potential for strong risk-adjusted returns and are located in the top 50 MSAs and other select markets;
located in close proximity to multiple demand generators, such as corporate offices and headquarters, retail centers, airports, state capitols, convention centers, universities, and leisure attractions, with a diverse source of potential guests, including corporate, government and leisure travelers;
provide an opportunity to add value through operating efficiencies, repositioning, renovating or rebranding.
When purchasing hotel properties, the Operating Partnership may issue Common Units or Preferred Units as full or partial consideration to sellers who may be interested in taking advantage of the opportunity to defer taxable gains on the sale of a property or participate in the potential appreciation in the value of our common stock.
We face competition for investments in hotel properties from institutional pension funds, private equity investors, REITs, hotel companies and others who are engaged in hotel acquisitions and investments. Some of these entities have substantially greater financial and operational resources than we have. This competition may increase the bargaining power of property owners seeking to sell, reduce the number of suitable investment opportunities available to us and increase the cost of acquiring our targeted hotel properties.
The lodging industry is highly competitive. Our hotels compete with other hotels and alternative accommodations for guests in their respective markets based on a number of factors, including location, convenience, brand affiliation, quality of the physical condition of the hotel, guestroom rates, range of services and guest amenities or accommodations offered and quality of customer service. Competition is often specific to the individual markets in which our hotels are located and includes competition from existing and new hotels. Competition could adversely affect our occupancy rates, our ADR and our RevPAR, and may require us to provide additional amenities or make capital improvements that we otherwise would not have to make, which may reduce our profitability.
Certain segments of the hotel industry are seasonal in nature. Leisure travelers tend to travel more during the summer. Business travelers occupy hotels relatively consistently throughout the year, but decreases in business travel occur during summer and the winter holidays. The hotel industry is also seasonal based upon geography. Hotels in the southern U.S. tend to have higher occupancy rates during the winter months. Hotels in the northern U.S. tend to have higher occupancy rates during the summer months.
Our properties are subject to various covenants, laws, ordinances and regulations, including regulations relating to accessibility, fire and safety requirements. We believe each of our hotels has the necessary permits and approvals to operate its business.
Our properties must comply with Title III of the ADA to the extent that they are “public accommodations” as defined by the ADA. Under the ADA, all public accommodations must meet federal requirements related to access and use by disabled persons. The ADA may require removal of structural barriers to access by persons with disabilities in certain public areas of our properties where removal is readily achievable. Although we believe the properties in our portfolio substantially comply with present requirements of the ADA, a determination to the contrary could require removal of access barriers and non-compliance could result in litigation costs, costs to remediate deficiencies, U.S. government fines or in damages to private litigants. The obligation to make readily achievable accommodations is an ongoing one, and we will continue to assess our properties and to make alterations as appropriate in this respect.
Some of our properties may have contained historical uses which involved the use or storage of hazardous chemicals and petroleum products (for example, storage tanks, gas stations and dry cleaning operations) which if released, could have affected our properties. In addition, some of our properties may be near or adjacent to other properties that have contained or currently contain storage tanks containing petroleum products or conducted or currently conduct operations which use other hazardous or toxic substances. Releases from these adjacent or surrounding properties could affect our properties and we may be liable for any associated cleanup.
Independent environmental consultants conducted Phase I environmental site assessments on all of our properties prior to acquisition and we intend to conduct Phase I environmental site assessments on properties we acquire in the future. Phase I site assessments are intended to discover and evaluate information regarding the environmental condition of the surveyed properties and surrounding properties. These assessments do not generally include soil sampling, subsurface investigations or comprehensive asbestos surveys. In some cases, the Phase I environmental site assessments were conducted by another entity such as a lender, and we may not have the authority to rely on such reports. A few of our properties have experienced environmental contamination prior to our ownership, but all contamination has been remediated to the satisfaction of state regulatory agencies. None of the Phase I environmental site assessments of the hotel properties in our portfolio revealed any past or present environmental condition that we believe could have a material adverse effect on our business, financial position or results of operations. In addition, the Phase I environmental site assessments may also have failed to reveal all environmental conditions, liabilities or compliance concerns. The Phase I environmental site assessments were completed at various times and material environmental conditions, liabilities or compliance concerns may have arisen after the review was completed or may arise in the future; and future laws, ordinances or regulations may impose material additional environmental liability.
In addition, our hotels (including our real property, operations and equipment) are subject to various federal, state and local environmental, health and safety regulatory requirements that address a wide variety of issues, including, but not limited to the existence of mold and other airborne contaminants above regulatory thresholds, the registration, maintenance and operation of our boilers and storage tanks, the supply of potable water to our guests, air emissions from emergency generators,
storm water and wastewater discharges, protection of natural resources, asbestos, lead-based paint, and waste management. Some of our hotels also routinely handle and use hazardous or regulated substances and wastes as part of their operations which are subject to regulation (for example, swimming pool chemicals or biological waste). Our hotels incur costs to comply with these environmental, health and safety laws and regulations and if these regulatory requirements are not met or unforeseen events result in the discharge of dangerous or toxic substances at our hotels, we could be subject to fines and penalties for non-compliance with applicable laws and material liability from third parties for harm to the environment, damage to real property or personal injury or death. We are aware of no past or present environmental liability for non-compliance with environmental, health and safety laws and regulations that we believe would have a material adverse effect on our business, financial position or results of operations.
As a REIT, we generally will not be subject to federal income tax on our REIT taxable income that we distribute as dividends to our stockholders. Under the IRC, REITs are subject to numerous organizational and operational requirements, including a requirement that they distribute each year at least 90% of their taxable income, determined without regard to the deduction for dividends paid and excluding any net capital gains, which does not necessarily equal net income as calculated in accordance with GAAP. If we fail to qualify for taxation as a REIT in any taxable year and do not qualify for certain statutory relief provisions, our income for that year will be taxed at regular corporate rates, and we will be unable to re-elect REIT status until the fifth calendar year after the year in which we failed to qualify as a REIT, unless we satisfy certain relief provisions. Even if we qualify as a REIT for federal income tax purposes, we may still be subject to state and local taxes on our income and assets and to federal income and excise taxes on our undistributed income. Additionally, any income earned by our TRSTRSs will be fully subject to federal, state and local corporate income tax.
Our Internet website is located at www.shpreit.com. Copies of the charters of the committees of our board of directors, our code of business conduct and ethics and our corporate governance guidelines are available on our website. We will provide timely disclosures of amendments and waivers to the aforementioned documents, if any, via website posting. All reports that we have filed with the Securities and Exchange Commission (“SEC”) including this Annual Report on Form 10-K, our quarterly reports on Form 10-Q and our current reports on Form 8-K, can be obtained free of charge from the SEC’s website at www.sec.gov or through our website. In addition, all reports filed with the SEC may be read and copied at the SEC’s Public Reference Room at 100 F Street, NE, Washington, D.C. 20549-1090. Further information regarding the operation of the public reference room may be obtained by calling the SEC at 1-800-SEC-0330. The information contained on, or accessible through the SEC’s website or our website is not incorporated by reference into this report and should not be considered a part of this report.
Item 1A. Risk Factors.
The following risk factors address the material risks concerning our business. If any of the risks discussed in this report were to occur, our business, prospects, financial condition, results of operation and our ability to service our debt and make distributions to our stockholders could be materially and adversely affected and the market price per share of our stock could decline significantly. Some statements in this report, including statements in the following risk factors, constitute forward-looking statements. Please refer to the section entitled “Cautionary Statement RegardingAbout Forward-Looking Statements.” The discussion of the potential effect of the following risk factors on our financial results relates to our consolidated financial position, consolidated results of operations and cash flows.
Risks Related to Our Business
Our business strategy, future results of operations and growth prospects are dependent on achieving revenue and net income growth from anticipated increases in demand for hotel guestrooms and general economic conditions.
Our business strategy includes achieving continued revenue and net incomecash flow growth from anticipated improvement in demand for hotel guestrooms as the economy continues to grow.driven by long-term economic growth. We, however, cannot provide any assurances that demand for hotel guestrooms will increase from current levels or continue to exceed the growth of new supply, or the time or extent of any demand growth that we do experience. If demand does not continue to increase as the economy grows, or if there is a setbackslowdown in the general economy resulting in weakening demand, our operating results and growth prospects could be adversely affected. As a result, any slowdown in economic growth or a newan economic downturn could adversely affect our future results of operations and our growth prospects.
Our expenses may not decrease if our revenue decreases.
Many of the expenses associated with owning and operating hotels, such as debt service payments, property taxes, insurance, utilities, and certain employee compensation costs are relatively fixed. They do not necessarily decrease directly with a reduction in revenue at the hotels and may be subject to increases that are not related to the performance of our hotels or the increase in the rate of inflation. Also, as of December 31, 2019, four of our hotels are subject to third-party ground leases which generally require periodic increases in rent payments. Our ability to pay these rents could be adversely affected if our hotel revenues do not increase at the same or a greater rate than the increases in rental payments under the ground leases.
Additionally, certain costs, such as wages, benefits and insurance, may exceed the rate of inflation in any given period. In the event of a significant decrease in demand, our hotel managers may not be able to reduce the size of hotel work forces in order to decrease compensation costs. Our managers also may be unable to offset any fixed or increased expenses with higher room rates. Any of our efforts to reduce operating costs also could adversely affect the future growth of our business and the value of our hotel properties.
We may be unable to complete acquisitions that would grow our business.
Our growth strategy includes the disciplined acquisition of hotels as opportunities arise. Our ability to acquire hotels on satisfactory terms or at all is subject to the following significant risks:
we may be unable to acquire, or may be forced to acquire at significantly higher prices, desired hotels because of competition from other real estate investors, including other real estate operating companies, REITs and investment funds;
we may be unable to obtain the necessary debt or equity financing to consummate an acquisition or, if obtainable, financing may not be on satisfactory terms; and
agreements for the acquisition of hotels are typically subject to customary conditions to closing, including satisfactory completion of due diligence investigations and the receipt of franchisor and lender consents, and we may spend significant time and incur significant transaction costs on potential acquisitions that we do not consummate.
If we cannotOur inability to complete hotel acquisitions on favorable terms or at all, could adversely affect our business, financial position, results of operations, and cash flows or the market price per share of our common stock and our ability to satisfy our debt service obligations and make distributions to our stockholders could be materially adversely affected.stock.
The sale of certain hotel properties could result in significant tax liabilities unless we are able to defer the taxable gain through like-kind exchanges under Section 1031 Exchanges.of the IRC ("1031 Exchanges").
In general,From time to time, we structure asset sales for possible inclusion in like-kind exchanges within the meaning of Section 1031 of the IRC. The ability to complete a like-kind exchange depends on many factors, including, among others, identifying and acquiring suitable replacement property within limited time periods, and the ownership structure of the properties being sold and acquired. Therefore, we are not always able to sell an asset as part of a like-kind exchange. When successful, a like-kind exchange enables us to defer the taxable gain on the asset sold. If we cannotOur inability to defer the taxable gain resulting from the sales of certain hotel properties, could adversely affect our business, financial position, results of operations, and cash flows or the market price per share of our common stock and our ability to satisfy our debt service obligations and make distributions to our stockholders could be materially adversely affected.stock.
We may fail to successfully integrate and operate newly acquired hotels.hotels or achieve expected operating performance.
Our ability to successfully integrate and operate newly acquired hotels or achieve expected operating performance is subject to the following risks:
we may not possess the same level of familiarity with the dynamics and market conditions of any new markets that we may enter, which could result in us paying too much for hotels in new markets or not operatinghave the hotels atachieve their maximum potential;
market conditions may result in lower than expected occupancy and guestroom rates;
we may acquire hotels without any recourse, or with only limited recourse, for liabilities, whether known or unknown, such as cleanup of environmental contamination, claims by tenants, vendors or other persons against the former owners of the hotels and claims for indemnification by general partners, directors, officers and others indemnified by the former owners of the hotels;
we may need to spend more than budgetedanticipated amounts to make necessary improvements or renovations to our newly acquired hotels; and
we may be unable to quickly and efficiently integrate new acquisitions, particularly acquisitions of portfolios of hotels, into our existing operations.
If we cannot operateThe inability of our acquired hotels to meet our operating performance expectations could adversely affect our business, financial position, results of operations, and cash flows or the market price per share of our stock and our ability to satisfy our debt service obligations and make distributions to our stockholders could be materially adversely affected.stock.
We may assume liabilities in connection with the acquisition of hotel properties, including unknown liabilities.
We may assume existing liabilities in connection with the acquisition of hotel properties, some of which may be unknown or unquantifiable on the acquisition date. Unknown liabilities might include liabilities for cleanup or remediation of undisclosed environmental conditions, claims of hotel guests, vendors or other persons dealing with the seller of a particular hotel property, tax liabilities, employment-related issues and accrued but unpaid liabilities whether incurred in the ordinary course of business or otherwise. If the magnitude of such unknown liabilities is high, they could have a material adverse effect onadversely affect our financial position, results of operations, and cash flows or the market price of our stock and our ability to satisfy our debt service obligations and to make distributions to our stockholders.stock.
We may not be able to cause our hotel management companies to operate any of our hotels in a manner that is satisfactory to us, and termination of our hotel management agreements may be costly and disruptive.
To qualify as a REIT, we cannot operate or manage our hotels. Accordingly, all of our hotels are leased to TRS lessees of our TRS.TRSs. All of our hotels are operated pursuant to hotel management agreements with independent hotel management companies, each of which must qualify as an “eligible independent contractor” to operate our hotels. As a result, our financial position, results of operations and our ability to service debt and make distributions to stockholders are dependent on the ability of our hotel management companies to operate our hotels successfully. Any failure of our hotel management companies to provide quality services and amenities or maintain a quality brand name and reputation could have a negative effect on their ability to operate our hotels and could have a material adverse effect on our financial position, results of operations and cash flows.
Even if we believe a hotel is being operated inefficiently or in a manner that does not result in satisfactory operating results, we will have limited ability to require the hotel management company to change its method of operation. We generally attempt to resolve issues with our hotel management companies through discussions and negotiations, but otherwise will only be able to seek redress if a hotel management company violates the terms of the applicable hotel management agreement, and then only to the extent of the remedies provided for under the terms of the hotel management agreement. If we replace the hotel
management company of any of our hotels, we may be required to pay a substantial termination fee and we may experience significant disruptions at the affected hotel.
Furthermore, we have certain indemnifications from our property managers that generally protect us from financial losses due to the gross negligence or willful misconduct of our property managers. However, the indemnifications may be insufficient or the property manager may not have the financial wherewithal to support their indemnification obligation to us. As such, the indemnification may not provide us with sufficient protection against third-party claims resulting from the gross negligence or willful misconduct of our property managers in the operation of our hotels.
Our hotel managers or their affiliates manage, and in some cases own, have invested in, or provided credit support or operating guarantees to hotels that compete with our hotels, all of which may result in conflicts of interest. As a result, our hotel
managers may in the future make decisions regarding competing lodging facilities that are not or would not be in our best interest.
Certain of our hotels are managed by affiliates of the franchisors for such hotels. In these situations, the management agreement and the franchise agreement are typically combined into one document. Thus, the termination of the management agreement due to poor performance or breach of the management agreement by the management company could also terminate our franchise license. Thus, we may have very limited options to remedy poor hotel management performance if we desire to retain the franchise license.
These conditions could have a material adverse effect onadversely affect our financial position, results of operations, and cash flows.flows or the market price of our stock.
The management of a large number of hotels in our portfolio is currently concentrated with one hotel management company.
As of December 31, 2016, Interstate Management Company, LLC2019, Aimbridge Hospitality (“Interstate”Aimbridge”) or its affiliateaffiliates managed 4030 of our 8172 hotels. Thus, a substantial portion of our revenues is generated by hotels managed by Interstate.Aimbridge, which acquired one of our other property managers, Interstate Hotels and Resorts, Inc., in 2019. This significant concentration of operational risk in one hotel management company makes us more vulnerable economically than if our hotel management was more evenly diversified among several hotel management companies. Any adverse developments in Interstate’sAimbridge's business, financial strength or ability to operate our hotels efficiently and effectively could have a material adverse effect on our results of operations. We cannot provide assurance that InterstateAimbridge will satisfy its obligations to us or effectively and efficiently operate our hotel properties. The failure or inability of InterstateAimbridge to satisfy its obligations to us or effectively and efficiently operate our hotel properties could have a material adverse effect onadversely affect our financial position, results of operations, and cash flows which could in turn reduce the amount of our distributable cash and causeor the market price per share of our stock to decline..
Restrictive covenants and other provisions in hotel management and franchise agreements could preclude us from taking actions with respect to the sale, refinancing or rebranding of a hotel that would otherwise be in our best interest.
Our hotel management agreements and franchise agreements generally contain restrictive covenants and other provisions that do not provide us with flexibility to sell, refinance or rebrand a hotel without the consent of the manager or franchisor. For example, the terms of some of these agreements may restrict our ability to sell a hotel unless the purchaser is not a competitor of the hotel management company or franchisor, assumes the related agreement and meets specified other conditions. In addition, our franchise agreements restrict our ability to rebrand particular hotels without the consent of the franchisor, which could result in significant operational disruptions and litigation if we do not obtain the consent. We could be forced to pay consent or termination fees to hotel managers or franchisors under these agreements as a condition to changing management or franchise brands of our hotels, and these fees could deter us from taking actions that would otherwise be in our best interest or could cause us to incur substantial expense.
These conditions could have a material adverse effect onadversely affect our financial position, results of operations, and cash flows.flows or the market price of our stock.
We are required to expend funds to maintain franchisor operating standards and we may experience a loss of a franchise license or a decline in the value of a franchise brand.
Our hotels operate under franchise agreements, and the maintenance of franchise licenses for our hotels is subject to our franchisors’ operating standards and other terms and conditions. We expect that franchisors will periodically inspect our hotels to ensure that we, our TRSTRSs and our hotel management companies maintain our franchisors’ standards. Failure by us, our TRSTRSs or our hotel management companies to maintain these standards or other terms and conditions could result in a franchise license being canceled.terminated. If a franchise license terminates due to our failure to make required improvements or to otherwise comply with its terms, we could also be liable to the franchisor for a termination payment, which varies by franchisor and by hotel. As a condition of our continued holding of a franchise license, a franchisor could also require us to make capital improvements to our hotels, even if we do not believe the improvements are necessary or desirable or would result in an acceptable return on our investment.
The loss of a franchise license could materially and adversely affect the operations or the underlying value of the hotel because of the loss of associated name recognition, marketing support and centralized reservation systems provided by the franchisor. Because our hotels are concentrated with a limited number of franchise brands, a loss of all of the licenses for a particular franchise could have a material adverse effect onadversely affect our financial position, results of operations, and cash flows.flows or the market price of our stock.
Negative publicity related to one of the franchise brands or the general decline of a brand also may adversely affect the underlying value of our hotels or result in a reduction in business.
We rely on external sources of capital to fund future capital needs, and if we encounter difficulty in obtaining such capital, we may not be able to make future acquisitions necessary to grow our business or meet maturing obligations.
To qualify as a REIT under the IRC, we are required, among other things, to distribute each year to our stockholders at least 90% of our REIT taxable income, determined without regard to the dividends paid deduction and excluding any net capital gain. Because of this distribution requirement, we may not be able to fund, from cash retained from operations, all of our future capital needs, including capital needed to make investments and to satisfy or refinance maturing obligations.
We expect to continue to rely on external sources of capital, including debt and equity financing, and contributions from joint venture partners related to joint venture activities, to fund future capital needs. Part of our strategy involves the use of additional debt financing to supplement our equity capital which may include our unsecured credit facility,and term loan facilities, mortgage financing and other unsecured financing. Our ability to effectively implement and accomplish our business strategy will be affected by our ability to obtain and use additional leverage in sufficient amounts and on favorable terms. However, the capital environment is often characterized by extended periods of limited availability of both debt and equity financing, increasing financing costs, stringent credit terms and significant volatility. We may not be able to secure first mortgage financing or increase the availability under, extend the maturity of or refinance our unsecured credit and term loan facility. If we are unable to obtain needed capital on satisfactory terms or at all, we may not be able to make the investments needed to expand our business, or to meet our obligations and commitments as they mature. Our access to capital will depend upon a number of factors over which we have little or no control, including general market conditions, the market’s perception of our current and potential future earnings and cash distributions and the market price of the shares of our common stock. We may not be in a position to take advantage of attractive investment opportunities for growth if we are unable to access the capital markets on a timely basis or on favorable terms.
We have a significant amount of debt, and our organizational documents have no limitation on the amount of additional indebtedness that we may incur in the future.
We have a significant amount of debt. In the future, we may incur additional indebtedness to finance future hotel acquisitions, capital improvements and development activities and other general corporate purposes. In addition, there are no restrictions in our charter or bylaws that limit the amount or percentage of indebtedness that we may incur or restrict the form in which our indebtedness will be incurred (including recourse or non-recourse debt or cross-collateralized debt).
A substantial level of indebtedness could have adverse consequences for our business, results of operations and financial position because it could, among other things:
require us to dedicate a substantial portion of our cash flow from operations to make principal and interest payments on our indebtedness, thereby reducing our cash flow available to fund working capital, capital expenditures and other general corporate purposes, including to pay dividends on our common stock and our preferred stock as currently contemplated or necessary to satisfy the requirements for qualification as a REIT;
increase our vulnerability to general adverse economic and industry conditions and limit our flexibility in planning for, or reacting to, changes in our business and our industry;
limit our ability to borrow additional funds or refinance indebtedness on favorable terms or at all to expand our business or ease liquidity constraints; and
place us at a competitive disadvantage relative to competitors that have less indebtedness.
Generally, our mortgage debt carries maturity dates or call dates such that the loans become due prior to their full amortization. It may be difficult to refinance or extend the maturity of such loans on terms acceptable to us, or at all, and we may not have sufficient borrowing capacity on our unsecured credit facility2018 Unsecured Credit Facility to repay any amounts that we are unable to refinance. Although we believe that we will be able to refinance or extend the maturity of these loans, or will have the capacity to repay them, if necessary, using draws under our unsecured credit facility,2018 Unsecured Credit Facility, there can be no assurance that our unsecured credit facility2018 Unsecured Credit Facility will be available to repay such maturing debt, as draws under our unsecured credit facility2018 Unsecured Credit Facility are subject to limitations based upon our unencumbered assets and certain financial covenants.
These conditions could have a material adverse effect onadversely affect our financial position, results of operations, and cash flows.flows or the market price of our stock.
The agreements governing our indebtedness place restrictions on us and our subsidiaries, reducing operational flexibility and creating default risks.
The agreements governing our indebtedness contain covenants that place restrictions on us and our subsidiaries. These covenants may restrict, among other activities, our and our subsidiaries’ ability to:
•merge, consolidate or transfer all or substantially all of our or our subsidiaries’ assets;
•sell, transfer, pledge or encumber our stock or the ownership interests of our subsidiaries;
•incur additional debt or place mortgages on our unencumbered hotels;
•enter into, terminate or modify leases for our hotels and hotel management and franchise agreements;
•make certain expenditures, including capital expenditures;
•pay dividends on or repurchase our capital stock; and
•enter into certain transactions with affiliates.
These covenants could impair our ability to grow our business, take advantage of attractive business opportunities or successfully compete. Our ability to comply with financial and other covenants may be affected by events beyond our control, including prevailing economic, financial and industry conditions. A breach of any of these covenants or covenants under any other agreements governing our indebtedness could result in an event of default. Cross-default provisions in our debt agreements could cause an event of default under one debt agreement to trigger an event of default under our other debt agreements. Upon the occurrence of an event of default under any of our debt agreements, the lenders could elect to declare allexercise their remedies available under the terms of the loan agreements, which could include accelerating outstanding debt under such agreements to be immediately due and payable. If we were unable to repay or refinance the accelerated debt, the lenders could proceed against any assets pledged to secure that debt, including foreclosing on or requiring the sale of our hotels, and the proceeds from the sale of these hotels may not be sufficient to repay such debt in full.
These conditions could have a material adverse effect onadversely affect our financial position, results of operations, and cash flows.flows or the market price of our stock.
Mortgage debt obligations expose us to the possibility of foreclosure, which could result in the loss of our investment in any hotel subject to mortgage debt.
Except for the borrowings under our unsecured credit and term loan facilities, all of our other long-term debt existing as of December 31, 20162019 is secured by mortgages on our hotel properties and related assets. Incurring mortgages and other secured debt obligations increases our risk of property losses because defaults on secured indebtedness may result in foreclosure actions initiated by lenders and ultimately our loss of the hotels securing such loans. If we are in default under a cross-defaulted mortgage loan, we could lose multiple hotels to foreclosure. For tax purposes, a foreclosure of any of our hotels would be treated as a sale of the hotel for a purchase price equal to the outstanding balance of the debt secured by the mortgage. If the outstanding balance of the debt secured by the mortgage exceeds our tax basis in the hotel, we would recognize taxable income on foreclosure, but would not receive any cash proceeds, which could hinder our ability to meet the REIT distribution requirements imposed by the IRC. We may assume or incur new mortgage indebtedness on the hotels in our portfolio or hotels that we acquire in the future. Any default under any one of our mortgage debt obligations may increase the risk of our default on our other indebtedness.
These conditions could have a material adverse effect onadversely affect our financial position, results of operations, and cash flows.flows or the market price of our stock.
An increase in interest rates would increase our interest costs on our variable rate debt.debt and could have broader effects on the cost of capital for real estate companies and real estate asset values.
With respect to our existing and future variable-rate debt, an increase in interest rates would increase our interest payments and reduce our cash flow available for other general corporate purposes, including funding of working capital, capital improvements to our hotels, or acquisitions of additional hotels.hotels, or dividends, among other things. In addition, rising interest rates could limit our ability to refinance existing debt when it matures and increase interest costs on any debt that is refinanced. Further, an increase in interest rates could increase the cost of financing, thereby decreasingcapital for real estate assets which, in turn, could have a negative effect on real estate asset values generally, and our hotel properties specifically.
In addition, certain of our variable rate indebtedness uses LIBOR as a benchmark for establishing the amount third parties are willing to payrate of interest and may be hedged with LIBOR-based interest rate derivatives. LIBOR is the subject of recent national, international and other regulatory guidance and proposals for reform. As a result of this activity, LIBOR may be replaced with a new benchmark or perform differently than in the past. The consequences of these developments cannot be entirely predicted, but could include an increase in the cost of our hotels, which would limit our ability to dispose of hotels when necessary or desired. variable rate indebtedness.
See “Management’s“Item 7A. — Management’s Discussion and Analysis of Financial Condition and Results of Operations — Qualitative and Quantitative Effects of Market Risk.”
These conditions could have a material adverse effect onadversely affect our financial position, results of operations, and cash flows.flows or the market price of our stock.
Our success depends on key personnel whose continued service is not guaranteed.
We depend on the efforts and expertise of our management team to manage our day-to-day operations and strategic business activities. The loss of services from any of the members of our management team, and our inability to find suitable replacements on a timely basis could have an adverse effect on our financial position, results of operations and cash flows.
We hedge our interest rate exposure to manage our exposure to interest rate volatility.volatility, however, such arrangements may adversely affect us.
We have entered into anfour interest rate swapswaps having an aggregate notional amount of $75.0$400.0 million at December 31, 20162019, to hedge against interest rate increases on certain of our outstanding variable-rate indebtedness. In the future, we may manage our exposure to interest rate volatility by using hedging arrangements, such as interest rate swaps, caps, and interest rate caps.collars. Hedging arrangements involve the risk that the arrangement may fail to protect or adversely affect us because, among other things:
interest rate hedging can be expensive, particularly during periods of volatile interest rates;
available interest rate hedges may not correspond directly with the interest rate risk for which protection is sought;
the duration of the hedge may not match the duration of the related liability;
the credit quality of the hedging counterparty owing money on the hedge may be downgraded to such an extent that it impairs our ability to collect, sell, or assign our side of the hedging transaction; and
the hedging counterparty owing money in the hedging transaction may default on its obligation to pay.
As a result of any of the foregoing, our hedging transactions, which are intended to limit losses and exposure to interest rate volatility, could have a material adverse effect onadversely affect our financial position, results of operations, and cash flows.flows or the market price of our stock. At December 31, 2019, our interest rate swaps were in a liability position totaling $16.2 million (see "Note 8 - Derivative Financial Instruments and Hedging").
Our hotel managerssuccess depends on key personnel whose continued service is not guaranteed.
We depend on the efforts and we relyexpertise of our management team to manage our day-to-day operations and strategic business activities. The loss of services from any of the members of our management team, and our inability to find suitable replacements on information technology ina timely basis, could adversely affect our operations.financial position, results of operations, and cash flows or the market price of our stock.
System security risks, data protection breaches, cyber-attacks and systems integration issues could disrupt our internal operations or services provided to guests at our hotels, and any such disruption could reduce our expected revenue, increase our expenses, damage our reputation and adversely affect our stock price.
We and our hotelthird-party managers and franchisors rely on information technology networks and systems, including the Internet, to process, transmit and store electronic and customer information. These systems require the collection and retention of large volumes of hotel guests’ personally identifiable information, and to manage or support a variety of business processes, including financial transactions and records, personal identifying information, reservations, billing and operating data.credit card numbers. We purchase some of our information technology from vendors, on whom our systems depend. We rely on commercially available systems, software, tools and monitoring to provide security for processing, transmission and storage of confidential customer information, such as individuallypersonally identifiable information, including information relating to financial accounts. Although we have taken steps to protect the security of our information systems and the data maintained in those systems, it is possible that our safety and security measures will not be able to prevent the systems’ improper functioning or damage, or the improper access or disclosure of personally identifiable information such as in the event of cyber-attacks. Security breaches,Cyber criminals may be able to penetrate our network security, or the network security of our third-party managers and franchisors, and misappropriate or compromise our confidential information or that of our hotel guests, create system disruptions or cause the shutdown of our hotels. Computer programmers and hackers also may be able to develop and deploy viruses, worms and other malicious software programs that attack our computer systems, or the computer systems operated by our third-party managers and franchisors, or otherwise exploit any security vulnerabilities of our respective networks. In addition, sophisticated hardware and operating system software and applications that we and our third-party managers or franchisors may procure from outside companies may contain defects in design or manufacture, including “bugs” and other problems that could unexpectedly interfere with our internal operations or the operations at our hotels. The costs to eliminate or alleviate cyber or other security problems, bugs, viruses, worms, malicious software programs and security vulnerabilities could be significant, and efforts to address these problems may not be successful and could result in interruptions, delays, cessation of service and loss of existing or potential business at our hotels. Many of the information systems and networks used to operate our hotel properties are managed by our third-party property managers or franchisors and are not under our control. Any compromise of the function, security and availability of the information networks managed by our third-party property managers or franchisors could result in disruptions to operations, delayed sales or bookings, lost guest reservations, increased costs and lower margins. Any of these events could adversely affect our financial results, stock price and reputation, result in misstated financial reports and subject us to potential litigation and liability.
Portions of our information technology infrastructure or the information technology infrastructure of our third-party managers and franchisors also may experience interruptions, delays or cessations of service or produce errors in connection with systems integration or migration work that takes place from time to time. We or our third-party managers and franchisors may not be successful in implementing new systems and transitioning data, which could cause business disruptions and be expensive, time consuming, disruptive and resource-intensive. Such disruptions could adversely impact the ability of our third-party managers and franchisors to fulfill reservations for guestrooms and other services offered at our hotels.
Although we work with our third-party property managers and franchisors to protect the security of our information systems, and the data maintained in these systems, there can be no assurance that the security measures we have taken will prevent failures, inadequacies or interruptions in system services, or that system security will not be breached through physical or electronic break-ins, computer viruses or attacks by hackershackers. The increased level of sophistication and similar breaches, can create system disruptions, shutdowns or unauthorized disclosurevolume of confidential information. Any failureattacks in recent years make it more difficult to maintain proper function,predict the effect of a future breach. In addition, we rely on the security and availabilitysystems of our third-party managers and franchisors to protect proprietary and customer information systemsfrom these threats.
All of our third-party property managers carry cyber insurance policies to protect and offset a portion of potential costs that may be incurred from a security breach. Additionally, we currently have cyber insurance policies to provide supplemental coverage above the coverage carried by our third-party managers. Despite various precautionary steps to protect our hotels from losses resulting from cyber-attacks, any occurrence of a cyber-attack could interruptstill result in losses at our operations, damageproperties, which could affect our reputation, subject usresults of operations. To date, we are not currently aware of any cyber incidents that we believe to liability claimsbe material or regulatory penalties.
These conditionsthat could have a material adverse effect on the business, financial condition and results of operations of the Company.
Any of these items could adversely affect our financial position, results of operations, and cash flows.flows or the market price of our stock.
Joint venture investments could be adversely affected by a lack of sole decision-making authority with respect to such investments, disputes with joint venture partners and the financial condition of joint venture partners.
InWe have in the past and may in the future we may enter into strategic joint ventures with unaffiliated investors to acquire, develop, improve or dispose of hotels, thereby reducing the amount of capital required by us to make investments and diversifying our capital sources for growth. We may not have sole decision-making authority with respect to these investments, and as a result we may not be able to take actions which are in the best interest of our stockholders. Further, disputes between us and our joint venture partners may result in litigation or arbitration which could increase our expenses and prevent our officers and directors from focusing their time and effort on our business and could result in subjecting the hotels owned by the applicable joint venture to additional risks.
In July 2019, the Company entered into a joint venture with GIC, Singapore’s sovereign wealth fund, to acquire assets that align with the Company’s current investment strategy and criteria. The Company serves as general partner and asset manager of the joint venture and intends to invest 51% of the equity capitalization of the limited partnership, with GIC investing the remaining 49%. Certain transactions, including, but not limited to, asset acquisitions, hotel dispositions, and venture financing, require the approval of all parties. The Company earns fees for providing services to the joint venture and will have the potential to earn incentive fees based on the joint venture achieving certain return thresholds. As of December 31, 2019, the joint venture owns the five hotel properties acquired in 2019.
If a joint venture partner becomes bankrupt or otherwise defaults on its obligations under a joint venture agreement, we and any other remaining joint venture partners would generally remain liable for the joint venture liabilities. Furthermore, if a joint venture partner becomes bankrupt or otherwise defaults on its obligations under a joint venture agreement, we may be unable to continue the joint venture other than by purchasing such joint venture partner’s interests or the underlying assets at a premium to the market price. If any of the above risks are realized, it could have a material adverse effect onadversely affect our financial position, results of operations, and cash flows.flows or the market price of our stock.
Actions by organized labor could have a material adverse effect on our business.
We believe that unions are generally becoming more aggressive about organizing workers at hotels in certain locations. If the workers employed by the third-party hotel management companies that manage our hotels unionize in the future, potential labor activities at any affected hotel could significantly increase the administrative, labor and legal expenses of the third-party hotel management company that we have engaged to manage that hotel, which likely would adversely affect the operating results of the hotel properties. If hotels in our portfolio are unionized, this could have a material adverse effect onadversely affect our financial position, results of operations, and cash flows or the market price of our stock.
The outbreak of the Coronavirus or an outbreak of other highly infectious or contagious diseases, could adversely affect the number of guests visiting our hotel properties and disrupt our operations, resulting in a material adverse effect on our business, financial condition, results of operations and cash flows.
Our business is sensitive to the willingness and ability of our customers to travel. The outbreak of the Coronavirus or an outbreak of other highly infectious or contagious diseases may result in decreases in travel to and from, and economic activity in, areas in which we operate, and may adversely affect the number of guests that visit our hotel properties. The spread of highly infectious or contagious diseases could cause severe disruptions in air and other forms of travel that reduce the number of guests visiting our hotel properties. This could disrupt our operations and if the global response to contain the Coronavirus escalates or is unsuccessful, we could experience a material adverse effect on our business, financial condition, results of operations and cash flows. Management cannot predict the extent to which disruptions in travel as a result of infectious disease outbreaks, such as the Coronavirus, could have a material adverse effect on our business, financial condition, results of operations and cash flows.
Risks Related to the Lodging Industry
Economic conditions may adversely affect the lodging industry.
The performance of the lodging industry has historically been closely linkeddirectly correlated to the performance of the general economy and, specifically, growth in U.S. gross domestic product (“GDP”). The lodging industry is also sensitive to business and personal discretionary spending levels. Declines in corporate budgets and consumer demand due to adverse general economic conditions, risks affecting or reducing travel patterns, lower consumer confidence or adverse political conditions can lower the revenue and profitability of our assets and therefore the net operating profits of our investments. Economic weakness could have a material adverse effect onadversely affect our financial position, results of operations, and cash flows.flows or the market price of our stock.
We experience a high level of competition from other Upscalehotels and Upper-midscale hotelsalternative accommodations in the markets in which we operate.
The lodging industry is highly competitive. Our hotels compete with other hotels for guests in each market in which our hotels operate based on a number of factors, including location, convenience, brand affiliation, guestroom rates, range of services and guest amenities or accommodations offered and quality of customer service. We also compete with numerous owners and operators of vacation ownership resorts, as well as companies that offer alternative lodging companies,accommodations, such as HomeAwayAirbnb and Airbnb,similar organizations, which operate websites that market available furnished, privately-owned residential properties, including homes and condominiums, that can be rented on a nightly, weekly or monthly basis. Competition will often be specific to the individual markets in which our hotels are located and includes competition from existing and new hotels. Ourhotels as well as alternative accommodations. The price transparency of the lodging industry could lead to difficulty in increasing ADR as our competitors may have an operating model that enables them to offer guestrooms at lower rates than we can, which could result in our competitors increasing their occupancy at our expense. Competition could adversely affect our occupancy, ADR and RevPAR, and may require us to provide additional amenities or make capital improvements that we otherwise would not have to make.
These conditions could have a material adverse effect onadversely affect our financial position, results of operations, and cash flows.flows or the market price of our stock.
Our operating results and ability to make distributions to our stockholders may be adversely affected by the risks inherent to the ownership of hotels and the markets in which we operate.
Hotels have different economic characteristics than many other real estate assets. A typical office property owner, for example, has long-term leases with third-party tenants, which provide a relatively stable long-term stream of revenue. By contrast, our hotels are subject to various operating risks common to the lodging industry, many of which are beyond our control, including the following:
relatively short-duration occupancies;
dependence on business and commercial travelers and tourism;
over-building of hotels in our markets, which could adversely affect occupancy and revenue at the hotels we acquire;
increases in energy costs and other expenses affecting travel, which may affect travel patterns and reduce the number of business and commercial travelers and tourists;
increases in operating costs, including increased real estate and personal property taxes, due to inflation and other factors that may not be offset by increased guestroom rates;
potential increases in labor costs at our hotels, including as a result of unionization of the labor force, and increasing health care insurance expense;
adverse effects of international, national, regional and local economic and market conditions;
changes in governmental laws and regulations, fiscal policies and zoning ordinances and the related costs of compliance with laws and regulations, fiscal policies and ordinances;
adverse effects of international, national, regional and local economic and market conditions; and
unforeseen events beyond our control, such as instability in the national, European or global economy, terrorist attacks, travel relatedtravel-related health concerns including pandemics and epidemics, such as H1N1 influenza (swine flu), Zika virus, avian bird flu, Ebola and SARS, travel-related environmental concerns including water contamination and air pollution, political instability, regional hostilities, increases in fuel prices, imposition of taxes or surcharges by regulatory authorities and travel-related accidents and unusual weather patterns, including natural disasters such as hurricanes.
These conditions could have a material adverse effect onadversely affect our financial position, results of operations, and cash flows.flows or the market price of our stock.
We have significant ongoing needs to make capital expenditures at our hotels, which require us to devote funds to these purposes.
Our hotels have an ongoing need for renovations and other capital improvements, including replacements, from time to time, of furniture, fixtures and equipment. Our franchisors also require periodic capital improvements as a condition of keeping the franchise licenses. In addition, lenders and hotel management companies may require that we set aside annual amounts for capital improvements to our assets. These capital improvements and replacements may give rise to the following risks:
possible environmental problems;
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construction cost overruns and delays;
a possible shortage of available cash to fund capital improvements and replacements and, the related possibility that financing for these capital improvements may not be available to us on affordable terms; and
uncertainties as to market demand or a loss of market demand after capital improvements and replacements have begun.
These conditions could have a material adverse effect onadversely affect our financial position, results of operations, and cash flows.flows or the market price of our stock.
Hotel development is subject to timing, budgeting and other risks.
We have in the past and may in the future develop hotels or acquire hotels that are under development from time to time as suitable opportunities arise, taking into consideration general economic conditions. Hotel development involves a number of risks, including the following:
possible environmental problems;
construction delays or cost overruns that may increase project costs;and delays;
receipt of and expense related to zoning, occupancy and other required governmental permits and authorizations;
development costs incurred for projects that are not pursued to completion;
acts of God such as earthquakes, hurricanes, floods or fires that could adversely affect a project;
inability to raise capital; and
governmental restrictions on the nature or size of a project.
To the extent we develop hotels or acquire hotels under development, we cannot provide assurance that any development project will be completed on time or within budget. Our inability to complete a project on time or within budget could have a material adverse effect onadversely affect our financial position, results of operations, and cash flows.flows or the market price of our stock.
Customers may increasingly use Internet travel intermediaries.
Our hotel guestrooms are likely tocan be booked through Internet travel intermediaries, including, but not limited to Travelocity.com, Expedia.com and Priceline.com.Booking.com, and their portfolio of companies (commonly referred to as "online travel agents" or "OTA's"). As these Internet bookings increase, these intermediaries may be able to obtain higher commissions, reduced guestroom rates or other significant contract concessions from our management companies. Moreover, some of these Internet travel intermediaries are attempting to offer hotel guestrooms as a commodity, by increasing the importance of price and general indicators of quality (such as “three-star downtown hotel”) at the expense of brand identification. These agencies hope that consumers will eventually develop brand loyalties to their reservations system rather than to the brands under which our hotels are franchised. If the amount of sales made through Internet intermediaries increases significantly, guestroom revenue may flatten or decrease, which could have a material adverse effect onadversely affect our financial position, results of operations, and cash flows.flows or the market price of our stock.
We could incur uninsured and underinsured losses.
We intend to maintain comprehensive insurance on our hotels, including liability, fire and extended coverage, of the type and amount we believe are customarily obtained for or by owners of hotels similar to our hotels. Various types of catastrophic losses, likesuch as hurricanes, floods and earthquakes, and floods, acts of terrorism, data breaches, or losses related to business disruption from disputes with franchisors, or losses from customer litigation, may not be insurable or may not be economically insurable. In the event of a substantial loss, our insurance coverage may not be sufficient to cover the operating loss or the full market value or replacement cost of our lost investment. Should an uninsured loss or a loss in excess of insured limits occur, we could lose all or a portion of the capital we have invested in a hotel, as well as the anticipated future revenue from the hotel. In that event, we might nevertheless remain obligated for any mortgage debt or other financial obligations related to the asset. Loan covenants, inflation, changes in building codes and ordinances, environmental considerations and other factors might also keep us from using insurance proceeds to replace or renovate an asset after it has been damaged or destroyed. Under those circumstances, the insurance proceeds we receive might be inadequate to restore our economic position on the damaged or destroyed hotels.
These conditions could have a material adverse effect onadversely affect our financial position, results of operations, and cash flows.flows or the market price of our stock.
Consumer trends and preferences, particularly with respect to younger generations, could change away from select-service hotels.
Consumer trends and preferences continuously change, especially within younger generations. Many new hotel brands have been introduced over recent years to specifically address the perceived unique needs and preferences of younger travelers. As our portfolio is concentrated in select-service hotels, significant consumer shifts in preferences away from select-service hotels could have a material adverse effect onadversely affect our financial position, results of operations, and cash flows.flows or the market price of our stock.
Risks Related to the Real Estate Industry and Real Estate-Related Investments
Illiquidity of real estate investments could significantly impede our ability to respond to adverse changes in the performance of our hotels or to adjust our portfolio in response to changes in economic and other conditions.
Our ability to promptly sell one or more hotels in our portfolio in response to changing economic, financial and investment conditions may be limited. We cannot predict whether we will be able to sell any hotels for the price or on the terms set by us, or whether any price or other terms offered by a prospective purchaser would be acceptable to us. We also cannot predict the length of time needed to find a willing purchaser and to close the sale of an asset. The real estate market is affected by many factors that are beyond our control, including:
adverse changes in international, national, regional and local economic and market conditions;
changes in interest rates and in the availability, cost and terms of debt financing;
changes in governmental laws and regulations, fiscal policies and zoning ordinances and the related costs of compliance with laws and regulations, fiscal policies and ordinances;
the ongoing need for capital improvements, particularly in older structures, that may require us to expend funds to correct defects or to make improvements before an asset can be sold;
changes in operating expenses; and
civil unrest, acts of God, including earthquakes, floods and other natural disasters, which may result in uninsured losses, and acts of war, terrorism or terrorism, includingenvironmental uncertainties, such as the consequenceseffect of the terrorist acts such as those that occurred on September 11, 2001.Coronavirus or outbreak of other significant diseases.
These conditions could have a material adverse effect onadversely affect our financial position, results of operations, and cash flows.flows or the market price of our stock.
We could incur significant costs related to government regulation and litigation over environmental, health and safety matters.
Our hotels and development land parcels are subject to various federal, state and local environmental laws that impose liability for contamination. Under these laws, governmental entities have the authority to require us, as the current or former owner of the property, to perform or pay for the cleanup of contamination (including hazardous substances, waste or petroleum products) at or emanating from the property and to pay for natural resource damage arising from contamination. These laws often impose liability without regard to whether the owner or operator knew of, or caused the contamination. We can also be liable to private parties for costs of remediation, personal injury and death and/or property damage resulting from contamination at or emanating from our properties. Moreover, environmental contamination can affect the value of a property and, therefore, an owner’s ability to borrow funds using the property as collateral or to sell the property on favorable terms or at all. Furthermore, persons who sent waste to a waste disposal facility, such as a landfill or an incinerator, may be liable for costs associated with cleanup of that facility.
In addition, our hotels (including our real property, operations and equipment) are subject to various federal, state and local environmental, health and safety regulatory requirements that address a wide variety of issues, including, but not limited to the registration, maintenance and operation of our boilers and storage tanks, air emissions from emergency generators, storm water and wastewater discharges, asbestos, lead-based paint, mold and mildew, and waste management. Some of our hotels also routinely handle andor use hazardous or regulated substances and wastes as part ofwaste in their operations which are subject to regulation (for example, swimming pool chemicals or biological waste). Our hotels incur costs to comply with these environmental, health and safety laws and regulations and if these regulatory requirements are not met or unforeseen events result in the discharge of dangerous or toxic substances at our hotels, we could be subject to fines and penalties for non-compliance with applicable laws and material liability from third parties for harm to the environment, damage to real property or personal injury and death. We are aware of no past or present environmental liability for non-compliance with environmental, health and safety laws and regulations that we believe would have a material adverse effect on our business, assets or results of operations.
Certain hotels we currently own or those we acquire in the future contain, may contain, or may have contained, asbestos-containing material (“ACM”). Environmental, health and safety laws require that ACM be properly managed and maintained, and include requirements to undertake special precautions, such as removal or abatement, if ACM would be disturbed during maintenance, renovation, or demolition of a building. These laws regarding ACM may impose fines and penalties on building owners, employers and operators for failure to comply with these requirements or expose us to third-party liability.
These conditions could have a material adverse effect onadversely affect our financial position, results of operations, and cash flows.
flows or the market price of our stock.
Compliance with the laws, regulations and covenants that apply to our hotels, including permit, license and zoning requirements, may adversely affect our ability to make future acquisitions or renovations, result in significant costs or delays and adversely affect our growth strategy.
Our hotels are subject to various covenants and local laws and regulatory requirements, including permitting and licensing requirements which can restrict the use of our properties and increase the cost of acquisition, development and operation of our hotels. In addition, federal and state laws and regulations, including laws such as the ADA, impose further restrictions on our operations. Under the ADA, all public accommodations must meet federal requirements related to access and use by disabled persons. We have not conducted a comprehensive audit or investigation of all of our properties to determine our compliance. As such, some of our hotels currently may be in noncompliance with the ADA. If one or more of the hotels in our portfolio is not in compliance with the ADA or any other regulatory requirements, we may be required to incur additional costs to bring the hotel into compliance and we might incur damages or governmental fines. In addition, existing requirements may change and future requirements may require us to make significant unanticipated expenditures.
These conditions could have a material adverse effect onadversely affect our financial position, results of operations, and cash flows.flows or the market price of our stock.
We have fixed obligations related to ground leases for landright-of-use assets on which certain of our hotels are located.
If we default on the terms of any of our right-of-use assets, such as ground leases, air rights or other intangible assets, and are unable to cure the default in a timely manner, we may be liable for damages and could lose our leasehold interest in the applicable property and interest in the hotel on the applicable property. An event of default that is not timely cured could have a material adverse effect onadversely affect our financial position, results of operations, and cash flows.flows or the market price of our stock.
The states and localities in which we own material amounts of property or conduct material business operations could raise their income and property tax rates or amend their tax regimes in a manner that increases our state and local tax liabilities.
We and our subsidiaries are subject to income tax and other taxes by states and localities in which we conduct business. Additionally, we are and will continue to be subject to property taxes in states and localities in which we own property, and our TRS lessees are and will continue to be subject to state and local corporate income tax. As these states and localities seek additional sources of revenue, they may, among other steps, raise income and property tax rates or amend their tax regimes to eliminate for state income tax purposes the favorable tax treatment REITs enjoy for federal income tax purposes. We cannot predict when or if any states or localities would make any such changes, or what form those changes would take. If states and localities in which we own material amounts of property or conduct material amounts of business make changes to their tax rates or tax regimes that increase our state and local tax liabilities, such increases could have a material adverse effect onadversely affect our financial position, results of operations, and cash flows.flows or the market price of our stock.
Risks Related to Our Organization and Structure
Our fiduciary duties as the general partner of our Operating Partnership could create conflicts of interest.
We, through our wholly-owned subsidiary that serves as the sole general partner of our Operating Partnership, have fiduciary duties to our Operating Partnership’s limited partners, the discharge of which may conflict with the interests of our stockholders. The limited partners of our Operating Partnership have agreed for so long as we own a controlling interest in our Operating Partnership that, in the event of a conflict between the duties owed by our directors to our company and the duties that we owe, in our capacity as the sole general partner of our Operating Partnership, to the limited partners, our directors must give priority to the interests of our stockholders. In addition, those persons holding Common Units have the right to vote on certain amendments to the limited partnership agreement (which require approval by a majority interest of the limited partners, including us) and individually to approve certain amendments that would adversely affect their rights, as well as the right to vote on mergers and consolidations of the general partner or us in certain limited circumstances. These voting rights may be exercised in a manner that conflicts with the interests of our stockholders. For example, we cannot adversely affect the limited partners’ rights to receive distributions, as set forth in the limited partnership agreement, without their consent, even though modifying such rights might be in the best interest of our stockholders generally.
Provisions of our charter may limit the ability of a third party to acquire control of us by authorizing our board of directors to issue additional securities.
Our board of directors may, without stockholder approval, amend our charter to increase or decrease the aggregate number of our shares or the number of shares of any class or series that we have the authority to issue and to classify or reclassify any unissued shares of common stock or preferred stock, and set the preferences, rights and other terms of the classified or reclassified shares. As a result, our board of directors may authorize the issuance of additional shares or establish a series of common or preferred stock that may have the effect of delaying or preventing a change in control of our company, including transactions at a premium over the market price of our shares, even if stockholders believe that a change in control is in their interest. These provisions, along with the restrictions on ownership and transfer contained in our charter and certain provisions of Maryland law described below, could discourage unsolicited acquisition proposals or make it more difficult for a third party to gain control of us, which could adversely affect the market price of our securities.
Provisions of Maryland law may limit the ability of a third party to acquire control of us by requiring our board of directors or stockholders to approve proposals to acquire our company or effect a change in control.
Certain provisions of the Maryland General Corporation Law (the “MGCL”) applicable to Maryland corporations may have the effect of inhibiting a third party from making a proposal to acquire us or of impeding a change in control under circumstances that otherwise could provide our stockholders with the opportunity to realize a premium over the then-prevailing market price of such shares, including “business combination” and “control share” provisions.
By resolution of our board of directors, we have opted out of the business combination provisions of the MGCL and provided that any business combination between us and any other person is exempt from the business combination provisions of the MGCL, provided that the business combination is first approved by our board of directors (including a majority of directors who are not affiliates or associates of such persons). In addition, pursuant to a provision in our bylaws, we have opted out of the control share provisions of the MGCL. However, our board of directors may by resolution elect to opt in to the business combination provisions of the MGCL and we may, by amendment to our bylaws, opt in to the control share provisions of the MGCL in the future.
Our rights and the rights of our stockholders to take action against our directors and officers are limited.
Under Maryland law, generally, a director will not be liable if he or she performs his or her duties in good faith, in a manner he or she reasonably believes to be in our best interests and with the care that an ordinarily prudent person in a like position would use under similar circumstances. In addition, our charter limits the liability of our directors and officers to us and our stockholders for money damages, except for liability resulting from:
actual receipt of an improper benefit or profit in money, property or services; or
active and deliberate dishonesty by the director or officer that was established by a final judgment as being material to the cause of action adjudicated.
Our charter authorizes us to indemnify our directors and officers for actions taken by them in those capacities to the maximum extent permitted by Maryland law. Our bylaws require us to indemnify each director and officer, to the maximum extent permitted by Maryland law, in the defense of any proceeding to which he or she is made, or threatened to be made, a party by reason of his or her service to us. In addition, we may be obligated to advance the defense costs incurred by our directors and officers. As a result, we and our stockholders may have more limited rights against our directors and officers than might otherwise exist absent the current provisions in our charter and bylaws or that might exist with other companies.
Our stockholders have limited voting rights and our charter contains provisions that make removal of our directors difficult.
Our shares of common stock are the only class of our securities that carry full voting rights. Voting rights for holders of our preferred stock exist primarily with respect to the ability to elect two additional directors to our board of directors in the event that six quarterly dividends (whether or not consecutive) payable on the preferred stock are in arrears, and with respect to voting on amendments to our charter or articles supplementary relating to the preferred stock that materially and adversely affect the rights of the holders of preferred stock or create additional classes or series of senior equity securities. Further, our charter provides that a director may be removed only for cause (as defined in our charter) and then only by the affirmative vote of holders of shares entitled to cast at least two-thirds of the votes entitled to be cast generally in the election of directors. Our charter also provides that vacancies on our board of directors may be filled only by a majority of the remaining directors in office, even if less than a quorum. These requirements prevent stockholders from removing directors except for cause and with a substantial affirmative vote and from replacing directors with their own nominees and may prevent a change in control of our company or effect other management changes that are in the best interests of our stockholders.
The ability of our board of directors to change our major policies without the consent of stockholders may not be in our stockholders’ interest.
Our board of directors determines our major policies, including policies and guidelines relating to our acquisitions, leverage, financing, growth, operations and distributions to stockholders. Our board of directors may amend or revise these and other policies and guidelines from time to time without the vote or consent of our stockholders. Accordingly, our stockholders will have limited control over changes in our policies and those changes could have a material adverse effect onadversely affect our financial position, results of operations, and cash flows.flows or the market price of our stock.
Our board of directors has the ability to revoke our REIT qualification without stockholder approval.
Our charter provides that our board of directors may revoke or otherwise terminate our REIT election, without the approval of our stockholders, if it determines that it is no longer in our best interest to continue to qualify as a REIT. If we cease to be a REIT, we would become subject to federal income tax on our taxable income and would no longer be required to distribute most of our taxable income to our stockholders, which may have adverse consequences on the total return to our stockholders.
We are a holding company with no direct operations. As a result, we rely on funds received from our Operating Partnership to pay liabilities and dividends, our stockholders’ claims will be structurally subordinated to all liabilities of our Operating Partnership and our stockholders will not have any voting rights with respect to our Operating Partnership activities, including the issuance of additional Common Units or Preferred Units.
We are a holding company and conduct all of our operations through our Operating Partnership. We do not have, apart from our ownership of our Operating Partnership, any independent operations. As a result, we rely on distributions from our Operating Partnership to pay any dividends we might declare on shares of our common or preferred stock. We also rely on distributions from our Operating Partnership to meet any of our obligations, including tax liabilityliabilities on taxable income allocated to us from our Operating Partnership (which might make distributions to us that do not equal the tax on such allocated taxable income).
In addition, because we are a holding company, stockholders’ claims will be structurally subordinated to all existing and future liabilities and obligations (whether or not for borrowed money) of our Operating Partnership and its subsidiaries. Therefore, in the event of our bankruptcy, liquidation or reorganization, claims of our stockholders will be satisfied only after all of our and our Operating Partnership’s and its subsidiaries’ liabilities and obligations have been paid in full.
We own approximately 99%99.8% of the Common Units in the Operating Partnership, all of the issued and outstanding 7.875% Series B Cumulative Redeemable Preferred Units of the Operating Partnership (“Series B Preferred Units”), all of the issued and outstanding 7.125% Series C Cumulative Redeemable Preferred Units of the Operating Partnership (“Series C Preferred Units”), and all of the issued and outstanding 6.45% Series D Cumulative Redeemable Preferred Units of the Operating Partnership (“Series D Preferred Units”), and all of the issued and outstanding 6.25% Series E Cumulative Redeemable Preferred Units of the Operating Partnership ("Series E Preferred Units"). We refer to the Series D Preferred Units and Series CE Preferred Units and Series B Preferred Units collectively referred to as Preferred Units. Any future issuances by our Operating Partnership of additional Common Units or Preferred Units could reduce our ownership percentage in our Operating Partnership. Because our common stockholders do not directly own any Common Units or Preferred Units, they will not have any voting rights with respect to any such issuances or other partnership-level activities of the Operating Partnership.
If we are unable to maintain an effective system of internal controls, we may not be able to produce and report accurate financial information on a timely basis or prevent fraud.
A system of internal controls that is well designed and properly functioning is critical for us to produce and report accurate and reliable financial information and effectively prevent fraud. We must also rely on the quality of the internal control environments of our third-party property managers who provide us with financial information related to our hotel properties. At times, we may identify areas of our internal controls that are not properly functioning as designed, that need improvement or that must be developed to ensure that we have an adequate system of internal controls. Section 404 of the Sarbanes-Oxley Act of 2002 requires us to evaluate and report on our internal controls over financial reporting and have our independent auditors annually issue their own opinion on our internal controls over financial reporting. We cannot be certain that we will be successful in maintaining adequate internal controls over our financial reporting and processes. Additionally, as we grow our business, our internal controls will become more complex and we will require significantly more resources to ensure that our internal controls remain effective. If we or our independent auditors discover a material weakness, the disclosure of that fact, even if promptly remedied, could cause our stockholders to lose confidence in our financial results, which could reduce the market value of our common shares. Additionally, the existence of any material weakness or significant deficiency could require management to devote substantial time and incur significant expense to remediate any such conditions. There can be no assurance that management will be able to remediate any such material weaknesses or significant deficiencies in a timely manner.
Risks Related to Ownership of Our Securities
The New York Stock Exchange (“NYSE”) or another nationally-recognized exchange may not continue to list our securities.
Our common stock trades on the NYSE under the symbol “INN,” our 7.875% Series B Cumulative Redeemable Preferred Stock trades on the NYSE under the symbol “INNPrB,” our 7.125% Series C Cumulative Redeemable Preferred Stock trades on the NYSE under the symbol “INNPrC,” and our 6.45% Series D Cumulative Redeemable Preferred Stock trades on the NYSE under the symbol “INNPrD.“INN-PD,” and our 6.25% Series E Cumulative Redeemable Preferred Stock trades on the NYSE under the symbol "INN-PE." In order for our securities to remain listed, we are required to meet the continued listing requirements of the NYSE or, in the alternative, any other nationally-recognized exchange to which we apply. We may be unable to satisfy those listing requirements, and there is no guarantee our securities will remain listed on a nationally-recognized exchange. If our securities are delisted from the NYSE or another nationally-recognized exchange, we could face significant material adverse consequences, including:
a limited availability of market quotations for our securities;
a limited ability of our stockholders to make transactions in our securities;
additional trading restrictions being placed on us;
reduced liquidity with respect to our securities;
a determination that our common stock is “penny stock,” which will require brokers trading in our common stock to adhere to more stringent rules, possibly resulting in a reduced level of trading activity in the secondary trading market for the common stock;
a limited amount of news and analyst coverage; and
a decreased ability to issue additional securities or obtain additional financing in the future.
The cash available for distribution may not be sufficient to make distributions at expected levels and we may use borrowed funds or funds from other sources to make distributions.
Subject to the preferential rights of the holders of our Series B, Series C,D and Series DE preferred stock and any other class or series of our stock that are senior to our common stock with respect to distribution rights, we intend to make quarterly distributions to holders of our common stock. Distributions declared by us will be authorized by our board of directors in its sole discretion out of funds legally available for distribution and will depend upon a number of factors, including restrictions under applicable law and the capital requirements of our company. All distributions will be made at the discretion of our board of directors and will depend on our earnings, our financial condition, the requirements for qualification as a REIT, restrictions under applicable law and other factors as our board of directors may deem relevant from time to time. We may be required to fund distributions from working capital, borrowings under our unsecured revolving credit facility,2018 Unsecured Credit Facility, proceeds of future stock offerings or a sale of assets to the extent distributions exceed earnings or cash flows from operations. Funding distributions from working capital would restrict our operations. If we borrow from the unsecured revolving credit facilityour 2018 Unsecured Credit Facility to pay distributions, we would be more limited in our ability to execute our strategy of using that unsecured revolving credit facilityour 2018 Unsecured Credit Facility to fund acquisitions.acquisitions or capital expenditures. Finally, selling assets may require us to dispose of assets at a time or in a manner that is not consistent with our disposition strategy. If we borrow to fund distributions, our leverage ratios and future interest costs would increase, thereby reducing our earnings and cash available for distribution from what they otherwise would have been. We may not be able to make distributions in the future. In addition, some of our distributions may be considered a return of capital for income tax purposes. If we decide to make distributions in excess of our current and accumulated earnings and profits, such distributions would generally be considered a return of capital for federal income tax purposes to the extent of the holder’s adjusted tax basis in their shares. A return of capital is not taxable, but it has the effect of reducing the holder’s adjusted tax basis in its investment. If distributions exceed the adjusted tax basis of a holder’s shares, they will be treated as gain from the sale or exchange of such stock.
The market price of our stock may be volatile due to numerous circumstances beyond our control.
The trading prices of equity securities issued by REITs and other real estate companies historically have been affected by changes in market interest rates. One of the factors that may influence the market price of our common or preferred stock is the annual yield from distributions on our common or preferred stock, respectively, as compared to yields on other financial instruments. An increase in market interest rates, or a decrease in our distributions to stockholders, may lead prospective purchasers of our common or preferred stock to demand a higher annual yield, which could reduce the market price of our common or preferred stock, respectively.
Other factors that could affect the market price of our stock include the following:
actual or anticipated variations in our quarterly results of operations;
increases in interest rates;
changes in market valuations of companies in the lodging industry;
changes in expectations of future financial performance or changes in estimates of securities analysts;
fluctuations in stock market prices and volumes;
our issuances of common stock, preferred stock, or other securities in the future;
the inclusion of our common stock and preferred stock in equity indices, which could induce additional purchases;
the exclusion of our common stock and preferred stock from equity indices;
the addition or departure of key personnel;
announcements by us or our competitors of acquisitions, investments or strategic alliances; and
unforeseen events beyond our control, such as instability in the national, European or global economy, terrorist attacks, travel related health concerns including pandemics and epidemics, such as H1N1 influenza (swine flu), Zika virus, avian bird flu, Ebola and SARS, political instability, regional hostilities, increases in fuel prices, imposition of taxes or surcharges by regulatory authorities and travel-related accidents and unusual weather patterns, including natural disasters such as hurricanes.disasters; and
changes in the tax laws or regulations to which we are subject.
The market’s perception of our growth potential and our current and potential future cash distributions, whether from operations, sales or refinancings, as well as the real estate market value of the underlying assets, may cause our common and preferred stock to trade at prices that differ from our net asset value per share. If we retain operating cash flow for investment purposes, working capital reserves or other purposes, these retained funds, while increasing the value of our underlying assets, may not correspondingly increase the market price of our common and preferred stock. Our failure to meet the market’s expectations with regard to future earnings and distributions likely would adversely affect the market price of our common and preferred stock.
The trading market for our stock will rely in part on the research and reports that industry or financial analysts publish about us or our business. We do not control these analysts. Furthermore, if one or more of the analysts who do cover us
downgrades our stock or our industry, or the stock of any of our competitors, the price of our stock could decline. If one or more of these analysts ceases coverage of our company, we could lose attention in the market, which in turn could cause the price of our stock to decline.
The number of shares of our common stock and preferred stock available for future sale could adversely affect the market price per share of our common stock and preferred stock, respectively, and future sales by us of shares of our common stock, preferred stock, or issuances by our Operating Partnership of Common Units may be dilutive to existing stockholders.
Sales of substantial amounts of shares of our common stock or preferred stock in the public market, or upon exchange of Common Units or exercise of any equity awards, or the perception that such sales might occur, could adversely affect the market price of our common stock and preferred stock. As of February 15, 2017,18, 2020, a total of 396,713204,065 Common Units are redeemable and could be converted into shares of our common stock and sold into the public market. The exchange of Common Units for common stock, the vesting of any equity-based awards granted to certain directors, executive officers and other employees under the 2011 Equity Incentive Plan which was amended and restated effective June 15, 2015 (as amended and restated, the “Equity Plan”), the issuance of our common stock or Common Units in connection with hotel, portfolio or business acquisitions and other issuances of our common stock or Common Units could have an adverse effect on the market price of the shares of our common stock.
We may execute future offerings of debt securities, which would be senior to our common and preferred stock upon liquidation, and issuances of equity securities (including Common Units).
In the future we may offer debt securities and issue equity securities, including Common Units, preferred stock or other preferred shares that may be senior to our common stock for purposes of dividend distributions or upon liquidation. Upon liquidation, holders of our debt securities and our preferred shares will receive distributions of our available assets prior to the holders of our common stock. Holders of our common stock are not entitled to pre-emptivepreemptive rights or other protections against us offering senior debt or equity securities. Therefore, additional common share issuances, directly or through convertible or exchangeable securities (including Common Units), warrants or options, will dilute the holdings of our existing common stockholders and such issuances or the perception of such issuances may reduce the market price of our common stock. In addition, new issues of preferred stock could have a preference on liquidating distributions and a preference on dividend payments that could limit our ability to pay a dividend or make another distribution to the holders of our common stock. Because our decision to issue securities in any future offering will depend on market conditions and other factors beyond our control, we cannot predict or estimate the amount, timing or nature of future issuances. Thus, our stockholders bear the risk of our future offerings reducing the market price of our common stock and diluting their interest in us.
Risks Related to Our Status as a REIT
Failure to remain qualified as a REIT would cause us to be taxed as a regular corporation.
The REIT rules and regulations are highly technical and complex. We believe that our organization and method of operation has enabled us to meet the requirements for qualification and taxation as a REIT commencing with our short taxable year ended December 31, 2011. However, we cannot provide assurance that we will remain qualified as a REIT.
Failure to qualify as a REIT could result from a number of situations, including, without limitation:
if the leases of our hotels to our TRS lessees are not respected as true leases for federal income tax purposes;
if our Operating Partnership is treated as a publicly traded partnership taxable as a corporation for federal income tax purposes;
if our existing or future hotel management companies do not qualify as “eligible independent contractors” or if our hotels are not “qualified lodging facilities,” as required by federal income tax law; or
if we fail to meet any of the required REIT qualifications.
If we fail to qualify as a REIT in any taxable year, we will face serious tax consequences that will substantially reduce the funds available for distributions to our stockholders because:
we would not be allowed a deduction for dividends paid to stockholders in computing our taxable income and would be subject to federal income tax at regular corporate rates;rates (at a rate of 21%);
we could be subject to the federal alternative minimum tax and possibly increased state and local taxes; and
unless we are entitled to relief under certain federal income tax laws, we could not re-elect REIT status until the fifth calendar year after the year in which we failed to qualify as a REIT.
In addition, if we fail to qualify as a REIT, we will no longer be required to make distributions. As a result of all these factors, our failure to qualify as a REIT could impair our ability to expand our business and raise capital, and it could adversely affect the value of our stock.
Even if we continue to qualify as a REIT, we may face other tax liabilities.
Even if we continue to qualify for taxation as a REIT, we may be subject to certain federal, state and local taxes on our income and assets including, but not limited to taxes on any undistributed income, tax on income from some activities conducted as a result of a foreclosure, and state or local income, property and transfer taxes. In addition, our TRS isTRSs are subject to regular corporate federal, state and local taxes. Any of these taxes would decrease cash available for distributions to stockholders.
Failure to make required distributions would subject us to federal corporate income tax.
We intend to operate in a manner so as to qualify as a REIT for federal income tax purposes. To qualify as a REIT, we generally are required to distribute at least 90% of our REIT taxable income, determined without regard to the dividends paid deduction and excluding any net capital gain, each year to our stockholders. To the extent that we satisfy this distribution requirement, but distribute less than 100% of our REIT taxable income, we will be subject to federal corporate income tax on our undistributed taxable income. In addition, we will be subject to a 4% non-deductible excise tax if the actual amount that we pay out to our stockholders in a calendar year is less than a minimum amount specified under the IRC.
We have significant REIT distribution requirements to maintain our status as a REIT.
To satisfy the requirements for qualification as a REIT and to meet the REIT distribution requirements, we may need to borrow funds on a short-term basis or sell assets, even if the then-prevailing market conditions are not favorable for these borrowings or sales. Our cash flows from operations may be insufficient to fund required distributions as a result of differences in timing between the actual receipt of income and the recognition of income for federal income tax purposes, or the effect of non-deductible capital expenditures, the creation of reserves or required debt service or amortization payments. Our REIT distribution requirements could adversely affect our liquidity and may force us to borrow funds or sell assets during unfavorable market conditions or pay taxable stock dividends. The insufficiency of our cash flows to cover our distribution requirements could have an adverse effect on our ability to raise short- and long-term debt or sell equity securities to fund distributions required to maintain our qualification as a REIT. Also, although the Internal Revenue Service (“IRS”) has issued private letter rulings to other REITs, which may be relied upon only by the taxpayers to whom they were issued, and a revenue procedure applicable to our 2007 through 2011 taxable years sanctioning certain issuances of taxable stock dividends by REITs under certain circumstances, no assurance can be given that we will be able to pay taxable stock dividends to meet our REIT distribution requirements.
The formation of our TRSTRSs increases our overall tax liability.
Our TRS isTRSs are subject to federal, state and local income tax on itstheir taxable income, which typically consists of the revenue from the hotels leased by our TRS lessees, net of the operating expenses for such hotels and rent payments to us and, in the case of any hotel that is owned by a wholly-owned subsidiary of our TRS,TRSs, the revenue from that hotel, net of the operating expenses. In certain circumstances, the ability of our TRSs to deduct interest expense or utilize net operating loss carryforwards for federal income tax purposes may be limited. Accordingly, although our ownership of our TRSTRSs allows us to participate in the operating income from our hotels in addition to receiving rent, that operating income will be fully subject to income tax. The after-tax net income of our TRSTRSs is available for distribution to us.
Our TRS lessee structure subjects us to the risk of increased hotel operating expenses.
Our leases with our TRS lessees require our TRS lessees to pay us rent based in part on revenue from our hotels. Our operating risks include decreases in hotel revenue and increases in hotel operating expenses, including but not limited to the increases in wage and benefit costs, repair and maintenance expenses, energy costs and other operating expenses, which would adversely affect our TRS’TRSs’ ability to pay us rent due under the leases. Increases in these operating expenses could have a material adverse effect onadversely affect our financial condition,position, results of operations, and cash flows.flows or the market price of our stock.
Our Operating Partnership could be treated as a publicly traded partnership taxable as a corporation for federal income tax purposes.
Although we believe that our Operating Partnership will be treated as a partnership for federal income tax purposes, no assurance can be given that the IRS will not successfully challenge that position. If the IRS were to successfully contend that our Operating Partnership should be treated as a publicly traded partnership taxable as a corporation, we would fail to meet the 75% gross income test and certain of the asset tests applicable to REITs and, unless we qualified for certain statutory relief provisions, we would cease to qualify as a REIT. Also, our Operating Partnership would become subject to federal, state and local income tax, which would reduce significantly the amount of cash available for debt service and for distribution to us.
Our current hotel management companies, or any other hotel management companies that we may engage in the future may not qualify as “eligible independent contractors,” or our hotels may not be considered “qualified lodging facilities.”
Rent paid by a lessee that is a “related party tenant” of ours will not be qualifying income for purposes of the two gross income tests applicable to REITs. An exception is provided, however, for leases of “qualified lodging facilities” to a TRS so long as the hotels are managed by an “eligible independent contractor” and certain other requirements are satisfied. We lease all of our hotels to our TRS lessees. All of our hotels are operated pursuant to hotel management agreements with InterstateAimbridge and other hotel management companies, each of which we believe qualifies as an “eligible independent contractor.” Among other requirements, to qualify as an eligible independent contractor, the hotel manager must not own, directly or through its stockholders, more than 35% of our outstanding shares, and no person or group of persons can own more than 35% of our outstanding shares and the shares (or ownership interest) of the hotel manager, taking into account certain ownership attribution rules. The ownership attribution rules that apply for purposes of these 35% thresholds are complex, and monitoring actual and constructive ownership of our shares by our hotel managers and their owners may not be practical. Accordingly, there can be no assurance that these ownership levels will not be exceeded.
In addition, for a hotel management company to qualify as an eligible independent contractor, such company or a related person must be actively engaged in the trade or business of operating “qualified lodging facilities” (as defined below) for one or more persons not related to the REIT or its TRS at each time that such company enters into a hotel management contract with a TRS or its TRS lessee. As of the date hereof, we believe each of our hotel management companies operates qualified lodging facilities for certain persons who are not related to us or our TRS.TRSs. However, no assurances can be provided that our hotel management companies or any other hotel managers that we may engage in the future will in fact comply with this requirement. Failure to comply with this requirement would require us to find other managers for future contracts and if we hired a management company without knowledge of the failure, it could jeopardize our status as a REIT.
Finally, each property with respect to which our TRS lessees pay rent must be a “qualified lodging facility.” A “qualified lodging facility” is a hotel, motel or other establishment more than one-half of the dwelling units in which are used on a transient basis, including customary amenities and facilities, provided that no wagering activities are conducted at or in connection with such facility by any person who is engaged in the business of accepting wagers and who is legally authorized to engage in such business at or in connection with such facility. As of the date hereof, we believe that the properties that are leased to our TRS lessees are qualified lodging facilities. Although we intend to monitor future acquisitions and improvements of properties, REIT provisions of the IRC provide only limited guidance for making determinations under the requirements for qualified lodging facilities, and there can be no assurance that these requirements will be satisfied. If weany of our properties are not deemed to be a "qualified lodging facility," we may fail to qualify as a REIT.
Our ownership of our TRS isTRSs are subject to limitations and our transactions with our TRSTRSs could cause us to be subject to a 100% penalty tax on certain income or deductions if those transactions are not conducted on arm’s-length terms.
Overall, no more than 25% (20% for taxable years beginning after December 31, 2017)20% of the value of a REIT’s assets may consist of stock or securities of one or more TRSs. In addition, the IRC limits the deductibility of interest paid or accrued by a TRS to its parent REIT to provide assurance that the TRS is subject to an appropriate level of corporate taxation. The IRC also imposes a 100% excise tax on certain transactions between a TRS and its parent REIT that are not conducted on an arm’s-length basis. The 100% tax would apply, for example, to the extent that we were found to have charged our TRS lessees rent in excess of an arm’s-length rent. We monitor the value of our investment in our TRSTRSs for the purpose of ensuring compliance with TRS ownership limitations and structure our transactions with our TRSTRSs on terms that we believe are arm’s lengtharm’s-length to avoid incurring the 100% excise tax described above. There can be no assurance, however, that we will be able to comply with the 25% (20% for taxable years beginning after December 31, 2017)20% TRS limitations or to avoid application of the 100% excise tax.
If any subsidiary REIT failed to qualify as a REIT, we could be subject to higher taxes and could fail to remain qualified as a REIT.
We own and may in the future own interests in entities that have elected to be taxed as a REIT under the U.S. federal income tax laws (each, a “subsidiary REIT”). A subsidiary REIT is subject to the various REIT qualification requirements and other limitations described herein that are applicable to us. If any of our subsidiary REITs were to fail to qualify as a REIT, then (i) such subsidiary REIT would become subject to U.S. federal income tax and (ii) our ownership of shares in such subsidiary REIT would cease to be a qualifying asset for purposes of the asset tests applicable to REITs. If any subsidiary REIT was to fail to qualify as a REIT, it is possible that we would fail certain of the asset tests applicable to REITs, in which event we would fail to qualify as a REIT unless we could avail ourselves of certain relief provisions. We may make “protective” TRS elections with respect to our subsidiary REITs and may implement other protective arrangements intended to avoid such an outcome if a subsidiary REIT was not to qualify as a REIT, but there can be no assurance that such “protective” election and other arrangements will be effective to avoid the resulting adverse consequences to us. Moreover, even if the “protective” TRS election was to be effective in the event of the failure of our subsidiary REIT to maintain its qualification as a REIT, such subsidiary REIT would be subject to federal income tax and we cannot assure you that we would not fail to satisfy the requirement that not more than 20 percent of the value of our total assets may be represented by the securities of one or more TRSs. In this event, we would fail to qualify as a REIT unless we or such subsidiary REIT could avail ourselves or itself of certain relief provisions.
We may be subject to adverse legislative or regulatory tax changes.
At any time, the federal income tax laws governing REITs or the administrative interpretations of those laws may be amended. We cannot predict when or if any new federal income tax law, regulation, or administrative interpretation, or any amendment to any existing federal income tax law, regulation or administrative interpretation, will be adopted, promulgated or become effective and any such law, regulation, or interpretation may take effect retroactively. We and our stockholders could be adversely affected by any such change in, or any new, federal income tax law, regulation or administrative interpretation and we could experience a reduction in the price of our stock. We cannot predict the long-term effect of any recent changes or any future law changes on REITs and their stockholders.
Stockholders may be restricted from acquiring or transferring certain amounts of our stock.
The stock ownership restrictions of the IRC for REITs and the 9.8% stock ownership limit in our charter may inhibit market activity in our capital stock and restrict our business combination opportunities.
To qualify as a REIT for each taxable year, five or fewer individuals, as defined in the IRC, may not own, beneficially or constructively, more than 50% in value of our issued and outstanding stock at any time during the last half of a taxable year. Attribution rules in the IRC determine if any individual or entity beneficially or constructively owns our capital stock under this requirement. Additionally, at least 100 persons must beneficially own our capital stock during at least 335 days of a taxable year for each taxable year. To help insureensure that we meet these tests, our charter restricts the acquisition and ownership of shares of our capital stock.
Our charter, with certain exceptions, authorizes our directors to take such actions as are necessary and desirable to preserve our qualification as a REIT. Unless exempted by our board of directors, our charter prohibits any person from beneficially or constructively owning more than 9.8% in value or number of shares, whichever is more restrictive, of the outstanding shares of any class or series of our capital stock. Our board of directors may not grant an exemption from these restrictions to any proposed transferee whose ownership in excess of 9.8% of the value of our outstanding shares would result in our failing to qualify as a REIT. These restrictions on transferability and ownership will not apply, however, if our board of directors determines that it is no longer in our best interest to continue to qualify as a REIT.
We may pay taxable dividends in our common stock and cash, in which case stockholders may sell shares of our common stock to pay tax on such dividends.
We may distribute taxable dividends that are payable in cash and common stock at the election of each stockholder. Under IRS Revenue Procedure 2017-45, as a publicly offered REIT, as long as at least 20% of the total dividend is available in cash and certain other requirements are satisfied, the IRS will treat the stock distribution as a dividend (to the extent applicable rules treat such distribution as being made out of our earnings and profits). If we made a taxable dividend payable in cash and common stock, taxable stockholders receiving such dividends will be required to include the full amount of the dividend as ordinary income to the extent of our current and accumulated earnings and profits, as determined for federal income tax purposes. As a result, stockholders may be required to pay income tax with respect to such dividends in excess of the cash dividends received. If a U.S. stockholder sells the common stock that it receives as a dividend to pay this tax, the sales proceeds may be less than the amount included in income with respect to the dividend, depending on the market price of our common stock at the time of the sale. Furthermore, with respect to certain non-U.S. stockholders, we may be required to withhold federal income tax with respect to such dividends, including in respect of all or a portion of such dividend that is payable in common stock. If we made a taxable dividend payable in cash and our common stock and a significant number of our stockholders determine to sell shares of our common stock to pay taxes owed on dividends, it may put downward pressure on the trading price of our common stock. We do not currently intend to pay a taxable dividend of our common stock and cash.
The 100% prohibited transactions tax may limit our ability to dispose of our properties, and we could incur a material tax liability if the IRS successfully asserts that the 100% prohibited transaction tax applies to some or all of our past or future dispositions.
A REIT’s net income from prohibited transactions is subject to a 100% tax. In general, prohibited transactions are sales or other dispositions of property, other than foreclosure property, held primarily for sale to customers in the ordinary course of business. We have selectively disposed of certain of our properties in the past and intend to make additional dispositions in the future. Although a safe harbor to the characterization of the sale of property by a REIT as a prohibited transaction is available, some of our past dispositions may not have qualified for that safe harbor and some or all of our future dispositions may not qualify for that safe harbor. We believe that our past dispositions will not be treated as prohibited transactions, and we may avoid disposing of property that may be characterized as held primarily for sale to customers in the ordinary course of business. Consequently, we may choose not to engage in certain sales of our properties or may conduct such sales through our TRS,TRSs, which would be subject to federal and state income taxation as a corporation. Moreover, no assurance can be provided that the IRS will not assert that some or all of our past or future dispositions are subject to the 100% prohibited transactions tax. If the IRS successfully imposes the 100% prohibited transactions tax on some or all of our dispositions, the resulting tax liability could be material.
The IRS could determine that certain payments we have received in the nature of liquidated damages may not be ignored for purposes of the gross income tests applicable to REITs.
In connection with our purchases and sales of properties, we have received payments in the nature of liquidated damages. The IRC does not specify the treatment of litigation settlements and liquidated damages for purposes of the gross income tests applicable to REITs. The IRS has issued private letter rulings to other taxpayers ruling that such payments will be ignored for purposes of the gross income tests. A private letter ruling can be relied upon only by the taxpayer to whom it was issued. Based on the IRS’s private letters rulings and the advice of our tax advisors, we believe these payments should be ignored for purposes of the gross income tests. No assurance can be provided that the IRS will not successfully challenge that position. In the event of a successful challenge, we believe that we would be able to maintain our REIT status if we qualified to use a REIT “savings clause” and paid the required penalty.
Item 1B. Unresolved Staff Comments.
None.
Item 2. Properties.
Our Portfolio
A list of our hotel properties as of December 31, 20162019 is included in the table below. According to current chain scales as defined by STR, as of December 31, 2016, one2019, two of our hotel properties with 157a total of 280 guestrooms isare categorized as an Upper-upscale hotel,hotels, 60 of our hotel properties with 8,361a total of 9,537 guestrooms wereare categorized as Upscale hotels and 2010 of our hotel properties with 2,439a total of 1,471 guestrooms wereare categorized as Upper-midscale hotels. At December 31, 2016, legal title to one of our hotels was held by a qualified intermediary (a “Parked Asset”) pending completion of a reverse 1031 Exchange in connection with certain properties that were under contract for sale to affiliates of American Capital Realty Hospitality Trust, Inc. (“ARCH”). See Item 7. — “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Hotel Property Portfolio Activity.” While a hotel is a Parked Asset, we retain essentially all of the legal and economic benefits and obligations related to the Parked Asset. As such, the Parked Asset is consolidated as a variable interest entity (“VIE”) in our Consolidated Balance Sheet at December 31, 2016 and the operating results of the Parked Asset are consolidated in our Consolidated Statement of Operations for the year then ended. Hotel information for the year ended December 31, 20162019 is as follows:
|
| | | | | |
Franchise/Brand | | Location | | Number of
Guestrooms |
Marriott/Starwood(1) Marriott | | | | |
|
AC Hotel by Marriott(1) | | Atlanta, GA | | 255 |
|
Courtyard by Marriott(2)(1) | | Indianapolis, IN | | 297 |
|
Courtyard by Marriott(3)(1) | | Fort Lauderdale, FL | | 261 |
|
Courtyard by Marriott(1) | | Nashville, (West End), TN | | 226 |
|
Courtyard by Marriott(3)(1) | | New Haven, CT | | 207 |
|
Courtyard by Marriott(1) | | Fort Worth, TX | | 203 |
|
Courtyard by Marriott(1) | | New Orleans (Convention), LA | | 202 |
|
Courtyard by Marriott(3)(1) | | Pittsburgh, PA | | 183 |
|
Courtyard by Marriott(1) | | Charlotte, NC | | 181 |
|
Courtyard by Marriott(1) | | Atlanta (Decatur), GA | | 179 |
|
Courtyard by Marriott(2)(1) | | Phoenix (Scottsdale), AZ | | 153 |
|
Courtyard by Marriott(2)(1) | | New Orleans (Metairie), LA | | 153 |
|
Courtyard by Marriott(3)(1) | | Atlanta (Downtown), GA | | 150 |
|
Courtyard by Marriott(3)(1) | | New Orleans (French Quarter), LA | | 140 |
|
Courtyard by Marriott(3)(7)(1) | | Jackson, MSKansas City, MO | | 117123 |
|
Courtyard by Marriott(3)(1) | | Dallas (Arlington), TX | | 103 |
|
Courtyard by Marriott(3)(7)
| | Memphis (Germantown), TN | | 93 |
|
Courtyard by Marriott(3)(7)
| | El Paso, TX | | 90 |
|
Fairfield Inn & Suites by Marriott(2) | | Louisville, KY | | 140 |
|
Fairfield Inn & SuitesFour Points by MarriottSheraton(3)(7)(2)
| | Memphis (Germantown), TN | | 80 |
|
Fairfield Inn & Suites by Marriott(3)
| | Dallas (Fort Worth), TX | | 70 |
|
Four Points(3)
| | San Francisco, CA | | 101 |
|
Marriott(3)(1) | | Boulder, CO | | 157165 |
|
Residence Inn by Marriott(3)(4) | | Salt Lake City, UTPortland (Downtown), OR | | 258 |
|
Residence Inn by Marriott(1) | | Baltimore (Downtown), MD | | 189 |
|
Residence Inn by Marriott(3)(1) | | Cleveland, OH | | 175 |
|
Residence Inn by Marriott(1) | | Atlanta, (Midtown), GA | | 160 |
|
Residence Inn by Marriott(3)(4)(1) | | Hunt Valley,Boston (Watertown), MA | | 150 |
|
Residence Inn by Marriott(1) | | Baltimore (Hunt Valley), MD | | 141 |
|
Residence Inn by Marriott(2)(4)(3) | | Portland (Portland Airport at Cascade Station), OR | | 124 |
|
Residence Inn by Marriott(2)(4) | | Portland (Hillsboro), OR | | 122 |
|
Residence Inn by Marriott(1) | | New Orleans (Metairie), LA | | 120 |
|
Residence Inn by Marriott(3)(1) | | Branchburg, NJ | | 101 |
|
Residence Inn by Marriott(3)(7)(1) | | Jackson (Ridgeland), MS | | 100 |
|
Residence Inn by Marriott(3)
| | Dallas (Arlington), TX | | 96 |
|
Residence Inn by Marriott(3)(7)
| | Memphis (Germantown), TN | | 78 |
|
SpringHill Suites by Marriott(3)(1) | | New Orleans, LA | | 208 |
|
SpringHill Suites by Marriott(2) | | Louisville, KY | | 198 |
|
SpringHill Suites by Marriott(2)(1) | | Indianapolis, IN | | 156 |
|
SpringHill Suites by Marriott(2)(1) | | Phoenix (Scottsdale), AZ | | 121 |
|
SpringHill Suites by Marriott(3)(1) | | Minneapolis (Bloomington), MN | | 113 |
|
SpringHill Suites by Marriott(3)
| | Nashville, TN | | 78 |
|
Total Marriott/Starwood (32Marriott (35 hotel properties) | | | | 4,4345,819 |
|
| | | | |
|
| | | | | |
Franchise/Brand | | Location | | Number of
Guestrooms |
Hilton | | | | |
|
DoubleTree(3)(1) | | San Francisco, CA | | 210 |
|
Hampton Inn(3)
| | Boston (Norwood), MA | | 139 |
|
Hampton Inn(2)
| | Santa Barbara (Goleta), CA | | 101 |
|
Hampton Inn(3)
| | Provo, UT | | 87 |
|
Hampton Inn & Suites(3)(2) | | Minneapolis, MN | | 211 |
|
Hampton Inn & Suites(1)(3)(4) | | Austin, TX | | 209 |
|
Hampton Inn & Suites(3)(1) | | Minneapolis (Bloomington), MN | | 146 |
|
Hampton Inn & Suites(2)
| | Tampa (Ybor City), FL | | 138 |
|
Hampton Inn & Suites(2)(1) | | Baltimore, MD | | 116 |
|
Hampton Inn & Suites(1) | | Ventura (Camarillo), CA | | 116 |
|
Hampton Inn & Suites(2)(1) | | San Diego (Poway), CA | | 108 |
|
Hampton Inn & Suites(2)(4) | | Dallas (Fort Worth), TXSilverthorne, CO | | 10588 |
|
Hampton Inn & Suites(3)
| | Nashville (Smyrna), TN | | 83 |
|
Hilton Garden Inn(3)(4)(1) | | Houston (Galleria), TX | | 190 |
|
Hilton Garden Inn(2)
| | Houston (Energy Corridor), TX | | 182190 |
|
Hilton Garden Inn(2)(1)(3) | | Birmingham, ALHouston (Galleria), TX | | 130182 |
|
Hilton Garden Inn(2)(4) | | Atlanta (Duluth), GASan Francisco, CA | | 122169 |
|
Hilton Garden Inn(2)(4) | | San Jose (Milpitas), CA | | 161 |
|
Hilton Garden Inn(1) | | Boston (Waltham), MA | | 148 |
|
Hilton Garden Inn(1) | | Greenville, SC | | 120 |
|
Hilton Garden Inn(2)(1) | | Nashville (Smyrna), TN | | 112 |
|
Hilton Garden Inn(2)
| | Dallas (Fort Worth), TX | | 98 |
|
Hilton Garden Inn(3)
| | Minneapolis (Eden Prairie), MN | | 97 |
|
Hilton Garden InnHomewood Suites(2)(1)
| | Birmingham, ALAliso Viejo (Laguna Beach), CA | | 95129 |
|
Homewood Suites(3)(7)(1) | | Jackson (Ridgeland), MSTucson, AZ | | 91122 |
|
Total Hilton (22(17 hotel properties) | | | | 2,8902,514 |
|
Hyatt | | | | |
|
Hyatt House(3)(1) | | Orlando, FL | | 168 |
|
Hyatt House(1) | | Miami, FL | | 156163 |
|
Hyatt House(2) | | Denver (Englewood), CO | | 135 |
|
Hyatt Place(3)(1) | | Minneapolis, MN | | 213 |
|
Hyatt Place(3)(6)(1) | | Chicago (Downtown), IL | | 206 |
|
Hyatt Place(2) | | Phoenix (Mesa), AZ | | 152 |
|
Hyatt Place(2) | | Chicago (Lombard), IL | | 151 |
|
Hyatt Place(2) | | Orlando (Convention), FL | | 150 |
|
Hyatt Place(2) | | Orlando (Universal), FL | | 150 |
|
Hyatt Place(2) | | Atlanta, GA | | 150 |
|
Hyatt Place(1)(3)
| | Fort Myers, FL | | 148 |
|
Hyatt Place(3)(4)
| | Portland, OR | | 136 |
|
Hyatt Place(3) | | Phoenix, AZ | | 127 |
|
Hyatt Place(2)
| | Dallas (Arlington), TX | | 127 |
|
Hyatt Place(2)
| | Denver (Lone Tree), CO | | 127 |
|
Hyatt Place(2) | | Phoenix (Scottsdale), AZ | | 126 |
|
Hyatt Place(2) | | Denver (Englewood), CO | | 126 |
|
Hyatt Place(2) | | Chicago (Hoffman Estates), IL | | 126 |
|
Hyatt Place(2) | | Baltimore (Owing Mills), MD | | 123 |
|
Hyatt Place(3)(5)(1) | | Long Island (Garden City), NY | | 122 |
|
Total Hyatt (18(16 hotel properties) | | | | 2,5992,374 |
|
| | | | |
|
| | | | | |
Franchise/Brand | | Location | | Number of
Guestrooms
|
IHG | | | | |
|
Holiday Inn(3)(4)
| | Atlanta (Duluth), GA | | 143 |
|
Holiday Inn Express(3)
| | Charleston, WV | | 66 |
|
Holiday Inn Express & Suites(3)(1) | | San Francisco, CA | | 252 |
|
Holiday Inn Express & Suites(3)(1) | | Minneapolis (Minnetonka), MN | | 93 |
|
Holiday Inn Express & Suites(2)
| | Salt Lake City (Sandy), UT | | 88 |
|
Hotel Indigo(3)(1) | | Asheville, NC | | 115 |
|
Staybridge Suites(3)(1) | | Denver (Glendale), CO | | 121 |
|
Staybridge Suites(3)(7)
| | Jackson, MS | | 92 |
|
Total IHG (8(4 hotel properties) | | | | 970581 |
|
Carlson | | | | |
|
Country Inn & Suites by Carlson(3)
| | Charleston, WV | | 64 |
|
Total Carlson (1 hotel property) | | | | 64 |
|
Total Portfolio (81(72 hotel properties) | | | | 10,95711,288 |
|
(1) On September 23, 2016, Marriott completed its previously announced acquisition of Starwood Hotels & Resorts Worldwide, Inc. (“Starwood”). As a result of the transaction, Starwood became an indirect, wholly owned subsidiary of Marriott.
| |
(1) | These hotel properties are unencumbered or included in our borrowing base for our unsecured credit and term loan facilities at December 31, 2019. |
| |
(2) | These hotel properties are subject to mortgage debt at December 31, 2016.2019. For additional information concerning our mortgage debt and lenders, see Item"Item 7. — “Management’sManagement’s Discussion and Analysis of Financial Condition and Results of Operations — Outstanding Indebtedness,” and "Note 5-Debt,6-Debt,” to our Consolidated Financial Statements included under Item"Item 8. — “FinancialFinancial Statements and Supplementary Data.” |
| |
(3) | These hotel properties are unencumbered or included in our borrowing base for our unsecured credit facilities at December 31, 2016. |
| |
(4) | These hotel properties are subject to ground leases as described below in “Other“Our Hotel Operating Agreements — Ground Leases.” |
| |
(5)(4) | ThisWe own a 51% controlling interest in these hotel property is subject toproperties through a PILOT (payment in lieu of taxes) lease as described below in “Other Hotel Operating Agreements — Ground Leases.”
|
| |
(6) | This hotel was a Parked Asset at December 31, 2016. See Item 7. — “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Hotel Property Portfolio Activity.” |
| |
(7) | consolidated joint venture. These hotel properties are currently under contract to be sold to an affiliate of ARCH pursuant to a purchase and sale agreement that was reinstated on February 11, 2016. See Item 7. — “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Hotel Property Portfolio Activity.”included in the borrowing base for the joint venture's credit facility. |
In addition to our hotel property portfolio, we own sixtwo parcels of undeveloped land. TwoOne of the parcels areis designated as held for sale. The parcels are generally suitable for the development of new hotel properties, possible expansion of existing hotel properties or the development of restaurants. When unique opportunities to develop hotels utilizing our own resources arise, we may develop our own hotels on occasion. We may also sell these parcels in the future if and when market conditions warrant if we opt not to develop our own
hotels on these parcels. To reduce the risk of incurring a prohibited transaction tax on any sales, we may transfer some or all of these parcels to our TRS.TRSs.
Our Hotel Operating Agreements
Ground Leases
At December 31, 2016, six2019, four of our hotel properties are subject to ground lease agreements that cover all of the land underlying the respective hotel property.
The Residence Inn by Marriott located in Portland (Cascade Station), OR is subject to a ground lease with an initial lease termination date of June 30, 2084 with one option to extend for an additional 14 years. Ground rent for the initial lease term was prepaid in full at the time we acquired the leasehold interest. If the option to extend is exercised, monthly ground rent will be charged based on a formula established in the ground lease.
The Hampton Inn & Suites located in Austin, TX is subject to a ground lease with an initial lease termination date of May 31, 2050. Annual ground rent currently is estimated to be $0.4 million for 2017 including performance based incentive rent. Annual rent is increased every five years with the next adjustment coming in 2020.
The Hilton Garden Inn located in Houston (Galleria Area), Texas is subject to a ground lease with an initial lease termination date of April 20, 2053 with one option to extend for an additional 10 years. Annual ground rent currently is estimated to be $0.5 million for 2017 including performance based incentive rent. Annual rent is increased every five years with the next adjustment coming in 2018.
The Hyatt Place located in Portland (Portland Airport/Cascade Station), OR is subject to a ground lease with a lease termination date of June 30, 2084 with one option to extend for an additional 14 years. Ground rent for the initial lease term was prepaid in full at the time we acquired the leasehold interest. If the option to extend is exercised, monthly ground rent will be charged based on a formula established in the ground lease.
The HolidayHampton Inn & Suites located in Duluth, GA is subject to a ground lease with a lease termination date of April 1, 2069. Annual ground rent currently is estimated to be $0.2 million in 2017. Annual rent is increased annually by 3% for each successive lease year, on a cumulative basis.
The Residence Inn by Marriott located in Baltimore (Hunt Valley)Austin (Downtown/Convention Center), MDTX is subject to a ground lease with an initial lease termination date of DecemberMay 31, 2019 and twelve successive five-year renewal periods with each term payment increasing by 12.5%.2050. Annual ground rent currently is currently estimated to be $0.4$0.5 million for 2017.2020 including performance based incentive rent. Annual rent is increased every five years with the next adjustment coming in 2020.
The Hilton Garden Inn located in Houston (Galleria), TX is subject to a ground lease with an initial lease termination date of April 20, 2053 with one option to extend for an additional 10 years. Annual ground rent currently is estimated to be $0.5 million for 2020 including performance based incentive rent. Annual rent is increased every five years with the next adjustment coming in 2023.
These ground leases generally require us to make rental payments and payments for our share of charges, costs, expenses, assessments and liabilities, including real property taxes and utilities. Furthermore, these ground leases generally require us to obtain and maintain insurance covering the subject property.
In addition,On January 31, 2019, we exercised our option pursuant to a ground lease agreement to purchase the land upon which our Residence Inn by Marriott in Baltimore (Hunt Valley), MD is located for $4.2 million, which resulted in the termination of obligations under the ground lease. As a result, the hotel is no longer subject to a ground lease.
On December 4, 2019, we exercised our right to acquire a fee simple interest in the land upon which our Hyatt Place located in Garden City, NY is located for nominal consideration. As a result, the hotel is no longer subject to a PILOT (payment in lieu of taxes) lease with the Town of Hempstead Industrial Development Authority (the “IDA”), as lessor. The lease expires on December 31, 2019. Upon expiration of the lease, we expect to exercise our right to acquire a fee simple interest in the Garden City hotel property from the IDA for a nominal consideration.Authority.
Franchise Agreements
At December 31, 2016,2019, all of our hotel properties operate under franchise agreements, or similar agreements, that allow for access to reservation systems, with Marriott, Hilton, Hyatt, IHG, or Country Inns & Suites By Carlson, Inc. (“Carlson”).IHG. We believe that the public’s perception of the quality associated with a brand-namebranded hotel is an important feature in its attractiveness to guests. Franchisors provide a variety of benefits to franchisees, including centralized reservation systems, national advertising, marketing programs and publicity designed to increase brand awareness, loyalty programs, training of personnel and maintenance of operational quality at hotels across the brand system.
The terms of our franchise agreements generally range from 10 to 20 years with various extension provisions. Each franchisor receives franchise fees ranging from 2% to 6% of each hotel property’s room revenue, and some agreements require that we pay marketing fees of up to 4% of room revenue. In addition, some of these franchise agreements require that we deposit into a reserve fund for capital expenditures up to 5% of the hotel property’s gross or room revenues depending on the franchisor to insure we comply with the franchisors’ standards and requirements. We also pay fees to our franchisors for services such as reservation and information systems.
Hotel Management Agreements
At December 31, 2016,2019, all of our hotel properties are operated pursuant to hotel management agreements with professional third-party hotel management companies as follows:
|
| | | | | | |
Management Company | | Number of Properties | | Number of Guestrooms |
Interstate Management Company, LLC and its affiliate Noble Management Group, LLC | | 40 |
| | 4,874 |
|
Select Hotel Group, LLC | | 12 |
| | 1,681 |
|
Affiliates of Marriott, including Courtyard Management Corporation, SpringHill SMC Corporation and Residence Inn by Marriott | | 6 |
| | 973 |
|
White Lodging Services Corporation | | 4 |
| | 791 |
|
Pillar Hotels and Resorts, LLC | | 7 |
| | 723 |
|
OTO Development, LLC | | 3 |
| | 466 |
|
Affiliates of IHG including IHG Management (Maryland) LLC and Intercontinental Hotel Group Resources, Inc. | | 2 |
| | 395 |
|
American Liberty Hospitality, Inc. | | 2 |
| | 372 |
|
Stonebridge Realty Advisors, Inc. | | 2 |
| | 367 |
|
Kana Hotels, Inc. | | 3 |
| | 315 |
|
Total | | 81 |
| | 10,957 |
|
|
| | | | | | |
Management Company | | Number of Properties | | Number of Guestrooms |
Affiliates of Aimbridge Hospitality, including Interstate Management Company, LLC (1) | | 30 |
| | 4,533 |
|
OTO Development, LLC | | 12 |
| | 1,696 |
|
Stonebridge Realty Advisors, Inc. and affiliates | | 9 |
| | 1,312 |
|
Affiliates of Marriott, including Courtyard Management Corporation, SpringHill SMC Corporation and Residence Inn by Marriott, Inc.
| | 7 |
| | 1,176 |
|
Select Hotels Group, LLC, an affiliate of Hyatt | | 5 |
| | 807 |
|
White Lodging Services Corporation | | 4 |
| | 791 |
|
American Liberty Hospitality, Inc. | | 2 |
| | 372 |
|
Fillmore Hospitality | | 1 |
| | 261 |
|
InterContinental Hotel Group Resources, Inc., an affiliate of IHG | | 1 |
| | 252 |
|
Crestline Hotels & Resorts, LLC | | 1 |
| | 88 |
|
Total | | 72 |
| | 11,288 |
|
(1) On October 25, 2019, Aimbridge Hospitality announced that it had completed a merger with Interstate Hotels and Resorts.
Our typical hotel management agreement requires us to pay a base fee to our hotel manager calculated as a percentage of hotel revenues. In addition, our hotel management agreements generally provide that the hotel manager can earn an incentive fee for revenue orupon achieving EBITDA over certain thresholds. Our TRS lessees may employ other hotel managers in the future. We do not, and will not, have any ownership or economic interest in any of the hotel management companies engaged by our TRS lessees.
Item 3. Legal Proceedings.
We are involved from time to time in litigation arising in the ordinary course of business; however, there are currently no pending legal actions that we believe would have a material adverse effect on our financial position or results of operations.
Item 4. Mine Safety Disclosures.
Not applicable.
PART II
| |
Item 5. | Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. |
Market Information
Our common stock began trading on the NYSE on February 9, 2011 under the symbol “INN.” Prior to that time, there was no public trading market for our common stock. The last reported sale price for our common stock as reported on the NYSE on February 15, 201718, 2020 was $16.11$11.49 per share. The following table sets forth the high and low sales price per share of our common stock per quarter reported on the NYSE, and the distributions declared on our common stock for each of the quarters indicated.
|
| | | | | | | | | | | | |
2016 | | High | | Low | | Distribution Declared Per Common Share/Unit |
Fourth Quarter | | $ | 16.04 |
| | $ | 12.57 |
| | $ | 0.1625 |
|
Third Quarter | | $ | 14.37 |
| | $ | 13.09 |
| | $ | 0.1625 |
|
Second Quarter | | $ | 13.24 |
| | $ | 11.06 |
| | $ | 0.1325 |
|
First Quarter | | $ | 11.97 |
| | $ | 9.28 |
| | $ | 0.1325 |
|
|
| | | | | | | | | | | | |
2015 | | High | | Low | | Distribution Declared Per Common Share/Unit |
Fourth Quarter | | $ | 13.75 |
| | $ | 11.58 |
| | $ | 0.1175 |
|
Third Quarter | | $ | 14.61 |
| | $ | 11.36 |
| | $ | 0.1175 |
|
Second Quarter | | $ | 14.22 |
| | $ | 12.57 |
| | $ | 0.1175 |
|
First Quarter | | $ | 14.42 |
| | $ | 12.25 |
| | $ | 0.1175 |
|
Stockholder Information
As of February 15, 2017,18, 2020, our common stock was held of record by 321290 holders and there were 93,513,014105,174,471 shares of our common stock outstanding.
Distribution Information
As a REIT, we must distribute annually to our stockholders an amount at least equal to 90% of our REIT taxable income, determined without regard to the deduction for dividends paid and excluding any net capital gain. We will be subject to income tax on our taxable income that is not distributed and to an excise tax to the extent that certain percentages of our taxable income are not distributed by specified dates. Our cash available for distribution may be less than the amount required to meet the distribution requirements for REITs under the IRC and we may be required to borrow money, sell assets or issue capital stock to satisfy the distribution requirements to maintain our REIT status.
The timing and frequency of distributions will be authorized by our Board of Directors, in its sole discretion, and declared by us based upon a variety of factors deemed relevant by our directors, including financial condition, restrictions under applicable law and loan agreements, capital requirements and the REIT requirements of the IRC. Our ability to make distributions will generally depend on receipt of distributions from the Operating Partnership, which depends primarily on lease payments from our TRS lessees with respect to our hotels.
We are generally restricted from declaring or paying any distributions, or setting aside any funds for the payment of distributions, on our common stock unless full cumulative distributions on our preferred stock have been declared and either paid or set aside for payment in full for all past distribution periods.
Securities Authorized for Issuance Under Equity Compensation Plans
The following table provides information as of December 31, 2016 with respect to our securities that may be issued under existing equity compensation plans:
|
| | | | | | | | | | |
Plan Category | | Number of Securities to be Issued Upon Exercise of Outstanding Options | | Weighted Average Exercise Price of Outstanding Options | | Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (1) |
Equity Compensation Plans Approved by Summit Hotel Properties, Inc. Stockholders (2) | | 235,000 |
| | $ | 9.75 |
| | 3,271,876 |
|
Equity Compensation Plans Not Approved by Summit Hotel Properties, Inc. Stockholders | | — |
| | — |
| | — |
|
Total | | 235,000 |
| | $ | 9.75 |
| | 3,271,876 |
|
(1) Excludes securities reflected in the column entitled “Number of Securities to be Issued Upon Exercise of Outstanding Options.”
(2) Consists of our Equity Plan.
During the year ended December 31, 2016, certain of our employees chose to have us acquire from them an aggregate of 61,622 common shares to pay their withholding taxes due upon vesting of restricted common shares granted pursuant to share award agreements. The average price paid by us for these shares was $11.63 per share.
Stock Performance Graph
The following graph compares the yearly change in our cumulative total stockholder return on our common shares from December 31, 2011 and through December 31, 2016, with the yearly change in the Standard and Poor’s 500 Stock Index (“S&P 500 Index”), and the SNL US REIT Hotel Index for the same period, assuming a base share price of $100.00 for our common stock, the S&P 500 Index and the SNL US REIT Hotel Index for comparative purposes. The SNL US REIT Hotel Index is composed of publicly traded REITs, all of which focus on investments in hotel properties. Total stockholder return equals appreciation in stock price plus dividends paid and assumes that all dividends are reinvested. The performance graph is not indicative of future investment performance. We do not make or endorse any predictions as to future share price performance.
|
| | | | | | | | | | | | | | | | | | |
| | Period Ended |
Index | | 12/31/2011 | | 12/31/2012 | | 12/31/2013 | | 12/31/2014 | | 12/31/2015 | | 12/31/2016 |
Summit Hotel Properties, Inc. | | 100.00 |
| | 103.36 |
| | 102.64 |
| | 148.42 |
| | 147.87 |
| | 207.27 |
|
S&P 500 Index | | 100.00 |
| | 114.23 |
| | 151.23 |
| | 171.93 |
| | 174.31 |
| | 195.16 |
|
SNL US REIT Hotel | | 100.00 |
| | 111.44 |
| | 140.78 |
| | 185.83 |
| | 143.76 |
| | 178.17 |
|
Item 6. Selected Financial Data.
The following information should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our audited Consolidated Financial Statements and related notes thereto, appearing elsewhere in this Form 10-K. |
| | | | | | | | | | | | | | | | | | | | |
(in thousands, except per share amounts) | | 2016 | | 2015 | | 2014 | | 2013 | | 2012 |
Statement of Operations Data | | |
| | |
| | |
| | |
| | |
|
Revenues: | | |
| | |
| | |
| | |
| | |
|
Room | | $ | 443,270 |
| | $ | 436,202 |
| | $ | 380,472 |
| | $ | 283,279 |
| | $ | 154,600 |
|
Other hotel operations revenue | | 30,665 |
| | 27,253 |
| | 22,994 |
| | 15,679 |
| | 7,100 |
|
Total revenues | | 473,935 |
| | 463,455 |
| | 403,466 |
| | 298,958 |
| | 161,700 |
|
Expenses: | | |
| | |
| | |
| | |
| | |
|
Hotel operating expenses: | | |
| | |
| | |
| | |
| | |
|
Room | | 110,221 |
| | 109,844 |
| | 101,150 |
| | 80,391 |
| | 45,130 |
|
Other direct | | 64,608 |
| | 64,010 |
| | 55,388 |
| | 39,815 |
| | 21,284 |
|
Other indirect | | 120,852 |
| | 121,974 |
| | 104,959 |
| | 78,136 |
| | 44,028 |
|
Total hotel operating expenses | | 295,681 |
| | 295,828 |
| | 261,497 |
| | 198,342 |
| | 110,442 |
|
Depreciation and amortization | | 72,406 |
| | 64,052 |
| | 63,763 |
| | 49,330 |
| | 30,645 |
|
Corporate general and administrative | | 19,292 |
| | 21,204 |
| | 19,884 |
| | 12,929 |
| | 9,573 |
|
Hotel property acquisition costs | | 3,492 |
| | 1,246 |
| | 769 |
| | 1,886 |
| | 3,050 |
|
Loss on impairment of assets | | 577 |
| | 1,115 |
| | 8,847 |
| | 1,369 |
| | 660 |
|
Total expenses | | 391,448 |
| | 383,445 |
| | 354,760 |
| | 263,856 |
| | 154,370 |
|
Operating income | | 82,487 |
| | 80,010 |
| | 48,706 |
| | 35,102 |
| | 7,330 |
|
Other income (expense): | | |
| | |
| | |
| | |
| | |
|
Interest expense | | (28,091 | ) | | (30,414 | ) | | (28,517 | ) | | (21,991 | ) | | (14,909 | ) |
Gain (loss) on disposal of assets, net | | 49,855 |
| | 65,067 |
| | 391 |
| | 363 |
| | (199 | ) |
Other income (expense) | | 2,560 |
| | 11,146 |
| | 595 |
| | (1,955 | ) | | 103 |
|
Total other income (expense), net | | 24,324 |
| | 45,799 |
| | (27,531 | ) | | (23,583 | ) | | (15,005 | ) |
Income (loss) from continuing operations before income taxes | | 106,811 |
| | 125,809 |
| | 21,175 |
| | 11,519 |
| | (7,675 | ) |
Income tax benefit (expense) | | 1,450 |
| | (553 | ) | | (744 | ) | | (4,894 | ) | | 728 |
|
Income (loss) from continuing operations | | 108,261 |
| | 125,256 |
| | 20,431 |
| | 6,625 |
| | (6,947 | ) |
Income (loss) from discontinued operations | | — |
| | — |
| | 492 |
| | (728 | ) | | 4,677 |
|
Net income (loss) | | 108,261 |
| | 125,256 |
| | 20,923 |
| | 5,897 |
| | (2,270 | ) |
Less - income attributable to non-controlling interests: | | |
| | |
| | |
| | |
| | |
|
Operating partnership | | (456 | ) | | (819 | ) | | (51 | ) | | 297 |
| | 1,194 |
|
Joint venture | | — |
| | — |
| | (1 | ) | | (316 | ) | | — |
|
Net income (loss) attributable to Summit Hotel Properties, Inc. | | 107,805 |
| | 124,437 |
| | 20,871 |
| | 5,878 |
| | (1,076 | ) |
Preferred dividends | | (18,232 | ) | | (16,588 | ) | | (16,588 | ) | | (14,590 | ) | | (4,625 | ) |
Premium on redemption of Series A Preferred Stock | | (2,125 | ) | | — |
| | — |
| | — |
| | — |
|
Net income (loss) attributable to common stockholders | | $ | 87,448 |
| | $ | 107,849 |
| | $ | 4,283 |
| | $ | (8,712 | ) | | $ | (5,701 | ) |
Earnings per share - Basic: | | |
| | |
| | |
| | |
| | |
|
Net income (loss) per share from continuing operations | | $ | 1.00 |
| | $ | 1.25 |
| | $ | 0.04 |
| | $ | (0.11 | ) | | $ | (0.28 | ) |
Net income (loss) per share from discontinued operations | | — |
| | — |
| | 0.01 |
| | (0.01 | ) | | 0.11 |
|
Net income (loss) per share | | $ | 1.00 |
| | $ | 1.25 |
| | $ | 0.05 |
| | $ | (0.12 | ) | | $ | (0.17 | ) |
Earnings per share - Diluted: | | |
| | |
| | |
| | |
| | |
|
Net income (loss) per share from continuing operations | | $ | 1.00 |
| | $ | 1.24 |
| | $ | 0.04 |
| | $ | (0.11 | ) | | $ | (0.28 | ) |
Net income (loss) per share from discontinued operations | | — |
| | — |
| | 0.01 |
| | (0.01 | ) | | 0.11 |
|
Net income (loss) per share | | $ | 1.00 |
| | $ | 1.24 |
| | $ | 0.05 |
| | $ | (0.12 | ) | | $ | (0.17 | ) |
Weighted average common shares outstanding: | | |
| | |
| | |
| | |
| | |
|
Basic | | 86,874 |
| | 85,920 |
| | 85,242 |
| | 70,327 |
| | 33,717 |
|
Diluted | | 87,343 |
| | 87,144 |
| | 85,566 |
| | 70,327 |
| | 33,849 |
|
Dividends per share | | $ | 0.55 |
| | $ | 0.47 |
| | $ | 0.46 |
| | $ | 0.45 |
| | $ | 0.45 |
|
Balance Sheet Data | | |
| | |
| | |
| | |
| | |
|
Total assets | | $ | 1,718,505 |
| | $ | 1,575,394 |
| | $ | 1,453,835 |
| | $ | 1,288,540 |
| | $ | 806,388 |
|
Debt | | $ | 652,414 |
| | $ | 671,536 |
| | $ | 621,344 |
| | $ | 429,653 |
| | $ | 308,212 |
|
Total equity | | $ | 1,013,470 |
| | $ | 856,926 |
| | $ | 785,201 |
| | $ | 822,378 |
| | $ | 473,537 |
|
|
| | | | | | | | | | | | | | | | | | | | |
(in thousands, except per share amounts) | | 2019 | | 2018 | | 2017 | | 2016 | | 2015 |
Statement of Operations Data | | |
| | |
| | |
| | |
| | |
|
Revenues: | | |
| | |
| | |
| | |
| | |
|
Room | | $ | 505,342 |
| | $ | 523,439 |
| | $ | 479,934 |
| | $ | 443,270 |
| | $ | 436,202 |
|
Food and beverage | | 23,785 |
| | 24,225 |
| | 21,359 |
| | 19,777 |
| | 18,325 |
|
Other | | 20,221 |
| | 19,606 |
| | 14,084 |
| | 10,888 |
| | 8,928 |
|
Total revenues | | 549,348 |
| | 567,270 |
| | 515,377 |
| | 473,935 |
| | 463,455 |
|
Expenses: | | |
| | |
| | |
| | | | |
Room | | 112,244 |
| | 119,724 |
| | 108,715 |
| | 97,358 |
| | 97,255 |
|
Food and beverage | | 18,552 |
| | 19,191 |
| | 16,734 |
| | 14,841 |
| | 14,275 |
|
Other hotel operating expenses | | 158,181 |
| | 159,173 |
| | 144,526 |
| | 134,420 |
| | 134,548 |
|
Property taxes, insurance and other | | 44,220 |
| | 43,339 |
| | 37,419 |
| | 30,250 |
| | 31,190 |
|
Management fees | | 16,575 |
| | 18,521 |
| | 18,210 |
| | 18,812 |
| | 18,560 |
|
Depreciation and amortization | | 99,445 |
| | 101,013 |
| | 85,927 |
| | 72,406 |
| | 64,052 |
|
Corporate general and administrative | | 23,622 |
| | 21,509 |
| | 19,597 |
| | 19,292 |
| | 21,204 |
|
Hotel property acquisition costs | | — |
| | — |
| | 354 |
| | 3,492 |
| | 1,246 |
|
Loss on impairment of assets | | 2,521 |
| | 1,075 |
| | — |
| | 577 |
| | 1,115 |
|
Total expenses | | 475,360 |
| | 483,545 |
| | 431,482 |
| | 391,448 |
| | 383,445 |
|
Gain on disposal of assets, net | | 45,418 |
| | 41,474 |
| | 43,209 |
| | 49,855 |
| | 65,067 |
|
Operating income | | 119,406 |
| | 125,199 |
| | 127,104 |
| | 132,342 |
| | 145,077 |
|
Other income (expense): | | |
| | |
| | |
| | | | |
Interest expense | | (41,030 | ) | | (41,944 | ) | | (29,687 | ) | | (28,091 | ) | | (30,414 | ) |
Other income, net | | 5,472 |
| | 6,949 |
| | 3,778 |
| | 2,560 |
| | 11,146 |
|
Total other expense | | (35,558 | ) | | (34,995 | ) | | (25,909 | ) | | (25,531 | ) | | (19,268 | ) |
Income from continuing operations before income taxes | | 83,848 |
| | 90,204 |
| | 101,195 |
| | 106,811 |
| | 125,809 |
|
Income tax (expense) benefit | | (1,500 | ) | | 922 |
| | (1,674 | ) | | 1,450 |
| | (553 | ) |
Net income | | 82,348 |
| | 91,126 |
| | 99,521 |
| | 108,261 |
| | 125,256 |
|
Less: (Income) loss attributable to non-controlling interests: | | |
| | |
| | |
| | | | |
Operating Partnership | | (157 | ) | | (205 | ) | | (307 | ) | | (456 | ) | | (819 | ) |
Joint venture | | 419 |
| | — |
| | — |
| | — |
| | — |
|
Net income attributable to Summit Hotel Properties, Inc. | | 82,610 |
| | 90,921 |
| | 99,214 |
| | 107,805 |
| | 124,437 |
|
Preferred dividends | | (14,838 | ) | | (16,671 | ) | | (17,408 | ) | | (18,232 | ) | | (16,588 | ) |
Premium on redemption of preferred stock | | — |
| | (3,277 | ) | | (2,572 | ) | | (2,125 | ) | | — |
|
Net income attributable to common stockholders | | $ | 67,772 |
| | $ | 70,973 |
| | $ | 79,234 |
| | $ | 87,448 |
| | $ | 107,849 |
|
Earnings per share: | | | | |
| | |
| | |
| | |
|
Basic | | $ | 0.65 |
| | $ | 0.68 |
| | $ | 0.79 |
| | $ | 1.00 |
| | $ | 1.25 |
|
Diluted | | $ | 0.65 |
| | $ | 0.68 |
| | $ | 0.79 |
| | $ | 1.00 |
| | $ | 1.24 |
|
Weighted average common shares outstanding: | | |
| | |
| | |
| | |
| | |
|
Basic | | 103,887 |
| | 103,623 |
| | 99,406 |
| | 86,874 |
| | 85,920 |
|
Diluted | | 103,939 |
| | 103,842 |
| | 99,780 |
| | 87,343 |
| | 87,144 |
|
Dividends per share | | $ | 0.72 |
| | $ | 0.72 |
| | $ | 0.67 |
| | $ | 0.55 |
| | $ | 0.47 |
|
Balance Sheet Data | | | | |
| | |
| | |
| | |
|
Total assets | | $ | 2,355,683 |
| | $ | 2,222,297 |
| | $ | 2,209,874 |
| | $ | 1,718,505 |
| | $ | 1,575,394 |
|
Debt | | $ | 1,016,163 |
| | $ | 958,712 |
| | $ | 868,236 |
| | $ | 652,414 |
| | $ | 671,536 |
|
Total equity | | $ | 1,243,390 |
| | $ | 1,192,144 |
| | $ | 1,277,376 |
| | $ | 1,013,470 |
| | $ | 856,926 |
|
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Industry Trends and Outlook
Room-night demand in the U.S. lodging industry is generally correlated to certain macroeconomic trends. Key drivers of lodging demand include growth in GDP,gross domestic product, corporate profits, capital investments and employment. The recent volatility ofVolatility in the economy and lodging industry and the risk thatrisks arising from global and domestic political or economic conditions may cause slowing economic growth, to slow or stall, could adversely affect industry growth expectations.which would have an adverse effect on lodging demand. Also, increasing supply in the industry, and specifically in our markets or sub-markets, has and may reduce growth expectations.continue to adversely affect RevPAR in the near-term.
The U.S. lodging industry has experienced a positive trend through 2016 that we expect to continuesince emerging from the last downturn in 2009, though at a slower rate in 2017.recent periods. According to a report prepared in January 2017 bythe PricewaterhouseCoopers LLP U.S.industry report, "Hospitality Directions: January 2020," RevPAR growth in 2016the U.S. for Upscale hotels was 2.1%, while projected 2017is forecasted to decline by 0.3% for 2020. Actual RevPAR growth is 1.2%. While we continue to have a positive outlook on national macro-economic conditionsin our industry and their effect onthe Upscale market segment was lower in 2019 than originally forecasted and RevPAR growth, room-night demand expectations for fiscal year 2017 are expected to decelerate from those experienced in 2016 based on anticipated levels of business and leisure travel. While the supply of new hotels under construction has increased and is expected to acceleratecontinue to decelerate in 2017, we expect that our operating results will not be adversely affected to a substantial degree by near-term increases in lodging supply in our markets.fiscal year 2020.
Operating Performance Metrics
We use a variety of operating performance indicators and other information to evaluate the financial condition and operating performance of our business. These key indicators include financial information that is prepared in accordance with GAAP, as well as other financial information that is not prepared in accordance with GAAP. In addition, we use other information that may not be financial in nature, including statistical information and comparative data. We use this information to measure the performance of individual hotel properties, groups of hotel properties and/or our business as a whole. We periodically compare historical information to our internal budgets as well as industry-wide information. These key indicators include:
Occupancy — Occupancy represents the total number of guestrooms occupied divided by the total number of guestrooms available.
Average Daily Rate (ADR) — ADR represents total room revenues divided by the total number of guestrooms occupied.
Revenue Per Available Room (RevPAR) — RevPAR is the product of ADR and Occupancy.
| |
• | Occupancy — Occupancy represents the total number of guestrooms occupied divided by the total number of guestrooms available. |
| |
• | Average Daily Rate (ADR) — ADR represents total room revenues divided by the total number of guestrooms occupied. |
| |
• | Revenue Per Available Room (RevPAR) — RevPAR is the product of ADR and Occupancy. |
Occupancy, ADR and RevPAR are commonly used measures within the hotel industry to evaluate operating performance. RevPAR is an important metric for monitoring operating performance at the individual hotel property level and across our business as a whole. We evaluate individual hotel RevPAR performance on an absolute basis with comparisons to budget and prior periods, as well as on a company-wide and regionalmarket-by-market basis. ADR and RevPAR are based only on room revenue. Room revenue depends on demand (as measured by occupancy), pricing (as measured by ADR), and our available supply of hotel guestrooms. Our ADR, occupancy and RevPAR performance may be affected by macroeconomic factors such as regional and local employment growth, personal income and corporate earnings, office vacancy rates and business relocation decisions, air travel and other business and leisure travel, new hotel property construction, and the pricing strategies of competitors. In addition, our ADR, occupancy and RevPAR performance is dependent on the continued success of our franchisors and brands.
Hotel Property Portfolio Activity
Acquisitions
We acquired fourfive hotel properties in 20162019 and sevenone hotel propertiesproperty in 2015.2018. A summary of these acquisitions is as follows (dollars in thousands):
|
| | | | | | | | | | | | |
Date Acquired | | Franchise/Brand | | Location | | Guestrooms | | Purchase Price(1) | |
Year Ended December 31, 2016 | | | | | | |
| | |
| |
January 19 | | Courtyard by Marriott | | Nashville, TN | | 226 |
| | $ | 71,000 |
| |
January 20 | | Residence Inn | | Atlanta, GA | | 160 |
| | 38,000 |
| |
August 9 | | Marriott | | Boulder, CO | | 157 |
| | 61,400 |
| |
October 28 | | Hyatt Place | | Chicago, IL | | 206 |
| | 73,750 |
| |
| | | | | | 749 |
| | $ | 244,150 |
| (2) |
Year Ended December 31, 2015 | | | | | | | | | |
April 13 | | Hampton Inn & Suites | | Minneapolis, MN | | 211 |
| | $ | 38,951 |
| |
June 18 | | Hampton Inn | | Boston (Norwood), MA | | 139 |
| | 24,000 |
| |
June 30 | | Hotel Indigo | | Asheville, NC | | 115 |
| | 35,000 |
| |
July 24 | | Residence Inn | | Branchburg, NJ | | 101 |
| | 25,700 |
| |
July 24 | | Residence Inn | | Baltimore (Hunt Valley), MD | | 141 |
| | 31,100 |
| |
October 19 | | Hyatt House | | Miami, FL | | 156 |
| | 39,000 |
| |
October 20 | | Courtyard by Marriott | | Atlanta (Decatur), GA | | 179 |
| | 44,000 |
| |
| | | | | | 1,042 |
| | $ | 237,751 |
| (3) |
|
| | | | | | | | | | | | | |
Date Acquired | | Franchise/Brand | | Location | | Guestrooms | | Purchase Price(1) | | |
Year Ended December 31, 2019 | | | | | | | | |
August 6, 2019 | | Hampton Inn & Suites | | Silverthorne, CO | | 88 |
| | $ | 25,500 |
| | |
October 8, 2019 | | Portfolio Purchase - four properties(4) | | various(4) | | 710 |
| | 249,000 |
| | |
| | | | | | 798 |
| | $ | 274,500 |
| | (2) |
| | | | | | | | | | |
Year Ended December 31, 2018 | | | | |
| | |
| | |
September 12, 2018 | | Residence Inn by Marriott | | Boston (Watertown), MA | | 150 |
| | $ | 71,000 |
| | (3) |
| |
(1) | In addition to the purchase price, we maygenerally anticipate investing additional amounts for hotel renovations at the time we purchase a hotel property. Such additional investments are included in our underwriting of the hotel property prior to purchase.purchase, but are not included in the table above. See Item 7. – "Management's Discussion and Analysis of Financial Condition and Results of Operations – Capital Expenditures." |
| |
(2) | The net assets acquired totaled $244.7in 2019 were purchased for $274.5 million due toplus the purchase at settlement of $0.6adjacent land parcels totaling $2.4 million, $1.0 million of net working capital assets.assets and capitalized transaction costs of $0.4 million. We own a 51% controlling interest in these hotel properties through a consolidated joint venture. |
| |
(3) | The net assets acquired totaled $237.9in 2018 were purchased for $71.0 million due toplus the purchase at settlement of $0.1 million of net working capital assets.liabilities and capitalized transaction costs of $0.1 million. |
| |
(4) | On October 8, 2019, we acquired a portfolio of four hotels for an aggregate purchase price of $249.0 million. The hotels acquired included the Hilton Garden Inn - San Francisco, CA, the Hilton Garden Inn - San Jose (Milpitas), CA, the Residence Inn by Marriott - Portland (Downtown), OR, and the Residence Inn by Marriott - Portland (Hillsboro), OR. |
The purchase priceacquisitions of the hotels acquired in 2016 was2019 were funded by the net proceeds of our Series D cumulative redeemable preferred stock offering, net proceedscash generated from the sale of common stock, advancesproperties, borrowings under the Joint Venture Credit Facility (as defined in "Note 6 - Debt - Joint Venture Credit Facility" of our Consolidated Financial Statements), capital contributions from our joint venture partner, an advance on our senior unsecured$400 Million Revolver (as defined in "Note 6 - Debt - $600 Million Senior Unsecured Credit and Term Loan Facility" of our Consolidated Financial Statements), and operating cash flows. The acquisition of the hotel acquired in 2018 was funded by an advance on our former $300 million revolving credit facility, cash generated from the sale of properties, and operating cash flows. The purchase price in 2015 was funded by advances on our senior unsecured credit facility, cash generated from the sale of properties and operating cash flows.
Dispositions to Affiliates of ARCHDeveloped Properties
On February 11, 2016, weWe completed the sale of six hotels to affiliates of American Realty Capital Hospitality Trust, Inc. ("ARCH") for an aggregate selling price of $108.3 million (the “ARCH Sale”), with the proceeds from the ARCH Sale being used to complete certain reverse 1031 Exchanges. The hotels acquired by us for the reverse 1031 Exchanges included the 179-guestroom Courtyard by Marriott, Atlanta (Decatur), GA on October 20, 2015, for a purchase price of $44.0 milliondevelopment and the 226-guestroom Courtyard by Marriott, Nashville, TN for a purchase price of $71.0 million on January 19, 2016. The completioncommenced operations of the reverse 1031 Exchanges resulted in the deferral of taxable gains of approximately $74.0168-guestroom Hyatt House Across From Orlando Universal Resort™ on June 27, 2018. The total construction cost for this hotel was $32.8 million, and the pay-down of our unsecured revolving credit facility by $105.0 million. Additionally,excluding land that we repaid a mortgage loan totaling $5.8 million related to sale of the Springhill Suites, Denver, CO to ARCH. The sale to ARCH resultedacquired in a $56.8prior-year transaction. The carrying amount for this hotel includes internal capitalized costs of $1.6 million. Total costs of $37.2 million, gain, of which $20.0 million was initially deferred related toincluding the seller financing described below. Through December 31, 2016, we have recognized as income $5.0 million of the deferred gain upon receipt of scheduled repayments of the principal balance of the loan from ARCH.
On February 11, 2016, the Operating Partnership entered into a loan agreement with ARCH, as borrower, which provides for a loan by the Operating Partnership to ARCH in the amount of $27.5 million (the “Loan” or “Loan Agreement”) as further described below. The proceeds of the Loan were required to be applied by ARCH as follows: (i) $20.0 million was applied toward the payment of a portion of the $108.3 million purchase price for the six hotels acquired by ARCH as part of the ARCH Sale; and (ii) the remaining $7.5 million was applied by ARCH to fund the escrow deposit required by the Reinstatement Agreement described below.
As previously disclosed by us in a Current Report on 8-K filed on February 16, 2016, and a Current Report on 8-K filed on January 6, 2017, we and American Realty Capital Hospitality Portfolio SMT ALT, LLC (“ARCH Purchaser”), an affiliate of ARCH, entered into a letter agreement (the “Reinstatement Agreement”) to reinstate the Real Estate Purchase and Sale Agreement, dated as of June 2, 2015, as modified by the Reinstatement Agreement, (the “Purchase Agreement”) in its entirety, and further amended by the 2017 Letter Agreement defined below.
Pursuant to the Purchase Agreement, the ARCH Purchaser had the right to acquire from the Company fee simple interests in the eight hotels (the “Remaining Hotels”) listed below containing a total of 741 guestrooms for an aggregate purchase price of $77.2 million with a closing that was required to occur by January 10, 2017. On January 10, 2017, the Company and ARCH Purchaser entered into a letter agreement to extend the required closing date of the Purchase Agreement to January 12, 2017.
|
| | | | | |
Hotel | | Location | | Guestrooms |
Courtyard by Marriott | | Jackson, MS | | 117 |
|
Courtyard by Marriott | | Germantown, TN | | 93 |
|
Courtyard by Marriott | | El Paso, TX | | 90 |
|
Fairfield Inn & Suites | | Germantown, TN | | 80 |
|
Homewood Suites | | Ridgeland, MS | | 91 |
|
Residence Inn | | Jackson, MS | | 100 |
|
Residence Inn | | Germantown, TN | | 78 |
|
Staybridge Suites | | Ridgeland, MS | | 92 |
|
Total | | | | 741 |
|
On January 12, 2017, the Company and the ARCH Purchaser entered into a letter agreement (the “2017 Letter Agreement”) to amend the terms of the Purchase Agreement as follows:
The closing date of the sale of the Remaining Hotels, except the Courtyard by Marriott, El Paso, TX (the “El Paso Courtyard”), is scheduled to occur on or before April 27, 2017 (the “Closing Date”), or at such later date as the closing may be adjourned or extended in accordance with the express terms of the Reinstatement Agreement. The closing date for the El Paso Courtyard is scheduled to occur on October 24, 2017 (the “El Paso Closing Date”). If, on the El Paso Closing Date, the El Paso Courtyard is under contract to be sold to a bona fide third-party purchaser that is not an affiliate of the Company, the ARCH Purchaser will not be obligated to purchase the hotel.
The Company continues to have the right to market and ultimately sell, without the consent of the ARCH Purchaser, any or all of the Remaining Hotels to a bona fide third-party purchaser that is not an affiliate of the Company. If the Company sells some, but not all, of the Remaining Hotels to a bona fide third-party purchaser, then the purchase price to be paid by the ARCH Purchaser for the Remaining Hotels will be reduced accordingly.
Modification of $27.5 Million Loan Agreement
On January 12, 2017, we entered into a First Amendment to Loan Agreement with ARCH modifying the terms of the Loan.
The outstanding principalcarrying amount of the Loan, and any accrued and unpaid interest, will be due and payable on February 11, 2018 (the “Maturity Date”), unless extended pursuant to the Loan Agreement. Any payment-in-kind (“PIK”) interest accruedland, were reclassified as of January 12, 2017, under the terms of the Loan Agreement will be deferred until the earlier of the Closing Date or the termination of the Purchase Agreement as the result of a breach by the ARCH Purchaser. However, if the sale of the Remaining Hotels occurs on the Closing Date, the entire principal amount of the Loan and any accrued and unpaid interest, including the PIK interest accrued through the Closing Date, will be due and payable on the Closing Date. If the sale of the Remaining Hotels does not occur on the Closing Date, ARCH is required to immediately pay the outstanding PIK accrued through February 11, 2017, and to repay a portion of the outstanding principal balance of the LoanInvestment in an aggregate amount of $2.0 million, to be paid in two equal installments of $1.0 million, on the last day of August and September 2017. The Loan may be prepaid in whole or in part at any time by ARCH without payment of any penalty or premium. ARCH shall be deemed to be in default of the Second Loan Agreement (as defined below) if it is in default under the terms of the Loan Agreement.hotel properties, net upon completion.
Asset Sales
Execution of $3.0 Million Loan Agreement
On January 12, 2017, we entered into a loan agreement with ARCH, as borrower, which provides for a loan to ARCH in the amount of $3.0 million (the “Second Loan” or “Second Loan Agreement”). The proceeds of the Second Loan will be deemed as consideration for the 2017 Letter Agreement, but shall not be collectible by us unless the Purchase Agreement is terminated as a result of a breach by the ARCH Purchaser.
The outstanding principal amount of the Second Loan, and any accrued and unpaid interest, shall be due and payable on July 31, 2017 (the “Maturity Date”). However, if the sale of the Remaining Hotels occurs on the Closing Date, the entire principal amount of the Second Loan shall be deemed paid in full and ARCH shall have no further obligations to us except for payment of any unpaid interest accrued and payable as of the Closing Date. If the sale of the Remaining Hotels does not occur on the Closing Date, ARCH is required to repay the principal amount of the Second Loan in installments of $1.0 million on the last day of each of May, June and July 2017. The Second Loan may be prepaid in whole or in part at any time, without payment of any penalty or premium. The ARCH Borrower shall be deemed to be in default of the Loan Agreement if it is in default of the Second Loan Agreement.
Interest will accrue on the unpaid principal balance of the Second Loan at a rate of 13.0% per annum from the date of the Second Loan to February 11, 2017, and at 14.0% per annum from February 11, 2017, to the earlier of the Closing Date or the Maturity Date. An amount equal to 9.0% per annum is to be paid monthly beginning January 31, 2017. The remaining 4.0%, 5.0% and any other unpaid interest, as the case may be, will accrue and be compounded monthly.
Other Dispositions
On May 13, 2016, we completed the sale of the Holiday Inn Express & Suites in Irving (Las Colinas), TX for $10.5 million.
We also completed the sale of two properties previously contracted for sale to the ARCH Purchaser to third parties unrelated to the ARCH Purchaser under the terms of the Reinstatement Agreement. The first sale was the Aloft in Jacksonville, FL for $8.6 million on June 1, 2016. The second sale was the Holiday Inn Express in Vernon Hills, IL for $5.9 million on June 7, 2016. The proceeds from the sale of the Holiday Inn Express & Suites in Irving (Las Colinas), TX and the Holiday Inn Express in Vernon Hills, IL were used to complete a reverse 1031 Exchange with the acquisition of the 160-guestroom Residence Inn by Marriott in Atlanta, GA on January 20, 2016 for a purchase price of $38.0 million. The completion of the reverse 1031 Exchange resulted in the deferral of taxable gains of approximately $5.1 million.
On July 6, 2016, we completed the sale of the Hyatt Place in Irving (Las Colinas), TX for $14.0 million. The proceeds from the sale of this property were used to complete a 1031 Exchange related to the purchase of the 157-guestroom Marriott in Boulder, CO on August 9, 2016 for a purchase price of $61.4 million. The completion of the 1031 Exchange resulted in the deferral of taxable gains of approximately $7.5 million.
The sale of these four properties during the year ended December 31, 2016 resulted in the realization of a combined net gain of $8.1 million.
A summary of the dispositions in 20162019 and 20152018 follows (dollars in thousands):
|
| | | | | | | | | | | |
Disposition Date | | Franchise/Brand | | Location | | Guestrooms | | Gross Sales Price |
Year Ended December 31, 2016 | | | | | | |
| | |
|
February 11 | | Fairfield Inn & Suites | | Bellevue, WA | | 144 |
| | $ | 34,274 |
|
February 11 | | Fairfield Inn & Suites | | Spokane, WA | | 84 |
| | 13,542 |
|
February 11 | | Fairfield Inn & Suites | | Denver, CO | | 160 |
| | 19,118 |
|
February 11 | | Springhill Suites | | Denver, CO | | 124 |
| | 12,965 |
|
February 11 | | Hampton Inn | | Fort Collins, CO | | 75 |
| | 6,987 |
|
February 11 | | Hilton Garden Inn | | Fort Collins, CO | | 120 |
| | 21,397 |
|
May 13 | | Holiday Inn Express | | Irving (Las Colinas), TX | | 128 |
| | 10,500 |
|
June 1 | | Aloft | | Jacksonville, FL | | 136 |
| | 8,590 |
|
June 7 | | Holiday Inn Express | | Vernon Hills, IL | | 119 |
| | 5,900 |
|
July 6 | | Hyatt Place | | Irving (Las Colinas), TX | | 122 |
| | 14,000 |
|
Total | | | | | | 1,212 |
| | $ | 147,273 |
|
Year Ended December 31, 2015 | | | | | | | | |
|
October 15 | | Hampton Inn | | Medford, OR | | 75 |
| | $ | 12,873 |
|
October 15 | | DoubleTree | | Baton Rouge, LA | | 127 |
| | 17,938 |
|
October 15 | | Fairfield Inn & Suites | | Baton Rouge, LA | | 78 |
| | 4,868 |
|
October 15 | | Springhill Suites | | Baton Rouge, LA | | 78 |
| | 7,593 |
|
October 15 | | TownePlace Suites | | Baton Rouge, LA | | 90 |
| | 8,086 |
|
October 15 | | Hampton Inn & Suites | | El Paso, TX | | 139 |
| | 22,672 |
|
October 15 | | Hampton Inn | | Fort Wayne, IN | | 118 |
| | 12,817 |
|
October 15 | | Residence Inn | | Fort Wayne, IN | | 109 |
| | 14,829 |
|
October 15 | | Courtyard | | Flagstaff, AZ | | 164 |
| | 31,609 |
|
October 15 | | Springhill Suites | | Flagstaff, AZ | | 112 |
| | 16,784 |
|
Total | | | | | | 1,090 |
| | $ | 150,069 |
|
|
| | | | | | | | | | | | | | | |
Disposition Date | | Franchise/Brand | | Location | | Guestrooms | | Gross Sales Price | | Aggregate Gain, net |
Year Ended December 31, 2019 | | | | | | |
| | |
| | |
February 12, 2019 | | Portfolio Sale - two properties(1) | | Charleston, WV (1) | | 130 |
| | $ | 11,600 |
| | $ | 4,163 |
|
April 17, 2019 | | Portfolio Sale - six properties (2) | | various (2) | | 815 |
| | 135,000 |
| | 36,626 |
|
November 8, 2019 | | Portfolio Sale - two properties (3) | | Birmingham, AL (3) | | 225 |
| | 21,800 |
| | 4,857 |
|
Total | | | | | | 1,170 |
| | $ | 168,400 |
| | $ | 45,646 |
|
Year Ended December 31, 2018 | | | | | | |
| | |
| | |
June 29, 2018 | | Portfolio Sale - two properties(4) | | various (4) | | 175 |
| | $ | 18,950 |
| | $ | 13,133 |
|
June 29, 2018 | | Portfolio Sale - two properties (5) | | Duluth, GA (5) | | 265 |
| | 24,850 |
| | 4,218 |
|
July 24, 2018 | | Portfolio Sale - three properties (6) | | various (6) | | 322 |
| | 46,500 |
| | 22,964 |
|
September 28, 2018 | | Hyatt Place | | Fort Myers, FL | | 148 |
| | 16,500 |
| | 2,195 |
|
November 7, 2018 | | Land parcel | | Spokane, WA | | n/a |
| | 450 |
| | 139 |
|
Total | | | | | | 910 |
| | $ | 107,250 |
| | $ | 42,649 |
|
| |
(1) | The portfolio included the Country Inn & Suites and the Holiday Inn Express in Charleston, WV. |
| |
(2) | The portfolio included the SpringHill Suites in Minneapolis (Bloomington), MN, the Hampton Inn & Suites in Minneapolis (Bloomington), MN, the Residence Inn in Salt Lake City, UT, the Hyatt Place in Dallas (Arlington), TX, the Hampton Inn in Santa Barbara (Goleta), CA, and the Hampton Inn in Boston (Norwood), MA. The sale resulted in a net gain of $36.6 million based on a gross aggregate sales price of $135.0 million, or a net aggregate sales price of $133.0 million after a buyer credit of $2.0 million. |
| |
(3) | The portfolio included the Hilton Garden Inn in Birmingham (Lakeshore), AL and the Hilton Garden Inn in Birmingham (Liberty Park), AL. |
| |
(4) | The portfolio included the Hampton Inn in Provo, UT and the Holiday Inn Express & Suites in Sandy, UT. |
| |
(5) | The portfolio included the Holiday Inn in Duluth, GA and the Hilton Garden Inn in Duluth, GA. We provided seller financing of $3.6 million on the sale of these properties under two three-and-a-half-year second mortgage notes with a blended interest rate of 7.38%. |
| |
(6) | The portfolio included the Hampton Inn & Suites in Smyrna, TN, the Hilton Garden Inn in Smyrna, TN and the Hyatt Place Phoenix North in Phoenix, AZ. The proceeds from these sales were used to complete a 1031 Exchange, which resulted in the deferral of taxable gains of $22.2 million. |
The sale of the ten properties during the year ended December 31, 2016 resulted in the realization of a combined net gain of $49.8 million.
Hotel Revenues and Operating Expenses
Our revenues are derived from hotel operations and consist of room revenue, food and beverage revenue and other hotel operations revenue. As a result of our focus on select-service hotels, substantially all of our revenues are related to the sales of hotel guestrooms. Our other hotel operations revenue consists of ancillary revenues related to food and beverage sales, meeting rooms, retail space available for long-term leaseparking and other guest services provided at certain of our hotel properties.
Our hotel operating expenses consist primarily of expenses incurred in the day-to-day operation of our hotel properties. Many of our expenses are fixed, such as essential hotel staff, real estate taxes, insurance, depreciation and certain types of franchise fees, and thesedepreciation. These expenses generally do not decrease even if the revenues at our hotel properties decrease. Our hotelRoom expense includes housekeeping and front office wages and payroll taxes, reservation systems, room supplies, laundry services and other costs. Food and beverage expense primarily includes the cost of food, the cost of beverages and associated labor costs. Other operating expenses consist of room expenses (wages, payroll taxes and benefits, linens, cleaning and guestroom supplies, and complimentary breakfast), other direct expenses (office supplies, utilities, telephone, advertising and bad debts),include labor and other indirect expenses (realcosts associated with administrative departments, sales and personal property taxes, insurance, travel agentmarketing, repairs and credit card commissions, hotel management fees,maintenance, utility costs and franchise fees).fees.
Results of Operations
The comparisons that follow should be reviewed in conjunction with the Consolidated Financial Statements included elsewhere in this Form 10-K. Hotel properties classified as discontinued operations prior to our adoption of Accounting Standards Update ("ASU") No. 2014-08, "Presentation of Financial Statements and Property, Plant and Equipment," are not included in the discussion below.
Comparison of 20162019 to 20152018
The following table contains key operating metrics for our total portfolio and our same-store portfolio for 20162019 compared with 20152018 (dollars in thousands, except ADR and RevPAR). We define same-store hotels as properties that we owned or leased as of December 31, 20162019 and that we have owned or leased at all times since January 1, 2015.2018.
| | | | 2016 | | 2015 | | Year-over-Year Dollar Change | | Year-over-Year Percentage/Basis Point Change | | | | 2019 | | 2018 | | Year-over-Year Dollar Change | | Year-over-Year Percentage Change | |
| | Total Portfolio (81 hotels) | | Same-Store Portfolio (70 hotels) | | Total Portfolio (87 hotels) | | Same-Store Portfolio (70 hotels) | | Total Portfolio (81/87 hotels) | | Same-Store Portfolio (70 hotels) | | Total Portfolio (81/87 hotels) | | Same-Store Portfolio (70 hotels) | | | Total Portfolio (72 hotels) | | Same-Store Portfolio (65 hotels) | | Total Portfolio (77 hotels) | | Same-Store Portfolio (65 hotels) | | Total Portfolio (72/77 hotels) | | Same-Store Portfolio (65 hotels) | | Total Portfolio (72/77 hotels) | | Same-Store Portfolio (65 hotels) | |
Total revenues | | $ | 473,935 |
| | $ | 384,815 |
| | $ | 463,455 |
| | $ | 372,370 |
| | $ | 10,480 |
| | $ | 12,445 |
| | 2.3 | % | |
| | 3.3 | % | |
| |
Hotel operating expenses | | $ | 295,681 |
| | $ | 242,891 |
| | $ | 295,828 |
| | $ | 238,639 |
| | $ | (147 | ) | | $ | 4,252 |
| | 0.0 | % | |
| | 1.8 | % | |
| |
Revenues: | | | | | | | | | | | | | | | | | | |
Room | | | $ | 505,342 |
| | $ | 461,138 |
| | $ | 523,439 |
| | $ | 456,180 |
| | $ | (18,097 | ) | | $ | 4,958 |
| | (3.5 | )% | | 1.1 | % | |
Food and beverage | | | 23,785 |
| | 22,304 |
| | 24,225 |
| | 22,188 |
| | (440 | ) | | 116 |
| | (1.8 | )% | | 0.5 | % | |
Other | | | 20,221 |
| | 19,299 |
| | 19,606 |
| | 18,639 |
| | 615 |
| | 660 |
| | 3.1 | % | | 3.5 | % | |
Total | | | $ | 549,348 |
| | $ | 502,741 |
| | $ | 567,270 |
| | $ | 497,007 |
| | $ | (17,922 | ) | | $ | 5,734 |
| | (3.2 | )% | | 1.2 | % | |
| | | | | | | | | | | | | | | | | | |
Expenses: | | | | | | | | | | | | | | | | | | |
Room | | | $ | 112,244 |
| | $ | 102,024 |
| | $ | 119,724 |
| | $ | 102,569 |
| | $ | (7,480 | ) | | $ | (545 | ) | | (6.2 | )% | | (0.5 | )% | |
Food and beverage | | | 18,552 |
| | 17,143 |
| | 19,191 |
| | 17,264 |
| | (639 | ) | | (121 | ) | | (3.3 | )% | | (0.7 | )% | |
Other hotel operating expenses | | | 158,181 |
| | 144,291 |
| | 159,173 |
| | 137,541 |
| | (992 | ) | | 6,750 |
| | (0.6 | )% | | 4.9 | % | |
Total | | | $ | 288,977 |
| | $ | 263,458 |
| | $ | 298,088 |
| | $ | 257,374 |
| | $ | (9,111 | ) | | $ | 6,084 |
| | (3.1 | )% | | 2.4 | % | |
| | | | | | | | | | | | | | | | | | |
Occupancy | | 77.9 | % | | 77.7 | % | | 77.2 | % | | 77.1 | % | | n/a |
| | n/a |
| | 70 |
| | bps | | 60 |
| | bps | | 78.5 | % | | 78.3 | % | | 77.9 | % | | 77.9 | % | | n/a |
| | n/a |
| | 62 |
| bps | 45 |
| bps |
ADR | | $ | 141.77 |
| | $ | 138.75 |
| | $ | 132.32 |
| | $ | 135.27 |
| | $ | 9.45 |
| | $ | 3.48 |
| | 7.1 | % | |
| | 2.6 | % | |
| | $ | 158.45 |
| | $ | 158.57 |
| | $ | 153.79 |
| | $ | 157.83 |
| | $ | 4.66 |
| | $ | 0.74 |
| | 3.0 | % | | 0.5 | % | |
RevPAR | | $ | 110.41 |
| | $ | 107.83 |
| | $ | 102.20 |
| | $ | 104.35 |
| | $ | 8.21 |
| | $ | 3.48 |
| | 8.0 | % | |
| | 3.3 | % | |
| | $ | 124.35 |
| | $ | 124.21 |
| | $ | 119.75 |
| | $ | 122.91 |
| | $ | 4.60 |
| | $ | 1.30 |
| | 3.8 | % | | 1.1 | % | |
The total portfolio information above includes revenues and expenses from the fourfive hotels we acquired in 20162019 (the “2016“2019 Acquired Hotels”) and the sevenone hotel propertiesproperty that we acquired and the one hotel we developed in 20152018 (the “2015“2018 Acquired Hotels”) from the date of acquisition through December 31, 2016,2019, and operating information (occupancy, ADR, and RevPAR) for the period each hotel was owned. Accordingly, the information does not reflect a full twelve months of operations in 20162019 for the 20162019 Acquired Hotels or a full twelve months of operations in 20152018 for the 20152018 Acquired Hotels. The combined 20162019 Acquired Hotels and 20152018 Acquired Hotels are referred to as the “2016/2015“2019/2018 Acquired Hotels.”
Revenues. Total revenues increased $10.5 million, or 2.3%, in 2016. The growth was due to a $12.4 million increase in same-store revenues and a $57.9 million increase in revenues at the 2016/2015 Acquired Hotels partially offset by a $59.8 million decrease in revenue related to the hotel properties sold during the period.
The same-store revenue increase of 3.3% in 2016, was due to a 60 basis point increase in same-store occupancy in 2016 compared with 2015, and a 2.6% increase in same-store ADR in 2016 compared with 2015. The increases in same-store occupancy and same-store ADR resulted in an 3.3% increase in same-store RevPAR from 2015 to 2016. These increases were due to general economic conditions, our strong revenue and asset management programs, hotel industry fundamentals and strategic and brand-required renovations made at our same-store hotel properties.
Hotel Operating Expenses. Hotel operating expenses for the total portfolio decreased $0.1 million in 2016, as fixed expense savings offset increases in variable costs related to the $10.5 million, or 2.3%, increase in total revenues. In addition, the increase in variable costs in 2016 for the total portfolio was driven by a $4.3 million increase in same-store portfolio expenses due to variable costs associated with the $12.4 million increase in same-store portfolio revenues. Operating Margins for the same-store portfolio improved in 2016, with same-store hotel operating expenses declining as a percentage of same-store revenue from 64.1% in 2015 to 63.1% in 2016, due to consistent fixed expenses and increases in revenues at the same-store hotel properties in 2016.
Other direct expense for the same-store portfolio increased by 2.6% in 2016, reflecting an increase commensurate with the increase in revenue. Other indirect expense for the same-store portfolio decreased by 0.1% in 2016 as property tax expense savings were offset by increased management expenses and travel agent commissions.
The following table summarizes our hotel operating expenses for our same-store (70 hotels) portfolio for 2016 and 2015 (dollars in thousands):
|
| | | | | | | | | | | | | | | | | |
| | | | | | Percentage | | Percentage of Revenue |
| | 2016 | | 2015 | | Change | | 2016 | | 2015 |
Rooms expense | | $ | 91,162 |
| | $ | 88,139 |
| | 3.4 | % | | 23.7 | % | | 23.7 | % |
Other direct expense | | 52,962 |
| | 51,595 |
| | 2.6 | % | | 13.8 | % | | 13.9 | % |
Other indirect expense | | 98,767 |
| | 98,905 |
| | (0.1 | )% | | 25.7 | % | | 26.6 | % |
Total hotel operating expenses | | $ | 242,891 |
| | $ | 238,639 |
| | 1.8 | % | | 63.1 | % | | 64.1 | % |
Depreciation and Amortization. Depreciation and amortization expense increased $8.4 million, or 13.0%, in 2016, primarily due to incremental depreciation associated with the 2016/2015 Acquired Hotels partially offset by the decrease in depreciation and amortization related to the disposed properties, and properties moved to Assets Held for Sale resulting in depreciation expense no longer being recorded related to these assets in 2016. The 2016 depreciation and amortization expense includes $72.1 million of real estate-related depreciation and $0.3 million of franchise application fee amortization. The 2015 depreciation and amortization expense includes $63.7 million of real estate-related depreciation and $0.4 million of franchise application fee amortization.
Corporate General and Administrative. Corporate general and administrative expenses decreased by $1.9 million, or 9.0%, in 2016. This decrease was primarily due to non-recurring severance costs of $3.1 million in 2015. This decrease was partially offset by a $1.0 million increase in employee-related costs.
Loss on impairment of assets. At December 31, 2016, we were under contract to sell the Courtyard by Marriott in El Paso, TX for $11.0 million. We recorded a loss on impairment of assets of $0.6 million to reduce the carrying value of the assets to the estimated net selling price. This hotel is one of the eight remaining Reinstated Hotels and is under contract to be sold to a third party that is unrelated to ARCH. In 2015, we determined that the value of land parcels in San Antonio, TX, Fort Myers, FL and Flagstaff, AZ were impaired based on market conditions. As such, we recognized a loss on impairment of assets of $1.1 million for the year ended December 31, 2015.
Gain on Disposal of Assets. Gain on disposal of assets decreased by $15.2 million in 2016. This reduction is primarily due to the sale of ten hotels in 2015 for a net gain of $66.6 million and the sale of ten hotels in 2016 for a net gain of $49.8 million.
Other Income/Expense. Other income decreased by $8.6 million, or 77.0%, in 2016, primarily due to the earnest money deposit of $9.1 million that we received in the fourth quarter of 2015 as a result of ARCH terminating the agreement to purchase ten hotel properties that was scheduled to close on December 29, 2015.
Income Tax Expense/Benefit. Our total income tax benefit in 2016 was $1.5 million based on the performance of our TRS lessees and a deferred tax adjustment related to corporate general and administrative expenses allocated to our TRS lessees.
In 2015, income tax expense was $0.6 million due in part to the valuation allowance recorded against our deferred tax assets. At December 31, 2015, we reduced our valuation allowance to zero as we had sufficient positive evidence to conclude that a U.S. valuation allowance was no longer needed on our net deferred tax assets. The release of the valuation allowance resulted in a non-cash tax benefit of $0.1 million.
Comparison of 2015 to 2014
The following table contains key operating metrics for our total portfolio and our same-store portfolio for 2015 compared with 2014 (dollars in thousands, except ADR and RevPAR). We define same-store hotels as properties that we owned or leased as of December 31, 2015 and that we have owned or leased at all times since January 1, 2014.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 2015 | | 2014 | | Year-over-Year Dollar Change | | Year-over-Year Percentage/Basis Point Change | | |
| | Total Portfolio (87 hotels) | | Same-Store Portfolio (74 hotels) | | Total Portfolio (90 hotels) | | Same-Store Portfolio (74 hotels) | | Total Portfolio (87/90 hotels) | | Same-Store Portfolio (74 hotels) | | Total Portfolio (87/90 hotels) | | | | Same-Store Portfolio (74 hotels) | | |
Total revenues | | $ | 463,455 |
| | $ | 357,701 |
| | $ | 403,466 |
| | $ | 330,353 |
| | $ | 59,989 |
| | $ | 27,348 |
| | 14.9 | % | |
| | 8.3 | % | |
|
Hotel operating expenses | | $ | 295,828 |
| | $ | 231,060 |
| | $ | 261,497 |
| | $ | 215,447 |
| | $ | 34,331 |
| | $ | 15,613 |
| | 13.1 | % | |
| | 7.2 | % | |
|
Occupancy | | 77.2 | % | | 76.9 | % | | 75.7 | % | | 75.3 | % | | n/a |
| | n/a |
| | 150 |
| | bps | | 160 |
| | bps |
ADR | | $ | 132.32 |
| | $ | 128.48 |
| | $ | 122.52 |
| | $ | 121.18 |
| | $ | 9.80 |
| | $ | 7.30 |
| | 8.0 | % | |
| | 6.0 | % | |
|
RevPAR | | $ | 102.20 |
| | $ | 98.77 |
| | $ | 92.71 |
| | $ | 91.28 |
| | $ | 9.49 |
| | $ | 7.48 |
| | 10.2 | % | |
| | 8.2 | % | |
|
The total portfolio information above includes revenues and expenses from the seven hotels we acquired in 2015 (the “2015 Acquired Hotels”) and the six hotel properties we acquired in 2014 (the “2014 Acquired Hotels”) from the date of acquisition through December 31, 2015, and operating information (occupancy, ADR, and RevPAR) for the period each hotel was owned. Accordingly, Additionally, the information does not reflect a full twelve months of operations in 20152019 and 2018 for the 2015 Acquired Hotels or a full twelve months of operationshotel properties sold in 2014 for the 2014 Acquired Hotels.each respective year. The combined 2015 Acquired Hotelshotels sold in 2019 and 2014 Acquired Hotels2018 are referred to as the “2015/2014 Acquired"2019/2018 Sold Hotels.”"
Changes from the year ended December 31, 2019 compared with the year ended December 31, 2018 were due to the following:
| |
• | Revenues. The decline in revenues was due to a $47.5 million decline in revenue related to the 2019/2018 Sold Hotels, partially offset by incremental revenues of $23.8 million generated by the 2019/2018 Acquired Hotels and a $5.7 million increase in same-store revenues. |
| |
• | RevPAR. The 3.8% increase in RevPAR for the total portfolio is the result of the purchase of higher RevPAR hotel properties with the 2019/2018 Acquired Hotels, which produced an aggregate RevPAR of $154.16 in 2019, the sale of lower RevPAR hotels with the 2019/2018 Sold Hotels, which produced an aggregate RevPAR of $99.15 in 2018, and a 1.1% increase in RevPAR for the same-store hotels. |
| |
• | Expenses. The decrease in total portfolio expenses is the result of a decline in expenses of $26.0 million related to the 2019/2018 Sold Hotels, partially offset by incremental expenses of $10.8 million due to the 2019/2018 Acquired |
Revenues. Total revenues increased $60.0 million, or 14.9%, in 2015. The growth was due to a $27.3 million
Hotels and an increase in same-store revenues and a $39.0 million increase in revenues at the 2015/2014 Acquired Hotels.
The same-store revenue increaseexpenses of 8.3% in 2015 was due to a 160 basis point$6.1 million. The increase in same-store occupancy in 2015 compared with 2014, and a 6.0%expenses was primarily driven by an increase in same-store ADR in 2015 compared with 2014. The increases in same-store occupancy and same-store ADR resulted in an 8.2% increase in same-store RevPAR in 2015. These increases were due to general economic conditions, our strong revenue and asset management programs, hotel industry fundamentals and strategic and brand-required renovations made at our same-store hotel properties.labor related costs.
Hotel Operating Expenses. Hotel operating expenses for the total portfolio increased $34.3 million, or 13.1%, in 2015. This increase is due in part to a $23.5 million increase in hotel operating expenses related to the 2015/2014 Acquired Hotels. In addition, the increase in hotel operating expenses in 2015 for the total portfolio was driven by a $15.6 million increase in same-store hotel operating expenses due to variable costs related to the $27.3 million, or 8.3%, increase in same-store revenue. Operating Margins for the same-store portfolio improved in 2015 compared to 2014, with same-store hotel operating expenses declining as a percentage of same-store revenue from 65.2% in 2014 to 64.6% in 2015, due to consistent fixed expenses and increasing revenues at the same-store hotel properties in 2015.
Other direct expense for the same-store portfolio increased by 8.1% in 2015, reflecting an increase commensurate with the increase in revenue. Other indirect expense for the same-store portfolio increased by 10.9% in 2015 due to a $4.4 million increase in management expenses and travel agent commissions and a $3.6 million increase in property tax expense.
The following table summarizes our hotel operatingincludes other consolidated income and expenses for our same-store (74 hotels) portfolio for 2015 and 20142019 compared with 2018 (dollars in thousands):.
|
| | | | | | | | | | | | | | | | | |
| | | | | | Percentage | | Percentage of Revenue |
| | 2015 | | 2014 | | Change | | 2015 | | 2014 |
Rooms expense | | $ | 86,665 |
| | $ | 84,076 |
| | 3.1 | % | | 24.2 | % | | 25.5 | % |
Other direct expense | | 49,987 |
| | 46,229 |
| | 8.1 | % | | 14.0 | % | | 14.0 | % |
Other indirect expense | | 94,408 |
| | 85,142 |
| | 10.9 | % | | 26.4 | % | | 25.8 | % |
Total hotel operating expenses | | $ | 231,060 |
| | $ | 215,447 |
| | 7.2 | % | | 64.6 | % | | 65.2 | % |
|
| | | | | | | | | | | | | | | |
| | For the Years Ended December 31, | | | | |
| | 2019 | | 2018 | | Dollar Change | | Percentage Change |
Property taxes, insurance and other | | $ | 44,220 |
| | $ | 43,339 |
| | $ | 881 |
| | 2.0 | % |
Management fees | | 16,575 |
| | 18,521 |
| | (1,946 | ) | | (10.5 | )% |
Depreciation and amortization | | 99,445 |
| | 101,013 |
| | (1,568 | ) | | (1.6 | )% |
Corporate general and administrative | | 23,622 |
| | 21,509 |
| | 2,113 |
| | 9.8 | % |
Loss on impairment of assets | | 2,521 |
| | 1,075 |
| | 1,446 |
| | 134.5 | % |
Gain on disposal of assets, net | | 45,418 |
| | 41,474 |
| | 3,944 |
| | 9.5 | % |
Interest expense | | 41,030 |
| | 41,944 |
| | (914 | ) | | (2.2 | )% |
Other income, net | | 5,472 |
| | 6,949 |
| | (1,477 | ) | | (21.3 | )% |
Income tax expense (benefit) | | 1,500 |
| | (922 | ) | | 2,422 |
| | (262.7 | )% |
Depreciation and Amortization. Depreciation and amortization expense increased $0.3 million, or 0.5%, in 2015, primarilyChanges from the year ended December 31, 2019 compared with the year ended December 31, 2018 were due to incremental depreciation associated with the 2015/2014following:
| |
• | Property Taxes, Insurance and Other. This increase is primarily due to increased insurance premiums related to our casualty and general liability policies and an increase in property taxes for the 2019/2018 Acquired Hotels offset by a decrease in property taxes for the 2019/2018 Sold Hotels. |
| |
• | Management Fees. This decrease is primarily due to reduced consolidated revenues upon which management fees are based as a result of the sale of hotel properties during the period. |
| |
• | Depreciation and Amortization. This decline is due to a decrease in depreciation expense of $6.3 million related to the hotel properties sold after December 31, 2017 and a decrease in depreciation expense of $1.0 million for the same-store portfolio as a result of assets becoming fully depreciated, partially offset by incremental depreciation associated with the 2019/2018 Acquired Hotels of $5.7 million. |
| |
• | Corporate General and Administrative. This increase is primarily due to increases in incentive compensation costs. |
| |
• | Loss on Impairment of Assets. In 2019, we recorded impairment charges on one hotel property and two land parcels to reduce the net carrying amounts of the properties to their estimated fair market values based on third-party independent appraisals and a purchase contract for the sale of one of the land parcels that is expected to be completed in 2020. In 2018, we recorded impairment charges on two land parcels to reduce the net carrying amounts of the properties to their estimated fair market values based on third-party independent appraisals. |
| |
• | Gain on Disposal of Assets. This increase is primarily due to the sale of ten hotels in 2019 for a net gain of $45.6 million compared to the sale of eight hotels in 2018 for a net gain of $42.5 million. |
| |
• | Interest Expense. Declines in base interest rates resulted in a reduction in interest expense in 2019. |
| |
• | Other Income. This decline is due to a decline in casualty recoveries of $1.5 million and additional debt transaction costs of $1.5 million offset by an increase in interest income of $1.1 million as a result of an increase in the balance of real estate loans in 2019 and an increase in tenant income of $0.5 million. |
| |
• | Income Tax Expense/Benefit. In 2019, we recorded income tax expense of $1.5 million primarily driven by the taxable income of our TRS entity for the period. In 2018, we recorded a tax benefit of $0.9 million as a result of state tax refunds in excess of our federal tax expense on the taxable income of our TRS entity for the period. |
For information about our key operating metrics and results of operations for the effectyear ended 2018 compared to the year ended 2017, refer to the "Management's Discussion and Analysis of Financial Conditions and Results of Operations - Results of Operations" section of the reclassification of 26 hotel properties to Assets Held for Sale resulting in depreciation expense no longer being recorded related to these assets in 2015. The 2015 depreciation and amortization expense includes $63.7 million of real estate-related depreciation and $0.4 million of franchise application fee amortization. The 2014 depreciation and amortization expense includes $63.3 million of real estate-related depreciation and $0.5 million of franchise application fee amortization.
Corporate General and Administrative. Corporate general and administrative expenses increased by $1.3 million, or 6.6%, in 2015. This increase was primarily due to non-recurring severance costs of $3.1 million in 2015. This increase was partially offset by a $1.0 million reduction in professional fees incurred in 2014 but not in 2015 related to the establishment of new procedures and systems for intercompany account reconciliations and $0.8 million in executive and board of directors recruiting fees recorded during 2014.
LossCompany's Annual Report on impairment of assets. In 2015, we determined that the value of land parcels in San Antonio, TX, Fort Myers, FL and Flagstaff, AZ were impaired based on market conditions. As such, we recognized a loss on impairment of assets of $1.1 million in our Consolidated Statement of OperationsForm 10-K for the year ended December 31, 2015. During2018 filed with the year ended December 31, 2014, we recognized a loss on impairment of assets of $8.2 million related to the Country Inn & Suites and three adjacent land parcels totaling 5.64 acres in San Antonio, TX, which was sold in the fourth quarter of 2014, and a loss on impairment of $0.7 million related to a land parcel in Spokane, WA.SEC.
In addition, in 2014, we recognized a loss on impairment of assets of $0.4 million related to the Hampton Inn in Fort Smith, AR. This property was classified as held for sale prior to the Company’s adoption of ASU No. 2014-08 and its operating results, including impairment charges, were included in discontinued operations.
Gain on Disposal of Assets. Gain on disposal of assets increased by $64.7 million in 2015. This increase was primarily due to the sale of ten properties to ARCH on October 15, 2015 for a gain of $66.6 million.
Other Income/Expense. Other income increased $10.6 million, or 1,773%, in 2015 primarily due to the earnest money deposit of $9.1 million that we received in the fourth quarter of 2015 as a result of ARCH terminating the agreement to purchase ten hotel properties that was scheduled to close on December 29, 2015.
Income Tax Expense/Benefit. Our total income tax expense in 2015 was $0.5 million. Our income tax expense was minimal due in part to the valuation allowance recorded against our deferred tax assets. At December 31, 2015, we reduced our valuation allowance to zero as we had sufficient positive evidence to conclude that a U.S. valuation allowance was no longer needed on our net deferred tax assets. The positive evidence included two consecutive years of profitability. The release of the valuation allowance resulted in a non-cash tax benefit of $0.1 million.
At December 31, 2014, we had valuation allowance of $2.4 million to offset deferred tax assets based on our assessment of realizability. During the year ended December 31, 2014, the utilization of tax attributes to offset taxable income reduced the overall amount of deferred tax assets subject to the valuation allowance. At December 31, 2015, we had gross deferred tax assets of $1.5 million primarily related to net operating loss carryforwards and $1.3 million in deferred tax liabilities related to an investment in a joint venture. We have concluded that it is more-likely-than-not that our deferred tax assets will be realized in the future and therefore, we reduced our valuation allowance to zero at December 31, 2015.
Discontinued Operations
Pursuant to our strategy, we periodically evaluate our hotel properties for potential sale and redeployment of capital. When a hotel property was sold or identified as being held for sale, we reported its historical and future results of operations, including impairment charges, in discontinued operations until we adopted ASU No. 2014-08 in the first quarter of 2014. Since adoption of ASU No. 2014-08, we have not included historical and future results of operations for our properties sold or identified as being held for sale. Discontinued operations in 2014 include the following hotel properties that have been sold:
•AmericInn Hotel & Suites and Aspen Hotel & Suites in Fort Smith, AR - sold on January 17, 2014; and
•Hampton Inn in Fort Smith, AR - sold on September 9, 2014.
A summary of results from our hotel properties included in discontinued operations follows (in thousands):
|
| | | | |
| | 2014 |
Revenues | | $ | 3,128 |
|
Hotel operating expenses | | (2,304 | ) |
Depreciation and amortization | | (13 | ) |
Loss on impairment of assets | | (400 | ) |
Operating income | | 411 |
|
Gain on disposal of assets | | 55 |
|
Income before taxes | | 466 |
|
Income tax benefit | | 26 |
|
Income from discontinued operations | | $ | 492 |
|
Non-GAAP Financial Measures
We consider funds from operationsdisclose certain “non-GAAP financial measures,” which are measures of our historical financial performance. Non-GAAP financial measures are financial measures not prescribed by Generally Accepted Accounting Principles ("GAAP"). These measures are as follows: (i) Funds From Operations (“FFO”) and Adjusted Funds from Operations ("AFFO"), (ii) Earnings before Interest, Taxes, Depreciation and Amortization ("EBITDA"), Earnings before Interest, Taxes, Depreciation and Amortization for Real Estate ("EBITDA both of which are non-GAAP financial measures, to be useful to investors as key supplemental measures of our operating performance.re") and Adjusted EBITDAre (as described below). We caution investors that amounts presented in accordance with our definitions of FFO and EBITDAnon-GAAP financial measures may not be comparable to similar measures disclosed by other companies, since not all companies calculate these non-GAAP financial measures in the same manner. FFO and EBITDAOur non-GAAP financial measures should be considered along with, but not as alternatives to, net income (loss) as a measure of our operating performance. FFO and EBITDAOur non-GAAP financial measures may include funds that may not be available for our discretionary use due to functional requirements to conserve funds for capital expenditures, property acquisitions, debt service obligations and other commitments and uncertainties. Although we believe that FFO and EBITDAour non-GAAP financial measures can enhance the understanding of our financial condition and results of operations, these non-GAAP financial measures are not necessarily better indicators of any trend as compared to a comparable measure prescribed by GAAP measure such as net income (loss).
Funds From OperationsFFO and AFFO
As defined by the National Association of Real Estate Investment Trusts, (“NAREIT”),Nareit, FFO represents net income or loss (computed in accordance with GAAP), excluding preferred dividends, gains (or losses) from sales of real property, impairment losses on real estate assets, items classified by GAAP as extraordinary, the cumulative effect of changes in accounting principles, plus depreciation and amortization related to real estate assets, and adjustments for unconsolidated partnerships, and joint ventures. AFFO represents FFO excluding amortization of deferred financing costs, franchise fees, equity-based compensation expense, debt transaction costs, premiums on redemption of preferred shares, losses from net casualties, non-cash interest income and non-cash income tax related adjustments to our deferred tax asset. Unless otherwise indicated, we present FFO and AFFO applicable to our common shares and Common Units.common units. We present FFO and AFFO because we consider itFFO and AFFO an important supplemental measure of our operational performance and believe it is frequently used by securities analysts, investors and other interested parties in the evaluation of REITs, many of which present FFO and AFFO when reporting their results. FFO isand AFFO are intended to exclude GAAP historical cost depreciation and amortization, which assumes that the value of real estate assets diminishes ratably over time. Historically, however, real estate values have risen or fallen with market conditions. Because FFO excludesand AFFO exclude depreciation and amortization related to real estate assets, gains and losses from real property dispositions and impairment losses on real estate assets, it provides aFFO and AFFO provide performance measuremeasures that, when compared year over year, reflectsreflect the effect to operations from trends in occupancy, guestroom rates, operating costs, development activities and interest costs, providing perspective not immediately apparent from net income. Our computation of FFO differs slightly from the computation of NAREIT-definedNareit-defined FFO related to the reporting of corporate depreciation and amortization expense. Our computation of FFO may also differ from the methodology for calculating FFO used by other equity REITs and, accordingly, may not be comparable to such other REITs. FFO and AFFO should not be considered as an alternative to net income (loss) (computed in accordance with GAAP) as an indicator of our liquidity, nor is it indicative of funds available to fund our cash needs, including our ability to pay dividends or make distributions. Where indicated in this Annual Report on Form 10-K, FFO is based on our computation of FFO and not the computation of NAREIT-definedNareit-defined FFO unless otherwise noted.
The following is a reconciliation of our GAAP net income to FFO and AFFO for the years ended December 31, 2016, 20152019, 2018 and 20142017 (in thousands, except per share/unit amounts):
| | | | 2016 | | 2015 | | 2014 | | 2019 | | 2018 | | 2017 |
Net income | | $ | 108,261 |
| | $ | 125,256 |
| | $ | 20,923 |
| | $ | 82,348 |
| | $ | 91,126 |
| | $ | 99,521 |
|
Preferred dividends | | (18,232 | ) | | (16,588 | ) | | (16,588 | ) | | (14,838 | ) | | (16,671 | ) | | (17,408 | ) |
Premium on redemption of Series A Preferred Stock | | (2,125 | ) | | — |
| | — |
| |
Premium on redemption of preferred stock | | | — |
| | (3,277 | ) | | (2,572 | ) |
Loss related to non-controlling interest in joint venture | | | 419 |
| | — |
| | — |
|
Net income applicable to common shares and common units | | 87,904 |
| | 108,668 |
| | 4,335 |
| | 67,929 |
| | 71,178 |
| | 79,541 |
|
Real estate-related depreciation | | 72,063 |
| | 63,675 |
| | 63,291 |
| | 99,013 |
| | 100,545 |
| | 85,524 |
|
Loss on impairment of assets | | 577 |
| | 1,115 |
| | 9,247 |
| | 2,521 |
| | 1,075 |
| | — |
|
Gain on disposal of assets | | (49,855 | ) | | (65,067 | ) | | (446 | ) | |
Non-controlling interest in joint venture | | — |
| | — |
| | (1 | ) | |
Adjustments related to joint venture | | — |
| | — |
| | (204 | ) | |
Gain on disposal of assets, net | | | (45,418 | ) | | (41,474 | ) | | (43,209 | ) |
Adjustments related to non-controlling interest in consolidated joint venture | | | (1,554 | ) | | — |
| | — |
|
FFO applicable to common shares and common units | | $ | 110,689 |
| | $ | 108,391 |
| | $ | 76,222 |
| | 122,491 |
| | 131,324 |
| | 121,856 |
|
Amortization of lease-related intangible assets, net | | | 127 |
| | 712 |
| | — |
|
Amortization of deferred financing costs | | | 1,485 |
| | 1,973 |
| | 2,022 |
|
Amortization of franchise fees | | | 432 |
| | 468 |
| | 403 |
|
Equity-based compensation | | | 6,219 |
| | 6,665 |
| | 5,887 |
|
Hotel property acquisition costs | | | — |
| | — |
| | 354 |
|
Debt transaction costs | | | 1,892 |
| | 401 |
| | 195 |
|
Premium on redemption of preferred stock | | | — |
| | 3,277 |
| | 2,572 |
|
Non-cash interest income | | | (2,477 | ) | | (2,045 | ) | | (284 | ) |
Non-cash lease expense, net | | | 494 |
| | — |
| | — |
|
Casualty (recoveries) losses, net | | | (239 | ) | | (1,786 | ) | | 500 |
|
Non-cash income tax related to adjustment to deferred tax asset | | | — |
| | — |
| | 606 |
|
Adjustments related to non-controlling interest in consolidated joint venture | | | (68 | ) | | — |
| | — |
|
AFFO applicable to common shares and common units | | | $ | 130,356 |
| | $ | 140,989 |
| | $ | 134,111 |
|
Weighted average diluted common shares/common units (1) | | | 104,363 |
| | 104,315 |
| | 100,372 |
|
FFO per common share/common unit | | $ | 1.26 |
| | $ | 1.24 |
| | $ | 0.88 |
| | $ | 1.17 |
| | $ | 1.26 |
| | $ | 1.21 |
|
Weighted average diluted common shares/common units(1) | | 87,798 |
| | 87,144 |
| | 86,590 |
| |
AFFO per common share/common unit | | | $ | 1.25 |
| | $ | 1.35 |
| | $ | 1.34 |
|
(1) Includes Common Units in the Operating Partnership held by limited partners (other than us and our subsidiaries) because the Common Units are redeemable for cash or, at our election, shares of our common stock.
During the year ended December 31, 2016, FFO2019, AFFO applicable to common shares and common units increased by $2.3declined $10.6 million, or 2.1%7.5%, over the prior year primarily due to an increase in total revenuesforgone net income subsequent to the disposition of $10.5 millionhotel properties during the period, partially offset by a decrease in other income of $8.6 million duringAFFO from acquired properties through the joint venture.
For information about our AFFO for the year ended December 31, 2016 in comparison with the prior year. The increase in revenues was the result of increases in occupancy and ADR as discussed above under “Results of Operations — Comparison of 20162018 compared to 2015 — Revenues.” The decline in other income was primarily due to the $9.1 million earnest money deposit that was forfeited by ARCH in the fourth quarter of 2015 as a result of terminating the agreement to purchase ten hotel properties that was scheduled to close on December 29, 2015.
During the year ended December 31, 2015, FFO applicable2017, refer to common sharesthe "Management's Discussion and common units increased by $32.2 million, or 42.2%, overAnalysis of Financial Conditions and Results of Operations - Non-GAAP Financial Measures" section of the prior year primarily due to an increase in total revenues of $60.0 million during the year ended December 31, 2015 in comparison with the prior year, which resulted in an increase in net income (adjusted for non-cash items such as depreciation and amortization, lossCompany's Annual Report on impairment of assets, equity-based compensation and gains on the disposal of assets) of $34.7 millionForm 10-K for the year ended December 31, 2015 over2018 filed with the prior year. The increase in revenues was the result of increases in occupancy and ADR as discussed above under “Results of Operations — Comparison of 2015 to 2014 — Revenues.”SEC.
Earnings Before Interest, Taxes, DepreciationEBITDA, EBITDAre and AmortizationAdjusted EBITDAre
EBITDA
EBITDA represents net income or loss, excluding: (i) interest, (ii) income tax expense and (iii) depreciation and amortization. We believe EBITDA is useful to an investor in evaluating our operating performance because it provides investors with an indication of our ability to incur and service debt, to satisfy general operating expenses, to make capital expenditures and to fund other cash needs or reinvest cash into our business. We also believe it helps investors meaningfully evaluate and compare the results of our operations from period to period by removing the effect of our asset base (primarily depreciation and amortization) from our operating results. Our management team also uses EBITDA as one measure in determining the value of acquisitions and dispositions.
EBITDAre and Adjusted EBITDAre
In September 2017, Nareit proposed a standardized performance measure, called EBITDAre, which is based on EBITDA and is expected to provide additional relevant information about REITs as real estate companies in support of growing interest among generalist investors. The conclusion was reached that, while dedicated REIT investors have long been accustomed to utilizing the industry’s supplemental measures such as FFO and net operating income (“NOI”) to evaluate the investment quality of REITs as real estate companies, it would be helpful to generalist investors for REITs as real estate companies to also present EBITDAre as a more widely known and understood supplemental measure of performance. EBITDAre is intended to be a supplemental non-GAAP performance measure that is independent of a company’s capital structure and will provide a uniform basis for one measurement of the enterprise value of a company compared to other REITs.
EBITDAre, as defined by Nareit, is calculated as EBITDA, excluding: (i) loss and gains on disposition of property and (ii) asset impairments, if any. We believe EBITDAre is useful to an investor in evaluating our operating performance because it provides investors with an indication of our ability to incur and service debt, to satisfy general operating expenses, to make capital expenditures and to fund other cash needs or reinvest cash into our business. We also believe it helps investors meaningfully evaluate and compare the results of our operations from period to period by removing the effect of our asset base (primarily depreciation and amortization) from our operating results.
We make additional adjustments to EBITDAre when evaluating our performance because we believe that the exclusion of certain additional non-recurring or unusual items described below provides useful supplemental information to investors regarding our ongoing operating performance. We believe that the presentation of Adjusted EBITDAre, when combined with the primary GAAP presentation of net income, is useful to an investor in evaluating our operating performance because it provides investors with an indication of our ability to incur and service debt, to satisfy general operating expenses, to make capital expenditures and to fund other cash needs or reinvest cash into our business. We also believe it helps investors meaningfully evaluate and compare the results of our operations from period to period by removing the effect of our asset base (primarily depreciation and amortization) from our operating results.
The following is a reconciliation of our GAAP net income to EBITDAre for the years ended December 31, 2016, 20152019, 2018 and 20142017 (in thousands):
| | | | 2016 | | 2015 | | 2014 | | 2019 | | 2018 | | 2017 |
Net income | | $ | 108,261 |
| | $ | 125,256 |
| | $ | 20,923 |
| | $ | 82,348 |
| | $ | 91,126 |
| | $ | 99,521 |
|
Depreciation and amortization | | 72,406 |
| | 64,052 |
| | 63,776 |
| | 99,445 |
| | 101,013 |
| | 85,927 |
|
Interest expense | | 28,091 |
| | 30,414 |
| | 28,517 |
| | 41,030 |
| | 41,944 |
| | 29,687 |
|
Interest income | | (22 | ) | | (998 | ) | | (690 | ) | | (278 | ) | | (229 | ) | | (104 | ) |
Income tax (benefit) expense | | (1,450 | ) | | 553 |
| | 718 |
| |
Non-controlling interest in joint venture | | — |
| | — |
| | (1 | ) | |
Adjustments related to joint venture | | — |
| | — |
| | (204 | ) | |
Income tax expense (benefit) | | | 1,500 |
| | (922 | ) | | 1,674 |
|
EBITDA | | $ | 207,286 |
| | $ | 219,277 |
| | $ | 113,039 |
| | 224,045 |
| | 232,932 |
| | 216,705 |
|
Loss on impairment of assets | | | 2,521 |
| | 1,075 |
| | — |
|
Gain on disposal of assets, net | | | (45,418 | ) | | (41,474 | ) | | (43,209 | ) |
EBITDAre | | | 181,148 |
| | 192,533 |
| | 173,496 |
|
Amortization of lease-related intangible assets, net | | | 127 |
| | 712 |
| | — |
|
Equity-based compensation | | | 6,219 |
| | 6,665 |
| | 5,887 |
|
Hotel property acquisition costs | | | — |
| | — |
| | 354 |
|
Debt transaction costs | | | 1,892 |
| | 401 |
| | 195 |
|
Non-cash interest income | | | (2,477 | ) | | (2,045 | ) | | (284 | ) |
Non-cash lease expense, net | | | 494 |
| | — |
| | — |
|
Casualty (recoveries) losses, net | | | (239 | ) | | (1,786 | ) | | 500 |
|
Loss related to non-controlling interest in joint venture | | | 419 |
| | — |
| | — |
|
Adjustments related to non-controlling interest in consolidated joint venture | | | (2,320 | ) | | — |
| | — |
|
Adjusted EBITDAre | | | $ | 185,263 |
| | $ | 196,480 |
| | $ | 180,148 |
|
During the year ended December 31, 2016,2019, Adjusted EBITDAre decreased by $12.0$11.2 million, or 5.5%5.7%, from the prior year primarily due to a decrease in gain on disposalforgone net income subsequent to the disposition of assets of $15.2 million and other income of $8.6 million,hotel properties during the period, partially offset by an increase in total revenuesAdjusted EBITDAre from acquired properties through the joint venture.
For information about our Adjusted EBITDAre for the year ended 2018 compared to the year ended 2017, refer to the "Management's Discussion and Analysis of $10.5 million duringFinancial Conditions and Results of Operations - Non-GAAP Financial Measures" section of the Company's Annual Report on Form 10-K for the year ended December 31, 2016 in comparison2018 filed with the prior year. The increase in revenues was the result of increases in occupancy and ADR as discussed above under “Results of Operations — Comparison of 2016 to 2015 — Revenues.” The decline in other income was primarily due to the $9.1 million earnest money deposit that was forfeited by ARCH in the fourth quarter of 2015 as a result of terminating the agreement to purchase ten hotel properties that was scheduled to close on December 29, 2015.
During the year ended December 31, 2015, EBITDA increased by $106.2 million, or 94.0%, over the prior year primarily due to an increase in net income of $104.3 million during the year ended December 31, 2015 in comparison with the prior year. The increase in net income was primarily driven by an increase in revenues of $60.0 million and an increase in gain on disposal of assets of $64.6 million during the year ended December 31, 2015. The increase in revenues was the result of increases in occupancy and ADR as discussed above under “Results of Operations — Comparison of 2015 to 2014 — Revenues.”SEC.
Liquidity and Capital Resources
Our short-term liquidity requirements consist primarily of operating expenses and other expenditures directly associated with our hotel properties, recurring maintenance and capital expenditures necessary to maintain our hotel properties in accordance with internal and brand standards, capital expenditures to improve our hotel properties, hotel development costs, acquisitions, interest expense,payments, settlement of interest rate swaps, scheduled principal payments on outstanding indebtedness, restricted cash funding obligations, mezzanine loan funding commitments, joint venture acquisitions and capital requirements, corporate overhead, and distributions to our stockholders.
Our long-term liquidity requirements consist primarily of the costs of acquiring additional hotel properties, renovations and other non-recurring capital expenditures that periodically are made with respect to our hotel properties, dividend distributions, and scheduled debt payments, including maturing loans. On January 15, 2016, the Company entered into a new $450 million senior unsecured credit facility that replaced the former $300 million senior unsecured credit facility. The new credit facility extended the maturity date of the revolving line of credit under the former credit facility from 2017 to 2020 and the maturity date of the term loan component under the former credit facility from 2018 to 2021. See “Outstanding Indebtedness” below for further information.
To satisfy the requirements for qualification as a REIT, we must meet a number of organizational and operational requirements, including a requirement that we distribute annually at least 90% of our REIT taxable income to our stockholders,
determined without regard to the deduction for dividends paid and excluding any net capital gains. We intend to distribute a sufficient amount of our taxable income to maintain our status as a REIT and to avoid tax on undistributed income. Therefore,Because we anticipate distributing a substantial amount of our available cash from operations, if sufficient funds are not available to us from hotel dispositions, our senior unsecured revolving credit facilityand term loan facilities and additional mortgage and other loans, we will need to raise capital to grow our business and invest in additional hotel properties.
We expect to satisfy our liquidity requirements with cash provided by operations, working capital, short-term borrowings under our $450 million senior unsecured credit facility,$400 Million Revolver, term debt, repaymentcollection of notes receivable, the strategic sale of hotels, distributions from the joint venture and the release of restricted cash upon satisfaction of the usage requirements. In addition, we may fund
the purchase price of hotel acquisitions, hotel development costs, and cost of required capital improvements by borrowing under our senior unsecured credit facility,$400 Million Revolver, assuming existing mortgage debt from the seller on acquired hotels, issuing securities (including Common Unitscommon units issued by our Operating Partnership), contributions from joint venture partners, borrowings under our Joint Venture Credit Facility, or incurring mortgage or othervarious types of debt. Further, we may seek to meet our liquidity requirements by raising capital through public or private offerings of our equity or debt securities. However, certain factors may have an adverse effect on our ability to access these capital sources, including our degree of leverage, the value of our unencumbered hotel properties, borrowing restrictions imposed by lenders, volatility in the equity and debt capital markets and other market conditions. We will continue to analyze which sources of capital are most advantageous to us at any particular point in time, but financing may not be consistently available to us on terms that are attractive, or at all. We believe that our cash provided by operations, working capital, borrowings available under our $450 million senior unsecuredvarious credit facilityfacilities and other sources of funds available to us will be sufficient to meet our ongoing liquidity requirements for at least the next 12twelve months.
On April 24, 2019, we repaid a mortgage loan with Compass Bank totaling $21.9 million that was secured by three hotel properties using funds from the 2018 Unsecured Credit Facility. There was no prepayment penalty associated with the repayment of this loan. After repayment of the mortgage loan, the three hotels were added to the Company’s Unencumbered Properties.
On April 17, 2019, we completed the sale of six hotel properties for a gross aggregate sales price of $135.0 million, or a net aggregate sales price of $133.0 million after a buyer credit of $2.0 million. The sale resulted in a net gain of $36.6 million. The net proceeds from the sale were used to pay down the balance of the 2018 Unsecured Credit Facility.
On April 11, 2019, we repaid a $10.6 million mortgage loan with U.S. Bank using funds from the 2018 Unsecured Credit Facility to release the encumbrance on the Hampton Inn in Goleta, CA to facilitate the sale of the property. As a result of this transaction, we incurred debt transaction costs of $1.0 million.
On March 19, 2019, we had a mortgage loan of $26.2 million that was secured by four hotel properties. We defeased $6.3 million of the principal using funds from the 2018 Unsecured Credit Facility to have the encumbrance released on one property, the Hyatt Place in Arlington, TX, to facilitate the sale of the property. As a result of this transaction, we recorded debt transaction costs of $0.6 million, primarily related to the debt defeasance premium. The mortgage loan remains outstanding and is secured by the remaining three hotel properties.
At December 31, 2016, we had $7.7 million of mortgage2019, our scheduled debt that matures in 2017. We have other scheduled principal debtamortization payments in 2017 of $8.1during the next 12 months total approximately $3.7 million. Although we believe we will have the capacity to satisfy these debt maturities and pay these scheduled principal debt payments from operations or that we will be able to fund them using draws under our $450 million senior unsecured credit facility,the 2018 Unsecured Credit Facility, there can be no assurances that our credit facility will be available to repay such amortizing debt as draws under our credit facility are subject to certain financial covenants. At December 31, 2019, we were in compliance with all of our covenants under the 2018 Unsecured Credit Facility.
We anticipate making renovationshave provided mezzanine loans on four real estate development projects to fund up to an aggregate of $58.4 million for the development of four hotel properties. Three of the real estate development loans closed in the fourth quarter of 2017 and other non-recurring capital expenditures with respecteach has a stated interest rate of 8.0% and an initial term of approximately three years. One of the real estate development loans closed in the third quarter of 2019 and has a stated interest rate of 9% and an initial term of 30 months. As of December 31, 2019, we have funded $37.4 million of our $58.4 million loan commitment. See "Note 4 - Investment in Real Estate Loans" to our hotel properties pursuant to property improvement plans required by our franchisorsthe Consolidated Financial Statements for additional information concerning these loans and our internal quality standards. We expect 2017 capital expenditures for these activities at hotel properties we own asrights to acquire ownership of February 15, 2017 to be in the range of $35.0 million to $45.0 million. Actual amounts may differ from our expectations. We may also make renovations and incur other non-recurring capital expenditures in 2017 at hotel properties we acquire in the future.properties.
Cash Flow Analysis
The increase in net cash provided by operating activities of $5.7 million from 2015 to 2016 primarily resulted from an increase in net income of $2.4 million, after adjusting for non-cash items, and net changes in working capital of $3.4 million.
The $23.3 million increase in net cash used in investing activities in 2016 compared with 2015 is primarily due to an increase in cash used for asset acquisitions of $8.2 million and an increase in funding of real estate loans, net of repayments, of $17.1 million.
The $32.2 million increase in net cash from financing activities in 2016 compared with 2015 is primarily due to the net proceeds from stock offerings of $161.3 million partially offset by a decrease in net borrowings of $69.8 million, cash paid for the redemption of preferred stock of $50.0 million and an increase in dividends of $9.1 million.
The increase in net cash provided by operating activities of $30.1 million from 2014 to 2015 primarily resulted from an increase in net income of $34.7 million, after adjusting for non-cash items.
The $69.4 million reduction in net cash used in investing activities in 2015 compared with 2014 resulted from an increase in proceeds from asset dispositions of $130.8 million partially offset by an increase in hotel property acquisitions of $58.7 million.
The $100.6 million decrease in net cash from financing activities in 2015 compared with 2014 resulted primarily from a reduction in net borrowings of $97.5 million.
Outstanding Indebtedness
At December 31, 2016,2019, we had $317.6$157.7 million in outstanding indebtedness secured by first priority mortgage liens on 3315 hotel properties. We also had borrowed $200.0$275.0 million on our $450 million senior unsecured credit facility (the “20162018 Unsecured Credit Facility”) and we had borrowed $140.0Facility, $225.0 million on our unsecured term loan, both2018 Term Loan, and $225.0 million on our 2017 Term Loan, each of which were supported at December 31, 20162019 by a borrowing base of 4652 unencumbered hotel properties. At December 31, 2016,2019, the maximum amount of borrowing permitted under the $450 million senior unsecured credit facility2018 Unsecured Credit Facility was $450.0$600.0 million, of which we had borrowed $200.0$275.0 million and $250.0$315.0 million was available to borrow.
At February 15, 2017, weDecember 31, 2019, our subsidiary joint venture had borrowed $185.0$140.0 million outstanding on its credit facility, which included borrowings of $75.0 million on our $450its $75 million senior unsecuredterm loan and $65.0 million on its $125 million revolving line of credit. The credit facility and we had borrowed $140.0 million on our unsecured term loan, both of which wereis supported by 46the five hotel properties included in the credit facility borrowing bases. In addition, we have two other hotels with a total of 363 guestrooms unencumbered by mortgage debt that are available to be used as collateral for future loans. Please see "Note 5 - Debt" to the Consolidated Financial Statements for additional information concerning the 2016 Unsecured Credit Facility and our unsecured term loan.joint venture.
In addition to the $72.3 million net proceeds from the completion of the Series D preferred stock offering, we
We intend to secure or assume term loan financing, or use our senior unsecured credit facility,2018 Unsecured Credit Facility, or utilize our Joint Venture Credit Facility to fund joint venture acquisitions and capital improvements, together with other sources of financing, to fund future acquisitions and capital improvements. We may not succeed in obtaining new financing on favorable terms, or at all, and we cannot predict the size or terms of future financings. Our failure to obtain new financing could adversely affect our ability to grow our business.
We intend to maintain a prudent capital structure and, while the ratio will vary from time to time, we generally intend to limit our ratio of net indebtedness to Adjusted EBITDAre to no more than 6.0x.6.5x. For purposes of calculating this ratio, we exclude preferred stock from indebtedness.
We have obtained financing through debt instruments having staggered maturities and intend to continue to do so in the future. Our debt includes, and may include in the future, debt secured by stock pledges, debt secured by first priority mortgage liens on certain hotel properties and unsecured debt. We believe we will have adequate liquidity to meet the requirements for scheduled maturities and principal repayments. However, we can provide no assurance that we will be able to refinance our indebtedness as it becomes due and, if refinanced, whether such refinancing will be available on favorable terms.
Our outstanding indebtedness requires us to comply with various financial and other covenants. We are currently in compliance with all covenants.
See "Note 6 - Debt" to the Consolidated Financial Statements for additional information concerning our 2018 Unsecured Credit Facility, 2018 Term Loan, and other unsecured and secured indebtedness of the Company.
A summary of our debt at December 31, 20162019 is as follows (dollars in thousands): |
| | | | | | | | | | | | |
Lender | | Interest Rate | | Amortization Period (Years) | | Maturity Date | | Number of Encumbered Properties | | Principle Amount Outstanding |
$450 Million Senior Unsecured Credit Facility | | | | | | | | | | |
|
Deutsche Bank AG New York Branch | | | | | | | | | | |
|
$300 Million Revolver | | 2.27% Variable | | n/a | | March 31, 2020 | | n/a | | $ | 50,000 |
|
$150 Million Term Loan | | 2.86% Variable(1) | | n/a | | March 31, 2021 | | n/a | | 150,000 |
|
Total Senior Unsecured Credit Facility | | | | | | | | | | 200,000 |
|
| | | | | | | | | | |
Unsecured Term Loan | | | | | | | | | | |
|
KeyBank National Association, as Administrative Agent | | | | | | | | | | |
|
Term Loan | | 2.57% Variable | | n/a | | April 7, 2022 | | n/a | | 140,000 |
|
| | | | | | | | | | |
Secured Mortgage Indebtedness | | | | | | | | | | |
|
Voya (formerly ING Life Insurance and Annuity) | | 5.18% Fixed | | 20 | | March 1, 2019 | | 2(2) | | 41,328 |
|
| | 5.18% Fixed | | 20 | | March 1, 2019 | | 4(2) | | 37,042 |
|
| | 5.18% Fixed | | 20 | | March 1, 2019 | | 3(2) | | 23,889 |
|
| | 5.18% Fixed | | 20 | | March 1, 2019 | | 1(2) | | 16,970 |
|
KeyBank National Association | | 4.46% Fixed | | 30 | | February 1. 2023 | | 4 | | 27,473 |
|
| | 4.52% Fixed | | 30 | | April 1, 2023 | | 3 | | 21,291 |
|
| | 4.30% Fixed | | 30 | | April 1, 2023 | | 3 | | 20,626 |
|
| | 4.95% Fixed | | 30 | | August 1, 2023 | | 2 | | 36,741 |
|
Bank of America Commercial Mortgage | | 6.41% Fixed | | 25 | | September 1, 2017 | | 1 | | 7,661 |
|
Western Alliance Bank (formerly GE Capital Financial, Inc.) | | 5.39% Fixed | | 25 | | April 1, 2020 | | 1 | | 8,912 |
|
| | 5.39% Fixed | | 25 | | April 1, 2020 | | 1 | | 4,798 |
|
MetaBank | | 4.25% Fixed | | 20 | | August 1, 2018 | | 1 | | 6,588 |
|
Bank of Cascades | | 2.77% Variable | | 25 | | December 19, 2024 | | 1(3) | | 9,289 |
|
| | 4.30% Fixed | | 25 | | December 19, 2024 | | —(3) | | 9,289 |
|
Compass Bank | | 3.17% Variable | | 25 | | May 6, 2020 | | 3 | | 23,394 |
|
Western Alliance Bank (formerly GE Capital Corp.) | | 5.39% Fixed | | 25 | | April 1, 2020 | | 1 | | 5,910 |
|
| | 5.39% Fixed | | 25 | | April 1, 2020 | | 1 | | 5,046 |
|
U.S. Bank, NA | | 6.13% Fixed | | 25 | | November 11, 2021 | | 1 | | 11,303 |
|
Total Mortgage Loans | | | | | | | | | | 317,550 |
|
Total Debt | | | | | | | | 33 | | $ | 657,550 |
|
|
| | | | | | | | | | | | |
Lender | | Interest Rate | | Amortization Period (Years) | | Maturity Date | | Number of Encumbered Properties | | Principal Amount Outstanding |
$600 Million Senior Unsecured Credit and Term Loan Facility (1) | | | | | | | | | | |
Deutsche Bank AG New York Branch | | | | | | | | | | |
$400 Million Revolver | | 3.41% Variable | | n/a | | March 31, 2023 | | n/a | | $ | 75,000 |
|
$200 Million Term Loan | | 3.36% Variable | | n/a | | April 1, 2024 | | n/a | | 200,000 |
|
Total Senior Unsecured Credit and Term Loan Facility | | | | | | | | | | 275,000 |
|
| | | | | | | | | | |
Joint Venture Credit Facility (2) | | | | | | | | | | |
Bank of America, N.A. | | | | | | | | | | |
$125 Million Revolver | | 3.91% Variable | | n/a | | October 8, 2023 | | n/a | | 65,000 |
|
$75 Million Term Loan | | 3.86% Variable | | n/a | | October 8, 2023 | | n/a | | 75,000 |
|
Total Joint Venture Credit Facility | | | | | | | | | | 140,000 |
|
| | | | | | | | | | |
Unsecured Term Loans (1) | | | | | | | | | | |
|
KeyBank National Association | | | | | | | | | | |
Term Loan | | 3.36% Variable | | n/a | | November 25, 2022 | | n/a | | 225,000 |
|
KeyBank National Association | | | | | | | | | | |
Term Loan | | 3.66% Variable | | n/a | | February 14, 2025 | | n/a | | 225,000 |
|
| | | | | | | | | | |
Secured Mortgage Indebtedness | | | | | | | | | | |
KeyBank National Association | | 4.46% Fixed | | 30 | | February 1, 2023 | | 3 | | 19,510 |
|
| | 4.52% Fixed | | 30 | | April 1, 2023 | | 3 | | 19,992 |
|
| | 4.30% Fixed | | 30 | | April 1, 2023 | | 3 | | 19,323 |
|
| | 4.95% Fixed | | 30 | | August 1, 2023 | | 2 | | 34,695 |
|
MetaBank | | 4.44% Fixed | | 25 | | July 1, 2027 | | 3 | | 47,226 |
|
Bank of Cascades (3) | | 3.76% Variable | | 25 | | December 19, 2024 | | 1 | | 8,490 |
|
| | 4.30% Fixed | | 25 | | December 19, 2024 | | — | | 8,490 |
|
Total Mortgage Loans | | | | | | | | 15 | | 157,726 |
|
Total Debt | | | | | | | | | | $ | 1,022,726 |
|
(1) The $600 Million Senior Secured Credit and Term Loan Facility and Unsecured Term Loans are supported by a borrowing base of 52 unencumbered hotel properties.
(1) Our interest rate swap fixed a portion of the interest on this loan. See "Note 6 - Derivative Financial Instruments and Hedging" to the Consolidated Financial Statements.
(2) The ten hotel properties encumberedJoint Venture Credit Facility is secured by pledges of the Voya mortgage loans are cross-collateralized, andequity in the four Voya mortgage loans are cross-defaulted.entities (and affiliated entities) that own the hotels.
(3) The Bank of Cascades mortgage loansloan is comprised of two promissory notes that are secured by the same collateral and cross-defaulted.
Equity Transactions
On June 28, 2016, we completed the offering of 3,000,000 shares of our 6.45% Series D cumulative redeemable preferred stock for net proceeds of $72.3 million, after the underwriting discount and offering-related expenses of $2.7 million. The proceeds were used to repay the outstanding balance on our revolving line of credit and for other general corporate purposes.
On August 2, 2016, the Company and the Operating Partnership entered into separate sales agreements (the “Sales Agreements”) with each of Robert W. Baird & Co. Incorporated, Raymond James & Associates, Inc., Merrill Lynch, Pierce, Fenner & Smith Incorporated, Deutsche Bank Securities Inc., RBC Capital Markets, LLC, KeyBanc Capital Markets Inc., Canaccord Genuity Inc. and Jefferies LLC (collectively, the “Bank Group”), pursuant to which the Company may issue and sell from time to time up to $125.0 million in shares of its common stock, $0.01 par value per share, and shares of its 6.45% Series D Preferred Stock, $0.01 par value per share (collectively, the “Shares”), through members of the Bank Group, acting as agents or principals (the “2016 ATM Program”). At the same time, the Company terminated the sales agreement entered into in connection with its prior ATM offering program, which was established in August 2015 and under which no shares were sold.
Pursuant to the Sales Agreements, the Shares may be offered and sold through members of the Bank Group in transactions that are deemed to be “at the market” offerings as defined in Rule 415 under the Securities Act including sales made directly on the New York Stock Exchange or sales made to or through a market maker other than on an exchange or, with the prior consent of the Company, in privately negotiated transactions. Members of the Bank Group will be entitled to compensation of up to 2.0% of the gross proceeds of Shares sold through members of the Bank Group from time to time under the Sales Agreements. The Company has no obligation to sell any of the Shares under the Sales Agreements and may at any time suspend solicitations and offers under, or terminate, the Sales Agreements.
During the year ended December 31, 2016, we sold 6,151,514 shares of our common stock under the 2016 ATM Program for net proceeds of $89.1 million. The proceeds were used to pay down our revolving line of credit which had been used for acquisitions and other general corporate purposes.
On October 28, 2016, we paid $50.7 million to redeem all 2,000,000 of our outstanding 9.25% Series A cumulative redeemable preferred shares at a redemption price of $25 per share plus accrued and unpaid dividends.
Capital Expenditures
During the year ended December 31, 2016,2019, we funded $42.4$59.3 million in capital expenditures. We anticipate spending an estimated $35.0$50.0 million to $70.0 million in capital expenditures on a consolidated basis, and $45.0 million to $65.0 million on capital expendituresa pro rata basis, across our portfolio in 2017.2020. We expect to fund these expenditures through a combination of cash provided by operations, working capital, release of restricted cash, borrowings under our 2016the 2018 Unsecured Credit Facility, or other potential sources of capital, to the extent available to us.
Cash Flow Analysis
The following table summarizes changes in cash flows for the years ended December 31, 2019 and December 31, 2018:
|
| | | | | | | | | | | | |
| | For the Years Ended December 31, | | |
| | 2019 | | 2018 | | Change |
| | (in thousands) |
Net cash provided by operating activities | | $ | 148,478 |
| | $ | 161,651 |
| | $ | (13,173 | ) |
Net cash used in investing activities | | (182,164 | ) | | (63,057 | ) | | (119,107 | ) |
Net cash provided by (used in) financing activities | | 30,963 |
| | (92,045 | ) | | 123,008 |
|
Net change in cash and cash equivalents | | $ | (2,723 | ) | | $ | 6,549 |
| | $ | (9,272 | ) |
Changes from the year ended December 31, 2019 compared to the year ended December 31, 2018 were due to the following:
| |
• | Cash provided by operating activities. This decrease primarily resulted from a decrease in net income of $12.6 million, after adjusting for non-cash items, such as depreciation and amortization and gains on the sale of assets, due to the sale of hotel properties and net changes in working capital of $0.6 million primarily due to the timing of working capital changes. |
| |
• | Cash used in investing activities. This increase in cash used in investing activities is primarily due to an increase in asset acquisitions of $211.6 million, partially offset by an increase in proceeds from asset dispositions of $61.7 million, a reduction in investments in hotel properties under development of $13.4 million, a reduction in the net funding of real estate loans of $10.0 million, and a reduction in capital expenditures of $7.3 million. |
| |
• | Cash provided by (used in) financing activities. This increase is primarily due to net borrowings of $57.7 million during 2019 and capital contributions from the non-controlling interest in the joint venture of $68.7 million to fund acquisitions. |
For information about our consolidated cash flows for the year ended 2018 compared to the year ended 2017, refer to the "Management's Discussion and Analysis of Financial Conditions and Results of Operations - Cash Flow Analysis" section of the Company's Annual Report on Form 10-K for the year ended December 31, 2018 filed with the SEC.
Contractual Obligations
The following table outlines the timing of required payments related to our long-term debt and other contractual obligations at December 31, 20162019 (dollars in thousands): | | | | Payments Due By Period | | Payments Due By Period |
| | Total | | Less than One Year | | One to Three Years | | Three to Five Years | | More than Five Years | | Total | | Less than One Year | | One to Three Years | | Three to Five Years | | More than Five Years |
Debt obligations (1) | | $ | 770,526 |
| | $ | 41,624 |
| | $ | 228,832 |
| | $ | 238,114 |
| | $ | 261,956 |
| | $ | 1,022,726 |
| | $ | 3,742 |
| | $ | 233,321 |
| | $ | 419,427 |
| | $ | 366,236 |
|
Operating lease obligations (2) | | 114,929 |
| | 1,384 |
| | 3,540 |
| | 3,727 |
| | 106,278 |
| |
Purchase obligations (3) | | 6,757 |
| | 6,757 |
| | — |
| | — |
| | — |
| |
Currently projected interest (2) | | | 164,887 |
| | 40,993 |
| | 81,159 |
| | 38,555 |
| | 4,180 |
|
Operating lease obligations (3) | | | 36,764 |
| | 2,148 |
| | 3,853 |
| | 1,859 |
| | 28,904 |
|
Purchase obligations (4) | | | 10,535 |
| | 10,535 |
| | — |
| | — |
| | — |
|
Total | | $ | 892,212 |
| | $ | 49,765 |
| | $ | 232,372 |
| | $ | 241,841 |
| | $ | 368,234 |
| | $ | 1,234,912 |
| | $ | 57,418 |
| | $ | 318,333 |
| | $ | 459,841 |
| | $ | 399,320 |
|
| |
(1) | Amounts shown include amortization of principal maturities, and estimated interest payments. debt maturities. |
| |
(2) | Interest payments on our variable rate debt have been estimated using the interest rates in effect at December 31, 2016,2019, after giving effect to our interest rate swap.swaps. |
| |
(2)(3) | Amounts consist primarily of non-cancelable ground lease and corporate office lease obligations. |
| |
(3)(4) | This amount represents purchase orders and executed contracts for renovation projects at our hotel properties. |
Inflation
Operators of hotel properties, in general, possess the ability to adjust guestroom rates daily to reflect the effects of inflation on our operating expenses. However, competitive pressures may limit the ability of our management companies to raise guestroom rates and thus, we may not be able to offset increased expenses with an increase in revenues.
Critical Accounting Policies
See "Note 2 - SummaryBasis of Presentation and Significant Accounting Policies" to the Consolidated Financial Statements.
New Accounting Standards
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which clarifies when an entity recognizes a credit loss on certain financial assets. In May 2019, the FASB issued ASU No. 2019-05, Financial Instruments - Credit Losses: Targeted Transition Relief, which provides an option to irrevocably elect the fair value option in ASC No. 825-10, Financial Instruments - Overall, applied on an instrument-by-instrument basis for eligible instruments, upon adoption of ASC No. 326, Financial Instruments - Credit Losses. ASU 2016-13 and ASU 2019-05 are both effective for our fiscal year commencing on January 1, 2020, with early adoption permitted. The adoption of ASU No. 2016-13 or ASU No. 2019-05 did not have a material effect on our consolidated financial position or results of operations.
In August 2018, the FASB issued ASU No. 2018-15, Goodwill and Other- Internal-Use Software (Subtopic 350-40): Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement, which clarifies how an entity should account for fees paid in a cloud computing arrangement. ASU 2018-15 is effective for our fiscal year commencing on January 1, 2020, with early adoption permitted. During fiscal 2019, we elected to early adopt ASU No. 2018-15. The adoption of ASU No. 2018-15 did not have a material effect on our consolidated financial position or results of operations.
In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which is intended to simplify various aspects related to accounting for income taxes. ASU No. 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. ASU No. 2019-12 is effective for our fiscal year commencing on January 1, 2021, with early adoption permitted. The adoption of ASU No. 2019-12 will not have a material effect on our consolidated financial position or results of operations.
See "Note 2 - SummaryBasis of Presentation and Significant Accounting Policies" to the Consolidated Financial Statements.
Cybersecurity
The hospitality industry and certain of the major hotel franchise companies have recently experienced cybersecurity breaches. We have not experienced any material cybersecurity losses at any of our properties. We manage cybersecurity risks with our franchisors and property management companies. An important part of our cybersecurity risk mitigation efforts includes maintaining cybersecurity insurance and indemnifications in certain of our property management agreements. Our Board of Directors provides on-going oversight of management's approach to managing cybersecurity risks.
Recent Developments
Equity Transactions
On January 1, 2017, we had 39,959 of our outstanding performance-based restricted stock awards granted pursuant to our Equity Plan vest.
On January 24, 2017,31, 2020, our Board of Directors declared cash dividends of $0.1625$0.18 per share of common stock, $0.4921875 per share of 7.875% Series B Cumulative Redeemable Preferred Stock, $0.4453125 per share of 7.125% Series C Cumulative Redeemable Preferred Stock, and $0.403125 per share of 6.45% Series D Cumulative Redeemable Preferred Stock, and $0.390625 per share of 6.25% Series E Cumulative Redeemable Preferred Stock. These dividends are payable February 28, 20172020 to stockholders of record on February 14, 2017.2020.
Debt Transactions
On February 18, 2020, the Company repriced the $225 million 2018 Term Loan, lowering the interest rate to 150 basis points plus LIBOR based on the Company’s current leverage based pricing level, which represents a reduction of 40 basis points compared to the prior rate of 190 basis points plus LIBOR. All other material provisions of the loan remain unchanged, including the maturity date of the loan which remains February 14, 2025. The Company expects to realize approximately $0.9 million of annual interest expense savings as a result of the transaction through the remaining term of the loan.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk.
Market Risk
Market risk includes risks that arise from changes in interest rates, foreign currency exchange rates, commodity prices, equity prices and other market changes that impact market-sensitive instruments. In pursuing our business strategies, the primary market risk to which we are exposed is interest rate risk. Our primary interest rate exposure is to 30-day LIBOR. We primarily use fixed interest rate financing to manage our exposure to fluctuations in interest rates. On a limited basis we also use derivative financial instruments to manage interest rate risk.
Our interest rate derivatives are based on USD-LIBOR. In July 2017, the Financial Conduct Authority (“FCA”) that regulates LIBOR announced it intends to stop compelling banks to submit rates for the calculation of LIBOR after 2021. As a result, the Federal Reserve Board and the Federal Reserve Bank of New York organized the Alternative Reference Rates Committee, which identified the Secured Overnight Financing Rate ("SOFR") as its preferred alternative to USD-LIBOR in derivatives and other financial contracts. The Company has contracts that are indexed to LIBOR and is monitoring and evaluating the related changes and risks. The Company is not able to predict when LIBOR will cease to be available or when there will be sufficient liquidity in the SOFR markets. Any transition from LIBOR to another benchmark interest rate will result in a different calculation of our variable interest rates that are currently indexed to LIBOR. If adequate and reasonable means do not exist for ascertaining LIBOR and such circumstances are unlikely to be temporary, our loan agreements contain provisions for our lenders and us to jointly establish an alternative interest rate.
AtDecember 31, 2016,2019, we were party to anfour interest rate derivative agreement, with a total notional amount of $75.0 million, whereagreements pursuant to which we receive variable-rate payments in exchange for making fixed-rate payments. This agreement is accounted for as a cash flow hedge and has a termination value of $1.2 million. The interest rate swap expires on October 1, 2018.payments (dollars in thousands):
|
| | | | | | | | |
| | | | | | Notional Amount |
Contract date | | Effective Date | | Expiration Date | | December 31, 2019 |
October 2, 2017 | | January 29, 2018 | | January 31, 2023 | | $ | 100,000 |
|
October 2, 2017 | | January 29, 2018 | | January 31, 2023 | | 100,000 |
|
June 11, 2018 | | September 28, 2018 | | September 30, 2024 | | 75,000 |
|
June 11, 2018 | | December 31, 2018 | | December 31, 2025 | | 125,000 |
|
| | | | | | $ | 400,000 |
|
At December 31, 2016,2019, after giving effect to our interest rate derivative agreement, $359.9agreements, $549.2 million, or 54.7%53.7%, of our debt had fixed interest rates and $297.7$473.5 million, or 45.3%46.3%, had variable interest rates. At December 31, 2015,2018, after giving
effect to our interest rate derivative agreements, $402.7$569.1 million, or 59.5%59.0%, of our debt had fixed interest rates and $274.4$395.9 million, or 40.5%41.0%, had variable interest rates. Assuming noThe increase in the level of our variable rate debt outstanding as of December 31, 2016, ifis primarily due to the Joint Venture Credit Facility. Taking into consideration our existing interest rate swaps an increase in interest rates increased byof 1.0% would decrease our cash flow would decreaseflows by approximately $3.0$4.7 million per year.
As our fixed-rate debts mature, they will become subject to interest rate risk. In addition, as our variable-rate debts mature, lenders may impose interest rate floors on new financing arrangements because of the low interest rates experienced during the past few years. At December 31, 2016,2019, we have $7.7 million of debt maturing in 2017 all of which has fixed rates. Additionally, we have other scheduled payments of principal on debt in 20172020 totaling $8.1approximately $3.7 million.
Item 8. Financial Statements and Supplementary Data.
The financial statements and supplementary data required by this item are included on pages F-1 through F-43F-46 of this Annual Report on Form 10-K and are incorporated by reference herein.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
None.
Item 9A. Controls and Procedures.
Disclosure Controls and Procedures
Our management evaluated, with the participation of our Chief Executive Officer and our Chief Financial Officer, the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) as of December 31, 2016.2019. Based on that evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that, as of December 31, 2016,2019, our disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management to allow timely decisions regarding required disclosure.
Management’s Report on the Effectiveness of Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is a process designed by, or under the supervision of, our Chief Executive Officer and our Chief Financial Officer, and effected by our board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP and includes those policies and procedures that:
pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets;
provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP and that our receipts and our expenditures are being made only in accordance with authorizations of our management and our board of directors; and
provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on our financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In connection with the preparation of this Annual Report on Form 10-K, our management, under the supervision of our Chief Executive Officer and our Chief Financial Officer, conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2016,2019, based on criteria established in Internal Control—Integrated Framework (2013) established by the Committee of Sponsoring Organizations of the Treadway Commission. Based on such evaluation, our management concluded that we had effective internal control over financial reporting as of December 31, 2016.2019.
Ernst & Young LLP, our independent registered public accounting firm, has issued an auditor’s attestation report on our management’s assessment of the effectiveness of our internal control over financial reporting as of December 31, 2016.2019. This report is included in Part II, Item 8 of this Annual Report on Form 10-K.
Changes in Internal Control Over Financial Reporting
There were no material changes in our internal control over financial reporting during the yearthree months ended December 31, 2016.2019.
Item 9B. Other Information.
None.
PART III
Item 10. Directors, Executive Officers and Corporate Governance.
The information required by this item is incorporated by reference to our Definitive Proxy Statement on Schedule 14A (the “2017“2020 Proxy Statement”) for the 20172020 Annual Meeting of Stockholders.
Item 11.Executive Compensation.
The information required by this item is incorporated by reference to our 20172020 Proxy Statement.
Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
Securities Authorized for Issuance Under Equity Compensation Plans
The following table provides information as of December 31, 2019 with respect to our securities that may be issued under existing equity compensation plans:
|
| | | | | | | | | | |
Plan Category | | Number of Securities to be Issued Upon Exercise of Outstanding Options | | Weighted Average Exercise Price of Outstanding Options | | Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (1) |
Equity Compensation Plans Approved by Summit Hotel Properties, Inc. Stockholders (2) | | 235,000 |
| | $ | 9.75 |
| | 1,844,221 |
|
Equity Compensation Plans Not Approved by Summit Hotel Properties, Inc. Stockholders | | — |
| | — |
| | — |
|
Total | | 235,000 |
| | $ | 9.75 |
| | 1,844,221 |
|
(1) Excludes securities reflected in the column entitled “Number of Securities to be Issued Upon Exercise of Outstanding Options.”
(2) Consists of our Equity Plan.
The following table represents common shares retained by the Company for employee taxes due upon vesting of equity awards during the year ended December 31, 2019:
|
| | | | | | | | | | | | | |
Period | | Total Shares Purchased | | Average Price Paid Per Share | | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | | Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs |
March 1, 2019 - March 31, 2019 | | 73,892 |
| | $ | 11.29 |
| | — |
| | — |
|
May 1, 2019 - May 31, 2019 | | 448 |
| | $ | 11.74 |
| | — |
| | — |
|
Total | | 74,340 |
| | | | — |
| | |
The other information required by this item is incorporated by reference to our 20172020 Proxy Statement.
Item 13.Certain Relationships and Related Transactions, and Director Independence.
The information required by this item is incorporated by reference to our 20172020 Proxy Statement.
Item 14.Principal Accountant Fees and Services.
The information required by this item is incorporated by reference to our 20172020 Proxy Statement.
PART IV
Item 15.Exhibits and Financial Statement Schedules.
1. Financial Statements:
Included herein at pages F-1 through F-39F-42
2. Financial Statement Schedules:
The following financial statement schedule is included herein at pages F-40 - F-43.F-43 through F-46.
Schedule III — Real Estate and Accumulated Depreciation
3. Exhibits:
See the Exhibit Index that appears after the signature page to this Annual Report on Form 10-K, which is incorporated herein by reference.
All schedules for which provision is made in Regulation S-X are either not required to be included herein pursuant to the related instructions or are inapplicable or the related information is included in the footnotes to the applicable financial statement.
3. Exhibits:
The following exhibits are filed as part of this report:
EXHIBITS
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| | $600,000,000 Credit Agreement, dated as of December 6, 2018, among Summit Hotel OP, LP, as Borrower, Summit Hotel Properties, Inc., as Parent Guarantor, the other guarantors named therein, as Subsidiary Guarantors, the Initial Lenders, Initial Issuing Banks and Swing Line Banks, Deutsche Bank AG New York Branch, as Administrative Agent, Bank of America, N.A., and Regions Bank, as Co-Syndication Agents, with Deutsche Bank Securities INC., Merrill Lynch, Pierce, Fenner & Smith Incorporated, as Joint Lead Arrangers and as Joint Bookrunners (incorporated by reference to Exhibit 10.1 of the Current Report on Form 8-K filed by Summit Hotel Properties, Inc. on December 10, 2018). |
| | $225,000,000 Credit Agreement, dated as of September 26, 2017, among Summit Hotel OP, LP, as Borrower, Summit Hotel Properties, Inc., as Parent Guarantor, the other guarantors named therein, Key Bank National Association, as administrative agent, Deutsche Bank AG New York Branch and Bank of America, N.A., as co-syndication agents, KeyBanc Capital Markets, Inc., Deutsche Bank Securities, Inc., and Merrill Lynch Pierce Fenner & Smith, as joint bookrunners and joint lead arrangers, and a syndicate of lenders including KeyBank National Association, Deutsche Bank AG New York Branch, Bank of America, N.A., Capital One, National Association, PNC Bank, National Association, Regions Bank, Raymond James Bank, N.A., Royal Bank of Canada, Branch Banking and Trust Company, and U.S. Bank National Association (incorporated by reference to Exhibit 10.1 to the Current Report of the Form 8-K filed by Summit Hotel Properties, Inc on October 2, 2017). |
| | First Amended and Restated Credit Agreement, dated as of February 15, 2018, among Summit Hotel OP, LP, as Borrower, Summit Hotel Properties, Inc., as Parent Guarantor, the other guarantors named herein, as subsidiary guarantors, the initial lenders named therein, Keybank National Association, as Administrative Agent, Regions Bank, Raymond James Bank, N.A., PNC Bank, National Association, Capital One, National Association, and Branch Banking and Trust Company, as co-syndication agents, and Keybanc Capital Markets, Inc., as sole bookrunner, Keybanc Capital Markets, Inc., Regions Capital Markets, Raymond James Bank, N.A., PNC Capital Markets LLC, Capital One, National Association, and Branch Banking and Trust Company as joint lead arrangers. (incorporated by reference to Exhibit 10.9 of the Annual Report filed by Summit Hotel Properties, Inc. on February 21, 2018). |
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| | $200 Million Credit Agreement dated October 8, 2019 among Summit JV MR 1, LLC, as borrower, Summit Hospitality JV, LP, as parent, each party executing the credit facility documentation as a subsidiary guarantor, Bank of America N.A., as administrative agent and sole initial lender, and BofA Securities, Inc., as sole lead arranger and sole bookrunner (incorporated by reference to Exhibit 10.1 to Current Report on Form 8-K filed by Summit Hotel Properties, Inc. on October 15, 2019). |
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101.INS(1) | | XBRL Instance Document |
101.SCH(1) | | XBRL Taxonomy Extension Schema Document |
101.CAL(1) | | XBRL Taxonomy Extension Calculation Linkbase Document |
101.DEF(1) | | XBRL Taxonomy Extension Definition Linkbase Document |
101.LAB(1) | | XBRL Taxonomy Extension Labels Linkbase Document |
101.PRE(1) | | XBRL Taxonomy Presentation Linkbase Document |
104(1) | | The cover page for Summit Hotel Properties, Inc.'s Annual Report on Form 10-K for the year ended December 31, 2019 (formatted in Inline XBRL and contained in Exhibit 101). |
* Management contract or compensatory plan or arrangement.
† Filed herewith
(1) Submitted electronically herewith
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
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| SUMMIT HOTEL PROPERTIES, INC. (registrant) |
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Date: February 23, 201725, 2020 | By: | /s/ Daniel P. Hansen |
| | Daniel P. Hansen |
| | Chairman of the Board of Directors |
| | President and Chief Executive Officer |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
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Signature | | Title | | Date |
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/s/ Daniel P. Hansen | | Chairman of the Board of Directors, President and Chief Executive Officer | | February 23, 201725, 2020 |
Daniel P. Hansen | | (Principal Executive Officer)principal executive officer) | | |
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/s/ Greg A. DowellJonathan P. Stanner | | Executive Vice President, Chief Financial Officer and Treasurer | | February 23, 201725, 2020 |
Greg A. DowellJonathan P. Stanner | | (Principal Financial Officer)principal financial officer) | | |
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/s/ Paul Ruiz | | Senior Vice President and Chief Accounting Officer | | February 23, 201725, 2020 |
Paul Ruiz | | (Principal Accounting Officer)principal accounting officer) | | |
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/s/ Bjorn R. L. Hanson | | Director | | February 23, 201725, 2020 |
Bjorn R. L. Hanson | | | | |
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/s/ Jeffrey W. Jones | | Director | | February 23, 201725, 2020 |
Jeffrey W. Jones | | | | |
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/s/ Kenneth J. Kay | | Director | | February 23, 201725, 2020 |
Kenneth J. Kay | | | | |
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/s/ Thomas W. Storey | | Director | | February 23, 201725, 2020 |
Thomas W. Storey | | | | |
EXHIBIT INDEX
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Exhibit
Number
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3.1 | | Articles of Amendment and Restatement of Summit Hotel Properties, Inc. (incorporated by reference to Exhibit 3.1 to Annual Report on Form 10-K filed by Summit Hotel Properties, Inc. on February 28, 2012). |
3.2/s/ Hope S. Taitz | | Articles Supplementary designating the Company’s 9.25% Series A Cumulative Redeemable Preferred Stock, $0.01 par value per share (incorporated by reference to Exhibit 3.1 to Current Report on Form 8-K filed by Summit Hotel Properties, Inc. on October 28, 2011). |
3.3Director | | Articles Supplementary designating the Company’s 7.875% Series B Cumulative Redeemable Preferred Stock, $0.01 par value per share (incorporated by reference to Exhibit 3.1 to Current Report on Form 8-K filed by Summit Hotel Properties, Inc. on December 7, 2012).February 25, 2020 |
3.4Hope S. Taitz | | Articles Supplementary designating the Company’s 7.125% Series C Cumulative Redeemable Preferred Stock, $0.01 par value per share (incorporated by reference to Exhibit 3.1 to Current Report on Form 8-K filed by Summit Hotel Properties, Inc. on March 19, 2013). |
3.5 | | Articles Supplementary designating the Company’s 6.45% Series D Cumulative Redeemable Preferred Stock, $0.01 par value per share (incorporated by reference to Exhibit 3.1 to Registration Statement on Form 8-A filed by Summit Hotel Properties, Inc. on June 24, 2016). |
3.6 | | Amended and Restated Bylaws of Summit Hotel Properties, Inc. (incorporated by reference to Exhibit 3.2 to Amendment No. 2 to Registration Statement on Form S-11 filed by Summit Hotel Properties, Inc. on November 1, 2010). |
3.7 | | First Amended and Restated Agreement of Limited Partnership of Summit Hotel OP, LP, dated February 14, 2011, as amended (incorporated by reference to Exhibit 3.4 to the Quarterly Report on Form 10-Q filed by Summit Hotel Properties, Inc. on May 6, 2013). |
3.8 | | First Amendment to the First Amended and Restated Agreement of Limited Partnership of Summit Hotel OP, LP (incorporated by reference to Exhibit 3.2 to Current Report on Form 8-K filed by Summit Hotel Properties, Inc. on October 28, 2011). |
3.9 | | Second Amendment to the First Amended and Restated Agreement of Limited Partnership of Summit Hotel OP, LP (incorporated by reference to Exhibit 3.1 to Current Report on Form 8-K filed by Summit Hotel Properties, Inc. on April 16, 2012). |
3.10 | | Third Amendment to the First Amended and Restated Agreement of Limited Partnership of Summit Hotel OP, LP (incorporated by reference to Exhibit 3.2 to Current Report on Form 8-K filed by Summit Hotel Properties, Inc. on December 7, 2012). |
3.11 | | Fourth Amendment to the First Amended and Restated Agreement of Limited Partnership of Summit Hotel OP, LP (incorporated by reference to Exhibit 3.2 to Current Report on Form 8-K filed by Summit Hotel Properties, Inc. on March 19, 2013). |
3.12 | | Fifth Amendment to the First Amended and Restated Agreement of Limited Partnership of Summit Hotel OP, LP (incorporated by reference to Exhibit 3.2 of the Company’s Current Report on Form 8-K filed with the SEC on June 24, 2016). |
3.13 | | Sixth Amendment to the First Amended and Restated Agreement of Limited Partnership of Summit Hotel OP, LP. (incorporated by reference to Exhibit 3.5 of the Company’s Quarterly Report on Form 10-Q filed by Summit Hotel Properties, Inc. on August 2, 2016). |
3.14 | | Articles Supplementary to the Articles of Amendment and Restatement of Summit Hotel Properties, Inc. prohibiting election under Sections 3-803, 3-804(a), 3-804(b) and 3-805 of the MGCL without stockholder approval (incorporated by reference to Exhibit 3.1 of the Company’s Current Report on Form 8-K filed with the SEC on May 26, 2016). |
4.1 | | Specimen certificate of common stock of Summit Hotel Properties, Inc. (incorporated by reference to Exhibit 4.1 to Amendment No. 5 to Registration Statement on Form S-11 filed by Summit Hotel Properties, Inc. on February 7, 2011). |
10.1 | | $450,000,000 Credit Agreement, dated as of January 15, 2016, among Summit Hotel OP, LP, as Borrower, Summit Hotel Properties, Inc., as Parent Guarantor, the other guarantors named therein, as Subsidiary Guarantors, the Initial Lenders, Initial Issuing Banks and Swing Line Banks named therein, Deutsche Bank AG New York Branch, as Administrative Agent, Bank of America, N.A. and Regions Bank, as Co-Syndication Agents, with Deutsche Bank Securities Inc., Merrill Lynch, Pierce Fenner & Smith Incorporated and Regions Capital Markets, as Joint Lead Arrangers and as Joint Bookrunners (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed by Summit Hotel Properties, Inc. on January 20, 2016). |
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10.2 | | $125,000,000 Credit Agreement, dated as of April 7, 2015, among Summit Hotel OP, LP, Summit Hotel Properties, Inc., the subsidiary guarantors party thereto, Key Bank National Association, Regions Bank, Raymond James Bank, N.A., Branch Banking and Trust Company and U.S. Bank National Association (incorporated by reference to Exhibit 10.1 to Current Report on Form 8-K filed by Summit Hotel Properties, Inc. on April 13, 2015). |
10.3 | | Accession Agreement, dated April 21, 2015, among Summit Hotel OP, LP, Summit Hotel Properties, Inc., the subsidiary guarantors party thereto, American Bank N.A., and KeyBank National Association (incorporated by reference to Exhibit 10.6 to Quarterly Report on Form 10-Q filed by Summit Hotel Properties, Inc. on May 4, 2015). |
10.4 | | First Amendment to Credit Agreement dated as of December 21, 2015, among Summit Hotel OP, LP, KeyBank National Association and the financial institutions party to the Credit Agreement (incorporated by reference to Exhibit 10.4 to Quarterly Report on Form 10-K filed by Summit Hotel Properties, Inc. on February 21, 2016). |
10.5 | | Second Amendment to Credit Agreement dated as of January 15, 2016, among Summit Hotel OP, LP, KeyBank National Association and the financial institutions party to the Credit Agreement (incorporated by reference to Exhibit 10.5 to Quarterly Report on Form 10-K filed by Summit Hotel Properties, Inc. on February 24, 2016). |
10.6 | | Amended and Restated Hotel Management Agreement, dated February 14, 2011, among Interstate Management Company, LLC and the subsidiaries of Summit Hotel Properties, Inc. party thereto (incorporated by reference to Exhibit 10.4 to Current Report on Form 8-K filed by Summit Hotel Properties, Inc. on February 18, 2011). |
10.7 | | First Amendment to Amended and Restated Hotel Management Agreement, dated June 30, 2011, among Interstate Management Company, LLC and the subsidiaries of the Company party thereto (incorporated by reference to Exhibit 10.2 to Quarterly Report on Form 10-Q filed by Summit Hotel Properties, Inc. on August 15, 2011). |
10.8 | | Form of Lease Agreement between Summit Hotel OP, LP and TRS Lessee (incorporated by reference to Exhibit 10.4 to Amendment No. 2 to Registration Statement on Form S-11 filed by Summit Hotel Properties, Inc. on November 1, 2010). |
10.9* | | Summit Hotel Properties, Inc. 2011 Equity Incentive Plan, as amended and restated effective June 15, 2015 (incorporated by reference to Appendix B to the Definitive Proxy Statement on Schedule 14A filed by Summit Hotel Properties, Inc. on April 28, 2015). |
10.10* | | Form of Option Award Agreement (incorporated by reference to Exhibit 10.6 to Amendment No. 1 to Registration Statement on Form S-11 filed by Summit Hotel Properties, Inc. on September 23, 2010). |
10.11* | | Form of Incentive Award Agreement between Summit Hotel Properties, Inc. and its executive officers (incorporated by reference to Exhibit 10.2 to Quarterly Report on Form 10-Q filed by Summit Hotel Properties, Inc. on May 5, 2012). |
10.12* | | Form of Stock Award Agreement (Performance Based Shares) between Summit Hotel Properties, Inc. and its executive officers (incorporated by reference to Exhibit 10.3 to Quarterly Report on Form 10-Q filed by Summit Hotel Properties, Inc. on May 5, 2012). |
10.13* | | Form of Stock Award Agreement (Service-Based Shares) between Summit Hotel Properties, Inc. and its executive officers (incorporated by reference to Exhibit 10.4 to Quarterly Report on Form 10-Q filed by Summit Hotel Properties, Inc. on May 5, 2012). |
10.14* | | Form of Stock Award Agreement (Performance Based Shares) between Summit Hotel Properties, Inc. and its executive officers (incorporated by reference to Exhibit 10.5 to Quarterly Report on Form 10-Q filed by Summit Hotel Properties, Inc. on May 4, 2015). |
10.15* | | Form of Stock Award Agreement (Service-Based Shares) between Summit Hotel Properties, Inc. and its executive officers (incorporated by reference to Exhibit 10.5 of the Company’s Quarterly Report on Form 10-Q filed by Summit Hotel Properties, Inc. on May 3, 2016). |
10.16* | | Form of Stock Award Agreement (Performance Based Shares) between Summit Hotel Properties, Inc. and its executive officers (incorporated by reference to Exhibit 10.6 of the Company’s Quarterly Report on Form 10-Q filed by Summit Hotel Properties, Inc. on May 3, 2016). |
10.17* | | Form of Incentive Award Agreement between Summit Hotel Properties, Inc. and its executive officers (incorporated by reference to Exhibit 10.7 of the Company’s Quarterly Report on Form 10-Q filed by Summit Hotel Properties, Inc. on May 3, 2016). |
10.18* | | Employment Agreement, dated May 28, 2014, between Summit Hotel Properties, Inc. and Daniel P. Hansen (incorporated by reference to Exhibit 10.2 to Quarterly Report on Form 10-Q filed by Summit Hotel Properties, Inc. on August 6, 2014). |
10.19* | | Employment Agreement, dated May 28, 2014, between Summit Hotel Properties, Inc. and Craig J. Aniszewski (incorporated by reference to Exhibit 10.3 to Quarterly Report on Form 10-Q filed by Summit Hotel Properties, Inc. on August 6, 2014). |
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10.20* | | Employment Agreement, dated May 28, 2014, between Summit Hotel Properties, Inc. and Christopher R. Eng (incorporated by reference to Exhibit 10.4 to Quarterly Report on Form 10-Q filed by Summit Hotel Properties, Inc. on August 6, 2014). |
10.21* | | Employment Agreement, dated September 11, 2014 and effective as of October 1, 2014, between Summit Hotel Properties, Inc. and Greg A. Dowell (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed by Summit Hotel Properties, Inc. on September 11, 2014). |
10.22* | | Employment Agreement, dated March 3, 2015, between Summit Hotel Properties, Inc. and Paul Ruiz (incorporated by reference to Exhibit 10.3 to the Quarterly Report on Form 10-Q filed by Summit Hotel Properties, Inc. on May 4, 2015). |
10.23* | | Form of Indemnification Agreement between Summit Hotel Properties, Inc. and each of its Executive Officers and Directors (incorporated by reference to Exhibit 10.14 to Amendment No. 2 to Registration Statement on Form S-11 filed by Summit Hotel Properties, Inc. on November 1, 2010). |
10.24 | | Sales Agreement, dated as of August 3, 2015, by and among Summit Hotel Properties, Inc., Summit Hotel OP, LP and Robert W. Baird & Co. Incorporated (incorporated by reference to Exhibit 10.7 to the Quarterly Report on Form 10-Q filed by Summit Hotel Properties, Inc. on August 3, 2015). |
10.25 | | Real Estate Purchase and Sale Agreement, dated as of June 2, 2015, by and among the Sellers listed on Schedule 1 attached thereto, Summit Hotel OP, LP and American Realty Capital Hospitality Portfolio SMT, LLC, relating to the sale of 16 hotels (“ARCH PSA #1”) (incorporated by reference to Exhibit 10.3 to the Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2015 filed by Summit Hotel Properties, Inc. on August 3, 2015). |
10.26 | | Letter Agreement, dated July 15, 2015, amending ARCH PSA #1 (incorporated by reference to Exhibit 10.4 to the Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2015 filed by Summit Hotel Properties, Inc. on August 3, 2015). |
10.27 | | Real Estate Purchase and Sale Agreement, dated as of June 2, 2015, by and among the Sellers listed on Schedule 1 attached thereto, Summit Hotel OP, LP and American Realty Capital Hospitality Portfolio SMT, LLC, relating to the sale of 10 hotels (“ARCH PSA #2”) (incorporated by reference to Exhibit 10.5 to the Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2015 filed by Summit Hotel Properties, Inc. on August 3, 2015). |
10.28 | | Letter Agreement, dated July 15, 2015, amending ARCH PSA #2 (incorporated by reference to Exhibit 10.5 to the Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2015 filed by Summit Hotel Properties, Inc. on August 3, 2015). |
10.29 | | Letter Agreement, dated as of February 11, 2016, by and among Summit Hotel OP, LP, and certain affiliated entities, and American Realty Capital Hospitality Portfolio SMT, LLC, (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed by Summit Hotel Properties, Inc. on February 16, 2016). |
10.30 | | $27.5 million Loan Agreement dated February 11, 2016 between American Realty Capital Hospitality Trust, Inc. and Summit Hotel OP, LP (incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K filed by Summit Hotel Properties, Inc. on February 16, 2016). |
10.31 | | Sales Agreement, dated as of August 2, 2016, by and among Summit Hotel Properties, Inc., Summit Hotel OP, LP and Robert W. Baird & Co. Incorporated (incorporated by reference to Exhibit 10.1 of the Company’s Quarterly Report on Form 10-Q filed by Summit Hotel Properties, Inc. on August 2, 2016). |
10.32 | | Sales Agreement, dated as of August 2, 2016, by and among Summit Hotel Properties, Inc., Summit Hotel OP, LP and Raymond James & Associates, Inc. (incorporated by reference to Exhibit 10.2 of the Company’s Quarterly Report on Form 10-Q filed by Summit Hotel Properties, Inc. on August 2, 2016). |
10.33 | | Sales Agreement, dated as of August 2, 2016, by and among Summit Hotel Properties, Inc., Summit Hotel OP, LP and Merrill Lynch, Pierce, Fenner & Smith, Incorporated. (incorporated by reference to Exhibit 10.3 of the Company’s Quarterly Report on Form 10-Q filed by Summit Hotel Properties, Inc. on August 2, 2016). |
10.34 | | Sales Agreement, dated as of August 2, 2016, by and among Summit Hotel Properties, Inc., Summit Hotel OP, LP and Deutsche Bank Securities, Inc. (incorporated by reference to Exhibit 10.4 of the Company’s Quarterly Report on Form 10-Q filed by Summit Hotel Properties, Inc. on August 2, 2016). |
10.35 | | Sales Agreement, dated as of August 2, 2016, by and among Summit Hotel Properties, Inc., Summit Hotel OP, LP and RBC Capital Markets, LLC. (incorporated by reference to Exhibit 10.5 of the Company’s Quarterly Report on Form 10-Q filed by Summit Hotel Properties, Inc. on August 2, 2016). |
10.36 | | Sales Agreement, dated as of August 2, 2016, by and among Summit Hotel Properties, Inc., Summit Hotel OP, LP and KeyBanc Capital Markets, Inc. (incorporated by reference to Exhibit 10.6 of the Company’s Quarterly Report on Form 10-Q filed by Summit Hotel Properties, Inc. on August 2, 2016). |
10.37 | | Sales Agreement, dated as of August 2, 2016, by and among Summit Hotel Properties, Inc., Summit Hotel OP, LP and Canaccord Genuity, Inc. (incorporated by reference to Exhibit 10.7 of the Company’s Quarterly Report on Form 10-Q filed by Summit Hotel Properties, Inc. on August 2, 2016). |
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10.38 | | Sales Agreement, dated as of August 2, 2016, by and among Summit Hotel Properties, Inc., Summit Hotel OP, LP and Jefferies, LLC. (incorporated by reference to Exhibit 10.8 of the Company’s Quarterly Report on Form 10-Q filed by Summit Hotel Properties, Inc. on August 2, 2016). |
10.39 | | Letter Agreement, dated as of January 10, 2017, by and among Summit Hotel OP, LP and certain affiliated entities, and American Realty Capital Hospitality Portfolio SMT ALT, LLC (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed by Summit Hotel Properties, Inc. on January 13, 2017). |
10.40 | | Letter Agreement, dated as of January12, 2017, by and among Summit Hotel OP, LP and certain affiliated entities, and American Realty Capital Hospitality Portfolio SMT ALT, LLC (incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K filed by Summit Hotel Properties, Inc. on January 13, 2017). |
10.41 | | First Amendment to Loan Agreement, dated as of January 12, 2017, between American Realty Capital Hospitality Trust, Inc. and Summit Hotel OP, LP (incorporated by reference to Exhibit 10.3 to the Current Report on Form 8-K filed by Summit Hotel Properties, Inc. on January 13, 2017). |
10.42 | | $3.0 million Loan Agreement, dated as of January 12, 2017, between American Realty Capital Hospitality Trust, Inc. and Summit Hotel OP, LP (incorporated by reference to Exhibit 10.4 to the Current Report on Form 8-K filed by Summit Hotel Properties, Inc. on January 13, 2017). |
12.1† | | Calculation of Ratio of Earnings to Fixed Charges and Preferred Stock Dividends |
21.1† | | List of Subsidiaries of Summit Hotel Properties, Inc. |
23.1† | | Consent of Ernst & Young, LLP |
31.1† | | Certification of Chief Executive Officer of Summit Hotel Properties, Inc. pursuant to Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
31.2† | | Certification of Chief Financial Officer of Summit Hotel Properties, Inc. pursuant to Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
32.1† | | Certification of Chief Executive Officer of Summit Hotel Properties, Inc. pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
32.2† | | Certification of Chief Financial Officer of Summit Hotel Properties, Inc. pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
101.INS† | | XBRL Instance Document |
101.SCH† | | XBRL Taxonomy Extension Schema Document |
101.CAL† | | XBRL Taxonomy Extension Calculation Linkbase Document |
101.DEF† | | XBRL Taxonomy Extension Definition Linkbase Document |
101.LAB† | | XBRL Taxonomy Extension Labels Linkbase Document |
101.PRE† | | XBRL Taxonomy Presentation Linkbase Document |
* Management contract or compensatory plan or arrangement.
† Filed herewithin
SUMMIT HOTEL PROPERTIES, INC.
INDEX TO FINANCIAL STATEMENTS AND SCHEDULE
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The
To the Shareholders and the Board of Directors and Stockholders of
Summit Hotel Properties, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Summit Hotel Properties, Inc. (the Company) as of December 31, 20162019 and 2015, and2018, the related consolidated statements of operations,income, comprehensive income, changes inshareholders' equity and cash flows for each of the three years in the period ended December 31, 2016. Our audits also included2019, and the related notes and financial statement schedule listed in the Index at Item 15.2. These15(a) (collectively referred to as the “consolidated financial statements and schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States)statements”). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Summit Hotel Properties, Inc.the Company at December 31, 20162019 and 2015,2018, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2016,2019, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.
As discussed in Note 2 to the consolidated financial statements, the Company changed its method for classifying debt issuance costs during 2016.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’sCompany's internal control over financial reporting as of December 31, 2016,2019, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 Framework)framework), and our report dated February 23, 201725, 2020 expressed an unqualified opinion thereon.
Adoption of ASU No. 2016-02
As discussed in Note 2 to the consolidated financial statements, the Company changed its method for accounting for leases in 2019 due to the adoption of ASU No. 2016-02, Leases (Topic 842).
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
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| Loss on Impairment of Assets |
Description of the Matter | Investment in hotel properties, net, including hotel properties under development and land held for development totaled $2.2 billion at December 31, 2019. For the year ended December 31, 2019, the Company recorded impairment losses of $2.5 million. As explained in Note 2 of the consolidated financial statements, hotel properties are evaluated by management for impairment when indicators are present. When such indicators are identified, management prepares a recoverability analysis using undiscounted cash flows and if this analysis fails, management recognizes an impairment when the estimated fair value of the property is less than the carrying value.
Auditing the undiscounted property cash flow analysis was complex and involved a high degree of subjectivity, primarily around future growth rates used in the Company’s analysis,which can be affected by future market or economic conditions. Auditing the estimated fair value of properties that fail the recoverability analysis was complex and involved a high degree of subjectivity, primarily around the market assumptions and comparable sales figures used in the appraisal obtained by the Company to estimate the fair value of the underlying properties. |
How We Addressed the Matter in Our Audit | We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the Company's process to determine (1) hotel properties with impairment indicators, (2) undiscounted cash flows for each identified property and (3) the fair value of hotel properties that did not pass the test of recoverability. For example, we tested controls over management’s review of triggering events and the significant assumptions, such as growth rates in future cash flows, used in the test for recoverability.
To test the undiscounted cash flow analysis, our audit procedures included, among others, evaluating the Company's methodology, testing the future growth rate assumptions used to develop the forecasted cash flows and testing the completeness and accuracy of the underlying data. For example, we compared the future growth rates to current industry, market and economic trends, and historical results of the Company's business. We performed a sensitivity analysis of the future growth rates to evaluate the change in the recoverability analysis of the hotel properties resulting from changes in the assumptions. We also involved a valuation specialist to assist in our evaluation of the key assumptions used in the analysis, such as future growth rates and occupancy rates, and to perform a comparability assessment of the Company’s approach to value using observable market information. To test the fair value of the properties that did not pass the recoverability analysis, our audit procedures included, among others, involving a specialist to perform corroborative calculations using observable market data to develop an independent range of values to compare against the Company’s third-party appraisal. Our audit procedures further involved validating the completeness and accuracy of the net book value and historical financial information for the properties that were appraised. |
|
| |
| Hotel Property Acquisitions |
Description of the Matter | During 2019, the Company completed its acquisition of five hotel properties for net consideration of $274.5 million, as disclosed in Note 3 to the consolidated financial statements. The transactions were accounted for as asset acquisitions. Determining the fair value of the individual assets acquired requires management to make significant judgments about the valuation methodologies (i.e., market approach or cost approach) and inputs to the model.
Auditing the Company's accounting for its acquisitions of the five hotel properties was complex due to the significant estimation required by management to determine the fair value of the acquired land and hotel buildings and improvements. The significant assumptions used to estimate the value of these assets included (1) adjustments to market data to account for any transaction differences between the acquired land parcel and observable market transactions, and (2) estimating replacement costs for each hotel building and improvement, including estimating useful lives taking into consideration the physical condition of the assets at acquisition, and making adjustments to account for any transaction differences. |
How We Addressed the Matter in Our Audit | We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the Company's accounting for asset acquisitions process, including controls over the Company’s valuation of the acquired assets. For example, we tested the Company's controls over the determination of the fair value of the land and hotel buildings and improvements, including the valuation models and underlying assumptions used to develop such estimates.
To test the estimated fair value of the land and hotel buildings and site improvements our audit procedures included, among others, reading the purchase agreement, assessing the appropriateness of the valuation methodologies, evaluating the reasonableness of the significant assumptions discussed above and testing the completeness and accuracy of the underlying data used by the Company. We involved our valuation specialist to assist with our evaluation of the methodologies used by the Company and significant assumptions included in the fair value estimates. For example, we compared the significant assumptions to current industry, market and economic trends, to the assumptions used to value similar assets in other acquisitions in the same industry and evaluating whether assumptions used by management were reasonable considering consistency with external market and industry data. Specifically, for the market approach, we developed an independent range of fair values based on observable market transactions to compare to the Company’s conclusion on fair value. For the cost approach, we compared the replacement cost and estimated useful life for the hotel building and improvements to observable market information, taking into consideration the physical condition of the assets at the time of acquisition. We also performed sensitivity analyses of the estimated useful life assumptions to evaluate the change in the fair value resulting from changes in the assumptions.
|
/s/ Ernst & Young LLP
We have served as the Company’s auditor since 2013.
Austin, Texas
February 23, 201725, 2020
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
TheTo the Shareholders and Board of Directors and Shareholders of
Summit Hotel Properties, Inc.
Opinion on Internal Control over Financial Reporting
We have audited Summit Hotel Properties, Inc.’s (the Company) internal control over financial reporting as of December 31, 2016,2019, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission 2013 framework (the COSO criteria). In our opinion, Summit Hotel Properties, Inc.’s (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2019, based on the COSO criteria.
We also have audited in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of Summit Hotel Properties, Inc. (the Company) as of December 31, 2019 and 2018, the related consolidated statements of income, comprehensive income, shareholders’ equity and cash flows for each of the three years in the period ended December 31, 2019, and the related notes and financial statement schedule listed in the Index at Item 15(a) (collectively referred to as the “consolidated financial statements”) and our report dated February 25, 2020 expressed an unqualified opinion thereon.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying ManagementsManagement’s Report on the Effectiveness of Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the company’sCompany’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States).PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.statements
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, Summit Hotel Properties, Inc. maintained, in all material respects, effective internal control over financial reporting as of December 31, 2016, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Summit Hotel Properties, Inc. as of December 31, 2016 and 2015, and the related consolidated statements of operations, consolidated statements of comprehensive income, consolidated statements of changes in equity and consolidated statements of cash flows for each of the three years in the period ended December 31, 2016 of Summit Hotel Properties, Inc. and our report dated February 23, 2017 expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
Austin, Texas
February 23, 201725, 2020
Summit Hotel Properties, Inc.
Consolidated Balance Sheets
(in thousands, except share amounts)
| | | | December 31, | | December 31, |
| | 2016 | | 2015 | | 2019 | | 2018 |
ASSETS | | |
| | |
| | |
| | |
|
Investment in hotel properties, net | | $ | 1,538,868 |
| | $ | 1,333,407 |
| | $ | 2,184,232 |
| | $ | 2,065,554 |
|
Land held for development | | 5,742 |
| | 5,742 |
| |
Assets held for sale | | 62,695 |
| | 133,138 |
| |
Undeveloped land | | | 1,500 |
| | 2,267 |
|
Assets held for sale, net | | | 425 |
| | 7,633 |
|
Investment in real estate loans, net | | 17,585 |
| | 12,803 |
| | 30,936 |
| | 30,700 |
|
Right-of-use assets | | | 29,884 |
| | — |
|
Cash and cash equivalents | | 34,694 |
| | 29,326 |
| | 42,238 |
| | 44,088 |
|
Restricted cash | | 24,881 |
| | 23,073 |
| | 27,595 |
| | 28,468 |
|
Trade receivables, net | | 11,807 |
| | 9,437 |
| | 13,281 |
| | 13,978 |
|
Prepaid expenses and other | | 6,474 |
| | 15,281 |
| | 8,844 |
| | 10,111 |
|
Deferred charges, net | | 3,727 |
| | 3,628 |
| | 4,709 |
| | 4,691 |
|
Other assets | | 12,032 |
| | 9,559 |
| | 12,039 |
| | 14,807 |
|
Total assets | | $ | 1,718,505 |
| | $ | 1,575,394 |
| | $ | 2,355,683 |
| | $ | 2,222,297 |
|
LIABILITIES AND EQUITY | | |
| | |
| | |
| | |
|
Liabilities: | | |
| | |
| | |
| | |
|
Debt, net of debt issuance costs | | $ | 652,414 |
| | $ | 671,536 |
| | $ | 1,016,163 |
| | $ | 958,712 |
|
Lease liabilities | | | 19,604 |
| | — |
|
Accounts payable | | 4,623 |
| | 2,947 |
| | 4,767 |
| | 5,391 |
|
Accrued expenses and other | | 46,880 |
| | 42,174 |
| | 71,759 |
| | 66,050 |
|
Derivative financial instruments | | 1,118 |
| | 1,811 |
| |
Total liabilities | | 705,035 |
| | 718,468 |
| | 1,112,293 |
| | 1,030,153 |
|
Commitments and contingencies (Note 9) | |
|
| |
|
| |
Commitments and contingencies (Note 11) | | |
|
| |
|
|
Equity: | | |
| | |
| | |
| | |
|
Preferred stock, $.01 par value per share, 100,000,000 shares authorized: | | |
| | |
| |
9.25% Series A - 2,000,000 shares issued and outstanding at December 31, 2015 (aggregate liquidation preference of $50,398 at December 31, 2015) | | — |
| | 20 |
| |
7.875% Series B - 3,000,000 shares issued and outstanding at December 31, 2016 and 2015 (aggregate liquidation preference of $75,509 at December 31, 2016 and 2015) | | 30 |
| | 30 |
| |
7.125% Series C - 3,400,000 shares issued and outstanding at December 31, 2016 and 2015 (aggregate liquidation preference of $85,522 at December 31, 2016 and 2015) | | 34 |
| | 34 |
| |
6.45% Series D - 3,000,000 shares issued and outstanding at December 31, 2016 (aggregate liquidation preference of $75,417 at December 31, 2016) | | 30 |
| | — |
| |
Common stock, $.01 par value per share, 500,000,000 shares authorized, 93,525,469 and 86,793,521 shares issued and outstanding at December 31, 2016 and 2015, respectively | | 935 |
| | 868 |
| |
Preferred stock, $0.01 par value per share, 100,000,000 shares authorized: | | | |
| | |
|
6.45% Series D - 3,000,000 shares issued and outstanding at December 31, 2019 and 2018 (aggregate liquidation preference of $75,417 at December 31, 2019 and 2018) | | | 30 |
| | 30 |
|
6.25% Series E - 6,400,000 shares issued and outstanding at December 31, 2019 and 2018 (aggregate liquidation preference of $160,861 at December 31, 2019 and 2018) | | | 64 |
| | 64 |
|
Common stock, $0.01 par value per share, 500,000,000 shares authorized, 105,169,515 and 104,783,179 shares issued and outstanding at December 31, 2019 and 2018, respectively | | | 1,052 |
| | 1,048 |
|
Additional paid-in capital | | 1,011,412 |
| | 894,060 |
| | 1,190,949 |
| | 1,185,310 |
|
Accumulated other comprehensive loss | | (977 | ) | | (1,666 | ) | | (16,034 | ) | | (1,441 | ) |
Accumulated deficit and distributions | | (1,422 | ) | | (40,635 | ) | |
(Distributions in excess of retained earnings) retained earnings | | | (2,283 | ) | | 4,838 |
|
Total stockholders’ equity | | 1,010,042 |
| | 852,711 |
| | 1,173,778 |
| | 1,189,849 |
|
Non-controlling interests in operating partnership | | 3,428 |
| | 4,215 |
| | 1,809 |
| | 2,295 |
|
Non-controlling interests in joint venture (Note 9) | | | 67,803 |
| | — |
|
Total equity | | 1,013,470 |
| | 856,926 |
| | 1,243,390 |
| | 1,192,144 |
|
Total liabilities and equity | | $ | 1,718,505 |
| | $ | 1,575,394 |
| | $ | 2,355,683 |
| | $ | 2,222,297 |
|
See Notes to Consolidated Financial Statements
Summit Hotel Properties, Inc.
Consolidated Statements of Operations
(in thousands, except per share amounts)
| | | | For the Years Ended December 31, | | For the Years Ended December 31, |
| | 2016 | | 2015 | | 2014 | | 2019 | | 2018 | | 2017 |
Revenues: | | |
| | |
| | |
| | |
| | |
| | |
|
Room | | $ | 443,270 |
| | $ | 436,202 |
| | $ | 380,472 |
| | $ | 505,342 |
| | $ | 523,439 |
| | $ | 479,934 |
|
Other hotel operations revenue | | 30,665 |
| | 27,253 |
| | 22,994 |
| |
Food and beverage | | | 23,785 |
| | 24,225 |
| | 21,359 |
|
Other | | | 20,221 |
| | 19,606 |
| | 14,084 |
|
Total revenues | | 473,935 |
| | 463,455 |
| | 403,466 |
| | 549,348 |
| | 567,270 |
| | 515,377 |
|
Expenses: | | |
| | |
| | |
| | |
| | |
| | |
|
Hotel operating expenses: | | |
| | |
| | |
| |
Room | | 110,221 |
| | 109,844 |
| | 101,150 |
| | 112,244 |
| | 119,724 |
| | 108,715 |
|
Other direct | | 64,608 |
| | 64,010 |
| | 55,388 |
| |
Other indirect | | 120,852 |
| | 121,974 |
| | 104,959 |
| |
Total hotel operating expenses | | 295,681 |
| | 295,828 |
| | 261,497 |
| |
Food and beverage | | | 18,552 |
| | 19,191 |
| | 16,734 |
|
Other hotel operating expenses | | | 158,181 |
| | 159,173 |
| | 144,526 |
|
Property taxes, insurance and other | | | 44,220 |
| | 43,339 |
| | 37,419 |
|
Management fees | | | 16,575 |
| | 18,521 |
| | 18,210 |
|
Depreciation and amortization | | 72,406 |
| | 64,052 |
| | 63,763 |
| | 99,445 |
| | 101,013 |
| | 85,927 |
|
Corporate general and administrative | | 19,292 |
| | 21,204 |
| | 19,884 |
| | 23,622 |
| | 21,509 |
| | 19,597 |
|
Hotel property acquisition costs | | 3,492 |
| | 1,246 |
| | 769 |
| | — |
| | — |
| | 354 |
|
Loss on impairment of assets | | 577 |
| | 1,115 |
| | 8,847 |
| | 2,521 |
| | 1,075 |
| | — |
|
Total expenses | | 391,448 |
| | 383,445 |
| | 354,760 |
| | 475,360 |
| | 483,545 |
| | 431,482 |
|
Gain on disposal of assets, net | | | 45,418 |
| | 41,474 |
| | 43,209 |
|
Operating income | | 82,487 |
| | 80,010 |
| | 48,706 |
| | 119,406 |
| | 125,199 |
| | 127,104 |
|
Other income (expense): | | |
| | |
| | |
| | |
| | |
| | |
|
Interest expense | | (28,091 | ) | | (30,414 | ) | | (28,517 | ) | | (41,030 | ) | | (41,944 | ) | | (29,687 | ) |
Gain on disposal of assets, net | | 49,855 |
| | 65,067 |
| | 391 |
| |
Other income, net | | 2,560 |
| | 11,146 |
| | 595 |
| | 5,472 |
| | 6,949 |
| | 3,778 |
|
Total other income (expense) | | 24,324 |
| | 45,799 |
| | (27,531 | ) | |
Total other expense | | | (35,558 | ) | | (34,995 | ) | | (25,909 | ) |
Income from continuing operations before income taxes | | 106,811 |
| | 125,809 |
| | 21,175 |
| | 83,848 |
| | 90,204 |
| | 101,195 |
|
Income tax benefit (expense) | | 1,450 |
| | (553 | ) | | (744 | ) | |
Income from continuing operations | | 108,261 |
| | 125,256 |
| | 20,431 |
| |
Income from discontinued operations, net of taxes | | — |
| | — |
| | 492 |
| |
Income tax (expense) benefit (Note 14) | | | (1,500 | ) | | 922 |
| | (1,674 | ) |
Net income | | 108,261 |
| | 125,256 |
| | 20,923 |
| | 82,348 |
| | 91,126 |
| | 99,521 |
|
Less - income attributable to non-controlling interests: | | |
| | |
| | |
| |
Operating partnership | | (456 | ) | | (819 | ) | | (51 | ) | |
Less: (Income) loss attributable to non-controlling interests: | | | |
| | |
| | |
|
Operating Partnership | | | (157 | ) | | (205 | ) | | (307 | ) |
Joint venture | | — |
| | — |
| | (1 | ) | | 419 |
| | — |
| | — |
|
Net income attributable to Summit Hotel Properties, Inc. | | 107,805 |
| | 124,437 |
| | 20,871 |
| | 82,610 |
| | 90,921 |
| | 99,214 |
|
Preferred dividends | | (18,232 | ) | | (16,588 | ) | | (16,588 | ) | | (14,838 | ) | | (16,671 | ) | | (17,408 | ) |
Premium on redemption of Series A Preferred Stock | | (2,125 | ) | | — |
| | — |
| |
Premium on redemption of preferred stock | | | — |
| | (3,277 | ) | | (2,572 | ) |
Net income attributable to common stockholders | | $ | 87,448 |
| | $ | 107,849 |
| | $ | 4,283 |
| | $ | 67,772 |
| | $ | 70,973 |
| | $ | 79,234 |
|
Earnings per share - Basic: | | |
| | |
| | |
| |
Net income per share from continuing operations | | $ | 1.00 |
| | $ | 1.25 |
| | $ | 0.04 |
| |
Net income per share from discontinued operations | | — |
| | — |
| | 0.01 |
| |
Net income per share | | $ | 1.00 |
| | $ | 1.25 |
| | $ | 0.05 |
| |
Earnings per share - Diluted: | | |
| | |
| | |
| |
Net income per share from continuing operations | | $ | 1.00 |
| | $ | 1.24 |
| | $ | 0.04 |
| |
Net income per share from discontinued operations | | — |
| | — |
| | 0.01 |
| |
Net income per share | | $ | 1.00 |
| | $ | 1.24 |
| | $ | 0.05 |
| |
Earnings per share: | | | |
| | |
| | |
|
Basic and diluted | | | $ | 0.65 |
| | $ | 0.68 |
| | $ | 0.79 |
|
Weighted average common shares outstanding: | | |
| | |
| | |
| | |
| | |
| | |
|
Basic | | 86,874 |
| | 85,920 |
| | 85,242 |
| | 103,887 |
| | 103,623 |
| | 99,406 |
|
Diluted | | 87,343 |
| | 87,144 |
| | 85,566 |
| | 103,939 |
| | 103,842 |
| | 99,780 |
|
Dividends per share | | $ | 0.55 |
| | $ | 0.47 |
| | $ | 0.46 |
| | $ | 0.72 |
| | $ | 0.72 |
| | $ | 0.67 |
|
See Notes to Consolidated Financial Statements
Summit Hotel Properties, Inc.
Consolidated Statements of Comprehensive Income
(in thousands)
| | | | For the Years Ended December 31, | | For the Years Ended December 31, |
| | 2016 | | 2015 | | 2014 | | 2019 | | 2018 | | 2017 |
Net income | | $ | 108,261 |
| | $ | 125,256 |
| | $ | 20,923 |
| | $ | 82,348 |
| | $ | 91,126 |
| | $ | 99,521 |
|
Other comprehensive income (loss), net of tax: | | |
| | |
| | |
| |
Other comprehensive income, net of tax: | | | |
| | |
| | |
|
Changes in fair value of derivative financial instruments | | 693 |
| | 81 |
| | (371 | ) | | (14,596 | ) | | (2,900 | ) | | 2,437 |
|
Comprehensive income | | 108,954 |
| | 125,337 |
| | 20,552 |
| | 67,752 |
| | 88,226 |
| | 101,958 |
|
Less - Comprehensive income attributable to non-controlling interests: | | |
| | |
| | |
| |
Operating partnership | | (460 | ) | | (820 | ) | | (47 | ) | |
Comprehensive (income) loss attributable to non-controlling interests: | | | |
| | |
| | |
|
Operating Partnership | | | (123 | ) | | (197 | ) | | (316 | ) |
Joint venture | | — |
| | — |
| | (1 | ) | | 419 |
| | — |
| | — |
|
Comprehensive income attributable to Summit Hotel Properties, Inc. | | 108,494 |
| | 124,517 |
| | 20,504 |
| | 68,048 |
| | 88,029 |
| | 101,642 |
|
Preferred dividends | | (18,232 | ) | | (16,588 | ) | | (16,588 | ) | | (14,838 | ) | | (16,671 | ) | | (17,408 | ) |
Premium on redemption of Series A Preferred Stock | | (2,125 | ) | | — |
| | — |
| |
Premium on redemption of preferred stock | | | — |
| | (3,277 | ) | | (2,572 | ) |
Comprehensive income attributable to common stockholders | | $ | 88,137 |
| | $ | 107,929 |
| | $ | 3,916 |
| | $ | 53,210 |
| | $ | 68,081 |
| | $ | 81,662 |
|
See Notes to Consolidated Financial Statements
Summit Hotel Properties, Inc.
Consolidated Statements of Changes in Equity
For the Years Ended December 31, 2016, 20152019, 2018 and 20142017
(in thousands, except share amounts)
| | | | Shares of Preferred Stock | | Preferred Stock | | Shares of Common Stock | | Common Stock | | Additional Paid-In Capital | | Accumulated Other Comprehensive Income (Loss) | | Accumulated Deficit and Distributions | | | | Non-controlling Interests | | | | Shares of Preferred Stock | | Preferred Stock | | Shares of Common Stock | | Common Stock | | Additional Paid-In Capital | | Accumulated Other Comprehensive Income (Loss) | | Retained Earnings (Distributions in Excess of Retained Earnings) | | Total Shareholders’ Equity | | Non-controlling Interests | |
| | Total Shareholders’ Equity | | Operating Partnership | | Joint Venture | | Total Equity | | Operating Partnership | | Joint Venture | | Total Equity |
Balance at December 31, 2013 | | 8,400,000 |
| | $ | 84 |
| | 85,402,408 |
| | $ | 854 |
| | $ | 882,858 |
| | $ | (1,379 | ) | | $ | (72,577 | ) | | $ | 809,840 |
| | $ | 4,722 |
| | $ | 7,816 |
| | $ | 822,378 |
| |
Balance at December 31, 2016 | | | 9,400,000 |
| | $ | 94 |
| | 93,525,469 |
| | $ | 935 |
| | $ | 1,011,412 |
| | $ | (977 | ) | | $ | (1,422 | ) | | $ | 1,010,042 |
| | $ | 3,428 |
| | $ | — |
| | $ | 1,013,470 |
|
Net proceeds from sale of common stock | | | — |
| | — |
| | 10,350,000 |
| | 104 |
| | 163,471 |
| | — |
| | — |
| | 163,575 |
| | — |
| | — |
| | 163,575 |
|
Net proceeds from sale of preferred stock | | | 6,400,000 |
| | 64 |
| | — |
| | — |
| | 154,668 |
| | — |
| | — |
| | 154,732 |
| | — |
| | — |
| | 154,732 |
|
Redemption of preferred stock | | | (3,000,000 | ) | | (30 | ) | | — |
| | — |
| | (72,423 | ) | | — |
| | (2,572 | ) | | (75,025 | ) | | — |
| | — |
| | (75,025 | ) |
Common stock redemption of common units | | — |
| | — |
| | 438,631 |
| | 4 |
| | 2,425 |
| | — |
| | — |
| | 2,429 |
| | (2,429 | ) | | — |
| | — |
| | — |
| | — |
| | 73,322 |
| | 1 |
| | 650 |
| | — |
| | — |
| | 651 |
| | (651 | ) | | — |
| | — |
|
Common units issued for acquisition | | — |
| | — |
| | — |
| | — |
| | — |
| | ��� |
| | — |
| | — |
| | 3,685 |
| | — |
| | 3,685 |
| |
Acquisition of non-controlling interest in joint venture | | — |
| | — |
| | — |
| | — |
| | (415 | ) | | — |
| | — |
| | (415 | ) | | — |
| | (7,817 | ) | | (8,232 | ) | |
Dividends paid | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (56,073 | ) | | (56,073 | ) | | (477 | ) | | — |
| | (56,550 | ) | |
Dividends | | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (86,019 | ) | | (86,019 | ) | | (241 | ) | | — |
| | (86,260 | ) |
Equity-based compensation | | — |
| | — |
| | 321,269 |
| | 3 |
| | 3,479 |
| | — |
| | — |
| | 3,482 |
| | 42 |
| | — |
| | 3,524 |
| | — |
| | — |
| | 397,448 |
| | 4 |
| | 5,861 |
| | — |
| | — |
| | 5,865 |
| | 22 |
| | — |
| | 5,887 |
|
Shares acquired for employee withholding requirements | | | — |
| | — |
| | (59,111 | ) | | (1 | ) | | (960 | ) | | — |
| | — |
| | (961 | ) | | — |
| | — |
| | (961 | ) |
Other comprehensive income | | | — |
| | — |
| | — |
| | — |
| | — |
| | 2,428 |
| | — |
| | 2,428 |
| | 9 |
| | — |
| | 2,437 |
|
Net income | | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 99,214 |
| | 99,214 |
| | 307 |
| | — |
| | 99,521 |
|
Balance at December 31, 2017 | | | 12,800,000 |
| | 128 |
| | 104,287,128 |
| | 1,043 |
| | 1,262,679 |
| | 1,451 |
| | 9,201 |
| | 1,274,502 |
| | 2,874 |
| | — |
| | 1,277,376 |
|
Redemption of preferred stock | | | (3,400,000 | ) | | (34 | ) | | — |
| | — |
| | (81,689 | ) | | — |
| | (3,277 | ) | | (85,000 | ) | | — |
| | — |
| | (85,000 | ) |
Common stock redemption of common units | | | — |
| | — |
| | 64,126 |
| | 1 |
| | 576 |
| | — |
| | — |
| | 577 |
| | (577 | ) | | — |
| | — |
|
Dividends | | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (92,007 | ) | | (92,007 | ) | | (218 | ) | | — |
| | (92,225 | ) |
Equity-based compensation | | | — |
| | — |
| | 619,775 |
| | 6 |
| | 6,640 |
| | — |
| | — |
| | 6,646 |
| | 19 |
| | — |
| | 6,665 |
|
Shares acquired for employee withholding requirements | | | — |
| | — |
| | (187,850 | ) | | (2 | ) | | (2,722 | ) | | — |
| | — |
| | (2,724 | ) | | — |
| | — |
| | (2,724 | ) |
Other | | — |
| | — |
| | (12,588 | ) | | — |
| | (156 | ) | | — |
| | — |
| | (156 | ) | | — |
| | — |
| | (156 | ) | | — |
| | — |
| | — |
| | — |
| | (174 | ) | | — |
| | — |
| | (174 | ) | | — |
| | — |
| | (174 | ) |
Other comprehensive loss | | — |
| | — |
| | — |
| | — |
| | — |
| | (367 | ) | | — |
| | (367 | ) | | (4 | ) | | — |
| | (371 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| | (2,892 | ) | | — |
| | (2,892 | ) | | (8 | ) | | — |
| | (2,900 | ) |
Net income | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 20,871 |
| | 20,871 |
| | 51 |
| | 1 |
| | 20,923 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 90,921 |
| | 90,921 |
| | 205 |
| | — |
| | 91,126 |
|
Balance at December 31, 2014 | | 8,400,000 |
| | 84 |
| | 86,149,720 |
| | 861 |
| | 888,191 |
| | (1,746 | ) | | (107,779 | ) | | 779,611 |
| | 5,590 |
| | — |
| | 785,201 |
| |
Balance at December 31, 2018 | | | 9,400,000 |
| | 94 |
| | 104,783,179 |
| | 1,048 |
| | 1,185,310 |
| | (1,441 | ) | | 4,838 |
| | 1,189,849 |
| | 2,295 |
| | — |
| | 1,192,144 |
|
Contribution by non-controlling interest in joint venture | | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 68,712 |
| | 68,712 |
|
Common stock redemption of common units | | — |
| | — |
| | 268,947 |
| | 3 |
| | 1,919 |
| | — |
| | — |
| | 1,922 |
| | (1,922 | ) | | — |
| | — |
| | — |
| | — |
| | 50,244 |
| | 1 |
| | 475 |
| | (31 | ) | | — |
| | 445 |
| | (445 | ) | | — |
| | — |
|
Dividends paid | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (57,293 | ) | | (57,293 | ) | | (309 | ) | | — |
| | (57,602 | ) | |
Dividends | | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (89,731 | ) | | (89,731 | ) | | (178 | ) | | (490 | ) | | (90,399 | ) |
Equity-based compensation | | — |
| | — |
| | 411,239 |
| | 4 |
| | 4,713 |
| | — |
| | — |
| | 4,717 |
| | 36 |
| | — |
| | 4,753 |
| | — |
| | — |
| | 410,432 |
| | 4 |
| | 6,201 |
| | — |
| | — |
| | 6,205 |
| | 14 |
| | — |
| | 6,219 |
|
Shares acquired for employee withholding requirements | | | — |
| | — |
| | (74,340 | ) | | (1 | ) | | (838 | ) | | — |
| | — |
| | (839 | ) | | — |
| | — |
| | (839 | ) |
Other | | — |
| | — |
| | (36,385 | ) | | — |
| | (763 | ) | | — |
| | — |
| | (763 | ) | | — |
| | — |
| | (763 | ) | | — |
| | — |
| | — |
| | — |
| | (199 | ) | | — |
| | — |
| | (199 | ) | | — |
| | — |
| | (199 | ) |
Other comprehensive income | | — |
| | — |
| | — |
| | — |
| | — |
| | 80 |
| | — |
| | 80 |
| | 1 |
| | — |
| | 81 |
| |
Other comprehensive loss | | | — |
| | — |
| | — |
| | — |
| | — |
| | (14,562 | ) | | — |
| | (14,562 | ) | | (34 | ) | | — |
| | (14,596 | ) |
Net income | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 124,437 |
| | 124,437 |
| | 819 |
| | — |
| | 125,256 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 82,610 |
| | 82,610 |
| | 157 |
| | (419 | ) | | 82,348 |
|
Balance at December 31, 2015 | | 8,400,000 |
| | 84 |
| | 86,793,521 |
| | 868 |
| | 894,060 |
| | (1,666 | ) | | (40,635 | ) | | 852,711 |
| | 4,215 |
| | — |
| | 856,926 |
| |
Net proceeds from sale of common stock | | — |
| | — |
| | 6,151,514 |
| | 62 |
| | 88,995 |
| | — |
| | — |
| | 89,057 |
| | — |
| | — |
| | 89,057 |
| |
Net proceeds from sale of preferred stock | | 3,000,000 |
| | 30 |
| | — |
| | — |
| | 72,260 |
| | — |
| | — |
| | 72,290 |
| | — |
| | — |
| | 72,290 |
| |
Redemption of preferred shares | | (2,000,000 | ) | | (20 | ) | | — |
| | — |
| | (47,855 | ) | | — |
| | (2,125 | ) | | (50,000 | ) | | — |
| | — |
| | (50,000 | ) | |
Common stock redemption of common units | | — |
| | — |
| | 119,308 |
| | 1 |
| | 1,022 |
| | — |
| | — |
| | 1,023 |
| | (1,023 | ) | | — |
| | — |
| |
Dividends paid | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (66,467 | ) | | (66,467 | ) | | (246 | ) | | — |
| | (66,713 | ) | |
Equity-based compensation | | — |
| | — |
| | 522,748 |
| | 5 |
| | 4,194 |
| | — |
| | — |
| | 4,199 |
| | 22 |
| | — |
| | 4,221 |
| |
Other | | — |
| | — |
| | (61,622 | ) | | (1 | ) | | (1,264 | ) | | — |
| | — |
| | (1,265 | ) | | — |
| | — |
| | (1,265 | ) | |
Other comprehensive income | | — |
| | — |
| | — |
| | — |
| | — |
| | 689 |
| | — |
| | 689 |
| | 4 |
| | — |
| | 693 |
| |
Net income | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 107,805 |
| | 107,805 |
| | 456 |
| | — |
| | 108,261 |
| |
Balance at December 31, 2016 | | 9,400,000 |
| | $ | 94 |
| | 93,525,469 |
| | $ | 935 |
| | $ | 1,011,412 |
| | $ | (977 | ) | | $ | (1,422 | ) | | $ | 1,010,042 |
| | $ | 3,428 |
| | $ | — |
| | $ | 1,013,470 |
| |
Balance at December 31, 2019 | | | 9,400,000 |
| | $ | 94 |
| | 105,169,515 |
| | $ | 1,052 |
| | $ | 1,190,949 |
| | $ | (16,034 | ) | | $ | (2,283 | ) | | $ | 1,173,778 |
| | $ | 1,809 |
| | $ | 67,803 |
| | $ | 1,243,390 |
|
See Notes to Consolidated Financial Statements
Summit Hotel Properties, Inc.
Consolidated Statements of Cash Flows
(in thousands)
| | | | For the Years Ended December 31, | | For the Years Ended December 31, |
| | 2016 | | 2015 | | 2014 | | 2019 | | 2018 | | 2017 |
OPERATING ACTIVITIES | | |
| | |
| | |
| | |
| | |
| | |
|
Net income | | $ | 108,261 |
| | $ | 125,256 |
| | $ | 20,923 |
| | $ | 82,348 |
| | $ | 91,126 |
| | $ | 99,521 |
|
Adjustments to reconcile net income to net cash provided by operating activities: | | |
| | |
| | |
| | |
| | |
| | |
|
Depreciation and amortization | | 72,406 |
| | 64,052 |
| | 63,776 |
| | 99,445 |
| | 101,013 |
| | 85,927 |
|
Amortization of deferred financing costs | | 2,143 |
| | 1,723 |
| | 1,549 |
| | 1,485 |
| | 1,973 |
| | 2,022 |
|
Loss on impairment of assets | | 577 |
| | 1,115 |
| | 9,247 |
| | 2,521 |
| | 1,075 |
| | — |
|
Equity-based compensation | | 4,221 |
| | 4,753 |
| | 3,524 |
| | 6,219 |
| | 6,665 |
| | 5,887 |
|
Deferred tax asset, net | | (2,391 | ) | | 64 |
| | (127 | ) | | (12 | ) | | (430 | ) | | 887 |
|
Realization of deferred gain | | | — |
| | — |
| | (15,000 | ) |
Gain on disposal of assets, net | | (49,855 | ) | | (65,067 | ) | | (446 | ) | | (45,418 | ) | | (41,474 | ) | | (28,209 | ) |
Non-cash interest income | | | (2,477 | ) | | (2,045 | ) | | (284 | ) |
Debt transaction costs | | | 1,892 |
| | 401 |
| | 195 |
|
Other | | 180 |
| | 1,287 |
| | 48 |
| | 469 |
| | 770 |
| | 285 |
|
Changes in operating assets and liabilities: | | |
| | |
| | |
| | |
| | |
| | |
|
Restricted cash - operating | | 1,195 |
| | 18 |
| | (631 | ) | |
Trade receivables, net | | (2,655 | ) | | (1,727 | ) | | (419 | ) | | 511 |
| | 2,787 |
| | (5,032 | ) |
Prepaid expenses and other | | (626 | ) | | 28 |
| | 3,618 |
| | 552 |
| | (1,127 | ) | | (2,454 | ) |
Accounts payable | | 1,676 |
| | (4,324 | ) | | (312 | ) | | (314 | ) | | (424 | ) | | (491 | ) |
Accrued expenses and other | | 2,803 |
| | 5,038 |
| | 1,389 |
| | 1,257 |
| | 1,341 |
| | 4,595 |
|
NET CASH PROVIDED BY OPERATING ACTIVITIES | | 137,935 |
| | 132,216 |
| | 102,139 |
| | 148,478 |
| | 161,651 |
| | 147,849 |
|
INVESTING ACTIVITIES | | |
| | |
| | |
| | |
| | |
| | |
|
Acquisitions of hotel properties | | (244,714 | ) | | (236,518 | ) | | (177,820 | ) | |
Acquisitions of hotel properties and land | | | (282,557 | ) | | (71,002 | ) | | (588,822 | ) |
Improvements to hotel properties | | (42,433 | ) | | (43,197 | ) | | (42,432 | ) | | (59,268 | ) | | (66,610 | ) | | (37,191 | ) |
Proceeds from asset dispositions, net of closing costs | | 145,347 |
| | 150,054 |
| | 19,280 |
| |
Investment in hotel properties under development | | | — |
| | (13,430 | ) | | (20,993 | ) |
Proceeds from asset dispositions, net | | | 165,724 |
| | 104,030 |
| | 120,733 |
|
Funding of real estate loans | | (27,500 | ) | | (2,634 | ) | | (7,366 | ) | | (8,363 | ) | | (16,245 | ) | | (17,935 | ) |
Proceeds from repayment or sale of real estate loans | | 7,814 |
| | — |
| | — |
| |
(Increase) decrease in restricted cash - FF&E reserve | | (3,003 | ) | | 11,304 |
| | 16,275 |
| |
Decrease (increase) in escrow deposits for acquisitions | | 10,046 |
| | (10,046 | ) | | — |
| |
Acquisition of non-controlling interest in joint venture | | — |
| | — |
| | (8,232 | ) | |
Investment in hotel properties under development | | — |
| | (75 | ) | | (253 | ) | |
Proceeds from principal payments on real estate loans | | | 2,300 |
| | 200 |
| | 32,500 |
|
NET CASH USED IN INVESTING ACTIVITIES | | (154,443 | ) | | (131,112 | ) | | (200,548 | ) | | (182,164 | ) | | (63,057 | ) | | (511,708 | ) |
FINANCING ACTIVITIES | | |
| | |
| | |
| | |
| | |
| | |
|
Proceeds from issuance of debt | | 405,000 |
| | 600,407 |
| | 263,601 |
| | 360,000 |
| | 815,000 |
| | 667,640 |
|
Principal payments on debt | | (424,545 | ) | | (550,150 | ) | | (115,829 | ) | | (302,287 | ) | | (723,098 | ) | | (452,082 | ) |
Proceeds from equity offerings, net of offering costs | | 161,347 |
| | — |
| | — |
| |
Redemption of preferred shares | | (50,000 | ) | | — |
| | — |
| |
Proceeds from equity offerings, net of issuance costs | | | — |
| | — |
| | 318,307 |
|
Redemption of preferred stock | | | — |
| | (85,000 | ) | | (75,025 | ) |
Dividends paid | | (66,713 | ) | | (57,602 | ) | | (56,550 | ) | | (90,783 | ) | | (92,245 | ) | | (85,635 | ) |
Financing fees on debt | | (1,948 | ) | | (2,250 | ) | | (782 | ) | |
Other | | (1,265 | ) | | (764 | ) | | (156 | ) | |
Proceeds from contribution by joint venture partner | | | 68,712 |
| | — |
| | — |
|
Financing fees on debt and other issuance costs | | | (3,840 | ) | | (3,978 | ) | | (1,953 | ) |
Repurchase of common shares for withholding requirements | | | (839 | ) | | (2,724 | ) | | (961 | ) |
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES | | 21,876 |
| | (10,359 | ) | | 90,284 |
| | 30,963 |
| | (92,045 | ) | | 370,291 |
|
Net change in cash and cash equivalents | | 5,368 |
| | (9,255 | ) | | (8,125 | ) | |
CASH AND CASH EQUIVALENTS | | |
| | |
| | |
| |
Net change in cash, cash equivalents and restricted cash | | | (2,723 | ) | | 6,549 |
| | 6,432 |
|
CASH, CASH EQUIVALENTS AND RESTRICTED CASH | | | |
| | |
| | |
|
Beginning of period | | 29,326 |
| | 38,581 |
| | 46,706 |
| | 72,556 |
| | 66,007 |
| | 59,575 |
|
End of period | | $ | 34,694 |
| | $ | 29,326 |
| | $ | 38,581 |
| | $ | 69,833 |
| | $ | 72,556 |
| | $ | 66,007 |
|
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION | | |
| | |
| | |
| | |
| | |
| | |
|
Cash payments for interest | | $ | 26,156 |
| | $ | 28,927 |
| | $ | 26,925 |
| | $ | 41,648 |
| | $ | 38,743 |
| | $ | 27,362 |
|
Accrued improvements to hotel properties | | | $ | 4,856 |
| | $ | 6,084 |
| | $ | 7,074 |
|
Capitalized interest | | $ | — |
| | $ | 75 |
| | $ | 253 |
| | $ | — |
| | $ | 446 |
| | $ | 301 |
|
Cash payments for income taxes, net of refunds | | $ | 1,228 |
| | $ | 2,436 |
| | $ | 926 |
| | $ | (229 | ) | | $ | 839 |
| | $ | 623 |
|
Mortgage debt assumed for acquisitions of hotel properties | | $ | — |
| | $ | — |
| | $ | 43,172 |
| |
Fair value of common units issued for acquisition of hotel | | $ | — |
| | $ | — |
| | $ | 3,685 |
| |
We periodically re-evaluate asset lives based on current assessments of remaining utilization, which may result in changes in estimated useful lives. Such changes are accounted for prospectively and will increase or decrease future depreciation expense.
When depreciable property and equipment is retired or disposed, the related costs and accumulated depreciation are removed from the balance sheet and any gain or loss is reflected in current operations.
On a limited basis, we provide financing to developers of hotel properties for development projects. We evaluate these arrangements to determine if we participate in residual profits of the hotel property through the loan provisions or other agreements. Where we conclude that these arrangements are more appropriately treated as an investment in the hotel property, we reflect the loan as an investmentInvestment in hotel properties under developmentHotel Properties, net in our Consolidated Balance Sheets. If classified as hotel properties under development, no interest income is recognized on the loan and interest expense is capitalized as part of our investment in the hotel property during the construction period.
We monitor events and changes in circumstances for indicators that the carrying value of a hotel property or undeveloped land held for development may be impaired. Additionally, we perform at least annual reviews to monitor the factors that could trigger an impairment. Factors that we consider for an impairment analysis include, among others: i) significant underperformance relative to historical or anticipated operating results, ii) significant changes in the manner of use of a property or the strategy of our overall business, including changes in the estimated holding periods for hotel properties and land parcels, iii) a significant increase in competition, iv) a significant adverse change in legal factors or regulations, v) changes in values of comparable land or hotel sales, and v)vi) significant negative industry or economic trends. When such factors are identified, we prepare an estimate of the undiscounted future cash flows of the specific property and determine if the carrying amount of the asset is recoverable. If an impairmentthe carrying amount of the asset is identified,not recoverable, we estimate the fair value of the property based on discounted cash flows, third party appraisals, or sales price if the property is under contract and an adjustment is made to reduce the carrying value of the property to its estimated fair value.
We amortize intangible assets with determined finite useful lives using the straight-line method. We do not amortize intangible assets with indefinite useful lives, but we evaluate these assets for impairment annually or at interim periods if events or circumstances indicate that the asset may be impaired.
Additionally, we have in the past and may in the future enter into purchase and sale transactions in accordance with Section 1031 of the Internal Revenue Code of 1986, as amended (“IRC”), for the exchange of like-kind property to defer taxable gains on the sale of real estate properties (“1031 Exchange”). For reverse transactions under a 1031 Exchange in which we purchase a new property prior to selling the property to be matched in the like-kind exchange (we refer to a new property being acquired by us in the 1031 Exchange prior to the sale of the related property as a “Parked Asset”), legal title to the Parked Asset is held by a qualified intermediary engaged to execute the 1031 Exchange until the sale transaction and the 1031 Exchange is completed. We retain essentially all of the legal and economic benefits and obligations related to thea Parked AssetsAsset prior to completion of thea 1031 Exchanges.Exchange. As such, thea Parked Assets areAsset is included in our Consolidated Balance Sheets and Consolidated Statements of Operations as a consolidated VIE until legal title is transferred to us upon completion of the 1031 Exchange.
We consider all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. At times, cash on deposit may exceed the federally insured limit. We maintain our cash with high credit quality financial institutions.
Restricted cash consists of certain funds maintained in escrow for property taxes, insurance, and certain capital expenditures. Funds may be disbursed from the account upon proof of expenditures and approval from the lender or other party requiring the restricted cash reserves.
We grant credit to qualified customers, generally without collateral, in the form of trade accounts receivable. Trade receivables result from the rental of hotel guestrooms and the sales of food, beverage, and banquet services and are payable under normal trade terms. Trade receivables also include credit and debit card transactions that are in the process of being settled. Trade receivables are stated at the amount billed to the customer and do not accrue interest.
We regularly review the collectability of our trade receivables. A provision for losses is determined on the basis of previous loss experience and current economic conditions. Our allowance for doubtful accounts was $0.2 million at December 31, 2019 and $0.1 million at December 31, 2016 and 2015.2018. Bad debt expense was $0.5 million, $0.6 million $0.3 million and $0.4$0.7 million for the years ended December 31, 2016, 20152019, 2018 and 2014,2017, respectively.
Initial franchise fees are capitalized and amortized over the term of the franchise agreement using the straight-line method.
Non-controlling interests represent the portion of equity in a consolidated entity held by owners other than the consolidating parent. Non-controlling interests are reported in the Consolidated Balance Sheets within equity, separately from stockholders’ equity. Revenue, expenses and net income attributable to both the Company and the non-controlling interests are reported in the Consolidated Statements of Operations.
Our Consolidated Financial Statements include non-controlling interests related to common units of limited partnership interests (“Common Units”) in the Operating Partnership held by unaffiliated third parties.parties and third-party ownership of a 49% interest in a consolidated joint venture (See "Note 9 - Equity - Non-controlling Interest in Joint Venture" for further information).
Fair value measures are classified into a three-tiered fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:
Assets and liabilities measured at fair value are based on one or more of the following valuation techniques:
Our estimates of fair value were determined using available market information and appropriate valuation methods. Considerable judgment is necessary to interpret market data and develop estimated fair value. The use of different market assumptions or estimation methods may have a material effect on the estimated fair value amounts. We classify assets and liabilities in the fair value hierarchy based on the lowest level of input that is significant to the fair value measurement.
We elected not to use the fair value option for cash and cash equivalents, restricted cash, trade receivables, prepaid expenses and other, debt, accounts payable, and accrued expenses and other. With the exception of our fixed-rate debt (See “Note 56 — Debt”), the carrying amounts of these financial instruments approximate their fair values due to their short-term nature or variable interest rates.
The preparation of financial statements in conformity with GAAP requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.
|
| | | | |
Hotel(1) | | Location | | Guestrooms |
In conjunction with the acquisition of the Courtyard by Marriott - Charlotte, NC, the Company acquired certain air rights related to the hotel property. |
| | Jackson, MS | | 117 |
Courtyard by Marriott(2) | | Germantown, TN | | 93 |
Courtyard by Marriott | | El Paso, TX | | 90 |
Fairfield Inn & Suites | | Germantown, TN | | 80 |
Homewood Suites | | Ridgeland, MS | | 91 |
Residence Inn | | Jackson, MS | | 100 |
Residence Inn | | Germantown, TN | | 78 |
Staybridge Suites | | Ridgeland, MS | | 92 |
| | | | 741In accordance with ASU No. 2016-02, Leases (Topic 842), we reclassified certain existing lease-related intangible assets to Right-of-use assets as of January 1, 2019 (See "Note 7 - Leases" for further information). |
On January 12, 2017, the Company and the ARCH Purchaser entered into a letter agreement (the “2017 Letter Agreement”) to amend the terms of the Purchase Agreement as follows:
The closing date of the sale of the Remaining Hotels, except the Courtyard by Marriott, El Paso, TX (the “El Paso Courtyard”),Future amortization expense is scheduled to occur on or before April 27, 2017 (the “Closing Date”), or at such later date as the closing may be adjourned or extended in accordance with the express terms of the Reinstatement Agreement. The closing date for the El Paso Courtyard is scheduled to occur on October 24, 2017 (the “El Paso Closing Date”). If, on the El Paso Closing Date, the El Paso Courtyard is under contractexpected to be sold to a bona fide third party purchaser that is not an affiliate of the Company, the ARCH Purchaser will not be obligated to purchase the hotel.as follows (in thousands):
We continue to have the right to market and ultimately sell, without the consent of the ARCH Purchaser, any or all of the Remaining Hotels to a bona fide third party purchaser that is not an affiliate of ours. If we sell some, but not all, of the Remaining Hotels to a bona fide third party purchaser, then the purchase price to be paid by the ARCH Purchaser for the Remaining Hotels will be reduced accordingly. |
| | | | |
| | Finite-Lived Intangible Assets |
2020 | | $ | 87 |
|
2021 | | 86 |
|
| | $ | 173 |
|
We anticipate executing reverse and forward 1031 Exchanges for a substantial portion of the ARCH Sale to defer taxable gains that are expected to result from the sale. As such, certain hotels that we may purchase before the final closing of the ARCH Sale have been or will be consummated in a manner such that legal title is or will be held by a qualified intermediary engaged to execute the 1031 Exchanges until the ARCH Sale is consummated and the 1031 Exchanges are completed. We retain or will retain essentially all of the legal and economic benefits and obligations related to the Parked Assets. As such, the Parked Assets are or will be included in our Consolidated Balance Sheet and Consolidated Statements of Operations as VIE’s until legal title is transferred to us upon completion of the 1031 Exchanges.
In addition to the assets of the eight hotels noted above, Assets Held for Sale at December 31, 2016 includes land parcels in Spokane, WA and Flagstaff, AZ, which are being actively marketed for sale.
In addition to the assets of the hotels subject to the ARCH Sale, Assets Held for Sale at December 31, 2015, included land parcels in Spokane, WA, Fort Meyers, FL, and Flagstaff, AZ.
Modification of $27.5 million Loan Agreement
On January 12, 2017, we entered into a First Amendment to Loan Agreement with ARCH modifying the terms of the Loan.
The outstanding principal amount of the Loan, and any accrued and unpaid interest, will be due and payable on February 11, 2018 (the “Maturity Date”), unless extended pursuant to the Loan Agreement. Any payment-in-kind (“PIK”) interest accrued as of January 12, 2017, under the terms of the Loan Agreement will be deferred until the earlier of the Closing Date or the termination of the Purchase Agreement as the result of a breach by the ARCH Purchaser. However, if the sale of the Remaining Hotels occurs on the Closing Date, the entire principal amount of the Loan and any accrued and unpaid interest, including the PIK interest accrued through the Closing Date, will be due and payable on the Closing Date. If the sale of the Remaining Hotels does not occur on the Closing Date, ARCH is required to immediately pay the outstanding PIK accrued through February 11, 2017, and to repay a portion of the outstanding principal balance of the Loan in an aggregate amount of $2.0 million, to be paid in two equal installments of $1.0 million, on the last day of August and September 2017. The Loan may be prepaid in whole or in part at any time by ARCH without payment of any penalty or premium. ARCH shall be deemed to be in default of the Second Loan Agreement (as defined below) if it is in default under the terms of the Loan Agreement.
Execution of $3.0 Million Loan Agreement
On January 12, 2017, we entered into a loan agreement with ARCH, as borrower, which provides for a loan to ARCH in the amount of $3.0 million (the “Second Loan” or “Second Loan Agreement”). The proceeds of the Second Loan will be deemed as consideration for the 2017 Letter Agreement, but shall not be collectible by us unless the Purchase Agreement is terminated as a result of a breach by the ARCH Purchaser.
The outstanding principal amount of the Second Loan, and any accrued and unpaid interest, shall be due and payable on July 31, 2017 (the “Maturity Date”). However, if the sale of the Remaining Hotels occurs on the Closing Date, the entire principal amount of the Second Loan shall be deemed paid in full and ARCH shall have no further obligations to us except for payment of any unpaid interest accrued and payable as of the Closing Date. If the sale of the Remaining Hotels does not occur on the Closing Date, ARCH is required to repay the principal amount of the Second Loan in installments of $1.0 million on the last day of each of May, June and July 2017. The Second Loan may be prepaid in whole or in part at any time, without payment of any penalty or premium. The ARCH Borrower shall be deemed to be in default of the Loan Agreement if it is in default of the Second Loan Agreement.
Interest will accrue on the unpaid principal balance of the Second Loan at a rate of 13.0% per annum from the date of the Second Loan to February 11, 2017, and at 14.0% per annum from February 11, 2017, to the earlier of the Closing Date or the Maturity Date. An amount equal to 9.0% per annum is to be paid monthly beginning January 31, 2017. The remaining 4.0%, 5.0% and any other unpaid interest, as the case may be, will accrue and be compounded monthly.
Other Dispositions
On May 13, 2016, we completed the sale of the Holiday Inn Express & Suites in Irving (Las Colinas), TX for $10.5 million.
We also completed the sale of two properties previously contracted for sale to the ARCH Purchaser to third parties unrelated to the ARCH Purchaser under the terms of the Reinstatement Agreement. The first sale was the Aloft in Jacksonville, FL for $8.6 million on June 1, 2016. The second sale was the Holiday Inn Express in Vernon Hills, IL for $5.9 million on June 7, 2016. The proceeds from the sale of the Holiday Inn Express & Suites in Irving (Las Colinas), TX and the Holiday Inn Express in Vernon Hills, IL were used to complete a reverse 1031 Exchange with the acquisition of the 160-guestroom Residence Inn by Marriott in Atlanta, GA on January 20, 2016 for a purchase price of $38.0 million. The completion of the reverse 1031 Exchange resulted in the deferral of taxable gains of approximately $5.1 million.
On July 6, 2016, we completed the sale of the Hyatt Place in Irving (Las Colinas), TX for $14.0 million. The proceeds from the sale of this property were used to complete a 1031 Exchange related to the purchase of the 157-guestroom Marriott in Boulder, CO on August 9, 2016 for a purchase price of $61.4 million. The completion of the 1031 Exchange resulted in the deferral of taxable gains of approximately $7.5 million.
The sale of the ten properties during the year ended December 31, 2016 resulted in the realization of a combined net gain of $49.8 million.
Hotel Property Acquisitions
Hotel property acquisitions in 20162019 and 20152018 were as follows (in thousands):
|
| | | | | | | | | | | | |
Date Acquired | | Franchise/Brand | | Location | | Guestrooms | | Purchase Price | |
Year Ended December 31, 2016 | | | | |
| | |
| |
January 19 | | Courtyard by Marriott | | Nashville, TN | | 226 |
| | $ | 71,000 |
| |
January 20 | | Residence Inn | | Atlanta, GA | | 160 |
| | 38,000 |
| |
August 9 | | Marriott | | Boulder, CO | | 157 |
| | 61,400 |
| |
October 28 | | Hyatt Place (1) | | Chicago, IL | | 206 |
| | 73,750 |
| |
| | | | | | 749 |
| | $ | 244,150 |
| (2) |
Year Ended December 31, 2015 | | | | | | | |
April 13 | | Hampton Inn & Suites | | Minneapolis, MN | | 211 |
| | $ | 38,951 |
| |
June 18 | | Hampton Inn | | Boston (Norwood), MA | | 139 |
| | 24,000 |
| |
June 30 | | Hotel Indigo | | Asheville, NC | | 115 |
| | 35,000 |
| |
July 24 | | Residence Inn | | Branchburg, NJ | | 101 |
| | 25,700 |
| |
July 24 | | Residence Inn | | Baltimore (Hunt Valley), MD | | 141 |
| | 31,100 |
| |
October 19 | | Hyatt House | | Miami, FL | | 156 |
| | 39,000 |
| |
October 20 | | Courtyard by Marriott | | Atlanta (Decatur), GA | | 179 |
| | 44,000 |
| |
| | | | | | 1,042 |
| | $ | 237,751 |
| (3) |
|
| | | | | | | | | | | | |
Date Acquired | | Franchise/Brand | | Location | | Guestrooms | | Purchase Price | |
Year Ended December 31, 2019 | | | | | | | |
August 6, 2019 | | Hampton Inn & Suites | | Silverthorne, CO | | 88 |
| | $ | 25,500 |
| |
October 8, 2019 | | Portfolio Purchase - four properties(1) | | various(1) | | 710 |
| | 249,000 |
| |
| | | | | | 798 |
| | $ | 274,500 |
| (2) |
| | | | | | | | | |
Year Ended December 31, 2018 | | | | |
| | |
| |
September 12, 2018 | | Residence Inn by Marriott | | Boston (Watertown), MA | | 150 |
| | $ | 71,000 |
| |
| | | |
| | 150 |
| | $ | 71,000 |
| (3) |
| |
(1) | This hotel was a Parked Asset at December 31, 2016 pending the completion of a reverse 1031 Exchange related to the sale of certain properties. See “Note 2 — Summary of Significant Accounting Policies — Variable Interest Entities” to these Consolidated Financial Statements. As such, the legal title to this Parked Asset was held by a qualified intermediary engaged to execute 1031 Exchanges. We retain essentially all of the legal and economic benefits and obligations related to the Parked Asset. As such, the Parked Asset was included in our Consolidated Balance Sheet at December 31, 2016 and Consolidated Statement of Operations for the year then ended as a VIE until legal title is transferred to us upon completion of the 1031 Exchange. |
(1) On October 8, 2019, we acquired a portfolio of 4 hotels for an aggregate purchase price of $249.0 million. The hotels acquired included the Hilton Garden Inn - San Francisco, CA, the Hilton Garden Inn - San Jose (Milpitas), CA, the Residence Inn by Marriott - Portland (Downtown), OR, and the Residence Inn by Marriott - Portland (Hillsboro), OR.
| |
(2) | The net assets acquired totaled $244.7in 2019 were purchased for $274.5 million due toplus the purchase at settlement of $0.6adjacent land parcels totaling $2.4 million, $1.0 million of net working capital assets.assets and capitalized transaction costs of $0.4 million. We own a 51% controlling interest in these hotel properties through a consolidated joint venture. |
| |
(3) | The net assets acquired totaled $237.9in 2018 were purchased for $71.0 million due toplus the purchase at settlement of $0.1 million of net working capital assets.liabilities and capitalized transaction costs of $0.1 million. |
The allocation of the aggregate purchase prices to the fair value of assets and liabilities acquired for the above acquisitions is as follows (in thousands):
|
| | | | | | | | |
| | 2019 | | 2018 |
Land | | $ | 44,868 |
| | $ | 25,083 |
|
Hotel buildings and improvements | | 219,410 |
| | 42,676 |
|
Furniture, fixtures and equipment | | 12,995 |
| | 3,300 |
|
Other assets | | 1,103 |
| | 123 |
|
Total assets acquired | | 278,376 |
| | 71,182 |
|
Less other liabilities | | (79 | ) | | (180 | ) |
Net assets acquired (1) (2) | | $ | 278,297 |
| | $ | 71,002 |
|
|
| | | | | | | | |
| | 2016 | | 2015 |
Land | | $ | 28,683 |
| | $ | 18,947 |
|
Hotel buildings and improvements | | 207,433 |
| | 208,864 |
|
Furniture, fixtures and equipment | | 8,081 |
| | 6,803 |
|
Other assets | | 1,240 |
| | 7,072 |
|
Total assets acquired | | 245,437 |
| | 241,686 |
|
Less lease liability assumed | | — |
| | (3,250 | ) |
Less other liabilities | | (723 | ) | | (577 | ) |
Net assets acquired | | $ | 244,714 |
| | $ | 237,859 |
|
| |
(1) | The net assets acquired in 2019 were purchased for $274.5 million plus the purchase of adjacent land parcels totaling $2.4 million, $1.0 million of net working capital assets and capitalized transaction costs of $0.4 million. |
| |
(2) | The net assets acquired in 2018 were purchased for $71.0 million plus the purchase at settlement of $0.1 million of net working capital liabilities and capitalized transaction costs of $0.1 million. |
All hotel purchases completed in 2019 and 2018 were deemed to be the acquisition of assets. Therefore, acquisition costs related to these transactions have been capitalized as part of the recorded amount of the acquired assets.
On January 31, 2019, we exercised our option pursuant to a ground lease agreement to purchase the land upon which our Residence Inn by Marriott in Baltimore (Hunt Valley), MD is located for $4.2 million, which resulted in a termination of obligations under the ground lease. As a result, this hotel property is no longer subject to a ground lease.
On December 4, 2019, we exercised our right to acquire a fee simple interest in the land upon which our Hyatt Place in Garden City, NY is located for nominal consideration. As a result, the hotel is no longer subject to a PILOT (payment in lieu of taxes) lease with the Town of Hempstead Industrial Development Authority.
Total revenues and net income for hotel properties acquired in 2016 and 2015, which are included in our Consolidated Statements of Operations for the years ended December 31, 2016 and 2015, are as follows (in thousands):
|
| | | | | | | | | | | | |
| | 2016 Acquisitions | | 2015 Acquisitions |
| | 2016 | | 2016 | | 2015 |
Revenues | | $ | 28,560 |
| | $ | 52,196 |
| | $ | 22,811 |
|
Net income | | $ | 6,992 |
| | $ | 5,816 |
| | $ | 3,317 |
|
The results of operations of acquired hotel properties are included in the Consolidated Statements of Operations beginning on their respective acquisition dates. The following unaudited condensed pro forma financial information presents theincludes operating results for 72 hotels owned as of operationsDecember 31, 2019 as if all acquisitions in 2016 and 2015such hotels had taken place onbeen owned by us since January 1, 2015 and all dispositions had occurred2018. For hotels acquired by us after January 1, 2018 (the "Acquired Hotels"), we have included in the unaudited pro forma information the financial results of each of the Acquired Hotels for the period from January 1, 2018 to the date the Acquired Hotels were purchased by us (the "Pre-Acquisition Period"). The financial results for the Pre-Acquisition Period were provided by the third-party owner of such Acquired Hotel prior to purchase by us and such information has not been audited or reviewed by our auditors or adjusted by us. For hotels sold by us between January 1, 2018 and December 31, 2019 (the "Disposed Hotels"), the unaudited pro forma information excludes the financial results, including gains on disposal of assets, of each of the Disposed Hotels for the period of ownership by us from January 1, 2018 through the date that date.the Disposed Hotels were sold by us. The unaudited condensed pro forma financial information is included to enable comparison of results for comparative purposes onlythe current reporting period to results for the comparable period of the prior year and is not necessarily indicative of what actual results of operations would have been had the hotel acquisitions and dispositions taken place on or before January 1, 2015.2018. The unaudited pro forma amounts exclude the gain or loss on the sale of hotel properties during the years ended December 31, 2018 and 2019. This information does not purport to be indicative of or represent results of operations for future periods.
The unaudited condensed pro forma financial information for 2016the 72 hotel properties owned at December 31, 2019 for the twelve months ended December 31, 2019 and 20152018 is as follows (in thousands, except per share):
|
| | | | | | | | |
| | 2016 | | 2015 |
| | (unaudited) |
Revenues | | $ | 484,989 |
| | $ | 460,422 |
|
Net income (1) | | $ | 66,099 |
| | $ | 62,432 |
|
Net income attributable to common stockholders, net of amount allocated to participating securities (1) | | $ | 45,319 |
| | $ | 45,381 |
|
Net income per share attributable to common stockholders (1): | | |
| | |
|
Basic | | $ | 0.52 |
| | $ | 0.53 |
|
Diluted | | $ | 0.52 |
| | $ | 0.52 |
|
|
| | | | | | | | |
| | 2019 | | 2018 |
Revenues | | $ | 572,262 |
| | $ | 562,097 |
|
Income from hotel operations | | $ | 215,372 |
| | $ | 215,931 |
|
Net income (1) | | $ | 57,909 |
| | $ | 71,478 |
|
Net income attributable to common stockholders, net of amount allocated to participating securities and non-controlling interests (1) (2) | | $ | 33,671 |
| | $ | 38,803 |
|
Basic and diluted net income per share attributable to common stockholders (1) (2) | | $ | 0.32 |
| | $ | 0.37 |
|
| |
(1) | TheUnaudited pro forma amounts exclude the $49.8include depreciation expense, property tax expense, interest expense, income tax expense, and corporate general and administrative expenses totaling $197.1 million and $66.6$181.9 million pre-taxfor the twelve months ended December 31, 2019 and 2018, respectively. |
| |
(2) | Unaudited pro forma amounts for the twelve months ended December 31, 2018 include the effect of the premium on redemption of preferred stock of $3.3 million and higher preferred dividends of $1.8 million related to the redeemed preferred stock. |
Developed Properties
We completed the development and commenced operations of the 168-guestroom Hyatt House Across From Orlando Universal Resort™ on June 27, 2018. The total construction cost for this hotel was $32.8 million, excluding land that we acquired in a prior-year transaction. The carrying amount for this hotel includes internal capitalized costs of $1.6 million. Total costs of $37.2 million, including the carrying amount of the land, were reclassified as Investment in hotel properties, net upon completion.
Asset Sales
A summary of the dispositions in 2019 and 2018 follows (dollars in thousands):
|
| | | | | | | | | | | | | | | |
Disposition Date | | Franchise/Brand | | Location | | Guestrooms | | Gross Sales Price | | Aggregate Gain, net |
Year Ended December 31, 2019 | | | | | | |
| | |
| | |
February 12, 2019 | | Portfolio Sale - two properties(1) | | Charleston, WV (1) | | 130 |
| | $ | 11,600 |
| | $ | 4,163 |
|
April 17, 2019 | | Portfolio Sale - six properties (2) | | various (2) | | 815 |
| | 135,000 |
| | 36,626 |
|
November 8, 2019 | | Portfolio Sale - two properties (3) | | Birmingham, AL (3) | | 225 |
| | 21,800 |
| | 4,857 |
|
Total | | | | | | 1,170 |
| | $ | 168,400 |
| | $ | 45,646 |
|
Year Ended December 31, 2018 | | | | | | |
| | |
| | |
June 29, 2018 | | Portfolio Sale - two properties(4) | | various (4) | | 175 |
| | $ | 18,950 |
| | $ | 13,133 |
|
June 29, 2018 | | Portfolio Sale - two properties (5) | | Duluth, GA (5) | | 265 |
| | 24,850 |
| | 4,218 |
|
July 24, 2018 | | Portfolio Sale - three properties (6) | | various (6) | | 322 |
| | 46,500 |
| | 22,964 |
|
September 28, 2018 | | Hyatt Place | | Fort Myers, FL | | 148 |
| | 16,500 |
| | 2,195 |
|
November 7, 2018 | | Land parcel | | Spokane, WA | | n/a |
| | 450 |
| | 139 |
|
Total | | | | | | 910 |
| | $ | 107,250 |
| | $ | 42,649 |
|
| |
(1) | The portfolio included the Country Inn & Suites and the Holiday Inn Express in Charleston, WV. |
| |
(2) | The portfolio included the SpringHill Suites in Minneapolis (Bloomington), MN, the Hampton Inn & Suites in Minneapolis (Bloomington), MN, the Residence Inn in Salt Lake City, UT, the Hyatt Place in Dallas (Arlington), TX, the Hampton Inn in Santa Barbara (Goleta), CA, and the Hampton Inn in Boston (Norwood), MA. The sale resulted in a net gain of $36.6 million based on a gross aggregate sales price of $135.0 million, or a net aggregate sales price of $133.0 million after a buyer credit of $2.0 million. |
| |
(3) | The portfolio included the Hilton Garden Inn in Birmingham (Lakeshore), AL and the Hilton Garden Inn in Birmingham (Liberty Park), AL. |
| |
(4) | The portfolio included the Hampton Inn in Provo, UT and the Holiday Inn Express & Suites in Sandy, UT. |
| |
(5) | The portfolio included the Holiday Inn in Duluth, GA and the Hilton Garden Inn in Duluth, GA. We provided seller financing of $3.6 million on the sale of hotelthese properties duringunder 2 three-and-a-half-year second mortgage notes with a blended interest rate of 7.38%. |
| |
(6) | The portfolio included the years ended December 31, 2016Hampton Inn & Suites in Smyrna, TN, the Hilton Garden Inn in Smyrna, TN and 2015, respectively.the Hyatt Place Phoenix North in Phoenix, AZ. The proceeds from these sales were used to complete a 1031 Exchange, which resulted in the deferral of taxable gains of $22.2 million. |
Loss on Impairment of Assets
During the year ended December 31, 2019, the Company recorded an impairment charge of $1.7 million for the Hyatt Place - Chicago (Hoffman Estates) to reduce the net carrying amount of the property to its estimated net fair market value of $5.9 million, which was determined by a third-party independent appraisal.
During the year ended December 31, 2019, the Company also recorded impairment charges on 2 land parcels to reduce the net carrying amounts of the properties to their estimated fair market values based on third-party independent appraisals and a purchase contract for the sale of 1 of the land parcels that is expected to be completed in 2020. In 2018, we recorded impairment charges on 2 land parcels to reduce the net carrying amounts of the properties to their estimated fair market values based on third-party independent appraisals.
NOTE 4 — SUPPLEMENTAL BALANCE SHEET INFORMATIONINVESTMENT IN REAL ESTATE LOANS
Investment in Real Estate Loans
Investment in real estate loans, net at December 31, 20162019 and 2015 includes2018 is as follows (in thousands):
|
| | | | | | | | |
| | 2019 | | 2018 |
Real estate loans | | $ | 32,831 |
| | $ | 34,650 |
|
Unamortized discount | | (1,895 | ) | | (3,950 | ) |
| | $ | 30,936 |
| | $ | 30,700 |
|
|
| | | | | | | | |
| | 2016 | | 2015 |
Real estate loan | | $ | 10,085 |
| | $ | 10,085 |
|
ARCH Loan (net of deferred gain of $15.0 million at December 31, 2016) | | 7,500 |
| | — |
|
Seller-financing note | | — |
| | 2,718 |
|
| | $ | 17,585 |
| | $ | 12,803 |
|
The amortized cost bases of our Investment in real estate loans approximate their fair value. The amortized cost bases and the contractual maturities of our Investment in real estate loans outstanding at December 31, 2019 are $28.9 million in 2020 and $2.0 million in 2021.
At
Real Estate Development Loans
We provided mezzanine loans on 3 real estate development projects to fund up to an aggregate of $29.6 million for the development of 3 hotel properties. The 3 real estate development loans closed in the fourth quarter of 2017 and each has a stated interest rate of 8% and an initial term of approximately three years. Interest income on the mezzanine loans will be recorded in our Consolidated Statement of Operations as it is earned. As of December 31, 20162019, we have funded the full amount of $29.6 million. We have separate options related to each loan (each the "Initial Option") to purchase a 90% interest in each joint venture that owns the respective hotel upon completion of construction. The Initial Options are exercisable while the related real estate development loan is outstanding. We also have the right to purchase the remaining interests in each joint venture at future dates, generally five years after we exercise our Initial Option. We have recorded the aggregate estimated fair value of the Initial Options totaling $6.1 million in Other assets and 2015,as a discount to the related real estate loans. The discount will be amortized as a component of non-cash interest income over the initial term of the real estate loans using the straight-line method, which approximates the interest method. We recorded amortization of the discount of $2.1 million and $2.0 million during the years ended December 31, 2019 and 2018, respectively. We intend to hold our Investment in Real Estate Loans to maturity and therefore, such loans are recorded as held-to-maturity.
During the year ended December 31, 2019, we provided a mezzanine loan totaling $10.1to fund up to $28.9 million had anfor a mixed-use development project that includes a hotel property, retail space, and parking. The loan closed in the third quarter of 2019 and has a stated interest rate of 10.0% per annum paid monthly9% and an initial maturity dateterm of May30 months. The loan is secured by a second mortgage on the development project and a pledge of the equity in the project owner. As of December 31, 2017. On January 12, 2017,2019, we have funded $7.9 million of the borrower exercisedloan commitment. Upon completion of construction, we have an option to extendpurchase a 90% interest in the maturity date until May 13, 2018. The interest rate remains 10.0% per annum during the extension period and principal payments will be made based on a 25-year amortization schedule.
At December 31, 2016, the outstanding PIK interest related to the ARCH Loan totaled $0.9 million. We will recognize the PIK interest as payments are received from ARCH.
At December 31, 2015, we held two notes receivable totaling $2.7 million related to seller-financing for the sale in a prior year of two hotel properties in Emporia, KS (each an "Emporia Property"(the “Initial Purchase Option”). The loans had matured and the buyer was in payment default under the terms of the loans. We were awarded legal title to one Emporia Property through foreclosure. We also purchased an additional note receivable fromhave the first priority lien holder forright to purchase the Emporia Property for which foreclosure proceedings were ongoing to facilitateremaining interest in the hotel five years after the completion of construction. We have issued a $10.0 million letter of credit under our senior unsecured credit facility to secure the reacquisition of this Emporia Property through a foreclosure. On April 15, 2016, we completed the saleexercise of the reacquired Emporia Property to a third party purchaser that was unrelated toInitial Purchase Option. As such, we have classified the prior owner. On May 18, 2016, we completedloan as Investment in hotel properties, net on our Consolidated Balance Sheets at December 31, 2019. Interest income on the salemezzanine loan will be recorded in our Consolidated Statement of Operations as it is earned. We have recorded the aggregate estimated fair value of the firstInitial Purchase Option totaling $2.8 million in Other assets and second lien notes relatedas a contra-asset to Investment in hotel properties, net. The contra-asset will be amortized as a component of non-cash interest income over the remaining Emporia Property toterm of the same purchaser. Thereal estate development loan using the straight-line method, which approximates the interest method. During the year ended December 31, 2019, we amortized $0.4 million as non-cash interest income.
Seller-Financing Loans
On June 29, 2018, we sold the Holiday Inn in Duluth, GA and the Hilton Garden Inn in Duluth, GA for an aggregate selling price of the Emporia Properties was approximately $4.5$24.9 million. As a result of the foreclosure activities andWe provided seller financing totaling $3.6 million on the sale of these properties under 2, 3.5 year second mortgage notes with a blended interest rate of 7.38%. As of December 31, 2019, there was $2.5 million outstanding on the notes, we have no further interestseller-financing loans.
NOTE 5 — SUPPLEMENTAL BALANCE SHEET INFORMATION
Assets Held for Sale, net
Assets held for sale at December 31, 2019 and 2018 include the following (in thousands):
|
| | | | | | | | |
| | 2019 | | 2018 |
Land | | $ | 425 |
| | $ | 2,442 |
|
Hotel building and improvements | | — |
| | 7,929 |
|
Furniture, fixtures and equipment | | — |
| | 2,519 |
|
Franchise fees | | — |
| | 131 |
|
| | 425 |
| | 13,021 |
|
Less - accumulated depreciation and amortization | | — |
| | (5,388 | ) |
| | $ | 425 |
| | $ | 7,633 |
|
Assets held for sale at December 31, 2019 included a land parcel in either Emporia Property.Flagstaff, AZ, which is currently under contract for sale. Assets held for sale at December 31, 2018 included a land parcel in Flagstaff, AZ and 2 hotels that were sold on February 12, 2019.
During the year ended December 31, 2019, we recognized a loss on impairment of assets of $0.1 million to reduce the carrying value of the land parcel in Flagstaff, AZ to its estimated net sales price based on a pending sales contract that is expected to close in 2020.
Restricted Cash
Restricted cash at December 31, 20162019 and 20152018 was as follows (in thousands):
|
| | | | | | | | |
| | 2019 | | 2018 |
FF&E reserves | | $ | 25,664 |
| | $ | 24,386 |
|
Property taxes | | 1,728 |
| | 1,625 |
|
Other | | 203 |
| | 2,457 |
|
| | $ | 27,595 |
| | $ | 28,468 |
|
|
| | | | | | | | |
| | 2016 | | 2015 |
FF&E reserves | | $ | 22,000 |
| | $ | 18,997 |
|
Property taxes | | 2,220 |
| | 2,758 |
|
Other | | 661 |
| | 1,318 |
|
| | $ | 24,881 |
| | $ | 23,073 |
|
Prepaid Expenses and Other
Prepaid expenses and other at December 31, 20162019 and 2015 was as follows2018 included the following (in thousands):
|
| | | | | | | | |
| | 2019 | | 2018 |
Prepaid insurance | | $ | 3,501 |
| | $ | 2,822 |
|
Prepaid taxes | | 2,032 |
| | 3,825 |
|
Other | | 3,311 |
| | 3,464 |
|
| | $ | 8,844 |
| | $ | 10,111 |
|
|
| | | | | | | | |
| | 2016 | | 2015 |
Prepaid insurance | | $ | 2,218 |
| | $ | 813 |
|
Escrow deposits | | — |
| | 10,046 |
|
Other | | 4,256 |
| | 4,422 |
|
| | $ | 6,474 |
| | $ | 15,281 |
|
Deferred Charges
Deferred charges at December 31, 20162019 and 20152018 were as follows (in thousands):
|
| | | | | | | | |
| | 2019 | | 2018 |
Initial franchise fees | | $ | 6,615 |
| | $ | 6,463 |
|
Less - accumulated amortization | | (1,906 | ) | | (1,772 | ) |
| | $ | 4,709 |
| | $ | 4,691 |
|
|
| | | | | | | | |
| | 2016 | | 2015 |
Initial franchise fees | | $ | 5,101 |
| | $ | 4,760 |
|
Less - accumulated amortization | | (1,374 | ) | | (1,132 | ) |
Total | | $ | 3,727 |
| | $ | 3,628 |
|
Amortization expense for the years ended December 31, 2016, 2015,2019, 2018, and 20142017 was $0.3 million, $0.4 million, $0.5 million and $0.5$0.4 million, respectively.
Other Assets
Other assets at December 31, 20162019 and 2015 was as follows2018 included the following (in thousands):
|
| | | | | | | | |
| | 2019 | | 2018 |
Purchase options related to real estate loans | | $ | 8,920 |
| | $ | 6,120 |
|
Deferred tax asset, net | | 2,138 |
| | 2,046 |
|
Other | | 981 |
| | — |
|
Prepaid land lease | | — |
| | 3,180 |
|
Derivative financial instruments | | — |
| | 3,461 |
|
| | $ | 12,039 |
| | $ | 14,807 |
|
|
| | | | | | | | |
| | 2016 | | 2015 |
Acquired intangible assets | | $ | 6,254 |
| | $ | 6,122 |
|
Prepaid land lease | | 3,275 |
| | 3,325 |
|
Deferred tax asset, net | | 2,503 |
| | 112 |
|
| | $ | 12,032 |
| | $ | 9,559 |
|
At December 31, 2016, intangibleIn accordance with ASU No. 2016-02, Leases (Topic 842), we reclassified certain prepaid land lease assets consistedto Right-of-use assets as of assumed contractual arrangements including terms that were above market compared to an estimated fair market value of the agreement at the acquisition date. These assets are being amortized using the straight-line method over a weighted average amortization period of 29.0 years. January 1, 2019 (See "Note 7 - Leases" for further information).
Future amortization expense is expected to be as follows (in thousands):
|
| | | | |
2017 | | $ | 471 |
|
2018 | | 350 |
|
2019 | | 213 |
|
2020 | | 190 |
|
2021 | | 190 |
|
Thereafter | | 4,840 |
|
| | $ | 6,254 |
|
Accrued Expenses and Other
Accrued expenses and other at December 31, 20162019 and 2015 was as follows2018 included the following (in thousands):
|
| | | | | | | | |
| | 2019 | | 2018 |
Accrued property, sales and income taxes | | $ | 21,392 |
| | $ | 19,570 |
|
Derivative financial instruments | | 16,177 |
| | 5,042 |
|
Other accrued expenses at hotels | | 13,274 |
| | 13,288 |
|
Accrued salaries and benefits | | 11,625 |
| | 10,540 |
|
Other | | 8,209 |
| | 9,801 |
|
Accrued interest | | 1,082 |
| | 3,186 |
|
Acquired unfavorable leases | | — |
| | 4,623 |
|
| | $ | 71,759 |
| | $ | 66,050 |
|
|
| | | | | | | | |
| | 2016 | | 2015 |
Accrued property, sales and income taxes | | $ | 11,171 |
| | $ | 12,901 |
|
Accrued salaries and benefits | | 10,802 |
| | 9,366 |
|
Accrued interest | | 1,655 |
| | 1,862 |
|
Acquired unfavorable leases | | 4,812 |
| | 4,907 |
|
Accrued expenses at hotels | | 12,356 |
| | 10,536 |
|
Other | | 6,084 |
| | 2,602 |
|
| | $ | 46,880 |
| | $ | 42,174 |
|
In accordance with ASU No. 2016-02, Leases (Topic 842), we reclassified certain acquired unfavorable lease liabilities to Right-of-use assets as of January 1, 2019 (See "Note 7 - Leases" for further information).
NOTE 56 –– DEBT
At December 31, 2016,2019, our indebtedness is comprised of borrowings under a $450 million senior unsecured credit facility, the 20152018 Unsecured Credit Facility (as defined below), the 2018 Term Loan (as defined below), the 2017 Term Loan (as defined below), the Joint Venture Credit Facility (as defined below), and indebtedness secured by first priority mortgage liens on various hotel properties. At December 31, 2015,2018, our indebtedness wasis comprised of borrowings under the former $300.0 million senior unsecured credit facility,2018 Unsecured Credit Facility (as defined below), the 20152018 Term Loan (as defined below), the 2017 Term Loan (as defined below), and indebtedness secured by first priority mortgage liens on various hotel properties. The weighted average interest rate, after giving affect to our interest rate derivative,derivatives, for all borrowings was 3.69%3.95% and 3.90%4.27% at December 31, 20162019 and 2015,2018, respectively.
Former $300$600 Million Senior Unsecured Credit and Term Loan Facility
At December 31, 2015, we had a $300.0 million senior unsecured credit facility. The senior unsecured credit facility was comprised of a $225.0 million revolving credit facility (the “$225 million Revolver”) and a $75.0 million term loan. At December 31, 2015, the maximum amount of borrowing permitted under the senior unsecured credit facility was $300.0 million, of which we had borrowed $170.0 million and $130.0 million was available to borrow. The $300.0 million senior unsecured credit facility was replaced by the $450.0 million senior unsecured credit facility as described below. The outstanding principal balance of $170.0 million on the former $300.0 million senior unsecured credit facility was transferred to the $450.0 million senior unsecured credit facility and the former $300.0 million senior unsecured credit facility was paid off in full and terminated.
$450 Million Senior Unsecured Credit Facility
On January 15, 2016,December 6, 2018, the Operating Partnership, as borrower, the Company, as parent guarantor, and each party executing the loan documentation as a subsidiary guarantor, entered into a $450.0$600.0 million senior unsecured facility (the “2016“2018 Unsecured Credit Facility”). with Deutsche Bank AG New York Branch as administrative agent, and a syndicate of lenders. The 20162018 Unsecured Credit Facility is comprised of a $300.0$400.0 million revolving credit facility (the “$300 million400 Million Revolver”) and a $150.0$200.0 million term loan (the “$150 million200 Million Term Loan”). At December 31, 2016,2019, the maximum amount of borrowing provided by the 20162018 Unsecured Credit Facility was $450.0$600.0 million, of which we had $200.0$275.0 million borrowed and $250.0$315.0 million available to borrow.
The 20162018 Unsecured Credit Facility has an accordion feature which will allow the Company to increase the total commitments by an aggregate of up to $150.0$300.0 million. The $300 million$400 Million Revolver will mature on March 31, 20202023 and can be extended to March 31, 20212024 at the Company’s option, subject to certain conditions. The $150 million$200 Million Term Loan will mature on MarchApril 1, 2024.
The interest rate on the 2018 Unsecured Credit Facility is based on a pricing grid ranging from 135 basis points to 210 basis points plus LIBOR for the $200 Million Term Loan and 140 basis points to 215 basis points plus LIBOR for the $400 Million Revolver, depending upon the Company's leverage ratio. The interest rate at December 31, 2021. 2019 for the $200 Million Term Loan was 3.36%.
Financial and Other Covenants. We are required to comply with various financial and other covenants to draw and maintain borrowings under the 2018 Unsecured Credit Facility. At December 31, 2019, we were in compliance with all financial covenants.
Unencumbered Assets. The 2018 Unsecured Credit Facility is unsecured. However, borrowings under the 2018 Unsecured Credit Facility are limited by the value of hotel assets that qualify as unencumbered assets. At December 31, 2019, the Company had 52 unencumbered hotel properties (the "Unencumbered Properties") supporting the 2018 Unsecured Credit Facility.
Unsecured Term Loans
2018 Term Loan
On February 15, 2018, our Operating Partnership, as borrower, the Company, as parent guarantor, and each party executing the term loan documentation as a subsidiary guarantor, entered into a new $225.0 million unsecured term loan (the “2018 Term Loan”) with KeyBank National Association, as administrative agent, and a syndicate of lenders listed in the loan documentation. The Company pays2018 Term Loan has an accordion feature that allows us to increase the total commitments by $150.0 million prior to the maturity date of February 14, 2025, subject to certain conditions. At closing, we drew $140.0 million of the $225.0 million available under the 2018 Term Loan and used the proceeds to pay off and replace a term loan entered into in 2015. On May 16, 2018, we drew the remaining $85.0 million available under the 2018 Term Loan and used the proceeds to pay down our former $300 million revolving credit facility.
We pay interest on revolving credit advances at varying rates, based upon, at the Company’sour option, either (i) 1, 2, 3,1-, 2-, 3-, or 6-month LIBOR, plus a LIBOR margin between 1.50%1.80% and 2.25%2.55%, depending upon the Company’sour leverage ratio (as defined in the 2016 Unsecured Credit Facility agreement)loan documents), or (ii) the applicable base rate, which is the greatest of the administrative agent’s prime rate, the federal funds rate plus 0.50%, and 1-month LIBOR plus 1.00%, plus a base rate margin between 0.50%0.80% and 1.25%1.55%, depending upon the Company’sour leverage ratio. We are required to pay other fees, including customary arrangement and administrative fees. The interest rate at December 31, 20162019 was 2.27%3.66%.
On February 18, 2020, the Company repriced the $225 million 2018 Term Loan, lowering the interest rate to 150 basis points plus LIBOR based on the Company’s current leverage based pricing level, which represents a reduction of 40 basis points compared to the prior rate of 190 basis points plus LIBOR. All other material provisions of the loan remain unchanged, including the maturity date of the loan which remains February 14, 2025. The Company expects to realize approximately $0.9 million of annual interest expense savings as a result of the transaction through the remaining term of the loan.
Financial and Other Covenants. We are required to comply with various financial and other covenants to draw and maintain borrowings under the 2018 Term Loan. At December 31, 2019, we were in compliance with all financial covenants.
Unencumbered Assets.Assets. The 2016 Unsecured Credit Facility2018 Term Loan is unsecured. However, borrowings under the 2016 Unsecured Credit Facilityterm loan are limited by the value of hotelthe assets that qualify as unencumbered assets. At December 31, 2016,2019, the Company had 46 unencumbered hotel properties supportingUnencumbered Properties also supported the 2016 Unsecured Credit Facility. 2018 Term Loan.
An interest rate swap entered into on September 5, 2013 with a notional value of $75.0 million, an effective date of January 2, 2014 and a maturity date of October 1, 2018 remains outstanding. This interest rate swap was designated as a cash flow hedge and effectively fixes LIBOR at 2.04% and the interest rate on borrowings under a portion of the $150 million2017 Term Loan to a fixed rate of 3.49%.
Unsecured Term Loan
On April 7, 2015,September 26, 2017, our Operating Partnership, as borrower, the Company, as parent guarantor, and each party executing the term loan documentation as a subsidiary guarantor, entered into a $125.0$225.0 million unsecured term loan (the “2015"2017 Term Loan”Loan"). with KeyBank National Association, as administrative agent, and a syndicate of lenders listed in the loan documentation.
The 20152017 Term Loan matures on April 7, 2022 and has an accordion feature which allows us to increase the total commitments by an aggregate of $75.0$175.0 million prior to the maturity date, subject to certain conditions. On April 21, 2015, the Company exercised $15.0 million of the accordion and added American Bank, N.A. as a lender under the facility.
At closing, we were advanced the full $125.0 million amount of the 2015The 2017 Term Loan andmatures on April 21, 2015, we were advanced the $15.0 million exercised on the accordion. All proceeds were used to pay down the principal balance of our $225 million Revolver provided under the former $300.0 million senior unsecured credit facility. November 25, 2022.
We pay interest on advances equal toat varying rates, based upon, at our option, either (i) 1, 2, 3, or 6-month LIBOR, plus a LIBOR margin between 1.45% and 2.20%, depending upon our leverage ratio (as defined in the sumloan documents), or (ii) the applicable base rate, which is the greatest of LIBOR or the administrative agent’s prime rate, the federal funds rate plus 0.50%, and the applicable margin.1-month LIBOR plus 1.00%, plus a base rate margin between 0.45% and 1.20%, depending upon our leverage ratio. We are currently paying interest at 2.57% based on LIBOR atrequired to pay other fees, including customary arrangement and administrative fees.
Financial and Other Covenants. In addition, we are required to comply with various financial and other covenants in order to borrow and maintain borrowings under the 2017 Term Loan. At December 31, 2016.2019 we are in compliance with all financial covenants.
BorrowingsUnencumbered Assets. The 2017 Term Loan is unsecured. However, borrowings under the 2015 Term Loanterm loan are limited by the value of hotel assets that qualify as unencumbered assets. As of December 31, 2016, 462019, the Unencumbered Properties also supported the 2017 Term Loan.
The 2017 Term Loan gave us the option to delay draws of the principal amount of the term loan. On September 26, 2017, we drew $125.0 million of the $225.0 million available under the 2017 Term Loan and used the proceeds to pay down the principal
balance of our hotel properties qualifiedformer $300 million revolving credit facility. On December 11, 2017, we drew the remaining $100.0 million of the $225.0 million available under the 2017 Term Loan and used the proceeds to pay down the principal balance of our former $300 million revolving credit facility. The interest rate at December 31, 2019 was 3.36%.
Joint Venture Credit Facility
On October 8, 2019, Summit JV MR 1, LLC (the “Borrower”), as borrower, Summit Hospitality JV, LP (the “Parent”), as parent, and each party executing the credit facility documentation as a subsidiary guarantor, entered into a $200 million credit facility (the “Joint Venture Credit Facility”) with Bank of America, N.A., as administrative agent and sole initial lender, and BofA Securities, Inc., as sole lead arranger and sole bookrunner.
The Operating Partnership and the Company are deemednot borrowers or guarantors of the Joint Venture Credit Facility. The Joint Venture Credit Facility is guaranteed by all of the Borrower’s existing and future subsidiaries, subject to certain exceptions.
The Joint Venture Credit Facility is comprised of a $125 million revolving credit facility (the “$125 Million Revolver”) and a $75 million term loan (the “$75 Million Term Loan”). The Joint Venture Credit Facility has an accordion feature which will allow us to increase the total commitments by up to $300 million, for aggregate potential borrowings of up to $500 million on the Joint Venture Credit Facility.
The $125 Million Revolver and the $75 Million Term Loan will mature on October 8, 2023. Each individually can be unencumberedextended for a single twelve-month period at the Joint Venture's option, subject to certain conditions.
Interest is paid on revolving credit advances at varying rates based upon, at the Borrower's option, either (i) 1-, 2-, 3-, or 6-month LIBOR, plus a margin of 2.15% for Eurodollar rate advances, or (ii) LIBOR, plus a margin of 2.15% for LIBOR floating rate advances, or (iii) the applicable base rate, which is the greatest of the administrative agent’s prime rate, the federal funds rate plus 0.50%, and 1-month LIBOR plus 1.00%, plus a base rate margin of 1.15%. The applicable margin for a term loan advance shall be five basis points less than revolving credit advances referenced above.
Borrowing Base Assets. The Joint Venture Credit Facility is secured primarily by a first priority pledge of the Borrower's equity interests in the subsidiaries that hold the borrowing base assets, supportingand the 2015 Term Loan.
related TRS entities, which wholly own the TRS lessees that lease each of the borrowing base assets.
Financial and Other Covenants. In addition, the Borrower is required to comply with a series of financial and other covenants in order to borrow under the Joint Venture Credit Facility.
MetaBank Loan
On June 30, 2017, we entered into a $47.6 million secured, non-recourse loan with MetaBank (the "MetaBank Loan"). During the year ended December 31, 2017, we borrowed $47.6 million on the MetaBank Loan and used the proceeds to pay down the principal balance of our former $300 million revolving credit facility. The MetaBank Loan provides for a fixed interest rate of 4.44% and originally provided for interest only payments for 18 months following the closing date. On January 31, 2019, we entered into a modification agreement, at no additional cost, that increased the interest-only period from 18 months to 24 months following the closing date. Beginning August 1, 2019, the loan amortizes over 25 years through the maturity date of July 1, 2027. The MetaBank Loan is secured by 3 hotels and is subject to a prepayment penalty if prepaid prior to April 1, 2027.
At December 31, 20162019 and 20152018 our outstanding indebtedness was as follows (in thousands):
| | Lender | | Reference | | Interest Rate | | Amortization Period (Years) | | Maturity Date | | Number of Properties Encumbered | | Balance at | | Reference | | Interest Rate | | Amortization Period (Years) | | Maturity Date | | Number of Properties Encumbered | | Balance at |
| | December 31, | | | December 31, |
| | 12/31/2016 | | 2016 | | 2015 | | | 12/31/2019 | | 2019 | | 2018 |
$450 Million Senior Unsecured Credit Facility | | | | | | | | | | | | | | | |
$600 Million Senior Unsecured Credit and Term Loan Facility (1) | | | | | | | | | | | | | | | |
Deutsche Bank AG New York Branch | |
| | | | | | | | | | | | | | | | |
$300 Million Revolver | | | | 2.27% Variable | | n/a | | March 31, 2020 | | n/a | | $ | 50,000 |
| | $ | — |
| |
$150 Million Term Loan | | (1) | | 2.86% Variable | | n/a | | March 31, 2021 | | n/a | | 150,000 |
| | — |
| |
Total Senior Unsecured Credit Facility | | | | | | | | | | | | 200,000 |
| | — |
| |
$400 Million Revolver | | | | | 3.41% Variable | | n/a | | March 31, 2023 | | n/a | | $ | 75,000 |
| | $ | 115,000 |
|
$200 Million Term Loan | | | 3.36% Variable | | n/a | | April 1, 2024 | | n/a | | 200,000 |
| | 200,000 |
|
Total Senior Unsecured Credit and Term Loan Facility | | | | | | | | | | | | | 275,000 |
| | 315,000 |
|
| | | | | | | | |
$300 Million Senior Unsecured Credit Facility | | | | | | | | | | | | | | | |
Deutsche Bank AG New York Branch | | | | | | | | | | | | | |
$225 Million Revolver | | | | n/a | | n/a | | October 10, 2017 | | n/a | | $ | — |
| | $ | 95,000 |
| |
Joint Venture Credit Facility (2) | | | | | |
Bank of America, N.A. | | | | | |
$125 Million Revolver | | | 3.91% Variable | | n/a | | October 8, 2023 | | n/a | | 65,000 |
| | — |
|
$75 Million Term Loan | | | | n/a | | n/a | | October 10, 2018 | | n/a | | — |
| | 75,000 |
| | 3.86% Variable | | n/a | | October 8, 2023 | | n/a | | 75,000 |
| | — |
|
Total Former Unsecured Credit Facility | | | | | | | | | | | | — |
| | 170,000 |
| |
Total Joint Venture Credit Facility | | | | | | | | | | | 140,000 |
| | — |
|
| | | | | | | | |
Unsecured Term Loan(1) | | | | | | | | | | | | |
| | |
| | | | | | | | | | | | |
| | |
|
KeyBank National Association, as Administrative Agent | | | | | | | | | | | | |
| | |
| |
Term Loan | |
| | 2.57% Variable | | n/a | | April 7, 2022 | | n/a | | 140,000 |
| | 140,000 |
| |
Term Loan (KeyBank National Association, as Administrative Agent) | | | 3.36% Variable | | n/a | | November 25, 2022 | | n/a | | 225,000 |
| | 225,000 |
|
Term Loan (KeyBank National Association, as Administrative Agent) | | | 3.66% Variable | | n/a | | February 14, 2025 | | n/a | | 225,000 |
| | 225,000 |
|
| | | | | | | | |
Secured Mortgage Indebtedness | | | | | | | | |
Voya (formerly ING Life Insurance and Annuity) | | (2) | | 5.18% Fixed | | 20 | | March 1, 2019 | | 2 | | 41,328 |
| | 42,574 |
| |
| | (2) | | 5.18% Fixed | | 20 | | March 1, 2019 | | 4 | | 37,042 |
| | 38,159 |
| |
| | (2) | | 5.18% Fixed | | 20 | | March 1, 2019 | | 3 | | 23,889 |
| | 24,610 |
| |
| | (2) | | 5.18% Fixed | | 20 | | March 1, 2019 | | 1 | | 16,970 |
| | 17,482 |
| |
KeyBank National Association | | (3) | | 4.46% Fixed | | 30 | | February 1, 2023 | | 4 | | 27,473 |
| | 27,991 |
| | (3) | | 4.46% Fixed | | 30 | | February 1, 2023 | | 3 | | 19,510 |
| | 26,357 |
|
| | (4) | | 4.52% Fixed | | 30 | | April 1, 2023 | | 3 | | 21,291 |
| | 21,683 |
| | (4) | | 4.52% Fixed | | 30 | | April 1, 2023 | | 3 | | 19,992 |
| | 20,444 |
|
| | (5) | | 4.30% Fixed | | 30 | | April 1, 2023 | | 3 | | 20,626 |
| | 21,022 |
| | (5) | | 4.30% Fixed | | 30 | | April 1, 2023 | | 3 | | 19,323 |
| | 19,777 |
|
| | (6) | | 4.95% Fixed | | 30 | | August 1, 2023 | | 2 | | 36,741 |
| | 37,352 |
| | (6) | | 4.95% Fixed | | 30 | | August 1, 2023 | | 2 | | 34,695 |
| | 35,411 |
|
Bank of America Commercial Mortgage | | (7) | | 6.41% Fixed | | 25 | | September 1, 2017 | | 1 | | 7,661 |
| | 7,916 |
| |
Merrill Lynch Mortgage Lending Inc. | | (8) | | n/a | | 30 | | August 1, 2016 | | n/a | | — |
| | 5,047 |
| |
Western Alliance Bank (formerly GE Capital Financial Inc.) | | (9) | | 5.39% Fixed | | 25 | | April 1, 2020 | | 1 | | 8,912 |
| | 9,110 |
| |
| | (9) | | 5.39% Fixed | | 25 | | April 1, 2020 | | 1 | | 4,798 |
| | 4,905 |
| |
MetaBank | | (10) | | 4.25% Fixed | | 20 | | August 1, 2018 | | 1 | | 6,588 |
| | 6,852 |
| | (7) | | 4.44% Fixed | | 25 | | July 1, 2027 | | 3 | | 47,226 |
| | 47,640 |
|
Bank of Cascades | | (11) | | 2.77% Variable | | 25 | | December 19, 2024 | | 1 | | 9,289 |
| | 9,556 |
| | (8) | | 3.76% Variable | | 25 | | December 19, 2024 | | 1 | | 8,490 |
| | 8,757 |
|
| | (11) | | 4.30% Fixed | | 25 | | December 19, 2024 | | — | | 9,289 |
| | 9,556 |
| | (8) | | 4.30% Fixed | | 25 | | December 19, 2024 | | — | | 8,490 |
| | 8,757 |
|
Goldman Sachs | | (12) | | n/a | | 25 | | July 6, 2016 | | n/a | | — |
| | 13,467 |
| |
Compass Bank | | (13) | | 3.17% Variable | | 25 | | May 6, 2020 | | 3 | | 23,394 |
| | 24,015 |
| | (9) | | n/a | | 25 | | May 6, 2020 | | — | | — |
| | 22,151 |
|
Western Alliance Bank (formerly GE Capital Corp) | | (14) | | 5.39% Fixed | | 25 | | April 1, 2020 | | 1 | | 5,910 |
| | 5,160 |
| |
| | (14) | | 5.39% Fixed | | 25 | | April 1, 2020 | | 1 | | 5,046 |
| | 6,041 |
| |
| | (15) | | n/a | | 20 | | April 1, 2018 | | n/a | | — |
| | 5,852 |
| |
U.S. Bank, NA | | (16) | | n/a | | 30 | | November 1, 2016 | | n/a | | — |
| | 17,179 |
| | (10) | | n/a | | 25 | | November 11, 2021 | | — | | — |
| | 10,717 |
|
| | (17) | | 6.13% Fixed | | 25 | | November 11, 2021 | | 1 | | 11,303 |
| | 11,567 |
| |
Total Mortgage Loans | | | | | | | | | | 33 | | 317,550 |
| | 367,096 |
| | | | | | | | | | 15 | | 157,726 |
| | 200,011 |
|
Total Debt | | | | | | | | | | 657,550 |
| | 677,096 |
| | | | | | | | | | 1,022,726 |
| | 965,011 |
|
Unamortized debt issuance costs | | (5,136 | ) | | (5,560 | ) | | (6,563 | ) | | (6,299 | ) |
Debt, net of issuance costs | | $ | 652,414 |
| | $ | 671,536 |
| | $ | 1,016,163 |
| | $ | 958,712 |
|
(1) Our interest rate swap fixedThe $600 million Senior Secured Credit and Term Loan Facility and Unsecured Term Loans are supported by a portionborrowing base of 52 unencumbered hotel properties.
(2) The Joint Venture Credit Facility is secured by pledges of the interest on this loan. See "Note 6 - Derivative Financial Instruments and Hedging."
(2) On September 24, 2015, we modified an existing term loan collateralized by properties sold in 2015 to substitute collateral with properties not includedequity in the sale in order to avoid significant yield maintenance costs associated with an early pay-off. We now have four term loans with Voya with an aggregate principal amount of $119.2 million, fixed interest rates of 5.18%, and a first call date of March 1, 2019. The ten hotel properties encumbered byentities (and affiliated entities) that own the Voya mortgage loans are cross-collateralized, and the four mortgage loans are cross-defaulted.hotels.
(3) On January 25, 2013, we closed on a $29.4 million loan with a fixed rate of 4.46% and a maturity of February 1, 2023. This loan is secured by four3 of the Hyatt Place hotels we acquired in October 2012. These hotels are located in Chicago (Lombard), IL; Denver (Lone Tree), CO; and Denver (Englewood), CO; and Dallas (Arlington), TX.CO. This loan is subject to defeasance costs if prepaid.
On March 19, 2019, we defeased $6.3 million of the principal balance to have the encumbrance released on one property, the Hyatt Place in Arlington, TX, to facilitate the sale of the property. As a result of this transaction, we recorded debt transaction costs of $0.6 million primarily related to the debt defeasance premium.
(4) On March 7, 2013, we closed on a $22.7 million loan with a fixed rate of 4.52% and a maturity of April 1, 2023. This loan is secured by three3 of the Hyatt hotels we acquired in October 2012. These hotels include a Hyatt House in Denver (Englewood), CO and Hyatt Place hotels in Baltimore (Owings Mills), MD and Scottsdale, AZ. This loan is subject to defeasance if prepaid.
(5) On March 8, 2013, we closed on a $22.0 million loan with a fixed rate of 4.30% and a maturity of April 1, 2023. This loan is secured by the three3 Hyatt Place hotels we acquired in January 2013. These hotels are located in Chicago (Hoffman Estates), IL; Orlando (Convention), FL; and Orlando (Universal), FL. This loan is subject to defeasance if prepaid.
(6) On July 22, 2013, we closed on a $38.7 million loan with a fixed rate of 4.95% and a maturity of August 1, 2023. This loan is secured by two2 Marriott hotels we acquired in May 2013. These hotels include a Fairfield Inn & Suites and SpringHill Suites in Louisville, KY. This loan is subject to defeasance if prepaid.
(7) On May 16, 2012,June 30, 2017, we assumed a loan in our acquisition ofentered into the Hilton Garden Inn in Smyrna, TN. This loanMetaBank Loan. The MetaBank Loan is subject to defeasance if prepaid.
(8) On June 21, 2012, we assumed a loan in our acquisition ofsecured by the Hampton Inn & Suites in Smyrna, TN. This loan was repaidMinneapolis, MN, the Four Points by Sheraton Hotel & Suites in 2016. There were no prepayment penalties incurred in this transaction.
(9) On March 28, 2014, we amended the loans with GE Capital Financial, which are cross-collateralized by the Courtyard by MarriottSouth San Francisco, CA, and the SpringHill Suites by Marriott, both located in Scottsdale, AZ. The loans were amended to bear interest at a fixed rate of 5.39% and the maturity dates were extended to April 1, 2020.
(10) On July 26, 2013, we closed on a $7.4 million loan with a fixed rate of 4.25% and a maturity of August 1, 2018. This loan is secured by the Hyatt Place in Atlanta, GA. This loan hasMesa, AZ. The MetaBank Loan is subject to a prepayment penalty of: (i ) 3% until July 26, 2015, (ii) 2% until July 26, 2017, and (iii) 1% until Februaryif prepaid prior to April 1, 2018.2027.
(11)
(8) On December 19, 2014, we refinanced our loan with Bank of the Cascades and increased the amount financed by $7.9 million. As part of the refinance the loan was split into two2 notes. Note A carries a variable interest rate of 30-day LIBOR plus 200 basis points and Note B carries a fixed interest rate of 4.3%. Both notes have amortization periods of 25 years and maturity dates of December 19, 2024. The Bank of Cascades mortgage loansloan is comprised of two promissory notes that are secured by the same collateral and cross-defaulted.
(12) This(9) On April 24, 2019, we repaid a mortgage loan with Compass Bank totaling $21.9 million that was secured by the SpringHill Suites by Marriott and the Hampton Inn & Suites in Bloomington, MN. This loan3 hotel properties. There was repaid in 2016. There were no prepayment penalties incurred inpenalty associated with the repayment of this transaction.loan. After the repayment of this loan, the 3 hotels were added to the Company's Unencumbered Properties.
(13)(10) On May 6, 2014,April 11, 2019, we closed onrepaid a $25.0$10.6 million mortgage loan with Compass Bank. The loan carries a variable rate of 30-day LIBOR plus 240 basis points, amortizes over 25 years, and has a May 6, 2020 maturity date. The loan is secured by first mortgage liensU.S. Bank to release the encumbrance on the Hampton Inn & Suites hotels located in San Diego (Poway),Goleta, CA Ventura (Camarillo), CA and Fort Worth, TX.
(14) On March 28, 2014, we amended two loans with General Electric Capital Corp., which are cross - collateralized byto facilitate the Hilton Garden Inn (Lakeshore) and the Hilton Garden Inn (Liberty Park), both located in Birmingham, AL. Both loans were amended to bear interest at a fixed rate of 5.39% and the maturity dates were extended to April 1, 2020.
(15) This loan was secured by the SpringHill Suites by Marriott in Denver, CO. In anticipationsale of the ARCH Second Closing the interest rate swap was settled in 2015. This loan was repaid in 2016. There were no prepayment penaltiesproperty. As a result of this transaction, we incurred in this transaction.
(16) On January 9, 2014, as partdebt transaction costs of our acquisition of the 182-guestroom Hilton Garden Inn in Houston, TX, we assumed a $17.8 million mortgage loan with a fixed interest rate of 6.22%, an amortization period of 30 years, and a maturity date of November 1, 2016. This loan was repaid in 2016. There were no prepayment penalties incurred in this transaction.
(17) On January 10, 2014, as part of our acquisition of the 98-guestroom Hampton Inn in Santa Barbara (Goleta), CA, we assumed a $12.0 million mortgage loan with a fixed interest rate of 6.133%, an amortization period of 25 years, and a maturity date of November 11, 2021.$1.0 million.
Our outstanding indebtedness requires us to comply with a series ofvarious financial and other covenants. At December 31, 2016, we wereWe are currently in compliance with all required covenants.
Our total fixed-rate and variable-rate debt at December 31, 20162019 and 2015,2018, after giving effect to our $75.0 million interest rate derivative,derivatives, is as follows (in thousands):
|
| | | | | | | | | | | | | | |
| | 2019 | | Percentage | | 2018 | | Percentage |
Fixed-rate debt | | $ | 549,236 |
| | 54 | % | | $ | 569,103 |
| | 59 | % |
Variable-rate debt | | 473,490 |
| | 46 | % | | 395,908 |
| | 41 | % |
| | $ | 1,022,726 |
| | | | $ | 965,011 |
| | |
|
| | | | | | | | |
| | 2016 | | 2015 |
Fixed-rate debt | | $ | 359,867 |
| | $ | 402,673 |
|
Variable-rate debt | | 297,683 |
| | 274,423 |
|
| | $ | 657,550 |
| | $ | 677,096 |
|
PrincipalContractual principal payments for each of the next five years are as follows (in thousands):
|
| | | | |
2020 | | $ | 3,742 |
|
2021 | | 3,912 |
|
2022 | | 229,072 |
|
2023 | | 303,434 |
|
2024 | | 216,105 |
|
Thereafter | | 266,461 |
|
| | $ | 1,022,726 |
|
|
| | | | |
2017 | | $ | 15,828 |
|
2018 | | 14,557 |
|
2019 | | 166,136 |
|
2020 | | 197,049 |
|
2021 | | 13,017 |
|
Thereafter | | 250,963 |
|
| | $ | 657,550 |
|
Information about the fair value of our fixed-rate debt that is not recorded at fair value is as follows (in thousands):
|
| | | | | | | | | | | | | | | | | | |
| | 2019 | | 2018 | | |
| | Carrying Value | | Fair Value | | Carrying Value | | Fair Value | | Valuation Technique |
Fixed-rate debt | | $ | 149,236 |
| | $ | 151,268 |
| | $ | 169,103 |
| | $ | 166,256 |
| | Level 2 - Market approach |
|
| | | | | | | | | | | | | | | | | | |
| | 2016 | | 2015 | | |
| | Carrying Value | | Fair Value | | Carrying Value | | Fair Value | | Valuation Technique |
Fixed-rate debt | | $ | 284,867 |
| | $ | 283,416 |
| | $ | 327,673 |
| | $ | 321,841 |
| | Level 2 - Market approach |
At both December 31, 20162019 and 2015,2018, we had $75.0$400.0 million of debt with variable interest rates that had been converted to fixed interest rates through derivative financial instruments which are carried at fair value. Differences between carrying value and fair value of our fixed-rate debt are primarily due to changes in interest rates. Inherently, fixed-rate debt is subject to fluctuations in fair value as a result of changes in the current market rate of interest on the valuation date. For additional information on our use of derivatives as interest rate hedges, refer to “Note 68 –– Derivative Financial Instruments and Hedging.”
NOTE 67 –– LEASES
The Company has operating leases related to the land under certain hotel properties, conference centers, parking spaces, automobiles, our corporate office and other miscellaneous office equipment. These leases have remaining terms of 1 year to 79 years, some of which include options to extend the leases for additional years. The exercise of lease renewal options is at our sole discretion. Certain leases also include options to purchase the leased property. Leases with an initial term of 12 months or less are not recorded on the balance sheet; we recognize lease expense for these leases on a straight-line basis over the lease term.
Certain of our lease agreements include rental payments based on a percentage of revenue over contractual levels and others include rental payments adjusted periodically for inflation. Our lease agreements do not contain any material residual value guarantees or restrictive covenants that materially affect our business. We rent or sublease certain real estate to third parties. In
2019, 2018, and 2017, we recorded gross third party tenant income of $2.2 million, $1.7 million, and $1.4 million, respectively, which were recorded in Other income in the Consolidated Statements of Operations.
On January 1, 2019, the Company adopted ASC No. 842, Leases, and recognized right-of-use lease assets and related liabilities. The right-of-use assets and related liabilities include renewal options reasonably certain to be exercised. We base our lease calculations on our estimated incremental borrowing rate. As of December 31, 2019, our weighted average incremental borrowing rate was 4.9%.
In 2019, 2018, and 2017, the Company's total operating lease cost was $3.3 million, $3.6 million, and $4.0 million, respectively, and the operating cash outflows from operating leases was $3.0 million, $3.6 million, and $3.5 million, respectively. As of December 31, 2019, the weighted average operating lease term was 28.25 years.
On January 31, 2019, we exercised our option pursuant to a ground lease agreement to purchase the land upon which our hotel property in Baltimore (Hunt Valley), MD is located for $4.2 million, which resulted in a termination of obligations under the ground lease.
On December 4, 2019, we exercised our right to acquire a fee simple interest in the land upon which our Hyatt Place in Garden City, NY is located for nominal consideration. As a result, the hotel is no longer subject to a PILOT (payment in lieu of taxes) lease with the Town of Hempstead Industrial Development Authority.
Operating lease maturities as of December 31, 2019 are as follows (in thousands):
|
| | | | |
2020 | | $ | 2,148 |
|
2021 | | 2,038 |
|
2022 | | 1,815 |
|
2023 | | 959 |
|
2024 | | 900 |
|
Thereafter | | 28,904 |
|
Total lease payments (1) | | 36,764 |
|
Less imputed interest | | (17,160 | ) |
Total | | $ | 19,604 |
|
(1) Certain payments above include future increases to the minimum fixed rent based on the Consumer Price Index in effect at the initial measurement of the lease balances.
NOTE 8—DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING
We are exposed to interest rate risk through our variable-rate debt. We manage this risk primarily by managing the amount, sources, and duration of our debt funding and through the use of derivative financial instruments. Specifically, we enter into derivative financial instruments to manage our exposure to known or expected cash payments related to our variable-rate debt. The maximum length of time over which we have hedged our exposure to variable interest rates with our existing derivative financial instruments is approximately sixseven years.
Our objectives in using derivative financial instruments are to add stability to interest expense and to manage our exposure to interest rate movements. To accomplish these objectives, we primarily use interest rate swaps as part of our interest rate risk management strategy. Our interest rate swap isswaps are designated as a cash flow hedgehedges and involvesinvolve the receipt of variable-rate payments from a counterparty in exchange for making fixed-rate payments over the life of the agreementagreements without exchange of the underlying notional amount.
Our agreementagreements with our derivative counterparty contains a provision wherecounterparties contain provisions such that if we default, or are capable of beingcan be declared in default, on any of our indebtedness, then we could also be declared in default on our derivative financial instrument.instruments.
Information about our derivative financial instrumentinstruments at December 31, 20162019 and 20152018 is as follows (dollar amounts in thousands):
|
| | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2016 | | December 31, 2015 |
| | Number of Instruments | | Notional Amount | | Fair Value | | Number of Instruments | | Notional Amount | | Fair Value |
Interest rate swaps (liability) | | 1 |
| | $ | 75,000 |
| | $ | (1,118 | ) | | 1 |
| | $ | 75,000 |
| | $ | (1,811 | ) |
| | 1 |
| | $ | 75,000 |
| | $ | (1,118 | ) | | 1 |
| | $ | 75,000 |
| | $ | (1,811 | ) |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | Average Annual Effective Fixed Rate | | Notional Amount | | Fair Value |
Contract date | | Effective Date | | Expiration Date | | | December 31, 2019 | | December 31, 2018 | | December 31, 2019 | | December 31, 2018 |
October 2, 2017 | | January 29, 2018 | | January 31, 2023 | | 1.98 | % | | $ | 100,000 |
| | $ | 100,000 |
| | $ | (1,316 | ) | | $ | 1,758 |
|
October 2, 2017 | | January 29, 2018 | | January 31, 2023 | | 1.98 | % | | 100,000 |
| | 100,000 |
| | (1,350 | ) | | 1,703 |
|
June 11, 2018 | | September 28, 2018 | | September 30, 2024 | | 2.87 | % | | 75,000 |
| | 75,000 |
| | (4,389 | ) | | (1,656 | ) |
June 11, 2018 | | December 31, 2018 | | December 31, 2025 | | 2.93 | % | | 125,000 |
| | 125,000 |
| | (9,122 | ) | | (3,386 | ) |
| | | | | | | | $ | 400,000 |
| | $ | 400,000 |
| | $ | (16,177 | ) | | $ | (1,581 | ) |
Our interest rate swap hasswaps have been designated as a cash flow hedgehedges and isare valued using a market approach, which is a Level 2 valuation technique. At December 31, 2016 and 2015,2019, all of our interest rate swap wasswaps were in a liability position. Theposition as a result of a decline in short term interest rates and a continued flattening of the forward yield curve during 2019. At December 31, 2018, 2 of our interest rate swap expires on October 1, 2018.swaps were in an asset position and 2 were in a liability position. We are not required to post any collateral related to this agreementthese agreements and we are not in breach of any financial provisions of the agreement.agreements.
Changes in the fair value of the hedging instruments included in the assessment of hedge effectiveness will be recorded in other comprehensive income. Amounts deferred in other comprehensive income will be reclassified to interest expense as interest payments are made on the hedged variable-rate debt. In 2020, we estimate that an additional $3.4 million will be reclassified from other comprehensive income and recorded as an increase to interest expense.
The table below details the location in the financial statements of the gain or loss recognized on derivative financial instruments designated as cash flow hedges (in thousands):
|
| | | | | | | | | | | | |
| | 2019 | | 2018 | | 2017 |
(Loss) Gain recognized in Accumulated other comprehensive loss on derivative financial instruments | | $ | (15,327 | ) | | $ | (3,050 | ) | | $ | 1,703 |
|
Loss reclassified from Accumulated other comprehensive loss to interest expense | | $ | (731 | ) | | $ | (150 | ) | | $ | (734 | ) |
Total interest expense and other finance expense presented in the Consolidated Statement of Operations in which the effects of cash flow hedges are recorded | | $ | (41,030 | ) | | $ | (41,944 | ) | | $ | (29,687 | ) |
|
| | | | | | | | | | | | |
| | 2016 | | 2015 | | 2014 |
Loss recognized in accumulated other comprehensive income on derivative financial instruments (effective portion) | | $ | (497 | ) | | $ | (1,846 | ) | | $ | (2,112 | ) |
Loss reclassified from accumulated other comprehensive income to interest expense (effective portion) | | $ | (1,190 | ) | | $ | (1,927 | ) | | $ | (1,741 | ) |
Loss recognized in Other Expense (ineffective portion) | | $ | — |
| | $ | (1 | ) | | $ | (1 | ) |
Amounts reported in accumulated other comprehensive income related to derivative financial instruments will be reclassified to interest expense as interest payments are made on the hedged variable-rate debt. In 2017, we estimate that an additional $0.8 million will be reclassified from other comprehensive income as an increase to interest expense.
NOTE 79—EQUITY
Common Stock
The Company is authorized to issue up to 500,000,000 shares of common stock, $0.01 par value per share. Each outstanding share of our common stock entitles the holder to one1 vote on all matters submitted to a vote of stockholders, including the election of directors and, except as may be provided with respect to any other class or series of stock, the holders of such shares possess the exclusive voting power.
On August 2, 2016,May 25, 2017, the Company and the Operating Partnership entered into separate sales agreements (the(collectively, the “Sales Agreements”) with each of Robert W. Baird & Co. Incorporated, Raymond James & Associates, Inc., Merrill Lynch, Pierce, Fenner & Smith Incorporated, Deutsche Bank Securities Inc., RBC Capital Markets, LLC, KeyBanc Capital Markets Inc., Canaccord Genuity Inc. (this agreement was terminated on September 29, 2017), Jefferies LLC, BB&T Capital Markets, a division of BB&T Securities, LLC, and JefferiesBTIG, LLC (collectively, the “Bank Group”“Sales Agents”), pursuant to which the Company may issue and sell our common stock having an aggregate offering price of up to $200.0 million (the “Shares”), from time to time up to $125.0 million in shares of its common stock, $0.01 par value per share, and shares of its 6.45% Series D Preferred Stock, $0.01 par value per share (collectively,through the “Shares”), through members of the Bank Group,Sales Agents, each acting as agents a sales agent and/or principalsprincipal (the “2016"2017 ATM Program”Program"). At the same time, the Company terminated each of the sales agreementagreements entered into in connection with its prior ATMat-the-market offering program, which was established in August 20152016 and under which no6,151,514 shares were sold.
Pursuant to the Sales Agreements, the Shares may be offered and sold through members of the Bank Group in transactions that are deemed to be “at the market” offerings as defined in Rule 415 under the Securities Act of 1933, as amended, including sales made directly on the New York Stock Exchange or sales made to or through a market maker other than on an exchange or, with the prior consent of the Company, in privately negotiated transactions. Members of the Bank Group will be entitled to compensation of up to 2.0% of the grossCompany’s common stock were sold for net proceeds of Sharesapproximately $89.1 million. To date, we have not sold through members of the Bank Group from time to time under the Sales Agreements. The Company has no obligation to sell any of the Shares under the Sales Agreements and may at any time suspend solicitations and offers under, or terminate, the Sales Agreements.
During the year ended December 31, 2016, we sold 6,151,514 shares of our common stock under the 20162017 ATM Program for net proceeds of $89.1 million. The proceeds were used to pay down our revolving line of credit which had been used for acquisitions and other general corporate purposes.Program.
Changes in common stock during the years ended December 31, 20162019 and 20152018 were as follows:
|
| | | | | | |
| | 2019 | | 2018 |
Beginning common shares outstanding | | 104,783,179 |
| | 104,287,128 |
|
Grants under the Equity Plan | | 537,734 |
| | 583,738 |
|
Common Unit redemptions | | 50,244 |
| | 64,126 |
|
Annual grants to independent directors | | 40,455 |
| | 34,130 |
|
Common stock issued for director fees | | — |
| | 3,543 |
|
Performance share and other forfeitures | | (167,757 | ) | | (1,636 | ) |
Shares retained for employee tax withholding requirements | | (74,340 | ) | | (187,850 | ) |
Ending common shares outstanding | | 105,169,515 |
| | 104,783,179 |
|
|
| | | | | | |
| | 2016 | | 2015 |
Beginning common shares outstanding | | 86,793,521 |
| | 86,149,720 |
|
Common stock issued | | 6,151,514 |
| | — |
|
Grants under the Equity Plan | | 446,686 |
| | 320,845 |
|
Common Unit redemptions | | 119,308 |
| | 268,947 |
|
Exercise of stock options | | 37,684 |
| | 99,738 |
|
Annual grants to independent directors | | 32,180 |
| | 30,440 |
|
Common stock issued for director fees | | 7,618 |
| | 6,246 |
|
Forfeitures | | (1,420 | ) | | (46,030 | ) |
Shares retained for employee tax withholding requirements | | (61,622 | ) | | (36,385 | ) |
Ending common shares outstanding | | 93,525,469 |
| | 86,793,521 |
|
At December 31, 20162019 and 2015,2018, the Company had reserved 6,332,30714,365,537 and 14,691,01814,591,213 shares of common stock, respectively, for the issuance of common stock (i) upon the exercise of stock options, issuance of time-based restricted stock awards, issuance of performance-based restricted stock awards, grants of director stock awards, or other awards issued pursuant to our Equity Plan, (ii) upon redemption of Common Units, or (iii) under the 20162017 ATM Program.
Preferred Stock
The Company is authorized to issue up to 100,000,000 shares of preferred stock, 0.01$0.01 par value per share, of which 88,600,00090,600,000 is currently undesignated and 2,000,000 shares have been designated as 9.25% Series A Cumulative Redeemable Preferred Stock (the “Series A preferred shares”), 3,000,000 shares have been designated as 7.875% Series B Cumulative Redeemable Preferred Stock (the “Series B preferred shares”), 3,400,000 shares have been designated as 7.125% Series C Cumulative Redeemable Preferred Stock (the “Series C preferred shares”) and 3,000,000 shares have been designated as 6.45% Series D Cumulative Redeemable Preferred Stock (the "Series D preferred shares") and 6,400,000 shares have been designated as 6.25% Series E Cumulative Redeemable Preferred Stock (the "Series E preferred shares").
The Company completed the offering of 3,000,000 Series D preferred shares on June 28, 2016 for net proceeds of $72.3 million, after the underwriting discount and offering-related expenses of $2.7 million.
On October 28, 2016,March 20, 2018, the Company paid $50.7$85.3 million to redeem all 2,000,0003,400,000 of its outstanding 7.125% Series A preferred sharesC Cumulative Redeemable Preferred Stock at a redemption price of $25 per share plus accrued and unpaid dividends. The premium on redemption of $3.3 million was recorded as a reduction to retained earnings.
The Company's preferred shares (collectively, “Preferred Shares”) rank senior to our common stock and on parity with each other with respect to the payment of dividends and distributions of assets in the event of a liquidation, dissolution, or winding up. The Preferred Shares do not have any maturity date and are not subject to mandatory redemption or sinking fund requirements. The Company may not redeem the Series B preferred shares, Series CD preferred shares or Series DE preferred shares prior to December 11, 2017, March 20, 2018 and June 28, 2021 and November 13, 2022, respectively, except in limited circumstances relating to the Company’s continuing qualification as a REIT or in connection with certain changes in control. After those dates, the Company may, at its option, redeem the applicable Preferred Shares, in whole or from time to time in part, by payment of $25 per share, plus any accumulated, accrued and unpaid distributions up to, but not including, the date of redemption. If the Company does not exercise its rights to redeem the Preferred Shares upon certain changes in control, the holders of the Preferred Shares have the right to convert some or all of their shares into a number of the Company’s common shares based on a defined formula, subject to a share cap, or alternative consideration. The share cap on each Series BD preferred share is 5.6497 shares of common stock, each Series C preferred share is 5.14403.9216 shares of common stock and each Series DE preferred share is 3.92163.1686 shares of common stock, all subject to certain adjustments.
The Company pays dividends at an annual rate of $1.96875 for each Series B preferred share, $1.78125 for each Series C preferred share and $1.6125 for each Series D preferred share and $1.5625 for each Series E preferred share. Dividend payments are made quarterly in arrears on or about the last day of February, May, August and November of each year.
Non-controlling Interests in Operating Partnership
Pursuant to the limited partnership agreement of our Operating Partnership, beginning on February 14, 2012, the unaffiliated third parties who hold Common Units in our Operating Partnership have the right to cause us to redeem their Common Units in exchange for cash based upon the fair value of an equivalent number of our shares of common stock at the time of redemption; however, the Company has the option to redeem with shares of our common stock on a one-for-one1-for-one basis. The number of shares of our common stock issuable upon redemption of Common Units may be adjusted upon the occurrence of certain events such as share dividend payments, share subdivisions or combinations.
At December 31, 20162019 and 2015,2018, unaffiliated third parties owned 396,713209,021 and 516,021,259,265, respectively, of Common Units of the Operating Partnership, representing less than a 1% limited partnership interest in the Operating Partnership.
We classify outstanding Common Units held by unaffiliated third parties as non-controlling interests in the Operating Partnership, a component of equity in the Company’s Consolidated Balance Sheets. The portion of net income allocated to these Common Units is reported on the Company’s Consolidated Statement of Operations as net income attributable to non-controlling interests of the Operating Partnership.
LeaseholdNon-controlling Interest in Joint Venture
At December 31, 2015, we owned a majority interest inIn July 2019, the Company entered into a joint venture with GIC, Singapore’s sovereign wealth fund, to acquire assets that owned a fee simple interest in a hotel propertyalign with the Company’s current investment strategy and we also owned a minority interest in a relatedcriteria. The Company serves as general partner and asset manager of the joint venture and intends to invest 51% of the equity capitalization of the limited partnership, with GIC investing the remaining 49%. The Company earns fees for providing services to the joint venture and will have the potential to earn incentive fees based on the joint venture achieving certain return thresholds. As of December 31, 2019, the joint venture owns the five hotel properties acquired in 2019.
The joint venture owns the hotels through a master real estate investment trust (“Leasehold Venture”Master REIT”) that heldand subsidiary REITs (“Subsidiary REIT”). All of the hotels owned by the joint venture are leased to taxable REIT subsidiaries of the Subsidiary REITs (“Subsidiary REIT TRS”). To qualify as a leaseholdREIT, the Master REIT must meet all of the REIT requirements summarized under “Note 2 - Basis of Presentation and Significant Accounting Policies - Income Taxes.” Taxable income related to the Subsidiary REIT TRSs is subject to federal, state and local income taxes at applicable tax rates.
We classify the non-controlling interest in the property. On June 30, 2016, our joint venture partneras a component of equity in the Leasehold Venture exercised a put optionCompany’s Consolidated Balance Sheets. The portion of net income allocated to sell its joint venturethis non-controlling interest inis reported on the Leasehold VentureCompany’s Consolidated Statements of Operations as net income attributable to us for $0.4 million. We finalized the transaction in July 2016 and we own 100%non-controlling interest of the fee simple interest and leasehold interest in the hotel property effective July 31, 2016.joint venture.
NOTE 810—FAIR VALUE MEASUREMENT
The following table presents information about our financial instruments measured at fair value on a recurring basis as of December 31, 20162019 and 2015.2018. In instances in which the inputs used to measure fair value fall into different levels of the fair value hierarchy, we classify assets and liabilities based on the lowest level of input that is significant to the fair value measurement. Our assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the asset or liability.
Disclosures concerning financial instruments measured at fair value are as follows (in thousands):
|
| | | | | | | | | | | | | | | | |
| | Fair Value Measurement at December 31, 2019 using |
| | Level 1 | | Level 2 | | Level 3 | | Total |
Assets: | | | | | | | | |
Purchase options related to real estate loans | | $ | — |
| | $ | — |
| | $ | 8,920 |
| | $ | 8,920 |
|
Liabilities: | | |
| | |
| | |
| | |
|
Interest rate swaps | | — |
| | 16,177 |
| | — |
| | 16,177 |
|
| | | | | | | | |
| | Fair Value Measurement at December 31, 2018 using |
| | Level 1 | | Level 2 | | Level 3 | | Total |
Assets: | | | | | | | | |
Interest rate swaps | | $ | — |
| | $ | 3,461 |
| | $ | — |
| | $ | 3,461 |
|
Purchase options related to real estate loans | | — |
| | — |
| | 6,120 |
| | 6,120 |
|
Liabilities: | | |
| | |
| | |
| | |
|
Interest rate swaps | | — |
| | 5,042 |
| | — |
| | 5,042 |
|
|
| | | | | | | | | | | | | | | | |
| | Fair Value Measurement at December 31, 2016 using |
| | Level 1 | | Level 2 | | Level 3 | | Total |
Liabilities: | | |
| | |
| | |
| | |
|
Interest rate swaps | | $ | — |
| | $ | 1,118 |
| | $ | — |
| | $ | 1,118 |
|
| | | | | | | | |
| | Fair Value Measurement at December 31, 2015 using |
| | Level 1 | | Level 2 | | Level 3 | | Total |
Liabilities: | | |
| | |
| | |
| | |
|
Interest rate swaps | | $ | — |
| | $ | 1,811 |
| | $ | — |
| | $ | 1,811 |
|
Our purchase options related to real estate loans do not have readily determinable fair values. The fair value of each purchase option was estimated using a binomial lattice or Black-Scholes model. The estimated fair values of the purchase options were based on unobservable inputs for which there is little or no market information available and required us to develop our own assumptions as follows (dollar amounts in thousands):
|
| | | | | | | | | | | | | | | | | |
| | Real Estate Loan 1 | | Real Estate Loan 2 | | Real Estate Loan 3 | | Real Estate Loan 4 | |
Exercise price | | $ | 15,143 |
| | $ | 17,377 |
| | $ | 5,503 |
| | $ | 37,800 |
| |
First option exercise date (1) | | 12/31/2018 |
| | 3/31/2019 |
| | 5/31/2019 |
| | 8/15/2021 |
| |
Last option exercise date | | 11/1/2020 |
| | 12/5/2020 |
| | 12/1/2020 |
| | 8/30/2021 |
| |
Expected volatility | | 32.0 | % | | 38.0 | % | | 37.0 | % | | 31.3 | % | |
Risk free rate | | 1.7 | % | | 1.8 | % | | 1.9 | % | | 1.5 | % | |
Expected annualized equity dividend yield | | 6.8 | % | | 9.9 | % | | 6.5 | % | | — | % | (2) |
(1) The first option date is the date used for valuing the Purchase Option. The actual option exercise dates are on or after the hotels are fully constructed and open for business. As of December 31, 2019, three of the four hotels were open for business.
(2) The purchase option was valued using the Black-Scholes model which assumes no dividends.
There were no transfers between Level 1 and Level 2 of the fair value hierarchy during the years ended December 31, 20162019 or 2015.2018.
NOTE 911—COMMITMENTS AND CONTINGENCIES
Ground Leases
We lease land for one hotel property in Duluth, GA under the terms of an operating ground lease agreement expiring April 1, 2069. We also have two prepaid land leases for two hotel properties in Portland, OR which expire in June of 2084 and have a remaining prepaid balance of $3.3 million at December 31, 2016 and 2015. We have one option to extend these leases for an additional 14 years. We lease land for one hotel property in Houston (Galleria Area), TX under the terms of an operating ground lease agreement with an initial termination date of April 20, 2053 with one option to extend for an additional 10 years. We lease land for one hotel property in Austin, TX with an initial lease termination date of May 31, 2050. We lease land for one hotel property in Baltimore (Hunt Valley), MD with a lease termination date of December 31, 2019 and twelve remaining options to extend for five additional years per extension. Total rent expense for these leases for the years ended December 31, 2016, 2015 and 2014 was $1.7 million, $1.2 million, and $1.1 million, respectively.
Future minimum rental payments for noncancelable operating leases with a remaining term in excess of one year are as follows (in thousands):
|
| | | |
2017 | $ | 1,505 |
|
2018 | 1,757 |
|
2019 | 1,748 |
|
2020 | 1,817 |
|
2021 | 1,831 |
|
Thereafter | 106,232 |
|
| $ | 114,890 |
|
In addition, we lease land for one hotel property in Garden City, NY under a PILOT (payment in lieu of taxes) lease. We pay a reduced amount of property tax each year of the lease as rent. The lease expires on December 31, 2019. Upon expiration of the lease, we expect to exercise our right to acquire a fee simple interest in the hotel for nominal consideration.
Franchise Agreements
All of our hotel properties operate under franchise agreements with major hotel franchisors. The terms of our franchise agreements generally range from 10 to 20 years with various extension provisions. Each franchisor receives franchise fees ranging from 2% to 6% of each hotel property’s gross revenue, and some agreements require that we pay marketing fees of up to 4% of gross revenue. In addition, some of these franchise agreements require that we deposit a percentage of the hotel property’s gross revenue, generally not more than 5%, into a reserve fund for capital expenditures. We also pay fees to our franchisors for services related to reservation and information systems. In 2016, 2015,2019, 2018, and 2014,2017, we expensed fees related to our franchise agreements of $37.2$47.8 million, $37.8$47.7 million, and $33.6$41.6 million, respectively.
Management Agreements
Our hotel properties operate pursuant to management agreements with various professional third-party management companies. The terms of our management agreements range from threemonth-to-month to twenty-five years with various extension provisions. Each management company receives a base management fee, generally a percentage of total hotel property revenues. In some cases there are also monthly fees for certain services, such as accounting, based on the number of guestrooms. Generally there are also incentive fees based on attaining certain financial thresholds. In 2016, 2015,2019, 2018, and 2014,2017, we expensed fees related to our hotel management agreements of $18.8$16.6 million, $18.6$18.5 million, and $16.1$18.2 million, respectively.
Litigation
We are involved from time to time in litigation arising in the ordinary course of business. We are currently involved in litigation related to the settlement of a contractual obligation related to the purchase of a hotel property in 2012. We have accrued the amount of our expected liability to settle the contractual obligation at December 31, 2016. We are not currently aware of any actions against us that would have a material effect on our financial condition or results of operations.
NOTE 1012—EQUITY-BASED COMPENSATION
Our currently outstanding equity-based awards were issued under our Equity Plan which provides for the granting of stock options, stock appreciation rights, restricted stock, restricted stock units, dividend equivalent rights, and other equity-based awards or incentive awards.
Stock options granted may be either incentive stock options or non-qualified stock options. Vesting terms may vary with each grant, and stock option terms are generally five to ten years. We have outstanding equity-based awards in the form of stock options and restricted stock awards. All of our outstanding equity-based awards are classified as equity awards.equity.
Stock Options Granted Under Our Equity Plan
Concurrent withAs of December 31, 2019, 2018 and 2017, we had 235,000 outstanding and exercisable stock options. At December 31, 2019, the completion of our IPO and pursuant to our Equity Plan, we grantedstock options to our executive officers to purchase 940,000 shares of common stock. These options have anhad a weighted average exercise price of $9.75 per share, the market valueand a weighted average contractual term of the common stock on the date of grant, and vest ratably over five years based on continued service, or upon a change in control.1.2 years.
The fair value of stock options granted was estimated using a Black-Scholes valuation model and the following assumptions:
|
| | | |
Expected dividend yield | | 5.09 | % |
Expected stock price volatility | | 56.6 | % |
Risk-free interest rate | | 2.57 | % |
Expected life of options (in years) | | 6.5 |
|
Weighted average estimated fair value of options at grant date per share | | 3.48 |
|
The expected dividend yield was calculated based on our annual expected dividend payments at the time the options were granted. The expected volatility was based on historical price changes of a peer group of comparable entities based on the expected life of the options at the date of grant. The risk-free interest rate was based on the U.S. Treasury yield curve in effect at the date of grant. The expected life of the options is the average number of years we estimate that the options will be outstanding.
The following table summarizes stock option activity under our Equity Plan:
|
| | | | | | | | | | | | | |
| | Number of Options | | Weighted Average Exercise Price | | Weighted Average Remaining Contractual Terms | | Aggregate Intrinsic Value (Current Value Less Exercise Price) |
| | | | (per share) | | (in years) | | (in thousands) |
Outstanding at December 31, 2014 | | 846,000 |
| | $ | 9.75 |
| | | | |
|
Exercised | | (376,000 | ) | | 9.75 |
| | | | |
|
Outstanding at December 31, 2015 | | 470,000 |
| | 9.75 |
| | | | |
|
Exercised | | (235,000 | ) | | 9.75 |
| | | | |
|
Outstanding at December 31, 2016 | | 235,000 |
| | $ | 9.75 |
| | 4.2 | | $ | 1,476 |
|
| | | | | | | | |
Exercisable at December 31, 2016 | | 235,000 |
| | $ | 9.75 |
| | 4.2 | | $ | 1,476 |
|
All stock options outstanding atAt December 31, 2016 are vested. During2019, the years ended December 31, 2016, 2015, and 2014, the total fair value of stock options that vested was $0.3 million, $0.9 million and $0.7 million, respectively. The intrinsic value of outstanding and exercisable options exercised during the years endedwas $0.6 million. At December 31, 2016, 20152018, the exercise price of our outstanding and 2014 was $1.0 million, $1.3 million and $0.1 million, respectively.
exercisable stock options exceeded the market price of our common stock, resulting in 0 intrinsic value. The intrinsic value of outstanding and exercisable options at December 31, 20162017 was $1.5$1.3 million. The intrinsic value of outstanding options and exercisable options at December 31, 2015 was $1.0 million and $0.8 million, respectively. At December 31, 2014, the intrinsic value of outstanding options and exercisable options was $2.3 million and $1.4 million, respectively.
Time-Based Restricted Stock Awards Made Pursuant to Our Equity Plan
On February 24, 2016, we grantedThe following table summarizes time-based restricted stock activity under our Equity Plan for 2019 and 2018:
|
| | | | | | | | | | | |
| | Number of Shares | | Weighted Average Grant Date Fair Value per Share | | Aggregate Current Value |
| | | | | | (in thousands) |
Non-vested December 31, 2017 | | 391,477 |
| | $ | 13.52 |
| | |
|
Granted | | 185,930 |
| | 13.15 |
| | |
|
Vested | | (205,619 | ) | | 13.41 |
| | |
|
Forfeited | | (1,636 | ) | | 12.84 |
| | |
Non-vested December 31, 2018 | | 370,152 |
| | 13.40 |
| | |
|
Granted | | 235,407 |
| | 11.32 |
| | |
|
Vested | | (154,801 | ) | | 12.82 |
| | |
|
Forfeited | | (2,291 | ) | | 12.65 |
| | |
Non-vested December 31, 2019 | | 448,467 |
| | $ | 12.51 |
| | $ | 5,534 |
|
The awards for 22,010 shares of common stockgranted to certain of our non-executive employees. The awardsemployees generally vest over a four-year period based on continuedcontinuous service (20% on March 9, 2017, 2018the first, second and 2019,third anniversary of the grant date and 40% on March 9, 2020)the fourth anniversary of the grant date). On March 8, 2016, we
The awards granted time-based restricted stock awards for 169,707 shares of common stock to our executive officers. The awardsofficers generally vest 25% on March 9, 2017, 25% on March 9, 2018 and 50% on March 9, 2019,over a three-year period based on continuous service through(25% on the vesting datesfirst and second anniversary of the grant date and 50% on the third anniversary of the grant date) or in certain circumstances upon a change in control. On September 2, 2016, we granted time-based restricted stock awards for 406 shares of common stock to certain of our non-executive employees. The awards vest over a four-year period based on continued service (20% on September 3, 2017, 2018 and 2019, and 40% on September 3, 2020).
On March 3, 2015, we granted time-based restricted stock awards for 149,410 shares of common stock to our executive officers and management. Of the total awards issued, 37,230 vest based on continued service on March 9, 2018, or upon a change in control. The remaining awards vest over a three year period based on continued service (25% on March 9, 2016 and 2017 and 50% on March 9, 2018), or upon a change in control.
On April 24, 2015, we granted a time-based restricted stock award for 16,930 shares of common stock to one of our executive officers. This award vested during the third quarter of 2015.
On May 28, 2014, we awarded time-based restricted stock awards for 116,981 shares of common stock to our executive officers and management. These awards vest over a three year period based on continued service (25% on May 27, 2015 and 2016 and 50% on May 27, 2017), or upon a change in control.
The holders of these awards have the right to vote the related shares of common stock and receive all dividends declared and paid whether or not vested. The fair value of time-based restricted stock awards granted is calculated based on the market value of our common stock on the date of grant.
The following table summarizes time-based restricted stock activity under our Equity Plan for 2016 and 2015:
|
| | | | | | | | | | | |
| | Number of Shares | | Weighted Average Grant Date Fair Value | | Aggregate Current Value |
| | | | (per share) | | (in thousands) |
Non-vested December 31, 2014 | | 181,116 |
| | $ | 9.81 |
| | |
|
Granted | | 166,340 |
| | 13.53 |
| | |
|
Vested | | (97,445 | ) | | 10.46 |
| | |
|
Non-vested December 31, 2015 | | 250,011 |
| | 12.03 |
| | |
|
Granted | | 192,123 |
| | 11.36 |
| | |
|
Vested | | (82,869 | ) | | 11.06 |
| | |
|
Forfeited | | (1,420 | ) | | 10.27 |
| | |
Non-vested December 31, 2016 | | 357,845 |
| | $ | 11.90 |
| | $ | 5,736 |
|
During the years ended December 31, 2016, 2015,2019, 2018, and 2014,2017, the total fair value of time-based restricted stock awards that vested was $0.9$2.0 million, $1.0$2.8 million and $0.8$1.4 million, respectively.
Performance-Based Restricted Stock Awards Made Pursuant to Our Equity Plan
On March 8, 2016, we grantedThe following table summarizes performance-based restricted stock awardsactivity under our Equity Plan for 254,563 shares of common stock to our executive officers. 2019 and 2018:
|
| | | | | | | | | | | |
| | Number of Shares | | Weighted Average Grant Date Fair Value per Share | | Aggregate Current Value |
| | | | | | (in thousands) |
Non-vested December 31, 2017 | | 619,429 |
| | $ | 16.16 |
| | |
|
Granted | | 397,808 |
| | 15.69 |
| | |
|
Vested | | (309,010 | ) | | 18.78 |
| | |
|
Non-vested December 31, 2018 | | 708,227 |
| | 14.75 |
| | |
|
Granted | | 302,327 |
| | 12.81 |
| | |
|
Vested | | (89,097 | ) | | 13.77 |
| | |
|
Forfeited | | (165,466 | ) | | 13.77 |
| | |
|
Non-vested December 31, 2019 | | 755,991 |
| | $ | 14.31 |
| | $ | 9,329 |
|
Our performance-based restricted stock awards are market-based awards and are accounted for based on the fair value of our common stock on the grant date. The fair value of the performance-based restricted stock awards granted was estimated using a Monte Carlo simulation valuation model. These awards generally vest over a three-year period based on our percentile ranking within the SNL U.S. REIT Hotel Index at the end of the period beginning on March 8, 2016 and ending on the earlier of March 8, 2019 or upon a change in control. The awards require continued service during the measurement period and are subject to the other conditions described in the Equity Plan or award document.
On March 3, 2015, we granted performance-based restricted stock awards for 154,505 shares of common stock to certain of our executive officers. The fair value of the performance-based restricted stock awards granted was estimated using a Monte Carlo
simulation valuation model. These awards vest based on our percentile ranking within the SNL U.S. REIT Hotel Index at the end of the period beginning on January 1, 2015 and ending on the earlier of December 31, 2017, or upon a change in control. The awards require continued service during the measurement period and are subject to the other conditions described in the Equity Plan or award document.
The number of shares the executive officers may earn under these awards range from zero0 shares to twice the number of shares granted based on our percentile ranking within the index at the end of the measurement period. In addition, a portion of the performance-based shares may be earned based on the Company's absolute total shareholder return calculated during the performance period.
The holders of these grants have the right to vote the granted shares of common stock and any dividends declared will be accumulated and will be subject to the same vesting conditions as the awards. Further, if additional shares are earned based on our percentile ranking within the index, dividend payments will be issued as if the additional shares had been held throughout the measurement period.
On May 28, 2014 we awarded performance-based restricted stock awards for 161,935 shares of common stock to our executive officers. These awards vest ratably on January 1 in each year of the three-year period following the grant date subject to the attainment of certain performance goals and continued service, or upon a change in control.
The 2014 performance-based restricted stock awards are market-based awards and are accounted for based on the grant date fair value of our common stock. These awards vest based on a performance measurement that requires the Company’s total stockholder return (“TSR”) to exceed the TSR for the SNL U.S. Lodging REIT Index for a designated one, two or three year performance period. The holders of these awards have the right to vote the related shares of common stock and any dividends declared will be accumulated and will be subject to the same vesting conditions as the awards.
The fair value of performance-based restricted stock awards granted was estimated using a Monte Carlo simulation valuation model and the following assumptions:
|
| | | | | | | | | | | | |
| | 2019 | | 2018 | | 2017 |
Expected dividend yield | | 6.17 | % | | 5.33 | % | | 4.14 | % |
Expected stock price volatility | | 23.2 | % | | 25.7 | % | | 24.8 | % |
Risk-free interest rate | | 2.43 | % | | 2.41 | % | | 1.59 | % |
Monte Carlo iterations | | 100,000 |
| | 100,000 |
| | 100,000 |
|
Weighted average estimated fair value of performance-based restricted stock awards | | $ | 12.81 |
| | $ | 13.73 |
| | $ | 17.13 |
|
|
| | | | | | | | |
| | 2016 | | 2015 |
Expected dividend yield | | 4.01 | % | | 3.42 | % |
Expected stock price volatility | | 24.2 | % | | 22.2 | % |
Risk-free interest rate | | 1.04 | % | | 1.02 | % |
Monte Carlo iterations | | 100,000 |
| | 100,000 |
|
Weighted average estimated fair value of performance-based restricted stock awards | | $ | 13.77 |
| | $ | 18.78 |
|
The expected dividend yield was calculated based on our annual expected dividend payments at the time of grant. The expected volatility was based on historical price changes of our common stock for a period comparable to the performance period. The risk-free interest rates were interpolated from the Federal Reserve Bond Equivalent Yield rates for “on-the-run” U.S. Treasury securities.
The following table summarizes performance-based restricted stock activity under our Equity Plan for 2016 and 2015:
|
| | | | | | | | | | | |
| | Number of Shares | | Weighted Average Grant Date Fair Value | | Aggregate Current Value |
| | | | (per share) | | (in thousands) |
Non-vested December 31, 2014 | | 384,558 |
| | $ | 6.75 |
| | |
|
Granted | | 154,505 |
| | 18.78 |
| | |
|
Vested | | (184,666 | ) | | 6.86 |
| | |
|
Forfeited | | (46,030 | ) | | 5.10 |
| | |
|
Non-vested December 31, 2015 | | 308,367 |
| | 12.95 |
| | |
|
Granted | | 254,563 |
| | 13.77 |
| | |
|
Vested | | (113,903 | ) | | 7.10 |
| | |
|
Non-vested December 31, 2016 | | 449,027 |
| | $ | 14.90 |
| | $ | 7,198 |
|
Director Stock Awards Made Pursuant to Our Equity Plan
During the years ended December 31, 20162019 and 2015,2018, we granted 32,18040,455 and 30,44034,130 shares of common stock, respectively, to our non-employee directors as a part of our director compensation program. These grants were made pursuant to our Equity Plan and were vested upon grant.
Our non-employee directors have the option to receive shares of our common stock in lieu of cash for their director fees. In 2016 and 2015,2019, all directors elected to receive cash for their director fees. In 2018, we issued 7,618 and 6,2463,543 shares of common stock respectively, for director fees. The fair value of director stock awards is calculated based on the market value of our common stock on the date of grant.
Equity-Based Compensation Expense
Equity-based compensation expense included in Corporate General and Administrative expense in the Consolidated Statements of Operations for the years ended December 31, 2016, 2015,2019, 2018, and 20142017 was as follows (in thousands):
|
| | | | | | | | | | | | |
| | 2019 | | 2018 | | 2017 |
Time-based restricted stock | | $ | 2,327 |
| | $ | 2,384 |
| | $ | 2,145 |
|
Performance-based restricted stock | | 3,396 |
| | 3,727 |
| | 3,183 |
|
Director stock | | 496 |
| | 554 |
| | 559 |
|
| | $ | 6,219 |
| | $ | 6,665 |
| | $ | 5,887 |
|
|
| | | | | | | | | | | | |
| | 2016 | | 2015 | | 2014 |
Stock options | | $ | 55 |
| | $ | 633 |
| | $ | 675 |
|
Time-based restricted stock | | 1,594 |
| | 1,691 |
| | 960 |
|
Performance-based restricted stock | | 2,107 |
| | 1,957 |
| | 1,483 |
|
Director stock | | 465 |
| | 472 |
| | 406 |
|
| | $ | 4,221 |
| | $ | 4,753 |
| | $ | 3,524 |
|
We recognize equity-based compensation expense ratably over the vesting terms. The amount of expense may be subject to adjustment in future periods due to a change in the forfeiture assumptions.
Unrecognized equity-based compensation expense for all non-vested awards pursuant to our Equity Plan was $6.0$7.4 million at December 31, 20162019 as follows (in thousands):
|
| | | | | | | | | | | | | | | | | | | | |
| | Total | | 2020 | | 2021 | | 2022 | | 2023 |
Time-based restricted stock | | $ | 3,092 |
| | $ | 1,798 |
| | $ | 1,048 |
| | $ | 231 |
| | $ | 15 |
|
Performance-based restricted stock | | 4,270 |
| | 2,578 |
| | 1,477 |
| | 215 |
| | — |
|
| | $ | 7,362 |
| | $ | 4,376 |
| | $ | 2,525 |
| | $ | 446 |
| | $ | 15 |
|
|
| | | | | | | | | | | | | | | | | | | | |
| | Total | | 2017 | | 2018 | | 2019 | | 2020 |
Time-based restricted stock | | $ | 2,493 |
| | $ | 1,503 |
| | $ | 817 |
| | $ | 163 |
| | $ | 10 |
|
Performance-based restricted stock | | 3,555 |
| | 2,192 |
| | 1,168 |
| | 195 |
| | — |
|
| | $ | 6,048 |
| | $ | 3,695 |
| | $ | 1,985 |
| | $ | 358 |
| | $ | 10 |
|
NOTE 1113—BENEFIT PLANS
On August 1, 2011, we initiated a qualified contributory retirement plan (the “Plan”) under Section 401(k) of the IRC, which covers all full-time employees who meet certain eligibility requirements. Voluntary contributions may be made to the Plan by employees. The Plan is a Safe Harbor Plan and requires a mandatory employer contribution. The employer contribution expense for the years ended December 31, 2016, 20152019, 2018 and 20142017 was $0.3 million, $0.2 million, and $0.2 million, respectively.
NOTE 1214—LOSS ON IMPAIRMENT OF ASSETS
At December 31, 2016, we were under contract to sell the Courtyard by Marriott in El Paso, TX for $11.0 million. We recorded a loss on impairment of assets of $0.6 million related to this transaction during 2016. This hotel is one of the eight remaining Reinstated Hotels and is under contract to be sold to a third party that is unrelated to ARCH.
During the year ended December 31, 2015, we determined that the value of land parcels in San Antonio, TX, Fort Myers, FL and Flagstaff, AZ were impaired based on market conditions. As such, we recognized a loss on impairment of assets of $1.1 million in our Consolidated Statement of Operations.
During the year ended December 31, 2014, we recognized a loss on impairment of assets of $0.4 million related to the Hampton Inn in Fort Smith, AR. This property was classified as held for sale prior to our adoption of ASU No. 2014-08 and its operating results, including impairment charges, were included in discontinued operations.
During the year ended December 31, 2014, we recognized a loss on impairment of assets of $8.2 million related to the Country Inn & Suites and three adjacent land parcels totaling 5.64 acres in San Antonio, TX, which was sold in the fourth quarter of 2014, and a loss on impairment of assets of $0.7 million related to a land parcel in Spokane, WA. These losses on impairment of assets were charged to operations.
NOTE 13—INCOME TAXES
We have elected to be taxed as a REIT. As a REIT, we are generally not subject to corporate level income taxes on taxable income we distribute to our shareholders. We believe we have met the annual REIT distribution requirement by distribution of at least 90% of our taxable income to our shareholders.
Income related to our TRSTRSs is subject to federal, state and local taxes at applicable tax rates. Our consolidated tax provision includes the income tax provision related to the operations of the TRSTRSs as well as state and local income taxes related to the Operating Partnership.
The components of income tax expense (benefit) for the years ended December 31, 2016, 2015,2019, 2018, and 20142017 are as follows (in thousands):
|
| | | | | | | | | | | | |
| | 2019 | | 2018 | | 2017 |
Current: | | |
| | |
| | |
|
Federal | | $ | 869 |
| | $ | (67 | ) | | $ | 10 |
|
State and local | | 643 |
| | (425 | ) | | 777 |
|
Deferred: | | |
| | |
| | |
|
Federal | | (32 | ) | | (279 | ) | | 232 |
|
State and local | | 20 |
| | (151 | ) | | 49 |
|
Effect of federal tax law change | | — |
| | — |
| | 606 |
|
Income tax expense (benefit) | | $ | 1,500 |
| | $ | (922 | ) | | $ | 1,674 |
|
|
| | | | | | | | | | | | |
| | 2016 | | 2015 | | 2014 |
Current: | | |
| | |
| | |
|
Federal | | $ | 37 |
| | $ | 81 |
| | $ | 133 |
|
State and local | | 904 |
| | 408 |
| | 712 |
|
Deferred | | |
| | |
| | |
|
Federal | | (1,918 | ) | | (159 | ) | | — |
|
State and local | | (473 | ) | | 223 |
| | (127 | ) |
Income tax expense (benefit) | | $ | (1,450 | ) | | $ | 553 |
| | $ | 718 |
|
| | | | | | |
Income tax expense (benefit) | | |
| | |
| | |
|
From continuing operations | | $ | (1,450 | ) | | $ | 553 |
| | $ | 744 |
|
From discontinued operations | | — |
| | — |
| | (26 | ) |
Income tax expense (benefit) | | $ | (1,450 | ) | | $ | 553 |
| | $ | 718 |
|
ABelow is a reconciliation ofbetween the provision for income taxes and the amounts computed by applying the federal statutory income tax rate to the effective income tax rate for the TRS is as follows (in thousands):or loss before taxes:
|
| | | | | | | | | | | | |
| | 2019 | | 2018 | | 2017 |
Statutory federal income tax provision | | $ | 17,608 |
| | $ | 18,943 |
| | $ | 35,418 |
|
Nontaxable income of the REITs | | (16,996 | ) | | (19,073 | ) | | (35,073 | ) |
Effect of graduated corporate tax rates | | — |
| | — |
| | (10 | ) |
State income taxes, net of federal tax benefit | | 568 |
| | 266 |
| | 716 |
|
Provision to return and deferred adjustment | | (6 | ) | | 75 |
| | — |
|
Effect of permanent differences and other | | 326 |
| | (184 | ) | | 17 |
|
Tax benefit from deduction for partnership distributions | | — |
| | (949 | ) | | — |
|
Effect of federal tax law change | | — |
| | — |
| | 606 |
|
Income tax provision (benefit) | | $ | 1,500 |
| | $ | (922 | ) | | $ | 1,674 |
|
|
| | | | | | | | | | | | |
| | 2016 | | 2015 | | 2014 |
Tax provision (benefit) at U.S. statutory rates on TRS income (loss) subject to tax | | $ | (1,157 | ) | | $ | 2,345 |
| | $ | 2,024 |
|
State income tax, net of federal income tax benefit | | 65 |
| | 486 |
| | 77 |
|
Provision to return and deferred adjustment | | (872 | ) | | — |
| | — |
|
Effect of permanent differences and other | | 31 |
| | (161 | ) | | 727 |
|
Decrease in valuation allowance | | — |
| | (2,448 | ) | | (2,580 | ) |
TRS income tax expense (benefit) | | $ | (1,933 | ) | | $ | 222 |
| | $ | 248 |
|
|
| | | | | | | | | | | | |
| | 2016 | | 2015 | | 2014 |
Total provision (benefit) for TRS and Operating Partnership: | | | | | | |
TRS income tax expense (benefit) | | $ | (1,933 | ) | | $ | 222 |
| | $ | 248 |
|
Operating Partnership state and local income tax expense | | 483 |
| | 331 |
| | 470 |
|
Income tax expense (benefit) | | $ | (1,450 | ) | | $ | 553 |
| | $ | 718 |
|
CurrentDeferred tax assets and liabilities are included in Accrued Expenses andwithin Other Assets in the accompanying Consolidated Balance Sheets.
Significant components of deferred tax assets (liabilities) are as follows (in thousands):
|
| | | | | | | | |
| | 2019 | | 2018 |
Tax carryforwards | | $ | 38 |
| | $ | 154 |
|
Accrued expenses | | 2,068 |
| | 1,893 |
|
Other | | 32 |
| | (1 | ) |
Net deferred tax assets | | $ | 2,138 |
| | $ | 2,046 |
|
| | | | |
Gross deferred tax assets | | $ | 2,172 |
| | $ | 2,086 |
|
Gross deferred tax liabilities | | (34 | ) | | (40 | ) |
Net deferred tax assets | | $ | 2,138 |
| | $ | 2,046 |
|
|
| | | | | | | | |
| | 2016 | | 2015 |
Tax carryforwards | | $ | 767 |
| | $ | 1,481 |
|
Investments | | — |
| | (1,349 | ) |
Accrued expenses | | 1,744 |
| | — |
|
Other | | (8 | ) | | (20 | ) |
Net deferred tax assets | | $ | 2,503 |
| | $ | 112 |
|
| | | | |
Gross deferred tax assets | | $ | 2,580 |
| | $ | 1,515 |
|
Gross deferred tax liabilities | | (77 | ) | | (1,403 | ) |
Net deferred tax assets | | $ | 2,503 |
| | $ | 112 |
|
At December 31, 2015,2019, we reduced our valuation allowance to zero as we determined that it was more likely than not that our net deferred tax assets would be realized. The release of the valuation allowance resulted in a non-cash tax benefit of $0.1 million. During the year ended December 31, 2015, the TRS profits were offset by net operating loss carryforwards. As we had a valuation allowance against substantially all of our net deferred tax assets at December 31, 2014, the utilization of tax attributes to offset profits reduced the overall level of deferred tax assets subject to the valuation allowance. At December 31, 2015, we had gross deferred tax assets of $1.5 million primarily related to net operating loss carryforwards and a $1.3 million deferred tax liability related to an investment in a joint venture.
At December 31, 2016, we had (i) U.S. federal net operating losses of $1.1 million which expire in 2033 (ii) state net operating losses of $2.6$0.7 million which expire beginning in 2027 and (iii) federal minimum tax credits of $0.2 million which do not expire.2027.
We had no0 unrecognized tax benefits at December 31, 20162019 or in the three year period then ended. The Company recognizes interest expense and penalties associated with uncertainWe expect no significant increase or decrease in unrecognized tax benefits due to changes in tax positions as a componentwithin one year of income tax expense.December 31, 2019. We have no material interest or penalties relating to unrecognized tax benefits in the Consolidated Statements of Operations for the years ended December 31, 2016, 20152019, 2018 or 20142017 or in the Consolidated Balance Sheets as of December 31, 20162019 or 2015.2018.
We file U.S. and state income tax returns in jurisdictions with varying statutes of limitations. We currently have no open audits related to our income tax returns. In general, we are not subject to tax examinations by tax authorities for years before 2013.2016.
NOTE 14—DISCONTINUED OPERATIONS
Characterization of Distributions
We have adjusted our Consolidated Statements
For income tax purposes, distributions paid consist of Operations for the year ended December 31, 2014 to reflect the operations of hotel properties soldordinary income and capital gains or classified as held for sale in discontinued operations. No such adjustment was made duringa combination thereof. For the years ended December 31, 2016 or 2015 due2019, 2018, and 2017 distributions paid per share were characterized as follows (unaudited):
|
| | | | | | | | | | | | | | | | | | | | | |
| | 2019 | | 2018 | | 2017 |
| | Amount | | % | | Amount | | % | | Amount | | % |
Common Stock | | | | | | | | | | | | |
Ordinary income | | $ | 0.6132 |
| | 85.16 | % | | $ | 0.7200 |
| | 100.00 | % | | $ | 0.6725 |
| | 100.00 | % |
Capital gain distributions | | 0.1068 |
| | 14.84 | % | | — |
| | — | % | | — |
| | — | % |
Total | | $ | 0.7200 |
| | 100.00 | % | | $ | 0.7200 |
| | 100.00 | % | | $ | 0.6725 |
| | 100.00 | % |
| | | | | | | | | | | | |
Preferred Stock - Series B | | | | | | | | | | | | |
Ordinary income | | $ | — |
| | — | % | | $ | — |
| | — | % | | $ | 2.0234 |
| | 100.00 | % |
Capital gain distributions | | — |
| | — | % | | — |
| | — | % | | — |
| | — | % |
Total | | $ | — |
| | — | % | | $ | — |
| | — | % | | $ | 2.0234 |
| | 100.00 | % |
| | | | | | | | | | | | |
Preferred Stock - Series C | | | | | | | | | | | | |
Ordinary income | | $ | — |
| | — | % | | $ | 0.5393 |
| | 100.00 | % | | $ | 1.7813 |
| | 100.00 | % |
Capital gain distributions | | — |
| | — | % | | — |
| | — | % | | — |
| | — | % |
Total | | $ | — |
| | — | % | | $ | 0.5393 |
| | 100.00 | % | | $ | 1.7813 |
| | 100.00 | % |
| | | | | | | | | | | | |
Preferred Stock - Series D | | | | | | | | | | | | |
Ordinary income | | $ | 1.3732 |
| | 85.16 | % | | $ | 1.6125 |
| | 100.00 | % | | $ | 1.6125 |
| | 100.00 | % |
Capital gain distributions | | 0.2393 |
| | 14.84 | % | | — |
| | — | % | | — |
| | �� | % |
Total | | $ | 1.6125 |
| | 100.00 | % | | $ | 1.6125 |
| | 100.00 | % | | $ | 1.6125 |
| | 100.00 | % |
| | | | | | | | | | | | |
Preferred Stock - Series E | | | | | | | | | | | | |
Ordinary Income | | $ | 1.3307 |
| | 85.16 | % | | $ | 1.5625 |
| | 100.00 | % | | $ | 0.0694 |
| | 100.00 | % |
Capital gain distributions | | 0.2318 |
| | 14.84 | % | | — |
| | — | % | | — |
| | — | % |
Total | | $ | 1.5625 |
| | 100.00 | % | | $ | 1.5625 |
| | 100.00 | % | | $ | 0.0694 |
| | 100.00 | % |
The dividends that were taxable to the adoption of ASU No. 2014-08. Discontinued operationsour stockholders in 2019 were 85.16% ordinary income and 14.84% capital gain distributions. The 2019 capital gain distribution was 100% related to unrecaptured Section 1250 gain. The 2019 ordinary income dividends are eligible for the year ended December 31, 2014 include the following hotel properties20% deduction provided by Section 199A for qualified REIT dividends.
The dividends that have been sold:
•AmericInn Hotel & Suiteswere taxable to our stockholders in 2018 were 100% ordinary income and Aspen Hotel & Suites in Fort Smith, AR - sold on January 17, 2014; and
•Hampton Inn in Fort Smith, AR — sold on September 9, 2014.
Condensed resultswere eligible for the hotel properties included20% deduction provided by Section 199A for qualified REIT dividends.
The dividends that were taxable to our stockholders in discontinued operations for the year ended December 31, 2014 is as follows (in thousands):2017 were 100% ordinary income.
|
| | | | |
| | 2014 |
Revenues | | $ | 3,128 |
|
Hotel operating expenses | | (2,304 | ) |
Depreciation and amortization | | (13 | ) |
Loss on impairment of assets | | (400 | ) |
Operating income | | 411 |
|
Gain on disposal of assets | | 55 |
|
Income before taxes | | 466 |
|
Income tax benefit | | 26 |
|
Income from discontinued operations | | $ | 492 |
|
Income from discontinued operations attributable to non-controlling interest | | $ | 6 |
|
Income from discontinued operations attributable to common stockholders | | $ | 486 |
|
NOTE 15—EARNINGS PER SHARE
We apply the two-class method of computing earnings per share, which requires the calculation of separate earnings per share amounts for our non-vested time-based restricted stock awards with non-forfeitable dividends and for our common stock. Our non-vested time-based restricted stock awards with non-forfeitable rights to dividends are considered securities which participate in undistributed earnings with common stock. Under the two-class computation method, net losses are not allocated to participating securities unless the holder of the security has a contractual obligation to share in the losses. Our non-vested time-based restricted stock awards with non-forfeitable dividends do not have such an obligation so they are not allocated losses.
At December 31, 2014, we had 846,000 stock options outstanding which were not included in the computation of diluted earnings per share, as the effect would have been anti-dilutive.
All outstanding stock options were included in the computation of diluted earnings per share for the years ended December 31, 20162019, 2018 and 20152017 due to their dilutive effect. The Common Units held by the non-controlling interest holders have been excluded from the denominator of the diluted earnings per share as there would be no effect on the amounts since the limited partners' share of income would also be added to derive net income attributable to common stockholders. For the years ended December 31, 2016, 2015,2019, 2018, and 2014,2017, we had unvested performance-based restricted stock awards of 409,068755,991 shares, 194,463453,664 shares and 256,373464,924 shares, respectively, which were excluded from the denominator of the diluted earnings per share as the awards had not achieved the requisite performance conditions for vesting at each period end.
Below is a summary of the components used to calculate basic and diluted earnings per share (in thousands, except per share amounts):
|
| | | | | | | | | | | | |
| | 2019 | | 2018 | | 2017 |
Numerator: | | |
| | |
| | |
|
Net income | | $ | 82,348 |
| | $ | 91,126 |
| | $ | 99,521 |
|
Less: Preferred dividends | | (14,838 | ) | | (16,671 | ) | | (17,408 | ) |
Premium on redemption of preferred stock | | — |
| | (3,277 | ) | | (2,572 | ) |
Allocation to participating securities | | (309 | ) | | (271 | ) | | (307 | ) |
Attributable to non-controlling interest in Operating Partnership | | (157 | ) | | (205 | ) | | (307 | ) |
Attributable to non-controlling interest in joint venture | | 419 |
| | — |
| | — |
|
Net income attributable to common stockholders, net of amount allocated to participating securities | | $ | 67,463 |
| | $ | 70,702 |
| | $ | 78,927 |
|
Denominator: | | |
| | |
| | |
|
Weighted average common shares outstanding - basic | | 103,887 |
| | 103,623 |
| | 99,406 |
|
Dilutive effect of equity-based compensation awards | | 52 |
| | 219 |
| | 374 |
|
Weighted average common shares outstanding - diluted | | 103,939 |
| | 103,842 |
| | 99,780 |
|
Earnings per share: | | |
| | |
| | |
|
Basic and diluted | | $ | 0.65 |
| | $ | 0.68 |
| | $ | 0.79 |
|
|
| | | | | | | | | | | | |
| | 2016 | | 2015 | | 2014 |
Numerator: | | |
| | |
| | |
|
Income from continuing operations | | $ | 108,261 |
| | $ | 125,256 |
| | $ | 20,431 |
|
Less: Preferred dividends | | (18,232 | ) | | (16,588 | ) | | (16,588 | ) |
Premium on redemption of Series A Preferred Stock | | (2,125 | ) | | — |
| | — |
|
Allocation to participating securities | | (342 | ) | | (118 | ) | | (94 | ) |
Attributable to non-controlling interest | | (456 | ) | | (819 | ) | | (46 | ) |
Income from continuing operations attributable to common stockholders | | 87,106 |
| | 107,731 |
| | 3,703 |
|
Income from discontinued operations attributable to common stockholders | | — |
| | — |
| | 486 |
|
Net income attributable to common stockholders, net of amount allocated to participating securities | | $ | 87,106 |
| | $ | 107,731 |
| | $ | 4,189 |
|
| | | | | | |
Denominator: | | |
| | |
| | |
|
Weighted average common shares outstanding - basic | | 86,874 |
| | 85,920 |
| | 85,242 |
|
Dilutive effect of equity-based compensation awards | | 469 |
| | 1,224 |
| | 324 |
|
Weighted average common shares outstanding - diluted | | 87,343 |
| | 87,144 |
| | 85,566 |
|
| | | | | | |
Earnings per common share - basic: | | |
| | |
| | |
|
Net income from continuing operations | | $ | 1.00 |
| | $ | 1.25 |
| | $ | 0.04 |
|
Net income from discontinued operations | | — |
| | — |
| | 0.01 |
|
Net income per common share | | $ | 1.00 |
| | $ | 1.25 |
| | $ | 0.05 |
|
Earnings per common share - diluted: | | |
| | |
| | |
|
Net income from continuing operations | | $ | 1.00 |
| | $ | 1.24 |
| | $ | 0.04 |
|
Net income from discontinued operations | | — |
| | — |
| | 0.01 |
|
Net income per common share | | $ | 1.00 |
| | $ | 1.24 |
| | $ | 0.05 |
|
NOTE 16 — SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
Selected quarterly financial data for the years ended December 31, 20162019 and 20152018 are as follows (in thousands, except per share amounts):
| | | | 2016 | | 2019 |
| | First Quarter | | Second Quarter | | Third Quarter | | Fourth Quarter | | First Quarter | | Second Quarter | | Third Quarter | | Fourth Quarter |
Total revenues | | $ | 118,082 |
| | $ | 127,195 |
| | $ | 118,336 |
| | $ | 110,322 |
| | $ | 138,952 |
| | $ | 142,930 |
| | $ | 133,685 |
| | $ | 133,781 |
|
Income from continuing operations | | $ | 48,734 |
| | $ | 21,955 |
| | $ | 27,198 |
| | $ | 10,374 |
| |
Net income | | $ | 48,734 |
| | $ | 21,955 |
| | $ | 27,198 |
| | $ | 10,374 |
| | $ | 12,900 |
| | $ | 49,069 |
| | $ | 11,626 |
| | $ | 8,753 |
|
Net income attributable to Summit Hotel Properties, Inc. | | $ | 48,485 |
| | $ | 21,865 |
| | $ | 27,083 |
| | $ | 10,372 |
| | $ | 12,877 |
| | $ | 48,957 |
| | $ | 11,534 |
| | $ | 9,242 |
|
| | |
| | |
| | |
| | |
| |
Earnings per share - Basic and diluted | | $ | 0.51 |
| | $ | 0.20 |
| | $ | 0.25 |
| | $ | 0.04 |
| |
Earnings per share: | | | |
| | |
| | |
| | |
|
Basic and diluted | | | $ | 0.09 |
| | $ | 0.43 |
| | $ | 0.07 |
| | $ | 0.05 |
|
|
| | | | | | | | | | | | | | | | |
| | 2018 |
| | First Quarter | | Second Quarter | | Third Quarter | | Fourth Quarter |
Total revenues | | $ | 140,199 |
| | $ | 152,222 |
| | $ | 142,340 |
| | $ | 132,509 |
|
Net income | | $ | 9,691 |
| | $ | 37,677 |
| | $ | 38,001 |
| | $ | 5,757 |
|
Net income attributable to Summit Hotel Properties, Inc. | | $ | 9,688 |
| | $ | 37,576 |
| | $ | 37,901 |
| | $ | 5,756 |
|
Earnings per share: | | |
| | |
| | |
| | |
|
Basic | | $ | 0.01 |
| | $ | 0.33 |
| | $ | 0.33 |
| | $ | 0.02 |
|
Diluted | | $ | 0.01 |
| | $ | 0.32 |
| | $ | 0.33 |
| | $ | 0.02 |
|
|
| | | | | | | | | | | | | | | | |
| | 2015 |
| | First Quarter | | Second Quarter | | Third Quarter | | Fourth Quarter |
Total revenues | | $ | 107,648 |
| | $ | 120,677 |
| | $ | 125,091 |
| | $ | 110,039 |
|
Income from continuing operations | | $ | 10,591 |
| | $ | 16,301 |
| | $ | 13,606 |
| | $ | 84,758 |
|
Net income | | $ | 10,591 |
| | $ | 16,301 |
| | $ | 13,606 |
| | $ | 84,758 |
|
Net income attributable to Summit Hotel Properties, Inc. | | $ | 10,534 |
| | $ | 16,204 |
| | $ | 13,540 |
| | $ | 84,159 |
|
Earnings per share: | | |
| | |
| | |
| | |
|
Basic | | $ | 0.07 |
| | $ | 0.14 |
| | $ | 0.11 |
| | $ | 0.93 |
|
Diluted | | $ | 0.07 |
| | $ | 0.14 |
| | $ | 0.11 |
| | $ | 0.92 |
|
NOTE 17 — SUBSEQUENT EVENTS
Equity Transactions
On January 1, 2017, we had 39,959 of our outstanding performance-based restricted stock awards granted pursuant to our Equity Plan vest.
On January 24, 2017,31, 2020, our Board of Directors declared cash dividends of $0.1625$0.18 per share of common stock, $0.4921875 per share of 7.875% Series B Cumulative Redeemable Preferred Stock, $0.4453125 per share of 7.125% Series C Cumulative Redeemable Preferred Stock, and $0.403125 per share of 6.45% Series D Cumulative Redeemable Preferred Stock, and $0.390625 per share of 6.25% Series E Cumulative Redeemable Preferred Stock. These dividends are payable February 28, 20172020 to stockholders of record on February 14, 2017.2020.
SUMMIT HOTEL PROPERTIES, INC
Schedule III - Real Estate and Accumulated Depreciation
December 31, 2016
(in thousands)
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | Initial Cost | | Cost Capitalized Subsequent to Acquisition | | Total Cost | | | | | | |
Location | | Franchise | | Year Acquired/ Constructed | | Land | | Building & Improvements | | Land, Building & Improvements | | Land | | Building & Improvements | | Total | | Accumulated Depreciation | | Total Cost Net of Accumulated Depreciation | | Mortgage Debt | | |
Arlington, TX | | Hyatt Place | | 2012 | | $ | 650 |
| | $ | 8,405 |
| | $ | 1,541 |
| | $ | 650 |
| | $ | 9,946 |
| | $ | 10,596 |
| | $ | (2,721 | ) | | $ | 7,875 |
| | $ | 27,473 |
| | (1) |
Arlington, TX | | Courtyard by Marriott | | 2012 | | 1,497 |
| | 13,503 |
| | 2,070 |
| | 1,497 |
| | 15,573 |
| | 17,070 |
| | (2,368 | ) | | 14,702 |
| | | | |
Arlington, TX | | Residence Inn by Marriott | | 2012 | | 1,646 |
| | 13,854 |
| | 1,586 |
| | 1,646 |
| | 15,440 |
| | 17,086 |
| | (1,866 | ) | | 15,220 |
| | | | |
Asheville, NC | | Hotel Indigo | | 2015 | | 2,100 |
| | 32,783 |
| | 1,972 |
| | 2,100 |
| | 34,755 |
| | 36,855 |
| | (1,924 | ) | | 34,931 |
| | | | |
Atlanta, GA | | Hyatt Place | | 2006 | | 1,154 |
| | 9,605 |
| | 2,600 |
| | 1,154 |
| | 12,205 |
| | 13,359 |
| | (3,749 | ) | | 9,610 |
| | 6,588 |
| | |
Atlanta, GA | | Courtyard by Marriott | | 2012 | | 2,050 |
| | 26,850 |
| | 1,119 |
| | 2,050 |
| | 27,969 |
| | 30,019 |
| | (4,934 | ) | | 25,085 |
| | | | |
Atlanta, GA | | Courtyard by Marriott | | 2015 | | 4,046 |
| | 33,795 |
| | 356 |
| | 4,046 |
| | 34,151 |
| | 38,197 |
| | (1,799 | ) | | 36,398 |
| | | | |
Atlanta, GA | | Residence Inn by Marriott | | 2016 | | 3,381 |
| | 34,619 |
| | 201 |
| | 3,381 |
| | 34,820 |
| | 38,201 |
| | (1,115 | ) | | 37,086 |
| | | | |
Austin, TX | | Hampton Inn and Suites | | 2014 | | — |
| (2) | 53,760 |
| | 2,634 |
| | — |
| | 56,394 |
| | 56,394 |
| | (4,250 | ) | | 52,144 |
| |
|
| | |
Baltimore, MD | | Hyatt Place | | 2012 | | 2,100 |
| | 8,135 |
| | 1,664 |
| | 2,100 |
| | 9,799 |
| | 11,899 |
| | (2,281 | ) | | 9,618 |
| | 21,291 |
| | (1) |
Baltimore, MD | | Residence Inn by Marriott | | 2015 | | — |
| (2) | 34,350 |
| | 1,086 |
| | — |
| | 35,436 |
| | 35,436 |
| | (1,863 | ) | | 33,573 |
| | | | |
Birmingham, AL | | Hilton Garden Inn | | 2012 | | 1,400 |
| | 7,225 |
| | 1,906 |
| | 1,400 |
| | 9,131 |
| | 10,531 |
| | (2,485 | ) | | 8,046 |
| | 5,046 |
| | |
Birmingham, AL | | Hilton Garden Inn | | 2012 | | 1,400 |
| | 10,100 |
| | 1,921 |
| | 1,400 |
| | 12,021 |
| | 13,421 |
| | (2,404 | ) | | 11,017 |
| | 5,910 |
| | |
Bloomington, MN | | SpringHill Suites by Marriott | | 2007 | | 1,658 |
| | 14,071 |
| | 690 |
| | 1,658 |
| | 14,761 |
| | 16,419 |
| | (4,118 | ) | | 12,301 |
| |
|
| | |
Bloomington, MN | | Hampton Inn and Suites | | 2007 | | 1,658 |
| | 14,596 |
| | 627 |
| | 1,658 |
| | 15,223 |
| | 16,881 |
| | (4,409 | ) | | 12,472 |
| | | | |
Boston, MA | | Hampton Inn | | 2015 | | 2,000 |
| | 22,000 |
| | 1,922 |
| | 2,000 |
| | 23,922 |
| | 25,922 |
| | (3,157 | ) | | 22,765 |
| | | | |
Boulder, CO | | Marriott | | 2016 | | 11,115 |
| | 48,843 |
| | 361 |
| | 11,115 |
| | 49,204 |
| | 60,319 |
| | (800 | ) | | 59,519 |
| | | | |
Branchburg, NJ | | Residence Inn by Marriott | | 2015 | | 2,374 |
| | 23,326 |
| | 1,085 |
| | 2,374 |
| | 24,411 |
| | 26,785 |
| | (1,316 | ) | | 25,469 |
| | | | |
Charleston, WV | | Country Inn and Suites | | 2004 | | 1,042 |
| | 3,489 |
| | 1,686 |
| | 1,042 |
| | 5,175 |
| | 6,217 |
| | (2,140 | ) | | 4,077 |
| | | | |
Charleston, WV | | Holiday Inn Express | | 2004 | | 907 |
| | 2,903 |
| | 2,150 |
| | 907 |
| | 5,053 |
| | 5,960 |
| | (2,351 | ) | | 3,609 |
| | | | |
Chicago, IL | | Hyatt Place | | 2016 | | 5,395 |
| | 68,355 |
| | — |
| | 5,395 |
| | 68,355 |
| | 73,750 |
| | (511 | ) | | 73,239 |
| | | | |
Denver, CO | | Hyatt Place | | 2012 | | 1,300 |
| | 9,230 |
| | 2,474 |
| | 1,300 |
| | 11,704 |
| | 13,004 |
| | (3,008 | ) | | 9,996 |
| |
|
| | (1) |
Denver, CO | | Hyatt Place | | 2012 | | 2,000 |
| | 9,515 |
| | 2,435 |
| | 2,000 |
| | 11,950 |
| | 13,950 |
| | (2,903 | ) | | 11,047 |
| | | | (1) |
Denver, CO | | Hyatt House | | 2012 | | 2,700 |
| | 10,780 |
| | 5,487 |
| | 2,700 |
| | 16,267 |
| | 18,967 |
| | (3,419 | ) | | 15,548 |
| | | | (1) |
Duluth, GA | | Holiday Inn | | 2011 | | — |
| (2) | 7,000 |
| | 466 |
| | — |
| | 7,466 |
| | 7,466 |
| | (1,896 | ) | | 5,570 |
| | | | |
Duluth, GA | | Hilton Garden Inn | | 2011 | | 2,200 |
| | 11,150 |
| | 1,544 |
| | 2,200 |
| | 12,694 |
| | 14,894 |
| | (3,145 | ) | | 11,749 |
| |
|
| | (1) |
Eden Prairie, MN | | Hilton Garden Inn | | 2013 | | 1,800 |
| | 8,400 |
| | 2,811 |
| | 1,800 |
| | 11,211 |
| | 13,011 |
| | (2,030 | ) | | 10,981 |
| | | | |
El Paso, TX | | Courtyard by Marriott | | 2011 | | 1,640 |
| | 10,710 |
| | 368 |
| | 1,640 |
| | 11,078 |
| | 12,718 |
| | (1,920 | ) | | 10,798 |
| | | | |
Ft. Myers, FL | | Hyatt Place | | 2009 | | 1,878 |
| | 16,583 |
| | (3,917 | ) | | 1,878 |
| | 12,666 |
| | 14,544 |
| | (2,425 | ) | | 12,119 |
| | | | |
Ft. Worth, TX | | Hampton Inn | | 2007 | | 1,500 |
| | 8,184 |
| | 953 |
| | 1,500 |
| | 9,137 |
| | 10,637 |
| | (2,442 | ) | | 8,195 |
| | 23,394 |
| | (1) |
Ft. Worth, TX | | Fairfield Inn and Suites by Marriott | | 2004 | | 553 |
| | 2,698 |
| | 3,177 |
| | 553 |
| | 5,875 |
| | 6,428 |
| | (2,576 | ) | | 3,852 |
| | | | |
Ft. Worth, TX | | Hilton Garden Inn | | 2012 | | 903 |
| | 6,226 |
| | 3,584 |
| | 903 |
| | 9,810 |
| | 10,713 |
| | (2,229 | ) | | 8,484 |
| | 23,889 |
| | (1) |
Garden City, NY(3) | | Hyatt Place | | 2012 | | 4,200 |
| | 26,800 |
| | 975 |
| | 4,200 |
| | 27,775 |
| | 31,975 |
| | (2,922 | ) | | 29,053 |
| | | | |
Germantown, TN | | Courtyard by Marriott | | 2005 | | 1,860 |
| | 5,448 |
| | 2,014 |
| | 1,860 |
| | 7,462 |
| | 9,322 |
| | (2,315 | ) | | 7,007 |
| | | | |
Germantown, TN | | Fairfield Inn and Suites by Marriott | | 2005 | | 767 |
| | 2,700 |
| | 2,206 |
| | 767 |
| | 4,906 |
| | 5,673 |
| | (1,175 | ) | | 4,498 |
| | | | |
Germantown, TN | | Residence Inn by Marriott | | 2005 | | 1,083 |
| | 5,200 |
| | 2,281 |
| | 1,083 |
| | 7,481 |
| | 8,564 |
| | (1,981 | ) | | 6,583 |
| | | | |
SUMMIT HOTEL PROPERTIES, INC
Schedule III - Real Estate and Accumulated Depreciation
December 31, 20162019
(in thousands)
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | Initial Cost | | Cost Capitalized Subsequent to Acquisition | | Total Cost | | | | | | |
Location | | Franchise | | Year Acquired/ Constructed | | Land | | Building & Improvements | | Land, Building & Improvements | | Land | | Building & Improvements | | Total | | Accumulated Depreciation | | Total Cost Net of Accumulated Depreciation | | Mortgage Debt | | |
Glendale, CO | | Staybridge Suites | | 2011 | | 2,100 |
| | 7,900 |
| | 2,251 |
| | 2,100 |
| | 10,151 |
| | 12,251 |
| | (2,541 | ) | | 9,710 |
| | | | |
Goleta, CA | | Hampton Inn | | 2014 | | 4,100 |
| | 23,800 |
| | 2,391 |
| | 4,100 |
| | 26,191 |
| | 30,291 |
| | (2,591 | ) | | 27,700 |
| | 11,303 |
| | |
Greenville, SC | | Hilton Garden Inn | | 2013 | | 1,200 |
| | 14,050 |
| | 516 |
| | 1,200 |
| | 14,566 |
| | 15,766 |
| | (2,079 | ) | | 13,687 |
| | | | (1) |
Hoffman Estates, IL | | Hyatt Place | | 2013 | | 1,900 |
| | 7,330 |
| | 1,587 |
| | 1,900 |
| | 8,917 |
| | 10,817 |
| | (2,162 | ) | | 8,655 |
| | 20,626 |
| | (1) |
Houston, TX | | Hilton Garden Inn | | 2014 | | — |
| (2) | 38,492 |
| | 3,346 |
| | — |
| | 41,838 |
| | 41,838 |
| | (5,278 | ) | | 36,560 |
| | | | |
Houston, TX | | Hilton Garden Inn | | 2014 | | 2,800 |
| | 33,200 |
| | 577 |
| | 2,800 |
| | 33,777 |
| | 36,577 |
| | (2,343 | ) | | 34,234 |
| | 16,970 |
| | |
Indianapolis, IN | | SpringHill Suites by Marriott | | 2013 | | 4,012 |
| | 26,193 |
| | 1,717 |
| | 4,012 |
| | 27,910 |
| | 31,922 |
| | (3,500 | ) | | 28,422 |
| | 41,328 |
| | (1) |
Indianapolis, IN | | Courtyard by Marriott | | 2013 | | 7,788 |
| | 50,846 |
| | 3,538 |
| | 7,788 |
| | 54,384 |
| | 62,172 |
| | (6,838 | ) | | 55,334 |
| | | | (1) |
Jackson, MS | | Courtyard by Marriott | | 2005 | | 1,301 |
| | 7,322 |
| | 2,332 |
| | 1,301 |
| | 9,654 |
| | 10,955 |
| | (3,572 | ) | | 7,383 |
| | | | |
Jackson, MS | | Staybridge Suites | | 2007 | | 698 |
| | 8,454 |
| | 1,766 |
| | 698 |
| | 10,220 |
| | 10,918 |
| | (2,428 | ) | | 8,490 |
| | | | |
Lombard, IL | | Hyatt Place | | 2012 | | 1,550 |
| | 15,475 |
| | 1,876 |
| | 1,550 |
| | 17,351 |
| | 18,901 |
| | (3,831 | ) | | 15,070 |
| | | | (1) |
Louisville, KY | | Fairfield Inn and Suites by Marriott | | 2013 | | 3,120 |
| | 21,903 |
| | 2,328 |
| | 3,120 |
| | 24,231 |
| | 27,351 |
| | (3,814 | ) | | 23,537 |
| | 36,741 |
| | (1) |
Louisville, KY | | SpringHill Suites by Marriott | | 2013 | | 4,880 |
| | 34,258 |
| | 3,103 |
| | 4,880 |
| | 37,361 |
| | 42,241 |
| | (6,295 | ) | | 35,946 |
| | | | (1) |
Miami, FL | | Hyatt House | | 2015 | | 4,926 |
| | 34,074 |
| | 6,013 |
| | 4,926 |
| | 40,087 |
| | 45,013 |
| | (2,819 | ) | | 42,194 |
| | | | |
Minneapolis, MN | | Hyatt Place | | 2013 | | — |
| | 32,506 |
| | 1,520 |
| | — |
| | 34,026 |
| | 34,026 |
| | (3,955 | ) | | 30,071 |
| | | | |
Minneapolis, MN | | Hampton Inn and Suites | | 2015 | | 3,500 |
| | 35,339 |
| | 96 |
| | 3,500 |
| | 35,435 |
| | 38,935 |
| | (3,063 | ) | | 35,872 |
| | | | |
Minnetonka, MN | | Holiday Inn Express and Suites | | 2013 | | 1,000 |
| | 5,900 |
| | 1,762 |
| | 1,000 |
| | 7,662 |
| | 8,662 |
| | (1,556 | ) | | 7,106 |
| |
|
| | |
Nashville, TN | | SpringHill Suites by Marriott | | 2004 | | 777 |
| | 3,576 |
| | 2,022 |
| | 777 |
| | 5,598 |
| | 6,375 |
| | (2,672 | ) | | 3,703 |
| | | | |
Nashville, TN | | Courtyard by Marriott | | 2016 | | 8,792 |
| | 62,869 |
| | (110 | ) | | 8,792 |
| | 62,759 |
| | 71,551 |
| | (2,002 | ) | | 69,549 |
| | | | |
New Orleans, LA | | Courtyard by Marriott | | 2013 | | 1,944 |
| | 23,739 |
| | 1,381 |
| | 1,944 |
| | 25,120 |
| | 27,064 |
| | (4,768 | ) | | 22,296 |
| | | | |
New Orleans, LA | | Courtyard by Marriott | | 2013 | | 1,860 |
| | 21,679 |
| | 3,489 |
| | 1,860 |
| | 25,168 |
| | 27,028 |
| | (4,367 | ) | | 22,661 |
| | | | (1) |
New Orleans, LA | | Courtyard by Marriott | | 2013 | | 2,490 |
| | 28,337 |
| | 5,883 |
| | 2,490 |
| | 34,220 |
| | 36,710 |
| | (5,759 | ) | | 30,951 |
| | | | |
New Orleans, LA | | Residence Inn by Marriott | | 2013 | | 1,790 |
| | 18,099 |
| | 5,287 |
| | 1,790 |
| | 23,386 |
| | 25,176 |
| | (3,197 | ) | | 21,979 |
| | | | (1) |
New Orleans, LA | | SpringHill Suites by Marriott | | 2013 | | 2,046 |
| | 31,049 |
| | 2,221 |
| | 2,046 |
| | 33,270 |
| | 35,316 |
| | (5,165 | ) | | 30,151 |
| | | | |
Orlando, FL | | Hyatt Place | | 2013 | | 3,100 |
| | 9,152 |
| | 2,191 |
| | 3,100 |
| | 11,343 |
| | 14,443 |
| | (3,270 | ) | | 11,173 |
| | | | (1) |
Orlando, FL | | Hyatt Place | | 2013 | | 5,516 |
| | 9,043 |
| | 2,178 |
| | 5,516 |
| | 11,221 |
| | 16,737 |
| | (3,226 | ) | | 13,511 |
| | | | (1) |
Phoenix, AZ | | Hyatt Place | | 2012 | | 582 |
| | 4,438 |
| | 709 |
| | 582 |
| | 5,147 |
| | 5,729 |
| | (1,091 | ) | | 4,638 |
| | | | |
Portland, OR | | Hyatt Place | | 2009 | | — |
| (2) | 16,713 |
| | (2,013 | ) | | — |
| | 14,700 |
| | 14,700 |
| | (2,525 | ) | | 12,175 |
| | | | |
Portland, OR | | Residence Inn by Marriott | | 2009 | | — |
| (2) | 16,409 |
| | (780 | ) | | — |
| | 15,629 |
| | 15,629 |
| | (3,300 | ) | | 12,329 |
| | 18,578 |
| | |
Provo, UT | | Hampton Inn | | 2004 | | 909 |
| | 2,862 |
| | 2,154 |
| | 909 |
| | 5,016 |
| | 5,925 |
| | (2,568 | ) | | 3,357 |
| | | | |
Ridgeland, MS | | Residence Inn by Marriott | | 2007 | | 1,050 |
| | 10,040 |
| | (387 | ) | | 1,050 |
| | 9,653 |
| | 10,703 |
| | (1,868 | ) | | 8,835 |
| | | | |
Ridgeland, MS | | Homewood Suites | | 2011 | | 1,314 |
| | 6,036 |
| | 1,786 |
| | 1,314 |
| | 7,822 |
| | 9,136 |
| | (1,630 | ) | | 7,506 |
| | | | |
Salt Lake City, UT | | Residence Inn by Marriott | | 2012 | | 2,392 |
| | 17,567 |
| | 7,152 |
| | 2,392 |
| | 24,719 |
| | 27,111 |
| | (4,892 | ) | | 22,219 |
| |
|
| | |
San Diego, CA | | Hampton Inn and Suites | | 2013 | | 2,300 |
| | 12,850 |
| | 1,878 |
| | 2,300 |
| | 14,728 |
| | 17,028 |
| | (1,667 | ) | | 15,361 |
| | | | (1) |
San Francisco, CA | | Holiday Inn Express and Suites | | 2013 | | 15,545 |
| | 44,955 |
| | 4,514 |
| | 15,545 |
| | 49,469 |
| | 65,014 |
| | (8,240 | ) | | 56,774 |
| | | | |
San Francisco, CA | | DoubleTree | | 2014 | | 3,300 |
| | 35,760 |
| | 3,926 |
| | 3,300 |
| | 39,686 |
| | 42,986 |
| | (5,342 | ) | | 37,644 |
| | | | |
San Francisco, CA | | Four Points by Sheraton | | 2014 | | 1,200 |
| | 20,050 |
| | 1,347 |
| | 1,200 |
| | 21,397 |
| | 22,597 |
| | (3,145 | ) | | 19,452 |
| | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | Initial Cost | | Cost Capitalized Subsequent to Acquisition | | Total Cost | | | | | | |
Location | | Franchise | | Year Acquired/ Constructed | | Land | | Building & Improvements | | Land, Building & Improvements | | Land | | Building & Improvements | | Total | | Accumulated Depreciation | | Total Cost Net of Accumulated Depreciation | | Mortgage Debt | | |
Aliso Viejo, CA | | Homewood Suites | | 2017 | | $ | 5,599 |
| | $ | 32,367 |
| | $ | 354 |
| | $ | 5,599 |
| | $ | 32,721 |
| | $ | 38,320 |
| | $ | (4,030 | ) | | $ | 34,290 |
| | $ | — |
| | |
Arlington, TX | | Courtyard | | 2012 | | 1,497 |
| | 15,573 |
| | (565 | ) | | 1,497 |
| | 15,008 |
| | 16,505 |
| | (3,830 | ) | | 12,675 |
| | — |
| | |
Arlington, TX | | Residence Inn | | 2012 | | 1,646 |
| | 15,440 |
| | 16 |
| | 1,646 |
| | 15,456 |
| | 17,102 |
| | (4,071 | ) | | 13,031 |
| | — |
| | |
Asheville, NC | | Hotel Indigo | | 2015 | | 2,100 |
| | 34,755 |
| | 1,051 |
| | 2,100 |
| | 35,806 |
| | 37,906 |
| | (6,687 | ) | | 31,219 |
| | — |
| | |
Atlanta, GA | | Courtyard | | 2012 | | 2,050 |
| | 27,969 |
| | 834 |
| | 2,050 |
| | 28,803 |
| | 30,853 |
| | (5,702 | ) | | 25,151 |
| | — |
| | |
Atlanta, GA | | Residence Inn | | 2016 | | 3,381 |
| | 34,820 |
| | 790 |
| | 3,381 |
| | 35,610 |
| | 38,991 |
| | (4,801 | ) | | 34,190 |
| | — |
| | |
Atlanta, GA | | AC Hotel | | 2017 | | 5,670 |
| | 51,922 |
| | 567 |
| | 5,670 |
| | 52,489 |
| | 58,159 |
| | (5,378 | ) | | 52,781 |
| | — |
| | |
Austin, TX | | Hampton Inn & Suites | | 2014 | | — |
| (2) | 56,394 |
| | 4,846 |
| | — |
| | 61,240 |
| | 61,240 |
| | (9,519 | ) | | 51,721 |
| | — |
| | |
Austin, TX | | Corporate Office | | 2017 | | — |
| | 6,048 |
| | 1,410 |
| | — |
| | 7,458 |
| | 7,458 |
| | (2,207 | ) | | 5,251 |
| | — |
| | |
Baltimore, MD | | Hampton Inn & Suites | | 2017 | | 2,205 |
| | 16,013 |
| | 2,342 |
| | 2,205 |
| | 18,355 |
| | 20,560 |
| | (1,373 | ) | | 19,187 |
| | — |
| | |
Baltimore, MD | | Residence Inn | | 2017 | | 1,986 |
| | 37,016 |
| | 6,198 |
| | 1,986 |
| | 43,214 |
| | 45,200 |
| | (4,372 | ) | | 40,828 |
| | — |
| | |
Boulder, CO | | Marriott | | 2016 | | 11,115 |
| | 49,204 |
| | 8,946 |
| | 11,115 |
| | 58,150 |
| | 69,265 |
| | (7,000 | ) | | 62,265 |
| | — |
| | |
Branchburg, NJ | | Residence Inn | | 2015 | | 2,374 |
| | 24,411 |
| | 285 |
| | 2,374 |
| | 24,696 |
| | 27,070 |
| | (4,754 | ) | | 22,316 |
| | — |
| | |
Brisbane, CA | | DoubleTree | | 2014 | | 3,300 |
| | 39,686 |
| | 1,137 |
| | 3,300 |
| | 40,823 |
| | 44,123 |
| | (11,496 | ) | | 32,627 |
| | — |
| | |
Camarillo, CA | | Hampton Inn & Suites | | 2013 | | 2,200 |
| | 17,366 |
| | 384 |
| | 2,200 |
| | 17,750 |
| | 19,950 |
| | (5,749 | ) | | 14,201 |
| | — |
| | |
Charlotte, NC | | Courtyard | | 2017 | | — |
| | 41,094 |
| | 1,468 |
| | — |
| | 42,562 |
| | 42,562 |
| | (4,581 | ) | | 37,981 |
| | — |
| | |
Chicago, IL | | Hyatt Place | | 2016 | | 5,395 |
| | 68,355 |
| | 192 |
| | 5,395 |
| | 68,547 |
| | 73,942 |
| | (9,533 | ) | | 64,409 |
| | — |
| | |
Cleveland, OH | | Residence Inn | | 2017 | | 10,075 |
| | 33,340 |
| | 1,699 |
| | 10,075 |
| | 35,039 |
| | 45,114 |
| | (3,925 | ) | | 41,189 |
| | — |
| | |
Decatur, GA | | Courtyard | | 2015 | | 4,046 |
| | 34,151 |
| | 3,816 |
| | 4,046 |
| | 37,967 |
| | 42,013 |
| | (5,818 | ) | | 36,195 |
| | — |
| | |
Eden Prairie, MN | | Hilton Garden Inn | | 2013 | | 1,800 |
| | 11,211 |
| | 146 |
| | 1,800 |
| | 11,357 |
| | 13,157 |
| | (3,981 | ) | | 9,176 |
| | — |
| | |
Englewood, CO | | Hyatt Place | | 2012 | | 2,000 |
| | 11,950 |
| | (441 | ) | | 2,000 |
| | 11,509 |
| | 13,509 |
| | (4,054 | ) | | 9,455 |
| | 19,510 |
| | (1) |
Englewood, CO | | Hyatt House | | 2012 | | 2,700 |
| | 16,267 |
| | 224 |
| | 2,700 |
| | 16,491 |
| | 19,191 |
| | (6,553 | ) | | 12,638 |
| | 19,992 |
| | (1) |
Fort Lauderdale, FL | | Courtyard | | 2017 | | 37,950 |
| | 47,002 |
| | 1,421 |
| | 37,950 |
| | 48,423 |
| | 86,373 |
| | (5,861 | ) | | 80,512 |
| | — |
| | |
Fort Worth, TX | | Courtyard | | 2017 | | 1,920 |
| | 38,070 |
| | 9,029 |
| | 1,920 |
| | 47,099 |
| | 49,019 |
| | (3,748 | ) | | 45,271 |
| | — |
| | |
Garden City, NY | | Hyatt Place | | 2012 | | 4,200 |
| | 27,775 |
| | 272 |
| | 4,283 |
| | 27,964 |
| | 32,247 |
| | (5,787 | ) | | 26,460 |
| | — |
| | |
Glendale, CO | | Staybridge Suites | | 2011 | | 2,100 |
| | 10,151 |
| | 333 |
| | 2,100 |
| | 10,484 |
| | 12,584 |
| | (3,679 | ) | | 8,905 |
| | — |
| | |
Greenville, SC | | Hilton Garden Inn | | 2013 | | 1,200 |
| | 14,566 |
| | 3,009 |
| | 1,200 |
| | 17,575 |
| | 18,775 |
| | (3,772 | ) | | 15,003 |
| | — |
| | |
Hillsboro, OR | | Residence Inn | | 2019 | | 4,943 |
| | 42,541 |
| | 9 |
| | 4,943 |
| | 42,550 |
| | 47,493 |
| | (461 | ) | | 47,032 |
| | — |
| | |
Hoffman Estates, IL | | Hyatt Place | | 2013 | | 1,900 |
| | 8,917 |
| | (1,861 | ) | | 1,900 |
| | 7,056 |
| | 8,956 |
| | (3,186 | ) | | 5,770 |
| | 19,323 |
| | (1) |
SUMMIT HOTEL PROPERTIES, INC
Schedule III - Real Estate and Accumulated Depreciation
December 31, 20162019
(in thousands)
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | Initial Cost | | Cost Capitalized Subsequent to Acquisition | | Total Cost | | | | | | |
Location | | Franchise | | Year Acquired/ Constructed | | Land | | Building & Improvements | | Land, Building & Improvements | | Land | | Building & Improvements | | Total | | Accumulated Depreciation | | Total Cost Net of Accumulated Depreciation | | Mortgage Debt | | |
Sandy, UT | | Holiday Inn Express and Suites | | 2004 | | 720 |
| | 1,768 |
| | 1,437 |
| | 720 |
| | 3,205 |
| | 3,925 |
| | (1,467 | ) | | 2,458 |
| | 37,042 |
| | |
Scottsdale, AZ | | Hyatt Place | | 2012 | | 1,500 |
| | 9,030 |
| | 1,141 |
| | 1,500 |
| | 10,171 |
| | 11,671 |
| | (2,458 | ) | | 9,213 |
| | | | (1) |
Scottsdale, AZ | | Courtyard by Marriott | | 2004 | | 3,225 |
| | 10,152 |
| | 2,419 |
| | 3,225 |
| | 12,571 |
| | 15,796 |
| | (5,352 | ) | | 10,444 |
| | 8,912 |
| | |
Scottsdale, AZ | | SpringHill Suites by Marriott | | 2004 | | 2,195 |
| | 7,120 |
| | 2,376 |
| | 2,195 |
| | 9,496 |
| | 11,691 |
| | (4,464 | ) | | 7,227 |
| | 4,798 |
| | |
Smyrna, TN | | Hampton Inn and Suites | | 2012 | | 1,145 |
| | 6,855 |
| | 2,430 |
| | 1,145 |
| | 9,285 |
| | 10,430 |
| | (1,873 | ) | | 8,557 |
| | | | |
Smyrna, TN | | Hilton Garden Inn | | 2012 | | 1,188 |
| | 10,312 |
| | 2,099 |
| | 1,188 |
| | 12,411 |
| | 13,599 |
| | (2,263 | ) | | 11,336 |
| | 7,661 |
| | |
Ventura, CA | | Hampton Inn and Suites | | 2013 | | 2,200 |
| | 13,550 |
| | 3,816 |
| | 2,200 |
| | 17,366 |
| | 19,566 |
| | (2,334 | ) | | 17,232 |
| |
|
| | (1) |
Yrbor City, FL | | Hampton Inn and Suites | | 2012 | | 3,600 |
| | 17,244 |
| | 3,122 |
| | 3,600 |
| | 20,366 |
| | 23,966 |
| | (2,771 | ) | | 21,195 |
| |
|
| | (1) |
Austin, TX | | Corporate Office | | 2012 | | — |
| | 210 |
| | 3,482 |
| | — |
| | 3,692 |
| | 3,692 |
| | (472 | ) | | 3,220 |
| |
|
| | |
Land Parcels | | | | | | 8,105 |
| | — |
| | (2,545 | ) | | 5,560 |
| | — |
| | 5,560 |
| | — |
| | 5,560 |
| |
|
| | |
| | | | | | $ | 197,617 |
| | $ | 1,493,697 |
| | $ | 157,359 |
| | $ | 195,072 |
| | $ | 1,653,601 |
| | $ | 1,848,673 |
| | $ | (241,760 | ) | | $ | 1,606,913 |
| | $ | 317,550 |
| | |
(1) Properties cross-collateralize the related loan, refer to "Note 5 - Debt" in the Consolidated Financial Statements.(2) Properties subject to ground lease, refer to "Note 9 - Commitments and Contingencies" in the Consolidated Financial Statements. |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | Initial Cost | | Cost Capitalized Subsequent to Acquisition | | Total Cost | | | | | | |
Location | | Franchise | | Year Acquired/ Constructed | | Land | | Building & Improvements | | Land, Building & Improvements | | Land | | Building & Improvements | | Total | | Accumulated Depreciation | | Total Cost Net of Accumulated Depreciation | | Mortgage Debt | | |
Houston, TX | | Hilton Garden Inn | | 2014 | | $ | — |
| (2) | $ | 41,838 |
| | $ | 5,951 |
| | $ | — |
| | $ | 47,789 |
| | $ | 47,789 |
| | $ | (11,015 | ) | | $ | 36,774 |
| | $ | — |
| | |
Houston, TX | | Hilton Garden Inn | | 2014 | | 2,800 |
| | 33,777 |
| | 1,373 |
| | 2,800 |
| | 35,150 |
| | 37,950 |
| | (5,950 | ) | | 32,000 |
| | — |
| | |
Hunt Valley, MD | | Residence Inn | | 2015 | | — |
| | 35,436 |
| | 1,326 |
| | 1,076 |
| | 35,686 |
| | 36,762 |
| | (6,432 | ) | | 30,330 |
| | — |
| | |
Indianapolis, IN | | SpringHill Suites | | 2013 | | 4,012 |
| | 27,910 |
| | (646 | ) | | 4,012 |
| | 27,264 |
| | 31,276 |
| | (5,588 | ) | | 25,688 |
| | — |
| | |
Indianapolis, IN | | Courtyard | | 2013 | | 7,788 |
| | 54,384 |
| | (2,077 | ) | | 7,788 |
| | 52,307 |
| | 60,095 |
| | (10,470 | ) | | 49,625 |
| | — |
| | |
Kansas City, MO | | Courtyard | | 2017 | | 3,955 |
| | 20,608 |
| | 1,769 |
| | 3,955 |
| | 22,377 |
| | 26,332 |
| | (2,702 | ) | | 23,630 |
| | — |
| | |
Lombard, IL | | Hyatt Place | | 2012 | | 1,550 |
| | 17,351 |
| | (445 | ) | | 1,550 |
| | 16,906 |
| | 18,456 |
| | (5,597 | ) | | 12,859 |
| | — |
| | (1) |
Lone Tree, CO | | Hyatt Place | | 2012 | | 1,300 |
| | 11,704 |
| | (203 | ) | | 1,314 |
| | 11,487 |
| | 12,801 |
| | (4,302 | ) | | 8,499 |
| | — |
| | (1) |
Louisville, KY | | Fairfield Inn & Suites | | 2013 | | 3,120 |
| | 24,231 |
| | (531 | ) | | 3,120 |
| | 23,700 |
| | 26,820 |
| | (5,901 | ) | | 20,919 |
| | 34,695 |
| | (1) |
Louisville, KY | | SpringHill Suites | | 2013 | | 4,880 |
| | 37,361 |
| | (719 | ) | | 4,880 |
| | 36,642 |
| | 41,522 |
| | (9,181 | ) | | 32,341 |
| | — |
| | (1) |
Mesa, AZ | | Hyatt Place | | 2017 | | 2,400 |
| | 19,848 |
| | 820 |
| | 2,400 |
| | 20,668 |
| | 23,068 |
| | (3,648 | ) | | 19,420 |
| | 47,226 |
| | (1) |
Metairie, LA | | Courtyard | | 2013 | | 1,860 |
| | 25,168 |
| | 349 |
| | 1,860 |
| | 25,517 |
| | 27,377 |
| | (7,505 | ) | | 19,872 |
| | — |
| | |
Metairie, LA | | Residence Inn | | 2013 | | 1,791 |
| | 23,386 |
| | 338 |
| | 1,791 |
| | 23,724 |
| | 25,515 |
| | (7,901 | ) | | 17,614 |
| | — |
| | |
Miami, FL | | Hyatt House | | 2015 | | 4,926 |
| | 40,087 |
| | 1,385 |
| | 4,926 |
| | 41,472 |
| | 46,398 |
| | (8,386 | ) | | 38,012 |
| | — |
| | |
Milpitas, CA | | Hilton Garden Inn | | 2019 | | 7,921 |
| | 46,141 |
| | 4 |
| | 7,921 |
| | 46,145 |
| | 54,066 |
| | (588 | ) | | 53,478 |
| | — |
| | |
Minneapolis, MN | | Hyatt Place | | 2013 | | — |
| | 34,026 |
| | 1,424 |
| | — |
| | 35,450 |
| | 35,450 |
| | (7,901 | ) | | 27,549 |
| | — |
| | |
Minneapolis, MN | | Hampton Inn & Suites | | 2015 | | 3,502 |
| | 35,433 |
| | 165 |
| | 3,502 |
| | 35,598 |
| | 39,100 |
| | (7,669 | ) | | 31,431 |
| | — |
| | (1) |
Minnetonka, MN | | Holiday Inn Express & Suites | | 2013 | | 1,000 |
| | 7,662 |
| | 212 |
| | 1,000 |
| | 7,874 |
| | 8,874 |
| | (2,723 | ) | | 6,151 |
| | — |
| | |
Nashville, TN | | SpringHill Suites | | 2004 | | 777 |
| | 5,598 |
| | 299 |
| | 777 |
| | 5,897 |
| | 6,674 |
| | (3,473 | ) | | 3,201 |
| | — |
| | |
Nashville, TN | | Courtyard | | 2016 | | 8,792 |
| | 62,759 |
| | 7,852 |
| | 8,792 |
| | 70,611 |
| | 79,403 |
| | (8,259 | ) | | 71,144 |
| | — |
| | |
New Haven, CT | | Courtyard | | 2017 | | 11,990 |
| | 51,497 |
| | 1,555 |
| | 11,990 |
| | 53,052 |
| | 65,042 |
| | (4,489 | ) | | 60,553 |
| | — |
| | |
New Orleans, LA | | Courtyard | | 2013 | | 1,944 |
| | 25,120 |
| | 3,356 |
| | 1,944 |
| | 28,476 |
| | 30,420 |
| | (9,012 | ) | | 21,408 |
| | — |
| | |
New Orleans, LA | | Courtyard | | 2013 | | 2,490 |
| | 34,220 |
| | 1,136 |
| | 2,490 |
| | 35,356 |
| | 37,846 |
| | (10,592 | ) | | 27,254 |
| | — |
| | |
New Orleans, LA | | SpringHill Suites | | 2013 | | 2,046 |
| | 33,270 |
| | 6,099 |
| | 2,046 |
| | 39,369 |
| | 41,415 |
| | (10,459 | ) | | 30,956 |
| | — |
| | |
Orlando, FL | | Hyatt Place | | 2013 | | 3,100 |
| | 11,343 |
| | (539 | ) | | 3,100 |
| | 10,804 |
| | 13,904 |
| | (3,861 | ) | | 10,043 |
| | — |
| | (1) |
Orlando, FL | | Hyatt Place | | 2013 | | 2,716 |
| | 11,221 |
| | 422 |
| | 2,716 |
| | 11,643 |
| | 14,359 |
| | (3,928 | ) | | 10,431 |
| | — |
| | (1) |
Orlando, FL | | Hyatt House | | 2018 | | 2,800 |
| | 34,423 |
| | 94 |
| | 2,800 |
| | 34,517 |
| | 37,317 |
| | (3,394 | ) | | 33,923 |
| | — |
| | |
Owings Mills, MD | | Hyatt Place | | 2012 | | 2,100 |
| | 9,799 |
| | (175 | ) | | 2,100 |
| | 9,624 |
| | 11,724 |
| | (3,337 | ) | | 8,387 |
| | — |
| | (1) |
Pittsburgh, PA | | Courtyard | | 2017 | | 1,652 |
| | 40,749 |
| | 5,683 |
| | 1,652 |
| | 46,432 |
| | 48,084 |
| | (3,871 | ) | | 44,213 |
| | — |
| | |
Portland, OR | | Hyatt Place | | 2009 | | — |
| (2) | 14,700 |
| | 457 |
| | — |
| | 15,157 |
| | 15,157 |
| | (4,534 | ) | | 10,623 |
| | — |
| | |
Portland, OR | | Residence Inn | | 2009 | | — |
| (2) | 15,629 |
| | 286 |
| | — |
| | 15,915 |
| | 15,915 |
| | (5,571 | ) | | 10,344 |
| | 16,980 |
| | (1) |
Portland, OR | | Residence Inn | | 2019 | | 12,813 |
| | 76,868 |
| | 38 |
| | 12,813 |
| | 76,906 |
| | 89,719 |
| | (1,204 | ) | | 88,515 |
| | — |
| | |
Poway, CA | | Hampton Inn & Suites | | 2013 | | 2,300 |
| | 14,728 |
| | 1,228 |
| | 2,300 |
| | 15,956 |
| | 18,256 |
| | (3,923 | ) | | 14,333 |
| | — |
| | |
San Francisco, CA | | Hilton Garden Inn | | 2019 | | 12,346 |
| | 45,730 |
| | 36 |
| | 12,346 |
| | 45,766 |
| | 58,112 |
| | (585 | ) | | 57,527 |
| | — |
| | |
San Francisco, CA | | Holiday Inn Express & Suites | | 2013 | | 15,545 |
| | 49,469 |
| | 3,875 |
| | 15,545 |
| | 53,344 |
| | 68,889 |
| | (13,191 | ) | | 55,698 |
| | — |
| | |
San Francisco, CA | | Four Points | | 2014 | | 1,200 |
| | 21,397 |
| | 2,874 |
| | 1,200 |
| | 24,271 |
| | 25,471 |
| | (5,094 | ) | | 20,377 |
| | — |
| | (1) |
(3) Property subject to a PILOT lease, refer to "Note 9 - Commitments and Contingencies" in the Consolidated Financial Statements.
SUMMIT HOTEL PROPERTIES, INC
Schedule III - Real Estate and Accumulated Depreciation
December 31, 20162019
(in thousands)
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | Initial Cost | | Cost Capitalized Subsequent to Acquisition | | Total Cost | | | | | | |
Location | | Franchise | | Year Acquired/ Constructed | | Land | | Building & Improvements | | Land, Building & Improvements | | Land | | Building & Improvements | | Total | | Accumulated Depreciation | | Total Cost Net of Accumulated Depreciation | | Mortgage Debt | | |
Scottsdale, AZ | | Hyatt Place | | 2012 | | $ | 1,500 |
| | $ | 10,171 |
| | $ | (431 | ) | | $ | 1,500 |
| | $ | 9,740 |
| | $ | 11,240 |
| | $ | (3,120 | ) | | $ | 8,120 |
| | $ | — |
| | (1) |
Scottsdale, AZ | | Courtyard | | 2003 | | 3,225 |
| | 12,571 |
| | 3,648 |
| | 3,225 |
| | 16,219 |
| | 19,444 |
| | (5,694 | ) | | 13,750 |
| | — |
| | |
Scottsdale, AZ | | SpringHill Suites | | 2003 | | 2,195 |
| | 9,496 |
| | 1,750 |
| | 2,195 |
| | 11,246 |
| | 13,441 |
| | (4,109 | ) | | 9,332 |
| | — |
| | |
Silverthorne, CO | | Hampton Inn & Suites | | 2019 | | 6,845 |
| | 21,125 |
| | 145 |
| | 6,845 |
| | 21,270 |
| | 28,115 |
| | (334 | ) | | 27,781 |
| | — |
| | |
Tampa, FL | | Hampton Inn & Suites | | 2012 | | 3,600 |
| | 20,366 |
| | 4,466 |
| | 3,600 |
| | 24,832 |
| | 28,432 |
| | (4,641 | ) | | 23,791 |
| | — |
| | |
Tucson, AZ | | Homewood Suites | | 2017 | | 2,570 |
| | 22,802 |
| | 996 |
| | 2,570 |
| | 23,798 |
| | 26,368 |
| | (2,981 | ) | | 23,387 |
| | — |
| | |
Waltham, MA | | Hilton Garden Inn | | 2017 | | 10,644 |
| | 21,713 |
| | 5,888 |
| | 10,644 |
| | 27,601 |
| | 38,245 |
| | (2,212 | ) | | 36,033 |
| | — |
| | |
Watertown, MA | | Residence Inn | | 2018 | | 25,083 |
| | 45,917 |
| | 223 |
| | 25,083 |
| | 46,140 |
| | 71,223 |
| | (2,528 | ) | | 68,695 |
| | — |
| | |
Land Parcels | | Land Parcels | | | | 4,645 |
| | — |
| | (2,720 | ) | | 1,925 |
| | — |
| | 1,925 |
| | — |
| | 1,925 |
| | — |
| | |
| | | | | | $ | 323,075 |
| | $ | 2,123,406 |
| | $ | 106,947 |
| | $ | 321,528 |
| | $ | 2,231,900 |
| | $ | 2,553,428 |
| | $ | (383,763 | ) | | $ | 2,169,665 |
| | $ | 157,726 |
| | |
(1) Properties cross-collateralize the related loan, refer to "Note 6 - Debt" in the Consolidated Financial Statements.(2) Properties subject to ground lease, refer to "Note 7 - Leases" in the Consolidated Financial Statements.
SUMMIT HOTEL PROPERTIES, INC
Schedule III - Real Estate and Accumulated Depreciation
December 31, 2019
(in thousands)
(a)ASSET BASIS
| | | | 2016 | | 2015 | | 2014 | | 2019 | | 2018 | | 2017 |
Reconciliation of land, buildings and improvements: | | | | | | | | | | | | |
Balance at beginning of period | | $ | 1,683,803 |
| | $ | 1,527,569 |
| | $ | 1,349,088 |
| | $ | 2,406,269 |
| | $ | 2,355,723 |
| | $ | 1,848,673 |
|
Additions to land, buildings and improvements | | 290,486 |
| | 273,902 |
| | 263,182 |
| | 336,480 |
| | 151,829 |
| | 636,389 |
|
Disposition of land, buildings and improvements | | (125,039 | ) | | (116,553 | ) | | (75,454 | ) | | (186,800 | ) | | (100,208 | ) | | (129,339 | ) |
Impairment loss | | (577 | ) | | (1,115 | ) | | (9,247 | ) | | (2,521 | ) | | (1,075 | ) | | — |
|
Balance at end of period | | $ | 1,848,673 |
| | $ | 1,683,803 |
| | $ | 1,527,569 |
| | $ | 2,553,428 |
| | $ | 2,406,269 |
| | $ | 2,355,723 |
|
(b)ACCUMULATED DEPRECIATION
| | | | 2016 | | 2015 | | 2014 | | 2019 | | 2018 | | 2017 |
Reconciliation of accumulated depreciation: | | | | | | | | | | | | |
Balance at beginning of period | | $ | 212,207 |
| | $ | 179,455 |
| | $ | 173,149 |
| | $ | 351,821 |
| | $ | 290,066 |
| | $ | 241,760 |
|
Depreciation | | 72,063 |
| | 63,675 |
| | 63,669 |
| | 99,013 |
| | 100,545 |
| | 85,524 |
|
Depreciation on assets sold or disposed | | (42,510 | ) | | (30,923 | ) | | (57,363 | ) | | (67,071 | ) | | (38,790 | ) | | (37,218 | ) |
Balance at end of period | | $ | 241,760 |
| | $ | 212,207 |
| | $ | 179,455 |
| | $ | 383,763 |
| | $ | 351,821 |
| | $ | 290,066 |
|
(c)The aggregate cost of land, buildings, furniture and equipmentreal estate for Federal income tax purposes iswas approximately $1,384.1 million.$2,358.1 million.
(d)Depreciation is computed based upon the following useful lives:
Buildings and improvements 6-40 years
Furniture and equipment 2-152-15 years
(e)We have mortgages payable on the properties as noted. Additional mortgage information can be found in "Note 56 - Debt" to the Consolidated Financial Statements.
(f)The negative balance for costs capitalized subsequent to acquisition include out-parcels sold, disposal of assets, and recorded impairment losses.
(g)The amounts presented in Schedule III exclude capitalized franchise costs that are included in Assets Held for Sale.