0001511337rlj:EmbassySuiteTampaDowntownConventionCenterMembersrt:MaximumMember2021-01-012021-12-31
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
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x☒ | | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| For the fiscal year ended | December 31, 20172021 |
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o☐ | | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to | |
Commission File Number 001-35169
RLJ LODGING TRUST
(Exact Name of Registrant as Specified in Its Charter)
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Maryland | | 27-4706509 |
(State or Other Jurisdiction of Incorporation or Organization) | | (I.R.S. Employer Identification No.) |
3 Bethesda Metro Center, Suite 1000 | | |
Bethesda, Maryland | Maryland | | | 20814 |
(Address of Principal Executive Offices) | | (Zip Code) |
(301) 280-7777
(Registrant's Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
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Title of Class | | Trading Symbol | | Name of Exchange on Which Registered |
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Title of Each Class | | Name of Each Exchange on Which Registered |
Common Shares $0.01of beneficial interest, par value $0.01 per share | | RLJ | | New York Stock Exchange |
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$1.95 Series A Cumulative Convertible Preferred Shares, par value $0.01 per share | | RLJ-A | | New York Stock Exchange |
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes x☒ No o☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes o☐ No x☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. x☒ Yes o☐ No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). x☒ Yes o☐ No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
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Large accelerated filer | | ☒ | | Accelerated filer | | ☐ |
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Large accelerated filer | | ý | | Accelerated filer | | o |
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Non-accelerated filer | | o (do not check if a smaller reporting company) ☐ | | Smaller reporting company | | o☐ |
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| | | | Emerging growth company | | o☐ |
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). o☐ Yes x☒ No
The aggregate market value of the 121,893,075160,754,343 common shares of beneficial interest held by non-affiliates of the Registrant was approximately $2,422,015,400$2,448,288,644 based on the closing price of $19.87$15.23 as reported on the New York Stock Exchange for such common shares of beneficial interest on June 30, 2017.2021.
As of February 20, 2018, 174,847,26317, 2022, 166,478,328 common shares of beneficial interest of the Registrant, $0.01 par value per share, were outstanding.
Documents Incorporated by Reference
Portions of the Definitive Proxy Statement for our 20182022 Annual Meeting of Shareholders are incorporated by reference into Part III of this report. We expect to file our proxy statement within 120 days after December 31, 2017.2021.
TABLE OF CONTENTS
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Item No. | | Form 10-K Report Page |
PART I |
| Business | |
Item 1A. | Risk Factors | |
Item 1B. | Unresolved Staff Comments | |
| Properties | |
3. | Legal Proceedings | | |
4. | Mine Safety Disclosures | | |
| | PART II |
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PART II |
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| Other Information | | |
PART III |
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| Executive Compensation | | |
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PART IV |
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SPECIAL NOTE ABOUT FORWARD-LOOKING STATEMENTS
Certain statements in this Annual Report on Form 10-K, other than purely historical information, including estimates, projections, statements relating to our business plans, objectives and expected operating results, and the assumptions upon which those statements are based, are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements generally are identified by the use of the words "believe," "project," "expect," "anticipate," "estimate," "plan," "may," "will," "will continue," "intend," "should," "may" or similar expressions. Although we believe that the expectations reflected in such forward-looking statements are based upon reasonable assumptions, beliefs and expectations, such forward-looking statements are not predictions of future events or guarantees of future performance and our actual results could differ materially from those set forth in the forward-looking statements. Some
Currently, one of the most significant factors that could cause actual outcomes to differ materially from our forward-looking statements is the continued material adverse effect of the current pandemic of the novel coronavirus, or COVID-19 on our financial condition, results of operations, cash flows and performance, the real estate market and the global economy and financial markets. The extent to which the COVID-19 pandemic will continue to impact us will depend on future developments, which are highly uncertain and cannot be predicted with confidence. These future developments may include, among others, the duration of the pandemic and its impact on the demand for travel and on levels of consumer confidence, the actions governments, businesses and individuals take in response to the pandemic, the impact of the pandemic on global and regional economies, travel and economic activity, public adoption rates of COVID-19 vaccines, including booster shots, and their effectiveness against emerging variants of COVID-19, such as the Delta and Omicron variants, and the pace of recovery when the COVID-19 pandemic subsides. Moreover, investors are cautioned to interpret many of the risks identified under the section entitled “Risk Factors” within this Annual Report on Form 10-K as being heightened as a result of the ongoing and numerous adverse impacts of the COVID-19 pandemic.
Additional factors that might cause such a differenceactual outcomes to differ materially from our forward-looking statements include the following: the current global economic uncertainty, increased direct and indirect competition, changes in government regulations or accounting rules, changes in local, national and global real estate conditions, declines in the lodging industry, seasonality of the lodging industry, risks related to natural disasters, such as earthquakes and hurricanes, hostilities, including future terrorist attacks or fear of hostilities that affect travel, epidemics and/or pandemics, including the COVID-19 pandemic, our ability to obtain lines of credit or permanent financing on satisfactory terms, changes in interest rates, access to capital through offerings of our common and preferred shares of beneficial interest, or debt, our ability to identify suitable acquisitions, our ability to close on identified acquisitions and integrate those businesses, including the business of FelCor Lodging Trust Incorporated ("FelCor"), and inaccuracies of our accounting estimates. A discussion of these and other risks and uncertainties that could cause actual results and events to differ materially from such forward-looking statements is included in "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" within this Annual Report on Form 10-K. Given these uncertainties, undue reliance should not be placed on such statements. Except as required by law, we undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise. Except where the context suggests otherwise, we define certain terms in this Annual Report on Form 10-K as follows:
•"our company," "we," "us" and "our" refer to RLJ Lodging Trust, a Maryland real estate investment trust, together with its consolidated subsidiaries, including RLJ Lodging Trust, L.P., a Delaware limited partnership, which we refer to as the "Operating Partnership";
•"our hotel properties" refers to the 15898 hotels owned by us as of December 31, 2017;2021;
•a "compact full-service hotel" typically refers to any hotel with (1) less than 300 guestrooms and less than 12,000 square feet of meeting space, or (2) more than 300 guestrooms where, unlike traditional full-service hotels, the operations focus primarily on the rental of guestrooms such that a significant majority of its total revenue is generated from room rentals rather than other sources, such as food and beverage;
•a "focused-service hotel" typically refers to any hotel where the operations focus primarily on the rental of guestrooms and that offers services and amenities to a lesser extent than a traditional full-service or compact full-service hotel. For example, a focused-service hotel may have a restaurant, but, unlike a restaurant in a traditional full-service or compact full-service hotel, it may not offer three meals per day and may not offer room service. In addition, a focused-service hotel differs from a compact full-service hotel in that it typically has less than 2,000 square feet of meeting space, if any at all;
•"TRS" refers to each of our taxable REIT subsidiaries that are wholly-owned, directly or indirectly, by the Operating Partnership and any disregarded subsidiaries of our TRSs;
•"Average Daily Rate" ("ADR") represents the total hotel room revenues divided by the total number of rooms sold in a given period;
•"Occupancy" represents the total number of hotel rooms sold in a given period divided by the total number of rooms available; and
•"Revenue Per Available Room" ("RevPAR") is the product of ADR and Occupancy; and
"RevPAR penetration index" of our hotel properties is the measure of each hotel's RevPAR in relation to the average RevPAR of that hotel's competitive set. Each hotel's competitive set consists of a small group of hotels in the relevant market that we and the third-party hotel management company that manages the hotel believe are comparable for purposes of benchmarking the performance of such hotel.Occupancy.
For a more in depth discussion of ADR, Occupancy RevPAR, and the RevPAR, penetration index, please refer to the "Key Indicators of Operating Performance" section.
PART I
Item 1. Business
Our Company
We are a self-advised and self-administered Maryland real estate investment trust ("REIT") that acquiresowns primarily premium-branded, high-margin, focused-service and compact full-service hotels. We are one of the largest U.S. publicly-traded lodging REITs in terms of both number of hotels and number of rooms. Our hotel propertieshotels are concentrated in markets that we believe exhibit multiple demand generators with dense corporate and individual populations.attractive long-term growth prospects. We believe premium-branded, focused-service and compact full-service hotels with these characteristics generate high levels of RevPAR, strong operating margins and attractive returns.
As of December 31, 2017,2021, we owned 15898 hotel properties with approximately 31,00021,700 rooms, located in 2622 states and the District of Columbia. We owned, through wholly-owned subsidiaries, a 100% interest in 15496 of our hotel properties, a 98.3% controlling interest in the DoubleTree Metropolitan Hotel New York City, a 95%95.0% controlling interest in The Knickerbocker, and a 50% interestsinterest in entitiesan entity owning twoone hotel properties.property. We consolidate our real estate interests in the 15697 hotel properties in which we hold a controlling financial interest, and we record the real estate interests in the twoone hotel propertiesproperty in which we hold an indirect 50% interest using the equity method of accounting. We lease 15797 of the 15898 hotel properties to our TRS,TRSs, of which we own a controlling financial interest.
For U.S. federal income tax purposes, we electedelect to be taxed as a REIT commencing with our taxable year ended December 31, 2011.REIT. Substantially all of our assets and liabilities are held by, and all of our operations are conducted through, the Operating Partnership. We are the sole general partner of the Operating Partnership. As of December 31, 2017,2021, we owned, through a combination of direct and indirect interests, 99.6%99.5% of the units of limited partnership interest in the Operating Partnership ("OP units").
MergerCOVID-19
The global outbreak of COVID-19 and the public health measures that have been undertaken in response have had, and will likely continue to have, a material adverse impact on the global economy and all aspects of our business. Significant events affecting travel, including the COVID-19 pandemic, typically have an impact on booking patterns, with FelCor Lodging Trust Incorporated
On August 31, 2017, we completed our merger with FelCor Lodging Trust Incorporated (“FelCor”). Pursuant to the Agreement and Plan of Merger (the “Merger Agreement”), dated April 23, 2017, by and among us, the Operating Partnership, Rangers Sub I, LLC, a wholly owned subsidiaryfull extent of the Operating Partnership ("Rangers"), Rangers Sub II, LP, a wholly owned subsidiaryimpact generally determined by the duration of the Operating Partnership ("Partnership Merger Sub"), FelCorevent and FelCor Lodging Limited Partnership ("FelCor LP"), Partnership Merger Sub merged with and into FelCor LP, with FelCor LP surviving as a wholly owned subsidiaryits impact on travel decisions. The effects of the Operating Partnership (the "Partnership Merger"),COVID-19 pandemic could have lasting changes in consumer behavior that could create headwinds for our hotel properties. Since we cannot estimate when the COVID-19 pandemic and immediately thereafter, FelCor merged withthe responsive measures to combat it will end, we cannot estimate the ultimate operational and into Rangers, with Rangers surviving as a wholly owned subsidiaryfinancial impact of the Operating Partnership (the "REIT Merger" and, together with the Partnership Merger, the "Mergers").COVID-19 pandemic on our business.
Upon completionThe effects of the REIT MergerCOVID-19 pandemic have significantly impacted our operations, and undercombined with macroeconomic trends such as reduced business spending, including on travel, and a labor shortage, which has led to higher labor costs, lead us to believe that the termsongoing effects of the Merger Agreement, each issued and outstanding share of FelCor common stock (other than shares held by any wholly owned subsidiary of FelCor or by us or any ofCOVID-19 pandemic on our subsidiaries) was converted into the rightoperations will continue to receive 0.362 (the “Common Exchange Ratio”) ofhave an adverse impact on our common shares, and each issued and outstanding share of FelCor $1.95 Series A cumulative convertible preferred stock was converted into the right to receive one of our $1.95 Series A cumulative convertible preferred shares.financial results.
Upon completion of the Partnership Merger and under the terms of the Merger Agreement, each limited partner of FelCor LP was entitled to elect to exchange its outstanding common limited partnership units in FelCor LP (the "FelCor LP Common Units") for a number of our newly issued common shares based on the Common Exchange Ratio. Upon completion of the Partnership Merger, each outstanding FelCor LP Common Unit of any holder who did not make the foregoing election was converted into the right to receive a number of OP units based on the Common Exchange Ratio. No fractional shares or units of our common shares or OP units were issued in the Mergers, and the value of any fractional interests was paid in cash.
The combined company, headquartered in Bethesda, Maryland, continues to be led by our existing senior management team. Additional information on the Mergers can be found in Note 3 to our accompanying consolidated financial statements.
The Lodging Industry
The lodging industry in the United States consists of public and private entities that operate in an extremely diversified market under a variety of brand names. The key participants in the lodging industry are as follows:
•Owners— own the hotel property and typically enter into a management agreement forwith an independent third party to manage the hotel property. The hotel properties may be branded and operated under the manager’s brand or branded under a separate franchise agreement.
•Franchisors— own a brand or brands and provide the franchised hotels with brand recognition, marketing support and worldwide reservation systems.
•Managers— responsible for the day-to-day operation of the hotel property, including the employment of the hotel staff, the determination of room rates, the development of sales and marketing plans, the preparation of operating and capital expenditure budgets and the preparation of financial reports for the owner.
Our Investment and GrowthBusiness Strategies
Our objective is to generate strong returns for our shareholders by acquiring and owning primarily premium-branded, focused-service and compact full-service hotels at prices where we believe we can generate attractive returns on investment and long-term value appreciation through proactive asset management. We also intend to selectively dispose of hotel properties
when we believe the returns have been maximized or the hotel properties no longer meet our strategy in order to redeploy capital into more accretive acquisitions andhave investment capacity for other opportunities.opportunities, which may include acquisitions. We intend to pursue this objective through the following investment and growthbusiness strategies:
Investment Strategies
•Targeted ownership of premium-branded, focused-service and compact full-service hotels. We believe that premium-branded, focused-service and compact full-service hotels have the potential to generate attractive returns relative to other types of hotels due to their ability to achieve RevPAR levels at or close to those generated by traditional full-service hotels, while achieving higher profit margins due to their more efficient operating model and less volatile cash flows.
•Use of premium hotel brands. We believe in affiliating our hotels with premium brands owned by leading international franchisors such as Marriott, Hilton Hyatt and Wyndham.Hyatt. We believe that utilizing premium brands provides significant advantages because of their guest loyalty programs, worldwide reservation systems, effective product segmentation, global distribution and strong customer awareness.
•Focus on high-growth markets. We focus on owning and acquiring hotel properties in markets that we believe haveexhibit multiple demand generators with dense corporate and individual populations.attractive long-term growth prospects. As a result, we believe that these hotel properties generate higher returns on investment.
GrowthBusiness Strategies
•Maximize returns from our hotel properties. We believe that our hotel properties have the potential to generate improvements in RevPAR and earnings before interest, taxes, depreciation and amortization ("EBITDA") as a result of our proactive asset management and the anticipated economic growth inlong-term recovery of the United States.States economy. We actively monitor and advise our third-party hotel management companies on most aspects of our hotels' operations, including property positioning, physical design, capital planning and investment, guest experience and overall strategic direction. We regularly review opportunities to further invest in our hotel properties in an effort to enhance the quality and attractiveness, of our hotel properties, increase their long-term value and generate attractive returns on investment.
•Pursue a disciplined hotel acquisition strategy. We seek to acquire additional hotel properties at prices below replacement cost where we believe we can generate attractive returns on investment. We intend to target newly or recently built hotel properties and we will also target acquisition opportunities where we can enhance value by pursuing proactive investment strategies such as renovation, repositioning or rebranding.
•Pursue a disciplinedopportunistic capital recycling program.recycling. We intend to continue to pursue a disciplined capital allocation strategy designed to maximize the return on our investments bymay opportunistically and selectively sellingsell hotel properties that are no longer consistent with our investment strategy or whose returns appear to have been maximized. To the extent that we sell our hotel properties, except as may be required by our debt agreements, we intend to redeploy the capital into other investment opportunities, including without limitation, acquisitions and internal value creation opportunities.
•Maintain a flexible balance sheet. We intend to continue to maintain a flexible capital structure that weallows us to execute our strategy. We believe will achieve higher returns.
that a strong balance sheet is a key competitive advantage that affords us a lower cost of capital and positions us for growth. We structure our debt profile to maintain financial flexibility and a balanced maturity schedule with access to different forms of financing.
Our Hotels
Overview
As of December 31, 2017, we owned a high-quality portfolio of 158 hotel properties with approximately 31,000 rooms, located in 26 states and the District of Columbia. No single hotel property accounted for more than 4.8% of our total revenue for the year ended December 31, 2017.
Brand Affiliations
Our hotel properties operate under strong, premium brands, with approximately 96%88% of our hotel properties operating under existing relationships with Marriott, Hilton Hyatt or Wyndham.Hyatt. The following table sets forth the brand affiliations of our hotel properties as of December 31, 2017:2021:
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Brand Affiliations | | Number of hotels | | Percentage of total hotels | | Number of rooms | | Percentage of total rooms |
Marriott | | | | | | | | |
Courtyard | | 12 | | | 12.3 | % | | 2,664 | | | 12.3 | % |
Residence Inn | | 10 | | | 10.2 | % | | 1,444 | | | 6.7 | % |
Marriott | | 5 | | | 5.1 | % | | 1,738 | | | 8.0 | % |
Fairfield Inn & Suites | | 4 | | | 4.1 | % | | 552 | | | 2.5 | % |
Renaissance | | 3 | | | 3.1 | % | | 782 | | | 3.6 | % |
SpringHill Suites | | 3 | | | 3.1 | % | | 437 | | | 2.0 | % |
AC Hotel | | 1 | | | 1.0 | % | | 205 | | | 0.9 | % |
Moxy | | 1 | | | 1.0 | % | | 170 | | | 0.8 | % |
Subtotal | | 39 | | | 39.9 | % | | 7,992 | | | 36.8 | % |
Hilton | | | | | | | | |
Embassy Suites | | 20 | | | 20.4 | % | | 5,539 | | | 25.6 | % |
Hilton Garden Inn | | 5 | | | 5.1 | % | | 1,125 | | | 5.2 | % |
DoubleTree | | 4 | | | 4.1 | % | | 920 | | | 4.2 | % |
Hampton Inn/Hampton Inn & Suites | | 3 | | | 3.1 | % | | 499 | | | 2.3 | % |
Homewood Suites | | 2 | | | 2.0 | % | | 345 | | | 1.6 | % |
Hilton | | 1 | | | 1.0 | % | | 231 | | | 1.1 | % |
Subtotal | | 35 | | | 35.7 | % | | 8,659 | | | 40.0 | % |
Hyatt | | | | | | | | |
Hyatt House | | 7 | | | 7.1 | % | | 1,188 | | | 5.5 | % |
Hyatt Place | | 3 | | | 3.1 | % | | 466 | | | 2.2 | % |
Hyatt Centric | | 2 | | | 2.0 | % | | 266 | | | 1.2 | % |
Subtotal | | 12 | | | 12.2 | % | | 1,920 | | | 8.9 | % |
Wyndham | | | | | | | | |
Wyndham | | 7 | | | 7.1 | % | | 2,241 | | | 10.3 | % |
Subtotal | | 7 | | | 7.1 | % | | 2,241 | | | 10.3 | % |
Other Brand Affiliation | | 5 | | | 5.1 | % | | 858 | | | 4.0 | % |
Total | | 98 | | | 100.0 | % | | 21,670 | | | 100.0 | % |
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Brand Affiliations | | Number of hotels | | Percentage of total hotels | | Number of rooms | | Percentage of total rooms |
Marriott | | | | | | | | |
Residence Inn | | 29 |
| | 18.4 | % | | 3,376 |
| | 10.9 | % |
Courtyard | | 24 |
| | 15.2 | % | | 4,038 |
| | 13.0 | % |
SpringHill Suites | | 8 |
| | 5.0 | % | | 1,040 |
| | 3.4 | % |
Fairfield Inn & Suites | | 7 |
| | 4.4 | % | | 819 |
| | 2.6 | % |
Marriott | | 6 |
| | 3.8 | % | | 1,945 |
| | 6.3 | % |
Renaissance | | 4 |
| | 2.5 | % | | 1,144 |
| | 3.7 | % |
Sheraton | | 1 |
| | 0.7 | % | | 364 |
| | 1.2 | % |
Subtotal | | 79 |
| | 50.0 | % | | 12,726 |
| | 41.1 | % |
Hilton | | | | | | | | |
Embassy Suites | | 24 |
| | 15.2 | % | | 6,474 |
| | 20.9 | % |
Hilton Garden Inn | | 8 |
| | 5.0 | % | | 1,545 |
| | 5.0 | % |
Hampton Inn/Hampton Inn & Suites | | 7 |
| | 4.4 | % | | 945 |
| | 3.0 | % |
DoubleTree | | 6 |
| | 3.8 | % | | 1,858 |
| | 6.0 | % |
Homewood Suites | | 2 |
| | 1.3 | % | | 345 |
| | 1.1 | % |
Hilton | | 2 |
| | 1.3 | % | | 616 |
| | 2.0 | % |
Subtotal | | 49 |
| | 31.0 | % | | 11,783 |
| | 38.0 | % |
Hyatt | | | | | | | | |
Hyatt House | | 11 |
| | 7.0 | % | | 1,762 |
| | 5.7 | % |
Hyatt Place | | 3 |
| | 1.9 | % | | 466 |
| | 1.5 | % |
Hyatt/Hyatt Centric | | 2 |
| | 1.3 | % | | 264 |
| | 0.9 | % |
Subtotal | | 16 |
| | 10.2 | % | | 2,492 |
| | 8.1 | % |
Wyndham | | | | | | | | |
Wyndham | | 8 |
| | 5.0 | % | | 2,528 |
| | 8.2 | % |
Subtotal | | 8 |
| | 5.0 | % | | 2,528 |
| | 8.2 | % |
Other Brand Affiliation | | 6 |
| | 3.8 | % | | 1,443 |
| | 4.6 | % |
Total | | 158 |
| | 100.0 | % | | 30,972 |
| | 100.0 | % |
Asset Management
We have a dedicated team of asset management professionals that proactively work with our third-party hotel management companies to maximize profitability at each of our hotels.hotels to the extent permitted under the REIT rules. Our asset management team monitors the performance of our hotels on a daily basis and holds frequent ownership meetings with corporate operations executives and key personnel at the hotels. Our asset management team works closely with our third-party hotel management companies on key aspects of each hotel's operation, including, among others, revenue management, market positioning, cost structure, capital and operational budgeting, as well as the identification and evaluation of return on investment initiatives and overall business strategy. In addition, we retain approval rights on key staffing positions at many of our hotels, such as the hotel's general manager and director of sales. We believe that
our strong asset management process helps to ensure that each hotel is being operated to our and our franchisors' standards, that our hotel properties are being adequately maintained in order to preserve the value of the asset and to ensure the safety of the hotel toour customers, and that our management companies are maximizing revenuerevenues, profits and enhancing operating margins.
Competition
The U.S. lodging industry is highly competitive. Our hotel properties compete with other participants in the lodging industry for guests in each of their markets on the basis of several factors, including, among others, location, quality of accommodations, convenience, brand affiliation, room rates, service levels, and amenities and levelthe availability of customer service.lodging and event space. Competition is often specific to the individual markets in which our hotel properties are located and includes competition from existing and new hotels in the focused-service and compact full-service hotel segments and non-traditional accommodations for travelers, such as online room sharing services.services that market homes and condominiums as an alternative to hotel rooms. We believe that hotels, such as our hotels, that are affiliated with leading national brands, such as the Marriott, Hilton Hyatt and WyndhamHyatt brands, will enjoy competitive advantages associated with operating under such brands.
We face competition for the acquisition of hotel properties from institutional pension funds, private equity funds, REITs, hotel companies and other parties who are engaged in the acquisition of hotel properties. Some of these competitors may have substantially greater financial and operational resources and access to capital, than we have and may havea lower cost of capital and/or greater knowledge of the markets in which we seek to invest. This competition may reduce the number of suitable investment opportunities offered to us and decrease the attractiveness of the terms on which we may acquire our targeted hotel investments, including the cost thereof.
Seasonality
The lodging industry is seasonal in nature, which can be expected to cause quarterly fluctuations in our revenues. For example, our hotels in the Chicago, Illinoisnortheastern metropolitan areaareas experience lower revenues and profits during the winter months of December through March, while our hotels in Florida generally have higher revenues in the months of January through April. This seasonality can be expected to cause periodic fluctuations in a hotel's room revenues, occupancy levels, room rates, operating expenses and cash flows.
Our Financing Strategy
We expect to continue to maintain a prudent capital structure by limiting our net debt-to-EBITDA ratio to 5.0x or below. We define net debt as total indebtedness minus cash and cash equivalents. Over time, we intend to finance our long-term growth with equity issuances and debt financing with staggered maturities. We will seekOur strategy with respect to our debt profile is to primarily utilizehave unsecured debt (with the ultimate goal of achieving an investment grade rating) and a greater percentage of fixed rate and hedged floating rate debt relativeas compared to unhedged floating rate debt. Our debt is currently comprised of secured and unsecured senior notes, unsecured credit agreements, and mortgage loans that are secured by ourcertain hotel properties. We have a mix of fixed and floating rate debt; however, the majorityall of our debt currently either bears interest at fixed rates or effectively bears interest at fixed rates due to interest rate derivative hedgesswaps on the debt.
Organizational Structure
We were formed as a Maryland REIT in January 2011. We conduct our business through a traditional umbrella partnership real estate investment trust ("UPREIT") in which our hotel properties are indirectly owned by the Operating Partnership, through limited partnerships, limited liability companies or other subsidiaries. We are the sole general partner of the Operating Partnership and, as of December 31, 2017,2021, we owned 99.6%99.5% of the OP units in the Operating Partnership. In the future, we may issue OP units from time to time in connection with acquiring hotel properties, financing, compensation or other reasons.
In order for the income from our hotel operations to constitute "rents from real property" for purposes of the gross income tests required for REIT qualification, we cannot directly or indirectly operate any of our hotel properties. Accordingly, we lease each of our hotels, and we intend to lease any hotels we acquire in the future, to subsidiaries of our TRSs ("TRS lessees"), which are wholly-ownedowned by us, and ourus. Our TRS lessees have engaged, or will engage, third-party hotel management companies to manage our hotels,hotel properties, and any hotelshotel properties we acquire in the future, on market terms.
Our TRS lessees pay rent to us that we intend to treat as "rents from real property," provided that the third-party hotel management companies engaged by our TRS lessees to manage our hotelshotel properties are deemed to be "eligible independent contractors" and certain other requirements are met. Our TRSs are subject to U.S. federal, state and local income taxes applicable to corporations.
The following chart generally depicts our corporate structure as of December 31, 2017:
Regulation
General
Our hotel properties are subject to various U.S. federal, state and local laws, ordinances and regulations, including regulations relating to common areas and fire and life safety requirements. We believe that each of our hotel properties has the necessary permits and approvals to operate its business.
Americans with Disabilities Act
Our hotel properties must comply with the applicable provisions of the Americans with Disabilities Act of 1990 and the Accessibility Guidelines promulgated thereunder (the "ADA"), to the extent that such hotels are "public accommodations" as defined by the ADA. The ADA may require the removal of structural barriers to access by persons with disabilities in certain public areas of our hotels where such removal is readily achievable. We believe that our hotel properties are in substantial compliance with the ADA and that we will not be required to make substantial capital expenditures to address the requirements of the ADA. However, non-compliance with the ADA could result in imposition of fines or an award of damages to private litigants. The obligation to make readily achievable accommodations is an ongoing one, and we will continue to assess our hotels and to make alterations as appropriate in this respect.
Environmental Matters
Under various federal, state and local laws, ordinances and regulations relating to the protection of the environment, a current or previous owner or operator (including tenants) of real estate may be subject to liability related to contamination resulting from the presence or discharge of hazardous or toxic substances at that property and may be required to investigate and clean up such contamination at that property or emanating from that property. These costs could be substantial and liability under these laws may attach without regard to whether the owner or operator knew of, or was responsible for, the presence of the contaminants, and the liability may be joint and several. The presence of contamination or the failure to remediate contamination at our hotels may expose us to third-party liability for cleanup costs, property damage or bodily injury, natural resource damages and costs or expenses related to liens or property use restrictions and materially and adversely affect our ability to sell, lease or develop the real estate or to incur debt using the real estate as collateral. Furthermore, persons who sent waste to a waste disposal facility, such as a landfill or an incinerator, may be liable for costs associated with cleanup of that facility.
Our hotel properties are subject to various federal, state, and local environmental, health and safety laws and regulations that address a wide variety of issues, including, but not limited to, storage tanks, air emissions from emergency generators, storm water and wastewater discharges, lead-based paint, mold and mildew and waste management.regulations. Our hotel properties incur costs to comply with these laws and regulations and could be subject to fines and penalties for non-compliance. The costs of complying with environmental, health and safety laws could increase as new laws are enacted and existing laws are modified.
Some of our hotel properties contain asbestos-containing building materials. We believe that the asbestos is appropriately contained in accordance with current environmental regulations and that we have no need for any immediate remediation or current plans to remove the asbestos. Environmental laws require
We believe that owners or operators of buildings with asbestos-containing building materials properly manage and maintain these materials, adequately inform or train those who may come into contact with asbestos and undertake special precautions, including removal or other abatement, in the event that asbestos is disturbed during building renovation or demolition. These laws may impose fines and penalties on building owners or operators for failure to comply with these requirements. In addition, third parties may seek recovery from owners or operators for personal injury associated with exposure to asbestos-containing building materials.
Some of our hotel properties may containare in compliance, in all material respects, with all federal, state and local environmental ordinances and regulations regarding hazardous or develop harmful mold or suffer fromtoxic substances and other adverse conditions,environmental matters, the violation of which could leadhave a material adverse effect on us. Although we have not received written notice from any governmental authority of any material noncompliance, liability or claim relating to liability for adverse health effects and costs of remediation. The presence of significant moldhazardous or toxic substances or other airborne contaminants atenvironmental matters in connection with any of our hotelpresent properties, could requirewe can offer no assurance that a material environmental claim will not be asserted against us to undertake a costly remediation program to contain or removein the mold or other airborne contaminants from the affected hotel or increase indoor ventilation. In addition, the presence of significant mold or other airborne contaminants could expose us to liability from guests or employees at our hotel properties and others if property damage or health concerns arise.future.
Insurance
We carry comprehensive general liability, fire, extended coverage, business interruption, rental loss of income coverage and umbrella liability coverage on all of our hotels, andincluding earthquake, wind, flood and hurricane coverage on hotels in areas where we believe such coverage iscoverages are warranted, in each case with limits of liability that we deem adequate. Similarly, we are insured against the risk of direct physical damage in amounts we believe to be adequate to reimburse us, on a replacement cost basis, for the costs incurred to repair or rebuild each hotel, including loss of income during the reconstruction period. We have selected policy specifications and insured limits which we believe to be appropriate given the relative risk of loss, the cost of the coverage and industry practice. Certain of our properties in our portfolio are located in areas known to be subject to hurricanes and we believe that we have appropriate insurance for those risks, although they are subject to higher deductibles than ordinary property insurance. We do not carry insurance for generally uninsurable risks, including, but not limited to losses
caused by riots,communicable or infectious diseases, war or actsgovernmental actions such as government seizures of God.property. In addition, we do not carry cyber insurance. In the opinion of our management, our hotels are adequately insured.
EmployeesHuman Capital
As of December 31, 2017,2021, we had 9976 employees. We strive to maintain a workplace that is free from discrimination or harassment on the basis of race, color, sex, religion, age, ethnicity, national origin, disability, sexual orientation, gender identification or any other status protected by applicable laws. We conduct annual trainings to prevent discrimination and harassment and monitor employee conduct year-round.
Our key human capital management objectives are to attract, recruit, hire, develop and promote a deep and diverse bench of talent that translates into a strong and successful workforce. To support these objectives, our human resources programs are designed to develop talent to prepare them for critical roles and leadership positions for the future; reward and support employees through competitive pay and benefit programs; enhance our culture through efforts to foster, promote, and preserve a culture of diversity and inclusion; and evolve and invest in technology, tools, and resources to enable employees at work.
In addition, throughout the COVID-19 pandemic, we have taken aggressive steps to protect the health and well-being of our associates, customers and the employees of our third-party management companies. Among other things, we follow the American Hotel Lodging Association ("AHLA") Safe Stay® initiative focused on enhanced hotel cleaning practices, social interactions and workplace protocols required to address the challenges and new expectations presented by the COVID-19 pandemic. We are committed to ensuring the continuing safety, health and well-being of our community.
Environmental, Social, and Governance ("ESG")
We are committed to driving long-term value creation for our shareholders by upholding our corporate responsibility and incorporating ESG initiatives in all key aspects of our strategy and business.
On the environmental front, our investment strategy of owning primarily rooms-oriented, focused-service and compact full-service hotels leads to lower operational intensity and higher efficiency with respect to space usage than full-service hotels, resulting in a lower environmental impact across our portfolio. In 2021, we disclosed on our website our historical performance with respect to energy consumption, greenhouse gas intensity and water intensity. We also disclosed our environmental policy, which includes our objectives, risks and opportunities, management processes, standard technical practices and investment focus areas as it relates to our environmental impact. Such objectives include reducing energy, greenhouse gas, and water usage and making green building investments, as well as addressing the physical impacts of climate change.
With respect to socialcauses, we continue to show our commitment to making an impact in the communities we serve. In 2021, following the damage caused by Hurricane Ida, both the Company and our associates donated to the Jericho Road Housing Initiative in New Orleans. Jericho Road Housing Initiative is a community-based organization that provides green and sustainable housing to low-income citizens in the central district of New Orleans. The initiative also provides robust job training and financial coaching services.
In connection with our adherence to the AHLA Safe Stay® initiative, we are committed to promoting the health and well-being of all members of our community – from our customers and associates to the employees of our third-party management companies. To that end, we incorporate all related AHLA Safe Stay policies and procedures into hotel operations so that all related parties benefit from our support. We have committed to initiatives that support associate well-being, including the AHLA 5-Star Promise – a voluntary industry pledge to improve and promote workplace safety around sexual violence, assault and human trafficking. We are also committed to supporting our third-party management companies with integrating the 5-Star Promise principles throughout their hotel operations. Our labor and human rights policy outlines our approach to ensuring fair and equitable labor practices.
We continue to uphold high standards with respect to governance, which is reflected in our approach to maintaining a highly diverse board and our overall approach to risk management. With respect to our board, four trustees are women, six are ethnically diverse and eight are independent. Nearly 80% of our board has deep expertise and experience in risk management. In addition, our board, via the Nominating and Corporate Governance Committee (the "NCG Committee") of the board, has the overall responsibility for overseeing ESG-related issues, policies and programs for the Company. The NCG Committee, with critical support from management, is leading the effort to formulate our strategy with respect to adapting and responding to the risks and opportunities presented by ESG-related matters. During 2021, we also disclosed key ESG metrics, documents and policies through the Global Reporting Initiative (“GRI”) Index, in accordance with the GRI framework.
We intend to continue to enhance our ESG initiatives and our disclosures by striving to adhere to other widely recognized frameworks to provide additional transparency regarding our ESG initiatives. We also intend to enhance strategic decision making by identifying and addressing material risks and opportunities that mitigate long-term environmental impacts to our hotel properties. We will continue to seek ways to maximize the positive impact of our business in ways that foster long-term resiliency for both the portfolio and our stakeholders.
Corporate Information
Our principal executive offices are located at 3 Bethesda Metro Center, Suite 1000, Bethesda, Maryland 20814. Our telephone number is (301) 280-7777. Our website is located at www.rljlodgingtrust.com. The information that is found on or accessible through our website is not incorporated into, and does not form a part of, this Annual Report on Form 10-K or any other report or document that we file with or furnish to the SEC. We have included our website address in this Annual Report on Form 10-K as an inactive textual reference and do not intend it to be an active link to our website.
We make available on our website, free of charge, our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. We also make available on our website on the Corporate Governance page under the Investor Relations section various documents related to our corporate governance including our: Board Committee Charters; Corporate Governance Guidelines; Code of Business Conduct and Ethics; Complaint Procedures for Financial and Auditing Matters; Declaration of Trust; and Bylaws.
This Annual Report on Form 10-K and other reports filed with the SEC can be read or copied atare available on the SEC's Public Reference Room at 100 F Street NE, Washington, D.C. 20549. Information on the operation of the Public Reference Room can be obtained by calling the SEC at 1-800-SEC-0330. The SEC maintains a website, thatwhich contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC; theSEC. The SEC's website address is www.sec.gov.
Item 1A. Risk Factors
Set forth below are the risks that we believe are material to our shareholders. You should carefully consider the following risks in evaluating our Company and our business. The occurrence of any of the following risks could materially and adversely impact our financial condition, results of operations, cash flows, the market price of our common shares, and our ability to, among other things, satisfy our debt service obligations and to make distributions to our shareholders, which in turn could cause our shareholders to lose all or a part of their investment. Some statements in this report including statements in the following risk factors constitute forward-looking statements. Please refer to the section entitled "Special Note About Forward-Looking Statements" at the beginning of our Annual Report on Form 10-K.
Risks Related to Our Business and Hotel Properties
COVID-19 is expected to continue to significantly impact and disrupt, our business, financial performance and condition, operating results and cash flows. Further, the spread of COVID-19 has caused severe disruptions in the U.S. and global economy and financial markets and could result in the continuation of widespread business continuity issues for an unknown duration.
COVID-19 has disrupted our business and continues to have a material adverse effect on our financial performance and condition, operating results and cash flows.
Factors that would negatively impact our ability to operate successfully during or following the COVID-19 pandemic or another pandemic, or that could otherwise significantly impact and disrupt our business, financial performance and condition, operating results and cash flows, include:
•sustained negative consumer or business sentiment, economic metrics or demand for travel, including beyond the end of the COVID-19 pandemic, which could further impact demand for lodging;
•increased operational costs to maintain hotels, including increased sanitation measures;
•the scaling back or delay of a significant amount of planned capital expenditures, including planned renovation projects, which could adversely affect the value of our properties;
•our increased indebtedness and decreased operating revenues, which could increase our risk of default on our loans;
•disruptions in our supply chains;
•fluctuations in regional and local economies;
•the continued service and availability of personnel, including our senior leadership team, and our ability to recruit, attract and retain skilled personnel to the extent our management or personnel are impacted by the outbreak of pandemic or epidemic disease and are not available to conduct work;
•disruptions as a result of corporate employees working remotely, including risk of cybersecurity incidents and disruptions to internal control procedures; and
•difficulty accessing debt and equity capital on attractive terms, or at all, and a severe disruption and instability in the global financial markets or deteriorations in credit and financing conditions may affect our ability to meet our liquidity needs by restricting or otherwise limiting our access to capital necessary to fund business operations and affect the availability and terms of future borrowings, renewals or refinancings.
Any of the negative impacts of the COVID-19 pandemic, including those described above, alone or in combination with others, may have a material adverse effect on our results of operations, financial condition and cash flows.
The significance, extent and duration of the impacts caused by the COVID-19 pandemic on our business, financial condition, operating results and cash flows, remains largely uncertain and dependent on future developments that cannot be accurately predicted at this time, such as the continued severity, duration, transmission rate and geographic spread of COVID-19 in the United States, the extent and effectiveness of the containment measures taken, the effectiveness of the distribution and efficacy of vaccines, and the responses of the overall economy, the financial markets and the population, particularly in areas in which we operate. Furthermore, there can be no guarantee that the demand for lodging, and consumer confidence in travel generally, will recover as quickly as other industries after the COVID-19 pandemic has largely subsided. As a result, we cannot provide an estimate of the overall impact of the COVID-19 pandemic on our business or when, or if, we will be able to resume normal operations. Nevertheless, the COVID-19 pandemic presents material uncertainty and risk with respect to our business, financial performance and condition, operating results and cash flows.
We require a significant amount of cash to service our debt and sustain our operations. Our ability to generate cash depends on many factors beyond our control, and we may not be able to generate cash required to service our debt.
Our ability to meet our debt service obligations or refinance our debt depends on our future operating and financial performance and capacity to generate cash. Our performance and capacity to generate cash will be affected by our ability to implement our business strategy successfully, but also certain general economic, financial, competitive, regulatory and other factors beyond our control, including the disruption caused by the COVID-19 pandemic. If we cannot generate sufficient cash to meet our debt service obligations or fund our other business needs, we may, among other things, need to refinance all or a portion of our debt, obtain additional financing, or continue to delay planned capital expenditures. We cannot assure you that we will be able to generate sufficient cash through any of the foregoing. If we are unable to refinance any of our debt or obtain additional financing on reasonable terms or at all, we may not be able to satisfy our debt obligations.
We will continue to be significantly influenced by the economies and other conditions in the specific markets in which we operate, particularly in the metropolitan areas where we have high concentrations of hotels.
Our hotels located in the Northern California, Southern California, South Florida, New York, New York, Austin,Chicago, Illinois, and Houston, Texas Southern California, and Denver-Boulder, Colorado metropolitan areas accounted for approximately 11.9%12.5%, 8.8%10.5%, 8.5%8.6%, 7.0%, 6.8%,7.4% and 6.6%5.5%, respectively, of our total revenuenumber of rooms available for the fiscal year ended December 31, 2017.2021. As a result, we are particularly susceptible to adverse market conditions in these areas, including industry downturns, relocation of businesses, localized COVID-19 infection rates and governmental actions to address the pandemic, any oversupply of hotel rooms, political unrest or a reduction in lodging demand. Adverse economic developments in the markets in which we have a concentration of hotels, or in any of the other markets in which we operate, or any increase in hotel supply or decrease in lodging demand resulting from the local, regional or national business or political climate, could materially and adversely affect us.
We are dependent on the performance of the third-party management companies that manage the operations of each of our hotels and we could be materially and adversely affected if such third-party hotel managers do not manage our hotels in our best interests.
Because U.S. federal income tax laws restrict REITs and their subsidiaries from operating or managing hotel properties, we do not operate or manage our hotel properties. Instead, we retain third-party hotel managers to operate our hotel properties pursuant to management agreements. As of December 31, 2017,2021, all of our hotel properties had individual management agreements, 7130 of which were with White Lodging ServicesAimbridge Hospitality ("WLS"Aimbridge"). On January 24, 2018, Interstate Hotels & Resorts ("Interstate") acquired 62
The success of our management agreements with WLS. Pursuant to this transaction, we now have 73 management agreements with Interstate and nine management agreements with WLS.
Under the terms of the management agreements, the hotel managers are responsible for all aspects of the operations of our hotels, including ensuring those operations are conducted in accordance with applicable laws and regulations and in our best interests, andproperties depends largely on our ability to participate in operating decisions regarding our hotels is limited to certain matters, including approval of the annual operating budget. While we closely monitor the performanceestablish and operations of our third-party hotel managers, we cannot assure you thatmaintain good relationships with the hotel managers will manage our hotels in a manner that is consistent with their respective obligations under the applicable management agreement or our obligations under our hotel franchise agreements. We also cannot assure you that our hotel managers will not be negligent in their performance, will not engage in criminal or fraudulent activity, or will not otherwise default on their respective management obligations to us. We do not have the authority to require any hotel to be operated in a particular manner (for instance, with respect to setting room rates), even if we believe that our hotels are not being operated efficiently or in our best interests, and our general recourse under the management agreements is limited to termination upon sixty days' notice if we believe our third-party managers are not performing adequately or if we believe our third-party managers are not operating our hotels in our best interests.managers. From time to
time, disputes may arise between us and our third-party managers regarding their performance or compliance with the terms of the management agreements, which in turn could adversely affect our results of operations. We generally will attempt to resolve any such disputes through discussions and negotiations; however, if we are unable to reach satisfactory results through discussions and negotiations, we may choose to terminate our management agreement, litigate the dispute or submit the matter to third-party dispute resolution, the outcome of which may be unfavorable to us.
In the event that any of our management agreements are terminated, we can provide no assurances that we could find a replacement manager or that our franchisors will consent to a replacement manager in a timely manner, or at all, or that any replacement manager will be successful in operating our hotels. Furthermore, if Interstate,Aimbridge, as our largest provider of management services, is financially unable or unwilling to perform its obligations pursuant to our management agreements, our ability to find a replacement manager or managers for our Interstate-managedAimbridge-managed hotels could be challenging, costly and time consuming, depending on the number of Interstate-managed hotels affected, and could cause us to incur significant costs to obtain new management agreements for the affected hotels, which in turn could materially and adversely affect us.consuming.
We are subject to the risks associated with the employment of hotel personnel, particularly with hotels that employ unionized labor.
Our third-party hotel management companies are responsible for hiring and maintaining the labor force at each of our hotels. Although we do not directly employ or manage the employees at our hotels, we still are subject to many of the costs and risks generally associated with the hotel labor force, particularly those hotels with unionized labor. From time to time, the hotel operations may be disrupted as a result of strikes, lockouts, public demonstrations or other negative actions and publicity. We also may incur increased legal costs and indirect labor costs as a result of contract disputes or other events. The resolution of labor disputes or re-negotiated labor contracts could lead to higher labor costs, either by increases in wages or benefits or by changes in work rules that raise hotel operating costs. We do not have the ability to affect the outcome of these negotiations.
Hotels where our managers have collective bargaining agreements with their employees are more highly affected by labor force activities than others. Furthermore, labor agreements may limit the ability of our hotel managers to reduce the size of the hotel workforce during an economic downturn because collective bargaining agreements are negotiated between the hotel managers and labor unions. Our ability, if any, to have any material impact on the outcome of these negotiations is restricted by and dependent on the individual management agreement covering a specific property, and we may have limited ability to control the outcome of these negotiations.
Labor shortages could slow our growth or harm our business.
Our success depends in part upon our third-party management companies' ability to attract, motivate and retain a sufficient number of qualified employees. Qualified individuals needed to fill these positions are in increasingly short supply in some areas, with such supply issues increasing to historical levels in 2021, as has widely been reported by news sources. The inability to recruit and retain these individuals may adversely impact hotel operations and guest satisfaction, which could harm our business. Additionally, competition for qualified employees has required us to pay meaningfully higher wages to attract enough employees than has historically been the case, and continued tightness in labor markets could result in continued escalation of labor costs. In addition, we could face some challenges meeting workforce requirements resulting from changes in workforce dynamics, such as higher standards and working remotely or more flexibility, which could result in increased labor costs in the future.
Restrictive covenants in certain of our hotel management and franchise agreements contain provisions limiting or restricting the sale or financing of our hotels, which could have a material and adverse effect on us.
HotelOur management and franchise agreements typicallymay contain restrictive covenants that limit or restrict our ability to sell or refinance a hotel without the consent of the hotel management company or franchisor. ManySome of our franchise agreements provide the franchisor with a right of first offer in the event of certain sales or transfers of a hotel and provide that the franchisor has the right to approve any change in the hotel management company engaged to manage the hotel. Generally, we may not agree to sell, lease or otherwise transfer particular hotels unless the transferee is not a competitor of the hotel management company or franchisor and the transferee assumes the related hotel management andand/or franchise agreements. If the hotel management company or franchisor does not consent to the sale or financing of our hotels, we may still sell the hotels, but there could be prohibited from taking actions that would otherwise be in our and our shareholders' best interests.adverse consequences.
Substantially all of our hotel properties operate under either Marriott, Hilton Hyatt or WyndhamHyatt brands; therefore, we are subject to the risks associated with concentrating our portfolio in just fourthree brand families.
15286 of the 15898 hotel properties that we owned as of December 31, 20172021 utilize brands owned by Marriott, Hilton Hyatt or Wyndham.Hyatt. As a result, our success is dependent in part on the continued success of Marriott, Hilton Hyatt or WyndhamHyatt and their respective brands. We believe that building brand value is critical to increasing demand and building customer loyalty. Consequently, if market recognition or the positive perception of Marriott and/or Hilton and/or Hyatt and/or Wyndham is reduced or compromised, the goodwill associated with the Marriott-, Hilton-, Hyatt- or Wyndham-brandedHyatt-branded hotels in our portfolio may be adversely affected. Furthermore, if our relationship with Marriott, Hilton Hyatt or WyndhamHyatt were to deteriorate or terminate as a result of disputes regarding the management of our hotels or for other reasons, Marriott and/or Hilton and/or Hyatt and/or Wyndham could, under certain circumstances, terminate our current franchise licenses with them or decline to provide franchise licenses for hotels that we may acquire in the future. If any of the foregoing were to occur, it could have a material adverse effect on us.
Our long-term growth depends in part on successfully identifyingThe failure to make and consummatingintegrate acquisitions of additional hotels and the failure to make such acquisitions could materially and adversely impede our growth.
We can provide no assurances that we will be successful in identifying attractive hotel properties or portfolios of hotel properties or that, once identified, we will be successful in consummating an acquisition.acquisition or integrating the acquired property or portfolio into our business. We face significant competition for attractive investment opportunities from other well-capitalized investors, some of which have greater financial resources, a lower cost of capital and a greater access to debt and equity capital to acquire hotel properties than we do. This competition increases as investments in real estate become increasingly attractive relative to other forms of investment. As a result, of such competition, we may be unable to acquire certain hotel
hotel properties that we deem attractive or the purchase price may be significantly elevated or other terms may be substantially more onerous. In addition, we expect to finance future acquisitions through a combination of borrowings under our unsecured revolving credit facility or other secured or unsecured borrowings, the use of retained cash flows, and offerings of equity and debt securities, which may not be available on advantageous terms, or at all. Any delay or failure on our part to identify, negotiate, finance on favorable terms, consummate and integrate such acquisitions could materially and adversely impede our growth.
We are dependent upon our ability to attract Following an acquisition or expansion, we may incur acquisition-related costs and retain key personnel.
We depend on the experienceassume potential unknown liabilities and relationshipsunforeseen increased costs or expenses. The integration of our senior management team and other highly qualified personnel to manage our day-to-day operations and execute our business strategy and growth. These individuals are importantsuch acquisitions, especially acquisitions of portfolios of hotel properties, may cause disruptions to our business, strain management time and to the extent that any of them departsresources and is not replaced with a qualified substitute, such person's departure could harm our business operations. We can provide no assurances that any of our senior management team members and other personnel will continue their employment with us, or that we will continue to be successful in attracting and retaining qualified personnel. The loss of key personnel could materially and adversely affect our ability to source potential investment opportunities, our relationships with globaloperating results and national hotel brands and other industry participants, the execution of our business strategy, and it could reduce the market value of our common shares.financial condition.
Our business strategy depends on achieving revenue and net income growth from anticipated increases in demand for hotel rooms. Accordingly, anyAny delay in demand growth due to weaker than anticipated economic growth could materially and adversely affect us and our growth prospects.
The operating performance of our hotel properties in various U.S. markets had significantly declined during the most recent economic recession.COVID-19 pandemic. Our business strategy depends on achieving revenue and net income growth from anticipated improvement in demand for hotel rooms as part of the growth of the U.S. economy as well as the global economy. Accordingly, any delay or weaker than anticipated economic growth could materially and adversely affect us and our growth prospects. Furthermore, even if the U.S. economy and the global economy continuescontinue to grow, we cannot provide any assurances that demand for hotel rooms will increase from current levels. If demand does not increase in the near future, or if demand weakens, our future results of operations and our growth prospects could be materially and adversely affected.
Any difficulties in obtaining the capital necessary to make required periodic capital expenditures and to renovate our hotel properties could materially and adversely affect our financial condition and results of operations.
Our hotel properties have an ongoing need for renovations and other capital improvements, including replacementsthe replacement of furniture, fixtures and equipment ("FF&E"). The franchisors, franchisor-required improvements, and renovation or redevelopment of our hotel properties also require periodic capital improvements as a condition of maintaining the franchise licenses.acquisitions. Our lenders will also likely require that we set aside annual amounts for capital improvements to our hotel properties. The costs of these capital improvements may increase due to ongoing supply-chain disruptions relating to the
COVID-19 pandemic and increased construction costs, and could materially and adversely affect us. In addition, acquisitions or redevelopment of additional hotel properties will require significant capital expenditures.due to the current supply-chain constraints and disruptions, we could face difficulties sourcing the goods and services in a timely manner, which could adversely affect us.
We may not be able to fund the capital improvements to our hotel properties or acquisitions solely from the cash provided from our operating activities because we must distribute annually at least 90% of our REIT taxable income to shareholders in order to maintain our qualification as a REIT. As a result, our ability to fund capital expenditures, acquisitions or hotel redevelopment through retained earnings is very limited. Consequently, we expect to rely upon the availability of debt or equity capital to fund capital improvements and acquisitions. If we are unable to obtain the capital necessary to make the required periodic capital expenditures and to renovate our hotel properties on favorable terms, or at all, our financial condition, liquidity and results of operations could be materially and adversely affected.
Adverse global market and economic conditions and dislocations in the markets could cause us to recognize impairment charges, which could materially and adversely affect our business, financial condition and results of operations.
We continually monitor events and changes in circumstances that could indicate that the carrying value of the real estate and related intangible assets in which we have an ownership interest may not be recoverable. When circumstances indicate that the carrying value of the real estate and related intangible assets may not be recoverable, we assess the recoverability of these assets by determining whether the carrying value will be recovered through the undiscounted future operating cash flows expected from the use of the asset and its eventual disposition. If the expected undiscounted future cash flows do not exceed the carrying value, we adjust the real estate and related intangible assets to fair value and we recognize an impairment loss, which could materially and adversely affect our business, financial condition and results of operations.
Competition from other lodging industry participants in the markets in which we operate could adversely affect occupancy levels and/or ADRs, which could have a material and adverse effect on us.
We face significant competition from owners and operators of other hotels and other lodging industry participants. In addition, we face competition from non-traditional accommodations for travelers, such as online room sharing services. Theseservices that market homes and condominiums as an alternative to hotel rooms. Our competitors may have an operating model that enables them to offer accommodations at lower rates than we can, which could result in thoseour competitors increasing their occupancy at our expense and adversely affecting our ADRs. Given the importance of occupancy and ADR at focused-service and compact full-service hotels, this competition could adversely affect our ability to attract prospective guests, which could materially and adversely affect our business, financial condition and results of operations.
At December 31, 2017,2021, we had approximately $2.9$2.4 billion of debt outstanding, which maycould materially and adversely affect our operating performance and put us at a competitive disadvantage.
Required repayments of debt and related interest may materially and adversely affect our operating performance. At December 31, 2017,2021, we had approximately $2.9$2.4 billion of outstanding debt. In addition, we may incur substantial additional debt, including secured debt, in the future. After taking into consideration the effect of interest rate swaps, $277.0 million100.0% of our borrowingspayments are subjectfixed or effectively fixed. Interest rates are expected to variable rates. Increases in interest rates on our existing or future variable rate debtincrease as the Federal Reserve acts to address rising inflation; such increases would increase our interest expense on any future fixed and variable rate debt, as well as existing variable rate debt, which could adversely affect our cash flows and our ability to pay distributions to shareholders.
Our organizational documents contain no limitations on the amount of debt that we may incur, and our board of trustees may change our financing policy at any time without shareholder notice or approval. As a result, we may be able to incur substantial additional debt, including secured debt, in the future.
Because we anticipate that our operating cash flow will be adequate to repay only a portion of our debt at maturity, we expect that we will be required to repay debt through debt refinancings and/or offerings of our securities. The amount of our outstanding debt may adversely affect our ability to refinance our debt.
If we are unable to refinance our debt on acceptable terms, or at all, we may be forced to dispose of one or more of our hotels on disadvantageous terms, which may result in losses to us and may adversely affect the cash available for distributions to our shareholders. In addition, if then-prevailingthe prevailing interest rates or other factors at the time of refinancing result in higher interest rates upon refinancing, our interest expense would increase, which would adversely affect our future operating results and liquidity.
Our outstanding debt, and any additional debt borrowed in the future, may subject us to many risks, including the risksrisk that:
•our cash flows from operations may be insufficient to make required payments of principal and interest;
•we may be required to use a substantial portion of our cash flows to pay principal and interest, which would reduce the cash available for distributions to our shareholders;
•we may be at a competitive disadvantage compared to our competitors that have less debt;
•we may be vulnerable to economic volatility, particularly if growth were to slow or stall and reduce our flexibility to respond to difficult market, industry, or economic conditions;
•the terms of any refinancing may not be in the same amount or on terms as favorable as the terms of the debt being refinanced; and
•the use of leverage could adversely affect our ability to borrow more money for operations, capital improvements, to finance future acquisitions of hotel properties, to make distributions to our shareholders, to repurchase common shares, and it could adversely affect the market price of our common shares.
Disruptions in the financial markets could adversely affect our ability to obtain sufficient third-party financing for our capital needs on favorable terms, or at all, which could materially and adversely affect us.
In recent years, the U.S. financial markets experienced significant price volatility, dislocations and liquidity disruptions, which caused stock market prices to fluctuate substantially and the spreads on prospective debt financings to widen considerably. Renewed volatility and uncertainty in the financial markets may negatively impact our ability to access
additional financing for our capital needs, including growth, acquisition activities and other business initiatives, on favorable terms or at all, which may negatively affect our business. Additionally, due to this potential uncertainty, in the future we may be unable to refinance or extend our debt, or the terms of any refinancing may not be as favorable as the terms of our existing debt. If we are not successful in refinancing our debt when it becomes due, we may be forced to dispose of hotels on disadvantageous terms, which may adversely affect our ability to service other debt and to meet our other liquidity and business obligations. A prolonged downturn in the financial markets may cause us to seek alternative capital sources of potentially less attractive financing and may require us to further adjust our business plan accordingly. These events also may make it more difficult or costly for us to raise capital through the issuance of new equity or the incurrence of additional secured or unsecured debt, which could materially and adversely affect us.
Hedging against interest rate exposureInflation may adversely affect us.our financial condition and results of operations.
Inflation poses a risk to us due to the possibility of future increases in interest rates. Such increases would adversely impact us due to our outstanding variable rate debt as well as result in higher interest rates on any new fixed-rate debt. We may managehave entered into interest rate swaps to limit our exposure to interest rate volatility by usingfluctuations related to a portion of our variable rate debt. However, in an increasing interest rate hedging arrangements,environment the fixed rates we can obtain with such asreplacement fixed-rate cap agreements and swap agreements. These agreements involveor the risks that these arrangementsfixed-rate on new debt will also continue to increase.
In addition, increased inflation may fail to protect or adversely affect us because, among other things:
interest rate hedging can be expensive, particularly during periods of rising and volatile interest rates;
available interest rate hedges may not correspond directly with the interest rate risk for which protection is sought;
the duration of the interest rate hedge may not match the duration of the related liability;
the credit quality of the hedging counterparty owing money on the hedge may be downgraded to suchhave an extent that it impairs our ability to sell or assign our side of the hedging transaction; and
the hedging counterparty owing money in the hedging transaction may default on its obligation to pay.
As a result of any of the foregoing, our hedging transactions could have a material and adverse effect on us.our operating expenses, including, but not limited to, labor, supplies, repairs and maintenance, as these costs could increase at a rate higher than our revenues. Inflation could also have an adverse effect on consumer spending which could impact occupancy levels at our hotel properties and, in turn, our own results of operations.
Our existing indebtedness contains covenants and our failure to comply with all covenants in our existing or future debt agreements could materially and adversely affect us.
Our existing indebtedness whether secured by our hotels or unsecured, contains customary and indebtednessfinancial covenants that we may enter into in the future likely will contain, customary covenants such as those that limit our ability to capitalize on business opportunities. These covenants place restrictions on, among other things, our ability to incur additional indebtedness, incur liens on certain assets, engage in certain mergers, liquidations or consolidations, sell certain assets, make restricted payments (including the payment of dividends and other distributions), engage in certain transactions with affiliates, enter into future indebtedness, whether secured by our hotels or unsecured, or to discontinue insurance coverage, as well as financial covenants. sale and leaseback transactions, make investments and capital expenditures, and acquire real estate assets.
In addition, our continued ability to borrow under our unsecured revolving credit facility is subject to compliance with our financial and other covenants, including covenants relating to debt service coverage ratios and leverage ratios,ratios. During the years ended December 31, 2021 and 2020, we amended our abilityunsecured credit facilities to suspend the testing of all existing financial maintenance covenants for all periods through and including the first quarter of 2022 and provide for less restrictive covenants through the first quarter of 2023. Due to the expected impact of the COVID-19 pandemic into 2022 and beyond, we may not be able to meet thesethe terms of the amended financial covenants may be adversely affected if U.S. lodging fundamentals deteriorate dramatically.once they are effective in 2022. Our failure to comply with covenants in our existing or future indebtedness, as well as our inability to make required principal and interest payments, could cause a default under the applicable debt agreement, which could result in the acceleration of the debt and require us to repay such debt with capital obtained from other sources, which may not be available to us or may be available only on unattractive terms. Furthermore, if we default on secured debt, lenders can take possession of the hotel(s) securing such debt. In addition, debt agreements may contain specific cross-default provisions with respect to specified other indebtedness, giving the lenders the right to declare a default on its debt and to enforce remedies, including accelerating the maturity of such debt upon the occurrence of a default under such other indebtedness. If we default on several of our debt agreements or any significant debt agreement, we could be materially and adversely affected.
Costs associated with, or failure to maintain, franchisor operating standards may materially and adversely affect us.
Under the terms of our franchise license agreements, we are required to meet specified operating standards and other terms and conditions. We expect that our franchisors will periodically inspect our hotel properties to ensure that we and the hotel management companies follow brand standards. Failure by us, or any hotel management company that we engage, to maintain these standards or other terms and conditions could result in a franchise license being canceled or the franchisor requiring us to undertake a costly property improvement program. If a franchise license is terminated due to our failure to make required improvements or to otherwise comply with its terms, we also may be liable to the franchisor for a termination payment, which will vary by franchisor and by hotel. If the funds required to maintain franchisor operating standards are significant, we could be materially and adversely affected.
In addition, if we were to lose a franchise license, we would be required to re-brand the affected hotel(s). As a result, the underlying value of a particular hotel property could decline significantly from the loss of the associated name recognition, marketing support, participation in guest loyalty programs and the centralized reservation system provided by the franchisor, which could require us to recognize an impairment charge on the hotel property. Furthermore, the loss of a franchise license at
a particular hotel property could harm our relationship with the franchisor, which could impede our ability to operate other hotels under the same brand, limit our ability to obtain new franchise licenses from the franchisor in the future on favorable terms, or at all, and cause us to incur significant costs to obtain a new franchise license for the particular hotel.
Applicable REIT laws may restrict certain business activities.
As a REIT, we are subject to various restrictions on our income, assets and business activities. Due to these restrictions, we anticipate that we will continue to conduct certain business activities in one or more of our TRSs. Our TRSs are taxable as regular C corporations and are subject toU.S. federal state, local and, if applicable, foreign taxation on their taxable income. In addition, neither we, nor our TRSs can directly manage or operate hotels, making us dependent on third-party operators/managers.
Federal income tax provisions applicable to REITs may restrict our business decisions regarding the potential sale of a hotel property.
The provisions of the Internal Revenue Code of 1986, as amended (the "Code"), imposes restrictions on a REIT's ability to dispose of properties. In particular, the tax laws applicable to REITs require that we hold our hotel properties for investment, rather than primarily for sale in the ordinary course of business, which may cause us to forego or defer sales of hotel properties that otherwise would be in our best interests. Therefore, we may not be able to vary our portfolio promptly in response to economic or other conditions or on favorable terms, which may materially and adversely affect our cash flows, our ability to make distributions to shareholders and the market price of our common shares.
The U.S. federal income tax provisions applicable to REITs provide that any gain realized by a REIT on the sale of property held as inventory or other property held primarily for sale to customers in the ordinary course of business is treated as income from a "prohibited transaction" that is subject to a 100% excise tax. Under existing law, whether property, including hotel properties, is held as inventory or primarily for sale to customers in the ordinary course of business is a question of fact that depends upon all of the facts and circumstances with respect to the particular transaction. We intend to hold our hotel properties for investment with a view of long-term appreciation, to engage in the business of acquiring and owning hotel properties, and to make occasional sales of hotel properties consistent with our investment objectives. There can be no assurance, however, that the Internal Revenue Service (the "IRS") might not contend that one or more of these sales are subject to the 100% excise tax. Moreover, the potential to incur this penalty tax could deter us from selling one or more hotel properties even though it would be in the best interests of us and our shareholders for us to do so. There is a statutory safe harbor available for a limited number of sales in a single taxable year of properties that have been owned by a REIT for at least two years, but that safe harbor likely would not apply to all sale transactions that we might otherwise consider.
For tax purposes, a foreclosure of any of our hotel properties would be treated as a sale of the hotel property. If the outstanding balance of the debt secured by the mortgage exceeds our tax basis in the hotel property, we would recognize taxable income on the foreclosure, but we would not receive any cash proceeds, which could hinder our ability to meet the REIT distribution requirements imposed by the Code. If any of our hotel properties are foreclosed on due to a default, our ability to pay cash distributions to our shareholders will be limited.
Joint venture investments that we make could be adversely affected by our lack of sole decision-making authority, our reliance on joint venture partners' financial condition and liquidity and disputes between us and our joint venture partners.
We own certain hotel properties and other real estate investments through joint ventures. In the future, we may enter into additional joint ventures to acquire, develop, improve or partially dispose of hotel properties, thereby reducing the amount of capital required by us to make investments and diversifying our capital sources for growth. Such joint venture investments involve risks not otherwise present in a wholly-owned hotel property or a redevelopment project, including the following:
•we may not have exclusive control over the development, financing, leasing, management and other aspects of the hotel property or the joint venture, which may prevent us from taking actions that are in our best interest but opposed by our partners;
•joint venture agreements often restrict the transfer of a partner's interest or may otherwise restrict our ability to sell the interest when we desire, or on advantageous terms;
•joint venture agreements may contain buy-sell provisions pursuant to which one partner may initiate procedures requiring the other partner to choose between buying the other partner's interest or selling its interest to that partner;
•a partner may, at any time, have economic or business interests or goals that are, or that may become, inconsistent with our business interests or goals;
•a partner may fail to fund its share of required capital contributions or may become bankrupt, which would mean that we and any other remaining partners generally would remain liable for the joint venture's liabilities; or
•we may, in certain circumstances, be liable for the actions of a partner, and the activities of a partner could adversely affect our ability to qualify as a REIT, even though we do not control the joint venture.
Any of the above might subject a hotel property to liabilities in excess of those contemplated and adversely affect the value of our current and future joint venture investments.
Risks Related to the Lodging Industry
Our ability to make distributions to our shareholders may be adversely affected by various operating risks common to the lodging industry, including competition, over-building and dependence on business travel and tourism.
Our hotel properties have different economic characteristics than many other real estate assets. Unlike other real estate assets, hotels generate revenue from guests that typically stay at the hotel property for only a few nights, which causes the room rate and occupancy levels at each of our hotels to change every day, and results in earnings that can be highly volatile.
In addition, our hotel properties are subject to various operating risks common to the lodging industry, many of which are beyond our control, including, among others, the following:
competition from other•seasonality of the lodging industry participantsmay cause quarterly fluctuations in the markets in which we operate;our operating results;
•over-building of hotels in the markets in which we operate, which results in an increased supply of hotels that will adversely affect occupancy and revenues at our hotel properties;
•consolidation among companies in the lodging industry may increase the resulting companies' negotiating power relative to ours, and decrease competition among those companies for management and franchise agreements, which could result in higher management or franchise fees;
•increase in the number of brands owned by Marriott, Hilton and Hyatt, which could result in increased competition for our hotels;
•competition from non-traditional accommodations for travelers, such as online services that market homes and condominiums as an alternative to hotel rooms;
•dependence on business and leisure travelers;
labor strikes, disruptions or lockouts that may impact operating and financial performance;
•increases in energy costs and other expenses affecting travel, which may affect travel patterns and reduce the number of business and leisure travelers;
requirements for periodic capital reinvestment to repair and upgrade hotels;
•increases in operating costs due to inflation and other factors that may not be offset by increased room rates;
changes in interest rates;
changes in the availability, cost and terms of financing;
•changes in governmental laws and regulations, fiscal policies and zoning ordinances and the related costs of compliance with laws and regulations, fiscal policies and ordinances;
•adverse effects of international, national, regional and local economic and market conditions;
unforeseen events beyond our control, such as terrorist attacks, travel-related health concerns, such as pandemics and epidemics, imposition of taxes or surcharges by regulatory authorities, travel-related accidents and unusual weather conditions, including natural disasters such as hurricanes, tsunamis or earthquakes;
•adverse effects of worsening conditions in the lodging industry; and
•risks generally associated with the ownership of hotels and real estate, as we discuss in detail below.
The occurrence of any of the foregoing could materially and adversely affect us.
The seasonality of the lodging industry could have a material and adverse effect on us.
The lodging industry is seasonal in nature, which causes quarterly fluctuations in our revenues. Our quarterly earnings may be adversely affected by factors outside our control, including weather conditions and poor economic factors in certain markets in which we operate. The seasonality causes periodic fluctuations in room revenues, occupancy levels, room rates and operating expenses in particular hotels. We can provide no assurances that our cash flows will be sufficient to offset any shortfalls that occur as a result of these fluctuations. As a result, we may have to enter into short-term borrowings in certain quarters in order to make distributions to our shareholders, and we can provide no assurances that such borrowings will be available on favorable terms, if at all. Consequently, volatility in our financial performance resulting from the seasonality of the lodging industry could have a material and adverse effect on us.
The cyclical nature of the lodging industry may cause fluctuations in our operating performance, which could have a material and adverse effect on us.
The lodging industry historically has been highly cyclical in nature. Fluctuations in lodging demand and, therefore, operating performance, are caused largely by general economic and local market conditions, which subsequently affect levels of business and leisure travel. In addition to general economic conditions, new hotel room supply is an important factor that can affect the lodging industry's performance, and overbuildingover-building has the potential to further exacerbate the negative impact of an economic recession. Room rates and occupancy, and thus RevPAR, tend to increase when demand growth exceeds supply growth. We can provide no assurances regarding whether, or the extent to which, lodging demand will rebound or whether any such rebound will be sustained. An adverse change in lodging fundamentals could result in returns that are substantially below our expectations or result in losses, which could have a material and adverse effect on us.
We operate in a highly competitive industry.
The U.S. lodging industry is highly competitive. Our hotel properties compete with other participants in the lodging industry for guests in each of their markets on the basis of several factors, including, among others, location, quality of accommodations, convenience, brand affiliation, room rates, service levels and amenities and level of customer service. Competition is often specific to the individual markets in which our hotel properties are located and includes competition from existing and new hotels in the focused-service and compact full-service hotel segments and non-traditional accommodations for travelers, such as online room sharing services. We believe that hotels, such as our hotels, that are affiliated with leading national brands, such as the Marriott, Hilton, Hyatt and Wyndham brands, will enjoy competitive advantages associated with operating under such brands. Our competitors may have similar or greater commercial and financial resources which allow them to improve their properties in ways that affect our ability to compete for guests effectively and adversely affect our revenues and profitability as well as limit or slow our future growth.
We face competition for the acquisition of hotel properties from institutional pension funds, private equity funds, REITs, hotel companies and other parties who are engaged in the acquisition of hotel properties. Some of these competitors may have substantially greater financial and operational resources and access to capital than we have and may have greater knowledge of the markets in which we seek to invest. This competition may reduce the number of suitable investment opportunities offered to us and decrease the attractiveness of the terms on which we may acquire our targeted hotel investments, including the cost thereof.
Our acquisition, redevelopment, repositioning, renovation and re-branding activities are subject to various risks, any of which could, among other things, result in disruptions to our hotel operations, strain management resources and materially and adversely affect our business.
We intend to continue to acquire, redevelop, reposition, renovate and re-brand hotels, subject to the availability of attractive hotels or projects and our ability to undertake such activities on satisfactory terms. In deciding whether to undertake such activities, we will make certain assumptions regarding the expected future performance of the hotel or project. However, newly acquired, redeveloped, repositioned, renovated or re-branded hotels may fail to perform as expected and the costs necessary to bring such hotels up to franchise standards may exceed our expectations, which may result in the hotels' failure to achieve the projected returns.
In particular, to the extent that we engage in the activities described above, they could pose the following risks to our ongoing operations:
we may abandon such activities and we may be unable to recover the expenses already incurred in connection with exploring such opportunities;
acquired, redeveloped, repositioned, renovated or re-branded hotels may not initially be accretive to our results of operations, and we and the hotel management companies may not successfully manage newly acquired, redeveloped, repositioned, renovated, or re-branded hotels to meet our expectations;
we may be unable to quickly, effectively and efficiently integrate new acquisitions, particularly an acquisition of a portfolio of hotels, into our existing operations;
our redevelopment, repositioning, renovation or re-branding activities may not be completed on schedule, which could result in increased debt service and other costs and lower revenues; and
management attention may be diverted by our acquisition, redevelopment, repositioning, renovation or rebranding activities, which in some cases may turn out to be less compatible with our growth strategy than originally anticipated.
The occurrence of any of the foregoing events, among others, could materially and adversely affect our business.
Our ownership of hotel properties with ground leases exposes us to the risks that we may be forced to sell such hotel properties for a lower price, we may have difficulties financing such hotel properties, we may be unable to renew a ground lease or we may lose such hotel properties upon breach of a ground lease.
As of December 31, 2017, 172021, 13 of our consolidated hotel properties and two of our unconsolidated hotel propertiesproperty were on land subject to ground leases. Accordingly, we only own a long-term leasehold or similar interest in those 1914 hotel properties. Two of the
ground leases expire in 2028 and 2029 and if these leases are not extended, the hotel properties would be turned over to the ground lessor. Our ground lease agreements require the consent of the lessor or sub-lessor prior to transferring our interest in the ground lease. These provisions may impact our ability to sell our hotel properties which, in turn, could adversely impact the price realized from any such sale. In addition, at any given time, investors may be disinterested in buying hotel properties subject to a ground lease and may pay a lower price for such hotel properties than for a comparable hotel property with a fee simple interest or they may not purchase such hotel properties at any price. Secured lenders may be unwilling to lend, or otherwise charge higher interest rates, for loans secured by a leasehold mortgage as compared to loans secured by a fee simple mortgage. If we are found to be in breach of a ground lease, we could lose the right to use the hotel property. In addition, unless we can purchase a fee simple interest in the underlying land and improvements or extend the terms of these leases before their expiration, as to which no assurance can be given, we will lose our right to operateown these hotel properties and our interest in the improvements upon expiration of the leases. If we were to lose the right to use a hotel property due to a breach or non-renewal of the ground lease, we would be unable to derive income from such hotel property and we would be required to purchase an interest in another hotel property in an attempt to replace that income, which could materially and adversely affect us.
The increasing use of Internet travel intermediaries by consumers may materially and adversely affect our profitability.
Although a majority of rooms sold on the Internet are sold through websites maintained by the hotel franchisors and managers, including Marriott, Hilton, Hyatt and Wyndham, some of our hotel rooms are booked through Internet travel intermediaries. Typically, these Internet travel intermediaries have access to the room inventory from participating hotels. These intermediaries charge higher commissions, which reduces the hotel property's profitability. Moreover, some of these Internet travel intermediaries are attempting to offer hotel rooms as a commodity, by increasing the importance of price and general indicators of quality, such as a "three-star downtown hotel," at the expense of brand identification or quality of product or service normally associated with these brands. If consumers develop brand loyalties to Internet reservation systems rather than to the brands pursuant to which our hotels are franchised, the value of our hotel properties could deteriorate and our business could be materially and adversely affected. Although most of the business for our hotel properties is expected to be derived from traditional channels, if the amount of sales made through Internet travel intermediaries increases significantly, commissions paid to these intermediaries may increase and our profitability may be materially and adversely affected.
Technology is used in our operations, and any material failure, inadequacy, interruption or security failure of that technology could harm the business.
We, and our hotel managers and franchisors, rely on information technology networks and systems to process, transmit and store electronic information, and to manage or support a variety of business processes, including financial transactions and records, personal identifiable information, reservations, billing and operating data.processes. These information technology networks and systems can be vulnerable to threats such as system, network or internet failures; computer hacking or business disruption; cyber-terrorism; viruses, worms or other malicious software programs; and employee error, negligence or fraud. These threats can be introduced in any number of ways, including through third parties accessing our hotel managers’ information technology networks and systems. Although we believe we and our hotel managers and franchisors have taken commercially reasonable steps to protect the security of our systems, there can be no assurance that such security measures will prevent failures, inadequacies or interruptions in system services, or that system security will not be breached.
In addition to the information technology networks and systems of our hotel managers that are used to operate our hotel properties, we have our own corporate information technology networks and systems that are used to access, store, transmit, and manage or support a variety of business processes. There can be no assurance that the security measures we have taken to protect the contents of these information technology networks and systems will prevent failures, inadequacies or interruptions in system services or that system security will not be breached through physical or electronic break-ins, computer viruses, and attacks by hackers. Disruptions in service, system shutdowns and security breaches in the information technology networks and systems we use, including unauthorized disclosure of confidential information, could have a material adverse effect on our business.
Any failure to maintain proper function, security and availability of information technology networks and systems could interrupt our operations, our financial reporting and compliance, damage our reputation, and subject us to liability claims or regulatory penalties, which could have a material and adverse effect on our business, financial condition and results of operations.
Future terrorist attacks or changes in terror alert levels could materially and adversely affect us.
Historically, terrorist attacks and subsequent terrorist alerts have adversely affected the U.S. travel and hospitality industries, often disproportionately to the effect on the overall economy. The extent of the impact that actual or threatened terrorist attacks in the U.S. or elsewhere could have on domestic and international travel and our business in particular cannot be determined, but any such attacks or the threat of such attacks could have a material and adverse effect on travel and hotel demand and our ability to insure our hotel properties, which could materially and adversely affect us.
The outbreak of influenza or other widespread contagious disease could reduce travel and adversely affect hotel demand, which would have a material and adverse effect on us.
A widespread outbreak of an infectious or contagious disease in the U.S. could reduce travel and hotel demand within the lodging industry. If demand at our hotel properties decreases significantly or for a prolonged period of time as a result of an outbreak of an infectious or contagious disease, our revenue would be adversely affected, which could have a material and adverse effect on us.
We face possible risks associated with natural disasters, weather events, and the physical effects of climate change.
We are subject to the risks associated with natural disasters, weather events, and the physical effects of climate change, which can include more frequent or severe storms, droughts, hurricanes and flooding, any of which could have a material adverse effect on our properties, operations and business. To the extentOver time, our hotel properties located in coastal markets and other areas that may be impacted by climate change causes changes in weather patterns, our coastal markets also couldare expected to experience increases in storm intensity and rising sea-levels causing damage to our hotel properties. As a result, we could become subject to significant losses and/or repair costs that may or may not be fully covered by insurance. Other markets may experience prolonged variations in temperature or precipitation that may limit access to the water needed to operate our hotel properties or significantly increase energy costs, which may subject those properties to additional regulatory burdens, such as limitations on water usage or stricter energy efficiency standards. ClimateWeather events and climate change may also may affect our business by increasing the cost of (or making unavailable) property insurance on terms we find acceptable in areas most vulnerable to such events, increasing operating costs at our hotel properties, such as the cost of water or energy, and requiring us to expend funds as we seek to repair and protect our hotel properties against such risks. There can be no assurance that natural disasters, weather events, or climate change will not have a material adverse effect on our hotel properties, operations or business.
Risks Related to Our Organization and Structure
The share ownership limits imposed by the Code for REITs and our declaration of trust may restrict share transfers and/or business combination opportunities, particularly if our management and board of trustees do not favor a combination proposal.opportunities.
In order for us to maintain our qualification as a REIT under the Code, not more than 50% in value of our outstanding shares may be owned, directly or indirectly, by five or fewer individuals (as defined in the Code to include certain entities) at any time during the last half of each taxable year following our first year of taxation as a REIT. Our declaration of trust, with certain exceptions, authorizes our board of trustees to take the necessary actions to preserve our qualification as a REIT. Unless exempted by our board of trustees, no person or entity (other than a person or entity who has been granted an exception) may directly or indirectly, beneficially or constructively, own more than 9.8% of the aggregate of our outstanding common shares, by value or by number of shares, whichever is more restrictive, or 9.8% of the aggregate of the outstanding preferred shares of any class or series, by value or by number of shares, whichever is more restrictive.
Our board of trustees may, in its sole discretion, grant an exemption to the share ownership limits, subject to certain conditions and the receipt by our board of trustees of certain representations and undertakings. Our board of trustees has previously granted exemptions from our ownership limits to certain shareholders. During the time that such waiver is effective, the excepted holders will be subject to an increased ownership limit. As a condition to granting such excepted holder limit,limited exemptions, the excepted holders wereare required to make representations and warranties to us, which are intended to ensure that we will continue to meet the REIT ownership requirements. The excepted holders must inform us if any of these representations becomes untrue or is violated, in which case such excepted holder will lose its limited exemption from the share ownership limit.limits.
Our authorized but unissued common shares and preferred sharesIt may prevent a change in our control that might involve a premium price for our common sharesbe difficult or otherwise be in the best interests of our shareholders.
Our declaration of trust authorizes usimpractical to issue additional authorized but unissued common or preferred shares. In addition, our board of trustees may, without shareholder approval, amend our declaration of trust to increase the aggregate number of our common shares or the number of shares of any class or series of preferred shares that we have the authority to issue, classify or reclassify any unissued common shares or preferred shares, and to set the preferences, rights and other terms of the classified or reclassified shares. As a result, our board of trustees may establish a series of common shares or preferred shares that could delay or prevent a transaction or a change in our control that might involve a premium price for our common shares or otherwise be in the best interests of our shareholders.
Certain provisions of Maryland law could inhibit a change in control.
Certain provisions of the Maryland General Corporation Law ("MGCL") that are applicable to Maryland real estate investment trusts may have the effect of deterring a third party from making a proposal to acquire us or of impeding a change in our control under circumstances that otherwise could provide the holders of our common shares with the opportunity to realize a premium over the then-prevailing market price of our common shares, including:
"business combination" provisions that, subject to limitations, prohibit certain business combinations between us and an "interested shareholder" (defined generally as any person who beneficially owns, directly or indirectly, 10% or more of the voting power of our voting shares or an affiliate or associate of ours who was the beneficial owner, directly or indirectly, of 10% or more of the voting power of our then outstanding voting shares at any time within the two-year period immediately prior to the date in question) for five years after the most recent date on which the shareholder becomes an interested shareholder, and thereafter impose fair price and/or supermajority and shareholder voting requirements on these combinations; and
"control share" provisions that provide that "control shares" of our company (defined as voting shares that, when aggregated with other shares controlled by the shareholder, entitle the shareholder to exercise one of three increasing ranges of voting power in electing trustees) acquired in a "control share acquisition" (defined as the direct or indirect acquisition of ownership or control of issued and outstanding "control shares") have no voting rights except to the extent approved by our shareholders by the affirmative vote of at least two-thirds of all the votes entitled to be cast on the matter, excluding all interested shares.
As permitted by Maryland law, we have elected, by resolution of our board of trustees, to opt out of the business combination provisions of the MGCL and that resolution may not be repealed absent the approval by our shareholders, however, there can be no assurance that the resolution adopted by the board will not be amended or eliminated at some time in the future. Pursuant to a provision in our bylaws, we have elected to exempt any acquisition of our shares from the control share provisions of the MGCL and our bylaws prohibit the repeal, amendment or alteration of this provision without the approval by our shareholders; however, there can be no assurance that this provision will not be amended or eliminated at some time in the future.
Certain advance notice provisions of our bylaws may inhibit a change in control.
Our bylaws provide that (a) with respect to an annual meeting of shareholders, nominations of individuals for election to our board of trustees and the proposal of other business to be considered by shareholders may be made only (i) pursuant to our notice of the meeting, (ii) by the board of trustees or (iii) by a shareholder who was a shareholder of record at the time of the notice of the meeting and at the time of the annual meeting, who is entitled to vote at the meeting and has complied with the advance notice procedures set forth in the bylaws, and (b) with respect to special meetings of shareholders, only the business specified in our notice of meeting may be brought before the meeting of shareholders and nominations of individuals for election to the board of trustees may be made only (A) pursuant to our notice of the meeting, (B) by the board of trustees, or (C) provided that the board of trustees has determined that directors shall be elected at such meeting, by a shareholder who was a shareholder of record at the time of the notice of the meeting and at the time of the special meeting, who is entitled to vote at the meeting and has complied with the advance notice provisions set forth in the bylaws. These advance notice provisions may have the effect of delaying, deferring or preventing a transaction or a change in control of our company that might involve a premium to the market price of our common stock or otherwise be in our shareholders' best interests.
Termination of the employment agreements with our executive officers could be costly and prevent a change in control.
The employment agreements that we entered into with each of our executive officers provide that, if their employment with us terminates under certain circumstances (including upon a change in our control), we are required to pay them severance compensation, including accelerating the vesting of their respective equity awards, thereby making it costly to terminate their employment.employment without cause. Furthermore, these provisions could delay or prevent a transaction or a change in control that might involve a premium paid for our common shares or otherwise be in the best interests of our shareholders.
Our declaration of trust contains provisions that make the removal of our trustees difficult, which could make it difficult for our shareholders to effect changes to our management.
Our declaration of trust provides that, subject to the rights of the holders of one or more classes or series of preferred shares to elect or remove one or more trustees, a trustee may be removed only for cause and only by the affirmative vote of the holders of at least two-thirds of the votes entitled to be cast in the election of trustees and that our board of trustees has the exclusive power to fill vacant trusteeships, even if the remaining trustees do not constitute a quorum. These provisions make it more difficult to change our management by removing and replacing trustees and it may delay or prevent a change in control that is in the best interests of our shareholders.
We may change our operational policies, investment guidelines and our investment and growth strategies without shareholder consent, which may subject us to different and more significant risks in the future, which could materially and adversely affect us.
Our board of trustees determines our operational policies, investment guidelines and our investment and growth strategies. Our board of trustees may make changes to, or approve transactions that deviate from, those policies, guidelines and strategies without a vote of, or notice to, our shareholders. This could result in us conducting operational matters, making investments or pursuing different investment or growth strategies than those contemplated in this Annual Report on Form 10-K. Under any of these circumstances, we may expose ourselves to different and more significant risks in the future, which could materially and adversely affect us.
Our rights and the rights of our shareholders to take action against our trustees and officers are limited, which could limit our shareholders' recourse in the event of actions not in our shareholders' best interests.
Under Maryland law, generally, a trustee is required to perform his or her duties in good faith, in a manner he or she reasonably believes to be in our best interest and with the care that an ordinarily prudent person in a like position would use under similar circumstances. Under Maryland law, trustees are presumed to have acted with this standard of care. In addition, our declaration of trust limits the liability of our trustees and officers to us and our shareholders for monetary damages, except for liability resulting from the:
•actual receipt of an improper benefit or profit in money, property or services; or
•active and deliberate dishonesty by the trustee or officer that was established by a final judgment as being material to the cause of action adjudicated.
Our declaration of trust and bylaws obligate us, to the fullest extent permitted by Maryland law in effect from time to time, to indemnify and to pay or reimburse reasonable expenses in advance of the final disposition of a proceeding to any present or
former trustee or officer who is made or threatened to be made a party to the proceeding by reason of his or her service to us in that capacity. In addition, we may be obligated to advance the defense costs incurred by our trustees and officers. As a result, we and our shareholders may have more limited rights against our trustees and officers than might otherwise exist absent the current provisions in our declaration of trust and bylaws or that might exist with other companies.
If we fail to maintain an effective system of internal control over financial reporting, we may not be able to accurately report our financial results.
In connection with operating as a public company, we are required to provide reliable financial statements and reports to our shareholders. To monitor the accuracy and reliability of our financial reporting, we have established an internal audit function that oversees our internal controls. In addition, we have developed policies and procedures with respect to company-wide business processes and cycles in order to implement an effective system of internal control over financial reporting. We have established, or caused our third-party hotel management companies to establish, controls and procedures designed to ensure that hotel revenues and expenses are properly recorded at our hotels. While we have undertaken substantial work to comply with Section 404 of the Sarbanes-Oxley Act of 2002, weWe cannot be certain that we will be successful in maintaining effective internal control over financial reporting and we may determine in the future that our existing internal controls need improvement. If we fail to maintain an effective system of internal control, we could be materially harmed or we could fail to meet our reporting obligations. In addition, the existence of a material weakness or significant deficiency in our internal controls could result in errors to our financial statements that could require a restatement, cause us to fail to meet our reporting obligations, result in increased costs to remediate any deficiencies, attract regulatory scrutiny or lawsuits and cause investors to lose confidence in our reported financial information, any of which could lead to a substantial decline in the market price of our common shares.
Risks Related to the Real Estate Industry
The illiquid nature of real estate investments could significantly impede our ability to respond to changing economic, financial, and investment conditions or changes in the operating performance of our hotel properties, which could materially and adversely affect our cash flows and results of operations.
Real estate investments, including the focused-service and compact full-service hotels in our portfolio, are relatively illiquid. As a result, we may not be able to sell a hotel or hotels quickly or on favorable terms in response to the changing economic, financial and investment conditions or changes in the hotel's operating performance when it otherwise may be prudent to do so. We cannot predict whether we will be able to sell any hotel property we desire to sell for the price or on the terms set by us or whether any price or other terms offered by a prospective purchaser would be acceptable to us. We also cannot predict the length of time needed to find a willing purchaser and to close the sale of a hotel property. We may be required to expend funds to correct defects or to make improvements before a hotel can be sold, and we cannot provide any assurances that we will have the funds available to correct such defects or to make such improvements. Our inability to dispose of assets at opportune times or on favorable terms could materially and adversely affect our cash flows and results of operations.
In addition, our ability to dispose of some of our hotel properties could be constrained by their tax attributes. Hotel properties that we own for a significant period of time, or that we may acquire in the future through tax deferred contribution transactions in exchange for OP units in the Operating Partnership, may have low tax bases. If we dispose of these hotel properties outright in taxable transactions, we may be required to distribute the taxable gain to our shareholders under the requirements of the Code applicable to REITs or to pay tax on that gain, either of which, in turn, would impact our cash flow and increase our leverage. In some cases, we may be restricted from disposing of properties contributed to us in the future in exchange for our OP units under tax protection agreements with contributors unless we incur additional costs related to indemnifying those contributors. To dispose of low basis or tax-protected hotels efficiently, we may from time to time use like-kind exchanges, which qualify for non-recognition of the taxable gain, but can be difficult to consummate and result in the hotel for which the disposed assets are exchanged inheriting their low tax bases and other tax attributes.
Uninsured and underinsured losses at our hotel properties could materially and adversely affect us.
We maintain comprehensive property insurance on eachall of our hotel properties and we intend to maintain comprehensive property insurance on any hotels that we acquire in the future, including liability, fire, terrorism, and extended coverage. Our comprehensive property insurance program has a $250,000 deductible per claim. In addition into the Mergers,comprehensive property insurance, we assumed FelCor's self-insurance policy whereby we have established a self-insured retention of $250,000 per occurrence formaintain general liability insurance at 30all of our hotel properties. All of our remaining hotel properties participate inOur general liability programs sponsored by our hotel management companies, withinsurance program has no deductible. There can be no assurances that insurance coverage will be available at reasonable rates. Certain types of catastrophic losses, such as windstorms, earthquakes, floods, and losses from foreign and domestic terrorist activities may not be insurable or may not be economically insurable. Even when insurable, these policies may have high deductibles and/or high premiums. Our coastal hotel properties each have a deductible of 5% of total insured value for a named storm. Our lenders may require such insurance and our failure to obtain such insurance could constitute a default under the loan agreements, which could have a material and adverse effect on us.
In the event of a substantial loss, our insurance coverage may not be sufficient to cover the full current market value or replacement cost of our lost investment.investment, which could have a material and adverse effect on us. Should an uninsured loss or a loss in excess of insured limits occur, or should we be unsuccessful in obtaining coverage from an insurance carrier, we could lose all or a portion of the capital we have invested in a hotel property, as well as the anticipated future revenue from the hotel
property. In that event, we might nevertheless remain obligated for any mortgage debt or other financial obligations related to the hotel property. Inflation, changes in building codes and ordinances, environmental considerations and other factors might also keep us from using insurance proceeds to replace or renovate a hotel property after it has been damaged or destroyed. Under those circumstances, the insurance proceeds we receive might be inadequate to restore our economic position on the damaged or destroyed hotel property, which could have a material and adverse effect on us.
In addition, the insurance risks associated with potential acts of terrorism could sharply increase the premiums we pay for coverage against property and casualty claims. In many cases, mortgage lenders have begun to insist that commercial property owners purchase coverage against terrorism as a condition of providing the mortgage loan. Such insurance policies may not be available at a reasonable cost, which could inhibit our ability to finance or refinance our hotels. In such instances, we may be required to provide other financial support, either through financial assurances or self-insurance, to cover the potential losses. We may not have adequate coverage for such losses, which could have a material and adverse effect on us.
Compliance or failure to comply with the ADA and other safety regulations and requirements could result in substantial costs.
Under the ADA, all public accommodations must meet various federal requirements related to access and use by disabled persons. Compliance with the ADA's requirements could require removal of access barriers, and non-compliance could result in the U.S. government imposing fines or private damage awards. If we are required to make substantial modifications to the hotel properties that we own or the hotel properties that we acquire, whether to comply with the ADA or other changes in governmental rules and regulations, we could be materially and adversely affected.
Our hotel properties are also subject to various federal, state and local regulatory requirements, such as state and local fire and life safety requirements. If we fail to comply with these requirements, we could incur fines or private damage awards. If we incur substantial costs to comply with the ADA or other safety regulations and requirements, our financial condition, results of operations, the market price of our common shares, cash flows and our ability to satisfy our debt obligations and to make distributions to our shareholders could be materially and adversely affected.
We could incur significant costs related to government regulation and litigation with respect to environmental matters, which could have a material and adverse effect on us.
Our hotel properties are subject to various U.S. federal, state and local environmental, health and safety laws and regulations that impose liability for contamination. Under these laws, governmental entities have the authority to require us, as the current owner of a hotel property, to perform or pay for the clean-up of contamination (including hazardous substances, asbestos and asbestos-containing materials ("ACM"), waste or petroleum products) at, on, under or emanating from the hotel and to pay for natural resource damages arising from such contamination. Such laws often impose liability without regard to whether the owner or operator or other responsible party knew of, or caused such contamination, and the liability may be joint and several. Because these laws also impose liability on persons who owned or operated a property at the time it became contaminated, it is possible we could incur cleanup costs or other environmental liabilities even after we sell or no longer operate the hotel properties. Contamination at, on, under or emanating from our hotels also may expose us to liability to private parties for the costs of remediation and/or personal injury or property damage. In addition, environmental laws may create liens on contaminated sites in favor of the government for damages and costs it incurs to address such contamination. If contamination is discovered on our hotel properties, the environmental laws may also impose restrictions on the manner in which the properties may be used or
how the businesses may be operated, and these restrictions may require substantial expenditures. Moreover, environmental contamination can affect the value of a property and, therefore, an owner's ability to borrow funds using the property as collateral or to sell the property on favorable terms or at all. Furthermore, any persons who send waste to a waste disposal facility, such as a landfill or an incinerator, may be liable for costs associated with cleanup of that facility.
In addition, our hotel properties are subject to various U.S. federal, state, and local environmental, health and safety laws and regulations that address a wide variety of issues, including, but not limited to, storage tanks, air emissions from emergency generators, storm water and wastewater discharges, lead-based paint, mold and mildew, and waste management. Some of our hotel properties routinely handle and use hazardous or regulated substances and waste as part of their operations (e.g., swimming pool chemicals). Our hotel properties incur costs to comply with these environmental, health and safety laws and regulations and could be subject to fines and penalties for non-compliance with the applicable requirements.
Certain of our hotel properties contain, and the hotel properties that we acquire in the future may contain, or may have contained ACM. Federal, state and local environmental, health and safety laws require that ACM be properly managed and maintained, and include requirements to undertake special precautions, such as removal or abatement, if ACM would be disturbed during maintenance, renovation or demolition of a building. Such laws regarding ACM may impose fines and penalties on building owners, employers and operators for failure to comply with these requirements. In addition, third parties may seek recovery from owners or operators for personal injury associated with exposure to asbestos-containing building materials.
When excessive moisture accumulates in buildings or on building materials, mold growth may occur, particularly if the moisture problem remains undiscovered or is not addressed over a period of time. Some molds may produce airborne toxins or irritants. Indoor air quality issues can also stem from inadequate ventilation, chemical contamination from indoor or outdoor sources, and other biological contaminants such as pollen, viruses and bacteria. Indoor exposure to airborne toxins or irritants above certain levels is alleged to cause a variety of adverse health effects and symptoms, including allergic or other reactions. As a result, the presence of significant mold or other airborne contaminants at any of our hotel properties could require us to undertake a costly remediation program to contain or remove the mold or other airborne contaminants from the affected property or increase indoor ventilation. In addition, the presence of significant mold or other airborne contaminants could expose us to third party liability if property damage or personal injury occurs.
The liabilities and the costs associated with environmental contamination at on, under or emanating from our hotel properties, defending against the claims related to alleged or actual environmental issues, or complying with environmental, health and safety laws could be material and could materially and adversely affect us. We can make no assurances that changes in current laws or regulations or future laws or regulations will not impose additional, new, or material environmental liabilities or that the current environmental condition of our hotels will not be affected by our operations, the condition of the properties in the vicinity of our hotels, or by third parties unrelated to us. The discovery of material environmental liabilities at our hotel properties could subject us to unanticipated costs, which could significantly reduce or eliminate our profitability and the cash available for distribution to our shareholders.
We may from time to time be subject to litigation that could expose us to uncertain or uninsured costs.
As owners of hotel properties, we may from time to time face potential claims, litigation and threatened litigation from guests, visitors to our hotel properties, contractors, sub-contractors and others. These claims and proceedings are inherently uncertain and their costs and outcomes cannot be predicted with certainty. Some of these claims may result in defense costs, settlements, fines or judgments against us, and some of which are not, or cannot be, covered by insurance. Payment of any such costs, settlements, fines or judgments that are not insured could have a material and adverse impact on our financial position and results of operations. In addition, certain litigation or the resolution of certain litigation may affect the availability or cost of some of our insurance coverage, which could materially and adversely impact our results of operations and cash flows, expose us to increased risks that would be uninsured, and/or adversely impact our ability to attract officers and trustees.
Risks Related to Our Status as a REIT
Legislative or regulatory tax changes related to REITs could materially and adversely affect us.
There are a number of issues associated with an investment in a REIT that are related to the federal income tax laws, including, but not limited to, the consequences of a company's failing to qualify or to continue to qualify as a REIT and the tax rates applicable to REITs and their shareholders. At any time, the federal income tax laws governing REITs or the administrative interpretations of those laws may be amended or modified. In particular, the Tax Cuts & Jobs Act (the "Tax Reform Act"), which generally takes effect for taxable years beginning on or after January 1, 2018 (subject to certain
exceptions), makes many significant changes to the federal income tax laws that will profoundly impact the taxation of individuals and corporations (both regular C corporations as well as corporations that have elected to be taxed as REITs). A number of changes that affect non-corporate taxpayers will expire at the end of 2025 unless Congress acts to extend them. These changes will impact us and our shareholders in various ways, some of which are adverse or potentially adverse compared to prior law. To date, the IRS has issued only limited guidance with respect to certain of the new provisions, and there are numerous interpretive issues that will require guidance. It is highly likely that technical corrections legislation will be needed to clarify certain aspects of the new law and give proper effect to Congressional intent. There can be no assurance, however, that technical clarifications or changes needed to prevent unintended or unforeseen tax consequences will be enacted by Congress in the near future. We cannot predict when or if any other federal income tax law, regulation or administrative interpretation, or any amendment to any existing federal income tax law, regulation or administrative interpretation, will be adopted, promulgated or become effective. Any such new law, regulation or interpretation may take effect retroactively and could materially and adversely affect us.
If we do not qualify as a REIT, or if we fail to remain qualified as a REIT, we will be subject to U.S. federal income tax and potentially state and local taxes, which would reduce our earnings and the amount of cash available for distribution to our shareholders.
If we were to fail to qualify as a REIT in any taxable year and any available relief provisions do not apply, we would be subject to U.S. federal and state corporate income tax, including any applicable alternative minimum tax (for taxable years beginning before December 31, 2017), on our taxable income, and dividends paid to our shareholders would not be deductible by us in computing our taxable income. Unless we were entitled to statutory relief under certain Code provisions, we also would be disqualified from taxation as a REIT for the four taxable years following the year in which we failed to qualify as a REIT.
Any determination that we do not qualify as a REIT would have a material adverse effect on our results of operations and could materially reduce the value of our common shares. Our additional tax liability could be substantial and would reduce our net earnings available for investment, debt service or distributions to shareholders.
REIT distribution requirements could adversely affect our ability to execute our business plan.
We intend to continueplan or require us to make distributions toof our shareholders to comply with the REIT requirements of the Code. shares or other securities.
We generally must distribute to our shareholders annually at least 90% of our "REIT taxable income," subject to certain adjustments and excluding any net capital gain, in order for corporate income tax not to apply to earnings that we distribute. To the extent that we satisfy this distribution requirement but distribute less than 100% of our taxable income, we will be subject to corporate income tax on our undistributed taxable income. In addition, we will be subject to a 4% nondeductible excise tax if the actual amount that we pay out to our shareholders in a calendar year is less than a minimum amount specified under the Code.
gain. From time to time, we may generate taxable income greater than our income for financial reporting purposes prepared in accordance with U.S. generally accepted accounting principles, or GAAP, or differences in timing betweencash flow. In addition we may be subject to limitations on the recognition ofability to use our net operating loss carryovers to offset taxable income and the actual receipt of cash may occur. Further, under amendments to the Code made by the Tax Reform Act, income must be accrued for federal income tax purposes no later than when such income is taken into account as revenue in our financial statements, subject to certain exceptions, which could also create mismatches between REIT taxable income and the receipt of cash attributable to such income.that we do not distribute. If we do not have other funds available in these situations we could be required to (i) borrow funds on unfavorable terms, (ii) sell investments at disadvantageous prices, (iii) distribute amounts that would otherwise be invested in future acquisitions, or (iv) make a taxable distribution of our common shares as part of a distribution in which shareholders may elect to receive our common shares or (subject to a limit measured as a percentage of the total distribution) cash to make distributions sufficient to enable us to pay out enough of our REIT taxable income to satisfy the REIT distribution requirements. These alternatives could increase our costs or reduce our shareholders' equity. Thus, compliance with the REIT distribution requirements may hinder our ability to grow, which could adversely affect the value of our shares.
Since the REIT distribution requirements prevent us from retaining earnings, we generally will be required to refinance debt at its maturity with additional debt or equity.
Dividends payable by REITs do not qualify for the reduced tax rates available for some dividends.
The maximum tax rate applicable to "qualified dividends" paid by regular C corporations to non-corporate U.S. shareholders is 23.8% (taking into account the 3.8% Medicare tax applicable to net investment income). Dividends payable by REITs (other than designated capital gain dividends and "qualified dividend income"), however, generally are not eligible for
the reduced rates and are taxed at rates applicable to ordinary income. Effective for taxable years beginning after December 31, 2017 and before January 1, 2026, the non-corporate U.S. shareholders may deduct 20% of their dividends from REITs (excluding qualified dividend income and capital gains dividends). For non-corporate U.S. shareholders in the top marginal tax bracket of 37%, the deduction for REIT dividends yields an effective income tax rate of 29.6% on REIT dividends, which is higher than the 20% tax rate on qualified dividend income paid by C corporations but still lower than the effective rate that applies prior to 2018, which is the first year that this special deduction for the REIT dividend is available. Although the reduced rates applicable to dividends from regular C corporations do not adversely affect the taxation of REITs or dividends payable by REITs, it could cause non-corporate U.S. shareholders to perceive investments in REITs to be relatively less attractive than investments in the shares of regular C corporations that pay dividends, which could adversely affect the value of the shares of REITs, including our common shares.
If our leases are not respected as true leases for U.S. federal income tax purposes, we would likely fail to qualify as a REIT.
To qualify as a REIT, we must satisfy two gross income tests, pursuant to which specified percentages of our gross income must be passive income, such as rent. For the rent paid pursuant to the hotel leases with our TRSs, which we currently expect will continue to constitute substantially all of our gross income, to qualify for purposes of the gross income tests, the leases must be respected as true leases for U.S. federal income tax purposes and must not be treated as service contracts, joint ventures or some other type of arrangement. We believe that the leases will be respected as true leases for U.S. federal income tax purposes. There can be no assurance, however, that the IRS will agree with this characterization. If the leases were not respected as true leases for U.S. federal income tax purposes, we would not be able to satisfy either of the two gross income tests applicable to REITs and would likely lose our REIT status. Additionally, we could be subject to a 100% excise tax for any adjustment to our leases.
To comply with the restrictions imposed on REITs, we may have to conduct certain activities and own certain assets through TRSs, which will be subject to normal corporate income tax, and we could be subject to a 100% penalty tax on certain income if those transactions are not conducted on arm's-length terms.
A TRS is a corporation in which a REIT directly or indirectly holds stock and which has elected, with the REIT to be taxable as a regular corporation, at regular corporate income tax rates.As a REIT, we cannot own certain assets or conduct certain activities directly, without risking failing the income or asset tests that apply to REITs.We can, however, hold these assets or undertake these activities through a TRS.
As noted, the income earned through our TRSs will be subject to corporate income taxes. In addition, a 100% excise tax will be imposed on certain transactions between us and our TRSs that are not conducted on an arm’s length basis.
If our TRSs fail to qualify as "taxable REIT subsidiaries" under the Code, we would likely fail to qualify as a REIT.
Rent paid by a lessee that is a "related party tenant" will not be qualifying income for purposes of the gross income tests applicable to REITs. We currently lease and expect to continue to lease substantially all of our hotels to our TRSs, which will not be treated as "related party tenants" so long as they qualify as "taxable REIT subsidiaries" under the Code. To qualify as such, most significantly, a TRS cannot engage in the operation or management of hotels. We believe that our TRSs qualify to be treated as "taxable REIT subsidiaries" for U.S. federal income tax purposes. There can be no assurance, however, that the IRS will not challenge the status of a TRS for U.S. federal income tax purposes or that a court would not sustain such a challenge. If the IRS were successful in disqualifying any of our TRSs from treatment as a "taxable REIT subsidiary," it is likely that we would fail to meet the asset tests applicable to REITs and substantially all of our income would fail to qualify for the gross income tests. If we failed to meet either the asset tests or the gross income tests, we would likely lose our REIT status.
If any hotel management companies that we engage do not qualify as "eligible independent contractors," or if our hotel properties are not "qualified lodging facilities," we would likely fail to qualify as a REIT.
Rent paid by a lessee that is a "related party tenant" of ours generally will not be qualifying income for purposes of the gross income tests applicable to REITs. An exception is provided, however, for leases of "qualified lodging facilities" to a TRS so long as the hotels are managed by an "eligible independent contractor" and certain other requirements are satisfied. We currently lease and expect to continue to lease all or substantially all of our hotels to TRS lessees and we currently engage and expect to continue to engage hotel management companies that are intended to qualify as "eligible independent contractors." In addition, for a hotel management company to qualify as an eligible independent contractor, (i) the hotel management company must not own, directly or through its shareholders, more than 35% of our outstanding shares, and no person or group of persons can own more than 35% of our outstanding shares and the shares (or ownership interest) of the hotel management company and (ii) such company or a related person must be actively engaged in the trade or business of operating "qualified lodging facilities" (as defined below) for one or more persons not related to the REIT or its TRSs at each time that such company enters into a hotel management contract with a TRS or its TRS lessee. Finally, each hotel with respect to which our TRS lessees pay rent must be a "qualified lodging facility." A "qualified lodging facility" is a hotel, motel, or other establishment in which more than one-half of the dwelling units are used on a transient basis, including customary amenities and facilities, provided that no wagering activities are conducted at or in connection with such facility by any person who is engaged in the business of accepting wagers and who is legally authorized to engage in such business at or in connection with such facility. As of the date hereof, we believe the hotel management companies operate qualified lodging facilities for certain persons who are not related to us or our TRS. As of the date hereof, we believe that all of the hotels leased to our TRS lessees will be qualified lodging facilities. Although we intend to monitor future acquisitions and improvements of hotels, the REIT provisions of the Code provide only limited guidance for making determinations under the requirements for qualified lodging facilities, and there can be no assurance that these requirements will be satisfied in all cases.
Our ownership of TRSs is limited, and our transactions with our TRSs will cause us to be subject to a 100% penalty tax on certain income or deductions if those transactions are not conducted on arm's length terms.
A REIT may own up to 100% of the equity interests of one or more TRSs. A TRS may hold assets and earn income that would not be qualifying assets or income if held or earned directly by a REIT. Both the subsidiary and the REIT must jointly elect to treat the subsidiary as a TRS. A corporation of which a TRS directly or indirectly owns more than 35% of the voting power or value of the stock will automatically be treated as a TRS. Overall, no more than 25% (20% for taxable years beginning after December 31, 2017) of the value of a REIT's assets may consist of stock or securities of one or more TRS. In addition, the rules applicable to TRSs limit the deductibility of interest paid or accrued by a TRS to its parent REIT in order to assure that the TRS is subject to an appropriate level of corporate taxation.
Our TRSs will pay federal, state and local income taxes on their net taxable income, and their after-tax net income will be available for distribution to us but is not required to be distributed. We believe that the aggregate value of the stock and securities of our TRSs has been less than 25% (and will be less than 20% for taxable years beginning after December 31, 2017) of the value of our total assets (including the stock and securities of our TRSs). Furthermore, we have monitored and will continue to monitor the value of our respective investments in our TRSs for the purpose of ensuring compliance with the ownership limitations applicable to TRSs. We believe that our rents and other transactions with our TRSs have each been entered into on an arm's-length basis and reflect normal business practices, but there can be no assurance that the IRS will agree with our belief.
Complying with REIT requirements may force us to forgo and/or liquidate otherwise attractive investment opportunities.
To qualify as a REIT, we must ensure that we meet the gross income tests annually and that at the end of each calendar quarter, at least 75% of the value of our assets consists of cash, cash items, government securities and qualified real estate assets. The remainder of our investment in securities (other than government securities and qualified real estate assets) generally cannot include more than 10% of the outstanding voting securities of any one issuer or more than 10% of the total value of the outstanding securities of any one issuer. In addition, in general, no more than 5% of the value of our assets (other than government securities and qualified real estate assets) can consist of the securities of any one issuer, no more than 25% (20% for taxable years beginning after December 31, 2017)20% of the value of our total assets can be represented by securities of one or more TRSs, and no more than 25% of the value of our total assets may be represented by debt instruments issued by publicly offered REITs that are "nonqualified" (i.e., not secured by real property or interests in real property). If we fail to comply with these requirements at the end of any calendar quarter, we must correct the failure within 30 days after the end of the calendar quarter or qualify for certain statutory relief provisions to avoid losing our REIT qualification and suffering adverse tax consequences. As a result, we may be required to liquidate from our portfolio, or contribute to a TRS, otherwise attractive investments in order to maintain our qualification as a REIT. These actions could have the effect of reducing our income and amounts available for distribution to our shareholders. In addition, we may be required to make distributions to shareholders at disadvantageous times or when we do not have funds readily available for distribution, and may be unable to pursue investments that would otherwise be advantageous to us. Thus, compliance with the REIT requirements may hinder our ability to make, and, in certain cases, maintain ownership of, certain attractive investments.
Our TRSs may be limited in using certainWe would incur adverse tax benefits.consequences if FelCor Lodging Trust Incorporated ("FelCor") failed to qualify as a REIT for U.S. federal income tax purposes prior to our merger with FelCor.
If a corporation undergoes an "ownership change" withinIn connection with the meaning of Section 382closing of the merger with FelCor on the acquisition date, FelCor received an opinion of counsel to the effect that it qualified as a REIT for U.S. federal income tax purposes under the Code andthrough the Treasury Regulations thereunder, such corporation's ability to use net operating losses ("NOLs"), generatedacquisition date. FelCor, however, did not request a ruling from the IRS that it qualified as a REIT. If, notwithstanding this opinion, FelCor’s REIT status prior to the time ofacquisition date were successfully challenged, we would face serious tax consequences that ownership change may be limited. To the extent the affected corporation's abilitywould substantially reduce our core funds from operations, and cash available for distribution, including cash available to use NOLs is limited, such corporation's taxable income may increase. As of December 31, 2017, we had approximately $333.4 million of NOLs (all of which are attributablepay dividends to our TRSs) which will beginshareholders, because:
•FelCor, would be subject to expireU.S. federal, state and local income tax on its net income at regular corporate rates for the years that it did not qualify as a REIT (and, for such years, would not be allowed a deduction for dividends paid to shareholders in 2024 for federal tax purposescomputing its taxable income) and during the period from 2018 to 2031 for state tax purposes if not utilized. An ownership change within the meaning of Section 382 of the Code with respect to one of the REIT's TRSs occurred during the 2012 and 2013 tax years. The ownership change with respectwe would succeed to the liability for such taxes;
•the deemed sale of assets by FelCor on the acquisition ofdate would be subject to U.S. federal, state and local income tax at regular corporate rates (and FelCor in 2017 also resulted in NOL limitations under Section 382 ofwould not be allowed a deduction for dividends paid for the Code. Accordingly,deemed liquidating distribution paid to its shareholders) and we would succeed to the extentliability for such taxes; and
•we would succeed to any earnings and profits accumulated by FelCor, as applicable, for the tax periods that the TRSs have taxable income in future years, their ability to use NOLs incurred prior to these ownership changes in such future years will be limited, and they may have greater taxable incomeFelCor did not qualify as a result of such limitation.
Section 383 of the CodeREIT and the Treasury Regulations thereunder govern the limitations of tax credits generated priorwe would have to pay a special dividend and/or employ applicable deficiency dividend procedures (including interest payments to the time of an ownership change. To the extent the affected corporation's abilityIRS) to use tax credits is limited,eliminate such corporation's tax liability may increase. As of December 31, 2017, we had approximately $19.5 million of tax credit carryforwards relatedearnings and profits to alternative minimum tax and historic tax credits (all of which are attributable tomaintain our TRSs) which will begin to expire in 2035.REIT qualification.
Complying with REIT requirements may limit our ability to hedge effectively and may cause us to incur tax liabilities.
The REIT provisions of the Code may limit our ability to hedge our assets and operations. Under these provisions, any income that we generate from transactions intended to hedge our interest rate risk will be excluded from gross income for purposes of the REIT 75% and 95% gross income tests if the instrument hedges interest rate risk on liabilities used to carry or acquire real estate assets (each such hedge, a "Borrowings Hedge") or manages the risk of certain currency fluctuations (each such hedge, a "Currency Hedge"), and such instrument is properly identified under applicable Treasury Regulations. Income from hedging transactions that do not meet these requirements will generally constitute non-qualifying income for purposes of both the REIT 75% and 95% gross income tests. Exclusion from the REIT 75% and 95% gross income tests also applies if we previously entered into a Borrowings Hedge or a Currency Hedge, a portion of the hedged indebtedness or property is disposed of, and in connection with such extinguishment or disposition we enter into a new properly identified hedging transaction to offset the prior hedging position. As a result of these rules, we may havefactors, FelCor’s failure to limit our use of hedging techniques that might otherwise be advantageous or implement those hedges through a TRS. This could increase the cost of our hedging activities because our TRS would be subject to tax on gains or expose us to greater risks associated with changes in interest rates than we would otherwise want to bear. In addition, losses in our TRSs will generally not provide any tax benefit, except for being carried back or forward against past or future taxable income in the TRSs; provided, however, losses in our TRSs arising in taxable years beginning after December 31, 2017 may only be deducted against 80% of future taxable income in the TRSs.
If our Operating Partnership fails to maintain its status as a partnership for federal income tax purposes,its income may be subject to taxation, and we would lose our REIT status.
Our Operating Partnership will qualify as a partnership for federal income tax purposes; however, ifREIT prior to the IRS wereacquisition date could impair our ability to successfully challengeexpand our business and raise capital and could materially adversely affect the statusvalue of our Operating Partnershipstock. In addition, even if FelCor qualified as a partnership, it wouldREIT for the duration of its existence, if there is an adjustment to FelCor’s taxable income or dividends-paid deductions, we could be taxable as a corporation. In such event, this would reducerequired to elect to use the amount of distributions that our Operating Partnershipdeficiency dividend procedure to maintain FelCor’s REIT status. That deficiency dividend procedure could require us to make to us. This could also result in our losing REIT status and becoming subject to corporate level tax on our income. This would substantially reduce our cash available to pay distributions and the return on a shareholder's investment. In addition, if any of the entities through which our Operating Partnership owns its properties, in whole or in part, loses its characterization as a disregarded entity or a partnership for federal income tax purposes, it would be subject to taxation as a corporation, thereby reducingsignificant distributions to our Operating Partnership. Such a re-characterization of an underlying property owner could also threaten our abilityshareholders and pay significant interest to maintain REIT status.the IRS.
Risks Related to Our Common Shares
Our cash available for distribution to shareholders may not be sufficient to pay distributions at expected or required levels, and we may need to borrow funds or rely on other external sources in order to make such distributions, or we may not be able to make such distributions at all, which could cause the market price of our common shares to decline significantly.
We intend to continue to pay regular quarterly distributions to holders of our common shares. All distributions will be made at the discretion of our board of trustees and will depend on our historical and projected results of operations, EBITDA, FFO, liquidity and financial condition, REIT qualification, debt service requirements, capital expenditures and operating expenses, prohibitions and other restrictions under financing arrangements and applicable law and other factors as our board of
trustees may deem relevant from time to time. No assurance can be given that our projections will prove to be accurate or that any level of distributions or particular yield will be made or sustained. We may not be able to make distributions in the future or we may need to fund such distributions through borrowings or other external financing sources, which may be available only at unattractive terms, if at all. Any of the foregoing could cause the market price of our common shares to decline significantly.
To the extent that our distributions represent a return of capital for tax purposes, you could recognize an increased capital gain upon a subsequent sale of your stock.
Distributions in excess of our current and accumulated earnings and profits and not treated by us as a dividend will not be taxable to a U.S. stockholder to the extent such distributions do not exceed the stockholder’s adjusted tax basis in its shares of our stock but instead will constitute a return of capital and will reduce the stockholder’s adjusted tax basis in its share of our stock. If our distributions result in a reduction of a stockholder’s adjusted basis in its shares of our stock, subsequent sales by such stockholder of its shares of our stock could potentially result in recognition of an increased capital gain or reduced capital loss due to the reduction in such stockholder’s adjusted basis in its shares of our stock.
Future issuances of debt securities, which would rank senior to our common shares upon our liquidation, and future issuances of equity securities (including OP units), which would dilute the holdings of our existing common shareholders and may be senior to our common shares for the purposes of making distributions, periodically or upon liquidation, may negatively affect the market price of our common shares.
In the future, we may issue debt or equity securities or incur additional borrowings. Upon our liquidation, holders of our debt securities and other loans and preferred shares will receive a distribution of our available assets before common shareholders. If we incur debt in the future, our future interest costs could increase, and adversely affect our liquidity, FFO and results of operations. We are not required to offer any additional equity securities to existing common shareholders on a preemptive basis. Therefore, additional common share issuances, directly or through convertible or exchangeable securities (including OP units), warrants or options, will dilute the holdings of our existing common shareholders, and such issuances or the perception of such issuances may reduce the market price of our common shares. Our preferred shares, if issued, would likely have a preference on distribution payments, periodically or upon liquidation, which could eliminate or otherwise limit our ability to make distributions to common shareholders. Because our decision to issue debt or equity securities or incur additional borrowings in the future will depend on market conditions and other factors beyond our control, we cannot predict or estimate the amount, timing, nature or success of any future capital raising efforts. Thus, the common shareholders bear the risk that our future issuances of debt or equity securities or our incurrence of additional borrowings will negatively affect the market price of our common shares.
The number of common shares available for future issuance or sale could adversely affect the per share trading price of our common shares.
As of February 20, 2018, we had 174,847,263 common shares outstanding. In addition, as of such date, 773,902 OP units in the Operating Partnership were outstanding, which are redeemable for cash or, at our option, for a like number of our common shares. We cannot predict the effect, if any, of future resales of our common shares or OP units, or the perception of such resales, on the market price of our common shares. Any such future resales, or the perception that such resales might occur, could adversely affect the market price of our common shares and may also make it more difficult for us to sell equity or equity-related securities in the future and at terms that we deem appropriate.
In addition, subject to applicable law, our board of trustees has the authority, without further shareholder approval, to issue additional common shares and preferred shares on the terms and for the consideration it deems appropriate. We may issue additional common shares or OP units from time to time in connection with hotel acquisitions and we may grant registration rights in connection with such issuances, pursuant to which we would agree to register the resale of such securities under the Securities Act. Furthermore, in the future we may issue common shares and securities convertible into, or exchangeable or exercisable for, our common shares under our equity incentive plan. The market price of our common shares may decline significantly upon future issuances of equity under our equity incentive plan or in connection with hotel acquisitions.
The market price and trading volume of our common shares may be volatile and could decline substantially in the future.
The market price of our common shares may be volatile in the future. In addition, the trading volume of our common shares may fluctuate and cause significant price variations to occur. We cannot assure shareholders that the market price and the trading volume of our common shares will not decline or fluctuate significantly in the future, including as a result of factors unrelated to our operating performance. In particular, the market price and the trading volume of our common shares could be subject to wide fluctuations in response to a number of factors, including, among others, the following:
actual or anticipated differences in our operating results, liquidity, or financial condition;
changes in our revenues, expenses, EBITDA, FFO or earnings estimates;
publication of research reports about us, our hotels, the lodging industry, or the overall real estate industry;
additions and departures of key personnel;
the performance and market valuations of other similar companies;
the passage of legislation or other regulatory developments that adversely affect us or our industry;
the realization of any of the other risk factors presented in this Annual Report on Form 10-K;
speculation in the press or investment community;
changes in accounting principles;
terrorist acts; and
general market and economic conditions, including factors unrelated to our operating performance.
In the past, securities class action litigation has often been instituted against companies following periods of volatility in the market price of their common shares. If the market price of our common shares is volatile and this type of litigation is brought against us, it could result in substantial costs and divert our management's attention and resources, which could have a material and adverse effect on us.
Increases in market interest rates may reduce demand for our common shares and result in a decline in the market price of our common shares.
The market price of our common shares may be influenced by the distribution yield on our common shares (i.e., the amount of our annual distributions as a percentage of the market price of our common shares) relative to market interest rates. An increase in market interest rates, which are currently low compared to historical levels, may lead prospective purchasers of our common shares to expect a higher distribution yield, which we may not be able, or may choose not, to provide. Higher interest rates would also likely increase our borrowing costs and decrease our operating results and the cash available for distribution. Thus, higher market interest rates could cause the market price of our common shares to decline.
Our business could be negatively affected as a result of actions by activist shareholders.
Shareholder campaigns to effect changes in publicly-traded companies are sometimes led by activist investors through various corporate actions, including proxy contests. Responding to these actions can disrupt our operations by diverting the attention of management and our employees as well as our financial resources. Shareholder activism could create perceived uncertainties as to our future direction, which could result in the loss of potential business opportunities and make it more difficult to attract and retain qualified personnel and business partners. Furthermore, the election of individuals to our Board with a specific agenda could adversely affect our ability to effectively and timely implement our strategic plans.
Risks Related to the Mergers
We expect to incur substantial expenses related to the Mergers.
We have incurred substantial legal, accounting, financial advisory and other costs, and our management has devoted considerable time and effort in connection with the Mergers. We expect to incur substantial expenses in connection with integrating the business, operations, network, systems, technologies, policies and procedures of the two companies. The fees and expenses may be significant and could have an adverse impact on our results of operations.
Although we have assumed that a certain level of integration expenses would be incurred, there are a number of factors beyond our control that could affect the total amount or the timing of the integration expenses. Many of the expenses that will be incurred, by their nature, are difficult to estimate accurately at the present time. As a result, the transaction and integration expenses associated with the Mergers could, particularly in the near term, exceed the savings that we expect to achieve from the elimination of duplicative expenses and the realization of economies of scale and cost savings related to the integration of the businesses.
We may be unable to integrate the businesses successfully and realize the anticipated synergies and other expected benefits of the Mergers on the anticipated timeframe or at all.
The Mergers involved the combination of two companies that previously operated as independent public companies. We expect the combined company to benefit from the elimination of duplicative costs associated with supporting a public company platform and the resulting economies of scale. These savings are not expected to be realized until the companies are fully integrated, which is not expected to occur until late 2018. We will be required to devote significant management attention and resources to the integration of the combined company's business practices and operations. The potential difficulties we may encounter in the integration process include the following:
the inability to successfully combine the businesses in a manner that permits us to achieve the anticipated cost savings from the Mergers, which would result in the anticipated benefits of the Mergers not being realized in the timeframe currently anticipated or at all;
the complexities associated with integrating personnel from the two companies;
the complexities of combining two companies with different histories, cultures, geographic footprints and hotel properties;
potential unknown liabilities and unforeseen increased expenses, delays or conditions associated with the Mergers; and
performance shortfalls as a result of the diversion of management’s attention caused by completing the Mergers and integrating the companies’ operations.
For all these reasons, you should be aware that it is possible that the integration process could result in the distraction of our management, the disruption of our ongoing business or inconsistencies in our operations, services, standards, controls, policies and procedures, any of which could adversely affect our ability to achieve the anticipated benefits of the Mergers, or could otherwise materially and adversely affect our business and financial results.
Our future results will suffer if we do not effectively manage our expanded operations following the Mergers.
Our future success will depend, in part, upon our ability to manage our expanded operations following the Mergers, which may pose substantial challenges for us to integrate new operations into our existing business in an efficient and timely manner, and upon our ability to successfully monitor our operations, costs, regulatory compliance and service quality, and to maintain other necessary internal controls. There is no assurance that our expanded operations will be successful, or that we will realize our expected operating efficiencies, cost savings, revenue enhancements, synergies or other benefits.
The market price of our common shares may decline as a result of the Mergers and may be affected by factors different from those that affected the price of our common shares before the Mergers.
The market price of our common shares may decline if we do not achieve the benefits of the Mergers or the effect of the Mergers on our financial results is not consistent with the expectations of financial or industry analysts, or our shareholders.
In addition, the consummation of the Mergers resulted in the combination of two companies that previoiusly operated as independent public companies. The two companies had different histories, markets, hotel properties and customer bases. For example, FelCor owned hotel properties in different geographic markets than us that operated under different hotel brands than ours. As a result, while we expect to benefit from certain synergies, we may also encounter new risks and liabilities associated with these differences. Our shareholders own interests in a combined company operating an expanded business and may not wish to continue to invest in the combined company, or for other reasons may wish to dispose of some or all of our common shares. If large amounts of our Common Shares are sold, the price of our Common Shares could decline.
An adverse judgment in any shareholder litigation could adversely affect us.
It is possible that our shareholders or former FelCor stockholders may file additional lawsuits challenging the Mergers, which may name us as defendants. The outcome of such lawsuits cannot be assured, including the amount of costs associated with defending these claims or any other liabilities that may be incurred in connection with the litigation of these claims. Whether or not any plaintiff's claim is successful, this type of litigation may result in significant costs and divert management's attention and resources, which could adversely affect our business.
Risks Related to our Business Following the Mergers
We may not continue to pay dividends at or above the rate previously paid by us.
Our shareholders may not receive dividends at the same rate that they did as our shareholders prior to the Mergers for various reasons, including the following:
we may not have enough cash to pay such dividends due to changes in our cash requirements, capital spending plans, cash flow or financial position;
decisions on whether, when and in what amounts to make any future dividends will remain at all times entirely at the discretion of our board of trustees, which reserves the right to change our dividend practices at any time and for any reason;
the amount of dividends that our subsidiaries may distribute to us may be subject to restrictions imposed by state law and restrictions imposed by the terms of any current or future indebtedness that these subsidiaries may incur; and
under the terms of our outstanding preferred stock, we are not permitted to pay dividends on our common stock unless all accrued preferred dividends then payable have been paid. While our preferred dividends are current, if we fail to pay future dividends on our preferred stock for any reason, including to comply with the terms of our senior secured notes, our preferred dividends will accrue, and we will be prohibited from paying any common dividends until all such accrued but unpaid preferred dividends have been paid.
Our shareholders will have no contractual or other legal right to dividends that have not been declared by our board of trustees.
We will have a significant amount of indebtedness and may need to incur more in the future.
As a result of the Mergers, we have substantial indebtedness. In addition, in connection with executing our business strategies, we expect to continue to evaluate the possibility of acquiring additional properties and making strategic investments, and we may elect to finance these endeavors by incurring additional indebtedness. The amount of such indebtedness could have material adverse consequences for us, including:
hindering our ability to adjust to changing market, industry or economic conditions;
limiting our ability to access the capital markets to raise additional equity or refinance maturing debt on favorable terms or to fund acquisitions or emerging businesses;
limiting the amount of free cash flow available for future operations, acquisitions, dividends, share repurchases or other uses;
making us more vulnerable to economic or industry downturns, including interest rate increases; and
placing us at a competitive disadvantage compared to less leveraged competitors.
Moreover, to respond to competitive challenges, we may be required to raise substantial additional capital to execute our business strategy. Our ability to arrange additional financing will depend on, among other factors, our financial position and performance, as well as prevailing market conditions and other factors beyond our control. If we are able to obtain additional financing, our credit ratings could be further adversely affected, which could further raise our borrowing costs and further limit our future access to capital and our ability to satisfy our obligations under our indebtedness.
Risks Related to Taxes and the Mergers
We would incur adverse tax consequences if FelCor failed to qualify as a REIT for federal income tax purposes prior to the Mergers.
In connection with the closing of the Mergers, FelCor received an opinion of counsel to the effect that it qualified as a REIT for U.S. federal income tax purposes under the Code through the time of the Mergers. FelCor, however, did not request a ruling from the Internal Revenue Service (the “IRS”) that it qualified as a REIT. If, notwithstanding this opinion, FelCor’s REIT status prior to the Mergers were successfully challenged, we would face serious tax consequences that would substantially reduce our core funds from operations, and cash available for distribution, including cash available to pay dividends to our shareholders, because:
FelCor, would be subject to federal, state and local income tax on its net income at regular corporate rates for the years that it did not qualify as a REIT (and, for such years, would not be allowed a deduction for dividends paid to shareholders in computing its taxable income) and we would succeed to the liability for such taxes;
the deemed sale of assets by FelCor in the REIT Merger would be subject to federal, state and local income tax at regular corporate rates (and FelCor would not be allowed a deduction for dividends paid for the deemed liquidating distribution paid to its shareholders) and we would succeed to the liability for such taxes; and
we would succeed to any earnings and profits accumulated by FelCor, as applicable, for the tax periods that FelCor did not qualify as a REIT and we would have to pay a special dividend and/or employ applicable deficiency dividend procedures (including interest payments to the IRS) to eliminate such earnings and profits to maintain our REIT qualification.
As a result of these factors, FelCor’s failure to qualify as a REIT prior to the Mergers could impair our ability to expand our business and raise capital and could materially adversely affect the value of our stock. In addition, even if FelCor qualified as a REIT for the duration of its existence, if there is an adjustment to FelCor’s taxable income or dividends paid deductions,
we could be required to elect to use the deficiency dividend procedure to maintain FelCor’s REIT status. That deficiency dividend procedure could require us to make significant distributions to our shareholders and pay significant interest to the IRS.
Certain of our taxable REIT subsidiaries will be limited in using certain tax net operating loss carryovers.
If a corporation undergoes an "ownership change" within the meaning of Section 382 of the Code and the Treasury Regulations thereunder, such corporation's ability to use NOLs, generated prior to the time of that ownership change may be limited. To the extent the affected corporation's ability to use NOLs is limited, such corporation's taxable income may increase. As of December 31, 2017, FelCor's taxable REIT subsidiaries had approximately $237.9 million of NOLs which will begin to expire in 2024 for U.S. federal tax purposes and 2018 to 2024 for state tax purposes if not utilized. An ownership change with respect to the acquisition of FelCor in 2017 resulted in NOL limitations under Section 382 of the Code. Accordingly, certain of FelCor's taxable REIT subsidiaries' ability to use NOLs incurred prior to the Mergers in such future years will be limited, and these taxable REIT subsidiaries will have greater taxable income as a result of such limitation.
Section 383 of the Code and the Treasury Regulations governs the limitations of tax credits generated prior to the time of an ownership change. To the extent the affected corporation's ability to use tax credits is limited, such corporation's tax liability may increase. As of December 31, 2017, FelCor's taxable REIT subsidiaries had approximately $19.4 million of tax credit carryforwards related to alternative minimum tax and historic tax credits which will begin to expire in 2035.
Some of our hotel properties will be subject to property tax reappraisal.
As a result of the Mergers, some of our hotel properties will be subject to property tax reappraisal that could increase property tax expense and adversely affect our profitability. Ten of our hotel properties are located in jurisdictions that may provide for property tax reappraisal upon a change of ownership and so may face such a reassessment. Further, an additional five of our hotel properties are located in jurisdictions where the property tax value is subject to a ceiling that will no longer be applicable following the Mergers. The Mergers and the associated publicity together with the related transfers of property and property name changes that will occur in connection with the Mergers may cause other jurisdictions, in which the timing of the reappraisals is discretionary with the taxing authorities, to decide to reappraise our hotel properties in those jurisdictions and may correspondingly increase the property tax expense to the combined company. Due to the significant uncertainties involved, the possible increases in property tax expense have not been quantified.
Item 1B. Unresolved Staff Comments
None.
Item 2. Properties
Our Hotel Properties
The following table provides a comprehensive list of our hotel properties as of December 31, 2017:2021: | | State | Hotel Property Name | Rooms | | State | Hotel Property Name | Rooms | State | Hotel Property Name | Rooms | | State | Hotel Property Name | Rooms |
Alabama | Alabama | | Kentucky | Alabama | | Indiana |
| Embassy Suites Birmingham | 242 | | Courtyard Louisville Northeast | 114 | | Embassy Suites Birmingham | 242 | | Courtyard Indianapolis @ The Capitol | 124 |
Arizona | Arizona | | Marriott Louisville Downtown | 616 | Arizona | | Residence Inn Indianapolis Downtown On The Canal | 134 |
| Embassy Suites Phoenix - Biltmore | 232 | | Residence Inn Louisville Downtown | 140 | | Embassy Suites Phoenix - Biltmore | 232 | | Residence Inn Merrillville | 78 |
California | California | | Residence Inn Louisville Northeast | 102 | California | | Kentucky |
| Courtyard San Francisco | 166 | | SpringHill Suites Louisville Hurstbourne North | 142 | | Courtyard San Francisco | 166 | | Marriott Louisville Downtown | 620 |
| Embassy Suites Irvine Orange County | 293 | | Louisiana | | Embassy Suites Irvine Orange County | 293 | | Residence Inn Louisville Downtown | 140 |
| Embassy Suites Los Angeles Downey | 220 | | Chateau LeMoyne - French Quarter, New Orleans (1) | 171 | | Embassy Suites Los Angeles Downey | 220 | | Louisiana |
| Embassy Suites Los Angeles - International Airport South | 349 | | Hilton Garden Inn New Orleans Convention Center | 286 | | Embassy Suites Los Angeles - International Airport South | 349 | | Chateau LeMoyne - French Quarter, New Orleans (1) | 171 |
| Embassy Suites Mandalay Beach - Hotel & Resort | 250 | | Hotel Indigo New Orleans Garden District | 132 | | Embassy Suites Mandalay Beach - Hotel & Resort | 250 | | Hilton Garden Inn New Orleans Convention Center | 286 |
| Embassy Suites Milpitas Silicon Valley | 266 | | Wyndham New Orleans - French Quarter | 374 | | Embassy Suites Milpitas Silicon Valley | 267 | | Hotel Indigo New Orleans Garden District | 132 |
| Embassy Suites Napa Valley | 205 | | Massachusetts | | Embassy Suites San Francisco Airport - South San Francisco | 316 | | Wyndham New Orleans - French Quarter | 374 |
| Embassy Suites San Francisco Airport - South San Francisco | 312 | | Embassy Suites Boston Marlborough | 229 | | Embassy Suites San Francisco Airport - Waterfront | 340 | | Massachusetts |
| Embassy Suites San Francisco Airport - Waterfront | 340 | | Embassy Suites Boston Waltham | 275 | | Hilton Garden Inn Los Angeles Hollywood | 160 | | AC Hotel Boston Downtown | 205 |
| | | Hilton Garden Inn San Francisco Oakland Bay Bridge | 303 | | Embassy Suites Boston Waltham | 275 |
| | | Hyatt House Cypress Anaheim | 142 | | Wyndham Boston Beacon Hill | 304 |
| | | Hyatt House Emeryville San Francisco Bay Area | 234 | | Maryland |
| | | Hyatt House San Diego Sorrento Mesa | 193 | | Residence Inn Bethesda Downtown | 188 |
| | | Hyatt House San Jose Silicon Valley | 164 | | Residence Inn National Harbor Washington DC | 162 |
| | | Hyatt House San Ramon | 142 | | Minnesota |
| | | Hyatt House Santa Clara | 150 | | Embassy Suites Minneapolis - Airport | 310 |
| | | | | | | | | | | | | | | | | | | | |
State | Hotel Property Name | Rooms | | State | Hotel Property Name | Rooms |
| Hyatt Place Fremont Silicon Valley | 151 | | New York |
| Residence Inn Palo Alto Los Altos | 156 | | | Courtyard New York Manhattan Upper East Side | 226 |
| San Francisco Marriott Union Square | 401 | | | Hampton Inn Garden City | 143 |
| Wyndham San Diego Bayside | 600 | | | The Knickerbocker New York (2) | 330 |
| Wyndham Santa Monica At The Pier | 132 | | North Carolina |
Colorado | | | Hyatt House Charlotte Center City | 163 |
| Fairfield Inn & Suites Denver Cherry Creek | 134 | | Oregon | |
| Marriott Denver Airport @ Gateway Park | 238 | | | Courtyard Portland City Center | 256 |
| Marriott Denver South @ Park Meadows | 279 | | | SpringHill Suites Portland Hillsboro | 106 |
| Moxy Denver Cherry Creek | 170 | | Pennsylvania | |
| Renaissance Boulder Flatiron Hotel | 232 | | | Hilton Garden Inn Pittsburgh University Place | 202 |
| SpringHill Suites Denver North Westminster | 164 | | | Renaissance Pittsburgh Hotel | 300 |
District of Columbia | | | Wyndham Philadelphia Historic District | 364 |
| Fairfield Inn & Suites Washington DC Downtown | 198 | | | Wyndham Pittsburgh University Center | 251 |
| Homewood Suites Washington DC Downtown | 175 | | South Carolina | |
| Hyatt Place Washington DC Downtown K Street | 164 | | | Courtyard Charleston Historic District | 176 |
Florida | | | The Mills House Wyndham Grand Hotel | 216 |
| DoubleTree Grand Key Resort | 216 | | Texas | | |
| DoubleTree Suites by Hilton Orlando - Lake Buena Vista | 229 | | | Courtyard Austin Downtown Convention Center | 270 |
| Embassy Suites Deerfield Beach - Resort & Spa | 244 | | | Courtyard Houston By The Galleria | 190 |
| Embassy Suites Fort Lauderdale 17th Street | 361 | | | Courtyard Houston Downtown Convention Center | 191 |
| Embassy Suites Fort Myers Estero | 150 | | | DoubleTree by Hilton Houston Medical Center Hotel & Suites | 287 |
| Embassy Suites Miami - International Airport | 318 | | | DoubleTree Suites by Hilton Austin | 188 |
| Embassy Suites Orlando - International Drive South/Convention Center | 244 | | | Embassy Suites Dallas - Love Field | 248 |
| Embassy Suites Tampa Downtown Convention Center | 360 | | | Hyatt Centric The Woodlands | 72 |
| Embassy Suites West Palm Beach Central | 194 | | | Residence Inn Austin Downtown Convention Center | 179 |
| Fairfield Inn & Suites Key West | 106 | | | Residence Inn Houston By The Galleria | 146 |
| Hilton Cabana Miami Beach | 231 | | | Residence Inn Houston Downtown Convention Center | 171 |
| Renaissance Fort Lauderdale West Hotel | 250 | | | SpringHill Suites Houston Downtown Convention Center | 167 |
Georgia | | Washington |
| Courtyard Atlanta Buckhead | 181 | | | Homewood Suites Seattle Lynnwood | 170 |
| Embassy Suites Atlanta - Buckhead | 326 | | Wisconsin |
| Hampton Inn and Suites Atlanta Midtown | 186 | | | Hyatt Place Madison Downtown | 151 |
| Hyatt Centric Midtown Atlanta | 194 | | | | |
| Residence Inn Atlanta Midtown Historic | 90 | | | | |
Hawaii | | | | |
| Courtyard Waikiki Beach | 404 | | | | |
Illinois | | | | |
| Courtyard Chicago Downtown Magnificent Mile | 306 | | | | |
| Courtyard Midway Airport | 174 | | | | |
| Fairfield Inn & Suites Chicago Midway Airport | 114 | | | | |
| Hampton Inn Chicago Midway Airport | 170 | | | | |
| Hilton Garden Inn Chicago Midway Airport | 174 | | | | |
| Holiday Inn Express & Suites Midway Airport | 104 | | | | |
| Marriott Chicago Midway | 200 | | | | |
| Sleep Inn Midway Airport | 121 | | | | |
(1)We own an indirect 50% ownership interest in this hotel property and we account for the ownership interest using the equity method of accounting. This hotel property is operated without a lease.
(2)We own a 95.0% controlling ownership interest in this hotel property.
|
| | | | | | |
State | Hotel Property Name | Rooms | | State | Hotel Property Name | Rooms |
| Hilton Garden Inn Los Angeles Hollywood | 160 | | | Wyndham Boston Beacon Hill | 304 |
| Hilton Garden Inn San Francisco Oakland Bay Brg | 278 | | Maryland |
| Holiday Inn San Francisco - Fisherman's Wharf | 585 | | | DoubleTree Hotel Columbia | 152 |
| Hyatt House Cypress Anaheim | 142 | | | Residence Inn Bethesda Downtown | 188 |
| Hyatt House Emeryville San Francisco Bay Area | 234 | | | Residence Inn Columbia | 108 |
| Hyatt House San Diego Sorrento Mesa | 193 | | | Residence Inn National Harbor Washington DC | 162 |
| Hyatt House San Jose Silicon Valley | 164 | | | Residence Inn Silver Spring | 130 |
| Hyatt House San Ramon | 142 | | Michigan |
| Hyatt House Santa Clara | 150 | | | Residence Inn Detroit Novi | 107 |
| Hyatt Place Fremont Silicon Valley | 151 | | Minnesota |
| Residence Inn Palo Alto Los Altos | 156 | | | Embassy Suites Minneapolis - Airport | 310 |
| San Francisco Marriott Union Square | 401 | | New Jersey |
| Wyndham San Diego Bayside | 600 | | | Embassy Suites Secaucus - Meadowlands (2) | 261 |
| Wyndham Santa Monica At The Pier | 132 | | New York |
Colorado | | | Courtyard New York Manhattan Upper East Side | 226 |
| Courtyard Boulder Longmont | 78 | | | DoubleTree Metropolitan Hotel New York City (3) | 764 |
| Courtyard Boulder Louisville | 154 | | | Hampton Inn Garden City | 143 |
| Courtyard Denver West Golden | 110 | | | The Knickerbocker New York (4) | 330 |
| Fairfield Inn & Suites Denver Cherry Creek | 134 | | North Carolina |
| Hampton Inn & Suites Denver Tech Center | 123 | | | Hilton Garden Inn Durham Raleigh Research Triangle Park | 177 |
| Marriott Denver Airport @ Gateway Park | 238 | | | Hyatt House Charlotte Center City | 163 |
| Marriott Denver South @ Park Meadows | 279 | | Oregon |
| Renaissance Boulder Flatiron Hotel | 232 | | | Courtyard Portland City Center | 256 |
| Residence Inn Boulder Louisville | 88 | | | SpringHill Suites Portland Hillsboro | 106 |
| Residence Inn Denver West Golden | 88 | | Pennsylvania |
| Residence Inn Longmont Boulder | 84 | | | Hilton Garden Inn Pittsburgh University Place | 202 |
| SpringHill Suites Boulder Longmont | 90 | | | Renaissance Pittsburgh Hotel | 300 |
| SpringHill Suites Denver North Westminster | 164 | | | Sheraton Philadelphia Society Hill Hotel | 364 |
District of Columbia | | | Wyndham Philadelphia Historic District | 364 |
| Fairfield Inn & Suites Washington DC Downtown | 198 | | | Wyndham Pittsburgh University Center | 251 |
| Homewood Suites Washington DC Downtown | 175 | | South Carolina |
| Hyatt Place Washington DC Downtown K Street | 164 | | | Courtyard Charleston Historic District | 176 |
Florida | | | Embassy Suites Myrtle Beach - Oceanfront Resort | 255 |
| Courtyard Fort Lauderdale SW Miramar | 128 | | | Hilton Myrtle Beach Resort | 385 |
| DoubleTree Grand Key Resort | 216 | | | The Mills House Wyndham Grand Hotel | 216 |
| DoubleTree Suites by Hilton Orlando - Lake Buena Vista | 229 | | Texas |
| Embassy Suites Deerfield Beach - Resort & Spa | 244 | | | Courtyard Austin Airport | 150 |
| Embassy Suites Fort Lauderdale 17th Street | 361 | | | Courtyard Austin Downtown Convention Center | 270 |
| Embassy Suites Fort Myers Estero | 150 | | | Courtyard Austin Northwest Arboretum | 102 |
| Embassy Suites Miami - International Airport | 318 | | | Courtyard Austin South | 110 |
| Embassy Suites Orlando - International Drive South/Convention Center | 244 | | | Courtyard Houston By The Galleria | 190 |
| Embassy Suites Tampa Downtown Convention Center | 360 | | | Courtyard Houston Downtown Convention Center | 191 |
| Embassy Suites West Palm Beach Central | 194 | | | Courtyard Houston Sugarland | 112 |
| Fairfield Inn & Suites Key West | 106 | | | DoubleTree Suites by Hilton Austin | 188 |
| Hampton Inn Fort Walton Beach | 100 | | | Embassy Suites Dallas - Love Field | 248 |
| Hampton Inn & Suites Clearwater St Petersburg Ulmerton Road | 128 | | | Fairfield Inn & Suites Austin South Airport | 63 |
| Hampton Inn West Palm Beach Airport Central | 105 | | | Fairfield Inn & Suites San Antonio Downtown Market | 110 |
| Hilton Cabana Miami Beach | 231 | | | Hampton Inn Houston Near The Galleria | 176 |
| Hilton Garden Inn West Palm Beach Airport | 100 | | | Hyatt House Austin Arboretum | 131 |
| Renaissance Fort Lauderdale Plantation Hotel | 250 | | | Hyatt House Dallas Lincoln Park | 155 |
|
| | | | | | |
State | Hotel Property Name | Rooms | | State | Hotel Property Name | Rooms |
| Residence Inn Fort Lauderdale Plantation | 138 | | | Hyatt House Dallas Uptown | 141 |
| Residence Inn Fort Lauderdale SW Miramar | 130 | | | Hyatt House Houston Galleria | 147 |
| The Vinoy Renaissance St. Petersburg Resort & Golf Club | 362 | | | Hyatt Centric The Woodlands | 70 |
Georgia | | | Marriott Austin South | 211 |
| Courtyard Atlanta Buckhead | 181 | | | Residence Inn Austin Downtown Convention Center | 179 |
| Embassy Suites Atlanta - Buckhead | 316 | | | Residence Inn Austin North Parmer Lane | 88 |
| Hyatt Atlanta Midtown | 194 | | | Residence Inn Austin Northwest Arboretum | 84 |
| Residence Inn Atlanta Midtown Historic | 90 | | | Residence Inn Austin South | 66 |
Hawaii | | | Residence Inn Houston By The Galleria | 146 |
| Courtyard Waikiki Beach | 403 | | | Residence Inn Houston Downtown Convention Center | 171 |
Illinois | | | Residence Inn Houston Sugarland | 78 |
| Courtyard Chicago Downtown Magnificent Mile | 306 | | | Residence Inn San Antonio Downtown Market Square | 95 |
| Courtyard Midway Airport | 174 | | | SpringHill Suites Austin North Parmer Lane | 132 |
| Fairfield Inn & Suites Chicago Midway Airport | 114 | | | SpringHill Suites Austin South | 152 |
| Hampton Inn Chicago Midway Airport | 170 | | | SpringHill Suites Houston Downtown Convention Center | 167 |
| Hilton Garden Inn Chicago Midway Airport | 174 | | | Wyndham Houston - Medical Center Hotel & Suites | 287 |
| Holiday Inn Express & Suites Midway Airport | 104 | | Utah |
| Marriott Chicago Midway | 200 | | | Courtyard Salt Lake City Airport | 154 |
| Residence Inn Chicago Oak Brook | 156 | | | Residence Inn Salt Lake City Airport | 104 |
| Residence Inn Chicago Naperville | 130 | | Vermont |
| Sleep Inn Midway Airport | 121 | | | DoubleTree by Hilton Burlington Vermont | 309 |
Indiana | | Washington |
| Courtyard Chicago Southeast Hammond | 85 | | | Homewood Suites Seattle Lynnwood | 170 |
| Courtyard Indianapolis @ The Capitol | 124 | | Wisconsin |
| Courtyard South Bend Mishawaka | 78 | | | Hyatt Place Madison Downtown | 151 |
| Fairfield Inn & Suites Chicago SE Hammond | 94 | | | | |
| Hilton Garden Inn Bloomington | 168 | | | | |
| Residence Inn Chicago Southeast Hammond | 78 | | | | |
| Residence Inn Indianapolis Downtown On The Canal | 134 | | | | |
| Residence Inn Indianapolis Fishers | 78 | | | | |
| Residence Inn Merrillville | 78 | | | | |
| SpringHill Suites South Bend Mishawaka | 87 | | | | |
| |
(1) | We own an indirect 50% ownership interest in this hotel property and we account for the ownership interest using the equity method of accounting. This hotel property is operated without a lease. |
| |
(2) | We own an indirect 50% ownership interest in the real estate at this hotel property and we record the real estate interests using the equity method of accounting. We lease the hotel property to its TRS, of which we own a controlling financial interest in the operating lessee, so we consolidate the ownership interest in the leased hotel. |
| |
(3) | We own a 98.3% controlling ownership interest in this hotel property. |
| |
(4) | We own a 95% controlling ownership interest in this hotel property. |
Management Agreements
In order to qualify as a REIT, we cannot directly or indirectly operate any of our hotel properties. We lease eachall but one of our hotel properties to TRS lessees, which in turn engage hotel property management companies to manage our hotel properties. EachAll of our hotel properties isare operated pursuant to a hotel management agreement with one of 1715 independent hotel management companies. 29 of our hotel properties receive the benefits of a franchise agreement pursuant to a management agreement with Hilton, Hyatt, or Marriott.
As of December 31, 2021, Aimbridge was the management company for 30 of our hotel properties. Our remaining 68 hotel properties were managed by 14 other management companies, including Hilton, Hyatt and Marriott.
The management agreements have initial terms that range from one to 25 years, and some provide for one or two automatic extension periods ranging from one to 10 years each.
Each hotel management company receives a base management fee between 1.75% and is3.5% of hotel revenues. The management agreements that include the benefits of a franchise agreement incur a base management fee between 2.0% and 7.0% of hotel revenues.
The management companies are also eligible to receive an incentive management fee upon the achievement of certain financial thresholds as set forth in each applicable management agreement. The incentive management fee is generally calculated as a percentage of hotel net operating profitincome after we have received a priority return on our investment in the hotel.
As of December 31, 2017, WLS was the management company for 71 of our hotel properties. Our remaining hotel properties were managed by 16 other management companies located in the United States. Below is a summary of the principal termsEach of the management agreements with WLS and a general overview of our non-WLS management agreements.
On January 24, 2018, Interstate Hotels & Resorts ("Interstate") acquired 62 of our management agreements with WLS. Pursuant to this transaction, we now have 73 management agreements with Interstate and nine management agreements with WLS. The terms of the original WLS management agreements (described below) remain in effect.
WLS Management Agreements
WLS is a fully-integrated owner, developer, and manager of premium-brand hotels. Our TRS lessees, as lessees of the respective hotels, have entered into management agreements with WLS. This summary is qualified in its entirety by reference to the form of the WLS management agreement included as an exhibit to this Annual Report on Form 10-K.
Our WLS management agreements contain initial terms of 10 to 20 years and are generally subject to two automatic renewal terms of five to 10 years each. The WLS management agreements have an average remaining initial term of approximately nine years.
Under the WLS management agreements, WLS receives a base management fee and, if certain financial thresholds are met or exceeded, an incentive management fee. The base management fee is generally 3.5% of gross hotel revenues for the applicable hotel. Gross hotel revenue is calculated as all hotel revenue before subtracting expenses. The incentive management fee, which is calculated on a per hotel basis, is 15% of the operating profit (as defined in the applicable hotel management agreement) remaining after we receive an annual return equal to 11% of our total capital investment, including debt, in the applicable hotel. We also pay certain computer support and accounting service fees to WLS, as reflected in each management agreement.
We have structured our WLS management agreements to align our interests with those of WLS by providingprovides us with a right to terminate a WLSsuch management agreement if WLSthe management company fails to achievereach certain criteria relatingperformance targets (as provided in the applicable management agreement). Certain management agreements also provide us with a right to terminate the performancemanagement agreement in our sole and absolute discretion. In addition, certain management agreements give us the right to terminate the management agreement upon the sale of the hotel property or for any reason upon payment of a hotel property under WLS management, as measured with respect to any two consecutive fiscal years.
stipulated termination fee. Subject to certain qualifications and applicable cure periods, the management agreements are generally terminable by either party upon material casualty, or condemnation of the hotel property, or the occurrence of certain customary events of default. If an event of default occurs and continues beyond the grace period set forthCertain management agreements also stipulate that in the WLS management agreement, the non-defaulting party generally has, among other remedies, the option of terminating the applicable management agreement, upon at least 30 days written notice to the other party.
In the event that WLSa management company elects to terminate a WLS management agreement due to an event of default by us, WLSthe management company may elect to recover a termination fee, as liquidated damages, equal to 2.5 times the actual base management fee and incentive management fee earned by WLSthe management company under that management agreement in the fiscal year immediately preceding the fiscal year in which such termination occurred.
Generally, the WLSMany of our Aimbridge and White Lodging Services ("WLS") management agreements state that we cannot sell the applicable hotel property to any unrelated third party or engage in certain change of control actions (1) if we are in default under the management agreement, or (2) with or to a person or entity that is known in the community as being of bad moral character or has been convicted of a felony or is in control of or controlled by persons convicted of a felony or would be in violation of any franchise agreement requirements applicable to us. Generally, theIn addition, those Aimbridge and WLS management agreements further require that any future owner of the applicable hotel property, at the option of WLS,the management company, assume the WLS management agreement or enter into a new WLS management agreement for such hotel property.
Other Management Agreements
As of December 31, 2017, 87 of our hotel properties were managed by 16 hotel management companies other than WLS. This number includes 47 hotel properties that receive the benefits of a franchise agreement pursuant to management agreements with Hilton, Hyatt, Marriott, Wyndham, or other hotel brands. Each of these hotels is subject to a management agreement that contains customary terms and conditions that generally are similar to the provisions found in the WLS management agreements described above.
The management agreements generally have initial terms that range from three to 25 years, and some provide for one or two automatic extension periods ranging from one to ten years. In addition, each hotel management company receives a base management fee generally between 3.0% and 3.5% of hotel revenues. Management agreements that include the benefits of a franchise agreement incur a base management fee generally between 2.0% and 7.0% of hotel revenues.
The hotel management companies may also earn an incentive management fee ranging from 10% to 25% of the available cash flow (or other similar metric), as defined in the management agreement. The incentive management fee is generally calculated as a percentage of the hotel operating income after we have received a priority return on our investment in the hotel property.
Each of the management agreements provides us with a right to terminate such management agreement if the hotel management company fails to reach certain performance targets (as provided in the applicable management agreement) or provides us with a right to terminate the management agreement in our sole and absolute discretion. In addition, certain management agreements give us the right to terminate the management agreement upon the sale of the hotel property or for any reason upon payment of a stipulated termination fee. The management agreements are also generally terminable by either party upon material casualty or condemnation of the hotel property or the occurrence of certain customary events of default.
The Wyndham management agreements guarantee minimum levels of annual net operating income at each of the Wyndham-managed hotels for each year of the initial 10-year term to 2023, subject to an aggregate $100 million limit over the term and an annual $21.5 million limit. As of December 31, 2017, approximately $22.1 million of the Wyndham net operating income guarantee, in the aggregate, had been recognized. We recognize the guaranty as a reduction of Wyndham's contractual management and other fees.
Franchise Agreements
As of December 31, 2017, 1102021, 68 of our hotels operated under franchise agreements with Marriott, Hilton, Hyatt or other hotel brands. These numbers exclude 47This excludes 29 hotel properties that receive the benefits of a franchise agreement pursuant to management agreements with Hilton, Hyatt, Marriott, Wyndham, or other hotel brands.Marriott. In addition, The Knickerbocker is not operated with a hotel brand so the hotel does not have a franchise agreement.
The franchisors provide a variety of benefits to the franchisees, including centralized reservation systems, national advertising, marketing programs and publicity designed to increase brand awareness, personnel training of personnel and maintenance of operational quality at the hotels across the brand system. The franchise agreements generally specify management, operational, record-keeping, accounting, reporting and marketing standards and procedures, all of which our TRS lessees, as the franchisees, must follow. The franchise agreements require our TRS lessees to comply with the franchisors' standards and requirements, including the training of operational personnel, safety, maintaining specified insurance, the types of services and products ancillary to guest room services that may be provided by the TRS lessee, the display of signage and the type, quality and age of furniture, fixtures and equipment included in the guest rooms and the nature of the lobbies and other common areas. The franchise agreements have initial terms ranging from 10one to 30 years. Each of our existing franchise agreements require that we pay a royalty fee generally between 4.0%3.0% and 6.0% of room revenue, plus additional fees for marketing, central reservation systems and other franchisor costs generally
between 1.0% and 4.3% of room revenue. Certain hotels are also charged a royalty fee of generallybetween 1.5% and 3.0% of food and beverage revenues.
The franchise agreements also provide for termination at the applicable franchisor's option upon the occurrence of certain events, including the failure to pay royalties and fees, the failure to perform our obligations under the franchise license, bankruptcy and the abandonment of the franchise, or a change in control. The TRS lessee is responsible for making all payments under the applicable franchise agreement to the franchisor; however, we are required to guarantee the obligations under each of the franchise agreements. In addition, many of our existing franchise agreements provide the franchisor with a right of first offer in the event of certain sales or transfers of a hotel and provide the franchisor the right to approve anya change in the hotel management company who manages the hotel.
TRS Leases
In order for us to qualify as a REIT, neither our company nor any of our subsidiaries may directly or indirectly operate any of our hotels. The subsidiaries of the Operating Partnership, as the lessors, lease our hotels to our TRS lessees, which, in turn, are the parties to the existing hotel management agreements with the third-party hotel management companies at each of our hotels. The TRS leases contain the provisions that are described below. For the hotels that are acquired in the future, we intend for the leases to contain substantially similar provisions as to those described below; however, we may, in our discretion, alter any of these provisions with respect to any particular lease.
Lease Terms
Our TRS leases have initial terms that range fromof generally three to five years and a majority of the leases can be renewed by our TRS lessees for three successive five-yearthree-year renewal terms unless the lessee is in default at the expiration of the then-current
term. In addition, our TRS leases are subject to early termination by us in the event that we sell the hotel to an unaffiliated party, a change in control occurs or the applicable provisions of the Code are amended to permit us to operate our hotels. Our TRS leases are also subject to early termination upon the occurrence of certain events of default and/or other contingencies described in the lease.
Amounts Payable under the Leases
During the term of each TRS lease, our TRS lessees are obligated to pay us a fixed annual base rent plus a percentage rent and certain other additional charges that our TRS lessees agree to pay under the terms of the respective TRS lease. The percentage rent is calculated based on the revenues generated from the rental of guest rooms, food and beverage sales, and certain other sources, including meeting room and movie rentals.
The TRS leases require our TRS lessees to pay rent, all costs and expenses, management fees, franchise fees, personal property taxes, certain insurance policies and all utility and other charges incurred in the operation of the hotels. The leases also provide for rent reductions and abatements in the event of damage to, destruction, or a partial taking of, any hotel.
All of the above mentioned intercompany transactions eliminate in consolidation.
Maintenance and Modifications
Under each TRS lease, the TRS lessee may, at its expense, make additions, modifications or improvements to the hotel that it deems desirable, and that we approve. In addition, our TRS lessees are required, at their expense, to maintain the hotels in good order and repair, except for ordinary wear and tear, and to make repairs that may be necessary and appropriate to keep the hotel in good order and repair. Under the TRS lease, we are responsible for maintaining, at our cost, any underground utilities or structural elements, including the exterior walls and the roof of the hotel (excluding, among other things, windows and mechanical, electrical and plumbing systems). Each TRS lessee, when and as required to meet the standards of the applicable hotel management agreement, any applicable hotel franchise agreement, or to satisfy the requirements of any lender, must establish an FF&E reserve in an amount equal to up to 5% of gross revenue for the purpose of periodically repairing, replacing or refurbishing the furnishings and equipment.
Events of Default
The events of default under each of the leases include, among others: the failure by a TRS lessee to pay rent when due; the breach by a TRS lessee of a covenant, condition or term under the lease, subject to the applicable cure period; the bankruptcy or insolvency of a TRS lessee; cessation of operations by a TRS lessee of the leased hotel for more than 30 days, except as a result of damage, destruction, or a partial or complete condemnation; or the default by a TRS lessee under a franchise agreement subject to any applicable cure period.
Termination of Leases on Disposition of the Hotels or Change of Control
In the event that we sell a hotel to a non-affiliate or a change of control occurs, we generally have the right to terminate the lease by paying the applicable TRS lessee a termination fee to be governed by the terms and conditions of the lease.
Ground Leases
As of December 31, 2017, 172021, 13 of our consolidated hotel properties and two of our unconsolidated hotel propertiesproperty were subject to ground lease agreements that cover the land under the respective hotel properties. Additional information on the ground leases can be found in Note 1211 to our accompanying consolidated financial statements.
Item 3. Legal Proceedings
The nature of the operations of our hotels exposes our hotel properties, us and the Operating Partnership to the risk of claims and litigation in the normal course of business. Other than routine litigation arising out of the ordinary course of business, we are not presently subject to any material litigation nor, to our knowledge, is any material litigation threatened against us.
Item 4. Mine Safety Disclosures
Not applicable.
PART II
Item 5. Market for Registrant's Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities
Our common shares are traded on the New York Stock Exchange ("NYSE") under the symbol "RLJ." The table below is a summary of the high and low prices of our common shares forFor each quarterly period forduring the years ended December 31, 20172021 and 2016, as reported on the NYSE and the distributions2020, we paid by us with respect to each quarterly period.a cash dividend of $0.01 per common share.
|
| | | | | | | | | | | |
2017 | High | | Low | | Distribution |
January 1, 2017 through March 31, 2017 | $ | 25.01 |
| | $ | 21.86 |
| | $ | 0.33 |
|
April 1, 2017 through June 30, 2017 | $ | 23.98 |
| | $ | 19.12 |
| | $ | 0.33 |
|
July 1, 2017 through September 30, 2017 | $ | 22.77 |
| | $ | 19.24 |
| | $ | 0.33 |
|
October 1, 2017 through December 31, 2017 | $ | 22.92 |
| | $ | 20.52 |
| | $ | 0.33 |
|
| | | | | |
2016 | High | | Low | | Distribution |
January 1, 2016 through March 31, 2016 | $ | 23.33 |
| | $ | 16.15 |
| | $ | 0.33 |
|
April 1, 2016 through June 30, 2016 | $ | 22.81 |
| | $ | 18.86 |
| | $ | 0.33 |
|
July 1, 2016 through September 30, 2016 | $ | 24.60 |
| | $ | 20.58 |
| | $ | 0.33 |
|
October 1, 2016 through December 31, 2016 | $ | 25.10 |
| | $ | 18.92 |
| | $ | 0.33 |
|
On December 29, 201731, 2021 and February 20, 2018,17, 2022, the closing price of our common shares as reported on the NYSE was $21.97$13.93 and $21.62,$15.22, respectively.
Share Return Performance
The graph and the table set forth below assume $100 was invested on December 31, 20122016 in RLJ Lodging Trust's common shares. The graph and the table compare the total shareholder return of our common shares against the cumulative total returns of the Standard & Poor's 500 Index ("S&P 500 Index") and the Morgan Stanley Capital International United StatesDow Jones U.S. Select Real Estate Hotels Index ("Dow Jones US REIT Index ("MSCI US REITHotels Index") between December 31, 20122016 and December 31, 2017.2021. The graph assumes an initial investment of $100$100.00 in our common shares and in each of the indices, and it also assumes the reinvestment of dividends.
![](https://files.docoh.com/10-K/0001511337-18-000046/chart-c997bbd150635afb8d0.jpg)
![rlj-20211231_g1.jpg](https://files.docoh.com/10-K/0001511337-22-000009/rlj-20211231_g1.jpg)
| | Name | | Initial Investment at December 31, 2012 | | Value of Initial Investment at December 31, 2013 | | Value of Initial Investment at December 31, 2014 | | Value of Initial Investment at December 31, 2015 | | Value of Initial Investment at December 31, 2016 | | Value of Initial Investment at December 31, 2017 | Name | | Initial Investment at December 31, 2016 | | Value of Initial Investment at December 31, 2017 | | Value of Initial Investment at December 31, 2018 | | Value of Initial Investment at December 31, 2019 | | Value of Initial Investment at December 31, 2020 | | Value of Initial Investment at December 31, 2021 |
RLJ Lodging Trust | | $ | 100.00 |
| | $ | 130.24 |
| | $ | 185.96 |
| | $ | 126.03 |
| | $ | 151.52 |
| | $ | 144.46 |
| RLJ Lodging Trust | | $ | 100.00 | | | $ | 95.34 | | | $ | 76.07 | | | $ | 88.56 | | | $ | 71.01 | | | $ | 70.10 | |
S&P 500 Index | | $ | 100.00 |
| | $ | 132.37 |
| | $ | 150.48 |
| | $ | 152.55 |
| | $ | 170.78 |
| | $ | 208.05 |
| S&P 500 Index | | $ | 100.00 | | | $ | 121.83 | | | $ | 116.49 | | | $ | 153.18 | | | $ | 181.36 | | | $ | 233.43 | |
MSCI US REIT Index | | $ | 100.00 |
| | $ | 102.50 |
| | $ | 133.66 |
| | $ | 137.04 |
| | $ | 148.84 |
| | $ | 156.48 |
| |
Dow Jones US REIT Hotels Index | | Dow Jones US REIT Hotels Index | | $ | 100.00 | | | $ | 105.07 | | | $ | 100.27 | | | $ | 126.18 | | | $ | 116.63 | | | $ | 166.85 | |
This performance graph shall not be deemed to be "filed" for the purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or incorporated by reference into any filing by us under the Securities Act of 1933, as amended, or the Securities Exchange Act, except as shall be expressly set forth by specific reference in such filing.
Shareholder Information
At February 20, 2018,17, 2022, we had 155191 holders of record of our common shares. However, because many of our common shares are held by brokers and other institutions on behalf of shareholders, we believe there are substantially more beneficial holders of our common shares than record holders.holders of record. At February 20, 2018,17, 2022, there were 1712 holders (other than our company) of our OP units. Our OP units are redeemable for cash or, at our election, for our common shares.
In order to comply with certain requirements related to our qualification as a REIT, our declaration of trust provides that, subject to certain exceptions, no person or entity (other than a person or entity who has been granted an exception) may directly or indirectly, beneficially or constructively, own more than 9.8% of the aggregate of our outstanding common shares, by value or by number of shares, whichever is more restrictive, or 9.8% of the aggregate of the outstanding preferred shares of any class or series, by value or by number of shares, whichever is more restrictive.
Distribution Information
We intend, over time, to make quarterly distributions to our common shareholders. In order to qualify and maintain our qualification for taxation as a REIT, we intend to make annual distributions to our shareholders of at least 90% of our REIT taxable income, determined without regard to the deduction for dividends paid and excluding any net capital gain.
The credit agreements governing our $600$600.0 million unsecured revolving credit facility (the "Revolver") and our unsecured term loans (the "Term Loans") limit our ability to pay cash dividends. However, so long as no default ordividends under certain circumstances. If an event of default exists, the credit agreements allow us towe may only pay cash dividends with respect to any period of four fiscal quarters in an aggregate amount not to exceed (i) 95% of adjusted funds from operations (as defined in the credit agreements), (ii) the amount required for us to maintain our status as a REIT (including the right to distribute 100% of net capital gain) under Sections 856 through 860 of the Code, and (iii) the amount necessary for us to avoid income or excise tax under the Code. If certain defaults or events of default exist, we may pay cash dividends with respect to any fiscal year in an aggregate amount not to exceed the greater of (a) the minimum amount required for us to maintain our status as a REIT under Sections 856 through 860 of the Code, or (b) the amount necessary to avoid income or excise tax under the Code. However, if the event of default is a payment default or bankruptcy related, we may not make any cash dividend payments. So long as no event of default exists, the credit agreements do not restrict our ability to pay cash dividends.
The terms of our outstanding preferred stock prohibit us from paying dividends on our common shares unless all accrued preferred dividends then payable have been paid.
Any future distributions will be at the sole discretion of our board of trustees, and their form, timing and amount, if any, will depend upon a number of factors, including our actual and projected financial condition, liquidity, EBITDA, FFO and results of operations, the revenue we actually receive from our properties, our operating expenses, our debt service requirements, our capital expenditures, prohibitions and other limitations under our financing arrangements, as described above, our REIT taxable income, the annual REIT distribution requirements, applicable law and such other factors as our board of trustees deems relevant. To the extent that our cash available for distribution is less than 90% of our REIT taxable income, we may consider various means to cover any such shortfall, including borrowing under the Revolver or other loans, selling certain of our assets, or using a portion of the net proceeds we receive from offerings of equity, equity-related or debt securities or declaring taxable share dividends.
Unregistered Sales of Equity Securities
The Company did not sell any securities during the fiscal year ended December 31, 20172021 that were not registered under the Securities Act of 1933, as amended (the "Securities Act").
Issuer Purchases of Equity Securities
On May 1, 2015, the Company's board of trustees authorized a share repurchase program to acquire up to $200.0 millionThe following table summarizes all of the Company's common shares. On October 30, 2015,share repurchases during the Company's board of trustees increased the authorized amount that may be repurchased by $200.0 million to a total of $400.0 million. On February 17, 2017, the Company's board of trustees increased the authorized amount that may be repurchased by $40.0 million to a total of $440.0 million. During the yearquarter ended December 31, 2017, the Company repurchased and retired 122,508 of its common shares for approximately $2.6 million in connection with its share repurchase program. On February 16, 2018, the Company's board of trustees extended the duration of the share repurchase program to February 28, 2019.2021:
Additionally, during the year ended December 31, 2017, certain of our employees | | | | | | | | | | | | | | | | | | | | | | | | | | |
Period | | Total number of shares purchased (1) | | Average price paid per share | | Total number of shares purchased as part of publicly announced plans or programs | | Maximum number of shares that may yet be purchased under the plans or programs |
October 1, 2021 through October 31, 2021 | | — | | | $ | — | | | — | | | N/A |
November 1, 2021 through November 30, 2021 | | 6,612 | | | $ | 13.88 | | | — | | | N/A |
December 1, 2021 through December 31, 2021 | | — | | | $ | — | | | — | | | N/A |
Total | | 6,612 | | | | | — | | | |
(1)Includes surrendered common shares owned by themcertain employees to satisfy their statutory minimum federal and state tax obligations associated with the vesting of restricted common shares of beneficial interest issued under the RLJ Lodging Trust 20152021 Equity Incentive Plan (the "2015("2021 Plan").
The following table summarizes all of the share repurchases during the year ended December 31, 2017: |
| | | | | | | | | | | | | |
Period | | Total number of shares purchased | | Average price paid per share | | Total number of shares purchased as part of publicly announced plans or programs | | Maximum number of shares that may yet be purchased under the plans or programs (1) |
January 1, 2017 through January 31, 2017 | | 1,335 |
| | $ | 24.15 |
| | — |
| | 8,683,441 |
|
February 1, 2017 through February 28, 2017 | | 19,526 |
| | $ | 23.26 |
| | — |
| | 8,855,126 |
|
March 1, 2017 through March 31, 2017 | | — |
| | $ | — |
| | — |
| | 8,572,636 |
|
April 1, 2017 through April 30, 2017 | | 1,298 |
| | $ | 22.66 |
| | — |
| | 9,378,440 |
|
May 1, 2017 through May 31, 2017 | | 31,125 |
| | $ | 20.02 |
| | — |
| | 9,903,817 |
|
June 1, 2017 through June 30, 2017 | | — |
| | $ | — |
| | — |
| | 10,143,063 |
|
July 1, 2017 through July 31, 2017 | | 2,035 |
| | $ | 21.13 |
| | — |
| | 9,524,701 |
|
August 1, 2017 through August 31, 2017 | | 50,059 |
| | $ | 20.64 |
| | — |
| | 9,987,248 |
|
September 1, 2017 through September 30, 2017 | | 122,508 |
| | $ | 21.31 |
| | 122,508 |
| | 9,042,387 |
|
October 1, 2017 through October 31, 2017 | | 17,424 |
| | $ | 21.35 |
| | — |
| | 9,184,327 |
|
November 1, 2017 through November 30, 2017 | | 21,964 |
| | $ | 21.05 |
| | — |
| | 9,175,854 |
|
December 1, 2017 through December 31, 2017 | | — |
| | $ | — |
| | — |
| | 9,054,735 |
|
Total for the year ended December 31, 2017 | | 267,274 |
| | | | 122,508 |
| | |
| |
(1) | The maximum number of shares that may yet be repurchased under the share repurchase program is calculated by dividing the total dollar amount available to repurchase shares by the closing price of our common shares on the last business day of the respective month. |
Item 6. Selected Financial DataReserved
The following selected financial information should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the consolidated financial statements as of December 31, 2017 and 2016 and for the three years ended December 31, 2017, 2016 and 2015, and the related notes included elsewhere in this Annual Report on Form 10-K.
The selected financial information as of and for the years ended December 31, 2017, 2016, 2015, 2014 and 2013 has been derived from our audited historical financial statements.
|
| | | | | | | | | | | | | | | | | | | |
| For the year ended December 31, |
| 2017 | | 2016 | | 2015 | | 2014 | | 2013 |
| (In thousands, except share and per share data) |
Statements of Operations Data: | | | | | | | | | |
Revenue | | | | | | | | | |
Room revenue | $ | 1,146,882 |
| | $ | 1,010,637 |
| | $ | 985,361 |
| | $ | 969,402 |
| | $ | 844,741 |
|
Other property revenue | 209,379 |
| | 149,358 |
| | 150,979 |
| | 139,795 |
| | 125,639 |
|
Total revenue | 1,356,261 |
| | 1,159,995 |
| | 1,136,340 |
| | 1,109,197 |
| | 970,380 |
|
Expense | | | | | | | | | |
Room expense | 270,729 |
| | 228,656 |
| | 220,101 |
| | 213,071 |
| | 186,667 |
|
Other property expense | 541,142 |
| | 439,453 |
| | 437,545 |
| | 433,274 |
| | 388,440 |
|
Total property operating expense | 811,871 |
| | 668,109 |
| | 657,646 |
| | 646,345 |
| | 575,107 |
|
Depreciation and amortization | 186,993 |
| | 162,500 |
| | 156,226 |
| | 144,294 |
| | 127,231 |
|
Impairment loss | — |
| | — |
| | 1,003 |
| | 9,200 |
| | — |
|
Property tax, insurance and other | 91,406 |
| | 77,281 |
| | 76,682 |
| | 71,443 |
| | 63,627 |
|
General and administrative | 40,453 |
| | 31,516 |
| | 37,810 |
| | 41,671 |
| | 35,466 |
|
Transaction costs | 44,398 |
| | 192 |
| | 3,058 |
| | 4,850 |
| | 4,410 |
|
Total operating expense | 1,175,121 |
| | 939,598 |
| | 932,425 |
| | 917,803 |
| | 805,841 |
|
Operating income | 181,140 |
| | 220,397 |
| | 203,915 |
| | 191,394 |
| | 164,539 |
|
Interest and other income | 5,926 |
| | 1,998 |
| | 3,161 |
| | 2,688 |
| | 7,431 |
|
Interest expense | (78,322 | ) | | (58,820 | ) | | (54,788 | ) | | (56,810 | ) | | (64,348 | ) |
Income from continuing operations before equity in income from unconsolidated joint ventures and income tax (expense) benefit | 108,744 |
| | 163,575 |
| | 152,288 |
| | 137,272 |
| | 107,622 |
|
Equity in income from unconsolidated joint ventures | 133 |
| | — |
| | — |
| | — |
| | — |
|
Income tax (expense) benefit | (42,118 | ) | | (8,190 | ) | | 39,126 |
| | (1,145 | ) | | (879 | ) |
Gain on sale of hotel properties | 8,980 |
| | 45,929 |
| | 28,398 |
| | 353 |
| | — |
|
Net income from continuing operations, including gain on sale | 75,739 |
| | 201,314 |
| | 219,812 |
| | 136,480 |
| | 106,743 |
|
Net income attributable to noncontrolling interests | (904 | ) | | (962 | ) | | (1,591 | ) | | (1,039 | ) | | (1,258 | ) |
Preferred dividends | (8,372 | ) | | — |
| | — |
| | — |
| | — |
|
Net income from continuing operations attributable to common shareholders | $ | 66,463 |
| | $ | 200,352 |
| | $ | 218,221 |
| | $ | 135,441 |
| | $ | 105,485 |
|
|
| | | | | | | | | | | | | | | | | | | |
| As of December 31, |
| 2017 | | 2016 | | 2015 | | 2014 | | 2013 |
| (In thousands, except share and per share data) |
Balance Sheet Data: | | | | | | | | | |
Investment in hotel properties, net | $ | 5,791,925 |
| | $ | 3,368,674 |
| | $ | 3,674,999 |
| | $ | 3,518,803 |
| | $ | 3,241,163 |
|
Cash and cash equivalents | $ | 586,470 |
| | $ | 456,672 |
| | $ | 134,192 |
| | $ | 262,458 |
| | $ | 332,248 |
|
Total assets | $ | 6,794,805 |
| | $ | 4,023,393 |
| | $ | 3,972,942 |
| | $ | 4,118,727 |
| | $ | 3,709,074 |
|
Total debt | $ | 2,880,488 |
| | $ | 1,582,715 |
| | $ | 1,575,486 |
| | $ | 1,548,095 |
| | $ | 1,400,765 |
|
Total liabilities | $ | 3,224,527 |
| | $ | 1,788,116 |
| | $ | 1,772,418 |
| | $ | 1,740,243 |
| | $ | 1,562,740 |
|
Total equity | $ | 3,570,278 |
| | $ | 2,235,277 |
| | $ | 2,200,524 |
| | $ | 2,378,484 |
| | $ | 2,146,334 |
|
Per Common Share Data: | | | | | | | | | |
Basic income from continuing operations per share | $ | 0.47 |
| | $ | 1.61 |
| | $ | 1.69 |
| | $ | 1.06 |
| | $ | 0.89 |
|
Diluted income from continuing operations per share (1) | $ | 0.47 |
| | $ | 1.61 |
| | $ | 1.68 |
| | $ | 1.05 |
| | $ | 0.88 |
|
Weighted-average common shares outstanding — basic | 140,616,838 |
| | 123,651,003 |
| | 128,444,469 |
| | 127,360,669 |
| | 117,950,066 |
|
Weighted-average common shares outstanding — diluted (1) | 140,694,049 |
| | 123,879,007 |
| | 128,967,754 |
| | 128,293,843 |
| | 118,738,626 |
|
Dividends declared per common share | $ | 1.32 |
| | $ | 1.32 |
| | $ | 1.32 |
| | $ | 1.04 |
| | $ | 0.86 |
|
| |
(1) | Income allocated to the noncontrolling interest in the Operating Partnership has been excluded from the numerator, and the OP units of the Operating Partnership have been omitted from the denominator, since the effect of including these amounts in the numerator and denominator would have no impact. |
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis should be read in conjunction with theour accompanying consolidated financial statements, the related notes included thereto, and Item 1A., "Risk Factors", all of which appear elsewhere in this Annual Report on Form 10-K.
Overview
We are a self-advised and self-administered Maryland REIT that acquiresowns primarily premium-branded, high-margin, focused-service and compact full-service hotels. We are one of the largest U.S. publicly-traded lodging REITs in terms of both number ofOur hotels and number of rooms. Our hotel properties are concentrated in markets that we believe exhibit multiple demand generators with dense corporate and individual populations.attractive long-term growth prospects. We believe premium-branded, focused-service and compact full-service hotels with these characteristics generate high levels of RevPAR, strong operating margins and attractive returns.
Our strategy is to acquire primarily premium-branded, focused-service and compact full-service hotels. Focused-service and compact full-service hotels typically generate most of their revenue from room rentals, have limited food and beverage outlets and meeting space and require fewer employees than traditional full-service hotels. We believe these types of hotels have the potential to generate attractive returns relative to other types of hotels due to their ability to achieve RevPAR levels at or close to those achieved by traditional full-service hotels, while achieving higher profit margins due to their more efficient operating model and less volatile cash flows.
As we look at factors
COVID-19
The global outbreak of COVID-19 and the public health measures that have been undertaken in response have had, and will likely continue to have, a material adverse impact on the global economy and all aspects of our business. Significant events affecting travel, including the COVID-19 pandemic, typically have an impact on booking patterns, with the full extent of the impact generally determined by the duration of the event and its impact on travel decisions. The effects of the COVID-19 pandemic could have lasting changes in consumer behavior that could create headwinds for our hotel properties. Since we cannot estimate when the COVID-19 pandemic and the responsive measures to combat it will end, we cannot estimate the ultimate operational and financial impact of the COVID-19 pandemic on our business.
The effects of the COVID-19 pandemic have significantly impacted our operations, and combined with macroeconomic trends such as reduced business we findspending, including on travel, and a labor shortage, which has led to higher labor costs, lead us to believe that the consumer is generally in good health, job creation remains positive, and an increase in wages is adding to consumers' disposable income. While geopolitical and global economic uncertainty still exists, we remain hopeful that positive employment trends and an improving consumer balance sheetongoing effects of the COVID-19 pandemic on our operations will continue to drive economic expansionhave an adverse impact on our financial results.
For more information, see "Part I - Item 1A. Risk Factors" included elsewhere in the U.S.this Annual Report on Form 10-K.
We are cautiously optimistic that the recent tax reform will accelerate the expansion of the U.S. economy and generate positive lodging demand and RevPAR growth for the industry. However, in light of accelerating supply, RevPAR growth is likely to be moderate.
We continue to follow a prudent and disciplined capital allocation strategy. We will continue to look for and weigh all possible investment decisions against the highest and best returns for our shareholders over the long term. We believe that our cash on hand and expected access to capital (including availability under our Revolver) along with our senior management team's experience, extensive industry relationships and asset management expertise, will enable us to pursue investment opportunities that generate additional internal and external growth.
On August 31, 2017, we completed our merger with FelCor Lodging Trust Incorporated ("FelCor"). The combined company, headquartered in Bethesda, Maryland, continues to be led by our existing senior management team. As of December 31, 2017, we owned 158 hotel properties with approximately 31,000 rooms, located in 26 states and the District of Columbia. We owned, through wholly-owned subsidiaries, a 100% interest in 154 of our hotel properties, a 98.3% controlling interest in the DoubleTree Metropolitan Hotel New York City, a 95% controlling interest in The Knickerbocker, and 50% interests in entities owning two hotel properties. We consolidate our real estate interests in the 156 hotel properties in which we hold a controlling financial interest, and we record the real estate interests in the two hotels in which we hold an indirect 50% interest using the equity method of accounting. We lease 157 of the 158 hotel properties to our TRS, of which we own a controlling financial interest.
Our Customers
The majority of our hotels consist of premium-branded, focused-service and compact full-service hotels. As a result of this property profile, the majority of our customers are transient in nature. Transient business typically represents individual business or leisure travelers. The majority of our hotels are located in business districts within major metropolitan areas. Accordingly, business travelers represent the majority of the transient demand at our hotels. As a result, macroeconomicthe effects of COVID-19 and other factors impacting business travel have a greater effect on our business than factors impacting leisure travel.
Group business is typically defined as a minimum of 10 guestrooms booked together as part of the same piece of business. Group business may or may not use the meeting space at any given hotel. Given the limited meeting space at the majority of our hotels, group business that utilizes meeting space represents a small component of our customer base.
A number of our hotel properties are affiliated with brands marketed toward extended-stay customers. Extended-stay customers are generally defined as those staying five nights or longer.
Our Revenues and Expenses
Our revenue is primarily derived from the operation of hotels, including the sale of rooms, food and beverage revenue and other revenue, which consists of parking fees, golf, pool and other resort fees, gift shop sales and other guest service fees.
Our operating costs and expenses consist of the costs to provide hotel services, including room expense, food and beverage expense, management and franchise fees and other operating expenses. Room expense includes housekeeping and front office wages and payroll taxes, reservation systems, room supplies, laundry services and other costs. Food and beverage expense primarily includes the cost of food, the cost of beverages and associated labor costs. Other operating expenses include labor and other costs associated with the other operating department revenue, as well as labor and other costs associated with administrative departments, sales and marketing, repairs and maintenance and utility costs. Our hotels that are subject to franchise agreements are charged a royalty fee, plus additional fees for marketing, central reservation systems and other franchisor costs, in order for the hotel properties to operate under the respective brands. Franchise fees are based on a percentage of room revenue and for certain hotels additional franchise fees are charged for food and beverage revenue. Our hotels are managed by independent, third-party management companies under long-term agreements pursuant to which the management companies typically earn base and incentive management fees based on the levels of revenues and profitability of each individual hotel property. We generally receive a cash distribution from the hotel management companies on a monthly basis, which reflects hotel-level sales less hotel-level operating expenses.
Key Indicators of Operating Performance
We use a variety of operating, financial and other information to evaluate the operating performance of our business. These key indicators include financial information that is prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") as well as other financial measures that are non-GAAP measures. In addition, we use other information that may not be financial in nature, including industry standard statistical information and comparative data. We use this information to measure the operating performance of our individual hotels, groups of hotels and/or business
as a whole. We also use these metrics to evaluate the hotels in our portfolio and potential acquisition opportunities to determine each hotel's contribution to cash flow and its potential to provide attractive long-term total returns. The key indicators include:
•Average Daily Rate — ADR represents the total hotel room revenues divided by the total number of rooms sold in a given period. ADR measures the average room price attained by a hotel and ADR trends provide useful information concerning the pricing environment and the nature of the customer base at a hotel or group of hotels. We use ADR to assess the pricing levels that we are able to generate, as changes in rates have a greater impact on operating margins and profitability than changes in occupancy.
•Occupancy — Occupancy represents the total number of hotel rooms sold in a given period divided by the total number of rooms available. Occupancy measures the utilization of our hotels' available capacity. We use occupancy to measure demand at a specific hotel or group of hotels in a given period. Additionally, occupancy levels help us determine the achievable ADR levels.
•Revenue Per Available Room — RevPAR is the product of ADR and occupancy. RevPAR does not include non-room revenues, such as food and beverage revenue or other revenue. We use RevPAR to identify trend information with respect to room revenues from comparable hotel properties and to evaluate hotel performance on a regional basis.
RevPAR changes that are primarily driven by changes in occupancy have different implications for overall revenues and profitability than the changes that are driven primarily by changes in ADR. For example, an increase in occupancy at a hotel would lead to additional variable operating costs (including housekeeping services, utilities and room supplies) and could also result in an increase in other revenue and other operating expense. Changes in ADR typically have a greater impact on operating margins and profitability as they only have a limited effect on variable operating costs.
ADR, Occupancy and RevPAR are commonly used measures within the lodging industry to evaluate operating performance. RevPAR is an important statistic for monitoring operating performance at the individual hotel property level and across our entire business. We evaluate individual hotel RevPAR performance on an absolute basis with comparisons to budget and prior periods, as well as on a regional and company-wide basis. ADR and RevPAR include only room revenue. Room revenue comprised approximately 84.6%85.0% of our total revenuerevenues for the year ended December 31, 2017,2021, and it is dictated by demand (as measured by occupancy), pricing (as measured by ADR) and our available supply of hotel rooms.
Another commonly used measure in the lodging industry is the RevPAR penetration index, which measures a hotel property's RevPAR in relation to the average RevPAR of that hotel's competitive set. Like other lodging companies, we use the RevPAR penetration index as an indicator of a hotel's market share in relation to its competitive set. However, the RevPAR penetration index for a particular hotel is not necessarily reflective of that hotel's relative share of any particular lodging market. The RevPAR penetration index for a particular hotel is calculated as the quotient of (1) the subject hotel's RevPAR divided by (2) the average RevPAR of the hotels in the subject hotel's competitive set, multiplied by 100. For example, if a hotel's RevPAR is $90 and the average RevPAR of the hotels in its competitive set is $90, the RevPAR penetration index would be 100, which would indicate that the subject hotel is capturing its fair market share in relation to its competitive set (i.e., the hotel's RevPAR is, on average, the same as its competitors). If, however, a hotel's RevPAR is $110 and the average RevPAR of the hotels in its competitive set is $90, the RevPAR penetration index of the subject hotel would be 122.2, which would indicate that the subject hotel has a RevPAR premium of approximately 22.2% (and, therefore, a market share premium) in relation to its competitive set.
One critical component in the RevPAR penetration index calculation is the determination of a hotel property's competitive set, which consists of a small group of hotels in the relevant market that we and the third-party hotel management company that manages the hotel property believe are comparable for purposes of benchmarking the performance of such hotel. The hotel property's competitive set is mutually agreed upon by us and the hotel's management company. Factors that we consider when establishing a competitive set include geographic proximity, brand affiliations, rate structure, and the level of service provided at the hotel. The determination of the competitive set is highly subjective, however, our methodology for determining a hotel property's competitive set may differ materially from those used by other hotel owners and/or management companies.
For the year ended December 31, 2017, the portfolio wide RevPAR penetration index of our hotel properties was 109.8, which indicates that, on average, our hotels maintained a market share premium of approximately 9.8% in relation to their competitive set.
We also use non-GAAP measures such as FFO, Adjusted FFO, EBITDA, EBITDAre and Adjusted EBITDA to evaluate the operating performance of our business. For a more in depth discussion of the non-GAAP measures, please refer to the "Non-GAAP Financial Measures" section.
Principal Factors Affecting Our Results of Operations
The principal factors affecting our operating results include the overall demand for lodging compared to the supply of available hotel rooms and other lodging options, and the ability of our third-party hotel management companies to increase or maintain revenues while controlling expenses.
•Demand — The demand for lodging, especially business travel, generally fluctuates with the overall economy. Historically, periods of declining demand are followed by extended periods of relatively strong demand, which typically occurs during the growth phase of the lodging cycle.
•Supply — The development of new hotels is driven largely by construction costs, the availability of financing, and the expected performance of existing hotels and other lodging options.
We expect that our ADR, Occupancy and RevPAR performance will be impacted by macroeconomic factors such as regional and local employment growth, government spending, personal income and corporate earnings, office vacancy rates, business relocation decisions, airport activity, business and leisure travel demand, new hotel construction and the pricing strategies of our competitors. In addition, our ADR, Occupancy and RevPAR performance are dependent on the continued success of the Marriott, Hilton Hyatt and WyndhamHyatt hotel brands.
•Revenues — Substantially all of our revenue isrevenues are derived from the operation of hotels. Specifically, our revenue isrevenues are comprised of:
◦Room revenue — Occupancy and ADR are the major drivers of room revenue. Room revenue accounts for the majority of our total revenues.
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◦ | Room revenue — Occupancy and ADR are the major drivers of room revenue. Room revenue accounts for the majority of our total revenue.
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| |
◦ | Food and beverage revenue — Occupancy, the nature of the hotel property and the type of customer staying at the hotel are the major drivers of food and beverage revenue (i.e., group business typically generates more food and beverage revenue through catering functions as compared to transient business, which may or may not utilize the hotel's food and beverage outlets).
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◦ | Other revenue — Occupancy and the nature of the hotel property are the main drivers of other ancillary revenue, such as parking fees, golf, pool and other resort fees, gift shop sales and other guest service fees. Some hotels, due to the limited focus of the services offered and size or space limitations at the hotel, may not have the type of facilities that generate other revenue.
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◦Food and beverage revenue — Occupancy, the nature of the hotel property and the type of customer staying at the hotel are the major drivers of food and beverage revenue (i.e., group business typically generates more food and beverage revenue through catering functions as compared to transient business, which may or may not utilize the hotel's food and beverage outlets).
◦Other revenue — Occupancy and the nature of the hotel property are the main drivers of other ancillary revenue, such as parking fees, resort fees, gift shop sales and other guest service fees. Some hotels, due to the limited focus of the services offered and size or space limitations at the hotel, may not have the type of facilities that generate other revenue.
•Property Operating Expense Expenses — The components of our property operating expenseexpenses are as follows:
◦Room expense — These expenses include housekeeping and front office wages and payroll taxes, reservation systems, room supplies, laundry services and other room-related costs. Like room revenue, occupancy is the major driver of room expense. These costs can increase based on an increase in salaries and wages, as well as the level of service and amenities that are provided at the hotel property.
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◦ | Room expense — These expenses include housekeeping and front office wages and payroll taxes, reservation systems, room supplies, laundry services and other room-related costs. Like room revenue, occupancy is the major driver of room expense. These costs can increase based on an increase in salaries and wages, as well as the level of service and amenities that are provided at the hotel property.◦Food and beverage expense — These expenses primarily include food, beverage and labor costs. Occupancy and the type of customer staying at the hotel (i.e., catered functions are generally more profitable than restaurant, bar, and other food and beverage outlets that are located on the hotel property) are the major drivers of food and beverage expense, which correlates closely with food and beverage revenue. ◦Management and franchise fee expense — A base management fee is computed as a percentage of gross hotel revenues. An incentive management fee is typically paid when the hotel's operating income exceeds certain thresholds, and it is generally calculated as a percentage of hotel operating income after we have received a priority return on our investment in the hotel. A franchise fee is computed as a percentage of room revenue, plus an additional percentage of room revenue for marketing, central reservation systems and other franchisor costs. Certain hotels will also pay an additional franchise fee which is computed as a percentage of food and beverage revenue. For a more in depth discussion of the management and franchise fees, please refer to the "Our Hotel Properties — Management Agreements" and "Our Hotel Properties — Franchise Agreements" sections. ◦Other operating expense — These expenses include labor and other costs associated with the sources of our other revenue, as well as the labor and other costs associated with the administrative departments, sales and marketing, repairs and maintenance, and utility costs at the hotel properties. |
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◦ | Food and beverage expense — These expenses primarily include food, beverage and labor costs. Occupancy and the type of customer staying at the hotel (i.e., catered functions are generally more profitable than restaurant, bar, and other food and beverage outlets that are located on the hotel property) are the major drivers of food and beverage expense, which correlates closely with food and beverage revenue.
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◦ | Management and franchise fee expense — A base management fee is computed as a percentage of gross hotel revenues. An incentive management fee is typically paid when the hotel's operating income exceeds certain thresholds, and it is generally calculated as a percentage of hotel operating income after we have received a priority return on our investment in the hotel. A franchise fee is computed as a percentage of room revenue, plus an additional percentage of room revenue for marketing, central reservation systems and other franchisor costs. Certain hotels will also pay an additional franchise fee which is computed as a percentage of food and beverage revenue. For a more in depth discussion of the management and franchise fees, please refer to the "Our Hotel Properties — Our Hotel Management Agreements" and "Our Hotel Properties — Franchise Agreements" sections.
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◦ | Other operating expense — These expenses include labor and other costs associated with the sources of our other revenue, as well as the labor and other costs associated with the administrative departments, sales and marketing, repairs and maintenance, and utility costs at the hotel properties.
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Most categories of variable operating expenses, including labor costs, fluctuate with changes in occupancy. Increases in occupancy are accompanied by increases in most categories of variable operating expenses, while increases in ADR typically only result in increases in certain categories of operating costs and expenses, such as management fees, franchise fees, travel
agency commissions, and credit card processing fees, all of which are based on hotel revenues. Therefore, changes in the ADR have a more significant impact on operating margins than changes in occupancy.
20172021 Significant Activities
Our significant activities reflect our commitment to creating long-term shareholder value through enhancing our hotel portfolio's quality, recycling capital and maintaining a prudentflexible capital structure. During the year ended December 31, 2017,2021, the following significant activities took place:
On August 31, 2017, we completed•We issued $500.0 million aggregate principal amount of 2029 Senior Notes (as defined below) that bear interest at a rate of 4.00% per annum. We used the merger transactionnet proceeds of the offering to redeem all of the outstanding 2025 Senior Notes (as defined below).
•We issued $500.0 million aggregate principal amount of 2026 Senior Notes (as defined below) that bear interest at a rate of 3.75% per annum. We used the net proceeds of the offering to repay $335.5 million of our Term Loans (as defined below) and $142.2 million of our mortgage loans.
•We amended our Revolver (as defined below) and Term Loans, which included a waiver of quarterly financial covenants through the first quarter of 2022. The amendments also included adding a one-year extension option on approximately $225.0 million on our two 2023 maturing term loans.
•We extended the maturity of $100.0 million of our $150.0 million Term Loan (as defined below) from January 2022 to June 2023, with FelCoran additional one-year extension option to June 2024.
•We sold seven hotel properties in seven separate transactions for a total purchasecombined sales price of approximately $1.4 billion. As a result, we$208.5 million.
•We acquired an ownership interest in 37 hotel properties that are located in major urbanthe 186-room Hampton Inn and resort markets.Suites Atlanta Midtown, 205-room AC Hotel Boston Downtown, and 170-room Moxy Denver Cherry Creek for $58.0 million, $89.0 million, and $51.3 million, respectively.
In December 2017, we sold The Fairmont Copley Plaza in Boston, Massachusetts for $170.0 million.
In connection with the merger with FelCor, we designated and authorized the issuance of up to 12,950,000 Series A Preferred Shares.
We declared cash dividends of $0.975 on each Series A Preferred Share for the year.
We declared cash dividends of $1.32 per Common Share for the year.
Results of Operations
At December 31, 2017, 20162021 and 20152020, we owned 158, 12298 and 126103 hotel properties, respectively. Based on when a hotel property is acquired, sold, or closed for renovation,otherwise disposed, the operating results for certain hotel properties are not comparable for the years ended December 31, 2017, 20162021 and 2015.
2020. For the comparison between the years ended December 31, 20172021 and 2016,2020, the non-comparable properties include 37 hotel propertiesnine hotels that were acquired in the merger with FelCor on August 31, 2017,sold or otherwise disposed and five dispositions that were completedthree hotels acquired between January 1, 20162020 and December 31, 2017.2021.
For similar operating and financial data and discussion of our results for the comparison between the yearsyear ended December 31, 2016 and 2015,2020 compared to our results for the non-comparable properties include three acquisitions that were completed between January 1, 2015 andyear ended December 31, 2016, 27 dispositions that were completed between January 1, 20152019, refer to Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” under Part II of our annual report on Form 10-K for the year ended December 31, 2016,2020, which was filed with the SEC on February 26, 2021 and two hotel properties thatis incorporated herein by reference. COVID-19
Beginning in March 2020, we experienced a significant decline in occupancy and RevPAR due to the COVID-19 pandemic. In response to the government-mandated stay-in-place orders and the significant reduction in demand due to the COVID-19 pandemic, we initially suspended operations at 57 hotels. As stay-in-place restrictions were closed for renovationslifted, we developed a framework to open hotels in a socially and financially responsible manner. Based on this framework, we began reopening hotels during all or a portion of the period between January 1, 2015 andquarter ended June 30, 2020. During the year ended December 31, 2016.2021, we benefited from significant growth in demand as a result of increased vaccine distribution, easing of government restrictions and pent-up leisure demand. These trends, combined with our reopening strategy and continuing stringent cost containment initiatives, led to a significant improvement in our results of operations for the year ended December 31, 2021 as compared to the same period in 2020.
Comparison of the year ended December 31, 20172021 to the year ended December 31, 20162020
| | | | | | | | | | | | | | | | | | | |
| For the year ended December 31, | | | | |
| 2021 | | 2020 | | $ Change | | |
| (amounts in thousands) | | |
Revenues | | | | | | | |
Operating revenues | | | | | | | |
Room revenue | $ | 667,853 | | | $ | 397,754 | | | $ | 270,099 | | | |
Food and beverage revenue | 58,994 | | | 40,384 | | | 18,610 | | | |
Other revenue | 58,817 | | | 34,949 | | | 23,868 | | | |
Total revenues | 785,664 | | | 473,087 | | | 312,577 | | | |
Expenses | | | | | | | |
Operating expenses | | | | | | | |
Room expense | 177,365 | | | 124,063 | | | 53,302 | | | |
Food and beverage expense | 41,790 | | | 35,220 | | | 6,570 | | | |
Management and franchise fee expense | 53,276 | | | 21,057 | | | 32,219 | | | |
Other operating expense | 239,092 | | | 211,216 | | | 27,876 | | | |
Total property operating expenses | 511,523 | | | 391,556 | | | 119,967 | | | |
Depreciation and amortization | 187,778 | | | 194,168 | | | (6,390) | | | |
Impairment losses | 144,845 | | | — | | | 144,845 | | | |
Property tax, insurance and other | 88,852 | | | 103,470 | | | (14,618) | | | |
General and administrative | 47,526 | | | 41,141 | | | 6,385 | | | |
Transaction costs | 94 | | | (158) | | | 252 | | | |
Total operating expenses | 980,618 | | | 730,177 | | | 250,441 | | | |
Other (expense) income, net | (7,614) | | | 1,941 | | | (9,555) | | | |
Interest income | 996 | | | 4,237 | | | (3,241) | | | |
Interest expense | (106,366) | | | (100,169) | | | (6,197) | | | |
(Loss) gain on sale of hotel properties, net | (2,378) | | | 2,703 | | | (5,081) | | | |
Gain on extinguishment of indebtedness, net | 893 | | | — | | | 893 | | | |
| | | | | | | |
Loss before equity in loss from unconsolidated joint ventures | (309,423) | | | (348,378) | | | 38,955 | | | |
Equity in loss from unconsolidated joint ventures | (477) | | | (8,454) | | | 7,977 | | | |
Loss before income tax expense | (309,900) | | | (356,832) | | | 46,932 | | | |
Income tax expense | (1,188) | | | (51,970) | | | 50,782 | | | |
Net loss | (311,088) | | | (408,802) | | | 97,714 | | | |
Net loss attributable to noncontrolling interests: | | | | | | | |
Noncontrolling interest in consolidated joint ventures | 4,384 | | | 2,327 | | | 2,057 | | | |
Noncontrolling interest in the Operating Partnership | 1,536 | | | 2,034 | | | (498) | | | |
| | | | | | | |
| | | | | | | |
Net loss attributable to RLJ | (305,168) | | | (404,441) | | | 99,273 | | | |
Preferred dividends | (25,115) | | | (25,115) | | | — | | | |
Net loss attributable to common shareholders | $ | (330,283) | | | $ | (429,556) | | | $ | 99,273 | | | |
|
| | | | | | | | | | | | | | |
| For the year ended December 31, | | | | |
| 2017 | | 2016 | | $ Change | | % Change |
| (amounts in thousands) | | |
|
Revenue | |
| | |
| | |
| | |
|
Operating revenue | |
| | |
| | |
| | |
|
Room revenue | $ | 1,146,882 |
| | $ | 1,010,637 |
| | $ | 136,245 |
| | 13.5 | % |
Food and beverage revenue | 157,672 |
| | 111,691 |
| | 45,981 |
| | 41.2 | % |
Other revenue | 51,707 |
| | 37,667 |
| | 14,040 |
| | 37.3 | % |
Total revenue | $ | 1,356,261 |
| | $ | 1,159,995 |
| | $ | 196,266 |
| | 16.9 | % |
Expense | |
| | |
| | |
| | |
|
Operating expense | |
| | |
| | |
| | |
|
Room expense | $ | 270,729 |
| | $ | 228,656 |
| | $ | 42,073 |
| | 18.4 | % |
Food and beverage expense | 113,914 |
| | 79,589 |
| | 34,325 |
| | 43.1 | % |
Management and franchise fee expense | 122,633 |
| | 118,210 |
| | 4,423 |
| | 3.7 | % |
Other operating expense | 304,595 |
| | 241,654 |
| | 62,941 |
| | 26.0 | % |
Total property operating expense | 811,871 |
| | 668,109 |
| | 143,762 |
| | 21.5 | % |
Depreciation and amortization | 186,993 |
| | 162,500 |
| | 24,493 |
| | 15.1 | % |
Property tax, insurance and other | 91,406 |
| | 77,281 |
| | 14,125 |
| | 18.3 | % |
General and administrative | 40,453 |
| | 31,516 |
| | 8,937 |
| | 28.4 | % |
Transaction costs | 44,398 |
| | 192 |
| | 44,206 |
| | — | % |
Total operating expense | 1,175,121 |
| | 939,598 |
| | 235,523 |
| | 25.1 | % |
Operating income | 181,140 |
| | 220,397 |
| | (39,257 | ) | | (17.8 | )% |
Other income | 269 |
| | 303 |
| | (34 | ) | | (11.2 | )% |
Interest income | 2,987 |
| | 1,695 |
| | 1,292 |
| | 76.2 | % |
Interest expense | (78,322 | ) | | (58,820 | ) | | (19,502 | ) | | 33.2 | % |
Gain on settlement of investment in loan | 2,670 |
| | — |
| | 2,670 |
| | 100.0 | % |
Income before equity in income from unconsolidated joint ventures | 108,744 |
| | 163,575 |
| | (54,831 | ) | | (33.5 | )% |
Equity in income from unconsolidated joint ventures | 133 |
| | — |
| | 133 |
| | 100.0 | % |
Income before income tax expense | 108,877 |
| | 163,575 |
| | (54,698 | ) | | (33.4 | )% |
Income tax expense | (42,118 | ) | | (8,190 | ) | | (33,928 | ) | | — | % |
Income from operations | 66,759 |
| | 155,385 |
| | (88,626 | ) | | (57.0 | )% |
Gain on sale of hotel properties | 8,980 |
| | 45,929 |
| | (36,949 | ) | | (80.4 | )% |
Net income | 75,739 |
| | 201,314 |
| | (125,575 | ) | | (62.4 | )% |
Net income attributable to noncontrolling interests: | |
| | |
| | |
| | |
Noncontrolling interest in consolidated joint ventures | (117 | ) | | (55 | ) | | (62 | ) | | — | % |
Noncontrolling interest in the Operating Partnership | (291 | ) | | (907 | ) | | 616 |
| | (67.9 | )% |
Preferred distributions - consolidated joint venture | (496 | ) | | — |
| | (496 | ) | | 100.0 | % |
Net income attributable to RLJ | 74,835 |
| | 200,352 |
| | (125,517 | ) | | (62.6 | )% |
Preferred dividends | (8,372 | ) | | — |
| | (8,372 | ) | | 100.0 | % |
Net income attributable to common shareholders | $ | 66,463 |
| | $ | 200,352 |
| | $ | (133,889 | ) | | (66.8 | )% |
RevenueRevenues
Total revenue revenues increased$196.3 $312.6 million, or 16.9%, to $1.36 billion$785.7 million for the year ended December 31, 20172021, from $1.16 billion$473.1 million for the year ended December 31, 2016.2020. The increase was a result of a $136.2$270.1 million increase in room revenue, a $46.0$18.6 million increase in food and beverage revenue, and a $14.0$23.9 million increase in other revenue.
Room Revenue
Room revenue increased $136.2$270.1 million or 13.5%, to $1.15 billion for the year ended December 31, 2017 from $1.01 billion for the year ended December 31, 2016. The increase was a result of a $146.0 million increase in room revenue attributable to the non-comparable properties, which was partially offset by a $9.7 million decrease in room revenue attributable to the comparable properties. The decrease in room revenue from the comparable properties was attributable to a 0.7% decrease in RevPAR, which included RevPAR decreases in our Louisville, Chicago and New York City markets of 5.6%, 5.5% and 3.8%, respectively, partially offset by RevPAR increases in our Southern California, South Florida and Washington, D.C. markets of 4.6%, 3.9% and 3.5%, respectively.
The following are the key hotel operating statistics for the comparable properties owned at December 31, 2017 and 2016, respectively:
|
| | | | | | | | | | |
| For the year ended December 31, | | |
| 2017 | | 2016 | | % Change |
Number of comparable properties (at end of period) | 122 |
| | 122 |
| | — |
|
Occupancy | 77.8 | % | | 78.2 | % | | (0.5 | )% |
ADR | $ | 166.10 |
| | $ | 166.62 |
| | (0.3 | )% |
RevPAR | $ | 129.27 |
| | $ | 130.23 |
| | (0.7 | )% |
Food and Beverage Revenue
Food and beverage revenue increased$46.0 million, or 41.2%, to $157.7$667.9 million for the year ended December 31, 20172021, from $111.7$397.8 million for the year ended December 31, 2016.2020. The increase was athe result of a $47.1 million increase in food and beverage revenue attributable to the non-comparable properties, which was offset by a $1.1 million decrease in food and beverage revenue attributable to the comparable properties.
Other Revenue
Other revenue, which includes revenue derived from ancillary sources such as parking fees, golf, pool and other resort fees, gift shop sales and other guest service fees, increased$14.0 million, or 37.3%, to $51.7 million for the year ended December 31, 2017 from $37.7 million for the year ended December 31, 2016. The increase was due to a $14.7 million increase in other revenue attributable to the non-comparable properties, which was offset by a $0.7 million decrease in other revenue attributable to the comparable properties.
Property Operating Expense
Property operating expense increased$143.8 million, or 21.5%, to $811.9 million for the year ended December 31, 2017 from $668.1 million for the year ended December 31, 2016. The increase was due to a $136.9 million increase in property operating expense attributable to the non-comparable properties and a $6.9 million increase in property operating expense attributable to the comparable properties. The increase in property operating expense attributable to the comparable properties was related to higher room expense and other operating department costs, which were partially offset by lower management and franchise fees. Room expense and other operating department costs fluctuate based on various factors, including changes in occupancy, labor costs, utilities and insurance costs. Management fees and franchise fees, which are computed as a percentage of gross revenue and room revenue, respectively, decreased as a result of lower revenues at the comparable properties.
Depreciation and Amortization
Depreciation and amortization expense increased$24.5 million, or 15.1%, to $187.0 million for the year ended December 31, 2017 from $162.5 million for the year ended December 31, 2016. The increase was due to a $28.1 million increase in depreciation and amortization expense attributable to the non-comparable properties, which was offset by a $3.6 million decrease in depreciation and amortization expense attributable to the comparable properties as a result of furniture, fixtures and equipment at certain hotel properties that were fully depreciated in 2016.
Property Tax, Insurance and Other
Property tax, insurance and other expense increased$14.1 million, or 18.3%, to $91.4 million for the year ended December 31, 2017 from $77.3 million for the year ended December 31, 2016. The increase was due to a $13.2 million increase in property tax, insurance and other expense attributable to the non-comparable properties and a $1.0 million increase in property tax, insurance and other expense attributable to the comparable properties.
General and Administrative
General and administrative expense increased$8.9 million, or 28.4%, to $40.5 million for the year ended December 31, 2017 from $31.5 million for the year ended December 31, 2016. The increase in general and administrative expense was primarily attributable to a $8.0 million increase in compensation expense and a net increase of $1.0 million in other general and administrative costs, including legal fees and other professional fees and costs. The increase in compensation expense for the year ended December 31, 2017 was primarily due to an increase in salary, bonus, and other employee compensation costs and the impact of a $2.8 million benefit realized during the year ended December 31, 2016 from the forfeiture of restricted shares and performance units upon the resignation of our former President and Chief Executive Officer in 2016.
Transaction Costs
Transaction costs increased $44.2 million to $44.4 million for the year ended December 31, 2017 from $0.2 million for the year ended December 31, 2016. The increase in transaction costs was attributable to approximately $38.4 million in transaction costs and $5.7 million in integration costs that were incurred by the Company related to the merger with FelCor.
Interest Expense
The components of our interest expense for the years ended December 31, 2017 and 2016 were as follows (in thousands):
|
| | | | | | | | | | | | | | |
| For the year ended December 31, | | | | |
| 2017 | | 2016 | | $ Change | | % Change |
Senior Notes | $ | 15,918 |
| | $ | — |
| | $ | 15,918 |
| | — | % |
Revolver and Term Loans | 39,262 |
| | 38,849 |
| | 413 |
| | 1.1 | % |
Mortgage loans | 19,643 |
| | 16,006 |
| | 3,637 |
| | 22.7 | % |
Amortization of deferred financing costs | 3,499 |
| | 3,965 |
| | (466 | ) | | (11.8 | )% |
Total interest expense | $ | 78,322 |
| | $ | 58,820 |
| | $ | 19,502 |
| | 33.2 | % |
Interest expense increased$19.5 million, or 33.2%, to $78.3 million for the year ended December 31, 2017 from $58.8 million for the year ended December 31, 2016. The increase in interest expense was primarily due to assuming the senior notes and mortgage loans in the merger with FelCor, partially offset by a decrease in amortization of the deferred financing costs as a result of the accelerated amortization of the deferred financing costs associated with the debt refinancing transactions in 2016 and by the additional amortization of the costs capitalized in conjunction with the debt refinancing transactions in 2016.
Gain on Settlement of Investment in Loan
During the year ended December 31, 2017, the Company recognized a gain on settlement of investment in loan of approximately $2.7 million as a result of the investment in loan maturing in September 2017.
Income Taxes
As part of our structure, we own TRSs that are subject to federal and state income taxes. The Company's effective tax rates were 35.4% and 3.9% for the years ended December 31, 2017 and 2016, respectively. Income tax expense increased $33.9 million to $42.1 million for the year ended December 31, 2017 from $8.2 million for the year ended December 31, 2016. The increase was primarily due to the impact of the Tax Cuts and Jobs Act (the "Tax Reform Act"), which was signed into law on December 22, 2017. The Tax Reform Act reduced the corporate income tax rate from 35% to 21%. The enactment of the Tax Reform Act resulted in a $31.7 million increase in our deferred tax expense as the lower corporate income tax rates that are expected to be in effect in the future reduced the future realizable value of our net deferred tax assets.
Comparison of the year ended December 31, 2016 to the year ended December 31, 2015
|
| | | | | | | | | | | | | | |
| For the year ended December 31, | | | | |
| 2016 | | 2015 | | $ Change | | % Change |
| (amounts in thousands) | | |
|
Revenue | |
| | |
| | |
| | |
|
Operating revenue | |
| | |
| | |
| | |
|
Room revenue | $ | 1,010,637 |
| | $ | 985,361 |
| | $ | 25,276 |
| | 2.6 | % |
Food and beverage revenue | 111,691 |
| | 114,818 |
| | (3,127 | ) | | (2.7 | )% |
Other revenue | 37,667 |
| | 36,161 |
| | 1,506 |
| | 4.2 | % |
Total revenue | $ | 1,159,995 |
| | $ | 1,136,340 |
| | $ | 23,655 |
| | 2.1 | % |
Expense | |
| | |
| | |
| | |
|
Operating expense | |
| | |
| | |
| | |
|
Room expense | $ | 228,656 |
| | $ | 220,101 |
| | $ | 8,555 |
| | 3.9 | % |
Food and beverage expense | 79,589 |
| | 81,117 |
| | (1,528 | ) | | (1.9 | )% |
Management and franchise fee expense | 118,210 |
| | 116,462 |
| | 1,748 |
| | 1.5 | % |
Other operating expense | 241,654 |
| | 239,966 |
| | 1,688 |
| | 0.7 | % |
Total property operating expense | 668,109 |
| | 657,646 |
| | 10,463 |
| | 1.6 | % |
Depreciation and amortization | 162,500 |
| | 156,226 |
| | 6,274 |
| | 4.0 | % |
Impairment loss | — |
| | 1,003 |
| | (1,003 | ) | | (100.0 | )% |
Property tax, insurance and other | 77,281 |
| | 76,682 |
| | 599 |
| | 0.8 | % |
General and administrative | 31,516 |
| | 37,810 |
| | (6,294 | ) | | (16.6 | )% |
Transaction costs | 192 |
| | 3,058 |
| | (2,866 | ) | | (93.7 | )% |
Total operating expense | 939,598 |
| | 932,425 |
| | 7,173 |
| | 0.8 | % |
Operating income | 220,397 |
| | 203,915 |
| | 16,482 |
| | 8.1 | % |
Other income | 303 |
| | 1,598 |
| | (1,295 | ) | | (81.0 | )% |
Interest income | 1,695 |
| | 1,563 |
| | 132 |
| | 8.4 | % |
Interest expense | (58,820 | ) | | (54,788 | ) | | (4,032 | ) | | 7.4 | % |
Income from continuing operations before income taxes | 163,575 |
| | 152,288 |
| | 11,287 |
| | 7.4 | % |
Income tax (expense) benefit | (8,190 | ) | | 39,126 |
| | (47,316 | ) | | — |
|
Income from continuing operations | 155,385 |
| | 191,414 |
| | (36,029 | ) | | (18.8 | )% |
Gain on sale of hotel properties | 45,929 |
| | 28,398 |
| | 17,531 |
| | 61.7 | % |
Net income | 201,314 |
| | 219,812 |
| | (18,498 | ) | | (8.4 | )% |
Net income attributable to noncontrolling interests: | |
| | |
| | |
| | |
Noncontrolling interest in consolidated joint venture | (55 | ) | | (77 | ) | | 22 |
| | (28.6 | )% |
Noncontrolling interest in the Operating Partnership | (907 | ) | | (1,514 | ) | | 607 |
| | (40.1 | )% |
Net income attributable to common shareholders | $ | 200,352 |
| | $ | 218,221 |
| | $ | (17,869 | ) | | (8.2 | )% |
Revenue
Total revenue increased$23.7 million, or 2.1%, to $1.16 billion for the year ended December 31, 2016 from $1.14 billion for the year ended December 31, 2015. The increase was a result of a $25.3 million increase in room revenue and a $1.5 million increase in other revenue, partially offset by a $3.1 million decrease in food and beverage revenue.
Room Revenue
Room revenue increased $25.3 million, or 2.6%, to $1.01 billion for the year ended December 31, 2016 from $985.4 million for the year ended December 31, 2015. The increase was a result of a $13.6$275.7 million increase in room revenue attributable to the comparable properties, and an $11.6which was partially offset by a $5.6 million increasedecrease in room revenue attributable to the non-comparable properties. The increase in room revenue from the comparable properties was attributable to a 1.2%an increase in RevPAR led byprimarily resulting from an increase in demand as a result of increased vaccine distribution, easing of government restrictions, and pent-up demand for leisure travel. Though RevPAR increasesincreased over the comparable period in our Northern California, Southern California and Washington, D.C. markets of 9.6%, 8.0% and 4.4%,2020 due to these factors, it remained below the comparable period in 2019.
respectively, which were partially offset by RevPAR decreases in our Houston, Chicago and New York City markets of 12.3%, 3.3% and 2.3%, respectively.
The following are the key hotel operating statistics for the comparable properties owned at December 31, 2016 and 2015, respectively:properties:
| | | | | | | | | | For the year ended December 31, |
| For the year ended December 31, | | | | 2021 | | 2020 | | 2019 |
| 2016 | | 2015 | | % Change | |
Number of comparable properties (at end of period) | 117 |
| | 117 |
| | — |
| |
Occupancy | 78.2 | % | | 78.1 | % | | 0.1 | % | Occupancy | 57.6 | % | | 34.2 | % | | 78.7 | % |
ADR | $ | 164.93 |
| | $ | 163.09 |
| | 1.1 | % | ADR | $ | 148.48 | | | $ | 144.20 | | | $ | 183.71 | |
RevPAR | $ | 128.91 |
| | $ | 127.34 |
| | 1.2 | % | RevPAR | $ | 85.52 | | | $ | 49.35 | | | $ | 144.64 | |
Food and Beverage Revenue
Food and beverage revenue decreased$3.1increased $18.6 million, or 2.7%, to $111.7$59.0 million for the year ended December 31, 20162021, from $114.8$40.4 million for the year ended December 31, 2015.2020. The decreaseincrease was athe result of a $2.0$19.5 million decrease increase in food and beverage revenue attributable to the comparable properties, andwhich was partially offset by a $1.1$0.5 million decrease in food and beverage revenue attributable to the non-comparable properties. The increase in food and beverage revenue attributable to the comparable properties was primarily due to an increase in demand as a result of increased vaccine distribution, easing of government restrictions, and pent-up demand for leisure travel.
Other Revenue
Other revenue, which includes revenue derived from ancillary sources such as parking fees, resort fees, gift shop sales and other guest service fees, increased$1.5 $23.9 million, or 4.2%, to $37.7$58.8 million for the year ended December 31, 20162021, from $36.2$34.9 million for the year ended December 31, 2015.2020. Theincrease was due to a $0.8 million increase in other revenue attributablewas primarily due to the non-comparable properties and a $0.7 millionan increase in other revenue attributable to the comparable properties.demand as a result of increased vaccine distribution, easing of government restrictions, and pent-up demand for leisure travel.
Property Operating ExpenseExpenses
Property operating expense expenses increased$10.5 $120.0 million, or 1.6%, to $668.1$511.5 million for the year ended December 31, 20162021, from $657.6$391.6 million for the year ended December 31, 2015.2020. The increase was due to a $139.5 million increase in property operating expenses attributable to the comparable properties, which was partially offset by a $19.4 million decrease in property operating expenses attributable to the non-comparable properties. The reasons underlying such changes are illustrated in the following chart and accompanying paragraph.
The components of our property operating expenses for the comparable properties owned at December 31, 2021 and 2020, respectively, were as follows (in thousands):
| | | | | | | | | | | | | | | | | | | |
| For the year ended December 31, | | | | |
| 2021 | | 2020 | | $ Change | | |
Room expense | $ | 172,404 | | | $ | 112,671 | | | $ | 59,733 | | | |
Food and beverage expense | 41,703 | | | 33,467 | | | 8,236 | | | |
Management and franchise fee expense | 51,693 | | | 18,782 | | | 32,911 | | | |
Other operating expense | 228,814 | | | 190,216 | | | 38,598 | | | |
Total property operating expenses | $ | 494,614 | | | $ | 355,136 | | | $ | 139,478 | | | |
The increase in property operating expenses attributable to the comparable properties was due to an $11.0 millionincrease in occupancy over the prior period due to an increase in demand as a result of increased vaccine distribution, easing of government restrictions, and pent-up demand for leisure travel. The occupancy-related increase in property operating expenses was partially offset by continuing stringent cost containment initiatives. Management and franchise fee expense for the years ended December 31, 2021 and 2020 included a reduction in management and franchise fee expense of $14.1 million and $17.8 million, respectively, related to the recognition of the Wyndham termination payment.
Depreciation and Amortization
Depreciation and amortization expense decreased $6.4 million to $187.8 million for the year ended December 31, 2021, from $194.2 million for the year ended December 31, 2020. The decrease was the result of a $5.2 million decrease in depreciation and amortization expense attributable to the comparable properties partially offset byand a $0.5$1.2 million decrease in property operatingdepreciation and amortization expense attributable to the non-comparable properties. The increasedecrease in property operatingdepreciation and amortization expense
attributable to the comparable properties was primarily related to higher room expense, other operating department costsfurniture, fixtures and management and franchise fees. Room expense and other operating department costs fluctuate based on various factors, including changesequipment that were fully depreciated in occupancy, labor costs, utilities and insurance costs. Management fees and franchise fees, which are computed as a percentage of gross revenue and room revenue, respectively, increased as a result of higher revenues.
Depreciation and Amortization
Depreciation and amortization expense increased$6.3 million, or 4.0%, to $162.5 million for the year ended December 31, 2016 from $156.2 million for the year ended December 31, 2015. The increase was due to a $4.8 million2020, partially offset by an increase in depreciation and amortization expense arising from the non-comparable propertiesrelated to recently acquired and additional depreciation expense of $1.5 million as a result of capital expenditures to improve our comparable properties.recently renovated hotels.
Impairment Losses
ForDuring the year ended December 31, 2016,2021, we did not have anrecorded impairment loss on anylosses of our hotel properties. For the year ended December 31, 2015, we incurred a $1.0 million impairment loss on one hotel property.$144.8 million. The impairment losses included $5.9 million related to two hotel properties that were sold in May 2021 and $138.9 million related to the DoubleTree
Metropolitan New York City that was the result of an evaluation of the hotel's carrying value given the expectation to sell the hotel property before the end of its previously estimated useful life.sold in December 2021.
Property Tax, Insurance and Other
Property tax, insurance and other expense increased$0.6decreased $14.6 million, or 0.8%, to $77.3$88.9 million for the year ended December 31, 20162021, from $76.7$103.5 million for the year ended December 31, 2015.2020. The increasedecrease was dueattributable to a $1.0 million increase in property tax, insurance and other expense attributable to the non-comparable properties, partially offset by a $0.4$13.0 million decrease in property tax, insurance and other expense attributable to the comparable properties and a $1.6 million decrease in property tax, insurance and other expense attributable to the non-comparable properties.
certain of our California hotels acquired in our merger with FelCor Lodging Trust, which resulted in a benefit of $5.4 million that was recorded during the year ended December 31, 2021. The decrease in real estate tax assessments was partially offset by an increase in insurance premiums and an increase in percentage rent obligations for certain of our ground leases.
General and Administrative
General and administrative expense decreased$6.3increased $6.4 million, or 16.6%, to $31.5$47.5 million for the year ended December 31, 20162021, from $37.8$41.1 million for the year ended December 31, 2015.2020. The decreaseincrease in general and administrative expense iswas primarily attributable to a $7.0 million decreasean increase in compensation-related expenses, primarily from non-cash compensation expense partially offset by a netrelated to share-based awards granted during 2021, and an increase in other general and administrative costs, includingdebt modification, legal, fees and other professional fees and costs.costs outside the normal course of operations.
Other (Expense) Income, net
Other expense increased $9.6 million to $7.6 million for the year ended December 31, 2021, from income of $1.9 million for the year ended December 31, 2020. The decrease in compensation expenseincrease was primarily attributable to the reclassification of unrealized losses from accumulated other comprehensive loss due to the forfeituretermination of restricted shares and performance units uponcertain interest rate swap agreements that were previously designated against debt that was repaid with proceeds from the resignationissuance of our former Company's President and Chief Executive Officer in 2016.2026 Senior Notes.
Interest Expense
The components of our interest expense for the years ended December 31, 20162021 and 2015 are2020 were as follows (in thousands):
| | | | | | | | | | | | | | | | | | | |
| For the year ended December 31, | | | | |
| 2021 | | 2020 | | $ Change | | |
Senior Notes | $ | 34,079 | | | $ | 23,767 | | | $ | 10,312 | | | |
Revolver and Term Loans | 53,097 | | | 55,413 | | | (2,316) | | | |
Mortgage loans | 13,306 | | | 16,949 | | | (3,643) | | | |
Amortization of deferred financing costs | 5,884 | | | 4,416 | | | 1,468 | | | |
Undesignated interest rate swaps | — | | | (376) | | | 376 | | | |
Total interest expense | $ | 106,366 | | | $ | 100,169 | | | $ | 6,197 | | | |
|
| | | | | | | | | | | | | | |
| For the year ended December 31, | | | | |
| 2016 | | 2015 | | $ Change | | % Change |
Revolver and Term Loans | $ | 38,849 |
| | $ | 35,898 |
| | $ | 2,951 |
| | 8.2 | % |
Mortgage loans | 16,006 |
| | 16,500 |
| | (494 | ) | | (3.0 | )% |
Amortization of deferred financing costs | 3,965 |
| | 4,164 |
| | (199 | ) | | (4.8 | )% |
Capitalized interest | — |
| | (1,774 | ) | | 1,774 |
| | (100.0 | )% |
Total interest expense | $ | 58,820 |
| | $ | 54,788 |
| | $ | 4,032 |
| | 7.4 | % |
Interest expense increased$4.0 $6.2 million, or 7.4%, to $58.8$106.4 million for the year ended December 31, 20162021, from $54.8$100.2 million for the year ended December 31, 2015. The increase2020. Interest expense was impacted by the $1.0 billion in interest expensegross proceeds from the issuance of new senior notes, the $484.4 million redemption of the existing senior notes, $356.3 million in repayment of term loans, $200.0 million in repayment on the Revolver, and Term Loans was$149.2 million in repayment of mortgage loans during year ended December 31, 2021. Additionally, interest expense on our variable rate debt increased due to higher effective interest rates after taking into account the entry into newimpact of interest rate swaps and additional borrowings. The decrease in interest expense from the mortgage loans was due to a decrease in the balances outstanding as a result of principal payments, partially offset by additional borrowings. The decrease in amortizationeach of the deferred financing costs was insignificant due to the impactperiods.
(Loss) Gain on Sale of extended loan maturities as a result of debt refinancing transactions during 2016 being offset by the accelerated amortization from the debt refinancing transactions and additional amortization from newly capitalized costs. The decrease in capitalized interest was due to two major redevelopment projects in 2015, both of which were completed in the third quarter of 2015. There were no major redevelopment projects duringHotel Properties, net
During the year ended December 31, 2016.2021, we sold seven hotel properties for an aggregate sales price of approximately
$208.5 million and recorded a net loss on sales of $2.4 million. During the year ended December 31, 2020, we sold one hotel property for a sale price of approximately $4.9 million and recorded a net gain on sale of $2.7 million.
Equity in Loss from Unconsolidated Joint Ventures
Equity in loss from unconsolidated joint ventures decreased $8.0 million to $0.5 million for the year ended December 31, 2021 from $8.5 million for the year ended December 31, 2020. The decrease is primarily attributable to an impairment loss of $6.5 million in one of our unconsolidated joint ventures in 2020 that did not recur in 2021, and an increase in demand as compared to the prior period.
Income Taxes
As part of our structure, we own TRSs that are subject to U.S. federal and state income taxes. We had an incomeIncome tax expense of $8.2decreased $50.8 million to $1.2 million for the year ended December 31, 2016 as compared to an income tax benefit of $39.12021, from $52.0 million for the year ended December 31, 2015.2020. The $47.3 million increasedecrease in income taxestax expense was primarily resulted from the releasedue to recording a valuation allowance on 100% of aour net deferred tax asset valuation allowance of $39.9 millionassets during the year ended December 31, 2015 and deferred tax expense during the year ended December 31, 2016. The Company's effective tax rates were 3.9% and (21.7)% for the years ended December 31, 2016 and 2015, respectively. The effective tax rate increased in 2016 as a result of the release of the deferred tax asset valuation allowance in 2015.2020.
Non-GAAP Financial Measures
We consider the following non-GAAP financial measures useful to investors as key supplemental measures of our performance: (1) FFO, (2) Adjusted FFO, (3) EBITDA, (4) EBITDAreand (4)(5) Adjusted EBITDA. These non-GAAP financial measures should be considered along with, but not as alternatives to, net income or loss as a measure of our operating performance. FFO, Adjusted FFO, EBITDA, EBITDAre, and Adjusted EBITDA, as calculated by us, may not be comparable to FFO, Adjusted FFO, EBITDA, EBITDAre and Adjusted EBITDA as reported by other companies that do not define such terms exactly as we define such terms.
Funds From Operations
We calculate FFOfunds from operations ("FFO") in accordance with standards established by the National Association of Real Estate Investment Trusts ("NAREIT"), which defines FFO as net income or loss, (calculated in accordance with GAAP), excluding gains or losses from sales of real estate, impairment, the cumulative effect of changes in accounting principles, plus depreciation and amortization, and adjustments for unconsolidated partnerships and joint ventures. Historical cost accounting for real estate assets implicitly assumes that the value of real estate assets diminishes predictably over time. Since real estate values instead have historically risen or fallen with market conditions, most real estate industry investors consider FFO to be helpful in evaluating a real estate company’s operations. We believe that the presentation of FFO provides useful information to investors regarding our operating performance and can facilitate comparisons of operating performance between periods and between REITs, even though FFO does not represent an amount that accrues directly to common shareholders. Our calculation of FFO may not be comparable to measures calculated by other companies who do not use the NAREIT definition of FFO or do not calculate FFO per diluted share in accordance with NAREIT guidance. Additionally, FFO may not be helpful when comparing us to non-REITs. We present FFO attributable to common shareholders, which includes our OP units, because our OP units may be redeemed for common shares. We believe it is meaningful for the investor to understand FFO attributable to all common shares and OP units.
We further adjust FFO for certain additional items that are not in NAREIT’s definition of FFO, such as hotel transaction costs, pre-opening costs, non-cash income tax expense or benefit, the amortization of share-based compensation, and certain other income or expenses that we consider outside the normal course of operations. We believe that Adjusted FFO provides useful supplemental information to investors regarding our ongoing operating performance that, when considered with net income and FFO, is beneficial to an investor’s understanding of our operating performance.
The following table is a reconciliation of our GAAP net incomeloss to FFO attributable to common shareholders and unitholders and Adjusted FFO attributable to common shareholders and unitholders for the years ended December 31, 2017, 20162021 and 20152020 (in thousands): | | | | | | | | | | | |
| For the year ended December 31, |
| 2021 | | 2020 |
Net loss | $ | (311,088) | | | $ | (408,802) | |
Preferred dividends | (25,115) | | | (25,115) | |
Depreciation and amortization | 187,778 | | | 194,168 | |
Impairment losses | 144,845 | | | — | |
Loss (gain) on sale of hotel properties, net | 2,378 | | | (2,703) | |
Noncontrolling interest in consolidated joint ventures | 4,384 | | | 2,327 | |
Adjustments related to consolidated joint ventures (1) | (2,780) | | | (298) | |
Adjustments related to unconsolidated joint ventures (2) | 1,168 | | | 8,299 | |
FFO | 1,570 | | | (232,124) | |
Transaction costs | 94 | | | (158) | |
Gain on extinguishment of indebtedness, net | (893) | | | — | |
Amortization of share-based compensation | 17,054 | | | 12,200 | |
Non-cash income tax expense | (40) | | | 51,486 | |
Unrealized gain on discontinued cash flow hedges | — | | | (376) | |
Corporate and property-level severance (3) | 904 | | | 8,653 | |
Derivative losses in accumulated other comprehensive loss reclassified to earnings (4) | 10,658 | | | — | |
Other expenses (income) (5) | 2,086 | | | (1,125) | |
Adjusted FFO | $ | 31,433 | | | $ | (161,444) | |
(1)Includes depreciation and amortization expense, impairment loss and loss on sale of hotel allocated to the noncontrolling interest in the consolidated joint ventures.
(2)Includes our ownership interest in the depreciation and amortization expense and impairment loss of the unconsolidated joint ventures.
(3)The year ended December 31, 2021 includes severance for associates at hotels operating under collective bargaining agreements. The year ended December 31, 2020 includes $6.7 million related to severance for associates at our New York City hotels operating under collective bargaining agreements.
|
| | | | | | | | | | | |
| For the year ended December 31, |
| 2017 | | 2016 | | 2015 |
Net income | $ | 75,739 |
| | $ | 201,314 |
| | $ | 219,812 |
|
Preferred dividends | (8,372 | ) | | — |
| | — |
|
Preferred distributions - consolidated joint venture | (496 | ) | | — |
| | — |
|
Gain on sale of hotel properties | (8,980 | ) | | (45,929 | ) | | (28,398 | ) |
Depreciation and amortization | 186,993 |
| | 162,500 |
| | 156,226 |
|
Impairment loss | — |
| | — |
| | 1,003 |
|
Noncontrolling interest in consolidated joint ventures | (117 | ) | | (55 | ) | | (77 | ) |
Adjustments related to consolidated joint ventures (1) | (193 | ) | | (152 | ) | | (170 | ) |
Adjustments related to unconsolidated joint ventures (2) | 900 |
| | — |
| | — |
|
FFO | 245,474 |
| | 317,678 |
| | 348,396 |
|
Non-cash income tax expense (benefit) | 39,747 |
| | 7,001 |
| | (39,845 | ) |
Transaction costs | 44,398 |
| | 192 |
| | 3,058 |
|
Gain on settlement of investment in loan | (2,670 | ) | | — |
| | — |
|
Amortization of share-based compensation | 10,607 |
| | 5,990 |
| | 13,002 |
|
Loan related costs (3) | — |
| | 1,247 |
| | 97 |
|
Other expenses (4) | 1,591 |
| | 604 |
| | — |
|
Adjusted FFO | $ | 339,147 |
| | $ | 332,712 |
| | $ | 324,708 |
|
_______________________________________________________________
| |
(1) | Includes depreciation and amortization expense allocated to the noncontrolling interest in joint ventures. |
| |
(2) | Includes our ownership interest of the depreciation and amortization expense of the unconsolidated joint ventures. |
| |
(3) | Represents debt modification costs, debt extinguishment costs, and the accelerated amortization of deferred financing costs. |
| |
(4) | Represents income and expenses outside of the normal course of operations, including hurricane-related costs not reimbursed by insurance and property-level severance costs. |
(4)Reclassification of Contentsunrealized losses from accumulated other comprehensive loss due to the termination of certain interest rate swap agreements that were previously designated against debt that was repaid with proceeds from the issuance of our 2026 Senior Notes.
(5)Represents income and expenses outside of the normal course of operations including debt modification costs, legal and other costs, and hurricane-related costs that were not reimbursed by insurance. Other income for the year ended December 31, 2020 includes a benefit of $1.8 million due to the reversal of an excess accrued liability related to a labor matter.
Earnings Before Interest, Taxes, DepreciationEBITDA and AmortizationEBITDAre
EBITDAEarnings before interest, taxes, depreciation and amortization ("EBITDA") is defined as net income or loss excluding: (1) interest expense; (2) provision for income taxes, including income taxes applicable to sales of assets; and (3) depreciation and amortization. We consider EBITDA useful to an investor in evaluating and facilitating comparisons of our operating performance between periods and between REITs by removing the impact of our capital structure (primarily interest expense) and asset base (primarily depreciation and amortization) from our operating results. In addition, EBITDA is used as one measure in determining the value of hotel property acquisitions and disposals.
In addition to EBITDA, we present EBITDAre in accordance with NAREIT guidelines, which defines EBITDAre as net income or loss excluding interest expense, income tax benefit or expense, depreciation and amortization expense, gains or losses from sales of real estate, impairment, and adjustments for unconsolidated joint ventures. We believe that the presentation of EBITDAre provides useful information to investors regarding our operating performance and can facilitate comparisons of operating performance between periods and between REITs.
We also present Adjusted EBITDA, attributable to common shareholders, which includes our OP units, because our OP units may be redeemedadditional adjustments for common shares. We believe it is meaningful for the investor to understand EBITDA attributable to all common shares and OP units.
We further adjust EBITDA for certain additional items such as gains or losses on dispositions, hotelextinguishment of indebtedness, transaction costs, impairment losses, the amortization of share-based compensation, pre-opening costs, and certain other income andor expenses that we consider outside the normal course of operations. We believe that Adjusted EBITDA provides useful supplemental information to investors regarding our ongoing operating performance that, when considered with net income, EBITDA and EBITDAre, is beneficial to an investor’s understanding of our operating performance.
The following table is a reconciliation of our GAAP net incomeloss to EBITDA, attributable to common shareholders and unitholdersEBITDAre and Adjusted EBITDA attributable to common shareholders and unitholders for the years ended December 31, 2017, 20162021 and 20152020 (in thousands):
| | | | | | | | | | | |
| For the year ended December 31, |
| 2021 | | 2020 |
Net loss | $ | (311,088) | | | $ | (408,802) | |
Depreciation and amortization | 187,778 | | | 194,168 | |
Interest expense, net | 105,370 | | | 95,932 | |
Income tax expense | 1,188 | | | 51,970 | |
Adjustments related to unconsolidated joint ventures (1) | 1,633 | | | 2,237 | |
EBITDA | (15,119) | | | (64,495) | |
Loss (gain) on sale of hotel properties, net | 2,378 | | | (2,703) | |
Impairment losses | 144,845 | | | — | |
| | | |
Impairment loss of unconsolidated joint ventures (2) | — | | | 6,546 | |
EBITDAre | 132,104 | | | (60,652) | |
Transaction costs | 94 | | | (158) | |
Gain on extinguishment of indebtedness, net | (893) | | | — | |
Amortization of share-based compensation | 17,054 | | | 12,200 | |
Corporate and property-level severance (3) | 904 | | | 8,653 | |
Derivative losses in accumulated other comprehensive loss reclassified to earnings (4) | 10,658 | | | — | |
Other expenses (income) (5) | 2,086 | | | (1,125) | |
Adjusted EBITDA | $ | 162,007 | | | $ | (41,082) | |
(1)Includes our ownership interest in the interest, depreciation, and amortization expense of the unconsolidated joint ventures.
(2)Includes our ownership interest in the impairment loss of one of our unconsolidated joint ventures.
(3)The year ended December 31, 2021 includes severance for associates at hotels operating under collective bargaining agreements. The year ended December 31, 2020 includes $6.7 million related to severance for associates at our New York City hotels operating under collective bargaining agreements.
|
| | | | | | | | | | | |
| For the year ended December 31, |
| 2017 | | 2016 | | 2015 |
Net income | $ | 75,739 |
| | $ | 201,314 |
| | $ | 219,812 |
|
Depreciation and amortization | 186,993 |
| | 162,500 |
| | 156,226 |
|
Interest expense, net (1) | 76,703 |
| | 58,793 |
| | 54,758 |
|
Income tax expense (benefit) | 42,118 |
| | 8,190 |
| | (39,126 | ) |
Noncontrolling interest in consolidated joint ventures | (117 | ) | | (55 | ) | | (77 | ) |
Adjustments related to consolidated joint ventures (2) | (275 | ) | | (152 | ) | | (170 | ) |
Adjustments related to unconsolidated joint ventures (3) | 1,072 |
| | — |
| | — |
|
EBITDA | 382,233 |
| | 430,590 |
| | 391,423 |
|
Transaction costs | 44,398 |
| | 192 |
| | 3,058 |
|
Gain on sale of hotel properties | (8,980 | ) | | (45,929 | ) | | (28,398 | ) |
Gain on settlement of investment in loan | (2,670 | ) | | — |
| | — |
|
Impairment loss | — |
| | — |
| | 1,003 |
|
Amortization of share-based compensation | 10,607 |
| | 5,990 |
| | 13,002 |
|
Loan related costs (4) | — |
| | 924 |
| | — |
|
Other expenses (5) | 1,591 |
| | 604 |
| | — |
|
Adjusted EBITDA | $ | 427,179 |
| | $ | 392,371 |
| | $ | 380,088 |
|
| |
(1) | Excludes amounts attributable to investment in loans of $1.4 million, $1.7 million and $1.5 million for the years ended December 31, 2017, 2016 and 2015, respectively. |
| |
(2) | Includes interest, depreciation, and amortization expense allocated to the noncontrolling interest in joint ventures. |
| |
(3) | Includes our ownership interest of the interest, depreciation, and amortization expense of the unconsolidated joint ventures. |
| |
(4) | Represents debt modification costs and debt extinguishment costs. |
| |
(5) | Represents income and expenses outside of the normal course of operations, including hurricane-related costs not reimbursed by insurance and property-level severance costs. |
(4)Reclassification of unrealized losses from accumulated other comprehensive loss due to the termination of certain interest rate swap agreements that were previously designated against debt that was repaid with proceeds from the issuance of our 2026 Senior Notes.
(5)Represents income and expenses outside of the normal course of operations including debt modification costs, legal and other costs, and hurricane-related costs that were not reimbursed by insurance. Other income for the year ended December 31, 2020 includes a benefit of $1.8 million due to the reversal of an excess accrued liability related to a labor matter.
Liquidity and Capital Resources
As of December 31, 2021, we had $713.9 million of cash, cash equivalents, and restricted cash reserves as compared to $934.8 million at December 31, 2020. In addition, we had $400.0 million available on our $600.0 million Revolver at December 31, 2021. In February 2022, we paid off the outstanding balance on the Revolver using cash on hand.
Our principal uses of capital for the year ended December 31, 2021 were our purchases of three hotel properties, redemption of the 2025 Senior Notes (as defined below), repayment of a portion of our Revolver, and repayment of certain term loans and mortgages. Our principal sources of capital for the year ended December 31, 2021 was cash generated from operations, the sale of seven hotel properties, and the issuance of the senior notes.
Material Cash Requirements
Our expected material cash requirements for the twelve months ending 2022 and thereafter are comprised of (i) contractually obligated expenditures; and (ii) other essential cash requirements.
Contractually Obligated Expenditures
We are party to various contractual obligations involving commitments to make payments to third parties. These obligations impact our short-term and long-term liquidity and capital resource needs. Our material short and long-term cash commitments primarily consist of debt obligations, and ground lease payments related to certain of our hotel properties.
As of December 31, 2021, we had approximately $2.4 billion in debt outstanding with a weighted average interest rate of 3.94%, of which $200.0 million is scheduled to become due in the succeeding 12 months, excluding available extension options. As of December 31, 2021, our total future minimum lease payments were $600.1 million, of which $11.5 million is scheduled to become due in the succeeding 12 months. For details regarding our indebtedness and lease obligations, refer to Note 8, Debt, and Note 11, Commitments and Contingencies, to the consolidated financial statements included elsewhere in this Annual Report on Form 10-K.
Other Essential Cash Requirements
Our other short-term cash requirements consist primarily of the funds necessary to pay for operating expenses and other expenditures directly associated with our hotel properties, including:
•recurring maintenance and capital expenditures necessary to maintain our hotel properties in accordance with brand standards;
interest expense and scheduled principal payments on outstanding indebtedness; and
•distributions necessary to qualify for taxation as a REIT.REIT; and
•corporate and other general and administrative expenses.
We expect to meet our short-term liquiditycash requirements generally through the net cash provided by operations, existing cash balances, and, if necessary, short-term borrowings under our Revolver, proceeds from the sale of which $600.0 million was available at December 31, 2017, orhotel properties, proceeds from financings, and proceeds from public offerings of common shares.
Our other long-term liquiditycash requirements consist primarily of the funds necessary to pay for the costs of acquiring additional hotel properties, the redevelopments, renovations expansions and other capital expenditures that need to be made periodically with respect to our hotel properties, and scheduled debt payments, at maturity or otherwise. We expectany other value enhancing projects.
During the year ended December 31, 2021, we entered into two amendments to meet our long-term liquidity requirements through various sources of capital, including our Revolver and future equity (including OP units) or debt offerings,Term Loans. The amendment suspends the testing of all existing workingfinancial maintenance covenants under the Revolver and the Term Loan
agreements for all periods through and including the fiscal quarter ending March 31, 2022 (the “Covenant Relief Period”). In addition, for the five quarterly reporting periods following the Covenant Relief Period, the amendments modify certain covenant thresholds. We are also subject to various restrictions such as the ability to incur additional indebtedness, repurchase shares, dividends and distributions limitations, and limitations around capital net cash provided by operations, long-term mortgage loansexpenditures and other secured and unsecured borrowings. acquisitions.
Sources and Uses of Cash
As of December 31, 2017, we had $659.1 million of cash, cash equivalents, and restricted cash reserves as compared to $523.9 million at December 31, 2016.
Cash flows from Operating Activities
The net cash flow provided by operating activities totaled $260.6 million, $331.4$43.0 million and $328.9the net cash flow used in operating activities totaled $168.7 million for the years ended December 31, 2017, 20162021 and 2015,2020, respectively. OurThe cash flows provided by or used in operating activities generally consist of the net cash generated by or operating shortfalls from our hotel operations, partially offset by the cash paid for corporate expenses and other working capital changes. Refer to the "Results of Operations" section for further discussion of our operating results for the years ended December 31, 2017, 20162021 and 2015.2020.
Cash flows from Investing Activities
The net cash flow provided byused in investing activities totaled $65.0$24.6 million for the year ended December 31, 20172021 primarily due to $180.3$174.7 million in proceeds resulting from the sale ofused to purchase three hotel properties and $12.8 million in proceeds from the settlement of an investment in loan. The net cash flow provided by investing activities was partially offset by $103.0$48.3 million in routine capital improvements and additions to theour hotel properties and cash consideration, netproperties. These were partially offset by $198.6 million of cash, cash equivalents, and restricted cash reserves acquired, of $24.9 million for the acquisition of FelCor.
The net cash flow provided by investing activities totaled $185.1 million for the year ended December 31, 2016 primarily due to $269.2 million in proceeds resulting from the sale of four hotel properties. The net cash flow provided by investing activities was partially offset by $83.8 million in routine capital improvements and additions to theseven hotel properties.
The net cash flow used in investing activities totaled $45.7$66.7 million for the year ended December 31, 20152020 primarily due to $142.2 million used for the purchase of three hotel properties, $124.8$73.3 million in routine capital improvements and additions to theour hotel properties, and $24.5 million related to two major redevelopment projects. The net cash flow used in investing activities was partially offset by $246.4$5.2 million of net cash proceeds from the sale of 23a hotel properties.property.
Cash flows from Financing Activities
The net cash flow used in financing activities totaled $190.4$239.3 million for the year ended December 31, 20172021 primarily due to $177.0the $484.4 million redemption of the 2025 Senior Notes, $356.3 million in repayment of term loans, $200.0 million in repayment on the Revolver, $149.2 million in repayment of mortgage loans, $31.8 million in distributions to shareholders and unitholders, $5.7$14.8 million in deferred financing cost payments, $2.5 million paid to repurchase common shares, $4.8and $1.5 million in mortgage loan principal payments, and $1.6 million in deferred financing cost payments.
The net cash flow used in financing activities totaled $182.3 million for the year ended December 31, 2016 primarily due to $165.2 million in distributions to shareholders and unitholders, $18.8 million paid to repurchase common shares, $5.4 million in deferred financing cost payments and $3.7 million inscheduled mortgage loan principal payments. The net cash flow used in financing activities was partially offset by $11.0 million$1.0 billion in additional mortgage loan debt.gross proceeds from the issuances of the senior notes.
The net cash flow used inprovided by financing activities totaled $419.1$243.0 million for the year ended December 31, 20152020 primarily due to $166.6$400.0 million in mortgage loan principal payments, $171.3borrowings on our revolving credit facility. This was offset by $86.5 million in distributions to shareholders and unitholders, and
$237.2$64.2 million paid to repurchase common shares. The net cash flow used in financing activities was partially offset by $150.0shares, $4.1 million in borrowings on the Term Loansdeferred financing cost payments, and $7.0$3.4 million in additionalscheduled mortgage loan debt.principal payments.
Capital Expenditures and Reserve Funds
We maintain each of our hotel properties in good repair and condition and in conformity with applicable laws and regulations, franchise agreements and management agreements. The cost of all such routine improvements and alterations are paid out of FF&E reserves, which are funded by a portion of each hotel property’s gross revenues. Routine capital expenditures are administered by the property management companies. However, we have approval rights over the capital expenditures as part of the annual budget process for each of our hotel properties.
From time to time, certain of our hotel properties may undergo renovations as a result of our decision to upgrade portions of the hotels, such as guestrooms, public space, meeting space, and/or restaurants, in order to better compete with other hotels and alternative lodging options in our markets. In addition, upon acquisition of a hotel property we often are required to complete a property improvement plan in order to bring the hotel up to the respective franchisor’s standards. If permitted by the terms of the management agreement, funding for a renovation will first come from the FF&E reserves. To the extent that the FF&E reserves are not available or sufficient to cover the cost of the renovation, we will fund all or the remaining portion of the renovation with cash and cash equivalents on hand, our Revolver and/or other sources of available liquidity.
With respect to some of our hotels that are operated under franchise agreements with major national hotel brands and for some of our hotels subject to first mortgage liens, we are obligated to maintain FF&E reserve accounts for future capital expenditures at these hotels. The amount funded into each of these reserve accounts is generally determined pursuant to the management agreements, franchise agreements and/or mortgage loan documents for each of the respective hotels, and typically
ranges between 3.0% and 5.0% of the respective hotel’s total gross revenue. As of December 31, 2017,2021, approximately $70.6$26.6 million was held in FF&E reserve accounts for future capital expenditures.
Off-Balance Sheet Arrangements
As of December 31, 2017, we owned 50% interests in joint ventures that owned two hotel properties. We own more than 50% of the operating lessee for one of these hotels and the other hotel is operated without a lease. The Company also owned 50% interests in joint ventures that owned real estate and a condominium management business that are associated with two of our resort hotel properties. None of our trustees, officers or employees holds an ownership interest in any of these joint ventures or entities.
One of the 50% unconsolidated joint ventures that owned a hotel property had $21.5 million of non-recourse mortgage debt, of which our pro rata portion was $10.8 million, none of which is reflected as a liability on our consolidated balance sheet. Our liabilities with regard to the non-recourse debt and the liabilities of our subsidiaries that are members or partners in joint ventures are generally limited to guaranties of the borrowing entity's obligations to pay for the lender's losses caused by misconduct, fraud or misappropriation of funds by the venture and other typical exceptions from the non-recourse provisions in the mortgages, such as for environmental liabilities. In addition, this joint venture is subject to two ground leases with terms expiring in 2044.
The other 50% unconsolidated joint venture that owned a hotel property is subject to a ground lease with an initial term expiring in 2021. After the initial term, the joint venture may extend the ground lease for an additional term of 10 years to 2031.
Contractual Obligations
The following table sets forth our contractual obligations as of December 31, 2017 (in thousands):
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Obligations and Commitments | | 2018 | | 2019 | | 2020 | | 2021 | | 2022 | | Thereafter | | Total |
Senior Notes and interest (1) | | $ | 57,976 |
| | $ | 57,976 |
| | $ | 57,976 |
| | $ | 57,976 |
| | $ | 57,976 |
| | $ | 1,072,795 |
| | $ | 1,362,675 |
|
Mortgage loans and interest (1) | | 408,123 |
| | 22,231 |
| | 15,727 |
| | 98,392 |
| | 171,227 |
| | — |
| | 715,700 |
|
Revolver and Term Loans and interest (1) | | 40,646 |
| | 654,234 |
| | 17,716 |
| | 409,052 |
| | 150,314 |
| | — |
| | 1,271,962 |
|
Ground rent | | 12,982 |
| | 10,987 |
| | 11,001 |
| | 11,016 |
| | 11,031 |
| | 626,674 |
| | 683,691 |
|
Operating lease obligations | | 1,759 |
| | 1,811 |
| | 1,854 |
| | 2,423 |
| | 775 |
| | 3,779 |
| | 12,401 |
|
| | $ | 521,486 |
| | $ | 747,239 |
| | $ | 104,274 |
| | $ | 578,859 |
| | $ | 391,323 |
| | $ | 1,703,248 |
| | $ | 4,046,429 |
|
| |
(1) | Amounts include principal and interest payments. The interest payments are based on the interest rate at December 31, 2017, giving consideration to the effect of interest rate swaps if applicable. |
Critical Accounting PoliciesEstimates
The preparation of the financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amount of assets and liabilities at the date of our financial statements and the reported amounts of revenues and expenses during the reporting period. We have provided a summary ofconsider our significant accounting policies over investment in the noteshotel properties and revenue recognition to thebe our critical accounting estimates. See Note 2 to our consolidated financial statements included elsewhere in this filing.for further descriptions of such accounting policies. We have set forth below thosethe accounting policies that we believe require material subjective or complex judgments and have the most significant impact on our financial condition and results of operations. It is possible that the actual amounts may differ significantly from these estimates and assumptions. We evaluate our estimates, assumptions and judgments on an ongoing basis, based on information that is available to us, our business and industry experience, and various other matters that we believe are reasonable and appropriate for consideration under the circumstances.
Impairment
We assess the carrying value of our investments in hotel properties whenever events or changes in circumstances indicate that the carrying amounts may not be recoverable. Hotel property recoverability is measured by comparing the carrying amount to the projected undiscounted future cash flows expected to be generated from the operation and the eventual disposition of the hotel properties over the estimated hold period, which take into account current market conditions and our intent with respect to holding or disposing of the hotel properties. If our analysis indicates that the carrying value is not recoverable on a projected undiscounted cash flow basis, we will recognize an impairment loss for the amount by which the carrying value exceeds the fair value. The determination of fair value is subjective and is based in part on assumptions and estimates that could differ materially from actual results in future periods. The fair value is determined through various valuation techniques, including internally developed discounted cash flow models, comparable market transactions, third-party appraisals, the net sales proceeds from pending offers, or the net sales proceeds from transactions that closed subsequent to the end of the reporting period. The use of projected future cash flows is based on assumptions that are consistent with a market participant’s future expectations for the travel industry and the economy in general, including discount rates, sales proceeds in the reversion year, average daily rates, occupancy rates, operating expenses and capital expenditures, and our intent with respect to holding or disposing of the underlying hotel properties. Fair value may also be based on assumptions including, but not limited to, room revenue multiples and comparable sales adjusted for capital expenditures, if necessary.
Purchase Price Allocation
Our acquisitions generally consist of land, land improvements, buildings, building improvements, furniture, fixtures and equipment, inventory, and assumed debt. We allocate the purchase price among the assets acquired and the liabilities assumed based on their respective fair values at the date of acquisition. We estimate the fair values of the assets acquired and the liabilities assumed by using a combination of the market, cost and income approaches. We determine the fair value by using market data and independent appraisals available to us and making numerous estimates and assumptions, such as estimates of future income growth, replacement cost per unit, value per acre or buildable square foot, capitalization rates, discount rates, borrowing rates, market rental rates, capital expenditures and cash flow projections at the respective hotel properties. The determination of fair value is subjective and is based in part on assumptions and estimates that could differ materially from actual results in future periods.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Market risk includes the risks that arise from changes in interest rates, equity prices and other market changes that affect market sensitive instruments. Our primary market risk exposure is to changes in interest rates on our variable rate debt. As of December 31, 2021, we had approximately $1.4 billion of total variable rate debt outstanding (or 57.7% of total indebtedness) with a weighted-average interest rate of 3.97% per annum.
Our interest rate risk objectives are to limit the impact of interest rate fluctuations on earnings and cash flows and to lower our overall borrowing costs. To achieve these objectives, we manage our exposure to fluctuations in market interest rates through the use of fixed rate debt instruments to the extent that reasonably favorable rates are obtainable. We have entered into derivative financial instruments such as interest rate swaps to mitigate our interest rate risk or to effectively lock the interest rate on a portion of our variable rate debt. We do not enter into derivative or interest rate transactions for speculative purposes. After taking into consideration the effect of interest rate swaps, 100.0% of our total indebtedness was fixed or effectively fixed. As of December 31, 2021, if market interest rates on our variable rate debt not subject to interest rate swaps were to increase by 1.00%, or 100 basis points, interest expense would have no impact on future earnings and cash flows, taking into account our existing contractual hedging arrangements.
The following table provides information about our financial instruments that are sensitive to changes in interest rates. For debt obligations outstanding as of December 31, 2021, the following table presents the principal repayments and related weighted-average interest rates by contractual maturity dates (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2022 | | 2023 | | 2024 | | 2025 | | 2026 | | Thereafter | | Total |
Fixed rate debt (1) | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | 500,000 | | | $ | 525,000 | | | $1,025,000 |
Weighted-average interest rate | —% | | —% | | —% | | —% | | 3.75% | | 4.05% | | 3.90% |
Variable rate debt (1) | $ | 200,000 | | | $ | 418,662 | | | $ | 381,000 | | | $ | 400,000 | | | $ | — | | | $ | — | | | $1,399,662 |
Weighted-average interest rate (2) | 3.30% | | 4.59% | | 3.13% | | 4.45% | | —% | | —% | | 3.97% |
Total (3) | $200,000 | | $418,662 | | $381,000 | | $400,000 | | $500,000 | | $525,000 | | $2,424,662 |
(1)Excludes $13.1 million, $3.7 million and $1.1 million of net deferred financing costs on the senior notes, Term Loans and mortgage loans, respectively.
(2)The weighted-average interest rate gives effect to interest rate swaps, as applicable.
(3)Excludes a $2.6 million fair value adjustment on debt.
Our ultimate realized gain or loss with respect to interest rate fluctuations will depend on the exposures that arise during future periods, prevailing interest rates, and our hedging strategies at that time.
Changes in market interest rates on our fixed rate debt impact the fair value of our debt, but such changes have no impact to our consolidated financial statements. As of December 31, 2021, the estimated fair value of our fixed rate debt was $1.0 billion, which is based on having the same debt service requirements that could have been borrowed at the date presented, at prevailing current market interest rates. If interest rates were to rise by 1.00%, or 100 basis points, and our fixed rate debt balance remained constant, we expect the fair value of our debt would decrease by approximately $42.5 million.
Item 8. Financial Statements and Supplementary Data
Refer to the Index to Financial Statements on page F-1.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosures
None.
Item 9A.Controls and Procedures
Evaluation of Disclosure Controls and Procedures
The Company's management, under the supervision and with the participation of the Company's Chief Executive Officer and the Chief Financial Officer, has evaluated the effectiveness of the Company's disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act), as required by paragraph (b) of Rules 13a-15 and 15d-15 of the Exchange Act. Based on this evaluation, the Company's Chief Executive Officer and Chief Financial Officer have concluded that as of December 31, 2021, the Company's disclosure controls and procedures were effective to ensure that the information we are required to disclose in reports filed or submitted with the Securities and Exchange Commission (i) is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms, and (ii) is accumulated and communicated to our management,
including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding disclosure.
Management's Annual Report on Internal Control over Financial Reporting
The Company's management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) of the Exchange Act). The Company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluations of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
The Company's management assessed the effectiveness of its internal control over financial reporting as of December 31, 2021. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO") in Internal Control - Integrated Framework (2013). Based on this assessment, management has concluded that, as of December 31, 2021, our internal control over financial reporting is effective based on those criteria.
The effectiveness of the Company's internal control over financial reporting as of December 31, 2021 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report which appears on page F-2 of this Annual Report on Form 10-K.
Changes in Internal Control over Financial Reporting
There have been no changes in the Company’s internal control over financial reporting (as defined in Rule 13a-15 and 15d-15 of the Exchange Act) during the period ended December 31, 2021 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
Item 9B.Other information
None.
PART III
Item 10. Directors, Executive Officers and Corporate Governance
The information called for by this Item is contained in our definitive Proxy Statement for our 2022 Annual Meeting of Shareholders, and is incorporated herein by reference.
Item 11. Executive Compensation
The information called for by this Item is contained in our definitive Proxy Statement for our 2022 Annual Meeting of Shareholders, and is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters
The information called for by this Item is contained in our definitive Proxy Statement for our 2022 Annual Meeting of Shareholders, or in Item 5 of this Annual Report on Form 10-K for the year ended December 31, 2021, and is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions and Director Independence
The information called for by this Item is contained in our definitive Proxy Statement for our 2022 Annual Meeting of Shareholders, and is incorporated herein by reference.
Item 14. Principal Accountant Fees and Services
The information called for by this Item is contained in our definitive Proxy Statement for our 2022 Annual Meeting of Shareholders, and is incorporated herein by reference.
PART IV
Item 15. Exhibits and Financial Statement Schedules
The following is a list of documents filed as a part of this report:
(1) Financial Statements — Refer to the Index to Financial Statements on page F-1
(2) Financial Statement Schedules — The following financial statement schedule is included herein on pages F-40 through F-44:
Schedule III — Real Estate and Accumulated Depreciation for RLJ Lodging Trust
All other schedules for which a provision is made in Regulation S-X are either not required to be included herein under the related instructions, are inapplicable, or the related information is included in the footnotes to the applicable financial statement and, therefore, have been omitted.
(3) Exhibits — The exhibits required to be filed by Item 601 of Regulation S-K are noted below:
Exhibit Index
| | | | | | | | | | | |
Exhibit Number | | Description of Exhibit |
| | |
3.1 | | |
3.2 | | |
3.3 | | |
3.4 | | |
3.5 | | |
3.6 | | |
4.1 | | |
4.2 | | |
4.3 | | |
4.4 | | |
4.5 | | |
4.6 | | Indenture, dated as of June 17, 2021, among dated as of June 17, 2021, among RLJ Lodging Trust, RLJ Lodging Trust, L.P., the subsidiary guarantors party thereto and the U.S. Bank National Association, as trustee (incorporated by reference to Exhibit 4.1 to the Registrant's Current Report on Form 8-K filed on June 17, 2021) |
4.7 | | |
| | | | | | | | | | | |
4.8 | | |
10.1 | | |
10.2 | | |
10.3 | | |
10.4 | | |
10.5 | | |
10.6 | | |
10.7 | | |
10.8 | | |
10.9 | | |
10.10 | | |
10.11 | | |
10.12 | | |
10.13 | | |
10.14 | | |
10.15 | | |
10.16 | | |
10.17 | | First Amendment to Third Amended and Restated Credit Agreement, dated as of June 24, 2020, by and among RLJ Lodging Trust, L.P., RLJ Lodging Trust, Wells Fargo Bank, National Association, as Administrative Agent and a lender, and the other lenders party thereto (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on June 29, 2020) |
10.18 | | Second Amendment to Third Amended and Restated Credit Agreement, dated as of December 10, 2020, by and among RLJ Lodging Trust, L.P., RLJ Lodging Trust, Wells Fargo Bank, National Association, as Administrative Agent and a lender, and the other lenders party thereto (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on December 14, 2020) |
10.19 | | Third Amendment to Third Amended and Restated Credit Agreement, dated as of June 10, 2021, by and among RLJ Lodging Trust, L.P., RLJ Lodging Trust, Wells Fargo Bank, National Association, as Administrative Agent and a lender, and the other lenders party thereto incorporated by reference to Exhibit 10.1 to the Registrant's Current Report on Form 8-K filed on June 10, 2021) |
| | | | | | | | | | | |
10.20 | | Fourth Amendment to Third Amended and Restated Credit Agreement, dated as of September 16, 2021, by and among RLJ Lodging Trust, L.P., RLJ Lodging Trust, certain subsidiaries of RLJ Lodging Trust, L.P. party thereto, Wells Fargo Bank, National Association, as Administrative Agent and a lender, and the other lenders party thereto (incorporated by reference to Exhibit 10.1 to the Registrant's Current Report on Form 8-K filed on September 16, 2021) |
| | |
| | |
10.21 | | Term Loan Agreement, dated as of November 20, 2012, by and among RLJ Lodging Trust, L.P., RLJ Lodging Trust, Wells Fargo Bank, National Association, as Administrative Agent, PNC Bank, National Association, as Syndication Agent, Capital One, N.A., as Documentation Agent, Raymond James, as Managing Agent, Wells Fargo Securities LLC and PNC Capital Markets LLC, as Joint Lead Arrangers and Joint Bookrunners and the lenders party thereto (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on September 3, 2013) |
10.22 | | First Amendment to Term Loan Agreement, dated as of August 27, 2013, by and among RLJ Lodging Trust, L.P., RLJ Lodging Trust, Wells Fargo Bank, National Association, as Administrative Agent, PNC Bank, National Association, as Syndication Agent, and the lenders party thereto (incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed on September 3, 2013) |
10.23 | | |
10.24 | | |
10.25 | | Fourth Amendment to Term Loan Agreement and First Amendment to Guaranty, dated as of April 22, 2016, by and among RLJ Lodging Trust, L.P., RLJ Lodging Trust, certain subsidiaries of RLJ Lodging Trust party thereto, Wells Fargo Bank, National Association, as Administrative Agent and a lender, and the other lenders party thereto (incorporated by reference to Exhibit 10.3 to the Registrant's Current Report on Form 8-K filed on April 28, 2016) |
10.26 | | Fifth Amendment to Term Loan Agreement, dated August 31, 2017, by and among RLJ Lodging Trust, RLJ Lodging Trust, L.P., certain subsidiaries of RLJ Lodging Trust party thereto, Wells Fargo Bank, National Association, as administrative agent and a lender, and the other lenders party thereto (incorporated by reference to Exhibit 10.2 to the Registrant's Current Report on Form 8-K filed on September 1, 2017) |
10.27 | | Sixth Amendment to Term Loan Agreement, dated January 25, 2018, by and among RLJ Lodging Trust, RLJ Lodging Trust, L.P., certain subsidiaries of RLJ Lodging Trust party thereto, Wells Fargo Bank, National Association, as administrative agent and a lender, and the other lenders party thereto (incorporated by reference to Exhibit 10.2 to the Registrant's Current Report on Form 8-K filed on January 31, 2018) |
10.28 | | Seventh Amendment to Term Loan Agreement, dated as of December 18, 2019, by and among RLJ Lodging Trust, L.P., RLJ Lodging Trust, certain subsidiaries of RLJ Lodging Trust party thereto, Wells Fargo Bank National Association, as Administrative Agent and a lender, and the other lenders party thereto (incorporated by reference to Exhibit 10.3 to the Registrant's Current Report on Form 8-K filed on December 19, 2019) |
10.29 | | Eighth Amendment to Term Loan Agreement, dated as of June 24, 2020, by and among RLJ Lodging Trust, L.P., RLJ Lodging Trust, certain subsidiaries of RLJ Lodging Trust party thereto, Wells Fargo Bank, National Association, as Administrative Agent and a lender, and the other lenders party thereto (incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed on June 29, 2020) |
10.30 | | Ninth Amendment to Term Loan Agreement, dated as of December 10, 2020, by and among RLJ Lodging Trust, L.P., RLJ Lodging Trust, certain subsidiaries of RLJ Lodging Trust party thereto, Wells Fargo Bank, National Association, as Administrative Agent and a lender, and the other lenders party thereto (incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed on December 14, 2020) |
10.31 | | Tenth Amendment to Term Loan Agreement, dated as of June 10, 2021, by and among RLJ Lodging Trust, L.P., RLJ Lodging Trust, certain subsidiaries of RLJ Lodging Trust party thereto, Wells Fargo Bank, National Association, as Administrative Agent and a lender, and the other lenders party thereto (incorporated by reference to Exhibit 10.2 to the Registrant's Current Report on Form 8-K filed on June 10, 2021) |
10.32 | | Eleventh Amendment to Term Loan Agreement, dated as of September 16, 2021, by and among RLJ Lodging Trust, L.P., RLJ Lodging Trust, certain subsidiaries of RLJ Lodging Trust party thereto, Wells Fargo Bank, National Association, as Administrative Agent and a lender, and the other lenders party thereto (incorporated by reference to Exhibit 10.2 to the Registrant's Current Report on Form 8-K filed on September 16, 2021) |
10.33 | | Additional Lender Supplement, dated as of August 27, 2013, by and among RLJ Lodging Trust, L.P., RLJ Lodging Trust, Wells Fargo Bank, National Association, as Administrative Agent, and the lenders party thereto (incorporated by reference to Exhibit 10.3 to the Registrant’s Current Report on Form 8-K filed on September 3, 2013) |
| | | | | | | | | | | |
10.34 | | |
10.35 | | Term Loan Agreement, dated as of August 27, 2013, by and among RLJ Lodging Trust, L.P., RLJ Lodging Trust, Wells Fargo Bank, National Association, as Administrative Agent, PNC Bank, National Association, as Syndication Agent, Bank of America, N.A., Barclays Bank PLC, Compass Bank, an Alabama Banking Corporation, and U.S. Bank National Association, as Documentation Agents, and Wells Fargo Securities LLC and PNC Capital Markets LLC, as Joint Lead Arrangers and Joint Bookrunners and the lenders party thereto (incorporated by reference to Exhibit 10.5 to the Registrant’s Current Report on Form 8-K filed on September 3, 2013) |
10.36 | | |
10.37 | | |
10.38 | | |
10.39 | | Additional Term Loan Lender Supplement, dated as of March 20, 2014, by and among RLJ Lodging Trust, L.P., RLJ Lodging Trust, Wells Fargo Bank, National Association, as Administrative Agent, and the lenders party thereto (incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed on March 25, 2014) |
10.40 | | Additional Lender Supplement, dated as of March 20, 2014, by and among RLJ Lodging Trust, L.P., RLJ Lodging Trust, Wells Fargo Bank, National Association, as Administrative Agent, and the lenders party thereto (incorporated by reference to Exhibit 10.3 to the Registrant’s Current Report on Form 8-K filed on March 25, 2014) |
21.1* | | |
23.1* | | |
31.1* | | |
31.2* | | |
32.1* | | |
101.INS | | Inline XBRL Instance Document | Submitted electronically with this report |
101.SCH | | Inline XBRL Taxonomy Extension Schema Document | Submitted electronically with this report |
101.CAL | | Inline XBRL Taxonomy Calculation Linkbase Document | Submitted electronically with this report |
101.DEF | | Inline XBRL Taxonomy Extension Definition Linkbase Document | Submitted electronically with this report |
101.LAB | | Inline XBRL Taxonomy Label Linkbase Document | Submitted electronically with this report |
101.PRE | | Inline XBRL Taxonomy Presentation Linkbase Document | Submitted electronically with this report |
104 | | Cover Page Interactive Data File (formatted as Inline XBRL and included in Exhibit 101) | |
*Filed herewith
Item 16. Form 10-K Summary
Not applicable.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on February 24, 2022.
| | | | | | | | | | | |
| RLJ LODGING TRUST |
| By: | | /s/ LESLIE D. HALE |
| | | Leslie D. Hale President and Chief Executive Officer and Trustee |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
| | | | | | | | | | | | | | |
| | | | |
Signature | | Title | | Date |
| | | | |
/s/ ROBERT L. JOHNSON | | Executive Chairman and Trustee | | February 24, 2022 |
Robert L. Johnson | | |
/s/ LESLIE D. HALE | | President and Chief Executive Officer and Trustee (Principal Executive Officer) | | February 24, 2022 |
Leslie D. Hale | | |
/s/ SEAN M. MAHONEY | | Executive Vice President and Chief Financial Officer (Principal Financial Officer) | | February 24, 2022 |
Sean M. Mahoney | | |
/s/ CHRISTOPHER A. GORMSEN | | Senior Vice President and Chief Accounting Officer (Principal Accounting Officer) | | February 24, 2022 |
Christopher A. Gormsen | | |
/s/ EVAN BAYH | | Trustee | | February 24, 2022 |
Evan Bayh | | |
/s/ ARTHUR R. COLLINS | | Trustee | | February 24, 2022 |
Arthur R. Collins | | |
/s/ NATHANIEL A. DAVIS | | Trustee | | February 24, 2022 |
Nathaniel A. Davis | | |
/s/ PATRICIA L. GIBSON | | Trustee | | February 24, 2022 |
Patricia L. Gibson | | |
/s/ ROBERT M. LA FORGIA | | Trustee | | February 24, 2022 |
Robert M. La Forgia | | |
/s/ ROBERT J. MCCARTHY | | Trustee | | February 24, 2022 |
Robert J. McCarthy | | |
/s/ GLENDA G. MCNEAL | | Trustee | | February 24, 2022 |
Glenda G. McNeal | | |
/s/ ROBIN M. ZEIGLER | | Trustee | | February 24, 2022 |
Robin M. Zeigler | | |
Item 8.Financial Statements
INDEX TO FINANCIAL STATEMENTS
| | | | | |
RLJ Lodging Trust: | |
Report of Independent Registered Public Accounting Firm | |
PCAOB ID: 238 | |
Consolidated Financial Statements | |
| |
| |
| |
| |
| |
| |
Report of Independent Registered Public Accounting Firm
To the Board of Trustees and Shareholders of RLJ Lodging Trust
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of RLJ Lodging Trust and its subsidiaries (the “Company”) as of December 31, 2021 and 2020, and the related consolidated statements of operations and comprehensive (loss) income, of changes in equity and of cash flows for each of the three years in the period ended December 31, 2021, including the related notes and financial statement schedule listed in the accompanying index (collectively referred to as the “consolidated financial statements”). We also have audited the Company's internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2021 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.
Basis for Opinions
The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s Annual Report on Internal Control over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Critical Audit Matters
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Impairment Assessment of Investments in Hotel Properties
As described in Notes 2 and 3 to the consolidated financial statements, management assesses the carrying value of its investments in hotel properties whenever events or changes in circumstances indicate that the carrying amounts may not be recoverable. As of December 31, 2021, investments in hotel properties totaled $4.2 billion and during the year ended December 31, 2021, the Company recorded impairment losses totaling $144.8 million. Hotel property recoverability is measured by comparing the carrying amount to management’s projected undiscounted future cash flows expected to be generated from the operation and the eventual disposition of the hotel properties over the estimated hold period, which takes into account current market conditions and management’s intent with respect to holding or disposing of the hotel properties. If management’s analysis indicates that the carrying value is not recoverable on a projected undiscounted cash flow basis, the Company will recognize an impairment loss for the amount by which the carrying value exceeds the fair value. The use of undiscounted projected future cash flows is based on assumptions that are consistent with a market participant’s future expectations for the travel industry and the economy in general, including sales proceeds in the reversion year, average daily rates, occupancy rates, operating expenses, capital expenditures, and management’s intent with respect to holding or disposing of the underlying hotel properties. Management determined the fair value of its impaired hotel properties and the related impairment losses based on the contractual sales prices pursuant to executed purchase and sale agreements.
The principal considerations for our determination that performing procedures relating to the impairment assessment of investments in hotel properties is a critical audit matter are (i) the significant judgment by management to identify events or changes in circumstances indicating that the carrying amounts may not be recoverable and to develop the projected undiscounted future cash flows, and (ii) a high degree of auditor judgment, subjectivity, and effort in performing procedures and evaluating audit evidence related to management’s identification of those events or changes in circumstances and evaluating management’s projected undiscounted future cash flows significant assumptions related to sales proceeds in the reversion year, average daily rates, occupancy rates, operating expenses, capital expenditures, and management’s intent with respect to holding or disposing of the underlying hotel properties.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to the impairment assessment of investments in hotel properties, including controls over management’s identification of events or changes in circumstances indicating that the carrying amounts may not be recoverable and determining the significant assumptions used to develop the projected undiscounted future cash flows. These procedures also included, among others, testing management’s process for identifying investments in hotel properties to be evaluated for impairment and developing the projected undiscounted future cash flows. Testing management’s process included (i) evaluating the appropriateness of the projected undiscounted future cash flow models, (ii) testing the completeness and accuracy of underlying data used in the projected undiscounted future cash flow models, and (iii) evaluating the reasonableness of the significant assumptions related to sales proceeds in the reversion year, average daily rates, occupancy rates, operating expenses, capital expenditures, and management’s intent with respect to holding or disposing of the underlying hotel properties. Evaluating the reasonableness of these significant assumptions involved considering (i) the current and past performance of the hotel properties, (ii) the consistency with external market and industry data, and (iii) whether these assumptions were consistent with evidence obtained in other areas of the audit.
/s/ PricewaterhouseCoopers LLP
Washington, D.C.
February 24, 2022
We have served as the Company’s auditor since 2001.
RLJ Lodging Trust
Consolidated Balance Sheets
(Amounts in thousands, except share and per share data)
| | | | | | | | | | | |
| December 31, |
| 2021 | | 2020 |
Assets | | | |
Investment in hotel properties, net | $ | 4,219,116 | | | $ | 4,486,416 | |
Investment in unconsolidated joint ventures | 6,522 | | | 6,798 | |
Cash and cash equivalents | 665,341 | | | 899,813 | |
Restricted cash reserves | 48,528 | | | 34,977 | |
Hotel and other receivables, net of allowance of $274 and $292, respectively | 31,091 | | | 13,346 | |
Lease right-of-use assets | 144,988 | | | 142,989 | |
| | | |
| | | |
Prepaid expense and other assets | 33,390 | | | 32,833 | |
Total assets | $ | 5,148,976 | | | $ | 5,617,172 | |
Liabilities and Equity | | | |
Debt, net | $ | 2,409,438 | | | $ | 2,587,731 | |
Accounts payable and other liabilities | 155,136 | | | 172,325 | |
| | | |
Advance deposits and deferred revenue | 20,047 | | | 32,177 | |
Lease liabilities | 123,031 | | | 122,593 | |
Accrued interest | 19,110 | | | 6,206 | |
Distributions payable | 8,347 | | | 8,752 | |
Total liabilities | 2,735,109 | | | 2,929,784 | |
| | | |
Commitments and Contingencies (Note 11) | 0 | | 0 |
| | | |
Equity | | | |
Shareholders’ equity: | | | |
Preferred shares of beneficial interest, $0.01 par value, 50,000,000 shares authorized | | | |
Series A Cumulative Convertible Preferred Shares, $0.01 par value, 12,950,000 shares authorized; 12,879,475 shares issued and outstanding, liquidation value of $328,266, at December 31, 2021 and 2020 | 366,936 | | | 366,936 | |
Common shares of beneficial interest, $0.01 par value, 450,000,000 shares authorized; 166,503,062 and 165,002,752 shares issued and outstanding at December 31, 2021 and 2020, respectively | 1,665 | | | 1,650 | |
Additional paid-in capital | 3,092,883 | | | 3,077,142 | |
Accumulated other comprehensive loss | (17,113) | | | (69,050) | |
Distributions in excess of net earnings | (1,046,739) | | | (710,161) | |
Total shareholders’ equity | 2,397,632 | | | 2,666,517 | |
Noncontrolling interest: | | | |
Noncontrolling interest in consolidated joint ventures | 9,919 | | | 13,002 | |
Noncontrolling interest in the Operating Partnership | 6,316 | | | 7,869 | |
Total noncontrolling interest | 16,235 | | | 20,871 | |
| | | |
Total equity | 2,413,867 | | | 2,687,388 | |
Total liabilities and equity | $ | 5,148,976 | | | $ | 5,617,172 | |
The accompanying notes are an integral part of these consolidated financial statements.
RLJ Lodging Trust
Consolidated Statements of Operations and Comprehensive (Loss) Income
(Amounts in thousands, except share and per share data)
| | | | | | | | | | | | | | | | | |
| For the year ended December 31, |
| 2021 | | 2020 | | 2019 |
Revenues | | | | | |
Operating revenues | | | | | |
Room revenue | $ | 667,853 | | | $ | 397,754 | | | $ | 1,317,085 | |
Food and beverage revenue | 58,994 | | | 40,384 | | | 177,499 | |
Other revenue | 58,817 | | | 34,949 | | | 71,608 | |
Total revenues | 785,664 | | | 473,087 | | | 1,566,192 | |
Expenses | | | | | |
Operating expenses | | | | | |
Room expense | 177,365 | | | 124,063 | | | 329,077 | |
Food and beverage expense | 41,790 | | | 35,220 | | | 134,206 | |
Management and franchise fee expense | 53,276 | | | 21,057 | | | 120,797 | |
Other operating expense | 239,092 | | | 211,216 | | | 373,130 | |
Total property operating expenses | 511,523 | | | 391,556 | | | 957,210 | |
Depreciation and amortization | 187,778 | | | 194,168 | | | 211,584 | |
Impairment losses | 144,845 | | | — | | | 13,500 | |
Property tax, insurance and other | 88,852 | | | 103,470 | | | 119,287 | |
General and administrative | 47,526 | | | 41,141 | | | 45,252 | |
Transaction costs | 94 | | | (158) | | | 1,211 | |
Total operating expenses | 980,618 | | | 730,177 | | | 1,348,044 | |
Other (expense) income, net | (7,614) | | | 1,941 | | | 1,242 | |
Interest income | 996 | | | 4,237 | | | 8,720 | |
Interest expense | (106,366) | | | (100,169) | | | (91,295) | |
(Loss) gain on sale of hotel properties, net | (2,378) | | | 2,703 | | | (9,300) | |
Gain (loss) on extinguishment of indebtedness, net | 893 | | | — | | | (214) | |
| | | | | |
(Loss) income before equity in loss from unconsolidated joint ventures | (309,423) | | | (348,378) | | | 127,301 | |
Equity in loss from unconsolidated joint ventures | (477) | | | (8,454) | | | (1,673) | |
(Loss) income before income tax (expense) benefit | (309,900) | | | (356,832) | | | 125,628 | |
Income tax (expense) benefit | (1,188) | | | (51,970) | | | 3,751 | |
Net (loss) income | (311,088) | | | (408,802) | | | 129,379 | |
Net loss (income) attributable to noncontrolling interests: | | | | | |
Noncontrolling interest in consolidated joint ventures | 4,384 | | | 2,327 | | | 289 | |
Noncontrolling interest in the Operating Partnership | 1,536 | | | 2,034 | | | (487) | |
Preferred distributions - consolidated joint venture | — | | | — | | | (186) | |
Redemption of preferred equity - consolidated joint venture | — | | | — | | | (1,153) | |
Net (loss) income attributable to RLJ | (305,168) | | | (404,441) | | | 127,842 | |
Preferred dividends | (25,115) | | | (25,115) | | | (25,115) | |
Net (loss) income attributable to common shareholders | $ | (330,283) | | | $ | (429,556) | | | $ | 102,727 | |
| | | | | |
Basic per common share data: | | | | | |
Net (loss) income per share attributable to common shareholders | $ | (2.01) | | | $ | (2.61) | | | $ | 0.59 | |
Weighted-average number of common shares | 163,998,390 | | | 164,503,661 | | | 171,287,086 | |
| | | | | |
| | | | | | | | | | | | | | | | | |
Diluted per common share data: | | | | | |
Net (loss) income per share attributable to common shareholders | $ | (2.01) | | | $ | (2.61) | | | $ | 0.59 | |
Weighted-average number of common shares | 163,998,390 | | | 164,503,661 | | | 171,388,476 | |
| | | | | |
| | | | | |
| | | | | |
Comprehensive (loss) income: | | | | | |
Net (loss) income | $ | (311,088) | | | $ | (408,802) | | | $ | 129,379 | |
Unrealized gain (loss) on interest rate derivatives | 41,279 | | | (49,536) | | | (33,459) | |
Reclassification of unrealized losses on discontinued cash flow hedges to other (expense) income, net | 10,658 | | | — | | | (2,250) | |
Comprehensive (loss) income | (259,151) | | | (458,338) | | | 93,670 | |
Comprehensive loss (income) attributable to noncontrolling interests: | | | | | |
Noncontrolling interest in consolidated joint ventures | 4,384 | | | 2,327 | | | 289 | |
Noncontrolling interest in the Operating Partnership | 1,536 | | | 2,034 | | | (487) | |
Preferred distributions - consolidated joint venture | — | | | — | | | (186) | |
Comprehensive (loss) income attributable to RLJ | $ | (253,231) | | | $ | (453,977) | | | $ | 93,286 | |
The accompanying notes are an integral part of these consolidated financial statements.
RLJ Lodging Trust
Consolidated Statements of Changes in Equity
(Amounts in thousands, except share data)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Shareholders’ Equity | | Noncontrolling Interest | | | | |
| Preferred Stock | | Common Stock | | | | | | | | | | | | |
| Shares | | Amount | | Shares | | Par Value | | Additional Paid-in Capital | | Distributions in Excess of Net Earnings | | Accumulated Other Comprehensive Income (Loss) | | Operating Partnership | | Consolidated Joint Ventures | | Preferred Equity in a Consolidated Joint Venture | | Total Equity |
Balance at December 31, 2018 | 12,879,475 | | | $ | 366,936 | | | 174,019,616 | | | $ | 1,740 | | | $ | 3,195,381 | | | $ | (150,476) | | | $ | 16,195 | | | $ | 10,827 | | | $ | 11,908 | | | $ | 44,430 | | | $ | 3,496,941 | |
Net income (loss) | — | | | — | | | — | | | — | | | — | | | 127,842 | | | — | | | 487 | | | (289) | | | 1,339 | | | 129,379 | |
Unrealized loss on interest rate derivatives | — | | | — | | | — | | | — | | | — | | | — | | | (33,459) | | | — | | | — | | | — | | | (33,459) | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
Reclassification of unrealized gain on discontinued cash flow hedges to interest expense | | | | | | | | | | | | | (2,250) | | | | | | | | | (2,250) | |
Redemption of Operating Partnership units | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (9) | | | — | | | — | | | (9) | |
| | | | | | | | | | | | | | | | | | | | | |
Issuance of restricted stock | — | | | — | | | 530,436 | | | 5 | | | (5) | | | — | | | — | | | — | | | — | | | — | | | — | |
Amortization of share-based compensation | — | | | — | | | — | | | — | | | 12,196 | | | — | | | — | | | — | | | — | | | — | | | 12,196 | |
| | | | | | | | | | | | | | | | | | | | | |
Shares acquired to satisfy minimum required federal and state tax withholding on vesting restricted stock | — | | | — | | | (103,741) | | | (1) | | | (1,801) | | | — | | | — | | | — | | | — | | | — | | | (1,802) | |
Shares acquired as part of a share repurchase program | — | | | — | | | (4,575,170) | | | (45) | | | (77,789) | | | — | | | — | | | — | | | — | | | — | | | (77,834) | |
Forfeiture of restricted stock | — | | | — | | | (18,895) | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| | | | | | | | | | | | | | | | | | | | | |
Contributions from consolidated joint venture partners | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 2,446 | | | — | | | 2,446 | |
Distributions on preferred shares | — | | | — | | | — | | | — | | | — | | | (25,115) | | | — | | | — | | | — | | | — | | | (25,115) | |
Distributions on common shares and units | — | | | — | | | — | | | — | | | — | | | (227,020) | | | — | | | (1,221) | | | — | | | — | | | (228,241) | |
Preferred distributions - consolidated joint venture | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (186) | | | (186) | |
Redemption of preferred equity - consolidated joint venture | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (45,583) | | | (45,583) | |
Balance at December 31, 2019 | 12,879,475 | | | $ | 366,936 | | | 169,852,246 | | | $ | 1,699 | | | $ | 3,127,982 | | | $ | (274,769) | | | $ | (19,514) | | | $ | 10,084 | | | $ | 14,065 | | | $ | — | | | $ | 3,226,483 | |
The accompanying notes are an integral part of these consolidated financial statements.
RLJ Lodging Trust
Consolidated Statements of Changes in Equity
(Amounts in thousands, except share data)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Shareholders’ Equity | | Noncontrolling Interest | | | | |
| Preferred Stock | | Common Stock | | | | | | | | | | | | |
| Shares | | Amount | | Shares | | Par Value | | Additional Paid-in Capital | | Distributions in Excess of Net Earnings | | Accumulated Other Comprehensive Loss | | Operating Partnership | | Consolidated Joint Ventures | | | | Total Equity |
Balance at December 31, 2019 | 12,879,475 | | | $ | 366,936 | | | 169,852,246 | | | $ | 1,699 | | | $ | 3,127,982 | | | $ | (274,769) | | | $ | (19,514) | | | $ | 10,084 | | | $ | 14,065 | | | | | $ | 3,226,483 | |
Net loss | — | | | — | | | — | | | — | | | — | | | (404,441) | | | — | | | (2,034) | | | (2,327) | | | | | (408,802) | |
Unrealized loss on interest rate derivatives | — | | | — | | | — | | | — | | | — | | | — | | | (49,536) | | | — | | | — | | | | | (49,536) | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
Redemption of Operating Partnership units | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (8) | | | — | | | | | (8) | |
Issuance of restricted stock | — | | | — | | | 801,463 | | | 8 | | | (8) | | | — | | | — | | | — | | | — | | | | | — | |
Amortization of share-based compensation | — | | | — | | | — | | | — | | | 13,356 | | | — | | | — | | | — | | | — | | | | | 13,356 | |
| | | | | | | | | | | | | | | | | | | | | |
Shares acquired to satisfy minimum required federal and state tax withholding on vesting restricted stock | — | | | — | | | (152,629) | | | (2) | | | (1,639) | | | — | | | — | | | — | | | — | | | | | (1,641) | |
Shares acquired as part of a share repurchase program | — | | | — | | | (5,489,335) | | | (55) | | | (62,549) | | | — | | | — | | | — | | | — | | | | | (62,604) | |
Forfeiture of restricted stock | — | | | — | | | (8,993) | | | — | | | — | | | — | | | — | | | — | | | — | | | | | — | |
Contributions from consolidated joint venture partners | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 1,264 | | | | | 1,264 | |
| | | | | | | | | | | | | | | | | | | | | |
Distributions on preferred shares | — | | | — | | | — | | | — | | | — | | | (25,115) | | | — | | | — | | | — | | | | | (25,115) | |
Distributions on common shares and units | — | | | — | | | — | | | — | | | — | | | (5,836) | | | — | | | (173) | | | — | | | | | (6,009) | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
Balance at December 31, 2020 | 12,879,475 | | | $ | 366,936 | | | 165,002,752 | | | $ | 1,650 | | | $ | 3,077,142 | | | $ | (710,161) | | | $ | (69,050) | | | $ | 7,869 | | | $ | 13,002 | | | | | $ | 2,687,388 | |
The accompanying notes are an integral part of these consolidated financial statements.
RLJ Lodging Trust
Consolidated Statements of Changes in Equity
(Amounts in thousands, except share data)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Shareholders’ Equity | | Noncontrolling Interest | | | | |
| Preferred Stock | | Common Stock | | | | | | | | | | | | |
| Shares | | Amount | | Shares | | Par Value | | Additional Paid-in Capital | | Distributions in Excess of Net Earnings | | Accumulated Other Comprehensive Loss | | Operating Partnership | | Consolidated Joint Ventures | | | | Total Equity |
Balance at December 31, 2020 | 12,879,475 | | | $ | 366,936 | | | 165,002,752 | | | $ | 1,650 | | | $ | 3,077,142 | | | $ | (710,161) | | | $ | (69,050) | | | $ | 7,869 | | | $ | 13,002 | | | | | $ | 2,687,388 | |
Net loss | — | | | — | | | — | | | — | | | — | | | (305,168) | | | — | | | (1,536) | | | (4,384) | | | | | (311,088) | |
Unrealized gain on interest rate derivatives | — | | | — | | | — | | | — | | | — | | | — | | | 41,279 | | | — | | | — | | | | | 41,279 | |
Reclassification of unrealized losses on discontinued cash flow hedges to other (expense) income, net | — | | | — | | | — | | | — | | | — | | | — | | | 10,658 | | | — | | | — | | | | | 10,658 | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
Redemption of Operating Partnership units | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (7) | | | — | | | | | (7) | |
Issuance of restricted stock | — | | | — | | | 1,765,162 | | | 18 | | | (18) | | | — | | | — | | | — | | | — | | | | | — | |
Amortization of share-based compensation | — | | | — | | | — | | | — | | | 18,299 | | | — | | | — | | | — | | | — | | | | | 18,299 | |
| | | | | | | | | | | | | | | | | | | | | |
Shares acquired to satisfy minimum required federal and state tax withholding on vesting restricted stock | — | | | — | | | (166,922) | | | (2) | | | (2,541) | | | — | | | — | | | — | | | — | | | | | (2,543) | |
| | | | | | | | | | | | | | | | | | | | | |
Forfeiture of restricted stock | — | | | — | | | (97,930) | | | (1) | | | 1 | | | — | | | — | | | — | | | — | | | | | — | |
Contributions from consolidated joint venture partners | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 1,301 | | | | | 1,301 | |
| | | | | | | | | | | | | | | | | | | | | |
Distributions on preferred shares | — | | | — | | | — | | | — | | | — | | | (25,115) | | | — | | | — | | | — | | | | | (25,115) | |
Distributions on common shares and units | — | | | — | | | — | | | — | | | — | | | (6,295) | | | — | | | (10) | | | — | | | | | (6,305) | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
Balance at December 31, 2021 | 12,879,475 | | | $ | 366,936 | | | 166,503,062 | | | $ | 1,665 | | | $ | 3,092,883 | | | $ | (1,046,739) | | | $ | (17,113) | | | $ | 6,316 | | | $ | 9,919 | | | | | $ | 2,413,867 | |
The accompanying notes are an integral part of these consolidated financial statements.
RLJ Lodging Trust
Consolidated Statements of Cash Flows
(Amounts in thousands)
| | | | | | | | | | | | | | | | | |
| For the year ended December 31, |
| 2021 | | 2020 | | 2019 |
Cash flows from operating activities | | | | | |
Net (loss) income | $ | (311,088) | | | $ | (408,802) | | | $ | 129,379 | |
Adjustments to reconcile net (loss) income to cash flow provided by (used in) operating activities: | | | | | |
Loss (gain) on sale of hotel properties, net | 2,378 | | | (2,703) | | | 9,300 | |
(Gain) loss on extinguishment of indebtedness, net | (893) | | | — | | | 214 | |
| | | | | |
Depreciation and amortization | 187,778 | | | 194,168 | | | 211,584 | |
Amortization of deferred financing costs | 5,884 | | | 4,416 | | | 4,100 | |
Other amortization | (2,090) | | | (2,404) | | | (2,055) | |
Reclassification of unrealized losses on discontinued cash flow hedges to other (expense) income, net | 10,658 | | | — | | | — | |
Unrealized (gain) loss on discontinued cash flow hedges | — | | | (376) | | | 376 | |
Equity in loss from unconsolidated joint ventures | 477 | | | 8,454 | | | 1,673 | |
Distributions of income from unconsolidated joint ventures | — | | | — | | | 1,964 | |
| | | | | |
Impairment losses | 144,845 | | | — | | | 13,500 | |
| | | | | |
Amortization of share-based compensation | 17,054 | | | 12,396 | | | 11,459 | |
Deferred income taxes | — | | | 51,447 | | | (6,818) | |
Changes in assets and liabilities: | | | | | |
Hotel and other receivables, net | (17,969) | | | 26,409 | | | 8,813 | |
Prepaid expense and other assets | (1,090) | | | 19,178 | | | (6,335) | |
Accounts payable and other liabilities | 7,203 | | | (48,791) | | | (10,706) | |
Advance deposits and deferred revenue | (13,090) | | | (25,282) | | | 35,766 | |
Accrued interest | 12,904 | | | 3,182 | | | (4,889) | |
Net cash flow provided by (used in) operating activities | 42,961 | | | (168,708) | | | 397,325 | |
Cash flows from investing activities | | | | | |
Acquisition of hotel properties, net | (174,675) | | | — | | | — | |
Proceeds from the sale of hotel properties, net | 198,642 | | | 5,169 | | | 685,870 | |
| | | | | |
| | | | | |
Improvements and additions to hotel properties | (48,263) | | | (73,337) | | | (157,354) | |
| | | | | |
Contributions to unconsolidated joint ventures | (331) | | | (100) | | | (603) | |
Distributions from unconsolidated joint ventures in excess of earnings | — | | | 1,576 | | | 2,499 | |
| | | | | |
Net cash flow (used in) provided by investing activities | (24,627) | | | (66,692) | | | 530,412 | |
Cash flows from financing activities | | | | | |
Borrowings under Revolver | — | | | 400,000 | | | 140,000 | |
Repayments of Revolver | (200,000) | | | — | | | (140,000) | |
| | | | | |
Repayments of Term Loans | (356,338) | | | — | | | — | |
Proceeds from issuance of senior notes | 1,000,000 | | | — | | | — | |
Redemption of senior notes (including a $9.5 million redemption premium in 2021) | (484,402) | | | — | | | (112) | |
Proceeds from mortgage loans | — | | | — | | | 381,000 | |
Scheduled mortgage loan principal payments | (1,486) | | | (3,376) | | | (3,979) | |
Repayments of mortgage loans (including $7.0 million in prepayment premiums in 2021) | (149,183) | | | — | | | (374,500) | |
Repurchase of common shares under a share repurchase program | — | | | (62,604) | | | (77,834) | |
Repurchase of common shares to satisfy employee tax withholding requirements | (2,543) | | | (1,641) | | | (1,802) | |
Distributions on preferred shares | (25,115) | | | (25,116) | | | (25,115) | |
Distributions on common shares | (6,701) | | | (61,000) | | | (228,287) | |
Distributions on and redemption of Operating Partnership units | (18) | | | (428) | | | (1,230) | |
| | | | | |
Payments of deferred financing costs | (14,770) | | | (4,069) | | | (10,111) | |
Preferred distributions - consolidated joint venture | — | | | — | | | (312) | |
Redemption of preferred equity - consolidated joint venture | — | | | — | | | (45,583) | |
Contributions from consolidated joint venture partners | 1,301 | | | 1,264 | | | 2,446 | |
| | | | | |
| | | | | |
Net cash flow (used in) provided by financing activities | (239,255) | | | 243,030 | | | (385,419) | |
Net change in cash, cash equivalents, and restricted cash reserves | (220,921) | | | 7,630 | | | 542,318 | |
Cash, cash equivalents, and restricted cash reserves, beginning of year | 934,790 | | | 927,160 | | | 384,842 | |
Cash, cash equivalents, and restricted cash reserves, end of year | $ | 713,869 | | | $ | 934,790 | | | $ | 927,160 | |
The accompanying notes are an integral part of these consolidated financial statements.
RLJ Lodging Trust
Notes to the Consolidated Financial Statements
1. General
Organization
RLJ Lodging Trust (the "Company") was formed as a Maryland real estate investment trust ("REIT") on January 31, 2011. The Company is a self-advised and self-administered REIT that acquires primarily premium-branded, high-margin, focused-service and compact full-service hotels. The Company elected to be taxed as a REIT, for U.S. federal income tax purposes, commencing with its taxable year ended December 31, 2011.
Substantially all of the Company’s assets and liabilities are held by, and all of its operations are conducted through, RLJ Lodging Trust, L.P. (the "Operating Partnership"). The Company is the sole general partner of the Operating Partnership. As of December 31, 2021, there were 167,274,893 units of limited partnership interest in the Operating Partnership (“OP units”) outstanding and the Company owned, through a combination of direct and indirect interests, 99.5% of the outstanding OP units.
As of December 31, 2021, the Company owned 98 hotel properties with approximately 21,700 rooms, located in 22 states and the District of Columbia. The Company, through wholly-owned subsidiaries, owned a 100% interest in 96 of its hotel properties, a 95.0% controlling interest in The Knickerbocker, and a 50% interest in an entity owning one hotel property. The Company consolidates its real estate interests in the 97 hotel properties in which it holds a controlling financial interest, and the Company records the real estate interests in one hotel in which it holds an indirect 50% interest using the equity method of accounting. The Company leases 97 of the 98 hotel properties to its taxable REIT subsidiaries ("TRS"), of which the Company owns a controlling financial interest.
COVID-19
The global outbreak of the novel coronavirus, or COVID-19, and the public health measures that have been undertaken in response have had, and will likely continue to have, a material impact on the Company's financial results. Since the extent to which the COVID-19 pandemic will continue to impact the Company's operations will depend on future developments that are highly uncertain, the Company cannot estimate the impact on its business, financial condition or near- or longer-term financial or operational results with reasonable certainty.
2. Summary of Significant Accounting Policies
Basis of Presentation and Principles of Consolidation
The consolidated financial statements and related notes have been prepared on the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America ("GAAP").
The consolidated financial statements include the accounts of the Company, the Operating Partnership and its wholly-owned subsidiaries, and joint ventures in which the Company has a majority voting interest and control. For the controlled subsidiaries that are not wholly-owned, the third-party ownership interest represents a noncontrolling interest, which is presented separately in the consolidated financial statements. The Company also records the real estate interests in 1 joint venture in which it holds an indirect 50% interest using the equity method of accounting. All intercompany balances and transactions have been eliminated in consolidation.
Use of Estimates
The preparation of the Company’s financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of certain assets and liabilities and the amounts of contingent assets and liabilities at the balance sheet date and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Reclassifications
Certain prior year amounts in these financial statements have been reclassified to conform to the current year presentation with no impact to net income and comprehensive income, shareholders’ equity or cash flows.
Revenue
Substantially all of the Company's revenues are derived from the operation of hotel properties. The Company generates room revenue by renting hotel rooms to customers at its hotel properties. The Company generates food and beverage revenue from the sale of food and beverage to customers at its hotel properties. The Company generates other revenue from parking fees, resort fees, gift shop sales and other guest service fees at its hotel properties.
A performance obligation is a promise in a contract to transfer a distinct good or service to the customer. A contract's transaction price is allocated to each distinct performance obligation and recognized as revenue when the performance obligation is satisfied. The Company's contracts generally have a single performance obligation, such as renting a hotel room to a customer, or providing food and beverage to a customer, or providing a hotel property-related good or service to a customer. The Company's performance obligations are generally satisfied at a point in time.
The Company allocates revenue to the performance obligation based on its relative standalone selling price. The Company determines the standalone selling price based on the price it charges each customer for the use or consumption of the promised good or service.
The Company's revenue is recognized when control of the promised good or service is transferred to the customer, in an amount that reflects the consideration the Company expects to receive in exchange for the promised good or service. The revenue is recorded net of any sales and occupancy taxes collected from the customer. All rebates or discounts are recorded as a reduction to revenue, and there are no material contingent obligations with respect to rebates and discounts offered by the hotel properties.
The timing of revenue recognition, billings, and cash collections results in the Company recognizing hotel and other receivables and advance deposits and deferred revenue on the consolidated balance sheet. Hotel and other receivables are recognized on the consolidated balance sheets when the Company has provided a good or service to the customer and is waiting for the customer to submit consideration to the Company. Advance deposits and deferred revenue are recognized on the consolidated balance sheets when cash payments are received in advance of the Company satisfying its performance obligation. Advance deposits and deferred revenue consist of amounts that are refundable and non-refundable to the customer. The advance deposits and deferred revenue are recognized as revenue in the consolidated statements of operations and comprehensive (loss) income when the Company satisfies its performance obligation to the customer.
For the majority of its goods or services and customers, the Company requires payment at the time the respective good or service is provided to the customer. The Company's payment terms vary by the type of customer and the goods or services offered to the customer. The Company applied a practical expedient to not disclose the value of unsatisfied performance obligations for contracts that have an original expected length of one year or less. Any contracts that have an original expected length of greater than one year are insignificant.
The Company records an allowance for doubtful accounts based on its best estimate of the amount of probable credit losses in the existing accounts receivable portfolio. The Company recognizes increases to the allowance for doubtful accounts as bad debt expense. The allowance for doubtful accounts is calculated as a percentage of the aged accounts receivable based on the Company's historical collection activity and its understanding of the circumstances related to a specific receivable.
Investment in Hotel PropertiesEvaluation of Disclosure Controls and Procedures
Our acquisitions generally consistThe Company's management, under the supervision and with the participation of land, land improvements, buildings, building improvements, FF&E and inventory. We may also acquire intangible assets or liabilities related to in-place leases, management agreements and franchise agreements. We allocate the purchase price among the assets acquiredCompany's Chief Executive Officer and the liabilities assumedChief Financial Officer, has evaluated the effectiveness of the Company's disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act), as required by paragraph (b) of Rules 13a-15 and 15d-15 of the Exchange Act. Based on this evaluation, the Company's Chief Executive Officer and Chief Financial Officer have concluded that as of December 31, 2021, the Company's disclosure controls and procedures were effective to ensure that the information we are required to disclose in reports filed or submitted with the Securities and Exchange Commission (i) is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms, and (ii) is accumulated and communicated to our management,
including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding disclosure.
Management's Annual Report on Internal Control over Financial Reporting
The Company's management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) of the Exchange Act). The Company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluations of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
The Company's management assessed the effectiveness of its internal control over financial reporting as of December 31, 2021. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO") in Internal Control - Integrated Framework (2013). Based on this assessment, management has concluded that, as of December 31, 2021, our internal control over financial reporting is effective based on those criteria.
The effectiveness of the Company's internal control over financial reporting as of December 31, 2021 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their respective fair values at the datereport which appears on page F-2 of acquisition. We determine the fair value by using market data and independent appraisals available to us and making numerous estimates and assumptions. Transaction costs are expensed for acquisitions that are considered business combinations and capitalized for asset acquisitions.this Annual Report on Form 10-K.
Changes in Internal Control over Financial Reporting
Our investmentsThere have been no changes in hotel propertiesthe Company’s internal control over financial reporting (as defined in Rule 13a-15 and 15d-15 of the Exchange Act) during the period ended December 31, 2021 that have materially affected, or are carried at costreasonably likely to materially affect, the Company’s internal control over financial reporting.
Item 9B.Other information
None.
PART III
Item 10. Directors, Executive Officers and are depreciated usingCorporate Governance
The information called for by this Item is contained in our definitive Proxy Statement for our 2022 Annual Meeting of Shareholders, and is incorporated herein by reference.
Item 11. Executive Compensation
The information called for by this Item is contained in our definitive Proxy Statement for our 2022 Annual Meeting of Shareholders, and is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters
The information called for by this Item is contained in our definitive Proxy Statement for our 2022 Annual Meeting of Shareholders, or in Item 5 of this Annual Report on Form 10-K for the straight-line method over the estimated useful livesyear ended December 31, 2021, and is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions and Director Independence
The information called for by this Item is contained in our definitive Proxy Statement for our 2022 Annual Meeting of 15 yearsShareholders, and is incorporated herein by reference.
Item 14. Principal Accountant Fees and Services
The information called for land improvements, 15 yearsby this Item is contained in our definitive Proxy Statement for building improvements, 40 years for buildingsour 2022 Annual Meeting of Shareholders, and three to five years for FF&E. Maintenanceis incorporated herein by reference.
PART IV
Item 15. Exhibits and repairs are expensed and major renewals or improvementsFinancial Statement Schedules
The following is a list of documents filed as a part of this report:
(1) Financial Statements — Refer to the hotel propertiesIndex to Financial Statements on page F-1
(2) Financial Statement Schedules — The following financial statement schedule is included herein on pages F-40 through F-44:
Schedule III — Real Estate and Accumulated Depreciation for RLJ Lodging Trust
All other schedules for which a provision is made in Regulation S-X are capitalized. Interest usedeither not required to finance the real estatebe included herein under development is capitalized as an additional cost of development. The Company discontinues the capitalization of interest once the real estate development project is substantially complete. Upon the sale or disposition of a hotel property, the asset and related accumulated depreciation accounts are removed and the related gaininstructions, are inapplicable, or lossthe related information is included in the gainfootnotes to the applicable financial statement and, therefore, have been omitted.
(3) Exhibits — The exhibits required to be filed by Item 601 of Regulation S-K are noted below:
Exhibit Index
| | | | | | | | | | | |
Exhibit Number | | Description of Exhibit |
| | |
3.1 | | |
3.2 | | |
3.3 | | |
3.4 | | |
3.5 | | |
3.6 | | |
4.1 | | |
4.2 | | |
4.3 | | |
4.4 | | |
4.5 | | |
4.6 | | Indenture, dated as of June 17, 2021, among dated as of June 17, 2021, among RLJ Lodging Trust, RLJ Lodging Trust, L.P., the subsidiary guarantors party thereto and the U.S. Bank National Association, as trustee (incorporated by reference to Exhibit 4.1 to the Registrant's Current Report on Form 8-K filed on June 17, 2021) |
4.7 | | |
| | | | | | | | | | | |
4.8 | | |
10.1 | | |
10.2 | | |
10.3 | | |
10.4 | | |
10.5 | | |
10.6 | | |
10.7 | | |
10.8 | | |
10.9 | | |
10.10 | | |
10.11 | | |
10.12 | | |
10.13 | | |
10.14 | | |
10.15 | | |
10.16 | | |
10.17 | | First Amendment to Third Amended and Restated Credit Agreement, dated as of June 24, 2020, by and among RLJ Lodging Trust, L.P., RLJ Lodging Trust, Wells Fargo Bank, National Association, as Administrative Agent and a lender, and the other lenders party thereto (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on June 29, 2020) |
10.18 | | Second Amendment to Third Amended and Restated Credit Agreement, dated as of December 10, 2020, by and among RLJ Lodging Trust, L.P., RLJ Lodging Trust, Wells Fargo Bank, National Association, as Administrative Agent and a lender, and the other lenders party thereto (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on December 14, 2020) |
10.19 | | Third Amendment to Third Amended and Restated Credit Agreement, dated as of June 10, 2021, by and among RLJ Lodging Trust, L.P., RLJ Lodging Trust, Wells Fargo Bank, National Association, as Administrative Agent and a lender, and the other lenders party thereto incorporated by reference to Exhibit 10.1 to the Registrant's Current Report on Form 8-K filed on June 10, 2021) |
| | | | | | | | | | | |
10.20 | | Fourth Amendment to Third Amended and Restated Credit Agreement, dated as of September 16, 2021, by and among RLJ Lodging Trust, L.P., RLJ Lodging Trust, certain subsidiaries of RLJ Lodging Trust, L.P. party thereto, Wells Fargo Bank, National Association, as Administrative Agent and a lender, and the other lenders party thereto (incorporated by reference to Exhibit 10.1 to the Registrant's Current Report on Form 8-K filed on September 16, 2021) |
| | |
| | |
10.21 | | Term Loan Agreement, dated as of November 20, 2012, by and among RLJ Lodging Trust, L.P., RLJ Lodging Trust, Wells Fargo Bank, National Association, as Administrative Agent, PNC Bank, National Association, as Syndication Agent, Capital One, N.A., as Documentation Agent, Raymond James, as Managing Agent, Wells Fargo Securities LLC and PNC Capital Markets LLC, as Joint Lead Arrangers and Joint Bookrunners and the lenders party thereto (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on September 3, 2013) |
10.22 | | First Amendment to Term Loan Agreement, dated as of August 27, 2013, by and among RLJ Lodging Trust, L.P., RLJ Lodging Trust, Wells Fargo Bank, National Association, as Administrative Agent, PNC Bank, National Association, as Syndication Agent, and the lenders party thereto (incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed on September 3, 2013) |
10.23 | | |
10.24 | | |
10.25 | | Fourth Amendment to Term Loan Agreement and First Amendment to Guaranty, dated as of April 22, 2016, by and among RLJ Lodging Trust, L.P., RLJ Lodging Trust, certain subsidiaries of RLJ Lodging Trust party thereto, Wells Fargo Bank, National Association, as Administrative Agent and a lender, and the other lenders party thereto (incorporated by reference to Exhibit 10.3 to the Registrant's Current Report on Form 8-K filed on April 28, 2016) |
10.26 | | Fifth Amendment to Term Loan Agreement, dated August 31, 2017, by and among RLJ Lodging Trust, RLJ Lodging Trust, L.P., certain subsidiaries of RLJ Lodging Trust party thereto, Wells Fargo Bank, National Association, as administrative agent and a lender, and the other lenders party thereto (incorporated by reference to Exhibit 10.2 to the Registrant's Current Report on Form 8-K filed on September 1, 2017) |
10.27 | | Sixth Amendment to Term Loan Agreement, dated January 25, 2018, by and among RLJ Lodging Trust, RLJ Lodging Trust, L.P., certain subsidiaries of RLJ Lodging Trust party thereto, Wells Fargo Bank, National Association, as administrative agent and a lender, and the other lenders party thereto (incorporated by reference to Exhibit 10.2 to the Registrant's Current Report on Form 8-K filed on January 31, 2018) |
10.28 | | Seventh Amendment to Term Loan Agreement, dated as of December 18, 2019, by and among RLJ Lodging Trust, L.P., RLJ Lodging Trust, certain subsidiaries of RLJ Lodging Trust party thereto, Wells Fargo Bank National Association, as Administrative Agent and a lender, and the other lenders party thereto (incorporated by reference to Exhibit 10.3 to the Registrant's Current Report on Form 8-K filed on December 19, 2019) |
10.29 | | Eighth Amendment to Term Loan Agreement, dated as of June 24, 2020, by and among RLJ Lodging Trust, L.P., RLJ Lodging Trust, certain subsidiaries of RLJ Lodging Trust party thereto, Wells Fargo Bank, National Association, as Administrative Agent and a lender, and the other lenders party thereto (incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed on June 29, 2020) |
10.30 | | Ninth Amendment to Term Loan Agreement, dated as of December 10, 2020, by and among RLJ Lodging Trust, L.P., RLJ Lodging Trust, certain subsidiaries of RLJ Lodging Trust party thereto, Wells Fargo Bank, National Association, as Administrative Agent and a lender, and the other lenders party thereto (incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed on December 14, 2020) |
10.31 | | Tenth Amendment to Term Loan Agreement, dated as of June 10, 2021, by and among RLJ Lodging Trust, L.P., RLJ Lodging Trust, certain subsidiaries of RLJ Lodging Trust party thereto, Wells Fargo Bank, National Association, as Administrative Agent and a lender, and the other lenders party thereto (incorporated by reference to Exhibit 10.2 to the Registrant's Current Report on Form 8-K filed on June 10, 2021) |
10.32 | | Eleventh Amendment to Term Loan Agreement, dated as of September 16, 2021, by and among RLJ Lodging Trust, L.P., RLJ Lodging Trust, certain subsidiaries of RLJ Lodging Trust party thereto, Wells Fargo Bank, National Association, as Administrative Agent and a lender, and the other lenders party thereto (incorporated by reference to Exhibit 10.2 to the Registrant's Current Report on Form 8-K filed on September 16, 2021) |
10.33 | | Additional Lender Supplement, dated as of August 27, 2013, by and among RLJ Lodging Trust, L.P., RLJ Lodging Trust, Wells Fargo Bank, National Association, as Administrative Agent, and the lenders party thereto (incorporated by reference to Exhibit 10.3 to the Registrant’s Current Report on Form 8-K filed on September 3, 2013) |
| | | | | | | | | | | |
10.34 | | |
10.35 | | Term Loan Agreement, dated as of August 27, 2013, by and among RLJ Lodging Trust, L.P., RLJ Lodging Trust, Wells Fargo Bank, National Association, as Administrative Agent, PNC Bank, National Association, as Syndication Agent, Bank of America, N.A., Barclays Bank PLC, Compass Bank, an Alabama Banking Corporation, and U.S. Bank National Association, as Documentation Agents, and Wells Fargo Securities LLC and PNC Capital Markets LLC, as Joint Lead Arrangers and Joint Bookrunners and the lenders party thereto (incorporated by reference to Exhibit 10.5 to the Registrant’s Current Report on Form 8-K filed on September 3, 2013) |
10.36 | | |
10.37 | | |
10.38 | | |
10.39 | | Additional Term Loan Lender Supplement, dated as of March 20, 2014, by and among RLJ Lodging Trust, L.P., RLJ Lodging Trust, Wells Fargo Bank, National Association, as Administrative Agent, and the lenders party thereto (incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed on March 25, 2014) |
10.40 | | Additional Lender Supplement, dated as of March 20, 2014, by and among RLJ Lodging Trust, L.P., RLJ Lodging Trust, Wells Fargo Bank, National Association, as Administrative Agent, and the lenders party thereto (incorporated by reference to Exhibit 10.3 to the Registrant’s Current Report on Form 8-K filed on March 25, 2014) |
21.1* | | |
23.1* | | |
31.1* | | |
31.2* | | |
32.1* | | |
101.INS | | Inline XBRL Instance Document | Submitted electronically with this report |
101.SCH | | Inline XBRL Taxonomy Extension Schema Document | Submitted electronically with this report |
101.CAL | | Inline XBRL Taxonomy Calculation Linkbase Document | Submitted electronically with this report |
101.DEF | | Inline XBRL Taxonomy Extension Definition Linkbase Document | Submitted electronically with this report |
101.LAB | | Inline XBRL Taxonomy Label Linkbase Document | Submitted electronically with this report |
101.PRE | | Inline XBRL Taxonomy Presentation Linkbase Document | Submitted electronically with this report |
104 | | Cover Page Interactive Data File (formatted as Inline XBRL and included in Exhibit 101) | |
*Filed herewith
Item 16. Form 10-K Summary
Not applicable.
SIGNATURES
Pursuant to the requirements of Section 13 or loss15(d) of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on saleits behalf by the undersigned, thereunto duly authorized on February 24, 2022.
| | | | | | | | | | | |
| RLJ LODGING TRUST |
| By: | | /s/ LESLIE D. HALE |
| | | Leslie D. Hale President and Chief Executive Officer and Trustee |
Pursuant to the requirements of hotel propertiesthe Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
| | | | | | | | | | | | | | |
| | | | |
Signature | | Title | | Date |
| | | | |
/s/ ROBERT L. JOHNSON | | Executive Chairman and Trustee | | February 24, 2022 |
Robert L. Johnson | | |
/s/ LESLIE D. HALE | | President and Chief Executive Officer and Trustee (Principal Executive Officer) | | February 24, 2022 |
Leslie D. Hale | | |
/s/ SEAN M. MAHONEY | | Executive Vice President and Chief Financial Officer (Principal Financial Officer) | | February 24, 2022 |
Sean M. Mahoney | | |
/s/ CHRISTOPHER A. GORMSEN | | Senior Vice President and Chief Accounting Officer (Principal Accounting Officer) | | February 24, 2022 |
Christopher A. Gormsen | | |
/s/ EVAN BAYH | | Trustee | | February 24, 2022 |
Evan Bayh | | |
/s/ ARTHUR R. COLLINS | | Trustee | | February 24, 2022 |
Arthur R. Collins | | |
/s/ NATHANIEL A. DAVIS | | Trustee | | February 24, 2022 |
Nathaniel A. Davis | | |
/s/ PATRICIA L. GIBSON | | Trustee | | February 24, 2022 |
Patricia L. Gibson | | |
/s/ ROBERT M. LA FORGIA | | Trustee | | February 24, 2022 |
Robert M. La Forgia | | |
/s/ ROBERT J. MCCARTHY | | Trustee | | February 24, 2022 |
Robert J. McCarthy | | |
/s/ GLENDA G. MCNEAL | | Trustee | | February 24, 2022 |
Glenda G. McNeal | | |
/s/ ROBIN M. ZEIGLER | | Trustee | | February 24, 2022 |
Robin M. Zeigler | | |
Item 8.Financial Statements
INDEX TO FINANCIAL STATEMENTS
| | | | | |
RLJ Lodging Trust: | |
Report of Independent Registered Public Accounting Firm | |
PCAOB ID: 238 | |
Consolidated Financial Statements | |
| |
| |
| |
| |
| |
| |
Report of Independent Registered Public Accounting Firm
To the Board of Trustees and Shareholders of RLJ Lodging Trust
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of RLJ Lodging Trust and its subsidiaries (the “Company”) as of December 31, 2021 and 2020, and the related consolidated statements of operations and comprehensive income. A sale or disposition(loss) income, of a hotel property that represents a strategic shift that has or willchanges in equity and of cash flows for each of the three years in the period ended December 31, 2021, including the related notes and financial statement schedule listed in the accompanying index (collectively referred to as the “consolidated financial statements”). We also have a major effectaudited the Company's internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2021 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.
Basis for Opinions
The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s Annual Report on Internal Control over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's internal control over financial reporting based on our operations and financial results is presented as discontinued operations in the consolidated statements of operations and comprehensive income.
In accordanceaudits. We are a public accounting firm registered with the guidance on impairment or disposal of long-lived assets, we do not consider "held for sale" classification onPublic Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the consolidated balance sheet until it is probable that the sale will be completed within one year and the other requisite criteria for such classification have been met. We do not depreciate hotel properties so long as they are classified as held for sale. Upon designation as held for sale and quarterly thereafter, we review the realizability of the carrying value, less costs to sell,Company in accordance with the guidance. AnyU.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such adjustmentother procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Critical Audit Matters
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Impairment Assessment of Investments in Hotel Properties
As described in Notes 2 and 3 to the consolidated financial statements, management assesses the carrying value is recorded as an impairment loss.
We assess the carrying valueof its investments in hotel properties whenever events or changes in circumstances indicate that the carrying amounts may not be recoverable. TheAs of December 31, 2021, investments in hotel properties totaled $4.2 billion and during the year ended December 31, 2021, the Company recorded impairment losses totaling $144.8 million. Hotel property recoverability is measured by comparing the carrying amount to management’s projected undiscounted future cash flows expected to be generated from the operation and the eventual disposition of the hotel properties over the estimated future undiscounted cash flowshold period, which taketakes into account current market conditions and ourmanagement’s intent with respect to holding or disposing of the hotel properties. If ourmanagement’s analysis indicates that the carrying value is not recoverable on ana projected undiscounted cash flow basis, wethe Company will recognize an
impairment loss for the amount by which the carrying value exceeds the fair value. The fair value is determined through various valuation techniques, including internally developed discounted cash flow models, comparable market transactions or third-party appraisals.
The use of undiscounted projected future cash flows is based on assumptions that are consistent with a market participant’s future expectations for the travel industry and the economy in general, including sales proceeds in the reversion year, average daily rates, occupancy rates, operating expenses, capital expenditures, and our expected usemanagement’s intent with respect to holding or disposing of the underlying hotel properties. Management determined the fair value of its impaired hotel properties and the related impairment losses based on the contractual sales prices pursuant to executed purchase and sale agreements.
The assumptions and estimates relatedprincipal considerations for our determination that performing procedures relating to the impairment assessment of investments in hotel properties is a critical audit matter are (i) the significant judgment by management to identify events or changes in circumstances indicating that the carrying amounts may not be recoverable and to develop the projected undiscounted future cash flows, and (ii) a high degree of auditor judgment, subjectivity, and effort in performing procedures and evaluating audit evidence related to management’s identification of those events or changes in circumstances and evaluating management’s projected undiscounted future cash flows significant assumptions related to sales proceeds in the capitalizationreversion year, average daily rates, are complexoccupancy rates, operating expenses, capital expenditures, and subjectivemanagement’s intent with respect to holding or disposing of the underlying hotel properties.
Addressing the matter involved performing procedures and evaluating audit evidence in nature. Changesconnection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to the impairment assessment of investments in economichotel properties, including controls over management’s identification of events or changes in circumstances indicating that the carrying amounts may not be recoverable and determining the significant assumptions used to develop the projected undiscounted future cash flows. These procedures also included, among others, testing management’s process for identifying investments in hotel properties to be evaluated for impairment and developing the projected undiscounted future cash flows. Testing management’s process included (i) evaluating the appropriateness of the projected undiscounted future cash flow models, (ii) testing the completeness and accuracy of underlying data used in the projected undiscounted future cash flow models, and (iii) evaluating the reasonableness of the significant assumptions related to sales proceeds in the reversion year, average daily rates, occupancy rates, operating conditions that occur subsequentexpenses, capital expenditures, and management’s intent with respect to aholding or disposing of the underlying hotel properties. Evaluating the reasonableness of these significant assumptions involved considering (i) the current impairment analysis and our ultimate usepast performance of the hotel property couldproperties, (ii) the consistency with external market and industry data, and (iii) whether these assumptions were consistent with evidence obtained in other areas of the audit.
/s/ PricewaterhouseCoopers LLP
Washington, D.C.
February 24, 2022
We have served as the Company’s auditor since 2001.
RLJ Lodging Trust
Consolidated Balance Sheets
(Amounts in thousands, except share and per share data)
| | | | | | | | | | | |
| December 31, |
| 2021 | | 2020 |
Assets | | | |
Investment in hotel properties, net | $ | 4,219,116 | | | $ | 4,486,416 | |
Investment in unconsolidated joint ventures | 6,522 | | | 6,798 | |
Cash and cash equivalents | 665,341 | | | 899,813 | |
Restricted cash reserves | 48,528 | | | 34,977 | |
Hotel and other receivables, net of allowance of $274 and $292, respectively | 31,091 | | | 13,346 | |
Lease right-of-use assets | 144,988 | | | 142,989 | |
| | | |
| | | |
Prepaid expense and other assets | 33,390 | | | 32,833 | |
Total assets | $ | 5,148,976 | | | $ | 5,617,172 | |
Liabilities and Equity | | | |
Debt, net | $ | 2,409,438 | | | $ | 2,587,731 | |
Accounts payable and other liabilities | 155,136 | | | 172,325 | |
| | | |
Advance deposits and deferred revenue | 20,047 | | | 32,177 | |
Lease liabilities | 123,031 | | | 122,593 | |
Accrued interest | 19,110 | | | 6,206 | |
Distributions payable | 8,347 | | | 8,752 | |
Total liabilities | 2,735,109 | | | 2,929,784 | |
| | | |
Commitments and Contingencies (Note 11) | 0 | | 0 |
| | | |
Equity | | | |
Shareholders’ equity: | | | |
Preferred shares of beneficial interest, $0.01 par value, 50,000,000 shares authorized | | | |
Series A Cumulative Convertible Preferred Shares, $0.01 par value, 12,950,000 shares authorized; 12,879,475 shares issued and outstanding, liquidation value of $328,266, at December 31, 2021 and 2020 | 366,936 | | | 366,936 | |
Common shares of beneficial interest, $0.01 par value, 450,000,000 shares authorized; 166,503,062 and 165,002,752 shares issued and outstanding at December 31, 2021 and 2020, respectively | 1,665 | | | 1,650 | |
Additional paid-in capital | 3,092,883 | | | 3,077,142 | |
Accumulated other comprehensive loss | (17,113) | | | (69,050) | |
Distributions in excess of net earnings | (1,046,739) | | | (710,161) | |
Total shareholders’ equity | 2,397,632 | | | 2,666,517 | |
Noncontrolling interest: | | | |
Noncontrolling interest in consolidated joint ventures | 9,919 | | | 13,002 | |
Noncontrolling interest in the Operating Partnership | 6,316 | | | 7,869 | |
Total noncontrolling interest | 16,235 | | | 20,871 | |
| | | |
Total equity | 2,413,867 | | | 2,687,388 | |
Total liabilities and equity | $ | 5,148,976 | | | $ | 5,617,172 | |
The accompanying notes are an integral part of these consolidated financial statements.
RLJ Lodging Trust
Consolidated Statements of Operations and Comprehensive (Loss) Income
(Amounts in thousands, except share and per share data)
| | | | | | | | | | | | | | | | | |
| For the year ended December 31, |
| 2021 | | 2020 | | 2019 |
Revenues | | | | | |
Operating revenues | | | | | |
Room revenue | $ | 667,853 | | | $ | 397,754 | | | $ | 1,317,085 | |
Food and beverage revenue | 58,994 | | | 40,384 | | | 177,499 | |
Other revenue | 58,817 | | | 34,949 | | | 71,608 | |
Total revenues | 785,664 | | | 473,087 | | | 1,566,192 | |
Expenses | | | | | |
Operating expenses | | | | | |
Room expense | 177,365 | | | 124,063 | | | 329,077 | |
Food and beverage expense | 41,790 | | | 35,220 | | | 134,206 | |
Management and franchise fee expense | 53,276 | | | 21,057 | | | 120,797 | |
Other operating expense | 239,092 | | | 211,216 | | | 373,130 | |
Total property operating expenses | 511,523 | | | 391,556 | | | 957,210 | |
Depreciation and amortization | 187,778 | | | 194,168 | | | 211,584 | |
Impairment losses | 144,845 | | | — | | | 13,500 | |
Property tax, insurance and other | 88,852 | | | 103,470 | | | 119,287 | |
General and administrative | 47,526 | | | 41,141 | | | 45,252 | |
Transaction costs | 94 | | | (158) | | | 1,211 | |
Total operating expenses | 980,618 | | | 730,177 | | | 1,348,044 | |
Other (expense) income, net | (7,614) | | | 1,941 | | | 1,242 | |
Interest income | 996 | | | 4,237 | | | 8,720 | |
Interest expense | (106,366) | | | (100,169) | | | (91,295) | |
(Loss) gain on sale of hotel properties, net | (2,378) | | | 2,703 | | | (9,300) | |
Gain (loss) on extinguishment of indebtedness, net | 893 | | | — | | | (214) | |
| | | | | |
(Loss) income before equity in loss from unconsolidated joint ventures | (309,423) | | | (348,378) | | | 127,301 | |
Equity in loss from unconsolidated joint ventures | (477) | | | (8,454) | | | (1,673) | |
(Loss) income before income tax (expense) benefit | (309,900) | | | (356,832) | | | 125,628 | |
Income tax (expense) benefit | (1,188) | | | (51,970) | | | 3,751 | |
Net (loss) income | (311,088) | | | (408,802) | | | 129,379 | |
Net loss (income) attributable to noncontrolling interests: | | | | | |
Noncontrolling interest in consolidated joint ventures | 4,384 | | | 2,327 | | | 289 | |
Noncontrolling interest in the Operating Partnership | 1,536 | | | 2,034 | | | (487) | |
Preferred distributions - consolidated joint venture | — | | | — | | | (186) | |
Redemption of preferred equity - consolidated joint venture | — | | | — | | | (1,153) | |
Net (loss) income attributable to RLJ | (305,168) | | | (404,441) | | | 127,842 | |
Preferred dividends | (25,115) | | | (25,115) | | | (25,115) | |
Net (loss) income attributable to common shareholders | $ | (330,283) | | | $ | (429,556) | | | $ | 102,727 | |
| | | | | |
Basic per common share data: | | | | | |
Net (loss) income per share attributable to common shareholders | $ | (2.01) | | | $ | (2.61) | | | $ | 0.59 | |
Weighted-average number of common shares | 163,998,390 | | | 164,503,661 | | | 171,287,086 | |
| | | | | |
| | | | | | | | | | | | | | | | | |
Diluted per common share data: | | | | | |
Net (loss) income per share attributable to common shareholders | $ | (2.01) | | | $ | (2.61) | | | $ | 0.59 | |
Weighted-average number of common shares | 163,998,390 | | | 164,503,661 | | | 171,388,476 | |
| | | | | |
| | | | | |
| | | | | |
Comprehensive (loss) income: | | | | | |
Net (loss) income | $ | (311,088) | | | $ | (408,802) | | | $ | 129,379 | |
Unrealized gain (loss) on interest rate derivatives | 41,279 | | | (49,536) | | | (33,459) | |
Reclassification of unrealized losses on discontinued cash flow hedges to other (expense) income, net | 10,658 | | | — | | | (2,250) | |
Comprehensive (loss) income | (259,151) | | | (458,338) | | | 93,670 | |
Comprehensive loss (income) attributable to noncontrolling interests: | | | | | |
Noncontrolling interest in consolidated joint ventures | 4,384 | | | 2,327 | | | 289 | |
Noncontrolling interest in the Operating Partnership | 1,536 | | | 2,034 | | | (487) | |
Preferred distributions - consolidated joint venture | — | | | — | | | (186) | |
Comprehensive (loss) income attributable to RLJ | $ | (253,231) | | | $ | (453,977) | | | $ | 93,286 | |
The accompanying notes are an integral part of these consolidated financial statements.
RLJ Lodging Trust
Consolidated Statements of Changes in Equity
(Amounts in thousands, except share data)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Shareholders’ Equity | | Noncontrolling Interest | | | | |
| Preferred Stock | | Common Stock | | | | | | | | | | | | |
| Shares | | Amount | | Shares | | Par Value | | Additional Paid-in Capital | | Distributions in Excess of Net Earnings | | Accumulated Other Comprehensive Income (Loss) | | Operating Partnership | | Consolidated Joint Ventures | | Preferred Equity in a Consolidated Joint Venture | | Total Equity |
Balance at December 31, 2018 | 12,879,475 | | | $ | 366,936 | | | 174,019,616 | | | $ | 1,740 | | | $ | 3,195,381 | | | $ | (150,476) | | | $ | 16,195 | | | $ | 10,827 | | | $ | 11,908 | | | $ | 44,430 | | | $ | 3,496,941 | |
Net income (loss) | — | | | — | | | — | | | — | | | — | | | 127,842 | | | — | | | 487 | | | (289) | | | 1,339 | | | 129,379 | |
Unrealized loss on interest rate derivatives | — | | | — | | | — | | | — | | | — | | | — | | | (33,459) | | | — | | | — | | | — | | | (33,459) | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
Reclassification of unrealized gain on discontinued cash flow hedges to interest expense | | | | | | | | | | | | | (2,250) | | | | | | | | | (2,250) | |
Redemption of Operating Partnership units | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (9) | | | — | | | — | | | (9) | |
| | | | | | | | | | | | | | | | | | | | | |
Issuance of restricted stock | — | | | — | | | 530,436 | | | 5 | | | (5) | | | — | | | — | | | — | | | — | | | — | | | — | |
Amortization of share-based compensation | — | | | — | | | — | | | — | | | 12,196 | | | — | | | — | | | — | | | — | | | — | | | 12,196 | |
| | | | | | | | | | | | | | | | | | | | | |
Shares acquired to satisfy minimum required federal and state tax withholding on vesting restricted stock | — | | | — | | | (103,741) | | | (1) | | | (1,801) | | | — | | | — | | | — | | | — | | | — | | | (1,802) | |
Shares acquired as part of a share repurchase program | — | | | — | | | (4,575,170) | | | (45) | | | (77,789) | | | — | | | — | | | — | | | — | | | — | | | (77,834) | |
Forfeiture of restricted stock | — | | | — | | | (18,895) | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| | | | | | | | | | | | | | | | | | | | | |
Contributions from consolidated joint venture partners | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 2,446 | | | — | | | 2,446 | |
Distributions on preferred shares | — | | | — | | | — | | | — | | | — | | | (25,115) | | | — | | | — | | | — | | | — | | | (25,115) | |
Distributions on common shares and units | — | | | — | | | — | | | — | | | — | | | (227,020) | | | — | | | (1,221) | | | — | | | — | | | (228,241) | |
Preferred distributions - consolidated joint venture | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (186) | | | (186) | |
Redemption of preferred equity - consolidated joint venture | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (45,583) | | | (45,583) | |
Balance at December 31, 2019 | 12,879,475 | | | $ | 366,936 | | | 169,852,246 | | | $ | 1,699 | | | $ | 3,127,982 | | | $ | (274,769) | | | $ | (19,514) | | | $ | 10,084 | | | $ | 14,065 | | | $ | — | | | $ | 3,226,483 | |
The accompanying notes are an integral part of these consolidated financial statements.
RLJ Lodging Trust
Consolidated Statements of Changes in Equity
(Amounts in thousands, except share data)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Shareholders’ Equity | | Noncontrolling Interest | | | | |
| Preferred Stock | | Common Stock | | | | | | | | | | | | |
| Shares | | Amount | | Shares | | Par Value | | Additional Paid-in Capital | | Distributions in Excess of Net Earnings | | Accumulated Other Comprehensive Loss | | Operating Partnership | | Consolidated Joint Ventures | | | | Total Equity |
Balance at December 31, 2019 | 12,879,475 | | | $ | 366,936 | | | 169,852,246 | | | $ | 1,699 | | | $ | 3,127,982 | | | $ | (274,769) | | | $ | (19,514) | | | $ | 10,084 | | | $ | 14,065 | | | | | $ | 3,226,483 | |
Net loss | — | | | — | | | — | | | — | | | — | | | (404,441) | | | — | | | (2,034) | | | (2,327) | | | | | (408,802) | |
Unrealized loss on interest rate derivatives | — | | | — | | | — | | | — | | | — | | | — | | | (49,536) | | | — | | | — | | | | | (49,536) | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
Redemption of Operating Partnership units | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (8) | | | — | | | | | (8) | |
Issuance of restricted stock | — | | | — | | | 801,463 | | | 8 | | | (8) | | | — | | | — | | | — | | | — | | | | | — | |
Amortization of share-based compensation | — | | | — | | | — | | | — | | | 13,356 | | | — | | | — | | | — | | | — | | | | | 13,356 | |
| | | | | | | | | | | | | | | | | | | | | |
Shares acquired to satisfy minimum required federal and state tax withholding on vesting restricted stock | — | | | — | | | (152,629) | | | (2) | | | (1,639) | | | — | | | — | | | — | | | — | | | | | (1,641) | |
Shares acquired as part of a share repurchase program | — | | | — | | | (5,489,335) | | | (55) | | | (62,549) | | | — | | | — | | | — | | | — | | | | | (62,604) | |
Forfeiture of restricted stock | — | | | — | | | (8,993) | | | — | | | — | | | — | | | — | | | — | | | — | | | | | — | |
Contributions from consolidated joint venture partners | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 1,264 | | | | | 1,264 | |
| | | | | | | | | | | | | | | | | | | | | |
Distributions on preferred shares | — | | | — | | | — | | | — | | | — | | | (25,115) | | | — | | | — | | | — | | | | | (25,115) | |
Distributions on common shares and units | — | | | — | | | — | | | — | | | — | | | (5,836) | | | — | | | (173) | | | — | | | | | (6,009) | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
Balance at December 31, 2020 | 12,879,475 | | | $ | 366,936 | | | 165,002,752 | | | $ | 1,650 | | | $ | 3,077,142 | | | $ | (710,161) | | | $ | (69,050) | | | $ | 7,869 | | | $ | 13,002 | | | | | $ | 2,687,388 | |
The accompanying notes are an integral part of these consolidated financial statements.
RLJ Lodging Trust
Consolidated Statements of Changes in Equity
(Amounts in thousands, except share data)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Shareholders’ Equity | | Noncontrolling Interest | | | | |
| Preferred Stock | | Common Stock | | | | | | | | | | | | |
| Shares | | Amount | | Shares | | Par Value | | Additional Paid-in Capital | | Distributions in Excess of Net Earnings | | Accumulated Other Comprehensive Loss | | Operating Partnership | | Consolidated Joint Ventures | | | | Total Equity |
Balance at December 31, 2020 | 12,879,475 | | | $ | 366,936 | | | 165,002,752 | | | $ | 1,650 | | | $ | 3,077,142 | | | $ | (710,161) | | | $ | (69,050) | | | $ | 7,869 | | | $ | 13,002 | | | | | $ | 2,687,388 | |
Net loss | — | | | — | | | — | | | — | | | — | | | (305,168) | | | — | | | (1,536) | | | (4,384) | | | | | (311,088) | |
Unrealized gain on interest rate derivatives | — | | | — | | | — | | | — | | | — | | | — | | | 41,279 | | | — | | | — | | | | | 41,279 | |
Reclassification of unrealized losses on discontinued cash flow hedges to other (expense) income, net | — | | | — | | | — | | | — | | | — | | | — | | | 10,658 | | | — | | | — | | | | | 10,658 | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
Redemption of Operating Partnership units | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (7) | | | — | | | | | (7) | |
Issuance of restricted stock | — | | | — | | | 1,765,162 | | | 18 | | | (18) | | | — | | | — | | | — | | | — | | | | | — | |
Amortization of share-based compensation | — | | | — | | | — | | | — | | | 18,299 | | | — | | | — | | | — | | | — | | | | | 18,299 | |
| | | | | | | | | | | | | | | | | | | | | |
Shares acquired to satisfy minimum required federal and state tax withholding on vesting restricted stock | — | | | — | | | (166,922) | | | (2) | | | (2,541) | | | — | | | — | | | — | | | — | | | | | (2,543) | |
| | | | | | | | | | | | | | | | | | | | | |
Forfeiture of restricted stock | — | | | — | | | (97,930) | | | (1) | | | 1 | | | — | | | — | | | — | | | — | | | | | — | |
Contributions from consolidated joint venture partners | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 1,301 | | | | | 1,301 | |
| | | | | | | | | | | | | | | | | | | | | |
Distributions on preferred shares | — | | | — | | | — | | | — | | | — | | | (25,115) | | | — | | | — | | | — | | | | | (25,115) | |
Distributions on common shares and units | — | | | — | | | — | | | — | | | — | | | (6,295) | | | — | | | (10) | | | — | | | | | (6,305) | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
Balance at December 31, 2021 | 12,879,475 | | | $ | 366,936 | | | 166,503,062 | | | $ | 1,665 | | | $ | 3,092,883 | | | $ | (1,046,739) | | | $ | (17,113) | | | $ | 6,316 | | | $ | 9,919 | | | | | $ | 2,413,867 | |
The accompanying notes are an integral part of these consolidated financial statements.
RLJ Lodging Trust
Consolidated Statements of Cash Flows
(Amounts in thousands)
| | | | | | | | | | | | | | | | | |
| For the year ended December 31, |
| 2021 | | 2020 | | 2019 |
Cash flows from operating activities | | | | | |
Net (loss) income | $ | (311,088) | | | $ | (408,802) | | | $ | 129,379 | |
Adjustments to reconcile net (loss) income to cash flow provided by (used in) operating activities: | | | | | |
Loss (gain) on sale of hotel properties, net | 2,378 | | | (2,703) | | | 9,300 | |
(Gain) loss on extinguishment of indebtedness, net | (893) | | | — | | | 214 | |
| | | | | |
Depreciation and amortization | 187,778 | | | 194,168 | | | 211,584 | |
Amortization of deferred financing costs | 5,884 | | | 4,416 | | | 4,100 | |
Other amortization | (2,090) | | | (2,404) | | | (2,055) | |
Reclassification of unrealized losses on discontinued cash flow hedges to other (expense) income, net | 10,658 | | | — | | | — | |
Unrealized (gain) loss on discontinued cash flow hedges | — | | | (376) | | | 376 | |
Equity in loss from unconsolidated joint ventures | 477 | | | 8,454 | | | 1,673 | |
Distributions of income from unconsolidated joint ventures | — | | | — | | | 1,964 | |
| | | | | |
Impairment losses | 144,845 | | | — | | | 13,500 | |
| | | | | |
Amortization of share-based compensation | 17,054 | | | 12,396 | | | 11,459 | |
Deferred income taxes | — | | | 51,447 | | | (6,818) | |
Changes in assets and liabilities: | | | | | |
Hotel and other receivables, net | (17,969) | | | 26,409 | | | 8,813 | |
Prepaid expense and other assets | (1,090) | | | 19,178 | | | (6,335) | |
Accounts payable and other liabilities | 7,203 | | | (48,791) | | | (10,706) | |
Advance deposits and deferred revenue | (13,090) | | | (25,282) | | | 35,766 | |
Accrued interest | 12,904 | | | 3,182 | | | (4,889) | |
Net cash flow provided by (used in) operating activities | 42,961 | | | (168,708) | | | 397,325 | |
Cash flows from investing activities | | | | | |
Acquisition of hotel properties, net | (174,675) | | | — | | | — | |
Proceeds from the sale of hotel properties, net | 198,642 | | | 5,169 | | | 685,870 | |
| | | | | |
| | | | | |
Improvements and additions to hotel properties | (48,263) | | | (73,337) | | | (157,354) | |
| | | | | |
Contributions to unconsolidated joint ventures | (331) | | | (100) | | | (603) | |
Distributions from unconsolidated joint ventures in excess of earnings | — | | | 1,576 | | | 2,499 | |
| | | | | |
Net cash flow (used in) provided by investing activities | (24,627) | | | (66,692) | | | 530,412 | |
Cash flows from financing activities | | | | | |
Borrowings under Revolver | — | | | 400,000 | | | 140,000 | |
Repayments of Revolver | (200,000) | | | — | | | (140,000) | |
| | | | | |
Repayments of Term Loans | (356,338) | | | — | | | — | |
Proceeds from issuance of senior notes | 1,000,000 | | | — | | | — | |
Redemption of senior notes (including a $9.5 million redemption premium in 2021) | (484,402) | | | — | | | (112) | |
Proceeds from mortgage loans | — | | | — | | | 381,000 | |
Scheduled mortgage loan principal payments | (1,486) | | | (3,376) | | | (3,979) | |
Repayments of mortgage loans (including $7.0 million in prepayment premiums in 2021) | (149,183) | | | — | | | (374,500) | |
Repurchase of common shares under a share repurchase program | — | | | (62,604) | | | (77,834) | |
Repurchase of common shares to satisfy employee tax withholding requirements | (2,543) | | | (1,641) | | | (1,802) | |
Distributions on preferred shares | (25,115) | | | (25,116) | | | (25,115) | |
Distributions on common shares | (6,701) | | | (61,000) | | | (228,287) | |
Distributions on and redemption of Operating Partnership units | (18) | | | (428) | | | (1,230) | |
| | | | | |
Payments of deferred financing costs | (14,770) | | | (4,069) | | | (10,111) | |
Preferred distributions - consolidated joint venture | — | | | — | | | (312) | |
Redemption of preferred equity - consolidated joint venture | — | | | — | | | (45,583) | |
Contributions from consolidated joint venture partners | 1,301 | | | 1,264 | | | 2,446 | |
| | | | | |
| | | | | |
Net cash flow (used in) provided by financing activities | (239,255) | | | 243,030 | | | (385,419) | |
Net change in cash, cash equivalents, and restricted cash reserves | (220,921) | | | 7,630 | | | 542,318 | |
Cash, cash equivalents, and restricted cash reserves, beginning of year | 934,790 | | | 927,160 | | | 384,842 | |
Cash, cash equivalents, and restricted cash reserves, end of year | $ | 713,869 | | | $ | 934,790 | | | $ | 927,160 | |
The accompanying notes are an integral part of these consolidated financial statements.
RLJ Lodging Trust
Notes to the Consolidated Financial Statements
1. General
Organization
RLJ Lodging Trust (the "Company") was formed as a Maryland real estate investment trust ("REIT") on January 31, 2011. The Company is a self-advised and self-administered REIT that acquires primarily premium-branded, high-margin, focused-service and compact full-service hotels. The Company elected to be taxed as a REIT, for U.S. federal income tax purposes, commencing with its taxable year ended December 31, 2011.
Substantially all of the Company’s assets and liabilities are held by, and all of its operations are conducted through, RLJ Lodging Trust, L.P. (the "Operating Partnership"). The Company is the sole general partner of the Operating Partnership. As of December 31, 2021, there were 167,274,893 units of limited partnership interest in the Operating Partnership (“OP units”) outstanding and the Company owned, through a combination of direct and indirect interests, 99.5% of the outstanding OP units.
As of December 31, 2021, the Company owned 98 hotel properties with approximately 21,700 rooms, located in 22 states and the District of Columbia. The Company, through wholly-owned subsidiaries, owned a 100% interest in 96 of its hotel properties, a 95.0% controlling interest in The Knickerbocker, and a 50% interest in an entity owning one hotel property. The Company consolidates its real estate interests in the 97 hotel properties in which it holds a controlling financial interest, and the Company records the real estate interests in one hotel in which it holds an indirect 50% interest using the equity method of accounting. The Company leases 97 of the 98 hotel properties to its taxable REIT subsidiaries ("TRS"), of which the Company owns a controlling financial interest.
COVID-19
The global outbreak of the novel coronavirus, or COVID-19, and the public health measures that have been undertaken in response have had, and will likely continue to have, a material impact on the Company's financial results. Since the extent to which the COVID-19 pandemic will continue to impact the Company's operations will depend on future developments that are highly uncertain, the Company cannot estimate the impact on its business, financial condition or near- or longer-term financial or operational results with reasonable certainty.
2. Summary of Significant Accounting Policies
Basis of Presentation and Principles of Consolidation
The consolidated financial statements and related notes have been prepared on the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America ("GAAP").
The consolidated financial statements include the accounts of the Company, the Operating Partnership and its wholly-owned subsidiaries, and joint ventures in which the Company has a majority voting interest and control. For the controlled subsidiaries that are not wholly-owned, the third-party ownership interest represents a noncontrolling interest, which is presented separately in the consolidated financial statements. The Company also records the real estate interests in 1 joint venture in which it holds an indirect 50% interest using the equity method of accounting. All intercompany balances and transactions have been eliminated in consolidation.
Use of Estimates
The preparation of the Company’s financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of certain assets and resultliabilities and the amounts of contingent assets and liabilities at the balance sheet date and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Reclassifications
Certain prior year amounts in future impairment lossesthese financial statements have been reclassified to conform to the current year presentation with no impact to net income and comprehensive income, shareholders’ equity or cash flows.
Revenue
Substantially all of the Company's revenues are derived from the operation of hotel properties.
Revenue Recognition
Our The Company generates room revenue consists of room revenue,by renting hotel rooms to customers at its hotel properties. The Company generates food and beverage revenue from the sale of food and beverage to customers at its hotel properties. The Company generates other revenue from other hotel operating departments (such as parking fees, golf, pool and other resort fees, gift shop sales and other guest service fees). These revenuesfees at its hotel properties.
A performance obligation is a promise in a contract to transfer a distinct good or service to the customer. A contract's transaction price is allocated to each distinct performance obligation and recognized as revenue when the performance obligation is satisfied. The Company's contracts generally have a single performance obligation, such as renting a hotel room to a customer, or providing food and beverage to a customer, or providing a hotel property-related good or service to a customer. The Company's performance obligations are generally satisfied at a point in time.
The Company allocates revenue to the performance obligation based on its relative standalone selling price. The Company determines the standalone selling price based on the price it charges each customer for the use or consumption of the promised good or service.
The Company's revenue is recognized when control of the promised good or service is transferred to the customer, in an amount that reflects the consideration the Company expects to receive in exchange for the promised good or service. The revenue is recorded net of any sales and occupancy taxes collected from the hotel guests.customer. All rebates or discounts are recorded as a reduction to revenue, and there are no material contingent obligations with respect to rebates and discounts offered by the hotels. All revenueshotel properties.
The timing of revenue recognition, billings, and cash collections results in the Company recognizing hotel and other receivables and advance deposits and deferred revenue on the consolidated balance sheet. Hotel and other receivables are recordedrecognized on the consolidated balance sheets when the Company has provided a good or service to the customer and is waiting for the customer to submit consideration to the Company. Advance deposits and deferred revenue are recognized on the consolidated balance sheets when cash payments are received in advance of the Company satisfying its performance obligation. Advance deposits and deferred revenue consist of amounts that are refundable and non-refundable to the customer. The advance deposits and deferred revenue are recognized as revenue in the consolidated statements of operations and comprehensive (loss) income when the Company satisfies its performance obligation to the customer.
For the majority of its goods or services and customers, the Company requires payment at the time the respective good or service is provided to the customer. The Company's payment terms vary by the type of customer and the goods or services offered to the customer. The Company applied a practical expedient to not disclose the value of unsatisfied performance obligations for contracts that have an accrual basis as theyoriginal expected length of one year or less. Any contracts that have an original expected length of greater than one year are earned. Aninsignificant.
The Company records an allowance for doubtful accounts is ourbased on its best estimate of the amount of probable credit losses in the existing accounts receivable portfolio and it is recordedportfolio. The Company recognizes increases to the allowance for doubtful accounts as a bad debt expense. The allowance for doubtful accounts is calculated as a percentage of the aged accounts receivable. Any cash received prior to a guest's arrival is recorded as an advance deposit from the guest and recognized as revenue at the time of the guest's occupancy at the hotel property.
Income Taxes
We have elected to be taxed as a REIT under Sections 856 through 860 of the Internal Revenue Code, as amended, commencing with the taxable year ended December 31, 2011. To qualify as a REIT, we must meet a number of organizational and operational requirements, including a requirement that we distribute at least 90% of our REIT taxable income, subject to certain adjustments and excluding any net capital gain, to shareholders. It is our current intention to adhere to the REIT qualification requirements and to maintain our qualification for taxation as a REIT.
As a REIT, we generally are not subject to federal corporate income tax on the portion of taxable income that is distributed to shareholders. If we fail to qualify for taxation as a REIT in any taxable year, we will be subject to federal income taxes at regular corporate rates (including any applicable alternative minimum tax) and we may not be able to qualify as a REIT for four subsequent taxable years. Even if we qualify for taxation as a REIT, we may be subject to certain state and local taxes on our income and property, and to federal income and excise taxes on undistributed taxable income. Taxable income from non-REIT activities managed through our taxable REIT subsidiaries is subject to federal, state and local income taxes.
Income taxes are recorded using the asset and liability method. Under this method, deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to the differences between the financial statement carrying amounts of existing assets and liabilities and their respective income tax bases, and for net operating loss, capital loss and tax credit carryforwards. The deferred tax assets and liabilities are measured using the enacted income tax rates in effect for the year in which those temporary differences are expected to be realized or settled. The effect on the deferred tax assets and liabilities from a change in tax rates is recognized in earnings in the period when the new rate is enacted. However, deferred tax assets are recognized only to the extent that it is more likely than not that they will be realized based on consideration of all available evidence, including the future reversals of existing taxable temporary differences, future projected taxable income and tax planning strategies. Valuation allowances are provided if, based upon the weight of the available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized.
We perform an annual review for any uncertain tax positions and, if necessary, we will record the expected future tax consequences of uncertain tax positions in the consolidated financial statements.
Share-Based Compensation
From time to time, we may issue share-based awards under the 2015 Plan as compensation to officers, employees and non-employee trustees. The vesting of the awards issued to the officers and employees is based on either the continued employment (time-based) or the relative total shareholder returns of the Company and continued employment (performance-based), as determined by the board of trustees at the date of grant. For time-based awards, we recognize compensation expense for the unvested restricted shares on a straight-line basis over the vesting period based upon the fair market value of the shares on the date of grant, adjusted for forfeitures. For performance-based awards, we recognize compensation expense over the requisite
service period for each award,receivable based on the fair market valueCompany's historical collection activity and its understanding of the shares on the date of grant, as determined usingcircumstances related to a Monte Carlo simulation, adjusted for forfeitures.specific receivable.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Market risk includes the risks that arise from changes in interest rates, equity prices and other market changes that affect market sensitive instruments. Our primary market risk exposure is to changes in interest rates on our variable rate debt. As of December 31, 2017, we had approximately $1.6 billion of total variable rate debt outstanding (or 58.2% of total indebtedness) with a weighted-average interest rate of 3.63% per annum. After taking into consideration the effect of interest rate swaps, $277.0 million (or 9.8% of total indebtedness) was subject to variable rates. If market interest rates on our variable rate debt outstanding as of December 31, 2017 were to increase by 1.00%, or 100 basis points, interest expense would decrease future earnings and cash flows by approximately $2.8 million annually, taking into account our existing contractual hedging arrangements.
Our interest rate risk objectives are to limit the impact of interest rate fluctuations on earnings and cash flows and to lower our overall borrowing costs. To achieve these objectives, we manage our exposure to fluctuations in market interest rates through the use of fixed rate debt instruments to the extent that reasonably favorable rates are obtainable. We have entered into derivative financial instruments such as interest rate swaps to mitigate our interest rate risk or to effectively lock the interest rate on a portion of our variable rate debt. We do not enter into derivative or interest rate transactions for speculative purposes.
The following table provides information about our financial instruments that are sensitive to changes in interest rates. For debt obligations outstanding as of December 31, 2017, the following table presents the principal repayments and related weighted-average interest rates by contractual maturity dates (in thousands): |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2018 | | 2019 | | 2020 | | 2021 | | 2022 | | Thereafter | | Total |
Fixed rate debt (1) | $ | 3,304 |
| | $ | 3,765 |
| | $ | 3,936 |
| | $ | 4,166 |
| | $ | 164,308 |
| | $ | 999,010 |
| | $ | 1,178,489 |
|
Weighted-average interest rate | 5.00 | % | | 5.00 | % | | 5.00 | % | | 5.00 | % | | 5.00 | % | | 5.80 | % | | 5.68 | % |
Variable rate debt (1) | $ | 378,250 |
| | $ | 625,000 |
| | $ | — |
| | $ | 485,000 |
| | $ | 150,000 |
| | $ | — |
| | $ | 1,638,250 |
|
Weighted-average interest rate (2) | 4.16 | % | | 3.67 | % | | — | % | | 3.24 | % | | 3.43 | % | | — | % | | 3.63 | % |
Total (3) | $ | 381,554 |
| | $ | 628,765 |
| | $ | 3,936 |
| | $ | 489,166 |
| | $ | 314,308 |
| | $ | 999,010 |
| | $ | 2,816,739 |
|
| |
(1) | Excludes $4.0 million and $0.9 million of net deferred financing costs on the Term Loans and mortgage loans, respectively. |
| |
(2) | The weighted-average interest rate gives effect to interest rate swaps, as applicable. |
| |
(3) | Excludes a total of $68.7 million related to fair value adjustments on debt. |
Our ultimate realized gain or loss with respect to interest rate fluctuations will depend on the exposures that arise during future periods, prevailing interest rates, and our hedging strategies at that time.
Changes in market interest rates on our fixed rate debt impact the fair value of our debt, but such changes have no impact to our consolidated financial statements. As of December 31, 2017, the estimated fair value of our fixed rate debt was $1.2 billion, which is based on having the same debt service requirements that could have been borrowed at the date presented, at prevailing current market interest rates. If interest rates were to rise by 1.00%, or 100 basis points, and our fixed rate debt balance remains constant, we expect the fair value of our debt to decrease by approximately $60.9 million.
Item 8. Financial Statements and Supplementary Data
See Index to the Financial Statements on page F-1.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosures
None.
Item 9A.Controls and Procedures
Evaluation of Disclosure Controls and Procedures
The Company's management, has evaluated, under the supervision and with the participation of the Company's Chief Executive Officer and the Chief Financial Officer, has evaluated the effectiveness of the Company's disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act), as required by paragraph (b) of Rules 13a-15 and 15d-15 of the Exchange Act. Based on this evaluation, the Company's Chief Executive Officer and Chief Financial Officer have concluded that as of December 31, 2017,2021, the Company's disclosure controls and procedures were effective to ensure that the information we are required to disclose in reports filed or submitted with the Securities and Exchange Commission (i) is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms, and (ii) is accumulated and communicated to our management,
including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding disclosure.
Management's Annual Report on Internal Control over Financial Reporting
The Company's management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) of the Exchange Act). The Company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluations of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
The Company's management assessed the effectiveness of its internal control over financial reporting as of December 31, 2017.2021. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO") in Internal Control - Integrated Framework (2013). Based on this assessment, management has concluded that, as of December 31, 2017,2021, our internal control over financial reporting is effective based on those criteria.
The effectiveness of the Company's internal control over financial reporting as of December 31, 20172021 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report which appears on page F-2 of this Annual Report on Form 10-K.
Changes in Internal Control over Financial Reporting
There have been no changes in the Company’s internal control over financial reporting (as defined in Rule 13a-15 and 15d-15 of the Exchange Act) during the period ended December 31, 20172021 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
Item 9B.Other information
None.
PART III
Item 10. Directors, Executive Officers and Corporate Governance
The information called for by this Item is contained in our definitive Proxy Statement for our 20182022 Annual Meeting of Shareholders, and is incorporated herein by reference.
Item 11. Executive Compensation
The information called for by this Item is contained in our definitive Proxy Statement for our 20182022 Annual Meeting of Shareholders, and is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters
The information called for by this Item is contained in our definitive Proxy Statement for our 20182022 Annual Meeting of Shareholders, or in Item 5 of this Annual Report on Form 10-K for the year ended December 31, 2017,2021, and is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions and Director Independence
The information called for by this Item is contained in our definitive Proxy Statement for our 20182022 Annual Meeting of Shareholders, and is incorporated herein by reference.
Item 14. Principal Accountant Fees and Services
The information called for by this Item is contained in our definitive Proxy Statement for our 20182022 Annual Meeting of Shareholders, and is incorporated herein by reference.
PART IV
Item 15. Exhibits and Financial Statement Schedules
The following is a list of documents filed as a part of this report:
(1) Financial Statements — SeeRefer to the Index to the Financial Statements on page F-1
(2) Financial Statement Schedules — The following financial statement schedule is included herein on pages F-45F-40 through F-51:F-44:
Schedule III — Real Estate and Accumulated Depreciation for RLJ Lodging Trust
All other schedules for which a provision is made in Regulation S-X are either not required to be included herein under the related instructions, are inapplicable, or the related information is included in the footnotes to the applicable financial statement and, therefore, have been omitted.
(3) Exhibits — The exhibits required to be filed by Item 601 of Regulation S-K are noted below:
Exhibit Index
|
| | | | | | | | | | |
Exhibit Number
| | Description of Exhibit |
2.1 | | Agreement and Plan of Merger, dated April 23, 2017, by and among RLJ Lodging Trust, RLJ Lodging Trust, L.P., Rangers Sub I, LLC, Rangers Sub II, L.P., FelCor Lodging Trust Incorporated and FelCor Lodging Limited Partnership (incorporated by reference to Exhibit 2.1 to the Registrant's Current Report on Form 8-K filed on April 25, 2017) |
3.1 | | |
3.2 | | |
3.3 | | |
3.4 | | |
3.5 | | |
3.6 | | |
4.1 | | |
4.2 | | |
4.3 | | |
4.4 | | |
4.5 | | |
4.6 | | |
10.14.6 | | Indenture, dated as of June 17, 2021, among dated as of June 17, 2021, among RLJ Lodging Trust, RLJ Lodging Trust, L.P., the subsidiary guarantors party thereto and the U.S. Bank National Association, as trustee (incorporated by reference to Exhibit 4.1 to the Registrant's Current Report on Form 8-K filed on June 17, 2021) |
4.7 | | |
| | | | | | | | | | | |
4.8 | | |
10.1 | | |
10.2 | | |
10.3 | | |
10.4 | | |
10.5 | | |
10.610.5 | | |
10.710.6 | | |
|
10.7 | | | |
10.8 | | |
10.910.8 | | |
10.1010.9 | | |
10.11 | | |
10.1210.10 | | |
10.13 | | |
10.1410.11 | | |
10.1510.12 | | |
10.16 | | |
10.1710.13 | | |
10.18 | | |
10.1910.14 | | |
10.15 | | Third Amended and Restated Credit Agreement, dated as of December 18, 2019, by and among RLJ Lodging Trust, L.P., RLJ Lodging Trust, Wells Fargo Bank National Association, as Administrative Agent and a lender, and the other agents and lenders party thereto (incorporated by reference to Exhibit 10.1 to the Registrant's Current Report on Form 8-K filed on April 28, 2016)December 19, 2019) |
10.2010.16 | | First Amendment to Second Amended and Restated Credit Agreement, dated as of August 31, 2017, by and among RLJ Lodging Trust, RLJ Lodging Trust, L.P., certain subsidiaries of RLJ Lodging Trust party thereto, Wells Fargo Bank National Association, as Administrative Agent and a lender, and the other lenders party thereto (incorporated by reference to Exhibit 10.1 to the Registrant's Current Report on Form 8-K filed on September 1, 2017) |
10.21 | | |
10.2210.17 | | First Amendment to Third Amended and Restated Credit Agreement, dated as of June 24, 2020, by and among RLJ Lodging Trust, L.P., RLJ Lodging Trust, Wells Fargo Bank, National Association, as Administrative Agent and a lender, and the other lenders party thereto (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on June 29, 2020) |
10.18 | | Second Amendment to Third Amended and Restated Credit Agreement, dated as of December 10, 2020, by and among RLJ Lodging Trust, L.P., RLJ Lodging Trust, Wells Fargo Bank, National Association, as Administrative Agent and a lender, and the other lenders party thereto (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on December 14, 2020) |
10.19 | | Third Amendment to Third Amended and Restated Credit Agreement, dated as of June 10, 2021, by and among RLJ Lodging Trust, L.P., RLJ Lodging Trust, Wells Fargo Bank, National Association, as Administrative Agent and a lender, and the other lenders party thereto incorporated by reference to Exhibit 10.1 to the Registrant's Current Report on Form 8-K filed on June 10, 2021) |
| | | | | | | | | | | |
10.20 | | Fourth Amendment to Third Amended and Restated Credit Agreement, dated as of September 16, 2021, by and among RLJ Lodging Trust, L.P., RLJ Lodging Trust, certain subsidiaries of RLJ Lodging Trust, L.P. party thereto, Wells Fargo Bank, National Association, as Administrative Agent and a lender, and the other lenders party thereto (incorporated by reference to Exhibit 10.1 to the Registrant's Current Report on Form 8-K filed on September 16, 2021) |
| | |
| | |
10.21 | | Term Loan Agreement, dated as of November 20, 2012, by and among RLJ Lodging Trust, L.P., RLJ Lodging Trust, Wells Fargo Bank, National Association, as Administrative Agent, PNC Bank, National Association, as Syndication Agent, Capital One, N.A., as Documentation Agent, Raymond James, as Managing Agent, Wells Fargo Securities LLC and PNC Capital Markets LLC, as Joint Lead Arrangers and Joint Bookrunners and the lenders party thereto (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on September 3, 2013) |
10.2310.22 | | First Amendment to Term Loan Agreement, dated as of August 27, 2013, by and among RLJ Lodging Trust, L.P., RLJ Lodging Trust, Wells Fargo Bank, National Association, as Administrative Agent, PNC Bank, National Association, as Syndication Agent, and the lenders party thereto (incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed on September 3, 2013) |
10.2410.23 | | |
10.2510.24 | | |
|
10.25 | | | |
10.26 | | Fourth Amendment to Term Loan Agreement and First Amendment to Guaranty, dated as of April 22, 2016, by and among RLJ Lodging Trust, L.P., RLJ Lodging Trust, certain subsidiaries of RLJ Lodging Trust party thereto, Wells Fargo Bank, National Association, as Administrative Agent and a lender, and the other lenders party thereto (incorporated by reference to Exhibit 10.3 to the Registrant's Current Report on Form 8-K filed on April 28, 2016) |
10.2710.26 | | Fifth Amendment to Term Loan Agreement, dated August 31, 2017, by and among RLJ Lodging Trust, RLJ Lodging Trust, L.P., certain subsidiaries of RLJ Lodging Trust party thereto, Wells Fargo Bank, National Association, as administrative agent and a lender, and the other lenders party thereto (incorporated by reference to Exhibit 10.2 to the Registrant's Current Report on Form 8-K filed on September 1, 2017) |
10.2810.27 | | Sixth Amendment to Term Loan Agreement, dated January 25, 2018, by and among RLJ Lodging Trust, RLJ Lodging Trust, L.P., certain subsidiaries of RLJ Lodging Trust party thereto, Wells Fargo Bank, National Association, as administrative agent and a lender, and the other lenders party thereto (incorporated by reference to Exhibit 10.2 to the Registrant's Current Report on Form 8-K filed on January 31, 2018) |
10.28 | | Seventh Amendment to Term Loan Agreement, dated as of December 18, 2019, by and among RLJ Lodging Trust, L.P., RLJ Lodging Trust, certain subsidiaries of RLJ Lodging Trust party thereto, Wells Fargo Bank National Association, as Administrative Agent and a lender, and the other lenders party thereto (incorporated by reference to Exhibit 10.3 to the Registrant's Current Report on Form 8-K filed on December 19, 2019) |
10.29 | | Eighth Amendment to Term Loan Agreement, dated as of June 24, 2020, by and among RLJ Lodging Trust, L.P., RLJ Lodging Trust, certain subsidiaries of RLJ Lodging Trust party thereto, Wells Fargo Bank, National Association, as Administrative Agent and a lender, and the other lenders party thereto (incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed on June 29, 2020) |
10.30 | | Ninth Amendment to Term Loan Agreement, dated as of December 10, 2020, by and among RLJ Lodging Trust, L.P., RLJ Lodging Trust, certain subsidiaries of RLJ Lodging Trust party thereto, Wells Fargo Bank, National Association, as Administrative Agent and a lender, and the other lenders party thereto (incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed on December 14, 2020) |
10.31 | | Tenth Amendment to Term Loan Agreement, dated as of June 10, 2021, by and among RLJ Lodging Trust, L.P., RLJ Lodging Trust, certain subsidiaries of RLJ Lodging Trust party thereto, Wells Fargo Bank, National Association, as Administrative Agent and a lender, and the other lenders party thereto (incorporated by reference to Exhibit 10.2 to the Registrant's Current Report on Form 8-K filed on June 10, 2021) |
10.32 | | Eleventh Amendment to Term Loan Agreement, dated as of September 16, 2021, by and among RLJ Lodging Trust, L.P., RLJ Lodging Trust, certain subsidiaries of RLJ Lodging Trust party thereto, Wells Fargo Bank, National Association, as Administrative Agent and a lender, and the other lenders party thereto (incorporated by reference to Exhibit 10.2 to the Registrant's Current Report on Form 8-K filed on September 16, 2021) |
10.33 | | Additional Lender Supplement, dated as of August 27, 2013, by and among RLJ Lodging Trust, L.P., RLJ Lodging Trust, Wells Fargo Bank, National Association, as Administrative Agent, and the lenders party thereto (incorporated by reference to Exhibit 10.3 to the Registrant’s Current Report on Form 8-K filed on September 3, 2013) |
| | | | | | | | | | | |
10.2910.34 | | |
10.3010.35 | | Term Loan Agreement, dated as of August 27, 2013, by and among RLJ Lodging Trust, L.P., RLJ Lodging Trust, Wells Fargo Bank, National Association, as Administrative Agent, PNC Bank, National Association, as Syndication Agent, Bank of America, N.A., Barclays Bank PLC, Compass Bank, an Alabama Banking Corporation, and U.S. Bank National Association, as Documentation Agents, and Wells Fargo Securities LLC and PNC Capital Markets LLC, as Joint Lead Arrangers and Joint Bookrunners and the lenders party thereto (incorporated by reference to Exhibit 10.5 to the Registrant’s Current Report on Form 8-K filed on September 3, 2013) |
10.3110.36 | | |
10.3210.37 | | |
10.3310.38 | | |
10.3410.39 | | Additional Term Loan Lender Supplement, dated as of March 20, 2014, by and among RLJ Lodging Trust, L.P., RLJ Lodging Trust, Wells Fargo Bank, National Association, as Administrative Agent, and the lenders party thereto (incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed on March 25, 2014) |
10.3510.40 | | Additional Lender Supplement, dated as of March 20, 2014, by and among RLJ Lodging Trust, L.P., RLJ Lodging Trust, Wells Fargo Bank, National Association, as Administrative Agent, and the lenders party thereto (incorporated by reference to Exhibit 10.3 to the Registrant’s Current Report on Form 8-K filed on March 25, 2014) |
21.1* | | |
23.1* | | |
31.1* | | |
31.2* | | |
32.1* | | |
101.INS | | Inline XBRL Instance Document | Submitted electronically with this report |
101.SCH | | Inline XBRL Taxonomy Extension Schema Document | Submitted electronically with this report |
101.CAL | | Inline XBRL Taxonomy Calculation Linkbase Document | Submitted electronically with this report |
101.DEF | | Inline XBRL Taxonomy Extension Definition Linkbase Document | Submitted electronically with this report |
101.LAB | | Inline XBRL Taxonomy Label Linkbase Document | Submitted electronically with this report |
101.PRE | | Inline XBRL Taxonomy Presentation Linkbase Document | Submitted electronically with this report |
104 | | Cover Page Interactive Data File (formatted as Inline XBRL and included in Exhibit 101) | |
*Filed herewith
Item 16. Form 10-K Summary
Not applicable.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on February 28, 2018.
|
| | | | | | | | | | |
| RLJ LODGING TRUST |
| By: | | /s/ ROSS H. BIERKANLESLIE D. HALE |
| | | Ross H. Bierkan Leslie D. Hale President and Chief Executive Officer Chief Investment Officer and Trustee |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
| | | | | | | | | | | | | | |
| | | | |
Signature | | Title | | Date |
Signature | | Title | | Date |
| | | | |
/s/ ROBERT L. JOHNSON | | Executive Chairman and Trustee | | February 28, 201824, 2022 |
Robert L. Johnson | | |
/s/ ROSS H. BIERKANLESLIE D. HALE | | President and Chief Executive Officer, Chief Investment Officer and Trustee (Principal Executive Officer) | | February 28, 201824, 2022 |
Ross H. BierkanLeslie D. Hale | | |
/s/ LESLIE D. HALESEAN M. MAHONEY | | Chief Operating Officer,Executive Vice President and Chief Financial Officer and Executive Vice President (Principal Financial Officer) | | February 28, 201824, 2022 |
Leslie D. HaleSean M. Mahoney | | |
/s/ CHRISTOPHER A. GORMSEN | | Senior Vice President and Chief Accounting Officer (Principal (Principal Accounting Officer)
| | February 28, 201824, 2022 |
Christopher A. Gormsen | | |
/s/ EVAN BAYH | | Trustee | | February 28, 201824, 2022 |
Evan Bayh | | |
/s/ ARTHUR R. COLLINS | | Trustee | | February 28, 201824, 2022 |
Arthur R. Collins | | |
/s/ NATHANIEL A. DAVIS | | Trustee | | February 28, 201824, 2022 |
Nathaniel A. Davis | | |
/s/ PATRICIA L. GIBSON | | Trustee | | February 28, 201824, 2022 |
Patricia L. Gibson | | |
/s/ ROBERT M. LA FORGIA | | Trustee | | February 28, 201824, 2022 |
Robert M. La Forgia | | |
/s/ ROBERT J. MCCARTHY | | Trustee | | February 28, 201824, 2022 |
Robert J. McCarthy
| | |
/s/ GLENDA G. MCNEAL | | Trustee | | February 28, 201824, 2022 |
Glenda G. McNeal | | |
/s/ ROBIN M. ZEIGLER | | Trustee | | February 24, 2022 |
Robin M. Zeigler | | |
Item 8.Financial Statements.Statements
INDEX TO FINANCIAL STATEMENTS
|
| | | | |
RLJ Lodging Trust: | |
| |
PCAOB ID: 238 | |
Consolidated Financial Statements | |
| |
| |
| |
| |
| |
| |
Report of Independent Registered Public Accounting Firm
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Trustees and Shareholders of RLJ Lodging Trust:Trust
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated financialbalance sheets of RLJ Lodging Trust and its subsidiaries (the “Company”) as of December 31, 2021 and 2020, and the related consolidated statements of operations and comprehensive (loss) income, of changes in equity and of cash flows for each of the three years in the period ended December 31, 2021, including the related notes and financial statement schedule of RLJ Lodging Trust and its subsidiaries as listed in the accompanying index (collectively referred to as the “consolidated financial statements”). We also have audited the Company's internal control over financial reporting as of December 31, 2017,2021, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 20172021 and 2016,2020, and the results of theirits operations and theirits cash flows for each of the three years in the period ended December 31, 20172021 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2017,2021, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.
Basis for Opinions
The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in Management'sManagement’s Annual Report on Internal Control over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB")(PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Critical Audit Matters
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Impairment Assessment of Investments in Hotel Properties
As described in Notes 2 and 3 to the consolidated financial statements, management assesses the carrying value of its investments in hotel properties whenever events or changes in circumstances indicate that the carrying amounts may not be recoverable. As of December 31, 2021, investments in hotel properties totaled $4.2 billion and during the year ended December 31, 2021, the Company recorded impairment losses totaling $144.8 million. Hotel property recoverability is measured by comparing the carrying amount to management’s projected undiscounted future cash flows expected to be generated from the operation and the eventual disposition of the hotel properties over the estimated hold period, which takes into account current market conditions and management’s intent with respect to holding or disposing of the hotel properties. If management’s analysis indicates that the carrying value is not recoverable on a projected undiscounted cash flow basis, the Company will recognize an impairment loss for the amount by which the carrying value exceeds the fair value. The use of undiscounted projected future cash flows is based on assumptions that are consistent with a market participant’s future expectations for the travel industry and the economy in general, including sales proceeds in the reversion year, average daily rates, occupancy rates, operating expenses, capital expenditures, and management’s intent with respect to holding or disposing of the underlying hotel properties. Management determined the fair value of its impaired hotel properties and the related impairment losses based on the contractual sales prices pursuant to executed purchase and sale agreements.
The principal considerations for our determination that performing procedures relating to the impairment assessment of investments in hotel properties is a critical audit matter are (i) the significant judgment by management to identify events or changes in circumstances indicating that the carrying amounts may not be recoverable and to develop the projected undiscounted future cash flows, and (ii) a high degree of auditor judgment, subjectivity, and effort in performing procedures and evaluating audit evidence related to management’s identification of those events or changes in circumstances and evaluating management’s projected undiscounted future cash flows significant assumptions related to sales proceeds in the reversion year, average daily rates, occupancy rates, operating expenses, capital expenditures, and management’s intent with respect to holding or disposing of the underlying hotel properties.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to the impairment assessment of investments in hotel properties, including controls over management’s identification of events or changes in circumstances indicating that the carrying amounts may not be recoverable and determining the significant assumptions used to develop the projected undiscounted future cash flows. These procedures also included, among others, testing management’s process for identifying investments in hotel properties to be evaluated for impairment and developing the projected undiscounted future cash flows. Testing management’s process included (i) evaluating the appropriateness of the projected undiscounted future cash flow models, (ii) testing the completeness and accuracy of underlying data used in the projected undiscounted future cash flow models, and (iii) evaluating the reasonableness of the significant assumptions related to sales proceeds in the reversion year, average daily rates, occupancy rates, operating expenses, capital expenditures, and management’s intent with respect to holding or disposing of the underlying hotel properties. Evaluating the reasonableness of these significant assumptions involved considering (i) the current and past performance of the hotel properties, (ii) the consistency with external market and industry data, and (iii) whether these assumptions were consistent with evidence obtained in other areas of the audit.
/s/ PricewaterhouseCoopers LLP
McLean, VirginiaWashington, D.C.
February 28, 201824, 2022
We have served as the Company’s auditor since 2001.
RLJ Lodging Trust
Consolidated Balance Sheets
(Amounts in thousands, except share and per share data)
| | | December 31, | | December 31, |
| 2017 | | 2016 | | 2021 | | 2020 |
Assets | |
| | |
| Assets | | | |
Investment in hotel properties, net | $ | 5,791,925 |
| | $ | 3,367,776 |
| Investment in hotel properties, net | $ | 4,219,116 | | | $ | 4,486,416 | |
Investment in unconsolidated joint ventures | 23,885 |
| | — |
| Investment in unconsolidated joint ventures | 6,522 | | | 6,798 | |
Cash and cash equivalents | 586,470 |
| | 456,672 |
| Cash and cash equivalents | 665,341 | | | 899,813 | |
Restricted cash reserves | 72,606 |
| | 67,206 |
| Restricted cash reserves | 48,528 | | | 34,977 | |
Hotel and other receivables, net of allowance of $510 and $182, respectively | 60,011 |
| | 26,018 |
| |
Deferred income tax asset, net | 56,761 |
| | 44,614 |
| |
Intangible assets, net | 133,211 |
| | 898 |
| |
Hotel and other receivables, net of allowance of $274 and $292, respectively | | Hotel and other receivables, net of allowance of $274 and $292, respectively | 31,091 | | | 13,346 | |
Lease right-of-use assets | | Lease right-of-use assets | 144,988 | | | 142,989 | |
| Prepaid expense and other assets | 69,936 |
| | 60,209 |
| Prepaid expense and other assets | 33,390 | | | 32,833 | |
Total assets | $ | 6,794,805 |
| | $ | 4,023,393 |
| Total assets | $ | 5,148,976 | | | $ | 5,617,172 | |
Liabilities and Equity | |
| | |
| Liabilities and Equity | | | |
Debt, net | $ | 2,880,488 |
| | $ | 1,582,715 |
| Debt, net | $ | 2,409,438 | | | $ | 2,587,731 | |
Accounts payable and other liabilities | 225,664 |
| | 137,066 |
| Accounts payable and other liabilities | 155,136 | | | 172,325 | |
Deferred income tax liability | 5,547 |
| | 11,430 |
| |
| Advance deposits and deferred revenue | 30,463 |
| | 11,975 |
| Advance deposits and deferred revenue | 20,047 | | | 32,177 | |
Lease liabilities | | Lease liabilities | 123,031 | | | 122,593 | |
Accrued interest | 17,081 |
| | 3,444 |
| Accrued interest | 19,110 | | | 6,206 | |
Distributions payable | 65,284 |
| | 41,486 |
| Distributions payable | 8,347 | | | 8,752 | |
Total liabilities | 3,224,527 |
| | 1,788,116 |
| Total liabilities | 2,735,109 | | | 2,929,784 | |
| | | | |
Commitments and Contingencies (Note 12) |
|
| |
|
| |
Commitments and Contingencies (Note 11) | | Commitments and Contingencies (Note 11) | 0 | | 0 |
| | | | |
Equity | |
| | |
| Equity | | | |
Shareholders’ equity: | |
| | |
| Shareholders’ equity: | | | |
Preferred shares of beneficial interest, $0.01 par value, 50,000,000 shares authorized | | | | Preferred shares of beneficial interest, $0.01 par value, 50,000,000 shares authorized | |
Series A Cumulative Convertible Preferred Shares, $0.01 par value, 12,950,000 shares authorized; 12,879,475 shares issued and outstanding, liquidation value of $328,266 at December 31, 2017 | 366,936 |
| | — |
| |
Common shares of beneficial interest, $0.01 par value, 450,000,000 shares authorized; 174,869,046 and 124,364,178 shares issued and outstanding at December 31, 2017 and 2016, respectively | 1,749 |
| | 1,244 |
| |
Series A Cumulative Convertible Preferred Shares, $0.01 par value, 12,950,000 shares authorized; 12,879,475 shares issued and outstanding, liquidation value of $328,266, at December 31, 2021 and 2020 | | Series A Cumulative Convertible Preferred Shares, $0.01 par value, 12,950,000 shares authorized; 12,879,475 shares issued and outstanding, liquidation value of $328,266, at December 31, 2021 and 2020 | 366,936 | | | 366,936 | |
Common shares of beneficial interest, $0.01 par value, 450,000,000 shares authorized; 166,503,062 and 165,002,752 shares issued and outstanding at December 31, 2021 and 2020, respectively | | Common shares of beneficial interest, $0.01 par value, 450,000,000 shares authorized; 166,503,062 and 165,002,752 shares issued and outstanding at December 31, 2021 and 2020, respectively | 1,665 | | | 1,650 | |
Additional paid-in capital | 3,208,002 |
| | 2,187,333 |
| Additional paid-in capital | 3,092,883 | | | 3,077,142 | |
Accumulated other comprehensive income (loss) | 8,846 |
| | (4,902 | ) | |
(Distributions in excess of net earnings) retained earnings | (82,566 | ) | | 38,249 |
| |
Accumulated other comprehensive loss | | Accumulated other comprehensive loss | (17,113) | | | (69,050) | |
Distributions in excess of net earnings | | Distributions in excess of net earnings | (1,046,739) | | | (710,161) | |
Total shareholders’ equity | 3,502,967 |
| | 2,221,924 |
| Total shareholders’ equity | 2,397,632 | | | 2,666,517 | |
Noncontrolling interest: | |
| | |
| Noncontrolling interest: | | | |
Noncontrolling interest in consolidated joint ventures | 11,700 |
| | 5,973 |
| Noncontrolling interest in consolidated joint ventures | 9,919 | | | 13,002 | |
Noncontrolling interest in the Operating Partnership | 11,181 |
| | 7,380 |
| Noncontrolling interest in the Operating Partnership | 6,316 | | | 7,869 | |
Total noncontrolling interest | 22,881 |
| | 13,353 |
| Total noncontrolling interest | 16,235 | | | 20,871 | |
Preferred equity in a consolidated joint venture, liquidation value of $45,430 at December 31, 2017 | 44,430 |
| | — |
| |
| Total equity | 3,570,278 |
| | 2,235,277 |
| Total equity | 2,413,867 | | | 2,687,388 | |
Total liabilities and equity | $ | 6,794,805 |
| | $ | 4,023,393 |
| Total liabilities and equity | $ | 5,148,976 | | | $ | 5,617,172 | |
The accompanying notes are an integral part of these consolidated financial statements.
RLJ Lodging Trust
Consolidated Statements of Operations and Comprehensive (Loss) Income
(Amounts in thousands, except share and per share data)
|
| | | | | | | | | | | |
| For the year ended December 31, |
| 2017 | | 2016 | | 2015 |
Revenue | |
| | |
| | |
|
Operating revenue | |
| | |
| | |
|
Room revenue | $ | 1,146,882 |
| | $ | 1,010,637 |
| | $ | 985,361 |
|
Food and beverage revenue | 157,672 |
| | 111,691 |
| | 114,818 |
|
Other revenue | 51,707 |
| | 37,667 |
| | 36,161 |
|
Total revenue | $ | 1,356,261 |
| | $ | 1,159,995 |
| | $ | 1,136,340 |
|
Expense | |
| | |
| | |
|
Operating expense | |
| | |
| | |
|
Room expense | $ | 270,729 |
| | $ | 228,656 |
| | $ | 220,101 |
|
Food and beverage expense | 113,914 |
| | 79,589 |
| | 81,117 |
|
Management and franchise fee expense | 122,633 |
| | 118,210 |
| | 116,462 |
|
Other operating expense | 304,595 |
| | 241,654 |
| | 239,966 |
|
Total property operating expense | 811,871 |
| | 668,109 |
| | 657,646 |
|
Depreciation and amortization | 186,993 |
| | 162,500 |
| | 156,226 |
|
Impairment loss | — |
| | — |
| | 1,003 |
|
Property tax, insurance and other | 91,406 |
| | 77,281 |
| | 76,682 |
|
General and administrative | 40,453 |
| | 31,516 |
| | 37,810 |
|
Transaction costs | 44,398 |
| | 192 |
| | 3,058 |
|
Total operating expense | 1,175,121 |
| | 939,598 |
| | 932,425 |
|
Operating income | 181,140 |
| | 220,397 |
| | 203,915 |
|
Other income | 269 |
| | 303 |
| | 1,598 |
|
Interest income | 2,987 |
| | 1,695 |
| | 1,563 |
|
Interest expense | (78,322 | ) | | (58,820 | ) | | (54,788 | ) |
Gain on settlement of investment in loan | 2,670 |
| | — |
| | — |
|
Income before equity in income from unconsolidated joint ventures | 108,744 |
| | 163,575 |
| | 152,288 |
|
Equity in income from unconsolidated joint ventures | 133 |
| | — |
| | — |
|
Income before income tax (expense) benefit | 108,877 |
| | 163,575 |
| | 152,288 |
|
Income tax (expense) benefit | (42,118 | ) | | (8,190 | ) | | 39,126 |
|
Income from operations | 66,759 |
| | 155,385 |
| | 191,414 |
|
Gain on sale of hotel properties | 8,980 |
| | 45,929 |
| | 28,398 |
|
Net income | 75,739 |
| | 201,314 |
| | 219,812 |
|
Net income attributable to noncontrolling interests: | |
| | |
| | |
|
Noncontrolling interest in consolidated joint ventures | (117 | ) | | (55 | ) | | (77 | ) |
Noncontrolling interest in the Operating Partnership | (291 | ) | | (907 | ) | | (1,514 | ) |
Preferred distributions - consolidated joint venture | (496 | ) | | — |
| | — |
|
Net income attributable to RLJ | 74,835 |
| | 200,352 |
| | 218,221 |
|
Preferred dividends | (8,372 | ) | | — |
| | — |
|
Net income attributable to common shareholders | $ | 66,463 |
| | $ | 200,352 |
| | $ | 218,221 |
|
| | | | | |
Basic per common share data: | |
| | |
| | |
|
Net income per share attributable to common shareholders | $ | 0.47 |
| | $ | 1.61 |
| | $ | 1.69 |
|
Weighted-average number of common shares | 140,616,838 |
| | 123,651,003 |
| | 128,444,469 |
|
| | | | | |
| | | | | | | | | | | | | | | | | |
| For the year ended December 31, |
| 2021 | | 2020 | | 2019 |
Revenues | | | | | |
Operating revenues | | | | | |
Room revenue | $ | 667,853 | | | $ | 397,754 | | | $ | 1,317,085 | |
Food and beverage revenue | 58,994 | | | 40,384 | | | 177,499 | |
Other revenue | 58,817 | | | 34,949 | | | 71,608 | |
Total revenues | 785,664 | | | 473,087 | | | 1,566,192 | |
Expenses | | | | | |
Operating expenses | | | | | |
Room expense | 177,365 | | | 124,063 | | | 329,077 | |
Food and beverage expense | 41,790 | | | 35,220 | | | 134,206 | |
Management and franchise fee expense | 53,276 | | | 21,057 | | | 120,797 | |
Other operating expense | 239,092 | | | 211,216 | | | 373,130 | |
Total property operating expenses | 511,523 | | | 391,556 | | | 957,210 | |
Depreciation and amortization | 187,778 | | | 194,168 | | | 211,584 | |
Impairment losses | 144,845 | | | — | | | 13,500 | |
Property tax, insurance and other | 88,852 | | | 103,470 | | | 119,287 | |
General and administrative | 47,526 | | | 41,141 | | | 45,252 | |
Transaction costs | 94 | | | (158) | | | 1,211 | |
Total operating expenses | 980,618 | | | 730,177 | | | 1,348,044 | |
Other (expense) income, net | (7,614) | | | 1,941 | | | 1,242 | |
Interest income | 996 | | | 4,237 | | | 8,720 | |
Interest expense | (106,366) | | | (100,169) | | | (91,295) | |
(Loss) gain on sale of hotel properties, net | (2,378) | | | 2,703 | | | (9,300) | |
Gain (loss) on extinguishment of indebtedness, net | 893 | | | — | | | (214) | |
| | | | | |
(Loss) income before equity in loss from unconsolidated joint ventures | (309,423) | | | (348,378) | | | 127,301 | |
Equity in loss from unconsolidated joint ventures | (477) | | | (8,454) | | | (1,673) | |
(Loss) income before income tax (expense) benefit | (309,900) | | | (356,832) | | | 125,628 | |
Income tax (expense) benefit | (1,188) | | | (51,970) | | | 3,751 | |
Net (loss) income | (311,088) | | | (408,802) | | | 129,379 | |
Net loss (income) attributable to noncontrolling interests: | | | | | |
Noncontrolling interest in consolidated joint ventures | 4,384 | | | 2,327 | | | 289 | |
Noncontrolling interest in the Operating Partnership | 1,536 | | | 2,034 | | | (487) | |
Preferred distributions - consolidated joint venture | — | | | — | | | (186) | |
Redemption of preferred equity - consolidated joint venture | — | | | — | | | (1,153) | |
Net (loss) income attributable to RLJ | (305,168) | | | (404,441) | | | 127,842 | |
Preferred dividends | (25,115) | | | (25,115) | | | (25,115) | |
Net (loss) income attributable to common shareholders | $ | (330,283) | | | $ | (429,556) | | | $ | 102,727 | |
| | | | | |
Basic per common share data: | | | | | |
Net (loss) income per share attributable to common shareholders | $ | (2.01) | | | $ | (2.61) | | | $ | 0.59 | |
Weighted-average number of common shares | 163,998,390 | | | 164,503,661 | | | 171,287,086 | |
| | | | | |
|
| | | | | | | | | | | |
Diluted per common share data: | |
| | |
| | |
|
Net income per share attributable to common shareholders | $ | 0.47 |
| | $ | 1.61 |
| | $ | 1.68 |
|
Weighted-average number of common shares | 140,694,049 |
| | 123,879,007 |
| | 128,967,754 |
|
| | | | | |
Dividends declared per common share | $ | 1.32 |
| | $ | 1.32 |
| | $ | 1.32 |
|
| | | | | |
Comprehensive income: | |
| | |
| | |
Net income | $ | 75,739 |
| | $ | 201,314 |
| | $ | 219,812 |
|
Unrealized gain (loss) on interest rate derivatives | 13,748 |
| | 11,700 |
| | (2,958 | ) |
Comprehensive income | 89,487 |
| | 213,014 |
| | 216,854 |
|
Comprehensive income attributable to the noncontrolling interest in consolidated joint ventures | (117 | ) | | (55 | ) | | (77 | ) |
Comprehensive income attributable to the noncontrolling interest in the Operating Partnership | (291 | ) | | (907 | ) | | (1,514 | ) |
Comprehensive income attributable to the preferred distributions - consolidated joint venture | (496 | ) | | — |
| | — |
|
Comprehensive income attributable to RLJ | $ | 88,583 |
| | $ | 212,052 |
| | $ | 215,263 |
|
| | | | | | | | | | | | | | | | | |
Diluted per common share data: | | | | | |
Net (loss) income per share attributable to common shareholders | $ | (2.01) | | | $ | (2.61) | | | $ | 0.59 | |
Weighted-average number of common shares | 163,998,390 | | | 164,503,661 | | | 171,388,476 | |
| | | | | |
| | | | | |
| | | | | |
Comprehensive (loss) income: | | | | | |
Net (loss) income | $ | (311,088) | | | $ | (408,802) | | | $ | 129,379 | |
Unrealized gain (loss) on interest rate derivatives | 41,279 | | | (49,536) | | | (33,459) | |
Reclassification of unrealized losses on discontinued cash flow hedges to other (expense) income, net | 10,658 | | | — | | | (2,250) | |
Comprehensive (loss) income | (259,151) | | | (458,338) | | | 93,670 | |
Comprehensive loss (income) attributable to noncontrolling interests: | | | | | |
Noncontrolling interest in consolidated joint ventures | 4,384 | | | 2,327 | | | 289 | |
Noncontrolling interest in the Operating Partnership | 1,536 | | | 2,034 | | | (487) | |
Preferred distributions - consolidated joint venture | — | | | — | | | (186) | |
Comprehensive (loss) income attributable to RLJ | $ | (253,231) | | | $ | (453,977) | | | $ | 93,286 | |
The accompanying notes are an integral part of these consolidated financial statements.
RLJ Lodging Trust
Consolidated Statements of Changes in Equity
(Amounts in thousands, except share data)
| | | | Shareholders’ Equity | | Noncontrolling Interest | | |
| | | Preferred Stock | | Common Stock | | | | | | | |
| | | Shares | | Amount | | Shares | | Par Value | | Additional Paid-in Capital | | Distributions in Excess of Net Earnings | | Accumulated Other Comprehensive Income (Loss) | | Operating Partnership | | Consolidated Joint Ventures | | Preferred Equity in a Consolidated Joint Venture | | Total Equity |
Balance at December 31, 2018 | | Balance at December 31, 2018 | 12,879,475 | | | $ | 366,936 | | | 174,019,616 | | | $ | 1,740 | | | $ | 3,195,381 | | | $ | (150,476) | | | $ | 16,195 | | | $ | 10,827 | | | $ | 11,908 | | | $ | 44,430 | | | $ | 3,496,941 | |
Net income (loss) | | Net income (loss) | — | | | — | | | — | | | — | | | — | | | 127,842 | | | — | | | 487 | | | (289) | | | 1,339 | | | 129,379 | |
Unrealized loss on interest rate derivatives | | Unrealized loss on interest rate derivatives | — | | | — | | | — | | | — | | | — | | | — | | | (33,459) | | | — | | | — | | | — | | | (33,459) | |
| | | Shareholders’ Equity | | Noncontrolling Interest | | | |
| Common Stock | | | | | | | | | | | |
| Shares | | Par Value | | Additional Paid-in Capital | | Retained Earnings (Distributions in excess of net earnings) | | Accumulated Other Comprehensive Loss | | Operating Partnership | | Consolidated Joint Venture | | Total Equity | |
Balance at December 31, 2014 | 131,964,706 |
| | $ | 1,319 |
| | $ | 2,419,731 |
| | $ | (46,415 | ) | | $ | (13,644 | ) | | $ | 11,198 |
| | $ | 6,295 |
| | $ | 2,378,484 |
| |
Net income | — |
| | — |
| | — |
| | 218,221 |
| | — |
| | 1,514 |
| | 77 |
| | 219,812 |
| |
Unrealized loss on interest rate derivatives | — |
| | — |
| | — |
| | — |
| | (2,958 | ) | | — |
| | — |
| | (2,958 | ) | |
Shares acquired as part of a share repurchase program | (8,044,372 | ) | | (80 | ) | | (225,106 | ) | | — |
| | — |
| | — |
| | — |
| | (225,186 | ) | |
Reclassification of unrealized gain on discontinued cash flow hedges to interest expense | | Reclassification of unrealized gain on discontinued cash flow hedges to interest expense | | (2,250) | | | (2,250) | |
Redemption of Operating Partnership units | | Redemption of Operating Partnership units | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (9) | | | — | | | — | | | (9) | |
| Issuance of restricted stock | 1,126,431 |
| | 11 |
| | (11 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| Issuance of restricted stock | — | | | — | | | 530,436 | | | 5 | | | (5) | | | — | | | — | | | — | | | — | | | — | | | — | |
Amortization of share-based compensation | — |
| | — |
| | 13,002 |
| | — |
| | — |
| | — |
| | — |
| | 13,002 |
| Amortization of share-based compensation | — | | | — | | | — | | | — | | | 12,196 | | | — | | | — | | | — | | | — | | | — | | | 12,196 | |
Share grants to trustees | 5,008 |
| | — |
| | 132 |
| | — |
| | — |
| | — |
| | — |
| | 132 |
| |
| Shares acquired to satisfy minimum required federal and state tax withholding on vesting restricted stock | (403,722 | ) | | (4 | ) | | (12,016 | ) | | — |
| | — |
| | — |
| | — |
| | (12,020 | ) | Shares acquired to satisfy minimum required federal and state tax withholding on vesting restricted stock | — | | | — | | | (103,741) | | | (1) | | | (1,801) | | | — | | | — | | | — | | | — | | | — | | | (1,802) | |
Shares acquired as part of a share repurchase program | | Shares acquired as part of a share repurchase program | — | | | — | | | (4,575,170) | | | (45) | | | (77,789) | | | — | | | — | | | — | | | — | | | — | | | (77,834) | |
Forfeiture of restricted stock | (12,376 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| Forfeiture of restricted stock | — | | | — | | | (18,895) | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Distribution to joint venture partner | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (195 | ) | | (195 | ) | |
| Contributions from consolidated joint venture partners | | Contributions from consolidated joint venture partners | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 2,446 | | | — | | | 2,446 | |
Distributions on preferred shares | | Distributions on preferred shares | — | | | — | | | — | | | — | | | — | | | (25,115) | | | — | | | — | | | — | | | — | | | (25,115) | |
Distributions on common shares and units | — |
| | — |
| | — |
| | (169,367 | ) | | — |
| | (1,180 | ) | | — |
| | (170,547 | ) | Distributions on common shares and units | — | | | — | | | — | | | — | | | — | | | (227,020) | | | — | | | (1,221) | | | — | | | — | | | (228,241) | |
Balance at December 31, 2015 | 124,635,675 |
|
| $ | 1,246 |
|
| $ | 2,195,732 |
|
| $ | 2,439 |
|
| $ | (16,602 | ) |
| $ | 11,532 |
|
| $ | 6,177 |
|
| $ | 2,200,524 |
| |
Preferred distributions - consolidated joint venture | | Preferred distributions - consolidated joint venture | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (186) | | | (186) | |
Redemption of preferred equity - consolidated joint venture | | Redemption of preferred equity - consolidated joint venture | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (45,583) | | | (45,583) | |
Balance at December 31, 2019 | | Balance at December 31, 2019 | 12,879,475 | | | $ | 366,936 | | | 169,852,246 | | | $ | 1,699 | | | $ | 3,127,982 | | | $ | (274,769) | | | $ | (19,514) | | | $ | 10,084 | | | $ | 14,065 | | | $ | — | | | $ | 3,226,483 | |
The accompanying notes are an integral part of these consolidated financial statements.
RLJ Lodging Trust
Consolidated Statements of Changes in Equity
(Amounts in thousands, except share data)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Shareholders’ Equity | | Noncontrolling Interest | | | | |
| Preferred Stock | | Common Stock | | | | | | | | | | | | |
| Shares | | Amount | | Shares | | Par Value | | Additional Paid-in Capital | | Distributions in Excess of Net Earnings | | Accumulated Other Comprehensive Loss | | Operating Partnership | | Consolidated Joint Ventures | | | | Total Equity |
Balance at December 31, 2019 | 12,879,475 | | | $ | 366,936 | | | 169,852,246 | | | $ | 1,699 | | | $ | 3,127,982 | | | $ | (274,769) | | | $ | (19,514) | | | $ | 10,084 | | | $ | 14,065 | | | | | $ | 3,226,483 | |
Net loss | — | | | — | | | — | | | — | | | — | | | (404,441) | | | — | | | (2,034) | | | (2,327) | | | | | (408,802) | |
Unrealized loss on interest rate derivatives | — | | | — | | | — | | | — | | | — | | | — | | | (49,536) | | | — | | | — | | | | | (49,536) | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
Redemption of Operating Partnership units | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (8) | | | — | | | | | (8) | |
Issuance of restricted stock | — | | | — | | | 801,463 | | | 8 | | | (8) | | | — | | | — | | | — | | | — | | | | | — | |
Amortization of share-based compensation | — | | | — | | | — | | | — | | | 13,356 | | | — | | | — | | | — | | | — | | | | | 13,356 | |
| | | | | | | | | | | | | | | | | | | | | |
Shares acquired to satisfy minimum required federal and state tax withholding on vesting restricted stock | — | | | — | | | (152,629) | | | (2) | | | (1,639) | | | — | | | — | | | — | | | — | | | | | (1,641) | |
Shares acquired as part of a share repurchase program | — | | | — | | | (5,489,335) | | | (55) | | | (62,549) | | | — | | | — | | | — | | | — | | | | | (62,604) | |
Forfeiture of restricted stock | — | | | — | | | (8,993) | | | — | | | — | | | — | | | — | | | — | | | — | | | | | — | |
Contributions from consolidated joint venture partners | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 1,264 | | | | | 1,264 | |
| | | | | | | | | | | | | | | | | | | | | |
Distributions on preferred shares | — | | | — | | | — | | | — | | | — | | | (25,115) | | | — | | | — | | | — | | | | | (25,115) | |
Distributions on common shares and units | — | | | — | | | — | | | — | | | — | | | (5,836) | | | — | | | (173) | | | — | | | | | (6,009) | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
Balance at December 31, 2020 | 12,879,475 | | | $ | 366,936 | | | 165,002,752 | | | $ | 1,650 | | | $ | 3,077,142 | | | $ | (710,161) | | | $ | (69,050) | | | $ | 7,869 | | | $ | 13,002 | | | | | $ | 2,687,388 | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Shareholders’ Equity | | Noncontrolling Interest | | |
| Common Stock | | | | | | | | | | |
| Shares | | Par Value | | Additional Paid-in Capital | | Retained Earnings | | Accumulated Other Comprehensive Loss | | Operating Partnership | | Consolidated Joint Venture | | Total Equity |
Balance at December 31, 2015 | 124,635,675 |
| | $ | 1,246 |
| | $ | 2,195,732 |
| | $ | 2,439 |
| | $ | (16,602 | ) | | $ | 11,532 |
| | $ | 6,177 |
| | $ | 2,200,524 |
|
Net income | — |
| | — |
| | — |
| | 200,352 |
| | — |
| | 907 |
| | 55 |
| | 201,314 |
|
Unrealized gain on interest rate derivatives | — |
| | — |
| | — |
| | — |
| | 11,700 |
| | — |
| | — |
| | 11,700 |
|
Redemption of Operating Partnership units | 335,250 |
| | 3 |
| | 4,322 |
| | — |
| | — |
| | (4,325 | ) | | — |
| | — |
|
Shares acquired as part of a share repurchase program | (610,607 | ) | | (6 | ) | | (13,265 | ) | | — |
| | — |
| | — |
| | — |
| | (13,271 | ) |
Issuance of restricted stock | 672,821 |
| | 7 |
| | (7 | ) | | — |
| | — |
| | — |
| | — |
| | — |
|
Amortization of share-based compensation | — |
| | — |
| | 5,990 |
| | — |
| | — |
| | — |
| | — |
| | 5,990 |
|
Share grants to trustees | 2,554 |
| | — |
| | 57 |
| | — |
| | — |
| | — |
| | — |
| | 57 |
|
Shares acquired to satisfy minimum required federal and state tax withholding on vesting restricted stock | (244,015 | ) | | (2 | ) | | (5,500 | ) | | — |
| | — |
| | — |
| | — |
| | (5,502 | ) |
Forfeiture of restricted stock | (427,500 | ) | | (4 | ) | | 4 |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Distribution to joint venture partner | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (259 | ) | | (259 | ) |
Distributions on common shares and units | — |
| | — |
| | — |
| | (164,542 | ) | | — |
| | (734 | ) | | — |
| | (165,276 | ) |
Balance at December 31, 2016 | 124,364,178 |
| | $ | 1,244 |
| | $ | 2,187,333 |
| | $ | 38,249 |
| | $ | (4,902 | ) | | $ | 7,380 |
| | $ | 5,973 |
| | $ | 2,235,277 |
|
The accompanying notes are an integral part of these consolidated financial statements.
RLJ Lodging Trust
Consolidated Statements of Changes in Equity
(Amounts in thousands, except share data)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Shareholders’ Equity | | Noncontrolling Interest | | | | |
| Preferred Stock | | Common Stock | | | | | | | | | | | | |
| Shares | | Amount | | Shares | | Par Value | | Additional Paid-in Capital | | Distributions in Excess of Net Earnings | | Accumulated Other Comprehensive Loss | | Operating Partnership | | Consolidated Joint Ventures | | | | Total Equity |
Balance at December 31, 2020 | 12,879,475 | | | $ | 366,936 | | | 165,002,752 | | | $ | 1,650 | | | $ | 3,077,142 | | | $ | (710,161) | | | $ | (69,050) | | | $ | 7,869 | | | $ | 13,002 | | | | | $ | 2,687,388 | |
Net loss | — | | | — | | | — | | | — | | | — | | | (305,168) | | | — | | | (1,536) | | | (4,384) | | | | | (311,088) | |
Unrealized gain on interest rate derivatives | — | | | — | | | — | | | — | | | — | | | — | | | 41,279 | | | — | | | — | | | | | 41,279 | |
Reclassification of unrealized losses on discontinued cash flow hedges to other (expense) income, net | — | | | — | | | — | | | — | | | — | | | — | | | 10,658 | | | — | | | — | | | | | 10,658 | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
Redemption of Operating Partnership units | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (7) | | | — | | | | | (7) | |
Issuance of restricted stock | — | | | — | | | 1,765,162 | | | 18 | | | (18) | | | — | | | — | | | — | | | — | | | | | — | |
Amortization of share-based compensation | — | | | — | | | — | | | — | | | 18,299 | | | — | | | — | | | — | | | — | | | | | 18,299 | |
| | | | | | | | | | | | | | | | | | | | | |
Shares acquired to satisfy minimum required federal and state tax withholding on vesting restricted stock | — | | | — | | | (166,922) | | | (2) | | | (2,541) | | | — | | | — | | | — | | | — | | | | | (2,543) | |
| | | | | | | | | | | | | | | | | | | | | |
Forfeiture of restricted stock | — | | | — | | | (97,930) | | | (1) | | | 1 | | | — | | | — | | | — | | | — | | | | | — | |
Contributions from consolidated joint venture partners | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 1,301 | | | | | 1,301 | |
| | | | | | | | | | | | | | | | | | | | | |
Distributions on preferred shares | — | | | — | | | — | | | — | | | — | | | (25,115) | | | — | | | — | | | — | | | | | (25,115) | |
Distributions on common shares and units | — | | | — | | | — | | | — | | | — | | | (6,295) | | | — | | | (10) | | | — | | | | | (6,305) | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
Balance at December 31, 2021 | 12,879,475 | | | $ | 366,936 | | | 166,503,062 | | | $ | 1,665 | | | $ | 3,092,883 | | | $ | (1,046,739) | | | $ | (17,113) | | | $ | 6,316 | | | $ | 9,919 | | | | | $ | 2,413,867 | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Shareholders’ Equity | | Noncontrolling Interest | | | | |
| Preferred Stock | | Common Stock | | | | | | | | | | | | |
| Shares | | Amount | | Shares | | Par Value | | Additional Paid-in Capital | | Retained Earnings (Distributions in excess of net earnings) | | Accumulated Other Comprehensive Income (Loss) | | Operating Partnership | | Consolidated Joint Ventures | | Preferred Equity in a Consolidated Joint Venture | | Total Equity |
Balance at December 31, 2016 | — |
| | $ | — |
| | 124,364,178 |
| | $ | 1,244 |
| | $ | 2,187,333 |
| | $ | 38,249 |
| | $ | (4,902 | ) | | $ | 7,380 |
| | $ | 5,973 |
| | $ | — |
| | $ | 2,235,277 |
|
Net income | — |
| | — |
| | — |
| | — |
| | — |
| | 74,835 |
| | — |
| | 291 |
| | 117 |
| | 496 |
| | 75,739 |
|
Unrealized gain on interest rate derivatives | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 13,748 |
| | — |
| | — |
| | — |
| | 13,748 |
|
Issuance of common shares | — |
| | — |
| | 50,358,104 |
| | 504 |
| | 1,015,723 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 1,016,227 |
|
Issuance of Operating Partnership units | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 4,342 |
| | — |
| | — |
| | 4,342 |
|
Issuance of Series A Cumulative Convertible Preferred Shares | 12,879,475 |
| | 366,936 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 366,936 |
|
Noncontrolling interest recorded in connection with the Mergers | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 5,493 |
| | — |
| | 5,493 |
|
Preferred equity in a consolidated joint venture | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 44,430 |
| | 44,430 |
|
Issuance of restricted stock | — |
| | — |
| | 425,076 |
| | 4 |
| | (4 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Amortization of share-based compensation | — |
| | — |
| | — |
| | — |
| | 10,607 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 10,607 |
|
Shares acquired to satisfy minimum required federal and state tax withholding on vesting restricted stock | — |
| | — |
| | (144,766 | ) | | (2 | ) | | (3,048 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| | (3,050 | ) |
Shares acquired as part of a share repurchase program | — |
| | — |
| | (122,508 | ) | | (1 | ) | | (2,609 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| | (2,610 | ) |
Forfeiture of restricted stock | — |
| | — |
| | (11,038 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Contributions from joint venture partners | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 117 |
| | — |
| | 117 |
|
Distributions on preferred shares | — |
| | — |
| | — |
| | — |
| | — |
| | (8,372 | ) | | — |
| | — |
| | — |
| | — |
| | (8,372 | ) |
Distributions on common shares and units | — |
| | — |
| | — |
| | — |
| | — |
| | (187,278 | ) | | — |
| | (832 | ) | | — |
| | — |
| | (188,110 | ) |
Preferred distributions - consolidated joint venture | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (496 | ) | | (496 | ) |
Balance at December 31, 2017 | 12,879,475 |
| | $ | 366,936 |
| | 174,869,046 |
| | $ | 1,749 |
| | $ | 3,208,002 |
| | $ | (82,566 | ) | | $ | 8,846 |
| | $ | 11,181 |
| | $ | 11,700 |
| | $ | 44,430 |
| | $ | 3,570,278 |
|
The accompanying notes are an integral part of these consolidated financial statements.
RLJ Lodging Trust
Consolidated Statements of Cash Flows
(Amounts in thousands)
| | | For the year ended December 31, | | For the year ended December 31, |
| 2017 | | 2016 | | 2015 | | 2021 | | 2020 | | 2019 |
Cash flows from operating activities | |
| | |
| | |
| Cash flows from operating activities | | | | | |
Net income | $ | 75,739 |
| | $ | 201,314 |
| | $ | 219,812 |
| |
Adjustments to reconcile net income to cash flow provided by operating activities: | |
| | |
| | |
| |
Gain on sale of hotel properties | (8,980 | ) | | (45,929 | ) | | (28,398 | ) | |
Gain on settlement of investment in loan | (2,670 | ) | | — |
| | — |
| |
Net (loss) income | | Net (loss) income | $ | (311,088) | | | $ | (408,802) | | | $ | 129,379 | |
Adjustments to reconcile net (loss) income to cash flow provided by (used in) operating activities: | | Adjustments to reconcile net (loss) income to cash flow provided by (used in) operating activities: | | | | | |
Loss (gain) on sale of hotel properties, net | | Loss (gain) on sale of hotel properties, net | 2,378 | | | (2,703) | | | 9,300 | |
(Gain) loss on extinguishment of indebtedness, net | | (Gain) loss on extinguishment of indebtedness, net | (893) | | | — | | | 214 | |
| Depreciation and amortization | 186,993 |
| | 162,500 |
| | 156,226 |
| Depreciation and amortization | 187,778 | | | 194,168 | | | 211,584 | |
Amortization of deferred financing costs | 3,499 |
| | 3,965 |
| | 4,164 |
| Amortization of deferred financing costs | 5,884 | | | 4,416 | | | 4,100 | |
Other amortization | (2,098 | ) | | 751 |
| | 784 |
| Other amortization | (2,090) | | | (2,404) | | | (2,055) | |
Equity in income from unconsolidated joint ventures | (133 | ) | | — |
| | — |
| |
Reclassification of unrealized losses on discontinued cash flow hedges to other (expense) income, net | | Reclassification of unrealized losses on discontinued cash flow hedges to other (expense) income, net | 10,658 | | | — | | | — | |
Unrealized (gain) loss on discontinued cash flow hedges | | Unrealized (gain) loss on discontinued cash flow hedges | — | | | (376) | | | 376 | |
Equity in loss from unconsolidated joint ventures | | Equity in loss from unconsolidated joint ventures | 477 | | | 8,454 | | | 1,673 | |
Distributions of income from unconsolidated joint ventures | 1,900 |
| | — |
| | — |
| Distributions of income from unconsolidated joint ventures | — | | | — | | | 1,964 | |
Accretion of interest income on investment in loan | (664 | ) | | (613 | ) | | (389 | ) | |
Impairment loss | — |
| | — |
| | 1,003 |
| |
Share grants to trustees | — |
| | 57 |
| | 132 |
| |
| Impairment losses | | Impairment losses | 144,845 | | | — | | | 13,500 | |
| Amortization of share-based compensation | 10,607 |
| | 5,990 |
| | 13,002 |
| Amortization of share-based compensation | 17,054 | | | 12,396 | | | 11,459 | |
Deferred income taxes | 40,140 |
| | 6,994 |
| | (40,554 | ) | Deferred income taxes | — | | | 51,447 | | | (6,818) | |
Changes in assets and liabilities: | |
| | |
| | |
| Changes in assets and liabilities: | | | | | |
Hotel and other receivables, net | (5,686 | ) | | (263 | ) | | 115 |
| Hotel and other receivables, net | (17,969) | | | 26,409 | | | 8,813 | |
Prepaid expense and other assets | 3,805 |
| | (5,162 | ) | | 4,802 |
| Prepaid expense and other assets | (1,090) | | | 19,178 | | | (6,335) | |
Accounts payable and other liabilities | (27,575 | ) | | 2,870 |
| | (5,502 | ) | Accounts payable and other liabilities | 7,203 | | | (48,791) | | | (10,706) | |
Advance deposits and deferred revenue | (5,307 | ) | | 328 |
| | 1,617 |
| Advance deposits and deferred revenue | (13,090) | | | (25,282) | | | 35,766 | |
Accrued interest | (8,975 | ) | | (1,439 | ) | | 2,100 |
| Accrued interest | 12,904 | | | 3,182 | | | (4,889) | |
Net cash flow provided by operating activities | 260,595 |
| | 331,363 |
| | 328,914 |
| |
Net cash flow provided by (used in) operating activities | | Net cash flow provided by (used in) operating activities | 42,961 | | | (168,708) | | | 397,325 | |
Cash flows from investing activities | |
| | |
| | |
| Cash flows from investing activities | | | | | |
Acquisition of FelCor, net of cash acquired | (24,883 | ) | | — |
| | — |
| |
Acquisition of hotel properties, net | — |
| | — |
| | (142,221 | ) | Acquisition of hotel properties, net | (174,675) | | | — | | | — | |
Proceeds from the sale of hotel properties, net | 180,279 |
| | 269,185 |
| | 246,405 |
| Proceeds from the sale of hotel properties, net | 198,642 | | | 5,169 | | | 685,870 | |
| Improvements and additions to hotel properties | (102,989 | ) | | (83,780 | ) | | (149,225 | ) | Improvements and additions to hotel properties | (48,263) | | | (73,337) | | | (157,354) | |
Additions to property and equipment | (219 | ) | | (283 | ) | | (659 | ) | |
Proceeds from the settlement of an investment in loan | 12,792 |
| | — |
| | — |
| |
Net cash flow provided by (used in) investing activities | 64,980 |
| | 185,122 |
| | (45,700 | ) | |
| Contributions to unconsolidated joint ventures | | Contributions to unconsolidated joint ventures | (331) | | | (100) | | | (603) | |
Distributions from unconsolidated joint ventures in excess of earnings | | Distributions from unconsolidated joint ventures in excess of earnings | — | | | 1,576 | | | 2,499 | |
| Net cash flow (used in) provided by investing activities | | Net cash flow (used in) provided by investing activities | (24,627) | | | (66,692) | | | 530,412 | |
Cash flows from financing activities | |
| | |
| | |
| Cash flows from financing activities | | | | | |
Borrowings under Revolver | — |
| | 51,000 |
| | — |
| Borrowings under Revolver | — | | | 400,000 | | | 140,000 | |
Repayments under Revolver | — |
| | (51,000 | ) | | — |
| |
Borrowings on Term Loans | — |
| | — |
| | 150,000 |
| |
Payments of Senior Notes | (990 | ) | | — |
| | — |
| |
Repayments of Revolver | | Repayments of Revolver | (200,000) | | | — | | | (140,000) | |
| Repayments of Term Loans | | Repayments of Term Loans | (356,338) | | | — | | | — | |
Proceeds from issuance of senior notes | | Proceeds from issuance of senior notes | 1,000,000 | | | — | | | — | |
Redemption of senior notes (including a $9.5 million redemption premium in 2021) | | Redemption of senior notes (including a $9.5 million redemption premium in 2021) | (484,402) | | | — | | | (112) | |
Proceeds from mortgage loans | — |
| | 11,000 |
| | 7,000 |
| Proceeds from mortgage loans | — | | | — | | | 381,000 | |
Payments of mortgage loans principal | (4,770 | ) | | (3,651 | ) | | (166,587 | ) | |
Scheduled mortgage loan principal payments | | Scheduled mortgage loan principal payments | (1,486) | | | (3,376) | | | (3,979) | |
Repayments of mortgage loans (including $7.0 million in prepayment premiums in 2021) | | Repayments of mortgage loans (including $7.0 million in prepayment premiums in 2021) | (149,183) | | | — | | | (374,500) | |
Repurchase of common shares under a share repurchase program | (2,610 | ) | | (13,271 | ) | | (225,186 | ) | Repurchase of common shares under a share repurchase program | — | | | (62,604) | | | (77,834) | |
Repurchase of common shares to satisfy employee withholding requirements | (3,050 | ) | | (5,502 | ) | | (12,020 | ) | |
Repurchase of common shares to satisfy employee tax withholding requirements | | Repurchase of common shares to satisfy employee tax withholding requirements | (2,543) | | | (1,641) | | | (1,802) | |
Distributions on preferred shares | (6,279 | ) | | — |
| | — |
| Distributions on preferred shares | (25,115) | | | (25,116) | | | (25,115) | |
Distributions on common shares | (169,942 | ) | | (164,364 | ) | | (170,092 | ) | Distributions on common shares | (6,701) | | | (61,000) | | | (228,287) | |
Distributions on Operating Partnership units | (775 | ) | | (838 | ) | | (1,160 | ) | |
Distributions on and redemption of Operating Partnership units | | Distributions on and redemption of Operating Partnership units | (18) | | | (428) | | | (1,230) | |
| Payments of deferred financing costs | (1,582 | ) | | (5,369 | ) | | (839 | ) | Payments of deferred financing costs | (14,770) | | | (4,069) | | | (10,111) | |
Preferred distributions - consolidated joint venture | (496 | ) | | — |
| | — |
| Preferred distributions - consolidated joint venture | — | | | — | | | (312) | |
Contributions from joint venture partners | 117 |
| | — |
| | — |
| |
Distributions to joint venture partners | — |
| | (259 | ) | | (195 | ) | |
Net cash flow used in financing activities | (190,377 | ) | | (182,254 | ) | | (419,079 | ) | |
Net change in cash and cash equivalents | 135,198 |
| | 334,231 |
| | (135,865 | ) | |
Redemption of preferred equity - consolidated joint venture | | Redemption of preferred equity - consolidated joint venture | — | | | — | | | (45,583) | |
Contributions from consolidated joint venture partners | | Contributions from consolidated joint venture partners | 1,301 | | | 1,264 | | | 2,446 | |
| Net cash flow (used in) provided by financing activities | | Net cash flow (used in) provided by financing activities | (239,255) | | | 243,030 | | | (385,419) | |
Net change in cash, cash equivalents, and restricted cash reserves | | Net change in cash, cash equivalents, and restricted cash reserves | (220,921) | | | 7,630 | | | 542,318 | |
Cash, cash equivalents, and restricted cash reserves, beginning of year | 523,878 |
| | 189,647 |
| | 325,512 |
| Cash, cash equivalents, and restricted cash reserves, beginning of year | 934,790 | | | 927,160 | | | 384,842 | |
Cash, cash equivalents, and restricted cash reserves, end of year | $ | 659,076 |
| | $ | 523,878 |
| | $ | 189,647 |
| Cash, cash equivalents, and restricted cash reserves, end of year | $ | 713,869 | | | $ | 934,790 | | | $ | 927,160 | |
The accompanying notes are an integral part of these consolidated financial statements.
RLJ Lodging Trust
Notes to the Consolidated Financial Statements
1. General
Organization
RLJ Lodging Trust (the "Company") was formed as a Maryland real estate investment trust ("REIT") on January 31, 2011. The Company is a self-advised and self-administered REIT that acquires primarily premium-branded, high-margin, focused-service and compact full-service hotels. The Company elected to be taxed as a REIT, for U.S. federal income tax purposes, commencing with its taxable year ended December 31, 2011.
Substantially all of the Company’s assets and liabilities are held by, and all of its operations are conducted through, RLJ Lodging Trust, L.P. (the "Operating Partnership"). The Company is the sole general partner of the Operating Partnership. As of December 31, 2017,2021, there were 175,642,948167,274,893 units of limited partnership interest in the Operating Partnership (“OP units”) outstanding and the Company owned, through a combination of direct and indirect interests, 99.6%99.5% of the outstanding OP units.
As of December 31, 2017,2021, the Company owned 15898 hotel properties with approximately 31,00021,700 rooms, located in 2622 states and the District of Columbia. The Company, through wholly-owned subsidiaries, owned a 100% interest in 15496 of its hotel properties, a 98.3% controlling interest in the DoubleTree Metropolitan Hotel New York City, a 95%95.0% controlling interest in The Knickerbocker, and a 50% interestsinterest in entitiesan entity owning twoone hotel properties.property. The Company consolidates its real estate interests in the 15697 hotel properties in which it holds a controlling financial interest, and the Company records the real estate interests in the two hotelsone hotel in which it holds an indirect 50% interest using the equity method of accounting. The Company leases 15797 of the 15898 hotel properties to its taxable REIT subsidiaries ("TRS"), of which the Company owns a controlling financial interest.
The global outbreak of the novel coronavirus, or COVID-19, and the public health measures that have been undertaken in response have had, and will likely continue to have, a material impact on the Company's financial results. Since the extent to which the COVID-19 pandemic will continue to impact the Company's operations will depend on future developments that are highly uncertain, the Company cannot estimate the impact on its business, financial condition or near- or longer-term financial or operational results with reasonable certainty.
2. Summary of Significant Accounting Policies
Basis of Presentation and Principles of Consolidation
The consolidated financial statements and related notes have been prepared on the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America ("GAAP").
The consolidated financial statements include the accounts of the Company, the Operating Partnership and its wholly-owned subsidiaries, and joint ventures in which the Company has a majority voting interest and control. For the controlled subsidiaries that are not wholly-owned, the third-party ownership interest represents a noncontrolling interest, which is presented separately in the consolidated financial statements. The Company also records the real estate interests in two1 joint venturesventure in which it holds an indirect 50% interest using the equity method of accounting. All intercompany balances and transactions have been eliminated in consolidation.
Use of Estimates
The preparation of the Company’s financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of certain assets and liabilities and the amounts of contingent assets and liabilities at the balance sheet date and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Reclassifications
Certain prior year amounts in these financial statements have been reclassified to conform to the current year presentation with no impact to net income and comprehensive income, shareholders’ equity or cash flows.
Revenue
Revenue Recognition
Substantially all of the Company's revenues are derived from the operation of hotel properties. The Company’s revenue consists ofCompany generates room revenue by renting hotel rooms to customers at its hotel properties. The Company generates food and beverage revenue from the sale of food and beverage to customers at its hotel properties. The Company generates other revenue from other hotel operating departments (such as parking fees, golf, pool and other resort fees, gift shop sales and other guest service fees). These revenuesfees at its hotel properties.
A performance obligation is a promise in a contract to transfer a distinct good or service to the customer. A contract's transaction price is allocated to each distinct performance obligation and recognized as revenue when the performance obligation is satisfied. The Company's contracts generally have a single performance obligation, such as renting a hotel room to a customer, or providing food and beverage to a customer, or providing a hotel property-related good or service to a customer. The Company's performance obligations are generally satisfied at a point in time.
The Company allocates revenue to the performance obligation based on its relative standalone selling price. The Company determines the standalone selling price based on the price it charges each customer for the use or consumption of the promised good or service.
The Company's revenue is recognized when control of the promised good or service is transferred to the customer, in an amount that reflects the consideration the Company expects to receive in exchange for the promised good or service. The revenue is recorded net of any sales and occupancy taxes collected from the hotel guests.customer. All rebates or discounts are recorded as a reduction to revenue, and there are no material contingent obligations with respect to rebates and discounts offered by the hotels. All revenueshotel properties.
The timing of revenue recognition, billings, and cash collections results in the Company recognizing hotel and other receivables and advance deposits and deferred revenue on the consolidated balance sheet. Hotel and other receivables are recordedrecognized on the consolidated balance sheets when the Company has provided a good or service to the customer and is waiting for the customer to submit consideration to the Company. Advance deposits and deferred revenue are recognized on the consolidated balance sheets when cash payments are received in advance of the Company satisfying its performance obligation. Advance deposits and deferred revenue consist of amounts that are refundable and non-refundable to the customer. The advance deposits and deferred revenue are recognized as revenue in the consolidated statements of operations and comprehensive (loss) income when the Company satisfies its performance obligation to the customer.
For the majority of its goods or services and customers, the Company requires payment at the time the respective good or service is provided to the customer. The Company's payment terms vary by the type of customer and the goods or services offered to the customer. The Company applied a practical expedient to not disclose the value of unsatisfied performance obligations for contracts that have an accrual basis as theyoriginal expected length of one year or less. Any contracts that have an original expected length of greater than one year are earned. Aninsignificant.
The Company records an allowance for doubtful accounts is the Company'sbased on its best estimate of the amount of probable credit losses in the existing accounts receivable portfolio and it is recordedportfolio. The Company recognizes increases to the allowance for doubtful accounts as a bad debt expense. The allowance for doubtful accounts is calculated as a percentage of the aged accounts receivable. Any cash received priorreceivable based on the Company's historical collection activity and its understanding of the circumstances related to a guest's arrival is recorded as an advance deposit from the guest and recognized as revenue at the time of the guest's occupancy at the hotel property.specific receivable.
Investment in Hotel Properties
The Company’s acquisitions generally consist of land, land improvements, buildings, building improvements, furniture, fixtures and equipment ("FF&E"), and inventory. The Company may also acquire intangible assets or liabilities related to in-place leases, management agreements, franchise agreements, and advanced bookings. The Company allocates the purchase price among the assets acquired and the liabilities assumed based on their respective fair values at the date of acquisition. The Company estimates the fair values of the assets acquired and the liabilities assumed by using a combination of the market, cost and income approaches. The Company determines the fair value by using market data and independent appraisals available to usthe Company and making numerous estimates and assumptions. Transaction costs are expensed for acquisitions that are considered business combinationsassumptions, such as estimates of future income growth, replacement cost per unit, value per acre or buildable square foot, capitalization rates, discount rates, borrowing rates, market rental rates, capital expenditures and capitalized for asset acquisitions.cash flow projections at the respective hotel properties.
The Company’s investments in hotel properties are carried at cost and are depreciated using the straight-line method over the estimated useful lives of 15 years for land improvements, 15 years for building improvements, 40 years for buildings, and three to five years for FF&E. Maintenance and repairs are expensed and major renewals or improvements to the hotel properties are capitalized. Interest usedIndirect project costs, including interest, salaries and benefits, travel and other related costs that are
directly attributable to finance the real estate under development, is capitalized as an additional cost of development. The Company discontinues the capitalization of interest once the real estate development project is substantially complete.are also capitalized. Upon the sale or disposition of a hotel property, the asset and related accumulated depreciation accounts are removed and the related gain or loss is included in the gain or loss on sale of hotel properties in the consolidated statements of operations and comprehensive (loss) income. A sale or disposition of a hotel property that represents a strategic shift that has or will have a major effect on the Company's operations and financial results is presented as discontinued operations in the consolidated statements of operations and comprehensive (loss) income.
In accordance with the guidance on impairment or disposal of long-lived assets, the Company does not consider the "held for sale" classification on the consolidated balance sheet until it is probable that theexpected to qualify for recognition as a completed sale will be completed within one year and the other requisite criteria for such classification have been met. The Company does not depreciate hotel propertiesassets so long as they are classified as held for sale. Upon designation as held for sale and quarterly thereafter, the Company reviews the realizability of the carrying value, less costs to sell, in accordance with the guidance. Any such adjustment to the carrying value is recorded as an impairment loss.
The Company assesses the carrying value of its investments in hotel properties whenever events or changes in circumstances indicate that the carrying amounts may not be recoverable. The recoverability is measured by comparing the carrying amount to the estimatedprojected undiscounted future undiscounted cash flows expected to be generated from the operation and the eventual disposition of the hotel properties over the estimated hold period, which take into account current market conditions and the Company’s intent with respect to holding or disposing of the hotel properties. If the Company’s analysis indicates that the carrying value is not recoverable on ana projected undiscounted cash flow basis, the Company will recognize an impairment loss for the amount by which the carrying value exceeds the fair value. The fair value is determined through various valuation techniques, including internally developed discounted cash flow models, comparable market transactions, third-party appraisals, the net sales proceeds from pending offers, or third-party appraisals.
the net sales proceeds from transactions that closed subsequent to the end of the reporting period. The use of projected future cash flows is based on assumptions that are consistent with a market participant’s future expectations for the travel industry and the economy in general, including discount rates, sales proceeds in the reversion year, average daily rates, occupancy rates, operating expenses and capital expenditures, and the Company’s expected useCompany's intent with respect to holding or disposing of the underlying hotel properties. TheFair value may also be based on assumptions including, but not limited to, room revenue multiples and estimates related to the future cash flows and the capitalization rates are complex and subjective in nature. Changes in economic and operating conditions that occur subsequent to a current impairment analysis and the Company’s ultimate use of the hotel property could impact the assumptions and result in future impairment losses to the hotel properties.comparable sales adjusted for capital expenditures, if necessary.
For acquisitions that are considered business combinations, the Company recognizes the cumulative impact of a measurement period adjustment, if any, in the reporting period in which the adjustment is identified. Depending on the circumstances of the measurement period adjustment, the Company will disclose the prior period impact of the adjustment separately on the face of the consolidated statement of operations or in the notes to the consolidated financial statements.
Investment in Unconsolidated Joint Ventures
If the Company determines that it does not have a controlling financial interest in a joint venture, either through a controlling financial interest in a variable interest entity or through the Company's voting interest in a voting interest entity, but the Company exercises significant influence over the operating and financial policies of the joint venture, the Company accounts for the joint venture using the equity method of accounting. Under the equity method of accounting, the Company's investment is adjusted each reporting period to recognize the Company's share of the net earnings or losses of the joint venture, plus any contributions to the joint venture, less any distributions received from the joint venture and any adjustment for impairment. In addition, the Company's share of the net earnings or losses of the joint venture is adjusted for the straight-line depreciation of the difference between the Company's basis in the investment in the unconsolidated joint venturesventure as compared to the historical basis of the underlying net assets in the joint venture at the date of acquisition.
The Company assesses the carrying value of its investment in unconsolidated joint ventures whenever events or changes in circumstances may indicate that the carrying value of the investment exceeds its fair value on an other-than-temporary basis. When an impairment indicator is present, the Company will estimate the fair value of the investment, which will be determined by using internally developed discounted cash flow models, comparable market transactions, third-party appraisals, or if appropriate, the net sales proceeds from pending offers.offers, or the net sales proceeds from transactions that closed subsequent to the end of the reporting period. If the estimated fair value is less than the carrying value, and management determines that the decline in value is considered to be other-than-temporary, the Company will recognize an impairment loss on its investment in the joint venture.
The Company tracksevaluates the inception-to-date contributions,nature of the distributions and earnings forfrom each of ourits unconsolidated joint ventures.ventures in order to classify the distributions as either operating activities or investing activities in the consolidated statements of cash flows. Any cash distributions received updistribution that is considered to be a distribution of the aggregate historical earnings of the unconsolidated joint venture is presented as an operating activity in the consolidated statements of cash flows. Any cash distributions in excessdistribution that is considered to be a return of the aggregate historical earnings ofcapital from the unconsolidated joint venture is presented as an investing activity in the consolidated statements of cash flows.
Intangible Assets
In a business combination, the Company may acquire intangible assets related to in-place leases, management agreements, franchise agreements, advanced bookings, and other intangible assets. The Company recognizes each of the intangible assets at fair value. The Company estimated the fair value of the intangible assets by using market data and independent appraisals and making numerous estimates and assumptions. The below market lease intangible assets are amortized over the remaining terms of the respective leases as adjustments to rental expense in property tax, insurance and other in the consolidated statements of operations and comprehensive income. The advanced bookings intangible asset is amortized over the duration of the hotel room and guest event reservations period at the respective hotel property to depreciation and amortization in the consolidated statements of operations and comprehensive income. The other intangible assets are amortized over the remaining non-cancelable term of the related agreement or the useful life of the respective intangible asset to depreciation and amortization in the consolidated statements of operations and comprehensive income.
The Company assesses the carrying value of the intangible assets whenever events or changes in circumstances indicate that the carrying amounts may not be recoverable. The recoverability is measured by comparing the carrying amount to the estimated future undiscounted cash flows which take into account current market conditions and the Company’s intent with respect to holding or disposing of the hotel properties. If the Company’s analysis indicates that the carrying value is not recoverable on an undiscounted cash flow basis, the Company will recognize an impairment loss for the amount by which the carrying value exceeds the fair value. The fair value is determined through various valuation techniques, including internally developed discounted cash flow models or third-party appraisals.
Cash0Cash and Cash Equivalents
Cash and cash equivalents include all cash and highly liquid investments that mature three months or less when they are purchased. The Company maintains its cash at domestic banks, which, at times, may exceed the limits of the amounts insured by the Federal Deposit Insurance Corporation.
Restricted Cash Reserves
Restricted cash reserves consistsconsist of all cash that is required to be maintained in a reserve escrow account by a hotel management agreement, franchise agreement, and/or a mortgage loan agreement for the replacement of furniture, fixtures and equipmentFF&E and the funding of real estate taxes and insurance.
Hotel Receivables
Hotel receivables consist mainly of receivables due from hotel guests and meeting and banquet room rentals. The Company typically does not generally require collateral as ongoing credit evaluations are performed, and anperformed. An allowance for doubtful accounts is established against any receivable that is estimated to be uncollectible.
Deferred Financing Costs
Deferred financing costs are the costs incurred to obtain long-term financing. The deferred financing costs are recorded at cost and are amortized using the straight-line method, which approximates the effective interest method, over the respective term of the financing agreement and are included as a component of interest expense.expense in the consolidated statements of operations and comprehensive (loss) income. The Company expenses unamortized deferred financing costs when the associated financing agreement is refinanced or repaid before the maturity date, unless certain criteria are met that would allow for the carryover of such costs to the refinanced agreement. The Company presents the deferred financing costs for its Term Loans (as defined in Note 9)8) and mortgage loans on the balance sheet as a direct deduction from the carrying amount of the respective debt liability.liability, which is included in debt, net, in the accompanying consolidated balance sheets. The Company presents the deferred financing costs for its Revolver (as defined in Note 9)unsecured revolving credit facility (the "Revolver") on the balance sheet as an asset, which is included in prepaid expense and other assets in the accompanying consolidated balance sheets.
For the years ended December 31, 2017, 20162021, 2020 and 2015,2019, approximately $3.5$5.9 million, $4.0$4.4 million and $4.2$4.1 million, respectively, of amortization expense was recorded as a component of interest expense in the consolidated statements of operations and comprehensive income. Accumulated amortization at December 31, 2017 and 2016 was approximately $13.2 million and $9.7 million, respectively.
Advertising Costs
The Company expenses advertising costs as incurred. Advertising expense was approximately $6.2 million, $4.2 million and $4.1 million for the years ended December 31, 2017, 2016 and 2015, respectively, and is included in other operating expense in the consolidated statements of operations and comprehensive(loss) income.
Transaction Costs
The Company incurs costs during the review of potential hotel property acquisitions and dispositions, including legal fees architectural costs, environmental reviews, market studies, financial advisory, and other professional service fees. In addition, if the Company does completecompletes a hotel property acquisition, or a business combination, the Company may incur transfer taxes and integration costs, including professional fees and employee-related costs. TheseIf the Company completes a hotel property acquisition that is considered to be an asset acquisition, the transaction costs are capitalized on the consolidated balance sheets. If the Company completes a hotel property acquisition that is considered to be a business combination, the transaction costs are expensed as incurred in the consolidated statements of operations and comprehensive (loss) income. Transaction costs related to successful dispositions are included in (loss) gain on sale of hotel properties, net, in the consolidated statements of operations and comprehensive (loss) income. All transaction costs incurred in connection with unsuccessful transactions are expensed.
Derivative Financial Instruments
In the normal course of business, the Company is exposed to the effects of interest rate changes. The Company utilizes a variety of borrowing vehicles, including an unsecured revolving credit facility (the "Revolver")the Revolver and medium and long-term financings. The Company reduces its risk to interest rate changes by following its established risk management policies and procedures, including the use of derivative financial instruments as part of its interest rate risk management strategy. The Company utilizes derivatives to manage, or hedge, interest rate risk. To mitigate the Company's exposure to interest rate changes, the Company uses interest rate derivative instruments, typically interest rate swaps, to convert a portion of its variable rate debt to fixed rate debt. The Company attempts to require the hedging derivative instruments to be effective in reducing the interest rate risk exposure that they are designated to hedge. This effectiveness is essential in order to qualify for hedge accounting. Derivative financial instruments that meet the hedging criteria are formally designated as cash flow hedges at the inception of the derivative contract. The Company does not use derivative instruments for trading or speculative purposes.
Interest rate swap agreements contain a credit risk that the counterparties may be unable to fulfill the terms of the agreement. The Company has minimized thatthe credit risk by evaluating the creditworthiness of its counterparties, who are limited to major banks and financial institutions, and it does not anticipate nonperformance by these counterparties.
The estimated fair values of the derivatives have beenare determined by using available market information and appropriate valuation methods. Considerable judgment is required in interpreting market data to develop the estimates of fair value. Accordingly, the
estimates presented herein are not necessarily indicative of the amounts that the Company could realize in a current market exchange.
The Company recognizes all derivatives as assets or liabilities on its consolidated balance sheetsheets at fair value. The gains and losses on the derivatives that have been determined to be effective cash flow hedges are reported in other comprehensive (loss) income (loss) and are reclassified to interest expense in the period in which the interest expense is recognized on the underlying hedged item. The ineffective portion of the change in fair value of the interest rate derivatives is recognized in earnings immediately.
When the terms of an underlying transaction are modified, or when the underlying hedged item ceases to exist, and the interest rate derivative no longer qualifies for hedge accounting, all changes in the fair value of the derivative instrument are marked-to-market with the changes in fair value recognized in earnings each period until the derivative instrument matures.
Leases
As a lessee in a lease contract, the Company recognizes a lease right-of-use asset and a lease liability on the consolidated balance sheets. The Company is a lessee in a variety of lease contracts, such as ground leases, parking leases, office leases and equipment leases. The Company classifies its leases as either an operating lease or a finance lease based on the principle of whether or not the lease is effectively a financed purchase of the leased asset. For operating leases, the Company recognizes lease expense on a straight-line basis over the term of the lease. For finance leases, the Company recognizes lease expense on the effective interest method, which results in the interest component of each lease payment being recognized as interest expense and the lease right-of-use asset being amortized into amortization expense using the straight-line method over the term of the lease. For leases with an initial term of 12 months or less, the Company will not recognize a lease right-of-use asset and a lease liability on the consolidated balance sheets and lease expense will be recognized on a straight-line basis over the lease term.
At the lease commencement date, the Company determines the lease term by incorporating the fixed, non-cancelable lease term plus any lease extension option terms that are reasonably certain of being exercised. The ability to extend the lease term is at the Company's sole discretion. The Company calculates the present value of the future lease payments over the lease term in order to determine the lease liability and the related lease right-of-use asset that is recognized on the consolidated balance sheets.
Certain lease contracts may include an option to purchase the leased property, which is at the Company's sole discretion. The Company's lease contracts do not contain any material residual value guarantees or material restrictive covenants.
The Company's leases include a base lease payment, which is recognized as lease expense on a straight-line basis over the lease term. In addition, certain of the Company's leases may include an additional lease payment that is based on either (i) a percentage of the respective hotel property's financial results, or (ii) the frequency to which the leased asset is used; all of which are recognized as variable lease expense, when incurred, in the consolidated statements of operations and comprehensive (loss) income. The variable lease expense incurred by the Company was not based on an index or rate.
The Company will use the implicit rate in a lease contract in order to determine the present value of the future lease payments over the lease term. If the implicit rate in the lease contract is not available, then the Company will use its incremental borrowing rate at the lease commencement date. The Company determined its incremental borrowing rate for each lease contract by using the U.S. Treasury interest rates yield curve, and then making adjustments for the lease term, the Company’s credit spread, the Company’s ability to borrow on a secured basis, the quality and condition of the leased asset and the current economic environment.
As a lessor in a lease contract, the Company classifies its leases as either an operating lease, direct financing lease, or a sales-type lease. The Company leases space at its hotel properties to third parties, who use the space for their restaurants or retail locations. The Company classifies these lease contracts as operating leases, so the Company will continue to recognize the underlying leased asset as an investment in hotel properties on the consolidated balance sheets. Lease revenue is recognized on a straight-line basis over the lease term. Variable lease revenue is recognized over the lease term when it is earned and becomes receivable from the lessee, according to the provisions of the respective lease contract. The Company only capitalizes the incremental direct costs of leasing, so any indirect costs of leasing will be expensed as incurred.
Noncontrolling Interests
The consolidated financial statements include all subsidiaries controlled by the Company. For the controlled subsidiaries that are not wholly-owned, the third-party ownership interest represents a noncontrolling interest, which is presented separately in the consolidated financial statements.
As of December 31, 2017,2021 and 2020, the Company consolidated the Operating Partnership, which has a 0.4%0.5% third-party ownership interest. The third-party ownership interest is included in the noncontrolling interest in the Operating Partnership in the equity section of the consolidated balance sheets. The portion of the income and losses associated with the third-party ownership interest are included in the noncontrolling interest in the Operating Partnership in the consolidated statements of operations and comprehensive (loss) income.
As of December 31, 2017,2021 and 2020, the Company consolidated the joint venture that owns The Knickerbocker hotel property; this joint venture has a 5% third-party ownership interest in the joint venture. The Company also consolidated the joint venture that owned the DoubleTree Metropolitan Hotel New York City hotel property; this joint venture has a 1.7% third-party ownership interest in the joint venture. The Company also consolidated the joint venture that owns The KnickerbockerThis hotel property; this joint venture has a 5% third-party ownership interestproperty was sold in the joint venture.December 2021. In addition, the Company consolidated the operating lessee of the Embassy Suites Secaucus - Meadowlands hotel property through its 51% controlling financial interest in the operating lessee of the joint venture; this joint venture has a 49% third-party ownership interest in the joint venture. On October 31, 2021, the ground lease associated with this hotel property was terminated and the hotel property reverted to the ground lessor. The third-party ownership interest isinterests are included in the noncontrolling interest in consolidated joint ventures in the equity section of the consolidated balance sheets. The income and losses associated with the third-party ownership interest are included in the noncontrolling interest in consolidated joint ventureventures in the consolidated statements of operations and comprehensive (loss) income.
Preferred Equity in a Consolidated Joint Venture
The Knickerbocker joint venture raised capital through the sale of redeemable preferred equity under the EB-5 Immigrant Investor Program. Based on the redemption features of the preferred equity, the Company presents the preferred equity raised by the Knickerbocker joint venture as preferred equity in a consolidated joint venture within the equity section of the consolidated balance sheets.
Income Taxes
The Company has elected to be taxed as a REIT under Sections 856 through 860 of the Internal Revenue Code of 1986, as amended. To qualify as a REIT, the Company must meet a number of organizational and operational requirements, including a requirement that it distribute at least 90% of its REIT taxable income, determined without regardsubject to the deduction for dividends paidcertain adjustments and excluding any net capital gain, to shareholders. The Company's current intention is to adhere to thesethe REIT qualification requirements and to maintain its qualification for taxation as a REIT.
As a REIT, the Company is generally is not subject to U.S. federal corporate income tax on the portion of taxable income that is distributed to shareholders. If the Company fails to qualify for taxation as a REIT in any taxable year, itthe Company will be subject to U.S. federal income taxes at regular corporate rates (including any applicable alternative minimum tax) and it may not be able to qualify as a REIT for four subsequent taxable years. Even ifAs a REIT, the Company qualifies for taxation as a REIT, it may be subject to certain state and local taxes on its income and property, and to U.S. federal income and excise taxes on its undistributed taxable income. Taxable income from non-REIT activities managed through taxable REIT subsidiariesthe Company's TRSs is subject to U.S. federal, state, and local income taxes.taxes at the applicable rates.
IncomeThe Company accounts for income taxes are recorded using the asset and liability method. Under this method, deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to the differences between the financial statement carrying amounts of existing assets and liabilities and their respective income tax bases, and for net operating loss, capital loss and tax credit carryforwards. The deferred tax assets and liabilities are measured using the enacted income tax rates in effect for the
year in which those temporary differences are expected to be realized or settled. The effect on the deferred tax assets and liabilities from a change in tax rates is recognized in earnings in the period when the new rate is enacted. However, deferred tax assets are recognized only to the extent that it is more likely than not that they will be realized based on consideration of all available evidence, including the future reversals of existing taxable temporary differences, future projected taxable income and tax planning strategies. Valuation allowances are provided if, based upon the weight of the available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized.
The Company performs an annual review for any uncertain tax positions and, if necessary, will record the expected future tax consequences of uncertain tax positions in the consolidated financial statements.
Earnings Per Common Share
Basic earnings per common share is calculated by dividing net income attributable to common shareholders by the weighted-average number of common shares outstanding during the period excluding the weighted-average number of unvested restricted shares and performance units outstanding during the period. Diluted earnings per common share is calculated by
dividing net income attributable to common shareholders by the weighted-average number of common shares outstanding during the period, plus any shares that could potentially be outstanding during the period. The potential shares consist of unvested share-based awards,restricted share grants and unvested performance units, calculated using the treasury stock method. Any anti-dilutive shares have been excluded from the diluted earnings per common share calculation.
Share-based Compensation
From time to time, theThe Company may issue share-based awards as compensation to officers, employees, non-employee trustees and other eligible persons under the RLJ Lodging Trust 20152021 Equity Incentive Plan (the "2015"2021 Plan") as compensation to officers, employees and non-employee trustees., which was approved by the Company's shareholders on April 30, 2021. The vesting of the awards issued to the officers and employees is based on either the continued employment (time-based) or the relative total shareholder returns of the Company and continued employment (performance-based), as determined by the board of trustees at the date of grant. For time-based awards, the Company recognizes compensation expense for the unvested restricted shares on a straight-line basis over the vesting period based upon the fair market value of the shares on the date of grant, adjusted for forfeitures. For performance-based awards, the Company recognizes compensation expense over the requisite service period for each award, based on the fair market value of the shares on the date of grant, as determined using a Monte Carlo simulation, adjusted for forfeitures.
Non-employee trustees may elect to receive unrestricted shares under the 2021 Plan as compensation that would otherwise be paid in cash for their services. The shares issued to the non-employee trustees in lieu of cash compensation are unrestricted and include no vesting conditions. The Company recognizes compensation expense for the unrestricted shares issued in lieu of cash compensation based upon the fair market value of the shares on the date of issuance.
Recently Issued Accounting Pronouncements
In May 2014,December 2019, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2014-09, Revenue from Contracts with Customers, which supersedes or replaces nearly all GAAP revenue recognition guidance. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. The guidance establishes a new control-based revenue recognition model that changes the basis for deciding when revenue is recognized over time or at a point in timeenhances and expands the disclosures about revenue. The guidance also applies to sales of real estate and the new principles-based approach is largely based on the transfer of controlsimplifies various aspects of the real estatecurrent income tax guidance and reduces complexity by removing certain exceptions to the buyer. The guidance is effective for annual reporting periods beginning after December 15, 2017, and the interim periods within those annual periods, with early adoption permitted.general framework. The Company adopted this standard on January 1, 2018 using the modified retrospective transition method. Based on the Company's assessment, the adoption of this standard will not have a material impact on the Company's consolidated financial statements but it will result in additional disclosures in the notes to the consolidated financial statements.
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). The guidance will require lessees to recognize a right-of-use asset and a lease liability for most of their leases on the balance sheet, and an entity will need to classify its leases as either an operating or finance lease in order to determine the income statement presentation. Leases with a term of 12 months or less will be accounted for similar to the existing guidance today for operating leases. Lessors will classify their leases using an approach that is substantially equivalent to the existing guidance today for operating, direct financing, or sales-type leases. Lessors may only capitalize the incremental direct costs of leasing, so any indirect costs of leasing will be expensed as incurred. The guidance requires an entity to separate the lease components from the non-lease components in a contract, with the lease components being accounted for in accordance with ASC 842 and the non-lease components being accounted for in accordance with other applicable accounting guidance. The guidance is effective for annual reporting periods beginning after December 15, 2018, and the interim periods within those annual periods, with early adoption permitted. The Company expects to adopt this new standard on January 1, 2019.2021. The Company has not yet completed its analysis on this standard, but it believes the application of the new standard will result in the recording of a right-of-use asset and a lease liability on the consolidated balance sheet for each of its ground leases and equipment leases, which represent the majority of
the Company's current operating lease payments. The Company does not expect the adoption of this standard will materially affect its consolidated statements of operations and comprehensive income.
In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230), Restricted Cash. This guidance requires that the statement of cash flows reconcile the change during the period in the total of cash, cash equivalents, and restricted cash reserves. As a result, the restricted cash reserves will be included with cash and cash equivalents when reconciling the beginning-of-period and the end-of-period total amounts presented in the statement of cash flows. The Company adopted the guidance on October 1, 2017, and applied its provisions retrospectively. The adoption of ASU 2016-18 did not have a material impact on the Company's consolidated financial statements.
In January 2017,March 2020, the FASB issued ASU 2017-01, Business Combinations2020-04, Reference Rate Reform (Topic 805)848): ClarifyingFacilitation of the DefinitionEffects of a Business.Reference Rate Reform on Financial Reporting. The guidance clarifies the definition of a business with the objective of adding guidanceprovides optional expedients for applying GAAP to assist companiescontracts, hedging relationships, and other reporting organizations with evaluating whether transactions should be accounted for as acquisitions (or disposals)that reference the London Interbank Offered Rate ("LIBOR") or another reference rate that was discontinued at the end of assets or businesses. The changes to the definition2021 because of a business will likely result in more acquisitions being accounted for as asset acquisitions across all industries.reference rate reform. The guidance iswas effective for annual reporting periods beginning afterupon issuance and expires on December 15, 2017, and the interim periods within those annual periods. The Company adopted this guidance on January 1, 2018. The Company will evaluate each future acquisition (or disposal) to determine whether it will be considered to be an acquisition (or disposal) of assets or a business. The Company does not believe the accounting for each future acquisition (or disposal) of assets or a business will be materially different, therefore, the adoption of this guidance will not have a material impact on the Company's consolidated financial statements.
In February 2017, the FASB issued ASU 2017-05, Other Income - Gains and Losses from the Derecognition of Nonfinancial Assets (Subtopic 610-20): Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets. The guidance clarifies that ASC 610-20 applies to the derecognition of nonfinancial assets, including real estate, and in substance nonfinancial assets, which are defined as assets or a group of assets for which substantially all of the fair value consists of nonfinancial assets and the group or subsidiary is not a business. As a result of the guidance, sales and partial sales of real estate assets will be accounted for similar to all other sales of nonfinancial and in substance nonfinancial assets. The guidance is effective for annual reporting periods beginning after December 15, 2017, and the interim periods within those annual periods, with early adoption permitted. The Company adopted this guidance on January 1, 2018 using the modified retrospective transition method.31, 2022. Based on the Company's assessment, the adoption ofthere was no material impact arising from this guidance willand the Company did not have a material impact onelect to apply any of the Company's consolidated financial statements.optional expedients.
3. Merger with FelCor Lodging Trust IncorporatedInvestment in Hotel Properties
On August 31, 2017 (the "Acquisition Date"), the Company, the Operating Partnership, Rangers Sub I, LLC, a wholly owned subsidiary of the Operating Partnership ("Rangers"), and Rangers Sub II, LP, a wholly owned subsidiary of the Operating Partnership ("Partnership Merger Sub"), consummated the transactions contemplated by the Agreement and Plan of Merger (the "Merger Agreement"), dated as of April 23, 2017, with FelCor Lodging Trust Incorporated ("FelCor") and FelCor Lodging Limited Partnership ("FelCor LP") pursuant to which Partnership Merger Sub merged with and into FelCor LP, with FelCor LP surviving as a wholly owned subsidiary of the Operating Partnership (the "Partnership Merger"), and, immediately thereafter, FelCor merged with and into Rangers, with Rangers surviving as a wholly owned subsidiary of the Operating Partnership (the "REIT Merger" and, together with the Partnership Merger, the "Mergers").
Upon completion of the REIT Merger and under the terms of the Merger Agreement, each issued and outstanding share of common stock, par value $0.01 per share, of FelCor (other than shares held by any wholly owned subsidiary of FelCor or by the Company or any of its subsidiaries) was converted into the right to receive 0.362 (the "Common Exchange Ratio") common shares of beneficial interest, par value $0.01 per share, of the Company (the "Common Shares"), and each issued and outstanding share of $1.95 Series A cumulative convertible preferred stock, par value $0.01 per share, of FelCor was converted into the right to receive one $1.95 Series A Cumulative Convertible Preferred Share, par value $0.01 per share, of the Company (a "Series A Preferred Share").
Upon completion of the Partnership Merger and under the terms of the Merger Agreement, each limited partner of FelCor LP was entitled to elect to exchange its outstanding common limited partnership unitsInvestment in FelCor LP (the "FelCor LP Common Units") for a number of newly issued Common Shares based on the Common Exchange Ratio. Upon completion of the Partnership Merger, each outstanding FelCor LP Common Unit of any holder who did not make the foregoing election was converted into the right to receive a number of common limited partnership units in the Operating Partnership (the "OP Units") based on the Common Exchange Ratio. No fractional shares of units of Common Shares or OP Units were issued in the Mergers, and the value of any fractional interests was paid in cash.
The Company accounted for the Mergers under the acquisition method of accounting in ASC 805, Business Combinations. As a result of the Mergers, the Company acquired an ownership interest in the following 37 hotel properties:
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Hotel Property Name | | Location | | Ownership Interest | | Management Company | | Rooms |
DoubleTree Suites by Hilton Austin | | Austin, TX | | 100% | | Hilton | | 188 |
DoubleTree Suites by Hilton Orlando - Lake Buena Vista | | Orlando, FL | | 100% | | Hilton | | 229 |
Embassy Suites Atlanta - Buckhead | | Atlanta, GA | | 100% | | Hilton | | 316 |
Embassy Suites Birmingham | | Birmingham, AL | | 100% | | Hilton | | 242 |
Embassy Suites Boston Marlborough | | Marlborough, MA | | 100% | | Hilton | | 229 |
Embassy Suites Dallas - Love Field | | Dallas, TX | | 100% | | Aimbridge Hospitality | | 248 |
Embassy Suites Deerfield Beach - Resort & Spa | | Deerfield Beach, FL | | 100% | | Hilton | | 244 |
Embassy Suites Fort Lauderdale 17th Street | | Fort Lauderdale, FL | | 100% | | Hilton | | 361 |
Embassy Suites Los Angeles - International Airport South | | El Segundo, CA | | 100% | | Hilton | | 349 |
Embassy Suites Mandalay Beach - Hotel & Resort | | Oxnard, CA | | 100% | | Hilton | | 250 |
Embassy Suites Miami - International Airport | | Miami, FL | | 100% | | Hilton | | 318 |
Embassy Suites Milpitas Silicon Valley | | Milpitas, CA | | 100% | | Hilton | | 266 |
Embassy Suites Minneapolis - Airport | | Bloomington, MN | | 100% | | Hilton | | 310 |
Embassy Suites Myrtle Beach - Oceanfront Resort | | Myrtle Beach, SC | | 100% | | Hilton | | 255 |
Embassy Suites Napa Valley | | Napa, CA | | 100% | | Hilton | | 205 |
Embassy Suites Orlando - International Drive South/Convention Center | | Orlando, FL | | 100% | | Hilton | | 244 |
Embassy Suites Phoenix - Biltmore | | Phoenix, AZ | | 100% | | Hilton | | 232 |
Embassy Suites San Francisco Airport - South San Francisco | | San Francisco, CA | | 100% | | Hilton | | 312 |
Embassy Suites San Francisco Airport - Waterfront | | Burlingame, CA | | 100% | | Hilton | | 340 |
Embassy Suites Secaucus - Meadowlands (1) | | Secaucus, NJ | | 50% | | Hilton | | 261 |
Hilton Myrtle Beach Resort | | Myrtle Beach, SC | | 100% | | Hilton | | 385 |
Holiday Inn San Francisco - Fisherman's Wharf | | San Francisco, CA | | 100% | | InterContinental Hotels | | 585 |
San Francisco Marriott Union Square | | San Francisco, CA | | 100% | | Marriott Hotel Services | | 400 |
Sheraton Burlington Hotel & Conference Center (3) | | Burlington, VT | | 100% | | Marriott Hotel Services | | 309 |
Sheraton Philadelphia Society Hill Hotel | | Philadelphia, PA | | 100% | | Marriott Hotel Services | | 364 |
The Fairmont Copley Plaza (4) | | Boston, MA | | 100% | | FRHI Hotels & Resorts | | 383 |
The Knickerbocker New York | | New York, NY | | 95% | | Highgate Hotels | | 330 |
The Mills House Wyndham Grand Hotel | | Charleston, SC | | 100% | | Wyndham | | 216 |
The Vinoy Renaissance St. Petersburg Resort & Golf Club | | St. Petersburg, FL | | 100% | | Marriott Hotel Services | | 361 |
Wyndham Boston Beacon Hill | | Boston, MA | | 100% | | Wyndham | | 304 |
Wyndham Houston - Medical Center Hotel & Suites | | Houston, TX | | 100% | | Wyndham | | 287 |
Wyndham New Orleans - French Quarter | | New Orleans, LA | | 100% | | Wyndham | | 374 |
Wyndham Philadelphia Historic District | | Philadelphia, PA | | 100% | | Wyndham | | 364 |
Wyndham Pittsburgh University Center | | Pittsburgh, PA | | 100% | | Wyndham | | 251 |
Wyndham San Diego Bayside | | San Diego, CA | | 100% | | Wyndham | | 600 |
Wyndham Santa Monica At The Pier | | Santa Monica, CA | | 100% | | Wyndham | | 132 |
Chateau LeMoyne - French Quarter, New Orleans (2) | | New Orleans, LA | | 50% | | InterContinental Hotels | | 171 |
| | | | | | | | 11,215 |
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(1) | The Company owns an indirect 50% ownership interest in the real estate at this hotel property and records the real estate interests using the equity method of accounting. The Company leases the hotel property to its TRS, of which the Company owns a controlling financial interest in the operating lessee, so the Company consolidates its ownership interest in the leased hotel. |
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(2) | The Company owns an indirect 50% ownership interest in this hotel property and accounts for its ownership interest using the equity method of accounting. This hotel property is operated without a lease. |
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(3) | In December 2017, this hotel property was converted to the DoubleTree by Hilton Burlington Vermont. |
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(4) | In December 2017, the Company sold this hotel property for a sale price of $170.0 million. |
The total consideration for the Mergers was approximately $1.4 billion, which included the Company's issuance of approximately 50.4 million common shares at $20.18 per share to FelCor common stockholders, the Company's issuance of approximately 12.9 million Series A Preferred Shares at $28.49 per share to former FelCor preferred stockholders, the Operating Partnership's issuance of approximately 0.2 million OP Units at $20.18 per unit to former FelCor LP limited partners, and cash. The total considerationproperties consisted of the following (in thousands):
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| December 31, 2021 | | December 31, 2020 |
Land and improvements | $ | 975,688 | | | $ | 1,089,597 | |
Buildings and improvements | 4,001,875 | | | 4,084,712 | |
Furniture, fixtures and equipment | 691,057 | | | 697,404 | |
| 5,668,620 | | | 5,871,713 | |
Accumulated depreciation | (1,449,504) | | | (1,385,297) | |
Investment in hotel properties, net | $ | 4,219,116 | | | $ | 4,486,416 | |
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| | Total Consideration |
Common Shares | | $ | 1,016,227 |
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Series A Preferred Shares | | 366,936 |
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OP Units | | 4,342 |
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Cash, net of cash, cash equivalents, and restricted cash reserves acquired | | 24,883 |
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Total consideration | | $ | 1,412,388 |
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The Company allocatedFor the purchase price consideration as follows (in thousands):
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| | August 31, 2017 |
Investment in hotel properties | | $ | 2,661,114 |
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Investment in unconsolidated joint ventures | | 25,651 |
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Hotel and other receivables | | 28,308 |
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Deferred income tax assets | | 58,170 |
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Intangible assets | | 139,673 |
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Prepaid expenses and other assets | | 23,811 |
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Debt | | (1,305,337 | ) |
Accounts payable and other liabilities | | (118,360 | ) |
Advance deposits and deferred revenue | | (23,795 | ) |
Accrued interest | | (22,612 | ) |
Distributions payable | | (4,312 | ) |
Noncontrolling interest in consolidated joint ventures | | (5,493 | ) |
Preferred equity in a consolidated joint venture | | (44,430 | ) |
Total consideration | | $ | 1,412,388 |
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During the fourth quarter of 2017,years ended December 31, 2021, 2020 and 2019, the Company refined its valuation models to reflect changes in inputs and assumptionsrecognized depreciation expense related to cash flow projections, discount rates, and tax attributes. Therefore, the Company recorded certain measurement period adjustments to decreaseits investment in hotel properties by $12.5of approximately $187.2 million, $193.3 million and $209.6 million, respectively.
Impairments
During the third quarter of 2021, the Company evaluated the recoverability of the carrying amount of the DoubleTree Metropolitan Hotel New York City and recorded an impairment loss of $138.9 million to decrease intangible assets by $12.0 million,adjust the hotel's carrying amount to increase deferred income tax assets by approximately $26.2 million, to increase prepaid expenses and other assets by $1.2 million, to increase accounts payable and other liabilities by $2.6 million, and to increase noncontrolling interest in consolidated joint ventures by $0.3 million.
its estimated fair value. The Company used the following valuation methodologies, inputs, and assumptions to estimate the fair value of the assets acquired, the liabilities assumed, and the equity interests acquired:
Investment in hotel properties — The Company estimated the fair values of the land and improvements, buildings and improvements, and furniture, fixtures, and equipment at the hotel properties by using a combination of the market, cost, and income approaches. These valuation methodologies arewas determined based on significantthe contractual sales price pursuant to an executed purchase
and sale agreement (a Level 3 inputs2 measurement in the fair value hierarchy, such as estimateshierarchy). The sale of future income growth, capitalization rates, discount rates, capital expenditures, and cash flow projections atthis hotel property closed in December 2021. Refer to Note 5, Sale of Hotel Properties, for more information regarding the respectivesale of this hotel properties.property.
Investment in unconsolidated joint ventures — TheDuring the first quarter of 2021, the Company estimatedevaluated the fair valuerecoverability of its real estate interests in the unconsolidated joint ventures by using the same valuation methodologies for the investment intwo hotel properties noted above and forrecorded an impairment loss of $5.9 million to adjust the debt noted below.hotels’ carrying amounts to their estimated fair values. The Company recognized the net assets acquiredfair values were determined based on its respective ownership interest in the joint venture accordingcontractual sales price pursuant to the joint venture agreement.
Deferred income tax assets — The Company estimated the future realizable value of the deferred income tax assets by estimating the amount of the net operating loss that will be utilized in future periods by the acquired taxable REIT
subsidiaries. The Company then applied its applicable effective tax rate against the net operating losses to determine the appropriate deferred income tax assets to recognize. This valuation methodology is based onan executed purchase and sale agreement (a Level 3 inputs2 measurement in the fair value hierarchy.hierarchy). The sales of these hotel properties closed in May 2021. Refer to Note 5, Sale of Hotel Properties, for more information regarding the sales of these hotel properties.
Intangible assets —During year ended December 31, 2019, the Company recorded an impairment loss of $13.5 million related to two hotel properties. The Company estimatedevaluated the fair valuerecoverability of its below market ground lease intangible assets by calculating the presentcarrying value of the difference betweenhotels due to adverse changes in the contractual rental amounts paid according to the in-place lease agreements and the market rental rates for similar leased space, measured over a period equal to the remaining non-cancelable termoperating performance of the lease. This valuation methodology is basedhotels. Based on Level 3 inputs in the fair value hierarchy. The below market ground lease intangible assets are amortized over the remaining termsan analysis of the respective leases as adjustments to rental expense in property tax, insurance and other inestimated undiscounted net cash flows, the consolidated statementsCompany concluded that the carrying value of operations and comprehensive income.the hotels was not recoverable. The Company estimated the fair value of the advanced bookings intangiblehotels using a weighted valuation approach considering room revenue multiples and comparable sales adjusted for capital expenditures. The valuation approach included significant unobservable inputs, including revenue growth projections and prevailing market multiples, from third party sources. There were no impairment losses recorded during the year ended December 31, 2020.
4.Acquisition of Hotel Properties
During the year ended December 31, 2021, the Company acquired a 100% interest in the following properties:
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Property | | Location | | Acquisition Date | | Management Company | | Rooms | | Purchase Price (in thousands) |
Hampton Inn and Suites Atlanta Midtown | | Atlanta, GA | | August 5, 2021 | | Aimbridge Hospitality | | 186 | | | $ | 58,000 | |
AC Hotel Boston Downtown | | Boston, MA | | October 18, 2021 | | Colwen Management | | 205 | | | $ | 89,000 | |
Moxy Denver Cherry Creek (1) | | Denver, CO | | December 23, 2021 | | Sage Hospitality | | 170 | | | $ | 51,250 | |
| | | | | | | | 561 | | | $ | 198,250 | |
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(1) In connection with this acquisition, the Company assumed a $25.0 million mortgage loan with a fair value at assumption of $27.6 million.
The hotel properties acquired were accounted for as asset by using the income approach to determine the projected cash flows that a hotel property will receiveacquisitions, whereby approximately $2.0 million of transaction costs were capitalized as a result of future hotel room and guests events that have already been reserved and pre-booked at the hotel property aspart of the Acquisition Date. This valuation methodology is based on Level 3 inputs in the fair value hierarchy. The advanced bookings intangible asset is amortized over the durationcost of the hotel room and guest event reservations period atasset acquisitions. The allocation of the hotel property to depreciation and amortization incosts for the consolidated statements of operations and comprehensive income. The Company recognized the following intangible assets in the Mergers (dollars inproperties acquired was as follows (in thousands): | | | | | | | |
| December 31, 2021 |
| | | |
Land and improvements | $ | 32,550 | | | |
Buildings and improvements | 150,400 | | | |
Furniture, fixtures and equipment | 16,472 | | | |
Favorable lease asset | 4,294 | | | |
Fair value adjustment on mortgage debt assumed | (2,554) | | | |
Other liability | (898) | | | |
Total purchase price | $ | 200,264 | | | |
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| | | | Weighted Average Amortization Period (in Years) |
Below market ground leases | | $ | 118,050 |
| | 54 |
Advanced bookings | | 13,862 |
| | 1 |
Other intangible assets | | 7,761 |
| | 6 |
Total intangible assets | | $ | 139,673 |
| | 46 |
Above market ground lease liabilities — The Company estimated the fair value of its above market ground lease liabilities by calculating the present value of the difference between the contractual rental amounts paid according to the in-place lease agreements and the market rental rates for similar leased space, measured over a period equal to the remaining non-cancelable term of the lease. This valuation methodology isassets acquired was primarily based on Level 3a sales comparison approach (for land) and a depreciated replacement cost approach (for building and improvements and furniture, fixtures and equipment). The sales comparison approach used inputs of recent land sales in the fair value hierarchy.respective hotel markets. The Companydepreciated replacement cost approach used inputs of both direct and indirect replacement costs using a nationally recognized approximately $15.5 millionauthority on replacement cost information as well as the age, square footage and number of above market ground lease liabilities in the Mergers, which are included in accounts payable and other liabilities in the accompanying consolidated balance sheet. The above market ground lease liabilities are amortized over the remaining termsrooms of the respective leases as adjustments to rental expense in property tax, insurance and other in the consolidated statements of operations and comprehensive income.
Debt —assets. The Company estimated the fair value of the Senior Notes by using publicly available trading prices, market interest rates, and spreads for the Senior Notes, which are Level 3 inputs in the fair value hierarchy. The Company estimated the fair value of theassumed mortgage loans usingdebt was based on a discounted cash flow model and incorporated various inputs and assumptions for the effective borrowing rates for debt with similar terms and the loan to estimatedterms. The fair value of the collateral, which are Level 3 inputs in the fair value hierarchy. The Company recognized approximately $71.7 million in above market debt fair value adjustmentsground lease was based on the Senior Notes and the mortgage loans assumed in the Mergers, which is included in debt, net in the accompanying consolidated balance sheet. The above market debt fair value adjustments are amortized over the remaining terms of the respective debt instruments as adjustments to interest expense in the consolidated statements of operations and comprehensive income.
Noncontrolling interest in consolidated joint ventures — The Company estimated the fairpresent value of the consolidated joint ventures by usingdifference between the same valuation methodologiescontractual rental amount paid according to the ground lease agreement and the market rental rates for similar leases, measured over a period equal to the investment in hotel properties noted above. The Company then recognized the fair valueremaining non-cancelable term of the noncontrolling interest in the consolidated joint ventures based on the joint venture partner's ownership interest in the consolidated joint venture. This valuation methodology is based on Level 3 inputs and assumptions in the fair value hierarchy.ground lease.
Preferred equity in a consolidated joint venture — The Company estimated the fair value
5. Sale of the preferred equity in a consolidated joint venture by comparing the contractual terms of the preferred equity agreement to market-based terms of a similar preferred equity agreement, which is based on Level 3 inputs in the fair value hierarchy.
Hotel and other receivables, prepaid expenses and other assets, accounts payable and other liabilities, advance deposits and deferred revenue, accrued interest, and distributions payable — The carrying amounts of the assets acquired, the liabilities assumed, and the equity interests acquired approximate fair value because of their short term maturities.
For the hotel properties acquired during the year ended December 31, 2017, the total revenues and net income from the date of acquisition through December 31, 2017 are included in the accompanying consolidated statements of operations and comprehensive income as follows (in thousands):
|
| | | |
| For the year ended December 31, 2017 |
Revenue | $ | 260,020 |
|
Net income | $ | 14,994 |
|
The following table presents the costs that were incurred in connection with the Mergers (in thousands):
|
| | | |
| For the year ended December 31, 2017 |
Transaction costs | $ | 38,391 |
|
Integration costs | 5,696 |
|
| $ | 44,087 |
|
The transaction costs primarily related to transfer taxes and financial advisory, legal, and other professional service fees in connection with the Mergers. The integration costs primarily related to professional fees and employee-related costs, including compensation for transition employees. The merger-related costs noted above are included in transaction costs in the accompanying consolidated statements of operations and comprehensive income.
The following unaudited condensed pro forma financial information presents the results of operations as if the Mergers had taken place on January 1, 2016. The unaudited condensed pro forma financial information is not necessarily indicative of what the actual results of operations of the Company would have been assuming the Mergers had taken place on January 1, 2016, nor is it indicative of the results of operations for future periods. The unaudited condensed pro forma financial information is as follows (in thousands):
|
| | | | | | | |
| For the year ended December 31, |
| 2017 | | 2016 |
| (unaudited) |
Revenue | $ | 1,893,899 |
| | $ | 1,996,517 |
|
Net income attributable to common shareholders | $ | 110,231 |
| | $ | 213,354 |
|
Net income per share attributable to common shareholders - basic | $ | 0.63 |
| | $ | 1.23 |
|
Net income per share attributable to common shareholders - diluted | $ | 0.63 |
| | $ | 1.22 |
|
Weighted-average number of shares outstanding - basic | 174,142,918 |
| | 174,009,107 |
|
Weighted-average number of shares outstanding - diluted | 174,220,129 |
| | 174,237,111 |
|
4. Investment in Hotel Properties
Investment inIn connection with the sale of hotel properties consisted of the following (in thousands):
|
| | | | | | | |
| December 31, 2017 | | December 31, 2016 |
Land and improvements | $ | 1,275,030 |
| | $ | 675,889 |
|
Buildings and improvements | 4,890,266 |
| | 3,050,043 |
|
Furniture, fixtures and equipment | 756,546 |
| | 595,816 |
|
| 6,921,842 |
| | 4,321,748 |
|
Accumulated depreciation | (1,129,917 | ) | | (953,972 | ) |
Investment in hotel properties, net | $ | 5,791,925 |
| | $ | 3,367,776 |
|
Forfor the years ended December 31, 2017, 20162021, 2020, and 2015,2019, the Company recognized depreciation and amortization expense related to its investment in hotel propertiesrecorded a net loss of approximately $182.0$2.4 million,, $162.2 a net gain of $2.7 million, and $155.8a net loss of $9.3 million, respectively.
Impairment
During the years ended December 31, 2017 and 2016, the Company determined that there was no impairment of any assets.
During the year ended December 31, 2015,2021, the Company recorded an impairment losssold seven hotel properties in seven separate transactions for a combined sales price of $1.0 million related to oneapproximately $208.5 million.
The following hotel property. The Company evaluatedproperties were sold during the recoverability ofyear ended December 31, 2021:
| | | | | | | | | | | | | | | | | | | | |
Hotel Property Name | | Location | | Sale Date | | Rooms |
Courtyard Houston Sugarland | | Stafford, TX | | January 21, 2021 | | 112 | |
Residence Inn Indianapolis Fishers | | Indianapolis, IN | | May 10, 2021 | | 78 | |
Residence Inn Chicago Naperville | | Warrenville, IL | | May 12, 2021 | | 130 | |
Fairfield Inn & Suites Chicago Southeast Hammond | | Hammond, IN | | July 15, 2021 | | 94 | |
Residence Inn Chicago Southeast Hammond | | Hammond, IN | | August 3, 2021 | | 78 | |
Courtyard Chicago Southeast Hammond | | Hammond, IN | | August 5, 2021 | | 85 | |
DoubleTree Metropolitan Hotel New York City | | New York, NY | | December 15, 2021 | | 764 | |
| | | | | | 1,341 | |
During the hotel property's carrying value given the expectation to sell the hotel before the end of its previously estimated useful life. Based on an analysis of the estimated undiscounted net cash flows,year ended December 31, 2020, the Company concluded thatsold the carrying value78-room Residence Inn Houston Sugarland for a sale price of approximately $4.9 million.
During the hotel property was not recoverable. The Company estimated the fair value of the hotel property using a discounted cash flow analysis. In the analysis,year ended December 31, 2019, the Company estimatedsold 47 hotel properties in 5 separate transactions for a combined sales price of approximately $721.0 million.
The following hotel properties were sold during the future net cash flows from the hotel property using the expected useful life and the holding period, and the applicable capitalization and discount rates.year ended December 31, 2019:
| | | | | | | | | | | | | | | | | | | | |
Hotel Property Name | | Location | | Sale Date | | Rooms |
Courtyard Boulder Longmont | | Longmont, CO | | June 25, 2019 | | 78 | |
Courtyard Salt Lake City Airport | | Salt Lake City, UT | | June 25, 2019 | | 154 | |
Courtyard Fort Lauderdale SW Miramar | | Miramar, FL | | June 25, 2019 | | 128 | |
Courtyard Austin Airport | | Austin, TX | | June 25, 2019 | | 150 | |
Fairfield Inn & Suites San Antonio Downtown Market | | San Antonio, TX | | June 25, 2019 | | 110 | |
Hampton Inn & Suites Clearwater St. Petersburg | | Clearwater, FL | | June 25, 2019 | | 128 | |
Hampton Inn Fort Walton Beach | | Fort Walton, FL | | June 25, 2019 | | 100 | |
Hampton Inn & Suites Denver Tech Center | | Denver, CO | | June 25, 2019 | | 123 | |
Hampton Inn West Palm Beach Airport Central | | West Palm Beach, FL | | June 25, 2019 | | 105 | |
Hilton Garden Inn Bloomington | | Bloomington, IN | | June 25, 2019 | | 168 | |
Hilton Garden Inn West Palm Beach Airport | | West Palm Beach, FL | | June 25, 2019 | | 100 | |
Hilton Garden Inn Durham Raleigh Research Triangle Park | | Durham, NC | | June 25, 2019 | | 177 | |
Residence Inn Longmont Boulder | | Longmont, CO | | June 25, 2019 | | 84 | |
Residence Inn Detroit Novi | | Novi, MI | | June 25, 2019 | | 107 | |
Residence Inn Chicago Oak Brook | | Oak Brook, IL | | June 25, 2019 | | 156 | |
Residence Inn Fort Lauderdale Plantation | | Plantation, FL | | June 25, 2019 | | 138 | |
Residence Inn Salt Lake City Airport | | Salt Lake City, UT | | June 25, 2019 | | 104 | |
Residence Inn San Antonio Downtown Market Square | | San Antonio, TX | | June 25, 2019 | | 95 | |
Residence Inn Fort Lauderdale SW Miramar | | Miramar, FL | | June 25, 2019 | | 130 | |
Residence Inn Silver Spring | | Silver Spring, MD | | June 25, 2019 | | 130 | |
SpringHill Suites Boulder Longmont | | Longmont, CO | | June 25, 2019 | | 90 | |
Embassy Suites Myrtle Beach Oceanfront Resort | | Myrtle Beach, SC | | June 27, 2019 | | 255 | |
Hilton Myrtle Beach Resort | | Myrtle Beach, SC | | June 27, 2019 | | 385 | |
Courtyard Austin Northwest Arboretum | | Austin, TX | | August 14, 2019 | | 102 | |
Courtyard Denver West Golden | | Golden, CO | | August 14, 2019 | | 110 | |
Courtyard Boulder Louisville | | Louisville, CO | | August 14, 2019 | | 154 | |
| | | | | | | | | | | | | | | | | | | | |
Courtyard Louisville Northeast | | Louisville, KY | | August 14, 2019 | | 114 | |
Courtyard South Bend Mishawaka | | Mishawaka, IN | | August 14, 2019 | | 78 | |
Hampton Inn Houston Galleria | | Houston, TX | | August 14, 2019 | | 176 | |
Hyatt House Houston Galleria | | Houston, TX | | August 14, 2019 | | 147 | |
Hyatt House Austin Arboretum | | Austin, TX | | August 14, 2019 | | 131 | |
Hyatt House Dallas Lincoln Park | | Dallas, TX | | August 14, 2019 | | 155 | |
Hyatt House Dallas Uptown | | Dallas, TX | | August 14, 2019 | | 141 | |
Residence Inn Austin Northwest Arboretum | | Austin, TX | | August 14, 2019 | | 84 | |
Residence Inn Austin North Parmer Lane | | Austin, TX | | August 14, 2019 | | 88 | |
Residence Inn Denver West Golden | | Golden, CO | | August 14, 2019 | | 88 | |
Residence Inn Boulder Louisville | | Louisville, CO | | August 14, 2019 | | 88 | |
Residence Inn Louisville Northeast | | Louisville, KY | | August 14, 2019 | | 102 | |
SpringHill Suites Austin North Parmer Lane | | Austin, TX | | August 14, 2019 | | 132 | |
SpringHill Suites Louisville Hurstbourne North | | Louisville, KY | | August 14, 2019 | | 142 | |
SpringHill Suites South Bend Mishawaka | | Mishawaka, IN | | August 14, 2019 | | 87 | |
Residence Inn Columbia | | Columbia, MD | | September 12, 2019 | | 108 | |
Courtyard Austin South | | Austin, TX | | November 22, 2019 | | 110 | |
Fairfield Inn & Suites Austin South Airport | | Austin, TX | | November 22, 2019 | | 63 | |
Marriott Austin South | | Austin, TX | | November 22, 2019 | | 211 | |
Residence Inn Austin South | | Austin, TX | | November 22, 2019 | | 66 | |
SpringHill Suites Austin South | | Austin, TX | | November 22, 2019 | | 152 | |
| | | | | | 6,024 | |
6. Investment in Unconsolidated Joint Ventures
As of December 31, 2017,2021, the Company owned a 50% interest in a joint venture that owned 1 hotel property. As of December 31, 2020, the Company owned 50% interests in joint ventures that owned two2 hotel properties. During the year ended December 31, 2020, one of the unconsolidated joint ventures did not exercise its right to extend the term of the ground lease. As a result, the joint venture recorded a held for use impairment charge during the year ended December 31, 2020, of which the Company's share of $6.5 million was included in equity in loss of unconsolidated entities in the accompanying consolidated statements of operations and comprehensive (loss) income.The ground lease terminated on October 31, 2021 and the hotel property reverted to the ground lessor at that time.
During the year ended December 31, 2019, the Company sold 2 hotels located in Myrtle Beach, South Carolina. In addition, the joint ventures that were associated with these two hotels sold their assets. The Company alsohad owned 50% interests in these joint ventures that owned real estate andventures. The Company recorded a condominium management business that are associated with twoloss of our resort hotel properties. $2.1 million as a result of the joint ventures' sale of their assets, which is included in equity in loss of unconsolidated entities in the accompanying consolidated statements of operations.Refer to Note 5, Sale of Hotel Properties, for more information regarding the sale of the hotels.
The Company accounts for the investments in these unconsolidated joint ventures under the equity method of accounting. The Company makes adjustments to the equity in incomeloss from unconsolidated joint ventures related to the difference between the Company's basis in the investment in the unconsolidated joint ventures as compared to the historical basis of the assets and liabilities of the joint ventures. As of December 31, 2017,2021 and 2020, the unconsolidated joint ventures' debt consisted entirely of non-recourse mortgage debt.
The following table summarizes the components of the Company's investments in unconsolidated joint ventures (in thousands): | | | | | | | | | | | |
| December 31, 2021 | | December 31, 2020 |
Equity basis of the joint venture investments | $ | (6,341) | | | $ | (6,687) | |
Cost of the joint venture investments in excess of the joint venture book value | 12,863 | | | 13,485 | |
Investment in unconsolidated joint ventures | $ | 6,522 | | | $ | 6,798 | |
|
| | | |
| December 31, 2017 |
Equity basis of the joint venture investments | $ | 253 |
|
Cost of the joint venture investments in excess of the joint venture book value | 23,632 |
|
Investment in unconsolidated joint ventures | $ | 23,885 |
|
The following table summarizes the components of the Company's equity in incomeloss from unconsolidated joint ventures (in thousands):
| | | | | | | | | | | | | | | | | |
| For the year ended December 31, |
| 2021 | | 2020 | | 2019 |
Operating income (loss) | $ | 145 | | | $ | (913) | | | $ | 1,667 | |
Depreciation of cost in excess of book value | (622) | | | (995) | | | (1,265) | |
Impairment loss | — | | | (6,546) | | | — | |
Loss on sale | — | | | — | | | (2,075) | |
Equity in loss from unconsolidated joint ventures | $ | (477) | | | $ | (8,454) | | | $ | (1,673) | |
|
| | | |
| For the year ended December 31, |
| 2017 |
Unconsolidated joint venture net income attributable to the Company | $ | 623 |
|
Depreciation of cost in excess of book value | (490 | ) |
Equity in income from unconsolidated joint ventures | $ | 133 |
|
6. Intangible Assets7.Revenue
The Company's intangible assets consisted ofCompany recognized revenue from the following geographic markets (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| For the year ended December 31, 2021 |
| Room Revenue | | Food and Beverage Revenue | | Other Revenue | | Total Revenue |
South Florida | $ | 95,612 | | | $ | 12,430 | | | $ | 7,987 | | | $ | 116,029 | |
Southern California | 88,653 | | | 5,959 | | | 9,271 | | | 103,883 | |
Northern California | 66,068 | | | 3,219 | | | 4,455 | | | 73,742 | |
Chicago | 43,277 | | | 5,931 | | | 2,282 | | | 51,490 | |
New York City | 30,547 | | | 3,505 | | | 1,544 | | | 35,596 | |
Charleston | 27,220 | | | 3,657 | | | 1,993 | | | 32,870 | |
Houston | 28,078 | | | 1,196 | | | 3,475 | | | 32,749 | |
Washington, DC | 26,706 | | | 415 | | | 1,858 | | | 28,979 | |
Austin | 24,059 | | | 1,417 | | | 2,970 | | | 28,446 | |
Pittsburgh | 23,605 | | | 3,670 | | | 1,138 | | | 28,413 | |
Other | 214,028 | | | 17,595 | | | 21,844 | | | 253,467 | |
Total | $ | 667,853 | | | $ | 58,994 | | | $ | 58,817 | | | $ | 785,664 | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | December 31, 2017 | | December 31, 2016 |
| | Weighted Average Amortization Period (in Years) | | Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount | | Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount |
Below market ground leases | | 54 | | $ | 118,609 |
| | $ | (1,217 | ) | | $ | 117,392 |
| | $ | — |
| | $ | — |
| | $ | — |
|
Advanced bookings | | 1 | | 11,360 |
| | (3,083 | ) | | 8,277 |
| | — |
| | — |
| | — |
|
Other intangible assets | | 6 | | 9,511 |
| | (1,969 | ) | | 7,542 |
| | 2,309 |
| | (1,411 | ) | | 898 |
|
Intangible assets, net | | 48 | | $ | 139,480 |
| | $ | (6,269 | ) | | $ | 133,211 |
| | $ | 2,309 |
| | $ | (1,411 | ) | | $ | 898 |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| For the year ended December 31, 2020 |
| Room Revenue | | Food and Beverage Revenue | | Other Revenue | | Total Revenue |
South Florida | $ | 52,213 | | | $ | 7,058 | | | $ | 4,359 | | | $ | 63,630 | |
Southern California | 53,814 | | | 4,013 | | | 5,590 | | | 63,417 | |
Northern California | 51,107 | | | 4,160 | | | 3,204 | | | 58,471 | |
Chicago | 24,267 | | | 4,187 | | | 1,193 | | | 29,647 | |
New York City | 25,292 | | | 2,189 | | | 1,231 | | | 28,712 | |
Houston | 19,401 | | | 827 | | | 1,931 | | | 22,159 | |
Washington, DC | 17,843 | | | 416 | | | 1,220 | | | 19,479 | |
Denver | 12,285 | | | 2,948 | | | 864 | | | 16,097 | |
Charleston | 12,661 | | | 2,145 | | | 1,188 | | | 15,994 | |
Pittsburgh | 13,815 | | | 1,481 | | | 631 | | | 15,927 | |
Other | 115,056 | | | 10,960 | | | 13,538 | | | 139,554 | |
Total | $ | 397,754 | | | $ | 40,384 | | | $ | 34,949 | | | $ | 473,087 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| For the year ended December 31, 2019 |
| Room Revenue | | Food and Beverage Revenue | | Other Revenue | | Total Revenue |
Northern California | $ | 201,667 | | | $ | 19,752 | | | $ | 5,875 | | | $ | 227,294 | |
Southern California | 126,959 | | | 15,306 | | | 10,030 | | | 152,295 | |
New York City | 130,702 | | | 16,410 | | | 4,759 | | | 151,871 | |
South Florida | 117,252 | | | 19,720 | | | 8,112 | | | 145,084 | |
Austin | 76,438 | | | 9,453 | | | 3,772 | | | 89,663 | |
Chicago | 70,469 | | | 13,102 | | | 2,139 | | | 85,710 | |
Denver | 55,063 | | | 12,224 | | | 1,351 | | | 68,638 | |
Houston | 55,955 | | | 3,763 | | | 4,355 | | | 64,073 | |
Washington, DC | 59,257 | | | 1,703 | | | 2,343 | | | 63,303 | |
Louisville | 40,627 | | | 18,246 | | | 2,373 | | | 61,246 | |
Other | 382,696 | | | 47,820 | | | 26,499 | | | 457,015 | |
Total | $ | 1,317,085 | | | $ | 177,499 | | | $ | 71,608 | | | $ | 1,566,192 | |
For the years ended December 31, 2017, 2016 and 2015, the Company recognized amortization expense related to its intangible assets of approximately $5.7 million, $0.2 million and $0.3 million, respectively.
As of December 31, 2017, the estimated amortization expense for the intangible assets over the next five years is as follows (in thousands):
|
| | | | | | | | | | | | | | | | | | | |
| 2018 | | 2019 | | 2020 | | 2021 | | 2022 |
Estimated amortization expense | $ | 11,345 |
| | $ | 6,314 |
| | $ | 5,211 |
| | $ | 4,797 |
| | $ | 4,797 |
|
7. Acquisition of Hotel Properties
During the year ended December 31, 2017, other than the acquisition of FelCor, the Company did not acquire any other hotel properties. Refer to Note 3, Merger with FelCor Lodging Trust Incorporated, for information on the acquisition of FelCor.
During the year ended December 31, 2016, the Company did not acquire any hotel properties.
During the year ended December 31, 2015, the Company acquired a 100% interest in the following hotel properties:
|
| | | | | | | | | | | | | |
Hotel Property Name | | Location | | Acquisition Date | | Management Company | | Rooms | | Purchase Price (in thousands) |
Hyatt Place Washington DC Downtown K Street | | Washington, DC | | July 15, 2015 | | Aimbridge Hospitality | | 164 |
| | $ | 68,000 |
|
Homewood Suites Seattle Lynnwood | | Lynnwood, WA | | July 20, 2015 | | InnVentures | | 170 |
| | 37,900 |
|
Residence Inn Palo Alto Los Altos (1) | | Los Altos, CA | | September 25, 2015 | | InnVentures | | 156 |
| | 70,000 |
|
| | | | | | | | 490 |
| | $ | 175,900 |
|
(1) In connection with this acquisition, the Company assumed a $33.4 million mortgage loan with a fair value at assumption of $34.7 million.
The allocation of the purchase price for the hotel properties acquired was as follows (in thousands):
|
| | | |
| For the year ended December 31, 2015 |
Land and improvements | $ | 31,692 |
|
Buildings and improvements | 131,960 |
|
Furniture, fixtures and equipment | 13,517 |
|
Fair value adjustment on mortgage debt assumed | (1,269 | ) |
Total purchase price | $ | 175,900 |
|
See Note 18 for the detail of the other assets acquired and the liabilities assumed in conjunction with the Company’s acquisitions.
For the hotel properties acquired during the year ended December 31, 2015, the total revenues and net loss from the date of acquisition through December 31, 2015 are included in the accompanying consolidated statements of operations and comprehensive income as follows (in thousands):
|
| | | |
| For the year ended December 31, 2015 |
Revenue | $ | 10,053 |
|
Net loss | $ | (1,477 | ) |
The following unaudited condensed pro forma financial information presents the results of operations as if the 2015 acquisitions had taken place on January 1, 2014. The unaudited condensed pro forma financial information is not necessarily indicative of what the actual results of operations of the Company would have been assuming the 2015 acquisitions had taken place on January 1, 2014, nor is it indicative of the results of operations for future periods. The unaudited condensed pro forma financial information is as follows (in thousands, except share and per share data):
|
| | | |
| For the year ended December 31, 2015 |
| (unaudited) |
Revenue | $ | 1,149,453 |
|
Net income attributable to common shareholders | $ | 222,498 |
|
Net income per share attributable to common shareholders - basic | $ | 1.72 |
|
Net income per share attributable to common shareholders - diluted | $ | 1.71 |
|
Weighted-average number of shares outstanding - basic | 128,444,469 |
|
Weighted-average number of shares outstanding - diluted | 128,967,754 |
|
8. Sale of Hotel Properties
During the year ended December 31, 2017, the Company sold one hotel property for a sale price of approximately $170.0 million. In conjunction with this transaction, the Company recorded a $0.6 million loss on sale which is included in gain on sale of hotel properties in the accompanying consolidated statement of operations and comprehensive income.
The following table discloses the hotel property that was sold during the year ended December 31, 2017:
|
| | | | | | | |
Hotel Property Name | | Location | | Sale Date | | Rooms |
The Fairmont Copley Plaza | | Boston, MA | | December 14, 2017 | | 383 |
|
| | | | Total | | 383 |
|
On February 21, 2018, the Company sold the Embassy Suites Boston Marlborough for $23.7 million.
During the year ended December 31, 2016, the Company sold four hotel properties in three separate transactions for a total sale price of approximately $301.5 million. In conjunction with these transactions, the Company recorded a $45.9 million gain on sale, which is included in the accompanying consolidated statement of operations and comprehensive income, and a deferred gain of $15.0 million related to the Company's maximum exposure to loss with respect to certain post-closing obligations, which is included in accounts payable and other liabilities in the accompanying consolidated balance sheet. During the year ended December 31, 2017, the Company met certain post-closing obligations and recognized an additional gain of $9.6 million which is included in gain on sale of hotel properties in the accompanying consolidated statement of operations and comprehensive income.
The following table provides a list of the hotel properties that were sold during the year ended December 31, 2016:
|
| | | | | | | |
Hotel Property Name | | Location | | Sale Date | | Rooms |
Holiday Inn Express Merrillville | | Merrillville, IN | | February 22, 2016 | | 62 |
|
SpringHill Suites Bakersfield | | Bakersfield, CA | | November 30, 2016 | | 119 |
|
Hilton Garden Inn New York 35th Street | | New York, NY | | December 5, 2016 | | 298 |
|
Hilton New York Fashion District | | New York, NY | | December 5, 2016 | | 280 |
|
| | | | Total | | 759 |
|
During the year ended December 31, 2015, the Company sold 23 hotel properties in four separate transactions for a total sale price of approximately $252.5 million. In conjunction with these transactions, the Company recorded a $28.4 million gain on sale, which is included in the accompanying consolidated statement of operations and comprehensive income.
The following table provides a list of the hotel properties that were sold during the year ended December 31, 2015:
|
| | | | | | | |
Hotel Property Name | | Location | | Sale Date | | Rooms |
Courtyard Chicago Schaumburg | | Schaumburg, IL | | February 23, 2015 | | 162 |
|
Courtyard Detroit Pontiac Bloomfield | | Pontiac, MI | | February 23, 2015 | | 110 |
|
Courtyard Grand Junction | | Grand Junction, CO | | February 23, 2015 | | 136 |
|
Courtyard Mesquite | | Mesquite, TX | | February 23, 2015 | | 101 |
|
Courtyard San Antonio Airport Northstar | | San Antonio, TX | | February 23, 2015 | | 78 |
|
Courtyard Tampa Brandon | | Tampa, FL | | February 23, 2015 | | 90 |
|
Fairfield Inn & Suites Merrillville | | Merrillville, IN | | February 23, 2015 | | 112 |
|
Fairfield Inn & Suites San Antonio Airport | | San Antonio, TX | | February 23, 2015 | | 120 |
|
Fairfield Inn & Suites Tampa Brandon | | Tampa, FL | | February 23, 2015 | | 107 |
|
Hampton Inn Merrillville | | Merrillville, IN | | February 23, 2015 | | 64 |
|
Holiday Inn Grand Rapids Airport | | Kentwood, MI | | February 23, 2015 | | 148 |
|
Homewood Suites Tampa Brandon | | Tampa, FL | | February 23, 2015 | | 126 |
|
Marriott Auburn Hills Pontiac at Centerpoint | | Pontiac, MI | | February 23, 2015 | | 290 |
|
Residence Inn Austin Round Rock | | Round Rock, TX | | February 23, 2015 | | 96 |
|
Residence Inn Chicago Schaumburg | | Schaumburg, IL | | February 23, 2015 | | 125 |
|
Residence Inn Detroit Pontiac Auburn Hills | | Pontiac, MI | | February 23, 2015 | | 114 |
|
Residence Inn Grand Junction | | Grand Junction, CO | | February 23, 2015 | | 104 |
|
Residence Inn Indianapolis Carmel | | Carmel, IN | | February 23, 2015 | | 120 |
|
SpringHill Suites Chicago Schaumburg | | Schaumburg, IL | | February 23, 2015 | | 132 |
|
SpringHill Suites Indianapolis Carmel | | Carmel, IN | | February 23, 2015 | | 126 |
|
Fairfield Inn & Suites Valparaiso | | Valparaiso, IN | | May 22, 2015 | | 63 |
|
Residence Inn South Bend | | South Bend, IN | | July 7, 2015 | | 80 |
|
Embassy Suites Columbus | | Columbus, OH | | October 14, 2015 | | 221 |
|
| | | | Total | | 2,825 |
|
Investment in Loan
In November 2009, the Company purchased a mortgage loan that was collateralized by one hotel property. The loan matured on September 6, 2017. At the date of maturity, the Company's investment in loan receivable balance was $10.1 million and the Company received $12.8 million in net proceeds from the debtor. Accordingly, the Company recognized a gain on settlement of investment in loan of approximately $2.7 million.
9. Debt
The Company's debt consisted of the following (in thousands):
| | | | | | | | | | | |
| December 31, 2021 | | December 31, 2020 |
Senior Notes, net | $ | 986,942 | | | $ | 495,759 | |
Revolver | 200,000 | | | 400,000 | |
Term Loans, net | 815,004 | | | 1,168,304 | |
Mortgage loans, net | 407,492 | | | 523,668 | |
Debt, net | $ | 2,409,438 | | | $ | 2,587,731 | |
|
| | | | | | | |
| December 31, 2017 | | December 31, 2016 |
Senior Notes | $ | 1,062,716 |
| | $ | — |
|
Revolver and Term Loans, net | 1,170,954 |
| | 1,169,308 |
|
Mortgage loans, net | 646,818 |
| | 413,407 |
|
Debt, net | $ | 2,880,488 |
| | $ | 1,582,715 |
|
Senior Notes
The Company's senior secured notes and the senior unsecured notes are collectively the "Senior Notes". The Company's Senior Notes consisted of the following (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | Outstanding Borrowings at |
| | Interest Rate at December 31, 2021 | | Maturity Date | | December 31, 2021 | | December 31, 2020 |
2029 Senior Notes | | 4.00% | | September 2029 | | $ | 500,000 | | | $ | — | |
2026 Senior Notes | | 3.75% | | July 2026 | | 500,000 | | | — | |
2025 Senior Notes | | 6.00% | | June 2025 | | — | | | 495,759 | |
| | | | | | | | |
| | | | | | | | |
| | | | | | 1,000,000 | | | 495,759 | |
Deferred financing costs, net | | | | | | (13,058) | | | — | |
Total senior notes, net | | | | | | $ | 986,942 | | | $ | 495,759 | |
In September 2021, the Company issued an aggregate principal amount of $500.0 million of its 4.00% senior secured notes due 2029 (the "2029 Senior Notes") under an indenture, dated as of September 13, 2021, among the Operating Partnership, the Company, the subsidiary guarantors party thereto and U.S. Bank National Association, as trustee. The 2029 Senior Notes will mature on September 15, 2029 and bear interest at a rate of 4.00% per annum, payable semi-annually in arrears. The Company used the net proceeds of the offering of the 2029 Senior Notes to redeem all of the outstanding 2025 Senior Notes (as defined below), as well as for any redemption premium, unpaid interest, costs and expenses related thereto. During the year ended December 31, 2021, the Company capitalized $6.1 million of deferred financing costs related to the issuance of the 2029 Senior Notes.
|
| | | | | | | | | | | | | | |
| | | | | | | | Outstanding Borrowings at |
| | Number of Assets Encumbered | | Interest Rate | | Maturity Date | | December 31, 2017 | | December 31, 2016 |
Senior secured notes (1) (2) (3) | | 9 | | 5.63% | | March 2023 | | $ | 552,669 |
| | $ | — |
|
Senior unsecured notes (1) (2) (4) | | — | | 6.00% | | June 2025 | | 510,047 |
| | — |
|
Total Senior Notes | | | | | | | | $ | 1,062,716 |
| | $ | — |
|
At any time prior to September 15, 2024, the Company may redeem the 2029 Senior Notes, in whole or in part, at a redemption price equal to 100.0% of the accrued principal amount thereof plus any unpaid interest earned through the redemption date plus a make-whole premium. At any time on or after September 15, 2024, the Company may redeem the 2029 Senior Notes, in whole or in part, at a redemption price of (i) 102.0% of the principal amount should such redemption occur before September 1, 2025, (ii) 101.0% of the principal amount should redemption occur before September 15, 2026, and (iii) 100.0% of the principal amount should such redemption occur on or after September 15, 2026, in each case plus accrued and unpaid interest, if any. At any time prior to September 15, 2024, the Company may redeem the 2029 Senior Notes with the net cash proceeds from any equity offering at a redemption price equal to 104.0% of the accrued principal amount thereof plus any unpaid interest, subject to certain conditions.
In June 2021, the Company issued an aggregate principal amount of $500.0 million of its 3.75% senior secured notes due 2026 (the "2026 Senior Notes") under an indenture, dated as of June 17, 2021, among the Operating Partnership, the Company, the subsidiary guarantors party thereto and U.S. Bank National Association, as trustee. The 2026 Senior Notes will mature on July 1, 2026 and bear interest at a rate of 3.75% per annum, payable semi-annually in arrears. The Company used the net proceeds of the offering of the 2026 Senior Notes to partially repay indebtedness under the Company's Term Loans (as defined below) and secured mortgage indebtedness, as well as for any costs and expenses related thereto. During the year ended December 31, 2021, the Company capitalized $8.1 million of deferred financing costs related to the issuance of the 2026 Senior Notes.
At any time prior to July 1, 2023, the Company may redeem the 2026 Senior Notes, in whole or in part, at a redemption price equal to 100.0% of the accrued principal amount thereof plus any unpaid interest earned through the redemption date plus a make-whole premium. At any time on or after July 1, 2023, the Company may redeem the 2026 Senior Notes, in whole or in part, at a redemption price of (i) 101.875% of the principal amount should such redemption occur before July 1, 2024, (ii) 100.938% of the principal amount should redemption occur before July 1, 2025, and (iii) 100.0% of the principal amount should such redemption occur on or after July 1, 2025, in each case plus accrued and unpaid interest, if any. At any time prior to July 1, 2023, the Company may redeem the 2026 Senior Notes with the net cash proceeds from any equity offering at a redemption price equal to 103.75% of the accrued principal amount thereof plus any unpaid interest, subject to certain conditions.
The 2029 Senior Notes and 2026 Senior Notes are each fully and unconditionally guaranteed, jointly and severally, by the Company and certain of the Operating Partnership’s subsidiaries that incur and guarantee any indebtedness under the Company’s credit facilities, and any additional first lien obligations or certain other bank indebtedness (each, a “Subsidiary Guarantor”). The 2029 Senior Notes and 2026 Senior Notes are each secured, subject to certain permitted liens, by a first priority security interest in all of the equity interests owned by the Operating Partnership and certain of the Subsidiary Guarantors (each, a “Secured Guarantor”) in certain of the other Subsidiary Guarantors (the “Collateral”), which Collateral also secures the obligations under the Company’s credit facilities on a first priority basis. The Collateral may be released in full prior to the maturity of either of the 2029 Senior Notes and 2026 Senior Notes if the Operating Partnership and the Company comply with certain requirements, after which the 2029 Senior Notes and 2026 Senior Notes will be unsecured.
The indenture governing the 2029 Senior Notes and the 2026 Senior Notes contains customary covenants that will limit the Company’s ability and, in certain instances, the ability of its subsidiaries, to incur additional debt, create liens on assets, make distributions and pay dividends, make certain types of investments, issue guarantees of indebtedness, and make certain restricted payments. These limitations are subject to a number of exceptions and qualifications set forth in the indenture.
A summary of the various restrictive covenants for the 2029 Senior Notes and 2026 Senior Notes are as follows:
| | | | | | | | | | |
(1) | Requires payments of interest only through maturity. |
Covenant | | |
(2)Maintenance Covenant | Includes $28.7 million and $35.1 million at December 31, 2017 related to fair value adjustments on the senior secured notes and the senior unsecured notes, respectively, that were assumed in the Mergers. |
| | |
(3)Unencumbered Asset to Unencumbered Debt Ratio | On February 27, 2018, the Company announced that it will early redeem the senior secured notes in full on March 9, 2018 (the "Redemption Date"). In accordance with the terms and conditions set forth in the indenture governing the senior secured notes, the aggregate amount payable upon redemption will be approximately $539.4 million, which includes the redemption price of 102.813% for the outstanding principal amount plus accrued and unpaid interest thereon through, but not including the Redemption Date. |
> 150.0% | | |
(4)Incurrence Covenants | The Company has the option to redeem the senior unsecured notes beginning June 1, 2020 at a premium of 103.0%. | | | |
Consolidated Indebtedness less than Adjusted Total Assets | | < .65x | | |
Consolidated Secured Indebtedness less than Adjusted Total Assets | | < .45x | | |
Interest Coverage Ratio | | > 1.5x | | |
The Senior Notes contain certain financial covenants relating to the Company's total leverage ratio, secured leverage ratio and interest coverage ratio. If an event of default exists, the Company is not permitted to (i) incur additional indebtedness, except to refinance maturing debt with replacement debt, as defined under our indentures; (ii) pay dividends in excess of the minimum distributions required to qualify as a REIT; (iii) repurchase capital stock; or (iv) merge.
As of December 31, 2017,2021, the Company was in compliance with all financial covenants.covenants associated with the 2029 Senior Notes and 2026 Senior Notes. In addition, failure to meet an incurrence covenant does not, in and of itself, constitute an event of default under the indentures.
The Company's $475.0 million senior notes due 2025 are referred to as the "2025 Senior Notes". The 2025 Senior Notes include $20.9 million at December 31, 2020 resulting from an acquisition related fair value adjustment on the 2025 Senior Notes. In September 2021, the Company redeemed the 2025 Senior Notes and paid a redemption premium of $9.5 million using the net proceeds from the issuance of the 2029 Senior Notes. The redemption premium is included in the gain (loss) on extinguishment of indebtedness, net, in the accompany consolidated statements of operations and comprehensive (loss) income.
Revolver and Term Loans
The Company has the following unsecured credit agreements in place:
•$600.0 million revolving credit facility with a scheduled maturity date of April 22, 2020 withMay 18, 2024 and a one-yearone year extension option if certain conditions are satisfied (the "Revolver");
•$400.0 million term loan with a scheduled maturity date of March 20, 2019January 25, 2023 (the "$400 Million Term Loan Maturing 2019"2023");
•$225.0 million term loan with a scheduled maturity date of November 20, 2019January 25, 2023 (the "$225 Million Term Loan Maturing 2019"2023");
•$150.0 million term loan with a scheduled maturity date of June 10, 2023 (the "$150 Million Term Loan Maturing 2022"); and
•$400.0 million term loan with a scheduled maturity date of April 22, 2021May 18, 2025 (the "$400 Million Term Loan Maturing 2021"2025"); and.
$150.0 million term loan with a scheduled maturity date of January 22, 2022 (the "$150 Million Term Loan Maturing 2022").
The $400 Million Term Loan Maturing 2019,2023, the $225 Million Term Loan Maturing 2019,2023, the $150 Million Term Loan Maturing 2022, and the $400 Million Term Loan Maturing 2021, and the $150 Million Term Loan Maturing 20222025 are collectively the "Term Loans". The credit agreements contain certain financial covenants relating to the Company’s maximum leverage ratio, minimum fixed charge coverage ratio, minimum tangible net worth and maximum secured indebtedness.indebtedness, maximum unencumbered leverage ratio and minimum unsecured interest coverage ratio. If an event of default exists, the Company is not permitted to make distributions to shareholders, other than those required to qualify for and maintain REIT status. As of December 31, 20172021 and 2016,2020, the Company was in compliancenot required to comply with allcertain financial covenants.covenants, as described below.
The borrowings under the Revolver and Term Loans bear interest at variable rates equal to the London InterBank Offered Rate (“LIBOR”) (or equivalent successor rate index) plus an applicable margin. The margin ranges from 1.45%1.35% to 3.00%2.50%, depending on the Company’s leverage ratio, as calculated under the terms of each facility. The Company incurs an unused facility fee on the Revolver of between
0.20% and 0.30%0.25%, based on the amount by which the maximum borrowing amount exceeds the total principal balance of the outstanding borrowings.
Under the terms of the credit agreement for the Revolver, one or more standby letters of credit, up to a maximum aggregate outstanding balance of $30.0 million, may be issued on behalf of the Company by the lenders under the Revolver. The Company will incur a fee that shall be agreed upon with the issuing bank. Any outstanding standby letters of credit reduce the available borrowings on the Revolver by a corresponding amount. No standby letters of credit were outstanding at December 31, 2017. The Company also may borrow up to a maximum aggregate outstanding balance of $40.0 million of swingline loans. Any outstanding swingline loans reduce the available borrowings under the Revolver by a corresponding amount. There were no swingline loans outstanding at December 31, 2017.
The Company's unsecured credit agreements consisted of the following (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | Outstanding Borrowings at |
| | Interest Rate at December 31, 2021 (1) | | Maturity Date | | December 31, 2021 | | December 31, 2020 |
Revolver (2) | | 3.53% | | May 2024 | | $ | 200,000 | | | $ | 400,000 | |
$400 Million Term Loan Maturing 2023 (3) | | 4.73% | | January 2023 (7) | | 203,944 | | | 400,000 | |
$225 Million Term Loan Maturing 2023 (4) | | 4.72% | | January 2023 (8) | | 114,718 | | | 225,000 | |
$150 Million Term Loan Maturing 2023 (5) | | 4.18% | | June 2023 | | 100,000 | | | 150,000 | |
$400 Million Term Loan Maturing 2025 | | 4.45% | | May 2025 | | 400,000 | | | 400,000 | |
| | | | | | 1,018,662 | | | 1,575,000 | |
Deferred financing costs, net (6) | | | | | | (3,658) | | | (6,696) | |
Total Revolver and Term Loans, net | | | | | | $ | 1,015,004 | | | $ | 1,568,304 | |
(1)Interest rate at December 31, 2021 gives effect to interest rate hedges.
(2)At December 31, 2021 and 2020, there was $400.0 million and $200.0 million of remaining capacity on the Revolver, respectively. The Company has the ability to further increase the total capacity on the Revolver to $750.0 million, subject to certain lender requirements. The Company also has the ability to extend the maturity date for an additional one year period ending May 2025 if certain conditions are satisfied. In February 2022, the Company paid off the outstanding balance on the Revolver.
|
| | | | | | | | | | | | |
| | | | | | Outstanding Borrowings at |
| | Interest Rate at December 31, 2017 (1) | | Maturity Date | | December 31, 2017 | | December 31, 2016 |
Revolver (2) | | 3.16% | | April 2020 | | $ | — |
| | $ | — |
|
$400 Million Term Loan Maturing 2019 | | 3.35% | | March 2019 | | 400,000 |
| | 400,000 |
|
$225 Million Term Loan Maturing 2019 | | 4.24% | | November 2019 | | 225,000 |
| | 225,000 |
|
$400 Million Term Loan Maturing 2021 | | 3.14% | | April 2021 | | 400,000 |
| | 400,000 |
|
$150 Million Term Loan Maturing 2022 | | 3.43% | | January 2022 | | 150,000 |
| | 150,000 |
|
| | | | | | 1,175,000 |
| | 1,175,000 |
|
Deferred financing costs, net (3) | | | | | | (4,046 | ) | | (5,692 | ) |
Total Revolver and Term Loans, net | | | | | | $ | 1,170,954 |
| | $ | 1,169,308 |
|
(3)The Company utilized $196.1 million of the proceeds from the issuance of the 2026 Senior Notes to reduce the outstanding principal balance of this term loan.(4)The Company utilized $110.3 million of the proceeds from the issuance of the 2026 Senior Notes to reduce the outstanding principal balance of this term loan.
(5)Pursuant to the terms under the Company's credit agreements, the Company utilized $20.8 million of the proceeds from hotel dispositions and $29.2 million of the proceeds from the issuance of the 2026 Senior Notes to reduce the outstanding principal balance of this term loan. In addition, the Company has the option to extend the maturity one additional year to June 2024.
(6)Excludes $2.9 million and $4.1 million as of December 31, 2021 and 2020, respectively, related to deferred financing costs on the Revolver, which are included in prepaid expense and other assets in the accompanying consolidated balance sheets.
(7)In September 2021, the Company amended this term loan to include a one-year extension option for approximately $151.7 million of the principal balance. The exercise of the one-year extension option will be at the Company's discretion, subject to certain conditions.
(8)In September 2021, the Company amended this term loan to include a one-year extension option for approximately $73.0 million of the principal balance. The exercise of the one-year extension option will be at the Company's discretion, subject to certain conditions.
The Revolver and Term Loans are subject to various financial covenants. A summary of the most restrictive covenants is as follows:
| | | | | | | | | | | | | | |
(1) | Interest rate at December 31, 2017 gives effect to interest rate hedges. |
| Covenant | | Compliance |
(2)Leverage ratio (1) | At December 31, 2017 and 2016, there was $600.0 million and $400.0 million, respectively, of borrowing capacity on the Revolver. On August 31, 2017, the Company amended the Revolver to increase the borrowing capacity from $400.0 million to $600.0 million. The Company has the ability to further increase the borrowing capacity to $750.0 million, subject to certain lender requirements. |
| ≤ 7.0x | | N/A (3) |
(3)Fixed charge coverage ratio (2) | Excludes $2.6 | ≥ 1.5x | | N/A (3) |
Secured indebtedness ratio | | ≤ 45.0% | | N/A (3) |
Unencumbered indebtedness ratio | | ≤ 60.0% | | N/A (3) |
Unencumbered debt service coverage ratio | | ≥ 2.0x | | N/A (3) |
Maintain minimum liquidity level | | ≥ $150.0 million and $2.3 million as of December 31, 2017 and 2016, respectively, related to deferred financing costs on the Revolver, which are included in prepaid expense and other assets in the accompanying consolidated balance sheets. | | Yes |
(1)Leverage ratio is net indebtedness, as defined in the Revolver and Term Loan agreements, to corporate earnings before interest, taxes, depreciation, and amortization ("EBITDA"), as defined in the Revolver and Term Loan agreements.
(2)Fixed charge coverage ratio is Adjusted EBITDA, generally defined in the Revolver and Term Loan agreements as EBITDA less furniture, fixtures and equipment ("FF&E") reserves, to fixed charges, which is generally defined in the Revolver and Term Loan agreements as interest expense, all regularly scheduled principal payments, preferred dividends paid, and cash taxes paid.
(3)The Company is not currently required to comply with these covenants, as described below.
During the year ended December 31, 2021, the Company amended its Revolver and Term Loans. The amendments suspend the testing of all existing financial maintenance covenants under the Revolver and the Term Loan agreements for all periods through and including the fiscal quarter ending March 31, 2022 (the “Covenant Relief Period”). In addition, for periods following the Covenant Relief Period, the amendments modify the covenant thresholds, subject to certain conditions, for the leverage ratio, unencumbered debt service coverage ratio, and unencumbered indebtedness ratio as follows:
•Increasing the maximum leverage ratio to 8.5x for the first two quarters following the Covenant Relief Period, 8.0x for the third and fourth quarters following the Covenant Relief Period, 7.5x for the fifth quarter following the Covenant Relief Period (such period, the "Leverage Relief Period"), and then returning to 7.0x that was in effect prior to the Covenant Relief Period.
•Reducing the minimum unencumbered debt service coverage ratio to 1.5x for the first quarter following the Covenant Relief Period, 1.65x for the second quarter following the Covenant Relief Period, and then returning to 2.0x that was in effect prior to the Covenant Relief Period.
•Increasing the unencumbered indebtedness ratio to 65% for the first two quarters following the Covenant Relief Period, and then returning to the 60% level that was in effect prior to the Covenant Relief Period.
•The Company is required to maintain a minimum liquidity level of $150.0 million.
Pursuant to the amendments and through the date that the financial statements are delivered for the quarter ending June 30, 2022 (the "Restriction Period"), the Company is subject to the following restrictions:
•The net cash proceeds from asset sales, equity issuances and incurrences of indebtedness will, subject to various exceptions, be required to be applied as a mandatory prepayment of certain amounts outstanding under the Revolver and the Term Loans.
•Additional negative covenants that limit the ability of the Company and its subsidiaries to incur additional indebtedness, make prepayments of other indebtedness, make dividends and distributions (with certain exceptions, including for the payment of a quarterly cash dividend of $0.01 per common share, the payment of a quarterly cash dividend on the Company’s Series A Cumulative Convertible Preferred Shares and other payments for purposes of maintaining REIT status) and stock repurchases. In addition, there are limitations on capital expenditures exceeding $150.0 million in 2021 and 2022, and certain acquisitions exceeding $450.0 million or $300.0 million dependent upon the outstanding balance of the Company's Revolver. All of these limitations are subject to various exceptions.
•Requirement to pledge the equity interests in certain subsidiaries that own unencumbered properties to secure the Revolver and Term Loans. The equity pledge requirement is also required to be satisfied following the Restriction Period until such time as the leverage ratio is no greater than 6.5x for two consecutive fiscal quarters (the "Covenant Relief Pledged Collateral Period").
•Extension of (1) the mandatory prepayment requirement applicable to dispositions of unencumbered properties through the end of the Covenant Relief Pledged Collateral Period and (2) the requirement to maintain a minimum liquidity level of $150.0 million through the end of the Leverage Relief Period.
As part of the Revolver and Term Loans amendment in June 2021, the Company amended the $150 Million Term Loan Maturing 2023 to extend the maturity for $100.0 million of the original principal balance from January 2018,2022 to June 2023 with an option to extend the maturity by one year to June 2024. The applicable margin on the interest rate will be 3.0% for LIBOR loans and 2.0% for base rate loans until the end of the Leverage Relief Period, as defined in the existing credit agreement. After the end of the Leverage Relief Period, the applicable margin will revert to the original leverage- or ratings-based pricing.
As part of the Revolver and Term Loans amendment in September 2021, the Company amended the $400 Million Term Loan Maturing 2019, the2023 and $225 Million Term Loan Maturing 2019,2023 to include a one-year extension option for approximately $151.7 million and $73.0 million, respectively, of the principal balance. The exercise of the one-year extension option will be at the Company's discretion, subject to certain conditions.
At the Company's election, the Restriction Period and the $150 Million Term Loan Maturing 2022. The maturity datesCovenant Relief Period may be terminated early if the Company is at such time able to comply with the applicable financial covenants. If the Company assesses that it is unlikely to meet the financial covenant thresholds for bothperiods following the $400 Million Term Loan Maturing 2019 andCovenant Relief Period, then the $225 Million Term Loan Maturing 2019 were extended to January 2023. The maturity date for the $150 Million Term Loan Maturing 2022 is still January 2022. The Company also reduced the interest rate pricing on eachwill seek an extension of the three term loans.Covenant Relief Period.
Mortgage Loans
The Company's mortgage loans consisted of the following (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | Principal balance at |
| | Number of Assets Encumbered | | Interest Rate at December 31, 2021 (1) | | Maturity Date | | | | December 31, 2021 | | December 31, 2020 |
Mortgage loan (2) | | 7 | | 3.30% | | April 2022 | | (7) | | $ | 200,000 | | | $ | 200,000 | |
Mortgage loan (2) | | 3 | | 2.53% | | April 2024 | | (7) | | 96,000 | | | 96,000 | |
Mortgage loan (2) | | 4 | | 2.84% | | April 2024 | | (7) | | 85,000 | | | 85,000 | |
Mortgage loan (3) | | 1 | | 5.06% | | January 2029 | | | | 27,554 | | | — | |
Mortgage loan (4) | | 1 | | —% | | June 2022 | | (8) | | — | | | 30,332 | |
Mortgage loan (5) | | 3 | | —% | | October 2022 | | (8) | | — | | | 86,775 | |
Mortgage loan (6) | | 1 | | —% | | October 2022 | | (9) | | — | | | 27,972 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | 20 | | | | | | | | 408,554 | | | 526,079 | |
Deferred financing costs, net | | | | | | | | | | (1,062) | | | (2,411) | |
Total mortgage loans, net | | | | | | | | | | $ | 407,492 | | | $ | 523,668 | |
(1)Interest rate at December 31, 2021 gives effect to interest rate hedges.
(2)The hotels encumbered by the mortgage loan are cross-collateralized. Requires payments of interest only through maturity.
(3)Includes $2.6 million at December 31, 2021 related to a fair value adjustment on a mortgage loan that was assumed in connection with a hotel property acquisition in December 2021.
(4)Includes $0.3 million at December 31, 2020 related to a fair value adjustment on a mortgage loan.
(5)Includes $0.9 million at December 31, 2020 related to a fair value adjustments on the mortgage loans.
|
| | | | | | | | | | | | | | | | |
| | | | | | | | | | Principal balance at |
Lender | | Number of Assets Encumbered | | Interest Rate at December 31, 2017 (1) | | Maturity Date | |
| | December 31, 2017 | | December 31, 2016 |
Wells Fargo (5) | | 4 | | 4.04% | | March 2018 | | (3) | | $ | 143,250 |
| | $ | 146,250 |
|
Wells Fargo (2) | | 4 | | 4.05% | | October 2018 | | (4) | | 150,000 |
| | 150,000 |
|
PNC Bank (2) (6) | | 5 | | 3.66% | | March 2021 | | (7) | | 85,000 |
| | 85,000 |
|
Wells Fargo (8) | | 1 | | 5.25% | | June 2022 | | | | 32,882 |
| | 33,666 |
|
PNC Bank/Wells Fargo (9) | | 4 | | 4.95% | | October 2022 | | | | 120,893 |
| | — |
|
Prudential (10) | | 1 | | 4.94% | | October 2022 | | | | 30,323 |
| | — |
|
Scotiabank (2) (11) | | 1 | | LIBOR + 3.00% | | November 2018 | | | | 85,404 |
| | — |
|
| | 20 | |
| | | | | | 647,752 |
| | 414,916 |
|
Deferred financing costs, net | | | | | | | | | | (934 | ) | | (1,509 | ) |
Total mortgage loans, net | | | | | | | | | | $ | 646,818 |
| | $ | 413,407 |
|
| |
(1) | Interest rate at December 31, 2017 gives effect to interest rate hedges. |
| |
(2) | Requires payments of interest only through maturity. |
| |
(3) | The maturity date may be extended for four one-year terms at the Company’s option, subject to certain lender requirements. |
| |
(4) | In October 2017, the Company extended the maturity date for a one-year term. The maturity date may be extended for three additional one-year terms at the Company's option, subject to certain lender requirements. |
| |
(5) | Two of the four hotels encumbered by the Wells Fargo loan are cross-collateralized. |
| |
(6) | The five hotels encumbered by the PNC Bank loan are cross-collateralized. |
| |
(7) | The maturity date may be extended for two one-year terms at the Company’s option, subject to certain lender requirements. |
| |
(8) | Includes $0.8 million and $1.0 million at December 31, 2017 and 2016, respectively, related to a fair value adjustment on mortgage debt assumed in conjunction with an acquisition. |
| |
(9) | Includes $3.0 million at December 31, 2017 related to fair value adjustments on the mortgage loans that were assumed in the Mergers. |
| |
(10) | Includes $0.7 million at December 31, 2017 related to a fair value adjustment on the mortgage loan that was assumed in the Mergers. |
| |
(11) | Includes $0.4 million at December 31, 2017 related to a fair value adjustment on the mortgage loan that was assumed in the Mergers. |
(6)Includes $0.3 million at December 31, 2020 related to a fair value adjustment on the mortgage loan.
(7)The mortgage loan provides 2 one year extension options.
(8)In June 2021, the Company paid off the mortgage loan(s) in full and paid approximately $5.7 million in prepayment premiums using the proceeds from the issuance of the 2026 Senior Notes.
(9)In July 2021, the Company paid off the mortgage loan in full and paid approximately a $1.3 million prepayment premium using the proceeds from the issuance of the 2026 Senior Notes.
Certain mortgage agreements are subject to customary financial covenants. Thevarious maintenance covenants requiring the Company was in compliance with all financial covenants at to maintain a minimum debt yield or debt service coverage ratio ("DSCR"). Failure to meet the debt yield or DSCR thresholds is not an event of default, but instead triggers a cash trap event. During the cash trap event, the lender or servicer of the mortgage loan controls cash outflows until the loan is covenant compliant and accordingly, such cash is restricted. In addition, certain mortgage loans have other requirements including continued operation and maintenance of the hotel property. At December 31, 20172021, 2 mortgage loans failed the DSCR threshold and 2016.were in a cash trap event. In addition, the DSCR covenant for one mortgage loan has been waived through December 31, 2022.
At December 31, 2021, there was approximately $22.4 million of restricted cash held by lenders due to cash trap events. In February 2022, the restrictions on approximately $10.8 million of the $22.4 million of December 31, 2021 restricted cash were removed.
Interest Expense
The components of the Company's interest expense consisted of the following (in thousands):
| | | | | | | | | | | | | | | | | |
| For the year ended December 31, |
| 2021 | | 2020 | | 2019 |
Senior Notes | $ | 34,079 | | | $ | 23,767 | | | $ | 23,793 | |
Revolver and Term Loans | 53,097 | | | 55,413 | | | 42,272 | |
Mortgage loans | 13,306 | | | 16,949 | | | 20,754 | |
| | | | | |
Amortization of deferred financing costs | 5,884 | | | 4,416 | | | 4,100 | |
Undesignated interest rate swaps | — | | | (376) | | | 376 | |
Total interest expense | $ | 106,366 | | | $ | 100,169 | | | $ | 91,295 | |
|
| | | | | | | | | | | |
| For the year ended December 31, |
| 2017 | | 2016 | | 2015 |
Senior Notes | $ | 15,918 |
| | $ | — |
| | $ | — |
|
Revolver and Term Loans | 39,262 |
| | 38,849 |
| | 35,898 |
|
Mortgage loans | 19,643 |
| | 16,006 |
| | 16,500 |
|
Amortization of deferred financing costs | 3,499 |
| | 3,965 |
| | 4,164 |
|
Capitalized interest | — |
| | — |
| | (1,774 | ) |
Total interest expense | $ | 78,322 |
| | $ | 58,820 |
| | $ | 54,788 |
|
Future Minimum Principal Payments
As of December 31, 2017,2021, the future minimum principal payments on the debt were as follows (in thousands):
| | | | | |
2022 | $ | 200,000 | |
2023 | 418,662 | |
2024 | 381,000 | |
2025 | 400,000 | |
2026 | 500,000 | |
Thereafter | 525,000 | |
Total (1) | $ | 2,424,662 | |
(1)Excludes a $2.6 million fair value adjustment on debt.
|
| | | |
2018 | $ | 381,553 |
|
2019 (1) | 628,766 |
|
2020 | 3,936 |
|
2021 | 489,166 |
|
2022 | 314,308 |
|
Thereafter | 999,010 |
|
Total (2) | $ | 2,816,739 |
|
| |
(1) | In January 2018, the maturity dates for both the $400 Million Term Loan Maturing 2019 and the $225 Million Term Loan Maturing 2019 were extended to January 2023. |
| |
(2) | Excludes a total of $68.7 million related to fair value adjustments on debt. |
10.9. Derivatives and Hedging
The Company's interest rate swaps consisted of the following (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | Notional value at | | Fair value at |
Hedge type | | Interest rate | | Maturity | | December 31, 2021 | | December 31, 2020 | | December 31, 2021 | | December 31, 2020 |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
Swap-cash flow | | 1.15% | | April 2021 | | $ | — | | | $ | 100,000 | | | $ | — | | | $ | (398) | |
Swap-cash flow | | 1.20% | | April 2021 | | — | | | 100,000 | | | — | | | (418) | |
Swap-cash flow | | 2.15% | | April 2021 | | — | | | 75,000 | | | — | | | (594) | |
Swap-cash flow | | 1.91% | | April 2021 | | — | | | 75,000 | | | — | | | (523) | |
Swap-cash flow | | 1.61% | | June 2021 | | — | | | 50,000 | | | — | | | (433) | |
Swap-cash flow | | 1.56% | | June 2021 | | — | | | 50,000 | | | — | | | (416) | |
Swap-cash flow | | 1.71% | | June 2021 | | — | | | 50,000 | | | — | | | (462) | |
Swap-cash flow | | 1.35% | | September 2021 | | — | | | 49,000 | | | — | | | (454) | |
Swap-cash flow | | 1.28% | | September 2022 | | 100,000 | | | 100,000 | | | (759) | | | (2,035) | |
Swap-cash flow (1) | | 2.29% | | December 2022 | | 200,000 | | | 200,000 | | | (4,077) | | | (9,044) | |
Swap-cash flow (2) | | 2.29% | | December 2022 | | 125,000 | | | 125,000 | | | (2,545) | | | (5,648) | |
Swap-cash flow (3) | | 2.38% | | December 2022 | | 87,780 | | | 200,000 | | | (1,879) | | | (9,436) | |
Swap-cash flow (4) | | 2.38% | | December 2022 | | 36,875 | | | 100,000 | | | (789) | | | (4,716) | |
Swap-cash flow | | 2.75% | | November 2023 | | 100,000 | | | 100,000 | | | (3,893) | | | (7,635) | |
Swap-cash flow | | 2.51% | | December 2023 | | 75,000 | | | 75,000 | | | (2,692) | | | (5,284) | |
Swap-cash flow | | 2.39% | | December 2023 | | 75,000 | | | 75,000 | | | (2,504) | | | (5,012) | |
Swap-cash flow | | 1.24% | | September 2025 | | 150,000 | | | 150,000 | | | (860) | | | (5,508) | |
Swap-cash flow | | 1.16% | | April 2024 | | 50,000 | | | 50,000 | | | (338) | | | (1,464) | |
Swap-cash flow | | 1.20% | | April 2024 | | 50,000 | | | 50,000 | | | (387) | | | (1,526) | |
Swap-cash flow | | 1.15% | | April 2024 | | 50,000 | | | 50,000 | | | (327) | | | (1,450) | |
Swap-cash flow | | 1.10% | | April 2024 | | 50,000 | | | 50,000 | | | (267) | | | (1,374) | |
Swap-cash flow | | 0.98% | | April 2024 | | 25,000 | | | 25,000 | | | (61) | | | (596) | |
Swap-cash flow | | 0.95% | | April 2024 | | 25,000 | | | 25,000 | | | (43) | | | (573) | |
Swap-cash flow | | 0.93% | | April 2024 | | 25,000 | | | 25,000 | | | (31) | | | (558) | |
Swap-cash flow | | 0.90% | | April 2024 | | 25,000 | | | 25,000 | | | (13) | | | (535) | |
Swap-cash flow | | 0.85% | | December 2024 | | 50,000 | | | 50,000 | | | 221 | | | (1,249) | |
Swap-cash flow | | 0.75% | | December 2024 | | 50,000 | | | 50,000 | | | 372 | | | (1,047) | |
Swap-cash flow | | 0.65% | | January 2026 | | 50,000 | | | 50,000 | | | 955 | | | (662) | |
| | | | | | $ | 1,399,655 | | | $ | 2,124,000 | | | $ | (19,917) | | | $ | (69,050) | |
(1) In June 2021, the Company paid down a portion of its Term Loans and dedesignated approximately $83.8 million of the original $200.0 million notional value of this swap as the hedged forecasted transactions were no longer probable of occurring as a result of the debt paydown. Therefore, the Company reclassified approximately $2.8 million of unrealized losses included in other comprehensive loss to other (expense) income, net, in the consolidated statements of operations and comprehensive (loss) income. The portion of the swap that was dedesignated was subsequently redesignated and the amounts related to the initial fair value of $2.8 million that are recorded in other comprehensive loss during the new hedging relationship will be reclassified to earnings on a straight line basis over the remaining life of the swap.
(2) In June 2021, the Company paid down a portion of its Term Loans and dedesignated approximately $47.2 million of the original $125.0 million notional value of this swap as the hedged forecasted transactions were no longer probable of occurring as a result of the debt paydown. Therefore, the Company reclassified approximately $1.6 million of unrealized losses included in other comprehensive loss to other (expense) income, net, in the consolidated statements of operations and comprehensive (loss) income. The portion of the swap that was dedesignated was subsequently redesignated and the amounts related to the initial fair value of $1.6 million that are recorded in other comprehensive loss during the new hedging relationship will be reclassified to earnings on a straight line basis over the remaining life of the swap.
(3) In June 2021, the Company paid down a portion of its Term Loans and terminated approximately $112.2 million of the original $200.0 million notional value of this swap as the hedged forecasted transactions were no longer probable of occurring as result of
|
| | | | | | | | | | | | | | | | | | | | |
| | | | | | Notional value at | | Fair value at |
Hedge type | | Interest rate | | Maturity | | December 31, 2017 | | December 31, 2016 | | December 31, 2017 | | December 31, 2016 |
Swap-cash flow | | 1.12% | | November 2017 | | $ | — |
| | $ | 275,000 |
| | $ | — |
| | $ | (558 | ) |
Swap-cash flow | | 1.56% | | March 2018 | | 175,000 |
| | 175,000 |
| | (38 | ) | | (1,251 | ) |
Swap-cash flow | | 1.64% | | March 2018 | | 175,000 |
| | 175,000 |
| | (71 | ) | | (1,413 | ) |
Swap-cash flow | | 1.83% | | September 2018 | | 15,758 |
| | 16,088 |
| | (23 | ) | | (193 | ) |
Swap-cash flow | | 1.75% | | September 2018 | | 15,758 |
| | 16,088 |
| | (14 | ) | | (172 | ) |
Swap-cash flow | | 1.83% | | September 2018 | | 38,678 |
| | 39,488 |
| | (57 | ) | | (474 | ) |
Swap-cash flow | | 1.75% | | September 2018 | | 39,632 |
| | 40,462 |
| | (35 | ) | | (433 | ) |
Swap-cash flow | | 1.83% | | September 2018 | | 17,190 |
| | 17,550 |
| | (25 | ) | | (211 | ) |
Swap-cash flow | | 1.75% | | September 2018 | | 16,235 |
| | 16,575 |
| | (14 | ) | | (177 | ) |
Swap-cash flow | | 2.02% | | March 2019 | | 125,000 |
| | 125,000 |
| | (383 | ) | | (2,090 | ) |
Swap-cash flow | | 1.94% | | March 2019 | | 100,000 |
| | 100,000 |
| | (213 | ) | | (1,505 | ) |
Swap-cash flow | | 1.27% | | March 2019 | | 125,000 |
| | 125,000 |
| | 836 |
| | 54 |
|
Swap-cash flow (1) | | 1.96% | | March 2019 | | 100,000 |
| | 100,000 |
| | (230 | ) | | (516 | ) |
Swap-cash flow (1) | | 1.85% | | March 2019 | | 50,000 |
| | 50,000 |
| | (43 | ) | | (184 | ) |
Swap-cash flow (1) | | 1.81% | | March 2019 | | 50,000 |
| | 50,000 |
| | (19 | ) | | (159 | ) |
Swap-cash flow (1) | | 1.74% | | March 2019 | | 25,000 |
| | 25,000 |
| | 13 |
| | (57 | ) |
Swap-cash flow (2) | | 1.80% | | September 2020 | | 33,000 |
| | 33,000 |
| | 202 |
| | 111 |
|
Swap-cash flow (2) | | 1.80% | | September 2020 | | 82,000 |
| | 82,000 |
| | 502 |
| | 277 |
|
Swap-cash flow (2) | | 1.80% | | September 2020 | | 35,000 |
| | 35,000 |
| | 214 |
| | 118 |
|
Swap-cash flow | | 1.81% | | October 2020 | | 143,000 |
| | 143,000 |
| | 803 |
| | (1,113 | ) |
Swap-cash flow (3) | | 1.15% | | April 2021 | | 100,000 |
| | 100,000 |
| | 2,880 |
| | 2,513 |
|
Swap-cash flow (3) | | 1.20% | | April 2021 | | 100,000 |
| | 100,000 |
| | 2,726 |
| | 2,360 |
|
Swap-cash flow (3) | | 2.15% | | April 2021 | | 75,000 |
| | 75,000 |
| | (144 | ) | | (410 | ) |
Swap-cash flow (3) | | 1.91% | | April 2021 | | 75,000 |
| | — |
| | 415 |
| | — |
|
Swap-cash flow | | 1.61% | | June 2021 | | 50,000 |
| | 50,000 |
| | 769 |
| | 224 |
|
Swap-cash flow | | 1.56% | | June 2021 | | 50,000 |
| | 50,000 |
| | 869 |
| | 352 |
|
Swap-cash flow | | 1.71% | | June 2021 | | 50,000 |
| | 50,000 |
| | 598 |
| | 5 |
|
Swap-cash flow (4) | | 2.29% | | December 2022 | | 200,000 |
| | — |
| | (413 | ) | | — |
|
Swap-cash flow (4) | | 2.29% | | December 2022 | | 125,000 |
| | — |
| | (259 | ) | | — |
|
| | | | | | $ | 2,186,251 |
| | $ | 2,064,251 |
| | $ | 8,846 |
| | $ | (4,902 | ) |
the debt paydown in June 2021. As part of the swap termination, the Company paid approximately $2.2 million to terminate a portion of this swap. In addition, the Company re-designated the remaining portion of this swap resulting in the reclassification of approximately $2.2 million of the unrealized losses included in accumulated other comprehensive loss to other (expense) income, net, in the consolidated statements of operations and comprehensive (loss) income.(4) In June 2021, the Company paid down a portion of its Term Loans and terminated approximately $63.1 million of the original $100.0 million notional value of this swap as the hedged forecasted transactions were no longer probable of occurring as result of the debt paydown in June 2021. As part of the swap termination, the Company paid approximately $4.0 million to terminate a portion of this swap. In addition, the Company re-designated the remaining portion of this swap resulting in the reclassification of approximately $4.0 million of the unrealized losses included in accumulated other comprehensive loss to other (expense) income, net, in the consolidated statements of operations and comprehensive (loss) income. | |
(1) | Effective between the maturity of the swap in November 2017 and the maturity of the debt in March 2019. |
| |
(2) | Effective between the maturity of the existing swaps in September 2018 and September 2020. |
| |
(3) | Effective between the maturity of the existing swaps in March 2018 and the maturity of the debt in April 2021. |
| |
(4) | Effective between the maturity of the existing swaps in March 2019 and December 2022. |
As of December 31, 20172021 and 2016, the aggregate fair value of the interest rate swap assets of $10.8 million and $6.0 million, respectively, was included in prepaid expense and other assets in the accompanying consolidated balance sheets. As of December 31, 2017 and 2016,2020, the aggregate fair value of the interest rate swap liabilities of $2.0$21.5 million and $10.9$69.1 million, respectively, was included in accounts payable and other liabilities in the accompanying consolidated balance sheets.
As of December 31, 2017, there was approximately $8.8 million of unrealized gains included in accumulated other comprehensive income related to interest rate hedges that are effective in offsetting the variable cash flows. As of December 31, 2016,2021, the aggregate fair value of the interest rate swap assets of $1.5 million was included in prepaid expense and other assets in the accompanying consolidated balance sheet.
As of December 31, 2021 and 2020, there was approximately $4.9$19.9 million and $69.1 million, respectively, of unrealized losses included in accumulated other comprehensive loss related to interest rate hedges that are effective in offsetting the variable cash flows. There was no ineffectiveness recorded on the
designated hedges during the years ended December 31, 20172021 and 2016.2020. For the yearsyear ended December 31, 2017 and 2016,2021, approximately $7.4$24.1 million and $15.9of the amounts included in accumulated other comprehensive loss were reclassified into interest expense. For the year ended December 31, 2020, approximately $19.7 million respectively, of the amounts included in accumulated other comprehensive loss were reclassified into interest expense. Approximately $0.1$16.7 million of the unrealized losses included in accumulated other comprehensive income (loss)loss at December 31, 20172021 is expected to be reclassified into interest expense within the next 12 months.
11.10. Fair Value
Fair Value Measurement
Fair value is defined as the price that would be received upon the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date in the principal or most advantageous market. The fair value hierarchy has three levels of inputs, both observable and unobservable:
•Level 1 — Inputs include quoted market prices in an active market for identical assets or liabilities.
•Level 2 — Inputs are market data, other than Level 1, that are observable either directly or indirectly. Level 2 inputs include quoted market prices for similar assets or liabilities, quoted market prices in an inactive market, and other observable information that can be corroborated by market data.
•Level 3 — Inputs are unobservable and corroborated by little or no market data.
Fair Value of Financial Instruments
The Company used the following market assumptions and/or estimation methods:
•Cash and cash equivalents, restricted cash reserves, hotel and other receivables, accounts payable and other liabilities — The carrying amounts reported in the consolidated balance sheets for these financial instruments approximate fair value because of their short term maturities.
•Debt — The Company estimated the fair value of the Senior Notessenior notes by using publicly available trading prices market interest rates, and spreads for the Senior Notes, which are Level 2 and Level 3 inputs1 in the fair value hierarchy. The Company estimated the fair value of the Revolver and Term Loans by using a discounted cash flow model and incorporating various inputs and assumptions for the effective borrowing rates for debt with similar terms, which are Level 3 inputs in the fair value hierarchy. The Company estimated the fair value of the mortgage loans using a discounted cash flow model and incorporating various inputs and assumptions for the effective borrowing rates for debt with similar terms and the loan to estimated fair value of the collateral, which are Level 3 inputs in the fair value hierarchy.
The fair value of the Company's debt was as follows (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2021 | | December 31, 2020 |
| Carrying Value | | Fair Value | | Carrying Value | | Fair Value |
Senior Notes, net | $ | 986,942 | | | $ | 999,060 | | | $ | 495,759 | | | $ | 484,229 | |
Revolver and Term Loans, net | 1,015,004 | | | 1,006,647 | | | 1,568,304 | | | 1,543,636 | |
Mortgage loans, net | 407,492 | | | 401,387 | | | 523,668 | | | 512,118 | |
Debt, net | $ | 2,409,438 | | | $ | 2,407,094 | | | $ | 2,587,731 | | | $ | 2,539,983 | |
|
| | | | | | | | | | | | | | | |
| December 31, 2017 | | December 31, 2016 |
| Carrying Value | | Fair Value | | Carrying Value | | Fair Value |
Senior Notes | $ | 1,062,716 |
| | $ | 1,038,892 |
| | $ | — |
| | $ | — |
|
Revolver and Term Loans, net | 1,170,954 |
| | 1,179,052 |
| | 1,169,308 |
| | 1,176,798 |
|
Mortgage loans, net | 646,818 |
| | 643,078 |
| | 413,407 |
| | 402,134 |
|
Debt, net | $ | 2,880,488 |
| | $ | 2,861,022 |
| | $ | 1,582,715 |
| | $ | 1,578,932 |
|
Recurring Fair Value Measurements
The following table presents the Company’s fair value hierarchy for those financial assets and liabilities measured at fair value on a recurring basis as of December 31, 2017 (in thousands): |
| | | | | | | | | | | | | | | |
| Fair Value at December 31, 2017 |
| Level 1 | | Level 2 | | Level 3 | | Total |
Interest rate swap asset | $ | — |
| | $ | 10,827 |
| | $ | — |
| | $ | 10,827 |
|
Interest rate swap liability | — |
| | (1,981 | ) | | — |
| | (1,981 | ) |
Total | $ | — |
| | $ | 8,846 |
| | $ | — |
| | $ | 8,846 |
|
The following table presents the Company’s fair value hierarchy for those financial assets and liabilities measured at fair value on a recurring basis as of December 31, 20162021 (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| Fair Value at December 31, 2021 |
| Level 1 | | Level 2 | | Level 3 | | Total |
Interest rate swap asset | $ | — | | | $ | 1,548 | | | $ | — | | | $ | 1,548 | |
Interest rate swap liability | $ | — | | | $ | (21,465) | | | $ | — | | | $ | (21,465) | |
Total | $ | — | | | $ | (19,917) | | | $ | — | | | $ | (19,917) | |
|
| | | | | | | | | | | | | | | |
| Fair Value at December 31, 2016 |
| Level 1 | | Level 2 | | Level 3 | | Total |
Interest rate swap asset | $ | — |
| | $ | 6,014 |
| | $ | — |
| | $ | 6,014 |
|
Interest rate swap liability | — |
| | (10,916 | ) | | — |
| | (10,916 | ) |
Total | $ | — |
| | $ | (4,902 | ) | | $ | — |
| | $ | (4,902 | ) |
The following table presents the Company’s fair value hierarchy for those financial assets and liabilities measured at fair value on a recurring basis as of December 31, 2020 (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| Fair Value at December 31, 2020 |
| Level 1 | | Level 2 | | Level 3 | | Total |
| | | | | | | |
Interest rate swap liability | $ | — | | | $ | (69,050) | | | $ | — | | | $ | (69,050) | |
Total | $ | — | | | $ | (69,050) | | | $ | — | | | $ | (69,050) | |
The fair values of the derivative financial instruments are determined using widely accepted valuation techniques including a discounted cash flow analysis on the expected cash flows for each derivative. The Company determined that the significant inputs, such as interest yield curves and discount rates, used to value its derivatives fall within Level 2 of the fair value hierarchy and that the credit valuation adjustments associated with the Company’s counterparties and its own credit risk utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by itself and its counterparties. As of December 31, 2017,2021, the Company assessed the significance of the impact of the credit valuation adjustments on the overall valuation of its derivative positions and determined that the credit valuation adjustments were not significant to the overall valuation of its derivatives. As a result, the Company determined that its derivative valuations in their entirety are classified in Level 2 of the fair value hierarchy.
12.11. Commitments and Contingencies
GroundOperating Leases
As of December 31, 2017, 172021, 13 of ourCompany's hotel properties were subject to ground lease agreements that cover the land underlying the respective hotels. The ground leases are classified as operating leases. The total ground rentlease expense was $11.1 million, $5.4 million and $5.5$13.1 million for the yearsyear ended December 31, 2017, 20162021, which consisted of $11.6 million of fixed lease expense and 2015, respectively,$1.5 million of variable lease expense. The total ground lease expense was $12.4 million for the year ended December 31, 2020, which consisted of $11.6 million of fixed lease expense and $0.8 million of variable lease expense. The total ground lease expense was $15.7 million for the year ended December 31, 2019, which consisted of $11.6 million of fixed lease expense and $4.1 million of variable lease expense. The total ground lease expense is included in property tax, insurance and other in the accompanying consolidated statements of operations and comprehensive (loss) income.
The Residence Inn Chicago Oak Brook is subject to aCompany's ground lease with an initial term expiring in 2100. After the initial term, the Company may extend the ground lease for an additional term of 99 years. The ground rent expense was de minimis for eachleases consisted of the years ended December 31, 2017, 2016 and 2015, respectively.following (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | Ground Lease Expense |
| | | | | | For the year ended December 31, |
Hotel Property Name | | Initial Term Expiration | | Extension Term(s) Expiration | | 2021 | | 2020 | | 2019 |
| | | | | | | | | | |
Wyndham Boston Beacon Hill | | 2028 | | — | | $ | 556 | | | $ | 400 | | | $ | 900 | |
Wyndham San Diego Bayside | | 2029 | | — | | 4,042 | | | 4,100 | | | 4,800 | |
DoubleTree Suites by Hilton Orlando Lake Buena Vista | | 2032 | | 2057 | | 666 | | | 300 | | | 900 | |
Residence Inn Palo Alto Los Altos | | 2033 | | — | | 86 | | | 100 | | | 100 | |
Wyndham Pittsburgh University Center | | 2038 | | 2083 | | 726 | | | 700 | | | 700 | |
| | | | | | | | | | |
| | | | | | | | | | |
Marriott Louisville Downtown | | 2053 | | 2153 (1) | | — | | | — | | | — | |
Embassy Suites San Francisco Airport Waterfront | | 2059 | | — | | 1,239 | | | 1,200 | | | 2,400 | |
Wyndham New Orleans French Quarter | | 2065 | | — | | 487 | | | 500 | | | 500 | |
| | | | | | | | | | |
Courtyard Charleston Historic District | | 2096 | | — | | 1,019 | | | 950 | | | 1,000 | |
Courtyard Austin Downtown Convention Center and Residence Inn Downtown Convention Center | | 2100 | | — | | 555 | | | 449 | | | 800 | |
| | | | | | | | | | |
Courtyard Waikiki Beach | | 2112 | | — | | 3,742 | | | 3,700 | | | 3,600 | |
Moxy Denver Cherry Creek (2) | | 2115 | | — | | 5 | | | — | | | — | |
| | | | | | $ | 13,123 | | | $ | 12,399 | | | $ | 15,700 | |
(1) The Marriott Louisville Downtown is subject to a ground lease with an initial term expiring in 2053. After the initial term, the ground lease may be extended for up to four additional twenty-five year terms at the Company's option. The
(2) In connection with the acquisition of this hotel property in December 2021, the Company recognized a lease liability of $3.1 million and related lease right-of-use asset of $7.4 million on the consolidated balance sheet for the ground rent expense was de minimis for eachlease. In order to determine the present value of the years ended December 31, 2017, 2016 and 2015, respectively.
The Courtyard Austin Downtown Convention Center and Residence Inn Austin Downtown Convention Center are subject to a groundfuture lease with a term expiring in 2100. The ground rent expense was $0.9 million, $0.9 million and $1.0 million forpayments over the years ended December 31, 2017, 2016 and 2015, respectively.
The Hilton Garden Inn Bloomington is subject to a ground lease with an initial term expiring in 2053. After the initial term, the ground lease automatically extends for up to five additional ten-year terms unless certain conditions are met. The ground rent expense was de minimis for each of the years ended December 31, 2017, 2016 and 2015, respectively. In addition, the Hilton Garden Inn Bloomington is subject to an agreement to lease parking spaces with an initial term expiring in 2033.
The agreement to lease parking spaces may be extended if certain events occur. The ground rent expense was de minimis for each of the years ended December 31, 2017, 2016 and 2015, respectively.
A portion of the site of the Courtyard Charleston Historic District is subject to a ground lease with a term expiring in 2096. The ground rent expense was $1.0 million for each of the years ended December 31, 2017, 2016 and 2015, respectively.
The Courtyard Waikiki Beach is subject to a ground lease with a term expiring in 2112. The ground rent expense was $3.5 million for the year ended December 31, 2017 and $3.4 million for each of the years ended December 31, 2016 and 2015, respectively.
A portion of the site of the Residence Inn Palo Alto Los Altos is subject to a ground lease with a term expiring in 2033. The ground rent expense was $0.1 million, $0.1 million and de minimis for the years ended December 31, 2017, 2016 and 2015, respectively.
The DoubleTree Suites by Hilton Orlando Lake Buena Vista is subject to a ground lease with an initial term expiring in 2032. After the initial term, the Company may extend the groundused an incremental borrowing rate of 6.9%.
The future lease for an additional term of 25 years to 2057. The ground rent expense was $0.2 millionpayments for the year ended December 31, 2017.
The Embassy Suites San Francisco Airport Waterfront is subject to a ground lease with a term expiring in 2059. The ground rent expense was $0.7 million for the year ended December 31, 2017.
The DoubleTree by Hilton Burlington Vermont is subject to an agreement to lease parking spaces with a term expiring in 2051. The ground rent expense was $0.1 million for the year ended December 31, 2017.
The Vinoy Renaissance St. Petersburg Resort & Golf Club is subject to three groundCompany's operating leases on the hotel property. The hotel is subject to a ground lease with a term expiring in 2090. The golf course is subject to a ground lease with a term expiring in 2090. The marina is subject to a ground lease with a term expiring in 2088. The ground rent expense was $1.0 million for the year ended December 31, 2017.
The Wyndham Boston Beacon Hill is subject to a ground lease with a term expiring in 2028. The ground rent expense was $0.3 million for the year ended December 31, 2017.
The Wyndham New Orleans French Quarter is subject to a ground lease with a term expiring in 2065. The ground rent expense was $0.1 million for the year ended December 31, 2017.
The Wyndham Pittsburgh University Center is subject to a ground lease with an initial term expiring in 2038. After the initial term, the Company may extend the ground lease for up to five additional nine-year renewal terms to 2083. The ground rent expense was $0.1 million for the year ended December 31, 2017.
The Wyndham San Diego Bayside is subject to a ground lease with a term expiring in 2029. In addition, the Wyndham San Diego Bayside is subject to an agreement to lease parking spaces with a term expiring in 2018. The ground rent expense was $1.5 million for the year ended December 31, 2017.
The Holiday Inn San Francisco Fisherman's Wharf is subject to two ground leases with terms that expire in 2018. One of the ground leases can be extended to 2028, and the Company has the option to purchase the underlying land at fair market value at a future date. The ground rent expense was $1.6 million for the year ended December 31, 2017.
The Hampton Inn Garden City was subject to a ground lease that expired on December 31, 2016. The lease then reverted to a fee simple ownership interest. The ground rent expense was de minimis for each of the years ended December 31, 2016 and 2015, respectively.
As of December 31, 2017, the future minimum ground lease payments wereare as follows (in thousands):
| | | | | | | |
| December 31, 2021 | | |
2022 | $ | 11,521 | | | |
2023 | 11,617 | | | |
2024 | 11,677 | | | |
2025 | 11,728 | | | |
2026 | 11,003 | | | |
Thereafter | 542,537 | | | |
Total future lease payments | 600,083 | | | |
Imputed interest | (477,052) | | | |
Lease liabilities | $ | 123,031 | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2018 | | 2019 | | 2020 | | 2021 | | 2022 | | Thereafter | | Total |
Future minimum ground lease payments | $ | 12,982 |
| | $ | 10,987 |
| | $ | 11,001 |
| | $ | 11,016 |
| | $ | 11,031 |
| | $ | 626,674 |
| | $ | 683,691 |
|
The following table presents certain information related to the Company's operating leases as of December 31, 2021:
| | | | | |
Weighted average remaining lease term | 63 years |
Weighted average discount rate | 7.03 | % |
Restricted Cash Reserves
The Company is obligated to maintain cash reserve funds for future capital expenditures at the hotels (including the periodic replacement or refurbishment of FF&E) as determined pursuant to the management agreements, franchise agreements and/or mortgage loan documents. The management agreements, franchise agreements and/or mortgage loan documents require the Company to reserve cash ranging typically from 3.0% to 5.0% of the individual hotel’s revenues and maintain the reserves in restricted cash reserve escrows.revenues. Any unexpended amounts will remain the property of the Company upon termination of the management agreements, franchise agreements or mortgage loan documents. As of December 31, 20172021 and 2016,2020, approximately $72.6$48.5 million and $67.2$35.0 million, respectively, was available in the restricted cash reserves for future capital expenditures, real estate taxes and insurance.insurance, and debt obligations where certain lenders held restricted cash due to a cash trap event.
Litigation
Other than the legal proceedings mentioned below, neitherNeither the Company nor any of its subsidiaries is currently involved in any regulatory or legal proceedings that management believes will have a material and adverse effect on the Company's financial position, results of operations or cash flows.
Shareholder LitigationManagement Agreements
The Company and several affiliated entities were named as defendants in four putative shareholder class action lawsuits filed in connection with RLJ's merger with FelCor. The first case, Assad v. FelCor Lodging Trust, Inc. et al., Case No. 1:17-cv-01744 (D. Md.) (the “Assad Lawsuit”), named as defendants the Company and certain affiliated entities, as well as FelCor, its former directors, and FelCor LP. The Assad Lawsuit was filed on June 26, 2017 in the United States District Court for the District of Maryland (the "Maryland Court"). The second case, Bagheri v. FelCor Lodging Trust, Inc., et al., Case No. 3:17-cv-01892 (the “Bagheri Lawsuit”), named as defendants the Company and certain affiliated entities, as well as FelCor, its former directors, and FelCor LP. The Bagheri Lawsuit was filed on July 17, 2017 in the United States District Court for the Northern District of Texas but was subsequently transferred to the Maryland Court. The third case, Johnson v. FelCor Lodging Trust Inc., et al., Case No. 1:17-cv-01786 (D. Md.) (the "Johnson Lawsuit"), named as defendants FelCor and its former directors. The Johnson Lawsuit was filed on June 28, 2017 in the Maryland Court. The fourth case, Sachs Investment Group v. FelCor Lodging Trust Inc., et al., Case No. 1:17-cv-01933 (D. Md.) (the "Sachs Lawsuit"), named as defendants FelCor and its former directors. The Sachs Lawsuit was filed on July 11, 2017 in the Maryland Court. Each of the lawsuits alleges violations of the Securities and Exchange Act of 1934 (the “Exchange Act”) arising in connection with the filing of the Company's Registration Statement on Form S-4 (the "Registration Statement") that was filed in connection with the Company's merger with FelCor. The plaintiffs in the lawsuits sought, among other things, damages, rescission of the Mergers, changes to the Registration Statement, an award of attorney's fees, and declaratory relief stating that the defendants violated the Exchange Act.
On July 21, 2017, the plaintiff in the Johnson Lawsuit filed a motion for preliminary injunction seeking to enjoin the Mergers. On August 8, 2017, however, the plaintiff withdrew that motion and represented that certain supplemental disclosures made by FelCor had addressed the basis for its preliminary injunction request.
On August 10, 2017, an order was entered consolidating the three original Maryland cases under the caption In Re FelCor Lodging Securities Litig., Case No. 1:17-cv-1786 (the "Consolidated Action"). The Assad Lawsuit was designated as the lead case for the Consolidated Action. On September 28, 2017, the Bagheri Lawsuit was also consolidated into the Consolidated Action.
On August 11, 2017, the Maryland Court entered an order regarding the selection of a Lead Plaintiff for the Consolidated Action. No stockholder moved for appointment and no Lead Plaintiff was appointed by the Court.
On October 26, 2017, the plaintiff and defendants in the Bagheri Lawsuit filed a stipulation of voluntary dismissal without prejudice. The Maryland Court entered an order dismissing the lawsuit that same day, and ordered the clerk to close the case.
On November 2, 2017, the plaintiffs in the Assad, Johnson, and Sachs lawsuits filed a notice of voluntary dismissal without prejudice. The Maryland Court entered an order dismissing the lawsuit that same day.
As a result of the resolution of the above shareholder lawsuits, there is currently no outstanding shareholder litigation relating to the merger with FelCor.
Pension Trust Litigation
Prior to the Mergers, on March 24, 2016, an affiliate of InterContinental Hotels Group PLC ("IHG"), which was previously the hotel management company for three of FelCor's hotels (two of which were sold in 2006, and one of which was converted by FelCor into a Wyndham brand and operation in 2013), notified FelCor that the National Retirement Fund in which the employees at those hotels had participated had assessed a withdrawal liability of $8.3 million, with required quarterly payments including interest, in connection with the termination of IHG’s operation of those hotels. FelCor's hotel management agreements with IHG stated that it may be obligated to indemnify and hold IHG harmless for some or all of any amount ultimately contributed to the pension trust fund with respect to those hotels.
Based on the current assessment of the claim, the resolution of this matter may not occur until 2022. As of December 31, 2017, the Company had accrued approximately $5.4 million for the future quarterly payments to the pension trust fund, which is included in accounts payable and other liabilities in the accompanying consolidated balance sheet.
The Company plans to vigorously defend the underlying claims and, if appropriate, IHG’s demand for indemnification.
Management Agreements
As of December 31, 2017, 1572021, 97 of the Company's consolidated hotel properties were operated pursuant to long-term management agreements with initial terms ranging from 3one to 25 years, with 1714 different hotel management companies as noted in the table below. This number includes 4629 consolidated hotel properties that receive the benefits of a franchise agreement pursuant to management agreements with Hilton, Hyatt, Marriott, Wyndham, and other hotel brands.
| | | | | | | | |
Management Company | | Number of Hotel Properties |
Aimbridge Hospitality | | 30 |
| | |
Colwen Management, Inc. | | 1 |
Crestline Hotels and Resorts | | 1 |
Davidson Hotels and Resorts | | 2 |
Hilton Management and affiliates | | 19 |
HEI Hotels and Resorts | | 1 |
Highgate Hotels | | 4 |
Hyatt Corporation and affiliates | | 11 |
| | |
InnVentures | | 3 |
| | |
| | |
Management CompanyMarriott International, Inc. | | Number of
Hotel Properties3 |
AimbridgeSage Hospitality | | 46 |
Concord Hospitality Enterprises CompanyUrgo Hotels | | 13 |
Crestline Hotels and ResortsWhite Lodging Services | | 18 |
Davidson Hotels and ResortsWyndham | | 15 |
Hilton Management and affiliates | | 24 |
HEI Hotels and Resorts | | 1 |
Highgate Hotels | | 5 |
Hyatt Corporation and affiliates | | 10 |
Interstate Hotels & Resorts | | 11 |
InnVentures | | 3 |
InterContinental Hotels Group | | 1 |
K Partners Hospitality Group | | 1 |
Marriott Management and affiliates | | 7 |
Sage Hospitality | | 4 |
Urgo Hotels | | 4 |
WLS | | 71 |
Wyndham | | 8 |
| | 15797 |
Each management company receives a base management fee generally between 3.0%1.75% and 3.5% of hotel revenues. Management agreements that include the benefits of a franchise agreement incur a base management fee generally between 2.0% and 7.0% of hotel revenues. The management companies are also eligible to receive an incentive management fee if hotel operating income, as defined in the management agreements, exceeds certain thresholds. The incentive management fee is generally calculated as a percentage of hotel operating income after the Company has received a priority return on its investment in the hotel.
The Wyndham management agreements guarantee minimum levels of annual net operating income at each of the Wyndham-managed hotels for each year of the initial 10-year term to 2023, subject to an aggregate $100.0 million limit over the term and an annual $21.5 million limit. For the year ended December 31, 2017, the Company recorded $2.4 million for its
portion of the aggregate full-year guaranties. The Company recognized this amount as a reduction of Wyndham's contractual management and other fees.
Management fees are included in management and franchise fee expense in the accompanying consolidated statements of operations and comprehensive (loss) income. For the years ended December 31, 2017, 20162021, 2020 and 2015,2019, the Company incurred management fee expense including amortization of deferred management fees, of approximately $48.9$24.2 million, $44.3$13.2 million and $44.1$45.5 million, respectively.
InSubsequent to the year ended December 2017, Interstate Hotels & Resorts ("Interstate") announced31, 2021, four hotel properties that it had entered into an agreementwere managed by White Lodging Services were transferred to acquire 62Hersha Hospitality Management effective February 1, 2022.
Franchise Agreements
As of December 31, 2017, 1102021, 67 of the Company's consolidated hotel properties were operated under franchise agreements with initial terms ranging from 10one to 30 years. This number excludes 4629 consolidated hotel properties that receive the benefits of a franchise agreement pursuant to management agreements with Hilton, Hyatt, Marriott, Wyndham, and other hotel brands.or Marriott. In addition, The Knickerbocker is not operated with a hotel brand so the hotel does not have a franchise agreement. Franchise agreements allow the hotel properties to operate under the respective brands. Pursuant to the franchise agreements, the Company pays a royalty fee generally between 4.0%3.0% and 6.0% of room revenue, plus additional fees for marketing, central reservation systems and other franchisor costs generally between 1.0% and 4.3% of room revenue. Certain hotels are also charged a royalty fee of generallybetween 1.5% and 3.0% of food and beverage revenues.
Franchise fees are included in management and franchise fee expense in the accompanying consolidated statements of operations and comprehensive (loss) income. For the years ended December 31, 2017, 20162021, 2020 and 2015,2019, the Company incurred franchise fee expense of approximately $73.7$43.2 million, $73.9$25.6 million and $72.3$75.3 million, respectively.
13.
Prior to January 1, 2020, the Wyndham management agreements guaranteed minimum levels of annual net operating income at each of the Wyndham-managed hotels. In 2019, the Company entered into an agreement with Wyndham to terminate the net operating income guarantee effective December 31, 2019 and received termination payments totaling $36.0 million from Wyndham. In addition, during the year ended December 31, 2021, the Company extended certain Wyndham management agreements to December 31, 2022. For the years ended December 31, 2021 and 2020, the Company recognized approximately $14.1 million and $17.8 million, respectively, as a reduction to management and franchise fee expense related to the amortization of the termination payments over the remaining terms of the management agreements.
Other
During the year ended December 31, 2020, the Company incurred approximately $8.7 million in corporate and property-level severance costs as a result of the COVID-19 pandemic. This amount includes $6.7 million for the year ended December 31, 2020 related to severance for associates at the Company's New York City hotels operating under collective bargaining agreements. The severance costs are included in other operating expense in the accompanying consolidated statement of operations and comprehensive (loss) income.
12. Equity
Common Shares of Beneficial Interest
Under the declaration of trust for the Company, there are 450,000,000 Common Shares authorized for issuance.
On May 1, 2015, the Company's board of trustees authorizedThe Company did not repurchase any common shares under a share repurchase program to acquire up to $200.0 million ofduring the Company's Common Shares through April 30, 2016. On October 30, 2015, the Company's board of trustees extended the duration of the share repurchase program toyear ended December 31, 2016 and increased the amount by $200.0 million to a total of $400.0 million. Between May 1, 2015 and December 31, 2015, the Company repurchased and retired 8,044,372 Common Shares for approximately $225.2 million. 2021.
During the year ended December 31, 2016,2020, the Company repurchased and retired 610,607 Common Shares5,489,335 common shares for approximately $13.3 million.$62.6 million, of which $26.0 million was repurchased under a share repurchase program that expired February 29, 2020 and $36.6 million was repurchased under a share repurchase program that expired on February 28, 2021.
On February 17, 2017, the Company's board of trustees increased the authorized amount that may be repurchased by $40.0 million to a total of $440.0 million. During the year ended December 31, 2017,2019, the Company repurchased and retired 122,508 Common Shares4,575,170 common shares for approximately $2.6$77.8 million. As
During each of the years ended December 31, 2017, the share repurchase program had a remaining capacity of $198.9 million. On February 16, 2018, the Company's board of trustees extended the duration of the share repurchase program to February 28, 2019.
As a result of the REIT Merger,2021 and 2020, the Company issued 50.4 milliondeclared a cash dividend of $0.04 per Common Shares atShare. During the year ended December 31, 2019, the Company declared a pricecash dividend of $20.18$1.32 per share to former FelCor common stockholders as consideration in the REIT Merger.Common Share.
Series A Preferred Shares of Beneficial InterestShare
Under the declaration of trust for the Company, there are 50,000,000 preferred shares authorized for issuance. As
During each of boththe years ended December 31, 20162021, 2020 and 2015, there were no preferred shares of beneficial interest outstanding.
On August 31, 2017,2019, the Company designated and authorized the issuancedeclared a cash dividend of up to 12,950,000 $1.95 per Series A Preferred Shares. The Company issued 12,879,475 Series A Preferred Shares, at a price of $28.49 per share, to former FelCor preferred stockholders as consideration in the REIT Merger. The holders of the Series A Preferred Shares are entitled to receive
Share.
dividends that are payable in cash in an amount equal to the greater of (i) $1.95 per annum or (ii) the cash distributions declared or paid for the corresponding period on the number of Common Shares into which a Series A Preferred Share is then convertible.
Noncontrolling Interest in Consolidated Joint Ventures
As of December 31, 2017, theThe Company consolidated the joint venture that ownsowned the DoubleTree Metropolitan Hotel New York City hotel property, which has a third-party partner that owns a noncontrolling 1.7% ownership interest in the joint venture. This hotel property was sold in December 2021. In addition, the Company consolidatedconsolidates the joint venture that owns The Knickerbocker hotel property, which has a third-party partner that owns a noncontrolling 5% ownership interest in the joint venture. Lastly, the Company owns a controlling financial interest in the operating lessee of the Embassy Suites Secaucus Meadowlands hotel property, which has a third-party partner that owns a noncontrolling 49% ownership interest in the joint venture. The third-party ownership interests are included in the noncontrolling interest in consolidated joint ventures on the consolidated balance sheets.
Noncontrolling Interest in the Operating Partnership
The Company consolidates the Operating Partnership, which is a majority-owned limited partnership that has a noncontrolling interest. As of December 31, 2017,2021, the Operating Partnership had 175,642,948167,274,893 OP units outstanding, of which 99.6%99.5% of the outstanding OP units were owned by the Company and its subsidiaries, and the noncontrolling 0.4%0.5% ownership interest was owned by other limited partners.
As a result of December 31, 2021, the Partnership Merger, the Operating Partnership issued 215,152limited partners owned 771,831 OP units. The outstanding OP units at a price of $20.18 per unit, to former FelCor LPheld by the limited partners as consideration in the Partnership Merger. During the year ended December 31, 2016, the Company issued 335,250 common shares of beneficial interest in exchange for redeemed units.
The limited partners own 773,902 OP units, which are redeemable for cash, or at the option of the Company, for a like number of Common Shares. The noncontrolling interest is included in the noncontrolling interest in the Operating Partnership on the consolidated balance sheets.
Consolidated Joint Venture Preferred Equity
The Company's joint venture that redeveloped The Knickerbocker raised $45.0 million ($44.4 million net of issuance costs) through the sale of redeemable preferred equity under the EB-5 Immigrant Investor Program. The purchasers receivereceived a 3.25% current annual return, (which increases to 8% if the Company does not redeem the equity interest before the fifth anniversary of the respective equity issuance), plus a 0.25% non-compounding annual return payable atthat was paid upon redemption. The preferred equity raised byOn February 15, 2019, the joint venture is included inCompany redeemed the preferred equity in a consolidated joint venture on the consolidated balance sheets.full.
14.13. Equity Incentive Plan
On May 1, 2015,Pursuant to the Company’s shareholders approved the RLJ Lodging Trust 2015 Equity Incentive Plan (the "2015 Plan"), which constitutes an amendment and restatement of the RLJ Lodging Trust 2011 Equity Incentive Plan (the "2011 Plan"), including an increase in the total number of available shares under the 2015 Plan by 2,500,000 shares and changes to certain other terms of the 2011 Plan. The2021 Plan, the Company may issue share-based awards to officers, employees, non-employee trustees and other eligible persons under the 20152021 Plan. The 20152021 Plan provides for a maximum of 7,500,0006,828,527 Common Shares to be issued in the form of share options, share appreciation rights, restricted share awards, unrestricted share awards, share units, dividend equivalent rights, long-term incentive units, other equity-based awards and cash bonus awards.
Share Awards
From time to time, the Company may award unvested restricted shares under the 20152021 Plan as compensation to officers, employees and non-employee trustees. The issued shares vest over a period of time as determined by the board of trustees at the date of grant. The Company recognizes compensation expense for time-based unvested restricted shares on a straight-line basis over the vesting period based upon the fair market value of the shares on the date of issuance, adjusted for forfeitures.
Non-employee trustees may also elect to receive unrestricted shares under the 20152021 Plan as compensation that would otherwise be paid in cash for their services. The shares issued to non-employee trustees in lieu of cash compensation are unrestricted and include no vesting conditions. The Company recognizes compensation expense for the unrestricted shares issued in lieu of cash compensation on the date of issuance based upon the fair market value of the shares on that date.
A summary of the unvested restricted shares is as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2021 | | 2020 | | 2019 |
| Number of Shares | | Weighted-Average Grant Date Fair Value | | Number of Shares | | Weighted-Average Grant Date Fair Value | | Number of Shares | | Weighted-Average Grant Date Fair Value |
Unvested at January 1, | 1,252,228 | | | $ | 15.17 | | | 940,202 | | | $ | 20.21 | | | 740,792 | | | $ | 21.89 | |
Granted | 1,739,327 | | | 15.92 | | | 801,463 | | | 11.95 | | | 530,436 | | | 18.69 | |
Vested | (513,342) | | | 16.51 | | | (480,444) | | | 19.59 | | | (312,131) | | | 21.63 | |
Forfeited | (97,930) | | | 15.22 | | | (8,993) | | | 18.80 | | | (18,895) | | | 20.03 | |
Unvested at December 31, | 2,380,283 | | | $ | 15.43 | | | 1,252,228 | | | $ | 15.17 | | | 940,202 | | | $ | 20.21 | |
|
| | | | | | | | | | | | | | | | | | | | |
| 2017 | | 2016 | | 2015 |
| Number of Shares | | Weighted-Average Grant Date Fair Value | | Number of Shares | | Weighted-Average Grant Date Fair Value | | Number of Shares | | Weighted-Average Grant Date Fair Value |
Unvested at January 1, | 649,447 |
| | $ | 23.00 |
| | 540,885 |
| | $ | 26.73 |
| | 731,459 |
| | $ | 21.21 |
|
Granted (1) | 425,076 |
| | 23.15 |
| | 675,375 |
| | 20.59 |
| | 292,505 |
| | 32.10 |
|
Vested (1) | (363,160 | ) | | 23.41 |
| | (272,780 | ) | | 23.66 |
| | (470,703 | ) | | 21.52 |
|
Forfeited (2) | (11,038 | ) | | 23.24 |
| | (294,033 | ) | | 23.70 |
| | (12,376 | ) | | 25.65 |
|
Unvested at December 31, | 700,325 |
| | $ | 22.88 |
| | 649,447 |
| | $ | 23.00 |
| | 540,885 |
| | $ | 26.73 |
|
| |
(1) | For the years ended December 31, 2016 and 2015, the Company issued 2,554 and 5,008, respectively, unrestricted shares in lieu of cash compensation to non-employee trustees at a weighted-average grant date fair value of $22.26 and $26.43, respectively. |
| |
(2) | Includes the forfeiture of 285,926 unvested restricted shares upon the resignation of the Company's President and Chief Executive Officer in May 2016.
|
For the years ended December 31, 2017, 20162021, 2020 and 2015,2019, the Company recognized approximately $8.9$11.9 million,, $6.9 $8.7 million and $9.6$8.6 million, respectively, of share-based compensation expense related to the restricted share awards, which includes a benefitawards.
As of $0.5 million for the year ended December 31, 2016 as a result of the forfeiture of unvested restricted shares upon the resignation of the Company's President and Chief Executive Officer in May 2016.
As of December 31, 2017,2021, there was $14.3$27.1 million of total unrecognized compensation costs related to unvested restricted share awards and these costs are expected to be recognized over a weighted-average period of 2.42.2 years. The total fair value of the shares vested (calculated as the number of shares multiplied by the vesting date share price) during the years ended December 31, 2017, 20162021, 2020 and 20152019 was approximately $7.7$7.8 million,, $5.8 $5.2 million and $14.0$5.5 million, respectively.
Performance Units
In July 2012,From time to time, the Company awardedmay award performance units under the 2021 Plan as compensation to certainofficers and employees. The performance units vestedgranted prior to 2021 vest over a four-yearfour years period, including three years of performance-based vesting (the "2012 performance units measurement period") plus an additional one year of time-based vesting. In July 2015, following the end of the 2012 performance units measurement period, the Company issued 838,934 restricted shares upon conversion of the performance units. Half of the restricted shares vested immediately and the remaining half vested in July 2016. In May 2016, 133,467 unvested restricted shares related to the conversion of the performance units were forfeited upon the resignation of the Company's President and Chief Executive Officer.
In May 2016, the Company awarded 280,000 performance units with a grant date fair value of $10.31 per unit to certain employees. The performance units vest over a four-year period, including three years of performance-based vesting (the “2016 performance“performance units measurement period”) plus an additional one year of time-based vesting. These performance units may convert into restricted shares at a range of 25%0% to 150%200% of the number of performance units granted contingent upon the Company achieving an absolute total shareholder return (40% of award) and a relative total shareholder return (60% of award) over the measurement period at specified percentiles of the peer group, as defined by the award.awards. If at the end of the 2016 performance units measurement period the target criterion is met, then 50% of the restricted shares will vest immediately. The remaining 50% will vest one year later. The award recipients will not be entitled to receive any dividends prior to the date of conversion. For any restricted shares issued upon conversion, the award recipient will be entitled to receive payment of an amount equal to all dividends that would have been paid if such restricted shares had been issued at the beginning of the 2016 performance units measurement period. The fair value of the performance units iswas determined using a Monte Carlo simulation, with the following assumptions: a risk-free interest rate of 1.05%, volatility of 23.82%, and an expected term equal to the requisite service period for the awards.awards of four years. The Company estimatedestimates the compensation expense for the performance units on a straight linestraight-line basis using a calculation that recognizes 50% of the grant date fair value over three years and 50% of the grant date fair value over four years.
In February 2017, the Company awarded 259,000 performance units with a grant date fair value of $14.93 per unit to certain employees. The performance units granted in 2021 vest overat the end of a four-year period, including three years of performance-based vesting (the “2017 performance units measurement period”) plus an additional one year of time-based vesting.period. These performance units may convert into restricted shares at a range of 25%0% to 150%200% of the number of performance units granted contingent upon the
Company achieving an absolute total shareholder return (25% of award) and a relative total shareholder return (75% of award) over the measurement period at specified percentiles of the peer group, as defined by the award. If atawards. At the end of the 2017 performance units measurement period, if the target criterion is met, then 50%100% of the restricted sharesperformance units that are earned will vest immediately. The remaining 50% will vest one year later. The award recipients will not be entitled to receive any dividends prior to the date of conversion. For any restricted shares issued upon conversion, the award recipient will be entitled to receive payment of an amount equal to all dividends that would have been paid if such restricted shares had been issued at the beginning of the 2017 performance units measurement period. The fair value of the performance units iswas determined using a Monte Carlo simulation withsimulation. For performance units granted in 2021, the following assumptions: a risk-free interest rate of 1.57%, volatility of 25.73%, and an expected term equal to the requisite service period for the awards. The Company estimatedestimates the compensation expense for the performance units on a straight linestraight-line basis using a calculation that recognizes 50%100% of the grant date fair value over three years and 50%years.
A summary of the grant date fair value over four years.performance unit awards is as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Date of Award | | Number of Units Granted | | Grant Date Fair Value | | Conversion Range | | Risk Free Interest Rate | | Volatility |
| | | | | | | | | | |
February 2018 (1) | | 264,000 | | $13.99 | | 0% to 150% | | 2.42% | | 27.44% |
February 2019 | | 260,000 | | $19.16 | | 0% to 200% | | 2.52% | | 27.19% |
February 2020 | | 489,000 | | $11.59 | | 0% to 200% | | 1.08% | | 23.46% |
February 2021 | | 431,151 | | $20.90 | | 0% to 200% | | 0.23% | | 69.47% |
(1) In February 2021, following the end of the measurement period, the Company met certain threshold criterion and the performance units were converted into approximately 26,000 restricted shares.
For the years ended December 31, 20172021, 2020 and 2015,2019, the Company recognized $1.7approximately $5.2 million, $3.5 million and $3.4$2.9 million, respectively, of share-based compensation expense related to the performance unit awards. For the year ended
As of December 31, 2016, the Company recognized a share-based compensation benefit of $0.9 million related to the performance unit awards, which included a benefit of $2.3 million as a result of the forfeiture of unvested restricted shares related to the conversion of the performance units upon the resignation of the Company's President and Chief Executive Officer in May 2016.
As of December 31, 2017,2021, there was $4.3$9.3 million of total unrecognized compensation costcosts related to the performance unit awards and these costs are expected to be recognized over a weighted-average period of 2.51.9 years. The total fair value
As of the vested restricted shares related to the conversion of the performance units (calculated as the number of restricted shares issued multiplied by the vesting date share price) during the year ended December 31, 2016 was approximately $6.7 million.
As of December 31, 2017,2021, there were 3,460,504 common shares4,130,607 Common Shares available for future grant under the 2015 Plan. 2021 Plan, which includes potential Common Shares that may convert from performance units if certain target criterion is met.
15.
14. Earnings per Common Share
Basic earnings per Common Share is calculated by dividing net (loss) income attributable to common shareholders by the weighted-average number of Common Shares outstanding during the period excluding the weighted-average number of unvested restricted shares outstanding during the period. Diluted earnings per Common Share is calculated by dividing net (loss) income attributable to common shareholders by the weighted-average number of Common Shares outstanding during the period, plus any shares that could potentially be outstanding during the period. The potential shares consist of the unvested restricted share grants and unvested performance units, calculated using the treasury stock method. Any anti-dilutive shares have been excluded from the diluted earnings per share calculation.
Unvested share-based payment awards that contain non-forfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are participating shares and are considered in the computation of earnings per share pursuant to the two-class method. If there were any undistributed earnings allocable to the participating shares, they would be deducted from net (loss) income attributable to common shareholders used in the basic and diluted earnings per share calculations.
The limited partners’ outstanding OP Units (which may be redeemed for Common Shares under certain circumstances) have been excluded from the diluted earnings per share calculation as there was no effect on the amounts for the years ended December 31, 2017, 20162021, 2020 and 2015,2019, since the limited partners’ share of income would also be added back to net income attributable to common shareholders.
The computation of basic and diluted earnings per Common Share is as follows (in thousands, except share and per share data):
| | | | | | | | | | | | | | | | | |
| For the year ended December 31, |
| 2021 | | 2020 | | 2019 |
Numerator: | | | | | |
Net (loss) income attributable to RLJ | $ | (305,168) | | | $ | (404,441) | | | $ | 127,842 | |
Less: Preferred dividends | (25,115) | | | (25,115) | | | (25,115) | |
Less: Dividends paid on unvested restricted shares | (85) | | | (55) | | | (1,342) | |
Less: Undistributed earnings attributable to unvested restricted shares | — | | | — | | | — | |
Net (loss) income attributable to common shareholders excluding amounts attributable to unvested restricted shares | $ | (330,368) | | | $ | (429,611) | | | $ | 101,385 | |
| | | | | |
Denominator: | | | | | |
Weighted-average number of Common Shares - basic | 163,998,390 | | | 164,503,661 | | | 171,287,086 | |
Unvested restricted shares | — | | | — | | | 101,390 | |
| | | | | |
Weighted-average number of Common Shares - diluted | 163,998,390 | | | 164,503,661 | | | 171,388,476 | |
| | | | | |
Net (loss) income per share attributable to common shareholders - basic | $ | (2.01) | | | $ | (2.61) | | | $ | 0.59 | |
| | | | | |
| | | | | |
Net (loss) income per share attributable to common shareholders - diluted | $ | (2.01) | | | $ | (2.61) | | | $ | 0.59 | |
|
| | | | | | | | | | | |
| For the year ended December 31, |
| 2017 | | 2016 | | 2015 |
Numerator: | |
| | |
| | |
Net income attributable to RLJ | $ | 74,835 |
| | $ | 200,352 |
| | $ | 218,221 |
|
Less: Preferred dividends | (8,372 | ) | | — |
| | — |
|
Less: Dividends paid on unvested restricted shares | (1,029 | ) | | (1,105 | ) | | (1,180 | ) |
Less: Undistributed earnings attributable to unvested restricted shares | — |
| | (188 | ) | | (378 | ) |
Net income attributable to common shareholders excluding amounts attributable to unvested restricted shares | $ | 65,434 |
| | $ | 199,059 |
| | $ | 216,663 |
|
| | | | | |
Denominator: | |
| | |
| | |
Weighted-average number of Common Shares - basic | 140,616,838 |
| | 123,651,003 |
| | 128,444,469 |
|
Unvested restricted shares | 77,211 |
| | 228,004 |
| | 523,285 |
|
Unvested performance units | — |
| | — |
| | — |
|
Weighted-average number of Common Shares - diluted | 140,694,049 |
| | 123,879,007 |
| | 128,967,754 |
|
| | | | | |
Net income per share attributable to common shareholders - basic | $ | 0.47 |
| | $ | 1.61 |
| | $ | 1.69 |
|
| | | | | |
Net income per share attributable to common shareholders - diluted | $ | 0.47 |
| | $ | 1.61 |
| | $ | 1.68 |
|
16.15. Income Taxes
Current income tax expense represents the amounts expected to be reported on the Company’s income tax returns, and deferred tax expense or benefit represents the change in the net deferred tax assets and liabilities. DeferredThe deferred tax assets and liabilities are determined based on the difference between the financial statement and tax bases of assets and liabilities as measured by the enacted tax rates that will be in effect when these differences reverse. A valuation allowance is recognized to reduce the deferred tax assets to the amount considered likely to be realized.
On December 22, 2017, the President of the United States signed into law the Tax Cuts and Jobs Act (the "Tax Reform Act"). The legislation significantly changed U.S. tax law by, among other things, lowering corporate income tax rates, implementing limitations on net operating loss carryovers, and allowing dividend income from a REIT to be eligible for a 20% qualified business income deduction. The Tax Reform Act permanently reduces the U.S. corporate income tax rate from a maximum of 35% to a flat 21% rate, effective January 1, 2018.
The Company usesaccounts for income taxes using the asset and liability method of accounting for income taxes.method. Under this method, deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to the differences between the financial statement carrying amounts of existing assets and liabilities and their respective income tax basis.bases, and for net operating loss, capital loss and tax credit carryforwards. The deferred tax assets and liabilities are measured using the enacted income tax rates that are expected to be applied to taxable income in effect for the yearsyear in which those temporary differences are expected to reverse. As a result ofbe realized or settled. The effect on the reduction in the U.S. corporate income tax rate from 35% to 21% under the Tax Reform Act, the Company remeasured certain deferred tax assets and liabilities from a change in tax rates is recognized in earnings in the period when the net rate is enacted. However, deferred tax assets are recognized only to the extent that it is more likely than not that they will be realized based on consideration of all available evidence, including the rates at which they are expected to reverse. The provisional estimatefuture reversals of $31.7 million incorporates assumptions made based upon the best available interpretation of the Tax Reform Actexisting taxable temporary differences, future projected taxable income and may change as the Company receives additional clarification and implementation guidance.tax planning strategies.
For federal income tax purposes, the cash distributions to shareholders are characterized as follows:
|
| | | | | |
| For the Years Ended December 31, |
| 2017 | | 2016 |
Common distributions: | | | |
Ordinary income | 73.0 | % | | 87.0 | % |
Return of capital | 27.0 | % | | — |
|
Capital gains | — |
| | 13.0 | % |
| 100.0 | % | | 100.0 | % |
| | | |
Preferred distributions: | | | |
Ordinary income | 100.0 | % | | — |
|
Return of capital | — |
| | — |
|
Capital gains | — |
| | — |
|
| 100.0 | % | | — |
|
The components of the income tax provision from continuing operations are as follows (in thousands):
| | | | | | | | | | | | | | | | | |
| For the Years Ended December 31, |
| 2021 | | 2020 | | 2019 |
Current: | | | | | |
Federal | $ | — | | | $ | — | | | $ | — | |
State | (1,228) | | | (484) | | | (3,067) | |
Deferred: | | | | | |
Federal | 30 | | | (45,438) | | | 3,987 | |
State | 10 | | | (6,048) | | | 2,831 | |
Income tax (expense) benefit | $ | (1,188) | | | $ | (51,970) | | | $ | 3,751 | |
|
| | | | | | | | | | | |
| For the Years Ended December 31, |
| 2017 | | 2016 | | 2015 |
Current: | | | | | |
Federal | $ | (67 | ) | | $ | (76 | ) | | $ | (287 | ) |
State | (2,304 | ) | | (1,113 | ) | | (1,145 | ) |
Deferred: | | | | | |
Federal | (43,181 | ) | | (6,141 | ) | | 36,359 |
|
State | 3,434 |
| | (860 | ) | | 4,199 |
|
Total net tax (expense) benefit | $ | (42,118 | ) | | $ | (8,190 | ) | | $ | 39,126 |
|
The provision for income taxes differsis different from the amount of income tax (expense) benefit that is determined by applying the applicable U.S. statutory federal income tax rate to pretax income from continuing operations as a result of the following differences (in thousands):
|
| | | | | | | | | | | |
| For the Years Ended December 31, |
| 2017 | | 2016 | | 2015 |
Expected federal tax expense at statutory rate | $ | (41,593 | ) | | $ | (73,327 | ) | | $ | (63,240 | ) |
Tax impact of REIT election | 33,236 |
| | 68,477 |
| | 62,391 |
|
Expected tax expense at TRS | (8,357 | ) | | (4,850 | ) | | (849 | ) |
Change in valuation allowance | 366 |
| | (1,254 | ) | | 41,147 |
|
State income tax expense, net of federal | (1,388 | ) | | (1,520 | ) | | (1,111 | ) |
Impact of rate change | (31,667 | ) | | 20 |
| | 46 |
|
Other permanent items | (513 | ) | | (382 | ) | | (416 | ) |
Impact of provision to return/deferred adjustments | (559 | ) | | (204 | ) | | 309 |
|
Income tax (expense) benefit | $ | (42,118 | ) | | $ | (8,190 | ) | | $ | 39,126 |
|
A reconciliation of the Company's effective tax rate and the U.S. federal statutory income tax rate is as follows: | | | | | | | | | | | | | | | | | |
| For the Years Ended December 31, |
| 2021 | | 2020 | | 2019 |
Expected U.S. federal tax benefit (expense) at statutory rate | $ | 65,079 | | | $ | 90,143 | | | $ | (26,382) | |
Tax impact of REIT election | (60,856) | | | (85,140) | | | 24,129 | |
Expected tax benefit (expense) at TRS | 4,223 | | | 5,003 | | | (2,253) | |
Change in valuation allowance | (6,489) | | | (59,321) | | | (297) | |
State income tax (expense) benefit, net of federal benefit | (650) | | | 1,174 | | | (2,367) | |
Reassessment of acquired NOLs | — | | | — | | | 9,973 | |
| | | | | |
Other items | 1,728 | | | 1,174 | | | (1,305) | |
| | | | | |
| | | | | |
Income tax (expense) benefit | $ | (1,188) | | | $ | (51,970) | | | $ | 3,751 | |
|
| | | | | | | | |
| For the Years Ended December 31, |
| 2017 | | 2016 | | 2015 |
Statutory U.S. federal income tax rate | 35.0 | % | | 35.0 | % | | 35.0 | % |
Impact of REIT election | (28.0 | )% | | (32.7 | )% | | (34.5 | )% |
State and local income taxes | 1.2 | % | | 0.7 | % | | 0.6 | % |
Change in valuation allowance | (0.3 | )% | | 0.6 | % | | (22.8 | )% |
Impact of rate change | 26.6 | % | | — | % | | — | % |
Other | 0.9 | % | | 0.3 | % | | — | % |
Effective tax rate | 35.4 | % | | 3.9 | % | | (21.7 | )% |
Deferred income taxes represent the tax effect from continuing operations of the differences between the book and tax basis of the assets and liabilities. The deferred tax assets (liabilities) include the following (in thousands):
| | | | | | | | | | | |
| December 31, 2021 | | December 31, 2020 |
Deferred tax liabilities: | | | |
| | | |
Partnership basis | $ | (2,739) | | | $ | (2,453) | |
Prepaid expenses | (781) | | | (1,157) | |
| | | |
| | | |
| | | |
Deferred tax liabilities | $ | (3,520) | | | $ | (3,610) | |
| | | |
Deferred tax assets: | | | |
Property and equipment | $ | 4,378 | | | $ | 2,619 | |
Incentive and vacation accrual | 3,021 | | | 2,339 | |
Deferred revenue - key money | 910 | | | 966 | |
Allowance for doubtful accounts | 69 | | | 76 | |
| | | |
| | | |
Other | 179 | | | 202 | |
| | | |
Net operating loss carryforwards | 81,299 | | | 71,831 | |
Federal historic tax credit | 824 | | | 824 | |
Wyndham guarantee | — | | | 5,384 | |
Valuation allowance | (87,159) | | | (80,670) | |
Deferred tax assets | $ | 3,521 | | | $ | 3,571 | |
|
| | | | | | | |
| December 31, |
| 2017 | | 2016 |
Deferred tax liabilities: | | | |
Property and equipment | $ | — |
| | $ | (8,557 | ) |
Prepaid expenses | (1,501 | ) | | (2,349 | ) |
Intangible assets | (3,597 | ) | | — |
|
Deposits | (449 | ) | | — |
|
Other | — |
| | (524 | ) |
Deferred tax liabilities | $ | (5,547 | ) | | $ | (11,430 | ) |
| | | |
Deferred tax assets: | | | |
Property and equipment | $ | 5,427 |
| | $ | 1,082 |
|
Incentive and vacation accrual | 4,576 |
| | 2,640 |
|
Deferred revenue - key money | 1,095 |
| | 1,703 |
|
Allowance for doubtful accounts | 128 |
| | 72 |
|
Partnership basis | 918 |
| | — |
|
Contingent liability | 301 |
| | — |
|
Other | 357 |
| | 605 |
|
Other carryforwards | 184 |
| | 155 |
|
Net operating loss carryforwards | 64,546 |
| | 49,787 |
|
Federal historic tax credit | 824 |
| | — |
|
Valuation allowance | (21,595 | ) | | (11,430 | ) |
Deferred tax assets | $ | 56,761 |
| | $ | 44,614 |
|
Deferred tax assets are recognized only to the extent that it is more likely than not that they will be realized based on the consideration of all available evidence, including the future reversals of existing taxable temporary differences, future projected taxable income, and tax planning strategies. Valuation allowances are provided if, based upon the weight of the available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. The Company recordswould record a valuation allowance to reduce its deferred tax assets to the amount that is most likely to be utilized in future periods to offset taxable income. As ofBased upon the available objective evidence at December 31, 2017 and 2016,2020, the Company had a valuation allowance of approximately $21.6 million and $11.4 million, respectively,determined it was more likely than not that the deferred tax assets related to the net operating loss ("NOL") carryforwards historic tax credits, and other deferred tax assets of its TRSs.primary TRS would not be utilized in future periods. The Company considered all available evidence, both positive and negative, including cumulative incomelosses in recent years and its current forecast of future income in its analysis. WhileAs of December 31, 2021 and 2020, the Company believeshad a valuation allowance of approximately $87.2 million and $80.7 million, respectively, related to NOL carryforwards, historic tax credits, and other deferred tax assets of its forecast of future income is reasonable, it is inherently uncertain. If the Company’s projections of future income are lower than expected, the Company may need to establish an additional valuation allowance.TRSs.
The Company’s NOLs will begin to expire in 2024 for federal tax purposes and 20182021 to 20312040 for state tax purposes. Additionally, the annual utilization of these NOLs is limited pursuant to Section 382 of the Code. The Company's historic tax credits begin to expire in 2035. Additionally, theThe annual utilization of these NOLs and tax credits is limited pursuant to Section 383 of the Code.federal and state tax laws.
The Company is subject to examination by the U.S. Internal Revenue Service ("IRS")federal and various state and local jurisdictions. The tax years subject to examination vary by jurisdiction. With few exceptions, as of December 31, 2017,2021, the Company is no longer subject to U.S. federal or state and local tax examinations by tax authorities for the tax years of 20132017 and before. During 2016, the IRS commenced examination of the federal income tax return of the Company's primary TRS for the 2013 tax year. During 2017, the IRS extended the examination of the federal income tax returns of the Company's primary TRS for the 2014 and 2015 tax years. The Company anticipates the examination will be completed in 2018.
The Company had no accruals for tax uncertainties as of December 31, 20172021 and 2016.2020.
17.16. Segment Information
The Company separately evaluates the performance of each of its hotel properties. However, because each of the hotels has similar economic characteristics, facilities, and services, the hotel properties have been aggregated into a single operating segment.
18.17. Supplemental Information to Statements of Cash Flows (in thousands)
|
| | | | | | | | | | | |
| For the year ended December 31, |
| 2017 | | 2016 | | 2015 |
Reconciliation of cash, cash equivalents, and restricted cash reserves | | | | | |
Cash and cash equivalents | $ | 586,470 |
| | $ | 456,672 |
| | $ | 134,192 |
|
Restricted cash reserves | 72,606 |
| | 67,206 |
| | 55,455 |
|
Cash, cash equivalents, and restricted cash reserves | $ | 659,076 |
| | $ | 523,878 |
| | $ | 189,647 |
|
| | | | | |
Interest paid, net of capitalized interest | $ | 65,211 |
| | $ | 56,294 |
| | $ | 48,524 |
|
| | | | | |
Income taxes paid | $ | 1,176 |
| | $ | 1,290 |
| | $ | 1,012 |
|
| | | | | |
Supplemental investing and financing transactions (1) | | | | | |
In conjunction with the acquisitions, the Company recorded the following: | | | | | |
Purchase of real estate | $ | — |
| | $ | — |
| | $ | 177,169 |
|
Accounts receivable | — |
| | — |
| | 179 |
|
Other assets | — |
| | — |
| | 120 |
|
Mortgage debt assumed | — |
| | — |
| | (33,389 | ) |
Fair value adjustment on mortgage debt assumed | — |
| | — |
| | (1,269 | ) |
Advance deposits | — |
| | — |
| | (46 | ) |
Accounts payable and other liabilities | — |
| | — |
| | (543 | ) |
Acquisition of hotel properties, net | $ | — |
| | $ | — |
| | $ | 142,221 |
|
| | | | | |
In conjunction with the sale of hotel properties, the Company recorded the following: | | | | | |
Sale of hotel properties | $ | 170,000 |
| | $ | 301,540 |
| | $ | 252,500 |
|
Escrow related to certain post-closing obligations | 14,000 |
| | (15,000 | ) | | — |
|
Transaction costs | (4,564 | ) | | (16,693 | ) | | (9,055 | ) |
Operating prorations | 843 |
| | (662 | ) | | 2,960 |
|
Proceeds from the sale of hotel properties, net | $ | 180,279 |
| | $ | 269,185 |
| | $ | 246,405 |
|
| | | | | |
Supplemental non-cash transactions (1) | | | | | |
Change in fair market value of designated interest rate swaps | $ | 13,748 |
| | $ | 11,700 |
| | $ | (2,958 | ) |
Accrued capital expenditures | $ | 14,138 |
| | $ | 7,392 |
| | $ | 11,383 |
|
Distributions payable | $ | 65,284 |
| | $ | 41,486 |
| | $ | 41,409 |
|
Redemption of OP Units | $ | — |
| | $ | 4,325 |
| | $ | — |
|
(1) Refer to Note 3, Merger with FelCor Lodging Trust, for information related to the non-cash investing and financing activities associated with the acquisition of FelCor. | | | | | | | | | | | | | | | | | |
| For the year ended December 31, |
| 2021 | | 2020 | | 2019 |
Reconciliation of cash, cash equivalents, and restricted cash reserves | | | | | |
Cash and cash equivalents | $ | 665,341 | | | $ | 899,813 | | | $ | 882,474 | |
Restricted cash reserves | 48,528 | | | 34,977 | | | 44,686 | |
Cash, cash equivalents, and restricted cash reserves | $ | 713,869 | | | $ | 934,790 | | | $ | 927,160 | |
| | | | | |
Interest paid | $ | 92,729 | | | $ | 98,511 | | | $ | 97,259 | |
| | | | | |
Income taxes paid | $ | 477 | | | $ | 1,501 | | | $ | 4,090 | |
| | | | | |
Operating cash flow lease payments for operating leases | $ | 12,371 | | | $ | 11,813 | | | $ | 15,270 | |
| | | | | |
Right-of-use asset obtained in exchange for lease obligation due to remeasurement | $ | — | | | $ | 4,100 | | | $ | — | |
| | | | | |
Supplemental investing and financing transactions | | | | | |
In conjunction with the acquisitions of hotel properties, the Company recorded the following: | | | | | |
Purchase of hotel properties | $ | 198,250 | | | $ | — | | | $ | — | |
Transaction costs | 2,014 | | | — | | | — | |
Operating prorations | (589) | | | — | | | — | |
Mortgage debt assumed (non-cash financing activity) | (25,000) | | | — | | | — | |
| | | | | |
| | | | | |
| | | | | |
Acquisition of hotel properties, net | $ | 174,675 | | | $ | — | | | $ | — | |
| | | | | |
In conjunction with the sale of hotel properties, the Company recorded the following: | | | | | |
Sale of hotel properties | $ | 208,507 | | | $ | 4,883 | | | $ | 705,681 | |
| | | | | |
| | | | | |
Transaction costs | (8,118) | | | (133) | | | (10,482) | |
Operating prorations | (1,747) | | | (98) | | | (9,329) | |
Receipt of forfeited deposit | — | | | 517 | | | — | |
Proceeds from the sale of hotel properties, net | $ | 198,642 | | | $ | 5,169 | | | $ | 685,870 | |
| | | | | |
Supplemental non-cash transactions | | | | | |
Change in fair market value of designated interest rate swaps | $ | 41,279 | | | $ | (49,536) | | | $ | (33,459) | |
Accrued capital expenditures | $ | 10,049 | | | $ | 7,313 | | | $ | 14,234 | |
Distributions payable | $ | 8,347 | | | $ | 8,752 | | | $ | 64,165 | |
| | | | | |
19. Selected Quarterly Financial Data (unaudited)
The tables below set forth the Company's unaudited condensed consolidated quarterly financial data for the years ended December 31, 2017 and 2016 (in thousands, except share and per share data). In the opinion of management, all adjustments (consisting of normal recurring accruals) necessary for a fair presentation of quarterly results have been reflected in the data. It is also management's opinion, however, that quarterly financial data for the hotel properties are not indicative of the financial results to be achieved in succeeding years or quarters. In order to obtain a more accurate indication of performance, there should be a review of the financial and operating results, changes in shareholders' equity, and cash flows for a period of several years.
|
| | | | | | | | | | | | | | | |
| For the year ended December 31, 2017 |
| First Quarter | | Second Quarter | | Third Quarter (1) | | Fourth Quarter (1) |
Total revenue | $ | 260,232 |
| | $ | 292,284 |
| | $ | 341,255 |
| | $ | 462,490 |
|
Net income | $ | 21,777 |
| | $ | 42,464 |
| | $ | 4,111 |
| | $ | 7,387 |
|
Net income attributable to common shareholders | $ | 21,758 |
| | $ | 42,246 |
| | $ | 1,821 |
| | $ | 638 |
|
Comprehensive income attributable to RLJ | $ | 27,306 |
| | $ | 40,531 |
| | $ | 5,660 |
| | $ | 15,086 |
|
Basic per share data (1): | | | | | | | |
Net income attributable to common shareholders | $ | 0.17 |
| | $ | 0.34 |
| | $ | 0.01 |
| | $ | — |
|
Diluted per share data (1): | | | | | | | |
Net income attributable to common shareholders | $ | 0.17 |
| | $ | 0.34 |
| | $ | 0.01 |
| | $ | — |
|
Basic weighted-average common shares outstanding | 123,734,173 |
| | 123,785,735 |
| | 140,249,961 |
| | 174,147,522 |
|
Diluted weighted-average common shares outstanding | 123,841,400 |
| | 123,871,762 |
| | 140,307,269 |
| | 174,210,578 |
|
| |
(1) | On August 31, 2017, the Company completed its merger with FelCor and acquired an ownership interest in 37 hotel properties. The increase in the quarterly financial data was a result of the financial impact related to the merger transaction. Refer to Note 3, Merger with FelCor Lodging Trust Incorporated, for more information on the accounting for the business combination. |
|
| | | | | | | | | | | | | | | |
| For the year ended December 31, 2016 |
| First Quarter | | Second Quarter | | Third Quarter | | Fourth Quarter |
Total revenue | $ | 275,171 |
| | $ | 317,112 |
| | $ | 296,259 |
| | $ | 271,453 |
|
Net income | $ | 25,350 |
| | $ | 58,740 |
| | $ | 41,389 |
| | $ | 75,835 |
|
Net income attributable to common shareholders | $ | 25,298 |
| | $ | 58,447 |
| | $ | 41,174 |
| | $ | 75,433 |
|
Comprehensive income attributable to RLJ | $ | 5,050 |
| | $ | 53,081 |
| | $ | 50,644 |
| | $ | 103,277 |
|
Basic per share data (1): | | | | | | | |
Net income attributable to common shareholders | $ | 0.20 |
| | $ | 0.47 |
| | $ | 0.33 |
| | $ | 0.61 |
|
Diluted per share data (1): | | | | | | | |
Net income attributable to common shareholders | $ | 0.20 |
| | $ | 0.47 |
| | $ | 0.33 |
| | $ | 0.61 |
|
Basic weighted-average common shares outstanding | 123,739,823 |
| | 123,544,034 |
| | 123,621,323 |
| | 123,698,633 |
|
Diluted weighted-average common shares outstanding | 124,141,824 |
| | 123,942,846 |
| | 123,836,452 |
| | 123,757,660 |
|
| |
(1) | The basic and diluted net income per share attributable to common shareholders are calculated independently for each of the quarters presented. Accordingly, the sum of the quarterly amounts may not agree with the total for the year presented. |
RLJ Lodging Trust
Schedule III - Real Estate and Accumulated Depreciation
December 31, 20172021
(amounts in thousands)
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Initial Costs | | Costs Capitalized Subsequent to Acquisition | | Gross Amount at December 31, 2017 | | | | |
Description | | Debt | | Land & Improvements | | Building & Improvements | | Land, Building & Improvements | | Land & Improvements | | Buildings & Improvements | | Total (1) | | Accumulated Depreciation | | Date Acquired | | Depreciation Life |
Marriott Austin South | | $ | — |
| | $ | 2,253 |
| | $ | 16,522 |
| | $ | 1,761 |
| | $ | 2,253 |
| | $ | 18,283 |
| | $ | 20,536 |
| | $ | 5,120 |
| | 2006 | | 15 - 40 years |
Marriott Denver South @ Park Meadows | | — |
| | 5,385 |
| | 39,488 |
| | 3,692 |
| | 5,352 |
| | 43,212 |
| | 48,564 |
| | 12,224 |
| | 2006 | | 15 - 40 years |
Marriott Louisville Downtown | | 80,000 |
| | — |
| | 89,541 |
| | 7,603 |
| | — |
| | 97,144 |
| | 97,144 |
| | 26,547 |
| | 2006 | | 15 - 40 years |
Marriott Chicago Midway | | — |
| | 4,464 |
| | 32,736 |
| | 2,255 |
| | 4,499 |
| | 34,957 |
| | 39,456 |
| | 10,059 |
| | 2006 | | 15 - 40 years |
Renaissance Boulder Flatiron Hotel | | — |
| | 4,440 |
| | 32,557 |
| | 2,718 |
| | 4,718 |
| | 34,996 |
| | 39,714 |
| | 9,862 |
| | 2006 | | 15 - 40 years |
Renaissance Fort Lauderdale Plantation Hotel | | — |
| | 4,842 |
| | 35,517 |
| | 1,998 |
| | 4,876 |
| | 37,481 |
| | 42,357 |
| | 10,594 |
| | 2006 | | 15 - 40 years |
Courtyard Austin Northwest Arboretum | | — |
| | 1,443 |
| | 10,585 |
| | 3,019 |
| | 1,447 |
| | 13,600 |
| | 15,047 |
| | 3,682 |
| | 2006 | | 15 - 40 years |
Courtyard Austin South | | — |
| | 1,530 |
| | 11,222 |
| | 1,526 |
| | 1,553 |
| | 12,725 |
| | 14,278 |
| | 3,672 |
| | 2006 | | 15 - 40 years |
Courtyard Chicago Downtown Magnificent Mile | | — |
| | 8,140 |
| | 59,696 |
| | 8,486 |
| | 8,142 |
| | 68,180 |
| | 76,322 |
| | 18,073 |
| | 2006 | | 15 - 40 years |
Courtyard Denver West Golden | | — |
| | 1,325 |
| | 9,716 |
| | 1,441 |
| | 1,325 |
| | 11,157 |
| | 12,482 |
| | 3,185 |
| | 2006 | | 15 - 40 years |
Courtyard Chicago Southeast Hammond | | — |
| | 1,038 |
| | 7,616 |
| | 1,376 |
| | 1,080 |
| | 8,950 |
| | 10,030 |
| | 2,619 |
| | 2006 | | 15 - 40 years |
Courtyard Indianapolis @ The Capitol | | — |
| | 2,482 |
| | 18,207 |
| | 1,664 |
| | 2,482 |
| | 19,870 |
| | 22,352 |
| | 5,481 |
| | 2006 | | 15 - 40 years |
Courtyard Boulder Longmont | | — |
| | 1,192 |
| | 8,745 |
| | 1,027 |
| | 1,192 |
| | 9,772 |
| | 10,964 |
| | 2,798 |
| | 2006 | | 15 - 40 years |
Courtyard Boulder Louisville | | — |
| | 1,640 |
| | 12,025 |
| | 1,443 |
| | 1,642 |
| | 13,466 |
| | 15,108 |
| | 3,919 |
| | 2006 | | 15 - 40 years |
Courtyard Louisville Northeast | | — |
| | 1,374 |
| | 10,079 |
| | 891 |
| | 1,382 |
| | 10,962 |
| | 12,344 |
| | 3,181 |
| | 2006 | | 15 - 40 years |
Courtyard Midway Airport | | — |
| | 2,172 |
| | 15,927 |
| | 2,492 |
| | 2,197 |
| | 18,393 |
| | 20,590 |
| | 5,821 |
| | 2006 | | 15 - 40 years |
Courtyard South Bend Mishawaka | | — |
| | 640 |
| | 4,699 |
| | 1,255 |
| | 642 |
| | 5,951 |
| | 6,593 |
| | 1,911 |
| | 2006 | | 15 - 40 years |
Courtyard Salt Lake City Airport | | — |
| | 2,333 |
| | 17,110 |
| | 1,397 |
| | 2,333 |
| | 18,507 |
| | 20,840 |
| | 5,157 |
| | 2006 | | 15 - 40 years |
Courtyard Houston Sugarland | | — |
| | 1,217 |
| | 8,931 |
| | 1,862 |
| | 1,217 |
| | 10,792 |
| | 12,009 |
| | 2,783 |
| | 2006 | | 15 - 40 years |
Courtyard Fort Lauderdale SW Miramar | | — |
| | 1,619 |
| | 11,872 |
| | 1,181 |
| | 1,619 |
| | 13,053 |
| | 14,672 |
| | 3,325 |
| | 2007 | | 15 - 40 years |
Courtyard Austin Downtown Convention Center | | 47,448 |
| | 6,049 |
| | 44,361 |
| | 1,538 |
| | 6,049 |
| | 45,898 |
| | 51,947 |
| | 11,588 |
| | 2007 | | 15 - 40 years |
Courtyard Austin Airport | | — |
| | 1,691 |
| | 12,404 |
| | 3,687 |
| | 1,753 |
| | 16,029 |
| | 17,782 |
| | 3,797 |
| | 2007 | | 15 - 40 years |
Residence Inn Austin Northwest Arboretum | | — |
| | 1,403 |
| | 10,290 |
| | 1,959 |
| | 1,403 |
| | 12,249 |
| | 13,652 |
| | 3,430 |
| | 2006 | | 15 - 40 years |
Residence Inn Austin South | | — |
| | 802 |
| | 5,883 |
| | 966 |
| | 820 |
| | 6,831 |
| | 7,651 |
| | 1,836 |
| | 2006 | | 15 - 40 years |
Residence Inn Austin North Parmer Lane | | — |
| | 1,483 |
| | 10,872 |
| | 1,728 |
| | 1,483 |
| | 12,601 |
| | 14,084 |
| | 3,299 |
| | 2006 | | 15 - 40 years |
Residence Inn Indianapolis Fishers | | — |
| | 998 |
| | 7,322 |
| | 1,005 |
| | 1,048 |
| | 8,277 |
| | 9,325 |
| | 2,294 |
| | 2006 | | 15 - 40 years |
Residence Inn Denver West Golden | | — |
| | 1,222 |
| | 8,963 |
| | 1,195 |
| | 1,222 |
| | 10,158 |
| | 11,380 |
| | 2,811 |
| | 2006 | | 15 - 40 years |
Residence Inn Chicago Southeast Hammond | | — |
| | 980 |
| | 7,190 |
| | 1,010 |
| | 1,043 |
| | 8,138 |
| | 9,181 |
| | 2,239 |
| | 2006 | | 15 - 40 years |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Initial Costs | | Costs Capitalized Subsequent to Acquisition | | Gross Amount at December 31, 2021 | | | | |
Description | | Debt | | Land & Improvements | | Building & Improvements | | Land, Building & Improvements | | Land & Improvements | | Buildings & Improvements | | Total (1) | | Accumulated Depreciation | | Date Acquired | | Depreciation Life |
Marriott Denver South @ Park Meadows | | $ | — | | | $ | 5,385 | | | $ | 39,488 | | | $ | 3,984 | | | $ | 5,353 | | | $ | 43,504 | | | $ | 48,857 | | | $ | 17,052 | | | 2006 | | 15 - 40 years |
Marriott Louisville Downtown | | — | | | — | | | 89,541 | | | 25,144 | | | 92 | | | 114,593 | | | 114,685 | | | 40,100 | | | 2006 | | 15 - 40 years |
Marriott Chicago Midway | | — | | | 4,464 | | | 32,736 | | | 3,105 | | | 4,496 | | | 35,809 | | | 40,305 | | | 13,835 | | | 2006 | | 15 - 40 years |
Renaissance Boulder Flatiron Hotel | | — | | | 4,440 | | | 32,557 | | | 3,247 | | | 4,719 | | | 35,525 | | | 40,244 | | | 13,715 | | | 2006 | | 15 - 40 years |
Renaissance Fort Lauderdale West Hotel | | — | | | 4,842 | | | 35,517 | | | 8,126 | | | 4,876 | | | 43,609 | | | 48,485 | | | 15,167 | | | 2006 | | 15 - 40 years |
Courtyard Chicago Downtown Magnificent Mile | | 31,000 | | | 8,140 | | | 59,696 | | | 9,589 | | | 8,148 | | | 69,277 | | | 77,425 | | | 26,054 | | | 2006 | | 15 - 40 years |
Courtyard Indianapolis @ The Capitol | | — | | | 2,482 | | | 18,207 | | | 4,137 | | | 2,635 | | | 22,191 | | | 24,826 | | | 7,887 | | | 2006 | | 15 - 40 years |
Courtyard Midway Airport | | — | | | 2,172 | | | 15,927 | | | 2,715 | | | 2,197 | | | 18,617 | | | 20,814 | | | 7,930 | | | 2006 | | 15 - 40 years |
Courtyard Austin Downtown Convention Center | | — | | | 6,049 | | | 44,361 | | | 5,197 | | | 6,049 | | | 49,558 | | | 55,607 | | | 16,856 | | | 2007 | | 15 - 40 years |
Residence Inn Houston By The Galleria | | — | | | 2,665 | | | 19,549 | | | 3,095 | | | 2,674 | | | 22,635 | | | 25,309 | | | 9,029 | | | 2006 | | 15 - 40 years |
Residence Inn Indianapolis Downtown On The Canal | | — | | | 2,670 | | | 19,588 | | | 4,798 | | | 2,670 | | | 24,386 | | | 27,056 | | | 8,573 | | | 2006 | | 15 - 40 years |
Residence Inn Merrillville | | — | | | 595 | | | 4,372 | | | 1,321 | | | 595 | | | 5,693 | | | 6,288 | | | 2,283 | | | 2006 | | 15 - 40 years |
Residence Inn Louisville Downtown | | — | | | 1,815 | | | 13,308 | | | 3,191 | | | 1,815 | | | 16,499 | | | 18,314 | | | 5,449 | | | 2007 | | 15 - 40 years |
Residence Inn Austin Downtown Convention Center | | — | | | 3,767 | | | 27,626 | | | 4,390 | | | 3,804 | | | 31,979 | | | 35,783 | | | 10,462 | | | 2007 | | 15 - 40 years |
SpringHill Suites Denver North Westminster | | — | | | 2,409 | | | 17,670 | | | 1,869 | | | 2,409 | | | 19,539 | | | 21,948 | | | 7,536 | | | 2006 | | 15 - 40 years |
Fairfield Inn & Suites Denver Cherry Creek | | — | | | 1,203 | | | 8,823 | | | 1,630 | | | 1,203 | | | 10,453 | | | 11,656 | | | 4,113 | | | 2006 | | 15 - 40 years |
Fairfield Inn & Suites Key West | | — | | | 1,803 | | | 19,325 | | | 3,811 | | | 1,853 | | | 23,086 | | | 24,939 | | | 8,978 | | | 2006 | | 15 - 40 years |
Fairfield Inn & Suites Chicago Midway Airport | | — | | | 1,425 | | | 10,449 | | | 2,056 | | | 1,447 | | | 12,483 | | | 13,930 | | | 4,880 | | | 2006 | | 15 - 40 years |
Hampton Inn Chicago Midway Airport | | — | | | 2,747 | | | 20,143 | | | 3,071 | | | 2,793 | | | 23,168 | | | 25,961 | | | 9,109 | | | 2006 | | 15 - 40 years |
Hilton Garden Inn Chicago Midway Airport | | — | | | 2,978 | | | 21,842 | | | 1,622 | | | 3,000 | | | 23,442 | | | 26,442 | | | 9,173 | | | 2006 | | 15 - 40 years |
Sleep Inn Midway Airport | | — | | | 1,189 | | | 8,718 | | | 1,881 | | | 1,211 | | | 10,577 | | | 11,788 | | | 4,430 | | | 2006 | | 15 - 40 years |
Holiday Inn Express & Suites Midway Airport | | — | | | 1,874 | | | 13,742 | | | 3,169 | | | 1,902 | | | 16,883 | | | 18,785 | | | 6,226 | | | 2006 | | 15 - 40 years |
TGI Friday's Chicago Midway | | — | | | 829 | | | 6,139 | | | 951 | | | 851 | | | 7,068 | | | 7,919 | | | 2,649 | | | 2006 | | 15 - 40 years |
Hampton Inn Garden City | | — | | | 5,691 | | | 22,764 | | | 3,082 | | | 5,736 | | | 25,801 | | | 31,537 | | | 9,012 | | | 2007 | | 15 - 40 years |
Courtyard Houston By The Galleria | | 19,000 | | | 3,069 | | | 22,508 | | | 2,395 | | | 3,069 | | | 24,903 | | | 27,972 | | | 8,744 | | | 2007 | | 15 - 40 years |
Embassy Suites Los Angeles Downey | | 31,000 | | | 4,857 | | | 29,943 | | | 11,374 | | | 4,969 | | | 41,205 | | | 46,174 | | | 13,688 | | | 2008 | | 15 - 40 years |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Initial Costs | | Costs Capitalized Subsequent to Acquisition | | Gross Amount at December 31, 2021 | | | | |
Description | | Debt | | Land & Improvements | | Building & Improvements | | Land, Building & Improvements | | Land & Improvements | | Buildings & Improvements | | Total (1) | | Accumulated Depreciation | | Date Acquired | | Depreciation Life |
Embassy Suites Tampa Downtown Convention Center | | — | | | 2,161 | | | 71,017 | | | 14,945 | | | 2,427 | | | 85,696 | | | 88,123 | | | 24,149 | | | 2010 | | 15 - 40 years |
Fairfield Inn & Suites Washington DC Downtown | | 34,000 | | | 16,214 | | | 22,265 | | | 7,833 | | | 16,447 | | | 29,865 | | | 46,312 | | | 10,017 | | | 2010 | | 15 - 40 years |
Embassy Suites Fort Myers Estero | | — | | | 2,816 | | | 7,862 | | | 1,886 | | | 2,926 | | | 9,638 | | | 12,564 | | | 3,461 | | | 2010 | | 15 - 40 years |
Homewood Suites Washington DC Downtown | | — | | | 23,139 | | | 34,188 | | | 5,181 | | | 23,150 | | | 39,358 | | | 62,508 | | | 11,653 | | | 2010 | | 15 - 40 years |
Hotel Indigo New Orleans Garden District | | — | | | 1,901 | | | 2,793 | | | 12,767 | | | 2,082 | | | 15,379 | | | 17,461 | | | 8,002 | | | 2010 | | 15 - 40 years |
Residence Inn National Harbor Washington DC | | — | | | 7,457 | | | 37,046 | | | 2,120 | | | 7,480 | | | 39,143 | | | 46,623 | | | 11,238 | | | 2010 | | 15 - 40 years |
Hilton Garden Inn New Orleans Convention Center | | — | | | 3,405 | | | 20,750 | | | 9,313 | | | 3,483 | | | 29,985 | | | 33,468 | | | 9,301 | | | 2010 | | 15 - 40 years |
Hilton Garden Inn Los Angeles Hollywood | | — | | | 5,303 | | | 19,136 | | | 10,830 | | | 5,696 | | | 29,573 | | | 35,269 | | | 9,770 | | | 2010 | | 15 - 40 years |
Renaissance Pittsburgh Hotel | | 34,000 | | | 3,274 | | | 39,934 | | | 11,184 | | | 3,397 | | | 50,995 | | | 54,392 | | | 14,354 | | | 2011 | | 15 - 40 years |
Courtyard Atlanta Buckhead | | — | | | 2,860 | | | 21,668 | | | 3,929 | | | 2,875 | | | 25,582 | | | 28,457 | | | 7,654 | | | 2011 | | 15 - 40 years |
Marriott Denver Airport @ Gateway Park | | — | | | 3,083 | | | 38,356 | | | 5,044 | | | 3,180 | | | 43,303 | | | 46,483 | | | 13,023 | | | 2011 | | 15 - 40 years |
Embassy Suites West Palm Beach Central | | — | | | 3,656 | | | 9,614 | | | 8,064 | | | 3,877 | | | 17,457 | | | 21,334 | | | 6,798 | | | 2011 | | 15 - 40 years |
Hilton Garden Inn Pittsburgh University Place | | — | | | 1,975 | | | 18,490 | | | 9,335 | | | 2,382 | | | 27,418 | | | 29,800 | | | 9,964 | | | 2011 | | 15 - 40 years |
Courtyard Charleston Historic District | | — | | | 2,714 | | | 35,828 | | | 4,584 | | | 3,534 | | | 39,592 | | | 43,126 | | | 10,413 | | | 2011 | | 15 - 40 years |
Residence Inn Bethesda Downtown | | — | | | 8,154 | | | 52,749 | | | 6,926 | | | 8,287 | | | 59,542 | | | 67,829 | | | 15,342 | | | 2012 | | 15 - 40 years |
Courtyard New York Manhattan Upper East Side | | — | | | 20,655 | | | 60,222 | | | 8,611 | | | 21,269 | | | 68,219 | | | 89,488 | | | 17,529 | | | 2012 | | 15 - 40 years |
Hilton Garden Inn San Francisco Oakland Bay Bridge | | — | | | 11,903 | | | 22,757 | | | 16,762 | | | 12,188 | | | 39,234 | | | 51,422 | | | 7,986 | | | 2012 | | 15 - 40 years |
Embassy Suites Boston Waltham | | — | | | 6,268 | | | 56,024 | | | 4,942 | | | 6,386 | | | 60,848 | | | 67,234 | | | 15,255 | | | 2012 | | 15 - 40 years |
Courtyard Houston Downtown Convention Center | | — | | | 5,799 | | | 28,953 | | | 5,770 | | | 6,071 | | | 34,451 | | | 40,522 | | | 8,070 | | | 2013 | | 15 - 40 years |
Residence Inn Houston Downtown Convention Center | | — | | | 4,674 | | | 24,913 | | | 5,032 | | | 4,875 | | | 29,744 | | | 34,619 | | | 7,048 | | | 2013 | | 15 - 40 years |
SpringHill Suites Houston Downtown Convention Center | | — | | | 2,382 | | | 12,756 | | | 12,828 | | | 2,567 | | | 25,399 | | | 27,966 | | | 8,217 | | | 2013 | | 15 - 40 years |
Courtyard Waikiki Beach | | — | | | 557 | | | 79,033 | | | 13,703 | | | 803 | | | 92,490 | | | 93,293 | | | 21,384 | | | 2013 | | 15 - 40 years |
Courtyard San Francisco | | — | | | 11,277 | | | 18,198 | | | 28,807 | | | 11,291 | | | 46,991 | | | 58,282 | | | 13,127 | | | 2013 | | 15 - 40 years |
Residence Inn Atlanta Midtown Historic | | — | | | 2,812 | | | 6,044 | | | 7,639 | | | 2,969 | | | 13,526 | | | 16,495 | | | 3,604 | | | 2013 | | 15 - 40 years |
SpringHill Suites Portland Hillsboro | | — | | | 3,488 | | | 18,283 | | | 1,499 | | | 3,518 | | | 19,752 | | | 23,270 | | | 4,375 | | | 2013 | | 15 - 40 years |
Hilton Cabana Miami Beach | | — | | | 25,083 | | | 40,707 | | | 7,346 | | | 25,318 | | | 47,818 | | | 73,136 | | | 9,353 | | | 2014 | | 15 - 40 years |
Hyatt House Charlotte Center City | | 18,000 | | | 3,029 | | | 26,193 | | | 2,216 | | | 3,029 | | | 28,409 | | | 31,438 | | | 5,633 | | | 2014 | | 15 - 40 years |
Hyatt House Cypress Anaheim | | 16,000 | | | 3,995 | | | 9,164 | | | 3,964 | | | 4,354 | | | 12,769 | | | 17,123 | | | 3,660 | | | 2014 | | 15 - 40 years |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Initial Costs | | Costs Capitalized Subsequent to Acquisition | | Gross Amount at December 31, 2017 | | | | |
Description | | Debt | | Land & Improvements | | Building & Improvements | | Land, Building & Improvements | | Land & Improvements | | Buildings & Improvements | | Total (1) | | Accumulated Depreciation | | Date Acquired | | Depreciation Life |
Residence Inn Houston By The Galleria | | — |
| | 2,665 |
| | 19,549 |
| | 2,790 |
| | 2,665 |
| | 22,340 |
| | 25,005 |
| | 6,330 |
| | 2006 | | 15 - 40 years |
Residence Inn Indianapolis Downtown On The Canal | | — |
| | 2,670 |
| | 19,588 |
| | 2,102 |
| | 2,670 |
| | 21,690 |
| | 24,360 |
| | 6,060 |
| | 2006 | | 15 - 40 years |
Residence Inn Longmont Boulder | | — |
| | 1,407 |
| | 10,321 |
| | 796 |
| | 1,407 |
| | 11,117 |
| | 12,524 |
| | 3,088 |
| | 2006 | | 15 - 40 years |
Residence Inn Boulder Louisville | | — |
| | 1,298 |
| | 9,519 |
| | 972 |
| | 1,298 |
| | 10,490 |
| | 11,788 |
| | 2,991 |
| | 2006 | | 15 - 40 years |
Residence Inn Louisville Northeast | | — |
| | 1,319 |
| | 9,675 |
| | 1,203 |
| | 1,325 |
| | 10,872 |
| | 12,197 |
| | 3,006 |
| | 2006 | | 15 - 40 years |
Residence Inn Merrillville | | — |
| | 595 |
| | 4,372 |
| | 1,262 |
| | 595 |
| | 5,634 |
| | 6,229 |
| | 1,727 |
| | 2006 | | 15 - 40 years |
Residence Inn Detroit Novi | | — |
| | 1,427 |
| | 10,445 |
| | 2,119 |
| | 1,666 |
| | 12,325 |
| | 13,991 |
| | 3,317 |
| | 2006 | | 15 - 40 years |
Residence Inn Chicago Oak Brook | | — |
| | — |
| | 20,436 |
| | 938 |
| | — |
| | 21,374 |
| | 21,374 |
| | 6,013 |
| | 2006 | | 15 - 40 years |
Residence Inn Fort Lauderdale Plantation | | — |
| | 2,183 |
| | 16,021 |
| | 4,601 |
| | 2,295 |
| | 20,510 |
| | 22,805 |
| | 5,793 |
| | 2006 | | 15 - 40 years |
Residence Inn Salt Lake City Airport | | — |
| | 875 |
| | 6,416 |
| | 1,295 |
| | 875 |
| | 7,712 |
| | 8,587 |
| | 2,171 |
| | 2006 | | 15 - 40 years |
Residence Inn San Antonio Downtown Market Sq | | — |
| | 1,822 |
| | 13,360 |
| | 2,278 |
| | 1,822 |
| | 15,638 |
| | 17,460 |
| | 4,434 |
| | 2006 | | 15 - 40 years |
Residence Inn Houston Sugarland | | — |
| | 1,100 |
| | 8,073 |
| | 1,952 |
| | 1,100 |
| | 10,025 |
| | 11,125 |
| | 2,778 |
| | 2006 | | 15 - 40 years |
Residence Inn Chicago Naperville | | — |
| | 1,923 |
| | 14,101 |
| | 838 |
| | 1,923 |
| | 14,938 |
| | 16,861 |
| | 4,343 |
| | 2006 | | 15 - 40 years |
Residence Inn Louisville Downtown | | — |
| | 1,815 |
| | 13,308 |
| | 913 |
| | 1,815 |
| | 14,220 |
| | 16,035 |
| | 3,774 |
| | 2007 | | 15 - 40 years |
Residence Inn Fort Lauderdale SW Miramar | | — |
| | 1,692 |
| | 12,409 |
| | 1,581 |
| | 1,700 |
| | 13,982 |
| | 15,682 |
| | 3,566 |
| | 2007 | | 15 - 40 years |
Residence Inn Austin Downtown Convention Center | | 31,632 |
| | 3,767 |
| | 27,626 |
| | 636 |
| | 3,767 |
| | 28,262 |
| | 32,029 |
| | 7,174 |
| | 2007 | | 15 - 40 years |
SpringHill Suites Austin North Parmer Lane | | — |
| | 1,957 |
| | 14,351 |
| | 577 |
| | 1,957 |
| | 14,928 |
| | 16,885 |
| | 4,215 |
| | 2006 | | 15 - 40 years |
SpringHill Suites Austin South | | — |
| | 1,605 |
| | 11,768 |
| | 2,006 |
| | 1,624 |
| | 13,756 |
| | 15,380 |
| | 3,778 |
| | 2006 | | 15 - 40 years |
SpringHill Suites Louisville Hurstbourne North | | — |
| | 1,890 |
| | 13,869 |
| | 1,729 |
| | 1,890 |
| | 15,598 |
| | 17,488 |
| | 4,293 |
| | 2006 | | 15 - 40 years |
SpringHill Suites South Bend Mishawaka | | — |
| | 983 |
| | 7,217 |
| | 1,276 |
| | 983 |
| | 8,493 |
| | 9,476 |
| | 2,360 |
| | 2006 | | 15 - 40 years |
SpringHill Suites Denver North Westminster | | — |
| | 2,409 |
| | 17,670 |
| | 1,120 |
| | 2,409 |
| | 18,790 |
| | 21,199 |
| | 5,455 |
| | 2006 | | 15 - 40 years |
SpringHill Suites Boulder Longmont | | — |
| | 1,144 |
| | 8,388 |
| | 741 |
| | 1,144 |
| | 9,130 |
| | 10,274 |
| | 2,501 |
| | 2007 | | 15 - 40 years |
Fairfield Inn & Suites Austin South Airport | | — |
| | 505 |
| | 3,702 |
| | 1,127 |
| | 505 |
| | 4,829 |
| | 5,334 |
| | 1,231 |
| | 2006 | | 15 - 40 years |
Fairfield Inn & Suites Denver Cherry Creek | | — |
| | 1,203 |
| | 8,823 |
| | 1,309 |
| | 1,203 |
| | 10,132 |
| | 11,335 |
| | 2,924 |
| | 2006 | | 15 - 40 years |
Fairfield Inn & Suites Chicago SE Hammond | | — |
| | 722 |
| | 5,301 |
| | 1,386 |
| | 790 |
| | 6,620 |
| | 7,410 |
| | 1,856 |
| | 2006 | | 15 - 40 years |
Fairfield Inn & Suites Key West | | — |
| | 1,803 |
| | 19,325 |
| | 3,284 |
| | 1,853 |
| | 22,559 |
| | 24,412 |
| | 6,130 |
| | 2006 | | 15 - 40 years |
Fairfield Inn & Suites Chicago Midway Airport | | — |
| | 1,425 |
| | 10,449 |
| | 1,934 |
| | 1,446 |
| | 12,361 |
| | 13,807 |
| | 3,338 |
| | 2006 | | 15 - 40 years |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Initial Costs | | Costs Capitalized Subsequent to Acquisition | | Gross Amount at December 31, 2021 | | | | |
Description | | Debt | | Land & Improvements | | Building & Improvements | | Land, Building & Improvements | | Land & Improvements | | Buildings & Improvements | | Total (1) | | Accumulated Depreciation | | Date Acquired | | Depreciation Life |
Hyatt House Emeryville San Francisco Bay Area | | 36,000 | | | 7,425 | | | 29,137 | | | 7,132 | | | 7,517 | | | 36,177 | | | 43,694 | | | 8,482 | | | 2014 | | 15 - 40 years |
Hyatt House San Diego Sorrento Mesa | | — | | | 10,420 | | | 21,288 | | | 1,492 | | | 10,624 | | | 22,576 | | | 33,200 | | | 5,025 | | | 2014 | | 15 - 40 years |
Hyatt House San Jose Silicon Valley | | — | | | 6,820 | | | 31,682 | | | 2,624 | | | 6,942 | | | 34,184 | | | 41,126 | | | 6,598 | | | 2014 | | 15 - 40 years |
Hyatt House San Ramon | | — | | | 5,712 | | | 11,852 | | | 2,834 | | | 5,717 | | | 14,681 | | | 20,398 | | | 3,584 | | | 2014 | | 15 - 40 years |
Hyatt House Santa Clara | | 34,000 | | | 8,044 | | | 27,703 | | | 3,161 | | | 8,045 | | | 30,863 | | | 38,908 | | | 6,603 | | | 2014 | | 15 - 40 years |
Hyatt Centric The Woodlands | | — | | | 5,950 | | | 16,882 | | | 2,618 | | | 5,977 | | | 19,473 | | | 25,450 | | | 3,698 | | | 2014 | | 15 - 40 years |
Hyatt Place Fremont Silicon Valley | | — | | | 6,209 | | | 13,730 | | | 1,621 | | | 6,271 | | | 15,289 | | | 21,560 | | | 3,485 | | | 2014 | | 15 - 40 years |
Hyatt Place Madison Downtown | | 13,000 | | | 6,701 | | | 25,478 | | | 1,505 | | | 6,701 | | | 26,983 | | | 33,684 | | | 5,171 | | | 2014 | | 15 - 40 years |
Embassy Suites Irvine Orange County | | — | | | 15,062 | | | 33,048 | | | 9,007 | | | 15,187 | | | 41,930 | | | 57,117 | | | 9,515 | | | 2014 | | 15 - 40 years |
Courtyard Portland City Center | | — | | | 8,019 | | | 53,024 | | | 1,622 | | | 8,021 | | | 54,644 | | | 62,665 | | | 10,662 | | | 2014 | | 15 - 40 years |
Hyatt Atlanta Midtown | | — | | | 3,737 | | | 41,731 | | | 1,183 | | | 3,740 | | | 42,911 | | | 46,651 | | | 8,229 | | | 2014 | | 15 - 40 years |
DoubleTree Grand Key Resort | | — | | | 48,192 | | | 27,770 | | | 8,476 | | | 48,266 | | | 36,172 | | | 84,438 | | | 8,028 | | | 2014 | | 15 - 40 years |
Hyatt Place Washington DC Downtown K Street | | — | | | 10,763 | | | 55,225 | | | 2,060 | | | 10,763 | | | 57,285 | | | 68,048 | | | 9,463 | | | 2015 | | 15 - 40 years |
Homewood Suites Seattle Lynnwood | | 19,000 | | | 3,933 | | | 30,949 | | | 276 | | | 4,001 | | | 31,157 | | | 35,158 | | | 5,257 | | | 2015 | | 15 - 40 years |
Residence Inn Palo Alto Los Altos | | — | | | 16,996 | | | 45,786 | | | 847 | | | 17,100 | | | 46,529 | | | 63,629 | | | 7,957 | | | 2015 | | 15 - 40 years |
DoubleTree Suites by Hilton Austin | | — | | | 7,072 | | | 50,827 | | | 1,277 | | | 7,269 | | | 51,907 | | | 59,176 | | | 5,735 | | | 2017 | | 15 - 40 years |
DoubleTree Suites by Hilton Orlando - Lake Buena Vista | | — | | | 896 | | | 44,508 | | | 1,176 | | | 1,010 | | | 45,570 | | | 46,580 | | | 5,240 | | | 2017 | | 15 - 40 years |
Embassy Suites Atlanta - Buckhead | | — | | | 31,279 | | | 46,015 | | | 16,585 | | | 31,544 | | | 62,335 | | | 93,879 | | | 6,475 | | | 2017 | | 15 - 40 years |
Embassy Suites Birmingham | | — | | | 10,495 | | | 33,568 | | | 717 | | | 10,512 | | | 34,268 | | | 44,780 | | | 3,948 | | | 2017 | | 15 - 40 years |
Embassy Suites Dallas - Love Field | | 25,000 | | | 6,408 | | | 34,694 | | | 1,872 | | | 6,413 | | | 36,561 | | | 42,974 | | | 4,061 | | | 2017 | | 15 - 40 years |
Embassy Suites Deerfield Beach - Resort & Spa | | — | | | 7,527 | | | 56,128 | | | 3,985 | | | 7,824 | | | 59,816 | | | 67,640 | | | 6,779 | | | 2017 | | 15 - 40 years |
Embassy Suites Fort Lauderdale 17th Street | | — | | | 30,933 | | | 54,592 | | | 3,843 | | | 31,306 | | | 58,062 | | | 89,368 | | | 6,831 | | | 2017 | | 15 - 40 years |
Embassy Suites Los Angeles - International Airport South | | 50,000 | | | 13,110 | | | 94,733 | | | 1,961 | | | 13,168 | | | 96,636 | | | 109,804 | | | 10,687 | | | 2017 | | 15 - 40 years |
Embassy Suites Mandalay Beach - Hotel & Resort | | — | | | 35,769 | | | 53,280 | | | 13,073 | | | 35,886 | | | 66,236 | | | 102,122 | | | 6,827 | | | 2017 | | 15 - 40 years |
Embassy Suites Miami - International Airport | | — | | | 14,765 | | | 18,099 | | | 3,812 | | | 15,057 | | | 21,619 | | | 36,676 | | | 2,869 | | | 2017 | | 15 - 40 years |
Embassy Suites Milpitas Silicon Valley | | — | | | 43,157 | | | 26,399 | | | 13,267 | | | 43,369 | | | 39,454 | | | 82,823 | | | 5,215 | | | 2017 | | 15 - 40 years |
Embassy Suites Minneapolis - Airport | | — | | | 7,248 | | | 41,202 | | | 17,119 | | | 9,673 | | | 55,896 | | | 65,569 | | | 8,039 | | | 2017 | | 15 - 40 years |
Embassy Suites Orlando - International Drive South/Convention Center | | — | | | 4,743 | | | 37,687 | | | 1,521 | | | 5,011 | | | 38,940 | | | 43,951 | | | 4,495 | | | 2017 | | 15 - 40 years |
Embassy Suites Phoenix - Biltmore | | 21,000 | | | 24,680 | | | 24,487 | | | 3,104 | | | 24,784 | | | 27,487 | | | 52,271 | | | 3,320 | | | 2017 | | 15 - 40 years |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Initial Costs | | Costs Capitalized Subsequent to Acquisition | | Gross Amount at December 31, 2017 | | | | |
Description | | Debt | | Land & Improvements | | Building & Improvements | | Land, Building & Improvements | | Land & Improvements | | Buildings & Improvements | | Total (1) | | Accumulated Depreciation | | Date Acquired | | Depreciation Life |
Fairfield Inn & Suites San Antonio Dwntn Mkt | | — |
| | 1,378 |
| | 10,105 |
| | 1,348 |
| | 1,378 |
| | 11,453 |
| | 12,831 |
| | 3,128 |
| | 2006 | | 15 - 40 years |
Hampton Inn Chicago Midway Airport | | — |
| | 2,747 |
| | 20,143 |
| | 2,905 |
| | 2,793 |
| | 23,002 |
| | 25,795 |
| | 6,460 |
| | 2006 | | 15 - 40 years |
Hilton Garden Inn Chicago Midway Airport | | — |
| | 2,978 |
| | 21,842 |
| | 1,237 |
| | 3,000 |
| | 23,057 |
| | 26,057 |
| | 6,608 |
| | 2006 | | 15 - 40 years |
Sleep Inn Midway Airport | | — |
| | 1,189 |
| | 8,718 |
| | 1,672 |
| | 1,210 |
| | 10,368 |
| | 11,578 |
| | 3,148 |
| | 2006 | | 15 - 40 years |
Holiday Inn Express & Suites Midway Airport | | — |
| | 1,874 |
| | 13,742 |
| | 1,994 |
| | 1,897 |
| | 15,714 |
| | 17,611 |
| | 4,127 |
| | 2006 | | 15 - 40 years |
Hilton Garden Inn Bloomington | | 17,500 |
| | — |
| | 18,945 |
| | 931 |
| | — |
| | 19,876 |
| | 19,876 |
| | 4,505 |
| | 2009 | | 15 - 40 years |
TGI Friday's Chicago Midway | | — |
| | 829 |
| | 6,139 |
| | 654 |
| | 851 |
| | 6,771 |
| | 7,622 |
| | 1,876 |
| | 2006 | | 15 - 40 years |
Hampton Inn & Suites Clearwater St Petersburg Ulmerton Road | | — |
| | 1,106 |
| | 12,721 |
| | 1,144 |
| | 1,146 |
| | 13,825 |
| | 14,971 |
| | 3,621 |
| | 2007 | | 15 - 40 years |
Hampton Inn Garden City | | — |
| | 5,691 |
| | 22,764 |
| | 1,584 |
| | 5,717 |
| | 24,323 |
| | 30,040 |
| | 6,231 |
| | 2007 | | 15 - 40 years |
Courtyard Houston By The Galleria | | 26,000 |
| | 3,069 |
| | 22,508 |
| | 1,423 |
| | 3,069 |
| | 23,931 |
| | 27,000 |
| | 6,063 |
| | 2007 | | 15 - 40 years |
Hampton Inn Fort Walton Beach | | — |
| | 8,774 |
| | 6,109 |
| | 2,075 |
| | 8,928 |
| | 8,030 |
| | 16,958 |
| | 1,915 |
| | 2007 | | 15 - 40 years |
Embassy Suites Los Angeles Downey | | 26,500 |
| | 4,857 |
| | 29,943 |
| | 6,245 |
| | 4,970 |
| | 36,076 |
| | 41,046 |
| | 8,631 |
| | 2008 | | 15 - 40 years |
Hyatt House Austin Arboretum | | 11,000 |
| | 2,813 |
| | 15,940 |
| | 2,157 |
| | 2,813 |
| | 18,098 |
| | 20,911 |
| | 4,168 |
| | 2008 | | 15 - 40 years |
Hyatt House Dallas Lincoln Park | | 18,000 |
| | 3,169 |
| | 17,958 |
| | 3,562 |
| | 3,337 |
| | 21,352 |
| | 24,689 |
| | 4,552 |
| | 2008 | | 15 - 40 years |
Hyatt House Dallas Uptown | | 16,500 |
| | 2,241 |
| | 12,698 |
| | 3,056 |
| | 2,317 |
| | 15,679 |
| | 17,996 |
| | 3,371 |
| | 2008 | | 15 - 40 years |
Hyatt House Houston Galleria | �� | 13,000 |
| | 2,976 |
| | 16,866 |
| | 2,027 |
| | 2,976 |
| | 18,893 |
| | 21,869 |
| | 4,468 |
| | 2008 | | 15 - 40 years |
Embassy Suites Tampa Downtown Convention Ctr | | — |
| | 2,161 |
| | 71,017 |
| | 2,861 |
| | 2,410 |
| | 73,628 |
| | 76,038 |
| | 14,378 |
| | 2010 | | 15 - 40 years |
Fairfield Inn & Suites Washington DC Downtown | | — |
| | 16,214 |
| | 22,265 |
| | 5,393 |
| | 16,332 |
| | 27,540 |
| | 43,872 |
| | 6,161 |
| | 2010 | | 15 - 40 years |
Embassy Suites Fort Myers Estero | | — |
| | 2,816 |
| | 7,862 |
| | 1,637 |
| | 2,879 |
| | 9,436 |
| | 12,315 |
| | 2,046 |
| | 2010 | | 15 - 40 years |
Homewood Suites Washington DC Downtown | | 31,515 |
| | 23,139 |
| | 34,188 |
| | 4,369 |
| | 23,139 |
| | 38,557 |
| | 61,696 |
| | 7,038 |
| | 2010 | | 15 - 40 years |
Hampton Inn & Suites Denver Tech Center | | — |
| | 2,373 |
| | 9,180 |
| | 1,861 |
| | 2,428 |
| | 10,986 |
| | 13,414 |
| | 2,576 |
| | 2010 | | 15 - 40 years |
Hotel Indigo New Orleans Garden District | | — |
| | 1,901 |
| | 3,865 |
| | 11,784 |
| | 2,082 |
| | 15,468 |
| | 17,550 |
| | 4,464 |
| | 2010 | | 15 - 40 years |
Residence Inn Columbia | | — |
| | 1,993 |
| | 11,487 |
| | 1,834 |
| | 2,069 |
| | 13,245 |
| | 15,314 |
| | 2,874 |
| | 2010 | | 15 - 40 years |
Residence Inn National Harbor Washington DC | | — |
| | 7,457 |
| | 37,046 |
| | 1,517 |
| | 7,480 |
| | 38,539 |
| | 46,019 |
| | 6,965 |
| | 2010 | | 15 - 40 years |
Residence Inn Silver Spring | | — |
| | 3,945 |
| | 18,896 |
| | 1,035 |
| | 3,989 |
| | 19,887 |
| | 23,876 |
| | 4,151 |
| | 2010 | | 15 - 40 years |
Hilton Garden Inn New Orleans Convention Center | | — |
| | 3,405 |
| | 20,750 |
| | 4,657 |
| | 3,479 |
| | 25,333 |
| | 28,812 |
| | 5,252 |
| | 2010 | | 15 - 40 years |
Hampton Inn West Palm Beach Arprt Central | | — |
| | 2,280 |
| | 9,769 |
| | 1,346 |
| | 2,280 |
| | 11,115 |
| | 13,395 |
| | 2,164 |
| | 2010 | | 15 - 40 years |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Initial Costs | | Costs Capitalized Subsequent to Acquisition | | Gross Amount at December 31, 2021 | | | | |
Description | | Debt | | Land & Improvements | | Building & Improvements | | Land, Building & Improvements | | Land & Improvements | | Buildings & Improvements | | Total (1) | | Accumulated Depreciation | | Date Acquired | | Depreciation Life |
Embassy Suites San Francisco Airport - South San Francisco | | — | | | 39,616 | | | 55,163 | | | 15,385 | | | 39,692 | | | 70,472 | | | 110,164 | | | 8,207 | | | 2017 | | 15 - 40 years |
Embassy Suites San Francisco Airport - Waterfront | | — | | | 3,698 | | | 85,270 | | | 4,260 | | | 4,073 | | | 89,155 | | | 93,228 | | | 10,881 | | | 2017 | | 15 - 40 years |
San Francisco Marriott Union Square | | — | | | 46,773 | | | 107,841 | | | 13,242 | | | 46,882 | | | 120,974 | | | 167,856 | | | 14,290 | | | 2017 | | 15 - 40 years |
The Knickerbocker New York | | — | | | 113,613 | | | 119,453 | | | 2,082 | | | 113,622 | | | 121,526 | | | 235,148 | | | 13,179 | | | 2017 | | 15 - 40 years |
The Mills House Wyndham Grand Hotel | | — | | | 9,599 | | | 68,932 | | | 1,477 | | | 9,625 | | | 70,383 | | | 80,008 | | | 7,685 | | | 2017 | | 15 - 40 years |
Wyndham Boston Beacon Hill | | — | | | 174 | | | 51,934 | | | 1,576 | | | 178 | | | 53,506 | | | 53,684 | | | 20,769 | | | 2017 | | 9 years |
Wyndham Houston - Medical Center Hotel & Suites | | — | | | 7,776 | | | 43,475 | | | 417 | | | 7,868 | | | 43,800 | | | 51,668 | | | 4,848 | | | 2017 | | 15 - 40 years |
Wyndham New Orleans - French Quarter | | — | | | 300 | | | 72,686 | | | 1,273 | | | 300 | | | 73,959 | | | 74,259 | | | 8,098 | | | 2017 | | 15 - 40 years |
Wyndham Philadelphia Historic District | | — | | | 8,367 | | | 51,914 | | | 803 | | | 8,406 | | | 52,678 | | | 61,084 | | | 5,810 | | | 2017 | | 15 - 40 years |
Wyndham Pittsburgh University Center | | — | | | 154 | | | 31,625 | | | 378 | | | 158 | | | 31,999 | | | 32,157 | | | 3,517 | | | 2017 | | 15 - 40 years |
Wyndham San Diego Bayside | | — | | | 989 | | | 29,440 | | | 6,166 | | | 1,128 | | | 35,467 | | | 36,595 | | | 11,594 | | | 2017 | | 10 years |
Wyndham Santa Monica At The Pier | | — | | | 27,054 | | | 45,866 | | | 1,417 | | | 27,081 | | | 47,256 | | | 74,337 | | | 5,181 | | | 2017 | | 15 - 40 years |
Hampton Inn and Suites Atlanta Midtown | | — | | | 5,990 | | | 48,321 | | | — | | | 5,990 | | | 48,321 | | | 54,311 | | | 516 | | | 2021 | | 15 - 40 years |
AC Hotel Boston Downtown | | — | | | 26,560 | | | 53,354 | | | — | | | 26,560 | | | 53,354 | | | 79,914 | | | 475 | | | 2021 | | 15 - 40 years |
Moxy Denver Cherry Creek | | 27,554 | | | — | | | 48,725 | | | — | | | — | | | 48,725 | | | 48,725 | | | 103 | | | 2021 | | 15 - 40 years |
| | $ | 408,554 | | | $ | 962,322 | | | $ | 3,484,985 | | | $ | 530,256 | | | $ | 975,688 | | | $ | 4,001,875 | | | $ | 4,977,563 | | | $ | 870,741 | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Initial Costs | | Costs Capitalized Subsequent to Acquisition | | Gross Amount at December 31, 2017 | | | | |
Description | | Debt | | Land & Improvements | | Building & Improvements | | Land, Building & Improvements | | Land & Improvements | | Buildings & Improvements | | Total (1) | | Accumulated Depreciation | | Date Acquired | | Depreciation Life |
Hilton Garden Inn West Palm Beach Airport | | — |
| | 1,206 |
| | 10,811 |
| | 1,469 |
| | 1,215 |
| | 12,271 |
| | 13,486 |
| | 2,287 |
| | 2010 | | 15 - 40 years |
Hilton Garden Inn Los Angeles Hollywood | | — |
| | 5,303 |
| | 19,136 |
| | 6,259 |
| | 5,521 |
| | 25,177 |
| | 30,698 |
| | 5,602 |
| | 2010 | | 15 - 40 years |
DoubleTree Metropolitan Hotel New York City | | — |
| | 140,332 |
| | 188,014 |
| | 21,100 |
| | 140,456 |
| | 208,990 |
| | 349,446 |
| | 39,008 |
| | 2010 | | 15 - 40 years |
Renaissance Pittsburgh Hotel | | — |
| | 3,274 |
| | 39,934 |
| | 6,760 |
| | 3,396 |
| | 46,572 |
| | 49,968 |
| | 8,103 |
| | 2011 | | 15 - 40 years |
Courtyard Atlanta Buckhead | | — |
| | 2,860 |
| | 21,668 |
| | 3,579 |
| | 2,875 |
| | 25,231 |
| | 28,106 |
| | 4,524 |
| | 2011 | | 15 - 40 years |
DoubleTree Hotel Columbia | | — |
| | 1,933 |
| | 6,486 |
| | 5,504 |
| | 2,070 |
| | 11,854 |
| | 13,924 |
| | 2,775 |
| | 2011 | | 15 - 40 years |
Marriott Denver Airport @ Gateway Park | | 26,500 |
| | 3,083 |
| | 38,356 |
| | 3,831 |
| | 3,178 |
| | 42,092 |
| | 45,270 |
| | 7,902 |
| | 2011 | | 15 - 40 years |
Embassy Suites West Palm Beach Central | | — |
| | 3,656 |
| | 9,614 |
| | 6,366 |
| | 3,792 |
| | 15,844 |
| | 19,636 |
| | 3,835 |
| | 2011 | | 15 - 40 years |
Hilton Garden Inn Durham Raleigh Research Triangle Park | | — |
| | 1,751 |
| | 4,763 |
| | 5,417 |
| | 1,888 |
| | 10,042 |
| | 11,930 |
| | 3,041 |
| | 2011 | | 15 - 40 years |
Hilton Garden Inn Pittsburgh University Place | | — |
| | 1,975 |
| | 18,490 |
| | 8,723 |
| | 2,435 |
| | 26,752 |
| | 29,187 |
| | 5,904 |
| | 2011 | | 15 - 40 years |
Hampton Inn Houston Near The Galleria | | — |
| | 9,326 |
| | 9,220 |
| | 1,999 |
| | 9,395 |
| | 11,151 |
| | 20,546 |
| | 2,236 |
| | 2011 | | 15 - 40 years |
Courtyard Charleston Historic District | | — |
| | 2,714 |
| | 35,828 |
| | 1,341 |
| | 2,837 |
| | 37,047 |
| | 39,884 |
| | 5,857 |
| | 2011 | | 15 - 40 years |
Residence Inn Bethesda Downtown | | 32,655 |
| | 8,154 |
| | 52,749 |
| | 4,813 |
| | 8,287 |
| | 57,428 |
| | 65,715 |
| | 8,330 |
| | 2012 | | 15 - 40 years |
Courtyard New York Manhattan Upper East Side | | — |
| | 20,655 |
| | 60,222 |
| | 4,909 |
| | 20,695 |
| | 65,090 |
| | 85,785 |
| | 9,597 |
| | 2012 | | 15 - 40 years |
Hilton Garden Inn San Francisco Oakland Bay Brg | | — |
| | 11,903 |
| | 22,757 |
| | 2,448 |
| | 11,947 |
| | 25,161 |
| | 37,108 |
| | 3,775 |
| | 2012 | | 15 - 40 years |
Embassy Suites Boston Waltham | | — |
| | 6,268 |
| | 56,024 |
| | 3,519 |
| | 6,322 |
| | 59,490 |
| | 65,812 |
| | 8,329 |
| | 2012 | | 15 - 40 years |
Courtyard Houston Downtown Convention Center | | — |
| | 5,799 |
| | 28,953 |
| | 3,899 |
| | 6,033 |
| | 32,618 |
| | 38,651 |
| | 4,124 |
| | 2013 | | 15 - 40 years |
Residence Inn Houston Downtown Convention Center | | — |
| | 4,674 |
| | 24,913 |
| | 3,125 |
| | 4,875 |
| | 27,837 |
| | 32,712 |
| | 3,569 |
| | 2013 | | 15 - 40 years |
SpringHill Suites Houston Downtown Convention Center | | — |
| | 2,382 |
| | 12,756 |
| | 15,854 |
| | 2,566 |
| | 28,425 |
| | 30,991 |
| | 3,182 |
| | 2013 | | 15 - 40 years |
Courtyard Waikiki Beach | | — |
| | 557 |
| | 79,033 |
| | 9,432 |
| | 670 |
| | 88,351 |
| | 89,021 |
| | 10,553 |
| | 2013 | | 15 - 40 years |
Courtyard San Francisco | | — |
| | 11,277 |
| | 18,198 |
| | 27,349 |
| | 11,291 |
| | 45,533 |
| | 56,824 |
| | 4,630 |
| | 2013 | | 15 - 40 years |
Residence Inn Atlanta Midtown Historic | | — |
| | 2,812 |
| | 6,044 |
| | 7,246 |
| | 2,939 |
| | 13,163 |
| | 16,102 |
| | 1,534 |
| | 2013 | | 15 - 40 years |
SpringHill Suites Portland Hillsboro | | — |
| | 3,488 |
| | 18,283 |
| | 133 |
| | 3,505 |
| | 18,399 |
| | 21,904 |
| | 2,117 |
| | 2013 | | 15 - 40 years |
Hilton Cabana Miami Beach | | — |
| | 25,083 |
| | 40,707 |
| | 2,785 |
| | 25,127 |
| | 43,448 |
| | 68,575 |
| | 4,021 |
| | 2014 | | 15 - 40 years |
Hyatt House Charlotte Center City | | — |
| | 3,029 |
| | 26,193 |
| | 527 |
| | 3,029 |
| | 26,720 |
| | 29,749 |
| | 2,538 |
| | 2014 | | 15 - 40 years |
Hyatt House Cypress Anaheim | | — |
| | 3,995 |
| | 9,164 |
| | 3,958 |
| | 4,354 |
| | 12,763 |
| | 17,117 |
| | 1,664 |
| | 2014 | | 15 - 40 years |
Hyatt House Emeryville San Francisco Bay Area | | — |
| | 7,425 |
| | 29,137 |
| | 5,485 |
| | 7,517 |
| | 34,530 |
| | 42,047 |
| | 3,902 |
| | 2014 | | 15 - 40 years |
Hyatt House San Diego Sorrento Mesa | | — |
| | 10,420 |
| | 21,288 |
| | 1,208 |
| | 10,530 |
| | 22,386 |
| | 32,916 |
| | 2,413 |
| | 2014 | | 15 - 40 years |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Initial Costs | | Costs Capitalized Subsequent to Acquisition | | Gross Amount at December 31, 2017 | | | | |
Description | | Debt | | Land & Improvements | | Building & Improvements | | Land, Building & Improvements | | Land & Improvements | | Buildings & Improvements | | Total (1) | | Accumulated Depreciation | | Date Acquired | | Depreciation Life |
Hyatt House San Jose Silicon Valley | | — |
| | 6,820 |
| | 31,682 |
| | 25 |
| | 6,820 |
| | 31,706 |
| | 38,526 |
| | 3,076 |
| | 2014 | | 15 - 40 years |
Hyatt House San Ramon | | — |
| | 5,712 |
| | 11,852 |
| | 2,723 |
| | 5,717 |
| | 14,571 |
| | 20,288 |
| | 1,522 |
| | 2014 | | 15 - 40 years |
Hyatt House Santa Clara | | — |
| | 8,044 |
| | 27,703 |
| | 2,932 |
| | 8,046 |
| | 30,634 |
| | 38,680 |
| | 3,003 |
| | 2014 | | 15 - 40 years |
Hyatt Centric The Woodlands | | — |
| | 5,950 |
| | 16,882 |
| | 384 |
| | 5,957 |
| | 17,260 |
| | 23,217 |
| | 1,669 |
| | 2014 | | 15 - 40 years |
Hyatt Place Fremont Silicon Valley | | — |
| | 6,209 |
| | 13,730 |
| | 1,314 |
| | 6,217 |
| | 15,036 |
| | 21,253 |
| | 1,637 |
| | 2014 | | 15 - 40 years |
Hyatt Place Madison Downtown | | — |
| | 6,701 |
| | 25,478 |
| | — |
| | 6,701 |
| | 25,478 |
| | 32,179 |
| | 2,449 |
| | 2014 | | 15 - 40 years |
Embassy Suites Irvine Orange County | | — |
| | 15,062 |
| | 33,048 |
| | 7,856 |
| | 15,154 |
| | 40,811 |
| | 55,965 |
| | 4,047 |
| | 2014 | | 15 - 40 years |
Courtyard Portland City Center | | — |
| | 8,019 |
| | 53,024 |
| | 1,339 |
| | 8,022 |
| | 54,361 |
| | 62,383 |
| | 5,000 |
| | 2014 | | 15 - 40 years |
Hyatt Atlanta Midtown | | — |
| | 3,737 |
| | 41,731 |
| | 497 |
| | 3,737 |
| | 42,228 |
| | 45,965 |
| | 3,732 |
| | 2014 | | 15 - 40 years |
DoubleTree Grand Key Resort | | — |
| | 48,192 |
| | 27,770 |
| | 5,346 |
| | 48,233 |
| | 33,076 |
| | 81,309 |
| | 3,170 |
| | 2014 | | 15 - 40 years |
Hyatt Place Washington DC Downtown K Street | | — |
| | 10,763 |
| | 55,225 |
| | 1,169 |
| | 10,763 |
| | 56,393 |
| | 67,156 |
| | 3,519 |
| | 2015 | | 15 - 40 years |
Homewood Suites Seattle Lynnwood | | — |
| | 3,933 |
| | 30,949 |
| | 41 |
| | 3,959 |
| | 30,965 |
| | 34,924 |
| | 2,009 |
| | 2015 | | 15 - 40 years |
Residence Inn Palo Alto Los Altos | | 32,882 |
| | 16,996 |
| | 45,786 |
| | 189 |
| | 17,040 |
| | 45,931 |
| | 62,971 |
| | 2,890 |
| | 2015 | | 15 - 40 years |
DoubleTree Suites by Hilton Austin | | — |
| | 7,072 |
| | 50,827 |
| | 21 |
| | 7,072 |
| | 50,848 |
| | 57,920 |
| | 428 |
| | 2017 | | 15 - 40 years |
DoubleTree Suites by Hilton Orlando - Lake Buena Vista | | — |
| | 896 |
| | 44,508 |
| | 47 |
| | 899 |
| | 44,553 |
| | 45,452 |
| | 392 |
| | 2017 | | 15 - 40 years |
Embassy Suites Atlanta - Buckhead | | — |
| | 31,279 |
| | 46,015 |
| | 41 |
| | 31,279 |
| | 46,056 |
| | 77,335 |
| | 444 |
| | 2017 | | 15 - 40 years |
Embassy Suites Birmingham | | 22,908 |
| | 10,495 |
| | 33,568 |
| | — |
| | 10,495 |
| | 33,568 |
| | 44,063 |
| | 296 |
| | 2017 | | 15 - 40 years |
Embassy Suites Boston Marlborough | | — |
| | 5,233 |
| | 18,114 |
| | 376 |
| | 5,233 |
| | 18,490 |
| | 23,723 |
| | 177 |
| | 2017 | | 15 - 40 years |
Embassy Suites Dallas - Love Field | | — |
| | 6,408 |
| | 34,694 |
| | 131 |
| | 6,408 |
| | 34,825 |
| | 41,233 |
| | 299 |
| | 2017 | | 15 - 40 years |
Embassy Suites Deerfield Beach - Resort & Spa | | 30,323 |
| | 7,527 |
| | 56,128 |
| | 590 |
| | 7,528 |
| | 56,717 |
| | 64,245 |
| | 527 |
| | 2017 | | 15 - 40 years |
Embassy Suites Fort Lauderdale 17th Street | | 34,339 |
| | 30,933 |
| | 54,592 |
| | 479 |
| | 31,051 |
| | 54,953 |
| | 86,004 |
| | 534 |
| | 2017 | | 15 - 40 years |
Embassy Suites Los Angeles - International Airport South | | — |
| | 13,110 |
| | 94,733 |
| | 148 |
| | 13,110 |
| | 94,881 |
| | 107,991 |
| | 799 |
| | 2017 | | 15 - 40 years |
Embassy Suites Mandalay Beach - Hotel & Resort | | — |
| | 35,769 |
| | 53,280 |
| | 75 |
| | 35,780 |
| | 53,344 |
| | 89,124 |
| | 482 |
| | 2017 | | 15 - 40 years |
Embassy Suites Miami - International Airport | | — |
| | 14,765 |
| | 18,099 |
| | 1,157 |
| | 14,813 |
| | 19,208 |
| | 34,021 |
| | 174 |
| | 2017 | | 15 - 40 years |
Embassy Suites Milpitas Silicon Valley | | — |
| | 43,157 |
| | 26,399 |
| | 787 |
| | 43,216 |
| | 27,127 |
| | 70,343 |
| | 253 |
| | 2017 | | 15 - 40 years |
Embassy Suites Minneapolis - Airport | | 36,832 |
| | 7,248 |
| | 41,202 |
| | 2,213 |
| | 7,248 |
| | 43,415 |
| | 50,663 |
| | 436 |
| | 2017 | | 15 - 40 years |
Embassy Suites Myrtle Beach - Oceanfront Resort | | — |
| | 14,103 |
| | 55,236 |
| | 696 |
| | 14,501 |
| | 55,534 |
| | 70,035 |
| | 491 |
| | 2017 | | 15 - 40 years |
Embassy Suites Napa Valley | | 26,814 |
| | 24,429 |
| | 63,188 |
| | 190 |
| | 24,429 |
| | 63,378 |
| | 87,807 |
| | 559 |
| | 2017 | | 15 - 40 years |
Embassy Suites Orlando - International Drive South/Convention Center | | — |
| | 4,743 |
| | 37,687 |
| | 148 |
| | 4,743 |
| | 37,835 |
| | 42,578 |
| | 328 |
| | 2017 | | 15 - 40 years |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Initial Costs | | Costs Capitalized Subsequent to Acquisition | | Gross Amount at December 31, 2017 | | | | |
Description | | Debt | | Land & Improvements | | Building & Improvements | | Land, Building & Improvements | | Land & Improvements | | Buildings & Improvements | | Total (1) | | Accumulated Depreciation | | Date Acquired | | Depreciation Life |
Embassy Suites Phoenix - Biltmore | | — |
| | 24,680 |
| | 24,487 |
| | 264 |
| | 24,701 |
| | 24,730 |
| | 49,431 |
| | 222 |
| | 2017 | | 15 - 40 years |
Embassy Suites San Francisco Airport - South San Francisco | | — |
| | 39,616 |
| | 55,163 |
| | 594 |
| | 39,634 |
| | 55,739 |
| | 95,373 |
| | 476 |
| | 2017 | | 15 - 40 years |
Embassy Suites San Francisco Airport - Waterfront | | — |
| | 3,698 |
| | 85,270 |
| | 315 |
| | 3,729 |
| | 85,555 |
| | 89,284 |
| | 794 |
| | 2017 | | 15 - 40 years |
Hilton Myrtle Beach Resort | | — |
| | 17,864 |
| | 73,713 |
| | 83 |
| | 17,870 |
| | 73,790 |
| | 91,660 |
| | 646 |
| | 2017 | | 15 - 40 years |
San Francisco Marriott Union Square | | — |
| | 46,773 |
| | 107,841 |
| | 2,317 |
| | 46,812 |
| | 110,119 |
| | 156,931 |
| | 910 |
| | 2017 | | 15 - 40 years |
DoubleTree by Hilton Burlington Vermont | | — |
| | 8,362 |
| | 30,812 |
| | 1,178 |
| | 8,410 |
| | 31,942 |
| | 40,352 |
| | 342 |
| | 2017 | | 15 - 35 years |
Sheraton Philadelphia Society Hill Hotel | | — |
| | 13,304 |
| | 83,333 |
| | 289 |
| | 13,317 |
| | 83,608 |
| | 96,925 |
| | 711 |
| | 2017 | | 15 - 40 years |
The Knickerbocker New York | | 85,404 |
| | 113,613 |
| | 119,453 |
| | 191 |
| | 113,614 |
| | 119,643 |
| | 233,257 |
| | 1,000 |
| | 2017 | | 15 - 40 years |
The Mills House Wyndham Grand Hotel | | — |
| | 9,599 |
| | 68,932 |
| | — |
| | 9,599 |
| | 68,932 |
| | 78,531 |
| | 579 |
| | 2017 | | 15 - 40 years |
The Vinoy Renaissance St. Petersburg Resort & Golf Club | | — |
| | 3,754 |
| | 64,024 |
| | 7,710 |
| | 4,934 |
| | 70,554 |
| | 75,488 |
| | 693 |
| | 2017 | | 15 - 40 years |
Wyndham Boston Beacon Hill | | — |
| | 174 |
| | 51,934 |
| | 43 |
| | 174 |
| | 51,977 |
| | 52,151 |
| | 1,580 |
| | 2017 | | 12 years |
Wyndham Houston - Medical Center Hotel & Suites | | — |
| | 7,776 |
| | 43,475 |
| | 87 |
| | 7,776 |
| | 43,562 |
| | 51,338 |
| | 370 |
| | 2017 | | 15 - 40 years |
Wyndham New Orleans - French Quarter | | — |
| | 300 |
| | 72,711 |
| | 410 |
| | 300 |
| | 73,121 |
| | 73,421 |
| | 615 |
| | 2017 | | 15 - 40 years |
Wyndham Philadelphia Historic District | | — |
| | 8,367 |
| | 51,914 |
| | 78 |
| | 8,367 |
| | 51,992 |
| | 60,359 |
| | 439 |
| | 2017 | | 15 - 40 years |
Wyndham Pittsburgh University Center | | — |
| | 154 |
| | 31,625 |
| | 21 |
| | 154 |
| | 31,646 |
| | 31,800 |
| | 267 |
| | 2017 | | 15 - 40 years |
Wyndham San Diego Bayside | | — |
| | 989 |
| | 29,440 |
| | 338 |
| | 989 |
| | 29,778 |
| | 30,767 |
| | 848 |
| | 2017 | | 13 years |
Wyndham Santa Monica At The Pier | | — |
| | 27,054 |
| | 45,866 |
| | 129 |
| | 27,063 |
| | 45,986 |
| | 73,049 |
| | 390 |
| | 2017 | | 15 - 40 years |
Holiday Inn San Francisco - Fisherman's Wharf | | — |
| | 12,203 |
| | 13,877 |
| | 19 |
| | 12,203 |
| | 13,896 |
| | 26,099 |
| | 1,031 |
| | 2017 | | 2 - 40 years |
Kingston Plantation Development Corp | | — |
| | — |
| | 2,000 |
| | 10 |
| | — |
| | 2,010 |
| | 2,010 |
| | 17 |
| | 2017 | | 15 - 40 years |
| | $ | 647,752 |
| | $ | 1,266,655 |
| | $ | 4,507,365 |
| | $ | 391,276 |
| | $ | 1,275,030 |
| | $ | 4,890,266 |
| | $ | 6,165,296 |
| | $ | 628,518 |
| | | | |
(1) The aggregate cost of real estate for federal income tax purposes was approximately $5.8$4.8 billion at December 31, 2017.
2021.
The change in the total cost of the hotel properties is as follows:
| | | | | | | | | | | | | | | | | |
| 2021 | | 2020 | | 2019 |
Reconciliation of Land and Buildings and Improvements | | | | | |
Balance at beginning of period | $ | 5,174,309 | | | $ | 5,127,448 | | | $ | 5,903,906 | |
Add: Acquisitions | 182,950 | | | — | | | — | |
Add: Improvements | 34,511 | | | 52,936 | | | 91,129 | |
Less: Sale of hotel properties | (269,362) | | | (6,075) | | | (854,087) | |
Less: Impairment losses | (144,845) | | | — | | | (13,500) | |
| | | | | |
Balance at end of period | $ | 4,977,563 | | | $ | 5,174,309 | | | $ | 5,127,448 | |
|
| | | | | | | | | | | |
| 2017 | | 2016 | | 2015 |
Reconciliation of Land and Buildings and Improvements | | | | | |
Balance at beginning of period | $ | 3,725,932 |
| | $ | 3,942,413 |
| | $ | 3,711,887 |
|
Add: Acquisitions | 2,539,854 |
| | — |
| | 163,652 |
|
Add: Improvements | 60,916 |
| | 40,308 |
| | 84,615 |
|
Less: Sale of hotel properties (1) | (161,406 | ) | | (256,789 | ) | | (16,738 | ) |
Less: Impairment loss | — |
| | — |
| | (1,003 | ) |
Less: Land, building and improvements of hotels held for sale | — |
| | — |
| | — |
|
Balance at end of period | $ | 6,165,296 |
| | $ | 3,725,932 |
| | $ | 3,942,413 |
|
(1) The sale of the hotel properties for the year ended December 31, 2015 is net of the hotels classified as held for sale for the year ended December 31, 2014 that were subsequently sold in 2015.
The change in the accumulated depreciation of the real estate assets is as follows:
| | | | | | | | | | | | | | | | | |
| 2021 | | 2020 | | 2019 |
Reconciliation of Accumulated Depreciation | | | | | |
Balance at beginning of period | $ | (827,808) | | | $ | (706,040) | | | $ | (759,643) | |
Add: Depreciation for the period | (126,759) | | | (125,494) | | | (131,442) | |
Less: Sale of hotel properties | 83,826 | | | 3,726 | | | 185,045 | |
| | | | | |
Balance at end of period | $ | (870,741) | | | $ | (827,808) | | | $ | (706,040) | |
|
| | | | | | | | | | | |
| 2017 | | 2016 | | 2015 |
Reconciliation of Accumulated Depreciation | | | | | |
Balance at beginning of period | $ | (520,517 | ) | | $ | (464,691 | ) | | $ | (382,266 | ) |
Add: Depreciation for the period | (108,986 | ) | | (91,400 | ) | | (85,062 | ) |
Less: Sale of hotel properties (1) | 985 |
| | 35,574 |
| | 2,637 |
|
Less: Accumulated depreciation of hotels held for sale | — |
| | — |
| | — |
|
Balance at end of period | $ | (628,518 | ) | | $ | (520,517 | ) | | $ | (464,691 | ) |
(1) The sale of the hotel properties for the year ended December 31, 2015 is net of the hotels classified as held for sale for the year ended December 31, 2014 that were subsequently sold in 2015.