Purchase of Sonesta Bayfront Hotel Coconut Grove

6 Months Ended

Jun. 30, 2011

Purchase of Sonesta Bayfront Hotel Coconut Grove

Purchase of Sonesta Bayfront Hotel Coconut Grove

2. Purchase of Sonesta Bayfront Hotel Coconut Grove

The Company purchased Sonesta Bayfront Hotel Coconut Grove on July 1, 2010.  The Hotel had been operated by the Company under a management agreement since its opening in April 2002.  Sonesta Bayfront Hotel Coconut Grove is a condominium hotel.  Owners of condominium units in the hotel have the option to place their unit in a rental program, and receive rent based on a percentage of room revenues achieved.  The Company acquired the “Hotel Lot”, which includes the restaurant, meeting rooms and other hotel facilities, the Hotel's working capital, and the right to operate the rental program pursuant to lease agreements with unit owners.  Based on historical cash flow achieved, particularly in 2007 and 2008, the Company believes the hotel represents a good investment.  In addition, financing for the acquisition was available on reasonable terms, and the Company's management agreement would otherwise have expired in 2017.

The purchase price of $8,185,000 included the assumption of a $6,500,000 first mortgage loan, and cash paid at closing of $1,349,000.  The Company also agreed to pay the Seller a share of net cash flow, as defined, for a period of 11 years starting January 1, 2010, and recorded a $336,000 liability for the estimated fair value of this obligation at July 1, 2010.

The results of operations of Sonesta Bayfront Hotel Coconut Grove have been included in the Company's consolidated statement of operations since the July 1, 2010 acquisition date.

The following unaudited proforma condensed financial information gives effect to our acquisition of the Sonesta Bayfront Hotel Coconut Grove as if it had occurred on January  1, 2010. The unaudited proforma condensed financial information is presented for illustrative purposes only and is not necessarily indicative of the consolidated financial position or consolidated results of operations of the Company that would have been reported had the acquisition occurred on the date indicated, nor does it represent a forecast of the consolidated results of the operations of the Company for any future period.

(in thousands)

	For the six months ended June 30, 2010
	Sonesta			Sonesta Bayfront Hotel		Pro Forma Adjustments			Pro Forma as Adjusted
Revenues	$	33,901		$	5,750	$	(255	)	$	39,396
Other revenues from managed hotels		2,689			--		(2,241	)		448
Total revenues	$	36,590		$	5,750	$	(2,496	)	$	39,844
Net income (loss)	$	(535	)	$	396	$	(694	)	$	(833	)

A reconciliation of the proforma adjustment to net loss follows (in thousands):

	June 30, 2010
Reduction in management fee income	$	(255	)
Reduction in other revenues from managed hotels		(2,241	)
Reduction in other expenses from managed hotels		2,241
Increase in depreciation and amortization		(276	)
Increase in interest expense		(208	)
Income tax benefit on additional loss of $343,000		45
Proforma adjustment	$	(694	)