Acquisitions

On February 6, 2015, we acquired the 157-room Shorebreak Hotel located in Huntington Beach, California for a contractual purchase price of $58.5 million. The acquisition was funded with corporate cash on hand. Upon acquisition of the hotel, we entered into a 10-year management agreement with Kimpton Hotel and Restaurant Group, LLC. The management agreement provides for a base management fee of 1.25% of gross revenues during 2015 and 2.5% of gross revenues thereafter. The agreement also provides for an incentive management fee of 15% of hotel operating profit above an owner's priority determined in accordance with the terms of the management agreement.

We own a 95.5% undivided interest in the land underlying the hotel and lease the remaining 4.5% under a long-term ground lease, which expires in 2100, including extension options. In 2021 and at certain points thereafter, we have the option to purchase the 4.5% leasehold interest at the greater of the then current rent divided by 10% or fair market value. We reviewed the terms of the ground lease in conjunction with the hotel purchase accounting and concluded that the terms are unfavorable to us compared with a current market ground lease. As a result, we recorded a $0.3 million unfavorable lease liability. We expect to exercise the leasehold purchase option in 2021. Accordingly, the unfavorable lease liability will be amortized over the remaining term through 2021.

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



	Shorebreak Hotel
Land	$	19,908
Building and improvements	37,525
Furnitures, fixtures and equipment	1,338
Total fixed assets	58,771
Unfavorable lease liability	(349		)
Other assets and liabilities, net	401
Total	$	58,823

We believe all material adjustments necessary to reflect the effects of acquisitions have been made; however, the amounts recorded are based on a preliminary estimate of the fair value of the assets acquired and the liabilities assumed. We will finalize the recorded amounts upon the completion of our valuation analysis of the assets acquired and liabilities assumed.

Acquired properties are included in our results of operations from the date of acquisition. The following unaudited pro forma results of operations (in thousands, except per share data) reflect the acquisition of the Shorebreak Hotel as if it had occurred on January 1, 2014, as well as the Inn at Key West and Westin Fort Lauderdale Beach Resort (both acquired in 2014) as if both had occurred on January 1, 2013. The following pro forma results of operations do not include adjustments reflecting the acquisition of the Hilton Garden Inn Times Square Central, since the hotel opened on September 1, 2014. The pro forma information is not necessarily indicative of the results that actually would have occurred nor does it indicate future operating results.



	Three Months Ended March 31,
	2015		2014
Revenues	$	210,085	$	210,350
Net income	$	10,541	$	11,420
Earnings per share:
Basic earnings per share	$	0.05	$	0.06
Diluted earnings per share	$	0.05	$	0.06

For the three months ended March 31, 2015, our condensed consolidated statements of operations include $2.0 million of revenues and $0.1 million of net income related to the operations of the Shorebreak Hotel.