Acquisition of Hotel Properties

12 Months Ended

Dec. 31, 2013

Business Combinations [Abstract]

ACQUISITION OF HOTEL PROPERTIES

On January 29, 2013, the Company acquired the 337-suite Embassy Suites San Diego Bay-Downtown located in San Diego, California for $112.5 million. The acquisition was funded with $45.8 million of available cash and the assumption of a $66.7 million first mortgage loan. The fixed rate mortgage loan that was assumed was determined to have an interest rate that was above the current market interest rate. The Company recorded a $4.8 million mortgage loan premium for the above market interest that is amortized as a reduction in interest expense through the maturity of the loan. The Company selected HEI Hotels and Resorts to manage the hotel.

On August 8, 2013, the Company acquired the 57-suite Redbury Hotel located in Hollywood, California for $34.0 million. The acquisition was funded with available cash and the property will continue to be managed by sbe Hotel Group.

On August 28, 2013, the Company acquired the 174-room Hotel Modera located in Portland, Oregon for $47.5 million. The acquisition was funded with $23.8 million of available cash and the assumption of a $23.7 million first mortgage loan. The fixed rate mortgage loan that was assumed was determined to have an interest rate that was above the current market interest rate. The Company recorded a $0.6 million mortgage loan premium for the above market interest that is amortized as a reduction in interest expense through the maturity of the loan. The Company selected OLS Hotels and Resorts to manage the hotel.

On December 9, 2013, the Company acquired a leasehold interest in the 355-room Radisson Hotel Fisherman's Wharf and adjacent retail space located in San Francisco, California for $132.0 million. The acquisition was funded with available cash. The hotel is subject to both a long-term primary ground lease and a secondary sublease. The primary ground lease requires the hotel to make annual base rental payments of $0.1 million and percentage rental payments based on 5% of hotel revenues and 7.5% of retail revenues attributed to additional guest rooms and retail space added in 1998. Beginning in 2017, the primary ground lease requires the hotel to pay percentage rent based on 6% of total hotel revenues and 7.5% of total retail and parking revenues. The secondary sublease requires the hotel to make rental payments based on hotel net income, as defined in the agreement, related to the rooms and retail space in existence prior to the 1998 renovation. The primary ground lease expires in 2062. The secondary sublease expires in April 2016 at which time the hotel will only be subject to the primary ground lease through its maturity in 2062. The Company selected Davidson Hotels & Resorts to manage the hotel and Shelter Bay Retail Group to manage the retail suites.

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

	2013 Acquisitions			2012 Acquisitions
Land	$	36,375		$	46,089
Buildings and improvements	269,312			225,368
Furniture, fixtures and equipment	12,931			9,469
Below (above) market rate contracts	2,826			(9,170		)
In place lease assets and intangibles	4,039			—
Capital improvement reserve	—			3,600
Mortgage debt	(90,448		)	(27,175		)
Net working capital	(266		)	(210		)
Net assets acquired	$	234,769		$	247,971

The following unaudited pro forma financial information presents the results of operations of the Company for the years endedDecember 31, 2013 and 2012 as if the hotels acquired in 2013 and 2012 were acquired on January 1, 2012 and 2011, respectively. The following hotels' pro forma results are included in the pro forma table below: Hotel Zetta (formerly Hotel Milano), Hotel Vintage Park Seattle, Hotel Vintage Plaza Portland, W Los Angeles - Westwood, Hotel Palomar San Francisco, Embassy Suites San Diego Bay-Downtown, Redbury Hotel, Hotel Modera, and Radisson Hotel Fisherman's Wharf. The pro forma results below excluded acquisition costs of $3.4 million and $2.2 million for the years endedDecember 31, 2013 and 2012, respectively. 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, 2012 and 2011 or the future results of operations (in thousands, except per-share data).

	For the year ended December 31,
	2013		2012
	(Unaudited)
Total revenues	$	529,366	$	495,511
Operating income (loss)	70,491		59,428
Net income (loss) attributable to common shareholders	29,661		28,143
Net income (loss) per share available to common shareholders — basic	$	0.48	$	0.45
Net income (loss) per share available to common shareholders — diluted	$	0.47	$	0.45

For the year endedDecember 31, 2013, the Company's consolidated statements of operations included $30.6 million of revenues and $17.3 million of hotel operating expenses related to the operations of the Embassy Suites San Diego Bay - Downtown, Redbury Hotel, Hotel Modera, and Radisson Hotel Fisherman's Wharf acquired in 2013.