Financial Information
3. ACQUISITIONS AND DISPOSITIONS
2015 Planned Acquisition
On January 27, 2015, we entered into definitive agreements to acquire the Delta Hotels and Resorts brand, management and franchise business, together with related intellectual property, from Delta Hotels Limited Partnership, a subsidiary of British Columbia Investment Management Corporation (“bcIMC”) for C$168 million (approximately $135 million at signing). We expect that the transaction, which remains subject to regulatory approval and other customary closing conditions, will close in the second quarter of 2015. At closing we expect to add 38 open hotels and resorts with over 10,000 rooms across Canada, 28 of which are managed (including 13 under new 30-year management agreements with bcIMC-affiliated entities) and 10 of which are franchised, plus five hotels under development (including one under a new 30-year management agreement with a bcIMC-affiliated entity).
2014 Acquisitions
In the 2014 second quarter, we acquired the Protea Hotel Group’s brands and hotel management business (“Protea Hotels”) for $193 million (ZAR 2.046 billion) in cash and provisionally recognized approximately: $184 million (ZAR 1.943 billion) in intangible assets, consisting of deferred contract acquisition costs of $91 million (ZAR 960 million), a brand intangible of $73 million (ZAR 772 million), and goodwill of $20 million (ZAR 211 million); and $9 million (ZAR 103 million) of tangible assets consisting of property and equipment, equity method investments, and other current assets at the acquisition date. Our accounting for the acquisition has not been finalized as we continue to evaluate the assumptions used in determining the fair value of the intangible assets. As part of the transaction, Protea Hospitality Holdings created an independent property ownership company that retained ownership of the hotels Protea Hospitality Holdings formerly owned, and entered into long-term management and lease agreements with us for these hotels. The property ownership company also retained a number of minority interests in other Protea-managed hotels. As a result of the transaction, we added 113 hotels (10,016 rooms) across three brands in South Africa and six other Sub-Saharan African countries to our International segment portfolio and currently manage 45 percent, franchise 39 percent, and lease 16 percent of those rooms.
In the 2014 fourth quarter, we acquired a property under-construction in Brazil for $31 million (R$74 million) in cash. We have committed to fund a portion of the development of this property, as discussed in Footnote No. 7, “Commitments and Contingencies.”
2014 Dispositions and Planned Dispositions as of Year-End 2014
In the 2014 first quarter, we sold The London EDITION to a third party, received approximately $230 million in cash, and simultaneously entered into definitive agreements to sell The Miami Beach and The New York (Madison Square Park) EDITION hotels upon completion of construction to the same third party. The total sales price for the three EDITION hotels will be approximately $816 million. We completed the sale of The Miami Beach EDITION for cash proceeds of $230 million during the first quarter of 2015. We expect to sell The New York (Madison Square Park) EDITION in the first half of 2015 when we anticipate that construction will be substantially complete. We will retain long-term management agreements for each of the three hotels sold. During 2014, we evaluated the three hotels for recovery and recorded a $25 million net impairment charge, primarily attributable to The Miami Beach EDITION, in the “Depreciation, amortization, and other” caption of our Income Statements as our cost estimates exceed our total fixed sales price. We did not allocate the charge to any of our segments.
In the 2014 fourth quarter, we sold a portion of The Miami Beach EDITION residences and received approximately $100 million in cash. We expect to sell the remaining units during 2015.
In the 2014 fourth quarter, we sold for approximately $42 million in cash a land parcel to a third-party that agreed to develop a property. We retained certain repurchase rights in the event the buyer breaches covenants. We reclassified the property to “Other” current assets and offset this amount with a liability for the cash received.
In the 2014 first quarter, we sold our right to acquire the landlord’s interest in a leased real estate property and certain attached assets of the property, consisting of $106 million (€77 million) in property and equipment and $48 million (€35 million) in liabilities. We received $62 million (€45 million) in cash and transferred $45 million (€33 million) of related obligations. We continue to operate the property under a long-term management agreement.
At year-end 2014, we had $233 million in assets related to The Miami Beach EDITION hotel and residences (the hotel representing $157 million in property and equipment and $17 million in current assets) classified in the “Assets held for sale” caption of the Balance Sheet and $26 million in liabilities (the hotel representing $14 million) classified in liabilities held for sale in the “Accrued expenses and other” caption of the Balance Sheet. We did not classify The New York (Madison Square Park) EDITION assets and liabilities as held for sale because the hotel is under construction and not yet available for immediate sale in its present condition.
At year-end 2013, we had $350 million in assets and $61 million in liabilities held for sale, classified as described in the preceding 2014 discussion. The London EDITION consisted of $244 million in assets and $13 million in liabilities held for sale and the leased real estate landlord interest represented $106 million (€77 million) in assets and $48 million (€35 million) in liabilities.
2013 Acquisition
In 2013, we acquired a North American Full-Service managed property for $115 million in cash. We plan to renovate the hotel in 2015 with the intent to highlight our brand strategies.
2012 Acquisitions
In 2012, we acquired the Gaylord Hotels brand and hotel management company from Gaylord Entertainment Company (subsequently renamed Ryman Hospitality Properties, Inc.) (“Ryman Hospitality”) for $210 million in cash and recognized $210 million in intangible assets, primarily reflecting deferred contract acquisition costs. Ryman Hospitality continues to own the Gaylord hotels, which we manage under the Gaylord brand under long-term management agreements. This transaction added four hotels and approximately 7,800 rooms to our North American Full-Service segment, and included our entering into management agreements for several attractions at the Gaylord Opryland in Nashville, consisting of a showboat, a golf course, and a saloon. As part of the transaction, we also assumed management of another hotel owned by Ryman Hospitality, the Inn at Opryland, with approximately 300 rooms.
In 2012, we acquired land for $32 million in cash that we expect will be developed into a hotel. Earlier in 2012, we also acquired land and a building we plan to develop into a hotel for $160 million in cash. In conjunction with the latter acquisition, we had also made a cash deposit of $6 million late in 2011.
2012 Dispositions
In 2012, we completed the sale of our equity interest in a North American Limited-Service joint venture (formerly two joint ventures which were merged before the sale), and we amended certain provisions of the management agreements for the underlying hotel portfolio. As a result of this transaction, we received cash proceeds of $96 million, including $30 million of proceeds which is refundable by us over the term of the management agreements if the hotel portfolio does not meet certain quarterly hotel performance thresholds. To the extent the hotel portfolio meets the quarterly hotel performance thresholds, we will recognize the $30 million of proceeds over the remaining term of the management agreements as base fee revenue. In 2012, we recognized a gain of $41 million, which consisted of: (1) $20 million of gain that we deferred in 2005 because we retained the equity interest following the original sale of land to one of the joint ventures and because there were contingencies for the 2005 transaction that expired with this sale; and (2) $21 million of gain on the sale of the equity interest. We also recognized base management fee revenue totaling $7 million, most of which we had deferred in earlier periods, but which we earned in conjunction with the sale.
We also sold our ExecuStay corporate housing business in 2012. Neither the sales price nor the gain we recognized was material to our results of operations and cash flows. The revenues, results of operations, assets, and liabilities of our ExecuStay business also were not material to our financial position, results of operations or cash flows for any of the periods presented, and accordingly we did not reflect ExecuStay as a discontinued operation.