Impairment

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 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 of 15% or greater.

Each quarter we apply a second analysis on those properties identified in the 15% change analysis or which have had a trigger event. The analysis estimates the expected future cash flows to identify any property whose carrying amount potentially exceeded the recoverable value. In performing this 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 three and nine months ended September 30, 2015 no trigger events as described in ASC 360-10-35 occurred for any of our held for use hotels. The Company did record $0.1 million of recovery of previously recorded impairment loss on one hotel that was moved from held for sale to held for use at the end of the first quarter of 2014. Additionally, negligible recovery of previously recorded impairment loss was recorded on one hotel reclassified as held for use at the end of the third quarter of 2015.

Held for sale

Level 3 inputs were used to determine impairment losses on properties held for sale. At September 30, 2015, 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, nine of the held for sale hotels are reflected in continuing operations and three of the hotels are reflected in discontinued operations. The amount of impairment and recovery of previously recorded impairment recorded in the quarters ended September 30, 2015 and 2014 on properties classified as held for sale and sold is shown in the table below (in thousands):


	Three months ended September 30,			Three months ended September 30,
	2015			2014
	Number of hotels		Impairment (loss) recovery	Number of hotels		Impairment (loss) recovery
Continuing Operations:
Held for use hotels:
Impairment loss	0	$	0	0	$	0
Recovery of impairment	1		6	0		0
Subtotal Held for use hotels	1	$	6	0	$	0
Held for sale hotels:
Impairment loss	1	$	(5)	0	$	0
Recovery of impairment	1		23	0		0
Subtotal Held for sale hotels	2	$	18	0	$	0
Sold hotels:
Impairment loss	0		0	0		0
Recovery of impairment	1		289	0		0
Subtotal Sold hotels	1	$	289	0	$	0
Net impairment loss reported in continuing operations	4	$	313	0	$	0

Discontinued Operations:
Held for sale hotels:
Impairment loss	0	$	0	0	$	0
Recovery of impairment	0		0	0		0
Subtotal Held for sale hotels	0	$	0	0	$	0
Sold hotels:
Impairment loss	0		0	6		(960)
Recovery of impairment	0		0	2		39
Subtotal Sold hotels	0	$	0	8	$	(921)
Net impairment loss reported in discontinued operations	0	$	0	8	$	(921)

Total net impairment:	4	$	313	8	$	(921)


	Nine months ended September 30,			Nine months ended September 30,
	2015			2014
	Number of hotels		Impairment (loss) recovery	Number of hotels		Impairment (loss) recovery
Continuing Operations:
Held for use hotels:
Impairment loss	1	$	(1,536)	0	$	0
Recovery of impairment	0		0	1		119
Subtotal Held for use hotels	1	$	(1,536)	1	$	119
Held for sale hotels:
Impairment loss	3	$	(1,046)	0	$	0
Recovery of impairment	0		0	0		0
Subtotal Held for sale hotels	3	$	(1,046)	0	$	0
Sold hotels:
Impairment loss	1		(1,020)	0		0
Recovery of impairment	1		85	0		0
Subtotal Sold hotels	2	$	(935)	0	$	0
Net impairment loss reported in continuing operations	6	$	(3,517)	1	$	119

Discontinued Operations:
Held for sale hotels:
Impairment loss	0	$	0	0	$	0
Recovery of impairment	0		0	0		0
Subtotal Held for sale hotels	0	$	0	0	$	0
Sold hotels:
Impairment loss	1		(117)	9		(2,295)
Recovery of impairment	3		237	4		778
Subtotal Sold hotels	4	$	120	13	$	(1,517)
Net impairment loss reported in discontinued operations	4	$	120	13	$	(1,517)

Total net impairment:	10	$	(3,397)	14	$	(1,398)

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.