3. Investment in Hotel Properties

Investment in hotel properties, net consisted of the following (in thousands):


	December 31,
	2015		2014
Land	$	542,660	$	570,011
Buildings and improvements		3,109,562		3,237,596
Furniture, fixtures and equipment		480,832		450,057
Intangibles		45,249		147,947
Franchise fees		1,082		1,167
Construction in process		97,974		68,275
Investment in hotel properties, gross		4,277,359		4,475,053
Accumulated depreciation and amortization		(1,048,349)		(936,924)
Investment in hotel properties, net	$	3,229,010	$	3,538,129

Acquisitions - 2015

The Company did not acquire any hotel properties or other assets during 2015.

Acquisitions - 2014

In June 2014, the Company acquired approximately seven acres of land underlying the Fairmont Newport Beach for $11.0 million, using net proceeds from the March 2014 issuance of its common stock in connection with its Equity Distribution Agreements (see Note 11), combined with cash on hand. Prior to the Company’s acquisition, the land was leased to the Company by a third party.

In July 2014, the Company purchased the 544-room Wailea Beach Marriott Resort & Spa for a net purchase price of $325.6 million, which was comprised of $265.6 million in cash, including $4.4 million of proration credits and unrestricted and restricted cash received from the seller, and $60.0 million of the Company’s common stock issued directly to the seller (the “Wailea stock consideration”). The acquisition was funded with proceeds received from the Company’s June 2014 common stock offering, as well as with the Wailea stock consideration, consisting of 4,034,970 shares of the Company’s common stock valued at $60.0 million. The Wailea stock consideration was determined by dividing $60.0 million by $14.87, which was the NYSE closing price of the Company’s common stock on June 19, 2014, the date the Wailea Beach Marriott Resort & Spa purchase and sale agreement was executed. In connection with this acquisition, the Company entered into a registration rights agreement requiring the Company to register the Wailea stock consideration. On July 17, 2014, the Company filed a prospectus supplement with the SEC, which registered the shares comprising the Wailea stock consideration for resale in accordance with the registration rights agreement. Based on the $14.87 closing price of the Company’s common stock on the NYSE on July 17, 2014, the date the acquisition closed, the total purchase price of the Wailea Beach Marriott Resort & Spa for accounting purposes was also $325.6 million. The Company recorded the acquisition at fair value using an independent third-party analysis, with the purchase price allocated to investment in hotel properties and hotel working capital assets and liabilities. The Company recognized acquisition-related costs of $0.5 million during 2014, which are included in corporate overhead on the Company’s consolidated statements of operations. The results of operations for the Wailea Beach Marriott Resort & Spa have been included in the Company’s consolidated statements of operations from the acquisition date of July 17, 2014 through the year ended December 31, 2015.

Acquisitions - 2013

In May 2013, the Company purchased the 250-room Hilton New Orleans St. Charles for a net purchase price of $59.1 million, including $0.2 million of proration credits and unrestricted cash received from the seller. The acquisition was funded with $53.2 million of proceeds generated by the Company’s January 2013 sale of four hotels and a commercial laundry facility located in Rochester, Minnesota (see Note 4), as well as with proceeds received from the Company’s February 2013 issuance of common stock. The Company recorded the acquisition at fair value using an independent third-party analysis, with the purchase price allocated to investment in hotel properties and hotel working capital assets and liabilities. The Company incurred acquisition-related costs of $0.4 million during 2013, which are included in corporate overhead on the Company’s consolidated statements of operations. The results of operations for the Hilton New Orleans St. Charles have been included in the Company’s consolidated statements of operations from the acquisition date of May 1, 2013 through the year ended December 31, 2015.

In July 2013, the Company purchased the 1,053-room Boston Park Plaza for a net purchase price of $248.0 million, including $2.0 million of proration credits, unrestricted and restricted cash and other adjustments received from the seller. The acquisition was funded with $92.3 million of proceeds generated by the Company’s January 2013 sale of four hotels and a commercial laundry facility located in Rochester, Minnesota (see Note 4), the assumption of a $119.2 million non-recourse loan secured by the hotel, as well as with proceeds received from the Company’s February 2013 issuance of common stock and with cash on hand. The Company recorded the acquisition at fair value using an independent third-party analysis, with the purchase price allocated to investment in hotel properties, hotel working capital assets, notes payable and hotel working capital liabilities. The Company incurred acquisition-related costs of $0.9 million during 2013, which are included in corporate overhead on the Company’s consolidated statements of operations. The results of operations for the Boston Park Plaza have been included in the Company’s consolidated statements of operations from the acquisition date of July 2, 2013 through the year ended December 31, 2015.

In December 2013, the Company purchased the 802-room Hyatt Regency San Francisco for a net purchase price of $262.5 million, including $5.5 million of purchase price adjustments comprised of restricted cash and other adjustments received from the seller. The acquisition was funded with proceeds generated by the Company’s November 2013 issuance of common stock. The Company recorded the acquisition at fair value using an independent third-party analysis, with the purchase price and other adjustments allocated to investment in hotel properties, prepaid expenses and other current liabilities. The Company incurred acquisition-related costs of $0.5 million during 2013, which are included in corporate overhead on the Company’s consolidated statements of operations. The results of operations for the Hyatt Regency San Francisco have been included in the Company’s consolidated statements of operations from the acquisition date of December 2, 2013 through the year ended December 31, 2015.

Unaudited Pro Forma Results

Acquired properties are included in the Company’s results of operations from the date of acquisition. The following unaudited pro forma results of operations reflect the Company’s results as if the acquisitions of the land underlying the Fairmont Newport Beach in June 2014, the Wailea Beach Marriott Resort & Spa in July 2014, the Hilton New Orleans St. Charles in May 2013, the Boston Park Plaza in July 2013, and the Hyatt Regency San Francisco in December 2013, had occurred on January 1, 2013. In the Company’s opinion, all significant adjustments necessary to reflect the effects of the acquisitions have been made (in thousands, except per share data):


	2014		2013
Revenues	$	1,175,367	$	1,100,354

Income attributable to common stockholders from continuing operations	$	74,811	$	19,931

Income per diluted share attributable to common stockholders from continuing operations	$	0.39	$	0.12

For the year ended December 31, 2014, the Company included $27.0 million of revenues, and net income of $3.5 million in its consolidated statements of operations related to the Company’s 2014 hotel acquisition. For the year ended December 31, 2013, the Company included $51.0 million of revenues, and net income of $2.8 million in its consolidated statements of operations related to the Company’s 2013 hotel acquisitions.

Intangible Assets

As of December 31, 2015 and 2014, intangible assets included in the Company’s investment in hotel properties, net consisted of the following (in thousands):


	2015		2014
Advanced bookings (1)	$	10,621	$	10,621
Easement agreement (2)		9,727		9,727
Ground/air lease agreements (3)		21,480		121,850
In-place lease agreements (4)		2,264		6,795
Above/(below) market lease agreements, net (5)		(1,693)		(3,896)
Below market management agreement (6)		2,850		2,850
		45,249		147,947
Accumulated amortization		(9,653)		(22,453)
	$	35,596	$	125,494

Amortization expense on these intangible assets for the years ended December 31, 2015, 2014 and 2013 consisted of the following (in thousands):


	2015		2014		2013
Advanced bookings (1)	$	2,340	$	1,769	$	4,560
Ground/air lease agreements (3)		3,791		4,113		4,113
In-place lease agreements (4)		1,455		830		454
Above/(below) market lease agreements, net (5)		(2,091)		(304)		(148)
Below market management agreement (6)		469		469		469
	$	5,964	$	6,877	$	9,448

(1)

Advanced bookings consist of advance deposits related to the purchases of the Boston Park Plaza, the Hyatt Regency San Francisco, and the Wailea Beach Marriott Resort & Spa. The contractual advanced hotel bookings were recorded at a discounted present value based on estimated collectability, and are amortized using the straightline method based over the periods the amounts are expected to be collected. The amortization expense for contractual advanced hotel bookings is included in depreciation and amortization expense in the Company’s consolidated statements of operations. The amounts will be fully amortized for the Boston Park Plaza, the Hyatt Regency San Francisco and the Wailea Beach Marriott Resort & Spa by June 2018, December 2017 and July 2018, respectively.

(2)

The Easement agreement at the Hilton Times Square was valued at fair value at the date of acquisition. The Hilton Times Square easement agreement has an indefinite useful life, and, therefore, is not amortized. This non-amortizable intangible asset is reviewed annually for impairment and more frequently if events or circumstances indicate that the asset may be impaired. If a non-amortizable intangible asset is subsequently determined to have a finite useful life, the intangible asset will be written down to the lower of its fair value or carrying amount and then amortized prospectively, based on the remaining useful life of the intangible asset.

(3)

Ground/air lease agreements at the Hilton Times Square and the JW Marriott New Orleans were valued at fair value at the dates of acquisition. The agreements are amortized using the straightline method over the remaining non-cancelable terms of the related agreements, which range from between approximately 65 and 75 years as of December 31, 2015. The amortization expense for the agreements is included in property tax, ground lease and insurance expense in the Company’s consolidated statements of operations. During 2015, the Company wrote off $81.5 million related to the air lease intangible asset net of accumulated amortization at the Doubletree Guest Suites Times Square due to the Company’s December 2015 sale of its interests in the hotel, which reduced the gain recognized on the sale.

(4)

In-place lease agreements at the Boston Park Plaza, the Hilton New Orleans St. Charles, the Hilton San Diego Bayfront, the Hyatt Regency San Francisco and the Wailea Beach Marriott Resort & Spa, were valued at fair value at the dates of acquisition. The agreements are amortized using the straightline method over the remaining non-cancelable terms of the related agreements, which range from between approximately 6 months and 7 years as of December 31, 2015. The amortization expense for the agreements is included in depreciation and amortization expense in the Company’s consolidated statements of operations. During 2015, the Company wrote off $2.4 million related to in-place lease intangible assets net of accumulated amortization at the Doubletree Guest Suites Times Square due to the Company’s December 2015 sale of its interests in the hotel, which reduced the gain recognized on the sale.

(5)

The above/(below) market lease agreements, net consist of unfavorable tenant lease liabilities at the Boston Park Plaza, the Hilton Garden Inn Chicago Downtown/Magnificent Mile, the Hyatt Regency San Francisco and the Wailea Beach Marriott Resort & Spa, and favorable tenant lease assets at the Hilton New Orleans St. Charles, the Hyatt Regency San Francisco and the Wailea Beach Marriott Resort & Spa. These agreements were valued at fair value at the dates of acquisition, and are amortized using the straightline method over the remaining non-cancelable terms of the related agreements, which range from between approximately 6 months and 16 years as of December 31, 2015. The amortization expense for the agreements is included in other operating revenue in the Company’s consolidated statements of operations.

(6)

The below market management agreement at the Hilton Garden Inn Chicago Downtown/Magnificent Mile was valued at fair value at the acquisition date. The agreement is comprised of two components, one for the management of the Hilton Garden Inn Chicago Downtown/Magnificent Mile, and the other for the potential management of a future hotel. The agreement is amortized using the straightline method over the remaining non-cancelable terms of the two components, approximately 2 and 7 years each as of December 31, 2015. The amortization expense for the agreement is included in property general and administrative expense in the Company’s consolidated statements of operations.

For the next five years, amortization expense for the intangible assets noted above is expected to be as follows (in thousands):


2016	$	3,286
2017	$	3,084
2018	$	1,722
2019	$	391
2020	$	350