2010 AnnuAl RePoRT - SNL Financial

Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
EXECUTIVE OVERVIEW
General
The U.S. economy experienced a recession beginning around the fourth quarter of 2007, which was caused by
the global credit crisis and declining GDP, employment, business investment, corporate profits and consumer
spending. As a result of the dramatic downturn in the economy, lodging demand in the U.S. declined significantly
throughout 2008 and 2009. However, beginning in 2010, the lodging industry has been experiencing improvement
in fundamentals, specifically occupancy. Room rates, measured by the average daily rate, or ADR, which typically
lags occupancy growth in the early stage of a recovery, appear to be showing upward growth. We believe recent
improvements in the economy will continue to positively affect the lodging industry and hotel operating results for
2011. Our overall current strategy is to take advantage of the cyclical nature of the hotel industry. We believe that in
the current cycle, hotel values and cash flows, for the most part, peaked in 2007, and we believe we will not achieve
similar cash flows and values in the immediate future. Industry experts have suggested that cash flows within our
industry may achieve these previous highs again 2014 through 2016.
In response to the challenging market conditions, we undertook a series of actions to manage the sources and
uses of our funds in an effort to navigate through challenging market conditions while still pursuing opportunities
that can create long-term shareholder value. In this effort, we have attempted to proactively address value and cash
flow deficits among certain of our mortgaged hotels, with a goal of enhancing shareholder value through loan
amendments or in certain instances, consensual transfers of hotel properties to the lenders in satisfaction of the
related debt.
As of December 31, 2010, we owned 94 hotel properties directly and six hotel properties through majorityowned
investments in joint ventures, which represented 21,734 total rooms, or 21,392 net rooms excluding those
attributable to joint venture partners. Our hotels are primarily operated under the widely recognized upper upscale
brands of Crown Plaza, Hilton, Hyatt, Marriott and Sheraton. All these hotels are located in the United States. At
December 31, 2010, 97 of the 100 hotels are included in our continuing operations. As of December 31, 2010, we
also owned mezzanine or first-mortgage loans receivable with a carrying value of $20.9 million. In addition, at
December 31, 2010, we had ownership interests in two joint ventures that own mezzanine loans with a carrying
value of $15.0 million, net of valuation allowance.
Based on our primary business objectives and forecasted operating conditions, our current key priorities and
financial strategies include, among other things:
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acquisition of hotel properties;
disposition of hotel properties;
restructuring and liquidating positions in mezzanine loans;
pursuing capital market activities to enhance long-term shareholder value;
enhancing liquidity, and continuing current cost saving measures;
implementing selective capital improvements designed to increase profitability;
implementing asset management strategies to minimize operating costs and increase revenues;
financing or refinancing hotels on competitive terms;
utilizing hedges and derivatives to mitigate risks; and
making other investments or divestitures that our Board of Directors deems appropriate.
Our long-term investment strategies continue to focus on the upscale and upper-upscale segments within the
lodging industry. We believe that as supply, demand, and capital market cycles change, we will be able to shift our
investment strategies to take advantage of new lodging-related investment opportunities as they may develop. Our
Board of Directors may change our investment strategies at any time without shareholder approval or notice.
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