Fair Value Measurements and Interest Rate Derivatives (Tables)

9 Months Ended

Sep. 30, 2016

Fair Value Measurements and Interest Rate Derivatives

Schedule of assets measured at fair value on a recurring and non-recurring basis

The following table presents the Company’s assets measured at fair value on a recurring and non-recurring basis at September 30, 2016 and December 31, 2015 (in thousands):

			Fair Value Measurements at Reporting Date
	Total		Level 1		Level 2		Level 3
September 30, 2016 (unaudited):
Interest rate cap derivatives	$	—	$	—	$	—	$	—
Life insurance policy (1)		857		—		857		—
Total assets measured at fair value at September 30, 2016	$	857	$	—	$	857	$	—
December 31, 2015:
Interest rate cap derivatives	$	1	$	—	$	1	$	—
Interest rate swap derivative		759		—		759		—
Life insurance policy (1)		964		—		964		—
Total assets measured at fair value at December 31, 2015	$	1,724	$	—	$	1,724	$	—

(1) Includes the split life insurance policy for one of the Company’s former associates, which the Company values using Level 2 measurements. These amounts are included in other assets, net on the accompanying consolidated balance sheets, and will be used to reimburse the Company for payments made to the former associate from the related retirement benefit agreement, which is included in accrued payroll and employee benefits on the accompanying consolidated balance sheets.

Schedule of liabilities measured at fair value on a recurring and non-recurring basis

The following table presents the Company’s liabilities measured at fair value on a recurring and non-recurring basis at September 30, 2016 and December 31, 2015 (in thousands):

			Fair Value Measurements at Reporting Date
	Total		Level 1		Level 2		Level 3
September 30, 2016 (unaudited):
Interest rate swap derivative	$	7,487	$	—	$	7,487	$	—
Retirement benefit agreement (1)		857		—		857		—
Total liabilities measured at fair value at September 30, 2016	$	8,344	$	—	$	8,344	$	—
December 31, 2015:
Interest rate swap derivative	$	437	$	—	$	437	$	—
Retirement benefit agreement (1)		964		—		964		—
Total liabilities measured at fair value at December 31, 2015	$	1,401	$	—	$	1,401	$	—

(1) Includes the retirement benefit agreement for one of the Company’s former associates, which the Company values using Level 2 measurements. The agreement calls for the balance of the retirement benefit to be paid out to the former associate in ten annual installments, beginning in 2011. As such, the Company has paid the former associate a total of $1.2 million through September 30, 2016, which was reimbursed to the Company using funds from the related split life insurance policy noted above. These amounts are included in accrued payroll and employee benefits on the accompanying consolidated balance sheets.

Schedule of interest rate derivatives

The Company’s interest rate derivatives, which are not designated as effective cash flow hedges, consisted of the following at September 30, 2016 (unaudited) and December 31, 2015 (in thousands):

									Estimated Fair Value               Asset (Liability)
		Strike / Capped			Effective	Maturity	Notional		September 30,		December 31,
Hedged Debt	Type	Rate		Index	Date	Date	Amount		2016		2015
Hilton San Diego Bayfront (1)	Cap	4.250	%	1-Month LIBOR	April 15, 2015	May 1, 2017	$	111,691	$	—	$	1
$85.0 million term loan (2)	Swap	3.391	%	1-Month LIBOR	October 29, 2015	September 2, 2022	$	85,000	$	(2,699)	$	759
$100.0 million term loan (2)	Swap	3.653	%	1-Month LIBOR	January 29, 2016	January 31, 2023	$	100,000	$	(4,788)	$	(437)
									$	(7,487)	$	323

(1) The fair value of the Hilton San Diego Bayfront cap agreement is included in other assets, net on the accompanying consolidated balance sheets.

(2) The fair values of both the $85.0 million term loan and the $100.0 million term loan swap agreements are included in other liabilities on the Company’s consolidated balance sheets. The 1-month LIBOR rate related to the $85.0 million term loan was swapped to a fixed rate of 1.591%.  The 1-month LIBOR rate related to the $100.0 million term loan was swapped to a fixed rate of 1.853%.

Schedule of changes in fair value of interest rate derivatives

Changes in the fair values of the Company’s interest rate derivatives resulted in (decreases) increases to interest expense for the three and nine months ended September 30, 2016 and 2015 as follows (in thousands):

	Three Months Ended		Three Months Ended		Nine Months Ended		Nine Months Ended
	September 30, 2016		September 30, 2015		September 30, 2016		September 30, 2015
(Gain) loss on derivatives, net	$	(1,374)	$	2	$	7,810	$	12