UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended September 30, 2013

or

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

For the transition period from__________ to ___________

Commission File Number: 000-54263

CAREY WATERMARK INVESTORS INCORPORATED

(Exact name of registrant as specified in its charter)

Maryland	26-2145060
(State of incorporation)	(I.R.S. Employer Identification No.)
50 Rockefeller Plaza
New York, New York	10020
(Address of principal executive offices)	(Zip Code)

Investor Relations (212) 492-8920

(212) 492-1100

(Registrant’s telephone numbers, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   Yes R No £

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes R No £

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

Large accelerated filer o	Accelerated filer o	Non-accelerated filer R	Smaller reporting company o
	(Do not check if a smaller reporting company)

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

Registrant has 59,461,093 shares of common stock, $0.001 par value, outstanding at November 4, 2013.

INDEX

	Page No.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets	2
Consolidated Statements of Operations	3
Consolidated Statements of Comprehensive (Loss) Income	4
Consolidated Statements of Equity	5
Consolidated Statements of Cash Flows	6
Notes to Consolidated Financial Statements	7
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	26
Item 3. Quantitative and Qualitative Disclosures About Market Risk	39
Item 4. Controls and Procedures	39
PART II - OTHER INFORMATION
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	41
Item 6. Exhibits	43
Signatures	44

Forward-Looking Statements

This Quarterly Report on Form 10-Q (the “Report”), including Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) in Item 2 of Part I of this Report, contains forward-looking statements within the meaning of the federal securities laws. These forward-looking statements generally are identified by the words “believe,” “project,” “expect,” “anticipate,” “estimate,” “intend,” “strategy,” “plan,” “may,” “should,” “will,” “would,” “will be,” “will continue,” “will likely result,” and similar expressions. It is important to note that our actual results could be materially different from those projected in such forward-looking statements. You should exercise caution in relying on forward-looking statements as they involve known and unknown risks, uncertainties and other factors that may materially affect our future results, performance, achievements or transactions. Information on factors which could impact actual results and cause them to differ from what is anticipated in the forward-looking statements contained herein is included in this Report as well as in our other filings with the Securities and Exchange Commission (the “SEC”), including but not limited to those described in Item 1A. Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2012 as filed with the SEC on March 12, 2013 (the “2012 Annual Report”). Except as required by federal securities laws and the rules and regulations of the SEC, we do not undertake to revise or update any forward-looking statements.

Additionally, a description of our critical accounting estimates is included in the MD&A section of our 2012 Annual Report. There has been no significant change in our critical accounting estimates. All references to “Notes” throughout the document refer to the footnotes to the consolidated financial statements of the registrant in Part I, Item 1, Financial Statements (Unaudited).

CWI 9/30/2013 10-Q — 1

PART I

Item 1. Financial Statements.

CAREY WATERMARK INVESTORS INCORPORATED

CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(in thousands, except share and per share amounts)

	September 30, 2013		December 31, 2012
Assets
Investments in real estate:
Hotels, at cost	$	628,563	$	142,765
Accumulated depreciation	(11,519)		(1,392)
Net investments in hotels	617,044		141,373
Equity investments in real estate	15,855		45,148
Net investments in real estate	632,899		186,521
Cash	241,311		30,729
Due from affiliates	9		398
Accounts receivable	4,760		626
Restricted cash	13,988		6,272
Other assets	25,539		5,212
Total assets	$	918,506	$	229,758
Liabilities and Equity
Liabilities:
Non-recourse debt	$	393,747	$	88,762
Accounts payable, accrued expenses and other liabilities	21,421		5,050
Due to affiliates	2,073		847
Distributions payable	6,297		1,717
Total liabilities	423,538		96,376
Commitments and contingencies (Note 9)
Equity:
CWI stockholders’ equity:
Common stock $0.001 par value; 300,000,000 shares authorized; 58,962,957 and 16,334,464 shares issued, respectively; and 58,907,812 and 16,299,940 shares outstanding, respectively	59		16
Additional paid-in capital	520,337		142,645
Distributions in excess of accumulated losses	(37,061)		(9,166)
Accumulated other comprehensive loss	(584)		(299)
Less: treasury stock at cost, 55,145 and 34,524 shares, respectively	(524)		(331)
Total CWI stockholders’ equity	482,227		132,865
Noncontrolling interests	12,741		517
Total equity	494,968		133,382
Total liabilities and equity	$	918,506	$	229,758

See Notes to Consolidated Financial Statements.

CWI 9/30/2013 10-Q — 2

CAREY WATERMARK INVESTORS INCORPORATED

CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

(in thousands, except share and per share amounts)

	Three Months Ended September 30,				Nine Months Ended September 30,
	2013		2012		2013		2012
Revenues
Hotel Revenues
Rooms	$	29,882	$	3,869	$	56,067	$	4,627
Food and beverage	7,597		1,357		11,480		1,398
Other hotel income	3,535		642		5,781		689
Total Hotel Revenues	41,014		5,868		73,328		6,714
Other real estate income	-		-		-		64
Total Revenues	41,014		5,868		73,328		6,778
Operating Expenses
Hotel Expenses
Rooms	6,680		1,069		12,665		1,255
Food and beverage	5,593		1,093		8,470		1,097
Other hotel operating expenses	2,016		391		3,093		428
General and administrative	3,219		546		5,941		604
Sales and marketing	3,592		497		7,058		593
Repairs and maintenance	1,409		282		2,664		316
Utilities	1,399		334		2,538		373
Management fees	796		93		1,506		103
Property taxes, insurance and rent	1,974		275		3,630		313
Depreciation and amortization	5,376		536		10,155		621
Total Hotel Expenses	32,054		5,116		57,720		5,703
Other Operating Expenses
Acquisition-related expenses	5,384		995		17,250		2,826
Management expenses	280		170		803		479
Corporate general and administrative expenses	1,339		505		3,186		1,188
Asset management fees to affiliate	833		171		1,783		358
Total Other Operating Expenses	7,836		1,841		23,022		4,851
Operating Income (Loss)	1,124		(1,089)		(7,414)		(3,776)
Other Income and (Expenses)
Net income from equity investments in real estate	117		928		599		1,345
Other income	-		220		-		85
Bargain purchase gain	-		3,809		-		3,809
Interest expense	(4,355)		(484)		(8,190)		(559)
	(4,238)		4,473		(7,591)		4,680
(Loss) Income from Operations Before Income Taxes	(3,114)		3,384		(15,005)		904
Provision for income taxes	(392)		(174)		(939)		(256)
Net (Loss) Income	(3,506)		3,210		(15,944)		648
Net loss attributable to noncontrolling interests	451		535		529		872
Net (Loss) Income Attributable to CWI Stockholders	$	(3,055)	$	3,745	$	(15,415)	$	1,520
Basic and Diluted (Loss) Earnings Per Share	$	(0.06)	$	0.37	$	(0.46)	$	0.19
Basic and Diluted Weighted Average Shares Outstanding	50,836,335		10,142,451		33,793,892		7,813,713
Distributions Declared Per Share	$	0.1500	$	0.1500	$	0.4500	$	0.4000

See Notes to Consolidated Financial Statements.

CWI 9/30/2013 10-Q — 3

CAREY WATERMARK INVESTORS INCORPORATED

CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME (UNAUDITED)

(in thousands)

	Three Months Ended September 30,				Nine Months Ended September 30,
	2013		2012		2013		2012
Net (Loss) Income	$	(3,506)	$	3,210	$	(15,944)	$	648
Other Comprehensive Loss
Other comprehensive loss before reclassifications — derivative instruments	(1,925)		(43)		(962)		(40)
Amounts reclassified from accumulated other comprehensive loss to interest expense — derivative instruments	272		6		490		7
Amounts reclassified from accumulated other comprehensive loss to Net income from equity investments — derivative instruments	48		-		48		-
Comprehensive (loss) income	(5,111)		3,173		(16,368)		615
Amounts Attributable to Noncontrolling Interests
Net loss	451		535		529		872
Change in unrealized loss on derivative instruments	139		-		139		-
Comprehensive loss attributable to noncontrolling interests	590		535		668		872
Comprehensive (Loss) Income Attributable to CWI Stockholders	$	(4,521)	$	3,708	$	(15,700)	$	1,487

See Notes to Consolidated Financial Statements.

CWI 9/30/2013 10-Q — 4

CAREY WATERMARK INVESTORS INCORPORATED

CONSOLIDATED STATEMENTS OF EQUITY (UNAUDITED)

For the Nine Months Ended September 30, 2013 and the Year Ended December 31, 2012

(in thousands, except share and per share amounts)

						Distributions		Accumulated
				Additional		in Excess of		Other
		Common		Paid-In		Accumulated		Comprehensive		Treasury		Total CWI		Noncontrolling
	Shares	Stock		Capital		Losses		Loss		Stock		Stockholders		Interests		Total
Balance at January 1, 2012	4,791,523	$	5	$	42,596	$	(2,057)	$	-	$	-	$	40,544	$	-	$	40,544
Net loss	-	-		-		(2,723)		-		-		(2,723)		(1,119)		(3,842)
Shares issued, net of offering costs	11,439,591	11		99,334		-		-		-		99,345		-		99,345
Shares issued to affiliates	49,010	-		490		-		-		-		490				490
Contributions from noncontrolling interests	-	-		-		-		-		-		-		1,636		1,636
Shares issued under share incentive plans	7,688	-		186		-		-		-		186		-		186
Share-based payments	4,000	-		39		-		-		-		39		-		39
Distributions declared ($0.5500 per share) (a)	42,652	-		-		(4,386)		-		-		(4,386)		-		(4,386)
Other comprehensive loss:
Change in unrealized loss on derivative instruments	-	-		-		-		(299)		-		(299)		-		(299)
Repurchase of shares	(34,524)	-		-		-		-		(331)		(331)		-		(331)
Balance at December 31, 2012	16,299,940	16		142,645		(9,166)		(299)		(331)		132,865		517		133,382
Net loss	-	-		-		(15,415)		-		-		(15,415)		(529)		(15,944)
Shares issued, net of offering costs	42,299,928	42		375,984		-		-		-		376,026		-		376,026
Shares issued to affiliates	158,182	1		1,582		-		-		-		1,583		-		1,583
Contributions from noncontrolling interests	-	-		-		-		-		-		-		12,892		12,892
Shares issued under share incentive plans	8,469	-		86		-		-		-		86		-		86
Stock-based compensation to directors	4,000	-		40		-		-		-		40		-		40
Distributions declared ($0.4500 per share) (b)	-	-		-		(12,480)		-		-		(12,480)		-		(12,480)
Stock dividends issued ($0.0750 per share)	157,914	-		-		-		-		-		-		-		-
Other comprehensive loss:
Change in unrealized gain on derivative instruments	-	-		-		-		(285)		-		(285)		(139)		(424)
Repurchase of shares	(20,621)	-		-		-		-		(193)		(193)		-		(193)
Balance at September 30, 2013	58,907,812	$	59	$	520,337	$	(37,061)	$	(584)	$	(524)	$	482,227	$	12,741	$	494,968

__________

(a)Excludes 34,270 shares declared in the fourth quarter of 2012 and issued in the first quarter of 2013.

(b)Excludes 125,876 shares declared in the third quarter of 2013 and issued in the fourth quarter of 2013.

See Notes to Consolidated Financial Statements.

CWI 9/30/2013 10-Q —5

CAREY WATERMARK INVESTORS INCORPORATED

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(in thousands)

	Nine Months Ended September 30,
	2013		2012 (a)
Cash Flows — Operating Activities
Net (loss) income	$	(15,944)	$	648
Adjustments to net (loss) income:
Depreciation and amortization	10,174		621
Loss from equity investments in real estate in excess of distributions received	741		172
Asset management fees payable to affiliate in shares	1,783		358
Amortization of deferred financing costs and prepaid franchise fees and other	538		80
Unrealized loss on derivative	-		135
Amortization of share incentive plans	126		173
Bargain purchase gain	-		(3,809)
Increase in due to affiliates	1,382		753
Net changes in other operating assets and liabilities	926		142
Net Cash Used in Operating Activities	(274)		(727)
Cash Flows — Investing Activities
Distributions received from equity investments in excess of equity income	28,221		473
Acquisitions of hotels	(482,743)		(29,176)
Capital expenditures	(9,060)		(377)
Funds placed in escrow	(19,386)		(5,575)
Funds released from escrow	11,077		-
Net Cash Used in Investing Activities	(471,891)		(34,655)
Cash Flows — Financing Activities
Proceeds from mortgage financing	305,241		18,931
Proceeds from issuance of shares, net of offering costs	376,431		54,376
Contributions from noncontrolling interests	12,892		200
Distributions paid	(7,900)		(1,889)
Deferred financing costs	(3,363)		(689)
Repayment of mortgage principal	(324)		(2,000)
Withholding on restricted stock units	(46)		(19)
Purchase of treasury stock	(184)		(18)
Net Cash Provided by Financing Activities	682,747		68,892
Change in Cash During the Period
Net increase in cash	210,582		33,510
Cash, beginning of period	30,729		8,031
Cash, end of period	$	241,311	$	41,541
Non-cash Investing and Financing Activities
Non-cash investing activities - change in accrued capital expenditures	$	1,538	$	114
Non-cash financing activities - offering costs paid by the advisor, advance proceeds held in escrow	$	(405)	$	648
Non-cash financing activities - distributions declared (Note 1)	$	6,297	$	1,222
Non-cash financing activities - issuance of noncontrolling interest	$	-	$	1,436
Non-cash financing activities - asset management fees settled in shares (Note 3)	$	1,583	$	296

__________

(a) Reflects a revised cash flow statement for the nine months ended September 30, 2012, as further discussed in Note 2.

See Notes to Consolidated Financial Statements.

CWI 9/30/2013 10-Q — 6

CAREY WATERMARK INVESTORS INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Note 1. Business

Organization

Carey Watermark Investors Incorporated (together with its consolidated subsidiaries, “CWI”, “we”, “us”, or “our”) is a publicly owned, non-listed real estate investment trust (“REIT”) formed as a Maryland corporation in March 2008 for the purpose of acquiring, owning, disposing of and, through our advisor, managing and seeking to enhance the value of, interests in lodging and lodging related properties primarily in the United States (“U.S.”). We conduct substantially all of our investment activities and own all of our assets through CWI OP, LP, (our “Operating Partnership”). We are a general partner and a limited partner and own a 99.985% capital interest in the Operating Partnership. Carey Watermark Holdings, LLC (“Carey Watermark Holdings”), which is owned indirectly by W. P. Carey Inc. (“W. P. Carey”) and Watermark Capital Partners, LLC (“Watermark Capital Partners”), holds a 0.015% special general partner interest in the Operating Partnership.

We are managed by our advisor, Carey Lodging Advisors, LLC, an indirect subsidiary of W. P. Carey. Our advisor manages our overall portfolio, including providing oversight and strategic guidance to the independent hotel operators that manage our hotels. Our subadvisor, CWA, LLC, a subsidiary of Watermark Capital Partners, provides services to the advisor primarily relating to acquiring, managing, financing and disposing of our hotels and overseeing the independent operators that manage the day-to-day operations of our hotels. In addition, the subadvisor provides us with the services of our chief executive officer during the term of the subadvisory agreement, subject to the approval of our independent directors.

CWI 9/30/2013 10-Q — 7

Notes to Consolidated Financial Statements

The following table sets forth certain information for each of the hotels that we consolidate in our financial statements (our “Consolidated Hotels”), as further discussed in Note 4, and the hotels that we record as equity investments in our financial statements (our “Unconsolidated Hotels”), as further discussed in Note 5, at September 30, 2013.

(Dollars in thousands)

Hotel	State	Number of Rooms	% Owned		Our Investment (a)		Acquisition Date	Hotel Type
Consolidated Hotels
Hampton Inn Boston Braintree	Massachusetts	103	100	%	$	12,500	May 31, 2012	Select-service
Hilton Garden Inn New Orleans French Quarter/CBD	Louisiana	155	88	%	16,176		June 8, 2012	Select-service
Lake Arrowhead Resort and Spa (b)	California	173	97	%	24,039		July 9, 2012	Full-service
Courtyard San Diego Mission Valley	California	317	100	%	85,000		December 6, 2012	Select-service
Hilton Southeast Portfolio:
Hampton Inn Atlanta Downtown	Georgia	119	100	%	18,000		February 14, 2013	Select-service
Hampton Inn Frisco Legacy Park	Texas	105	100	%	16,100		February 14, 2013	Select-service
Hampton Inn Memphis Beale Street	Tennessee	144	100	%	30,000		February 14, 2013	Select-service
Hampton Inn Birmingham Colonnade	Alabama	133	100	%	15,500		February 14, 2013	Select-service
Hilton Garden Inn Baton Rouge Airport	Louisiana	131	100	%	15,000		February 14, 2013	Select-service
Courtyard Pittsburgh Shadyside	Pennsylvania	132	100	%	29,900		March 12, 2013	Select-service
Hutton Hotel Nashville	Tennessee	247	100	%	73,600		May 29, 2013	Full-service
Holiday Inn Manhattan 6th Avenue Chelsea	New York	226	100	%	113,000		June 6, 2013	Full-service
Fairmont Sonoma Mission Inn & Spa	California	226	75	%	76,647		July 10, 2013	Full-service
Marriott Raleigh City Center	North Carolina	400	100	%	82,193		August 13, 2013	Full-service
		2,611			$	607,655
Unconsolidated Hotels
Hyatt New Orleans French Quarter	Louisiana	254	80	%	$	13,000	September 6, 2011	Full-service
Westin Atlanta Perimeter North	Georgia	372	57	%	13,170		October 3, 2012	Full-service
		626			$	26,170

(a)For our Consolidated Hotels, amount represents the fair value of net assets acquired less the fair market value of amounts attributable to noncontrolling interests, exclusive of acquisition expenses and any debt assumed, at time of acquisition. For Unconsolidated Hotels, amount represents purchase price plus capitalized costs, inclusive of fees paid to the advisor, at the time of acquisition.

(b)This property became a member of the Autograph Collection, a collection of upper-upscale and luxury independent hotels sponsored by Marriott International, Inc. (“Marriott”), on September 30, 2013.

In addition, on October 23, 2013, we acquired a 100% interest in another Consolidated Hotel, the Hawks Cay Resort, a full service hotel located on Duck Key, Florida, for $133.8 million (Note 11).

Public Offering

In our initial public offering, which ran from September 15, 2011 through September 15, 2013, we raised $582.4 million, inclusive of reinvested distributions through our distribution reinvestment plan (“DRIP”). Our initial public offering was offered on a “best efforts” basis by Carey Financial, LLC (“Carey Financial”), an affiliate of the advisor, and other selected dealers.  We intend to invest the remaining net proceeds of our initial public offering in a portfolio of interests in lodging and lodging related properties.

As discussed in further detail in Note 11, on October 25, 2013, we filed a registration statement with the SEC for a possible continuous public offering of up to an additional $350.0 million of our common stock, which we refer to as the “follow-on offering.”

CWI 9/30/2013 10-Q — 8

Notes to Consolidated Financial Statements

Distributions

Our third quarter 2013 declared daily distribution was $0.0016304 per share, comprised of $0.0013587 per day payable in cash and $0.0002717 per day payable in shares of our common stock, which equated to $0.6000 per share on an annualized basis and was paid on October 15, 2013 to stockholders of record on each day during the third quarter.

Note 2. Basis of Presentation

Basis of Presentation

Our interim consolidated financial statements have been prepared, without audit, in accordance with the instructions to Form 10-Q and, therefore, do not necessarily include all information and footnotes necessary for a fair statement of our consolidated financial position, results of operations and cash flows in accordance with accounting principles generally accepted in the U.S. (“GAAP”).

In the opinion of management, the unaudited financial information for the interim periods presented in this Report reflects all normal and recurring adjustments necessary for a fair statement of results of operations, financial position and cash flows. Our interim consolidated financial statements should be read in conjunction with our audited consolidated financial statements and accompanying notes for the year ended December 31, 2012, which are included in our 2012 Annual Report, as certain disclosures that would substantially duplicate those contained in the audited consolidated financial statements have not been included in this Report. Operating results for interim periods are not necessarily indicative of operating results for an entire fiscal year.

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts and the disclosure of contingent amounts in our consolidated financial statements and the accompanying notes. Actual results could differ from those estimates. Certain prior year amounts have been reclassified to conform to the current year presentation. These reclassifications had no impact on net assets or net loss for the periods presented.

For purposes of determining the weighted-average number of shares of common stock outstanding, amounts for the three and nine months ended September 30, 2013 and 2012 have been adjusted to treat stock distributions declared and effective through November 12, 2013 as if they were outstanding as of January 1, 2012.

Basis of Consolidation

Our consolidated financial statements reflect all of our accounts, including those of our controlled subsidiaries. The portion of equity in a subsidiary that is not attributable, directly or indirectly, to us is presented as noncontrolling interests. All significant intercompany accounts and transactions have been eliminated.

When we obtain an economic interest in an entity, we evaluate the entity to determine if it is a variable interest entity (“VIE”) and, if so, whether we are the primary beneficiary and are therefore required to consolidate the entity. We performed an analysis of all of our subsidiary entities to determine whether they qualify as VIEs and whether they should be consolidated or accounted for as equity investments in an unconsolidated venture. As a result of our assessment, we have concluded that none of our subsidiaries is a VIE. All our subsidiaries are either consolidated or accounted for as equity investments under the voting interest entity model.

We account for the capital interest held by Carey Watermark Holdings in the Operating Partnership as a noncontrolling interest. Based on the terms of the Operating Partnership agreement and that the initial investors are not yet earning their minimal return, the non-controlling interest representing Carey Watermark Holding’s interest in the Operating Partnership has absorbed the operating losses to the extent of its original investment, and accordingly, no losses were allocated to Carey Watermark Holdings during the three and nine months ended September 30, 2013 or 2012.

Revision of Previously Issued Financial Statements

Our advisor earns an annual asset management fee as described in Note 3. Beginning in the first quarter of 2012, we settled all asset management fees in shares of our common stock, rather than in cash, at the election of the advisor. In connection with the preparation of our financial statements for the nine months ended September 30, 2013, we identified an error in the cash flow statement that was the result of not adjusting operating cash flow for the full amount of such noncash asset management fees included in net income and instead including such noncash asset management fees as a source of financing cash flow for that same amount.  We assessed the materiality of this error on prior periods’ financial statements in accordance with Accounting Standards Codification 250 and the SEC’s Staff Accounting Bulletin No. 99, “Materiality” and concluded that the impact of the error is not material to any previously issued financial statements. We have properly reflected these transactions in our Consolidated Statements of Cash Flows for the nine months ended September 30, 2013 and

CWI 9/30/2013 10-Q — 9

Notes to Consolidated Financial Statements

therefore, in order to present consistent information to the users of our financial statements, we have revised the cash flow statement for the period ended September 30, 2012. The table below illustrates the effect of the error correction on all previously issued financial statements. In addition, we have added supplemental disclosures of these noncash financing activities. The error impacted cash flow used in operating activities and cash flows provided by financing activities, and did not affect our consolidated balance sheets, consolidated statements of operations, consolidated statements of comprehensive loss, consolidated statements of equity, cash flows used in investing activities, or cash balances for any reporting periods.

	Net Cash (Used in) Provided by Operating Activities								Net Cash Provided by (Used in) Financing Activities
	As Reported			Adjustment		As Revised			As Reported		Adjustment			As Revised
	(in thousands)								(in thousands)
Six months ended June 30, 2013	$	(6,116	)	$	673	$	(5,443	)	$	388,748	$	(673	)	$	388,075
Three months ended March 31, 2013	(319		)	275		(44		)	144,894		(275		)	144,619
Year ended December 31, 2012	(5,850		)	412		(5,438		)	163,253		(412		)	162,841
Nine months ended September 30, 2012	(987		)	260		(727		)	69,152		(260		)	68,892
Six months ended June 30, 2012	(470		)	119		(351		)	49,499		(119		)	49,380

Non-cash financing activities:

	Three Months Ended				Six Months Ended				Nine Months Ended				Year Ended
	March 31,				June 30,				September 30,				December 31,
	2013		2012		2013		2012		2013		2012		2012
Asset management fees settled in shares	$	329	$	55	$	805	$	143	$	1,583	$	296	$	490

Recent Accounting Requirements

The following Accounting Standards Updates (“ASUs”) promulgated by the Financial Accounting Standards Board (“FASB”) are applicable to us as indicated:

ASU 2013-01, Balance Sheet (Topic 210): Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities — In January 2013, the FASB issued an update to ASU 2011-11, Balance Sheet (Topic 210): Disclosures about Offsetting Assets and Liabilities. ASU 2013-01 clarifies that the scope of ASU 2011-11 applies to derivatives accounted for in accordance with Topic 815, Derivatives and Hedging, including bifurcated embedded derivatives, repurchase agreements and reverse repurchase agreements, and securities borrowing and securities lending transactions that are either offset in accordance with Section 210-20-45 or Section 815-10-45 or subject to an enforceable master netting or similar arrangement. These amendments did not have a significant impact on our financial position or results of operations and are applicable to us for our interim and annual reports beginning in 2013 and has been applied retrospectively.

ASU 2013-02, Other Comprehensive Income (Topic 220): Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income — In February 2013, the FASB issued ASU 2013-02 requiring entities to disclose additional information about items reclassified out of accumulated other comprehensive income. This ASU impacts the form of our disclosures only, is applicable to us for our interim and annual reports beginning in 2013, and has been applied retrospectively. The related additional disclosures are located in the consolidated statements of comprehensive loss.

ASU 2013-10, Derivatives and Hedging (Topic 815): Inclusion of the Fed Funds Effective Swap Rate (or Overnight Index Swap Rate) as a Benchmark Interest Rate for Hedge Accounting Purposes, a Consensus of the FASB Emerging Issues Task Force — In July 2013, the FASB issued ASU 2013-10, which permits the Fed Funds Effective Swap Rate, also referred to as the “Overnight Index Swap Rate,” to be used as a U.S. benchmark interest rate for hedge accounting purposes under Topic 815, in addition to the U.S. government and London Interbank Offered Rate (“LIBOR”) swap rate. The update also removes the restriction on the use of different benchmark rates for similar hedges. This ASU will be applicable to us for qualifying new or redesignated hedging relationships entered into on or after July 17, 2013. Through the date of this Report, we have not entered into any transactions to which this ASU applies.

CWI 9/30/2013 10-Q — 10

Notes to Consolidated Financial Statements

Note 3. Agreements and Transactions with Related Parties

Agreements with the Advisor and Subadvisor

We have an advisory agreement with the advisor to perform certain services for us, including managing the offering and our overall business, identification, evaluation, negotiation, purchase and disposition of lodging related properties and the performance of certain administrative duties. The agreement that is currently in effect was recently renewed for an additional year pursuant to its terms effective September 30, 2013. The advisor has entered into a subadvisory agreement with the subadvisor, whereby the subadvisor provides certain personnel services to us and the advisor pays 20% of its fees earned under the advisory agreement to the subadvisor.

The following tables present a summary of fees we paid and expenses we reimbursed to the advisor, subadvisor and other affiliates in accordance with the terms of those agreements (in thousands):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2013		2012		2013		2012
Amounts Included in the Consolidated Statements of Operations:
Acquisition fees	$	4,072	$	634	$	12,427	$	1,505
Asset management fees	833		171		1,783		358
Loan refinancing fee	-		-		-		37
Personnel reimbursements	342		175		974		563
	$	5,247	$	980	$	15,184	$	2,463
Other Transaction Fees Incurred:
Selling commissions and dealer manager fees	$	20,139	$	2,397	$	40,444	$	5,753
Offering costs	2,080		517		6,247		1,236
	$	22,219	$	2,914	$	46,691	$	6,989

	September 30, 2013		December 31, 2012
Amounts Due to Affiliates:
Organization and offering costs due to the advisor	$	220	$	473
Excess operating expense advances due back to the advisor	386		-
Other amounts due to the advisor	800		280
Due to joint venture partners	667		-
Other	-		94
	$	2,073	$	847
Amounts Due from Affiliates:
Due from joint venture partners	$	-	$	368
Other	9		30
	$	9	$	398

Acquisition Fees

The advisor receives acquisition fees of 2.5% of the total investment cost of the properties acquired, including on our proportionate share of equity method investments, and loans originated by us, not to exceed 6% of the aggregate contract purchase price of all investments and loans. We expense acquisition-related costs and fees on acquisitions deemed to be business combinations and capitalize those costs on acquisitions deemed to be equity investments.

Asset Management Fees and Loan Refinancing Fees

We pay the advisor an annual asset management fee equal to 0.5% of the aggregate average invested value of our investments. The advisor is also entitled to receive disposition fees of up to 1.5% of the contract sales price of a property, and a loan refinancing fee of up to 1% of a refinanced loan, if certain conditions described in the advisory agreement are met. We paid all asset management fees

CWI 9/30/2013 10-Q — 11

Notes to Consolidated Financial Statements

for the three and nine months ended September 30, 2013 and 2012 in shares of our common stock, rather than in cash, at the election of the advisor. At September 30, 2013, the advisor owned 231,245 shares (0.39%) of our outstanding common stock.

Personnel Reimbursements

Pursuant to the subadvisory agreement, we reimburse the advisor, who subsequently reimburses the subadvisor, for personnel costs and other charges. We have also granted restricted stock units (“RSUs”) to employees of the subadvisor pursuant to our 2010 Equity Incentive Plan. The subadvisor provides us with the services of Michael G. Medzigian, our chief executive officer, during the term of the subadvisory agreement, subject to the approval of our Board of Directors. Such personnel reimbursements are included in Management expenses and Corporate general and administrative expenses in our consolidated financial statements.

Selling Commissions and Dealer Manager Fees

We had a dealer manager agreement with Carey Financial in connection with the initial public offering, whereby Carey Financial received a selling commission of $0.70 per share sold and a dealer manager fee of $0.30 per share sold, a portion of which was re-allowed to selected broker dealers. These amounts are recorded in Additional paid-in capital in the consolidated balance sheets and consolidated statements of equity.

Organization and Offering Costs

Pursuant to the advisory agreement, we are obligated to reimburse the advisor for all organization and offering costs incurred in connection with our initial public offering, up to a maximum amount (excluding selling commissions and the dealer manager fee described above) of 2% of the gross proceeds of our offering and the DRIP. From inception through the termination of our initial public offering on September 15, 2013, the advisor has incurred organization and offering costs on our behalf of approximately $9.4 million, all of which we are obligated to reimburse. At September 30, 2013, $0.2 million was included in Due to affiliates on our consolidated balance sheet for these costs.

Excess Operating Expenses Due from Advisor

Pursuant to the advisory agreement (with quoted variables defined in the advisory agreement), the advisor is obligated to reimburse us for “operating expenses” to the extent that these expenses exceed the greater of 2% of “average invested assets” or 25% of our “adjusted net income.” Repayment of this reimbursement is subject to approval by our Board of Directors.  At September 30, 2013, we had a payable of $0.4 million recorded in our consolidated balance sheet, which represented the amount incurred by the advisor for operating expenses that exceeded the 2% threshold for the 12-month period ended December 31, 2012 as we currently expect our 2013 operating expenses to be sufficiently below the 2%/25% threshold for us to repay the advisor with regard to this amount, upon approval by our Board of Directors. For the 12-month period ended September 30, 2013, our operating expenses were below the 2%/25% threshold.

Available Cash Distributions

Carey Watermark Holdings’ special general partner interest in the Operating Partnership entitles it to receive distributions of 10% of Available Cash, as defined in the agreement of limited partnership of the Operating Partnership, generated by the Operating Partnership, subject to certain limitations. In addition, in the event of the dissolution of the Operating Partnership, Carey Watermark Holdings will be entitled to receive distributions of up to 15% of net proceeds, provided certain return thresholds are met for the initial investors in the Operating Partnership. To date, there have been no distributions of Available Cash by the Operating Partnership.

Other Amounts Due to the Advisor

Other amounts due to the advisor represent asset management fees payable and reimbursable expenses.

Due to Joint Venture Partners

This balance is primarily comprised of amounts due from consolidated joint ventures to our joint venture partners.

Other

Other is primarily comprised of amounts due to Carey Financial, representing selling commissions and dealer manager fees, and amounts due to Carey REIT II, Inc., a subsidiary of W. P. Carey, representing directors’ fees paid on our behalf.

CWI 9/30/2013 10-Q — 12

Notes to Consolidated Financial Statements

Other Transactions with Affiliates

In January 2013, our Board of Directors and the board of directors of W. P. Carey approved loans to us of up to $50.0 million in the aggregate, at a rate of LIBOR plus 2.0%, which is equal to the rate at which W. P. Carey currently borrows funds, under its existing credit facility, for the purpose of facilitating acquisitions approved by our investment committee that we might not otherwise have sufficient available funds to complete. Any such loans may be made solely at the discretion of the management of W. P. Carey. Through the date of this Report, no such loans have been made pursuant to these approvals; however, W. P. Carey has provided similar loans to us in the past, all of which were repaid on or prior to their maturity dates.

Note 4. Net Investment in Hotels

Net Investment in Hotels

Net investment in hotels is summarized as follows (in thousands):

	September 30, 2013			December 31, 2012
Buildings	$	479,605		$	106,885
Building and site improvements	8,140			2,570
Land	98,650			23,555
Furniture, fixtures and equipment	38,218			8,170
Construction in progress	3,950			1,585
Hotels, at cost	628,563			142,765
Less: Accumulated depreciation	(11,519		)	(1,392		)
Net investments in hotels	$	617,044		$	141,373

Acquisitions

Hilton Southeast Portfolio

On February 14, 2013, we acquired five select-service hotels within the Hilton Worldwide (“Hilton”) portfolio of brands from entities managed by Fairwood Capital, LLC, an unaffiliated third-party, for $94.6 million (the “Hilton Southeast Portfolio”). The Hilton Southeast Portfolio consists of the 144-room Hampton Inn Memphis Beale Street in Tennessee, the 119-room Hampton Inn Atlanta Downtown in Georgia, the 133-room Hampton Inn Birmingham Colonnade in Alabama, the 105-room Hampton Inn Frisco Legacy Park in Texas and the 131-room Hilton Garden Inn Baton Rouge Airport in Louisiana. The Hampton Inn Memphis Beale Street, the Hampton Inn Atlanta Downtown and the Hampton Inn Birmingham Colonnade are managed by Crescent Hotels & Resorts. The Hampton Inn Frisco Legacy Park and Hilton Garden Inn Baton Rouge Airport hotels are managed by HRI Lodging Inc. Crescent Hotels & Resorts and HRI Lodging Inc. are unaffiliated third parties. In connection with this acquisition, we expensed acquisition costs of $3.7 million, including acquisition fees of $2.6 million paid to the advisor. As part of our franchise agreement with Hilton, we are required to make renovations up to $3.2 million at these hotels. These renovations are currently expected to be completed by the second quarter of 2014 (Note 9). We obtained five individual mortgage loans totaling $64.5 million, which do not contain cross-default provisions, upon acquisition of these hotels (Note 8).

Courtyard Pittsburgh Shadyside

On March 12, 2013, we acquired the Courtyard by Marriott Pittsburgh Shadyside (“Courtyard Pittsburgh Shadyside”) from Moody National CY Shadyside S, LLC, an unaffiliated third party, for $29.9 million. The 132-room select-service hotel is located in the Shadyside neighborhood of Pittsburgh, Pennsylvania. The hotel is managed by Concord Hospitality Enterprises Company, an unaffiliated third party. In connection with this acquisition, we expensed acquisition costs of $1.8 million, including acquisition fees of $0.9 million paid to the advisor. In addition, as part of our franchise agreement with Marriott, we are required to make renovations to the hotel totaling approximately $1.9 million. These renovations are currently expected to be completed by early 2014 (Note 9). We obtained a mortgage loan on the property of up to $21.0 million upon acquisition, of which $19.1 million was funded at closing; the remaining $1.9 million will be available through renovation draws (Note 8).

CWI 9/30/2013 10-Q — 13

Notes to Consolidated Financial Statements

Hutton Hotel Nashville

On May 29, 2013, we acquired the Hutton Hotel (“Hutton Hotel Nashville”) from a joint venture between Lubert-Adler and Amerimar Enterprises, Inc., unaffiliated third parties, for $73.6 million. The 247-room full-service, independent hotel is located in the West End neighborhood of Nashville, Tennessee. The hotel is managed by Amerimar Hutton Management Co., LLC, an affiliate of Amerimar Enterprises, Inc. In connection with this acquisition, we expensed acquisition costs of $2.2 million, including acquisition fees of $1.9 million paid to the advisor. On June 25, 2013, we obtained a mortgage loan on the property of $44.0 million (Note 8).

Holiday Inn Manhattan 6th Avenue Chelsea

On June 6, 2013, we acquired the Holiday Inn Manhattan 6th Avenue (“Holiday Inn Manhattan 6th Avenue Chelsea”) from Magna Hospitality Group, L.C. and Greenfield Partners, unaffiliated third parties, for $113.0 million. The 226-room full-service hotel is located in the Chelsea neighborhood of New York, New York. The hotel is managed by MHG-26, LLC, an affiliate of Magna Hospitality. In connection with this acquisition, we expensed acquisition costs of $3.7 million, including acquisition fees of $3.0 million paid to the advisor. In addition, as part of our franchise agreement with Holiday Inn, we are required to make renovations to the hotel totaling approximately $2.5 million. These renovations are currently expected to be completed by the second quarter of 2014 (Note 9). We obtained a mortgage loan on the property of $80.0 million upon acquisition (Note 8).

Fairmont Sonoma Mission Inn & Spa

On July 10, 2013, we acquired a 75% interest in a newly-formed joint venture owning the Fairmont Sonoma Mission Inn & Spa with Fairmont Hotels & Resorts, the property owner and an unaffiliated third party. The joint venture acquired real estate assets totaling $91.8 million. Our investment of $76.6 million was made in the form of a preferred equity interest that carries a cumulative preferred dividend of 8.5% per year, which is payable after Fairmont Hotels & Resorts receives $150,000 in cumulative distributions. The 226 room, full-service resort is managed by Fairmont Hotels & Resorts (Maryland) LLC, an affiliate of our joint venture partner. In connection with this acquisition, we expensed acquisition costs of $2.8 million, including acquisition fees of $1.9 million paid to the advisor. The resort is currently undergoing a renovation that commenced, prior to our ownership, in September 2012 and is expected to total $8.4 million, of which we currently expect to fund $2.6 million. The estimated remaining renovations of $2.6 million include $1.8 million to complete the refurbishment of guestrooms and public space, which is currently expected to be completed in the fourth quarter of 2013, and $0.8 million to complete the renovation of the spa, which is currently expected to be completed in the second quarter of 2014 (Note 9). We obtained a mortgage loan on the property of $44.0 million upon acquisition of this property (Note 8).

Marriott Raleigh City Center

On August 13, 2013, we acquired the Marriott Raleigh City Center from Noble Raleigh Associates, LLC, an unaffiliated third party, for $82.2 million. The 400-room full-service hotel is located in downtown Raleigh, North Carolina. The hotel is managed by Noble-Interstate Management Group, LLC. In connection with this acquisition, we expensed acquisition costs of $2.7 million, including acquisition fees of $2.2 million paid to the advisor. In addition, as part of our franchise agreement with Marriott, we are required to make renovations to the hotel totaling approximately $2.5 million. These renovations are currently expected to be completed by the second quarter of 2014 (Note 9). We obtained a mortgage loan on the property of $51.5 million upon acquisition (Note 8).

CWI 9/30/2013 10-Q — 14

Notes to Consolidated Financial Statements

The following tables present a summary of assets acquired and liabilities assumed in these business combinations, each at the date of acquisition, and revenues and earnings thereon, from the date of acquisition through September 30, 2013 (in thousands):

	Hilton Southeast Portfolio		Courtyard Pittsburgh Shadyside		Hutton Hotel Nashville		Holiday Inn Manhattan 6th Avenue Chelsea		Fairmont Sonoma Mission Inn & Spa (a)		Marriott Raleigh City Center (a)
Cash consideration	$	94,600	$	29,900	$	73,600	$	113,000	$	76,647	$	82,193
Assets acquired at fair value:
Land	$	16,050	$	3,515	$	7,850	$	30,023	$	17,657	$	-
Building	71,906		25,484		59,990		81,333		66,423		67,541
Building and site improvements	1,607		349		230		65		-		1,004
Furniture, fixtures and equipment	5,008		534		5,500		1,579		7,670		3,881
Accounts receivable	-		-		-		-		75		172
Other assets (b)	29		18		30		-		1,229		10,798
Liabilities assumed at fair value:
Accounts payable, accrued expenses and other liabilities	-		-		-		-		(3,604)		(1,203)
Contributions from noncontrolling interests at fair value	-		-		-		-		(12,803)		-
Net assets acquired at fair value	$	94,600	$	29,900	$	73,600	$	113,000	$	76,647	$	82,193
	For the Period from
	February 14, 2013		March 12, 2013		May 29, 2013		June 6, 2013		July 10, 2013		August 13, 2013
	through		through		through		through		through		through
	September 30, 2013		September 30, 2013		September 30, 2013		September 30, 2013		September 30, 2013		September 30, 2013
Revenues	$	14,610	$	3,889	$	8,064	$	5,602	$	10,495	$	2,906
Net income	$	3,171	$	1,077	$	1,870	$	2,000	$	2,123	$	564

__________

(a)The purchase price was allocated to the assets acquired and liabilities assumed based upon their preliminary fair values. The information in this table is based on the current best estimates of management. We are in the process of finalizing our assessment of the fair value of the assets acquired and liabilities assumed. Accordingly, the fair value of these assets acquired and liabilities assumed are subject to change.

(b)Includes intangible assets totaling $10.6 million, comprised of a below-market ground lease of $9.0 million and a below-market parking garage lease of $1.5 million for Marriott Raleigh City Center and in-place lease intangibles aggregating $0.1 million relating to our other 2013 acquisitions. The weighted-average amortization periods for our below-market ground lease, below-market parking garage lease and our in-place leases acquired during the nine months ended September 30, 2013 are 92.5 years, 92.5 years and 3.1 years, respectively.

CWI 9/30/2013 10-Q — 15

Notes to Consolidated Financial Statements

Pro Forma Financial Information

The following unaudited consolidated pro forma financial information presents our financial results as if the Consolidated Hotel investments that we completed during the year ended December 31, 2012 and the nine months ended September 30, 2013, and the new financings related to these acquisitions, had occurred on January 1, 2012, for the three and nine months ended September 30, 2013 and 2012. These transactions are accounted for as business combinations. The pro forma financial information is not necessarily indicative of what the actual results would have been, nor does it purport to represent the results of operations for future periods.

(Dollars in thousands, except share and per share amounts)

	Three Months Ended September 30,				Nine Months Ended September 30,
	2013		2012		2013 (a)		2012
Pro forma total revenues	$	44,741	$	40,405	$	119,927	$	118,776
Pro forma net income (loss)	1,795		438		(1,352)		(14,745)
Add: (Income) loss from continuing operations attributable to noncontrolling interests	(1,089)		690		1,766		2,829
Pro forma income (loss) from continuing operations attributable to CWI stockholders	$	706	$	1,128	$	414	$	(11,916)
Pro forma income (loss) per share:
Net income (loss) attributable to CWI stockholders	$	0.01	$	0.04	$	0.01	$	(0.43)
Pro forma weighted average shares outstanding (b)	50,938,677		28,659,596		39,391,497		28,018,156

__________

(a)Subsequent to the filing of the Company’s Form 10-Q for the period ended March 31, 2013, we identified three errors in the pro forma financial information presented in the footnotes to the financial statements.   These errors resulted in a net overstatement of pro forma expenses, an aggregate overstatement of the reported Pro forma net loss and Pro forma loss from continuing operations attributable to CWI stockholders of approximately $0.3 million and an overstatement to Pro forma loss per share of approximately $0.02. Corrected amounts after considering the impact of the errors discussed above are a $1.1 million pro forma net loss, a $1.2 million pro forma loss from continuing operations attributable to CWI stockholders and a $0.052 pro forma loss per share. We evaluated the impact of the errors on the previously-filed financial statements and the pro forma disclosures and concluded that such amounts were immaterial to our Form 10-Q for the period ended March 31, 2013. The errors and revisions were related to our pro forma disclosures only and did not affect our consolidated balance sheets, consolidated statements of operations, consolidated statements of comprehensive loss, consolidated statements of equity, or cash balances for any reporting periods.

(b)The pro forma weighted average shares outstanding were determined as if the number of shares issued in our public offering in order to raise the funds used for each acquisition were issued on January 1, 2012. All acquisition costs are presented as if they were incurred on January 1, 2012.

Construction in Progress

At September 30, 2013, construction in progress was $4.0 million, recorded at cost, and related primarily to the renovations of the Lake Arrowhead Resort and Spa and the Courtyard Pittsburgh Shadyside (Note 9). We capitalize interest expense and certain other costs, such as property taxes, property insurance and employee costs related to hotels undergoing major renovations. During the three and nine months ended September 30, 2013 we capitalized $0.1 million and $0.3 million, respectively, of such costs. No such costs were capitalized during either the three or nine months ended September 30, 2012.

Note 5. Equity Investments in Real Estate

At September 30, 2013, together with unrelated third parties, we owned equity interests in two hotels, which we refer to as our Unconsolidated Hotels. We do not control the ventures that own these hotels, but we exercise significant influence over them, as described below. We account for these investments under the equity method of accounting (i.e., at cost, increased or decreased by our share of earnings or losses, less distributions, plus contributions and other adjustments required by equity method accounting, such as basis differences from acquisition costs paid to the advisor that we incur and other-than-temporary impairments, if any).

Under the conventional approach of accounting for equity method investments, an investor applies its percentage ownership interest to the venture’s net income to determine the investor’s share of the earnings or losses of the venture. This approach is inappropriate to

CWI 9/30/2013 10-Q — 16

Notes to Consolidated Financial Statements

use if the venture’s capital structure gives different rights and priorities to its investors. We have priority returns on our equity method investments. Therefore, we follow the hypothetical liquidation at book value method in determining our share of the ventures’ earnings or losses for the reporting period as this method better reflects our claim on the ventures’ book value at the end of each reporting period. Earnings for our equity method investments are recognized in accordance with each respective investment agreement and, where applicable, based upon the allocation of the investment’s net assets at book value as if the investment were hypothetically liquidated at the end of each reporting period. Due to our preferred interests, we are not responsible for, and will not reflect, losses to the extent our partners continue to have equity in the investments.

The following table sets forth our ownership interests in our equity investments in real estate and their respective carrying values. The carrying values of these ventures are affected by the timing and nature of distributions (dollars in thousands):

		Ownership Interest	Carrying Value at
Investment	Hotel	at September 30, 2013	September 30, 2013		December 31, 2012
Westin Atlanta Venture (a)	Westin Atlanta Perimeter North	57%	10,982		11,978
Hyatt French Quarter Venture (b)	Hyatt New Orleans French Quarter	80%	4,873		12,968
Long Beach Venture (c)	DoubleTree Hotel Maya Long Beach Residence Inn Long Beach Downtown	—	-		20,202
			$	15,855	$	45,148

__________

(a)We acquired our interest in this joint venture in October 2012. We received no cash distributions during the three and nine months ended September 30, 2013.

(b)We received cash distributions of $0.5 million during the nine months ended September 30, 2013 that represent our equity earnings based on the hypothetical liquidation at book value model for the period. During the third quarter of 2013, we also received a distribution of $6.2 million representing a return of capital for our share of mortgage refinancing proceeds. We capitalized the refinancing fee paid to the advisor totaling $0.3 million. Additionally, the carrying value for this investment includes our share of Other comprehensive loss on an interest rate swap derivative instrument, which was entered into in connection with the refinancing discussed above, recognized by the venture of $0.6 million.

(c)We sold our 49% interest in this venture on July 17, 2013 and recognized a gain on sale of $1.8 million in Net income from equity investments in the consolidated statement of operations.

The following table sets forth our share of equity earnings (loss) from our Unconsolidated Hotels, which are based on the hypothetical liquidation at book value model as well as certain depreciation and amortization adjustments related to basis differentials from acquisitions of certain investments (in thousands):

	Three Months Ended September 30,				Nine Months Ended September 30,
Venture	2013		2012		2013		2012
Long Beach Venture (a)	$	1,928	$	900	$	2,601	$	1,268
Hyatt French Quarter Venture	(1,524)		28		(1,006)		77
Westin Atlanta Venture	(287)		-		(996)		-
	$	117	$	928	$	599	$	1,345

__________

(a)Represents activity through the date of the sale of this investment on July 17, 2013. Both the three and nine months ended September 30, 2013 include the gain on the sale of our investment, which was $1.8 million.

CWI 9/30/2013 10-Q — 17

Notes to Consolidated Financial Statements

No other-than-temporary impairments were recognized during either the three or nine months ended September 30, 2013 or 2012.

The following tables present combined summarized financial information of our equity method investment entities. Amounts provided are the total amounts attributable to the ventures since our respective dates of acquisition and do not represent our proportionate share (in thousands):

					September 30, 2013		December 31, 2012
Real estate, net					$	80,509	$	143,872
Other assets					13,492		21,620
Total assets					94,001		165,492
Debt					(63,490)		(98,211)
Other liabilities					(13,288)		(16,538)
Total liabilities					(76,778)		(114,749)
Members’ equity					$	17,223	$	50,743
	Three Months Ended September 30,				Nine Months Ended September 30,
	2013(a)		2012		2013(a)		2012
Revenues	$	7,967	$	9,468	$	37,352	$	25,808
Expenses	(9,491)		(9,550)		(40,473)		(27,197)
Net loss	$	(1,524)	$	(82)	$	(3,121)	$	(1,389)

(a)  Includes revenues, expenses and net loss from the Long Beach Venture for the respective periods through the date of sale of this investment on July 17, 2013.

Note 6. Fair Value Measurements

The fair value of an asset is defined as the exit price, which is the amount that would either be received when an asset is sold or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The guidance establishes a three-tier fair value hierarchy based on the inputs used in measuring fair value. These tiers are: Level 1, for which quoted market prices for identical instruments are available in active markets, such as money market funds, equity securities and U.S. Treasury securities; Level 2, for which there are inputs other than quoted prices included within Level 1 that are observable for the instrument, such as certain derivative instruments including interest rate caps and swaps; and Level 3, for securities that do not fall into Level 1 or Level 2 and for which little or no market data exists, therefore requiring us to develop our own assumptions.

Derivative Assets and Liabilities — Our derivative assets and liabilities are comprised of interest rate swaps. These derivative instruments were measured at fair value using readily observable market inputs, such as quotations on interest rates. These derivative instruments were classified as Level 2 as these instruments are custom, over-the-counter contracts with various bank counterparties that are not traded in an active market.

We did not have any transfers into or out of Level 1, Level 2 and Level 3 measurements during either the three or nine months ended September 30, 2013 and 2012. Gains and losses (realized and unrealized) included in earnings are reported in Other income and (expenses) in the consolidated statements of operations.

Our non-recourse debt, which we have classified as Level 3, had a carrying value of $393.7 million and $88.8 million and an estimated fair value of $390.2 million and $88.9 million at September 30, 2013 and December 31, 2012, respectively. We determined the estimated fair value using a discounted cash flow model with rates that take into account the interest rate risk. We also considered the value of the underlying collateral taking into account the quality of the collateral and the then-current interest rate.

We estimated that our remaining financial assets and liabilities had fair values that approximated their carrying values at both September 30, 2013 and December 31, 2012.

Note 7. Risk Management and Use of Derivative Financial Instruments

Portfolio Concentration Risk

At September 30, 2013, we were exposed to concentrations within the brands under which we operate our hotels and within the geographic areas in which we have invested to date. We operate in the domestic U.S. market only. For the nine months ended September 30, 2013, 69.5% of our revenue was generated from seven hotels located in California, Tennessee and Louisiana. At

CWI 9/30/2013 10-Q — 18

Notes to Consolidated Financial Statements

September 30, 2013, 79.3% of our Net investments in hotels was comprised of seven hotels located in California, New York, Tennessee and North Carolina.

Risk Management

In the normal course of our ongoing business operations, we encounter economic risk. There are two main components of economic risk that impact us: interest rate risk and market risk. We are primarily subject to interest rate risk on our interest-bearing assets and liabilities. Market risk includes changes in the value of our properties and related loans.

Use of Derivative Financial Instruments

When we use derivative instruments, it is generally to reduce our exposure to fluctuations in interest rates. We have not entered, and do not plan to enter into, financial instruments for trading or speculative purposes. In addition to derivative instruments that we entered into on our own behalf, we may also be a party to derivative instruments that are embedded in other contracts, which are considered to be derivative instruments. The primary risks related to our use of derivative instruments include default by a counterparty to a hedging arrangement on its obligation and a downgrade in the credit quality of a counterparty to such an extent that our ability to sell or assign our side of the hedging transaction is impaired. While we seek to mitigate these risks by entering into hedging arrangements with counterparties that are large financial institutions that we deem to be creditworthy, it is possible that our hedging transactions, which are intended to limit losses, could adversely affect our earnings. Furthermore, if we terminate a hedging arrangement, we may be obligated to pay certain costs, such as transaction or breakage fees. We have established policies and procedures for risk assessment and the approval, reporting and monitoring of derivative financial instrument activities.

We measure derivative instruments at fair value and record them as assets or liabilities, depending on our rights or obligations under the applicable derivative contract. Derivatives that are not designated as hedges must be adjusted to fair value through earnings. For a derivative designated and that qualified as a cash flow hedge, the effective portion of the change in fair value of the derivative is recognized in Other comprehensive income until the hedged item is recognized in earnings. The ineffective portion of the derivative’s change in fair value is immediately recognized in earnings.

The following table sets forth certain information regarding our derivative instruments on our Consolidated Hotels (in thousands):

Derivatives Designated		Asset Derivatives Fair Value at				Liability Derivatives Fair Value at
as Hedging Instruments	Balance Sheet Location	September 30, 2013		December 31, 2012		September 30, 2013		December 31, 2012
Interest rate swaps	Other assets	$	505	-		$	-	$	-
Interest rate swaps	Accounts payable, accrued expenses and other liabilities	-		-		(710)		(410)
		$	505	$	-	$	(710)	$	(410)

All derivative transactions with an individual counterparty are governed by a master International Swap and Derivatives Association agreement, which can be considered as a master netting arrangement; however, we report all our derivative instruments on a gross basis on the balance sheet. At both September 30, 2013 and December 31, 2012, no cash collateral has been posted nor received for any of our derivative positions.

During the three and nine months ended September 30, 2013, we recognized losses of $1.9 million and $1.0 million, respectively, in Other comprehensive income on derivatives in connection with our interest rate swaps. During both the three and nine months ended September 30, 2012, we recognized a loss of less than $0.1 million in Other comprehensive income on derivatives in connection with our interest rate swap.

During the three and nine months ended September 30, 2013, we reclassified losses of $0.3 million and $0.5 million, respectively, from Other comprehensive income on derivatives into interest expense in connection with our interest rate swaps. During both the three and nine months ended September 30, 2012, we reclassified losses of less than $0.1 million from Other comprehensive income on derivatives into interest expense in connection with our interest rate swaps. Additionally, during the nine months ended September 30, 2012, we recognized unrealized losses of $0.1 million related to an interest rate swap prior to its designation as a hedge.

CWI 9/30/2013 10-Q — 19

Notes to Consolidated Financial Statements

Interest Rate Swaps and Caps

We are exposed to the impact of interest rate changes primarily through our borrowing activities. To limit this exposure, we attempt to obtain mortgage financing on a long-term, fixed-rate basis. However, from time to time, we or our investment partners may obtain variable-rate non-recourse mortgage loans and, as a result, may enter into interest rate swap agreements or interest rate cap agreements with counterparties. Interest rate swaps, which effectively convert the variable-rate debt service obligations of the loan to a fixed rate, are agreements in which one party exchanges a stream of interest payments for a counterparty’s stream of cash flow over a specific period. The notional, or face, amount on which the swaps are based is not exchanged. An interest rate cap limits the effective borrowing rate of variable-rate debt obligations while allowing participants to share in downward shifts in interest rates. Our objective in using these derivatives is to limit our exposure to interest rate movements.

The interest rate swaps that we had outstanding on our Consolidated Hotel investments at September 30, 2013 were designated as cash flow hedges and are summarized as follows (dollars in thousands):

		Notional		Effective	Effective	Expiration	Fair Value at
Instrument	Type	Amount		Interest Rate	Date	Date	September 30, 2013
1-Month LIBOR	“Rollercoaster” swap	$	9,750	5.0%	5/2012	5/2015	$	(104)
1-Month LIBOR	“Pay-fixed” swap	51,500		4.6%	12/2012	12/2017	505
1-Month LIBOR	“Pay-fixed” swap	19,350		4.1%	3/2013	3/2017	(9)
1-Month LIBOR	“Pay-fixed” swap	44,000		4.1%	7/2013	7/2018	(597)
							$	(205)

Amounts reported in Other comprehensive income related to interest rate swaps will be reclassified to interest expense as interest payments are made on our variable-rate debt. At September 30, 2013, we estimated that an additional $1.1 million, inclusive of amounts attributable to noncontrolling interests of $0.5 million, will be reclassified as interest expense during the next 12 months related to our interest rate swaps.

Some of the agreements we have with our derivative counterparties contain certain credit contingent provisions that could result in a declaration of default against us regarding our derivative obligations if we either default or are capable of being declared in default on certain of our indebtedness. At September 30, 2013, we had not been declared in default on any of our derivative obligations. The estimated fair value of our derivatives that were in a net liability position was $0.8 million and $0.4 million at September 30, 2013 and December 31, 2012, respectively, which included accrued interest and any adjustment for nonperformance risk. If we had breached any of these provisions at either September 30, 2013 or December 31, 2012, we could have been required to settle our obligations under these agreements at their aggregate termination value of $0.8 million and $0.5 million, respectively.

The derivative instruments that our Unconsolidated Hotel investments had outstanding at September 30, 2013 are summarized as follows (in thousands):

	Ownership
	Interest at		Notional		Effective	Expiration	Fair Value at
Description	September 30, 2013	Type	Amount	Cap Rate	Date	Date	September 30, 2013
1-Month LIBOR	57.0%	Interest rate cap	35,000	1.0%	10/2012	10/2015	$	47
1-Month LIBOR	80.4%	“Pay-fixed” swap	33,000	N/A	8/2013	8/2018	(596)
							$	(549)

CWI 9/30/2013 10-Q — 20

Notes to Consolidated Financial Statements

Note 8. Debt

The following table presents the non-recourse debt on our Consolidated Hotel investments (in thousands):

				Carrying Amount at
Consolidated Hotels	Interest Rate	Rate Type	Current Maturity Date	September 30, 2013		December 31, 2012
Hampton Inn Boston Braintree (a) (b)	5.00% (c)	Variable	5/2015	$	9,703	$	8,487
Lake Arrowhead Resort and Spa	4.34%	Fixed	7/2015	17,843		17,775
Courtyard Pittsburgh Shadyside (a) (d)	4.09% (c)	Variable	3/2017	19,975		-
Courtyard San Diego Mission Valley (a)	4.60% (c)	Variable	12/2017	51,500		51,500
Hilton Southeast Portfolio:
Hampton Inn Memphis Beale Street	4.07%	Fixed	3/2018	22,248		-
Hampton Inn Atlanta Downtown	4.12%	Fixed	3/2018	13,600		-
Hampton Inn Birmingham Colonnade	4.12%	Fixed	3/2018	9,400		-
Hampton Inn Frisco Legacy Park	4.12%	Fixed	3/2018	9,200		-
Hilton Garden Inn Baton Rouge Airport	4.12%	Fixed	3/2018	9,800		-
Fairmont Sonoma Mission Inn & Spa	4.13% (c)	Variable	7/2018	44,000		-
Hilton Garden Inn New Orleans French Quarter/CBD	5.30%	Fixed	7/2019	10,978		11,000
Hutton Hotel Nashville	5.25%	Fixed	7/2020	44,000		-
Holiday Inn Manhattan 6th Avenue Chelsea	4.49%	Fixed	6/2023	80,000		-
Marriott Raleigh City Center (e)	4.61%	Fixed	9/2038	51,500		-
				$	393,747	$	88,762

__________

(a)The mortgage loans secured by Hampton Inn Boston Braintree and Courtyard San Diego Mission Valley each have two, one-year extension options. The mortgage loan secured by Courtyard Pittsburgh Shadyside has a one-year extension option. All of the extensions are subject to certain conditions. The maturity dates in the table do not reflect extension options.

(b)Total mortgage commitment is up to $9.8 million, with the difference between the commitment and the carrying amount available for renovation draws.

(c)These mortgage loans have variable interest rates, which have been converted to effective fixed rates through the use of interest rate swaps (Note 7). The interest rates presented for these mortgage loans reflect interest rate swaps (Note 7) in effect at September 30, 2013.

(d)Total mortgage commitment is up to $21.0 million, with the difference between the commitment and the carrying amount available for renovation draws.

(e)The mortgage loan includes a call option by the lender with the earliest repayment date being September 1, 2018.

2013 Activity

See Note 4 for additional detail about our 2013 acquisitions. We amortize deferred financing costs over the term of the related mortgage loan using the straight-line method, which approximates the effective interest method.

Hilton Southeast Portfolio

We acquired the five hotels in the Hilton Southeast Portfolio through five wholly-owned subsidiaries and obtained five individual mortgage loans totaling $64.5 million, in the aggregate. The loans are each non-recourse, with annual interest rates fixed at approximately 4.1%, and do not contain cross-default provisions. All five loans mature on March 1, 2018. We capitalized $0.9 million of deferred financing costs related to these loans.

Courtyard Pittsburgh Shadyside

We acquired the Courtyard Pittsburgh Shadyside hotel through a wholly-owned subsidiary and obtained a non-recourse mortgage loan of up to $21.0 million, of which $19.1 million was funded at closing; the remaining $1.9 million will be available through renovation draws. As of September 30, 2013, $0.9 million had been drawn. The terms of the mortgage loan require monthly interest-only payments for 24 months, at which point the loan will amortize over a 25-year period with monthly interest and quarterly principal

CWI 9/30/2013 10-Q — 21

Notes to Consolidated Financial Statements

payments. The loan has an initial term of four years with a one-year extension option. The stated interest rate of one-month LIBOR with a floor of 0.5% plus 3.25% has effectively been fixed at approximately 4.1% through an interest rate swap agreement, maturing March 12, 2017. We capitalized $0.2 million of deferred financing costs related to this loan.

Hutton Hotel Nashville

In connection with our acquisition of the Hutton Hotel Nashville, we obtained a non-recourse mortgage loan of $44.0 million through a wholly-owned subsidiary. The terms of the mortgage loan require monthly interest-only payments for 36 months, at which point the loan will amortize over a 30-year period with monthly principal and interest payments. The interest rate is fixed at 5.25% and the loan matures on July 1, 2020. We capitalized $0.3 million of deferred financing costs related to this loan.

Holiday Inn Manhattan 6th Avenue Chelsea

We acquired the Holiday Inn Manhattan 6th Avenue Chelsea through a wholly-owned subsidiary and obtained a non-recourse mortgage loan of $80.0 million. The terms of the mortgage loan require monthly interest-only payments for 24 months, at which point the loan will amortize over a 30-year period with monthly principal and interest payments. The interest rate is fixed at 4.49% and the loan matures on June 6, 2023. We capitalized $1.1 million of deferred financing costs related to this loan.

Fairmont Sonoma Mission Inn & Spa

We acquired the Fairmont Sonoma Mission Inn & Spa through a wholly-owned subsidiary and obtained a non-recourse mortgage loan of $44.0 million. The terms of the mortgage loan require monthly interest-only payments for 36 months, at which point the loan will amortize over a 40-year period with monthly interest and quarterly principal payments. The stated interest rate of one-month LIBOR plus 2.5% has effectively been fixed at approximately 4.1% through an interest rate swap agreement, maturing on July 10, 2018, which is the maturity date of the loan. We capitalized $0.5 million of deferred financing costs related to this loan.

Marriott Raleigh City Center

We acquired the Marriott Raleigh City Center through a wholly-owned subsidiary and obtained a non-recourse mortgage loan of $51.5 million. The interest rate is fixed at 4.61% and the loan matures on September 1, 2038. The loan includes a call option by the lender, with the earliest such repayment date being September 1, 2018. We capitalized $0.4 million of deferred financing costs related to this loan.

Covenants

Pursuant to our mortgage loan agreements, we and our wholly-owned subsidiaries are subject to various operational and financial covenants. At September 30, 2013, we were in compliance with the applicable covenants for each of our mortgage loans.

Scheduled Debt Principal Payments

Scheduled debt principal payments for our Consolidated Hotels for the remainder of 2013, each of the next four calendar years following December 31, 2013, and thereafter are as follows (in thousands):

Years Ending December 31,	Total
2013 (remainder)	$	217
2014	2,670
2015 (a)	31,142
2016	4,961
2017	71,756
Thereafter through 2023	283,159
	393,905
Unamortized discount (b)	(158)
Total	$	393,747

_________

(a)Includes $18.0 million due on the Lake Arrowhead Resort and Spa mortgage loan in June 2015 and $9.5 million due on the Hampton Inn Boston Braintree mortgage loan in May 2015.

CWI 9/30/2013 10-Q — 22

Notes to Consolidated Financial Statements

(b)Represents the fair market value adjustment recorded as of September 30, 2013 in connection with the assumption of the Lake Arrowhead Resort and Spa mortgage loan as part of the acquisition.

Note 9. Commitments and Contingencies

At September 30, 2013, we were not involved in any material litigation. Various claims and lawsuits may arise against us in the normal course of business, but we do not expect the results of such proceedings to have a material adverse effect on our consolidated financial position or results of operations.

As described in Note 3, we remain liable for certain expenses of our initial public offering, which include filing, legal, accounting, printing and escrow fees, which are deducted from the gross proceeds of the offering. In connection with that offering, which terminated on September 15, 2013, we were obligated to reimburse Carey Financial or one of its affiliates for expenses (including fees and expenses of its counsel) and for the costs of any sales and information meetings of Carey Financial’s registered representatives or employees of one of its affiliates relating to the offering. As of September 30, 2013, costs incurred totaled $9.4 million, all of which we are obligated to reimburse. As of September 30, 2013, $9.2 million of such costs had been reimbursed.

Renovation Commitments

Certain of our hotel franchise agreements require us to make planned renovations to our hotels (Note 4). We do not currently expect to, and are not obligated to, fund any planned renovations on our Unconsolidated Hotels. We expect to fund such commitments with regard to our Consolidated Hotels from amounts in lender-held escrow accounts, except as otherwise noted. The following table summarizes our funding commitments at September 30, 2013 related to our Consolidated Hotels (in thousands):

	At September 30, 2013
	Original Funding Commitment at Acquisition		Less: Paid		Unpaid Commitment (a)		Less: Amount Held in Escrow		Remaining Commitment
Hampton Inn Boston Braintree	$	1,869	$	(1,869)	$	-	$	-	$	-
Hilton Garden Inn New Orleans French Quarter/CBD	3,470		(2,599)		871		(799)		72
Lake Arrowhead Resort and Spa	3,700		(3,532)		168		-		168
Hilton Southeast Portfolio:
Hampton Inn Birmingham Colonnade	212		(20)		192		(192)		-
Hampton Inn Atlanta Downtown	175		(12)		163		(163)		-
Hampton Inn Memphis Beale Street	1,075		(564)		511		(511)		-
Hampton Inn Frisco Legacy Park	1,276		-		1,276		(1,276)		-
Hilton Garden Inn Baton Rouge Airport	457		(349)		108		(108)		-
Courtyard Pittsburgh Shadyside	1,900		(910)		990		-		990
Holiday Inn Manhattan 6th Avenue Chelsea	2,519		-		2,519		(2,519)		-
Fairmont Sonoma Mission Inn & Spa	2,606		(186)		2,420		-		2,420
Marriott Raleigh City Center	2,500		-		2,500		(2,500)		-
	$	21,759	$	(10,041)	$	11,718	$	(8,068)	$	3,650

__________

(a)Includes $2.5 million that was included in Accounts payable, accrued expenses and other liabilities at September 30, 2013.

Hampton Inn Boston Braintree

A comprehensive $1.9 million renovation of the hotel, which commenced in December 2012, was substantially completed in March 2013. The renovation scope included all guestrooms and public spaces.

CWI 9/30/2013 10-Q — 23

Notes to Consolidated Financial Statements

Hilton Garden Inn New Orleans French Quarter/CBD

A $3.5 million renovation of all guestrooms and public spaces in the hotel commenced in October 2012 and was substantially completed by September 30, 2013. The remaining commitment will be funded through our lender-held escrow accounts earmarked for the renovation and cash accounts.

Lake Arrowhead Resort and Spa

A $3.7 million renovation of guestrooms and public spaces in the hotel commenced in September 2012. The renovation was substantially completed by September 30, 2013. On September 30, 2013, the hotel became affiliated with the Autograph Collection, a collection of upper-upscale and luxury independent hotels sponsored by Marriott. The remaining renovation expenditures will be funded through our cash accounts.

Hilton Southeast Portfolio

An estimated $3.2 million in total renovations are planned for the hotels and is currently expected to be funded through lender-held escrow accounts and our cash accounts. These renovations, which are currently anticipated to be completed in late 2013 for Hampton Inn Birmingham Colonnade, Hampton Inn Atlanta Downtown and Hilton Garden Inn Baton Rouge Airport and early 2014 for Hampton Inn Memphis Beale Street and Hampton Inn Frisco Legacy Park, will include refurbishments of the guestrooms and/or public spaces. At September 30, 2013, renovations at the Hilton Garden Inn Baton Rouge Airport had been substantially completed.

Courtyard Pittsburgh Shadyside

An estimated $1.9 million renovation is planned for the hotel and is currently expected to be funded by future renovation draws on the related mortgage loan. This renovation, which is currently anticipated to be completed by early 2014, will include the installation of Courtyard’s Bistro Lobby concept and a refurbishment of the guestrooms and public space.

Holiday Inn Manhattan 6th Avenue Chelsea

An estimated $2.5 million renovation is planned for the hotel and is currently expected to be funded through lender-held escrow accounts. This renovation, which is currently anticipated to be completed by the second quarter of 2014, will primarily be focused on a refurbishment of the guestrooms.

Fairmont Sonoma Mission Inn & Spa

The resort is currently undergoing a renovation that commenced prior to our ownership. We have committed $2.6 million to renovations that will be funded through our cash accounts and include $1.8 million to complete the refurbishment of guestrooms and public spaces, which was substantially completed by September 30, 2013, and $0.8 million to complete the renovation of the spa, which is currently anticipated to be completed in the second quarter of 2014.

Marriott Raleigh City Center

An estimated $2.5 million renovation is planned for the hotel and is currently expected to be funded through lender-held escrow accounts. This renovation, which is currently anticipated to be completed in the third quarter of 2014, will primarily be focused on improvements to public spaces.

Purchase Commitments

During the periods presented and through the date of this Report, we have entered into various agreements to purchase properties in the ordinary course of business.  With certain of these agreements, we have provided deposits that, if the associated arrangement is canceled, may only be refunded to us under specified circumstances.

CWI 9/30/2013 10-Q — 24

Notes to Consolidated Financial Statements

Note 10. Equity

Stock-Based Payments

2010 Equity Incentive Plan and Directors Incentive Plan — 2010 Incentive Plan

We maintain the 2010 Equity Incentive Plan, which authorizes the issuance of shares of our common stock to our officers and officers and employees of the subadvisor, who perform services on our behalf, and to non-director members of the investment committee through stock-based awards. The 2010 Equity Incentive Plan provides for the grant of RSUs and dividend equivalent rights. We also maintain the Directors Incentive Plan — 2010 Incentive Plan, which authorizes the issuance of shares of our common stock to our independent directors. The Directors Incentive Plan — 2010 Incentive Plan provides for the grant of RSUs and dividend equivalent rights. A maximum of 4,000,000 awards may be granted, in the aggregate, under these two plans, of which 3,919,802 shares remained available for future grants at September 30, 2013. In April 2013, 45,000 RSUs were issued to employees of our subadvisor, which vest over three years. We issued 1,000 RSUs to each of our four independent directors during June 2013 with a market price of $10.00 per unit, which vested immediately.

We recognized stock-based compensation expense associated with these awards of less than $0.1 million and of $0.1 million for the three and nine months ended September 30, 2013. We recognized stock-based compensation expense of $0.1 million and $0.2 million for the three and nine months ended September 30, 2012, respectively, associated with these awards. Stock-based compensation expense is included within Corporate general and administrative expense in the consolidated financial statements.

We currently expect to recognize stock-based compensation expense totaling approximately $0.8 million over the remaining vesting period. The awards to employees of our subadvisor had a weighted-average remaining contractual term of 2.0 years at September 30, 2013. We have not recognized any income tax benefit in earnings for our share-based compensation arrangements since the inception of these two plans.

Note 11. Subsequent Events

On October 23, 2013, we acquired a 100% interest in the Hawks Cay Resort for $133.8 million from BH/NV Hawks Cay Property Holdings, LLC, an unaffiliated third party, and obtained a non-recourse mortgage loan at closing of $79.0 million. The full service hotel, located on Duck Key in the Florida Keys, includes 177 rooms and a resort residential management program that includes over 250 two-, three- and four-bedroom villas. The hotel and the resort residential program will be managed by Pyramid Hotel Group. It was not practicable to disclose the preliminary purchase price allocation or consolidated pro forma financial information for this transaction given the short period of time between the acquisition date and the issuance of this Report.

On October 25, 2013, we filed a registration statement with the SEC for a possible continuous public offering of up to $350.0 million of our common stock. There can be no assurance that we will actually commence the follow-on offering or successfully sell the full number of shares registered.

CWI 9/30/2013 10-Q — 25

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

MD&A is intended to provide the reader with information that will assist in understanding our financial statements and the reasons for changes in certain key components of our financial statements from period to period. MD&A also provides the reader with our perspective on our financial position and liquidity, as well as certain other factors that may affect our future results. Our MD&A should be read in conjunction with our 2012 Annual Report.

Business Overview

As described in Item 1 of our 2012 Annual Report, we are a publicly owned, non-listed REIT formed for the purpose of acquiring, owning, disposing of and, through the advisor, managing and seeking to enhance the value of interests in lodging and lodging-related properties. As a REIT, we are not subject to U.S. federal income taxation as long as we satisfy certain requirements, principally relating to the nature of our income, the level of our distributions to our stockholders and other factors. We conduct substantially all of our investment activities and own all of our assets through the Operating Partnership. At September 30, 2013, we held ownership interests in 16 hotels, with a total of 3,237 rooms (Note 1), as compared to our ownership interests in six hotels, with a total of 1,062 rooms, at September 30, 2012.

During the nine months ended September 30, 2013, we acquired ten Consolidated Hotels (Note 4). Our results of operations were significantly impacted by acquisition related expenses incurred in 2013 and 2012 and by hotel renovations. Five of our Consolidated Hotels were undergoing renovations during the nine months ended September 30, 2013 and one of our Unconsolidated Hotels was undergoing renovations during the comparable prior year period. These renovations disrupted hotel operations and took rooms out of service, negatively impacting our operating results during the renovation periods.

We use other information that may not be financial in nature, including statistical information, to evaluate the operating performance of our business, including occupancy rate, average daily rate (“ADR”) and revenue per available room (“RevPAR”). Occupancy rate, ADR and RevPAR are commonly used measures within the hotel industry to evaluate operating performance.

Financial and Operating Highlights

(Dollars in thousands, except ADR and RevPAR)

	Three Months Ended September 30,				Nine Months Ended September 30,
	2013		2012		2013		2012
Total revenues	$	41,014	$	5,868	$	73,328	$	6,778
Net income from equity investments in real estate	117		928		599		1,345
Acquisition-related expenses	5,384		995		17,250		2,826
Net (loss) income attributable to CWI stockholders	(3,055)		3,745		(15,415)		1,520
Cash distributions paid	3,757		914		7,900		1,889
Net cash used in operating activities					(274)		(727)
Net cash used in investing activities					(471,891)		(34,655)
Net cash provided by financing activities					682,747		68,892
Supplemental financial measure:
Modified funds from operations (a)	6,496		833		12,283		498
Combined Portfolio Data: (b)
Occupancy	76.2%		68.3%		74.3%		71.0%
ADR	$	177.49	$	148.11	$	160.01	$	145.16
RevPAR	$	135.23	$	101.10	$	118.94	$	103.00

__________

(a)We consider certain supplemental measures not defined by GAAP (“non-GAAP”), such as Modified funds from operations (“MFFO”), to be important measures in the evaluation of our results of operations, liquidity and capital resources. We evaluate our results of operations with a primary focus on the ability to generate cash flow necessary to meet our objective of funding

CWI 9/30/2013 10-Q — 26

distributions to stockholders. For a discussion of MFFO, see Supplemental Financial Measures below for our definition of this non-GAAP measure and a reconciliation to its most directly comparable measure in accordance with GAAP.

(b)Represents portfolio data for our Consolidated Hotels.

For the three and nine months ended September 30, 2013, we recognized net loss attributable to CWI stockholders of $3.1 million and $15.4 million, respectively, as compared to net income of $3.7 million and $1.5 million for the three and nine months ended September 30, 2012, respectively. Our results for the nine months ended September 30, 2013 reflect acquisition expenses of $17.3 million related to our 2013 hotel acquisitions and, to a lesser extent, the impact of renovation activity. Our results for each of the prior year periods reflect a bargain purchase gain resulting from the acquisition of Lake Arrowhead Resort and Spa, partially offset by acquisition expenses related to our investment activity.

Significant Developments

Offerings

Our initial public offering terminated on September 15, 2013. Since the beginning of this offering on September 15, 2010 through September 15, 2013, we raised $582.4 million, inclusive of reinvested distributions through the DRIP, of which $422.8 million was raised during the nine months ended September 30, 2013.

On October 25, 2013, we filed a registration statement with the SEC for a possible continuous public offering of up to $350.0 million of our common stock. We intend to obtain an estimated net asset value per share (“NAV”) as of September 30, 2013. Prior to the anticipated commencement of the follow-on offering, we intend to pay a stock dividend (the “Proposed Stock Dividend”) on the outstanding shares of common stock.  The Proposed Stock Dividend would have the effect of increasing the total number of outstanding shares of our common stock and of decreasing the NAV. We intend to offer shares of our common stock in the follow-on offering at the NAV grossed up by the 10.0% selling commission and dealer manager fee payable in connection with the follow-on offering.  There can be no assurance that we will actually commence the follow-on offering or successfully sell the full number of shares registered.

Acquisitions and Dispositions

During the nine months ended September 30, 2013, we acquired controlling interests in ten hotels: five hotels included in the Hilton Southeast Portfolio for $94.6 million in the aggregate, the Courtyard Pittsburgh Shadyside for $29.9 million, the Hutton Hotel Nashville for $73.6 million, the Holiday Inn Manhattan 6th Avenue Chelsea for $113.0 million, the Fairmont Sonoma Mission Inn and Spa for $76.6 million and the Marriott Raleigh City Center for $82.2 million, respectively (Note 4). During this period, we sold our 49% interest in the Long Beach Venture for $22.6 million.

Financings

During the nine months ended September 30, 2013, in connection with our 2013 acquisitions, we secured non-recourse mortgage loans aggregating $303.1 million with a weighted-average effective interest rate and term of 4.5% and 10.0 years, respectively (Note 8). We also drew down $2.2 million on existing mortgage loans for renovations.

Distributions

Our third quarter 2013 declared daily distribution was $0.0016304 per share, comprised of $0.0013587 per day payable in cash and $0.0002717 per day payable in shares of our common stock, which equated to $0.6000 per share on an annualized basis and was paid on October 15, 2013 to stockholders of record on each day during the third quarter. Because our initial public offering terminated on September 15, 2013, our board of directors did not declare daily distributions in advance for the fourth quarter of 2013.

Current Trends

Lodging Fundamentals

Smith Travel Research, a leading provider of hospitality industry data, reported that, for the third quarter of 2013, in year-over-year measurements, the U.S. hotel industry’s occupancy rate increased from 67.1% to 67.9%, ADR rose 4.2% from $107.34 to $111.88, and RevPAR increased by 5.5% from $72.00 to $75.97. The industry also had increases in these performance metrics in the second quarter of 2013. Despite continuing global economic concerns as of the date of this Report, hotel operators and industry analysts maintain that key performance indicators show no sign of a slowdown.

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Due to the lack of new construction starts in lodging properties in recent years as well as a current scarcity of construction financing, we believe that new lodging supply growth should remain below historical levels for the foreseeable future. We anticipate that this low supply growth, coupled with expected growth in demand, will allow hotel operators to continue to increase ADRs in the near term.

Investor Capital Inflows

According to Robert A. Stanger & Co., Inc., investor capital inflows for non-listed REITs overall improved 57.9% during the three months ended September 30, 2013 as compared to the three months ended June 30, 2013.

During the three months ended September 30, 2013, we raised offering proceeds, inclusive of reinvested distributions through the DRIP, of $212.2 million compared to $139.4 million for the three months ended June 30, 2013, an increase of 52.2%. Our initial public offering terminated on September 15, 2013.

Results of Operations

We began making investments in 2011 and as such have a limited operating history. We are dependent upon the remaining proceeds received from our initial public offering to conduct our acquisition activities. As illustrated by the acquisition dates listed in the table below, our results are not comparable period over period because we did not acquire our first Consolidated Hotel until May 2012. We invest in hotels that may require significant renovations. Generally, during the renovation period, a portion of total rooms are unavailable and hotel operations are disrupted, negatively impacting our results of operations. For each acquisition, we also incur acquisition-related costs and fees that impact our results of operations. We utilize the capital from our offering proceeds and mortgage indebtedness to fund our acquisitions.

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The following table sets forth the occupancy rate, ADR and RevPAR from each of our Consolidated Hotels for the three and nine months ended September 30, 2013, as well as the status of any planned renovations (Note 9). For hotels acquired during 2013, this information represents data from their respective acquisition dates through September 30, 2013:

		Three Months Ended September 30, 2013					Nine Months Ended September 30, 2013
	Acquisition	Occupancy					Occupancy					Renovation
Consolidated Hotels	Date	Rate (a)	ADR (a)		RevPAR (a)		Rate (a)	ADR (a)		RevPAR (a)		Status (b)
Hampton Inn Boston Braintree(c)	5/31/2012	86.4%	$	148.58	$	128.42	69.7%	$	140.85	$	98.17	Completed
Hilton Garden Inn New Orleans French Quarter/CBD(d)	6/8/2012	46.4%	125.36		58.11		69.2%	157.13		108.68		Substantially completed
Lake Arrowhead Resort and Spa(e)	7/9/2012	66.2%	171.11		113.30		45.6%	167.72		76.42		Substantially completed
Courtyard San Diego Mission Valley	12/6/2012	88.9%	142.91		127.09		84.8%	128.78		109.14		None planned
Hampton Inn Memphis Beale Street	2/14/2013	81.7%	163.80		133.82		84.8%	166.62		141.27		Planned future
Hampton Inn Atlanta Downtown	2/14/2013	65.8%	146.50		96.43		69.0%	142.19		98.08		Planned future
Hampton Inn Birmingham Colonnade	2/14/2013	57.8%	100.30		58.01		67.0%	101.58		68.03		Planned future
Hampton Inn Frisco Legacy Park	2/14/2013	77.9%	110.93		86.41		77.1%	112.66		86.89		Planned future
Hilton Garden Inn Baton Rouge Airport	2/14/2013	55.1%	107.73		59.40		64.1%	112.13		71.86		Substantially completed
Courtyard Pittsburgh Shadyside	3/12/2013	76.9%	163.59		125.79		76.8%	166.55		127.85		Planned future
Hutton Hotel Nashville	5/29/2013	81.6%	201.62		164.45		83.3%	208.36		173.63		None planned
Holiday Inn Manhattan 6th Avenue Chelsea	6/6/2013	94.5%	213.63		201.85		95.1%	216.39		205.79		Planned future
Fairmont Sonoma Mission Inn & Spa	7/10/2013	85.7%	363.35		311.30		85.7%	363.35		311.30		In progress
Marriott Raleigh City Center	8/13/2013	72.6%	136.21		98.82		72.6%	136.21		98.82		Planned future
Consolidated Hotels		76.2%	$	177.49	$	135.23	74.3%	$	160.01	$	118.94

__________

(a)Demand for rooms is seasonal, with highest demand generally in the second and third quarters of the calendar year. As a result, the information presented is not necessarily indicative of future results.

(b)Our renovation activity is discussed in Note 9.

(c)For the three months ended September 30, 2012, Occupancy rate, ADR and RevPAR were 77.0%, $137.37 and $105.81, respectively. From the hotel’s acquisition date through September 30, 2012, Occupancy rate, ADR and RevPAR were 80.4%, $137.63 and $110.62, respectively. The hotel experienced significant renovation-related disruption during the first quarter of 2013 and had more than 40% of its potential room nights out of service as a result of room renovations.

(d)For the three months ended September 30, 2012, Occupancy rate, ADR and RevPAR were 73.7%, $126.32 and $93.15, respectively. From the hotel’s acquisition date through September 30, 2012, Occupancy rate, ADR and RevPAR were 75.6%, $126.15 and $95.33, respectively. The hotel had 20%  and 41% of its potential room nights out of service as a result of room renovations in June 2013 and during the three months ended September 30, 2013, respectively.

(e)From the hotel’s acquisition date through September 30, 2012, Occupancy rate, ADR and RevPAR were 57.2%, $185.14 and $105.84, respectively. The hotel experienced significant renovation-related disruption during the nine months ended September 30, 2013. During the first quarter of 2013, the hotel had nearly 30% of its potential room nights out of service as a result of room renovations. While no rooms were out of service for renovation during the second and third quarter, the hotel experienced significant disruption from the renovation of public space, resulting in canceled reservations, lost spa revenue and guest concessions.

CWI 9/30/2013 10-Q — 29

Hotel Revenues

For the three and nine months ended September 30, 2013 as compared to the same periods in 2012, hotel revenues increased by $35.1 million and $66.6 million, respectively. As illustrated by the acquisition dates listed in the table above, our results are not comparable period over period because of hotel acquisitions in 2012 and 2013. Hotel revenues for the three and nine months ended September 30, 2013 were adversely affected by renovation disruptions at certain hotels as noted above.

Hotel Expenses

During the three and nine months ended September 30, 2013, our Consolidated Hotels incurred aggregate hotel operating expenses of $32.1 million and $57.7 million, respectively, representing 78.2% and 78.7%, respectively, of total hotel revenues. During the three and nine months ended September 30, 2012, our Consolidated Hotels incurred aggregate hotel operating expenses of $5.1 million and $5.7 million, respectively, representing 87.2% and 84.1%, respectively, of total hotel revenues. As illustrated by the acquisition dates listed in the table above, our results are not comparable period over period because of hotel acquisitions in 2012 and 2013.

Acquisition-Related Expenses

We immediately expense acquisition-related costs and fees associated with business combinations. For the three and nine months ended September 30, 2013, acquisition-related expenses totaled $5.4 million and $17.3 million, respectively, compared to $1.0 million and $2.8 million, respectively, during the comparable prior year periods, as a result of the greater number and size of hotels acquired during the current year periods compared to the respective prior year periods (Note 4).

Management Expenses

For the three and nine months ended September 30, 2013 as compared to the same periods in 2012, management expenses increased by $0.1 million and $0.3 million, respectively, as a result of our acquisition activity during 2012 and 2013 and the increase in the number of hotels managed.

Corporate General and Administrative Expenses

For the three and nine months ended September 30, 2013 as compared to the same periods in 2012, corporate general and administrative expenses increased by $0.8 million and $2.0 million, respectively, primarily due to increases in professional fees. Professional fees include legal, accounting and investor-related expenses incurred in the normal course of business and increased as a result of higher investment activity in 2012 and 2013, as well as an increase in the size of our hotel portfolio in the current year periods over the respective prior year periods.

Asset Management Fees to Affiliate

For the three and nine months ended September 30, 2013 as compared to the same periods in 2012, asset management fees increased by $0.7 million and $1.4 million, respectively. Such fees, which are paid to the advisor, are based on the value of average total assets under management and reflect our acquisition activity during 2013 and, to a lesser extent, 2012.

Operating Income (Loss)

For the three and nine months ended September 30, 2013, operating income was $1.1 million and operating loss was $7.4 million, respectively, as compared to operating losses of $1.1 million and $3.8 million, respectively, for the comparable prior year periods. Operating income for the three months ended September 30, 2013 was primarily a result of the increase in the size of our hotel portfolio, resulting in sufficient operating income to offset acquisition expenses.  The operating losses incurred for the nine months ended September 30, 2013 and the three and nine months ended September 30, 2012 were primarily driven by acquisition-related expenses of $17.3 million for the nine months ended September 30, 2013 and $1.0 million and $2.8 million for the three and nine months ended September 30, 2012, respectively, as described above.

Net Income from Equity Investments in Real Estate

Income from equity investments in real estate represents earnings from our equity investments in Unconsolidated Hotels recognized in accordance with each respective investment agreement and, where applicable, based upon the allocation of the investment’s net assets at book value as if the investment were hypothetically liquidated at the end of each reporting period (Note 5). We are required to

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periodically compare an investment’s carrying value to its estimated fair value and recognize an impairment charge to the extent that the carrying value exceeds the estimated fair value and is determined to be other than temporary.

The following tables set forth our share of equity earnings (loss) from our Unconsolidated Hotels, as well as each venture’s occupancy rate, ADR and RevPAR. Occupancy rates, ADR and RevPAR provide information about the underlying performance of the ventures and are not necessarily indicative of equity earnings recognized, which are based on the hypothetical liquidation at book value model (Note 5) (dollars in thousands, except ADR and RevPAR):

	Three Months Ended September 30, 2013								Nine Months Ended September 30, 2013
			Hyatt French		Westin						Hyatt French		Westin
	Long Beach		Quarter		Atlanta				Long Beach		Quarter		Atlanta
	Venture  (a)		Venture  (b)		Venture  (c)		Total		Venture  (a)		Venture  (b)		Venture  (c)		Total
Income (loss) from equity investments	$	1,928	$	(1,524)	$	(287)	$	117	$	2,601	$	(1,006)	$	(996)	$	599
Occupancy rate	-		67.1%		78.9%		74.1%		73.3%		79.0%		78.6%		77.2%
ADR	$	-	$	127.40	$	106.57	$	114.23	$	148.84	$	158.49	$	109.86	$	134.87
RevPAR	$	-	$	85.54	$	84.07	$	84.66	$	109.05	$	125.13	$	86.34	$	104.08
	Three Months Ended September 30, 2012								Nine Months Ended September 30, 2012
			Hyatt French								Hyatt French
	Long Beach		Quarter						Long Beach		Quarter
	Venture  (a)		Venture  (b)				Total		Venture  (a)		Venture  (b)				Total
Income from equity investments	$	900	$	28			$	928	$	1,268	$	77			$	1,345
Occupancy rate	83.5%		67.0%				76.7%		78.6%		58.2%				70.1%
ADR	$	147.40	$	127.20			$	140.12	$	143.46	$	144.49			$	143.81
RevPAR	$	123.12	$	85.20			$	107.47	$	112.71	$	84.02			$	100.85

__________

(a)We sold our interest in this venture on July 17, 2013 and recognized a gain of $1.8 million, which is included in Net income from equity investments in the consolidated statement of operations (Note 5).

(b)Loss from equity investments recorded during the three months ended September 30, 2013 reflects our share of losses recognized by the venture as a result of an overall decline in hotel occupancy in the New Orleans area during the quarter, as well as a $0.6 million loss on extinguishment of debt recognized by the venture as a result of refinancing its outstanding mortgage loan. The refinancing substantially reduced the interest rate of the mortgage loan and extended the maturity. For the nine months ended September 30, 2013, these losses were partially offset by our share of the improved operations of the hotel during the first and second quarters of 2013. Occupancy rate, RevPAR and ADR at the hotel owned by this venture for the nine months ended September 30, 2013 increased compared to the same period in 2012 due to substantial renovations from October 2011 through May 2012, which adversely affected occupancy rate, RevPAR and ADR in the prior year period.

(c)The losses for the three and nine months ended September 30, 2013 reflect weak seasonal demand in the first and second quarters, as well as overall weak demand prior to the completion of hotel renovations, which commenced in September 2013 and are currently expected to be completed in early 2014.

Bargain Purchase Gain

During both the three and nine months ended September 30, 2012, we recognized a bargain purchase gain of $3.8 million on the purchase of our controlling interest in the Lake Arrowhead Resort and Spa because the fair value assigned to the assets acquired, net of liabilities assumed, exceeded the consideration paid.

Interest Expense

For the three and nine months ended September 30, 2013 as compared to the same periods in 2012, interest expense increased by $3.9 million and $7.6 million, respectively, primarily as a result of mortgage financing obtained or assumed in connection with our acquisitions of Consolidated Hotels during 2012 and 2013.

CWI 9/30/2013 10-Q — 31

Net Loss Attributable to Noncontrolling Interests

Net loss attributable to noncontrolling interests reflects our venture partners’ share of losses based on the hypothetical liquidation at book value model (Note 5). Amounts attributable to noncontrolling interests for the Hilton Garden Inn New Orleans French Quarter/CBD, which was acquired in June 2012, were losses of $0.5 million for both the three and nine months ended September 30, 2013 and losses of $0.3 million and $0.7 million for the three and nine months ended September 30, 2012, respectively. Losses incurred during the 2013 periods were primarily a result of renovation activity at this hotel during the relevant periods. Amounts attributable to noncontrolling interests for the Lake Arrowhead Resort and Spa, which was acquired in July 2012, were a loss of $0.1 million for the nine months ended September 30, 2013 and a loss of $0.2 million for both the three and nine months ended September 30, 2012. The losses attributable to noncontrolling interests for Hilton Garden Inn New Orleans French Quarter/CBD and Lake Arrowhead Resort and Spa for the three and nine months ended September 30, 2013 were partially offset by income attributable to noncontrolling interests for Fairmont Sonoma Mission Inn & Spa of less than $0.1 million for both periods.

Net (Loss) Income Attributable to CWI Stockholders

For the three and nine months ended September 30, 2013, the resulting net loss attributable to CWI stockholders was $3.1 million and $15.4 million, respectively. For the three and nine months ended September 30, 2012, the resulting net income attributable to CWI stockholders was $3.7 million and $1.5 million, respectively.

Modified Funds from Operations

MFFO is a non-GAAP measure we use to evaluate our business. For a definition of MFFO and a reconciliation to net income attributable to CWI stockholders, see Supplemental Financial Measures below.

For the three and nine months ended September 30, 2013 as compared to the same periods in 2012, MFFO increased by $5.7 million and $11.8 million, respectively. The improvement in MFFO principally reflects the increase in income attributed to hotel operations, in each of the current year periods compared to the same periods in 2012.

Financial Condition

Our initial public offering terminated on September 15, 2013. We expect to use uninvested capital raised from our initial public offering to acquire, own and manage a portfolio of hotels as well as seek to enhance the value of interests in lodging and lodging-related properties.

As a REIT, we are not subject to U.S. federal income taxes on amounts distributed to stockholders provided we meet certain conditions, including distributing at least 90% of our taxable income to stockholders. Our objectives are to pay quarterly distributions at an increasing rate, to increase equity in our real estate through regular mortgage principal payments and to own a geographically diversified portfolio of lodging properties that will benefit from renovation and repositioning and increase in value. Our distributions since inception have exceeded our earnings and our cash flow from operating activities and have been entirely paid from offering proceeds. We expect that future distributions will be paid in whole or in part from offering proceeds, borrowings and other sources, without limitation, particularly during the period before we have substantially invested the net proceeds from our offering.

As a REIT, we are permitted to own lodging properties but are prohibited from operating these properties. In order to comply with applicable REIT qualification rules, we enter into leases for each of our lodging properties with our wholly-owned taxable REIT subsidiaries, (collectively, the “TRS Lessees”). The TRS Lessees in turn contract with independent hotel management companies that manage day-to-day operations of our hotels under the oversight of the subadvisor.

Liquidity and Capital Resources

We expect to meet our short-term liquidity requirements generally through existing cash and escrow balances, cash flow generated from our hotels, if any, and, if necessary, short-term borrowings from the advisor or its affiliates, as described below in Cash Resources. We expect that cash flow from operations will be negatively impacted in the period of acquisition by several factors, primarily renovation disruption, acquisition costs and other administrative costs related to our regulatory reporting requirements specific to each acquisition. In later periods, we expect that our hotels will generate positive cash flow. However, until our offering proceeds are fully invested and any renovations have been completed, it may be necessary to use uninvested proceeds from our initial public offering to fund a portion of our operating activities. Over time, we expect to meet our long-term liquidity requirements, including funding additional hotel property acquisitions, through cash on hand and long-term secured and unsecured borrowings.

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To the extent that our working capital reserve is insufficient to satisfy our cash requirements, additional funds may be provided from future cash generated from operations or through short-term borrowings from the advisor or its affiliates, as described below in Cash Resources. In addition, we may incur indebtedness in connection with the acquisition of real estate, refinance the debt thereon, arrange for the leveraging of any previously unfinanced property or reinvest the proceeds of financings or refinancings in additional properties.

Sources and Uses of Cash During the Period

We expect to use the cash flow generated from hotel operations to meet our normal recurring operating expenses and service debt. Our cash flows fluctuate from period to period due to a number of factors, which may include, among other things, the financial and operating performance of our hotels, the timing of purchases of hotels, the timing and characterization of distributions from equity method investments in hotels and seasonality in the demand for our hotels. Also, many hotels we invest in require renovations. During periods of renovation, the hotel may experience disruptions and generally a portion of total rooms are unavailable, possibly resulting in reduced revenue and operating income. Despite these fluctuations, we believe that, as we continue to invest the remaining proceeds of our initial public offering, we will generate sufficient cash from operations and from our equity method investments to meet our normal recurring short-term and long-term liquidity needs. However, currently our investments do not generate sufficient cash flow from operations to meet our short-term liquidity needs, which we expect to continue until we have fully invested the remaining proceeds of our initial public offering and any renovations at our hotels have been completed. Currently, we expect to use existing cash resources and, if necessary, borrowings from the advisor or its affiliates, as described below in Cash Resources to meet these needs. We assess our ability to access capital on an ongoing basis. Our sources and uses of cash during the period are described below.

Operating Activities

During the nine months ended September 30, 2013, net cash used in operating activities was $0.3 million. This net cash outflow primarily resulted from acquisition-related expenses we incurred and the impact of renovation-related disruptions on hotel operating results during the period.

Investing Activities

During the nine months ended September 30, 2013, we used offering proceeds totaling $482.7 million for acquisitions, comprised of $113.0 million for the Holiday Inn Manhattan 6th Avenue Chelsea, $94.6 million for the Hilton Southeast Portfolio, $89.4 million for the Fairmont Sonoma Mission Inn & Spa, $82.2 million for the Marriott Raleigh City Center, $73.6 million for the Hutton Hotel Nashville and $29.9 million for the Courtyard Pittsburgh Shadyside (Note 4). We funded $9.1 million of capital expenditures for our Consolidated Hotels. We received $28.2 million in distributions from equity investments in real estate in excess of equity in net income, inclusive of proceeds of $22.0 million from the sale of our interest in the Long Beach Venture. Funds totaling $19.4 million and $11.1 million, respectively, were placed in and released from lender-held escrow accounts for renovations, property taxes and insurance.

Financing Activities

Net cash provided by financing activities for the nine months ended September 30, 2013 was $682.7 million, primarily as a result of raising funds through the issuance of shares of our common stock in our initial public offering totaling $376.4 million, net of issuance costs through its termination on September 15, 2013, and $305.2 million of mortgage financing in connection with our acquisitions during the period. Our mortgage financing was comprised of $80.0 million for the Holiday Inn Manhattan 6th Avenue Chelsea, $64.5 million for the Hilton Southeast Portfolio, $51.5 million for the Marriott Raleigh City Center, $44.0 million for the Fairmont Sonoma Mission Inn & Spa (including $12.8 million attributable to noncontrolling interest), $44.0 million for the Hutton Hotel Nashville, and $19.1 million for the Courtyard Pittsburgh Shadyside, as well as draws aggregating $2.2 million on the Hampton Inn Boston Braintree and Courtyard Pittsburgh Shadyside mortgage loans for renovations. These inflows were partially offset by cash distributions paid to stockholders of $7.9 million and payments of deferred financing costs of $3.4 million.

Our objectives are to generate sufficient cash flow over time to provide stockholders with increasing distributions and to seek investments with potential for capital appreciation throughout varying economic cycles. From inception through September 30, 2013, we have declared distributions, excluding distributions paid in shares of our common stock, to stockholders totaling $17.9 million, which were comprised of cash distributions of $7.6 million and $10.3 million reinvested by stockholders in shares of our common stock pursuant to our DRIP. We have determined that Funds from Operations (“FFO”), is a more appropriate metric to evaluate our ability to fund distributions to stockholders. For a discussion of FFO, see “Supplemental Financial Measures” below. To date, we have not yet generated sufficient FFO to fund our distributions; therefore, we have funded all of our cash distributions to date from the proceeds of our initial public offering.

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Redemption Plan

We maintain a quarterly redemption program pursuant to which we may, at the discretion of our Board of Directors, redeem shares of our common stock from stockholders seeking liquidity. During the nine months ended September 30, 2013, requests were received to redeem 20,621 shares of our common stock pursuant to our redemption plan, all of which were redeemed during the period at a weighted average price of $9.39, which is net of redemption fees, totaling $0.2 million.

Summary of Financing

Our non-recourse long-term debt for our Consolidated Hotels, which totaled $393.7 million at September 30, 2013, was comprised of fixed rate debt and variable-rate debt that has been effectively swapped to a fixed rate through interest rate swaps (Note 8). At September 30, 2013, none of these interest rate swaps were scheduled to expire during the next 12 months.

Most of our loan agreements contain “lock-box” provisions, which permit the lender to access or sweep a hotel’s restricted cash account and would be triggered under limited circumstances, including the failure to maintain minimum debt service coverage ratios.  If the provisions were triggered, the lender would retain a portion of cash sufficient to cover the required debt service; however, we would generally be permitted to spend an amount equal to our budgeted hotel operating expenses, taxes, insurance and capital expenditure reserves for the relevant hotel, even if a lock-box provision were triggered.  At the date of this filing, all of our hotels exceed the applicable minimum debt service coverage ratios.

Cash Resources

At September 30, 2013, we had cash totaling $241.3 million. Our cash resources may be used to fund future investments and can be used for working capital needs, debt service and other commitments. We also had unfunded mortgage loan proceeds of $1.1 million available as draws to fund renovations.

In January 2013, our Board of Directors and the board of directors of W. P. Carey approved loans to us of up to $50.0 million in the aggregate, at a rate of LIBOR plus 2.0%, which is equal to the rate at which W. P. Carey currently borrows funds, under its existing credit facility, for the purpose of facilitating acquisitions approved by our investment committee that we might not otherwise have sufficient available funds to complete. Any such loans may be made solely at the discretion of the management of W. P. Carey. Through the date of this Report, no such loans have been made pursuant to these approvals; however, W. P. Carey has provided similar loans to us in the past, all of which were repaid on or prior to their maturity dates.

Cash Requirements

During the next 12 months, we expect that cash payments will include acquiring new investments, paying distributions to our stockholders, making scheduled debt payments, reimbursing the advisor for costs incurred on our behalf, fulfilling our intended renovation commitments (Note 9) and paying normal recurring operating expenses. As described above, we expect to fund this activity through cash on hand, any cash flow generated from our hotels or, for acquisitions, through short-term borrowings from the advisor or its affiliates.

The mortgage loans for our Consolidated Hotels have no lump-sum or “balloon” payments due until 2015; however, $19.9 million of scheduled debt payments and interest on such borrowings are due during the next 12 months.

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Off-Balance Sheet Arrangements and Contractual Obligations

The table below summarizes our debt, off-balance sheet arrangements and other contractual obligations at September 30, 2013 and the effect that these arrangements and obligations are expected to have on our liquidity and cash flow in the specified future periods (in thousands):

			Less than						More than
	Total		1 year		1-3 years		3-5 years		5 years
Third-party non-recourse mortgage debt - principal (a)	$	393,905	$	2,151	$	35,434	$	227,698	$	128,622
Interest on borrowings (b)	99,844		17,779		34,092		27,785		20,188
Due to affiliate (c)	606		606		-		-		-
Capital commitments (d)	11,718		11,718		-		-		-
	$	506,073	$	32,254	$	69,526	$	255,483	$	148,810

__________

(a)Excludes unamortized discount of $0.2 million.

(b)For variable-rate debt, interest on borrowings is calculated using the swapped interest rate.

(c)Primarily represents amounts to be reimbursed to the advisor related to operating expenses initially paid by the advisor pursuant to the advisory agreement (Note 3).

(d)Capital commitments represent our remaining renovation commitments under hotel franchise agreements at our Consolidated Hotels (Note 9).

Supplemental Financial Measures

In the real estate industry, analysts and investors employ certain non-GAAP supplemental financial measures in order to facilitate meaningful comparisons between periods and among peer companies. Additionally, in the formulation of our goals and in the evaluation of the effectiveness of our strategies, we use FFO and MFFO, supplemental non-GAAP measures, which are uniquely defined by our management. We believe these measures are useful to investors to consider because they may assist them to better understand and measure the performance of our business over time and against similar companies. A description of FFO and reconciliations of FFO and MFFO to the most directly comparable GAAP measures are provided below.

FFO and MFFO were as follows (in thousands):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2013		2012		2013		2012
Net (loss) income attributable to CWI stockholders	$	(3,055)	$	3,745	$	(15,415)	$	1,520
Adjustments:
Depreciation and amortization of real property	5,394		536		10,207		621
Gain on sale of equity investment	(1,802)		-		(1,802)		-
Proportionate share of adjustments for partially-owned entities — FFO adjustments	1,313		-		2,458		-
FFO — as defined by NAREIT	1,850		4,281		(4,552)		2,141
Acquisition expenses (a)	5,384		995		17,250		2,826
Other depreciation, amortization and non-cash charges	23		69		73		322
Bargain purchase gain on acquisition	-		(3,809)		-		(3,809)
Proportionate share of adjustments for partially-owned entities — MFFO adjustments	(761)		(703)		(488)		(982)
Total adjustments	4,646		(3,448)		16,835		(1,643)
MFFO (b)	$	6,496	$	833	$	12,283	$	498

__________

(a)In evaluating investments in real estate, management differentiates the costs to acquire the investment from the operations derived from the investment. Such information would be comparable only for non-listed REITs that have completed their acquisition activity and have other similar operating characteristics. By excluding expensed acquisition costs, management believes MFFO provides useful supplemental information that is comparable for each type of real estate investment and is consistent with management’s analysis of the investing and operating performance of our properties. Acquisition fees and expenses include payments to our advisor or third parties. Acquisition fees and expenses under GAAP are considered operating expenses and as

CWI 9/30/2013 10-Q — 35

expenses included in the determination of net income and income from continuing operations, both of which are performance measures under GAAP. All paid and accrued acquisition fees and expenses will have negative effects on returns to investors, the potential for future distributions, and cash flows generated by us, unless earnings from operations or net sales proceeds from the disposition of properties are generated to cover the purchase price of the property, these fees and expenses and other costs related to the property.

(b)Effective January 1, 2013, we are computing our proportionate share of adjustments in partially owned entities using the hypothetical liquidation at book value method of accounting. We believe that it is more appropriate to compute our share under this method so as to appropriately reflect the economics of the partnership agreements in such investments. Had our share of adjustments for partially-owned entities been calculated in a similar manner for the three and nine months ended September 30, 2012, our share of adjustments for partially-owned entities would have been $(0.3) million and $(0.6) million, respectively. Had MFFO been calculated in a similar manner for the three and nine months ended September 30, 2012, the MFFO would have been $0.5 million and $0.8 million, respectively.

FFO and MFFO

Due to certain unique operating characteristics of real estate companies, as discussed below, the National Association of Real Estate Investment Trusts, Inc. (“NAREIT”), an industry trade group, has promulgated a measure known as funds from operations, or FFO, which we believe to be an appropriate supplemental measure to reflect the operating performance of a REIT. The use of FFO is recommended by the REIT industry as a supplemental performance measure. FFO is not equivalent to nor a substitute for net income or loss as determined under GAAP.

We define FFO, a non-GAAP measure, consistent with the standards established by the White Paper on FFO approved by the Board of Governors of NAREIT, as revised in February 2004, or the White Paper. The White Paper defines FFO as net income or loss computed in accordance with GAAP, excluding gains or losses from sales of property, impairment charges on real estate and depreciation and amortization; and after adjustments for unconsolidated partnerships and jointly owned investments. Adjustments for unconsolidated partnerships and jointly owned investments are calculated to reflect FFO. Our FFO calculation complies with NAREIT’s policy described above.

The historical accounting convention used for real estate assets requires straight-line depreciation of buildings and improvements, which implies that the value of real estate assets diminishes predictably over time, especially if such assets are not adequately maintained or repaired and renovated as required by relevant circumstances in order to maintain the value disclosed. We believe that, since real estate values historically rise and fall with market conditions, including inflation, interest rates, the business cycle, unemployment and consumer spending, presentations of operating results for a REIT using historical accounting for depreciation may be less informative. Historical accounting for real estate involves the use of GAAP. Any other method of accounting for real estate such as the fair value method cannot be construed to be any more accurate or relevant than the comparable methodologies of real estate valuation found in GAAP. Nevertheless, we believe that the use of FFO, which excludes the impact of real estate-related depreciation and amortization as well as impairment charges of real estate-related assets, provides a more complete understanding of our performance to investors and to management, and when compared year over year, reflects the impact on our operations from trends in occupancy rates, operating costs, general and administrative expenses, and interest costs, which may not be immediately apparent from net income. In particular, we believe it is appropriate to disregard impairment charges, as this is a fair value adjustment that is largely based on market fluctuations and assessments regarding general market conditions, which can change over time. While impairment charges are excluded from the calculation of MFFO described above, investors are cautioned that, due to the fact that impairments are based on estimated future undiscounted cash flows and the relatively limited term of our operations, it could be difficult to recover any impairment charges. However, FFO and MFFO, as described below, should not be construed to be more relevant or accurate than the current GAAP methodology in calculating net income or in its applicability in evaluating the operating performance of the company. The method utilized to evaluate the value and performance of real estate under GAAP should be construed as a more relevant measure of operational performance and considered more prominently than the non-GAAP FFO and MFFO measures and the adjustments to GAAP in calculating FFO and MFFO.

Changes in the accounting and reporting promulgations under GAAP (for acquisition fees and expenses from a capitalization/depreciation model to an expensed-as-incurred model) were put into effect in 2009. These other changes to GAAP accounting for real estate subsequent to the establishment of NAREIT’s definition of FFO have prompted an increase in cash-settled expenses, specifically acquisition fees and expenses for all industries as items that are expensed under GAAP, that are typically accounted for as operating expenses. Management believes these fees and expenses do not affect our overall long-term operating performance. Publicly registered, non-listed REITs typically have a significant amount of acquisition activity and are substantially more dynamic during their initial years of investment and operation. While other start-up entities may also experience significant acquisition activity during their initial years, we believe that non-listed REITs are unique in that they have a limited life with targeted exit strategies within a relatively limited time frame after acquisition activity ceases. We intend to begin the process of achieving a

CWI 9/30/2013 10-Q — 36

liquidity event (i.e., listing of our common stock on a national exchange, a merger or sale of our assets or another similar transaction) not later than six years following the termination of the primary offering being conducted by the Prospectus. Thus, we do not intend to continuously purchase assets and intend to have a limited life. Due to the above factors and other unique features of publicly registered, non-listed REITs, the Investment Program Association (“IPA”), an industry trade group, has standardized a measure known as MFFO, which the IPA has recommended as a supplemental measure for publicly registered non-listed REITs and which we believe to be another appropriate supplemental measure to reflect the operating performance of a non-listed REIT having the characteristics described above. MFFO is not equivalent to our net income or loss as determined under GAAP, and MFFO may not be a useful measure of the impact of long-term operating performance on value if we do not continue to operate with a limited life and targeted exit strategy, as currently intended. We believe that, because MFFO excludes costs that we consider more reflective of investing activities and other non-operating items included in FFO and also excludes acquisition fees and expenses that affect our operations only in periods in which properties are acquired, MFFO can provide, on a going forward basis, an indication of the sustainability (that is, the capacity to continue to be maintained) of our operating performance after the period in which we are acquiring properties and once our portfolio is in place. By providing MFFO, we believe we are presenting useful information that assists investors and analysts to better assess the sustainability of our operating performance after our offering has been completed and once essentially all of our properties have been acquired. We also believe that MFFO is a recognized measure of sustainable operating performance by the non-listed REIT industry. Further, we believe MFFO is useful in comparing the sustainability of our operating performance after our offering and most of our acquisitions are completed with the sustainability of the operating performance of other real estate companies that are not as involved in acquisition activities. Investors are cautioned that MFFO should only be used to assess the sustainability of a company’s operating performance after a company’s offering has been completed and properties have been acquired, as it excludes acquisition costs that have a negative effect on a company’s operating performance during the periods in which properties are acquired.

We define MFFO consistent with the IPA’s Guideline 2010-01, Supplemental Performance Measure for Publicly Registered, Non-Listed REITs: Modified Funds from Operations, or the Practice Guideline, issued by the IPA in November 2010. The Practice Guideline defines MFFO as FFO further adjusted for the following items, as applicable, included in the determination of GAAP net income: acquisition fees and expenses; accretion of discounts and amortization of premiums on debt investments; nonrecurring impairments of real estate-related investments (i.e., infrequent or unusual, not reasonably likely to recur in the ordinary course of business); mark-to-market adjustments included in net income; nonrecurring gains or losses included in net income from the extinguishment or sale of debt, hedges, derivatives or securities holdings where trading of such holdings is not a fundamental attribute of the business plan, unrealized gains or losses resulting from consolidation from, or deconsolidation to, equity accounting, and after adjustments for Consolidated Hotels and Unconsolidated Hotels, with such adjustments calculated to reflect MFFO on the same basis. The accretion of discounts and amortization of premiums on debt investments, nonrecurring unrealized gains and losses on hedges, derivatives or securities holdings, unrealized gains and losses resulting from consolidations, as well as other listed cash flow adjustments are adjustments made to net income in calculating the cash flows provided by operating activities and, in some cases, reflect gains or losses which are unrealized and may not ultimately be realized. While we are responsible for managing interest rate and hedge risk, we retain an outside consultant to review all our hedging agreements. In as much as interest rate hedges are not a fundamental part of our operations, we believe it is appropriate to exclude such infrequent gains and losses in calculating MFFO, as such gains and losses are not reflective of on-going operations.

In calculating MFFO, we exclude acquisition-related expenses, fair value adjustments of derivative financial instruments and the adjustments of such items related to noncontrolling interests. Under GAAP, acquisition fees and expenses are characterized as operating expenses in determining operating net income. These expenses are paid in cash by a company. All paid and accrued acquisition fees and expenses will have negative effects on returns to investors, the potential for future distributions, and cash flows generated by the company, unless earnings from operations or net sales proceeds from the disposition of other properties are generated to cover the purchase price of the property, these fees and expenses and other costs related to such property. Further, under GAAP, certain contemplated non-cash fair value and other non-cash adjustments are considered operating non-cash adjustments to net income in determining cash flow from operating activities. In addition, we view fair value adjustments of derivatives and gains and losses from dispositions of assets as infrequent items or items which are unrealized and may not ultimately be realized, and which are not reflective of on-going operations and are therefore typically adjusted for assessing operating performance.

Our management uses MFFO and the adjustments used to calculate it in order to evaluate our performance against other non-listed REITs which have limited lives with short and defined acquisition periods and targeted exit strategies shortly thereafter. As noted above, MFFO may not be a useful measure of the impact of long-term operating performance on value if we do not continue to operate in this manner. We believe that our use of MFFO and the adjustments used to calculate it allow us to present our performance in a manner that reflects certain characteristics that are unique to non-listed REITs, such as their limited life, limited and defined acquisition period and targeted exit strategy, and hence that the use of such measures is useful to investors. For example, acquisition costs are generally funded from the proceeds of our offering and other financing sources and not from operations. By excluding expensed acquisition costs, the use of MFFO provides information consistent with management’s analysis of the operating

CWI 9/30/2013 10-Q — 37

performance of the properties. Additionally, fair value adjustments, which are based on the impact of current market fluctuations and underlying assessments of general market conditions, but can also result from operational factors such as rental and occupancy rates, may not be directly related or attributable to our current operating performance. By excluding such changes that may reflect anticipated and unrealized gains or losses, we believe MFFO provides useful supplemental information.

Presentation of this information is intended to provide useful information to investors as they compare the operating performance of different REITs, although it should be noted that not all REITs calculate FFO and MFFO the same way, so comparisons with other REITs may not be meaningful. Furthermore, FFO and MFFO are not necessarily indicative of cash flow available to fund cash needs and should not be considered as an alternative to net income (loss) or income (loss) from continuing operations as an indication of our performance, as an alternative to cash flows from operations as an indication of our liquidity, or indicative of funds available to fund our cash needs including our ability to make distributions to our stockholders. FFO and MFFO should be reviewed in conjunction with other GAAP measurements as an indication of our performance.

MFFO has limitations as a performance measure in an offering such as ours, where the price of a share of common stock is a stated value and there is no estimated NAV determination during the offering stage and for a period thereafter. MFFO is useful in assisting management and investors in assessing the sustainability of operating performance in future operating periods, and in particular, after the offering and acquisition stages are complete and NAV is disclosed. MFFO is not a useful measure in evaluating NAV because impairments are taken into account in determining NAV but not in determining MFFO.

Neither the SEC, NAREIT nor any other regulatory body has passed judgment on the acceptability of the adjustments that we use to calculate FFO or MFFO. In the future, the SEC, NAREIT or another regulatory body may decide to standardize the allowable adjustments across the non-listed REIT industry and we would have to adjust our calculation and characterization of FFO and MFFO accordingly.

CWI 9/30/2013 10-Q — 38

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

Market Risk

As described in Note 7, we were exposed to geographic concentrations. In addition we are exposed to concentrations within the brands under which we operate our hotels.

Interest Rate Risk

The carrying value of our real estate and related fixed-rate debt obligations is subject to fluctuations based on changes in interest rates. The value of our real estate is also subject to fluctuations based on local and regional economic conditions, which may affect our ability to refinance property-level mortgage debt when balloon payments are scheduled. Interest rates are highly sensitive to many factors, including governmental monetary and tax policies, domestic and international economic and political conditions, and other factors beyond our control. An increase in interest rates would likely cause the fair value of our owned assets to decrease.

We are exposed to the impact of interest rate changes primarily through our borrowing activities. To limit this exposure, we attempt to obtain non-recourse mortgage financing on a long-term, fixed-rate basis. However, from time to time, we or our investment partners may obtain variable-rate non-recourse mortgage loans and, as a result, may enter into interest rate swap agreements or interest rate cap agreements with lenders that effectively convert the variable-rate debt service obligations of the loan to a fixed rate or limit the underlying interest rate from exceeding a specified strike rate, respectively. Interest rate swaps are agreements in which one party exchanges a stream of interest payments for a counterparty’s stream of cash flows over a specific period, and interest rate caps limit the effective borrowing rate of variable-rate debt obligations while allowing participants to share in downward shifts in interest rates. These interest rate swaps and caps are derivative instruments designated as cash flow hedges on the forecasted interest payments on the debt obligation. The notional, or face, amount on which the swaps or caps are based is not exchanged. Our objective in using these derivatives is to limit our exposure to interest rate movements.

We estimate that the net fair value of our interest rate swaps, which are included in Other assets and Accounts payable, accrued expenses and other liabilities in the consolidated financial statements, were in a net liability position of $0.2 million at September 30, 2013. In addition, two unconsolidated investments, in which we have interests of 80% and 57%, respectively, had an interest rate swap and cap, respectively, which, in the aggregate, were in a net liability position of $0.5 million, representing the aggregate amount attributable to the entities, not our proportionate share, at September 30, 2013 (Note 7).

At September 30, 2013, all of our long-term debt either bore interest at fixed rates or was swapped to a fixed rate. The annual interest rates on our fixed-rate debt at September 30, 2013 ranged from 4.1% to 5.3%. The effective annual interest rates on our variable-rate debt at September 30, 2013 ranged from 4.1% to 5.0%. Our debt obligations are more fully described under Financial Condition in Item 2 above. The following table presents principal cash flows for our Consolidated Hotels for each of the next five years and thereafter based upon expected maturity dates of our debt obligations outstanding at September 30, 2013 (in thousands):

	2013
	(Remainder)		2014		2015		2016		2017		Thereafter		Total		Fair Value
Fixed-rate debt	$	167	$	1,390	$	20,309	$	3,261	$	3,781	$	239,819	$	268,727	$	262,912
Variable-rate debt	$	50	$	1,280	$	10,833	$	1,700	$	67,975	$	43,340	$	125,178	$	127,245

The estimated fair value of our fixed-rate debt and our variable-rate debt that currently bears interest at fixed rates or has effectively been converted to a fixed rate through the use of interest rate swaps is affected by changes in interest rates. A decrease or increase in interest rates of 1% would change the estimated fair value of this debt, excluding the impact of the interest rate swaps, at September 30, 2013 by an aggregate increase of $16.9 million or an aggregate decrease of $18.0 million, respectively.

Item 4. Controls and Procedures.

Disclosure Controls and Procedures

Our disclosure controls and procedures include our controls and other procedures designed to provide reasonable assurance that information required to be disclosed in this and other reports filed under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized and reported within the required time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to management, including our chief executive officer and chief financial officer, to allow timely decisions regarding required disclosures. It should be noted that no system of controls can provide complete assurance of achieving a company’s objectives and that future events may impact the effectiveness of a system of controls.

CWI 9/30/2013 10-Q — 39

Our chief executive officer and chief financial officer, after conducting an evaluation, together with members of our management, of the effectiveness of the design and operation of our disclosure controls and procedures at September 30, 2013, have concluded that our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) were effective as of September 30, 2013 at a reasonable level of assurance.

Changes in Internal Control Over Financial Reporting

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

CWI 9/30/2013 10-Q — 40

PART II

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

Unregistered Sales of Equity Securities

For the three months ended September 30, 2013, we issued 77,646 shares of common stock to the advisor as consideration for asset management fees. These shares were issued at $10.00 per share, which was the price at which our shares were sold in our initial public offering. Since none of these transactions were considered to have involved a “public offering” within the meaning of Section 4(a)(2) of the Securities Act, the shares issued were deemed to be exempt from registration. In acquiring our shares, the advisor represented that such interests were being acquired by it for the purposes of investment and not with a view to the distribution thereof.

Use of Offering Proceeds

We intend to use the remaining net proceeds of our initial public offering to acquire, own and manage a portfolio of interests in lodging and lodging related properties and fund distributions to our stockholders. The use of proceeds from our initial public offering of common stock, which commenced in March 2011 pursuant to our Registration Statement (File No. 333-149899) that was declared effective in September 2010 and terminated on September 15, 2013, was as follows at September 30, 2013 (in thousands, except share amounts):

Shares registered	100,000,000
Aggregate price of offering amount registered	$	1,000,000
Shares sold (a)	57,807,396
Aggregated offering price of amount sold	$	575,810
Direct or indirect payments to the advisor including directors, officers, general partners of the issuer or their associates; to persons owning ten percent or more of any class of equity securities of the issuer; and to affiliates of the issuer	(47,582		)
Direct or indirect payments to broker-dealers	(17,283		)
Net offering proceeds to the issuer after deducting expenses	510,945
Purchases of real estate related assets, net of financings	(267,327		)
Acquisition-related expenses	(23,297		)
Cash distributions paid to stockholders	(11,616		)
Repayment of mortgage financing	(2,324		)
Proceeds from sale of equity investment	21,993
Working capital and other	12,937
Temporary investments in cash and cash equivalents	$	241,311

____________

(a)Excludes shares issued to affiliates, including our advisor, and shares issued pursuant to our DRIP.

Issuer Purchases of Equity Securities

For the three months ended September 30, 2013, we received requests to redeem 19,883 shares of our common stock pursuant to our redemption plan, which were all redeemed during the period.

CWI 9/30/2013 10-Q — 41

					Maximum number (or
				Total number of shares	approximate dollar value)
				purchased as part of	of shares that may yet be
	Total number of	Average price		publicly announced	purchased under the
2013 Period	shares purchased (a)	paid per share		plans or program (a)	plans or program (a)
July	—	—		N/A	N/A
August	—	—		N/A	N/A
September	19,883	$	9.38	N/A	N/A
Total	19,883

____________

(a)Represents shares of our common stock repurchased under our redemption plan, pursuant to which we may elect to redeem shares at the request of our stockholders who have held their shares for at least one year from the date of their issuance, subject to certain exceptions, conditions and limitations. The maximum amount of shares purchasable by us in any period depends on a number of factors and is at the discretion of our Board of Directors. We receive fees in connection with share redemptions.

CWI 9/30/2013 10-Q — 42

Item 6. Exhibits.

The following exhibits are filed with this Report, except where indicated.

Exhibit No.	Description
10.1	Purchase and Sale Agreement, dated as of May 29, 2013, by and between Noble Raleigh Associates, LLC and CWI Raleigh Hotel, LLC (Incorporated by reference to Exhibit 10.1 to Current Report on Form 8-K dated August 19, 2013)
10.2	First Amendment to Purchase and Sale Agreement, dated as of June 3, 2013, by and between Noble Raleigh Associates, LLC and CWI Raleigh Hotel, LLC (Incorporated by reference to Exhibit 10.2 to Current Report on Form 8-K dated August 19, 2013)
10.3	Letter Agreement, dated as of June 19, 2013, by and between Noble Raleigh Associates, LLC and CWI Raleigh Hotel, LLC (Incorporated by reference to Exhibit 10.3 to Current Report on Form 8-K dated August 19, 2013)
10.4	Second Amendment to Purchase and Sale Agreement, dated as of June 27, 2013, by and between Noble Raleigh Associates, LLC and CWI Raleigh Hotel, LLC (Incorporated by reference to Exhibit 10.4 to Current Report on Form 8-K dated August 19, 2013)
10.5	Purchase and Sale Agreement, dated as of August 16, 2013, by and between BH/NV Hawks Cay Property Holdings, LLC and CWI Keys Hotel, LLC (Incorporated by reference to Exhibit 10.1 to Current Report on From 8-K filed on October 29, 2013)
10.6	Letter Agreement to Purchase and Sale Agreement, dated as of August 29, 2013, by and between BH/NV Hawks Cay Property Holdings, LLC and CWI Keys Hotel, LLC (Incorporated by reference to Exhibit 10.2 to Current Report on From 8-K filed on October 29, 2013)
10.7	First Amendment to Purchase and Sale Agreement, dated as of September 25, 2013, by and between BH/NV Hawks Cay Property Holdings, LLC and CWI Keys Hotel, LLC (Incorporated by reference to Exhibit 10.3 to Current Report on From 8-K filed on October 29, 2013)
31.1	Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2	Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32	Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101	The following materials from Carey Watermark Investors Incorporated’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2013, formatted in XBRL (eXtensible Business Reporting Language): (i) Consolidated Balance Sheets at September 30, 2013 and December 31, 2012, (ii) Consolidated Statements of Operations for the three and nine months ended September 30, 2013 and 2012, (iii) Consolidated Statements of Comprehensive (Loss) Income for the three and nine months ended September 30, 2013 and 2012, (iv) Consolidated Statements of Equity for the nine months ended September 30, 2013 and the year ended December 31, 2012, (v) Consolidated Statements of Cash Flows for the nine months ended September 30, 2013 and 2012, and (vi) Notes to Consolidated Financial Statements.

CWI 9/30/2013 10-Q — 43

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.

		Carey Watermark Investors Incorporated
Date: November 12, 2013
	By:	/s/ Catherine D. Rice
		Catherine D. Rice
		Chief Financial Officer
		(Principal Financial Officer)
Date: November 12, 2013
	By:	/s/ Hisham A. Kader
		Hisham A. Kader
		Chief Accounting Officer
		(Principal Accounting Officer)

CWI 9/30/2013 10-Q — 44

EXHIBIT INDEX

The following exhibits are filed with this Report, except where indicated.

Exhibit No.	Description
10.1	Purchase and Sale Agreement, dated as of May 29, 2013, by and between Noble Raleigh Associates, LLC and CWI Raleigh Hotel, LLC (Incorporated by reference to Exhibit 10.1 to Current Report on Form 8-K dated August 19, 2013)
10.2	First Amendment to Purchase and Sale Agreement, dated as of June 3, 2013, by and between Noble Raleigh Associates, LLC and CWI Raleigh Hotel, LLC (Incorporated by reference to Exhibit 10.2 to Current Report on Form 8-K dated August 19, 2013)
10.3	Letter Agreement, dated as of June 19, 2013, by and between Noble Raleigh Associates, LLC and CWI Raleigh Hotel, LLC (Incorporated by reference to Exhibit 10.3 to Current Report on Form 8-K dated August 19, 2013)
10.4	Second Amendment to Purchase and Sale Agreement, dated as of June 27, 2013, by and between Noble Raleigh Associates, LLC and CWI Raleigh Hotel, LLC (Incorporated by reference to Exhibit 10.4 to Current Report on Form 8-K dated August 19, 2013)
10.5	Purchase and Sale Agreement, dated as of August 16, 2013, by and between BH/NV Hawks Cay Property Holdings, LLC and CWI Keys Hotel, LLC (Incorporated by reference to Exhibit 10.1 to Current Report on From 8-K filed on October 29, 2013)
10.6	Letter Agreement to Purchase and Sale Agreement, dated as of August 29, 2013, by and between BH/NV Hawks Cay Property Holdings, LLC and CWI Keys Hotel, LLC (Incorporated by reference to Exhibit 10.2 to Current Report on From 8-K filed on October 29, 2013)
10.7	First Amendment to Purchase and Sale Agreement, dated as of September 25, 2013, by and between BH/NV Hawks Cay Property Holdings, LLC and CWI Keys Hotel, LLC (Incorporated by reference to Exhibit 10.3 to Current Report on From 8-K filed on October 29, 2013)
31.1	Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2	Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32	Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101	The following materials from Carey Watermark Investors Incorporated’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2013, formatted in XBRL (eXtensible Business Reporting Language): (i) Consolidated Balance Sheets at September 30, 2013 and December 31, 2012, (ii) Consolidated Statements of Operations for the three and nine months ended September 30, 2013 and 2012, (iii) Consolidated Statements of Comprehensive (Loss) Income for the three and nine months ended September 30, 2013 and 2012, (iv) Consolidated Statements of Equity for the nine months ended September 30, 2013 and the year ended December 31, 2012, (v) Consolidated Statements of Cash Flows for the nine months ended September 30, 2013 and 2012, and (vi) Notes to Consolidated Financial Statements.