NOTE 2 – INVESTMENT IN HOTEL PROPERTIES

Investment in hotel properties consists of the following at June 30, 2013 and December 31, 2012:



		June 30, 2013		December 31, 2012

Land	$	356,104	$	305,286
Buildings and Improvements		1,363,700		1,214,865
Furniture, Fixtures and Equipment		194,167		171,892
Construction in Progress		50,479		40,572
		1,964,450		1,732,615

Less Accumulated Depreciation		(292,330)		(265,902)

Total Investment in Hotel Properties	$	1,672,120	$	1,466,713

During the six months ended June 30, 2013, we acquired the following wholly-owned hotel properties:



Hotel	Acquisition Date		Land		Buildings and Improvements		Furniture Fixtures and Equipment		Franchise Fees and Loan Costs		Total Purchase Price
Hyatt Union Square, New York, NY	4/9/2013	$	32,940	$	79,300	$	9,760	$	1,945	$	123,945
Courtyard by Marriott, San Diego, CA	5/30/2013		15,656		51,674		3,671		183		71,184
Residence Inn, Coconut Grove, FL	6/12/2013		4,146		17,456		218		75		21,895

Total		$	52,742	$	148,430	$	13,649	$	2,203	$	217,024

Acquisition-related cost, such as due diligence, legal and accounting fees, are not capitalized or applied in determine the fair value of the above acquired assets. During the six months ended June 30, 2013 we paid $699 in acquisition costs related to the above acquired assets.

On April 9, 2013, we completed the acquisition of the real property and improvements for Hyatt Union Square hotel in New York, NY from Risingsam Union Square LLC. Consideration given in exchange for the property including $36,000 paid in cash to the seller, the cancellation by the Company of a development loan in the original principal amount of $10,000 and $3,303 of accrued interest on the loan. In addition, the Company paid off the existing construction financing and entered into a new mortgage loan of $55,000. We recognized a net gain of approximately $12,107 on the purchase of Hyatt Union Square, New York, NY as the fair value of the assets acquired less any liabilities assumed exceeded the consideration transferred.

NOTE 2 – INVESTMENT IN HOTEL PROPERTIES (CONTINUED)

As shown in the table below, included in the consolidated statements of operations for the three and six months ended June 30, 2013 are total revenues of $3,777 and total net loss of $1,489 for hotels we have acquired and consolidated since the date of acquisition. These amounts represent the results of operations for these hotels since the date of acquisition:



	For the Three and Six Months Ended,
	June 30, 2013
Hotel		Revenue		Net (Loss) Income
Hyatt Union Square, New York, NY	$	2,202	$	(1,747)
Courtyard by Marriott, San Diego, CA		1,314		343
Residence Inn, Coconut Grove, FL		261		(85)

Total	$	3,777	$	(1,489)

Pro Forma Results (Unaudited)

The following condensed pro forma financial data are presented as if all acquisitions completed since January 1, 2013 and 2012 had been completed on January 1, 2012 and 2011. Properties acquired without any operating history are excluded from the condensed pro forma operating results. The condensed pro forma financial data are not necessarily indicative of what actual results of operations of the Company would have been assuming the acquisitions had been consummated on January 1, 2013 and 2012 at the beginning of the year presented, nor does it purport to represent the results of operations for future periods.



	For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2013		2012		2013		2012
Pro Forma Total Revenues	$	109,418	$	105,115	$	190,147	$	181,155

Pro Forma Income from Continuing Operations	$	21,424	$	11,521	$	14,366	$	(467)
(Loss) Income from Discontinued Operations		(2,582)		7,289		(2,742)		11,272
Pro Forma Net Income		18,842		18,810		11,624		10,805
(Income) Loss allocated to Noncontrolling Interest		(235)		(849)		421		(107)
Preferred Distributions		(3,589)		(3,500)		(7,433)		(7,000)
Extinguishment of Issuance Costs Upon Redemption of Series A Preferred Stock						(2,250)
Pro Forma Net Income Applicable to Common Shareholders	$	15,018	$	14,461	$	2,362	$	3,698

Pro Forma Income applicable to Common Shareholders per Common Share
Basic	$	0.08	$	0.08	$	0.01	$	0.02
Diluted	$	0.07	$	0.08	$	0.01	$	0.02

Weighted Average Common Shares Outstanding
Basic		198,633,051		186,264,437		197,835,465		178,345,932
Diluted		201,201,337		189,011,990		201,083,900		178,345,932

Asset Development and Renovation

We have opportunistically engaged in development of hotel assets. On July 22, 2011, the Company completed the acquisition of the real property and improvements located at 32 Pearl Street, New York, NY, anticipated to become a Hampton Inn, from an unaffiliated seller for a total purchase price of $28,300. The property is a re-development project which was initiated in 2008. The Company continues construction of an additional oceanfront tower, additional meeting space and structured parking on a land parcel adjacent to the Courtyard by Marriott, Miami, Florida, a hotel acquired on November 16, 2011. This land parcel was included in the acquisition of the hotel.

NOTE 2 – INVESTMENT IN HOTEL PROPERTIES (CONTINUED)

We capitalize expenditures related to hotel development projects and renovations, including indirect costs such as interest expense, real estate taxes and utilities related to hotel development projects and renovations.

We have capitalized the following indirect development costs for the three and six months ended June 30, 2013 and 2012:


	For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2013		2012		2013		2012
Hampton Inn, Pearl Street, NY
Property Tax	$	84	$	67	$	167	$	134
Interest Expense		232		377		477		740
Utility		1		2		2		2
Total	$	317	$	446	$	646	$	876

In October 2012, Hurricane Sandy affected numerous hotels within our portfolio. Two hotels within our portfolio were significantly impacted by this natural disaster; one hotel was inoperable (Holiday Inn Express Water Street, New York, NY) and one hotel development project which has incurred delays in construction (Hampton Inn, Pearl Street, New York, NY). We have recorded estimated property losses of $1,586 on the Holiday Inn Express Water Street and a corresponding insurance claim receivable of $1,486. This hotel re-opened in April 2013. We have recorded estimated property losses of $1,997 on the Hampton Inn Pearl Street and a corresponding insurance claim receivable of $1,897, and we expect this hotel to open in December 2013. Of the $3,383 in aggregate insurance claims that we estimate to receive, $2,189 was received as of June 30, 2013.