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.

In conjunction with the joint venture's refinancing in 2012, 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.

As of March 31, 2016, the joint venture reported $443.0 million in total assets, which represents the historical cost basis of the hotels prior to the Company's investment. The joint venture's total liabilities and members' deficit include $460.0 million in existing first mortgage debt, consisting of a single $410.0 million loan secured by five of the properties (excluding Dumont NYC) and a $50.0 million loan secured by the Dumont NYC, and the $50.0 million unsecured special loan provided by the Company as described above. At March 31, 2016, the five hotel properties securing the joint venture’s $410.0 million loan are in a cash trigger period, as defined in the loan agreement, because their aggregate net operating income on a trailing 12-month basis was below a minimum threshold. As a result, the joint venture may not make distributions of cash generated by such hotel properties to its partners, including the Company, until the minimum net operating income from such hotel properties on a trailing 12-month basis exceeds the minimum threshold. The joint venture was in compliance with all of its debt covenants as of March 31, 2016. 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 in the joint venture, 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 months ended March 31, 2016 and 2015 are presented below (in thousands):



	For the three months ended March 31,
	2016			2015
Revenues	$	31,181		$	31,021
Total expenses	42,614			41,503
Net income (loss)	$	(11,433	)	$	(10,482	)
Company’s 49% interest of net income (loss)	(5,602		)	(5,136		)
Basis adjustment	91			99
Special loan interest income elimination	596			589
Equity in earnings (loss) in joint venture	$	(4,915	)	$	(4,448	)

The Company classifies the distributions from the Manhattan Collection joint venture in the statements of cash flows based upon an evaluation of the specific facts and circumstances of each distribution. For example, distributions from cash generated by property operations are classified as cash flows from operating activities. However, distributions received as a result of property sales are classified as cash flows from investing activities.