Fair Value

Fair Value Measurement

Fair value is defined as the price that would be received upon the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date in the principal or most advantageous market. The fair value hierarchy has three levels of inputs, both observable and unobservable:


•	Level 1 — Inputs include quoted market prices in an active market for identical assets or liabilities.


•	Level 2 — Inputs are market data, other than Level 1, that are observable either directly or indirectly. Level 2 inputs include quoted market prices for similar assets or liabilities, quoted market prices in an inactive market, and other observable information that can be corroborated by market data.


•	Level 3 — Inputs are unobservable and corroborated by little or no market data.

Fair Value of Financial Instruments

The Company used the following market assumptions and/or estimation methods:


•	Cash and cash equivalents, restricted cash reserves, hotel and other receivables, accounts payable and other liabilities — The carrying amounts reported in the consolidated balance sheets for these financial instruments approximate fair value because of their short term maturities.

•

Variable rate mortgage loans and borrowings under the Revolver and Term Loans — The carrying amounts reported in the consolidated balance sheets for these financial instruments approximate fair value as they bear interest at market rates. The Company determined that its variable rate mortgage loans and borrowings under the Revolver and Term Loans are classified in Level 3 of the fair value hierarchy.

•

Fixed rate mortgage loans — The estimated fair value of the fixed rate mortgage loans was $34.0 million and $34.7 million at March 31, 2016 and December 31, 2015, respectively. The fair value was calculated based on the net present value of the payments over the term of the loans using estimated market rates for similar mortgage loans with similar terms and loan-to-value ratios. As a result, the Company determined that its fixed rate mortgage loans in their entirety are classified in Level 3 of the fair value hierarchy. The carrying value of the fixed rate mortgage loans was $34.3 million and $34.5 million at March 31, 2016 and December 31, 2015, respectively.

Recurring Fair Value Measurements

The following table presents the Company’s fair value hierarchy for those financial assets and liabilities measured at fair value on a recurring basis as of March 31, 2016 (in thousands):



	Fair Value at March 31, 2016
	Level 1		Level 2			Level 3		Total
Interest rate swap liability	$	—	$	(36,850	)	$	—	$	(36,850	)
Total	$	—	$	(36,850	)	$	—	$	(36,850	)

The following table presents the Company’s fair value hierarchy for those financial assets and liabilities measured at fair value on a recurring basis as of December 31, 2015 (in thousands):



	Fair Value at December 31, 2015
	Level 1		Level 2			Level 3		Total
Interest rate swap asset	$	—	$	506		$	—	$	506
Interest rate swap liability	$	—	$	(17,108	)	$	—	$	(17,108	)
Total	$	—	$	(16,602	)	$	—	$	(16,602	)

The fair values of the derivative financial instruments are determined using widely accepted valuation techniques including discounted cash flow analysis on the expected cash flows of each derivative. The Company determined that the significant inputs, such as interest yield curves and discount rates, used to value its derivatives fall within Level 2 of the fair value hierarchy and that the credit valuation adjustments associated with the Company’s counterparties and its own credit risk utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by itself and its counterparties. As of March 31, 2016, the Company assessed the significance of the impact of the credit valuation adjustments on the overall valuation of its derivative positions and determined that the credit valuation adjustments were not significant to the overall valuation of its derivatives. As a result, the Company determined that its derivative valuations in their entirety are classified in Level 2 of the fair value hierarchy.