Acquisitions

2017 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 were managed by IMH Financial Corporation ("IMH") through December 6, 2017. The management agreement provided for a base management fee of 2.45% of gross revenues during IMH's management of the hotel in 2017.

Effective December 7, 2017, the hotel is managed by Two Roads Hospitality pursuant to a new management agreement with an initial term of five years. The management agreement provides for a base management fee of 0.5% of gross revenues through 2018, 1% of gross revenues in 2019, and 1.5% of gross revenues for the remainder of the term. The management agreement also provides for 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. The incentive management fee is capped at 1% of gross revenues for each year. The management agreement also specifies a corporate marketing contribution of 1% of gross revenues.

We lease the buildings and sublease the 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 $9.1 million favorable lease asset that will be amortized through 2070.

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.

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. We assumed the existing management agreement with Ocean Properties.

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



	L'Auberge de Sedona			Orchards Inn Sedona			Shorebreak Hotel			Sheraton Suites Key West
Land	$	39,384		$	9,726		$	19,908		$	49,592
Building and improvements	22,204			10,180			37,525			42,958
Furniture, fixtures and equipment	4,376			1,982			1,338			1,378
Total fixed assets	65,964			21,888			58,771			93,928
Favorable lease asset	—			9,065			—			—
Unfavorable lease liability	—			—			(349		)	—
Other assets and liabilities, net	(2,710		)	(412		)	401			500
Total	$	63,254		$	30,541		$	58,823		$	94,428

Acquired properties are included in our results of operations from the date of acquisition. The following pro forma financial information for the years ended December 31, 2017, 2016, and 2015, presents our results of operations (in thousands, except per share data) as if the hotels acquired in 2017 were acquired on January 1, 2016 and as if the hotels acquired in 2015 were acquired on January 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,
	2017		2016		2015
	(unaudited)		(unaudited)		(unaudited)
Revenues	$	873,427	$	924,806	$	942,547
Net income	$	91,602	$	118,232	$	89,184
Earnings per share:
Basic earnings per share	$	0.46	$	0.59	$	0.44
Diluted earnings per share	$	0.45	$	0.59	$	0.44

For the year ended December 31, 2017, our consolidated statement of operations includes $29.3 million of revenues and $5.9 million of net income related to the operations of the hotels acquired in 2017.

Recent Developments

In January 2018, we signed a purchase and sale agreement to acquire the Landing Resort & Spa in South Lake Tahoe, California. The acquisition is expected to close before the end of the first quarter of 2018 and will be funded with cash on hand. In February 2018, we signed a purchase and sale agreement to acquire another hotel, which we expect to close within the next 60 days and will be funded with cash on hand.