Discontinued Operations

12 Months Ended

Dec. 31, 2011

Discontinued Operations

Discontinued Operations

4. Discontinued Operations

In April 2011, the Company sold the Royal Palm Miami Beach hotel for net proceeds of $129.8 million, including $39.8 million in cash and the $90.0 million Royal Palm note, and recognized a gain on the sale of $14.0 million. The Company reclassified the hotel’s results of operations for the first four months of 2011, as well as for the period that it owned the hotel during 2010, to discontinued operations on its consolidated statements of operations. The Company retained an earn-out right on the Royal Palm hotel which will enable it to receive future payments of up to $20.0 million in the event the hotel achieves certain return hurdles.

In July 2011, the Company sold its commercial laundry facility located in Salt Lake City, Utah for net proceeds of $0.1 million, and recognized a loss on the sale of $0.1 million. In anticipation of this sale, the Company recorded an impairment loss of $1.5 million to discontinued operations in June 2011. The Company reclassified the laundry’s results of operations for the first seven months of 2011, as well as for the years ended December 31, 2010 and 2009 to discontinued operations on its consolidated statements of operations.

In October 2011, the Company sold the Valley River Inn located in Eugene, Oregon for net proceeds of $16.1 million, including the assumption of the existing mortgage secured by the hotel which totaled $11.5 million on the date of sale, and recognized a gain on the sale of $0.9 million. The Company reclassified the hotel’s results of operations for the first 10 months of 2011, as well as for the years ended December 31, 2010 and 2009 to discontinued operations on its consolidated statements of operations.

The Company did not sell any hotels during 2010, but did, however, complete the disposal of 11 hotels pursuant to its secured debt restructuring program, which the Company initiated in 2009: W San Diego; Renaissance Westchester; Marriott Ontario Airport; and the “Mass Mutual eight” (Renaissance Atlanta Concourse, Hilton Huntington, Residence Inn by Marriott Manhattan Beach, Marriott Provo, Courtyard by Marriott San Diego (Old Town), Holiday Inn Downtown San Diego, Holiday Inn Express San Diego (Old Town), and Marriott Salt Lake City (University Park)). The Company reclassified the results of operations for all 11 of these hotels beginning in 2009 to discontinued operations on its consolidated statements of operations. In addition, in conjunction with its quarterly impairment analyses, the Company recorded $190.4 million in impairment losses to discontinued operations in 2009 to reduce the carrying values of these hotels to their book values. In June 2010, the Company deeded back the Renaissance Westchester, and subsequently reacquired the hotel from the lender during the same month. The $29.2 million non-recourse mortgage secured by the Renaissance Westchester was cancelled, and the Company recorded a gain on extinguishment of debt of $6.7 million to discontinued operations in June 2010. The Company completed the deed back of the W San Diego in July 2010, and title to the hotel was transferred to the lender. In connection with this deed back, the $65.0 million non-recourse mortgage secured by the W Hotel was cancelled. The Company recorded a gain on extinguishment of debt of $35.4 million to discontinued operations in July 2010, and removed the hotel’s net assets and liabilities from its 2010 consolidated balance sheet. In August 2010, the Marriott Ontario Airport was sold by the receiver, and title to the hotel was transferred to the third party purchaser. In connection with this sale, the $25.5 million non-recourse mortgage secured by the Marriott Ontario Airport was cancelled. The Company recorded a $5.1 million gain on extinguishment of debt to discontinued operations in August 2010, and removed the net assets and liabilities from its 2010 consolidated balance sheet. In November 2010, the Company completed the deed back of the Mass Mutual eight hotels, and titles to the hotels were transferred to the lender. In connection with this deed back, the $163.0 million non-recourse mortgage secured by the Mass Mutual eight hotels was cancelled. The Company recorded a gain on extinguishment of debt of $39.0 million to discontinued operations in November 2010, and removed the net assets and liabilities from its 2010 consolidated balance sheet. Additional gain of $19.6 million was deferred until all significant contingencies were resolved. As of December 31, 2010, five of the Mass Mutual eight hotels remained subject to franchise agreements which contained corporate guaranties. If the franchise agreements on these five hotels were to be terminated, the Company was potentially liable for up to $19.6 million in termination fees. In June 2011, the Company paid termination fees of $1.5 million related to one of these five hotels, and the franchise agreements on the remaining four hotels were transferred to new owners, resulting in the Company’s recording $18.1 million to gain on extinguishment of debt in June 2011, which is included in discontinued operations.

The Company sold the Marriott Napa Valley and the Marriott Riverside during the second quarter of 2009, and the Hyatt Suites Atlanta Northwest during the third quarter of 2009. The sales of the Marriott Napa Valley and the Marriott Riverside during the second quarter of 2009 generated net proceeds of $53.5 million and a net loss of $10.8 million. During the second quarter of 2009, the Company also recorded a net loss of $2.3 million due to additional expenses incurred related to hotels sold in prior years, including $1.5 million accrued by the Company in regards to a lawsuit brought against the Company by the buyer of 13 hotels sold by the Company in 2006, and $0.8 million accrued for various tax audits covering prior years. The Company recorded an impairment loss of $4.9 million in June 2009 in anticipation of the Hyatt Suites Atlanta Northwest sale in the third quarter of 2009. The sale of the Hyatt Suites Atlanta Northwest generated net proceeds of $7.8 million and a net gain of $18,000 during the third quarter of 2009.

The following sets forth the discontinued operations for the years ended December 31, 2011, 2010 and 2009 for the two hotel properties and the commercial laundry facility sold in 2011, the 10 hotel properties deeded back to lenders or sold by the receiver during 2010, the Renaissance Westchester held in receivership until its reacquisition by the Company in June 2010, and the three hotel properties sold in 2009, which all met the “held for sale” and “discontinued operations” criteria in accordance with the Property, Plant and Equipment Topic of the FASB ASC (in thousands):

	2011			2010			2009
Operating revenues	$	18,059		$	89,652		$	151,322
Operating expenses	(13,926		)	(80,896		)	(126,921		)
Interest expense	(567		)	(17,828		)	(23,368		)
Depreciation and amortization expense	(1,951		)	(8,558		)	(18,603		)
Impairment loss	(1,495		)	—			(195,293		)
Gain on extinguishment of debt	18,145			86,235			—
Gain (loss) on sale of hotels and other assets, net	14,912			—			(13,052		)
Income (loss) from discontinued operations	$	33,177		$	68,605		$	(225,915	)