Summary of Significant Accounting Policies

12 Months Ended

Dec. 31, 2011

Summary of Significant Accounting Policies

Summary of Significant Accounting Policies

2. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying consolidated financial statements as of December 31, 2011 and 2010, and for the years ended December 31, 2011, 2010 and 2009, include the accounts of the Company, the Operating Partnership, the TRS Lessee and their subsidiaries. All significant intercompany balances and transactions have been eliminated. Non-controlling interests at December 31, 2011 represent the outside equity interests in various consolidated affiliates of the Company.

Certain prior year amounts have been reclassified in the consolidated financial statements in order to conform to the current year presentation.

The Company has evaluated subsequent events through the date of issuance of these financial statements.

Use of Estimates

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ materially from those estimates.

Reporting Periods

The results the Company reports in its consolidated statements of operations are based on results reported to the Company by its hotel managers. These hotel managers use different reporting periods. Marriott uses a fiscal year ending on the Friday closest to December 31, and reports twelve weeks of operations each for the first three quarters of the year, and sixteen or seventeen weeks of operations for the fourth quarter of the year. The Company’s other hotel managers report operations on a standard monthly calendar. The Company has elected to adopt quarterly close periods of March 31, June 30 and September 30, and an annual year end of December 31. As a result, the Company’s 2011 results of operations for the Marriott-managed hotels include results from January 1 through March 25 for the first quarter, March 26 through June 17 for the second quarter, June 18 through September 9 for the third quarter, and September 10 through December 30 for the fourth quarter. The Company’s 2010 results of operations for the Marriott-managed hotels include results from January 2 through March 26 for the first quarter, March 27 through June 18 for the second quarter, June 19 through September 10 for the third quarter, and September 11 through December 31 for the fourth quarter. The Company’s 2009 results of operations for the Marriott-managed hotels include results from January 3 through March 27 for the first quarter, March 28 through June 19 for the second quarter, June 20 through September 11 for the third quarter, and September 12 through January 1 for the fourth quarter.

Due to the one less day included in Marriott’s 2011 results of operations, the Company estimates it recorded $1.1 million less in revenue and approximately $0.3 million less in net income based on the average daily revenues and income generated by its Marriott managed hotels during 2011. Due to the one less day included in Marriott’s 2010 results of operations, the Company estimates it recorded $0.5 million less in revenue and approximately $0.1 million less in net income based on the average daily revenues and income generated by its Marriott managed hotels during 2010. Due to the one less day included in Marriott’s 2009 results of operations, the Company estimates it recorded $0.2 million less in revenue and approximately $41,000 less in net income based on the average daily revenues and income generated by its Marriott managed hotels during 2009.

Cash and Cash Equivalents

Cash and cash equivalents are defined as cash on hand and in various bank accounts plus all short-term investments with an original maturity of three months or less.

The Company maintains cash and cash equivalents and certain other financial instruments with various financial institutions. These financial institutions are located throughout the country and the Company’s policy is designed to limit exposure to any one institution. The Company performs periodic evaluations of the relative credit standing of those financial institutions that are considered in the Company’s investment strategy. At December 31, 2011 and 2010, the Company had amounts in banks that were in excess of federally insured amounts.

Restricted Cash

Restricted cash is comprised of reserve accounts for debt service, interest reserves, capital replacements, ground leases, and property taxes. These restricted funds are subject to supervision and disbursement approval by certain of the Company’s lenders and/or hotel managers.

Accounts Receivable

Accounts receivable primarily represents receivables from hotel guests who occupy hotel rooms and utilize hotel services. Accounts receivable also includes, among other things, receivables from customers who utilize the Company’s commercial laundry facility located in Rochester, Minnesota, receivables from customers who utilize purchase volume rebates through BuyEfficient, as well as tenants who lease space in the Company’s hotels. The Company maintains an allowance for doubtful accounts sufficient to cover potential credit losses. The Company’s accounts receivable includes an allowance for doubtful accounts of $0.2 million and $0.1 million at December 31, 2011 and 2010, respectively.

Inventories

Inventories, consisting primarily of food and beverages at the hotels, are stated at the lower of cost or market, with cost determined on a method that approximates first-in, first-out basis. In addition, inventories include linens leased to customers of our commercial laundry facilities, which are carried at their historical cost basis, less accumulated amortization.

Acquisitions of Hotel Properties and Other Entities

Accounting for the acquisition of a hotel property as a purchase transaction requires an allocation of the purchase price to the assets acquired and the liabilities assumed in the transaction at their respective estimated fair values. The most difficult estimations of individual fair values are those involving long-lived assets, such as property and equipment and intangible assets. During 2011 and 2010, the Company used all available information to make these fair value determinations, and engaged an independent valuation specialist to assist in the fair value determination of the long-lived assets acquired in the Company’s purchases of the outside 62.0% equity interests in the Doubletree Guest Suites Times Square joint venture, the outside 50.0% equity interests in the BuyEfficient joint venture, the JW Marriott New Orleans, the 75.0% majority interest in the entity that owns the Hilton San Diego Bayfront, and the purchase of the Royal Palm Miami Beach. Due to inherent subjectivity in determining the estimated fair value of long-lived assets, the Company believes that the recording of acquired assets and liabilities is a critical accounting policy.

Investments In Hotel Properties and Other Real Estate

Hotel properties and other completed real estate investments are depreciated using the straight-line method over estimated useful lives ranging from five to 35 years for buildings and improvements and three to 12 years for furniture, fixtures and equipment.

As of December 31, 2011 and 2010, intangible assets included in the Company’s investment in hotel properties, net consisted of the following (in thousands):

	2011			2010
Contractual advance hotel bookings (1)	$	26,110		$	—
Easement agreements (2)	12,421			12,421
Ground/air lease agreements (3)	121,850			21,660
In-place lease agreements (4)	4,580			—
	164,961			34,081
Accumulated amortization	(15,719		)	(1,425		)
	$	149,242		$	32,656

Amortization expense on these intangible assets for the years ended December 31, 2011, 2010 and 2009 consisted of the following (in thousands):

	2011		2010		2009
Contractual advance hotel bookings (1)	$	9,988	$	—	$	—
Easement agreements (2)	29		26		37
Ground/air lease agreements (3)	3,978		255		255
In-place lease agreements (4)	299		—		—
	$	14,294	$	281	$	292

(1)Contractual advance hotel bookings consist of advance deposits related to the purchases of the Doubletree Guest Suites Times Square, the JW Marriott New Orleans & the 75.0% majority interest in the entity that owns the Hilton San Diego Bayfront. The contractual advance hotel bookings are recorded at a discounted present value based on estimated collectability, and are amortized using the straight-line method based over the periods the amounts are expected to be collected through April 2013.

(2)Easement agreements at the Marriott Del Mar and the Hilton Times Square are valued at fair value at the date of acquisition. The Marriott Del Mar easement agreement is amortized using the straight-line method over the remaining non-cancelable term of the related agreement, which is 87 years as of December 31, 2011. The Hilton Times Square easement agreement has an indefinite useful life, and, therefore, is not amortized. This non-amortizable intangible asset is reviewed annually for impairment and more frequently if events or circumstances indicate that the asset may be impaired. If a non-amortizable intangible asset is subsequently determined to have a finite useful life, the intangible asset will be written down to the lower of its fair value or carrying amount and then amortized prospectively, based on the remaining useful life of the intangible asset.

(3)Ground/air lease agreements at the Hilton Times Square, the Doubletree Guest Suites Times Square and the JW Marriott New Orleans are valued at fair value at the date of acquisition. The agreements are amortized using the straight-line method over the remaining non-cancelable terms of the related agreements, which range from between 25 and 79 years as of December 31, 2011.

(4)In-place lease agreements at the Doubletree Guest Suites Times Square and the Hilton San Diego Bayfront are valued at fair value at the date of acquisition. The agreements are amortized using the straight-line method over the remaining non-cancelable terms of the related agreements, which range from between seven and 16 years as of December 31, 2011.

For the next five years, amortization expense for the intangible assets noted above will be $17.3 million in 2012, $7.8 million in 2013 and $4.5 million in 2014 through 2016.

The Company’s investment in hotel properties, net also includes initial franchise fees which are recorded at cost and amortized using the straight-line method over the lives of the franchise agreements ranging from six to 20 years. All other franchise fees that are based on the Company’s results of operations are expensed as incurred.

The Company follows the requirements of the Property, Plant and Equipment Topic of the FASB ASC, which requires impairment losses to be recorded on long-lived assets to be held and used by the Company when indicators of impairment are present and the future undiscounted net cash flows expected to be generated by those assets are less than the assets’ carrying amount. If such assets are considered to be impaired, the related assets are adjusted to their estimated fair value and an impairment is recognized. The impairment recognized is measured by the amount by which the carrying amount of the assets exceeds the estimated fair value of the assets. In computing fair value, the Company uses a discounted cash flow analysis to estimate the fair value of its hotel properties,

taking into account each property’s expected cash flow from operations, holding period and estimated proceeds from the disposition of the property. The factors addressed in determining estimated proceeds from disposition include anticipated operating cash flow in the year of disposition and terminal capitalization rate. In 2011, the Company did not recognize any impairments on its hotel properties, but did recognize an impairment of $1.5 million to discontinued operations in June 2011 related to its sale in July 2011 of a commercial laundry facility located in Salt Lake City, Utah. In 2010, the Company recognized an impairment of $1.9 million to impairment loss on an office building and land adjacent to one of its hotels based on estimated proceeds expected to be received from the possible sale of this property. In conjunction with its 2009 review, the Company recorded hotel property impairments totaling $217.7 million, including $25.4 million to impairment loss and $192.3 million to discontinued operations to reduce the carrying values of 11 hotels on its balance sheet to their fair values. In addition, in 2009 the Company recorded an impairment of $1.4 million to impairment loss related to the write-off of deferred costs associated with a potential time share development, and an impairment of $0.1 million to impairment loss related to a parcel of land adjacent to one of its hotels, which was sold in June 2009. Based on the Company’s review, management believes that there were no other impairments on its long-lived assets, and that the carrying values of its hotel properties and other real estate are recoverable at December 31, 2011.

When an impairment loss is required for assets held for sale, the related assets are adjusted to their estimated fair values, less costs to sell. Operating results of any long-lived assets with their own identifiable cash flows that are disposed of or held for sale are removed from income from continuing operations and reported as discontinued operations. Depreciation ceases when a property is held for sale. The operating results for any such assets for any prior periods presented must also be reclassified as discontinued operations.

Fair value represents the amount at which an asset could be bought or sold in a current transaction between willing parties, that is, other than a forced or liquidation sale. The estimation process involved in determining if assets have been impaired and in the determination of fair value is inherently uncertain because it requires estimates of current market yields as well as future events and conditions. Such future events and conditions include economic and market conditions, as well as the availability of suitable financing. The realization of the Company’s investment in hotel properties and other real estate is dependent upon future uncertain events and conditions and, accordingly, the actual timing and amounts realized by the Company may be materially different from their estimated fair values.

Deferred Financing Fees

Deferred financing fees consist of loan fees and other financing costs related to the Company’s outstanding indebtedness and are amortized to interest expense over the terms of the related debt. Upon repayment or refinancing of the underlying debt, any related unamortized deferred financing fee is charged to interest expense. Upon any loan modification, any related unamortized deferred financing fee is amortized over the remaining terms of the modified loan.

During 2011, approximately $9.0 million of deferred financing fees were incurred and paid related to the Company’s assumptions of debt on the Doubletree Guest Suites Times Square and the JW Marriott New Orleans in connection with the acquisitions of these two hotels, the issuance of a note payable to the Company’s Hilton San Diego Bayfront joint venture, the refinancing of debt secured by the Doubletree Guest Suites Times Square, as well as costs related to the Company’s credit facility. During 2010, approximately $4.8 million of deferred financing fees were incurred and paid related to new debt and debt refinancing at the Hilton Times Square and Renaissance Baltimore, as well as to the Company’s line of credit. Such costs are being amortized over the related terms of the loans.

Total amortization and write-off of deferred financing fees for 2011, 2010 and 2009 was as follows (in thousands):

	2011		2010		2009
Continuing operations:
Amortization of deferred financing fees	$	3,232	$	1,585	$	1,811
Write-off of deferred financing fees (1)	21		1,585		284
Total deferred financing fees — continuing operations	3,253		3,170		2,095
Discontinued operations:
Amortization of deferred financing fees	10		453		578
Write-off of deferred financing fees (1)	42		—		—
Total deferred financing fees — discontinued operations	52		453		578
Total amortization and write-off of deferred financing fees	$	3,305	$	3,623	$	2,673

(1)Write-off of deferred financing fees during 2011 includes $21,000 written off to continuing operations related to the refinancing of debt secured by the Doubletree Guest Suites Times Square, and $42,000 written off to discontinued operations related to the buyer’s assumption of debt in connection with the sale of the Valley River Inn. Write-off of deferred financing fees during 2010 includes $1.5 million written off due to the termination of the Company’s credit facility, and $0.1 million written off related to the release of three hotels from the Mass Mutual loan. Write-off of deferred financing fees during 2009 includes $0.3 million written off in association with the amendment of the Company’s credit facility.

Goodwill

The Company follows the requirements of the Intangibles — Goodwill and Other Topic of the FASB ASC, which states that goodwill and intangible assets deemed to have indefinite lives are subject to annual impairment tests. As a result, the carrying value of goodwill allocated to the hotel properties and other assets is reviewed at least annually for impairment. In addition, when facts and circumstances suggest that the Company’s goodwill may be impaired, an interim evaluation of goodwill is prepared. Such review entails comparing the carrying value of the individual hotel property or other asset (the reporting unit) including the allocated goodwill to the fair value determined for that reporting unit (see Fair Value of Financial Instruments for detail on the Company’s valuation methodology). If the aggregate carrying value of the reporting unit exceeds the fair value, the goodwill of the reporting unit is impaired to the extent of the difference between the fair value and the aggregate carrying value, not to exceed the carrying amount of the allocated goodwill. The Company’s annual impairment evaluation is performed each year as of December 31.

During 2011, the Company recorded additional goodwill of $8.4 million related to its purchase of the outside 50.0% equity interest in its BuyEfficient joint venture.

Based on its annual impairment evaluations for both 2011 and 2010, the Company determined that no adjustments to its goodwill were required. During 2009, in light of the continuing decline in the economic environment, the Company determined that the goodwill associated with six of its hotels was impaired, and, accordingly, the Company recorded impairment losses of $6.9 million in 2009, of which $3.9 million is included in impairment loss and $3.0 million is included in discontinued operations.

As of December 31, 2011 and 2010, goodwill consisted of the following (in thousands):

	2011		2010
Balance at beginning of year	$	4,673	$	4,673
Purchase of outside 50.0% equity interest in BuyEfficient	8,415		—
Balance at end of year	$	13,088	$	4,673

Property, Equipment and BuyEfficient Intangibles

Property and equipment is stated on the cost basis and includes computer equipment and other corporate office equipment and furniture. Property and equipment is depreciated on a straight-line basis over the estimated useful lives ranging from three to 12 years. The cost basis of property and equipment amounted to $9.4 million at December 31, 2011, and $8.2 million at December 31, 2010. Accumulated depreciation amounted to $7.1 million at December 31, 2011, and $6.5 million at December 31, 2010. Property and equipment net of related accumulated depreciation is included in other assets, net in the accompanying consolidated balance sheets.

Due to the purchase of the outside 50.0% equity interest in its BuyEfficient joint venture (see Footnote 6), the Company’s other assets, net as of December 31, 2011 includes BuyEfficient’s intangible assets whose cost basis totaled $9.0 million related to certain trademarks, customer and supplier relationships and intellectual property related to internally developed software. These intangibles are amortized using the straight-line method over the remaining useful lives of between seven to 20 years. Accumulated amortization totaled $0.6 million at December 31, 2011. Amortization expense totaled $0.6 million for the year ended December 31, 2011, and will total $0.6 million for each of the next five years.

Investments in Unconsolidated Joint Ventures

In December 2006, the Company entered into a joint venture agreement to obtain a 38.0% interest in the 460-room Doubletree Guest Suites Times Square in New York City, New York. In December 2007, the Company entered into a joint venture agreement with Strategic Hotels & Resorts, Inc. (“Strategic”) to own and operate BuyEfficient. Under the terms of the BuyEfficient agreement, Strategic acquired a 50.0% interest in BuyEfficient from the Company. The Company accounted for both of these ownership interests using the equity method until January 2011 when the Company purchased the outside 62.0% equity interest in the Doubletree Guest Suites Times Square joint venture and the outside 50.0% equity interest in the BuyEfficient joint venture. Subsequent to these acquisitions, the Company has consolidated the results of operations of both the Doubletree Guest Suites Times Square and BuyEfficient with its continuing operations.

Fair Value of Financial Instruments

As of December 31, 2011 and 2010, the carrying amount of certain financial instruments, including cash and cash equivalents, restricted cash, accounts receivable, accounts payable, and accrued expenses were representative of their fair values due to the short-term maturity of these instruments.

The Company follows the requirements of the Fair Value Measurements and Disclosures Topic of the FASB ASC, which establishes a framework for measuring fair value and disclosing fair value measurements by establishing a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are described below:

Level 1Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.

Level 2Inputs reflect quoted prices for identical assets or liabilities in markets that are not active; quoted prices for similar assets or liabilities in active markets; inputs other than quoted prices that are observable for the asset or the liability; or inputs that are derived principally from or corroborated by observable market data by correlation or other means.

Level 3Unobservable inputs reflecting the Company’s own assumptions incorporated in valuation techniques used to determine fair value. These assumptions are required to be consistent with market participant assumptions that are reasonably available.

As discussed in Note 7, during 2011, the Company entered into interest rate protection agreements to manage, or hedge, interest rate risks in conjunction with its acquisitions of the outside 62.0% equity interests in the Doubletree Guest Suites Times Square and the JW Marriott New Orleans, the acquisition of a 75.0% majority interest in the entity that owns the Hilton San Diego Bayfront and the refinancing of the debt secured by the Doubletree Guest Suites Times Square. The Company records interest rate protection agreements on the balance sheet at their fair value. Changes in the fair value of derivatives are recorded each period in the consolidated statements of operations as they are not designated as hedges. In accordance with the Fair Value Measurements and Disclosure Topic of the FASB ASC, the Company estimates the fair value of its interest rate protection agreements based on quotes obtained from the counterparties, which are based upon the consideration that would be required to terminate the agreements. The Company has valued the derivative interest rate cap agreements related to the Doubletree Guest Suites Times Square and the Hilton San Diego Bayfront using Level 2 measurements as an asset of $0.4 million as of December 31, 2011. The Company has valued the derivative interest rate swap agreement related to the JW Marriott New Orleans using Level 2 measurements as a liability of $1.6 million as of December 31, 2011.

The Company is currently responsible for paying the premiums for a $5,000,000 split life insurance policy for its former Chief Executive Officer and current Chairman Emeritus and Founder, Robert A. Alter. The Company has valued this policy using Level 2 measurements at $1.9 million as of both December 31, 2011 and 2010. These amounts are included in other assets, net in the accompanying consolidated balance sheets.

The Company also has a Retirement Benefit Agreement with Mr. Alter. The Company has valued this agreement using Level 2 measurements at $1.7 million as of December 31, 2011 and $1.9 million as of December 31, 2010. The agreement calls for 10 annual installments to be paid out to Mr. Alter, beginning in 2011. As such, the Company paid Mr. Alter $0.2 million in 2011, which will be reimbursed to the Company in 2012 using funds from the split life insurance policy. These amounts are included in accrued payroll and employee benefits in the accompanying consolidated balance sheets.

On an annual basis and periodically when indicators of impairment exist, the Company has analyzed the carrying values of its hotel properties and other assets using Level 3 measurements, including a discounted cash flow analysis to estimate the fair value of its hotel properties and other assets taking into account each property’s expected cash flow from operations, holding period and estimated proceeds from the disposition of the property. The factors addressed in determining estimated proceeds from disposition included anticipated operating cash flow in the year of disposition and terminal capitalization rate. In 2011, the Company recognized an impairment of $1.5 million to discontinued operations on its commercial laundry facility located in Salt Lake City, Utah based on proceeds received from its sale in July 2011. Also in 2011, the Company recognized an impairment of $10.9 million to impairment loss in order to reduce the carrying value of a $90.0 million note receivable from the purchaser of the Royal Palm Miami Beach (the “Royal Palm note”) to its fair value based on proceeds received from the sale of the Royal Palm note in October 2011. In 2010, the Company recognized an impairment of $1.9 million to impairment loss on an office building and land adjacent to one of its hotels based on estimated proceeds expected to be received from the potential sale of this property. When indicators of impairment existed in 2009 and the undiscounted cash flows were less than the carrying value of the asset, the Company used terminal capitalization rates in its 2009 analyses ranging between 8.1% and 9.6%, based on the Company’s weighted average cost of capital, a hurdle rate assigned to each hotel to account for a hotel’s individual characteristics including, but not limited to, size, age and market supply, and an estimated average annual growth rate.

On an annual basis and periodically when indicators of impairment exist, the Company has analyzed the carrying value of its goodwill using Level 3 measurements, including a discounted cash flow analysis to estimate the fair value of its reporting units. In 2011 and 2010, the Company did not identify any properties with indicators of goodwill impairment. When indicators of goodwill impairment existed in 2009 and the discounted cash flows were less than the carrying value of the reporting unit, the Company used discount rates ranging between 13.0% and 13.8% in its 2009 analyses, taking into account each related reporting unit’s expected cash flow from operations, holding period and proceeds from the potential disposition of the property. The factors addressed in determining estimated proceeds from disposition include anticipated operating cash flow in the year of potential disposition and terminal capitalization rate. The Company used terminal capitalization rates in its 2009 analyses ranging between 8.1% and 9.6%, based on the Company’s weighted average cost of capital, a hurdle rate assigned to each hotel to account for a hotel’s individual characteristics including, but not limited to, size, age and market supply, and an estimated average annual growth rate. The Company’s judgment is required in determining the discount rate applied to estimated cash flows, the terminal capitalization rate, the growth rate of each property’s projected revenues and expenses, the need for capital expenditures, as well as specific market and economic conditions.

As of December 31, 2011 and 2010, 73.4% and 100%, respectively, of the Company’s outstanding debt had fixed interest rates, including the effect of an interest rate swap agreement. The Company’s carrying value of its debt secured by properties not classified as discontinued operations totaled $1.6 billion and $1.1 billion as of December 31, 2011 and 2010, respectively. Using Level 3 measurements, including the Company’s weighted average cost of debt ranging between 6.0% and 7.0%, the Company estimates that the fair market value of its debt as of December 31, 2011 and 2010 totaled $1.5 billion and $1.1 billion, respectively.

The following table presents our assets and liabilities measured at fair value on a recurring and non-recurring basis at December 31, 2011 (in thousands):

	Total December 31,		Fair Value Measurements at Reporting Date
	2011		Level 1		Level 2		Level 3
Assets:
Interest rate cap derivative agreements	$	386	$	—	$	386	$	—
Life insurance policy	1,877		—		1,877		—
Total assets	$	2,263	$	—	$	2,263	$	—
Liabilities:
Retirement benefit agreement	$	1,687	$	—	$	1,687	$	—
Interest rate swap derivative agreement	1,567		—		1,567		—
Total liabilities	$	3,254	$	—	$	3,254	$	—

The following table presents our assets and liabilities measured at fair value on a recurring and non-recurring basis at December 31, 2010 (in thousands):

	Total December 31,		Fair Value Measurements at Reporting Date
	2010		Level 1		Level 2		Level 3
Assets:
Other real estate, net (1)	$	2,506	$	—	$	—	$	2,506
Life insurance policy	1,868		—		1,868		—
Total assets	$	4,374	$	—	$	1,868	$	2,506
Liabilities:
Retirement benefit agreement	$	1,868	$	—	$	1,868	$	—
Total liabilities	$	1,868	$	—	$	1,868	$	—

(1)Includes the office building and land adjacent to one of the Company’s hotels that was impaired and recorded at fair value in June 2010.

The following table presents the activity recorded for assets measured at fair value on a non-recurring basis using Level 3 inputs during the reporting period (in thousands):

	Goodwill
Balance at December 31, 2010	$	4,673
Purchase of outside 50.0% equity interest in BuyEfficient	8,415
Balance at December 31, 2011	$	13,088

The following table presents the gains and impairment charges included in earnings as a result of applying Level 3 measurements for the years ended December 31, 2011, 2010 and 2009 (in thousands):

	2011			2010			2009
Gains:
Investment in unconsolidated joint ventures (1)	$	69,230		$	—		$	—
Impairment charges:
Investment in hotel properties, net	—			—			(25,488		)
Investment in hotel properties of discontinued operations, net	—			—			(192,286		)
Goodwill	—			—			(3,948		)
Other real estate, net	—			(1,943		)	—
Other real estate of discontinued operations, net	(1,495		)	—			—
Other assets, net	(10,862		)	—			(1,416		)
Investment in unconsolidated joint ventures	—			—			(26,007		)
Other current assets of discontinued operations, net (2)	—			—			(3,007		)
Total impairment charges	(12,357		)	(1,943		)	(252,152		)
Total Level 3 measurement charges included in earnings	$	56,873		$	(1,943	)	$	(252,152	)

(1)Includes the gains recorded by the Company on the remeasurements of the Company’s equity interests in its Doubletree Guest Suites Times Square and BuyEfficient joint ventures.

(2)Includes goodwill impairment losses recorded on discontinued operations.

Revenue Recognition

Room revenue and food and beverage revenue are recognized as earned, which is generally defined as the date upon which a guest occupies a room and/or utilizes the hotel’s services. Additionally, some of the Company’s hotel rooms are booked through independent internet travel intermediaries. Revenue for these rooms is booked at the price the Company sold the room to the independent internet travel intermediary less any discount or commission paid.

Other operating revenue consists of revenue derived from incidental hotel services such as concessions, movie rentals, retail sales, fitness services, internet access, telephone, and sublease revenues relating to the restaurants and retail shops, along with any performance guaranties. During 2009, the Company recognized $2.5 million of a $6.0 million performance guaranty received from Fairmont. As of December 31, 2009, the Company had fully utilized the $6.0 million performance guaranty. Other operating revenue also includes revenue generated by the Company’s commercial laundry facility located in Rochester, Minnesota, which provides laundry services to the Company’s hotels and other third parties in the area, as well as revenue generated by BuyEfficient subsequent to the Company’s acquisition of the outside 50.0% equity interest in BuyEfficient from Strategic in January 2011. Revenues from incidental hotel services, performance guaranties (if any), laundry services and BuyEfficient are recognized in the period the related services are provided or the revenue is earned.

Advertising and Promotion Costs

Advertising and promotion costs are expensed when incurred. Advertising and promotion costs represent the expense for advertising and reservation systems under the terms of the hotel franchise and brand management agreements and general and administrative expenses that are directly attributable to advertising and promotions.

Income Taxes

The Company has elected to be treated as a REIT pursuant to the Internal Revenue Code, as amended (the “Code”). Management believes that the Company has qualified and intends to continue to qualify as a REIT. Therefore, the Company is permitted to deduct distributions paid to our stockholders, eliminating the federal taxation of income represented by such distributions at the company level. REITs are subject to a number of organizational and operational requirements. If the Company fails to qualify as a REIT in any taxable year, the Company will be subject to federal income tax (including any applicable alternative minimum tax) on taxable income at regular corporate tax rates.

With respect to taxable subsidiaries, the Company accounts for income taxes in accordance with the Income Taxes Topic of the FASB ASC. Accordingly, deferred tax liabilities and assets are determined based on the difference between the financial statement and tax bases of assets and liabilities, using enacted tax rates in effect for the year in which the differences are expected to reverse.

Dividends

The Company currently pays quarterly dividends to its Series A Cumulative Redeemable, Series D Cumulative Redeemable and Series C Cumulative Convertible Redeemable preferred stockholders as declared by the Board of Directors. The Company may also pay dividends on its common stock to the extent declared by the Board of Directors. The Company’s ability to pay dividends is dependent on the receipt of distributions from the Operating Partnership.

Earnings Per Share

The Company applies the two-class method when computing its earnings per share as required by the Earnings Per Share Topic of the FASB ASC, which requires the net income per share for each class of stock (common stock and convertible preferred stock) to be calculated assuming 100% of the Company’s net income is distributed as dividends to each class of stock based on their contractual rights. To the extent the Company has undistributed earnings in any calendar quarter, the Company will follow the two-class method of computing earnings per share.

The Company follows the requirements of the Earnings Per Share Topic of the FASB ASC, which states that unvested share-based payment awards that contain non-forfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are participating securities and shall be included in the computation of earnings per share pursuant to the two-class method. Distributed earnings representing nonforfeitable dividends of $0.4 million were allocated to the participating securities for the year ended December 31, 2009. No distributed earnings representing nonforfeitable dividends were allocated to the participating securities for either of the years ended December 31, 2011 or 2010. Undistributed earnings representing nonforfeitable dividends of $0.6 million, $0.1 million and zero were allocated to the participating securities for the years ended December 31, 2011, 2010 and 2009, respectively.

In accordance with the Earnings Per Share Topic of the FASB ASC, basic earnings available (loss attributable) to common stockholders per common share is computed based on the weighted average number of shares of common stock outstanding during each period. Diluted earnings available (loss attributable) to common stockholders per common share is computed based on the weighted average number of shares of common stock outstanding during each period, plus potential common shares considered outstanding during the period, as long as the inclusion of such awards is not anti-dilutive. Potential common shares consist of unvested restricted stock awards, the incremental common shares issuable upon the exercise of stock options and the conversion of the Company’s Series C Cumulative Convertible Redeemable Preferred Stock (“Series C preferred stock”), using the more dilutive of either the two-class method or the treasury stock method.

The following table sets forth the computation of basic and diluted earnings (loss) per common share (in thousands, except per share data):

	Year Ended December 31, 2011			Year Ended December 31, 2010			Year Ended December 31, 2009
Numerator:
Net income (loss)	$	81,299		$	38,542		$	(269,608	)
Income from consolidated joint venture attributable to non-controlling interest	(312		)	—			—
Distributions to non-controlling interest	(30		)	—			—
Dividends paid on unvested restricted stock compensation	—			—			(447		)
Preferred stock dividends and accretion	(27,321		)	(20,652		)	(20,749		)
Undistributed income allocated to unvested restricted stock compensation	(636		)	(102		)	—
Numerator for basic and diluted earnings available (loss attributable) to common stockholders	$	53,000		$	17,788		$	(290,804	)
Denominator:
Weighted average basic and diluted common shares outstanding	117,206			99,709			69,820
Basic and diluted earnings available (loss attributable) to common stockholders per common share	$	0.45		$	0.18		$	(4.17	)

The Company’s shares of Series C preferred stock issuable upon conversion, unvested restricted shares associated with its long-term incentive plan and shares associated with common stock options have been excluded from the above calculation of earnings (loss) per share for the years ended December 31, 2011, 2010 and 2009, as their inclusion would have been anti-dilutive.

Segment Reporting

The Company reports its consolidated financial statements in accordance with the Segment Reporting Topic of the FASB ASC. Currently, the Company operates in one segment, operations held for investment. Previously, the Company operated in an additional segment, operations held for non-sale disposition. As a result of deed backs and title transfers, the Company has disposed of all assets and liabilities from its operations held for non-sale disposition segment. Accordingly, all assets, liabilities and the operations from its non-sale disposition segment have been reclassified to discontinued operations.

Recent Accounting Pronouncements

Certain provisions of Accounting Standards Update No. 2010-06, “Fair Value Measurement (Topic 820): Improving Disclosures About Fair Value Measurements,” (“ASU No. 2010-06”) became effective during the Company’s 2011 first quarter. Those provisions, which amended Subtopic 820-10, require the Company to present as separate line items all purchases, sales, issuances, and settlements of financial instruments valued using significant unobservable inputs (Level 3) in the reconciliation of fair value measurements, in contrast to the previous aggregate presentation as a single line item. The adoption did not have a material impact on the Company’s financial statements or disclosures.

In July 2010, the FASB issued Accounting Standards Update No. 2010-20, “Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses” (“ASU No. 2010-20”). ASU 2010-20 requires entities to provide extensive new disclosures in their financial statements about their financing receivables, including credit risk exposures and the allowance for credit losses. Entities with financing receivables are required to disclose, among other things:  a rollforward of the allowance for credit losses; credit quality information such as credit risk scores or external credit agency ratings; impaired loan information; modification information; and nonaccrual and past due information.  The disclosures as of the end of a reporting period were effective for interim and annual reporting periods ending on or after December 15, 2010. The disclosures about activity that occurs during a reporting period were effective for interim and annual reporting periods beginning on or after December 15, 2010.  The disclosures regarding troubled debt restructurings were effective for interim and annual reporting periods beginning on or after June 15, 2011. The Company’s adoptions of the various components of ASU 2010-20 did not have a material impact on its financial statements or disclosures.

In May 2011, the FASB issued Accounting Standards Update No. 2011-04, “Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs,” (“ASU No. 2011-04”). ASU No. 2011-04 generally provides a uniform framework for fair value measurements and related disclosures between GAAP and International Financial Reporting Standards (“IFRS”). Additional disclosure requirements in the update include: (1) for Level 3 fair value measurements, quantitative information about unobservable inputs used, a description of the valuation processes used by the

entity, and a qualitative discussion about the sensitivity of the measurements to changes in the unobservable inputs; (2) for an entity’s use of a nonfinancial asset that is different from the asset’s highest and best use, the reason for the difference; (3) for financial instruments not measured at fair value but for which disclosure of fair value is required, the fair value hierarchy level in which the fair value measurements were determined; and (4) the disclosure of all transfers between Level 1 and Level 2 of the fair value hierarchy. ASU 2011-04 will be effective for interim and annual periods beginning on or after December 15, 2011. The Company is currently evaluating the impact ASU 2011-04 will have on its financial statements.

In June 2011, the FASB issued Accounting Standards Update No. 2011-05, “Comprehensive Income (Topic 220): Presentation of Comprehensive Income,” (“ASU No. 2011-05”). ASU No. 2011-05 amends existing guidance by allowing only two options for presenting the components of net income and other comprehensive income: (1) in a single continuous financial statement, statement of comprehensive income or (2) in two separate but consecutive financial statements, consisting of an income statement followed by a separate statement of other comprehensive income. Also, items that are reclassified from other comprehensive income to net income must be presented on the face of the financial statements. In December 2011, the FASB issued Accounting Standards Update No. 2011-12, “Comprehensive Income (Topic 220), Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05,” (“ASU No. 2011-12”). ASU No. 2011-12 defers the ASU No. 2011-05 requirement that companies display reclassification adjustments for each component of other comprehensive income in both net income and other comprehensive income on the face of the financial statements. Companies are still required to present reclassifications out of other comprehensive income on the face of the financial statements or disclose those amounts in the notes to the financial statements. ASU No. 2011-12 also defers the requirement to report reclassification adjustments in interim periods. Both ASU No. 2011-05 and ASU No. 2011-12 require retrospective application, and are effective for fiscal years, and interim periods within those years, beginning after December 15, 2011, with early adoption permitted. The Company does not believe that the adoptions of either ASU No. 2011-05 or ASU No. 2011-12 will have a material impact on its financial statements.

In September 2011, the FASB issued Accounting Standards Update No. 2011-08, “Intangibles — Goodwill and Other (Topic 350): Testing Goodwill for Impairment,” (“ASU No. 2011-08”). ASU No. 2011-08 simplifies how entities test goodwill for impairment. ASU 2011-08 allows entities to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If a greater than 50 percent likelihood exists that the fair value is less than the carrying amount then a two-step goodwill impairment test as described in Topic 350 must be performed. ASU No. 2011-08 is effective for fiscal years beginning after December 15, 2011, with early adoption permitted. The Company does not believe that the adoption of ASU No. 2011-08 will have a material impact on its financial statements. Should the Company perform a qualitative assessment on its goodwill in the future, however, additional disclosures will be required.