Fair Value Measurements and Interest Rate Derivatives (Tables)

9 Months Ended

Sep. 30, 2017

Fair Value Measurements and Interest Rate Derivatives

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

The following table presents the Company’s assets measured at fair value on a recurring and nonrecurring basis at September 30, 2017 and December 31, 2016 (in thousands):

			Fair Value Measurements at Reporting Date
	Total		Level 1		Level 2		Level 3
September 30, 2017 (unaudited):
Houston hotels, net (1)	$	37,912	$	—	$	—	$	37,912
Interest rate cap derivative		—		—		—		—
Interest rate swap derivatives		1,463		—		1,463		—
Life insurance policy (2)		649		—		649		—
Total assets measured at fair value at September 30, 2017	$	40,024	$	—	$	2,112	$	37,912
December 31, 2016:
Interest rate cap derivative	$	—	$	—	$	—	$	—
Interest rate swap derivatives		1,749		—		1,749		—
Life insurance policy (2)		861		—		861		—
Total assets measured at fair value at December 31, 2016	$	2,610	$	—	$	2,610	$	—

(1) Includes the total fair market value of the Houston hotels, net of accumulated depreciation. The hotels are included in investment in hotel properties, net on the accompanying consolidated balance sheets.

(2) Includes the split life insurance policy for a former Company associate. 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 nonrecurring basis

The following table presents the Company’s liabilities measured at fair value on a recurring and nonrecurring basis at September 30, 2017 and December 31, 2016 (in thousands):

			Fair Value Measurements at Reporting Date
	Total		Level 1		Level 2		Level 3
September 30, 2017 (unaudited):
Retirement benefit agreement (1)	$	649	$	—	$	649	$	—
Total liabilities measured at fair value at September 30, 2017	$	649	$	—	$	649	$	—
December 31, 2016:
Retirement benefit agreement (1)	$	861	$	—	$	861	$	—
Total liabilities measured at fair value at December 31, 2016	$	861	$	—	$	861	$	—

(1) Includes the retirement benefit agreement for a former Company associate. 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 $1.4 million through September 30, 2017, 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, 2017 (unaudited) and December 31, 2016 (in thousands):

									Estimated Fair Value Asset
		Strike / Capped			Effective	Maturity	Notional		September 30,		December 31,
Hedged Debt	Type	Rate		Index	Date	Date	Amount		2017		2016
Hilton San Diego Bayfront (1)	Cap	4.250	%	1-Month LIBOR	April 15, 2015	May 1, 2017	$	N/A	$	N/A	$	—
Hilton San Diego Bayfront (1)	Cap	4.250	%	1-Month LIBOR	May 1, 2017	May 1, 2019	$	110,096		—		N/A
$85.0 million term loan (2)	Swap	3.391	%	1-Month LIBOR	October 29, 2015	September 2, 2022	$	85,000		1,165		1,336
$100.0 million term loan (3)	Swap	3.653	%	1-Month LIBOR	January 29, 2016	January 31, 2023	$	100,000		298		413
									$	1,463	$	1,749

(1) In March 2017, the Company purchased a new interest rate cap agreement for $19,000 related to the loan secured by the Hilton San Diego Bayfront. The new agreement, whose terms are substantially the same as the terms under the expiring cap agreement, effectively replaced the expiring agreement on May 1, 2017. The fair values of both Hilton San Diego Bayfront cap agreements are included in other assets, net on the accompanying consolidated balance sheets.

(2) The fair value of the $85.0 million term loan swap agreement is included in other assets, net on the Company’s consolidated balance sheets. The 1-month LIBOR rate was swapped to a fixed rate of 1.591%.

(3) The fair value of the $100.0 million term loan swap agreement is included in other assets, net on the Company’s consolidated balance sheets. The 1-month LIBOR rate was swapped to a fixed rate of 1.853%.

Schedule of changes in fair value of interest rate derivatives

Noncash 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, 2017 and 2016 as follows (in thousands):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2017		2016		2017		2016
	(unaudited)		(unaudited)		(unaudited)		(unaudited)
Noncash interest on derivatives	$	(44)	$	(1,374)	$	305	$	7,810

Schedule of principal values and estimated fair values of debt

The Company’s principal balances and fair market values of its consolidated debt as of September 30, 2017 and December 31, 2016 were as follows (in thousands):

	September 30, 2017				December 31, 2016
	Principal Balance (1)		Fair Value		Principal Balance (1)		Fair Value
Debt	$	992,149	$	1,001,088	$	935,944	$	930,665

(1) The principal balance of debt is presented before any unamortized deferred financing fees.