Investment in Real Estate

9 Months Ended

Sep. 30, 2016

Real Estate [Abstract]

Real Estate Disclosure [Text Block]

3.  Investment in Real Estate

The Company’s investment in real estate consisted of the following (in thousands):

	September 30,			December 31,
	2016			2015
Land	$	713,559		$	561,630
Building and Improvements		4,304,705			3,200,918
Furniture, Fixtures and Equipment		391,151			293,444
Franchise Fees		11,774			8,832
		5,421,189			4,064,824
Less Accumulated Depreciation		(526,973	)		(423,057	)
Investment in Real Estate, net	$	4,894,216		$	3,641,767

As of September 30, 2016, the Company owned 236 hotels with an aggregate of 30,299 rooms located in 33 states.  Effective September 1, 2016, the Company completed the merger with Apple Ten, which added 56 hotels, located in 17 states, with an aggregate of 7,209 rooms.  As shown in the table setting forth the preliminary purchase price allocation for the merger in Note 2, the total real estate value of the merger was estimated to be approximately $1.3 billion.  The purchase price allocation is based on preliminary measurements of fair value and is subject to change.  The purchase price allocation for the merger represents the Company’s best estimate of fair value and the Company expects to finalize the valuation and complete the purchase price allocation during 2016.

On July 1, 2016, the Company closed on the purchase of a newly constructed 128-room Home2 Suites hotel in Atlanta, Georgia, the same day the hotel opened for business, for a purchase price of approximately $24.6 million.  The Company used borrowings under its revolving credit facility to purchase the hotel.  No goodwill was recorded in connection with this acquisition.

For the 57 hotels acquired during the nine months ended September 30, 2016 (including the 56 hotels acquired in the merger and one hotel acquired on July 1, 2016), the amount of revenue and operating income (excluding merger and other acquisition related transaction costs) included in the Company’s consolidated statements of operations from the date of acquisition through September 30, 2016 was approximately $25.0 million and $9.5 million, respectively.

During the nine month period ended September 30, 2015, the Company acquired five hotels.  The following table sets forth the location, brand, manager, date acquired, number of rooms and gross purchase price for each hotel acquired during the nine months ended September 30, 2015.  All dollar amounts are in thousands.

City	State	Brand	Manager	Date Acquired	Rooms		Gross Purchase Price (1)
Fort Lauderdale	FL	Hampton Inn	LBA	6/23/2015		156	$	23,000
Cypress	CA	Hampton Inn	Dimension	6/29/2015		110		19,800
Burbank	CA	SpringHill Suites	Marriott	7/13/2015		170		60,000
Burbank	CA	Courtyard	Huntington	8/11/2015		190		54,000
San Diego	CA	Courtyard	Huntington	9/1/2015		245		56,000
						871	$	212,800

⁽¹⁾    At the date of purchase, the purchase price for each of these properties was funded through the Company’s revolving credit facility with availability provided primarily from the proceeds from the sale of properties discussed in Note 4.  No goodwill was recorded in connection with any of the acquisitions.

The Company leases all of its hotels to its wholly-owned taxable REIT subsidiary (or a subsidiary thereof) under master hotel lease agreements.

As of September 30, 2016, the Company had outstanding contracts for the potential purchase of three additional hotels for a total purchase price of $56.5 million.  All three hotels are under construction and are expected to be completed and opened for business in the first half of 2017, at which time closing on these hotels is expected to occur.  Although the Company is working towards acquiring these three hotels, there are many conditions to closing that have not yet been satisfied and there can be no assurance that a closing on these hotels will occur under the outstanding purchase contracts.  The following table summarizes the location, brand, date of purchase contract, expected number of rooms, refundable (if the seller does not meet its obligations under the contract) contract deposits paid, and gross purchase price for each of the contracts outstanding at September 30, 2016.  All dollar amounts are in thousands.

Location	Brand	Date of Purchase Contract	Rooms		Refundable Deposits		Gross Purchase Price
Birmingham, AL (a)(b)	Home2 Suites	8/28/2015		105	$	3	$	19,219
Birmingham, AL (a)(b)	Hilton Garden Inn	8/28/2015		105		2		19,219
Fort Worth, TX (a)	Courtyard	8/28/2015		124		5		18,034
				334	$	10	$	56,472

(a)   As of September 30, 2016, these hotels were under construction.  The table shows the expected number of rooms upon hotel completion and the expected franchise brands.  Assuming all conditions to closing are met, the purchases of these hotels are expected to close in the first half of 2017.  If the seller meets all of the conditions to closing, the Company is obligated to specifically perform under the contract.  As the property is under construction, at this time, the seller has not met all of the conditions to closing.

(b)   The Home2 Suites and Hilton Garden Inn hotels in Birmingham, AL are part of an adjoining two-hotel complex located on the same site.

As there can be no assurance that all conditions to closing will be satisfied, the Company includes deposits paid for hotels under contract in other assets, net in the Company’s consolidated balance sheets, and in deposits and other disbursements for potential acquisitions in the Company’s consolidated statements of cash flows.  The Company intends to use borrowings under its $540 million revolving credit facility to purchase hotels under contract if a closing occurs.

During the third quarter of 2016, the Company identified two properties for potential sale (the Dallas, Texas Hilton hotel and the Chesapeake, Virginia Marriott hotel).  In October 2016, the Company entered into separate contracts for the sale of these properties for a total combined gross sales price of approximately $66.3 million.  The contracts are subject to a number of conditions to closing and therefore there can be no assurance that closings will occur.  If the closings occur, each of these sales are expected to be completed within three to six months of September 30, 2016.  At closing, the mortgage loan secured by the Dallas, Texas Hilton hotel, with an outstanding balance of approximately $27.4 million as of September 30, 2016, would be assumed by the buyer with the buyer receiving a credit for the amount assumed.  The Company plans to use the net proceeds from the sale to pay down borrowings on its revolving credit facility.  Due to the change in the anticipated hold period for each of these hotels, the Company reviewed the estimated undiscounted cash flows generated by each property (including its sale price, net of commissions and other selling costs) and determined that the Chesapeake, Virginia Marriott’s estimated undiscounted cash flows were less than its carrying value; therefore the Company recognized an impairment loss of approximately $5.5 million in the third quarter of 2016 to adjust the basis of this property to its estimated fair value, which was based on the contracted sale price, net of broker commissions and other estimated selling costs, a Level 1 input under the fair value hierarchy.  If both closings occur, the total combined net gain resulting from these two sales is estimated to be approximately $11.4 million.  The estimated net gain is calculated as the total combined sales price, net of commissions and selling costs, less the third quarter 2016 impairment loss noted above and a combined net book value totaling approximately $48.9 million as of September 30, 2016.  Since the contracts for the sales of these properties had not been finalized as of September 30, 2016, the assets and liabilities related to these properties have not been classified as held for sale in the Company’s consolidated balance sheet at September 30, 2016.