NOTE 2 – INVESTMENT IN HOTEL PROPERTIES

Investment in hotel properties consists of the following at March 31, 2014 and December 31, 2013:



		March 31, 2014		December 31, 2013

Land	$	324,788	$	339,027
Buildings and Improvements		1,290,501		1,222,639
Furniture, Fixtures and Equipment		175,089		171,116
Construction in Progress		38,411		63,168
		1,828,789		1,795,950

Less Accumulated Depreciation		(269,956)		(260,115)

Total Investment in Hotel Properties	$	1,558,833	$	1,535,835

During the three months ended March 31, 2014, we acquired the following wholly-owned hotel property:



Hotel	Acquisition Date		Land		Buildings and Improvements		Furniture Fixtures and Equipment		Ground Lease Intangible		Franchise Fees and Loan Costs		Total Purchase Price		Assumption of Debt
Hotel Oceana, Santa Barbara, CA	2/28/2014	$	-	$	55,080	$	805	$	(14,230)	$	273	$	41,928	$	24,924

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 three months ended March 31, 2014, we paid $119 in acquisition costs related to the above acquired asset.

Included in the consolidated statements of operations for the three months ended March 31, 2014 are total revenues of $712 and a total net income of $29 for the hotel we acquired during the three months ended March 31, 2014 and consolidated since the date of acquisition.

NOTE 2 – INVESTMENT IN HOTEL PROPERTIES (CONTINUED)

Pro Forma Results (Unaudited)

The following condensed pro forma financial data for the three months ended March 31, 2014 and 2013, are presented as if the Hotel Oceana had been acquired as of January 1, 2013 and the four hotels acquired by the Company in 2013 (other than the Hyatt Union Square, which did not have operating history prior to acquisition) had been acquired as of January 1, 2012. The condensed pro forma financial data is not necessarily indicative of what actual results of operations of the Company would have been for the periods presented assuming the acquisitions had been consummated on January 1, 2013 and January 1, 2012 at the beginning of the year presented, nor do they purport to represent the results of operations for future periods.



	Three Months Ended March 31,
	2014		2013
Pro Forma Total Revenues	$	81,148	$	75,678

Pro Forma Loss from Continuing Operations	$	(5,550)	$	(5,171)
Loss from Discontinued Operations		(1,333)		(1,115)
Pro Forma Net Loss		(6,883)		(6,286)
Loss Allocated to Noncontrolling Interest		(495)		(721)
Preferred Distributions		(3,589)		(3,844)
Extinguishment of Issuance Costs Upon Redemption of Series A Preferred Shares		-		(2,250)
Pro Forma Net Loss Applicable to Common Shareholders	$	(10,967)	$	(13,101)

Pro Forma Loss Applicable to Common Shareholders per Common Share
Basic	$	(0.05)	$	(0.07)
Diluted	$	(0.05)	$	(0.07)

Weighted Average Common Shares Outstanding
Basic		200,743,751		197,029,017
Diluted		200,743,751		197,029,017

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 January 2014, the Company completed 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 months ended March 31, 2014 and 2013:



	Three Months Ended March 31,
	2014		2013

Property Tax	$	110	$	84
Interest Expense		242		275
Utility		8		1
Total	$	360	$	360

During the first quarter of 2014, we settled a significant portion of the insurance claim we had for losses incurred as a result of Hurricane Sandy. 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). Prior to March 31, 2014, we had 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 also had 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 second quarter of 2014. As of a result of the claim settlement, we recorded a gain on insurance settlements of approximately $2,045.

Purchase and Sale Agreements

In February 2014, the Company entered into a purchase and sale agreement to sell the Hotel 373, New York, NY to an unaffiliated buyer. This property was acquired by the Company in June 2007. On April 30, 2014, the Company closed on the sale of this asset for a total sales price of $37,000 and reduced the Company’s mortgage debt by $18,356.

In April 2014, the Company entered into a purchase and sale agreement to purchase the Parrot Key Hotel and Resort in Key West, FL from an unaffiliated buyer for a total purchase price of $100,000. The transaction is expected to close in the second quarter of 2014.