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Acquisition of Hotel Properties
 12 Months Ended
Dec. 31, 2012
Business Combinations [Abstract]  
ACQUISITION OF HOTEL PROPERTIES
ACQUISITION OF HOTEL PROPERTIES
On April 4, 2012, the Company acquired the 108-room Hotel Milano located in San Francisco, California for $29.8 million. The Company selected Viceroy Hotel Group as manager for the hotel. In November 2012, the Hotel Milano was closed for a complete renovation and repositioning of the hotel. The Company expects to complete the renovation of the Hotel Milano in the first quarter of 2013 and to rename it Hotel Zetta upon its reopening.
On July 9, 2012, the Company acquired, in a single transaction, the 125-room Hotel Vintage Park located in Seattle, Washington and the 117-room Hotel Vintage Plaza located in Portland, Oregon for $63.0 million. Both of these hotels will continue to be managed by Kimpton Hotels and Restaurants.
On August 23, 2012, the Company acquired the 258-room W Los Angeles - Westwood hotel located in Los Angeles, California for $125.0 million. At the time of the acquisition, the hotel had certain capital improvement plans which the seller agreed to fund, therefore, at closing the seller contributed $3.6 million into an escrow account which will be used to fund these capital improvements as they are completed by the Company. The Company retained Starwood Hotels and Resorts to manage the hotel.
On October 25, 2012, the Company acquired a leasehold interest in the 196-room Hotel Palomar San Francisco located in San Francisco, California for $58.0 million. The acquisition was funded with $30.8 million of available cash and the assumption of a $27.2 million first mortgage loan. The hotel is subject to a long-term hotel lease agreement with an unaffiliated third party that expires in 2097. The hotel is required to pay the greater of an annual fixed rent (base plus basement rent) or a percentage of food and beverage revenues and gross hotel revenues excluding parking and food and beverage revenues in excess of certain thresholds, as defined in the agreement. The annual fixed rent is approximately $1.6 million, as adjusted for consumer price index "CPI" increases but in no event by less than 2% or more than 4% per year. The percentage rent based on food and beverage revenues ranges from 0% to 12% of food and beverage revenues and the percentage rent based on gross revenues ranges from 12% to 18% of gross revenues. The hotel will continue to be managed by Kimpton Hotels and Restaurants.
The Hotel Palomar San Francisco is subject to a long term lease of certain floors of the building. The rent due under the lease was determined to be above market, and, at acquisition, the Company recorded an above market rent lease liability of approximately $6.6 million that is amortized as a reduction to ground rent expense over the term of the lease. The Hotel Palomar San Francisco is also subject to a fixed rate mortgage that was determined to be above the current market interest rate. The Company recorded a $2.6 million mortgage loan premium for the above market interest that is amortized as a reduction in interest expense through the maturity date of the loan.
The allocation of fair value to the acquired assets and liabilities assumed is as follows (in thousands):
 
 
Hotel Zetta (formerly Hotel Milano)
 
Hotel Vintage Park
 
Hotel Vintage Plaza
 
W Los Angeles - Westwood
 
Hotel Palomar San Francisco
 
Total
Land
 
$
7,294

 
$
8,170

 
$
6,222

 
$
24,403

 
$
—

 
$
46,089

Buildings and improvements
 
22,166

 
23,557

 
23,012

 
93,203

 
63,430

 
225,368

Furniture, fixtures and equipment
 
290

 
706

 
1,093

 
3,600

 
3,780

 
9,469

Above market rate contracts
 
—

 
—

 
—

 
—

 
(9,170
)
 
(9,170
)
Capital improvement reserve
 
—

 
—

 
—

 
3,600

 
—

 
3,600

Mortgage debt
 
—

 
—

 
—

 
—

 
(27,175
)
 
(27,175
)
Net working capital
 
7

 
118

 
123

 
(193
)
 
(265
)
 
(210
)
Net assets acquired
 
$
29,757

 
$
32,551

 
$
30,450

 
$
124,613

 
$
30,600

 
$
247,971



The results of operations of Hotel Zetta (formerly Hotel Milano), Hotel Vintage Park, Hotel Vintage Plaza, W Los Angeles - Westwood and Hotel Palomar San Francisco 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 years ended December 31, 2012 and 2011 as if the hotels and the interest in the joint venture acquired in 2012 and 2011 were acquired on January 1, 2011 and 2010, respectively. The following hotels pro forma results are included in the pro forma table below: Argonaut Hotel, Westin Gaslamp Quarter, San Diego, Hotel Monaco Seattle, Mondrian Los Angeles, Viceroy Miami, W Boston, Hotel Zetta (formerly Hotel Milano), Hotel Vintage Park, Hotel Vintage Plaza, W Los Angeles - Westwood, and Hotel Palomar San Francisco. The pro forma results below exclude acquisition costs of $2.2 million and $3.4 million for the years ended December 31, 2012 and 2011, respectively. Purchase accounting for the Embassy Suites San Diego Bay-Downtown, which was acquired on January 29, 2013, is not complete and therefore the Company is currently unable to estimate the pro forma effects of this acquisition. 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, 2011 or 2010 or the future results of operations (in thousands, except per-share data).
 
 
For the year ended December 31,
 
2012
 
2011
 
(Unaudited)
Total revenues
$
426,869

 
$
401,044

Operating income (loss)
43,686

 
36,334

Net income (loss) attributable to common shareholders
12,954

 
9,486

Net income (loss) per share available to common shareholders — basic and diluted
$
0.23

 
$
0.16