NOTE 2 – INVESTMENT IN HOTEL PROPERTIES

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



		September 30, 2013		December 31, 2012

Land	$	328,753	$	305,286
Buildings and Improvements		1,180,842		1,214,865
Furniture, Fixtures and Equipment		166,238		171,892
Construction in Progress		57,434		40,572
		1,733,267		1,732,615

Less Accumulated Depreciation		(245,662)		(265,902)

Total Investment in Hotel Properties	$	1,487,605	$	1,466,713

During the nine months ended September 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 determining the fair value of the above acquired assets. During the nine months ended September 30, 2013, we paid $713 in acquisition costs related to the above acquired assets.

On April 9, 2013, we completed the acquisition of the Hyatt Union Square hotel in New York, NY from Risingsam Union Square LLC. Consideration given in exchange for the property included $36,000 paid in cash to the seller and our cancellation of a development loan receivable in the original principal amount of $10,000 and $3,303 of accrued interest on the loan. In addition, we paid off the existing construction financing and entered into a new mortgage loan of $55,000. We recognized a net gain of approximately $12,108 on the purchase of the Hyatt Union Square hotel 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 nine months ended September 30, 2013 are total revenues of $8,952 and $12,729 and a total net income (loss) of $718 and $(771) 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:



	Three Months Ended September 30,					Nine Months Ended September 30,
	2013					2013
Hotel		Revenue		Net (Loss) Income		Revenue		Net (Loss) Income
Hyatt Union Square, New York, NY	$	3,976	$	(448)	$	6,178	$	(2,195)
Courtyard by Marriott, San Diego, CA		3,807		949		5,121		1,292
Residence Inn, Coconut Grove, FL		1,169		217		1,430		132

Total	$	8,952	$	718	$	12,729	$	(771)

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 is 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 do they purport to represent the results of operations for future periods.



	Three Months Ended September 30,				Nine Months Ended September 30,
	2013		2012		2013		2012
Pro Forma Total Revenues	$	90,291	$	84,359	$	254,112	$	242,196

Pro Forma Income from Continuing Operations	$	5,831	$	3,378	$	18,775	$	2,336
(Loss) Income from Discontinued Operations		(3,532)		2,755		(4,851)		14,060
Pro Forma Net Income		2,299		6,133		13,924		16,396
Loss Allocated to Noncontrolling Interest		164		271		587		184
Preferred Distributions		(3,589)		(3,500)		(11,022)		(10,500)
Extinguishment of Issuance Costs Upon Redemption of Series A Preferred Shares		-		-		(2,250)		-
Pro Forma Net (Loss) Income Applicable to Common Shareholders	$	(1,126)	$	2,904	$	1,239	$	6,080

Pro Forma Income Applicable to Common Shareholders per Common Share
Basic	$	(0.01)	$	0.01	$	0.01	$	0.03
Diluted	$	(0.01)	$	0.01	$	0.01	$	0.03

Weighted Average Common Shares Outstanding
Basic		198,878,496		196,360,325		198,186,963		184,394,561
Diluted		201,644,633		196,360,325		201,488,088		184,394,561

NOTE 2 – INVESTMENT IN HOTEL PROPERTIES (CONTINUED)

Asset Development and Renovation

The Company has 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.

In addition 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.

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 nine months ended September 30, 2013 and 2012:



	Three Months Ended September 30,				Nine Months Ended September 30,
	2013		2012		2013		2012

Property Tax	$	110	$	81	$	277	$	215
Interest Expense		337		418		930		1,182
Utility		1		1		3		3
Total	$	448	$	500	$	1,210	$	1,400

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 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 the first quarter of 2014. Of the $3,383 in aggregate insurance claims that we estimate to receive, $2,189 was received as of September 30, 2013.

Purchase and Sale Agreements

On September 20, 2013, the Company entered into a purchase and sale agreement to dispose of a portfolio of 16 non-core hotel properties. See “Note 12 – Discontinued Operations” for more information.

On October 16, 2013, the Company entered into a purchase and sale agreement to acquire the Hotel Oceana, located in Santa Barbara, California, from an unaffiliated seller for approximately $42,000, including the assumption of $25,250 in mortgage debt. This transaction is expected to close by the end of first quarter 2014.