Acquisition of Hotel Properties

6 Months Ended

Jun. 30, 2011

Acquisition of Hotel Properties [Abstract]

Acquisition of Hotel Properties

Note 3. Acquisition of Hotel Properties

     On February 16, 2011, the Company acquired the 252-room Argonaut Hotel located in San Francisco, California for $84.0 million. The acquisition was funded with $42.0 million of available cash and the assumption of a $42.0 million first mortgage loan. The hotel is subject to a long-term ground lease agreement with the United States Department of the Interior that expires in 2059. The hotel is required to pay the greater of a base rent of $1.2 million, as adjusted for consumer price index “CPI” increases, or a percentage of rooms revenues, food and beverage revenues, and other department revenues in excess of certain thresholds, as defined in the agreement. The fee, as a percentage of rooms revenues, ranges from 8% to 12% in the initial years and 12% to 14% in the later years. The fee as a percentage of food and beverage and other department revenues is 4% over the term of the lease. The terms of the ground lease were evaluated and they were determined to approximate current market terms. The Company retained Kimpton Hotels and Restaurants to manage the hotel.

     On April 6, 2011, the Company acquired the 450-room Westin Gaslamp Quarter located in San Diego, California for $110.0 million. Prior to the acquisition, the hotel was undergoing a $25.0 million renovation project and, in addition to the purchase price, the Company reimbursed the seller approximately $8.6 million for the renovation costs incurred and paid by the seller through the date of closing. The remaining renovation costs will be paid by the Company. The Company retained Starwood Hotels and Resorts to manage the hotel.

     On April 7, 2011, the Company acquired the 189-room Hotel Monaco Seattle located in Seattle, Washington for $51.2 million. The Company retained Kimpton Hotels and Restaurants to manage the hotel.

     On May 3, 2011, the Company acquired the 237-room Mondrian Los Angeles located in Los Angeles, California for $137.0 million. The Company retained the Morgans Hotel Group to manage the hotel.

     On May 26, 2011, the Company acquired the 148-room Viceroy Miami located in Miami, Florida for $36.5 million. The Company retained the Viceroy Hotel Group to manage the hotel and PHL received $3.0 million in key money from Viceroy Hotel Group to enter into the management agreement with Viceroy Hotel Group which is amortized through management fee expense over the ten-year term of the agreement.

     On June 8, 2011, the Company acquired the 235-room W Boston located in Boston Massachusetts for $89.5 million. The Company retained Starwood Hotels and Resorts to manage the hotel.

     The allocation of fair value to the acquired assets and liabilities is as follows (in thousands):

			Westin			Hotel			Mondrian
	Argonaut		Gaslamp			Monaco			Los		Viceroy
	Hotel		Quarter			Seattle			Angeles		Miami			W Boston			Total
Land	$	—	$	25,537		$	10,105		$	20,306	$	8,368		$	19,453		$	83,769
Buildings and improvements		79,492		86,113			38,888			110,283		24,246			63,893			402,915
Furniture, fixtures and equipment		4,247		6,826			2,073			6,091		3,723			5,887			28,847
In place lease assets		190		—			—			—		—			—			190
Inventory		71		78			84			75		163			267			738
Net working capital		193		(931	)		(251	)		74		(146	)		(1,263	)		(2,324	)
Net assets acquired	$	84,193	$	117,623		$	50,899		$	136,829	$	36,354		$	88,237		$	514,135

     The results of operations of the Argonaut Hotel, Westin Gaslamp Quarter, Hotel Monaco Seattle, Mondrian Los Angeles, Viceroy Miami and W Boston are included in the consolidated statements of operations beginning on their acquisition dates. The following unaudited pro forma financial information presents the results of operations of the Company for the three and six months ended June 30, 2011 and 2010 as if the hotels acquired in 2010 and 2011 were acquired on January 1, 2010. The unaudited pro forma results have been prepared for comparative purposes only and do not purport to be indicative of either the results of operations that would have actually occurred had these transactions occurred on January 1, 2010 or the future results of operations (in thousands, except per-share data).

	For the three months				For the six months
	ended June 30,				ended June 30,
	2011		2010		2011		2010
Total revenues	$	84,891	$	81,384	$	158,003	$	149,528
Operating income (loss)		10,841		9,285		12,933		10,445
Net income (loss) attributable to common shareholders		3,992		7,314		2,619		6,616
Net income (loss) per share attributable to common shareholders — basic and diluted	$	0.08	$	0.15	$	0.05	$	0.13

     In June 2011, the Company entered into an agreement to invest approximately $153.6 million, subject to working capital and other similar adjustments, for a 49% equity interest in a joint venture that owns six Manhattan hotel properties in New York, New York (the “Manhattan Collection”). The Company placed a $10.0 million deposit on this investment as of June 30, 2011. The hotels are subject to approximately $596.6 million in existing first mortgage and mezzanine debt and matures in February 2013. The Company is not a guarantor of any existing debt of the joint venture except for limited customary carve-outs related to fraud or misapplication of funds. On July 29, 2011, the Company closed on this investment using approximately $101.6 million in available cash, $10.0 million from the deposit previously placed in escrow, and $42.0 million from borrowings on its credit facility. The Company incurred approximately $8.2 million in acquisition costs related to this investment.