Dispositions

Effective January 1, 2014, we adopted ASU No. 2014-08, Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity, which amends U.S. GAAP to require reporting of discontinued operations only if the disposal represents a strategic shift that has (or will have) a major effect on an entity’s operations and financial results. As a result, the operations of hotels sold subsequent to December 31, 2013 are expected to be reported in continuing operations.

On April 14, 2014, we sold the 386-room Oak Brook Hills Resort to an unaffiliated third party for $30.1 million, including $4.0 million of seller financing. The sale meets the requirements for accounting under the full accrual method. We recorded a gain on sale of the hotel of approximately $1.3 million, net of a $4.0 million valuation allowance on the loan receivable. The loan provided to the buyer is unsecured and has a one year interest-only period after which the loan will amortize based on a twenty-five year schedule. The loan accrues interest at a floating rate of LIBOR plus 650 basis points for the first year. The interest rate margin increases by 100 basis points annually for the remainder of the loan term. The loan is subordinate to the buyer's senior mortgage loan. The loan agreement provides repayment options, which include: (1) the hotel achieving a certain operating profit threshold by mid-2016, (2) refinancing proceeds in excess of the outstanding balance of the senior mortgage loan, or (3) proceeds in excess of the outstanding balance of the senior mortgage loan from the sale of the hotel.

The loan receivable and the valuation allowance are included within prepaid and other assets on the accompanying condensed consolidated balance sheet. Based on our estimates of the hotel’s future cash flows from operations and that the note is unsecured and subordinate to the senior mortgage loan, we believe it is remote that we will collect all contractual amounts due under the loan. Accordingly, we recognized a full valuation allowance of $4.0 million. As of September 30, 2014, we have received interest payments of approximately $0.1 million, which are reflected in other income on the accompanying condensed consolidated statement of operations.

In November 2013, we sold the 487-room Torrance Marriott South Bay to an unaffiliated third party. The operating results are reported in discontinued operations on the accompanying condensed consolidated statement of operations for the three months ended September 30, 2013.

The following table summarizes the components of discontinued operations in the condensed consolidated statement of operations for the three and nine months ended September 30, 2013 (unaudited; in thousands, except per share data):



	Three Months Ended			Nine Months Ended
	September 30, 2013			September 30, 2013
Hotel revenues	$	6,299		$	17,910
Hotel operating expenses	(4,684		)	(13,344		)
Operating income	1,615			4,566
Depreciation and amortization	(591		)	(1,759		)
Income tax expense	(139		)	(297		)
Income from discontinued operations	$	885		$	2,510
Basic and diluted income from discontinued operations per share	$	0.00		$	0.01

Subsequent to September 30, 2014, one of our hotels met the held-for-sale criteria under U.S. GAAP. We have entered into an agreement to sell the hotel and expect the sale to close during the fourth quarter of 2014, subject to the satisfaction of closing conditions. The carrying amount of the hotel is approximately $97.1 million as of September 30, 2014 and we do not expect to recognize a loss on the sale. The hotel is encumbered by $82.6 million of mortgage debt, which we expect to repay in connection with the sale.