4. Disposals and Discontinued Operations

The Company classified both the Marriott Philadelphia and the Marriott Quincy as held for sale as of December 31, 2017, and subsequently sold the hotels in January 2018 (see Note 14). Neither of these sales represented strategic shifts that had a major impact on the Company’s business plan or its primary markets, and therefore, neither of these sales qualified as a discontinued operation. The Company has classified the assets and liabilities related to the Marriott Philadelphia and the Marriott Quincy as held for sale as of December 31, 2017 as follows (in thousands):


	December 31,
		2017
Accounts receivable	$	1,676
Prepaid expenses		193
Investment in hotel properties, net		120,916
Other assets		22
Assets held for sale, net	$	122,807

Accounts payable and accrued expenses	$	69
Other current liabilities		41
Other liabilities		79
Liabilities of assets held for sale	$	189

Disposals - 2017

In February 2017, the Company sold the 444-room Fairmont Newport Beach located in Newport Beach, California for net proceeds of $122.8 million. The Company recognized a net gain on the sale of $44.3 million. The sale did not represent a strategic shift that had a major impact on the Company’s business plan or its primary markets, and therefore, the sale of the hotel did not qualify as a discontinued operation. The Company classified the assets and liabilities of the Fairmont Newport Beach as held for sale as of December 31, 2016 as follows (in thousands):


	December 31,
	2016
Accounts receivable, net	$	452
Inventories		126
Prepaid expenses		386
Investment in hotel property, net		77,971
Other assets		178
Assets held for sale, net	$	79,113

Accounts payable and accrued expenses	$	781
Accrued payroll and employee benefits		751
Other current liabilities		1,473
Other liabilities		148
Liabilities of assets held for sale	$	3,153

In June 2017, the Company sold the 199-room Marriott Park City located in Park City, Utah for net proceeds of $27.0 million. The Company recognized a net gain on the sale of $1.2 million. The sale did not represent a strategic shift that had a major impact on the Company’s business plan or its primary markets, and therefore, the sale of the hotel did not qualify as a discontinued operation.

Disposals - 2016

In May 2016, the Company sold the leasehold interest in the 203-room Sheraton Cerritos located in Cerritos, California for net proceeds of $41.2 million. The Company recognized a net gain on the sale of $18.2 million. The sale did not represent a strategic shift that had a major impact on the Company’s business plan or its primary markets, and therefore, the sale of the hotel did not qualify as a discontinued operation.

Disposals - 2015

In September 2015, the Company sold BuyEfficient for net proceeds of $26.4 million. The Company recognized a net gain on the sale of $11.7 million. The sale did not represent a strategic shift that had a major impact on the Company’s business plan or its primary markets, and therefore, the sale of BuyEfficient did not qualify as a discontinued operation. Coterminous with the sale of BuyEfficient, the Company wrote off $8.4 million of goodwill, along with net intangible assets of $6.2 million related to certain trademarks, customer and supplier relationships and intellectual property related to internally developed software, both of which reduced the Company’s gain on the sale of BuyEfficient.

In December 2015, the Company sold its interests in the 468-room Doubletree Guest Suites Times Square located in New York City, New York for net proceeds of $522.7 million. The Company recognized a net gain on the sale of $214.5 million. The sale did not represent a strategic shift that had a major impact on the Company’s business plan or its primary markets, and therefore, the sale of the hotel did not qualify as a discontinued operation. Concurrent with the sale, the Company wrote off $83.9 million of net intangible assets (see Note 3), which reduced the Company’s gain on the sale. In addition, the Company repaid the remaining $175.0 million balance of the mortgage secured by the hotel, and wrote off $1.7 million in related deferred financing fees.

The following table provides summary results of operations for the Fairmont Newport Beach, the Marriott Park City, the Sheraton Cerritos, BuyEfficient and the Doubletree Guest Suites Times Square, which are included in continuing operations (in thousands):


	2017		2016		2015
Total revenues	$	9,981	$	48,116	$	125,920
Income before income taxes and discontinued operations (1)	$	2,466	$	5,087	$	8,702
Gain on sale of assets	$	45,474	$	18,223	$	226,217

(1)

Income before income taxes and discontinued operations for the year ended December 31, 2015 includes $1.6 million in severance costs related to the Company’s sale of BuyEfficient. These costs are included in other property-level expenses on the Company’s statement of operations. Income before income taxes and discontinued operations does not include the gain recognized on the sales of the Fairmont Newport Beach, the Marriott Park City, the Sheraton Cerritos, BuyEfficient and the Doubletree Guest Suites Times Square.

Discontinued Operations

The following table sets forth the discontinued operations for the years ended December 31, 2017, 2016 and 2015 related to the Company’s 2013 sale of four hotels and a commercial laundry facility located in Rochester, Minnesota (the “Rochester Portfolio”) (in thousands):


	2017		2016		2015
Gain on sale of hotels and other assets, net	$	7,000	$	—	$	16,000
Income tax provision		—		—		(105)
Income from discontinued operations, net of tax	$	7,000	$	—	$	15,895

Upon sale of the Rochester Portfolio, the Company retained a liability not to exceed $14.0 million. The recognition of the $14.0 million liability reduced the Company’s gain on the sale of the Rochester Portfolio. In 2014, the Company was released from $7.0 million of its liability, and the Company recorded additional gain on the sale, which was included in discontinued operations, net of tax. During 2017, the Company determined that its remaining obligation for the liability was remote based on the requirements of the Contingencies Topic of the FASB ASC. As such, the Company reversed the remaining $7.0 million (see Note 8), and recorded additional gain on the sale of the Rochester Portfolio of $7.0 million, which is included in discontinued operations, net of tax for the year ended December 31, 2017. In January 2018, the Company was officially released from all liability.

In 2015, the Company sold a $25.0 million preferred equity investment that the Company had retained upon sale of the Rochester Portfolio, and settled a working capital loan that the Company had provided to the buyer of the Rochester Portfolio for an aggregate payment of $16.0 million, plus accrued interest. In accordance with the Real Estate Subtopic of the FASB ASC, the Company recognized a $16.0 million gain on the sale of the Rochester Portfolio, along with related income tax expense of $0.1 million, in discontinued operations, net of tax during the year ended December 31, 2015, as these additional sales proceeds could not be recognized until realized.