NOTE 2 – INVESTMENT IN HOTEL PROPERTIES

Investment in hotel properties consists of the following at December 31, 2011 and 2010:

	December 31, 2011			December 31, 2010

Land	$	278,442		$	233,869
Buildings and Improvements		1,090,280			1,057,344
Furniture, Fixtures and Equipment		151,600			150,723
Construction in Progress		31,638			15,301
		1,551,960			1,457,237

Less Accumulated Depreciation		(211,084	)		(211,386	)

Total Investment in Hotel Properties	$	1,340,876		$	1,245,851

Depreciation expense was $55,336, $51,823 and $44,002 (including depreciation on assets held for sale) for the years ended December 31, 2011, 2010, and 2009, respectively.

Acquisitions

During the year ended December 31, 2011, we acquired the following wholly-owned hotel and hotel development properties:

Hotel	Acquisition Date	Land		Buildings and Improvements		Furniture Fixtures and Equipment		Franchise Fees, Loan Costs, and Leasehold Intangible (Liability)			Acquisition Costs		Construction in Progress		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		$	716	$	-	$	39,380	$	-
Capitol Hill Suites, Washington, DC	4/15/2011	$	8,095	$	35,141	$	4,264	$	254		$	1,043	$	-	$	48,797	$	32,500
Courtyard by Marriott, Westside, Los Angeles, CA	5/19/2011	$	13,489	$	27,025	$	6,486	$	148		$	165	$	-	$	47,313	$	-
Hampton Inn, Pearl Street, New York, NY	7/22/2011	$	-	$	-	$	-	$	-		$	-	$	28,300	$	28,300
Courtyard by Marriott, Miami, FL	11/16/2011	$	35,699	$	55,805	$	6,142	$	(1,979	)	$	236	$	-	$	95,903	$	30,052

Total		$	64,624	$	146,562	$	19,596	$	(1,549	)	$	2,160	$	28,300	$	259,693	$	62,552

As shown in the table below, included in the consolidated statements of operations for the year ended December 31, 2011 are total revenues of $19,476 and total net loss of $684 for the hotels we acquired a 100% interest in since January 1, 2011. While we acquired a 100% interest in the Sheraton, New Castle, DE in December 2010, the property did not open until December 2011. These amounts represent the results of operations for such hotels since the date of acquisition of our 100% interest in such hotels or, in the case of the Sheraton, New Castle, DE, the results of operations for such hotel since the date operations commenced.

	Twelve Months Ended,
	December 31, 2011
Hotel	Revenue		Net Income (Loss)
Holiday Inn Express, Water Street, New York, NY	$	5,605	$	785
Capitol Hill Suites, Washington, DC		5,327		(1,601	)
Courtyard by Marriott, Westside, Los Angeles, CA		6,760		557
Courtyard by Marriott, Miami, FL		1,716		(135	)
Sheraton, New Castle, DE		68		(290	)
Total	$	19,476	$	(684	)

During the year ended December 31, 2010 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 (Liability)		Acquisition Costs		Construction in Progress		Total Purchase Price		Fair Value of Assumed Debt
Hilton Garden Inn, Glastonbury, CT	1/1/2010	$	1,898	$	12,981	$	2,223	$	27	$	24	$	-	$	17,153	$	11,937
Hampton Inn, Times Square, NY	2/9/2010		10,691		41,637		3,939		89		1,109		-		57,465		-
Holiday Inn Express, Times Square, NY	2/9/2010		11,075		43,113		4,078		105		1,146		-		59,517		-
Candlewood Suites, Times Square, NY	2/9/2010		10,281		36,687		4,298		96		1,016		-		52,378		-
Holiday Inn, Wall Street, NY	5/7/2010		12,152		21,100		1,567		57		175		-		35,051		-
Hampton Inn, Washington, DC	9/1/2010		9,335		58,048		5,605		108		1,194		-		74,290		-
Sheraton, New Castle, DE	12/28/2010		-		-		-		-		-		15,301		15,301		-

Total		$	55,432	$	213,566	$	21,710	$	482	$	4,664	$	15,301	$	311,155	$	11,937

As shown in the table below, included in the consolidated statements of operations for the year ended December 31, 2011 and 2010 are total revenues of $64,173 and $46,147, respectively, and total net income of $12,353 and $7,518, respectively, for the hotels we acquired a 100% interest in since January 1, 2010. These amounts represent the results of operations for such hotels since the date of acquisition of our 100% interest in such hotels.

	Twelve Months Ended,					Twelve Months Ended,
	December 31, 2011					December 31, 2010
Hotel	Revenue		Net Income (Loss)			Revenue		Net (Loss) Income
Hilton Garden Inn, Glastonbury, CT	$	5,371	$	333		$	5,046	$	(142	)
Hampton Inn, Holiday Inn Express, Candlewood Suites, Times Square, New York, NY		38,705		11,588			32,681		7,025
Holiday Inn, Wall Street, New York, NY		6,756		1,929			4,496		962
Hampton Inn, Washington, DC		13,341		(1,497	)		3,924		(327	)
Total	$	64,173	$	12,353		$	46,147	$	7,518

Pro Forma Results (Unaudited)

The following condensed pro forma financial data are 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 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, 2010 at the beginning of the year presented, nor does it purport to represent the results of operations for future periods.

	For the Year Ended December 31,
	2011			2010
Pro Forma Total Revenues	$	306,910		$	288,818

Pro Forma (Loss) income from Continuing Operations	$	884		$	(5,978	)
Loss from Discontinued Operations		(26,771	)		(3,976	)
Pro Forma Net Loss		(25,887	)		(9,954	)
Loss allocated to Noncontrolling Interest		1,689			408
Preferred Distributions		(10,499	)		(4,800	)
Pro Forma Net Loss applicable to Common Shareholders	$	(34,697	)	$	(14,346	)

Pro Forma Loss applicable to Common Shareholders per Common Share
Basic	$	(0.21	)	$	(0.11	)
Diluted	$	(0.21	)	$	(0.11	)

Weighted Average Common Shares Outstanding
Basic		168,753,382			134,370,172
Diluted		168,753,382			134,370,172

Asset Development and Renovation

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 December 31, 2011, we have spent $3,338 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. On December 5, 2011, the renovations were completed and the hotel open as a Sheraton branded hotel. We capitalized approximately $7,771 in development costs, which are included in Investment in Hotel Properties on the consolidated balance sheet.

On April 2, 2010, we commenced renovations to convert two of our existing adjoining hotel properties in King of Prussia, PA into a Hyatt Place. The hotels previously operated as a Mainstay Suites and a Sleep Inn and were closed at the time renovations commenced. We capitalized the cost of construction, including interest, during the period of time the hotel was under renovation. On August 17, 2010, the renovations were completed and the hotel opened. We capitalized approximately $6,471 in renovation costs, which are included in Investment in Hotel Properties on the consolidated balance sheet.

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 $1,949, as of December 31, 2011, which approximates its fair value. See “Note 6 – Debt” for additional discussion regarding the closure of this property.