NOTE 2 – INVESTMENT IN HOTEL PROPERTIES

Investment in hotel properties consists of the following at September 30, 2017 and December 31, 2016:



		September 30, 2017		December 31, 2016

Land	$	538,322	$	499,484
Buildings and Improvements		1,625,695		1,383,266
Furniture, Fixtures and Equipment		248,142		204,212
Construction in Progress		2,450		950
		2,414,609		2,087,912

Less Accumulated Depreciation		(380,021)		(320,342)

Total Investment in Hotel Properties	$	2,034,588	$	1,767,570

Acquisitions

We acquired the following properties during the nine months ended September 30, 2017:



Hotel	Acquisition Date		Land		Buildings and Improvements		Furniture, Fixtures and Equipment		Other Intangibles			Total Purchase Price		Assumption of Debt
Mystic Marriott Hotel & Spa, Groton, CT (1)	1/3/2017	$	1,420	$	40,440	$	7,240	$	899	*	$	49,999	$	41,333
The Ritz-Carlton, Coconut Grove, FL	2/1/2017		5,185		30,742		1,064		(291)	**		36,700		3,150
The Pan Pacific Hotel, Seattle, WA	2/21/2017		13,079		59,256		6,665		-			79,000		-
Philadelphia Westin, Philadelphia, PA	6/29/2017		19,154		103,451		12,028		367	***		135,000		-
TOTAL		$	38,838	$	233,889	$	26,997	$	975		$	300,699	$	44,483

(1) The Mystic Marriott Hotel & Spa was acquired as partial consideration within the transaction to redeem and transfer our joint venture interest in Mystic Partners, LLC. See Note 3 for further description of the transaction.

* Consists entirely of $899 of advanced bookings.

** Includes an intangible asset for a lease-in-place of $229, and a below market lease liability of $520.

*** Consists entirely of $367 of advanced bookings.

The Company is currently finalizing our analysis of the fair value of assets acquired and liabilities incurred in connection with the purchase of the Ritz Carlton, Coconut Grove. As such, the amounts reported in the table above are preliminary. We expect the amounts will be finalized within the one year remeasurement period as defined within ASC 805.

Acquisition-related costs, 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 and nine months ended September 30, 2017, we incurred $297 and $2,121 in costs related to acquired assets and terminated transactions.

NOTE 2 – INVESTMENT IN HOTEL PROPERTIES (CONTINUED)

The following table illustrates total revenues and total net income, including related acquisition costs, included in the consolidated statement of operations for the three and nine months ended September 30, 2017 for the hotels we acquired or assumed ownership during the nine months ended September 30, 2017 and consolidated since the date of acquisition of the hotels.



	Three Months Ended September 30, 2017				Nine Months Ended September 30, 2017
Hotel		Revenue		Net Income (Loss)		Revenue		Net Income (Loss)
Mystic Marriott Hotel & Spa, Groton, CT	$	5,667	$	744	$	15,819	$	1,303
The Ritz-Carlton, Coconut Grove, FL		2,377		(695)		8,921		(774)
The Pan Pacific Hotel, Seattle, WA		4,485		669		9,795		638
Philadelphia Westin, Philadelphia, PA		6,758		1,308		6,787		296

Total	$	19,287	$	2,026	$	41,322	$	1,463

Lease Buyout

During November 2016, we signed an agreement with our restaurant lessee at the Courtyard Cadillac Miami to buyout the remainder of their current lease. The agreement was made in conjunction with our overall property improvement plan, which will also include room and common area upgrades, with the intention to rebrand the hotel to a more upscale Marriott brand. As defined by terms of the agreement, we were contractually obligated to pay total consideration to complete the buyout of $10,000 and issue 450,000 operating partnership units. During the fourth quarter of 2016, we paid $5,000 and issued 225,000 units valued at $4,400 with the remainder of the consideration due upon completion of the buyout. During 2016, we accounted for this transaction in accordance with ASU 420 “Exit or Disposal Cost Obligations,” recording the entire amount of consideration as an expense at the time of agreement execution, resulting in a total expense of $18,831. This recorded expense was partially offset by the write-off of an intangible liability related to the lease of $2,000 during the fourth quarter of 2016. In September 2017, we completed the buy-out through the payment of $5,000 and the issuance of 225,000 units valued at $4,133.

Property Damage from Natural Disaster

During September 2017, all six of our hotels located in South Florida incurred property damage and an interruption of business operations as a result of Hurricane Irma. Two of our hotels, the Courtyard Cadillac Miami and the Parrot Key Hotel & Resort, incurred significant physical damage and have been closed since the disaster with the expectation to open for business during the first quarter of 2018. The remaining four properties have resumed normal business activities as of September 30, 2017. Based on our initial assessments, we have recorded estimated property impairment and remediation losses of $10,194 during the three and nine months ended September 30, 2017 offset by a corresponding insurance claim receivable of $6,382 for a net loss in excess of estimated insurance recoveries of $3,812. Our current insurance policies also contain coverage for income lost due to business interruption from covered losses. Any recoveries obtained through business interruption coverage will be recorded as a gain at such time that the recovery is probable. The Company recorded $0 gain related to business interruption insurance coverage during the three and nine months ended September 30, 2017.

Hotel Dispositions

In July 2016, we entered into purchase and sale agreements to sell the Residence Inn, Greenbelt, MD, Courtyard, Alexandria, VA, Hyatt House, Scottsdale, AZ, Hyatt House, Pleasant Hill, CA, and Hyatt House, Pleasanton, CA to an unaffiliated buyer for a sales price of $185,000. The purchase and sale agreements were amended subsequently to increase the total sales price by $7,500 in exchange for providing the buyer with an extension to close on three of the assets.

NOTE 2 – INVESTMENT IN HOTEL PROPERTIES (CONTINUED)

On January 5, 2017, the Company closed on the sales of the Residence Inn, Greenbelt, MD, and the Courtyard, Alexandria, VA to an unaffiliated buyer for a combined total sales price of $62,000 resulting in a gain on sale of approximately $18,731. The Residence Inn, Greenbelt, MD was acquired by the Company in July 2004 and the Courtyard, Alexandria, VA was acquired by the Company in September 2006. The operating results for these hotels are included in operating income as shown in the

consolidated statements of operations for the period owned during the nine months ended September 30, 2017 and 2016 as disposition of these hotels does not represent a strategic shift in our business.

On June 8, 2017, the Company closed on the sale of the Hyatt House, Scottsdale, AZ, Hyatt House, Pleasant Hill, CA, and Hyatt House, Pleasanton, CA to an unaffiliated buyer for a sales price of $130,500 resulting in a gain on sale of approximately $70,852. All three of the properties were acquired by the Company in December 2006. The operating results for these hotels are included in operating income as shown in the consolidated statements of operations for the period owned during the three and nine months ended September 30, 2017 and 2016 as disposition of these hotels does not represent a strategic shift in our business.

Assets Held For Sale

There are no assets held for sale as of September 30, 2017. The table below shows the balances classified as assets held for sale as of December 31, 2016:



	December 31, 2016

Land	$	22,208
Buildings and Improvements		105,663
Furniture, Fixtures and Equipment		24,187
		152,058

Less: Accumulated Depreciation & Amortization		(53,585)

Assets Held for Sale	$	98,473

Liabilities Related to Assets Held for Sale	$	51,428

NOTE 2 – INVESTMENT IN HOTEL PROPERTIES (CONTINUED)

Pro Forma Results (Unaudited)

The following condensed pro forma financial data for the three and nine months ended September 30, 2017 and 2016 are presented as if the hotels acquired by the Company in 2017 and 2016 had been acquired as of January 1, 2017 and 2016, respectively. The condensed pro forma financial data are 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, 2017 and 2016, nor do they purport to represent the results of operations for future periods.



	Three Months Ended September 30,					Nine Months Ended September 30,
	2017		2016		2017		2016
Pro Forma Total Revenues	$	129,589		144,563	$	393,610	$	438,810

Pro Forma Net Income		3,263		11,054		119,340		121,983
(Income) Loss Allocated to Noncontrolling Interest		90		(354)		(6,174)		(4,617)
Preferred Distributions		(6,040)		(4,417)		(18,124)		(12,006)
Extinguishment of Issuance Costs Upon Redemption of Series B Preferred Shares		-		-		-		(4,021)
Pro Forma (Loss) Income Applicable to Common Shareholders	$	(2,687)	$	6,283	$	95,042	$	101,339

Pro Forma (Loss) Income Applicable to Common Shareholders per Common Share
Basic	$	(0.07)	$	0.15	$	2.28	$	2.34
Diluted	$	(0.07)	$	0.15	$	2.25	$	2.31

Weighted Average Common Shares Outstanding
Basic		41,721,425		42,309,044		41,725,159		43,368,153
Diluted		41,721,425		42,745,864		42,225,238		43,869,293