Investment in Joint Venture

On July 29, 2011, the Company acquired a 49% interest in a joint venture (the “Manhattan Collection joint venture”), which owns six properties in New York, New York. The transaction valued the six hotels at approximately $908.0 million (subject to working capital and similar adjustments). The Company accounts for this investment using the equity method.

On December 27, 2012, the Manhattan Collection joint venture refinanced its existing loans with a new, single $410.0 million loan, secured by five of the properties (excluding Affinia Dumont) owned by the joint venture. The new loan bears interest at an annual fixed rate of 3.67% and requires interest-only payments through maturity on January 5, 2018. In conjunction with the refinancing, the Company provided the joint venture a $50.0 million unsecured special loan which matures at the earlier of July 4, 2018, the closing of any refinancing of the secured loan or the closing date of a portfolio sale (as defined in the loan agreement). The unsecured special loan bears interest at an annual fixed rate of 9.75% and requires interest-only payments through maturity. The unsecured special loan is pre-payable by the joint venture at any time. The unsecured special loan to the joint venture is included in the investment in joint venture on the consolidated balance sheets. Interest income is recorded on the accrual basis and the Company's 49% pro-rata portion of the special loan and related interest income is eliminated.

On April 4, 2013, the joint venture obtained a $50.0 million first mortgage loan secured by the Affinia Dumont. The loan bears interest at an annual fixed rate of 3.14% and requires interest-only payments through maturity on May 1, 2018.

On April 10, 2013, the Company received a $23.0 million distribution from the proceeds of the Affinia Dumont debt financing. This distribution is presented as an investing activity in the Company's consolidated statements of cash flows.

As of September 30, 2013, the joint venture reported approximately $507.6 million in total assets, which represents the basis of the hotels prior to the Company's investment. The joint venture's total liabilities and members' deficit include approximately $460.0 million in existing first mortgage debt, a $50.0 million unsecured special loan and approximately $40.0 million of preferred capital, which may be distributed to the Company's joint venture partner after October 29, 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.

At the time of the Company’s investment, the estimated fair value of the hotel properties owned by the Manhattan Collection joint venture exceeded the carrying value. This basis difference between the Company’s investment in the joint venture and the Company’s proportionate 49% interest in these depreciable assets held by the joint venture is amortized over the estimated life of the underlying assets and recognized as a component of equity in earnings (loss) of joint venture (referred to as the basis adjustment in the table below).

The summarized results of operations of the Company’s investment in the Manhattan Collection joint venture for the three and nine months ended September 30, 2013 and 2012 are presented below (in thousands):



	For the three months ended September 30,					For the nine months ended September 30,
	2013		2012			2013			2012
Revenues	$	43,299	$	43,843		$	121,868		$	122,273
Total expenses	39,881		38,262			119,273			115,862
Net income (loss)	$	3,418	$	5,581		$	2,595		$	6,411
Company’s 49% interest of net income (loss)	1,675		2,734			1,272			3,141
Basis adjustment	7		(582		)	(567		)	(1,505		)
Special loan interest income elimination	602		—			1,787			—
Equity in earnings (loss) in joint venture	$	2,284	$	2,152		$	2,492		$	1,636