Hotel Dispositions

9 Months Ended

Sep. 30, 2015

Discontinued Operations - Hotel Properties Held for Sale And Sold [Abstract]

Discontinued Operations - Hotel Properties Held for Sale And Sold

Hotel Dispositions

Effective October 1, 2014, the Company adopted ASU Update No. 2014-08 concerning the classification and reporting of discontinued operations. This amendment defines discontinued operations as a component of an entity that represents a strategic shift that has (or will have) a major effect on an entity’s operations and financial results. As a result of the adoption of ASU Update No. 2014-08, we anticipate that most of our hotel dispositions will not be classified as discontinued operations as most will not fit this description.

For hotel properties that have been classified as held for sale or as discontinued operations for periods prior to adoption of ASU 2014-08, the Company will continue to present the operating results as discontinued operations, and all other hotel properties will be included in continuing operations, in the statements of operations for all applicable periods presented.

At June 30, 2015, the Company had eighteen hotels identified as held for sale. During the three months ended September 30, 2015, four of those hotels were sold. Due to changes in market conditions, two hotels were reclassified from held for sale to held for use. A total of twelve hotels are held for sale as of September 30, 2015.

Sold Hotels - Continuing Operations

On March 19, 2015 the Company closed on the sale of a Sleep Inn in Omaha, Nebraska, to an unaffiliated buyer for a gross sales price of $2.9 million, with no gain on the sale and reduction of the Company’s mortgage debt of $2.5 million.

On July 1, 2015, the Company closed on the sale of a Days Inn in Ashland, Kentucky, to an unaffiliated buyer for a gross sales price of $2.2 million, with a gain of $0.7 million and reduction of the Company’s mortgage debt of $1.3 million.

On July 13, 2015, the Company closed on the sale of two hotels in Alexandria, Virginia, to an unaffiliated buyer for a combined gross sales price of $19.0 million. Partial net proceeds of $8.3 million were applied to the associated debt with Frontier Bank.These hotels represent a significant disposition; therefore, their operating results are disclosed.

The Alexandria Comfort Inn and Days Inn hotels had net earnings of$0.8 million and $(0.8) million for the three months ended September 30, 2015 and $(0.2) million and $(0.1) million for the three months ended September 30, 2014. For the nine months endedSeptember 30, 2015, net earnings for the Comfort Inn and Days Inn were $1.1 million and $(2.0) million, respectively. For the same period of 2014, the Comfort Inn and Days Inn had net earnings of $(0.3) million and $(0.2) million, respectively.  The Days Inn net earnings for the nine months ended September 30, 2015 include impairment expense of $1.0 million, of which $0.9 million was recognized as of March 31, 2015 upon the hotel’s classification as held for sale. Earnings attributable to noncontrolling interest from the two hotels for the three months ended September 30, 2015 and 2014 were approximately $(5,000) and $0, respectively. Earnings attributable to noncontrolling interest for the nine months ending September 30, 2015 and 2014 were approximately $100,000 and $1,000, respectively.

On August 28, 2015, the Company sold a Super 8 in Manhattan, Kansas, to an unaffiliated buyer for gross sale proceeds of $3.2 million. Partial proceeds of $2.4 million were applied to the revolving credit facility with Great Western Bank, reducing the outstanding revolver balance by $2.4 million, and the revolver limit from $11.2 million to $8.8 million.

Sold Hotels - Discontinued Operations

On January 15, 2015 the Company closed on the sale of a Super 8 in West Plains, Missouri to an unaffiliated buyer for a gross sales price of $1.5 million, with a gain on sale of $0.9 million and reduction of the Company’s mortgage debt of $1.4 million.

On January 29, 2015 the Company closed on the sale of a Super 8 in Green Bay, Wisconsin, to an unaffiliated buyer for a gross sales price of $2.2 million, with no gain on the sale and reduction of the Company’s mortgage debt of $1.5 million.

On March 16, 2015 the Company closed on the sale of a Super 8 in Columbus, Georgia, to an unaffiliated buyer for a gross sales price of $0.9 million, with no gain on the sale and reduction of the Company’s mortgage debt of $0.9 million.

On April 1, 2015, the Company closed on the sale of two Savannah Suites hotels to an unaffiliated buyer. The hotel in Chamblee, Georgia sold for $4.4 million, and the hotel in Augusta, Georgia sold for $3.4 million, with no gain on either sale. Partial proceeds of $4.1 million were applied to the associated debt with GE.

On April 30, 2015, the Company closed on the sale of a Super 8 in Batesville, Arkansas, to an unaffiliated buyer for a gross sales price of $1.5 million, with a gain on sale of $0.7 million. Partial proceeds of $1.3 million were applied to the revolving credit facility with Great Western Bank, reducing the outstanding revolver balance by $1.3 million and the revolver limit from $12.5 million to $11.2 million.

Hotels Held For Sale

A REIT will incur a 100% tax on the net gain derived from any sale or other disposition of property that the REIT holds primarily for sale to customers in the ordinary course of a trade or business. We do not believe any of our hotels were held primarily for sale in the ordinary course of our trade or business. However, if the Internal Revenue Service would successfully assert that we held such hotels primarily for sale in the ordinary course of our business, the gain from such sales could be subject to a 100% prohibited transaction tax.

Assets held for sale consisted of the following as of September 30, 2015 and December 31, 2014:

	September 30, 2015						December 31, 2014
	Continuing operations (9 hotels)		Discontinued operations (3 hotels)		Total held for sale		Continuing operations (14 hotels)		Discontinued operations (9 hotels)		Total held for sale
Land	$	2,608	$	1,009	$	3,617	$	8,611	$	3,791	$	12,402
Acquired below market lease intangibles		0		883		883		0		883		883
Buildings, improvements, vehicles		16,554		5,327		21,881		40,002		15,918		55,920
Furniture and Equipment		5,534		1,108		6,642		9,310		3,182		12,492
Construction-in-progress		0		0		0		289		(1)		288
Assets held for sale	$	24,696	$	8,327	$	33,023	$	58,212	$	23,773	$	81,985
Accumulated depreciation		(10,821)		(1,126)		(11,947)		(18,684)		(5,087)		(23,771)
Investment in hotel properties, net	$	13,875	$	7,201	$	21,076	$	39,528	$	18,686	$	58,214

The following table sets forth the components of discontinued operations for the three and nine months ended September 30, 2015 and 2014. The table includes the results of operations for hotels sold and classified in discontinued operations in 2014 and the first three quarters of 2015 (which were classified as held for sale prior to September 30, 2015).

	Three months ended				Nine months ended
	September 30,				September 30,
	2015		2014		2015		2014
Revenues	$	865	$	3,664	$	3,580	$	12,651
Hotel and property operations expenses		(643)		(2,841)		(2,551)		(9,944)
Interest expense		(51)		(259)		(251)		(1,059)
Loss on debt extinguishment		0		(120)		0		(120)
Depreciation expense		0		0		0		(112)
Net gain (loss) on disposition of assets		(2)		2,105		1,660		2,740
Impairment (loss) recovery		0		(921)		120		(1,517)
Gain from discontinued operations, net of tax	$	169	$	1,628	$	2,558	$	2,639
Earnings attributable to noncontrolling interest		(11)		0		(271)		0
Net earnings attributable to controlling interests	$	158	$	1,628	$	2,287	$	2,639
Capital expenditures	$	22	$	132	$	65	$	391