Acquisition of Hotel Properties

12 Months Ended

Dec. 31, 2014

Business Combinations [Abstract]

ACQUISITION OF HOTEL PROPERTIES

ACQUISITION OF HOTEL PROPERTIES

On May 22, 2014, the Company acquired the 160-room Prescott Hotel located in San Francisco, California for $49.0 million. In addition, the Company paid certain costs of the seller of $1.3 million. The transaction included a fee simple acquisition of 96 guest rooms in one building and a leasehold interest acquisition of 64 guest rooms in an adjacent attached building. In connection with the acquisition of the leasehold interest, the Company assumed a long-term hotel lease with an unaffiliated third party that expires in 2059, with a one time extension option of 30 years. The Company is required to pay annual base rent of approximately $0.5 million, beginning in October 2017. The annual base rent is subject to a fixed increase every year during the remaining lease term. This transaction was funded with available cash and borrowings under the Company's senior unsecured revolving credit facility. The hotel will continue to be managed by Kimpton Hotel & Restaurant Group, LLC. The purchase price was allocated as follows: $12.6 million to land, $31.5 million to building and improvements, $1.1 million to furniture and fixtures, and $3.7 million to below (above) market rate contracts and other intangibles.

As noted above, the Prescott Hotel is subject to a long-term hotel lease of 64 rooms located in an adjacent attached building. The building portion of the long-term hotel lease assumed was determined to be a capital lease under the criteria in ASC 840 - Leases. At acquisition, the Company recorded a capital lease obligation of $10.8 million related to this leasehold interest, based on the estimated fair value of the payments for the remaining term, and is included in accounts payable and accrued expenses. The Company recorded a capital asset of $12.2 million based on an estimated fair value for the right to use the leased property, which is included in investment in hotel properties, net, in the accompanying consolidated balance sheets.

On July 17, 2014, the Company acquired the 331-room The Nines, a Luxury Collection Hotel, Portland located in Portland, Oregon for $127.0 million. The acquisition was funded with $76.3 million of borrowings under the Company's senior unsecured revolving credit facility and the assumption of three non-recourse mortgage loans totaling $50.7 million. The hotel will continue to be managed by Sage Hospitality. The purchase price was allocated as follows: $18.5 million to land, $92.3 million to building and improvements, $8.8 million to furniture and fixtures, and $7.1 million to below (above) market rate contracts and other intangibles.

In conjunction with the acquisition of The Nines, a Luxury Collection Hotel, Portland, the Company indemnified certain tax credit investors for certain income tax liabilities and related expenses such investors will incur if the Company were to repay the three mortgage loans before March 5, 2015 or engage in certain businesses prohibited under the New Markets Tax Credit program. Owning and operating a hotel is not one of those prohibited businesses. The potential indemnification obligation could range from zero to $28.3 million (plus interest, penalties and related expenses) and will expire on March 5, 2015, which is the end of the New Markets Tax Credit compliance period. Due to the nature of these requirements and because compliance with them is within the Company’s control, the Company believes that the likelihood that the Company will be required to pay under this indemnity is remote.

On November 12, 2014, the Company acquired the 157-room The Westin Colonnade Coral Gables located in Miami, Florida for $59.4 million. The acquisition was funded with available cash and the hotel will continue to be managed by Davidson Hotel and Resorts. The purchase price was allocated as follows: $12.1 million to land, $46.3 million to building and improvements, $1.3 million to furniture and fixtures, and $0.3 million to below (above) market rate contracts and other intangibles.

On November 20, 2014, the Company acquired a leasehold interest in the 264-room Hotel Palomar Los Angeles - Westwood located in Los Angeles, California for $78.7 million. In connection with the acquisition of the leasehold interest, the Company assumed a long-term ground lease with an unaffiliated third party that expires in 2107, including nineteenfive-year extension options. The Company is required to pay annual base rent of approximately $3.5 million and is adjusted for consumer price index ("CPI") increases at each five-year extension. The acquisition was funded with available cash and the hotel will continue to be managed by Kimpton Hotel & Restaurant Group, LLC. The purchase price was allocated as follows: $90.7 million to building and improvements, $1.5 million to furniture and fixtures, and $(13.5) million to below (above) market rate contracts and other intangibles.

On December 10, 2014, the Company acquired a leasehold interest in the 125-room Union Station Hotel, Autograph Collection, located in Nashville, Tennessee for $52.3 million. In connection with the acquisition of the leasehold interest, the Company assumed a long-term ground lease with an unaffiliated third party that expires in 2105. The Company is required to pay the greater of annual base rent of $0.1 million or taxes on real property. The acquisition was funded with available cash and the Company selected Sage Hospitality to manage the hotel. The purchase price was allocated as follows: $37.8 million to building and improvements, $6.8 million to furniture and fixtures, and $7.5 million to below (above) market rate contracts and other intangibles. This allocation is preliminary because the Company is still in process of finalizing the accounting for this acquisition.

On December 18, 2014, the Company acquired the 356-room Revere Hotel Boston Common located in Boston, Massachusetts for $260.4 million. The acquisition was funded with available cash and borrowings under the Company's creditagreement. The purchase price was allocated as follows: $41.9 million to land, $207.8 million to building and improvements, and $10.6 million to furniture and fixtures.

The following unaudited pro forma financial information presents the results of operations of the Company for the years endedDecember 31, 2014 and 2013 as if the hotels acquired in 2014 and 2013 were acquired on January 1, 2013 and 2012, respectively. The following hotels' pro forma results are included in the pro forma table below: Embassy Suites San Diego Bay-Downtown; Redbury Hotel; Hotel Modera; Radisson Hotel Fisherman's Wharf; Prescott Hotel; The Nines, a Luxury Collection Hotel, Portland; The Westin Colonnade Coral Gables; Hotel Palomar Los Angeles - Westwood; Union Station Hotel, Autograph Collection; and Revere Hotel Boston Common. The pro forma results below exclude acquisition costs of $2.0 million and $3.4 million for the years endedDecember 31, 2014 and 2013, 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 or the future results of operations (in thousands, except per-share data).

	For the year ended December 31,
	2014		2013
	(Unaudited)
Total revenues	$	708,928	$	663,000
Operating income (loss)	111,725		92,092
Net income (loss) attributable to common shareholders	64,095		49,244
Net income (loss) per share available to common shareholders — basic	$	0.97	$	0.75
Net income (loss) per share available to common shareholders — diluted	$	0.96	$	0.74

For the year endedDecember 31, 2014, the Company's consolidated statements of operations included $34.3 million of revenues and $21.8 million of hotel operating expenses related to the operations of the Prescott Hotel, The Nines, a Luxury Collection Hotel, Portland, The Westin Colonnade Coral Gables, Hotel Palomar Los Angeles - Westwood, Union Station Hotel, Autograph Collection, and Revere Hotel Boston Common.