in real estate

Real estate investments ~~are~~were carried at depreciated cost net of reduction for impairment. Expenditures for ordinary repairs and maintenance ~~are~~were expensed as incurred. Significant renovations and improvements, which improve or extend the useful life of the assets, ~~are~~were capitalized. Full stock replacements of china, glass, silver, uniforms and linen ~~are~~were capitalized and incidental purchases ~~are~~were expensed as incurred.

Investments in real estate consist of the following at December 31, 2014 (in thousands):

	September 30, 2014			December 31, 2013
	December 31, 2014
Land and improvements	$	5150,~~213~~900		$	~~277,497~~
Buildings and improvements		~~203~~258,~~356~~829			~~1,159,285~~
Furniture, fixtures and equipment		53,178			322,019
Total cost		309,729
Below market ground leases		—			13,253
Accumulated depreciation and amortization		(68,899	)
Total cost		307,747			1,772,054
Investment in real estate, net	$	240,830
Accumulated depreciation/amortization		(65,936	)		(379,957	)
Investments in real estate, net	$	241,811		$	1,392,097

Depreciation is calculated using the straight-line method over the estimated useful lives of the respective assets as follows: buildings and improvements over 7.5 to 39 years; land improvements over 15 years; and furniture, fixtures and equipment, including china, glass, silver, uniforms and linen, over 3 to 7 years. Below market ground leases were amortized over the remaining term of the related lease agreements, which ranged from 16 to 52 years as of December 31, 2013. As of September 30, 2014, none of the Company’s consolidated hotels were subject to a ground lease.6

Depreciation was calculated using the straight-line method over the estimated useful lives of the respective assets as follows: buildings and improvements over 7.5 to 39 years; land improvements over 15 years; and furniture, fixtures and equipment, including china, glass, silver, uniforms and linen, over 3 to 7 years.

Assets ~~are~~were classified as held for sale if a disposal plan iswas in place, actions to achieve the sale ~~have~~had been initiated, a sale iswas probable and it iswas unlikely that significant changes to the plan ~~will~~would be made or that the plan ~~will~~would be withdrawn. Sales of the Company’s investments in real estate take a significant amount of time to consummate and many changes in the terms and timing ~~are~~were typical in the process. Accordingly, management did not classify assets as held for sale until a contract was pending, closing was scheduled and the probability of significant changes in terms or timing was insignificant. No assets were classified as held for sale as of December 31, 2014 or March 31, 2015.

~~Accordingly,~~Investment ~~management does not classify assets as held for sale until a contract is pending, closing is scheduled and the probability of significant changes~~ in ~~terms~~ARC ~~or timing is insignificant.~~Hotels

OnAs ~~May~~discussed ~~23,~~in ~~2014~~Note 1, ~~the~~on ~~subsidiaries~~February of27, ~~Grace~~2015 Ithe ~~and~~Company ~~WNT~~transferred ~~entered~~its ~~into~~20 anhotels ~~agreement~~to ~~(the~~ ARC ~~Agreement)~~Hospitality. However, due to ~~sell~~the ~~their~~Company’s ~~126~~continuing ~~hotels~~involvement ~~for~~in athe ~~combined~~hotels ~~purchase~~through ~~price~~its ofPreferred ~~$1.925~~Equity ~~billion~~Interests, ~~subject~~the toCompany ~~certain~~cannot ~~adjustments,~~recognize tothe ~~affiliates~~transaction ofas ~~American~~a ~~Realty~~sale ~~Capital~~under ~~Hospitality~~the ~~Trust,~~current ~~Inc.~~accounting ~~(ARC Hospitality)~~guidance. AsTherefore, ofthe ~~September~~Company ~~30,~~has ~~2014,~~recorded the ~~closing~~following ofamounts in the ~~sale~~Investment ~~was~~in ~~expected~~ARC inHotels: (a) the ~~fourth~~net ~~quarter~~book value of ~~2014~~the hotels ($239.5 million) and ~~there~~(b) ~~could~~a bereceivable nofrom ~~assurance~~ARC ~~that~~Hospitality for the proration of certain operating items ($0.2 million) less (i) cash received from the transaction ~~would~~($247.0 ~~close~~million) asand ~~scheduled,~~(ii) ordepreciation aton ~~all~~the hotels ($1.1 million). ~~Therefore,~~Even asthough ofthis ~~September~~accounting ~~30,~~treatment ~~2014~~does not recognize the Preferred Equity Interests in the accompanying condensed consolidated financial statements, the ~~real~~Company ~~estate~~is ~~investments~~legally ~~were~~entitled ~~not~~to ~~classified~~all asof ~~held~~its ~~for~~rights ~~sale~~under asthe Preferred Equity Interests including repayment of ~~September~~the ~~30,~~initial ~~2014~~capital orbalance ~~December~~of $99.8 million at March 31, ~~2013~~2015 and the return thereon.

The Company will record all payments received under the Preferred Equity Interests as a reduction of the Investment in ARC Hotels when received. As of March 31, 2015, the Company had not received any payments from the Preferred Equity Interests and, as of June 30, 2015, the Company had received $2.0 million in return on the Preferred Equity Interests and $8.5 million return of the Preferred Equity Interests’ initial capital balance. The unrecognized gain on the transaction and the return received on the Preferred Equity Interests will be recognized as income when the Preferred Equity Interests have been repaid in full and the Company’s continuing involvement in the hotels ceases.

Investment in Senior Mezz

The Company’s 3% investment in Senior Mezz is accounted for under the equity method of accounting. The Company initially recognized it pro rata interest in the net assets of Senior Mezz and has also recognized its pro rata interest in Senior Mezz’s net income or loss. Management reviews the investment in Senior Mezz for impairment each reporting period. The investment is impaired when its estimated fair value is less than the carrying amount of the investment. Any impairment is recorded in equity in income (loss) from Senior Mezz. No such impairment was recorded for the three ~~and nine~~ months ended ~~September~~March 3031, ~~2014~~2015.

Consistent with the Company’s accounting treatment of the transaction, due to Senior Mezz’s continuing involvement in the hotels it transferred to ARC Hospitality through its Preferred Equity Interests, Senior Mezz did not recognize the transaction as a sale under the current accounting guidance.

Fair value measurements

Fair value measurements are market-based measurements, not entity-specific measurements. Fair value measurement assumptions are classified under a hierarchy that distinguishes between market participant assumptions based on market data obtained from sources independent of the reporting entity (observable inputs that are classified within Levels 1 and 2 of the hierarchy) and management’s own assumptions about market participant assumptions (unobservable inputs classified within Level 3 of the hierarchy).

In instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety. Management’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability.

Fair value measurements of financial and nonfinancial assets and liabilities are based on (1) the assumptions that market participants would use in pricing the asset or liability, if available, or (2) management’s estimates of market participant assumptions.

Certain assets and liabilities are not measured at fair value on an ongoing basis but are subject to fair value adjustments only in certain circumstances (for example, when recording impairment on long-lived assets).7

The following table presents nonfinancial assets measured at fair value on a nonrecurring basis as of September 30, 2014 and 2013, and related impairment charges recorded (in thousands):

	Level 1		Level 2		Level 3		Total Impairment Write-downs
2014
Investments in real estate	$	—	$	—	$	—	$	7,582	(1)
2013
Investments in real estate	$	—	$	—	$	—	$	1,757	(2)
Investments in real estate		—		—		6,588		3,297
							$	5,054

(1) This impairment charge was recognized during the three months ended June 30, 2014 based on a fair value (Level 3) of $38,268 as of June 30, 2014.

(2) This impairment charge was recognized during the three months ended June 30, 2013 based on a fair value (Level 3) of $5,352 as of June 30, 2013.

Management reviews its investments for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The impairment write-downs recorded in the three and nine months ended September 30, 2013 were the result of unfavorable economic conditions within the markets in which the impaired hotels are located and hotel specific factors that were expected to negatively impact the future operations of the hotels. The assumptions used both in estimating fair value through a discounted cash flow model and the undiscounted cash flow analysis are inherently judgmental and reflect current and projected trends in revenue per available room, operating expenses, capitalization rates, discount rates, and the estimated holding periods for the applicable hotels. If an indicator of potential impairment exists, the hotel is tested for impairment for financial accounting purposes by comparing its carrying value to the estimated future undiscounted cash flows. The amounts of the impairments were calculated as the amounts by which the carrying values of the hotels exceeded fair values.

The impairment write-downs recorded in the three and nine months ended September 30, 2014 were determined as the excess of the carrying value of the impaired hotels exceeding the sum of (i) the discounted cash flows expected from the operation of the hotels through the date of sale and (ii) the discounted allocated net sale prices of the hotels, which are the Company’s best estimate of the cash flows related to the hotels.

The following table presents quantitative information about significant unobservable inputs used in determining the fair value of the above noted nonfinancial assets ($ in thousands):

2014

Property Type	Fair Value		Valuation Techniques	Unobservable Inputs	Range of Inputs
Hotels	$	38,268	Discounted cash flows	Discount rate		12	%
				Exit price per key	$	79
				Hold period	6 months
				Revenue growth		4	%
				Expense growth		5	%

2013

Property Type

Fair Value

Valuation Techniques

Unobservable Inputs

Range of Inputs

Hotels

11,940

Discounted cash flows

Discount rate

Exit price per key

$40 – 63

Hold period

25 – 28 months

Revenue growth

4 – 6%

Expense growth

3 – 4%

Non-controlling interest

Non-controlling interest represents Grace I’s proportionate share (99%) of the equity of W2007 Equity LP as provided for in its partnership agreement. AsThe ~~of September 30, 2014, the~~ majority of the Company’s activities ~~were~~are conducted by W2007 Equity LP and its subsidiaries, and thus are reflected in non-controlling interest. ~~However, the litigation accrual (see Note 8) has been deemed to relate to Grace Acquisition I and therefore, not reflected in non-controlling interest.~~

Revenue recognition

Revenues include room, food and beverage, and other hotel revenues such as guest telephone charges, equipment rentals, vending income, in-room movie sales, parking and business centers. Revenues from the hotels ~~are~~were recognized when the services ~~are~~were delivered and ~~are~~were recorded net of any sales or occupancy taxes collected from guests.

Non-departmental expenses

Non-departmental expenses include hotel-level general and administrative expenses, advertising and marketing costs, repairs and maintenance, frequent guest programs, franchise fees and utility costs. Non-departmental expenses ~~are~~were expensed as incurred.

Income taxes

Grace Acquisition I and W2007 TRS Holdings, Inc. (TRS Holdings; collectively with Grace Acquisition I, the Taxable Entities) are subject to federal and state income taxes. The Taxable Entities account for income taxes using the asset and liability method under which deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of assets and liabilities and their respective tax bases.

The Taxable Entities have recorded a valuation allowance equal to 100% of the net deferred tax assets due to the uncertainty of realizing the benefit of their accumulated net operating losses. For the three ~~and nine~~ months ended ~~September~~March 3031, ~~2014~~2015 and ~~2013~~2014, the Taxable Entities’ effective tax rates were zero due to the uncertainty of realizing these net deferred tax assets. As of ~~September~~March 3031, ~~2014~~2015, the net operating losses begin to expire in 2022.

Segment reporting

AsThe ~~of September 30, 2014, the~~ Company considered each of its hotels to be an operating segment, none of which ~~meets~~met the threshold for a reportable segment as prescribed by the authoritative accounting guidance. The Company ~~allocates~~allocated resources and ~~assesses~~assessed operating performance based on each individual hotel. Additionally, the Company ~~aggregates~~aggregated these individually immaterial operating segments into one segment using the criteria established by the authoritative accounting guidance, including the similarities of its product offering, types of customers and method of providing service.

Reclassifications

Certain amounts in the condensed consolidated financial statements for the three and nine months ended September 30, 2013 have been reclassified for discontinued operations. These reclassifications have no effect on the results of operations previously reported.

Recently issued accounting standards

In ~~April~~May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2014-0809 ~~Presentation~~Revenue offrom ~~Financial~~Contracts ~~Statements~~with ~~and Property~~Customers, ~~Plant~~which ~~and~~requires ~~Equipment:~~an ~~Reporting~~entity ~~Discontinued~~to ~~Operations~~recognize ~~and~~the ~~Disclosure~~amount of ~~Disposals~~revenue ofto ~~Components~~which ofit anexpects ~~Entity~~to ~~(ASU~~be ~~2014-08). Under~~entitled for the ~~new~~transfer ~~guidance, only a disposal~~ of apromised ~~component~~goods ~~that~~or ~~represents~~services ato ~~major~~customers. ~~strategic~~ASU ~~shift~~2014-09 ofwill anreplace ~~organization~~most ~~qualifies~~existing ~~for~~revenue ~~discontinued~~recognition ~~operations reporting. The~~ guidance ~~also~~in ~~requires~~GAAP ~~expanded~~when ~~disclosures~~it ~~about~~becomes ~~discontinued~~effective. ~~operations~~The ~~and~~standard ~~new~~permits ~~disclosures~~the inuse ~~regards~~of toeither ~~individually~~the ~~significant~~retrospective ~~disposals~~or ~~that~~cumulative doeffect ~~not~~transition ~~qualify for discontinued operations reporting~~method. ~~This~~The ~~guidance~~new standard is effective for the ~~first~~Company ~~annual period beginning~~ on orJanuary ~~after December 15~~1, ~~2014. Early adoption is permitted~~2018, but ~~only~~can ~~for~~be ~~disposals~~early ~~that~~adopted ~~have~~on ~~not~~January ~~been~~1, ~~reported in previously-issued financial statements~~2017. The Company ~~elected~~is toevaluating ~~early~~the ~~adopt~~effect ~~this~~that ~~guidance~~ASU ~~for~~2014-09 ~~the~~will ~~year~~have ~~ended~~on ~~December~~its ~~31,~~consolidated ~~2014. During~~financial ~~the~~statements ~~year~~and ~~ended~~related ~~December~~disclosures. ~~31,~~The ~~2014, the~~ Company ~~did~~has not ~~have~~yet ~~any~~selected ~~disposals that represented~~ a ~~strategic~~transition ~~shift~~method nor ~~were~~has ~~there~~it ~~any~~determined ~~property~~the ~~sales~~effect inof the ~~current~~standard ~~year~~on ~~that~~its ~~would~~ongoing ~~have~~financial ~~met~~reporting. ~~the~~The ~~definition~~Company ofwill ~~discontinued~~make ~~operations~~additional ~~prior~~disclosures toupon ~~the~~ adoption ~~of the new standard~~.

In May 2014, the FASB issued ASU 2014-09 Revenue from Contracts with Customers, which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. ASU 2014-09 will replace most existing revenue recognition guidance in GAAP when it becomes effective. The standard permits the use of either the retrospective or cumulative effect transition method. The new standard is effective for the Company on January 1, 2018, but can be early adopted on January 1, 2017. The Company is evaluating the effect that ASU 2014-09 will have on its consolidated financial statements and related disclosures. The Company has not yet selected a transition method nor has it determined the effect of the standard on its ongoing financial reporting. The Company will make additional disclosures upon adoption.

In August 2014, the FASB issued ASU 2014-15 Presentation of Financial Statements – Going Concern. The new guidance establishes management’s responsibility to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern or to provide related footnote disclosures. The amendments require management to assess an entity’s ability to continue as a going concern by incorporating and expanding upon certain principles in U.S. auditing standards. Specifically, ASU 2014-15 provides a definition of the term substantial doubt and requires an assessment for a period of one year after the date that the financial statements are issued or available to be issued. It also requires certain disclosures when substantial doubt is alleviated as a result of consideration of management’s plans and requires an express statement and other disclosures when substantial doubt is not alleviated. The guidance is effective for the annual periods beginning on or after December 15, 2016; early adoption is permitted. The Company has not adopted ASU 2014-15, however, the Company does not anticipate that the adoption of this standard will have a material impact on the financial position, results of operations and related disclosures.

108

In February 2015, the FASB issued ASU No. 2015-02, Amendments to the Consolidation Analysis, which requires amendments to both the variable interest entity and voting models. The amendments (i) rescind the indefinite deferral of certain aspects of accounting standards relating to consolidations and provide a permanent scope exception for registered money market funds and similar unregistered money market funds, (ii) modify the identification of variable interest (fees paid to a decision maker or service provider), the VIE characteristics for a limited partnership or similar entity and primary beneficiary determination under the VIE model, and (iii) eliminate the presumption within the current voting model that a general partner controls a limited partnership or similar entity. The new guidance is effective for annual reporting periods, and interim periods within those annual periods, beginning after December 15, 2015 with early adoption permitted. The amendments may be applied using either a modified retrospective or full retrospective approach. The Company is currently evaluating the effect the guidance will have on its consolidated financial statements.

On April 7, 2015, the FASB issued ASU No. 2015-03, Simplifying the Presentation of Debt Issuance Costs, which requires debt issuance costs to be presented in the balance sheet as a direct deduction from the carrying value of the debt liability. This standard is effective for fiscal years beginning after December 15, 2015 with early adoption permitted and will be applied on a retrospective basis. The new standard will be effective for the Company on January 1, 2016 and will not have a material impact on the Company's financial position, results of operations or cash flows.

3. NOTES PAYABLE:

The Company had ~~the~~no notes payable outstanding at March 31, 2015. The following notes payable were outstanding at December 31, 2014 (in thousands):

Indebtedness	Maturity Date	Interest Rate		~~September 30, 2014 Debt~~ Balance			~~December 31, 2013 Debt Balance~~
GE Mortgage	Nov. 2014	LIBOR(1) + 6.86%(2)		$	—		$	955,266
Mortgages (7 hotels)	Dec. 2016		5.865%	$	77,212
Mortgages (7 hotels)	Dec. 2016		5.865%		77,612			78,766
Mortgages (6 hotels)	Oct. 2016		5.650%		24,725
Mortgages (6 hotels)	~~Oct~~Dec. ~~2016~~2015		5.~~650~~440%		2448,~~944~~984			~~25,582~~
Mortgages (6 hotels)	Dec. 2015		5.440%		49,442			50,772
Junior subordinated debt	July 2015	LIBOR (1) + 2.85%			50,000
Junior Subordinated Debt	Jul. 2035	LIBOR(3) + 2.85%			50,000			50,000
Mortgage A	Mar. 2015		5.770%		3,726
Mortgage A	Mar. 2015		5.770%		3,762			3,866
				$	204,647
				$	205,760		$	1,164,252
Fair value adjustment					(1,521	)
Fair value adjustment					(1,780	)		(2,527	)
				$	203,126
				$	203,980		$	1,161,725

(1) The 90-day LIBOR ~~floor~~rate ofwas 10.26% as of December 31, 2014.

~~(2)~~During ~~Weighted~~the ~~average~~three ~~spread~~months ~~over~~ended ~~90-day~~March ~~LIBOR~~31, as2015 and 2014, GSMC earned interest of ~~December~~$0 31and $492,000 ~~2013~~respectively, under the GE Mortgage, a mortgage held by Senior Mezz prior to the exercise of the Purchase Option and refinancing discussed in Note 1.

~~(3)~~On ~~The~~February ~~90-day~~27, ~~LIBOR~~2015, ~~rates~~the ~~were~~Company 0transferred all 20 of its hotels to ARC Hospitality.~~24%~~ ~~and~~A 0portion of the proceeds was used to purchase defeasance securities to fully relieve the Company’s obligations under the individual loan agreements.~~25%~~ asThe Company recognized a loss of ~~September~~approximately ~~30,~~$13.3 ~~2014~~million related to the defeasance premium and ~~December~~other ~~31,~~costs ~~2013~~incurred, ~~respectively~~which is included in loss on extinguishment of debt in the accompanying condensed consolidated statements of operations and comprehensive income.

On April 11, 2014, subsidiaries of Senior Mezz refinanced the GE Mortgage with new mortgage and mezzanine loans in an aggregate amount of $976 million originated by German American Capital Corporation (the GACC Loan). In connection with the refinancing, the “cash trap” under the GE Mortgage and the cash flow pledge of the 20 hotels which were not collateral on the GE Mortgage ceased. As a result of WNT’s exercise of the Purchase Option and the deconsolidation of Senior Mezz and its subsidiaries, the GACC Loan is not included in the Company’s condensed consolidated financial statements as of September 30, 2014.

The Company recognized interest on the GE Mortgage under the effective interest method. In conjunction with the repayment of the GE Mortgage on April 11, 2014, the Company wrote-off the interest accrued under the effective interest method, but which was not due or payable to the lender. This write-off resulted in a gain of $13,199,329, which is included in gain on extinguishment of debt in the accompanying combined consolidated statements of operations and comprehensive loss.

During the three and nine months ended September 30, 2014, GSMC earned interest of $0 and $552,000 respectively, under the GE Mortgage. No interest or fees were earned by GSMC under the GE Mortgage in the three or nine months ended September 30, 2013.

During the three and nine months ended September 30, 2014, the Company paid approximately $0 and $21,049,000, respectively, of deferred financing fees, of which a fee of approximately $3,904,000 was paid to GSMC in connection with the origination of the GACC Loan. These deferred financing fees were transferred to WNT in connection with its exercise of the Purchase Option.

Also in connection with the refinancing of the GE Mortgage, the restriction on the payment of asset management fees terminated. In April 2014, the Company paid $4,650,000 in accrued asset management fees to Goldman Sachs Realty Management, L.P. (RMD) and RMD forgave $6,708,000 in accrued asset management fees. This forgiveness was recorded as an increase in equity as the indebtedness was forgiven by RMD, an affiliate of the Company.

4. PREFERRED STOCK:

~~In May 2008,~~ Grace Acquisition I’s ~~ceased~~board ~~dividend~~of ~~payments~~directors todid ~~its~~not ~~preferred~~declare ~~shareholders~~a ~~due~~dividend tofor the ~~“cash~~2015 ~~trap”~~first ~~under~~quarter ~~the~~due GEprimarily ~~Mortgage. The~~to ~~GACC~~the ~~Loan~~potential ~~does~~obligation ~~not~~of ~~currently restrict~~ the ~~use~~Company ofto pay the ~~Senior~~merger ~~Mezz~~consideration ~~subsidiaries’~~contemplated ~~cash~~under to the ~~same~~stipulation ~~extent~~and ~~that~~agreement ~~the~~of GEsettlement ~~Mortgage did~~ (~~but~~see itNotes ~~may~~7 inand ~~the future~~8) and ~~the~~liabilities ~~pledge~~or ofpotential ~~the~~liabilities ~~cash~~arising ~~flow~~ from the ~~Company’s~~transfer ~~20 hotels was terminated. Grace Acquisition I’s board~~ of ~~directors did not declare a dividend for the 2014 third quarter due primarily to~~ its ~~current cash position, anticipated capital improvement projects at the Company’s~~ hotels ~~and the debt maturing in March 2015~~. As of ~~September~~March 3031, ~~2014~~2015, Grace Acquisition I had $~~83,092,000~~89.6 million in accumulated, undeclared preferred stock dividends. Since at least six quarters of dividends on the Series B and C preferred stock are outstanding, the preferred shareholders are entitled to elect two members to the board of directors of Grace Acquisition I. Grace Acquisition I has attempted to hold three meetings to elect the new board members; however, at each meeting a quorum was not achieved and, therefore, an election did not occur.

5. FAIR VALUE OF FINANCIAL INSTRUMENTS:

As cash and cash equivalents and restricted cash have maturities of less than three months, the carrying values of cash and cash equivalents and restricted cash approximate fair value (Level 1 of the fair value hierarchy). The carrying values of accounts receivable, accounts payable and accrued liabilities and accrued interest payable approximate fair value due to the short maturity of these instruments (Level 2 of the fair value hierarchy).

The fair value of the Company’s notes payable is approximately $203,980,000 and $1,200,000,000 as of September 30, 2014 and December 31, 2013, respectively. The fair value of the Company’s notes payable was estimated based on a discounted cash flow analysis using a discount rate representing the Company’s estimate of the rate that would be used by market participants (Level 2 of the fair value hierarchy). Changes in assumptions or estimation methodologies may have a material effect on these estimated fair values.9

6The fair value of the Company’s notes payable was approximately $184 million as of December 31, 2014. ~~DISCONTINUED~~ ~~OPERATIONS:~~The fair value of the Company’s notes payable was estimated based on a discounted cash flow analysis using a discount rate representing the Company’s estimate of the rate that would be used by market participants (Level 2 of the fair value hierarchy). Changes in assumptions or estimation methodologies may have a material effect on these estimated fair values.

~~During the nine months ended September 30, 2013, the Company sold one of the individually mortgaged hotels~~6. InPROPERTY ~~addition~~TAX, ~~the~~GROUND ~~Company sold three additional hotels in November 2013~~LEASE, ~~which~~INSURANCE ~~were~~AND ~~classified~~PROPERTY asMANAGEMENT held for sale as of September 30, 2013. The operating results of these four hotels have been reported as discontinued operations in the condensed consolidated statements of operations and comprehensive loss. As the Company has a 3% interest in Senior Mezz and therefore has continuing involvement, the deconsolidation of Senior Mezz on April 11, 2014 is not reported as discontinued operations for the three and nine months ended September 30, 2014 and 2013.FEES:

~~The~~Property ~~following~~tax, ~~table~~ground ~~summarizes~~lease, ~~the~~insurance ~~operating~~and ~~results~~property management fees consisted of the ~~discontinued~~following ~~operations~~ (in thousands) ~~for the three and nine months ended September 30, 2013~~:

	Three Months Ended September 30, 2013			Nine Months Ended September 30, 2013
	Three Months Ended March 31,
Hotel revenues	$	4,849		$	14,387
	2015			2014
Direct hotel expenses		(2,635	)		(8,058	)
Property tax	$	534		$	4,420
Property taxes, ground lease, insurance and property management fees		(318	)		(1,320	)
Ground lease		—			406
Corporate overhead		(40	)		(111	)
Insurance		134			1,095
Asset management fees		(58	)		(194	)
Property management fees		311			2,194
Depreciation and amortization		(895	)		(2,905	)
	$	979		$	8,115
Interest expense		(289	)		(1,083	)
Loss on sale of investment in real estate		(32	)		(226	)
Income from discontinued operations available to common shareholders	$	582		$	490

127. COMMITMENTS AND CONTINGENCIES:

7. PROPERTY TAX, GROUND LEASE, INSURANCE AND PROPERTY MANAGEMENT FEES:

Property tax, ground lease, insurance and property management fees from continuing operations consisted of the following (in thousands):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2014		2013		2014		2013
Property tax	$	751	$	4,121	$	6,315	$	12,649
Ground lease		—		399		447		1,200
Insurance		193		1,080		1,578		3,181
Property management fees		461		2,339		3,351		6,554
	$	1,405	$	7,939	$	11,691	$	23,584

8. COMMITMENTS AND CONTINGENCIES:

The Company is involved in various legal proceedings and disputes arising in the ordinary course of business. The Company does not believe that the disposition of such legal proceedings and disputes will have a material adverse effect on the financial position, continuing operations or cash flows of the Company, other than as disclosed herein.

In September 2013, a putative class action lawsuit (the Johnson Lawsuit) was filed in the Chancery Court of Shelby County, Tennessee (the Chancery Court) by several current and former shareholders of the Series B and C preferred shares of Grace Acquisition I. The complaint, which alleges, among other things, breach of contract and breach of fiduciary duty that resulted in the loss of Series B and Series C preferred share value, names Grace Acquisition I, members of Grace Acquisition I’s board of directors, PFD Holdings, LLC (PFD Holdings), GS Group, Whitehall, Goldman Sachs Realty Management, L.P. and Grace I as defendants. ~~Shortly~~On ~~after~~October ~~the~~4, ~~filing of the Johnson Lawsuit~~2013, the defendants removed the case to the United States District Court for the Western District of Tennessee (the Federal Court). In November 2013, the plaintiffs filed a motion to remand the case back to the Chancery Court, which the defendants opposed. On July 28, 2014, the Federal Court denied the plaintiffs’ motion to remand. In addition, in January 2014, the defendants also filed a motion to dismiss the Johnson Lawsuit and the motion was fully briefed on April 24, 2104. In October 2013, a similar lawsuit was filed by another plaintiff in the same Chancery Court (the Dent Lawsuit), alleging similar breaches against several of the same defendants named in the Johnson lawsuit, in addition to a former member of the Company’s board of directors. In January 2014~~, the plaintiffs and defendants in the Dent Lawsuit agreed to stay that case in favor of proceedings in the aforementioned Johnson Lawsuit~~. In August 2014, the Company and the other defendants entered into a non-binding memorandum of understanding with respect to a settlement of the claims raised in the Johnson Lawsuit. On August 22, 2014, the parties notified the Federal Court of the proposed settlement, and the Federal Court agreed that the parties would no longer be subject to pending deadlines in the current scheduling order. On September 2, 2014, in light of the proposed settlement, defendants filed a motion to withdraw their motion to dismiss without prejudice to renew that motion later. The Federal Court granted the motion. The parties submitted the proposed settlement stipulation and related papers to the Federal Court for approval on October 9, 2014, and filed additional papers in support of settlement on December 3, 2014 and March 20, 2015. The stipulation was preliminarily approved by the Federal Court on April 30, 2015 and remains subject to final approval by the Federal Court. The stipulation of settlement generally provides for the following: (1) the effectuation of a merger that will result in exchange of $26.00 in cash for each share of Series B and C preferred stock outstanding; (2) the establishment of a $6 million fund to be distributed pursuant to a plan of allocation to sellers of the Series B and C preferred stock; and (3) an award of $4 million in counsel fees, subject to approval by the Federal Court. Therefore, during the second quarter of 2014, the Company accrued $24.25 million related to the agreement which is included in accounts payable and accrued liabilities in the accompanying condensed consolidated balance sheets and in contingent loss on litigation settlement in the condensed consolidated statements of operations and comprehensive loss. The Company anticipates funding the settlement with cash on hand or, if necessary, funding from Whitehall. The Company expects that the settlement of the Johnson Lawsuit, if approved, will result in the release of those claims asserted in the Dent Lawsuit. Ongoing defense costs will be expensed as incurred.

AsIn ofOctober ~~September 30~~2013, ~~2014~~a similar lawsuit was filed by another plaintiff in the same Chancery Court (the Dent Lawsuit), ~~all~~alleging similar breaches against several of the ~~wholly~~same ~~owned~~defendants ~~hotels~~named ~~and~~in ~~hotels~~the ~~owned~~Johnson ~~through~~Lawsuit, in addition to a former member of the Company’s 3%board ~~interest~~of directors. In January 2014, the plaintiffs and defendants in ~~Senior~~the ~~Mezz~~Dent ~~are~~Lawsuit ~~operated~~agreed ~~under~~to ~~franchise~~stay ~~agreements~~that ~~and~~case ~~are~~until ~~licensed~~the asmotion ~~Hampton~~to ~~Inn~~remand ~~(43~~in ~~hotels),~~the ~~Residence~~Johnson ~~Inn~~Lawsuit ~~(25),~~was ~~Courtyard~~decided. As ~~(17),~~stipulated ~~Hyatt~~by ~~Place~~the ~~(15)~~parties, ~~Homewood~~plaintiff ~~Suites~~must ~~(10),~~file ~~SpringHill~~any ~~Suites~~response ~~(7),~~to ~~Hilton~~defendants’ ~~Garden~~motion ~~Inn~~to ~~(3),~~stay ~~Fairfield~~within ~~Inn~~ten &business ~~Suites~~days ~~(2),~~after ~~Holiday~~notice ~~Inn~~of ~~(1),~~the ~~Embassy~~Federal ~~Suites~~Court ~~(1),~~decision ~~Holiday~~denying ~~Inn~~the ~~Express~~remand ~~(1)~~motion. Defendants notified plaintiff of the resolution of the remand motion in the Johnson Lawsuit, and ~~TownePlace~~plaintiff ~~Suites~~has ~~(1)~~not filed a response to the motion to stay.

~~The~~In ~~franchise~~August ~~agreements~~2014, ~~generally~~the ~~require~~Company and the ~~payment~~other defendants entered into a non-binding memorandum of ~~fees~~understanding ~~based~~with onrespect to a ~~percentage~~settlement of ~~hotel~~the ~~room~~claims ~~revenue~~raised in the Johnson Lawsuit. ~~Under~~On August 22, 2014, the ~~franchise~~parties ~~agreements~~notified the Federal Court of the proposed settlement, and the ~~Company~~Federal isCourt ~~periodically~~agreed ~~required~~that tothe ~~make~~parties ~~capital~~would ~~improvements~~no longer be subject to ~~the~~pending ~~hotels~~deadlines in the current scheduling order. On ~~for~~September ~~them~~2, 2014, in light of the proposed settlement, defendants filed a motion to ~~meet~~withdraw their motion to dismiss without prejudice to renew that motion if the ~~franchisors’~~proposed ~~brand~~settlement ~~standards~~of the Johnson Lawsuit does not become final. ~~Additionally~~The Federal Court granted the motion. The parties submitted the proposed settlement stipulation and related papers to the Federal Court for approval on October 9, ~~under~~2014, ~~certain~~and ~~loan~~filed ~~covenants~~additional papers in support of settlement on December 4, 2014 and March 20, 2015. The stipulation was preliminarily approved by the ~~Company~~Federal isCourt ~~obligated~~on April 30, 2015 and remains subject to ~~fund~~final 4%approval by the Federal Court. The stipulation of settlement would settle claims with respect to 5%two classes described in the Johnson Lawsuit: (1) the “Holder Class” consisting of ~~total~~any ~~hotel~~and ~~revenues~~all persons who, as of August 22, 2014 and through the effective time of the merger contemplated by the stipulation, hold the preferred stock, excluding defendants and their affiliates, persons who opt out of the Holder Class and holders of dissenting shares and (2) the “Seller Class” consisting of all persons who sold some or all of their shares of preferred stock between October 25, 2007 and October 8, 2014, inclusive, and suffered a loss, excluding the defendants, their affiliates and persons who sold shares to PFD Holdings, and persons who opt out of the Seller Class. The stipulation of settlement generally provides for the following: (1) the effectuation of a ~~separate~~merger ~~room~~that ~~renovation~~will ~~account~~result in the exchange of $26.00 in cash for each share of Series B and C preferred stock outstanding (see Note 9); (2) the ~~ongoing~~establishment ~~replacement~~of ora ~~refurbishment~~$6 million fund to be distributed pursuant to a plan of ~~furniture,~~allocation ~~fixtures~~to members of the Seller Class; and ~~equipment~~(3) atan award of $4 million in counsel fees, subject to approval by the ~~hotels~~Federal Court. Therefore, during the second quarter of 2014, the Company accrued $24.25 million related to the agreement which is included in accounts payable and accrued liabilities in the accompanying condensed consolidated balance sheets and in contingent loss on litigation settlement in the

1310

Ascondensed consolidated statements of ~~September~~operations 30and comprehensive loss. The Company anticipates funding the settlement with cash on hand or, ~~2014~~if necessary, funding from Whitehall. The ~~had~~proposed ~~guaranteed~~settlement upin tothe ~~$6,495,000~~Johnson ofLawsuit purports to encompass the ~~Company’s~~claims ~~obligations~~asserted ~~under~~in the ~~franchise~~Dent ~~agreements~~Lawsuit. Ongoing ~~with~~defense ~~certain~~costs ~~franchisors~~will be expensed as incurred.

~~The Company maintains property insurance coverage for catastrophic losses such as hurricanes, earthquakes or floods~~8. ~~For~~ ~~such~~SUMMARIZED ~~catastrophic~~FINANCIAL ~~losses,~~INFORMATION ~~the~~ON ~~Company~~SENIOR ~~may~~MEZZ ~~have higher deductibles or increased self-insurance risk if certain criteria are met, ultimately increasing the potential risk of loss.~~:

InThe ~~September~~following ~~2007,~~table asummarizes ~~putative class action lawsuit was filed in~~ the ~~Circuit~~condensed ~~Court~~consolidated ofstatement ~~Shelby County, Tennessee (the Circuit Court) on behalf~~ of ~~the~~operations former Series B and Series C preferred shareholders of Equity Inns alleging breaches of fiduciary duty against Equity Inns’ former directors. This complaint does not name Equity Inns or any corporate entity as a defendant. In February 2008, the Circuit Court denied the defendants’ motion to dismiss the complaint. In April 2010, the Circuit Court granted the plaintiffs’ motion for ~~class certification, which was ultimately appealed and vacated by~~ the Tennessee Court of Appeals and remanded back to the Circuit Court. During the second quarter of 2012, the plaintiffs filed a second amended complaint and a new motion for class certification. In April 2013, the Circuit Court granted the new motion and certified a class and three ~~subclasses.~~months ~~The~~ended ~~defendants appealed the Circuit Court’s ruling~~March 31, ~~and~~2015 ~~in May 2014 the Tennessee Court~~ of ~~Appeals~~Senior ~~vacated~~Mezz ~~the~~(in Circuit Court’s order certifying a class and remanded the case to the Circuit Court for further proceedings consistent with its opinion. In January 2015, this action against Equity Inns’ former directors was voluntarily dismissed.thousands):



	3 months ended March 31, 2015
Total hotel revenues	$	59,825
Total operating expenses		63,310
Operating loss		(3,485	)
Interest expense		(7,120	)
Transaction expenses		(35,284	)
Other, net		41
Net loss		(45,848	)
Net loss attributable to non-controlling interests		1,376
Net loss attributable to the controlling interests	$	(44,472	)

9. SUBSEQUENT EVENTS:

~~The~~On ~~ARC~~May ~~Agreement~~6, ~~was~~2015, ~~subsequently~~subsidiaries ~~amended~~of ~~and~~Senior ~~restated~~Mezz onreceived ~~November~~a ~~11,~~notice ~~2014~~terminating the contract to sell its 10 remaining hotels (ARC Hospitality had previously elected to exclude ~~ten~~the same hotels from ~~the~~its ~~sale~~transaction). On ~~(all~~June ~~ten~~5, 2015, subsidiaries of Senior Mezz entered into an amendment to the terminated contract, which ~~are~~among ~~owned~~other bythings, ~~subsidiaries~~reinstated the contract for nine of ~~WNT)~~the remaining hotels, ~~remove~~amended ~~several~~the ~~closing~~purchase ~~contingencies~~price ~~and~~to ~~extend~~$85 ~~the~~million and scheduled closing ~~date~~for July 23, 2015. OnThere ~~February~~can 27be no assurance as to whether or when the transaction will close, ~~2015~~as to the actual proceeds that will be realized if it does close, ~~116~~or ~~hotel~~as to what the assets might ultimately sell for in an alternate transaction if the pending transaction does not close. Even if the transaction does close, ofthere ~~which~~can 20be ~~were~~no ~~owned~~assurance as to when a distribution from such sale proceeds will be received by the Company. While the subsidiaries of Senior Mezz expect to sell the one remaining hotel, ~~were~~there ~~sold~~can be no assurance as to ~~affiliates~~whether or when that hotel will be sold, the form of ~~ARC~~consideration ~~Hospitality~~which ~~for~~may abe ~~combined~~received in respect of that hotel or whether the consideration which may be received in respect of that hotel will be greater or less than the purchase price ofallocated $1to that hotel in the previously contemplated sale.~~808~~ ~~billion~~Even if a transaction for the one remaining hotel does occur, ofthere ~~which~~can ~~$347~~be ~~million~~no ~~related~~assurance as to when a distribution from such sale proceeds will be received by the Company.

InOn May 10, 2015, Grace Acquisition I entered into an agreement and plan of merger (the ~~sale~~Settlement Merger Agreement) with W2007 Grace II, LLC (Parent), W2007 Grace Acquisition II, Inc. (Merger Sub), and, solely for the ~~Company~~purposes ~~received~~of ~~approximately~~certain ~~$22~~payment obligations thereunder, PFD Holdings and Whitehall, pursuant to which Grace Acquisition I will be merged with and into Merger Sub, with Merger Sub surviving as a wholly owned subsidiary of Parent (the Settlement Merger).2 Completion ~~million~~of inthe ~~cash~~Settlement Merger is subject to anumerous ~~post-closing~~conditions ~~adjustment~~including, but not limited to: ~~reflect~~(i) ~~actual~~the ~~proration~~approval of ~~certain~~the ~~operating~~Settlement ~~items~~Merger ~~and~~Agreement ~~all~~by the affirmative vote of a majority of all the ~~Company~~votes entitled to be cast by the holders of Grace Acquisition I’s ~~remaining~~outstanding ~~notes~~capital ~~payable~~stock; ~~were~~(ii) ~~repaid~~the atapproval ~~closing.~~of ~~The~~the ~~Company~~amendment to Grace Acquisition I’s ~~subsidiaries~~amended ~~were~~and ~~issued~~restated ~~preferred~~charter ~~equity~~contemplated ~~interests~~in ~~with~~the anSettlement ~~initial~~Merger ~~capital~~Agreement; ~~balance~~(iii) holders of ~~approximately~~no ~~$99~~more than 7.85% ~~million~~of inthe aoutstanding ~~newly-formed~~shares ~~Delaware~~of ~~limited~~the ~~liability~~preferred ~~company,~~stock ~~ARC~~delivering ~~Hospitality~~(and ~~Portfolio~~not IIwithdrawing) ~~Holdco,~~written ~~LLC~~notice of their intent to demand payment, ~~which~~if the Settlement Merger is ~~the~~effectuated, ~~indirect~~pursuant ~~owner~~to Section 48-23-202 of the 20Tennessee ~~hotels~~Business ~~sold~~Corporation Act; and (iv) the final approval and entry of a final and non-appealable order and judgment of a Stipulation and Agreement of Settlement dated October 8, 2014, as supplemented December 4, 2014, by the ~~Company~~Federal Court in the Johnson Lawsuit (the Final Approval Condition). The ~~ARC~~Company ~~Agreement~~expects ~~provides~~to ~~for~~hold ~~the~~a ~~payment~~special meeting of upshareholders currently scheduled for July 14, 2015 at which shareholders will be asked to $2approve the Settlement Merger Agreement.9 The ~~million~~Settlement toMerger ~~ARC~~may ~~Hospitality~~not ifbe completed prior to the ~~actual~~satisfaction ~~real~~or, ~~estate~~other ~~taxes~~than ~~incurred~~with byrespect ~~them~~to ~~exceed~~the ~~certain~~Final ~~stipulated~~Approval ~~amounts~~Condition ~~over~~which ~~the~~may ~~years~~not ~~ended~~be ~~December~~waived ~~31,~~by ~~2016~~the Company, ~~2017~~waiver ~~and~~of ~~2018~~the conditions to closing.

Also in the sale, Senior Mezz received approximately $106.0 million in cash subject to a post-closing adjustment to reflect actual proration of certain operating items. Senior Mezz was issued preferred equity interests with an initial capital balance of approximately $347.3 million in a newly-formed Delaware limited liability company, ARC Hospitality Portfolio I Holdco, LLC, which is the indirect owner of the 96 hotels sold by Senior Mezz.11

The buyers assumed approximately $903.9 million of existing mezzanine and mortgage indebtedness of Senior Mezz which indebtedness is secured by the 96 hotels sold by Senior Mezz. Selling costs totaled approximately $46.8 million, of which $18.3 million related to the Company, and the carrying value of the Company’s hotels at the time of the sale was approximately $240.2 million.

W2007 Equity LP, WNT and Whitehall, an affiliate of GS Group, GS and GSMC, engaged GS and Deutsche Bank Securities Inc. (DB) to provide advisory services in connection with a potential sale or other transaction relating to the 126 hotels. As a result of that engagement, upon consummation of the sale of the portfolio, GS and DB were paid, in the aggregate, an advisory fee of 1.10% of the aggregate consideration paid to the sellers. GS and DB split the advisory fee 60% and 40%, respectively, resulting in a payment of $12.0 million to GS of which $2.3 million was paid by the Company and is included in selling costs described above.

On March 25, 2015, subsidiaries of Senior Mezz entered into an agreement to sell its remaining 10 hotels for $100 million. The agreement was terminated by the purchasers on May 6, 2015 in accordance with their rights under the agreement (ARC Hospitality had previously elected to exclude the same hotels from its transaction). While the subsidiaries of Senior Mezz expect to sell the 10 remaining hotels, there can be no assurance as to whether or when such hotels will be sold, the form of consideration which may be received in respect of such hotels or whether the consideration which may be received in respect of such hotels will be greater or less than the purchase price in the terminated agreement. Even if a transaction for the sale of the 10 remaining hotels does occur, there can be no assurance as to when a distribution from such sale proceeds will be received by the Company.

In connection with the settlement of the Johnson Lawsuit, on May 10, 2015, Grace Acquisition I entered into an agreement and plan of merger (the Settlement Merger Agreement) with W2007 Grace II, LLC (Parent), W2007 Grace Acquisition II, Inc. (Merger Sub), and, solely for the purposes of certain payment obligations thereunder, PFD Holdings and Whitehall, pursuant to which Grace Acquisition I will be merged with and into Merger Sub, with Merger Sub surviving as a wholly owned subsidiary of Parent (the Settlement Merger). Completion of the Settlement Merger is subject to numerous conditions including, but not limited to: (i) the approval of the Settlement Merger Agreement by the affirmative vote of a majority of all the votes entitled to be cast by the holders of Grace Acquisition I’s outstanding capital stock; (ii) the approval of the amendment to Grace Acquisition I’s amended and restated charter contemplated in the Settlement Merger Agreement; (iii) holders of no more than 7.5% of the outstanding shares of the preferred stock delivering (and not withdrawing) written notice of their intent to demand payment, if the Settlement Merger is effectuated, pursuant to Section 48-23-202 of the Tennessee Business Corporation Act; and (iv) the final approval and entry of a final and non-appealable order and judgment of a Stipulation and Agreement of Settlement dated October 8, 2014, as supplemented December 4, 2014, by the Federal Court in the Johnson Lawsuit (the Final Approval Condition). The Settlement Merger may not be completed prior to the satisfaction or, other than with respect to the Final Approval Condition which may not be waived by the Company, waiver of the conditions to closing.

ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Management’s Discussion and Analysis of Financial Condition and Results of Operations includes a discussion of our unaudited condensed consolidated financial statements for the three ~~and nine~~ months ended ~~September~~March 3031, ~~2014~~2015. This Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with our unaudited condensed consolidated financial statements included in this Quarterly Report on Form 10-Q and with our Annual Report on Form 10-K for the year ended December 31, 2014. The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. The results of operations for the three ~~and nine~~ months ended ~~September~~March 3031, ~~2014~~2015 are not necessarily indicative of the operating results for the full year. In this report, we use the terms “the Company,” “we” or “our” to refer to W2007 Grace Acquisition I, Inc. and its subsidiaries, unless the context indicates otherwise.

FORWARD-LOOKING STATEMENTS

Throughout this Quarterly Report on Form 10-Q, we make forward-looking statements within the meaning of the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements are not historical facts, but instead represent only our beliefs regarding future events, many of which, by their nature, are inherently uncertain and outside our control. Such statements are generally accompanied by words such as “may,” “believe,” “estimate,” “project,” “plan,” “intend,” “will,” “anticipate,” “expect” and words of similar import that convey uncertainty as to future events or outcomes. These forward-looking statements include information about possible or assumed future results of our business, financial condition and liquidity, results of operations, plans, and objectives. Statements regarding the following subjects are forward-looking by their nature:

•· our business and investment strategy;

•· our projected operating results;

•· completion of any pending transactions;

•· our ability to obtain future financing arrangements;

•· our understanding of our competition;

•· market trends; and

•· projected capital expenditures.

Such statements are based on our beliefs, assumptions, and expectations of our future performance taking into account all information currently known to us and involve a number of risks, uncertainties, estimates and assumptions and are not guarantees of future performance. Some of these risks and uncertainties are discussed in greater detail in our Annual Report on Form 10-K for the year ended December 31, 2014, including, in particular, the “Risk Factors” included in Part I Item 1A therein. Should one or more of these risks or uncertainties materialize, or should underlying estimates or assumptions prove incorrect, actual results may vary materially from those anticipated, estimated, or projected. You should not place undue reliance on such forward-looking statements. Except as otherwise required by the federal securities laws, we disclaim any obligation or undertaking to publicly update changes to forward-looking statements, whether as a result of new information, future events, or otherwise.

EXECUTIVE OVERVIEW

~~As of September 30~~Historically, ~~2014,~~ we primarily owned premium-branded, limited-service hotels in the upscale and upper midscale segments of the lodging industry, as these segments were defined by Smith Travel Research (STR), a leading source of lodging industry data. Limited-service hotels typically generate most of their revenue from room rentals, have limited food and beverage outlets and meeting space and require fewer employees than traditional full-service hotels. We ~~believe~~believed premium-branded, limited-service hotels ~~have~~had the potential to generate attractive returns relative to other types of hotels due to their ability to achieve revenue per available room (RevPAR) levels at or close to those achieved by traditional full-service hotels while achieving higher profit margins due to their more efficient operating model and less volatile cash flows.

16On February 27, 2015, 116 hotel assets, of which 20 were owned by subsidiaries of the Company and 96 were owned by subsidiaries of Senior Mezz, were transferred to affiliates of ARC Hospitality for a combined purchase price of $1.808 billion, of which $347 million related to the Company.

In ~~July~~the ~~2012~~transaction, ~~WNT~~the ~~acquired,~~Company ~~for~~received approximately $~~175,000,000,~~22.2 anmillion ~~option~~in ~~(Purchase~~cash ~~Option)~~subject to ~~purchase~~ a ~~97%~~post-closing ~~equity~~adjustment ~~interest~~to inreflect ~~W2007~~actual ~~Equity~~proration ~~Inns~~of ~~Senior~~certain ~~Mezz,~~operating ~~LLC~~items ~~(Senior~~and ~~Mezz),~~all ~~a wholly owned subsidiary~~ of the Company,’s ~~from~~remaining ~~an affiliate of Goldman Sachs Mortgage Company (GSMC). The Purchase Option was not effective or exercisable until certain~~ notes payable ofwere ~~Senior~~repaid ~~Mezz~~at ~~and its subsidiaries had been paid in full~~closing. On ~~April~~The ~~11,~~Company’s ~~2014, Senior Mezz and its~~ subsidiaries ~~refinanced~~were ~~the~~issued GEpreferred ~~Mortgage~~equity ~~Note~~interests ~~Payable~~with ~~(see~~an ~~Note~~initial 3,capital ~~Notes~~balance Payable in the Notes to Condensed Consolidated Financial Statements (Unaudited) contained in “Item 1. Condensed Consolidated Financial Statements (Unaudited)”) and WNT exercised the Purchase Option. As a result of ~~the~~approximately ~~loss of control of Senior Mezz, effective April 11, 2014, the Company deconsolidated Senior Mezz and began recognizing its 3% interest in the entity using the equity method~~$99. ~~The~~8 ~~net~~million ~~assets transferred to WNT and the net decrease~~ in ~~equity~~a ~~are~~newly-formed ~~as follows (in thousands):~~

Investments in real estate	$	1,119,302
Restricted cash		13,919
Cash and cash equivalents		38,901
Accounts receivable, net		14,505
Other assets		6,857
Interest rate derivative instrument		293
Deferred financing costs, net		21,049
Deferred franchise fees, net		3,663
Notes payable		(976,000	)
Accounts payable and accrued liabilities		(31,591	)
Net assets transferred		210,898
Recognition of investment in Senior Mezz		(6,327	)
Net decrease in equity	$	204,571

AsDelaware oflimited ~~September~~liability 30company, ~~2014,~~ARC ~~the~~Hospitality ~~Company~~Portfolio ~~wholly~~II ~~owned~~Holdco, ~~20 hotels located in 13 states~~LLC, which ~~operated~~is ~~under~~the ~~franchise~~indirect ~~agreements~~owner ~~with Marriott and Hilton. As~~ of ~~September 30, 2014,~~ the ~~managers~~20 ofhotels ~~these~~transferred ~~hotels~~by ~~were~~the asCompany. ~~follows:~~

	Number of Hotels
Hilton Hotels Corporation		9
Gateway Lodging Co., Inc.		4
Pillar Hotels and Resorts, L.P.		3
McKibbon Hotel Group		2
Huntington Hotel Group		2
		20

Also in the transaction, Senior Mezz received approximately $106.0 million in cash subject to a post-closing adjustment to reflect actual proration of certain operating items. Senior Mezz was issued preferred equity interests with an initial capital balance of approximately $347.3 million in a newly-formed Delaware limited liability company, ARC Hospitality Portfolio I Holdco, LLC, which is the indirect owner of the 96 hotels transferred by Senior Mezz. The buyers assumed approximately $903.9 million of existing mezzanine and mortgage indebtedness of Senior Mezz which indebtedness is related to the 96 hotels transferred by Senior Mezz.

InOn ~~addition~~March 25, as2015, subsidiaries of ~~September~~Senior ~~30,~~Mezz ~~2014,~~entered into an agreement to sell its remaining 10 hotels for $100 million. The agreement was terminated by the ~~Company~~purchasers ~~owned~~on aMay 3%6, ~~interest~~2015 in accordance with their rights under the agreement (ARC Hospitality had previously elected to exclude the same hotels from its transaction). On June 5, 2015, subsidiaries of Senior Mezz entered into an amendment to the terminated contract, which ~~indirectly~~among ~~owned~~other ~~106~~things, reinstated the contract for nine of the remaining hotels, ~~located~~amended inthe 34purchase ~~states~~price to $85 million and scheduled closing for July 23, ~~which~~2015. There ~~operate~~can ~~under~~be ~~franchise~~no ~~agreements~~assurance ~~with~~as ~~Marriott~~to whether or when the transaction will close, ~~Hilton~~as to the actual proceeds that will be realized if it does close, ~~Hyatt~~or ~~and~~as ~~Intercontinental~~to what the assets might ultimately sell for in an alternate transaction if the pending transaction does not close. As Even if the transaction does close, there can be no assurance as to when a distribution from such sale proceeds will be received by the Company. While the subsidiaries of ~~September~~Senior 30Mezz expect to sell the one remaining hotel, ~~2014~~there can be no assurance as to whether or when that hotel will be sold, the ~~managers~~form of ~~these~~consideration ~~hotels~~which ~~were~~may be received in respect of that hotel or whether the consideration which may be received in respect of that hotel will be greater or less than the purchase price allocated to that hotel in the previously contemplated sale. Even if a transaction for the one remaining hotel does occur, there can be no assurance as ~~follows:~~to when a distribution from such sale proceeds will be received by the Company.

	Number of Hotels
Hilton Hotels Corporation		37
Pillar Hotels and Resorts, L.P.		21
McKibbon Hotel Group		19
Huntington Hotel Group		11
Other (represented by four different management companies)		18
		106

The diversity of our wholly owned portfolio was such that, as of September 30, 2014, no individual hotel exceeded 10% of the total rooms in the portfolio. Our brand and segment diversity of the wholly owned hotels that were included in continuing operations as of September 30, 2014 is illustrated by the following table:

Brand and Segment (as defined by STR) Diversity

	Number of Hotels		Number of Rooms
Upscale hotels:
Homewood Suites (1)		3		478
Courtyard (2)		3		414
Hilton Garden Inn (1)		2		241
SpringHill Suites (2)		1		88
Residence Inn (2)		1		78
		10		1,299
Upper midscale hotels:
Hampton Inn (1)		9		1,163
TownePlace Suites (2)		1		95
		10		1,258
Total		20		2,557

Franchise affiliation

(1) Hilton Hotels Corporation

(2) Marriott International, Inc.

The diversity of the Senior Mezz portfolio was such that, as of September 30, 2014, no individual hotel exceeded 2% of the total rooms in the portfolio. The brand and segment diversity of the Senior Mezz hotels that were included in continuing operations as of September 30, 2014 is illustrated by the following table:

Brand and Segment (as defined by STR) Diversity

	Number of Hotels		Number of Rooms
Upper upscale hotels:
Embassy Suites (1)		1		246
Upscale hotels:
Residence Inn (2)		24		2,465
Hyatt Place (3)		15		1,954
Courtyard (2)		14		1,434
Homewood Suites (1)		7		900
SpringHill Suites (2)		6		659
Hilton Garden Inn (1)		1		122
		67		7,534
Upper midscale hotels:
Hampton Inn (1)		34		4,114
Fairfield Inn (2)		2		259
Holiday Inn (4)		1		158
Holiday Inn Express (4)		1		66
		38		4,597
Total		106		12,377

Franchise affiliation

(1) Hilton Hotels Corporation

(2) Marriott International, Inc.

(3) Hyatt Corporation

(4) Intercontinental Hotels Group, PLC

Our hotel portfolio included upper upscale, upscale and upper midscale hotels. This array of product offerings coupled with a property mix that was spread between suburban and urban locations helped to insulate us from various economic climates, including a depressed business travel climate.

We believe the geographic diversity of our hotel portfolio helped to limit our exposure to any one market. The following table illustrates our geographical presence of our wholly owned hotels that were included in continuing operations by the number of rooms as of September 30, 2014:

Geographical Diversity

Region (as defined by STR):
East North Central	18.5	%
East South Central	9.0	%
Mountain	5.0	%
New England	5.8	%
Pacific	12.0	%
South Atlantic	32.9	%
West South Central	16.8	%

The following table illustrates the geographical presence of the Senior Mezz hotels that were included in continuing operations by the number of rooms as of September 30, 2014:

Geographical Diversity

Region (as defined by STR):
East North Central	13.3	%
East South Central	15.9	%
Middle Atlantic	6.7	%
Mountain	7.3	%
New England	3.5	%
Pacific	4.4	%
South Atlantic	31.7	%
West North Central	6.7	%
West South Central	10.5	%

We believe that multiple brands at the upscale and upper midscale levels helped to insulate our asset portfolio against the volatility of individual brand results relative to industry RevPAR performance. The following tables summarize key performance indicators, by hotel, of the wholly owned hotels and the Senior Mezz hotels that were included in continuing operations for the periods below:

				3 Months Ended Sep 30, 2014							3 Months Ended Sep 30, 2013
Hotel Property	Location	Rooms		Occupancy			ADR		RevPar		Occupancy			ADR		RevPar
Hampton Inn	Alcoa, TN		118		86.9	%	$	71.57	$	62.23		83.6	%	$	70.81	$	59.19
SpringHill Suites	Asheville, NC		88		81.6	%	$	131.42	$	107.21		85.4	%	$	118.54	$	101.27
Homewood Suites	Augusta, GA		65		85.8	%	$	110.77	$	95.00		84.7	%	$	104.81	$	88.83
Hampton Inn	Austin, TX		121		68.2	%	$	102.92	$	70.23		64.4	%	$	97.84	$	63.00
Courtyard	Carlsbad, CA		145		79.7	%	$	144.04	$	114.86		78.2	%	$	141.00	$	110.27
Hampton Inn	College Station, TX		133		77.4	%	$	121.21	$	93.85		74.9	%	$	115.17	$	86.21
Courtyard	Dalton, GA		93		70.2	%	$	90.60	$	63.56		67.5	%	$	92.87	$	62.65
Hampton Inn	East Lansing, MI		86		85.7	%	$	122.97	$	105.42		82.8	%	$	121.31	$	100.47
Courtyard	Houston, TX		176		60.0	%	$	129.14	$	77.48		61.6	%	$	128.02	$	78.87
Hampton Inn	Indianapolis, IN		128		80.6	%	$	98.96	$	79.79		73.8	%	$	90.57	$	66.86
Residence Inn	Jacksonville, FL		78		77.7	%	$	91.52	$	71.09		75.8	%	$	86.06	$	65.26
Hilton Garden Inn	Louisville, KY		112		81.0	%	$	118.00	$	95.56		75.5	%	$	104.67	$	79.01
Hampton Inn	Milford, CT		148		76.1	%	$	83.97	$	63.89		70.9	%	$	87.04	$	61.68
Hampton Inn	Naperville, IL		129		77.2	%	$	105.72	$	81.58		72.4	%	$	100.78	$	72.92
Hampton Inn	Orlando, FL		170		81.6	%	$	72.24	$	58.94		81.3	%	$	66.37	$	53.95
Homewood Suites	Orlando, FL		252		67.1	%	$	92.65	$	62.13		81.5	%	$	86.59	$	70.57
Hilton Garden Inn	Rio Rancho, NM		129		70.5	%	$	86.95	$	61.32		63.1	%	$	85.70	$	54.04
TownePlace Suites	Savannah, GA		95		78.5	%	$	80.44	$	63.13		76.8	%	$	76.63	$	58.83
Homewood Suites	Seattle, WA		161		96.3	%	$	208.84	$	201.02		95.4	%	$	173.08	$	165.06
Hampton Inn	Urbana, IL		130		68.0	%	$	124.77	$	84.78		70.4	%	$	131.38	$	92.49
Subtotal wholly owned hotels			2,557		76.6	%	$	111.62	$	85.51		75.9	%	$	105.22	$	79.89
Hampton Inn	Addison, TX		158		74.3	%	$	78.87	$	58.64		66.8	%	$	77.57	$	51.78
Hampton Inn	Albany, NY		153		90.5	%	$	125.10	$	113.21		85.8	%	$	115.81	$	99.34
Hyatt Place	Albuquerque, NM		126		84.9	%	$	103.82	$	88.11		81.2	%	$	102.43	$	83.22
Courtyard	Asheville, NC		78		84.9	%	$	135.48	$	115.07		81.0	%	$	127.53	$	103.27
Courtyard	Athens, GA		105		66.9	%	$	111.16	$	74.35		64.2	%	$	103.17	$	66.28
Fairfield Inn & Suites	Atlanta, GA		143		74.4	%	$	80.65	$	59.99		58.8	%	$	80.04	$	47.09
Hyatt Place	Baton Rouge, LA		126		71.8	%	$	91.66	$	65.80		69.8	%	$	91.25	$	63.74
Hampton Inn	Beckley, WV		108		86.8	%	$	121.21	$	105.19		90.1	%	$	128.52	$	115.81
Hampton Inn	Birmingham, AL		129		73.5	%	$	104.49	$	76.80		70.6	%	$	100.82	$	71.16
Hyatt Place	Birmingham, AL		126		63.0	%	$	91.58	$	57.70		72.7	%	$	83.03	$	60.33
Hyatt Place	Bloomington, MN		126		88.8	%	$	116.11	$	103.11		87.1	%	$	107.05	$	93.29
Hyatt Place	Blue Ash, OH		125		73.0	%	$	95.33	$	69.58		76.5	%	$	93.24	$	71.30
Hampton Inn	Boca Raton, FL		94		64.0	%	$	95.71	$	61.22		60.0	%	$	89.96	$	53.94
Residence Inn	Boise, ID		104		87.4	%	$	110.32	$	96.37		92.6	%	$	97.78	$	90.55
Courtyard	Bowling Green, KY		93		80.8	%	$	101.67	$	82.14		81.8	%	$	95.36	$	77.98
Hampton Inn & Suites	Boynton Beach, FL		164		79.7	%	$	92.76	$	73.94		74.1	%	$	91.74	$	67.98
Hampton Inn	Charleston, SC		124		73.6	%	$	90.32	$	66.45		78.8	%	$	83.04	$	65.43
Hampton Inn	Chattanooga, TN		167		55.0	%	$	77.36	$	42.57		54.4	%	$	74.14	$	40.35
Residence Inn	Chattanooga, TN		76		84.8	%	$	126.51	$	107.23		74.2	%	$	126.51	$	93.84
Homewood Suites	Chicago, IL		233		93.5	%	$	209.70	$	196.01		89.5	%	$	197.66	$	176.87
Hampton Inn	Colorado Springs, CO		125		82.6	%	$	98.65	$	81.53		65.7	%	$	96.01	$	63.03
Residence Inn	Colorado Springs, CO		96		86.0	%	$	110.30	$	94.81		85.1	%	$	103.83	$	88.36
Hampton Inn	Columbus, GA		118		59.5	%	$	58.70	$	34.90		61.4	%	$	63.26	$	38.82
Hyatt Place	Columbus, OH		124		71.2	%	$	110.40	$	78.65		79.9	%	$	97.97	$	78.30

				3 Months Ended Sep 30, 2014							3 Months Ended Sep 30, 2013
Hotel Property	Location	Rooms		Occupancy			ADR		RevPar		Occupancy			ADR		RevPar
Courtyard	Dallas, TX		184		64.3	%	$	107.25	$	68.93		67.4	%	$	103.12	$	69.53
Fairfield Inn & Suites	Dallas, TX		116		69.1	%	$	87.72	$	60.60		59.5	%	$	89.96	$	53.57
Hampton Inn	Deerfield Beach, FL		106		65.6	%	$	88.49	$	58.08		71.7	%	$	80.79	$	57.91
Hampton Inn	Dublin, OH		123		81.1	%	$	100.94	$	81.82		77.0	%	$	100.36	$	77.29
Residence Inn	Eagan, MN		120		89.0	%	$	109.66	$	97.59		87.7	%	$	104.50	$	91.66
Residence Inn	El Segundo, CA		150		91.6	%	$	162.66	$	149.03		91.1	%	$	151.60	$	138.04
Courtyard	Elmhurst, IL		140		77.9	%	$	95.08	$	74.09		73.5	%	$	96.23	$	70.77
Hampton Inn	Fayetteville, NC		121		77.7	%	$	73.89	$	57.42		79.9	%	$	74.91	$	59.82
Hampton Inn & Suites	Franklin, TN		127		79.6	%	$	128.45	$	102.25		74.7	%	$	117.93	$	88.04
Hyatt Place	Franklin, TN		126		79.2	%	$	112.06	$	88.71		80.7	%	$	102.51	$	82.71
Residence Inn	Ft Myers, FL		78		64.4	%	$	98.88	$	63.66		58.6	%	$	94.82	$	55.56
Courtyard	Gainesville, FL		81		58.6	%	$	118.53	$	69.48		75.8	%	$	113.50	$	86.04
Hampton Inn	Gastonia, NC		107		78.6	%	$	99.28	$	78.05		76.4	%	$	89.68	$	68.47
Homewood Suites	Germantown, TN		92		86.8	%	$	107.32	$	93.13		85.6	%	$	100.60	$	86.06
Hyatt Place	Glen Allen, VA		124		69.6	%	$	96.40	$	67.06		69.7	%	$	86.32	$	60.21
Hampton Inn	Glen Burnie, MD		116		80.8	%	$	107.98	$	87.23		80.1	%	$	98.88	$	79.18
Hampton Inn	Grand Rapids, MI		84		88.3	%	$	132.90	$	117.30		84.7	%	$	125.14	$	106.02
SpringHill Suites	Grand Rapids, MI		76		81.5	%	$	128.55	$	104.74		78.2	%	$	121.32	$	94.89
Hampton Inn	Gurnee, IL		134		86.8	%	$	100.27	$	86.98		84.9	%	$	96.64	$	82.01
SpringHill Suites	Houston, TX		122		77.3	%	$	95.67	$	73.91		75.8	%	$	89.91	$	68.16
Hyatt Place	Indianapolis, IN		124		74.7	%	$	119.84	$	89.52		73.4	%	$	109.28	$	80.17
Courtyard	Jacksonville, FL		81		80.9	%	$	90.51	$	73.26		76.8	%	$	86.33	$	66.31
Hampton Inn	Kansas City, MO		120		68.9	%	$	110.83	$	76.34		63.6	%	$	103.27	$	65.71
Courtyard	Knoxville, TN		78		70.4	%	$	113.29	$	79.76		65.8	%	$	120.18	$	79.10
Residence Inn	Knoxville, TN		78		90.0	%	$	101.03	$	90.87		82.3	%	$	102.63	$	84.51
Hyatt Place	Las Vegas, NV		202		76.8	%	$	83.30	$	63.98		77.5	%	$	81.05	$	62.82
Courtyard	Lexington, KY		90		88.3	%	$	113.73	$	100.38		84.4	%	$	108.90	$	91.91
Residence Inn	Lexington, KY		91		91.0	%	$	106.03	$	96.51		85.8	%	$	105.78	$	90.77
SpringHill Suites	Lexington, KY		108		89.0	%	$	106.94	$	95.19		82.5	%	$	99.98	$	82.49
Hyatt Place	Linthicum Heights, MD		127		80.1	%	$	106.71	$	85.51		82.0	%	$	97.22	$	79.68
Courtyard	Louisville, KY		140		81.5	%	$	146.80	$	119.66		82.2	%	$	130.34	$	107.09
Residence Inn	Macon, GA		78		66.5	%	$	94.89	$	63.12		59.2	%	$	88.43	$	52.36
Hampton Inn	Madison Heights, MI		123		88.6	%	$	100.62	$	89.15		86.4	%	$	94.05	$	81.30
Hampton Inn	Maryland Heights, MO		122		69.1	%	$	105.41	$	72.86		73.3	%	$	95.04	$	69.67
Hampton Inn	Memphis, TN		124		79.2	%	$	111.00	$	87.90		77.9	%	$	102.37	$	79.74
Hyatt Place	Memphis, TN		126		78.5	%	$	102.39	$	80.36		79.1	%	$	93.81	$	74.19
Holiday Inn Express	Miami, FL		66		79.0	%	$	105.91	$	83.62		70.8	%	$	102.65	$	72.64
Hyatt Place	Miami, FL		124		74.0	%	$	99.37	$	73.55		84.8	%	$	92.88	$	78.77
Courtyard	Mobile, AL		78		62.5	%	$	92.86	$	58.03		61.7	%	$	93.73	$	57.80
Residence Inn	Mobile, AL		66		78.4	%	$	103.73	$	81.37		83.3	%	$	107.26	$	89.35
Residence Inn	Monmouth Junction, NJ		208		73.9	%	$	107.67	$	79.62		67.5	%	$	115.97	$	78.26
Hampton Inn	Morgantown, WV		107		81.0	%	$	120.43	$	97.49		72.7	%	$	117.39	$	85.37
Holiday Inn	Mt. Pleasant, SC		158		63.5	%	$	111.38	$	70.75		63.8	%	$	97.37	$	62.15
Hampton Inn	Norfolk, VA		117		68.2	%	$	94.07	$	64.15		74.7	%	$	91.93	$	68.70
Hampton Inn	Northville , MI		124		72.0	%	$	101.43	$	73.02		69.0	%	$	98.21	$	67.80
Residence Inn	Oklahoma City, OK		136		79.4	%	$	96.25	$	76.44		79.3	%	$	96.79	$	76.76
Residence Inn	Omaha, NE		80		74.9	%	$	106.41	$	79.65		90.2	%	$	106.95	$	96.45
Courtyard	Orlando, FL		112		62.7	%	$	102.08	$	64.03		64.9	%	$	99.78	$	64.77
Embassy Suites	Orlando, FL		246		76.7	%	$	102.28	$	78.49		80.0	%	$	94.14	$	75.34

				3 Months Ended Sep 30, 2014							3 Months Ended Sep 30, 2013
Hotel Property	Location	Rooms		Occupancy			ADR		RevPar		Occupancy			ADR		RevPar
Hampton Inn	Overland Park, KS		133		74.4	%	$	104.19	$	77.49		68.7	%	$	96.55	$	66.32
Hyatt Place	Overland Park, KS		124		76.3	%	$	95.71	$	73.06		75.5	%	$	88.27	$	66.63
Hampton Inn	Palm Beach Gardens, FL		116		72.2	%	$	87.39	$	63.10		67.7	%	$	85.60	$	57.99
Homewood Suites	Peabody, MA		85		91.4	%	$	141.81	$	129.62		88.9	%	$	127.41	$	113.23
Hampton Inn	Peabody, MA		120		86.4	%	$	134.73	$	116.41		84.4	%	$	122.84	$	103.74
Homewood Suites	Phoenix , AZ		124		73.9	%	$	98.20	$	72.61		72.0	%	$	89.47	$	64.39
Hampton Inn	Pickwick Dam, TN		50		68.0	%	$	106.17	$	72.15		70.6	%	$	103.41	$	72.99
Residence Inn	Portland, OR		168		92.8	%	$	166.70	$	154.76		94.1	%	$	151.82	$	142.90
Hilton Garden Inn	Round Rock, TX		122		71.2	%	$	94.62	$	67.34		68.0	%	$	96.36	$	65.54
SpringHill Suites	Round Rock, TX		104		60.3	%	$	95.40	$	57.48		62.4	%	$	85.62	$	53.45
Homewood Suites	San Antonio, TX		123		83.3	%	$	112.66	$	93.89		87.3	%	$	107.67	$	94.04
SpringHill Suites	San Antonio, TX		112		76.3	%	$	91.16	$	69.55		68.2	%	$	86.76	$	59.14
Residence Inn	San Diego, CA		95		89.2	%	$	162.33	$	144.74		91.4	%	$	153.54	$	140.30
SpringHill Suites	San Diego, CA		137		86.8	%	$	128.33	$	111.45		84.0	%	$	125.20	$	105.12
Courtyard	Sarasota, FL		81		57.9	%	$	99.74	$	57.72		62.5	%	$	87.74	$	54.83
Residence Inn	Sarasota, FL		78		78.9	%	$	107.53	$	84.86		71.0	%	$	96.43	$	68.43
Residence Inn	Savannah, GA		66		90.8	%	$	109.64	$	99.51		87.3	%	$	107.85	$	94.14
Hampton Inn	Scranton, PA		129		84.8	%	$	114.84	$	97.43		83.8	%	$	111.99	$	93.85
Homewood Suites	Sharonville, OH		111		81.9	%	$	110.59	$	90.56		85.0	%	$	102.63	$	87.28
Residence Inn	Somers Point, NJ		119		87.9	%	$	157.40	$	138.30		81.3	%	$	148.67	$	120.85
Hampton Inn	State College, PA		119		74.1	%	$	121.96	$	90.32		70.8	%	$	120.04	$	84.95
Courtyard	Tallahassee, FL		93		70.4	%	$	110.55	$	77.78		49.9	%	$	105.39	$	52.61
Residence Inn	Tallahassee, FL		78		76.2	%	$	116.55	$	88.84		76.7	%	$	100.54	$	77.11
Hyatt Place	Tampa, FL		124		77.0	%	$	99.64	$	76.76		81.5	%	$	88.64	$	72.29
Residence Inn	Tampa, FL		78		85.0	%	$	98.17	$	83.41		78.6	%	$	96.47	$	75.81
Residence Inn	Tampa, FL		102		78.2	%	$	100.29	$	78.40		84.7	%	$	95.07	$	80.55
Residence Inn	Tinton Falls, NJ		96		96.2	%	$	116.84	$	112.38		94.0	%	$	112.60	$	105.81
Residence Inn	Tucson, AZ		128		57.8	%	$	83.26	$	48.12		53.3	%	$	89.10	$	47.47
Hampton Inn	West Columbia, SC		120		75.0	%	$	80.56	$	60.46		66.4	%	$	80.45	$	53.39
Hampton Inn	West Palm Beach, FL		110		73.7	%	$	93.27	$	68.73		69.1	%	$	91.94	$	63.57
Hampton Inn	Westlake, OH		122		88.4	%	$	111.09	$	98.21		84.5	%	$	106.29	$	89.86
Residence Inn	Williston, VT		96		94.1	%	$	126.54	$	119.02		89.6	%	$	113.25	$	101.51
Homewood Suites	Windsor Locks, CT		132		84.0	%	$	113.57	$	95.36		72.8	%	$	114.20	$	83.17
Subtotal Senior Mezz Hotels			12,377		77.7	%	$	110.10	$	85.51		76.0	%	$	104.62	$	79.53
			14,934		77.5	%	$	110.36	$	85.51		76.0	%	$	104.72	$	79.59

				9 Months Ended Sep 30, 2014							9 Months Ended Sep 30, 2013
Hotel Property	Location	Rooms		Occupancy			ADR		RevPar		Occupancy			ADR		RevPar
Hampton Inn	Alcoa, TN		118		82.0	%	$	71.56	$	58.69		81.9	%	$	71.51	$	58.57
SpringHill Suites	Asheville, NC		88		73.6	%	$	116.38	$	85.68		74.1	%	$	109.29	$	80.95
Homewood Suites	Augusta, GA		65		85.5	%	$	125.39	$	107.23		79.8	%	$	119.23	$	95.17
Hampton Inn	Austin, TX		121		73.6	%	$	109.82	$	80.86		70.0	%	$	106.14	$	74.35
Courtyard	Carlsbad, CA		145		74.8	%	$	128.56	$	96.10		70.9	%	$	123.18	$	87.30
Hampton Inn	College Station, TX		133		78.7	%	$	114.44	$	90.12		71.6	%	$	108.56	$	77.71
Courtyard	Dalton, GA		93		72.0	%	$	89.92	$	64.72		68.8	%	$	90.28	$	62.08
Hampton Inn	East Lansing, MI		86		81.1	%	$	121.21	$	98.32		79.4	%	$	119.22	$	94.64
Courtyard	Houston, TX		176		64.6	%	$	135.18	$	87.36		64.4	%	$	132.13	$	85.10
Hampton Inn	Indianapolis, IN		128		75.3	%	$	97.77	$	73.61		66.8	%	$	90.70	$	60.63
Residence Inn	Jacksonville, FL		78		83.1	%	$	94.50	$	78.51		80.0	%	$	87.03	$	69.62
Hilton Garden Inn	Louisville, KY		112		75.6	%	$	120.18	$	90.81		71.8	%	$	111.12	$	79.82
Hampton Inn	Milford, CT		148		68.3	%	$	82.68	$	56.50		67.6	%	$	84.23	$	56.93
Hampton Inn	Naperville, IL		129		67.7	%	$	102.49	$	69.40		64.6	%	$	99.26	$	64.14
Hampton Inn	Orlando, FL		170		82.3	%	$	89.37	$	73.59		79.3	%	$	82.57	$	65.44
Homewood Suites	Orlando, FL		252		79.5	%	$	106.69	$	84.86		80.6	%	$	100.41	$	80.93
Hilton Garden Inn	Rio Rancho, NM		129		67.7	%	$	85.68	$	58.03		64.4	%	$	85.00	$	54.76
TownePlace Suites	Savannah, GA		95		82.7	%	$	79.18	$	65.51		71.5	%	$	75.06	$	53.67
Homewood Suites	Seattle, WA		161		88.3	%	$	178.49	$	157.57		85.8	%	$	156.33	$	134.16
Hampton Inn	Urbana, IL		130		72.7	%	$	126.40	$	91.85		68.2	%	$	132.54	$	90.43
Subtotal wholly owned hotels			2,557		76.1	%	$	110.42	$	84.07		73.1	%	$	105.38	$	77.05
Hampton Inn	Addison, TX		158		74.4	%	$	80.65	$	60.00		69.4	%	$	80.27	$	55.72
Hampton Inn	Albany, NY		153		79.9	%	$	120.20	$	96.03		78.9	%	$	110.73	$	87.32
Hyatt Place	Albuquerque, NM		126		82.2	%	$	100.44	$	82.53		81.0	%	$	99.97	$	80.95
Courtyard	Asheville, NC		78		76.0	%	$	122.36	$	92.93		74.3	%	$	113.99	$	84.73
Courtyard	Athens, GA		105		69.1	%	$	106.50	$	73.56		63.0	%	$	99.21	$	62.51
Fairfield Inn & Suites	Atlanta, GA		143		68.9	%	$	80.79	$	55.66		58.5	%	$	79.20	$	46.32
Hyatt Place	Baton Rouge, LA		126		75.0	%	$	90.76	$	68.10		67.6	%	$	95.84	$	64.78
Hampton Inn	Beckley, WV		108		79.6	%	$	115.92	$	92.23		84.4	%	$	118.76	$	100.26
Hampton Inn	Birmingham, AL		129		71.3	%	$	105.96	$	75.58		73.1	%	$	101.50	$	74.24
Hyatt Place	Birmingham, AL		126		66.1	%	$	90.48	$	59.82		67.7	%	$	86.27	$	58.39
Hyatt Place	Bloomington, MN		126		84.6	%	$	107.99	$	91.32		80.7	%	$	100.59	$	81.18
Hyatt Place	Blue Ash, OH		125		64.3	%	$	94.47	$	60.78		66.3	%	$	91.06	$	60.38
Hampton Inn	Boca Raton, FL		94		74.1	%	$	128.70	$	95.42		74.4	%	$	116.34	$	86.55
Residence Inn	Boise, ID		104		82.5	%	$	104.03	$	85.84		85.1	%	$	94.13	$	80.09
Courtyard	Bowling Green, KY		93		76.0	%	$	98.34	$	74.75		79.1	%	$	97.84	$	77.43
Hampton Inn & Suites	Boynton Beach, FL		164		85.2	%	$	119.39	$	101.70		80.9	%	$	113.37	$	91.76
Hampton Inn	Charleston, SC		124		76.5	%	$	92.67	$	70.87		73.9	%	$	84.60	$	62.48
Hampton Inn	Chattanooga, TN		167		52.6	%	$	76.26	$	40.11		53.9	%	$	79.32	$	42.73
Residence Inn	Chattanooga, TN		76		80.9	%	$	118.97	$	96.28		75.7	%	$	125.95	$	95.38
Homewood Suites	Chicago, IL		233		84.2	%	$	185.05	$	155.75		84.0	%	$	178.81	$	150.12
Hampton Inn	Colorado Springs, CO		125		59.2	%	$	92.44	$	54.77		50.2	%	$	90.61	$	45.46

				9 Months Ended Sep 30, 2014							9 Months Ended Sep 30, 2013
Hotel Property	Location	Rooms		Occupancy			ADR		RevPar		Occupancy			ADR		RevPar
Residence Inn	Colorado Springs, CO		96		70.9	%	$	103.88	$	73.66		67.2	%	$	101.97	$	68.49
Hampton Inn	Columbus, GA		118		55.4	%	$	61.86	$	34.25		60.7	%	$	65.80	$	39.97
Hyatt Place	Columbus, OH		124		69.5	%	$	106.17	$	73.75		71.2	%	$	96.35	$	68.61
Courtyard	Dallas, TX		184		68.3	%	$	114.92	$	78.46		69.3	%	$	110.31	$	76.44
Fairfield Inn & Suites	Dallas, TX		116		70.9	%	$	96.64	$	68.48		67.9	%	$	93.96	$	63.84
Hampton Inn	Deerfield Beach, FL		106		79.7	%	$	113.42	$	90.44		79.3	%	$	103.76	$	82.26
Hampton Inn	Dublin, OH		123		75.2	%	$	101.35	$	76.27		71.7	%	$	98.29	$	70.49
Residence Inn	Eagan, MN		120		84.0	%	$	106.77	$	89.66		79.9	%	$	98.25	$	78.50
Residence Inn	El Segundo, CA		150		90.7	%	$	154.86	$	140.39		90.2	%	$	144.64	$	130.41
Courtyard	Elmhurst, IL		140		69.7	%	$	95.21	$	66.36		68.0	%	$	93.96	$	63.85
Hampton Inn	Fayetteville, NC		121		83.9	%	$	76.83	$	64.45		83.6	%	$	76.14	$	63.65
Hampton Inn & Suites	Franklin, TN		127		79.5	%	$	126.33	$	100.48		75.2	%	$	120.24	$	90.39
Hyatt Place	Franklin, TN		126		79.7	%	$	109.83	$	87.48		74.3	%	$	106.94	$	79.42
Residence Inn	Ft Myers, FL		78		74.1	%	$	119.63	$	88.65		70.0	%	$	109.87	$	76.92
Courtyard	Gainesville, FL		81		74.5	%	$	117.40	$	87.52		80.1	%	$	111.59	$	89.38
Hampton Inn	Gastonia, NC		107		76.8	%	$	98.39	$	75.55		72.6	%	$	90.87	$	66.02
Homewood Suites	Germantown, TN		92		88.2	%	$	106.62	$	94.02		79.9	%	$	101.16	$	80.83
Hyatt Place	Glen Allen, VA		124		67.6	%	$	95.06	$	64.30		66.3	%	$	89.31	$	59.22
Hampton Inn	Glen Burnie, MD		116		74.8	%	$	104.59	$	78.24		69.4	%	$	101.07	$	70.12
Hampton Inn	Grand Rapids, MI		84		82.0	%	$	128.67	$	105.54		77.2	%	$	123.07	$	95.06
SpringHill Suites	Grand Rapids, MI		76		76.6	%	$	124.22	$	95.19		75.7	%	$	116.95	$	88.48
Hampton Inn	Gurnee, IL		134		77.2	%	$	93.89	$	72.46		72.6	%	$	91.39	$	66.39
SpringHill Suites	Houston, TX		122		77.7	%	$	101.59	$	78.94		75.0	%	$	91.45	$	68.60
Hyatt Place	Indianapolis, IN		124		71.5	%	$	114.74	$	82.02		68.9	%	$	107.81	$	74.31
Courtyard	Jacksonville, FL		81		85.8	%	$	94.74	$	81.30		79.8	%	$	87.58	$	69.91
Hampton Inn	Kansas City, MO		120		66.2	%	$	110.80	$	73.34		62.8	%	$	103.94	$	65.24
Courtyard	Knoxville, TN		78		63.2	%	$	114.93	$	72.64		67.9	%	$	122.80	$	83.43
Residence Inn	Knoxville, TN		78		83.6	%	$	102.30	$	85.48		80.0	%	$	105.05	$	84.02
Hyatt Place	Las Vegas, NV		202		82.8	%	$	88.70	$	73.47		77.2	%	$	86.03	$	66.42
Courtyard	Lexington, KY		90		85.9	%	$	113.99	$	97.88		81.7	%	$	109.54	$	89.50
Residence Inn	Lexington, KY		91		84.3	%	$	105.93	$	89.35		80.6	%	$	104.54	$	84.21
SpringHill Suites	Lexington, KY		108		83.9	%	$	108.01	$	90.62		78.9	%	$	99.41	$	78.47
Hyatt Place	Linthicum Heights, MD		127		80.5	%	$	100.73	$	81.08		80.3	%	$	96.64	$	77.61
Courtyard	Louisville, KY		140		79.9	%	$	149.88	$	119.74		76.8	%	$	135.85	$	104.39
Residence Inn	Macon, GA		78		69.9	%	$	92.12	$	64.39		67.6	%	$	90.69	$	61.31
Hampton Inn	Madison Heights, MI		123		81.2	%	$	100.00	$	81.20		80.0	%	$	93.93	$	75.18
Hampton Inn	Maryland Heights, MO		122		65.3	%	$	105.23	$	68.72		64.5	%	$	95.43	$	61.53
Hampton Inn	Memphis, TN		124		78.7	%	$	110.74	$	87.19		77.8	%	$	101.57	$	79.02
Hyatt Place	Memphis, TN		126		77.6	%	$	98.98	$	76.78		71.6	%	$	96.58	$	69.19
Holiday Inn Express	Miami, FL		66		82.9	%	$	122.05	$	101.14		79.6	%	$	117.08	$	93.16
Hyatt Place	Miami, FL		124		81.7	%	$	118.24	$	96.63		86.1	%	$	110.19	$	94.92
Courtyard	Mobile, AL		78		64.1	%	$	95.95	$	61.52		68.6	%	$	96.69	$	66.29
Residence Inn	Mobile, AL		66		83.6	%	$	103.91	$	86.91		79.9	%	$	109.01	$	87.09
Residence Inn	Monmouth Junction, NJ		208		64.6	%	$	111.22	$	71.81		60.0	%	$	115.04	$	69.04
Hampton Inn	Morgantown, WV		107		77.4	%	$	119.06	$	92.12		71.9	%	$	113.27	$	81.48

				9 Months Ended Sep 30, 2014							9 Months Ended Sep 30, 2013
Hotel Property	Location	Rooms		Occupancy			ADR		RevPar		Occupancy			ADR		RevPar
Holiday Inn	Mt. Pleasant, SC		158		54.8	%	$	110.39	$	60.44		66.2	%	$	100.07	$	66.29
Hampton Inn	Norfolk, VA		117		63.9	%	$	92.28	$	58.99		66.3	%	$	88.06	$	58.36
Hampton Inn	Northville , MI		124		63.7	%	$	102.64	$	65.40		64.2	%	$	96.71	$	62.09
Residence Inn	Oklahoma City, OK		136		82.8	%	$	94.52	$	78.28		79.7	%	$	94.76	$	75.55
Residence Inn	Omaha, NE		80		74.1	%	$	111.62	$	82.67		81.9	%	$	109.36	$	89.61
Courtyard	Orlando, FL		112		71.0	%	$	105.05	$	74.56		70.6	%	$	101.36	$	71.61
Embassy Suites	Orlando, FL		246		81.0	%	$	118.28	$	95.80		80.6	%	$	109.90	$	88.61
Hampton Inn	Overland Park, KS		133		72.7	%	$	100.98	$	73.41		58.9	%	$	97.30	$	57.31
Hyatt Place	Overland Park, KS		124		69.5	%	$	96.35	$	66.98		67.0	%	$	91.08	$	61.03
Hampton Inn	Palm Beach Gardens, FL		116		80.5	%	$	126.31	$	101.73		80.6	%	$	113.08	$	91.19
Homewood Suites	Peabody, MA		85		76.9	%	$	128.35	$	98.73		77.7	%	$	120.06	$	93.29
Hampton Inn	Peabody, MA		120		70.9	%	$	122.48	$	86.86		68.7	%	$	112.46	$	77.26
Homewood Suites	Phoenix , AZ		124		79.4	%	$	123.14	$	97.72		77.5	%	$	113.17	$	87.70
Hampton Inn	Pickwick Dam, TN		50		62.5	%	$	106.66	$	66.68		67.4	%	$	100.12	$	67.53
Residence Inn	Portland, OR		168		87.5	%	$	146.14	$	127.88		88.5	%	$	138.02	$	122.09
Hilton Garden Inn	Round Rock, TX		122		73.1	%	$	103.09	$	75.40		72.9	%	$	99.04	$	72.22
SpringHill Suites	Round Rock, TX		104		66.7	%	$	99.75	$	66.57		66.8	%	$	90.21	$	60.23
Homewood Suites	San Antonio, TX		123		82.0	%	$	112.57	$	92.34		83.4	%	$	108.18	$	90.24
SpringHill Suites	San Antonio, TX		112		70.8	%	$	89.40	$	63.27		67.1	%	$	86.10	$	57.75
Residence Inn	San Diego, CA		95		87.6	%	$	153.56	$	134.59		87.8	%	$	146.64	$	128.81
SpringHill Suites	San Diego, CA		137		81.9	%	$	120.72	$	98.83		76.6	%	$	119.95	$	91.92
Courtyard	Sarasota, FL		81		73.6	%	$	113.10	$	83.29		71.0	%	$	104.42	$	74.14
Residence Inn	Sarasota, FL		78		87.0	%	$	118.64	$	103.16		80.2	%	$	109.36	$	87.70
Residence Inn	Savannah, GA		66		87.3	%	$	109.81	$	95.86		87.0	%	$	108.17	$	94.13
Hampton Inn	Scranton, PA		129		70.4	%	$	113.02	$	79.52		74.5	%	$	109.75	$	81.71
Homewood Suites	Sharonville, OH		111		72.3	%	$	108.42	$	78.42		73.4	%	$	102.31	$	75.09
Residence Inn	Somers Point, NJ		119		65.0	%	$	131.57	$	85.47		76.5	%	$	121.33	$	92.85
Hampton Inn	State College, PA		119		69.2	%	$	110.59	$	76.54		63.2	%	$	109.26	$	69.02
Courtyard	Tallahassee, FL		93		73.3	%	$	112.37	$	82.38		64.7	%	$	108.66	$	70.32
Residence Inn	Tallahassee, FL		78		78.4	%	$	115.71	$	90.70		77.6	%	$	102.88	$	79.79
Hyatt Place	Tampa, FL		124		85.4	%	$	113.69	$	97.11		87.2	%	$	100.46	$	87.59
Residence Inn	Tampa, FL		78		88.0	%	$	102.42	$	90.14		84.7	%	$	97.97	$	82.95
Residence Inn	Tampa, FL		102		80.6	%	$	107.14	$	86.37		80.4	%	$	99.93	$	80.31
Residence Inn	Tinton Falls, NJ		96		92.1	%	$	109.79	$	101.12		95.7	%	$	109.48	$	104.82
Residence Inn	Tucson, AZ		128		57.9	%	$	98.63	$	57.09		60.3	%	$	102.11	$	61.59
Hampton Inn	West Columbia, SC		120		70.7	%	$	82.63	$	58.44		66.0	%	$	83.47	$	55.09
Hampton Inn	West Palm Beach, FL		110		78.7	%	$	122.37	$	96.30		79.3	%	$	112.66	$	89.38
Hampton Inn	Westlake, OH		122		76.1	%	$	108.67	$	82.66		73.9	%	$	104.31	$	77.08
Residence Inn	Williston, VT		96		76.3	%	$	118.91	$	90.76		83.9	%	$	105.85	$	88.78
Homewood Suites	Windsor Locks, CT		132		77.2	%	$	114.02	$	88.06		71.4	%	$	114.54	$	81.81
Subtotal Senior Mezz Hotels			12,377		75.4	%	$	110.25	$	83.15		73.9	%	$	105.41	$	77.90
			14,934		75.5	%	$	110.28	$	83.31		73.8	%	$	105.40	$	77.76

The U.S. lodging industry continued to exhibit positive fundamentals during the first nine months of 2014. While there continued to be concerns about a slow-moving national economy and the potential adverse effect from government sequestration, corporate profits and employment continued to improve in the United States.

The strength in corporate transient, group and leisure travel, specifically in the major urban markets, continued to drive increases in occupancy and average daily rates. New hotel supply remained at historically low levels and was expected to remain low given the lack of available financing for new hotel construction. We continued to believe that we would see a long and healthy recovery in the lodging industry and believe our properties have significant opportunities to achieve significant growth in their operating cash flows and long-term economic values.

RESULTS OF OPERATIONS

The following tables summarize the change in key line items from the Company’s unaudited condensed consolidated statements of operations and comprehensive loss (in thousands):

	Three Months ended September 30,									Nine Months ended September 30,
	Three Months Ended March 31,
	2014			2013			Change			2014			2013			Change
	2015			2014			Change
Total hotel revenues	$	20,763		$	112,944		$	(92,281	)	$	161,425		$	328,045		$	(166,620	)
	(unaudited)
Direct hotel expenses		11,613			66,662			55,049			92,903			191,733			98,830
Total hotel revenues	$	11,747		$	107,429		$	(95,682	)
Property tax, ground lease, insurance and property management fees		1,405			7,939			6,534			11,691			23,584			11,893
Direct hotel expenses		7,449			63,550			56,101
Corporate overhead		1,182			1,623			441			3,918			4,618			700
Property tax, ground lease, insurance and property management fees		979			8,115			7,136
Asset management fees		353			1,761			1,408			2,733			5,264			2,531
Corporate overhead		691			1,278			587
Depreciation and amortization		3,525			20,885			17,360			29,936			62,327			32,391
Asset management fees		287			1,910			1,623
Impairment charges		—			3,297			3,297			7,582			5,054			(2,528	)
Depreciation and amortization		4,126			20,926			16,800
Operating income (loss)		2(1,~~685~~785	)		1011,~~777~~650			(813,~~092~~435	)		~~12,662~~			~~35,465~~			~~(22,803~~	)
Equity in loss from Senior Mezz		79(1,376	)		—			79(1,376	)		~~(1,163~~	)		—			~~(1,163~~	)
Interest income		1812			2423			(611	)		58			64			(6	)
Interest expense		(21,~~971~~888	)		(2119,~~010~~705	)		1817,~~039~~817			~~(28,348~~	)		~~(62,699~~	)		~~34,351~~
Other income		85—			~~140~~9			(559	)		~~100~~			~~216~~			~~(116~~	)
Contingent loss on litigation settlement		—			—			—			(24,250	)		—			(24,250	)
Transaction expenses		(9,038	)		—			(9,038	)
Net loss on extinguishment of debt		—			—			—			13,199			—			13,199
Loss on extinguishment of debt		(13,307	)		—			(13,307	)
Loss from continuing operations		(104	)		(10,069	)		9,965			(27,742	)		(26,954	)		(788	)
Net loss		(27,382	)		(8,023	)		(19,359	)
Income (loss) from discontinued operations		—			582			(582	)		—			490			(490	)
Net loss attributable to non-controlling interest		26,583			7,804			18,779
Net loss		(104	)		(9,487	)		(9,383	)		(27,742	)		(26,464	)		(1,278	)
Net loss attributable to the Company	$	(799	)	$	(219	)	$	(580	)
Net loss attributable to non-controlling interest		(670	)		9,167			9,837			2,347			25,554			(23,207	)
Net loss attributable to the Company	$	(774	)	$	(320	)	$	(454	)	$	(25,395	)	$	(910	)	$	(24,485	)

Comparison of the three ~~and nine~~ months ended ~~September 30~~March 31, ~~2014~~2015 and ~~2013~~2014

Total hotel revenues, direct hotel expenses and property tax, ground lease, insurance and property management fees

~~Rooms~~Total ~~revenue~~hotel ~~for~~revenues, ~~the~~direct ~~three~~hotel ~~months~~expenses ~~ended~~and ~~September~~property 30tax, ~~2014~~ground ~~decreased $89.2 million~~lease, orinsurance ~~81.6%,~~and toproperty ~~$20.1~~management ~~million~~fees ~~from $109.3 million~~ for the three months ended ~~September 30~~March 31, ~~2013. The~~2015 ~~decrease~~were insignificantly ~~rooms~~lower ~~revenue~~than ~~was~~the ~~principally~~three months ended March 31, 2104 due to the deconsolidation of the 106 Senior Mezz hotels~~. Both~~ ~~food~~on ~~and~~April ~~beverage and other revenue~~11, ~~which~~2014 ~~consisted mainly of guest telephone charges, equipment rentals, vending income, in-room movie sales, parking~~ and ~~business~~the ~~centers,~~transfer ~~experienced~~of ~~decreases consistent with~~ the ~~decrease~~Company’s in20 ~~room~~hotels ~~revenues~~ on aFebruary ~~percentage~~27, ~~basis~~2015.

Rooms revenue for the nine months ended September 30, 2014 decreased $161.3 million, or 50.9%, to $155.7 million from $317.0 million for the nine months ended September 30, 2013. The decrease in rooms revenue was principally due to the deconsolidation of the 106 Senior Mezz hotels on April 11, 2014. Both food and beverage and other revenue, which consists mainly of guest telephone charges, equipment rentals, vending income, in-room movie sales, parking and business centers, experienced decreases consistent with the decrease in room revenues on a percentage basis.13

Direct hotel expenses

Direct hotel expenses consisted of direct expenses from departments associated with related revenue streams (departmental expenses) and non-departmental expenses associated with operating the hotels. We experienced decreases of $25.9 million in departmental expenses and $29.2 million in non-departmental expenses during the three months ended September 30, 2014. The decrease in these expenses was consistent with the decrease in hotel revenues over the same period. Direct hotel expenses were 55.9% and 59.0% of total hotel revenues for three months ended September 30, 2014 and 2013, respectively, and this change was due primarily to the change in the mix of hotel brands that remain after the deconsolidation of the Senior Mezz hotels.

We experienced decreases of $46.8 million in departmental expenses and $52.0 million in non-departmental expenses during the nine months ended September 30, 2014. The decrease in these expenses was consistent with the decrease in hotel revenues over the same period. Direct hotel expenses were 57.6% and 58.4% of total hotel revenues for nine months ended September 30, 2014 and 2013, respectively, and this change was due primarily to the change in the mix of hotel brands that remain after the deconsolidation of the Senior Mezz hotels.

Property tax, ground lease, insurance and property management fees

Property tax, ground lease, insurance and property management fees decreased $6.5 million for the three months ended September 30, 2014 to $1.4 million, primarily related to the deconsolidation of the 106 Senior Mezz hotels partially offset by increased real estate taxes and to a lesser extent higher base management fees and insurance.

Property tax, ground lease, insurance and property management fees decreased $11.9 million for the nine months ended September 30, 2014 to $11.7 million, primarily related to the deconsolidation of the 106 Senior Mezz hotels on April 11, 2014, partially offset by increased real estate taxes and to a lesser extent higher base management fees and insurance.

Corporate overhead

Corporate overhead expenses decreased $0.46 million to $10.27 million for the three months ended ~~September 30~~March 31, ~~2014~~2015 compared to $1.63 million for the three months ended ~~September 30~~March 31, ~~2013~~2014. This decrease was primarily attributable to the decrease in corporate overhead related to the deconsolidation of the Senior Mezz hotels on April 11, 2014.

Corporate overhead expenses decreased $0.7 million to $3.9 million for the nine months ended September 30, 2014 compared to $4.6 million for the nine months ended September 30, 2013. This decrease was primarily attributable to the decrease in corporate overhead related to the deconsolidation of the Senior Mezz hotels on April 11, 2014.

Asset management fees

Asset management fees decreased $1.46 million to $0.43 million for the three months ended ~~September 30~~March 31, ~~2014~~2015 compared to $1.89 million for the three months ended ~~September 30~~March 31, ~~2013~~2014. This decrease was primarily due to the deconsolidation of the 106 Senior Mezz hotels on April 11, 2014 and the resultant decrease in asset management fees related to our hotels.

Asset management fees decreased $2.5 million to $2.7 million for the nine months ended September 30, 2014 compared to $5.3 million for the nine months ended September 30, 2013. This decrease was due to the deconsolidation of the 106 Senior Mezz hotels on April 11, 2014 and the resultant decrease in asset management fees related to our hotels.

Depreciation and amortization

Depreciation and amortization decreased $1716.48 million to $34.51 million for the three months ended ~~September 30~~March 31, ~~2014~~2015 compared to $20.9 million for the three months ended ~~September 30~~March 31, ~~2013~~2014. This decrease was primarily due to the deconsolidation of the 106 Senior Mezz hotels on April 11, 2014 and the resultant decrease in depreciation on our hotels.

~~Depreciation~~Equity ~~and~~in ~~amortization~~loss ~~decreased~~from $32.4 million to $29.9 million for the nine months ended September 30, 2014 compared to $62.3 million for the nine months ended September 30, 2013. This decrease was due to the deconsolidation of the 106 Senior Mezz ~~hotels on April 11, 2014 and the resultant decrease in depreciation on our hotels.~~

~~Equity~~For inthe ~~income~~three (months ended March 31, 2015, the equity in loss) from Senior Mezz was $1.4 million which related to our 3% equity interest in Senior Mezz.

For the three months ended September 30, 2014, the equity in income from Senior Mezz was $0.1 million and for the nine months ended September 30, 2014, the equity in loss from Senior Mezz was $1.2 million and related to our 3% equity interest in Senior Mezz.

Interest expense

Interest expense decreased $1817.08 million to $31.09 million for the three months ended ~~September 30~~March 31, ~~2014~~2015 compared to $2119.07 million for the three months ended ~~September 30~~March 31, ~~2013~~2014. The decrease was primarily due to the payoff of the GE Mortgage, a mortgage held by Senior Mezz prior to the exercise of the Purchase Option and refinancing, on April 11, 2014, ~~and~~ normal principal amortization on our other mortgages and the payoff of all of the Company’s notes payable on February 27, 2015.

~~Interest~~Transaction ~~expense~~expenses decreased $34.4 million to $28.3 million for the nine months ended September 30, 2014 compared to $62.7 million for the nine months ended September 30, 2013. The decrease was primarily due to the payoff of the GE Mortgage on April 11, 2014 and normal principal amortization on our other mortgages.

~~Contingent~~Transaction ~~loss~~expenses were $9.0 million for the three months ended March 31, 2015 and were related to the transfer of the Company’s hotels on ~~litigation~~February ~~settlement~~27, 2015.

AsLoss ~~discussed~~on ~~more~~extinguishment fully in Note 8, Commitments and Contingencies, in the Notes to Condensed Consolidated Financial Statements (Unaudited) contained in “Item 1. Condensed Consolidated Financial Statements (Unaudited),” in August 2014, the Company and certain other defendants entered into a non-binding memorandum of ~~understanding~~debt with respect to a settlement of the claims raised in the Johnson Lawsuit. The agreement generally provides for the following: (1) the effectuation of a merger that will result in exchange of $26.00 in cash for each share of Series B and C preferred stock outstanding; (2) the establishment of a $6 million fund to be distributed pursuant to a plan of allocation to sellers of the Series B and C preferred stock; and (3) the payment of reasonable counsel fees, as awarded by the Court. Therefore during the nine months ended September 30, 2014, the Company accrued $24.25 million related to the agreement which is included in contingent loss on litigation settlement. The Company anticipates funding the settlement with cash on hand or, if necessary, funding from Whitehall. Ongoing defense costs will be expensed as incurred and could be significant.

~~Gain~~For the three months ended March 31, 2015, loss on extinguishment of debt was $13.3 million and consists of defeasance premiums and other costs incurred in connection with the payoff of the Company’s notes payable on February 27, 2015.

The Company recognized interest on the GE Mortgage under the effective interest method. In conjunction with the repayment of the GE Mortgage on April 11, 2014, the Company wrote-off the interest accrued under the effective interest method, but which was not due or payable to the lender. This write-off resulted in a gain of $13,199,329 during the nine months ended September 30, 2014 which is included in gain on extinguishment of debt.

Loss from discontinued operations

For the three and nine months ended September 30, 2013, income from discontinued operations was $0.6 million and $0.5 million, respectively. The income from discontinued operations related primarily to the operating income on the hotels included in discontinued operations offset by the loss on the sale of the hotels.

Net loss

As a result of the foregoing, we recorded a net loss of $027.14 million for the three months ended ~~September 30~~March 31, ~~2014~~2015 compared to a net loss of $98.50 million for the three months ended ~~September 30~~March 31, ~~2013. Also as a result of the foregoing, we recorded a net loss of $27.7 million for the nine months ended September 30,~~ 2014 ~~compared to a net loss of $26~~.5 ~~million for the nine months ended September 30, 2013.~~

Net loss attributable to non-controlling interest

Non-controlling interest represents the interest not owned by us in our subsidiary and, indirectly, our hotels. ~~The~~Consistent with the increase in net ~~gain~~loss, the net loss attributable to non-controlling interest ~~was~~increased to $026.76 million for the three months ended ~~September 30~~March 31, ~~2014~~2015 ~~compared~~from ~~to a net loss of~~ $97.28 million for the three months ended ~~September 30~~March 31, ~~2013~~2014. ~~This~~ ~~change was primarily due to expenses incurred in connection with the litigation that were solely attributable to the Company.~~

The net loss attributable to non-controlling interest decreased to $2.3 million for the nine months ended September 30, 2014 from a $25.6 million for the nine months ended September 30, 2013. This change was primarily due to the contingent loss on litigation settlement that was solely attributable to the Company.

Net loss attributable to the Company

Net loss ~~available~~attributable to the Company represents the net loss not attributable to non-controlling interests. The net loss attributable to the Company increased to $0.8 million for the three months ended ~~September 30~~March 31, ~~2014~~2015 from $0.32 million for the three months ended ~~September 30~~March 31, ~~2013. The net loss attributable to the Company increased to $25.4 million for the nine months ended September 30,~~ 2014 ~~from $0~~.9 ~~million for the nine months ended September 30, 2013.~~

2814

LIQUIDITY AND CAPITAL RESOURCES

As of ~~September~~March 3031, ~~2014~~2015, the Company’s principal source of cash to meet its operating requirements ~~was~~is ~~from~~ the ~~results~~return ofit ~~operations~~earns ~~from~~on the ~~Company’s~~Preferred ~~hotels~~Equity Interests. As of ~~September~~March 3031, ~~2014~~2015, the Company ~~expected~~believes that its operating cash flows ~~would~~will be sufficient to fund the continuing operations of the Company, ~~including~~which ~~required~~now ~~debt~~primarily ~~service~~consist ~~obligations~~of ~~and~~corporate ~~other~~overhead ~~reserves~~and ~~required~~asset bymanagement ~~the terms of its existing debt agreements~~fees. If necessary, the Company ~~expected~~expects to fund any short term liquidity requirements above the operating cash flows with cash and cash equivalents currently on hand ~~as well as cash flows restricted for use under the Company’s notes payable~~.

As ~~discussed~~of ~~previously,~~March ~~during the nine months ended September 30~~31, ~~2014~~2015, the Company ~~accrued~~has a liability of $24.25 million related to athe memorandum of understanding and settlement stipulation related to athe ~~legal~~Johnson ~~settlement~~Lawsuit which is included in accounts payable and accrued liabilities in the accompanying condensed consolidated balance sheets. The Company anticipates funding the settlement with cash on hand or, if necessary, funding from Whitehall.

Periodically, certain hotels may undergo renovations as a result of our decision to upgrade portions of the hotels, such as guestrooms, meeting space and restaurants, in order to better compete with other hotels in our markets or to meet the franchisor’s brand standards. Generally we expected to fund the renovations and improvements with cash and cash equivalents currently on hand as well as cash flows restricted for use under the Company’s notes payable.

Operating activities

Net cash flows from operating activities were $20(14.05) million and $6022.93 million for the ~~nine~~three months ended ~~September 30~~March 31, ~~2014~~2015 and ~~2013~~2014, respectively. The decrease in cash flows from operating activities was primarily due to the deconsolidation of the 106 Senior Mezz hotels on April 11, 2014 and the ~~payment~~transfer of ~~accrued~~the ~~interest~~Company’s 20 hotels on ~~notes~~February 27, 2015. Also contributing to the decrease was the reduction in accounts payable and accrued liabilities and accrued interest payable.

Investment activities

Net cash ~~flow~~flows ~~provided~~from by investing activities ~~was~~were $230.1 million for the ~~nine~~three months ended ~~September 30~~March 31, ~~2014~~2015, which consisted of $81.47 million ofreduction ~~capital~~in ~~additions~~restricted tocash ~~hotels,~~partially offset by $1.46 million of ~~proceeds~~capital ~~from~~additions ~~insurance~~to ~~and a decrease in restricted cash of $30~~hotels.~~1 million.~~

Net cash ~~flow~~ used in investing activities was $2212.6 7 million for the ~~nine~~three months ended ~~September~~March 3031, ~~2013,~~2014 which ~~primarily~~ consisted of $~~19.~~5.1 million of capital additions to hotels and aan ~~decrease~~$8.9 million increase in restricted cash ~~of $7.5 million~~ partially offset by ~~proceeds from the sale of hotels (~~$31.63 million) ~~and~~of proceeds from property casualty insurance ~~($2~~.0 ~~million).~~

Financing activities

Net cash flow ~~used~~from in financing activities was $4230.78 million ~~and $31.2 million~~ for the ~~nine~~three months ended ~~September 30~~March 31, ~~2014~~2015 ~~and~~which ~~2013,~~consisted ~~respectively. During~~of ~~2014, the net cash flow used related to~~ $~~958~~247.50 million in ~~principal~~cash ~~payments~~received onfrom the ~~Company’s~~transaction ~~notes~~with ~~payable,~~ARC Hospitality partially offset by $~~976~~204.06 million in ~~proceeds~~principal ~~from~~payments on the Company’s notes payable, ~~$21.0 million of payment of deferred financing costs~~ and $3811.96 million ~~of cash transferred~~ in ~~connection~~defeasance ~~with the exercise of the Purchase Option~~costs.

Net cash flow used in financing activities was $1.1 million for the three months ended March 31, 2014 which consisted of principal payments on the Company’s notes payable.

CONTRACTUAL OBLIGATIONS AND OFF BALANCE SHEET ARRANGEMENTS

As of ~~September~~March ~~30, 2014, there had been no material changes since December~~ 31, ~~2013~~2015, ~~outside~~all of the ~~ordinary course of business, to contractual obligations specified in the table of contractual obligations included in the section “Management~~Company’s ~~Discussion~~debt ~~and~~has ~~Analysis~~been ofrepaid ~~Financial Condition~~ and ~~Results~~there ofare ~~Operations”~~no ~~included~~material inoutstanding ~~our~~contractual ~~Annual Report on Form 10-K for the year ended December 31, 2014~~obligations. As of ~~September~~March 3031, ~~2014~~2015, we had no off-balance-sheet arrangements with any party nor ~~did~~do we anticipate any such arrangements.

INFLATION

Operators of hotels in general possess the ability to adjust room rates daily to reflect the effects of inflation. However, competitive pressures may limit the ability of the companies that managed our hotels to raise room rates. As of March 31, 2015, the Company does not own any hotels.

SEASONALITY

Some of the Company’s hotel operations have historically been seasonal. Generally, hotel revenues ~~have~~were ~~been~~ greater in the second and third calendar quarters than in the first and fourth calendar quarters. This seasonality pattern ~~causes~~caused fluctuations in the operating results. As of ~~September~~March 3031, ~~2014~~2015, to the ~~extent~~Company ~~that~~does ~~cash~~not ~~flows~~own ~~from~~any our hotel operations were insufficient to fund our operating or investing requirements, we expected to fund seasonal-related shortfalls with cash flows restricted for use under the Company’s notes payablehotels.

CRITICAL ACCOUNTING POLICIES

Our consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States. This requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities as of the date of our financial statements and the reported amounts of revenues and expenses during the reporting period. While we do not believe the reported amounts would be materially different, application of these policies involves the exercise of judgment and the use of assumptions as to future uncertainties and, as a result, actual results could differ from these estimates. We evaluate our estimates and judgments on an ongoing basis. We base our estimates on experience and on various other assumptions that are believed to be reasonable under the circumstances. All of our significant accounting policies, including certain critical accounting policies, are disclosed in our Annual Report on Form 10-K for the year ended December 31, 2014.

~~NON-GAAP FINANCIAL MEASURES~~15

~~The~~expenses ~~following~~during ~~non-GAAP~~the ~~presentations~~reporting period. While we do not believe the reported amounts would be materially different, application of ~~EBITDA~~these policies involves the exercise of judgment and ~~Adjusted~~the ~~EBITDA~~use ~~are~~of ~~made~~assumptions as to ~~help~~future inuncertainties ~~evaluating~~and, ~~the~~as ~~Company’s~~a ~~operating~~result, ~~performance~~actual results could differ from these estimates. ~~These~~ ~~measures~~We ~~are~~evaluate ~~indicative~~our ofestimates ~~the~~and ~~Company’s~~judgments ~~financial~~on ~~performance~~an ongoing basis. We base our estimates on experience and on various other assumptions that are ~~not~~believed ~~calculated~~to ~~and~~be ~~presented~~reasonable under the circumstances. All of our significant accounting policies, including certain critical accounting policies, are disclosed in ~~accordance~~our ~~with~~Annual ~~GAAP~~Report on Form 10-K for the year ended December 31, 2014.

EBITDA is defined as net income (loss) before interest expense and interest income, income taxes, and depreciation and amortization. The Company adjusts EBITDA to exclude impairment charges, gains or losses on sales of investments in real estate and gains or losses on extinguishment of debt because the Company believes these charges are not indicative of the performance of the underlying investments in real estate. The Company presents EBITDA and Adjusted EBITDA because it believes it provides an indicator of the Company’s ability to meet its future debt payments and working capital requirements, as well as an overall evaluation of the Company’s financial condition. EBITDA and Adjusted EBITDA, as calculated by the Company, may not be comparable to EBITDA and Adjusted EBITDA reported by other companies that do not define such terms exactly as the Company defines them. EBITDA and Adjusted EBITDA should not be considered as an alternative measure of the Company’s net loss as an indicator of operating performance or GAAP cash flows from operating activities as a measure of liquidity.

The following tables reconcile net loss to EBITDA and Adjusted EBITDA (in thousands):

	Three Months Ended September 30,						Nine Months Ended September 30,
	2014			2013			2014			2013
Net loss	$	(104	)	$	(9,487	)	$	(27,742	)	$	(26,464	)
Interest income		(18	)		(24	)		(58	)		(64	)
Interest expense		2,971			21,010			28,348			62,699
Interest expense, discontinued operations		—			289			—			1,083
Depreciation and amortization		3,525			20,885			29,936			62,327
Depreciation and amortization, discontinued operations		—			895			—			2,905
EBITDA		6,374			33,568			30,484			102,486
Equity in loss from Senior Mezz		(79	)		—			(1,163	)		—
Contingent loss on litigation settlement		—			—			24,250			—
Gain on extinguishment of debt		—			—			(13,199	)		—
Impairment charges		—			3,297			7,582			5,054
Loss on sale of real estate, discontinued operations		—			32			—			226
Adjusted EBITDA	$	6,295		$	36,897		$	47,954		$	107,766

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

Market risk includes risks that arise from changes in interest rates, equity prices and other market changes that affect market sensitive instruments. As ~~of September 30, 2014, our primary market risk exposure was to changes in interest rates on our variable rate debt.~~ As of ~~September~~March 3031, ~~2014~~2015, we had ~~approximately~~no ~~$50.0~~significant ~~million of total variable rate debt~~ outstanding ~~(or 24.3% of total indebtedness). If~~ market ~~rates~~risk ~~of interest on our variable rate debt outstanding as of September 30, 2014 had increased by 1~~exposure.~~00%,~~ ~~or 100 basis points, interest expense would decrease future earnings and cash flows by approximately $0.5 million annually.~~

~~As of September 30~~Historically, ~~2014,~~ our interest rate risk objectives were to limit the impact of interest rate fluctuations on earnings and cash flows and to lower our overall borrowing costs. To achieve these objectives, we managed our exposure to fluctuations in market interest rates through the use of fixed rate debt instruments to the extent that reasonably favorable rates ~~are~~were obtainable. We entered into interest rate caps to mitigate our interest rate risk on a portion of our variable rate debt. We did not enter into derivative or interest rate transactions for speculative purposes.

ITEM 4.

CONTROLS AND PROCEDURES

The Company carried out an evaluation with the participation of the Company’s management, including its Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) and 15(d)-15(e) under the Exchange Act) as of the end of the period covered by this report. Based upon that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that, as of the end of the period covered by this report, these disclosure controls and procedures ~~were~~are ~~not~~ effective ~~because~~to ~~the~~ensure ~~Company~~that ~~did~~information ~~not~~required ~~file~~to ~~its~~be ~~periodic~~disclosed ~~reports within the time periods specified~~ in the ~~SEC~~reports ~~rules and forms as a result of the SEC’s determination~~ that ~~the~~we ~~Company’s~~file ~~reporting~~or ~~obligation~~submit under ~~Section 15(d) of~~ the Exchange Act ~~resumed~~is ~~January~~accumulated 1,and ~~2014. The~~communicated ~~Company~~to ismanagement, inincluding ~~the~~our ~~process~~Chief ofExecutive ~~preparing~~Officer and ~~filing~~Chief ~~its~~Financial ~~past~~Officer, ~~due periodic reports and intends~~ to ~~become~~allow ~~current~~timely asdecisions ~~soon~~regarding asrequired ~~practicable~~disclosures.

There has been no change in the Company’s internal control over financial reporting (as defined in Rule 13a-15(e) and 15(d)-15(e) of the Exchange Act) during the three months ended ~~September 30~~March 31, ~~2014~~2015 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II – OTHER INFORMATION

ITEM 1.

LEGAL PROCEEDINGS

The Company is involved in various legal proceedings and disputes arising in the ordinary course of business. The Company does not believe that the disposition of such legal proceedings and disputes will have a material adverse effect on our business, the financial position, continuing operations or cash flows, except as described below.

In September 2013, a putative class action lawsuit (the Johnson Lawsuit) was filed in the Tennessee Chancery Court, Shelby County, Tennessee by several current and former holders of ~~the~~our preferred stock. Plaintiffs allege that, since October 2007, the defendants named in the complaint have engaged in a scheme to oppress and then squeeze-out the holders of ~~the~~our preferred stock, including by allegedly suppressing the marketability of the shares, causing the Company to cease paying dividends, and purchasing 58.8% of the shares in a series of alleged “creeping” tender offers beginning in 2012. The complaint names as defendants the Company, the members of our board of directors, the majority shareholders of the Company (Grace I, Whitehall and PFD Holdings), the GS Group and Goldman Sachs Realty Management L.P. ~~(RMD).~~ The complaint asserts claims for breach of contract, breach of fiduciary duty, aiding and abetting, and for violations of the Tennessee Blue Sky laws and the Tennessee Business Corporations Act. On October 4, 2013, defendants removed the action to the United States District Court for the Western District of Tennessee. On November 6, 2013, plaintiffs filed a motion to remand the case to state court. The defendants filed their opposition on December 6, 2013. The remand motion was fully briefed on December 20, 2013. On July 28, 2014, the court denied the remand motion. The defendants also moved to dismiss the Johnson Lawsuit on January 23, 2014. The court entered a scheduling order governing further proceedings in the litigation on February 14, 2014, as amended on June 19, 2014 and July 28, 2014, and the parties engaged in merits and class certification discovery. Also, pursuant to the schedule, plaintiffs filed their opposition to defendants’ dismissal motion on March 21, 2014, and defendants filed their reply papers in further support of their motion on April 25, 2014. Plaintiffs moved for class certification on May 16, 2014.

After the Company announced the original purchase agreement with ARC Hospitality on June 2, 2014, defendants and plaintiffs engaged in settlement negotiations. Thereafter, plaintiffs made requests for, and defendants provided to plaintiffs, information regarding the transaction contemplated by the original purchase agreement (the ARCH Transaction). Among other information provided, the Company estimated a reasonable fair present value of the proceeds that could be distributed to holders of the preferred stock as a result of the ARCH Transaction, as announced, to be approximately $18.50 per share of preferred stock. Plaintiffs retained and consulted with two financial advisors with regard to the ARCH Transaction. During this period, the parties to the Johnson Lawsuit continued to engage in both merits and class certification discovery. On August 20, 2014, the parties entered into a Memorandum of Understanding (MOU) containing the key terms of a proposed settlement. On August 22, 2014, the parties held a telephone conference with the court, in which the court agreed that, in light of the MOU, the parties would no longer be subject to the pending deadlines in the then current scheduling order. For the court’s convenience in managing its docket, the defendants agreed to withdraw their pending motion to dismiss without prejudice. On September 2, 2014, the court granted the defendants’ motion to withdraw its motion to dismiss without prejudice to renew. The defendants may renew their motion to dismiss in the event that the proposed settlement of the Johnson Lawsuit does not become final.16

~~The~~After ~~stipulation,~~the ~~which~~Company ~~was~~announced ~~submitted~~the tooriginal ~~the~~purchase ~~court~~agreement with ARC Hospitality on ~~October~~June 92, 2014, defendants and ~~amended~~plaintiffs onengaged ~~December~~in 4,settlement ~~2014~~negotiations. Thereafter, ~~would~~plaintiffs ~~settle~~made ~~claims~~requests ~~with~~for, ~~respect~~and defendants provided to ~~two~~plaintiffs, ~~classes~~information ~~described~~regarding inthe transaction contemplated by the ~~Johnson~~original ~~Lawsuit:~~purchase agreement (1the ARCH Transaction). Among ~~the~~other ~~“Holder~~information ~~Class”~~provided, ~~consisting~~the ofCompany ~~any~~estimated ~~and~~a ~~all~~reasonable ~~persons~~fair ~~who,~~present asvalue of ~~August~~the ~~22,~~proceeds ~~2014~~that ~~and~~could ~~through~~be ~~the~~distributed ~~effective~~to ~~time~~holders of the ~~merger~~preferred ~~contemplated~~stock byas a result of the ~~stipulation~~ARCH Transaction, ~~hold~~as ~~the~~announced, to be approximately $18.50 per share of preferred stock,. Plaintiffs ~~excluding~~retained ~~defendants~~ and ~~their~~consulted ~~affiliates,~~with ~~persons~~two ~~who~~financial ~~opt~~advisors ~~out~~with ofregard to the ~~Holder~~ARCH ~~Class~~Transaction. From ~~and~~June ~~holders~~2014 ofthrough ~~dissenting~~August ~~shares~~2014, ~~and~~the ~~(2)~~parties to the ~~“Seller~~Johnson ~~Class”~~Lawsuit ~~consisting~~continued ofto ~~all~~engage ~~persons~~in ~~who~~both ~~sold~~merits ~~some~~and orclass ~~all~~certification ofdiscovery. On ~~their~~August ~~shares~~20, 2014, the parties entered into a Memorandum of ~~preferred~~Understanding ~~stock~~(MOU) ~~between~~containing ~~October~~the ~~25,~~key ~~2007~~terms ~~and~~of ~~October~~a 8proposed settlement. On August 22, 2014, ~~inclusive,~~the ~~and~~parties ~~suffered~~held a ~~loss,~~telephone ~~excluding~~conference with the ~~defendants~~court, ~~their~~in ~~affiliates~~which ~~and~~the ~~persons~~court ~~who~~agreed ~~sold~~that, ~~shares~~in tolight ~~PFD~~of ~~Holdings~~the MOU, ~~and~~the ~~persons~~parties ~~who~~would ~~opt~~no ~~out~~longer ofbe subject to the ~~Seller~~pending ~~Class.~~deadlines ~~The~~in ~~stipulation~~the ~~was~~then ~~preliminarily~~current ~~approved~~scheduling byorder. For the court’s onconvenience ~~April~~in 30managing its docket, ~~2015~~the ~~and~~defendants ~~remains~~agreed ~~subject~~to withdraw their pending motion to ~~final~~dismiss ~~approval~~without byprejudice. On September 2, 2014, the court granted the defendants’ motion to withdraw its motion to dismiss without prejudice to renew. The Adefendants ~~hearing~~may onrenew ~~final~~their ~~approval~~motion isto ~~scheduled~~dismiss ~~for~~in ~~September~~the ~~11,~~event ~~2015~~that the proposed settlement of the Johnson Lawsuit does not become final.

The stipulation, which was submitted to the court on October 9, 2014 and amended on December 4, 2014, would settle claims with respect to two classes described in the Johnson Lawsuit: (1) the “Holder Class” consisting of any and all persons who, as of August 22, 2014 and through the effective time of the merger contemplated by the stipulation, hold the preferred stock, excluding defendants and their affiliates, persons who opt out of the Holder Class and holders of dissenting shares and (2) the “Seller Class” consisting of all persons who sold some or all of their shares of preferred stock between October 25, 2007 and October 8, 2014, inclusive, and suffered a loss, excluding the defendants, their affiliates and persons who sold shares to PFD Holdings, and persons who opt out of the Seller Class. The stipulation generally provides for the following: (1) the effectuation of a merger that will result in the exchange of $26.00 in cash for each share of Series B and C preferred stock outstanding; (2) the establishment of a $6 million fund to be distributed pursuant to a plan of allocation to members of the Seller Class; and (3) an award of $4 million in counsel fees, subject to approval by the Federal Court. The stipulation was preliminarily approved by the court on April 30, 2015 and remains subject to final approval by the court. A hearing on final approval is scheduled for September 11, 2015.

In October 2013, a similar lawsuit was filed by another plaintiff in the same Chancery Court (the Dent Lawsuit), alleging similar breaches against several of the same defendants named in the Johnson Lawsuit, in addition to a former member of the Company’s board of directors. The plaintiffs and defendants in the Dent Lawsuit agreed to stay this case until the motion to remand in the Johnson lawsuit was decided. As stipulated by the parties, plaintiff must file any response to defendants’ motion to stay within ten business days after notice of the federal court decision denying the remand motion. Defendants notified plaintiff of the resolution of the remand motion in the Johnson Lawsuit, and plaintiff has not filed a response to the motion to stay. The proposed settlement in the Johnson Lawsuit purports to encompass the claims asserted in the Dent Lawsuit.

ITEM 1A.

RISK FACTORS

There have been no material changes from the risk factors disclosed in the “RISK FACTORS” section of the Company’s Annual Report on Form 10-K for the year ended December 31, 2014.

ITEM 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None.

ITEM 3.

DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4.

MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5.

OTHER INFORMATION

None.

ITEM 6.

EXHIBITS

The following exhibits are filed as part of this report:

Exhibit Number		Description of Exhibit
31.1		Certification of Todd P. Giannoble, Chief Executive Officer of W2007 Grace Acquisitions I, Inc., pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended, and dated May 29, 2015
2.1		Agreement and Plan of Merger, dated as of May 10, 2015, by and among W2007 Grace Acquisition I, Inc., W2007 Grace II, LLC, W2007 Grace Acquisition II, Inc., and, solely for purposes of certain payment obligations contained thereunder, PFD Holdings LLC, Whitehall Parallel Global Real Estate Limited Partnership 2007 and W2007 Finance Sub, LLC. (incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K (SEC File No. 001-12073) filed with the SEC on May 11, 2015).
31.2		Certification of Gregory M. Fay, Chief Financial Officer of W2007 Grace Acquisition I, Inc., pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended, and dated May 29, 2015
10.1		First Amendment to Amended and Restated Sale Agreement, dated February 13, 2015 (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K (SEC File No. 001-12073) filed with the SEC on March 5, 2015).
32		Certification of Todd P. Giannoble, Chief Executive Officer and Gregory M. Fay, Chief Financial Officer of W2007 Grace Acquisition I, Inc. pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and dated May 29, 2015
10.2		Letter Agreement Amendment to Amended and Restated Sale Agreement, dated February 24, 2015 (incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K (SEC File No. 001-12073) filed with the SEC on March 5, 2015).
10.3		Amended and Restated Limited Liability Company Agreement of ARC Hospitality Portfolio I Holdco, LLC, dated February 27, 2015 (incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K (SEC File No. 001-12073) filed with the SEC on March 5, 2015).
10.4		Amended and Restated Limited Liability Company Agreement of ARC Hospitality Portfolio II Holdco, LLC, dated February 27, 2015 (incorporated by reference to Exhibit 10.5 to the Company’s Current Report on Form 8-K (SEC File No. 001-12073) filed with the SEC on March 5, 2015).
10.5		Assumption and Release Agreement dated February 27, 2015 by and among W2007 Equity Inns Realty, LLC, W2007 Equity Inns Realty, L.P., ARC Hospitality Portfolio I Owner, LLC, ARC Hospitality Portfolio I BHGL Owner, Llc, ARC Hospitality Portfolio I PXGL Owner, LLC, ARC Hospitality Portfolio I GBGL Owner, Llc, ARC Hospitality Portfolio I NFGL Owner, Llc, ARC Hospitality Portfolio I MBGL 1000 Owner, LLC, ARC Hospitality Portfolio I MBGL 950 Owner, LLC, ARC Hospitality Portfolio I NTC Owner, LP, Arc Hospitality Portfolio I DLGL Owner, LP, ARC Hospitality Portfolio I SAGL Owner, LP, U.S. Bank National Association, as Trustee for the Registered Holders of Eqty 2014-Inns Mortgage Trust, Commercial Mortgage Pass-Through Certificates, Whitehall Street Global Real Estate Limited Partnership 2007, Whitehall Parallel Global Real Estate Limited Partnership 2007, American Realty Capital Hospitality Operating Partnership, L.P. and American Realty Capital Hospitality Trust, Inc. (incorporated by reference to Exhibit 10.19 to the Company’s Annual Report on Form 10-K for year ended December 31, 2014 (SEC File No. 001-12073) filed with the SEC on May 1, 2015).
10.6		Assumption and Release Agreement (Mezzanine) dated February 27, 2015 by and among WNT Mezz I, LLC, ARC Hospitality Portfolio I Mezz, LP, U.S. Bank National Association, as trustee for the registered holders of EQTY 2014-MZ Mezzanine Trust, Commercial Mezzanine Pass-Through Certificates, Whitehall Street Global Real Estate Limited Partnership 2007, and Whitehall Parallel Global Real Estate Limited Partnership 2007, American Realty Capital Hospitality Operating Partnership, L.P., and American Realty Capital Hospitality Trust, Inc. (incorporated by reference to Exhibit 10.20 to the Company’s Annual Report on Form 10-K for year ended December 31, 2014 (SEC File No. 001-12073) filed with the SEC on May 1, 2015).
10.7		Order Instituting Cease-and-Desist Proceedings Pursuant to Section 21C of the Securities and Exchange Act of 1934, Making Findings, and Imposing Remedial Sanctions and a Cease-and-Desist Order, dated April 22, 2015 (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K (SEC File No. 001-12073) filed with the SEC on April 22, 2015).
31.1		Certification of Todd P. Giannoble, Chief Executive Officer of W2007 Grace Acquisitions I, Inc., pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended, and dated June 30, 2015
31.2		Certification of Gregory M. Fay, Chief Financial Officer of W2007 Grace Acquisition I, Inc., pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended, and dated June 30, 2015
32		Certification of Todd P. Giannoble, Chief Executive Officer and Gregory M. Fay, Chief Financial Officer of W2007 Grace Acquisition I, Inc. pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and dated June 30, 2015
101.INS		XBRL Instance Document
101.SCH		XBRL Taxonomy Extension Schema Document.
101.CAL		XBRL Taxonomy Calculation Linkbase Document.
101.DEF		XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB		XBRL Taxonomy Label Linkbase Document.
101.PRE		XBRL Taxonomy Presentation Linkbase Document.

3318

Exhibit Number		Description of Exhibit
101.SCH		XBRL Taxonomy Extension Schema Document.

101.CAL		XBRL Taxonomy Calculation Linkbase Document.

101.DEF		XBRL Taxonomy Extension Definition Linkbase Document.

101.LAB		XBRL Taxonomy Label Linkbase Document.

101.PRE		XBRL Taxonomy Presentation Linkbase Document.

SIGNATURES

Pursuant to the requirements 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.

Date: May 29, 2015	By:	/s/ Todd P. Giannoble
Date: June 30, 2015		By:	/s/ Todd P. Giannoble
		Todd P. Giannoble
		Chief Executive Officer
Date: May 29, 2015	By:	/s/ Gregory M. Fay
		Gregory M. Fay
		Chief Financial Officer

Date: June 30, 2015	By:	/s/ Gregory M. Fay
	Gregory M. Fay
	Chief Financial Officer

Filing Compare · W2007 Grace Acquisition I Inc