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INVESTMENT IN HOTEL PROPERTIES, NET | 6 Months Ended
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Jun. 30, 2018
Business Combinations [Abstract] |
INVESTMENT IN HOTEL PROPERTIES, NET | INVESTMENT IN HOTEL PROPERTIES, NET Investment in Hotel Properties, net Investment in hotel properties, net at June 30, 2018 and December 31, 2017 is as follows (in thousands):
|  | June 30, 2018 |  | December 31, 2017
Land |  | $ | 265,699 |  |  | $ | 272,932 |
Hotel buildings and improvements |  | 1,850,655 |  |  | 1,868,273 |
Intangible assets |  | 22,764 |  |  | 22,764 |
Construction in progress |  | 15,410 |  |  | 12,464 |
Furniture, fixtures and equipment |  | 180,446 |  |  | 174,126 |
|  | 2,334,974 |  |  | 2,350,559 |
Less - accumulated depreciation and amortization |  | (320,387 | ) |  | (291,067 | )
|  | $ | 2,014,587 |  |  | $ | 2,059,492 |
Recently Developed Properties We completed the development and commenced operations of the new 168-guestroom Hyatt House Across From Orlando Universal Resort™ on June 27, 2018. The total construction cost for this hotel was $32.7 million, excluding land that we acquired in a prior-year transaction. The carrying amount for this hotel includes internal capitalized costs of $1.6 million. Total costs of $37.1 million, including the carrying amount of the land, were reclassified as Investment in Hotel Properties, net upon completion during the three months ended June 30, 2018. Intangible Assets Intangible assets included in Investment in hotel properties, net and intangible liabilities included in Accrued expenses and other in our Condensed Consolidated Balance Sheets include the following (in thousands):
|  | June 30, 2018 |  | December 31, 2017
Intangible assets: |  |  |  |
Air rights (1) |  | $ | 10,754 |  |  | $ | 10,754 |
Favorable leases (2) |  | 10,569 |  |  | 10,569 |
In-place lease agreements |  | 1,361 |  |  | 1,361 |
Other |  | 80 |  |  | 80 |
|  | 22,764 |  |  | 22,764 |
Less accumulated amortization |  | (1,411 | ) |  | (1,001 | )
Intangible assets, net |  | $ | 21,353 |  |  | $ | 21,763 |
Intangible liabilities: |  |  |  |
Unfavorable leases (2) |  | $ | 5,002 |  |  | $ | 5,002 |
Less accumulated amortization |  | (333 | ) |  | (285 | )
Intangible liabilities, net |  | $ | 4,669 |  |  | $ | 4,717 |
(1) | In conjunction with the acquisition of the Courtyard by Marriott - Charlotte, NC, the Company acquired certain air rights related to the hotel property.
(2) | Intangible assets and liabilities are recorded on contracts assumed as part of the acquisition of certain hotels. Above-market and below-market contract values are based on the present value of the difference between contractual amounts to be paid pursuant to the contracts assumed and our estimate of the fair market contract rates for corresponding contracts measured over a period equal to the remaining non-cancelable term of the contracts assumed. Intangible assets and liabilities are amortized over the remaining non-cancelable term of the related contracts.
Asset Sales On June 29, 2018, we sold the Holiday Inn Express & Suites in Sandy, UT and the Hampton Inn in Provo, UT, for an aggregate selling price of $19.0 million. On June 29, 2018 we also sold the Holiday Inn in Duluth, GA and the Hilton Garden Inn in Duluth, GA for an aggregate selling price of $24.9 million. The sales of these four properties resulted in the realization of an aggregate net gain of $17.4 million during the three and six months ended June 30, 2018. We provided seller financing of $3.6 million, on the sale of the Holiday Inn in Duluth, GA and the Hilton Garden Inn in Duluth, GA, under two three-and-a-half-year second mortgage notes with a blended interest rate of 7.38%. On March 30, 2017, we completed the sale of the Hyatt Place in Atlanta, GA for $14.5 million and repaid a related mortgage loan totaling $6.5 million. The sale of this property resulted in the realization of a net gain of $4.8 million during the six months ended June 30, 2017. On June 2, 2017, we completed the sale of the Courtyard by Marriott in El Paso, TX for $11.2 million. The sale of this property resulted in the realization of a net gain of $0.4 million during the three and six months ended June 30, 2017. Dispositions to Affiliates of Hospitality Investors Trust, Inc. (formerly American Realty Capital Hospitality Trust, Inc.) On June 8, 2015, we entered into multiple sales agreements with affiliates of Hospitality Investors Trust, Inc. (“HIT”) for the sale of a portfolio of hotels to HIT. The agreements were modified on various occasions between 2015 and 2017 such that we sold 23 hotels containing 2,448 guestrooms to HIT in three tranches over that time period for a combined price of approximately $325.1 million (collectively, the “HIT Sale”) as follows (dollars in thousands):
Tranche |  | Closing Date |  | Hotels Sold |  | Sales Price
1 |  | October 2015 |  | 10 |  |  | $ | 150,000 |
2 |  | February 2016 |  | 6 |  |  | 108,300 |
3 |  | April 2017 |  | 7 |  |  | 66,800 |
|  | 23 |  |  | $ | 325,100 |
In connection with the HIT Sale, the Operating Partnership entered into a loan agreement with HIT, as borrower, which provided for a loan by us to HIT in the amount of $27.5 million (the “Loan”). The proceeds of the Loan were required to be applied by HIT as follows: (i) $20.0 million was applied toward the payment of a portion of the $108.3 million purchase price for six hotels acquired in the second tranche; and (ii) the remaining $7.5 million was applied by HIT to fund the escrow deposit required for the purchase of hotels in the third tranche. We deferred $20.0 million of gain from the sale of the hotels in the second tranche as a result of the Loan structure. We recognized the deferred gain as principal payments on the Loan were received, and we recognized the final $15.0 million of gain when the Loan was paid in full on March 31, 2017. Hotel Property Acquisitions We did not acquire any hotel properties during the six months ended June 30, 2018. A summary of the hotel properties acquired during the six months ended June 30, 2017 is as follows (in thousands):
Date Acquired |  | Franchise/Brand |  | Location |  | Purchase Price |
March 1, 2017 |  | Homewood Suites |  | Aliso Viejo (Laguna Beach), CA |  | $ | 38,000 |  |
March 30, 2017 |  | Hyatt Place |  | Phoenix (Mesa), AZ |  | 22,200 |  |
May 23, 2017 |  | Courtyard by Marriott |  | Fort Lauderdale, FL |  | 85,000 |  |
June 9, 2017 |  | Courtyard by Marriott |  | Charlotte, NC |  | 56,250 |  |
June 21, 2017 |  | Courtyard by Marriott |  | Fort Worth, TX |  | 40,000 |  |
June 21, 2017 |  | Courtyard by Marriott |  | Kansas City, MO |  | 24,500 |  |
June 21, 2017 |  | Courtyard by Marriott |  | Pittsburgh, PA |  | 42,000 |  |
June 21, 2017 |  | Hampton Inn & Suites |  | Baltimore, MD |  | 18,000 |  |
June 21, 2017 |  | Residence Inn by Marriott |  | Baltimore, MD |  | 38,500 |  |
|  |  |  | $ | 364,450 |  | (1)
(1) The net assets acquired totaled $367.4 million due to the purchase at settlement of $0.8 million of net working capital assets and capitalized transaction costs of $2.1 million The allocation of the aggregate purchase prices to the fair value of assets and liabilities acquired for the above acquisitions is as follows (in thousands):
|  | For the Six Months Ended June 30, 2017
Land |  | $ | 61,616 |
Hotel buildings and improvements |  | 274,961 |
Intangible assets |  | 15,710 |
Furniture, fixtures and equipment |  | 14,314 |
Other assets |  | 1,775 |
Total assets acquired |  | 368,376 |
Less - other liabilities assumed |  | (990 | )
Net assets acquired |  | $ | 367,386 |
All hotel purchases completed in 2017 were deemed to be the acquisition of assets. Therefore, acquisition costs related to these transactions have been capitalized as part of the recorded amount of the acquired assets. The results of operations of acquired hotel properties are included in the Condensed Consolidated Statements of Operations beginning on their respective acquisition dates. The following unaudited pro forma information includes operating results for 80 hotels owned as of June 30, 2018 as if all such hotels had been owned by us since January 1, 2017. For hotel properties acquired by us during the three and six months ended June 30, 2017, the pro forma information for the three and six months ended June 30, 2017 includes both the financial results from the prior owner from January 1, 2017 through the date of acquisition by us (the “Pre-acquisition Period”) and the financial results generated by us from the date of acquisition through June 30, 2017. For properties acquired by us after June 30, 2017, the pro forma information for the three and six months ended June 30, 2017 reflects the financial results from the prior owner for the entire three and six month period. For all properties acquired by us during the year ended December 31, 2017, the pro forma information for the three and six months ended June 30, 2018 relate entirely to the financial results generated by us. The financial results for the Pre-acquisition Period were provided by the prior owner of such Acquired Hotel prior to purchase by us and such information has not been audited or reviewed by our auditors or adjusted by us. For hotels sold by us between January 1, 2017 and June 30, 2018 (the "Disposed Hotels"), the unaudited pro forma information excludes the financial results, including gains on disposal of assets, of each of the Disposed Hotels for the period of ownership by us from January 1, 2017 through the date that the Disposed Hotels were sold by us. The unaudited pro forma information is included to enable comparison of results for the current reporting period to results for the comparable period of the prior year and is not indicative of what actual results of operations would have been had the hotel acquisitions and dispositions taken place on or before January 1, 2017. The pro forma amounts exclude the gain or loss on the sale of hotel properties during the three and six months ended June 30, 2017 and 2018, respectively. This information does not purport to be indicative of or represent results of operations for future periods. The unaudited condensed pro forma financial information for the 80 hotel properties owned at June 30, 2018 for the three and six months ended June 30, 2018 and 2017 is as follows (in thousands, except per share):
|  | For the Three Months Ended June 30, |  | For the Six Months Ended June 30,
|  | 2018 |  | 2017 |  | 2018 |  | 2017
Revenues |  | $ | 148,501 |  |  | $ | 144,912 |  |  | $ | 285,145 |  |  | $ | 278,044 |
Income from hotel operations |  | $ | 56,877 |  |  | $ | 56,769 |  |  | $ | 106,148 |  |  | $ | 106,232 |
Net income (1) |  | $ | 19,640 |  |  | $ | 25,656 |  |  | $ | 28,971 |  |  | $ | 47,072 |
Net income attributable to common stockholders, net of amount allocated to participating securities (1) (2) |  | $ | 15,765 |  |  | $ | 21,249 |  |  | $ | 16,256 |  |  | $ | 38,279 |
Basic and diluted net income per share attributable to common stockholders (1) (2) |  | $ | 0.15 |  |  | $ | 0.22 |  |  | $ | 0.16 |  |  | $ | 0.40 |
(1) | Pro forma amounts include depreciation expense, property tax expense, interest expense, income tax expense, and other corporate expenses totaling $49.0 million and $39.1 million for the three months ended June 30, 2018 and 2017, respectively, and $97.8 million and $76.0 million for the six months ended June 30, 2018 and 2017, respectively.
(2) | Pro forma amounts for the three and six months ended June 30, 2018 include the effect of the premium on redemption of preferred stock of $3.3 million.
Assets Held for Sale Assets held for sale at June 30, 2018 and December 31, 2017 include the following (in thousands):
|  | June 30, 2018 |  | December 31, 2017
Land |  | $ | 7,410 |  |  | $ | 1,193 |
Hotel buildings and improvements |  | 28,558 |  |  | — |
Furniture, fixtures and equipment |  | 1,745 |  |  | — |
Construction in progress |  | 15 |  |  | — |
Franchise fees and other |  | 150 |  |  | — |
|  | $ | 37,878 |  |  | $ | 1,193 |
Assets Held for Sale at June 30, 2018 and December 31, 2017 included land parcels in Spokane, W A a nd Flagstaff, AZ. Assets Held for Sale at June 30, 2018 also include four hotels under contract for sale that are expected to close during the three months ended September 30, 2018 as follow:
Property |  | Guestrooms
Sale 1: |  |
Hilton Garden Inn - Smyrna, TN |  | 112 |
Hampton Inn & Suites - Smyrna, TN |  | 83 |
Hyatt Place Phoenix North - Phoenix, AZ |  | 127 |
|  | 322 |
Sale 2: |  |
Hyatt Place - Fort Myers, FL |  | 148 |
|  | 470 |

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