Summary of Significant Accounting Policies

Basis of Presentation and Principles of Consolidation

The consolidated financial statements and related notes have been prepared on the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America ("GAAP").

The consolidated financial statements include the accounts of Rangers, FelCor LP and its wholly-owned subsidiaries, and joint ventures in which the Company has a majority voting interest and control. For the controlled subsidiaries that are not wholly-owned, the third-party ownership interest represents a noncontrolling interest, which is presented separately in the consolidated financial statements. The Company also records the real estate interests in two joint ventures in which it holds an indirect 50% interest using the equity method of accounting. All intercompany balances and transactions have been eliminated in consolidation.

Reclassifications

As a result of the merger with RLJ, certain prior period amounts in the Predecessor consolidated financial statements have been reclassified to conform to the financial statement presentation of the Company's parent company, RLJ. At December 31, 2016, the following reclassifications were made to the consolidated balance sheet:


•	Approximately $15.4 million was reclassified from accounts receivable to prepaid expense and other assets.


•	Approximately $4.5 million was reclassified from deferred expenses to prepaid expense and other assets.


•	Approximately $25.4 million was reclassified from accrued expenses and other liabilities to advance deposits and deferred revenue.


•	Approximately $12.8 million was reclassified from accrued expenses and other liabilities to accrued interest.

For the years ended December 31, 2016 and 2015, respectively, the following reclassifications were made to the consolidated statements of operations and comprehensive income (loss):


•	Approximately $661.6 million and $673.3 million, respectively, was reclassified from hotel operating revenue to room revenue.


•	Approximately $155.2 million and $158.5 million, respectively, was reclassified from hotel operating revenue to food and beverage revenue.


•	Approximately $46.0 million and $46.6 million, respectively, was reclassified from hotel operating revenue to other revenue.


•	Approximately $171.9 million and $172.3 million, respectively, was reclassified from hotel departmental expenses to room expense.


•	Approximately $119.0 million and $123.4 million, respectively, was reclassified from hotel departmental expenses to food and beverage expense.


•	Approximately $15.1 million and $17.5 million, respectively, was reclassified from hotel departmental expenses to other operating expense.


•	Approximately $12.7 million and $12.5 million, respectively, was reclassified from other expenses to property tax, insurance and other.


•	Approximately $62,000 and $24,000, respectively, was reclassified from interest expense, net to interest income.

The Company also conformed the consolidated statements of operations and comprehensive loss for the Predecessor period of January 1, 2017 through August 31, 2017 to the financial statement presentation of the Company's parent company, RLJ.

The reclassifications mentioned above had no impact to net income (loss) and comprehensive income (loss), member's/shareholders’ equity (partners' capital), or cash flows.

Use of Estimates

The preparation of the Company’s financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of certain assets and liabilities and the amounts of contingent assets and liabilities at the balance sheet date and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Revenue Recognition

The Company's hotel properties are leased through intercompany lease agreements between the Lessors and the Lessees. As a result of the distribution of the equity interests in FelCor TRS to RLJ LP, the Lessees' lease payments pursuant to the leases are no longer eliminated in consolidation. Base lease revenue is reported as income by the Lessor on a straight-line basis over the lease term. Percentage lease revenue is reported as income by the Lessor over the lease term when it is earned and becomes receivable from the Lessees, according to the provisions of the respective lease agreements. The Lessees are in compliance with their rental obligations under their respective lease agreements.

For the Predecessor period, the Company’s revenue consisted of room revenue, food and beverage revenue, and revenue from other hotel operating departments (such as parking fees, golf, pool and other resort fees, gift shop sales and other guest service fees). These revenues were recorded net of any sales and occupancy taxes collected from the hotel guests. All rebates or discounts were recorded as a reduction to revenue, and there are no material contingent obligations with respect to rebates and discounts offered by the hotels. All revenues were recorded on an accrual basis as they were earned. An allowance for doubtful accounts is the Company's best estimate of the amount of probable credit losses in the existing accounts receivable portfolio and it was recorded as a bad debt expense. The allowance for doubtful accounts was calculated as a percentage of the aged accounts receivable. Any cash received prior to a guest's arrival was recorded as an advance deposit from the guest and recognized as revenue at the time of the guest's occupancy at the hotel property.

Investment in Hotel Properties

The Company’s acquisitions generally consist of land, land improvements, buildings, building improvements, furniture, fixtures and equipment ("FF&E"), and inventory. The Company may also acquire intangible assets or liabilities related to in-place leases, management agreements, franchise agreements and advanced bookings. The Company allocates the purchase price among the assets acquired and the liabilities assumed based on their respective fair values at the date of acquisition. The Company determines the fair value by using market data and independent appraisals available to us and making numerous estimates and assumptions. Transaction costs are expensed for acquisitions that are considered business combinations and capitalized for asset acquisitions.

The Company’s investments in hotel properties are carried at cost and are depreciated using the straight-line method over the estimated useful lives of 15 years for land improvements, 15 years for building improvements, 40 years for buildings and three to five years for FF&E. For the Predecessor period, FelCor's investments in hotel properties were carried at cost and depreciated using the straight-line method over the estimated useful lives of 15 to 30 years for improvements, 40 years for buildings and three to 10 years for FF&E. Maintenance and repairs are expensed and major renewals or improvements to the hotel properties are capitalized. Interest used to finance the real estate under development is capitalized as an additional cost of development. The Company discontinues the capitalization of interest once the real estate development project is substantially complete. Upon the sale or disposition of a hotel property, the asset and related accumulated depreciation accounts are removed and the related gain or loss is included in the gain or loss on sale of hotel properties in the consolidated statements of operations and comprehensive income. A sale or disposition of a hotel property that represents a strategic shift that has or will have a major effect on the Company's operations and financial results is presented as discontinued operations in the consolidated statements of operations and comprehensive income.

In accordance with the guidance on impairment or disposal of long-lived assets, the Company does not consider "held for sale" classification on the consolidated balance sheet until it is probable that the sale will be completed within one year and the other requisite criteria for such classification have been met. The Company does not depreciate hotel properties so long as they are classified as held for sale. Upon designation as held for sale and quarterly thereafter, the Company reviews the realizability of the carrying value, less costs to sell, in accordance with the guidance. Any such adjustment to the carrying value is recorded as an impairment loss.

The Company assesses the carrying value whenever events or changes in circumstances indicate that the carrying amounts may not be recoverable. The recoverability is measured by comparing the carrying amount to the estimated future undiscounted cash flows which take into account current market conditions and the Company’s intent with respect to holding or disposing of the hotel properties. If the Company’s analysis indicates that the carrying value is not recoverable on an undiscounted cash flow basis, the Company will recognize an impairment loss for the amount by which the carrying value exceeds the fair value. The fair value is determined through various valuation techniques, including internally developed discounted cash flow models, comparable market transactions or third-party appraisals.

The use of projected future cash flows is based on assumptions that are consistent with a market participant’s future expectations for the travel industry and the economy in general and the Company’s expected use of the underlying hotel properties. The assumptions and estimates related to the future cash flows and the capitalization rates are complex and subjective in nature. Changes in economic and operating conditions that occur subsequent to a current impairment analysis and the Company’s ultimate use of the hotel property could impact the assumptions and result in future impairment losses to the hotel properties.

For acquisitions that are considered business combinations, the Company recognizes the cumulative impact of a measurement period adjustment, if any, in the reporting period in which the adjustment is identified. Depending on the circumstances of the measurement period adjustment, the Company will disclose the prior period impact of the adjustment separately on the face of the consolidated statement of operations or in the notes to the consolidated financial statements.

Investment in Unconsolidated Joint Ventures

If the Company determines that it does not have a controlling financial interest in a joint venture, either through a controlling financial interest in a variable interest entity or through the Company's voting interest in a voting interest entity, but the Company exercises significant influence over the operating and financial policies of the joint venture, the Company accounts for the joint venture using the equity method of accounting. Under the equity method of accounting, the Company's investment is adjusted each reporting period to recognize the Company's share of the net earnings or losses of the joint venture, plus any contributions to the joint venture, less any distributions received from the joint venture and any adjustment for impairment. In addition, the Company's share of the net earnings or losses of the joint venture is adjusted for the straight-line depreciation of the difference between the Company's basis in the investment in the unconsolidated joint ventures as compared to the historical basis of the underlying net assets in the joint venture at the date of acquisition.

The Company assesses the carrying value of its investment in unconsolidated joint ventures whenever events or changes in circumstances may indicate that the carrying value of the investment exceeds its fair value on an other-than-temporary basis. When an impairment indicator is present, the Company will estimate the fair value of the investment, which will be determined by using internally developed discounted cash flow models, third-party appraisals, or if appropriate, the net sales proceeds from pending offers. If the estimated fair value is less than the carrying value, and management determines that the decline in value is considered to be other-than-temporary, the Company will recognize an impairment loss on its investment in the joint venture.

The Company tracks the inception-to-date contributions, distributions, and earnings for each of our unconsolidated joint ventures. Any cash distributions received up to the aggregate historical earnings of the unconsolidated joint venture is presented as an operating activity in the consolidated statements of cash flows. Any cash distributions in excess of the aggregate historical earnings of the unconsolidated joint venture is presented as an investing activity in the consolidated statements of cash flows.

Intangible Assets

In a business combination, the Company may acquire intangible assets related to in-place leases, management agreements, franchise agreements, advanced bookings, and other intangible assets. The Company recognizes each of the intangible assets at fair value. The Company estimated the fair value of the intangible assets by using market data and independent appraisals and making numerous estimates and assumptions. The below market lease intangible assets are amortized over the remaining terms of the respective leases as adjustments to rental expense in property tax, insurance and other in the consolidated statements of operations and comprehensive income. The advanced bookings intangible asset is amortized over the duration of the hotel room and guest event reservations period at the respective hotel property to depreciation and amortization in the consolidated statements of operations and comprehensive income. The other intangible assets are amortized over the remaining non-cancelable term of the related agreement or the useful life of the respective intangible asset to depreciation and amortization in the consolidated statements of operations and comprehensive income.

The Company assesses the carrying value of the intangible assets whenever events or changes in circumstances indicate that the carrying amounts may not be recoverable. The recoverability is measured by comparing the carrying amount to the estimated future undiscounted cash flows which take into account current market conditions and the Company’s intent with respect to holding or disposing of the hotel properties. If the Company’s analysis indicates that the carrying value is not recoverable on an undiscounted cash flow basis, the Company will recognize an impairment loss for the amount by which the carrying value exceeds the fair value. The fair value is determined through various valuation techniques, including internally developed discounted cash flow models or third-party appraisals.

Cash and Cash Equivalents

Cash and cash equivalents include all cash and highly liquid investments that mature three months or less when they are purchased. The Company maintains its cash at domestic banks, which, at times, may exceed the limits of the amounts insured by the Federal Deposit Insurance Corporation.

Restricted Cash Reserves

Restricted cash reserves consists of all cash that is required to be maintained in a reserve escrow account by a hotel management agreement, franchise agreement and/or a mortgage loan agreement for the replacement of furniture, fixtures and equipment and the funding of real estate taxes and insurance.

Hotel Receivables

Hotel receivables consist mainly of receivables due from hotel guests and meeting and banquet room rentals. The Company does not generally require collateral, as ongoing credit evaluations are performed, and an allowance for doubtful accounts is established against any receivable that is estimated to be uncollectible.

Deferred Financing Costs

Deferred financing costs are the costs incurred to obtain long-term financing. The deferred financing costs are recorded at cost and are amortized using the straight-line method, which approximates the effective interest method, over the respective term of the financing agreement and are included as a component of interest expense. The Company expenses unamortized deferred financing costs when the associated financing agreement is refinanced or repaid before maturity unless certain criteria are met that would allow for the carryover of such costs to the refinanced agreement. The Company presents the deferred financing costs for its Senior Notes (as defined in Note 8) and mortgage loans on the balance sheet as a direct deduction from the carrying amount of the respective debt liability. The Predecessor company presented the deferred financing costs for its line of credit on the balance sheet as an asset, which is included in prepaid expense and other assets in the accompanying consolidated balance sheets.

For the Successor period of September 1, 2017 through December 31, 2017, the amortization expense recorded as a component of interest expense in the consolidated statements of operations and comprehensive income was de minimis. For the Predecessor period of January 1, 2017 through August 31, 2017, and the Predecessor years ended December 31, 2016 and 2015, approximately $2.8 million, $4.0 million and $5.4 million, respectively, of amortization expense was recorded as a component of interest expense in the consolidated statements of operations and comprehensive income.

Transaction Costs

The Company incurs costs during the review of potential hotel property acquisitions and dispositions, including legal fees, architectural costs, environmental reviews, market studies, financial advisory, and other professional service fees. In addition, if the Company does complete a hotel property acquisition or a business combination, the Company may incur transfer taxes and integration costs, including professional fees and employee-related costs. These costs are expensed as incurred in transaction costs in the consolidated statements of operations and comprehensive income.

Noncontrolling Interests

The consolidated financial statements include all subsidiaries controlled by the Company. For the controlled subsidiaries that are not wholly-owned, the third-party ownership interest represents a noncontrolling interest, which is presented separately in the consolidated financial statements.

As of December 31, 2017, Rangers owned 99.0% of the partnership interests in FelCor LP. Rangers consolidates FelCor LP for financial reporting purposes as a result of its controlling financial interest. Rangers GP's 1.0% partnership interest in FelCor LP is recognized as a noncontrolling interest in FelCor LP in the equity section of the consolidated balance sheets of Rangers. The portion of the income and losses associated with Rangers GP's partnership interest are included in the noncontrolling interest in FelCor LP in the consolidated statements of operations and comprehensive income.

As of December 31, 2017, the Company consolidated the joint venture that owns The Knickerbocker hotel property; this joint venture has a 5% third-party ownership interest in the joint venture. The third-party ownership interest is included in the noncontrolling interest in consolidated joint ventures in the equity section of the consolidated balance sheets. The income and losses associated with the third-party ownership interest are included in the noncontrolling interest in consolidated joint ventures in the consolidated statements of operations and comprehensive income.

For the Predecessor period, the redeemable noncontrolling interests in FelCor LP represent the FelCor LP units that were not owned by FelCor. FelCor allocated the income and loss to the redeemable noncontrolling interests in FelCor LP based on the weighted-average percentage ownership throughout the year. FelCor characterized the redeemable noncontrolling interests in FelCor LP in the mezzanine section (between liabilities and equity) on the consolidated balance sheets as a result of the redemption feature of the units. The units were redeemable at the option of the holder for a like number of shares of FelCor's common stock or, at FelCor's option, the cash equivalent thereof. FelCor adjusted the redeemable noncontrolling interests in FelCor LP (or redeemable units) each reporting period to reflect the greater of its carrying value based on the accumulation of historical cost or its redemption value.

Preferred Equity in a Consolidated Joint Venture

The Knickerbocker joint venture raised capital through the sale of redeemable preferred equity under the EB-5 Immigrant Investor Program. Based on the redemption features of the preferred equity, the Company presents the preferred equity raised by the Knickerbocker joint venture as preferred equity in a consolidated joint venture within the equity section of the consolidated balance sheets.

Income Taxes

The Company is considered to be a partnership for income tax purposes, and is not subject to federal, state, or local income taxes. Any taxable income or loss will be recognized by the partners. Accordingly, no federal, state, or local income taxes have been reflected in the accompanying consolidated financial statements. Significant differences may exist between the results of operations reported in these consolidated financial statements and those determined for income tax purposes primarily due to the use of different asset valuation methods for tax purposes.

The partnership files tax returns as prescribed by the tax laws of the United States of America, the jurisdiction in which it operates. In the normal course of business, the partnership is subject to examination by federal, state, and local jurisdictions, where applicable.

The Company performs an annual review for any uncertain tax positions and, if necessary, will record the expected future tax consequences of uncertain tax positions in the consolidated financial statements.

For the Predecessor period, FelCor elected to be taxed as a REIT under Sections 856 through 860 of the Internal Revenue Code, as amended. To qualify as a REIT, FelCor was required to meet a number of organizational and operational requirements, including a requirement that it distribute at least 90% of its REIT taxable income, determined without regard to the deduction for dividends paid and excluding any net capital gain, to shareholders.

As a REIT, FelCor generally was not subject to U.S. federal corporate income tax on the portion of taxable income that is distributed to shareholders. If FelCor failed to qualify for taxation as a REIT in any taxable year, it would be subject to U.S. federal income taxes at regular corporate rates (including any applicable alternative minimum tax) and it may not be able to qualify as a REIT for four subsequent taxable years. Even if FelCor qualified for taxation as a REIT, it could have been subject to certain state and local taxes on its income and property, and to U.S. federal income and excise taxes on its undistributed taxable income. Taxable income from non-REIT activities managed through taxable REIT subsidiaries is subject to U.S. federal, state and local income taxes.

FelCor recorded income taxes using the asset and liability method. Under this method, deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to the differences between the financial statement carrying amounts of existing assets and liabilities and their respective income tax bases, and for net operating loss, capital loss and tax credit carryforwards. The deferred tax assets and liabilities are measured using the enacted income tax rates in effect for the year in which those temporary differences are expected to be realized or settled. The effect on the deferred tax assets and liabilities from a change in tax rates is recognized in earnings in the period when the new rate is enacted. However, deferred tax assets are recognized only to the extent that it is more likely than not that they will be realized based on consideration of all available evidence, including the future reversals of existing taxable temporary differences, future projected taxable income and tax planning strategies. Valuation allowances are provided if, based upon the weight of the available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized.

FelCor performed an annual review for any uncertain tax positions and, as required, recorded the expected future tax consequences of uncertain tax positions in the consolidated financial statements.

Earnings Per Common Share/Unit

RLJ LP, through direct and indirect wholly-owned subsidiaries, owns 100% of the ownership interests and is the sole member and partner of Rangers and FelCor LP, respectively.

For the Predecessor period, basic earnings (loss) per common share/unit was calculated by dividing net income (loss) attributable to common shareholders (unitholders) by the weighted-average number of common shares (units) outstanding during the period excluding the weighted-average number of unvested restricted shares (units) outstanding during the period. Diluted earnings (loss) per common share/unit was calculated by dividing net income attributable to common shareholders (unitholders) by the weighted-average number of common shares (units) outstanding during the period, plus any shares (units) that could potentially be outstanding during the period. The potential shares (units) consist of unvested share/unit-based awards, calculated using the treasury stock method. Any anti-dilutive shares (units) were excluded from the diluted earnings (loss) per common share/unit calculation.

Share-based Compensation

As a result of the Mergers, the Company does not have an equity incentive plan.

For the Predecessor period, FelCor issued share-based awards as compensation to executive officers and employees. The share-based awards vest over a period of time as determined at the date of grant. FelCor accounted for the share-based compensation using the fair value based method of accounting. FelCor classified the share-based payment awards granted in exchange for employee services as either equity awards or liability awards. The equity classified awards were measured based on the fair value on the date of grant. The liability classified awards were remeasured to fair value each reporting period. The share-based awards that were settled in cash (i.e. phantom stock) were classified as liability awards. FelCor recognized compensation expense for the share-based awards on a straight-line basis over the requisite service period during which an employee was required to provide services in exchange for the award. No share-based compensation expense was recognized for the awards when the employees did not render the requisite services.

Recently Issued Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2014-09, Revenue from Contracts with Customers, which supersedes or replaces nearly all GAAP revenue recognition guidance. The guidance establishes a new control-based revenue recognition model that changes the basis for deciding when revenue is recognized over time or at a point in time and expands the disclosures about revenue. The guidance also applies to sales of real estate and the new principles-based approach is largely based on the transfer of control of the real estate to the buyer. The guidance is effective for annual reporting periods beginning after December 15, 2017, and the interim periods within those annual periods, with early adoption permitted. The Company adopted this standard on January 1, 2018 using the modified retrospective transition method. Based on the Company's assessment, the adoption of this standard will not have a material impact on the Company's consolidated financial statements but it will result in additional disclosures in the notes to the consolidated financial statements.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). The guidance will require lessees to recognize a right-of-use asset and a lease liability for most of their leases on the balance sheet, and an entity will need to classify its leases as either an operating or finance lease in order to determine the income statement presentation. Leases with a term of 12 months or less will be accounted for similar to the existing guidance today for operating leases. Lessors will classify their leases using an approach that is substantially equivalent to the existing guidance today for operating, direct financing, or sales-type leases. Lessors may only capitalize the incremental direct costs of leasing, so any indirect costs of leasing will be expensed as incurred. The new guidance requires an entity to separate the lease components from the non-lease components in a contract, with the lease components being accounted for in accordance with ASC 842 and the non-lease components being accounted for in accordance with other applicable accounting guidance. The guidance is effective for annual reporting periods beginning after December 15, 2018, and the interim periods within those annual periods, with early adoption permitted. The Company expects to adopt this standard on January 1, 2019. The Company has not yet completed its analysis on this standard. For leases in which the Company is the lessor, specifically for a lease of the hotel property, the Company believes the application of the standard will be similar to the current accounting for operating leases, in which the Company will continue to recognize the underlying leased asset as a hotel property on the consolidated balance sheet. For leases in which the Company is the lessee, the Company believes the application of the standard will result in the recording of a right-of-use asset and a lease liability on the consolidated balance sheet for each of its ground leases and equipment leases, which represent the majority of the Company's current operating lease payments. The Company does not expect the adoption of this standard will materially affect its consolidated statements of operations and comprehensive income.

In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230), Restricted Cash. This guidance requires that the statement of cash flows reconcile the change during the period in the total of cash, cash equivalents, and restricted cash reserves. As a result, the restricted cash reserves will be included with cash and cash equivalents when reconciling the beginning-of-period and the end-of-period total amounts presented in the statement of cash flows. The Company adopted the guidance on October 1, 2017, and applied its provisions retrospectively. The adoption of ASU 2016-18 did not have a material impact on the Company's consolidated financial statements.

In January 2017, the FASB issued ASU 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business. The guidance clarifies the definition of a business with the objective of adding guidance to assist companies and other reporting organizations with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The changes to the definition of a business will likely result in more acquisitions being accounted for as asset acquisitions across all industries. The guidance is effective for annual reporting periods beginning after December 15, 2017, and the interim periods within those annual periods. The Company adopted this guidance on January 1, 2018. The Company will evaluate each future acquisition (or disposal) to determine whether it will be considered to be an acquisition (or disposal) of assets or a business. The Company does not believe the accounting for each future acquisition (or disposal) of assets or a business will be materially different, therefore, the adoption of this guidance will not have a material impact on the Company's consolidated financial statements.

In February 2017, the FASB issued ASU 2017-05, Other Income - Gains and Losses from the Derecognition of Nonfinancial Assets (Subtopic 610-20): Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets. The guidance clarifies that ASC 610-20 applies to the derecognition of nonfinancial assets, including real estate, and in substance nonfinancial assets, which are defined as assets or a group of assets for which substantially all of the fair value consists of nonfinancial assets and the group or subsidiary is not a business. As a result of the guidance, sales and partial sales of real estate assets will be accounted for similar to all other sales of nonfinancial and in substance nonfinancial assets. The guidance is effective for annual reporting periods beginning after December 15, 2017, and the interim periods within those annual periods, with early adoption permitted. The Company adopted this guidance on January 1, 2018 using the modified retrospective transition method. Based on the Company's assessment, the adoption of this guidance will not have a material impact on the Company's consolidated financial statements.