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Commitments and Contingencies | 9 Months Ended
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Sep. 09, 2011
Commitments and Contingencies Disclosure [Abstract] |
Commitments and Contingencies | Commitments and Contingencies Litigation Except as described below, we are not involved in any material litigation nor, to our knowledge, is any material litigation pending or threatened against us. We are involved in routine litigation arising out of the ordinary course of business, all of which is expected to be covered by insurance and is not expected to have a material adverse impact on our financial condition or results of operations. We hold the senior mortgage loan secured by the Allerton Hotel, located in downtown Chicago, Illinois. The loan matured in January 2010 and is in default. On May 5, 2011, the borrower under the loan filed for bankruptcy protection in the Northern District of Illinois under chapter 11 of Title 11 of the U.S. Code, 11 U.S.C. §§ 101 et seq., as amended. The senior mortgage loan is secured by substantially all of the assets of the borrower, including the Allerton Hotel. The filing of the bankruptcy case had the effect of, among other things, automatically staying the foreclosure proceedings that we had previously filed against the borrower. While we intend to continue to vigorously pursue our rights in the bankruptcy case, it is too early in the process to determine the likelihood of potential outcomes. As a result of pursuing our rights in the foreclosure proceedings and the bankruptcy case, we have incurred approximately $1.2 million in legal fees for the period from January 1, 2011 to September 9, 2011. Subsequent to the end of the third quarter, the borrower agreed to continue to pay interest at the default rate through December 2011. We agreed to fund the hotel's cash flow shortfalls, if any, during the first quarter of 2012 up to $800,000, which will be treated as additional principal. During the third quarter, we accrued $1.7 million for our contribution to the settlement of litigation involving the Los Angeles Airport Marriott. The settlement is recorded in corporate expenses on the accompanying condensed consolidated statement of operations. The Company and certain other defendants reached a tentative settlement of the matter, which involved claims by certain employees at the Los Angeles Airport Marriott. The settlement is pending approval by the Superior Court of California, Los Angeles County. Performance Termination Provisions Under Management Agreements Our management agreements provide us with termination rights upon a hotel’s failure to meet certain financial performance criteria. Our termination rights may, in certain cases, be extinguished if the manager of the hotel elects to cure the failure by making a cure payment. Based on our forecasts and the hotels’ budgets, the Orlando Airport Marriott and Oak Brook Hills Marriott Resort are likely to fail to satisfy their performance termination criteria, which will give us the right to terminate the management agreements for these hotels, subject to the managers’ right to cure. If we elect to terminate a hotel manager under the performance termination provisions we will evaluate the most appropriate action plan for the hotel. This action plan could include disposition of the hotel, rebranding the hotel, or maintaining the existing hotel brand with an independent hotel manager. The Conrad Chicago failed the performance test under the management agreement. During the second fiscal quarter, we accrued approximately $1.0 million for repayment of key money to Hilton upon termination. In October 2011, we amended the management agreement to include a performance guarantee for the remaining term of the agreement, which ends in 2015. We believe there are compelling investment opportunities at the hotel and expect to invest $3.5 million in the hotel to add 4,100 square feet of new meeting space, reposition the food and beverage outlets and re-concept the hotel lobby. Under the terms of the amended management agreement, the key money repayment is no longer due. Accordingly, the Company reversed the $1.0 million key money repayment accrual during the third quarter. Sale of Three-Hotel Portfolio We have entered into a purchase and sale agreement to sell a portfolio of three non-core hotel properties to an affiliate of Inland American for a contractual purchase price of $262.5 million. The 1,422-room portfolio consists of the 492-room Renaissance Austin located in Austin, Texas, the 521-room Renaissance Waverly located in Atlanta, Georgia, and the 409-room Griffin Gate Marriott Resort and Spa located in Lexington, Kentucky. Upon the sale of the portfolio, we expect to receive net cash proceeds of approximately $80 million and to assign $180 million of mortgage debt to the buyer. The transaction is expected to close during the fourth quarter subject to the satisfaction of closing conditions, including the receipt of lender consents. Due to the outstanding contingencies for the completion of the sale, which could cause the transaction not to be completed in a timely manner, or at all, we did not report the operating results of the three hotels as discontinued operations in the third fiscal quarter. We expect to report the three hotels as discontinued operations when the outstanding contingencies have been resolved. We expect to record a net gain upon completion of the transaction of approximately $5.0 million to $6.0 million. Income Taxes We had no accruals for tax uncertainties as of September 9, 2011 and December 31, 2010. As of September 9, 2011, all of our federal income tax returns and state tax returns for the jurisdictions in which our hotels are located remain subject to examination by the respective jurisdiction tax authorities.

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