Discontinued Operations

6 Months Ended

Jun. 30, 2012

Discontinued Operations

Discontinued Operations

4. Discontinued Operations

In June 2012, the Company classified the Marriott Del Mar located in San Diego, California as held for sale due to its probable sale within the next year. The Company classified the hotel as held for sale as of the end of Marriott’s fiscal second quarter, June 15, 2012. As such, the Company reclassified the hotel’s assets and liabilities as of June 15, 2012 and December 30, 2011 (Marriott’s fiscal year end) to discontinued operations on its balance sheets, and the hotel’s results of operations for the three and six fiscal periods ended June 15, 2012 and June 17, 2011 to discontinued operations on its consolidated statements of operations and comprehensive income (loss).

In April 2011, the Company sold the Royal Palm Miami Beach for net proceeds of $129.8 million, including $39.8 million in cash and a $90.0 million note receivable from the buyer of the hotel, and recognized a gain on the sale of $14.0 million. The Company reclassified the hotel’s results of operations for the three and six months ended June 30, 2011, to discontinued operations on its consolidated statements of operations and comprehensive income (loss). 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 hurdles.

Prior to its acquisition of the Royal Palm Miami Beach in August 2010, the Company purchased a portion of the hotel’s subordinate debt with a principal amount of $17.1 million for $3.0 million. In conjunction with the purchase of the hotel, the Company received $5.4 million, net of related costs, as a partial payment of this subordinate debt, and recorded a receivable of $3.1 million for additional amounts to be received in 2012 related to this subordinate debt. In addition, the Company recorded a receivable of $0.9 million related to prior owner real estate taxes paid by the Company which were to be reimbursed. During the first quarter of 2012, the Company received a total of $4.2 million from the special servicer, which included the $4.0 million expected payment related to the hotel’s subordinate debt and real estate taxes, along with an additional $0.2 million as reimbursement for certain transaction related invoices. The Company recorded a $0.2 million gain on the sale of the hotel in March 2012 to discontinued operations on its consolidated statements of operations and comprehensive income (loss). Also during the first quarter of 2012, the Company received notice regarding real estate and personal property tax refunds totaling $0.3 million due to the Company relating to its ownership periods during the 2010 and 2011 tax years. The Company has included the $0.3 million in discontinued operations on its consolidated statements of operations and comprehensive income (loss).

In June 2011, the Company recorded an $18.1 million gain on extinguishment of debt due to the resolution of all contingencies relating to five hotels which the Company deeded back to the lender in 2010 as part of its 2009 secured debt restructuring program.

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 three and six months ended June 30, 2011 to discontinued operations on its consolidated statements of operations and comprehensive income (loss).

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 three and six months ended June 30, 2011 to discontinued operations on its consolidated statements of operations and comprehensive income (loss).

The following sets forth the discontinued operations for the three and six months ended June 30, 2012 and 2011, related to the hotel property classified as held for sale as of June 30, 2012, the two hotel properties and the commercial laundry facility sold in 2011, as well as the five hotel properties deeded back to the lender during 2010 (in thousands):

	Three Months EndedJune 30, 2012			Three Months EndedJune 30, 2011			Six Months EndedJune 30, 2012			Six Months EndedJune 30, 2011
	(unaudited)			(unaudited)			(unaudited)			(unaudited)
Operating revenues	$	4,135		$	7,757		$	8,323		$	21,863
Operating expenses	(3,074		)	(6,735		)	(6,015		)	(16,978		)
Interest expense	(683		)	(851		)	(1,368		)	(1,697		)
Depreciation and amortization expense	(495		)	(630		)	(965		)	(2,677		)
Impairment loss	—			(1,495		)	—			(1,495		)
Gain on extinguishment of debt	—			18,145			—			18,145
Gain on sale of hotels	—			14,018			177			14,018
Income (loss) from discontinued operations	$	(117	)	$	30,209		$	152		$	31,179