Related Party Transactions and Arrangements

As of December 31, 2015, American Realty Capital Hospitality Special Limited Partner, LLC (the "Special Limited Partner"), which is wholly owned by AR Capital, owned 8,888 shares of the Company’s outstanding common stock. Additionally, as of December 31, 2015, AR Capital, the parent of the Sponsor, owned 22,222 shares of the Company's outstanding common stock.

The Advisor and its affiliates are entitled to a variety of fees, and may incur and pay costs and fees on behalf of the Company for which they are entitled to reimbursement. The Company had a payable due to affiliates related to operating, acquisition, financing and offering costs of $6.5 million and $7.0 million as of December 31, 2015 and December 31, 2014, respectively.

Fees Paid in Connection with the Offering

The Former Dealer Manager was paid fees and compensation in connection with the sale of the Company's common stock in the Offering prior to its suspension. The Former Dealer Manager was paid a selling commission of up to 7.0% of the per share purchase price of the Company’s Offering proceeds before reallowance of commissions earned by participating broker-dealers. In addition, the Former Dealer Manager was paid up to 3.0% of the gross proceeds from the sale of shares, before reallowance to participating broker-dealers, as a dealer-manager fee. The Former Dealer Manager was entitled to reallow its dealer-manager fee to participating broker-dealers. A participating broker dealer was entitled to elect to receive a fee equal to 7.5% of the gross proceeds from the sale of shares by such participating broker dealer, with 2.5% thereof paid at the time of such sale and 1.0% thereof paid on each anniversary of the closing of such sale up to and including the fifth anniversary of the closing of such sale. If this option was elected, the dealer manager fee has been reduced to 2.5% of gross proceeds.

On December 31, 2015, the Company, the Advisor and the Former Dealer Manager mutually agreed, pursuant to a termination agreement dated December 31, 2015, to terminate the Exclusive Dealer Manager Agreement dated January 7, 2014 among the Company, the Advisor and the Former Dealer Manager.

No dealer manager fees or selling commissions are paid with respect to shares purchased pursuant to the DRIP.

The table below shows the commissions and fees incurred from and payable to the Former Dealer Manager for the Offering during the year ended December 31, 2015 and 2014, and the associated payable as of December 31, 2015 and December 31, 2014, which is recorded in due to affiliates on the Company's consolidated balance sheets (in thousands):



	Year Ended				Payable as of
	2015		2014		December 31, 2015		December 31, 2014
Total commissions and fees incurred from the Former Dealer Manager	$	61,079	$	24,099	$	1	$	153

The Advisor and its affiliates were paid compensation and/or received reimbursement for services relating to the Offering, including transfer agency services provided by American National Stock Transfer, LLC ("ANST"), an affiliate of the Former Dealer Manager. The Company is responsible for the Offering and related costs (excluding selling commissions and dealer manager fees) up to a maximum of 2.0% of gross proceeds received from the Offering, measured at the end of the Offering. Offering costs in excess of the 2.0% cap as of the end of the Offering are the Advisor’s responsibility. As of December 31, 2015, Offering and related costs (excluding selling commissions and dealer manager fees) exceeded 2.0% of gross proceeds received from the Offering by $5.9 million.

Offering costs incurred by the Advisor or its affiliated entities on behalf of the Company have generally been recorded as a reduction to additional paid-in-capital on the accompanying consolidated balance sheets. The table below shows compensation and reimbursements incurred and payable to the Advisor and its affiliates for services relating to the Offering during the year ended December 31, 2015 and the year ended December 31, 2014, and the associated amounts payable as of December 31, 2015 and December 31, 2014, which is recorded in due to affiliates on the Company’s consolidated balance sheets (in thousands).



	Year Ended				Payable as of
	2015		2014		December 31, 2015		December 31, 2014
Total compensation and reimbursement for services provided by the Advisor and its affiliates related to the Offering⁽¹⁾	$	15,007	$	3,915	$	787	$	1,885

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⁽¹⁾ Included in the table above for the year ended December 31, 2015, were certain reimbursements incurred and payable to the Advisor and its affiliates for services of approximately $0.8 that were reflected in general and administrative expenses on the accompanying consolidated/combined statements of operations and comprehensive income (loss).

AR Capital is a party to a services agreement with RCS Advisory Services, LLC ("RCS Advisory"), an affiliate of the Former Dealer Manager, pursuant to which RCS Advisory and its affiliates provided the Company and certain other companies sponsored by AR Global with services (including, without limitation, transaction management, compliance, due diligence, event coordination and marketing services, among others) on a time and expenses incurred basis or at a flat rate based on services performed. AR Capital instructed RCS Advisory to stop providing such services in November 2015 and no services have since been provided by RCS Advisory.

The Company is also party to a transfer agency agreement with ANST, pursuant to which ANST provided the Company with transfer agency services (including broker and stockholder servicing, transaction processing, year-end IRS reporting and other services), and supervisory services overseeing the transfer agency services performed by a third-party transfer agent. AR Global received written notice from ANST on February 10, 2016 that it would wind down operations by the end of the month and would withdraw as the transfer agent effective February 29, 2016. On February 26, 2016, the Company entered into a definitive agreement with DST Systems, Inc., its previous provider of sub-transfer agency services, to provide the Company directly with transfer agency services (including broker and stockholder servicing, transaction processing, year-end IRS reporting and other services). Following the suspension of the IPO, fees payable with respect to transfer agency services are included in general and administrative expenses on the consolidated statements of operations and comprehensive loss during the period the service was provided.

Fees Paid in Connection With the Operations of the Company

Fees Paid to the Advisor

The Advisor receives an acquisition fee of 1.5% of (A) the contract purchase price of each acquired property and (B) the amount advanced for a loan or other investment. The Advisor may also be reimbursed for expenses incurred in the process of acquiring properties, in addition to third-party costs the Company may pay directly to, or reimburse the Advisor for. Additionally, the Company may reimburse the Advisor for legal expenses it or its affiliates directly incur in the process of acquiring properties in an amount not to exceed 0.1% of the contract purchase price of the Company’s assets acquired. Once the proceeds from the Offering have been fully invested, the aggregate amount of acquisition fees and financing coordination fees (as described below) may not exceed 1.9% of the contract purchase price, for any new investments, including reinvested proceeds, and the amount advanced for a loan or other investment, for all the assets acquired. In no event will the total of all acquisition fees, acquisition expenses and any financing coordination fees (as described below) payable with respect to the Company's total portfolio of investments, calculated after the close of the Offering and once the Company has invested substantially all the proceeds of the Offering, exceed 4.5% of (A) the contract purchase price of all of the Company's properties and (B) the amount advanced for all of the Company's loans or other investments. Fees paid to the Advisor related to acquisitions are reported as a component of net income (loss) in the period incurred.

If the Advisor provides services in connection with the origination or refinancing of any debt that the Company obtains and uses to acquire properties or to make other permitted investments, or that is assumed, directly or indirectly, in connection with the acquisition of properties, the Company will pay the Advisor or its assignees a financing coordination fee equal to 0.75% of the amount available and/or outstanding under such financing, subject to certain limitations. Fees paid to the Advisor related to debt financings are deferred and amortized over the term of the related debt instrument.

The Advisor receives a fee for asset management services it provides to the Company. For asset management services provided by the Advisor prior to October 1, 2015, the fee was paid quarterly in the form of performance-based restricted, forfeitable partnership units of the OP (designated as “Class B Units”).

On November 11, 2015, the Company, the OP and the Advisor agreed to an amendment to the asset management fee. Effective October 1, 2015, the Company became required to pay asset management fees in cash (subject to certain coverage limitations during the pendency of the Offering), or shares of the Company's common stock, or a combination of both, at the Advisor’s election, and the asset management fee is paid on a monthly basis. The monthly fees are equal to:


•	The cost of the Company’s assets, (until the Company establishes Estimated Per-Share NAV, then the lower of the cost of the Company's assets and the fair value of the Company's assets), multiplied by


•	0.0625%.

For asset management services provided by the Advisor prior to October 1, 2015, the Company issued Class B Units on a quarterly basis in an amount equal to:


•	The cost of the Company’s assets multiplied by


•	0.1875%, divided by


•	The value of one share of common stock as of the last day of such calendar quarter, which was equal to $22.50 (the Offering price prior to its suspension minus selling commissions and dealer manager fees).

In March of 2016, the Company amended its agreement with the Advisor to give the Company the right, for a period commencing on June 1, 2016 and ending on June 1, 2017, subject to certain conditions, to pay up to $500,000 per month of asset management fees payable to the Advisor under the Company’s agreement with the Advisor in shares of common stock. (See Note 15 - Subsequent Events).

The Advisor is entitled to receive distributions on the vested and unvested Class B Units it has received in connection with its asset management subordinated participation at the same rate as distributions received on the Company’s common stock. Such distributions are in addition to the incentive fees and other distributions the Advisor and its affiliates may receive from the Company and the OP, including without limitation, the annual subordinated performance fee and the subordinated participation in net sales proceeds, the subordinated incentive listing distribution or the subordinated distribution upon termination of the advisory agreement, each as described below.

The restricted Class B Units do not become unrestricted Class B Units until certain performance conditions are satisfied, including until the adjusted market value of the OP’s assets plus applicable distributions equals or exceeds the aggregate capital contributed by investors plus an amount equal to a 6.0% cumulative, pre-tax, non-compounded annual return to investors, and the occurrence of a sale of all or substantially all of the OP’s assets, a listing of the Company’s common stock, or a termination of the advisory agreement without cause. A total of 524,956 Class B Units have been issued as of December 31, 2015 for asset management services performed by the Advisor.

The issuance of Class B Units did not result in any expense on the Company’s consolidated statements of operations, except for distributions paid on the Class B Units. The Class B Units distribution expense was $0.4 million and less than $0.1 million for the years ended December 31, 2015, and December 31, 2014, respectively. As of December 31, 2015 the Company had a payable of $0.1 million related to Class B Units distributions.

The table below presents the asset management fees, acquisition and financing coordination fees charged by the Advisor in connection with the operations of the Company for the years ended December 31, 2015 and 2014, and the associated payable as of December 31, 2015 and December 31, 2014, which is recorded in due to affiliates on the Company's consolidated balance sheets (in thousands):



	Year Ended				Payable as of
	2015		2014		December 31, 2015		December 31, 2014
Asset management fees	$	4,097	$	—	$	1,190	$	—
Acquisition fees	$	31,068	$	1,598	$	—	$	—
Acquisition cost reimbursements	$	2,066	$	—	$	—	$	—
Financing coordination fees	$	16,994	$	815	$	—	$	—
	$	54,225	$	2,413	$	1,190	$	—

In order to increase operating cash flows and the ability to pay distributions from operating cash flows, the Advisor may elect to waive certain fees. Because the Advisor may waive certain fees, cash flow from operations that would have been paid to the Advisor may be available to pay distributions to stockholders. The fees that may be forgiven are not deferrals and accordingly, will not be paid to the Advisor. In certain instances, to improve the Company’s working capital, the Advisor may elect to absorb a portion of the Company’s general and administrative costs. No expenses were absorbed by the Advisor during the year ended December 31, 2015 and the year ended December 31, 2014, respectively.

The Company reimburses the Advisor’s costs for providing administrative services, subject to the limitation that the Company will not reimburse the Advisor for any amount by which the Company’s operating expenses at the end of the four preceding fiscal quarters exceeds the greater of (a) 2.0% of average invested assets and (b) 25.0% of net income other than any additions to reserves for depreciation, bad debt, impairment or other similar non-cash reserves and excluding any gain from the sale of assets for that period, unless the Company’s independent directors determine that such excess was justified based on

unusual and nonrecurring factors which they deem sufficient, in which case the excess amount may be reimbursed to the

Advisor in subsequent periods. Additionally, the Company reimburses the Advisor for personnel costs in connection with other services; however, the Company will not reimburse the Advisor for personnel costs, including executive salaries, in connection with services for which the Advisor receives acquisition fees, acquisition expenses or real estate commissions. These expense reimbursements are included in the amount reported under total compensation and reimbursement for services provided by the Advisor and its affiliates related to the Offering described above under “Fees Paid in Connection with the Offering.”

The Advisor at its election may also contribute capital to enhance the Company’s cash position for working capital and distribution purposes. Any contributed capital amounts are not reimbursable to the Advisor. Further, any capital contributions are made without any corresponding issuance of common or preferred shares. There were no contributions to capital from the Advisor for the years ended December 31, 2015 and December 31, 2014, respectively.

Fees Paid to the Property Manager and Crestline

The Company pays a property management fee of up to 4.0% of the monthly gross receipts from the Company's properties to the Property Manager. The Property Manager, in turn, pays a portion of the property management fees to Crestline or a third-party sub-property manager, as applicable. The Company also reimburses Crestline or a third-party sub-property manager, as applicable, for property level expenses, as well as fees and expenses of such sub-property manager. The Company does not, however, reimburse Crestline or any third-party sub-property manager for general overhead costs or for the wages and salaries and other employee-related expenses of employees of such sub-property managers, other than employees or subcontractors who are engaged in the on-site operation, management, maintenance or access control of the Company’s properties, and, in certain circumstances, who are engaged in off-site activities.

The Company also will pay its Property Manager (which payment has been assigned to Crestline) an annual incentive fee equal to 15% of the amount by which the operating profit from the properties sub-managed by Crestline for such fiscal year (or partial fiscal year) exceeds 8.5% of the total investment of such properties. The Company may, in the future, pay similar fees its Property Manager (which payment may be assigned to third-party sub-property managers) with respect to properties sub-managed by third-party sub-property managers. Incentive fees incurred by the Company were approximately $0.1 million and $0.1 million for the years ended December 31, 2015 and December 31, 2014, respectively.

For these purposes, “total investment” means the sum of (i) the price paid to acquire the property, including closing costs, conversion costs, and transaction costs; (ii) additional invested capital; and (iii) any other costs paid in connection with the acquisition of the property, whether incurred pre- or post-acquisition.

The table below shows the management fees and reimbursable expenses incurred by the Company from Crestline or the Property Manager (and not payable to a third party sub-property manager) during the year ended December 31, 2015 and the year ended December 31, 2014, respectively, and the associated payable as of December 31, 2015 and December 31, 2014 (in thousands):



	Year Ended				Payable as of
	2015		2014		December 31, 2015		December 31, 2014
Total management fees and reimbursable expenses incurred from Crestline	$	9,898	$	2,579	$	1,106	$	228
Total management fees incurred from Property Manager	$	6,816	$	262	$	3,553	$	20
Total	$	16,714	$	2,841	$	4,659	$	248

The Company paid Crestline interest on the Property Improvement Plan Promissory Note of $1.8 million (see Note 6 - Promissory Notes Payable). In the second quarter ended June 30, 2015, the Company repaid in full the Property Improvement Plan Promissory Note. The table below shows the interest expense incurred by the Company during the year ended December 31, 2015 and the year ended December 31, 2014, respectively, and the associated payable as of December 31, 2015 and December 31, 2014, which is recorded in due to affiliates on the consolidated balances sheets (in thousands):



	Year Ended				Payable as of
	2015		2014		December 31, 2015		December 31, 2014
Interest related to the Property Improvement Plan Promissory Note	$	21	$	63	$	—	$	20

Fees Paid to Other Affiliates of the Advisor Not Related to Offering

The Company entered into an agreement with the Former Dealer Manager to provide strategic advisory services and investment banking services required in the ordinary course of the Company's business, such as performing financial analysis, evaluating publicly traded comparable companies and assisting in developing a portfolio composition strategy, a capitalization structure to optimize future liquidity options and structuring operations. The Company recorded the payment of the costs associated with this agreement of $0.9 million in prepaid expenses and other assets on the Company's consolidated balance sheets and has fully amortized the costs as of December 31, 2015.

Additionally, the Company entered into a $0.8 million agreement with RCS Advisory to provide transaction management services in connection with the Grace Acquisition, the full amount of which was accrued for at December 31, 2014, and was paid in full as of December 31, 2015.

The Company entered into an agreement with the Former Dealer Manager to provide strategic financial advice and assistance in connection with the Grace Acquisition, such as performing financial advisory and analysis services, due diligence and negotiation of the financial aspects of the acquisition. The Company was charged 0.25% of the total transaction value for these services and accrued $4.5 million as of December 31, 2014, which was paid in full as of December 31, 2015.

The table below presents related party fees and reimbursements charged by the Former Dealer Manager and RCS Advisory in connection with the operations of the Company for the year ended December 31, 2015 and the year ended December 31, 2014, respectively, and the associated payable as of December 31, 2015 and December 31, 2014 (in thousands):



	Year Ended December 31,				Payable as of
	2015		2014		December 31, 2015		December 31, 2014
Transaction fees and expenses	$	—	$	5,270	$	—	$	4,645
Advisory and investment banking fee	$	460	$	460	$	—	$	—
Total related party fees and reimbursements	$	460	$	5,730	$	—	$	4,645

Fees Paid in Connection with the Liquidation or Listing

The Company is required to pay the Advisor an annual subordinated performance fee calculated on the basis of the Company’s total return to stockholders, payable monthly in arrears, such that for any year in which the Company’s total return on stockholders’ capital exceeds 6.0% per annum, the Advisor is entitled to 15.0% of the excess total return but not to exceed 10.0% of the aggregate total return for such year. This fee will be payable only upon the sale of assets, other disposition or refinancing of such assets, which results in the return on stockholders’ capital exceeding 6.0% per annum. No subordinated performance fees were incurred during the years ended December 31, 2015 and December 31, 2014, respectively.

The Company may pay a brokerage commission to the Advisor on the sale of property, not to exceed the lesser of 2.0% of the contract sale price of the property and 50.0% of the total brokerage commission paid if a third-party broker is also involved; provided, however, that in no event may the real estate commissions paid to the Advisor, its affiliates and unaffiliated third parties exceed the lesser of 6.0% of the contract sales price and a reasonable, customary and competitive real estate commission, in each case, payable to the Advisor if the Advisor or its affiliates, as determined by a majority of the independent directors, provided a substantial amount of services in connection with the sale. No such fees were incurred during the years ended December 31, 2015 and December 31, 2014, respectively.

The Special Limited Partner is entitled to receive a subordinated participation in the net sales proceeds of the sale of real estate assets of 15.0% of the remaining net sale proceeds after return of capital contributions to investors plus payment to investors of a 6.0% cumulative, pre-tax, non-compounded annual return on the capital contributed by investors. The Special Limited Partner will not be entitled to the subordinated participation in net sale proceeds unless the Company’s investors have received a 6.0% cumulative non-compounded return on their capital contributions plus the return of their capital. No such participation became due and payable during the years ended December 31, 2015 and December 31, 2014, respectively.

If the common stock of the Company is listed on a national exchange, the Special Limited Partner is entitled to receive a subordinated incentive listing distribution of 15.0% of the amount by which the Company’s market value plus distributions exceeds the aggregate capital contributed by investors plus an amount equal to a 6.0% cumulative, pre-tax, non-compounded annual return on their capital contributions. The Special Limited Partner will not be entitled to the subordinated incentive listing distribution unless investors have received a 6.0% cumulative, pre-tax non-compounded annual return on their capital contributions. No such distributions were incurred during the years ended December 31, 2015 and December 31, 2014, respectively. Neither the Special Limited Partner nor any of its affiliates can earn both the subordinated participation in the net sale proceeds and the subordinated incentive listing distribution.

Upon termination or non-renewal of the advisory agreement with the Advisor, with or without cause, the Special Limited Partner, through its controlling interest in the Advisor, is entitled to receive distributions from the OP equal to 15.0% of the amount by which the sum of the Company’s market value plus distributions exceeds the sum of the aggregate capital contributed by investors plus an amount equal to a 6.0% cumulative, pre-tax, non-compounded annual return to investors. The Special Limited Partner may elect to defer its right to receive a subordinated distribution upon termination until either a listing on a national securities exchange or other liquidity event occurs. No such distributions were incurred during the years ended December 31, 2015 and December 31, 2014, respectively.