Investment in Hotel Properties

6 Months Ended

Jun. 30, 2011

Investment in Hotel Properties

Investment in Hotel Properties

3. Investment in Hotel Properties

Investment in hotel properties, net consisted of the following (in thousands):

	June 30, 2011			December 31, 2010
	(unaudited)
Land	$	265,108		$	237,758
Buildings and improvements	2,601,310			1,867,786
Furniture, fixtures and equipment	329,826			251,743
Intangibles	164,961			34,081
Franchise fees	1,031			983
Construction in process	39,261			38,135
	3,401,497			2,430,486
Accumulated depreciation and amortization	(587,560		)	(527,667		)
	$	2,813,937		$	1,902,819

In January 2011, the Company purchased the outside 62.0% equity interests in its Doubletree Guest Suites Times Square joint venture for $37.5 million and, as a result, became the sole owner of the entity that owns the 460-room Doubletree Guest Suites Times Square hotel located in New York City, New York. The purchase price included $13.0 million of unrestricted cash held on the partnership’s balance sheet. The hotel is encumbered by $270.0 million of non-recourse senior mortgage and mezzanine debt that matures in January 2012, and bears a blended interest rate of LIBOR plus 115 basis points. The Company expects to refinance this debt during 2011, and intends to fund any refinancing shortfall with existing cash. The hotel is encumbered by an additional $30.0 million mezzanine loan that is owned by the Company, and, therefore, eliminated in consolidation on the Company’s June 30, 2011 balance sheet. The Company recorded the acquisition at fair value using an independent third-party analysis, with the purchase price allocated to investment in hotel properties, notes payable and hotel working capital assets and liabilities. The Company recognized acquisition-related costs of $0.2 million and $2.5 million during the three and six months ended June 30, 2011, respectively, which are included in corporate overhead on the Company’s statements of operations. The results of operations for the Doubletree Guest Suites Times Square have been included in the Company’s statements of operations from the acquisition date of January 14, 2011 through the second quarter ended June 30, 2011. Preferred dividends earned by investors from an entity that owns the Doubletree Guest Suites Times Square, less administrative fees, totaled $7,000 and $14,000 during the three and six months ended June 30, 2011, respectively, and are included in distributions to non-controlling interest on the Company’s statements of operations.

In February 2011, the Company purchased the 494-room JW Marriott New Orleans located in New Orleans, Louisiana for approximately $51.6 million in cash and the assumption of a $42.2 million floating-rate, non-recourse senior mortgage. The mortgage, which matures in September 2015, has been swapped to a fixed rate of 5.45%, and is subject to a 25-year amortization schedule. The Company recorded the acquisition at fair value using an independent third-party analysis, with the purchase price allocated to investment in hotel properties, notes payable and hotel working capital assets. The Company recognized acquisition-related costs of $12,000 and $0.4 million during the three and six months ended June 30, 2011, respectively, which are included in corporate overhead on the Company’s statements of operations. The results of operations for the JW Marriott New Orleans have been included in the Company’s statements of operations from the acquisition date of February 15, 2011 through the end of Marriott’s second quarter June 17, 2011.

In April 2011, the Company paid $182.8 million to acquire a 75.0% majority interest in the joint venture that owns the 1,190-room Hilton San Diego Bayfront hotel located in San Diego, California, which implied a gross value of approximately $475.0 million. The purchase price included $3.7 million of unrestricted cash held on the joint venture’s balance sheet. Concurrent with the acquisition, the joint venture replaced the hotel’s $233.8 million construction loan (which was scheduled to mature on April 12, 2011) with a new $240.0 million mortgage financing secured by the hotel. The mortgage bears a floating rate of interest of LIBOR plus 325 basis points, matures in April 2016 and is subject to a 30-year amortization schedule. The Company recorded the acquisition at fair value using an independent third-party analysis, with the purchase price allocated to investment in hotel properties, notes payable and hotel working capital assets and liabilities. The Company recognized acquisition-related costs of $0.5 million for the three and six months ended June 30, 2011, which are included in corporate overhead on the Company’s statements of operations. The results of operations for the Hilton San Diego Bayfront have been included in the Company’s statements of operations from the acquisition date of April 15, 2011 through the second quarter ended June 30, 2011. The remaining 25.0% interest in the joint venture continues to be owned by Hilton Worldwide, and is shown as non-controlling interest in consolidated joint venture on the Company’s consolidated balance sheets and statements of operations.

The fair values of the assets acquired and liabilities assumed at the dates of acquisition for the Doubletree Guest Suites Times Square, the JW Marriott New Orleans and the 75.0% majority interest in the entity that owns the Hilton San Diego Bayfront were consistent with the purchase prices of these three acquisitions and were allocated based on independent third-party analyses. The following table summarizes the fair values of assets acquired and liabilities assumed in these three acquisitions (in thousands):

Assets:
Investment in hotel properties (1)	$	907,654
Cash	16,680
Restricted cash	17,105
Accounts receivable	10,060
Other assets	7,473
Total assets acquired	958,972
Liabilities:
Notes payable	545,952
Accounts payable and other current liabilities	19,558
Total liabilities acquired	565,510
Non-controlling interest	61,067
Gain on remeasurement of equity interest (2)	60,501
Total cash paid for acquisitions	$	271,894

(1) Investment in hotel properties was allocated to land ($27.4 million), buildings and improvements ($700.1 million), furniture, fixtures and equipment ($49.3 million) and intangibles ($130.9 million).

(2) Gain on remeasurement of equity interests includes a gain of $30.1 million recognized on the remeasurement of the Company’s equity interest in its Doubletree Guest Suites Times Square joint venture to its fair market value, and a gain of $30.4 million recognized on the remeasurement of the Company’s investment in a $30.0 million, 8.5% mezzanine loan secured by the Doubletree Guest Suites Times Square to its fair market value in connection with the Company’s purchase of the outside 62.0% equity interests in the Doubletree Guest Suites Times Square joint venture.

Acquired properties are included in the Company’s results of operations from the date of acquisition. The following unaudited pro forma results of operations reflect the Company’s results as if the acquisitions of the Doubletree Guest Suites Times Square in January 2011, the JW Marriott New Orleans in February 2011 and the 75.0% majority interest in the entity that owns the Hilton San Diego Bayfront in April 2011 had all been acquired on January 1, 2010. In the Company’s opinion, all significant adjustments necessary to reflect the effects of the acquisitions have been made (in thousands, except per share data):

	Three Months Ended June 30, 2011		Three Months Ended June 30, 2010			Six Months Ended June 30, 2011		Six Months Ended June 30, 2010
	(unaudited)		(unaudited)			(unaudited)		(unaudited)
Revenues	$	222,318	$	203,844		$	416,089	$	383,378
Income available (loss attributable) to common stockholders from continuing operations	$	8,163	$	(401	)	$	61,252	$	(17,268	)
Income (loss) per diluted share available (attributable) to common stockholders from continuing operations	$	—	$	(0.06	)	$	0.41	$	(0.28	)

For the three and six months ended June 30, 2011, the Company has included $68.0 million and $89.5 million of revenues, respectively, and $21.7 million and $24.1 million of net income, respectively, in its consolidated statements of operations related to the Company’s 2011 acquisitions.