INVESTMENT IN HOTEL PROPERTIES, NET

3 Months Ended

Mar. 31, 2022

Investment in Hotel Properties, net

Investment in hotel properties, net is as follows (in thousands):


	March 31, 2022		December 31, 2021
Hotel buildings and improvements	$	2,762,269	$	2,127,782
Land	363,727		323,276
Furniture, fixtures and equipment	242,165		167,245
Construction in progress	26,669		18,321
Intangible assets	37,981		10,834
Real estate development loan	29,632		27,595
	3,462,443		2,675,053
Less - accumulated depreciation and amortization	(614,042)		(583,080)
	$	2,848,401	$	2,091,973

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. The hotel property is a 264 guestroom dual-branded AC Hotel by Marriott and Element Miami Brickell Hotel in Miami, FL. In December 2021, we modified the loan agreement to increase our funding commitment by $1.0 million. As of March 31, 2022, we funded $29.6 million of our total $29.9 million commitment under the mezzanine loan. The mezzanine loan was classified as Investment in hotel properties, net in our Condensed Consolidated Balance Sheets at March 31, 2022 and December 31, 2021. See "Note 4 - Investment in Real Estate Loans" for further information.

Acquisition of NewcrestImage Portfolio

On November 2, 2021, the Operating Partnership and the Joint Venture entered into a Contribution and Purchase Agreement (the “Contribution and Purchase Agreement”) with NewcrestImage Holdings, LLC, a Delaware limited liability company, and

NewcrestImage Holdings II, LLC, a Delaware limited liability company (together, “NewcrestImage”), to purchase from

NewcrestImage a 100% interest in a portfolio of 27 hotel properties, containing an aggregate of 3,709 guestrooms, and two parking structures, containing 1,002 spaces (such hotel properties and parking structures, the “Portfolio”), and various financial and tax incentives for certain of the acquired properties, for an aggregate purchase price of $822.0 million.

On January 13, 2022, the Joint Venture completed the acquisition of the Portfolio except for one hotel property, the 176 guestroom Canopy New Orleans which was still under construction, for an aggregate purchase price of $766.0 million, paid in the form of 15,314,494 Common Units (deemed value of $10.0853 per unit), 1,958,429 preferred units of limited partnership of the Operating Partnership newly designated as 5.25% Series Z Cumulative Perpetual Preferred Units (Liquidation Preference $25 Per Unit) (the “Series Z Preferred Units”), $382.0 million cash draw from a term loan entered into by subsidiaries of the Joint Venture, the assumption by a subsidiary of the Joint Venture of approximately $6.5 million in PACE loan debt and $5.9 million of cash contributed to escrow in the prior year by GIC, as a limited partner in the Joint Venture, and approximately $171.4 million cash contributed by GIC at closing. GIC also contributed to the Joint Venture an additional $18.5 million in cash for estimated pre-acquisition costs related to the NCI Transaction, a portion of which will be distributed to the Operating Partnership as reimbursement for transaction costs paid by the Operating Partnership.

The Joint Venture acquired the Canopy New Orleans on March 23, 2022 upon completion of its construction, for a purchase price of $56.0 million, which was paid in the form of 550,180 Common Units, 41,571 Series Z Preferred Units, $13.8 million cash contributed by GIC, as a limited partner in the Joint Venture, and $28.0 million cash proceeds from a draw on the term loan entered into by subsidiaries of the Joint Venture.

We valued the Common Units and Series Z Preferred Units at fair market value on the closing dates of the NCI Transaction, which resulted in us recording the issued Common Units and Series Z Preferred Units at $157.5 million and $50.0 million, respectively. The Common Units were recorded at the closing prices of our Common Stock on the closing dates since the Common Units are redeemable for shares of our Common Stock on a 1:1 basis. We estimated the fair value of the Series Z Preferred Units based on the features and stated dividend coupon of the Series Z Preferred Units relative to similar securities with more readily determinable market values. We recorded the Series Z Preferred Units at their redemption value of $50.0 million which approximates fair value on the closing dates.

Our Joint Venture assumed $335.2 million of debt in connection with the NCI Transaction and immediately repaid $328.7 million of the assumed debt on the closing date using proceeds from borrowings on the Joint Venture Term Loan (as defined below). We recorded debt assumed in connection with the NCI Transaction at its face amount, which approximated fair market value on the closing date.

Our Joint Venture recorded the NCI Transaction as an asset acquisition and allocated the aggregate purchase price paid for the NCI Transaction to the net assets acquired based on their relative estimated fair values. The allocation of the aggregate purchase price to the fair value of the assets and liabilities acquired for the NCI Transaction is as follows (in thousands):


Assets and Liabilities Acquired			Net Cash Disbursed
Land	$	52,797	Purchase price (1)	$	823,056
Hotel buildings and improvements	676,607		Acquisition costs	3,027
Furniture, fixtures and equipment	76,729		Deferred financing fees	4,625
Incentives and other intangibles	23,670			$	830,708
Other assets (2)	5,318
Total assets acquired	835,121		Cash	$	208,819
Debt assumed	(335,205)		Preferred Operating Partnership Units	50,000
Other liabilities (3)	(9,361)		Common Units (1)	157,513
Net assets acquired	$	490,555	Debt	414,376
				$	830,708

(1) The contractual purchase price for the NCI Transaction was $822.0 million based on the issuance of Common OP Units totaling $160.0 million on the contract date. However, the fair value of the Common OP Units on the closing dates totaled $157.5 million based on the closing prices of our Common Stock on January 13, 2022 and March 23, 2022 of $9.94 and $9.61 per share, respectively. As such, the purchase price has been adjusted to reflect the fair value of the Common Units issued on the closing dates of the NCI Transaction plus additional costs incurred to close the transaction.

(2) Amount includes right-of-use assets related to assumed leases totaling approximately $5.3 million.

(3) Amount includes assumed key money liabilities of approximately $3.9 million, lease liabilities of approximately $5.1 million, and other liabilities of approximately $0.4 million.

Incentives and other intangibles include tax incentives totaling approximately $19.8 million associated with certain of the acquired hotel properties in the NCI Transaction and are being amortized over a weighted average amortization period of approximately 9.1 years, which is the period in which we expect to meet the requirements to receive payment of the tax incentives. Other intangible assets totaling approximately $3.9 million are related to key money associated with certain of the hotel properties acquired in the NCI Transaction and are being amortized over a weighted average amortization period of approximately 19.7 years, which is the remaining the key money contract period with the franchisor.

Intangible assets, net is as follows (in thousands):


	March 31, 2022		December 31, 2021
Indefinite-lived intangible assets:
Air rights	$	10,754	$	10,754
Other	80		80
	10,834		10,834
Finite-lived intangible assets:
Tax incentives	19,750		—
Key money	7,397		—
	27,147		—
	37,981		10,834
Less - accumulated amortization	(2,015)		—
Intangible assets, net	$	35,966	$	10,834

We recorded amortization expense related to intangible assets of approximately $1.0 million and $0.05 million for the three months ended March 31, 2022 and 2021, respectively. Future amortization expense related to intangible assets is as follows (in thousands):


2022	$	4,290
2023	4,252
2024	3,541
2025	1,546
2025	1,546
Thereafter	9,957
	$	25,132

We also acquired in the NCI Transaction a limited liability corporation with an historical tax credit (the "HTC Entity"). The third-party member in the HTC Entity (the "HTC Partner") that owns the majority interest in the HTC Entity is entitled to the value of the historical tax credit. The recapture period related to the historical tax credit expires in October 2022. We have a call option to purchase the HTC Partner's entire interest in the HTC Entity (the "HTC Call Option") commencing on the last day of the recapture period and continuing for 180 days thereafter for $2.6 million plus certain additional costs, estimated to be approximately $0.1 million. If we do not exercise the HTC Call Option, the HTC Partner has a put option to require us to purchase its interest in the HTC Entity upon expiration of the HTC Call Option and continuing for six months thereafter for the same amount as the Call Option exercise price. We have a note receivable from NewcrestImage for $2.7 million that is payable upon our exercise of the HTC Call Option. We have entered into an agreement with NewcrestImage to timely exercise the HTC Call Option. As a result, we have recorded a note receivable of $2.7 million from NewcrestImage and a liability at March 31, 2022 of $2.7 million related to our obligation to exercise the HTC Call Option.

Assets Held for Sale

Assets held for sale at March 31, 2022 include a land parcel in Flagstaff, AZ and the 169 guestroom Hilton Garden Inn San Francisco Airport North in San Francisco, CA which is expected to close in the second quarter of 2022 for a gross selling price of $75.0 million. Assets Held for Sale at December 31, 2021 include a land parcel in Flagstaff, AZ.

Assets held for sale were as follows (in thousands):


	March 31,		December 31,
	2022		2021
Hotel buildings and improvements	$	43,078	$	—
Land	12,771		425
Furniture, fixtures and equipment	3,199		—


	59,048		425
Less - accumulated depreciation and amortization	(6,247)		—
	$	52,801	$	425