UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~March 31,~~September 30, 2020

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 001-34693

CHATHAM LODGING TRUST

(Exact Name of Registrant as Specified in Its Charter)


Maryland		27-1200777
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)

222 Lakeview Avenue, Suite 200
West Palm Beach	Florida	33401
(Address of Principal Executive Offices)		(Zip Code)

(561) 802-4477

(Registrant’s Telephone Number, Including Area Code)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of Each Exchange On Which Registered
Common Shares of Beneficial Interest, $0.01 par value	CLDT	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. x Yes ¨ No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). x Yes ¨ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer	x	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 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes x No

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.


Class			Outstanding at ~~May 11,~~October 29, 2020
Common Shares of Beneficial Interest ($0.01 par value per share)			~~46,963,112~~46,972,404

~~Table of Contents~~

TABLE OF CONTENTS

~~Table of Contents~~

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements.

CHATHAM LODGING TRUST

Consolidated Balance Sheets

(In thousands, except share and per share data)


		March 31, 2020		December 31, 2019			September 30, 2020		December 31, 2019
		(unaudited)					(unaudited)
Assets:	Assets:					Assets:
Investment in hotel properties, net	Investment in hotel properties, net	$	1,339,778	$	1,347,116	Investment in hotel properties, net	$	1,320,765	$	1,347,116
Investment in hotel properties under development	Investment in hotel properties under development	26,693		20,496		Investment in hotel properties under development	33,719		20,496
Cash and cash equivalents	Cash and cash equivalents	57,972		6,620		Cash and cash equivalents	31,570		6,620
Restricted cash	Restricted cash	11,599		13,562		Restricted cash	10,845		13,562
Investment in unconsolidated real estate entities	Investment in unconsolidated real estate entities	—		17,969		Investment in unconsolidated real estate entities	0		17,969
Right of use asset, net	Right of use asset, net	21,115		21,270		Right of use asset, net	20,801		21,270
Hotel receivables (net of allowance for doubtful accounts of $340 and $451, respectively)		2,801		4,626
Hotel receivables (net of allowance for doubtful accounts of $370 and $451, respectively)						Hotel receivables (net of allowance for doubtful accounts of $370 and $451, respectively)	2,228		4,626
Deferred costs, net	Deferred costs, net	4,094		4,271		Deferred costs, net	5,536		4,271
Prepaid expenses and other assets	Prepaid expenses and other assets	6,011		2,615		Prepaid expenses and other assets	3,995		2,615
Deferred tax asset, net	Deferred tax asset, net	29		29		Deferred tax asset, net	29		29
Total assets	Total assets	$	1,470,092	$	1,438,574	Total assets	$	1,429,488	$	1,438,574
Liabilities and Equity:	Liabilities and Equity:					Liabilities and Equity:
Mortgage debt, net	Mortgage debt, net	$	493,265	$	495,465	Mortgage debt, net	$	489,024	$	495,465
Revolving credit facility	Revolving credit facility	173,000		90,000		Revolving credit facility	173,000		90,000
Construction loan						Construction loan	3,923		0
Accounts payable and accrued expenses	Accounts payable and accrued expenses	25,285		33,012		Accounts payable and accrued expenses	26,205		33,012
Distributions and losses in excess of investments in unconsolidated real estate entities	Distributions and losses in excess of investments in unconsolidated real estate entities	16,200		15,214		Distributions and losses in excess of investments in unconsolidated real estate entities	18,625		15,214
Lease liability, net	Lease liability, net	23,603		23,717		Lease liability, net	23,361		23,717
Distributions payable	Distributions payable	469		6,142		Distributions payable	469		6,142
Total liabilities	Total liabilities	731,822		663,550		Total liabilities	734,607		663,550
Commitments and contingencies (Note 13)	Commitments and contingencies (Note 13)					Commitments and contingencies (Note 13)
Equity:	Equity:					Equity:
Shareholders’ Equity:	Shareholders’ Equity:					Shareholders’ Equity:
Preferred shares, $0.01 par value, 100,000,000 shares authorized and unissued at March 31, 2020 and December 31, 2019		—		—
Common shares, $0.01 par value, 500,000,000 shares authorized; 46,960,389 and 46,928,445 shares issued and outstanding at March 31, 2020 and December 31, 2019, respectively		469		469
Preferred shares, $0.01 par value, 100,000,000 shares authorized and unissued at September 30, 2020 and December 31, 2019						Preferred shares, $0.01 par value, 100,000,000 shares authorized and unissued at September 30, 2020 and December 31, 2019	0		0
Common shares, $0.01 par value, 500,000,000 shares authorized; 46,971,625 and 46,928,445 shares issued and outstanding at September 30, 2020 and December 31, 2019, respectively						Common shares, $0.01 par value, 500,000,000 shares authorized; 46,971,625 and 46,928,445 shares issued and outstanding at September 30, 2020 and December 31, 2019, respectively	470		469
Additional paid-in capital	Additional paid-in capital	905,936		904,273		Additional paid-in capital	906,021		904,273
Retained earnings (distributions in excess of retained earnings)		(180,479)		(142,365)
Accumulated deficit						Accumulated deficit	(225,363)		(142,365)
Total shareholders’ equity	Total shareholders’ equity	725,926		762,377		Total shareholders’ equity	681,128		762,377
Noncontrolling Interests:	Noncontrolling Interests:					Noncontrolling Interests:
Noncontrolling interest in Operating Partnership	Noncontrolling interest in Operating Partnership	12,344		12,647		Noncontrolling interest in Operating Partnership	13,753		12,647
Total equity	Total equity	738,270		775,024		Total equity	694,881		775,024
Total liabilities and equity	Total liabilities and equity	$	1,470,092	$	1,438,574	Total liabilities and equity	$	1,429,488	$	1,438,574

The accompanying notes are an integral part of these consolidated financial statements.

~~Table of Contents~~

CHATHAM LODGING TRUST

Consolidated Statements of Operations

(In thousands, except share and per share data)

(unaudited)


		For the three months ended							For the three months ended				For the nine months ended
		March 31,							September 30,				September 30,
		2020		2019			2020		2019		2020		2019
Revenue:	Revenue:					Revenue:
Room	Room	$	53,048	$	68,085	Room	$	32,307	$	81,807	$	104,205	$	229,862
Food and beverage	Food and beverage	2,063		2,427		Food and beverage	237		2,436		2,417		7,398
Other	Other	3,518		3,676		Other	1,630		4,536		5,560		12,146
Reimbursable costs from unconsolidated real estate entities	Reimbursable costs from unconsolidated real estate entities	1,580		1,491		Reimbursable costs from unconsolidated real estate entities	795		1,301		3,169		4,225
Total revenue	Total revenue	60,209		75,679		Total revenue	34,969		90,080		115,351		253,631
Expenses:	Expenses:					Expenses:
Hotel operating expenses:	Hotel operating expenses:					Hotel operating expenses:
Room	Room	13,394		15,570		Room	6,903		17,288		24,814		49,231
Food and beverage	Food and beverage	1,889		2,009		Food and beverage	184		2,133		2,202		6,262
Telephone	Telephone	378		433		Telephone	344		409		1,073		1,252
Other hotel operating	Other hotel operating	810		939		Other hotel operating	312		1,130		1,303		3,039
General and administrative	General and administrative	5,278		6,167		General and administrative	3,907		6,369		12,543		19,109
Franchise and marketing fees	Franchise and marketing fees	4,720		5,932		Franchise and marketing fees	2,876		7,146		9,232		20,062
Advertising and promotions	Advertising and promotions	1,510		1,533		Advertising and promotions	848		1,483		3,212		4,502
Utilities	Utilities	2,516		2,750		Utilities	2,592		3,033		6,971		8,308
Repairs and maintenance	Repairs and maintenance	3,462		3,611		Repairs and maintenance	2,250		3,637		7,352		10,679
Management fees	Management fees	2,024		2,544		Management fees	1,292		2,950		4,164		8,386
Insurance	Insurance	360		338		Insurance	361		334		1,082		1,037
Total hotel operating expenses	Total hotel operating expenses	36,341		41,826		Total hotel operating expenses	21,869		45,912		73,948		131,867
Depreciation and amortization	Depreciation and amortization	13,061		12,772		Depreciation and amortization	13,620		12,923		40,349		38,694
Impairment loss on investment in unconsolidated real estate entities	Impairment loss on investment in unconsolidated real estate entities	15,282		—		Impairment loss on investment in unconsolidated real estate entities	0		0		15,282		0
Property taxes, ground rent and insurance	Property taxes, ground rent and insurance	6,099		6,166		Property taxes, ground rent and insurance	6,171		6,255		18,161		18,664
General and administrative	General and administrative	2,765		3,514		General and administrative	2,958		3,486		8,210		10,611
Other charges	Other charges	2,768		17		Other charges	(199)		309		2,785		351
Reimbursable costs from unconsolidated real estate entities	Reimbursable costs from unconsolidated real estate entities	1,580		1,491		Reimbursable costs from unconsolidated real estate entities	795		1,301		3,169		4,225
Total operating expenses	Total operating expenses	77,896		65,786		Total operating expenses	45,214		70,186		161,904		204,412
Operating (loss) income before gain on sale of hotel property		(17,687)		9,893
Gain on sale of hotel property		1		—
Operating (loss) income before gain (loss) on sale of hotel property						Operating (loss) income before gain (loss) on sale of hotel property	(10,245)		19,894		(46,553)		49,219
Gain (loss) on sale of hotel property						Gain (loss) on sale of hotel property	0		4		3		(3,295)
Operating (loss) income	Operating (loss) income	(17,686)		9,893		Operating (loss) income	(10,245)		19,898		(46,550)		45,924
Interest and other income	Interest and other income	81		55		Interest and other income	25		34		145		155
Interest expense, including amortization of deferred fees	Interest expense, including amortization of deferred fees	(6,833)		(7,197)		Interest expense, including amortization of deferred fees	(7,245)		(7,050)		(21,112)		(21,378)

Loss from unconsolidated real estate entities	Loss from unconsolidated real estate entities	(3,673)		(1,123)		Loss from unconsolidated real estate entities	(847)		(2,784)		(6,099)		(3,450)

(Loss) income before income tax expense	(Loss) income before income tax expense	(28,111)		1,628		(Loss) income before income tax expense	(18,312)		10,098		(73,616)		21,251
Income tax expense	Income tax expense	—		—		Income tax expense	0		0		0		0
Net (loss) income	Net (loss) income	(28,111)		1,628		Net (loss) income	(18,312)		10,098		(73,616)		21,251
Net (loss) income attributable to noncontrolling interests	Net (loss) income attributable to noncontrolling interests	328		(15)		Net (loss) income attributable to noncontrolling interests	255		(96)		949		(199)
Net (loss) income attributable to common shareholders	Net (loss) income attributable to common shareholders	$	(27,783)	$	1,613	Net (loss) income attributable to common shareholders	$	(18,057)	$	10,002	$	(72,667)	$	21,052

(Loss) income per Common Share - Basic:	(Loss) income per Common Share - Basic:					(Loss) income per Common Share - Basic:
Net (loss) income attributable to common shareholders (Note 10)	Net (loss) income attributable to common shareholders (Note 10)	$	(0.59)	$	0.03	Net (loss) income attributable to common shareholders (Note 10)	$	(0.38)	$	0.21	$	(1.55)	$	0.44
(Loss) income per Common Share - Diluted:	(Loss) income per Common Share - Diluted:					(Loss) income per Common Share - Diluted:
Net (loss) income attributable to common shareholders (Note 10)	Net (loss) income attributable to common shareholders (Note 10)	$	(0.59)	$	0.03	Net (loss) income attributable to common shareholders (Note 10)	$	(0.38)	$	0.21	$	(1.55)	$	0.44
Weighted average number of common shares outstanding:	Weighted average number of common shares outstanding:					Weighted average number of common shares outstanding:
Basic	Basic	46,948,533		46,556,710		Basic	46,965,526		46,913,922		46,958,143		46,744,890
Diluted	Diluted	46,948,533		46,734,958		Diluted	46,965,526		47,152,166		46,958,143		46,956,964
Distributions declared per common share:	Distributions declared per common share:	$	0.22	$	0.33	Distributions declared per common share:	$	0	$	0.33	$	0.22	$	0.99

The accompanying notes are an integral part of these consolidated financial statements.

~~Table of Contents~~

CHATHAM LODGING TRUST

Consolidated Statements of Equity

(In thousands, except share and per share data)

(unaudited)

Three months ended March 31, 2019 and 2020
Common Shares Additional Paid - In Capital Retained earnings (distributions in excess of retained earnings) Total Shareholders’ Equity Noncontrolling Interest in Operating Partnership Total Equity
Shares Amount
Balance, January 1, 2019 46,525,652 $ 465 $ 896,286 $ (99,285) $ 797,466 $ 9,952 $ 807,418
Issuance of shares pursuant to Equity Incentive Plan 27,870 — 500 — 500 — 500
Issuance of shares, net of offering costs of $26 17,483 1 92 — 93 — 93
Amortization of share based compensation — — 16 — 16 931 947
Dividends declared on common shares ($0.33 per share) — — — (15,367) (15,367) — (15,367)
Distributions declared on LTIP units ($0.33 per unit) — — — — — (302) (302)
Reallocation of noncontrolling interest — — 267 — 267 (267) —
Net income — — — 1,613 1,613 15 1,628
Balance, March 31, 2019 46,571,005 $ 466 $ 897,161 $ (113,039) $ 784,588 $ 10,329 $ 794,917
Balance, January 1, 2020 46,928,445 $ 469 $ 904,273 $ (142,365) $ 762,377 $ 12,647 $ 775,024
Issuance of shares pursuant to Equity Incentive Plan 24,516 — 450 — 450 — 450
Issuance of shares, net of offering costs of $2 7,428 — 91 — 91 — 91
Amortization of share based compensation — — 8 — 8 1,372 1,380
Dividends declared on common shares ($0.22 per share) — — — (10,331) (10,331) — (10,331)
Distributions declared on LTIP units ($0.22 per unit) — — — — — (233) (233)
Reallocation of noncontrolling interest — — 1,114 — 1,114 (1,114) —
Net income — — — (27,783) (27,783) (328) (28,111)
Balance, March 31, 2020 46,960,389 $ 469 $ 905,936 $ (180,479) $ 725,926 $ 12,344 $ 738,270


Three months ended September 30, 2019 and 2020
	Common Shares			Additional Paid - In Capital		Retained earnings (distributions in excess of retained earnings)		Total Shareholders’ Equity		Noncontrolling Interest in Operating Partnership		Total Equity
	Shares	Amount
Balance, July 1, 2019	46,918,383	$	469	$	904,069	$	(119,049)	$	785,489	$	11,108	$	796,597

Issuance of shares, net of offering costs of $6	4,553	0		75		—		75		—		75



Amortization of share based compensation	—	—		16		—		16		1,083		1,099
Dividends declared on common shares ($0.33 per share)	—	—		—		(15,484)		(15,484)		—		(15,484)
Distributions declared on LTIP units ($0.33 per unit)	—	—		—		—		—		(350)		(350)


Net income	—	—		—		10,002		10,002		96		10,098
Balance, September 30, 2019	46,922,936	$	469	$	904,160	$	(124,531)	$	780,098	$	11,937	$	792,035
Balance, July 1, 2020	46,965,827	$	470	$	905,977	$	(207,306)	$	699,141	$	13,003	$	712,144

Issuance of shares, net of offering costs of 0	5,798	0		37		—		37		—		37



Amortization of share based compensation	—	—		7		—		7		1,005		1,012




Net loss	—	—		—		(18,057)		(18,057)		(255)		(18,312)
Balance, September 30, 2020	46,971,625	$	470	$	906,021	$	(225,363)	$	681,128	$	13,753	$	694,881

- continued -


Nine Months Ended September 30, 2019 and 2020
	Common Shares			Additional Paid - In Capital		Retained earnings (distributions in excess of retained earnings)		Total Shareholders’ Equity		Noncontrolling Interest in Operating Partnership		Total Equity
	Shares	Amount
Balance, January 1, 2019	46,525,652	$	465	$	896,286	$	(99,285)	$	797,466	$	9,952	$	807,418
Issuance of shares pursuant to Equity Incentive Plan	27,870	—		500		—		500		—		500
Issuance of shares, net of offering costs of $207	369,414	4		6,990		—		6,994		—		6,994



Amortization of share based compensation	—	—		47		—		47		3,124		3,171
Dividends declared on common shares ($0.99 per share)	—	—		—		(46,298)		(46,298)		—		(46,298)
Distributions declared on LTIP units ($0.99 per unit)	—	—		—		—		—		(1,001)		(1,001)

Reallocation of noncontrolling interest	—	—		337		—		337		(337)		0
Net income	—	—		—		21,052		21,052		199		21,251
Balance, September 30, 2019	46,922,936	$	469	$	904,160	$	(124,531)	$	780,098	$	11,937	$	792,035
Balance, January 1, 2020	46,928,445	$	469	$	904,273	$	(142,365)	$	762,377	$	12,647	$	775,024
Issuance of shares pursuant to Equity Incentive Plan	24,516	—		450		—		450		—		450
Issuance of shares, net of offering costs of $3	18,664	1		162		—		163		—		163



Amortization of share based compensation	—	—		22		—		22		3,402		3,424
Dividends declared on common shares ($0.22 per share)	—	—		—		(10,331)		(10,331)		—		(10,331)
Distributions declared on LTIP units ($0.22 per unit)	—	—		—		—		—		(233)		(233)

Reallocation of noncontrolling interest	—	—		1,114		—		1,114		(1,114)		0
Net loss	—	—		—		(72,667)		(72,667)		(949)		(73,616)
Balance, September 30, 2020	46,971,625	$	470	$	906,021	$	(225,363)	$	681,128	$	13,753	$	694,881

The accompanying notes are an integral part of these consolidated financial statements.

~~Table of Contents~~

CHATHAM LODGING TRUST

Consolidated Statements of Cash Flows

(In thousands)

(unaudited)


		For the three months ended							For the nine months ended
		March 31,							September 30,
		2020		2019			2020		2019
Cash flows from operating activities:	Cash flows from operating activities:					Cash flows from operating activities:
Net (loss) income	Net (loss) income	$	(28,111)	$	1,628	Net (loss) income	$	(73,616)	$	21,251
Adjustments to reconcile net income to net cash (used in) operating activities:
Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities:						Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities:
Depreciation	Depreciation	13,000		12,710		Depreciation	40,165		38,508
Amortization of deferred franchise fees	Amortization of deferred franchise fees	61		62		Amortization of deferred franchise fees	184		186
Amortization of deferred financing fees included in interest expense	Amortization of deferred financing fees included in interest expense	227		231		Amortization of deferred financing fees included in interest expense	866		684

Loss on sale of hotel property						Loss on sale of hotel property	0		3,295

Impairment loss on investment in unconsolidated real estate entities	Impairment loss on investment in unconsolidated real estate entities	15,282		—		Impairment loss on investment in unconsolidated real estate entities	15,282		0

Share based compensation	Share based compensation	1,206		1,059		Share based compensation	3,473		3,508
Accelerated share based compensation for employee severance	Accelerated share based compensation for employee severance	287		—		Accelerated share based compensation for employee severance	288		0
Loss (gain) from unconsolidated real estate entities		3,673		1,123
Loss from unconsolidated real estate entities						Loss from unconsolidated real estate entities	6,099		3,450

Changes in assets and liabilities:	Changes in assets and liabilities:					Changes in assets and liabilities:
Right of use asset	Right of use asset	155		155		Right of use asset	469		460
Hotel receivables	Hotel receivables	1,829		(723)		Hotel receivables	2,401		(4,938)

Deferred costs	Deferred costs	(16)		—		Deferred costs	(21)		(30)
Prepaid expenses and other assets	Prepaid expenses and other assets	(3,407)		(3,082)		Prepaid expenses and other assets	(1,415)		(1,801)
Accounts payable and accrued expenses	Accounts payable and accrued expenses	(6,932)		240		Accounts payable and accrued expenses	(6,569)		5,395
Lease liability	Lease liability	(114)		(92)		Lease liability	(356)		(287)
Net cash (used in) provided by operating activities	Net cash (used in) provided by operating activities	(2,860)		13,311		Net cash (used in) provided by operating activities	(12,750)		69,681
Cash flows from investing activities:	Cash flows from investing activities:					Cash flows from investing activities:
Improvements and additions to hotel properties	Improvements and additions to hotel properties	(6,110)		(11,741)		Improvements and additions to hotel properties	(13,907)		(30,342)

Acquisition of hotel properties, net of cash acquired						Acquisition of hotel properties, net of cash acquired	0		(8,100)
Investment in hotel properties under development	Investment in hotel properties under development	(6,197)		—		Investment in hotel properties under development	(13,223)		(6,902)

Proceeds from sale of hotel properties, net						Proceeds from sale of hotel properties, net	0		8,987
Distributions from unconsolidated real estate entities						Distributions from unconsolidated real estate entities	0		661

Net cash used in investing activities	Net cash used in investing activities	(12,307)		(11,741)		Net cash used in investing activities	(27,130)		(35,696)
Cash flows from financing activities:	Cash flows from financing activities:					Cash flows from financing activities:
Borrowings on revolving credit facility	Borrowings on revolving credit facility	86,000		25,500		Borrowings on revolving credit facility	86,000		59,500
Repayments on revolving credit facility	Repayments on revolving credit facility	(3,000)		(10,000)		Repayments on revolving credit facility	(3,000)		(55,000)
Borrowings on construction loan						Borrowings on construction loan	3,923		0
Payments on mortgage debt	Payments on mortgage debt	(2,297)		(1,308)		Payments on mortgage debt	(6,732)		(4,424)

Payment of financing costs	Payment of financing costs	—		(48)		Payment of financing costs	(2,004)		(48)
Payment of offering costs	Payment of offering costs	(2)		(26)		Payment of offering costs	(3)		(207)
Proceeds from issuance of common shares	Proceeds from issuance of common shares	92		119		Proceeds from issuance of common shares	166		7,199

Distributions-common shares/units	Distributions-common shares/units	(16,237)		(15,603)		Distributions-common shares/units	(16,237)		(46,948)
Net cash provided by (used in) financing activities	Net cash provided by (used in) financing activities	64,556		(1,366)		Net cash provided by (used in) financing activities	62,113		(39,928)
Net change in cash, cash equivalents and restricted cash	Net change in cash, cash equivalents and restricted cash	49,389		204		Net change in cash, cash equivalents and restricted cash	22,233		(5,943)
Cash, cash equivalents and restricted cash, beginning of period	Cash, cash equivalents and restricted cash, beginning of period	20,182		32,337		Cash, cash equivalents and restricted cash, beginning of period	20,182		32,337
Cash, cash equivalents and restricted cash, end of period	Cash, cash equivalents and restricted cash, end of period	$	69,571	$	32,541	Cash, cash equivalents and restricted cash, end of period	$	42,415	$	26,394
Supplemental disclosure of cash flow information:	Supplemental disclosure of cash flow information:					Supplemental disclosure of cash flow information:
Cash paid for interest	Cash paid for interest	$	6,835	$	6,789	Cash paid for interest	$	20,968	$	20,605
Capitalized interest	Capitalized interest	$	277	$	—	Capitalized interest	$	951	$	226
Cash paid for income taxes	Cash paid for income taxes	$	4	$	8	Cash paid for income taxes	$	328	$	591

-continued-

Supplemental disclosure of non-cash investing and financing information:

On January 15, 2020, the Company issued 24,516 shares to its independent trustees pursuant to the Company’s Equity Incentive Plan as compensation for services performed in 2019. On January 16, 2019, the Company issued 27,870 shares to its independent trustees pursuant to the Company’s Equity Incentive Plan as compensation for services performed in 2018.

As of ~~March 31,~~September 30, 2020, the Company had accrued distributions payable of $469. These distributions related to accrued but unpaid distributions on unvested performance based shares and LTIP units. As of ~~March 31,~~September 30, 2019, the Company had accrued distributions payable of ~~$5,733.~~$6,018. These distributions were paid on ~~April 26,~~October 25, 2019, except for ~~$535~~$781 related to accrued but unpaid distributions on unvested performance based shares.

Accrued share based compensation of ~~$113~~$338 and ~~$113~~$337 is included in accounts payable and accrued expenses as of ~~March 31,~~September 30, 2020 and 2019, respectively.

Accrued capital improvements of ~~$3,338~~$3,670 and ~~$1,671~~$2,421 are included in accounts payable and accrued expenses as of ~~March 31,~~September 30, 2020 and 2019, respectively.

The accompanying notes are an integral part of these consolidated financial statements.

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CHATHAM LODGING TRUST

Notes to the Consolidated Financial Statements

(in thousands, except share and per share data, unless otherwise specified)

(unaudited)

1. Organization

Organization

Chatham Lodging Trust (“we,” “us” or the “Company”) was formed as a Maryland real estate investment trust (“REIT”) on October 26, 2009. The Company is internally-managed and invests primarily in upscale extended-stay and premium-branded select-service hotels.

In January 2014, the Company established an At the Market Equity Offering ("Prior ATM Plan") whereby, from time to time, we may publicly offer and sell our common shares having an aggregate maximum offering price of up to $50 million by means of ordinary brokers’ transactions on the New York Stock Exchange (the "NYSE"), in negotiated transactions or in transactions that are deemed to be “at the market” offerings as defined in Rule 415 under the Securities Act of 1933. The Company filed a $100 million registration statement for a new ATM program (the "ATM Plan" and together with the Prior ATM Plan, the "ATM Plans") on December 28, 2017 to replace the prior program. At the same time, the Company entered into sales agreements with Cantor Fitzgerald & Co. ("Cantor"), Barclays Capital Inc. (“Barclays”), Robert W. Baird & Co. Incorporated, ("Baird"), Citigroup Global Markets Inc. ("Citigroup"), Stifel, Nicolaus & Company, Incorporated ("Stifel") and Wells Fargo Securities, LLC ("Wells Fargo") as sales agents. During the ~~three~~nine months ended ~~March 31,~~September 30, 2020 we, the Company issued 0 shares under the ATM Plan. As of ~~March 31,~~September 30, 2020, there was approximately $90.4 million available for issuance under the ATM Plan.

In January 2014, the Company established a $25 million dividend reinvestment and stock purchase plan (the "Prior DRSPP"). We filed a new $50 million shelf registration statement for the dividend reinvestment and stock purchase plan (the "New DRSPP" and together with the Prior DRSPP, the "DRSPPs") on December 28, 2017 to replace the prior program. Under the DRSPPs, shareholders may purchase additional common shares by reinvesting some or all of the cash dividends received on the Company's common shares. Shareholders may also make optional cash purchases of the Company's common shares subject to certain limitations detailed in the prospectus for the DRSPPs. During the three months ended ~~March 31,~~September 30, 2020, wethe Company issued ~~7,428~~5,798 shares under the New DRSPP at a weighted average price of ~~$12.51,~~$6.40, which generated ~~$0.1 million~~$37 thousand of proceeds. As of ~~March 31,~~September 30, 2020, there was approximately ~~$27.8~~$27.7 million available for issuance under the New DRSPP.

The net proceeds from any share offerings or issuances are contributed to Chatham Lodging, L.P., our operating partnership (the “Operating Partnership”), in exchange for partnership interests. Substantially all of the Company’s assets are held by, and all operations are conducted through, the Operating Partnership. Chatham Lodging Trust is the sole general partner of the Operating Partnership and owns 100.0% of the common units of limited partnership interest in the Operating Partnership. Certain of the Company’s executive officers hold vested and unvested long-term incentive plan units in the Operating Partnership ("LTIP units"), which are presented as non-controlling interests on our consolidated balance sheets.

As of ~~March 31,~~September 30, 2020, the Company wholly owned 40 hotels with an aggregate of 6,092 rooms located in 15 states and the District of Columbia. As of ~~March 31,~~September 30, 2020, the Company also (i) held a 10.3% noncontrolling interest in a joint venture (the “NewINK JV”) with affiliates of Colony Capital, Inc. ("CLNY"), which currently owns 46 hotels acquired from a joint venture (the "Innkeepers JV") between the Company and Cerberus Capital Management ("Cerberus"), comprising 5,948 rooms and (ii) held a 10% noncontrolling interest in a separate joint venture (the "Inland JV") with CLNY, which owns 48 hotels acquired from Inland American Real Estate Trust, Inc. ("Inland"), comprising an aggregate of 6,402 rooms. As of September 30, 2020, the Inland JV hotels are in receivership. We sometimes use the term "JVs", which refers collectively to the NewINK JV and Inland JV.

To qualify as a REIT, the Company cannot operate the hotels. Therefore, the Operating Partnership and its subsidiaries lease the Company's wholly owned hotels to taxable REIT subsidiary lessees (“TRS Lessees”), which are wholly owned by the Company’s taxable REIT subsidiary (“TRS”) holding company. The Company indirectly (i) owns its 10.3% interest in the 46 NewINK JV hotels and (ii) owns its 10% interest in the 48 Inland JV hotels through the Operating Partnership. All of the NewINK JV hotels and Inland JV hotels are leased to TRS Lessees, in which the Company indirectly owns noncontrolling interests through its TRS holding company. Each hotel is leased to a TRS Lessee under a percentage lease that provides for rental payments equal to the greater of (i) a fixed base rent amount or (ii) a percentage rent based on hotel revenue. The initial term of each of the TRS leases is 5 years. Lease revenue from each TRS Lessee is eliminated in consolidation.

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The TRS Lessees have entered into management agreements with third-party management companies that provide day-to-day management for the hotels. As of ~~March 31,~~September 30, 2020, Island Hospitality Management LLC (“IHM”), which is 52.5% owned by Jeffrey H. Fisher, the Company's Chairman, President and Chief Executive Officer, managed all 40 of the Company’s wholly owned hotels. As of ~~March 31,~~September 30, 2020, all of the NewINK JV hotels were managed by IHM. As of ~~March 31,~~September 30, 2020, 342 of the Inland JV hotels were managed by IHM and 1446 of the Inland JV hotels were managed by ~~Marriott International, Inc. ("Marriott").~~other management companies.

Liquidity

Due to the COVID-19 pandemic and the effects of travel restrictions both globally and in the United States, the hospitality industry has experienced drastic drops in demand. We believe the ongoing effects of the COVID-19 pandemic on our operations have had, and will continue to have, a material negative impact on our financial results and cash flows, and such negative impact may continue beyond the containment of the pandemic. On May 6, 2020, we amended our credit facility to suspend financial covenants through March 31, 2021 and provide access to the entire $250 million facility size. We have also taken additional measures to improve our liquidity, including reducing operating expenses, deferring capital expenditures, and suspending dividends. Based on the successful amendment of our credit facility and the steps we have taken to reduce hotel operating costs, delay capital expenditures and suspend dividends, we believe that we have sufficient liquidity to satisfy our obligations for the ~~next twelve months.~~foreseeable future.

2. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited interim consolidated financial statements and related notes have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) and in conformity with the rules and regulations of the Securities and Exchange Commission (“SEC”) applicable to interim financial information. These unaudited consolidated financial statements, in the opinion of management, include all adjustments consisting of normal, recurring adjustments which are considered necessary for a fair statement of the consolidated balance sheets, consolidated statements of operations, consolidated statements of equity, and consolidated statements of cash flows for the periods presented. Interim results are not necessarily indicative of full year performance due to seasonal and other factors, including the timing of the acquisition or sale of hotels.

The consolidated financial statements include all of the accounts of the Company and its wholly owned subsidiaries. All intercompany balances and transactions are eliminated in consolidation. The accompanying unaudited consolidated financial statements should be read in conjunction with the audited financial statements prepared in accordance with GAAP, and the related notes thereto as of December 31, 2019, which are included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2019.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the balance sheet date and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.

Recently Adopted Accounting Policies

On January 1, 2019, the Company adopted accounting guidance under Accounting Standards Codification (ASU) 2016-02 (“ASU 2016-02”), Leases, which relates to the accounting for leasing transactions. On February 25, 2016, the FASB issued updated accounting guidance which sets out the principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract (i.e., lessees and lessors). The new accounting guidance requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on whether or not the lease is effectively a financed purchase by the lessee. The classification of the lease will determine whether lease expense is recognized based on an effective interest method or on a straight-line basis over the term of the lease. A lessee is also required to record a right-of-use asset and a lease liability for all leases. We adopted the new accounting guidance on January 1, 2019 and applied it based on the optional transition method provided for, which allows entities to recognize a cumulative-effect adjustment to the balance sheet on the adoption date. Upon adoption, we applied the package of practical expedients made available under the new accounting guidance and also make an accounting policy election to not recognize right-of-use assets or lease liabilities for leases with terms of 12 months or less. For our ground lease agreements and corporate office lease agreement, all of which are currently

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accounted for as operating leases, we recognized lease liabilities of $25.7 million with corresponding right-of use assets of $23.1 million our consolidated balance sheet as of January 1, 2019.

3. Disposition of Hotel Properties

On May 7, 2019, the Company sold the Courtyard by Marriott hotel in Altoona, PA for $4.6 million and recognized a loss on the sale of the hotel property of $4.4 million. On May 15, 2019, the Company sold the SpringHill Suites by Marriott hotel in Washington, PA for $5.1 million and recognized a gain on the sale of the hotel property of $1.1 million. Proceeds from the sales were used to repay amounts outstanding on the Company's ~~senior unsecured~~ revolving credit facility. These sales did not represent a strategic shift that had or will have a major effect on the Company's operations and financial results and did not qualify to be reported as discontinued operations.

During the three and ~~three~~nine months ended ~~March 31,~~September 30, 2020 and 2019, the Company's consolidated statements of operations included operating income related to the disposed hotels as follows (in thousands):


		For the three months ended							For the three months ended				For the nine months ended
		March 31,							September 30,				September 30,
		2020		2019			2020		2019		2020		2019
Altoona CY	Altoona CY	$	—	$	13	Altoona CY	$	0	$	0	$	0	$	24
Washington SHS	Washington SHS	—		165		Washington SHS	0		0		0		198
Total	Total	$	—	$	178	Total	$	0	$	0	$	0	$	222

4. Allowance for Doubtful Accounts

The Company maintains an allowance for doubtful accounts at a level believed to be adequate to absorb estimated probable losses. That estimate is based on past loss experience, current economic and market conditions and other relevant factors. The allowance for doubtful accounts was ~~$0.3~~$0.4 million and $0.5 million as of ~~March 31,~~September 30, 2020 and December 31, 2019, respectively.

5. Investment in Hotel Properties

Investment in ~~Hotel Properties,~~hotel properties,net

Investment in hotel properties, net as of ~~March 31,~~September 30, 2020 and December 31, 2019 consisted of the following (in thousands):


		March 31, 2020		December 31, 2019			September 30, 2020		December 31, 2019
Land and improvements	Land and improvements	$	296,888	$	296,884	Land and improvements	$	296,905	$	296,884
Building and improvements	Building and improvements	1,222,072		1,216,849		Building and improvements	1,233,988		1,216,849
Furniture, fixtures and equipment	Furniture, fixtures and equipment	85,068		81,707		Furniture, fixtures and equipment	85,246		81,707
Renovations in progress	Renovations in progress	28,652		31,589		Renovations in progress	15,281		31,589
		1,632,680		1,627,029			1,631,420		1,627,029
Less: accumulated depreciation	Less: accumulated depreciation	(292,902)		(279,913)		Less: accumulated depreciation	(310,655)		(279,913)
Investment in hotel properties, net	Investment in hotel properties, net	$	1,339,778	$	1,347,116	Investment in hotel properties, net	$	1,320,765	$	1,347,116

Investment in hotel properties under development

We are developing a hotel in Los Angeles, CA on a parcel of land owned by us. We have incurred ~~$26.7~~$33.7 million of costs to date, which includes $6.6 million of land acquisition costs and ~~$20.1~~$27.1 million of other development costs.

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6. Investment in Unconsolidated Entities

On June 9, 2014, the Company acquired a 10.3% interest in the NewINK JV, a joint venture between affiliates of NorthStar Realty Finance Corp. ("NorthStar") and the Operating Partnership. The Company accounts for this investment under the equity method. NorthStar merged with Colony Capital, Inc. ("Colony") on January 10, 2017 to form a new company, CLNY, which owns a 89.7% interest in the NewINK JV. The value of NewINK JV assets and liabilities were adjusted to reflect estimated fair market value at the time Colony merged with NorthStar. As of ~~March 31,~~September 30, 2020 and 2019, the Company’s share of partners’ capital in the NewINK JV was approximately ~~$39.3~~$4.2 million and ~~$46.7~~$44.4 million, respectively, and the total difference between the carrying amount of investment and the Company’s share of partners’ capital was approximately ~~$55.5~~$22.8 million and ~~$56.8~~$56.1 million, respectively, (for which the basis difference related to amortizing assets is being recognized over the life of the related assets as a basis difference adjustment). The Company offset approximately $32.2 million of its share of the NewINK JV's impairment loss in the current year by its remaining basis difference in the NewINK JV. The Company serves as managing member of the NewINK JV. During the three and nine months ended ~~March 31,~~September 30, 2020 and 2019, the Company received 0 cash distributions from the NewINK ~~JV.~~JV as follows (in thousands):


	For the three months ended				For the nine months ended
	September 30,				September 30,
	2020		2019		2020		2019
Cash generated from other activities and excess cash	$	0	$	0	$	0	$	411


Total	$	0	$	0	$	0	$	411

On November 17, 2014, the Company acquired a 10.0% interest in the Inland JV, a joint venture between affiliates of NorthStar and the Operating Partnership. The Company accounts for this investment under the equity method. NorthStar merged with Colony on January 10, 2017 to form a new company, CLNY, which owns a 90% interest in the Inland JV. The value of Inland JV assets and liabilities were adjusted to reflect estimated fair market value at the time Colony merged with NorthStar. As of March 31, 2020 and 2019, the Company's share of partners' capital in the Inland JV was approximately $25.7 million and $31.5 million, respectively, and the total difference between the carrying amount of the investment and the Company's share of partners' capital was approximately $25.7 million and $10.7 million, respectively (for which the basis difference related to amortizing assets is being recognized over the life of the related assets as a basis difference adjustment). The Company serves as managing member of the Inland JV. During the three and nine months ended ~~March 31,~~September 30, 2020 and 2019, the Company received 0 cash distributions from the Inland JV.

On May 9, 2017, the NewINK JV refinanced the $840.0 million loan collateralized by the 47 hotels then owned with a new $850.0 million loan with an interest at a rate of LIBOR plus a spread of 2.79%, an initial maturity date of June 7, 2019 and 3 ~~one-year~~one-year extension options. The NewINK JV exercised the first extension and the maturity was extended to June 7, 2020. On November 7, 2019, the NewINK JV refinanced the $850.0 million loan with a new $855.0 million non-recourse loan from Morgan Stanley Bank, N.A., JPMorgan Chase Bank, National Association, and Bank of America, N.A. (collectively the "Lender"), collateralized by the then owned 46 hotels. The new loan bears interest at a rate of LIBOR plus a spread of 2.82%, has an initial maturity of November 7, 2021 and 5 ~~one-year~~one-year extension options.

On April 7, 2020 and May 7, 2020, the NewINK JV failed to make debt service payments related to its $855.0 million loan. The servicer and lender subsequently agreed to fund the April 7, 2020 and May 7, 2020 interest payments for the senior portion of the loan from restricted cash balances that were originally escrowed to fund future capital expenditures. During the three months ended September 30, 2020, the NewINK JV made the senior debt payments due June 7, 2020 and July 7, 2020. The NewINK JV did not make the interest payment due to mezzanine lenders on April 7, 2020 and has not made any of the subsequent monthly interest payments due to mezzanine lenders. The failure to make the required debt service payments is an event of default under the NewINK loan agreement and could result in a foreclosure by the lender. The NewINK JV debt is non-recourse to Chatham with the exception of customary non-recourse carve-out provisions such as fraud, material and intentional misrepresentations and misapplication of funds. A default under the NewINK loan agreement does not trigger a cross-default under any of Chatham’s debt agreements.

On June 9, 2017, the Inland JV refinanced the $817.0 million loan collateralized by the 48 hotels with a new $780.0 million non-recourse loan with Column Financial, Inc. On June 9, 2017, the Company contributed an additional $5.0 million of capital related to its share in the Inland JV to reduce the debt collateralized by the 48 hotels. The new loan bears interest at a rate of LIBOR plus a spread of 3.3%, had an initial maturity date of July 9, 2019 and 3 ~~one-year~~one-year extension options. The Inland JV exercised the first extension and the maturity was extended to July 9, 2020.

On April 9, 2020 the Inland JV failed to make a debt service payment related to its $780.0 million loan and has not made any of its subsequent monthly debt service payments. The failure to make the required debt service payments is an event of default under the Inland loan agreement. The Inland JV has not been successful in negotiating a forbearance agreement with its lenders. The Inland JV debt is non-recourse to Chatham with the exception of customary non-recourse carve-out provisions such as fraud, material and intentional misrepresentations and misapplication of funds. A default under the Inland JV loan agreement does not trigger a cross-default under any of Chatham’s debt agreements. The Inland JV has not been successful in negotiating a forbearance agreement with its lenders. At the direction of the special servicer for the Inland JV loan, control of Inland JV properties has transitioned to a court appointed receiver. The receiver, LW Hospitality Advisors, has been appointed for Inland JV hotels, it has replaced IHM with new hotel management companies. The Inland JV debt is non-recourse to Chatham with the exception of customary non-recourse carve-out provisions such as fraud, material and intentional misrepresentations and misapplication of funds. A default under the Inland JV loan agreement does not trigger a cross-default under any of Chatham’s debt agreements.

The Company’s ownership interests in the JVs are subject to change in the event that either the Company or CLNY calls for additional capital contributions to the respective JVs necessary for the conduct of business, including contributions to fund costs and expenses related to capital expenditures. In connection with (i) the non-recourse mortgage loan secured by the NewINK JV properties and the related non-recourse mezzanine loan secured by the membership interests in the owners of the NewINK JV properties and (ii) the non-recourse mortgage loan secured by the Inland JV properties, the Operating Partnership provided the applicable lenders with customary environmental indemnities, as well as guarantees of certain customary non-recourse carve-out provisions such as fraud, material and intentional misrepresentations and misapplication of funds. In some circumstances, such as the bankruptcy of the applicable borrowers, the guarantees are for the full amount of the outstanding debt, but in most circumstances, the guarantees are capped at 15% of the debt outstanding at the time in question (in the case of the NewINK JV loans) or 20% of the debt outstanding at the time in question (in the case of the Inland JV loans). In connection with each of the NewINK JV and Inland JV loans, the Operating Partnership has entered into a contribution agreement with its JV partner whereby the JV partner is, in most cases, responsible to cover such JV partner’s pro rata share of any amounts due by the Operating Partnership under the applicable guarantees and environmental indemnities. The Company manages the JVs and will receive a promote interest in each applicable JV if it meets certain return thresholds for such JV. CLNY may also approve certain actions by the JVs without the Company’s consent, including certain property dispositions conducted at arm’s length, certain actions related to the restructuring of the applicable JV and removal of the Company as managing member in the event the Company fails to fulfill its material obligations under the applicable joint venture agreement.

On September 24, 2020 CLNY announced that it had entered into an agreement to sell 6 of its hospitality portfolios, including the NewINK JV, in a transaction with a gross equity sale price of $67.5 million. The Inland JV is not included in this proposed transaction. CLNY has not disclosed a proposed allocation of the sale price among the 6 portfolios, so the amount of proceeds Chatham will receive if the transaction closes has not yet been determined. The transaction is subject to closing conditions, including the assumption of debt by the purchaser.

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During the three months ended March 31, 2020, the Company determined that an other than temporary decline in the value of its equity investment in the Inland JV had occurred. The Inland JV’s operating performance has been significantly impacted by the COVID-19 pandemic. The Inland JV has high leverage, limited liquidity and limited ability to fund the current level of operating losses caused by the COVID-19 pandemic for a sustained period of time. Based on these factors, we have assessed that the fair market value of our equity investment in the Inland JV is $00 and the Company did not consider the investment recoverable and therefore recorded an impairment of $15.3 million on the investment. Since the Company’s basis in the Inland JV is now 0 and we expect that ongoing losses are not sustainable, we stopped recording any equity income or losses from the Inland JV as of March 31, 2020.

The Company's recorded investments in the NewINK JV and the Inland JV were ~~$(16.2)~~$(18.6) million and $0.0 million, respectively, at ~~March 31,~~September 30, 2020. The following table sets forth the combined components of net loss, including the Company’s share, related to all JVs for the three and nine months ended ~~March 31,~~September 30, 2020 and 2019 (in thousands):


		For the three months ended							For the three months ended				For the nine months ended
		March 31,							September 30,				September 30,
		2020		2019			2020		2019		2020		2019
Revenue	Revenue	$	90,870	$	112,120	Revenue	$	63,509	$	135,727	$	192,276	$	382,303
Total hotel operating expenses	Total hotel operating expenses	71,965		78,554		Total hotel operating expenses	53,636		85,270		165,588		249,342
Hotel operating income	Hotel operating income	$	18,905	$	33,566	Hotel operating income	$	9,873	$	50,457	$	26,688	$	132,961
Impairment loss	Impairment loss	13,881		—		Impairment loss	$	2,842	$	32,773	$	578,217	$	32,773
Net income (loss) from continuing operations		$	(40,285)	$	(15,019)
Loss from continuing operations						Loss from continuing operations	$	(26,637)	$	(31,300)	$	(671,644)	$	(45,754)
Loss on sale of hotels	Loss on sale of hotels	$	(82)	$	—	Loss on sale of hotels	(6)		0		(20)		0
Net (loss)		$	(40,367)	$	(15,019)
Net loss						Net loss	$	(26,643)	$	(31,300)	$	(671,664)	$	(45,754)

Income (loss) allocable to the Company		$	(4,072)	$	(1,522)
Loss allocable to the Company						Loss allocable to the Company	$	(982)	$	(3,183)	$	(6,960)	$	(4,647)
Basis difference adjustment	Basis difference adjustment	399		399		Basis difference adjustment	135		399		861		1,197
Total income (loss) from unconsolidated real estate entities attributable to the Company		$	(3,673)	$	(1,123)
Total loss from unconsolidated real estate entities attributable to the Company						Total loss from unconsolidated real estate entities attributable to the Company	$	(847)	$	(2,784)	$	(6,099)	$	(3,450)

1213

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7. Debt

The Company’s mortgage loans are collateralized by first-mortgage liens on certain of the Company’s properties. The mortgage loans are non-recourse except for instances of fraud or misapplication of funds. Mortgage and revolving credit facility debt consisted of the following (dollars in thousands):


Collateral	Collateral	Interest Rate		Maturity Date	3/31/20 Property Carrying Value		Balance Outstanding on Loan as of							Collateral	Interest Rate			Maturity Date	9/30/20 Property Carrying Value		Balance Outstanding on Loan as of
																					Interest Rate		Maturity Date	9/30/20 Property Carrying Value	September 30, 2020	December 31, 2019
Revolving Credit Facility (1)	Revolving Credit Facility (1)	3.48	%	March 8, 2022	$	—	$	173,000	$	90,000	Revolving Credit Facility (1)	3.09	%		March 8, 2022	$	393,215		$	173,000

Construction loan (2)											Construction loan (2)	7.75	%		August 3, 2024	33,719			3,923		0
Residence Inn by Marriott New Rochelle, NY	Residence Inn by Marriott New Rochelle, NY	5.75	%	September 1, 2021	20,514		12,825		12,936		Residence Inn by Marriott New Rochelle, NY	5.75	%		September 1, 2021	21,835			12,717		12,936
Residence Inn by Marriott San Diego, CA	Residence Inn by Marriott San Diego, CA	4.66	%	February 6, 2023	44,609		27,114		27,272		Residence Inn by Marriott San Diego, CA	4.66	%		February 6, 2023	43,836			26,798		27,272
Homewood Suites by Hilton San Antonio, TX	Homewood Suites by Hilton San Antonio, TX	4.59	%	February 6, 2023	29,572		15,472		15,563		Homewood Suites by Hilton San Antonio, TX	4.59	%		February 6, 2023	28,887			15,290		15,563
Residence Inn by Marriott Vienna, VA	Residence Inn by Marriott Vienna, VA	4.49	%	February 6, 2023	31,751		21,164		21,291		Residence Inn by Marriott Vienna, VA	4.49	%		February 6, 2023	31,267			20,911		21,291
Courtyard by Marriott Houston, TX	Courtyard by Marriott Houston, TX	4.19	%	May 6, 2023	30,923		17,451		17,559		Courtyard by Marriott Houston, TX	4.19	%		May 6, 2023	30,376			17,237		17,559
Hyatt Place Pittsburgh, PA	Hyatt Place Pittsburgh, PA	4.65	%	July 6, 2023	34,655		21,398		21,520		Hyatt Place Pittsburgh, PA	4.65	%		July 6, 2023	34,058			21,157		21,520
Residence Inn by Marriott Bellevue, WA	Residence Inn by Marriott Bellevue, WA	4.97	%	December 6, 2023	63,665		43,644		43,857		Residence Inn by Marriott Bellevue, WA	4.97	%		December 6, 2023	62,765			43,220		43,857
Residence Inn by Marriott Garden Grove, CA	Residence Inn by Marriott Garden Grove, CA	4.79	%	April 6, 2024	40,424		31,906		32,053		Residence Inn by Marriott Garden Grove, CA	4.79	%		April 6, 2024	41,368			31,615		32,053
Residence Inn by Marriott Silicon Valley I, CA	Residence Inn by Marriott Silicon Valley I, CA	4.64	%	July 1, 2024	78,457		64,160		64,406		Residence Inn by Marriott Silicon Valley I, CA	4.64	%		July 1, 2024	76,651			63,674		64,406
Residence Inn by Marriott Silicon Valley II, CA	Residence Inn by Marriott Silicon Valley II, CA	4.64	%	July 1, 2024	85,969		70,001		70,270		Residence Inn by Marriott Silicon Valley II, CA	4.64	%		July 1, 2024	84,863			69,471		70,270
Residence Inn by Marriott San Mateo, CA	Residence Inn by Marriott San Mateo, CA	4.64	%	July 1, 2024	64,398		48,120		48,305		Residence Inn by Marriott San Mateo, CA	4.64	%		July 1, 2024	63,382			47,755		48,305
Residence Inn by Marriott Mountain View, CA	Residence Inn by Marriott Mountain View, CA	4.64	%	July 6, 2024	51,956		37,525		37,670		Residence Inn by Marriott Mountain View, CA	4.64	%		July 6, 2024	50,346			37,241		37,670
SpringHill Suites by Marriott Savannah, GA	SpringHill Suites by Marriott Savannah, GA	4.62	%	July 6, 2024	34,261		29,702		29,817		SpringHill Suites by Marriott Savannah, GA	4.62	%		July 6, 2024	33,639			29,477		29,817
Hilton Garden Inn Marina del Rey, CA	Hilton Garden Inn Marina del Rey, CA	4.68	%	July 6, 2024	38,914		20,822		20,931		Hilton Garden Inn Marina del Rey, CA	4.68	%		July 6, 2024	38,339			20,604		20,931
Homewood Suites by Hilton Billerica, MA	Homewood Suites by Hilton Billerica, MA	4.32	%	December 6, 2024	13,727		15,623		15,693		Homewood Suites by Hilton Billerica, MA	4.32	%		December 6, 2024	13,252			15,484		15,693

Hampton Inn & Suites Houston Medical Center, TX	Hampton Inn & Suites Houston Medical Center, TX	4.25	%	January 6, 2025	16,435		17,637		17,717		Hampton Inn & Suites Houston Medical Center, TX	4.25	%		January 6, 2025	15,938			17,478		17,717

Total debt before unamortized debt issue costs	Total debt before unamortized debt issue costs				$	680,230	$	667,564	$	586,860	Total debt before unamortized debt issue costs					$	1,097,736		$	667,052	$	586,860
Unamortized mortgage debt issue costs	Unamortized mortgage debt issue costs						(1,299)		(1,395)		Unamortized mortgage debt issue costs								(1,105)		(1,395)
Total debt outstanding	Total debt outstanding						$	666,265	$	585,465	Total debt outstanding								$	665,947	$	585,465

~~(1)~~1.The interest rate for the revolving credit facility is variable and based on ~~either~~ LIBOR (subject to a 0.5% floor) plus ~~an applicable margin ranging from 1.55% to 2.25%,~~a spread of 2.5% if borrowings remain at or ~~prime plus an applicable margin~~below $200 million and a spread of ~~0.55% to 1.25%.~~

3.0% if borrowings exceed $200 million. At ~~March 31,~~September 30, 2020 and December 31, 2019, the Company had $173.0 million and $90.0 million, respectively, of outstanding borrowings under its $250.0 million revolving credit facility. The credit facility provides 2 six-month extension options that would extend the final maturity to March 8, 2023 if exercised.

2.On August 4, 2020, a subsidiary of Chatham entered into an agreement with affiliates of Mack Real Estate Credit Strategies to obtain a $40 million loan to fund the remaining construction costs of the Warner Center hotel development. The loan has an initial term of 4 years and there are 2 six-month extension options. The rate on the loan is LIBOR, subject to a 0.25% floor, plus a spread of 7.5%.

The Company estimates the fair value of its fixed rate debt by discounting the future cash flows of each instrument at estimated market rates. All of the Company's mortgage loans are fixed-rate. Rates take into consideration general market conditions, quality and estimated value of collateral and maturity of debt with similar credit terms and are classified within level 3 of the fair value hierarchy. The estimated fair value of the Company’s fixed rate debt as of ~~March 31,~~September 30, 2020 and December 31, 2019 was ~~$468.7~~$471.4 million and $501.5 million, respectively.

The Company estimates the fair value of its variable rate debt by taking into account general market conditions and the estimated credit terms it could obtain for debt with similar maturity and is classified within level 3 of the fair value hierarchy. As of ~~March 31,~~September 30, 2020, the Company’s only variable rate debt is under its revolving credit facility. The estimated fair value of the Company’s variable rate debt as of ~~March 31,~~September 30, 2020 and December 31, 2019 was ~~$173.0~~$176.9 million and $90.0 million, respectively.

~~Table of Contents~~

~~As of March 31, 2020, the Company was in compliance with all of its financial covenants.~~ On May 6, 2020, the company amended its credit facility to provide it with certain relief from the effects of the COVID-19 pandemic. The amendment provides for the waiver of certain financial covenants through March 31, 2021 and allows Chatham to borrow up to the entire $250 million facility size during this period. During this covenant waiver period, Chatham will be required to maintain a minimum liquidity of $25 million which will include both unrestricted cash and credit facility availability. In connection with the amendment, Chatham added 6 hotels to the credit facility’s borrowing base which now has a total of 18 properties. The amendment provided Chatham’s credit facility lenders with pledges of the equity in the 18 borrowing base hotels. The amendment places additional limits on Chatham’s ability to incur debt, pay dividends, and make capital expenditures during the covenant waiver period. During the covenant waiver period interest will be calculated as LIBOR (subject to a 0.5% floor) plus a spread of 2.5% if borrowings remain at or below $200 million and a spread of 3.0% if borrowings exceed $200 million. ~~See Note 15 for additional details.~~As of September 30, 2020, the Company was in compliance with all of its modified financial covenants.

Future scheduled principal payments of debt obligations as of ~~March 31,~~September 30, 2020, for the current year and each of the next five calendar years and thereafter are as follows (in thousands):


		Amount			Amount
2020 (remaining nine months)		$	8,681
2020 (remaining three months)				2020 (remaining three months)	$	2,665
2021	2021	21,908		2021	22,121
2022	2022	182,954		2022	182,954
2023	2023	142,565		2023	143,084
2024	2024	295,586		2024	300,309
2025	2025	15,870		2025	15,919
Thereafter	Thereafter	—		Thereafter	0
Total debt before unamortized debt issue costs	Total debt before unamortized debt issue costs	$	667,564	Total debt before unamortized debt issue costs	$	667,052
Unamortized mortgage debt issue costs	Unamortized mortgage debt issue costs	(1,299)		Unamortized mortgage debt issue costs	(1,105)
Total debt outstanding	Total debt outstanding	$	666,265	Total debt outstanding	$	665,947

Accounting for Derivative Instruments

The Company has entered into interest rate cap agreements to hedge against interest rate fluctuations related to the construction loans for the Warner Center hotel. The Company records its derivative instruments on the balance sheet at their estimated fair values. Changes in the fair value of the derivatives are recorded each period in current earnings or in other comprehensive income, depending on whether a derivative is designated as part of a hedging relationship and, if it is, depending on the type of hedging relationship. The Company's interest rate caps are not designated as a hedge but to eliminate the incremental cost to the Company if the one-month LIBOR were to exceed 3.5%. Accordingly, the interest rate caps are recorded on the balance sheet under prepaid expenses and other assets at the estimated fair value and realized and unrealized changes in the fair value are reported in the combined statement of operations. As of September 30, 2020, the fair value of the interest rate caps were $10 thousand.

8. Income Taxes

The Company’s TRS is subject to federal and state income taxes.

~~The components of income~~ Income tax expense was 0 for the ~~following periods are as follows (in thousands):~~

For the three months ended
March 31,
2020 2019
Federal $ — $ —
State — —
Tax expense (benefit) $ — $ —

three months ended September 30, 2020 and 2019 and 0 for the nine months ended September 30, 2020 and 2019.

As of each reporting date, the Company's management considers new evidence, both positive and negative, that could impact management's view with regard to future realization of deferred tax assets. The Company's TRS is expecting continued taxable losses in 2020. As of ~~March 31,~~September 30, 2020, the TRS continues to recognize a full valuation allowance equal to 100% of the net deferred tax assets, with the exception of the AMT tax credit, due to the uncertainty of the TRS's ability to utilize these net deferred tax assets. Management will continue to monitor the need for a valuation allowance.

During the third quarter of 2018, the Company was notified that the tax return of the Company's TRS was going to be examined by the Internal Revenue Service for the tax year ended December 31, 2016. The examination remains open. The Company believes it does not need to record a liability related to matters contained in the tax period open to examination. However, should the Company experience an unfavorable outcome in the matter, such outcome could have a material impact on its results of operations, financial position and cash flows.

~~Table of Contents~~

9. Dividends Declared and Paid

The Company declared total common share dividends of $0.22 per share and distributions on LTIP units of $0.22 per unit for the ~~three~~nine months ended ~~March 31,~~September 30, 2020. The Company suspended dividends beginning after the payment of the March 27, 2020 dividend due to a decline in operating performance caused by the COVID-19 pandemic. The dividends and distributions were as follows:


	Record Date	Payment Date	Common share distribution amount		LTIP unit distribution amount
January	1/31/2020	2/28/2020	$	0.11	$	0.11
February	2/28/2020	3/27/2020	0.11		0.11

1st Quarter 2020			$	0.22	$	0.22











Total 2020			$	0.22	$	0.22

10. Earnings Per Share

The two-class method is used to determine earnings per share because unvested restricted shares and unvested LTIP units are considered to be participating shares. The LTIP units held by the non-controlling interest holders, which may be converted to common shares of beneficial interest, have been excluded from the denominator of the diluted earnings per share calculation as there would be no effect on the amounts since limited partners' share of income or loss would also be added back to net income or loss. Unvested restricted shares, unvested long-term incentive plan units and unvested Class A Performance LTIP units that could potentially dilute basic earnings per share in the future would not be included in the computation of diluted loss per share, for the periods where a loss has been recorded, because they would have been anti-dilutive for the periods presented. The following is a reconciliation of the amounts used in calculating basic and diluted net income per share (in thousands, except share and per share data):


		For the three months ended							For the three months ended				For the nine months ended
		March 31,							September 30,				September 30,
		2020		2019			2020		2019		2020		2019
Numerator:	Numerator:					Numerator:
Net income (loss) attributable to common shareholders	Net income (loss) attributable to common shareholders	$	(27,783)	$	1,613	Net income (loss) attributable to common shareholders	$	(18,057)	$	10,002	$	(72,667)	$	21,052
Dividends paid on unvested shares and units	Dividends paid on unvested shares and units	(50)		(85)		Dividends paid on unvested shares and units	0		(107)		(50)		(299)

Net income (loss) attributable to common shareholders	Net income (loss) attributable to common shareholders	$	(27,833)	$	1,528	Net income (loss) attributable to common shareholders	$	(18,057)	$	9,895	$	(72,717)	$	20,753
Denominator:	Denominator:					Denominator:
Weighted average number of common shares - basic	Weighted average number of common shares - basic	46,948,533		46,556,710		Weighted average number of common shares - basic	46,965,526		46,913,922		46,958,143		46,744,890

Unvested shares	Unvested shares	—		178,248		Unvested shares	—		238,244		—		212,074
Weighted average number of common shares - diluted	Weighted average number of common shares - diluted	46,948,533		46,734,958		Weighted average number of common shares - diluted	46,965,526		47,152,166		46,958,143		46,956,964
Basic income (loss) per Common Share:	Basic income (loss) per Common Share:					Basic income (loss) per Common Share:
Net income (loss) attributable to common shareholders per weighted average basic common share	Net income (loss) attributable to common shareholders per weighted average basic common share	$	(0.59)	$	0.03	Net income (loss) attributable to common shareholders per weighted average basic common share	$	(0.38)	$	0.21	$	(1.55)	$	0.44
Diluted income (loss) per Common Share:	Diluted income (loss) per Common Share:					Diluted income (loss) per Common Share:
Net income (loss) attributable to common shareholders per weighted average diluted common share	Net income (loss) attributable to common shareholders per weighted average diluted common share	$	(0.59)	$	0.03	Net income (loss) attributable to common shareholders per weighted average diluted common share	$	(0.38)	$	0.21	$	(1.55)	$	0.44

1516

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11. Equity Incentive Plan

The Company maintains its Equity Incentive Plan to attract and retain independent trustees, executive officers and other key employees and service providers. The plan provides for the grant of options to purchase common shares, share awards, share appreciation rights, performance units and other equity-based awards. The plan was amended and restated as of May 17, 2013 to increase the maximum number of shares available under the plan to 3,000,000 shares. Share awards under this plan generally vest over three years, though compensation for the Company’s independent trustees includes share grants that vest immediately. The Company pays dividends on unvested shares and units, except for performance-based shares and outperformance based units, for which dividends on unvested performance-based shares and units are accrued and not paid until those shares or units vest. Certain awards may provide for accelerated vesting if there is a change in control. In January 2020 and 2019, the Company issued 24,516 and 27,870 common shares, respectively, to its independent trustees as compensation for services performed in 2019 and 2018, respectively. As of ~~March 31,~~September 30, 2020, there were ~~760,748~~944,048 common shares available for issuance under the Equity Incentive Plan.

Restricted Share Awards

From time to time, the Company may award restricted shares under the Equity Incentive Plan as compensation to officers, employees and non-employee trustees. The Company recognizes compensation expense for the restricted shares on a straight-line basis over the vesting period based on the fair market value of the shares on the date of issuance.

A summary of the Company’s restricted share awards for the ~~three~~nine months ended ~~March 31,~~September 30, 2020 and the year ended December 31, 2019 is as follows:


		Three Months Ended				Year Ended						Nine Months Ended			Year Ended
		March 31, 2020				December 31, 2019						September 30, 2020			December 31, 2019
		Number of Shares	Weighted-Average Grant Date Fair Value		Number of Shares	Weighted-Average Grant Date Fair Value			Number of Shares	Weighted-Average Grant Date Fair Value		Number of Shares	Weighted-Average Grant Date Fair Value
Non-vested at beginning of the period	Non-vested at beginning of the period	5,001	$	18.33	8,334	$	18.52	Non-vested at beginning of the period	5,001	$	18.33	8,334	$	18.52
Granted	Granted	—	—		—	—		Granted	0	0		0	0
Vested	Vested	(1,667)	20.20		(3,333)	18.80		Vested	(1,667)	20.20		(3,333)	18.80
Forfeited	Forfeited	—	—		—	—		Forfeited	0	0		0	0
Non-vested at end of the period	Non-vested at end of the period	3,334	$	17.40	5,001	$	18.33	Non-vested at end of the period	3,334	$	17.40	5,001	$	18.33

As of ~~March 31,~~September 30, 2020 and December 31, 2019, there were ~~$50.3~~$35.8 thousand and ~~$105.5~~$58.5 thousand, respectively, of unrecognized compensation costs related to restricted share awards. As of ~~March 31,~~September 30, 2020, these costs were expected to be recognized over a weighted–average period of approximately ~~1.7 years.~~one year. For the three months ended ~~March 31,~~September 30, 2020 and 2019, the Company recognized approximately ~~$8.3~~$7.3 thousand and $15.7 thousand, respectively, and for nine months ended September 30, 2020 and 2019, the Company recognized approximately $22.8 thousand and $47.0 thousand, respectively, of expense related to the restricted share awards.

1617

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Long-Term Incentive Plan Awards

LTIP units are a special class of partnership interests in the Operating Partnership which may be issued to eligible participants for the performance of services to or for the benefit of the Company. Under the Equity Incentive Plan, each LTIP unit issued is deemed equivalent to an award of one common share thereby reducing the number of shares available for other equity awards on a 1-for-one basis.

A summary of the Company's LTIP Unit awards for the ~~three~~nine months ended ~~March 31,~~September 30, 2020 and the year ended December 31, 2019 is as follows:


		Three Months Ended				Year Ended						Nine Months Ended			Year Ended
		March 31, 2020				December 31, 2019						September 30, 2020			December 31, 2019
		Number of Units	Weighted-Average Grant Date Fair Value		Number of Units	Weighted-Average Grant Date Fair Value			Number of Units	Weighted-Average Grant Date Fair Value		Number of Units	Weighted-Average Grant Date Fair Value
Non-vested at beginning of the period	Non-vested at beginning of the period	598,320	$	18.30	476,398	$	17.73	Non-vested at beginning of the period	598,320	$	18.30	476,398	$	17.73
Granted	Granted	325,507	13.42		221,853	18.73		Granted	325,507	13.42		221,853	18.73
Vested	Vested	(254,218)	(18.82)		(99,931)	16.55		Vested	(254,218)	18.82		(99,931)	16.55
Forfeited	Forfeited	—	$	—	—	$	—	Forfeited	0	$	0	0	$	0
Non-vested at end of the period	Non-vested at end of the period	669,609	$	15.73	598,320	$	18.30	Non-vested at end of the period	669,609	$	15.73	598,320	$	18.30

Outperformance Plan LTIP Awards

On June 1, 2015, the Company's Operating Partnership granted 183,300 Class A Performance LTIP units, as recommended by the Compensation Committee of the Board (the “Compensation Committee”), pursuant to a long-term, multi-year performance plan (the “Outperformance Plan”). As of June 1, 2018, the Class A Performance LTIP units did not meet the required market based Total Shareholder Return ("TSR") measurements and therefore, the accrued dividends and units have been forfeited. The ~~Company will continue to amortize the remaining~~ expense related to these ~~awards over the next two months due to the awards being market based.~~LTIP units was completely amortized as of May 31, 2020.

Time-Based LTIP Awards

On March 1, 2020, the Company’s Operating Partnership, upon the recommendation of the Compensation Committee, granted 130,206 time-based awards (the “2020 Time-Based LTIP Unit Award”). The grants were made pursuant to award agreements that provide for time-based vesting (the "LTIP Unit Time-Based Vesting Agreement").

Time-based LTIP Unit Awards will vest ratably provided that the recipient remains employed by the Company through the applicable vesting date, subject to acceleration of vesting in the event of the recipient’s death, disability, termination without cause or resignation with good reason, or in the event of a change of control of the Company. Prior to vesting, a holder is entitled to receive distributions on the LTIP Units that comprise the 2020 Time-Based LTIP Unit Awards and the prior year LTIP unit Awards set forth in the table above.

Performance-Based LTIP Awards

On March 1, 2020, the Company's Operating Partnership, upon the recommendation of the Compensation Committee, also granted 195,301 performance-based awards (the "2020 Performance-Based LTIP Unit Awards"). The grants were made pursuant to award agreements that have market based vesting conditions. The Performance-Based LTIP Unit Awards are comprised of Class A Performance LTIP Units that will vest only if and to the extent that (i) the Company achieves certain long-term market based TSR criteria established by the Compensation Committee and (ii) the recipient remains employed by the Company through the applicable vesting date, subject to acceleration of vesting in the event of the recipient’s death, disability, termination without cause or resignation with good reason, or in the event of a change of control of the Company. Compensation expense is based on an estimated value of $13.66 per 2020 Performance-Based LTIP Unit Award, which takes into account that some or all of the awards may not vest if long-term market based TSR criteria are not met during the vesting period.

1718

~~Table of Contents~~

The 2020 Performance-Based LTIP Unit Awards may be earned based on the Company’s relative TSR performance for the three-year period beginning on March 1, 2020 and ending on February 28, 2023. The 2020 Performance-Based LTIP Unit Awards, if earned, will be paid out between 50% and 150% of target value as follows:


	Relative TSR Hurdles (Percentile)	Payout Percentage
Threshold	25th	50%
Target	50th	100%
Maximum	75th	150%

Payouts at performance levels in between the hurdles will be calculated by straight-line interpolation.

The Company estimated the aggregate compensation cost to be recognized over the service period determined as of the grant date under ASC 718, excluding the effect of estimated forfeitures, using a Monte Carlo approach. In determining the discounted value of the LTIP units, the Company considered the inherent uncertainty that the LTIP units would never reach parity with the other common units of the Operating Partnership and thus have an economic value of zero to the grantee. Additional factors considered in estimating the value of LTIP units included discounts for illiquidity; expectations for future dividends; risk free interest rates; stock price volatility; and economic environment and market conditions.

The grant date fair values of the LTIPs and the assumptions used to estimate the values are as follows:


		Grant Date	Number of Units Granted	Estimated Value Per Unit	Volatility	Dividend Yield	Risk Free Interest Rate		Grant Date	Number of Units Granted	Estimated Value Per Unit	Volatility	Dividend Yield	Risk Free Interest Rate
Outperformance Plan LTIP Unit Awards	Outperformance Plan LTIP Unit Awards	6/1/2015	183,300	$14.13	26%	4.5%	0.95%	Outperformance Plan LTIP Unit Awards	6/1/2015	183,300	$14.13	26%	4.5%	0.95%
2016 Time-Based LTIP Unit Awards	2016 Time-Based LTIP Unit Awards	1/28/2016	72,966	$16.69	28%	—%	0.79%	2016 Time-Based LTIP Unit Awards	1/28/2016	72,966	$16.69	28%	0%	0.79%
2016 Performance-Based LTIP Unit Awards	2016 Performance-Based LTIP Unit Awards	1/28/2016	39,285	$11.09	30%	5.8%	1.13%	2016 Performance-Based LTIP Unit Awards	1/28/2016	39,285	$11.09	30%	5.8%	1.13%
2017 Time-Based LTIP Unit Awards	2017 Time-Based LTIP Unit Awards	3/1/2017	89,574	$18.53	24%	—%	0.92%	2017 Time-Based LTIP Unit Awards	3/1/2017	89,574	$18.53	24%	0%	0.92%
2017 Performance-Based LTIP Unit Awards	2017 Performance-Based LTIP Unit Awards	3/1/2017	134,348	$19.65	25%	5.8%	1.47%	2017 Performance-Based LTIP Unit Awards	3/1/2017	134,348	$19.65	25%	5.8%	1.47%
2018 Time-Based LTIP Unit Awards	2018 Time-Based LTIP Unit Awards	3/1/2018	97,968	$16.83	26%	—%	2.07%	2018 Time-Based LTIP Unit Awards	3/1/2018	97,968	$16.83	26%	0%	2.07%
2018 Performance-Based LTIP Unit Awards	2018 Performance-Based LTIP Unit Awards	3/1/2018	146,949	$17.02	26%	6.2%	2.37%	2018 Performance-Based LTIP Unit Awards	3/1/2018	146,949	$17.02	26%	6.2%	2.37%
2019 Time-Based LTIP Unit Awards	2019 Time-Based LTIP Unit Awards	3/1/2019	88,746	$18.45	21%	—%	2.57%	2019 Time-Based LTIP Unit Awards	3/1/2019	88,746	$18.45	21%	0%	2.57%
2019 Performance-Based LTIP Unit Awards	2019 Performance-Based LTIP Unit Awards	3/1/2019	133,107	$18.91	21%	6.2%	2.55%	2019 Performance-Based LTIP Unit Awards	3/1/2019	133,107	$18.91	21%	6.2%	2.55%
2020 Time-Based LTIP Unit Awards	2020 Time-Based LTIP Unit Awards	3/1/2020	130,206	$13.05	20%	—%	1.06%	2020 Time-Based LTIP Unit Awards	3/1/2020	130,206	$13.05	20%	0%	1.06%
2020 Performance-Based LTIP Unit Awards	2020 Performance-Based LTIP Unit Awards	3/1/2020	195,301	$13.66	20%	8.1%	0.90%	2020 Performance-Based LTIP Unit Awards	3/1/2020	195,301	$13.66	20%	8.1%	0.90%

The Company recorded ~~$1.4~~$1.0 million and ~~$0.9~~$1.1 million in compensation expense related to the LTIP units for the three months ended ~~March 31,~~September 30, 2020 and 2019, respectively, and for the nine months ended September 30, 2020 and 2019, the Company recognized approximately $3.4 million and $3.1 million, respectively. As of ~~March 31,~~September 30, 2020 and December 31, 2019, there was ~~$7.9~~$5.9 million and ~~$8.2~~$4.9 million, respectively, of total unrecognized compensation cost related to LTIP units. This cost is expected to be recognized over approximately ~~2.3~~1.6 years, which represents the weighted average remaining vesting period of the LTIP units.

12. Leases

The Courtyard Altoona hotel was subject to a ground lease with an expiration date of April 30, 2029 with an extension option by the Company of up to 12 additional terms of five years each. Monthly payments were determined by the quarterly average room occupancy of the hotel. Rent was equal to approximately $8,400 per month when monthly occupancy was less than 85% and could increase up to approximately $20,000 per month if occupancy was 100%, with minimum rent increased by two and one-half percent (2.5%) on an annual basis. The Altoona hotel was sold on May 7, 2019.

The Residence Inn Gaslamp hotel is subject to a ground lease with an expiration date of January 31, 2065 with an extension option by the Company of up to 3 additional terms of ten years each. Monthly payments are currently approximately $44,400 per month and increase 10% every five years. The hotel is subject to annual supplemental rent payments calculated as 5% of gross revenues during the applicable lease year, minus 12 times the monthly base rent scheduled for the lease year.

~~Table of Contents~~

The Residence Inn New Rochelle is subject to an air rights lease and garage lease that each expire on December 1, 2104. The lease agreements with the City of New Rochelle cover the space above the parking garage that is occupied by the hotel as well as 128 parking spaces in a parking garage that is attached to the hotel. The annual base rent for the garage lease is the hotel’s proportionate share of the city’s adopted budget for the operations, management and maintenance of the garage and established reserves to fund for the cost of capital repairs. Aggregate rent for 2020 is approximately $31,000 per quarter.

The Hilton Garden Inn Marina del Rey hotel is subject to a ground lease with an expiration date of December 31, 2067. Minimum monthly payments are currently approximately $47,500 per month and a percentage rent payment less the minimum rent is due in arrears equal to 5% to 25% of gross income based on the type of income.

The Company entered into a corporate office lease in September 2015. The lease is for a term of 11 years and includes a 12-month rent abatement period and certain tenant improvement allowances. The Company has a renewal option of up to 2 successive terms of 5 years each. The Company shares the space with related parties and is reimbursed for the pro-rata share of rentable space occupied by the related parties.

The Company is the lessee under ground, air rights, garage and office lease agreements for certain of its properties, all of which qualify as operating leases as of ~~March 31,~~September 30, 2020. These leases typically provide multi-year renewal options to extend term as lessee at the Company's option. Option periods are included in the calculation of the lease obligation liability only when options are reasonably certain to be exercised.

In calculating the Company's lease obligations under the various leases, the Company uses discount rates estimated to be equal to what the Company would have to pay to borrow on a collateralized basis over a similar term, for an amount equal to the lease payments, in a similar economic environment.

The following ~~tables include information regarding~~is a schedule of the ~~Company's~~minimum future payments required under the ground, air rights, garage leases and office lease as of September 30, 2020, for ~~which it is~~each of the ~~lessee, for the three months ended March 31, 2020 :~~next five calendar years and thereafter:


Total Future Lease Payments	Total Future Lease Payments					Total Future Lease Payments
		Amount			Amount
2020 (remaining nine months)		$	1,524
2020 (remaining three months)				2020 (remaining three months)	$	510
2021	2021	2,051		2021	2,051
2022	2022	2,071		2022	2,071
2023	2023	2,093		2023	2,093
2024	2024	2,115		2024	2,115
2025	2025	2,186		2025	2,186
Thereafter	Thereafter	66,720		Thereafter	66,720
Total lease payments	Total lease payments	$	78,760	Total lease payments	$	77,746
Less: Imputed interest	Less: Imputed interest	(55,157)		Less: Imputed interest	(54,385)
Present value of lease liabilities	Present value of lease liabilities	$	23,603	Present value of lease liabilities	$	23,361

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The following is a schedule of the minimum future payments required under the ground, air rights, garage leases and office lease as of December 31, 2019, for each of the next five calendar years and thereafter:


	Amount
2020	$	2,027
2021	2,051
2022	2,071
2023	2,093
2024	2,115
Thereafter	68,906
Total lease payments	$	79,263
Less: Imputed interest	(55,546)
Present value of lease liabilities	$	23,717

For the ~~three~~nine months ended ~~March 31,~~September 30, 2020, the Company incurred ~~$0.3~~$0.9 million of fixed lease payments and ~~$0.1 million~~$33.0 thousand of variable lease payments, which are included in property taxes, ground rent and insurance in our consolidated statement of operations.

The following table includes information regarding the right of use assets and lease liabilities of the Company as of ~~March 31,~~September 30, 2020:


		Right of Use Asset		Lease Liability			Right of Use Asset		Lease Liability
Balance as of January 1, 2020	Balance as of January 1, 2020	$	21,270	$	23,717	Balance as of January 1, 2020	$	21,270	$	23,717
Amortization	Amortization	(155)		(114)		Amortization	(469)		(356)

Balance as of March 31, 2020		$	21,115	$	23,603
Balance as of September 30, 2020						Balance as of September 30, 2020	$	20,801	$	23,361


Lease Term and Discount Rate			~~3/31/~~September 30, 2020

Weighted-average remaining lease term (years)			~~40.75~~40.66
Weighted-average discount rate			~~6.56%~~6.57%

13. Commitments and Contingencies

Litigation

The nature of the operations of the Company's hotels exposes those hotels, the Company and the Operating Partnership to the risk of claims and litigation in the normal course of their business. IHM is currently a defendant in several class action lawsuits pending in the state of California.

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based on alleged misclassification of certain hotel managerial staff and violation of certain California statutes regarding incorrect information contained on employee paystubs. The plaintiffs seek injunctive relief, money damages, penalties, and interest. A settlement agreement has been negotiated and approved by the applicable courts for Ruffy and Doonan. AsIn August 2020, a payment of ~~March 31, 2020, included in accounts payable is~~ $0.1 million, which represents ~~an estimate of~~ the Company’s total exposure to the Ruffy and Doonan litigations based on standard indemnification obligations under hotel management agreements with IHM,. was paid related to this lawsuit settlement.

In addition, IHM is a defendant in the following series of interrelated class action lawsuits: Perez et al. v. Island Hospitality Management III LLC et al. (United States District Court for the Central District of California, Case No. 2:18-cv-04903-DMG-JPR) filed on March 15, 2018, Cruz v. Island Hospitality Management III LLC (Santa Clara County Superior Court Case No. 19CV353655) filed on August 19, 2019, Leon et al. v. Island Hospitality Management III LLC (Orange County Superior Court Case No. 30-2019-01050719-CU-OE-CXC) filed on April 2, 2019, and Vela v. Island Hospitality Management LLC et al. (San Diego County Superior Court, Case No. 37-2019-0003525) filed on July 9, 2019 (collectively the “Perez class actions”). The Perez class actions also relate to hotels operated by IHM in the state of California and owned by affiliates of the Company and the NewINK JV, and/or certain third parties. The complaints allege various wage and hour law violations based on alleged violation of certain California statutes regarding rest and meal breaks and wage statements. The plaintiffs seek injunctive relief, money damages, penalties, and interest. ~~Settlement agreements have been negotiated and currently await approval by the applicable courts. As~~In September 2020, a payment of ~~March 31, 2020, included in accounts payable and accrued expenses is~~ $0.6 million, which represents ~~an estimate of~~ the Company’s total exposure to the Perez class actions based on standard indemnification obligations under hotel management agreements with ~~IHM.~~IHM, was paid related to this lawsuit settlement.

Management Agreements

The management agreements with IHM have an initial term of five years and automatically renew for 2 ~~five-year~~five-year periods unless IHM provides written notice to us no later than 90 days prior to the then current term’s expiration date of its intent not to renew. The IHM management agreements provide for early termination at the Company’s option upon sale of any IHM-managed hotel for no termination fee, with six months advance notice. The IHM management agreements may be terminated for cause, including the failure of the managed hotel to meet specified performance levels. Base management fees are calculated as a percentage of the hotel's gross room revenue. If certain financial thresholds are met or exceeded, an incentive management fee is calculated as 10% of the hotel's net operating income less fixed costs, base management fees and a specified return threshold. The incentive management fee is capped at 1% of gross hotel revenues for the applicable calculation.

Management fees totaled approximately ~~$2.0~~$1.3 million and ~~$2.5~~$3.0 million, respectively, for the three months ended ~~March 31,~~September 30, 2020 and 2019, ~~respectively.~~respectively, and approximately $4.2 million and $8.4 million, respectively, for the nine months ended September 30, 2020 and 2019.

Franchise Agreements

The fees associated with the franchise agreements are calculated as a specified percentage of the hotel's gross room revenue. Franchise and marketing fees totaled approximately ~~$4.7~~$2.9 million and ~~$5.9~~$7.1 million, respectively, for the three months ended ~~March 31,~~September 30, 2020 and 2019 and approximately $9.2 million and $20.1 million, respectively, for the nine months ended September 30, 2020 and 2019. The initial term of the agreements range from 10 to 30 years with the weighted average expiration being ~~July~~August 2030.

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14. Related Party Transactions

Prior to March 1, 2019, Mr. Fisher owned 51% of IHM. On March 1, 2019, Mr. Fisher acquired the 1.5% ownership interest of an employee who was leaving IHM. As of ~~March 31,~~September 30, 2020, Mr. Fisher owns 52.5% of IHM. As of ~~March 31,~~September 30, 2020, the Company had hotel management agreements with IHM to manage all 40 of its wholly owned hotels. As of ~~March 31,~~September 30, 2020, all 46 hotels owned by the NewINK JV and 342 of the 48 hotels owned by the Inland JV ~~are~~were managed by IHM. Hotel management, revenue management and accounting fees accrued or paid to IHM for the hotels owned by the Company for the three months ended ~~March 31,~~September 30, 2020 and 2019 were ~~$2.0~~$1.3 million and ~~$2.5~~$3.0 million, respectively, and for the nine months ended September 30, 2020 and 2019 were $4.2 million and $8.4 million, respectively. At ~~March 31,~~September 30, 2020 and December 31, 2019, the amounts due to IHM were ~~$4 thousand~~$0.4 million and ~~$1.6~~$0.7 million, respectively. The Company provides services to an entity Castleblack Owner Holding, LLC ("Castleblack") which is 97.5% owned by affiliates of CLNY and 2.5% owned by Mr. Fisher. During the ~~three~~nine months ended ~~March 31,~~September 30, 2020 and 2019 the company ~~provided services of $25~~received $74 thousand and ~~$33~~$98 thousand, ~~respectively.~~respectively, for these services.

Cost reimbursements from unconsolidated real estate entities revenue represent reimbursements of costs incurred on behalf of the NewINK JV, Inland JV, Castleblack and ~~Castleblack.~~IHM. These costs relate primarily to corporate payroll costs at the NewINK JV, Inland JV and Castleblack where the Company is the employer and office expenses shared ~~office expenses.~~with these entities and IHM. As the Company records cost reimbursements based upon costs incurred with no added markup, the revenue and related expense has no impact on the Company’s operating income or net income. Cost reimbursements ~~from the JVs~~ are recorded based upon the occurrence of a reimbursed activity.

Various shared office expenses and rent are paid by the Company and allocated to the NewINK JV, the Inland JV, Castleblack and IHM based on the amount of square footage occupied by each entity.

15. Subsequent Events

On ~~May 6,~~October 7, 2020 ~~Chatham executed an amendment to its credit facility that provides for the waiver of certain financial covenants through March 31, 2021 and allows Chatham to borrow up~~CLNY contributed $5.9 million to the entire $250 million facility size during this period. The amendment also provides for a waiver of cross-default provisions related to up to $125 million of non-recourse mortgage debt during the modification period. During this covenant waiver period, Chatham will be required to maintain a minimum liquidity of $25 million which will include both unrestricted cash and credit facility availability. For the first three quarters after financial covenants are reinstated on June 30, 2021, EBITDA and net operating income figures used to calculate covenant compliance and borrowing base availability will be based on annualized amounts. In connection with the amendment, Chatham added six hotels to the credit facility’s borrowing base which now has a total of 18 properties. The amendment provided Chatham’s credit facility lenders with pledges of the equity in the 18 borrowing base hotels. Chatham has 6 additional hotels that are not a part of the credit facility’s borrowing base and do not serve as collateral for existing mortgage loans. During the covenant waiver period interest will be calculated as LIBOR (subject to a 0.5% floor) plus a spread of 2.5% if borrowings remain at or below $200 million and a spread of 3.0% if borrowings exceed $200 million. The amendment places additional limits on Chatham’s ability to incur debt, pay dividends, and make capital expenditures during the covenant waiver period. During the modification period, Chatham is generally not allowed to incur debt except for debt borrowed under the credit facility, refinancing debt, up to $40 million of construction debt to finance the Warner Center hotel project, $10 million of qualified government debt, and up to $12 million of any incremental principal of non-recourse mortgage debt arising from the deferral of interest payments. During the modification period, common share dividends are allowed but limited to 100 percent of REIT taxable income, and any dividends paid would include a cash component no greater than the minimum percentage allowed under the Internal Revenue Code. During the modification period, capital expenditures are limited to $7.5 million for the completion of renovations that have already commenced, $5 million of discretionary capital expenditures, capital expenditures incurred in connection with emergency repairs, life safety repairs, ordinary course maintenance, or as required by law or franchisors, $10 million related to the Warner Center project if a development loan is not obtained, and up to $5 million in excess the total proceeds raised from a Warner Center development loan if such loan is obtained. Chatham paid a fee of 0.1% to lenders that consented to the amendment based on their level of credit facility commitments.

~~On April 7, 2020 the~~ NewINK ~~JV failed to make a debt service payment related to its $855.0 million loan.~~JV. The NewINK JV ~~failed~~used these funds, along with existing cash, to make ~~an additional~~senior debt ~~service payment on May 7, 2020. The failure to make the required debt service~~ payments ~~is an event of default under the NewINK loan agreement~~for August, September and ~~could result in a foreclosure by the lender.~~October. The NewINK JV is ~~attempting to negotiate a forbearance agreement with the lender but cannot provide any assurance that such an agreement will be reached.~~now current on all senior debt payments. The NewINK JV ~~debt is non-recourse~~has not made any interest payments to Chatham with the exception of customary non-recourse carve-out provisions such as fraud, material and intentional misrepresentations and misapplication of funds. A default under the NewINK loan agreement does not trigger a cross-default under any of Chatham’s debt agreements.its mezzanine lenders since March 7, 2020.

On April 9, 2020 the Inland JV failed to make a debt service payment related to its $780.0 million loan. The Inland JV failed to make an additional debt service payment on May 9, 2020. The failure to make the required debt service payments is an event of default under the Inland loan agreement and could result in a foreclosure by the lender. The Inland JV is attempting to negotiate a forbearance agreement with the lender but cannot provide any assurance that such an agreement will be reached.

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~~The Inland JV debt is non-recourse to Chatham with the exception of customary non-recourse carve-out provisions such as fraud, material and intentional misrepresentations and misapplication of funds.~~ A ~~default under the Inland loan agreement does not trigger a cross-default under any of Chatham’s debt agreements.~~

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Dollar amounts presented in this Item 2 are in thousands, except per share data, unless otherwise specified.

The following discussion and analysis should be read in conjunction with our consolidated financial statements and related notes included elsewhere in this report and in our Annual Report on Form 10-K for the year ended December 31, 2019. In this report, we use the terms “the Company," “we” or “our” to refer to Chatham Lodging Trust and its consolidated subsidiaries, unless the context indicates otherwise.

COVID-19 Pandemic

The lodging industry has been significantly impacted by the COVID-19 pandemic. Steps have been taken to restrict inbound international travel and there has been a significant decline in domestic travel. The full impact of the COVID-19 pandemic on the lodging industry continues to evolve and will depend on future developments including the duration and spread of the outbreak, the ~~length~~existence of governmental stay-at-home orders, peoples' willingness to travel and the strength and timing of an economic recovery. All of these factors are uncertain, and the full impact of the COVID-19 pandemic on the lodging industry and the Company cannot be predicted at this time. The full magnitude of the impact of the COVID-19 pandemic on the Company’s financial condition, liquidity, and future results of operations will depend on future developments which are highly uncertain. The Company has taken actions to mitigate the operating and financial impact of the COVID-19 pandemic including suspending monthly dividends, reducing 2020 capital expenditures, borrowing under its credit facility, obtaining credit facility covenant waivers, and temporarily reducing executive compensation.

Statement Regarding Forward-Looking Information

The following information contains forward-looking statements, including those with regard to the potential future impact of the COVID-19 pandemic, within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These forward-looking statements include information about possible or assumed future results of the lodging industry and our business, financial condition, liquidity, results of operations, cash flow and plans and objectives. These statements generally are characterized by the use of the words “believe,” “expect,” “anticipate,” “estimate,” “plan,” “continue,” “intend,” “should,” “may” or similar expressions. Although we believe that the expectations reflected in such forward-looking statements are based upon reasonable assumptions, our actual results could differ materially from those set forth in the forward-looking statements. Important factors that we think could cause our actual results to differ materially from expected results are summarized below. One of the most significant factors, however, is the ongoing impact of the current outbreak of the COVID-19 pandemic on the United States, regional and global economies, the broader financial markets, our customers and employees, governmental responses thereto and the operation changes we have and may implement in response thereto. The current outbreak of the COVID-19 pandemic has also impacted, and is likely to continue to impact, directly or indirectly, many of the other important factors below. New factors emerge from time to time, and it is not possible for us to predict which factors will arise. In addition, we cannot assess the impact of each factor on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. In particular, it is difficult to fully assess the impact of the COVID-19 pandemic at this time due to, among other factors, uncertainty regarding the severity and duration of the outbreak domestically and internationally and the effectiveness of federal, state and local governments' efforts to contain the spread of COVID-19 and respond to its direct and indirect impact on the U.S. economy and economic activity. Some factors that might cause such a difference include the following: local, national and global economic conditions, increased direct competition, changes in government regulations or accounting rules, changes in local, national and global real estate conditions, declines in lodging industry fundamentals, increased operating costs, seasonality of the lodging industry, our ability to obtain debt and equity financing on satisfactory terms, changes in interest rates, our ability to identify suitable investments, our ability to close on identified investments, inaccuracies of our accounting estimates, ~~and~~ the uncertainty and economic impact of pandemics, epidemics or other public health emergencies or fear of such events, such as the recent COVID-19 ~~pandemic.~~pandemic the impact of and changes to various government programs, including in response to COVID-19, the timing of the development of any effective cure or treatment for COVID-19, the restoration of public confidence in domestic and international travel and or ability to dispose of selected hotel properties on the terms and timing we expect, if at all. Given these uncertainties, undue reliance should not be placed on such statements. We undertake no obligation to publicly release the results of any revisions to these forward-looking statements that may be made to reflect future events or circumstances or to reflect the occurrence of unanticipated events. The forward-looking statements should also be read in light of the risk factors identified in the “Risk Factors” section in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019 as updated by the Company's subsequent filings with the SEC under the Exchange Act, ~~included~~including the Quarterly Report for the three months ended March 31, 2020, June 30, 2020 and this Quarterly Report on Form 10-Q for the three months ended ~~March 31,~~September 30, 2020.

Overview

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We are a self-advised hotel investment company organized in October 2009 that commenced operations in April 2010. Our investment strategy is to invest in upscale extended-stay and premium-branded select-service hotels in geographically diverse markets with high barriers to entry near strong demand generators. We may acquire portfolios of hotels or single hotels. We expect that a significant portion of our portfolio will consist of hotels in the upscale extended-stay or select-service categories, including brands such as Homewood Suites by Hilton^®, Residence Inn by Marriott^®, Hyatt Place^®, Courtyard by Marriott^®, SpringHill Suites by Marriott^®, Hilton Garden Inn by Hilton^®, Embassy Suites^®, Hampton Inn^® and Hampton Inn and Suites^®.

The Company's future hotel acquisitions may be funded by issuances of both common and preferred shares or the issuance of partnership interests in our operating partnership, Chatham Lodging, L.P. (the "Operating Partnership"), draw-downs under our ~~senior unsecured~~ revolving credit facility, the incurrence or assumption of debt, available cash, proceeds from dispositions of assets or distributions from our 10.3% investment in a joint venture with affiliates of Colony Capital, Inc. (“CLNY”) that owns 46 hotels (the "NewINK JV") ~~or distributions from our 10.0% investment in a joint venture with CLNY that owns 48 hotels (the "Inland JV" and together with the NewINK JV, the "JVs")~~. We intend to acquire quality assets at attractive prices and improve their returns through knowledgeable asset management and seasoned, proven hotel management while remaining prudently leveraged.

At ~~March 31,~~September 30, 2020, our leverage ratio was ~~35.6%~~37.7% measured as the ratio of our net debt (total debt outstanding before deferred financing costs less unrestricted cash and cash equivalents) to hotel investments at cost, including the JV investments. Over the past several years, we have maintained a leverage ratio between the mid-30s and the low 50s to fund our acquisitions and JV investments. As of ~~March 31,~~September 30, 2020, we have total debt of ~~$667.6~~$667.1 million at an average interest rate of approximately ~~4.4%~~4.3%.

We are a real estate investment trust (“REIT”) for federal income tax purposes. In order to qualify as a REIT under the Internal Revenue Code of 1986, as amended (the “Code”), we cannot operate our hotels. Therefore, our Operating Partnership and its subsidiaries lease our hotel properties to taxable REIT subsidiary lessees (“TRS Lessees”), who in turn engage eligible independent contractors to manage the hotels. Each of the TRS Lessees is treated as a taxable REIT subsidiary for federal income tax purposes and is consolidated within our financial statements for accounting purposes. However, since we control both the Operating Partnership and the TRS Lessees, our principal source of funds on a consolidated basis is from the operations of our hotels. The earnings of the TRS Lessees are subject to taxation as regular C corporations, as defined in the Code, potentially reducing the TRS Lessees’ cash available to pay dividends to us, and therefore our funds from operations and the cash available for distribution to our shareholders.

Key Indicators of Operating Performance and Financial Condition

We measure financial condition and hotel operating performance by evaluating non-financial and financial metrics and measures such as:

•Average Daily Rate (“ADR”), which is the quotient of room revenue divided by total rooms sold,

•Occupancy, which is the quotient of total rooms sold divided by total rooms available,

•Revenue Per Available Room (“RevPAR”), which is the product of occupancy and ADR, and does not include food and beverage revenue, or other operating revenue,

•Funds From Operations (“FFO”),

•Adjusted FFO,

•Earnings before interest, taxes, depreciation and amortization (“EBITDA”),

•EBITDAre,

•Adjusted EBITDA, and

•Adjusted Hotel EBITDA.

We evaluate the hotels in our portfolio and potential acquisitions using these metrics to determine each hotel’s contribution toward providing income to our shareholders through increases in distributable cash flow and increasing long-term total returns through appreciation in the value of our common shares. RevPAR, ADR and Occupancy are hotel industry measures commonly used to evaluate operating performance.

See “Non-GAAP Financial Measures” for further discussion of FFO, Adjusted FFO, EBITDA, EBITDAre, Adjusted EBITDA and Adjusted Hotel EBITDA.

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Results of Operations

Industry Outlook

The lodging industry has been significantly impacted by the COVID-19 ~~pandemic. Steps have been taken to restrict inbound international travel~~pandemic and there has been a significant decline in ~~domestic~~ travel. Smith Travel Research reported that US lodging industry RevPAR declined ~~51.9% in March and declined 79.4%~~48.5% for the ~~28 days~~three months ended ~~May 2,~~September 30, 2020, with RevPAR down 52.0% in July 2020, down 47.3% in August 2020 and down 46.1% in September 2020. We expect the current trend of significant RevPAR declines to continue until public concerns regarding the severity of the ongoing COVID-19 pandemic are assuaged. The full impact of the COVID-19 pandemic on the lodging industry continues to evolve and will depend on future developments including the duration and spread of the outbreak, the ~~length~~existence of governmental stay-at-home orders, peoples' willingness to travel, and the strength and timing of an economic recovery. All of these factors are uncertain, and the full impact of the COVID-19 pandemic on the lodging industry cannot be predicted at this time.

Comparison of the three months ended ~~March 31,~~September 30, 2020 to the three months ended ~~March 31,~~September 30, 2019

Results of operations for the three months ended ~~March 31,~~September 30, 2020 include the operating activities of our 40 wholly owned hotels that were owned for the entire period and our ~~investments~~investment in the NewINK ~~JV and Inland~~ JV. ~~We sold one hotel in Altoona, PA on May 7, 2019 and one hotel in Washington, PA on May 15, 2019.~~ Our financial results were adversely impacted by decreased visitation at our properties due to the COVID-19 pandemic. The majority of the negative impact of the COVID-19 pandemic on our hotels’ operations did not occur until the second half of March 2020, so the results of operations for the three months ended March 31, 2020 only reflect a small component of the negative impact of the COVID-19 pandemic. The comparisons below are influenced by ~~these dispositions and~~ the COVID-19 pandemic.

Revenues

Revenue, which consists primarily of room, food and beverage and other operating revenues from our wholly owned hotels, was as follows for the periods indicated (dollars in thousands):


		For the three months ended									For the three months ended
		March 31, 2020		March 31, 2019		% Change			September 30, 2020		September 30, 2019		% Change
Room	Room	$	53,048	$	68,085	(22.1)	%	Room	$	32,307	$	81,807	(60.5)	%
Food and beverage	Food and beverage	2,063		2,427		(15.0)	%	Food and beverage	237		2,436		(90.3)	%
Other	Other	3,518		3,676		(4.3)	%	Other	1,630		4,536		(64.1)	%
Cost reimbursements from unconsolidated real estate entities	Cost reimbursements from unconsolidated real estate entities	1,580		1,491		6.0	%	Cost reimbursements from unconsolidated real estate entities	795		1,301		(38.9)	%
Total revenue	Total revenue	$	60,209	$	75,679	(20.4)	%	Total revenue	$	34,969	$	90,080	(61.2)	%

Total revenue was ~~$60.2~~$35.0 million for the quarter ended ~~March 31,~~September 30, 2020, down ~~$15.5~~$55.1 million compared to total revenue of ~~$75.7~~$90.1 million for the corresponding 2019 period. The ~~primary~~ decrease in total revenue primarily was related to the COVID-19 pandemic. ~~Total revenue related to the two hotels sold in 2019 contributed $1.1 million of the decrease.~~ Since all of our hotels are select-service or limited-service hotels, room revenue is the primary revenue source as these hotels do not have significant food and beverage revenue or large group conference facilities. Room revenue comprised ~~88.1%~~92.4% and ~~90.0%~~90.8%, respectively, of total revenue for the quarters ended ~~March 31,~~September 30, 2020 and 2019. Room revenue was ~~$53.0~~$32.3 million and ~~$68.1~~$81.8 million for the quarters ended ~~March 31,~~September 30, 2020 and 2019, respectively, and the ~~primary~~ decrease in room revenue primarily was related to the COVID-19 pandemic. ~~Room revenue related to the two hotels sold in 2019 contributed $1.0 million of the decrease.~~

Food and beverage revenue was ~~$2.1~~$0.2 million for the quarter ended ~~March 31,~~September 30, 2020, down $~~0.3~~2.2 million compared to $2.4 million for the corresponding 2019 period. The decrease in food and beverage revenue primarily was related to a decline in occupancies at our hotels due to the COVID-19 pandemic.

Other operating revenue, comprised of parking, meeting room, gift shop, in-room movie and other ancillary amenities revenue, was down ~~$0.2~~$2.9 million for the three months ended ~~March 31,~~September 30, 2020. Other operating revenue was ~~$3.5~~$1.6 million and ~~$3.7~~$4.5 million for the quarters ended ~~March 31,~~September 30, 2020 and 2019, respectively. The decrease in other operating revenue primarily was related to a decline in occupancies at our hotels due to the COVID-19 pandemic.

Reimbursable costs from unconsolidated real estate entities ~~comprised of payroll costs at the JVs and Castleblack Owner Holding, LLC ("Castleblack"), which is 97.5% owned by affiliates of CLNY and 2.5% by Mr. Fisher, where the Company is the employer,~~ were ~~$1.6~~$0.8 million and ~~$1.5~~$1.3 million for the three months ended ~~March 31,~~September 30, 2020 and 2019, respectively. The cost reimbursements were offset by the reimbursed costs from unconsolidated real estate entities included in operating expenses.

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As reported by Smith Travel Research, U.S lodging industry RevPAR for the three months ended ~~March 31,~~September 30, 2020 and 2019 decreased ~~19.3%~~48.5% and increased ~~1.5%~~0.7%, respectively, in the 2020 and 2019 periods as compared to the respective prior periods. Smith Travel Research reported that US lodging industry RevPAR declined ~~51.9%~~52.0% in ~~the month ended March 31,~~July 2020, declined 47.3% in August 2020 and declined ~~79.4% for the 28 days ended May 2,~~46.1% in September 2020. We expect the current trend of significant RevPAR declines to continue until public concerns regarding the severity of the ongoing COVID-19 pandemic are assuaged.

In the table below, we present both actual and same property room revenue metrics. Actual Occupancy, ADR and RevPAR metrics reflect the performance of the hotels for the actual days such hotels were owned by the Company during the periods presented. Same property Occupancy, ADR, and RevPAR results for the 40 hotels wholly owned by the Company as of ~~March 31,~~September 30, 2020 that have been in operation for a full year regardless of our ownership during the period presented, which is a non-GAAP financial measure. Results for the hotels for periods prior to our ownership were provided to us by prior owners and have not been adjusted by us.


		For the three months ended March 31,																										For the three months ended September 30,
		2020									2019									Percentage Change								2020					2019		Percentage Change
		Same Property (40 hotels)			Actual (40 hotels)			Same Property (40 hotels)			Actual (42 hotels)			Same Property (40 hotels)		Actual (40 hotels)			Same Property (40 hotels)			Actual (40 hotels)			Same Property (40 hotels)			Actual (40 hotels)			Same Property (40 hotels)		Actual (40/40 hotels)
Occupancy	Occupancy	62.7		%	62.7		%	76.0		%	76.0		%	(17.5)	%	(17.5)	%	Occupancy	52.5		%	52.5		%	84.8		%	84.8		%	(38.1)	%	(38.1)	%
ADR	ADR	$	152.63		$	152.63		$	160.91		$	159.33		(5.1)	%	(4.2)	%	ADR	$	109.74		$	109.74		$	172.04		$	172.04		(36.2)	%	(36.2)	%
RevPAR	RevPAR	$	95.71		$	95.71		$	122.32		$	121.12		(21.8)	%	(21.0)	%	RevPAR	$	57.64		$	57.64		$	145.96		$	145.96		(60.5)	%	(60.5)	%

For the three months ended ~~March 31,~~September 30, 2020 same property RevPAR decreased ~~21.8%~~60.5% due to a decrease in ADR of ~~5.1%~~36.2% and an decrease in occupancy of ~~17.5%~~38.1% primarily related to the COVID-19 pandemic. Same property RevPAR declined ~~55.6% for the month ended March 31,~~66.5% in July 2020, declined 58.4% in August 2020, and declined ~~82.7% for the month ended April 30,~~55.8% in September 2020. Same property RevPAR was $51.84 in July 2020, $60.69 in August 2020, and $60.49 in September 2020.

Hotel Operating Expenses

Hotel operating expenses consist of the following for the periods indicated (dollars in thousands):


		For the three months ended									For the three months ended
		March 31, 2020		March 31, 2019		% Change			September 30, 2020		September 30, 2019		% Change
Hotel operating expenses:	Hotel operating expenses:							Hotel operating expenses:
Room	Room	$	13,394	$	15,570	(14.0)	%	Room	$	6,903	$	17,288	(60.1)	%
Food and beverage	Food and beverage	1,889		2,009		(6.0)	%	Food and beverage	184		2,133		(91.4)	%
Telephone	Telephone	378		433		(12.7)	%	Telephone	344		409		(15.9)	%
Other	Other	810		939		(13.7)	%	Other	312		1,130		(72.4)	%
General and administrative	General and administrative	5,278		6,167		(14.4)	%	General and administrative	3,907		6,369		(38.7)	%
Franchise and marketing fees	Franchise and marketing fees	4,720		5,932		(20.4)	%	Franchise and marketing fees	2,876		7,146		(59.8)	%
Advertising and promotions	Advertising and promotions	1,510		1,533		(1.5)	%	Advertising and promotions	848		1,483		(42.8)	%
Utilities	Utilities	2,516		2,750		(8.5)	%	Utilities	2,592		3,033		(14.5)	%
Repairs and maintenance	Repairs and maintenance	3,462		3,611		(4.1)	%	Repairs and maintenance	2,250		3,637		(38.1)	%
Management fees	Management fees	2,024		2,544		(20.4)	%	Management fees	1,292		2,950		(56.2)	%
Insurance	Insurance	360		338		6.5	%	Insurance	361		334		8.1	%
Total hotel operating expenses	Total hotel operating expenses	$	36,341	$	41,826	(13.1)	%	Total hotel operating expenses	$	21,869	$	45,912	(52.4)	%

~~Table of Contents~~

Hotel operating expenses decreased $~~5.5~~24.0 million or ~~13.1%~~52.4% to ~~$36.3~~$21.9 million for the three months ended ~~March 31,~~September 30, 2020 from ~~$41.8~~$45.9 million for the three months ended ~~March 31,~~September 30, 2019. The primary cause of the decrease in hotel operating expenses was related to the decrease in revenues and occupancy caused by the COVID-19 pandemic. Our hotel managers have taken significant steps to reduce operating costs in light of the reduction in demand caused by the COVID-19 pandemic. ~~Total hotel operating expense related to the two hotels sold in 2019 contributed $0.8 million of the decrease.~~

Room expenses, which are the most significant component of hotel operating expenses, decreased ~~$2.2~~$10.4 million from ~~$15.6~~$17.3 million in 2019 to ~~$13.4~~$6.9 million in the ~~first~~third quarter of 2020. ~~Room~~The decrease in room expenses primarily was related to a decline in occupancies and revenues at our hotels due to the ~~two hotels sold in 2019 contributed $0.3 million of the decrease.~~COVID-19 pandemic.

The remaining hotel operating expenses decreased ~~$3.4~~$13.6 million, from ~~$26.3~~$28.6 million in the ~~first~~third quarter of 2019 to ~~$22.9~~$15.0 million in the ~~first~~third quarter of 2020. ~~$0.5 million of the~~The decrease in ~~hotel operating~~other remaining expenses primarily was related to a decline in occupancies and revenues at our hotels due to the ~~two hotels sold in 2019.~~COVID-19 pandemic.

Depreciation and Amortization

Depreciation and amortization expense increased $~~0.3~~0.7 million from ~~$12.8~~$12.9 million for the three months ended ~~March 31,~~September 30, 2019 to ~~$13.1~~$13.6 million for the three months ended ~~March 31,~~September 30, 2020. The increase was primarily due to renovations. Depreciation is generally recorded on our assets over 40 years for buildings, 20 years for land improvements, 15 years for building improvements and one to ten years for furniture, fixtures and equipment from the date of acquisition on a straight-line basis. Depreciable lives of hotel furniture, fixtures and equipment are generally assumed to be the difference between the date of acquisition and the date that the furniture, fixtures and equipment will be replaced. Amortization of franchise fees is recorded on a straight-line basis over the term of the respective franchise agreement.

~~Impairment Loss on Investment in Unconsolidated Real Estate Entities~~

Impairment loss on investment in unconsolidated real estate entities increased $15.3 million for the three months ended March 31, 2020. The Company recorded an impairment of the entire carrying value of $15.3 million on our investment in the Inland JV during the three months ended March 31, 2020 related to a decline in operating performance caused by the COVID-19 pandemic.

Property Taxes, Ground Rent and Insurance

Total property taxes, ground rent and insurance expenses decreased from $6.3 million for the three months ended September 30, 2019 to $6.2 million for the three months ended ~~March 31, 2019 to $6.1 million for the three months ended March 31,~~September 30, 2020. The decrease ~~of $0.1 million~~ was primarily related to ~~the two~~decreased ground rent at our hotels ~~sold in 2019.~~due to lower revenues.

General and Administrative

General and administrative expenses principally consist of employee-related costs, including base payroll, bonuses and amortization of restricted stock and awards of long-term incentive plan units. These expenses also include corporate operating costs, professional fees and trustees’ fees. Total general and administrative expenses (excluding amortization of stock based compensation of ~~$1.2~~$1.1 million and ~~$1.1~~$1.2 million for the three months ended ~~March 31,~~September 30, 2020 and 2019, respectively) decreased to ~~$1.6~~$1.8 million for the three months ended ~~March 31,~~September 30, 2020 from ~~$2.4~~$2.3 million in the three months ended ~~March 31,~~September 30, 2019 with the decrease primarily due to a reduction in compensation.

Other Charges

Other charges ~~increased~~decreased from ~~$17 thousand for the three months ended March 31, 2019 to $2.8~~$0.3 million for the three months ended ~~March 31,~~September 30, 2019 to a gain of $0.2 million for the three months ended September 30, 2020. Other charges primarily include ~~severance costs and accelerated vesting of LTIP awards~~deductibles related to ~~the departure of our former Chief Investment Officer.~~insurance claims. The September 30, 2020 gain relates to reimbursements for an insurance claim that was previously expensed in 2019.

Reimbursable Costs from Unconsolidated Real Estate Entities

Reimbursable costs from unconsolidated real estate entities, comprised of corporate payroll and rent costs ~~of the NewINK JV, Inland JVs and Castleblack, which is 2.5% owned by Mr. Fisher, where the Company is the employer,~~ were ~~$1.6~~$0.8 million and ~~$1.5~~$1.3 million for the three months ended ~~March 31,~~September 30, 2020 and 2019, respectively. The cost reimbursements were offset by the cost reimbursements from unconsolidated real estate entities included in revenues.

~~Table of Contents~~

Interest and Other Income

Interest on cash and cash equivalents and other income ~~increased $26~~decreased $9 thousand from ~~$55~~$34 thousand for the three months ended ~~March 31,~~September 30, 2019 to ~~$81~~$25 thousand for the three months ended ~~March 31,~~September 30, 2020. The ~~increase is~~decrease is primarily related to fees received for services provided to ~~the NewINK JV.~~an entity, Castleblack, which is 97.5% owned by Colony.

Interest Expense, Including Amortization of Deferred Fees

Interest expense ~~decreased $0.4~~increased $0.1 million from $7.1 million for the three months ended September 30, 2019 to $7.2 million for the three months ended ~~March 31, 2019 to $6.8 million for the three months ended March 31,~~September 30, 2020 and is comprised of the following (dollars in thousands):


		For the three months ended									For the three months ended
		March 31, 2020		March 31, 2019		% Change			September 30, 2020		September 30, 2019		% Change
Mortgage debt interest	Mortgage debt interest	$	5,838	$	5,860	(0.4)	%	Mortgage debt interest	$	5,856	$	5,956	(1.7)	%
Credit facility interest and unused fees	Credit facility interest and unused fees	766		1,104		(30.6)	%	Credit facility interest and unused fees	1,383		1,016		36.1	%
Interest rate cap								Interest rate cap	24		—		—	%
Construction loan interest								Construction loan interest	20		—		—	%
Capitalized interest								Capitalized interest	(356)		(152)		134.2	%
Amortization of deferred financing costs	Amortization of deferred financing costs	229		233		(1.7)	%	Amortization of deferred financing costs	318		230		38.3	%
Total	Total	$	6,833	$	7,197	(5.1)	%	Total	$	7,245	$	7,050	2.8	%

The ~~decrease~~increase in interest expense for the three months ended ~~March 31,~~September 30, 2020 as compared to the three months ended ~~March 31,~~September 30, 2019 is primarily related to ~~interest expense on the Company's senior unsecured revolving~~an increase in credit facility ~~due to lower~~borrowings and interest ~~rates~~rate for the three months ended ~~March 31,~~September 30, 2020 compared to the three months ended ~~March 31,~~September 30, 2019.

Loss from Unconsolidated Real Estate Entities

Loss from unconsolidated real estate entities was ~~$1.1~~$2.8 million for the three months ended ~~March 31,~~September 30, 2019 compared to a loss of ~~$3.7~~$0.8 million for the three months ended ~~March 31,~~September 30, 2020. The ~~increase~~decreased loss is due ~~primarily~~primarily to no longer recognizing losses from the Inland JV, where the company recognized an impairment ~~recorded on one JV hotel~~and now has a zero basis in the ~~three months ended March 31, 2020 and a decline in operating performance.~~Inland JV.

Income Tax Expense

Income tax expense for the three months ended ~~March 31,~~September 30, 2020 and 2019 was $0.0 million and $0.0 million, respectively. We are subject to income taxes based on the taxable income of our TRS Lessees at a combined federal and state tax rate of approximately 25%. The Company’s TRS is expecting taxable losses in 2020 and recognizes a full valuation allowance equal to 100% of the gross deferred tax assets, with the exception of the AMT tax credit, due to the uncertainty of the TRS's ability to utilize these deferred tax assets.

Net ~~loss~~(loss) income

Net loss was ~~$28.1~~$18.3 million for the three months ended ~~March 31,~~September 30, 2020, compared to net ~~loss~~income of ~~$1.6~~$10.1 million for the three months ended ~~March 31,~~September 30, 2019. The change in net ~~income~~loss was due to the factors discussed above.

~~Table~~

Comparison of ~~Contents~~the nine months ended September 30, 2020 to the nine months ended September 30, 2019

Results of operations for the nine months ended September 30, 2020 include the operating activities of our 40 wholly owned hotels that were owned for the entire period, partial period results for two hotels which were sold during this period, and our investments in the NewINK JV and Inland JV. We sold one hotel in Altoona, PA on May 7, 2019 and one hotel in Washington, PA on May 15, 2019. Our financial results were adversely impacted by decreased visitation at our properties due to the COVID-19 pandemic. The comparisons below are influenced by these dispositions and the COVID-19 pandemic.

Revenues

Revenue, which consists primarily of room, food and beverage and other operating revenues from our wholly owned hotels, was as follows for the periods indicated (dollars in thousands):


	Nine Months Ended
	September 30, 2020		September 30, 2019		% Change
Room	$	104,205	$	229,862	(54.7)	%
Food and beverage	2,417		7,398		(67.3)	%
Other	5,560		12,146		(54.2)	%
Cost reimbursements from unconsolidated real estate entities	3,169		4,225		(25.0)	%
Total revenue	$	115,351	$	253,631	(54.5)	%

Total revenue was $115.4 million for the nine months ended September 30, 2020, down $138.2 million compared to total revenue of $253.6 million for the corresponding 2019 period. The decrease in total revenue primarily was related to the COVID-19 pandemic. Total revenue related to the two hotels sold in 2019 contributed $1.6 million of the decrease. Since all of our hotels are select-service or limited-service hotels, room revenue is the primary revenue source as these hotels do not have significant food and beverage revenue or large group conference facilities. Room revenue comprised 90.3% and 90.6% of total revenue for the nine months ended September 30, 2020 and 2019, respectively. Room revenue was $104.2 million and $229.9 million for the nine months ended September 30, 2020 and 2019, respectively, and the decrease in room revenue primarily was related to the COVID-19 pandemic. Room revenue related to the two hotels sold in 2019 contributed $1.5 million of the decrease.

Food and beverage revenue was $2.4 million for the nine months ended September 30, 2020, down $5.0 million compared to food and beverage revenue of $7.4 million for the corresponding 2019 period. The decrease in food and beverage revenue primarily was related to a decline in occupancies at our hotels due to the COVID-19 pandemic.

Other operating revenue, comprised of parking, meeting room, gift shop, in-room movie and other ancillary amenities revenue was down $6.5 million for the nine months ended September 30, 2020. Other operating revenue was $5.6 million and $12.1 million for the nine months ended September 30, 2020 and 2019, respectively. The decrease in other operating revenue primarily was related to a decline in occupancies at our hotels due to the COVID-19 pandemic.

Reimbursable costs from unconsolidated real estate entities were $3.2 million and $4.2 million for the nine months ended September 30, 2020 and 2019, respectively. The cost reimbursements were offset by the reimbursed costs from unconsolidated real estate entities included in operating expenses.

As reported by Smith Travel Research, industry RevPAR for the nine months ended September 30, 2020 and 2019 decreased 46.6% and increased 1.0%, respectively, in the 2020 and 2019 periods as compared to the respective prior year periods. We expect the current trend of significant RevPAR declines to continue until public concerns regarding the severity of the ongoing COVID-19 pandemic are assuaged.

In the table below, we present both actual and same property room revenue metrics. Actual Occupancy, ADR and RevPAR metrics reflect the performance of the hotels for the actual days such hotels were owned by the Company during the periods presented. Same property Occupancy, ADR, and RevPAR results for the 40 hotels wholly owned by the Company as of September 30, 2020 that have been in operation for a full year regardless of our ownership during the period presented, which is a non-GAAP financial measure. Results for the hotels for periods prior to our ownership were provided to us by prior owners and have not been adjusted by us.


	For the nine months ended September 30,
	2020						2019						Percentage Change
	Same Property (40 hotels)			Actual (40 hotels)			Same Property (40 hotels)			Actual (42 hotels)			Same Property (40 hotels)		Actual (40/42 hotels)
Occupancy	49.7		%	49.7		%	81.4		%	81.6		%	(38.9)	%	(39.1)	%
ADR	$	125.11		$	125.11		$	168.60		$	168.58		(25.8)	%	(25.8)	%
RevPAR	$	62.15		$	62.15		$	137.28		$	137.56		(54.7)	%	(54.8)	%

For the nine months ended September 30, 2020 same property RevPAR decreased 54.7% due to a decrease in ADR of 25.8% and a decrease in occupancy of 38.9% primarily related to the COVID-19 pandemic.

Hotel Operating Expenses

Hotel operating expenses consist of the following for the periods indicated (dollars in thousands):


	For the nine months ended
	September 30, 2020		September 30, 2019		% Change
Hotel operating expenses:
Room	$	24,814	$	49,231	(49.6)	%
Food and beverage	2,202		6,262		(64.8)	%
Telephone	1,073		1,252		(14.3)	%
Other	1,303		3,039		(57.1)	%
General and administrative	12,543		19,109		(34.4)	%
Franchise and marketing fees	9,232		20,062		(54.0)	%
Advertising and promotions	3,212		4,502		(28.7)	%
Utilities	6,971		8,308		(16.1)	%
Repairs and maintenance	7,352		10,679		(31.2)	%
Management fees	4,164		8,386		(50.3)	%
Insurance	1,082		1,037		4.3	%
Total hotel operating expenses	$	73,948	$	131,867	(43.9)	%

Hotel operating expenses decreased $58.0 million to $73.9 million for the nine months ended September 30, 2020 from $131.9 million for the nine months ended September 30, 2019. The primary cause of the decrease in hotel operating expenses was related to the decrease in revenues and occupancy caused by the COVID-19 pandemic. Our hotel managers have taken significant steps to reduce operating costs in light of the reduction in demand caused by the COVID-19 pandemic. Total hotel operating expense related to the two hotels sold in 2019 contributed $1.3 million of the decrease.

Room expenses, which are the most significant component of hotel operating expenses, decreased $24.4 million from $49.2 million for the nine months ended September 30, 2019 to $24.8 million for the nine months ended September 30, 2020. Room expenses related to the two hotels sold in 2019 contributed $0.4 million of the decrease. The decrease in room expenses primarily was related to a decline in occupancies and revenues at our hotels due to the COVID-19 pandemic.

The remaining hotel operating expenses decreased $33.5 million, from $82.6 million for the nine months ended September 30, 2019 to $49.1 million for the nine months ended September 30, 2020. The decrease in other remaining expenses primarily was related to a decline in occupancies and revenues at our hotels due to the COVID-19 pandemic. A decrease of $0.9 million in hotel operating expenses related to the two hotels sold in 2019.

Depreciation and Amortization

Depreciation and amortization expense increased $1.6 million from $38.7 million for the nine months ended September 30, 2019 to $40.3 million for the nine months ended September 30, 2020. The increase was primarily due to renovations. Depreciation is generally recorded on our assets over 40 years for buildings, 20 years for land improvements, 15 years for building improvements and one to ten years for furniture, fixtures and equipment from the date of acquisition on a straight-line basis. Depreciable lives of hotel furniture, fixtures and equipment are generally assumed to be the difference between the date of acquisition and the date that the furniture, fixtures and equipment will be replaced. Amortization of franchise fees is recorded on a straight-line basis over the term of the respective franchise agreement.

Impairment Loss on Investment in Unconsolidated Real Estate Entities

Impairment loss on investment in unconsolidated real estate entities increased $15.3 million for the nine months ended September 30, 2020. The Company recorded an impairment of the entire carrying value of $15.3 million on our investment in the Inland JV during the nine months ended September 30, 2020 related to a decline in operating performance caused by the COVID-19 pandemic.

Property Taxes, Ground Rent and Insurance

Total property taxes, ground rent and insurance expenses decreased $0.5 million from $18.7 million for the nine months ended September 30, 2019 to $18.2 million for the nine months ended September 30, 2020. The decrease was primarily related to decreased ground rent at our hotels due to lower revenues and a reduction of $0.1 million from the two hotels sold in 2019.

General and Administrative

General and administrative expenses principally consist of employee-related costs, including base payroll, bonuses and amortization of restricted stock and awards of LTIP units. These expenses also include corporate operating costs, professional fees and trustees’ fees. Total general and administrative expenses (excluding amortization of stock based compensation of $3.5 million and $3.5 million for the nine months ended September 30, 2020 and 2019, respectively) decreased $2.4 million to $4.7 million for the nine months ended September 30, 2020 from $7.1 million for the nine months ended September 30, 2019 with the decrease primarily due to a reduction in compensation.

Other Charges

Other charges increased $2.4 million from $0.4 million for the nine months ended September 30, 2019 to $2.8 million for the nine months ended September 30, 2020. Other charges primarily include severance costs and accelerated vesting of LTIP awards related to the departure of our former Chief Investment Officer and deductibles for insurance claims.

Reimbursable Costs from Unconsolidated Real Estate Entities

Reimbursable costs from unconsolidated real estate entities, comprised of corporate payroll and rent costs were $3.2 million and $4.2 million for the nine months ended September 30, 2020 and 2019, respectively. The cost reimbursements were offset by the cost reimbursements from unconsolidated real estate entities included in revenues.

Gain (loss) on Sale of Hotel Property

Loss on sale of hotel property decreased $3.3 million for the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019 due to the $3.3 million loss from the sales of the Courtyard Altoona, PA on May 7, 2019 and the SpringHill Suites Washington, PA on May 15, 2019 and no comparable loss in 2020.

Interest and Other Income

Interest on cash and cash equivalents and other income was $155 thousand for the nine months ended September 30, 2019 compared to $145 thousand for the nine months ended September 30, 2020.

Interest Expense, Including Amortization of Deferred Fees

Interest expense decreased $0.3 million from $21.4 million for the nine months ended September 30, 2019 to $21.1 million for the nine months ended September 30, 2020 and is comprised of the following (dollars in thousands):


	For the nine months ended
	September 30, 2020		September 30, 2019		% Change
Mortgage debt interest	$	17,505	$	17,724	(1.2)	%
Credit facility interest and unused fees	3,704		3,190		16.1	%
Interest rate cap	24		—		—	%
Construction loan interest	20		—		—	%
Capitalized interest	(951)		(226)		320.8	%
Amortization of deferred financing costs	810		690		17.4	%
Total	$	21,112	$	21,378	(1.2)	%

The decrease in interest expense for the nine months ended September 30, 2020 as compared to the nine months ended September 30, 2019 is primarily due to an increase in capitalized interest for the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019.

Loss from Unconsolidated Real Estate Entities

Loss from unconsolidated real estate entities increased $2.6 million from a loss of $3.5 million for the nine months ended September 30, 2019 to a loss of $6.1 million for the nine months ended September 30, 2020. The increase is due primarily to a decline in operating performance due to the COVID-19 pandemic.

Income Tax Expense

Income tax expense for the nine months ended September 30, 2020 and 2019 was $0.0 million and $0.0 million, respectively. We are subject to income taxes based on the taxable income of our TRS Lessees at a combined federal and state tax rate of approximately 25%. The Company’s TRS is expecting taxable losses in 2020 and recognizes a full valuation allowance equal to 100% of the gross deferred tax assets, with the exception of the AMT tax credit, due to the uncertainty of the TRS's ability to utilize these deferred tax assets.

Net (loss) income

Net loss was $73.6 million for the nine months ended September 30, 2020, compared to net income of $21.3 million for the nine months ended September 30, 2019. The change in net income was due to the factors discussed above.

Non-GAAP Financial Measures

We consider the following non-GAAP financial measures useful to investors as key supplemental measures of our operating performance: (1) FFO, (2) Adjusted FFO, (3) EBITDA, (4) EBITDAre, (5) Adjusted EBITDA and (6) Adjusted Hotel EBITDA. These non-GAAP financial measures should be considered along with, but not as alternatives to, net income or loss as prescribed by GAAP as a measure of our operating performance.

FFO, Adjusted FFO, EBITDA, EBITDAre, Adjusted EBITDA and Adjusted Hotel EBITDA do not represent cash generated from operating activities under GAAP and should not be considered as alternatives to net income or loss, cash flows from operations or any other operating performance measure prescribed by GAAP. FFO, Adjusted FFO, EBITDA, EBITDAre, Adjusted EBITDA and Adjusted Hotel EBITDA are not measures of our liquidity, nor are FFO, Adjusted FFO, EBITDA, EBITDAre, Adjusted EBITDA and Adjusted Hotel EBITDA indicative of funds available to fund our cash needs, including our ability to make cash distributions. These measurements do not reflect cash expenditures for long-term assets and other items that have been and will be incurred. FFO, Adjusted FFO, EBITDA, EBITDAre, Adjusted EBITDA and Adjusted Hotel EBITDA may include funds that may not be available for management’s discretionary use due to functional requirements to conserve funds for capital expenditures, property acquisitions, and other commitments and uncertainties.

We calculate FFO in accordance with standards established by the National Association of Real Estate Investment

Trusts ("NAREIT"), which defines FFO as net income or loss (calculated in accordance with GAAP), excluding gains or losses from sales of real estate, impairment write-downs, the cumulative effect of changes in accounting principles, plus depreciation and amortization (excluding amortization of deferred financing costs), and after adjustments for unconsolidated partnerships and joint ventures following the same approach. We believe that the presentation of FFO provides useful information to investors regarding our operating performance because it measures our performance without regard to specified non-cash items such as real estate depreciation and amortization, gain or loss on sale of real estate assets and certain other items that we believe are not indicative of the property level performance of our hotel properties. We believe that these items reflect historical cost of our asset base and our acquisition and disposition activities and are less reflective of our ongoing operations, and that by adjusting to exclude the effects of these items, FFO is useful to investors in comparing our operating performance between periods and between REITs that also report FFO using the NAREIT definition.

We calculate Adjusted FFO by further adjusting FFO for certain additional items that are not addressed in NAREIT’s definition of FFO, including other charges, costs associated with the departure of our former Chief Investment Officer, losses on the early extinguishment of debt and similar items related to our unconsolidated real estate entities that we believe do not represent costs related to hotel operations. We believe that Adjusted FFO provides investors with another financial measure that may facilitate comparisons of operating performance between periods and between REITs that make similar adjustments to FFO.

3034

~~Table of Contents~~

The following is a reconciliation of net income to FFO and Adjusted FFO for the three and nine months ended ~~March 31,~~September 30, 2020 and 2019 (in thousands, except share data):


		For the three months ended							For the three months ended				For the nine months ended
		March 31,							September 30,				September 30,
		2020		2019			2020		2019		2020		2019
Funds From Operations (“FFO”):	Funds From Operations (“FFO”):					Funds From Operations (“FFO”):
Net (loss) income	Net (loss) income	$	(28,111)	$	1,628	Net (loss) income	$	(18,312)	$	10,098	$	(73,616)	$	21,251

Gain on sale of hotel property		(1)		—
(Gain) loss on sale of hotel property						(Gain) loss on sale of hotel property	—		(4)		(3)		3,295
Loss on sale of assets within the unconsolidated real estate entities	Loss on sale of assets within the unconsolidated real estate entities	8		—		Loss on sale of assets within the unconsolidated real estate entities	1		—		2		—
Depreciation	Depreciation	13,000		12,710		Depreciation	13,559		12,862		40,165		38,508
Impairment loss on investment in unconsolidated real estate entities	Impairment loss on investment in unconsolidated real estate entities	15,282		—		Impairment loss on investment in unconsolidated real estate entities	—		—		15,282		—
Impairment loss from unconsolidated real estate entities	Impairment loss from unconsolidated real estate entities	1,388		—		Impairment loss from unconsolidated real estate entities	—		—		1,388		—
Adjustments for unconsolidated real estate entity items	Adjustments for unconsolidated real estate entity items	1,926		1,818		Adjustments for unconsolidated real estate entity items	778		1,892		3,641		5,591
FFO attributable to common share and unit holders	FFO attributable to common share and unit holders	3,492		16,156		FFO attributable to common share and unit holders	(3,974)		24,848		(13,141)		68,645
Other charges	Other charges	2,768		17		Other charges	(199)		309		2,785		351

Adjustments for unconsolidated real estate entity items	Adjustments for unconsolidated real estate entity items	2		—		Adjustments for unconsolidated real estate entity items	—		3,447		5		3,453
Adjusted FFO attributable to common share and unit holders	Adjusted FFO attributable to common share and unit holders	$	6,262	$	16,173	Adjusted FFO attributable to common share and unit holders	$	(4,173)	$	28,604	$	(10,351)	$	72,449
Weighted average number of common shares and units	Weighted average number of common shares and units					Weighted average number of common shares and units
Basic	Basic	47,496,006		46,966,901		Basic	47,682,142		47,376,320		47,618,584		47,190,077
Diluted	Diluted	47,607,096		47,145,149		Diluted	47,682,142		47,614,564		47,618,584		47,402,151

Diluted weighted average common share count used for calculation of adjusted FFO per share may differ from diluted weighted average common share count used for calculation of GAAP Net Income per share by LTIP units, which may be converted to common shares of beneficial interest if Net Income per share is negative and Adjusted FFO is positive. Unvested restricted shares and unvested LTIP units that could potentially dilute basic earnings per share in the future would not be included in the computation of diluted loss per share for the periods where a loss has been recorded because they would have been anti-dilutive for the periods presented.

Earnings before interest, taxes, depreciation and amortization ("EBITDA") is defined as net income or loss excluding: (1) interest expense; (2) provision for income taxes, including income taxes applicable to sales of assets; (3) depreciation and amortization; and (4) unconsolidated real estate entity items including interest, depreciation and amortization excluding gains and losses from sales of real estate. We consider EBITDA useful to an investor in evaluating and facilitating comparisons of our operating performance between periods and between REITs by removing the impact of our capital structure (primarily interest expense) and asset base (primarily depreciation and amortization) from our operating results. In addition, EBITDA is used as one measure in determining the value of hotel acquisitions and dispositions.

In addition to EBITDA, we present EBITDAre in accordance with NAREIT guidelines, which defines EBITDAre as net income or loss excluding interest expense, income tax expense, depreciation and amortization expense, gains or losses from sales of real estate, impairment, and adjustments for unconsolidated joint ventures. We believe that the presentation of EBITDAre provides useful information to investors regarding the Company's operating performance and can facilitate comparisons of operating performance between periods and between REITs.

We also present Adjusted EBITDA, which includes additional adjustments for items such as other charges, gains or losses on extinguishment of indebtedness, costs associated with the departure of our former Chief Investment officer, the amortization of share-based compensation, and certain other expenses that we consider outside the normal course of operations. We believe that Adjusted EBITDA provides useful supplemental information to investors regarding our ongoing operating performance that, when considered with net income, EBITDA and EBITDAre, is beneficial to an investor's understanding of our performance.

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The following is a reconciliation of net income to EBITDA, EBITDAre and Adjusted EBITDA for the three and nine months ended ~~March 31,~~September 30, 2020 and 2019 (in thousands):


		For the three months ended							For the three months ended				For the nine months ended
		March 31,							September 30,				September 30,
		2020		2019			2020		2019		2020		2019
Earnings Before Interest, Taxes, Depreciation and Amortization (“EBITDA”):	Earnings Before Interest, Taxes, Depreciation and Amortization (“EBITDA”):					Earnings Before Interest, Taxes, Depreciation and Amortization (“EBITDA”):
Net (loss) income	Net (loss) income	$	(28,111)	$	1,628	Net (loss) income	$	(18,312)	$	10,098	$	(73,616)	$	21,251
Interest expense	Interest expense	6,833		7,197		Interest expense	7,245		7,050		21,112		21,378

Depreciation and amortization	Depreciation and amortization	13,061		12,772		Depreciation and amortization	13,620		12,923		40,349		38,694
Adjustments for unconsolidated real estate entity items	Adjustments for unconsolidated real estate entity items	4,075		4,355		Adjustments for unconsolidated real estate entity items	1,576		4,377		7,477		13,152
EBITDA	EBITDA	(4,142)		25,952		EBITDA	4,129		34,448		(4,678)		94,475
Impairment loss on investment in unconsolidated real estate entities	Impairment loss on investment in unconsolidated real estate entities	15,282		—		Impairment loss on investment in unconsolidated real estate entities	—		—		15,282		—
Impairment loss from unconsolidated real estate entities	Impairment loss from unconsolidated real estate entities	1,388		—		Impairment loss from unconsolidated real estate entities	—		—		1,388		—
Gain on sale of hotel property		(1)		—
(Gain) loss on sale of hotel property						(Gain) loss on sale of hotel property	—		(4)		(3)		3,295
Loss on the sale of assets within unconsolidated real estate entities	Loss on the sale of assets within unconsolidated real estate entities	8		—		Loss on the sale of assets within unconsolidated real estate entities	1		—		2		—
EBITDAre	EBITDAre	12,535		25,952		EBITDAre	4,130		34,444		11,991		97,770
Other charges	Other charges	2,768		17		Other charges	(199)		309		2,785		351

Adjustments for unconsolidated real estate entity items						Adjustments for unconsolidated real estate entity items	—		3,447		5		3,467

Share based compensation	Share based compensation	1,206		1,059		Share based compensation	1,125		1,212		3,473		3,508
Adjusted EBITDA	Adjusted EBITDA	$	16,509	$	27,028	Adjusted EBITDA	$	5,056	$	39,412	$	18,254	$	105,096

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Adjusted Hotel EBITDA is defined as net income before interest, income taxes, depreciation and amortization, corporate general and administrative, impairment loss, loss on early extinguishment of debt, other charges, interest and other income, losses on sales of hotel properties and income or loss from unconsolidated real estate entities. We present Adjusted Hotel EBITDA because we believe it is useful to investors in comparing our hotel operating performance between periods and comparing our Adjusted Hotel EBITDA margins to those of our peer companies. Adjusted Hotel EBITDA represents the results of operations for our wholly owned hotels only.

The following is a presentation of Adjusted Hotel EBITDA for the three and nine months ended ~~March 31,~~September 30, 2020 and 2019 (in thousands):


			For the three months ended															For the three months ended								For the nine months ended
			March 31,															September 30,								September 30,
			2020				2019							2020				2019				2020				2019

Net (loss) income	Net (loss) income				$	(28,111)			$	1,628			Net (loss) income			$	(18,312)			$	10,098			$	(73,616)			$	21,251
Add:	Add:	Interest expense	6,833				7,197				Add:	Interest expense		7,245				7,050				21,112				21,378

		Depreciation and amortization	13,061				12,772					Depreciation and amortization		13,620				12,923				40,349				38,694
		Corporate general and administrative	2,765				3,514					Corporate general and administrative		2,958				3,486				8,210				10,611
		Other charges	2,768				17					Other charges		—				309				2,785				351
		Loss from unconsolidated real estate entities	3,673				1,123					Loss from unconsolidated real estate entities		847				2,784				6,099				3,450
		Impairment loss on investment in unconsolidated real estate entities	15,282				—					Impairment loss on investment in unconsolidated real estate entities		—				—				15,282				—

												Loss on sale of hotel property		—				—				—				3,295

Less:	Less:	Interest and other income	(81)				(55)				Less:	Interest and other income		(25)				(34)				(145)				(155)

		Gain on sale of hotel property	(1)				—					Other charges		(199)				—				—				—
												Gain on sale of hotel property		—				(4)				(3)				—
		Adjusted Hotel EBITDA	$	16,189			$	26,196
												Adjusted Hotel EBITDA		$	6,134			$	36,612			$	20,073			$	98,875

Although we present FFO, Adjusted FFO, EBITDA, EBITDAre, Adjusted EBITDA and Adjusted Hotel EBITDA because we believe they are useful to investors in comparing our operating performance between periods and between REITs that report similar measures, these measures have limitations as analytical tools. Some of these limitations are:

•FFO, Adjusted FFO, EBITDA, EBITDAre, Adjusted EBITDA and Adjusted Hotel EBITDA do not reflect our cash expenditures, or future requirements, for capital expenditures or contractual commitments;

•FFO, Adjusted FFO, EBITDA, EBITDAre, Adjusted EBITDA and Adjusted Hotel EBITDA do not reflect changes in, or cash requirements for, our working capital needs;

•FFO, Adjusted FFO, EBITDA, EBITDAre, Adjusted EBITDA and Adjusted Hotel EBITDA do not reflect funds available to make cash distributions;

•EBITDA, EBITDAre, Adjusted EBITDA and Adjusted Hotel EBITDA do not reflect the significant interest expense, or the cash requirements necessary to service interest or principal payments, on our debts;

•Although depreciation and amortization are non-cash charges, the assets being depreciated and amortized may need to be replaced in the future, and FFO, Adjusted FFO, EBITDA, EBITDAre, Adjusted EBITDA and Adjusted Hotel EBITDA do not reflect any cash requirements for such replacements;

•Non-cash compensation is and will remain a key element of our overall long-term incentive compensation package, although we exclude it as an expense when evaluating our ongoing operating performance for a particular period using Adjusted EBITDA;

•Adjusted FFO, Adjusted EBITDA and Adjusted Hotel EBITDA do not reflect the impact of certain cash charges (including acquisition transaction costs) that result from matters we consider not to be indicative of the underlying performance of our hotel properties; and

•Other companies in our industry may calculate FFO, Adjusted FFO, EBITDA, EBITDAre, Adjusted EBITDA and Adjusted Hotel EBITDA differently than we do, limiting their usefulness as a comparative measure.

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In addition, FFO, Adjusted FFO, EBITDA, EBITDAre, Adjusted EBITDA and Adjusted Hotel EBITDA do not represent cash generated from operating activities as determined by GAAP and should not be considered as alternatives to net income or loss, cash flows from operations or any other operating performance measure prescribed by GAAP. FFO, Adjusted FFO, EBITDA, EBITDAre, Adjusted EBITDA and Adjusted Hotel EBITDA are not measures of our liquidity. Because of these limitations, FFO, Adjusted FFO, EBITDA, EBITDAre, Adjusted EBITDA and Adjusted Hotel EBITDA should not be considered in isolation or as a substitute for performance measures calculated in accordance with GAAP. We compensate for these limitations by relying primarily on our GAAP results and using FFO, Adjusted FFO, EBITDA, EBITDAre, Adjusted EBITDA and Adjusted Hotel EBITDA only supplementally. Our consolidated financial statements and the notes to those statements included elsewhere are prepared in accordance with GAAP.

Sources and Uses of Cash

Our principal sources of cash include net cash from operations and proceeds from debt and equity issuances. Our principal uses of cash include acquisitions, capital expenditures, operating costs, corporate expenditures, interest costs, debt repayments and distributions to equity holders.

As of ~~March 31,~~September 30, 2020 and December 31, 2019, we had cash, cash equivalents and restricted cash of approximately ~~$69.6~~$42.4 million and $20.2 million, respectively.

For the ~~three~~nine months ended ~~March 31,~~September 30, 2020, net cash flows used in operations were ~~$2.9~~$12.8 million, driven by net loss of ~~$28.1~~$73.6 million, ~~$33.7~~$66.3 million of non-cash items, including ~~$13.2~~$41.1 million of depreciation and amortization, ~~$1.2~~$3.5 million of share-based compensation expense, $0.3 million of accelerated LTIP compensation, ~~and $3.7~~$6.1 million related to loss from unconsolidated entities and $15.3 million related to the impairment of out interest in the Inland JV. In addition, changes in operating assets and liabilities due to the timing of cash receipts, payments for real estate taxes, payments of corporate compensation and payments from our hotels resulted in net cash outflow of ~~$8.5~~$5.5 million. Net cash flows used in investing activities were ~~$12.3~~$27.1 million, primarily related to capital improvements on our 40 wholly owned hotels of ~~$6.1~~$13.9 million and ~~$6.2~~$13.2 million related to the development of a new hotel. Net cash flows provided by financing activities were ~~$64.6~~$62.1 million, comprised of $0.1 million of common equity proceeds raised through sales under our DRSPP and ATM, net borrowings of our senior unsecured revolving credit facility of $83.0 million, net borrowings on our construction loan of $3.9 million, offset by principal payments on mortgage debt of ~~$2.3~~$6.7 million, payments of financing and offering costs of $2.0 million and distributions to shareholders of $16.2 million.

For the ~~three~~nine months ended ~~March 31,~~September 30, 2019, net cash flows provided by operations were ~~$13.3~~$69.7 million, driven by net income of ~~$1.6~~$21.3 million, ~~$15.2~~$46.3 million of non-cash items, including ~~$13.0~~$39.3 million of depreciation and amortization, ~~$1.1~~$3.5 million of share-based compensation expense and ~~$1.1~~$3.5 million related to loss from unconsolidated entities. In addition, a loss on the sale of two hotels of $3.3 million and changes in operating assets and liabilities due to the timing of cash receipts, payments for real estate taxes, payments of corporate compensation and payments from our hotels resulted in net cash outflow of ~~$3.5~~$1.2 million. Net cash flows used in investing activities were ~~$11.7~~$35.7 million, primarily related to capital improvements on our 4240 wholly owned ~~hotels.~~hotels of $30.3 million, $6.9 million related to the development of a new hotel, and the purchase of a parcel of land in Silicon Valley for $8.1 million, offset by proceeds from the sale of the Altoona and Washington, PA hotels of $9.0 million and distributions of $0.7 million received from unconsolidated real estate entities. Net cash flows used by financing activities were ~~$1.4~~$39.9 million, comprised of ~~$0.1~~$7.2 million of common equity proceeds raised through sales under our DRSPP and ATM, net borrowings of our senior unsecured revolving credit facility of ~~$15.5~~$4.5 million, offset by principal payments ~~or payoffs~~ on mortgage debt of ~~$1.3~~$4.4 million, payments of financing and offering costs of ~~$0.1~~$0.3 million, and distributions to shareholders of ~~$15.6~~$46.9 million.

We declared total dividends of $0.22 and $0.22 per common share and LTIP unit for the ~~three~~nine months ended ~~March 31,~~September 30, 2020 and ~~$0.33~~$0.99 and ~~$0.33~~$0.99 per common share and LTIP unit for the ~~three~~nine months ended ~~March 31,~~September 30, 2019, respectively.

Liquidity and Capital Resources

At ~~March 31,~~September 30, 2020, our leverage ratio was approximately ~~35.6%~~37.7% measured as the ratio of our net debt (total debt outstanding before deferred financing costs less unrestricted cash and cash equivalents) to hotel investments at cost, including our JV investments. Over the past several years, we have maintained a leverage ratio between the mid-30s and the low 50s to fund our acquisitions and investments in joint ventures. At ~~March 31,~~September 30, 2020, we have total debt of ~~$667.6~~$667.1 million at an average interest rate of approximately ~~4.4%~~4.3%.

At ~~March 31,~~September 30, 2020 and December 31, 2019, we had $173.0 million and $90.0 million, respectively, in outstanding borrowings under our $250.0 million revolving credit facility. We had $3.9 million and zero, respectively, in outstanding borrowings under our $40 million construction loan for the Warner Center hotel development at September 30, 2020 and December 31, 2019. We also had mortgage debt on individual hotels aggregating ~~$494.6~~$494.1 million and $496.9 million at ~~March 31,~~September 30, 2020 and December 31, 2019, respectively.

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Our credit facility contains representations, warranties, covenants, terms and conditions customary for credit facilities of this type, including a maximum leverage ratio, a minimum fixed charge coverage ratio and minimum net worth financial covenants, limitations on (i) liens, (ii) incurrence of debt, (iii) investments, (iv) distributions, and (v) mergers and asset dispositions, covenants to preserve corporate existence and comply with laws, covenants on the use of proceeds of the revolving credit facility and default provisions, including defaults for non-payment, breach of representations and warranties, insolvency, non-performance of covenants, cross-defaults and guarantor defaults. ~~We were in compliance with all financial covenants at March 31, 2020.~~

On May 6, 2020, the company amended its credit facility to provide it with certain relief from the effects of the COVID-19 pandemic.The amendment provides for the waiver of certain financial covenants through March 31, 2021 and allows Chatham to borrow up to the entire $250 million facility size during this period.During this covenant waiver period, Chatham will be required to maintain a minimum liquidity of $25 million which will include both unrestricted cash and credit facility availability.In connection with the amendment, Chatham added six hotels to the credit ~~facility’s~~facility's borrowing base which now has a total of 18 properties.The amendment provided ~~Chatham’s~~Chatham's credit facility lenders with pledges of the equity in ~~the 18~~the18 borrowing base hotels.The amendment places additional limits on ~~Chatham’s~~Chatham's ability to incur debt, pay dividends and make capital expenditures during the covenant waiver period.During the covenant waiver period interest will be calculated as LIBOR (subject to a 0.5% floor) plus a spread of 2.5% if borrowings remain at or below $200 million and a spread of 3.0% if borrowings exceed $200 million. We were in compliance with all modified financial covenants at September 30, 2020.

We expect to meet our short-term liquidity requirements generally through existing cash balances and availability under our credit facility. We believe that our existing cash balances and availability under our credit facility will be adequate to fund operating obligations, pay interest on any borrowings and fund dividends in accordance with the requirements for qualification as a REIT under the Code. We expect to meet our long-term liquidity requirements, such as hotel property acquisitions and debt maturities or repayments through additional long-term secured and unsecured borrowings, the issuance of additional equity or debt securities or the possible sale of existing assets.

The COVID-19 pandemic has caused, and is continuing to cause, significant disruption in the financial markets both globally and in the United States, and will continue to impact, possibly materially, our business, financial condition and results of operations. We cannot predict the degree, or duration, to which our operations will be affected by the COVID-19 outbreak, and the effects could be material. While we believe the liquidity provided by our unrestricted cash and credit facility availability, valuable unencumbered assets and aggressive cost reduction initiatives will enable us to fund our current obligations for the foreseeable future, COVID-19 has resulted in significant disruption of global financial markets, which could have a negative impact on our ability to access capital in the future. Because the situation is ongoing, and because the duration and severity remain unclear, it is difficult to forecast any impacts on our future results. ~~However, we currently expect the COVID-19 pandemic to impact our operations for the quarter ending June 30, 2020 more significantly than it has impacted the quarter ended~~ ~~March 31, 2020~~.

Dividend Policy

Our common share dividend policy has been to distribute, annually, approximately 100% of our annual taxable income. We suspended dividends after the March 2020 payment due to the decline in operating performance caused by the COVID-19 pandemic. We plan to pay dividends required to maintain REIT status. The aggregate amount of dividends and distributions declared for the ~~three~~nine months ended ~~March 31,~~September 30, 2020 was $0.22 per common share and LTIP unit. The amount of any dividends is determined by our Board of Trustees.

Capital Expenditures

We intend to maintain each hotel property in good repair and condition and in conformity with applicable laws and regulations and in accordance with the franchisors' standards and any agreed-upon requirements in our management and loan agreements. After we acquire a hotel property, we may be required to complete a property improvement plan (“PIP”) in order to be granted a new franchise license for that particular hotel property. PIPs are intended to bring the hotel property up to the franchisors' standards. Certain of our loans require that we escrow, for property improvement purposes, at the hotels collateralizing these loans, amounts up to 5% of gross revenue from such hotels. We intend to spend amounts necessary to

comply with any reasonable loan or franchisor requirements and otherwise to the extent that such expenditures are in the best interest of the hotel. To the extent that we spend more on capital expenditures than is available from our operations, we intend to fund those capital expenditures with available cash and borrowings under our ~~senior unsecured~~ revolving credit facility.

For the three months ended ~~March 31,~~September 30, 2020 and 2019, we invested approximately ~~$6.1~~$3.5 million and ~~$11.7~~$14.0 million for renovations and other non-recurring capital expenditures on our existing hotels, respectively, and for the nine months ended September 30, 2020 and 2019, we invested approximately $13.9 million and $30.3 million, respectively. As a result of the COVID-19 pandemic, we have reduced our planned 2020 capital expenditures by approximately $10 million. We expect to invest an

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additional $1.7 million~~$6.8 million~~ on renovations, discretionary and emergency expenditures on our existing hotels for the remainder of 2020, including improvements required under any brand PIP.

We are developing a hotel in Los Angeles, CA on a parcel of land owned by us. We expect that the total development costs for construction of the hotel to be approximately ~~$65~~$70 million, which includes the cost of the land. We have incurred ~~$26.7~~$33.7 million of costs to date, which includes $6.6 million of the land acquisition costs and ~~$20.1~~$27.1 million of other development costs.

Off-Balance Sheet Arrangements

We had no material off-balance sheet arrangements at ~~March 31,~~September 30, 2020, other than non-recourse debt associated with the NewINK JV and the Inland JV. In connection with certain non-recourse mortgage loans in either the NewINK JV or Inland JV, our Operating Partnership could require us to repay our pro rata share of portions of each respective JVs indebtedness in connection with certain customary non-recourse carve-out provisions such as environmental conditions, misuse of funds and material misrepresentations.

Contractual Obligations

The following table sets forth our contractual obligations as of ~~March 31,~~September 30, 2020 and the effect these obligations are expected to have on our liquidity and cash flow in future periods (in thousands).


		Payments Due by Period																			Payments Due by Period
Contractual Obligations	Contractual Obligations	Total		Less Than One Year		One to Three Years		Three to Five Years		More Than Five Years		Contractual Obligations	Total		Less Than One Year		One to Three Years		Three to Five Years		More Than Five Years
Corporate office lease (1)	Corporate office lease (1)	$	5,604	$	610	$	1,684	$	1,770	$	1,540	Corporate office lease (1)	$	5,200	$	206	$	1,684	$	1,770	$	1,540
Revolving credit facility, including interest (2)	Revolving credit facility, including interest (2)	182,335		3,656		178,679		—		—		Revolving credit facility, including interest (2)	180,884		1,375		179,509		—		—
Construction loan (2)												Construction loan (2)	5,090		76		608		4,406		—
Ground leases	Ground leases	73,156		914		2,438		2,438		67,366		Ground leases	72,547		305		2,438		2,438		67,366
Property loans, including interest (2)	Property loans, including interest (2)	564,825		24,428		76,916		447,550		15,931		Property loans, including interest (2)	548,838		8,143		77,214		447,550		15,931
Total	Total	$	825,920	$	29,608	$	259,717	$	451,758	$	84,837	Total	$	812,559	$	10,105	$	261,453	$	456,164	$	84,837

2.1.The Company entered into a corporate office lease in 2015. The lease is for eleven years and includes a 12-month rent abatement period and certain tenant improvement allowances. The Company shares the space with related parties and is reimbursed for the pro-rata share of rentable space occupied by related parties.

3.2.Does not reflect paydowns or additional borrowings under the ~~senior unsecured~~ revolving credit facility or construction loan after ~~March 31,~~September 30, 2020. Interest payments are based on the interest rate in effect as of ~~March 31,~~September 30, 2020. See Note 7, “Debt” to our unaudited consolidated financial statements for additional information relating to our property loans.

In addition to the above listed obligations, we pay management and franchise fees to our hotel management companies and franchisors based on the revenues of our hotels. The table above also does not include ~~$6.8~~$1.7 million that we expect to invest on renovations, discretionary and emergency capital expenditures on our existing hotels for the remainder of 2020, or ~~$38.3~~$36.3 million of estimated remaining costs associated with our Los Angeles hotel development. Our contracts associated with these planned capital expenditures contain clauses that allow us to cancel all or some portion of the work. If cancellation of a contract occurred, our commitment would be any costs incurred up to the cancellation date, in addition to any costs associated with the discharge of the contract.

The Company’s ownership interests in the JVs are subject to change in the event that either we or CLNY calls for additional capital contributions to the respective JVs necessary for the conduct of that JV's business, including contributions to fund costs and expenses related to capital expenditures. ~~We manage the NewINK JV and Inland JV and will receive a promote interest in the applicable JV if it meets certain return thresholds.~~ CLNY may also approve certain actions related to the JVs without the Company’s consent, including certain property dispositions conducted at arm’s length, certain actions related to the restructuring of the JVs and removal of the Company as managing member in the event the Company fails to fulfill its material obligations under the respective joint venture agreements. On September 24, 2020 CLNY announced that it had entered into an agreement to sell 6 of its hospitality portfolios, including the NewINK JV, in a transaction with a gross equity sale price of $67.5 million. The Inland JV is not included in this proposed transaction. CLNY has not disclosed a proposed allocation of the sale price among the 6 portfolios, so the amount of proceeds Chatham will receive if the transaction closes has not yet been determined. The transaction is subject to closing conditions, including the assumption of debt by the purchaser.

In connection with certain non-recourse mortgage loans in either the NewINK JV or Inland JV, our Operating Partnership could require us to repay our pro rata share of portions of each respective JVs indebtedness in connection with certain customary non-recourse carve-out provisions such as environmental conditions, misuse of funds and material misrepresentations.

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Inflation

Operators of hotels, in general, possess the ability to adjust room rates daily to reflect the effects of inflation. However, competitive pressures may limit the ability of our management companies to raise room rates.

Seasonality

Demand for our hotels is affected by recurring seasonal patterns. Generally, we expect that we will have lower revenue, operating income and cash flow in the first and fourth quarters and higher revenue, operating income and cash flow in the second and third quarters. These general trends are, however, influenced by overall economic cycles and the geographic locations of our hotels.

Critical Accounting Policies

Our consolidated financial statements have been prepared in conformity with GAAP, which requires management to make estimates and assumptions that affect the reported amount of assets and liabilities at the date of our financial statements and the reported amounts of revenues and expenses during the reporting period. While we do not believe the reported amounts would be materially different, application of these policies involves the exercise of judgment and the use of assumptions as to future uncertainties and, as a result, actual results could differ from these estimates. We evaluate our estimates and judgments on an ongoing basis. We base our estimates on experience and on various other assumptions that are believed to be reasonable under the circumstances. All of our significant accounting policies, including certain critical accounting policies, are disclosed in our Annual Report on Form 10-K for the year ended December 31, 2019.

Recently Issued Accounting Standards

Refer to Note 2, Summary of Significant Accounting Policies for all new recently issued accounting standards.

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Item 3. Quantitative and Qualitative Disclosures about Market Risk.

We may be exposed to interest rate changes primarily as a result of our assumption of long-term debt in connection with our acquisitions and upon refinancing of existing debt. Our interest rate risk management objectives are to limit the impact of interest rate changes on earnings and cash flows and to lower overall borrowing costs. To achieve these objectives, we seek to borrow primarily at fixed rates or variable rates with the lowest margins available and, in some cases, with the ability to convert variable rates to fixed rates. With respect to variable rate financing, we will assess interest rate risk by identifying and monitoring changes in interest rate exposures that may adversely impact expected future cash flows and by evaluating hedging opportunities.

The Company estimates the fair value of its fixed rate debt by discounting the future cash flows of each instrument at estimated market rates. Rates take into consideration general market conditions, maturity and fair value of the underlying collateral. The estimated fair value of the Company’s fixed rate debt at ~~March 31,~~September 30, 2020 and December 31, 2019 was ~~$468.7~~$471.4 million and $501.5 million, respectively.

At ~~March 31,~~September 30, 2020, our consolidated debt was comprised of floating and fixed interest rate debt. The fair value of our fixed rate debt indicates the estimated principal amount of debt having the same debt service requirements that could have been borrowed at the date presented, at then current market interest rates. The following table provides information about the maturities of our financial instruments as of ~~March 31,~~September 30, 2020 that are sensitive to changes in interest rates (dollars in thousands):


		2020		2021		2022		2023			2024			2025			Thereafter	Total/ Weighted Average			Fair Value			2020		2021		2022		2023			2024			2025			Thereafter	Total/ Weighted Average			Fair Value
Floating rate:	Floating rate:																						Floating rate:
Debt	Debt	—		—		$173,000		—			—			—			—	$	173,000		$	173,000	Debt	—		—		$173,000		—			$	3,923		—			—	$	176,923		$	176,923
Average interest rate ~~(1)~~	Average interest rate ~~(1)~~	—		—		3.48%		—			—			—			—	3.48		%			Average interest rate ~~(1)~~	—		—		3.09%		—			7.75		%	—			—	3.19		%
Fixed rate:	Fixed rate:																						Fixed rate:
Debt	Debt	$8,681		$21,908		$9,954		$	142,565		$	295,586		$	15,870		—	$	494,564		$	468,690	Debt	$2,665		$22,121		$9,954		$	143,084		$	296,386		$	15,919		—	$	490,129		$	471,449
Average interest rate	Average interest rate	4.68	%	5.26	%	4.63	%	4.66		%	4.64		%	4.25		%	—	4.66		%			Average interest rate	4.68	%	5.27	%	4.63	%	4.66		%	4.64		%	4.25		%	—	4.66		%

~~(1) Weighted average interest rate based on borrowings at~~

Our credit facility is currently subject to a 0.5% LIBOR ~~of 0.99% plus~~floor and our construction loan is subject to a ~~margin of 2.00% and prime rate of 4.25% plus a margin of 0.65% for the three months ended March 31, 2020.~~

0.25% LIBOR floor. At September 30, 2020 1-month LIBOR was 0.15%. We estimate that a hypothetical 100 basis points increase ~~on the variable interest rate~~in LIBOR would result in additional interest ~~expense~~ of approximately ~~$1.7~~$1.2 million annually. This assumes that the amount ~~outstanding under our~~of floating rate debt outstanding on our revolving credit facility remains $173.0 million and the ~~balance~~amount outstanding on our construction loan remains $3.9 million, the balances as of ~~March 31,~~September 30, 2020.

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Item 4. Controls and Procedures.

Disclosure Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we have evaluated the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Exchange Act Rule 13a-15(b) as of the end of the period covered by this report. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that these disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed by us in reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

There have been no changes in our internal control over financial reporting that occurred during the last fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings.

The first class action lawsuit was filed in the Santa Clara County Superior Court on October 21, 2016 under the title Ruffy, et al, v. Island Hospitality Management, LLC, et al. Case No. 16-CV-301473 (“Ruffy”) and the second class action lawsuit was filed on March 21, 2018 under the title Doonan, et al, v. Island Hospitality Management, LLC, et al. Case No 18-CV-325187 (“Doonan”). The class actions relate to hotels operated by IHM in the state of California and owned by affiliates of the Company and the NewINK JV, and/or certain third parties. The complaints allege various wage and hour law violations based on alleged misclassification of certain hotel managerial staff and violation of certain California statutes regarding incorrect information contained on employee paystubs. The plaintiffs seek injunctive relief, money damages, penalties, and interest. A settlement agreement has been negotiated and approved by the applicable courts for Ruffy and Doonan. AsIn August 2020, a payment of ~~March 31, 2020, included in accounts payable and accrued expenses is~~ $0.1 million, which represents ~~an estimate of~~ the Company’s total exposure to the Ruffy and Doonan litigations based on standard indemnification obligations under hotel management agreements with IHM,. was paid related to this lawsuit settlement.

Item 1A. Risk Factors.

Our Annual Report on Form 10-K for the year ended December 31, 2019 includes detailed discussions of our risk factors under the heading “Risk Factors.”

The current COVID-19 pandemic had, and may continue to have, or a future pandemic could have, adverse effects on our financial condition, results of operations, cash flows and performance.

~~Table of Contents~~

The global pandemic caused by the coronavirus known as COVID-19 has had a severe and negative impact on both the U.S. economy and the global economy. Financial markets have experienced significant volatility during the first ~~quarter~~three

quarters of 2020, which is expected to continue over the upcoming quarters. Globally and throughout the United States, federal and local governments have instituted quarantines, restrictions on travel, school closings, "shelter in place" orders, and restrictions on types of businesses that may continue operations. Although certain of these restrictions have begun, and may continue, to ease in some places, the ongoing COVID-19 pandemic, including large outbreaks of COVID-19 in various regions, has resulted, and may continue to result, in their reinstitution. These restrictions have had a severe impact on the U.S. lodging industry and some of our hotels continue to operate at a significantly reduced occupancy.

The following factors should be considered since the COVID-19 pandemic has significantly adversely affected the ability of our hotel managers to successfully operate our hotels and has, or the continued and prolonged effects of the COVID-19 may have, a significant adverse effect on our financial condition, results of operations and cash flows due to, among other factors:

•Significant reduction of operations at some of our properties;

•a variety of factors related to the COVID-19 pandemic have caused, and are expected to continue to cause, a sharp decline in group, business and leisure travel, including but not limited to (i) restrictions on travel mandated by governmental entities or voluntarily imposed by employers, (ii) the postponement or cancellation of conventions and conferences, music and arts festivals, sporting events and other large public gatherings, (iii) the closure of amusement parks, museums and other tourist attractions, (iv) the closure of colleges and universities, and (v) negative public perceptions of travel and public gatherings in light of the perceived risks associated with COVID-19;

•travelers are, and may continue to be, wary to travel where, or because, they may view the risk of contagion as increased and contagion or virus-related deaths linked or alleged to be linked to travel to our properties, whether accurate or not, may injure our reputation;

•travelers may be dissuaded from traveling due to possible enhanced COVID-19-related screening measures which are being implemented across multiple markets we serve;

•travelers may be dissuaded from traveling due to the concern that additional travel restrictions implemented between their departure and return may affect their ability to return to their homes;

•commercial airline service has been reduced or suspended to many of the areas in which our hotels are located, and if scheduled airline service does not increase or return to normal levels once our resorts are re-opened it could negatively affect our revenues;

•the reduced economic activity could also result in an economic recession, and increased unemployment, which could negatively impact future ability or desire to travel lodging demand and, therefore, our revenues, even after the temporary restrictions are lifted;

•a decrease in the ancillary revenue from amenities at our properties;

•the financial impact of the COVID-19 pandemic could negatively impact our future compliance with the financial covenants of our credit facility or other debt obligations, and result in a default and potentially an acceleration of indebtedness which would adversely affect our financial condition and liquidity;

•difficulty in accessing debt and equity capital on attractive terms, or at all, and a severe disruption and instability in the global financial markets or deteriorations in credit and financing conditions may affect our access to capital;

•the general decline in business activity and demand for real estate transactions adversely affecting our ability to acquire additional properties;

•the potential negative impact on the health of our personnel, particularly if a significant number of them are impacted, could result in a deterioration in our ability to ensure business continuity during and after this disruption;

•the increase in number of our employees working remotely has increased certain risks to our business, including increased demand on our information technology resources and systems, greater potential for phishing and other cybersecurity attacks, and an increase in the number of points of potential attack;

•we may be subject to increased risks related to employee matters, including increased employment litigation and claims for severance or other benefits tied to termination or furloughs as a result of reduced operations prompted by the effects of the pandemic; and

•the reduction in our cash flows ~~has~~ caused the suspension of dividends during the first quarter of 2020, and continued suspension through the third quarter of 2020, and could impact our ability to pay dividends to our stockholders at expected levels in the future.

The rapid development and fluidity of the COVID-19 pandemic makes it extremely difficult to assess its full adverse economic impact, and future impact, on our financial condition, results of operations, cash flows and performance. In addition, an outbreak of another disease or similar public health threat, or fear of such an event, that affects travel demand, travel behavior or travel restrictions could have a material adverse impact on the Company's business, financial condition and operating results. Outbreaks of other diseases could also result in increased government restrictions and regulation, such as those actions described above or otherwise, which could adversely affect our operations.

The potential effects of the COVID-19 pandemic also could intensify or otherwise affect many of our other risk factors that are included in Part 1-Item 1A. Risk Factors of our Annual Report on Form 10-K for the fiscal year ended December 31, 2019 (the "Annual Report"). Because the COVID-19 situation is unprecedented and continuously evolving, the other potential impacts to our risk factors that are further described in our Annual Report are uncertain.

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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

None.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.

None.

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Item 6. Exhibits.

The following exhibits are filed as part of this report:


Exhibit Number						Description of Exhibit


3.1						Articles of Amendment and Restatement of Chatham Lodging Trust ⁽¹⁾

3.2						Second Amended and Restated Bylaws of Chatham Lodging Trust⁽²⁾

~~10.1~~						First Amendment to Amended and Restated Credit Agreement, dated as of May 6, 2020,among Chatham Lodging Trust, as parent guarantee, Chatham Lodging L.P., as borrower, the several banks and other financial institutions or entities that are parties thereto, as lenders, and Barclays Bank PLC, as administrative agent.⁽³⁾

31.1						Certification of Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section302 of the Sarbanes-Oxley Act of 2002

31.2						Certification of Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section302 of the Sarbanes-Oxley Act of 2002

32.1*						Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section906 of the Sarbanes-Oxley Act of 2002

101.INS						The instance document does not appear in the interactive data file because its XBRL tags are embedded within the inline XBRL document.

101.SCH						Inline XBRL Taxonomy Extension Schema Document

101.CAL						Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF						Inline XBRL Taxonomy Extension Definition Linkbase Document

101.LAB						Inline XBRL Taxonomy Extension Label Linkbase Document

101.PRE						Inline XBRL Taxonomy Extension Presentation Linkbase Document

104						Cover Page Interactive Data File - the cover page interactive data file does not appear in the interactive date file because its XBRL tags are embedded within the inline XBRL document.


*			Furnished herewith. Such certification shall not be deemed "filed" for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.

(1)			Incorporated by reference to Exhibit 3.1 to the Company's Annual Report on Form 10-K filed with the SEC on February 29, 2016 (File No. 001-34693).

(2)			Incorporated by reference to Exhibit 3.2 to the Company's Current Report on Form 8-K filed with the SEC on April 21, 2015 (File No. 001-34693).

~~(3)~~			~~Incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed with the SEC on~~ ~~May 6, 2020 (File No. 001-34693).~~

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SIGNATURE

Pursuant to the requirements 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.


		CHATHAM LODGING TRUST

Dated:	~~May 11,~~October 29, 2020	By: /s/ JEREMY B. WEGNER
		Jeremy B. Wegner
		Senior Vice President and Chief Financial Officer
		(Principal Financial and Accounting Officer and duly authorized officer of the registrant)

4347


		Page
	PART I. FINANCIAL INFORMATION

Item1.	Financial Statements.	3
Item2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations.	2425
Item3.	Quantitative and Qualitative Disclosures about Market Risk.	3843
Item4.	Controls and Procedures.	3944

	PART II. OTHER INFORMATION

Item1.	Legal Proceedings.	3944
Item1A.	Risk Factors.	3944
Item2.	Unregistered Sales of Equity Securities and Use of Proceeds.	4146
Item3.	Defaults Upon Senior Securities.	4146
Item4.	Mine Safety Disclosures.	4146
Item5.	Other Information.	4146
Item6.	Exhibits.	4247