Acquisitions

Times Square Development

On January 18, 2011, we entered into a purchase and sale agreement to acquire, upon completion, a hotel property under development on West 42nd Street in Times Square, New York City. Upon completion by the third-party developer, the hotel is expected to contain approximately 285 guest rooms and the contractual purchase price is approximately $128 million, or approximately $450,000 per guest room. The purchase and sale agreement is for a fixed-price, which varies only by total guest rooms built and the completion date for the hotel. We are not assuming any construction risk (including not assuming the risk of construction cost overruns). We currently expect that the development of the hotel will take approximately 24 to 30 months with an anticipated opening date in 2013.

Upon entering into the purchase and sale agreement, we deposited $20.0 million with a third-party escrow agent. Upon the completion of certain construction milestones, we will be required to make an additional deposit of $5.0 million. All deposits will be interest bearing. We will forfeit our deposits if we do not close on the acquisition of the hotel upon substantial completion of construction, unless the seller fails to meet certain conditions, including substantial completion of the hotel within a specified time frame and construction of the hotel within the contractual scope.

JW Marriott Denver at Cherry Creek

On May 19, 2011, we acquired the 196-room JW Marriott Denver at Cherry Creek located in Denver, Colorado for approximately $74.2 million. We funded the acquisition with corporate cash of $30.3 million and the assumption of a $42.4 million mortgage loan with a fair value of approximately $43.9 million. We reviewed the terms of the mortgage loan in conjunction with the hotel purchase accounting and concluded the interest rate of the loan to be above current market. Accordingly, we recorded a $1.5 million debt premium that will be amortized into interest expense over the remaining life of the loan.

We retained the existing hotel manager, Sage Hospitality, under a new 5-year management agreement, which may be renewed for an additional term of 5 years upon mutual consent. The management agreement provides for a base management fee of 2.25% to 3.25% of gross revenues and an incentive management fee of 10% to 15% of hotel operating profit above an owner's priority, both depending on the performance of the hotel and determined in accordance with the terms of the management agreement. The hotel remains a JW Marriott hotel under a new15-year franchise agreement with Marriott. The franchise fees are 6.0% of gross rooms revenue and 3.0% of food and beverage revenue.

Radisson Lexington

On June 1, 2011, we acquired the 712-room Radisson Lexington Hotel located in New York City for approximately $336.8 million. The acquisition was funded with corporate cash and a $115.0 million draw on our senior unsecured credit facility. We retained the existing hotel manager, Highgate Hotels, under a new 10-year management agreement, which may be renewed for an additional term of 5 years by the manager if the hotel meets certain financial performance hurdles. The management agreement provides for a base management fee of 2.5% of gross revenues during the first year and 3.0% of gross revenues thereafter. The agreement also provides for an incentive management fee of 20% of hotel operating profit above an owner's priority determined in accordance with the terms of the management agreement. We assumed the existing franchise agreement with Radisson, which (i) provides for a franchise fee of 2.75% of gross rooms revenue and (ii) gives us an option for termination during two 60-day windows, the first of which begins on March 1, 2012, for a termination fee. We are currently assessing the optimal brand strategy for the hotel.

The majority of the hotel's food and beverage outlets are leased to third party tenants. We reviewed the terms of the tenant leases in conjunction with the hotel purchase accounting and concluded that the terms of three of the leases are more favorable to us than a current market tenant lease. Accordingly, we recorded a $1.6 million favorable lease asset that will be amortized over the remaining term of each lease. We concluded that the terms of two of the leases have terms that are unfavorable to us compared to a current market tenant lease and have recorded an unfavorable contract liability of $0.2 million that will be amortized over the remaining term of each lease.

Courtyard Denver Downtown

On July 22, 2011, we acquired the 177-room Courtyard Denver Downtown located in Denver, Colorado for approximately $46.2 million. The acquisition was funded with corporate cash, a $15 million draw on our senior unsecured credit facility, and the assumption of a $27.2 million mortgage loan. We retained the existing hotel manager, Sage Hospitality, under a new 5-year management agreement, which may be renewed for an additional 5 years upon mutual consent. The management agreement provides for a base management fee of 2% to 3% of gross revenues, and an incentive management fee of 10% to 15% of hotel operating profit above an owner's priority, both depending on the performance of the hotel and determined in accordance with the terms of the management agreement. The hotel remains a Courtyard hotel under a new 16-year franchise agreement with Marriott. The franchise fee is 5.5% of gross room revenue.

The following table summarizes the estimated fair value of the assets acquired and liabilities assumed in our acquisitions (in thousands):



	JW Marriott Denver		Radisson Lexington			Courtyard Denver
Land	$	9,200	$	92,000		$	9,400
Building	63,183		229,453			36,183
Furnitures, fixtures and equipment	1,600		13,400			750
Total fixed assets	73,983		334,853			46,333
Favorable lease assets	—		1,586			—
Unfavorable lease liabilities	—		(161		)	—
Environmental remediation liability	—		(238		)	—
Net other assets and liabilities	217		725			(148		)
Total	$	74,200	$	336,765		$	46,185

The acquired properties are included in our results of operations based on their respective dates of acquisition. The following unaudited pro forma results of operations reflect these transactions as if each had occurred on January 1, 2010. We believe all significant adjustments necessary to reflect the effects of acquisitions have been made; however, a preliminary estimate of the fair value of the assets acquired and the liabilities assumed was made, and we will finalize the recorded amounts after all information is obtained. The pro forma information is not necessarily indicative of the results that actually would have occurred nor does it indicate future operating results.



	Fiscal Quarter Ended						Period from
	September 9, 2011			September 10, 2010			January 1, 2011 to September 9, 2011			January 1, 2010 to September 10, 2010
Revenues	$	180,415		$	177,478		$	500,188		$	494,948

Net loss	(1,130		)	(182		)	(13,679		)	(5,421		)

Loss per share - Basic and Diluted	$	(0.01	)	$	(0.00	)	$	(0.08	)	$	(0.04	)