Note 3 – Investments in Hotels

The following table sets forth summary information regarding the Company’s investments in hotel properties as of September 30, 2020:


						Contract			Mortgage
				Ownership		Purchase			Debt
Property Name	Date Acquired		Location	Interest		Price(1) (2)		Rooms	Outstanding
Springhill Suites Wilmington	05/24/2017	(1)	Wilmington, NC	51	%	$	18,000,000	120	$	11,211,025
Staybridge Suites St. Petersburg	06/29/2017	(1)	St. Petersburg, FL	51	%	$	20,500,000	119	$	13,273,843
Hotel Indigo Traverse City	08/15/2018		Traverse City, MI	100	%	$	26,050,000	107	$	15,092,000
Hilton Garden Inn Providence	02/27/2020		Providence, RI	100	%	$	28,500,000	137	$	16,936,901

Represents the date and contract purchase price of PCF’s acquisition of the Springhill Suites Wilmington property (the “Springhill Suites Wilmington”) and the Staybridge Suites St. Petersburg property (the “Staybridge Suites St. Petersburg”). The Company exercised its option under an option agreement to purchase a 51% membership interest in PCF on March 29, 2018.

Contract purchase price excludes acquisition fees and costs.

Investments in hotel properties consisted of the following as of September 30, 2020 and December 31, 2019:


	September 30,		December 31,
	2020		2019
Land	$	11,588,686	$	7,987,069
Building and improvements		77,262,690		53,478,730
Furniture, fixtures, and equipment		7,185,915		5,435,758
Total cost		96,037,291		66,901,557
Accumulated depreciation		(5,750,829)		(3,533,705)
Investment in hotel properties, net	$	90,286,462	$	63,367,852

Depreciation expense for the three months ended September 30, 2020 and 2019 was $779,465 and $563,489, respectively. Depreciation expense for the nine months ended September 30, 2020 and 2019 was $2,217,124 and $1,660,124, respectively.

Acquisition of the Hilton Garden Inn Providence

On February 27, 2020, the Company, through its Operating Partnership, completed the acquisition of the membership interests in Gano Holdings, LLC (“Gano”) for a purchase price of $28,500,000. Gano owns 100% of the fee simple interest in a 137-room select-service Hilton Garden Inn hotel property located in Providence, Rhode Island (“Hilton Garden Inn Providence”).

The Procaccianti Group, LLC (“Procaccianti Group”), an affiliate of the Sponsor, had the right to purchase the membership interests in Gano pursuant to a Membership Interest Purchase Agreement by and among Procaccianti Group, as buyer, and TPG DP JV, LLC, ETJ Gano Holdings, Inc., PRJA Gano Holdings, LLC, EHI Gano Holdings, Inc. and TPG DP Investors, LLC, collectively as seller (“Seller”), dated as of January 14, 2020 (as amended, the “MIPA”). The Seller entities are affiliated with the Sponsor, and some are controlled by certain members of the investment committee members of PHA. On February 27, 2020, Procaccianti Group assigned, and the Operating Partnership assumed, Procaccianti Group’s right, title and interest in and under the MIPA, pursuant to an Assignment of Membership Interest Purchase Agreement, by and between Procaccianti Group and the Operating Partnership, giving the Operating Partnership the right to acquire the membership interests of Gano for the purchase price.

The purchase price, exclusive of closing costs and typical hotel closing date adjustments, was comprised of three components as follows: (a) a $10,281,855 cash payment, (b) the issuance of 128,124 Class K OP Units of limited partnership interests in the Operating Partnership, valued at $10.00 per Class K OP Unit, and (c) the assumption of the existing debt balance on the Hilton Garden Inn Providence (the “Existing Debt”), as evidenced by a promissory note and other loan documents. The cash portion of the acquisition was funded with net proceeds from the Company’s Public Offering. Individuals with direct or indirect interests in the seller of the Hilton Garden Inn Providence who are direct or indirect owners of the Sponsor and PHA received only Class K OP Units and no cash as consideration. The value of the Class K OP Units of $1,281,244 is presented as noncontrolling interest in the Operating Partnership on the condensed consolidated balance sheet as of September 30, 2020.

The Company concluded its investment in the Hilton Garden Inn Providence was an asset acquisition in accordance with ASC 805, Business Combinations (“Topic 805”), as substantially all of the fair value of the gross assets acquired by the Company is concentrated in a group of similar identifiable assets. In accordance with Topic 810, in an asset acquisition under the VIE model, the difference in the fair value of the assets acquired and consideration paid is recognized in the income statement as a gain or loss on the transaction. Costs incurred as part of the asset acquisition transaction are not considered a component of the consideration transferred nor capitalized as a part of the cost of the assets acquired. In accordance with this guidance, the fair value of the assets acquired and liabilities assumed in the acquisition were recorded by the Company as follows and $72,149 of acquisition costs were expensed.


	Fair Value at
	February 27, 2020
Land	$	3,601,617
Building and improvements		23,732,408
Furniture, fixtures, and equipment		1,679,004
Other assets		100,511
Total assets acquired		29,113,540
Long-term debt		(17,503,709)
Other liabilities assumed		(122,582)
Net assets acquired	$	11,487,249

Net purchase price	$	11,620,770
Loss on acquisition	$	(133,521)

The Company utilized an independent appraisal, as well as other available market data, to assist in the determination of the fair values of the assets acquired and debt assumed.