INVESTMENT IN HOTEL PROPERTIES, NET

Investment in Hotel Properties, net

Investment in hotel properties, net at June 30, 2016 and December 31, 2015 is as follows (in thousands):



	June 30, 2016			December 31, 2015
Land	$	161,914		$	149,996
Hotel buildings and improvements	1,311,348			1,222,017
Construction in progress	15,006			6,555
Furniture, fixtures and equipment	124,388			123,332
	1,612,656			1,501,900
Less accumulated depreciation	(196,023		)	(168,493		)
	$	1,416,633		$	1,333,407

Assets Held for Sale

Assets held for sale at June 30, 2016 and December 31, 2015 include the following (in thousands):



	June 30, 2016		December 31, 2015
Land	$	11,688	$	24,250
Hotel buildings and improvements	49,581		97,249
Furniture, fixtures and equipment	7,413		10,906
Franchise fees and other	480		733
Total	$	69,162	$	133,138

On June 2, 2015, the Operating Partnership and certain affiliated entities entered into two separate agreements, as amended on July 15, 2015 (collectively, the "ARCH Agreements"), to sell a portfolio of 26 hotels containing an aggregate of 2,793 guestrooms to affiliates of American Realty Capital Hospitality Trust, Inc. ("ARCH") for an aggregate cash purchase price of approximately $347.4 million. As a result of the ARCH Agreements, we classified the hotel properties to be sold pursuant to the ARCH Agreements as Assets Held for Sale. The hotels were to be sold in three separate closings. The first closing of 10 hotels containing 1,090 guestrooms was completed on October 15, 2015 for an aggregate cash payment of $150.1 million and was executed through forward and reverse 1031 Exchanges to defer taxable gains on the sale of the hotels.

On December 29, 2015, we and ARCH agreed to terminate the ARCH Agreement with respect to ARCH’s right to acquire fee simple interests in 10 hotels containing a total of 996 guestrooms for an aggregate purchase price of $89.1 million at a closing that had been scheduled to occur on December 29, 2015 (the “Terminated Purchase Agreement”). As a result of the termination, ARCH forfeited and we retained the $9.1 million earnest money deposit made by ARCH under the ARCH Agreements and the parties were released from further obligations, except those which expressly survive the termination of the ARCH Agreement pursuant to its terms.

On February 11, 2016, we completed the sale of six hotels to ARCH for an aggregate purchase price of $108.3 million. We provided seller-financing (as described below) to ARCH of $20.0 million to consummate the transaction. The proceeds from the sale were used to complete certain reverse 1031 Exchanges. The hotels acquired by us to complete the reverse 1031 Exchanges included the 179-guestroom Courtyard by Marriott in Atlanta (Decatur), GA on October 20, 2015 for a purchase price of $44.0 million and the 226-guestroom Courtyard by Marriott in the West End of Nashville, TN on January 19, 2016 for a purchase price of $71.0 million. The completion of the reverse 1031 Exchanges resulted in the deferral of taxable gains for tax purposes of approximately $74.0 million and the pay-down of our unsecured revolving credit facility by $105.0 million. Additionally, we repaid a mortgage loan totaling $5.8 million related to the assets sold to ARCH. The sale to ARCH resulted in a $56.8 million gain, of which $20.0 million was initially deferred related to the seller financing. Through June 30, 2016, we have recognized $2.0 million of the deferred gain upon receipt of scheduled repayments of the principal balance of the loan from ARCH.

On February 11, 2016, the Company and American Realty Capital Hospitality Portfolio SMT ALT, LLC, an affiliate of ARCH, as substitute purchaser (“New ARCH Purchaser”), entered into a letter agreement (the “Reinstatement Agreement”) and agreed, subject to the terms and conditions of the Reinstatement Agreement, to reinstate the Terminated Purchase Agreement in its entirety, except as modified by the Reinstatement Agreement (the Terminated Purchase Agreement, as reinstated and modified by the Reinstatement Agreement, is referred to herein as the “Reinstated Purchase Agreement”), to make null and void the prior termination of the Terminated Purchase Agreement and to proceed with the proposed sale of the 10 hotels (the “Reinstated Hotels”) pursuant to the Reinstated Purchase Agreement for an aggregate purchase price of $89.1 million. The Reinstated Hotels are being sold to the New ARCH Purchaser as part of the ARCH Sale.

The Reinstatement Agreement required the New ARCH Purchaser to deposit non-refundable earnest money in the amount of $7.5 million (the “New Deposit”) with an escrow agent to support the closing of the Reinstated Hotels. The New Deposit is non-refundable to the New ARCH Purchaser except in limited circumstances. The prior earnest money deposit in the amount of $9.1 million that was retained by us in connection with the termination of the Terminated Purchase Agreement will not be credited to the New ARCH Purchaser against the purchase price for the Reinstated Hotels, and the purchase price remains the same. The closing of the sale of the Reinstated Hotels is scheduled to occur on or before December 30, 2016 (the “New Closing Date”), or at such later date as the closing may be adjourned or extended in accordance with the express terms of the Reinstatement Agreement. If the closing of the Reinstated Hotels does not occur as required by the Reinstatement Agreement because of a default by the New ARCH Purchaser, then the New ARCH Purchaser will forfeit the New Deposit to us as liquidated damages.

Prior to the New Closing Date, we have the right to continue to market and ultimately sell, without the consent of the New ARCH Purchaser, any or all of the Reinstated Hotels to bona fide third-party purchasers that are not affiliates of ours. If we sell some, but not all of the Reinstated Hotels to bona fide third-party purchasers, then the purchase price to be paid by the New ARCH Purchaser for the remaining Reinstated Hotels will be reduced, but the New Deposit will remain with the escrow agent except in limited circumstances. We are actively marketing the Reinstated Hotels to other potential buyers. During the three months ended June 30, 2016, we completed the sale of two of the Reinstated Hotels to purchasers that are unrelated to the New ARCH Purchaser. Accordingly, the $89.1 million selling price of the Reinstated Hotels will be reduced as provided above.

On February 11, 2016, the Operating Partnership entered into a loan agreement with ARCH, as borrower, which provides for a loan by the Operating Partnership to ARCH in the amount of $27.5 million (the “Loan”). The proceeds of the Loan were required to be applied by ARCH as follows: (i) $20.0 million was applied toward the payment of a portion of the $108.3 million purchase price for the six hotels containing 707 guestrooms, which were acquired by ARCH on February 11, 2016 as part of the ARCH Sale; and (ii) the remaining $7.5 million was applied by ARCH to fund the New Deposit under the Reinstated Purchase Agreement. The Loan is recorded net of deferred gains in Investment in Real Estate Loans, net on our Condensed Consolidated Balance Sheet at June 30, 2016.

The entire principal amount of the Loan, and any accrued and unpaid interest, will be due and payable on February 11, 2017 (the “Maturity Date”), unless extended pursuant to the Loan agreement. During the three months ended June 30, 2016, ARCH made scheduled principal payments of $2.0 million and subsequent to June 30, 2016, ARCH made an additional scheduled principal payment of $1.0 million. ARCH has two additional scheduled principal payments prior to the Maturity Date of $1.0 million each due in August and September 2016 (the “Amortization Payments”). The Loan may be prepaid in whole or in part at any time by ARCH, without payment of any penalty or premium. ARCH may extend the maturity date of the Loan under certain conditions by up to two years pursuant to two one-year extension options (each an “Extension Option”).

Interest will accrue on the unpaid principal balance of the Loan at a rate of 13.0% per annum from the date of the Loan to the initial Maturity Date, 14.0% per annum during the first extension period and 15.0% per annum during the second extension period. An amount equal to 9.0% per annum is to be paid monthly (the "Monthly Interest"). The remaining 4.0%, 5.0% and 6.0%, as the case may be, will accrue and be compounded monthly (the “PIK”). The PIK must be paid to exercise any Extension Option, otherwise the PIK is payable at the initial Maturity Date. The PIK may be paid in cash prior to the initial Maturity Date, or any extension thereof. ARCH is current with respect to the payment of the Amortization Payments and Monthly Interest.

To secure the payment of the Amortization Payments, ARCH will cause the rents from certain hotel properties or assets of its taxable REIT subsidiaries to be deposited into a separate controlled account (the “Control Account”) and ARCH has granted the Operating Partnership a continuing security interest in all of its right, title and interest in and to the Control Account until the Amortization Payments have been satisfied in full in accordance with the terms of the Loan agreement.

On May 13, 2016, we completed the sale of the Holiday Inn Express & Suites in Irving (Las Colinas), TX for $10.5 million. On June 1, 2016, we completed the sale of the Aloft in Jacksonville, FL for $8.6 million. On June 7, 2016, we completed the sale of the Holiday Inn Express in Vernon Hills, IL for $5.9 million. The proceeds from the sale of these properties were used to complete certain 1031 Exchanges. The hotel acquired by us to complete the reverse 1031 Exchange was the 160-guestroom Residence Inn by Marriott in Atlanta, GA on January 20, 2016 for a purchase price of $38.0 million. The completion of the reverse 1031 Exchange resulted in the deferral of taxable gains of approximately $5.1 million. The sale of the properties during the second quarter of 2016 resulted in the realization of a net gain of $0.6 million.

At December 31, 2015, we held two notes receivable totaling $2.7 million included in Investment in Real Estate Loans, net on our Condensed Consolidated Balance Sheet related to seller-financing for the sale in a prior year of two hotel properties in Emporia, KS (each an "Emporia Property"). The loans had matured and the buyer was in payment default under the terms of the loans. We were awarded legal title to one Emporia Property through foreclosure. We also purchased an additional note receivable from the first priority lien holder for the Emporia Property for which foreclosure proceedings were ongoing to facilitate the completion of the reacquisition of this Emporia Property through a foreclosure.

On April 15, 2016, we completed the sale of the reacquired Emporia Property to a third party purchaser that is unrelated to the prior owner. On May 18, 2016, we completed the sale of the first and second lien notes related to the remaining Emporia Property to the same purchaser. The aggregate selling price of the Emporia assets was approximately $4.5 million. As a result of the foreclosure activities and the sale of the notes, we have no further interest in either Emporia Property.

In addition to the hotel properties related to the ARCH Agreements noted above, Assets Held for Sale at December 31, 2015 included land parcels in Spokane, WA, Fort Myers, FL and Flagstaff, AZ, which were being actively marketed for sale. In addition to the hotel properties related to the ARCH Agreements noted above, Assets Held for Sale at June 30, 2016 included the Hyatt Place in Irving (Las Colinas), TX, which was sold on July 6, 2016, and land parcels in Spokane, WA and Flagstaff, AZ. The land in Fort Myers, FL has been reclassified from Assets Held for Sale during the six months ended June 30, 2016 as the Company no longer intends to sell the parcel.

Hotel Property Acquisitions

A summary of the hotel properties acquired during the six months ended June 30, 2016 and 2015 is as follows (in thousands):



Date Acquired	Franchise/Brand	Location	Purchase Price
First Six Months of 2016
January 19, 2016	Courtyard by Marriott	Nashville, TN	$	71,000
January 20, 2016	Residence Inn by Marriott	Atlanta, GA	38,000
			$	109,000	(1)
First Six Months of 2015
April 13, 2015	Hampton Inn & Suites	Minneapolis, MN	$	38,951
June 18, 2015	Hampton Inn	Boston (Norwood), MA	24,000
June 30, 2015	Hotel Indigo	Asheville, NC	35,000
			$	97,951

(1) The net assets acquired totaled $109,182 due to the purchase at settlement of certain working capital assets and liabilities related to the properties that was in addition to the purchase price of $109,000.

The hotel properties were acquired using funds advanced on our senior unsecured credit facility (See "Note 4 - Debt").

The allocation of the aggregate purchase prices to the fair value of assets and liabilities acquired for the above acquisitions is as follows (in thousands):



	Six Months Ended June 30,
	2016				2015
Land	$	12,173			$	7,602
Hotel buildings and improvements	95,358				83,105
Furniture, fixtures and equipment	2,130				7,017
Other assets	383			(1)	375
Total assets acquired	110,044				98,099
Less other liabilities	(862		)	(1)	(148		)
Net assets acquired	$	109,182			$	97,951


(1)	The net assets acquired totaled $109,182 due to the purchase at settlement of certain working capital assets and liabilities related to the properties that was in addition to the purchase price of $109,000.

Total revenues and net income for hotel properties acquired in the six months ended June 30, 2016 and 2015, which are included in our Condensed Consolidated Statements of Operations, are as follows (in thousands):



	2016 Acquisitions		2015 Acquisitions				2016 Acquisitions		2015 Acquisitions
	For the Three Months Ended June 30,		For the Three Months Ended June 30,				For the Six Months Ended June 30,		For the Six Months Ended June 30,
	2016		2016		2015		2016		2016		2015
Revenues	$	6,267	$	6,462	$	1,912	$	10,511	$	10,513	$	1,912
Net income	$	1,738	$	1,187	$	190	$	2,715	$	370	$	190

The results of operations of acquired hotel properties are included in the Condensed Consolidated Statements of Operations beginning on their respective acquisition dates. The following unaudited condensed pro forma financial information presents the results of operations as if all acquisitions in 2016 and 2015 had taken place on January 1, 2015 and all dispositions had occurred prior to that date. Additionally, the unaudited condensed pro forma information excludes the operating results from discontinued operations and disposed properties that were not classified as discontinued operations after the adoption of ASU No. 2014-08 on January 1, 2015. The unaudited condensed pro forma financial information is for comparative purposes only and is not necessarily indicative of what actual results of operations would have been had the hotel acquisitions and dispositions taken place on or before January 1, 2015. The pro forma amounts exclude the $2.7 million and $39.5 million gain on the sale of the hotel properties during the three and six months ended June 30, 2016, respectively. This information does not purport to be indicative of or represent results of operations for future periods.

The unaudited condensed pro forma financial information for the three and six months ended June 30, 2016 and 2015 is as follows (in thousands, except per share):



	For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2016 (1)		2015		2016 (1)		2015
	(unaudited)				(unaudited)
Revenues	$	125,602	$	118,073	$	239,906	$	224,805
Income from hotel operations	$	50,127	$	45,274	$	93,294	$	84,505
Net income before taxes	$	19,231	$	17,298	$	32,641	$	30,269
Net income	$	19,096	$	16,394	$	30,935	$	28,866
Net income attributable to common stockholders, net of amount allocated to participating securities	$	14,819	$	7,999	$	26,562	$	20,342
Basic net income per share attributable to common stockholders	$	0.17	$	0.09	$	0.31	$	0.24
Diluted net income per share attributable to common stockholders	$	0.17	$	0.09	$	0.30	$	0.23

(1) The pro forma amounts exclude the $2.7 million and $39.5 million gain on the sale of hotel properties during the three and six months ended June 30, 2016, respectively.