Note 6. Impairment Losses

Held for Use

In accordance with FASB ASC 360-10-35 Property Plant and Equipment – Overall - Subsequent Measurement, the Company analyzes its assets for impairment loss when events or circumstances occur that indicate the carrying amount may not be recoverable. As part of this process, the Company utilizes a two-step analysis to determine whether a trigger event (within the meaning of ASC 360-10-35) has occurred with respect to cash flow of, or a significant adverse change in business climate for, its hotel properties. Quarterly and annually the Company reviews all of its held for use hotels to determine any property whose cash flow or operating performance significantly underperformed from budget or prior year, which the Company has set as a shortfall against budget or prior year as 15% or greater.

At year end the Company applies a second analysis on the entire held for use portfolio. The analysis estimates the expected future cash flows to identify any property whose carrying amount potentially exceeded the recoverable value. (Note that at the end of each quarter, this analysis is performed only on those properties identified in the 15% change analysis). In performing this year end analysis, the Company makes the following assumptions:

Holding periods range from three to five years for non-core assets, and ten years for those assets considered as core.

Cash flow from trailing twelve months for the individual properties multiplied by the holding period as noted above. The Company does not assume growth rates on cash flows as part of its step one analysis.

A revenue multiplier for the terminal value based on an average of historical sales from leading industry brokers of like properties was applied according to the assigned holding period.

During the twelve months ended December 31, 2014, a trigger event, as described in ASC 360-10-35, occurred for one hotel property held for use in which the carrying value of the hotel exceeded the sum of the undiscounted cash flows expected over its remaining anticipated holding period and from its disposition. The property was then tested to determine if the carrying amount was recoverable. When testing the recoverability for a property, in accordance with FASB ASC 360-10-35 35-29 Property Plant and Equipment – Overall—Subsequent Measurement, Estimates of Future Cash Flows Used to Test a Long-Lived Asset for Recoverability, the Company uses estimates of future cash flows associated with the individual properties over their expected holding period and eventual disposition. In estimating these future cash flows, the Company incorporates its own assumptions about its use of the hotel property and expected hotel performance. Assumptions used for the individual hotels are determined by management, based on discussions with our asset management group and our third party management companies. The property is then subjected to a probability-weighted cash flow analysis as described in FASB ASC 360-10-55 Property Plant and Equipment – Overall – Implementation. In this analysis, the Company completes a detailed review of the hotel’s market conditions and future prospects, which incorporates specific detailed cash flow and revenue multiplier assumptions over the remaining expected holding periods, including the probability that the property will be sold. Based on the results of this analysis, it was determined that the Company’s investment in the subject property was fully recoverable; accordingly, no impairment was recognized.

When it is determined that the investment in a hotel property is not recoverable, in accordance with FASB ASC 360-10-55, the Company calculates the excess of the carrying value of the property in comparison to the fair value at the date of measurement. Fair value is determined with the assistance of independent real estate brokers and revenue multiples based on the Company’s experience with hotel sales in the current year as well as available industry information, considered Level 3 inputs. In 2014 there was no impairment recorded for the twelve months ended December 31, 2014; however, there was $0.1 million of impairment recovery on one property subsequently reclassified as held for use in the three months ended March 31, 2014.

During 2013, the analysis above was used to determine that a trigger event occurred for two of our held for use properties. In each case the carrying value of the hotel exceeded the sum of the undiscounted cash flows expected over its remaining anticipated holding period and from its disposition. Each property was then tested to determine if the carrying amount was recoverable using property specific assumptions. Based on the results of this analysis, it was determined that the Company’s investment in the subject properties was not fully recoverable; accordingly, impairment of $2.2 million was recognized.

During 2012, no trigger events occurred for hotel properties held for use. There was $0.3 million of impairment recovery on one property subsequently reclassified as held for use.

Held for Sale

Level 3 inputs were used to determine impairment losses on properties held for sale. At December 31, 2014, there were 12 hotel properties that met the criteria for classification as held for sale. In accordance with ASU 2014-08 Presentation of Financial Statements and Property, Plant and Equipment Reporting Discontinued Operations and Disclosure of Disposals of Components of an Entity, in the Consolidated Statements of Operations three of the held for sale hotels are reflected in continuing operations and nine of the hotels are reflected in discontinued operations. The amount of impairment and recovery of previously recorded impairment recorded in the years ended 2014, 2013 and 2012 on properties classified as held for sale and sold is shown in the table below:


	For the years ending December 31,
	2014			2013			2012


	Number		Impairment	Number		Impairment	Number		Impairment
	of hotels		(loss)	of hotels		(loss)	of hotels		(loss)
			recovery			recovery			recovery
Continuing Operations:

Held for Sale Hotels:

Impairment loss	2	$	(1,388)	1	$	(200)	1	$	(363)
Recovery of Impairment	0		0	0		0	0		0

Net Impairment loss on
Held for Sale Hotels Reported
in Continuing Operations	2	$	(1,388)	1	$	(200)	1	$	(363)

Discontinued Operations:

Held for Sale Hotels:

Impairment loss	3	$	(1,824)	2	$	(1,520)	0	$	0
Recovery of Impairment	1		390	0		0	0		0

Subtotal Held for Sale Hotels	4	$	(1,434)	2	$	(1,520)	0	$	0

Sold Hotels:

Impairment loss	5	$	(626)	12	$	(3,299)	20	$	(10,149)
Recovery of Impairment	4		408	5		171	2		74

Subtotal Sold Hotels	9	$	(218)	17	$	(3,128)	22	$	(10,075)

Net Impairment loss on Held for
Sale and Sold Hotels Reported
in Discontinued Operations	13	$	(1,652)	19	$	(4,648)	22	$	(10,075)

In accordance with ASC 360-10-35 Property Plant and Equipment-Overall-Subsequent Measurement, the Company determines the fair value of an asset held for sale based on the estimated selling price less estimated selling costs. We engage independent real estate brokers to assist us in determining the estimated selling price using a market approach. The estimated selling costs are based on our experience with similar asset sales.