INVESTMENT IN HOTEL PROPERTIES, NET

12 Months Ended

Dec. 31, 2020

Investment in Hotel Properties, net

Investment in hotel properties, net at December 31, 2020 and 2019 include (in thousands):


	2020		2019
Land	$	319,603	$	319,603
Hotel buildings and improvements	2,066,986		2,049,384
Furniture, fixtures and equipment	173,351		173,128
Construction in progress	8,903		9,388
Intangible assets	11,231		11,231
Real estate development loan	16,508		5,485
	2,596,582		2,568,219
Less - accumulated depreciation	(490,636)		(383,987)
	$	2,105,946	$	2,184,232

During the year ended December 31, 2019, we provided a mezzanine loan to fund up to $28.9 million for a mixed-use development project that includes a hotel property, retail space, and parking. We have classified the mezzanine loan as Investment in hotel properties, net in our Consolidated Balance Sheets at December 31, 2020 and 2019 (See "Part II – Item 8. – Financial Statements and Supplementary Data – Note 4 – Investment in Real Estate Loans" for further information).

Depreciation expense was $109.2 million, $99.0 million, and $100.5 million for the years ended December 31, 2020, 2019 and 2018, respectively.

Intangible assets included in Investment in hotel properties, net in our Consolidated Balance Sheets include the following (in thousands):


	Weighted Average Amortization Period (in Years)	2020		2019
Intangible assets:
Air rights (1)	n/a	$	10,754	$	10,754

In-place lease agreements	1	397		397
Other	n/a	80		80
		11,231		11,231
Less - accumulated amortization		(310)		(224)
Intangible assets, net		$	10,921	$	11,007

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

Future amortization expense is expected to be as follows (in thousands):


	Finite-Lived Intangible Assets
2021	$	87

Hotel Property Acquisitions

We did not acquire any hotel properties during 2020. Hotel property acquisitions in 2019 were as follows (in thousands):


Date Acquired	Franchise/Brand	Location	Guestrooms	Purchase Price





Year Ended December 31, 2019
August 6, 2019	Hampton Inn & Suites	Silverthorne, CO	88	$	25,500
October 8, 2019	Portfolio Purchase - four properties(1)	various(1)	710	249,000
			798	$	274,500	(2)

(1) On October 8, 2019, we acquired a portfolio of four hotels for an aggregate purchase price of $249.0 million. The hotels acquired included the Hilton Garden Inn - San Francisco, CA, the Hilton Garden Inn - San Jose (Milpitas), CA, the Residence Inn by Marriott - Portland (Downtown), OR, and the Residence Inn by Marriott - Portland (Hillsboro), OR.

(2) The net assets acquired in 2019 were purchased for $274.5 million plus the purchase of adjacent land parcels totaling $2.4 million, $1.0 million of net working capital assets and capitalized transaction costs of $0.4 million. We own a 51% controlling interest in these hotel properties through a consolidated joint venture.

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):


	2019
Land	$	44,868
Hotel buildings and improvements	219,410

Furniture, fixtures and equipment	12,995
Other assets	1,103
Total assets acquired	278,376


Less other liabilities	(79)
Net assets acquired (1)	$	278,297

(1) The net assets acquired in 2019 were purchased for $274.5 million plus the purchase of adjacent land parcels totaling $2.4 million, $1.0 million of net working capital assets and capitalized transaction costs of $0.4 million.

All hotel purchases completed in 2019 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.

On January 31, 2019, we exercised our option pursuant to a ground lease agreement to purchase the land upon which our Residence Inn by Marriott in Baltimore (Hunt Valley), MD is located for $4.2 million, which resulted in a termination of obligations under the ground lease. As a result, this hotel property is no longer subject to a ground lease.

On December 4, 2019, we exercised our right to acquire a fee simple interest in the land upon which our Hyatt Place in Garden City, NY is located for nominal consideration. As a result, the hotel is no longer subject to a PILOT (payment in lieu of taxes) lease with the Town of Hempstead Industrial Development Authority.

The results of operations of acquired hotel properties are included in the Consolidated Statements of Operations beginning on their respective acquisition dates. The following unaudited pro forma information includes operating results for 72 hotels owned as of December 31, 2020 as if all such hotels had been owned by us since January 1, 2019. For hotels acquired by us after January 1, 2019 (the "Acquired Hotels"), we have included in the unaudited pro forma information the financial results of each of the Acquired Hotels for the period from January 1, 2019 to the date the Acquired Hotels were purchased by us (the "Pre-Acquisition Period"). The financial results for the Pre-Acquisition Period were provided by the third-party 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, 2019 and December 31, 2020 (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, 2019 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, 2019. The unaudited pro forma amounts exclude the gain or loss on the sale of hotel properties during the years ended December 31, 2020 and 2019. 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 72 hotel properties owned at December 31, 2020 for the twelve months ended December 31, 2020 and 2019 is as follows (in thousands, except per share):


	2020		2019
Revenues	$	234,463	$	572,262
Income from hotel operations	$	27,792	$	215,372

Net (loss) income (1)	$	(149,399)	$	57,909
Net (loss) income attributable to common stockholders, net of amount allocated to participating securities and non-controlling interests (2)	$	(158,411)	$	33,671
Basic and diluted net (loss) income per share attributable to common stockholders (2)	$	(1.52)	$	0.32

(1) Unaudited pro forma amounts include depreciation expense, property tax expense, interest expense, income tax expense, loss on impairment of assets and corporate general and administrative expenses totaling $214.0 million and $197.1 million for the twelve months ended December 31, 2020 and 2019, respectively.

(2) Unaudited pro forma amounts include depreciation expense, property tax expense, interest expense, income tax expense, loss on impairment of assets and corporate general and administrative expenses totaling $204.9 million and $193.8 million for the twelve months ended December 31, 2020 and 2019, respectively.

Asset Sales

We did not sell any hotel properties in 2020. A summary of the dispositions in 2019 is as follows (dollars in thousands):


Disposition Date	Franchise/Brand	Location	Guestrooms	Gross Sales Price		Aggregate Gain, net

Year Ended December 31, 2019
February 12, 2019	Portfolio Sale - two properties(1)	Charleston, WV (1)	130	$	11,600	$	4,163
April 17, 2019	Portfolio Sale - six properties (2)	various (2)	815	135,000		36,626
November 8, 2019	Portfolio Sale - two properties (3)	Birmingham, AL (3)	225	21,800		4,857
Total			1,170	$	168,400	$	45,646

(1) The portfolio included the Country Inn & Suites and the Holiday Inn Express in Charleston, WV.

(2) The portfolio included the SpringHill Suites in Minneapolis (Bloomington), MN, the Hampton Inn & Suites in Minneapolis (Bloomington), MN, the Residence Inn in Salt Lake City, UT, the Hyatt Place in Dallas (Arlington), TX, the Hampton Inn in Santa Barbara (Goleta), CA, and the Hampton Inn in Boston (Norwood), MA. The sale resulted in a net gain of $36.6 million based on a gross aggregate sales price of $135.0 million, or a net aggregate sales price of $133.0 million after a buyer credit of $2.0 million.

(3) The portfolio included the Hilton Garden Inn in Birmingham (Lakeshore), AL and the Hilton Garden Inn in Birmingham (Liberty Park), AL.

Loss on Impairment and Write-off of Assets

During the year ended December 31, 2020, the Company recorded a charge to Loss on impairment and write-off of assets of $1.8 million on its purchase options related to real estate development loans. See "Part II – Item 8. – Financial Statements and Supplementary Data – Note 10 – Fair Value Measurement" for further information.

During the year ended December 31, 2020, one of the real estate development loans with a principal balance of $3.8 million was repaid in full as described in “Part II – Item 8. – Financial Statements and Supplementary Data – Note 4 – Investment in Real Estate Loans.” As the Company elected not to exercise its purchase option related to this development project, a Loss on impairment and write-off of assets of $1.0 million was recorded to write-off the carrying amount of the purchase option.

During the year ended December 31, 2019, the Company recorded an impairment charge of $1.7 million for the Hyatt Place - Chicago (Hoffman Estates) to reduce the net carrying amount of the property to its estimated net fair market value of $5.9 million, which was determined by an independent third-party appraisal.

During the year ended December 31, 2019, the Company also recorded impairment charges on two land parcels to reduce the net carrying amounts of the properties to their estimated fair market values based on independent third-party appraisals and a purchase contract for the sale of one of the land parcels that is expected to be completed in 2021.