Acquisitions

2015 Acquisitions

On February 6, 2015, we acquired the 157-room Shorebreak Hotel located in Huntington Beach, California for a purchase price of $58.8 million. 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.

On June 30, 2015, we acquired the 184-suite Sheraton Suites Key West located in Key West, Florida for a purchase price of $94.4 million. The acquisition was funded with a combination of corporate cash on hand and a draw on our senior unsecured credit facility. We assumed the existing management agreement with Ocean Properties, which expires in July 2027 and provides for a base management fee of 3.0% of gross revenues and an incentive management fee of 10% of hotel operating profit above an owner's priority determined in accordance with the terms of the management agreement.

2014 Acquisitions

On August 15, 2014, we acquired the 106-room Inn at Key West located in Key West, Florida for a purchase price of $47.8 million. The acquisition was funded with corporate cash on hand. We retained the existing hotel operator, Remington Management, LP, under an interim management agreement. In September 2015, we entered into a 10-year management agreement with Noble House Hotels & Resorts to operate the hotel.

On August 29, 2014, we completed the acquisition of the newly constructed, 282-room Hilton Garden Inn Times Square Central in New York City. We had entered into the purchase and sale agreement to acquire this hotel upon its completion for a fixed purchase price of $127.2 million in early 2011. We had previously funded total purchase deposits of $26.9 million. The balance of the purchase price was funded with corporate cash on hand. The hotel opened on September 1, 2014 and is operated by Highgate Hotels, LP, subject to a franchise license agreement with Hilton Garden Inns Franchise LLC. The hotel meets the definition of a business and the acquisition was accounted for as a business combination. As such, the assets acquired were recorded at their fair values, which exceeded our contractual cost. During the three years between the date of the purchase and sale agreement and the date of acquisition, the real estate market for hotels located in Manhattan experienced an increase in valuations due to improved economic conditions in the market and the overall economy. This resulted in an increase in the fair value the hotel at the time of acquisition compared with our contractual purchase price, which resulted in a gain of approximately $23.9 million upon acquisition.

On December 3, 2014, we acquired the 432-room Westin Fort Lauderdale Beach Resort located in Fort Lauderdale, Florida for a purchase price of $149.0 million. The acquisition was funded with a combination of corporate cash on hand and a draw on our senior unsecured credit facility. Upon acquisition of the hotel, we entered into a 10-year management agreement with HEI Hotels & Resorts and a 20-year franchise agreement with Starwood to license the hotel under the Westin brand.

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



	Shorebreak Hotel			Sheraton Suites Key West		Inn at Key West		Hilton Garden Inn Times Square Central		Westin Fort Lauderdale Beach Resort
Land	$	19,908		$	49,592	$	32,888	$	60,300	$	54,293
Building and improvements	37,525			42,958		13,371		88,896		83,227
Furnitures, fixtures and equipment	1,338			1,378		1,241		6,204		11,480
Total fixed assets	58,771			93,928		47,500		155,400		149,000
Unfavorable lease liability	(349		)	—		—		—		—
Other assets and liabilities, net	401			500		326		370		12
Total	$	58,823		$	94,428	$	47,826	$	155,770	$	149,012

Acquired properties are included in our results of operations from the date of acquisition. The following pro forma financial information presents our results of operations (in thousands, except per share data) as if the hotels acquired in 2015 and 2014 were acquired on January 1, 2014 and January 1, 2013, respectively. The pro forma financial information does not include the pro forma adjustments for the Hilton Garden Inn Times Square Central because 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.



	Year Ended December 31,
	2015		2014
	(unaudited)
Revenues	$	942,547	$	949,110
Net income	$	89,184	$	175,638
Earnings per share:
Basic earnings per share	$	0.44	$	0.90
Diluted earnings per share	$	0.44	$	0.89

For the year ended December 31, 2015, our consolidated statement of operations includes $20.8 million of revenues and $4.6 million of net income related to the operations of the hotels acquired in 2015.

For the year ended December 31, 2014, our consolidated statement of operations includes $15.2 million of revenues and $4.5 million of net income related to the operations of the hotels acquired in 2014.