UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One) | |
☒ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 2016
OR
☐ | |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from _________ to __________
Commission file number: 000-55394
HOSPITALITY INVESTORS TRUST, INC.
(Exact name of registrant as specified in its charter)
Maryland | 80-0943668 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |
Park Avenue Tower, 65 East 55th Street, Suite 801, New York, NY | 10022 | |
(Address of principal executive offices) | (Zip Code) | |
(571) 529-6390 | ||
(Registrant's telephone number, including area code) | ||
Securities registered pursuant to section 12(b) of the Act: None | ||
Title of each class | Trading Symbol(s) | Name of each exchange on which |
N/A | N/A | N/A |
Securities registered pursuant to section 12(g) of the Act: Common stock, $0.01 par value per share (Title of class) | ||
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant submitted electronically and posted on its corporate Web Site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company or an emerging growth company. See definition of "large accelerated filer," "accelerated filer," and "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer | Accelerated filer | |
Non-accelerated filer | Smaller reporting company | |
Emerging growth company ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act. ☐ Yes ☐ No
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
There is no established public market for the registrant's shares of common stock.
The number of outstanding shares of the registrant's common stock on March 15, 20172020 was 38,813,40839,151,201 shares.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant'sregistrant’s definitive proxy statement to be delivered to stockholders in connection with the registrant's 2017registrant’s 2020 Annual Meeting of Stockholders are incorporated by reference into Part III of this Form 10-K. The registrant intends to file its proxy statement within 120 days after its fiscal year end.
Page | ||
This Annual Report on Form 10-K may contain registered trademarks, including Hampton Inn®, Hampton Inn and Suites®, Homewood Suites®, Embassy Suites®, DoubleTree® and Hilton Garden Inn®, which are the exclusive property of Hilton Worldwide, Inc.® and its subsidiaries and affiliates, Courtyard® by Marriott, Fairfield Inn and Suites®, TownePlace Suites®, SpringHill Suites®, Residence Inn® and Westin® which are the exclusive property of Marriott International, Inc.® or one of its affiliates, Hyatt House® and Hyatt Place®, which are the exclusive property of Hyatt Hotels Corporation® or one of its affiliates, Holiday Inn Express and Staybridge Suites®, which is the exclusive property of Intercontinental Hotels Group® or one of its affiliates, and Red Lion Inn & Suites®, which is the exclusive property of Red Lion Hotels Corporation or one of its affiliates. For convenience, the applicable trademark or service mark symbol has been omitted but will be deemed to be included wherever the above referenced terms are used.
Forward-Looking Statements
Certain statements included in this Annual Report on Form 10-K are forward-looking statements. Those statements include statements regarding the intent, belief or current expectations of Hospitality Investors Trust, Inc. (the "Company" "we" "our" “our company” or "us") and members of our management team, as well as the assumptions on which such statements are based, and generally are identified by the use of words such as "may," "will," "seeks," "anticipates," "believes," "estimates," "expects," "plans," "intends," "should" or similar expressions. Actual results may differ materially from those contemplated by such forward-looking statements. Further, forward-looking statements speak only as of the date they are made, and we undertake no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes to future operating results over time, unless required by law.
The following are some of the risks and uncertainties, although not all risks and uncertainties, that could cause our actual results to differ materially from those presented in our forward-looking statements:
| • | The recent novel coronavirus pandemic has caused a significant decline in business and leisure travel which is adversely impacting our business and we anticipate these conditions will continue and likely worsen, and has also begun to impact credit and capital market conditions, such that we may be unable to access these markets until conditions normalize. | |
• | We may require funds, which may not be available on favorable terms or at all, in addition to our operating cash flow and cash on hand to meet our capital requirements. |
The interests of the Brookfield Investor may conflict with our interests and the interests of our stockholders, and the Brookfield Investor owns all $411.8 million in liquidation preference units of limited partner interests in our operating partnership entitled “Class C Units” (the “Class C Units”) issued and outstanding as of December 31, 2019 and has significant governance and other rights that could be used to control or influence our decisions or actions.
The prior approval rights of the Brookfield Investor will restrict our operational and financial flexibility and could prevent us from taking actions that we believe would be in the best interest of our business.
We no longer pay distributions and there can be no assurance we will resume paying distributions in the future.
• | Our hotel sale program is subject to market conditions and there can be no assurance we will be successful in selling hotels at our target prices or at all. Additionally, the proceeds from some of the hotels we have sold during 2019 and 2020 as part of our hotel sale program were below, and we expect that the proceeds from certain of the additional hotels for which we have entered into definitive sale agreements will be below, the corresponding estimated value of such hotel included in our most recent estimated net asset value per share of common stock ("Estimated Per-Share NAV"), which could negatively impact Estimated Per-Share NAV as of December 31, 2019. |
• | Unless the value of our assets grows in excess of the fixed, quarterly, cumulative distribution payable in Class C Units at a rate of 5% per annum ("PIK Distributions") we pay to the holders of the Class C Units, continued accrual of PIK Distributions will have a negative impact on the value of shares of our common stock. | |
• | We have a history of operating losses and there can be no assurance that we will ever achieve profitability. |
No public market currently exists, or may ever exist, for shares of our common stock and our shares are, and may continue to be, illiquid.
Because no public trading market for our shares currently exists and our share repurchase program has been suspended, it is difficult for our stockholders to sell their shares of our common stock.
All of the properties we own are hotels, and we are subject to risks inherent in the hospitality industry.
• | We primarily own older hotels, which makes us more susceptible to declines in consumer demand, the impact of increases in hotel supply and downturns in economic conditions. | |
• | New hotel supply has contributed to declines in occupancy at our hotels in prior periods and may continue to have this effect. |
Increases in interest rates could increase the amount of our debt payments.
We have incurred substantial indebtedness, which may limit our future operational and financial flexibility.
We depend on our operating partnership and its subsidiaries for cash flow and are effectively structurally subordinated in right of payment to their obligations, which include distribution and redemption obligations to holders of Class C Units and the preferred equity interests issued by two of our subsidiaries that indirectly own 115 of our hotels (the “Grace Preferred Equity Interests”).Units.
The amount we would be required to pay holders of Class C Units in a fundamental sale transaction may discourage a third party from acquiring us in a manner that might otherwise result in a premium price to our stockholders.
We are subject to a variety of risks related to our brand-mandated property improvement plans ("PIPs"), such as we may failspend more than budgeted amounts to realizemake necessary renovations and the expected benefitsrenovations we make may not have the desired effect of improving the competitive position and enhancing the performance of the hotels renovated.
Increases in labor costs have adversely affected the profitability of our acquisitions of hotels within the anticipated timeframe or at all and we may incur unexpected costs.continue to do so.
Our operating results will be affected by economic and regulatory changes that have an adverse impact on the real estate market in general, and we may not be profitable or realize growth in the value of our real estate properties.
A prolonged economic slowdown, a lengthy or severe recession or declining real estate values could harm our investments.
• | Our real estate investments are relatively illiquid and subject to some restrictions on sale, and therefore we may not be able to dispose of properties at the time of our choosing or on favorable terms. | |
• | Our hotels have been and may continue to be subject to impairment charges. |
Our failure to continue to qualify to be treated as a real estate investment trust for U.S. federal income tax purposes ("REIT") could have a material adverse effect on us.
All forward-looking statements should also be read in light of the risks identified in Item 1A of this Annual Report on Form 10-K.
Hospitality Investors Trust, Inc. is a self-managed real estate investment trust (“REIT”) that invests primarily in premium-branded select-service lodging properties in the United States. We were incorporated on July 25, 2013 as a Maryland corporation and qualifiedelected to be taxed as a REIT beginning with the taxable year ended December 31, 2014. We were formed primarily to acquire lodging properties in the midscale limited service, extended stay, select service, upscale select service, and upper upscale full service segments within the hospitality sector. As of December 31, 2016,2019, we had acquiredown or hadhave an ownership interest in a total of 141124 hotels, with a total of 17,19315,324 guestrooms located in 3233 states.
We believe in affiliating our hotels with premium brands owned by leading international franchisors such as Hilton Worldwide Holdings, Inc. ("Hilton"), Marriott International, Inc. ("Marriott") and Hyatt Hotels Corporation ("Hyatt"). These brands represent the delivery of consistently high-quality hotel accommodations with value-oriented pricing that we believe appeals to a wide range of customers, including both business and leisure travelers. As of December 31, 2016,2019, all but one of our hotels operated under a franchise or license agreement with a national brand owned by one of Hilton, Worldwide, Inc., Marriott, International, Inc., Hyatt Hotels Corporation,and Intercontinental Hotels Group and Red Lion Hotels Corporation("IHG") or one of their respective subsidiaries or affiliates.
We have primarily acquired lodging properties in the upscale select-service, upscale extended stay and other discounts, pursuant to a registration statement on Form S-11 (File No. 333-190698),upper midscale select-service chain scale segments located in secondary markets with strong demand generators, such as state capitals, major universities and hospitals, as well as up to 21,052,631 shares of common stock available pursuant to the Distribution Reinvestment Plan (the "DRIP") under which our common stockholders could elect to have theircorporate, leisure and retail attractions. We believe properties in these chain scale segments can be operated with fewer employees and provide more stable cash distributions reinvestedflows than full service hotels, and with less market volatility than similar hotels in additional sharesprimary market locations.
During 2019, as part of our common stock.
The tables below include the following details for our IPO,hotel portfolio as of December 31, 2019, measured by number of rooms:
our top 20 markets as designated by STR, Inc. (“STR”);
• | chain scale mix(1), as designated by STR, and hotel brand; and |
hotel location type, as designated by STR.
(1) STR generally classifies hotel brands into one of the following six chain scale segments, ranked from highest average daily rate to lowest: luxury, upper upscale, upscale, upper midscale, midscale and on November 18, 2015, Realty Capital Securities, LLC (the "Former Dealer Manager"), the dealer managereconomy.
# of | % | |||||||
Hotels | by Rooms | |||||||
Top 20 Markets | ||||||||
Orlando, FL | 4 | 5.1 | % | |||||
Atlanta, GA | 3 | 3.5 | % | |||||
Chicago, IL | 3 | 3.2 | % | |||||
West Palm Beach/Boca Raton, FL | 4 | 3.2 | % | |||||
Dallas, TX | 3 | 3.0 | % | |||||
Baltimore, MD | 3 | 2.9 | % | |||||
Memphis, TN-AR-MS | 4 | 2.7 | % | |||||
Jackson, MS | 4 | 2.6 | % | |||||
San Diego, CA | 3 | 2.5 | % | |||||
Kansas City, MO-KS | 3 | 2.5 | % | |||||
Norfolk/Virginia Beach, VA | 2 | 2.3 | % | |||||
Austin, TX | 3 | 2.3 | % | |||||
Seattle, WA | 2 | 2.0 | % | |||||
Tampa/St Petersburg, FL | 3 | 2.0 | % | |||||
Denver, CO | 2 | 1.9 | % | |||||
Connecticut Area | 2 | 1.8 | % | |||||
Arizona Area | 2 | 1.8 | % | |||||
Columbus, OH | 2 | 1.8 | % | |||||
Knoxville, TN | 3 | 1.8 | % | |||||
Albuquerque, NM/Birmingham, AL(1) | 2 | 1.6 | % | |||||
Top 20 Markets | 57 | 50.5 | % | |||||
All Other Markets | 67 | 49.5 | % | |||||
Total Portfolio | 124 | 100.0 | % | |||||
(1) Albuquerque, NM and Birmingham, AL are two different markets and each includes two of our IPO, suspended sales activities, effective immediately. On December 31, 2015, we terminated the Former Dealer Manager as the dealer managerhotels and 1.6% of our IPO.total portfolio rooms.
# of | % | |||||||
Hotels | by Rooms | |||||||
Chain Scale/Brand | ||||||||
Upscale | ||||||||
Courtyard | 19 | 15.6 | % | |||||
Hyatt Place | 15 | 12.7 | % | |||||
Residence Inn | 19 | 11.4 | % | |||||
Homewood Suites | 10 | 9.1 | % | |||||
Springhill Suites | 8 | 5.6 | % | |||||
Hilton Garden Inn | 6 | 5.4 | % | |||||
Hyatt House | 1 | 1.0 | % | |||||
Doubletree | 1 | 1.0 | % | |||||
Staybridge Suites | 1 | 0.6 | % | |||||
Upscale Total | 80 | 62.4 | % | |||||
Upper Midscale | ||||||||
Hampton Inn/Hampton Inn & Suites | 36 | 28.5 | % | |||||
Fairfield Inn | 4 | 3.7 | % | |||||
TownePlace Suites | 1 | 0.6 | % | |||||
Upper Midscale Total | 41 | 32.8 | % | |||||
Upper Upscale | ||||||||
Independent | 1 | 1.7 | % | |||||
Embassy Suites | 1 | 1.6 | % | |||||
Westin | 1 | 1.5 | % | |||||
Upper Upscale Total | 3 | 4.8 | % | |||||
Total Portfolio | 124 | 100.0 | % | |||||
# of | % | |||||||
Hotels | by Rooms | |||||||
STR Location | ||||||||
Suburban | 74 | 55.8 | % | |||||
Urban | 19 | 18.6 | % | |||||
Airport | 14 | 10.7 | % | |||||
Small Metro/Town | 10 | 7.6 | % | |||||
Resort | 5 | 6.0 | % | |||||
Interstate | 2 | 1.3 | % | |||||
Total Portfolio | 124 | 100.0 | % | |||||
In order to maintain our qualification as a REIT, we announcedcannot operate or manage our hotels. Accordingly, our hotels are operated by national and regional hotel management companies that because we required funds in additionare not affiliated with us. Our asset management activities seek to encourage and demand our operating cash flowthird-party management companies to develop effective sales programs, operate hotels effectively, control costs and cash on hand to meetdevelop operational initiatives for our capital requirements, beginning with distributions payable with respect to April 2016, we would pay distributions tohotels that increase guest satisfaction.
We conducted our stockholders in shares of common stock instead of cash.
We are required to annually publish a per share estimated value of our common stock (“Estimated Per-Share NAV”) pursuant to the rules and regulations of the Financial Industry Regulatory Authority ("FINRA"). On May 9, 2019, our board of directors unanimously approved an updated Estimated Per-Share NAV equal to $9.21 based on an estimated fair value of our assets less the estimated fair value of our liabilities, divided by 39,134,628 shares of our common stock outstanding on a fully diluted basis as of December 31, 2018 (the “2019 NAV”), and we published our 2019 NAV on May 13, 2019. We expect to publish our next annual Estimated Per-Share NAV update during the second quarter of 2020.
In September 2018, our board of directors adopted a Share Repurchase Program (“SRP”) pursuant to which we were offering, subject to certain terms and conditions, liquidity to stockholders by offering to make quarterly repurchases of common stock at a price to be established by the board of directors. In February 2019, our board of directors suspended the SRP. The suspension will remain in effect unless and until our board takes further action to reactivate the SRP. There can be no assurance the SRP will be reactivated on its current terms, different terms, or at all.
Brookfield Investment
On January 12, 2017, we, along with our operating partnership, Hospitality Investors Trust Operating Partnership, L.P. (the “OP”), entered into a Securities Purchase, Voting and Standstill Agreement (the “SPA”) with the Brookfield Investor, pursuant to which the Brookfield Investor agreed to make capital investments in our company of up to $400 million by purchasing units of limited partner interest in the OP entitled “Class C Units” (“Class C Units”) through February 2019. Pursuant to the SPA, the Brookfield Investor made $379.7 million of capital investments in us by purchasing Class C Units, but the Brookfield Investor no longer has any obligations or rights to purchase additional Class C Units pursuant to the SPA or otherwise. As of December 31, 2019, the total liquidation preference of the Class C Units (which includes quarterly PIK Distributions (as defined below) that are paid on the outstanding liquidation preference) was $411.8 million.
On March 31, 2017, the initial closing under the SPA (the “Initial Closing”) occurred and various transactions and agreements contemplated by the SPA were consummated and executed, including but not limited to:
the sale by us and purchase by the Brookfield Investor of one share of a new series of preferred stock designated as the Redeemable Preferred Share, par value $0.01 per share (the “Redeemable Preferred Share”), for a nominal purchase price; and
the sale by us and purchase by the Brookfield Investor of 9,152,542.37 Class C Units, for a purchase price of $14.75 per Class C Unit, or $135.0 million in the aggregate.
On February 27, 2018, the terms and conditions ofsecond closing under the SPA (the “Second Closing”) occurred, pursuant to which we also have the right to sell, and the Brookfield Investor has agreed to
On February 27, 2019, the third and final closing under the SPA (the “Final Closing”) occurred, pursuant to which we sold 14,898,060.78 additional Class C Units to the Brookfield Investor, for a purchase price of up to $265.0$14.75 per Class C Unit, or $219.7 million at subsequent closings (each, a "Subsequent Closing") that may occur through February 2019. The Subsequent Closings are subject to conditions, and there can be no assurance they will be completed on their current terms, or at all.
Substantially all of our business is conducted through the OP. Prior to the Initial Closing, we were the soleWe are a general partner and held substantiallyhold all of the units of limited partner interest in the OP entitled “OP Units” ("OP Units"). Following the Initial Closing, theThe Brookfield Investor holds all the issued and outstanding Class C Units, representing $135.0 million in liquidation preference with respect to the OP that rankswhich rank senior in payment of distributions and in the distribution of assets to the OP Units held by us that correspond to shares of our common stock,us. BSREP II Hospitality II Special GP, OP LLC (the “Special General Partner”), an affiliate of the Brookfield Investor, is the special general partner of the OP, with certain non-economic rights that apply if we are unablefail to redeem the Class C Units when required to do so, as described below.including the ability to commence selling the OP’s assets until the Class C Units are convertible into OP Units based on an initial conversion price of $14.75, subject to anti-dilution and other adjustments upon the occurrence of certain events and transactions. OP Units, in turn, are generally redeemable for shares of our common stock on a one-for-one-basis or the cash value of a corresponding number of shares, at our election, in accordance with the terms of the limited partnership agreement of the OP.have been fully redeemed. Holders of Class C Units are also entitled to receive, with respect to each Class C Unit, fixed, quarterly cumulative cash distributions at a rate of 7.50% per annum from legally available funds. If we fail to pay these cash distributions when due, the per annum rate will increase to 10% until all accrued and unpaid distributions required to be paid in cash are reduced to zero. Holders of Class C Units are also entitled to receive, with respect to each Class C Unit, a fixed, quarterly, cumulative distribution payable in Class C Units at a rate of 5% per annum ("PIK Distributions"). UponAs of December 31, 2019, the total liquidation preference of the Class C Units was $411.8 million. The Class C Units are convertible into OP Units, which may be redeemed for shares of our failure to redeemcommon stock or, at our option, the cash equivalent. As of the date of this Annual Report on Form 10-K, the Brookfield Investor when required to do so pursuantowns or controls 41.7% of the voting power of our common stock on an as-converted basis. The SPA also contains certain standstill and voting restrictions applicable to the limited partnership agreementBrookfield Investor and certain of the OP, the 5% per annum PIK Distribution rate will increase to a per annum rateits affiliates.
Without obtaining the prior approval of the majority of the then outstanding Class C Units, the OP is restricted from taking certain actions including equity issuances, debt incurrences, payment of dividends or other distributions, redemptions or repurchases of securities, property acquisitions and property sales and dispositions. In addition, pursuant to the terms of the Redeemable Preferred Share, in addition to other governance and board rights, the Brookfield Investor has elected and has a continuing right to elect two directors (each, a "Redeemable Preferred Director") to our board of directors and has other governance and board rights, and we are similarly restricted from taking those actions requiring approval of the Class C Units without the prior approval of at least one of the Redeemable Preferred Directors. Prior approval of at least one of the Redeemable Preferred Directors is also required to approve thefor our annual business plan (including the annual operating and capital budget) required under the terms of the Redeemable Preferred Share (the "Annual Business Plan"), hiring and compensation decisions related to certain key personnel (including our executive officers) and various matters related to the structure and composition of our board of directors. These restrictions (collectively referred to herein as the “Brookfield Approval Rights”) are subject to certain exceptions and conditions, including that, after March 31, 2022, no prior approval will be required for equity issuances, debt incurrences and property sales if the proceeds therefrom are used to redeem the then outstanding Class C Units in full. Subject to certain limitations, the Brookfield Approval Rights are subject to temporary and permanent suspension in connection with any failure by the Brookfield Investor to purchase Class C Units at any Subsequent Closing as required pursuant to the SPA. In addition, the Brookfield Approval Rights will no longer apply if the liquidation preference applicable to all Class C Units held by the Brookfield Investor and its affiliates is reduced to $100.0 million or less due to the exercise by holders of Class C Units of their redemption rights under the limited partnership agreement of the OP.
See Note 173 - Subsequent EventsBrookfield Investment to our accompanying consolidated/combinedconsolidated financial statements included in this Annual Report on Form 10-K for additional information regarding the terms of the SPA and the transactions and agreements contemplated thereby that were consummated and executed at the Initial Closing, including the rights, privileges and preferences ofRedeemable Preferred Share, the Class C Units.
Transition to Hospitality Investors Trust, Inc. and the name of the OP from American Realty Capital Hospitality Operating Partnership, L.P. to Hospitality Investors Trust Operating Partnership, L.P. and completed various other actions required to effect our transition from external management to self-management.
Prior to the Initial Closing, we had no employees, and we depended on the Advisorour former external advisor, American Realty Capital Hospitality Advisors, LLC (the “Former Advisor”), to manage certain aspects of our affairs on a day-to-day basis pursuant to our advisory agreement with the Advisor (the "Advisory Agreement").Former Advisor. In addition,connection with, and as a condition to, the Property Manager served as our property manager and had retained Crestline to provide services, including locating investments, negotiating financing and operating certain hotel assetsBrookfield Investor's investment in our portfolio.
Investment Objective and had received total proceeds of approximately $913.0 million from the IPO and shares issued under the DRIP, net of repurchases. The shares outstanding include shares of common stock issued as stock distributions as a result of our change in distribution policy adopted by our board of directors in March 2016. Shares are only issued pursuant to our DRIP in connection with distributions paid in cash. In connection with our entry into the SPA, our board of directors suspended the payment of distributions to our stockholders in shares of common stock and suspended our DRIP. We will not issue any additional shares of common stock under the DRIP or recommence paying distributions in cash or in shares of our common stock unless and until our board of directors lifts these suspensions and subject to the Brookfield Approval Rights.
Our investment objectives were originally premised on the amount of proceeds we expected to raise in our IPO.
| • | Disciplined Capital Reallocation. We intend to continue to pursue the sale of hotels we determine are non-core to our portfolio and reallocate that capital into other corporate purposes, including debt reduction, that we believe will produce more attractive stockholder returns. Non-core hotels can include those where the projected return on PIP work does not meet our thresholds, or those with low revenue per available room ("RevPAR"), below-average market quality or near-term franchise expirations. During 2019, we sold 20 hotels and as of December 31, 2019, another 21 hotels were subject to definitive sale agreements where the buyer has made a non-refundable deposit. Between January 1, 2020 and March 15, 2020, we sold another 17 hotels. The sales completed during 2019 and through March 15, 2020 generated net proceeds of $56.3 million after prepayment of approximately $212.2 million of related mortgage debt obligations and closing costs. We have not yet determined what the use of the excess proceeds will be, although we anticipate that a portion of these proceeds will be utilized for working capital and liquidity purposes in light of the downturn in financial performance we are experiencing due to the coronavirus pandemic. | |
• | Continued Investment in our Hotels. We engage in a continued process of renovating and improving our hotels. Since acquisition we have reinvested more than $358.1 million in our hotels through PIPs and other capital improvements, including approximately $24.4 million invested in hotels we have sold. This includes amounts spent as part of the PIP program we are currently undertaking across a significant portion of our portfolio. We expect to substantially complete our PIP program over the next two to three years. As of December 31, 2019, we have substantially completed work on 92 of the 121 hotels that are part of our PIP program, including 13 hotels with PIP work completed during 2019. We expect the investments we have made, and continue to make, in PIPs and other capital improvements will enhance the performance of our hotel portfolio in future years and thereby, we believe, increase our cash flow and the value of our portfolio. |
Upgrade Hotel Portfolio. We intend to continue pursuingenhance the quality of our core investment strategies:hotel portfolio, primarily by selling non-core hotels. Through this strategy, we plan to achieve improved overall portfolio metrics such as:
portfolio RevPAR of at least $100.00;
increasing the percentage of our portfolio located in top-50 markets as designated by STR (approximately 58% as of December 31, 2019, measured by number of rooms), while still targeting markets with lower volatility;
improve chain scale mix by increasing the percentage of hotels in our portfolio in the midscale limited service, extended stay andupscale select-service segments within the hospitality sector in secondary markets with strong demand generators. We believe these segments can provide more stable cash flows than full service hotels and less market volatility than primary market locations.
further diversifying and expanding our existing hotel portfolio outside of the Southeast and Mid-Atlantic United States; and
lower effective age of our hotels to be purchased to a bona fide third party purchaser without our consent at any time prior to the(measured from completion of our Pending Acquisition. Whether or not Summit engages, or is successful, in any efforts to market these hotels is beyond our controlmost recent PIP renovation) and accordingly, there can be no assurance we will be able to complete our Pending Acquisition in whole or in part. In June 2016, Summit informed us that two of the ten hotels had been sold, thereby reducing the Pending Acquisition to eight hotels for an aggregate purchase price of $77.2 million. In January 2017, in connection with our entry into the SPA, we extended the scheduled closing date of the Pending Acquisition to April 27, 2017 (or October 24,longer franchise agreements.
Property Management Agreements
We contract directly or indirectly, through our taxable REIT subsidiaries, with Crestline and the third-party property management companies that previously served as sub-property managers to manage our hotel properties.
As of March 15, 2017, 71December 31, 2019, 73 of the hotel assets we have acquiredour hotels were managed by Crestline and 7051 of the hotel assets we have acquiredour hotels were managed by third-party sub-property managers. As of March 15, 2017, our third-party sub-property managers werethe following other property managers: Hampton Inns Management LLC and Homewood Suites Management LLC, affiliates of Hilton Worldwide Holdings Inc. (42 hotels), Interstate Management Company, LLC (5(27 hotels), InnVentures IVI, LP (2 hotels) and, McKibbon Hotel Management, Inc. (21(18 hotels) and LBA Hospitality (4 hotels). On April 3, 2017, as contemplated by the Framework Agreement, the five hotels managed by Interstate Management Company, LLC are scheduled to transition to be managed by Crestline.
With few exceptions, our management agreements have a 20-yearwith Crestline are long-term (initial term renewing automatically for three five-year terms unless either party provides advance notice of non-renewal. These management agreements20 years) and are generally only terminable by us prior to expirationonly for cause, including performance-relatedperformance related reasons except, beginning on the first day(i.e., failure of the 49th month followinghotel to achieve certain performance thresholds). In connection with the Initial Closing, we willagreed with Crestline, which was then an affiliate of the Former Advisor, to the following additional termination rights in connection with a sale of the applicable hotel:
until March 31, 2023, we have an “on-sale” terminationthe right to terminate Crestline upon sale of the hotel if we replace the sold hotel with a comparable hotel (i.e., a hotel not then managed by Crestline with equal or greater historic annual revenue as the one being sold); and
beginning on April 1, 2021, we have the right to terminate Crestline upon sale of the hotel and payment of a termination fee in an amount equal to two and one half2.5 times the property management fee infees payable for the trailing 12 months, subject to customary adjustments.
During 2019, we transitioned management of a total of four hotels to Crestline from our other property managers to replace Crestline-managed hotels that are managed by a third-partywe sold during 2019 pursuant to the replacement right described above, and we transitioned an additional ten hotels to Crestline from our other property manager,managers to replace Crestline-managed hotels that we have sold or expect to sell during 2020. We expect to similarly transition management of additional hotels to Crestline to the extent we continue to sell Crestline-managed hotels under our hotel sale program.
Our management agreements with the applicable third-partyour other property managermanagers are short-term and generally have an initial term of approximatelyrange from one to five years, renewable at our option for one-yearfive-year initial terms andwith continuous renewal options but are generally terminable by us at any time subject to 60 - 90 days’ notice.
For their services under these hotel management agreements, Crestline and our third-party property managers receive a base property management fee and are also, in some cases, eligible to receive an incentive management fee if hotel operating profit exceeds certain thresholds.
We pay a base property management fee of generally up to 3.0% of the monthly gross receipts from the properties to Crestline or a third-partythe applicable property manager, as applicable.manager. We reimburse the costs and expenses incurred by Crestline or any third-partythe property manager on our behalf including legal, travel and other out-of-pocket expenses that are directly relatedpursuant to its duties in accordance with the management of specific properties, as well as fees and expenses of any property manager. We do not, however, reimburse Crestline or any third-party property manager for general overhead costs or for the wages and salaries and other employee-related expenses of employees of such property managers other than employees or subcontractors who are engaged in the on-site operation, management, maintenance or access control of our properties, and, in certain circumstances, who are engaged in off-site activities.
Franchise Agreements
All but one of our hotels operate under a franchise or license agreement with a national brand that is separate from the agreement with Crestline or a third-partythe property manager pursuant to which the operations of the hotel are managed. Our franchise agreements grant us the right to the use of the brand name, systems and marks with respect to specified hotels and establish various management, operational, record-keeping, accounting, reporting and marketing standards and procedures with which the licensed hotel must comply. In addition, the franchisor establishes requirements for the quality and condition of the hotel and its furniture, fixtures and equipment,equipment, and we are obligated to expend such funds as may be required to maintain the hotel in compliance with those requirements. We are required to make related escrow reserve deposits for these expenditures under our indebtedness.
Typically, our franchise agreements provide for a license fee, or royalty, of 5% to 6% of gross room revenues. In addition, we generally pay 3.7%1.5% to 5.2%4.3% of gross room revenues as a program or reservation feesfee for the system-wide benefit of brand hotels.
Our typical franchise agreement provides for aan initial term of 15 to 20 years, although some have shorter terms. As of December 31, 2019, the weighted average remaining term of our franchise agreements was approximately 10.7 years. The agreements typically provide no renewal or extension rights and are not assignable. If we breach one of these agreements, in addition to losing the right to use the brand name for the applicable hotel, we may be liable, under certain circumstances, for liquidated damages.
Financing Strategies and Policies
As of December 31, 2016,2019, we had $1.4$1.5 billion in outstanding indebtedness and $290.2 million in liquidation valueindebtedness. All of Grace Preferred Equity Interests (which is treatedour properties serve as indebtedness for accounting purposes). At the Initial Closing, we redeemed $47.3 million in liquidation value of Grace Preferred Equity Interests.collateral under our indebtedness. See “Item 2. Properties - Debt.”
As of December 31, 2016,2019, $411.8 million liquidation preference of Class C Units were issued and outstanding and owned by the Brookfield Investor. The Brookfield Investor may redeem such Class C Units at any time on or after March 31, 2022 for a redemption price equal to the liquidation preference and also has certain other redemption rights if we fail to maintain REIT status or if we materially breach the terms of the Class C Units. The Class C Units are classified as temporary equity for financial accounting purposes due to these contingent redemption features.
As of December 31, 2019, our loan-to-value ratio was 72% including the Grace Preferred Equity Interests and our loan-to-value ratio excluding the Grace Preferred Equity Interests was 60%64.9%. Because we have raised less proceeds in our IPO than originally contemplated, our ability to achieve our original investment objective of a loan-to-value ratio of 50% has also been adversely affected.
Pursuant to the Brookfield Approval Rights, prior approval of any debt incurrence is required except for as specifically set forth in the Annual Business Plan and for the refinancing of existing debt in a principal amount not greater than the amount to be refinanced and on terms no less favorable to us. We are also subject to certain covenants, such as debt service coverage ratios and negative pledges, in our existing indebtedness that restrict our ability to make future borrowings.
The form of our indebtedness may be long term or short term, secured or unsecured, fixed or floating rate or in the form of a revolving credit facility, repurchase agreements or warehouse lines of credit. We will seek to obtain financing on our behalf on the most favorable terms available.
Except with respect to thecertain borrowing limits contained in our charter, we may reevaluate and change our debt policy in the future without a stockholder vote. The covenants in our existing indebtedness may not be changed without consent of our lenders. The Brookfield Approval Rights generally cannot be changed without the approval of the Brookfield Investor as well as, with respect to the terms of the Redeemable Preferred Share, a stockholder vote. Factors that we would consider when reevaluating or changing our debt policy include: then-current economic conditions, the relative cost and availability of debt and equity capital, any investment opportunities, the ability of our properties and other investments to generate sufficient cash flow to cover debt service requirements and other similar factors.
Tax Status
We elected and qualified to be taxed as a REIT under Sections 856 through 860 of the Internal Revenue Code of 1986, as amended (the "Code"), commencing with our taxable year ended December 31, 2014. We intend to operate in such a manner as to continue to qualify for taxation as a REIT under the Code. However, no assurance can be given that we will operate in a manner so as to continue to qualify as a REIT. We generally, with the exception of our taxable REIT subsidiaries, will not be subject to federal corporate income tax to the extent that we distribute annually all of our REIT taxable income (which does not equal net income as calculated in accordance with GAAP) determined without regards to the deduction for dividends paid and excluding net capital gain, to our stockholders and comply with various other requirements applicable to REITs. Even if we qualify as a REIT, we may be subject to certain state and local taxes on our income and property, and federal income and excise taxes on our undistributed income, and our taxable REIT subsidiaries.
Competition
The hotel industry is highly competitive. This competition could reduce occupancy levels and operating income at our properties, which would adversely affect our operations. We face competition from many sources. We face competition from other hotels both in the immediate vicinity and the geographic market where our hotels are located. Over-buildingNew construction of hotels in the markets in which we operate may increase the number of rooms available and may decrease occupancy and room rates. In addition, increases in labor and other operating costs due to inflation and other factors may not be offset by increased room rates. We also face competition from nationally recognized hotel brands with which we are not associated, as well as from other hotels associated with nationally recognized hotel brands with which we are associated. In addition to competing with traditional hotels and lodging facilities, we compete with alternative lodging companies, including third-party providers of short-term rental properties and serviced apartments, such as Airbnb. We compete based on a number of factors, including room rates, quality of accommodations, service levels, convenience of location, reputation, reservation systems, brand recognition, loyalty programs and supply and availability of alternative lodging.
We compete with many other entities engaged in real estate investment activities, including individuals, corporations, bank and insurance company investment accounts, private investment funds, other REITs, real estate limited partnerships, and other entities engaged in real estate investment activities, many of which have greater resources than we do. In addition, affiliates of the Brookfield Investor are or may be in the business of making investments in, and have or may have investments in, other businesses similar to, and that may compete with, our business.
Regulations
Our investments are subject to various federal, state and local laws, ordinances and regulations, including, among other things, accessibility, zoning regulations, land use controls, environmental controls relating to air and water quality and noise pollution. We obtain all permits and approvals that we believe are necessary under current law to operate our investments.
Environmental
As an owner of real property, we are subject to various federal, state and local laws and regulations regarding environmental, health and safety matters. These laws and regulations address, among other things, asbestos, polychlorinated biphenyls, fuel, oil management, wastewater discharges, air emissions, radioactive materials, medical wastes, and hazardous wastes, and in certain cases, the costs of complying with these laws and regulations and the penalties for non-compliance can be substantial. Even with respect to properties that we do not operate or manage, we may be held primarily or jointly and severally liable for costs relating to the investigation and clean-up of any property from which there is or has been an actual or threatened release of a regulated material and any other affected properties, regardless of whether we knew of or caused the release. Such costs typically are not limited by law or regulation and could exceed the property's value. In addition, we may be liable for certain other costs, such as governmental fines and injuries to persons, property or natural resources, as a result of any such actual or threatened release.
We did not make any material capital expenditures in connection with environmental, health, and safety laws, ordinances and regulations in 20162019, and we do not expect that we will be required to make any such material capital expenditures during 2017.
Employees
As of December 31, 2016 and immediately prior to the Initial Closing,2019, we had no employees, and we depended on the Advisor to manage certain aspects of our affairs on a day-to-day basis pursuant to the Advisory Agreement, and we also depended on other affiliates of the Advisor to perform services that are essential to us, including asset and property management and other general administrative services.
Available Information
We electronically file Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, proxy statements and all amendments to those filings with the SEC. You may read and copy any materials we file with the SEC at the SEC's Public Reference Room at 100 F Street, NE, Washington, D.C. 20549, or you may obtain information by calling the SEC at 1-800-SEC-0330. The SEC maintains a website at http://www.sec.gov that contains reports, proxy statements and information statements, and other information, which you may obtain free of charge. In addition, copies of our filings with the SEC may be obtained from theour website maintained for us and our affiliates at www.HITREIT.com. Access to these filings is free of charge. We are not incorporating our website or any information from the website into this Form 10-K.
Set forth below are the risk factors that we believe are material to our investors. The occurrence of any of the risks discussed in this Annual Report on Form 10-K could have a material adverse effect on our business, financial condition, results of operations, our ability to pay distributions (although we are not currently paying distributions) and the value of an investment in our common stock.
Risks Related to an Investment in Hospitality Investors Trust, Inc.
We have a history of operating losses and cannot assure our stockholders that we will achieve profitability.
Since inception in July 2013 through December 31, 2016,2019, we have incurred net losses (calculated in accordance with GAAP) equal to $181.4 $502.1 million. The extent of our future operating losses and the timing of theour achieving profitability are highly uncertain, and we may never achieve or sustain profitability.
Because no public trading market for our shares currently exists and our share repurchase program has been terminated,suspended, it is difficult for our stockholders to sell their shares of our common stock.
There is no regular established trading market for shares of our common stock and there can be no assurance one will develop. Our charter does not require our directors to seek stockholder approval to liquidate our assets by a specified date, nor does our charter require our directors to list our shares for trading on a national securities exchange by a specified date. We currently have no plans to list our shares on a national securities exchange. While there is a secondary market for shares of common stock, we believe the volume of those trades is small in relation to the number of shares outstanding. Until our shares are listed, if ever, stockholders may not sell their shares unless the buyer meets the applicable suitability and minimum purchase standards. In addition, our charter prohibits the ownership of more than 4.9% in value of the aggregate of outstanding shares of capital stock or more than 4.9% in value or number of shares, whichever is more restrictive, of any class or series of our stock, unless exempted (prospectively or retroactively) by our board of directors, which may inhibit large investors from purchasing our stockholders' shares.
In September 2018, our board of directors during January 2017 in connection with our entry intoadopted the SPASRP pursuant to which we were offering, subject to certain terms and terminated effective as of April 30, 2017 in connection with the Initial Closing. We did notconditions, liquidity to stockholders by offering to make anyquarterly repurchases of our common stock pursuantat a price to be established by the board of directors. In February 2019, our SRP (except in January 2016 with respect to requests received during the year ended December 31, 2015) or otherwise during the year ended December 31, 2016 and have not, and will not, make any repurchaseboard of our common stock during the period between January 1, 2017 and the effectiveness of the termination ofdirectors suspended the SRP.
Any pandemic or outbreak of a highly infectious or contagious disease could reduce travel and adversely affect hotel demand, and the price paid.
Our business is sensitive to the willingness and ability of our customers to travel. Any pandemic or outbreak of a highly infectious or contagious diseases may result in decreases in travel and economic activity, including due to severe disruptions in flights, trains and other modes of transport and cancellations or avoidance of travel-related activities. Decreases in travel and economic activity, particularly in the areas in which we operate, could lead to a decline in hotel demand and the number of guests visiting our hotels, which could adversely affect our business and financial results.
The recent novel coronavirus pandemic has already had these effects and has begun to adversely impact our business. In early March 2020, we started to see softening of demand and revenue weakness across our portfolio triggered by direct guest cancellations at our hotels as well as cancellations of business and industry conventions and meetings in certain of our markets. These conditions have worsened over the course of the month as the level of overall business and leisure travel has declined significantly due to concerns about the coronavirus pandemic, and we anticipate they will continue and likely worsen further as governments and businesses take additional actions to respond to the risks of the coronavirus pandemic. We are working closely with our third party property managers to respond to these developments and to implement various cost reduction and other liquidity preservation measures which have included temporary hotel staff reductions and temporarily closing certain hotels. We have also begun to reach out to various contract counterparties, such as lenders and ground lessors, about payment waivers and deferrals, as well as other liquidity preservation measures. These efforts are expected to continue, although there can be no assurance all or any of them will be successful. The extent to which the coronavirus outbreaks will impact our financial results will depend on future developments, which are unknown and cannot be predicted, including the duration and ultimate scope of the pandemic, new information which may emerge concerning the severity of the coronavirus and actions taken to contain the coronavirus pandemic or its impact, among others. We cannot predict how the coronavirus pandemic may impact the prospects for the Company and our business generally when conditions normalize. For example, some of the current reduction in travel and consequently guest demand at our hotels may persist due to potentially permanent changes in the hotel use patterns and willingness to travel of our guests. We may also experience higher cost structures due to factors such as new brand standards and increasing guest and staff concerns about cleanliness.
We are subject to periodic debt yield and debt service coverage tests under our indebtedness. Failure to satisfy these tests, although not an event of default under the indebtedness, could cause cash flows from the properties financed after debt service, certain property operating expenses and loan reserves to be diverted to the lender, as additional loan collateral until the tests have been satisfied or we prepay sufficient principal to satisfy the applicable test. The decline in our financial results caused by the recent coronavirus pandemic could result in our failure to satisfy the coverage tests under our indebtedness, which could have a material adverse effect on our liquidity.
The recent coronavirus pandemic has also begun to adversely impact credit and capital market conditions and as a result of these developments we may be unable to access these markets until conditions normalize. During 2020, we have two debt obligations scheduled to mature: $10.5 million principal amount of mortgage debt secured by the Hilton Garden Inn Blacksburg, VA hotel (a joint venture in which we own a 56.5% interest) which is scheduled to mature in June and $232.0 million principal amount of mortgage debt secured by 21 properties which is scheduled to mature in October 2020. The debt obligations scheduled to mature in 2020, like all of our other debt obligations, are non-recourse, subject to customary non-recourse exceptions. At this time due to the uncertainties with regard to the coronavirus pandemic, including as to its duration and severity, we cannot predict whether we will be able to access the credit markets and refinance these debt obligations in a timely manner, and, accordingly we have requested extensions of these debt obligations. There can be no assurance we will be able to obtain these extensions on favorable terms, or at all. If credit market conditions improve, we may instead seek to refinance these debt obligations. We cannot provide any assurances our efforts to extend or refinance these debt obligations in a timely manner or on favorable terms will be successful.
Any of these events could have a material adverse effect on us and the value of your investment in us.
We may require funds, which may not be available on favorable terms or at all, in addition to our operating cash flow and cash on hand, and the proceeds that may be available from sales of Class C Units at Subsequent Closings, which are subject to conditions, to meet our capital requirements.
Our major capital requirements following the Initial Closingcurrently include PIPs and other hotel capital expenditures required pursuant to our PIPs and related lender reserve deposits, interest and principal payments under our indebtedness distributions and mandatory redemptions payable with respect to the Grace Preferred Equity Interests and distributions payable with respect to Class C Units. We areBeginning in March 2022, we may also be required to fund up to $69.7 million in closing consideration for our Pending Acquisition (including amounts weredemptions of the Class C Units at the option of the holder.
We intend to finance), and failure to do so could cause us to forfeit up to $10.5 million in non-refundable earnest money deposits previously paid. The outstandingeither extend or refinance our indebtedness at maturity, when the principal of the Summit Loan, which was $26.7 million following the Initial Closing, and any accrued interest thereon will become immediatelypayments are due, and payable at closing if we closebelieve our Pending Acquisition before February 11, 2018, the maturity datecash on hand and sources of the Summit Loan. Following our redemptionadditional liquidity, which are primarily comprised of $47.3 million in liquidation value of Grace Preferred Equity Interests with a portion of the proceeds from the Initial Closing, we are required to redeem an additional $19.4 million,
Furthermore, our ability to identify and consummate a potential transaction or transactions with a source of equity or debt financingcapital is dependent upon a number of factors that may be beyond our control, including among other factors, market conditions, industry trends and the interest of third parties in our business and assets. In addition, any potential transaction or transactions may be subject to conditions, such as obtaining consents from our lenders and franchisors, which we might not be able to obtain,meet, and the process of seeking alternative sources of financingcapital is time-consuming, causes our management to divert theirits focus from our day-to-day business and results in our incurring expenses outside the normal course of operations.
The interests of the Brookfield Investor may conflict with our interests and the interests of our stockholders, and the Brookfield Investor has significant governance and other rights that could be used to control or influence our decisions or actions.
As the holder of all of the issued and outstanding Class C Units, the Brookfield Investor has interests that are different from our interests and the interests of our stockholders. Moreover, as the holder of the Redeemable Preferred Share and all of the issued and outstanding Class C Units, the Brookfield Investor has the Brookfield Approval Rights, the ability to elect two of the seven directors on our board of directors and approve two independent directors, the right to convert Class C Units into shares of our common stock and other rights, including the redemption and distribution rights associated with the Class C Units, that are significant. These rights can be used, in isolation or in combination, to control or influence, directly or indirectly, various corporate, financial or operational decisions or actions we might otherwise take, or decide not to take, as well as any matter requiring approval of our stockholders.
Under the Brookfield Approval Rights, without obtaining the prior approval of the majority of the then outstanding Class C Units, subject to certain exceptions, the OP is restricted from taking certain actions including equity issuances, debt incurrences, paymentpayments of dividends or other distributions, redemptions or repurchases of securities, property acquisitions and property sales and dispositions.sales. In addition, pursuant to the terms of the Redeemable Preferred Share, we are similarly restricted from taking those actions without the prior approval of at least one of the Redeemable Preferred Directors. Prior approval of at least one of the Redeemable Preferred Directors is also required to approve the Annual Business Plan, as well as hiring and compensation decisions related to certain key personnel (including our executive officers) and various matters related to the structure and composition of our board of directors.
As the holder of the Redeemable Preferred Share, for so long as it remains outstanding, the Brookfield Investor has the right to elect two Redeemable Preferred Directors (each of whom may be removed and replaced with or without cause at any time by the Brookfield Investor), as well as to approve (such approval not to be unreasonably withheld, conditioned or delayed)
As of the date of this Annual Report on Form 10-K, an affiliate of the Brookfield Investor does not own or control anyowns 25,644 restricted shares of our common stock and, as("restricted shares"). Except for such cannot directly participate in the outcome of matters requiring approval of our stockholders,restricted shares and except to the extent of the one vote the holder of the Redeemable Preferred Share has as part of a single class with the holders of our common stock at any annual or special meeting of stockholders and the separate class vote of the Redeemable Preferred Share required for any action, including any amendment to our charter, that would alter the terms of the Redeemable Preferred Share or the rights of its holder.holder, the Brookfield Investor does not own or control any shares of our common stock, and, as such, cannot directly participate in the outcome of matters requiring approval of our stockholders. However, including the restricted shares and giving effect to the immediate conversion of all 9,152,54227,920,953.48 Class C Units held by the Brookfield Investor as of the date of this Annual Report on Form 10-K into OP Units which are subsequently redeemed for shares of our common stock in accordance with the terms of the limited partnership agreement of the OP entered into at the Initial Closing (the "A&R LPA"), the Brookfield Investor, on an as-converted basis, and including shares of common stock issued by us at the Initial Closing pursuant to the Framework Agreement, would own or control approximately 18.8%41.7% of the voting power of our common stock. Any such redemption may also be made in cash instead of shares of our common stock, at our option.
Pursuant to the SPA, the Brookfield Investor, together with certain of its affiliates, will beis currently subject to certain restrictions that will limit its ability to leverageuse any ownership of shares of our common stock to control or influence our management or policies. These restrictions include customary standstill restrictions related to, among other things, acquisition proposals, proxy solicitations and attempts to elect or remove members of our board of directors, limits on acquiring more than 15% of our common stock then outstanding on an as-converted basis in addition to shares of our common stock on an as-converted basis acquired upon the conversion and subsequent redemption of Class C Units andas well as a requirement to vote any shares of our common stock in excess of 35% of the total number of shares of our common stock in accordance with the recommendations of our board of directors. In addition, at the Initial Closing, as contemplated by and pursuant to the SPA, we granted the Brookfield Investor and its affiliates a waiver of the aggregate share ownership limits, and permitted the Brookfield Investor and its affiliates to own up to 49.9% in the aggregate of the outstanding shares of our common stock. However, these restrictions are generally of limited duration and remain subject to other conditions and exceptions, and there can be no assurance that the Brookfield Investor will not otherwise be able to use its ownership of our common stock, in isolation or in combination with the Brookfield Approval Rights or its other rights as the sole holder of the Redeemable Preferred Share and Class C Units, to control or influence our management or policies, as well as matters required to be submitted to our stockholders for approval.
The Brookfield Investor may have an interest in our pursuing acquisitions, divestitures and other transactions that, in its judgment, could enhance its investment in us, even though such transactions might involve risks to our stockholders, or in preventing us from pursuing a transaction that might otherwise be beneficial to our stockholders. The scope and potential impact of the exercise of the redemption rights of holders of Class C Units may also have a significant impact on our decision-making in certain circumstances, including whether or not we pursue a Fundamentalliquidation, sale of all or substantially all of the assets, dissolution or winding-up, whether voluntary or involuntary, sale, merger, reorganization, reclassification or recapitalization or other similar event (each, a “Fundamental Sale Transaction.
Moreover, the Brookfield Investor and its affiliates engage in a broad spectrum of business and investment activities, including investments in the hospitality industry. In the ordinary course of their business activities, the Brookfield Investor and its affiliateswhich may engage ininclude activities where their interests conflict with ours or those of our stockholders, including activities related to additional investments they may make in companies in the hospitality and related industries. In addition, Bruce G. Wiles, our chairman and a Redeemable Preferred Director, is the president and chief operating officerserves as a senior advisor for Brookfield Property Group’s lodging investment platform, a subsidiary of Thayer Lodging Group, LLC, a hotel investment companyBrookfield Asset Management, Inc. (“BAM”), and an affiliate of the Brookfield Investor. The articles supplementary governing the Redeemable Preferred Share provide that none of the Brookfield Investor or any of its affiliates, or any of their respective directors, executive officers, employees, agents, representatives, incorporators, stockholders, equityholders, controlling persons, principals, managers, advisors, managing members, members, general partners, limited partners or portfolio companies will havehas any obligation to refrain from competing with us, making investments in or having relationships with competing businesses. Under the articles supplementary, we have agreed to renounce any interest or expectancy, or right to be offered an opportunity to participate in, any business opportunity or corporate opportunity presented to the Brookfield InvestorsInvestor or its affiliates (which may include, without limitation, any Redeemable Preferred Director). The Brookfield Investor or its affiliates also may pursue acquisition opportunities that may be complementary to our business, and, as a result, those acquisition opportunities may be unavailable to us. In addition, the Brookfield Investor or its affiliates may have an interest in pursuing acquisitions, divestitures and other transactions that, in their judgment, could enhance their respective investments, even though such transactions might involve risks to us or our stockholders.
To the extent the interests of the Brookfield Investor conflict with our interests or the interests of our stockholders, this conflict may not be resolved in our favor or in favor of our stockholders due to the significant governance and other rights of
The Brookfield Approval Rights, including the requirement that we conduct our operations in accordance with the Annual Business Plan approved by at least one Redeemable Preferred Director, will restrict our operational and financial flexibility and could prevent us from taking actions that we believe would be in the best interest of our business.
In general, the Brookfield Approval Rights restrict us from taking various financial and operational actions without the prior approval of a majority of the then outstanding Class C Units as well the prior approval of at least one Redeemable Preferred Director. The prior approval of at least one Redeemable Preferred Director which is also required for our board of directors to approve the Annual Business Plan. The Annual Business Plan with respect to each fiscal year is required to include projections for such year with respect to revenues, operating expenses and property-level capital expenditures, as well as any plans for asset sales or dispositions and a liquidity plan.
If the proposed Annual Business Plan (or any portion thereof) is rejected, we will work with the Redeemable Preferred Directors in good faith to resolve the objections, and we are permitted to continue to operate in accordance with the Annual Business Plan then in effect for the prior fiscal year. However, there is no assurance we will be able to resolve any objection on terms that are favorable to us, or our stockholders. During February 2020, our board of directors, including the Redeemable Preferred Directors, unanimously approved the 2020 Annual Business Plan.
The restrictions with respect to the Annual Business Plan reduce our flexibility in conducting our operations and could prevent us from taking actions that we believe would be in the best interest of our business. Failure to comply with the Annual Business Plan or otherwise comply with the Brookfield Approval Rights could result in a material breach under the limited partnership agreement of the OP,A&R LPA, which, if not cured or waived, could give rise to a right for the holders of Class C Units to require the Companyus to redeem any Class C Units submitted for redemption for an amount equivalent to what the holders of Class C Units would have been entitled to receive in a Fundamental Sale Transaction if the date of redemption were the date of the consummation of the Fundamental Sale Transaction. These amounts are set forth under “Risks Related to Our Corporate Structure -The amount we would be required to pay holders of Class C Units in a Fundamental Sale Transaction may discourage a third party from acquiring us in a manner that might otherwise result in a premium price to our stockholders.”
Financial and operating covenants in the agreements governing our indebtedness may also limit our operational and financial flexibility, and failure to comply with these covenants could cause an event of default under our indebtedness.
We may not be no assurance we will be ablesuccessful in achieving our business objective and executing our investment strategies.
Our primary business objective is to complete our Pending Acquisitionmaximize stockholder value and any failure to do so, in whole or in part, could cause us to lose allposition ourselves for a liquidity event, such as a listing on a national securities exchange, a merger or a portionsale, within two to four years, depending on capital markets and macroeconomic conditions. Our ability to successfully achieve this objective also depends on the success of our investment strategies. Our investment strategies include selling hotels we determine are non-core to our portfolio and reallocating that capital into other corporate purposes, including debt reduction, that we believe will produce more attractive stockholder returns and the continued investment in our hotels through our ongoing PIP program. Our ability to fund these strategies, to a certain extent, depends on our ability to generate additional capital, which is not assured for a variety of reasons, including the ongoing impact of the $10.5 million deposit.
| • | the recent novel coronavirus pandemic has caused a significant decline in business and leisure travel which is adversely impacting our business and we anticipate these conditions will continue and likely worsen, and has also begun to impact credit and capital market conditions, such that we may be unable to access these markets until conditions normalize; | |
• | our asset sale program is subject to market conditions and there can be no assurance we will be successful in selling assets at our target prices or at all; | |
| • | any hotels in our portfolio that are being marketed for sale or subject to binding purchase and sale agreements may suffer operating disruptions or declines in financial performance and | |
| • | we may fail to identify more attractive uses of our capital or new investment opportunities may not perform as expected; |
if we close our Pending Acquisition before February 11, 2018, the maturity date of the Summit Loan. We intendseek to utilize $23.7 million of the proceeds from the Initial Closing to fund this repayment.
any hotels we acquire may fail to fund perform as expected and market conditions may result in lower than expected occupancy and room rates;
the remaining $10.5 millionimprovements and renovations we make at our hotels, primarily through our ongoing PIP program, may not have the desired effect of enhancing hotel performance due to a variety of factors, including factors beyond our control such as competition from new hotel supply in markets where we primarily own older hotels, which has contributed to declines in occupancy at our hotels in prior periods and may continue to have this effect;
material and other renovation costs may increase due to factors beyond our control, including as a result of the closing consideration forrecent and proposed tariffs by the one hotel to be purchased October 24, 2017 if Summit does not sell it toU.S. government and the potential of a third partytrade war between the U.S. and China, and, on a larger scale, internationally, and we are ultimately requiredmay spend more than budgeted amounts to purchase it.
any hotels we may acquire may fail to perform as expected and market conditions may result in lower than expected occupancy and room rates;
| • | hotels we may acquire may be located in unfamiliar markets where we face risks associated with an incomplete knowledge or understanding of the local market, a limited number of established business relationships in the area and a relative unfamiliarity with local governmental and permitting procedures; | |
• | we expect that any agreements we enter into for the acquisition of hotels in the future, will be subject to customary conditions to closing, including completion of due diligence investigations to our satisfaction and other conditions that are not within our control, which may not be satisfied, and we may be unable to complete an acquisition after making a non-refundable deposit and incurring certain other acquisition-related costs; and |
we may incur significant costs and divert management attention in connection with evaluating and negotiating potential acquisitions, including ones that we are payable whether or not the transaction is completed.subsequently unable to complete.
Our hotel assets have been and may continue to be subject to impairment charges.
We are required to make subjective assessments as to whether there are any impairments in the value of our assets. Upon the occurrence of certain “triggering events” under GAAP, we are required to test our hotel investments for impairment. These triggering events may include the initiation of marketing an asset for sale, significant declines in market value of the asset, significant declines in operating performance and significant adverse changes in economic conditions. A property’s value is considered to be impaired if the estimate of the future undiscounted cash flows is less than the carrying value of the property. In our estimate of cash flows, we consider factors such as trends and prospects and the effects of demand and competition on expected future operating income. If we are evaluating the potential sale of an asset, the undiscounted future cash flows consider the most likely course of action as of the balance sheet date based on current plans, intended holding periods and available market information. Additionally, we recorded goodwill in connection with the consummation of the transactions pursuant to the Framework Agreement at the Initial Closing, and we are also required to annually assess this goodwill for impairment. We have incurred impairment charges, which have an immediate direct impact on our earnings, including $114.6 million of impairment charges on our long-lived assets and $0.9 million of goodwill impairment during the year ended December 31, 2019, and $26.4 million of impairment on our long-lived assets and $3.4 million of goodwill impairment during the year ended December 31, 2018. There can be no assurance that we will not take additional charges in the future. Any future impairment could have a material adverse effect on our results in the period in which the charge is taken.
The loss of a brand license for any reason, including due to our failure to make required capital expenditures, could adversely affect our financial condition and results of operations.
All but one of our hotels operate under licensed brands pursuant to franchise agreements with hotel brand companies. The maintenance of the brand licenses for our hotels is subject to the hotel brand companies’ operating standards and other terms and conditions, including the requirement for us to make capital expenditures pursuant to PIPs. PIPs were required in connection with the acquisition of substantially all of our hotels and, likely, will be required in connection with the acquisition of any additional hotels in the future. As of December 31, 2019, we have substantially completed work on 92 of the 121 hotels that are part of our PIP program, including 13 hotels with PIP work completed during 2019.
In addition to PIP obligations, we are required under our franchise agreements to perform periodic capital improvements to bring the physical condition of our hotels into compliance with the specifications and standards the hotel franchisor or hotel brand has developed. We refer to these obligations as cyclical renovations and they normally apply to soft goods (such as carpeting, bedspreads, artwork and upholstery) and case goods (furniture and fixtures such as armoires, chairs, beds, desks, tables, mirrors and lighting fixtures). Moreover, upon regular inspection of our hotels or in connection with any future revisions to our franchise or hotel management agreements or a refinancing of our indebtedness, franchisors may determine that additional renovations are required by us.
We may need to seek additional debt or equity capital to fund PIPs and other hotel capital expenditures and related lender reserve deposits, which may not be able to make additional investments unless we are able to identify an additional source of capitalavailable on favorable terms and obtain prior approval from the Brookfield Investor.
If we default on a franchise agreement as a result of our failure to comply with the PIP or other requirements, the franchisor may have the right to terminate the applicable agreement, we may be required to pay the franchisor liquidated damages, and we may also be in default under the applicable indebtedness encumbering the hotel. In addition, if we do not have enough reserves or access to capital to supply needed funds for capital improvements throughout the life of the investment in a property and there can be no assurance this prior approval will be obtained when requested, or at all.
If we were to lose a brand license for any reason, including failure to meet the typesrequirements of investments thatour PIPs, we own.would be required to re-brand the affected hotel. As a result, the likelihoodunderlying value of the affected hotel could decline significantly from the loss of associated name recognition, marketing support, participation in guest loyalty programs and the centralized system provided by the franchisor, which, among other things, could reduce income from the affected hotel and require us to recognize an impairment charge on the hotel. Furthermore, the loss of a franchise license at a particular hotel could harm our relationship with the hotel brand company, which could impede our ability to operate other hotels under the same brand, limit our ability to obtain new franchise licenses from the franchisor in the future on favorable terms, or at all, and cause us to incur significant costs to obtain a new franchise license for the particular hotel (including a likely requirement of a property improvement plan for the new brand, a portion of the costs of which would be related solely to the change in brand rather than substantively improving the property).
Moreover, the loss of a franchise license could also be an event of default under our indebtedness that secures the property if we are unable to find a suitable replacement. Additionally, we are required pursuant to the terms of our profitability being affected byexisting indebtedness to make periodic PIP reserve deposits to cover a portion of the performanceestimated costs of any one of our investments is increased.the PIPs. We estimate we are required to make an aggregate of $12.4 million in periodic PIP reserve deposits during 2020, and we will also continuebe required to operate withmake additional PIP reserve payments during future periods. Any failure to make PIP reserve deposits when required could lead to a higher level of leverage than we would if we were continuing to raise proceeds in our IPO, resulting in higher debt service obligations and less financial and operational flexibility.
We no longer pay distributions and there can be no assurance we will resume paying distributions in the future.
We have not paid cash flow and cash on hand to meet our capital requirements, beginning with distributions payable with respect to April 2016, we suspended cash distributions and began paying distributions to our stockholders in shares of common stock. In connection with our entry into the SPA in January 2017, we suspended paying distributions to stockholders entirely.since 2016. Currently, under the Brookfield Approval Rights, prior approval is required before we can declare or pay any distributions or dividends to our common stockholders, except for cash distributions equal to or less than $0.525 per annum per share. There can be no assurance that we will resume paying distributions in cash or shares of common stock in the future. Our ability to make future cash distributions will depend on our future cash flows and may be dependent on our ability to obtain additional liquidity, which may not be available on favorable terms, or at all.
To the extent we pay cash distributions in the future, they may be funded from sources other than cash flow from operations. Funding distributions from any of sources other than cash flow from operations may negatively impact the value of an investment in our common stock. We funded all of our cash distributions from our inception in July 2013 through the suspension of cash distributions in March 2016 using proceeds from our IPO or our DRIP, which reduced the capital available for other purposes that could increase the value of an investment in our common stock. Funding distributions from borrowings could restrict the amount we can borrow for investments, which may affect our profitability. Funding distributions with the sale of assets may affect our ability to generate additional operating cash flows. Funding distributions from the sale of additional securities could dilute each stockholder's interest in us if we sell shares of our common stock or securities that are convertible or exercisable into shares of our common stock to third-party investors. We also may not have sufficient cash from operations to make a distribution required to qualify for or maintain our REIT status.
We are dependent on Crestline, which manages a large number of hotels in our portfolio pursuant to long-term management agreements, in various aspects of our business.
As of December 31, 2019, Crestline managed 73 of our 124 hotels. Thus, a substantial portion of our revenues is generated by hotels managed by Crestline. Further, most of our management agreements with Crestline have an initial term of 20 years and are generally only terminable by us prior to expiration for performance-related reasons, except, until March 31, 2023, we have an "on-sale" termination right if we replace the sold hotel with a comparable hotel not then managed by Crestline, and beginning on April 1, 2021, we will have an “on-sale” termination right upon payment of a fee. 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, or if our management agreements with Crestline included broader termination rights. We also have also entered into an annually renewable shared services agreement with Crestline pursuant to which Crestline provides us with certain accounting, tax related, treasury, information technology and other administrative services, and an annually renewable joint occupancy agreement pursuant to which we share office space with Crestline. We cannot provide assurance that Crestline will satisfy its obligations to us or effectively and efficiently operate our hotel properties. Any adverse developments (including developments related to the ongoing impact of the coronavirus pandemic) in Crestline’s business, financial strength or the failure or inability of Crestline to satisfy its obligations to us or effectively and efficiently operate our hotel properties may expose us to unknown liability.
Our rights and the rights of our stockholders to recover claims against our officers, directors and the Former Advisor are limited, which could reduce our stockholders’ and our recovery against them if they cause us to incur losses.
Maryland law provides that a director has no liability in that capacity if he or she performs his or her duties in good faith, in a manner he or she reasonably believes to be in the corporation’s best interests and with the care that an ordinarily prudent person in a like position would use under similar circumstances. In addition, subject to certain limitations set forth therein or under Maryland law, our charter provides that no director or officer will be liable to us or our stockholders for monetary damages and requires us to indemnify our directors, our officers and the Former Advisor and the Former Advisor’s affiliates and permits us to indemnify our employees and agents. We have entered into an indemnification agreement with each of our directors and officers, as well as the Former Advisor and certain of its affiliates and certain former directors and officers, providing for indemnification of such indemnitees consistent with the provisions of our charter. While the Advisory Agreement and all our other agreements with the Former Advisor and its affiliates have now terminated, at the Initial Closing (except for our property management agreementsFramework Agreement we have entered into with Crestline and a transition services agreement with each of the Former Advisor and Crestline), the Framework Agreementcertain of its affiliates provides that existing indemnification rights under our organizational documents, the Advisory Agreement, certain property management agreements and the existing indemnification agreement between the Company, its directors and officers, and the Former Advisor and certain of its affiliates will survive the Initial Closing solely with respect to claims from third parties. We and our stockholders also may have more limited rights against our directors, officers, employees and agents, and the Former Advisor and its affiliates than might otherwise exist under common law, which could reduce our stockholders’ and our recovery against them. In addition,At the Initial Closing, we may be obligatedentered into a general mutual waiver and release with the Former Advisor and certain of its affiliates, which generally provides that we have released the Former Advisor and its affiliates from all claims arising prior to fund the Initial Closing (whether known or unknown), except for certain claims related to the termination of our arrangements with the Former Advisor and transition to self-management. Pursuant to these indemnification arrangements, we have funded defense costs incurred by certain of our current and former directors, officers employees and agents, or the AdvisorsFormer Advisor and its affiliates, and we may become obligated to fund additional such costs in some cases.
Estimated Per-Share NAV is based upon subjective judgments, assumptions and opinions about future events.
On July 1, 2016,May 9, 2019, our board of directors approved an updated Estimated Per-Share NAV equal to $21.48$9.21 as of MarchDecember 31, 2016,2018, which was published on the same date. This was the first time that our board of directors determined an Estimated Per-Share NAV.May 13, 2019. It is currently anticipated that we will publish an updated Estimated Per-Share NAV no less frequently than once each calendar year. In connection with these future determinations, we will engage an independent valuer to perform appraisals of our real estate assets in accordance with valuation guidelines established by our board of directors. As with any methodology used to estimate value, the valuation methodologies that will be used by any independent valuer to value our properties involve subjective judgments concerning factors such as comparable sales, rentalprojected future revenue and operating expense data,expenses, capitalization orand discount rates, and projections of future rent and expenses. Further, our entry into the negotiated transaction to issue and sell Class C Units with a $14.75 per unit conversion price may be an indicator that our net asset value has decreased since our last published Estimated Per-Share NAV and will factor into future calculations of our Estimated Per-Share NAV. As a result, the next valuation of our assets yielding an Estimated Per-Share NAV could yield an Estimated Per-Share NAV substantially less than $21.48.
Under our valuation guidelines, our independent valuer estimates the market value of our principal real estate and real estate-related assets, and we determine the net value of our real estate and real estate-related assets and liabilities taking into consideration such estimate provided by the independent valuer. We review the valuation provided by the independent valuer for consistency with its determinations of value and our valuation guidelines and the reasonableness of the independent valuer's conclusions. Our board of directors reviews the appraisals and valuations and makes a final determination of the Estimated Per-Share NAV. Although the valuations of our real estate assets by the independent valuer are reviewed by us and approved by our board of directors, neither we nor our board of directors will independently verify the appraised value of our properties. Therefore, these valuations do not necessarily represent the price at which we would be able to sell an asset, and the appraised value of a particular property may be greater or less than its potential realizable value.
Our Estimated Per-Share NAV may differ significantly from our actual net asset value of a share of our common stock at any given time and maydoes not reflect the price that shares of our common stock would trade at if listed on a national securities exchange, the price that shares would trade in secondary markets or the price a third party would pay to acquire us.
Estimated Per-Share NAV is determined annually and therefore does not reflect changes occurring subsequent to the date of valuation.
On May 9, 2019, our board of directors approved an updated Estimated Per-Share NAV equal to $9.21 as of December 31, 2018, which was published on July 1, 2016, subsequent valuations are expected to occur annually. In connection with any valuation, our board’s estimate of the value of our real estate and real estate-related assetsMay 13, 2019. It is currently anticipated that we will be partly based on appraisals of our properties, which we expect will only be appraised in connection with the annual valuation.
Because valuations will only occur periodically, Estimated Per-Share NAV may not accurately reflect material events that would impact our actual net asset value and may suddenly change materially if the appraised values of our properties change materially or the actual operating results differ from what we originally budgeted. In connection with any annual valuation, our estimate of the value of our real estate and real estate-related assets will be partly based on appraisals of our properties, which we expect will only be appraised in connection with any valuation. Any changes in value that may have occurred since the most recent periodic valuation will not be reflected in Estimated Per-Share NAV, and there may be a sudden change in the Estimated Per-Share NAV when new appraisals and other material events are reflected. If our actual operating results cause our actual net asset value to change, such change will only be reflected in our Estimated Per-Share NAV when an annual valuation is completed.
Additionally, the dateproceeds from some of the hotels we have sold during 2019 and 2020 as part of our hotel sale program were below, and we expect that the proceeds from certain of the additional hotels for which we have entered into definitive sale agreements will be below, the corresponding estimated value of such hotel included in our Estimated Per-Share Value was calculated)NAV as of December 31, 2018, we began paying distributions to our stockholders in shares of common stock instead of cash and continued to do so until January 2017, when these distributions were suspended in connection with our entry into the SPA. The payment of distributions in common stock diluted the amount of net asset value allocable to each share of common stock (i.e.,which could negatively impact Estimated Per-Share NAV), because it increasedNAV as of December 31, 2019. Unless the numbervalue of our assets grows in excess of the PIK Distributions we pay to the holders of the Class C Units, continued accrual of PIK Distributions will have a negative impact on the value of shares of common stock outstanding but did not impact the aggregate value of a stockholder’s investment in shares ofour common stock.
Our business could suffer in the event we, Crestlineour property managers or any other party that provides us with services essential to our operations experiences system failures or cyber-incidents or a deficiency in cybersecurity.
Despite system redundancy, the implementation of security measures and the existence of a disaster recovery plan, our internal information technology networks and related systems and those of Crestlineour property managers and other parties that provide us with services essential to our operations are vulnerable to damages from any number of sources, including computer viruses, unauthorized access, energy blackouts, natural disasters, terrorism, war and telecommunication failures. Any system failure or accident that causes interruptions in our operations could result in a material disruption to our business.
A cyber-incident is considered to be any adverse event that threatens the confidentiality, integrity or availability of information resources. More specifically, a cyber-incident is an intentional attack or an unintentional event that can result in third parties gaining unauthorized access to systems to disrupt operations, corrupt data or steal confidential information. As our reliance on technology in our industry has increased, so have the risks posed to our systems and those of Crestlineour property managers and other parties that provide us with services essential to our operations, both internal and those that have been outsourced.operations. In addition, the risk of a cyber-incident, including by computer hackers, foreign governments and cyber terrorists, has generally increased as the number, intensity and sophistication of attempted attacks and intrusions from around the world have increased. Even the most well protected information, networks, systems and facilities remain potentially vulnerable because the techniques used in such attempted attacks and intrusions evolve and generally are not recognized until launched against a target, and in some cases are designed not to be detected and, in fact, may not be detected.
The remediation costs and lost revenues experienced by a victim of a cyber-incident may be significant and significant resources may be required to repair system damage, protect against the threat of future security breaches or to alleviate problems, including reputational harm, loss of revenues and litigation, caused by any breaches. In addition, a security breach or other significant disruption involving our ITinformation technology networks and related systems or those of Crestlineour property managers or any other party that provides us with services essential to our operations could:
result in misstated financial reports, violations of loan covenants, missed reporting deadlines and/or missed permitting deadlines;
affect our ability to properly monitor our compliance with the rules and regulations regarding our qualification as a REIT;
result in the unauthorized access to, and destruction, loss, theft, misappropriation or release of, proprietary, confidential, sensitive or otherwise valuable information (including information about guests at our hotels), which others could use to compete against us or for disruptive, destructive or otherwise harmful purposes and outcomes;
result in our inability to maintain the building systems relied upon by guests at our tenants for the efficient use of their leased space;hotels;
require significant management attention and resources to remedy any damages that result;
subject us to claims for breach of contract, damages, credits, penalties or termination of leasesfranchise or other agreements; or
adversely impact our reputation among hotel guests and investors generally.
Although we, Crestlineour property managers and other parties that provide us with services essential to our operations intend to continue to implement industry-standard security measures, there can be no assurance that those measures will be sufficient, and any material adverse effect experienced by us, Crestlineour property managers and other parties that provide us with services essential to our operations could, in turn, have an adverse impact on us.
Risks Related to Our Corporate Structure
We depend on the OP and its subsidiaries for cash flow and are effectively structurally subordinated in right of payment to their obligations, which include distribution and redemption obligations to holders of Class C Units and the Grace Preferred Equity Interests.
We are a holding company with no business operations of our own. Our only significant assets are and will be OP Units, representing all the equity interests in the OP other than Class C Units. We conduct, and intend to continue to conduct, all of our business operations through the OP. Accordingly, our only source of cash to pay our obligations is distributions from the OP and its subsidiaries of their net earnings and cash flows. The Class C Units rank senior to the OP Units and all other equity interests in the OP with respect to priority in payment of distributions and in the distribution of assets in the event of the liquidation, dissolution or winding-up of the OP, whether voluntary or involuntary, or any other distribution of the assets of the OP among its equity holders for the purpose of winding up its affairs.
Each of our OP’s subsidiaries is a distinct legal entity and, under certain circumstances, legal and contractual restrictions may limit our ability to obtain cash from such entities. For example, the Grace Preferred Equity Interests were issued by two of our subsidiaries that indirectly own 115 of our hotels and the holders thereof rank senior to us in payment of distributions and in the distribution of assets with respect to those hotels. Our stockholders’ claims as stockholders are structurally subordinated to all existing and future liabilities and obligations of the OP and its subsidiaries, including distribution and redemption
We are not currently paying cash distributions to our common stockholders, and our ability to make future cash distributions will depend on our future cash flows and may be dependent on our ability to obtain additional liquidity, which may not be available on favorable terms, or at all. Moreover, under the Brookfield Approval Rights, prior approval is required before we can declare or pay any distributions or dividends to our common stockholders, except for cash distributions equal to or less than $0.525 per annum per share. Our ability to pay cash distributions is also subject to the seniority of Class C Units with respect to all distributions by the OP, and we will not be able to make any cash distributions to our common stockholders if we are not able to meet our quarterly distributions obligations to the holders of Class C Units. We are also required to make periodic payments of interest to our lenders and monthly distributions to the holders of the Grace Preferred Equity Interests that have priority over any cash distributions to holders of our common stock.
Our stockholders’ interests in us were diluted by the issuance of Class C Units to the Brookfield Investor and shares of common stock to the Property Manager and the Advisor at the Initial Closing and will be further diluted to the extent we issue additional Class C Units at Subsequent Closings and as PIK Distributions.
As of December 31, 2019, approximately $411.8 million in liquidation preference of Class C Units to the Brookfield Investor pursuant to the SPA, 279,239 shares of our common stock to the Property Manager as consideration pursuant to the Framework Agreement and 524,686 shares of our common stock to the Advisor upon redemption of its limited partnership interests in the OP pursuant to the Framework Agreement.was outstanding. Pursuant to the limited partnership agreement of the OP,A&R LPA, Class C Units are convertible into OP Units at an initial conversion price of $14.75, subject to anti-dilution and other adjustments upon the occurrence of certain events and transactions, and OP Units are, in turn, generally redeemable for shares of our common stock on a one-for-one-basis or the cash value of a corresponding number of shares, at our election.
Further dilution could also occur with respect to additional Class C Units we issue. Subject toissue in the terms and conditions of the SPA, we also have the right to sell, andfuture. Although the Brookfield Investor no longer has agreedany obligations or rights to purchase additional Class C Units in an aggregate amount of uppursuant to $265.0 million at Subsequent Closings that may occur through February 2019. The Subsequent Closings are subjectthe SPA or otherwise, it has received and is entitled to conditions, and there can be no assurance they will be completed on their current terms, or at all. In addition, holders of Class C Units are also entitledcontinue to receive, with respect to each Class C Unit it holds, quarterly PIK Distributions payable in Class C Units at a rate of 5% per annum. Moreover, if the Company failswe fail to pay the quarterly cash distributions on Class C Units when due, the per annum rate for cash distributions will increase to 10% until all accrued and unpaid distributions required to be paid in cash are reduced to zero. Any accrued and unpaid distributions would be part of the liquidation preference of Class C Units that are convertible into OP Units and subsequently redeemable for shares of our common stock.
Subject to the Brookfield Approval Rights, we may also conduct future offerings of common stock or equity securities that are senior to our common stock for purposes of dividend distributions or upon liquidation. We also have issued, and expect to continue to issue, share-based awards to our directors, officers and employees. 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 our future offerings. To the extent we issue additional equity interests, our stockholders’ percentage ownership interest in us will be diluted. In addition, depending upon the terms and pricing of any additional offerings and the value of our real estate investments, our investors may also experience dilution in the book value and fair value of their shares.
Additionally, any convertible, exercisable or exchangeable securities that we issue in the future may have rights, preferences and privileges more favorable than those of our common stock and may result in dilution to owners of our common stock. Holders of our common stock are not entitled to preemptive rights or other protections against dilution.
The amount we would be required to pay holders of Class C Units in a Fundamental Sale Transaction may discourage a third party from acquiring us in a manner that might otherwise result in a premium price to our stockholders.
The amount we would be required to pay holders of Class C Units upon the consummation of any Fundamental Sale Transaction, which would generally include any merger or acquisition transaction whereby all shares of our common stock or
in the case of a Fundamental Sale Transaction consummated on or prior to February 27, 2019, an amount per Class C Unit in cash equal to such Class C Unit’s pro rata share (determined based on the respective Liquidation Preferences of all Class C Units) of an amount equal to (I) $800.0 million less (II) the sum of (i) the difference between (A) $400.0 million and (B) the aggregate purchase price paid under the SPA of all outstanding Class C Units (with the purchase price for Class C Units issued as PIK Distributions being zero for these purposes) and (ii) all cash distributions actually paid to date;
in the case of a Fundamental Sale Transaction consummated on or after the date that is 57 months and one day after the Initial Closing,January 1, 2022, an amount per Class C Unit in cash equal to the liquidation preference of such Class C Unit plus a make whole premium for such Class C Unit calculated based on a discount rate of 5% and the assumption that such Class C Unit had not been redeemed until March 31, 2022, the fifth anniversary of the Initial Closing.
The premium required to be paid to redeem the Class C Units upon consummation of a Fundamental Sale Transaction may have the effect of delaying, deferring or preventing a transaction that might otherwise provide a premium price for holders of our common stock. In addition, subject to the Brookfield Approval Rights, we could issue preferred stock with terms and conditions that could have a priority as to distributions and amounts payable upon liquidation over the rights of the holders of our common stock.
If we are unable to obtain the financing required to redeem any Class C Units when required to do so, the Brookfield Investor will be able to elect a majority of our board of directors and may cause us, through the exercise of the rights of the Special General Partner, to commence selling our assets until the Class C Units have been fully redeemed.
As of December 31, 2019, approximately $135.0$411.8 million in liquidation preference of Class C Units was outstanding and anoutstanding. Although the Brookfield Investor no longer has any obligations or rights to purchase additional $265.0 million in liquidation preference of Class C Units, may be issued at Subsequent Closing. Quarterlyfuture quarterly PIK Distributions will also increase the liquidation preference of the outstanding Class C Units.
From time to time on or after March 31, 2022, the fifth anniversary of the Initial Closing, and at any time following the rendering of a judgment enjoining or otherwise preventing the holders of Class C Units, the Brookfield Investor or the Special General Partner from exercising their respective rights, any holder of Class C Units may, at its election, require us to redeem any or all of its Class C Units for an amount in cash equal to the liquidation preference. In addition, upon the occurrence of certain events related to our failure to qualify as a REIT or the occurrence of a material breach by us of certain provisions of the limited partnership agreement of the OP,A&R LPA, in each case, subject to certain notice and cure rights, holders of Class C Units have the right to require us to redeem any Class C Units submitted for redemption for an amount equivalent to what the holders of Class C Units would have been entitled to receive in a Fundamental Sale Transaction if the date of redemption were the date of the consummation of the Fundamental Sale Transaction. These amounts are set forth under “-The amount we would be required to pay holders of Class C Units in a Fundamental Sale Transaction may discourage a third party from acquiring us in a manner that might otherwise result in a premium price to our stockholders.”
Three months after the failure of the OP to redeem Class C Units when required to do so:
the Special General Partner will have, subject to first obtaining any approval (including the approval of our stockholders) required by applicable Maryland law, the exclusive right, power and authority to sell the assets or properties of the OP for cash upon engaging a reputable, national third party sales broker or investment bank reasonably acceptable to holders of a majority of the then outstanding Class C Units to conduct an auction or similar process designed to maximize the sales price, and the proceeds from sales of assets or properties by the Special General Partner must be used first to make any and all payments or distributions due or past due with respect to the Class C Units, regardless of the impact of such payments or distributions on us;
the holder of the Redeemable Preferred Share would have the right to increase the size of our board of directors by a number of directors that would result in the holder of the Redeemable Preferred Share being entitled to nominate and elect a majority of our board of directors and fill the vacancies created by the expansion of our board of directors, subject to compliance with the provisions of our charter requiring at least a majority of our directors to be “Independent Directors”;
the 5% per annum PIK Distribution rate would increase to a per annum rate of 7.50%, and would further increase by 1.25% per annum for the next four quarterly periods thereafter, up to a maximum per annum rate of 12.5%; and
the standstill (but not the standstill on voting) provisions otherwise applicable to the Brookfield Investor and certain of its affiliates would terminate.
Any exercise of these rights following our failure to redeem any Class C Units when required to do so could have a material and adverse effect on our business and results of operations, as well as the value of shares of our common stock. There can be no assurance that we will be able to obtain the financing required to redeem any Class C Units when required to do so on favorable terms, or at all. Moreover, such financing may be subject to the Brookfield Approval Rights, and there can be no assurance this prior approval will be obtained when requested, or at all.
The limit on the number of shares a person may own may discourage a takeover that could otherwise result in a premium price to our stockholders.
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 (prospectively or retroactively) by our board of directors, no person may own more than 4.9% in value of the aggregate of our outstanding shares of stock or more than 4.9% (in value or in number of shares, whichever is more restrictive) of any class or series of shares of our stock. This restriction may have the effect of delaying, deferring or preventing a change in control of us, including an extraordinary transaction (such as a merger, tender offer or sale of all or substantially all our assets) that might provide a premium price for holders of our common stock. At the Initial Closing, as contemplated by and pursuant to the SPA, we granted the Brookfield Investor and its affiliates a waiver of these aggregate share ownership limits, and permitted the Brookfield Investor and its affiliates to own up to 49.9% in value of the aggregate of the outstanding shares of our stock or up to 49.9% (in value or in number of shares, whichever is more restrictive) of any class or series of shares of our stock, subject to certain terms and conditions.
Maryland law prohibits certain business combinations, which may make it more difficult for us to be acquired and may limit our stockholder’s ability to exit the investment.
Under Maryland law, “business combinations” between a Maryland corporation and an interested stockholder or an affiliate of an interested stockholder are prohibited for five years after the most recent date on which the interested stockholder becomes an interested stockholder. These business combinations include a merger, consolidation, share exchange or, in circumstances specified in the statute, an asset transfer or issuance or reclassification of equity securities. An interested stockholder is defined as:
any person who beneficially owns, directly or indirectly, 10% or more of the voting power of the corporation’s outstanding voting stock; or
an affiliate or associate of the corporation who, at any time within the two-year period prior to the date in question, was the beneficial owner of 10% or more of the voting power of the then outstanding stock of the corporation.
A person is not an interested stockholder under the statute if our board of directors approved in advance the transaction by which the person otherwise would have become an interested stockholder. However, in approving a transaction, our board of directors may provide that its approval is subject to compliance, at or after the time of the approval, with any terms and conditions determined by our board of directors.
After the five-year prohibition, any such business combination between the Maryland corporation and an interested stockholder generally must be recommended by our board of directors and approved by the affirmative vote of at least:
80% of the votes entitled to be cast by holders of outstanding shares of voting stock of the corporation; and
two-thirds of the votes entitled to be cast by holders of voting stock of the corporation other than shares held by the interested stockholder with whom or with whose affiliate the business combination is to be effected or held by an affiliate or associate of the interested stockholder.
These super-majority vote requirements do not apply if the corporation’s common stockholders receive a minimum price, as defined under Maryland law, for their shares in the form of cash or other consideration in the same form as previously paid by the interested stockholder for its shares. The business combination statute permits various exemptions from its provisions, including business combinations that are exempted by our board of directors prior to the time that the interested stockholder becomes an interested stockholder. Pursuant to the statute, our board of directors has exempted any business combination involving the Brookfield Investor and certain affiliates of the Brookfield Investor. Consequently, the five-year prohibition and the super-majority vote requirements will not apply to business combinations between us and the Brookfield Investor and certain affiliates of the Brookfield Investor. As a result, the Brookfield Investor and certain affiliates of the Brookfield Investor may be able to enter into business combinations with us that may not be in the best interest of our stockholders, without compliance with the super-majority vote requirements and the other provisions of the statute. The business combination statute may discourage others from trying to acquire control of us and increase the difficulty of consummating any offer to acquire us.
Maryland law limits the ability of a third party to buy a large stake in us and exercise voting power in electing directors, which may discourage a takeover that could otherwise result in a premium price to our stockholders.
The Maryland Control Share Acquisition Act provides that a holder of “control shares” of a Maryland corporation acquired in a “control share acquisition” has no voting rights with respect to such shares except to the extent approved by the affirmative vote of stockholders entitled to cast two-thirds of the votes entitled to be cast on the matter. Shares of stock owned by the acquirer, by officers of the corporation or by employees who are directors of the acquiror,corporations, are also excluded from shares entitled to vote on the matter. “Control shares” are voting shares of stock which, if aggregated with all other shares of stock owned by the acquirer or in respect of which the acquirer can exercise or direct the exercise of voting power (except solely by virtue of a revocable proxy), would entitle the acquirer to exercise voting power in electing directors within specified ranges of voting power. Control shares do not include shares the acquiring person is then entitled to vote as a result of having previously obtained stockholder approval or shares acquired directly from the corporation. A “control share acquisition” means, subject to certain exceptions, the acquisition of issued and outstanding control shares. The control share acquisition statute does not apply (a) to shares acquired in a merger, consolidation or share exchange if the corporation is a party to the transaction, or (b) to acquisitions approved or exempted by the charter or bylaws of the corporation. Our bylaws contain a provision exempting from the Maryland Control Share Acquisition Act any and all acquisitions of our stock by any person. There can be no assurance that this provision will not be amended or eliminated at any time in the future.
Our stockholders have limited voting rights under our charter and Maryland law.
Pursuant to Maryland law and our charter, our stockholders are entitled to vote only on the following matters without concurrence of our board of directors: (a) election or removal of directors; (b) amendment of theour charter, as provided in Article XIII of theour charter; (c) dissolution of us;our dissolution; and (d) to the extent required under Maryland law our merger or consolidation of uswith another entity or the sale or other disposition of all or substantially all of our assets. With respect to all other matters, our board of directors must first adopt a resolution declaring that a proposed action is advisable and direct that such matter be submitted to our stockholders for approval or ratification. Certain matters our board of directors may otherwise direct to be submitted to our stockholders for approval or ratification may also be subject to the Brookfield Approval Rights such that stockholder approval or ratification may not be sufficient for the matter to be decided or become effective. These limitations on voting rights may limit our stockholders’ ability to influence decisions regarding our business.
Subject to the Brookfield Approval Rights, our board of directors may change our investment policies without stockholder approval, which could alter the nature of our stockholder’sstockholders’ investments.
Our charter requires that our independent directors review our investment policies at least annually to determine that the policies we are following are in the best interest of the stockholders. These policies may change over time. The methods of implementing our investment policies also may vary as the commercial debt markets change, new real estate development trends emerge and new investment techniques are developed. Our investment policies, the methods for their implementation, and our other objectives, policies and procedures may be altered by our board of directors without the approval of our stockholders subject to the Brookfield Approval Rights. We may make adjustments to our portfolio based on real estate market conditions and investment opportunities, and we may change our targeted investments and investment guidelines at any time without the consent of our stockholders, which could result in our making investments that are different from, and possibly riskier than, our current investments. As a result, the nature of our stockholder’sstockholders’ investments could change without their consent. A change in our investments or investment guidelines may increase our exposure to interest rate risk, default risk and real estate market fluctuations.
Risks Related to Investments in Real Estate
Our operating results will be affected by economic and regulatory changes that have an adverse impact on the real estate market in general, and we may not be profitable or realize growth in the value of our real estate properties.
Our operating results are subject to risks generally incident to the ownership of real estate, including:
changes in general economic or local conditions;
changes in supply of or demand for similar or competing properties in an area;
changes in interest rates and availability of permanent mortgage funds that may render the sale of a property difficult or unattractive;
changes in tax, real estate, environmental and zoning laws; and
periods of high interest rates and tight money supply.
These and other reasons may prevent us from being profitable or from realizing growth or maintaining the value of our real estate properties.
A prolonged economic slowdown, a lengthy or severe recession or declining real estate values could harm our investments.
Our investments may be susceptible to economic slowdowns or recessions, which could lead to financial losses and a decrease in revenues, earnings and assets. An economic slowdown or recession, in addition to other non-economic factors such as an excess supply of properties, could have a material negative impact on the values of our investments. Declining real estate values will reduce the value of our properties, as well as our ability to refinance our properties and use the value of our existing properties to support the purchase or investment in additional properties. A severe weakening of the economy or a recession could also lead to lower occupancy, which could create an oversupply of rooms resulting in reduced rates to maintain occupancy. There can be no assurance that our real estate investments will not be adversely impacted by a severe slowing of the economy or a recession. Because we primarily own older hotels, we are more susceptible to declines in consumer demand, the impact of increases in hotel supply and downturns in economic conditions. Fluctuations in interest rates, limited availability of capital and other economic conditions beyond our control could negatively impact our portfolio and decrease the value of an investment in our common stock.
We have obtained only limited warranties when we purchase properties and have only limited recourse if our due diligence did not identify any issues that lower the value of our properties.
We oftenmay continue to purchase properties in their “as is” condition on a “where is” basis and “with all faults,” without any warranties of merchantability or fitness for a particular use or purpose.purpose, and with limited recourse against the prior owners or other third parties with respect to unknown liabilities such as the costs of cleaning up undisclosed environmental contamination. In addition, purchase agreements oftenmay contain only limited warranties, representations and indemnifications that will only survive for a limited period after the closing. The purchase of properties with limited warranties increases the risk that we may lose some or all our invested capital in the property as well as the loss of income from that property.
Our real estate investments are relatively illiquid and subject to some restrictions on sale, and therefore we may not be able to dispose of properties at the time of our choosing or on favorable terms.
The real estate market is affected by many factors, such as general economic conditions, availability of financing, interest rates and other factors, including supply and demand, that are beyond our control. We cannot predict whether we will be able to sell any property 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 cannot predict the length of time needed to find a willing purchaser and to close the sale of a property. We may be required to expend funds to correct defects or to make improvements before a property can be sold. We cannot assure our stockholders that we will have funds available to correct such defects or to make such improvements. In addition, substantially all of our properties serve as collateral under our indebtedness and we have agreed to restrictions under our indebtedness that prohibit the sale of certain of our properties at all or unless certain conditions have been met, including the payment of release prices, the maintenance of financial ratios and/or the payment of yield maintenance premiums. We may agree to similar restrictions, or other restrictions, such as a limitation on the amount of debt that can be placed or repaid on a property, with respect to other properties in the future. Our inability to sell a property when we desire to do so may cause us to reduce our selling price for the property. Moreover, most dispositions we could make would be subject to the Brookfield Approval Rights and there can be no assurance this prior approval will be obtained when requested, or at all. We have agreed in the limited partnership agreement of the OPA&R LPA that, three months after the failure of the OP to redeem Class C Units when required to do so, the Special General Partner will have certain rights to sell the assets or properties of the OP for cash upon engaging a reputable, national third party sales broker or investment bank to conduct an auction or similar process designed to maximize the sales price, but there can be no assurance this process will be successful in achieving the intended outcome. Moreover, the proceeds from sales of assets or properties by the Special General Partner must be used first to make any and all payments or distributions due or past due with respect to the Class C Units, regardless of the impact of such payments or distributions on the Company or the OP.
Upon sales of properties or assets, we may become subject to contractual indemnity obligations and incur material liabilities and expenses, including tax liabilities, change of control costs, prepayment penalties, required debt repayments, transfer taxes and other transaction costs. For example, subject to a replacement right and a right to terminate upon paymentmost of a termination fee beginning in April 2021, four years after the Initial Closing, our management agreements with Crestline do not terminateare only terminable in connection with a sale which would require usprior to obtainMarch 31, 2023 if we replace the consent ofsold hotel with a comparable hotel determined by historical revenue or, beginning in April 2021, if we pay Crestline to terminate the management agreement to effect a sale of a property, which may not be available on commercially reasonable terms, or at all.termination fee. In addition, the payment of any release price and repayment of mortgage indebtedness will reduce the net proceeds we receive from any asset sales. Any delay in our receipt of proceeds, or diminishment of proceeds, from the sale of a property could adversely impact us.
We have financed and may in the future acquire or finance properties with lock-out provisions,restrictive covenants, which may prohibit us from sellinglimit our ability to sell and refinance properties, which could have an adverse effect on our stockholders’ investments.
Our existing indebtedness includes customary restrictive covenants which are included in certain oflimit our current indebtednessability to freely sell and may be included in our future indebtedness, could materially restrict us from selling or otherwise disposing of or refinancingrefinance properties. For example, these provisions may prohibit us or restrict us from prepaying all or a portion of the debt for a period of time or may require us to maintain specified debt levels forpay a period of time on someyield maintenance premium or all properties,a release price to the lender and satisfy other financial or may prohibit or restrict us from releasing propertiesother covenants in order to release the property from the lender’s liens. TheseTherefore, these provisions affect our ability to turn our investments into cash and thus affect cash available for distributions to our stockholders. Lock-out provisionscash. They could also impair our ability to take other actions during the lock-out periodloan term that could be in the best interests of our stockholders and, therefore, may have an adverse impact on the value of our shares, relative to the value that would result if the lock-out provisionsrestrictive covenants did not exist. In particular, lock-out provisionsthe restrictive covenants could preclude us from participating in major transactions that could result in a disposition of our assets or a change in control even though that disposition or change in control might be in the best interests of our stockholders.
If we are found to be in breach of a ground lease or are unable to renew a ground lease, we could be materially and adversely affected.
As of theDecember 31, 2019, a total of nine hotels in the Grace Portfolioour portfolio are on land subject to ground leases. Accordingly,leases or their equivalent. For these hotels, we only own a long-term leasehold or similar interest, in those hotels, and we have no economic interest in the land or buildings at the expiration of the ground lease and will not share in the income stream derived from the lease or in any increase in value of the land associated
If we are found to be in breach of a ground lease, we could lose the right to use the hotel. We could also be in default under the Grace Indebtedness.applicable indebtedness. In addition, unless we can purchase a fee interest in the underlying land and improvements or extend the terms of these leases before their expiration, as to which no assurance can be given, we will lose our right to operate these properties and our interest in the improvements upon expiration of the leases. Our ability to exercise any extension options relating to our ground leases is subject to the condition that we are not in default under the terms of the ground lease at the time that we exercise such options, and we can provide no assurances that we will be able to exercise any available options at such time. Our ability to exercise any extension option is further subject to conditions contained in the Grace Indebtedness and the Brookfield Approval Rights. Furthermore, we can provide no assurances that we will be able to renew any ground lease upon its expiration.expiration, and any renewal would be subject to the Brookfield Approval Rights and conditions contained in the applicable indebtedness. If we were to lose the right to use a hotel due to a breach or non-renewal of the ground lease, we would be unable to derive income from such hotel and would be required to purchase an interest in another hotel to attempt to replace that income.
Joint venture investments could be adversely affected by our lack of sole decision-making authority, our reliance on the financial condition of co-venturers and disputes between us and our co-venturers.
We own two of our hotels through joint venture arrangements and, subject to the Brookfield Approval Rights, may enter into other joint ventures, partnerships and other co-ownership arrangements (including preferred equity investments) for the purpose of making investments.investments in existing or new hotels. In such event, we would not be in a position to exercise sole decision-making authority regarding the joint venture. Investments in joint ventures may, under certain circumstances, involve risks not present were a third party not involved, including the possibility that partners or co-venturers might become bankrupt or fail to fund their required capital contributions. Co-venturers may have economic or other business interests or goals which are inconsistent with our business interests or goals, and may be in a position to take actions contrary to our policies or objectives. Such investments may also have the potential risk of impasses on decisions, such as a sale, because neither we nor the co-venturer would have full control over the joint venture. In addition, to the extent our participation represents a minority interest, which is the case with one of the two hotels we have invested in through joint venture arrangements and could be the case for any future joint venture arrangements, a majority of the participants may be able to take actions which are not in our best interests because of our lack of full control. Disputes between us and co-venturers may result in litigation or arbitration that would increase our expenses and prevent our officers and/or directors from focusing their time and effort on our business. Consequently, actions by or disputes with co-venturers might result in subjecting properties owned by the joint venture to additional risk. In addition, we may in certain circumstances be liable for the actions of our co-venturers.
We may restrict our abilitynot be able to operate a property, which may adversely affect ouroffset increased hotel operating costs, including labor costs, with higher room rates or other expense reduction measures.
Certain of the expenses associated with operating our hotels, such as essential hotel staff, real estate taxes and reduceinsurance, are relatively fixed. They do not necessarily decrease directly with a reduction in revenue at the amount of funds availablehotels and may be subject to pay distributionsincreases that are not related to our stockholders.
Additionally, certain costs, such as expenses for fuel, utilities, laborhotel staff related to housekeeping and insurance,room operations, reservation systems, room supplies, linen and laundry services, are not fixed and may increase in the future. ToIn the extent such increases affectevent 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.
Moreover, labor costs increased during 2017, 2018 and 2019, primarily due to U.S. labor market tightening, job creation and government regulations surrounding wages, healthcare and other benefits, and we anticipate this trend will continue during 2020. Our managers have not been, and may continue not to be, able to fully offset any fixed or increased expenses with higher room rates. Any initiative to achieve higher room rates is subject to a variety of risks and therefore ouruncertainties, including that higher room occupancy at our lodging properties, our cash flow and operating resultsrates may reduce occupancy. There can be no assurance any other initiatives that may be negatively affected.
Our real properties are subject to property taxes that may increase in the future, which could adversely affect our cash flow.
Our real properties are subject to real property taxes that may increase as tax rates change and as the real properties are assessed or reassessed by taxing authorities. If we fail to pay any such taxes, the applicable taxing authority may place a lien on the real property and the real property may be subject to a tax sale.
Uninsured losses relating to real property or excessively expensive premiums for insurance coverage could reduce our cash flows.
Our general liability coverage, property insurance coverage and umbrella liability coverage on all our properties may not be adequate to insure against liability claims and provide for the costs of defense. Similarly, we may not have adequate
This risk is particularly relevant with respect to potential acts of terrorism. The Terrorism Risk Insurance Act of 2002 (the "TRIA"), under which the U.S. federal government bears a significant portion of insured losses caused by terrorism, will expire on December 31, 2020,2027, and there can be no assurance that Congress will act to renew or replace the TRIA following its expiration. In the event that the TRIA is not renewed or replaced, terrorism insurance may become difficult or impossible to obtain at reasonable costs or at all, which may result in adverse impacts and additional costs to us.
Changes in the cost or availability of insurance due to the non-renewal of the TRIA or for other reasons could expose us to uninsured casualty losses. If any of our properties incurs a casualty loss that is not fully insured, the value of our assets will be reduced by any such uninsured loss, which may reduce the value of our stockholders’ investments. In addition, other than any working capital reserve or other reserves we may establish, we have no source of funding to repair or reconstruct any uninsured property. Also, to the extent we must pay unexpectedly large amounts for insurance, we could suffer reduced earnings.
Additionally, mortgage lenders insist in some cases that commercial property owners purchase coverage against terrorism as a condition for providing mortgage loans. Accordingly, to the extent terrorism risk insurance policies are not available at reasonable costs, if at all, our ability to finance or refinance our properties could be impaired. In such instances, we may be required to provide other financial support, either through financial assurances or self-insurance, to cover potential losses. We may not have adequate, or any, coverage for such losses.
Terrorist attacks and other acts of violence, civilian unrest or war may affect the markets in which we operate our business and our profitability.
Our properties are located in major metropolitan areas as well as densely populated sub-markets that are susceptible to terrorist attack. In addition, any kind of terrorist activity or violent criminal acts, including terrorist acts against public institutions or buildings or modes of public transportation (including airlines, trains or buses) could have a negative effect on our business.
More generally, any terrorist attack, other act of violence or war, including armed conflicts, could result in increased volatility in, or damage to, the worldwide financial markets and economy. Increased economic volatility could adversely affect our properties' ability to conduct their operations profitably or our ability to borrow money or issue capital stock at acceptable prices.
Damage from catastrophic weather and other natural events and climate change could result in losses to us.
Certain of our properties are located in areas that may experience catastrophic weather and other natural events from time to time, including hurricanes or other severe weather, flooding, fires, snow or ice storms, windstorms or, earthquakes. These adverse weather and natural events could cause substantial damages or losses to our properties which could exceed our insurance coverage. In the event of a loss in excess of insured limits, we could lose our capital invested in the affected property, as well as anticipated future revenue from that property. We could also continue to be obligated to repay any mortgage indebtedness or other obligations related to the property. Any such loss could materially and adversely affect our business and our financial condition and results of operations.
To the extent that significant changes in the climate occur, we may experience extreme weather and changes in precipitation and temperature and rising sea levels, all of which may result in physical damage to or a decrease in demand for properties located in these areas or affected by these conditions. Should the impact of climate change be material in nature, including destruction of our properties, or occur for lengthy periods of time, our financial condition or results of operations may be adversely affected.
In addition, changes in federal and state legislation and regulation on climate change could result in increased capital expenditures to improve the energy efficiency of our existing properties or to protect them from the consequence of climate change.
Competition with third parties in acquiring properties and other investments may reduce our profitability and the return on our stockholder’sstockholders' investments.
We compete with many other entities engaged in real estate investment activities, including individuals, corporations, bank and insurance company investment accounts, private investment funds, other REITs, real estate limited partnerships, and other entities engaged in real estate investment activities, many of which have greater resources than we do. In addition, affiliates of the Brookfield Investor are or may be in the business of making investments in, and have or may have investments in, other businesses similar to, and that may compete with, our business. Larger REITs may enjoy significant competitive advantages that result from, among other things, a lower cost of capital and enhanced operating efficiencies. In addition, the number of entities and the amount of funds competing for suitable investments may increase. Any such increase would result in increased demand for these assets and therefore increased prices paid for them. If we pay higher prices for properties, and other investments, our profitability will be reduced and our stockholders may experience a lower return on their investments.
Acquiring or attempting to acquire multiple properties in a single transaction may adversely affect our operations.
Our hotel portfolio was acquired interests in 116 hotels in one transaction when we acquired the Grace Portfolio.a series of portfolio transactions covering multiple properties. We have also acquired 20 additional hotels and may acquire up to eight additional hotels in our Pending Acquisition if we are able to identify a source of financing, which may not be available on favorable terms or at all. If we are able to raise additional capital to make additional investments, we may again attempt to acquire multiple properties in a single transaction, subject to the Brookfield Approval Rights. Portfolio acquisitions are more complex and expensive than single-property acquisitions, and the risk that a multiple-property acquisition does not close may be greater than in a single-property acquisition. Portfolio acquisitions also may result in us owning investments in geographically dispersed markets, placing additional demands on our ability to manage the properties in the portfolio. In addition, a seller may require that a group of properties be purchased as a package even though we may not want to purchase one or more properties in the portfolio. In these situations, if we are unable to identify another person or entity to acquire the unwanted properties, we may be required to operate or attempt to dispose of these properties. We may be required to accumulate a large amount of cash in order to acquire multiple properties in a single transaction. We would expect the returns
Our property managers may fail to integrate their subcontractors into their operations in an efficient manner.
Our property managers may rely on multiple subcontractors for on-site property management of our properties. If Crestline or any of our third-party property managers are unable to integrate these subcontractors into their operations in an efficient manner, Crestline or any of our third-party property managersthey may have to expend substantial time and money coordinating with these subcontractors, which could have a negative impact on the revenues generated from such properties.
Discovery of previously undetected environmentally hazardous conditions may adversely affect our operating results.
We are subject to various federal, state and local laws and regulations that (a) regulate certain activities and operations that may have environmental or health and safety effects, such as the management, generation, release or disposal of regulated materials, substances or wastes, (b) impose liability for the costs of cleaning up, and damages to natural resources from, past spills, waste disposals on and off-site, or other releases of hazardous materials or regulated substances, and (c) regulate workplace safety. Compliance with these laws and regulations could increase our operational costs. Violation of these laws may subject us to significant fines, penalties or disposal costs, which could negatively impact our results of operations, financial position and cash flows. Under various federal, state and local environmental laws, (including those of foreign jurisdictions), a current or previous owner or operator of real property may be liable for the cost of removal or remediation of hazardous or toxic substances on, under or in such property. The costs of removal or remediation could be substantial. Such laws often impose liability whether or not the owner or operator knew of, or was responsible for, the presence of such hazardous or toxic substances. Certain environmental laws and common law principles could be used to impose liability for release of and exposure to hazardous substances, including asbestos-containing materials into the air, and third parties may seek recovery from owners or operators of real properties for personal injury or property damage associated with exposure to released hazardous substances. In addition, when excessive moisture accumulates in buildings or on building materials, mold growth may occur, particularly if the moisture problem remains undiscovered or is not addressed over a period of time. Some molds may produce airborne toxins or irritants. Concern about indoor exposure to mold has been increasing, as exposure to mold may cause a variety of adverse health effects and symptoms, including allergic or other reactions. As a result, the presence of significant mold at any of our properties could require us to undertake a costly remediation program to contain or remove the mold from the affected property.
Accordingly, we may incur significant costs to defend against claims of liability, to comply with environmental regulatory requirements, to remediate any contaminated property, or to pay personal injury claims.
Moreover, environmental laws also may impose liens on property or other restrictions on the manner in which property may be used or businesses may be operated, and these restrictions may require substantial expenditures or prevent us or Crestline or any of our third-party property managers from operating such properties. Compliance with new or more stringent laws or regulations or stricter interpretation of existing laws may require us to incur material expenditures. Future laws, ordinances or regulations or the discovery of currently unknown conditions or non-compliance may impose material liability under environmental laws.
Costs associated with complying with the Americans with Disabilities Act of 1990 may decrease our cash available for distributions.
Our properties may beare subject to the Americans with Disabilities Act of 1990, as amended or the Disabilities Act.(the “Disabilities Act”). Under the Disabilities Act, all places of public accommodation are required to comply with federal requirements related to access and use by disabled persons. TheWe believe the properties in our portfolio substantially comply with the present requirements of the Disabilities Act has separateAct. However, we have not conducted a comprehensive audit or investigation of all of our properties to determine our compliance, requirements for “public accommodations” and “commercial facilities” that generally require that buildingswe will continue to assess our properties and services be made accessible and available to people with disabilities. The Disabilities Act’s requirements could require removalmake alterations as appropriate in this respect. If one or more of access barriers and could resultthe hotels in the imposition of injunctive relief, monetary penalties or,our portfolio is not in some cases, an award of damages. We will attempt to acquire properties that complycompliance with the Disabilities Act, we may be required to make significant unanticipated expenditures to bring the hotel into compliance and we might incur damages or place the burden on the seller or other third party to ensure compliance with the Disabilities Act. We cannot assure our stockholders that we will be able to acquire properties or allocate responsibilities in this manner. Any of our funds used for Disabilities Act compliance will reduce our net income and the amount of cash available for distributions to our stockholders.
Risks Related to the Lodging Industry
Our hotels are subject to all the risks common to the hotel industry and subject to market conditions that affect all hotel properties.
All of the properties we own are hotels, subject to all the risks of the hotel industry. Adverse trends in the hotel industry could adversely affect hotel occupancy and the rates that can be charged for hotel rooms as well as hotel operating expenses, and generally include:
increases in supply of hotel rooms that exceed increases in demand;
increases in energy costs and other travel expenses that reduce business and leisure travel;
reduced business and leisure travel due to continued geo-political uncertainty, including terrorism, public health emergencies, economic slowdowns, natural disasters and other world events impacting the global economy and the travel and hotel industries;
reduced business and leisure travel from other countries to the United States, where all of our hotels are currently located, due to the strength of the U.S. Dollar as compared to the currencies of other countries;
adverse effects of declines in general and local economic activity;
adverse effects of a downturn in the hotel industry; and
risks generally associated with the ownership of hotels and real estate, as discussed below.
We do not have control over the market and business conditions that affect the value of our lodging properties. Hotel properties are subject to varying degrees of risk generally common to the ownership of hotels, many of which are beyond our control, including the following:
increased competition from other existing hotels in our markets;
new hotels entering our markets, which may adversely affect the occupancy levels and average daily rates of our lodging properties;
declines in business and leisure travel;
increases in energy costs, increased threat of terrorism, terrorist events, airline strikes or other factors that may affect travel patterns and reduce the number of business and leisure travelers;
increases in labor and other operating costs due to inflation and other factors that may not be offset by increased room rates;
unavailability of labor;labor and increases in minimum wage levels which increase the cost associated with hourly employees at our hotels;
changes in, and the related costs of compliance with, governmental laws and regulations, fiscal policies and zoning ordinances;
inability to adapt to dominant trends in the hotel industry or introduce new concepts and products that take advantage of opportunities created by changing consumer spending patterns and demographics; and
adverse effects of international, national, regional and local economic and market conditions.
The hotel business is seasonal, which affects our results of operations from quarter to quarter.
The hotel industry is seasonal in nature. This seasonality can cause quarterly fluctuations in our financial condition and operating results. Generally, occupancy rates and hotel revenues are greater in the second and third quarters than in the first and fourth quarters.
We can provide no assurances that our cash flows will be sufficient to offset any shortfalls that occur as a result of these fluctuations.We do not operate our lodging properties.
We cannot and do not directly or indirectly operate our lodging properties and, as a result, we depend on the ability of Crestline and any third-party property managers, to operate our hotel properties successfully. Because of certain REIT qualification rules, we cannot directly operate any lodging properties we own or actively participate in the decisions affecting their daily operations. Thus, even if we believe our lodging properties are being operated inefficiently or in a manner that does not result in satisfactory operating results, we may not be able to require the management company to change their method of operation of our lodging properties. Any negative publicity or other adverse developments (including developments related to the ongoing impact of the coronavirus pandemic) that affect that operator and/or its affiliated brands generally may adversely affect our results of operations, financial condition, and consequently cash flows thereby impacting our ability to meet our capital requirements. There can be no assurance that any management company we engage will manage any lodging properties we acquire in an efficient and satisfactory manner.
We rely on Crestline and third-party property managers to establish and maintain adequate internal controls over financial reporting at our lodging properties. In doing so, Crestline and any third-partyeach property managers should havemanager has policies and procedures in place that allow it to effectively monitor and report to us the operating results of our lodging properties which ultimately are included in our consolidated/combinedconsolidated financial statements. Because the operations of our lodging properties
If we replace Crestline or terminate any third-party property manager, we may be required by the terms of the relevant management agreement to pay substantial termination fees, and we may experience significant disruptions at the affected lodging properties. We may not be able to make arrangements with a management company with substantial prior lodging experience in the future. If we experience such disruptions, it may adversely affect our results of operations, financial condition and our cash flows, including our ability to meet our capital requirements.
Our use of the taxable REIT subsidiary structure increases our expenses.
A taxable REIT subsidiary structure subjects us to the risk of increased lodging operating expenses. The performance of our taxable REIT subsidiaries will be based on the operations of our lodging properties. Our operating risks include not only changes in hotel revenues and changes to our taxable REIT subsidiaries’ ability to pay the rent due to us under the leases, but also increased hotel operating expenses, including, but not limited to, the following cost elements:
wage and benefit costs;
repair and maintenance expenses;
energy costs;
property taxes;
insurance costs; and
other operating expenses.
Any increases in one or more these operating expenses could have a significant adverse impact on our results of operations, cash flows and financial position.
Restrictive covenants and other provisions in 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 franchise agreements are long-terms agreements with general prohibitions against or prohibitive payments for early termination and 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 franchisor. For example, the terms of these agreements may restrict our ability to sell a hotel unless the purchaser is not a competitor of the franchisor, enters into a replacement franchise 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 franchisors (or litigate with them) under these agreements as a condition to changing franchise brands of our hotels (or consent or termination fees to Crestline under our management agreements with them as a condition to changing management), 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. In addition, our lenders generally must consent before we modify hotel management agreements or franchise agreements. Any default under a franchise agreement could also be a default under the indebtedness that secures the property.
There are risks associated with our property managers employing hotel employees.
We are generally subject to risks associated with the employment of hotel employees. The lodging properties we acquire are leased to one or more taxable REIT subsidiaries, which enter into property management agreements with Crestline or a third-party property manager to operate the properties. Hotel operating revenues and expenses for these properties are included in our consolidated results of operations. As a result, although we do not employ or manage the labor force at our lodging properties, we are subject to many of the costs and risks generally associated with the hotel labor force. Crestline or a third-partyThe property manager is responsible for hiring and maintaining the labor force at each of our lodging properties and for establishing and maintaining the appropriate processes and controls over such activities. From time to time, the operations of our lodging properties may be disrupted through strikes, public demonstrations or other labor actions and related publicity. We may also incur increased legal costs and indirect labor costs as a result of the aforementioned disruptions, or contract disputes
The increase in the use of third-party internet travel intermediaries and the increase in alternative lodging channels, such as Airbnb, could adversely affect our profitability.
Many of our managers and franchisors contract with third-party internet travel intermediaries, including, but not limited to expedia.com, priceline.com, hotels.com, orbitz.com, and travelocity.com. These internet intermediaries are generally paid commissions and transaction fees by our managers and franchisors for sales of our rooms through such agencies. If bookings through the internet intermediaries increase, they may be able to negotiate higher commissions, reduced room rates or other contract concessions from our managers or our franchisors. In addition, internet intermediaries use extensive marketing, which could result in hotel consumers developing brand loyalties to the internet intermediary instead of our franchise brands. Further, internet intermediaries emphasize pricing and quality indicators, such as a star rating system, at the expense of brand identification.
In addition to competing with traditional hotels and lodging facilities, we compete with alternative lodging, including third-party providers of short-term rental properties and serviced apartments, such as Airbnb. We compete based on a number of factors, including room rates, quality of accommodations, service levels, convenience of location, reputation, reservation systems, brand recognition and supply and availability of alternative lodging.
Our lack of diversification in property type and hotel brands increases the risk of investment.
There is no limit on the number of properties of a particular hotel brand that we may acquire. As of December 31, 2016,2019, based on the number of hotels, 46.1%43.5% of our hotels were franchised with Hilton, Worldwide, 39.7%41.9% with Marriott International and 12.1%12.9% with Hyatt, Hotels Corporation, and no other brand accounts for more than 2.1%1.7% of our hotels. The risks of brand concentration include reductions in business following negative publicity relating to one of our licensed brands or arising from or after a dispute with a hotel brand company.
Our board of directors reviews our properties and investments in terms of geographic and hotel brand diversification, and any failure to remain diversified could adversely affect our results of operations and increase the risk of our stockholder’sstockholders’ investments.
Risks Related to Debt Financing
Our incurrence of substantial indebtedness limits our future operational and financial flexibility.
We have incurred substantial indebtedness in acquiring the properties we currently own, and substantially all of these real properties have been pledged as security under our indebtedness. To complete our Pending Acquisition, we intendWe do not own any real properties or other material assets unencumbered by indebtedness. Our lack of unencumbered assets could make it more difficult or expensive to incurprocure additional financing.
Our indebtedness, and may incurincluding any additional indebtedness, subject to the Brookfield Approval Rights, pursuant to which we are required to obtain prior approval before incurring any indebtedness, except for permitted refinancings and as set forth in the Annual Business Plan.
requiring us to use a substantial portion of our cash flow from operations to service indebtedness and pay distributions on the Grace Preferred Equity Interests;indebtedness;
limiting our ability to obtain additional financing to fund our capital requirements;
increasing the costs of incurring additional debt as potential future lenders may charge higher interest rates if they lend to us in the future due to our current level of indebtedness;
increasing our exposure to floating interest rates;
limiting our ability to compete with other companies that are not as highly leveraged, as we may be less capable of responding to adverse economic and industry conditions;
restricting us from making strategic acquisitions, developing properties or exploiting business opportunities to the extent we are limited in our ability to access the financing required to pursue these opportunities;
making us less attractive to potential investors due to our level of indebtedness;
restricting the way in which we conduct our business because of financial and operating covenants in the agreements governing our indebtedness;
• | subjecting us to debt yield and debt service coverage tests which although not an event of default under the indebtedness, could cause cash flows from the properties financed after debt service, certain property operating expenses and loan reserves being diverted to the lender, as additional loan collateral until the tests have been satisfied or we prepay sufficient principal to meet the applicable test; | |
| • | exposing us to potential events of default (if not cured or waived) under covenants contained in our debt instruments that could have a material adverse effect on our business, financial condition and operating results; |
increasing our vulnerability to a downturn in general economic conditions; and
limiting our ability to react to changing market conditions in our industry.
In addition, incurring mortgage debt increases the risk of loss since defaults on indebtedness secured by a property may result in lenders initiating foreclosure actions. In that case, we could lose the property or properties securing the loan that is in default, thus reducing the value of an investment in our common stock. For U.S. federal income tax purposes, a foreclosure of any of our properties would be treated as a sale of the property 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 property, we would recognize taxable income on foreclosure, but would not receive any cash proceeds. In such event, we may be unable to pay the amount of distributions required in order to maintain our REIT status. We may give full or partial guarantees on behalf of the entities that own our properties to lenders of mortgage debt. When we provide a guaranty on behalf of an entity that owns one of our properties, we will be responsible to the lender for satisfaction of the debt if it is not paid by such entity. Substantially all of our mortgages to dateindebtedness contain cross-collateralization or cross-default provisions, meaning that a default onrelated to a single property could affect multiple properties that also secure the same loan, and any mortgagesindebtedness we enter into in the future may also contain cross-collateralization provisions or include cross-default provisions.provisions with our other indebtedness. If any of our properties are foreclosed upon due to a default, our business and results of operations could be adversely affected.
We may not be able to extend the maturity date of, or refinance, these debt obligations, or any of our other indebtedness, on acceptable terms.
All of our properties have been pledged as security for our indebtedness, and we expect we will be requiredintend to extend or refinance this indebtedness when it comes due. The Assumed Grace Indebtedness matures on May 1, 2017, subject
Our ability to two (one-year) extension rights. The mortgage loan we used to finance a portionrefinance debt will be affected by our financial condition and various other factors existing at the relevant time, including factors beyond our control, such as capital and credit market conditions, the state of the purchase price of 20 hotels during 2015national and 2016 (the "SN Term Loan") matures on August 31, 2018, subject to two (one-year) extension rights. These extensions can only occur if certainregional economies, local real estate conditions are met, including that a minimum ratio of net operating income to debt outstanding be satisfied (the “minimum debt yield test”). We have satisfiedand the minimum debt yield testequity in and expect to satisfy the other conditions for extensionvalue of the Assumed Grace Indebtedness until May 1, 2018. There can be no assurance, however, that we will be ablerelated collateral. The recent coronavirus pandemic has begun to meet theadversely impact credit and capital market conditions and extend the Assumed Grace Indebtedness for the final extension period or the SN Term Loan pursuant to their respective terms.
We could increase the amount ofbe adversely affected by our debt payments.
We have incurred substantial indebtedness, of which approximately $1.1$1.2 billion outstanding as of December 31, 20162019 bears interest at variable interest rates.rates, all of which is indexed to the London Interbank Offered Rate ("LIBOR"). Accordingly, increases in interest rates would increase our interest costs, which could reduce
In July 2017, the Financial Conduct Authority (the authority 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 LIBOR in derivatives and other financial contracts. We are not able to predict when LIBOR may be limited or discontinued or when there will be sufficient liquidity in the SOFR market. The value of debt or derivative instruments tied to LIBOR could be impacted when LIBOR is limited or discontinued and contracts must be transitioned to a new alternative rate. Transitioning to an alternative rate may require negotiation with lenders and other counterparties. The consequences of these developments cannot be entirely predicted and could include an increase in the cost of our variable rate debt.
While we expect LIBOR to be available in substantially its current form until the end of 2021, it is possible that LIBOR will become unavailable prior to that time. This could occur, for example, if a sufficient number of banks decline to make submissions to the LIBOR administrator. In that case, the risks associated with the transition to an alternative reference rate would be accelerated or magnified. Any of these events, as well as the other uncertainty surrounding the transition to LIBOR, could adversely affect us.
Interest-only indebtedness may increase our risk of default.
We have financed our property acquisitions using interest-only mortgage and mezzanine indebtedness and may continue to do so in the future. As of December 31, 2016,2019, all $1.4$1.5 billion of our mortgage and mezzanine indebtedness was interest-only. For all of this indebtedness, interest-only includingis payable monthly during the SN Term Loan which is interest-only for the initial three-yearloan term, until August 2018. During the interest-only period, the amount of each scheduledand a “balloon” payment will be less than that of a traditional amortizing loan. The principal balance of the loan will not be reduced (except in the case of prepayments) because there are no scheduled monthly payments ofentire principal during this period. After the interest-only period, we will be required either to make scheduled payments of amortized principal and interest or to make a lump-sum or “balloon” paymentamount is payable at maturity. These required principal or balloon payments will increase the amount of our scheduled payments and may increase our risk of default under the related loan. Our ability to make a balloon payment at maturity is uncertain and may depend upon our ability to obtain additional financing or sell assets, subject to the Brookfield Approval Rights. There can be no assurance the required prior approval will be obtained when requested, or at all. At the time the balloon payment is due, we may or may not be able to refinance the balloon payment on terms as favorable as the original loan or sell assets at prices sufficient to make the balloon payment. The effect of a refinancing or sale could affect the rate of return to our stockholders and the projected time of disposition of our assets. In addition, payments of principal and interest made to service our debts may leave us with insufficient cash to pay the distributions that we are required to pay to maintain our qualification as a REIT or to meet our obligations to the holders of Class C Units or Grace Preferred Equity Interests.Units. Any of these results would have a material adverse effect on the value of an investment in our common stock.
Our derivative financial instruments that we may use to hedge against interest rate fluctuations may not be successful in mitigating our risks associated with interest rates and could reduce the overall returns on an investment in our common stock.
We use derivative financial instruments to hedge exposures to changes in interest rates on loans secured by our assets, but no hedging strategy can protect us completely. We cannot assure our stockholders that our hedging strategy and the derivatives that we use will adequately offset the risk of interest rate volatility or that our hedging transactions will not result in losses. In addition, the use of such instruments may reduce the overall return on our investments. These instruments may also generate income that may not be treated as qualifying REIT income for purposes of the 75% or 95% gross income tests.
U.S. Federal Income Tax Risks
Our failure to remain qualified as a REIT would subject us to U.S. federal income tax and potentially state and local tax, and would adversely affect our operations and the market price of our common stock.
We elected and qualified to be taxed as a REIT commencing with our taxable year ended December 31, 2014 and intend to operate in a manner that would allow us to continue to qualify as a REIT. However, we may terminate our REIT qualification, if our board of directors determines that not qualifying as a REIT is in our best interests, or inadvertently. Our qualification as a REIT depends upon our satisfaction of certain asset, income, organizational, distribution, stockholder ownership and other requirements on a continuing basis. The REIT qualification requirements are extremely complex and interpretation of the U.S. federal income tax laws governing qualification as a REIT is limited.uncertain. Furthermore, any opinion of our counsel, including tax counsel, as to our eligibility to remain qualified as a REIT is not binding on the Internal Revenue Service ("IRS") and is not a guarantee that we will qualify, or will continue to qualify, as a REIT. Accordingly, we cannot be certain that we will be successful in operating so we can qualify or remain qualified as a REIT. Our ability to satisfy the asset tests depends on our analysis of the characterization and fair market values of our assets, some of which are not susceptible to a precise determination, and for which we will not obtain independent appraisals. Our compliance with the REIT income orand quarterly asset requirements also depends on our ability to successfully manage the composition of our income and assets on an ongoing basis. Accordingly, if certain of our operations were to be recharacterized by the IRS, such recharacterization would jeopardize our ability to satisfy all requirements for qualification as a REIT. Furthermore, future legislative, judicial or administrative changes to the U.S. federal income tax laws could be applied retroactively, which could result in our disqualification as a REIT.
If we fail to qualify as a REIT for any taxable year, and we do not qualify for certain statutory relief provisions, we will be subject to U.S. federal income tax on our taxable income at the corporate rates.rate. In addition, we would generally be disqualified from treatment as a REIT for the four taxable years following the year of losing our REIT qualification. Losing our REIT qualification would reduce our net earnings available for investment or distribution to stockholders because of the additional tax liability. In addition, upon the occurrence of certain events related to our failure to qualify as a REIT, subject to certain
Even though we have qualified as a REIT, in certain circumstances, we may incur tax liabilities that would reduce our cash available for distribution to our stockholders.
Even if we maintain our status as a REIT, we may be subject to U.S. federal, state and local income taxes. For example, net income from the sale of properties that are “dealer” properties sold by a REIT and that do not meet a safe harbor available under the Code (a “prohibited transaction” under the Code) will be subject to a 100% tax. We may not make sufficient distributions to avoid excise taxes applicable to REITs. We also may decide to retain net capital gains we earn from the sale or other disposition of our property and pay U.S. federal income tax directly on such income. In that event, our stockholders would be treated as if they earned that income and paid the tax on it directly. However, stockholders that are tax-exempt, such as charities or qualified pension plans, would have no benefit from their deemed payment of such tax liability unless they file U.S. federal income tax returns and thereon seek a refund of such tax. We also will be subject to corporate income tax on any undistributed REIT taxable income. We also may be subject to state and local taxes on our income or property, including franchise, payroll and transfer taxes, either directly or at the level of the OP or at the level of the other companies through which we indirectly own our assets, such as our taxable REIT subsidiaries, which are subject to full U.S. federal, state, local and foreign corporate-level income taxes. Any taxes we pay directly or indirectly will reduce our cash available for distribution to our stockholders.
To continue to qualify as a REIT we must meet annual distribution requirements, which may force us to forgo otherwise attractive opportunities or borrow funds during unfavorable market conditions. This could delay or hinder our ability to meet our investment objectives and reduce our stockholder’s overall return.
In order to continue to qualify as a REIT, we must distribute annually to our stockholders at least 90% of our REIT taxable income (which does not equal net income as calculated in accordance with GAAP), determined without regard to the deduction for dividends paid and excluding any net capital gain. We will be subject to U.S. federal income tax on our undistributed REIT taxable income and net capital gain and to a 4% nondeductible excise tax on any amount by which distributions we pay with respect to any calendar year are less than the sum of (a) 85% of our ordinary income, (b) 95% of our capital gain net income and (c) 100% of our undistributed income from prior years. These requirements could cause us to distribute amounts that otherwise would be spent on investments in real estate assets and it is possible that we might be required to borrow funds, possibly at unfavorable rates, or sell assets to fund these distributions. Although we intend to pay distributions sufficient to meet the annual distribution requirements and to avoid U.S. federal income and excise taxes on our earnings while we qualify as a REIT, it is possible that we might not always be able to do so.
Certain of our business activities are potentially subject to the prohibited transaction tax, which could reduce the return on our stockholder’s investments.
For so long as we qualify as a REIT, our ability to dispose of property during the first few years following acquisition may be restricted to a substantial extent as a result of our REIT qualification. Under applicable provisions of the Code regarding prohibited transactions by REITs, while we qualify as a REIT and provided we do not meet a safe harbor available under the Code, we will be subject to a 100% penalty tax on any gainthe net income recognized on the sale or other disposition of any property (other than foreclosure property) that we own, directly or indirectly through any subsidiary entity, including the OP, but generally excluding taxable REIT subsidiaries, that is deemed to be inventory or property held primarily for sale to customers in the ordinary course of a trade or business. Whether property is inventory or otherwise held primarily for sale to customers in the ordinary course of a trade or business depends on the particular facts and circumstances surrounding each property. During such time as we qualify as a REIT, we intend to avoid the 100% prohibited transaction tax by (a) conducting activities that may otherwise be considered prohibited transactions through a taxable REIT subsidiary (but such taxable REIT subsidiary will incur corporate rate income taxes with respect to any income or gain recognized by it), (b) conducting our operations in such a manner so that no sale or other disposition of an asset we own, directly or through any subsidiary, will be treated as a prohibited transaction, or (c) structuring certain dispositions of our properties to comply with the requirements of the prohibited transaction safe harbor available under the Code for properties that, among other requirements, have been held for at least two years. No assurance can be given that any particular property we own, directly or through any subsidiary entity, including the OP, but generally excluding taxable REIT subsidiaries, will not be treated as inventory or property held primarily for sale to customers in the ordinary course of a trade or business.
Our taxable REIT subsidiaries are subject to corporate-level taxes and our dealings with our taxable REIT subsidiaries may be subject to a 100% excise tax.
A REIT may own up to 100% of the stock of one or more taxable REIT subsidiaries. Both the subsidiary and the REIT must jointly elect to treat the subsidiary as a taxable REIT subsidiary. A corporation of which a taxable REIT subsidiary directly or indirectly owns more than 35% of the voting power or value of the stock will automatically be treated as a taxable REIT subsidiary. Overall, no more than 25% (20% for taxable years beginning after December 31, 2017)20% of the gross value of a REIT’s assets may consist of stock or securities of one or more taxable REIT subsidiaries. A taxable REIT subsidiary may hold assets and earn income that would not be qualifying assets or income if held or earned directly by a REIT, including gross income from operations pursuant to management contracts. Accordingly, we may use our taxable REIT subsidiaries generally to hold properties for sale in the ordinary course of a trade or business or to hold assets or conduct activities that we cannot conduct directly as a REIT.
Furthermore, in order to ensure the income we receive from our hotels qualifies as “rents from real property,” generally we must lease our hotels to taxable REIT subsidiaries (which are owned by ourthe OP) which must engage “eligible independent contractors” to operate the hotels on their behalf. These taxable REIT subsidiaries and other taxable REIT subsidiaries that we may form will be subject to applicable U.S. federal, state, local and foreign income tax on their taxable income. While we will be monitoring the aggregate value of the securities of our taxable REIT subsidiaries and intend to conduct our affairs so that such securities will represent less than 25% (20% for taxable years beginning after December 31, 2017)20% of the value of our total assets, there can be no assurance that we will be able to comply with the taxable REIT subsidiary limitation in all market conditions. The rules, which are applicable to us as a REIT, also imposeIn addition, the Code imposes a 100% excise tax on certain transactions between a taxable REIT subsidiary and its parent REIT that are not conducted on an arm’s-length basis to assure that the taxable REIT subsidiary is subject to an appropriate level of corporate income taxation. Such transactions include, for example, intercompany loans between the parent REIT as lender and the taxable REIT subsidiary as borrower and rental arrangements between the parent REIT as landlord and the taxable REIT subsidiary as tenant.
If the OP failed to qualify as a partnership or is not otherwise disregarded for U.S. federal income tax purposes, we would cease to qualify as a REIT.
If the IRS were to successfully challenge the status of the OP as a partnership or disregarded entity for suchU.S. federal income tax purposes, it would be taxable as a corporation. In such event, this would reduce the amount of distributions that the operating partnershipOP could make to us. This also would result in our failing to qualify as a REIT, and becoming subject to a corporate level tax on our income. This would substantially would reduce our cash available to pay distributions and the yield on our stockholder’s investments. In addition, if any of the partnerships or limited liability companies through which the OP owns its properties, in whole or in part, loses its characterization as a partnership and is otherwise not disregarded for U.S. federal income tax purposes, itsuch partnership or limited liability company would be subject to U.S. federal income taxation as a corporation, thereby reducing distributions to the OP. Such a recharacterization of an underlying property owner could also threaten our ability to maintain our REIT qualification.
If our “qualified lodging facilities” are not properly leased to a taxable REIT subsidiary or the managers of such “qualified lodging facilities” do not qualify as “eligible independent contractors,” we could fail to qualify as a REIT.
In general, we cannot operate any lodging facilities and can only indirectly participate in the operation of “qualified lodging facilities” on an after-tax basis through leases of such properties to our taxable REIT subsidiaries. A “qualified lodging facility” is a hotel, motel, or other establishment in which more than one-half of the dwelling units are used on a transient basis at which or in connection with which wagering activities are not conducted. 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. A taxable REIT subsidiary that leases lodging facilities from us will not be treated as a “related party tenant” with respect to our lodging facilities that are managed by an independent management company, so long as the independent management company qualifies as an “eligible independent contractor.”
Each of the management companies that enters into a management contract with our taxable REIT subsidiaries must qualify as an “eligible independent contractor” under the REIT rules in order for the rent paid to us by our taxable REIT subsidiaries to be qualifying income for purposes of the REIT gross income tests. An “eligible independent contractor” is an independent contractor that, at the time such contractor enters into a management or other agreement with a taxable REIT subsidiary to operate a “qualified lodging facility,” is actively engaged in the trade or business of operating “qualified lodging facilities” for any person not related, as defined in the Code, to us or the taxable REIT subsidiary. Among other requirements, in order to qualify as an independent contractor a manager must not own, directly or by applying attribution provisions of the Code, more than 35% of our outstanding shares of stock (by value), and no person or group of persons can own more than 35% of our outstanding shares and 35% of the ownership interests of the manager (taking into account only owners of more than 5% of our shares and, with respect to ownership interestinterests in such managers that are publicly traded, only holders of more than 5% of such ownership interests). The ownership attribution rules that apply for purposes of the 35% thresholds are complex. There can be no assurance that the levels of ownership of our stock by our managers and their owners will not exceed these thresholds.
If our leases to our taxable REIT subsidiaries are not respected as true leases for U.S. federal income tax purposes, we would fail to qualify as a REIT.
To qualify as a REIT, we must satisfy two gross income tests, under which specified percentages of our gross income must be exceeded.derived from certain sources, such as “rents from real property.” In order for such rent to qualify as “rents from real property” for purposes of the REIT gross income tests, the leases must be respected as true leases for U.S. federal income tax purposes and not be treated as service contracts, joint ventures or some other type of arrangement. If our leases are not respected as true leases for U.S. federal income tax purposes, we would fail to qualify as a REIT.
We may choose to pay distributions in our own stock to meet REIT requirements, in which case our stockholders may be required to pay U.S. federal income taxes in excess of the cash dividendsportion of distributions they receive.
In connection with our qualification as a REIT, we are required to distribute annually to our stockholders at least 90% of our REIT taxable income (which does not equal net income as calculated in accordance with GAAP), determined without regard to the deduction for dividends paid and excluding net capital gain. In order to satisfy this requirement, we may pay distributions that are payable in cash or shares of our common stock (which could account for up to 80% of the aggregate amount of such distributions) at the election of each stockholder. Taxable stockholders receiving such distributions will be required to include the full amount of such distributions as ordinary dividend income to the extent of our current or accumulated earnings and profits, as determined for U.S. federal income tax purposes. As a result, U.S. stockholders may be required to pay U.S. federal income taxes with respect to such distributions in excess of the cash portion of the distribution received. Accordingly, U.S. stockholders receiving a distribution of our shares may be required to sell stock or other assets owned by them (including, if possible, our shares received in such distribution), at a time that may be disadvantageous, in order to obtain the cash necessary to satisfy any tax imposed on such distribution. If a U.S. stockholder sells the stock that it receives as part of the distribution in order to pay this tax, the sales proceeds may be less than the amount included in income with respect to the distribution, depending on the market price of our stock at the time of the sale. Furthermore, with respect to certain non-U.S. stockholders, we may be required to withhold U.S. tax with respect to such distribution, including in respect of all or a portion of such distribution that is payable in stock, by withholding or disposing of part of the shares included in such distribution and using the proceeds of such disposition to satisfy the withholding tax imposed.
The taxation of distributions to our stockholders can be complex; however, distributions that we make to our stockholders generally will be taxable as ordinary income, which may reduce our stockholder’s anticipated return from an investment in us.
Distributions that we make to our taxable stockholders out of current and accumulated earnings and profits (and not designated as capital gain dividends or qualified dividend income) generally will be taxable as ordinary income. For tax years beginning after December 31, 2017, noncorporate stockholders are entitled to a 20% deduction with respect to these ordinary REIT dividends which would, if allowed in full, result in a maximum effective federal income tax rate on them of 29.6% (or 33.4% including the 3.8% surtax on net investment income); although, the 20% deduction is scheduled to sunset after December 31, 2025. However, a portion of our distributions may (1) be designated by us as capital gain dividends generally taxable as long-term capital gain to the extent that they are attributable to net capital gain recognized by us, (2) be designated by us as qualified dividend income, generallytaxable at capital gains rates, to the extent they are attributable to dividends we receive from our taxable REIT subsidiaries, or (3) constitute a return of capital generally to the extent that they exceed our accumulated earnings and profits as determined for U.S. federal income tax purposes. A return of capital is not taxable, but has the effect of reducing the tax basis of a stockholder’s investment in our common stock.
Complying with REIT requirements may limit our ability to hedge our liabilities effectively and may cause us to incur tax liabilities.
The REIT provisions of the Code may limit our ability to hedge our liabilities. Any income from a hedging transaction we enter into to manage risk of interest rate changes, price changes or currency fluctuations with respect to borrowings made or to be made to acquire or carry real estate assets or in certain cases to hedge previously acquired hedges entered into to manage risks associated with property that has been disposed of or liabilities that have been extinguished, if properly identified under applicable Treasury Regulations, does not constitute “gross income” for purposes of the 75% or 95% gross income tests. To the extent that we enter into other types of hedging transactions, the income from those transactions will likely be treated as non-qualifying income for purposes of both of the gross income tests. As a result of these rules, we may need to limit our use of advantageous hedging techniques or implement those hedges through a taxable REIT subsidiary. This could increase the cost of our hedging activities because our taxable REIT subsidiaries would be subject to tax on gains or expose us to greater risks associated with changes in interest rates than we would otherwise want to bear. In addition, losses in a taxable REIT subsidiary generally will not provide any tax benefit, except for being carried forward againstto offset future taxable income of such taxable REIT subsidiary.
Complying with REIT requirements may force us to forgo or liquidate otherwise attractive investment opportunities.
To qualify as a REIT, we must ensure that we meet the REIT gross income tests annually and that at the end of each calendar quarter, at least 75% of the value of our assets consists of cash, cash items, government securities and qualified REIT real estate assets, including certain mortgage loans and certain kinds of mortgage-related securities. The remainder of our investment in securities (other than government securities that qualify for the 75% asset test and securities of qualified real estate assets)REIT subsidiaries and taxable REIT subsidiaries) generally cannot include more thanexceed 10% of the outstanding voting securities of any one issuer, or more than 10% of the total value of the outstanding securities of any one issuer. In addition, in general, no more thanissuer, or 5% of the value of our assets (other than government securities and qualified real estate assets) can consist of the securities ofas to any one issuer, andissuer. In addition, no more than 25% (20% for taxable years beginning after December 31, 2017)20% of the value of our total assets can be represented bymay consist of stock or securities of one or more taxable REIT subsidiaries.subsidiaries and no more than 25% of our assets may be represented by publicly offered REIT debt instruments that do not otherwise qualify under the 75% asset test. If we fail to comply with these requirements at the end of any calendar quarter, we must correct the failure within 30 days after the end of the calendar quarter or qualify for certain statutory relief provisions to avoid losing our REIT qualification and suffering adverse tax consequences. As a result, we may be required to liquidate assets from our portfolio or not make otherwise attractive investments in order to maintain our qualification as a REIT.
The ability of our board of directors to revoke our REIT qualification without stockholder approval may subject us to U.S. federal income tax and reduce distributions to our stockholders.
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. While we intend to continue to qualify to be taxed as a REIT, we may terminate our REIT election if we determine that qualifying as a REIT is no longer in our best interests. If we cease to be a REIT, we would become subject to corporate-level U.S. federal income tax (as well as applicable state and local corporate tax) on our taxable income and would no longer be required to distribute most of our taxable income to our stockholders. Moreover, our failure to qualify as a REIT could give rise to holders of Class C Units having the right to require us to redeem any Class C Units submitted for redemption for an amount equivalent to what the holders of Class C Units would have been entitled to receive in a Fundamental Sale Transaction if the date of redemption were the date of the consummation of the Fundamental Sale Transaction. These amounts are set forth under “-The amount we would be required to pay holders of Class C Units in a
We may be subject to adverse legislative or regulatory tax changes that could increase our tax liability.
In recent years, numerous legislative, judicial and administrative changes have been made in the provisions of U.S. federal income tax laws applicable to investments similar to an investment in shares of our common stock. Additional changes to the tax laws are likely to continue to occur, and we cannot assure our stockholders that any such changes will not adversely affect the taxation of a stockholder. Any such changes could have an adverse effect on an investment in our shares or on the market value or the resale potential of our assets. Our stockholders are urged to consult with their tax advisors with respect to the impact of recent legislation on their investments in our shares and the status of legislative, regulatory or administrative developments and proposals and their potential effect on an investment in our shares.
Although REITs generally receive better tax treatment than entities taxed as regular corporations, it is possible that future legislation would result in a REIT having fewer tax advantages, and it could become more advantageous for a company that invests in real estate to elect to be treated for U.S. federal income tax purposes as a corporation. As a result, our charter provides our board of directors with the power, under certain circumstances, to revoke or otherwise terminate our REIT election and cause us to be taxed as a regular corporation, without the vote of our stockholders. Our board of directors has fiduciary duties to us and our stockholders and could only cause such changes in our tax treatment if it determines in good faith that such changes are in the best interest of our stockholders.
The share ownership restrictions of the Code for REITs and the 4.9% share ownership limit in our charter may inhibit market activity in our shares of stock and restrict our business combination opportunities.
In order to qualify as a REIT, five or fewer individuals, as defined in the Code, may not own, actually or constructively, more than 50% in value of our issued and outstanding shares of stock at any time during the last half of each taxable year, other than the first year for which a REIT election is made. Attribution rules in the Code determine if any individual or entity actually or constructively owns our shares of stock under this requirement. Additionally, at least 100 persons must beneficially own our shares of stock during at least 335 days of a taxable year for each taxable year, other than the first year for which a REIT election is made. To help ensure that we meet these tests, among other purposes, our charter restricts the acquisition and ownership of our shares of stock.
Our charter, with certain exceptions, authorizes our directors to take such actions as are necessary and desirableor advisable to preserve our qualification as a REIT while we so qualify.REIT. Unless exempted by our board of directors, for so long as we qualify as a REIT, our charter prohibits, among other limitations on ownership and transfer of shares of our stock, any person from beneficially or constructively owning (applying certain attribution rules under the Code) more than 4.9% in value of the aggregate of our outstanding shares of stock and more than 4.9% (in value or in number of shares, whichever is more restrictive) of any class or series of our shares of stock. Our board of directors may not grant an exemption from these restrictions to any proposed transferee whose ownership in excess of the 4.9% ownership limit would result in the termination of our qualification 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 or that compliance with the restrictions is no longer required in order for us to continue to so qualify as a REIT.
These ownership limits could delay or prevent a transaction or a change in control that might involve a premium price for our common stock or otherwise be in the best interest of the stockholders.
Our ability to utilize our net operating loss carryforwards to reduce our future taxable income would be limited if an ownership change (as defined in Section 382 of the Code) occurs, which could result in more taxable income and greater distribution requirements in order to maintain our REIT status in future tax years.
We have significant net operating loss (“NOL”) carryforwards for federal and state income tax purposes. Generally, NOL carryforwards can be used to reduce future taxable income. income and can reduce the amount of income required to be distributed by us to maintain our REIT status. However, the NOLs arising for tax years beginning after December 31, 2017 will not be able to offset more than 80% of our taxable income and therefore may not be able to reduce the amount required to be distributed by us to meet REIT requirements to zero. NOLs arising for tax years beginning prior to January 1, 2018 will expire if not used within 20 years.
Our ability to utilize these NOL carryforwards would be severely limited if we were to experience an “ownership change,” as defined in Section 382 of the Code. In general terms, an ownership change can occur whenever one or more “5% stockholders” collectively change the ownership of a company by more than 50 percentage points within a three-year period. For these purposes, in certain circumstances options are deemed to be exercised. Moreover, in certain circumstances ownership interests that are not treated as stock or as an option may be treated as stock if treating the interest as stock would cause an ownership change.
An ownership change generally limits the amount of NOL carryforwards a company may use in a given year to the aggregate fair market value of the company’s common stock immediately prior to the ownership change, multiplied by the long-term tax-exempt interest rate in effect for the month of the ownership change. (The long-term tax-exempt interest rate for ownership changes that occur in April 2017March 2020 is 2.09%1.63%.) If we were to experience an ownership change, our ability to use our NOL carryforwards would be severely limited, and a substantial number of them could expire unused.
Our Class C Units are convertible into OP Units, subject to certain limitations. Our OP Units generally are redeemable for shares of our common stock on a one-for-one-basis or the cash value of a corresponding number of shares, at our election. Accordingly, Class C Units might be viewed as options to acquire our common stock that are treated as exercised, or alternatively might be viewed as ownership interests that, although they are not treated as stock or as an option, could be treated as non-stock interests treated as stock for purposes of Section 382.
To minimize the risk that we experience an ownership change, in connection with the Initial Closing we have lowered the ownership limit contained in our charter to 4.9% in value(in value) of the aggregate of our outstanding shares of stock or more than 4.9% (in value or in number of shares, whichever is more restrictive) of any class or series of shares of our stock. However, the Brookfield Investor and its affiliates have been granted a waiver of this ownership limit, but are not allowed to acquire or own more than 49.9% of our outstanding shares of common stock. We do not believe that we will undergohave undergone an ownership change in connection with the Initial Closing, the Second Closing or the Final Closing. The determination as to whether we experience an ownership change for purposes of Section 382 of the Code is complex. No assurance can be given that we will not undergo an ownership change that would have a significant impact on our ability to utilize our NOL carryforwards.
Non-U.S. stockholders will be subject to U.S. federal withholding tax and may be subject to U.S. federal income tax on distributions received from us and upon the disposition of our shares.
Subject to certain exceptions, distributions received from us will be treated as dividends of ordinary income to the extent of our current or accumulated earnings and profits. Such dividends ordinarily will be subject to U.S. withholding tax at a 30% rate, or such lower rate as may be specified by an applicable income tax treaty, unless the distributions are treated as “effectively connected” with the conduct by the non-U.S. stockholder of a U.S. trade or business. Pursuant to the Foreign Investment in Real Property Tax Act of 1980, (“FIRPTA”), capital gain distributions attributable to sales or exchanges of “U.S. real property interests,” (“USRPIs”), generally will be taxed to a non-U.S. stockholder (other than a qualified pension plan, entities wholly owned by a qualified pension plan and certain foreign publicly traded entities) as if such gain were effectively connected with a U.S. trade or business. However, a capital gain distribution will not be treated as effectively connected income if (a) the distribution is received with respect to a class of stock that is regularly traded on an established securities market located in the United States and (b) the non-U.S. stockholder does not own more than 10% of the class of our stock at any time during the one-year period ending on the date the distribution is received. We do not anticipate that our shares will be “regularly traded” on an established securities market for the foreseeable future, if at all, and therefore, this exception is not expected to apply.
Gain recognized by a non-U.S. stockholder upon the sale or exchange of our common stock generally will not be subject to U.S. federal income taxation unless such stock constitutes a USRPI under FIRPTA. Our common stock will not constitute a USRPI so long as we are “domestically-controlled.” We will be domestically-controlled if at all times during a specified testing period, less than 50% in value of our stock is held directly or indirectly by non-U.S. stockholders. We believe, but cannot assure our stockholders, that we will qualify as a domestically-controlled qualified investment entity.
Potential characterization of distributions or gain on sale may be treated as unrelated business taxable income to tax-exempt investors.
If (a) we are a “pension-held REIT,” (b) a tax-exempt stockholder has incurred (or is deemed to have incurred) debt to purchase or hold our common stock, or (c) a holder of common stock is a certain type of tax-exempt stockholder, dividends on, and gains recognized on the sale of, common stock by such tax-exempt stockholder may be subject to U.S. federal income tax as unrelated business taxable income under the Code.
None.
Our Hotels
The following table presents certain additional information about the properties we owned at December 31, 2016:
Property | Location | Number of Rooms | Ownership Percentage of Hotel | |||
Baltimore Courtyard(2) | Baltimore, MD | 205 | 100% | |||
Providence Courtyard(2) | Providence, RI | 219 | 100% | |||
Stratford Homewood Suites(3) | Stratford, CT | 135 | 100% | |||
Georgia Tech Hotel(1)(4) | Atlanta, GA | 252 | N/A | |||
Westin Virginia Beach | Virginia Beach, VA | 236 | 31% | |||
Hilton Garden Inn Blacksburg(5)(6) | Blacksburg, VA | 137 | 57% | |||
Courtyard Asheville(2) | Asheville, NC | 78 | 100% |
Courtyard Athens Downtown(2) | Athens, GA | 105 | 100% | |||
Courtyard Columbus Downtown(4) | Columbus, OH | 150 | 100% | |||
Courtyard Dallas Market Center(2)(6) | Dallas, TX | 184 | 100% | |||
Courtyard Dalton(3) | Dalton, GA | 93 | 100% | |||
Courtyard Flagstaff(4) | Flagstaff, AZ | 164 | 100% | |||
Courtyard Gainesville(2) | Gainesville, FL | 81 | 100% | |||
Courtyard Houston I 10 West Energy Corridor(3) | Houston, TX | 176 | 100% | |||
Courtyard Jacksonville Airport Northeast(2) | Jacksonville, FL | 81 | 100% | |||
Courtyard Jackson Ridgeland(4) | Jackson, MS | 117 | 100% | |||
Courtyard Knoxville Cedar Bluff(2) | Knoxville, TN | 78 | 100% | |||
Courtyard Louisville Downtown(2) | Louisville, KY | 140 | 100% | |||
Courtyard Memphis Germantown(4)(7) | Germantown, TN | 93 | 100% | |||
Courtyard Orlando Altamonte Springs Maitland(2) | Orlando, FL | 112 | 100% | |||
Courtyard San Diego Carlsbad(3) | Carlsbad, CA | 145 | 100% | |||
Courtyard Sarasota Bradenton(2) | Sarasota, FL | 81 | 100% | |||
Courtyard Tallahassee North I 10 Capital Circle(2) | Tallahassee, FL | 93 | 100% | |||
DoubleTree Baton Rouge(4) | Baton Rouge, LA | 127 | 100% | |||
Embassy Suites Orlando International Drive Jamaican Court(2) | Orlando, FL | 246 | 100% | |||
Fairfield Inn & Suites Atlanta Vinings(2) | Atlanta, GA | 142 | 100% | |||
Fairfield Inn & Suites Bellevue(4) | Bellevue, WA | 144 | 100% | |||
Fairfield Inn & Suites Dallas Market Center(2) | Dallas, TX | 116 | 100% | |||
Fairfield Inn & Suites Denver(4) | Denver, CO | 160 | 100% | |||
Hampton Inn & Suites Boynton Beach(2) | Boynton Beach, FL | 165 | 100% | |||
Hampton Inn & Suites El Paso Airport(4) | El Paso, TX | 139 | 100% | |||
Hampton Inn & Suites Nashville Franklin Cool Springs(2) | Franklin, TN | 127 | 100% | |||
Hampton Inn Albany Wolf Road Airport(2) | Albany, NY | 153 | 100% | |||
Hampton Inn Austin North at IH 35 & Highway 183(3) | Austin, TX | 121 | 100% | |||
Hampton Inn Baltimore Glen Burnie(2)(6) | Glen Burnie, MD | 116 | 100% | |||
Hampton Inn Beckley(2) | Beckley, WV | 108 | 100% |
| Property | Location | Number of Rooms | Ownership Percentage of Hotel |
Baltimore Courtyard(2)(9) | Baltimore, MD | 205 | 100% |
Providence Courtyard(2)(9) | Providence, RI | 219 | 100% |
Stratford Homewood Suites(3)(9) | Stratford, CT | 135 | 100% |
Georgia Tech Hotel(1)(9) | Atlanta, GA | 252 | N/A |
Westin Virginia Beach(9) | Virginia Beach, VA | 236 | 31% |
Hilton Garden Inn Blacksburg(9)(7) | Blacksburg, VA | 137 | 57% |
Courtyard Asheville(4)(11) | Asheville, NC | 78 | 100% |
Courtyard Athens Downtown(4)(11) | Athens, GA | 105 | 100% |
Courtyard Bowling Green Convention Center(4)(9) | Bowling Green, KY | 93 | 100% |
Courtyard Chicago Elmhurst Oakbrook Area(4)(9) | Elmhurst, IL | 140 | 100% |
Courtyard Columbus Downtown(6)(9) | Columbus, OH | 150 | 100% |
Courtyard Dallas Market Center(4)(9)(8) | Dallas, TX | 184 | 100% |
Courtyard Dalton(5)(9) | Dalton, GA | 93 | 100% |
Courtyard Flagstaff(6)(9) | Flagstaff, AZ | 164 | 100% |
Courtyard Gainesville(4)(11) | Gainesville, FL | 81 | 100% |
Courtyard Houston I 10 West Energy Corridor(5)(9) | Houston, TX | 176 | 100% |
Courtyard Jacksonville Airport Northeast(4)(9) | Jacksonville, FL | 81 | 100% |
Courtyard Knoxville Cedar Bluff(4)(11) | Knoxville, TN | 78 | 100% |
Courtyard Lexington South Hamburg Place(4)(9) | Lexington, KY | 90 | 100% |
Courtyard Louisville Downtown(4)(9) | Louisville, KY | 140 | 100% |
Courtyard Mobile(4)(8)(11) | Mobile, AL | 78 | 100% |
Courtyard Orlando Altamonte Springs Maitland(4)(11) | Orlando, FL | 112 | 100% |
Hampton Inn Birmingham Mountain Brook(2)(6) | Birmingham, AL | 129 | 100% | |||
Hampton Inn Boca Raton(2) | Boca Raton, FL | 94 | 100% | |||
Hampton Inn Boca Raton Deerfield Beach(2) | Deerfield Beach, FL | 106 | 100% | |||
Hampton Inn Boston Peabody(2) | Peabody, MA | 120 | 100% | |||
Hampton Inn Champaign Urbana(3) | Urbana, IL | 130 | 100% | |||
Hampton Inn Charlotte Gastonia(2) | Gastonia, NC | 108 | 100% | |||
Hampton Inn Chicago Naperville(3) | Naperville, IL | 129 | 100% | |||
Hampton Inn College Station(3) | College Station, TX | 133 | 100% | |||
Hampton Inn Columbia I 26 Airport(2)(7) | West Columbia, SC | 120 | 100% | |||
Hampton Inn Dallas Addison(2)(7) | Addison, TX | 158 | 100% | |||
Hampton Inn Detroit Madison Heights South Troy(2) | Madison Heights, MI | 123 | 100% | |||
Hampton Inn Detroit Northville(2)(7) | Northville , MI | 124 | 100% | |||
Hampton Inn East Lansing(3) | East Lansing, MI | 86 | 100% | |||
Hampton Inn Fort Collins(4)(7) | Ft. Collins, CO | 75 | 100% | |||
Hampton Inn Fort Wayne Southwest(4) | Ft. Wayne, IN | 118 | 100% | |||
Hampton Inn Grand Rapids North(2) | Grand Rapids, MI | 84 | 100% | |||
Hampton Inn Indianapolis Northeast Castleton(3) | Indianapolis, IN | 128 | 100% | |||
Hampton Inn Kansas City Airport(2)(7) | Kansas City, MO | 120 | 100% | |||
Hampton Inn Kansas City Overland Park(2)(7) | Overland Park, KS | 133 | 100% | |||
Hampton Inn Knoxville Airport(3) | Alcoa, TN | 118 | 100% | |||
Hampton Inn Medford(4) | Medford, OR | 75 | 100% | |||
Hampton Inn Memphis Poplar(2) | Memphis, TN | 124 | 100% | |||
Hampton Inn Milford(3) | Milford, CT | 148 | 100% | |||
Hampton Inn Norfolk Naval Base(2)(6) | Norfolk, VA | 117 | 100% | |||
Hampton Inn Orlando International Drive Convention Center(3) | Orlando, FL | 173 | 100% | |||
Hampton Inn Palm Beach Gardens(2) | Palm Beach Gardens, FL | 116 | 100% | |||
Hampton Inn Scranton at Montage Mountain(2) | Moosic, PA | 129 | 100% | |||
Hampton Inn State College(2) | State College, PA | 119 | 100% | |||
Hampton Inn West Palm Beach Florida Turnpike(2) | West Palm Beach, FL | 110 | 100% | |||
Hilton Garden Inn Albuquerque North Rio Rancho(3) | Rio Rancho, NM | 129 | 100% | |||
Hilton Garden Inn Austin Round Rock(2) | Round Rock, TX | 122 | 100% | |||
Hilton Garden Inn Fort Collins(4) | Ft. Collins, CO | 120 | 100% | |||
Hilton Garden Inn Louisville East(3) | Louisville, KY | 112 | 100% | |||
Hilton Garden Inn Monterey(4) | Monterey, CA | 204 | 100% | |||
Homewood Suites Augusta(3) | Augusta, GA | 65 | 100% | |||
Homewood Suites Boston Peabody(2) | Peabody, MA | 85 | 100% | |||
Homewood Suites Chicago Downtown(2) | Chicago, IL | 233 | 100% | |||
Homewood Suites Hartford Windsor Locks(2) | Windsor Locks, CT | 132 | 100% | |||
Homewood Suites Jackson Ridgeland(4)(7) | Ridgeland, MS | 91 | 100% |
Homewood Suites Orlando International Drive Convention Center(3) | Orlando, FL | 252 | 100% | |||
Homewood Suites Phoenix Biltmore(2)(6) | Phoenix , AZ | 124 | 100% | |||
Homewood Suites San Antonio Northwest(2) | San Antonio, TX | 123 | 100% | |||
Homewood Suites Seattle Downtown(3) | Seattle, WA | 162 | 100% | |||
Hyatt House Atlanta Cobb Galleria(4) | Atlanta, GA | 149 | 100% | |||
Hyatt Place Albuquerque Uptown(2) | Albuquerque, NM | 126 | 100% | |||
Hyatt Place Baltimore Washington Airport(2) | Linthicum Heights, MD | 127 | 100% | |||
Hyatt Place Birmingham Hoover(2)(7) | Birmingham, AL | 126 | 100% | |||
Hyatt Place Chicago Schaumburg(4)(7) | Schaumburg, IL | 127 | 100% | |||
Hyatt Place Cincinnati Blue Ash(2)(7) | Blue Ash, OH | 125 | 100% | |||
Hyatt Place Columbus Worthington(2)(7) | Columbus, OH | 124 | 100% | |||
Hyatt Place Indianapolis Keystone(2)(7) | Indianapolis, IN | 124 | 100% | |||
Hyatt Place Kansas City Overland Park Metcalf(2)(7) | Overland Park, KS | 124 | 100% | |||
Hyatt Place Las Vegas(2) | Las Vegas, NV | 202 | 100% | |||
Hyatt Place Memphis Wolfchase Galleria(2) | Memphis, TN | 126 | 100% | |||
Hyatt Place Miami Airport West Doral(2) | Miami, FL | 124 | 100% | |||
Hyatt Place Minneapolis Airport South(2) | Bloomington, MN | 126 | 100% | |||
Hyatt Place Nashville Franklin Cool Springs(2) | Franklin, TN | 126 | 100% | |||
Hyatt Place Richmond Innsbrook(2)(7) | Glen Allen, VA | 124 | 100% | |||
Hyatt Place Tampa Airport Westshore(2) | Tampa, FL | 124 | 100% | |||
Residence Inn Boise Downtown(2) | Boise, ID | 104 | 100% | |||
Residence Inn Chattanooga Downtown(2) | Chattanooga, TN | 76 | 100% | |||
Residence Inn Fort Myers(2) | Fort Myers, FL | 78 | 100% | |||
Residence Inn Fort Wayne Southwest(4) | Ft. Wayne, IN | 109 | 100% | |||
Residence Inn Jackson Ridgeland(4)(7) | Ridgeland, MS | 100 | 100% | |||
Residence Inn Jacksonville Airport(3) | Jacksonville, FL | 78 | 100% | |||
Residence Inn Knoxville Cedar Bluff(2) | Knoxville, TN | 78 | 100% | |||
Residence Inn Lexington South Hamburg Place(2) | Lexington, KY | 91 | 100% | |||
Residence Inn Los Angeles Airport El Segundo(2) | El Segundo, CA | 150 | 100% | |||
Residence Inn Macon(2) | Macon, GA | 78 | 100% | |||
Residence Inn Mobile(2)(6)(7) | Mobile, AL | 66 | 100% | |||
Residence Inn Memphis Germantown(4) | Germantown, TN | 78 | 100% | |||
Residence Inn Portland Downtown Lloyd Center(2) | Portland, OR | 168 | 100% | |||
Residence Inn San Diego Rancho Bernardo Scripps Poway(2) | San Diego, CA | 95 | 100% | |||
Residence Inn Sarasota Bradenton(2) | Sarasota, FL | 78 | 100% | |||
Residence Inn Savannah Midtown(2) | Savannah, GA | 66 | 100% | |||
Residence Inn Tallahassee North I 10 Capital Circle(2) | Tallahassee, FL | 78 | 100% | |||
Residence Inn Tampa North I 75 Fletcher(2) | Tampa, FL | 78 | 100% | |||
Residence Inn Tampa Sabal Park Brandon(2) | Tampa, FL | 102 | 100% | |||
Springhill Suites Asheville(3) | Asheville, NC | 88 | 100% | |||
Springhill Suites Austin Round Rock(2) | Round Rock, TX | 104 | 100% |
Courtyard San Diego Carlsbad(5)(9) | Carlsbad, CA | 145 | 100% |
Courtyard Sarasota Bradenton(4)(11) | Sarasota, FL | 81 | 100% |
Courtyard Tallahassee North I 10 Capital Circle(4)(11) | Tallahassee, FL | 93 | 100% |
DoubleTree Baton Rouge(6)(9) | Baton Rouge, LA | 127 | 100% |
Embassy Suites Orlando International Drive Jamaican Court(4)(9) | Orlando, FL | 246 | 100% |
Fairfield Inn & Suites Atlanta Vinings(4)(9) | Atlanta, GA | 142 | 100% |
Fairfield Inn & Suites Baton Rouge South(6)(9) | Baton Rouge, LA | 78 | 100% |
Fairfield Inn & Suites Bellevue(6)(9) | Bellevue, WA | 144 | 100% |
Fairfield Inn & Suites Dallas Market Center(4)(9) | Dallas, TX | 116 | 100% |
Fairfield Inn & Suites Denver(6)(10) | Denver, CO | 160 | 100% |
Fairfield Inn & Suites Spokane(6)(9) | Spokane, WA | 84 | 100% |
Hampton Inn & Suites Boynton Beach(4)(11) | Boynton Beach, FL | 164 | 100% |
Hampton Inn & Suites El Paso Airport(6)(10) | El Paso, TX | 139 | 100% |
Hampton Inn & Suites Nashville Franklin Cool Springs(4)(9) | Franklin, TN | 127 | 100% |
Hampton Inn Albany Wolf Road Airport(4)(11) | Albany, NY | 153 | 100% |
Hampton Inn Austin North at IH 35 & Highway 183(5)(9) | Austin, TX | 121 | 100% |
Hampton Inn Baltimore Glen Burnie(4)(8)(11) | Glen Burnie, MD | 116 | 100% |
Hampton Inn Beckley(4)(11) | Beckley, WV | 108 | 100% |
Hampton Inn Birmingham Mountain Brook(4)(8)(11) | Birmingham, AL | 129 | 100% |
Hampton Inn Boca Raton(4)(11) | Boca Raton, FL | 94 | 100% |
Hampton Inn Boca Raton Deerfield Beach(4)(11) | Deerfield Beach, FL | 106 | 100% |
Hampton Inn Boston Peabody(4)(9) | Peabody, MA | 120 | 100% |
Hampton Inn Champaign Urbana(5)(9) | Urbana, IL | 130 | 100% |
Hampton Inn Charleston Airport Coliseum(4)(11) | Charleston, SC | 124 | 100% |
Hampton Inn Charlotte Gastonia(4)(11) | Gastonia, NC | 107 | 100% |
Hampton Inn Chattanooga Airport I 75(4)(11) | Chattanooga, TN | 167 | 100% |
Hampton Inn Chicago Gurnee(4)(11) | Gurnee, IL | 134 | 100% |
Hampton Inn Chicago Naperville(5)(11) | Naperville, IL | 129 | 100% |
Hampton Inn Cleveland Westlake(4)(11) | Westlake, OH | 122 | 100% |
Hampton Inn College Station(5)(11) | College Station, TX | 133 | 100% |
Hampton Inn Colorado Springs Central Airforce Academy(4)(11) | Colorado Springs, CO | 125 | 100% |
Hampton Inn Columbia I 26 Airport(4)(11) | West Columbia, SC | 120 | 100% |
Hampton Inn Columbus Airport(4)(11) | Columbus, GA | 118 | 100% |
Hampton Inn Columbus Dublin(4)(11) | Dublin, OH | 123 | 100% |
Hampton Inn Dallas Addison(4)(11) | Addison, TX | 158 | 100% |
Hampton Inn Detroit Madison Heights South Troy(4)(11) | Madison Heights, MI | 123 | 100% |
Hampton Inn Detroit Northville(4)(11) | Northville , MI | 124 | 100% |
Hampton Inn East Lansing(5)(9) | East Lansing, MI | 86 | 100% |
Red Lion Inn & Suites Fayetteville I 95(4)(9) | Fayetteville, NC | 121 | 100% |
Hampton Inn Fort Collins(6)(10) | Ft. Collins, CO | 75 | 100% |
Hampton Inn Fort Wayne Southwest(6)(9) | Ft. Wayne, IN | 118 | 100% |
Hampton Inn Grand Rapids North(4)(9) | Grand Rapids, MI | 84 | 100% |
Hampton Inn Indianapolis Northeast Castleton(5)(11) | Indianapolis, IN | 128 | 100% |
Hampton Inn Kansas City Airport(4)(11) | Kansas City, MO | 120 | 100% |
SpringHill Suites Denver(4) | Denver, CO | 125 | 100% | |||
SpringHill Suites Flagstaff(4) | Flagstaff, AZ | 113 | 100% | |||
Springhill Suites Grand Rapids North(2) | Grand Rapids, MI | 76 | 100% | |||
Springhill Suites Lexington Near The University Of Kentucky(2) | Lexington, KY | 108 | 100% | |||
SpringHill Suites San Antonio Medical Center Northwest (2)(6) | San Antonio, TX | 112 | 100% | |||
Springhill Suites San Diego Rancho Bernardo Scripps Poway(2) | San Diego, CA | 138 | 100% | |||
Staybridge Suites Jackson(4) | Ridgeland, MS | 92 | 100% | |||
TownePlace Suites Savannah Midtown(3) | Savannah, GA | 93 | 100% | |||
| 15,324 |
Hampton Inn Kansas City Overland Park(4)(11) | Overland Park, KS | 133 | 100% |
Hampton Inn Knoxville Airport(5)(11) | Alcoa, TN | 118 | 100% |
Hampton Inn Medford(6)(9) | Medford, OR | 75 | 100% |
Hampton Inn Memphis Poplar(4)(11) | Memphis, TN | 124 | 100% |
Hampton Inn Milford(5)(11) | Milford, CT | 148 | 100% |
Hampton Inn Morgantown(4)(11) | Morgantown, WV | 107 | 100% |
Hampton Inn Norfolk Naval Base(4)(8)(11) | Norfolk, VA | 117 | 100% |
Hampton Inn Orlando International Drive Convention Center(5)(9) | Orlando, FL | 170 | 100% |
Hampton Inn Palm Beach Gardens(4)(11) | Palm Beach Gardens, FL | 116 | 100% |
Hampton Inn Pickwick Dam at Shiloh Falls(4)(11) | Counce, TN | 50 | 100% |
Hampton Inn Scranton at Montage Mountain(4)(11) | Moosic, PA | 129 | 100% |
Hampton Inn St Louis Westport(4)(11) | Maryland Heights, MO | 122 | 100% |
Hampton Inn State College(4)(11) | State College, PA | 119 | 100% |
Hampton Inn West Palm Beach Florida Turnpike(4)(11) | West Palm Beach, FL | 110 | 100% |
Hilton Garden Inn Albuquerque North Rio Rancho(5)(9) | Rio Rancho, NM | 129 | 100% |
Hilton Garden Inn Austin Round Rock(4)(9) | Round Rock, TX | 122 | 100% |
Hilton Garden Inn Fort Collins(6)(10) | Ft. Collins, CO | 120 | 100% |
Hilton Garden Inn Louisville East(5)(9) | Louisville, KY | 112 | 100% |
Hilton Garden Inn Monterey(6)(9) | Monterey, CA | 204 | 100% |
Holiday Inn Express & Suites Kendall East Miami(4)(11) | Miami, FL | 66 | 100% |
Homewood Suites Augusta(5)(11) | Augusta, GA | 65 | 100% |
Homewood Suites Boston Peabody(4)(9) | Peabody, MA | 85 | 100% |
Homewood Suites Chicago Downtown(4)(9) | Chicago, IL | 233 | 100% |
Homewood Suites Hartford Windsor Locks(4)(11) | Windsor Locks, CT | 132 | 100% |
Homewood Suites Memphis Germantown(4)(11) | Germantown, TN | 92 | 100% |
Homewood Suites Orlando International Drive Convention Center(5)(9) | Orlando, FL | 252 | 100% |
Homewood Suites Phoenix Biltmore(4)(8)(11) | Phoenix , AZ | 124 | 100% |
Homewood Suites San Antonio Northwest(4)(11) | San Antonio, TX | 123 | 100% |
Homewood Suites Seattle Downtown(5)(11) | Seattle, WA | 161 | 100% |
Hyatt House Atlanta Cobb Galleria(6)(9) | Atlanta, GA | 149 | 100% |
Hyatt Place Albuquerque Uptown(4)(9) | Albuquerque, NM | 126 | 100% |
Hyatt Place Baltimore Washington Airport(4)(9) | Linthicum Heights, MD | 127 | 100% |
Hyatt Place Baton Rouge I 10(4)(9) | Baton Rouge, LA | 126 | 100% |
Hyatt Place Birmingham Hoover(4)(9) | Birmingham, AL | 126 | 100% |
Hyatt Place Chicago Schaumburg(6)(9) | Schaumburg, IL | 127 | 100% |
Hyatt Place Cincinnati Blue Ash(4)(9) | Blue Ash, OH | 125 | 100% |
Hyatt Place Columbus Worthington(4)(9) | Columbus, OH | 124 | 100% |
Hyatt Place Indianapolis Keystone(4)(9) | Indianapolis, IN | 124 | 100% |
Hyatt Place Kansas City Overland Park Metcalf(4)(9) | Overland Park, KS | 124 | 100% |
Hyatt Place Las Vegas(4)(9) | Las Vegas, NV | 202 | 100% |
Hyatt Place Memphis Wolfchase Galleria(4)(9) | Memphis, TN | 125 | 100% |
Hyatt Place Miami Airport West Doral(4)(9) | Miami, FL | 124 | 100% |
Hyatt Place Minneapolis Airport South(4)(9) | Bloomington, MN | 126 | 100% |
Hyatt Place Nashville Franklin Cool Springs(4)(9) | Franklin, TN | 126 | 100% |
Hyatt Place Richmond Innsbrook(4)(9) | Glen Allen, VA | 124 | 100% |
Hyatt Place Tampa Airport Westshore(4)(9) | Tampa, FL | 124 | 100% |
Residence Inn Boise Downtown(4)(11) | Boise, ID | 104 | 100% |
Residence Inn Chattanooga Downtown(4)(11) | Chattanooga, TN | 76 | 100% |
Residence Inn Fort Myers(4)(11) | Fort Myers, FL | 78 | 100% |
Residence Inn Fort Wayne Southwest(6)(9) | Ft. Wayne, IN | 109 | 100% |
Residence Inn Jacksonville Airport(5)(9) | Jacksonville, FL | 78 | 100% |
Residence Inn Knoxville Cedar Bluff(4)(11) | Knoxville, TN | 78 | 100% |
Residence Inn Lexington South Hamburg Place(4)(9) | Lexington, KY | 91 | 100% |
Residence Inn Los Angeles Airport El Segundo(4)(9) | El Segundo, CA | 150 | 100% |
Residence Inn Macon(4)(11) | Macon, GA | 78 | 100% |
Residence Inn Mobile(4)(8)(11) | Mobile, AL | 66 | 100% |
Residence Inn Portland Downtown Lloyd Center(4)(11) | Portland, OR | 168 | 100% |
Residence Inn San Diego Rancho Bernardo Scripps Poway(4)(9) | San Diego, CA | 95 | 100% |
Residence Inn Sarasota Bradenton(4)(11) | Sarasota, FL | 78 | 100% |
Residence Inn Savannah Midtown(4)(11) | Savannah, GA | 66 | 100% |
Residence Inn Tallahassee North I 10 Capital Circle(4)(11) | Tallahassee, FL | 78 | 100% |
Residence Inn Tampa North I 75 Fletcher(4)(11) | Tampa, FL | 78 | 100% |
Residence Inn Tampa Sabal Park Brandon(4)(11) | Tampa, FL | 102 | 100% |
Springhill Suites Asheville(5)(11) | Asheville, NC | 88 | 100% |
Springhill Suites Austin Round Rock(4)(9) | Round Rock, TX | 104 | 100% |
SpringHill Suites Baton Rouge South(6)(9) | Baton Rouge, LA | 78 | 100% |
SpringHill Suites Denver(6)(10) | Denver, CO | 124 | 100% |
SpringHill Suites Flagstaff(6)(9) | Flagstaff, AZ | 112 | 100% |
Springhill Suites Grand Rapids North(4)(9) | Grand Rapids, MI | 76 | 100% |
Springhill Suites Houston Hobby Airport(4)(9) | Houston, TX | 122 | 100% |
Springhill Suites Lexington Near The University Of Kentucky(4)(9) | Lexington, KY | 108 | 100% |
SpringHill Suites San Antonio Medical Center Northwest(4)(9)(8) | San Antonio, TX | 112 | 100% |
Springhill Suites San Diego Rancho Bernardo Scripps Poway(4)(9) | San Diego, CA | 137 | 100% |
TownePlace Suites Baton Rouge South(6)(9) | Baton Rouge, LA | 90 | 100% |
TownePlace Suites Savannah Midtown(5)(11) | Savannah, GA | 93 | 100% |
| 17,193 | |||
(1) | We own the leasehold interest in the property and account for it as an operating lease |
(2) | Encumbered by the |
(3) | Encumbered by the Additional Grace Mortgage Loan |
(4) | Encumbered by the |
(5) |
Encumbered by the Hilton Garden Inn Blacksburg Joint Venture Loan |
(6) | Subject to a ground lease. |
(7) |
Debt
As of December 31, 2019, we obtained a loan from German American Capital Corporationhad $1.5 billion in the principal amountoutstanding indebtedness. All of $45.5 million at a fixed annual interest rate of 4.30% with a maturity date in April 2019. The loan is secured by mortgages on the Baltimore Courtyard and the Providence Courtyard.
The following table summarizes certain information regarding our debt obligations as of December 31, 2016:
Use of Proceeds/Collateral | Principal Balance as of December 31, 2019 (In Thousands) | Number of rooms | Debt per Room | Interest Rate | Maturity Date | ||||||||
92 - Pack Mortgage Loan | $810,370 | 9,335 | $86,810 | LIBOR plus 2.14% | Nov 7, 2021; 1st ext. Nov 7, 2022; 2nd ext. Nov 7, 2023; 3rd ext. Nov 7, 2024 | ||||||||
92 - Pack Senior Mezzanine Loan | $93,146 | 9,335 | $9,978 | LIBOR plus 5.60% | Nov 7, 2021; 1st ext. Nov 7, 2022; 2nd ext. Nov 7, 2023; 3rd ext. Nov 7, 2024 | ||||||||
| 92 - Pack Junior Mezzanine Loan | $65,202 | 9,335 | $6,985 | LIBOR plus 8.50% | Nov 7, 2021; 1st ext. Nov 7, 2022; 2nd ext. Nov 7, 2023; 3rd ext. Nov 7, 2024 | ||||||||
Additional Grace Mortgage Loan | $232,000 | 2,694 | $86,117 | 4.96% | October 6, 2020 | ||||||||
Refinanced Term Loan | $261,948 | 2,922 | $89,647 | LIBOR plus 3.00% | May 1, 2020; 1st ext. May 1, 2021; 2nd ext. May 1, 2022; 3rd ext. May 1, 2023 | ||||||||
Hilton Garden Inn Blacksburg Joint Venture Loan | $10,500 | 137 | $76,642 | 4.31% | June 6, 2020 |
See Note 5 - Mortgage Notes Payable to our accompanying consolidated financial statements included in this Annual Report on Form 10-K for additional information regarding our debt obligations.
| Use of Proceeds/Collateral | Principal Balance as of December 31, 2016 (In Thousands) | Number of rooms | Debt per Room | Interest Rate | Maturity Date |
| 95 properties in Grace Portfolio - Equity Inn Portfolio I (Senior Loan - Assumed Grace Indebtedness) | $793,647(1) | 11,027 | $71,973 | LIBOR plus 3.31% | 1st ext.May 1, 2017; 2nd ext. May 1, 2018; 3rd ext. May 1, 2019 |
| 95 properties in Grace Portfolio - Equity Inn Portfolio I (Mezzanine Loan - Assumed Grace Indebtedness) | $101,794(2) | 11,027 | $9,231 | LIBOR plus 4.77% | 1st ext.May 1, 2017; 2nd ext. May 1, 2018; 3rd ext. May 1, 2019 |
| 95 properties in Grace Portfolio - Equity Inn Portfolio I ( Grace Preferred Equity Interests) | $224,941 | 11,027 | $20,399 | (i) Until August 27, 2016 a rate equal to 7.50% per annum, and (ii) thereafter, a rate equal to 8.00% per annum | Reduced principal balance to $173.6 million by February 27, 2018 and repay in full by no later than February 27, 2019 |
| Equity Inn Portfolio II & Homewood Suites Stratford | $232,000 | 2,690 | $86,245 | 4.96% | October 6, 2020 |
| 20 properties in Grace Portfolio - Equity Inn Portfolio II ( Grace Preferred Equity Interests) | $65,247 | 2,555 | $25,537 | (i) Until August 27, 2016 a rate equal to 7.50% per annum, and (ii) thereafter, a rate equal to 8.00% per annum | Reduced principal balance to $49.9 million by February 27, 2018 and repay in full by no later than February 27, 2019 |
| Summit, Noble -20 Properties (SN Term Loan) | $235,484 | 2,427 | $97,027 | Base rate plus a spread of between 3.25% and 3.75% for Eurodollar rate Loans and between 2.25% and 2.75% for base rate Loans | August 31, 2018; 1st ext. August 31, 2019; 2nd ext. August 31, 2020 |
| Summit III - Seller Financing (Summit Loan) (3) | $23,405 | 707 | $33,105 | 13.0% per annum from the date of the loan to the initial maturity date, 14.0% per annum from the initial maturity date to the 1st ext. maturity date, 15.0% per annum from the 1st ext. maturity date to the 2nd ext. maturity date | February 11, 2017; 1st ext. February 11, 2018; 2nd ext. February 11, 2019 |
| Baltimore Courtyard & Providence Courtyard | $45,500 | 424 | $107,311 | 4.30% | April 6, 2019 |
| Hilton Garden Inn Blacksburg | $10,500 | 137 | $76,642 | 4.31% | June 6, 2020 |
We are not a party to any material pending legal or regulatory proceedings.
A special litigation committee (the “SLC”) of our board of directors (the “Board”) has been empowered to investigate claims asserted in shareholder demand letters sent to the Board by counsel for two of our stockholders, Tom Milliken and Stuart Wollman, as well as the allegations contained in a complaint filed by Mr. Milliken on behalf of us and against us, as well as the Former Advisor and various affiliates of the Former Advisor, including our former property managers (together, the “Former Advisor Defendants”), and certain of our current and former directors and officers (the “Director and Officer Defendants”). The complaint was filed in the United States District Court for the Southern District of New York on February 26, 2018 and amended on May 25, 2018 (the “Milliken Court Action”). The amended complaint alleges, among other things, that the Former Advisor and the Director and Officer Defendants breached their fiduciary duties to us by putting their own interests above our interests, which breach was aided and abetted by certain of the Former Advisor Defendants. The amended complaint also asserts a claim for corporate waste against the Former Advisor and Director and Officer Defendants, which was aided and abetted by certain of the Former Advisor Defendants, breach of contract against the Director and Officer Defendants, and unjust enrichment against certain of the Director and Officer Defendants and Former Advisor Defendants.
In May 2018, we filed a motion to stay the complaint pending the outcome of the investigation, and, in August 2018, the District Court granted our motion. The SLC, which is represented by independent counsel, completed its investigation of the claims contained in the demand letters and the Milliken Court Action, and, on October 11, 2019, the SLC submitted to the District Court its report with respect to its investigation (the “Report”). In November 2019, the District Court lifted the stay.
The SLC also has been empowered to determine whether it is in our best interest for the claims against the defendants in the Milliken Court Action to proceed. The Report includes the SLC’s previously disclosed determination that some but not all of the claims should proceed. The Report also indicates that, as previously disclosed, the SLC has reached an agreement-in-principle with one of the Director and Officer Defendants, our current Chief Executive Officer, Jonathan P. Mehlman, to resolve the claims against Mr. Mehlman with prejudice whereby he will pay back to us a portion of certain fees and stock he received. In the Report, the SLC concluded that: (1) the claims against our current directors, Stanley Perla and Abby Wenzel, our former director, Robert Burns, and our former Chief Financial Officer, Edward Hoganson should be dismissed with prejudice, and it is not, therefore, in our best interest for any claims to proceed against them; and (2) it is in our best interest for certain claims to proceed against the remaining defendants.
On December 27, 2019, following extensive settlement discussions, we, the Former Advisor Defendants and the Director and Officer Defendants reached an agreement-in-principle concerning the proposed settlement of the Milliken Court Action.
The agreements-in-principle with Mr. Mehlman and the other defendants, subject to signing a definitive settlement agreement and receiving District Court approval, contemplated an aggregate cash payment to us of $15,181,108.47, which will primarily be paid by our director and officer insurers, and the tendering by certain defendants of an aggregate of 83,504 shares of our common stock to us.
If finally approved by the District Court, the settlement will fully and completely release the claims our stockholders asserted in the stockholder derivation action, and the cash payment to us will be reduced by any District Court-approved attorneys’ fees and expenses to plaintiff’s counsel and contribution award to plaintiff in recognition of the substantial benefit the plaintiff conferred on us in achieving the settlement.
On January 29, 2020, two days before the District Court deadline for the filing of a stipulation comprising the settlement agreement among us and the various defendants in the Milliken Court Action reflecting the agreements-in-principle described above (the “Stipulation of Settlement”), Stuart Wollman filed a separate complaint with the District Court against us and all of the defendants in the Milliken Court Action except for certain of the Former Advisor Defendants and Mr. Hoganson (the “Wollman Court Action”), alleging common law fraud on behalf of himself and a putative class of our stockholders related to their purchases of our common stock, and seeks rescission or compensatory damages, punitive damages, and attorneys’ fees and costs. The Wollman Court Action is based on facts that comprise part of the factual basis for and that gave rise to the Milliken Court Action, focusing in particular on disclosures related to our property management agreements with certain of the Former Advisor Defendants. We and the other defendants named in the Wollman Court Action intend to seek an expedited judicial determination dismissing the Wollman Court Action with prejudice and other appropriate relief. On March 18, 2020, we and the other defendants named in the Wollman Court Action filed motions to dismiss the litigation with prejudice.
On February 3, 2020, we and the defendants in the Milliken Court Action filed the Stipulation of Settlement with the District Court. Dismissal with prejudice of the Wollman Court Action is a condition precedent to the effectiveness of the settlement of the Milliken Court Action. On February 5, 2020, the District Court issued an order preliminarily approving the proposed settlement of the Milliken Court Action contemplated by the Stipulation of Settlement. On March 25, 2020, Stuart Wollman filed a motion to intervene in the Milliken Court Action and vacate the District Court’s preliminary approval of the proposed settlement on the alleged basis that the settlement is impermissibly broad.
On June 9, 2020, the District Court will hold a settlement hearing to determine whether the proposed settlement and plaintiff’s counsel’s proposed fee application for an award of attorneys’ fees, reimbursement of expenses, and payment of a case contribution award in the aggregate of $2,250,000, which will serve to reduce the cash payments we would otherwise receive, are fair, reasonable and adequate, and should therefore be granted final approval. Any current stockholder of ours may make an objection to the proposed settlement and/or proposed fee award and appear at the settlement hearing, at the stockholder’s own expense, individually or through counsel of the stockholder’s own choice. Although we believe that the Stipulation of Settlement represents a fair and reasonable compromise of the matters in dispute in the litigation, there can be no assurance the settlement will become effective on the proposed terms, or at all.
The claims in the Milliken Court Action do not seek recovery of losses from or damages against us, but instead allege that we have sustained damages as a result of actions by the defendants. Further, we believe that the claims in the Wollman Court Action fail to allege any distinct injury separate from any harm suffered by us and constitute an improper attempt to convert derivative claims into direct or individual claims. Therefore, we have determined that no accrual of any potential liability was necessary as of December 31, 2019, other than for incurred out-of-pocket legal fees and expenses.
None.
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
Our shares of common stock are not traded on a national securities exchange. There currently is no established trading market for our shares and there may never be one. Even if a stockholder is able to find a buyer for his or her shares, the stockholder may not sell his or her shares unless the buyer meets applicable suitability and minimum purchase standards and the sale does not violate state securities laws. In connection with the Initial Closing,
On May 9, 2019, our board of directors decreased the aggregate share ownership limit under our charter, such that our charter now also prohibits the ownership of more than 4.9% in value of the aggregate of the outstanding shares of our stock or more than 4.9% (in value or in number of shares, whichever is more restrictive) of any class or series of shares of our stock by a single investor, unless exempted by our board of directors, which may inhibit large investors from purchasing shares from stockholders. Prior to this action by our board of directors, our charter prohibited the ownership of more than 9.8% in value of the aggregate of the outstanding shares of our stock or more than 9.8% (in value or in number of shares, whichever is more restrictive) of any class or series of shares of our stock by a single investor, unless exempted by our board of directors. At the Initial Closing, as contemplated by and pursuant to the SPA, the Company and the Brookfield Investor entered intounanimously approved an Ownership Limit Waiver Agreement (the “Ownership Limit Waiver Agreement”), pursuant to which the Company: (i) granted the Brookfield Investor and its affiliates a waiver of the Aggregate Share Ownership Limit (as defined in the Charter); and (ii) permitted the Brookfield Investor and its affiliates to own up to 49.9% in value of the aggregate of the outstanding shares of the Company’s stock or up to 49.9% (in value or in number of shares, whichever is more restrictive) of any class or series of shares of the Company stock, subject to the terms and conditions set forth in the Ownership Limit Waiver Agreement.
The Estimated Per-Share NAV does not represent:
the price at which shares of our common stock would trade at on a national securities exchange;
the amount a stockholder would obtain if he or she tried to sell his or her shares of common stock; or
the amount stockholders would receive if we liquidated our assets and distributed the proceeds after paying all of its expenses and liabilities.
Accordingly, with respect to the Estimated Per-Share NAV, we can give no assurance that:
a stockholder would be able to resell his or her shares of common stock at Estimated Per-Share NAV;
a stockholder would ultimately realize distributions per share of common stock equal to Estimated Per-Share NAV upon liquidation of our assets and settlement of our liabilities or a sale of us;
shares of our common stock would trade at a price equal to or greater than Estimated Per-Share NAV if they were listed on a national securities exchange; or
the methodology used to establish the Estimated Per-Share NAV would be acceptable to FINRA for use on customer account statements, or that the Estimated Per-Share NAV will satisfy the applicable annual valuation requirements under the Employee Retirement Income Security Act of 1974, as amended (“ERISA”) and the Code with respect to employee benefit plans subject to ERISA and other retirement plans or accounts subject to Section 4975 of the Code.
Further, the Estimated Per-Share NAV is calculated as of a specific date, and the value of shares of common stock will fluctuate over time as a result of, among other things, developments related to individual assets, changes in the real estate and capital markets, including changes in interest rates, completion or commencement of capital improvements related to individual assets, and acquisitions or dispositions of assets and the distribution of proceeds from the sale of real estate to stockholders.
Stockholders should not rely on the Estimated Per-Share NAV in making a decision to buy or sell shares of our common stock.
Holders
As of December 31, 2016,2019, we had 38,493,43039,151,201 shares of common stock outstanding held by a total of 19,476 stockholders.
Distributions
We elected and qualified to be taxed as a REIT under Sections 856 through 860 of the Code commencing with the tax year ended December 31, 2014. As a REIT, we are required to distribute at least 90% of our REIT taxable income, determined without regard for the deduction for dividends paid and excluding net capital gains, to our stockholders annually. The amountOur distribution policy is subject to revision at the discretion of distributions payable to our stockholders is determined by our board of directors, and is dependent on a number of factors, including funds available for distribution, financial condition, capital expenditure requirements, as applicable and annual distribution requirements needed to maintain our status as a REIT under the Code. We may be subject to certain state and local taxes on our income and property, and federal income and excise taxes on our undistributed income. Each hotel is leased to a taxable REIT subsidiary which is owned by the OP. A taxable REIT subsidiary is subject to federal, state and local income taxes.
We paid monthly cash distributions based on an annual rate of cash to all stockholders, and not at the election of each stockholder. Accordingly, we$1.70 per share from April 2014 until March 2016. We paid a cash distribution to stockholders of record each day during the quarter ended March 31,monthly stock distributions from April 2016 butuntil January 2017. Stock distributions for subsequent periods have been paid in shares of common stock. Distributions for the quarter endedfrom April 2016 through June 30, 2016 were paid in common stock inbased on an amount equivalent toannual rate of $1.70 per annum, divided by $23.75.
Unregistered Sales of Equity Securities and Use of Proceeds.
We did not sell any equity securities that were not registered under the Securities Act during the year ended December 31, 2016,2019, except with respect to which information has been included in a Quarterly Report on Form 10-Q or in a Current Report on Form 8-K. On January 7, 2014, we commenced our IPO on a "reasonable best efforts" basis of up to 80,000,000 shares of common stock at a price of $25.00 per share, subject to certain volume and other discounts, pursuant to the registration Statement on Form S-11 (File No. 333-190698), filed with the SEC (the "Registration Statement"). The Registration Statement also covered up to 21,052,631 shares of common stock available pursuant to the DRIP under which our common stockholders could elect to have their cash distributions reinvested in additional shares of our common stock.
| For the Period from July 25, 2013 (date of inception) to | ||||
| (In thousands) | December 31, 2016 | |||
| Selling commissions and dealer manager fees | $ | 85,249 | ||
| Other offering costs | 23,559 | |||
| Total offering costs | $ | 108,808 | ||
| For the Period from July 25, 2013 (date of inception) to | ||||
| (In thousands) | December 31, 2016 | |||
| Total commissions paid to the Former Dealer Manager | $ | 85,249 | ||
| Less: | ||||
| Commissions to participating brokers | 58,710 | |||
| Reallowance to participating broker dealers | 10,047 | |||
| Net to the Former Dealer Manager | $ | 16,492 | ||
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
Our common stock is currently not listed on a national securities exchange. There is no regular established trading market for shares of our common stock and there can be no assurance one will develop. We currently have no plans to list shares of our common stock on a national securities exchange. In order to provide stockholders with interim liquidity,September 2018, our board of directors adopted ourthe SRP that enabled our stockholderspursuant to sell their shares back to us after having held them for at least one year,which we were offering, subject to significantcertain terms and conditions, and limitations, including that ourliquidity to stockholders by offering to make quarterly repurchases of common stock at a price to be established by the board of directors had the right to reject any request for repurchase, in its sole discretion, and could amend, suspend or terminate our SRP upon 30 days' notice.directors. In connection with our entry into the SPA,February 2019, our board of directors suspended our SRP effective as of January 23, 2017. In connection with the Initial Closing,SRP. The suspension will remain in effect unless and until our board of directors terminatedtakes further action to reactivate the SRP. There can be no assurance the SRP as of April 30, 2017. We did not make any repurchaseswill be reactivated on its current terms, different terms or at all.
Prior to such suspension, we repurchased shares of our common stock pursuant to ourthe SRP or otherwise during the year ended December 31, 2016 (except for2018 and the year ended December 31, 2019. The following table summarizes the repurchases of 28,264 shares for $0.6 million at an average repurchase price per share of $23.44 with respect to repurchase requests received duringunder the year ended SRP cumulatively through December 31, 2015 that were completed in January 2016) and have not, and will not, make any repurchase of our common stock during the period between January 1, 2017 and the effectiveness of the termination of the SRP.
| Number of Shares Repurchased | Cost of Shares Repurchased | Weighted-Average Price per Share | ||||||||||
| (In thousands) | ||||||||||||
Year ended December 31, 2018 | 208,977 | $ | 1,881 | $ | 9.00 | |||||||
January 2019 | 2,177 | 20 | 9.00 | |||||||||
February 2019 - December 2019 | — | — | — | |||||||||
Cumulative repurchases as of December 31, 2019 | 211,154 | $ | 1,901 | $ | 9.00 | |||||||
The following selected financial data as of December 31, 2019, 2018, 2017, 2016, 2015, 2014, 2013, and 20122015, should be read in conjunction with the accompanying consolidated/combinedconsolidated financial statements of Hospitality Investors Trust, Inc. and the notes thereto and "Item“Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations"Operations” below. The hospitality assets and operations owned by Barceló Crestline Corporation and its consolidated subsidiaries, or the Barceló Portfolio (in such capacity, the "Predecessor") are included for the period from January 1 2014 to March 20, 2014.
Balance Sheet Data (In Thousands) | December 31, 2019 | December 31, 2018 | December 31, 2017 | December 31, 2016 | December 31, 2015 | |||||||||||||||
Total real estate investments | $ | 2,091,268 | $ | 2,542,791 | $ | 2,489,289 | $ | 2,391,407 | $ | 2,211,347 | ||||||||||
Total assets | $ | 2,136,695 | $ | 2,337,287 | $ | 2,420,653 | $ | 2,353,411 | $ | 2,347,839 | ||||||||||
Mortgage notes payable, net | $ | 1,461,441 | $ | 1,507,509 | $ | 1,495,777 | $ | 1,410,925 | $ | 1,341,033 | ||||||||||
Total liabilities | $ | 1,567,476 | $ | 1,790,070 | $ | 1,797,287 | $ | 1,793,968 | $ | 1,706,630 | ||||||||||
Total equity | $ | 170,770 | $ | 384,069 | $ | 495,322 | $ | 559,443 | $ | 641,209 | ||||||||||
| Balance sheet data (In thousands) | December 31, 2016 | December 31, 2015 | December 31, 2014 | ||||||||
| Total real estate investments, at cost | $ | 2,391,407 | $ | 2,211,347 | 98,545 | ||||||
| Total assets | 2,353,411 | 2,347,839 | 333,374 | ||||||||
| Mortgage notes payable, net | 1,410,925 | 1,341,033 | 45,500 | ||||||||
| Total liabilities | 1,793,968 | 1,706,630 | 131,579 | ||||||||
| Total equity | 559,443 | 641,209 | 201,795 | ||||||||
Operating data (In thousands) | Year Ended December 31, 2019 | Year Ended December 31, 2018 | Year Ended December 31, 2017 | Year Ended December 31, 2016 | Year Ended December 31, 2015 | |||||||||||||||
Total revenues | $ | 598,656 | $ | 606,059 | $ | 621,075 | $ | 599,592 | $ | 446,184 | ||||||||||
Operating expenses: | ||||||||||||||||||||
Rooms | 147,458 | 148,630 | 147,814 | 139,169 | 99,543 | |||||||||||||||
Food and beverage | 16,570 | 16,471 | 16,158 | 15,986 | 12,774 | |||||||||||||||
Management fees | 16,531 | 16,757 | 23,643 | 42,560 | 22,107 | |||||||||||||||
Other property-level operating expenses | 245,609 | 240,509 | 242,925 | 230,546 | 171,488 | |||||||||||||||
Transaction related costs | 780 | 64 | 498 | 25,270 | 64,513 | |||||||||||||||
General and administrative | 20,762 | 19,831 | 18,889 | 15,806 | 11,621 | |||||||||||||||
Depreciation and amortization | 109,586 | 111,730 | 105,237 | 101,007 | 68,500 | |||||||||||||||
Impairment of goodwill and long-lived assets | 115,522 | 29,796 | 32,689 | 2,399 | — | |||||||||||||||
Rent | 6,606 | 6,716 | 6,569 | 6,714 | 6,249 | |||||||||||||||
Total operating expenses | $ | 679,424 | $ | 590,504 | $ | 594,422 | $ | 579,457 | $ | 456,795 | ||||||||||
Gain (loss) on sale of assets, net | 4,807 | (188 | ) | 99 | 2,795 | — | ||||||||||||||
Operating (loss) income | (75,961 | ) | 15,367 | 26,752 | 22,930 | (10,611 | ) | |||||||||||||
Interest expense | (92,681 | ) | (106,199 | ) | (98,865 | ) | (92,264 | ) | (80,667 | ) | ||||||||||
Other income (expense) | 1,729 | 1,986 | (1,359 | ) | (1,626 | ) | (491 | ) | ||||||||||||
Equity in earnings of unconsolidated entities | 314 | 187 | 403 | 399 | 238 | |||||||||||||||
Total other expenses, net | (90,638 | ) | (104,026 | ) | (99,821 | ) | (93,491 | ) | (80,920 | ) | ||||||||||
Loss before taxes | $ | (166,599 | ) | $ | (88,659 | ) | $ | (73,069 | ) | $ | (70,561 | ) | $ | (91,531 | ) | |||||
Income tax (benefit) expense | (3,138 | ) | (2,606 | ) | (1,926 | ) | 1,371 | 3,106 | ||||||||||||
Net loss and comprehensive loss | $ | (163,461 | ) | $ | (86,053 | ) | $ | (71,143 | ) | $ | (71,932 | ) | $ | (94,637 | ) | |||||
Less: Net (loss) income attributable to non-controlling interest | (42 | ) | 85 | 244 | 315 | 189 | ||||||||||||||
Net loss before dividends and accretion | $ | (163,419 | ) | $ | (86,138 | ) | $ | (71,387 | ) | $ | (72,247 | ) | $ | (94,826 | ) | |||||
Deemed dividend related to beneficial conversion feature of Class C Units | — | — | (4,535 | ) | — | — | ||||||||||||||
Dividends on Class C Units (cash and PIK) | (46,286 | ) | (20,830 | ) | (13,103 | ) | — | — | ||||||||||||
Accretion of Class C Units | (4,798 | ) | (2,581 | ) | (1,668 | ) | — | — | ||||||||||||
Net loss attributable to common stockholders | $ | (214,503 | ) | $ | (109,549 | ) | $ | (90,693 | ) | $ | (72,247 | ) | $ | (94,826 | ) | |||||
Other data: | ||||||||||||||||||||
Cash flows provided by operations | $ | 74,059 | $ | 66,782 | $ | 80,212 | $ | 68,235 | $ | 18,108 | ||||||||||
Cash flows provided by (used in) investing activities | $ | 80,895 | $ | (97,034 | ) | $ | (141,034 | ) | $ | (148,493 | ) | $ | (716,787 | ) | ||||||
Cash flows (used in) provided by financing activities | $ | (93,179 | ) | $ | (6,083 | ) | $ | 102,165 | $ | 39,978 | $ | 681,498 | ||||||||
| Successor | Predecessor | |||||||||||||||||||
| Year Ended December 31, 2016 | Year Ended December 31, 2015 | For the Period from March 21 to December 31, 2014 | For the Period from January 1 to March 20, 2014 | Year Ended December 31, 2013 | ||||||||||||||||
| Operating data (In thousands) | ||||||||||||||||||||
| Total revenues | $ | 599,592 | $ | 446,184 | $ | 34,871 | $ | 8,245 | $ | 39,797 | ||||||||||
| Operating expenses: | ||||||||||||||||||||
| Rooms | 139,169 | 99,543 | 5,411 | 1,405 | 6,340 | |||||||||||||||
| Food and beverage | 15,986 | 12,774 | 3,785 | 1,042 | 4,461 | |||||||||||||||
| Management fees | 42,560 | 22,107 | 1,498 | 289 | 1,471 | |||||||||||||||
| Other property-level operating costs | 230,546 | 171,488 | 13,049 | 3,490 | 15,590 | |||||||||||||||
| Depreciation and amortization | 101,007 | 68,500 | 2,796 | 994 | 5,105 | |||||||||||||||
| Impairment of long-lived assets | 2,399 | — | — | — | — | |||||||||||||||
| Gain on disposal of assets | — | — | — | — | 74 | |||||||||||||||
| Rent | 6,714 | 6,249 | 3,879 | 933 | 4,321 | |||||||||||||||
| Total operating expenses | 538,381 | 380,661 | 30,418 | 8,153 | 37,362 | |||||||||||||||
| Income from operations | 61,211 | 65,523 | 4,453 | 92 | 2,435 | |||||||||||||||
| Interest expense | (92,264 | ) | (80,667 | ) | (5,958 | ) | (531 | ) | (2,265 | ) | ||||||||||
| Acquisition and transaction related costs | (25,270 | ) | (64,513 | ) | (10,884 | ) | — | — | ||||||||||||
| Other income (expense) | 1,169 | (491 | ) | 103 | — | — | ||||||||||||||
| Equity in earnings (losses) of unconsolidated entities | 399 | 238 | 352 | (166 | ) | (65 | ) | |||||||||||||
| General and administrative | (15,806 | ) | (11,621 | ) | (2,316 | ) | — | — | ||||||||||||
| Total other expenses, net | (131,772 | ) | (157,054 | ) | (18,703 | ) | (697 | ) | (2,330 | ) | ||||||||||
| Net income (loss) attributable to Hospitality Investors Trust, Inc. | $ | (72,247 | ) | $ | (94,826 | ) | $ | (14,841 | ) | $ | (605 | ) | $ | 105 | ||||||
| Other data: | ||||||||||||||||||||
| Cash flows provided by (used in) operations | $ | 67,846 | $ | 6,507 | $ | (9,650 | ) | $ | (556 | ) | $ | 5,818 | ||||||||
| Cash flows used in investing activities | $ | (111,866 | ) | $ | (772,046 | ) | $ | (122,082 | ) | $ | (551 | ) | $ | (2,273 | ) | |||||
| Cash flows provided by (used in) financing activities | $ | 39,978 | $ | 680,507 | $ | 263,593 | $ | (937 | ) | $ | (677 | ) | ||||||||
This section of this Form 10-K generally discusses 2019 and 2018 items and year-to-year comparisons between 2019 and 2018. Discussions of 2017 items and year-to-year comparisons between 2018 and 2017 that are not included in this Form 10-K can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7, pages 49 through 54, of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2018.
The following discussion and analysis should be read in conjunction with our accompanying consolidated/combinedconsolidated financial statements. The following information contains forward-looking statements, which are subject to risks and uncertainties. Should one or more of these risks or uncertainties materialize, actual results may differ materially from those expressed or implied by the forward-looking statements. Please see "Forward-Looking Statements" elsewhere in this report for a description of these risks and uncertainties.
Overview
Hospitality Investors Trust, Inc. is a Maryland corporation and qualified as aself-managed REIT beginning with the taxable year ended December 31, 2014. We were formedthat invests primarily to acquirein premium-branded select-service lodging properties in the midscale limited service, extended stay, select service, upscale select service, and upper upscale full service segments within the hospitality sector.United States. As of December 31, 2016,2019, we had acquiredown or hadhave an ownership interest in a total of 141124 hotels, with a total of 17,19315,324 guestrooms located in 3233 states.
We believe in affiliating our hotels with premium brands owned by leading international franchisors such as Hilton, Marriott and Hyatt. As of December 31, 2016,2019, all but one of our hotels operated under a franchise or license agreement with a national brand owned by one of Hilton Worldwide, Inc., Marriott International, Inc., Hyatt Hotels Corporation and Intercontinental Hotels Group and Red Lion Hotels Corporation or one of their respective subsidiaries or affiliates.
We have primarily acquired lodging properties in the upscale select-service, upscale extended stay and other discounts, pursuant to a registration statement on Form S-11 (File No. 333-190698),upper midscale select-service chain scale segments located in secondary markets with strong demand generators, such as state capitals, major universities and hospitals, as well as upcorporate, leisure and retail attractions. We believe properties in these chain scale segments can be operated with fewer employees and provide more stable cash flows than full service hotels, and with less market volatility than similar hotels in primary market locations.
During 2019, as part of our investment strategy to 21,052,631 sharescontinue to pursue the sale of common stock available pursuantnon-core hotels and reallocate capital into other corporate purposes, including debt reduction, we commenced marketing for sale a total of 45 hotels. As of December 31, 2019, 20 of these hotels have been sold and 21 were subject to definitive sale agreements where the Distribution Reinvestment Plan (the "DRIP"buyer has made a non-refundable deposit. See “Results of Operations” below for more detail.
We conducted our initial public offering ("IPO") under which our common stockholders could elect to have their cash distributions reinvested in additionalfrom January 2014 until November 2015 without listing shares of our common stock.
On January 12, 2017, we, along with our operating partnership, Hospitality Investors Trust Operating Partnership, L.P. (then known as American Realty Capital Hospitality Operating Partnership, L.P. the “OP”(the "OP"), entered into (i) athe Securities Purchase, Voting and Standstill Agreement (the “SPA”("SPA") with the Brookfield Strategic Real Estate Partners II Hospitality REIT II LLC (the “Brookfield Investor”Investor to secure a commitment by the Brookfield Investor to make capital investments in us necessary for us to meet our short-term and long-term liquidity requirements and obligations.
On March 31, 2017, the Initial Closing occurred and various transactions and agreements contemplated by the SPA were consummated and executed, including but not limited to:
the sale by us and purchase by the Brookfield Investor of one share of a new series of preferred stock designated as the Redeemable Preferred Share, par value $0.01 per share ("the "Redeemable Preferred Share"), for a nominal purchase price; and
the sale by us and purchase by the Brookfield Investor of 9,152,542.37 Class C Units, for a purchase price of $14.75 per Class C Unit, or $135.0 million in the aggregate.
On February 27, 2018, the Second Closing occurred, pursuant to which we sold 1,694,915.25 additional Class C Units to the Brookfield Investor, for a purchase price of $14.75 per Class C Unit, or $25.0 million in the aggregate.
On February 27, 2019, the Final Closing occurred, pursuant to which we sold 14,898,060.78 additional Class C Units to the Brookfield Investor, for a purchase price of $14.75 per Class C Unit, or $219.7 million in the aggregate. Following the Final Closing, the Brookfield Investor no longer has any obligations or rights to purchase additional Class C Units pursuant to the SPA or otherwise.
Holders of Class C Units are entitled to receive, with respect to each Class C Unit, fixed, quarterly cumulative cash distributions at a rate of 7.50% per annum and are also entitled to receive, with respect to each Class C Unit, fixed, quarterly, cumulative PIK Distributions payable in Class C Units at a rate of 5% per annum. As of December 31, 2019, the Brookfield Investor has made $379.7 million of capital investments in us by purchasing Class C Units in the OP, and the total liquidation preference of the Class C Units was $411.8 million. The Class C Units are convertible into units of limited partner interest in the OP entitled “OP Units” (“OP Units”), which may be redeemed for shares of our common stock or, at our option, the cash equivalent. As of the date of this Annual Report on Form 10-K, the Brookfield Investor owns or controls 41.7% of the voting power of our common stock on an as-converted basis. With respect to share ownership limitations contained in our charter intended to ensure our ongoing compliance with REIT requirements, we have granted the Brookfield Investor and its affiliates a waiver of the applicable limitations which permits the Brookfield Investor and its affiliates to own up to 49.9% in value of the aggregate of the outstanding shares of our common stock, subject to terms and conditions set forth in an ownership limit waiver agreement. The SPA also contains certain standstill and voting restrictions applicable to the Brookfield Investor and certain of its affiliates.
Without obtaining the prior approval of the majority of the then outstanding Class C Units, and/or at least one of the two directors elected to our board of directors by the Brookfield Investor pursuant to its rights as wellthe holder of the Redeemable Preferred Share, we are restricted from taking certain operational and governance actions. These restrictions (collectively referred to herein as related guarantee agreements withthe “Brookfield Approval Rights”) are subject to certain affiliatesexceptions and conditions.
An affiliate of the Brookfield Investor, and (ii) a Framework Agreement (the “Framework Agreement”) with our advisor, American Realty Capital Hospitality Advisors, LLC (the “Advisor”), our property managers, American Realty Capital Hospitality Properties, LLC and American Realty Capital Hospitality Grace Portfolio, LLC (together, the “Property Manager”), Crestline Hotels & Resorts, LLC (“Crestline”), an affiliateSpecial General Partner, is the special general partner of the AdvisorOP, with certain non-economic rights that apply if we fail to redeem the Class C Units when required to do so, including the ability to commence selling the OP’s assets until the Class C Units have been fully redeemed.
We conduct substantially all of our business through the OP. We are a general partner and the Property Manager, American Realty Capital Hospitality Special Limited Partnership, LLC (the “Special Limited Partner”), another affiliatehold all of the AdvisorOP Units. The Brookfield Investor holds all the issued and outstanding Class C Units, which rank senior in payment of distributions and in the Property Manager,distribution of assets to the OP Units held by us.
We do not currently pay distributions to our stockholders, and for certain limited purposes, the Brookfield Investor.
Prior to the Initial Closing, we had no employees, and we depended on the Former Advisor to manage certain aspects of our affairs on a day-to-day basis pursuant to our advisory agreementagreement. In connection with, and as a condition to, the Advisor ( the "Advisory Agreement"). In addition, the Property Manager served as our property manager and had retained Crestline to provide services, including locating investments, negotiating financing and operating certain hotel assetsBrookfield Investor’s investment in our portfolio. The Advisor, the Property Manager and Crestline are under common control with AR Capital, LLC ("AR Capital"), the parent of our sponsor, and AR Global Investments, LLC ("AR Global"), the successor to certain of AR Capital's businesses.
We also terminated all of our other agreements with affiliates of the Advisor except for our hotel-level property management agreements with Crestline and entered into a transition services agreement with each of the Advisor and Crestline, pursuant to which we will receive their assistance in connection with investor relations/shareholder services and support services for pending transactions in the case of the Advisor and accounting and tax related services in the case of Crestline until June 29, 2017 except as set forth below. The transition services agreement with Crestline for accounting and tax related services will automatically renew for successive 90-day periods unless either party elects to terminate. The transition services agreement with the Advisor with respect to the support services for pending transactions expires on April 30, 2017 unless extended for an additional 30 days by written notice delivered prior to the expiration date.
Highlights of our accompanying consolidated/combined2019 performance and current liquidity and financial statements included in this Annual Report on Form 10-Kposition, and outlook for additional information regarding changes to our relationship with AR Capital, AR Global, the Advisor, the Property Manager and their affiliates, and our transition to self-management.
| • | We continued to take advantage of attractive credit market conditions by entering into a $1.040 billion refinancing for 92 hotels and concurrently amending our term loan related to 28 additional hotels. These transactions allowed us to lower the spread component of the interest rate on the new indebtedness, extend debt maturities and generate excess proceeds of approximately $25 million. | |
| • | We continued to execute on our strategy to sell non-core hotels. We sold a total of 20 hotels in 2019, generating excess proceeds of $37.3 million after repayment of approximately $101.2 million of related mortgage debt obligations and closing costs. As of December 31, 2019, we had another 21 hotels subject to definitive sale agreements, 17 of which have been sold between January 1, 2020 and March 15, 2020, generating excess proceeds of $19.0 million after prepayment of approximately $111.0 million of related mortgage debt obligations and closing costs. We have not yet determined what our use of the excess proceeds will be, although we anticipate that a portion of these proceeds will be utilized for working capital and liquidity purposes in light of the downturn in financial performance we are experiencing due to the coronavirus pandemic. | |
• | We continued to execute on our PIP reinvestment strategy across our portfolio. During the year, we completed PIP work on 13 hotels and invested approximately $50.8 million as part of our PIP program and for other capital improvements. |
2019 room revenues decreased $9.1 million, or 1.6%, versus 2018, driven by a lower number of total rooms in the portfolio due to the sale of 20 hotels during the year ended December 31, 20142019. In 2019, our hotels generally out-performed their competitive sets. Excluding the 20 hotels we sold during 2019, revenue per available room, or RevPAR, increased 0.8% from 2018 to 2019, from $95.03 to $95.75, and excluding the 45 hotels we commenced marketing during 2019, RevPAR increased 1.4% from 2018 to 2019, from $99.65 to $101.06.
We continue to be impacted by increasing labor costs at our hotels, and we have been derivedunable to fully offset this increase by raising room rates or through cost or other efficiencies. We anticipate the trend of increasing labor costs will continue during 2020. Further, future RevPAR growth, if any, may not keep pace with increasing labor costs.
| • | We believe the performance of our portfolio is correlated to the performance of the United States economy overall, and while economic indicators such as record low unemployment and high consumer confidence in the United States have recently appeared to be healthy, concerns about the novel coronavirus pandemic have introduced significant economic uncertainty in the United States and have begun to adversely impact our business. In early March 2020, we started to see softening of demand and revenue weakness across our portfolio triggered by direct guest cancellations at our hotels as well as cancellations of business and industry conventions and meetings in certain of our markets. These conditions have worsened over the course of the month as the level of overall business and leisure travel has declined significantly due to concerns about the coronavirus pandemic, and we anticipate they will continue and likely worsen further as governments and businesses take additional actions to respond to the risks of the coronavirus pandemic. We are working closely with our third party property managers to respond to these developments and to implement various cost reduction and other liquidity preservation measures which have included temporary hotel staff reductions and temporarily closing certain hotels. We have also begun to reach out to various contract counterparties, such as lenders and ground lessors, about payment waivers and deferrals, as well as other liquidity preservation measures. These efforts are expected to continue, although there can be no assurance all or any one of them will be successful. | |
• | During February 2019, we used the proceeds from the Final Closing with the Brookfield Investor to redeem the remaining $219.7 million in liquidation value of preferred equity interests issued by two of our subsidiaries that indirectly owned a portfolio of 116 hotels we acquired in February 2015 (the "Grace Preferred Equity Interests"), and the Brookfield Investor no longer has any obligations or rights to purchase additional Class C Units. |
• | As of December 31, 2019, our loan-to-value ratio was 64.9%. This leverage percentage does not include the Class C Units (which may be redeemed by the Brookfield Investor at any time on or after March 31, 2022 for a redemption price equal to the liquidation preference) as indebtedness and is calculated based on total cost of real estate assets before accumulated depreciation and amortization. The market value of our real estate assets may be materially lower. |
All our properties have been pledged as security for our indebtedness, and we intend to extend or refinance this indebtedness at or prior to maturity. Our ability to refinance debt will be affected by our financial condition and various other factors existing at the historical accounting recordsrelevant time, including factors beyond our control such as capital and credit market conditions, the state of BCCthe national and reflectregional economies, local real estate conditions and the assets, liabilities, equity in and value of the related collateral. The recent coronavirus pandemic has begun to adversely impact credit and capital market conditions and as a result of these developments we may be unable to access these markets until conditions normalize.
Our customers fall into three broad groups: transient business, group business and contract business. Transient business broadly represents individual business or leisure travelers. Business travelers make up the majority of transient demand at our hotels. Group business represents significant blocks of rooms for event-driven business and is primarily corporate users but can also include social events such as wedding parties. Contract business is also primarily comprised of corporate users for fixed rate longer term in nature business such as airline crews.
Our revenues are comprised of rooms revenue, food and beverage revenue and other revenue which accounted for approximately 94.1%, 3.3%, and 2.6%, respectively, of our total revenues for the year ended December 31, 2019. Hotel operating expenses directly attributable to(which exclude transaction related costs, general and administrative, depreciation and amortization and impairment of goodwill and long-lived assets) represent approximately 63.7% of our total operating expenses for the Predecessor, as well as allocations deemed reasonable by management, to present the combined financial position, resultsyear ended December 31, 2019.
Critical Accounting Policies and cash flows of the Predecessor on a stand-alone basis.
Real Estate Investments
We allocate the purchase price of properties acquired in real estate investments to tangible and identifiable intangible assets acquired based on their respective fair values at the date of acquisition. Tangible assets include land, land improvements, buildings and furniture, fixtures and equipment. We utilize various estimates, processes and information to determine the property value. Estimates of value are made using customary methods, including data from appraisals, comparable sales, discounted cash flow analysis and other methods. Amounts allocated to land, land improvements, buildings and furniture, fixtures and equipment are based on purchase price allocation studies performed by independent third parties or our analysis of comparable properties in our portfolio. Identifiable intangible assets and liabilities, as applicable, are typically related to contracts, including operating lease agreements, ground lease agreements and hotel management agreements, which will be recorded at fair value. We also consider information obtained about each property as a result of our pre-acquisition due diligence in estimating the fair value of the tangible and intangible assets acquired and intangible liabilities assumed.
Our acquisitions of hotel properties are accounted for as acquisitions of groups of assets rather than business combinations, although the determination will be made on a transaction-by-transaction basis. If we conclude that an acquisition will be accounted for as a group of assets, the costs associated with the acquisition will be capitalized as part of the assets acquired.
Our investments in real estate, including transaction costs, that are not considered to be business combinations under GAAP are recorded at cost. Improvements and replacements are capitalized when they extend the useful life of the asset. Costs of repairs and maintenance are expensed as incurred. Depreciation of our assets is computed using the straight-line method over the estimated useful lives of up to 40 years for buildings, 15 years for land improvements, five years for furniture, fixtures and equipment, and the shorter of the useful life or the remaining lease term for leasehold interests.
We are required to make subjective assessments as to the useful lives of our assets for purposes of determining the amount of depreciation to record on an annual basis with respect to our investments in real estate. These assessments have a direct impact on our net income because if we were to shorten the expected useful lives of our investments in real estate, we would depreciate these investments over fewer years, resulting in more depreciation expense and lower net income on an annual basis.
Impairment of Long Lived Assets
Upon the occurrence of certain “triggering events” under the provisions of the Accounting Standards Codification ("ASC") section 360-Property, Plant and InvestmentsEquipment, we review our hotel investments which are considered to be long-lived assets under GAAP for impairment. These triggering events may include the initiation of marketing an asset for sale, significant declines in Unconsolidated Entities
Class C Units
We initially measured the Class C Units at fair value net of $2.4 million was recorded on one hotel during the quarter ended June 30, 2016 (See Note 14 - Impairments to our accompanying consolidated/combined financial statements included in this Annual Report on Form 10-K). We have not recorded an impairment in any other period.
Until the Final Closing, we could have become obligated pursuant to the SPA with the Brookfield Investor to issue additional Class C Units. This obligation was considered a contingent forward contract under ASC section 480 - Distinguishing Liabilities from Equity, and we accounted for it as a liability. The Final Closing with the Brookfield Investor occurred on February 27, 2019, and the Brookfield Investor no longer has any obligations or repaid before maturity. Costs incurred in seeking financial transactions that dorights to purchase additional Class C Units. The contingent forward liability was extinguished upon the Final Closing, and, accordingly, we will not close are expensedhave any such obligations in the periodfuture. At December 31, 2018 and 2017, the fair value of the contingent forward liability was zero and $1.4 million, respectively, and changes in which it is determined that the financing will not be successful.
Revenue Performance Metrics
We measure hotel revenue performance by evaluating revenue metrics such as:
Occupancy percentage (“Occ”) - Occ represents the total number of hotel rooms sold in a given period divided by the total number of rooms available. Occ measures the utilization of our hotels' available capacity.
Average Daily Rate (“ADR”) - ADR represents total hotelroom revenues divided by the total number of rooms sold in a given period.
Revenue per Available room, (“RevPAR”)or RevPAR - RevPAR is the product of ADR and Occ.
ADR and RevPAR do not include food and beverage or other revenues generated by the hotels.
Occ, ADR, and RevPAR are commonly used measures within the hotel industry to evaluate hotel operating performance. ADRRevPAR is an important metric for monitoring operating performance at the individual hotel property level and RevPAR do not include food and beverage or other revenues generated by the hotels.across our business as a whole. We evaluate individual hotel RevPAR performance on an absolute basis with comparisons to budget, to prior periods and to the hotel competitive set in the market, as well as on a company-wide and regional basis.
Our Occ, ADR 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, airport and other business and leisure travel, new hotel property construction, and the pricing strategies of competitors. In addition, our Occ, ADR and RevPAR performance isare dependent on the continued success of our franchisors and brands.
We generally expect that room revenues will make up a significant majority of our total revenues, and our revenue results will therefore be highly dependent on maintaining and improving Occ and ADR, which drive RevPAR.
Results of Operations
Our results of operations have in the past, and may continue to be, impacted by our acquisition activity.
We sold four non-core hotels during the fourth quarter of 2017 and the first quarter of 2018 which generated net proceeds of $4.3 million exclusiveafter associated repayments of closing costs. In NovemberGrace Preferred Equity Interests and indebtedness. As part of our primary business objective to maximize stockholder value and position ourselves for a liquidity event, we intend to continue to pursue the sale of hotels we determine are non-core to our portfolio and reallocate that capital into other corporate purposes, including debt reduction, we believe will produce more attractive stockholder returns. As part of this investment strategy, we commenced marketing for sale a total of 45 hotels during the year ended December 2015, we closed on the acquisition of interests31, 2019. Our non-core hotel sale activity is expected to continue in four hotelsfuture periods through fee simple interests (the "First Noble and Second Noble Portfolios") for an aggregate purchase price of $107.6 million, exclusive of closing costs. During December 2015 and January 2016, we terminated our obligations to acquire 24 additional hotels, including obligations to Summit, and as a result forfeited an aggregate of $41.1 million in non-refundable deposits. In February 2016, we completed the acquisition of six hotels through fee simple interests from Summit (the "Third Summit Portfolio") for an aggregate purchase price of $108.3 million, exclusive of closing costs, $20.0 million of which was funded with the proceeds from a loan (the "Summit Loan") from Summit.
During the year ended December 31, 2019, we sold 20 hotels set forth in the table below.
Property | Location | Number of Rooms | ||
Courtyard Bowling Green Convention Center | Bowling Green, KY | 93 | ||
Courtyard Chicago Elmhurst Oakbrook Area | Elmhurst, IL | 140 | ||
Courtyard Lexington | Lexington, KY | 90 | ||
Courtyard Mobile | Mobile, AL | 78 | ||
Fairfield Inn & Suites Baton Rouge South | Baton Rouge, LA | 78 | ||
Fairfield Inn & Suites Germantown | Germantown, TN | 80 | ||
Fairfield Inn & Suites Spokane Downtown | Spokane, WA | 84 | ||
Hampton Inn Chicago Gurnee | Gurnee, IL | 134 | ||
Hampton Inn Cleveland Westlake | Westlake, OH | 122 | ||
Hampton Inn Colorado Springs Central Airforce Academy | Colorado Springs, CO | 125 | ||
Hampton Inn Columbus Dublin | Dublin, OH | 123 | ||
Hampton Inn Morgantown | Morgantown, WV | 107 | ||
Hampton Inn Pickwick Dam at Shiloh Falls | Pickwick, TN | 50 | ||
Hampton Inn St Louis Westport | Maryland Heights, MO | 122 | ||
Holiday Inn Express & Suites Kendall East Miami | Miami, FL | 66 | ||
Homewood Suites Memphis Germantown | Germantown, TN | 92 | ||
Hyatt Place Baton Rouge I 10 | Baton Rouge, LA | 126 | ||
SpringHill Suites Baton Rouge South | Baton Rouge, LA | 78 | ||
SpringHill Suites Houston Hobby Airport | Houston, TX | 122 | ||
TownePlace Suites Baton Rouge South | Baton Rouge, LA | 90 |
The aggregate sales price of these hotels was $138.5 million, resulting in a gain of approximately $4.9 million, which is included in gain on sale of assets on our Consolidated Statement of Operations and Comprehensive Loss. We had beenpreviously recognized impairment losses on 14 of these hotels in anticipation of their expected sale, and this gain partially represents the amount by which the realized sale proceeds exceeded the estimated sales proceeds at the time the impairments were recorded. These sales generated net proceeds to us of approximately $37.3 million, after prepayment of approximately $101.2 million of related mortgage debt obligations and closing costs.
As of December 31, 2019, with respect to the other hotels we have commenced marketing for sale, we had entered into definitive agreements to sell the 21 hotels set forth in the table below where the buyer has made a non-refundable deposit.
Property | Location | Number of Rooms | ||
Courtyard Gainesville | Gainesville, FL | 81 | ||
Courtyard Memphis Germantown | Germantown, TN | 93 | ||
Hampton Inn Albany Wolf Road Airport | Albany, NY | 153 | ||
Hampton Inn Columbia I 26 Airport | Columbia West, SC | 120 | ||
Hampton Inn Dallas Addison | Addison, TX | 158 | ||
Hampton Inn Detroit Northville | Northville, MI | 124 | ||
Hampton Inn Fort Collins | Fort Collins, CO | 75 | ||
Hampton Inn Kansas City Airport | Kansas City, MO | 120 | ||
Hampton Inn Kansas City Overland Park | Overland Park, KS | 133 | ||
Homewood Suites Jackson Ridgeland | Ridgeland, MS | 91 | ||
Hyatt Place Baltimore Washington Airport | Linthicum Heights, MD | 127 | ||
Hyatt Place Birmingham Hoover | Birmingham, AL | 126 | ||
Hyatt Place Chicago Schaumburg | Schaumburg, IL | 127 | ||
Hyatt Place Cincinnati Blue Ash | Blue Ash, OH | 125 | ||
Hyatt Place Columbus Worthington | Columbus, OH | 124 | ||
Hyatt Place Indianapolis Keystone | Indianapolis North Loop, IN | 124 | ||
Hyatt Place Kansas City Overland Park Metcalf | Overland Park, KS | 124 | ||
Hyatt Place Richmond Innsbrook | Glen Allen, VA | 124 | ||
Residence Inn Jackson Ridgeland | Ridgeland, MS | 100 | ||
Residence Inn Mobile | Mobile, AL | 66 | ||
Springhill Suites San Antonio Medical center Northwest | San Antonio Northwest, TX | 112 |
Between January 1, 2020 and March 15, 2020, we sold 17 of the above 21 hotels, and generated net proceeds of approximately $19.0 million, after prepayment of approximately $111.0 million of related mortgage obligations and closing costs. We have not yet determined what our use of the excess proceeds from the hotels we have sold will be, although we anticipate that a portion of these proceeds will be utilized for working capital and liquidity purposes in light of the downturn in financial performance we are experiencing due to the coronavirus pandemic. We expect to close the sale of the remaining eight hotels forwe have entered into definitive agreements to sell as of March 16, 2020, including four additional hotels which became subject to definitive sale agreements during 2020, with an aggregate contract purchase price of $77.2 million. In January 2017, in connection with our entry into$83.1 million, during or prior to the SPA, we extended the scheduled closing datethird quarter of the Pending Acquisition2020. These sales are expected to April 27, 2017 (or October 24, 2017 in the casegenerate net proceeds to us of one hotel) and made an additional purchase price depositapproximately $4.7 million, after prepayment of $3.0 million in the form of a new loan by Summit to us.
| Year Ended | ||||||||
| Total Portfolio | December 31, 2016 | December 31, 2015 | ||||||
| Number of rooms | 17,114 | 16,644 | ||||||
| Occ | 75.6 | % | 76.2 | % | ||||
| ADR | $ | 120.93 | $ | 118.42 | ||||
| RevPAR | $ | 91.48 | $ | 90.26 | ||||
The hotel business is capital-intensive and renovations are a regular part of the business. We have been undertaking a large-scale PIP program across a significant portion of the hotels in our portfolio. As of December 31, 2019, we have substantially completed work on 92 of the 121 hotels that are part of our PIP program, including 15 hotels either sold between January 1, 2020 and March 15, 2020, or expected to be sold during or prior to the third quarter of 2020. We completed PIP work on 13 hotels in 2017, 35 hotels in 2018 and 13 hotels in 2019. All of the 20 hotels we sold during 2019 had been part of our PIP program prior to sale, and we had completed PIP work on six of those hotels prior to sale. Due to the progress we have made in our PIP program and the commencement of increased disposition activity, going forward, we expect the number of hotels that undergo PIP renovations to moderate to less than ten hotels annually as we target for sale many of the remaining unrenovated hotels in our PIP program and we have and expect to continue to defer capital expenditures. We expect to substantially complete our PIP program over the next two to three years.
Hotel renovations have adversely impacted, and are expected to continue to adversely impact, our operating results due to the disruption to the operations of the hotels while work is ongoing. We anticipate that as we complete PIP and other renovations, our performance at the renovated hotels will increase for a period of time (generally one to two years) and then moderate as the hotel stabilizes. However, performance at renovated hotels remains subject to competition and other conditions in the markets in which they operate, as well as other factors that may impact the hotel industry generally or the renovated hotel in particular and, in some cases, offset the effects on performance of completed PIPs and other renovations. We cannot provide any assurance that the PIP and other renovations at our hotels will have the desired effect of improving the competitive position and enhancing the performance of the hotels renovated.
We believe that the continued execution of our investment strategies will maximize long-term value for our stockholders and position us for future success and a potential liquidity event for our investors. While it is our intention to achieve a liquidity event, there can be no assurance as to when or if we will ultimately be able to do so and as to the terms of any such liquidity event.
Comparison of the Year Ended December 31, 2019 to the Year Ended December 31, 2018
Room revenues for the portfolio were $563.3 million for the year ended December 31, 2019, compared to room revenues of $572.4 million for the year ended December 31, 2018. The decrease in room revenues was primarily driven by a lower number of total rooms in the portfolio due to the sale of 20 hotels during the year ended December 31, 2019.
The decrease in room revenues was partially offset by higher occupancy and ADR, primarily as a result of fewer hotels under renovation during the year ended December 31, 2019, compared to the prior year. An aggregate of 16 hotels were under renovation pursuant to our PIP program during the year ended December 31, 2019, which represented approximately 1,600 nights during the period when a room could not be used due to ongoing renovations, compared to 53 hotels under renovation during the year ended December 31, 2018, which represented approximately 3,900 nights during the period when a room could not be used due to ongoing renovations. A large-scale capital project that would causeresult in the Company considering a hotel to be considered to be under renovation is an extensive renovation of core aspects of the hotel, such as rooms, meeting space, lobby, bars, restaurants, and other public spaces. Both quantitative and qualitative factors are taken into consideration in determining if a particular renovation would cause a hotel to be considered to be under renovation for these purposes, including unusual or exceptional circumstances such as:as a reduction or increase in room count, a significant alteration of the business operations, or the closing of material portions of the hotel during the renovation.
| Year Ended | ||||||||
| Proforma (141 hotels) | December 31, 2016 | December 31, 2015 | ||||||
| Number of rooms | 17,193 | 17,192 | ||||||
| Occ | 75.6 | % | 75.9 | % | ||||
| ADR | $ | 120.88 | $ | 118.42 | ||||
| RevPAR | $ | 91.39 | $ | 89.95 | ||||
| RevPAR growth rate | 1.7 | % | ||||||
The following table presents pro-formaactual operating information of the hotels in our portfolio as iffor the periods in which we hadhave owned each hotelthem.
Year Ended | ||||||||
Total Portfolio | December 31, 2019 | December 31, 2018 | ||||||
Number of rooms | 15,324 | 17,321 | ||||||
Occ | 74.6 | % | 73.9 | % | ||||
ADR | $ | 125.01 | $ | 124.33 | ||||
RevPAR | $ | 93.23 | $ | 91.83 | ||||
The next table below presents pro-forma operating information only of the hotels in our portfolio that we owned as of December 31, 2019, for the full periods presented, further adjusted to excludepresented. Therefore, this table excludes operating information for the impact20 hotels we sold during the year ended 2019.
Year Ended | ||||||||
Pro-forma (124 hotels) | December 31, 2019 | December 31, 2018 | ||||||
Number of rooms | 15,324 | 15,324 | ||||||
Occ | 75.4 | % | 74.9 | % | ||||
ADR | $ | 127.04 | $ | 126.90 | ||||
RevPAR | $ | 95.75 | $ | 95.03 | ||||
RevPAR change | 0.8 | % | ||||||
The next table below presents pro-forma operating information of 42the hotels that we classifyowned as under renovation.
| Year Ended | ||||||||
| Proforma hotels not under renovation (99 hotels) | December 31, 2016 | December 31, 2015 | ||||||
| Number of rooms | 12,013 | 12,012 | ||||||
| Occ | 76.2 | % | 75.7 | % | ||||
| ADR | $ | 119.79 | $ | 117.79 | ||||
| RevPAR | $ | 91.28 | $ | 89.15 | ||||
| RevPAR growth rate | 2.4 | % | ||||||
Year Ended | ||||||||
Pro-forma (99 hotels) | December 31, 2019 | December 31, 2018 | ||||||
Number of rooms | 12,391 | 12,391 | ||||||
Occ | 77.0 | % | 76.3 | % | ||||
ADR | $ | 131.23 | $ | 130.62 | ||||
RevPAR | $ | 101.06 | $ | 99.65 | ||||
RevPAR change | 1.4 | % | ||||||
Other non-room operating revenues for the portfolio include food and beverage, and other ancillary revenues such as conference center, market, parking, telephone and cancellation fees. Total non-room operating revenues, including the results of only the hotels in our portfolio that we owned as if we had owned each hotel in our portfolio forof the full yearsyear ended December 31, 2016, and 2015, decreased 0.8%2019, increased 6.5% over the prior year period driven primarily by a decline inhigher other ancillary revenues.
Our hotel operating expenses include labor expenses incurred in the day-to-day operation of our hotels. Our hotels have a variety of fixed expenses, such as essential hotel staff, real estate taxes and insurance, and these expenses do not change materially even if the revenues at the hotels fluctuate. Our primary hotel operating expenses are described below:
• | Rooms expense: These costs include labor (housekeeping and rooms operation), reservation systems, room supplies, linen and laundry services. Occupancy is the major driver of rooms expense, due to the cost of cleaning the rooms, with additional expenses that vary with the level of service and amenities provided. |
• | Food and beverage expense: These expenses primarily include labor and the cost of food and beverage. Occupancy and the type of customer staying at the hotel (for example, catered functions generally are more profitable than outlet sales) are the major drivers of food and beverage expense, which correlates closely with food and beverage revenue. |
• | Management fees: Management fees includebase management fees paid to third party property managers and are computed as a percentage of gross revenue. Incentive management fees may be paid to third party property managers when operating profit or other performance metrics exceed certain threshold levels. |
• | Other property-level operating costs: These expenses include labor and other costs associated with other ancillary revenue, such as conference center, parking, market and other guest services, as well as labor and other costs associated with administrative and general, sales and marketing, brand related fees, repairs, maintenance and utility costs. In addition, these expenses include real and personal property taxes and insurance, which are relatively inflexible and do not necessarily change based on changes in revenue or performance at the hotels. |
Total hotel (for example, catered functions generally are more profitable than outlet sales) are the major drivers of food and beverage expense, which correlates closely with food and beverage revenue.
Transaction related costs increased approximately $32.5 $0.7 million for the year ended December 31, 2016,2019, compared to the prior year due primarily to acquisitionsperiod, driven by certain costs associated with hotel sales.
General and completed PIPs.
Depreciation and amortization decreased approximately $11.6 $2.1 million for the year ended December 31, 2016,2019, compared to the prior year due primarily to new mortgage and promissory notes in 2016,period, driven by the sale of 20 hotels and the fullclassification of 21 hotels as held for sale during the 2019 period.
Impairment of goodwill and long-lived assets increased by $85.7 million for the year impact of mortgage debt incurredended December 31, 2019, compared to prior year period, driven by impairments on 33 hotels and assumed in connectionfive hotels with the acquisitiongoodwill impairment. All but two of the Grace Portfolio, along with the issuance33 hotels were either sold during 2019 or subject to definitive sale agreement as of the Grace Preferred Equity Interests.
Gain (loss) on sales of assets, net, changed by $5.0 million for the year ended December 31, 2016,2019, primarily driven by the gain on the sale of hotels in the 2019 period.
Interest expense decreased $13.5 million for the year ended December 31, 2019, compared to the prior year dueperiod, driven by the elimination of interest expense on the remaining $219.7 million in liquidation value of Grace Preferred Equity Interests upon their redemption on February 27, 2019, and lower deferred financing fees amortization as the portion attributable to decreased acquisition activitythe Term Loan was fully amortized. The year-over-year decrease in 2016.
Other income (loss) changed by $0.3 million for the year ended December 31, 2019, compared to the prior year period.
| Year Ended | ||||||||
| Total Portfolio | December 31, 2015 | December 31, 2014 | ||||||
| Number of rooms | 16,644 | 1,181 | ||||||
| Occ | 76.2 | % | 74.3 | % | ||||
| ADR | $ | 118.42 | $ | 140.44 | ||||
| RevPAR | $ | 90.26 | $ | 104.40 | ||||
| Year Ended | ||||||||
| Proforma (141 hotels) | December 31, 2015 | December 31, 2014 | ||||||
| Number of rooms | 17,192 | 17,191 | ||||||
| Occ | 75.9 | % | 74.8 | % | ||||
| ADR | $ | 118.42 | $ | 112.56 | ||||
| RevPAR | $ | 89.95 | $ | 84.20 | ||||
| RevPAR growth rate | 6.7 | % | ||||||
Hotel EBITDA
This section includes non-GAAP financial measures, including funds from operations ("FFO"), modified funds from operations ("MFFO"), anddisclosures with respect to hotel earnings before interest, taxes and depreciation and amortization ("Hotel EBITDA"). Descriptions, which is a non-GAAP financial measure. A description of these non-GAAP measuresHotel EBITDA and reconciliationsa reconciliation to the most directly comparable GAAP measure, which is net income (loss), attributable to common stockholders, is provided below.
| For the year ended December 31, 2016 | For the year ended December 31, 2015 | For the Period from March 21 2014 to December 31, 2014 | |||||||||||
| Net loss attributable to Hospitality Investors Trust, Inc. (in accordance with GAAP) | $ | (72,247 | ) | $ | (94,826 | ) | $ | (14,841 | ) | ||||
| Depreciation and amortization | 101,007 | 68,500 | 2,796 | ||||||||||
| Impairment of long-lived assets | 2,399 | — | — | ||||||||||
| Adjustment to our share of depreciation and amortization for variable interest entities | (38 | ) | 147 | 343 | |||||||||
| FFO attributable to stockholders | $ | 31,121 | $ | (26,179 | ) | $ | (11,702 | ) | |||||
| Acquisition and transaction related costs | 25,270 | 64,513 | 10,884 | ||||||||||
| Change in fair value of contingent consideration | 1,455 | 781 | — | ||||||||||
| Change in fair value of equity interest | — | (219 | ) | — | |||||||||
| Amortization of below-market lease obligation | 398 | 404 | 340 | ||||||||||
| MFFO attributable to stockholders | $ | 58,244 | $ | 39,300 | $ | (478 | ) | ||||||
Hotel EBITDA is used by management as a performance measure and we believe it is useful to investors as a supplemental measure in evaluating our financial performance because it is a measure of hotel profitability that excludes expenses that we believe may not be indicative of the operating performance of our hotels. We believe that using Hotel EBITDA, which excludes the effect of non-operating expenses not related to operating hotels and non-cash charges, all of which are based on historical cost and may be of limited significance in evaluating current performance, facilitates comparison of hotel operating profitability between periods. For example, interest expense isand general and administrative expenses are not linked to the operating performance of a hotel and Hotel EBITDA is not affected by whether the financing is at the hotel level or corporate level. In addition, depreciation and amortization, because of historical cost accounting and useful life estimates, may distort operating performance at the hotel level. We believe that investors should consider our Hotel EBITDA in conjunction with net income (loss) and other required GAAP measures of our performance to improve their understanding of our operating results.
Hotel EBITDA, or similar measures, are commonly used as performance measures by other public hotel REITs. However, not all public hotel REITs calculate Hotel EBITDA, or similar measures, the same way. Hotel EBITDA should be reviewed in
The following table reconciles our net loss attributable to common stockholders in accordance with GAAP to Hotel EBITDA for the years ended December 31, 2016, 2015,2019, 2018, and 2014.2017 (unaudited in thousands):
| For the Year Ended December 31, 2016 (unaudited) | For the Year Ended December 31, 2015 (unaudited) | For the Period from March 21 2014 to December 31, 2014 (unaudited) | ||||||||||
| Net loss attributable to Hospitality Investors Trust Inc. (in accordance with GAAP) | $ | (72,247 | ) | $ | (94,826 | ) | $ | (14,841 | ) | |||
| Less: Net income attributable to non-controlling interest | 315 | 189 | — | |||||||||
| Net loss and comprehensive loss (in accordance with GAAP) | $ | (71,932 | ) | $ | (94,637 | ) | $ | (14,841 | ) | |||
| Depreciation and amortization | 101,007 | 68,500 | 2,796 | |||||||||
| Impairment of long-lived assets | 2,399 | — | — | |||||||||
| Interest expense | 92,264 | 80,667 | 5,958 | |||||||||
| Acquisition and transaction related costs | 25,270 | 64,513 | 10,884 | |||||||||
| Other (income) expense | (1,169 | ) | 491 | (103 | ) | |||||||
| Equity in earnings of unconsolidated entities | (399 | ) | (238 | ) | (352 | ) | ||||||
| General and administrative | 15,806 | 11,621 | 2,316 | |||||||||
| Provision for income taxes | 1,371 | 3,106 | 591 | |||||||||
| Hotel EBITDA | $ | 164,617 | $ | 134,023 | $ | 7,249 | ||||||
For the Year Ended December 31, 2019 | For the Year Ended December 31, 2018 | For the Year Ended December 31, 2017 | ||||||||||
| Net loss attributable to common stockholders | $ | (214,503 | ) | $ | (109,549 | ) | $ | (90,693 | ) | |||
Deemed dividend related to beneficial conversion feature of Class C Units | — | — | 4,535 | |||||||||
Dividends on Class C Units | 46,286 | 20,830 | 13,103 | |||||||||
| Accretion of Class C Units | 4,798 | 2,581 | 1,668 | |||||||||
Net loss before dividends and accretion (in accordance with GAAP) | (163,419 | ) | (86,138 | ) | (71,387 | ) | ||||||
Less: Net (loss) income attributable to non-controlling interest | (42 | ) | 85 | 244 | ||||||||
Net loss and comprehensive loss (in accordance with GAAP) | $ | (163,461 | ) | $ | (86,053 | ) | $ | (71,143 | ) | |||
Depreciation and amortization | 109,586 | 111,730 | 105,237 | |||||||||
Impairment of goodwill and long-lived assets | 115,522 | 29,796 | 32,689 | |||||||||
Interest expense | 92,681 | 106,199 | 98,865 | |||||||||
Transaction related costs | 780 | 64 | 498 | |||||||||
Other (income) expense | (1,729 | ) | (1,986 | ) | 1,359 | |||||||
(Gain) Loss on sale of assets, net | (4,807 | ) | 188 | (99 | ) | |||||||
Equity in earnings of unconsolidated entities | (314 | ) | (187 | ) | (403 | ) | ||||||
General and administrative | 20,762 | 19,831 | 18,889 | |||||||||
Income tax benefit | (3,138 | ) | (2,606 | ) | (1,926 | ) | ||||||
Hotel EBITDA | $ | 165,882 | $ | 176,976 | $ | 183,966 | ||||||
Hotel EBITDA declined in 2019 compared to 2018 primarily due to the sale of 20 hotels and increases in hotel operating expenses, partially offset by an increase in RevPAR.
Cash Flows for the Year Ended December 31, 2016
Net cash provided by operating activities was $67.8 $74.1 million for the year ended December 31, 2016. Cash provided by operating activities was positively impacted primarily by decreases in prepaid expenses and other assets and increases in accounts payable and accrued expenses, partially offset by decreases due to related parties.
Net cash provided by investing activities was $80.9 million for the year ended December 31, 2019, primarily impacted by proceeds from sale of hotels, partially offset by acquisitionPIPs and transaction related costs, increasesother capital investments in restrictedour properties.
Net cash used in financing activities was $93.2 million for the year ended December 31, 2019. Cash used in financing activities was primarily impacted by redemptions of Grace Preferred Equity Interests, distributions paid on the Class C Units and deferred financing fees on new indebtedness, partially offset by excess cash proceeds from the refinancing of mortgage debt, reduced by repayment of mortgage debt in connection with hotel sales, and proceeds from Class C Unit sales.
Cash Flows for the Year Ended December 31, 2018
Net cash provided by operating activities was $66.8 million for the year ended December 31, 2018. Cash provided by operating activities was negatively impacted by decreases in accounts payable and accrued expenses and increases in prepaidsprepaid expenses and other assets.
Net cash used in investing activities was $772.0$97.0 million for the year ended December 31, 2015,2018, primarily attributableimpacted by capital expenditures related to acquisitionshotel improvements and capital investments in our properties.
Net cash flow provided byused in financing activities was $680.5$6.1 million for the year ended December 31, 2015.2018. Cash provided by financing activities was primarily impacted by distributions associated with Class C Units, redemptions of mandatorily redeemable preferred securities and repurchases of common stock, partially offset by proceeds from the issuance of common stock and proceeds from mortgage notes payable, partially offset by redemptions of Grace Preferred Equity Interests and repayments of promissory and mortgage notes payable.
Liquidity and Capital Resources
As of December 31, 2016,2019, we had cash and cash equivalents on hand of $42.8$103.2 million. Under certain of our debt obligations, we are required to maintain minimum liquidity of $20$15.0 million to comply with financial covenants, and we expect to satisfy this covenant through liquidity we maintain at individual hotels as well as through other sources.
We conducted our IPO from January 2014 until November 2015 without listing shares of December 31, 2016,our common stock on a national securities exchange, and we have not subsequently listed our shares. In November 2015, our IPO was suspended, and we no longer had principal outstanding of $1.4 billion undera capital source to fund our indebtedness plus an additional $290.2 million in liquidation value of Grace Preferred Equity Interests (which are treated as indebtedness for accounting purposes), most ofplanned hotel acquisition activity, which was incurred in acquiring the properties we currently own. As of December 31, 2016, we were required to redeem 50.0%at that time included certain pending acquisitions, scheduled repayment of the Grace Preferred Equity Interests originally issued, or an additional $66.7 million in liquidation value, by February 27, 2018, and we were required to redeem(which effectively represented seller financing of the remaining $223.5 million in liquidation value by February 27, 2019. Following our redemption of $47.3 million in liquidation value of Grace Preferred Equity Interests with a portion of the proceeds from the Initial Closing, we are required to redeem an additional $19.4 million in liquidation value bypurchase price of our February 27, 2018, and the remaining $223.5 million in liquidation value by February 27, 2019.
In January 2017, we entered into the SPA with the Brookfield Investor pursuant to which the Brookfield Investor agreed to make capital investments of up to $400 million representing an immediate purchase of $135.0 million in Class C Units in the OP together with a commitment to purchase up to $265.0 million in additional Class C Units in the OP during a period ending in February 2019. As of December 31, 2019, the Brookfield Investor has made $379.7 million of capital investments by purchasing Class C Units in the OP, and the Framework Agreement, and the consummationtotal liquidation preference of the transactions contemplated byClass C Units (which includes quarterly PIK Distributions that are paid on the outstanding liquidation preference) was $411.8 million. We utilized the proceeds from these agreementssales of Class C Units to repay indebtedness, to fund redemptions of the Grace Preferred Equity Interests in Marchaccordance with their terms, to fund brand-mandated PIPs, to fund the acquisition of seven hotels in April 2017 has,which had been pending at the time our IPO was suspended, and is expected to continue to, generate additional liquidity throughfor other general corporate purposes. We fully redeemed the Grace Preferred Equity Interests in February 2019 with the proceeds from the final sale of Class C Units pursuant to the SPA, and the Brookfield Investor atno longer has any obligations or rights to purchase additional Class C Units.
We have been undertaking a large-scale PIP program across a significant portion of the Initial Closinghotels in our portfolio. As of December 31, 2019, we have substantially completed work on 92 of the 121 hotels that are part of our PIP program, including 13 hotels with PIP work completed during 2019. Since acquiring our hotels, we have reinvested $358.1 million in our hotels through PIPs and at Subsequent Closings, as well as cost savings realizedother capital improvements, including approximately $24.4 million invested in hotels we have sold. We spent approximately $50.8 million as part of our transitionPIP program and for other capital improvements during the year ended December 31, 2019. We periodically deposit reserves with our mortgage lenders that we utilize to self-management through reduced property management feesfund a portion of the PIP work and the eliminationother capital improvements. As of external asset management feesDecember 31, 2019, we had $32.4 million of PIP and other capital improvements reserves. As of December 31, 2019, we were scheduled to the Advisor (offset by expenses previously borne by the Advisor that will now be incurred directly by us as a self-managed company).
In addition to PIP obligations, we are required under our hotel franchise agreements to perform periodic capital improvements to bring the physical condition of our hotels into compliance with the specifications and standards the hotel franchisor or hotel brand has developed. We refer to these obligations as cyclical renovations and they normally apply to soft goods (such as carpeting, bedspreads, artwork and upholstery) and case goods (furniture and fixtures such as armoires, chairs, beds, desks, tables, mirrors and lighting fixtures). Moreover, upon regular inspection of our hotels or in connection with any future revisions to our franchise or hotel management agreements or a refinancing of our indebtedness, franchisors may determine that additional renovations are required by us.
Our major capital requirements currently include PIPs and other hotel capital expenditures and related lender reserve deposits, interest and principal payments under our indebtedness and distributions payable with respect to Class C Units. Beginning in March 2022, we may also be required to fund redemptions of the Class C Units at the Initial Closing, we have retained $26.9 million that may be used to pay a portionoption of the closing consideration forholder.
We intend to either extend or refinance our Pending Acquisition, $23.7 million that may be used to repay the Summit Loan and $15.0 million that may be used to fund PIPs and related lender reserves. Following the Initial Closing, the Brookfield Investor has agreed to purchase additional Class C Units at Subsequent Closings in an aggregate amount not to exceed $265.0 million. Generally, the proceeds from the sale of Class C Units at Subsequent Closings may be used to redeem the Grace Preferred Equity Interests required to be redeemedindebtedness at or around the time they are requiredprior to be redeemed, with the balance available to fund PIPsmaturity, and related lender reserves, repay amounts then outstanding with respect to mortgage debt principalwe believe our cash on hand and interest and working capital. Following the Initial Closing, $242.9 million in liquidation value of Grace Preferred Equity Interests was outstanding, and, accordingly, $22.1 million in Class C Units was available to be issued at Subsequent Closings to meet these other capital requirements.
Furthermore, our ability to identify and consummate a potential transaction with a source of equity or debt capital is dependent upon a number of factors that may be beyond our control, including market conditions, industry trends and the interest of third parties in our business and assets. In addition, any potential transaction may be subject to conditions, such as obtaining consents from our lenders and franchisors, which we might not be able to meet, and the process of seeking alternative sources of capital is time-consuming, causes our management to divert its focus from our day-to-day business and results in our incurring expenses outside the normal course of operations.
To manage our liquidity, we have and expect to continue to defer certain capital expenditures. We believe such deferrals are required to use 35%prudent in light of our liquidity position and the expected return on investments. However, these decisions could adversely affect the performance of the proceeds fromapplicable hotels and could result in further negotiations with the issuance of interests in us or any of our subsidiaries,franchisors as to redeem the Grace Preferred Equity Interests at par, up to a maximum of $350 million in redemptions for any 12-month period, it may be more difficult to obtain equity financing from an alternative source in an amount required to meet our capital requirements.
As of December 31, 2016,2019, we had principal outstanding of $1.5 billion under our indebtedness most of which was incurred in acquiring the properties we currently own. As of December 31, 2019, our loan-to-value ratio was 72% including 64.9%. This leverage percentage does not include the Grace Preferred Equity Interests, which are treatedClass C Units (which may be redeemed by the Brookfield Investor at any time on or after March 31, 2022 for a redemption price equal to the liquidation preference) as indebtedness for accounting purposes, and our loan-to-value ratio excluding the Grace Preferred Equity Interests was 60%.
We have financed substantially all our hotels with mortgage debt and, in some cases, mezzanine debt. The maturity date and certain other terms of our mortgage and mezzanine debt obligations are summarized at Note 5 of the consolidated financial statements included in this Form 10-K. We intend to manage the maturity of our debt obligations by extending or refinancing the related debt at or prior to maturity. Depending upon market conditions, we may seek to generate additional liquidity from financing and refinancing of hotels in our portfolio, and this liquidity, to the extent available, may be utilized for various corporate purposes such as to repay other indebtedness, fund the PIP program or, subject to the Brookfield Approval Rights, for new hotel acquisitions. On May 1, 2019, we refinanced $961.1 million in principal amount of the then outstanding mortgage and mezzanine indebtedness encumbering 89 of our hotel properties with new mortgage and mezzanine indebtedness of $1,040 million secured by a total of 92 hotel properties (the “92-Pack Loans”). At closing, we used the additional net proceeds from the 92-Pack Loans after accrued interest and closing costs as follows: (i) $25.0 million was used to repay a portion of the principal amount then outstanding under one of our other mortgage loans then encumbering 28 of our other hotel properties (the “Term Loan”); and (ii) $10.0 million was deposited into a reserve with the lenders under the 92-Pack Loans that we can utilize to fund expenditures for work required to be performed under PIPs required by franchisors of the hotel properties encumbering the 92-Pack Loans. The 92-Pack Loans generated approximately $25.0 million of additional working capital for us. On May 22, 2019, we entered into an amendment to the Term Loan to reduce the commitment under the Term Loan from $310.0 million to $285.0 million, to add one additional extension term of one-year to the term of the Term Loan, such that if we exercise all extension rights, the maturity date of the Term Loan would be May 1, 2023, and to make certain other modifications. As of December 31, 2019, the number of hotels collateralizing the 92-Pack Loans and the Term Loan had been reduced to 78 hotels and 23 hotels, respectively, due to the 20 hotel sales completed during the year ended December 31, 2019, and additional hotels have been and will continue to be released from these loans as we continue to execute on our asset sale program.
We are subject to periodic debt yield and debt service coverage tests under our indebtedness. Failure to satisfy these tests, although not an event of default under the indebtedness, could cause cash flows from the properties financed after debt service, certain property operating expenses and loan reserves to be diverted to the lender, as additional loan collateral until the tests have been satisfied or we prepay sufficient principal to meet the applicable test. The declines in our financial results caused by the recent coronavirus pandemic could result in our failure to satisfy the coverage tests under our indebtedness, which could have a material adverse effect on our liquidity.
The recent coronavirus pandemic has also begun to adversely impact credit and capital market conditions and as a result of these developments we may be unable to access these markets until conditions normalize. During 2020, we have two debt obligations scheduled to mature: $10.5 million principal amount of mortgage debt secured by the Hilton Garden Inn Blacksburg, VA hotel (a joint venture in which we own a 56.5% interest) which is scheduled to mature in June and $232.0 million principal amount of mortgage debt secured by 21 properties which is scheduled to mature in October 2020. The debt obligations scheduled to mature in 2020, like all of our other debt obligations, are non-recourse, subject to customary non-recourse exceptions. At this time due to the uncertainties with regard to the coronavirus pandemic, including as to its duration and severity, we cannot predict whether we will be able to access the credit markets and refinance these debt obligations in a timely manner, and, accordingly we have requested extensions of these debt obligations. There can be no assurance we will be able to obtain these extensions on favorable terms, or at all. If credit market conditions improve, we may instead seek to refinance these debt obligations. We cannot provide any assurances our efforts to extend or refinance these debt obligations in a timely manner or on favorable terms will be successful.
Our ability to refinance debt will be affected by our financial conditions and various other factors existing at the relevant time, including factors beyond our control such as capital and credit market conditions, the state of the national and regional economies, local real estate conditions and the equity in and value of the related collateral. Any extension or refinancing may also require prior approval under the Brookfield Approval Rights, and there can be no assurance this prior approval will be provided when requested, or at all. If we are not able to extend these debt obligations or refinance them when they mature, we will be required to seek alternative financing to continue our operations. No assurance can be given that any extension, refinancing or alternative financing will be available when required or that we will be able to negotiate acceptable terms. Moreover, if interest rates are higher when these loans are refinanced or replaced with alternative financing, our cash flow would be reduced.
During the year ended December 31, 2019, we sold 20 hotels with an aggregate sales price of $138.5 million. These sales generated net proceeds to us of approximately $37.3 million, after prepayment of approximately $101.2 million of related mortgage debt obligations and closing costs.
As of December 31, 2019, we had entered into definitive agreements to sell 21 of the 25 hotels that we have commenced marketing for sale that have not yet been sold. Between January 1, 2020 and March 15, 2020, we sold 17 of the 21 hotels, and generated net proceeds of approximately $19.0 million, after prepayment of approximately $111.0 million of related mortgage obligations and closing costs. We have not yet determined what our use of the excess proceeds from the hotels we have sold will be, although we anticipate that a portion of these proceeds will be utilized for working capital and liquidity purposes in light of the downturn in financial performance we are experiencing due to the coronavirus pandemic. We expect to close the sale of the remaining eight hotels we have entered into definitive agreements to sell as of March 16, 2020, including four additional hotels which became subject to definitive sale agreements during 2020, with an aggregate contract purchase price of $83.1 million, during or prior to the third quarter of 2020. These sales are expected to generate net proceeds to us of approximately $4.7 million, after prepayment of approximately $78.4 million of related mortgage debt obligations and estimated closing costs. The sales that have not yet been completed are subject to customary closing conditions, and there can be no assurance they will be completed on their current terms, or at all.
In September 2018, our board of directors adopted the SRP pursuant to which we were offering, subject to certain terms and conditions, liquidity to stockholders by offering to make quarterly repurchases of common stock at a price to be established by the board of directors. Repurchases under the SRP were limited to a maximum number of shares of common stock for any quarter equal to the lower of 1,000,000 shares of common stock or 5% of the number of shares of common stock outstanding as of the last day of the previous quarter. The board of directors may modify, suspend, reactivate or terminate the SRP at any time and has the power, in its sole discretion, to repurchase fewer shares than have been requested in any particular quarter, or none at all. In February 2019, our board of directors suspended the SRP. The suspension will remain in effect unless and until our board takes further action to reactivate the SRP. There can be no assurance the SRP will be reactivated on its current terms, different terms or at all. Prior to such suspension, we had repurchased a total of 211,154 shares of common stock pursuant to the SRP for a total purchase price of $1.9 million, including 208,977 shares for a total purchase price of $1.9 million during the quarter and year ended December 31, 2018, all funded from cash on hand.
Distributions
Our distribution policy is subject to revision at the discretion of our board of directors, and may be changed at any time. There can be no assurance that we will resume paying distributions in shares of common stock or in cash at any time in the future. Our ability to make future cash distributions will depend on our future cash flows and may be dependent on our ability to obtain additional liquidity, which may not be available on favorable terms, or at all.
Currently, under the Brookfield Approval Rights, prior approval of any debt incurrence is required before we can declare or pay any distributions or dividends to our common stockholders, except for as specifically set forth in the Annual Business Plan and the refinancing of existing debt in a principal amount not greater than the amount to be refinanced and on terms no less favorable to us. We are also subject to certain covenants, such as debt service coverage ratios and negative pledges, in our existing indebtedness that restrict our ability to make future borrowings.
For the period from May 2014 to holders of recorduntil May 2016 when we commenced paying distributions in April 2014.
Our IPO was suspended on November 15, 2015 and terminated on January 7, 2017, the third anniversary of the commencement of our IPO, it terminated in accordance with its terms.
In March 2016, our board of directors changed the distribution policy, such that distributions paid with respect to April 2016, were paid in shares of common stock instead of cash to all stockholders, and not at the election of each stockholder. Accordingly, we paid a cash distribution to stockholders of record each day during the quarter ended March 31, 2016, but any distributions for subsequent periods have beenwere paid in shares of common stock. Distributions for the quarter ended June 30, 2016 were paid in common stock in an amount equivalent to $1.70 per annum, divided by $23.75.
On July 1, 2016, in connection with its determination of Estimated Per-Share NAV,January 13, 2017, our board of directors revised the amount of the distribution to $1.46064 per share per annum, equivalent to a 6.80% annual rate based on the Estimated Per-Share NAV, automatically adjusting if and when we publish an updated Estimated Per-Share NAV. Distributions for the period from July 1, 2016 to December 31, 2016 were paid in shares of common stock in an amount equal to 0.000185792 per share per day, or $1.46064 per annum, divided by $21.48. We anticipate that the Company will publish an updated Estimated Per-Share NAV no less frequently than once each calendar year.
Following the Initial Closing, commencing on March 31,June 30, 2017, holders of Class C Units are entitled to receive, with respect to each Class C Unit, fixed, quarterly cumulative cash distributions at a rate of 7.50% per annum from legally available funds. If we fail to pay these cash distributions when due, the per annum rate will increase to 10% until all accrued and unpaid distributions required to be paid in cash are reduced to zero.
Also commencing on June 30, 2017, holders of Class C Units are also entitled to receive, with respect to each Class C Unit, a fixed, quarterly, cumulative distributionPIK Distribution payable in Class C Units at a rate of 5% per annum. Upon our failureIf we fail to redeem the Brookfield Investor when required to do so pursuant to the limited partnership agreement of the OP, the 5% per annum PIK Distribution rate will increase to a per annum rate of 7.50%, and would further increase by 1.25% per annum for the next four quarterly periods thereafter, up to a maximum per annum rate of 12.5%.
The number of Class C Units delivered in respect of the PIK Distributions on any distribution payment date will beis equal to the number obtained by dividing the amount of PIK Distribution by the conversion price applicable with respect to Class C Units, which was $14.75. This conversion price is subject to anti-dilution and other adjustments upon the occurrence of certain events and transactions.
Following the Initial Closing, the holders of Class C Units are also entitled to tax distributions under the certain limited circumstances described in the limited partnership agreement of the OP.
For the year ended December 31, 2017, the Company paid cash distributions of $7.9 million and PIK Distributions of 355,349.60 Class C Units to the Brookfield Investor, as the sole holder of the Class C Units. For the year ended December 31, 2018, the Company paid cash distributions of $12.5 million and PIK Distributions of 564,870.56 Class C Units to the Brookfield Investor, as the sole holder of the Class C Units. For the year ended December 31, 2019, the Company paid cash distributions of $27.8 million and PIK Distributions of 1,255,214.93 Class C Units to the Brookfield Investor, as the sole holder of the Class C Units.
| Year Ended December 31, | ||||||||||||||
| 2016 | 2015 | |||||||||||||
| Distributions: | ||||||||||||||
| Cash distributions paid | $ | 11,206 | $ | 19,153 | ||||||||||
| Cash distributions reinvested | 9,468 | 18,150 | ||||||||||||
| Total distributions | $ | 20,674 | $ | 37,303 | ||||||||||
| Source of distribution coverage: | ||||||||||||||
| Cash flows provided by operations | $ | — | — | % | $ | — | — | % | ||||||
| Offering Proceeds from issuance of common stock | $ | 11,206 | 54.2 | % | $ | 19,153 | 51.3 | % | ||||||
| Offering proceeds reinvested in common stock issued under DRIP | $ | 9,468 | 45.8 | % | $ | 18,150 | 48.7 | % | ||||||
| Total sources of distributions | $ | 20,674 | 100.0 | % | $ | 37,303 | 100.0 | % | ||||||
| Cash flows provided by operations (GAAP) | $ | 67,846 | $ | 6,507 | ||||||||||
| Net loss (GAAP) | $ | (71,932 | ) | $ | (94,637 | ) | ||||||||
| Payment Date | Weighted Average Shares Outstanding (1) | Amount Paid in Cash | Amount Reinvested under DRIP | Issuance of Common Stock for Distributions | ||||
| January 4, 2016 | 36,414 | $2,780 | $2,448 | — | ||||
| February 2, 2016 | 36,530 | $2,855 | $2,393 | — | ||||
| March 1, 2016 | 36,627 | $2,688 | $2,233 | — | ||||
| April 1, 2016 | 36,728 | $2,880 | $2,394 | — | ||||
| May 2, 2016 | 36,936 | $3 | — | $5,118 (2) | ||||
| June 1, 2016 | 37,167 | — | — | $5,318 (3) | ||||
| July 1, 2016 | 37,392 | — | — | $5,176 (4) | ||||
| August 1, 2016 | 37,614 | — | — | $4,626 (5) | ||||
| September 1, 2016 | 37,834 | — | — | $4,657(6) | ||||
| October 1, 2016 | 38,043 | — | — | $4,528(7) | ||||
| November 1, 2016 | 38,266 | — | — | $4,706(8) | ||||
| December 1, 2016 | 38,482 | — | — | $4,585(9) | ||||
| Total | $11,206 | $9,468 | $38,714 | |||||
(1) Represents the weighted average shares outstanding for the period related to the respective payment date | ||||||||
(2) Represents 215,481 shares of common stock valued at $23.75 per share | ||||||||
(3) Represents 223,939 shares of common stock valued at $23.75 per share | ||||||||
(4) Represents 217,946 shares of common stock valued at $23.75 per share | ||||||||
(5) Represents 215,323 shares of common stock valued at $21.48 per share | ||||||||
(6) Represents 216,616 shares of common stock valued at $21.48 per share and 151 shares of common stock valued at $23.75 | ||||||||
(7) Represents 210,824 shares of common stock valued at $21.48 per share | ||||||||
(8) Represents 219,083 shares of common stock valued at $21.48 per share | ||||||||
(9) Represents 213,460 shares of common stock valued at $21.48 per share | ||||||||
| For the Period from July 25, 2013 (date of inception) to | ||||
| December 31, 2016 | ||||
| Distributions paid: | ||||
| Common stockholders in cash (including distributions reinvested in DRIP) | $ | 61,447 | ||
| Issuance of common stock for distributions | 38,714 | |||
| Total distributions paid | $ | 100,161 | ||
| Reconciliation of net loss: | ||||
| Revenues | $ | 1,080,647 | ||
| Depreciation and amortization | (172,303 | ) | ||
| Impairment of long lived Asset | $ | (2,399 | ) | |
| Other operating expenses | (774,758 | ) | ||
| Acquisition and transaction related | (100,667 | ) | ||
| Other non-operating expenses | (206,862 | ) | ||
| Income tax | (5,068 | ) | ||
| Net loss (in accordance with GAAP) | $ | (181,410 | ) | |
| Cash flows provided by operations | $ | 64,703 | ||
| FFO attributable to stockholders | $ | (6,766 | ) | |
(1) The results for the Predecessor were not included in the above table as these results would not impact the sources of distributions.
We have the following contractual obligations as of December 31, 2016:
Debt Obligations:
The following is a summary of principal and interest due under our mortgage notes payabledebt obligations as of December 31, 20162019 (in thousands):
| Total | 2017 | 2018-2020 | 2021 | Thereafter | ||||||||||||||||
| Principal payments due on mortgage notes payable | $ | 1,418,913 | $ | — | $ | 1,418,913 | $ | — | $ | — | ||||||||||
| Interest payments due on mortgage notes payable | 176,387 | 59,133 | 117,254 | — | — | |||||||||||||||
| Total | $ | 1,595,300 | $ | 59,133 | $ | 1,536,167 | $ | — | $ | — | ||||||||||
Total | 2020 | 2021-2022 | 2023-2024 | Thereafter | ||||||||||||||||
Principal payments due on mortgage notes payable | $ | 1,473,166 | $ | 242,500 | $ | — | $ | 1,230,666 | $ | — | ||||||||||
Interest payments due on mortgage notes payable | 274,660 | 66,887 | 115,628 | 92,145 | — | |||||||||||||||
Total | $ | 1,747,826 | $ | 309,387 | $ | 115,628 | $ | 1,322,811 | $ | — | ||||||||||
Mortgage notes payable due dates assume exercise of all borrower extension options.
Class C Unit Obligations:
The following is a summary of our promissory note payabletable reflects the cash distributions obligations on the Class C Units over the next five years and thereafter as of December 31, 20162019 (in thousands):
| Total | 2017 | 2018-2020 | 2021 | Thereafter | ||||||||||||||||
| Principal payments due on promissory note payable | $ | 26,029 | $ | 1,057 | $ | 24,972 | $ | — | $ | — | ||||||||||
| Interest payments due on promissory note payable | 4,394 | 2,070 | 2,324 | — | — | |||||||||||||||
| Total | $ | 30,423 | $ | 3,127 | $ | 27,296 | $ | — | $ | — | ||||||||||
Total | 2020 | 2021-2022 | 2023-2024 | Thereafter | ||||||||||||||||
Distributions on Class C Units | $ | 74,023 | $ | 32,006 | $ | 42,017 | $ | — | $ | — | ||||||||||
Beginning in March 2022, we entered into an amendmentmay also be required to fund redemptions of the Pending Acquisition with Summit (the “Summit Amendment”). Concurrent with our entry intoClass C Units at the Summit Amendment, we entered into an amendment to the Summit Loan (the “Loan Amendment”). Pursuant to the Loan Amendment, the maturity dateoption of the Summit Loan was extended from February 11, 2017 to February 11, 2018, and additional amortization payments totaling $2.0 million were scheduled to occur inholder. The above calculation of cash distributions assumes the amount of $1.0 million each on the last day of August and September 2017. If the closing of our purchase of the seven hotels under the Pending Acquisition occurs prior to February 11, 2018, then the outstanding principal of the Summit Loan and any accrued interest thereon will become immediately due and payableClass C Units are redeemed in full at closing.
| Total | 2017 | 2018-2020 | 2021 | Thereafter | ||||||||||||||||
| Mandatory redemptions due on mandatorily redeemable preferred securities | $ | 290,188 | $ | — | $ | 290,188 | $ | — | $ | — | ||||||||||
| Monthly distributions due on mandatorily redeemable preferred securities | 44,589 | 23,215 | 21,374 | — | — | |||||||||||||||
| Total | $ | 334,777 | $ | 23,215 | $ | 311,562 | $ | — | $ | — | ||||||||||
Lease Obligations:
The following table reflects the minimum base rental cash payments due from usunder leases of our hotel properties and our corporate space lease over the next five years and thereafter for our lease arrangements as of December 31, 20162019 (in thousands):
| Total | 2017 | 2018-2020 | 2021 | Thereafter | ||||||||||||||||
| Lease payments due | $ | 107,867 | $ | 5,144 | $ | 15,709 | $ | 5,271 | $ | 81,743 | ||||||||||
Total | 2020 | 2021-2022 | 2023-2024 | Thereafter | ||||||||||||||||
Lease payments due | $ | 93,050 | $ | 5,439 | $ | 11,085 | $ | 10,885 | $ | 65,641 | ||||||||||
Property Improvement Plan Reserve Deposits:
The following table reflects estimated PIP reserve deposits that are required under our mortgage debt obligations over the next five years as of December 31, 20162019 (in thousands):
Total | 2020 | 2021-2022 | 2023-2024 | Thereafter | ||||||||||||||||
PIPs reserve deposits due | $ | 14,933 | $ | 12,433 | $ | 2,500 | $ | — | $ | — | ||||||||||
| Total | 2017 | 2018-2020 | 2021 | Thereafter | ||||||||||||||||
| PIP reserve deposits due | $ | 34,134 | $ | 24,128 | $ | 10,006 | $ | — | $ | — | ||||||||||
Election as a REIT
We elected and qualified to be taxed as a REIT commencing with our taxable year ended December 31, 2014. In order to continue to qualify as a REIT, we must distribute annually distribute to our stockholders 90% of our REIT taxable income (which does not equal net income as calculated in accordance with GAAP), determined without regard to the deduction for dividends paid and excluding net capital gain. gain, and must comply with various other organizational and operational requirements. As of December 31, 2019, we had $316.0 million of net operating loss ("NOL") carry forwards that may be used in the future to reduce the amount otherwise required to be distributed by us to meet REIT requirements. However, the NOLs arising for tax years beginning after December 31, 2017 will not be able to offset more than 80% of out taxable income and therefore may not be able to reduce the amount required to be distributed by us to meet REIT requirements to zero. None of these NOLs will expire for at least a decade and the NOLs arising for tax years beginning after December 31, 2017 may be carried forward indefinitely. Other limitations may apply to our ability to use our NOLs to offset taxable income.
As a REIT, we generally will not be subject to U.S. federal income tax on that portion of our taxable income or capital gain which is distributed to our stockholders. Each of our hotels is leased to a taxable REIT subsidiary which is owned by the OP. A taxable REIT subsidiary is subject to federal, state and local income taxes. If we fail to remain qualified as a REIT in any subsequent year after electing REIT status and do not qualify for certain statutory relief
Inflation
We may be adversely impacted by increases in labor, construction and other operating costs due to inflation that may not be offset by increased room rates.
Related Party Transactions and Agreements
See Note 1112 - Related Party Transactions and Arrangements to our consolidated/combinedconsolidated financial statements included in this report.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.
The market risk associated with financial instruments and derivative financial instruments is the risk of loss from adverse changes in market prices or interest rates. Our long-term debt, which consists of secured financings, bears interest at fixed and variable rates. Our interest rate risk management objectives are to limit the impact of interest rate changes in earnings and cash flows and to lower our overall borrowing costs. To achieve these objectives, from time to time, we may enter into interest rate hedge contracts such as cap agreements, swaps, collars and treasury lock agreements in order to mitigate our interest rate risk with respect to various debt instruments. We would not hold or issue these derivative contracts for trading or speculative purposes.
As of December 31, 2016,2019, we had not fixed the interest rate for $1.13$1.2 billion of our secured variable-rate debt. As a result, we are subject to the potential impact of rising interest rates, which could negatively impact our profitability and cash flows. In order to mitigate our exposures to changes in interest rates, we have entered into interest rate cap agreements with respect to approximately $1.13all $1.2 billion of our variable-rate debt. The estimated impact on our annual results of operations, of an increase or decrease of 100 basis points in interest rates, would be to increase or decrease annual interest expense by approximately $11.5 million. Decreasing interest rates by the lesser of 100 basis points or to the lowest possible rate, but to no lower than a zero percent variable rate, would decrease annual interest expense by $7.5$12.5 million. The estimated impact assumes no changes in our capital structure. As the information presented above includes only those exposures that exist as of December 31, 2016,2019, it does not consider those exposures or positions that could arise after that date. The information represented herein has limited predictive value. Future actual realized gains or losses with respect to interest rate fluctuations will depend on cumulative exposures, hedging strategies employed and the magnitude of the fluctuations.
See our Consolidated/CombinedConsolidated Financial Statements beginning on page F-1 of this Annual Report on Form 10-K.
None.
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our periodic reports pursuant to 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, including our chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required financial disclosure.
We carried out an evaluation, under the supervision and with the participation of our management, including our chief executive officer and chief financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Exchange Act Rule 13a - 15(e)-15(e) as of the end of the period covered by this report. Based upon this evaluation and as a result of the material weakness described below under “Management’s Report on Internal Control Over Financial Reporting,” our chief executive officer and chief financial officer concluded that our disclosure controls and procedures were not effective as of the end of the period covered by this report.
Management’s Annual Report on Form 10-K are fairly presented in all material respects in accordance with GAAP. Our chief executive officer and chief financial officer have certified that, based on their knowledge, the consolidated financial statements included in this report fairly present in all material respects our financial condition, results of operations and cash flows for each of the periods presented in this report.
Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Our internal control over financial reporting, as such term is a process designeddefined in Rule 13a-15(f) or 15d-15(f) promulgated under the supervision of our chief executive officer and our chief financial officer to provide reasonable assurance regarding the reliability of financial reporting andExchange Act.
In connection with the preparation of our consolidated financial statements for external reporting purposes in accordance with GAAP.
Based on its assessment, and in connection with the preparationour management concluded that, as of this Annual Report on Form 10-K and the consolidated financial statements and related disclosures contained herein, management identified a material weakness inDecember 31, 2019, our internal control over financial reporting aswas effective.
The rules of December 31, 2016, as discussed in more detail below. A material weakness is a deficiency, or a combinationthe SEC do not require from us, and this annual report does not include, an attestation report of deficiencies, inour independent registered public accounting firm regarding internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim consolidated financial statements will not be prevented or detected on a timely basis.
Changes in Internal Control Over Financial Reporting
During the material weakness identified above,fourth quarter of the fiscal year ended December 31, 2019, there were no changes in our internal control over financial reporting during(as defined in Rule 13a-15(f) and 15d-15(f) of the quarter ended December 31, 2016Exchange Act) that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
2020 Annual Meeting
On March 24, 2020, our board of directors determined that our 2020 annual meeting of stockholders will be held on August 5, 2020 at the discussion above under “RemediationCompany’s executive offices, located at Park Avenue Tower, 65 East 55th Street, New York, NY 10022, commencing at 1:00 p.m. (local time). Stockholders of Material Weakness” regarding changes and enhancementsrecord at the close of business on May 7, 2020 will be entitled to vote at our 2020 annual meeting of stockholders.
In accordance with our bylaws, notice by a stockholder of any nomination or other business to be properly brought before our 2020 annual meeting of stockholders by a stockholder pursuant to our internal control processes thatbylaws must be delivered by April 9, 2020.
With respect to stockholder proposals within the scope of Rule 14a-8 under the Exchange Act, the date by which shareholder proposals must have occurred subsequentbeen received by us in order to December 31, 2016.
We have adopted a Code of Business Conduct and Ethics that applies to all of our executive officers and directors, including but not limited to, our principal executive officer and principal financial officer. A copy of our Code of Business Conduct and Ethics is available on our website at www.HITREIT.com, and may also be obtained, free of charge, by sending a written request to our principal executive office at 3950 University Drive, Fairfax, VA 22030,Park Avenue Tower, 65 East 55th Street, Suite 801, New York, NY, Attention: Chief Financial Officer.
The other information required by this Item is incorporated by reference to our definitive proxy statement to be filed with the SEC with respect to our 20172020 annual meeting of stockholders.
The information required by this Item is incorporated by reference to our definitive proxy statement to be filed with the SEC with respect to our 20172020 annual meeting of stockholders.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
The information required by this Item is incorporated by reference to our definitive proxy statement to be filed with the SEC with respect to our 20172020 annual meeting of stockholders.
The information required by this Item is incorporated by reference to our definitive proxy statement to be filed with the SEC with respect to our 20172020 annual meeting of stockholders.
The information required by this Item is incorporated by reference to our definitive proxy statement to be filed with the SEC with respect to our 20172020 annual meeting of stockholders.
(a) Financial Statement Schedules
See the Index to Consolidated/CombinedConsolidated Financial Statements at page F-1 of this report.
The following financial statement schedule is included herein at page F-32the end of Part IV of this report:
Schedule III — Real Estate and Accumulated Depreciation
(b) Exhibits
EXHIBIT INDEX
The following exhibits are included in this Annual Report on Form 10-K for the year ended December 31, 20162019 (and are numbered in accordance with Item 601 of Regulation S-K).
Exhibit No. | Description | |
3.1 | ||
Articles of Amendment and Restatement of Hospitality Investors Trust, Inc. | ||
3.2 | ||
3.3 | ||
3.4 | ||
3.5 | ||
3.6 | ||
3.7 | Amended and Restated Bylaws of Hospitality Investors Trust, Inc. | |
4.1 | Description of Description of Securities of Hospitality Investors Trust, Inc. Registered Pursuant to Section 12 of the Securities Exchange Act of 1934 | |
4.2(13) | ||
4.3 | Hospitality Investors Trust, Inc. Distribution Reinvestment Plan. | |
4.4 | Form of Stock Certificate of the Redeemable Preferred Share. | |
4.5 | ||
10.1 | ||
Form Operating Lease Agreement between the Company and the Company’s TRSs. | ||
10.2 | ||
10.3 |
10.4(5) | ||
10.5 | ||
| Loan Agreement, dated as of October 6, 2015, among the borrower entities party thereto, Ladder Capital Finance LLC and German American Capital Corporation. | ||
10.6 | ||
10.7 | ||
10.8 | ||
10.9 | ||
10.10(9) | ||
10.11 | ||
10.12 | ||
10.13 | ||
10.14 | ||
| Description | ||
10.15(12) | ||
10.16 | ||
10.17 | ||
10.18 | ||
| Assignment and Amendment of Current Management Agreement, dated as of March 31, 2017, by and among American Realty Capital Hospitality Grace Portfolio, LLC, Crestline Hotels & Resorts, LLC, HIT Portfolio I TRS, LLC, HIT Portfolio I NTC TRS, LP and HIT Portfolio I MISC TRS, LLC. | ||
10.19 | ||
10.20 | ||
10.21 | ||
10.22 | ||
10.23 | ||
10.24 | ||
10.25 | ||
10.26 | ||
10.27 | ||
10.28 | ||
10.29 | ||
10.30 | ||
10.31 | ||
10.32(13) | ||
10.33 | ||
10.34 | ||
10.35 | ||
10.36(15) | ||
10.37(15) | ||
10.38(15) | Form of Restricted Share Unit Award Agreement (Non-Employee Directors) | |
10.39(15) | Form of Restricted Share Award Agreement (Non-Employee Directors) | |
10.40(16) | ||
10.41(16) | ||
10.42(16) | ||
10.43(16) | ||
10.44(17) | ||
10.45(18) | ||
10.46(18) | ||
10.47(19) | ||
10.48(20) | ||
10.49(20) | ||
10.50(21) | ||
| Exhibit No. | Description | |
21.1(*) | ||
23.1 (*) | ||
31.1 (*) | ||
31.2 (*) | ||
32 (*) | ||
101 | ||
XBRL (eXtensible Business Reporting Language). The following materials from Hospitality Investors Trust, Inc.'s Annual Report on Form 10-K for the year ended December 31, |
* Filed herewith
1. | Filed as an exhibit to Pre-Effective Amendment No. 2 to the Company's Registration Statement on Form S-11/A with the SEC on November 14, 2013. |
2. | Filed as an exhibit to Pre-Effective Amendment No. 3 to the Company’s Registration Statement on Form S-11/A with the SEC on December 9, 2013. |
3. | Filed as an exhibit to Pre-Effective Amendment No. 4 to the Company’s Registration Statement on Form S-11/A with the SEC on December 13, 2013. |
4. | |
Filed as an exhibit to the Company’s Form 10-Q filed with the SEC on August 14, 2014. |
5. | |
Filed as an exhibit to the Company’s Form 10-K filed with the SEC on March 31, 2015. |
6. | |
Filed as an exhibit to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on October 13, 2015. |
7. | |
Filed as an exhibit to the Company’s Form 10-Q filed with the SEC on November 16, 2015. |
8. | Filed as Appendix A to the Company's Registration Statement on Form S-3 filed with the SEC on January 4, 2016. |
9. | |
Filed as an exhibit to the Company’s Form 10-K filed with the SEC on March 28, 2016. |
10. | Filed as an exhibit to the Company’s Form |
| September 24, 2018. | |
11. | |
Filed as an exhibit to the Company's Form 10-Q filed with the SEC on November 10, 2016. |
12. | Filed as an exhibit to the Company’s Current Report on Form 8-K filed with the SEC on January 13, 2017. |
13. | Filed as an exhibit to the Company’s Current Report on Form 8-K filed with the SEC on March 31, 2017. | |
14. | Filed as an exhibit to the Company’s Current Report on Form 8-K filed with the SEC on May 3, 2017. | |
15. | Filed as an exhibit to the Company’s Form 10-Q filed with the SEC on August 10, 2017. | |
16. | Filed as an exhibit to the Company’s Schedule TO filed with the SEC on October 25, 2017. | |
17. | Filed as an exhibit to the Company’s Form 10-K filed with the SEC on March 27, 2018. | |
18. | Filed as an exhibit to the Company’s Form 10-Q filed with the SEC on May 10, 2018. | |
19. | Filed as an exhibit to the Company’s Form 10-Q filed with the SEC on August 9, 2018. | |
20. | Filed as an exhibit to the Company’s Form 10-Q filed with the SEC on November 8, 2018. | |
| 21. | Filed as an exhibit to the Company’s Form 10-K filed with the SEC on April 16, 2019. | |
| 22. | Filed as an exhibit to the Company’s Form 8-K filed with the SEC on April 9, 2019. | |
| 23. | Filed as an exhibit to the Company’s Form 10-Q filed with the SEC on May 13, 2019. | |
| 24. | Filed as an exhibit to the Company’s Form 8-K filed with the SEC on May 6, 2019. | |
| 25. | Filed as an exhibit to the Company’s Form 8-K filed with the SEC on May 9, 2019. | |
| 26. | Filed as an exhibit to the Company’s Form 8-K filed with the SEC on May 23, 2019. | |
| 27. | Filed as an exhibit to the Company’s Form 10-Q filed with the SEC on August 8, 2019. | |
| 28. | Filed as an exhibit to the Company’s Form 10-Q filed with the SEC on November 7, 2019. | |
| 29. | Filed as an exhibit to the Company’s Form 8-K filed with the SEC on February 19, 2020. | |
| 30. | Filed as an exhibit to the Company’s Form 8-K filed with the SEC on February 20, 2020. |
Not applicable.
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized this 30th day of March, 31, 2017.
Hospitality Investors Trust, Inc. | |||
By | /s/ Jonathan P. Mehlman | ||
Jonathan P. Mehlman | |||
CHIEF EXECUTIVE OFFICER AND PRESIDENT | |||
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this Annual Report on Form 10-K has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Name | Capacity | Date | ||
/s/ Jonathan P. Mehlman | Chief Executive Officer, President and | March | ||
Jonathan P. Mehlman | ||||
/s/ | Chief Financial Officer and Treasurer (Principal Financial Officer and Principal Accounting Officer) | March | ||
Bruce A. Riggins | ||||
/s/ Bruce G. Wiles | Chairman of the Board of Directors | March 30, 2020 | ||
Bruce G. Wiles | ||||
/s/ Lowell G. Baron | Director | March 30, 2020 | ||
Lowell G. Baron | ||||
/s/ Stanley R. Perla | Independent Director | March 30, 2020 | ||
Stanley R. Perla | ||||
/s/ Abby M. Wenzel | Independent Director | March 30, 2020 | ||
Abby M. Wenzel | ||||
/s/ Edward A. Glickman | Independent Director | March 30, 2020 | ||
Edward A. Glickman | ||||
/s/ Stephen P. Joyce | Independent Director | March 30, 2020 | ||
Stephen P. Joyce | ||||
HOSPITALITY INVESTORS TRUST, INC.
INDEX TO FINANCIAL STATEMENTS
Hospitality Investors Trust, Inc. | ||
Audited | ||
| ||
To the Stockholders and Board of Directors and Stockholders
Hospitality Investors Trust, Inc.:
Opinion on theConsolidatedFinancial Statements
We have audited the accompanying consolidated balance sheets as of December 31, 2016 and December 31, 2015 of Hospitality Investors Trust, Inc. and subsidiaries (formerly American Realty Capital Hospitality Trust, Inc.)(the Company) as of December 31, 2019 and 2018, the related consolidated statements of operations and comprehensive income (loss),loss, changes in equity, and cash flows for each of the years in the three-year period ended December 31, 2016 and 20152019, and the period from March 21, 2014 to December 31, 2014 (successor)related notes and the combined statements of operations and comprehensive income (loss), changes in equity, and cash flows for the period from January 1, 2014 to March 20, 2014 (predecessor). In connection with the audits of the consolidated and combined financial statements, we have also audited the financial statement schedule III. III-Real Estate and Accumulated Depreciation (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2019 and 2018, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2019, in conformity with U.S. generally accepted accounting principles.
Change in Accounting Principle
As discussed in Note 2 to the consolidated financial statements, the Company has changed its method of accounting for leases as of January 1, 2019, due to the adoption of Financial Accounting Standard Board’s Accounting Standards Codification (ASC) Topic 842, Leases.
Basis for Opinion
These consolidated and combined financial statements and financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated and combined financial statements and financial statement schedule based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).PCAOB. Those standards require that we plan and perform the auditsaudit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. Anmisstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit includesof its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence supportingregarding the amounts and disclosures in the consolidated financial statements. An auditOur audits also includes assessingincluded evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statement presentation.statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ KPMG LLP
We have served as the Company’s auditor since 2014.
McLean, Virginia
March 31, 2017
CONSOLIDATED BALANCE SHEETS
(In thousands, except for share and per share data)
December 31, 2019 | December 31, 2018 | |||||||
ASSETS | ||||||||
Real estate investments: | ||||||||
Land | $ | 285,520 | $ | 337,858 | ||||
Buildings and improvements | 1,587,079 | 1,947,619 | ||||||
Furniture, fixtures and equipment | 218,669 | 257,314 | ||||||
Total real estate investments | 2,091,268 | 2,542,791 | ||||||
Less: accumulated depreciation and amortization | (365,893 | ) | (347,929 | ) | ||||
Total real estate investments, net | 1,725,375 | 2,194,862 | ||||||
Cash and cash equivalents | 103,207 | 54,886 | ||||||
Assets held for sale | 159,309 | — | ||||||
Restricted cash | 41,413 | 27,959 | ||||||
Investments in unconsolidated entities | 3,357 | 3,684 | ||||||
Right of use assets | 57,799 | — | ||||||
Below-market lease asset, net | — | 9,030 | ||||||
Prepaid expenses and other assets | 36,346 | 35,836 | ||||||
Goodwill | 9,889 | 11,030 | ||||||
Total Assets | $ | 2,136,695 | $ | 2,337,287 | ||||
LIABILITIES, NON-CONTROLLING INTEREST AND EQUITY | ||||||||
Mortgage notes payable, net | $ | 1,461,441 | $ | 1,507,509 | ||||
Mandatorily redeemable preferred securities, net | — | 219,596 | ||||||
Accounts payable and accrued expenses | 54,279 | 62,965 | ||||||
Lease liabilities | 51,756 | — | ||||||
Total Liabilities | $ | 1,567,476 | $ | 1,790,070 | ||||
Commitments and Contingencies | ||||||||
Contingently Redeemable Class C Units in operating partnership; 27,920,954 and 11,767,678 units issued and outstanding, respectively ($411,834 and $173,573 liquidation preference, respectively) | 398,449 | 163,148 | ||||||
Stockholders' Equity | ||||||||
Preferred stock, $0.01 par value, 50,000,000 shares authorized, one share issued and outstanding | — | — | ||||||
Common stock, $0.01 par value, 300,000,000 shares authorized, 39,151,201 and 39,134,628 shares issued and outstanding, respectively | 392 | 391 | ||||||
Additional paid-in capital | 871,714 | 870,251 | ||||||
Deficit | (703,611 | ) | (489,108 | ) | ||||
Total equity of Hospitality Investors Trust, Inc. stockholders | 168,495 | 381,534 | ||||||
Non-controlling interest - consolidated variable interest entity | 2,275 | 2,535 | ||||||
Total Equity | $ | 170,770 | $ | 384,069 | ||||
Total Liabilities, Contingently Redeemable Class C Units, and Stockholders' Equity | $ | 2,136,695 | $ | 2,337,287 | ||||
| December 31, 2016 | December 31, 2015 | |||||||
| ASSETS | ||||||||
| Real estate investments: | ||||||||
| Land | $ | 339,819 | $ | 317,871 | ||||
| Buildings and improvements | 1,838,594 | 1,729,960 | ||||||
| Furniture, fixtures and equipment | 212,994 | 163,516 | ||||||
| Total real estate investments | 2,391,407 | 2,211,347 | ||||||
| Less: accumulated depreciation and amortization | (169,486 | ) | (70,648 | ) | ||||
| Total real estate investments, net | 2,221,921 | 2,140,699 | ||||||
| Cash and cash equivalents | 42,787 | 46,829 | ||||||
| Acquisition deposits | 7,500 | 40,504 | ||||||
| Restricted cash | 35,050 | 71,288 | ||||||
| Investments in unconsolidated entities | 3,490 | 3,458 | ||||||
| Below-market lease asset, net | 9,827 | 10,225 | ||||||
| Prepaid expenses and other assets | 32,836 | 34,836 | ||||||
| Total Assets | $ | 2,353,411 | $ | 2,347,839 | ||||
| LIABILITIES, NON-CONTROLLING INTEREST AND EQUITY | ||||||||
| Mortgage notes payable, net | $ | 1,410,925 | $ | 1,341,033 | ||||
| Promissory notes payable, net | 23,380 | — | ||||||
| Mandatorily redeemable preferred securities, net | 288,265 | 291,796 | ||||||
| Accounts payable and accrued expenses | 68,519 | 67,255 | ||||||
| Due to Related Parties | 2,879 | 6,546 | ||||||
| Total Liabilities | $ | 1,793,968 | $ | 1,706,630 | ||||
| Equity | ||||||||
| Preferred stock, $0.01 par value, 50,000,000 shares authorized, none issued and outstanding | — | — | ||||||
| Common stock, $0.01 par value, 300,000,000 shares authorized, 38,493,430 and 36,300,777 shares issued and outstanding as of December 31, 2016, and December 31, 2015, respectively | 385 | 363 | ||||||
| Additional paid-in capital | 843,149 | 793,786 | ||||||
| Deficit | (286,852 | ) | (155,680 | ) | ||||
| Total equity of Hospitality Investors Trust, Inc. stockholders | 556,682 | 638,469 | ||||||
| Non-controlling interest - consolidated variable interest entity | 2,761 | $ | 2,740 | |||||
| Total Equity | $ | 559,443 | $ | 641,209 | ||||
| Total Liabilities, Non-controlling Interest and Equity | $ | 2,353,411 | $ | 2,347,839 | ||||
The accompanying notes are an integral part of these statements.
CONSOLIDATED STATEMENTSOF OPERATIONS AND COMPREHENSIVE LOSS
(In thousands, except for share and per share data)
| Successor | Predecessor | |||||||||||||||||||||||||||
| Year Ended December 31, 2016 | Year Ended December 31, 2015 | For the Period from March 21, 2014 to December 31, 2014 | For the Period from January 1, 2014 to March 20, 2014 | Year Ended December 31, 2019 | Year Ended December 31, 2018 | Year Ended December 31, 2017 | ||||||||||||||||||||||
| Revenues | ||||||||||||||||||||||||||||
| Rooms | $ | 566,633 | $ | 420,617 | $ | 26,163 | $ | 6,026 | $ | 563,335 | $ | 572,415 | $ | 588,308 | ||||||||||||||
| Food and beverage | 20,039 | 15,908 | 5,612 | 1,543 | 19,797 | 19,571 | 19,811 | |||||||||||||||||||||
| Other | 12,920 | 9,659 | 3,096 | 676 | 15,524 | 14,073 | 12,956 | |||||||||||||||||||||
| Total revenue | $ | 599,592 | $ | 446,184 | $ | 34,871 | $ | 8,245 | 598,656 | 606,059 | 621,075 | |||||||||||||||||
| Operating expenses | ||||||||||||||||||||||||||||
| Rooms | 139,169 | 99,543 | 5,411 | 1,405 | 147,458 | 148,630 | 147,814 | |||||||||||||||||||||
| Food and beverage | 15,986 | 12,774 | 3,785 | 1,042 | 16,570 | 16,471 | 16,158 | |||||||||||||||||||||
| Management fees | 42,560 | 22,107 | 1,498 | 289 | 16,531 | 16,757 | 23,643 | |||||||||||||||||||||
| Other property-level operating expenses | 230,546 | 171,488 | 13,049 | 3,490 | 245,609 | 240,509 | 242,925 | |||||||||||||||||||||
Transaction related costs | 780 | 64 | 498 | |||||||||||||||||||||||||
General and administrative | 20,762 | 19,831 | 18,889 | |||||||||||||||||||||||||
| Depreciation and amortization | 101,007 | 68,500 | 2,796 | 994 | 109,586 | 111,730 | 105,237 | |||||||||||||||||||||
| Impairment of real estate investments | 2,399 | — | — | — | ||||||||||||||||||||||||
Impairment of goodwill and long-lived assets | 115,522 | 29,796 | 32,689 | |||||||||||||||||||||||||
| Rent | 6,714 | 6,249 | 3,879 | 933 | 6,606 | 6,716 | 6,569 | |||||||||||||||||||||
| Total operating expenses | $ | 538,381 | $ | 380,661 | $ | 30,418 | $ | 8,153 | 679,424 | 590,504 | 594,422 | |||||||||||||||||
| Income from operations | $ | 61,211 | $ | 65,523 | $ | 4,453 | $ | 92 | ||||||||||||||||||||
Gain (loss) on sale of assets, net | 4,807 | (188 | ) | 99 | ||||||||||||||||||||||||
Operating (loss) income | $ | (75,961 | ) | $ | 15,367 | $ | 26,752 | |||||||||||||||||||||
| Interest expense | (92,264 | ) | (80,667 | ) | (5,958 | ) | (531 | ) | (92,681 | ) | (106,199 | ) | (98,865 | ) | ||||||||||||||
| Acquisition and transaction related costs | (25,270 | ) | (64,513 | ) | (10,884 | ) | — | |||||||||||||||||||||
| Other income (expense) | 1,169 | (491 | ) | 103 | — | |||||||||||||||||||||||
| Equity in earnings (losses) of unconsolidated entities | 399 | 238 | 352 | (166 | ) | |||||||||||||||||||||||
| General and administrative | (15,806 | ) | (11,621 | ) | (2,316 | ) | — | |||||||||||||||||||||
Other income (loss), net | 1,729 | 1,986 | (1,359 | ) | ||||||||||||||||||||||||
Equity in earnings of unconsolidated entities | 314 | 187 | 403 | |||||||||||||||||||||||||
| Total other expenses, net | $ | (131,772 | ) | $ | (157,054 | ) | $ | (18,703 | ) | $ | (697 | ) | (90,638 | ) | (104,026 | ) | (99,821 | ) | ||||||||||
| Net loss before taxes | $ | (70,561 | ) | $ | (91,531 | ) | $ | (14,250 | ) | $ | (605 | ) | ||||||||||||||||
| Provision for income taxes | 1,371 | 3,106 | 591 | — | ||||||||||||||||||||||||
Loss before taxes | $ | (166,599 | ) | $ | (88,659 | ) | $ | (73,069 | ) | |||||||||||||||||||
Income tax benefit | (3,138 | ) | (2,606 | ) | (1,926 | ) | ||||||||||||||||||||||
| Net loss and comprehensive loss | $ | (71,932 | ) | $ | (94,637 | ) | $ | (14,841 | ) | $ | (605 | ) | $ | (163,461 | ) | $ | (86,053 | ) | $ | (71,143 | ) | |||||||
| Less: Net income attributable to non-controlling interests | 315 | 189 | — | — | ||||||||||||||||||||||||
| Net loss attributable to Hospitality Investors Trust, Inc. | $ | (72,247 | ) | $ | (94,826 | ) | $ | (14,841 | ) | $ | (605 | ) | ||||||||||||||||
| Basic and diluted net loss per share | $ | (1.86 | ) | $ | (3.61 | ) | $ | (3.04 | ) | N/A | ||||||||||||||||||
| Basic and diluted weighted average shares outstanding | 38,732,949 | 26,247,563 | 4,874,229 | N/A | ||||||||||||||||||||||||
Less: Net (loss) income attributable to non-controlling interest | (42 | ) | 85 | 244 | ||||||||||||||||||||||||
Net loss before dividends and accretion | $ | (163,419 | ) | $ | (86,138 | ) | $ | (71,387 | ) | |||||||||||||||||||
| Deemed dividend related to beneficial conversion feature of Class C Units | — | — | (4,535 | ) | ||||||||||||||||||||||||
Dividends on Class C Units (cash and PIK) | (46,286 | ) | (20,830 | ) | (13,103 | ) | ||||||||||||||||||||||
Accretion of Class C Units | (4,798 | ) | (2,581 | ) | (1,668 | ) | ||||||||||||||||||||||
Net loss attributable to common stockholders | $ | (214,503 | ) | $ | (109,549 | ) | $ | (90,693 | ) | |||||||||||||||||||
Basic and Diluted net loss attributable to common stockholders per common share | $ | (5.48 | ) | $ | (2.78 | ) | $ | (2.30 | ) | |||||||||||||||||||
Basic and Diluted weighted average shares of common stock outstanding | 39,133,630 | 39,416,947 | 39,411,677 | |||||||||||||||||||||||||
The accompanying notes are an integral part of these statements.
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
(In thousands, except for share data)
Common Stock | ||||||||||||||||||||||||||||
Number of Shares | Par Value | Additional Paid-in Capital | Deficit | Total Equity of Hospitality Investors Trust, Inc. Stockholders | Non-controlling Interest | Total Equity | ||||||||||||||||||||||
Balance, December 31, 2016 | 38,493,430 | $ | 385 | $ | 843,149 | $ | (286,852 | ) | $ | 556,682 | $ | 2,761 | $ | 559,443 | ||||||||||||||
Issuance of common stock, net | 1,125,403 | 11 | 18,597 | — | 18,608 | — | 18,608 | |||||||||||||||||||||
Repurchase and retirement of common stock | (113,091 | ) | (1 | ) | (762 | ) | — | (763 | ) | — | (763 | ) | ||||||||||||||||
Net loss before dividends and accretion | — | — | — | (71,387 | ) | (71,387 | ) | — | (71,387 | ) | ||||||||||||||||||
Net income attributable to non-controlling interest | — | — | — | — | — | 244 | 244 | |||||||||||||||||||||
Dividends paid or declared | — | — | — | (2,014 | ) | (2,014 | ) | (359 | ) | (2,373 | ) | |||||||||||||||||
Deemed dividend related to beneficial conversion feature of Class C Units | — | — | 4,535 | (4,535 | ) | — | — | — | ||||||||||||||||||||
Cash distributions on Class C Units | — | — | — | (7,862 | ) | (7,862 | ) | — | (7,862 | ) | ||||||||||||||||||
Accretion on Class C Units | — | — | — | (1,668 | ) | (1,668 | ) | — | (1,668 | ) | ||||||||||||||||||
PIK distributions on Class C Units | — | — | — | (5,241 | ) | (5,241 | ) | — | (5,241 | ) | ||||||||||||||||||
Share-based payments | — | — | 499 | — | 499 | — | 499 | |||||||||||||||||||||
Waiver of obligation from Former Advisor | — | — | 5,822 | — | 5,822 | — | 5,822 | |||||||||||||||||||||
Balance, December 31, 2017 | 39,505,742 | $ | 395 | $ | 871,840 | $ | (379,559 | ) | $ | 492,676 | $ | 2,646 | $ | 495,322 | ||||||||||||||
Repurchase and retirement of common stock | (378,324 | ) | (4 | ) | (3,071 | ) | — | (3,075 | ) | — | (3,075 | ) | ||||||||||||||||
Net loss before dividends and accretion | — | — | — | (86,138 | ) | (86,138 | ) | — | (86,138 | ) | ||||||||||||||||||
Net income attributable to non-controlling interest | — | — | — | — | — | 85 | 85 | |||||||||||||||||||||
Dividends paid or declared | — | — | — | — | — | (196 | ) | (196 | ) | |||||||||||||||||||
Cash distributions on Class C Units | — | — | — | (12,498 | ) | (12,498 | ) | — | (12,498 | ) | ||||||||||||||||||
Accretion on Class C Units | — | — | — | (2,581 | ) | (2,581 | ) | — | (2,581 | ) | ||||||||||||||||||
PIK distributions on Class C Units | — | — | — | (8,332 | ) | (8,332 | ) | — | (8,332 | ) | ||||||||||||||||||
Share-based payments | 7,210 | — | 1,482 | — | 1,482 | — | 1,482 | |||||||||||||||||||||
Balance, December 31, 2018 | 39,134,628 | $ | 391 | $ | 870,251 | $ | (489,108 | ) | $ | 381,534 | $ | 2,535 | $ | 384,069 | ||||||||||||||
Repurchase and retirement of common stock | (2,177 | ) | — | (20 | ) | — | (20 | ) | — | (20 | ) | |||||||||||||||||
Net loss before dividends and accretion | — | — | — | (163,419 | ) | (163,419 | ) | — | (163,419 | ) | ||||||||||||||||||
Net loss attributable to non-controlling interest | — | — | — | — | — | (42 | ) | (42 | ) | |||||||||||||||||||
| Dividends paid or declared | — | — | — | — | — | (218 | ) | (218 | ) | |||||||||||||||||||
Cash distributions on Class C Units | — | — | — | (27,772 | ) | (27,772 | ) | — | (27,772 | ) | ||||||||||||||||||
Accretion on Class C Units | — | — | — | (4,798 | ) | (4,798 | ) | — | (4,798 | ) | ||||||||||||||||||
PIK distributions on Class C Units | — | — | — | (18,514 | ) | (18,514 | ) | — | (18,514 | ) | ||||||||||||||||||
Share-based payments | 18,750 | 1 | 1,483 | — | 1,484 | — | 1,484 | |||||||||||||||||||||
Balance, December 31, 2019 | 39,151,201 | $ | 392 | $ | 871,714 | $ | (703,611 | ) | $ | 168,495 | $ | 2,275 | $ | 170,770 | ||||||||||||||
| Common Stock | ||||||||||||||||||||||||||||||
| Number of Shares | Par Value | Additional Paid-in Capital | Deficit | Total Equity of American Realty Capital Hospitality Trust, Inc. Stockholders | Non-controlling Interest | Members' Equity | Total Non-controlling Interest and Equity | |||||||||||||||||||||||
| Balance, December 31, 2013 | 8,888 | $ | — | $ | 200 | $ | (6 | ) | $ | 194 | $ | — | $ | 88,496 | $ | 194 | ||||||||||||||
| Issuance of common stock, net | 105,609 | 1 | 2,417 | — | 2,418 | — | — | 2,418 | ||||||||||||||||||||||
| Net loss attributable to Hospitality Investors Trust, Inc. | — | — | — | — | — | — | (605 | ) | — | |||||||||||||||||||||
| Distributions | — | — | — | — | — | — | (800 | ) | — | |||||||||||||||||||||
| Common stock offering costs, commissions and dealer manager fees | — | — | (1,529 | ) | — | (1,529 | ) | — | — | (1,529 | ) | |||||||||||||||||||
| Balance, March 20, 2014 | 114,497 | $ | 1 | $ | 1,088 | $ | (6 | ) | $ | 1,083 | $ | — | $ | 87,091 | $ | 1,083 | ||||||||||||||
| Proceeds received from Successor for the assets of Predecessor | — | — | — | — | — | — | (87,091 | ) | — | |||||||||||||||||||||
| Issuance of common stock, net | 9,984,711 | 100 | 248,615 | — | 248,715 | — | — | 248,715 | ||||||||||||||||||||||
| Net loss attributable to Hospitality Investors Trust, Inc. | — | — | — | (14,841 | ) | (14,841 | ) | — | — | (14,841 | ) | |||||||||||||||||||
| Dividends paid or declared | — | — | — | (4,839 | ) | (4,839 | ) | — | — | (4,839 | ) | |||||||||||||||||||
| Common stock issued through Distribution Reinvestment Plan | 63,998 | 1 | 1,520 | — | 1,521 | — | — | 1,521 | ||||||||||||||||||||||
| Share-based payments | — | — | 22 | — | 22 | — | — | 22 | ||||||||||||||||||||||
| Common stock offering costs, commissions and dealer manager fees | — | — | (29,866 | ) | — | (29,866 | ) | — | — | (29,866 | ) | |||||||||||||||||||
| Balance, December 31, 2014 | 10,163,206 | $ | 102 | $ | 221,379 | $ | (19,686 | ) | $ | 201,795 | $ | — | $ | — | $ | 201,795 | ||||||||||||||
| Issuance of common stock, net | 25,373,352 | 253 | 631,526 | — | 631,779 | — | — | 631,779 | ||||||||||||||||||||||
| Net loss attributable to Hospitality Investors Trust, Inc. | — | — | — | (94,826 | ) | (94,826 | ) | — | — | (94,826 | ) | |||||||||||||||||||
| Net income attributable to non-controlling interest | — | — | — | — | — | 189 | — | 189 | ||||||||||||||||||||||
| Non-controlling interest - consolidated variable interest entity | — | — | — | — | — | 2,551 | — | 2,551 | ||||||||||||||||||||||
| Dividends paid or declared | — | — | — | (41,168 | ) | (41,168 | ) | — | — | (41,168 | ) | |||||||||||||||||||
| Common stock issued through Distribution Reinvestment Plan | 764,219 | 8 | 18,150 | — | 18,158 | — | — | 18,158 | ||||||||||||||||||||||
| Share-based payments | — | — | 74 | — | 74 | — | — | 74 | ||||||||||||||||||||||
| Common stock offering costs, commissions and dealer manager fees | — | — | (77,343 | ) | — | (77,343 | ) | — | — | (77,343 | ) | |||||||||||||||||||
| Balance, December 31, 2015 | 36,300,777 | $ | 363 | $ | 793,786 | $ | (155,680 | ) | $ | 638,469 | $ | 2,740 | $ | — | $ | 641,209 | ||||||||||||||
| Issuance of common stock, net | 61,181 | 1 | 1,146 | — | 1,147 | — | — | 1,147 | ||||||||||||||||||||||
| Net loss attributable to Hospitality Investors Trust, Inc. | — | — | — | (72,247 | ) | (72,247 | ) | — | — | (72,247 | ) | |||||||||||||||||||
| Net income attributable to non-controlling interest | — | — | — | — | — | 315 | — | 315 | ||||||||||||||||||||||
| Dividends paid or declared | 1,732,822 | 17 | 38,697 | (58,925 | ) | (20,211 | ) | (294 | ) | — | (20,505 | ) | ||||||||||||||||||
| Common stock issued through Distribution Reinvestment Plan | 398,650 | 4 | 9,464 | — | 9,468 | — | — | 9,468 | ||||||||||||||||||||||
| Share-based payments | — | — | 66 | — | 66 | — | — | 66 | ||||||||||||||||||||||
| Common stock offering costs, commissions and dealer manager fees | — | — | (10 | ) | — | (10 | ) | — | — | (10 | ) | |||||||||||||||||||
| Balance, December 31, 2016 | 38,493,430 | $ | 385 | $ | 843,149 | $ | (286,852 | ) | $ | 556,682 | $ | 2,761 | $ | — | $ | 559,443 | ||||||||||||||
The accompanying notes are an integral part of these statements.
CONSOLIDATEDSTATEMENTS OF CASH FLOWS
(In thousands)
| Year Ended December 31, 2019 | Year Ended December 31, 2018 | Year Ended December 31, 2017 | ||||||||||
Cash flows from operating activities: | ||||||||||||
Net loss | $ | (163,461 | ) | $ | (86,053 | ) | $ | (71,143 | ) | |||
Adjustments to reconcile net loss to net cash provided by operating activities: | ||||||||||||
Depreciation and amortization | 109,586 | 111,730 | 105,237 | |||||||||
Impairment of goodwill and long-lived assets | 115,522 | 29,796 | 32,689 | |||||||||
Amortization and write-off of deferred financing costs | 10,107 | 12,639 | 11,339 | |||||||||
Other adjustments, net | (2,607 | ) | 2,033 | 2,065 | ||||||||
Changes in assets and liabilities: | ||||||||||||
Prepaid expenses and other assets | 878 | (756 | ) | (2,348 | ) | |||||||
Due to related parties | — | — | (2,879 | ) | ||||||||
Accounts payable and accrued expenses | 4,034 | (2,607 | ) | 5,252 | ||||||||
Net cash provided by operating activities | $ | 74,059 | $ | 66,782 | $ | 80,212 | ||||||
Cash flows from investing activities: | ||||||||||||
Payment received on note for sale of hotel | — | 1,625 | — | |||||||||
Acquisition of hotel assets, net of cash received | — | — | (60,043 | ) | ||||||||
Real estate investment improvements and purchases of property and equipment | (50,833 | ) | (103,155 | ) | (78,935 | ) | ||||||
Payments related to Property Management Transactions | — | (1,000 | ) | (13,000 | ) | |||||||
Proceeds from sales of hotels, net | 131,659 | 5,461 | 11,525 | |||||||||
Other adjustments, net | 69 | 35 | (581 | ) | ||||||||
Net cash provided by (used in) investing activities | $ | 80,895 | $ | (97,034 | ) | $ | (141,034 | ) | ||||
Cash flows from financing activities: | ||||||||||||
Proceeds from Class C Units | 219,746 | 25,000 | 135,000 | |||||||||
Payment of Class C Units issuance costs | (7,756 | ) | (944 | ) | (13,866 | ) | ||||||
Dividends/Distributions paid | (27,990 | ) | (12,694 | ) | (8,221 | ) | ||||||
Payments of promissory and mortgage notes payable | (1,125,935 | ) | — | (1,030,622 | ) | |||||||
Repayment of Contingent Consideration | — | — | (4,620 | ) | ||||||||
Proceeds from mortgage notes payable | 1,086,100 | — | 1,101,000 | |||||||||
Deferred financing fees | (17,578 | ) | — | (19,672 | ) | |||||||
Mandatorily redeemable preferred securities redemptions | (219,746 | ) | (14,370 | ) | (56,071 | ) | ||||||
Repurchase of shares of common stock | (20 | ) | (3,075 | ) | (763 | ) | ||||||
Net cash (used in) provided by financing activities | $ | (93,179 | ) | $ | (6,083 | ) | $ | 102,165 | ||||
Net change in cash and cash equivalents and restricted cash | 61,775 | (36,335 | ) | 41,343 | ||||||||
Cash and cash equivalents and restricted cash, beginning of period | 82,845 | 119,180 | 77,837 | |||||||||
Cash and cash equivalents and restricted cash, end of period | $ | 144,620 | $ | 82,845 | $ | 119,180 | ||||||
| Successor | Predecessor | ||||||||||||||||
| Year Ended December 31, 2016 | Year Ended December 31, 2015 | For the Period from March 21, 2014 to December 31, 2014 | For the Period from January 1, 2014 to March 20, 2014 | ||||||||||||||
| Cash flows from operating activities: | |||||||||||||||||
| Net loss | $ | (71,932 | ) | $ | (94,637 | ) | $ | (14,841 | ) | $ | (605 | ) | |||||
| Adjustments to reconcile net loss to net cash provided by (used in) operating activities: | |||||||||||||||||
| Depreciation and amortization | 101,007 | 68,500 | 2,796 | 994 | |||||||||||||
| Impairment of long-lived assets | 2,399 | — | — | — | |||||||||||||
| Gain on sale of hotel | (2,539 | ) | — | — | — | ||||||||||||
| Amortization and write-off of deferred financing costs | 9,547 | 11,161 | 595 | 75 | |||||||||||||
| Change in fair value of contingent consideration | 1,455 | 780 | — | — | |||||||||||||
| Loss of acquisition deposits | 22,000 | — | — | — | |||||||||||||
| Other adjustments, net | 363 | 768 | 454 | 166 | |||||||||||||
| Changes in assets and liabilities: | |||||||||||||||||
| Prepaid expenses and other assets | 2,982 | (15,175 | ) | (7,923 | ) | (581 | ) | ||||||||||
| Restricted cash | (389 | ) | (11,602 | ) | (783 | ) | — | ||||||||||
| Due to Related Parties | (3,399 | ) | 1,259 | 5,042 | — | ||||||||||||
| Accounts payable and accrued expenses | 6,352 | 45,453 | 5,010 | (605 | ) | ||||||||||||
| Net cash provided by (used in) operating activities | $ | 67,846 | $ | 6,507 | $ | (9,650 | ) | $ | (556 | ) | |||||||
| Cash flows from investing activities: | |||||||||||||||||
| Acquisition of hotel assets, net of cash acquired | (69,892 | ) | (629,760 | ) | (41,388 | ) | — | ||||||||||
| Proceeds from sale of hotel, net | 12,710 | — | — | — | |||||||||||||
| Real estate investment improvements and purchases of property and equipment | (91,311 | ) | (46,523 | ) | (3,659 | ) | (83 | ) | |||||||||
| Acquisition deposits | — | (40,504 | ) | (75,000 | ) | — | |||||||||||
| Change in restricted cash related to real estate improvements | 36,627 | (55,259 | ) | (2,035 | ) | (468 | ) | ||||||||||
| Net cash used in investing activities | $ | (111,866 | ) | $ | (772,046 | ) | $ | (122,082 | ) | $ | (551 | ) | |||||
| Cash flows from financing activities: | |||||||||||||||||
| Proceeds from issuance of common stock, net | 678 | 631,698 | 249,569 | — | |||||||||||||
| Payments of offering costs and fees related to equity issuances | (1,055 | ) | (79,280 | ) | (28,071 | ) | — | ||||||||||
| Dividends/Distributions paid | (11,500 | ) | (19,153 | ) | (1,950 | ) | (800 | ) | |||||||||
| Affiliate financing advancement | — | — | 2,570 | — | |||||||||||||
| Repayments of promissory and mortgage notes payable | (13,473 | ) | (291,849 | ) | — | (137 | ) | ||||||||||
| Payment of deferred consideration payable | — | (3,500 | ) | — | — | ||||||||||||
| Year Ended December 31, 2019 | Year Ended December 31, 2018 | Year Ended December 31, 2017 | ||||||||||
Supplemental disclosure of cash flow information: | ||||||||||||
Interest paid | $ | 80,124 | $ | 94,336 | $ | 88,392 | ||||||
Income taxes paid, net | $ | (667 | ) | $ | 802 | $ | 1,865 | |||||
Non-cash investing and financing activities: | ||||||||||||
| Deemed dividend related to beneficial conversion feature of Class C Units | — | — | $ | (4,535 | ) | |||||||
Accretion of Class C Units | $ | (4,798 | ) | $ | (2,581 | ) | $ | (1,668 | ) | |||
PIK accrual on Class C Units | $ | (18,514 | ) | $ | (8,332 | ) | $ | (5,241 | ) | |||
| Waiver of Obligation from Former Advisor | — | — | $ | (5,822 | ) | |||||||
| Class B Units in operating partnership converted and redeemed for Common Stock | — | — | $ | 7,659 | ||||||||
| Note payable to Former Property Manager | — | — | $ | 1,000 | ||||||||
| Common stock issued to Former Property Manager | — | — | $ | 4,076 | ||||||||
Real estate investment improvements and purchases of property and equipment in accounts payable and accrued expenses | $ | 1,153 | $ | 12,522 | $ | 14,267 | ||||||
| Affiliate financing repayment | — | — | (3,214 | ) | — | ||||||||||||
| Proceeds from affiliate note payable used to fund acquisition deposit | — | — | 40,500 | — | |||||||||||||
| Repayment of affiliate note payable used to fund acquisition deposit | — | — | (40,500 | ) | — | ||||||||||||
| Mandatorily redeemable preferred securities redemptions | (4,335 | ) | (152,574 | ) | — | — | |||||||||||
| Proceeds from mortgage notes payable | 70,384 | 624,100 | 45,500 | — | |||||||||||||
| Proceeds from promissory note payable | — | — | 1,775 | — | |||||||||||||
| Deferred financing fees | (721 | ) | (27,944 | ) | (2,586 | ) | — | ||||||||||
| Restricted cash for debt service | (991 | ) | — | — | |||||||||||||
| Net cash provided by (used in) financing activities | $ | 39,978 | $ | 680,507 | $ | 263,593 | $ | (937 | ) | ||||||||
| Net change in cash and cash equivalents | (4,042 | ) | (85,032 | ) | 131,861 | (2,044 | ) | ||||||||||
| Cash and cash equivalents, beginning of period | 46,829 | 131,861 | — | 10,520 | |||||||||||||
| Cash and cash equivalents, end of period | $ | 42,787 | $ | 46,829 | $ | 131,861 | $ | 8,476 | |||||||||
| Successor | Predecessor | |||||||||||||||||
| Year Ended December 31, 2016 | Year Ended December 31, 2015 | For the Period from March 21, 2014 to December 31, 2014 | For the Period from January 1, 2014 to March 20, 2014 | |||||||||||||||
| Supplemental disclosure of cash flow information: | ||||||||||||||||||
| Interest paid | $ | 84,683 | $ | 68,108 | $ | 4,645 | $ | 458 | ||||||||||
| Income taxes paid | $ | 763 | $ | 6,408 | $ | 760 | — | |||||||||||
| Non-cash investing and financing activities: | ||||||||||||||||||
| Reclassification of deferred offering costs to additional paid-in capital | — | — | $ | 1,505 | — | |||||||||||||
| Offering costs payable | — | $ | 308 | $ | 2,481 | — | ||||||||||||
| Real estate investment improvements and purchases of property and equipment in accounts payable and accrued expenses | $ | 12,478 | $ | 17,518 | $ | 1,033 | — | |||||||||||
| Proceeds receivable from stock sales | $ | — | $ | 90 | $ | 1,564 | — | |||||||||||
| Seller financed acquisition | $ | 20,000 | — | $ | 58,074 | — | ||||||||||||
| Seller financed acquisition deposit | $ | 7,500 | — | — | — | |||||||||||||
| Seller financing of investment in unconsolidated entities | — | — | $ | 5,000 | — | |||||||||||||
| Mortgage and mezzanine debt assumed on real estate investments | — | $ | 904,185 | — | — | |||||||||||||
| Mandatorily redeemable preferred securities issued in acquisition of property and equipment | — | $ | 447,097 | — | — | |||||||||||||
| Contingent consideration on acquisition | — | — | $ | 2,268 | — | |||||||||||||
| Deferred consideration on acquisition | — | — | $ | 3,400 | — | |||||||||||||
| Dividends declared but not paid | $ | 4,765 | $ | 4,936 | $ | 1,368 | — | |||||||||||
| Common stock issued through distribution reinvestment plan | $ | 9,468 | $ | 18,150 | $ | 1,520 | — | |||||||||||
The accompanying notes are an integral part of these statements.
NOTES TO CONSOLIDATED/COMBINEDCONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Organization
Hospitality Investors Trust, Inc. (the "Company") was, incorporated on July 25, 2013, asis a Maryland corporation and qualified as a REIT beginning with the taxable year ended December 31, 2014. The Company was formedself-managed real estate investment trust ("REIT") that invests primarily to acquirein premium-branded select-service lodging properties in the midscale limited service, extended stay, select service, upscale select service, and upper upscale full service segments within the hospitality sector.United States. As of December 31, 2016,2019, the Company had acquiredowns or hadhas an interest in a total of 141124 hotels with a total of 17,193 guestrooms15,324 guest rooms located in 3233 states. As of December 31, 2016,2019, all but one of these hotels operated under a franchise or license agreement with a national brand owned by one of Hilton Worldwide, Inc., Marriott International, Inc., Hyatt Hotels Corporation, and Intercontinental Hotels Group and Red Lion Hotels Corporation or one of their respective subsidiaries or affiliates.
As part of its investment strategy to continue to pursue the sale of non-core hotels and reallocate capital into other corporate purposes, including debt reduction, the Company commenced marketing for sale a total of 45 hotels during the year ended December 31, 2019. As of December 31, 2019, 20 of these hotels have been sold and 21 were subject to definitive sale agreements where the buyer has made a non-refundable deposit. See Note 15 - Sale of Hotels and Assets Held for Sale for additional information.
The Company conducted its primary initial public offering (the "IPO" or the "Offering"("IPO"), from January 2014 until November 2015 without listing shares of its common stock on a "reasonable best efforts" basis of upnational securities exchange, and it has not subsequently listed its shares. There currently is no established trading market for the Company’s shares and there may never be one.
The Company is required to 80,000,000 shares of common stock, $0.01 par value per share, at a price of $25.00 per share, subject to certain volume and other discounts, pursuant to a registration statement on Form S-11 (File No. 333-190698), as well as up to 21,052,631 shares of common stock available pursuant to the Distribution Reinvestment Plan (the "DRIP") under which the Company's common stockholders could elect to have their cash distributions reinvested in additional shares of the Company's common stock.
Substantially all of the commencement of the IPO, it terminated in accordance with its terms.
The Brookfield Investor holds all the issued and outstanding Class C Units and the sole issued and outstanding Redeemable Preferred Share par value $0.01 per share (the “Redeemable Preferred Share”)(as defined herein), forand, as a nominal purchase price;result, has significant governance and
HOSPITALITY INVESTORS TRUST, INC.
NOTES TO CONSOLIDATED/COMBINEDCONSOLIDATED FINANCIAL STATEMENTS
Note 2 - Summary of Significant Accounting Policies
The accompanying consolidated/combinedconsolidated financial statements of the Company included herein were prepared in accordance with United States Generally Accepted Accounting Principles ("GAAP"). Certain immaterial amountsThe consolidated financial statements reflect all adjustments which are, in priorthe opinion of management, necessary to a fair statement of the results for the periods have been reclassified in orderpresented. These adjustments are considered to conform to current period presentation.
Principles of Consolidation and Basis of Presentation
The accompanying consolidated/combinedconsolidated financial statements include the accounts of the Company and its subsidiaries. All inter-company accounts and transactions have been eliminated in consolidation. In determining whether the Company has a controlling financial interest in a joint venture and the requirement to consolidate the accounts of that entity, management considers factors such as percentage ownership interest, authority to make decisions and contractual and substantive participating rights of the other partners or members as well as whether the entity is a variable interest entity for which the Company is the primary beneficiary.
Certain amounts in prior periods have been maintainedreclassified in various legal entities untilorder to conform to current period presentation, specifically, the Company acquired them from BCCchanged the presentation of its Consolidated Statements of Operations and Comprehensive Income (Loss) with respect to "Gain (loss) on March 21, 2014. Historically, financial statements had not been prepared for the Predecessorsale of assets." The change in presentation was to reclassify this line item so that it is included as a discrete stand-alone entity.component of Operating income (loss) and represented as a separate line item, rather than as a component of "Other income." The accompanying consolidated financial statementsCompany made this change in presentation for the Predecessor, for the period from January 1 to March 20, 2014 have been derived from the historical accounting records of BCC and reflect revenue and expenses and cash flows directly attributable to the Predecessor, as well as allocations deemed reasonable by management, to present the combined financial position, results of operations, changes in equity, and cash flows of the Predecessor on a stand-alone basis.
Use of Estimates
The preparation of the accompanying consolidated/combined consolidatedfinancial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Management makes significant estimates regarding purchase price allocations to record investments in real estate, the useful lives of real estate and real estate taxes, as applicable.
Real Estate Investments
The Company allocates the purchase price of properties acquired in real estate investments to tangible and identifiable intangible assets acquired based on their respective fair values at the date of acquisition. Tangible assets include land, land improvements, buildings and furniture, fixtures and equipment. The Company utilizes various estimates, processes and information to determine the property value. Estimates of value are made using customary methods, including data from
The Company's acquisitions of hotel properties are accounted for as acquisitions of groups of assets rather than business combinations, although the determination will be made on a transaction-by-transaction basis. If the Company concludes that an acquisition will be accounted for as a group of assets, the transaction costs associated with the acquisition will be capitalized as part of the assets acquired.
HOSPITALITY INVESTORS TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company's investments in real estate, including transaction costs, that are not considered to be business combinations under GAAP are recorded at cost. Improvements and replacements are capitalized when they extend the useful life of the asset. Costs of repairs and maintenance are expensed as incurred. Depreciation of the Company's long-lived assets is computed using the straight-line method over the estimated useful lives of up to 40 years for buildings, 15 years for land improvements, five years for furniture, fixtures and equipment, and the shorter of the useful life or the remaining lease term for leasehold interests.
The Company is required to make subjective assessments as to the useful lives of the Company’s assets for purposes of determining the amount of depreciation to record on an annual basis with respect to the Company’s investments in real estate. These assessments have a direct impact on the Company’s net income because if the Company were to shorten the expected useful lives of the Company’s investments in real estate, the Company would depreciate these investments over fewer years, resulting in more depreciation expense and lower net income on an annual basis.
Impairment of Long Lived Assets
Upon the occurrence of certain “triggering events” under the provisions of the Accounting Standards Codification ("ASC") section 360-Property, Plant and InvestmentsEquipment, the Company reviews its hotel investments which are considered to be long-lived assets under GAAP for impairment. These triggering events may include the initiation of marketing an asset for sale, significant declines in Unconsolidated Entities
Assets Held for Sale (Long Lived-Assets)
When the Company initiates the sale of long-lived assets, it assesses whether the assets meet the criteria to be considered assets held for sale. The review is based on whether the following criteria are met:
Management hasand the Company's board of directors have committed to a plan to sell the asset group;asset;
The subject assets are available for immediate sale in their present condition;
The Company is actively locating buyers as well as other initiatives required to complete the sale;
The sale is probable and the transfer is expected to qualify for recognition as a complete sale in one year;
The long-lived asset is being actively marketed for sale at a price that is reasonable in relation to fair value; and
Actions necessary to complete the plan indicate it is unlikely significant changes will be made to the plan or the plan will be withdrawn.
If all the criteria are met, a long-lived asset held for sale is measured at the lower of its carrying amount or fair value less cost to sell, and the Company will cease recording depreciation.
HOSPITALITY INVESTORS TRUST, INC.
NOTES TO CONSOLIDATED/COMBINEDCONSOLIDATED FINANCIAL STATEMENTS
Goodwill
The Company allocates goodwill to each reporting unit. For the Company’s purposes, each of its wholly-owned hotels is considered a reporting unit. The Company tests goodwill for impairment at least annually, as of March 31, or upon the occurrence of any "triggering events" under ASC section 360, if sooner. Upon the occurrence of any "triggering events," the Company is required to compare the fair value of each reporting unit to which goodwill has been allocated, to the carrying amount of such reporting unit including the allocation of goodwill. If the carrying amount of a reporting unit exceeds its fair value, the Company applies a one-step quantitative test and records the amount of goodwill impairment as the excess of the reporting unit's carrying amount over its fair value, not to exceed the total amount of goodwill allocated to such reporting unit.
During the year ended December 31, 2019, the Company determined that approximately $0.9 million of goodwill allocated to five reporting units for which the fair value was less than the carrying amount was impaired. One of the five hotels was impaired when classified as "Assets held for sale." See Note 16 - Impairments for impairment disclosures. Goodwill was also reduced by the removal of goodwill allocated to two hotels sold during the year ended December 31, 2019.
Cash and Cash Equivalents
Cash and cash equivalents include cash in bank accounts as well as investments in highly-liquid money market funds with original maturities of three months or less.
Restricted Cash
Restricted cash consists of amounts required under mortgage agreements for future capital improvements to owned assets, future interest and property tax payments and cash flow deposits while subject to mortgage agreement restrictions. For purposes of the statement of cash flows, changes in restricted cash caused by changes to the amount needed for future capital improvements are treated as investing activities, changes related to future debt service payments are treated as financing activities, and changes related to real estate tax payments and excess cash flow deposits are treated as operating activities.
Deferred Financing Fees
Deferred financing fees represent commitment fees, legal fees and other costs associated with obtaining commitments for financing. These fees are amortized as a component of interest expense over the terms of the respective financing agreements using the effective interest method. Unamortized deferred financing fees are expensed in full when the associated debt is refinanced or repaid before maturity. Costs incurred in seeking financial transactions that do not close are expensed in the period in which it is determined that the financing will not be successful.
Revenue Recognition
The Company's revenue is primarily from rooms, food and beverage, and other, and is disaggregated on the PresentationCompany's Consolidated Statement of Debt Issuance Costs (“ASU 2015-03”), which was designed to simplify the presentation of debt issuance costs. The amendments in ASU 2015-03 require that debt issuance costs relatedOperations and Comprehensive Loss.
Room sales are driven by a fixed fee charged to a recognized debt liability be presented inhotel guest to stay at the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. Prior to application of this new guidance, the Company presented debt issuance costs ashotel property for an asset on the Consolidated Balance Sheets. The recognition and measurement guidance for debt issuance costs were not affected by the amendments in ASU 2015-03. The Company adopted this ASU as of January 1, 2016, on a retrospective basis. The impact to the Consolidated Balance Sheets as of December 31, 2015, was to reduce total assets by approximately $18.8 million, of which $16.0 million was mortgage notes payable, and $2.8 million was the Grace Preferred Equity Interests, the Company's mandatorily redeemable preferred securities.
HOSPITALITY INVESTORS TRUST, INC.
NOTES TO CONSOLIDATED/COMBINEDCONSOLIDATED FINANCIAL STATEMENTS
Income Taxes
The Company has concluded it is not the primary beneficiary with the power to direct activities that most significantly impact economic performance of the Westin Virginia Beach JV, and has therefore not consolidated the entity. The Company has accounted for the entity under the equity method of accounting and included it in investments in unconsolidated entities in the accompanying Consolidated Balance Sheets.
Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, and for net operating loss, capital loss, and tax credit carryovers. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which such amounts are expected to be realized or settled. The effect on deferred tax assets and liabilities from a change in tax rates is recognized in earnings in the period when the new rate is enacted. However, deferred tax assets are recognized only to the extent that it is more likely than not that they will be realized based on consideration of available evidence, including future reversals of existing taxable temporary differences, future projected taxable income and tax planning strategies.
GAAP prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken in a tax return. The Company must determine whether it is "more-likely-than-not" that a tax position will be sustained upon examination, including resolution of any related appeals or litigation processes, based on the technical merits of the position. Once it is determined that a position meets the more-likely-than-not recognition threshold, the position is measured at the largest amount of benefit that is greater than 50% likely of being realized upon settlement in order to determine the amount of benefit to recognize in the financial statements. This accounting standard applies to all tax positions related to income taxes.
Earnings/Loss per Share
The Company calculates basic income or loss per share by dividing net income or loss attributable to common stockholders for the period by the weighted-average shares of its common stock outstanding for a respectivesuch period. Diluted income per share takes into account the effect of dilutive instruments, such as unvested restricted shares of common stock options("restricted shares") and unvested restricted share units in respect of shares of common stock awards,("RSUs"), except when doing so would be anti-dilutive. Beginning with distributions payable with respect
The Company currently has outstanding restricted shares whose holders are entitled to April 2016participate in dividends when and through the period from January 1, 2017 to January 13,
Fair Value Measurements
In accordance with ASCAccounting Standards Codification section 820
HOSPITALITY INVESTORS TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Financial instruments recorded or required to be disclosed at fair value on a recurring basis are categorized based on the priority of the inputs used to measure fair value. The inputs used in measuring fair value are categorized into three levels, as follows:
• | Level 1 - Inputs that are based upon quoted prices for identical instruments traded in active markets. |
• | Level 2 - Inputs that are based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar investments in markets that are not active, or models based on valuation techniques for which all significant assumptions are observable in the market or can be corroborated by observable market data for substantially the full term of the investment. |
• | Level 3 - Inputs that are generally unobservable and typically reflect management’s estimates of assumptions that market participants would use in pricing the asset or liability. The fair values are therefore determined using model-based techniques that include option pricing models, discounted cash flow models, and similar techniques. |
The determination of where an asset or liability falls in the hierarchy requires significant judgment and considers factors specific to the asset or liability. In instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety.
See Note 10 - Fair Value Measurements for fair value disclosures.
Class C Units
The Company initially measured the Class C Units which were issued to the Brookfield Investor at fair value net of issuance costs. The Company is required to accrete the carrying value of the Class C Units to the liquidation preference using the effective interest method over the five-year period prior to the holder's redemption option becoming exercisable (See "Accretion of Class C Units" on the Company's Consolidated Statements of Operations and Comprehensive Loss). However, if it becomes probable that the Class C Units will become redeemable prior to such date, the Company will adjust the carrying value of the Class C Units to the maximum liquidation preference.
Until the Final Closing, the Company could have become obligated pursuant to the SPA with the Brookfield Investor to issue additional Class C Units. This obligation was considered a contingent forward contract under ASC section 480 - Distinguishing Liabilities from Equity, and the Company accounted for it as a liability. The Final Closing with the Brookfield Investor occurred on February 27, 2019, and the Brookfield Investor no longer has any obligations or rights to purchase additional Class C Units. The contingent forward liability was extinguished upon the Final Closing, and, accordingly, the Company will not have any such obligations in the future. At December 31, 2018 and 2017, the fair value of the contingent forward liability was zero and $1.4 million, respectively, and changes in fair value were recognized as income through current earnings (See Note 11 - Commitments and Contingencies).
Leases
Effective January 1, 2019, the Company adopted ASU 2016-02 Leases, which requires companies to recognize operating leases under GAAP as “right of use assets” (“ROU assets”) and lease liabilities on the balance sheet. The Company has $57.8 million of ROU assets and $51.8 million of lease liabilities as of December 31, 2019 for its operating leases. The Company's below-market lease intangible, net, of $7.4 million is also included in the ROU assets on the Company's Consolidated Balance Sheets as of December 31, 2019. Prior to January 1, 2019, these amounts were recorded in "Below-market lease, net" on the Company's Consolidated Balance Sheet.
HOSPITALITY INVESTORS TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company's leases are primarily comprised of: ground or operating leases of certain of its hotel properties; one corporate office lease; and leases of vans, copiers and other miscellaneous equipment. All of the foregoing are classified as operating leases under GAAP. The Company determines if an agreement is considered a lease under GAAP at commencement of the agreement. The Company determines the lease term by assuming the exercise of all renewal options that are reasonably certain.
The Company includes leases of its hotel properties, and its corporate office space lease, in ROU assets and lease liabilities on the Company’s Consolidated Balance Sheet. The Company's below-market lease intangible, net, which is attributed to its ground leases is also included in the ROU assets on the Company's Consolidated Balance Sheet. The Company determined that its vans, copiers, and other miscellaneous equipment were immaterial to the Company’s financial statements and therefore they have been excluded from the Company's ROU assets and lease liabilities.
Operating lease ROU assets and lease liabilities are recognized at the commencement date and are calculated using the present value of future lease payments over the lease term. The discount rate used in the present value calculation is the Company's estimate of its incremental borrowing rate based on the information available at the lease commencement date. ASU 2016-02 did not result in any changes to how operating lease payments are expensed under GAAP, and therefore, the Company's total operating lease payments continue to be expensed on a straight-line basis over the life of the lease commencing upon possession of the property. The below-market lease intangible is based on the difference between the market rent and the contractual rent for the Company’s ground lease obligations and is discounted to a present value using an interest rate reflecting the Company’s assessment of the risk associated with the leases acquired. Acquired lease intangible assets are amortized over the remaining lease term. See Note 4 - Leases for lease disclosures.
Advertising Costs
The Company expenses advertising costs for hotel operations as incurred. These costs were $17.2$21.2 million for the year ended December 31, 2019, $17.9 million for the year ended December 31, 2018, and $18.4 million for the year ended December 31, 2016, $12.2 million for the year ended December 31, 2015, and $0.4 million combined for the Company and the Predecessor for the year ended December 31, 2014.
Allowance for Doubtful Accounts
Receivables consist principally of trade receivables from customers and are generally unsecured and are due within 30 to 90 days. The Company records a provision for uncollectible accounts using the allowance method. Expected credit losses associated with trade receivables are recorded as an allowance for doubtful accounts. The allowance for doubtful accounts is estimated based upon historical patterns of credit losses for aged receivables as well as specific provisions for certain identifiable, potentially uncollectible balances. When internal collection efforts on accounts have been exhausted, the accounts are written off and the associated allowance for doubtful accounts is reduced. Trade receivable balances, net of the allowance for doubtful accounts, are included in prepaid expenses and other assets in the accompanying Consolidated Balance Sheets, and are as follows (in thousands):
December 31, 2019 | December 31, 2018 | |||||||
Trade receivables | $ | 7,759 | $ | 8,329 | ||||
Allowance for doubtful accounts | (447 | ) | (338 | ) | ||||
Trade receivables, net of allowance | $ | 7,312 | $ | 7,991 | ||||
HOSPITALITY INVESTORS TRUST, INC.
NOTES TO CONSOLIDATED/COMBINEDCONSOLIDATED FINANCIAL STATEMENTS
| December 31, 2016 | December 31, 2015 | ||||||
| Trade receivables | $ | 6,238 | $ | 5,848 | |||
| Allowance for doubtful accounts | (434 | ) | (697 | ) | |||
| Trade receivables, net of allowance | $ | 5,804 | $ | 5,151 | |||
Reportable Segments
The Company has determined that it has one reportable segment, with activities related to investing in real estate. The Company’s investments in real estate generate room revenue and other income through the operation of the properties, which comprise 100% of the total consolidated revenues. Management evaluates the operating performance of the Company’s investments in real estate on an individual property level, and therefore each property is considered a reporting unit. Each of the Company's reporting units are also considered to be operating segments, but none of which representthese individual operating segments represents a reportable segment and they meet the criteria in GAAP to aggregate all properties into one reportable segment.
Derivative Transactions
The Company at certain times enters into derivative instruments to hedge exposure to changes in interest rates. The Company’s derivatives as of December 31, 2019, consist of interest rate cap agreements which it believes will help to mitigate its exposure to increasing borrowing costs under floating rate indebtedness, and a variable interest-only bond which it has acquired in connection with the securitization of one of its mortgage loans to effectively reduce its borrowing costs. The Company has elected not to designate its interest rate cap agreements and the variable interest-only bond as cash flow hedges. The impact of the interest rate caps for the year ended December 31, 2019, December 31, 2018 and December 31, 2017, was immaterial to the consolidated financial statements. See Note 5 - Mortgage Notes Payable and Note 10 - Fair Value Measurements for variable interest-only bond disclosures.
Recently Issued Accounting Pronouncements
Effective January 1, 2019, the FASB issuedCompany adopted ASU 2014-09 Revenue from Contracts with Customers ("ASU 2014-09"), which requires an entity to recognize the amount of revenue to which it expects to be entitled to for the transfer of promised goods or services to customers. ASU 2014-09 will replace most existing revenue recognition guidance in GAAP when it becomes effective. The standard permits the use of either the retrospective or cumulative effect transition method. In April 2015, the FASB proposed an accounting standards update for ASU 2014-09 for the deferral of the effective date of ASU 2014-09. This proposal defers the effective date of ASU 2014-09 from annual reporting periods beginning after December 15, 2016, back one year, to annual reporting periods beginning after December 15, 2017 for all public business entities, certain not-for-profit entities, and certain employee benefit plans. Early application of ASU 2014-09 is permitted as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. In April and May 2016, two amendments ("ASU 2016-10" and "ASU 2016-12") were made in which guidance related to accounting for revenue from contracts with customers was clarified further. ASU 2016-10 provides clarity around identifying performance obligations and licensing implementation guidance. ASU 2016-12 addresses topics such as collectability criterion, presentation of sales tax, non-cash consideration, completed contracts at transition and technical corrections. There have been no adjustments to the effective date of ASU 2014-09. The Company is evaluating the effect that ASU 2014-09, ASU 2016-10 and ASU 2016-12 will have on its consolidated/combined financial statements and related disclosures. The Company has not yet selected2016-02 Leases, using a cumulative-effect transition method and has not determined the effectpackage of thepractical expedients available on adoption. Under this standard, on its ongoing financial reporting. The adoption of this ASU is not expected to have a material effect on the Company's consolidated/combined financial statements.
In MarchJune 2016, the FASB issued ASU 2016-07 Investments—Equity Method2016-13 Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The amendments in ASU 2016-13 replace the incurred loss impairment methodology under current GAAP with a methodology that reflects expected credit losses and Joint Ventures ("requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. The Company will be required to use a forward-looking expected credit loss model for accounts receivable and financial assets carried on the Company's Consolidated Balance Sheet at amortized cost. ASU 2016-07"), which requires that an equity method investor add the cost of acquiring the additional interest in the investee to the current basis of the investor's previously held interest and adopt the equity method of accounting as of the date the investment becomes qualified for equity method accounting. Therefore, upon qualifying for the equity method of accounting, no retroactive adjustment of the investment2016-13 is required. The adoption of ASU 2016-07 becomes effective for the Company for the fiscal yearyears beginning after December 15, 2016, and all subsequent annual and interim periods. Early adoption is permitted.2019. The adoption of ASU 2016-07 is2016-13 will not expected to have a material effectimpact on the Company’s consolidated/combinedCompany's consolidated financial statements.
In March 2016,August 2018, the FASB issued ASU 2016-09 Compensation—Stock Compensation2018-13 Fair Value Measurements (Topic 820): Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement ("ASU 2016-09"2018-13"), which requires that all excess tax benefits. Among other changes, ASU 2018-13 addresses changes in disclosures related to unrealized gains and all tax deficiencies should be recognized as income tax expense or benefitslosses and transfers between levels in the income statement. These benefits and deficiencies are discrete items in the reporting period in which they occur. An entity should not consider these benefits or deficiencies in determining the annual estimated tax rate. The adoption offair value hierarchy. ASU 2016-09 becomes2018-13 is effective for the Company for the fiscal yearyears beginning after December 15, 2016, and all subsequent annual and interim periods. Early adoption is permitted.2019. The Company anticipates that the adoption of ASU 2016-092018-13 will not have any impact on the Company's consolidated financial statements.
HOSPITALITY INVESTORS TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 3 - Brookfield Investment
On March 31, 2017, the initial closing under the SPA (the “Initial Closing”) occurred and various transactions and agreements contemplated by the SPA were consummated and executed, including but not limited to:
the sale by the Company and purchase by the Brookfield Investor of one share of a new series of preferred stock designated as the Redeemable Preferred Share, par value $0.01 per share (the “Redeemable Preferred Share”), for a nominal purchase price; and
the sale by the Company and purchase by the Brookfield Investor of 9,152,542.37 Class C Units for a purchase price of $14.75 per Class C Unit, or $135.0 million in the aggregate.
On February 27, 2018, the second closing under the SPA (the “Second Closing”) occurred, pursuant to which the Company sold 1,694,915.25 additional Class C Units to the Brookfield Investor, for a purchase price of $14.75 per Class C Unit, or $25.0 million in the aggregate.
On February 27, 2019, the Final Closing occurred, pursuant to which the Company sold 14,898,060.78 additional Class C Units to the Brookfield Investor, for a purchase price of $14.75 per Class C Unit, or $219.7 million in the aggregate. Following the Final Closing, the Brookfield Investor no longer has any obligations or rights to purchase additional Class C Units pursuant to the SPA or otherwise.
Without obtaining the prior approval of the majority of the then outstanding Class C Units and/or at least one of the two directors (each, a "Redeemable Preferred Director") elected to the Company’s board of directors by the Brookfield Investor pursuant to its rights as the holder of the Redeemable Preferred Share, the Company is not expectedrestricted from taking certain operational and governance actions. These restrictions (collectively referred to herein as the “Brookfield Approval Rights”) are subject to certain exceptions and conditions. See “Brookfield Approval Rights” below.
The Redeemable Preferred Share
The Redeemable Preferred Share held by the Brookfield Investor has been classified as permanent equity on the Consolidated Balance Sheets.
The Redeemable Preferred Share ranks on parity with the Company’s common stock, with the same rights with respect to preferences, conversion and other rights, voting powers, restrictions, limitations as to dividends and other distributions, qualifications, terms and conditions of redemption and other terms and conditions as the Company’s common stock, with certain exceptions.
For so long as the Brookfield Investor holds the Redeemable Preferred Share, the Brookfield Investor has certain rights with respect to the election of members of the Company's board of directors and its committees, including the right to elect two Redeemable Preferred Directors to the Company’s board of directors and to approve two additional independent directors (each, an "Approved Independent Director") to be recommended and nominated by the Company's board of directors for election by the stockholders at each annual meeting. In addition, each committee of the Company's board of directors, subject to limited exceptions, must include at least one of the Redeemable Preferred Directors.
The holder of the Redeemable Preferred Share has certain rights in the event the OP fails to redeem Class C Units when required to do so, including the right to increase the size of the Company's board of directors by a number of directors that would result in the holder of the Redeemable Preferred Share being entitled to nominate and elect a majority of the Company's board of directors, subject to compliance with the provisions of the Company's charter requiring at least a majority of the Company's directors to be Independent Directors (as defined in the Company's charter).
Class C Units
As of December 31, 2019, the Class C Units reflected on the Consolidated Balance Sheets are reconciled in the following table (in millions):
As of December 31, 2019 | ||||
Gross Proceeds | $ | 379.7 | ||
Less: | ||||
Class C Unit issuance costs(1) | $ | (22.5 | ) | |
Plus: | ||||
PIK Distributions Paid to holders of Class C Units | $ | 32.1 | ||
Accretion of carrying value to liquidation preference of Class C Units | $ | 9.0 | ||
Change in contingent forward liability | $ | 0.1 | ||
Contingently Redeemable Class C Units in operating partnership | $ | 398.4 | ||
(1) Class C Unit issuance costs include $6.0 million paid directly to the Brookfield Investor at the Initial Closing in the form of expense reimbursements and a commitment fee.
HOSPITALITY INVESTORS TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Class C Units have been classified as temporary equity due to the contingent redemption features described in more detail below. At the Initial Closing, the Class C Units were deemed to have a material effect on“beneficial conversion feature” as the Company’s consolidated/combined financial statements.
Rank
The Barceló Portfolio consists of (i) three wholly owned hotel assets,Class C Units rank senior to the Baltimore Courtyard Inner Harbor Hotel (the "Baltimore Courtyard"), the Courtyard Providence Downtown Hotel (the "Providence Courtyard")OP Units and the Homewood Suites by Hilton Stratford (the "Stratford Homewood Suites"); (ii) one leased asset, the Georgia Tech Hotel & Conference Center and (iii)all other equity interests in the HGI Blacksburg JVOP with respect to priority in payment of distributions and in the Westin Virginia Beach JV.
Distributions
Commencing on June 30, 2017, holders of the Grace Preferred Equity Interests wereClass C Units are entitled to monthlyreceive, with respect to each Class C Unit, fixed, quarterly cumulative cash distributions at a rate of 7.50% per annum forfrom legally available funds. If the first 18 months following closing, through August 2016, and 8.00%Company fails to pay these cash distributions when due, the per annum thereafter. On liquidation of the Holdco entities, therate will increase to 10% until all accrued and unpaid distributions required to be paid in cash are reduced to zero.
Commencing on June 30, 2017, holders of the Grace Preferred Equity InterestsClass C Units are also entitled to receive, their original value (as reduced by redemptions) priorwith respect to any distributions being made toeach Class C Unit, a fixed, quarterly, cumulative PIK Distribution at a rate of 5% per annum ("PIK Distributions"). If the Company or the Company's stockholders. Beginning in April 2015, the Company became obligated to use 35% of any IPO proceedsfails to redeem the Grace Preferred Equity Interests at par,Brookfield Investor when required to do so pursuant to the amendment and restatement of the OP's existing agreement of limited partnership (the "A&R LPA"), the 5% per annum PIK Distribution rate will increase to a per annum rate of 7.50%, and would further increase by 1.25% per annum for the next four quarterly periods thereafter, up to a maximum per annum rate of $350.0 million12.5%.
The number of Class C Units delivered in redemptions forrespect of the PIK Distributions on any 12-month period.distribution payment date will be equal to the number obtained by dividing the amount of PIK Distribution by $14.75.
The Brookfield Investor is also entitled to receive tax distributions under certain limited circumstances. As of December 31, 2016,2019, no tax distributions have been paid.
For the year ended December 31, 2017, the Company has redeemed $156.9paid cash distributions of $7.9 million and PIK Distributions of the Grace Preferred Equity Interests, resulting in $290.2 million of liquidation value remaining outstanding under the Grace Preferred Equity Interests.
Conversion Rights
The Class C Units are generally convertible into OP Units at any time at the Initial Closing and at Subsequent Closings, as well as cost savings realized as partoption of the Company's transitionholder thereof at an initial conversion price of $14.75 (the "Conversion Price"). The Conversion Price is subject to self-management through reduced property management feesanti-dilution and other adjustments upon the eliminationoccurrence of external asset management feescertain events and transactions.
Liquidation Preference
The liquidation preference with respect to each Class C Unit as of a particular date is the original purchase price paid under the SPA or the value upon issuance of any Class C Unit received as a PIK Distribution, plus, with respect to such Class C Unit up to but not including such date, (i) any accrued and unpaid cash distributions and (ii) any accrued and unpaid PIK Distributions.
Mandatory Redemption
The Class C Units are generally subject to mandatory redemption at a premium to liquidation preference if the OP consummates any liquidation, sale of all or substantially all of the assets, dissolution or winding-up, whether voluntary or involuntary, sale, merger, reorganization, reclassification or recapitalization or other similar event (a “Fundamental Sale Transaction”) prior to March 31, 2022. The amount of the premium, which may be substantial, varies based on the timing of consummation of the Fundamental Sale Transaction.
HOSPITALITY INVESTORS TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Holder Redemptions
The holders of the Class C Units may redeem such Class C Units at any time on or after March 31, 2022 for a redemption price in cash equal to the Advisor (offset by expenses previously borneliquidation preference and also have certain other redemption rights in connection with the Company’s failure to maintain REIT status or material breaches of the A&R LPA.
Remedies Upon Failure to Redeem
If the OP fails to redeem Class C Units when required to do so pursuant to the terms of the A&R LPA, beginning three months after such failure BSREP II Hospitality II Special GP, OP LLC (the "Special General Partner"), an affiliate of the Brookfield Investor, has the exclusive right, power and authority to sell the assets or properties of the OP for cash at such time or times as the Special General Partner may determine, upon engaging a reputable, national third party sales broker or investment bank reasonably acceptable to holders of a majority of the then outstanding Class C Units to conduct an auction or similar process designed to maximize the sales price. The proceeds from sales of assets or properties by the Advisor that will nowSpecial General Partner must be incurred directly byused first to make any and all payments or distributions due or past due with respect to the Class C Units, regardless of the impact of such payments or distributions on the Company as a self-managed Company). or the OP.
The Company believes these sourcesforegoing rights of additional liquidity will allow itthe Special General Partner are in addition to meet its existing capital requirements, although there can be no assurance the amounts actually generated will be sufficient for these purposes. The Subsequent Closings are subject to conditions, and may not be completed on their current terms, or at all.
Company Redemption After Five Years
At any time and from time to time on or after March 31, 2022, the Company has the right at its option,to elect to redeem the Grace Preferred Equity Interests, in wholeall or inany part at any time at par. The holders of the Grace Preferred Equity Interests have certain consent rights over major actions by the Company relatingissued and outstanding Class C Units for an amount in cash equal to the Grace Portfolio. In connection withliquidation preference.
Transfer Restrictions
The Brookfield Investor is generally permitted to make transfers of Class C Units without the issuance of the Grace Preferred Equity Interests, the Company and the OP have made certain guarantees and indemnities to the sellers and their affiliates or indemnifying the sellers and their affiliates related to the Grace Portfolio. If the Company is unable to satisfy the redemption, distribution or other requirements of the Grace Preferred Equity Interests (including if there is a default under the related guarantees provided by the Company and the OP), the holders of the Grace Preferred Equity Interests have certain rights, including the ability to assume control of the operations of the Grace Portfolio through the assumption of control of the Holdco entities. Due to the fact that the Grace Preferred Equity Interests are mandatorily redeemable and certain of their other characteristics, the Grace Preferred Equity Interests are treated as debt in accordance with GAAP.
| Assets acquired and liabilities assumed | February 27, 2015 | |||
| Land | $ | 274,512 | ||
| Buildings and improvements | 1,391,695 | |||
| Below-market lease obligation, net | 2,605 | |||
| Furniture, fixtures and equipment | 127,954 | |||
| Prepaid expenses and other assets | 8,247 | |||
| Accounts payable and accrued expenses | (5,002 | ) | ||
| Total operating assets acquired, net | 1,800,011 | |||
| Seller financing of real estate investments | (1,351,282 | ) | ||
| Total assets acquired, net | $ | 448,729 | ||
| Assets acquired and liabilities assumed | October 15, 2015 | |||
| Land | $ | 16,949 | ||
| Buildings and improvements | 120,414 | |||
| Furniture, fixtures and equipment | 12,706 | |||
| Accounts payable and accrued expenses | (1,042 | ) | ||
| Total operating assets acquired, net | 149,027 | |||
| SN Term Loan | (96,850 | ) | ||
| Total assets acquired, net | $ | 52,177 | ||
Preemptive Rights
If the Company completing its acquisition of the Second Summit Closing. If any hotel is sold in this manner, the Reinstatement Agreement will terminate with respect to such hotel and the purchase price will be reduced by the amount allocated to such hotel. If all (but not less than all) of the hotels in the Second Summit Closing are sold in this manner, or if the Reinstatement Agreement is terminated with respect to all (but not less than all) of the hotels in the Second Summit Closing under certain other circumstances (including if there are title issues or material casualties or condemnations involving a particular hotel), then the New Deposit will be automatically applied towards any then outstanding principal balance of the Summit Loan, and any remaining balance of the New Deposit will be remitted to the Company. In June 2016, the Summit Sellers informed the Company that two of the ten hotels had been sold, thereby reducing the Second Summit Closing to eight hotels for an aggregate purchase price of $77.2 million.
Brookfield Approval Rights
The articles supplementary with respect to the Georgia Tech Hotel & Conference CenterRedeemable Preferred Share restrict the Company from taking certain actions without the prior approval of at least one of the Redeemable Preferred Directors, and nine ground leases whichthe A&R LPA restricts the OP from taking certain actions without the prior approval of the majority of the then outstanding Class C Units.
In general, subject to certain exceptions, prior approval is required before the Company or its subsidiaries (including the OP) are also classified aspermitted to take any of the following actions: equity issuances; organizational document amendments; debt incurrences; affiliate transactions; sale of all or substantially all assets; bankruptcy or insolvency declarations; declarations or payments of dividends or other distributions; redemptions or repurchases of securities; adoption of, and amendments to, the annual business plan (including the annual operating leases. The following table summarizesand capital budget) required under the Company's future minimum rental commitments under
HOSPITALITY INVESTORS TRUST, INC.
NOTES TO CONSOLIDATED/COMBINEDCONSOLIDATED FINANCIAL STATEMENTS
Note 4– Leases
As of December 31, 2019, the Company recorded leases of its hotel properties and its corporate office space lease in ROU assets and lease liabilities on the Company’s Consolidated Balance Sheet. The Company's below-market lease intangible, net, which is attributed to its ground leases is also included in the Company's ROU assets. The Company’s leases have remaining lease terms of four to 46 years. Most leases include one or more options to renew, with renewal terms that can extend the lease term from five to 50 years. One Company lease includes a purchase option. Lease extension and termination options require written notice by the Company in accordance with specific parameters addressed in each individual lease. Certain of the leases require variable lease payments typically based on a percentage of hotel revenue but no less than a minimum base rent. The Company's lease agreements do not contain any material residual value guarantees or material restrictive covenants.
During the year ended December 31, 2019, the Company paid rental obligations of $5.5 million, which was included in the measurement of lease liabilities and ROU assets. The cash paid is included in operating cash flows on the Company Statement of Cash Flows.
Supplemental balance sheet information related to the Company's leases was as follows:
| Weighted Average Remaining Lease Term (years) | Weighted Average Discount Rate | |||||||
December 31, 2019 | 17.5 | 6.33 | % | |||||
Supplemental income statement information related to the Company's leases was as follows:
| Variable Lease Expense (in thousands) | Rent Expense (in thousands) | Amortization of Below-Market Lease Intangible, net (in thousands) | ||||||||||
For the Year Ended December 31, 2019 | $ | 743 | $ | 5,722 | $ | 389 | ||||||
Rent expense for the Company’s leases of its hotel properties which includes variable lease payments is recorded in Rent expense on the Consolidated Statement of Operations and Comprehensive Loss. Rent expense for the Company's corporate office space is included in General and administrative expense on the Consolidated Statement of Operations and Comprehensive Loss.
Maturity of Lease Liabilities Analysis as of December 31, 2019 for the Company's operating leases of hotel properties and corporate office space were as follows (in thousands):
| Minimum Rental Commitments | Amortization of Above Market Lease Intangible to Rent Expense | Amortization of Below Market Lease Intangible to Rent Expense | Amortization of Below Market Lease Intangible, net, to Rent Expense | |||||||||||||
Year ending December 31, 2020 | $ | 5,504 | $ | (153 | ) | $ | 522 | $ | 369 | |||||||
Year ending December 31, 2021 | 5,532 | (153 | ) | 522 | 369 | |||||||||||
Year ending December 31, 2022 | 5,553 | (153 | ) | 522 | 369 | |||||||||||
Year ending December 31, 2023 | 5,559 | (153 | ) | 522 | 369 | |||||||||||
Year ending December 31, 2024 | 5,326 | (153 | ) | 522 | 369 | |||||||||||
Thereafter | 65,641 | (1,569 | ) | 7,117 | 5,548 | |||||||||||
Total lease payments | $ | 93,115 | $ | (2,334 | ) | $ | 9,727 | $ | 7,393 | |||||||
Less: Imputed Interest | 41,359 | |||||||||||||||
Present value of lease liability | $ | 51,756 | ||||||||||||||
HOSPITALITY INVESTORS TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table, which is required by ASU 2016-02, summarizes future minimum rental commitments for the Company's operating leases comprised of leases of certain of the Company's hotel properties as of December 31, 2018, the most recent year end prior to the Company’s adoption of ASU 2016-02 (in thousands):
| Minimum Rental Commitments | Amortization of Below Market Lease Intangible to Rent Expense | |||||||
| Year ended December 31, 2017 | $ | 5,210 | $ | 398 | ||||
| Year ended December 31, 2018 | 5,217 | 398 | ||||||
| Year ended December 31, 2019 | 5,227 | 398 | ||||||
| Year ended December 31, 2020 | 5,265 | 398 | ||||||
| Year ended December 31, 2021 | 5,271 | 398 | ||||||
| Thereafter | 81,743 | 7,836 | ||||||
| Total | $ | 107,933 | $ | 9,826 | ||||
| Minimum Rental Commitments | Amortization of Above Market Lease Intangible to Rent Expense | Amortization of Below Market Lease Intangible to Rent Expense | Amortization of Below Market Lease Intangible, net, to Rent Expense | |||||||||||||
Year ending December 31, 2019 | $ | 5,227 | $ | (153 | ) | $ | 551 | $ | 398 | |||||||
Year ending December 31, 2020 | 5,265 | (153 | ) | 551 | 398 | |||||||||||
Year ending December 31, 2021 | 5,271 | (153 | ) | 551 | 398 | |||||||||||
Year ending December 31, 2022 | 5,292 | (153 | ) | 551 | 398 | |||||||||||
Year ending December 31, 2023 | 5,298 | (153 | ) | 551 | 398 | |||||||||||
Thereafter | 71,153 | (1,722 | ) | 8,762 | 7,040 | |||||||||||
Total | $ | 97,506 | $ | (2,487 | ) | $ | 11,517 | $ | 9,030 | |||||||
The Company has allocated values to certain above and below-market lease intangibles based on the difference between market rents and rental commitments under the leases. During the yearsyear ended December 31, 2016, December 31, 2015 and December 31, 2014,2018, amortization of below-market lease intangibles, net, to rent expense was $0.4 million, $0.4 million and $0.3 million, respectively.million. Rent expense for the yearsyear ended December 31, 2016, December 31, 2015 and December 31, 20142018 was $6.3 million, $5.8 million and $4.8 million, respectively. Included in the year ended December 31, 2014 is rent expense recognized by the Predecessor. The Company recognizes rent expense on a straight line basis.million.
Note 5 - Mortgage Notes Payable
The Company’s mortgage notes payable as of December 31, 20162019 and December 31, 20152018 consist of the following, respectively (in thousands):
Outstanding Mortgage Notes Payable | ||||||||||
Encumbered Properties | December 31, 2019 | Interest Rate | Payment | Maturity | ||||||
Hilton Garden Inn Blacksburg Joint Venture | $ | 10,500 | 4.31 % | Interest Only, Principal paid at Maturity | June 2020 | |||||
92 - Pack Mortgage Loan(1) | 810,370 | One-month LIBOR plus 2.14% | Interest Only, Principal paid at Maturity | Nov 2021, subject to three, one year extension rights | ||||||
92 - Pack Senior Mezzanine Loan | 93,146 | One-month LIBOR plus 5.60% | Interest Only, Principal paid at Maturity | Nov 2021, subject to three, one year extension rights | ||||||
92 - Pack Junior Mezzanine Loan | 65,202 | One-month LIBOR plus 8.50% | Interest Only, Principal paid at Maturity | Nov 2021, subject to three, one year extension rights | ||||||
Additional Grace Mortgage Loan -20 properties in Grace Portfolio and one additional property | 232,000 | 4.96 % | Interest Only, Principal paid at Maturity | October 2020 | ||||||
Term Loan -23 properties | 261,948 | One-month LIBOR plus 3.00% | Interest Only, Principal paid at Maturity | May 2020, subject to three, one year extension rights | ||||||
Total Mortgage Notes Payable | $ | 1,473,166 | ||||||||
Less: Deferred Financing, Net | $ | 13,113 | ||||||||
Plus: Premium on Variable Interest-Only Bond | $ | 1,388 | ||||||||
Total Mortgage Notes Payable, Net | $ | 1,461,441 | ||||||||
(1) As a result of asset sale activity, the number of hotel properties serving as collateral for this loan has been reduced to 78 as of December 31, 2019.
HOSPITALITY INVESTORS TRUST, INC.
NOTES TO CONSOLIDATED/COMBINEDCONSOLIDATED FINANCIAL STATEMENTS
Outstanding Mortgage Notes Payable | ||||||||||
Encumbered Properties | December 31, 2018 | Interest Rate | Payment | Maturity | ||||||
Baltimore Courtyard & Providence Courtyard | $ | 45,500 | 4.30 % | Interest Only, Principal paid at Maturity | April 2019 | |||||
Hilton Garden Inn Blacksburg Joint Venture | 10,500 | 4.31 % | Interest Only, Principal paid at Maturity | June 2020 | ||||||
87 - Pack Mortgage Loan - 87 properties in Grace Portfolio | 805,000 | One-month LIBOR plus 2.56% | Interest Only, Principal paid at Maturity | May 2019, subject to three, one year extension rights | ||||||
87 - Pack Mezzanine Loan - 87 properties in Grace Portfolio | 110,000 | One-month LIBOR plus 6.50% | Interest Only, Principal paid at Maturity | May 2019, subject to three, one year extension rights | ||||||
Additional Grace Mortgage Loan - 20 properties in Grace Portfolio and one additional property | 232,000 | 4.96 % | Interest Only, Principal paid at Maturity | October 2020 | ||||||
Term Loan -28 properties | 310,000 | One-month LIBOR plus 3.00% | Interest Only, Principal paid at Maturity | May 2019, subject to three, one year extension rights | ||||||
Total Mortgage Notes Payable | $ | 1,513,000 | ||||||||
Less: Deferred Financing, Net | $ | 5,491 | ||||||||
Total Mortgage Notes Payable, Net | $ | 1,507,509 | ||||||||
| Outstanding Mortgage Notes Payable | ||||||||||||||
| Encumbered Properties | December 31, 2016 | December 31, 2015 | Interest Rate | Payment | Maturity | |||||||||
| Baltimore Courtyard & Providence Courtyard | $ | 45,500 | $ | 45,500 | 4.30% | Interest Only, Principal paid at Maturity | April 2019 | |||||||
| Hilton Garden Inn Blacksburg Joint Venture | 10,500 | 10,500 | 4.31% | Interest Only, Principal paid at Maturity | June 2020 | |||||||||
| Assumed Grace Mortgage Loan - 95 properties in Grace Portfolio | 793,647 | 801,430 | LIBOR plus 3.31% | Interest Only, Principal paid at Maturity | May 2017, subject to two, one year extension rights | |||||||||
| Assumed Grace Mezzanine Loan - 95 properties in Grace Portfolio | 101,794 | 102,550 | LIBOR plus 4.77% | Interest Only, Principal paid at Maturity | May 2017, subject to two, one year extension rights | |||||||||
| Refinanced Additional Grace Mortgage Loan - 20 properties in Grace Portfolio and one additional property | 232,000 | 232,000 | 4.96% | Interest Only, Principal paid at Maturity | October 2020 | |||||||||
| SN Term Loan -20 properties in Summit and Noble Portfolios (1) | 235,484 | 165,100 | LIBOR plus between 3.25% and 3.75% | Interest Only, Principal paid at Maturity | August 2018, subject to two, one year extension rights | |||||||||
| Total Mortgage Notes Payable | $ | 1,418,925 | $ | 1,357,080 | ||||||||||
| Less: Deferred Financing Fees | $ | 8,000 | $ | 16,047 | ||||||||||
| Total Mortgage Notes Payable, Net | $ | 1,410,925 | $ | 1,341,033 | ||||||||||
Interest expense related to the Company's mortgage notes payable for the year ended December 31, 2016,2019, for the year ended December 31, 2018, and for the year ended December 31, 2015, and for the combined year ended December 31, 20142017 was $60.1$81.1 million, $43.1$76.3 million, and $2.1$66.8 million, respectively.
Baltimore Courtyard and Providence Courtyard
On April 5, 2019, the Company refinanced mortgage debt secured by two of its hotel properties: the Courtyard Baltimore Downtown/Inner Harbor, a 205-key select service hotel located in Baltimore, MD (the “Baltimore Courtyard”), and the Courtyard Providence Downtown, a 219-key select service hotel located in downtown Providence, RI (the “Providence Courtyard”). The new mortgage and mezzanine loans were in an aggregate principal amount of $46.1 million (such loans, the “Baltimore Courtyard and Providence Courtyard Bridge Loans”).
At the closing of the Baltimore Courtyard and Providence Courtyard
The new loan dated April 5, 2019 was then refinanced and prepaid in full at par in accordance with its terms on April 6, 2019. On May 6, 2014 and each month thereafter,1, 2019, with proceeds from the Company is required to make an interest only payment based on the outstanding principal and a fixed annual interest rate of 4.30%. The entire principal amount is due at maturity.
Hilton Garden Inn Blacksburg Joint Venture
The Hilton Garden Inn Blacksburg Joint Venture Loan matures June 6, 2020. On July 6, 2015 and each month thereafter, the Company is required to make an interest only payment based on the outstanding principal and a fixed annual interest rate of 4.31%. The entire principal amount is due at maturity.
HOSPITALITY INVESTORS TRUST, INC.
NOTES TO CONSOLIDATED/COMBINEDCONSOLIDATED FINANCIAL STATEMENTS
87- Pack Loans
During the quarter ended March 31, 2019 and the year ended December 31, 2018, a total of 87 of the Company’s hotels, all of which were originally acquired in February 2015 as part of a portfolio initially comprising 116 hotel properties (the “Grace Portfolio”), were financed pursuant to their respective terms fora mortgage loan agreement (the “87-Pack Mortgage Loan”) and a mezzanine loan agreement (the “87-Pack Mezzanine Loan” and, collectively with the final extension period. The Assumed Grace87-Pack Mortgage Loan, carriesthe “87-Pack Loans”), with an aggregate principal balance of $915.0 million. The principal amount of the 87-Pack Mortgage Loan was $805.0 million and the 87-Pack Mortgage Loan was secured by the 87 Company hotel properties (each, a “87-Pack Collateral Property”). The principal amount of the 87-Pack Mezzanine Loan was $110.0 million and the 87-Pack Mezzanine Loan was secured by the ownership interest in the entities which own the 87-Pack Collateral Properties and the related operating lessees.
On May 1, 2019, the 87-Pack Loans matured and were refinanced as part of the 92-Pack Loans.
The 87-Pack Mortgage Loan required monthly interest payments at a variable rate of London Interbank Offered Rate ("LIBOR")equal to one-month LIBOR plus 3.31%2.56%, and the Assumed Grace87-Pack Mezzanine Loan carries anrequired monthly interest payments at a variable rate ofequal to one-month LIBOR plus 4.77%6.50%, for a combined weighted average interest rate of LIBOR plus 3.47%3.03%. Pursuant to an interest rate cap agreement, the Assumed Grace Indebtedness,LIBOR portions of the interest rates due under the 87-Pack Loans were effectively capped at the greater of (i) 4.0% and (ii) a rate that would result in a debt service coverage ratio specified in the loan documents.
92-Pack Loans
On May 1, 2019, the Company refinanced the 87-Pack Loans and the Baltimore Courtyard and Providence Courtyard Bridge Loans with new mortgage and mezzanine indebtedness of $1,040 million secured by 92 of the Company’s hotel properties (the “92-Pack Loans”).
At closing, the Company used the net proceeds from the 92-Pack Loans after accrued interest and closing costs to repay $961.1 million outstanding under the 87-Pack Loans and the Baltimore Courtyard and Providence Courtyard Bridge Loans. The Company also used $10.0 million of proceeds to fund a reserve with the lenders that the Company can utilize to fund expenditures for work required to be performed under property improvement plans (“PIPs”) required by franchisors of the 92 hotel properties. During the term of the 92-Pack Loans, the Company will be required to periodically deposit additional reserves with the lenders that the Company can utilize to fund a portion of future PIP work and other capital improvements.
The 92-Pack Loans are fully prepayable with certain prepayment fees applicable on or prior to May 7, 2020, provided, however, that the first 25% of each of the 92-Pack Loans is prepayable at par. Following May 7, 2020, each of the 92-Pack Loans may be prepaid without payment of any prepayment fee or any other fee or penalty. Prepayments under the mortgage loan are generally conditioned on a pro-rata prepayment being made under the mezzanine loans.
The 92-Pack Mortgage Loan requires monthly interest payments at a variable rate equal to one-month LIBOR plus 2.14%, the 92-Pack Senior Mezzanine Loan required monthly interest payments at a variable rate equal to one-month LIBOR plus 5.60%, and the 92-Pack Junior Mezzanine Loan requires monthly interest payments at a variable rate equal to one-month LIBOR plus 8.50% for a combined weighted average interest rate of LIBOR plus 2.90%. Pursuant to an interest rate cap agreement, the LIBOR portions of the interest rates due under the 92-Pack Loans were effectively capped at 4.0%.
HOSPITALITY INVESTORS TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In connection with a sale or disposition to a third party of any of the 92 hotel properties serving as collateral, such property may be released from the 92-Pack Loans, subject to certain conditions and limitations, by prepayment of a portion of the 92-Pack Loans at a release price calculated in accordance with the terms of the 92-Pack Loans. As of December 31, 2019, the Company has agreedsold 14 hotel properties pursuant to make periodic payments into an escrow account forthese provisions and prepaid approximately $59.6 million of principal under the property improvement plansmortgage loan and approximately $11.7 million of principal under the mezzanine loans, thereby reducing the number of hotel properties serving as collateral under the 92-Pack Loans to 78 hotels.
For the term of the 92-Pack Loans, the Company and the OP are required by the franchisors. The Assumed Grace Indebtedness includes the following financial covenants: minimumto maintain, on a consolidated basis, a net worth of (i) $250.0 million (excluding their interest in the hotel properties serving as collateral and minimum consolidated liquidity.excluding accumulated depreciation and amortization) and (ii) $500.0 million (including their interest in the hotel properties serving as collateral but excluding accumulated depreciation and amortization). As of December 31, 2016,2019, the Company was in compliance with thesethis financial covenants.
Variable Interest-Only Bond
During the year ended December 31, 2019, the Company recorded a derivative asset and premium associated with a variable interest-only bond issued as part of the lenders' securitization of the 92-Pack Mortgage Loan and acquired by the Company in connection with such securitization. The interest-only bond was acquired to effectively reduce the Company’s borrowing cost on the 92-Pack Loans. The premium on the interest-only bond is amortized on a straight-line basis over the life of the bond and is included in the Mortgage notes payable on the Company's Consolidated Balance Sheet as of December 31, 2019. The Company values the derivative asset portion of the variable interest-only bond at fair value (See Note 10 - Fair Value Measurements).
Additional Grace Mortgage Loan
A portion of the purchase price of the Grace Portfolio was financed through additional mortgage financing which loan was refinanced during October 2015 (the “Additional Grace Mortgage Loan”). The Refinanced Additional Grace Mortgage Loan carries a fixed annual interest rate of 4.96% per annum with a maturity date on October 6, 2020. Pursuant to the Refinanced Additional Grace Mortgage Loan, the Company agreed to make periodic payments into an escrow account for the property improvement plansPIPs required by the franchisors.franchisors, and the Company made the final PIP reserve payment during June 2018. The Refinanced Additional Grace Mortgage Loan includes the following financial covenants: minimum consolidated net worth and minimum consolidated liquidity. As of December 31, 2016,2019, the Company was in compliance with these financial covenants.
Term Loan
On August 21, 2015,April 27, 2017, the Company and the OP, as guarantors, and certain wholly-owned subsidiaries of the OP, as borrowers, entered into a Second Amended and Restated Term Loan Agreement (as amended, the “Term Loan”) in an aggregate principal amount of $310.0 million, initially collateralized by 28 of the Company’s hotel properties (each, a “Term Loan Collateral Property”).
Prior to the closing of the 92-Pack Loans, the Term Loan was scheduled to mature on May 1, 2019, subject to three one-year extension rights at the Company's option which, if all three extension rights were exercised, would have resulted in an outside maturity date of May 1, 2022. At the closing of the 92-Pack Loans, $25.0 million of the net proceeds were used to prepay principal under the Term Loan. This prepayment reduced the amount outstanding under the Term Loan to $285.0 million, and concurrently, the Company extended the maturity of the Term Loan in accordance with its terms to May 1, 2020. On May 22, 2019, the Company entered into aan amendment to the Term Loan Agreement with Deutsche Bank AG New York Branch, as administrative agentwhich reduced the commitment under the Term Loan from $310.0 million to $285.0 million and Deutsche Bank Securities Inc., as sole lead arranger and book-running manager (as amended,added one additional extension term of one-year to the "SNterm of the Term Loan"). On October 15, 2015,Loan, such that if the Company amended and restatedexercises all extension rights, the SNmaturity date of the Term Loan and madewould be May 1, 2023.
HOSPITALITY INVESTORS TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Term Loan is prepayable in whole or in part at any time, subject to payment of LIBOR breakage, if any.
The Term Loan requires monthly interest payments at a variable rate of one-month LIBOR plus 3.00%. Pursuant to an interest rate cap agreement, the LIBOR portions of the interest rates due under the Term Loan is capped at 4.00% during the initial draw down of borrowings of $96.9 million interm, and a rate based on a debt service coverage ratio during any extension term.
In connection with a sale or disposition to a third party of an individual Term Loan Collateral Property, such Term Loan Collateral Property may be released from the First Summit Closing. On November 2, 2015,Term Loan, subject to certain conditions and limitations, by prepayment of a portion of the Term Loan at a release price calculated in accordance with the terms of the Term Loan. As of December 31, 2019, the Company drew down borrowingshas sold five hotel properties pursuant to these provisions and prepaid approximately $23.1 million of $26.0 million in connection withprincipal under the First Noble Closing. On December 2, 2015Term Loan, thereby reducing the Company drew down borrowingsnumber of $42.3 million in connection withhotel properties serving as collateral under the Second Noble Closing. On February 11, 2016, the Company drew down borrowings of $70.4 million in connection with the Third Summit Closing, and amended the SN Term Loan to reduce the lenders’ total commitment from $450.0 million to $293.4 million. On July 1, 2016, the period in which the Company had the ability to further draw down on the SN23 hotels.
The Term Loan expired, reducing the lenders' total commitment to $235.5 million. No additionalalso provides for certain amounts are available to be drawn under the SN Term Loan. Duedeposited into reserve accounts, including with respect to the amendment and the expiration, the Company recorded a reduction to its deferred financing feesall costs associated with the SN Term Loan. The reduction of $3.0 million was reflected as a general and administrative expense inPIPs required pursuant to the Consolidated/Combined Statements of Operations and Comprehensive Loss.
For the aggregate debt yield and aggregate loan-to-value of the properties securing the Loans measured periodically. Prior to November 1, 2015, all spreads were 0.5% less than they will be during the rest of the term. The SN Term Loan has a term of three years, with two one-year extension options, and is secured by the fee interest in the hotels as and when they are acquired. The extensions on the SN Term Loan can only occur if certain conditions are met, including a condition that a minimum ratio of net operating income to debt outstanding be satisfied. If the Company exercises the extension options the Loans will amortize in an amount of 2.5% per annum payable quarterly. There can be no assurance that we will be able to meet these conditions and extend the Loans pursuant to its terms.
Note 6 - Promissory Notes Payable
In February 2015, a portion of the contract purchase price for the Grace Portfolio was satisfied by the issuance to the sellers of the Grace Portfolio of approximately $447.1 million of liquidation value of preferred equity interests (the "Grace Preferred Equity Interests") in two newly-formed Delaware limited liability companies, HIT Portfolio I Holdco, LLC and HIT Portfolio II Holdco, LLC (together, the "Holdco entities"). Each of the Holdco entities is an indirect subsidiary of the Company and an indirect owner of the hotels comprising the Grace Portfolio.
The Company’s promissory notes payable asholders of December 31,the Grace Preferred Equity Interests were entitled to monthly distributions at a rate of 7.50% per annum for the first 18 months following closing, through August 2016, and December 31, 2015 were as follows (in thousands):
HOSPITALITY INVESTORS TRUST, INC.
NOTES TO CONSOLIDATED/COMBINEDCONSOLIDATED FINANCIAL STATEMENTS
| Outstanding Promissory Notes Payable | |||||||||||
| Note Payable | December 31, 2016 | December 31, 2015 | Interest Rate | ||||||||
| Summit Loan Promissory Note | $ | 23,405 | $ | — | 13.0 | % | |||||
| Less: Deferred Financing Fees, Net | $ | 25 | $ | — | |||||||
| Promissory Notes Payable, Net | $ | 23,380 | $ | — | |||||||
Interest expense related to the Company's promissory notes payableGrace Preferred Equity Interests for the yearyears ended December 31, 2016, the year ended 2019, December 31, 2015,2018 and the year ended December 31, 2014 were $2.92017 was $2.7 million, $1.4$17.3 million, and $3.6$19.6 million, respectively.
On January 12, 2017, concurrent with the Company’s entry into the Summit Amendment,February 27, 2019, the Company entered intoused proceeds from the Loan Amendment which amendedconcurrent sale of Class C Units to the Summit Loan Promissory NoteBrookfield Investor at the Final Closing to redeem the remaining $219.7 million in liquidation value of Grace Preferred Equity Interests.
Due to the fact that the Grace Preferred Equity Interests were mandatorily redeemable and certain of their other characteristics, the Additional Loan Agreement (See Note 17 - Subsequent Events).Grace Preferred Equity Interests were treated as debt in accordance with GAAP.
Note 7 - Accounts Payable and Accrued Expenses
The following is a summary of the components of accounts payable and accrued expenses (in thousands):
December 31, 2019 | December 31, 2018 | |||||||
Trade accounts payable | $ | 9,679 | $ | 22,247 | ||||
Accrued expenses | 44,600 | 40,718 | ||||||
Total | $ | 54,279 | $ | 62,965 | ||||
| December 31, 2016 | December 31, 2015 | ||||||
| Trade accounts payable and accrued expenses | $ | 55,489 | $ | 57,472 | |||
| Contingent consideration from Barceló Portfolio (See Note 10 - Commitments and Contingencies) | 4,619 | 3,164 | |||||
| Hotel accrued salaries and related liabilities | 8,411 | 6,619 | |||||
| Total | $ | 68,519 | $ | 67,255 | |||
Note 8 - Common Stock
The Company had 38,493,43039,151,201 shares and 36,300,77739,134,628 shares of common stock outstanding and had received total proceeds therefrom of $913.0 million and $902.9 million as of December 31, 20162019 and
Share Repurchase Program
On September 24, 2018, the Company announced that its board of directors had adopted a new share repurchase program (the "SRP"), effective as of October 1, 2018, pursuant to which the Company was offering, subject to certain terms and conditions, liquidity to stockholders by offering to make quarterly repurchases of common stock at a price to be established by the board of directors. In February 2019, the board of directors suspended the SRP. The suspension will remain in effect unless and until the board takes further action to reactivate the SRP. There can be no assurance the SRP will be reactivated on its current terms, different terms or at all. Prior to such suspension, the Company repurchased a total of 211,154 shares of common stock outstanding includepursuant to the SRP for a total purchase price of $1.9 million, including 208,977 shares issued as distributions through December 31, 2016, asfor a resulttotal purchase price of the Company's change in distribution policy adopted by the Company's board of directors in March 2016 as described below. Subsequent to$1.9 million during the year ended December 31, 2016 and through March 15, 2017 ,2018.
Company Tender Offers
On May 14, 2018, the Company issued 315,383commenced a self-tender offer (the “Company Offer”) for up to 1,000,000 shares of common stock as stock distributions with respectat a price of $7.05 per share. The Company Offer was made in response to December 2016an unsolicited offer to stockholders commenced on May 7, 2018 by a third party. The Company Offer expired at 5:00 p.m., New York City time, on June 29, 2018. On June 29, 2018, a total of 170,260 shares were tendered in the Company Offer and purchased and subsequently retired by the period from January 1, 2017 through January 13, 2017,Company, for an aggregate purchase price of $1.2 million. On August 2, 2018, the date these distributionsCompany was advised that, due to an error by the Depositary for the Company Offer, a total of 912 shares were suspended (See Note 17 - Subsequent Events).
HOSPITALITY INVESTORS TRUST, INC.
NOTES TO CONSOLIDATED/COMBINEDCONSOLIDATED FINANCIAL STATEMENTS
Note 9 - Share-Based Payments
The first distribution was paid in May 2014 to holders of record in April 2014.
Restricted share awards entitle the quarter ended June 30, 2016 were paid inrecipient to receive shares of common stock from the Company under terms that provide for vesting over a specified period of time or upon attainment of pre-established performance objectives. Such awards would typically be forfeited with respect to the unvested shares upon the termination of the recipient’s employment or other relationship with the Company. Restricted shares may not, in an amount equivalentgeneral, be sold or otherwise transferred until restrictions are removed and the shares have vested. Holders of restricted shares may receive cash or stock distributions when and if paid prior to $1.70 per annum, divided by $23.75.
RSUs represent a contingent right to July 2016, the Company has paid distributions to its stockholders inreceive shares of common stock onat a monthly basisfuture settlement date, subject to stockholderssatisfaction of record each day duringapplicable vesting conditions and/or other restrictions, as set forth in the prior monthRSP and an award agreement evidencing the grant of RSUs. RSUs may not, in an amount equalgeneral, be sold or otherwise transferred until restrictions are removed and the rights to 0.000185792 per share per day,the shares of common stock have vested. Holders of RSUs do not have or $1.46064 per annum, divided by $21.48.
Restricted Share Awards
A summary of the Company's entry intorestricted share awards for the SPA,year ended December 31, 2019 is presented below.
Number of Shares | Weighted Average Grant Date Fair Value (per share) | Aggregate Intrinsic Value (in thousands) | ||||||||||
Non-vested December 31, 2018 | 7,210 | $ | 14.18 | $ | 102 | |||||||
Granted | 10,858 | $ | 6.91 | $ | 75 | |||||||
Vested | 7,210 | $ | 14.18 | $ | 102 | |||||||
Forfeitures | — | $ | — | $ | — | |||||||
Non-vested December 31, 2019 | 10,858 | $ | 6.91 | $ | 75 | |||||||
Prior to the Initial Closing, the Company suspended paying distributionsmade annual restricted share awards to its stockholders entirely (See Note 17 - Subsequent Events). Currently, underindependent directors that vested annually over a five-year period following the Brookfield Approval Rights, prior approval is required before the Company can declare or pay any distributions or dividends to its common stockholders, except for cash distributions equal to or less than $0.525 per annum per share.
The compensation expense related to restricted shares for the years ended December 31, 2019, December 31, 2018 and December 31, 2017 was less than $0.1 million. As of December 31, 2019, there was less than $0.1 million of unrecognized compensation expense remaining.
RSU Awards
A summary of the Company's RSU awards for the year ended December 31, 2016 (except for2019 is presented below:
Number of Shares | Weighted Average Grant Date Fair Value (per share) | Aggregate Intrinsic Value (in thousands) | ||||||||||
Non-vested December 31, 2018 | 332,364 | $ | 14.34 | $ | 4,765 | |||||||
Granted | 219,959 | $ | 6.91 | $ | 1,520 | |||||||
Vested | 97,335 | $ | 14.42 | $ | 1,404 | |||||||
Forfeited | 71,558 | $ | 10.67 | $ | 763 | |||||||
Non-vested December 31, 2019 | 383,430 | $ | 10.74 | $ | 4,118 | |||||||
RSU awards to the repurchasesCompany’s executive officers and other employees generally vest annually over a four-year vesting period following the date of 28,264 shares for $0.6 million at an average repurchase price per share of $23.44 with respectgrant, subject to repurchase requests received duringcontinued service. RSU awards to directors vest on the year ended December 31, 2015 that were completed in January 2016) and has not, and will not, make any repurchase of common stock during the period between January 1, 2017 and the effectivenessearlier of the terminationfirst anniversary of the SRP.
The compensation expense related to RSUs for the Estimated Per-Share NAV.years ended December 31, 2019, December 31, 2018 and December 31, 2017 was approximately $1.5 million, $1.4 million and $0.4 million, respectively. As of December 31, 2019, there was $2.9 million of unrecognized compensation expense remaining.
Note 910 - Fair Value Measurements
The Company is required to disclose the fair value of financial instruments which it is practicable to estimate. The fair value of cash and cash equivalents, accounts receivable and accounts payable and accrued expenses approximate their carrying amounts due to the relatively short maturity of these items. The following table shows the carrying valuesamounts and the fair values of material non-current liabilities, excluding deferred financing fees, that qualify as financial instruments (in thousands):
December 31, 2019 | ||||||||
| Carrying Amount | Fair Value | |||||||
Mortgage notes payable | $ | 1,473,166 | $ | 1,461,943 | ||||
Total | $ | 1,473,166 | $ | 1,461,943 | ||||
| December 31, 2016 | |||||||
| Carrying Amount | Fair Value | ||||||
Mortgage notes payable(1) | $ | 1,442,330 | $ | 1,439,990 | |||
(1) Carrying amount does not include that associated deferred financing fees as of December 31, 2016. | |||||||
HOSPITALITY INVESTORS TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The fair value of the mortgage notes payable werewas determined using the discounted cash flow method and applying current market rates and is classified as level 3 under the fair value hierarchy. Market rates take into consideration general market conditions and maturity.
During the years ended December 31, 2019, December 31, 2018, and December 31, 2017, the Company recorded impairment losses on its hotel properties (See Note 16 - Impairments). The fair value of these hotel properties other than those subject to definitive sales agreements was based on the observable market data which is considered level 2 input under the fair value hierarchy and unobservable inputs that reflect the Company's internal assumptions, which are considered level 3 input under the fair value hierarchy. Discount rates used in the determination of the fair value of hotel properties generally range from 8% to 11%. For the Company's hotels subject to a definitive sales agreement, fair value was equal to the purchase price in the applicable agreement.
During the year ended December 31, 2019, the Company recorded a derivative asset associated with a variable interest-only bond that the Company acquired in connection with the lenders' securitization of the 92-Pack Mortgage Loan (See Note 5 - Mortgage Notes Payable). As described in of December 31, 2019, the fair value of the derivative asset was $1.5 million which was based on observable market data which is considered level 2 input under the fair value hierarchy.
Note 1011 - Commitments and Contingencies the carrying amount of the contingent consideration related to the Barceló Portfolio acquisition was remeasured to fair value as of December 31, 2016.
Litigation
In the ordinary course of business, the Company may become subject to litigation, claims and regulatory matters. There are no material legal or regulatory proceedings pending or known to be contemplated against the Company at the date of this filing.filing, other than as set forth below.
A special litigation committee (the “SLC”) of the Company’s board of directors (the “Board”) has been empowered to investigate claims asserted in shareholder demand letters sent to the Board by counsel for two of the Company’s stockholders, Tom Milliken and Stuart Wollman, as well as the allegations contained in a complaint filed by Mr. Milliken on behalf of the Company and against the Company, as well as the Company's former external advisor, American Realty Capital Hospitality Advisors, LLC (the "Former Advisor"), and various affiliates of the Former Advisor, including the Company’s former property managers (together, the “Former Advisor Defendants”), and certain current and former directors and officers of the Company (the “Director and Officer Defendants”). The complaint was filed in the United States District Court for the Southern District of New York on February 26, 2018 and amended on May 25, 2018 (the “Milliken Court Action”). The amended complaint alleges, among other things, that the Former Advisor and the Director and Officer Defendants breached their fiduciary duties to the Company by putting their own interests above the Company’s interests, which breach was aided and abetted by certain of the Former Advisor Defendants. The amended complaint also asserts a claim for corporate waste against the Former Advisor and Director and Officer Defendants, which was aided and abetted by certain of the Former Advisor Defendants, breach of contract against the Director and Officer Defendants, and unjust enrichment against certain of the Director and Officer Defendants and Former Advisor Defendants.
In May 2018, the Company filed a motion to stay the complaint pending the outcome of the investigation, and, in August 2018, the District Court granted the Company’s motion. The SLC, which is represented by independent counsel, completed its investigation of the claims contained in the demand letters and the Milliken Court Action, and, on October 11, 2019, the SLC submitted to the District Court its report with respect to its investigation (the “Report”). In November 2019, the District Court lifted the stay.
The SLC also has been empowered to determine whether it is in the Company’s best interest for the claims against the defendants in the Milliken Court Action to proceed. The Report includes the SLC’s previously disclosed determination that some but not all of the claims should proceed. The Report also indicates that, as previously disclosed, the SLC has reached an agreement-in-principle with one of the Director and Officer Defendants, the Company’s current Chief Executive Officer, Jonathan P. Mehlman, to resolve the claims against Mr. Mehlman with prejudice whereby he will pay back to the Company a portion of certain fees and stock he received. In the Report, the SLC concluded that: (1) the claims against the Company’s current directors, Stanley Perla and Abby Wenzel, the Company’s former director, Robert Burns, and the Company’s former Chief Financial Officer, Edward Hoganson should be dismissed with prejudice, and it is not, therefore, in the best interest of the Company for any claims to proceed against them; and (2) it is in the best interest of the Company for certain claims to proceed against the remaining defendants.
On December 27, 2019, following extensive settlement discussions, the Company, the Former Advisor Defendants and the Director and Officer Defendants reached an agreement-in-principle concerning the proposed settlement of the Milliken Court Action.
The agreements-in-principle with Mr. Mehlman and the other defendants, subject to signing a definitive settlement agreement and receiving District Court approval, contemplated an aggregate cash payment to the Company of $15,181,108.47, which will primarily be paid by the Company’s director and officer insurers, and the tendering by certain defendants of an aggregate of 83,504 shares of the Company’s common stock to the Company.
If finally approved by the District Court, the settlement will fully and completely release the claims of the Company’s stockholders asserted in the stockholder derivation action, and the cash payment to the Company will be reduced by any District Court-approved attorneys’ fees and expenses to plaintiff’s counsel and contribution award to plaintiff in recognition of the substantial benefit the plaintiff conferred on the Company in achieving the settlement.
On January 29, 2020, two days before the District Court deadline for the filing of a stipulation comprising the settlement agreement among the Company and the various defendants in the Milliken Court Action reflecting the agreements-in-principle described above (the “Stipulation of Settlement”), Stuart Wollman filed a separate complaint with the District Court against the Company and all of the defendants in the Milliken Court Action except for certain of the Former Advisor Defendants and Mr. Hoganson (the “Wollman Court Action”), alleging common law fraud on behalf of himself and a putative class of the Company’s stockholders related to their purchases of Company’s common stock, and seeks rescission or compensatory damages, punitive damages, and attorneys’ fees and costs. The Wollman Court Action is based on facts that comprise part of the factual basis for and that gave rise to the Milliken Court Action, focusing in particular on disclosures related to the Company’s property management agreements with certain of the Former Advisor Defendants. The Company and the other defendants named in the Wollman Court Action intend to seek an expedited judicial determination dismissing the Wollman Court Action with prejudice and other appropriate relief. On March 18, 2020, the Company and the other defendants named in the Wollman Court Action filed motions to dismiss the litigation with prejudice.
HOSPITALITY INVESTORS TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
On February 3, 2020, the Company and the defendants in the Milliken Court Action filed the Stipulation of Settlement with the District Court. Dismissal with prejudice of the Wollman Court Action is a condition precedent to the effectiveness of the settlement of the Milliken Court Action. On February 5, 2020, the District Court issued an order preliminarily approving the proposed settlement of the Milliken Court Action contemplated by the Stipulation of Settlement. On March 25, 2020, Stuart Wollman filed a motion to intervene in the Milliken Court Action and vacate the District Court’s preliminary approval of the proposed settlement on the alleged basis that the settlement is impermissibly broad.
On June 9, 2020, the District Court will hold a settlement hearing to determine whether the proposed settlement and plaintiff’s counsel’s proposed fee application for an award of attorneys’ fees, reimbursement of expenses, and payment of a case contribution award in the aggregate of $2,250,000, which will serve to reduce the cash payments the Company would otherwise receive, are fair, reasonable and adequate, and should therefore be granted final approval. Any current stockholder of the Company may make an objection to the proposed settlement and/or proposed fee award and appear at the settlement hearing, at the stockholder’s own expense, individually or through counsel of the stockholder’s own choice. Although the Company believes that the Stipulation of Settlement represents a fair and reasonable compromise of the matters in dispute in the litigation, there can be no assurance the settlement will become effective on the proposed terms, or at all.
The claims in the Milliken Court Action do not seek recovery of losses from or damages against the Company, but instead allege that the Company has sustained damages as a result of actions by the defendants. Further, the Company believes that the claims in the Wollman Court Action fail to allege any distinct injury separate from any harm suffered by the Company and constitute an improper attempt to convert derivative claims into direct or individual claims. Therefore, the Company has determined that no accrual of any potential liability was necessary as of December 31, 2019, other than for incurred out-of-pocket legal fees and expenses.
Environmental Matters
In connection with the ownership and operation of real estate, the Company may potentially be liable for costs and damages related to environmental matters. The Company has not been notified by any governmental authority of any non-compliance, liability or other claim and is not aware of any other environmental condition that it believes will have a material adverse effect on the results of operations.
Contingent Consideration
Until the Final Closing, the Company could have become obligated pursuant to the SPA with the Brookfield Investor to issue additional Class C Units. This obligation was considered a contingent forward contract under ASC section 480 - Distinguishing Liabilities from Equity, and the Company accounted for it as parta liability. On February 27, 2019, the Company used the proceeds from the concurrent sale of Class C Units to the Brookfield Investor at the Final Closing to redeem the remaining $219.7 million in liquidation value of Grace Preferred Equity Interests, and the Brookfield Investor no longer has any obligations or rights to purchase additional Class C Units. The contingent forward liability was extinguished upon the Final Closing, and, accordingly, the Company will not have any such obligations in the future. At December 31, 2018 and 2017, the fair value of the acquisitioncontingent forward liability was zero and $1.4 million, respectively, and changes in fair value were recognized as income through current earnings.
HOSPITALITY INVESTORS TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 12 - Related Party Transactions and Arrangements
Relationships with the Barceló Portfolio is a contingent consideration payable to BCC basedBrookfield Investor and its Affiliates
As described in Note 3 - Brookfield Investment, on the operating results of the Baltimore Courtyard, Providence Courtyard and Stratford Homewood Suites. During August 2016,January 12, 2017, the Company and BCCthe OP entered into an agreement extendingthe SPA and modifying the payment termsFramework Agreement. On March 31, 2017, the Initial Closing occurred and a variety of transactions contemplated by the SPA and the Framework Agreement were consummated, including the issuance and sale of the contingent consideration. The amount payable is calculated by applying a contractual capitalization rateRedeemable Preferred Share and 9,152,542.37 Class C Units and the execution or taking of various agreements and actions required to effectuate the Company's transition to self-management. On February 27, 2018, the Second Closing occurred, pursuant to which the Company sold 1,694,915.25 additional Class C Units to the excess earnings before interest, taxes, and depreciation and amortization, earnedBrookfield Investor, for a purchase price of $14.75 per Class C Unit, or $25.0 million in the third year afteraggregate. On February 27, 2019, the acquisition over an agreed upon target, providedFinal Closing occurred, pursuant to which the contingent consideration generally will not be less than $4.1Company sold 14,898,060.78 additional Class C Units to the Brookfield Investor, for a purchase price of $14.75 per Class C Unit, or $219.7 million in the aggregate. Following the Final Closing, the Brookfield Investor no longer has any obligations or exceed $4.6 million. Duringrights to purchase additional Class C Units pursuant to the SPA or otherwise.
Holders of Class C Units are entitled to receive, with respect to each Class C Unit, fixed, quarterly cumulative cash distributions at a rate of 7.50% per annum from legally available funds. Holders of Class C Units are also entitled to receive, with respect to each Class C Unit, fixed, quarterly, cumulative PIK Distributions payable in Class C Units at a rate of 5% per annum. For the year ended December 31, 2016,2017, the Company revised its forecast resulting in an increase inpaid cash distributions of $7.9 million and PIK Distributions of 355,349.60 Class C Units to the contingent consideration payableBrookfield Investor, as the sole holder of $1.5 million. The change in the contingent consideration payable is reflected in other income (expense) in the Consolidated/Combined Statements of Operations and Comprehensive Income (Loss) forClass C Units. For the year ended December 31, 2016. The contingent consideration payable2018, the Company paid cash distributions of $12.5 million and PIK Distributions of 564,870.56 Class C Units to the Brookfield Investor, as the sole holder of the Class C Units. For the year ended December 31, 2016 is $4.6 million. The2019, the Company anticipates payingpaid cash distributions of $27.8 million and PIK Distributions of 1,255,214.93 Class C Units to the contingent consideration on July 3, 2017.
Two of the Company’s outstanding common stock. Additionally,directors, Bruce G. Wiles, who also serves as of December 31, 2016, AR Capital, the parentChairman of the Company's sponsor, owned 23,270 shares of the
| Year Ended December 31 | Payable as of | |||||||||||||||||||
| 2016 | 2015 | 2014 | December 31, 2016 | December 31, 2015 | ||||||||||||||||
| Total commissions and fees incurred from the Former Dealer Manager | $ | 71 | $ | 61,079 | $ | 24,099 | $ | — | $ | 1 | ||||||||||
| Year Ended December 31 | Payable as of | |||||||||||||||||||
| 2016 | 2015 | 2014 | December 31, 2016 | December 31, 2015 | ||||||||||||||||
Total compensation and reimbursement for services provided by the Advisor and its affiliates related to the Offering (1) | $ | — | $ | 15,007 | $ | 3,915 | $ | 447 | $ | 787 | ||||||||||
| Year Ended December 31 | Payable as of | |||||||||||||||||||
| 2016 | 2015 | 2014 | December 31, 2016 | December 31, 2015 | ||||||||||||||||
| Class B Units distribution expense | $ | 830 | $ | 419 | $ | 18 | $ | 65 | $ | 92 | ||||||||||
| Year Ended December 31 | Payable as of | |||||||||||||||||||
| 2016 | 2015 | 2014 | December 31, 2016 | December 31, 2015 | ||||||||||||||||
| Asset management fees | $ | 18,004 | $ | 4,097 | $ | — | $ | 8 | $ | 1,190 | ||||||||||
| Acquisition fees | $ | 1,624 | $ | 31,068 | $ | 1,598 | $ | — | $ | — | ||||||||||
| Acquisition cost reimbursements | $ | 108 | $ | 2,066 | $ | — | $ | — | $ | — | ||||||||||
| Financing coordination fees | $ | 206 | $ | 16,994 | $ | 815 | $ | — | $ | — | ||||||||||
| $ | 19,942 | $ | 54,225 | $ | 2,413 | $ | 8 | $ | 1,190 | |||||||||||
| Year Ended December 31 | Payable as of | |||||||||||||||||||
| 2016 | 2015 | 2014 | December 31, 2016 | December 31, 2015 | ||||||||||||||||
| Total general and administrative expense reimbursement for services provided by the Advisor | $ | 2,442 | $ | — | $ | — | $ | 522 | $ | 72 | ||||||||||
Note 1713 - Subsequent Events).
| Year Ended December 31 | Payable as of | |||||||||||||||||||
| 2016 | 2015 | 2014 | December 31, 2016 | December 31, 2015 | ||||||||||||||||
| Total management fees and reimbursable expenses incurred from Crestline | $ | 16,181 | $ | 9,898 | $ | 2,579 | $ | 1,306 | $ | 1,106 | ||||||||||
| Total management fees incurred from Property Manager | $ | 8,459 | $ | 6,816 | $ | 262 | $ | 532 | $ | 3,553 | ||||||||||
| Total | $ | 24,640 | $ | 16,714 | $ | 2,841 | $ | 1,838 | $ | 4,659 | ||||||||||
| Year Ended December 31 | Payable as of | |||||||||||||||||||
| 2016 | 2015 | 2014 | December 31, 2016 | December 31, 2015 | ||||||||||||||||
| Interest payment related to the Property improvement plan promissory note | $ | — | $ | 21 | $ | 63 | $ | — | $ | — | ||||||||||
Prior to the Initial Closing, the Company was required to pay the Advisor an annual subordinated performance fee calculateddependent on the basis of the Company’s total return to stockholders, payable monthly in arrears, such that for any year in which the Company’s total return on stockholders’ capital exceeds 6.0% per annum, the Advisor was entitled to 15.0% of the excess total return but not to exceed 10.0% of the aggregate total return for such year. This fee was payable only upon the sale of assets, other disposition or refinancing of such assets, which results in the return on stockholders’ capital exceeding 6.0% per annum. No subordinated performance fees were incurred during the years ended December 31, 2016, December 31, 2015, and December 31, 2014 respectively, and no such fee was payable in connection with the Initial Closing.
Note 1314 - Income Taxes
The Company elected and qualified to be taxed as a REIT under Sections 856 through 860 of the Code commencing with its tax year ended December 31, 2014. In order to continue to qualify as a REIT, the Company must annually distribute to its stockholders 90% of its REIT taxable income (which does not equal net income as calculated in accordance with GAAP), determined without regard to the deduction for dividends paid and excluding net capital gain, and must comply with various other organizational and operational requirements. Distributions to stockholders for the tax year ended As of December 31, 2016 were all deemed2019, the REIT has approximately $316.0 million of net operating loss ("NOL") carryforwards that may be used in the future to reduce the amount otherwise required to be returndistributed by the Company to meet REIT requirements. Certain of capital.these NOL carryforwards will begin to expire after 2034.
HOSPITALITY INVESTORS TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company's taxable REIT subsidiaries ("TRSs") had a combined loss (calculated in accordance with GAAP) in 2019. The components of income tax expense for the years ended December 31, 2016, 2019, December 31, 20152018 and December 31,
Year Ended December 31, | ||||||||||||
2019 | 2018 | 2017 | ||||||||||
Current tax (benefit) expense: | ||||||||||||
Federal | $ | 459 | $ | 288 | $ | (146 | ) | |||||
State | 507 | 331 | 217 | |||||||||
Total | $ | 966 | $ | 619 | $ | 71 | ||||||
Deferred tax (benefit) expense: | ||||||||||||
Federal | $ | (3,971 | ) | $ | (2,089 | ) | $ | (1,283 | ) | |||
State | (133 | ) | (1,136 | ) | (714 | ) | ||||||
Total | (4,104 | ) | (3,225 | ) | (1,997 | ) | ||||||
Total income tax (benefit) expense | $ | (3,138 | ) | $ | (2,606 | ) | $ | (1,926 | ) | |||
| Year Ended December 31, | |||||||||||
| 2016 | 2015 | 2014 | |||||||||
| Current: | |||||||||||
| Federal | $ | 994 | $ | 2,664 | $ | 633 | |||||
| State | 48 | 549 | 91 | ||||||||
| Total | $ | 1,042 | $ | 3,213 | $ | 724 | |||||
| Deferred: | |||||||||||
| Federal | $ | 308 | $ | (98 | ) | $ | (116 | ) | |||
| State | 21 | (9 | ) | (17 | ) | ||||||
| Total | 329 | (107 | ) | (133 | ) | ||||||
| Income tax expense | $ | 1,371 | $ | 3,106 | $ | 591 | |||||
A reconciliation of the statutory federal income tax benefit of the Company's income tax expense is presented in the following table, in thousands.
Year Ended December 31, | ||||||||||||
2019 | 2018 | 2017 | ||||||||||
Statutory federal income tax benefit | $ | (34,986 | ) | $ | (18,618 | ) | $ | (24,843 | ) | |||
Effect of non-taxable REIT loss | 31,598 | 16,280 | 22,084 | |||||||||
State income tax expense, net of federal tax benefit | 250 | (268 | ) | (110 | ) | |||||||
Re-measurement of net deferred tax assets | — | — | 943 | |||||||||
Income tax (benefit) expense | $ | (3,138 | ) | $ | (2,606 | ) | $ | (1,926 | ) | |||
| Year Ended December 31, | |||||||||||
| 2016 | 2015 | 2014 | |||||||||
| Statutory federal income tax benefit | $ | (23,991 | ) | $ | (31,121 | ) | $ | (4,845 | ) | ||
| Effect of non-taxable REIT loss | 25,266 | 33,720 | 5,361 | ||||||||
| State income tax expense, net of federal tax benefit | 96 | 507 | 73 | ||||||||
| Other | — | — | 2 | ||||||||
| Income tax expense | $ | 1,371 | $ | 3,106 | $ | 591 | |||||
The tax effect of each type of temporary difference and carryforward, that gives rise to the deferred tax assets and liabilities for the year ended December 31, 2016, 2019, and December 31, 2015 and December 31, 20142018 are presented in the following table, in thousands.
Year Ended December 31, | ||||||||
2019 | 2018 | |||||||
Deferred tax asset: | ||||||||
Goodwill | $ | 640 | $ | 1,267 | ||||
Net operating losses | 9,386 | 3,979 | ||||||
Total Deferred Tax Assets | $ | 10,026 | $ | 5,246 | ||||
| Less valuation allowance | (735 | ) | — | |||||
| Deferred tax assets, net of valuation allowance | $ | 9,291 | $ | 5,246 | ||||
Deferred tax liability: | ||||||||
Investments in unconsolidated entities | $ | (43 | ) | $ | (74 | ) | ||
Other | (10 | ) | (38 | ) | ||||
Total deferred tax liabilities | (53 | ) | (112 | ) | ||||
Net deferred tax asset | $ | 9,238 | $ | 5,134 | ||||
| Year Ended December 31, | |||||||||||
| 2016 | 2015 | 2014 | |||||||||
| Deferred tax asset: | |||||||||||
| Employee-related compensation | $ | — | $ | — | $ | — | |||||
| Other | — | 86 | 11 | ||||||||
| Net operating losses | — | 186 | — | ||||||||
| Total Deferred Tax Assets | $ | — | $ | 272 | $ | 11 | |||||
| Deferred tax liability: | |||||||||||
| Investments in unconsolidated joint ventures | $ | (59 | ) | $ | (32 | ) | $ | (30 | ) | ||
| Other | (30 | ) | — | — | |||||||
| Total deferred tax liability | (89 | ) | (32 | ) | (30 | ) | |||||
| Net deferred tax asset | $ | (89 | ) | $ | 240 | $ | (19 | ) | |||
The net deferred tax liabilityasset of $0.1 million.
The Company believes that it is more likely than not that the results of future TRS operations will generate sufficient taxable income in order to realize most of our total deferred tax assets. However, a valuation allowance in the amount of $0.7 million has been recorded as of December 31, 2019 to reflect certain state tax, net operating losses, that may not be realized.
There were no material interest or penalties recorded for the years ended December 31, 2019, 2018, and 2017.
As of December 31, 2016,2019, the tax yearsCompany's taxable REIT subsidiaries have $36.3 million of net operating loss carryforwards that remain subjectwill begin to examination by major tax jurisdictions include 2013, 2014expire after 2037.
Note 15 - Sale of Hotels and 2015.
During the quarteryear ended June 30, 2016,December 31, 2019, the Company identified an indicatorcompleted the sale of impairment at one20 hotels for a sales price of its hotels, primarily due to decreased operating performance. As required by Accounting Standards Codification section 360 (ASC 360), once an indicator$138.5 million, resulting in a net gain of impairmentapproximately $4.9 million, which is identified,included in gain (loss) on sale of assets, net on the Company is required to perform a test for recoverability. This test compares the sum of the estimated undiscounted future cash flows attributable to the hotel to its carrying amount. The Company determined that the estimated undiscounted future cash flows attributable to the hotel did not exceed its carrying amount and an impairment existed.
See Note 18 – Subsequent Events for discussion about 17 hotels that were sold between January 1, 2020 and March 15, - Sale of Hotel
During the year ended December 31, 2018, the Company completed the sale of one hotel for a sales price of $13.0$5.7 million, resulting in a net loss of approximately $0.1 million, which is reflected in gain (loss) on sale of assets, net on the Company’s Consolidated Statement of Operations and Comprehensive Loss. The Company used the proceeds from the sale of the hotel to redeem $3.8 million in Grace Preferred Equity Interests in accordance with their terms and for other general corporate purposes.
During the year ended December 31, 2017, the Company completed the sale of three hotels for a sales price of $11.7 million, resulting in a net gain of approximately $2.5$0.1 million, which is reflected in other income (expense)gain (loss) on sale of assets, net on the Company’s Consolidated/CombinedConsolidated Statement of Operations and Comprehensive Income (Loss).Loss. The Company used the proceeds from the sale of the hotels to reduce the Assumed Grace Indebtedness by $8.5 million, redeem $2.1$8.8 million in Grace Preferred Equity Interests the Company's mandatorily redeemable preferred securities,in accordance with their terms and for other general corporate purposes.
Assets Held for Sale
As part of its investment strategy to continue to pursue the sale of non-core hotels and reallocate capital into other corporate purposes, including debt reduction, the Company commenced marketing for sale a total of 45 hotels during the year ended December 31, 2019.
As of December 31, 2019, 21 hotels were subject to definitive sale agreements where the buyer has made a non-refundable deposit and have been classified as held for sale. During the year ended December 31, 2019, the Company recognized an impairment loss on 17 of these 21 hotels, and made certain adjustments to previous impairment estimates, totaling $60.9 million, which includes the estimated costs to sell those assets (See Note 16 - Impairments). The aggregate contract purchase price of these sales is $172.0 million, and the sales are expected to generate net proceeds to the Company of approximately $22.1 million, after prepayment of approximately $149.9 million of related mortgage debt obligations and estimated closing costs.
The Company expects to close on the sale of the following (in thousands):
See Note 18 – Subsequent Events for discussion about 17 hotels that were sold between January 1, 2020 and March 15, 2020.
| December 31, 2016 | |||
| Land | $ | 2,675 | |
| Buildings and improvements | 7,069 | ||
| Furniture, fixtures and equipment | 1,450 | ||
| Carrying Value | 11,194 | ||
| Less: Accumulated Depreciation | (1,023 | ) | |
| Net Carrying Value | $ | 10,171 | |
Note 16 - Impairments
Impairments of Long-Lived Assets
During the year ended December 31, 2019, the Company identified 33 hotel properties where the carrying value of the properties exceeded their fair value and management determined the excess carrying value was unrecoverable. All but two of these 33 hotel properties were either sold during 2019 or subject to definitive sale agreements as of December 31, 2019, and were identified for impairment review because of a potential sale of such properties, resulting in shorter holding periods. The Company recorded cumulative impairment losses of $114.6 million on the 33 hotels. The Company determined the fair value of the 31 sale hotels was equal to the purchase price in the applicable definitive sales agreement. The Company determined the fair value of the two other hotels using market and income based approaches. The market approach estimates value based on what other purchasers and sellers in the market have agreed to as price for comparable properties. The income approach utilizes assumptions such as discount rates, future cash flow, and capitalization rates.
During the year ended December 31, 2018, the Company identified six hotel properties where the carrying value of the properties exceeded their fair value and management determined the excess carrying value was unrecoverable. The Company recorded cumulative impairment losses of $26.4 million on the six hotels. Two of the hotels were identified during the quarter ended December 31, 2018 in connection with the Company's annual fair value assessment of its hotel properties. The other four hotels were identified for impairment review during the quarter ended June 30, 2018 because of a long-term change in market conditions and the potential sale of such properties. The Company determined the fair value of each hotel using market and income based approaches.
During the year ended December 31, 2017, the Company identified four hotel properties where the carrying value of the properties exceeded their fair value and management determined the excess carrying value was unrecoverable. The Company recorded cumulative impairment losses of $10.4 million on these four hotels. Two of the hotels were identified during the quarter ended June 30, 2017 in connection with the approval of the Company's 2017 Estimated Per-Share NAV. The other two hotels were identified during the quarter ended December 31, 2017 in connection with the Company's annual fair value assessment of its hotel properties. During the year ended December 31, 2017, the Company also recognized additional impairment losses of $5.2 million, including impairment of $3.9 million on the sale of two hotels and impairment loss of $1.3 million on one hotel classified as held for sale as of December 31, 2017, which included the costs to sell those assets.
Impairment of Goodwill
The Company recognized $31.6 million of goodwill as a result of the transactions and consideration paid in connection with its transition to self-management on March 31, 2017. The Company allocated this goodwill to each of its wholly-owned hotels based on its determination that each hotel is a reporting unit as defined in US GAAP.
For any reporting unit for which the Company has performed a recoverability test (as described above under Impairments of Long-Lived Assets), Accounting Standards Codification section 805 - Business Combinations requires that the Company also evaluate the goodwill allocated to such reporting unit for impairment. In performing this evaluation, the Company compares the fair value of the reporting unit to the carrying amount of such reporting unit including the allocation of goodwill. As required by ASC 350, as amended by ASU 2017-04, if the carrying amount of the reporting unit exceeds its fair value, the Company will apply a one-step quantitative test and record the amount of goodwill impairment as the excess of a reporting unit’s carrying amount over its fair value, not to exceed the total amount of goodwill allocated to such reporting unit.
In 2019, for the Company's hotels subject to a definitive sales agreement, fair value was equal to the purchase price in the applicable agreement. The fair value of the hotel properties not subject to a definitive sales agreement was determined using market and income based methods. For 2018 and 2017, the Company determined the fair values of each reporting unit using market and income based methods.
During the year ended December 31, 2019, the Company determined that approximately $0.9 million of goodwill allocated to five reporting units for which the fair value was less than the carrying amount was impaired. The range of goodwill impairment recorded by each reporting unit was from less than $0.1 million to $0.2 million, with an average impairment of $0.2 million. One of the five hotels was impaired when classified as "Assets held for sale."
During the year ended December 31, 2018, the Company determined that approximately $3.4 million of goodwill allocated to 16 reporting units for which the fair value was less than the carrying amount was impaired. The range of goodwill impairment recorded by each reporting unit was from less than $0.1 million to $0.6 million, with an average impairment of $0.2 million.
During the year ended December 31, 2017, the Company determined that approximately $17.1 million of goodwill allocated to 82 reporting units for which the fair value was less than the carrying amount was impaired. The range of goodwill impairment recorded by each reporting unit was from less than $0.1 million to $1.3 million, with an average impairment of $0.2 million.
The goodwill impairment is reflected in impairment of goodwill and long-lived assets on the Company's Consolidated Statement of Operations and Comprehensive Loss for the year ended December 31, 2019, December 31, 2018, and December 31, 2017, respectively.
HOSPITALITY INVESTORS TRUST, INC.
NOTES TO CONSOLIDATED/COMBINEDCONSOLIDATED FINANCIAL STATEMENTS
Note 1617 – Quarterly Results (Unaudited)
Presented below is a summary of the unaudited quarterly financial information for the years ended December 31, 20162019, December 31, 2018 and December 31, 2015:2017:
Quarters Ended | ||||||||||||||||
March 31, | June 30, | September 30, | December 31, | |||||||||||||
(In thousands, except for share amounts) | 2019 | 2019 | 2019 | 2019 | ||||||||||||
Total revenues | $ | 142,081 | $ | 165,185 | $ | 158,686 | $ | 132,704 | ||||||||
Net loss attributable to common stockholders | $ | (41,153 | ) | $ | (52,230 | ) | $ | (31,730 | ) | $ | (89,390 | ) | ||||
Basic and Diluted weighted average shares outstanding | 39,125,920 | 39,127,758 | 39,140,267 | 39,140,345 | ||||||||||||
Basic and Diluted net loss attributable to common stockholders per common share | $ | (0.95 | ) | $ | (1.33 | ) | $ | (0.81 | ) | $ | (2.28 | ) | ||||
Quarters Ended | ||||||||||||||||
March 31, | June 30, | September 30, | December 31, | |||||||||||||
(In thousands, except for share amounts) | 2018 | 2018 | 2018 | 2018 | ||||||||||||
Total revenues | $ | 139,958 | $ | 164,835 | $ | 160,325 | $ | 140,941 | ||||||||
Net loss attributable to common stockholders | $ | (23,799 | ) | $ | (29,439 | ) | $ | (16,893 | ) | $ | (39,418 | ) | ||||
Basic and Diluted weighted average shares outstanding | 39,498,253 | 39,502,003 | 39,336,099 | 39,334,125 | ||||||||||||
Basic and Diluted net loss attributable to common stockholders per common share | $ | (0.60 | ) | $ | (0.75 | ) | $ | (0.43 | ) | $ | (1.00 | ) | ||||
Quarters Ended | ||||||||||||||||
March 31, | June 30, | September 30, | December 31, | |||||||||||||
(In thousands, except for share amounts) | 2017 | 2017 | 2017 | 2017 | ||||||||||||
Total revenues | $ | 143,703 | $ | 167,012 | $ | 167,241 | $ | 143,119 | ||||||||
Net loss attributable to common stockholders | $ | (20,679 | ) | $ | (27,255 | ) | $ | (14,058 | ) | $ | (28,701 | ) | ||||
Basic and Diluted weighted average shares outstanding | 38,810,386 | 39,610,265 | 39,611,261 | 39,603,885 | ||||||||||||
Basic and Diluted net loss attributable to common stockholders per common share | $ | (0.53 | ) | $ | (0.69 | ) | $ | (0.35 | ) | $ | (0.72 | ) | ||||
| Quarters Ended | |||||||||||||||||
| (In thousands, except for share amounts) | March 31, 2016 | June 30, 2016 | September 30, 2016 | December 31, 2016 | |||||||||||||
| Total revenues | $ | 135,153 | $ | 163,230 | $ | 161,458 | $ | 139,751 | |||||||||
| Net income (loss) attributable to stockholders | $ | (43,957 | ) | $ | (7,024 | ) | $ | (6,684 | ) | $ | (14,582 | ) | |||||
| Basic and Diluted weighted average shares outstanding | 38,571,410 | 38,776,850 | 38,788,041 | 38,794,215 | |||||||||||||
| Basic and Diluted net income (loss) per share | $ | (1.14 | ) | $ | (0.18 | ) | $ | (0.17 | ) | $ | (0.38 | ) | |||||
| Quarters Ended | |||||||||||||||||
| (In thousands, except for share amounts) | March 31, 2015 | June 30, 2015 | September 30, 2015 | December 31, 2015 | |||||||||||||
| Total revenues | $ | 54,826 | $ | 133,490 | $ | 132,852 | 125,016 | ||||||||||
| Net income (loss) attributable to stockholders | $ | (39,976 | ) | $ | 438 | $ | (5,082 | ) | $ | (50,206 | ) | ||||||
| Basic weighted average shares outstanding | 15,059,550 | 19,038,201 | 27,124,227 | 32,775,258 | |||||||||||||
| Diluted weighted average shares outstanding | 15,059,550 | 19,072,777 | 27,124,227 | 32,775,258 | |||||||||||||
| Basic and Diluted net income (loss) per share | $ | (2.65 | ) | $ | 0.02 | $ | (0.18 | ) | $ | (1.53 | ) | ||||||
HOSPITALITY INVESTORS TRUST, INC.
NOTES TO CONSOLIDATED/COMBINEDCONSOLIDATED FINANCIAL STATEMENTS
Note 18 - Subsequent Events
Asset Sales
Between January 1, 2020 and March 15, 2020, the Company completed the sale of 17 hotels for a sales price of $130.0 million. The sales generated net proceeds of $19.0 million after prepayment of approximately $111.0 million of related mortgage debt obligations and closing costs. These hotels were classified as held for sale during the year ended December 31, 2019.
Coronavirus Pandemic
The recent novel coronavirus pandemic has begun to adversely impact the Company’s business. In early March 2020, the Company started to see softening of demand and revenue weakness across its portfolio triggered by direct guest cancellations at its hotels as well as cancellations of business and industry conventions and meetings in certain of its markets. These conditions have worsened over the course of the month as the level of overall business and leisure travel has declined significantly due to concerns about the coronavirus pandemic, and the Company in its capacityanticipates they will continue and likely worsen further as general partnergovernments and businesses take additional actions to respond to the risks of the OP, entered into an amendmentcoronavirus pandemic. The Company is working closely with its third party property managers to respond to these developments and restatement (the “A&R LPA”) of the OP’s existing agreement of limited partnership (the “Existing LPA”).
The Company is subject to periodic debt yield and debt service coverage tests under its indebtedness. Failure to satisfy these tests, although not an event of default under the Company’s indebtedness, could cause cash flows from the properties financed after debt service, certain property operating expenses and loan reserves to be diverted to the lender, as additional loan collateral until the tests have been satisfied or we prepay sufficient principal to satisfy the applicable test. The decline in the Company’s financial results caused by the recent coronavirus pandemic could result in its failure to satisfy the coverage tests under its indebtedness, which could have a material adverse effect on its liquidity.
The recent coronavirus pandemic has also begun to adversely impact credit and capital market conditions and as a whole, (iii)result of these developments the expansionCompany may be unable to access these markets until conditions normalize. During 2020, the Company has two debt obligations scheduled to mature: $10.5 million principal amount of mortgage debt secured by the Hilton Garden Inn Blacksburg, VA hotel (a joint venture in which the Company owns a 56.5% interest) which is scheduled to mature in June and $232.0 million principal amount of mortgage debt secured by 21 properties which is scheduled to mature in October 2020. The debt obligations scheduled to mature in 2020, like all of the Company’s board of directorsother debt obligations, are non-recourse, subject to seven members, two of whom (includingcustomary non-recourse exceptions. At this time due to the chairperson ofuncertainties with regard to the Company’s board of directors) are Redeemable Preferred Directors elected by the Brookfield Investor and two of whom are independent directors recommended and nominated by the Company’s board of directors and approved by the Brookfield Investor (such approval not to be unreasonably withheld, conditioned or delayed) (each, an “Additional Independent”) pursuantcoronavirus pandemic, including as to its rights as the holder of the Redeemable Preferred Share,duration and (iv)severity, the Company cannot predict whether it will be able to access the credit markets and the Brookfield Investor, having entered into the Ownership Limit Waiver Agreement (as defined below).
HOSPITALITY INVESTORS TRUST, INC.
Real Estate and Accumulated Depreciation
Schedule III
(as defineddollar amounts in the SPA) having occurred, and (vii) no Material Breach (as defined and more fully described in the A&R LPA, generally a breach by the Company of certain material obligations under the A&R LPA, subject to notice and cure provisions) or REIT Event (as defined and more fully described in the A&R LPA, the Company’s failure to satisfy any of the requirements for qualification and taxation as a REIT under certain circumstances, subject to notice and cure provisions) having occurred.thousands)
Initial Cost | Subsequent Costs Capitalized | Gross Amount at December 31, 2019 (1) | ||||||||||||||||||||||||||||||||||||||
Property | U.S. State or Country | Acquisition Date | Debt at December 31, 2019 | Land | Building and Improvements | Land | Building and Improvements | Land | Building and Improvements | Total | Accumulated Depreciation (2) | |||||||||||||||||||||||||||||
Courtyard Baltimore Downtown Inner Harbor | MD | 2014 | (22,553 | ) | 4,961 | 34,343 | — | — | 4,961 | 34,343 | 39,304 | (5,035 | ) | |||||||||||||||||||||||||||
Hilton Garden Inn Blacksburg | VA | 2014/2015 | (10,500 | ) | — | 14,107 | — | 1,337 | — | 15,444 | 15,444 | (1,842 | ) | |||||||||||||||||||||||||||
Georgia Tech Hotel and Conference Center | GA | 2014 | (10,007 | ) | — | 0 | — | — | — | — | — | — | ||||||||||||||||||||||||||||
Homewood Suites Stratford | CT | 2014 | (12,500 | ) | 2,377 | 13,875 | — | 1,688 | 2,377 | 15,563 | 17,940 | (2,700 | ) | |||||||||||||||||||||||||||
Courtyard Providence Downtown | RI | 2014 | (33,111 | ) | 4,724 | 29,388 | — | 1,255 | 4,724 | 30,643 | 35,367 | (4,727 | ) | |||||||||||||||||||||||||||
Westin Virginia Beach Town Center | VA | 2014 | — | — | 0 | — | — | — | — | — | — | |||||||||||||||||||||||||||||
Courtyard Louisville Downtown | KY | 2015 | (27,706 | ) | 3,727 | 33,543 | — | 3,263 | 3,727 | 36,807 | 40,534 | (4,427 | ) | |||||||||||||||||||||||||||
Embassy Suites Orlando International Drive Jamaican Court | FL | 2015 | (35,730 | ) | 2,356 | 23,646 | (4 | ) | 1,776 | 2,352 | 25,421 | 27,773 | (3,756 | ) | ||||||||||||||||||||||||||
Fairfield Inn & Suites Atlanta Vinings | GA | 2015 | (11,150 | ) | 1,394 | 8,968 | — | 2,542 | 1,395 | 11,510 | 12,905 | (1,952 | ) | |||||||||||||||||||||||||||
Homewood Suites Chicago Downtown | IL | 2015 | (46,965 | ) | 15,314 | 73,248 | 4 | 6,014 | 15,318 | 79,262 | 94,580 | (11,591 | ) | |||||||||||||||||||||||||||
Hyatt Place Albuquerque Uptown | NM | 2015 | (16,302 | ) | 987 | 16,386 | (1 | ) | 1,206 | 986 | 17,591 | 18,577 | (2,407 | ) | ||||||||||||||||||||||||||
Hyatt Place Baltimore Washington Airport | MD | 2015 | (10,052 | ) | 3,129 | 9,068 | (3,129 | ) | (9,068 | ) | — | — | — | — | ||||||||||||||||||||||||||
Hyatt Place Birmingham Hoover | AL | 2015 | (4,954 | ) | 956 | 9,689 | (956 | ) | (9,689 | ) | — | — | — | — | ||||||||||||||||||||||||||
Hyatt Place Cincinnati Blue Ash | OH | 2015 | (2,790 | ) | 652 | 7,951 | (652 | ) | (7,951 | ) | — | — | — | — | ||||||||||||||||||||||||||
Hyatt Place Columbus Worthington | OH | 2015 | (4,271 | ) | 1,063 | 11,319 | (1,063 | ) | (11,319 | ) | — | — | — | — | ||||||||||||||||||||||||||
Hyatt Place Indianapolis Keystone | IN | 2015 | (11,065 | ) | 1,918 | 13,935 | (1,918 | ) | (13,936 | ) | — | — | — | — | ||||||||||||||||||||||||||
Hyatt Place Memphis Wolfchase Galleria | TN | 2015 | (9,545 | ) | 971 | 14,505 | 2 | 1,709 | 974 | 16,215 | 17,189 | (2,073 | ) | |||||||||||||||||||||||||||
Hyatt Place Miami Airport West Doral | FL | 2015 | (15,289 | ) | 2,634 | 17,897 | 1 | 1,891 | 2,634 | 19,788 | 22,422 | (2,602 | ) | |||||||||||||||||||||||||||
Hyatt Place Nashville Franklin Cool Springs | TN | 2015 | (12,586 | ) | 2,201 | 15,003 | 1 | 1,804 | 2,202 | 16,807 | 19,009 | (2,306 | ) | |||||||||||||||||||||||||||
Hyatt Place Richmond Innsbrook | VA | 2015 | (9,798 | ) | 1,584 | 8,013 | (1,584 | ) | (8,013 | ) | — | — | — | — | ||||||||||||||||||||||||||
Hyatt Place Tampa Airport Westshore | FL | 2015 | (15,965 | ) | 3,329 | 15,710 | (5 | ) | 1,256 | 3,324 | 16,966 | 20,290 | (2,348 | ) | ||||||||||||||||||||||||||
Residence Inn Lexington South Hamburg Place | KY | 2015 | (10,305 | ) | 2,044 | 13,313 | — | 2,022 | 2,044 | 15,335 | 17,379 | (2,275 | ) | |||||||||||||||||||||||||||
SpringHill Suites Lexington Near The University Of Kentucky | KY | 2015 | (12,839 | ) | 3,321 | 13,064 | — | 2,018 | 3,321 | 15,082 | 18,403 | (1,977 | ) | |||||||||||||||||||||||||||
HOSPITALITY INVESTORS TRUST, INC.
Real Estate and Accumulated Depreciation
Schedule III
(dollar amounts in respect of breaches of representations and warranties is subject to a $6.0 million deductible and a $25,000 per claim deductible. Other than with respect to claims in respect of breaches of certain fundamental representations and certain other representations, the Company’s indemnification obligations in respect of representation and warranty breaches is capped at $60.0 million, and the Company’s overall liability cap (outside of fraud or intentional misrepresentation) is the sum of (i) the Brookfield Investor’s aggregate investment in Class C Units purchased under the SPA through such time assuming compounding at a rate of 5% per annum and (ii) the amount of accrued and unpaid cash distributions payable on Class C Units held by the Brookfield Investor at the time payment is made.thousands)
Hampton Inn Albany Wolf Road Airport | NY | 2015 | (12,248 | ) | 1,717 | 16,572 | (1,717 | ) | (16,572 | ) | — | — | — | — | ||||||||||||||||||||||||||
Hampton Inn Baltimore Glen Burnie | MD | 2015 | (2,505 | ) | — | 5,438 | — | 1,382 | — | 6,820 | 6,820 | (2,142 | ) | |||||||||||||||||||||||||||
Hampton Inn Beckley | WV | 2015 | (10,812 | ) | 857 | 13,670 | — | 1,879 | 857 | 15,549 | 16,406 | (1,923 | ) | |||||||||||||||||||||||||||
Hampton Inn Birmingham Mountain Brook | AL | 2015 | (5,182 | ) | — | 9,863 | — | 1,875 | — | 11,738 | 11,738 | (1,507 | ) | |||||||||||||||||||||||||||
Hampton Inn Boca Raton | FL | 2015 | (11,319 | ) | 2,027 | 10,420 | — | 1,916 | 2,027 | 12,336 | 14,363 | (1,727 | ) | |||||||||||||||||||||||||||
Hampton Inn Boca Raton Deerfield Beach | FL | 2015 | (9,123 | ) | 2,781 | 9,338 | — | 63 | 2,781 | 9,400 | 12,181 | (1,273 | ) | |||||||||||||||||||||||||||
Hampton Inn Columbia I 26 Airport | SC | 2015 | (4,556 | ) | 1,209 | 3,684 | (1,209 | ) | (3,684 | ) | — | — | — | — | ||||||||||||||||||||||||||
Hampton Inn Detroit Madison Heights South Troy | MI | 2015 | (9,967 | ) | 1,950 | 11,834 | — | 1,064 | 1,950 | 12,898 | 14,848 | (1,684 | ) | |||||||||||||||||||||||||||
Hampton Inn Detroit Northville | MI | 2015 | (6,093 | ) | 1,210 | 8,591 | (1,210 | ) | (8,591 | ) | — | — | — | — | ||||||||||||||||||||||||||
Hampton Inn Kansas City Overland Park | KS | 2015 | (5,406 | ) | 1,233 | 9,210 | (1,233 | ) | (9,210 | ) | — | — | — | — | ||||||||||||||||||||||||||
Hampton Inn Kansas City Airport | MO | 2015 | (7,175 | ) | 1,362 | 9,247 | (1,362 | ) | (9,247 | ) | — | — | — | — | ||||||||||||||||||||||||||
Hampton Inn Memphis Poplar | TN | 2015 | (11,234 | ) | 2,168 | 10,618 | — | 1,639 | 2,168 | 12,257 | 14,425 | (1,655 | ) | |||||||||||||||||||||||||||
Hampton Inn Norfolk Naval Base | VA | 2015 | (5,997 | ) | — | 6,873 | — | 2,011 | — | 8,884 | 8,884 | (1,921 | ) | |||||||||||||||||||||||||||
Hampton Inn Palm Beach Gardens | FL | 2015 | (19,512 | ) | 3,253 | 17,724 | — | 1,503 | 3,253 | 19,228 | 22,481 | (2,414 | ) | |||||||||||||||||||||||||||
Hampton Inn Scranton @ Montage Mountain | PA | 2015 | (7,940 | ) | 754 | 11,174 | — | 1,292 | 754 | 12,465 | 13,219 | (1,642 | ) | |||||||||||||||||||||||||||
Hampton Inn State College | PA | 2015 | (12,839 | ) | 2,509 | 9,359 | — | 2,000 | 2,509 | 11,359 | 13,868 | (1,625 | ) | |||||||||||||||||||||||||||
Hampton Inn West Palm Beach Florida Turnpike | FL | 2015 | (16,809 | ) | 2,008 | 13,636 | — | 71 | 2,008 | 13,707 | 15,715 | (1,782 | ) | |||||||||||||||||||||||||||
Homewood Suites Hartford Windsor Locks | CT | 2015 | (10,364 | ) | 3,072 | 8,996 | — | 3,713 | 3,072 | 12,709 | 15,781 | (2,292 | ) | |||||||||||||||||||||||||||
Homewood Suites Phoenix Biltmore | AZ | 2015 | (17,992 | ) | — | 23,722 | — | 2,494 | — | 26,215 | 26,215 | (3,484 | ) | |||||||||||||||||||||||||||
Hampton Inn & Suites Boynton Beach | FL | 2015 | (26,439 | ) | 1,393 | 24,759 | — | 2,190 | 1,393 | 26,949 | 28,342 | (3,363 | ) | |||||||||||||||||||||||||||
Courtyard Athens Downtown | GA | 2015 | (8,371 | ) | 3,201 | 7,305 | — | 1,963 | 3,201 | 9,268 | 12,469 | (1,225 | ) | |||||||||||||||||||||||||||
Courtyard Gainesville | FL | 2015 | (7,859 | ) | 2,904 | 8,605 | (2,904 | ) | (8,605 | ) | — | — | — | — | ||||||||||||||||||||||||||
Courtyard Knoxville Cedar Bluff | TN | 2015 | (6,036 | ) | 1,289 | 8,556 | — | 1,370 | 1,289 | 9,927 | 11,216 | (1,456 | ) | |||||||||||||||||||||||||||
Courtyard Orlando Altamonte Springs Maitland | FL | 2015 | (12,670 | ) | 1,716 | 11,463 | — | 880 | 1,716 | 12,344 | 14,060 | (1,510 | ) | |||||||||||||||||||||||||||
Courtyard Sarasota Bradenton | FL | 2015 | (9,123 | ) | 1,928 | 8,334 | — | 1,864 | 1,928 | 10,198 | 12,126 | (1,368 | ) |
HOSPITALITY INVESTORS TRUST, INC.
Real Estate and financing coordination fees. On and after the effective date of the Advisory Amendment, only asset management fees and expense reimbursements would have been payable to the Advisor by the Company and its subsidiaries, net of employee costs directly paid by the Company and its subsidiaries.
Schedule III
(dollar amounts in full.thousands)
Courtyard Tallahassee North I 10 Capital Circle | FL | 2015 | (9,883 | ) | 2,767 | 9,254 | — | 919 | 2,767 | 10,173 | 12,940 | (1,371 | ) | |||||||||||||||||||||||||||
Residence Inn Chattanooga Downtown | TN | 2015 | (13,600 | ) | 1,142 | 10,112 | — | 1,415 | 1,142 | 11,527 | 12,669 | (1,615 | ) | |||||||||||||||||||||||||||
Residence Inn Fort Myers | FL | 2015 | (10,643 | ) | 1,372 | 8,765 | — | 1,919 | 1,372 | 10,684 | 12,056 | (1,441 | ) | |||||||||||||||||||||||||||
Residence Inn Knoxville Cedar Bluff | TN | 2015 | (8,954 | ) | 1,474 | 9,580 | — | 2,050 | 1,474 | 11,630 | 13,104 | (1,606 | ) | |||||||||||||||||||||||||||
Residence Inn Macon | GA | 2015 | (4,484 | ) | 1,046 | 5,381 | — | 1,625 | 1,046 | 7,006 | 8,052 | (1,377 | ) | |||||||||||||||||||||||||||
Residence Inn Mobile | AL | 2015 | (3,337 | ) | — | 6,714 | — | (6,714 | ) | — | — | — | — | |||||||||||||||||||||||||||
Residence Inn Sarasota Bradenton | FL | 2015 | (9,545 | ) | 2,138 | 9,118 | — | 2,228 | 2,138 | 11,346 | 13,484 | (1,461 | ) | |||||||||||||||||||||||||||
Residence Inn Savannah Midtown | GA | 2015 | (8,531 | ) | 1,106 | 9,349 | — | 1,775 | 1,106 | 11,123 | 12,229 | (1,556 | ) | |||||||||||||||||||||||||||
Residence Inn Tallahassee North I 10 Capital Circle | FL | 2015 | (9,883 | ) | 1,349 | 9,983 | — | 1,821 | 1,349 | 11,804 | 13,153 | (1,714 | ) | |||||||||||||||||||||||||||
Residence Inn Tampa North I 75 Fletcher | FL | 2015 | (11,234 | ) | 1,251 | 8,174 | — | 2,230 | 1,251 | 10,404 | 11,655 | (1,413 | ) | |||||||||||||||||||||||||||
Residence Inn Tampa Sabal Park Brandon | FL | 2015 | (15,880 | ) | 1,773 | 10,830 | — | 2,810 | 1,773 | 13,640 | 15,413 | (1,790 | ) | |||||||||||||||||||||||||||
Courtyard Jacksonville Airport Northeast | FL | 2015 | (7,433 | ) | 1,783 | 5,459 | — | 1,461 | 1,783 | 6,920 | 8,703 | (1,471 | ) | |||||||||||||||||||||||||||
Hampton Inn & Suites Nashville Franklin Cool Springs | TN | 2015 | (14,951 | ) | 2,526 | 16,985 | — | 1,843 | 2,526 | 18,828 | 21,354 | (2,425 | ) | |||||||||||||||||||||||||||
Hampton Inn Boston Peabody | MA | 2015 | (14,106 | ) | 3,008 | 11,846 | — | 1,402 | 3,008 | 13,248 | 16,256 | (1,850 | ) | |||||||||||||||||||||||||||
Hampton Inn Grand Rapids North | MI | 2015 | (10,052 | ) | 2,191 | 11,502 | — | 1,454 | 2,191 | 12,956 | 15,147 | (1,810 | ) | |||||||||||||||||||||||||||
Homewood Suites Boston Peabody | MA | 2015 | (9,629 | ) | 2,508 | 8,654 | — | 2,908 | 2,508 | 11,562 | 14,070 | (2,327 | ) | |||||||||||||||||||||||||||
Hyatt Place Las Vegas | NV | 2015 | (19,428 | ) | 2,902 | 17,419 | — | 1,733 | 2,902 | 19,153 | 22,055 | (2,856 | ) | |||||||||||||||||||||||||||
Hyatt Place Minneapolis Airport South | MN | 2015 | (11,403 | ) | 2,519 | 11,810 | — | 1,259 | 2,519 | 13,068 | 15,587 | (1,848 | ) | |||||||||||||||||||||||||||
Residence Inn Boise Downtown | ID | 2015 | (12,670 | ) | 1,776 | 10,203 | — | 4,791 | 1,776 | 14,993 | 16,769 | (2,456 | ) | |||||||||||||||||||||||||||
Residence Inn Portland Downtown Lloyd Center | OR | 2015 | (19,861 | ) | 25,213 | 23,231 | — | 551 | 25,213 | 23,781 | 48,994 | (3,533 | ) | |||||||||||||||||||||||||||
SpringHill Suites Grand Rapids North | MI | 2015 | (9,123 | ) | 1,063 | 9,312 | — | 1,895 | 1,063 | 11,208 | 12,271 | (1,461 | ) | |||||||||||||||||||||||||||
Hyatt Place Kansas City Overland Park Metcalf | KS | 2015 | (4,469 | ) | 1,038 | 7,792 | (1,038 | ) | (7,792 | ) | — | — | — | — | ||||||||||||||||||||||||||
Courtyard Asheville | NC | 2015 | (12,332 | ) | 2,236 | 10,290 | — | 1,396 | 2,236 | 11,687 | 13,923 | (1,510 | ) | |||||||||||||||||||||||||||
Courtyard Dallas Market Center | TX | 2015 | (14,698 | ) | — | 19,768 | ��� | 2,548 | — | 22,316 | 22,316 | (3,154 | ) | |||||||||||||||||||||||||||
Fairfield Inn & Suites Dallas Market Center | TX | 2015 | (7,118 | ) | 1,550 | 7,236 | 1 | 251 | 1,552 | 7,488 | 9,040 | (957 | ) |
HOSPITALITY INVESTORS TRUST, INC.
Real Estate and the interest accrued thereon shall become immediately due and payable. The Additional Loan initially bears interest at a rate of 13.0% per annum, of which 9.0% is paid in cash monthly and an additional 4% (the “Additional Loan Added Rate”) will accrue and be compounded monthly and added to the outstanding principal balance at maturity unless otherwise paid in cash by the Company. On February 11, 2017, the Additional Loan Added Rate will be increased by 1%. The Company must make amortization payments in the amount of $1.0 million on the last day of May, June and July 2017. The Additional Loan may be prepaid in whole or in part at any time, without payment of any penalty or premium.
Schedule III
(dollar amounts in thousands)
Hilton Garden Inn Austin Round Rock | TX | 2015 | (9,376 | ) | 2,797 | 10,920 | 2 | 2,477 | 2,799 | 13,397 | 16,196 | (1,992 | ) | |||||||||||||||||||||||||||
Residence Inn Los Angeles Airport El Segundo | CA | 2015 | (41,560 | ) | 16,416 | 21,618 | 13 | 1,902 | 16,429 | 23,521 | 39,950 | (3,242 | ) | |||||||||||||||||||||||||||
Residence Inn San Diego Rancho Bernardo Scripps Poway | CA | 2015 | (20,188 | ) | 5,261 | 18,677 | — | 3,146 | 5,261 | 21,823 | 27,084 | (2,605 | ) | |||||||||||||||||||||||||||
SpringHill Suites Austin Round Rock | TX | 2015 | (5,068 | ) | 2,196 | 8,305 | (1 | ) | 2,659 | 2,196 | 10,964 | 13,160 | (1,476 | ) | ||||||||||||||||||||||||||
SpringHill Suites San Antonio Medical Center Northwest | TX | 2015 | (4,413 | ) | — | 7,161 | — | (7,161 | ) | — | — | — | — | |||||||||||||||||||||||||||
SpringHill Suites San Diego Rancho Bernardo Scripps Poway | CA | 2015 | (21,708 | ) | 3,905 | 16,999 | (3 | ) | 3,363 | 3,902 | 20,362 | 24,264 | (2,551 | ) | ||||||||||||||||||||||||||
Hampton Inn Charlotte Gastonia | NC | 2015 | (9,207 | ) | 1,357 | 10,073 | — | 1,968 | 1,357 | 12,042 | 13,399 | (1,561 | ) | |||||||||||||||||||||||||||
Hampton Inn Dallas Addison | TX | 2015 | (5,043 | ) | 1,538 | 7,475 | (1,538 | ) | (7,475 | ) | — | — | — | 0 | ||||||||||||||||||||||||||
Homewood Suites San Antonio Northwest | TX | 2015 | (8,362 | ) | 1,998 | 13,060 | — | 4,062 | 1,998 | 17,123 | 19,121 | (2,842 | ) | |||||||||||||||||||||||||||
Courtyard Dalton | GA | 2015 | (5,900 | ) | 676 | 8,241 | 1 | 2,205 | 677 | 10,446 | 11,123 | (1,506 | ) | |||||||||||||||||||||||||||
Hampton Inn Orlando International Drive Convention Center | FL | 2015 | (11,150 | ) | 1,183 | 14,899 | — | 4,432 | 1,183 | 19,331 | 20,514 | (2,270 | ) | |||||||||||||||||||||||||||
Hilton Garden Inn Albuquerque North Rio Rancho | NM | 2015 | (7,200 | ) | 1,141 | 9,818 | 1 | 3,049 | 1,142 | 12,867 | 14,009 | (1,517 | ) | |||||||||||||||||||||||||||
Homewood Suites Orlando International Drive Convention Center | FL | 2015 | (18,350 | ) | 2,182 | 26,507 | 5 | 1,086 | 2,187 | 27,593 | 29,780 | (3,518 | ) | |||||||||||||||||||||||||||
Hampton Inn Chicago Naperville | IL | 2015 | (7,300 | ) | 1,363 | 9,460 | — | 1,197 | 1,363 | 10,656 | 12,019 | (1,616 | ) | |||||||||||||||||||||||||||
Hampton Inn Indianapolis Northeast Castleton | IN | 2015 | (9,050 | ) | 1,587 | 8,144 | — | 55 | 1,587 | 8,199 | 9,786 | (1,600 | ) | |||||||||||||||||||||||||||
Hampton Inn Knoxville Airport | TN | 2015 | (4,950 | ) | 1,033 | 5,898 | — | — | 1,033 | 5,898 | 6,931 | (1,088 | ) | |||||||||||||||||||||||||||
Hampton Inn Milford | CT | 2015 | (2,700 | ) | 1,652 | 5,060 | — | 2,675 | 1,652 | 7,734 | 9,386 | (1,486 | ) | |||||||||||||||||||||||||||
Homewood Suites Augusta | GA | 2015 | (4,850 | ) | 874 | 8,225 | — | 1,752 | 874 | 9,977 | 10,851 | (1,580 | ) | |||||||||||||||||||||||||||
Homewood Suites Seattle Downtown | WA | 2015 | (42,100 | ) | 12,580 | 41,011 | — | 4,698 | 12,579 | 45,709 | 58,288 | (5,847 | ) | |||||||||||||||||||||||||||
Hampton Inn Champaign Urbana | IL | 2015 | (12,400 | ) | 2,206 | 17,451 | (21 | ) | 3 | 2,185 | 17,454 | 19,639 | (2,226 | ) | ||||||||||||||||||||||||||
Hampton Inn East Lansing | MI | 2015 | (8,000 | ) | 3,219 | 10,101 | — | 936 | 3,219 | 11,037 | 14,256 | (1,480 | ) | |||||||||||||||||||||||||||
Hilton Garden Inn Louisville East | KY | 2015 | (11,450 | ) | 1,022 | 16,350 | 1 | 2,541 | 1,023 | 18,891 | 19,914 | (2,235 | ) | |||||||||||||||||||||||||||
Residence Inn Jacksonville Airport | FL | 2015 | (4,500 | ) | 1,451 | 6,423 | — | 2,289 | 1,451 | 8,712 | 10,163 | (1,649 | ) | |||||||||||||||||||||||||||
TownePlace Suites Savannah Midtown | GA | 2015 | (8,500 | ) | 1,502 | 7,827 | — | 1,893 | 1,502 | 9,720 | 11,222 | (1,270 | ) |
HOSPITALITY INVESTORS TRUST, INC.
Real Estate and other rights, voting powers, restrictions, limitations as to dividends and other distributions, qualifications, terms and conditions of redemption and other terms and conditions as the Company’s common stock, except as provided therein.
Schedule III
(dollar amounts in the Company’s definitive proxy statement), as well as to approve (such approval not to be unreasonably withheld, conditioned or delayed) two Additional Independents to be recommended and nominated by the Company’s board of directors for election by the Company’s stockholders at each annual meeting, (ii) each committee of the Company’s board of directors, except any committee formed with authority and jurisdiction over the review and approval of conflicts of interest involving the Brookfield Investor and its affiliates, on the one hand, and the Company, on the other hand (a “Conflicts Committee”), is required to include at least one of the Redeemable Preferred Directors as selected by the holder of the Redeemable Preferred Share (or, if neither the Redeemable Preferred Directors satisfies all requirements applicable to such committee, with respect to independence and otherwise, of the Company’s charter, the SEC and any national securities exchange on which any shares of the Company’s stock are then listed, at least one of the Additional Independents as selected by the Company’s board of directors), and (iii) the Company will not make a general delegation of the powers of the Company’s board of directors to any committee thereof which does not include as a member a Redeemable Preferred Director, other than to a Conflicts Committee.thousands)
Courtyard Houston I 10 West Energy Corridor | TX | 2015 | (13,500 | ) | 10,444 | 20,710 | 6 | 2,823 | 10,449 | 23,533 | 33,982 | (3,414 | ) | |||||||||||||||||||||||||||
Courtyard San Diego Carlsbad | CA | 2015 | (14,600 | ) | 5,080 | 14,007 | 9 | 162 | 5,090 | 14,170 | 19,260 | (1,912 | ) | |||||||||||||||||||||||||||
Hampton Inn Austin North @ IH 35 & Highway 183 | TX | 2015 | (11,000 | ) | 1,774 | 9,798 | (8 | ) | 1,640 | 1,766 | 11,438 | 13,204 | (1,434 | ) | ||||||||||||||||||||||||||
SpringHill Suites Asheville | NC | 2015 | (11,500 | ) | 2,149 | 9,930 | — | 1,505 | 2,149 | 11,436 | 13,585 | (1,471 | ) | |||||||||||||||||||||||||||
Hampton Inn College Station | TX | 2015 | (10,500 | ) | 3,305 | 10,523 | (2,839 | ) | (8,811 | ) | 466 | 1,712 | 2,178 | 0 | ||||||||||||||||||||||||||
Courtyard Flagstaff | AZ | 2015 | (24,521 | ) | 5,258 | 24,313 | — | 2,061 | 5,258 | 26,372 | 31,630 | (3,127 | ) | |||||||||||||||||||||||||||
DoubleTree Baton Rouge | LA | 2015 | (13,839 | ) | 1,497 | 14,777 | — | 1,218 | 1,497 | 15,995 | 17,492 | (2,410 | ) | |||||||||||||||||||||||||||
Hampton Inn Medford | OR | 2015 | (9,069 | ) | 1,245 | 10,353 | — | 107 | 1,245 | 10,459 | 11,704 | (1,255 | ) | |||||||||||||||||||||||||||
Hampton Inn Fort Wayne Southwest | IN | 2015 | (10,346 | ) | 1,242 | 10,511 | — | 373 | 1,242 | 10,885 | 12,127 | (1,497 | ) | |||||||||||||||||||||||||||
Hampton Inn & Suites El Paso Airport | TX | 2015 | (12,899 | ) | 1,641 | 18,733 | — | 31 | 1,641 | 18,764 | 20,405 | (2,428 | ) | |||||||||||||||||||||||||||
Residence Inn Fort Wayne Southwest | IN | 2015 | (10,480 | ) | 1,267 | 12,136 | — | 191 | 1,267 | 12,327 | 13,594 | (1,475 | ) | |||||||||||||||||||||||||||
SpringHill Suites Flagstaff | AZ | 2015 | (14,756 | ) | 1,641 | 14,283 | — | 1,183 | 1,641 | 15,466 | 17,107 | (2,054 | ) | |||||||||||||||||||||||||||
Courtyard Columbus Downtown | OH | 2015 | (18,072 | ) | 2,367 | 25,191 | — | 380 | 2,367 | 25,571 | 27,938 | (2,754 | ) | |||||||||||||||||||||||||||
Hilton Garden Inn Monterey | CA | 2015 | (29,368 | ) | 6,110 | 27,713 | — | — | 6,110 | 27,713 | 33,823 | (4,041 | ) | |||||||||||||||||||||||||||
Hyatt House Atlanta Cobb Galleria | GA | 2015 | (15,855 | ) | 4,386 | 22,777 | — | 11 | 4,386 | 22,788 | 27,174 | (2,539 | ) | |||||||||||||||||||||||||||
Hyatt Place Chicago Schaumburg | IL | 2015 | (4,328 | ) | 1,519 | 9,582 | (1,519 | ) | (9,583 | ) | — | — | — | — | ||||||||||||||||||||||||||
Fairfield Inn & Suites Denver Airport | CO | 2016 | (14,645 | ) | 1,429 | 15,675 | — | 2,331 | 1,430 | 18,006 | 19,436 | (1,887 | ) | |||||||||||||||||||||||||||
SpringHill Suites Denver Airport | CO | 2016 | (11,589 | ) | 941 | 10,870 | — | 1,450 | 941 | 12,319 | 13,260 | (1,510 | ) | |||||||||||||||||||||||||||
Hampton Inn Fort Collins | CO | 2016 | (5,374 | ) | 641 | 5,578 | (641 | ) | (5,577 | ) | — | — | — | — | ||||||||||||||||||||||||||
Fairfield Inn & Suites Seattle Bellevue | WA | 2016 | (19,960 | ) | 18,769 | 14,182 | — | 1,815 | 18,768 | 15,997 | 34,765 | (1,962 | ) | |||||||||||||||||||||||||||
Hilton Garden Inn Fort Collins | MS | 2016 | (12,563 | ) | 1,331 | 17,606 | — | 206 | 1,331 | 17,812 | 19,143 | (2,080 | ) | |||||||||||||||||||||||||||
Courtyard Jackson Ridgeland | MS | 2017 | (2,094 | ) | 1,994 | 6,603 | (967 | ) | (3,372 | ) | 1,027 | 3,231 | 4,258 | (226 | ) | |||||||||||||||||||||||||
Residence Inn Jackson Ridgeland | MS | 2017 | (3,787 | ) | 949 | 11,764 | (949 | ) | (11,765 | ) | — | — | — | — | ||||||||||||||||||||||||||
Homewood Suites Jackson Ridgeland | MS | 2017 | (2,820 | ) | 1,571 | 7,181 | (1,571 | ) | (7,181 | ) | — | — | — | — |
HOSPITALITY INVESTORS TRUST, INC.
Real Estate and Accumulated Depreciation
Schedule III
(dollar amounts in thousands)
| Initial Cost | Subsequent Costs Capitalized | Gross Amount at December 31, 2016 (1) | |||||||||||||||||||||
| Property | U.S. State or Country | Acquisition Date | Debt at December 31, 2016 | Land | Building and Improvements | Land | Building and Improvements | Land | Building and Improvements | Total | Accumulated Depreciation (2) | ||||||||||||
| Courtyard Baltimore Downtown Inner Harbor | MD | 2014 | (24,980 | ) | 4,961 | 34,343 | — | — | 4,961 | 34,343 | 39,304 | (2,421 | ) | ||||||||||
| Courtyard Providence Downtown | RI | 2014 | (20,520 | ) | 4,724 | 29,388 | — | 1,247 | 4,724 | 30,635 | 35,359 | (2,221 | ) | ||||||||||
| Georgia Tech Hotel and Conference Center | GA | 2014 | — | — | — | — | — | — | — | — | — | ||||||||||||
| Homewood Suites Stratford | CT | 2014 | (12,500 | ) | 2,377 | 13,875 | — | 1,402 | 2,377 | 15,277 | 17,654 | (1,238 | ) | ||||||||||
| Westin Virginia Beach Town Center | VA | 2014 | — | — | — | — | — | — | — | — | — | ||||||||||||
| Hilton Garden Inn Blacksburg | VA | 2014/2015 | (10,500 | ) | — | 14,107 | — | — | — | 14,107 | 14,107 | (613 | ) | ||||||||||
| Courtyard Lexington South Hamburg Place | KY | 2015 | (13,474 | ) | 2,766 | 10,242 | — | 38 | 2,766 | 10,280 | 13,046 | (513 | ) | ||||||||||
| Courtyard Louisville Downtown | KY | 2015 | (26,501 | ) | 3,727 | 33,543 | — | 9 | 3,727 | 33,552 | 37,279 | (1,545 | ) | ||||||||||
| Embassy Suites Orlando International Drive Jamaican Court | FL | 2015 | (19,449 | ) | 2,356 | 23,646 | (4 | ) | 1,742 | 2,352 | 25,387 | 27,739 | (1,338 | ) | |||||||||
| Fairfield Inn & Suites Atlanta Vinings | GA | 2015 | (8,305 | ) | 1,394 | 8,968 | — | 1,896 | 1,395 | 10,864 | 12,259 | (647 | ) | ||||||||||
| Homewood Suites Chicago Downtown | IL | 2015 | (61,659 | ) | 15,314 | 73,248 | 4 | 5,574 | 15,318 | 78,822 | 94,140 | (4,119 | ) | ||||||||||
| Hyatt Place Albuquerque Uptown | NM | 2015 | (14,773 | ) | 987 | 16,386 | (1 | ) | 1,204 | 986 | 17,589 | 18,575 | (862 | ) | |||||||||
| Hyatt Place Baltimore Washington Airport | MD | 2015 | (9,510 | ) | 3,129 | 9,068 | 2 | 1,297 | 3,131 | 10,365 | 13,496 | (613 | ) | ||||||||||
| Hyatt Place Baton Rouge I 10 | LA | 2015 | (10,664 | ) | 1,888 | 8,897 | (1 | ) | 1,261 | 1,887 | 10,158 | 12,045 | (472 | ) | |||||||||
| Hyatt Place Birmingham Hoover | AL | 2015 | (8,935 | ) | 956 | 9,689 | 1 | 133 | 957 | 9,822 | 10,779 | (519 | ) | ||||||||||
| Hyatt Place Cincinnati Blue Ash | OH | 2015 | (6,754 | ) | 652 | 7,951 | (1 | ) | 1,520 | 651 | 9,471 | 10,122 | (527 | ) | |||||||||
| Hyatt Place Columbus Worthington | OH | 2015 | (8,585 | ) | 1,063 | 11,319 | (1 | ) | 201 | 1,063 | 11,520 | 12,583 | (573 | ) | |||||||||
| Hyatt Place Indianapolis Keystone | IN | 2015 | (11,233 | ) | 1,918 | 13,935 | (1 | ) | 1,310 | 1,917 | 15,245 | 17,162 | (760 | ) | |||||||||
| Hyatt Place Memphis Wolfchase Galleria | TN | 2015 | (10,247 | ) | 971 | 14,505 | 2 | 105 | 974 | 14,611 | 15,584 | (709 | ) | ||||||||||
| Hyatt Place Miami Airport West Doral | FL | 2015 | (17,327 | ) | 2,634 | 17,897 | 1 | 468 | 2,634 | 18,365 | 20,999 | (875 | ) | ||||||||||
| Hyatt Place Nashville Franklin Cool Springs | TN | 2015 | (14,446 | ) | 2,201 | 15,003 | 2 | 2,150 | 2,202 | 17,154 | 19,356 | (754 | ) | ||||||||||
| Hyatt Place Richmond Innsbrook | VA | 2015 | (7,401 | ) | 1,584 | 8,013 | (5 | ) | 1,483 | 1,578 | 9,497 | 11,075 | (595 | ) | |||||||||
| Hyatt Place Tampa Airport Westshore | FL | 2015 | (16,425 | ) | 3,329 | 15,710 | (5 | ) | 1,255 | 3,324 | 16,966 | 20,290 | (835 | ) | |||||||||
| Residence Inn Lexington South Hamburg Place | KY | 2015 | (11,970 | ) | 2,044 | 13,313 | — | 1,990 | 2,044 | 15,303 | 17,347 | (771 | ) | ||||||||||
| SpringHill Suites Lexington Near The University Of Kentucky | KY | 2015 | (13,662 | ) | 3,321 | 13,064 | — | 7 | 3,321 | 13,071 | 16,392 | (660 | ) | ||||||||||
| Hampton Inn Albany Wolf Road Airport | NY | 2015 | (16,123 | ) | 1,717 | 16,572 | — | 80 | 1,717 | 16,652 | 18,369 | (855 | ) | ||||||||||
| Hampton Inn Colorado Springs Central Airforce Academy | CO | 2015 | (3,455 | ) | 449 | 6,322 | — | 14 | 449 | 6,335 | 6,784 | (374 | ) | ||||||||||
| Hampton Inn Baltimore Glen Burnie | MD | 2015 | (3,376 | ) | — | 5,438 | — | 1,248 | — | 6,686 | 6,686 | (748 | ) | ||||||||||
| Hampton Inn Beckley | WV | 2015 | (15,440 | ) | 857 | 13,670 | — | 54 | 857 | 13,724 | 14,581 | (697 | ) | ||||||||||
| Hampton Inn Birmingham Mountain Brook | AL | 2015 | (8,031 | ) | — | 9,863 | — | 10 | — | 9,873 | 9,873 | (495 | ) | ||||||||||
| Hampton Inn Boca Raton | FL | 2015 | (13,080 | ) | 2,027 | 10,420 | — | 2,371 | 2,027 | 12,792 | 14,819 | (514 | ) | ||||||||||
| Hampton Inn Boca Raton Deerfield Beach | FL | 2015 | (12,215 | ) | 2,781 | 9,338 | — | 28 | 2,781 | 9,366 | 12,147 | (480 | ) | ||||||||||
| Hampton Inn Charleston Airport Coliseum | SC | 2015 | (4,072 | ) | 1,768 | 6,586 | — | — | 1,768 | 6,586 | 8,354 | (392 | ) | ||||||||||
| Hampton Inn Chattanooga Airport I 75 | TN | 2015 | (4,647 | ) | 1,827 | 5,268 | — | — | 1,827 | 5,268 | 7,095 | (390 | ) | ||||||||||
| Hampton Inn Chicago Gurnee | IL | 2015 | (10,717 | ) | 757 | 12,189 | — | 92 | 757 | 12,281 | 13,038 | (634 | ) | ||||||||||
| Hampton Inn Columbia I 26 Airport | SC | 2015 | (5,022 | ) | 1,209 | 3,684 | — | 11 | 1,209 | 3,695 | 4,904 | (278 | ) | ||||||||||
| Hampton Inn Columbus Dublin | OH | 2015 | (10,518 | ) | 1,140 | 10,856 | — | 9 | 1,140 | 10,865 | 12,005 | (552 | ) | ||||||||||
| Hampton Inn Columbus Airport | GA | 2015 | (2,827 | ) | 941 | 1,251 | — | — | 941 | 1,251 | 2,192 | (204 | ) | ||||||||||
| Hampton Inn Detroit Madison Heights South Troy | MI | 2015 | (11,679 | ) | 1,950 | 11,834 | — | 32 | 1,950 | 11,865 | 13,815 | (617 | ) | ||||||||||
| Hampton Inn Detroit Northville | MI | 2015 | (8,335 | ) | 1,210 | 8,591 | — | 205 | 1,210 | 8,795 | 10,005 | (527 | ) | ||||||||||
| Hampton Inn Kansas City Overland Park | KS | 2015 | (4,480 | ) | 1,233 | 9,210 | — | 129 | 1,233 | 9,339 | 10,572 | (624 | ) | ||||||||||
| Hampton Inn Kansas City Airport | MO | 2015 | (8,560 | ) | 1,362 | 9,247 | — | 164 | 1,362 | 9,411 | 10,773 | (485 | ) | ||||||||||
| Hampton Inn Memphis Poplar | TN | 2015 | (12,077 | ) | 2,168 | 10,618 | — | 66 | 2,168 | 10,684 | 12,852 | (548 | ) | ||||||||||
| Hampton Inn Morgantown | WV | 2015 | (12,893 | ) | 3,062 | 12,810 | — | 76 | 3,062 | 12,886 | 15,948 | (641 | ) | ||||||||||
| Hampton Inn Norfolk Naval Base | VA | 2015 | (3,786 | ) | — | 6,873 | — | 2,004 | — | 8,876 | 8,876 | (641 | ) | ||||||||||
| Hampton Inn Palm Beach Gardens | FL | 2015 | (19,160 | ) | 3,253 | 17,724 | — | 2 | 3,253 | 17,726 | 20,979 | (872 | ) | ||||||||||
| Hampton Inn Pickwick Dam @ Shiloh Falls | TN | 2015 | (1,979 | ) | 148 | 2,089 | — | 26 | 148 | 2,115 | 2,263 | (158 | ) | ||||||||||
| Hampton Inn Scranton @ Montage Mountain | PA | 2015 | (10,787 | ) | 754 | 11,174 | — | 28 | 753 | 11,201 | 11,954 | (596 | ) | ||||||||||
| Hampton Inn St Louis Westport | MO | 2015 | (7,369 | ) | 1,359 | 8,486 | — | 29 | 1,359 | 8,515 | 9,874 | (430 | ) | ||||||||||
| Hampton Inn State College | PA | 2015 | (10,936 | ) | 2,509 | 9,359 | — | 68 | 2,509 | 9,427 | 11,936 | (524 | ) | ||||||||||
| Hampton Inn West Palm Beach Florida Turnpike | FL | 2015 | (16,218 | ) | 2,008 | 13,636 | — | 31 | 2,008 | 13,667 | 15,675 | (674 | ) | ||||||||||
| Homewood Suites Hartford Windsor Locks | CT | 2015 | (10,624 | ) | 3,072 | 8,996 | — | 182 | 3,072 | 9,178 | 12,251 | (697 | ) | ||||||||||
| Homewood Suites Memphis Germantown | TN | 2015 | (7,423 | ) | 1,024 | 8,871 | — | 2,276 | 1,024 | 11,147 | 12,171 | (663 | ) | ||||||||||
| Homewood Suites Phoenix Biltmore | AZ | 2015 | (16,877 | ) | — | 23,722 | — | 2,154 | — | 25,875 | 25,875 | (1,151 | ) | ||||||||||
| Hampton Inn & Suites Boynton Beach | FL | 2015 | (26,922 | ) | 1,393 | 24,759 | — | 42 | 1,393 | 24,801 | 26,194 | (1,213 | ) | ||||||||||
| Hampton Inn Cleveland Westlake | OH | 2015 | (11,738 | ) | 4,177 | 10,002 | — | 9 | 4,176 | 10,011 | 14,187 | (588 | ) | ||||||||||
| Courtyard Athens Downtown | GA | 2015 | (8,683 | ) | 3,201 | 7,305 | — | 8 | 3,201 | 7,312 | 10,513 | (382 | ) | ||||||||||
| Courtyard Gainesville | FL | 2015 | (12,031 | ) | 2,904 | 8,605 | — | 137 | 2,904 | 8,742 | 11,646 | (450 | ) | ||||||||||
| Courtyard Knoxville Cedar Bluff | TN | 2015 | (10,436 | ) | 1,289 | 8,556 | — | 1,049 | 1,289 | 9,606 | 10,895 | (478 | ) | ||||||||||
| Courtyard Mobile | AL | 2015 | (4,899 | ) | — | 3,657 | — | 1,369 | — | 5,027 | 5,027 | (326 | ) | ||||||||||
| Courtyard Orlando Altamonte Springs Maitland | FL | 2015 | (12,513 | ) | 1,716 | 11,463 | — | 24 | 1,716 | 11,488 | 13,204 | (571 | ) | ||||||||||
| Courtyard Sarasota Bradenton | FL | 2015 | (8,456 | ) | 1,928 | 8,334 | — | 165 | 1,928 | 8,498 | 10,426 | (413 | ) | ||||||||||
| Courtyard Tallahassee North I 10 Capital Circle | FL | 2015 | (10,230 | ) | 2,767 | 9,254 | — | 144 | 2,767 | 9,397 | 12,164 | (515 | ) | ||||||||||
| Holiday Inn Express & Suites Kendall East Miami | FL | 2015 | (8,745 | ) | 1,248 | 7,525 | — | 316 | 1,248 | 7,842 | 9,090 | (377 | ) | ||||||||||
| Residence Inn Chattanooga Downtown | TN | 2015 | (10,427 | ) | 1,142 | 10,112 | — | 1,405 | 1,142 | 11,517 | 12,659 | (549 | ) | ||||||||||
| Residence Inn Fort Myers | FL | 2015 | (8,365 | ) | 1,372 | 8,765 | — | 57 | 1,372 | 8,822 | 10,194 | (437 | ) | ||||||||||
| Residence Inn Knoxville Cedar Bluff | TN | 2015 | (10,014 | ) | 1,474 | 9,580 | — | 38 | 1,474 | 9,617 | 11,091 | (518 | ) | ||||||||||
| Residence Inn Macon | GA | 2015 | (4,928 | ) | 1,046 | 5,381 | — | 1,626 | 1,046 | 7,007 | 8,053 | (449 | ) | ||||||||||
| Residence Inn Mobile | AL | 2015 | (6,537 | ) | — | 6,714 | — | 23 | — | 6,737 | 6,737 | (366 | ) | ||||||||||
| Residence Inn Sarasota Bradenton | FL | 2015 | (9,968 | ) | 2,138 | 9,118 | — | — | 2,138 | 9,118 | 11,256 | (484 | ) | ||||||||||
| Residence Inn Savannah Midtown | GA | 2015 | (7,650 | ) | 1,106 | 9,349 | — | 402 | 1,106 | 9,751 | 10,857 | (475 | ) | ||||||||||
| Residence Inn Tallahassee North I 10 Capital Circle | FL | 2015 | (9,682 | ) | 1,349 | 9,983 | — | 1,644 | 1,349 | 11,627 | 12,976 | (528 | ) | ||||||||||
| Residence Inn Tampa North I 75 Fletcher | FL | 2015 | (8,858 | ) | 1,251 | 8,174 | — | 94 | 1,251 | 8,268 | 9,519 | (462 | ) | ||||||||||
| Residence Inn Tampa Sabal Park Brandon | FL | 2015 | (11,736 | ) | 1,773 | 10,830 | — | 39 | 1,773 | 10,869 | 12,642 | (572 | ) | ||||||||||
| Courtyard Bowling Green Convention Center | KY | 2015 | (10,868 | ) | 503 | 11,003 | — | 25 | 504 | 11,028 | 11,532 | (552 | ) | ||||||||||
| Courtyard Chicago Elmhurst Oakbrook Area | IL | 2015 | (9,871 | ) | 1,323 | 11,868 | — | 84 | 1,323 | 11,952 | 13,275 | (1,320 | ) | ||||||||||
| Courtyard Jacksonville Airport Northeast | FL | 2015 | (4,918 | ) | 1,783 | 5,459 | — | 1,392 | 1,783 | 6,852 | 8,635 | (494 | ) | ||||||||||
| Hampton Inn & Suites Nashville Franklin Cool Springs | TN | 2015 | (18,942 | ) | 2,526 | 16,985 | — | — | 2,525 | 16,985 | 19,510 | (880 | ) | ||||||||||
| Hampton Inn Boston Peabody | MA | 2015 | (12,254 | ) | 3,008 | 11,846 | — | 59 | 3,008 | 11,905 | 14,913 | (673 | ) | ||||||||||
| Hampton Inn Grand Rapids North | MI | 2015 | (11,400 | ) | 2,191 | 11,502 | — | 67 | 2,191 | 11,569 | 13,760 | (616 | ) | ||||||||||
| Homewood Suites Boston Peabody | MA | 2015 | (8,631 | ) | 2,508 | 8,654 | — | 2,807 | 2,508 | 11,461 | 13,969 | (738 | ) | ||||||||||
| Hyatt Place Las Vegas | NV | 2015 | (16,951 | ) | 2,902 | 17,419 | — | 1,727 | 2,902 | 19,147 | 22,049 | (1,008 | ) | ||||||||||
| Hyatt Place Minneapolis Airport South | MN | 2015 | (11,517 | ) | 2,519 | 11,810 | — | 1,164 | 2,519 | 12,974 | 15,493 | (644 | ) | ||||||||||
| Residence Inn Boise Downtown | ID | 2015 | (8,555 | ) | 1,776 | 10,203 | — | 2,257 | 1,776 | 12,459 | 14,235 | (618 | ) | ||||||||||
| Residence Inn Portland Downtown Lloyd Center | OR | 2015 | (32,508 | ) | 25,213 | 23,231 | — | 511 | 25,213 | 23,742 | 48,955 | (1,326 | ) | ||||||||||
| SpringHill Suites Grand Rapids North | MI | 2015 | (9,952 | ) | 1,063 | 9,312 | — | 75 | 1,063 | 9,387 | 10,450 | (458 | ) | ||||||||||
| Hyatt Place Kansas City Overland Park Metcalf | KS | 2015 | (7,679 | ) | 1,038 | 7,792 | — | 1,565 | 1,039 | 9,357 | 10,396 | (524 | ) | ||||||||||
| Courtyard Asheville | NC | 2015 | (12,391 | ) | 2,236 | 10,290 | — | 49 | 2,236 | 10,339 | 12,575 | (508 | ) | ||||||||||
| Courtyard Dallas Market Center | TX | 2015 | (18,115 | ) | — | 19,768 | — | 2,358 | — | 22,127 | 22,127 | (1,081 | ) | ||||||||||
| Fairfield Inn & Suites Dallas Market Center | TX | 2015 | (8,566 | ) | 1,550 | 7,236 | 1 | 19 | 1,552 | 7,256 | 8,808 | (362 | ) | ||||||||||
| Hilton Garden Inn Austin Round Rock | TX | 2015 | (12,016 | ) | 2,797 | 10,920 | 2 | 1,960 | 2,799 | 12,880 | 15,679 | (576 | ) | ||||||||||
| Residence Inn Los Angeles Airport El Segundo | CA | 2015 | (33,991 | ) | 16,416 | 21,618 | 13 | 1,856 | 16,429 | 23,474 | 39,903 | (1,147 | ) | ||||||||||
| Residence Inn San Diego Rancho Bernardo Scripps Poway | CA | 2015 | (23,251 | ) | 5,261 | 18,677 | — | — | 5,261 | 18,677 | 23,938 | (928 | ) | ||||||||||
| SpringHill Suites Austin Round Rock | TX | 2015 | (8,087 | ) | 2,196 | 8,305 | (1 | ) | 126 | 2,196 | 8,431 | 10,627 | (436 | ) | |||||||||
| SpringHill Suites Houston Hobby Airport | TX | 2015 | (10,835 | ) | 762 | 11,755 | 2 | 103 | 763 | 11,858 | 12,621 | (584 | ) | ||||||||||
| SpringHill Suites San Antonio Medical Center Northwest | TX | 2015 | (5,272 | ) | — | 7,161 | — | 911 | — | 8,072 | 8,072 | (355 | ) | ||||||||||
| SpringHill Suites San Diego Rancho Bernardo Scripps Poway | CA | 2015 | (19,197 | ) | 3,905 | 16,999 | (3 | ) | 1 | 3,902 | 17,000 | 20,902 | (840 | ) | |||||||||
| Hampton Inn Charlotte Gastonia | NC | 2015 | (9,564 | ) | 1,357 | 10,073 | — | 32 | 1,357 | 10,105 | 11,462 | (513 | ) | ||||||||||
| Hampton Inn Dallas Addison | TX | 2015 | (9,168 | ) | 1,538 | 7,475 | — | 17 | 1,538 | 7,492 | 9,030 | (397 | ) | ||||||||||
| Red Lion Inn & Suites Fayetteville I 95 | NC | 2015 | (5,307 | ) | 922 | 7,069 | (257 | ) | (2,163 | ) | 664 | 4,906 | 5,570 | (74 | ) | ||||||||
| Homewood Suites San Antonio Northwest | TX | 2015 | (13,720 | ) | 1,998 | 13,060 | — | 3,634 | 1,998 | 16,694 | 18,692 | (784 | ) | ||||||||||
| Courtyard Dalton | GA | 2015 | (7,827 | ) | 676 | 8,241 | 1 | 1,597 | 677 | 9,839 | 10,516 | (498 | ) | ||||||||||
| Hampton Inn Orlando International Drive Convention Center | FL | 2015 | (13,762 | ) | 1,183 | 14,899 | — | 90 | 1,183 | 14,990 | 16,173 | (721 | ) | ||||||||||
| Hilton Garden Inn Albuquerque North Rio Rancho | NM | 2015 | (9,454 | ) | 1,141 | 9,818 | 1 | 32 | 1,142 | 9,850 | 10,992 | (513 | ) | ||||||||||
| Homewood Suites Orlando International Drive Convention Center | FL | 2015 | (24,291 | ) | 2,182 | 26,507 | 6 | 946 | 2,187 | 27,452 | 29,639 | (1,284 | ) | ||||||||||
| Hampton Inn Chicago Naperville | IL | 2015 | (9,292 | ) | 1,363 | 9,460 | — | 9 | 1,363 | 9,469 | 10,832 | (557 | ) | ||||||||||
| Hampton Inn Indianapolis Northeast Castleton | IN | 2015 | (11,025 | ) | 1,587 | 8,144 | — | 49 | 1,587 | 8,193 | 9,780 | (604 | ) | ||||||||||
| Hampton Inn Knoxville Airport | TN | 2015 | (6,448 | ) | 1,033 | 5,898 | — | — | 1,033 | 5,898 | 6,931 | (413 | ) | ||||||||||
| Hampton Inn Milford | CT | 2015 | (4,092 | ) | 1,652 | 5,060 | — | 91 | 1,652 | 5,151 | 6,803 | (439 | ) | ||||||||||
| Homewood Suites Augusta | GA | 2015 | (6,837 | ) | 874 | 8,225 | — | 1,552 | 874 | 9,777 | 10,651 | (510 | ) | ||||||||||
| Homewood Suites Seattle Downtown | WA | 2015 | (52,632 | ) | 12,580 | 41,011 | — | 4,499 | 12,580 | 45,510 | 58,090 | (1,891 | ) | ||||||||||
| Hampton Inn Champaign Urbana | IL | 2015 | (16,967 | ) | 2,206 | 17,451 | — | — | 2,206 | 17,451 | 19,657 | (844 | ) | ||||||||||
| Hampton Inn East Lansing | MI | 2015 | (10,681 | ) | 3,219 | 10,101 | — | 205 | 3,219 | 10,306 | 13,525 | (519 | ) | ||||||||||
| Hilton Garden Inn Louisville East | KY | 2015 | (15,059 | ) | 1,022 | 16,350 | 1 | 139 | 1,023 | 16,489 | 17,512 | (803 | ) | ||||||||||
| Residence Inn Jacksonville Airport | FL | 2015 | (5,697 | ) | 1,451 | 6,423 | — | 2,187 | 1,451 | 8,610 | 10,061 | (522 | ) | ||||||||||
| TownePlace Suites Savannah Midtown | GA | 2015 | (10,339 | ) | 1,502 | 7,827 | — | — | 1,502 | 7,827 | 9,329 | (402 | ) | ||||||||||
| Courtyard Houston I 10 West Energy Corridor | TX | 2015 | (19,536 | ) | 10,444 | 20,710 | 6 | 2,805 | 10,449 | 23,516 | 33,965 | (1,169 | ) | ||||||||||
| Courtyard San Diego Carlsbad | CA | 2015 | (18,868 | ) | 5,080 | 14,007 | 9 | 46 | 5,090 | 14,053 | 19,143 | (725 | ) | ||||||||||
| Hampton Inn Austin North @ IH 35 & Highway 183 | TX | 2015 | (13,782 | ) | 1,774 | 9,798 | 2 | 303 | 1,776 | 10,101 | 11,877 | (504 | ) | ||||||||||
| SpringHill Suites Asheville | NC | 2015 | (14,284 | ) | 2,149 | 9,930 | — | 57 | 2,149 | 9,988 | 12,137 | (490 | ) | ||||||||||
| Hampton Inn College Station | TX | 2015 | (13,873 | ) | 3,306 | 10,523 | — | 140 | 3,306 | 10,664 | 13,970 | (523 | ) | ||||||||||
| Courtyard Flagstaff | AZ | 2015 | (19,849 | ) | 5,258 | 24,313 | — | 55 | 5,258 | 24,368 | 29,626 | (853 | ) | ||||||||||
| DoubleTree Baton Rouge | LA | 2015 | (11,978 | ) | 1,497 | 14,777 | — | 49 | 1,497 | 14,826 | 16,324 | (664 | ) | ||||||||||
| Fairfield Inn & Suites Baton Rouge South | LA | 2015 | (3,422 | ) | 971 | 3,391 | — | 42 | 971 | 3,433 | 4,404 | (170 | ) | ||||||||||
| Hampton Inn Medford | OR | 2015 | (8,556 | ) | 1,245 | 10,353 | — | — | 1,245 | 10,353 | 11,598 | (365 | ) | ||||||||||
| Hampton Inn Fort Wayne Southwest | IN | 2015 | (8,898 | ) | 1,242 | 10,511 | — | — | 1,242 | 10,512 | 11,754 | (425 | ) | ||||||||||
| Hampton Inn & Suites El Paso Airport | TX | 2015 | (13,347 | ) | 1,641 | 18,733 | — | — | 1,641 | 18,733 | 20,374 | (713 | ) | ||||||||||
| Residence Inn Fort Wayne Southwest | IN | 2015 | (10,609 | ) | 1,267 | 12,136 | — | 8 | 1,267 | 12,144 | 13,411 | (429 | ) | ||||||||||
| SpringHill Suites Baton Rouge South | LA | 2015 | (4,449 | ) | 1,131 | 5,744 | — | 44 | 1,131 | 5,788 | 6,919 | (216 | ) | ||||||||||
| SpringHill Suites Flagstaff | AZ | 2015 | (10,951 | ) | 1,641 | 14,283 | — | 61 | 1,641 | 14,344 | 15,985 | (567 | ) | ||||||||||
| TownePlace Suites Baton Rouge South | LA | 2015 | (4,791 | ) | 1,055 | 6,173 | — | 17 | 1,055 | 6,190 | 7,245 | (257 | ) | ||||||||||
| Courtyard Columbus Downtown | OH | 2015 | (21,051 | ) | 2,367 | 25,191 | — | 61 | 2,367 | 25,252 | 27,619 | (726 | ) | ||||||||||
| Hilton Garden Inn Monterey | CA | 2015 | (19,333 | ) | 6,110 | 27,713 | — | — | 6,110 | 27,713 | 33,823 | (1,131 | ) | ||||||||||
| Hyatt House Atlanta Cobb Galleria | GA | 2015 | (21,230 | ) | 4,386 | 22,777 | — | 12 | 4,386 | 22,788 | 27,174 | (673 | ) | ||||||||||
| Hyatt Place Chicago Schaumburg | IL | 2015 | (6,637 | ) | 1,519 | 9,582 | — | 57 | 1,519 | 9,639 | 11,158 | (414 | ) | ||||||||||
| Fairfield Inn & Suites Spokane | WA | 2016 | (8,964 | ) | 1,732 | 10,750 | — | — | 1,733 | 10,749 | 12,482 | (275 | ) | ||||||||||
| Fairfield Inn & Suites Denver | CO | 2016 | (11,620 | ) | 1,429 | 15,675 | — | — | 1,430 | 15,675 | 17,105 | (405 | ) | ||||||||||
| Springhill Suites Denver | CO | 2016 | (8,632 | ) | 941 | 10,870 | — | 49 | 941 | 10,918 | 11,859 | (310 | ) | ||||||||||
| Hampton Inn Ft. Collins | CO | 2016 | (5,976 | ) | 641 | 5,578 | — | — | 641 | 5,577 | 6,218 | (176 | ) | ||||||||||
| Fairfield Inn & Suites Bellevue | WA | 2016 | (22,244 | ) | 18,769 | 14,182 | — | — | 18,769 | 14,182 | 32,951 | (438 | ) | ||||||||||
| Hilton Garden Inn Ft. Collins | CO | 2016 | (12,948 | ) | 1,331 | 17,606 | — | — | 1,331 | 17,605 | 18,936 | (480 | ) | ||||||||||
| Total | $(1,709,101) | $340,043 | $1,756,484 | $ | (224 | ) | $82,110 | $339,819 | $1,838,594 | $2,178,414 | $(92,848) | ||||||||||||
Staybridge Suites Jackson | MS | 2017 | (1,669 | ) | 996 | 5,915 | (412 | ) | (2,666 | ) | 584 | 3,248 | 3,832 | (86 | ) | |||||||||||||||||||||||||
Residence Inn Germantown | TN | 2017 | (5,576 | ) | 1,326 | 6,784 | — | 24 | 1,326 | 6,808 | 8,134 | (534 | ) | |||||||||||||||||||||||||||
Courtyard Germantown | TN | 2017 | (8,330 | ) | 1,851 | 8,844 | (1,850 | ) | (8,844 | ) | — | — | — | — | ||||||||||||||||||||||||||
| (1,473,166 | ) | 317,776 | 1,620,771 | (32,257 | ) | (33,693 | ) | 285,520 | 1,587,079 | 1,872,599 | (218,266 | ) |
(1) | |
The tax basis of aggregate land, buildings and improvements as of December 31, |
(2) | |
Each of the properties has a depreciable life of: up to 40 years for buildings, up to 15 years for improvements. |
HOSPITALITY INVESTORS TRUST, INC.
Real Estate and Accumulated Depreciation
Schedule III
(dollar amounts in thousands)
A summary of activity for real estate and accumulated depreciation for the years ended December 31, 2014
| 2016 | 2015 | 2014(1) | 2019 | 2018 | 2017 | ||||||||||||||||||||
| Land, buildings and improvements, at cost: | |||||||||||||||||||||||||
| Balance at January 1 | $ | 2,047,831 | $ | 93,237 | $ | 89,666 | 2,285,477 | $ | 2,263,047 | $ | 2,178,413 | ||||||||||||||
| Additions: | |||||||||||||||||||||||||
| Acquisitions | 99,727 | 1,917,101 | — | — | — | 60,141 | |||||||||||||||||||
| Capital improvements | 43,030 | 37,493 | 3,571 | 12,065 | 52,290 | 58,793 | |||||||||||||||||||
| Deductions: | |||||||||||||||||||||||||
| Held for Sale (1) | (406,371 | ) | — | (5,826 | ) | ||||||||||||||||||||
| Dispositions | (9,744 | ) | — | — | (226 | ) | — | (11,360 | ) | ||||||||||||||||
| Impairment of depreciable assets | (2,430 | ) | — | — | (18,346 | ) | (29,860 | ) | (17,114 | ) | |||||||||||||||
| Balance at December 31 | $ | 2,178,414 | $ | 2,047,831 | $ | 93,237 | $ | 1,872,599 | $ | 2,285,477 | $ | 2,263,047 | |||||||||||||
| Accumulated depreciation and amortization: | |||||||||||||||||||||||||
| Balance at January 1 | $ | (39,252 | ) | $ | (1,569 | ) | $ | — | (203,990 | ) | $ | (147,328 | ) | $ | (92,848 | ) | |||||||||
| Depreciation expense | (54,377 | ) | (37,683 | ) | (1,569 | ) | (60,654 | ) | (61,651 | ) | (57,890 | ) | |||||||||||||
| Accumulated depreciation: | |||||||||||||||||||||||||
| Held for Sale (1) | 43,348 | — | 550 | ||||||||||||||||||||||
| Dispositions and other | 781 | 3,030 | 4,989 | 2,860 | |||||||||||||||||||||
| Balance at December 31 | $ | (92,848 | ) | $ | (39,252 | ) | $ | (1,569 | ) | $ | (218,266 | ) | $ | (203,990 | ) | $ | (147,328 | ) | |||||||
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(1) During the year ended December 31, 2019, the Company had 21 hotels classified as held for sale and during the year ended December 31, 2017, the Company had one hotel classified as held for sale.
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