NOTE 3. ACQUISITION OF HOTEL PROPERTIES

During the six months ended June 30, 2018, the Company acquired two wholly owned hotel properties, all of which were acquired in the first quarter of 2018. The allocation of the purchase price based on fair value was as follows:


	Date of acquisition	Land		Buildings, improvements, and vehicle		Furniture and equipment		Intangible asset		Total purchase price & acquisition costs (1)		Debt at acquisition (2)		Issuance of common units (3)		Net cash paid
TownePlace Suites	01/18/2018	$	1,435	$	16,453	$	1,728	$	190	$	19,806	$	19,806	$	-	$	-
Austin, TX
Home2 Suites	02/21/2018		997		13,474		1,853		53		16,377		14,818		50		1,509
Summerville, SC
Total		$	2,432	$	29,927	$	3,581	$	243	$	36,183	$	34,624	$	50	$	1,509

(1)

Contractual purchase price of $19,750 and $16,325 for Austin TownePlace Suites and Summerville Home2 Suites, respectively.

(2)

All debt was drawn from the $150,000 secured revolving credit facility (the “credit facility”) at acquisition.

(3)

Total issuance of 259,685 common units. Common units may be redeemed at a rate of one common share for 52 common units (see Note 11).

Included in the consolidated statements of operations for the three and six months ended June 30, 2018 are total revenues of $2,161 and $3,574, respectively, and total operating income of $639 and $1,167, respectively, which represent the results of operations for the two hotels acquired in 2018 since the date of acquisition.

During the six months ended June 30, 2017, the Company acquired five wholly owned hotel properties. The allocation of the purchase price based on fair value was as follows:


	Date of acquisition	Land		Buildings, improvements, and vehicle		Furniture and equipment		Intangible asset		Estimated earn out (1)		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
Home2 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)		19,250		19,165		85		-
Lake Mary, FL
Total		$	6,022	$	80,002	$	7,033	$	98	$	(155)	$	93,000	$	82,863	$	285	$	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.

(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. All other debt was drawn from the credit facility at acquisition.

(3)

Total issuance of 1,211,648 common units. Common units may be redeemed at a rate of one common share for 52 common units (see Note 11).

Included in the consolidated statement of operations for the three and six months ended June 30, 2017 are total revenues of $4,325 and $4,630, respectively, and total operating income of $1,186 and $1,359, respectively, which represent the results of operations for the three hotels acquired in 2017 since the date of acquisition.

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

Pro Forma Results

In addition to the two properties acquired in the first quarter of 2018 and the five properties acquired in the first two quarters of 2017, the Company also acquired two wholly owned properties in the third quarter of 2017, the Fairfield Inn & Suites El Paso, TX (purchase price of $16,400) and the Residence Inn Austin, TX (purchase price of $22,400).

The following condensed pro forma financial data is presented as if all acquisitions completed in 2018 were completed on January 1, 2017 and all acquisitions completed in 2017 were completed on January 1, 2016. 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 and between 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 TownePlace Suites Austin, TX which opened on January 3, 2017 and the Home2 Suites Summerville, SC which opened on July 18, 2017.

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, 2017 or 2016, nor do they purport to represent the results of operations for future periods.


	Three months ended June 30,				Six months ended June 30,
	2018		2017		2018		2017
Total revenue	$	17,834	$	18,291	$	35,156	$	36,317
Operating income	$	3,029	$	2,500	$	5,309	$	4,278
Net earnings (loss) attributable to common shareholders	$	2,811	$	4,848	$	3,482	$	(8,165)
Net earnings (loss) per share - Basic	$	0.24	$	0.42	$	0.29	$	(1.13)
Net earnings (loss) per share - Diluted	$	0.24	$	0.38	$	0.29	$	(1.13)