Comfort Inn 2011 Annual Report Download - page 75

Table of Contents
loan will be collected as scheduled in the loan agreement. The Company measures loan impairment based on the present value of expected future cash flows
discounted at the loan’s original effective interest rate or the estimated fair value of the collateral. For impaired loans, the Company establishes a specific
impairment reserve for the difference between the recorded investment in the loan and the present value of the expected future cash flows or the estimated fair
value of the collateral. The Company applies its loan impairment policy individually to all mezzanine and other notes receivable in the portfolio and does not
aggregate loans for the purpose of applying such policy. For impaired loans, the Company recognizes interest income on a cash basis. If it is likely that a loan
will not be collected based on financial or other business indicators it is the Company’s policy to charge off these loans to SG&A expenses in the
accompanying consolidated statements of income in the quarter when it is deemed uncollectible. Recoveries of impaired loans are recorded as a reduction of
SG&A expenses in the quarter received.
The Company assesses the collectability of its senior notes receivable by comparing the market value of the underlying assets to the carrying value of the
outstanding notes. In addition, the Company evaluates the property’s operating performance, the borrower’s compliance with the terms of the loan and
franchise agreements, and all related personal guarantees that have been provided by the borrower. For subordinated or unsecured receivables, the Company
assesses the property’s operating performance, the subordinated equity available to the Company, the borrower’s compliance with the terms of loan and
franchise agreements, and the related personal guarantees that have been provided by the borrower.
The Company considers loans to be past due and in default when payments are not made when due. Although the Company considers loans to be in
default if payments are not received on the due date, the Company does not suspend the accrual of interest until those payments are more than 30 days past
due. The Company applies payments received for loans on non-accrual status first to interest and then principal. The Company does not resume interest
accrual until all delinquent payments are received.
The Company has determined that approximately $11.2 million and $10.8 million of its mezzanine and other notes receivable were impaired at
December 31, 2011 and 2010, respectively. The Company has recorded an allowance for credit losses on these impaired loans at December 31, 2011 and 2010
totaling $8.2 million and $8.6 million resulting in a carrying value of impaired loans of $3.0 million and $2.2 million, respectively for which we had no
related allowance for credit losses. The Company recognized approximately ten thousand dollars of interest income on impaired loans during the year ended
December 31, 2011 on the cash basis. The Company did not recognize interest income on either the accrual or cash basis on its impaired loans during the year
ended December 31, 2010. The Company has provided loan reserves on non-impaired loans totaling $0.2 million and $0.6 million at December 31, 2011 and
2010, respectively
Past due balances of mezzanine and other notes receivable by credit quality indicators are as follows:









 
Senior $ —
$ —
$ —
$ 7,900
$ 7,900
Subordinated —
9,773
9,773
4,219
13,992
$ —
$9,773
$9,773
$12,119
$21,892

Senior $ —
$ —
$ —
$ 3,846
$ 3,846
Subordinated —
10,931
10,931
3,563
14,494
$ —
$ 10,931
$ 10,931
$ 7,409
$18,340
Loans Acquired with Deteriorated Credit Quality
On December 2, 2011, the Company acquired an $11.5 million mortgage, held on a franchisee hotel asset, from a financial institution for $7.9 million.
At the time of acquisition, the Company determined that it would be unable to collect all contractually required payments under the original mortgage terms.
The contractually required payments receivable, including principal and interest, under the terms of the acquired mortgage totaled $12.0 million. The
Company expects to collect $9.7 million of these contractually required payments. No prepayments were considered in the determination of contractual cash
flows and cash flows expected to be collected. At December 31, 2011, the carrying amount of this loan was $7.9 million and there was no allowance for
uncollectable amounts. The Company's accretable yield at both the acquisition date and December 31, 2011 was $1.8 million or 7.36%.
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