Document and Entity Information
Document and Entity Information - shares | 3 Months Ended | |
Mar. 31, 2018 | May 01, 2018 | |
Document and Entity Information | ||
Entity Registrant Name | Sunstone Hotel Investors, Inc. | |
Entity Central Index Key | 1,295,810 | |
Document Type | 10-Q | |
Document Period End Date | Mar. 31, 2018 | |
Amendment Flag | false | |
Current Fiscal Year End Date | --12-31 | |
Entity Current Reporting Status | Yes | |
Entity Filer Category | Large Accelerated Filer | |
Entity Common Stock, Shares Outstanding | 225,614,712 | |
Document Fiscal Year Focus | 2,018 | |
Document Fiscal Period Focus | Q1 |
CONSOLIDATED BALANCE SHEETS
CONSOLIDATED BALANCE SHEETS - USD ($) $ in Thousands | Mar. 31, 2018 | Dec. 31, 2017 |
Current assets: | ||
Cash and cash equivalents | $ 467,050 | $ 488,002 |
Restricted cash | 79,336 | 71,309 |
Accounts receivable, net | 48,589 | 34,219 |
Inventories | 1,375 | 1,323 |
Prepaid expenses | 12,532 | 10,464 |
Assets held for sale, net | 122,807 | |
Total current assets | 608,882 | 728,124 |
Investment in hotel properties, net | 3,110,887 | 3,106,066 |
Deferred financing fees, net | 1,045 | 1,305 |
Other assets, net | 31,971 | 22,317 |
Total assets | 3,752,785 | 3,857,812 |
Current liabilities: | ||
Accounts payable and accrued expenses | 34,950 | 31,810 |
Accrued payroll and employee benefits | 18,174 | 26,687 |
Dividends and distributions payable | 14,488 | 133,894 |
Other current liabilities | 43,073 | 44,502 |
Current portion of notes payable, net | 5,569 | 5,477 |
Liabilities of assets held for sale | 189 | |
Total current liabilities | 116,254 | 242,559 |
Notes payable, less current portion, net | 975,779 | 977,282 |
Capital lease obligations, less current portion | 26,854 | 26,804 |
Other liabilities | 31,041 | 28,989 |
Total liabilities | 1,149,928 | 1,275,634 |
Commitments and contingencies (Note 11) | ||
Equity | ||
Common stock, $0.01 par value, 500,000,000 shares authorized, 225,614,712 shares issued and outstanding at March 31, 2018 and 225,321,660 shares issued and outstanding at December 31, 2017 | 2,256 | 2,253 |
Additional paid in capital | 2,677,099 | 2,679,221 |
Retained earnings | 968,293 | 932,277 |
Cumulative dividends and distributions | (1,284,501) | (1,270,013) |
Total stockholders' equity | 2,553,147 | 2,533,738 |
Noncontrolling interest in consolidated joint venture | 49,710 | 48,440 |
Total equity | 2,602,857 | 2,582,178 |
Total liabilities and equity | 3,752,785 | 3,857,812 |
Series E Cumulative Redeemable Preferred Stock | ||
Equity | ||
Cumulative Redeemable Preferred Stock | 115,000 | 115,000 |
Series F Cumulative Redeemable Preferred Stock | ||
Equity | ||
Cumulative Redeemable Preferred Stock | $ 75,000 | $ 75,000 |
CONSOLIDATED BALANCE SHEETS (Pa
CONSOLIDATED BALANCE SHEETS (Parenthetical) - $ / shares | 3 Months Ended | 12 Months Ended |
Mar. 31, 2018 | Dec. 31, 2017 | |
Preferred stock, par value (in dollars per share) | $ 0.01 | $ 0.01 |
Preferred stock, shares authorized (in shares) | 100,000,000 | 100,000,000 |
Common stock, par value (in dollars per share) | $ 0.01 | $ 0.01 |
Common stock, shares authorized (in shares) | 500,000,000 | 500,000,000 |
Common stock, shares issued (in shares) | 225,614,712 | 225,321,660 |
Common stock, shares outstanding (in shares) | 225,614,712 | 225,321,660 |
Series E Cumulative Redeemable Preferred Stock | ||
Preferred stock, Cumulative Redeemable Preferred Stock, dividend rate (as a percent) | 6.95% | 6.95% |
Preferred stock, Cumulative Redeemable Preferred Stock, shares issued (in shares) | 4,600,000 | 4,600,000 |
Preferred stock, Cumulative Redeemable Preferred Stock, shares outstanding (in shares) | 4,600,000 | 4,600,000 |
Preferred stock, Cumulative Redeemable Preferred Stock, liquidation preference (in dollars per share) | $ 25 | $ 25 |
Series F Cumulative Redeemable Preferred Stock | ||
Preferred stock, Cumulative Redeemable Preferred Stock, dividend rate (as a percent) | 6.45% | 6.45% |
Preferred stock, Cumulative Redeemable Preferred Stock, shares issued (in shares) | 3,000,000 | 3,000,000 |
Preferred stock, Cumulative Redeemable Preferred Stock, shares outstanding (in shares) | 3,000,000 | 3,000,000 |
Preferred stock, Cumulative Redeemable Preferred Stock, liquidation preference (in dollars per share) | $ 25 | $ 25 |
CONSOLIDATED STATEMENTS OF OPER
CONSOLIDATED STATEMENTS OF OPERATIONS - USD ($) shares in Thousands, $ in Thousands | 3 Months Ended | |
Mar. 31, 2018 | Mar. 31, 2017 | |
REVENUES | ||
Room | $ 180,276 | $ 190,367 |
Food and beverage | 74,266 | 75,501 |
Other operating | 16,904 | 14,875 |
Total revenues | 271,446 | 280,743 |
OPERATING EXPENSES | ||
Room | 51,095 | 51,292 |
Food and beverage | 50,154 | 50,537 |
Other operating | 3,941 | 3,831 |
Advertising and promotion | 13,906 | 14,946 |
Repairs and maintenance | 11,103 | 10,967 |
Utilities | 7,475 | 7,222 |
Franchise costs | 7,853 | 8,055 |
Property tax, ground lease and insurance | 21,781 | 21,287 |
Other property-level expenses | 33,907 | 34,738 |
Corporate overhead | 7,102 | 6,779 |
Depreciation and amortization | 36,688 | 40,807 |
Total operating expenses | 245,005 | 250,461 |
Operating income | 26,441 | 30,282 |
Interest and other income | 1,491 | 721 |
Interest expense | (8,876) | (11,249) |
Loss on extinguishment of debt | (4) | |
Gain on sale of assets | 15,659 | 44,285 |
Income before income taxes | 34,715 | 64,035 |
Income tax benefit (provision), net | 3,740 | (208) |
NET INCOME | 38,455 | 63,827 |
Income from consolidated joint venture attributable to noncontrolling interest | (2,439) | (1,992) |
Preferred stock dividends | (3,207) | (3,207) |
INCOME ATTRIBUTABLE TO COMMON STOCKHOLDERS | $ 32,809 | $ 58,628 |
Basic and diluted per share amounts: | ||
Basic and diluted income attributable to common stockholders per common share (in dollars per share) | $ 0.15 | $ 0.27 |
Basic and diluted weighted average common shares outstanding (in shares) | 224,282 | 219,093 |
Distributions declared per common share (in dollars per share) | $ 0.05 | $ 0.05 |
CONSOLIDATED STATEMENTS OF EQUI
CONSOLIDATED STATEMENTS OF EQUITY - 3 months ended Mar. 31, 2018 - USD ($) | Series E Cumulative Redeemable Preferred StockPreferred Stock | Series E Cumulative Redeemable Preferred StockCumulative dividends and distributions | Series E Cumulative Redeemable Preferred Stock | Series F Cumulative Redeemable Preferred StockPreferred Stock | Series F Cumulative Redeemable Preferred StockCumulative dividends and distributions | Series F Cumulative Redeemable Preferred Stock | Common Stock | Additional Paid In Capital | Retained Earnings | Cumulative dividends and distributions | Noncontrolling Interest in Consolidated Joint Venture | Total |
Beginning Balance at Dec. 31, 2017 | $ 115,000,000 | $ 75,000,000 | $ 2,253,000 | $ 2,679,221,000 | $ 932,277,000 | $ (1,270,013,000) | $ 48,440,000 | $ 2,582,178,000 | ||||
Beginning Balance (in shares) at Dec. 31, 2017 | 4,600,000 | 3,000,000 | 225,321,660 | |||||||||
Increase (Decrease) in Stockholders' Equity | ||||||||||||
Deferred stock compensation, net | $ 3,000 | (2,122,000) | (2,119,000) | |||||||||
Deferred stock compensation, net (in shares) | 293,052 | |||||||||||
Common stock distributions and distributions payable | (11,281,000) | (11,281,000) | ||||||||||
Preferred stock dividends and dividends payable | $ (1,998,000) | $ (1,998,000) | $ (1,209,000) | $ (1,209,000) | ||||||||
Distributions to noncontrolling interest | (1,169,000) | (1,169,000) | ||||||||||
Net income | 36,016,000 | 2,439,000 | 38,455,000 | |||||||||
Ending Balance at Mar. 31, 2018 | $ 115,000,000 | $ 75,000,000 | $ 2,256,000 | $ 2,677,099,000 | $ 968,293,000 | $ (1,284,501,000) | $ 49,710,000 | $ 2,602,857,000 | ||||
Ending Balance (in shares) at Mar. 31, 2018 | 4,600,000 | 3,000,000 | 225,614,712 |
CONSOLIDATED STATEMENT OF EQUIT
CONSOLIDATED STATEMENT OF EQUITY (Parenthetical) | 3 Months Ended |
Mar. 31, 2018$ / shares | |
Common stock distributions and distributions payable, per share (in dollars per share) | $ 0.05 |
Series E Cumulative Redeemable Preferred Stock | |
Preferred stock dividends and dividends payable (in dollars per share) | 0.434375 |
Series F Cumulative Redeemable Preferred Stock | |
Preferred stock dividends and dividends payable (in dollars per share) | $ 0.403125 |
CONSOLIDATED STATEMENTS OF CASH
CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($) $ in Thousands | 3 Months Ended | |
Mar. 31, 2018 | Mar. 31, 2017 | |
CASH FLOWS FROM OPERATING ACTIVITIES | ||
Net income | $ 38,455 | $ 63,827 |
Adjustments to reconcile net income to net cash provided by operating activities: | ||
Bad debt expense | 82 | 131 |
Gain on sale of assets, net | (15,669) | (44,570) |
Loss on extinguishment of debt | 4 | |
Noncash interest on derivatives and capital lease obligations, net | (3,137) | (657) |
Depreciation | 36,008 | 40,150 |
Amortization of franchise fees and other intangibles | 746 | 819 |
Amortization of deferred financing fees | 747 | 578 |
Amortization of deferred stock compensation | 2,000 | 1,749 |
Deferred income taxes | (3,966) | |
Changes in operating assets and liabilities: | ||
Accounts receivable | (13,096) | (10,575) |
Inventories | (52) | 5 |
Prepaid expenses and other assets | (3,523) | (2,387) |
Accounts payable and other liabilities | 514 | (370) |
Accrued payroll and employee benefits | (8,513) | (8,569) |
Net cash provided by operating activities | 30,596 | 40,135 |
CASH FLOWS FROM INVESTING ACTIVITIES | ||
Proceeds from sales of assets | 136,993 | 123,117 |
Renovations and additions to hotel properties | (39,321) | (29,872) |
Payment for interest rate derivative | (19) | |
Net cash provided by investing activities | 97,672 | 93,226 |
CASH FLOWS FROM FINANCING ACTIVITIES | ||
Repurchase of common stock for employee withholding obligations | (4,232) | (3,793) |
Proceeds from notes payable | 240,000 | |
Payments on notes payable | (1,893) | (178,599) |
Payments of deferred financing costs | (5) | (13) |
Dividends and distributions paid | (133,894) | (119,847) |
Distributions to noncontrolling interest | (1,169) | (2,325) |
Net cash used in financing activities | (141,193) | (64,577) |
Net (decrease) increase in cash and cash equivalents and restricted cash | (12,925) | 68,784 |
Cash and cash equivalents and restricted cash, beginning of period | 559,311 | 437,460 |
Cash and cash equivalents and restricted cash, end of period | 546,386 | 506,244 |
Supplemental Disclosure of Cash Flow Information | ||
Cash and cash equivalents | 467,050 | 441,830 |
Restricted cash | 79,336 | 64,414 |
Cash and cash equivalents and restricted cash, end of period | 546,386 | 506,244 |
Cash paid for interest | 13,618 | 9,632 |
Cash paid for income taxes | 35 | 38 |
Supplemental Disclosure of Noncash Investing and Financing Activties | ||
Increase in accounts payable related to renovations and additions to hotel properties and other assets | 3,112 | 2,119 |
Amortization of deferred stock compensation - construction activities | 113 | 151 |
Dividends and distributions payable | $ 14,488 | $ 14,228 |
Organization and Description of
Organization and Description of Business | 3 Months Ended |
Mar. 31, 2018 | |
Organization and Description of Business | |
Organization and Description of Business | 1. Organization and Description of Business Sunstone Hotel Investors, Inc. (the “Company”) was incorporated in Maryland on June 28, 2004 in anticipation of an initial public offering of common stock, which was consummated on October 26, 2004. The Company, through its 100% controlling interest in Sunstone Hotel Partnership, LLC (the “Operating Partnership”), of which the Company is the sole managing member, and the subsidiaries of the Operating Partnership, including Sunstone Hotel TRS Lessee, Inc. (the “TRS Lessee”) and its subsidiaries, is currently engaged in acquiring, owning, asset managing and renovating hotel properties. The Company may also sell certain hotel properties from time to time. The Company operates as a real estate investment trust (“REIT”) for federal income tax purposes. As a REIT, certain tax laws limit the amount of “non-qualifying” income the Company can earn, including income derived directly from the operation of hotels. The Company leases all of its hotels to its TRS Lessee, which in turn enters into long-term management agreements with third parties to manage the operations of the Company’s hotels, in transactions that are intended to generate qualifying income. As of March 31, 2018, the Company had interests in 25 hotels (the “25 hotels”), and the Company’s third-party managers included the following: Number of Hotels Subsidiaries of Marriott International, Inc. or Marriott Hotel Services, Inc. (collectively, “Marriott”) 9 Interstate Hotels & Resorts, Inc. 4 Highgate Hotels L.P. and an affiliate 3 Crestline Hotels & Resorts 2 Hilton Worldwide 2 Hyatt Corporation 2 Davidson Hotels & Resorts 1 HEI Hotels & Resorts 1 Singh Hospitality, LLC 1 Total hotels held for investment 25 |
Summary of Significant Accounti
Summary of Significant Accounting Policies | 3 Months Ended |
Mar. 31, 2018 | |
Summary of Significant Accounting Policies | |
Summary of Significant Accounting Policies | 2. Summary of Significant Accounting Policies Basis of Presentation The accompanying consolidated financial statements as of March 31, 2018 and December 31, 2017, and for the three months ended March 31, 2018 and 2017, include the accounts of the Company, the Operating Partnership, the TRS Lessee and their controlled subsidiaries. All significant intercompany balances and transactions have been eliminated. If the Company determines that it has an interest in a variable interest entity, the Company will consolidate the entity when it is determined to be the primary beneficiary of the entity. The accompanying interim financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) and in conformity with the rules and regulations of the Securities and Exchange Commission. In the Company’s opinion, the interim financial statements presented herein reflect all adjustments, consisting solely of normal and recurring adjustments, which are necessary to fairly present the interim financial statements. These financial statements should be read in conjunction with the financial statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2017, filed with the Securities and Exchange Commission on February 14, 2018. Operating results for the three months ended March 31, 2018 are not necessarily indicative of the results that may be expected for the year ending December 31, 2018. The Company does not have any comprehensive income other than what is included in net income. If the Company has any comprehensive income in the future such that a statement of comprehensive income would be necessary, the Company will include such statement in one continuous consolidated statement of operations. The Company has evaluated subsequent events through the date of issuance of these financial statements. Use of Estimates The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ materially from those estimates. Earnings Per Share The Company applies the two-class method when computing its earnings per share. Net income per share for each class of stock (common stock and convertible preferred stock) is calculated assuming all of the Company’s net income is distributed as dividends to each class of stock based on their contractual rights. Unvested share-based payment awards that contain non-forfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are considered participating securities and are included in the computation of earnings per share. Basic earnings (loss) attributable to common stockholders per common share is computed based on the weighted average number of shares of common stock outstanding during each period. Diluted earnings (loss) attributable to common stockholders per common share is computed based on the weighted average number of shares of common stock outstanding during each period, plus potential common shares considered outstanding during the period, as long as the inclusion of such awards is not anti-dilutive. Potential common shares consist of unvested restricted stock awards and the incremental common shares issuable upon the exercise of stock options, using the more dilutive of either the two-class method or the treasury stock method. The following table sets forth the computation of basic and diluted earnings per common share (in thousands, except per share data): Three Months Ended March 31, 2018 2017 (unaudited) (unaudited) Numerator: Net income $ 38,455 $ 63,827 Income from consolidated joint venture attributable to noncontrolling interest (2,439) (1,992) Preferred stock dividends (3,207) (3,207) Distributions paid on unvested restricted stock compensation (59) (60) Undistributed income allocated to unvested restricted stock compensation (117) (248) Numerator for basic and diluted income attributable to common stockholders $ 32,633 $ 58,320 Denominator: Weighted average basic and diluted common shares outstanding 224,282 219,093 Basic and diluted income attributable to common stockholders per common share $ 0.15 $ 0.27 The Company’s unvested restricted shares associated with its long-term incentive plan and shares associated with common stock options have been excluded from the above calculation of earnings per share for the three months ended March 31, 2018 and 2017, as their inclusion would have been anti-dilutive. New Accounting Standards and Accounting Changes In May 2014, the FASB issued Accounting Standards Update No. 2014-09, “ Revenue from Contracts with Customers (Topic 606) ” (“ASU No. 2014-09”). The core principle of ASU No. 2014-09 is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. To achieve that core principle, an entity applies a five-step model: (1) identify the contract(s) with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to the performance obligations in the contract; and (5) recognize revenue when (or as) the entity satisfies a performance obligation. In March 2016, the FASB clarified the principal versus agent guidance in ASU No. 2014-09 with its issuance of Accounting Standards Update No. 2016-08, “ Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net) ” (“ASU No. 2016-08”). In particular, ASU No. 2016-08 clarifies how an entity should identify the unit of accounting for the principal versus agent evaluation and how it should apply the control principle to certain types of arrangements, such as service transactions by explaining what a principal controls before the specified good or service is transferred to the customer. In addition, ASU No. 2016-08 reframes the indicators to focus on evidence that an entity is acting as a principal rather than as an agent. In May 2016, the FASB amended ASU No. 2014-09’s guidance on transition, collectability, noncash consideration and the presentation of sales and other similar taxes with its issuance of Accounting Standards Update No. 2016-12, “ Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients ” (“ASU No. 2016-12”). The amendments clarify that, for a contract to be considered completed at transition, all (or substantially all) of the revenue must have been recognized under legacy GAAP. This clarification is important because entities that use the modified retrospective transition approach need to apply the standard only to contracts that are not complete as of the date of initial application, and entities that use the full retrospective approach may apply certain practical expedients to completed contracts. In addition, ASU No. 2016-12 clarifies that an entity should consider the probability of collecting substantially all of the consideration to which it will be entitled in exchange for goods and services expected to be transferred to the customer rather than the total amount promised for all the goods or services in the contract. ASU No. 2016-12 also clarifies that an entity may consider its ability to manage its exposure to credit risk as part of the collectability assessment, as well as that the fair value of noncash consideration should be measured at contract inception when determining the transaction price. Finally, ASU No. 2016-12 allows an entity to make an accounting policy election to exclude from the transaction price certain types of taxes collected from a customer if it discloses that policy. The Company adopted ASU No. 2014-09, along with the related clarifications and amendments in ASU No. 2016-08 and ASU No. 2016-12, in January 2018, using the modified retrospective approach to contracts that were not complete as of January 1, 2018. Due to the short-term nature of the Company’s revenue streams, the adoption of ASU No. 2014-09 did not have a material impact on the amount and timing of revenue recognized from rooms, food and beverage and other ancillary hotel services . In addition, the Company determined that presenting its revenue streams disaggregated into the categories of rooms, food and beverage, and other on its consolidated statements of operations depicts how the nature, timing and uncertainty of revenue and cash flows are affected by economic factors, and that no further disaggregation is needed. See Revenue Recognition in Note 2 for additional disclosures. In February 2016, the FASB issued Accounting Standards Update No. 2016-02, “ Leases (Topic 842) ” (“ASU No. 2016-02”), which will require lessees to put most leases on their balance sheets but recognize expenses in the income statement in a manner similar to today’s accounting. A lessee will be required to record a right-of-use asset and a lease liability for all leases with a term greater than 12 months regardless of their classification. Leases with a term of 12 months or less will be accounted for similarly to existing guidance for operating leases today. ASU No. 2016-02 also eliminates today’s real estate-specific provisions and changes the guidance on sale-leaseback transactions, initial direct costs and lease executory costs for all entities. For lessors, the standard modifies the classification criteria and requires lessors to identify lease and non-lease components under their leasing arrangements and to allocate the total consideration in the lease agreement to these lease and non-lease components based on their relative standalone selling prices. All entities will classify leases to determine how to recognize lease-related revenue and expense. Classification will continue to affect amounts that lessors record on the balance sheet. ASU No. 2016-02 will become effective during the first quarter of 2019, and will require a modified retrospective approach for leases that exist or are entered into after the date of initial application, with an option to use certain transition relief. In January 2018, the FASB issued a proposed amendment to ASU No. 2016-02 which would add a transition option to the new leases standard that would allow entities to apply the transition provisions of the new standard at its adoption date instead of the earliest comparative period presented in its financial statements. The FASB also proposed a practical expedient that would permit lessors to not separate lease and non-lease components if certain conditions are met. The Company is creating an inventory of its leases and is analyzing its current ground lease obligations. In addition, the Company is evaluating the impact that ASU No. 2016-02, as well as the FASB’s proposed transition option and practical expedient if adopted, will have on its consolidated financial statements, and, other than the inclusion of operating leases on the Company’s balance sheet, such effects have not yet been determined. In January 2018, the FASB issued Accounting Standards Update No. 2018-01, “ Leases (Topic 842): Land Easement Practical Expedient for Transition to Topic 842 ” (“ASU No. 2018-01”), which clarifies, among other things, that perpetual easements are not leases because they do not convey the right to use the underlying land for a period of time. The Company has a perpetual easement agreement at the Hilton Times Square, which, under the guidance of ASU No. 2018-01, will not be considered a lease and will continue to be an intangible asset with an indefinite useful life. ASU No. 2018-01 will become effective, along with ASU No. 2016-02, during the first quarter of 2019. In November 2016, the FASB issued Accounting Standards Update No. 2016-18, “ Statement of Cash Flows (Topic 230): Restricted Cash (a consensus of the FASB Emerging Issues Task Force) ” (“ASU No. 2016-18”), which requires entities to show the changes in total cash, cash equivalents, restricted cash and restricted cash equivalents in the statement of cash flows. As a result, entities no longer present transfers between cash and cash equivalents and restricted cash and restricted cash equivalents in the statement of cash flows. When cash, cash equivalents, restricted cash and restricted cash equivalents are presented in more than one line item on the balance sheet, the guidance requires a reconciliation of the totals in the statement of cash flows to the related caption in the balance sheet. The Company adopted ASU No. 2016-18 in January 2018. As a result, amounts included in restricted cash on the Company’s consolidated balance sheet are included with cash and cash equivalents on the consolidated statement of cash flows. A reconciliation of the totals in the statement of cash flows to the related caption in the balance sheet has been added as a supplemental disclosure to the Company’s consolidated statements of cash flow. The adoption of this standard did not change the Company’s balance sheet presentation. In January 2017, the FASB issued Accounting Standards Update No. 2017-01, “ Business Combinations (Topic 805): Clarifying the Definition of a Business ” (“ASU No. 2017-01”), which changes the definition of a business to assist entities with evaluating when a set of transferred assets and activities is a business. Under the new guidance, an entity first determines whether substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets. If this threshold is met, the set of transferred assets and activities is not a business. If it is not met, the entity then evaluates whether the set meets the requirement that a business include, at a minimum, an input and a substantive process that together significantly contribute to the ability to create outputs. The Company adopted ASU No. 2017-01 in January 2018. The Company will analyze future hotel acquisitions and sales to determine if the transaction qualifies as the purchase or disposition of a business or an asset. Transaction costs associated with asset acquisitions will be capitalized, while the same costs associated with a business combination will continue to be expensed as incurred. In addition, asset acquisitions will not be subject to a measurement period, as are business combinations. Depending on the Company’s conclusion, ASU No. 2017-01 may have an effect on its consolidated financial statements. In January 2017, the FASB issued Accounting Standards Update No. 2017-04, “ Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment ” (“ASU No. 2017-04”), which eliminates the requirement to calculate the implied fair value of goodwill (i.e., Step 2 of today’s goodwill impairment test) to measure a goodwill impairment charge. Under the new guidance, if a reporting unit’s carrying amount exceeds its fair value, an entity will record an impairment charge based on that difference. The impairment charge will be limited to the amount of goodwill allocated to that reporting unit. The standard does not change the guidance on completing Step 1 of the goodwill impairment test. An entity will still be able to perform today’s optional qualitative goodwill impairment assessment before determining whether to proceed to Step 1. ASU No. 2017-04 will become effective in the first quarter of 2019, with early adoption permitted, and the guidance is to be applied prospectively. The Company elected to early adopt ASU No. 2017-04 in January 2018, with no material impact on its consolidated financial statements. In May 2017, the FASB issued Accounting Standards Update No. 2017-09, “ Compensation – Stock Compensation (Topic 718): Scope of Modification Accounting ” (“ASU No. 2017-09”), which clarifies when changes to the terms or conditions of a share-based payment award must be accounted for as modifications. The new guidance will allow companies to make certain changes to awards without accounting for them as modifications, but it does not change the accounting for modifications. Under ASU No. 2017-09, an entity will not apply modification accounting to a share-based payment award if all of the following are the same immediately before and after the change: the award’s fair value (or calculated or intrinsic value, if those measurement methods are used); the award’s vesting conditions; and the award’s classification as an equity or liability instrument. The Company adopted ASU No. 2017-09 in January 2018 with no impact to its consolidated financial statements. Noncontrolling Interest The Company’s consolidated financial statements include an entity in which the Company has a controlling financial interest. Noncontrolling interest is the portion of equity (net assets) in a subsidiary not attributable, directly or indirectly, to a parent. Such noncontrolling interest is reported on the consolidated balance sheets within equity, separately from the Company’s equity. On the consolidated statements of operations, revenues, expenses and net income or loss from the less-than-wholly owned subsidiary is reported at the consolidated amount, including both the amounts attributable to the Company and the noncontrolling interest. Income or loss is allocated to the noncontrolling interest based on its weighted average ownership percentage for the applicable period. The consolidated statement of equity includes beginning balances, activity for the period and ending balances for each component of stockholders’ equity, noncontrolling interest and total equity. At both March 31, 2018 and December 31, 2017, the noncontrolling interest reported in the Company’s financial statements included a third-party’s 25.0% ownership interest in the Hilton San Diego Bayfront. Property and Equipment Impairment losses are recorded on long-lived assets to be held and used by the Company when indicators of impairment are present and the future undiscounted net cash flows expected to be generated by those assets, based on the Company’s expected investment horizon, are less than the assets’ carrying amount. If such assets are considered to be impaired, the related assets are adjusted to their estimated fair value and an impairment is recognized. The impairment recognized is measured by the amount by which the carrying amount of the assets exceeds the estimated fair value of the assets. In computing fair value, the Company uses a discounted cash flow analysis to estimate the fair value of its hotel properties, taking into account each property’s expected cash flow from operations and estimated proceeds from the disposition of the property. The factors addressed in determining estimated proceeds from disposition include anticipated operating cash flow in the year of disposition and terminal capitalization rate. Revenue Recognition Revenues are recognized when control of the promised goods or services is transferred to hotel guests, which is generally defined as the date upon which a guest occupies a room and/or utilizes the hotel’s services. Room revenue is recognized over a guest’s stay at a previously agreed upon daily rate. Additionally, some of the Company’s hotel rooms are booked through independent internet travel intermediaries. If the guest pays the independent internet travel intermediary directly, revenue for the room is booked by the Company at the price the Company sold the room to the independent internet travel intermediary, less any discount or commission paid. If the guest pays the Company directly, revenue for the room is booked by the Company on a gross basis. A majority of the Company’s hotels participate in frequent guest programs sponsored by the hotel brand owners whereby the hotel allows guests to earn loyalty points during their hotel stay. The Company expenses charges associated with these programs as incurred, and recognizes revenue at the amount it will receive from the brand when a guest redeems their loyalty points by staying at one of the Company’s hotels. In addition, some contracts for rooms or food and beverage services require an advance deposit, which the Company records as deferred revenue (or a contract liability) and recognizes once the performance obligations are satisfied. Food and beverage revenue and other ancillary services revenue are generated when a customer chooses to purchase goods or services separately from a hotel room. These revenue streams are recognized during the time the goods or services are provided to the customer at the amount the Company expects to be entitled to in exchange for those goods or services. For those ancillary services provided by third parties, the Company assesses whether it is the principal or the agent. If the Company is the principal, revenue is recognized based upon the gross sales price. If the Company is the agent, revenue is recognized based upon the commission earned from the third party. Additionally, the Company collects sales, use, occupancy and other similar taxes at its hotels, which the Company presents on a net basis (excluded from revenues) in its consolidated statements of operations. Trade receivables and contract liabilities consisted of the following (in thousands): March 31, December 31, 2018 2017 (unaudited) Trade receivables, net (1) $ 27,808 $ 20,773 Contract liabilities (2) $ 15,197 $ 13,454 (1) Trade receivables are included in accounts receivable, net on the accompanying consolidated balance sheets. (2) Contract liabilities consist of advance deposits, and are included in other current liabilities on the accompanying consolidated balance sheets. Segment Reporting The Company considers each of its hotels to be an operating segment, none of which meets the threshold for a separate reportable segment. Currently, the Company operates in one reportable segment, hotel ownership. |
Investment in Hotel Properties
Investment in Hotel Properties | 3 Months Ended |
Mar. 31, 2018 | |
Investment in Hotel Properties | |
Investment in Hotel Properties | 3. Investment in Hotel Properties Investment in hotel properties, net consisted of the following (in thousands): March 31, December 31, 2018 2017 (unaudited) Land $ 605,054 $ 605,054 Buildings and improvements 3,067,473 3,049,569 Furniture, fixtures and equipment 496,492 484,749 Intangible assets 48,251 48,371 Franchise fees 980 980 Construction in process 66,134 54,280 Investment in hotel properties, gross 4,284,384 4,243,003 Accumulated depreciation and amortization (1,173,497) (1,136,937) Investment in hotel properties, net $ 3,110,887 $ 3,106,066 |
Disposals
Disposals | 3 Months Ended |
Mar. 31, 2018 | |
Disposals | |
Disposals | 4. Disposals In January 2018, the Company sold the Marriott Philadelphia and the Marriott Quincy, located in Pennsylvania and Massachusetts, respectively, for net proceeds of $137.0 million. The Company recognized a net gain on the sale of $15.7 million. Neither of these sales qualified as a disposition of a business. In addition, neither sale represented a strategic shift that had a major impact on the Company’s business plan or its primary markets; therefore, neither of these sales qualified as a discontinued operation. The Company classified the assets and liabilities of both hotels as held for sale as of December 31, 2017 as follows (in thousands): December 31, 2017 Accounts receivable $ 1,676 Prepaid expenses 193 Investment in hotel properties, net 120,916 Other assets 22 Assets held for sale, net $ 122,807 Accounts payable and accrued expenses $ 69 Other current liabilities 41 Other liabilities 79 Liabilities of assets held for sale $ 189 The following table provides summary results of operations for the Marriott Philadelphia and the Marriott Quincy, along with the Fairmont Newport Beach and the Marriott Park City, both of which were sold in 2017, which are included in continuing operations for their respective ownership periods (in thousands): Three Months Ended March 31, 2018 2017 (unaudited) (unaudited) Revenues $ 603 $ 18,344 Income before income taxes $ (943) $ 2,621 Gain on sale of assets $ 15,659 $ 44,285 |
Fair Value Measurements and Int
Fair Value Measurements and Interest Rate Derivatives | 3 Months Ended |
Mar. 31, 2018 | |
Fair Value Measurements and Interest Rate Derivatives | |
Fair Value Measurements and Interest Rate Derivatives | 5. Fair Value Measurements and Interest Rate Derivatives Fair Value of Financial Instruments As of March 31, 2018 and December 31, 2017, the carrying amount of certain financial instruments, including cash and cash equivalents, restricted cash, accounts receivable, accounts payable and accrued expenses were representative of their fair values due to the short-term maturity of these instruments. A fair value measurement is based on the assumptions that market participants would use in pricing an asset or liability in an orderly transaction. The hierarchy for inputs used in measuring fair value is as follows: Level 1 Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets. Level 2 Inputs reflect quoted prices for identical assets or liabilities in markets that are not active; quoted prices for similar assets or liabilities in active markets; inputs other than quoted prices that are observable for the asset or the liability; or inputs that are derived principally from or corroborated by observable market data by correlation or other means. Level 3 Unobservable inputs reflecting the Company’s own assumptions incorporated in valuation techniques used to determine fair value. These assumptions are required to be consistent with market participant assumptions that are reasonably available. As of March 31, 2018 and December 31, 2017, the only financial instruments that the Company measures at fair value on recurring bases are its interest rate derivatives, along with a life insurance policy and a related retirement benefit agreement. The Company estimates the fair value of its interest rate derivatives using Level 2 measurements based on quotes obtained from the counterparties, which are based upon the consideration that would be required to terminate the agreements. Both the life insurance policy and the related retirement benefit agreement, which are for a former Company associate, are valued using Level 2 measurements. The following table presents the Company’s assets measured at fair value on a recurring and nonrecurring basis at March 31, 2018 and December 31, 2017 (in thousands): Fair Value Measurements at Reporting Date Total Level 1 Level 2 Level 3 March 31, 2018 (unaudited): Interest rate cap derivatives $ 15 $ — $ 15 $ — Interest rate swap derivatives 6,566 — 6,566 — Life insurance policy (1) 632 — 632 — Total assets measured at fair value at March 31, 2018 $ 7,213 $ — $ 7,213 $ — December 31, 2017: Houston hotels, net $ 34,473 $ — — $ 34,473 Interest rate cap derivatives 4 — 4 — Interest rate swap derivatives 3,390 — 3,390 — Life insurance policy (1) 645 — 645 — Total assets measured at fair value at December 31, 2017 $ 38,512 $ — $ 4,039 $ 34,473 (1) Includes the split life insurance policy for a former Company associate. These amounts are included in other assets, net on the accompanying consolidated balance sheets, and will be used to reimburse the Company for payments made to the former associate from the related retirement benefit agreement, which is included in accrued payroll and employee benefits on the accompanying consolidated balance sheets. The following table presents the Company’s liabilities measured at fair value on a recurring and nonrecurring basis at March 31, 2018 and December 31, 2017 (in thousands): Fair Value Measurements at Reporting Date Total Level 1 Level 2 Level 3 March 31, 2018 (unaudited): Retirement benefit agreement (1) $ 632 $ — $ 632 $ — Total liabilities measured at fair value at March 31, 2018 $ 632 $ — $ 632 $ — December 31, 2017: Retirement benefit agreement (1) $ 645 $ — $ 645 $ — Total liabilities measured at fair value at December 31, 2017 $ 645 $ — $ 645 $ — (1) Includes the retirement benefit agreement for a former Company associate. The agreement calls for the balance of the retirement benefit to be paid out to the former associate in ten annual installments, beginning in 2011. The Company has paid the former associate a total of $1.4 million through March 31, 2018, which was reimbursed to the Company using funds from the related split life insurance policy noted above. These amounts are included in accrued payroll and employee benefits on the accompanying consolidated balance sheets. Interest Rate Derivatives The Company’s interest rate derivatives, which are not designated as effective cash flow hedges, consisted of the following at March 31, 2018 (unaudited) and December 31, 2017 (in thousands): Estimated Fair Value Asset Strike / Capped Effective Maturity Notional March 31, December 31, Hedged Debt Type Rate Index Date Date Amount 2018 2017 Hilton San Diego Bayfront (1) Cap 4.250 % 1-Month LIBOR May 1, 2017 May 1, 2019 $ 109,261 $ 5 $ — Hilton San Diego Bayfront (1) Cap 6.000 % 1-Month LIBOR November 10, 2017 December 9, 2020 $ 220,000 10 4 $85.0 million term loan (2) Swap 3.391 % 1-Month LIBOR October 29, 2015 September 2, 2022 $ 85,000 3,380 2,010 $100.0 million term loan (3) Swap 3.653 % 1-Month LIBOR January 29, 2016 January 31, 2023 $ 100,000 3,186 1,380 $ 6,581 $ 3,394 (1) In November 2017, the Company refinanced the existing loan secured by the Hilton San Diego Bayfront. Coterminous with the loan refinance, the Company purchased a new interest rate cap agreement with a strike rate of 6.0% and an expiration date in December 2020. The fair values of both Hilton San Diego Bayfront cap agreements are included in other assets, net on the accompanying consolidated balance sheets as of both March 31, 2018 and December 31, 2017. (2) The fair value of the $85.0 million term loan swap agreement is included in other assets, net on the Company’s consolidated balance sheets as of both March 31, 2018 and December 31, 2017. The 1-month LIBOR rate was swapped to a fixed rate of 1.591%. (3) The fair value of the $100.0 million term loan swap agreement is included in other assets, net on the Company’s consolidated balance sheets as of both March 31, 2018 and December 31, 2017. The 1-month LIBOR rate was swapped to a fixed rate of 1.853%. Noncash changes in the fair values of the Company’s interest rate derivatives resulted in decreases to interest expense for the three months ended March 31, 2018 and 2017 as follows (in thousands): Three Months Ended March 31, 2018 2017 (unaudited) (unaudited) Noncash interest on derivatives $ (3,187) $ (657) Fair Value of Debt As of March 31, 2018 and December 31, 2017, 77.7% and 77.8%, respectively, of the Company’s outstanding debt had fixed interest rates, including the effects of interest rate swap agreements. The Company uses Level 3 measurements to estimate the fair value of its debt by discounting the future cash flows of each instrument at estimated market rates. The Company’s principal balances and fair market values of its consolidated debt as of March 31, 2018 (unaudited) and December 31, 2017 were as follows (in thousands): March 31, 2018 December 31, 2017 Carrying Amount (1) Fair Value Carrying Amount (1) Fair Value Debt $ 988,510 $ 994,789 $ 990,402 $ 997,922 (1) The principal balance of debt is presented before any unamortized deferred financing fees. |
Other Assets
Other Assets | 3 Months Ended |
Mar. 31, 2018 | |
Other Assets | |
Other Assets | 6. Other Assets Other assets, net consisted of the following (in thousands): March 31, December 31, 2018 2017 (unaudited) Property and equipment, net $ 1,869 $ 584 Goodwill 990 990 Deferred expense on straight-lined third-party tenant leases 3,304 3,351 Deferred income tax asset 13,431 9,492 Interest rate derivatives 6,581 3,394 Other receivables 4,579 3,136 Other 1,217 1,370 Total other assets, net $ 31,971 $ 22,317 During the first quarter of 2018, the Company recognized a $3.9 million income tax benefit associated with an increase in its deferred tax assets primarily related to net operating losses realized in the first quarter due to the seasonality of the Company’s earnings. |
Notes Payable
Notes Payable | 3 Months Ended |
Mar. 31, 2018 | |
Notes Payable | |
Notes Payable | 7. Notes Payable Notes payable consisted of the following (in thousands): March 31, December 31, 2018 2017 (unaudited) Notes payable requiring payments of interest and principal, with fixed rates ranging from 4.12% to 5.95%; maturing at dates ranging from November 2020 through January 2025. The notes are collateralized by first deeds of trust on four hotel properties at both March 31, 2018 and December 31, 2017. $ 343,510 $ 345,402 Note payable requiring payments of interest only, bearing a blended rate of one-month LIBOR plus 105 basis points; maturing in December 2020 with three one-year extensions. The note is collateralized by a first deed of trust on one hotel property. 220,000 220,000 Unsecured term loan requiring payments of interest only, with a blended interest rate based on a pricing grid with a range of 180 to 255 basis points over LIBOR, depending on the Company's leverage ratios. LIBOR has been swapped to a fixed rate of 1.591%, resulting in an effective interest rate of 3.391% based on the Company's current leverage. Matures in September 2022. 85,000 85,000 Unsecured term loan requiring payments of interest only, with a blended interest rate based on a pricing grid with a range of 180 to 255 basis points over LIBOR, depending on the Company's leverage ratios. LIBOR has been swapped to a fixed rate of 1.853%, resulting in an effective interest rate of 3.653% based on the Company's current leverage. Matures in January 2023. 100,000 100,000 Unsecured Senior Notes requiring semi-annual payments of interest only, bearing interest at 4.69%; maturing in January 2026. 120,000 120,000 Unsecured Senior Notes requiring semi-annual payments of interest only, bearing interest at 4.79%; maturing in January 2028. 120,000 120,000 Total notes payable $ 988,510 $ 990,402 Current portion of notes payable $ 7,514 $ 7,420 Less: current portion of deferred financing fees (1,945) (1,943) Carrying value of current portion of notes payable $ 5,569 $ 5,477 Notes payable, less current portion $ 980,996 $ 982,982 Less: long-term portion of deferred financing fees (5,217) (5,700) Carrying value of notes payable, less current portion $ 975,779 $ 977,282 Interest Expense Total interest incurred and expensed on the notes payable was as follows (in thousands): Three Months Ended March 31, 2018 2017 (unaudited) (unaudited) Interest expense on debt and capital lease obligations $ 11,266 $ 11,328 Noncash interest on derivatives and capital lease obligations, net (3,137) (657) Amortization of deferred financing fees 747 578 Total interest expense $ 8,876 $ 11,249 |
Other Current Liabilities and O
Other Current Liabilities and Other Liabilities | 3 Months Ended |
Mar. 31, 2018 | |
Other Current Liabilities and Other Liabilities | |
Other Current Liabilities and Other Liabilities | 8. Other Current Liabilities and Other Liabilities Other current liabilities consisted of the following (in thousands): March 31, December 31, 2018 2017 (unaudited) Property, sales and use taxes payable $ 17,287 $ 17,842 Income tax payable 351 160 Accrued interest 4,256 6,746 Advance deposits 15,197 13,454 Management fees payable 1,562 1,952 Other 4,420 4,348 Total other current liabilities $ 43,073 $ 44,502 Other liabilities consisted of the following (in thousands): March 31, December 31, 2018 2017 (unaudited) Deferred revenue $ 5,485 $ 5,589 Deferred rent 21,452 19,582 Deferred income tax liability 230 257 Other 3,874 3,561 Total other liabilities $ 31,041 $ 28,989 |
Stockholders' Equity
Stockholders' Equity | 3 Months Ended |
Mar. 31, 2018 | |
Stockholders' Equity | |
Stockholders' Equity | 9. Stockholders’ Equity Series E Cumulative Redeemable Preferred Stock In March 2016, the Company issued 4,600,000 shares of its 6.95% Series E Cumulative Redeemable Preferred Stock (“Series E preferred stock”) with a liquidation preference of $25.00 per share for gross proceeds of $115.0 million. In conjunction with the offering, the Company incurred $4.0 million in preferred offering costs. On or after March 11, 2021, the Series E preferred stock will be redeemable at the Company’s option, in whole or in part, at any time or from time to time, for cash at a redemption price of $25.00 per share, plus accrued and unpaid dividends up to, but not including, the redemption date. Upon the occurrence of a change of control, as defined by the Articles Supplementary for Series E preferred stock, holders of the Series E preferred stock may, under certain circumstances, convert their preferred shares into shares of the Company’s common stock. Series F Cumulative Redeemable Preferred Stock In May 2016, the Company issued 3,000,000 shares of its 6.45% Series F Cumulative Redeemable Preferred Stock (“Series F preferred stock”) with a liquidation preference of $25.00 per share for gross proceeds of $75.0 million. In conjunction with the offering, the Company incurred $2.6 million in preferred offering costs. On or after May 17, 2021, the Series F preferred stock will be redeemable at the Company’s option, in whole or in part, at any time or from time to time, for cash at a redemption price of $25.00 per share, plus accrued and unpaid dividends up to, but not including, the redemption date. Upon the occurrence of a change of control, as defined by the Articles Supplementary for Series F preferred stock, holders of the Series F preferred stock may, under certain circumstances, convert their preferred shares into shares of the Company’s common stock. Common Stock In February 2017, the Company entered into separate “At the Market” Agreements (the “ATM Agreements”) with each of Merrill Lynch, Pierce, Fenner & Smith Incorporated, J.P. Morgan Securities LLC and Wells Fargo Securities, LLC . In accordance with the terms of the ATM Agreements, the Company may from time to time offer and sell shares of its common stock having an aggregate offering price of up to $300.0 million. Through March 31, 2018, the Company has received gross proceeds of $79.4 million, and paid $1.5 million in costs, from the issuance of 4,876,855 shares of its common stock in connection with the ATM Agreements. As of March 31, 2018, the Company has $220.6 million available for sale under the ATM Agreements. In February 2017, the Company’s board of directors authorized a share repurchase plan to acquire up to $300.0 million of the Company’s common and preferred stock. As of March 31, 2018, no shares of either the Company’s common or preferred stock have been repurchased. Future purchases will depend on various factors, including the Company’s capital needs, as well as the Company’s common and preferred stock price. |
Long-Term Incentive Plan
Long-Term Incentive Plan | 3 Months Ended |
Mar. 31, 2018 | |
Long-Term Incentive Plan | |
Long-Term Incentive Plan | 10. Long-Term Incentive Plan Stock Grants Restricted shares granted pursuant to the Company’s Long-Term Incentive Plan generally vest over periods from three to four years from the date of grant. Compensation expense related to awards of restricted shares are measured at fair value on the date of grant and amortized over the relevant requisite service period or derived service period. The Company has elected to account for forfeitures as they occur. The Company’s amortization expense and forfeitures related to restricted shares for the three months ended March 31, 2018 and 2017 were as follows (in thousands): Three Months Ended March 31, 2018 2017 (unaudited) (unaudited) Amortization expense, including forfeitures $ 2,000 $ 1,749 In addition, the Company capitalizes compensation costs related to all restricted shares granted to certain employees whose work is directly related to the Company’s capital investment in its hotels. These capitalized costs totaled $0.1 million and $0.2 million during the three months ended March 31, 2018 and 2017, respectively. Stock Options In April 2008, the Compensation Committee of the Company’s board of directors approved a grant of 200,000 non-qualified stock options (the “Options”) to one of the Company’s former associates. The Options fully vested in April 2009, and expired on April 27, 2018. The Options were not exercised prior to their expiration date. |
Commitments and Contingencies
Commitments and Contingencies | 3 Months Ended |
Mar. 31, 2018 | |
Commitments and Contingencies | |
Commitments and Contingencies | 11. Commitments and Contingencies Management Agreements Management agreements with the Company’s third-party hotel managers require the Company to pay between 1.75% and 3.5% of total revenue of the managed hotels to the third-party managers each month as a basic management fee. In addition to basic management fees, provided that certain operating thresholds are met, the Company may also be required to pay incentive management fees to certain of its third-party managers. Total basic management fees, net of key money incentives received from third-party hotel managers, along with incentive management fees incurred by the Company during the three months ended March 31, 2018 and 2017 were included in other property-level expenses on the Company’s consolidated statements of operations as follows (in thousands): Three Months Ended March 31, 2018 2017 (unaudited) (unaudited) Basic management fees $ 7,534 $ 7,895 Incentive management fees 2,720 2,553 Total basic and incentive management fees $ 10,254 $ 10,448 License and Franchise Agreements The Company has entered into license and franchise agreements related to certain of its hotel properties. The license and franchise agreements require the Company to, among other things, pay monthly fees that are calculated based on specified percentages of certain revenues. The license and franchise agreements generally contain specific standards for, and restrictions and limitations on, the operation and maintenance of the hotels which are established by the franchisors to maintain uniformity in the system created by each such franchisor. Such standards generally regulate the appearance of the hotel, quality and type of goods and services offered, signage and protection of trademarks. Compliance with such standards may from time to time require the Company to make significant expenditures for capital improvements. Total license and franchise fees incurred by the Company during the three months ended March 31, 2018 and 2017 were included in franchise costs on the Company’s consolidated statements of operations as follows (in thousands): Three Months Ended March 31, 2018 2017 (unaudited) (unaudited) Franchise assessments (1) $ 5,908 $ 5,927 Franchise royalties 1,945 2,128 Total franchise costs $ 7,853 $ 8,055 (1) Includes advertising, reservation and frequent guest program assessments. Renovation and Construction Commitments At March 31, 2018, the Company had various contracts outstanding with third parties in connection with the renovation and repositioning of certain of its hotel properties. The remaining commitments under these contracts at March 31, 2018 totaled $78.5 million. Capital Leases The Hyatt Centric Chicago Magnificent Mile is subject to a building lease which expires in December 2097. The Company evaluated the terms of the lease agreement and determined the lease to be a capital lease. The Company determined that the ground lease at the Courtyard by Marriott Los Angeles is a capital lease due to the lease containing a future bargain purchase right option, which the Company will likely exercise as the economic disincentive for continuing to lease the property will be significant. The capital lease assets were included in investment in hotel properties, net on the Company’s consolidated balance sheets as follows (in thousands): March 31, December 31, 2018 2017 (unaudited) Gross capital lease asset - buildings and improvements $ 58,799 $ 58,799 Gross capital lease asset - land 6,605 6,605 Gross capital lease assets 65,404 65,404 Accumulated depreciation (8,575) (8,208) Net capital lease assets $ 56,829 $ 57,196 Ground, Building and Air Leases Total rent expense incurred pursuant to ground, building and air lease agreements for the three months ended March 31, 2018 and 2017 was included in property tax, ground lease and insurance on the Company’s consolidated statements of operations as follows (in thousands): Three Months Ended March 31, 2018 2017 (unaudited) (unaudited) Minimum rent, including straight-line adjustments $ 2,130 $ 2,340 Percentage rent (1) 1,744 1,585 Total $ 3,874 $ 3,925 (1) Several of the Company’s hotels pay percentage rent, which is calculated on operating revenues above certain thresholds. Rent expense incurred pursuant to leases on the corporate facility which expire in August 2018, along with straight-line adjustments for a new office space lease for which the Company has taken possession totaled $0.2 million for the three months ended March 31, 2018. For the three months ended March 31, 2017, the Company incurred rent expense of $0.1 million pursuant to leases on the corporate facility. The Company includes its corporate rent expense in corporate overhead expense on its consolidated statements of operations. Concentration of Risk The concentration of the Company’s hotels in California, Hawaii, Illinois, Massachusetts, the greater Washington DC area and Florida exposes the Company’s business to economic and severe weather conditions, competition and real and personal property tax rates unique to these locales. As of March 31, 2018, 18 of the Company’s 25 hotels were geographically concentrated as follows: Trailing 12-Month Percentage of Total Number of Hotels Total Rooms Consolidated Revenue (unaudited) (unaudited) (unaudited) California 7 31 % 35 % Hawaii 1 4 % 8 % Illinois 3 9 % 7 % Massachusetts 2 12 % 13 % Greater Washington DC area 3 15 % 13 % Florida 2 8 % 8 % Other The Company has provided customary unsecured environmental indemnities to certain lenders. The Company has performed due diligence on the potential environmental risks, including obtaining an independent environmental review from outside environmental consultants. These indemnities obligate the Company to reimburse the indemnified parties for damages related to certain environmental matters. There is no term or damage limitation on these indemnities; however, if an environmental matter arises, the Company could have recourse against other previous owners or a claim against its environmental insurance policies. At March 31, 2018, the Company had $0.5 million of outstanding irrevocable letters of credit to guarantee the Company’s financial obligations related to workers’ compensation insurance programs from prior policy years. The beneficiaries of these letters of credit may draw upon these letters of credit in the event of a contractual default by the Company relating to each respective obligation. No draws have been made through March 31, 2018. The Company is subject to various claims, lawsuits and legal proceedings, including routine litigation arising in the ordinary course of business, regarding the operation of its hotels and Company matters. While it is not possible to ascertain the ultimate outcome of such matters, the Company believes that the aggregate amount of such liabilities, if any, in excess of amounts covered by insurance will not have a material adverse impact on its financial condition or results of operations. The outcome of claims, lawsuits and legal proceedings brought against the Company, however, is subject to significant uncertainties. |
Summary of Significant Accoun19
Summary of Significant Accounting Policies (Policies) | 3 Months Ended |
Mar. 31, 2018 | |
Summary of Significant Accounting Policies | |
Basis of Presentation | Basis of Presentation The accompanying consolidated financial statements as of March 31, 2018 and December 31, 2017, and for the three months ended March 31, 2018 and 2017, include the accounts of the Company, the Operating Partnership, the TRS Lessee and their controlled subsidiaries. All significant intercompany balances and transactions have been eliminated. If the Company determines that it has an interest in a variable interest entity, the Company will consolidate the entity when it is determined to be the primary beneficiary of the entity. The accompanying interim financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) and in conformity with the rules and regulations of the Securities and Exchange Commission. In the Company’s opinion, the interim financial statements presented herein reflect all adjustments, consisting solely of normal and recurring adjustments, which are necessary to fairly present the interim financial statements. These financial statements should be read in conjunction with the financial statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2017, filed with the Securities and Exchange Commission on February 14, 2018. Operating results for the three months ended March 31, 2018 are not necessarily indicative of the results that may be expected for the year ending December 31, 2018. The Company does not have any comprehensive income other than what is included in net income. If the Company has any comprehensive income in the future such that a statement of comprehensive income would be necessary, the Company will include such statement in one continuous consolidated statement of operations. The Company has evaluated subsequent events through the date of issuance of these financial statements. |
Use of Estimates | Use of Estimates The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ materially from those estimates. |
Earnings Per Share | Earnings Per Share The Company applies the two-class method when computing its earnings per share. Net income per share for each class of stock (common stock and convertible preferred stock) is calculated assuming all of the Company’s net income is distributed as dividends to each class of stock based on their contractual rights. Unvested share-based payment awards that contain non-forfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are considered participating securities and are included in the computation of earnings per share. Basic earnings (loss) attributable to common stockholders per common share is computed based on the weighted average number of shares of common stock outstanding during each period. Diluted earnings (loss) attributable to common stockholders per common share is computed based on the weighted average number of shares of common stock outstanding during each period, plus potential common shares considered outstanding during the period, as long as the inclusion of such awards is not anti-dilutive. Potential common shares consist of unvested restricted stock awards and the incremental common shares issuable upon the exercise of stock options, using the more dilutive of either the two-class method or the treasury stock method. The following table sets forth the computation of basic and diluted earnings per common share (in thousands, except per share data): Three Months Ended March 31, 2018 2017 (unaudited) (unaudited) Numerator: Net income $ 38,455 $ 63,827 Income from consolidated joint venture attributable to noncontrolling interest (2,439) (1,992) Preferred stock dividends (3,207) (3,207) Distributions paid on unvested restricted stock compensation (59) (60) Undistributed income allocated to unvested restricted stock compensation (117) (248) Numerator for basic and diluted income attributable to common stockholders $ 32,633 $ 58,320 Denominator: Weighted average basic and diluted common shares outstanding 224,282 219,093 Basic and diluted income attributable to common stockholders per common share $ 0.15 $ 0.27 The Company’s unvested restricted shares associated with its long-term incentive plan and shares associated with common stock options have been excluded from the above calculation of earnings per share for the three months ended March 31, 2018 and 2017, as their inclusion would have been anti-dilutive. |
New Accounting Standards and Accounting Changes | New Accounting Standards and Accounting Changes In May 2014, the FASB issued Accounting Standards Update No. 2014-09, “ Revenue from Contracts with Customers (Topic 606) ” (“ASU No. 2014-09”). The core principle of ASU No. 2014-09 is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. To achieve that core principle, an entity applies a five-step model: (1) identify the contract(s) with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to the performance obligations in the contract; and (5) recognize revenue when (or as) the entity satisfies a performance obligation. In March 2016, the FASB clarified the principal versus agent guidance in ASU No. 2014-09 with its issuance of Accounting Standards Update No. 2016-08, “ Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net) ” (“ASU No. 2016-08”). In particular, ASU No. 2016-08 clarifies how an entity should identify the unit of accounting for the principal versus agent evaluation and how it should apply the control principle to certain types of arrangements, such as service transactions by explaining what a principal controls before the specified good or service is transferred to the customer. In addition, ASU No. 2016-08 reframes the indicators to focus on evidence that an entity is acting as a principal rather than as an agent. In May 2016, the FASB amended ASU No. 2014-09’s guidance on transition, collectability, noncash consideration and the presentation of sales and other similar taxes with its issuance of Accounting Standards Update No. 2016-12, “ Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients ” (“ASU No. 2016-12”). The amendments clarify that, for a contract to be considered completed at transition, all (or substantially all) of the revenue must have been recognized under legacy GAAP. This clarification is important because entities that use the modified retrospective transition approach need to apply the standard only to contracts that are not complete as of the date of initial application, and entities that use the full retrospective approach may apply certain practical expedients to completed contracts. In addition, ASU No. 2016-12 clarifies that an entity should consider the probability of collecting substantially all of the consideration to which it will be entitled in exchange for goods and services expected to be transferred to the customer rather than the total amount promised for all the goods or services in the contract. ASU No. 2016-12 also clarifies that an entity may consider its ability to manage its exposure to credit risk as part of the collectability assessment, as well as that the fair value of noncash consideration should be measured at contract inception when determining the transaction price. Finally, ASU No. 2016-12 allows an entity to make an accounting policy election to exclude from the transaction price certain types of taxes collected from a customer if it discloses that policy. The Company adopted ASU No. 2014-09, along with the related clarifications and amendments in ASU No. 2016-08 and ASU No. 2016-12, in January 2018, using the modified retrospective approach to contracts that were not complete as of January 1, 2018. Due to the short-term nature of the Company’s revenue streams, the adoption of ASU No. 2014-09 did not have a material impact on the amount and timing of revenue recognized from rooms, food and beverage and other ancillary hotel services . In addition, the Company determined that presenting its revenue streams disaggregated into the categories of rooms, food and beverage, and other on its consolidated statements of operations depicts how the nature, timing and uncertainty of revenue and cash flows are affected by economic factors, and that no further disaggregation is needed. See Revenue Recognition in Note 2 for additional disclosures. In February 2016, the FASB issued Accounting Standards Update No. 2016-02, “ Leases (Topic 842) ” (“ASU No. 2016-02”), which will require lessees to put most leases on their balance sheets but recognize expenses in the income statement in a manner similar to today’s accounting. A lessee will be required to record a right-of-use asset and a lease liability for all leases with a term greater than 12 months regardless of their classification. Leases with a term of 12 months or less will be accounted for similarly to existing guidance for operating leases today. ASU No. 2016-02 also eliminates today’s real estate-specific provisions and changes the guidance on sale-leaseback transactions, initial direct costs and lease executory costs for all entities. For lessors, the standard modifies the classification criteria and requires lessors to identify lease and non-lease components under their leasing arrangements and to allocate the total consideration in the lease agreement to these lease and non-lease components based on their relative standalone selling prices. All entities will classify leases to determine how to recognize lease-related revenue and expense. Classification will continue to affect amounts that lessors record on the balance sheet. ASU No. 2016-02 will become effective during the first quarter of 2019, and will require a modified retrospective approach for leases that exist or are entered into after the date of initial application, with an option to use certain transition relief. In January 2018, the FASB issued a proposed amendment to ASU No. 2016-02 which would add a transition option to the new leases standard that would allow entities to apply the transition provisions of the new standard at its adoption date instead of the earliest comparative period presented in its financial statements. The FASB also proposed a practical expedient that would permit lessors to not separate lease and non-lease components if certain conditions are met. The Company is creating an inventory of its leases and is analyzing its current ground lease obligations. In addition, the Company is evaluating the impact that ASU No. 2016-02, as well as the FASB’s proposed transition option and practical expedient if adopted, will have on its consolidated financial statements, and, other than the inclusion of operating leases on the Company’s balance sheet, such effects have not yet been determined. In January 2018, the FASB issued Accounting Standards Update No. 2018-01, “ Leases (Topic 842): Land Easement Practical Expedient for Transition to Topic 842 ” (“ASU No. 2018-01”), which clarifies, among other things, that perpetual easements are not leases because they do not convey the right to use the underlying land for a period of time. The Company has a perpetual easement agreement at the Hilton Times Square, which, under the guidance of ASU No. 2018-01, will not be considered a lease and will continue to be an intangible asset with an indefinite useful life. ASU No. 2018-01 will become effective, along with ASU No. 2016-02, during the first quarter of 2019. In November 2016, the FASB issued Accounting Standards Update No. 2016-18, “ Statement of Cash Flows (Topic 230): Restricted Cash (a consensus of the FASB Emerging Issues Task Force) ” (“ASU No. 2016-18”), which requires entities to show the changes in total cash, cash equivalents, restricted cash and restricted cash equivalents in the statement of cash flows. As a result, entities no longer present transfers between cash and cash equivalents and restricted cash and restricted cash equivalents in the statement of cash flows. When cash, cash equivalents, restricted cash and restricted cash equivalents are presented in more than one line item on the balance sheet, the guidance requires a reconciliation of the totals in the statement of cash flows to the related caption in the balance sheet. The Company adopted ASU No. 2016-18 in January 2018. As a result, amounts included in restricted cash on the Company’s consolidated balance sheet are included with cash and cash equivalents on the consolidated statement of cash flows. A reconciliation of the totals in the statement of cash flows to the related caption in the balance sheet has been added as a supplemental disclosure to the Company’s consolidated statements of cash flow. The adoption of this standard did not change the Company’s balance sheet presentation. In January 2017, the FASB issued Accounting Standards Update No. 2017-01, “ Business Combinations (Topic 805): Clarifying the Definition of a Business ” (“ASU No. 2017-01”), which changes the definition of a business to assist entities with evaluating when a set of transferred assets and activities is a business. Under the new guidance, an entity first determines whether substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets. If this threshold is met, the set of transferred assets and activities is not a business. If it is not met, the entity then evaluates whether the set meets the requirement that a business include, at a minimum, an input and a substantive process that together significantly contribute to the ability to create outputs. The Company adopted ASU No. 2017-01 in January 2018. The Company will analyze future hotel acquisitions and sales to determine if the transaction qualifies as the purchase or disposition of a business or an asset. Transaction costs associated with asset acquisitions will be capitalized, while the same costs associated with a business combination will continue to be expensed as incurred. In addition, asset acquisitions will not be subject to a measurement period, as are business combinations. Depending on the Company’s conclusion, ASU No. 2017-01 may have an effect on its consolidated financial statements. In January 2017, the FASB issued Accounting Standards Update No. 2017-04, “ Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment ” (“ASU No. 2017-04”), which eliminates the requirement to calculate the implied fair value of goodwill (i.e., Step 2 of today’s goodwill impairment test) to measure a goodwill impairment charge. Under the new guidance, if a reporting unit’s carrying amount exceeds its fair value, an entity will record an impairment charge based on that difference. The impairment charge will be limited to the amount of goodwill allocated to that reporting unit. The standard does not change the guidance on completing Step 1 of the goodwill impairment test. An entity will still be able to perform today’s optional qualitative goodwill impairment assessment before determining whether to proceed to Step 1. ASU No. 2017-04 will become effective in the first quarter of 2019, with early adoption permitted, and the guidance is to be applied prospectively. The Company elected to early adopt ASU No. 2017-04 in January 2018, with no material impact on its consolidated financial statements. In May 2017, the FASB issued Accounting Standards Update No. 2017-09, “ Compensation – Stock Compensation (Topic 718): Scope of Modification Accounting ” (“ASU No. 2017-09”), which clarifies when changes to the terms or conditions of a share-based payment award must be accounted for as modifications. The new guidance will allow companies to make certain changes to awards without accounting for them as modifications, but it does not change the accounting for modifications. Under ASU No. 2017-09, an entity will not apply modification accounting to a share-based payment award if all of the following are the same immediately before and after the change: the award’s fair value (or calculated or intrinsic value, if those measurement methods are used); the award’s vesting conditions; and the award’s classification as an equity or liability instrument. The Company adopted ASU No. 2017-09 in January 2018 with no impact to its consolidated financial statements. |
Noncontrolling Interest | Noncontrolling Interest The Company’s consolidated financial statements include an entity in which the Company has a controlling financial interest. Noncontrolling interest is the portion of equity (net assets) in a subsidiary not attributable, directly or indirectly, to a parent. Such noncontrolling interest is reported on the consolidated balance sheets within equity, separately from the Company’s equity. On the consolidated statements of operations, revenues, expenses and net income or loss from the less-than-wholly owned subsidiary is reported at the consolidated amount, including both the amounts attributable to the Company and the noncontrolling interest. Income or loss is allocated to the noncontrolling interest based on its weighted average ownership percentage for the applicable period. The consolidated statement of equity includes beginning balances, activity for the period and ending balances for each component of stockholders’ equity, noncontrolling interest and total equity. At both March 31, 2018 and December 31, 2017, the noncontrolling interest reported in the Company’s financial statements included a third-party’s 25.0% ownership interest in the Hilton San Diego Bayfront. |
Property and Equipment | Property and Equipment Impairment losses are recorded on long-lived assets to be held and used by the Company when indicators of impairment are present and the future undiscounted net cash flows expected to be generated by those assets, based on the Company’s expected investment horizon, are less than the assets’ carrying amount. If such assets are considered to be impaired, the related assets are adjusted to their estimated fair value and an impairment is recognized. The impairment recognized is measured by the amount by which the carrying amount of the assets exceeds the estimated fair value of the assets. In computing fair value, the Company uses a discounted cash flow analysis to estimate the fair value of its hotel properties, taking into account each property’s expected cash flow from operations and estimated proceeds from the disposition of the property. The factors addressed in determining estimated proceeds from disposition include anticipated operating cash flow in the year of disposition and terminal capitalization rate. |
Revenue Recognition | Revenue Recognition Revenues are recognized when control of the promised goods or services is transferred to hotel guests, which is generally defined as the date upon which a guest occupies a room and/or utilizes the hotel’s services. Room revenue is recognized over a guest’s stay at a previously agreed upon daily rate. Additionally, some of the Company’s hotel rooms are booked through independent internet travel intermediaries. If the guest pays the independent internet travel intermediary directly, revenue for the room is booked by the Company at the price the Company sold the room to the independent internet travel intermediary, less any discount or commission paid. If the guest pays the Company directly, revenue for the room is booked by the Company on a gross basis. A majority of the Company’s hotels participate in frequent guest programs sponsored by the hotel brand owners whereby the hotel allows guests to earn loyalty points during their hotel stay. The Company expenses charges associated with these programs as incurred, and recognizes revenue at the amount it will receive from the brand when a guest redeems their loyalty points by staying at one of the Company’s hotels. In addition, some contracts for rooms or food and beverage services require an advance deposit, which the Company records as deferred revenue (or a contract liability) and recognizes once the performance obligations are satisfied. Food and beverage revenue and other ancillary services revenue are generated when a customer chooses to purchase goods or services separately from a hotel room. These revenue streams are recognized during the time the goods or services are provided to the customer at the amount the Company expects to be entitled to in exchange for those goods or services. For those ancillary services provided by third parties, the Company assesses whether it is the principal or the agent. If the Company is the principal, revenue is recognized based upon the gross sales price. If the Company is the agent, revenue is recognized based upon the commission earned from the third party. Additionally, the Company collects sales, use, occupancy and other similar taxes at its hotels, which the Company presents on a net basis (excluded from revenues) in its consolidated statements of operations. Trade receivables and contract liabilities consisted of the following (in thousands): March 31, December 31, 2018 2017 (unaudited) Trade receivables, net (1) $ 27,808 $ 20,773 Contract liabilities (2) $ 15,197 $ 13,454 (1) Trade receivables are included in accounts receivable, net on the accompanying consolidated balance sheets. (2) Contract liabilities consist of advance deposits, and are included in other current liabilities on the accompanying consolidated balance sheets. |
Segment Reporting | Segment Reporting The Company considers each of its hotels to be an operating segment, none of which meets the threshold for a separate reportable segment. Currently, the Company operates in one reportable segment, hotel ownership. |
Organization and Description 20
Organization and Description of Business (Tables) | 3 Months Ended |
Mar. 31, 2018 | |
Organization and Description of Business | |
Schedule of number of hotels managed by each third-party manager | As of March 31, 2018, the Company had interests in 25 hotels (the “25 hotels”), and the Company’s third-party managers included the following: Number of Hotels Subsidiaries of Marriott International, Inc. or Marriott Hotel Services, Inc. (collectively, “Marriott”) 9 Interstate Hotels & Resorts, Inc. 4 Highgate Hotels L.P. and an affiliate 3 Crestline Hotels & Resorts 2 Hilton Worldwide 2 Hyatt Corporation 2 Davidson Hotels & Resorts 1 HEI Hotels & Resorts 1 Singh Hospitality, LLC 1 Total hotels held for investment 25 |
Summary of Significant Accoun21
Summary of Significant Accounting Policies (Tables) | 3 Months Ended |
Mar. 31, 2018 | |
Summary of Significant Accounting Policies | |
Schedule of computation of basic and diluted earnings per common share | The following table sets forth the computation of basic and diluted earnings per common share (in thousands, except per share data): Three Months Ended March 31, 2018 2017 (unaudited) (unaudited) Numerator: Net income $ 38,455 $ 63,827 Income from consolidated joint venture attributable to noncontrolling interest (2,439) (1,992) Preferred stock dividends (3,207) (3,207) Distributions paid on unvested restricted stock compensation (59) (60) Undistributed income allocated to unvested restricted stock compensation (117) (248) Numerator for basic and diluted income attributable to common stockholders $ 32,633 $ 58,320 Denominator: Weighted average basic and diluted common shares outstanding 224,282 219,093 Basic and diluted income attributable to common stockholders per common share $ 0.15 $ 0.27 |
Schedule of contract assets and liabilities | Trade receivables and contract liabilities consisted of the following (in thousands): March 31, December 31, 2018 2017 (unaudited) Trade receivables, net (1) $ 27,808 $ 20,773 Contract liabilities (2) $ 15,197 $ 13,454 (1) Trade receivables are included in accounts receivable, net on the accompanying consolidated balance sheets. (2) Contract liabilities consist of advance deposits, and are included in other current liabilities on the accompanying consolidated balance sheets. |
Investment in Hotel Properties
Investment in Hotel Properties (Tables) | 3 Months Ended |
Mar. 31, 2018 | |
Investment in Hotel Properties | |
Schedule of investment in hotel properties | Investment in hotel properties, net consisted of the following (in thousands): March 31, December 31, 2018 2017 (unaudited) Land $ 605,054 $ 605,054 Buildings and improvements 3,067,473 3,049,569 Furniture, fixtures and equipment 496,492 484,749 Intangible assets 48,251 48,371 Franchise fees 980 980 Construction in process 66,134 54,280 Investment in hotel properties, gross 4,284,384 4,243,003 Accumulated depreciation and amortization (1,173,497) (1,136,937) Investment in hotel properties, net $ 3,110,887 $ 3,106,066 |
Disposals (Tables)
Disposals (Tables) | 3 Months Ended |
Mar. 31, 2018 | |
Disposals | |
Schedule of amounts held for sale | The Company classified the assets and liabilities of both hotels as held for sale as of December 31, 2017 as follows (in thousands): December 31, 2017 Accounts receivable $ 1,676 Prepaid expenses 193 Investment in hotel properties, net 120,916 Other assets 22 Assets held for sale, net $ 122,807 Accounts payable and accrued expenses $ 69 Other current liabilities 41 Other liabilities 79 Liabilities of assets held for sale $ 189 |
Schedule of operating results for sold entities | The following table provides summary results of operations for the Marriott Philadelphia and the Marriott Quincy, along with the Fairmont Newport Beach and the Marriott Park City, both of which were sold in 2017, which are included in continuing operations for their respective ownership periods (in thousands): Three Months Ended March 31, 2018 2017 (unaudited) (unaudited) Revenues $ 603 $ 18,344 Income before income taxes $ (943) $ 2,621 Gain on sale of assets $ 15,659 $ 44,285 |
Fair Value Measurements and I24
Fair Value Measurements and Interest Rate Derivatives (Tables) | 3 Months Ended |
Mar. 31, 2018 | |
Fair Value Measurements and Interest Rate Derivatives | |
Schedule of assets measured at fair value on a recurring and nonrecurring basis | The following table presents the Company’s assets measured at fair value on a recurring and nonrecurring basis at March 31, 2018 and December 31, 2017 (in thousands): Fair Value Measurements at Reporting Date Total Level 1 Level 2 Level 3 March 31, 2018 (unaudited): Interest rate cap derivatives $ 15 $ — $ 15 $ — Interest rate swap derivatives 6,566 — 6,566 — Life insurance policy (1) 632 — 632 — Total assets measured at fair value at March 31, 2018 $ 7,213 $ — $ 7,213 $ — December 31, 2017: Houston hotels, net $ 34,473 $ — — $ 34,473 Interest rate cap derivatives 4 — 4 — Interest rate swap derivatives 3,390 — 3,390 — Life insurance policy (1) 645 — 645 — Total assets measured at fair value at December 31, 2017 $ 38,512 $ — $ 4,039 $ 34,473 (1) Includes the split life insurance policy for a former Company associate. These amounts are included in other assets, net on the accompanying consolidated balance sheets, and will be used to reimburse the Company for payments made to the former associate from the related retirement benefit agreement, which is included in accrued payroll and employee benefits on the accompanying consolidated balance sheets. |
Schedule of liabilities measured at fair value on a recurring and nonrecurring basis | The following table presents the Company’s liabilities measured at fair value on a recurring and nonrecurring basis at March 31, 2018 and December 31, 2017 (in thousands): Fair Value Measurements at Reporting Date Total Level 1 Level 2 Level 3 March 31, 2018 (unaudited): Retirement benefit agreement (1) $ 632 $ — $ 632 $ — Total liabilities measured at fair value at March 31, 2018 $ 632 $ — $ 632 $ — December 31, 2017: Retirement benefit agreement (1) $ 645 $ — $ 645 $ — Total liabilities measured at fair value at December 31, 2017 $ 645 $ — $ 645 $ — (1) Includes the retirement benefit agreement for a former Company associate. The agreement calls for the balance of the retirement benefit to be paid out to the former associate in ten annual installments, beginning in 2011. The Company has paid the former associate a total of $1.4 million through March 31, 2018, which was reimbursed to the Company using funds from the related split life insurance policy noted above. These amounts are included in accrued payroll and employee benefits on the accompanying consolidated balance sheets. |
Schedule of interest rate derivatives | The Company’s interest rate derivatives, which are not designated as effective cash flow hedges, consisted of the following at March 31, 2018 (unaudited) and December 31, 2017 (in thousands): Estimated Fair Value Asset Strike / Capped Effective Maturity Notional March 31, December 31, Hedged Debt Type Rate Index Date Date Amount 2018 2017 Hilton San Diego Bayfront (1) Cap 4.250 % 1-Month LIBOR May 1, 2017 May 1, 2019 $ 109,261 $ 5 $ — Hilton San Diego Bayfront (1) Cap 6.000 % 1-Month LIBOR November 10, 2017 December 9, 2020 $ 220,000 10 4 $85.0 million term loan (2) Swap 3.391 % 1-Month LIBOR October 29, 2015 September 2, 2022 $ 85,000 3,380 2,010 $100.0 million term loan (3) Swap 3.653 % 1-Month LIBOR January 29, 2016 January 31, 2023 $ 100,000 3,186 1,380 $ 6,581 $ 3,394 (1) In November 2017, the Company refinanced the existing loan secured by the Hilton San Diego Bayfront. Coterminous with the loan refinance, the Company purchased a new interest rate cap agreement with a strike rate of 6.0% and an expiration date in December 2020. The fair values of both Hilton San Diego Bayfront cap agreements are included in other assets, net on the accompanying consolidated balance sheets as of both March 31, 2018 and December 31, 2017. (2) The fair value of the $85.0 million term loan swap agreement is included in other assets, net on the Company’s consolidated balance sheets as of both March 31, 2018 and December 31, 2017. The 1-month LIBOR rate was swapped to a fixed rate of 1.591%. (3) The fair value of the $100.0 million term loan swap agreement is included in other assets, net on the Company’s consolidated balance sheets as of both March 31, 2018 and December 31, 2017. The 1-month LIBOR rate was swapped to a fixed rate of 1.853%. |
Schedule of changes in fair value of interest rate derivatives | Noncash changes in the fair values of the Company’s interest rate derivatives resulted in decreases to interest expense for the three months ended March 31, 2018 and 2017 as follows (in thousands): Three Months Ended March 31, 2018 2017 (unaudited) (unaudited) Noncash interest on derivatives $ (3,187) $ (657) |
Schedule of principal values and estimated fair values of debt | The Company’s principal balances and fair market values of its consolidated debt as of March 31, 2018 (unaudited) and December 31, 2017 were as follows (in thousands): March 31, 2018 December 31, 2017 Carrying Amount (1) Fair Value Carrying Amount (1) Fair Value Debt $ 988,510 $ 994,789 $ 990,402 $ 997,922 (1) The principal balance of debt is presented before any unamortized deferred financing fees. |
Other Assets (Tables)
Other Assets (Tables) | 3 Months Ended |
Mar. 31, 2018 | |
Other Assets | |
Schedule of other assets | Other assets, net consisted of the following (in thousands): March 31, December 31, 2018 2017 (unaudited) Property and equipment, net $ 1,869 $ 584 Goodwill 990 990 Deferred expense on straight-lined third-party tenant leases 3,304 3,351 Deferred income tax asset 13,431 9,492 Interest rate derivatives 6,581 3,394 Other receivables 4,579 3,136 Other 1,217 1,370 Total other assets, net $ 31,971 $ 22,317 |
Notes Payable (Tables)
Notes Payable (Tables) | 3 Months Ended |
Mar. 31, 2018 | |
Notes Payable | |
Schedule of notes payable | Notes payable consisted of the following (in thousands): March 31, December 31, 2018 2017 (unaudited) Notes payable requiring payments of interest and principal, with fixed rates ranging from 4.12% to 5.95%; maturing at dates ranging from November 2020 through January 2025. The notes are collateralized by first deeds of trust on four hotel properties at both March 31, 2018 and December 31, 2017. $ 343,510 $ 345,402 Note payable requiring payments of interest only, bearing a blended rate of one-month LIBOR plus 105 basis points; maturing in December 2020 with three one-year extensions. The note is collateralized by a first deed of trust on one hotel property. 220,000 220,000 Unsecured term loan requiring payments of interest only, with a blended interest rate based on a pricing grid with a range of 180 to 255 basis points over LIBOR, depending on the Company's leverage ratios. LIBOR has been swapped to a fixed rate of 1.591%, resulting in an effective interest rate of 3.391% based on the Company's current leverage. Matures in September 2022. 85,000 85,000 Unsecured term loan requiring payments of interest only, with a blended interest rate based on a pricing grid with a range of 180 to 255 basis points over LIBOR, depending on the Company's leverage ratios. LIBOR has been swapped to a fixed rate of 1.853%, resulting in an effective interest rate of 3.653% based on the Company's current leverage. Matures in January 2023. 100,000 100,000 Unsecured Senior Notes requiring semi-annual payments of interest only, bearing interest at 4.69%; maturing in January 2026. 120,000 120,000 Unsecured Senior Notes requiring semi-annual payments of interest only, bearing interest at 4.79%; maturing in January 2028. 120,000 120,000 Total notes payable $ 988,510 $ 990,402 Current portion of notes payable $ 7,514 $ 7,420 Less: current portion of deferred financing fees (1,945) (1,943) Carrying value of current portion of notes payable $ 5,569 $ 5,477 Notes payable, less current portion $ 980,996 $ 982,982 Less: long-term portion of deferred financing fees (5,217) (5,700) Carrying value of notes payable, less current portion $ 975,779 $ 977,282 |
Schedule of interest incurred and expensed | Total interest incurred and expensed on the notes payable was as follows (in thousands): Three Months Ended March 31, 2018 2017 (unaudited) (unaudited) Interest expense on debt and capital lease obligations $ 11,266 $ 11,328 Noncash interest on derivatives and capital lease obligations, net (3,137) (657) Amortization of deferred financing fees 747 578 Total interest expense $ 8,876 $ 11,249 |
Other Current Liabilities and27
Other Current Liabilities and Other Liabilities (Tables) | 3 Months Ended |
Mar. 31, 2018 | |
Other Current Liabilities and Other Liabilities | |
Schedule of other current liabilities | Other current liabilities consisted of the following (in thousands): March 31, December 31, 2018 2017 (unaudited) Property, sales and use taxes payable $ 17,287 $ 17,842 Income tax payable 351 160 Accrued interest 4,256 6,746 Advance deposits 15,197 13,454 Management fees payable 1,562 1,952 Other 4,420 4,348 Total other current liabilities $ 43,073 $ 44,502 |
Schedule of other liabilities | Other liabilities consisted of the following (in thousands): March 31, December 31, 2018 2017 (unaudited) Deferred revenue $ 5,485 $ 5,589 Deferred rent 21,452 19,582 Deferred income tax liability 230 257 Other 3,874 3,561 Total other liabilities $ 31,041 $ 28,989 |
Long-Term Incentive Plan (Table
Long-Term Incentive Plan (Tables) | 3 Months Ended |
Mar. 31, 2018 | |
Long-Term Incentive Plan | |
Schedule of amortization expense and forfeitures related to restricted shares | The Company has elected to account for forfeitures as they occur. The Company’s amortization expense and forfeitures related to restricted shares for the three months ended March 31, 2018 and 2017 were as follows (in thousands): Three Months Ended March 31, 2018 2017 (unaudited) (unaudited) Amortization expense, including forfeitures $ 2,000 $ 1,749 |
Commitments and Contingencies (
Commitments and Contingencies (Tables) | 3 Months Ended |
Mar. 31, 2018 | |
Commitments and Contingencies | |
Schedule of basic and incentive management fees | Total basic management fees, net of key money incentives received from third-party hotel managers, along with incentive management fees incurred by the Company during the three months ended March 31, 2018 and 2017 were included in other property-level expenses on the Company’s consolidated statements of operations as follows (in thousands): Three Months Ended March 31, 2018 2017 (unaudited) (unaudited) Basic management fees $ 7,534 $ 7,895 Incentive management fees 2,720 2,553 Total basic and incentive management fees $ 10,254 $ 10,448 |
Schedule of License and Franchise Costs | Total license and franchise fees incurred by the Company during the three months ended March 31, 2018 and 2017 were included in franchise costs on the Company’s consolidated statements of operations as follows (in thousands): Three Months Ended March 31, 2018 2017 (unaudited) (unaudited) Franchise assessments (1) $ 5,908 $ 5,927 Franchise royalties 1,945 2,128 Total franchise costs $ 7,853 $ 8,055 (1) Includes advertising, reservation and frequent guest program assessments. |
Schedule of capital lease assets | The capital lease assets were included in investment in hotel properties, net on the Company’s consolidated balance sheets as follows (in thousands): March 31, December 31, 2018 2017 (unaudited) Gross capital lease asset - buildings and improvements $ 58,799 $ 58,799 Gross capital lease asset - land 6,605 6,605 Gross capital lease assets 65,404 65,404 Accumulated depreciation (8,575) (8,208) Net capital lease assets $ 56,829 $ 57,196 |
Schedule of ground, building and air operating lease rent expense | Total rent expense incurred pursuant to ground, building and air lease agreements for the three months ended March 31, 2018 and 2017 was included in property tax, ground lease and insurance on the Company’s consolidated statements of operations as follows (in thousands): Three Months Ended March 31, 2018 2017 (unaudited) (unaudited) Minimum rent, including straight-line adjustments $ 2,130 $ 2,340 Percentage rent (1) 1,744 1,585 Total $ 3,874 $ 3,925 (1) Several of the Company’s hotels pay percentage rent, which is calculated on operating revenues above certain thresholds. |
Schedule of hotel geographic concentration of risk | As of March 31, 2018, 18 of the Company’s 25 hotels were geographically concentrated as follows: Trailing 12-Month Percentage of Total Number of Hotels Total Rooms Consolidated Revenue (unaudited) (unaudited) (unaudited) California 7 31 % 35 % Hawaii 1 4 % 8 % Illinois 3 9 % 7 % Massachusetts 2 12 % 13 % Greater Washington DC area 3 15 % 13 % Florida 2 8 % 8 % |
Organization and Description 30
Organization and Description of Business (Details) | 3 Months Ended |
Mar. 31, 2018item | |
Organization and Description of Business | |
Number of hotels held for investment | 25 |
Marriott | |
Organization and Description of Business | |
Number of hotels held for investment | 9 |
Interstate Hotels & Resorts, Inc | |
Organization and Description of Business | |
Number of hotels held for investment | 4 |
Highgate Hotels L.P. and an affiliate | |
Organization and Description of Business | |
Number of hotels held for investment | 3 |
Crestline Hotels & Resorts | |
Organization and Description of Business | |
Number of hotels held for investment | 2 |
Hilton Worldwide | |
Organization and Description of Business | |
Number of hotels held for investment | 2 |
Hyatt Corporation | |
Organization and Description of Business | |
Number of hotels held for investment | 2 |
Davidson Hotels & Resorts | |
Organization and Description of Business | |
Number of hotels held for investment | 1 |
HEI Hotels & Resorts | |
Organization and Description of Business | |
Number of hotels held for investment | 1 |
Singh Hospitality, LLC | |
Organization and Description of Business | |
Number of hotels held for investment | 1 |
Sunstone Hotel Partnership, LLC | |
Organization and Description of Business | |
Controlling interest owned (as a percent) | 100.00% |
Summary of Significant Accoun31
Summary of Significant Accounting Policies - Earnings Per Share (Details) - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands | 3 Months Ended | |
Mar. 31, 2018 | Mar. 31, 2017 | |
Numerator: | ||
Net income | $ 38,455 | $ 63,827 |
Income from consolidated joint venture attributable to noncontrolling interest | (2,439) | (1,992) |
Preferred stock dividends | (3,207) | (3,207) |
Distributions paid on unvested restricted stock compensation | (59) | (60) |
Undistributed income allocated to unvested restricted stock compensation | (117) | (248) |
Numerator for basic and diluted income attributable to common stockholders | $ 32,633 | $ 58,320 |
Denominator: | ||
Weighted average basic and diluted common shares outstanding (in shares) | 224,282 | 219,093 |
Basic and diluted income attributable to common stockholders per common share (in dollars per share) | $ 0.15 | $ 0.27 |
Summary of Significant Accoun32
Summary of Significant Accounting Policies (Details) $ in Thousands | 3 Months Ended | |
Mar. 31, 2018USD ($)item | Dec. 31, 2017USD ($) | |
Revenue Recognition | ||
Trade receivables, net | $ 27,808 | $ 20,773 |
Contract liabilities | $ 15,197 | $ 13,454 |
Segment Reporting | ||
Number of operating segments | item | 1 | |
Hilton San Diego Bayfront | ||
Stockholders' Equity Attributable to Noncontrolling Interest | ||
Noncontrolling interest percentage in Hilton San Diego Bayfront | 25.00% | 25.00% |
Investment in Hotel Propertie33
Investment in Hotel Properties (Details) - USD ($) $ in Thousands | Mar. 31, 2018 | Dec. 31, 2017 |
Investment in Hotel Properties | ||
Land | $ 605,054 | $ 605,054 |
Buildings and improvements | 3,067,473 | 3,049,569 |
Furniture, fixtures and equipment | 496,492 | 484,749 |
Intangible assets | 48,251 | 48,371 |
Franchise fees | 980 | 980 |
Construction in process | 66,134 | 54,280 |
Investment in hotel properties, gross | 4,284,384 | 4,243,003 |
Accumulated depreciation and amortization | (1,173,497) | (1,136,937) |
Investment in hotel properties, net | $ 3,110,887 | $ 3,106,066 |
Disposals (Details)
Disposals (Details) - USD ($) $ in Thousands | 1 Months Ended | 3 Months Ended | ||
Jan. 31, 2018 | Mar. 31, 2018 | Mar. 31, 2017 | Dec. 31, 2017 | |
Detail of Amounts Held for Sale | ||||
Assets held for sale, net | $ 122,807 | |||
Liabilities of assets held for sale | 189 | |||
Detail of Disposals | ||||
Gain on sale of assets | $ 15,659 | $ 44,285 | ||
Held for sale, not considered a discontinued operation | Marriott Philadelphia and Marriott Quincy | ||||
Detail of Amounts Held for Sale | ||||
Accounts receivable, net | 1,676 | |||
Prepaid expenses | 193 | |||
Investment in hotel properties, net | 120,916 | |||
Other assets, net | 22 | |||
Assets held for sale, net | 122,807 | |||
Accounts payable and accrued expenses | 69 | |||
Other current liabilities | 41 | |||
Other liabilities | 79 | |||
Liabilities of assets held for sale | $ 189 | |||
Sold, not considered a discontinued operation | Marriott Philadelphia and Marriott Quincy | ||||
Detail of Disposals | ||||
Net proceeds received from sale | $ 137,000 | |||
Gain on sale of assets | $ 15,700 | |||
Sold, not considered a discontinued operation | Marriott Philadelphia, Marriott Quincy, Fairmont Newport Beach and Marriott Park City | ||||
Detail of Disposals | ||||
Gain on sale of assets | 15,659 | 44,285 | ||
Total revenues | 603 | 18,344 | ||
Income before income taxes | $ (943) | $ 2,621 |
Fair Value Measurements and I35
Fair Value Measurements and Interest Rate Derivatives - Fair Value Measurements (Details) $ in Thousands | Mar. 31, 2018USD ($) | Dec. 31, 2017USD ($) | Dec. 31, 2011item |
Assets: | |||
Investment in hotel properties, net | $ 3,110,887 | $ 3,106,066 | |
Interest rate derivatives | 6,581 | 3,394 | |
Former Chairman | |||
Liabilities: | |||
Number of installments to be paid out under the Retirement Benefit Agreement | item | 10 | ||
Total amount paid to date under the Retirement Benefit Agreement | 1,400 | ||
Level 2 | |||
Assets: | |||
Life insurance policy | 632 | 645 | |
Total assets | 7,213 | 4,039 | |
Liabilities: | |||
Retirement benefit agreement | 632 | 645 | |
Total liabilities | 632 | 645 | |
Level 2 | Interest Rate Cap | |||
Assets: | |||
Interest rate derivatives | 15 | 4 | |
Level 2 | Interest Rate Swap | |||
Assets: | |||
Interest rate derivatives | 6,566 | 3,390 | |
Total at the end of the period | |||
Assets: | |||
Life insurance policy | 632 | 645 | |
Total assets | 7,213 | 38,512 | |
Liabilities: | |||
Retirement benefit agreement | 632 | 645 | |
Total liabilities | 632 | 645 | |
Total at the end of the period | Interest Rate Cap | |||
Assets: | |||
Interest rate derivatives | 15 | 4 | |
Total at the end of the period | Interest Rate Swap | |||
Assets: | |||
Interest rate derivatives | $ 6,566 | 3,390 | |
Houston Hotels | Level 3 | |||
Assets: | |||
Investment in hotel properties, net | 34,473 | ||
Total assets | 34,473 | ||
Houston Hotels | Total at the end of the period | |||
Assets: | |||
Investment in hotel properties, net | $ 34,473 |
Fair Value Measurements and I36
Fair Value Measurements and Interest Rate Derivatives - Interest Rate Derivatives (Details) - USD ($) $ in Thousands | 3 Months Ended | 12 Months Ended | |
Mar. 31, 2018 | Mar. 31, 2017 | Dec. 31, 2017 | |
Interest Rate Derivatives | |||
Fair value of interest rate derivatives | $ 6,581 | $ 3,394 | |
Fair values of derivative assets | 6,581 | $ 3,394 | |
Payment for interest rate derivative | $ 19 | ||
Noncash interest on derivatives | $ (3,187) | $ (657) | |
Hilton San Diego Bayfront mortgage payable | |||
Interest Rate Derivatives | |||
Interest rate, description of reference rate | one-month LIBOR | one-month LIBOR | |
Interest rate added to base rate (as a percent) | 1.05% | 1.05% | |
$85.0 million term loan | |||
Interest Rate Derivatives | |||
Term loan total interest rate, including effect of swap agreement | 3.391% | 3.391% | |
$100.0 million term loan | |||
Interest Rate Derivatives | |||
Term loan total interest rate, including effect of swap agreement | 3.653% | 3.653% | |
Interest Rate Cap | Not designated as hedging instrument | Hilton San Diego Bayfront mortgage payable | |||
Interest Rate Derivatives | |||
Strike rate under interest rate cap agreement | 4.25% | 4.25% | |
Interest rate, description of reference rate | 1-Month LIBOR | 1-Month LIBOR | |
Effective date | May 1, 2017 | May 1, 2017 | |
Maturity Date | May 1, 2019 | May 1, 2019 | |
Notional amount | $ 109,261 | ||
Fair value of interest rate derivatives | $ 5 | ||
Hilton San Diego Bayfront new interest rate cap | Not designated as hedging instrument | Hilton San Diego Bayfront mortgage payable | |||
Interest Rate Derivatives | |||
Strike rate under interest rate cap agreement | 6.00% | 6.00% | |
Interest rate, description of reference rate | 1-Month LIBOR | 1-Month LIBOR | |
Effective date | Nov. 10, 2017 | Nov. 10, 2017 | |
Maturity Date | Dec. 9, 2020 | Dec. 9, 2020 | |
Notional amount | $ 220,000 | ||
Fair value of interest rate derivatives | $ 10 | $ 4 | |
Interest Rate Swap | $85.0 million term loan | |||
Interest Rate Derivatives | |||
Fixed rate under interest rate swap agreement | 1.591% | 1.591% | |
Interest Rate Swap | $100.0 million term loan | |||
Interest Rate Derivatives | |||
Fixed rate under interest rate swap agreement | 1.853% | 1.853% | |
Interest Rate Swap | Not designated as hedging instrument | $85.0 million term loan | |||
Interest Rate Derivatives | |||
Term loan total interest rate, including effect of swap agreement | 3.391% | 3.391% | |
Interest rate, description of reference rate | 1-Month LIBOR | 1-Month LIBOR | |
Effective date | Oct. 29, 2015 | Oct. 29, 2015 | |
Maturity Date | Sep. 2, 2022 | Sep. 2, 2022 | |
Notional amount | $ 85,000 | ||
Fair value of interest rate derivatives | $ 3,380 | $ 2,010 | |
Fixed rate under interest rate swap agreement | 1.591% | 1.591% | |
Interest Rate Swap | Not designated as hedging instrument | $100.0 million term loan | |||
Interest Rate Derivatives | |||
Term loan total interest rate, including effect of swap agreement | 3.653% | 3.653% | |
Interest rate, description of reference rate | 1-Month LIBOR | 1-Month LIBOR | |
Effective date | Jan. 29, 2016 | Jan. 29, 2016 | |
Maturity Date | Jan. 31, 2023 | Jan. 31, 2023 | |
Notional amount | $ 100,000 | ||
Fair value of interest rate derivatives | $ 3,186 | $ 1,380 | |
Fixed rate under interest rate swap agreement | 1.853% | 1.853% |
Fair Value Measurements and I37
Fair Value Measurements and Interest Rate Derivatives - Fair Value of Debt (Details) - USD ($) $ in Thousands | Mar. 31, 2018 | Dec. 31, 2017 |
Percentage of Debt Bearing Fixed Interest Rates | 77.70% | 77.80% |
Total notes payable | $ 988,510 | $ 990,402 |
Level 3 | ||
Fair value of debt | $ 994,789 | $ 997,922 |
Other Assets (Details)
Other Assets (Details) - USD ($) $ in Thousands | 3 Months Ended | |
Mar. 31, 2018 | Dec. 31, 2017 | |
Other assets, net | ||
Property and equipment, net | $ 1,869 | $ 584 |
Goodwill | 990 | 990 |
Deferred expense on straight-lined third-party tenant leases | 3,304 | 3,351 |
Deferred income tax asset | 13,431 | 9,492 |
Interest rate derivatives | 6,581 | 3,394 |
Other receivables | 4,579 | 3,136 |
Other | 1,217 | 1,370 |
Total other assets, net | 31,971 | $ 22,317 |
Income tax benefit recognized due to increase in deferred tax assets | $ (3,900) |
Notes Payable (Details)
Notes Payable (Details) $ in Thousands | 3 Months Ended | 12 Months Ended |
Mar. 31, 2018USD ($)property | Dec. 31, 2017USD ($)property | |
Notes payable | ||
Total notes payable | $ 988,510 | $ 990,402 |
Current portion of notes payable | 7,514 | 7,420 |
Less: current portion of deferred financing fees | (1,945) | (1,943) |
Current portion of notes payable, net | 5,569 | 5,477 |
Notes payable, less current portion | 980,996 | 982,982 |
Less: long-term portion of deferred financing fees | (5,217) | (5,700) |
Carrying value of notes payable, less current portion | $ 975,779 | $ 977,282 |
Notes payable maturing in various years | ||
Notes payable | ||
Number of hotels provided as collateral | property | 4 | 4 |
Total notes payable | $ 343,510 | $ 345,402 |
Notes payable maturing in various years | Minimum | ||
Notes payable | ||
Fixed interest rate (as a percent) | 4.12% | 4.12% |
Notes payable maturing in various years | Maximum | ||
Notes payable | ||
Fixed interest rate (as a percent) | 5.95% | 5.95% |
Hilton San Diego Bayfront mortgage payable | ||
Notes payable | ||
Number of hotels provided as collateral | property | 1 | 1 |
Interest rate, description of reference rate | one-month LIBOR | one-month LIBOR |
Interest rate added to base rate (as a percent) | 1.05% | 1.05% |
Number of extension periods available for secured debt | 3 | 3 |
Term of extension period for secured debt | 1 year | 1 year |
Total notes payable | $ 220,000 | $ 220,000 |
$85.0 million term loan | ||
Notes payable | ||
Term loan total interest rate, including effect of swap agreement | 3.391% | 3.391% |
Total notes payable | $ 85,000 | $ 85,000 |
$85.0 million term loan | Minimum | ||
Notes payable | ||
Interest rate added to base rate (as a percent) | 1.80% | 1.80% |
$85.0 million term loan | Maximum | ||
Notes payable | ||
Interest rate added to base rate (as a percent) | 2.55% | 2.55% |
$100.0 million term loan | ||
Notes payable | ||
Term loan total interest rate, including effect of swap agreement | 3.653% | 3.653% |
Total notes payable | $ 100,000 | $ 100,000 |
$100.0 million term loan | Minimum | ||
Notes payable | ||
Interest rate added to base rate (as a percent) | 1.80% | 1.80% |
$100.0 million term loan | Maximum | ||
Notes payable | ||
Interest rate added to base rate (as a percent) | 2.55% | 2.55% |
Series A Senior Notes | ||
Notes payable | ||
Fixed interest rate (as a percent) | 4.69% | 4.69% |
Total notes payable | $ 120,000 | $ 120,000 |
Series B Senior Notes | ||
Notes payable | ||
Fixed interest rate (as a percent) | 4.79% | 4.79% |
Total notes payable | $ 120,000 | $ 120,000 |
Interest Rate Swap | $85.0 million term loan | ||
Notes payable | ||
Fixed rate under interest rate swap agreement | 1.591% | 1.591% |
Interest Rate Swap | $100.0 million term loan | ||
Notes payable | ||
Fixed rate under interest rate swap agreement | 1.853% | 1.853% |
Not designated as hedging instrument | Interest Rate Cap | Hilton San Diego Bayfront mortgage payable | ||
Notes payable | ||
Interest rate, description of reference rate | 1-Month LIBOR | 1-Month LIBOR |
Not designated as hedging instrument | Interest Rate Swap | $85.0 million term loan | ||
Notes payable | ||
Interest rate, description of reference rate | 1-Month LIBOR | 1-Month LIBOR |
Fixed rate under interest rate swap agreement | 1.591% | 1.591% |
Term loan total interest rate, including effect of swap agreement | 3.391% | 3.391% |
Not designated as hedging instrument | Interest Rate Swap | $100.0 million term loan | ||
Notes payable | ||
Interest rate, description of reference rate | 1-Month LIBOR | 1-Month LIBOR |
Fixed rate under interest rate swap agreement | 1.853% | 1.853% |
Term loan total interest rate, including effect of swap agreement | 3.653% | 3.653% |
Notes Payable - Interest Expens
Notes Payable - Interest Expense (Details) - USD ($) $ in Thousands | 3 Months Ended | |
Mar. 31, 2018 | Mar. 31, 2017 | |
Interest incurred and expensed | ||
Interest expense on debt and capital lease obligations | $ 11,266 | $ 11,328 |
Noncash interest on derivatives and capital lease obligations, net | (3,137) | (657) |
Amortization of deferred financing fees | 747 | 578 |
Total interest incurred and expensed on debt and capital lease obligations | $ 8,876 | $ 11,249 |
Other Current Liabilities and41
Other Current Liabilities and Other Liabilities (Details) - USD ($) $ in Thousands | Mar. 31, 2018 | Dec. 31, 2017 |
Other Current Liabilities | ||
Property, sales and use taxes payable | $ 17,287 | $ 17,842 |
Income tax payable | 351 | 160 |
Accrued interest | 4,256 | 6,746 |
Advance deposits | 15,197 | 13,454 |
Management fees payable | 1,562 | 1,952 |
Other | 4,420 | 4,348 |
Total other current liabilities | 43,073 | 44,502 |
Other Liabilities | ||
Deferred revenue | 5,485 | 5,589 |
Deferred rent | 21,452 | 19,582 |
Deferred income tax liability | 230 | 257 |
Other | 3,874 | 3,561 |
Total other liabilities | $ 31,041 | $ 28,989 |
Stockholders' Equity (Details)
Stockholders' Equity (Details) - USD ($) $ / shares in Units, $ in Millions | 1 Months Ended | 3 Months Ended | 12 Months Ended | ||
May 31, 2016 | Mar. 31, 2016 | Mar. 31, 2018 | Dec. 31, 2017 | Feb. 28, 2017 | |
Maximum | Share repurchase program | |||||
Stockholders' equity | |||||
Repurchase Program, maximum amount authorized for repurchase | $ 300 | ||||
Series E Cumulative Redeemable Preferred Stock | |||||
Stockholders' equity | |||||
Number of shares of preferred stock sold (in shares) | 4,600,000 | ||||
Preferred stock, Cumulative Redeemable Preferred Stock, dividend rate (as a percent) | 6.95% | 6.95% | 6.95% | ||
Liquidation preference (in dollars per share) | $ 25 | $ 25 | $ 25 | ||
Proceeds from preferred stock offerings | $ 115 | ||||
Payment of preferred stock offering costs | $ 4 | ||||
Redemption price (in dollars per share) | $ 25 | ||||
Series F Cumulative Redeemable Preferred Stock | |||||
Stockholders' equity | |||||
Number of shares of preferred stock sold (in shares) | 3,000,000 | ||||
Preferred stock, Cumulative Redeemable Preferred Stock, dividend rate (as a percent) | 6.45% | 6.45% | 6.45% | ||
Liquidation preference (in dollars per share) | $ 25 | $ 25 | $ 25 | ||
Proceeds from preferred stock offerings | $ 75 | ||||
Payment of preferred stock offering costs | $ 2.6 | ||||
Redemption price (in dollars per share) | $ 25 | ||||
Cumulative Redeemable Preferred Stock | Share repurchase program | |||||
Stockholders' equity | |||||
Repurchase Program, number of shares repurchased (in shares) | 0 | ||||
Common Stock | Share repurchase program | |||||
Stockholders' equity | |||||
Repurchase Program, number of shares repurchased (in shares) | 0 | ||||
Common Stock | At The Market | |||||
Stockholders' equity | |||||
Proceeds from issuance of common stock | $ 79.4 | ||||
Payments of stock issuance costs | $ 1.5 | ||||
ATM Program, number of shares sold or issued (in shares) | 4,876,855 | ||||
ATM Program, remaining amount authorized for issuance | $ 220.6 | ||||
Common Stock | Maximum | At The Market | |||||
Stockholders' equity | |||||
ATM Program, maximum amount authorized for issuance | $ 300 |
Long-Term Incentive Plan (Detai
Long-Term Incentive Plan (Details) - USD ($) $ in Thousands | 1 Months Ended | 3 Months Ended | |
Apr. 30, 2008 | Mar. 31, 2018 | Mar. 31, 2017 | |
Long-Term Incentive Plan | |||
Capitalized compensation cost related to shares issued to design and construction employees | $ 113 | $ 151 | |
Restricted Shares | |||
Long-Term Incentive Plan | |||
Amortization Expense, including forfeitures | 2,000 | 1,749 | |
Capitalized compensation cost related to shares issued to design and construction employees | $ 100 | $ 200 | |
Restricted Shares | Minimum | |||
Long-Term Incentive Plan | |||
Vesting period | 3 years | ||
Restricted Shares | Maximum | |||
Long-Term Incentive Plan | |||
Vesting period | 4 years | ||
Stock Options | Former Chairman | |||
Stock options | |||
Number of options granted (in shares) | 200,000 | ||
Expiration date of outstanding options | Apr. 27, 2018 |
Commitments and Contingencies -
Commitments and Contingencies - Management Fees, Franchise Costs and Renovation Commitments (Details) - USD ($) $ in Thousands | 3 Months Ended | |
Mar. 31, 2018 | Mar. 31, 2017 | |
Basic and incentive management fees incurred | ||
Basic management fees | $ 7,534 | $ 7,895 |
Incentive management fees | 2,720 | 2,553 |
Total basic and incentive management fees | 10,254 | 10,448 |
License and Franchise Agreements | ||
Franchise assessments | 5,908 | 5,927 |
Franchise royalties | 1,945 | 2,128 |
Total franchise costs | $ 7,853 | $ 8,055 |
Minimum | ||
Management Agreements | ||
Basic management fees (as a percent) | 1.75% | |
Maximum | ||
Management Agreements | ||
Basic management fees (as a percent) | 3.50% | |
Renovation and Construction Commitments | ||
Renovation and Construction Commitments | ||
Remaining construction commitments | $ 78,500 |
Commitments and Contingencies45
Commitments and Contingencies - Capital and Operating Leases (Details) - USD ($) $ in Thousands | 3 Months Ended | ||
Mar. 31, 2018 | Mar. 31, 2017 | Dec. 31, 2017 | |
Future minimum lease payments under capital leases | |||
Capital lease obligation, noncurrent | $ 26,854 | $ 26,804 | |
Ground, Building and Air Leases | |||
Minimum rent, including straight-line adjustments | 2,130 | $ 2,340 | |
Percentage rent | 1,744 | 1,585 | |
Total rent expense included in property tax, ground lease and insurance | 3,874 | 3,925 | |
Lease expense on corporate facility | 200 | $ 100 | |
Hotels with capital leases | |||
Assets under capital lease | |||
Capital Leased Assets, Gross | 65,404 | 65,404 | |
Accumulated depreciation | (8,575) | (8,208) | |
Capital lease assets, net | 56,829 | 57,196 | |
Hyatt Centric Chicago Magnificent Mile | Buildings and improvements | |||
Assets under capital lease | |||
Capital Leased Assets, Gross | 58,799 | 58,799 | |
Courtyard by Marriott Los Angeles | Land | |||
Assets under capital lease | |||
Capital Leased Assets, Gross | $ 6,605 | $ 6,605 |
Commitments and Contingencies46
Commitments and Contingencies - Concentration of Risk and Other (Details) $ in Thousands | Mar. 31, 2018USD ($)propertyitem | Mar. 31, 2018USD ($)propertyitem | Mar. 31, 2018USD ($)propertyitem |
Concentration of Risk | |||
Number of hotels which are held for investment | item | 25 | 25 | 25 |
Other | |||
Term of unsecured environmental indemnities | 0 years | ||
Damage limitation of unsecured environmental indemnities | $ | $ 0 | ||
California | |||
Concentration of Risk | |||
Number of hotels which are held for investment | 7 | 7 | 7 |
Hawaii | |||
Concentration of Risk | |||
Number of hotels which are held for investment | 1 | 1 | 1 |
Illinois | |||
Concentration of Risk | |||
Number of hotels which are held for investment | 3 | 3 | 3 |
Massachusetts | |||
Concentration of Risk | |||
Number of hotels which are held for investment | 2 | 2 | 2 |
Greater Washington DC area | |||
Concentration of Risk | |||
Number of hotels which are held for investment | 3 | 3 | 3 |
Florida | |||
Concentration of Risk | |||
Number of hotels which are held for investment | 2 | 2 | 2 |
Percentage of total rooms | California | |||
Concentration of Risk | |||
Concentration risk (as a percent) | 31.00% | ||
Percentage of total rooms | Hawaii | |||
Concentration of Risk | |||
Concentration risk (as a percent) | 4.00% | ||
Percentage of total rooms | Illinois | |||
Concentration of Risk | |||
Concentration risk (as a percent) | 9.00% | ||
Percentage of total rooms | Massachusetts | |||
Concentration of Risk | |||
Concentration risk (as a percent) | 12.00% | ||
Percentage of total rooms | Greater Washington DC area | |||
Concentration of Risk | |||
Concentration risk (as a percent) | 15.00% | ||
Percentage of total rooms | Florida | |||
Concentration of Risk | |||
Concentration risk (as a percent) | 8.00% | ||
Percentage of total revenue generated by hotels | California | |||
Concentration of Risk | |||
Concentration risk (as a percent) | 35.00% | ||
Percentage of total revenue generated by hotels | Hawaii | |||
Concentration of Risk | |||
Concentration risk (as a percent) | 8.00% | ||
Percentage of total revenue generated by hotels | Illinois | |||
Concentration of Risk | |||
Concentration risk (as a percent) | 7.00% | ||
Percentage of total revenue generated by hotels | Massachusetts | |||
Concentration of Risk | |||
Concentration risk (as a percent) | 13.00% | ||
Percentage of total revenue generated by hotels | Greater Washington DC area | |||
Concentration of Risk | |||
Concentration risk (as a percent) | 13.00% | ||
Percentage of total revenue generated by hotels | Florida | |||
Concentration of Risk | |||
Concentration risk (as a percent) | 8.00% | ||
Workers' compensation insurance programs | |||
Other | |||
Outstanding irrevocable letters of credit | $ | $ 500 | $ 500 | $ 500 |
Draws on letters of credit | $ | $ 0 |