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Consolidated Financial Statements (Expressed in thousands of U.S. dollars)

AMERICAN HOTEL INCOME PROPERTIES REIT LP Years ended December 31, 2017 and 2016

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INDEPENDENT AUDITORS' REPORT

To the Unitholders of American Hotel Income Properties REIT LP

We have audited the accompanying consolidated financial statements of American Hotel

Income Properties REIT LP, which comprise the consolidated statements of financial

position as at December 31, 2017 and December 31, 2016, the consolidated statements of

comprehensive income and partners’ capital and cash flows for the years then ended, and

notes, comprising a summary of significant accounting policies and other explanatory

information.

Management’s Responsibility for the Consolidated Financial Statements

Management is responsible for the preparation and fair presentation of these

consolidated financial statements in accordance with International Financial Reporting

Standards, and for such internal control as management determines is necessary to enable

the preparation of consolidated financial statements that are free from material

misstatement, whether due to fraud or error.

Auditors’ Responsibility

Our responsibility is to express an opinion on these consolidated financial statements

based on our audits. We conducted our audits in accordance with Canadian generally

accepted auditing standards. Those standards require that we comply with ethical

requirements and plan and perform the audit to obtain reasonable assurance about

whether the consolidated financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and

disclosures in the consolidated financial statements. The procedures selected depend on

our judgment, including the assessment of the risks of material misstatement of the

consolidated financial statements, whether due to fraud or error. In making those risk

assessments, we consider internal control relevant to the entity’s preparation and fair

presentation of the consolidated financial statements in order to design audit procedures

that are appropriate in the circumstances, but not for the purpose of expressing an opinion

on the effectiveness of the entity’s internal control. An audit also includes evaluating the

appropriateness of accounting policies used and the reasonableness of accounting

estimates made by management, as well as evaluating the overall presentation of the

consolidated financial statements.

We believe that the audit evidence we have obtained in our audits is sufficient and

appropriate to provide a basis for our audit opinion.

American Hotel Income Properties REIT LP Page 2

Opinion

In our opinion, the consolidated financial statements present fairly, in all material respects,

the consolidated financial position of American Hotel Income Properties REIT LP as at

December 31, 2017 and December 31, 2016 and its consolidated financial performance

and its consolidated cash flows for the years then ended in accordance with International

Financial Reporting Standards.

Chartered Professional Accountants

Vancouver, Canada

March 6, 2018

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AMERICAN HOTEL INCOME PROPERTIES REIT LP Consolidated Statements of Financial Position (Expressed in thousands of U.S. dollars) December 31, 2017 and 2016

Notes 2017 2016

Assets Current assets:

Cash and cash equivalents $ 11,935 $ 81,127 Current portion of restricted cash 5 34,838 10,087 Trade and other receivables 10,987 5,563 Loan receivable 4(a) - 10,199 Prepaids and other assets 11,083 13,896

68,843 120,872

Restricted cash 5 16,242 8,355

Property, buildings and equipment 6 1,190,714 645,022

Intangible assets 7 12,286 10,775

Fair value of interest rate swap contracts 10(b) 806 -

Deferred income tax assets 8 6,842 6,415

$ 1,295,733 $ 791,439

Liabilities and Partners’ Capital Current liabilities:

Accounts payable and accrued liabilities $ 33,959 $ 19,353 Finance lease liability 9 1,911 - Current portion of term loans 10 11,586 6,040 Current portion of other liabilities 11 383 250

47,839 25,643

Term loans 10 680,745 362,050

Convertible debentures 12 45,307 -

Other liabilities 11 2,126 491

Fair value of interest rate swap contracts 10(b) - 219

Deferred income tax liabilities 8 2,143 2,012

778,160 390,415

Partners’ capital 13 517,573 401,024

$ 1,295,733 $ 791,439

Commitments and contingencies 16 Subsequent events 23 See accompanying notes to consolidated financial statements.

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AMERICAN HOTEL INCOME PROPERTIES REIT LP Consolidated Statements of Comprehensive Income (Expressed in thousands of U.S. dollars) Years ended December 31, 2017 and 2016

Notes 2017 2016

Revenue:

Rooms $ 273,798 $ 157,665 Food and beverage 25,262 14,059 Other 4,650 1,791

303,710 173,515 Hotel expenses:

Operating expenses 154,554 85,148 Energy 12,762 7,383 Property maintenance 14,039 8,429 Property taxes and insurance 16,603 8,052 Depreciation and amortization 40,912 24,351

238,870 133,363

Income from operating activities 64,840 40,152 Corporate and administrative 15,991 12,148 Loss (gain) on disposal of property and equipment (5) 91 Impairment loss on hotel assets 6(b) 10,808 - Business acquisition costs 8,146 5,056

Income before undernoted 29,900 22,857 Finance income (110) (368) Finance costs 15 29,669 14,685

Income before income taxes 341 8,540 Current income tax expense 8 548 494 Deferred income tax recovery 8 (296) (1,234)

Net income and comprehensive income $ 89 $ 9,280

Basic and diluted net income per unit $ - $ 0.23

Basic weighted average number of units outstanding 69,546,869 39,675,071

Diluted weighted average number of units outstanding 69,686,567 39,757,170

See accompanying notes to consolidated financial statements.

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AMERICAN HOTEL INCOME PROPERTIES REIT LP Consolidated Statements of Partners’ Capital (Expressed in thousands of U.S. dollars, except units outstanding) Years ended December 31, 2017 and 2016

Units Partners Contributed Cumulative Notes outstanding contributions1 surplus (deficit) Total Balance, January 1, 2017 56,374,042 $ 456,101 $ 360 $ (55,437) $ 401,024

Securities-based compensation 14 - - 683 - 683

Issuance of units under securities-based compensation plan 14 21,003 175 (398) - (223)

Issuance of units for hotel acquisitions, net of expenses 13(b) 2,242,761 17,329 - - 17,329

Issuance of units on public offering, net of expenses 13(b) 19,410,000 142,183 - - 142,183

Issuance of convertible debentures, equity portion net of expenses 12 - 1,979 - - 1,979

Net income and comprehensive income - - - 89 89

Distributions 13(d) - - - (45,491) (45,491) Balance, December 31, 2017 78,047,806 $ 617,767 $ 645 $ (100,839) $ 517,573

Balance, January 1, 2016 34,908,265 $ 297,604 $ 129 $ (38,066) $ 259,667

Securities-based compensation 14 - - 415 - 415

Issuance of units under securities-based compensation plan 14 10,278 87 (184) - (97)

Issuance of units on public offering, net of issuance costs 13(b) 21,281,900 157,049 - - 157,049

Issuance of units for hotel acquisitions, net of expenses 13(b) 173,599 1,361 - - 1,361

Net income and comprehensive income - - - 9,280 9,280

Distributions 13(d) - - - (26,651) (26,651)

Balance, December 31, 2016 56,374,042 $ 456,101 $ 360 $ (55,437) $ 401,024

1 Consists of $0.1 of General Partner Units. See accompanying notes to consolidated financial statements.

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AMERICAN HOTEL INCOME PROPERTIES REIT LP Consolidated Statements of Cash Flows (Expressed in thousands of U.S. dollars) Years ended December 31, 2017 and 2016

Notes 2017 2016

Cash provided by (used in):

Operating activities: Net income and comprehensive income $ 89 $ 9,280 Interest paid (29,198) (14,609) Securities-based compensation units paid in cash (223) (97) Items not affecting cash:

Depreciation and amortization 40,912 24,351 Impairment loss on hotel assets 6(b) 10,808 - Loss (gain) on disposal of equipment (5) 91 Securities-based compensation expense 683 415 Deferred income tax recovery (296) (1,234) Finance costs 29,669 14,685

52,439 32,882 Change in non-cash operating working capital 11,241 (5,344)

63,680 27,538

Investing activities: Additions to property, buildings and equipment (23,524) (18,166) Franchise application fees paid (3,807) (1,740) Proceeds from Economy Lodging

Hotels Franchisor 11 2,000 - Net proceeds on disposal of property, building

and equipment 4,354 8 Acquisition of Economy Lodging Hotels (6,570) (15,099) Acquisition of Premium Branded Hotels, net of cash

provided by sellers (521,530) (110,767) Advance of loan receivable - (10,199) Net change in restricted cash reserves (32,633) (608)

(581,710) (156,571)

Financing activities: Issuance of Units on public offerings, net of expenses 142,183 157,049 Issuance of convertible debentures 12 48,875 - Distributions paid (44,155) (25,426) Proceeds from term loans 10(a) 314,700 76,000 Payments on promissory note - (5,900) Payments of deferred compensation (250) (163) Payments on term loans (7,885) (3,170) Payments on finance lease liability (39) - Issuance costs related to acquisitions (46) - Financing costs paid (4,545) (1,452)

448,838 196,938

Increase (decrease) in cash and cash equivalents (69,192) 67,905

Cash and cash equivalents, beginning of year 81,127 13,222

Cash and cash equivalents, end of year $ 11,935 $ 81,127

Supplemental cash flow disclosure 20

See accompanying notes to consolidated financial statements.

AMERICAN HOTEL INCOME PROPERTIES REIT LP Notes to Consolidated Financial Statements (Expressed in thousands of U.S. dollars, except unit and per unit amounts) Years ended December 31, 2017 and 2016

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1. Reporting entity:

American Hotel Income Properties REIT LP (“AHIP”) is a limited partnership formed under the

Limited Partnerships Act (Ontario) to invest in hotel real estate properties in the United States.

AHIP was established pursuant to the terms of AHIP's Limited Partnership Agreement dated

October 12, 2012 and amended on February 20, 2013 and June 9, 2015. AHIP’s head office and

address for service is 800 - 925 West Georgia Street, Vancouver, British Columbia, Canada,

V6C 3L2.

AHIP has two operating segments: (i) Premium Branded Hotels are hotels that have franchise

agreements with international hotel brands and (ii) Economy Lodging Hotels are hotels that have

rail crew lodging facility agreements with large railway companies and franchise agreements with

Wyndham Hotel Group (“WHG”).

AHIP’s units (“Units”) are listed on the Toronto Stock Exchange (the “TSX”) under the symbols

HOT.UN and HOT.U and also in the United States on the OTCQX International marketplace

under the symbol AHOTF. AHIP’s convertible debentures are listed on the TSX under the symbol

HOT.DB.U.

2. Basis of presentation and statement of compliance:

(a) Statement of compliance:

These consolidated financial statements have been prepared in compliance with International

Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards

Board (“IASB”) incorporating interpretations issued by the Interpretations Committee

(“IFRIC”). AHIP has consistently applied the accounting policies in all periods presented.

These consolidated financial statements were approved and authorized for issue by the

directors of the General Partner on March 6, 2018.

(b) Basis of measurement:

These consolidated financial statements have been prepared on a historical cost basis with

the exception of interest rate swap contracts which are recorded at fair value.

(c) Functional and presentation currency:

The functional and presentation currency of AHIP and its subsidiaries is United States

(“U.S.”) dollars.

Transactions denominated in Canadian dollars are translated to U.S. dollars as follows:

(i) Monetary assets and liabilities are translated at current rates of exchange and

non-monetary assets and liabilities are translated at historical rates of exchange;

(ii) Revenues and expenses are translated at average rates of exchange for the period; and

(iii) All exchange gains and losses are recognized in the consolidated statements of

comprehensive income.


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2. Basis of presentation and statement of compliance (continued):

(d) Use of estimates, assumptions and judgments:

The preparation of financial statements in conformity with IFRS requires management to

make estimates and assumptions that affect the application of accounting policies and the

reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at

the date of the financial statements. Actual results may differ from these estimates.

Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to

accounting estimates are recognized in the period in which the estimates are revised and in

any future periods affected.

Significant areas of estimates and assumptions include the following:

(i) Business combinations:

Business combinations are accounted for using the acquisition method. The

consideration for an acquisition is measured at the aggregate of the fair values of assets

transferred, liabilities incurred or assumed. The identifiable assets, liabilities and

contingent liabilities acquired are recognized at their fair values at the acquisition date.

AHIP obtained third-party valuations to support management’s determination of the fair

value of property, buildings and equipment. Management evaluated the incremental

earning stream attributable to the lodging agreements discounted at an expected rate of

return to support the determination of the value of intangible assets for the Economy

Lodging Hotels. IFRS 3, Business Combinations, requires management to determine

whether a hotel acquisition meets the definition of a business combination. Judgement is

involved in determining if the acquiree constitutes a business and whether AHIP obtained

control over the acquiree.

(ii) Depreciation and amortization:

Management has estimated the useful lives of property, buildings and equipment in the

determination of depreciation. The estimated useful lives of property, buildings and

equipment are determined based on various factors including historical data and AHIP’s

expected use of the assets. Intangible assets are amortized over the average remaining

contractual term of the lodging agreements or franchise agreements.

(iii) Impairment:

IAS 36, Impairment of Assets, requires management to use judgement in assessing

whether there is an impairment of AHIP’s assets. In making this judgement, management

evaluates, among other factors, internal and external indicators of impairment, such as

changes in technology, market conditions, and economic or legal environment.


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2. Basis of presentation and statement of compliance (continued):

(d) Use of estimates, assumptions and judgments (continued):

(iii) Impairment (continued):

IAS 36 also requires management to exercise judgement in determining the recoverable

amount of assets that are tested for impairment. Judgement is involved in estimating fair

value less costs of disposal or value in use of the cash-generating units, including

estimates of growth rates, discount rates, capitalization rates, and terminal rates. The

estimates reflect past experience and are consistent with external sources of information.

3. Significant accounting policies:

(a) Basis of consolidation:

The consolidated financial statements comprise the financial statements of AHIP and

subsidiaries controlled by AHIP. Control exists when AHIP is exposed to, or has rights to,

variable returns from its involvement with the entity, and has the ability to affect those returns

through its power over the entity. The financial statements of the subsidiaries are

consolidated from the date that control commences and continue to be consolidated until the

date that control ceases.

Intra-group transactions and balances are eliminated in preparing the consolidated financial

statements. The consolidated financial statements reflect the financial position, results of

operations and cash flows of AHIP and its subsidiaries.

AHIP owns and consolidates its wholly-owned subsidiaries, which include the following

material legal entities: State of incorporation American Hotel Income Properties REIT Inc. Maryland Lodging Properties LLC Delaware IML Properties LLC Delaware AHIP Properties LLC Delaware Lodging Enterprises, LLC Delaware IML Enterprises LLC Delaware AHIP Enterprises LLC Delaware


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3. Significant accounting policies (continued):

(b) Property, buildings and equipment:

(i) Recognition and measurement:

Property, buildings and equipment are measured at cost less accumulated depreciation

and accumulated impairment losses.

Cost includes expenditures that are directly attributable to the acquisition of the asset.

The cost of self-constructed assets includes the cost of materials and direct labor, any

other costs directly attributable to bringing the assets to a working condition for their

intended use, and borrowing costs on qualifying assets.

When parts of an item of property, buildings and equipment have different useful lives,

they are accounted for as separate items of property, buildings and equipment, if

significant.

Gains and losses on disposal of property, buildings and equipment are determined by

comparing the proceeds from disposal with the carrying amount of property, buildings,

and equipment, and are recognized as a separate line item in comprehensive income.

(ii) Subsequent costs:

The cost of replacing a part of an item of property, buildings and equipment is recognized

in the carrying amount of the item if it is probable that the future economic benefits

embodied within the part will flow to AHIP and its cost can be measured reliably. The

carrying amount of the replaced part is derecognized. The costs of the day-to-day

maintenance of property, buildings and equipment are recognized in profit or loss as

incurred.

(iii) Depreciation:

Depreciation is computed on a straight-line basis based on the useful lives of each

component of property, buildings and equipment. Depreciation on new construction

commences in the month after the asset is available for its intended use based upon the

useful life of the asset, as outlined below.

Asset Basis Rate Buildings Straight-line 17 to 40 years Equipment Straight-line 5 to 15 years Automobiles Straight-line 5 years

Depreciation methods, useful lives and residual values are reviewed at each financial

year-end and adjusted if appropriate.


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(c) Intangible assets:

Intangible assets are carried at cost less accumulated amortization and any accumulated

impairment loss.

(i) Recognition and measurement:

AHIP’s intangible assets consist of:

lodging agreements with several railroad companies, which provide minimum

guarantees on rooms reserved at AHIP’s Economy Lodging Hotels recorded upon

acquisition of the Economy Lodging Hotels;

contract-signing fees payable upon entering into additional lodging facility

agreements for guaranteed room rentals;

franchise application fees payable upon acquisition of Premium Branded Hotels; and

franchise application fees paid on branding of certain Economy Lodging Hotels.

(ii) Amortization:

Amortization is calculated based on the cost of the asset less its residual value.

Amortization is recognized in earnings on a straight-line basis over the estimated useful

lives of intangible assets from the date that they are available for use, specifically when

the agreements come into effect, since this most closely reflects the expected pattern of

consumption of the future economic benefits embodied in the asset.

The basis of amortization and estimated useful lives are as follows: Asset Basis Rate Lodging agreements Straight-line 5-10 years Contract signing fees Straight-line 4-10 years Franchise fees Straight-line 5-20 years

(d) Impairment of non-financial assets:

The carrying amounts of AHIP’s non-financial assets, consisting of property, buildings and

equipment, and intangible assets, are reviewed at each reporting date to determine whether

there is any indication of impairment. If any such indication exists, then the asset’s

recoverable amount is estimated.


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(d) Impairment of non-financial assets (continued):

The recoverable amount of an asset or cash-generating unit is the greater of its value in use

and its fair value less costs to sell. In assessing value in use, the estimated future cash flows

are discounted to their present value using a pre-tax discount rate that reflects current market

assessments of the time value of money and the risks specific to the asset. For the purpose

of impairment testing, assets that cannot be tested individually are grouped together into the

smallest group of assets that generates cash inflows from continuing use that are largely

independent of the cash inflows of other assets or groups of assets (the “cash-generating

unit”).

When the carrying amount of the asset exceeds its recoverable amount, an impairment loss

is recognized in an amount equal to the excess. When an indication that an impairment loss

recognized in prior periods for an asset other than goodwill may no longer exist or may have

decreased, the recoverable amount of that asset is estimated. A reversal of an impairment

loss is recognized immediately in profit or loss if the recoverable amount of a previously

impaired asset has subsequently increased to the lower of the asset's or cash-generating

unit’s recoverable amount or carrying value had no impairment loss been recognized for the

asset or cash-generating unit in prior years.

(e) Financial instruments:

(i) Financial assets:

AHIP’s financial assets are comprised of cash and cash equivalents, restricted cash and

trade and other receivables. AHIP classifies these financial assets as loans and

receivables.

Loans and receivables are financial assets with fixed or determinable payments that are

not quoted in an active market. Such assets are recognized initially at fair value plus any

directly attributable transaction costs. Subsequent to initial recognition, loans and

receivables are measured at amortized cost using the effective interest method, less any

impairment losses.

(ii) Financial liabilities:

AHIP has the following non-derivative financial liabilities: accounts payable and accrued

liabilities, term loans, deferred compensation payable and preferred shares. AHIP

classifies each of its non-derivative financial liabilities as other financial liabilities. Initial

measurement is at fair value plus any directly attributable transaction costs. Subsequent

to initial recognition, these non-derivative financial liabilities are measured at amortized

cost using the effective interest method. All non-derivative financial liabilities are initially

recognized on the date that AHIP becomes a party to the contractual provisions of the

instrument. AHIP derecognizes a financial liability when its contractual obligations are

discharged, cancelled or expired.


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(e) Financial instruments (continued):

(iii) Compound financial instruments:

Compound financial instruments issued by AHIP comprise convertible debentures

denominated in U.S. dollars that can be converted at the option of the holder into Units at

any time prior to maturity at a specified conversion price.

The liability component of compound financial instruments is initially recognized at the fair

value of a similar liability that does not have an equity conversion option. The equity

component is initially recognized at the difference between the fair value of the

compound financial instrument as a whole and the fair value of the liability component.

Any directly attributable transaction costs are allocated to the debt and equity

components of the convertible debentures in proportion to the initial allocation of

proceeds. Transaction costs related to the conversion feature are deducted from

partners’ capital. Transaction costs related to the debt component are amortized using

the effective interest method.

Subsequent to initial recognition, the debt component of a compound financial instrument

is measured at amortized cost using the effective interest method. The equity component

of the compound financial instrument is recorded in the consolidated statement of

partners’ capital and is not subsequently remeasured.

(iv) Financial assets and liabilities at fair value:

Financial assets and liabilities that are either held for trading or designated as fair value

through profit or loss are carried at fair value, with gains or losses arising on

measurement recognized in profit or loss (“FVTPL”). A financial instrument is classified

as held for trading if: it has been acquired principally for the purpose of selling in the near

term; or on initial recognition it is part of a portfolio of identified financial instruments that

AHIP manages together and has a recent actual pattern of short‐term profit taking; or it is

a derivative that is not designated and effective as a hedging instrument.

A financial instrument is designated as FVTPL upon initial recognition if: such designation

eliminates or significantly reduces a measurement or recognition inconsistency that

would otherwise arise; or it forms part of a group which is managed and its performance

is evaluated on a fair value basis; or it forms part of a contract containing one or more

embedded derivatives. Directly attributable transaction costs are recognized in profit or

loss as incurred. AHIP’s interest rate swap contracts are classified at FVTPL.


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(e) Financial instruments (continued):

(v) Impairment of financial assets:

Loans and receivables are assessed at each reporting date to determine whether there is

objective evidence that they are impaired. A financial asset is impaired if objective

evidence indicates that a loss event has occurred after the initial recognition of the asset,

and that the loss event had a negative effect on the estimated future cash flows of that

asset that can be estimated reliably.

Objective evidence that financial assets are impaired can include default or delinquency

by a debtor, restructuring of an amount due to AHIP on terms that AHIP would not

consider otherwise, or indications that a debtor or issuer will enter bankruptcy.

AHIP considers evidence of impairment for loans and receivables at both a specific asset

and collective level. All individually significant loans and receivables are assessed for

specific impairment. All individually significant loans and receivables found not to be

specifically impaired are then collectively assessed for any impairment that has been

incurred but not yet identified. Loans and receivables that are not individually significant

are collectively assessed for impairment by grouping together loans and receivables with

similar risk characteristics.

An impairment loss in respect of a financial asset measured at amortized cost is

calculated as the difference between its carrying amount and the present value of the

estimated future cash flows, discounted using the instrument’s original effective interest

rate. Losses are recognized in profit or loss and reflected in an allowance account

against receivables. Interest on the impaired asset continues to be recognized through

the unwinding of the discount. When a subsequent event causes the amount of

impairment loss to decrease, the decrease in impairment loss is reversed through


(f) Cash and cash equivalents:

AHIP considers all liquid investments with original terms to maturity of three months or less

when acquired to be cash equivalents. Cash and cash equivalents consist of cash on hand

and cash held at banks.

(g) Restricted cash:

Restricted cash consists of cash reserves on deposit with lenders primarily in respect of

future capital expenditures, cash collateral, property taxes and insurance premiums.


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(h) Leases:

Leases of property and equipment that transfer to the lessee substantially all of the risks and

rewards of ownership are classified as finance leases. Leased assets acquired in a business

combination are recorded at fair value at the acquisition date. All other leased assets are

measured initially at an amount equal to the lower of their fair value and the present value of

the minimum lease payments. Subsequent to initial recognition, the assets are accounted for

in accordance with the accounting policy applicable to that asset. Assets held under other

leases are classified as operating leases and are not recognized on the statement of financial

position.

Finance lease obligations are measured on inception of the lease at the present value of the

minimum lease payments. Minimum lease payments made under finance leases are

apportioned between the finance expense and the reduction of the outstanding liability. The

finance expense is allocated to each period during the lease term using the effective interest

method.

(i) Provisions:

A provision is recognized if, as a result of a past event, AHIP has a present legal or

constructive obligation that can be estimated reasonably, and it is probable that an outflow of

economic benefits will be required to settle the obligation. If the time value of money is

material, provisions are determined by discounting the expected future cash flows using a

current rate that reflects the risk profile of the liability, and the increase to the provision due to

the passage of time will be recognized as a finance cost.

(j) Revenue recognition:

Revenue is generated primarily from the operation of AHIP’s hotels and restaurants. Other

income is comprised of vehicle and maintenance charges at offsite customer locations and

other incidental income.

Revenue is recognized when services are rendered, the amount is earned, and collectability

is reasonably assured.

AHIP may collect payments in advance of the utilization of a facility. These payments are

recorded as other liabilities until such time as the applicable facility is utilized, at which time

the customer deposit is recognized as revenue.


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(k) Finance income and finance costs:

Finance income consists of interest on cash and cash equivalents and restricted cash, which

is recognized in the period in which it is earned.

Finance costs comprise interest expense on term loans, convertible debentures and finance

lease liability, amortization of debt financing costs, mark-to-market adjustments on assumed

loans, accretion of convertible debenture liability and deferred compensation payable,

dividends paid on preferred shares and changes in fair value of interest rate swap contracts.

Interest expense and dividends paid are recognized in the period in which they are incurred.

Interest expense on term loans used on hotel property construction and to finance

renovations in excess of six months are capitalized to construction-in-progress during the

period of construction.

(l) Debt financing costs and mark-to-market adjustments:

Fees and costs related to obtaining debt financing and mark-to-market adjustments on

assumed loans are capitalized against the related debt and amortized over the term using the

effective interest rate method, and are included in finance costs. The unamortized balance of

the fees and costs is included and shown as a reduction of the related debt.

(m) Net income per unit:

Basic and diluted net income per unit is calculated by dividing net income and comprehensive

income by the weighted average number of units (basic and diluted) outstanding during the

reporting period.

(n) Income taxes:

AHIP is not subject to tax under Part I of the Income Tax Act (Canada) (the “Tax Act”). Each

partner of AHIP is required to include in computing the partner’s income for a particular

taxation year the partner’s share of the income or loss of AHIP for its fiscal year ending in or

on the partner’s taxation year-end, whether or not any of that income or loss is distributed to

the partner in the taxation year. Accordingly, no provision has been made for Canadian

income taxes under Part I of the Tax Act.

The Tax Act contains rules regarding the taxation of certain types of publicly listed or traded

trusts and partnerships and their investors (the “SIFT Measures”). A “SIFT partnership” (as

defined in the Tax Act) will be subject to SIFT tax on its “taxable non-portfolio earnings” (as

defined in the Tax Act) at a rate that is substantially equivalent to the general income tax rate

applicable to Canadian corporations. The SIFT Measures do not apply to a partnership that

does not hold any “non-portfolio property” throughout the taxation year of the partnership.


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(n) Income taxes (continued):

Management believes that AHIP does not hold any “non-portfolio property” and is not a SIFT

partnership and therefore not subject to the SIFT Measures. Accordingly, no provision has

been made for tax under the SIFT Measures. Management intends to continue to operate

AHIP in such a manner so as to remain exempt from the SIFT Measures on a continuous

basis in the future. If AHIP becomes a SIFT partnership, it will generally be subject to income

taxes at a rate that is substantially equivalent to the general tax rate applicable to Canadian

corporations on its taxable non-portfolio earnings, if any. AHIP filed an election to be treated

as a partnership for U.S. federal income tax purposes. In addition, management believes at

least 90% of AHIP's gross income for the taxation year is qualifying income within the

meaning of U.S. Internal Revenue Code (the “Code”) Section 7704 and AHIP is not required

to register as an investment company under the Investment Company Act of 1940. As such, it

is generally not subject to U.S. federal income tax under the Code.

Furthermore, American Hotel Income Properties REIT Inc. (the “U.S. REIT”) elected to be

taxed as a real estate investment trust (“REIT”) under the Code commencing with its first

taxation year ending December 31, 2013 and intends to maintain such election to be taxed as

a REIT in the current and future taxation years. In order for the U.S. REIT to qualify as a

REIT under the Code, it must meet a number of organizational and operational requirements,

including a requirement to make annual dividend distributions to its stockholders equal to a

minimum of 90% of its REIT taxable income, computed without regards to a dividends paid

deduction and net capital gains. The U.S. REIT generally will not be subject to U.S. federal

income tax on its taxable income to the extent such income is distributed to its stockholders

annually. Management believes that all REIT conditions necessary to eliminate income taxes

for the U.S. REIT for the reporting period have been met.

Accordingly, no provision for U.S. federal income taxes has been made for the U.S. REIT.

Even though the U.S. REIT qualifies as a REIT under the Code, it may be subject to certain

state and local taxes. These amounts are not material to the consolidated financial

statements.

Management has operated and intends to continue operating the U.S. REIT in such a

manner so as to qualify as a REIT on a continuous basis in the future. However, actual

qualification as a REIT will depend upon meeting, through actual annual and quarterly

operating results, the various conditions imposed by the Code. If the U.S. REIT fails to qualify

as a REIT in any taxable year, it will be subject to U.S. federal and state income taxes at

regular U.S. corporate rates, including any applicable alternative minimum tax. In addition,

the U.S. REIT may not be able to re-qualify as a REIT for the four subsequent taxable years.

Even if the U.S. REIT qualifies for taxation as a REIT, it may be subject to certain U.S. state

and local taxes on its income and property, and to U.S. federal income and excise taxes on

its undistributed taxable income and/or specified types of income in certain circumstances.


16


(n) Income taxes (continued):

AHIP’s indirect Canadian subsidiary, AHIP Management Ltd., is a taxable Canadian

corporation subject to Canadian income tax. AHIP’s indirect U.S. subsidiaries, Lodging

Enterprises, LLC, IML Enterprises LLC and AHIP Enterprises LLC, are taxable REIT

subsidiaries (“TRS”) of the U.S. REIT that are treated as U.S. corporations subject to U.S.

federal and state income tax on their taxable income.

Income tax expense comprises current and deferred tax. Current tax and deferred tax are

recognized in net earnings, except to the extent that it relates to a business combination, or

items recognized directly in equity or in other comprehensive income.

Current income tax is the expected tax payable or receivable on the taxable income or loss

for the period using tax rates enacted or substantively enacted by the reporting date, and any

adjustment to tax payable in respect of previous years.

Deferred income tax is recognized in respect of temporary differences between the carrying

amounts of assets and liabilities for financial reporting purposes and the amounts used for

taxation purposes. Deferred income tax is measured at the tax rates that are expected to be

applied to temporary differences when they reverse, based on the laws that have been

enacted or substantively enacted by the reporting date.

A deferred income tax asset is recognized for unused tax losses, tax credits and deductible

temporary differences, to the extent that it is probable that future taxable profits will be

available against which they can be utilized. Deferred income tax assets are reviewed at

each reporting date and are reduced to the extent that it is no longer probable that the related

tax benefit will be realized.

(o) Securities-based compensation plan:

As described in note 14, AHIP has a securities-based compensation plan that provides for

the granting of Units to directors, officers, employees or consultants of AHIP, the General

Partner or any of their respective affiliates, or other persons as the Compensation Committee

of the Board of Directors may determine.

The fair value of the Units granted are measured based on the price of the Units on the grant

date as each Unit is entitled to the same rights as all other outstanding Units issued. The fair

value of the Units granted is expensed on a straight-line basis over the vesting period, based

on AHIP’s estimate of the equity instruments that will eventually vest, with a corresponding

increase to contributed surplus. Once issued, the Units are reclassified from contributed

surplus to Units issued.


17


(p) Segment reporting:

AHIP's operating segments are organized based on the type of customer and are reported in

a manner consistent with the internal reporting provided to the chief operating decision maker

(“CODM”) as disclosed in note 21. AHIP’s Board of Directors has the authority for resource

allocation and assessment of AHIP's investments and is therefore the CODM.

(q) New standards and interpretations issued but not yet adopted:

(i) IFRS 9 - Financial Instruments:

In July 2014, the IASB issued the final publication of the IFRS 9 standard, superseding

the current IAS 39, Financial Instruments: Recognition and Measurement (IAS 39)

standard (“IFRS 9”). IFRS 9 includes revised guidance on the classification and

measurement of financial instruments, including a new expected credit loss model for

calculating impairment on financial assets, and the new general hedge accounting

requirements. It also carries forward the guidance on recognition and derecognition of

financial instruments from IAS 39. The standard is effective for annual periods beginning

on or after January 1, 2018 with early adoption permitted. AHIP intends to adopt IFRS 9

in its consolidated financial statements for the annual period beginning on January 1,

2018. Management does not expect the adoption of this standard to have a material

impact on its consolidated financial statements.

(ii) IFRS 15 - Revenue from Contract with Customers:

In May 2014, the IASB issued IFRS 15, Revenue from Contract with Customers

(“IFRS 15”), which establishes a new five-step model that applies to revenue arising from

contracts with customers. The principles in IFRS 15 provide a more structured approach

to measuring and recording revenue allowing greater comparability of revenues across

industries. The new revenue standard is applicable to all entities and will supersede all

current revenue recognition requirements under IFRS. Either a full or modified

retrospective application is required for annual periods beginning on or after January 1,

2018, with early adoption permitted. AHIP intends to adopt IFRS 15 in its consolidated

financial statements for the annual period beginning on January 1, 2018. Management

has performed an in-depth assessment of IFRS 15 to determine what the impact of the

adoption of the new standard will have on AHIP’s consolidated financial statements.

Based on the nature of AHIP’s operations to own and operate hotels, AHIP does not

expect there to be a material impact on the timing and measurement of revenue

recognized as compared to the previous standard. Additional disclosures will be required

to comply with IFS 15.


18


(q) New standards and interpretations issued but not yet adopted (continued):

(iii) IFRS 16 - Leases:

IFRS 16, Lease (“IFRS 16”) was issued in January 2016 and sets out a new model for

lease accounting, replacing IAS 17. The most significant effect of the new standard will

be the recognition of the initial present value of unavoidable future lease payments as

lease assets and lease liabilities on the statement of financial position, including those for

most leases that would be currently accounted for as operating leases. Leases with

durations of 12 months or less and leases for low-value assets may be exempted. IFRS

16 will be effective for accounting periods beginning on or after January 1, 2019. Early

adoption will be permitted provided AHIP has adopted IFRS 15. AHIP intends to adopt

IFRS 16 in its consolidated financial statements for the annual period beginning on

January 1, 2019. Management does not expect the adoption of this standard to have a

significant impact on its consolidated financial statements.

4. Business combinations:

The table below summarizes the fair values of the assets acquired and liabilities assumed for all

the acquisitions in 2017.

Premium Branded Hotels Economy Lodging Hotels Sunstone Midwestern 3 Eastern Embassy Suites Embassy Suites Seaboard Fargo Whitefish (a) (b) (c) (d) (e) Total

Fair value of consideration:

Cash $ 9,938 $ 116,763 $ 394,933 $ 3,125 $ 3,445 $ 528,204 Bridge Loan 10,199 - - - - 10,199 Units (note 13(b)) 17,375 - - - - 17,375 Receivable from escrow - - (441) - - (441)

$ 37,512 $ 116,763 $ 394,492 $ 3,125 $ 3,445 $ 555,337

Property, buildings and

equipment $ 56,266 $ 116,289 $ 395,957 $ 3,125 $ 3,445 $ 575,082 Cash provided by seller 19 - 85 - - 104 Assumed loan, net of deferred

financing costs (note 10(a)) (18,878) - - - - (18,878) Lease liability - - (1,950) - - (1,950) Non-cash net working capital 105 474 400 - - 979

Fair value of net identifiable assets acquired and liabilities assumed $ 37,512 $ 116,763 $ 394,492 $ 3,125 $ 3,445 $ 555,337

There have been no changes to the amounts previously reported.


19

4. Business combinations (continued):

(a) Sunstone Embassy Suites Portfolio:

On January 6, 2017, AHIP completed the acquisition of two Embassy Suites by Hilton hotels

located in Dallas, Texas and Tempe, Arizona (together, the “Sunstone Embassy Suites

Portfolio”) for an aggregate purchase price of $37,512. In connection with the transaction, a

$10,199 bridge loan previously advanced to the seller and outstanding as at December 31,

2016 was extinguished as part of the purchase price on the transaction completion date.

For the 360-day period from the acquisition date of the Sunstone Embassy Suites Portfolio to

December 31, 2017, AHIP recognized revenues of $23,421 and income from operating

activities of $5,644. If the Sunstone Embassy Suites Portfolio had been acquired on

January 1, 2017, the proforma revenues and the proforma income from operating activities

for the year ended December 31, 2017 would have been $23,549 and $5,696, respectively.

In connection with the acquisition of the Sunstone Embassy Suites Portfolio, AHIP issued

2,242,761 Units and assumed an $18,878 term loan from the seller, inclusive of a $151 mark-

to-market adjustment less deferred financing costs.

(b) Midwestern 3 Embassy Suites Portfolio:

On January 19, 2017, AHIP completed the acquisition of three Embassy Suites by Hilton

hotels located in proximity to Columbus, Cleveland and Cincinnati, Ohio (together, the

“Midwestern 3 Embassy Suites Portfolio”) for an aggregate purchase price of $116,763.

For the 347-day period from the acquisition date of the Midwestern 3 Embassy Suites

Portfolio to December 31, 2017, AHIP recognized revenues of $36,463 and income from

operating activities of $9,651. If the Midwestern 3 Embassy Suites Portfolio had been

acquired on January 1, 2017, the proforma revenues and the proforma income from

operating activities for the year ended December 31, 2017 would have been $37,583 and

$9,201, respectively.

(c) Eastern Seaboard Portfolio:

On June 22, 2017, AHIP completed the acquisition of the Eastern Seaboard Portfolio

consisting of 18 premium branded Marriott and Hilton hotels located in Maryland, New

Jersey, New York, Connecticut and Pennsylvania for an aggregate purchase price of

$394,492.

For the 193-day period from the acquisition date of the Eastern Seaboard Portfolio to


activities of $16,020. If the Eastern Seaboard Portfolio had been acquired on January 1,

2017, the proforma revenues and the proforma income from operating activities for the year

ended December 31, 2017 would have been $85,523 and $24,756, respectively.


20


(d) Fargo Property:

On October 13, 2017, AHIP completed the acquisition of a 74-room Economy Lodging hotel

in Fargo, North Dakota (“Fargo Property”) for an aggregate purchase price of $3,125 using

available cash on hand.

For the 80-day period from the acquisition date of the Fargo Property to December 31, 2017,

AHIP recognized revenues of $192 and income from operating activities of $10. If the Fargo

Property had been acquired on January 1, 2017, the proforma revenues and the proforma

income from operating activities for the year ended December 31, 2017 would have been

$918 and $185, respectively.

(e) Whitefish Property:

On November 7, 2017, AHIP completed the acquisition of a 64-room Economy Lodging hotel

in Whitefish, Montana (“Whitefish Property”) for an aggregate purchase price of $3,445 using

available cash on hand.

For the 55-day period from the acquisition date of the Whitefish Property to December 31,

2017, AHIP recognized revenues of $148 and income from operating activities of $49. If the

Whitefish Property had been acquired on January 1, 2017, the proforma revenues and the

proforma income from operating activities for the year ended December 31, 2017 would have

been $1,105 and $442, respectively.

Business combinations in 2016:

The table below summarizes the fair values of the assets acquired and liabilities assumed for all

the acquisitions in 2016. Florida/ Lincoln Tennessee Florida 6 Nashville (f) (g) (h) (i) Total Cost: Fair value of consideration $ 2,751 $ 47,545 $ 61,067 $ 7,751 $ 119,114

Property, buildings and equipment $ 2,750 $ 47,464 $ 61,000 $ 7,750 $ 118,964 Cash provided by seller 1 6 8 1 16 Non-cash net working capital - 75 59 - 134 Fair value of net identifiable

assets acquired and liabilities assumed $ 2,751 $ 47,545 $ 61,067 $ 7,751 $ 119,114

There have been no changes to the amounts previously reported.


21


(f) Lincoln Property:

On January 7, 2016, AHIP acquired a 133-room rail crew hotel in Lincoln, Nebraska for an

aggregate purchase price of $2,751 which was paid for in cash.

For the 359-day period from the acquisition date of the Lincoln Hotel to December 31, 2016,

AHIP recognized revenues of $831 and loss from operating activities of $18. If the Lincoln

Hotel had been acquired on January 1, 2016, the proforma revenues and the proforma loss

from operating activities for the year ended December 31, 2016, would have been $844 and

$17, respectively.

(g) Florida/Tennessee Portfolio:

On October 27, 2016 AHIP acquired the Florida/Tennessee Portfolio for an aggregate

purchase price of $47,545.

For the 65-day period from the acquisition date of the Florida/Tennessee Portfolio to


activities of $453. If the Florida/Tennessee Portfolio had been acquired on January 1, 2016,

the proforma revenues and the proforma income from operating activities for the year ended

December 31, 2016 would have been $11,941 and $4,860, respectively.

(h) Florida 6 Portfolio:

On November 29, 2016, AHIP acquired the Florida 6 Portfolio for an aggregate purchase

price of $61,067.

For the 32-day period from the acquisition date of the Florida 6 Portfolio to December 31,

2016, AHIP recognized revenues of $1,296 and income from operating activities of $171. If

the Florida 6 Portfolio had been acquired on January 1, 2016, the proforma revenues and the

proforma income from operating activities for the year ended December 31, 2016 would have

been $17,440 and $7,090, respectively.

(i) Nashville Property:

On December 1, 2016, AHIP acquired a 104-room Economy Lodging hotel in Nashville,

Tennessee (“Nashville Property”) for an aggregate purchase price of $7,751.

For the 30-day period from the acquisition date of the Nashville Property to December 31,

2016, AHIP recognized revenues of $47 and net operating loss of $21. If the Nashville

Property had been acquired on January 1, 2016, the proforma revenues and the proforma

income from operating activities for the year ended December 31, 2016, would have been

$2,266 and $1,257, respectively.


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5. Restricted cash:

2017 2016 Property improvement plans (“PIPs”) reserve $ 35,600 $ 13,221 Furniture, fixture and equipment reserve (“FF&E Reserves”) 5,710 2,345 Property tax reserve 4,225 2,144 Insurance, cash collateral and other reserves 5,545 732 51,080 18,442 Current portion of restricted cash (34,838) (10,087) $ 16,242 $ 8,355

For the Premium Branded Hotel portfolio, AHIP has funded restricted cash reserves for brand

mandated PIPs arising from the purchase of these properties and which are expected to be spent

over the next 18-24 months after acquisition. In addition, certain related term loans require AHIP

to deposit reserves for FF&E Reserves, cash collateral, property taxes and insurance premiums.

These amounts are released to AHIP as the expenditures are incurred or paid directly to the

service provider.

6. Property, buildings and equipment: Construction Land Buildings Equipment in-progress Total Cost:

Balance, January 1, 2016 $ 51,106 $ 463,970 $ 38,810 $ 714 $ 554,600 Acquisition of Premium Branded Hotels 15,453 90,332 2,680 - 108,465 Acquisition of Economy Lodging Hotels 3,272 6,289 938 - 10,499 Additions - 1,560 4,267 18,736 24,563 Transfers - 14,404 3,798 (18,202) - Disposals (14) (50) (301) - (365)

Balance, December 31, 2016 69,817 576,505 50,192 1,248 697,762

Acquisition of Premium Branded Hotels 79,665 457,660 31,187 - 568,512 Acquisition of Economy Lodging Hotels 926 4,778 866 - 6,570 Additions - 3,368 7,992 12,164 23,524 Transfers - 6,342 5,635 (11,977) - Sale of hotel (a) (700) (3,557) (150) - (4,407) Impairments (b) - (10,808) - - (10,808) Disposals - - (233) - (233)

Balance, December 31, 2017 $ 149,708 $ 1,034,288 $ 95,489 $ 1,435 $ 1,280,920

Accumulated depreciation:

Balance, January 1, 2016 $ - $ 20,186 $ 11,319 $ - $ 31,505 Depreciation - 13,893 7,616 - 21,509 Disposals - (6) (268) - (274)

Balance at December 31, 2016 - 34,073 18,667 - 52,740

Depreciation - 24,129 13,708 - 37,837 Disposals - (139) (232) - (371)

Balance at December 31, 2017 $ - $ 58,063 $ 32,143 $ - $ 90,206


23

6. Property, buildings and equipment (continued): Construction Land Buildings Equipment in-progress Total Net book value, December 31, 2017 $ 149,708 $ 976,225 $ 63,346 $ 1,435 $ 1,190,714 Net book value, December 31, 2016 69,817 542,432 31,525 1,248 645,022

(a) Sale of Premium Branded Hotel:

During the year ended December 31, 2017, AHIP sold the 77-room Norman, OK property that

was acquired in 2015 as part of a larger portfolio acquisition. Gross proceeds of $4,500 were

received and a gain on sale of $37 was recognized on the consolidated statements of


(b) Impairments:

During the year ended December 31, 2017, AHIP recorded impairment losses at two

Economy Lodging Hotels and one Premium Branded Hotel: (i) the 118-room Ravenna, NE

lodging facility agreement matured in October 2017 and was not renewed as the railway

customer relocated its rail crew to another AHIP-owned hotel property. Accordingly, AHIP

estimated the recoverable amount of this hotel property and recognized an impairment loss of

$8,873 with respect to buildings based on fair values less costs of disposal, (ii) the 25-room

Comfort, WV lodging facility agreement was terminated early in December 2017 by the

railway customer. Accordingly, AHIP estimated the recoverable amount of this hotel property

and recognized an impairment loss of $850 with respect to buildings based on its value in

use; and (iii) the 109-room Holiday Inn Quail Springs, OK Premium Branded Hotel. AHIP

estimated the recoverable amount of this hotel property and recognized an impairment loss of

$1,085 with respect to buildings based on its value in use. The fair value measurement for

the hotel properties was categorized as a Level 3 fair value based on the inputs in the

valuation technique used. Level 3 inputs are unobservable inputs used to measure fair value

to the extent that relevant observable inputs are not available.


24

7. Intangible assets: Lodging Contract Franchise

Agreements Signing Fees Agreements Total Cost:

Balance, January 1, 2016 $ 14,855 $ 460 $ 3,160 $ 18,475 Florida/Tennessee Portfolio franchise fees - - 475 475 Florida 6 Portfolio franchise fees - - 440 440

Balance, December 31, 2016 14,855 460 4,075 19,390

Sunstone Embassy Suites Portfolio - - 300 300 Midwestern 3 Embassy Suites Portfolio - - 525 525 Eastern Seaboard Portfolio - - 2,778 2,778 Economy Lodging Hotel branding - - 1,029 1,029 Disposals - - (50) (50)

Balance, December 31, 2017 $ 14,855 $ 460 $ 8,657 $ 23,972 Accumulated amortization:

Balance, January 1, 2016 $ 5,376 $ 92 $ 305 $ 5,773 Amortization 2,527 46 269 2,842

Balance, December 31, 2016 7,903 138 574 8,615

Amortization 2,526 48 501 3,075 Disposals - - (4) (4)

Balance, December 31, 2017 $ 10,429 $ 186 $ 1,071 $ 11,686 Net book value, December 31, 2017 $ 4,426 $ 274 $ 7,586 $ 12,286 Net book value, December 31, 2016 6,952 322 3,501 10,775

On November 1, 2017, AHIP entered into a 15-year agreement with WHG to rebrand 46 of its

Economy Lodging Hotels for initial franchise fees of $1,029.


25

8. Income taxes:

(a) Current income taxes:

AHIP has recorded a provision for U.S. federal and state taxes associated with the TRS

subsidiaries of $548 for the year ended December 31, 2017 (2016 - $494), which is included

in current income tax expense in the consolidated statements of comprehensive income.

(b) Deferred income taxes:

The analysis of deferred income tax assets and deferred income tax liabilities is as follows: 2017 2016 Deferred income tax assets:

Non capital losses carried forward $ 4,215 $ 3,912 Intangible assets 2,056 2,400 Deferred income 484 - Other 87 103

$ 6,842 $ 6,415 Deferred income tax liabilities:

Deferred compensation payable $ 27 $ 51 Property, buildings and equipment 2,114 1,956 Other 2 5

$ 2,143 $ 2,012

On December 22, 2017, the President of the United States signed into law the Tax Cuts and

Jobs Act (“U.S. Tax Reform”). The U.S. Tax Reform reduces the U.S. federal corporate

income tax rate from 35% to 21% effective as of January 1, 2018. As a result of the U.S. Tax

Reform, AHIP’s net deferred income tax asset decreased by $2,442. Future regulations and

interpretations to be issued by U.S. authorities may also impact AHIP’s estimates and

assumptions used in calculating its income tax provisions.

A deferred income tax recovery of $296 was recognized during the year ended December 31,

2017 (2016 - $1,234) in the consolidated statements of comprehensive income.

As at December 31, 2017, AHIP had net operating losses for tax purposes totaling $16,906

(2016 - $10,358) which may be carried forward for up to 20 years from the date of origination

and applied against future taxable income.


26

9. Finance lease liability:

Future minimum Present value of minimum lease payments Interest lease payments 2017 2016 2017 2016 2017 2016

Less than one year $ 1,981 $ - $ 70 $ - $ 1,911 $ - Between one and five years - - - - - - More than five years - - - - - - $ 1,981 $ - $ 70 $ - $ 1,911 $ -

Two of the hotels within the Eastern Seaboard Portfolio have been classified as finance leases

and the leased assets and corresponding lease liabilities have been recognized on the

consolidated statements of financial position.

10. Term loans: Notes 2017 2016 Premium Branded Hotel Term Loans (a) $ 596,180 $ 266,175 Economy Lodging Hotel Term Loans (b) 105,309 109,502 701,489 375,677 Unamortized portion of mark-to-market adjustments 362 305 Unamortized portion of debt financing costs (9,520) (7,892) 692,331 368,090 Current portion of term loans (11,586) (6,040)

$ 680,745 $ 362,050

Substantially all of AHIP’s assets have been pledged as security under various loan agreements.

At December 31, 2017, AHIP’s loans had a weighted average interest rate of 4.61%

(2016 - 4.59%).

(a) Premium Branded Hotel Term Loans:

AHIP entered into loan agreements with a major international bank for term loans for each of

its Premium Branded Hotel portfolios. The term loans are secured by specific hotel properties

and have fixed interest rates ranging from 4.20% to 5.69% per annum, with amortization

periods between 25 to 30 years, except for certain term loans totaling $60,500 which are

interest-only for the full term.


27

10. Term loans (continued):

(a) Premium Branded Hotel Term Loans (continued):

On January 6, 2017, in connection with the acquisition of the Sunstone Embassy Suites

Portfolio, AHIP assumed a $19,000 term loan, which had a fair value of $18,878 on the date

of assumption, secured by the hotel property located in Dallas, Texas. The assumption of the

loan resulted in a mark-to-market adjustment of $151. The loan matures on October 11, 2024

and has a fixed interest rate of 5.25%. The loan is interest-only until November 2019 and will

then be amortized over a 30-year term.

AHIP also obtained a $13,500 term loan secured by the hotel property located in Tempe,

Arizona. The loan has a term of 10 years, maturing on January 6, 2027 with a fixed interest

rate of 5.14%. The loan is interest-only for three years with principal payments beginning in

January 2020 and will then be amortized over a 30-year term.

On January 19, 2017, in connection with the acquisition of the Midwestern 3 Embassy Suites

Portfolio, AHIP obtained a $65,000 term loan secured by the three hotel properties. The loan

has a term of 10 years, maturing on February 6, 2027 with a fixed interest rate of 4.72%. The

loan is interest-only for three years with principal payments beginning in February 2020 and

will then be amortized over a 30-year term.

On June 22, 2017, in connection with the acquisition of the Eastern Seaboard Portfolio, AHIP

obtained four term loans in the aggregate amount of $236,200 (collectively, the “Eastern

Seaboard Loans”). The Eastern Seaboard Loans consist of four separate loan pools in the

amounts of $69,600, $57,700, $52,400 (together the “10-year Loans”) and $56,500 (the “5-

year Loan”). The 10-year Loans have fixed interest rates between 4.48% and 4.53%, are

interest only for the first five years, will be amortized over 30 years and mature on July 6,

2027. The 5-year Loan has a fixed interest rate of 4.46%, is interest only for the first two and

a half years, will then be amortized over 30 years and matures on July 6, 2022.


28


(b) Economy Lodging Hotel Term Loans:

As at December 31, 2017, the Economy Lodging Hotel Loans consist of the following:

(i) Term loans totaling $77,245 in principal balance (2016 - $80,284) with a fixed interest

rate of 4.72% under interest rate swap agreements. The term loan matures on February

20, 2023.

(ii) A term loan with a principal balance of $4,716 (2016 - $4,919) with a fixed interest rate of

4.10% under interest rate swap agreements. The term loan matures on February 1, 2023.

(iii) A term loan with a principal balance of $4,375 (2016 - $4,500) with a fixed interest rate of

4.80% under interest rate swap agreements. The term loan matures on January 1, 2022.

(iv) A term loan with a principal balance of $18,974 (2016 - $19,799) with a fixed interest rate

of 4.25% for the first five years. Commencing on September 16, 2020, the interest rate will be based on a rate equal to the greater of: (i) Swap Rate plus 2.54 basis points, or (ii)

4.25%. The term loan matures on September 16, 2025.

Interest rate swap agreements are in place to fix the interest rates for certain Economy

Lodging Hotel term loans and mature between January 1, 2022 and February 1, 2023. As at

December 31, 2017, the fair value of the interest rate swaps was $806 (2016 - liability of

$219)

AHIP has an available revolving line of credit (“Revolver”) of $10,000 with a floating interest

rate based on the 30-day LIBOR plus 2.80%. The Revolver will be renewed annually and was

renewed on November 30, 2017. Advances under the Revolver are available to finance

approved project costs and to fund working capital requirements. As at December 31, 2017

and 2016, there were no funds advanced under the Revolver. AHIP pays a non-usage fee of

0.25% per annum on the average daily unused balance during the prior calendar quarter.

Such non-usage fee was paid quarterly in arrears.

In addition, AHIP may borrow up to $10,000 to purchase Premium Branded Hotels, Economy

Lodging Hotels or hotel expansions, subject to the lender’s prior written approval

(the “Accordion Loan”). The Accordion Loan has a variable interest rate based on the 30-day

LIBOR plus 3.00% (with a minimum interest rate of 3.50%) payable monthly. AHIP shall pay

a non-usage fee in the amount of 0.25% per annum on the Accordion Loan, payable quarterly

in arrears, on the unfunded portion of the initial $10,000 commitment. As at December 31,

2017 and 2016, there were no funds advanced under the Accordion Loan.


29


(c) Principal payments:

Future principal payments, excluding amortization of mark‐to‐market adjustments and debt

financing costs, payable within the next five fiscal years and thereafter on the outstanding

term loans are as follows: 2018 $ 11,608 2019 6,884 2020 9,172 2021 9,910 2022 69,548 Thereafter 594,367

$ 701,489

As at December 31, 2017 AHIP was in compliance with all of its lending agreements.

11. Other liabilities:

Notes 2017 2016

Deferred income (a) $ 2,000 $ - Deferred compensation payable 384 616 Preferred shares (b) 125 125

2,509 741 Current portion of other liabilities (383) (250)

$ 2,126 $ 491

(a) Deferred income:

On November 1, 2017, AHIP entered into an agreement with WHG to rebrand 46 of its

Economy Lodging Hotels. As consideration for entering into the agreement, AHIP received

$2,000 on closing of the transaction which will be recognized in the consolidated statements

of comprehensive income over the 15-year term of the franchise agreements. As at

December 31, 2017, the full amount of $2,000 was reflected on the consolidated statement of

financial position.


30

11. Other liabilities (continued):

(b) Preferred shares:

As at December 31, 2017, the U.S. REIT has $125 (2016 - $125) in preferred shares

outstanding, to qualify as a REIT for US tax purposes. These non-voting shares have a par

value of $1 with a fixed rate of dividend at 12.5% per annum. As such, these preferred shares

are classified as liabilities rather than equity on the consolidated statements of financial

position. Consequently, any dividend payments are classified as finance costs on the

consolidated statements of comprehensive income.

12. Convertible debentures:

On June 9, 2017, AHIP issued an aggregate principal amount of $48,875 of convertible

unsecured subordinated debentures due on June 30, 2022 (the “Debentures”). At December 31,

2017, $48,875 of the face value of the Debentures was outstanding.

The Debentures bear interest of 5.0% per annum, payable semi-annually in arrears on June 30

and December 31, commencing on December 31, 2017. The Debentures are convertible at the

option of the holder into Units at any time prior to maturity at a conversion price equal to $9.25

per Unit (“Conversion Price”) which represents a conversion rate of approximately 108.1081 Units

for each $1,000 principal amount of Debentures. AHIP has the option to call the debentures with

restrictions beginning on or after June 30, 2020 as follows:

On or after June 30, 2020, but prior to June 30, 2021, the Debentures are redeemable, in

whole or in part, at a price equal to the principal amount plus accrued and unpaid interest, at

AHIP’s option, provided that the weighted average trading price of the Units is not less than

125% of the Conversion Price.

On and after June 30, 2021, the Debentures are redeemable at AHIP’s option, in whole or in

part, at a price equal to the principal amount plus accrued and unpaid interest.

The following table summarizes the values of the Debentures at December 31, 2017:

Liability Equity Total

carrying value carrying value face value Balance, January 1, 2017 $ - $ - $ - Issuance of Debentures 46,790 2,085 48,875 Debenture transaction costs (1,817) (106) (1,923) Amortization of transaction costs 152 - 152 Accretion of liability component 182 - 182

Balance, December 31, 2017 $ 45,307 $ 1,979 $ 47,286


31

13. Partners’ capital:

(a) Authorized:

The capital of AHIP consists of an unlimited number of limited partner units of AHIP (“Units”)

and the equity interest held by the General Partner.

(b) Issued:

On March 31, 2016, AHIP issued 3,895 Units to senior management on the vesting of

Restricted Stock Units.

On April 1, 2016 and June 2, 2016, AHIP issued 59,088 Units at a price of Cdn$10.44 ($8.04)

per Unit and 114,511 Units at a price of Cdn$10.27 ($7.86) per Unit, respectively, as partial

consideration for the purchase of two rail crew hotel expansions.

On July 26, 2016, AHIP completed a bought-deal public offering of 10,000,400 Units,

including 1,304,400 Units related to the full exercise of the over-allotment option, at a price of

Cdn$10.35 ($7.83) per Unit, for total gross proceeds of Cdn$103,500 ($78,300).

On December 22, 2016, AHIP completed a bought-deal public offering of 11,281,500 Units,

including 1,471,500 Units related to the full exercise of the over-allotment option, at a price of

Cdn$10.20 ($7.67) per Unit totaling Cdn$115,071 ($86,558).

On December 23, 2016, AHIP issued 6,383 Units to senior management on the vesting of


On January 6, 2017, 2,242,761 Units ($17,375) were issued as partial consideration for the

purchase of the Sunstone Embassy Suites Portfolio (note 4) at a price of $7.7471

(Cdn$10.3099) per Unit. The Units issued as partial consideration were subject to a four-

month hold period which expired on May 7, 2017.

On March 15, 2017, AHIP issued 6,803 Units to senior management on the vesting of


On June 9, 2017, AHIP completed a bought-deal public offering of 19,410,000 Units,

including 1,050,000 Units related to the partial exercise of the over-allotment option, at a

price of Cdn$10.35 ($7.6935) per Unit, for total gross proceeds of Cdn$200,894 ($149,330).

On December 15, 2017, AHIP issued 14,200 Units to senior management on the vesting of


For the year ended December 31, 2017, total offering costs of $7,289 (2016 - $7,823) were

deducted from partners’ capital.


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13. Partners’ capital (continued):

(c) Allocation of net income or net loss:

Where Distributable Cash (defined as, for any period, the aggregate of all amounts received

by AHIP in such period, whether by way of dividends, interest or otherwise, from and in

respect of its direct and indirect investment in the securities held by AHIP, including its

investment in any subsidiaries, less reasonable reserves determined by the General Partner

to be necessary to operate the affairs of AHIP in a prudent and businesslike manner, and

less taxes, if any, payable by AHIP) is paid in respect of a fiscal year, the net income and

taxable income of AHIP in respect of that fiscal year shall be allocated among all Partners

(defined as General Partner and the Unitholders) that were Partners at any time in the fiscal

year on the following basis:

(i) first, to the General Partner 0.01% of the net income and taxable income of AHIP to a

maximum of $0.1 per annum; and

(ii) as to the balance, to the Unitholders as a class, and to each Unitholder in an amount

calculated by multiplying such balance by a fraction, the numerator of which is the sum of

distributions received by such Unitholder with respect to such fiscal year and the

denominator of which is the aggregate amount of distributions made by AHIP to the

Unitholders as a group with respect to such fiscal year.

Where no Distributable Cash is paid in respect of a fiscal year, net income and taxable

income of AHIP in respect of that fiscal year shall be allocated among the limited partnership

unitholders (“Unitholders”) and the General Partner (collectively, the “Partners”) on the

following basis:

(i) first, to the General Partner 0.01% of the net income and taxable income of AHIP to a


(ii) as to the balance, to the Unitholders who were holders of Units at the end of each month

ending in such fiscal year, pro-rata in accordance with their respective Proportionate

Shares of the balance divided by 12. Proportionate Share, in respect of each Unitholder,

means that fraction which, as of the date of such determination:

has as its numerator the number of Units held by such Unitholder; and

has as its denominator the aggregate number of Units outstanding.

Net loss and taxable loss of AHIP in respect of a fiscal year shall be allocated among all

Partners that were Partners at any time in the fiscal year on the following basis:

first, to the General Partner 0.01% of the net loss and taxable loss of AHIP to a


as to the balance, to the Unitholders who were holders of Units at the end of each

month ending in such fiscal year, pro-rata in accordance with their respective

Proportionate Shares as at the end of each month, the balance divided by 12.


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13. Partners’ capital (continued):

(d) Distribution policy:

AHIP intends to make monthly distributions to Unitholders of record on the last business day

of each month. Distributions will be paid on or about the 15th day following the end of each

month. AHIP may also make additional distributions in excess of monthly distributions during

the year as determined by the General Partner.

Effective April 2016 and commencing with the distribution payable on May 13, 2016, AHIP

began paying monthly cash distributions of $0.054 per Unit to Unitholders, which is

equivalent to $0.648 per Unit on an annualized basis. Prior to April 1, 2016, AHIP was paying

monthly cash distributions of Cdn$0.075 per Unit to Unitholders, which was equivalent to

Cdn$0.90 per Unit on an annualized basis.

For the year ended December 31, 2017, AHIP declared distributions of $0.648 per Unit (2016

- $0.65 per Unit) to be paid to Unitholders totaling $45,491 (2016 - $26,651). Of this amount,

$4,215 (2016 - $3,131) was included in accounts payable and accrued liabilities at

December 31, 2017.

14. Compensation plan:

(a) Short term incentive plan (“STIP”):

On March 30, 2016, certain members of AHIP senior management received STIP awards for

their performance during the year ended December 31, 2015. The STIP awards were issued

in the form of Restricted Stock Units totaling 31,066 Units that will vest over three years in

equal annual instalments starting on December 31, 2016. The fair value of the STIP awards

issued was $252.

On March 16, 2017, certain members of AHIP senior management received STIP awards for

their performance during the year ended December 31, 2016. The STIP awards were issued

in the form of Restricted Stock Units totaling 43,521 Units that will vest over three years in

equal annual instalments starting on December 15, 2017. The fair value of the STIP awards

issued was $348.

(b) Long term incentive plan (“LTIP”):

On March 30, 2016, certain members of AHIP senior management received LTIP awards

issued in the form of Restricted Stock Units and Performance Awards (also in the form of

Restricted Stock Units). 16,606 Restricted Stock Units, which represent 40% of the LTIP

awards, will vest over three years in equal annual instalments starting on March 31, 2017.

The remaining 24,913 Restricted Stock Units representing 60% of the LTIP awards,

1,750 Units will vest on December 14, 2018 and the remaining 23,163 Restricted Stock Units

representing the Performance Awards are subject to a market performance condition based

on AHIP’s performance relative to a market index which could result in as few as no Units

and as many as 46,326 Units being issued. The fair value of the LTIP awards issued was

$324.


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14. Compensation plan (continued):

(b) Long term incentive plan (“LTIP”) (continued):

On March 16, 2017, certain members of AHIP senior management received LTIP awards

issued in the form of Restricted Stock Units and Performance Awards (also in the form of

Restricted Stock Units). 26,564 Restricted Stock Units, which represent 40% of the LTIP

awards, will vest over three years in equal annual instalments starting on March 15, 2018.

The remaining 39,851 Restricted Stock Units are Performance Awards that are subject to a

market performance condition based on AHIP’s performance relative to a market index which

could result in as few as no Units and as many as 79,702 Units being issued. The fair value

of the LTIP awards issued was $504.

As at December 31, 2017, AHIP had a total of 159,307 unvested STIP and LTIP awards. A

summary of the activity in unvested units is as follows:

Weighted average Number grant date of units fair value Unvested, January 1, 2016 46,516 $ 8.57

Granted 72,585 7.93 Vested (10,278) (8.53) Forfeited or cash-settled (11,592) (8.43)

Unvested, December 31, 2016 97,231 8.11

Granted 109,936 7.75 Vested (21,003) (8.35) Forfeited or cash-settled (26,857) (8.31)

Unvested, December 31, 2017 159,307 $ 7.80 The vesting schedule of the unvested STIP and LTIP awards is as follows: Total fair Number value of units Vesting dates of units at grant date March 15, 2018 31,922 $ 259 December 14, 2018 32,149 259 March 15, 2019 32,016 246 December 13, 2019 23,369 187 March 13, 2020 39,851 291 Total unvested units 159,307 $ 1,242

For the year ended December 31, 2017, a total of $924 (2016 - $415) in securities-based

compensation expense is included in corporate and administrative expense.


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15. Finance costs: 2017 2016 Interest expense on term loans $ 27,734 $ 14,597 Interest expense on convertible debentures 1,365 - Amortization of deferred financing costs 1,273 805 Accretion of convertible debenture liability 182 - Amortization of convertible debenture transaction costs 152 - Interest expense on finance lease liability 44 - Amortization of deferred compensation 18 9 Dividends on preferred shares 16 25 Amortization of mark-to-market adjustments (90) (76) Changes in fair values of interest rate swap contracts (1,025) (675)

$ 29,669 $ 14,685

16. Commitments and contingencies:

(a) Operating leases:

AHIP and certain subsidiaries have entered into operating leases for certain hotel ground and

air rights, office space, office equipment, and automobiles. The minimum lease payments

have been included in the commitments schedule below.

One of the hotels within the Midwestern 3 Embassy Suites Portfolio has an air rights lease on

which the hotel is located. The lease commenced in 1988 with an initial term of 25 years and

five automatic renewal terms of 25 years each. The initial term matured in 2015 and the first

renewal term will mature in 2040. This lease has been classified as an operating lease.

Future minimum lease payments under operating leases and non-cancelable contracts as of

December 31, 2017 are as follows: 2018 $ 1,249 2019 866 2020 648 2021 581 2022 480 Thereafter 3,861

$ 7,685


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16. Commitments and contingencies (continued):

(b) Lodging facility agreements:

The Economy Lodging Hotels have lodging facility agreements with several railway

companies. Under these agreements, AHIP typically agrees to operate and maintain lodging

and restaurant properties for the use of authorized railway employees. The agreements

provide for a minimum number of rooms to be available, and they also specify certain quality,

service, transportation, and insurance requirements to be provided by AHIP. AHIP receives a

fixed rate per rented room. AHIP may rent the remaining rooms to the general public. These

agreements have various lengths, some of which require annual renewal and others have

fixed terms with expirations through to 2031.

(c) Property Improvement Plans:

Under the terms of AHIP’s franchise agreements for its Premium Branded Hotels, AHIP is

required to complete brand mandated property improvement plans. AHIP’s operating

subsidiaries have entered into contracts or commitments with various suppliers to supply

products and services in compliance with these renovation plans. Payments for these items

are held as restricted cash (as described in note 5) and funds are disbursed in the ordinary

course of business.

(d) In the normal course of operations, AHIP and its subsidiaries may become subject to a

variety of legal and other claims. Management and legal counsel evaluate all claims on their

apparent merits and accrue management's best estimate of the costs to satisfy such claims.

Although the outcome of legal and other claims are not reasonably determinable,

management believes that any such outcome will not have a material adverse effect on these

consolidated financial statements.


37

17. Related party transactions:

(a) Hotel Manager:

Certain AHIP subsidiaries have entered into hotel management agreements with various

wholly owned subsidiaries of ONE Lodging Management Inc. (the “Hotel Manager”), a

company indirectly controlled by a director of the General Partner, to manage and operate

the hotel properties.

AHIP’s operating subsidiaries are responsible for reimbursing the Hotel Manager for any

operating expenses and direct costs incurred with respect to the operations of the properties

and their lodging businesses, such as salary and benefit costs of hotel staff and other

operating expenses.

On September 30, 2016, AHIP entered into an amending agreement (the “Amendment”) with

the Hotel Manager to amend certain terms of the original master hotel management

agreement. The Amendment was effective July 1, 2016, and included the following

modifications:

(i) base management fees have been reduced from 3.5% to 3.0% of gross revenue for

AHIP’s existing portfolio and for all future hotels acquired by AHIP; and

(ii) the annual administration fee of $25 per hotel has been waived for any hotels with more

than 100 guestrooms acquired after July 1, 2016.

The amended master hotel management agreement provides for the payment of the following

amounts to the Hotel Manager:

(i) a base management fee equal to 3.0% of gross revenues;

(ii) a capital expenditure fee of 5.0% of capital expenditures, including maintenance capital

expenditures;

(iii) an annual administration fee of $25 for each existing property and for properties acquired

after July 1, 2016 with less than 100 guestrooms; and

(iv) an incentive management fee if certain profit thresholds are met.

The incentive fee may not exceed 50% of the aggregate base management fees for the year

in which the incentive fee is earned.


38

17. Related party transactions (continued):

(a) Hotel Manager (continued):

AHIP recorded the following fees charged by the Hotel Manager in corporate and

administrative expenses. 2017 2016 Management fees $ 9,102 $ 5,632 Administration fees 2,159 1,996

Total fees expensed $ 11,261 $ 7,628

In addition, capital management fees of $1,040 for the year ended December 31, 2017 (2016

- $873) were capitalized to property, buildings and equipment. Of the total management fees

charged by the Hotel Manager, $846 is included in accounts payable and accrued expenses

as at December 31, 2017 (2016 - $199).

During the year ended December 31, 2017, the Hotel Manager incurred $83,050 (2016 -

$49,972) in expenses on behalf of the hotel properties during the normal course of

operations, comprised primarily of payroll costs of $78,327 (2016 - $46,959) and other

general and administrative costs such as insurance, travel, and office supplies. Of this total,

$490 is included in accounts payable and accrued liabilities as at December 31, 2017 (2016 -

$698).

(b) Hotel expansions by SunOne:

Pursuant to the Master Development Agreement (“Development Agreement”) with SunOne

Developments Inc. (“SunOne”), a company affiliated with the Chief Executive Officer and a

director of the General Partner, during the year ended December 31, 2016, AHIP paid

SunOne the following amounts for the completion of room expansions at three existing

Economy Lodging Hotels as follows:

2016 Total Property and equipment $ 6,400 Financed by:

Cash $ 4,585 Holdback 440 Issuance of AHIP Units 1,375

$ 6,400


39

17. Related party transactions (continued):

(c) Executive loan program:

The Board of Directors approved and implemented an Executive Loan Guarantee Policy

(the “Loan Policy”) with a major Canadian financial institution under which an AHIP subsidiary

would provide guarantees for certain loans made to certain executive officers to make eligible

purchases of Units. The aggregate maximum amount available under the Loan Policy is

Cdn$6,000 with specific limits for certain executive officers. The loans have a ten-year term

at an interest rate of the lender’s prime lending rate plus 1%.

As at December 31, 2017, three executive officers borrowed an aggregate of Cdn$3,000

under the Loan Policy, with such loans being fully guaranteed pursuant to the terms of the

Loan Policy.

(d) Compensation:

Key management includes those persons having authority and responsibility for planning,

directing, and controlling the activities of AHIP, directly or indirectly. Total compensation

awarded to key management for the year ended December 31, 2017 was $3,856

(2016 - $2,074), which included securities-based compensation expense of $924

(2016 - $415).

18. Financial instruments:

The carrying values of AHIP’s cash and cash equivalents, restricted cash, trade and other

receivables, and accounts payables and accrued liabilities approximates their fair values due to

the short-term nature of these financial assets and liabilities.

The fair value of AHIP’s term loans was determined using present value calculations based on

market-observable interest rates for loans with similar terms and conditions. The fair value of

AHIP’s term loans at December 31, 2017 was $696,077 (2016 - $367,780).

AHIP uses interest rate swap contracts to effectively fix the interest rate on certain loans. As

hedge accounting is not applied; the contracts are carried at fair value and reported as assets

(positive) or liabilities (negative) depending on the fair value on the reporting date and the change

in fair value is recognized in net income or loss for the year. The fair value of the interest rate

swap contracts is calculated through discounting future expected cash flows using the

appropriate LIBOR rate swap curve adjusted for credit risk. Since the LIBOR rate swap curve is

an observable input, these financial instruments are considered Level 2.


40

18. Financial instruments (continued):

AHIP is exposed to a number of risks in its normal course of operations from its use of financial

instruments. These risks, and the actions taken to manage them, are as follows:

(a) Interest rate risk:

Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will

fluctuate because of changes in the market interest rates. AHIP monitors its interest rate

exposure on an ongoing basis.

As described in note 10, all of AHIP’s term loans as at December 31, 2017 effectively have

fixed interest rates. The Revolver and the Accordion Loan have variable interest rates. As

there were no balances outstanding on the Revolver or the Accordion Loan, AHIP was not

exposed to any interest rate risk on these facilities at December 31, 2017.

(b) Credit risk and economic dependence:

Credit risk is the risk of financial loss to AHIP if a customer or counterparty to a financial

instrument fails to meet its contractual obligation. The maximum exposure to credit risk is the

full carrying value of the financial instrument.

AHIP is exposed to credit risk with respect to trade and other receivables. At December 31,

2017 trade and other receivables were $10,987 (2016 - $5,563). Amounts over 30 days

totaled $1,118 (2016 - $936), all of which are expected to be collected. The bad debt write-off

was $112 for the year ended December 31, 2017 (2016 - $113). The associated risk is

mitigated by initiating a prompt collection process and credit checks on all new customers.

Revenues from one customer represent approximately $26,511 or 8.73% of AHIP’s total

revenues for the year ended December 31, 2017 (2016 - $29,433 or 17%). As at

December 31, 2017, $851 was receivable from this customer (December 31, 2016 - $1,011).

(c) Liquidity risk:

Liquidity risk is the risk that AHIP will not be able to meet its financial obligations as they fall

due. Property investments tend to be relatively illiquid, with the degree of liquidity generally

fluctuating in relation to demand for and the perceived desirability of such investments. If

AHIP were required to liquidate a property investment, the proceeds to AHIP may be

significantly less than the aggregate carrying value of such property.

AHIP manages liquidity risk through monitoring the repayment dates and refinancing dates of

its revolver and term loans, monitoring its debt covenants, and managing its cash flows.

AHIP’s objective is to maintain sufficient available credit facilities to fund ongoing operational

and capital requirements. In addition to trade and other receivables, AHIP has cash and cash

equivalents of $11,935 (2016 - $81,127) excluding the restricted cash amount of $51,080 at

December 31, 2017 (2016 - $18,442).


41

18. Financial instruments (continued):

(c) Liquidity risk (continued):

The timing of estimated cash outflows relating to financial liabilities are outlined in the table

below: Value at December 31, 2017 Maturity Accounts payable and accrued liabilities $ 33,959 Less than 1 year Finance lease liability (note 9) 1,911 Less than 1 year Current portion of term loans (note 10) 11,586 Less than 1 year Current portion of other liabilities (note 11) 383 Less than 1 year Other liabilities (note 11 - excluding preferred shares) 2,001 2018 – 2033 Term loans (note 10) 680,745 2018 - 2027

(d) Currency exchange rate risk:

Effective the April 2016 distribution that was paid on May 13, 2016, AHIP’s distributions are

denominated in U.S. dollars. Therefore, the currency exchange rate risk is not significant.

19. Capital management:

2017 2016 Term loans $ 692,331 $ 368,090 Convertible debentures, liability portion 45,307 - Partners’ capital 517,573 401,024 Total capital $ 1,255,211 $ 769,114

AHIP defines capital as the aggregate of its term loans, convertible debentures and partners’

capital, net of related financing costs. AHIP’s objectives in managing capital are to maintain a

level of capital that: complies with investment and debt restrictions as prescribed in the Limited

Partnership Agreement; complies with existing debt covenants; funds its business strategies; and

builds long-term value. AHIP’s capital structure is periodically reviewed by the Board of Directors

of the General Partner.


42

20. Supplemental cash flow disclosure:

(a) Changes in non-cash operating working capital:

2017 2016 Accounts payable and accrued liabilities $ 12,841 $ 4,754 Prepaids and other assets 3,383 (8,920) Trade and other receivables (4,983) (1,178)

$ 11,241 $ (5,344)

(b) Reconciliation of movements of liabilities to cash flows arising from financing activities:

Liabilities Finance lease Term Convertible Other Partners’ liability loans debentures liabilities capital Total Restated balance,

January 1, 2017 $ - $ 368,090 $ - $ 741 $ 401,024 $ 769,855 Changes from financing

cash flows: Issuance of Units - - - - 142,183 142,183 Convertible debentures - - 46,790 - 2,085 48,875 Distributions paid - - (44,155) (44,155) Term loan proceeds - 314,700 - - - 314,700 Deferred compensation paid - - (250) - (250) Term loan repayments - (7,885) - - - (7,885) Finance lease payments (39) - - - - (39) Issuance costs related to

acquisitions - - - - (46) (46) Financing costs paid - (2,629) (1,817) - (99) (4,545)

Total changes from financing

cash flows $ (39) $ 304,186 $ 44,973 $ (250) $ 99,968 $ 448,838

Changes arising from business combinations $ 1,950 $ 18,878 $ - $ - $ 17,375 $ 38,203

Liability-related: Interest expense/accretion $ - $ 1,177 $ 334 $ 18 $ - $ 1,529 Change in deferred income - - - 2,000 - 2,000

Total liability-related other changes $ - $ 1,177 $ 334 $ 2,018 $ - $ 3,529

Total partners’ capital-related other changes $ - $ - $ - $ - $ (794) $ (794)

Balance, December 31, 2017 $ 1,911 $ 692,331 $ 45,307 $ 2,509 $ 517,573 $ 1,259,631


43

21. Segment reporting:

AHIP’s operations consist of hotel real estate properties in the U.S. only. AHIP structures its

operations in two operating and reportable segments based on the way that AHIP organizes its

operations for making operating decisions and assessing performance. AHIP’s corporate costs

are not allocated to the segments: (i) the Premium Branded Hotels that have franchise

agreements and (ii) the Economy Lodging Hotels that have lodging and franchise agreements.

The following provides segmented information as at December 31, 2017 and 2016 and for the

years then ended: Premium Economy December 31, 2017 Branded Hotels Lodging Hotels Corporate Total Total assets $ 1,071,130 $ 221,664 $ 2,939 $ 1,295,733 Total liabilities 617,310 110,978 49,872 778,160

Premium Economy December 31, 2016 Branded Hotels Lodging Hotels Corporate Total Total assets $ 481,139 $ 224,342 $ 85,959 $ 791,439 Total liabilities 271,912 112,775 5,728 390,415

Income (loss) from operating activities for the year ended December 31, 2017: Premium Economy Branded Hotels Lodging Hotels Corporate Total Revenue $ 234,309 $ 69,401 $ - $ 303,710 Expenses 179,225 59,593 52 238,870

Income (loss) from operating activities $ 55,084 $ 9,808 $ (52) $ 64,840

Income (loss) from operating activities for the year ended December 31, 2016: Premium Economy Branded Hotels Lodging Hotels Corporate Total Revenue $ 101,479 $ 72,036 $ - $ 173,515 Hotel expenses 76,637 56,674 52 133,363

Income (loss) from operating activities $ 24,842 $ 15,362 $ (52) $ 40,152


44

22. Comparative information:

Certain comparative information in the prior period has been reclassified to conform to the current

period presentation.

23. Subsequent events:

AHIP announced cash distributions as follows:

(a) On January 16, 2018, a cash distribution of US$0.054 per unit for the period from January 1,

2018 to January 31, 2018. The distribution was paid on February 15, 2018 to Unitholders of

record on January 31, 2018.

(b) On February 16, 2018, a cash distribution of US$0.054 per unit for the period from

February 1, 2018 to February 28, 2018. The distribution will be paid on March 15, 2018 to

Unitholders of record on February 28, 2018.

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