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

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

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

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

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

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

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

Our advisor earns an annual asset management fee as described in Note 3. Beginning in the first quarter of 2012, we settled all asset management fees in shares of our common stock, rather than in cash, at the election of the advisor. In connection with the preparation of our financial statements for the nine months ended September 30, 2013, we identified an error in the cash flow statement that was the result of not adjusting operating cash flow for the full amount of such noncash asset management fees included in net income and instead including such noncash asset management fees as a source of financing cash flow for that same amount. We assessed the materiality of this error on prior periods' financial statements in accordance with Accounting Standards Codification 250 and the SEC's Staff Accounting Bulletin No. 99, “Materiality” and concluded that the impact of the error is not material to any previously issued financial statements. We have properly reflected these transactions in our Consolidated Statements of Cash Flows for the nine months ended September 30, 2013 and therefore, in order to present consistent information to the users of our financial statements, we have revised the cash flow statement for the period ended September 30, 2012. The table below illustrates the effect of the error correction on all previously issued financial statements. In addition, we have added supplemental disclosures of these noncash financing activities. The error impacted cash flow used in operating activities and cash flows provided by financing activities, and did not affect our consolidated balance sheets, consolidated statements of operations, consolidated statements of comprehensive loss, consolidated statements of equity, cash flows used in investing activities, or cash balances for any reporting periods.


	Net Cash (Used in) Provided by Operating Activities						Net Cash Provided by (Used in) Financing Activities
	As Reported		Adjustment		As Revised		As Reported		Adjustment		As Revised
	(in thousands)						(in thousands)
Six months ended June 30, 2013	$	(6,116)	$	673	$	(5,443)	$	388,748	$	(673)	$	388,075
Three months ended March 31, 2013		(319)		275		(44)		144,894		(275)		144,619

Year ended December 31, 2012		(5,850)		412		(5,438)		163,253		(412)		162,841
Nine months ended September 30, 2012		(987)		260		(727)		69,152		(260)		68,892
Six months ended June 30, 2012		(470)		119		(351)		49,499		(119)		49,380


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

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

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

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

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