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INVESTMENT IN HOTEL PROPERTIES, NET

9 Months Ended

Sep. 30, 2022

Investment in Hotel Properties, net

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


	September 30, 2022		December 31, 2021
Hotel buildings and improvements	$	2,849,985	$	2,127,782
Land	378,105		323,276
Furniture, fixtures and equipment	259,731		167,245
Construction in progress	44,263		18,321
Intangible assets	39,954		10,834
Real estate development loan (1)	—		27,595
	3,572,038		2,675,053
Less accumulated depreciation	(689,895)		(583,080)
	$	2,882,143	$	2,091,973

(1) During the year ended December 31, 2019, we executed a mezzanine loan to provide financing of $29.9 million for a mixed-use development project that includes the AC/Element Hotel with 264 guestrooms, retail space, and parking. In connection with the mezzanine loan, we had an option to purchase a 90% equity interest in the AC/Element Hotel (the "Initial Purchase Option") upon completion of construction, which occurred in December 2021. The mezzanine loan was classified as Investment in hotel properties, net in our Condensed Consolidated Balance Sheets at December 31, 2021. See "Note 4 - Investment in Real Estate Loans" for further information. In June 2022, the balance of the mezzanine loan was extinguished with the exercise of the Initial Purchase Option to acquire the AC/Element Hotel as part of the Brickell Transaction described below.

Hotel Property Acquisitions

NCI Transaction

During the quarter ended March 31, 2022, the Operating Partnership and the GIC Joint Venture closed on the NCI Transaction for the acquisition of a portfolio of 27 hotel properties, containing an aggregate of 3,709 guestrooms, and two parking structures, containing 1,002 spaces, and various financial incentives for an aggregate purchase price of $822.0 million, paid in

the form of 15,864,674 Common Units (deemed value of $10.0853 per unit), 2,000,000 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”), a cash draw of $410.0 million 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,

$5.9 million of cash contributed to escrow in the prior year by GIC, as a limited partner in the Joint Venture, and approximately

$185.2 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 was distributed to the Operating

Partnership as reimbursement for transaction costs paid by the Operating Partnership.

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

described below). We recorded debt assumed in connection with the NCI Transaction at its face amount, which approximated fair market value on the closing date.

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 key money contract period with the franchisor.

Brickell Transaction

On June 10, 2022, we formed the Brickell Joint Venture (see "Note 9 - Non-controlling Interests and Redeemable Non-controlling Interests") to facilitate the exercise of our Initial Purchase Option to acquire a 90% equity interest in the AC/Element Hotel. The exercise price of the Initial Purchase Option was $89.0 million and was primarily funded with the conversion of the mezzanine loan of $29.9 million to equity, $7.9 million in cash and the assumption of debt.

A summary of the hotel properties acquired during the nine months ended September 30, 2022 is as follows (in thousands):

Date Acquired

Franchise/Brand

Location

Guestrooms

Purchase
Price

January 13, 2022

Portfolio of properties - twenty-six hotel properties and two parking garages (1)

Various

3,533

767,056

March 23, 2022

Canopy Hotels by Hilton (1)

New Orleans, LA

176

56,000

June 10, 2022

AC/Element Hotel (2)

Miami (Brickell), FL

264

94,522

3,973

$917,578

(1) On January 13, 2022, we acquired a portfolio of twenty-six hotels and two parking garages for an aggregate purchase price of $767.1 million. The hotels acquired included 21 hotels and two parking garages in Texas, two hotels in Louisiana and three hotels in Oklahoma under the following brands: Marriott (13), Hilton (7), Hyatt (4), and IHG (2). On March 23, 2022, we acquired the Canopy New Orleans upon completion of its construction for a purchase price of $56.0 million.

(2) The purchase price of the AC/Element Hotel was based on the exercise price of the Initial Purchase Option of $89.0 million. The transaction included the

assumption of $47.0 million of debt resulting in a net consideration payment requirement of $42.0 million. We paid 90% of the required net consideration

with the conversion of our $29.9 million mezzanine loan into equity and a cash payment of $7.9 million. The carrying amount of our Initial Purchase

Option of $2.8 million is also included in the total amount allocated to the assets acquired. The Brickell Joint Venture partner’s non-controlling interest

of $6.9 million represents 10% of the fair value of the net assets on the transaction date, determined by a third-party valuation expert based on discounted

forecasted future cash flows of the net assets acquired. We also incurred $0.6 million of transaction costs. The result is a total amount allocated to the

assets acquired of $95.1 million plus an intangible asset totaling $2.0 million related to the assumption of the franchises for the hotel properties and a

related key money liability.

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


Land	$	67,175
Hotel buildings and improvements	751,720
Incentives and other intangibles	25,642
Furniture, fixtures and equipment	82,353
Other assets	5,318
Total assets acquired (1)	932,208
Less debt assumed	(382,205)
Less lease liabilities assumed	(5,100)
Less other liabilities	(6,233)
Net assets acquired	$	538,670

(1) The total consideration paid for the acquisitions of $925.8 million includes capitalized transaction costs $3.6 million and deferred financing costs of $4.6 million. Total assets acquired is based on the purchase price of $917.6 million, transaction costs of $3.6 million and intangible assets totaling $11.0 million acquired outside of escrow.

All hotel purchases completed in 2022 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 July 9, 2021, the Company acquired the 110-guestroom Residence Inn by Marriott in Steamboat Springs, CO for

$33.0 million through its joint venture with GIC, of which the Company owns 51%.

Asset Sales

In May 2022, the GIC Joint Venture completed the sale of a 169-guestroom Hilton Garden Inn San Francisco Airport North in San Francisco, CA for a gross selling price of $75.0 million. The sale of this property resulted in a net gain of $20.5 million to the GIC Joint Venture.

Assets Held for Sale

Assets Held for Sale at September 30, 2022 and December 31, 2021 include a land parcel in Flagstaff, AZ.

Intangible Assets

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


	September 30, 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	9,370		—


	29,120		—
Intangible assets	39,954		10,834
Less accumulated amortization	(4,104)		—
Intangible assets, net	$	35,850	$	10,834

We recorded amortization expense related to intangible assets of approximately $1.0 million and $3.0 million for the three and nine months ended September 30, 2022, respectively. We did not record any amortization expense related to intangible assets for the three and nine months ended September 30, 2021.

Future amortization expense related to intangible assets is as follows (in thousands):


2022	$	1,083
2023	4,331
2024	4,296
2025	1,625
2026	1,625
Thereafter	12,056
	$	25,016

During the year ended December 31, 2019, we executed a mezzanine loan to provide financing of $29.9 million for a mixed-use development project that includes the AC/Element Hotel with 264 guestrooms, retail space, and parking. In connection with the mezzanine loan, we had an option to purchase a 90% equity interest in the AC/Element Hotel (the "Initial Purchase Option") upon completion of construction, which occurred in December 2021. The mezzanine loan was classified as Investment in hotel properties, net in our Condensed Consolidated Balance Sheets at December 31, 2021. See "Note 4 - Investment in Real Estate Loans" for further information. In June 2022, the balance of the mezzanine loan was extinguished with the exercise of the Initial Purchase Option to acquire the AC/Element Hotel as part of the Brickell Transaction described below.