10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K

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

For the fiscal year ended December 31, 2011

OR

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

For the transition period from              to             

Commission File Number 001-34693

Chatham Lodging Trust

(Exact name of registrant as specified in its charter)

Maryland	27-1200777
(State or Other Jurisdiction of Incorporation or Organization)	(IRS Employer Identification No.)
50 Cocoanut Row, Suite 216
Palm Beach, Florida	33480
(Address of Principal Executive Offices)	(Zip Code)

(561) 802-4477

(Registrant’s telephone number, including area code)

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

Title of Each Class	Name of Each Exchange on Which Registered
Common Shares of Beneficial Interest, par value $0.01 per share	New York Stock Exchange

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

None

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

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

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

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

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

Large accelerated filer	¨	Accelerated filer	þ
Non-accelerated filer	¨  (Do not check if smaller reporting company)	Smaller reporting company	¨

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

The aggregate market value of the 13,819,939 common shares of beneficial interest held by non-affiliates of the registrant was $222,639,217.29 based on the closing sale price on the New York Stock Exchange for such common shares of beneficial interest as of June 30, 2011.

The number of common shares of beneficial interest outstanding as of March 01, 2012 was 13,847,531.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant’s Definitive Proxy Statement for its 2012 Annual Meeting of Shareholders (to be filed with the Securities and Exchange Commission on or before April 29, 2012) are incorporated by reference into this Annual Report on Form 10-K in response to Part III hereof.

Chatham Lodging Trust

TABLE OF CONTENTS

		Page
Cautionary Note Regarding Forward-Looking Statements			1
	PART I
1.	Business		2
1A.	Risk Factors		11
1B.	Unresolved Staff Comments		30
2.	Properties		31
3.	Legal Proceedings		32
4.	Mine Safety Disclosures		32
	PART II
5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities		33
6.	Selected Financial Data		37
7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		39
7A.	Quantitative and Qualitative Disclosures about Market Risk		49
8.	Consolidated Financial Statements and Supplementary Data		50
9.	Changes in and Disagreements With Accountants on Accounting and Financial Disclosure		50
9A.	Controls and Procedures		50
9B.	Other Information		51
	PART III
10.	Trustees, Executive Officers and Corporate Governance		52
11.	Executive Compensation		52
12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters		52
13.	Certain Relationships and Related Transactions, and Trustee Independence		52
14.	Principal Accountant Fees and Services		52
	PART IV
15.	Exhibits and Financial Statement Schedules		53

1

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, and as such may involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements to be materially different from future results, performance or achievements expressed or implied by such forward-looking statements. Forward-looking statements, which are based on certain assumptions and describe our future plans, strategies and expectations, are generally identified by our use of words, such as “intend,” “plan,” “may,” “should,” “will,” “project,” “estimate,” “anticipate,” “believe,” “expect,” “continue,” “potential,” “opportunity,” and similar expressions, whether in the negative or affirmative. All statements regarding our expected financial position, business and financing plans are forward-looking statements. Factors which could have a material adverse effect on our operations and future prospects include those discussed in “Business,” “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and elsewhere in this Annual Report on Form 10-K. These risks and uncertainties should be considered in evaluating any forward-looking statement contained in this report or incorporated by reference herein.

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

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PART I

Item 1. Business

Overview

Chatham Lodging Trust (“we,” “us” or the “Company”) was formed as a Maryland real estate investment trust (“REIT”) on October 26, 2009. The Company is internally-managed and was organized to invest primarily in premium-branded upscale extended-stay and select-service hotels.

We completed our initial public offering (the “IPO”) on April 21, 2010. The IPO resulted in the sale of 8,625,000 common shares at $20.00 per share, generating $172.5 million in gross proceeds. Net proceeds, after underwriters’ discounts and commissions and other offering costs, were approximately $158.7 million. Concurrently with the closing of the IPO, in a separate private placement pursuant to Regulation D under the Securities Act of 1933, as amended (the “Securities Act”), we sold 500,000 of our common shares to Jeffrey H. Fisher, our Chairman, President and Chief Executive Officer, at the public offering price of $20.00 per share, for proceeds of $10.0 million.

On February 8, 2011, we completed a follow-on common share offering generating gross proceeds of $73.6 million and net proceeds of approximately $69.4 million, adding capital to our balance sheet. Using these funds as well as borrowing capacity on our secured revolving credit facility, on July 14, 2011, we acquired five hotels for an aggregate purchase price of $195 million, including the assumption of five individual mortgage loans secured by the hotels totaling $134.2 million. Additionally, we invested $37.0 million for an approximate 10.3% interest in a joint venture (the “JV”) with Cerberus Capital Management (“Cerberus”) that acquired 64 hotels from Innkeepers USA Trust (“Innkeepers”) on October 27, 2011. The Company accounts for this investment under the equity method.

We had no operations prior to the consummation of the IPO. Following the closing of the IPO, we contributed the net proceeds from the IPO and the concurrent private placement, as well as the proceeds of our February 2011 offering, to Chatham Lodging, L.P. (the “Operating Partnership”) in exchange for partnership interests in the Operating Partnership. Substantially all of our assets are held by, and all of our operations are conducted through, the Operating Partnership. Chatham Lodging Trust is the sole general partner of the Operating Partnership and owns 100% of the common units of limited partnership interest in the Operating Partnership. Certain of our executive officers hold vested and unvested long-term incentive plan units in the Operating Partnership, which are presented as noncontrolling interests on our consolidated balance sheets.

As of December 31, 2011, we owned 18 hotels with an aggregate of 2,414 rooms located in 10 states and the District of Columbia and we held a 10.3% minority interest in the JV, which owns 64 hotels comprising an aggregate of 8,329 rooms. To qualify as a REIT, we cannot operate the hotels. Therefore, the Operating Partnership and its subsidiaries lease our wholly owned hotels to taxable REIT subsidiary lessees (“TRS Lessees”), which are wholly owned by one of our taxable REIT subsidiary (“TRS”) holding companies. We indirectly own our interest in [51] of the 64 JV hotels through the Operating Partnership, and we own our interest in the remaining [13] JV hotels through one of our TRS holding companies. All of the JV hotels are leased to TRS Lessees in which we indirectly own a 10.3% minority interests through one of our TRS holding companies. Each hotel is leased to a TRS Lessee under a percentage lease that provides for rental payments equal to the greater of (i) a fixed base rent amount or (ii) a percentage rent based on hotel room revenue. The initial term of each of the TRS leases is five years. Lease revenue from each TRS Lessee is eliminated in consolidation. The TRS Lessees have entered into management agreements with third party management companies that provide day-to-day management for the hotels. Island Hospitality Management Inc. (“IHM”), which is 90% owned by Mr. Fisher, manages 10 of our wholly owned hotels; Homewood Suites Management LLC, a subsidiary of Hilton Worldwide Inc. (“Hilton”) manages six of our wholly owned hotels; and Concord Hospitality Enterprises Company (“Concord”) manages two of our wholly owned hotels. All but one of the JV hotels are managed by IHM. One JV hotel is managed by Dimension Development Company.

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Our wholly owned hotels includes upscale extended-stay hotels that operate under the Homewood Suites by Hilton^® brand (eight hotels) and Residence Inn by Marriott^® brand (six hotels), as well as premium-branded select-service hotels that operate under the Courtyard by Marriott^® brand (one hotel), the Hampton Inn and Suites by Hilton^® brand (one hotel), the SpringHill Suites by Marriott^® brand (one hotel) and the Doubletree Suites by Hilton^® brand (one hotel).

Upscale extended-stay hotels typically have the following characteristics:

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

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

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

We also invest in premium-branded select-service hotels such as Courtyard by Marriott^®, Hampton Inn and Suites^®, SpringHill Suites by Marriott^® and Doubletree Suites^®. The service and amenity offerings of these hotels typically include complimentary breakfast, high-speed internet access, local calls, in-room movie channels, and daily linen and room cleaning service.

3

The following sets forth certain information with respect to our 18 wholly-owned hotels at December 31, 2011:

Property	Location	Management Company	Date of Acquisition	Year Opened		Number of Rooms		Purchase Price		Purchase Price per Room		Debt
										(Unaudited)
Homewood Suites by Hilton Boston-Billerica/ Bedford/Burlington	Billerica, Massachusetts	Hilton	April 23, 2010		1999		147	$	12.5 million	$	85,714		—
Homewood Suites by Hilton	Bloomington,
Minneapolis-Mall of America	Minnesota	Hilton	April 23, 2010		1998		144	$	18.0 million	$	125,000		—
Homewood Suites by Hilton Nashville-Brentwood	Brentwood, Tennessee	Hilton	April 23, 2010		1998		121	$	11.3 million	$	93,388		—
Homewood Suites by Hilton Dallas-Market Center	Dallas, Texas	Hilton	April 23, 2010		1998		137	$	10.7 million	$	78,102		—
Homewood Suites by Hilton Hartford-Farmington	Farmington, Connecticut	Hilton	April 23, 2010		1999		121	$	11.5 million	$	95,041		—
Homewood Suites by Hilton Orlando-Maitland	Maitland, Florida	Hilton	April 23, 2010		2000		143	$	9.5 million	$	66,433		—
Homewood Suites by Hilton Carlsbad (North San Diego County)	Carlsbad, California	Island Hospitality	November 3, 2010		2008		145	$	32.0 million	$	220,690		—
Hampton Inn & Suites Houston-Medical Center	Houston, Texas	Island Hospitality	July 2, 2010		1997		120	$	16.5 million	$	137,500		—
Courtyard Altoona	Altoona, Pennsylvania	Concord	August 24, 2010		2001		105	$	11.3 million	$	107,619	$	6.8 million
Springhill Suites Washington	Washington, Pennsylvania	Concord	August 24, 2010		2000		86	$	12.0 million	$	139,535	$	5.3 million
Residence Inn Long Island Holtsville	Holtsville, New York	Island Hospitality	August 3, 2010		2004		124	$	21.3 million	$	171,774		—
Residence Inn White Plains	White Plains, New York	Island Hospitality	September 23, 2010		1982		133	$	21.2 million	$	159,398		—
Residence Inn New Rochelle	New Rochelle, New York	Island Hospitality	October 5, 2010		2000		124	$	21.0 million	$	169,355	$	15.7 million
Residence Inn Garden Grove	Garden Grove, CA	Island Hospitality	July 14, 2011		2003		200	$	43.6 million	$	218,000	$	32.4 million
Residence Inn Mission Valley	San Diego, CA	Island Hospitality	July 14, 2011		2003		192	$	52.5 million	$	273,438	$	40.0 million
Homewood Suites by Hilton San Antonio River Walk	San Antonio, TX	Island Hospitality	July 14, 2011		1996		146	$	32.5 million	$	222,603	$	18.4 million
Doubletree Suites by Hilton Washington DC	Washington, DC	Island Hospitality	July 14, 2011		1974		105	$	29.4 million	$	280,000	$	19.9 million
Residence Inn Tysons Corner	Vienna, VA	Island Hospitality	July 14, 2011		2001		121	$	37.0 million	$	305,785	$	22.9 million
Total/ Weighted Average							2,414	$	403.8 million	$	163,854	$	161.4 million

4

Business Strategy

Our primary objective is to generate attractive returns for our shareholders through investing in hotel properties (whether wholly owned or through a joint venture) at prices that provide strong returns on invested capital, paying dividends and generating long-term value appreciation. We believe we can create long-term value by pursuing the following strategies:

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

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

• Aggressive asset management: Although as a REIT we cannot operate our hotels, we proactively manage our third-party hotel managers in seeking to maximize hotel operating performance. Our asset management activities seek to ensure that our third-party hotel managers effectively utilize franchise brands’ marketing programs, develop effective sales management policies and plans, operate properties efficiently, control costs, and develop operational initiatives for our hotels that increase guest satisfaction. As part of our asset management activities, we regularly review opportunities to reinvest in our hotels to maintain quality, increase long-term value and generate attractive returns on invested capital.

• Flexible selection of hotel management companies: We are flexible in our selection of hotel management companies and select managers that we believe will maximize the performance of our hotels. We utilize both brand-affiliated management companies and independent management companies, including IHM, a hotel management company 90% owned by Mr. Fisher that currently manages ten of our hotels. We believe this strategy increases the universe of potential acquisition opportunities we can consider because many hotel properties are encumbered by long-term management contracts.

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

We plan to maintain a prudent capital structure and intend to maintain our leverage over the long term at a ratio of net debt to investment in hotels (at cost) (defined as our initial acquisition price plus the gross amount of any subsequent capital investment and excluding any impairment charges) to less than 35 percent measured at the time we incur debt, and a subsequent decrease in property values will require us to repay debt. In the 2011 second quarter, our Board of Trustees approved the temporary increase in our targeted leverage to not more than 55 percent, not including our share of assets and liabilities of the JV. Our Board of Trustees believes that temporarily increasing our leverage limit at this stage of the lodging cycle recovery is prudent to take advantage of the opportunity to buy hotels in the near term. Over time, we intend to finance our growth with issuances of common and preferred shares and debt. Our debt may include mortgage debt collateralized by our hotel properties and unsecured debt.

When purchasing hotel properties, we may issue limited partnership interests in our operating partnership as full or partial consideration to sellers who may desire to take advantage of tax deferral on the sale of a hotel or participate in the potential appreciation in value of our common shares.

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Competition

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

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

Seasonality

Demand for our hotels is affected by recurring seasonal patterns. Generally, we expect that we will have lower revenue, operating income and cash flow in the first and fourth quarters and higher revenue, operating income and cash flow in the second and third quarters. These general trends are, however, influenced by overall economic cycles and the geographic locations of our hotels. To the extent that cash flow from operations is insufficient during any quarter, due to temporary or seasonal fluctuations in revenue, we expect to utilize cash on hand or borrowings under our credit facility to make distributions to our equity holders.

Regulation

Our properties are subject to various covenants, laws, ordinances and regulations, including regulations relating to common areas and fire and safety requirements. We believe each of our hotels has the necessary permits and approvals to operate its business, and each is adequately covered by insurance.

Americans with Disabilities Act

Our properties must comply with Title III of the Americans with Disabilities Act of 1990 (“ADA”) to the extent that such properties are “public accommodations” as defined by the ADA. Under the ADA, all public accommodations must meet federal requirements related to access and use by disabled persons. The ADA may require removal of structural barriers to access by persons with disabilities in certain public areas of our properties where such removal is readily achievable. Although we believe that the properties in our portfolio substantially comply with present requirements of the ADA, we have not conducted a comprehensive audit or investigation of all of our properties to determine our compliance, and one or more properties may not be fully compliant with the ADA.

In March 2012, a substantial number of changes to the Accessibility Guidelines under the ADA will take effect. The new guidelines could cause some of our hotel properties to incur costly measures to become fully compliant.

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

6

Environmental Regulations

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

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

Although it is our policy to require an acceptable Phase I environmental survey for all real property in which we invest, such surveys are limited in scope and there can be no assurance that there are no hazardous or toxic substances on such property that we would purchase. We cannot assure you that:

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

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

Employment Regulations

A number of members of the U.S. Congress and President Obama have stated that they support the Employee Free Choice Act, which, if enacted, would discontinue the current practice of having an open process where both the union and the employer are permitted to educate employees regarding the pros and cons of joining a union before having an election by secret ballot. Under the Employee Free Choice Act, employees would only hear the union’s side of the argument before making a commitment to join the union. The Employee Free Choice Act would permit unions to quietly collect employee signatures supporting the union without notifying the employer and permitting the employer to explain its views before a final decision is made by the employees. Once a union has collected signatures from a majority of the employees, the employer would have to recognize, and bargain with, the union. If the employer and the union fail to reach agreement on a collective bargaining contract within a certain number of days, both sides would be forced to submit their respective proposals to binding arbitration and a federal arbitrator would be permitted to create an employment contract binding on the employer. If the Employee Free Choice Act is enacted, a number of the hotel properties we own or seek to acquire could become unionized.

Generally, unionized hotel employees are subject to a number of work rules that could decrease operating margins at the unionized hotels. If that is the case, we believe that the unionization of hotel employees at hotels that we acquire may result in a significant decline in hotel profitability and value, which could adversely affect our financial condition, results of operations, the market price of our common shares and our ability to make distributions to our shareholders.

Tax Status

We elected to be taxed as a REIT for federal income tax purposes commencing with our short taxable year ended December 31, 2010 under the Internal Revenue Code of 1986, as amended (the “Code”). Our qualification

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

As a REIT, we generally will not be subject to federal income tax on our REIT taxable income that we distribute currently to our shareholders. Under the Code, REITs are subject to numerous organizational and operational requirements, including a requirement that they distribute each year at least 90% of their taxable income, determined without regard to the deduction for dividends paid and excluding any net capital gains. If we fail to qualify for taxation as a REIT in any taxable year and do not qualify for certain statutory relief provisions, our income for that year will be taxed at regular corporate rates, and we will be disqualified from taxation as a REIT for the four taxable years following the year during which we ceased to qualify as a REIT. Even if we qualify as a REIT for federal income tax purposes, we may still be subject to state and local taxes on our income and assets and to federal income and excise taxes on our undistributed income. Additionally, any income earned by our TRS Lessees will be fully subject to federal, state and local corporate income tax. Moreover, our TRS holding company that indirectly owns our interest in 13 of the JV hotels will be subject to federal, state and local corporate income tax on its allocable share of all of the income from those hotels.

Hotel Management Agreements

We assumed the existing hotel management agreements in place at six of our hotels—the Boston-Billerica Homewood Suites, Minneapolis-Bloomington Homewood Suites, Nashville-Brentwood Homewood Suites, Dallas Homewood Suites, Hartford-Farmington Homewood Suites and Orlando-Maitland Homewood Suites—all of which are managed by Promus Hotels, Inc., a subsidiary of Hilton Hotels Worldwide (“Hilton”). Each of these hotel management agreements became effective on December 20, 2000, has an initial term of 15 years and may be renewed for an additional five-year period at the manager’s option by written notice to us no later than 120 days prior to the expiration of the initial term.

Under these six hotel management agreements, the manager receives a base management fee equal to 2% of the hotel’s gross room revenue and, if certain financial thresholds are met or exceeded, an incentive management fee equal to 10% of the hotel’s net operating income, less fixed costs, base management fees, agreed-upon return on the owner’s original investment and debt service payments. In addition to the management fee, a franchise royalty fee equal to 4% of the hotel’s gross room revenue and program fees equal to 4% of the hotel’s gross room revenue are also payable to Hilton. See “Hotel Franchise Agreements”. Prior to April 23, 2013, each of these six management agreements may be terminated for cause, including the failure of the managed hotel to meet specified performance levels, and may be terminated by the manager in the event we undergo a change in control. If the new owner does not assume the existing management agreement and does not obtain a Homewood Suites franchise license upon such a change of control, we will be required to pay a termination fee to the manager. Beginning on April 23, 2013, we may terminate the six Hilton management agreements upon six months notice to the manager without payment of a termination fee. If we were to terminate the management agreements prior to the termination date, we may be responsible for paying termination fees to the manager.

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

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

Hotel Franchise Agreements

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

One of the Company’s TRS Lessees has entered into franchise agreements with Marriott International, Inc., (“Marriott”), relating to our Residence Inn properties in Holtsville, New York, New Rochelle, New York, White Plains, New York, Garden Grove, CA, San Diego, CA and Vienna, VA, our Courtyard property in Altoona, Pennsylvania and our SpringHill Suites property in Washington, Pennsylvania. These franchise agreements have initial terms ranging from 15 to 20 years and will expire between 2025 and 2031. None of the agreements has a renewal option. The Marriott franchise agreements provide for franchise fees ranging from 5.0% to 5.5% of the hotel’s gross room sales and marketing fees ranging from 2.0% to 2.5% of the hotel’s gross room sales. The Marriott franchise agreements are terminable by Marriott in the event that the applicable franchisee fails to cure an event of default or, in certain circumstances such as the franchisee’s bankruptcy or insolvency, are terminable by Marriott at will. The Marriott franchise agreements provide that, in the event of a proposed transfer of the hotel, our TRS Lessee’s interest in the agreement or more than a specified amount of the TRS Lessee to a competitor of Marriott, Marriott has the right to purchase or lease the hotel under terms consistent with those contained in the respective offer and may terminate if our TRS Lessee elects to proceed with such a transfer.

One of the Company’s TRS Lessees has entered into a franchise agreement with Hampton Inns Franchise LLC, (“Hampton Inns”), relating to the Hampton Inn & Suites^® Houston-Medical Center. The franchise agreement has an initial term of approximately 10 years and expires on July 31, 2020. There is no renewal option. The Hampton Inns franchise agreement provides for a monthly program fee equal to 4% of the hotel’s gross rooms revenue and a monthly royalty fee equal to 5% of the hotel’s gross rooms revenue. Hampton Inns may terminate the franchise agreement in the event that the franchisee fails to cure an event of default or, in certain circumstances such as the franchisee’s bankruptcy or insolvency, Hampton Inns may terminate the agreement at will.

One of the Company’s TRS Lessees has entered into a franchise agreement with Doubletree Franchise LLC (“Doubletree”), relating to the Doubletree Guest Suites by Hilton in Washington, DC. The franchise agreement has an initial term of 10 years and will expire on July 31, 2021. The franchise agreement is non-renewable. The Doubletree hotel franchise agreement provides for a franchise royalty fee equal to 5% of the hotel’s gross room

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revenue and a program fee equal to 4% of the hotel’s gross room revenue. The Doubletree franchise agreement generally has no termination rights unless the franchisee fails to cure an event of default in accordance with the franchise agreements.

Ground Leases

The Altoona hotel is subject to a ground lease with an expiration date of April 30, 2029 with an option of up to 12 additional terms of five years each. Monthly payments are determined by the quarterly average room occupancy of the hotel. Rent is equal to approximately $7,000 per month when monthly occupancy is less than 85% and can increase up to approximately $20,000 per month if occupancy is 100%, with minimum rent increased on an annual basis by two and one-half percent (2.5%).

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

The following is a schedule of the minimum future obligation payments required under the ground, air rights and garage leases (in thousands):

	Amount
2012	$	203
2013		205
2014		207
2015		210
2016		212
Thereafter		11,660
Total	$	12,697

Condominium Leases

The Residence Inn White Plains hotel is part of a condominium known as La Reserva Condominium (the “Condominium”). The Condominium is comprised of 143 residential units and four commercial units. The four commercial units are owned by us and are part of the White Plains hotel. The White Plains hotel is comprised of 129 of the residential units owned by us and four residential units leased by us from unaffiliated third party owners. The remaining 10 residential units are owned and occupied by unaffiliated third party owners.

We lease 4 residential units in the White Plains hotel from individual owners (the “Condo Owner”). The lease agreements are for 6 years with a one-time 5 year renewal option. The White Plains hotel has the right to sublease the unit to any third party, including hotel guests, for such rent and on such terms as the White Plains hotel may determine. Each Condo Owner may reserve the unit for seven days in any calendar quarter or two weeks in any calendar year. In the event of such a reservation by the Condo Owner, the White Plains hotel will have no obligation to pay rent during such period. Each Condo Owner is also obligated to reimburse the White Plains hotel for renovations that were completed in 2008. Minimum annual rents payable to the Condo Owner are approximately $70 thousand per year and amounts receivable from the Condo Owner for its renovation reimbursements are approximately $11 thousand per year, subject to a balloon repayment at the end of the lease term of any remaining reimbursements. The White Plains hotel is responsible for paying assessments to the Condominium association on a monthly basis for all residential units owned and leased. The White Plains hotel provides certain services to the Condominium association for housekeeping, maintenance and certain other services and receives compensation from the Condominium association for these services.

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Employees

As of March 5, 2012, we had six employees. All persons employed in the day to day operations of our hotels are employees of the management companies engaged by our TRS Lessees to operate such hotels. None of our employees are represented by a collective bargaining agreement.

Available Information

Our Internet website is www.chathamlodgingtrust.com. We make available free of charge through our website our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, Section 16 reports on Forms 3,4 and 5 and amendments to those reports filed or furnished pursuant to Section 13(a) or 15 (d) of the Securities Exchange Act of 1934, as amended, as soon as reasonably practicable after such documents are electronically filed with, or furnished to, the Securities and Exchange Commission (“SEC”). In addition, our website includes corporate governance information, including the charters for committees of the Board of Trustees, our Corporate Governance Guidelines, Conflict of Interest Policy and our Code of Business Conduct. This information is available in print to any shareholder who requests it by writing to Investor Relations, Chatham Lodging Trust, 50 Cocoanut Row, Suite 216, Palm Beach, FL 33480. The information on our website is not, and shall not be deemed to be, a part of this report or incorporated into any other filings that we make with the SEC.

Item 1A. Risk Factors

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

Risks Related to Our Business

We have limited operating history, which may affect our ability to generate sufficient operating cash flows to make or sustain distributions to our shareholders.

We were organized in October 2009 and have limited operating history. Our ability to make or sustain distributions to our shareholders depends on many factors, including the availability of acquisition opportunities that satisfy our investment strategies and our success in identifying and consummating them on favorable terms, readily accessible short-term and long-term financing on favorable terms and conditions in the financial markets, the real estate market, the hotel industry and the economy. We cannot assure you that we will be able to acquire properties with attractive returns or will not seek properties with greater risk to obtain the same level of returns or that the value of our properties in the future will not decline substantially.

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

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

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

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

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

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

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

The success of our growth strategy depends on access to capital through use of excess cash flow, borrowings or subsequent issuances of common shares or other securities. Acquisitions of new hotel properties will require significant additional capital and existing hotels require periodic capital improvement initiatives to remain competitive. We may not be able to fund acquisitions or capital improvements solely from cash provided from our operating activities because we must distribute at least 90% of our REIT taxable income (determined before the deduction for dividends paid and excluding any net capital gains) each year to satisfy the requirements for qualification as a REIT for federal income tax purposes. As a result, our ability to fund capital expenditures for acquisitions through retained earnings is very limited. Our ability to grow through acquisitions of hotels will be limited if we cannot obtain satisfactory debt or equity financing, which will depend on capital markets conditions. We cannot assure you that we will be able to obtain additional equity or debt financing or that we will be able to obtain such financing on favorable terms.

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

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

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

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

In order for us to qualify as a REIT, third parties must operate our hotels. We lease each of our hotels to our TRS Lessees. The TRS Lessees, in turn, have entered into management agreements with third party management companies to operate our hotels. While we expect to have some input into operating decisions for those hotels leased by our TRS Lessees and operated under management agreements, we have less control than if we were managing the hotels ourselves. Even if we believe that our hotels are not being operated efficiently, we may not be able to require an operator to change the way it operates our hotels. If this is the case, we may decide to terminate the management agreement and potentially incur costs associated with the termination. Jeffrey H. Fisher, our chief executive officer, controls IHM, a hotel management company that currently manages ten of our

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hotels and all but one of the 64 hotels acquired by the JV, and may manage additional hotels that we acquire in the future. See “Conflicts of interest could result in future business transactions between us and affiliates owned by our Chief Executive Officer” below.

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

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

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

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

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

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

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

As a REIT, we are required to distribute at least 90% of our REIT taxable income each year to our shareholders (determined before the deduction for dividends paid and excluding any net capital gains). In the event of downturns in our operating results and financial performance or unanticipated capital improvements to

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our hotels (including capital improvements that may be required by franchisors), we may be unable to declare or pay distributions to our shareholders, or maintain our then-current dividend rate. The timing and amount of distributions are in the sole discretion of our Board of Trustees, which considers, among other factors, our financial performance, debt service obligations and applicable debt covenants (if any), and capital expenditure requirements. We cannot assure you we will generate sufficient cash in order to continue to fund distributions.

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

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

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

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

We intend to use secured and unsecured debt to finance long-term growth. While we intend to target overall debt levels of less than 35% of our investment in hotels (at cost) (defined as our initial acquisition price plus the gross amount of any subsequent capital investment and excluding any impairment charges), our Board of Trustees may change this financing policy at any time without shareholder approval. As a result, we may be able to incur substantial additional debt, including secured debt, in the future. In fact, during 2011, our Board of Trustees approved the increase in our targeted leverage to not more than 55 percent, excluding our pro rata share of assets and liabilities of the JV. Incurring additional debt could subject us to many risks, including the risks that:

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

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

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

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

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

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

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

If we do not have sufficient funds to repay our outstanding debt at maturity or before maturity in the event we breach our debt agreements and our lenders exercise their right to accelerate repayment, we may be required to refinance the debt through additional debt or additional equity financings. Covenants applicable to our existing

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and future debt could impair our planned investment strategy and, if violated, result in a default. If we are unable to refinance our debt on acceptable terms, we may be forced to dispose of hotel properties on disadvantageous terms, potentially resulting in losses. We have placed mortgages on certain of our hotel properties to secure our credit facility, have assumed mortgages on seven other hotels we acquired, placed a mortgage on one other hotel and may place additional mortgages on certain of our hotels to secure other debt. To the extent we cannot meet any future debt service obligations, we will risk losing some or all of our hotel properties that are pledged to secure our obligations to foreclosure.

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

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

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

We may obtain in the future one or more forms of interest rate protection—in the form of swap agreements, interest rate cap contracts or similar agreements—to hedge against the possible negative effects of interest rate fluctuations. However, such hedging implies costs and we cannot assure you that any hedging will adequately relieve the adverse effects of interest rate increases or that counterparties under these agreement will honor their obligations there under. Furthermore, any such hedge agreements would subject us to the risk of incurring significant non-cash losses on our hedges due to declines in interest rates if our hedges were not considered effective under applicable accounting standards.

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

We are co-investors with Cerberus in the JV, which owns 64 hotels, and we may invest in additional joint ventures in the future. We may not be in a position to exercise sole decision-making authority regarding the properties owned through the JV or other joint ventures. Investments in joint ventures may, under certain circumstances, involve risks not present when a third party is not involved, including reliance on our joint venture partners and the possibility that joint venture partners might become bankrupt or fail to fund their share of required capital contributions, thus exposing us to liabilities in excess of our share of the investment. Joint venture partners may have business interests or goals that are inconsistent with our business interests or goals, and may be in a position to take actions contrary to our policies or objectives. Such investments may also have the potential risk of impasses on decisions, such as a sale, because neither we nor the partner would have full control over the partnership or joint venture. Any disputes that may arise between us and our joint venture partners may result in litigation or arbitration that would increase our expenses and prevent our officers and/or trustees from focusing their time and effort on our business. Consequently, actions by, or disputes with, our joint venture partners might result in subjecting properties owned by the partnership or joint venture to additional risk. In addition, we may in certain circumstances be liable for the actions of our third-party partners or co-venturers.

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

In our joint ventures, there will be a potential risk of impasse in some joint venture decisions because our approval and the approval of each co-venturer will be required for some decisions. The types of decisions that would require the approval of each co-venturer would be determined under the joint venture agreement between the parties, but those types of decisions are likely to include borrowing above a certain level or disposing of

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assets. In any joint venture, we may have the right to buy our co-venturer’s interest or to sell our own interest on specified terms and conditions in the event of an impasse regarding a sale. However, it is possible that neither party will have the funds necessary to complete such a buy-out. In addition, we may experience difficulty in locating a third-party purchaser for our joint venture interest and in obtaining a favorable sale price for the interest. As a result, it is possible that we may not be able to exit the relationship if an impasse develops. In addition, there is no limitation under our declaration of trust and bylaws as to the amount of funds that we may invest in joint ventures. Accordingly, we may invest a substantial amount of our funds in joint ventures which ultimately may not be profitable as a result of disagreements with or among our co-venturers.

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

In connection with certain non-recourse JV mortgage loans, our Operating Partnership could be required to repay portions of the indebtedness, up to an amount commensurate with our 10.3% interest in the JV, in connection with certain customary non-recourse carve-out provisions such as environmental conditions, misuse of funds, and material misrepresentations.

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

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

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

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

Conflicts of interest could result in future business transactions between us and affiliates owned by our Chief Executive Officer.

Our chief executive officer, Mr. Fisher, owns 90% of IHM, a hotel management company that currently manages ten of our hotels and all but one of the 64 hotels acquired by the JV, and may manage additional hotels that we acquire or own in the future. Because Mr. Fisher is our Chief Executive Officer and controls IHM, conflicts of interest may arise between us and Mr. Fisher as to whether and on what terms new management contracts will be awarded to IHM, whether and on what terms management agreements will be renewed upon expiration of their terms, enforcement of the terms of the management agreements and whether hotels managed by IHM will be sold.

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Risks Related to the Lodging Industry

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

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

A substantial part of our business strategy is based on the belief that the lodging markets in which we invest will continue to experience improving economic fundamentals in the future. We cannot predict the extent to which lodging industry fundamentals will continue to improve. In the event conditions in the industry do not continue to improve, or deteriorate, our ability to execute our business strategy would be adversely affected, which could adversely affect our financial condition, results of operations, the market price of our common shares and our ability to make distributions to our shareholders.

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

Hotel properties are subject to various operating risks common to the hotel industry, many of which are beyond our control, including:

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

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

• dependence on business and commercial travelers and tourism;

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

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

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

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

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

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

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

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

These factors could reduce the net operating profits of our TRSs and the rental income we receive from our TRS Lessees, which in turn could adversely affect our ability to make distributions to our shareholders.

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

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

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

The upscale extended-stay and mid-price segments of the hotel business are highly competitive. Our hotels compete on the basis of location, room rates and quality, service levels, reputation, and reservation systems, among many other factors. Many competitors have substantially greater marketing and financial resources than our operators or us. New hotels create new competitors, in some cases without corresponding increases in demand for hotel rooms. The result in some cases may be lower revenue, which would result in lower cash available for distribution to shareholders.

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

Some hotel properties have business that is seasonal in nature. This seasonality can be expected to cause quarterly fluctuations in revenues. Quarterly earnings may be adversely affected by factors outside our control, including weather conditions and poor economic factors. As a result, we may have to enter into short-term borrowings in order to offset these fluctuations in revenue and to make distributions to shareholders.

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

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

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

Our entire business is related to the hotel industry. Therefore, a downturn in the hotel industry, in general, will have a material adverse effect on our revenues, net operating profits and cash available to distribute to shareholders.

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

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

• possible environmental problems;

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• construction cost overruns and delays;

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

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

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

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

The costs of all these capital improvements could adversely affect our financial condition and amounts available for distribution to our shareholders.

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

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

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

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

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

Previous terrorist attacks and subsequent terrorist alerts have adversely affected the U.S. travel and hospitality industries over the past several years, often disproportionately to the effect on the overall economy.

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The impact that terrorist attacks in the U.S. or elsewhere could have on domestic and international travel and our business in particular cannot be determined but any such attacks or the threat of such attacks could have a material adverse effect on our business, our ability to finance our business, our ability to insure our properties and our results of operations and financial condition.

Potential future outbreaks of contagious diseases, such as H1N1, could have a material adverse effect on our revenues and results of operations due to decreased travel, especially in areas significantly affected by the disease.

The widespread outbreak of infectious or contagious disease in the United States, such as the H1N1 influenza, could reduce travel and adversely affect the hotel industry generally and our business in particular.

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

We maintain comprehensive insurance on each of our hotel properties, including liability, terrorism, fire and extended coverage, of the type and amount customarily obtained for or by hotel property owners. There can be no assurance that such coverage will continue to be available at reasonable rates. Various types of catastrophic losses, like earthquakes and floods and losses from foreign terrorist activities such as those on September 11, 2001 or losses from domestic terrorist activities such as the Oklahoma City bombing may not be insurable or may not be insurable on reasonable economic terms. Lenders may require such insurance and failure to obtain such insurance could constitute a default under loan agreements. Depending on our access to capital, liquidity and the value of the properties securing the affected loan in relation to the balance of the loan, a default could have a material adverse effect on our results of operations and ability to obtain future financing.

In the event of a substantial loss, insurance coverage may not be sufficient to cover the full current market value or replacement cost of the lost investment. Should an uninsured loss or a loss in excess of insured limits occur, we could lose all or a portion of the capital we invested in a hotel property, as well as the anticipated future revenue from that particular hotel. In that event, we might nevertheless remain obligated for any mortgage debt or other financial obligations related to the property. Inflation, changes in building codes and ordinances, environmental considerations and other factors might also keep us from using insurance proceeds to replace or renovate a hotel after it has been damaged or destroyed. Under those circumstances, the insurance proceeds we receive might be inadequate to restore our economic position on the damaged or destroyed property.

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

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

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

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Although it is our policy to require an acceptable Phase I environmental survey for all real property in which we invest, such surveys are limited in scope and there can be no assurance that there are no hazardous or toxic substances on such property that we would purchase. We cannot assure you:

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

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

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

Our hotel properties are subject to the ADA. Under the ADA, all places of public accommodation are required to meet certain federal requirements related to access and use by disabled persons. Although we intend to continue to acquire assets that are substantially in compliance with the ADA, we may incur additional costs of complying with the ADA at the time of acquisition and from time-to-time in the future to stay in compliance with any changes in the ADA. A number of additional federal, state and local laws exist that also may require modifications to our investments, or restrict certain further renovations thereof, with respect to access thereto by disabled persons. Additional legislation may impose further burdens or restrictions on owners with respect to access by disabled persons. If we were required to make substantial modifications at our properties to comply with the ADA or other changes in governmental rules and regulations, our ability to make expected distributions to our shareholders could be adversely affected.

In March 2012, a substantial number of changes to the Accessibility Guidelines under the ADA will take effect. The new guidelines could cause some of our hotel properties to incur costly measures to become fully compliant.

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

General Risks Related to Real Estate Industry

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

Because real estate investments are relatively illiquid, our ability to promptly sell one or more hotel properties in our portfolio in response to changing economic, financial and investment conditions may be limited. The real estate market is affected by many factors that are beyond our control, including:

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

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

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

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

• changes in operating expenses; and

• civil unrest, acts of God, including earthquakes, floods and other natural disasters, which may result in uninsured losses, and acts of war or terrorism, such as those that occurred on September 11, 2001.

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

Currently, limited credit is available to purchasers of hotel properties and financing structures such as CMBS, which have been used to finance hotel acquisitions in recent years, have been reduced. If financing for hotel properties is not available or is not available on attractive terms, it will adversely impact the ability of third parties to buy our hotels. As a result, we may hold our hotel properties for a longer period than we would otherwise desire and may sell hotels at a loss.

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

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

Hotel properties are subject to real and personal property taxes. These taxes may increase as tax rates change and as the properties are assessed or reassessed by taxing authorities. In particular, our property taxes could increase following our hotel purchases as the acquired hotels are reassessed. If property taxes increase, our financial condition, results of operations and our ability to make distributions to our shareholders could be materially and adversely affected and the market price of our common shares could decline.

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

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

Risks Related to Our Organization and Structure

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

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

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

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

Our bylaws obligate us to indemnify our trustees and officers for actions taken by them in those capacities to the maximum extent permitted by Maryland law. Our bylaws require us to indemnify each trustee or officer, to

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

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

Certain provisions of the Maryland General Corporation Law (“MGCL”) applicable to Maryland real estate investment trusts may have the effect of inhibiting a third party from making a proposal to acquire us or of impeding a change of control under circumstances that otherwise could provide our common shareholders with the opportunity to realize a premium over the then-prevailing market price of such shares, including:

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

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

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

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

Our declaration of trust authorizes our Board of Trustees to issue up to 500,000,000 common shares and up to 100,000,000 preferred shares. In addition, our Board of Trustees may, without shareholder approval, amend our declaration of trust to increase the aggregate number of our shares or the number of shares of any class or series that we have the authority to issue and to classify or reclassify any unissued common shares or preferred shares and to set the preferences, rights and other terms of the classified or reclassified shares. As a result, our Board of Trustees may authorize the issuance of additional shares or establish a series of common or preferred shares that may have the effect of delaying or preventing a change in control of our company, including transactions at a premium over the market price of our shares, even if shareholders believe that a change of control is in their interest.

Failure to make required distributions would subject us to tax.

In order for federal corporate income tax not to apply to earnings that we distribute, each year we must distribute to our shareholders at least 90% of our REIT taxable income, determined before the deductions for dividends paid and excluding any net capital gain. To the extent that we satisfy this distribution requirement, but

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distribute less than 100% of our taxable income, we will be subject to federal corporate income tax on our undistributed REIT taxable income. In addition, we will be subject to a 4% nondeductible excise tax if the actual amount that we pay out to our shareholders in a calendar year is less than a minimum amount specified under the Code. Our only source of funds to make these distributions comes from distributions that we will receive from our operating partnership. Accordingly, we may be required to borrow money, sell assets or make taxable distributions of our capital shares or debt securities, to enable us to pay out enough of our REIT taxable income to satisfy the distribution requirement and to avoid federal corporate income tax and the 4% nondeductible excise tax in a particular year.

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

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

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

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

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

Increases in these operating expenses can have a significant adverse impact on our financial condition, results of operations, the market price of our common shares and our ability to make distributions to our shareholders.

Our TRS structure increases our overall tax liability.

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

Additionally, we own our interest in 13 of the JV hotels through one of our TRS holding companies. With respect to those hotels the TRS holding company will pay federal, state and local income tax on its allocable share of all of the income from those hotels.

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

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

Our TRSs are subject to federal, foreign, state and local income tax on their taxable income, and their after-tax net income is available for distribution to us but is not required to be distributed to us. We believe that the aggregate value of the stock and securities of our TRSs is and will continue to be less than 25% of the value of our total gross assets (including our TRS stock and securities). Furthermore, we will monitor the value of our respective investments in our TRSs for the purpose of ensuring compliance with TRS ownership limitations. In addition, we will scrutinize all of our transactions with our TRSs to ensure that they are entered into on arm’s-length terms to avoid incurring the 100% excise tax described above. There can be no assurance, however, that we will be able to comply with the 25% limitation discussed above or to avoid application of the 100% excise tax discussed above.

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

To qualify as a REIT, we are required to satisfy two gross income tests, pursuant to which specified percentages of our gross income must be passive income, such as rent. For the rent paid pursuant to the hotel leases with our TRS Lessees, which should constitute substantially all of our gross income, to qualify for purposes of the gross income tests, the leases must be respected as true leases for federal income tax purposes and must not be treated as service contracts, joint ventures or some other type of arrangement. We have structured our leases, and intend to structure any future leases, so that the leases will be respected as true leases for federal income tax purposes, but there can be no assurance that the IRS will agree with this characterization, not challenge this treatment or that a court would not sustain such a challenge. If the leases were not respected as true leases for federal income tax purposes, we would not be able to satisfy either of the two gross income tests applicable to REITs and likely would fail to qualify for REIT status.

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

The maximum tax rate applicable to income from “qualified dividends” payable to U.S. shareholders that are individuals, trusts and estates has been reduced by legislation to 15% currently (through the end of 2012). Dividends payable by REITs, however, generally are not eligible for the reduced rates. The more favorable rates applicable to regular corporate qualified dividends could cause investors who are individuals, trusts and estates to perceive investments in REITs to be relatively less attractive than investments in the stocks of non-REIT corporations that pay dividends, which could adversely affect the value of the shares of REITs, including our common shares.

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

Rent paid by a lessee that is a “related party tenant” of ours will not be qualifying income for purposes of the two gross income tests applicable to REITs. We lease substantially all of our hotels to our TRS Lessees. A

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TRS Lessee will not be treated as a “related party tenant,” and will not be treated as directly operating a lodging facility to the extent the TRS Lessee leases properties from us that are managed by an “eligible independent contractor.” In addition, our TRS holding companies will fail to qualify as “taxable REIT subsidiaries” if they lease or own a lodging facility that is not managed by an “eligible independent contractor.”

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

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

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

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

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

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

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

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

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

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

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

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

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

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

In particular, we must ensure that at the end of each calendar quarter, at least 75% of the value of our gross assets consists of cash, cash items, government securities and qualified real estate assets. The remainder of our investment in securities (other than government securities, securities that constitute qualified real estate assets and securities of our TRSs) generally cannot include more than 10% of the outstanding voting securities of any one issuer or more than 10% of the total value of the outstanding securities of any one issuer. In addition, in

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general, no more than 5% of the value of our gross assets (other than government securities, securities that constitute qualified real estate assets and securities of our TRSs) can consist of the securities of any one issuer, and no more than 25% of the value of our total gross assets can be represented by the securities of one or more TRSs. If we fail to comply with these requirements at the end of any calendar quarter, we must correct the failure within 30 days after the end of the calendar quarter or qualify for certain statutory relief provisions to avoid losing our REIT qualification and suffering adverse tax consequences. As a result, we may be required to liquidate otherwise attractive investments. These actions could have the effect of reducing our income and amounts available for distribution to our shareholders.

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

We are generally required to distribute to our shareholders at least 90% of our REIT taxable income each year for us to qualify as a REIT under the Code, which requirement we currently intend to satisfy. To the extent we satisfy the 90% distribution requirement but distribute less than 100% of our REIT taxable income, we will be subject to federal corporate income tax on our undistributed taxable income. We have not established a minimum distribution payment level, and our ability to make distributions to our shareholders may be adversely affected by the risk factors described in this prospectus. Subject to satisfying the requirements for REIT qualification, we intend over time to make regular quarterly distributions to our shareholders. Our Board of Trustees has the sole discretion to determine the timing, form and amount of any distributions to our shareholders. Our Board of Trustees makes determinations regarding distributions based upon, among other factors, our historical and projected results of operations, financial condition, cash flows and liquidity, satisfaction of the requirements for REIT qualification and other tax considerations, capital expenditure and other expense obligations, debt covenants, contractual prohibitions or other limitations and applicable law and such other matters as our Board of Trustees may deem relevant from time to time. Among the factors that could impair our ability to make distributions to our shareholders are:

• our inability to realize attractive returns on our investments;

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

• decreases in the value of the underlying assets; and

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

As a result, no assurance can be given that we will be able to continue to make distributions to our shareholders or that the level of any distributions we do make to our shareholders will achieve a market yield or increase or even be maintained over time, any of which could materially and adversely affect the market price of our common shares. Distributions could be dilutive to our financial results and may constitute a return of capital to our investors, which would have the effect of reducing each shareholder’s basis in its common shares. We also could use borrowed funds or proceeds from the sale of assets to fund distributions.

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

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

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

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

• actual or anticipated variations in our quarterly results of operations;

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

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

• fluctuations in stock market prices and volumes;

• issuances of common shares or other securities in the future;

• the addition or departure of key personnel;

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

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

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

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

We cannot predict the effect, if any, of future sales of common shares, or the availability of common shares for future sale, on the market price of our common shares. Sales of substantial amounts of common shares (including shares issued to our trustees and officers), or the perception that these sales could occur, may adversely affect prevailing market prices for our common shares.

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

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

If we decide to issue debt or equity securities in the future ranking senior to our common shares or otherwise incur indebtedness (including under our credit facility), it is possible that these securities or

29

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

Item 1B. Unresolved Staff Comments

None

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Item 2. Properties

The following table sets forth certain operating information for our hotels as of December 31, 2011:

Property	Location	Management Company	Date of Acquisition	Year Opened		Number of Rooms		Purchase Price		Purchase Price per Room		Debt
										(Unaudited)
Homewood Suites by Hilton Boston-Billerica/ Bedford/ Burlington	Billerica, Massachusetts	Hilton	April 23, 2010		1999		147	$	12.5 million	$	85,714		—
Homewood Suites by Hilton Minneapolis-Mall of America	Bloomington, Minnesota	Hilton	April 23, 2010		1998		144	$	18.0 million	$	125,000		—
Homewood Suites by Hilton Nashville-Brentwood	Brentwood, Tennessee	Hilton	April 23, 2010		1998		121	$	11.3 million	$	93,388		—
Homewood Suites by Hilton Dallas-Market Center	Dallas, Texas	Hilton	April 23, 2010		1998		137	$	10.7 million	$	78,102		—
Homewood Suites by Hilton Hartford-Farmington	Farmington, Connecticut	Hilton	April 23, 2010		1999		121	$	11.5 million	$	95,041		—
Homewood Suites by Hilton Orlando-Maitland	Maitland, Florida	Hilton	April 23, 2010		2000		143	$	9.5 million	$	66,433		—
Homewood Suites by Hilton Carlsbad (North San Diego County)	Carlsbad, California	Island Hospitality	November 3, 2010		2008		145	$	32.0 million	$	220,690		—
Hampton Inn & Suites Houston-Medical Center	Houston, Texas	Island Hospitality	July 2, 2010		1997		120	$	16.5 million	$	137,500		—
Courtyard Altoona	Altoona, Pennsylvania	Concord	August 24, 2010		2001		105	$	11.3 million	$	107,619	$	6.8 million
Springhill Suites Washington	Washington, Pennsylvania	Concord	August 24, 2010		2000		86	$	12.0 million	$	139,535	$	5.3 million
Residence Inn Long Island Holtsville	Holtsville, New York	Island Hospitality	August 3, 2010		2004		124	$	21.3 million	$	171,774		—
Residence Inn White Plains	White Plains, New York	Island Hospitality	September 23, 2010		1982		133	$	21.2 million	$	159,398		—
Residence Inn New Rochelle	New Rochelle, New York	Island Hospitality	October 5, 2010		2000		124	$	21.0 million	$	169,355	$	15.7 million
Residence Inn Garden Grove	Garden Grove, CA	Island Hospitality	July 14, 2011		2003		200	$	43.6 million	$	218,000	$	32.4 million
Residence Inn Mission Valley	San Diego, CA	Island Hospitality	July 14, 2011		2003		192	$	52.5 million	$	273,438	$	40.0 million
Homewood Suites by Hilton San Antonio River Walk	San Antonio, TX	Island Hospitality	July 14, 2011		1996		146	$	32.5 million	$	222,603	$	18.4 million
Doubletree Suites by Hilton Washington DC	Washington, DC	Island Hospitality	July 14, 2011		1974		105	$	29.4 million	$	280,000	$	19.9 million
Residence Inn Tysons Corner	Vienna, VA	Island Hospitality	July 14, 2011		2001		121	$	37.0 million	$	305,785	$	22.9 million
Total/Weighted Average							2,414	$	403.8 million	$	163,854	$	161.4 million

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We lease our headquarters located at 50 Cocoanut Row, Suite 216, Palm Beach, FL 33480. The Altoona hotel is subject to a ground lease with an expiration of April 30, 2029 with an option of up to 12 additional terms of five years each. In connection with the New Rochelle hotel, there is an air rights lease and garage lease that each expire on December 1, 2104.

Item 3. Legal Proceedings

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

Item 4. Mine Safety Disclosures

Not applicable.

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PART II

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

Market Information

Our common shares began trading on the New York Stock Exchange, (the “NYSE”), on April 16, 2010 under the symbol “CLDT”. The closing price of our common shares on the NYSE on December 30, 2011 was $10.78 per share. The following table sets forth, for the periods indicated, the high and low closing sales prices per share reported on the New York Stock Exchange as traded and the cash dividends declared per share:

2011

	High		Low		Dividends
First quarter	$	17.50	$	16.00	$	0.175
Second quarter		17.09		15.47		0.175
Third quarter		16.44		9.34		0.175
Fourth quarter		11.62		9.20		0.175

2010

	High		Low		Dividends
First quarter	$	—	$	—	$	—
Second quarter (From April 16, 2010)		20.70		17.45		—
Third quarter		18.92		14.25		0.175
Fourth quarter		19.46		16.11		0.175

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Shareholder Information

On March 5, 2012, there were 13 registered holders of record of our common shares. This figure does not include beneficial owners who hold shares in nominee name. However, because many of our common shares are held by brokers and other institutions, we believe that there are more beneficial holders of our common shares than record holders. In order to comply with certain requirements related to our qualification as a REIT, our charter, subject to certain exceptions, limits the number of common shares that may be owned by any single person or affiliated group to 9.8% of the outstanding common shares.

	Initial investment at April 21, 2010		Value of initial investment at December 31, 2010		Value of initial investment at December 31, 2011
Chatham Lodging Trust	$	100.00	$	87.13	$	54.78
Russell 2000 Index	$	100.00	$	109.57	$	102.91
FTSE NAREIT All Equity REIT Index	$	100.00	$	110.50	$	119.69
FTSE NAREIT Lodging/Resorts Index	$	100.00	$	106.10	$	90.95

The graph provides a comparison of the cumulative total return on our common shares from April 21, 2010, the date on which our shares began trading, to the NYSE closing price per share on December 30, 2011 with the cumulative total return on the Russell 2000 Index (the “Russell 2000”), the FTSE NAREIT All Equity REIT Index (the “NAREIT All Equity”) and the NAREIT Lodging/Resorts Index (the “NAREIT Lodging”). The total return values were calculated assuming a $100 investment on April 21, 2010 with reinvestment of all dividends in (i) our common shares, (ii) the Russell 2000, (iii) the NAREIT All Equity and (iv) the NAREIT Lodging. The total return values include any dividends paid during the period.

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Distribution Information

In order to maintain our qualification as a REIT, we must make distributions to our stockholders each year in an amount equal to at least:

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

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

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

The following table sets forth information regarding the declaration, payment and income tax characterization of our distributions by the Company on our common shares for the year ended December 31, 2011 and the period ended December 31, 2010:

2010

Quarter to which distribution relates	Record Date		Payment Date		Common share distribution amount		Ordinary income		Return of capital
Second quarter (From April 16, 2010)					$	—	$	—	$	—
Third quarter		10/15/2010		10/29/2010		0.175		0.175	$	—
Fourth quarter		12/31/2010		1/14/2011		0.175		0.175	$	—
					$	0.350	$	0.350	$	—

2011

Quarter to which distribution relates	Record Date		Payment Date		Common share distribution amount		Ordinary income		Return of capital
First quarter		3/31/2011		4/15/2011	$	0.175	$	0.01	$	0.165
Second quarter		6/30/2011		7/15/2011		0.175	$	0.01		0.165
Third quarter		9/30/2011		10/14/2011		0.175	$	0.01		0.165
Fourth quarter		12/30/2011		1/27/2012		0.175	$	0.01		0.165
					$	0.700	$	0.04	$	0.660

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Equity Compensation Plan Information

The following table provides information, as of December 31, 2011, relating to our Equity Incentive Plan pursuant to which grants of common share options, share awards, share appreciation rights, performance units and other equity-based awards options may be granted from time to time.

	Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights		Weighted-Average Exercise Price of Outstanding Options, Warrants and Rights		Number of Securities Remaining Available for Future Issuance under Equity Compensation Plans
Equity compensation plans approved by security holders (1)		—		—		211,730
Equity compensation plans not approved by security holders		—		—		—
Total						211,730

(1) Our Equity Incentive Plan was approved by our company’s sole trustee and our company’s sole shareholder prior to completion of our IPO.

Securities Sold

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

Issuer Purchases of Equity Securities

We do not currently have a repurchase plan or program in place. However, we do provide employees, who have been issued restricted common shares, the option of selling shares to us to satisfy the minimum statutory tax withholding requirements on the date their shares vest. There were 915 common shares purchased in the year ended December 31, 2011 related to such repurchases.

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Item 6. Selected Financial Data

The following tables present selected historical financial information as of and for the years ended December 31, 2011 and 2010. The selected historical financial information as of and for the years ended December 31, 2011 and 2010 have been derived from our audited consolidated financial statements. The results are not necessarily indicative of the results we expect when our investment strategy has been fully implemented. The selected historical financial data should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and the financial statements and notes thereto, both included herein this Annual Report on Form 10-K.

	Year Ended December 31, 2011			Year Ended December 31, 2010
	(In thousands, except share and per-share data)
Statements of Operations Data:
Total revenue	$	73,096		$	25,470
Hotel operating expenses		42,167			15,025
General and administrative		5,802			3,547
Hotel property acquisition costs		7,706			3,189
Property taxes and insurance		5,321			1,606
Depreciation and amortization		11,971			2,564
Total operating expenses		72,967			25,931
Operating income (loss)		129			(461	)
Interest expense, including amortization of deferred financing fees		(8,190	)		(932	)
Loss in unconsolidated entity		(997	)		—
Interest and other income		22			193
Loss before income tax expense		(9,036	)		(1,200	)
Income tax expense		(69	)		(17	)
Net loss attributable to common shareholders	$	(9,105	)	$	(1,217	)
Loss per common share, basic and diluted	$	(0.69	)	$	(0.20	)
Weighted average number of common shares, basic and diluted		13,280,149			6,377,333
Other Data:
Cash provided by operating activities		8,946			5,274
Cash used in investing activities		(112,523	)		(201,511	)
Cash provided by financing activities		103,489			200,981
Cash dividends declared per common share		0.70			0.35

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	As of December 31, 2011		As of December 31, 2010
	(Audited) (In thousands)		(Audited) (In thousands)
Balance Sheet Data:
Investment in hotel properties, net	$	402,815	$	208,080
Cash and cash equivalents		4,680		4,768
Restricted cash		5,299		3,018
Investment in unconsolidated real estate entities		36,003		—
Hotel receivables (net of allowance for doubtful accounts)		2,057		891
Deferred costs, net		6,350		4,710
Prepaid expenses and other assets		1,502		735
Total assets	$	458,706	$	222,202
Debt	$	228,940	$	50,133
Accounts payable and accrued expenses		10,184		5,248
Distributions payable		2,464		1,657
Total liabilities		241,588		57,038
Total shareholders’ equity		216,090		164,739
Noncontrolling interest in operating partnership		1,028		425
Total liabilities and equity	$	458,706	$	222,202

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

Overview

Chatham Lodging Trust (“we,” “us” or the “Company”) was formed as a Maryland real estate investment trust (“REIT”) on October 26, 2009. The Company is internally-managed and was organized to invest primarily in premium-branded upscale extended-stay and select-service hotels.

We completed our initial public offering (the “IPO”) on April 21, 2010. The IPO resulted in the sale of 8,625,000 common shares at $20.00 per share, generating $172.5 million in gross proceeds. Net proceeds, after underwriters’ discounts and commissions and other offering costs, were approximately $158.7 million. Concurrently with the closing of the IPO, in a separate private placement pursuant to Regulation D under the Securities Act of 1933, as amended (the “Securities Act”), we sold 500,000 of our common shares to Jeffrey H. Fisher, our Chairman, President and Chief Executive Officer, at the public offering price of $20.00 per share, for proceeds of $10.0 million.

On February 8, 2011, we completed a follow-on common share offering generating gross proceeds of $73.6 million and net proceeds of approximately $69.4 million, adding capital to our balance sheet. Using these funds as well as borrowing capacity on our line of credit, on July 14, 2011, we acquired five hotels for an aggregate purchase price of $195 million, including the assumption of five individual mortgage loans secured by the hotels totaling $134.2 million. Additionally, we invested $37.0 million for an approximate 10.3% interest in a joint venture (“JV”) with Cerberus Capital Management (“Cerberus”) that acquired 64 hotels from Innkeepers USA Trust (“Innkeepers”) on October 27, 2011. The Company accounts for this investment under the equity method.

As of December 31, 2011, we owned 18 hotels with an aggregate of 2,414 rooms located in 10 states and the District of Columbia and we held a 10.3% minority interest in the JV, which owns 64 hotels comprising an aggregate of 8,329 rooms.

Financial Condition and Operating Performance Metrics

We measure financial condition and hotel operating performance by evaluating financial and operating metrics such as:

• Revenue per Available Room (“RevPAR”),

• Average Daily Rate (“ADR”),

• Occupancy percentage,

• Funds From Operations (“FFO”),

• Adjusted FFO,

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

• Adjusted EBITDA.

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

“Non-GAAP Financial Measures” provides a detailed discussion of our use of FFO, Adjusted FFO, EBITDA and Adjusted EBITDA and a reconciliation of FFO, Adjusted FFO, EBITDA and Adjusted EBITDA to net income or loss, measurements recognized by generally accepted accounting principles in the United States (“GAAP”).

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Results of Operations

Industry outlook

We believe that the hotel industry’s performance is correlated to the performance of the economy overall, and with key economic indicators such as GDP growth, employment trends, corporate profits improving, we expect a continuing improvement in the performance of the hotel industry. As reported by Smith Travel Research, monthly RevPAR has been higher year over year since March 2010. As reported by Smith Travel Research, RevPar in 2011 was up 8.2%. Industry experts such as Smith Travel Research, PKF Hospitality and PricewaterhouseCoopers are projecting industry RevPar to grow 4-7% in 2012 based on sustained economic growth, lack of new supply and increased business travel spending. We are currently projecting RevPar at our hotels to grow 6-8% in 2012. 13 of our 18 hotels were renovated in 2011 so we expect our growth to outperform industry projections.

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

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

As reported by Smith Travel Research, industry RevPar for the years ended December 31, 2011 and 2010 was up 8.2% and up 5.5% respectively. RevPar at our hotels was up 2.8% and 3.3% in 2011 and 2010, which includes periods prior to our ownership. Our RevPar growth was adversely impacted because 13 of our 18 hotels were undergoing renovations in 2011.

Revenue

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

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

	For the year ended December 31, 2011			For the year ended December 31, 2010
Portfolio
ADR	$	126.26		$	124.19
Occupancy		78.5	%		77.6	%
RevPar	$	99.08		$	96.37

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

Hotel Operating Expenses

Hotel operating expenses increased $27.2 million from $15.0 million for the year ended December 31, 2010 to $42.2 million for the year ended December 31, 2011 due to the increased number of hotels owned in the 2011 period and owning 13 hotels for all of 2011 compared to owning no hotels for all of 2010. As a percentage of

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total revenue, hotel operating expenses were 58% for 2011 and 59% for 2010, a downward trend we hope will continue as ADR growth comprises a larger component of RevPar increases in 2012. Room expenses, which are the most significant component of hotel operating expenses, increased $10.0 million from $6.0 million in 2010 to $16.0 million in 2011. Other direct expenses, which include management and franchise fees, insurance, utilities, repairs and maintenance, advertising and sales, and hotel general and administrative expenses increased $17.1 million from $9.0 million in 2010 to $26.1 million in 2011.

Depreciation and Amortization

Depreciation and amortization expense increased $9.4 million from $2.6 million for the year ended December 31, 2010 to $12.0 million for the year ended December 31, 2011. The increase is due to the increased number of hotels owned during the 2011 period and the disposition and replacement of furniture and fixtures at six hotels where major property improvement plans were completed during the year ended December 30, 2011. Depreciation is recorded on our hotel buildings over 40 years from the date of acquisition. Depreciable lives of hotel furniture, fixtures and equipment are generally three to ten years between the date of acquisition and the date that the furniture, fixtures and equipment will be replaced. Amortization of franchise fees is recorded over the term of the respective franchise agreement.

Real Estate and Personal Property Taxes

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

Corporate General and Administrative

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

Hotel Property Acquisition Costs

Hotel property acquisition costs increased $4.6 million from $3.1 million for the year ended December 31, 2010 to $7.7 million for the year ended December 31, 2011. The 2011 expenses relate to the acquisition of hotels formerly owned by Innkeepers described in Note 3, Acquisition of Hotel Properties and Note 6, Investment in Unconsolidated Entities, in the notes to our consolidated financial statements. The 2010 expenses represent costs associated with the purchase of the 13 hotels owned at December 31, 2010. These acquisition-related costs are expensed when incurred in accordance with GAAP.

Interest and Other Income

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

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Interest Expense

Interest expense increased $7.3 million from $0.9 million for the year ended December 31, 2010 to $8.2 million for the year ended December 31, 2011. The increase is due primarily to the following: 1) assumption of $134.2 million of loans on the five hotels acquired in July 2011 bearing interest at a rate of approximately 6%; 2) increase in weighted average borrowings on our credit facility of $22.6 million from $7.1 million in 2010 to $29.7 million in 2011; and debt issued in August 2011 on our New Rochelle hotel of $15.8 million at a rate of 5.75%. The interest rate on the senior secured revolving credit facility was 4.5% in 2010 and increased to 5.25% November 14, 2011.

Income Tax Expense

Income tax expense increased $52 thousand in 2011 from $17 thousand for the year ended December 31, 2010 to $69 thousand for the year ended December 31, 2011. We are subject to income taxes based on the taxable income of our TRS holding companies at a tax rate of approximately 40%.

Net loss applicable to Common Shareholders

Net loss applicable to common shareholders increased $7.9 million in 2011 from a loss of $1.2 million, or $0.20 per diluted share for the year ended December 31, 2010 to a loss of $9.1 million, or $0.69 per diluted share for the year ended December 31, 2011. This increase was due to the factors discussed above.

Material Trends or Uncertainties

We are not aware of any material trends or uncertainties, favorable or unfavorable, that may be reasonably anticipated to have a material impact on either the capital resources or the revenues or income to be derived from the acquisition and operation of properties, loans and other permitted investments, other than those referred to in the risk factors identified in the “Risk Factors” section of this Annual Report on Form 10-K.

Non-GAAP Financial Measures

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

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

We calculate FFO in accordance with standards established by the National Association of Real Estate Investment Trusts (NAREIT), which defines FFO as net income or loss (calculated in accordance with GAAP), excluding gains or losses from sales of real estate, impairment write-downs, items classified by GAAP as extraordinary, the cumulative effect of changes in accounting principles, plus depreciation and amortization (excluding amortization of deferred financing costs), and after adjustments for unconsolidated partnerships and joint ventures. We believe that the presentation of FFO provides useful information to investors regarding our operating performance because it measures our performance without regard to specified non-cash items such as

42

real estate depreciation and amortization, gain or loss on sale of real estate assets and certain other items that we believe are not indicative of the performance of our underlying hotel properties. We believe that these items are more representative of our asset base and our acquisition and disposition activities than our ongoing operations, and that by excluding the effects of the items, FFO is useful to investors in comparing our operating performance between periods and between REITs that report FFO using the NAREIT definition.

We further adjust FFO for certain additional items that are not in NAREIT’s definition of FFO, including hotel property acquisition costs, costs associated with the departure of the Company’s former Chief Financial Officer which are referred to as “other charges” below and acquisition costs related to the joint venture. We believe that Adjusted FFO provides investors with another financial measure that may facilitate comparisons of operating performance between periods and between REITs that make similar adjustments to FFO.

The following is a reconciliation of net loss to FFO and Adjusted FFO for the years ended December 31, 2011 and 2010 (in thousands, except share data):

	December 31
	2011			2010
Funds From Operations (“FFO”):
Net loss attributable to common shareholders	$	(9,105	)	$	(1,217	)
Depreciation		11,909			2,537
Adjustments for joint venture items		900			—
FFO attributable to common shareholders		3,704			1,320
Hotel property acquisition costs		7,706			3,189
Other charges included in general and administrative expenses		—			345
Adjustments for joint venture items		473			—
Adjusted FFO	$	11,883		$	4,854
Weighted average number of common shares
Basic		13,280,149			6,377,333
Diluted		13,280,149			6,377,333

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

We further adjust EBITDA for certain additional items, including hotel property acquisition costs, costs associated with the departure of the former Chief Financial Officer which are referred to as “other charges” below, amortization of non-cash share-based compensation which we believe are not indicative of the performance of our underlying hotel properties and acquisition costs related to the joint venture. We believe that Adjusted EBITDA provides investors with another financial measure that may facilitate comparisons of operating performance between periods and between REITs that report similar measures.

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The following is reconciliation of net loss to EBITDA and Adjusted EBITDA for the years ended December 31, 2011 and 2010 (in thousands):

	For the years ended
	December 31
	2011			2010
Earnings Before Interest, Taxes, Depreciation and Amortization (“EBITDA”):
Net loss attributable to common shareholders	$	(9,105	)	$	(1,217	)
Interest expense		8,190			932
Income tax expense		69			17
Depreciation and amortization		11,971			2,564
Adjustments for joint venture items		1,773			—
EBITDA		11,125			2,296
Hotel property acquisition costs		7,706			3,189
Adjustments for joint venture items		473			—
Other charges included in general and administrative expenses		—			345
Share based compensation		1,571			1,070
Adjusted EBITDA	$	22,648		$	6,900

Although we present FFO, Adjusted FFO, EBITDA and Adjusted EBITDA because we believe they are useful to investors in comparing our operating performance between periods and between REITs that report similar measures, these measures have limitations as analytical tools. Some of these limitations are:

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

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

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

• EBITDA and Adjusted EBITDA do not reflect the significant interest expense, or the cash requirements necessary to service interest or principal payments, on our debts;

• Although depreciation and amortization are non-cash charges, the assets being depreciated and amortized may need to be replaced in the future, and FFO, Adjusted FFO, EBITDA and Adjusted EBITDA do not reflect any cash requirements for such replacements;

• Non-cash compensation is and will remain a key element of our overall long-term incentive compensation package, although we exclude it as an expense when evaluating our ongoing operating performance for a particular period using Adjusted EBITDA;

• Adjusted FFO and Adjusted EBITDA do not reflect the impact of certain cash charges (including acquisition transaction costs or costs associated with the departure of the former Chief Financial Officer which are referred to as “other charges”) that result from matters we consider not to be indicative of the underlying performance of our hotel properties; and

• Other companies in our industry may calculate FFO, Adjusted FFO, EBITDA and Adjusted EBITDA differently than we do, limiting their usefulness as a comparative measure.

In addition, FFO, Adjusted FFO, EBITDA and Adjusted EBITDA do not represent cash generated from operating activities as determined by GAAP and should not be considered as alternatives to net income or loss, cash flows from operations or any other operating performance measure prescribed by GAAP. FFO, Adjusted

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FFO, EBITDA and Adjusted EBITDA are not measures of our liquidity. Because of these limitations, FFO, Adjusted FFO, EBITDA and Adjusted EBITDA should not be considered in isolation or as a substitute for performance measures calculated in accordance with GAAP. We compensate for these limitations by relying primarily on our GAAP results and using FFO, Adjusted FFO, EBITDA and Adjusted EBITDA only supplementally. Our consolidated financial statements and the notes to those statements included elsewhere are prepared in accordance with GAAP.

Sources and Uses of Cash

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

As of December 31, 2011 and 2010, we had cash and cash equivalents of approximately $4.7 and $4.8 million, respectively. Additionally, we had $17.5 million available under our $85.0 million senior secured revolving credit facility as of December 31, 2011.

For the year ended December 31, 2011, net cash flows provided by operations were $8.9 million, as our net loss of $9.1 million was due in significant part to non-cash expenses, including $13.5 million of depreciation and amortization, $1.6 million of share-based compensation expense and a $1.0 million loss from unconsolidated entities. In addition, changes in operating assets and liabilities due to the timing of cash receipts and payments from our hotels resulted in net cash inflow of $1.9 million. Net cash flows used in investing activities were $112.5 million, primarily related to the acquisition of the 5 Sisters of $62.0 million, investment in unconsolidated entities of $37.0 million, additional capital improvements to the eighteen hotels of $12.7 million and $0.8 million of funds placed into escrows for lender or manager required escrows. Net cash flows provided by financing activities were $103.5 million, comprised primarily of proceeds generated from the February 2011 common share offering, net of underwriting fees and offering costs paid or payable to third parties, of $69.4 million, proceeds from the issuance of a mortgage loan on our New Rochelle Residence Inn hotel of $15.8 million, net borrowings on our secured credit facility of $29.7 million, offset by principal payments on mortgage debt of $0.9 million, payment of financing costs associated with our amended secured revolving credit facility and the six new loans acquired or assumed of $1.5 million and distributions to shareholders of $9.0 million.

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

We have paid regular quarterly dividends and distributions on common shares and LTIP units since the third quarter of 2010. Dividends and distributions for each quarter of 2011 were $0.175 per common share and LTIP unit. On January 27, 2012, we paid an aggregate of $2.5 million in fourth quarter dividends on our common shares and distributions on our LTIP units.

Liquidity and Capital Resources

We intend to maintain our leverage over the long term at a ratio of net debt to investment in hotels (at cost) (defined as our initial acquisition price plus the gross amount of any subsequent capital investment and excluding

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any impairment charges) to less than 35 percent measured at the time we incur debt, and a subsequent decrease in hotel property values will not necessarily cause us to repay debt to comply with this limitation. In the 2011 second quarter, our Board of Trustees approved the temporary increase in our targeted leverage to not more than 55 percent, not including our share of assets and liabilities of the JV. Our Board of Trustees believes that temporarily increasing our leverage limit at this stage of the lodging cycle recovery is prudent to take advantage of the opportunity to buy the 5 Sisters and invest in the JV.

On October 12, 2010, we entered into an $85 million senior secured revolving credit facility. At December 31, 2011 and December 31, 2010, we had $67.5 million and $37.8 million, respectively, in borrowings under this credit facility. At December 31, 2011, there were ten properties in the borrowing base under the credit agreement and the maximum borrowing availability under the revolving credit facility was $75.0 million. Subsequent to December 31, 2011, we repaid $5.5 million on the credit facility.

We amended our $85 million senior secured revolving credit facility effective May 2011. The amendment provides for an increase in the allowable consolidated leverage ratio to 60 percent through 2012, reducing to 55 percent in 2013; and a decrease in the consolidated fixed charge coverage ratio from 2.3x to 1.7x through March 2012, increasing to 1.75x through December 2012 and 2.0x in 2013. Subject to certain conditions, the credit facility still has an accordion feature that provides us with the ability to increase the facility to $110 million.

The credit facility contains representations, warranties, covenants, terms and conditions customary for transactions of this type, including a maximum leverage ratio, a minimum fixed charge coverage ratio and minimum net worth financial covenants, limitations on (i) liens, (ii) incurrence of debt, (iii) investments, (iv) distributions, and (v) mergers and asset dispositions, covenants to preserve corporate existence and comply with laws, covenants on the use of proceeds of the credit facility and default provisions, including defaults for non-payment, breach of representations and warranties, insolvency, non-performance of covenants, cross-defaults and guarantor defaults. The five mortgage loans we assumed in connection with the acquisition of the 5 Sisters as well as the New Rochelle Residence Inn loan do not contain any financial covenants. We were in compliance with these financial covenants at December 31, 2011.

On February 8, 2011, we completed a public offering of 4.6 million common shares, raising net proceeds of $69.4 million. We used $42.8 million to pay down debt outstanding on the revolving credit facility. We used the remaining funds to fund a portion of our acquisition of the 5 Sisters, described under Note 4, Acquisition of Hotel Properties, in the notes to our consolidated financial statements above.

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

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

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Capital Expenditures

We intend to maintain each hotel property in good repair and condition and in conformity with applicable laws and regulations in accordance with the franchisor’s standards and any agreed-upon requirements in our management and loan agreements. After we acquire a hotel property, in certain instances, we may be required to complete a property improvement plan (“PIP”) in order to be granted a new franchise license for that particular hotel property. PIPs are intended to bring the hotel property up to the franchisor’s standards. Certain of our loans require that we make available for such purposes, at the hotels collateralizing these loans, amounts up to 5% of gross revenue from such hotels. We intend to cause the expenditure of amounts in excess of such obligated amounts, if necessary, to comply with any reasonable requirements and otherwise to the extent that we deem such expenditures to be in the best interests of the hotel. To the extent that we spend more on capital expenditures than is available from our operations, we intend to fund those capital expenditures with available cash and borrowings under the revolving credit facility.

Related Party Transactions

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

Contractual Obligations

The following table sets forth our contractual obligations as of December 31, 2011, and the effect these obligations are expected to have on our liquidity and cash flow in future periods (in thousands). We had no other material off-balance sheet arrangements at December 31, 2011.

	Payments Due by Period
Contractual Obligations	Total		Less Than One Year		One to Three Years		Three to Five Years		More Than Five Years
Corporate office lease	$	141	$	38	$	79	$	24	$	—
Revolving credit facility, including interest (1)		73,854		3,631		70,223		—		—
Ground leases		12,698		203		413		422		11,660
Property loans, including interest (1)		211,887		11,585		23,170		159,394		17,738
	$	298,580	$	15,457	$	93,885	$	159,840	$	29,398

(1) Does not reflect additional borrowings under the revolving credit facility after December 31, 2011 and interest payments are based on the interest rate in effect as of December 31, 2011. See Note 7, “Debt” to our consolidated financial statements for additional information relating to our property loans.

Inflation

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

Critical Accounting Policies

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

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Investment in Hotel Properties

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

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

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

We will consider a hotel property as held for sale when a binding agreement to purchase the property has been signed under which the buyer has committed a significant amount of nonrefundable cash, no significant financing contingencies exist which could cause the transaction not to be completed in a timely manner and the sale is expected to occur within one year. If these criteria are met, depreciation and amortization of the hotel property will cease and an impairment loss if any will be recognized if the fair value of the hotel property, less the costs to sell, is lower than the carrying amount of the hotel property. We will classify the loss, together with the related operating results, as discontinued operations in the consolidated statements of operations and classify the assets and related liabilities as held for sale in the consolidated balance sheets. As of December 31, 2011, we had no hotel properties held for sale.

Revenue Recognition

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

Share-Based Compensation

We measure compensation expense for the restricted share awards based upon the fair market value of our common shares at the date of grant. Compensation expense is recognized on a straight-line basis over the vesting period and is included in general and administrative expense in the accompanying consolidated statement of operations. We pay dividends on vested and nonvested restricted shares.

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Income Taxes

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

Recently Issued Accounting Standards

In May 2011, the FASB and International Accounting Standards Board (“IASB”) (collectively the “Boards”) issued ASU No. 2011-04, Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs (“ASU 2044-04”). ASC 2011-04 created a uniform framework for applying fair value measurement principles for companies around the world and clarified existing guidance in U.S. GAAP. ASU 2011-04 is effective for the first annual reporting period beginning after December 15, 2011 and shall be applied prospectively. The Company does not expect this standard to have any material effect on our consolidated financial statements.

In June 2011, the FASB issued ASU No. 2011-05, Comprehensive Income (Topic 220), Presentation of Comprehensive Income. This update is intended to increase the prominence of other comprehensive income in the financial statements by requiring public companies to present comprehensive income either as a single statement detailing the components of net income and total net income, the components of other comprehensive income and total other comprehensive income, and a total for comprehensive income or using a two statement approach including both a statement of income and a statement of comprehensive income. The option to present other comprehensive income in the statement of changes in equity has been eliminated. The amendments in this update, which should be applied retrospectively, are effective for public companies for fiscal years, and interim periods beginning after December 15, 2011. Currently, the Company has no items of other comprehensive income in any periods presented and adoption of this standard is not expected to impact us.

Item 7A. Quantitative and Qualitative Disclosures about Market Risk

Interest rate risk

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

The Company estimates the fair value of its fixed rate debt by discounting the future cash flows of each instrument at estimated market rates. Rates take into consideration general market conditions and maturity. The estimated fair value of the Company’s fixed rate debt as of December 31, 2011 and 2010 was $159.4 million and $12.6 million, respectively.

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At December 31, 2011, our consolidated debt was comprised of floating and fixed rate debt. The fair value of our fixed rate debt indicates the estimated principal amount of debt having the same debt service requirements that could have been borrowed at the date presented, at then current market interest rates. The following table provides information about our financial instruments that are sensitive to changes in interest rates (in thousands):

Expected Maturities

	2012			2013			2014			2015			2016			Thereafter			Total			Fair Value
Liabilities
Floating rate:
Debt	$	—		$	67,500														$	67,500		$	67,513
Average interest rate (1)		5.25	%		5.25	%														5.25	%
Fixed rate:
Debt	$	1,848		$	1,981		$	2,106		$	6,778		$	134,587		$	14,140		$	161,440		$	159,386
Average interest rate		5.95	%		5.95	%		5.95	%		5.88	%		6.00	%		5.75	%		5.97	%

(1) LIBOR floor rate of 1.25% plus a margin of 4.0% at December 31, 2011. The one-month LIBOR rate was 0.28% at December 31, 2011.

We estimate that a hypothetical one-percentage point increase in the variable interest rate would result in additional interest expense of approximately $0.7 million annually. This assumes that the amount outstanding under our floating rate debt remains at $67.5 million, the balance as of December 31, 2011.

Item 8. Consolidated Financial Statements and Supplementary Data

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

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

None.

Item 9A. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

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

Changes in Internal Control over Financial Reporting

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

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Management Report on Internal Control over Financial Reporting

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

Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2011. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in “Internal Control-Integrated Framework”. Based on our assessment, management has concluded that, as of December 31, 2011, our internal control over financial reporting is effective, based on those criteria.

The effectiveness of our internal control over financial reporting as of December 31, 2011, has been audited by PricewaterhouseCoopers LLP, an independent registered certified public accounting firm as stated in their report, which appears on page F-2 of this Annual Report on Form 10-K.

Item 9B. Other Information

None.

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PART III

Item 10. Trustees, Executive Officers and Corporate Governance

The information required by this item is incorporated by reference to the Company’s Proxy Statement for the 2011 Annual Meeting of Shareholders to be held on May 1, 2012.

Item 11. Executive Compensation

The information required by this item is incorporated by reference to the Company’s Proxy Statement for the 2011 Annual Meeting of Shareholders to be held on May 1, 2012.

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

The information required by this item is incorporated by reference to the Company’s Proxy Statement for the 2011 Annual Meeting of Shareholders to be held on May 1, 2012.

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

The information required by this item is incorporated by reference to the Company’s Proxy Statement for the 2011 Annual Meeting of Shareholders to be held on May 1, 2012.

Item 14. Principal Accountant Fees and Services

The information required by this item is incorporated by reference to the Company’s Proxy Statement for the 2011 Annual Meeting of Shareholders to be held on May 1, 2012.

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PART IV

Item 15. Exhibits and Financial Statement Schedules

1. Financial Statements

Included herein at pages F-1 through F-24-25

2. Financial Statement Schedules

The following financial statement schedule is included herein at page F-26:

Schedule III—Real Estate and Accumulated Depreciation

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

3. Exhibits

The following exhibits are filed as part of this Annual Report on Form 10-K:

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EXHIBIT INDEX

Exhibit Number	Exhibit Description
3.1	Form of Amended and Restated Declaration of Trust of Chatham Lodging Trust (1)
3.2	Form of Bylaws of Chatham Lodging Trust (1)
3.3	Agreement of Limited Partnership of Chatham Lodging, L.P. (1)
10.1*	Chatham Lodging Trust Equity Incentive Plan (2)
10.2(a)*	Form of Employment Agreement between Chatham Lodging Trust and Jeffrey H. Fisher (1)
10.2(b)*	Form of Employment Agreement between Chatham Lodging Trust and Peter Willis (1)
10.2(c)*	Form of Employment Agreement between Chatham Lodging Trust and Dennis M. Craven (3)
10.3	Agreement of Purchase and Sale, dated as of May 18, 2010, by and among Chatham Lodging Trust, as purchaser, and certain affiliates of Moody National Companies, as sellers, for the Residence Inn by Marriott, White Plains, NY; Hampton Inn & Suites Houston—Medical Center, Houston, TX; SpringHill Suites by Marriott, Washington, PA; and Courtyard by Marriott, Altoona, PA (2)
10.4	Agreement of Purchase and Sale, dated as of June 17, 2010, by and among Chatham Lodging Trust, as purchaser, and Holtsville Hotel Group LLC and FB Holtsville Utility LLC, as sellers, for the Residence Inn Long Island Holtsville, Holtsville, NY (2)
10.5	Agreement of Purchase and Sale, dated as of August 6, 2010, by and between Chatham Lodging Trust, as purchaser, and New Roc Hotels, LLC, as seller, for the Residence Inn New Rochelle, New Rochelle, NY (3)
10.6	Agreement of Purchase and Sale, dated as of August 18, 2010, by and among Chatham Lodging Trust, as purchaser, and Royal Hospitality Washington, LLC and Lee Estates, LLC, as sellers, for the Homewood Suites Carlsbad, Carlsbad, CA (3)
10.7*	Form of Indemnification Agreement between Chatham Lodging Trust and its officers and trustees (1)
10.8*	Form of LTIP Unit Vesting Agreement (1)
10.9*	Form of Share Award Agreement for Trustees (1)
10.10*	Form of Share Award Agreement for Officers (2)
10.11	Form of IHM Hotel Management Agreement (1)
10.12	Credit Agreement, dated as of October 12, 2010, among Chatham Lodging Trust, Chatham Lodging, L.P., as borrower, the lenders and other guarantors party thereto and Barclays Bank PLC, as administrative agent (4)
10.13	Form of Amended and Restated Limited Liability Company Agreement of INK Acquisition II LLC, dated October 27, 2011, by and among CRE-Ink Member II Inc. and Chatham TRS Holding Inc
10.14	Agreement of Purchase and Sale, dated as of May 3, 2011, by and among Chatham Lodging LP, as purchaser, and KPA RIMV, LLC, KPA RIGG LLC, KPA Tysons Corner RI, LLC, KPA Washington DC, LLC and KPA San Antonio, LLC, as sellers, for the Residence Inn, San Diego, CA, Residence Inn, Anaheim, CA, Residence Inn Tysons Corner, VA, Double Tree Washington, DC and Homewood Suites, San Antonio, TX (5)

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Exhibit Number	Exhibit Description
10.15	First Amendment to Agreement of Purchase and Sale, dated as of May 12, 2011, by and among Chatham Lodging LP, as purchaser, and KPA RIMV, LLC, KPA RIGG LLC, KPA Tysons Corner RI, LLC, KPA Washington DC, LLC and KPA San Antonio, LLC, as sellers, for the Residence Inn, San Diego, CA, Residence Inn, Anaheim, CA, Residence Inn Tysons Corner, VA, Double Tree Washington, DC and Homewood Suites, San Antonio, TX (5)
10.16	Amended and restated binding commitment agreement regarding the acquisition and restructuring of certain subsidiaries of Innkeepers USA Trust dated as of May 16, 2011 (5)
21.1	List of Subsidiaries of Chatham Lodging Trust
23.1	PricewaterhouseCoopers LLP Consent to include Report on Financial Statements of Chatham Lodging Trust
31.1	Certification of Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2	Certification of Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1	Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS**	XBRL Instance Document
101.SCH**	XBRL Taxonomy Extension Schema Document
101.CAL**	XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF*	XBRL Taxonomy Extension Definition Linkbase Document
101.LAB**	XBRL Taxonomy Extension Definition Linkbase Document
101.PRE**	XBRL Taxonomy Extension Label Linkbase Document

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

** Furnished herewith. Pursuant to Rule 406T of Regulation S-T, the interactive data files on Exhibit 101 hereto are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities and Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections.

(1) Incorporated by reference to Amendment No. 4 to the Registrant’s Registration Statement on Form S-11 filed with the SEC on February 12, 2010 (File No. 333-162889).

(2) Incorporated by reference to the Registrant’s Quarterly Report on Form 10-Q filed with the SEC on August 13, 2010 (File No. 001-34693).

(3) Incorporated by reference to the Registrant’s Registration Statement on Form S-11 filed with the SEC on October 28, 2010 (File No. 333-170176).

(4) Incorporated by reference to the Registrant’s Current Report on Form 8-K filed with the SEC on October 18, 2010.

(5) Incorporated by reference to the Registrant’s Quarterly Report on Form 10-Q filed with the SEC on August 11, 2011 (File No. 001-34693).

55

SIGNATURE

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

	CHATHAM LODGING TRUST
Dated: March 9, 2012	/s/    JEFFREY H. FISHER
	Jeffrey H. Fisher
	Chairman of the Board, President and Chief Executive Officer
	(Principal Executive Officer)

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

SIGNATURE	TITLE	DATE
/s/    JEFFERY H. FISHER         Jeffrey H. Fisher	Chairman of the Board, President and Chief Executive Officer (Principal Executive Officer)	March 9, 2012
/s/    DENNIS M. CRAVEN         Dennis M. Craven	Executive Vice President and Chief Financial Officer (Principal Financial and Accounting Officer)	March 9, 2012
/s/    MILES BERGER         Miles Berger	Trustee	March 9, 2012
/s/    THOMAS J. CROCKER         Thomas J. Crocker	Trustee	March 9, 2012
/s/    JACK P. DEBOER         Jack P. DeBoer	Trustee	March 9, 2012
/s/    GLEN R. GILBERT         Glen R. Gilbert	Trustee	March 9, 2012
/s/    C. GERALD GOLDSMITH         C. Gerald Goldsmith	Trustee	March 9, 2012
/s/    ROBERT PERLMUTTER         Robert Perlmutter	Trustee	March 9, 2012
/s/    ROLF E. RUHFUS         Rolf E. Ruhfus	Trustee	March 9, 2012
/s/    JOEL F. ZEMANS         Joel F. Zemans	Trustee	March 9, 2012

56

CHATHAM LODGING TRUST

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

	Page No.
Report of Independent Registered Certified Public Accounting Firm		F-2
Consolidated Balance Sheets at December 31, 2011 and 2010		F-3
Consolidated Statements of Operations for the years ended December 31, 2011 and 2010		F-4
Consolidated Statements of Equity for the years ended December 31, 2011 and 2010		F-5
Consolidated Statements of Cash Flows for the years ended December 31, 2011 and 2010		F-6
Notes to Consolidated Financial Statements		F-7
Financial Statement Schedule
Schedule III – Real Estate and Accumulated Depreciation at December 31, 2011		F-26

F-1

Report of Independent Registered Certified Public Accounting Firm

To the Board of Trustees and Shareholders of

Chatham Lodging Trust

In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations, of equity and of cash flows present fairly, in all material respects, the financial position of Chatham Lodging Trust and its subsidiaries at December 31, 2011 and 2010, and the results of their operations and their cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the accompanying index presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2011, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s management is responsible for these financial statements and financial statement schedule, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s Report on Internal Control over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on these financial statements, on the financial statement schedule, and on the Company’s internal control over financial reporting based on our audits (which was an integrated audit in 2011). We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

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

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

/s/ PricewaterhouseCoopers LLP

Fort Lauderdale, Florida

March 8, 2012

F-2

CHATHAM LODGING TRUST

Consolidated Balance Sheets

(In thousands, except share data)

	December 31,			December 31,
	2011			2010
Assets:
Investment in hotel properties, net	$	402,815		$	208,080
Cash and cash equivalents		4,680			4,768
Restricted cash		5,299			3,018
Investment in unconsolidated real estate entities		36,003			—
Hotel receivables (net of allowance for doubtful accounts of approximately $17 and $15, respectively)		2,057			891
Deferred costs, net		6,350			4,710
Prepaid expenses and other assets		1,502			735
Total assets	$	458,706		$	222,202
Liabilities and Equity:
Debt	$	228,940		$	50,133
Accounts payable and accrued expenses		10,184			5,248
Distributions payable		2,464			1,657
Total liabilities		241,588			57,038
Commitments and contingencies
Equity:
Shareholders’ Equity:
Preferred shares, $0.01 par value, 100,000,000 shares authorized and unissued at December 31, 2011 and 2010		—			—
Common shares, $0.01 par value, 500,000,000 shares authorized; 13,820,854 and 13,819,939 shares issued and outstanding, respectively at December 31, 2011 and 9,208,750 shares issued and outstanding at December 31, 2010		137			91
Additional paid-in capital		239,173			169,089
Accumulated deficit		(23,220	)		(4,441	)
Total shareholders’ equity		216,090			164,739
Noncontrolling Interests:
Noncontrolling Interest in Operating Partnership		1,028			425
Total equity		217,118			165,164
Total liabilities and equity	$	458,706		$	222,202

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

F-3

CHATHAM LODGING TRUST

Consolidated Statements of Operations

(In thousands, except share and per share data)

	For the year ended December 31,
	2011			2010
Revenue:
Room	$	70,421		$	24,743
Other operating		2,675			727
Total revenue		73,096			25,470
Expenses:
Hotel operating expenses:
Room		16,011			5,989
Other operating		26,156			9,036
Total hotel operating expenses		42,167			15,025
Depreciation and amortization		11,971			2,564
Property taxes and insurance		5,321			1,606
General and administrative		5,802			3,547
Hotel property acquisition costs		7,706			3,189
Total operating expenses		72,967			25,931
Operating income (loss)		129			(461	)
Interest and other income		22			193
Interest expense, including amortization of deferred fees		(8,190	)		(932	)
Loss in unconsolidated entity		(997	)		—
Loss before income tax expense		(9,036	)		(1,200	)
Income tax expense		(69	)		(17	)
Net loss attributable to common shareholders	$	(9,105	)	$	(1,217	)
Loss per Common Share—Basic:
Net loss attributable to common shareholders (Note 11)	$	(0.69	)	$	(0.20	)
Loss per Common Share—Diluted:
Net loss attributable to common shareholders (Note 11)	$	(0.69	)	$	(0.20	)
Weighted average number of common shares outstanding:
Basic		13,280,149			6,377,333
Diluted		13,280,149			6,377,333

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

F-4

CHATHAM LODGING TRUST

Consolidated Statements of Equity

For the years ended December 31, 2011 and 2010

(In thousands, except share and per share data)

						Additional						Total			Noncontrolling Interest in
	Common Shares					Paid-In			Accumulated			Shareholders’			Operating			Total
	Shares			Amount		Capital			Deficit			Equity			Partnership			Equity
Balance, January 1, 2010		1,000			—		10			—			10			—			10
Issuance of shares, net of offering costs of $13,752		9,125,000			91		168,657			—			168,748			—			168,748
Repurchase of common shares		(1,000	)		—		(10	)					(10	)		—			(10	)
Issuance of restricted shares		87,000			—		—			—			—			—			—
Forfeiture of restricted shares		(3,250	)		—		—			—			—			—			—
Amortization of share based compensation		—			—		432			—			432			515			947
Dividends declared on common shares ($0.525 per share)		—			—		—			(3,224	)		(3,224	)		—			(3,224	)
Distributions declared on LTIP units ($0.525 per unit)		—			—		—			—			—			(90	)		(90	)
Net loss		—			—		—			(1,217	)		(1,217	)					(1,217	)
Balance, December 31, 2010		9,208,750			91		169,089			(4,441	)		164,739			425			165,164
Issuance of shares pursuant to Equity Incentive Plan		12,104			—		210			—			210			—			210
Issuance of shares, net of offering costs of $4,153		4,600,000			46		69,401			—			69,447			—			69,447
Repurchase of vested common shares		(915	)		—		(15	)		—			(15	)		—			(15	)
Amortization of share based compensation		—			—		488			—			488			783			1,271
Dividends declared on common shares ($0.70 per share)		—			—		—			(9,674	)		(9,674	)		—			(9,674	)
Distributions declared on LTIP units ($0.70 per unit)		—			—		—			—			—			(180	)		(180	)
Net loss		—			—		—			(9,105	)		(9,105	)		—			(9,105	)
Balance, December 31, 2 011		13,819,939		$	137	$	239,173		$	(23,220	)	$	216,090		$	1,028		$	217,118

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

F-5

CHATHAM LODGING TRUST

Consolidated Statements of Cash Flows

(In thousands)

	For the years ended
	December 31,
	2011			2010
Cash flows from operating activities:
Net loss	$	(9,105	)	$	(1,217	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation		11,908			2,537
Amortization of deferred franchise fees		63			27
Amortization of deferred fees included in interest expense		1,575			280
Share based compensation		1,571			1,157
Equity in loss from unconsolidated entities		997			—
Changes in assets and liabilities:
Hotel receivables		(1,022	)		(336	)
Deferred costs		(96	)		(1,218	)
Prepaid expenses and other assets		(633	)		(76	)
Accounts payable and accrued expenses		3,688			4,120
Net cash provided by operating activities		8,946			5,274
Cash flows from investing activities:
Improvements and additions to hotel properties		(12,721	)		(3,610	)
Acquisition of hotel properties, net of cash acquired		(61,981	)		(197,525	)
Investment in unconsolidated entities		(37,000	)		—
Restricted cash		(821	)		(376	)
Net cash used in investing activities		(112,523	)		(201,511	)
Cash flows from financing activities:
Proceeds from the issuance of long-term debt		15,800			—
Borrowings on revolving credit facility		127,500			37,800
Repayments on revolving credit facility		(97,800	)		—
Payments on debt		(853	)		(101	)
Payment of financing costs		(1,543	)		(3,799	)
Payment of offering costs		(4,153	)		(13,752	)
Proceeds from issuance of common shares		73,600			182,490
In-substance repurchase of vested common shares		(15	)		—
Distributions-common shares/units		(9,047	)		(1,657	)
Net cash provided by financing activities		103,489			200,981
Net change in cash and cash equivalents		(88	)		4,744
Cash and cash equivalents, beginning of period		4,768			24
Cash and cash equivalents, end of period	$	4,680		$	4,768
Supplemental disclosure of cash flow information:
Cash paid for interest	$	6,197		$	527
Cash paid for income taxes	$	162		$	27

Supplemental disclosure of non-cash investing and financing information:

The Company has accrued distributions payable of $2,464. These distributions were paid on January 27, 2012.

On January 11, 2011, the Company issued 12,104 shares to its independent Trustees pursuant to the Company’s Equity Incentive Plan as compensation for services performed in 2010. Accrued share based compensation of $210 was included in Accounts payable and accrued expenses as of December 31, 2010. Accrued share based compensation of $300 is included in Accounts payable and acrrued expenses as of December 31, 2011.

For the year ended December 31, 2011, the Company assumed the mortgages on the purchase of the 5 Sisters for $134,160 (Note 3). For the year ended December 31, 2010, the Company assumed the mortgages on the purchase of the Altoona and Washington hotels for $12,434.

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

F-6

CHATHAM LODGING TRUST

Notes to the Consolidated Financial Statements

1. Organization

Chatham Lodging Trust (“we,” “us” or the “Company”) was formed as a Maryland real estate investment trust (“REIT”) on October 26, 2009. The Company is internally-managed and was organized to invest primarily in premium-branded upscale extended-stay and select-service hotels.

The Company completed its initial public offering (the “IPO”) on April 21, 2010. The IPO resulted in the sale of 8,625,000 common shares at $20.00 per share, generating $172.5 million in gross proceeds. Net proceeds, after underwriters’ discounts and commissions and other offering costs, were approximately $158.7 million. Concurrently with the closing of the IPO, in a separate private placement pursuant to Regulation D under the Securities Act of 1933, as amended (the “Securities Act”), the Company sold 500,000 of its common shares to Jeffrey H. Fisher, Chairman, President and Chief Executive Officer, at the public offering price of $20.00 per share, for proceeds of $10.0 million.

The company utilized the proceeds to acquire the following thirteen properties in 2010:

Property	Location	Management Company	Date of Acquisition	Debt		Purchase Price
Homewood Suites by Hilton Boston-Billerica/ Bedford/ Burlington	Billerica, Massachusetts	Hilton	April 23, 2010		—		$12.5 million
Homewood Suites by Hilton Minneapolis-Mall of America	Bloomington, Minnesota	Hilton	April 23, 2010		—	$	18.0 million
Homewood Suites by Hilton Nashville-Brentwood	Brentwood, Tennessee	Hilton	April 23, 2010		—	$	11.3 million
Homewood Suites by Hilton Dallas-Market Center	Dallas, Texas	Hilton	April 23, 2010		—	$	10.7 million
Homewood Suites by Hilton Hartford-Farmington	Farmington, Connecticut	Hilton	April 23, 2010		—	$	11.5 million
Homewood Suites by Hilton Orlando-Maitland	Maitland, Florida	Hilton	April 23, 2010		—	$	9.5 million
Homewood Suites by Hilton Carlsbad (North San Diego County)	Carlsbad, California	Island Hospitality	November 3, 2010		—	$	32.0 million
Hampton Inn & Suites Houston-Medical Center	Houston, Texas	Island Hospitality	July 2, 2010		—	$	16.5 million
Courtyard Altoona	Altoona, Pennsylvania	Concord	August 24, 2010	$	7.0 million	$	11.3 million
Springhill Suites Washington	Washington, Pennsylvania	Concord	August 24, 2010	$	5.4 million	$	12.0 million
Residence Inn Long Island Holtsville	Holtsville, New York	Island Hospitality	August 3, 2010		—	$	21.3 million
Residence Inn White Plains	White Plains, New York	Island Hospitality	September 23, 2010		—	$	21.2 million
Residence Inn New Rochelle	New Rochelle, New York	Island Hospitality	October 5, 2010		—	$	21.0 million
Total					$12.4 million	$	208.8 million

The Company allocated the following total purchase price allocation to those thirteen properties acquired in 2010:

	Total
Land	$	24,620
Building and improvements		176,349
Furniture, fixtures and equipment		6,038
Cash		48
Restricted cash		2,642
Accounts receivable		555
Prepaid expenses and other assets		659
Debt		(12,434	)
Accounts payable and accrued expenses		(904	)
Net assets acquired	$	197,573
Net assets acquired, net of cash	$	197,525

F-7

On February 8, 2011, the Company completed a follow-on common share offering generating gross proceeds of $73.6 million and net proceeds of approximately $69.4 million, adding capital to the Company’s balance sheet. Using these funds as well as borrowing capacity on our secured revolving credit facility, on July 14, 2011, the Company acquired five hotels for an aggregate purchase price of $195 million, including the assumption of five individual mortgage loans secured by the hotels totaling $134.2 million. Additionally, the Company invested $37.0 million for an approximate 10.3% interest in the JV with Cerberus Capital Management ( “Cerberus”) that acquired 64 hotels from Innkeepers USA Trust (“Innkeepers”) on October 27, 2011. The Company accounts for this investment under the equity method.

The Company had no operations prior to the consummation of the IPO. Following the closing of the IPO, the Company contributed the net proceeds from the IPO and the concurrent private placement, as well as the proceeds of our February 2011 offering, to Chatham Lodging, L.P. (the “Operating Partnership”) in exchange for partnership interests in the Operating Partnership. Substantially all of our assets are held by, and all of the Company’s operations are conducted through, the Operating Partnership. Chatham Lodging Trust is the sole general partner of the Operating Partnership and owns 100% of the common units of limited partnership interest in the Operating Partnership. Certain of our executive officers hold vested and unvested long-term incentive plan units in the Operating Partnership, which are presented as noncontrolling interests on our consolidated balance sheets.

As of December 31, 2011, the Company owned 18 hotels with an aggregate of 2,414 rooms located in 10 states and the District of Columbia and held a minority interest in the JV, which owns 64 hotels comprising an aggregate of 8,329 rooms. To qualify as a REIT, the Company cannot operate the hotels. Therefore, the Operating Partnership and its subsidiaries lease our wholly owned hotels to taxable REIT subsidiary lessees (“TRS Lessees”), which are wholly owned by one of our taxable REIT subsidiary (“TRS”) holding companies. We indirectly own our interest in 51 of the 64 JV hotels through the Operating Partnership, and we own our interest in the remaining 13 JV hotels through one of our TRS holding companies. All of the JV hotels are leased to TRS Lessees in which we indirectly own a 10.3% minority interests through one of our TRS holding companies. Each hotel is leased to a TRS Lessee under a percentage lease that provides for rental payments equal to the greater of (i) a fixed base rent amount or (ii) a percentage rent based on hotel room revenue. The initial term of each of the TRS leases is five years. Lease revenue from each TRS Lessee is eliminated in consolidation. The TRS Lessees have entered into management agreements with third party management companies that provide day-to-day management for the hotels. Island Hospitality Management Inc. (“IHM”), which is 90% owned by Mr. Fisher, manages 10 of our wholly owned hotels; Homewood Suites Management LLC, a subsidiary of Hilton Worldwide Inc. (“Hilton”) manages six of our wholly owned hotels; and Concord Hospitality Enterprises Company manages two of our wholly owned hotels. All but one of the JV hotels are managed by IHM. One JV hotel is managed by Dimension Development Company.

2. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying financial statements and related notes have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) and in conformity with the rules and regulations of the Securities and Exchange Commission (“SEC”). These consolidated financial statements, in the opinion of management, include all adjustments considered necessary for a fair presentation of the consolidated balance sheets, and consolidated statements of operations, of equity, and of cash flows for the periods presented. The consolidated financial statements include all of the accounts of the Company and its wholly owned subsidiaries. All intercompany balances and transactions are eliminated in consolidation.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the balance sheet date and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

F-8

Fair Value of Financial Instruments

The Company’s financial instruments include cash and cash equivalents, restricted cash, hotel receivables, accounts payable and accrued expenses, distributions payable and debt. Due to their relatively short maturities, the carrying values reported in the consolidated balance sheets for these financial instruments approximate fair value except for debt, the fair value of which is separately disclosed in Note 7.

Investment in Hotel Properties

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

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

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

The Company will consider a hotel property as held for sale when a binding agreement to purchase the property has been signed under which the buyer has committed a significant amount of nonrefundable cash, no significant financing contingencies exist which could cause the transaction not to be completed in a timely manner and the sale is expected to occur within one year. If these criteria are met, depreciation and amortization of the hotel property will cease and an impairment loss if any will be recognized if the fair value of the hotel property, less the costs to sell, is lower than the carrying amount of the hotel property. The Company will classify the loss, together with the related operating results, as discontinued operations in the consolidated statements of operations and classify the assets and related liabilities as held for sale in the consolidated balance sheets. As of December 31, 2011, the Company had no hotel properties held for sale.

Cash and Cash Equivalents

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

F-9

Restricted Cash

Restricted cash represents purchase price deposits held in escrow for potential hotel acquisitions under contract and escrows for reserves required pursuant to the Company’s loans or hotel management agreements. Included in restricted cash on the accompanying consolidated balance sheet at December 31, 2011 are $5.3 million of renovation, property tax and insurance escrows and at December 31, 2010 are deposits for hotel acquisitions of $0.1 million and $3.0 million of renovation, property tax and insurance escrows. Certain of the hotel mortgage loan agreements require the Company to fund 5% of gross hotel revenues on a monthly basis for furnishings, fixtures and equipment and general repair maintenance reserves (“Replacement Reserve”) in an account with the Lender. Property tax and insurance reserves are required to be deposited into an escrow account held by Lender.

Hotel Receivables

Hotel receivables consist of amounts owed by guests staying at the Company’s hotels at year end and amounts due from business and group customers. An allowance for doubtful accounts is provided and maintained at a level believed to be adequate to absorb estimated probable receivable losses. At December 31, 2011 and 2010, respectively, the allowance for doubtful accounts was $17 thousand and $15 thousand. For the years ended December 31, 2011 and 2010, the Company recorded no hotel receivable writeoffs.

Deferred Costs

Deferred costs consist of franchise agreement fees for the Company’s hotels, deferred loan costs and deferred costs related to the Company’s shelf registration statement. Franchise fees are recorded at cost and amortized over a straight-line basis over the term of the franchise agreements. Loan costs are recorded at cost and amortized over a straight-line basis which approximates the interest rate method over the term of the loan. The deferred offering costs will be reclassified into additional paid-in capital as shares are sold. Offering costs of $0.4 million, classified as “Other” in 2010, were reclassed to into additional paid-in capital after the completion of the follow-on common share offering on February 8 , 2011. For the years ended December 31, 2011 and 2010, amortization expense related to franchise fees of $62 and $27 thousand, respectively, is included in depreciation and amortization and amortization expense related to loan costs of $1.6 and $0.3 million, respectively, is included in interest expense in the consolidated statement of operations.

Deferred costs consisted of the following at December 31, 2011 and 2010 (in thousands):

	December 31, 2011			December 31, 2010
Loan costs	$	7,010		$	3,798
Franchise fees		1,198			809
Other		116			409
		8,324			5,016
Less accumulated amortization		(1,974	)		(306	)
Deferred costs, net	$	6,350		$	4,710

Prepaid Expenses and Other Assets

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

Revenue Recognition

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

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Hotel Management Agreements

The Company assumed the existing hotel management agreements in place at six of its hotels—the Boston-Billerica Homewood Suites, Minneapolis-Bloomington Homewood Suites, Nashville-Brentwood Homewood Suites, Dallas Homewood Suites, Hartford-Farmington Homewood Suites and Orlando-Maitland Homewood Suites—all of which are managed by Promus Hotels, Inc., a subsidiary of Hilton Hotels Worldwide (“Hilton”). Each of these hotel management agreements became effective on December 20, 2000, has an initial term of 15 years and may be renewed for an additional five-year period at the manager’s option by written notice to us no later than 120 days prior to the expiration of the initial term.

Under these six hotel management agreements, the manager receives a base management fee equal to 2% of the hotel’s gross room revenue and, if certain financial thresholds are met or exceeded, an incentive management fee equal to 10% of the hotel’s net operating income, less fixed costs, base management fees, agreed-upon return on the owner’s original investment and debt service payments. In addition to the management fee, a franchise royalty fee equal to 4% of the hotel’s gross room revenue and program fees equal to 4% of the hotel’s gross room revenue are also payable to Hilton. See “Hotel Franchise Agreements”. Prior to April 23, 2013, each of these six management agreements may be terminated for cause, including the failure of the managed hotel to meet specified performance levels, and may be terminated by the manager in the event we undergo a change in control. If the new owner does not assume the existing management agreement and does not obtain a Homewood Suites franchise license upon such a change of control, we will be required to pay a termination fee to the manager. Beginning on April 23, 2013, we may terminate the six Hilton management agreements upon six months notice to the manager without payment of a termination fee. If we were to terminate the management agreements prior to the termination date, we would be responsible for paying termination fees to the manager.

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

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

Hotel Franchise Agreements

One of the Company’s TRS Lessees has entered into hotel franchise agreements with Promus Hotels, Inc., a subsidiary of Hilton, for our eight Homewood Suites by Hilton^® hotels. Each of the hotel franchise agreements

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

One of the Company’s TRS Lessees has entered into franchise agreements with Marriott International, Inc., (“Marriott”), relating to our Residence Inn properties in Holtsville, New York, New Rochelle, New York, White Plains, New York, Garden Grove, CA, San Diego, CA and Vienna, VA, our Courtyard property in Altoona, Pennsylvania and our SpringHill Suites property in Washington, Pennsylvania. These franchise agreements have initial terms ranging from 15 to 20 years and will expire between 2025 and 2031. None of the agreements has a renewal option. The Marriott franchise agreements provide for franchise fees ranging from 5.0% to 5.5% of the hotel’s gross room sales and marketing fees ranging from 2.0% to 2.5% of the hotel’s gross room sales. The Marriott franchise agreements are terminable by Marriott in the event that the applicable franchisee fails to cure an event of default or, in certain circumstances such as the franchisee’s bankruptcy or insolvency, are terminable by Marriott at will. The Marriott franchise agreements provide that, in the event of a proposed transfer of the hotel, our TRS Lessee’s interest in the agreement or more than a specified amount of the TRS Lessee to a competitor of Marriott, Marriott has the right to purchase or lease the hotel under terms consistent with those contained in the respective offer and may terminate if our TRS Lessee elects to proceed with such a transfer.

One of the Company’s TRS lessees has entered into a franchise agreement with Hampton Inns Franchise LLC, (“Hampton Inns”), relating to the Hampton Inn & Suites^® Houston-Medical Center. The franchise agreement has an initial term of approximately 10 years and expires on July 31, 2020. There is no renewal option. The Hampton Inns franchise agreement provides for a monthly program fee equal to 4% of the hotel’s gross rooms revenue and a monthly royalty fee equal to 5% of the hotel’s gross rooms revenue. Hampton Inns may terminate the franchise agreement in the event that the franchisee fails to cure an event of default or, in certain circumstances such as the franchisee’s bankruptcy or insolvency, Hampton Inns may terminate the agreement at will.

One of the Company’s TRS lessees has entered into a franchise agreement with Doubletree Franchise LLC (“Doubletree”), relating to the Doubletree Guest Suites by Hilton in Washington, DC. The new hotel franchise agreement has an initial term of 10 years and will expire on July 31, 2021. The franchise agreement is non-renewable. The Doubletree hotel franchise agreement provides for a franchise royalty fee equal to 5% of the hotel’s gross room revenue and a program fee equal to 4% of the hotel’s gross room revenue. The Doubletree franchise agreement generally has no termination rights unless the franchisee fails to cure an event of default in accordance with the franchise agreements.

Share-Based Compensation

The Company measures compensation expense for the restricted share awards based upon the fair market value of its common shares at the date of grant. Compensation expense is recognized on a straight-line basis over the vesting period and is included in general and administrative expense in the accompanying consolidated statement of operations. The Company pays dividends on vested and nonvested restricted shares.

Earnings Per Share

A two class method is used to determine earnings per share. Basic earnings per share (“EPS”) is computed by dividing net income (loss) available for common shareholders, adjusted for dividends on unvested share grants, by the weighted average number of common shares outstanding for the period. Diluted EPS is computed by dividing net income (loss) available for common shareholders, adjusted for dividends on unvested share grants, by the weighted average number of common shares outstanding plus potentially dilutive securities such as share grants or shares issuable in the event of conversion of operating partnership units. No adjustment is made

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for shares that are anti-dilutive during the period. The Company’s restricted share awards and long-term incentive plan units are entitled to receive dividends, if declared. The rights to dividends declared are non-forfeitable, and therefore, the unvested restricted shares and long-term incentive plan units qualify as participating securities requiring the allocation of earnings under the two-class method to calculate EPS. The percentage of earnings allocated to the unvested restricted shares is based on the proportion of the weighted average unvested restricted shares outstanding to the total of the basic weighted average common shares outstanding and the weighted average unvested restricted shares outstanding. Basic EPS is then computed by dividing income less earnings allocable to unvested restricted shares by the basic weighted average number of shares outstanding. Diluted EPS is computed similar to basic EPS, except the weighted average number of shares outstanding is increased to include the effect of potentially dilutive securities. Because the Company reported a net loss for the period, no allocation was made to the unvested restricted shares or the long-term incentive plan units.

Income Taxes

The Company is currently subject to corporate federal and state income taxes. Prior to April 21, 2010, the Company had no operating results subject to taxation.

The Company elected to be taxed as a REIT for federal income tax purposes. In order to qualify as a REIT under the Internal Revenue Code of 1986, as amended, the Company must meet certain organizational and operational requirements, including a requirement to distribute at least 90% of its annual REIT taxable income to its shareholders (which is computed without regard to the dividends paid deduction or net capital gain and which does not necessarily equal net income as calculated in accordance with GAAP). As a REIT, the Company generally will not be subject to federal income tax to the extent the Company distributes its REIT taxable income to its shareholders. If the Company fails to qualify as a REIT in any taxable year, the Company will be subject to federal income tax on its REIT taxable income at regular corporate income tax rates and generally will not be permitted to qualify for treatment as a REIT for federal income tax purposes for the four taxable years following the year during which qualification is lost unless the IRS grants the Company relief under certain statutory provisions. Such an event could materially adversely affect the Company’s net income and net cash available for distribution to shareholders. However, the Company has been organized and operates in such a manner as to qualify for treatment as a REIT.

The Company leases its wholly owned hotels to TRS Lessees, which are wholly owned by the Company’s taxable REIT subsidiaries (each, a “TRS”) which, in turn are wholly owned by the Operating Partnership. Additionally, the Company owns its interest in 51 of the 64 JV hotels through the Operating Partnership and owns its interest in the remaining 13 JV hotels through one of its TRSs. Each TRS is subject to federal and state income taxes and the Company accounts for taxes, where applicable, in accordance with the provisions of [Financial Accounting Standards Board Accounting Standards Codification 740] using the asset and liability method which recognizes deferred tax assets and liabilities for future tax consequences arising from differences between financial statement carrying amounts and income tax bases.

As of December 31, 2011 and 2010, the Company did not have any uncertain tax positions and had not incurred any interest or penalties on such positions during the periods presented. Interest and penalties related to uncertain tax benefits, if any, in the future will be recognized as operating expense.

Organizational and Offering Costs

The Company expenses organizational costs as incurred. Offering costs, which include selling commissions, are recorded as a reduction in additional paid-in capital in shareholders’ equity. Costs related to the Company’s shelf registration statement filing in 2012 are included in deferred costs at December 31, 2011 and will be recorded as a reduction in additional paid-in capital as shares are sold.

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Recently Issued Accounting Standards

In May 2011, the FASB and International Accounting Standards Board (“IASB”) (collectively the “Boards”) issued ASU No. 2011-04, Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs (“ASU 2044-04”). ASC 2011-04 created a uniform framework for applying fair value measurement principles for companies around the world and clarified existing guidance in U.S. GAAP. ASU 2011-04 is effective for the first reporting annual period beginning after December 15, 2011 and shall be applied prospectively. The Company does not expect this standard to have any material effect on our consolidated financial statements.

In June 2011, the FASB issued ASU No. 2011-05, Comprehensive Income (Topic 220), Presentation of Comprehensive income. This update is intended to increase the prominence of other comprehensive income in the financial statements by requiring public companies to present comprehensive income either as a single statement detailing the components of net income and total net income, the components of other comprehensive income and total other comprehensive income, and a total for comprehensive income or using a two statement approach including both a statement of income and a statement of comprehensive income. The option to present other comprehensive income in the statement of changes in equity has been eliminated. The amendments in this update, which should be applied retrospectively, are effective for public companies for fiscal years, and interim periods beginning after December 15, 2011. Currently, the Company has no items of other comprehensive income in any periods presented and adoption of this standard is not expected to impact us.

3. Acquisition of Hotel Properties

Acquisition of Hotel Properties

On July 14, 2011, the Company acquired five hotels (the “5 Sisters”) for an aggregate purchase price of $195.0 million, plus customary pro-rated amounts and closing costs, from affiliates of Innkeepers USA Trust. The Company funded the 5 Sisters acquisition with available cash, the assumption of debt of $134.2 million and borrowings under the Company’s secured revolving credit facility. The 5 Sisters are as follows:

• Residence Inn by Marriott^® Anaheim—Garden Grove, CA.; 200 rooms.

• Homewood Suites by Hilton^® San Antonio Riverwalk—San Antonio, TX.; 146 rooms.

• Residence Inn by Marriott^® Tysons Corner—Vienna, VA.; 121 rooms.

• Doubletree Guest Suites by Hilton^® Washington DC—Washington, DC; 105 rooms.

• Residence Inn by Marriott^® San Diego Mission Valley—San Diego, CA.; 192 rooms.

The Company incurred acquisition costs of $7.7 million and $3.2 million, respectively, during the years ended December 31, 2011 and 2010. $3.7 million of the acquisition costs are related to the JV.

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Hotel Purchase Price Allocation

The allocation of the purchase price to the hotels based on their fair value was as follows (in thousands):

	5 Sisters Acquisition
Acquisition date		07/14/11
Land	$	35,231
Building and improvements		150,764
Furniture, fixtures and equipment		7,399
Cash		26
Restricted cash		1,460
Accounts receivable, net		144
Deferred costs, net		1,639
Prepaid expenses and other assets		134
Debt		(134,160	)
Accounts payable and accrued expenses		(630	)
Net assets acquired	$	62,007
Net assets acquired, net of cash	$	61,981

Pro Forma Financial Information

The following condensed unaudited pro forma financial information presents the results of operations as if the hotels acquired in 2010 and 2011 including the acquisition of the 5 Sisters had taken place on January 1, 2010. The unaudited pro forma results below exclude acquisition costs of $3.2 million and $3.2 million for the years ended December 31, 2011 and 2010, respectively. The unaudited pro forma results have been prepared for comparative purposes only and are not necessarily indicative of what actual results of operations would have been had the acquisitions taken place on January 1, 2010, nor do they purport to represent the results of operations for future periods (in thousands, except share and per share data).

	For the years ended December 31,
	2011			2010
Pro forma total revenue	$	91,305		$	83,122
Pro forma net loss	$	(9,290	)	$	(3,380	)
Pro forma income (loss) per share:
Basic and diluted	$	(0.67	)	$	(0.24	)
Weighted average Common Shares Outstanding
Basic and diluted		13,819,939			13,819,939

4. Allowance for Doubtful Accounts

The Company maintains an allowance for doubtful accounts at a level believed to be adequate to absorb estimated probable losses. That estimate is based on past loss experience, current economic and market conditions and other relevant factors. The allowance for doubtful accounts was $17 thousand and $15 thousand as of December 31, 2011 and 2010 respectively.

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5. Investment in Hotel Properties

Investment in hotel properties as of December 31, 2011 and 2010 consisted of the following (in thousands):

	December 31, 2011			December 31, 2010
Land and improvements	$	60,064		$	24,620
Building and improvements		332,399			176,354
Furniture, fixtures and equipment		17,469			6,138
Construction in progress		3,897			3,505
		413,829			210,617
Less accumulated depreciation		(11,014	)		(2,537	)
Investment in hotel properties, net	$	402,815		$	208,080

6. Investment in Unconsolidated Entities

On October 27, 2011, the Company acquired a 10.3% interest in a joint venture (the “JV”) between Cerberus Capital Management (“Cerberus”) and Chatham Lodging, L.P. The JV owns 64 properties which it acquired for a total purchase price of approximately $1.02 billion, including the assumption of approximately $675 million of mortgage debt secured by 45 of the hotels with a weighted average interest rate of 6.71% and maturing in 2017. The Company’s investment of $37 million in the JV was funded through borrowings under the Company’s secured revolving credit facility. The Company incurred approximately $3.7 million in acquisition costs. The Company accounts for this investment under the equity method.

The Company’s ownership interest in the JV is subject to change in the event that either Chatham or Cerberus calls for additional capital contributions to the JV necessary for the conduct of business, including contributions to fund costs and expenses related to capital expenditures. The Company will manage the JV and will receive a promote interest based on meeting certain return thresholds. Cerberus may also approve certain actions by the JV without the Company’s consent, including certain property dispositions conducted at arm’s length, certain actions related to the restructuring of the JV and removal of the Company as managing member in the event the Company fails to fulfill its material obligations under the joint venture agreement.

The JV incurred $4.6 million in acquisition costs and $8.6 million in depreciation expense in 2011. The following tables set forth the total assets, liabilities, equity and components of net loss, including the Company’s share, related to the unconsolidated joint venture discussed above from the acquisition date through December 31, 2011 (in thousands):

Balance Sheet

	December 31, 2011
Assets
Investment in hotel properties, net	$	972,925
Other assets		79,107
Total Assets		1,052,032
Liabilities and Equity
Mortgages and notes payable	$	675,000
Other liabilities		26,729
Total Liabilities		701,729
Equity:
Chatham Lodging Trust		36,003
Joint Venture Partner		314,300
Total Equity		350,303
Total Liabilities and Equity	$	1,052,032

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Statement of Operations

	Acquisition Date to December 31, 2011
Revenue	$	34,339
Total operating expenses		37,411
Operating loss	$	(3,072	)
Net loss	$	(9,697	)
Chatham’s 10.3% interest of net loss reported as
Equity in loss in unconsolidated entities	$	(997	)

7. Debt

On August 16, 2011, the Company entered into a $15.8 million new mortgage loan on the Residence Inn New Rochelle in New Rochelle, NY. On July 14, 2011, the Company assumed $134.2 million in existing mortgage loans on the 5 Sisters in connection with their acquisition. Each of the Company’s mortgage loans is secured by a first-mortgage lien on the underlying property. The mortgages are non-recourse except for instances of fraud or misapplication of funds. Mortgage debt consisted of the following (in thousands):

					12/31/11		Balance Outstanding as of
Collateral	Interest Rate			Maturity Date	Property Carrying Value		December 31, 2011		December 31, 2010
Courtyard by Marriott Altoona, PA		5.96	%	April 1, 2016	$	10,622	$	6,753	$	6,925
SpringHill Suites by Marriott Washington, PA		5.84	%	April 1, 2015		11,420		5,260		5,408
Residence Inn by Marriott New Rochelle, NY		5.75	%	September 1, 2021		20,336		15,731		—
Residence Inn by Marriott Garden Grove, CA		5.98	%	November 1, 2016		42,914		32,417		—
Residence Inn by Marriott San Diego, CA		5.98	%	November 1, 2016		50,914		39,986		—
Homewood Suites by Hilton San Antonio, TX		6.03	%	October 1, 2016		31,966		18,380		—
Doubletree Suite by Hilton Washington, DC		6.03	%	October 1, 2016		29,010		19,960		—
Residence Inn by Marriott Vienna, VA		6.03	%	October 1, 2016		35,998		22,953		—
					$	233,180	$	161,440	$	12,333

The Company estimates the fair value of its fixed rate debt by discounting the future cash flows of each instrument at estimated market rates. Rates take into consideration general market conditions and maturity. The estimated fair value of the Company’s fixed rate debt as of December 31, 2011 and 2010 was $159.4 million and $12.6 million, respectively.

On October 12, 2010, the Company entered into an $85 million senior secured revolving credit facility. At December 31, 2011 and 2010, the Company had $67.5 million and $37.8 million, respectively, of outstanding borrowings under this credit facility. There were ten properties in the borrowing base securing borrowings under the credit facility at December 31, 2011. At December 31, 2011, the maximum borrowing availability under the revolving credit facility was $75.0 million.

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In May 2011, the Company amended its $85 million senior secured revolving credit facility. The amendment provides for an increase to the allowable consolidated leverage ratio to 60 percent through 2012, reducing to 55 percent in 2013; and a decrease to the consolidated fixed charge coverage ratio from 2.3x to 1.7x through March 2012, increasing to 1.75x through December 2012 and 2.0x in 2013. Subject to certain conditions, the credit facility has an accordion feature that provides the Company with the ability to increase the facility to $110 million, subject to lender approval. The Company paid $0.5 million in fees and related expenses in connection with this amendment. The fees are capitalized and amortized over the term of the credit facility.

As of December 31, 2011, the Company was in compliance with all of its financial covenants. Future scheduled principal payments of debt obligations as of December 31, 2011 are as follows (in thousands):

	Amount
2012	$	1,848
2013		69,481
2014		2,106
2015		6,778
2016		134,587
Thereafter		14,140
	$	228,940

8. Income Taxes

The Company’s TRSs are subject to federal and state income taxes. The Company’s TRSs are structured under one of two TRS holding companies that are treated separately for income tax purposes (TRS 1 and TRS 2, respectively).

The components of income tax expense for the following periods are as follows (in thousands):

	For the Years Ended
	December 31
	2011			2010
Current:
Federal	$	73		$	13
State		21			4
Current tax expense	$	94		$	17
Deferred:
Federal	$	(21	)	$	—
State		(4	)		—
Deferred tax expense	$	(25	)	$	—
Total tax expense	$	69		$	17

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The difference between total tax expense and the amount computed by applying the statutory federal income tax rate to the combined income by the Company’s TRSs before taxes were as follows (in thousands):

	For the Years Ended
	December 31
	2011			2010
Book income (loss) before income taxes	$	143		$	(238	)
Statutory rate of 34% applied to pre-tax income (loss)		48			13
Effect of state and local income taxes, net of federal tax benefit		7			4
Other items		14			—
Total expense (benefit)		69			17
Effective tax rate		48.25	%		-7.14	%

At December 31, 2010, TRS 1 had future taxable income deductions of $0.3 million related to accumulated net operating losses from 2010 and the gross deferred tax asset associated with these future tax deductions was $0.1 million. TRS 1 has recorded a valuation allowance equal to 100% of the gross deferred tax asset due to the uncertainty of realizing the benefit of its deferred assets due to the limited operating history and the cumulative taxable losses incurred by TRS 1 since its inception. During 2011, TRS I has generated taxable income to partially utilize the deferred tax asset. TRS 2 had no deferred tax assets or liabilities at December 31, 2010 and no valuation allowance has been recorded in connection with gross deferred tax assets of TRS 2 for December 31, 2011 and 2010. Accordingly, the net deferred tax asset of the Company solely relates to the deferred tax assets generated by TRS 2 during the year ended December 31, 2011. The tax effect of each type of temporary difference and carry forward that gives rise to the deferred tax asset as of December 31, 2011 and 2010 are as follows (in thousands):

	For the Years Ended
	December 31
	2011			2010
Deferred tax assets:
Current:
Allowance for doubtful accounts	$	6		$	—
Net operating loss carryforwards		—			106
Accrued compensation		192
Valuation allowance		(148	)		(106	)
Deferred tax asset current		50			—
Non-current		—			—
Total book/tax difference fixed assets		(25	)		—
Net deferred tax asset	$	25		$	—

9. Dividends Declared and Paid

The Company declared common share dividends of $0.175 per share and distributions on LTIP units of $0.175 per unit for each of the four quarters of 2011. The dividends and distributions for the first quarter were paid on April 15, 2011 to common shareholders and LTIP unit holders of record on March 31, 2011. The dividends and distributions for the second quarter were paid on July 15, 2011 to common shareholders and LTIP unit holders of record on June 30, 2011. The dividends and distributions for the third quarter were paid on October 14, 2011 to common shareholders and LTIP unit holders of record on September 30, 2011. The

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dividends and distributions for the fourth quarter were paid on January 27, 2012 to common shareholders and LTIP unit holders of record on December 30, 2011. For the years ended December 31, 2011 and 2010, approximately 5.7% and 100% of the distributions paid to the stockholders were considered taxable income and approximately 94.3% and 0.0% were considered a return of capital for federal income tax purposes, respectively.

10. Shareholders’ Equity

Common Shares

The Company is authorized to issue up to 500,000,000 common shares of beneficial interest (“common shares”), $.01 par value per share. Each outstanding common share entitles the holder to one vote on all matters submitted to a vote of shareholders. Holders of the Company’s common shares are entitled to receive dividends when authorized by our Board of Trustees.

The Company completed a public offering of 4,600,000 common shares at a $16.00 price per share generating $73.6 million in gross proceeds on February 8, 2011. Net proceeds were approximately $69.4 million after underwriters’ discounts and commissions and other offering costs paid to third parties. As of December 31, 2011, 13,819,939 common shares were outstanding.

During the year ended December 31, 2011, the Company withheld 915 common shares of beneficial interest that had vested to an executive in accordance with the Equity Incentive Plan, the shares were withheld at a value of $16.43 per share to meet the minimum statutory tax withholding requirements of the executive which were directly remitted by the Company to the appropriate taxing jurisdiction. The price per share is determined by using the closing price of the common shares the day before they are withheld.

Preferred Shares

The Company is authorized to issue up to 100,000,000 preferred shares, $.01 par value per share. No preferred shares were outstanding at December 31, 2011.

Operating Partnership Units

If and when issued, holders of common units in the Operating Partnership will have certain redemption rights, which will enable the unit holders to cause the Operating Partnership to redeem their units in exchange for, at the Company’s option, cash per unit equal to the market price of the Company’s common shares at the time of redemption or for the Company’s common shares on a one-for-one basis. The number of shares issuable upon exercise of the redemption rights will be adjusted upon the occurrence of share splits, mergers, consolidations or similar pro-rata share transactions, which otherwise would have the effect of diluting the ownership interests of limited partners or shareholders. As of December 31, 2011 and 2010, there were no Operating Partnership common units held by unaffiliated third parties. At December 31, 2011 and 2010, an aggregate of 257,775 LTIP Units, a special class of operating partnership units, were held by executive officers. The LTIP Units receive per unit distributions equal to the per share distribution paid on common shares.

The Company contributed the net proceeds from the February 8, 2011 common share offering to the Operating Partnership in exchange for 4,600,000 common units of the Operating Partnership.

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11. Earnings Per Share

A two class method is used to determine earnings per share. The following is a reconciliation of the amounts used in calculating basic and diluted net loss per share (in thousands, except share and per share data):

	For the years ended December 31
	2011			2010
Numerator:
Net loss attributable to common shareholders	$	(9,105	)	$	(1,217	)
Dividends paid on unvested restricted shares		(41	)		—
Net loss attributable to common shareholders excluding amounts attributable to unvested restricted shares	$	(9,146	)	$	(1,217	)
Denominator:
Weighted average number of common shares—basic		13,280,149			6,377,333
Effect of dilutive securities:
Unvested shares (1)		—			—
Weighted average number of common shares—diluted		13,280,149			6,377,333
Basic Earnings per Common Share:
Net loss attributable to common shareholders per weighted average common share excluding amounts attributable to unvested restricted shares	$	(0.69	)	$	(0.20	)
Diluted Earnings per Common Share:
Net loss attributable to common shareholders per weighted average common share excluding amounts attributable to unvested restricted shares	$	(0.69	)	$	(0.20	)

(1) Unvested restricted shares and unvested long-term incentive plan units that could potentially dilute basic earnings per share in the future that were not included in the computation of diluted earnings (loss) per share, because they would have been anti-dilutive for the periods presented.

12. Equity Incentive Plan

The Company maintains its Equity Incentive Plan to attract and retain independent trustees, executive officers and other key employees and service providers. The plan provides for the grant of options to purchase common shares, share awards, share appreciation rights, performance units and other equity-based awards. Share awards under this plan generally vest over three to five years, though the independent trustees share compensation includes shares granted that vest immediately. The Company pays dividends on unvested shares and units. Certain awards may provide for accelerated vesting if there is a change in control. In January 2011, the Company issued 12,104 common shares to its independent trustees as compensation for services performed in 2010. A portion of the Company’s share-based compensation to the Company’s trustees for the year ended December 31, 2011 was distributed on January 6, 2012 in the form of common shares. The quantity of shares was calculated based on the average of the closing prices for the Company’s common shares on the New York Stock Exchange for the last ten trading days preceding the reporting date. The Company distributed 27,592 common shares. As of December 31, 2011, there were 211,730 common shares available for issuance under the 2010 Equity Incentive Plan.

In the Company’s 2010 Annual Report on Form 10-K, the Company separately presented unvested stock-based compensation as a contra account to shareholder’s equity. In connection with the preparation of its financial statements for the year ended December 31, 2011, the Company has presented the stock-based compensation as an addition to additional paid-in-capital when recognized as expense, in accordance with the standards which apply to stock-based compensation, for all periods presented. The Company concluded that the revision to the amounts as of December 31, 2010 do not have a material impact on any of its previously issued financial statements.

F-21

Restricted Share Awards

The Company measures compensation expense for restricted share awards based upon the fair market value of its common shares at the date of grant. Compensation expense is recognized on a straight-line basis over the vesting period and is included in general and administrative expense in the accompanying consolidated statements of operations. The Company pays dividends on nonvested restricted shares.

A summary of the Company’s restricted share awards for the years ended December 31, 2011 and 2010 are as follows:

	2011					2010
	Number of Shares			Weighted- Average Grant Date  Fair Value		Number of Shares			Weighted- Average Grant Date  Fair Value
Nonvested at beginning of the period		76,550		$	19.04		87,000		$	19.02
Granted		—			—		—			—
Vested		(25,521	)		19.04		(7,200	)		18.86
Forfeited		—			—		(3,250	)		18.86
Nonvested at end of the period		51,029		$	19.04		76,550		$	19.04

As of December 31, 2011 and 2010, respectively, there were $0.7 million and $1.2 million of unrecognized compensation costs related to restricted share awards. As of December 31, 2011, these costs were expected to be recognized over a weighted–average period of approximately 1.4 years. For the years ended December 31, 2011 and 2010, respectively, the Company recognized approximately $0.5 million and $0.4 million in expense related to the restricted share awards. This expense is included in general and administrative expenses in the accompanying consolidated statement of operations. As of December 31, 2011 and 2010, 25,521 and 7,200 shares were vested, respectively.

Long-Term Incentive Plan Units

LTIP Units are a special class of partnership interests in the Operating Partnership which may be issued to eligible participants for the performance of services to or for the benefit of the Company. Under the Equity Incentive Plan, each LTIP Unit issued is deemed equivalent to an award of one common share thereby reducing the availability for other equity awards on a one-for-one basis. The Company does not receive a tax deduction for the value of any LTIP Units granted to employees. LTIP Units, whether vested or not, receive the same per unit profit distributions as other outstanding units of the Operating Partnership, which profit distribution will generally equal per share dividends on the Company’s common shares. Initially, LTIP Units have a capital account balance of zero, and do not have full parity with common Operating Partnership units with respect to liquidating distributions. The Operating Partnership will revalue its assets upon the occurrence of certain specified events and any increase in valuation will be allocated first to the holders of LTIP Units to equalize the capital accounts of such holders with the capital accounts of the Operating Partnership unit holders. If such parity is reached, vested LTIP Units may be converted by the holder, at any time, into an equal number of common units of limited partnership interest in the Operating Partnership (“OP Units”), which may be redeemed, at the option of the holder, for cash or at the Company’s option an equivalent number of the Company’s common shares.

On April 21, 2010, the Company’s Operating Partnership granted 246,960 LTIP Units to the Company’s executive officers pursuant to the Equity Incentive Plan, all of which are accounted for in accordance with [FASB Codification Topic (“ASC”) 718, “Stock Compensation”.] On September 9, 2010, the Company’s Operating Partnership granted 26,250 LTIP units to the Company’s new Chief Financial Officer and 15,435 LTIP units granted to the Company’s former Chief Financial Officer were forfeited. These LTIP Units vest ratably over a five-year period beginning on the date of grant.

F-22

The LTIP Units’ fair value was determined by using a discounted value approach. In determining the discounted value of the LTIP Units, the Company considered the inherent uncertainty that the LTIP Units would never reach parity with the other OP Units and thus have an economic value of zero to the grantee. Additional factors considered in reaching the assumptions of uncertainty included discounts for illiquidity; expectations for future dividends; limited or no operating history as of the date of the grant; significant dependency on the efforts and services of our executive officers and other key members of management to implement the Company’s business plan; available acquisition opportunities; and economic environment and conditions. The Company used an expected stabilized dividend yield of 5.0% and a risk free interest rate of 2.33% based on a five-year U.S. Treasury yield.

The Company recorded $0.8 and $0.5 million in compensation expense related to the LTIP Units for the years ended December 31, 2011 and 2010, respectively. As of December 31, 2011, there was $2.6 million of total unrecognized compensation cost related to LTIP Units. This cost is expected to be recognized over 3.3 years, which represents the weighted average remaining vesting period of the LTIP Units. As of December 31, 2011, none of the LTIP Units have reached parity.

13. Commitments and Contingencies

Litigation

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

Hotel Ground Rent

The Altoona hotel is subject to a ground lease with an expiration date of April 30, 2029 with an extension option of up to 12 additional terms of five years each. Monthly payments are determined by the quarterly average room occupancy of the hotel. Rent is equal to approximately $7,000 per month when monthly occupancy is less than 85% and can increase up to approximately $20,000 per month if occupancy is 100%, with minimum rent increased on an annual basis by two and one-half percent (2.5%).

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

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

	Amount
2012	$	203
2013		205
2014		207
2015		210
2016		212
Thereafter		11,660
Total	$	12,697

F-23

Condominium Leases

The White Plains hotel is part of a condominium known as La Reserva Condominium (the “Condominium”). The Condominium is comprised of 143 residential units and four commercial units. The four commercial units are owned by the Company and are part of the White Plains hotel. The White Plains hotel is comprised of 129 of the residential units owned by the Company and four residential units leased by the Company from unaffiliated third party owners. The remaining 10 residential units are owned and occupied by unaffiliated third party owners.

The Company leases four residential units in the White Plains hotel from individual owners (the “Condo Owner”). The lease agreements are for 6 years with a one-time five year renewal option. The White Plains hotel has the right to sublease the unit to any third party (a “Hotel Guest”) for such rent and on such terms as the White Plains hotel may determine. Each Condo Owner may reserve the unit for seven days in any calendar quarter or two weeks in any calendar year. Each Condo Owner is also obligated to reimburse the White Plains hotel for renovations that were completed in 2008. Minimum annual rents payable to the Condo Owner are approximately $70 thousand per year and amounts receivable from the Condo Owner for its renovation reimbursements are approximately $11 thousand per year, subject to a balloon repayment at the end of the lease term of any remaining reimbursements. The White Plains hotel is responsible for paying assessments to the Condominium association on a monthly basis for all residential units owned and leased. The White Plains hotel provides certain services to the Condominium association for housekeeping, maintenance and certain other services and receives compensation from the Condominium association for said services.

Management Agreements

Our hotels are operated under various management agreements that call for base management fees, which generally range from 2-4% of the hotel’s gross room revenue and generally have an incentive provision, if certain financial thresholds are met or exceeded, of 10% of the hotel’s net operating income less fixed costs, base management fees and a specified return threshold. The management agreements have initial terms from 5 to 15 years and generally have renewal options. The agreements may be terminated for cause, including the failure of the managed hotel to meet specified performance levels, and may be terminated by the manager in the event we undergo a change in control. Management fees are recorded within hotel other operating expenses on the consolidated statements of operations and totaled approximately $2.0 million and $0.7 million, respectively, for the years ended December 31, 2011 and 2010.

Franchise Agreements

Our hotels operate under various franchise agreements to operate the hotels under specific brands. Typically, our franchise agreements provide for a royalty fee of 4-5.5% of the hotel’s gross room revenue and a program fee of 2-4% of the hotel’s gross room revenue. The franchise agreements have initial terms of 10-20 years and generally have no renewal options. Franchise fees are recorded within hotel other operating expenses on the consolidated statements of operations and totaled approximately $5.6 million and $1.9 million, respectively, for the years ended December 31, 2011 and 2010.

14. Related Party Transactions

The Company paid $3.2 million to reimburse Mr. Fisher for expenses he incurred in connection with the Company’s formation and the IPO, including $2.5 million he funded as earnest money deposits for the Company’s purchase of the six Homewood Suites hotels managed by Hilton. Mr. Fisher had also advanced $14 thousand to the Company which was reimbursed following the close of the IPO.

Mr. Fisher owns 90% of Island Hospitality Management, Inc. (“IHM”), a hotel management company. The Company has hotel management agreements with IHM to manage ten of its hotels in 2011 and 5 of its hotels in 2010. All but one of the 64 hotels acquired by the JV from Innkeepers will continue to be managed by IHM.

F-24

Management and accounting fees paid by the Company to IHM for the years ended December 31, 2011 and 2010 were $1.3 million and $0.2 million, respectively. At December 31, 2011 and 2010 the amounts due to IHM were $0.3 and $0.07 million, respectively.

15. Quarterly Operating Results (unaudited)

	Quarter Ended—2011
	March 31			June 30			September 30			December 31
	(in thousands, except per share data)
Total revenue	$	12,487		$	14,902		$	23,578		$	22,129
Total operating expenses		11,737			16,190			21,390			23,650
Operating income (loss)		750			(1,288	)		2,188			(1,521	)
Net loss attributable to common shareholders		(19	)		(1,936	)		(955	)		(6,195	)
Loss per common share, basic and diluted (1)		0.00			(0.14	)		(0.07	)		(0.45	)
Weighted average number of common shares outstanding:
Basic		11,800,771			13,757,449			13,766,297			13,768,910
Diluted		11,800,771			13,757,449			13,766,297			13,768,910

(1) The sum of per share amounts for the four quarters may differ from the annual per share amounts due to the required method of computing weighted-average number of common shares outstanding in the respective periods.

16. Subsequent Events

The joint venture between Chatham and Cerberus Capital Management LP, which owns 64 hotels with 8,329 rooms/suites, closed on a $130 million mortgage loan secured by 10 previously unencumbered hotels comprising 1,707 rooms. Eastdil Secured, L.L.C. arranged the $130 million first mortgage and mezzanine non-recourse financing with lenders Citibank, N.A., Wells Fargo Bank, National Association and an affiliate of Starwood Property Trust, Inc. The maturity of the facilities is three years with two one-year extension options and carries an all-in interest rate of 6.9 percent.

In addition to net proceeds from the financing, additional cash generated from operations was distributed to the partners, resulting in a distribution to Chatham of approximately $13.1 million, approximately $1 per share. The $13.1 million distribution represents 35 percent of the company’s initial $37 million investment. Chatham will use part of the distribution to pay down borrowings outstanding on its senior secured credit facility, reducing the outstanding balance to $62 million.

F-25

CHATHAM LODGING TRUST

SCHEDULE III—REAL ESTATE AND ACCUMULATED DEPRECIATION

December 31, 2011

(in thousands)

						Initial Cost								Gross Amount at End of Year
Description	Year of Acquisition		Encumbrances			Land		Buildings & Improvements		Cost Cap. Sub To Acq. Land.		Cost Cap. Sub. To Acq. Bldg & Improvements		Land		Buildings & Improvements		Total		Bldg & Improvements		Accumulated Depreciation		Year of Original Construction		Depreciation Life
Homewood Suites Orlando—Maitland, FL		2010		(1	)		1,800		7,200		34		658		1,834		7,858		9,692		7,858		315		2000		40 Years
Homewood Suites Boston—Billerica, MA		2010		(1	)		1,470		10,555		36		858		1,506		11,413		12,919		11,413		498		1999		40 Years
Homewood Suites Minneapolis—Mall of America, Bloomington,		2010		(1	)		3,500		13,960		19		864		3,519		14,824		18,343		14,824		641		1998		40 Years
Homewood Suites Nashville—Brentwood, TN		2010		(1	)		1,525		9,300		12		687		1,537		9,987		11,524		9,987		433		1998		40 Years
Homewood Suites Dallas—Market Center, Dallas, TX		2010		(1	)		2,500		7,583		17		867		2,517		8,450		10,967		8,450		369		1998		40 Years
Homewood Suites Hartford—Farmington, CT		2010		(1	)		1,325		9,375		92		798		1,417		10,173		11,590		10,173		445		1999		40 Years
Hampton Inn & Suites Houston—Houston, TX		2010		(1	)		3,200		12,709		—		20		3,200		12,729		15,929		12,729		479		1997		40 Years
Residence Inn Holtsville—Holtsville, NY		2010		(1	)		2,200		18,765		—		65		2,200		18,830		21,030		18,830		672		2004		40 Years
Courtyard Altoona—Altoona, PA		2010		6,753			—		10,730		—		26		—		10,756		10,756		10,756		367		2001		40 Years
SpringHill Suites Washington—Washington, PA		2010		5,260			1,000		10,692		—		23		1,000		10,715		11,715		10,715		366		2000		40 Years
Residence Inn White Plains—White Plains, NY		2010		(1	)		2,200		17,677		—		14		2,200		17,691		19,891		17,691		563		1982		40 Years
Residence Inn New Rochelle—New Rochelle, NY		2010		15,731			—		20,281		—		273		—		20,554		20,554		20,554		680		2000		40 Years
Homewood Suites Carlsbad—Carlsbad, CA		2010		(1	)		3,900		27,520		—		—		3,900		27,520		31,420		27,520		799		2008		40 Years
Residence Inn Garden Grove—Garden Grove, CA		2011		32,417			7,432		35,484				6		7,432		35,490		42,922		35,490		416		2003		40 Years
Residence Inn Mission Valley—San Diego, CA		2011		39,986			9,876		39,535				55		9,876		39,590		49,466		39,590		463		2003		40 Years
Homewood Suites San Antonio—San Antonio, TX		2011		18,380			6,059		24,764		2		14		6,061		24,778		30,839		24,778		290		1996		40 Years
Doubletree Suites Washington DC—Washington, DC		2011		19,960			6,044		22,063				53		6,044		22,116		28,160		22,116		259		1974		40 Years
Residence Inn Tyson’s Corner—Vienna, VA		2011		22,953			5,821		28,917				8		5,821		28,925		34,746		28,925		339		2001		40 Years
Grand Total(s)							59,852		327,110		212		5,289		60,064		332,399		392,463		332,399		8,394

(1) This property is pledged as collateral to borrowings made under the revolving credit facility obtained on October 12, 2010, which had outstanding borrowings of $67,500 as of December 31, 2011.

F-26

Notes:

(a) The change in total cost of real estate assets for the year ended is as follows:

	2011		2010
Balance at the beginning of the year	$	200,974	$	—
Acquisitions		185,995		200,967
Dispositions during the year		—		—
Capital expenditures and transfers from construction-in-progress		5,494		7
Investment in Real Estate	$	392,463	$	200,974

(b) The change in accumulated depreciation and amortization of real estate assets for the year ended is as follows:

Balance at the beginning of the year	$	1,901	$	—
Depreciation and amortization		6,493		1,901
Balance at the end of the year	$	8,394	$	1,901

(c) The aggregate cost of properties for federal income tax purpose (in thousands) is approximately $402,509 as of December 31, 2011.

F-27

EX-10.13

Exhibit 10.13

Attached is the Amended and Restated Limited Liability Company Agreement of INK Acquisition II LLC, dated as of October 27, 2011, made by and between CRE-INK Member II, Inc. (“Cerberus”) and Chatham TRS Holding Inc. The joint venture between affiliates of Cerberus and affiliates of Chatham Lodging Trust was memorialized in seven (7) separate limited liability company agreements listed below, each in substantially the same form as the attached agreement:

• Second Amended and Restated Limited Liability Company Agreement of INK Acquisition LLC, dated as of October 27, 2011, made by and between CRE-INK REIT Member LLC and Chatham Lodging LP.

• Amended and Restated Limited Liability Company Agreement of INK Acquisition II LLC, dated as of October 27, 2011, made by and between CRE-INK Member II, Inc. and Chatham TRS Holding Inc. (see attached).

• Amended and Restated Limited Liability Company Agreement of INK Acquisition III LLC, dated as of October 27, 2011, made by and between CRE-INK TRS Holding Inc. and Chatham TRS Holding Inc.

• Limited Liability Company Agreement of INK Acquisition IV LLC, dated as of October 27, 2011, made by and between CRE-INK REIT Member IV LLC and Chatham Lodging LP.

• Limited Liability Company Agreement of INK Acquisition V LLC, dated as of October 27, 2011, made by and between CRE-INK REIT Member V LLC and Chatham Lodging LP.

• Limited Liability Company Agreement of INK Acquisition VI LLC, dated as of October 27, 2011, made by and between CRE-INK REIT Member VI LLC and Chatham Lodging LP.

• Limited Liability Company Agreement of INK Acquisition VII LLC, dated as of October 27, 2011, made by and between CRE-INK REIT Member VII LLC and Chatham Lodging LP.

Other than with respect to the parties thereto, the agreements listed above are substantially identical to this exhibit and are not being filed as separate exhibits pursuant to Rule 12b-31 promulgated under the Securities Exchange Act of 1934, as amended.

AMENDED AND RESTATED

LIMITED LIABILITY COMPANY AGREEMENT

OF

INK ACQUISITION II LLC

Table of Contents

			Page
ARTICLE I. GENERAL PROVISIONS; ORGANIZATION; STRUCTURE				1
	Section 1.1	Registered Office		1
	Section 1.2	Place of Business; Offices		2
	Section 1.3	Purpose; Nature of Business Permitted; Powers; Title to Property		2
	Section 1.4	[Reserved]		2
	Section 1.5	Tax Classification; No State Law Partnership		2
	Section 1.6	Definitions		3
	Section 1.7	Certificates		24
	Section 1.8	Term		25
	Section 1.9	Amended Bid		25
	Section 1.10	Property Companies		25
	Section 1.11	Liability of Members		26
ARTICLE II. PERCENTAGE INTERESTS, CAPITAL CONTRIBUTIONS AND CAPITAL ACCOUNTS				28
	Section 2.1	Percentage Interests		28
	Section 2.2	Capital Contributions		28
	Section 2.3	Capital Accounts		30
	Section 2.4	Admission of New Members		31
	Section 2.5	Interest		31
	Section 2.6	Capital Withdrawal Rights, Interest and Priority		31
ARTICLE III. MANAGEMENT OF THE COMPANY				31
	Section 3.1	Company Governance		31
	Section 3.2	Authority, Duties and Obligations of the Managing Member		33
	Section 3.3	Managing Member Certifications		37
	Section 3.4	Officers		37
	Section 3.5	Operating Budget and Business Plan		39
	Section 3.6	Voting Rights of Members		40
	Section 3.7	Buy/Sell		41
ARTICLE IV. GENERAL GOVERNANCE				45
	Section 4.1	Other Ventures		45
	Section 4.2	Information		46
	Section 4.3	Access		46
	Section 4.4	Affiliate Transactions		46
ARTICLE V. TRANSFERS OF INTERESTS				47
	Section 5.1	Restrictions on Transfer		47
	Section 5.2	Non-Permitted Transfers		48

i

Table of Contents

(continued)

			Page
ARTICLE VI. ALLOCATIONS				48
	Section 6.1	General Rules		48
	Section 6.2	Other Allocation Rules		49
	Section 6.3	Tax Allocations: Code Section 704(c)		49
ARTICLE VII. DISTRIBUTIONS AND EXPENSES				50
	Section 7.1	Distributions of Net Cash Flow		50
	Section 7.2	Amounts Withheld		52
	Section 7.3	Expenses		52
ARTICLE VIII. OTHER TAX MATTERS				52
	Section 8.1	Tax Matters Member		52
	Section 8.2	Furnishing Information to Tax Matters Member		52
	Section 8.3	Tax Claims and Proceedings		53
	Section 8.4	Books and Records		53
	Section 8.5	Survival		54
ARTICLE IX. REPRESENTATIONS AND WARRANTIES; COVENANTS				54
	Section 9.1	Representations and Warranties of Members		54
	Section 9.2	ERISA Representation		56
	Section 9.3	AML/OFAC Compliance		56
	Section 9.4	Survival		58
ARTICLE X. DISSOLUTION AND TERMINATION OF THE COMPANY				58
	Section 10.1	Dissolution		58
	Section 10.2	Continuation of Interest of Member’s Representative		58
	Section 10.3	Dissolution, Winding Up and Liquidation		59
	Section 10.4	Member Bankruptcy.		59
ARTICLE XI. INDEMNIFICATION AND CONTRIBUTION				59
	Section 11.1	Indemnity by the Company		59
	Section 11.2	Exculpation		60
	Section 11.3	Expenses		60
	Section 11.4	Advance Payment of Expenses		60
	Section 11.5	Beneficiaries		60
	Section 11.6	Indemnification Procedure for Third Party and Other Claims		60
	Section 11.7	Other Claims		61
	Section 11.8	Limitation on Damages		61
ARTICLE XII. MISCELLANEOUS PROVISIONS				62
	Section 12.1	Entire Agreement		62
	Section 12.2	Amendments		62
	Section 12.3	Applicable Law; Venue		62

ii

Table of Contents

(continued)

		Page
Section 12.4	Enforcement		62
Section 12.5	Headings		62
Section 12.6	Severability		63
Section 12.7	Counterparts		63
Section 12.8	Filings		63
Section 12.9	Additional Documents		63
Section 12.10	Notices		63
Section 12.11	Waiver of Right to Partition and Bill of Accounting		64
Section 12.12	Confidentiality; Press Releases		64
Section 12.13	Uniform Commercial Code		65
Section 12.14	Binding Agreement		65
Section 12.15	Waiver		65
Section 12.16	DISCLOSURES		65

iii

THE TRANSFER OF THE LIMITED LIABILITY COMPANY INTERESTS DESCRIBED IN THIS AGREEMENT IS RESTRICTED AS DESCRIBED HEREIN.

AMENDED AND RESTATED

LIMITED LIABILITY COMPANY AGREEMENT

OF

INK ACQUISITION II LLC,

a Delaware Limited Liability Company

THIS AMENDED AND RESTATED LIMITED LIABILITY COMPANY AGREEMENT of INK Acquisition II LLC, a Delaware limited liability company (the “Company”), is made effective as of the Closing Date (as defined below) (this “Agreement”), by and between CRE-Ink Member II Inc. (“Cerberus”) and Chatham TRS Holding Inc. (“Chatham”, and, together with Cerberus and any other Person who becomes a member of the Company from time to time in accordance with the provisions hereof, the “Members”).

RECITALS:

1. A Certificate of Formation of the Company was filed with the Secretary of State of the State of Delaware on May 4, 2011; and

2. Each of the Persons listed on Schedule A hereto has previously acquired a percentage interest in the Company and entered into the Limited Liability Company Agreement of the Company dated August 5, 2011 (the “Original Agreement”).

NOW, THEREFORE, in consideration of the mutual promises and agreements herein made and intending to be legally bound hereby, the parties hereto amend and restate the Original Agreement in its entirety and agree as follows:

ARTICLE I.

GENERAL PROVISIONS; ORGANIZATION; STRUCTURE

Section 1.1 Registered Office. The registered agent and office of the Company in the State of Delaware shall be National Corporate Research, Ltd., 615 South DuPont Highway, County of Kent, City of Dover, State of Delaware 19901. The Managing Member, after giving notice to the other Members, may change the registered office from one location to another in the State of Delaware.

Section 1.2 Place of Business; Offices. The principal place of business of the Company, where the books and records of the Company shall be kept, shall be c/o Chatham TRS Holding Inc., 50 Cocoanut Row, Suite 200, Palm Beach, FL 33480. The Company may, at any time, change the location of the principal office of the Company or have one or more offices as may be established from time to time.

Section 1.3 Purpose; Nature of Business Permitted; Powers; Title to Property.

(a) The purpose to be conducted or promoted by the Company is to engage in the following activities:

(i) to acquire, own, hold, manage, operate, lease, sell, transfer, service, convey, safekeep, dispose of, pledge, assign, borrow money against, finance, refinance or otherwise deal with the Business and the Properties and any portion thereof with unrelated third parties or with affiliated entities;

(ii) to acquire, own, hold, sell, transfer, service, convey, safekeep, dispose of, pledge, assign, borrow money against, finance, refinance or otherwise deal with, publicly or privately issued securities and whether with unrelated third parties or with affiliated entities, in each case in connection with the Business and the Properties;

(iii) to own equity interests in other limited liability companies, partnerships or other entities whose purposes are restricted to those set forth in clauses (i) and (ii) above; and

(iv) to engage in any other lawful act or activity and to exercise any powers permitted to limited liability companies organized under the laws of the State of Delaware that are related or incidental to and necessary, convenient or advisable for the accomplishment of the above-mentioned purposes (including the entering into of interest rate or basis swap, cap, floor or collar agreements, or similar hedging transactions and referral, management, servicing and administration agreements).

(b) The Company shall not engage in any other business or activity. Except as otherwise provided in Section 1.10 hereof and except for contracts customarily entered into by a property management agent on behalf of a hotel property owner, all property acquired in connection with the business of the Company shall be held by the Company in its own name, and all contracts and leases of real or personal property by or to the Company shall be made in its own name.

(c) Title to assets of the Company, whether real, personal or mixed, tangible or intangible, shall be deemed to be owned by the Company, and no Member, individually or collectively, shall have any ownership interest in such assets or any portion thereof.

Section 1.4 [Reserved]

Section 1.5 Tax Classification; No State Law Partnership. (a) The Members intend that the Company shall be treated as a partnership for federal, state and local tax purposes.

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Each Member and the Company agree to file all tax returns and otherwise take all tax and financial reporting positions in a manner consistent with such treatment. No provision of this Agreement shall be deemed or construed to constitute the Company (including its subsidiaries) as a partnership (including a limited partnership) or joint venture, or any Member as a partner of or with any other Member for any purposes other than tax purposes.

(b) Chatham is a TRS of Chatham REIT. The Members intend that the Company shall own the Properties in a manner that will not jeopardize the TRS status of Chatham. Accordingly, the Company will either (i) engage Island Hospitality Management or another entity that qualifies as an “eligible independent contractor” under Code Section 856(d)(9) to operate the Properties on its behalf or (ii) lease the Properties to the Property Leasecos and the Property Leasecos will engage Island Hospitality Management or another entity that qualifies as an “eligible independent contractor” under Code Section 856(d)(9) to operate the Properties on their behalf.

Section 1.6 Definitions. Unless the context otherwise requires, the terms defined in this Section 1.6 shall, for the purposes of this Agreement, have the meanings herein specified (such meanings to be equally applicable to both the singular and plural forms of the terms defined).

“1933 Act” has the meaning set forth in Section 12.16.

“1940 Act” means the Investment Company Act of 1940, as amended, and the rules and regulations thereunder.

“Act” means the Delaware Limited Liability Company Act (as it may be amended from time to time and any successor to such Act).

“Additional Capital Contribution” means any Capital Contribution made by a Member pursuant to Section 2.2(b) hereof.

“Affiliate” means, with respect to a Person, another Person that directly or indirectly controls, is controlled by or is under common control with such first Person; provided, however, that for purposes only of the term “Permitted Transferee”, the term “Affiliate” shall have the meaning ascribed to it therein. For the avoidance of doubt, for purposes of this Agreement, including, without limitation, the definition of “Permitted Transferee,” (i) an Affiliate of Cerberus includes, without limitation, any entity or fund directly or indirectly controlled by the Persons that, as of the date hereof, control Cerberus; and (ii) an Affiliate of Chatham includes, without limitation, any entity or fund directly or indirectly controlled by the Persons that control Chatham REIT, and any successor to Chatham REIT, whether by merger, consolidation, sale of substantially all of the assets or otherwise. Additionally, for the avoidance of doubt, Island Hospitality Management shall not be considered to be an Affiliate of Chatham REIT or Chatham.

“Affiliated Individual” means, with respect to a Person, any individual who is an officer, director, shareholder, employee, partner or member of such Person or an individual who is related by blood, marriage or adoption to any of the foregoing.

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“Agreement” has the meaning set forth in the Preamble.

“Allocation Schedule” has the meaning set forth in Section 5.1(c).

“Amended Bid” means collectively (i) the Innkeepers Binding Commitment Agreement, and (ii) the Midland Amended and Restated Binding Commitment.

“Approved FATF Country” shall mean any country that is a member of the Financial Action Task Force on Money Laundering, as such list may be amended, from time to time, and as approved in this Agreement. As of the date of this Agreement, the following countries are Approved FATF Country members: Argentina, Australia, Austria, Belgium, Brazil, Canada, Denmark, Finland, France, Germany, Greece, Hong Kong, Iceland, Ireland, Italy, Japan, Luxembourg, Mexico, Kingdom of the Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland, Turkey, United Kingdom and the United States.

“Approved Severance Costs” means any severance payable to Chatham Company Personnel to the extent such severance (i) for a senior Chatham Company Employee does not exceed three (3) months of such employee’s monthly salary, (ii) for any other Chatham Company Employee is determined by Chatham in accordance with such employee’s position and seniority and does not exceed two (2) months of such employee’s monthly salary or (iii) otherwise has been approved by Cerberus, the Cerberus Ink I Member, the Cerberus Ink III Member, the Cerberus Ink IV Member, the Cerberus Ink V Member, the Cerberus Ink VI Member or the Cerberus Ink VII Member at the time of grant to the applicable Chatham Company Personnel.

“Asset” means an asset owned by the Company or its Subsidiaries.

“Bankruptcy” means, with respect to any Person, a “Voluntary Bankruptcy” or an “Involuntary Bankruptcy”. A “Voluntary Bankruptcy” shall mean, with respect to any Person, (a) an admission in writing by such Person of its inability to pay its debts generally or a general assignment by such Person for the benefit of creditors, (b) the filing of any petition or answer by such Person seeking to adjudicate it bankrupt or insolvent or seeking for itself any liquidation, winding up, reorganization, arrangement, adjustment, protection, relief or composition of such Person or its debts under any law relating to bankruptcy, insolvency, reorganization or relief of debtors, or seeking, consenting to or acquiescing in the entry of an order for relief or the appointment of a receiver, trustee, custodian or other similar official for such Person or for any substantial part of its property, or (c) corporate action taken by such Person to authorize any of the actions set forth above. An “Involuntary Bankruptcy” shall mean, with respect to any Person, without the consent or acquiescence of such Person, the entering of an order for relief or approving a petition for relief or reorganization or any other petition seeking any reorganization, arrangement, composition, readjustment, liquidation, dissolution or other similar relief under any present or future bankruptcy, insolvency or similar statute, law or regulation or the filing of any such petition against such Person which order or petition shall not be dismissed within 90 days or, without the consent or acquiescence of such Person, the entering of an order appointing a trustee, custodian, receiver or liquidator of such Person or of all or any substantial part of the property of such Person which order shall not be dismissed within 90 days.

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“Bankruptcy Court” means the United States Bankruptcy Court for the Southern District of New York.

“Business” means (a) the acquisition, ownership, lease and operation of certain hotel properties as of the date hereof owned, leased and operated by Innkeepers USA Trust and its subsidiaries, (b) the ownership, lease and operation of any other Properties acquired by the Company in accordance with this Agreement, and (c) any other business of the Company, directly or indirectly related, incidental to or connected with the foregoing.

“Business Day” means any day other than a Saturday, Sunday or any other day on which banks in New York City are required or permitted by law to be closed.

“Business Plan” means the comprehensive strategic plan for the Company’s, Ink I’s, Ink III’s, Ink IV’s, Ink V’s, Ink VI’s and Ink VII’s ownership, operation, leasing, financing and sale of the Properties and the properties owned by Ink I, Ink IV, Ink V, Ink VI and Ink VII, as in effect from time to time pursuant to Section 3.5 hereof.

“Buy Notice” has the meaning set forth in Section 3.7.

“Buy/Sell Closing Date” has the meaning set forth in Section 3.7.

“Buy/Sell Notice” has the meaning set forth in Section 3.7.

“Buy/Sell Right” has the meaning set forth in Section 3.7.

“Capital Account” has the meaning set forth in Section 2.3(a).

“Capital Call” shall mean a written notice to the Members calling for a Capital Contribution, which written notice shall include (a) the total amount of the Capital Contribution then required, (b) a brief description of the expenditures or obligations giving rise to the requirement for such Capital Contribution, (c) each Member’s proportionate share of the total Capital Contribution as then required by this Agreement, (d) the date by which each Member’s Capital Contribution is required to be made, which date shall be thirty (30) days (or, with respect to the Capital Call to fund the acquisition of the Properties listed on Annex A hereto, ten (10) days) after such written notice has been given or such other date as may be agreed to by the Members, and (e) the account of the Company to which such Capital Contributions must be paid.

“Capital Contribution” means, with respect to any Member, the amount of money contributed to the Company in exchange for a Percentage Interest in the Company, including Initial Capital Contributions.

“Carveout Guarantor” has the meaning set forth in Section 1.11(c)(i).

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“Carveout Guaranty” means a guaranty of non-recourse carveouts, in form and substance satisfactory to the applicable Lender and approved in advance in writing by the Members, (including, without limitation, any such guaranty required by Midland Loan Services in connection with the Midland Loan).

“Cerberus” has the meaning set forth in the Preamble.

“Cerberus Initial Members” means Cerberus and its Permitted Transferees.

“Cerberus Ink I Member” means CRE-Ink REIT Member LLC or its Permitted Transferee(s) (for purposes of this definition, as defined in the Ink I LLC Agreement).

“Cerberus Ink III Member” means CRE-Ink TRS Holding Inc. or its Permitted Transferee(s) (for purposes of this definition, as defined in the Ink III LLC Agreement).

“Cerberus Ink IV Member” means CRE-Ink REIT Member IV LLC or its Permitted Transferee(s) (for purposes of this definition, as defined in the Ink IV LLC Agreement).

“Cerberus Ink V Member” means CRE-Ink REIT Member V LLC or its Permitted Transferee(s) (for purposes of this definition, as defined in the Ink V LLC Agreement).

“Cerberus Ink VI Member” means CRE-Ink REIT Member VI LLC or its Permitted Transferee(s) (for purposes of this definition, as defined in the Ink VI LLC Agreement).

“Cerberus Ink VII Member” means CRE-Ink REIT Member VII LLC or its Permitted Transferee(s) (for purposes of this definition, as defined in the Ink VII LLC Agreement).

“Certificate of Formation” means the Certificate of Formation referred to in Recital 1 and any and all amendments thereto and restatements thereof filed on behalf of the Company with the office of the Secretary of State of the State of Delaware pursuant to the Act.

“Chatham” has the meaning set forth in the Preamble.

“Chatham Cap” has the meaning set forth in Section 2.2(a).

“Chatham Company Personnel” means any personnel employed by Chatham (or one of its Affiliates other than Ink I, Ink III, Ink IV, Ink V, Ink VI, Ink VII or the Company) solely for the purpose of providing asset management services to the Company, Ink I, Ink III, Ink IV, Ink V, Ink VI and/or Ink VII, the employment generally of whom, including compensation and severance other than Approved Severance Costs, if any, payable to such personnel, has been approved by Cerberus, the Cerberus Ink I Member, the Cerberus Ink III Member, the Cerberus Ink IV Member, the Cerberus Ink V Member, the Cerberus Ink VI Member or the Cerberus Ink VII Member.

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“Chatham Initial Members” means Chatham and its Permitted Transferees.

“Chatham Ink I Member” means Chatham Lodging or its Permitted Transferee(s) (for purposes of this definition, as defined in the Ink I LLC Agreement).

“Chatham Ink III Member” means Chatham in its capacity as a member or managing member, as applicable, of Ink III, or its Permitted Transferee(s) (for purposes of this definition, as defined in the Ink III LLC Agreement).

“Chatham Ink IV Member” means Chatham Lodging in its capacity as a member or managing member, as applicable, of Ink IV, or its Permitted Transferee(s) (for purposes of this definition, as defined in the Ink IV LLC Agreement).

“Chatham Ink V Member” means Chatham Lodging in its capacity as a member or managing member, as applicable, of Ink V, or its Permitted Transferee(s) (for purposes of this definition, as defined in the Ink V LLC Agreement).

“Chatham Ink VI Member” means Chatham Lodging in its capacity as a member or managing member, as applicable, of Ink VI, or its Permitted Transferee(s) (for purposes of this definition, as defined in the Ink VI LLC Agreement).

“Chatham Ink VII Member” means Chatham Lodging in its capacity as a member or managing member, as applicable, of Ink VII, or its Permitted Transferee(s) (for purposes of this definition, as defined in the Ink VII LLC Agreement).

“Chatham Lodging” means Chatham Lodging LP.

“Chatham REIT” means Chatham Lodging Trust, a Maryland real estate investment trust.

“Close Associate” means a Person who is widely and publicly known (or is actually known) to be a close associate of a Senior Foreign Political Figure.

“Closing Date” means the date upon which the transactions contemplated by the Plan are consummated.

“Code” means the Internal Revenue Code of 1986, as amended from time to time.

“Company” has the meaning set forth in the Preamble.

“Contributing Members” has the meaning set forth in Section 2.2(d).

“Control” means, with respect to any Person, the power of another Person, through ownership of equity, contract rights or otherwise, to direct the management and policies of such Person, and “controlled” and “controlling” have correlative meanings.

“Cure” means, with respect to any action or failure to act triggering a right to Cure, that such action or failure to act, to the extent that it triggered the right to Cure, has

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been discontinued, and all parties adversely affected by such action or failure to act have been made whole in all material respects as if such action or failure to act had not occurred.

“Debtors” means Innkeepers USA Trust and each of the other debtors and debtors-in-possession in the Bankruptcy Court Chapter 11 Case No. 10-13800 (SCC).

“Depreciation” means, for each Fiscal Period, an amount equal to the depreciation, amortization or other cost recovery deduction allowable with respect to an asset for such Fiscal Period, except that if the Gross Asset Value of such asset differs from its adjusted basis for federal income tax purposes at the beginning of such Fiscal Period, Depreciation shall be an amount that bears the same ratio to such beginning Gross Asset Value as the federal income tax depreciation, amortization, or other cost recovery deduction for such Fiscal Period bears to such beginning adjusted tax basis; provided, however, that if the adjusted basis for federal income tax purposes of an asset at the beginning of such Fiscal Period is zero, Depreciation shall be determined with reference to such beginning Gross Asset Value using any reasonable method selected by the Tax Matters Member.

“Election Notice” has the meaning set forth in Section 3.7(a)(i).

“Environmental Law” means all applicable laws, including, for this purpose, all common law, governing public health or safety, workplace health or safety, pollution or the protection of the environment.

“ERISA” means the Employee Retirement Income Security Act of 1974, as amended from time to time.

“Exchange Act” means the Securities Exchange Act of 1934, as amended, and the rules and regulations thereunder.

“Expense Reimbursement” has the meaning set forth in Section 3.1(c).

“Failed Contribution” has the meaning set forth in Section 2.2(d).

“Family Member” means, with respect to any specified natural person, (a) any parent, child, descendant or sibling of such natural person (including relationships resulting from adoption) or (b) the spouse of such natural person or of any person covered by clause (a).

“Fiscal Period” means (a) the period commencing on the Closing Date and ending on December 31, 2011, (b) any subsequent 12-month period commencing on January 1 and ending on December 31 and (c) any portion of the period described in clauses (a) and (b) of this sentence (i) for which the Company is required to allocate Profits, Losses and other items of Company income, gain, loss or deduction pursuant to Article VI and (ii) ending on the date of an adjustment to the Gross Asset Value pursuant to clause (b) of the definition of “Gross Asset Value”.

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“Fiscal Year” means (a) the period commencing on the Closing Date and ending on December 31, 2011, (b) any subsequent 12-month period commencing on January 1 and ending on December 31 and (c) the period commencing on the immediately preceding January 1 and ending on the date on which all property of the Company is distributed to the Members pursuant to Article X.

“Funded Amount” has the meaning set forth in Section 2.2(d).

“GAAP” means generally accepted accounting principles in the United States,

“Governmental Entity” means a court, arbitral tribunal, administrative agency or commission or other governmental or other regulatory authority or agency.

“Gross Asset Value” means, with respect to any asset, the asset’s adjusted basis for federal income tax purposes, except as follows:

(a) the initial Gross Asset Value of any asset contributed by a Member to the Company shall be the fair market value of such asset at the time it is accepted by the Company, unreduced by any liability secured by such asset, as reasonably determined by the Managing Member;

(b) the Gross Asset Values of all Assets shall be adjusted to equal their respective fair market values, unreduced by any liabilities secured by such assets, as reasonably determined by the Managing Member as of the following times: (i) the acquisition of an additional interest in the Company by any new or existing Member in exchange for more than a de minimis Capital Contribution; (ii) the distribution by the Company to a Member of more than a de minimis amount of property as consideration for an interest in the Company; (iii) the grant of more than a de minimis interest in the Company as consideration for the provision of services to or for the benefit of the Company by an existing Member acting in a partner capacity or by a new Member acting in a partner capacity or in anticipation of being a partner; and (iv) the liquidation of the Company within the meaning of Regulations Section 1.704-1(b)(2)(ii)(g); provided, however, that an adjustment described in clauses (i), (ii) or (iii) of this paragraph shall be made only if the Managing Member reasonably determines that such an adjustment is necessary to reflect the relative economic interests of the Members;

(c) the Gross Asset Value of any Asset distributed to any Member shall be adjusted to equal the fair market value of such asset on the date of distribution, unreduced by any liability secured by such asset, as reasonably determined by the Managing Member; and

(d) the Gross Asset Value of all Assets shall be increased (or decreased) to reflect any adjustments to the adjusted basis of such assets pursuant to Code Section 734(b) or Code Section 743(b), but only to the extent that such adjustments are taken into account in determining Capital Accounts pursuant to Regulations Section 1.704-1(b)(2)(iv)(m) and paragraph (f) of the definition of “Profits” and “Losses” or Section 8.2(g); provided, however, that Gross Asset

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Value shall not be adjusted pursuant to this paragraph (d) to the extent that an adjustment pursuant to paragraph (b) is required in connection with a transaction that would otherwise result in an adjustment pursuant to this paragraph (d).

If the Gross Asset Value of an asset has been determined or adjusted pursuant to paragraphs (a), (b) or (d) of this definition, such Gross Asset Value shall thereafter be adjusted by the Depreciation taken into account with respect to such asset for purposes of computing Profits and Losses.

“Hazardous Substance” means any material, substance or waste as to which liability or standards of conduct may be imposed pursuant to any Environmental Laws.

“Hotel Management Agreement” means the Hotel Management Agreements in the form attached hereto as Exhibit A, to be executed and delivered on the Closing Date, between Island Hospitality Management and each Property Leaseco.

“Hotel Manager” has the meaning set forth in the definition of Major Decision.

“Immediate Family Member” includes the parents, siblings, spouse, children, and spouse’s parents and siblings, of a Senior Foreign Political Figure.

“Indebtedness” means (a) the principal, premium (if any), interest and related fees and expenses (if any) in respect of (i) indebtedness for money borrowed and (ii) indebtedness evidenced by notes, debentures, bonds or other similar instruments, (b) all obligations in respect of outstanding letters of credit, acceptances and similar obligations, (c) that portion of obligations with respect to capital leases not entered into in the ordinary course of business and properly accounted for as a liability, (d) any obligation owed for all or any part of the deferred purchase price of property or services except for trade liabilities incurred in the ordinary course of business, and (e) a guaranty of any of the obligations described in the foregoing clauses of this definition.

“Indemnifiable Losses” has the meaning set forth in Section 11.1.

“Indemnified Person” has the meaning set forth in Section 11.1.

“Independent Appraiser” has the meaning set forth in Section 3.7(a)(ii).

“Initial Capital Contribution Amount” means as to each Initial Member, the dollar amount that is set forth opposite such Member’s name on Schedule A and labeled such Member’s “Initial Capital Contribution Amount”.

“Initial Capital Contributions” has the meaning set forth in Section 2.2(a).

“Initial Members” means the Chatham Initial Members and Cerberus Initial Members.

“Ink I” means INK Acquisition LLC, a Delaware limited liability company.

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“Ink I Affiliate” means, with respect to any Member, any Affiliate of such Member that is a member of Ink I in accordance with the Ink I LLC Agreement.

“Ink I Buy/Sell Right” has the meaning set forth in Section 3.7.

“Ink I Capital Contributions” means, with respect to any Ink I Affiliate, such Person’s capital contributions to Ink I, made pursuant to and in accordance with the Ink I LLC Agreement.

“Ink I Initial Capital Contribution” means the Chatham Ink I Member’s initial capital contribution pursuant to and as required by Ink I LLC Agreement.

“Ink I LLC Agreement” means the Second Amended and Restated Limited Liability Company Agreement of INK Acquisition LLC, effective as of the Closing Date, as may be amended in accordance therewith.

“Ink I Notifying Member” has the meaning set forth in Section 3.7.

“Ink I Valuation Amount” has the meaning set forth in Section 3.7(ii).

“Ink III” means INK Acquisition III LLC, a Delaware limited liability company.

“Ink III Affiliate” means, with respect to any Member, any Affiliate of such Member that is a member of Ink III in accordance with the Ink III LLC Agreement.

“Ink III Buy/Sell Right” has the meaning set forth in Section 3.7.

“Ink III Capital Contributions” means, with respect to any Ink III Affiliate, such Person’s capital contributions to Ink III, made pursuant to and in accordance with the Ink III LLC Agreement.

“Ink III Initial Capital Contribution” means the Chatham Ink III Member’s initial capital contribution pursuant to and as required by Ink III LLC Agreement.

“Ink III LLC Agreement” means the Amended and Restated Limited Liability Company Agreement of INK Acquisition III LLC, effective as of the Closing Date, as may be amended in accordance therewith.

“Ink III Notifying Member” has the meaning set forth in Section 3.7.

“Ink III Valuation Amount” has the meaning set forth in Section 3.7(ii).

“Ink IV” means INK Acquisition IV LLC, a Delaware limited liability company.

“Ink IV Affiliate” means, with respect to any Member, any Affiliate of such Member that is a member of Ink IV in accordance with the Ink IV LLC Agreement.

“Ink IV Buy/Sell Right” has the meaning set forth in Section 3.7.

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“Ink IV Capital Contributions” means, with respect to any Ink IV Affiliate, such Person’s capital contributions to Ink IV, made pursuant to and in accordance with the Ink IV LLC Agreement.

“Ink IV Initial Capital Contribution” means the Chatham Ink IV Member’s initial capital contribution pursuant to and as required by Ink IV LLC Agreement.

“Ink IV LLC Agreement” means the Limited Liability Company Agreement of INK Acquisition IV LLC, effective as of the Closing Date, as may be amended in accordance therewith.

“Ink IV Notifying Member” has the meaning set forth in Section 3.7.

“Ink IV Valuation Amount” has the meaning set forth in Section 3.7(ii).

“Ink V” means INK Acquisition V LLC, a Delaware limited liability company.

“Ink V Affiliate” means, with respect to any Member, any Affiliate of such Member that is a member of Ink V in accordance with the Ink V LLC Agreement.

“Ink V Buy/Sell Right” has the meaning set forth in Section 3.7.

“Ink V Capital Contributions” means, with respect to any Ink V Affiliate, such Person’s capital contributions to Ink V, made pursuant to and in accordance with the Ink V LLC Agreement.

“Ink V Initial Capital Contribution” means the Chatham Ink V Member’s initial capital contribution pursuant to and as required by Ink V LLC Agreement.

“Ink V LLC Agreement” means the Limited Liability Company Agreement of INK Acquisition V LLC, effective as of the Closing Date, as may be amended in accordance therewith.

“Ink V Notifying Member” has the meaning set forth in Section 3.7.

“Ink V Valuation Amount” has the meaning set forth in Section 3.7(ii).

“Ink VI” means INK Acquisition VI LLC, a Delaware limited liability company.

“Ink VI Affiliate” means, with respect to any Member, any Affiliate of such Member that is a member of Ink VI in accordance with the Ink VI LLC Agreement.

“Ink VI Buy/Sell Right” has the meaning set forth in Section 3.7.

“Ink VI Capital Contributions” means, with respect to any Ink VI Affiliate, such Person’s capital contributions to Ink VI, made pursuant to and in accordance with the Ink VI LLC Agreement.

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“Ink VI Initial Capital Contribution” means the Chatham Ink VI Member’s initial capital contribution pursuant to and as required by Ink VI LLC Agreement.

“Ink VI LLC Agreement” means the Limited Liability Company Agreement of INK Acquisition VI LLC, effective as of the Closing Date, as may be amended in accordance therewith.

“Ink VI Notifying Member” has the meaning set forth in Section 3.7.

“Ink VI Valuation Amount” has the meaning set forth in Section 3.7(ii).

“Ink VII” means INK Acquisition VII LLC, a Delaware limited liability company.

“Ink VII Affiliate” means, with respect to any Member, any Affiliate of such Member that is a member of Ink VII in accordance with the Ink VII LLC Agreement.

“Ink VII Buy/Sell Right” has the meaning set forth in Section 3.7.

“Ink VII Capital Contributions” means, with respect to any Ink VII Affiliate, such Person’s capital contributions to Ink VII, made pursuant to and in accordance with the Ink VII LLC Agreement.

“Ink VII Initial Capital Contribution” means the Chatham Ink VII Member’s initial capital contribution pursuant to and as required by Ink VII LLC Agreement.

“Ink VII LLC Agreement” means the Limited Liability Company Agreement of INK Acquisition VII LLC, effective as of the Closing Date, as may be amended in accordance therewith.

“Ink VII Notifying Member” has the meaning set forth in Section 3.7.

“Ink VII Valuation Amount” has the meaning set forth in Section 3.7(ii).

“Innkeepers Binding Commitment Agreement” means that certain Second Amended and Restated Binding Commitment Agreement Regarding the Acquisition and Restructuring of Certain Subsidiaries of Innkeepers USA Trust dated October 18, 2011 by and among the Company, Ink I, Ink III, and the other Persons party thereto.

“Involuntary Bankruptcy” has the meaning set forth in the definition of Bankruptcy.

“IRS” means the U.S. Internal Revenue Service, or any successor government agency.

“Island Hospitality Management” means Island Hospitality Management III, Inc. or one of its Affiliates.

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“Lender” means the lender under any Loan Documents to be executed with respect to a Loan, if any.

“Loan” means a loan obtained or assumed by the Company or any of its Subsidiaries, as borrower, secured by all or any portion of the Property, including the Midland Loan.

“Loan Documents” means any and all loan documents to be executed by the Company or any of its Subsidiaries, as applicable, and the Lender in connection with a Loan, if any.

“Major Decision” means any determination to cause the Company or any Subsidiary of the Company to:

(a) directly or indirectly acquire, or execute and deliver any documents, agreements or instruments necessary to close on the direct or indirect acquisition by the Company or any Subsidiary of the Company of, any Property, except as set forth in the then-approved Operating Budget or the then-approved Business Plan;

(b) (A) sell, assign, transfer, encumber or dispose of the Company, any Property Company, any Property, or any revenue-generating business of the Company or any Property Company, or agree to any of the foregoing, or (B) except as expressly provided in this Agreement or in the then-approved Operating Budget or the then-approved Business Plan, improve, design, rehabilitate, alter, or repair (collectively, the “Repairs”) of any of the Properties, provided, however, that the Managing Member may make or caused to be made Repairs not contemplated by the then-approved Operating Budget if (i) any such Repair is required by any franchisor under the applicable franchise agreement or any other agreement with the franchisor (including, but not limited to, that certain Agreement for Adequate Assurance of Completion of Certain PIPS and Assumptions of Agreements, dated June 25, 2010, by and between the Debtors and Marriot International, Inc.), (ii) emergency action or expenditures is necessary to prevent imminent risk to the health and safety of Persons on or about the Properties, imminent material property damage or imminent imposition of criminal or civil sanctions against the Company or any Member (each, an “Emergency Expenditure”), provided that (1) any such Emergency Expenditure made without approval of all Initial Members is, in the Managing Member’s commercially reasonable judgment, reasonable and necessary under the circumstances set forth above and (2) the Managing Member endeavors diligently and in good faith (x) to notify the Initial Members of any such Emergency Expenditure promptly in writing and (y) attempts to obtain verbal approval of the Initial Members for any required Emergency Expenditure, or (iii) if the aggregate cost of such Repairs fall within the thresholds set forth in clause (l) of this definition;

(c) except as otherwise expressly permitted by this Agreement, call for Capital Contributions, approve Capital Calls or determine the portion of the then-approved Operating Budget that is to be funded by equity and by debt, or raise any new equity for any Subsidiary of the Company or admit any new member, partner or owner to the Company or any of its Subsidiaries;

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(d) make any operating expenditure or incur any operating obligation by or on behalf of the Company that varies materially from the then-approved Operating Budget other than an Emergency Expenditure made pursuant to the procedures set forth in clause (b) of this definition and expenditures that fall within the thresholds set forth in clause (l) of this definition;

(e) execute or modify, amend, supplement, terminate, extend or renew leases with tenants for occupancy of space in any Property, except (i) for any lease with a Property Leaseco or any other TRSs of Chatham REIT and CRE-Ink REIT Member, LLC or (ii) to the extent delegated to the Hotel Manager pursuant to the Hotel Management Agreements or set forth in the then-approved Operating Budget or the then-approved Business Plan;

(f) enter into, modify or terminate any contractual arrangements with service providers (including lenders, attorneys, consultants, appraisers, third party property managers, brokerage companies, general contractors, accountants, auditors, architects, banks or other depositaries and all other service providers) for services to be rendered in connection with the business of the Company; provided, however, that (i) until further written notice, Cerberus hereby delegates the tasks set forth in this subsection (f) to the Managing Member, so long as all such services are expressly provided for and are not in excess of the amounts budgeted for such services in the then-approved Operating Budget and Business Plan and either (x) are terminable, without cause or fee, upon not more than thirty (30) days notice, (y) have a stated term of not more than one year, or (z) are expressly approved in writing by Cerberus, (ii) Cerberus hereby authorizes the Managing Member to cause the Property Leasecos to engage Island Hospitality Management to act as the hotel manager of all of the Properties on behalf of the Property Leasecos (the “Hotel Manager”) pursuant to the Hotel Management Agreements and (iii) the entry into, modification or termination of any contractual arrangement that requires an annual payment by the Company of $25,000 or less, or the determination to take any of the foregoing actions, shall not be considered a Major Decision;

(g) incur or pay any real estate taxes, insurance premiums, or any assessments or charges with respect to the ownership and operation of any Property, except to the extent provided for in the then-approved Operating Budget or delegated to the Hotel Manager pursuant to the Hotel Management Agreement;

(h) make distributions to the Members other than as set forth in Article VII of this Agreement;

(i) establish reserves, determine reserve levels or make any distributions from any such reserves, except as set forth in the then-approved Operating Budget or the then-approved Business Plan;

(j) except as set forth in the then-approved Operating Budget or the then-approved Business Plan, cause or permit the Company to finance all or any portion of any Property (other than the Midland Loan and trade debt incurred in the ordinary course of business consistent with the then-approved Operating Budget), agree to the form, substance,

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provider or documentation pertaining to any Loan, modify, restructure or terminate any Loan or repay any Loan except in accordance with the express terms of the applicable Loan, or enter into, modify or amend any documents, agreements or instruments relating to any Loan;

(k) except to the extent expressly set forth in the then-approved Operating Budget or the then-approved Business Plan, select or determine any insurance plans, carriers or coverages to be purchased and maintained by or on behalf of the Company or any Property Company;

(l) make any expenditures which are at variance with the then-approved Operating Budget or Business Plan (A) (1) with respect to any Operating Expense (as defined in the applicable Hotel Management Agreement) for any Property unless Operating Expenses for such Property would not exceed the estimated Operating Expenses for such Property as set forth in the then-current and approved Operating Budget with respect to such Property by five percent (5%) or more (in the aggregate, but not by line item) and (2) with respect to any other expenditure not described in clause (1), unless the variance in question does not exceed a particular summary line item by the lesser of (x) $50,000 or (y) 10% of that summary line item, and (B) unless the overall Operating Budget for the Company, Ink I, Ink III, Ink IV, Ink V, Ink VI and Ink VII is not exceeded in the aggregate by more than 2.5% (excluding, for purposes of the foregoing calculation, the use of any contingency line items set forth in the then-approved Operating Budget)), and provided that in any case the Managing Member may make an Emergency Expenditure pursuant to the procedures set forth in clause (b) of this definition);

(m) grant or convey any easement, lien, ground lease, mortgage, deed, deed of trust, bill of sale, contract or other instrument purporting to convey or encumber any Property, either wholly or in part;

(n) take any Bankruptcy action on behalf of the Company or any of its Subsidiaries;

(o) institute any legal or arbitration proceedings in the name of the Company, settle any legal or arbitration proceedings against the Company or confess any judgment against the Company or any Property, other than (i) the institution of an eviction action, a suit for breach of a tenant lease or other similar proceeding contemplated in or provided for in the then-approved Operating Budget or the then-approved Business Plan or (ii) settlements or compromises for litigation or arbitration providing solely for the payment of money damages where the amount paid (after giving effect to any insurance proceeds) in settlement or compromise does not exceed $50,000;

(p) execute, deliver or file any agreement, permit, request, application or filing with any governmental agency, any neighboring property owner, any community organization or any similar regulatory body, or send any correspondence to or have any other material communications with, any governmental agency, which directly binds the Company or any of its Affiliates or any Member or any of its Affiliates, or which advocates a position on behalf of the Company or its Affiliates or any Member or its Affiliate (excluding correspondence, communications and other actions with respect to ministerial matters consistent with the then-approved Operating Budget and the then-approved Business Plan);

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(q) approve any investment other than as contemplated by this Agreement or approve any renovation or disposition of any Property, except as expressly authorized by the then-approved Business Plan and other than an Emergency Expenditure or Repair made pursuant to the procedures set forth in clause (b) of this definition;

(r) enter into any exclusivity, competition or confidentiality agreement that is or purports to be binding upon any Member or any of its Affiliates or interest holders;

(s) enter into any settlements with any third party or any consent decree, order (judicial or otherwise) with any Governmental Entity, related to the breach of any Environmental Law, or the sampling, monitoring, treatment, remediation, removal or clean up of Hazardous Substances with respect to the Properties;

(t) knowingly take or approve, or refrain from taking or approving, any action that is reasonably likely to lead to a default under any Loan Documents or to a material dispute with any Lender;

(u) knowingly take or approve, or refrain from taking or approving, any action that could trigger a recourse provision under any then-outstanding Loan;

(v) approve any marketing plans or agreements with respect to any Property, except as expressly authorized by the then-approved Business Plan;

(w) require or permit the Company to make any loan to any Member or any of its Affiliates, or require or permit any loan (other than a Member Loan) to be made by any Member to the Company;

(x) cause the Company or any Property Company to execute or deliver any indemnity or guaranty;

(y) change the Company’s depreciation and accounting methods and make other decisions with respect to the treatment of various transactions for federal income tax purposes, and change the Company’s elections for federal, state or local income tax purposes;

(z) amend this Agreement (or the corresponding organizational documents of any Subsidiary of the Company) in any respect;

(aa) take or approve any action relating to any tax certiorari proceeding or other tax appeal affecting any Property;

(bb) recapitalize, reclassify, redeem, repurchase or otherwise acquire any equity or other interests of the Company or any Subsidiary of the Company;

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(cc) merge, consolidate or dissolve the Company or any of its Subsidiaries;

(dd) remove and replace Island Hospitality Management as Hotel Manager;

(ee) permit or cause any Transfer that may reasonably be expected to cause the assets of the Company or any Subsidiary of the Company to be deemed “plan assets” (within the meaning of 29 C.F.R. 2510.3-101, as modified by Section 3(42) of ERISA);

(ff) enter into any swap, hedge, collar or other interest rate protection agreement;

(gg) enter into any lease, whether as lessor or lessee, other than short term storage leases in connection with a capital program or equipment leases in the ordinary course of business;

(hh) take any action that could reasonably be expected to cause Chatham to fail to qualify as a TRS of Chatham REIT;

(ii) [reserved]

(jj) cause any rebranding of properties or entry into new franchise agreements;

(kk) approve or implement any Operating Budget or Business Plan, as set forth in Section 3.5;

(ll) except as otherwise expressly permitted pursuant to this Agreement or the then-current Operating Budget or Business Plan, entering into, amending or modifying agreements with cost or liability to the Company, Ink I, Ink III, Ink IV, Ink V, Ink VI, Ink VII or their respective Subsidiaries in excess of $5 million in any fiscal year or which are otherwise material to the business of the Company, Ink I, Ink III, Ink IV, Ink V, Ink VI and/or Ink VII, provided, that for purposes of this provision, the cost of an agreement shall be calculated based on only the period prior to the time that the Company, Ink I, Ink III, Ink IV, Ink V, Ink VI, Ink VII or the applicable Subsidiary shall have the right to freely terminate such agreement, and shall include any fee payable upon termination by the Company, Ink I, Ink III, Ink IV, Ink V, Ink VI, Ink VII or any of their respective Subsidiaries.

(mm) entering into any agreement with an Affiliate of a Member other than pursuant to Section 4.4;

(nn) causing the Company or any Subsidiary other than a Property Company or Property Leaseco to hold any assets other than (w) the interests in its Subsidiaries as of the Closing Date after giving effect to the transactions contemplated by the Plan, (x) any interest in an entity treated as a corporation for U.S. federal income tax

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purposes, (y) any cash reserves intended for distributions to the Members or to pay Company expenses or (z) any other assets that the Managing Member is permitted to acquire and hold pursuant to the then-effective Operating Budget;

(oo) entering into or terminating, disposing of or materially amending the terms of any joint venture to which the Company or any of its Subsidiaries is a party;

(pp) changing the principal banking institutions with which the Company or its subsidiaries maintain deposit, borrowing or other relationships; or

(qq) materially changing the line(s) of business of the Company and its Subsidiaries or conducting business in a jurisdiction other than the United States.

“Managing Member” means Chatham, in its capacity as Managing Member of the Company, and any successor thereto appointed in accordance with this Agreement.

“Member” has the meaning set forth in the preamble.

“Member Loan” has the meaning set forth in Section 2.2(d).

“Midland Amended and Restated Binding Commitment” means that certain Amended and Restated Binding Commitment Regarding the Acquisition and Restructuring of Certain Subsidiaries of Innkeepers USA Trust dated October 18, 2011 by and among the Company, Ink I, Ink III and Midland Loan Services, a division of PNC National Bank, National Association.

“Midland Loan” means the new non-recourse mortgage loan in an aggregate principal amount of not less than $675,000,000 made by Midland Loan Services, a division of PNC National Bank, as contemplated by the Amended Bid.

“Minimum Cerberus Multiple” has the meaning set forth in Section 7.1(b).

“Monthly Expense Amount” has the meaning set forth in Section 3.1(c)(i).

“Net Cash Flow” means, during the applicable period, the gross cash proceeds derived by the Company during such period from any source (including financings or refinancings) less the portion thereof used to pay or establish reserves for all Company operating expenses, the Expense Reimbursement, the fees payable under the Hotel Management Agreements, debt payments, taxes, capital improvements, replacements and contingencies or otherwise required to be held by the Company, all as determined by the Managing Member in its reasonable discretion subject to the provisions of this Agreement; provided, however, that Net Cash Flow shall not be reduced by depreciation, amortization, cost recovery deductions or similar allowances, but shall be increased by any reductions of previously established reserves; and provided further that Net Cash Flow shall not include any cash that the Company or its Subsidiaries is prohibited from distributing to the Members by the terms of any Indebtedness of the Company or its Subsidiaries.

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“Non-Contributing Member” has the meaning set forth in Section 2.2(d).

“Non-Notifying Member” has the meaning set forth in Section 3.7.

“Notifying Member” has the meaning set forth in Section 3.7.

“OFAC” means the U.S. Department of the Treasury’s Office of Foreign Assets Control.

“OFAC List Sanctions Programs” means any countries, territories, individuals or entities that are prohibited pursuant to the laws, regulations or Executive Orders administered by OFAC, including the List of Specially Designated Nationals and Blocked Persons administered by OFAC, as such list may be amended from time to time.

“Officer” means any officer of the Company or any Subsidiary thereof appointed in accordance with this Agreement or by the manager of such Subsidiary.

“Operating Budget” means the annual operating budget for the ownership, operation, leasing, marketing and sale of the Properties and the properties owned by Ink I, Ink IV, Ink V, Ink VI, and Ink VII, as in effect from time to time pursuant to Section 3.5 hereof.

“Percentage Interest” means, with respect to any Member, such Member’s ownership interest in the Company, calculated as the percentage obtained by dividing the Capital Contributions of such Member by the aggregate Capital Contributions of all the Members.

“Permitted Transferee” means (i) with respect to any Member who is not a natural person, any Affiliate of such Member (provided that for purposes of this clause (i), “Affiliate” shall mean, with respect to the Member in question, a Person (including any fund or managed account) that such Member solely controls, is controlled solely by or under common control with (and no Person other than the common controlling Person controls such Affiliate) such Member, and provided further that notwithstanding the immediately preceding proviso, Affiliates specified in the second sentence of the definition of Affiliate shall be deemed to be “Affiliates” for purposes of this clause (i)); (ii) with respect to any Member who is a natural person, (x) upon the death of such natural person, any Person in accordance with such natural person’s will or the laws of intestacy; (y) the Family Members of such natural person, entities formed for estate or family planning purposes and/or one or more trusts for the sole benefit of the Family Members of such natural person provided that such natural person shall not be released from his obligations under this Agreement as a Member; and (iii) in the event of the dissolution, liquidation or winding up of any Person that is a corporation, partnership or limited liability company, the stockholders, partners or members, as applicable, or a successor corporation, partnership or limited liability company all of the stockholders, partners or members of which, as applicable, are the Persons who were the stockholders, partners or members, as applicable, of such entity immediately prior to the dissolution, liquidation or winding up of such Person; provided further, however, that no such Transfer under any one or more of the foregoing clauses (i) through (iii) to any such

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Person shall be permitted where such Transfer (x) fails to comply with the terms of Section 5.1, including, without limitation, by reason of a failure to comply in any respect with any federal or state securities laws, including, without limitation, the 1940 Act, or (y) would result in the Company becoming subject to the Exchange Act.

“Person” means any individual, corporation, association, partnership (general or limited), joint venture, trust, joint-stock company, estate, limited liability company, Series, unincorporated organization or other legal entity or organization.

“Plan” means the amended and restated plan of reorganization of the Debtors attached as Exhibit B to the Amended Bid.

“Post-Termination Major Decision” means any determination to cause the Company or any Subsidiary of the Company to take any action described in clauses (h), (n), (r), (t) (solely to the extent such action would trigger a Carveout Guaranty made by Chatham or its Affiliate), (u) (solely to the extent such action would trigger a Carveout Guaranty made by Chatham or its Affiliate), (z), (bb), or (hh) of the definition of “Major Decisions”.

“President and CEO” has the meaning set forth in Section 3.4(d)(i).

“Profits” or “Losses” means for each Fiscal Period, an amount equal to the taxable income or loss for such Fiscal Period. Such amount shall be determined in accordance with Code Section 703(a) (for this purpose, all items of income, gain, loss, or deduction required to be stated separately pursuant to Code Section 703(a)(1) shall be included in taxable income or loss), with the following adjustments (without duplication):

(a) any income that is exempt from federal income tax and not otherwise taken into account in computing Profits or Losses pursuant to this definition shall be added to such taxable income or loss;

(b) any expenditures described in Code Section 705(a)(2)(B) or treated as Code Section 705(a)(2)(B) expenditures pursuant to Regulations Section 1.704-1(b)(2)(iv)(i), and not otherwise taken into account in computing Profits or Losses pursuant to this definition shall be subtracted from such taxable income or loss;

(c) in the event the Gross Asset Value of any Asset is adjusted pursuant to paragraphs (b) or (c) of the definition of Gross Asset Value, the amount of such adjustment shall be taken into account as an item of gain (if the adjustment increases the Gross Asset Value of the asset) or an item of loss (if the adjustment decreases the Gross Asset Value of the asset) from the disposition of such asset and shall be taken into account for purposes of computing Profits or Losses;

(d) gain or loss resulting from any disposition of property with respect to which gain or loss is recognized for federal income tax purposes shall be computed by reference to the Gross Asset Value of property disposed of, notwithstanding that the adjusted tax basis of such property differs from its Gross Asset Value;

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(e) in lieu of depreciation, amortization, and other cost recovery deductions taken into account in computing such taxable income or loss there shall be taken into account Depreciation for such Fiscal Period, computed in accordance with the definition of Depreciation; and

(f) to the extent an adjustment to the adjusted tax basis of any Asset pursuant to Code Section 734(b) or 743(b) is required pursuant to Regulations Section 1.704-1(b)(2)(iv)(m) to be taken into account in determining Capital Accounts as a result of a distribution other than in liquidation of a Member’s interest in the Company, the amount of such adjustment shall be treated as an item of gain (if the adjustment increases the basis of the asset) or loss (if the adjustment decreases the basis of the asset) from the disposition of the asset and shall be taken into account for purposes of computing Profits or Losses.

“Promoted Interest” has the meaning set forth in Section 7.1(b).

“Properties” means the hotel properties listed on Annex A hereto, and any other property (real, personal or mixed) or real estate acquired by the Company in accordance with this Agreement.

“Property Company” means a direct or indirect subsidiary of the Company through which the Company indirectly holds one or more Properties.

“Property Leasecos” means each of Grand Prix Fixed Lessee LLC and Grand Prix Floating Lessee LLC, each a Delaware limited liability company that will be owned by Ink III.

“QIB” means a “qualified institutional buyer” within the meaning of Rule 144A under the 1933 Act.

“Regulations” means the federal income tax regulations promulgated by the Treasury Department under the Code, as such regulations may be amended from time to time. All references herein to a specific section of the Regulations shall be deemed also to refer to any corresponding provisions of succeeding Regulations.

“REIT” means an entity that qualifies as a “real estate investment trust” under Code Sections 856 through 860.

“Reorganized Debtors” means the Debtors, after giving effect to their reorganization in accordance with the Plan.

“Representative” has the meaning set forth in Section 10.2.

“Sell Notice” has the meaning set forth in Section 3.7.

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“Senior Foreign Political Figure” means (a) a current or former senior official in the executive, legislative, administrative, military or judicial branches of a non-U.S. government (whether elected or not), a current or former senior official of a major United States political party or a current or former senior executive of a non-U.S. commercial enterprise, (b) a corporation, business or other entity that has been formed by or for the benefit of a Senior Foreign Political Figure; (c) an immediate family member of a Senior Foreign Political Figure; and (d) a close associate of a Senior Foreign Political Figure. For purposes of this definition, a “senior official or “senior executive” means an individual with substantial authority over policy, operations, or the use of government-owned resources.

“Subsidiary” of a Person means any corporation, partnership, limited liability company, trust and other entity, whether incorporated or unincorporated, with respect to which such Person, directly or indirectly, legally or beneficially, owns (i) a right to a majority of the profits of such entity; or (ii) securities having the power to elect a majority of the board of directors or similar body governing the affairs of such entity.

“Tax Matters Member” has the meaning set forth in Section 8.1.

“Termination Event” means (a) the occurrence of a Failed Contribution with respect to (i) any Initial Capital Contribution for which Capital Call has been made in accordance with Section 2.2(a), or (ii) any Capital Contribution (other than an Initial Capital Contribution) for which a Capital Call has been made other than pursuant to Section 2.2(b)(ii), (b) any material breach of Chatham’s obligations hereunder (other than a Failed Contribution), or any gross negligence, willful misconduct or fraud committed by Chatham or any Person affiliated with Chatham in connection with the performance of Chatham’s obligations hereunder, in each case other than such gross negligence, willful misconduct or fraud that, if capable of being Cured, is Cured within thirty (30) days after Chatham receives written notice thereof, provided, that, for all purposes under this Agreement, it shall not be a breach of Chatham’s obligations hereunder if Chatham takes or approves or refrains from taking or approving an action that would be a Major Decision as defined in clause (t) or (u) of the definition thereof as a consequence of taking or approving or refraining from taking or approving any action pursuant to a direction, an affirmative veto or a lack of approval after a specific request therefore, in each case from any Member other than the Managing Member to the extent such other Member is authorized to give such direction, veto or approval, (c) the reduction of Chatham’s Percentage Interest to a percentage of less than 5% hereof, (d) the failure of Jeffrey Fisher to remain as active in the management and business of Chatham REIT as he is as of the date of this Agreement, (e) any direct or indirect Transfer of an interest in Chatham that is not a Transfer permitted under Article V hereof, unless such Transfer, if capable of being Cured, is Cured within thirty (30) days after the occurrence thereof, (f) the failure of Chatham to timely satisfy its binding obligation to sell as a selling Member or to purchase as a purchasing Member, as applicable, under and as set forth in Section 3.7 below, (g) the termination of the Chatham Ink I Member as managing member of Ink I as a result of a Termination Event (for purposes of this clause (g), as defined in the Ink I LLC Agreement), (h) the termination of the Chatham Ink III Member as managing member of Ink III as a result of a Termination Event (for purposes of this clause (h), as

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defined in the Ink III LLC Agreement), (i) the termination of the Chatham Ink IV Member as managing member of Ink IV as a result of a Termination Event (for purposes of this clause (i), as defined in the Ink IV LLC Agreement), (j) the termination of the Chatham Ink V Member as managing member of Ink V as a result of a Termination Event (for purposes of this clause (j), as defined in the Ink V LLC Agreement), (k) the termination of the Chatham Ink VI Member as managing member of Ink VI as a result of a Termination Event (for purposes of this clause (k), as defined in the Ink VI LLC Agreement) or (l) the termination of the Chatham Ink VII Member as managing member of Ink VII as a result of a Termination Event (for purposes of this clause (l), as defined in the Ink VII LLC Agreement).

“Third Party Claim” has the meaning set forth in Section 11.6.

“Transfer” means any direct or indirect sale, assignment, pledge, hypothecation or other transfer or encumbrance of an interest in any Member or any Member’s Interest in the Company, whether by operation of law or otherwise (including, without limitation, the withdrawal of any Person having any direct or indirect interest in any Member), provided that the sale or transfer of capital stock or other equity interests in Chatham REIT or any successor thereto (whether by merger, consolidation or otherwise) shall not be considered a Transfer of any interests in Chatham REIT or its Affiliates, including Chatham, provided further that the sale or transfer of capital stock or other equity interests in Cerberus or any successor thereto (whether by merger, consolidation or otherwise) shall not be considered a Transfer of any interests in Cerberus or its Affiliates so long as Cerberus remains under the management and control of the Persons controlling Cerberus as of the date hereof.

“TRS” means an entity that qualifies as a “taxable REIT subsidiary” under Code Section 856(l).

“Valuation Amount” has the meaning set forth in Section 3.7.

“Voluntary Bankruptcy” has the meaning set forth in the definition of Bankruptcy.

“Voting Representative” has the meaning set forth in Section 10.2.

“Wind-Down Expenses” has the meaning set forth in Section 3.2(h).

Any capitalized term not defined herein shall have the meaning ascribed to such term in the Act.

Section 1.7 Certificates. Each Officer of the Company is an authorized Person within the meaning of the Act to execute, deliver and file any certificates (and any amendments and/or restatements thereof) necessary for the Company to qualify to do business in a jurisdiction within the United States in which the Company may wish to conduct business. Audra Dowless is hereby designated as an “authorized person” within the meaning of the Act, and has executed, delivered and filed the Certificate of Formation of the Company with the Secretary of State of the State of Delaware.

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Section 1.8 Term. The term of the Company shall begin on the date the Certificate of Formation was filed with the Secretary of State of the State of Delaware and shall continue until terminated in accordance with the provisions hereof or pursuant to the Act.

Section 1.9 Amended Bid. Each of the Initial Members, by executing this Agreement, authorizes and ratifies the execution and delivery by the Company of the Amended Bid, containing the terms set forth in Exhibit B, to purchase the new common membership interests of the Reorganized Debtors and authorizes the Company to (a) enter or cause its Subsidiaries to enter into any other documents necessary to effect the actions contemplated by the Amended Bid; (b) enter, or cause its Subsidiaries to enter, into documents relating to the financing of the purchase of the Business on terms substantially consistent with the Amended Bid, including without limitation, any credit agreement, note purchase agreement or similar financing agreement, and any agreement, document or instrument to be delivered in connection with such financing; and (c) open, and cause its Subsidiaries to open, such bank accounts as shall be necessary or appropriate to conduct the operations of the Business. All actions taken by the Company prior to the Closing Date in connection with any of the foregoing are hereby ratified in all respects.

Section 1.10 Property Companies. To the extent the Company at any time acquires a Property directly rather than acquiring the equity interests of the current owner of a Property, the Company shall, at the election of the Initial Members, form one or more Property Companies to take title to all or any portion of any such Property or Properties. It is expressly understood that to the extent Properties are acquired through the acquisition of the equity interests of a Property Company, or the Company is directed pursuant to this Section 1.10 to utilize one or more Property Companies for any Properties, the Company shall conduct all of its business with respect to such Properties through such Property Company(ies); provided, however, that the organizational documents of the Property Companies shall provide (and the current organizational documents of all existing Property Companies acquired directly or indirectly by the Company shall be amended as necessary to provide) that the decisions of such Property Companies shall be made by the Company pursuant to the terms of this Agreement. The Managing Member shall perform, with no additional compensation, substantially identical services for each Property Company as the Managing Member performs for the Company, subject to the terms, conditions, limitations and restrictions set forth in this Agreement. The Managing Member agrees to perform such duties, and, in such circumstances and with regard to such duties, the Managing Member shall be subject to the same standards of conduct and shall have the same rights and obligations with regard to such duties performed or to be performed on behalf of any such Property Company as are set forth in this Agreement with regard to substantially identical services to be performed for or on behalf of the Company. Without limiting the generality of the foregoing, the Members agree to make such non-economic changes as any Lender(s) may require with respect to this Agreement and/or to the organizational documents of the Property Companies, including, without limitation, the addition of a non-member manager and/or independent director to the structure of any Property Company to the extent not already in place.

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Section 1.11 Liability of Members.

(a) No Member shall have any duty to any other Member or to the Company beyond those specifically set forth in this Agreement.

(b) Except as otherwise expressly provided in the Act, the debts, obligations and liabilities of the Company, whether arising in contract, tort or otherwise, shall be solely the debts, obligations and liabilities of the Company, and no Member shall be obligated personally for any such debt, obligation or liability of the Company or of any other Member solely by reason of being a member of the Company. Except as otherwise expressly provided in the Act, the liability of each Member to the Company shall be limited to the amount of Capital Contributions required to be made by such Member, from time to time, in accordance with the provisions of this Agreement.

(c) Except as otherwise provided in this Agreement or under applicable Laws or Regulations, the Members shall not be required to lend any funds to the Company or, after its Capital Contributions shall have been made, to make any further contributions to the Company or to repay to the Company, any Member or any creditor of the Company all or any portion of any negative amount in their respective Capital Accounts. Subject to the terms of this Agreement, the Managing Member may, on behalf of the Company or any of its Subsidiaries, at any time and from time to time, apply for and secure one or more Loans, in such amounts, at such rates and on such other terms as are set forth in the then-applicable Operating Budget and then-applicable Business Plan or as may be agreed by the Members then permitted to approve Major Decisions. The Company shall use commercially reasonable efforts to either obtain such Loan(s) on a nonrecourse basis or to have such Loan(s) provide that any liability for customary recourse “carveouts” will be limited to the Company and its assets; provided, however, that if such efforts are unsuccessful, each of Cerberus and Chatham shall execute and deliver (or cause one of its Affiliates to execute and deliver) a Carveout Guaranty providing for recourse to such Person solely with respect to actions or omissions affirmatively taken or consented to or approved by such Person or its Affiliates (other than the Company and its Subsidiaries) to each Lender requiring such a guaranty in connection with its Loan, it being understood and agreed that the parties will seek for such Carveout Guaranties to be several so that (A) the Chatham Carveout Guaranty will cap Chatham’s exposure under such guaranty by an amount equal to Chatham’s Percentage Interest of such potential aggregate guaranty exposure (the “Chatham Cap”) and (B) the Cerberus Carveout Guaranty will cap Cerberus’s exposure under such guaranty by an amount equal to Cerberus’s Percentage Interest of such potential aggregate guaranty exposure (the “Cerberus Cap”); provided, however, if such Lender requires a joint and several Carveout Guaranty from Chatham and Cerberus or requires a guaranty from Cerberus but not Chatham or Chatham but not Cerberus, then, subject to the following proviso, Cerberus or Chatham, as the case may be, as guarantor, may seek contribution and repayment from the other party in accordance with the contribution agreement annexed hereto as Exhibit C so that Chatham’s and Cerberus’s exposure under the Carveout Guaranty shall not exceed each of the Chatham Cap and Cerberus Cap, respectively; and, provided further, that:

(i) if the guarantor under any Carveout Guaranty (the “Carveout Guarantor”) incurs or suffers any guaranty obligations or liabilities as a result of a default or breach of any covenant with respect to any of the Loan(s) that is (x) directly and

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immediately caused by such Carveout Guarantor through an action or omission taken without the affirmative consent or approval of the Members other than any Affiliate of such Carveout Guarantor, or (y) directly and immediately caused by a breach or default by such Carveout Guarantor of its obligations under such Carveout Guaranty, then such Carveout Guarantor shall be liable for 100% of all such obligations and liabilities, without any right of contribution against the Company or any of its Members, and, in addition, such Carveout Guarantor shall indemnify the Company, and the Members that are not Affiliates of such Carveout Guarantor for any and all losses, costs, liabilities and damages which the Company or such Members may incur or suffer by reason or such conduct on the part of such Carveout Guarantor;

(ii) if a Carveout Guarantor incurs or suffers any guaranty obligations or liabilities as a result of a default or breach of any covenant with respect to any of the Loan(s) that is attributable solely to a breach of this Agreement by any Member other than such Carveout Guarantor or its Affiliates, then such Member shall be liable for 100% of all such obligations and liabilities, without any right of contribution against the Company or any of its Members, and, in addition, such Member shall indemnify the Company, the Carveout Guarantor and the Members that are not Affiliates of such Member against any and all losses, costs, liabilities and damages which the Company, the Carveout Guarantor or such other Members may incur or suffer by reason of such conduct on the part of such Member; and

(iii) if any Carveout Guarantor incurs or suffers any obligations or liabilities under a Carveout Guaranty that are (x) not directly and immediately caused by such Carveout Guarantor through an action or omission taken without the affirmative consent or approval of the Members other than any Affiliate of such Carveout Guarantor, (y) not directly and immediately caused by a breach or default by such Carveout Guarantor of its obligations under such Carveout Guaranty, or (z) attributable solely to a breach of this Agreement by any Member other than such Carveout Guarantor or its Affiliates, in addition to any rights the Carveout Guarantor may have under the contribution agreement with respect to such Carveout Guaranty, such Carveout Guarantor shall be entitled to seek reimbursement and indemnification from the Company with respect to all such obligations and liabilities.

Except as otherwise provided in clauses (i)-(ii) above and subject to the second and third provisos of this Section 1.11(c), all obligations or liabilities which are incurred or suffered, at any time and from time to time, by any guarantor under a Carveout Guaranty shall be subject to repayment pursuant to the contribution agreement annexed hereto as Exhibit C. Unless approved by the Members, the terms of each and every Loan shall be such that neither the Loan nor any amounts due thereunder are of the type described in Section 514(c)(9)(B)(ii) of the Code.

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ARTICLE II.

PERCENTAGE INTERESTS, CAPITAL

CONTRIBUTIONS AND CAPITAL ACCOUNTS

Section 2.1 Percentage Interests. Each Member will receive a Percentage Interest in the Company for such Member’s Capital Contributions.

Section 2.2 Capital Contributions.

(a) Initial Contributions. During the period commencing on the date hereof and ending on the Closing Date, Cerberus and Chatham shall make one or more Capital Contributions (collectively, the “Initial Capital Contributions”) in respect of their respective Initial Capital Contribution Amounts pursuant to Capital Calls issued from time to time in accordance with this Section 2.2 to fund (i) on the Closing Date, the Company’s portion of the purchase price under the Amended Bid (taking into account any deposits previously funded by the Company and/or its Affiliates), and (ii) any other closing costs, fees and expenses incurred in connection with the transactions contemplated by the Plan and the Amended Bid, including with respect to any Loans. All such Initial Capital Contributions shall be made pro rata by Cerberus and Chatham in proportion to their relative Initial Capital Contribution Amounts. Notwithstanding anything in this Agreement to the contrary, the aggregate amount of Chatham’s Initial Capital Contribution plus the Chatham Ink I Member’s aggregate Ink I Initial Capital Contribution, the Chatham Ink III Member’s aggregate Ink III Initial Capital Contribution, the Chatham Ink IV Member’s aggregate Ink IV Initial Capital Contribution, the Chatham Ink V Member’s aggregate Ink V Initial Capital Contribution, the Chatham Ink VI Member’s aggregate Ink VI Initial Capital Contribution and the Chatham Ink VII Member’s aggregate Ink VII Initial Capital Contribution shall not exceed the lesser of $37,000,000 and 12.5% of the aggregate Capital Contributions, Ink I Capital Contributions, Ink III Capital Contributions, Ink IV Capital Contributions, Ink V Capital Contributions, Ink VI Capital Contributions and Ink VII Capital Contributions (the “Chatham Cap”). In the event that Chatham’s ratable share of all Initial Capital Contributions required to be made pursuant to this Section 2.2 plus the sum of (u) the Chatham Ink I Member’s aggregate Ink I Initial Capital Contributions required to be made pursuant to Section 2.2 of the Ink I LLC Agreement, (v) the Chatham Ink III Member’s aggregate Ink III Initial Capital Contributions required to be made pursuant to Section 2.2 of the Ink III LLC Agreement, (w) the Chatham Ink IV Member’s aggregate Ink IV Initial Capital Contributions required to be made pursuant to Section 2.2 of the Ink IV LLC Agreement, (x) the Chatham Ink V Member’s aggregate Ink V Initial Capital Contributions required to be made pursuant to Section 2.2 of the Ink V LLC Agreement, (y) the Chatham Ink VI Member’s aggregate Ink VI Initial Capital Contributions required to be made pursuant to Section 2.2 of the Ink VI LLC Agreement and (z) the Chatham Ink VII Member’s aggregate Ink VII Initial Capital Contributions required to be made pursuant to Section 2.2 of the Ink VII LLC Agreement, would exceed the Chatham Cap, such excess contribution amount shall be funded by Cerberus and Cerberus’ Percentage Interest shall be appropriately increased to reflect its relative contribution to the total amount of Initial Capital Contributions made pursuant to this Section 2.2. In the event that Cerberus or Chatham does not fund its pro rata portion of any Initial Capital Contribution, (x) in the case of Cerberus,

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Chatham may, on behalf of the Company, enforce the commitment made by Cerberus Series Four Holdings LLC (“Cerberus Series Four”), or (y) in the case of Chatham, Cerberus may, on behalf of the Company, enforce the commitment made by Chatham REIT, in each case in Cerberus Series Four’s or Chatham REIT’s, as applicable, capacity as a Plan Sponsor (as defined in the Amended Bid) to provide equity capital as set forth, and on the terms and conditions contained in, the Amended Bid.

(b) Additional Capital Contributions. (i) Subject to the terms and conditions of this Agreement, the Managing Member may issue Capital Calls at any time and from time to time if additional capital is required for the conduct of the business of the Company (including without limitation to fund costs and expenses that would be treated as capital expenditures under GAAP), each Member shall be required to contribute its pro rata share of such additional capital in proportion to its Percentage Interest.

(ii) Notwithstanding anything in this Agreement to the contrary, Cerberus shall have the right, at any time and from time to time, to make a Capital Call, in lieu of allowing the Managing Member to make such Capital Call, or to require the Managing Member to make a Capital Call at the direction of Cerberus and, in either such event, shall not be subject to the conditions and restrictions which would otherwise apply to a Capital Call made by the Managing Member, if Cerberus determines in good faith that the Company requires additional capital to maintain the Properties or otherwise satisfy its existing obligations.

(c) Payment of Capital Contributions. Capital Contributions by the Members shall be made in U.S. dollars by wire transfer of federal funds to an account or accounts of the Company specified by the Company. Except as otherwise provided herein, no Member shall be entitled to any compensation by reason of its Capital Contribution or by reason of serving as a Member. No Member shall be required to lend any funds to the Company.

(d) Failure to Fund Capital Contributions. If a Member shall fail to timely make any Capital Contribution required pursuant to this Section 2.2 (such Member being hereinafter referred to as a “Non-Contributing Member”), the Managing Member shall give the other Members notice of the amount not funded by the Non-Contributing Member (such amount being hereinafter referred to as the “Failed Contribution”), and if one or more of such other Members shall have funded its ratable share of the Capital Contribution in question (each a “Contributing Member” and collectively, the “Contributing Members”), each Contributing Member shall have the right to fund its pro rata portion of such Failed Contribution (such amount of all or any part of a Failed Contribution funded by such Contributing Member, the “Funded Amount”), and elect, at its sole election, to (i) treat the Funded Amount as an unsecured loan to the Company (a “Member Loan”), repayable solely out of available cash, and bearing interest at the rate of 15% per annum, compounded monthly as of the end of each calendar month, or (ii) treat such Funded Amount as a Capital Contribution by such Contributing Member, in which event (A) such Contributing Member’s Capital Contribution and Capital Account shall be increased by 115% of such Contributing Member’s Funded Amount, and (B) the Percentage Interest of such Contributing Member shall be increased by such Funded Amount (valued in accordance with the value of Percentage Interests as of the date hereof) and the Percentage Interest of the Non-Contributing Member shall be correspondingly decreased. Any Member Loan shall be

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secured by a lien in favor of the Contributing Member(s) on the interests of the Non-Contributing Member that owes such obligations. Any Contributing Member or Members electing to treat its Funded Amount as a Member Loan shall receive all distributions payable to the Non-Contributing Member pursuant to Section 7.1 below until such time as the Member Loan shall be paid in full (including all interest thereon); provided that if more than one Contributing Member has made a Member Loan in respect of such Non-Contributing Member’s Failed Contribution, each such Contributing Member shall receive its proportionate share of all such distributions based on such Contributing Member’s Member Loan as compared to all Member Loans made in respect of such Failed Contribution. In the event that one or more Contributing Members elect to treat their respective Funded Amounts as capital contributions and the Non-Contributing Member subsequently contributes all or any portion of the Failed Contribution amount to the Company pursuant to the 15-day cure period in Section 3.6(a) below, (x) such contributed amount shall be distributed to the Contributing Member(s) pro rata in accordance with their respective Funded Amounts, and (y)(I) the Contributing Members’ Percentage Interests shall be decreased by such distribution in respect of its Funded Amount and (II) the Non-Contributing Member’s Percentage Interest shall be correspondingly increased.

Section 2.3 Capital Accounts.

(a) Capital Accounts. A capital account (“Capital Account”) shall be maintained for each Member in accordance with this Section 2.3. Without limiting the generality of the foregoing, a Member’s Capital Account shall be increased by (i) the amount of money contributed by the Member to the Company, (ii) the initial Gross Asset Value of property contributed by the Member to the Company, as determined by the contributing Member and the Managing Member (net of liabilities that the Company is considered to assume or take subject to pursuant to Code Section 752), (iii) allocations to the Member of Profits pursuant to Article VI, and (iv) the amount of any Company liability assumed by such Member. A Member’s Capital Account shall be decreased by (x) the amount of money distributed to the Member, (y) the Gross Asset Value of any property so distributed to the Member as determined by the distributee Member and the Managing Member (net of any liabilities that such Member is considered to assume or take subject to pursuant to Code Section 752), and (z) allocations to the Member of Losses pursuant to Article VI.

(b) Negative Capital Account. No Member shall be required to make up a deficit balance in such Member’s Capital Account or to pay to any Member the amount of any such deficit in any such account.

(c) Credit of Capital Contribution. For purposes of computing the balance in a Member’s Capital Account, no credit shall be given for any Capital Contribution which such Member is to make until such Capital Contribution is actually made.

(d) Transfer. In the event of a Transfer of all or a portion of a Member’s interest in the Company in accordance with the terms of this Agreement, the transferee shall succeed to the Capital Account of the transferring Member to the extent it relates to the Transferred interest.

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Section 2.4 Admission of New Members. Unless otherwise permitted under Article V, new Members may only be admitted to membership in the Company with the approval of Cerberus and Chatham. A new Member must agree in writing to be bound by the terms and provisions of the Certificate of Formation and this Agreement, each as may be amended from time to time, and must execute a counterpart of, or an agreement adopting, this Agreement or other related agreements as Cerberus and Chatham may require. Upon admission, the new Member shall have all rights and duties of a Member of the Company; provided, however, that such new Member shall only be entitled to such voting rights as are expressly provided pursuant to this Agreement.

Section 2.5 Interest. No interest shall be paid or credited to the Members on their Capital Accounts or upon any undistributed amounts held by the Company.

Section 2.6 Capital Withdrawal Rights, Interest and Priority. Except as expressly provided in this Agreement, no Member shall be entitled to withdraw or reduce such Member’s Capital Accounts in whole or in part until the dissolution, liquidation and winding-up of the Company, except to the extent that distributions pursuant to Article VII represent returns of capital. A Member who withdraws or purports to withdraw as a Member of the Company without the consent of all of the Initial Members or as otherwise allowed by this Agreement shall be liable to the Company for any damages suffered by the Company on account of the breach and shall not be entitled to receive any payment in respect of its Percentage Interest in the Company or a return of its Capital Contribution until the time otherwise provided herein for distributions to Members.

ARTICLE III.

MANAGEMENT OF THE COMPANY

Section 3.1 Company Governance. Each Member and the Company hereby agree that the Business and the Company shall be governed by the provisions of this Article III and that, accordingly, the Company shall cause its Subsidiaries to act in accordance with the determinations of the Company made pursuant to this Article III.

(a) The Company shall generally be managed by the Managing Member, who shall have the overall responsibility for the management, operation and administration of the Company. The Managing Member is, to the extent of its rights and powers set forth in this Agreement, an agent of the Company and the actions of the Company by and through the Managing Member taken in accordance with such rights and powers shall bind the Company. Except as authorized by the Managing Member or as set forth in this Agreement, no Member shall participate in the management and control of the Business or the Company nor shall any Member have the right or authority to act on behalf of the Company in connection with any matter.

(b) Limitation on Liability of Managing Member. The Managing Member shall not, solely by reason of being Managing Member, be personally liable for the expenses, liabilities or obligations of the Company whether arising in contract, tort or otherwise.

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(c) Compensation and Reimbursement. (i) Not less than five days before the first Business Day of each month, Chatham, the Chatham Ink I Member, the Chatham Ink III Member, the Chatham Ink IV Member, the Chatham Ink V Member, the Chatham Ink VI Member and the Chatham Ink VII Member shall provide the Members with a notice setting forth (x) its good faith estimate of the expenses that it will incur for such month in connection with its duties in its capacity as Managing Member of the Company, Chatham Ink I Member’s duties in its capacity as managing member of Ink I, Chatham Ink III Member’s duties in its capacity as managing member of Ink III, Chatham Ink IV Member’s duties in its capacity as managing member of Ink IV, Chatham Ink V Member’s duties in its capacity as managing member of Ink V, Chatham Ink VI Member’s duties in its capacity as managing member of Ink VI and Chatham Ink VII Member’s duties in its capacity as managing member of Ink VII including, without limitation, Chatham’s, Chatham Ink I Member’s, Chatham Ink III Member’s, Chatham Ink IV Member’s, Chatham Ink V Member’s, Chatham Ink VI Member’s and/or Chatham Ink VII Member’s reasonable costs and expenses of any Chatham Company Personnel, less (y) any amounts paid to Chatham, the Chatham Ink I Member, the Chatham Ink III Member, the Chatham Ink IV Member, the Chatham Ink V Member, the Chatham Ink VI Member and/or the Chatham Ink VII Member previously in respect of a Monthly Expense Amount in excess of expenses actually incurred by Chatham, the Chatham Ink I Member, the Chatham Ink III Member, the Chatham Ink IV Member, the Chatham Ink V Member, the Chatham Ink VI Member and/or the Chatham Ink VII Member for such month, plus (z) any expenses actually incurred by Chatham, the Chatham Ink I Member, the Chatham Ink III Member, the Chatham Ink IV Member, the Chatham Ink V Member, the Chatham Ink VI Member and/or the Chatham Ink VII Member previously with respect to a given month exceeding the Monthly Expense Amount for such month (together, the “Monthly Expense Amount”). So long as neither Chatham nor any of its Affiliates is in material default of its obligations under this Agreement, the Ink I LLC Agreement, the Ink III LLC Agreement, the Ink IV LLC Agreement, the Ink V LLC Agreement, the Ink VI LLC Agreement or the Ink VII LLC Agreement and such material default has not been cured within thirty (30) days after written notice of such material default is delivered to Chatham by any other Member, and provided that Chatham has not been removed as the Managing Member pursuant to Section 3.2(h), the Chatham Ink I Member has not been removed as the Managing Member of Ink I pursuant to Section 3.2(h) of the Ink I LLC Agreement, the Chatham Ink III Member has not been removed as the Managing Member of Ink III pursuant to Section 3.2(h) of the Ink III LLC Agreement, the Chatham Ink IV Member has not been removed as the Managing Member of Ink IV pursuant to Section 3.2(h) of the Ink IV LLC Agreement, the Chatham Ink V Member has not been removed as the Managing Member of Ink V pursuant to Section 3.2(h) of the Ink V LLC Agreement, the Chatham Ink VI Member has not been removed as the Managing Member of Ink VI pursuant to Section 3.2(h) of the Ink VI LLC Agreement and the Chatham Ink VII Member has not been removed as the Managing Member of Ink VII pursuant to Section 3.2(h) of the Ink VII LLC Agreement, the Company shall pay to Chatham in its capacity as Managing Member (or, at the written direction of Chatham, to a designated Affiliate of Chatham), on the first Business Day of each month or as promptly as practicable thereafter, an amount equal to the Company’s portion, determined based on the relative number of hotels owned by each of the Company, Ink I, Ink IV, Ink V, Ink VI and Ink VII, of the Monthly Expense Amount submitted for such month (the “Expense Reimbursement”).

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(ii) Except as expressly set forth in clause (i) above or in any separate agreement between the Managing Member and the Company, the Managing Member shall not receive compensation or reimbursement of its expenses for its services performed on behalf of the Company or other benefits it provides to the Company.

(iii) At any time in connection with its review of Chatham’s proposed Monthly Expense Amount for any month, Cerberus may in its reasonable discretion require that Chatham eliminate the position(s) associated with particular Chatham Company Personnel and no longer include the costs associated with such position(s) as part of Chatham’s Monthly Expense Amount, beginning with the Monthly Expense Amount that is three months after Chatham is notified of such requirement from Cerberus; provided, that the Managing Member shall be permitted to include in the applicable Monthly Expense Amount for the month in which such expenses are to be paid all severance and related costs incurred in connection with the termination of such Chatham Company Personnel at Cerberus’ request, to the extent the grant to such terminated Chatham Company Personnel of such severance obligation was approved by Cerberus, the Cerberus Ink I Member, the Cerberus Ink III Member, the Cerberus Ink IV Member, the Cerberus Ink V Member, the Cerberus Ink VI Member or the Cerberus Ink VII Member at the time of grant.

Section 3.2 Authority, Duties and Obligations of the Managing Member.

(a) The Member designated as the Managing Member (i) shall conduct and manage the day-to-day affairs of the Company in accordance with (A) the standard of care required of prudent and experienced joint venture managers and of third party asset and property managers performing similar functions for similar properties, (B) customary industry standards, and (C) the then-approved Operating Budget and the then-approved Business Plan, in each case subject to the limitations on the Managing Member’s authority and the rights granted solely to other Members set forth in this Agreement; (ii) shall perform the duties assigned to it hereunder; and (iii) shall use its best efforts to carry out all decisions permitted to be made unilaterally by Cerberus pursuant to this Agreement. In addition to the foregoing, the authority of the Managing Member shall be limited where (x) any Member’s consent or approval is expressly required under this Agreement, (y) the consent or approval of any of the Members is expressly required by a non-waivable provision of applicable law, or (z) the Managing Member’s authority is otherwise limited or rights are otherwise granted solely to other Members by the terms of this Agreement.

(b) In furtherance of the foregoing, and subject in each case to the terms of this Agreement, including the restrictions on the Managing Member set forth in Section 3.6(b), the Managing Member shall (i) use commercially reasonable efforts to enforce all agreements entered into by the Company; (ii) use commercially reasonable efforts to cause the Company at all times to perform and comply with the provisions (including, without limitation, any provisions requiring the expenditure of funds) of any loan commitment, agreement, mortgage, lease or other contract, instrument or agreement to which the Company is a party or which affects any Property; (iii) subject to the availability of the funds therefor, pay in a timely manner all non-disputed operating expenses of the Company in accordance with the terms of the then-approved Operating Budget and the then-approved Business Plan; (iv) subject to the availability of the funds therefor, obtain and maintain

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insurance coverage with respect to the Properties, at customary levels and in any event consistent with the requirements of any Loans, and, subject to the availability of the funds therefor, pay all non-disputed taxes, assessments, charges and fees payable in connection with the ownership, operation and sale of the Properties; (v) devote sufficient time to the performance of its duties hereunder in accordance with good industry practice and this Agreement; and (vi) provide Cerberus with copies of all material correspondence and other communications with any Lender pertaining to any Loan, as and when the same are delivered or received.

(c) The Managing Member hereby covenants and agrees that it shall cause its personnel, including all Chatham Company Personnel, to perform and/or supervise the performance of, as applicable, all of the day-to-day activities and/or duties required of the Managing Member under the terms of this Agreement; and (ii) no Chatham Company Personnel shall spend any business time as an employee of Chatham on any project(s) other than the Business of Ink I, Ink III, Ink IV, Ink V, Ink VI, Ink VII, the Company and their respective Subsidiaries.

(d) Promptly following any request therefor by any Initial Member, the Managing Member shall deliver to such Initial Member a counterpart copy of any agreement, certificate or other document executed and delivered by the Managing Member in the name of or on behalf of the Company, and shall otherwise make available to any Initial Member all of the books and records of the Company that are in the possession or control of the Managing Member during reasonable business hours; provided, that from and after the occurrence of a Termination Event, this paragraph (d) shall apply only to the Cerberus Initial Members, and the Chatham Initial Members shall no longer have any of the rights set forth in this paragraph (d).

(e) Provided that Chatham has not been removed as the Managing Member pursuant to Section 3.2(g) hereof, Jeffrey Fisher and the other officers of the Managing Member shall at all times oversee the fulfillment of the duties of the Managing Member hereunder. Except as expressly provided or permitted herein, the Managing Member shall not delegate any of its rights or powers to manage and control the business and affairs of the Company without the prior written consent of Cerberus.

(f) The Managing Member hereby covenants and agrees that it shall not hold itself out to any third party as having any authority to act for or on behalf of the Company, or to bind the Company in any manner, other than to the extent that such authority is expressly granted to the Managing Member in Section 3.2(a) or otherwise granted herein or in writing by Cerberus. The Managing Member hereby acknowledges and agrees that notwithstanding anything set forth in this Section 3.2 to the contrary, the Managing Member shall not have any authority to act on behalf of the Company or to execute any documents, agreements or instruments on behalf of the Company other than to the extent that such authority is set forth in Section 3.2(a) or otherwise expressly granted under this Agreement or in writing by Member, and the Managing Member, acting in such capacity, shall be subject, in all events, to the then-approved Operating Budget and Business Plan of the Company.

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(g) Notwithstanding anything set forth in Section 3.2(a)-(h) hereof to the contrary, Cerberus shall have the power and authority, on behalf of the Company, to request, authorize and approve each of the following without the approval or consent of any other Member:

(i) Compel, cause and undertake the liquidation of the Company and take all actions related thereto, including the disposition of all then remaining Properties, at any time following April 25, 2016, so long as such liquidation will not (A) cause a default under any then existing Loan Documents, (B) cause Chatham to incur or suffer any recourse liability under any then existing Loan Documents (including, without limitation, any Carveout Guaranty given by Chatham or any of its Affiliates), (C) cause the Company or any of its Members (or any of their respective Affiliates) to become the subject of a Bankruptcy, or (D) jeopardize the TRS status of Chatham; provided, however, that Cerberus shall keep the other Initial Members reasonably informed of any material actions undertaken pursuant to this clause (i) with respect to intended, planned or pending dispositions;

(ii) Demand and receive an updated Operating Budget and Business Plan from the Managing Member, at any time and from time to time but in any event no more than once each fiscal quarter, together with such other reporting items or information as Cerberus may reasonably require;

(iii) Audit the books and records of the Company and any Property Companies; provided, however, that the Company shall only be required to pay for one such audit per calendar year, and any additional audits requested by Cerberus in any given calendar year shall be paid for by Cerberus;

(iv) Compel, cause and undertake the disposition of any Property in an arms length transaction to any Person other than Cerberus or an Affiliate of Cerberus, so long as such disposition will not (A) cause a default under any then existing Loan Documents, (B) cause Chatham to incur or suffer any recourse liability under any then existing Loan Documents (including, without limitation, any Carveout Guaranty given by Chatham or any of its Affiliates), (C) cause the Company or any of its Members (or any of their respective Affiliates) to become the subject of a Bankruptcy, or (D) jeopardize the TRS status of Chatham; provided, however, that Cerberus shall keep the other Initial Members reasonably informed of any material actions undertaken pursuant to this clause (iv) with respect to intended, planned or pending dispositions;

(v) Take any action which may be reasonably necessary for the continuation of the Company’s valid existence as a limited liability company under the laws of the State of Delaware; provided, however, that Cerberus shall keep the Managing Member reasonably informed of any material actions undertaken pursuant to this clause (v); and

(vi) Approve any restructuring plan or take or refrain from taking any other action relating to the restructuring of the Company, any Property or any Loan, so long as such restructuring will not (A) cause a default under any then existing Loan Documents, (B) cause Chatham to incur or suffer any recourse liability under any then existing Loan Documents (including, without limitation, any Carveout Guaranty given by Chatham or

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any of its Affiliates), (C) cause the Company or any of its Members (or any of their respective Affiliates) to become the subject of a Bankruptcy, (D) jeopardize the TRS status of Chatham, or (E) be more adverse to any Member other than Cerberus than it is to Cerberus; provided, that the restrictions contained in this clause (E) shall not apply to a restructuring of the Company, any Property or any Loan to the extent Cerberus has made a good faith determination that such restructuring is reasonably necessary to avoid, or mitigate the effects of, an existing default or an impending or imminent default under any Loan or franchise agreement and that the disproportionately adverse impact is reasonably necessary to consummate the restructuring on terms that, in Cerberus’ good faith judgment, are in the aggregate most favorable to the Company; provided, further, that Cerberus shall keep the Managing Member reasonably informed of any material actions undertaken pursuant to this clause (vi).

(h) Upon the occurrence of a Termination Event, Cerberus shall have the right, in its sole and absolute discretion, to remove Chatham as Managing Member hereunder; provided, that if Cerberus removes Chatham as Managing Member as a result of (1) an event described in clause (b) of the definition of Termination Event, (2) an event described in clause (g) of the definition of Termination Event based on the Chatham Ink I Member being removed as managing member of Ink I as a result of an event described in clause (b) of the definition of “Termination Event” contained in the Ink I LLC Agreement, (3) an event described in clause (h) of the definition of Termination Event based on the Chatham Ink III Member being removed as managing member of Ink III as a result of an event described in clause (b) of the definition of “Termination Event” contained in the Ink III LLC Agreement, (4) an event described in clause (i) of the definition of Termination Event based on the Chatham Ink IV Member being removed as managing member of Ink IV as a result of an event described in clause (b) of the definition of “Termination Event” contained in the Ink IV LLC Agreement, (5) an event described in clause (j) of the definition of Termination Event based on the Chatham Ink V Member being removed as managing member of Ink V as a result of an event described in clause (b) of the definition of “Termination Event” contained in the Ink V LLC Agreement, (6) an event described in clause (k) of the definition of Termination Event based on the Chatham Ink VI Member being removed as managing member of Ink VI as a result of an event described in clause (b) of the definition of “Termination Event” contained in the Ink VI LLC Agreement or (7) an event described in clause (l) of the definition of Termination Event based on the Chatham Ink VII Member being removed as managing member of Ink VII as a result of an event described in clause (b) of the definition of “Termination Event” contained in the Ink VII LLC Agreement, (x) Chatham shall no longer be entitled to any distributions of any Promoted Interest (it being understood that Chatham shall remain entitled to all other distributions contemplated hereby), and (y) Chatham shall not be entitled to receive reimbursement of any Wind-Down Expenses (as defined below). In the event that Cerberus removes Chatham as Managing Member pursuant to this Section 3.2(h), (i) Cerberus shall have the right, in its sole and absolute discretion, to either become or designate an Affiliate to become the Managing Member of the Company or cause the Company to engage a third-party manager for the Company’s business, (ii) the consent of Chatham shall no longer be necessary for any Major Decision other than a Post-Termination Major Decision, and (iii) except as set forth above, upon its removal as Managing Member, Chatham may submit to the Company and the other Members a good faith estimate of the amount of expenses (the “Wind-Down Expenses”) it will reasonably incur in connection with the wind-down of its duties in its capacity as Managing Member, including without limitation Approved Severance Costs, together with reasonably detailed backup for such estimate, and the

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Company will promptly pay such amount to Chatham (or, at the written direction of Chatham, to a designated Affiliate of Chatham); provided, that in no event shall the Company be required to pay to Chatham under this Section 3.2(h) Wind-Down Expenses that, when aggregated with the Wind-Down Expenses payable by Ink I pursuant to Section 3.2(h) of the Ink I LLC Agreement, the Wind-Down Expenses payable by Ink III pursuant to Section 3.2(h) of the Ink III LLC Agreement, the Wind-Down Expenses payable by Ink IV pursuant to Section 3.2(h) of the Ink IV LLC Agreement, the Wind-Down Expenses payable by Ink V pursuant to Section 3.2(h) of the Ink V LLC Agreement, the Wind-Down Expenses payable by Ink VI pursuant to Section 3.2(h) of the Ink VI LLC Agreement and the Wind-Down Expenses payable by Ink VII pursuant to Section 3.2(h) of the Ink VII LLC Agreement, exceed $500,000 unless such excess amounts result from liabilities or obligations incurred in accordance with the applicable Operating Budget and Business Plan as approved by Cerberus, the Cerberus Ink I Member, the Cerberus Ink III Member, the Cerberus Ink IV Member, the Cerberus Ink V Member, the Cerberus Ink VI Member or the Cerberus Ink VII Member at the time of incurrence as potential Wind-Down Expenses, or as otherwise approved in writing by Cerberus, the Cerberus Ink I Member, the Cerberus Ink III Member, the Cerberus Ink IV Member, the Cerberus Ink V Member, the Cerberus Ink VI Member or the Cerberus Ink VII Member as potential Wind-Down Expenses.

Section 3.3 Managing Member Certifications. Any Person dealing with the Company may rely (without duty of further inquiry) upon a certificate issued by the Company that is signed by the Managing Member or any of the Officers as to any of the following:

(a) the identity of any Member or Officer or other agent of the Company;

(b) the existence or nonexistence of any fact or facts which constitute(s) a condition precedent to acts by the Managing Member or the Members;

(c) the Person or Persons authorized to execute and deliver any instrument or document of the Company; or

(d) any act or failure to act by the Company or any other matter whatsoever involving the Company.

Section 3.4 Officers.

(a) Principal Officers. The Officers of the Company shall be a President and Chief Executive Officer, and may be a Chief Operating Officer, Chief Financial Officer, Secretary, Treasurer, one or more Vice Presidents, and one or more Assistant Treasurers or Assistant Secretaries.

(b) Other Officers. The Managing Member may also appoint such other Officers and agents as it shall deem necessary who shall hold their offices for such terms and shall, subject to the limitations set forth herein, exercise such powers and perform such duties as shall be determined from time to time by the Managing Member.

(c) Compensation. The compensation of all Officers and all officers of the Subsidiaries shall be fixed by, and paid by, the Managing Member; provided, however,

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that their salaries shall conform to any employment agreement approved by the Members, to the extent required by this Agreement and entered into between the Company or any Subsidiary and any Officer. In no event shall the Company be required to pay any compensation to any Officer.

(d) Authority of Officers.

(i) The President and Chief Executive Officer (or “President and CEO”) of the Company shall have general and active management of the Company, shall have the responsibility for the day-to-day management and operation of the Company, and shall see that all lawful orders and resolutions are carried out. The President and CEO shall execute bonds, mortgages and other contracts except where the signing and execution shall be expressly delegated by the Members or, to the extent permitted by this Agreement, the Managing Member to one or more other officers or agents of the Company.

(ii) If appointed, the Chief Operating Officer, Chief Financial Officer, Vice Presidents, Treasurer, Secretary, Assistant Treasurers and Assistant Secretaries shall have the powers and duties described in this Section 3.4, as may be modified from time to time by the Managing Member:

1) Chief Operating Officer. The Chief Operating Officer shall have responsibility for the day-to-day management and operation of the Business, general oversight of the operation of the Company’s operations and employees, and other such duties and responsibilities as determined by the President and CEO or the Managing Member.

2) Chief Financial Officer. The Chief Financial Officer shall have responsibility for the day-to-day management and general oversight of the accounting and finance function of the Company and supervision of any Treasurer and Assistant Treasurers, and other such duties and responsibilities as determined by the President and CEO, the Chief Operating Officer or the Managing Member.

3) The Vice Presidents. The Vice Presidents shall perform such duties and have such powers as the Managing Member or the President and CEO or the Chief Operating Officer may from time to time prescribe.

4) The Secretary; Assistant Secretary. The Secretary shall attend all meetings of the Members and record all the proceedings of the meetings of the Company and of the Members in a book to be kept for that purpose and shall perform like duties for any standing committees when required. He or she shall give, or cause to be given, notice of all meetings of committees of the Company, and shall perform such other duties as may be prescribed by the Managing Member or the President and CEO, under whose supervision he or she shall be. In the absence of the Secretary or in the event of his or her incapacity or refusal to act, or at the direction of the Secretary, any Assistant Secretary may perform the duties of the Secretary.

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5) The Treasurer; Assistant Treasurer. The Treasurer shall have the custody of the Company’s funds and securities and shall keep full and accurate accounts of receipts and disbursements in books belonging to the Company and shall deposit all moneys and other valuable effects in the name and to the credit of the Company in such depositories as may be designated by the Members. The Treasurer shall disburse the funds of Company as may be ordered by the Members or, to the extent permitted by this Agreement, the Managing Member, President and CEO, Chief Financial Officer or Chief Operating Officer, taking proper vouchers for such disbursements, and shall render to the President and CEO, Chief Operating Officer, Chief Financial Officer and Managing Member, or when any Officer so requires, an account of all transactions as treasurer and of the financial condition of the Company.

(e) Limitations on Officer’s Powers. Notwithstanding any other provision contained in this Agreement to the contrary, should a delegation of authority be established by the Managing Member, no act shall be taken, sum expended, decision made, obligation incurred or power exercised by any Officer on behalf of the Company other than in accordance with such delegation of authority.

(f) Term of Officers. (i) An Officer may resign at any time by giving written notice to the Managing Member. The resignation of an Officer shall take effect upon the Managing Member’s receipt of written notice of the Officer’s resignation or at such later time as shall be specified in the written notice. Unless otherwise specified in the Officer’s written notice of resignation, the acceptance of the Officer’s resignation shall not be necessary to make it effective. If the Officer also is a Member, the Officer’s resignation as an Officer shall not affect the Officer’s rights as a Member and shall not constitute a withdrawal of the Officer as a Member.

(ii) The Managing Member may terminate the employment of and/or remove any Officer with or without cause.

(iii) The Managing Member may elect at any time a new or replacement Officer to fill any vacancy.

Section 3.5 Operating Budget and Business Plan. (a) For the period beginning on the Closing Date and ending on December 31, 2011, the Company shall operate in accordance with the current Operating Budget (in the form annexed hereto as Exhibit D) prepared by the Debtors and a Business Plan to be mutually agreed by the Members. Thereafter, the Operating Budget and Business Plan shall be prepared and submitted annually by the Managing Member, the Chatham Ink I Member, the Chatham Ink III Member, the Chatham Ink IV Member, the Chatham Ink V Member, the Chatham Ink VI Member or the Chatham Ink VII Member (or the Hotel Manager at the direction of the Managing Member) to the Initial Members for approval at least thirty (30) calendar days prior to the end of each fiscal year with respect to the following fiscal year which shall, in the case of the Operating Budget, set forth, inter alia, all anticipated revenues, operating expenses, capital expenditures, renovation budgets, renovation schedules and reserves for the Company, Ink I, Ink III, Ink IV, Ink V, Ink VI and Ink VII during such period, and, in the case of the Business Plan shall set forth, inter alia, the Company’s, Ink I’s, Ink III’s,

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Ink IV’s, Ink V’s, Ink VI’s and Ink VII’s strategy for the leasing, marketing and operation of each of the Properties and the properties owned by Ink I, Ink IV, Ink V, Ink VI and Ink VII and an estimate of the amount, timing and reason for all anticipated Capital Contributions from the Members during such period; provided, that if the Managing Member should fail to timely prepare and submit in proposed form any such Operating Budget and Business Plan, Cerberus, the Cerberus Ink I Member, the Cerberus Ink III Member, the Cerberus Ink IV Member, the Cerberus Ink V Member, the Cerberus Ink VI Member and/or the Cerberus Ink VII Member shall be authorized to prepare such Operating Budget and Business Plan for the approval of the Initial Members. Whenever the Managing Member determines that revisions to the then-approved Operating Budget or Business Plan would be in the best interests of the Company, the Managing Member may submit such proposed revisions to such Operating Budget and/or Business Plan to Cerberus for its review; provided, however, that all amendments and modifications to the then-approved Operating Budget or Business Plan shall require the approval of Cerberus, which approval may be granted or withheld by Cerberus in its sole and absolute discretion.

(b) Notwithstanding Section 3.5(a), in the event that the Initial Members are unable to agree on all or certain provisions of an Operating Budget or Business Plan for a given year, the Managing Member will conduct the business of the Company pursuant to those provisions of such Operating Budget or Business Plan which are agreed-upon and adopted. With respect to any aspects of the business of Company that are not addressed by the Operating Budget or Business Plan for that given year, the Managing Member is authorized and directed to cause the employees of the Company to conduct such aspect of the business of the Company in accordance with the guidelines set forth in the most recently approved Operating Budget or Business Plan, as applicable, and otherwise in accordance with prior practice; provided, however, that, if applicable, the Managing Member may adjust the annual compensation of the Chatham Company Personnel and other expenses of the Company for inflation.

Section 3.6 Voting Rights of Members.

(a) Members shall have no right or authority to vote on matters other than matters explicitly requiring such vote in this Agreement or in the Act. For matters set forth in this Agreement explicitly requiring a vote of the Initial Members, such matters shall require the vote of all Initial Members. In the event any Initial Member shall transfer less than all of its Percentage Interest to an unaffiliated third party in a transaction or in a series of transactions, then the portion of such Initial Member’s votes that is equal to the portion of such Initial Member’s Percentage Interest transferred shall be deemed cancelled and the transferee (if an unaffiliated third party) in such transfer shall not have the right to vote on any matter as an “Initial Member”. In the event any Initial Member shall transfer its entire Percentage Interest held on the date of such transfer to an unaffiliated third party in a transaction or in a series of transactions, then all of the votes of its Percentage Interest on the date of such transfer shall be deemed to have been transferred to such transferee upon the satisfaction of the conditions contained in Article V and such transferee shall not have the right to vote on any matter as an “Initial Member”. Notwithstanding the foregoing, if at any time a Member (i) shall transfer more than 50% of such Member’s Percentage Interest (excluding, however, transfers made by such Member to a Permitted Transferee), or (ii) shall

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be in default with respect to its obligations to fund additional capital contributions pursuant to Section 2.2 above, the remaining votes of such Member shall be deemed cancelled and such Member shall have no voting rights except as otherwise required by the Act; provided, that in the case of clause (ii), (x) to the extent Contributing Member(s) elect to treat their respective Funded Amounts as loans and such Non-Contributing Member repays all such loans (including all interest thereon) within 15 days, the voting rights of such Member shall be reinstated and (y) to the extent the Contributing Member(s) elect to treat their respective Funded Amounts as capital contributions, the Company shall provide notice to such Non-Contributing Member on the next Business Day indicating such election and the voting rights of such Non-Contributing Member shall be deemed cancelled if the Non-Contributing Member does not provide its capital contribution to the Company within 15 days after receipt of such notice.

(b) Notwithstanding anything to the contrary in this Agreement, unless expressly set forth in this Agreement (including pursuant to Section 3.2(h) above), the Company shall not approve or take, and neither the Managing Member shall take or cause the Company to take or approve, any action with respect to any Major Decision without the affirmative vote or written consent of all of the Initial Members.

Section 3.7 Buy/Sell. At any time on or after April 25, 2013, any Initial Member (a “Notifying Member”) has the right (the “Buy/Sell Right”) to give written notice to the non-notifying Initial Members (each a “Non-Notifying Member”) to require that the Non-Notifying Members (x) buy all, but not less than all, of the Percentage Interest of the Company of the Notifying Member or (y) sell all, but not less than all, of the Non-Notifying Members’ Percentage Interest to the Notifying Member; provided, that no Member shall be entitled to exercise its Buy/Sell Right if, at the time of such Member’s election to so exercise, such Member is in default of any of its obligations hereunder and, provided, further, that if any member of Ink I (an “Ink I Notifying Member”), any member of Ink III (an “Ink III Notifying Member”), any member of Ink IV (an “Ink IV Notifying Member”), any member of Ink V (an “Ink V Notifying Member”), any member of Ink VI (an “Ink VI Notifying Member”) or any member of Ink VII (an “Ink VII Notifying Member”) has exercised its buy/sell right pursuant to Section 3.7 of the Ink I LLC Agreement (the “Ink I Buy/Sell Right”), Section 3.7 of the Ink III LLC Agreement (the “Ink III Buy/Sell Right”), Section 3.7 of the Ink IV LLC Agreement (the “Ink IV Buy/Sell Right”), Section 3.7 of the Ink V LLC Agreement (the “Ink V Buy/Sell Right”), Section 3.7 of the Ink VI LLC Agreement (the “Ink VI Buy/Sell Right”) or Section 3.7 of the Ink VII LLC Agreement (the “Ink VII Buy/Sell Right”), as applicable, the Member(s) that is an Affiliate of the Ink I Notifying Member, Ink III Notifying Member, Ink IV Notifying Member, Ink V Notifying Member, Ink VI Notifying Member or Ink VII Notifying Member, as applicable, shall be required to exercise its Buy/Sell Right hereunder at the same time. The Buy/Sell Right shall be exercised in accordance with the following provisions:

(i) The Notifying Member shall deliver to the Non-Notifying Member or Members, as the case may be, a written notice (a “Buy/Sell Notice”) (by both facsimile and certified mail) setting forth (A) its intention to exercise the Buy/Sell Right contained herein, (B) describing all oral or written offers, if any, received by the Notifying Member during the previous twelve calendar months relating to the acquisition, financing or leasing of all or any portion of the Properties. On or before the 20^th day following its receipt of a

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Buy/Sell Notice, each Non-Notifying Member may notify the Notifying Member (the “Election Notice”) whether it elects either (i) to sell its Percentage Interest for an amount equal to the amount that it would be entitled to receive if the Company had sold its assets for the Valuation Amount (as defined below) on the closing date of the Buy/Sell Right transaction, determined in accordance with Section 3.7(a)(iv) (the “Buy/Sell Closing Date”) and immediately thereafter paid all of its liabilities in full and distributed the net proceeds resulting from such sale to the Members (a “Sell Notice”) or (ii) to buy the Percentage Interest of the Notifying Member at an amount equal to the amount that the Notifying Member would be entitled to receive if the Company had sold its assets for Valuation Amount on the Buy/Sell Closing Date and immediately thereafter paid all of its liabilities in full and distributed the net proceeds resulting from such sale to the Members (a “Buy Notice”). If a Non-Notifying Member fails to deliver an election notice within that time, it will be deemed to have delivered a Sell Notice. Notwithstanding the foregoing, a Non-Notifying Member shall make (and shall be required to make) the same election to buy or to sell under this Section 3.7(i) as such Non-Notifying Member’s Affiliates have made in respect of their Ink I Buy/Sell Right, Ink III Buy/Sell Right, Ink IV Buy/Sell Right, Ink V Buy/Sell Right, Ink VI Buy/Sell Right or Ink VII Buy/Sell Right, as applicable, such that in no event shall a Notifying Member hereunder be required to purchase pursuant to a Buy Notice or required to sell pursuant to a Sell Notice or a deemed Sell Notice, as applicable, unless, in each case, the corresponding Ink I Notifying Member, Ink III Notifying Member, Ink IV Notifying Member, Ink V Notifying Member, Ink VI Notifying Member and Ink VII Notifying Member are also required to purchase pursuant to buy notices delivered in accordance with the Ink I LLC Agreement, Ink III LLC Agreement, Ink IV LLC Agreement, Ink V LLC Agreement, Ink VI LLC Agreement and Ink VII LLC Agreement, or are also required to sell pursuant to sell notices delivered or deemed to be delivered in accordance with the Ink I LLC Agreement, Ink III LLC Agreement, Ink IV LLC Agreement, Ink V LLC Agreement, Ink VI LLC Agreement and Ink VII LLC Agreement, as applicable.

(ii) Promptly after a Buy/Sell Notice is delivered, the Notifying Member and the Non-Notifying Member or Members, as the case may be, shall attempt to reach agreement on the value of the assets of the Company as of the Buy/Sell Closing Date, free and clear of all liabilities (the “Valuation Amount”). Within fifteen (15) days after such Buy/Sell Notice is delivered, the Notifying Member on the one hand and the Non-Notifying Member or Members, as the case may be, on the other hand shall submit to the other an estimate of the Valuation Amount. If the estimates vary by ten percent (10%) or less of the greater value, the Valuation Amount shall be determined by calculating the average of the two submitted values. In the event that either the Notifying Member on the one hand and the Non-Notifying Member or Members, as the case may be, on the other hand fail to submit an estimate within the required fifteen (15) day period and if such failure continues for five (5) days after notice of such failure from the other, such failure shall be deemed for all purposes to constitute acceptance of the single estimate submitted in a timely fashion. If the two estimates vary by more than 10%, then such Members shall appoint HVS International or another independent, nationally recognized valuation expert mutually agreeable to such Members as an independent appraiser (the “Independent Appraiser”) to determine the Valuation Amount. The Independent Appraiser shall be instructed to determine the Valuation Amount at least fifteen (15) days prior to the Buy/Sell Closing Date, and the determination of the Independent Appraiser shall be final and binding upon the Members; provided that in no event shall the Valuation Amount as determined by the Independent Appraiser be less than the lowest estimate or greater than the highest estimate

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submitted by the Members pursuant to this Section 3.7(a)(ii). In connection with any valuation process, including the generation and submission of estimates to each other by the Members, (A) the Members shall consult with each other to determine what information shall be provided to the Independent Appraiser, (B) the Members shall provide the Independent Appraiser and the other Members full access during normal business hours to examine all pertinent books, records and files, agreements and other operating agreements, and (C) each Member shall provide the other Members with copies of any information, document, file, agreement or data concurrently with its provision to the Independent Appraiser. The fees and expenses of the Independent Appraiser shall be borne by the Company. In the event that the determination of the valuation amount for Ink I (the “Ink I Valuation Amount”), the valuation amount for Ink III (the “Ink III Valuation Amount”), the valuation amount for Ink IV (the “Ink IV Valuation Amount”), the valuation amount for Ink V (the “Ink V Valuation Amount”), the valuation amount for Ink VI (the “Ink VI Valuation Amount”) and/or the valuation amount for Ink VII (the “Ink VII Valuation Amount”) is to be determined by an independent appraiser pursuant to Section 3.7 of the Ink I LLC Agreement, the Ink III LLC Agreement, the Ink IV LLC Agreement, the Ink V LLC Agreement, the Ink VI LLC Agreement and/or the Ink VII LLC Agreement, as applicable, the Members shall appoint the same independent appraiser to determine the Ink I Valuation Amount, the Ink III Valuation Amount, the Ink IV Valuation Amount, the Ink V Valuation Amount, the Ink VI Valuation Amount, the Ink VII Valuation Amount and the Valuation Amount hereunder, and shall instruct such Independent Appraiser to use the same methodology to determine the Ink I Valuation Amount, the Ink III Valuation Amount, the Ink IV Valuation Amount, the Ink V Valuation Amount, the Ink VI Valuation Amount, the Ink VII Valuation Amount and the Valuation Amount hereunder.

(iii) If one or more of the Non-Notifying Members deliver or are deemed to have delivered a Sell Notice and one or more Non-Notifying Members deliver or are deemed to have delivered a Buy Notice, then the Notifying Member and each Non-Notifying Member that delivered a Sell Notice will sell their Percentage Interest to the Non-Notifying Member(s) that delivered a Buy Notice, and such Non-Notifying Members shall purchase such Percentage Interests pro rata based on the aggregate Percentage Interest represented by such Non-Notifying Members. Within five (5) Business Days after an election has been made under Section 3.7(a)(i), or, if later, three (3) Business Days after the final Valuation Amount is determined, the purchasing Member shall deposit with the selling Member a non-refundable earnest money deposit in an amount equal to 10% of the amount which the selling Member is entitled to receive for its Percentage Interest hereunder. Such deposit shall be applied to the purchase price due to the selling Member at closing; provided, however, that if the purchasing Member should thereafter fail to consummate the transaction, such deposit shall be retained as liquidated damages by the selling Member, free of all claims of the acquiring Member, and the purchasing Member shall thereafter be permanently barred from initiating the exercise of the Buy/Sell Right pursuant to this Section 3.7. The Members agree that damages would be suffered by the selling Member as a result of any such default on the purchasing Member’s part, that such damages would be difficult or impossible to determine, and that the amount of the deposit represents a reasonable estimate of what such damages would be.

(iv) The closing date of the purchase and sale shall be the 90^th day after the last Election Notice was received or deemed received, (or if that day is not a Business Day, on the next succeeding Business Day), or if later the fifth Business Day after all

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regulatory approvals required for the purchase and sale have been obtain, or at such other time as the Initial Members may agree. At that time (x) the selling Member(s) shall sell, assign, and deliver its Percentage Interest, and the selling Member(s) and their Affiliate(s), as applicable, shall sell, assign, and deliver their respective Percentage Interests so specified to the purchasing Member(s) free and clear of all liens, security interests and adverse claims, together with such instruments of transfer, evidence of the absence of all liens, security interests or adverse claims, and evidence of due authorization, execution, and delivery of all related documentation as the purchasing Member(s) reasonably may request; and (y) the purchasing Member(s) shall pay the selling Member(s) the amount that each would be entitled to receive if the Company had sold its assets for Valuation Amount on the Buy/Sell Closing Date and immediately thereafter paid all of its liabilities in full and distributed the net proceeds resulting from such sale to the Members. Each Member will bear its own costs associated with the purchase and sale.

(v) On the closing, each selling Member shall cease to be a member of the Company, and its Percentage Interest shall vest in the purchasing Member(s).

(vi) If any Member fails to purchase and pay for any Percentage Interests as and when provided in the preceding provisions of this Section 3.7, then the selling Members may either (A) pro rata based on their respective Percentage Interests or as they otherwise may agree, at their election by notice to the defaulting Member at any time on or before the 30^th day after the date the sale was to have been consummated, elect to purchase the Percentage Interest of the Member so defaulting and its Affiliates for a price calculated by multiplying 75% by the amount that the defaulting Member and its Affiliates would be entitled to receive if the Company had sold its assets for Valuation Amount on the Buy/Sell Closing Date and immediately thereafter paid all of its liabilities in full and distributed the net proceeds resulting from such sale to the Members; provided, that the closing of this purchase and sale otherwise shall occur as provided in Section 3.7(iv), but with any time periods measured from the date of the notice under this Section 3.7(vi); or (B) retain the defaulting Member’s earnest money deposit as liquidated damages for such default, the Members hereby acknowledging and agreeing that (1) it would be difficult or impossible to determine the damages suffered by the selling Members on account of the purchasing Member’s default, and (2) the amount of the deposit represents a reasonable estimate of such damages; provided, that in the event that the purchasing Member failed to make its earnest money deposit as required by 3.7(a)(iii) hereof, the selling Members shall have the right, in lieu of receiving liquidated damages pursuant to this Section 3.7(a)(vi), to seek and obtain an award or judgment against the purchasing Member in the amount of the required earnest money deposit, together with any reasonable attorneys’ fees and disbursements incurred in obtaining such award or judgment.

(vii) If the selling Member should default in its obligation to sell in accordance with this Section 3.7, the acquiring Member shall be entitled to either (A) demand and receive a return of the earnest money deposit which it previously deposited with the selling Member, and, upon the return of such deposit, the selling Member’s default hereunder shall be deemed to have been waived; provided, however, that if the selling Member fails to return such deposit to the acquiring Member, the purchasing Member shall have the right to seek and obtain an award or judgment against the selling Member in the amount of such deposit, together with any reasonable attorneys’ fees and disbursements incurred in obtaining such award or judgment; or (B) seek specific performance of the selling Member’s obligations under this Section 3.7, the

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Members hereby acknowledging and agreeing that the remedy at law for breach of the obligations of the selling Member under this Section 3.7 would be inadequate in view of (x) the impossibility of accurately calculating the damages which would be suffered by the acquiring Member upon a default by the selling Member, and (y) the uniqueness of the Properties.

(viii) The preceding provisions of this Section 3.7 shall not apply to any Percentage Interest from and after the first time Percentage Interests are issued or sold through a registered offering under the Securities Act.

ARTICLE IV.

GENERAL GOVERNANCE

Section 4.1 Other Ventures.

(a) It is expressly agreed that each Initial Member, and any Affiliates, officers, directors, trustees, managers, stockholders, members, partners or employees of such Initial Member, may engage in other business ventures of every nature and description, whether or not in competition with the Company, independently or with others, and neither the Company nor the other Members shall have any rights in and to any independent venture or activity or the income or profits derived therefrom; the pursuit of other ventures and activities by any such Person is hereby consented to by each Member and shall not be deemed wrongful or improper.

(b) Nothing in this Agreement shall be construed so as to prohibit any Member or its respective Affiliates, officers, directors, managers, stockholders, members, partners or employees from owning, operating or investing in any business of any nature and description, independently or with others and no Member need disclose its intention to make any such investment to the other, nor advise the Company of the opportunity presented by any such prospective investment.

(c) Notwithstanding the foregoing, in the event that any Member receives an opportunity directly related to any Property, such Member shall first offer such opportunity, to the extent relating to any Property, to Cerberus and Chatham on behalf of the Company. If either Cerberus or Chatham (i) declines on behalf of the Company to participate in such opportunity or (ii) is deemed to decline on behalf of the Company to participate in such opportunity as a result of a failure to approve participation by the Company within 10 Business Days of such offer, but either Chatham or Cerberus, as applicable, as the non-presenting Member wishes to participate in such opportunity in its own capacity, Chatham or Cerberus, as applicable and the presenting Member shall participate in such opportunity on such basis as they shall agree or, in the absence of such agreement, in proportion to their then equity percentages in the Company. If the Company and each Member thereof rejects such opportunity, the presenting Member may exploit such opportunity in any manner it sees fit, provided that the presenting Member is not provided materially more favorable terms in the aggregate with respect to such opportunity than were presented to the Company, or the non-presenting Member in connection with their potential participation.

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Section 4.2 Information. The Company covenants and agrees, and the Managing Member shall cause the Company, to deliver to each Member (a) consolidated financial reports of the Company audited by PricewaterhouseCoopers LLP or such other independent accounting firm of national reputation for the Company and its subsidiaries, within 90 days after the end of the Fiscal Year of the Company; (b) consolidated quarterly unaudited financial reports for the Company, setting forth (i) an itemized breakdown of all income and expenses of the Company for such quarter, (ii) a reconciliation of actual revenues and expenses as compared with the projected Budget amounts for such items, together with a detailed explanation of any noted discrepancies, (iii) an update on the progress of the Company’s business as compared to the then-approved Business Plan, and (iv) such other updates and information as may reasonably be requested by Cerberus, within 45 days after the end of each fiscal quarter of the Company; (c) consolidated monthly financial reports for the Company within 30 days after the end of the each month; and (d) such other information and data (including such information and reports made available to any Lender of the Company or any of its Subsidiaries under any credit agreement or otherwise) as from time to time may be reasonably requested by Cerberus. All information provided by the Managing Member pursuant to Sections 4.2 and 4.3 shall be certified by an officer of the Managing Member (or, for so long as Chatham is the Managing Member, by the senior-most employee of Chatham that is a member of the Chatham Company Personnel) as to its truth, completeness and authenticity.

Section 4.3 Access. The Company shall, and shall cause its Subsidiaries, Officers, directors, trustees, members, employees, auditors and other agents to (a) afford the Officers, employees, auditors and other agents of the Members during normal business hours and upon reasonable notice reasonable access to its officers, employees, auditors, legal counsel, properties, offices, plants and other facilities and to all books and records and (b) afford each Initial Member the opportunity to discuss the Company’s affairs, finances and accounts with the Officers or Managing Member from time to time as each such Initial Member may reasonably request without creating an undue burden on the Company, including, without limitation, but in particular, upon notice that a vote is required with respect to a Major Decision; provided, that the Company shall not be required to afford any Chatham Initial Member such opportunity from and after the occurrence of a Termination Event except with respect to a Post-Termination Major Decision.

Section 4.4 Affiliate Transactions.

(a) Neither the Company nor any Property Company shall enter into any agreement for the performance of any service or activity, or for the purchase of any item, with an Affiliate of a Member (other than the Hotel Management Agreements with Island Hospitality Management), without first receiving the prior written approval of the Initial Members, which approval may be withheld in each such Member’s sole and absolute discretion; provided, that, from and after the occurrence of a Termination Event, the prior written approval of the Chatham Initial Members shall no longer be required so long as any such arrangement is on an arms’ length basis.

(b) Notwithstanding anything set forth in Section 3.2 or Section 3.6 hereof to the contrary, an Initial Member, acting alone and on behalf of the Company and any then existing Property Companies, may enforce and make all decisions under or in

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connection with agreements between the Company or any Property Company, on the one hand, and the other Initial Member and/or its Affiliates, on the other hand, provided that for purposes of this Section 4.4(b) Island Hospitality Management shall be considered an Affiliate of Chatham.

ARTICLE V.

TRANSFERS OF INTERESTS

Section 5.1 Restrictions on Transfer.

(a) No Transfer shall be made by either Chatham or Cerberus with respect to all or any portion of its Interest without the prior written approval of the non-Transferring Member unless such Transfer is (i) pursuant to Section 3.7 of this Agreement, or (ii) to a Permitted Transferee of such Member. No Member will have the ability to directly or indirectly syndicate its Interest to unaffiliated co-investors.

(b) The Company, each Member, the Managing Member, the Officers and any other Person or Persons having business with the Company need only deal with Members who are admitted as Members or as additional or substitute Members of the Company, and they shall not be required to deal with any other Person by reason of a Transfer by a Member. In the absence of a transferee of a transferring Member’s Percentage Interest being admitted as a Member as provided herein, any payment to a Member shall release the Company and the Members of all liability to any other Persons who may be interested in such payment by reason of an assignment by such Member.

(c) Each transferee, as a condition to its admission as a Member, shall execute and deliver to the Company such instruments (including a counterpart of this Agreement), in form and substance reasonably satisfactory to the Managing Member, as the Managing Member shall reasonably deem necessary or desirable to confirm the agreement of such transferee to be bound by all the terms and provisions of this Agreement (as it may be amended in connection with the admission of such transferee as a Member). The Members agree to amend this Agreement to the extent necessary to reflect the Transfer and admission of the new Member and to continue the Company without dissolution. Upon execution of such instruments, the transferee shall be admitted to the Company as a Member. Immediately following the admission of the transferee to the Company as a Member, any Person who has thereby transferred all of its ownership interest in the Company shall cease to be a Member of the Company. Except as set forth herein, any transferee who is admitted to the Company as a Member shall succeed to the rights and powers, and be subject to the restrictions and liabilities, of the transferor Member to the extent of the Percentage Interest transferred.

(d) In the event that the Members determine to sell all but not less than all of their Percentage Interest in the Company (including pursuant to Section 3.7 hereof), the Tax Matters Member will propose a schedule (the “Allocation Schedule”) to the Initial Members of the Company allocating the expected purchase price in accordance with Section 1060 of the Code. Upon the affirmative vote of each of the Initial Members of the Company

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(or, from and after the occurrence of a Termination Event, the Cerberus Initial Members), such proposed allocation will be the Allocation Schedule that will be proposed by the Members in connection with the potential sale and, if no objection is made to such Allocation Schedule by the third party purchaser of the Percentage Interests, will be final and binding in connection with such sale upon the Members.

Section 5.2 Non-Permitted Transfers.

(a) Any purported Transfer of all or any portion of a Member’s Percentage Interest of the Company or any economic benefit or other interest therein not in compliance with Section 5.1 shall be null and void ab initio, regardless of any notice provided to any of the parties hereto, and shall not create any obligation or liability of any of the parties hereto to the purported transferee, and any Person purportedly acquiring all or any portion of any Percentage Interest or any economic benefit or other interest therein transferred not in compliance with Section 5.1 shall not be entitled to admission to the Company as a substitute Member. In the event of any direct or indirect Transfer of an interest in a Member, other than a Transfer permitted under Article V hereof, the Member that has made such Transfer shall not be necessary for any Major Decision until such Transfer has been rescinded or otherwise nullified, except that the consent of such Member shall still be required to amend this Agreement.

(b) In the case of an attempted Transfer of all or any portion of any Percentage Interest of the Company or any economic benefit or other interest therein that is not in compliance with Section 5.1, the parties engaging or attempting to engage in such Transfer shall indemnify and hold harmless the other parties hereto and their respective officers, directors, affiliates, members, partners and employees from all cost, liability and damage that any of such indemnified persons may incur (including, without limitation, incremental tax liability and attorneys’ fees and expenses) as a result of such Transfer or attempted Transfer and the enforcement of this indemnity.

(c) No Member, including any assignee or successor in interest of any Member, shall Transfer all or any portion of its Percentage Interest of the Company or any economic benefit or other interest therein if such Transfer would cause the Company to be treated as a “publicly traded partnership” within the meaning of Code Section 7704 and the Regulations promulgated thereunder.

ARTICLE VI.

ALLOCATIONS

Section 6.1 General Rules.

(a) Allocations of Profits and Losses. Except as otherwise provided in this Article VI, Profits and Losses for any Fiscal Period shall be allocated among the Members in such manner that, as of the end of such Fiscal Period, the respective Capital Accounts of the Members shall be equal to the respective amounts that would be distributed to them, determined as if the Company were to (i) liquidate the assets of the Company for an amount equal to their Gross Asset Value and (ii) distribute the proceeds of liquidation pursuant to Section 10.3.

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Section 6.2 Other Allocation Rules.

(a) For purposes of determining the Profits, Losses or other items allocable to any Fiscal Period, Profits, Losses and such other items shall be determined on a daily, monthly or other basis as determined by the Tax Matters Member in its reasonable discretion using any permissible method under Code Section 706 and the Regulations thereunder.

(b) The Members are aware of the United States federal income tax consequences of the allocations made by this Article VI and hereby agree to be bound by the provisions of this Article VI in reporting their shares of Company income and loss for income tax purposes.

(c) All items of income, gain, loss, deduction, or credit and any other allocations not otherwise provided for shall be allocated among the Members as determined by the Tax Matters Member in its reasonable discretion.

(d) If a Member transfers all or a portion of its Percentage Interest during any Fiscal Period, then Profits, Losses, each item thereof and all other items attributable to the transferred interest for such Fiscal Period shall be divided and allocated between the transferor and the transferee by taking into account their varying interests in the Company during the Fiscal Period in accordance with Section 706(d) of the Code, using any conventions permitted by law and selected by the Tax Matters Member in its reasonable discretion.

Section 6.3 Tax Allocations: Code Section 704(c).

(a) Subject to Section 6.3(b) and (c), for each Fiscal Year, items of income, deduction, gain, loss and credit shall be allocated for tax purposes among the Members to reflect the amounts which have been credited or debited to the Capital Account of each such Member for such Fiscal Year and prior Fiscal Years.

(b) In accordance with Code Section 704(c) and the Regulations thereunder, items of income, gain, loss, deduction and credit with respect to any property contributed to the capital of the Company shall, solely for tax purposes, be allocated among the Members so as to take account of any variation between the adjusted tax basis of such property at the time of contribution to the Company for federal income tax purposes and its initial Gross Asset Value at the time of contribution using a method permitted by applicable Regulations under Code Section 704(c), as determined by the Tax Matters Member in its reasonable discretion.

(c) In the event the Gross Asset Value of any Asset is adjusted in accordance with paragraph (b) of the definition of Gross Asset Value hereof, subsequent allocations of items of income, gain, loss, deductions or credit with respect to such asset shall take into account any variation between the adjusted tax basis of such asset for federal income tax purposes and its Gross Asset Value in the same manner as under Code Section 704(c) and the Regulations thereunder.

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(d) Any elections or other decisions relating to allocations for tax purposes, basis adjustments or other tax matters shall be made by the Tax Matters Member in its reasonable discretion. Allocations pursuant to this Section 6.3 are solely for purposes of federal, state and local taxes and shall not affect, or in any way be taken into account in computing, any Member’s Capital Account, share of Profits or Losses, or other items or distributions pursuant to any provision of this Agreement.

(e) Notwithstanding anything in this Agreement to the contrary, the Tax Matters Member shall not make any determinations or elections, or fail to make any elections reasonably requested by the Managing Member, under this Article VI or the definition of “Depreciation” that could reasonably be expected to disproportionately, materially and adversely affect Chatham or the Chatham REIT without Chatham’s prior written consent.

ARTICLE VII.

DISTRIBUTIONS AND EXPENSES

Section 7.1 Distributions of Net Cash Flow. (a) Net Cash Flow shall be reasonably determined by the Managing Member. Distributions of Net Cash Flow shall be made on a quarterly basis in the following order and priority:

(i) First, to any Member that has made a Member Loan in the amount of such Member Loan plus a return thereon at 15% per annum, compounded monthly;

(ii) Second, pari passu to the Members in accordance with their respective Percentage Interests until each Member and such Member’s Ink I Affiliate(s), Ink III Affiliate(s), Ink IV Affiliate(s), Ink V Affiliate(s), Ink VI Affiliate(s) and Ink VII Affiliate(s) collectively have received aggregate distributions from the Company, Ink I, Ink III, Ink IV, Ink V, Ink VI and Ink VII in an amount sufficient to provide a 15.0% per annum cumulative return, compounded monthly, on such Member’s Capital Contributions, such Member’s Ink I Affiliate’s Ink I Capital Contributions, such Member’s Ink III Affiliate’s Ink III Capital Contributions, such Member’s Ink IV Affiliate’s Ink IV Capital Contributions, such Member’s Ink V Affiliate’s Ink V Capital Contributions, such Member’s Ink VI Affiliate’s Ink VI Capital Contributions and such Member’s Ink VII Affiliate’s Ink VII Capital Contributions, taken as a whole;

(iii) Third, pari passu to the Members in accordance with their respective Percentage Interests until all Capital Contributions made by such Member, all Ink I Capital Contributions made by such Member’s Ink I Affiliate(s), all Ink III Capital Contributions made by such Member’s Ink III Affiliate(s), all Ink IV Capital Contributions made by such Member’s Ink IV Affiliate(s), all Ink V Capital Contributions made by such Member’s Ink V Affiliate(s), all Ink VI Capital Contributions made by such Member’s Ink VI Affiliate(s) and all Ink VII Capital Contributions made by such Member’s Ink VII Affiliate(s), taken as a whole, have been fully recovered;

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(iv) Fourth, 10% to Chatham and 90% pari passu to the Members in accordance with their respective Percentage Interests until such time as Cerberus, Cerberus’ Ink I Affiliate, Cerberus’ Ink III Affiliate, Cerberus’ Ink IV Affiliate, Cerberus’ Ink V Affiliate, Cerberus’ Ink VI Affiliate and Cerberus’ Ink VII Affiliate have collectively received a 20.0% per annum cumulative return, compounded monthly, on Cerberus’ Capital Contributions, Cerberus’ Ink I Affiliate’s Ink I Capital Contributions, Cerberus’ Ink III Affiliate’s Ink III Capital Contributions, Cerberus’ Ink IV Affiliate’s Ink IV Capital Contributions, Cerberus’ Ink V Affiliate’s Ink V Capital Contributions, Cerberus’ Ink VI Affiliate’s Ink VI Capital Contributions and Cerberus’ Ink VII Affiliate’s Ink VII Capital Contributions, taken as a whole;

(v) Fifth, 15.0% to Chatham and 85.0% pari passu to the Members in accordance with their respective Percentage Interests until such time as Cerberus, Cerberus’ Ink I Affiliate, Cerberus’ Ink III Affiliate, Cerberus’ Ink IV Affiliate, Cerberus’ Ink V Affiliate, Cerberus’ Ink VI Affiliate and Cerberus’ Ink VII Affiliate have collectively received a 25.0% per annum cumulative return, compounded monthly, on Cerberus’ Capital Contributions, Cerberus’ Ink I Affiliate’s Ink I Capital Contributions, Cerberus’ Ink III Affiliate’s Ink III Capital Contributions, Cerberus’ Ink IV Affiliate’s Ink IV Capital Contributions, Cerberus’ Ink V Affiliate’s Ink V Capital Contributions, Cerberus’ Ink VI Affiliate’s Ink VI Capital Contributions, and Cerberus’ Ink VII Affiliate’s Ink VII Capital Contributions, taken as a whole; and

(vi) Sixth, 20.0% to Chatham and 80.0% pari passu to the Members in accordance with their respective Percentage Interests.

(b) Notwithstanding the foregoing, Chatham’s receipt of the Promoted Interests (as defined below) will be subject to Cerberus, Cerberus’ Ink I Affiliate, Cerberus’ Ink III Affiliate, Cerberus’ Ink IV Affiliate, Cerberus’ Ink V Affiliate, Cerberus’ Ink VI Affiliate and Cerberus’ Ink VII Affiliate first receiving a minimum return on Cerberus’ Capital Contributions, Cerberus’ Ink I Affiliate’s Ink I Capital Contributions, Cerberus’ Ink III Affiliate’s Ink III Capital Contributions, Cerberus’ Ink IV Affiliate’s Ink IV Capital Contributions, Cerberus’ Ink V Affiliate’s Ink V Capital Contributions, Cerberus’ Ink VI Affiliate’s Ink VI Capital Contributions and Cerberus’ Ink VII Affiliate’s Ink VII Capital Contributions, taken as a whole, of 150% (the “Minimum Cerberus Multiple”). In the event that the Minimum Cerberus Multiple is not met at any given time, distributions shall be made in accordance with the waterfall above provided that the Promoted Interests, if any, payable at such time will be retained by the Company in an escrow account managed by an escrow agent reasonably acceptable to Chatham and Cerberus and may only be distributed to Chatham and deducted from its Capital Account once the Minimum Cerberus Multiple has been achieved for at least two consecutive fiscal quarters. If Chatham receives distributions of the Promoted Interests, whether pursuant to Section 7.1(a) above or the immediately preceding sentence in this Section 7.1(b) and, at any time subsequent to such receipt, the Minimum Cerberus Multiple is not achieved for any two consecutive quarters, Chatham shall repay to the Company all distributions of Promoted Interests previously received by Chatham. Such repaid distributions shall be retained by the Company in escrow and shall be distributed to Chatham once the Minimum Cerberus Multiple has been achieved for at least two consecutive fiscal quarters.

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The “Promoted Interest” shall mean any and all distributions to Chatham pursuant to clause (iv), (v) or (vi) above, in excess of the distributions that Chatham would have otherwise been entitled to receive had such distribution been made in accordance with the Members’ respective Percentage Interests.

Section 7.2 Amounts Withheld. All amounts withheld or paid pursuant to the Code or any provisions of state, local or foreign tax law with respect to any payment, distribution, allocation or other consideration paid to the Members, including in connection with a contribution of assets to the Company by a Member, shall be treated as amounts paid or distributed, as the case may be, to the Members with respect to which such amount was withheld or paid pursuant to this Section 7.2 for all purposes under this Agreement. The Company is authorized to withhold or pay, when required under applicable law, from payments, distributions, or other consideration paid to Members, and with respect to allocations to the Members, and to pay over to any federal, state, local or foreign government any amounts required to be so withheld or paid pursuant to the Code or any provisions of any federal, state, local or foreign law, and shall allocate any such amounts to the Members with respect to which such amounts were withheld or paid.

Section 7.3 Expenses. Except as otherwise provided in this Agreement, the Company will be responsible for all third party expenses of the Company. Subject to Section 3.1(c), each Member shall otherwise be responsible for all costs and expenses incurred by such Member in the performance of its obligations under this Agreement.

ARTICLE VIII.

OTHER TAX MATTERS

Section 8.1 Tax Matters Member. The Company and each Member hereby designate Cerberus as the “tax matters partner” for purposes of Code Section 6231(a)(7)(the “Tax Matters Member”). The Tax Matters Member (after consultation with the Managing Member) shall: (a) cause to be prepared and timely filed by the Company all United States federal, state and local income tax returns of the Company for each year for which such returns are required to be filed, and (b) determine the appropriate treatment of each item of income, gain, loss, deduction and credit of the Company and the accounting methods and conventions under the tax laws of the United States, the several states and other relevant jurisdictions as to the treatment of any such item or any other method or procedure related to the preparation of such tax returns. Subject to the express provisions of this Agreement, Cerberus may in its reasonable discretion cause the Company to make or refrain from making any and all elections permitted by such tax laws, provided that the Tax Matters Member shall not make, or refrain from making any election reasonably requested by the Managing Member, that could reasonably be expected to disproportionately, materially and adversely affect Chatham or the Chatham REIT without Chatham’s prior written consent.

Section 8.2 Furnishing Information to Tax Matters Member. Each Member shall furnish to the Tax Matters Member such information (including information specified in Code Section 6230(e)) as such Tax Matters Member may, at its reasonable discretion, request to permit it to provide the Internal Revenue Service with sufficient information to allow proper

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notice to the Members in accordance with Code Section 6223 or any other provisions of the Code or the published regulations thereunder which require the Tax Matters Member to obtain information from the Members.

Section 8.3 Tax Claims and Proceedings. In respect of any income tax audit of any tax return of the Company, the filing of any amended return or claim for refund in connection with any item of income, gain, loss, deduction or credit reflected on any income tax return of the Company, or any administrative or judicial proceedings arising out of or in connection with any such audit, amended return, claim for refund or denial of such claim, (a) all expenses reasonably incurred by the Tax Matters Member in connection therewith shall be expenses of the Company, (b) the Tax Matters Member shall promptly deliver to each other Members a copy of all notices, communications, reports and writings received from the IRS relating to or potentially resulting in an adjustment of Company items, shall promptly advise each of the other Members of the substance of any conversations with the IRS in connection therewith and shall keep the other Members advised of all developments with respect to any proposed adjustments which come to its attention; (c) the Tax Matters Member shall (i) provide the other Members with a draft copy of any correspondence or filing to be submitted by the Company in connection with any administrative or judicial proceedings relating to the determination of Company items at the Company level reasonably in advance of such submission, (ii) incorporate all reasonable changes or comments to such correspondence or filing requested by the other Members and (iii) provide the other Members with a final copy of correspondence or filing, (d) the Tax Matter Member will provide each Member with notice reasonably in advance of any meetings or conferences with respect to any administrative or judicial proceedings relating to the determination of Company items at the Company level (including any meetings or conferences with counsel or advisors to the Company with respect to such proceedings) and each Member shall have the right to participate, at its sole cost and expense, in any such meetings or conferences. Notwithstanding anything in this Agreement to the contrary, the Tax Matters Member shall not enter into any settlement agreement that is binding upon the other Members with respect to the determination of Company items at the Company level without the prior written consent of the other Members. The Tax Matters Member shall use commercially reasonable efforts to provide tax returns to all Members within 60 days after the end of the relevant fiscal year if the Managing Member has provided the requisite information to the Tax Matters Member or the Company’s accountants reasonably in advance of such date.

Section 8.4 Books and Records. The books and records of the Company shall reflect all Company transactions and shall be appropriate and adequate for the Company’s business. The books and records of the Company shall include a record of each transfer of participating interests of the Company. The Fiscal Year of the Company for financial reporting and for federal income tax purposes shall be the calendar year. All books and records of the Company shall be maintained at any office of the Company or at the Company’s principal place of business in the United States, and each Member, and any duly authorized representative, shall have access to them at such office of the Company and the right to inspect and copy them at reasonable times. The Company’s books of account shall be kept on an accrual basis or as otherwise provided by the Managing Member and otherwise in accordance with generally accepted accounting principles, consistently applied, except that for income tax purposes such books shall be kept in accordance with applicable tax accounting principles (including the Regulations).

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Section 8.5 Survival. The provisions of this Article VIII shall survive the termination of the Company (as well as any termination, purchase or redemption of any Member’s Percentage Interest in the Company for any reason whatsoever), and shall remain binding on the Members and all former Members for a period of time necessary to resolve with the appropriate taxing authorities any and all material matters regarding the taxation of the Company and its Members by reason of their percentage interests.

ARTICLE IX.

REPRESENTATIONS AND WARRANTIES; COVENANTS

Section 9.1 Representations and Warranties of Members. Each of the Members hereby represents and warrants to the Company and to each of the other Members, as of the date hereof that:

(a) If it is a corporation, a limited liability company or limited partnership, it is duly incorporated or otherwise duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation or organization, and if it is a partnership, it is validly constituted and not dissolved, and, in each case, has the power and lawful authority to own its assets and properties and to carry on its business as now conducted.

(b) It has the full right, power and authority to enter into, execute and deliver this Agreement and to perform fully its obligations hereunder. This Agreement has been fully executed and delivered by such Member and, assuming the due execution and delivery by the other parties, constitutes the valid and binding obligation of such Member, enforceable in accordance with its terms, except as (i) such enforceability may be limited by bankruptcy, reorganization or moratorium or other similar laws affecting the enforcement of creditors’ rights generally and (ii) the availability of equitable remedies may be limited by equitable principles of general applicability.

(c) No approval or consent of any governmental authority or of any other Person is required in connection with the execution and delivery by it of this Agreement and the consummation and performance by such member of the transactions contemplated hereunder, except such as have been obtained and are in full force and effect.

(d) The execution and delivery of this Agreement by it, the consummation of the transactions contemplated hereunder and the performance by such Member of its obligations under this Agreement, in accordance with the terms and conditions hereof, will not conflict with or result in the breach or violation of any of the terms or conditions of, or constitute (or with notice or lapse of time or both would constitute) a default under, (i) the certificate of incorporation, by-laws, certificate of formation, limited liability company agreement or other constitutive documents of such Member; (ii) any instrument or contract to which such Member is a party or by or to which it or its assets or properties are

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bound or subject; or (iii) any statute or any regulation, order, judgment or decree of any governmental authority, except, in each case, for such breaches violations or defaults that would not, individually or in the aggregate, materially impair the ability of such Member to perform its obligations hereunder.

(e) It understands that there are substantial risks to an investment in the Company and it has both the sophistication to be able to fully evaluate the risk of an investment in the Company and the capacity to protect its own interests in making such investment. Such Member fully understands and agrees that the investment in the Company is an illiquid investment.

(f) It is a QIB or an “accredited investor” within the meaning of the 1933 Act and is able to bear the economic risk of such an investment in the Company for an indefinite period of time, that it has no need for liquidity of this investment and it could bear a complete loss of this investment. The Member is either (i) a “qualified purchaser” within the meaning of the 1940 Act or (ii) if the Member is an entity formed and is being utilized primarily for the purpose of making an investment in the Company, each beneficial owner of such Member’s securities is such a qualified purchaser.

(g) It is acquiring its percentage interests for investment solely for such Member’s own account and not for distribution, transfer or sale to others in connection with any distribution or public offering. It understands that, irrespective of whether or not the Percentage Interests might be deemed “securities” under applicable laws, the Company is not obligated to register any percentage interests for resale under the 1933 Act or any applicable state securities laws.

(h) It specifically understands and agrees that no other Member, has made nor will make any representation or warranty with respect to the worthiness, terms, value or any other aspect of the Company, any Percentage Interest or the Business or Properties and it explicitly disclaims any warranty, express or implied, with respect to such matters. In addition, such Member specifically acknowledges, represents and warrants that (i) it is not relying on any other Member for its own due diligence concerning, or evaluation of, the Company or any related transaction and (ii) that it is not relying on any other Member with respect to tax and other economic considerations involved in an investment in the Company.

(i) No broker, investment banker, financial advisor or other Person is entitled to any broker’s, finder’s, financial advisor’s or other similar fee or commission in connection with the Company based upon arrangements made by or on behalf of such Member.

(j) There are no actions, suits or proceedings pending, or to the knowledge of such Member threatened against such Member or its Affiliates which, if adversely determined, could materially adversely affect the ability of such Member or its Affiliates to perform its obligations under this Agreement or materially adversely affect the Percentage Interest of any other Member.

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Section 9.2 ERISA Representation. Each of the Members represents, warrants and covenants to each other Member and to the Company that no portion of the assets being used by it to purchase and hold its percentage interests constitute assets of a plan within the meaning of Section 3(32) of ERISA.

Section 9.3 AML/OFAC Compliance

(a) Each Member hereby represents and warrants to each other Members and to the Company, as of the date hereof, as follows:

(i) To the best of its knowledge, it is in compliance with all applicable anti-money laundering and anti-terrorist laws, regulations, rules, executive orders and government guidance, AML and the OFAC Sanctions Programs, including the reporting, record-keeping and compliance requirements of the Bank Secrecy Act, as amended by the USA PATRIOT Act (collectively, the “BSA/Patriot Act”), and all related applicable Securities and Exchange Commission, self-regulatory organization or other agency rules and regulations, and has internal policies, procedures, internal controls and systems in place that are reasonably designed to ensure such compliance (collectively “AML/OFAC Laws”);

(ii) Neither (1) such Member nor any nor any Affiliate of such Member, nor (2) to the best of such Member’s knowledge, after conducting reasonable due diligence, any Person having a direct or indirect beneficial interest in such Member, nor (3) any person for whom such Member is acting as agent or nominee in connection with this investment is prohibited pursuant to the OFAC Sanctions Programs;

(iii) Unless disclosed in writing to the other Members on or before the date hereof, (1) it is not a Senior Foreign Political Figure, or an Immediate Family Member or a Close Associate of a Senior Foreign Political Figure, (2) it is not controlled by a Senior Foreign Political Figure, or an Immediate Family Member or Close Associate of a Senior Foreign Political Figure, and (3) to the best of such Member’s knowledge, after conducting reasonable due diligence, none of the direct or indirect owners of such Member is a Senior Foreign Political Figure, or an Immediate Family Member or a Close Associate of a Senior Foreign Political Figure;

(iv) It is not a foreign financial institution or a Person located in a foreign jurisdiction that has been designated by the U.S. Department of the Treasury as being subject to any special measures imposed on such financial institutions and jurisdictions pursuant to Section 311 of the BSA/Patriot Act;

(v) It is not a “foreign shell bank” and it is not being used to provide services to a “foreign shell bank”, as that term is defined for purposes of Sections 313 and 319 of the BSA/Patriot Act;

(b) Each Member hereby covenants to the Company and the other Members as follows:

(i) Such Member will not engage in any activities that contravene federal state or international regulations, including all applicable AML/OFAC Laws;

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(ii) Such Member will ensure that the cash or other assets contributed to the Company by such Member will not be directly or indirectly derived from activities that contravene federal, state or international regulations, including applicable AML/OFAC Laws;

(iii) Such Member will not utilize any funds received by the Company for any purpose that contravenes federal, state or international regulations, including applicable AML/OFAC Laws;

(iv) All funds contributed to or received from the Company by such Member will be wired to or from a bank located in an Approved FATF Country (“Wiring Bank”) where such Member is a customer of the Wiring Bank;

(v) All transactions, negotiations, discussions and dealings by such Member in connection with the Company will be in full compliance with all applicable AML/OFAC Laws;

(vi) Upon receiving a request from the Company or another Member, such Member shall provide such information as may be reasonably required by the Company or such other Member to confirm that the representations, warranties and covenants contained in this Section 9.3(c) continue to be true and to comply with all applicable anti-money laundering and anti-terrorist laws, regulations and executive orders;

(vii) Such Member consents to the disclosure to United States regulators and law enforcement authorities by the Company or any other Member and its Affiliates of such information about such Member as the Company or such other Member or any of its Affiliates reasonably deems necessary or appropriate to comply with applicable anti-money laundering and anti-terrorist laws, regulations and executive orders;

(viii) As a condition to any Transfer of such Member’s direct or indirect interest in the Company, the Company and the other Members have the right to require full compliance with the representations, warranties and covenants contained in this Section 9.3;

(ix) Such Member will notify the Company and the other Members promptly if there is any change with respect to any of the representations or warranties (or any breach of a covenant) contained in this Section 9.3; and

(x) Such Member is a “United States person” for United States federal income tax purposes.

(c) Each Member hereby acknowledges and agrees that the Company and the other Members have relied on the truthfulness of (and compliance by such Member with) each and every provision of this Section 9.3, and that any breach of such representations, warranties or covenants, including, without limitation, one that causes a breach or violation of, or a failed condition under, any documents by which the Company is bound (such as loan documents), is likely to result in substantial loss for the Company and/or the other Members.

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(d) Each Member hereby acknowledges and agrees that if, following its investment in the Company, the Company or any other Member reasonably believes that such Member has breached any of its representations, warranties or covenants set forth in this Section 9.3, or that any action is otherwise required by law or regulation, the Company and the other Members have the right or may be obligated to freeze or block such Member’s investment in the Company, to prohibit additional investments by such Member in the Company, to segregate the assets constituting such Member’s investment in accordance with applicable AML/OFAC Laws and regulations, to decline any redemption or transfer requests made by or on behalf of such Member, to redeem such Member’s investment, and/or to report any such action to the applicable governmental authorities. Each Member further acknowledges and agrees that it will have no claim against the Company and/or any other Member or any of their respective Affiliates for any form of damages as a result of any of the foregoing actions.

Section 9.4 Survival. The representations and warranties of the Members contained in this Agreement shall survive the Closing Date.

ARTICLE X.

DISSOLUTION AND TERMINATION OF THE COMPANY

Section 10.1 Dissolution. The Company shall be dissolved and its business wound up upon the earliest to occur of any one of the following events, unless the Members vote to continue the life of the Company upon the occurrence of such an event:

(a) The written determination of Cerberus and Chatham to terminate the Company;

(b) Twenty-four (24) months after the sale, condemnation or other disposition of all Properties and the receipt of all consideration therefor; or

(c) The entry of a decree of judicial dissolution of the Company pursuant to the provisions of the Act.

Without limiting the generality of the foregoing, the permitted Transfer of a Member’s Interest will not result in the dissolution of the Company. Except as otherwise specifically provided in this Agreement, each Member agrees that, without the consent of the other Members, no Member may withdraw from, terminate or cause a voluntary dissolution of the Company, and, in the event that a Member withdraws from the Company or causes a dissolution of the Company in contravention of this Agreement, such withdrawal or dissolution shall not reduce or otherwise affect such Member’s continuing liability for the obligations and liabilities of the Company.

Section 10.2 Continuation of Interest of Member’s Representative. Notwithstanding anything contained herein, upon the expulsion, receivership, dissolution or Bankruptcy of a Member, the personal representative, trustee-in-bankruptcy, debtor-in-possession, receiver, other representative, successor, heir or legatee (each a “Representative”) of such Member shall, subject to the provisions of Section 5.1, immediately succeed to the Percentage Interest of such Member in the Company. Such Representative shall appoint an individual (which may be such Representative) who will represent the Representative’s voting interest, if any (the “Voting Representative”).

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Section 10.3 Dissolution, Winding Up and Liquidation.

(a) Upon a dissolution of the Company, the Company shall continue solely for purposes of winding up its affairs in an orderly manner, liquidating its assets, and satisfying claims of its creditors. The liquidator of the Company shall take full account of the Company’s liabilities and property and shall cause the property or the proceeds from the sale thereof, to the extent sufficient therefor, to be applied and distributed, to the maximum extent permitted by law, in the following order:

(i) first, to creditors (including Members who are creditors) in satisfaction of all of the Company’s debts and other liabilities, including the expenses of the winding-up, liquidation and dissolution of the Company (whether by payment or the making of reasonable reserves to provide for payment thereof); and

(ii) second, to the Members in accordance with Section 7.1.

(b) Distributions pursuant to this Section 10.3 shall be made no later than the end of the Fiscal Year during which the Company is liquidated (or, if later, 90 days after the date on which the Company is liquidated).

Section 10.4 Member Bankruptcy.

(a) Notwithstanding any other provision of this Agreement, the Bankruptcy of a Member shall not cause the Member to cease to be a member of the Company and upon the occurrence of such an event, the Company shall continue without dissolution.

(b) Notwithstanding any other provision of this Agreement, each of the Members waives any right it might have to agree in writing to dissolve the Company upon the Bankruptcy of the Members, or the occurrence of an event that causes the Member to cease to be a member of the Company.

ARTICLE XI.

INDEMNIFICATION AND CONTRIBUTION

Section 11.1 Indemnity by the Company. Subject to the provisions of Section 11.4, the Company shall indemnify any Person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative by reason of the fact that such Person is or was a Member, Officer, director, Managing Member, Hotel Manager, controlling person, employee, legal representative or agent of the Company, or is or was serving at the request of the Company as manager, director, Managing Member, Hotel Manager, officer, partner, member, shareholder, controlling person, employee, legal representative or agent of another limited liability company, partnership, corporation, joint venture, trust or other enterprise (an “Indemnified Person”), from

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and against any and all claims, actions, suits, proceedings, liabilities, obligations, losses, damages, judgments, fines, penalties, amounts paid in settlement, interest, costs and expenses (including reasonable attorney’s and accountant’s fees, court costs and other out-of-pocket expenses actually and reasonably incurred in investigating, preparing or defending the foregoing) (including any such brought by or in the right of the Company) suffered or incurred by such Indemnified Person while serving in such capacity or that otherwise in any way relate to or arise out of any action or inaction by such Indemnified Person or the Company (collectively, “Indemnifiable Losses”), if such Indemnified Person acted in good faith and in a manner that such Indemnified Person reasonably believed to be in or not opposed to the best interests of the Company and not in violation of this Agreement or outside the scope of such Person’s authority, and, with respect to a criminal action or proceeding, had no reasonable cause to believe such Person’s conduct was unlawful; provided, that the Company shall have no obligation to indemnify or defend hereunder to the extent such action, suit or proceeding arises from fraud, bad faith, willful misconduct or gross negligence on the part of such Indemnified Person.

Section 11.2 Exculpation. No Indemnified Person shall be liable to any Member of the Company for any act or failure to act on behalf of the Company, unless such act or failure to act resulted from fraud, bad faith, willful misconduct or gross negligence of the Indemnified Person. Each Indemnified Person may consult with legal counsel and accountants in respect of the Company’s affairs and shall be fully protected and justified in any action or inaction which is taken in accordance with the advice or opinion of such counsel or accountants.

Section 11.3 Expenses. Any indemnification under Section 11.1, as well as the advance payment of expenses permitted under Section 11.4 shall be made by the Company to the fullest extent permitted under the Act.

Section 11.4 Advance Payment of Expenses. The expenses of any Member incurred in defending a civil or criminal action, suit or proceeding may be paid by the Company as they are incurred and in advance of the final disposition of the action, suit or proceeding, upon receipt of an undertaking by or on behalf of such Member (in form and substance, from an indemnitor, reasonably satisfactory to all of the Initial Members), to repay the amount if it is ultimately determined by a court of competent jurisdiction that such Member is not entitled to be indemnified by the Company. The provisions of this Section 11.4 do not affect and shall not be deemed exclusive of any other rights, including, without, limitation, any rights to indemnification or advancement of expenses to which any such Indemnified Person other than the Members may be entitled under any contract, pursuant to approval of the Members, or otherwise by law.

Section 11.5 Beneficiaries. The indemnification and advancement of expenses authorized in or ordered by a court pursuant to this Article XI continues for a Person who has ceased to be a Member, officer, employee or agent and inures to the benefit of the heirs, executors and administrators of such Person.

Section 11.6 Indemnification Procedure for Third Party and Other Claims. The Company shall have the right, but not the obligation, exercisable by written notice to the Indemnified Person seeking such indemnification hereunder promptly but in any event no later than 30 days after receipt of written notice from the Indemnified Person of the commencement

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of or assertion of any claim, action, suit or proceeding by a third party in respect of which indemnity may be sought hereunder (a “Third Party Claim”), to assume the defense and control the settlement of such Third Party Claim that (a) involves (and continues to involve) solely money damages or (b) involves (and continues to involve) claims for both money damages and equitable relief against the Indemnified Party that cannot be severed, where the claims for money damages are the primary claims asserted by the third party and the claims for equitable relief are incidental to the claims for money damages. The Indemnified Person shall have the right to assume the defense and control the settlement of any Third Party Claim (i) not described in clauses (a) or (b) of the preceding sentence or (ii) described in clauses (a) or (b) of the preceding sentence whose defense and control of settlement has not been promptly assumed by the Company. The Company or the Indemnified Person, as the case may be, shall have the right to participate in (but not control), at its own expense, the defense of any Third Party Claim that the other is defending, as provided in this Agreement. The Company, if it has assumed the defense of any Third Party Claim as provided in this Agreement, shall not consent to a settlement of, or the entry of any judgment arising from, any such Third Party Claim without the Indemnified Person’s prior written consent (which consent shall not be unreasonably withheld). The Company shall not, without the Indemnified Person’s prior written consent, enter into any compromise or settlement which (A) commits the Indemnified Person to take, or to forbear to take, any action or (B) does not provide for a complete release by such Third Party of the Indemnified Person. The Indemnified Person shall have the sole and exclusive right to settle any Third Party Claim, on such terms and conditions as it deems reasonably appropriate, to the extent such Third Party Claim involves equitable or other non-monetary relief against the Indemnified Person, and shall have the right to settle any Third Party Claim involving money damages for which the Company has not assumed the defense pursuant to this Section 11.6 with the written consent of the Indemnifying Party, which consent shall not be unreasonably withheld or delayed.

Section 11.7 Other Claims. In the event an Indemnified Person shall claim a right to payment pursuant to this Agreement for other than a Third Party Claim, such Indemnified Person shall send written notice of such claim to the Indemnifying Party. Such notice shall specify the basis for such claim. As promptly as possible after the Indemnified Person has given such notice, the Indemnified Person and the Company shall attempt to resolve such claim by mutual agreement before resorting to other legal means to resolve such claim.

Section 11.8 Limitation on Damages. Notwithstanding anything contained in this Agreement to the contrary, no party shall be liable to the other party for any indirect, special, punitive, exemplary or consequential loss or damage (including any loss of revenue or profit) arising out of this Agreement including, without limitation, in respect of any breach by any Member of this Agreement; provided, that the foregoing shall not be construed to preclude recovery by the Indemnified Person in respect of Indemnifiable Losses directly incurred from Third Party Claims. Any Indemnified Person shall take commercially reasonable actions to mitigate his, her, its or their damages. The obligation of the Company to indemnify any Indemnified Person with respect to any Indemnifiable Losses hereunder resulting from any action, suit or proceeding shall not exceed the value of the Business and the Properties.

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ARTICLE XII.

MISCELLANEOUS PROVISIONS

Section 12.1 Entire Agreement. This Agreement, the Ink I LLC Agreement, the Ink III LLC Agreement, the Ink IV LLC Agreement, the Ink V LLC Agreement, the Ink VI LLC Agreement, the Ink VII LLC Agreement, and the Certificate of Formation constitute the complete and exclusive statement of the agreement among the Members with respect to the subject matter contained herein and therein. This Agreement, the Ink I LLC Agreement, the Ink III LLC Agreement, the Ink IV LLC Agreement, the Ink V LLC Agreement, the Ink VI LLC Agreement, the Ink VII LLC Agreement, and the Certificate of Formation replace and supersede all prior agreements by and among the Members with respect to the subject matter contained herein and therein.

Section 12.2 Amendments. This Agreement may be amended only by the unanimous written consent of the Initial Members.

Section 12.3 Applicable Law; Venue.

(a) The Certificate of Formation and this Agreement shall be governed exclusively by their respective terms and the laws of the State of Delaware, without regard to the conflicts of laws principles thereof.

(b) Any legal action or proceeding with respect to this Agreement and any action for enforcement of any judgment in respect thereof may be brought in the courts of the State of New York or of the United States of America for the Southern District of New York, and, by execution and delivery of this Agreement, each Member hereby accepts for itself and in respect of its property, generally and unconditionally, the non-exclusive jurisdiction of the aforesaid courts and the appellate courts thereof. Each Member irrevocably consents to the service of process out of any of the aforementioned courts in any such action or proceeding by the mailing of copies thereof by registered or certified mail, postage prepaid, to such party at the address for notices set forth herein. Each Member hereby irrevocably waives any objection which it may now or hereafter have to the laying of venue of any of the aforesaid actions or proceedings arising out of or in connection with this Agreement brought in the courts referred to above and hereby further irrevocably waives and agrees not to plead or claim in any such court that any such action or proceeding brought in any such court has been brought in an inconvenient forum.

Section 12.4 Enforcement. In the event of an action, suit or proceeding initiated by one Member against another Member or the Company involving the enforcement of its rights hereunder, the prevailing party shall be entitled to indemnification from the other party of reasonable attorneys’ fees and expenses incurred in enforcing its rights in such action, suit or proceeding in accordance with this Section.

Section 12.5 Headings. The headings in this Agreement are inserted for convenience only and are in no way intended to describe, interpret, define, or limit the scope, extent or intent of this Agreement or any provisions contained herein.

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Section 12.6 Severability. If any provision of this Agreement or the application thereof to any Person or circumstance shall be deemed invalid, illegal or unenforceable to any extent, the remainder of this Agreement and the application thereof shall not be affected and shall be enforceable to the fullest extent permitted by law.

Section 12.7 Counterparts. This Agreement may be executed in several counterparts with the same effect as if the parties executing the several counterparts had all executed one counterpart.

Section 12.8 Filings. Following the execution and delivery of this Agreement, representatives of the Company, shall promptly prepare any documents required to be filed and recorded under the Act, and such representatives shall promptly cause each such document to be filed and recorded in accordance with the Act and, to the extent required by local law, to be filed and recorded or notice thereof to be published in the appropriate place in each jurisdiction in which the Company may hereafter establish a place of business. Such representatives, under shall also promptly cause to be filed, recorded and published such statements of fictitious business name and any other notices, certificates, statements or other instruments required by any provision of any applicable law of the United States or any state or other jurisdiction which governs the conduct of its business from time to time.

Section 12.9 Additional Documents. Each Member agrees to perform all further acts and to execute, acknowledge and deliver any documents that may be reasonably necessary to carry out the provisions of this Agreement.

Section 12.10 Notices. All notices, requests and other communications to any party hereunder shall be in writing (including facsimile) and shall be effective and deemed delivered or given, as the case may be, (a) if given by facsimile, when transmitted and the appropriate confirmation is received from the machine transmitting such facsimile, and followed by hard copy via overnight mail or reputable overnight courier for receipt the next Business Day, (b) if given by reputable overnight courier, on the next Business Day, (c) by hand delivery, when delivered or (d) if mailed, on the second Business following the day on which sent by first class mail:

If to Cerberus, addressed as follows:

c/o Cerberus Real Estate Capital Management, LLC

299 Park Avenue, 22^nd Floor

New York, NY 10022

Attention: Tom Wagner

Facsimile number: (646) 885-3391

With a copy to:

Schulte Roth & Zabel LLP

919 Third Avenue

New York, New York 10022

Attention: Stuart D. Freedman, Esq.

Facsimile number: (212) 593-5955

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If to Chatham, addressed as follows:

c/o Chatham Realty Trust

50 Cocoanut Row, Suite 200

Palm Beach, FL 33480

Attention: Jeffrey Fisher

Facsimile number: (561) 835-4125

With a copy to:

Wachtell, Lipton, Rosen & Katz

51 West 52^nd Street

New York, NY 10019

Attention: Scott K. Charles, Esq.

                 Robin Panovka, Esq.

Facsimile number: (212) 403-2000

If to any other Member, at the addresses or facsimile numbers set forth on the signature page to this Agreement or such other addresses or facsimile numbers as such Member may hereafter specify to the Managing Member, who shall so notify the other Members.

Section 12.11 Waiver of Right to Partition and Bill of Accounting. To the fullest extent permitted by applicable law, each Member covenants that it will not, and hereby waives any right to, file a bill for partnership accounting. Each Member irrevocably waives any right that it may have to maintain any action for dissolution of the Company (unless the Company is dissolved pursuant to Section 10.1).

Section 12.12 Confidentiality; Press Releases. Each Member shall keep confidential all information of a confidential nature obtained pursuant to this Agreement, except that a Member shall be entitled to disclose such confidential information to (a) its advisors, agents, employees, trustees, lenders, franchisors, consultants, lawyers, accountants and other service providers as reasonably necessary in the furtherance of such Member’s bona fide interests, as otherwise required by law or judicial process and to comply with reporting requirements, and to potential transferees of its percentage interests provided that such potential transferees enter into customary confidentiality agreements, with the Company expressly stated therein to be a third party beneficiary thereof, (b) its investors provided that such investors are subject to confidentiality obligations, and (c) the extent required to comply with applicable reporting requirements under the Federal securities laws. Notwithstanding anything in this Agreement to the contrary, to comply with Regulations 1.6011-4(b)(3)(i), each Member (and any employee, representative or other agent of such Member) may disclose to any and all persons, without limitation of any kind, the U.S. federal income tax treatment and tax structure of the Company or any transactions undertaken by the Company, it being understood and agreed, for this purpose, (a) the name of, or any other identifying information regarding (i) the Company or any existing or future Member (or any affiliate thereof) in the Company, or (ii) any investment or transaction entered into by the Company; and (b) any performance information relating to the Company, does not constitute such tax treatment or tax structure information. No Member shall publicly make any public announcements regarding this Agreement or the Company or its

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business; provided, however, each Initial Member may consult with and obtain the approval of the other Initial Members before issuing a press release or other public announcement with respect to this Agreement and may issue a press release or make a public announcement following such consultation and approval.

Section 12.13 Uniform Commercial Code. Each limited liability company interest in the Company shall constitute a “security” within the meaning of, and governed by, (i) Article 8 of the Uniform Commercial Code (including Section 8 102(a)(15) thereof) as in effect from time to time in the State of Delaware, and (ii) the Uniform Commercial Code of any other applicable jurisdiction that now or hereafter substantially includes the 1994 revisions to Article 8 thereof as adopted by the American Law Institute and the National Conference of Commissioners on Uniform State Laws and approved by the American Bar Association on February 14, 1995.

Section 12.14 Binding Agreement. Notwithstanding any other provision of this Agreement, the Members agree that this Agreement constitutes a legal, valid and binding agreement of the Members, and is enforceable against the Members by the Company in accordance with its terms.

Section 12.15 Waiver. No failure by any party to insist upon the strict performance of any covenant, duty, agreement or condition of this Agreement or to exercise any right or remedy consequent upon a breach thereof shall constitute waiver of any such breach or any other covenant, duty, agreement or condition.

Section 12.16 DISCLOSURES. THE INTERESTS OFFERED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “1933 ACT”), OR THE SECURITIES LAWS OF ANY STATE AND ARE BEING OFFERED AND SOLD IN RELIANCE ON EXEMPTIONS FROM THE REGISTRATION REQUIREMENTS OF THE 1933 ACT AND SUCH LAWS. THE INTERESTS ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE 1933 ACT AND SUCH LAWS PURSUANT TO EXEMPTION FROM REGISTRATION THEREUNDER. THERE WILL NOT BE ANY PUBLIC MARKET FOR THE INTERESTS. IN ADDITION, THE TERMS OF THIS AGREEMENT RESTRICT THE TRANSFERABILITY OF INTERESTS.

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IN WITNESS WHEREOF, the parties hereto have executed this Agreement, effective as of the date first above written.

MEMBERS:
CRE-INK MEMBER II INC.
By:
	Name:
	Title:
CHATHAM TRS HOLDING INC.
By:
	Name:
	Title:

SCHEDULE A

MEMBERS

MEMBER’S NAME	INITIAL CAPITAL CONTRIBUTION AMOUNT		PERCENTAGE INTEREST
CRE-Ink Member II, Inc.	$	[    ]		89.7	%
Chatham TRS Holding Inc.	$	[    ]		10.3	%
TOTAL	$	[    ]		100.0	%

EXHIBIT A

Hotel Management Agreement

[On file with the Company]

EXHIBIT B

The Amended Bid

[On file with the Company]

EXHIBIT C

Contribution Agreement

[See attached]

EXHIBIT D

Operating Budget

[See attached]

ANNEX A

Properties

Marriott Properties

Fort Wayne, IN Residence Inn by Marriott

Hilton Properties

Albany, NY Hampton Inn by Hilton

Germantown, MD Hampton Inn by Hilton

Valencia, CA Embassy Suites by Hilton

Westchester, IL Hampton Inn by Hilton

Woburn, MA Hampton Inn by Hilton

Unaffiliated Properties

107 Merrimac Street, Boston, MA 02114

1600 East Grand River Avenue, East Lansing, MI 48823

2701 East Beltline Avenue SE, Grand Rapids, MI 49546

3553 Founders Road, Indianapolis, IN 46268

222 East 22nd Street, Lombard, IL 60148

1300 E. Higgins Road, Schaumburg, IL 60173

2600 Livernois Road, Troy, MI 48083

EX-21.1

EXHIBIT 21.1

List of Subsidiaries of Chatham Lodging Trust

	Name	State of Incorporation of Organization
1.	Chatham Lodging L.P.	Delaware
2.	Chatham TRS Holding, Inc.	Florida
3.	Chatham TRS Holding II, Inc.	Delaware
4.	Chatham Leaseco I, LLC	Florida
5.	Chatham Maitland HS LLC	Delaware
6.	Chatham Billerica HS LLC	Delaware
7.	Chatham Bloomington HS LLC	Delaware
8.	Chatham Brentwood HS LLC	Delaware
9.	Chatham Dallas HS LLC	Delaware
10.	Chatham Farmington HS LLC	Delaware
11.	Chatham Houston HAS LLC	Delaware
12.	Chatham Houston HAS Leaseco LLC	Delaware
13.	Chatham Holtsville RI LLC	Delaware
14.	Chatham Holtsville RI Leaseco LLC	Delaware
15.	Chatham Holtsville RI Utility LLC	Delaware
16.	Chatham Altoona CY LLC	Delaware
17.	Chatham Altoona CY Leaseco LLC	Delaware
18.	Chatham Wash PA SHS LLC	Delaware
19.	Chatham Wash PA SHS Leaseco LLC	Delaware
20.	Chatham White Plains RI LLC	Delaware
21.	Chatham White Plains RI Leaseco LLC	Delaware
22.	Chatham New Rochelle RI LLC	Delaware
23.	Chatham New Rochelle RI Leaseco LLC	Delaware
24.	Chatham Carlsbad HS LLC	Delaware
25.	Chatham Carlsbad HS Leaseco LLC	Delaware
26.	Chatham RIGG LLC	Delaware
27.	Chatham RIGG Leaseco LLC	Delaware
28.	Chatham RIMV LLC	Delaware
29.	Chatham RIMV Leaseco LLC	Delaware
30.	Chatham San Antonio LLC	Delaware
31.	Chatham San Antonio Leaseco LLC	Delaware
32.	Chatham Washington DC LLC	Delaware
33.	Chatham Washington DC Leaseco LLC	Delaware
34.	Chatham Tysons RI LLC	Delaware
35.	Chatham Tysons RI Leaseco LLC	Delaware

EX-23.1

Exhibit 23.1

CONSENT OF INDEPENDENT REGISTERED CERTIFIED PUBLIC ACCOUNTING FIRM

We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (No. 333-162889) and Form S-3 (No. 333-179224) of Chatham Lodging Trust of our report dated March 8, 2012 relating to the financial statements, financial statement schedule and the effectiveness of internal control over financial reporting, which appears in this Form 10-K.

/s/ PricewaterhouseCoopers LLP

Fort Lauderdale, Florida
March 8, 2012

EX-31.1

EXHIBIT 31.1

Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Jeffrey H. Fisher, certify that:

1. I have reviewed this annual report on Form 10-K of Chatham Lodging Trust;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the period presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures, and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on such evaluation; and

d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of trustees (or persons performing the equivalent functions):

a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

	CHATHAM LODGING TRUST
Dated: March 9, 2012	/s/ JEFFREY H. FISHER
	Jeffrey H. Fisher
	Chairman, President and Chief Executive Officer

EX-31.2

EXHIBIT 31.2

Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Dennis M. Craven, certify that:

1. I have reviewed this annual report on Form 10-K of Chatham Lodging Trust;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the period presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures, and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on such evaluation; and

d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of trustees (or persons performing the equivalent functions):

a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

	CHATHAM LODGING TRUST
Dated: March 9, 2012	/s/ DENNIS M. CRAVEN
	Dennis M. Craven
	Executive Vice President and Chief Financial Officer

EX-32.1

EXHIBIT 32.1

Certification Pursuant To

18 U.S.C. Section 1350,

as Adopted Pursuant to

Section 906 of the Sarbanes-Oxley Act of 2002

In connection with the Report of Chatham Lodging Trust (the “Company”) on Form 10-K for the year ended December 31, 2011 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Jeffrey H. Fisher, Chairman, President and Chief Executive Officer of the Company and I, Dennis M. Craven, Executive Vice President and Chief Financial Officer of the Company, certify, to our knowledge, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

	CHATHAM LODGING TRUST
Dated: March 9, 2012	/s/ JEFFREY H. FISHER
	Jeffrey H. Fisher
	Chairman, President and Chief Executive Officer

/s/ DENNIS M. CRAVEN

Dennis M. Craven

Executive Vice President and Chief Financial Officer

A signed original of this statement has been provided to Chatham Lodging Trust and will be retained by Chatham Lodging Trust and furnished to the Securities and Exchange Commission or its staff upon request.

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Real Estate and Accumulated Depreciation

12 Months Ended

Dec. 31, 2011

Real Estate and Accumulated Depreciation [Abstract]

Real Estate and Accumulated Depreciation

CHATHAM LODGING TRUST

SCHEDULE III—REAL ESTATE AND ACCUMULATED DEPRECIATION

December 31, 2011

(in thousands)

						Initial Cost								Gross Amount at End of Year
Description	Year of Acquisition		Encumbrances			Land		Buildings & Improvements		Cost Cap. Sub To Acq. Land.		Cost Cap. Sub. To Acq. Bldg & Improvements		Land		Buildings & Improvements		Total		Bldg & Improvements		Accumulated Depreciation		Year of Original Construction		Depreciation Life
Homewood Suites Orlando—Maitland, FL		2010		(1	)		1,800		7,200		34		658		1,834		7,858		9,692		7,858		315		2000		40 Years
Homewood Suites Boston—Billerica, MA		2010		(1	)		1,470		10,555		36		858		1,506		11,413		12,919		11,413		498		1999		40 Years
Homewood Suites Minneapolis—Mall of America, Bloomington,		2010		(1	)		3,500		13,960		19		864		3,519		14,824		18,343		14,824		641		1998		40 Years
Homewood Suites Nashville—Brentwood, TN		2010		(1	)		1,525		9,300		12		687		1,537		9,987		11,524		9,987		433		1998		40 Years
Homewood Suites Dallas—Market Center, Dallas, TX		2010		(1	)		2,500		7,583		17		867		2,517		8,450		10,967		8,450		369		1998		40 Years
Homewood Suites Hartford—Farmington, CT		2010		(1	)		1,325		9,375		92		798		1,417		10,173		11,590		10,173		445		1999		40 Years
Hampton Inn & Suites Houston—Houston, TX		2010		(1	)		3,200		12,709		—		20		3,200		12,729		15,929		12,729		479		1997		40 Years
Residence Inn Holtsville—Holtsville, NY		2010		(1	)		2,200		18,765		—		65		2,200		18,830		21,030		18,830		672		2004		40 Years
Courtyard Altoona—Altoona, PA		2010		6,753			—		10,730		—		26		—		10,756		10,756		10,756		367		2001		40 Years
SpringHill Suites Washington—Washington, PA		2010		5,260			1,000		10,692		—		23		1,000		10,715		11,715		10,715		366		2000		40 Years
Residence Inn White Plains—White Plains, NY		2010		(1	)		2,200		17,677		—		14		2,200		17,691		19,891		17,691		563		1982		40 Years
Residence Inn New Rochelle—New Rochelle, NY		2010		15,731			—		20,281		—		273		—		20,554		20,554		20,554		680		2000		40 Years
Homewood Suites Carlsbad—Carlsbad, CA		2010		(1	)		3,900		27,520		—		—		3,900		27,520		31,420		27,520		799		2008		40 Years
Residence Inn Garden Grove—Garden Grove, CA		2011		32,417			7,432		35,484				6		7,432		35,490		42,922		35,490		416		2003		40 Years
Residence Inn Mission Valley—San Diego, CA		2011		39,986			9,876		39,535				55		9,876		39,590		49,466		39,590		463		2003		40 Years
Homewood Suites San Antonio—San Antonio, TX		2011		18,380			6,059		24,764		2		14		6,061		24,778		30,839		24,778		290		1996		40 Years
Doubletree Suites Washington DC—Washington, DC		2011		19,960			6,044		22,063				53		6,044		22,116		28,160		22,116		259		1974		40 Years
Residence Inn Tyson’s Corner—Vienna, VA		2011		22,953			5,821		28,917				8		5,821		28,925		34,746		28,925		339		2001		40 Years
Grand Total(s)							59,852		327,110		212		5,289		60,064		332,399		392,463		332,399		8,394

(1) This property is pledged as collateral to borrowings made under the revolving credit facility obtained on October 12, 2010, which had outstanding borrowings of $67,500 as of December 31, 2011.

Notes:

(a) The change in total cost of real estate assets for the year ended is as follows:

	2011		2010
Balance at the beginning of the year	$	200,974	$	—
Acquisitions		185,995		200,967
Dispositions during the year		—		—
Capital expenditures and transfers from construction-in-progress		5,494		7
Investment in Real Estate	$	392,463	$	200,974

(b) The change in accumulated depreciation and amortization of real estate assets for the year ended is as follows:

Balance at the beginning of the year	$	1,901	$	—
Depreciation and amortization		6,493		1,901
Balance at the end of the year	$	8,394	$	1,901

(c) The aggregate cost of properties for federal income tax purpose (in thousands) is approximately $402,509 as of December 31, 2011.

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Organization

12 Months Ended

Dec. 31, 2011

Organization [Abstract]

Organization

1. Organization

Chatham Lodging Trust (“we,” “us” or the “Company”) was formed as a Maryland real estate investment trust (“REIT”) on October 26, 2009. The Company is internally-managed and was organized to invest primarily in premium-branded upscale extended-stay and select-service hotels.

The Company completed its initial public offering (the “IPO”) on April 21, 2010. The IPO resulted in the sale of 8,625,000 common shares at $20.00 per share, generating $172.5 million in gross proceeds. Net proceeds, after underwriters’ discounts and commissions and other offering costs, were approximately $158.7 million. Concurrently with the closing of the IPO, in a separate private placement pursuant to Regulation D under the Securities Act of 1933, as amended (the “Securities Act”), the Company sold 500,000 of its common shares to Jeffrey H. Fisher, Chairman, President and Chief Executive Officer, at the public offering price of $20.00 per share, for proceeds of $10.0 million.

The company utilized the proceeds to acquire the following thirteen properties in 2010:

Property	Location	Management Company	Date of Acquisition	Debt		Purchase Price
Homewood Suites by Hilton Boston-Billerica/ Bedford/ Burlington	Billerica, Massachusetts	Hilton	April 23, 2010		—		$12.5 million
Homewood Suites by Hilton Minneapolis-Mall of America	Bloomington, Minnesota	Hilton	April 23, 2010		—	$	18.0 million
Homewood Suites by Hilton Nashville-Brentwood	Brentwood, Tennessee	Hilton	April 23, 2010		—	$	11.3 million
Homewood Suites by Hilton Dallas-Market Center	Dallas, Texas	Hilton	April 23, 2010		—	$	10.7 million
Homewood Suites by Hilton Hartford-Farmington	Farmington, Connecticut	Hilton	April 23, 2010		—	$	11.5 million
Homewood Suites by Hilton Orlando-Maitland	Maitland, Florida	Hilton	April 23, 2010		—	$	9.5 million
Homewood Suites by Hilton Carlsbad (North San Diego County)	Carlsbad, California	Island Hospitality	November 3, 2010		—	$	32.0 million
Hampton Inn & Suites Houston-Medical Center	Houston, Texas	Island Hospitality	July 2, 2010		—	$	16.5 million
Courtyard Altoona	Altoona, Pennsylvania	Concord	August 24, 2010	$	7.0 million	$	11.3 million
Springhill Suites Washington	Washington, Pennsylvania	Concord	August 24, 2010	$	5.4 million	$	12.0 million
Residence Inn Long Island Holtsville	Holtsville, New York	Island Hospitality	August 3, 2010		—	$	21.3 million
Residence Inn White Plains	White Plains, New York	Island Hospitality	September 23, 2010		—	$	21.2 million
Residence Inn New Rochelle	New Rochelle, New York	Island Hospitality	October 5, 2010		—	$	21.0 million
Total					$12.4 million	$	208.8 million

The Company allocated the following total purchase price allocation to those thirteen properties acquired in 2010:

	Total
Land	$	24,620
Building and improvements		176,349
Furniture, fixtures and equipment		6,038
Cash		48
Restricted cash		2,642
Accounts receivable		555
Prepaid expenses and other assets		659
Debt		(12,434	)
Accounts payable and accrued expenses		(904	)
Net assets acquired	$	197,573
Net assets acquired, net of cash	$	197,525

On February 8, 2011, the Company completed a follow-on common share offering generating gross proceeds of $73.6 million and net proceeds of approximately $69.4 million, adding capital to the Company’s balance sheet. Using these funds as well as borrowing capacity on our secured revolving credit facility, on July 14, 2011, the Company acquired five hotels for an aggregate purchase price of $195 million, including the assumption of five individual mortgage loans secured by the hotels totaling $134.2 million. Additionally, the Company invested $37.0 million for an approximate 10.3% interest in the JV with Cerberus Capital Management ( “Cerberus”) that acquired 64 hotels from Innkeepers USA Trust (“Innkeepers”) on October 27, 2011. The Company accounts for this investment under the equity method.

The Company had no operations prior to the consummation of the IPO. Following the closing of the IPO, the Company contributed the net proceeds from the IPO and the concurrent private placement, as well as the proceeds of our February 2011 offering, to Chatham Lodging, L.P. (the “Operating Partnership”) in exchange for partnership interests in the Operating Partnership. Substantially all of our assets are held by, and all of the Company’s operations are conducted through, the Operating Partnership. Chatham Lodging Trust is the sole general partner of the Operating Partnership and owns 100% of the common units of limited partnership interest in the Operating Partnership. Certain of our executive officers hold vested and unvested long-term incentive plan units in the Operating Partnership, which are presented as noncontrolling interests on our consolidated balance sheets.

As of December 31, 2011, the Company owned 18 hotels with an aggregate of 2,414 rooms located in 10 states and the District of Columbia and held a minority interest in the JV, which owns 64 hotels comprising an aggregate of 8,329 rooms. To qualify as a REIT, the Company cannot operate the hotels. Therefore, the Operating Partnership and its subsidiaries lease our wholly owned hotels to taxable REIT subsidiary lessees (“TRS Lessees”), which are wholly owned by one of our taxable REIT subsidiary (“TRS”) holding companies. We indirectly own our interest in 51 of the 64 JV hotels through the Operating Partnership, and we own our interest in the remaining 13 JV hotels through one of our TRS holding companies. All of the JV hotels are leased to TRS Lessees in which we indirectly own a 10.3% minority interests through one of our TRS holding companies. Each hotel is leased to a TRS Lessee under a percentage lease that provides for rental payments equal to the greater of (i) a fixed base rent amount or (ii) a percentage rent based on hotel room revenue. The initial term of each of the TRS leases is five years. Lease revenue from each TRS Lessee is eliminated in consolidation. The TRS Lessees have entered into management agreements with third party management companies that provide day-to-day management for the hotels. Island Hospitality Management Inc. (“IHM”), which is 90% owned by Mr. Fisher, manages 10 of our wholly owned hotels; Homewood Suites Management LLC, a subsidiary of Hilton Worldwide Inc. (“Hilton”) manages six of our wholly owned hotels; and Concord Hospitality Enterprises Company manages two of our wholly owned hotels. All but one of the JV hotels are managed by IHM. One JV hotel is managed by Dimension Development Company.

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Consolidated Statements of Cash Flows (Parenthetical) (USD $) In Thousands, except Share data, unless otherwise specified	12 Months Ended
	Dec. 31, 2011	Dec. 31, 2010	Jan. 27, 2012	Jan. 11, 2011
Consolidated Statements of Cash Flows [Abstract]
Accrued distributions payable			$ 2,464
Shares issued pursuant to equity incentive plan				12,104
Accrued share based compensation	300	210
Mortgages assumed on purchases of hotels	$ 134,160	$ 12,434

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Consolidated Balance Sheets (USD $) In Thousands, unless otherwise specified	Dec. 31, 2011	Dec. 31, 2010
Assets:
Investment in hotel properties, net	$ 402,815	$ 208,080
Cash and cash equivalents	4,680	4,768
Restricted cash	5,299	3,018
Investment in unconsolidated real estate entities	36,003	0
Hotel receivables (net of allowance for doubtful accounts of approximately $17 and $15, respectively)	2,057	891
Deferred costs, net	6,350	4,710
Prepaid expenses and other assets	1,502	735
Total assets	458,706	222,202
Liabilities and Equity:
Debt	228,940	50,133
Accounts payable and accrued expenses	10,184	5,248
Distributions payable	2,464	1,657
Total liabilities	241,588	57,038
Commitments and contingencies
Shareholders' Equity:
Preferred shares, $0.01 par value, 100,000,000 shares authorized and unissued at December 31, 2011 and 2010
Common shares, $0.01 par value, 500,000,000 shares authorized; 13,820,854 and 13,819,939 shares issued and outstanding, respectively at December 31, 2011 and 9,208,750 shares issued and outstanding at December 31, 2010	137	91
Additional paid-in capital	239,173	169,089
Accumulated deficit	(23,220)	(4,441)
Total shareholders' equity	216,090	164,739
Noncontrolling Interests:
Noncontrolling Interest in Operating Partnership	1,028	425
Total equity	217,118	165,164
Total liabilities and equity	$ 458,706	$ 222,202

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Consolidated Statements of Equity (Parenthetical) (USD $)	12 Months Ended
	Dec. 31, 2011	Dec. 31, 2010
Issuance of shares, net of offering costs	$ 4,153,000	$ 13,752,000
Common shares, dividends	$ 0.70	$ 0.525
LTIP units, distributions	0.70	0.525
Common shares
Issuance of shares, net of offering costs	4,153,000	13,752,000
Additional Paid-In Capital
Issuance of shares, net of offering costs	4,153,000	13,752,000
Accumulated Deficit
Common shares, dividends	$ 0.70	$ 0.525
Total Shareholders' Equity
Issuance of shares, net of offering costs	4,153,000	13,752,000
Common shares, dividends	$ 0.70	$ 0.525
Noncontrolling Interest in Operating Partnership
LTIP units, distributions	$ 0.70	$ 0.525

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Related Party Transactions

12 Months Ended

Dec. 31, 2011

Related Party Transactions [Abstract]

Related Party Transactions

14. Related Party Transactions

The Company paid $3.2 million to reimburse Mr. Fisher for expenses he incurred in connection with the Company’s formation and the IPO, including $2.5 million he funded as earnest money deposits for the Company’s purchase of the six Homewood Suites hotels managed by Hilton. Mr. Fisher had also advanced $14 thousand to the Company which was reimbursed following the close of the IPO.

Mr. Fisher owns 90% of Island Hospitality Management, Inc. (“IHM”), a hotel management company. The Company has hotel management agreements with IHM to manage ten of its hotels in 2011 and 5 of its hotels in 2010. All but one of the 64 hotels acquired by the JV from Innkeepers will continue to be managed by IHM. Management and accounting fees paid by the Company to IHM for the years ended December 31, 2011 and 2010 were $1.3 million and $0.2 million, respectively. At December 31, 2011 and 2010 the amounts due to IHM were $0.3 and $0.07 million, respectively.

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Subsequent Events

12 Months Ended

Dec. 31, 2011

Subsequent Events [Abstract]

Subsequent Events

16. Subsequent Events

The joint venture between Chatham and Cerberus Capital Management LP, which owns 64 hotels with 8,329 rooms/suites, closed on a $130 million mortgage loan secured by 10 previously unencumbered hotels comprising 1,707 rooms. Eastdil Secured, L.L.C. arranged the $130 million first mortgage and mezzanine non-recourse financing with lenders Citibank, N.A., Wells Fargo Bank, National Association and an affiliate of Starwood Property Trust, Inc. The maturity of the facilities is three years with two one-year extension options and carries an all-in interest rate of 6.9 percent.

In addition to net proceeds from the financing, additional cash generated from operations was distributed to the partners, resulting in a distribution to Chatham of approximately $13.1 million, approximately $1 per share. The $13.1 million distribution represents 35 percent of the company’s initial $37 million investment. Chatham will use part of the distribution to pay down borrowings outstanding on its senior secured credit facility, reducing the outstanding balance to $62 million.

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Consolidated Statements of Cash Flows (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2011	Dec. 31, 2010
Cash flows from operating activities:
Net loss	$ (9,105)	$ (1,217)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation	11,908	2,537
Amortization of deferred franchise fees	63	27
Amortization of deferred fees included in interest expense	1,575	280
Share based compensation	1,571	1,157
Equity in loss from unconsolidated entities	997
Changes in assets and liabilities:
Hotel receivables	(1,022)	(336)
Deferred costs	(96)	(1,218)
Prepaid expenses and other assets	(633)	(76)
Accounts payable and accrued expenses	3,688	4,120
Net cash provided by operating activities	8,946	5,274
Cash flows from investing activities:
Improvements and additions to hotel properties	(12,721)	(3,610)
Acquisition of hotel properties, net of cash acquired	(61,981)	(197,525)
Investment in unconsolidated entities	(37,000)
Restricted cash	(821)	(376)
Net cash used in investing activities	(112,523)	(201,511)
Cash flows from financing activities:
Proceeds from the issuance of long-term debt	15,800
Borrowings on revolving credit facility	127,500	37,800
Repayments on revolving credit facility	(97,800)
Payments on debt	(853)	(101)
Payment of financing costs	(1,543)	(3,799)
Payment of offering costs	(4,153)	(13,752)
Proceeds from issuance of common shares	73,600	182,490
In-substance repurchase of vested common shares	(15)
Distributions-common shares/units	(9,047)	(1,657)
Net cash provided by financing activities	103,489	200,981
Net change in cash and cash equivalents	(88)	4,744
Cash and cash equivalents, beginning of period	4,768	24
Cash and cash equivalents, end of period	4,680	4,768
Supplemental disclosure of cash flow information:
Cash paid for interest	6,197	527
Cash paid for income taxes	$ 162	$ 27

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Consolidated Balance Sheets (Parenthetical) (USD $) In Thousands, except Share data, unless otherwise specified	Dec. 31, 2011	Dec. 31, 2010
Consolidated Balance Sheets [Abstract]
Hotel receivables, allowances for doubtful accounts	$ 17	$ 15
Preferred shares, par value	$ 0.01	$ 0.01
Preferred shares, shares authorized	100,000,000	100,000,000
Preferred shares, shares issued
Common shares, par value	$ 0.01	$ 0.01
Common shares, shares authorized	500,000,000	500,000,000
Common shares, shares issued	13,820,854	9,208,750
Common shares, shares outstanding	13,819,939	9,208,750

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Dividends Declared and Paid

12 Months Ended

Dec. 31, 2011

Dividends Declared and Paid and Shareholders' Equity [Abstract]

Dividends Declared and Paid

9. Dividends Declared and Paid

The Company declared common share dividends of $0.175 per share and distributions on LTIP units of $0.175 per unit for each of the four quarters of 2011. The dividends and distributions for the first quarter were paid on April 15, 2011 to common shareholders and LTIP unit holders of record on March 31, 2011. The dividends and distributions for the second quarter were paid on July 15, 2011 to common shareholders and LTIP unit holders of record on June 30, 2011. The dividends and distributions for the third quarter were paid on October 14, 2011 to common shareholders and LTIP unit holders of record on September 30, 2011. The dividends and distributions for the fourth quarter were paid on January 27, 2012 to common shareholders and LTIP unit holders of record on December 30, 2011. For the years ended December 31, 2011 and 2010, approximately 5.7% and 100% of the distributions paid to the stockholders were considered taxable income and approximately 94.3% and 0.0% were considered a return of capital for federal income tax purposes, respectively.

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Document and Entity Information (USD $)	12 Months Ended
	Dec. 31, 2011	Mar. 01, 2012	Jun. 30, 2011
Document and Entity Information [Abstract]
Entity Registrant Name	Chatham Lodging Trust
Entity Central Index Key	0001476045
Document Type	10-K
Document Period End Date	Dec. 31, 2011
Amendment Flag	false
Document Fiscal Year Focus	2011
Document Fiscal Period Focus	FY
Current Fiscal Year End Date	--12-31
Entity Well-known Seasoned Issuer	No
Entity Voluntary Filers	No
Entity Current Reporting Status	Yes
Entity Filer Category	Accelerated Filer
Entity Public Float			$ 222,639,217.29
Entity Common Stock, Shares Outstanding		13,847,531

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Shareholders' Equity

12 Months Ended

Dec. 31, 2011

Dividends Declared and Paid and Shareholders' Equity [Abstract]

Shareholders' Equity

10. Shareholders’ Equity

Common Shares

The Company is authorized to issue up to 500,000,000 common shares of beneficial interest (“common shares”), $.01 par value per share. Each outstanding common share entitles the holder to one vote on all matters submitted to a vote of shareholders. Holders of the Company’s common shares are entitled to receive dividends when authorized by our Board of Trustees.

The Company completed a public offering of 4,600,000 common shares at a $16.00 price per share generating $73.6 million in gross proceeds on February 8, 2011. Net proceeds were approximately $69.4 million after underwriters’ discounts and commissions and other offering costs paid to third parties. As of December 31, 2011, 13,819,939 common shares were outstanding.

During the year ended December 31, 2011, the Company withheld 915 common shares of beneficial interest that had vested to an executive in accordance with the Equity Incentive Plan, the shares were withheld at a value of $16.43 per share to meet the minimum statutory tax withholding requirements of the executive which were directly remitted by the Company to the appropriate taxing jurisdiction. The price per share is determined by using the closing price of the common shares the day before they are withheld.

Preferred Shares

The Company is authorized to issue up to 100,000,000 preferred shares, $.01 par value per share. No preferred shares were outstanding at December 31, 2011.

Operating Partnership Units

If and when issued, holders of common units in the Operating Partnership will have certain redemption rights, which will enable the unit holders to cause the Operating Partnership to redeem their units in exchange for, at the Company’s option, cash per unit equal to the market price of the Company’s common shares at the time of redemption or for the Company’s common shares on a one-for-one basis. The number of shares issuable upon exercise of the redemption rights will be adjusted upon the occurrence of share splits, mergers, consolidations or similar pro-rata share transactions, which otherwise would have the effect of diluting the ownership interests of limited partners or shareholders. As of December 31, 2011 and 2010, there were no Operating Partnership common units held by unaffiliated third parties. At December 31, 2011 and 2010, an aggregate of 257,775 LTIP Units, a special class of operating partnership units, were held by executive officers. The LTIP Units receive per unit distributions equal to the per share distribution paid on common shares.

The Company contributed the net proceeds from the February 8, 2011 common share offering to the Operating Partnership in exchange for 4,600,000 common units of the Operating Partnership.

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Consolidated Statements of Operations (USD $) In Thousands, except Share data, unless otherwise specified	12 Months Ended
	Dec. 31, 2011	Dec. 31, 2010
Revenue:
Room	$ 70,421	$ 24,743
Other operating	2,675	727
Total revenue	73,096	25,470
Hotel operating expenses:
Room	16,011	5,989
Other operating	26,156	9,036
Total hotel operating expenses	42,167	15,025
Depreciation and amortization	11,971	2,564
Property taxes and insurance	5,321	1,606
General and administrative	5,802	3,547
Hotel property acquisition costs	7,706	3,189
Total operating expenses	72,967	25,931
Operating income (loss)	129	(461)
Interest and other income	22	193
Interest expense, including amortization of deferred fees	(8,190)	(932)
Loss in unconsolidated entity	(997)
Loss before income tax expense	(9,036)	(1,200)
Income tax expense	(69)	(17)
Net loss attributable to common shareholders	$ (9,105)	$ (1,217)
Loss per Common Share - Basic:
Net loss attributable to common shareholders (Note 11)	$ (0.69)	$ (0.20)
Loss per Common Share - Diluted:
Net loss attributable to common shareholders (Note 11)	$ (0.69)	$ (0.20)
Weighted average number of common shares outstanding:
Basic	13,280,149	6,377,333
Diluted	13,280,149	6,377,333

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Allowance for Doubtful Accounts

12 Months Ended

Dec. 31, 2011

Allowance for Doubtful Accounts [Abstract]

Allowance for Doubtful Accounts

4. Allowance for Doubtful Accounts

The Company maintains an allowance for doubtful accounts at a level believed to be adequate to absorb estimated probable losses. That estimate is based on past loss experience, current economic and market conditions and other relevant factors. The allowance for doubtful accounts was $17 thousand and $15 thousand as of December 31, 2011 and 2010 respectively.

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Acquisition of Hotel Properties

12 Months Ended

Dec. 31, 2011

Acquisition of Hotel Properties [Abstract]

Acquisition of Hotel Properties

3. Acquisition of Hotel Properties

Acquisition of Hotel Properties

On July 14, 2011, the Company acquired five hotels (the “5 Sisters”) for an aggregate purchase price of $195.0 million, plus customary pro-rated amounts and closing costs, from affiliates of Innkeepers USA Trust. The Company funded the 5 Sisters acquisition with available cash, the assumption of debt of $134.2 million and borrowings under the Company’s secured revolving credit facility. The 5 Sisters are as follows:

• Residence Inn by Marriott^® Anaheim—Garden Grove, CA.; 200 rooms.

• Homewood Suites by Hilton^® San Antonio Riverwalk—San Antonio, TX.; 146 rooms.

• Residence Inn by Marriott^® Tysons Corner—Vienna, VA.; 121 rooms.

• Doubletree Guest Suites by Hilton^® Washington DC—Washington, DC; 105 rooms.

• Residence Inn by Marriott^® San Diego Mission Valley—San Diego, CA.; 192 rooms.

The Company incurred acquisition costs of $7.7 million and $3.2 million, respectively, during the years ended December 31, 2011 and 2010. $3.7 million of the acquisition costs are related to the JV.

Hotel Purchase Price Allocation

The allocation of the purchase price to the hotels based on their fair value was as follows (in thousands):

	5 Sisters Acquisition
Acquisition date		07/14/11
Land	$	35,231
Building and improvements		150,764
Furniture, fixtures and equipment		7,399
Cash		26
Restricted cash		1,460
Accounts receivable, net		144
Deferred costs, net		1,639
Prepaid expenses and other assets		134
Debt		(134,160	)
Accounts payable and accrued expenses		(630	)
Net assets acquired	$	62,007
Net assets acquired, net of cash	$	61,981

Pro Forma Financial Information

The following condensed unaudited pro forma financial information presents the results of operations as if the hotels acquired in 2010 and 2011 including the acquisition of the 5 Sisters had taken place on January 1, 2010. The unaudited pro forma results below exclude acquisition costs of $3.2 million and $3.2 million for the years ended December 31, 2011 and 2010, respectively. The unaudited pro forma results have been prepared for comparative purposes only and are not necessarily indicative of what actual results of operations would have been had the acquisitions taken place on January 1, 2010, nor do they purport to represent the results of operations for future periods (in thousands, except share and per share data).

	For the years ended December 31,
	2011			2010
Pro forma total revenue	$	91,305		$	83,122
Pro forma net loss	$	(9,290	)	$	(3,380	)
Pro forma income (loss) per share:
Basic and diluted	$	(0.67	)	$	(0.24	)
Weighted average Common Shares Outstanding
Basic and diluted		13,819,939			13,819,939

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Quarterly Operating Results (unaudited)

12 Months Ended

Dec. 31, 2011

Quarterly Operating Results [Abstract]

Quarterly Operating Results (unaudited)

15. Quarterly Operating Results (unaudited)

	Quarter Ended—2011
	March 31			June 30			September 30			December 31
	(in thousands, except per share data)
Total revenue	$	12,487		$	14,902		$	23,578		$	22,129
Total operating expenses		11,737			16,190			21,390			23,650
Operating income (loss)		750			(1,288	)		2,188			(1,521	)
Net loss attributable to common shareholders		(19	)		(1,936	)		(955	)		(6,195	)
Loss per common share, basic and diluted (1)		0.00			(0.14	)		(0.07	)		(0.45	)
Weighted average number of common shares outstanding:
Basic		11,800,771			13,757,449			13,766,297			13,768,910
Diluted		11,800,771			13,757,449			13,766,297			13,768,910

(1) The sum of per share amounts for the four quarters may differ from the annual per share amounts due to the required method of computing weighted-average number of common shares outstanding in the respective periods.

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Earnings Per Share

12 Months Ended

Dec. 31, 2011

Earnings Per Share [Abstract]

Earnings Per Share

11. Earnings Per Share

A two class method is used to determine earnings per share. The following is a reconciliation of the amounts used in calculating basic and diluted net loss per share (in thousands, except share and per share data):

	For the years ended December 31
	2011			2010
Numerator:
Net loss attributable to common shareholders	$	(9,105	)	$	(1,217	)
Dividends paid on unvested restricted shares		(41	)		—
Net loss attributable to common shareholders excluding amounts attributable to unvested restricted shares	$	(9,146	)	$	(1,217	)
Denominator:
Weighted average number of common shares—basic		13,280,149			6,377,333
Effect of dilutive securities:
Unvested shares (1)		—			—
Weighted average number of common shares—diluted		13,280,149			6,377,333
Basic Earnings per Common Share:
Net loss attributable to common shareholders per weighted average common share excluding amounts attributable to unvested restricted shares	$	(0.69	)	$	(0.20	)
Diluted Earnings per Common Share:
Net loss attributable to common shareholders per weighted average common share excluding amounts attributable to unvested restricted shares	$	(0.69	)	$	(0.20	)

(1) Unvested restricted shares and unvested long-term incentive plan units that could potentially dilute basic earnings per share in the future that were not included in the computation of diluted earnings (loss) per share, because they would have been anti-dilutive for the periods presented.

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Debt

12 Months Ended

Dec. 31, 2011

Debt [Abstract]

Debt

7. Debt

On August 16, 2011, the Company entered into a $15.8 million new mortgage loan on the Residence Inn New Rochelle in New Rochelle, NY. On July 14, 2011, the Company assumed $134.2 million in existing mortgage loans on the 5 Sisters in connection with their acquisition. Each of the Company’s mortgage loans is secured by a first-mortgage lien on the underlying property. The mortgages are non-recourse except for instances of fraud or misapplication of funds. Mortgage debt consisted of the following (in thousands):

					12/31/11		Balance Outstanding as of
Collateral	Interest Rate			Maturity Date	Property Carrying Value		December 31, 2011		December 31, 2010
Courtyard by Marriott Altoona, PA		5.96	%	April 1, 2016	$	10,622	$	6,753	$	6,925
SpringHill Suites by Marriott Washington, PA		5.84	%	April 1, 2015		11,420		5,260		5,408
Residence Inn by Marriott New Rochelle, NY		5.75	%	September 1, 2021		20,336		15,731		—
Residence Inn by Marriott Garden Grove, CA		5.98	%	November 1, 2016		42,914		32,417		—
Residence Inn by Marriott San Diego, CA		5.98	%	November 1, 2016		50,914		39,986		—
Homewood Suites by Hilton San Antonio, TX		6.03	%	October 1, 2016		31,966		18,380		—
Doubletree Suite by Hilton Washington, DC		6.03	%	October 1, 2016		29,010		19,960		—
Residence Inn by Marriott Vienna, VA		6.03	%	October 1, 2016		35,998		22,953		—
					$	233,180	$	161,440	$	12,333

The Company estimates the fair value of its fixed rate debt by discounting the future cash flows of each instrument at estimated market rates. Rates take into consideration general market conditions and maturity. The estimated fair value of the Company’s fixed rate debt as of December 31, 2011 and 2010 was $159.4 million and $12.6 million, respectively.

On October 12, 2010, the Company entered into an $85 million senior secured revolving credit facility. At December 31, 2011 and 2010, the Company had $67.5 million and $37.8 million, respectively, of outstanding borrowings under this credit facility. There were ten properties in the borrowing base securing borrowings under the credit facility at December 31, 2011. At December 31, 2011, the maximum borrowing availability under the revolving credit facility was $75.0 million.

In May 2011, the Company amended its $85 million senior secured revolving credit facility. The amendment provides for an increase to the allowable consolidated leverage ratio to 60 percent through 2012, reducing to 55 percent in 2013; and a decrease to the consolidated fixed charge coverage ratio from 2.3x to 1.7x through March 2012, increasing to 1.75x through December 2012 and 2.0x in 2013. Subject to certain conditions, the credit facility has an accordion feature that provides the Company with the ability to increase the facility to $110 million, subject to lender approval. The Company paid $0.5 million in fees and related expenses in connection with this amendment. The fees are capitalized and amortized over the term of the credit facility.

As of December 31, 2011, the Company was in compliance with all of its financial covenants. Future scheduled principal payments of debt obligations as of December 31, 2011 are as follows (in thousands):

	Amount
2012	$	1,848
2013		69,481
2014		2,106
2015		6,778
2016		134,587
Thereafter		14,140
	$	228,940

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Investment in Hotel Properties

12 Months Ended

Dec. 31, 2011

Investment in Hotel Properties [Abstract]

Investment in Hotel Properties

5. Investment in Hotel Properties

Investment in hotel properties as of December 31, 2011 and 2010 consisted of the following (in thousands):

	December 31, 2011			December 31, 2010
Land and improvements	$	60,064		$	24,620
Building and improvements		332,399			176,354
Furniture, fixtures and equipment		17,469			6,138
Construction in progress		3,897			3,505
		413,829			210,617
Less accumulated depreciation		(11,014	)		(2,537	)
Investment in hotel properties, net	$	402,815		$	208,080

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Investment in Unconsolidated Entities

12 Months Ended

Dec. 31, 2011

Investment in Unconsolidated Entities [Abstract]

Investment in Unconsolidated Entities

6. Investment in Unconsolidated Entities

On October 27, 2011, the Company acquired a 10.3% interest in a joint venture (the “JV”) between Cerberus Capital Management (“Cerberus”) and Chatham Lodging, L.P. The JV owns 64 properties which it acquired for a total purchase price of approximately $1.02 billion, including the assumption of approximately $675 million of mortgage debt secured by 45 of the hotels with a weighted average interest rate of 6.71% and maturing in 2017. The Company’s investment of $37 million in the JV was funded through borrowings under the Company’s secured revolving credit facility. The Company incurred approximately $3.7 million in acquisition costs. The Company accounts for this investment under the equity method.

The Company’s ownership interest in the JV is subject to change in the event that either Chatham or Cerberus calls for additional capital contributions to the JV necessary for the conduct of business, including contributions to fund costs and expenses related to capital expenditures. The Company will manage the JV and will receive a promote interest based on meeting certain return thresholds. Cerberus may also approve certain actions by the JV without the Company’s consent, including certain property dispositions conducted at arm’s length, certain actions related to the restructuring of the JV and removal of the Company as managing member in the event the Company fails to fulfill its material obligations under the joint venture agreement.

The JV incurred $4.6 million in acquisition costs and $8.6 million in depreciation expense in 2011. The following tables set forth the total assets, liabilities, equity and components of net loss, including the Company’s share, related to the unconsolidated joint venture discussed above from the acquisition date through December 31, 2011 (in thousands):

Balance Sheet

	December 31, 2011
Assets
Investment in hotel properties, net	$	972,925
Other assets		79,107
Total Assets		1,052,032
Liabilities and Equity
Mortgages and notes payable	$	675,000
Other liabilities		26,729
Total Liabilities		701,729
Equity:
Chatham Lodging Trust		36,003
Joint Venture Partner		314,300
Total Equity		350,303
Total Liabilities and Equity	$	1,052,032

Statement of Operations

	Acquisition Date to December 31, 2011
Revenue	$	34,339
Total operating expenses		37,411
Operating loss	$	(3,072	)
Net loss	$	(9,697	)
Chatham’s 10.3% interest of net loss reported as
Equity in loss in unconsolidated entities	$	(997	)

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Income Taxes

12 Months Ended

Dec. 31, 2011

Income Taxes [Abstract]

Income Taxes

8. Income Taxes

The Company’s TRSs are subject to federal and state income taxes. The Company’s TRSs are structured under one of two TRS holding companies that are treated separately for income tax purposes (TRS 1 and TRS 2, respectively).

The components of income tax expense for the following periods are as follows (in thousands):

	For the Years Ended
	December 31
	2011			2010
Current:
Federal	$	73		$	13
State		21			4
Current tax expense	$	94		$	17
Deferred:
Federal	$	(21	)	$	—
State		(4	)		—
Deferred tax expense	$	(25	)	$	—
Total tax expense	$	69		$	17

The difference between total tax expense and the amount computed by applying the statutory federal income tax rate to the combined income by the Company’s TRSs before taxes were as follows (in thousands):

	For the Years Ended
	December 31
	2011			2010
Book income (loss) before income taxes	$	143		$	(238	)
Statutory rate of 34% applied to pre-tax income (loss)		48			13
Effect of state and local income taxes, net of federal tax benefit		7			4
Other items		14			—
Total expense (benefit)		69			17
Effective tax rate		48.25	%		-7.14	%

At December 31, 2010, TRS 1 had future taxable income deductions of $0.3 million related to accumulated net operating losses from 2010 and the gross deferred tax asset associated with these future tax deductions was $0.1 million. TRS 1 has recorded a valuation allowance equal to 100% of the gross deferred tax asset due to the uncertainty of realizing the benefit of its deferred assets due to the limited operating history and the cumulative taxable losses incurred by TRS 1 since its inception. During 2011, TRS I has generated taxable income to partially utilize the deferred tax asset. TRS 2 had no deferred tax assets or liabilities at December 31, 2010 and no valuation allowance has been recorded in connection with gross deferred tax assets of TRS 2 for December 31, 2011 and 2010. Accordingly, the net deferred tax asset of the Company solely relates to the deferred tax assets generated by TRS 2 during the year ended December 31, 2011. The tax effect of each type of temporary difference and carry forward that gives rise to the deferred tax asset as of December 31, 2011 and 2010 are as follows (in thousands):

	For the Years Ended
	December 31
	2011			2010
Deferred tax assets:
Current:
Allowance for doubtful accounts	$	6		$	—
Net operating loss carryforwards		—			106
Accrued compensation		192
Valuation allowance		(148	)		(106	)
Deferred tax asset current		50			—
Non-current		—			—
Total book/tax difference fixed assets		(25	)		—
Net deferred tax asset	$	25		$	—

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Commitments and Contingencies

12 Months Ended

Dec. 31, 2011

Commitments and Contingencies [Abstract]

Commitments and Contingencies

13. Commitments and Contingencies

Litigation

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

Hotel Ground Rent

The Altoona hotel is subject to a ground lease with an expiration date of April 30, 2029 with an extension option of up to 12 additional terms of five years each. Monthly payments are determined by the quarterly average room occupancy of the hotel. Rent is equal to approximately $7,000 per month when monthly occupancy is less than 85% and can increase up to approximately $20,000 per month if occupancy is 100%, with minimum rent increased on an annual basis by two and one-half percent (2.5%).

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

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

	Amount
2012	$	203
2013		205
2014		207
2015		210
2016		212
Thereafter		11,660
Total	$	12,697

Condominium Leases

The White Plains hotel is part of a condominium known as La Reserva Condominium (the “Condominium”). The Condominium is comprised of 143 residential units and four commercial units. The four commercial units are owned by the Company and are part of the White Plains hotel. The White Plains hotel is comprised of 129 of the residential units owned by the Company and four residential units leased by the Company from unaffiliated third party owners. The remaining 10 residential units are owned and occupied by unaffiliated third party owners.

The Company leases four residential units in the White Plains hotel from individual owners (the “Condo Owner”). The lease agreements are for 6 years with a one-time five year renewal option. The White Plains hotel has the right to sublease the unit to any third party (a “Hotel Guest”) for such rent and on such terms as the White Plains hotel may determine. Each Condo Owner may reserve the unit for seven days in any calendar quarter or two weeks in any calendar year. Each Condo Owner is also obligated to reimburse the White Plains hotel for renovations that were completed in 2008. Minimum annual rents payable to the Condo Owner are approximately $70 thousand per year and amounts receivable from the Condo Owner for its renovation reimbursements are approximately $11 thousand per year, subject to a balloon repayment at the end of the lease term of any remaining reimbursements. The White Plains hotel is responsible for paying assessments to the Condominium association on a monthly basis for all residential units owned and leased. The White Plains hotel provides certain services to the Condominium association for housekeeping, maintenance and certain other services and receives compensation from the Condominium association for said services.

Management Agreements

Our hotels are operated under various management agreements that call for base management fees, which generally range from 2-4% of the hotel’s gross room revenue and generally have an incentive provision, if certain financial thresholds are met or exceeded, of 10% of the hotel’s net operating income less fixed costs, base management fees and a specified return threshold. The management agreements have initial terms from 5 to 15 years and generally have renewal options. The agreements may be terminated for cause, including the failure of the managed hotel to meet specified performance levels, and may be terminated by the manager in the event we undergo a change in control. Management fees are recorded within hotel other operating expenses on the consolidated statements of operations and totaled approximately $2.0 million and $0.7 million, respectively, for the years ended December 31, 2011 and 2010.

Franchise Agreements

Our hotels operate under various franchise agreements to operate the hotels under specific brands. Typically, our franchise agreements provide for a royalty fee of 4-5.5% of the hotel’s gross room revenue and a program fee of 2-4% of the hotel’s gross room revenue. The franchise agreements have initial terms of 10-20 years and generally have no renewal options. Franchise fees are recorded within hotel other operating expenses on the consolidated statements of operations and totaled approximately $5.6 million and $1.9 million, respectively, for the years ended December 31, 2011 and 2010.

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Consolidated Statements of Equity (USD $) In Thousands, except Share data	Total	Common shares	Additional Paid-In Capital	Accumulated Deficit	Total Shareholders' Equity	Noncontrolling Interest in Operating Partnership
Beginning balance at Dec. 31, 2009	$ 10		$ 10		$ 10
Beginning balance, shares at Dec. 31, 2009		1,000
Issuance of shares, net of offering costs of $13,752 and $4,153, respectively, shares		9,125,000
Issuance of shares, net of offering costs of $13,752 and $4,153, respectively	168,748	91	168,657		168,748
Repurchase of vested common shares, shares		(1,000)
Repurchase of vested common shares	(10)		(10)		(10)
Issuance of restricted shares, shares		87,000
Forfeiture of restricted shares, shares		(3,250)
Amortization of share based compensation	947		432		432	515
Dividends declared on common shares ($0.525 and $0.70 per share, respectively)	(3,224)			(3,224)	(3,224)
Distributions declared on LTIP units ($0.525 and $0.70 per unit, respectively)	(90)					(90)
Net loss	(1,217)			(1,217)	(1,217)
Ending balance at Dec. 31, 2010	165,164	91	169,089	(4,441)	164,739	425
Ending balance, shares at Dec. 31, 2010		9,208,750
Issuance of shares pursuant to Equity Incentive Plan, shares		12,104
Issuance of shares pursuant to Equity Incentive Plan	210		210		210
Issuance of shares, net of offering costs of $13,752 and $4,153, respectively, shares		4,600,000
Issuance of shares, net of offering costs of $13,752 and $4,153, respectively	69,447	46	69,401		69,447
Repurchase of vested common shares, shares		(915)
Repurchase of vested common shares	(15)		(15)		(15)
Amortization of share based compensation	1,271		488		488	783
Dividends declared on common shares ($0.525 and $0.70 per share, respectively)	(9,674)			(9,674)	(9,674)
Distributions declared on LTIP units ($0.525 and $0.70 per unit, respectively)	(180)					(180)
Net loss	(9,105)			(9,105)	(9,105)
Ending balance at Dec. 31, 2011	$ 217,118	$ 137	$ 239,173	$ (23,220)	$ 216,090	$ 1,028
Ending balance, shares at Dec. 31, 2011		13,819,939

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Summary of Significant Accounting Policies

12 Months Ended

Dec. 31, 2011

Summary of Significant Accounting Policies [Abstract]

Summary of Significant Accounting Policies

2. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying financial statements and related notes have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) and in conformity with the rules and regulations of the Securities and Exchange Commission (“SEC”). These consolidated financial statements, in the opinion of management, include all adjustments considered necessary for a fair presentation of the consolidated balance sheets, and consolidated statements of operations, of equity, and of cash flows for the periods presented. The consolidated financial statements include all of the accounts of the Company and its wholly owned subsidiaries. All intercompany balances and transactions are eliminated in consolidation.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the balance sheet date and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Fair Value of Financial Instruments

The Company’s financial instruments include cash and cash equivalents, restricted cash, hotel receivables, accounts payable and accrued expenses, distributions payable and debt. Due to their relatively short maturities, the carrying values reported in the consolidated balance sheets for these financial instruments approximate fair value except for debt, the fair value of which is separately disclosed in Note 7.

Investment in Hotel Properties

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

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

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

The Company will consider a hotel property as held for sale when a binding agreement to purchase the property has been signed under which the buyer has committed a significant amount of nonrefundable cash, no significant financing contingencies exist which could cause the transaction not to be completed in a timely manner and the sale is expected to occur within one year. If these criteria are met, depreciation and amortization of the hotel property will cease and an impairment loss if any will be recognized if the fair value of the hotel property, less the costs to sell, is lower than the carrying amount of the hotel property. The Company will classify the loss, together with the related operating results, as discontinued operations in the consolidated statements of operations and classify the assets and related liabilities as held for sale in the consolidated balance sheets. As of December 31, 2011, the Company had no hotel properties held for sale.

Cash and Cash Equivalents

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

Restricted Cash

Restricted cash represents purchase price deposits held in escrow for potential hotel acquisitions under contract and escrows for reserves required pursuant to the Company’s loans or hotel management agreements. Included in restricted cash on the accompanying consolidated balance sheet at December 31, 2011 are $5.3 million of renovation, property tax and insurance escrows and at December 31, 2010 are deposits for hotel acquisitions of $0.1 million and $3.0 million of renovation, property tax and insurance escrows. Certain of the hotel mortgage loan agreements require the Company to fund 5% of gross hotel revenues on a monthly basis for furnishings, fixtures and equipment and general repair maintenance reserves (“Replacement Reserve”) in an account with the Lender. Property tax and insurance reserves are required to be deposited into an escrow account held by Lender.

Hotel Receivables

Hotel receivables consist of amounts owed by guests staying at the Company’s hotels at year end and amounts due from business and group customers. An allowance for doubtful accounts is provided and maintained at a level believed to be adequate to absorb estimated probable receivable losses. At December 31, 2011 and 2010, respectively, the allowance for doubtful accounts was $17 thousand and $15 thousand. For the years ended December 31, 2011 and 2010, the Company recorded no hotel receivable writeoffs.

Deferred Costs

Deferred costs consist of franchise agreement fees for the Company’s hotels, deferred loan costs and deferred costs related to the Company’s shelf registration statement. Franchise fees are recorded at cost and amortized over a straight-line basis over the term of the franchise agreements. Loan costs are recorded at cost and amortized over a straight-line basis which approximates the interest rate method over the term of the loan. The deferred offering costs will be reclassified into additional paid-in capital as shares are sold. Offering costs of $0.4 million, classified as “Other” in 2010, were reclassed to into additional paid-in capital after the completion of the follow-on common share offering on February 8 , 2011. For the years ended December 31, 2011 and 2010, amortization expense related to franchise fees of $62 and $27 thousand, respectively, is included in depreciation and amortization and amortization expense related to loan costs of $1.6 and $0.3 million, respectively, is included in interest expense in the consolidated statement of operations.

Deferred costs consisted of the following at December 31, 2011 and 2010 (in thousands):

	December 31, 2011			December 31, 2010
Loan costs	$	7,010		$	3,798
Franchise fees		1,198			809
Other		116			409
		8,324			5,016
Less accumulated amortization		(1,974	)		(306	)
Deferred costs, net	$	6,350		$	4,710

Prepaid Expenses and Other Assets

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

Revenue Recognition

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

Hotel Management Agreements

The Company assumed the existing hotel management agreements in place at six of its hotels—the Boston-Billerica Homewood Suites, Minneapolis-Bloomington Homewood Suites, Nashville-Brentwood Homewood Suites, Dallas Homewood Suites, Hartford-Farmington Homewood Suites and Orlando-Maitland Homewood Suites—all of which are managed by Promus Hotels, Inc., a subsidiary of Hilton Hotels Worldwide (“Hilton”). Each of these hotel management agreements became effective on December 20, 2000, has an initial term of 15 years and may be renewed for an additional five-year period at the manager’s option by written notice to us no later than 120 days prior to the expiration of the initial term.

Under these six hotel management agreements, the manager receives a base management fee equal to 2% of the hotel’s gross room revenue and, if certain financial thresholds are met or exceeded, an incentive management fee equal to 10% of the hotel’s net operating income, less fixed costs, base management fees, agreed-upon return on the owner’s original investment and debt service payments. In addition to the management fee, a franchise royalty fee equal to 4% of the hotel’s gross room revenue and program fees equal to 4% of the hotel’s gross room revenue are also payable to Hilton. See “Hotel Franchise Agreements”. Prior to April 23, 2013, each of these six management agreements may be terminated for cause, including the failure of the managed hotel to meet specified performance levels, and may be terminated by the manager in the event we undergo a change in control. If the new owner does not assume the existing management agreement and does not obtain a Homewood Suites franchise license upon such a change of control, we will be required to pay a termination fee to the manager. Beginning on April 23, 2013, we may terminate the six Hilton management agreements upon six months notice to the manager without payment of a termination fee. If we were to terminate the management agreements prior to the termination date, we would be responsible for paying termination fees to the manager.

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

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

Hotel Franchise Agreements

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

One of the Company’s TRS Lessees has entered into franchise agreements with Marriott International, Inc., (“Marriott”), relating to our Residence Inn properties in Holtsville, New York, New Rochelle, New York, White Plains, New York, Garden Grove, CA, San Diego, CA and Vienna, VA, our Courtyard property in Altoona, Pennsylvania and our SpringHill Suites property in Washington, Pennsylvania. These franchise agreements have initial terms ranging from 15 to 20 years and will expire between 2025 and 2031. None of the agreements has a renewal option. The Marriott franchise agreements provide for franchise fees ranging from 5.0% to 5.5% of the hotel’s gross room sales and marketing fees ranging from 2.0% to 2.5% of the hotel’s gross room sales. The Marriott franchise agreements are terminable by Marriott in the event that the applicable franchisee fails to cure an event of default or, in certain circumstances such as the franchisee’s bankruptcy or insolvency, are terminable by Marriott at will. The Marriott franchise agreements provide that, in the event of a proposed transfer of the hotel, our TRS Lessee’s interest in the agreement or more than a specified amount of the TRS Lessee to a competitor of Marriott, Marriott has the right to purchase or lease the hotel under terms consistent with those contained in the respective offer and may terminate if our TRS Lessee elects to proceed with such a transfer.

One of the Company’s TRS lessees has entered into a franchise agreement with Hampton Inns Franchise LLC, (“Hampton Inns”), relating to the Hampton Inn & Suites^® Houston-Medical Center. The franchise agreement has an initial term of approximately 10 years and expires on July 31, 2020. There is no renewal option. The Hampton Inns franchise agreement provides for a monthly program fee equal to 4% of the hotel’s gross rooms revenue and a monthly royalty fee equal to 5% of the hotel’s gross rooms revenue. Hampton Inns may terminate the franchise agreement in the event that the franchisee fails to cure an event of default or, in certain circumstances such as the franchisee’s bankruptcy or insolvency, Hampton Inns may terminate the agreement at will.

One of the Company’s TRS lessees has entered into a franchise agreement with Doubletree Franchise LLC (“Doubletree”), relating to the Doubletree Guest Suites by Hilton in Washington, DC. The new hotel franchise agreement has an initial term of 10 years and will expire on July 31, 2021. The franchise agreement is non-renewable. The Doubletree hotel franchise agreement provides for a franchise royalty fee equal to 5% of the hotel’s gross room revenue and a program fee equal to 4% of the hotel’s gross room revenue. The Doubletree franchise agreement generally has no termination rights unless the franchisee fails to cure an event of default in accordance with the franchise agreements.

Share-Based Compensation

The Company measures compensation expense for the restricted share awards based upon the fair market value of its common shares at the date of grant. Compensation expense is recognized on a straight-line basis over the vesting period and is included in general and administrative expense in the accompanying consolidated statement of operations. The Company pays dividends on vested and nonvested restricted shares.

Earnings Per Share

A two class method is used to determine earnings per share. Basic earnings per share (“EPS”) is computed by dividing net income (loss) available for common shareholders, adjusted for dividends on unvested share grants, by the weighted average number of common shares outstanding for the period. Diluted EPS is computed by dividing net income (loss) available for common shareholders, adjusted for dividends on unvested share grants, by the weighted average number of common shares outstanding plus potentially dilutive securities such as share grants or shares issuable in the event of conversion of operating partnership units. No adjustment is made for shares that are anti-dilutive during the period. The Company’s restricted share awards and long-term incentive plan units are entitled to receive dividends, if declared. The rights to dividends declared are non-forfeitable, and therefore, the unvested restricted shares and long-term incentive plan units qualify as participating securities requiring the allocation of earnings under the two-class method to calculate EPS. The percentage of earnings allocated to the unvested restricted shares is based on the proportion of the weighted average unvested restricted shares outstanding to the total of the basic weighted average common shares outstanding and the weighted average unvested restricted shares outstanding. Basic EPS is then computed by dividing income less earnings allocable to unvested restricted shares by the basic weighted average number of shares outstanding. Diluted EPS is computed similar to basic EPS, except the weighted average number of shares outstanding is increased to include the effect of potentially dilutive securities. Because the Company reported a net loss for the period, no allocation was made to the unvested restricted shares or the long-term incentive plan units.

Income Taxes

The Company is currently subject to corporate federal and state income taxes. Prior to April 21, 2010, the Company had no operating results subject to taxation.

The Company elected to be taxed as a REIT for federal income tax purposes. In order to qualify as a REIT under the Internal Revenue Code of 1986, as amended, the Company must meet certain organizational and operational requirements, including a requirement to distribute at least 90% of its annual REIT taxable income to its shareholders (which is computed without regard to the dividends paid deduction or net capital gain and which does not necessarily equal net income as calculated in accordance with GAAP). As a REIT, the Company generally will not be subject to federal income tax to the extent the Company distributes its REIT taxable income to its shareholders. If the Company fails to qualify as a REIT in any taxable year, the Company will be subject to federal income tax on its REIT taxable income at regular corporate income tax rates and generally will not be permitted to qualify for treatment as a REIT for federal income tax purposes for the four taxable years following the year during which qualification is lost unless the IRS grants the Company relief under certain statutory provisions. Such an event could materially adversely affect the Company’s net income and net cash available for distribution to shareholders. However, the Company has been organized and operates in such a manner as to qualify for treatment as a REIT.

The Company leases its wholly owned hotels to TRS Lessees, which are wholly owned by the Company’s taxable REIT subsidiaries (each, a “TRS”) which, in turn are wholly owned by the Operating Partnership. Additionally, the Company owns its interest in 51 of the 64 JV hotels through the Operating Partnership and owns its interest in the remaining 13 JV hotels through one of its TRSs. Each TRS is subject to federal and state income taxes and the Company accounts for taxes, where applicable, in accordance with the provisions of [Financial Accounting Standards Board Accounting Standards Codification 740] using the asset and liability method which recognizes deferred tax assets and liabilities for future tax consequences arising from differences between financial statement carrying amounts and income tax bases.

As of December 31, 2011 and 2010, the Company did not have any uncertain tax positions and had not incurred any interest or penalties on such positions during the periods presented. Interest and penalties related to uncertain tax benefits, if any, in the future will be recognized as operating expense.

Organizational and Offering Costs

The Company expenses organizational costs as incurred. Offering costs, which include selling commissions, are recorded as a reduction in additional paid-in capital in shareholders’ equity. Costs related to the Company’s shelf registration statement filing in 2012 are included in deferred costs at December 31, 2011 and will be recorded as a reduction in additional paid-in capital as shares are sold.

Recently Issued Accounting Standards

In May 2011, the FASB and International Accounting Standards Board (“IASB”) (collectively the “Boards”) issued ASU No. 2011-04, Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs (“ASU 2044-04”). ASC 2011-04 created a uniform framework for applying fair value measurement principles for companies around the world and clarified existing guidance in U.S. GAAP. ASU 2011-04 is effective for the first reporting annual period beginning after December 15, 2011 and shall be applied prospectively. The Company does not expect this standard to have any material effect on our consolidated financial statements.

In June 2011, the FASB issued ASU No. 2011-05, Comprehensive Income (Topic 220), Presentation of Comprehensive income. This update is intended to increase the prominence of other comprehensive income in the financial statements by requiring public companies to present comprehensive income either as a single statement detailing the components of net income and total net income, the components of other comprehensive income and total other comprehensive income, and a total for comprehensive income or using a two statement approach including both a statement of income and a statement of comprehensive income. The option to present other comprehensive income in the statement of changes in equity has been eliminated. The amendments in this update, which should be applied retrospectively, are effective for public companies for fiscal years, and interim periods beginning after December 15, 2011. Currently, the Company has no items of other comprehensive income in any periods presented and adoption of this standard is not expected to impact us.

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Equity Incentive Plan

12 Months Ended

Dec. 31, 2011

Equity Incentive Plan [Abstract]

Equity Incentive Plan

12. Equity Incentive Plan

The Company maintains its Equity Incentive Plan to attract and retain independent trustees, executive officers and other key employees and service providers. The plan provides for the grant of options to purchase common shares, share awards, share appreciation rights, performance units and other equity-based awards. Share awards under this plan generally vest over three to five years, though the independent trustees share compensation includes shares granted that vest immediately. The Company pays dividends on unvested shares and units. Certain awards may provide for accelerated vesting if there is a change in control. In January 2011, the Company issued 12,104 common shares to its independent trustees as compensation for services performed in 2010. A portion of the Company’s share-based compensation to the Company’s trustees for the year ended December 31, 2011 was distributed on January 6, 2012 in the form of common shares. The quantity of shares was calculated based on the average of the closing prices for the Company’s common shares on the New York Stock Exchange for the last ten trading days preceding the reporting date. The Company distributed 27,592 common shares. As of December 31, 2011, there were 211,730 common shares available for issuance under the 2010 Equity Incentive Plan.

In the Company’s 2010 Annual Report on Form 10-K, the Company separately presented unvested stock-based compensation as a contra account to shareholder’s equity. In connection with the preparation of its financial statements for the year ended December 31, 2011, the Company has presented the stock-based compensation as an addition to additional paid-in-capital when recognized as expense, in accordance with the standards which apply to stock-based compensation, for all periods presented. The Company concluded that the revision to the amounts as of December 31, 2010 do not have a material impact on any of its previously issued financial statements.

Restricted Share Awards

The Company measures compensation expense for restricted share awards based upon the fair market value of its common shares at the date of grant. Compensation expense is recognized on a straight-line basis over the vesting period and is included in general and administrative expense in the accompanying consolidated statements of operations. The Company pays dividends on nonvested restricted shares.

A summary of the Company’s restricted share awards for the years ended December 31, 2011 and 2010 are as follows:

	2011					2010
	Number of Shares			Weighted- Average Grant Date  Fair Value		Number of Shares			Weighted- Average Grant Date  Fair Value
Nonvested at beginning of the period		76,550		$	19.04		87,000		$	19.02
Granted		—			—		—			—
Vested		(25,521	)		19.04		(7,200	)		18.86
Forfeited		—			—		(3,250	)		18.86
Nonvested at end of the period		51,029		$	19.04		76,550		$	19.04

As of December 31, 2011 and 2010, respectively, there were $0.7 million and $1.2 million of unrecognized compensation costs related to restricted share awards. As of December 31, 2011, these costs were expected to be recognized over a weighted–average period of approximately 1.4 years. For the years ended December 31, 2011 and 2010, respectively, the Company recognized approximately $0.5 million and $0.4 million in expense related to the restricted share awards. This expense is included in general and administrative expenses in the accompanying consolidated statement of operations. As of December 31, 2011 and 2010, 25,521 and 7,200 shares were vested, respectively.

Long-Term Incentive Plan Units

LTIP Units are a special class of partnership interests in the Operating Partnership which may be issued to eligible participants for the performance of services to or for the benefit of the Company. Under the Equity Incentive Plan, each LTIP Unit issued is deemed equivalent to an award of one common share thereby reducing the availability for other equity awards on a one-for-one basis. The Company does not receive a tax deduction for the value of any LTIP Units granted to employees. LTIP Units, whether vested or not, receive the same per unit profit distributions as other outstanding units of the Operating Partnership, which profit distribution will generally equal per share dividends on the Company’s common shares. Initially, LTIP Units have a capital account balance of zero, and do not have full parity with common Operating Partnership units with respect to liquidating distributions. The Operating Partnership will revalue its assets upon the occurrence of certain specified events and any increase in valuation will be allocated first to the holders of LTIP Units to equalize the capital accounts of such holders with the capital accounts of the Operating Partnership unit holders. If such parity is reached, vested LTIP Units may be converted by the holder, at any time, into an equal number of common units of limited partnership interest in the Operating Partnership (“OP Units”), which may be redeemed, at the option of the holder, for cash or at the Company’s option an equivalent number of the Company’s common shares.

On April 21, 2010, the Company’s Operating Partnership granted 246,960 LTIP Units to the Company’s executive officers pursuant to the Equity Incentive Plan, all of which are accounted for in accordance with [FASB Codification Topic (“ASC”) 718, “Stock Compensation”.] On September 9, 2010, the Company’s Operating Partnership granted 26,250 LTIP units to the Company’s new Chief Financial Officer and 15,435 LTIP units granted to the Company’s former Chief Financial Officer were forfeited. These LTIP Units vest ratably over a five-year period beginning on the date of grant.

The LTIP Units’ fair value was determined by using a discounted value approach. In determining the discounted value of the LTIP Units, the Company considered the inherent uncertainty that the LTIP Units would never reach parity with the other OP Units and thus have an economic value of zero to the grantee. Additional factors considered in reaching the assumptions of uncertainty included discounts for illiquidity; expectations for future dividends; limited or no operating history as of the date of the grant; significant dependency on the efforts and services of our executive officers and other key members of management to implement the Company’s business plan; available acquisition opportunities; and economic environment and conditions. The Company used an expected stabilized dividend yield of 5.0% and a risk free interest rate of 2.33% based on a five-year U.S. Treasury yield.

The Company recorded $0.8 and $0.5 million in compensation expense related to the LTIP Units for the years ended December 31, 2011 and 2010, respectively. As of December 31, 2011, there was $2.6 million of total unrecognized compensation cost related to LTIP Units. This cost is expected to be recognized over 3.3 years, which represents the weighted average remaining vesting period of the LTIP Units. As of December 31, 2011, none of the LTIP Units have reached parity.