INVESTMENT IN HOTEL PROPERTIES, NET

Investment in Hotel Properties, net

Investment in hotel properties, net at March 31, 2018 and December 31, 2017 is as follows (in thousands):



	March 31, 2018			December 31, 2017
Land	$	269,103		$	272,932
Hotel buildings and improvements	1,855,028			1,868,273
Intangible assets	22,764			22,764
Construction in progress	14,619			12,464
Furniture, fixtures and equipment	167,830			174,126
	2,329,344			2,350,559
Less - accumulated depreciation and amortization	(305,793		)	(291,067		)
	$	2,023,551		$	2,059,492

Intangible assets included in Investment in hotel properties, net and intangible liabilities included in Accrued expenses and other in our Condensed Consolidated Balance Sheets include the following (in thousands):



	March 31, 2018			December 31, 2017
Intangible assets:
Air rights ⁽¹⁾	$	10,754		$	10,754
Favorable leases ⁽²⁾	10,569			10,569
In-place lease agreements	1,361			1,361
Other	80			80
	22,764			22,764
Less accumulated amortization	(1,206		)	(1,001		)
Intangible assets, net	$	21,558		$	21,763

Intangible liabilities:
Unfavorable leases ⁽²⁾	$	5,002		$	5,002
Less accumulated amortization	(309		)	(285		)
Intangible liabilities, net	$	4,693		$	4,717


(1)	In conjunction with the acquisition of the Courtyard by Marriott - Charlotte, NC, the Company acquired certain air rights related to the hotel property.

(2)

Intangible assets and liabilities are recorded on contracts assumed as part of the acquisition of certain hotels. Above-market and below-market contract values are based on the present value of the difference between contractual amounts to be paid pursuant to the contracts assumed and our estimate of the fair market contract rates for corresponding contracts measured over a period equal to the remaining non-cancelable term of the contracts assumed. Intangible assets and liabilities are amortized over the remaining non-cancelable term of the related contracts.

Investment in Hotel Properties Under Development

We are developing a 168-guestroom Hyatt House in Orlando, FL on a parcel of land that we own. We expect the total development costs for the construction of the hotel to be approximately $32.0 million. We have incurred $25.5 million of costs through March 31, 2018 and we have reclassified the $2.8 million carrying amount of the land parcel from Land Held for Development to Investment in Hotel Properties Under Development as a result of our development activities.

Assets Held for Sale

Assets held for sale at March 31, 2018 and December 31, 2017 include the following (in thousands):



	March 31, 2018		December 31, 2017
Land	$	5,023	$	1,193
Hotel buildings and improvements	17,731		—
Furniture, fixtures and equipment	338		—
Franchise fees and other	69		—
	$	23,161	$	1,193

On February 22, 2018, we entered into two separate agreements to sell the Holiday Inn Express & Suites in Sandy, UT and the Hampton Inn in Provo, UT for $9.0 million and $10.0 million, respectively.

On March 1, 2018, we entered into two separate agreements to sell the Holiday Inn in Duluth, GA and the Hilton Garden Inn in Duluth, GA for $8.3 million and $16.0 million, respectively.

Assets Held for Sale at March 31, 2018 include the four hotels under contract for sale and Assets Held for Sale at both March 31, 2018 and December 31, 2017 included land parcels in Spokane, WA and Flagstaff, AZ.

Dispositions to Affiliates of Hospitality Investors Trust, Inc. (formerly American Realty Capital Hospitality Trust, Inc.)

On June 8, 2015, we entered into multiple sales agreements with affiliates of Hospitality Investors Trust, Inc. (“HIT”) for the sale of a portfolio of hotels to HIT. The agreements were modified on various occasions between 2015 and 2017 such that we sold 23 hotels containing 2,448 guestrooms to HIT in three tranches over that time period for a combined price of approximately $325.1 million (collectively, the “HIT Sale”), as follows (dollars in thousands):



Tranche	Closing Date	Hotels Sold	Sales Price
1	October 2015	10	$	150,000
2	February 2016	6	108,300
3	April 2017	7	66,800
		23	$	325,100

In connection with the HIT Sale, the Operating Partnership entered into a loan agreement with HIT, as borrower, which provided for a loan by us to HIT in the amount of $27.5 million (the “Loan” or “Loan Agreement”). The proceeds of the Loan were required to be applied by HIT as follows: (i) $20.0 million was applied toward the payment of a portion of the $108.3 million purchase price for six hotels acquired in the second tranche; and (ii) the remaining $7.5 million was applied by HIT to fund the escrow deposit required for the purchase of hotels in the third tranche. We deferred $20.0 million of gain from the sale of the hotels in the second tranche as a result of the Loan structure. We recognized the deferred gain as principal payments on the Loan were received, and we recognized the final $15.0 million of gain when the Loan was paid in full on March 31, 2017.

Other Asset Sales

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.

Hotel Property Acquisitions

We did not acquire any hotel properties during the three months ended March 31, 2018. A summary of the hotel properties acquired during the three months ended March 31, 2017 is as follows (in thousands):



Date Acquired	Franchise/Brand	Location	Purchase Price
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)


(1)	The net assets acquired totaled $60.5 million due to the purchase at settlement of $0.2 million of net working capital assets

and capitalized transaction costs of $0.1 million.

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
Land	$	7,999
Hotel buildings and improvements	49,027
Furniture, fixtures and equipment	3,150
Other assets	360
Total assets acquired	60,536
Less - other liabilities assumed	(69		)
Net assets acquired	$	60,467		(1)


(1)	The net assets acquired totaled $60.5 million due to the purchase at settlement of $0.2 million of net working capital assets


	and capitalized transaction costs of $0.1 million.

All hotel purchases completed in 2017 were deemed to be the acquisition of assets. Therefore, acquisition costs related to these transactions have been capitalized as part of the recorded amount of the acquired assets.

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 pro forma information includes operating results for 83 hotels owned as of March 31, 2018 as if all such hotels had been owned by us since January 1, 2017. For hotel properties acquired by us during the first quarter of 2017, the pro forma information for the three months ended March 31, 2017 includes both the financial results from the prior owner from January 1, 2017 through the date of acquisition by us (the “Pre-acquisition Period”) and the financial results generated by us from the date of acquisition through March 31, 2017. For properties acquired by us after March 31, 2017, the pro forma information for the three months ended March 31, 2017 reflects the financial results from the prior owner for the entire three month period. For all properties acquired by us during the year ended December 31, 2017, the pro forma information for the three months ended March 31, 2018 relate entirely to the financial results generated by us. The financial results for the Pre-acquisition Period were provided by the prior owner of such Acquired Hotel prior to purchase by us and such information has not been audited or reviewed by our auditors or adjusted by us. For hotels sold by us between January 1, 2017 and March 31, 2018 (the "Disposed Hotels"), the unaudited pro forma information excludes the financial results, including gains on disposal of assets, of each of the Disposed Hotels for the period of ownership by us from January 1, 2017 through the date that the Disposed Hotels were sold by us. The unaudited pro forma information is included to enable comparison of results for the current reporting period to results for the comparable period of the prior year and is not indicative of what actual results of operations would have been had the hotel acquisitions and dispositions taken place on or before January 1, 2017. The pro forma amounts exclude the gain or loss on the sale of hotel properties during the three months ended March 31, 2017 and 2018, 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 83 hotel properties owned at March 31, 2018 for the three months ended March 31, 2018 and 2017 is as follows (in thousands, except per share):



	For the Three Months Ended March 31,
	2018		2017
Revenues	$	140,199	$	136,798
Income from hotel operations	$	50,363	$	50,592
Net income ⁽¹⁾	$	9,705	$	21,741
Net income attributable to common stockholders, net of amount allocated to participating securities ^{(1) (2)}	$	812	$	17,353
Basic and diluted net income per share attributable to common stockholders ^{(1) (2)}	$	0.01	$	0.19


(1)	Pro forma amounts include depreciation expense, property tax expense, interest expense, income tax expense, and other corporate expenses totaling $49.7 million and $37.8 million for the three months ended March 31, 2018 and 2017, respectively.


(2)	Pro forma amounts for the three months ended March 31, 2018 include the effect of the premium on redemption of preferred stock of $3.3 million.