Acquisitions

On February 28, 2017, we acquired the 88-room L'Auberge de Sedona and the 70-room Orchards Inn Sedona, each located in Sedona, Arizona, for a total contractual purchase price of $97 million. The acquisition was funded with corporate cash. The hotels are managed by IMH Financial Corporation pursuant to a new management agreement with an initial term of five years, which is terminable at our discretion beginning December 31, 2017. The management agreement provides for a base management fee of 2.45% of gross revenues in 2017, 2.70% of gross revenues in 2018, and 3.0% of gross revenues in 2019 and through the end of the term. The management agreement also provides for an incentive management fee of 12% of hotel operating profit above an owner's priority determined in accordance with the terms of the management agreement in 2017, increasing to 15% by 2020.

We sublease the buildings and underlying land containing 28 of the 70 rooms at the Orchards Inn Sedona, which expires in 2070, including all extension options. We reviewed the terms of the annex sublease in conjunction with the hotel acquisition accounting and concluded that the terms are favorable to us compared with a typical current market lease. As a result, we recorded a $8.6 million favorable lease asset that will be amortized through 2070.

We believe all material adjustments necessary to reflect the effects of the 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, not to exceed one year from the date of acquisition. The following table summarizes the preliminary estimated fair value of the assets acquired and liabilities assumed in our acquisitions (in thousands):



	L'Auberge de Sedona			Orchards Inn Sedona
Land	$	39,484		$	9,604
Building and improvements	22,329			10,883
Furnitures, fixtures and equipment	4,387			1,956
Total fixed assets	66,200			22,443
Favorable lease asset	—			8,557
Other assets and liabilities, net	(2,946		)	(459		)
Total	$	63,254		$	30,541

Acquired properties are included in our results of operations from the date of acquisition. The following unaudited pro forma financial information presents our results of operations (in thousands, except per share data) as if the hotels were acquired on January 1, 2016. The comparable 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,
	2017		2016
Revenues	$	199,632	$	218,399
Net income	$	8,613	$	16,811
Earnings per share:
Basic earnings per share	$	0.04	$	0.08
Diluted earnings per share	$	0.04	$	0.08

For the three months ended March 31, 2017, our condensed consolidated statements of operations include $3.4 million

of revenues and $0.9 million of net income related to the operations of the L'Auberge de Sedona and Orchards Inn Sedona.