Note

- Brookfield Investment

March

31,

2017,

the initial closing under the SPA (the “Initial Closing”) occurred and various transactions and agreements contemplated by the SPA were consummated and executed, including but

not

limited to:

•

the sale by the Company and purchase by the Brookfield Investor of

one

share of a new series of preferred stock designated as the Redeemable Preferred Share, par value

$0.01

per share (the “Redeemable Preferred Share”), for a nominal purchase price; and

•

the sale by the Company and purchase by the Brookfield Investor of

9,152,542.37

Class C Units for a purchase price of

$14.75

per Class C Unit, or

$135.0

million in the aggregate.

February

27,

2018,

the

second

closing under the SPA (the “Second Closing”) occurred, pursuant to which the Company sold

1,694,915.25

additional Class C Units to the Brookfield Investor, for a purchase price of

$14.75

per Class C Unit, or

$25.0

million in the aggregate.

February 27, 2019,

the Final Closing occurred, pursuant to which the Company sold

14,898,060.78

additional Class C Units to the Brookfield Investor, for a purchase price of

$14.75

per Class C Unit, or

$219.7

million in the aggregate. Following the Final Closing, the Brookfield Investor

longer has any obligations or rights to purchase additional Class C Units pursuant to the SPA or otherwise.

Without obtaining the prior approval of the majority of the then outstanding Class C Units and/or at least

one

of the

two

directors (each, a "Redeemable Preferred Director") elected to the Company’s board of directors by the Brookfield Investor pursuant to its rights as the holder of the Redeemable Preferred Share, the Company is restricted from taking certain operational and governance actions. These restrictions (collectively referred to herein as the “Brookfield Approval Rights”) are subject to certain exceptions and conditions. See “Brookfield Approval Rights” below.

The Redeemable Preferred Share

The Redeemable Preferred Share held by the Brookfield Investor has been classified as permanent equity on the Consolidated Balance Sheets.

The Redeemable Preferred Share ranks on parity with the Company’s common stock, with the same rights with respect to preferences, conversion and other rights, voting powers, restrictions, limitations as to dividends and other distributions, qualifications, terms and conditions of redemption and other terms and conditions as the Company’s common stock, with certain exceptions.

For so long as the Brookfield Investor holds the Redeemable Preferred Share, the Brookfield Investor has certain rights with respect to the election of members of the Company's board of directors and its committees, including the right to elect

two

Redeemable Preferred Directors to the Company’s board of directors and to approve

two

additional independent directors (each, an "Approved Independent Director") to be recommended and nominated by the Company's board of directors for election by the stockholders at each annual meeting. In addition, each committee of the Company's board of directors, subject to limited exceptions, must include at least

one

of the Redeemable Preferred Directors.

The holder of the Redeemable Preferred Share has certain rights in the event the OP fails to redeem Class C Units when required to do so, including the right to increase the size of the Company's board of directors by a number of directors that would result in the holder of the Redeemable Preferred Share being entitled to nominate and elect a majority of the Company's board of directors, subject to compliance with the provisions of the Company's charter requiring at least a majority of the Company's directors to be Independent Directors (as defined in the Company's charter).

Class C Units

As of

December 31, 2019

, the Class C Units reflected on the Consolidated Balance Sheets are reconciled in the following table (in millions):

	As of December 31, 2019
Gross Proceeds	$	379.7
Less:
Class C Unit issuance costs (1)	$	(22.5	)
Plus:
PIK Distributions Paid to holders of Class C Units	$	32.1
Accretion of carrying value to liquidation preference of Class C Units	$	9.0
Change in contingent forward liability	$	0.1
Contingently Redeemable Class C Units in operating partnership	$	398.4

(

)

Class C Unit issuance costs include

$6.0

million paid directly to the Brookfield Investor at the Initial Closing in the form of expense reimbursements and a commitment fee.

The Class C Units have been classified as temporary equity due to the contingent redemption features described in more detail below. At the Initial Closing, the Class C Units were deemed to have a “beneficial conversion feature” as the effective conversion price of the Class C Units under GAAP as of

March 31, 2017

was less than the fair value of the Company's common stock on such date. As a result, the Company recognized the beneficial conversion feature as a deemed dividend of

$4.5

million during the

three

months ended

March 31, 2017,

thereby reducing income available to common stockholders for purposes of calculating earnings per share.

Rank

The Class C Units rank senior to the OP Units and all other equity interests in the OP with respect to priority in payment of distributions and in the distribution of assets in the event of the liquidation, dissolution or winding-up of the OP, whether voluntary or involuntary, or any other distribution of the assets of the OP among its equity holders for the purpose of winding up its affairs.

Distributions

Commencing on

June

30,

2017,

holders of Class C Units are entitled to receive, with respect to each Class C Unit, fixed, quarterly cumulative cash distributions at a rate of

7.50%

per annum from legally available funds. If the Company fails to pay these cash distributions when due, the per annum rate will increase to

10%

until all accrued and unpaid distributions required to be paid in cash are reduced to zero.

Commencing on

June

30,

2017,

holders of Class C Units are also entitled to receive, with respect to each Class C Unit, a fixed, quarterly, cumulative PIK Distribution at a rate of

per annum ("PIK Distributions"). If the Company fails to redeem the Brookfield Investor when required to do so pursuant to the amendment and restatement of the OP's existing agreement of limited partnership (the "A&R LPA"), the

per annum PIK Distribution rate will increase to a per annum rate of

7.50%,

and would further increase by

1.25%

per annum for the next

four

quarterly periods thereafter, up to a maximum per annum rate of

12.5%.

The number of Class C Units delivered in respect of the PIK Distributions on any distribution payment date will be equal to the number obtained by dividing the amount of PIK Distribution by

$14.75.

The Brookfield Investor is also entitled to receive tax distributions under certain limited circumstances. As of

December 31, 2019

tax distributions have been paid.

For the year ended

December 31,

2017

, the Company paid cash distributions of

$7.9

million and PIK Distributions of

355,349.60

Class C Units to the Brookfield Investor, as the sole holder of the Class C Units. For the year ended

December 31, 2018

, the Company paid cash distributions of

$12.5

million and PIK Distributions of

564,870.56

Class C Units to the Brookfield Investor, as the sole holder of the Class C Units. For the year ended

December 31, 2019

, the Company paid cash distributions of

$27.8

million and PIK Distributions of

1,255,214.93

Class C Units to the Brookfield Investor, as the sole holder of the Class C Units.

Conversion Rights

The Class C Units are generally convertible into OP Units at any time at the option of the holder thereof at an initial conversion price of

$14.75

(the "Conversion Price"). The Conversion Price is subject to anti-dilution and other adjustments upon the occurrence of certain events and transactions.

Liquidation Preference

The liquidation preference with respect to each Class C Unit as of a particular date is the original purchase price paid under the SPA or the value upon issuance of any Class C Unit received as a PIK Distribution, plus, with respect to such Class C Unit up to but

not

including such date, (i) any accrued and unpaid cash distributions and (ii) any accrued and unpaid PIK Distributions.

Mandatory Redemption

The Class C Units are generally subject to mandatory redemption at a premium to liquidation preference if the OP consummates any liquidation, sale of all or substantially all of the assets, dissolution or winding-up, whether voluntary or involuntary, sale, merger, reorganization, reclassification or recapitalization or other similar event (a “Fundamental Sale Transaction”) prior to

March

31,

2022.

The amount of the premium, which

may

be substantial, varies based on the timing of consummation of the Fundamental Sale Transaction.

Holder Redemptions

The holders of the Class C Units

may

redeem such Class C Units at any time on or after

March 31, 2022

for a redemption price in cash equal to the liquidation preference and also have certain other redemption rights in connection with the Company’s failure to maintain REIT status or material breaches of the A&R LPA.

Remedies Upon Failure to Redeem

If the OP fails to redeem Class C Units when required to do so pursuant to the terms of the A&R LPA, beginning

three

months after such failure BSREP II Hospitality II Special GP, OP LLC (the "Special General Partner"), an affiliate of the Brookfield Investor, has the exclusive right, power and authority to sell the assets or properties of the OP for cash at such time or times as the Special General Partner

may

determine, upon engaging a reputable, national

third

party sales broker or investment bank reasonably acceptable to holders of a majority of the then outstanding Class C Units to conduct an auction or similar process designed to maximize the sales price. The proceeds from sales of assets or properties by the Special General Partner must be used

first

to make any and all payments or distributions due or past due with respect to the Class C Units, regardless of the impact of such payments or distributions on the Company or the OP.

The foregoing rights of the Special General Partner are in addition to the other rights described herein if the OP fails to redeem Class C Units when required to do so pursuant to the terms of the A&R LPA.

Company Redemption After Five Years

At any time and from time to time on or after

March

31,

2022,

the Company has the right to elect to redeem all or any part of the issued and outstanding Class C Units for an amount in cash equal to the liquidation preference.

Transfer Restrictions

The Brookfield Investor is generally permitted to make transfers of Class C Units without the prior consent of the Company, provided that any transferee must customarily invest in these types of securities or real estate investments of any type or have in excess of

$100.0

million of assets.

Preemptive Rights

If the Company or the OP proposes to issue additional equity securities, subject to certain exceptions and in accordance with the procedures in the A&R LPA, any holder of Class C Units that owns Class C Units representing more than

of the outstanding shares of the Company’s common stock on an as-converted basis has certain preemptive rights.

Brookfield Approval Rights

The articles supplementary with respect to the Redeemable Preferred Share restrict the Company from taking certain actions without the prior approval of at least

one

of the Redeemable Preferred Directors, and the A&R LPA restricts the OP from taking certain actions without the prior approval of the majority of the then outstanding Class C Units.

In general, subject to certain exceptions, prior approval is required before the Company or its subsidiaries (including the OP) are permitted to take any of the following actions: equity issuances; organizational document amendments; debt incurrences; affiliate transactions; sale of all or substantially all assets; bankruptcy or insolvency declarations; declarations or payments of dividends or other distributions; redemptions or repurchases of securities; adoption of, and amendments to, the annual business plan (including the annual operating and capital budget) required under the terms of the Redeemable Preferred Share; hiring and compensation decisions related to certain key personnel (including executive officers); property acquisitions and property sales and dispositions that do

not

meet transaction-size limits and other defined criteria and would be outside of the OP’s normal course of business; entry into new lines of business; settlement of material litigation; changes to material agreements; increasing or decreasing the number of directors on the Company’s board of directors; nominating or appointing a director (other than a Redeemable Preferred Director) who is

not

independent; nominating or appointing the chairperson of the Company’s board of directors; and certain other matters.