Impairment

Our hotels are comprised of operations and cash flows that can clearly be distinguished, operationally and for financial reporting purposes, from the remainder of our operations. Accordingly, we consider each hotel to be a component for purposes of determining impairment charges and reporting discontinued operations.

We may record impairment charges if operating results of individual hotels are materially different from our forecasts, the economy and/or lodging industry weakens, or we shorten our contemplated holding period for additional hotels. For the quarter ended June 30, 2013, we recorded a $27.7 million impairment charge ($24.4 million related to two hotels included in continuing operations and $3.3 million related to one hotel included in discontinued operations).

The impairment charge related to the one hotel included in discontinued operations ($3.3 million) was based on third-party offers to purchase (a Level 2 input under authoritative guidance for fair value measurements) at prices below our previously estimated fair market values for this property. This hotel had been identified as a sale candidate in a prior year, reducing its estimated hold period at that time.

As part of our long-term strategic plan, we may identify hotels that no longer meet our investment criteria. We identified two additional such hotels, thereby significantly reducing their respective estimated hold periods, resulting in impairments on both hotels during the second quarter of 2013. A portion ($24.4 million) of the second quarter 2013 impairment charges relates to these hotels and was determined using Level 3 inputs, as follows:


•	with respect to one hotel, we used a discounted cash flow analysis with an estimated stabilized growth rate of 3.0%, a discounted cash flow term of five years, a terminal capitalization rate of 8.0%, and a discount rate of 10.0%; and


•	with respect to the other hotel, we used information based on EBITDA multiples ranging from 10 to 12 times.