NOTE 2 – INVESTMENT IN HOTEL PROPERTIES

Investment in Hotel Properties consists of the following at September 30, 2011 and December 31, 2010:

	September 30, 2011			December 31, 2010

Land	$	245,382		$	233,869
Buildings and Improvements		1,014,015			1,057,344
Furniture, Fixtures and Equipment		138,946			150,723
Construction in Progress		50,281			15,301
		1,448,624			1,457,237

Less Accumulated Depreciation		(197,959	)		(211,386	)

Total Investment in Hotel Properties	$	1,250,665		$	1,245,851

Acquisitions

During the three months ended September 30, 2011, no additional operating hotel properties were acquired. During the nine months ended September 30, 2011, we acquired the following wholly-owned hotel properties:

Hotel	Acquisition Date	Land		Buildings and Improvements		Furniture Fixtures and Equipment		Franchise Fees, Loan Costs, and Leasehold Intangible		Total Purchase Price		Fair Value of Assumed Debt
Holiday Inn Express, Water Street, New York, NY	3/25/2011	$	7,341	$	28,591	$	2,704	$	28	$	38,664	$	-
Capitol Hill Suites, Washington, DC	4/15/2011	$	8,095	$	35,141	$	4,264	$	254	$	47,754	$	32,500
Courtyard by Marriott, Westside, Los Angeles, CA	5/19/2011	$	13,489	$	27,025	$	6,486	$	148	$	47,148	$	-

Total		$	28,925	$	90,757	$	13,454	$	430	$	133,566	$	32,500

Included in the consolidated statements of operations for the three and nine months ended September 30, 2011 are total revenues of $6,731 and $11,540, respectively, and total net income of $766 and net loss of $359, respectively, which represents the results of operations and acquisition costs of the hotels in the table above since the date of acquisition of each of these hotels.

	Three Months Ended September 30, 2011					Nine Months Ended September 30, 2011
Hotel	Revenue		Net Income (Loss)			Revenue		Net Income (Loss)
Holiday Inn Express, Water Street, New York, NY	$	1,835	$	511		$	3,606	$	175
Capitol Hill Suites, Washington, DC		1,825		(354	)		3,596		(1,325	)
Courtyard by Marriot, Westside, Los Angeles, CA		3,071		609			4,338		791
Total	$	6,731	$	766		$	11,540	$	(359	)

Pro Forma Results (Unaudited)

The following condensed pro forma financial data is presented as if all acquisitions completed since January 1, 2010 had been completed on January 1, 2010. 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, 2010 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 September 30,						For the Nine Months Ended September 30,
	2011			2010			2011			2010

Pro Forma Total Revenues	$	80,799		$	77,268		$	215,867		$	203,426
Pro Forma Income (Loss) from Continuing Operations	$	4,801		$	5,219		$	832		$	(692	)
Income (Loss) from Discontinued Operations		(27,305	)		628			(27,325	)		(645	)
Pro Forma Net Income (Loss)		(22,504	)		5,847			(26,493	)		(1,337	)
(Loss) Income allocated to Noncontrolling Interest		1,001			(575	)		1,574			(213	)
Preferred Distributions		(3,500	)		(1,200	)		(6,999	)		(3,600	)
Pro Forma Net Income (Loss) applicable to Common Shareholders	$	(25,003	)	$	4,072		$	(31,918	)	$	(5,150	)

Pro Forma Income (Loss) applicable to Common Shareholders per Common Share
Basic	$	(0.15	)	$	0.03		$	(0.19	)	$	(0.04	)
Diluted	$	(0.15	)	$	0.03		$	(0.19	)	$	(0.04	)

Weighted Average Common Shares Outstanding
Basic		168,985,193			138,636,206			168,666,752			125,193,554
Diluted		172,266,298			138,636,206			168,666,752			125,193,554

Asset Development

On July 22, 2011, the Company completed the acquisition of the real property and improvements located at 32 Pearl Street, New York, NY 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 acquired the real property and the improvements for cash and by cancelling an $8,000 development loan on the re-development project made to the seller and by cancelling $300 of accrued interest receivable from the seller. We have begun the process of re-developing this building into a Hampton Inn. As of September 30, 2011, we have spent $2,702 in development costs.

On December 28, 2010, we closed on the acquisition of a parcel of land, which includes a multi-story vacant building from an unrelated third party in New Castle, DE. The total purchase price for the parcel of land and the improvements was $15,301, which was paid in cash. We have begun the process of converting this building into a Sheraton branded hotel, which is expected to open during the fourth quarter of 2011. As of September 30, 2011, we have spent $3,978 in development costs.

Purchase and Sale Agreements

On August 15, 2011, the Company entered into two purchase and sale agreements to dispose of a portfolio of 18 non-core hotel properties, four of which are owned in part by the Company through an unconsolidated joint venture. See “Note 3 – Investment in Unconsolidated Joint Ventures” and “Note 12 – Discontinued Operations” for more information.

Hotel Closing

Effective March 31, 2011, we ceased operations at the Comfort Inn, located in North Dartmouth, MA and are in the process of conveying the asset to the lender. The closure of the property coincided with the expiration of its franchise agreement. The property has a carrying value of $1,964, as of September 30, 2011, which approximates its fair value. See “Note 6 – Debt” for additional discussion regarding the closure of this property.