INVESTMENT IN HOTEL PROPERTIES, NET

Investment in Hotel Properties, net

Investment in hotel properties, net at March 31, 2017 and December 31, 2016 is as follows (in thousands):



	March 31, 2017			December 31, 2016
Land	$	185,269		$	178,423
Hotel buildings and improvements	1,473,573			1,433,389
Construction in progress	20,019			22,490
Furniture, fixtures and equipment	135,694			129,437
	1,814,555			1,763,739
Less - accumulated depreciation	(236,804		)	(224,871		)
	$	1,577,751		$	1,538,868

Investment in Hotel Properties Under Development

We are developing a hotel in Orlando, FL on a parcel of land owned by us. We expect the total development costs for the construction of the hotel to be approximately $30.0 million. We have incurred $5.1 million of costs to date and we have reclassified the carrying amount of the land parcel of $2.8 million from Land Held for Development to Investment in Hotel Properties Under Development during the three months ended March 31, 2017 in connection with our development activities.

Assets Held for Sale

Assets held for sale at March 31, 2017 and December 31, 2016 include the following (in thousands):



	March 31, 2017		December 31, 2016
Land	$	10,907	$	10,907
Hotel buildings and improvements	44,736		44,718
Furniture, fixtures and equipment	6,752		6,649
Franchise fees and other	421		421
	$	62,816	$	62,695

On February 11, 2016, we completed the sale of six hotels to affiliates of American Realty Capital Hospitality Trust, Inc. ("ARCH") for an aggregate selling price of $108.3 million (the "ARCH Sale"), with the proceeds from the ARCH Sale being used to complete certain reverse 1031 Exchanges. The hotels acquired by us for 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, Nashville, TN for a purchase price of $71.0 million on January 19, 2016. The completion of the reverse 1031 Exchanges resulted in the deferral of taxable gains 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 sale of a hotel to ARCH. The ARCH Sale resulted in a $56.8 million gain, of which $20.0 million was initially deferred related to seller financing that we provided as described below.

In connection with the ARCH Sale, the Operating Partnership entered into a loan agreement with ARCH, as borrower, which provided for a loan by the Operating Partnership to ARCH in the amount of $27.5 million (the “Loan” or "Loan Agreement"). 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 acquired by ARCH as part of the ARCH Sale; and (ii) the remaining $7.5 million was applied by ARCH to fund the escrow deposit required for the purchase of eight hotels as described below. Through December 31, 2016, we had recognized as income $5.0 million of the deferred gain upon receipt of scheduled repayments of the principal balance of the loan from ARCH. On March 31, 2017, ARCH repaid the remaining $22.5 million principal balance of the Loan and payment-in-kind (“PIK”) interest of $1.2 million. As such, we recognized as income during the three months ended March 31, 2017 the remaining $15.0 million of the deferred gain related to the sale of six hotels to ARCH.

Pursuant to an agreement entered into by the Company and an affiliate of ARCH on February 11, 2016, as such agreement was subsequently modified and extended, the affiliate of ARCH was to purchase ten of the Company's hotels. Two of the hotels were sold during 2016 to a purchaser not affiliated with ARCH as permitted by the agreement.

On April 27, 2017, we completed the sale of seven of the remaining eight hotels to an affiliate of ARCH for a total purchase price of $66.8 million, resulting in a net gain of approximately $16.0 million. The seven hotels sold were as follows:



Hotel	Location	Guestrooms
Courtyard by Marriott	Jackson, MS	117
Courtyard by Marriott	Germantown, TN	93
Fairfield Inn & Suites	Germantown, TN	80
Homewood Suites	Ridgeland, MS	91
Residence Inn	Jackson, MS	100
Residence Inn	Germantown, TN	78
Staybridge Suites	Ridgeland, MS	92
Total		651

The proceeds from this sale have been deposited with a qualified intermediary to be used to complete 1031 Exchanges with future hotel purchases to defer the taxable gains on the sale of approximately $21.0 million.

The Courtyard by Marriott, El Paso, TX (the “El Paso Courtyard”) is the last hotel under contract for sale to ARCH. The closing date for the El Paso Courtyard is scheduled to occur on October 24, 2017 (the “El Paso Closing Date”). If, on the El Paso Closing Date, the El Paso Courtyard is under contract to be sold to a bona fide third-party purchaser that is not an affiliate of the Company, the ARCH Purchaser will not be obligated to purchase the hotel. At March 31, 2017, the El Paso Courtyard was under contract to be sold to a third-party purchaser that is unrelated to ARCH. We expect this closing to occur in the second quarter of 2017. If the sale of the El Paso Courtyard to the third-party purchaser closes as expected, then ARCH will have fulfilled its purchase obligations to us.

In addition to the hotel properties related to the ARCH agreements noted above, Assets Held for Sale at March 31, 2017 and December 31, 2016 included land parcels in Spokane, WA and Flagstaff, AZ, which were being actively marketed for sale.

Other Dispositions

On March 30, 2017, we completed the sale of the Hyatt Place in Atlanta, GA for $14.5 million and repaid a related mortgage loan totaling $6.5 million. The sale of this property resulted in the realization of a net gain of $4.8 million during the three months ended March 31, 2017.

Other Asset Sales

At December 31, 2015, we held two notes receivable totaling $2.7 million 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 was 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 Properties 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.

Hotel Property Acquisitions

A summary of the hotel properties acquired during the three months ended March 31, 2017 and 2016 is as follows (in thousands):



Date Acquired	Franchise/Brand	Location	Purchase Price
For the three months ended March 31, 2017
March 1, 2017	Homewood Suites	Aliso Viejo (Laguna Beach), CA	$	38,000
March 30, 2017	Hyatt Place	Phoenix (Mesa), AZ	22,200
			$	60,200	(1)
For the three months ended March 31, 2016
January 19, 2016	Courtyard by Marriott	Nashville, TN	$	71,000
January 20, 2016	Residence Inn by Marriott	Atlanta, GA	38,000
			$	109,000	(2)


(1)	The net assets acquired totaled $60.5 million due to the purchase at settlement of $0.3 million of net working capital assets.


(2)	The net assets acquired totaled $109.2 million due to the purchase at settlement of $0.2 million of net working capital assets.

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):



	For the Three Months Ended March 31,
	2017				2016
Land	$	7,999			$	12,173
Hotel buildings and improvements	49,027				94,697
Furniture, fixtures and equipment	3,150				2,130
Other assets	360			(1)	383			(2)
Total assets acquired	60,536				109,383
Less - other liabilities assumed	(69		)	(1)	(201		)	(2)
Net assets acquired	$	60,467			$	109,182


(1)	The net assets acquired totaled $60.5 million due to the purchase at settlement of $0.3 million of net working capital assets.


(2)	The net assets acquired totaled $109.2 million due to the purchase at settlement of $0.2 million of net working capital assets.

Total revenues and net income for hotel properties acquired in the three months ended March 31, 2017 and 2016, which are included in our Condensed Consolidated Statements of Operations, are as follows (in thousands):



	2017 Acquisitions		2016 Acquisitions
	For the		For the
	Three Months Ended March 31,		Three Months Ended March 31,
	2017		2017		2016
Revenues	$	768	$	5,338	$	4,244
Net income	$	373	$	1,081	$	977

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 2017 and 2016 had taken place on January 1, 2016 and all dispositions had occurred prior to that date. 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, 2016. The pro forma amounts exclude the $19.5 million and $36.8 million gain on the sale of hotel properties during the three months ended March 31, 2017 and 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 months ended March 31, 2017 and 2016 is as follows (in thousands, except per share):



	For the Three Months Ended March 31,
	2017		2016
Revenues	$	120,002	$	119,101
Income from hotel operations	$	43,850	$	45,069
Net income before taxes	$	15,348	$	15,925
Net income	$	14,927	$	14,354
Net income attributable to common stockholders, net of amount allocated to participating securities	$	10,568	$	10,121
Basic and diluted net income per share attributable to common stockholders	$	0.11	$	0.12