NOTE 4. INVESTMENT IN UNCONSOLIDATED JOINT VENTURE

On August 1, 2016, the Company entered into a joint venture, the Atlanta JV, with Three Wall Capital LLC and certain of its affiliates (“TWC”) to acquire an Aloft hotel in downtown Atlanta, Georgia. The Company accounts for the Atlanta JV under the equity method. Condor owns 80% of the Atlanta JV with TWC owning the remaining 20%. The Atlanta JV is comprised of two companies: Spring Street Hotel Property II LLC, of which CHLP indirectly owns an 80% equity interest, and Spring Street Hotel OpCo II LLC, of which our TRS indirectly owns an 80% equity interest. TWC owns the remaining 20% equity interest in these two companies.

On August 22, 2016, the Atlanta JV closed on the acquisition of the Atlanta Aloft for a purchase price of $43,550, subject to working capital and similar adjustments. The purchase price was allocated by the Atlanta JV based on fair value, which was determined using Level 3 fair value inputs, as documented in the table below.


Land		Buildings, improvements, and vehicle		Furniture and equipment		Land option (1)		Total purchase price		Debt originated at acquisition		Net cash
$	13,025	$	34,048	$	2,667	$	(6,190)	$	43,550	$	33,750	$	9,800

(1)

The purchase agreement includes a provision which permits the seller to purchase the surface parking lot North of the hotel exercisable for ten years at less than market rates

The purchase price for the Atlanta Aloft was paid with $9,800 in cash, of which $7,840 was contributed by Condor and $1,960 was contributed by TWC, and $33,750 of proceeds from a term loan secured by the property. Condor additionally contributed $1,440 and TWC additionally contributed $360 to the Atlanta JV to cover acquisition costs and to provide working capital to the entity. The term loan, obtained from LoanCore Capital Credit REIT LLC, has an initial term of 24 months with three 12-month extension periods, which may be exercised at the Atlanta JV’s option subject to certain conditions and fees. The interest rate is a floating rate calculated on the one-month LIBOR plus 5.0%, and as a condition to closing, the Atlanta JV purchased a LIBOR cap of 3.0%. The current interest rate on the loan is 6.25%. The loan is non-recourse to the Atlanta JV, subject to specified exceptions. The loan is also non-recourse to Condor, except for certain customary carve-outs which are guaranteed by the Company.

Under the Atlanta JV agreement, the Atlanta JV is managed by TWC in accordance with business plans and budgets approved by both partners. Major decisions as detailed in the agreement also require joint approval. Condor may remove TWC as manager of the Atlanta JV and appoint a new manager only upon the occurrence of certain events. The Atlanta Aloft hotel is managed by Boast Hotel Management Company LLC (“Boast”), an affiliate of TWC. The Atlanta JV paid to Boast total management fees of $91 and $273 for the three and nine months ended September 30, 2017, respectively, and $46 for the three and nine months ended September 30, 2016.

Net cash flow from the Atlanta JV is distributed each quarter first with a 10% annual preferred return on capital contributions to Condor, second with a 10% annual preferred return on capital contributions to TWC, and third with any remainder distributed to the partners based on their pro-rata equity ownership. Profits are allocated in the same proportion as net cash flow. Losses are allocated based on pro-rata equity ownership. Cash distributions totaling $280 and $680 were received by the Company from the Atlanta JV in the three and nine months ended September 30, 2017, respectively. The Atlanta JV agreement also includes buy-sell rights for both members (generally after three years of hotel ownership for Condor and after five years for TWC) and Condor has a purchase option for TWC’s Atlanta JV ownership interest exercisable between the third and fifth anniversary of the hotel closing.

The following table represents the total assets, liabilities, and equity, including the Company’s share, of the Atlanta JV as of September 30, 2017 and December 31, 2016:


	As of
	September 30, 2017		December 31, 2016
Investment in hotel properties, net	$	48,340	$	49,305
Cash and cash equivalents		2,065		1,184
Restricted cash, property escrows		1,083		464
Accounts receivable, prepaid expenses, and other assets		207		320
Total Assets	$	51,695	$	51,273

Accounts payable, accrued expenses, and other liabilities	$	1,366	$	633
Land option liability		6,190		6,190
Long-term debt, net of deferred financing costs		33,325		33,155
Total Liabilities		40,881		39,978
Condor equity		8,651		9,036
TWC equity		2,163		2,259
Total Equity		10,814		11,295
Total Liabilities and Equity	$	51,695	$	51,273

The table below provides the components of net earnings (loss), including the Company’s share of the Atlanta JV, for the three and nine months ending September 30, 2017 and 2016.


	Three months ended September 30,				Nine months ended September 30,
	2017		2016		2017		2016
Revenue
Room rentals and other hotel services	$	3,049	$	1,310	$	9,099	$	1,310
Operating Expenses
Hotel and property operations		1,895		739		5,818		739
Depreciation and amortization		413		118		1,236		118
Acquisition and terminated transactions		-		280		-		280
Total operating expenses		2,308		1,137		7,054		1,137
Operating income		741		173		2,045		173
Net loss on disposition of assets		(1)		(1)		(5)		(1)
Net loss on derivatives		(1)		-		(3)		-
Interest expense		(540)		(239)		(1,668)		(239)
Net earnings (loss)	$	199	$	(67)	$	369	$	(67)

Condor allocated earnings (loss)	$	159	$	(54)	$	295	$	(54)
TWC allocated earnings (loss)		40		(13)		74		(13)
Net earnings (loss)	$	199	$	(67)	$	369	$	(67)