Business Combinations

Barceló Portfolio: On March 21, 2014, the Company completed an acquisition comprising investments in six hotels (the "Barceló Portfolio") through fee simple, leasehold and joint venture interests. The aggregate purchase price of the Barceló Portfolio was approximately $110.1 million, exclusive of closing costs. The Barceló Portfolio consists of (i) three wholly owned hotel assets, the Baltimore Courtyard Inner Harbor Hotel (the "Baltimore Courtyard"), the Courtyard Providence Downtown Hotel (the "Providence Courtyard") and the Homewood Suites by Hilton Stratford (the "Stratford Homewood Suites"); (ii) one leased asset, the Georgia Tech Hotel & Conference Center and (iii) equity interests in two joint ventures that each own one hotel, the Westin Virginia Beach and the Hilton Garden Inn Blacksburg.

Grace Acquisition: On February 27, 2015, the Company acquired the Grace Portfolio through fee simple or leasehold interests in 116 hotels from certain subsidiaries of Whitehall Real Estate Funds, an investment arm controlled by The Goldman Sachs Group, Inc.

The aggregate purchase price under the purchase agreement was $1.808 billion, exclusive of closing costs and subject to certain adjustments at closing. After adjustments, the net purchase price was $1.799 billion. Approximately $220.7 million of the purchase price was satisfied with cash on hand, approximately $904.2 million (fair value on the acquisition date) through the assumption of existing mortgage and mezzanine indebtedness (comprising the "Assumed Grace Mortgage Loan" and the "Assumed Grace Mezzanine Loan", collectively, the "Assumed Grace Indebtedness") and approximately $227.0 million through additional mortgage financing (the "Original Additional Grace Mortgage Loan"). The Original Additional Grace Mortgage Loan was refinanced during 2015 (the “Refinanced Additional Grace Mortgage Loan” and, together with the Assumed Grace Indebtedness, the "Grace Indebtedness"). (See Note 5 - Mortgage Notes Payable).

In addition, the remaining $447.1 million of the contract purchase price was satisfied by the issuance of the preferred equity interests (the "Grace Preferred Equity Interests") in two newly-formed Delaware limited liability companies, ARC Hospitality Portfolio I Holdco, LLC and ARC Hospitality Portfolio II Holdco, LLC, (the "Holdco entities") each of which is an indirect subsidiary of the Company and an indirect owner of the Grace Portfolio. The holders of the Grace Preferred Equity Interests are entitled to monthly distributions at a rate of 7.50% per annum for the first 18 months following closing and 8.00% per annum thereafter. On liquidation of the Holdco entities, the holders of the Grace Preferred Equity Interests are entitled to receive their original value (as reduced by redemptions) prior to any distributions being made to the Company or the Company's stockholders. Beginning in April 2015, the Company became obligated to use 35% of any IPO proceeds to redeem the Grace Preferred Equity Interests at par, up to a maximum of $350.0 million in redemptions for any 12-month period. As of December 31, 2015, the Company has redeemed $152.6 million of the Grace Preferred Equity Interests, resulting in $294.5 million of liquidation value remaining outstanding under the Grace Preferred Equity Interests.

The Company is also required, in certain circumstances, to apply debt proceeds to redeem the Grace Preferred Equity Interests at par. As of February 27, 2018, the Company is required to have redeemed 50.0% of the Grace Preferred Equity Interests, and the Company is required to redeem 100.0% of the Grace Preferred Equity Interests remaining outstanding by no later than February 27, 2019. In addition, the Company has the right, at its option, to redeem the Grace Preferred Equity Interests, in whole or in part, at any time at par. The holders of the Grace Preferred Equity Interests have certain consent rights over major actions by the Company relating to the Grace Portfolio. In connection with the issuance of the Grace Preferred Equity Interests, the Company and the OP have made certain guarantees and indemnities to the sellers and their affiliates or indemnifying the sellers and their affiliates related to the Grace Portfolio. If the Company is unable to satisfy the redemption, distribution or other requirements of the Grace Preferred Equity Interests (including if there is a default under the related guarantees provided by the Company and the OP), the holders of the Grace Preferred Equity Interests have certain rights, including the ability to assume control of the operations of the Grace Portfolio through the assumption of control of the Holdco entities. Due to the fact that the Grace Preferred Equity Interests are mandatorily redeemable and certain of their other characteristics, the Grace Preferred Equity Interests are treated as debt in accordance with GAAP.

The following table presents the preliminary allocation of the assets acquired and liabilities assumed by the Company on February 27, 2015 (in thousands):



Assets acquired and liabilities assumed	February 27, 2015
Land	$	274,478
Buildings and improvements	1,391,506
Below-market lease obligation, net	2,605
Furniture, fixtures and equipment	127,935
Prepaid expenses and other assets	6,678
Accounts payable and accrued expenses	(4,517		)
Total operating assets acquired, net	1,798,685
Seller financing of real estate investments	(1,351,282		)
Total assets acquired, net	$	447,403

The Company is finalizing the fair value of certain tangible and intangible assets acquired and adjustments may be made to the preliminary purchase price allocation shown above.

Revenue and net loss attributable to the Grace Portfolio included in the Consolidated Statement of Operations since the date of acquisition was $388.7 million and $16.5 million, respectively.

HGI Blacksburg JV: On May 20, 2015, the Company acquired an additional equity interest in the HGI Blacksburg JV, increasing its percentage ownership to 56.5% from 24.0%. As a result of this transaction, the Company concluded that it is the primary beneficiary, with the power to direct activities that most significantly impact economic performance of the HGI Blacksburg JV, and therefore consolidated the entity in its consolidated financial statements subsequent to the acquisition. The purchase price of the additional equity interest was approximately $2.2 million, exclusive of closing costs. The joint venture asset holds one hotel, the Hilton Garden Inn Blacksburg. The impact of the acquisition on the consolidated financial statements was immaterial as of December 31, 2015.

Summit Acquisition

On June 2, 2015, the Company entered into agreements with Summit Hotel Properties, Inc. (the "Summit Sellers"), as amended from time to time thereafter, to purchase fee simple interests in a portfolio of 26 hotels in three separate closings for a total purchase price of approximately $347.4 million, subject to closing prorations and other adjustments. The first closing was completed on October 15, 2015.

On October 15, 2015, the Company completed the acquisition of ten hotels (the "First Summit Closing") for $150.1 million, which was funded with $7.6 million previously paid as an earnest money deposit, $45.6 million from the Company’s ongoing initial public offering and $96.9 million from an advance under the SN Term Loan described in Note 5 below.

The following table presents the allocation of the assets acquired and liabilities assumed by the Company on October 15, 2015 (in thousands):



Assets acquired and liabilities assumed	October 15, 2015
Land	$	16,949
Buildings and improvements	120,414
Furniture, fixtures and equipment	12,706
Accounts payable and accrued expenses	(1,082		)
Total operating assets acquired, net	148,987
SN Term Loan	(96,850		)
Total assets acquired, net	$	52,137

The Company is finalizing the fair value of certain tangible and intangible assets acquired and adjustments may be made to the preliminary purchase price allocation shown above.

Revenue and net loss attributable to the hotels acquired from the Summit Sellers in the First Summit Closing included in the Consolidated Statement of Operations since the date of acquisition was $6.4 million and $0.8 million, respectively.

On December 29, 2015, the second closing of hotels to be acquired from the Summit Sellers was terminated. The Company and the Summit Sellers agreed to terminate the purchase agreement pursuant to which the Company had the right to acquire a fee simple interest in ten hotels (the "Second Summit Closing") for a total purchase price of $89.1 million. As a result of this termination, the Company forfeited $9.1 million in non-refundable earnest money deposits.

On February 11, 2016, the Company completed the third closing of hotels acquired from the Summit Sellers comprised of six hotels for $108.3 million (the "Third Summit Closing"), and entered into an agreement with the Summit Sellers to reinstate, with certain changes, the purchase agreement related to the hotels in the Second Summit Closing. (See Note 15 - Subsequent Events).

Noble Acquisitions:

On June 15, 2015, the Company entered into agreements with affiliates of Noble Investment Group, LLC (the "Noble Sellers"), as amended from time to time thereafter, to purchase fee simple interests in a portfolio of 13 hotels in four separate closing for a total purchase price of $300.0 million.

On November 2, 2015, the Company completed the acquisition of two hotels (the "First Noble Closing") from the Noble Sellers for $48.6 million, which was funded with $3.6 million previously paid as an earnest money deposit, $19.0 million from the Company’s ongoing initial public offering and $26.0 million from an advance, secured by a mortgage on the hotels in the First Noble Closing, under the SN Term Loan described in Note 5 below.

On December 2, 2015, the Company completed the acquisition of two hotels (the “Second Noble Closing”) from the Noble Sellers for an aggregate purchase price of $59.0 million, which was funded with $4.4 million previously paid as an earnest money deposit, $12.3 million in proceeds from the Company’s initial public offering and $42.3 million from an advance, secured by a mortgage on the hotels in the Second Noble Closing, under the SN Term Loan described in Note 5 below.

On January 25, 2016, the third and fourth closing of the Noble acquisition comprising nine hotels in total were terminated. The Company and the Noble Sellers agreed to terminate each of the applicable hotels purchase agreements. As a result of this termination, the Company forfeited $22.0 million in non-refundable earnest money deposits. (See Note 15 - Subsequent Events).

Wheelock Acquisition:

On June 2, 2015, the Company entered into agreements with affiliates with affiliates of Wheelock Real Estate Fund, L.P. (the “Wheelock Sellers”), as amended from time to time thereafter, to purchase fee simple interests in a portfolio of five hotels for a purchase price of $92.9 million. On December 15, 2015, the Company and the Wheelock Sellers agreed to terminate the purchase agreements. As a result of this termination, the Company forfeited $10.0 million in non-refundable earnest money deposits.

Pro-forma Financial Information for the Grace and Summit Acquisitions:

The following table below presents pro-forma financial information as if the Grace and Summit acquisitions had occurred on January 1, 2014 (in thousands). The pro-forma information excludes the impact of the Noble acquisitions, as the impact of the acquisitions on the consolidated financial statements was immaterial.

The unaudited pro-forma financial information is not necessarily indicative of what the actual results of operations would have been, assuming the acquisitions had occurred on January 1, 2014, nor does it purport to represent the Company's future results of operations.



Pro-forma	Year Ended December 31, 2015			Year Ended December 31, 2014
Revenues	$	539,163		$	500,882
Net income (loss)	$	(59,339	)	$	(30,811	)

Included in the pro-forma table above are the following expense adjustments to account for differences between the Company's estimates and amounts actually incurred by the sellers, for the years ended December 31, 2015 and December 31, 2014: a reduction in management fees of $0.9 million and $5.2 million, respectively, a reduction in depreciation and amortization of $10.7 million and $15.4 million, respectively, and additional interest expense of $8.8 million and $30.0 million, respectively. Additionally, for the year ended December 31, 2015, there was an adjustment to reduce acquisition and transaction related costs by $39.7 million.