NOTE 3. ACQUISITION OF HOTEL PROPERTIES

During the year ended December 31, 2017, the Company acquired seven wholly owned hotel properties. The allocation of the purchase price based on fair value was as follows:


Hotel	Date of acquisition	Land		Buildings, improvements, and vehicle		Furniture and equipment		Intangible asset		Estimated earn out		Total purchase price		Debt at acquisition (2)		Issuance of common units (3)		Net cash paid
Home2 Suites	03/24/2017	$	905	$	14,204	$	1,351	$	40	$	-	$	16,500	$	16,455	$	45	$	-
Lexington, KY
Home2 Suites	03/24/2017		1,087		14,345		1,285		33		-		16,750		16,705		45		-
Round Rock, TX
Home2 Suites	03/24/2017		1,519		18,229		1,727		25		-		21,500		21,442		58		-
Tallahassee, FL
Home 2 Suites	04/14/2017		1,311		16,792		897		-		-		19,000		9,096		52		9,852
Southaven, MS
Hampton Inn & Suites	06/19/2017		1,200		16,432		1,773		-		(155) (1)		19,250		19,165		85		-
Lake Mary, FL
Fairfield Inn & Suites	08/31/2017		1,014		14,297		1,089		-		-		16,400		16,336		64		-
EL Paso, TX
Residence Inn	08/31/2017		1,495		19,630		1,275		-		-		22,400		22,314		86		-
Austin, TX
Total		$	8,531	$	113,929	$	9,397	$	98	$	(155)	$	131,800	$	121,513	$	435	$	9,852

(1)

The Lake Mary purchase price was subject to a post-closing adjustment of up to $250 to be paid to the seller if the hotel achieved a stipulated hotel net operating income level in 2017. This contingent consideration was included in the purchase price allocation at its estimated fair value on the date of the acquisition. The full amount of $250 was paid to the seller in December of 2017 with the incremental amount paid over the estimated fair value included in acquisition and terminated transactions expenses.

(2)

Debt of $9,096 with Morgan Stanley Bank of America Merrill Lynch Trust 2014-C18 was assumed related to the Home2 Suites Southaven, MS acquisition. This loan remains outstanding at December 31, 2017. All other debt was drawn from the credit facility at acquisition.

(3)

Total issuance of 1,940,451 common units.

Included in the consolidated statement of operations for the year ended December 31, 2017 are total revenues of $17,455 and total operating income of $4,508 which represent the results of operations for the seven hotels acquired in 2017 since the date of acquisition.

In addition to the property acquired through the Atlanta JV (see Note 5), during the year ended December 31, 2016, the Company acquired one wholly-owned hotel, the Aloft Leawood / Overland Park (Kansas City). The allocation of the purchase price based on fair value was as follows:


Hotel	Date of acquisition	Land		Buildings, improvements, and vehicles		Furniture and equipment		Total purchase price		Debt at acquisition (1)		Issuance of common units (2)		Net cash paid
Aloft	12/14/2016	$	3,339	$	18,046	$	1,115	$	22,500	$	15,925	$	50	$	6,525
Leawood, KS

(1)

The acquisition was funded with the proceeds of two mortgage loans provided by Great Western Bank totaling $15,925. These loans remain outstanding at December 31, 2017.

(2)

Total issuance of 213,904 common units.

Included in the consolidated statement of operations for the year ended December 31, 2016 are total revenues of $222 and total operating income of $1 which represent the results of operations for the one wholly-owned hotel acquired in 2016 since the date of acquisition.

During the year ended December 31, 2015, the Company acquired three wholly-owned hotel properties. The allocation of the purchase price based on fair value was as follows:


Hotel	Date of acquisition	Land		Buildings, improvements, and vehicles		Furniture and equipment		Total purchase price		Debt at acquisition (1)		Issuance of common units (2)		Net cash paid (3)
Hotel Indigo	10/2/2015	$	800	$	8,700	$	1,500	$	11,000	$	5,000	$	150	$	5,850
Atlanta, GA
Marriott Courtyard	10/2/2015		2,100		11,050		850		14,000		10,100		150		3,750
Jacksonville, FL
SpringHill Suites	10/1/2015		1,597		14,353		1,550		17,500		11,220		150		6,130
San Antonio, TX
Total		$	4,497	$	34,103	$	3,900	$	42,500	$	26,320	$	450	$	15,730

(1)

These acquisitions were funded with the assumption of one loan from Latitude with an aggregate outstanding principal balance of $11,220 and two newly originated GE Capital loans totaling $15,100 (subsequently sold to Western Alliance Bank in April 2016). These loans were refinanced with a loan from Wells Fargo in 2017.

(2)

Total issuance of 2,298,879 common units.

(3)

Includes $830 funded by borrowings from the Company’s then existing credit facility with Great Western Bank.

Included in the consolidated statement of operations for the year ended December 31, 2015 are total revenues of $2,611 and total operating income of $356 which represent the results of operations for the three hotels acquired in 2015 since the date of acquisition.

All purchase price allocations were determined using Level 3 fair value inputs.

As discussed further in the Subsequent Events footnote (see Note 17), subsequent to December 31, 2017, the Company closed on the acquisition of two hotels, the TownePlace Suites Austin North Tech Ridge and the Home2 Suites Summerville / Charleston.

Pro Forma Results (Unaudited)

The following condensed pro forma financial data is presented as if all acquisitions completed during the year ended December 31, 2017 were completed on January 1, 2016 and all acquisitions completed in 2016, including that completed by the Atlanta JV (see Note 5), had been completed on January 1, 2015. Supplemental pro forma earnings were adjusted to exclude all acquisition expenses recognized in the periods presented as if these acquisition costs had been incurred in prior periods but were not adjusted to remove the results of hotels sold during the periods. Results for periods prior to the Company’s ownership are based on information provided by the prior owners, adjusted for differences in interest expense, depreciation expense, and management fees following the Company’s ownership and have not been audited or reviewed by our independent auditors. All hotels were in operation for all periods presented with the exception of the Residence Inn Austin which opened on August 3, 2016. The condensed pro forma financial data is not necessarily indicative of what the actual results of operations of the Company would have been assuming the acquisitions had been consummated on January 1, 2016 or 2015, nor do they purport to represent the results of operations for future periods.


	Years ended December 31,
	2017		2016
Total revenue	$	66,894	$	81,439
Operating income	$	7,204	$	9,156
Net earnings (loss) attributable to common shareholders	$	(7,497)	$	3,877
Net earnings (loss) per share - Basic	$	(0.79)	$	5.09
Net earnings (loss) per share - Diluted	$	(0.79)	$	1.26