Impairment

Our hotels comprise operations and cash flows that can clearly be distinguished, operationally and for financial reporting purposes, from the remainder of our operations. Accordingly, we consider our hotels to be components for purposes of determining impairment charges and reporting discontinued operations.

During the quarter ended September 30, 2011, we recorded an impairment charge of $946,000 in discontinued operations for one hotel to reduce our carrying value to its fair value less estimated selling costs. Our fair value estimate was based on the purchaser's contract price (a Level 2 input).

During the quarter ended June 30, 2011, we recorded a $12.3 million impairment charge ($11.7 million related to three hotels in continuing operations and $598,000 related to one hotel in discontinued operations). The impairment charge related to continuing operations was based on revised estimated fair market values obtained through the marketing process that were lower than the net book values for these hotels. The inputs used to determine the fair values of these hotels are classified as Level 2 under authoritative guidance for fair value measurements. The impairment charge relating to discontinued operations is primarily related to estimated selling costs with respect to one hotel held for sale at June 30, 2011.

During the quarter ended September 30, 2010, we recorded a $65.8 million impairment charge ($24.1 million related to three hotels in continuing operations and $41.7 million related to five hotels in discontinued operations). This charge related to our third quarter 2010 decision to market and sell 14 hotels. Eight of these 14 hotels were impaired in light of the reduced estimated hold periods.


10.	Impairment — (continued)

During the quarter ended March 31, 2010, we recorded a $21.1 million impairment charge with regard to two hotels that were subsequently transferred to their lenders in full satisfaction of the related debt. This impairment charge is reflected in discontinued operations. For these impairment charges, we estimated the hotels’ fair value by using estimated future cash flows, terminal values based on the projected cash flows and capitalization rates in the range of what is reported in industry publications for operationally similar assets and other available market information. The cash flows used for determining the fair values were discounted using market-based discounts generally used for operationally and geographically similar assets. The inputs used to determine the fair values of these hotels are classified as Level 3 under the authoritative guidance for fair value measurements.

We may record additional impairment charges if operating results of individual hotels are materially different from our forecasts, the economy and/or lodging industry weakens, or if we shorten our contemplated holding period for additional hotels.