Joint Venture Transaction (Notes)

9 Months Ended

Sep. 30, 2014

Joint Venture Transaction [Abstract]

Joint Venture Transaction

Joint Venture Transaction

In July 2014, we unwound unconsolidated joint ventures in which we held 50% interests that collectively owned 10 hotels. As a consequence, we now own 100% of five of those hotels and none of the other five hotels. We also now own 100% of an additional hotel of which we owned 90% prior to the unwinding of the joint ventures. We paid $2.2 million to our joint venture partner to equalize the aggregate value of assets each party received as the joint ventures were unwound. This payment was the net of $5.9 million paid for our partner’s 10% interest in the one hotel and $3.7 million received for the difference in values of the five hotels now wholly-owned by us compared to the five hotels in which we no longer have any ownership.

Our joint ventures had an outstanding loan that was secured by eight of these hotels and was bifurcated when the joint ventures were unwound. That loan bears interest at one-month LIBOR plus 3%, matures in March 2017 and is freely pre-payable in whole or in part. We are now only liable for our $64 million share of the bifurcated non-recourse loan, which is secured by mortgages on four of the former joint venture hotels that we now wholly-own.

As a result of these transactions, we have recorded the following in the third quarter:

• A $20.7 million gain on the remeasurement of the fair value of the five previously unconsolidated hotels, which we now control as wholly-owned by us;

• A $30.2 million gain on the disposition of our unconsolidated interests in the five other hotels (net of $457,000 in transaction costs);

• A $3.5 million decrease in Additional Paid-In Capital related to our acquisition of the 10% noncontrolling interest of another hotel, which is now wholly-owned by us.

2.    Joint Venture Transaction — (continued)

In addition to the foregoing, we increased our ownership interest in the operating entities of all six hotels in conjunction with unwinding the joint ventures. Prior to the transaction, we had 51% controlling interests in 10 of the hotel lessees that operated the joint ventures’ 10 hotels and a 90% controlling interest in the hotel lessee that operated the eleventh hotel. After unwinding the joint ventures, we no longer have any interest in five lessees and own 100% in the lessees of the six hotels we now own outright. When we unwound the joint ventures, we liquidated the lessees’ assets and liabilities to cash, which was then distributed to the partners based on their ownership interests just prior to unwinding the joint ventures. Consequently, we recorded no gains or losses when changing ownership of the lessees.

The following table summarizes the fair values of assets acquired and liabilities assumed where we obtained control of a previously unconsolidated entity (i.e., a business combination) through this, primarily, non-cash transaction:

Assets
Investment in hotels	$	130,100
Other assets	1,300
Deferred expenses	259
Total assets acquired	$	131,659
Liabilities
Debt	$	64,000
Net assets acquired	$	67,659

The value of the assets acquired was primarily based on a sales comparison approach (for land) and a depreciated replacement cost approach (for buildings).  The sales comparison approach used inputs of recent land sales in the respective hotel markets.  The depreciated replacement cost approach used inputs of both direct and indirect replacement costs using a nationally recognized authority on replacement cost information as well as the age and the square footage of the respective buildings.  The fair value of the debt was based on the estimated principal amount of debt having the same debt service requirements that could have been borrowed on the transaction date, at then current market interest rates.

The non-cash transaction also resulted in a $19.9 million decrease in our investment in unconsolidated entities.

The following unaudited consolidated pro forma results of operations for the three and nine months ended September 30, 2014 and 2013 assumes the joint venture transactions (the business combination, the disposition of unconsolidated interests, the acquisition of a 10% interest in one hotel, and the change in lessee ownership percentages) occurred on January 1, 2013. The unaudited consolidated pro forma results of operations are not necessarily indicative of the results of operations if the transactions had been completed on the assumed date.

	Three Months Ended					Nine Months Ended
	September 30,					September 30,
	2014		2013			2014		2013
Net income (loss)	$	73,640	$	3,378		$	84,408	$	(45,201	)
Income (loss) per share/unit - basic	$	0.50	$	(0.06	)	$	0.43	$	(0.57	)
Income (loss) per share/unit - diluted	$	0.50	$	(0.06	)	$	0.42	$	(0.57	)