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 September 30, ~~2020~~2021


☐			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: 001-35074

SUMMIT HOTEL PROPERTIES, INC.

(Exact name of registrant as specified in its charter)


Maryland						27-2962512
(State or other jurisdiction						(I.R.S. Employer Identification No.)
of incorporation or organization)

13215 Bee Cave Parkway, Suite B-300

Austin, TX 78738

(Address of principal executive offices, including zip code)

(512) 538-2300

(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 Stock, $0.01 par value

INN

New York Stock Exchange

~~Series D Cumulative Redeemable Preferred Stock, $0.01 par value~~

~~INN-PD~~

~~New York Stock Exchange~~

Series E Cumulative Redeemable Preferred Stock, $0.01 par value

INN-PE

New York Stock Exchange

Series F Cumulative Redeemable Preferred Stock, $0.01 par value

INN-PF

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. ☒ Yes ☐ No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405) of this chapter during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). ☒ Yes ☐ No

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


Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 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 ☒ No

As of October ~~23, 2020,~~22, 2021, the number of outstanding shares of common stock of Summit Hotel Properties, Inc. was ~~105,708,787.~~106,450,760.

TABLE OF CONTENTS


		Page
PART I — FINANCIAL INFORMATION

Item 1.	Financial Statements	1

	Condensed Consolidated Balance Sheets — September 30, ~~2020~~2021 (Unaudited) and December 31, ~~2019~~2020	1
	Condensed Consolidated Statements of Operations (Unaudited) — Three and Nine Months Ended September 30, ~~2020~~2021 and ~~2019~~2020	2
	Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited) — Three and Nine Months Ended September 30, ~~2020~~2021 and ~~2019~~2020	3
	Condensed Consolidated Statements of Changes in Equity (Unaudited) — Three and Nine Months Ended September 30, ~~2020~~2021 and ~~2019~~2020	4
	Condensed Consolidated Statements of Cash Flows (Unaudited) — Nine Months Ended September 30, ~~2020~~2021 and ~~2019~~2020	6
	Notes to the Condensed Consolidated Financial Statements (Unaudited)	7

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	3431

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	5548

Item 4.	Controls and Procedures	5649

PART II — OTHER INFORMATION

Item 1.	Legal Proceedings	5750

Item 1A.	Risk Factors	5750

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	5750

Item 3.	Defaults Upon Senior Securities	5750

Item 4.	Mine Safety Disclosures	5750

Item 5.	Other Information	5750

Item 6.	Exhibits	5851

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

Summit Hotel Properties, Inc.

Condensed Consolidated Balance Sheets

(in thousands, except share amounts)


		September 30, 2020		December 31, 2019			September 30, 2021		December 31, 2020
		(Unaudited)					(Unaudited)
ASSETS	ASSETS					ASSETS
Investment in hotel properties, net	Investment in hotel properties, net	$	2,125,446	$	2,184,232	Investment in hotel properties, net	$	2,078,014	$	2,105,946

Undeveloped land	Undeveloped land	1,500		1,500		Undeveloped land	1,500		1,500
Assets held for sale, net	Assets held for sale, net	425		425		Assets held for sale, net	425		425
Cash and cash equivalents	Cash and cash equivalents	39,075		42,238		Cash and cash equivalents	59,650		20,719
Restricted cash	Restricted cash	17,532		27,595		Restricted cash	25,521		18,177
Investment in real estate loans, net	Investment in real estate loans, net	29,689		30,936		Investment in real estate loans, net	26,369		23,689
Right-of-use assets, net	Right-of-use assets, net	28,809		29,884		Right-of-use assets, net	27,290		28,420
Trade receivables, net	Trade receivables, net	12,512		13,281		Trade receivables, net	14,209		11,775
Prepaid expenses and other	Prepaid expenses and other	6,659		8,844		Prepaid expenses and other	7,308		9,763

Deferred charges, net	Deferred charges, net	4,364		4,709		Deferred charges, net	4,249		4,429

Other assets	Other assets	9,185		12,039		Other assets	3,785		8,176
Total assets	Total assets	$	2,275,196	$	2,355,683	Total assets	$	2,248,320	$	2,233,019
LIABILITIES AND EQUITY	LIABILITIES AND EQUITY					LIABILITIES AND EQUITY
Liabilities:	Liabilities:					Liabilities:
Debt, net of debt issuance costs	Debt, net of debt issuance costs	$	1,084,092	$	1,016,163	Debt, net of debt issuance costs	$	1,056,667	$	1,094,745
Lease liabilities		18,752		19,604
Lease liabilities, net						Lease liabilities, net	17,527		18,438
Accounts payable	Accounts payable	3,610		4,767		Accounts payable	4,330		2,674
Accrued expenses and other	Accrued expenses and other	72,340		71,759		Accrued expenses and other	70,289		65,099

Total liabilities	Total liabilities	1,178,794		1,112,293		Total liabilities	1,148,813		1,180,956
Commitments and contingencies (Note 10)	Commitments and contingencies (Note 10)					Commitments and contingencies (Note 10)	0		0
Equity:	Equity:					Equity:
Preferred stock, $0.01 par value per share, 100,000,000 shares authorized:	Preferred stock, $0.01 par value per share, 100,000,000 shares authorized:					Preferred stock, $0.01 par value per share, 100,000,000 shares authorized:

6.45% Series D - 3,000,000 shares issued and outstanding at September 30, 2020 and December 31, 2019 (aggregate liquidation preference of $75,403 and $75,417 at September 30, 2020 and December 31, 2019, respectively)		30		30
6.25% Series E - 6,400,000 shares issued and outstanding at September 30, 2020 and December 31, 2019 (aggregate liquidation preference of $160,833 and $160,861 at September 30, 2020 and December 31, 2019, respectively)		64		64
Common stock, $0.01 par value per share, 500,000,000 shares authorized, 105,696,008 and 105,169,515 shares issued and outstanding at September 30, 2020 and December 31, 2019, respectively		1,057		1,052
6.45% Series D - 3,000,000 shares issued and outstanding December 31, 2020 (aggregate liquidation preference of $75,417 at December 31, 2020)						6.45% Series D - 3,000,000 shares issued and outstanding December 31, 2020 (aggregate liquidation preference of $75,417 at December 31, 2020)	—		30
6.25% Series E - 6,400,000 shares issued and outstanding at September 30, 2021 and December 31, 2020 (aggregate liquidation preference of $160,833 at September 30, 2021 and $160,861 at December 31, 2020)						6.25% Series E - 6,400,000 shares issued and outstanding at September 30, 2021 and December 31, 2020 (aggregate liquidation preference of $160,833 at September 30, 2021 and $160,861 at December 31, 2020)	64		64
5.875% Series F - 4,000,000 shares issued and outstanding at September 30, 2021 (aggregate liquidation preference of $100,816 at September 30, 2021)						5.875% Series F - 4,000,000 shares issued and outstanding at September 30, 2021 (aggregate liquidation preference of $100,816 at September 30, 2021)	40		—
Common stock, $0.01 par value per share, 500,000,000 shares authorized, 106,445,760 and 105,708,787 shares issued and outstanding at September 30, 2021 and December 31, 2020, respectively						Common stock, $0.01 par value per share, 500,000,000 shares authorized, 106,445,760 and 105,708,787 shares issued and outstanding at September 30, 2021 and December 31, 2020, respectively	1,064		1,057
Additional paid-in capital	Additional paid-in capital	1,195,700		1,190,949		Additional paid-in capital	1,221,426		1,197,320
Accumulated other comprehensive loss	Accumulated other comprehensive loss	(33,260)		(16,034)		Accumulated other comprehensive loss	(20,925)		(30,716)
Distributions in excess of retained earnings		(132,250)		(2,283)
Accumulated deficit and distributions in excess of retained earnings						Accumulated deficit and distributions in excess of retained earnings	(247,364)		(179,013)
Total stockholders’ equity	Total stockholders’ equity	1,031,341		1,173,778		Total stockholders’ equity	954,305		988,742
Non-controlling interests in operating partnership	Non-controlling interests in operating partnership	1,265		1,809		Non-controlling interests in operating partnership	828		1,111
Non-controlling interests in joint venture (Note 8)	Non-controlling interests in joint venture (Note 8)	63,796		67,803		Non-controlling interests in joint venture (Note 8)	144,374		62,210
Total equity	Total equity	1,096,402		1,243,390		Total equity	1,099,507		1,052,063
Total liabilities and equity	Total liabilities and equity	$	2,275,196	$	2,355,683	Total liabilities and equity	$	2,248,320	$	2,233,019

See Notes to the Condensed Consolidated Financial Statements

Summit Hotel Properties, Inc.

Condensed Consolidated Statements of Operations

(Unaudited)

(in thousands, except per share amounts)


		For the Three Months Ended September 30,				For the Nine Months Ended September 30,					For the Three Months Ended September 30,				For the Nine Months Ended September 30,
		2020		2019		2020		2019			2021		2020		2021		2020
Revenues:	Revenues:									Revenues:
Room	Room	$	48,636	$	123,112	$	171,067	$	382,868	Room	$	102,521	$	48,636	$	235,761	$	171,067
Food and beverage	Food and beverage	628		5,411		5,760		17,565		Food and beverage	2,097		628		4,656		5,760
Other	Other	3,148		5,162		9,406		15,134		Other	6,068		3,148		14,647		9,406
Total revenues	Total revenues	52,412		133,685		186,233		415,567		Total revenues	110,686		52,412		255,064		186,233
Expenses:	Expenses:									Expenses:
Room	Room	11,352		27,898		42,340		84,151		Room	22,186		11,352		52,320		42,340
Food and beverage	Food and beverage	520		4,437		4,890		13,596		Food and beverage	1,476		520		3,000		4,890
Other hotel operating expenses	Other hotel operating expenses	22,535		38,969		74,406		118,317		Other hotel operating expenses	34,713		22,535		88,672		74,406
Property taxes, insurance and other	Property taxes, insurance and other	11,007		10,696		34,171		32,799		Property taxes, insurance and other	10,679		11,007		32,573		34,171
Management fees	Management fees	1,335		3,676		5,051		13,280		Management fees	2,888		1,335		6,757		5,051
Depreciation and amortization	Depreciation and amortization	27,503		23,202		82,147		72,517		Depreciation and amortization	25,893		27,503		79,776		82,147
Corporate general and administrative	Corporate general and administrative	4,652		5,532		14,635		17,442		Corporate general and administrative	6,099		4,652		18,283		14,635
Transaction costs										Transaction costs	—		—		3,849		—

Provision for credit losses		0		0		2,530		0
Loss on impairment of assets		0		0		782		1,685
(Reversal of) provision for credit losses										(Reversal of) provision for credit losses	(2,632)		—		(2,632)		2,530
Loss on impairment and write-off of assets										Loss on impairment and write-off of assets	4,361		—		4,361		782
Total expenses	Total expenses	78,904		114,410		260,952		353,787		Total expenses	105,663		78,904		286,959		260,952
Gain (loss) on disposal of assets, net		211		(31)		176		39,655
Operating (loss) income		(26,281)		19,244		(74,543)		101,435
Gain on disposal of assets, net										Gain on disposal of assets, net	—		211		81		176
Operating income (loss)										Operating income (loss)	5,023		(26,281)		(31,814)		(74,543)
Other income (expense):	Other income (expense):									Other income (expense):
Interest expense	Interest expense	(10,904)		(9,450)		(32,665)		(30,068)		Interest expense	(10,817)		(10,904)		(32,567)		(32,665)
Other income, net	Other income, net	1,278		1,808		4,260		3,255		Other income, net	2,250		1,278		7,777		4,260
Total other income (expense)	Total other income (expense)	(9,626)		(7,642)		(28,405)		(26,813)		Total other income (expense)	(8,567)		(9,626)		(24,790)		(28,405)
(Loss) income from continuing operations before income taxes		(35,907)		11,602		(102,948)		74,622
Income tax benefit (expense) (Note 12)		132		24		(1,589)		(1,027)
Net (loss) income		(35,775)		11,626		(104,537)		73,595
Loss from continuing operations before income taxes										Loss from continuing operations before income taxes	(3,544)		(35,907)		(56,604)		(102,948)
Income tax (expense) benefit (Note 12)										Income tax (expense) benefit (Note 12)	(695)		132		(1,075)		(1,589)
Net loss										Net loss	(4,239)		(35,775)		(57,679)		(104,537)
Less - Loss (income) attributable to non-controlling interests:	Less - Loss (income) attributable to non-controlling interests:									Less - Loss (income) attributable to non-controlling interests:
Operating Partnership	Operating Partnership	70		(15)		203		(150)		Operating Partnership	10		70		98		203
Joint venture	Joint venture	1,159		(77)		4,049		(77)		Joint venture	(275)		1,159		3,020		4,049
Net (loss) income attributable to Summit Hotel Properties, Inc.		(34,546)		11,534		(100,285)		73,368
Net loss attributable to Summit Hotel Properties, Inc.										Net loss attributable to Summit Hotel Properties, Inc.	(4,504)		(34,546)		(54,561)		(100,285)
Preferred dividends	Preferred dividends	(3,710)		(3,710)		(11,128)		(11,128)		Preferred dividends	(3,750)		(3,710)		(11,168)		(11,128)

Net (loss) income attributable to common stockholders		$	(38,256)	$	7,824	$	(111,413)	$	62,240
(Loss) earnings per share:
Premium on redemption of preferred stock										Premium on redemption of preferred stock	(2,710)		—		(2,710)		—
Net loss attributable to common stockholders										Net loss attributable to common stockholders	$	(10,964)	$	(38,256)	$	(68,439)	$	(111,413)
Loss per share:										Loss per share:
Basic and diluted	Basic and diluted	$	(0.37)	$	0.07	$	(1.07)	$	0.60	Basic and diluted	$	(0.10)	$	(0.37)	$	(0.66)	$	(1.07)

Weighted average common shares outstanding:	Weighted average common shares outstanding:									Weighted average common shares outstanding:
Basic		104,200		103,935		104,117		103,861
Diluted		104,200		103,970		104,117		103,916
Basic and diluted										Basic and diluted	104,548		104,200		104,441		104,117

See Notes to the Condensed Consolidated Financial Statements

Summit Hotel Properties, Inc.

Condensed Consolidated Statements of Comprehensive Income (Loss)

(Unaudited)

(in thousands)


		For the Three Months Ended September 30,				For the Nine Months Ended September 30,					For the Three Months Ended September 30,				For the Nine Months Ended September 30,
		2020		2019		2020		2019			2021		2020		2021		2020
Net (loss) income		$	(35,775)	$	11,626	$	(104,537)	$	73,595
Net loss										Net loss	$	(4,239)	$	(35,775)	$	(57,679)	$	(104,537)
Other comprehensive income (loss), net of tax:	Other comprehensive income (loss), net of tax:									Other comprehensive income (loss), net of tax:
Changes in fair value of derivative financial instruments	Changes in fair value of derivative financial instruments	2,834		(4,140)		(17,233)		(18,972)		Changes in fair value of derivative financial instruments	2,265		2,834		9,830		(17,233)
Comprehensive (loss) income		(32,941)		7,486		(121,770)		54,623
Comprehensive loss										Comprehensive loss	(1,974)		(32,941)		(47,849)		(121,770)
Less - Comprehensive loss (income) attributable to non-controlling interests:	Less - Comprehensive loss (income) attributable to non-controlling interests:									Less - Comprehensive loss (income) attributable to non-controlling interests:
Operating Partnership	Operating Partnership	63		(6)		233		(104)		Operating Partnership	8		63		84		233
Joint venture	Joint venture	1,159		(77)		4,049		(77)		Joint venture	(275)		1,159		3,020		4,049
Comprehensive (loss) income attributable to Summit Hotel Properties, Inc.		(31,719)		7,403		(117,488)		54,442
Comprehensive loss attributable to Summit Hotel Properties, Inc.										Comprehensive loss attributable to Summit Hotel Properties, Inc.	(2,241)		(31,719)		(44,745)		(117,488)
Preferred dividends	Preferred dividends	(3,710)		(3,710)		(11,128)		(11,128)		Preferred dividends	(3,750)		(3,710)		(11,168)		(11,128)

Comprehensive (loss) income attributable to common stockholders		$	(35,429)	$	3,693	$	(128,616)	$	43,314
Premium on redemption of preferred stock										Premium on redemption of preferred stock	(2,710)		—		(2,710)		—
Comprehensive loss attributable to common stockholders										Comprehensive loss attributable to common stockholders	$	(8,701)	$	(35,429)	$	(58,623)	$	(128,616)

See Notes to the Condensed Consolidated Financial Statements

Summit Hotel Properties, Inc.

Condensed Consolidated Statements of Changes in Equity

For the Three Months Ended September 30, ~~2020~~2021 and ~~2019~~2020

(Unaudited)

(in thousands, except share amounts)


	Shares of Preferred Stock	Preferred Stock		Shares of Common Stock	Common Stock		Additional Paid-In Capital		Accumulated Other Comprehensive Loss		Accumulated Deficit and Distributions in Excess of Retained Earnings		Total Stockholders’ Equity		Non-controlling Interests				Total Equity
															Operating Partnership		Joint Venture
Balance at June 30, 2021	9,400,000	$	94	106,416,315	$	1,064	$	1,195,002	$	(23,161)	$	(236,400)	$	936,599	$	1,024	$	128,099	$	1,065,722
Net proceeds from sale of preferred stock	4,000,000	40		—	—		96,577		—		—		96,617		—		—		96,617

Redemption of preferred stock	(3,000,000)	(30)		—	—		(72,260)		—		(2,710)		(75,000)		—		—		(75,000)

Contribution by non-controlling interest in joint venture	—	—		—	—		—		—		—		—		—		16,000		16,000
Common stock redemption of common units	—	—		29,445	—		217		(27)		—		190		(190)		—		—
Dividends	—	—		—	—		—		—		(3,750)		(3,750)		—		—		(3,750)
Equity-based compensation	—	—		—	—		1,890		—		—		1,890		2		—		1,892


Other comprehensive income	—	—		—	—		—		2,263		—		2,263		2		—		2,265
Net (loss) income	—	—		—	—		—		—		(4,504)		(4,504)		(10)		275		(4,239)
Balance at September 30, 2021	10,400,000	$	104	106,445,760	$	1,064	$	1,221,426	$	(20,925)	$	(247,364)	$	954,305	$	828	$	144,374	$	1,099,507

Balance at June 30, 2020	9,400,000	$	94	105,696,833	$	1,057	$	1,194,178	$	(36,086)	$	(93,994)	$	1,065,249	$	1,332	$	64,955	$	1,131,536


Common stock redemption of common units	—	—		921	—		8		(1)		—		7		(7)		—		—



Dividends	—	—		—	—		—		—		(3,710)		(3,710)		—		—		(3,710)
Equity-based compensation	—	—		(1,746)	—		1,514		—		—		1,514		3		—		1,517


Other comprehensive income	—	—		—	—		—		2,827		—		2,827		7		—		2,834
Net loss	—	—		—	—		—		—		(34,546)		(34,546)		(70)		(1,159)		(35,775)
Balance at September 30, 2020	9,400,000	$	94	105,696,008	$	1,057	$	1,195,700	$	(33,260)	$	(132,250)	$	1,031,341	$	1,265	$	63,796	$	1,096,402

Shares
of Preferred
Stock Preferred
Stock Shares
of Common
Stock Common
Stock Additional
Paid-In Capital Accumulated Other
Comprehensive
Loss Retained Earnings
(Deficit) and
Distributions Total
Stockholders’
Equity Non-controlling Interests Total
Equity
Operating
Partnership Joint
Venture
Balance at June 30, 2020 9,400,000 $ 94 105,696,833 $ 1,057 $ 1,194,178 $ (36,086) $ (93,994) $ 1,065,249 $ 1,332 $ 64,955 $ 1,131,536
Common stock redemption of common units — — 921 — 8 (1) — 7 (7) — —
Dividends — — — — — — (3,710) (3,710) — — (3,710)
Equity-based compensation — — (1,746) — 1,514 — — 1,514 3 — 1,517
Other comprehensive income — — — — — 2,827 — 2,827 7 — 2,834
Net loss — — — — — — (34,546) (34,546) (70) (1,159) (35,775)
Balance at September 30, 2020 9,400,000 $ 94 105,696,008 $ 1,057 $ 1,195,700 $ (33,260) $ (132,250) $ 1,031,341 $ 1,265 $ 63,796 $ 1,096,402
Balance at June 30, 2019 9,400,000 $ 94 105,126,626 $ 1,051 $ 1,187,715 $ (16,236) $ 22,179 $ 1,194,803 $ 2,254 $ 0 $ 1,197,057
Contribution by non-controlling interest in joint venture — — — — — — — — — 13,764 13,764
Common stock redemption of common units — — 40,000 1 383 (28) — 356 (356) — —
Dividends — — — — — — (22,610) (22,610) (46) — (22,656)
Equity-based compensation — — (1,279) — 1,447 — — 1,447 3 — 1,450
Other — — — — (44) — — (44) — — (44)
Other comprehensive loss — — — — — (4,131) — (4,131) (9) — (4,140)
Net income — — — — — — 11,534 11,534 15 77 11,626
Balance at September 30, 2019 9,400,000 $ 94 105,165,347 $ 1,052 $ 1,189,501 $ (20,395) $ 11,103 $ 1,181,355 $ 1,861 $ 13,841 $ 1,197,057

See Notes to the Condensed Consolidated Financial Statements

Summit Hotel Properties, Inc.

Condensed Consolidated Statements of Changes in Equity

For the Nine Months Ended September 30, ~~2020~~2021 and ~~2019~~2020

(Unaudited)

(in thousands, except share amounts)


		Shares of Preferred Stock		Preferred Stock		Shares of Common Stock			Common Stock		Additional Paid-In Capital			Accumulated Other Comprehensive Loss		Retained Earnings (Deficit) and Distributions			Total Stockholders’ Equity		Non-controlling Interests					Total Equity				Shares of Preferred Stock				Preferred Stock			Shares of Common Stock				Common Stock			Additional Paid-In Capital			Accumulated Other Comprehensive Loss			Accumulated Deficit and Distributions in Excess of Retained Earnings			Total Stockholders’ Equity			Non-controlling Interests						Total Equity
													Operating Partnership					Joint Venture																		Operating Partnership							Joint Venture
Balance at December 31, 2019			9,400,000				$	94			105,169,515			$	1,052	$	1,190,949		$	(16,034)	$	(2,283)	$	1,173,778				$	1,809			$	67,803				$	1,243,390
Balance at December 31, 2020																									Balance at December 31, 2020				9,400,000		$	94			105,708,787				$	1,057		$	1,197,320		$	(30,716)		$	(179,013)		$	988,742		$	1,111		$	62,210		$	1,052,063
Net proceeds from sale of preferred stock																									Net proceeds from sale of preferred stock				4,000,000		40				—				—			96,577			—			—			96,617			—			—			96,617

Redemption of preferred stock																									Redemption of preferred stock				(3,000,000)		(30)				—				—			(72,260)			—			(2,710)			(75,000)			—			—			(75,000)
Contribution by non-controlling interests in joint venture	Contribution by non-controlling interests in joint venture	—		—		—			—		—			—		—			—		—		577			577		Contribution by non-controlling interests in joint venture		—				—			—				—			16,444			—			—			16,444			—			85,229			101,673
Purchases of capped call options																									Purchases of capped call options				—		—				—				—			(21,131)			—			—			(21,131)			—			—			(21,131)
Common stock redemption of common units	Common stock redemption of common units	—		—		34,500			—		306			(23)		—			283		(283)		—			—		Common stock redemption of common units		—				—			31,945				—			232			(25)			—			207			(207)			—			—
Dividends	Dividends	—		—		—			—		—			—		(29,682)			(29,682)		(37)		(535)			(30,254)		Dividends		—				—			—				—			—			—			(11,080)			(11,080)			—			(45)			(11,125)
Equity-based compensation	Equity-based compensation	—		—		557,338			6		4,943			—		—			4,949		9		—			4,958		Equity-based compensation		—				—			860,633				9			5,844			—			—			5,853			8			—			5,861
Shares acquired for employee withholding requirements	Shares acquired for employee withholding requirements	—		—		(65,345)			(1)		(468)			—		—			(469)		—		—			(469)		Shares acquired for employee withholding requirements		—				—			(155,605)				(2)			(1,600)			—			—			(1,602)			—			—			(1,602)
Other		—		—		—			—		(30)			—		—			(30)		—		—			(30)
Other comprehensive loss		—		—		—			—		—			(17,203)		—			(17,203)		(30)		—			(17,233)

Other comprehensive income																									Other comprehensive income				—		—				—				—			—			9,816			—			9,816			14			—			9,830
Net loss	Net loss	—		—		—			—		—			—		(100,285)			(100,285)		(203)		(4,049)			(104,537)		Net loss		—				—			—				—			—			—			(54,561)			(54,561)			(98)			(3,020)			(57,679)
Balance at September 30, 2020		9,400,000		$	94	105,696,008			$	1,057	$	1,195,700		$	(33,260)	$	(132,250)		$	1,031,341	$	1,265	$	63,796		$	1,096,402
Balance at September 30, 2021																									Balance at September 30, 2021				10,400,000		$	104			106,445,760				$	1,064		$	1,221,426		$	(20,925)		$	(247,364)		$	954,305		$	828		$	144,374		$	1,099,507

Balance at December 31, 2018		9,400,000		$	94	104,783,179			$	1,048	$	1,185,310		$	(1,441)	$	4,838		$	1,189,849	$	2,295	$	0		$	1,192,144
Balance at December 31, 2019																									Balance at December 31, 2019				9,400,000		$	94			105,169,515				$	1,052		$	1,190,949		$	(16,034)		$	(2,283)		$	1,173,778		$	1,809		$	67,803		$	1,243,390

Contribution by non-controlling interest in joint venture	Contribution by non-controlling interest in joint venture	—		—		—			—		—			—		—			—		—		13,764			13,764		Contribution by non-controlling interest in joint venture		—				—			—				—			—			—			—			—			—			577			577
Common stock redemption of common units	Common stock redemption of common units	—		—		46,076			1		436			(28)		—			409		(409)		—			—		Common stock redemption of common units		—				—			34,500				—			306			(23)			—			283			(283)			—			—

Dividends	Dividends	—		—		—			—		—			—		(67,103)			(67,103)		(140)		—			(67,243)		Dividends		—				—			—				—			—			—			(29,682)			(29,682)			(37)			(535)			(30,254)
Equity-based compensation	Equity-based compensation	—		—		410,432			4		4,751			—		—			4,755		11		—			4,766		Equity-based compensation		—				—			557,338				6			4,943			—			—			4,949			9			—			4,958
Shares acquired for employee withholding requirements	Shares acquired for employee withholding requirements	—		—		(74,340)			(1)		(838)			—		—			(839)		—		—			(839)		Shares acquired for employee withholding requirements		—				—			(65,345)				(1)			(468)			—			—			(469)			—			—			(469)
Other	Other	—		—		—			—		(158)			—		—			(158)		—		—			(158)		Other		—				—			—				—			(30)			—			—			(30)			—			—			(30)
Other comprehensive loss	Other comprehensive loss	—		—		—			—		—			(18,926)		—			(18,926)		(46)		—			(18,972)		Other comprehensive loss		—				—			—				—			—			(17,203)			—			(17,203)			(30)			—			(17,233)
Net income		—		—		—			—		—			—		73,368			73,368		150		77			73,595
Balance at September 30, 2019		9,400,000		$	94	105,165,347			$	1,052	$	1,189,501		$	(20,395)	$	11,103		$	1,181,355	$	1,861	$	13,841		$	1,197,057
Net loss																									Net loss				—		—				—				—			—			—			(100,285)			(100,285)			(203)			(4,049)			(104,537)
Balance at September 30, 2020																									Balance at September 30, 2020				9,400,000		$	94			105,696,008				$	1,057		$	1,195,700		$	(33,260)		$	(132,250)		$	1,031,341		$	1,265		$	63,796		$	1,096,402

See Notes to the Condensed Consolidated Financial Statements

Summit Hotel Properties, Inc.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(in thousands)


		For the Nine Months Ended September 30,					For the Nine Months Ended September 30,
		2020		2019			2021		2020
OPERATING ACTIVITIES	OPERATING ACTIVITIES					OPERATING ACTIVITIES
Net (loss) income		$	(104,537)	$	73,595
Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities:
Net loss						Net loss	$	(57,679)	$	(104,537)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:						Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization	Depreciation and amortization	82,147		72,517		Depreciation and amortization	79,776		82,147
Amortization of deferred financing costs	Amortization of deferred financing costs	1,655		1,041		Amortization of deferred financing costs	3,239		1,655
Loss on impairment of assets		782		1,685
Provision for credit losses		2,530		0
Loss on impairment and write-off of assets						Loss on impairment and write-off of assets	4,361		782
(Reversal of) provision for credit losses						(Reversal of) provision for credit losses	(2,632)		2,530
Equity-based compensation	Equity-based compensation	4,958		4,766		Equity-based compensation	5,861		4,958
Deferred tax asset, net	Deferred tax asset, net	2,058		0		Deferred tax asset, net	—		2,058
Gain on disposal of assets, net	Gain on disposal of assets, net	(176)		(39,655)		Gain on disposal of assets, net	(81)		(176)

Non-cash interest income	Non-cash interest income	(2,297)		(1,713)		Non-cash interest income	(779)		(2,297)
Debt transaction costs	Debt transaction costs	336		1,847		Debt transaction costs	160		336
Other	Other	303		369		Other	326		303
Changes in operating assets and liabilities:	Changes in operating assets and liabilities:					Changes in operating assets and liabilities:

Trade receivables, net	Trade receivables, net	732		(4,514)		Trade receivables, net	(2,434)		732
Prepaid expenses and other	Prepaid expenses and other	2,043		1,754		Prepaid expenses and other	3,130		2,043
Accounts payable	Accounts payable	(311)		126		Accounts payable	2,051		(311)
Accrued expenses and other	Accrued expenses and other	(11,614)		7,796		Accrued expenses and other	14,990		(11,614)
NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES		(21,391)		119,614
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES						NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES	50,289		(21,391)
INVESTING ACTIVITIES	INVESTING ACTIVITIES					INVESTING ACTIVITIES
Acquisition of hotel properties and land		0		(32,277)
Acquisition of hotel properties						Acquisition of hotel properties	(33,170)		—

Improvements to hotel properties	Improvements to hotel properties	(19,234)		(46,708)		Improvements to hotel properties	(10,659)		(19,234)
Proceeds from asset dispositions, net		0		143,962

Contract termination payment for asset dispositions	Contract termination payment for asset dispositions	(2,200)		0		Contract termination payment for asset dispositions	—		(2,200)
Funding of real estate loans	Funding of real estate loans	(6,171)		(7,228)		Funding of real estate loans	(7,416)		(6,171)
Proceeds from principal payments on real estate loans	Proceeds from principal payments on real estate loans	250		2,050		Proceeds from principal payments on real estate loans	—		250

Increase in escrow deposits for acquisitions	Increase in escrow deposits for acquisitions	0		(3,000)		Increase in escrow deposits for acquisitions	(635)		—
NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES		(27,355)		56,799
NET CASH USED IN INVESTING ACTIVITIES						NET CASH USED IN INVESTING ACTIVITIES	(51,880)		(27,355)
FINANCING ACTIVITIES	FINANCING ACTIVITIES					FINANCING ACTIVITIES
Borrowings on revolving credit facilities		191,500		135,000
Proceeds from issuance of debt						Proceeds from issuance of debt	318,500		191,500
Principal payments on debt	Principal payments on debt	(122,789)		(251,360)		Principal payments on debt	(350,916)		(122,789)

Proceeds from equity offerings, net of issuance costs						Proceeds from equity offerings, net of issuance costs	96,617		—
Redemption of preferred stock						Redemption of preferred stock	(75,000)		—
Purchases of capped call options						Purchases of capped call options	(21,131)		—
Dividends paid	Dividends paid	(30,495)		(67,751)		Dividends paid	(11,213)		(30,495)
Proceeds from contribution by non-controlling interests in joint venture	Proceeds from contribution by non-controlling interests in joint venture	577		13,764		Proceeds from contribution by non-controlling interests in joint venture	101,673		577
Financing fees on debt and other issuance costs	Financing fees on debt and other issuance costs	(2,804)		(1,873)		Financing fees on debt and other issuance costs	(9,062)		(2,804)
Repurchase of common shares for withholding requirements		(469)		(839)
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES		35,520		(173,059)
Other						Other	(1,602)		(469)
NET CASH PROVIDED BY FINANCING ACTIVITIES						NET CASH PROVIDED BY FINANCING ACTIVITIES	47,866		35,520
Net change in cash, cash equivalents and restricted cash	Net change in cash, cash equivalents and restricted cash	(13,226)		3,354		Net change in cash, cash equivalents and restricted cash	46,275		(13,226)
CASH, CASH EQUIVALENTS AND RESTRICTED CASH	CASH, CASH EQUIVALENTS AND RESTRICTED CASH					CASH, CASH EQUIVALENTS AND RESTRICTED CASH
Beginning of period	Beginning of period	69,833		72,556		Beginning of period	38,896		69,833
End of period	End of period	$	56,607	$	75,910	End of period	$	85,171	$	56,607
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION	SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION					SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash payments for interest	Cash payments for interest	$	(30,927)	$	(30,822)	Cash payments for interest	$	(29,384)	$	(30,927)
Accrued improvements to hotel properties	Accrued improvements to hotel properties	$	(1,668)	$	(6,272)	Accrued improvements to hotel properties	$	(1,777)	$	(1,668)

Cash receipts from income tax refunds		$	516	$	369
Income tax cash (payments) refunds, net						Income tax cash (payments) refunds, net	$	(526)	$	516

See Notes to the Condensed Consolidated Financial Statements

SUMMIT HOTEL PROPERTIES, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 1 - DESCRIPTION OF BUSINESS

General

Summit Hotel Properties, Inc. (the “Company”) is a self-managed hotel investment company that was organized on June 30, 2010 as a Maryland corporation. The Company holds both general and limited partnership interests in Summit Hotel OP, LP (the “Operating Partnership”), a Delaware limited partnership also organized on June 30, 2010. Unless the context otherwise requires, “we,” “us,” and “our” refer to the Company and its consolidated subsidiaries.

We focus on owning premium-branded hotels with efficient operating models primarily in the Upscale segment of the lodging industry. At September 30, ~~2020,~~2021, our portfolio consisted of 7273 hotels with a total of ~~11,288~~11,398 guestrooms located in 23 states. As of September 30, ~~2020,~~2021, we own 100% of the outstanding equity interests in 6761 of our 7273 hotels. We own a 51% controlling interest in 512 hotels ~~that we acquired in 2019~~ through a joint venture. We have elected to be taxed as a real estate investment trust (“REIT”) for federal income tax purposes. To qualify as a REIT, we cannot operate or manage our hotels. Accordingly, all of our hotels are leased to our taxable REIT subsidiaries (“TRS Lessees”).

Risks and Uncertainties

The Company is subject to risks and uncertainties as a result of the effects of the novel coronavirus, designated as COVID-19 (“COVID-19”). and its variants, for at least the near future. The ~~COVID-19~~ pandemic has had and will continue to have a material adverse effect on our operations. The Company first began to experience effects from COVID-19 in March 2020, when the World Health Organization (“WHO”) declared a public health emergency of international concern related to COVID-19. By March 31, 2020, stay-at-home directives had been issued in many states across the United States and many local jurisdictions had additionally required the temporary closure of businesses deemed to be non-essential.

~~These actions and restrictions have~~ had a significant negative effect on the U.S. and global economies, including a rapid and sharp decline in all forms of travel, both domestic and international, and a significant decline in hotel demand. These conditions ~~have~~ resulted in a substantial decline in our revenues, profitability and cash flows from operations ~~during the first nine months of 2020 and are expected to continue to materially adversely affect our operations and financial results until consumer confidence is restored and a recovery~~beginning in hospitality and travel-related demand occurs. The COVID-19 pandemic has also led to a disruption and volatility of the capital markets for the hospitality and travel-related industries, which could increase our cost of and limit accessibility to capital. March, 2020.

During the ~~third quarter~~first three quarters of ~~2020, many jurisdictions eased restrictions on travel and business operations as conditions have permitted. As a result,~~2021, we experienced sequential improvement in our business ~~experienced gradual~~driven primarily by leisure travel. The improvement ~~mostly as~~was the result of ~~an increase~~a steady decline in COVID-19 cases following the administration of vaccines and the easing of government restrictions and guidance in many jurisdictions. A recovery in business travel and group business has been slower to date. We anticipate that continued improvement in operating trends will be dependent on continued growth in leisure travel and ~~small group business. There can be no assurance that these~~a recovery of business travel. More broadly, a return to normalized levels of operations is dependent upon the dissipation of concerns related to COVID-19 and its variants, continued easing of government restrictions ~~will continue to be eased or that we will continue to experience sustained improvement~~and guidance, restoration of consumer confidence, and a recovery in ~~our operations.~~corporate and overall travel-related demand.

~~The COVID-19 pandemic caused~~Beginning in March 2020, the Company to temporarily suspend operations at 6 hotels containing 934 guestrooms in March 2020. An additional 9 hotels, containing 1,278 guestrooms, each of which is adjacent to another of our hotels ("Sister Properties"), continued to accept reservations, but guests were directed to Sister Properties. In May of 2020, 5 hotels containing 682 guestrooms and 4 hotel properties adjacent to Sister Properties containing 506 guestrooms were re-opened. During the third quarter of 2020, 2 hotel properties adjacent to Sister Properties containing 309 guestrooms were re-opened. As of September 30, 2020, only 1 hotel with 252 guestrooms still has suspended operations and guests at 3 other hotels containing 463 guestrooms are being directed to Sister Properties.

~~The duration and severity of the effects of the COVID-19 pandemic are highly uncertain and difficult to predict. As such, the Company has taken~~took several actions to reduce costs and increase liquidity to mitigate the effects of the COVID-19 pandemic on the ~~Company, including the following:~~

•~~Borrowed a net amount of $50.0 million on our $400 million unsecured revolving credit facility (“$400 Million Revolver”) during the nine months ended September 30, 2020~~Company. We continue to ~~meet our near-term funding needs and ensured the availability of sufficient capacity under the $400 Million Revolver to provide adequate liquidity should we experience a protracted disruption~~engage in ~~lodging demand.~~

•~~Amended loan agreements of our 2018 Unsecured Credit Facility, 2017 Term Loan and 2018 Term Loan to provide for financial covenant waivers through March 31, 2021, to modify or waive compliance with~~ certain financial covenant measures for the final three quarters of 2021 and to access additional borrowing capacity of $150.0 million under our $400 Million Revolver. At October 23, 2020, we had $35.3 million of consolidated unrestricted cash on hand and an additional $225.0 million of undrawn availability on our $400 Million Revolver, as amended by the First Amendment (as defined below). We have no debt maturing before November 2022.

•Amended our joint venture credit agreement to provide for a financial covenant waiver through March 31, 2021, to modify certain financial covenant measures through June 30, 2022, and to access additional availability to fund operating expense deficits and various capital expenditures.

•Suspended the declaration and payment of dividends on our common stock and operating partnership units. This will conserve an additional $19.0 million of cash quarterly, or $75.0 million on an annualized basis.

•~~Postponed all non-essential capital improvement projects planned for 2020 beyond those already substantially complete, which is expected~~steps to reduce ~~previously planned total capital expenditures by at least $35.0 million, or over 50% based on the midpoint of our previously provided guidance range of total capital expenditures for 2020.~~

•~~Adopted comprehensive cost reduction initiatives, including the reduction of labor~~costs while taking appropriate actions to maintain guest safety and temporary elimination of certain services and amenities, at all hotels. Certain labor costs and services or amenities have been added back on a limited basis as improvements in occupancy levels have supported. As described above, we temporarily suspended operations at certain hotelssatisfaction. For additional information concerning such actions taken in response to ~~specific government mandates or as~~ the ~~result of adverse market conditions.~~

•Negotiated the temporary suspension of FF&E reserve funding requirements for certain of our hotels and facilitated the interim or permanent use of cash deposited in our restricted cash reserve for replacement of furniture, fixtures and equipment ("FF&E Reserve Accounts") of certain of our hotels for general working capital purposes.

•~~Implemented a voluntary 25% temporary reduction of base salaries and fees, respectively, for executive officers and independent members~~effects of the ~~Board of Directors from April 2020 to June 2020.~~

•Furloughed approximately 25% of the corporate-level staff in April 2020. Certain of the furloughed staff have been reinstated during the second and third quarters of 2020 to meet specific needs of the Company as supported byCOVID-19 pandemic on our ~~operating performance, but the majority of the furloughed positions were permanently eliminated during the third quarter.~~

•~~Implemented temporary salary reductions~~business, please see our Annual Report on Form 10-K for the ~~majority of our remaining non-executive employees from April 2020 to June~~year ended December 31, 2020.

•~~Implemented a temporary hiring freeze for any new corporate-level positions.~~

It is currently extremely difficult to predict the length of time it will take for us to return to pre-pandemic operational and financial performance. Despite the uncertainty, based on the actions we have taken, we believe we have sufficient cash and access to liquidity to meet our obligations for ~~at least~~ the ~~next twelve months.~~foreseeable future and to continue to pursue selective growth opportunities.

NOTE 2 - BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

We prepare our Condensed Consolidated Financial Statements in conformity with U.S. Generally Accepted Accounting Principles (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Accordingly, the Condensed Consolidated Financial Statements do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring items) considered necessary for a fair presentation in accordance with GAAP have been included. Results for the three and nine months ended September 30, ~~2020~~2021 may not be indicative of the results that may be expected for the full year of ~~2020.~~2021. For further information, please read the Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, ~~2019.~~2020.

The accompanying Condensed Consolidated Financial Statements consolidate the accounts of all entities in which we have a controlling financial interest, as well as variable interest entities for which the Company is the primary beneficiary. All significant intercompany balances and transactions have been eliminated in the Condensed Consolidated Financial Statements.

We evaluate joint venture partnerships to determine if they should be consolidated based on whether the partners exercise joint control. For a joint venture where we exercise primary control and we also own a majority of the equity interests, we consolidate the joint venture partnership. We have consolidated the accounts of our joint venture partnership with GIC in our accompanying Condensed Consolidated Financial Statements. See "Note 8 - Equity - Non-controlling Interests in Joint Venture" for further information.

Investment in Hotel Properties

The Company allocates the purchase price of acquired hotel properties based on the fair value of the acquired land, land improvements, building, furniture, fixtures and equipment, identifiable intangible assets or liabilities, other assets and assumed liabilities. Intangible assets may include certain value associated with the on-going operations of the hotel business being acquired as part of the hotel property acquisition. Acquired intangible assets that derive their values from real property or an interest in real property, are inseparable from that real property or interest in real property, and do not produce or contribute to the production of income other than consideration for the use or occupancy of space, are recorded as a component of the related real estate asset in our Condensed Consolidated Financial Statements. We allocate the purchase price of acquired hotel properties to land, building and furniture, fixtures and equipment based on independent third-party appraisals.

If substantially all of the fair value of the gross assets acquired are concentrated in a single identifiable asset or group of similar identifiable assets, the asset or asset group is not considered a business. When we conclude that an acquisition meets this threshold, acquisition costs will be capitalized as part of our allocation of the purchase price of the acquired hotel properties.

Our hotel properties and related assets are recorded at cost, less accumulated depreciation. We capitalize hotel development costs and the costs of significant additions and improvements that materially upgrade, increase the value or extend the useful life of the property. These costs may include hotel development, refurbishment, renovation, and remodeling expenditures, as well as certain indirect internal costs related to construction projects. If an asset requires a period of time in which to carry out the activities necessary to bring it to the condition necessary for its intended use, the interest cost incurred during that period as a result of expenditures for the asset is capitalized as part of the cost of the asset. We expense the cost of repairs and maintenance as incurred.

On a limited basis, we provide financing to developers of hotel properties for development projects. We evaluate these arrangements to determine if we participate in residual profits of the hotel property through the loan provisions or other agreements. Where we conclude that these arrangements are more appropriately treated as an investment in the hotel property, we reflect the loan as Investment in hotel properties, net in our Condensed Consolidated Balance Sheets.

We monitor events and changes in circumstances for indicators that the carrying value of a hotel property or undeveloped land may be impaired. Additionally, we perform at least annual reviews to monitor the factors that could trigger an impairment. Factors that we consider for an impairment analysis include, among others: i) significant underperformance relative to historical or anticipated operating results, ii) significant changes in the manner of use of a property or the strategy of our overall business, including changes in the estimated holding periods for hotel properties and land parcels, iii) a significant increase in competition, iv) a significant adverse change in legal factors or regulations, v) changes in values of comparable land or hotel sales, and vi) significant negative industry or economic trends. When such factors are identified, we prepare an estimate of the undiscounted future cash flows of the specific property and determine if the carrying amount of the asset is recoverable. If an impairment is identified, we estimate the fair value of the property based on discounted cash flows or sales price if the property is under contract and an adjustment is made to reduce the carrying value of the property to its estimated fair value. Due to the adverse effects of the COVID-19 pandemic across our entire portfolio of hotel properties, an impairment evaluation was completed for all of our hotel properties and identified no impairment at September 30, 2020.

Intangible Assets

We amortize intangible assets with determined finite useful lives using the straight-line method. We do not amortize intangible assets with indefinite useful lives, but we evaluate these assets for impairment annually or at interim periods if events or circumstances indicate that the asset may be impaired. ~~Due to the effects of the COVID-19 pandemic, we evaluated our intangible assets for impairment at September 30, 2020 and identified no impairment.~~

Trade Receivables and Credit Policies

We grant credit to qualified customers, generally without collateral, in the form of trade accounts receivable. Trade receivables result from the rental of hotel guestrooms and the sales of food, beverage, and banquet services and are payable under normal trade terms. Trade receivables also include credit and debit card transactions that are in the process of being settled. Trade receivables are stated at the amount billed to the customer and do not accrue interest. We regularly review the collectability of our trade receivables. A provision for losses is determined on the basis of previous loss experience and current economic conditions. Our allowance for doubtful accounts was ~~$0.3 million and $0.2~~$0.4 million at September 30, ~~2020~~2021 and December 31, ~~2019, respectively,~~2020 and bad debt expense was $0.1 ~~million and $0.2~~ million for the three months ended September 30, 2021 and 2020 and ~~2019, respectively,~~$0.3 million and $0.6 ~~million and $0.4~~ million for the nine months ended September 30, ~~2020~~2021 and ~~2019,~~2020, respectively.

Leases

In ~~February 2016, the FASB issued~~accordance with ASU No. 2016-02, Leases (Topic 842), ~~which changed lessee accounting to reflect~~we record the financial liability and right-of-use assets that are inherent to leasing an asset on the balance ~~sheet. We adopted ASU No. 2016-02 on January 1, 2019. A lessee is also required to record a right-of-use asset and a lease liability~~sheet for all leases with a term of greater than 12 months regardless of their classification. ~~In July 2018, the FASB issued ASU 2018-10,~~ ~~Codification Improvements to Topic 842, Leases, to clarify how to apply certain aspects of ASC No. 842,~~ ~~Leases. In July 2018, the FASB also issued ASU 2018-11,~~ ~~Leases (Topic 842): Targeted Improvements~~, to give companies another option for transition and to provide lessors with a practical expedient to reduce the cost and complexity of implementing the new standard. The transition option allows companies to not apply the new lease standard in the comparative periods they present in their financial statements in the year of adoption. The Company elected certain practical expedients allowed under the guidance and retained the original lease classification and historical accounting for initial direct costs for leases existing prior to the adoption date. The Company also elected not to restate prior periods for the effect of the adoption of the new standard. In accordance with ASU No. 2016-02, we reclassified certain existing lease-related assets and liabilities to Right-of-use assets as of January 1, 2019. The adoption of ~~ASU No. 2016-02~~ ~~resulted in the recognition of incremental Right-of-use assets and related Lease liabilities of $23.6 million on the Condensed Consolidated Balance Sheet as of January 1, 2019.~~

Several of our hotels lease retail or restaurant space to third-party tenants. The majority of our third-party tenants ~~have~~ requested rent deferrals to ease the negative financial effects of the COVID-19 pandemic on their businesses. We have primarily negotiated rent deferrals with these tenants that defer rent for a specified number of months and require repayment of the deferred rent over a negotiated period of time. We have adopted a policy that the deferrals are not a change in the provisions of the lease. As such, we are accounting for the concessions using the rights and obligations of the existing lease and recognizing a short-term lease receivable in the period that the cash payment is owed.

Notes Receivables

We selectively provide mezzanine financing to developers where we also have the opportunity to acquire the hotel at or after the completion of the development project, and we also may provide seller financing under limited circumstances. We classify notes receivable as held-to-maturity and carry the notes receivable at cost less the unamortized discount, if any. On January 1, 2020, we adopted ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326), which requires a financial asset (or a group of financial assets) measured at amortized cost to be presented at the net amount expected to be collected. The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of the financial asset(s) to present the net carrying value at the amount expected to be collected on the financial asset. The measurement of expected credit losses is based on relevant information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. We routinely evaluate our notes receivable and interest receivables for collectability. Probable losses on notes receivable are recognized in a valuation account that is deducted from the amortized cost basis of the notes receivable and recorded as Provision for credit losses in our Condensed Consolidated Statements of Operations. When we place notes receivable on nonaccrual status, we suspend the recognition of interest income until cash interest payments are received. Generally, we return notes receivable to accrual status when all delinquent interest becomes current and collectability of interest is reasonably assured. We do not measure an allowance for credit losses for accrued interest receivable. Accrued interest receivable is written-off to bad debt expense when collection is not reasonably assured.

Cash and Cash Equivalents

We consider all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. At times, cash on deposit may exceed the federally insured limit. We maintain our cash with high credit quality financial institutions.

Restricted Cash

Restricted cash consists of certain funds maintained in escrow for property taxes, insurance, and certain capital expenditures. Funds may be disbursed from the account upon proof of expenditures and approval from the lender or other party requiring the restricted cash reserves.

Revenue Recognition

In accordance with ASU No. 2014-09, revenues from the operation of our hotels are recognized when guestrooms are occupied, services have been rendered or fees have been earned. Revenues are recorded net of any discounts and sales and other taxes collected from customers. Revenues consist of room sales, food and beverage sales, and other hotel revenues and are presented on a disaggregated basis on our Condensed Consolidated Statements of Operations.

Room revenue is generated through short-term contracts with customers whereby customers agree to pay a daily rate for the right to occupy hotel rooms for one or more nights. Our performance obligations are fulfilled at the end of each night that the customers have the right to occupy the rooms. Room revenues are recognized daily at the contracted room rate in effect for each room night.

Food and beverage revenues are generated when customers purchase food and beverage at a hotel's restaurant, bar or other facilities. Our performance obligations are fulfilled at the time that food and beverage is purchased and provided to our customers.

Other revenues such as fees for parking, meeting space or communication services are recognized at the point in time or over the time period that the associated good or service is provided. Ancillary services such as parking at certain hotels are provided by third parties and we assess whether we are the principal or agent in such arrangements. If we are determined to be the agent, revenue is recognized based upon the commission paid to us by the third party for the services rendered to our customers. If we are determined to be the principal, revenues are recognized based upon the gross contract price of the service provided. Certain of our hotels have retail spaces, restaurants or other spaces that we lease to third parties. Lease revenues are recognized on a straight-line basis over the respective lease terms and are included in Other income on our Condensed Consolidated Statements of Operations.

Cash received prior to customer arrival is recorded as an advance deposit from the customer and is recognized as revenue at the time of occupancy.

Equity-Based Compensation

Our 2011 Equity Incentive Plan, which was amended and restated effective ~~June 15, 2015~~May 13, 2021 (as amended, the “Equity Plan”), provides for the grant of stock options, stock appreciation rights, restricted stock, restricted stock units, dividend equivalent rights, and other stock-based awards. We account for ~~the stock options granted upon completion of our IPO at fair value using the Black-Scholes option-pricing model and we account for all other awards of equity, including~~ time-based and performance-based stock awards using the grant date fair value of those equity awards. Restricted stock awards with performance-based vesting conditions are market-based awards tied to total stockholder return and are valued using a Monte Carlo simulation model in accordance with ASC Topic 718, Compensation — Stock Compensation. We expense the fair value of awards under the Equity Plan ratably over the vesting period and market-based awards are not adjusted for performance. The amount of stock-based compensation expense may be subject to adjustment in future periods due to a change in forfeiture assumptions or modification of previously granted awards.

Derivative Financial Instruments and Hedging

We use interest rate derivatives to hedge our risks on variable-rate debt. Interest rate derivatives could include swaps, caps, collars, and floors. We assess the effectiveness of each hedging relationship by comparing changes in fair value or cash flows of the derivative financial instrument with the changes in fair value or cash flows of the designated hedged item or transaction. All derivative financial instruments are recorded at fair value as a net asset or liability in our Condensed Consolidated Balance Sheets.

The change in the fair value of the hedging instruments is recorded in Other comprehensive income. Amounts deferred in Other comprehensive income will be reclassified to Interest expense in our Condensed Consolidated Statements of Operations in the period in which the hedged item affects earnings.

Income Taxes

We have elected to be taxed as a REIT under certain provisions of the Internal Revenue Code. To qualify as a REIT, we must meet certain organizational and operational requirements, including a requirement to distribute annually to our stockholders at least 90% of our REIT taxable income, ~~determined without regard~~subject to ~~the deduction for dividends paid~~certain adjustments and excluding ~~net~~any capital ~~gains, which does not necessarily equal net income as calculated in accordance with GAAP.~~gain. As a REIT, we generally will not be subject to federal income tax (other than taxes paid by our ~~TRS Lessees~~TRSs at regular corporate income tax rates) to the extent we distribute 100% of our REIT taxable income to our stockholders. If we fail to qualify as a REIT in any taxable year, we will be subject to federal income tax on our taxable income at regular corporate income tax rates and generally will be unable to re-elect REIT status until the fifth calendar year after the year in which we failed to qualify as a REIT, unless we satisfy certain relief provisions.

Substantially all of our assets are held by and all of our operations are conducted through ~~either~~ our Operating Partnership or our subsidiary REITs. Partnerships are not subject to U.S. federal income taxes as revenues and expenses pass through to and are taxed on the owners. Generally, the states and cities where our partnerships operate follow the U.S. federal income tax treatment. However, there are a limited number of local and state jurisdictions that tax the taxable income of the Operating Partnership. Accordingly, we provide for income taxes in these jurisdictions for the Operating Partnership.

Taxable income related to our ~~TRS Lessees~~TRSs are subject to federal, state and local income taxes at applicable tax rates. Our ~~interim~~consolidated income tax provision includes the income tax provision related to the operations of the ~~TRS Lessees~~TRSs as well as state and local income taxes related to the Operating Partnership.

Where required, we account for federal and state income taxes using the asset and liability method. Deferred tax assets and liabilities are recognized for: i) the future tax consequences attributable to differences between carrying amounts of existing assets and liabilities based on GAAP and the respective carrying amounts for tax purposes, and ii) operating losses and ~~tax credit~~tax-credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date of the change in tax rates. However, deferred tax assets are recognized only to the extent that it is more likely than not ~~that~~ they will be realized based on consideration of available evidence. Valuation allowances are provided if, based upon the weight of the available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized.

We consider all available evidence, both positive and negative, to determine whether, based on the weight of that evidence, a valuation allowance for deferred tax assets is needed. Due to the effects of the COVID-19 pandemic, certain of our TRSs have incurred operating losses in the past and are expected to be in a cumulative loss for the foreseeable future. As such, the realizability of our deferred tax assets at September 30, 2021 is not reasonably assured. Therefore, we have recorded a valuation allowance against substantially all of our deferred tax assets at September 30, 2021.

We perform a quarterly review for any uncertain tax positions. The Company had no accruals for uncertain tax positions as of September 30, ~~2020~~2021 and December 31, ~~2019.~~2020.

1211

Fair Value Measurement

Fair value measures are classified into a three-tiered fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:


Level 1:						Observable inputs such as quoted prices in active markets.
Level 2:						Directly or indirectly observable inputs, other than quoted prices in active markets.
Level 3:						Unobservable inputs in which there is little or no market information, which require a reporting entity to develop its own assumptions.

Assets and liabilities measured at fair value are based on one or more of the following valuation techniques:


Market approach:						Prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities.
Cost approach:						Amount required to replace the service capacity of an asset (replacement cost).
Income approach:						Techniques used to convert future amounts to a single amount based on market expectations (including present-value, option-pricing, and excess-earnings models).

Our estimates of fair value were determined using available market information and appropriate valuation methods. Considerable judgment is necessary to interpret market data and develop estimated fair value. The use of different market assumptions or estimation methods may have a material effect on the estimated fair value amounts. We classify assets and liabilities in the fair value hierarchy based on the lowest level of input that is significant to the fair value measurement.

We have elected a measurement alternative for equity investments, such as our purchase ~~options,~~option, that do not have readily determinable fair values. Under the alternative, our purchase ~~options are~~option is measured at cost, less any impairment, plus or minus changes resulting from observable price changes in orderly transactions for an identical or similar investment of the same issuer, if any.

Non-controlling Interests

Non-controlling interests represent the portion of equity in a consolidated entity held by owners other than the consolidating parent. Non-controlling interests are reported in the Condensed Consolidated Balance Sheets within equity, separately from stockholders’ equity. Revenue, expenses and net income attributable to both the Company and the non-controlling interests are reported in the Condensed Consolidated Statements of Operations.

Our Condensed Consolidated Financial Statements include non-controlling interests related to common units of limited partnership interests (“Common Units”) in the Operating Partnership held by unaffiliated third parties and third-party ownership of a 49% interest in a consolidated joint venture. See "Note 8 - Equity - Non-controlling Interests in Joint Venture" for further information.

Use of Estimates

Our Condensed Consolidated Financial Statements are prepared in conformity with GAAP, which requires us to make estimates based on assumptions about current and, for some estimates, future economic and market conditions that affect reported amounts and related disclosures in our Condensed Consolidated Financial Statements. Although our current estimates contemplate current and expected future conditions, as applicable, it is reasonably possible that actual conditions could materially differ from our expectations, which could materially affect our expectations for our consolidated financial position and results of operations. In particular, a number of estimates have been and will continue to be affected by the ongoing COVID-19 pandemic.

1312

The evaluation of the carrying amounts of our assets described above requires that we make projections of the future estimated cash flows and residual values of the assets or underlying collateral based on assumptions derived from available information about future market conditions that will affect these projections. While the potential magnitude and duration of the business and economic effects of the COVID-19 pandemic are uncertain, our analysis of future estimated cash flows, values of assets or underlying collateral assumes that the nascent and gradual recovery in our business that began in the second half of April 2020 will be sustained into the fourth quarter of 2020 and operating performance will improve gradually over a multi-year period before reaching prior peak performance levels.

The severity, magnitude and duration of the COVID-19 pandemic, as well as its economic consequences, are uncertain, rapidly changing and difficult to predict. As such, there can be no assurance that our forecasts and underlying assumptions will be realized. As a result, our accounting estimates and assumptions may change over time, and actual results may differ materially from our expectations. We will continue to monitor the effects of the COVID-19 pandemic in future quarters. If actual results differ from our forecasts, this may result in future impairments of hotel properties, intangible assets, right-of-use assets, or investment securities such as our purchase options, or in incremental credit losses on our notes receivables.

New Accounting Standards

~~In December 2019, the FASB issued ASU No. 2019-12,~~ ~~Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which is intended to simplify various aspects related to accounting for income taxes. ASU No. 2019-12 removes certainexceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistentapplication. ASU No. 2019-12 is effective for our fiscal year commencing on January 1, 2021, with early adoption permitted.The adoption of ASU No. 2019-12 will not have a material effect on our consolidated financial position or results of operations.~~

~~In January 2020, the FASB issued ASU No. 2020-01,~~ ~~Investments – Equity Securities (Topic 321), Investments – Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815)~~, which is intended to clarify the interaction of the accounting for equity securities under Topic 321 and investments accounted for under the equity method of accounting in Topic 323 and the accounting for certain forward contracts and purchased options accounted for under Topic 815. The amendments clarify that an entity should consider observable transactions that require it to either apply or discontinue the equity method of accounting for the purposes of applying the measurement alternative in accordance with Topic 321 immediately before applying or discontinuing the equity method. ASU No. 2020-01 is effective for our fiscal year commencing on January 1, 2021, with early adoption permitted. The adoption of ASU No. 2020-01 will not have a material effect on our consolidated financial position or results of operations.

In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848). ASU No. 2020-04 contains practical expedients for reference rate reform related activities that affect debt, leases, derivatives and other contracts. The guidance in ASU No. 2020-04 is optional and may be elected over time as reference rate reform activities occur. During 2020, the Company ~~has~~ elected to apply the hedge accounting expedients related to probability and the assessments of effectiveness for future LIBOR-indexed cash flows to assume that the index upon which future hedged transactions will be based matches the index on the corresponding derivatives. Application of these expedients preserves the presentation of derivatives consistent with past presentation. The Company continues to evaluate the effect of the guidance and may apply other elections as applicable as additional changes in the market occur.

In August 2020, the FASB issued ASU No. 2020-06, Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40) – Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity. The objective of ASU No. 2020-06 is to address issues identified as a result of the complexity associated with applying generally accepted accounting principles for certain financial instruments with characteristics of liabilities and equity.

The amendments in ASU No. 2020-06 reduce the number of accounting models for convertible debt instruments and convertible preferred stock. For convertible instruments with conversion features that are not required to be accounted for as derivatives under Topic 815, Derivatives and Hedging, or that do not result in substantial premiums accounted for as paid-in capital, the embedded conversion features no longer are separated from the host contract. The amendments in ASU No. 2020-06 remove certain conditions that should be considered in the derivatives scope exception evaluation under Subtopic 815-40, Derivatives and Hedging—Contracts in Entity’s Own Equity, and clarify the scope and certain requirements under Subtopic 815-40. The amendments also improve the guidance related to the disclosures and earnings-per-share (EPS) for convertible instruments and contracts in an entity’s own equity.

ASU No. 2020-06 is effective for fiscal years beginning after December 15, 2021. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020. We elected to adopt ASU No. 2020-06 effective January 1, 2021 in connection with our Convertible Notes Offering closed on January 12, 2021 as described in "Note 5 – Debt." In accordance with the provisions of ASU No. 2020-06, we will account for the convertible notes issued in 2021 entirely as a liability and we will use the if-converted method for diluted share calculations.

NOTE 3 - INVESTMENT IN HOTEL PROPERTIES, NET

Investment in Hotel Properties, net

Investment in hotel properties, net is as follows (in thousands):


		September 30, 2020		December 31, 2019			September 30, 2021		December 31, 2020
Hotel buildings and improvements	Hotel buildings and improvements	$	2,062,345	$	2,049,384	Hotel buildings and improvements	$	2,102,027	$	2,066,986
Land	Land	319,603		319,603		Land	321,435		319,603
Furniture, fixtures and equipment	Furniture, fixtures and equipment	176,058		173,128		Furniture, fixtures and equipment	165,485		173,351
Construction in progress	Construction in progress	6,972		9,388		Construction in progress	10,547		8,903
Intangible assets	Intangible assets	11,231		11,231		Intangible assets	11,231		11,231
Real estate development loan	Real estate development loan	12,495		5,485		Real estate development loan	24,703		16,508
		2,588,704		2,568,219			2,635,428		2,596,582
Less - accumulated depreciation and amortization	Less - accumulated depreciation and amortization	(463,258)		(383,987)		Less - accumulated depreciation and amortization	(557,414)		(490,636)
		$	2,125,446	$	2,184,232		$	2,078,014	$	2,105,946

We provided a mezzanine loan to fund up to $28.9 million for a mixed-use development project that includes a hotel property, retail space, and parking. We have classified the mezzanine loan as Investment in hotel properties, net in our Condensed Consolidated Balance Sheets at September 30, ~~2020~~2021 and December 31, ~~2019.~~2020. See "Note 4 - Investment in Real Estate Loans" for further information.

~~Asset Sales~~

~~We did 0t sell any~~On May 1, 2021, the Company contributed a portfolio of 6 hotels containing 846 guestrooms to our consolidated joint venture with an affiliate of GIC, Singapore’s sovereign wealth fund. The estimated market value of the portfolio of hotel properties was $172.0 million and GIC contributed $84.3 million in cash for its 49% interest in the joint venture after the completion of the transfer of the 6 hotels. The transfer of the 6 hotel properties was recorded by the joint venture at the Company's net book values as of the transfer date since the transaction was a transfer of assets between entities under common control. The excess of the $84.3 million of cash contributed by GIC over 49% of the net carrying amount of the assets transferred totaling $16.4 million was recorded in Additional paid-in capital. Transfer taxes of $1.8 million and legal costs of $0.3 million related to this transaction were recorded as Transaction costs during the nine months ended September 30, ~~2020.~~2021. GIC, our joint venture partner, paid 49%, or $0.9 million, of the $1.8 million transfer tax which is reflected in non-controlling interest on our Condensed Consolidated Statement of Operations.

On ~~April 17, 2019, we completed~~July 9, 2021, the ~~sale~~Company acquired the 110-guestroom Residence Inn by Marriott in Steamboat Springs, CO for $33.0 million through its joint venture with GIC, of which the ~~6 hotel properties set forth in the following table for a gross sales price of $135.0 million and a realized net gain of $36.6 million:~~

~~Franchise/Brand~~

~~Location~~

~~Guestrooms~~

~~SpringHill Suites~~

~~Minneapolis (Bloomington), MN~~

~~113~~

~~Hampton Inn & Suites~~

~~Minneapolis (Bloomington), MN~~

~~146~~

~~Residence Inn~~

~~Salt Lake City, UT~~

~~189~~

~~Hyatt Place~~

~~Dallas (Arlington), TX~~

~~127~~

~~Hampton Inn~~

~~Santa Barbara (Goleta), CA~~

~~101~~

~~Hampton Inn~~

~~Boston (Norwood), MA~~

~~139~~

~~Total~~

~~815~~

On February 12, 2019, we completed the sale of 2 hotel properties, the Country Inn & Suites - Charleston, WV and the Holiday Inn Express - Charleston, WV, for an aggregate sales price of $11.6 million. The sale of these properties resulted in the realization of an aggregate gain of $4.2 million.

~~Hotel Property Acquisitions~~

Company owns 51%. We did not acquire any hotel properties during the nine months ended September 30, 2020.

On August 6, 2019, we completed the acquisition of the 88-guestroom Hampton Inn & Suites in Silverthorne, CO for a gross purchase price of $25.5 million through our consolidated joint venture. The net assets acquired totaled $28.1 million due to the purchase of adjacent land parcels totaling $2.4 million, $0.1 million of working capital assets and capitalized transaction costs of $0.1 million.

~~The allocation of the aggregate purchase prices to the fair value of assets and liabilities acquired for the above acquisitions is as follows (in thousands):~~

For the
Nine Months Ended
September 30,

~~2019~~

~~Land~~

~~6,845~~

~~Hotel buildings and improvements~~

~~20,652~~

~~Furniture, fixtures and equipment~~

~~465~~

~~Other assets~~

~~207~~

~~Total assets acquired~~

~~28,169~~

~~Less other liabilities~~

~~(70)~~

~~Net assets acquired~~

~~28,099~~

On January 31, 2019, we exercised our option pursuant to a ground lease agreement to purchase the land upon which our Residence Inn by Marriott in Baltimore (Hunt Valley), MD is located for $4.2 million, which resulted in a termination of obligations under the ground lease. As a result, this hotel property is no longer subject to a ground lease.

The results of operations of acquired properties are included in the Condensed Consolidated Statements of Operations beginning on their respective acquisition dates. The following unaudited pro forma information includes operating results for 72 hotels owned as of September 30, 2020 as if all such hotels had been owned by us since January 1, 2019. For the hotels acquired by us in the second half of 2019 (the "Acquired Hotels"), we have included in the pro forma information the financial results of each of the Acquired Hotels for the period prior to acquisition by us (the "Pre-acquisition Period"). The financial results for the Pre-Acquisition Period were provided by the third-party owner of such Acquired Hotel prior to purchase by us and such information has not been audited or reviewed by our auditors or adjusted by us. For hotels sold by us between January 1, 2019 and September 30, 2020 (the "Disposed Hotels"), the unaudited pro forma information excludes the financial results, including gains on disposal of assets, of each of the Disposed Hotels for the period of ownership by us from January 1, 2019 through the date that the Disposed Hotels were sold by us. The unaudited pro forma information is included to enable comparison of results for the current reporting period to results for the comparable period of the prior year and is not indicative of what actual results of operations would have been had the hotel acquisitions and dispositions taken place on or before January 1, 2019. The pro forma amounts exclude the gain or loss on the sale of hotel properties during the three and nine months ended September 30, 2020 and 2019. This information does not purport to be indicative of or represent results of operations for future periods.

The unaudited condensed pro forma financial information for the 72 hotel properties owned at September 30, 2020 for the three and nine months ended September 30, 2020 and 2019 is as follows (in thousands, except per share):

For the
Three Months Ended
September 30, For the
Nine Months Ended
September 30,
2020 2019 2020 2019
Revenues $ 52,413 $ 144,564 $ 186,233 $ 438,560
Income from hotel operations $ 5,663 $ 54,290 $ 25,379 $ 169,003
Net (loss) income (1)
$ (35,936) $ 18,340 $ (104,692) $ 54,734
Net (loss) income attributable to common stockholders, net of amount allocated to participating securities (2)
$ (38,424) $ 11,205 $ (111,654) $ 33,862
Basic and diluted net (loss) income per share attributable to common stockholders (2)
$ (0.37) $ 0.11 $ (1.07) $ 0.33

(1) Pro forma amounts include depreciation expense, property tax expense, interest expense, income tax expense, loss on impairment of assets and other corporate expenses totaling $50.9 million and $46.1 million for the three months ended September 30, 2020 and 2019, respectively, and $159.3 million and $143.6 million for the nine months ended September 30, 2020 and 2019, respectively.

(2) Pro forma amounts include depreciation expense, property tax expense, interest expense, income tax expense, loss on impairment of assets and other corporate expenses totaling $48.7 million and $45.8 million for the three months ended September 30, 2020 and 2019, respectively, and $152.4 million and $142.9 million for the nine months ended September 30, 2020 and 2019, respectively.

~~Assets Held for Sale~~

Assets held for sale at September 30, 2020 and December 31, 2019 included a land parcel in Flagstaff, AZ with a carrying amount of $0.4 million. The land parcel is currently under contract for sale and is expected to close in 2021.

NOTE 4 — INVESTMENT IN REAL ESTATE LOANS

Investment in real estate loans, net is as follows (in thousands):

September 30, 2020 December 31, 2019
Real estate loans $ 32,655 $ 32,831
Unamortized discount (334) (1,895)
Allowance for credit losses (2,632) 0
Investment in real estate loans, net $ 29,689 $ 30,936


	September 30, 2021		December 31, 2020
Real estate loans	$	28,719	$	28,671

Allowance for credit losses	(2,350)		(4,982)
Investment in real estate loans, net	$	26,369	$	23,689

The amortized cost bases of our Investment in real estate loans, net approximate their fair value. The amortized cost bases, net of allowance for credit losses, of our Investment in real estate loans, net at September 30, 2020, by contractual maturity are as follows: $27.7 million in 2020 and $2.0 million in 2021.

Real Estate Development Loans

We provided mezzanine loans on 3 real estate development projects to fund up to an aggregate of $29.6 million for the development of 3 hotel properties. The 3 real estate development loans closed in the fourth quarter of 2017 and each ~~has~~had a stated interest rate of 8%8.00% and an initial term of approximately three years. AsDuring the year ended December 31, 2020, 1 of ~~September 30, 2020, we have funded~~ the ~~full amount~~real estate loans with a principal balance of ~~$29.6 million.~~$3.8 million was repaid in full. We ~~have~~had separate options related to each outstanding loan (each the "Initial Option") to purchase a 90% interest in each joint venture that owns the respective hotel upon completion of construction; the Initial Option for each of the three loans is currently exercisable. The Initial Option for each of the three loans will remain exercisable so long as the related mezzanine loan remains outstanding.construction. We ~~also have the right to purchase the remaining interests in each joint venture at future dates, generally five years after we exercise our Initial Option. We have~~ recorded the ~~original~~ aggregate estimated fair value of each Initial Option totaling ~~$6.1~~$4.4 million in Other assets and as a discount to the related real estate loans. The discount will be amortized as a component of non-cash interest income over the initial term of the real estate loans using the straight-line method, which approximates the interest method. We recorded amortization of the discount of $0.5 million during the three months ended September 30, 2020 and 2019 and $1.4 million and $1.5 million during the nine months ended September 30, 2020 and 2019, respectively. During the nine months ended September 30, 2020, we recorded a Loss on impairment of assets of $0.8 million related to one of the purchase options. See ~~"Note 9 - Fair Value Measurement"~~ ~~for further information.~~assets.

The COVID-19 pandemic ~~has~~ adversely affected the operations of the hotels that collateralize ~~our~~the outstanding mezzanine loans. As a result, our mezzanine borrowers have requested, and we have granted, deferrals of interest payments through the initial maturity dates of the loans, which occur in the fourth quarter of 2020. Therefore, we have suspended the recognition of interest income for these loans until the cash interest payments are received. Atat September 30, ~~2020, the amortized cost basis of the 3 real estate development loans was $29.9 million and~~2021 we had ~~recorded~~ an allowance for credit losses of $2.6 million ~~related~~that was recorded in March 2020, to ~~these loans. During~~reduce the ~~nine~~carrying amounts of the loans to their estimated net realizable values.

As of September 30, 2021, we reached an agreement with the borrowers of the mezzanine loans on the 2 remaining real estate development projects for the full repayment of the loans in the fourth quarter of 2021, which would result in us foregoing the exercise of the Initial Options. Accordingly, during the three months ended September 30, ~~2020, we~~2021, the Company reversed the $2.6 million allowance for credit losses and recorded ~~cash interest income of $0.6 million related~~a Loss on impairment during the three months ended September 30, 2021 to ~~these loans. The mezzanine borrowers also have~~write-off the ~~right to extend the maturity dates~~carrying amounts of the ~~loans for an additional twelve-month period subject to meeting certain conditions, including the contemporaneous extension of the respective senior loans.~~Initial Options at September 30, 2021 totaling $4.4 million.

During the ~~third quarter of~~year ended December 31, 2019, we ~~completed~~provided a mezzanine loan ~~with a commitment~~ to fund up to $28.9 million for a mixed-use development project that includes a hotel property, retail space, and parking. The loan closed in the third quarter of 2019 and has a stated interest rate of ~~9% and an initial term of 30 months.~~9.00%. The loan is secured by a second mortgage on the development project and a pledge of the equity in the project owner. As of September 30, ~~2020,~~2021, we have funded ~~$14.0~~$25.1 million of the loan commitment. Upon completion of construction, we have an option to purchase a 90% interest in the hotel (the “Initial Purchase Option”). We also have the right to purchase the remaining ~~10%~~ interest in the hotel five years after the completion of construction. We have issued a $10.0 million letter of credit under our senior ~~unsecured~~revolving credit facility to secure the exercise of the Initial Purchase Option. As such, we have classified the loan as Investment in hotel properties, net inon our Condensed Consolidated Balance ~~Sheets at September 30, 2020.~~Sheets. Interest income on the mezzanine loan will be recorded in our Condensed Consolidated Statement of Operations as it is earned. We have recorded the aggregate estimated fair value of the Initial Purchase Option totaling $2.8 million in Other assets and as a contra-asset to Investment in hotel properties, net. The contra-asset will be amortized as a component of non-cash interest income over the term of the real estate development loan using the straight-line method, which approximates the interest method. We recorded amortization of the contra-asset of $0.3 million ~~and $0.2 million during~~for the three months ended September 30, ~~2020~~2021 and ~~2019, respectively,~~2020 and $0.8 million ~~and $0.2 million during~~for the nine months ended September 30, ~~2020~~2021 and ~~2019, respectively,~~2020 as non-cash interest income. Including the amortization of the contra-asset, the current effective interest rate on this loan is approximately 11.40%.

We expect that the construction of the hotel will be completed during the fourth quarter of 2021 or the first quarter of 2022, after which we will be able to exercise the Initial Purchase Option at our sole discretion.

Seller-Financing Loans

On June 29, 2018, we sold the Holiday Inn in Duluth, GA and the Hilton Garden Inn in Duluth, GA for an aggregate selling price of $24.9 million. We provided seller financing totaling $3.6 million on the sale of these properties under 2, ~~3.5-year~~3.5 year second mortgage notes with a blended interest rate of 7.38% ~~secured~~that are further collateralized by a ~~$3.0 million second mortgage.~~personal guarantee from the principal of the borrower. As of September 30, ~~2020,~~2021, there was $2.4 million outstanding on the seller-financing loans. ~~The COVID-19 pandemic has adversely affected~~During the ~~operations of the hotels that collateralize these loans. However,~~year ended December 31, 2020, we believe the loans are adequately collateralized by the hotel properties and the borrower has provided a personal guarantee to support the repayment of the loans. Therefore, we do not expect any loan losses with respect to these loans.

~~Current Estimate of Credit Losses~~

We evaluated our notes receivable for potential credit losses by estimating the fair value of the collateral supporting each note receivable at September 30, 2020 based on assumptions related to the expected future performance of the collateral assets and the resulting anticipated net selling value of the assets at capitalization rates that are common for the asset class. Our current estimate of credit losses of $2.6 million as a result of the effects of the COVID-19 pandemic is recorded as an allowance for credit losses in an amount equal to the outstanding balance of the loans.

On June 1, 2021, we amended the terms of the seller-financing loans and extended the maturity date of each loan to December 31, 2022. Interest will accrue at a rate of 9.00% monthly, including 5.00% payable in cash and 4.00% paid-in-kind. Semi-annual principal payments of $0.3 million will begin on April 1, 2022. In connection with the modifications, the borrower paid all interest due through May 31, 2021. As a result, the Company recognized interest income related to these loans of $0.3 million during the nine months ended September 30, ~~2020.~~2021.

1815

NOTE 5 - DEBT

At September 30, ~~2020 and December 31, 2019,~~2021, our indebtedness was comprised of borrowings under our 2018 ~~Unsecured~~Senior Credit Facility (as defined below), the 2018 Term Loan (as defined below), the 2017 Term Loan (as defined below), the Joint Venture Credit Facility (as defined below), the Convertible Notes (as defined below), and indebtedness secured by first priority mortgage liens on various hotel properties. The weighted average interest rate, after giving effect to our interest rate derivatives, for all borrowings was ~~3.44%~~3.34% at September 30, ~~2020~~2021 and ~~3.95%~~3.43% at December 31, ~~2019.~~2020.

Debt, net of debt issuance costs, is as follows (in thousands):

September 30, 2020 December 31, 2019
Revolving debt $ 211,500 $ 140,000
Term loans 725,000 725,000
Mortgage loans 154,937 157,726
1,091,437 1,022,726
Unamortized debt issuance costs (7,345) (6,563)
Debt, net of debt issuance costs $ 1,084,092 $ 1,016,163


	September 30, 2021		December 31, 2020
Revolving debt	$	68,500	$	222,500
Term loans	562,000		725,000
Convertible notes	287,500		—
Mortgage loans	151,064		153,978
	1,069,064		1,101,478
Unamortized debt issuance costs	(12,397)		(6,733)
Debt, net of debt issuance costs	$	1,056,667	$	1,094,745

We have entered into interest rate swaps to partially fix the interest rates on a portion of our variable interest rate indebtedness. See "Note 7 - Derivative Financial Instruments and Hedging" to the Condensed Consolidated Financial Statements for additional information. Our total fixed-rate and variable-rate debt, after considering our interest rate derivative agreements that are currently effective, is as follows (in thousands):


		September 30, 2020		Percentage	December 31, 2019		Percentage		September 30, 2021		Percentage	December 31, 2020		Percentage
Fixed-rate debt	Fixed-rate debt	$	546,646	50%	$	549,236	54%	Fixed-rate debt	$	830,540	78%	$	545,754	50%
Variable-rate debt	Variable-rate debt	544,791		50%	473,490		46%	Variable-rate debt	238,524		22%	555,724		50%
		$	1,091,437		$	1,022,726			$	1,069,064		$	1,101,478

Information about the fair value of our fixed-rate debt that is not recorded at fair value is as follows (in thousands):

September 30, 2020 December 31, 2019
Carrying
Value Fair Value Carrying
Value Fair Value Valuation Technique
Fixed-rate debt $ 146,646 $ 143,973 $ 149,236 $ 151,268 Level 2 - Market approach


	September 30, 2021				December 31, 2020
	Carrying Value		Fair Value		Carrying Value		Fair Value		Valuation Technique
Convertible notes	$	287,500	$	302,824	$	—	$	—	Level 1 - Market approach
Fixed-rate mortgage loans	143,040		143,065		145,754		143,244		Level 2 - Market approach
	$	430,540	$	445,889	$	145,754	$	143,244

At September 30, ~~2020~~2021 and December 31, ~~2019,~~2020, we had $400.0 million of debt with variable interest rates that had been converted to fixed interest rates through derivative financial instruments which are carried at fair value. Differences between carrying value and fair value of our fixed-rate debt are primarily due to changes in interest rates. Inherently, fixed-rate debt is subject to fluctuations in fair value as a result of changes in the current market rate of interest on the valuation date. For additional information on our use of derivatives as interest rate hedges, refer to "Note 7 - Derivative Financial Instruments and Hedging."

$600 Million Senior ~~Unsecured~~ Credit and Term Loan Facility

On December 6, 2018, the Operating Partnership, as borrower, the Company, as parent guarantor, and each party executing the loan documentation as a subsidiary guarantor, entered into a $600.0 million senior ~~unsecured~~ credit facility (the “2018 ~~Unsecured~~Senior Credit Facility”) with Deutsche Bank AG New York Branch, as administrative agent, and a syndicate of lenders. The 2018 ~~Unsecured~~Senior Credit Facility is comprised of ~~the $400~~a $400.0 million revolver (the "$400 Million ~~Revolver~~Revolver") and a $200.0 million term loan facility (the “$200 Million Term Loan”). At September 30, ~~2020,~~2021, we had ~~$345.0~~$200.0 million borrowed and ~~$175.0~~$340.0 million available to borrow plus an additional $50.0 million available to borrow subject to certain security requirements to be provided to the lender.

~~On May 7, 2020,~~At September 30, 2021, we had no borrowings outstanding on the Operating Partnership, as borrower, the Company, as parent guarantor, and each party executing the credit facility documentation as a subsidiary guarantor entered into the First Amendment to Credit Agreement (the “First Amendment”) of the Operating Partnership’s 2018 Unsecured Credit Facility with Deutsche Bank AG New York Branch, as administrative agent, and a syndicate of lenders.$400 Million Revolver.

1916

Amendments to $600.0 Million Senior Credit Facility

Between May 2020 and February 2021, the Company entered into several amendments to the Credit Agreement of the 2018 Senior Credit Facility (the “Credit Facility Amendments”).

As of September 30, 2021, the cumulative effect of the Credit Facility Amendments resulted in the waiver or adjustment of certain financial and other covenants under the 2018 Senior Credit Facility, for the periods described below:

•Waivers of key financial and certain other covenants in the 2018 Senior Credit Facility for the period April 1, 2020 through March 31, 2022; and

•Beginning on April 1, 2022, adjustments to certain of the key financial covenants go into effect through December 31, 2022 including:

◦Reduction of the Minimum Consolidated Fixed Charge Coverage Ratio;

◦Increase of the Maximum Unsecured Leverage Ratio;

◦Reduction of the Minimum Unsecured Interest Coverage Ratio; and

◦Increases to the Maximum Leverage Ratio, adjusting down beginning in the second quarter of 2022 and continuing through calendar year 2023.

The interest rate on the 2018 ~~Unsecured~~Senior Credit Facility is based on a pricing grid ranging from 140 basis points to ~~220~~240 basis points plus LIBOR for the $400 Million Revolver and 135 basis points to ~~215~~235 basis points plus LIBOR for the $200 Million Term Loan, depending upon the Company's leverage ratio. The pricing grid was modified under the ~~First Amendment~~Credit Facility Amendments such that during the period ending December 31, 2021, or earlier at the Company's election subject to certain requirements (the "Amendment Period"), the applicable margin ~~will be set~~was at Pricing Level VII, as defined in the 2018 ~~Unsecured~~Senior Credit Facility documents. The applicable margin is currently set at Pricing Level VIII. The interest rate at September 30, ~~2020~~2021 for the $200 Million Term Loan was ~~2.35%~~2.60%.

~~Financial and Other Covenants.~~ ~~We are required to comply with various financial and other covenants to draw and maintain borrowings under the 2018 Unsecured Credit Facility.~~ The ~~First Amendment provides that certain financial and other covenants under the 2018 Unsecured~~ Credit Facility ~~were waived or adjusted,~~Amendments require the borrower and certain subsidiaries to pledge to the secured parties all of the equity interests in the entities that own all properties included in the unencumbered asset pool supporting the facility (“Unencumbered Properties”), as well as the equity interests in the TRS lessees related to such Unencumbered Properties until the borrower meets certain conditions for their release. The Credit Facility Amendments also permitted the ~~periods described below:~~Company to complete the Convertible Notes Offering (defined below).

•~~Waivers of all financial and certain other covenants~~The Credit Facility Amendments allow the borrower to advance up to $350 million on the $400 million Revolver. Furthermore, the Credit Facility Amendments permit the borrower to advance an additional $50 million, in addition to the $350 million advance described in the ~~2018 Unsecured~~preceding sentence, upon filing mortgages and related security agreements on all Unencumbered Properties, with such security documents to be released upon the borrower meeting certain conditions for their release.

The Credit Facility ~~for~~Amendments revise the ~~period April 1, 2020 through March 31, 2021;~~restrictions that were previously placed on certain investments in assets, equity offerings and

•~~Adjustments~~ securing of permitted indebtedness to ~~certain financial covenants for~~permit the ~~period April 1, 2021 through December 31, 2021 including:~~

◦~~Increases in the Maximum Leverage Ratio, partially adjusting down beginning in the third quarter of 2021;~~

◦~~Reduction~~borrower and Company to take such actions, provided that (i) portions of the ~~Minimum Consolidated Fixed Charge Coverage Ratio;~~

◦~~Increase~~proceeds from such events will be used to pay down the balance of the ~~Maximum Unsecured Leverage Ratio;~~2018 Senior Credit Facility, the 2018 Term Loan (defined below) and

◦~~Reduction~~ 2017 Term Loan (defined below) in accordance with the terms of the ~~Minimum Unsecured Interest Coverage Ratio;~~

•~~Increases~~Credit Facility Amendments, and (ii) the borrower and Company comply with the other conditions to ~~the Maximum Leverage Ratio for the calendar year 2022, adjusting down throughout 2022.~~taking such actions, including maintaining a minimum of $150 million in liquidity.

Certain other typical limitations and conditions for credit facilities of this nature ~~were included among the provisions in the First Amendment including,~~include, among other provisions, limitations on the use of revolving facility advances, certain restrictions on payments of dividends and establishment of a minimum liquidity ~~requirement.~~

requirement as indicated above. At September 30, ~~2020,~~2021, we were in compliance with all financial covenants.

The 2018 Senior Credit Facility has an accordion feature which will allow the Company to increase the total commitments by an aggregate of up to $300.0 million. The $400 Million Revolver will mature on March 31, 2023 and can be extended to March 31, 2024 at the Company’s option, subject to certain conditions. The $200 Million Term Loan will mature on April 1, 2024.

Term Loans

2018 Term Loan

On February 15, 2018, our Operating Partnership, as borrower, the Company, as parent guarantor, and each party executing the term loan documentation as a subsidiary guarantor, entered into a new $225.0 million term loan (the “2018 Term Loan”) with KeyBank National Association, as administrative agent, and a syndicate of lenders listed in the loan documentation, which is fully drawn as of September 30, 2021. The 2018 Term Loan has an accordion feature that allows us to increase the total commitments by $150.0 million prior to the maturity date of February 14, 2025, subject to certain conditions.

Amendments to $225.0 Million 2018 Term Loan

Between May 2020 and February 2021, the Company entered into several amendments to the First Amended and Restated Credit Agreement (the “2018 Term Loan Amendments”). As of September 30, 2021, the cumulative effect of the changes to the 2018 Term Loan effected by the 2018 Term Loan Amendments are substantially similar to the changes described above effected by the Credit Facility Amendments.

We pay interest on advances at varying rates, based upon, at our option, either (i) 1-, 2-, 3-, or 6-month LIBOR, plus a LIBOR margin between 1.35% and 1.95%, depending upon our leverage ratio (as defined in the loan documents). The pricing grid was modified under the 2018 Term Loan Amendments such that during the Amendment Period the applicable margin was set at Pricing Level VII, as defined in the 2018 Term Loan documents. We are required to pay other fees, including customary arrangement and administrative fees. The interest rate at September 30, 2021 was 2.40%.

Financial and Other Covenants. We are required to comply with various financial and other covenants to draw and maintain borrowings under the 2018 Term Loan. The 2018 Term Loan Amendments provide that certain financial and other covenants under the 2018 Term Loan were waived or adjusted, which waivers and adjustments are the same as under the amendments to the Company’s 2018 Senior Credit Facility. At September 30, 2021, we were in compliance with all financial covenants.

Unencumbered ~~Assets.~~ Assets. The ~~First Amendment requires~~2018 Term Loan Amendments require the borrower and certain subsidiaries to pledge to the secured parties all of the equity interests in the entities that own the Unencumbered Properties, as well as the equity interests in the TRS lessees related to such Unencumbered Properties until the borrower meets certain conditions for the release of such pledges. During the period that the pledges are in place, as well as at all other times during the term of the facility, borrowings under the 2018 Unsecured Credit Facility are limited by the value of hotel assets that qualify as unencumbered assets. At September 30, 2020, the Company had 52 unencumbered hotel properties (the "Unencumbered Properties") supporting the 2018 Unsecured Credit Facility.

The First Amendment confirmed that the borrower may advance up to an additional $100 million on the $400 Million Revolver. Furthermore, the First Amendment permits the borrower to advance an additional $50 million, in addition to the $100 million advance described in the preceding sentence, upon filing mortgages and related security agreements on all Unencumbered Properties, with such security documents to be released upon the borrower meeting certain conditions for their release.

The 2018 Unsecured Credit Facility has an accordion feature which will allow the Company to increase the total commitments by an aggregate of up to $300.0 million. The $400 Million Revolver will mature on March 31, 2023 and can be extended to March 31, 2024 at the Company’s option, subject to certain conditions. The $200 Million Term Loan will mature on April 1, 2024.

~~Unsecured Term Loans~~

~~2018 Term Loan~~

On February 15, 2018, our Operating Partnership, as borrower, the Company, as parent guarantor, and each party executing the term loan documentation as a subsidiary guarantor, entered into a new $225.0 million unsecured term loan (the “2018 Term Loan”) with KeyBank National Association, as administrative agent, and a syndicate of lenders listed in the loan documentation, which is fully drawn as of September 30, 2020. The 2018 Term Loan has an accordion feature that allows us to increase the total commitments by $150.0 million prior to the maturity date of February 14, 2025, subject to certain conditions.

The Operating Partnership, as borrower, the Company, as parent guarantor, and each party executing the credit facility documentation as a subsidiary guarantor entered into the Third Amendment to the First Amended and Restated Credit Agreement (the “Third Amendment”) and the Fourth Amendment to the First Amended and Restated Credit Agreement ("Fourth Amendment") of the Operating Partnership’s 2018 Term Loan with KeyBank National Association, as administrative agent, and a syndicate of lenders on May 7, 2020 and August 6, 2020, respectively. The changes to the 2018 Term Loan effected by the Third Amendment are substantially similar to the changes described above effected by the First Amendment to the Company’s 2018 Unsecured Credit Facility. The Fourth Amendment lowered the loan pricing during the Amendment Period from Pricing Level VIII to Pricing Level VII, as defined in the 2018 Term Loan documents.

We pay interest on advances at varying rates, based upon, at our option, either (i) 1-, 2-, 3-, or 6-month LIBOR, plus a LIBOR margin between 1.35% and 1.95%, depending upon our leverage ratio (as defined in the loan documents). The pricing grid was modified under the Third Amendment and Fourth Amendment such that during the Amendment Period the applicable margin will be set at Pricing Level VII, as defined in the 2018 Term Loan documents. We are required to pay other fees, including customary arrangement and administrative fees. The interest rate at September 30, 2020 was 2.15%.

~~Financial and Other Covenants~~. We are required to comply with various financial and other covenants to draw and maintain borrowings under the 2018 Term Loan. The Third Amendment provides that certain financial and other covenants under the 2018 Term Loan were waived or adjusted, which waivers and adjustments are the same as under the First Amendment to the Company’s 2018 Unsecured Credit Facility. At September 30, 2020, we were in compliance with all financial covenants.

~~Unencumbered Assets~~. The Third Amendment requires the borrower and certain subsidiaries to pledge to the secured parties all of the equity interests in the entities that own the Unencumbered Properties, as well as the equity interests in the TRS lessees related to such Unencumbered Properties until the borrower meets certain conditions for the release of such pledges.~~During the period that the pledges are in place, as well as at all other times during the term of the facility, borrowings under the 2018~~ Term Loan are limited by the value of the Unencumbered Assets.

2017 Term Loan

On September 26, 2017, our Operating Partnership, as borrower, the Company, as parent guarantor, and each party executing the term loan documentation as a subsidiary guarantor, entered into a $225.0 million ~~unsecured~~ term loan (the "2017 Term Loan") with KeyBank National Association, as administrative agent, and a syndicate of lenders listed in the loan ~~documentation.~~documentation, which 2017 Term Loan has a principal balance of $62.0 million as of September 30, 2021.

~~The Operating Partnership, as borrower,~~Amendments to $225.0 Million 2017 Term Loan

Between May 2020 and February 2021, the Company ~~as parent guarantor, and each party executing the credit facility documentation as a subsidiary guarantor~~ entered into ~~the Second Amendment~~various amendments to the ~~Credit Agreement (the “Second Amendment��) and the Third Amendment to the Credit Agreement ("Third Amendment") of the Operating Partnership’s~~ 2017 Term Loan ~~with KeyBank National Association, as administrative agent, and a syndicate~~(the “2017 Term Loan Amendments”). As of ~~lenders on May 7, 2020 and August 6, 2020, respectively. The~~September 30, 2021, the cumulative effect of the changes to the 2017 Term Loan effected by the ~~Second Amendment~~2017 Term Loan Amendments are substantially similar to the changes described above effected by the ~~First Amendment to the Company’s 2018 Unsecured~~ Credit ~~Facility. The Third Amendment lowered the loan pricing during the Amendment Period from Pricing Level VII to Pricing Level VI as defined in the 2017 Term Loan documents.~~Facility Amendments.

The 2017 Term Loan has an accordion feature which allows us to increase the total commitments by an aggregate of $175.0 million prior to the maturity date, subject to certain conditions. The 2017 Term Loan matures on November 25, 2022.

We pay interest on advances at varying rates, based upon, at our option, either (i) 1-, 2-, 3-, or 6-month LIBOR, plus a LIBOR margin between 1.45% and 2.25%, depending upon our leverage ratio (as defined in the loan documents). The pricing grid was modified under the ~~Second Amendment and Third Amendment~~2017 Term Loan Amendments such that during the Amendment Period the applicable margin ~~will be~~was set at Pricing Level VI, as defined in the 2017 Term Loan documents. We are required to pay other fees, including customary arrangement and administrative fees. The interest rate at September 30, ~~2020~~2021 was ~~2.45%~~2.70%.

Financial and Other Covenants. We are required to comply with a series of financial and other covenants to draw and maintain borrowings under the 2017 Term Loan. The ~~Second Amendment provides~~2017 Term Loan Amendments provide that certain financial and other covenants under the 2017 Term Loan were waived or adjusted, which waivers and adjustments are the same as under the ~~First Amendment to the Company’s 2018 Unsecured~~ Credit ~~Facility.~~Facility Amendments. At September 30, ~~2020,~~2021, we were in compliance with all financial covenants.

Unencumbered Assets. The ~~Second Amendment requires~~2017 Term Loan Amendments require the borrower and certain subsidiaries to pledge to the secured parties all of the equity interests in the entities that own the Unencumbered Properties, as well as the equity interests in the TRS lessees related to such Unencumbered Properties until the borrower meets certain conditions for the release of such pledges.During the period that the pledges are in place, as well as at all other times during the term of the facility, borrowings under the 2017 Term Loan are limited by the value of the Unencumbered Assets.

~~$200 Million~~Joint Venture Credit Facility

On October 8, 2019, Summit JV MR 1, LLC (the “Borrower”), as borrower, Summit Hospitality JV, LP (the “Parent”), as parent, and each party executing the credit facility documentation as a subsidiary guarantor, entered into a ~~$200~~$200.0 million credit facility (the “Joint Venture Credit Facility”) with Bank of America, N.A., as administrative agent and sole initial lender, and BofA Securities, Inc., as sole lead arranger and sole bookrunner.

The Parent is the joint venture ~~including~~between the Operating Partnership and an affiliate of GIC, Singapore's sovereign wealth fund. See ""Note 8 -– Equity -– Non-controlling Interests in Joint ~~Venture"~~Venture" for additional information. The Operating Partnership and the Company are not borrowers or guarantors of the Joint Venture Credit Facility. The Joint Venture Credit Facility is guaranteed by all of the Borrower’s existing and future subsidiaries, subject to certain exceptions.

On June 18, 2020, the Borrower, the Parent, and each party executing the credit facility documentation as a subsidiary guarantor, entered into the Second Amendment to Credit Agreement (the “JV Second Amendment”) of the Joint Venture Credit Facility with Bank of America, N.A., as administrative agent, BofA Securities, Inc., as sole lead arranger and sole bookrunner, and a syndicate of lenders including Bank of America, N.A., KeyBank National Association, and Bank of Montreal, Chicago Branch.

The Joint Venture Credit Facility is comprised of a ~~$125~~$125.0 million revolving credit facility (the “$125 Million Revolver”) and a ~~$75~~$75.0 million term loan (the “$75 Million Term Loan”). The Joint Venture Credit Facility has an accordion feature which will allow us to increase the total commitments by up to ~~$300~~$300.0 million, for aggregate potential borrowings of up to ~~$500~~$500.0 million on the Joint Venture Credit Facility. ~~The JV Second Amendment confirmed that~~At September 30, 2021, we had $68.5 million outstanding under the Borrower may make additional advances on the existing revolving facility. Prior to the expiration of the Covenant Waiver Period (defined below), advances are limited to the lesser of the aggregate facility amount and the aggregate Borrowing Base Asset Value multiplied by 55%, less all outstanding advances. Upon the expiration of the Covenant Waiver Period, advances are limited to the lesser of the aggregate facility amount, the aggregate Borrowing Base Asset Value multiplied by 55%, and the amount that would permit the Borrower to achieve the Borrowing Base Coverage Ratio then applicable, less all outstanding advances.$125 Million Revolver.

The $125 Million Revolver and the $75 Million Term Loan will mature on October 8, 2023. Each ~~individually~~ can be extended for a single consecutive twelve-month period at the ~~Joint Venture's~~Borrower's option, subject to certain conditions.

Interest is paid on revolving credit advances at varying rates based upon, at the Borrower's option, either (i) 1-, 2-, 3-, or 6-month LIBOR, plus a margin of 2.15% for Eurodollar rate advances, or (ii) LIBOR, plus a margin of 2.15% for LIBOR floating rate advances. The applicable margin for a term loan advance shall be 5 basis points less than revolving credit advances referenced above.

At September 30, 2021, we were in compliance with all financial covenants.

Amendments to $200 Million Joint Venture Credit Facility

On June 18, 2020, the Company entered into a Second Amendment to Credit Agreement concerning the Joint Venture Credit Facility (“Second Amendment”). The Second Amendment resulted in waivers or adjustments to certain financial and other covenants under the Joint Venture Credit Facility, which are described in the Current Report on Form 8-K filed by the Company on June 24, 2020.

On April 29, 2021, the Borrower, Parent, and each party executing the credit facility documentation as a subsidiary guarantor, entered into a Third Amendment to Credit Agreement concerning the Joint Venture Credit Facility (the “Joint Venture Amendment”).

Certain financial and other covenants under the Joint Venture Credit Facility were waived or adjusted, for the periods described below:

•The Maximum Leverage Ratio and borrowing base leverage ratio (for purposes of determining availability) shall not exceed the following:

◦55.0% through the fourth quarter of 2021

◦65.0% for the first and second quarters of 2022

◦60.0% for the third quarter of 2022 until the initial maturity date

◦55.0% during any extension period

•Temporary waiver of the Minimum Consolidated Fixed Charge Coverage Ratio through the fourth quarter of 2021 and adjusting up through the second quarter of 2022; and

•Temporary waiver of the Borrowing Base Coverage Ratio through the first quarter of 2022 and adjusting up through June 30, 2023.

During the covenant waiver period, the applicable margin was increased to 230 basis points and 225 basis points for the revolver and term loan, respectively. After the covenant waiver period, the applicable margin will revert to 215 basis points and 210 basis points for the revolver and term loan, respectively.

The Joint Venture Amendment confirmed that the Borrower may make additional advances on the $125 million Revolver, subject to certain financial covenant limitations. Certain other typical limitations and conditions for credit facilities of this nature were included among the provisions in the amendments including, among other provisions, limitations on the use of revolving facility advances, certain restrictions on payments of dividends and limitations on investments and dispositions. We retain the right to opt out of certain additional restrictive covenants upon demonstration of compliance with the required financial covenants.

Borrowing Base ~~Assets.~~ Assets. The Joint Venture Credit Facility is secured primarily by a first priority pledge of the Borrower's equity interests in the subsidiaries that hold the initial five borrowing base assets financed by the facility, and the related TRS entities, which wholly own the TRS Lessees that lease each of the borrowing base assets.

~~Financial~~Convertible Senior Notes and ~~Other Covenants.~~ In addition, the Borrower is required to comply with a series of financial and other covenants in order to borrow under the Joint Venture Credit Facility. Pursuant to the JV Second Amendment, certain financial and other covenants under the Joint Venture Credit Facility were waived or adjusted, for the periods described below:Capped Call Options

•~~Temporary waivers~~On January 7, 2021, we entered into an underwriting agreement (the “Convertible Notes Offering”) pursuant to which the Company agreed to offer and sell $287.5 million aggregate principal amount of the ~~Consolidated Fixed Charge Coverage Ratio covenant~~Company’s 1.50% convertible senior notes due 2026 (the “Convertible Notes"). The net proceeds from the Convertible Notes Offering, after deducting underwriting discounts and commissions and estimated offering expenses payable by the Company (including net proceeds from the full exercise by the underwriters of their over-allotment option to purchase additional Convertible Notes), were approximately $280.0 million before consideration of the Capped Call Transactions (as defined below). These proceeds were used to pay the cost of the Capped Call Transactions and to partially repay outstanding obligations under the 2018 Senior Credit Facility and 2017 Term Loan.

The Convertible Notes bear interest at a rate of 1.50% per year, payable semi-annually in arrears on February 15 and August 15 of each year, beginning on August 15, 2021. The Convertible Notes will mature on February 15, 2026 (the “Maturity Date”), unless earlier converted, purchased or redeemed. Prior to August 15, 2025, the Convertible Notes will be convertible only upon certain ~~other covenants~~circumstances and during certain periods. On or after August 15, 2025 and through the Maturity Date, holders may convert any of their Convertible Notes into shares of the Company’s common stock, at the applicable conversion rate at any time prior to the close of business on the second scheduled trading day prior to the Maturity Date, unless the Convertible Notes have been previously purchased or redeemed by the Company. During the three and nine months ended September 30, 2021, the Company recorded coupon interest expense of $1.1 million and $3.1 million, respectively, and amortized $0.4 million and $1.1 million, respectively, of the $7.6 million debt issuance costs related to the Convertible Notes Offering. Including the amortization of the debt issuance costs, the current effective interest rate on the Convertible Notes is approximately 2.00%.

The initial conversion rate of the Convertible Notes is 83.4028 shares of common stock per $1,000 principal amount of Convertible Notes, which is equivalent to an initial conversion price of $11.99 per share of common stock based on the 37.5% base conversion premium on the reference price of $8.72 per share. In no event will the conversion rate exceed 114.6788 shares of common stock per $1,000 principal amount of Convertible Notes, subject to certain adjustments defined in the Joint Venture Credit Facility for the period June 18, 2020 until the date the Borrower is required to deliver to the lenders a compliance certificate for the period ending June 30, 2021 (“Covenant Waiver Period”); and

•~~Adjustments to the Borrowing Base Coverage Ratio beginning on June 18, 2020, and adjusting up through June 30, 2022.~~Convertible Notes Offering.

2220

~~Certain other typical limitations~~On January 7, 2021, in connection with the pricing of the Convertible Notes, and ~~conditions for credit facilities~~on January 8, 2021, in connection with the full exercise by the Underwriters of ~~this nature were included among~~their option to purchase additional Convertible Notes pursuant to the ~~provisions~~Underwriting Agreement, the Company entered into privately negotiated capped call transactions (the “Capped Call Transactions”) with certain of the underwriters or their respective affiliates and another financial institution (the “Capped Call Counterparties”). The Capped Call Transactions initially cover, subject to anti-dilution adjustments substantially similar to those applicable to the Convertible Notes, the number of shares of common stock underlying the Convertible Notes. The Capped Call Transactions are generally expected to reduce the potential dilution to holders of shares of common stock upon conversion of the Convertible Notes or offset the potential cash payments that the Company could be required to make in excess of the ~~JV Second Amendment including, among other provisions, limitations on the use~~principal amount of ~~revolving facility advances, certain restrictions on payments of dividends and limitations on investments and dispositions.~~any converted Convertible Notes upon conversion thereof, with such reduction or offset subject to a cap.

~~We retain~~The effective strike price of the ~~right~~Capped Call Transactions is initially $15.26, which represents a premium of 75.0% over the last reported sale price of the common stock on the New York Stock Exchange on January 7, 2021, and is subject to ~~opt out~~certain adjustments under the terms of ~~certain additional restrictive covenants upon demonstration of compliance with~~ the ~~required financial covenants.~~Capped Call transactions.

~~At September 30, 2020, we were in compliance with all financial covenants.~~

~~Metabank~~MetaBank Loan

On June 30, 2017, we entered into a $47.6 million secured, non-recourse loan with MetaBank (the "MetaBank Loan"). ~~During the year ended December 31, 2017, we drew $47.6 million on the MetaBank Loan and used the proceeds to pay down the principal balance of our former $300 million revolving credit facility.~~ The MetaBank Loan provides for a fixed interest rate of 4.44% and originally provided for interest-only payments for 18 months following the closing date. On January 31, 2019, we entered into a modification agreement, at no additional cost, that increased the interest-only period from 18 months to 24 months following the closing date. Beginning August 1, 2019, the loan, amortizes over 25 years, ~~through the maturity date of~~and matures on July 1, 2027. The MetaBank Loan is secured by 3 hotels and is subject to a prepayment penalty if prepaid prior to April 1, 2027. On May 1, 2020, MetaBank waived the annual minimum debt service covenant ratio for the year ended December 31, 2020, and on April 12, 2021, MetaBank extended such waiver for the year ended December 31, 2021. The next covenant measurement date is December 31, 2022.

Mortgage Loans

At September 30, ~~2020,~~2021, we had mortgage loans totaling ~~$154.9~~$151.1 million that are secured primarily by first mortgage liens on 15 hotel properties.

On April 24, 2019, we repaid a mortgage loan with Compass Bank totaling $21.9 million that was secured by 3 hotel properties. There was no prepayment penalty associated with the repayment of this loan. After repayment of the mortgage loan, the 3 hotels were added to the Company’s Unencumbered Properties.

On April 11, 2019, we repaid a $10.6 million mortgage loan with U.S. Bank to release the encumbrance on the Hampton Inn in Goleta, CA to facilitate the sale of the property. As a result of this transaction, we incurred debt transaction costs of $1.0 million.

On March 19, 2019, we had a mortgage loan of $26.2 million that was secured by 4 hotel properties. We defeased $6.3 million of the principal to have the encumbrance released on one hotel property, the Hyatt Place in Arlington, TX, to facilitate the sale of the hotel property. As a result of this transaction, we recorded debt transaction costs of $0.6 million primarily related to the debt defeasance premium. The mortgage loan remains outstanding and is secured by the remaining 3 hotel properties.

Certain mortgage agreements are subject to various maintenance covenants requiring the Company to maintain a minimum debt yield or debt service coverage ratio ("DSCR"). Failure to meet the debt yield or DSCR thresholds is not an event of default, but instead triggers a cash trap event. During the cash trap event, the lender or servicer of the mortgage loan controls cash outflows until the loan is covenant compliant. Certain cash trap events have been triggered, but there are currently no defaults under any of the Company's mortgage loan agreements.

NOTE 6 - LEASES

The Company has operating leases related to the land under certain hotel properties, conference centers, parking spaces, automobiles, our corporate office and other miscellaneous office equipment. These leases have remaining terms of 1 year to 7877 years, some of which include options to extend the leases for additional years. The exercise of lease renewal options is at our sole discretion. Certain leases also include options to purchase the leased property. Leases with an initial term of 12 months or less are not recorded on the balance sheet; we recognize lease expense for these leases on a straight-line basis over the lease term.

Certain of our lease agreements include rental payments based on a percentage of revenue over contractual levels and others include rental payments adjusted periodically for inflation. Our lease agreements do not contain any material residual value guarantees or restrictive covenants that materially affect our business. In addition, we rent or sublease certain owned real estate to third parties. We recorded gross third-party tenant income of ~~$0.4~~$0.5 million and ~~$0.6~~$0.4 million during the three months ended September 30, ~~2020~~2021 and ~~2019,~~2020, respectively, and ~~$1.3~~$1.5 million and ~~$1.5~~$1.3 million during the nine months ended September 30, ~~2020~~2021 and ~~2019,~~2020, respectively, which were recorded in Other income in the Condensed Consolidated Statement of Operations.

The majority of our third-party tenants requested rent deferrals to ease the negative financial effects of the COVID-19 pandemic on their businesses. We have generally negotiated ~~rent deferrals~~ with these tenants and granted rent deferrals that defer rent for a specified number of months and require repayment of the deferred rent over a negotiated period of time.

On January 1, 2019, the Company adopted ASC No. 842, Leases, and recognized right-of-use lease assets and related liabilities. The right-of-use assets and related liabilities include renewal options reasonably certain to be exercised. We base our lease calculations on our estimated incremental borrowing rate. As of September 30, ~~2020,~~2021, our weighted average incremental borrowing rate was ~~4.9%~~4.91%.

During the three months ended September 30, ~~2020~~2021 and ~~2019,~~2020, the Company's total operating lease cost was ~~$0.7~~$0.9 million and ~~the operating cash outflows from operating leases was~~ $0.7 ~~million for both periods. During the nine months ended September 30, 2020 and 2019, the Company's total operating lease cost was $2.3 million and $2.5~~ million, respectively, and the operating cash outflows from operating leases was ~~$2.1~~$0.8 million and $0.7 million, respectively. During the nine months ended September 30, 2021 and 2020, the Company's total operating lease cost was $2.4 million and $2.3 million, respectively, and the operating cash outflows from operating leases was $2.2 million and $2.1 million, respectively. As of September 30, ~~2020,~~2021, the weighted average operating lease term was ~~28.3~~28.2 years.

On January 31, 2019, we exercised our option pursuant to a ground lease agreement to purchase the land upon which our hotel property in Baltimore (Hunt Valley), MD is located for $4.2 million, which resulted in a termination of obligations under the ground lease.

Operating lease maturities as of September 30, ~~2020~~2021 are as follows (in thousands):


2020		$	537
2021	2021	2,066		2021	$	1,007
2022	2022	1,842		2022	1,592
2023	2023	970		2023	953
2024	2024	910		2024	910
2025				2025	918
Thereafter	Thereafter	28,906		Thereafter	27,763
Total lease payments (1)	Total lease payments (1)	35,231		Total lease payments (1)	33,143
Less interest	Less interest	(16,479)		Less interest	(15,616)
Total	Total	$	18,752	Total	$	17,527

(1)Certain payments above include future increases to the minimum fixed rent based on the Consumer Price Index in effect at the initial measurement of the lease balances.

NOTE 7 - DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING

Information about our derivative financial instruments at September 30, ~~2020~~2021 and December 31, ~~2019~~2020 is as follows (dollars in thousands):


						Notional Amount				Fair Value									Notional Amount				Fair Value
Contract date	Contract date	Effective Date	Expiration Date	Average Annual Effective Fixed Rate		September 30, 2020		December 31, 2019		September 30, 2020		December 31, 2019		Contract date	Effective Date	Expiration Date	Average Annual Effective Fixed Rate		September 30, 2021		December 31, 2020		September 30, 2021		December 31, 2020
October 2, 2017	October 2, 2017	January 29, 2018	January 31, 2023	1.98	%	$	100,000	$	100,000	$	(4,295)	$	(1,316)	October 2, 2017	January 29, 2018	January 31, 2023	1.98	%	$	100,000	$	100,000	$	(2,424)	$	(3,831)
October 2, 2017	October 2, 2017	January 29, 2018	January 31, 2023	1.98	%	100,000		100,000		(4,319)		(1,350)		October 2, 2017	January 29, 2018	January 31, 2023	1.98	%	100,000		100,000		(2,438)		(3,853)
June 11, 2018	June 11, 2018	September 28, 2018	September 30, 2024	2.87	%	75,000		75,000		(7,915)		(4,389)		June 11, 2018	September 28, 2018	September 30, 2024	2.87	%	75,000		75,000		(5,177)		(7,371)
June 11, 2018	June 11, 2018	December 31, 2018	December 31, 2025	2.93	%	125,000		125,000		(16,881)		(9,122)		June 11, 2018	December 31, 2018	December 31, 2025	2.93	%	125,000		125,000		(10,981)		(15,795)
						$	400,000	$	400,000	$	(33,410)	$	(16,177)						$	400,000	$	400,000	$	(21,020)	$	(30,850)

Our interest rate swaps have been designated as cash flow hedges and are valued using a market approach, which is a Level 2 valuation technique. At September 30, ~~2020~~2021 and December 31, ~~2019,~~2020, all of our interest rate swaps were in a liability position as a result of a decline in short-term interest rates and a continued flattening of the forward yield curve. Our interest rate swaps are recorded in Accrued expenses and other in our Condensed Consolidated Balance Sheets. We are not required to post any collateral related to these agreements and are not in breach of any financial provisions of the agreements.

Changes in the fair value of the hedging instruments are deferred in Other comprehensive income and are reclassified to Interest expense in our Condensed Consolidated Statements of Operations in the period in which the hedged item affects earnings. In the next twelve months, we estimate that ~~$9.3~~$9.4 million will be reclassified from Other comprehensive income and recorded as an increase to Interest expense.

The table below details the location in the financial statements of the gain or loss recognized on derivative financial instruments designated as cash flow hedges (in thousands):


		For the Three Months Ended September 30,				For the Nine Months Ended September 30,					For the Three Months Ended September 30,				For the Nine Months Ended September 30,
		2020		2019			2020		2019				2021		2020		2021		2020
Gain (loss) recognized in Other comprehensive income on derivative financial instruments		$	504	$	(4,342)		$	(22,300)	$	(19,086)
(Loss) gain recognized in Other comprehensive income on derivative financial instruments												(Loss) gain recognized in Other comprehensive income on derivative financial instruments	$	(138)	$	504	$	2,743	$	(22,300)
Loss reclassified from Other comprehensive income to Interest expense	Loss reclassified from Other comprehensive income to Interest expense	$	(2,330)	$	(202)		$	(5,067)	$	(114)		Loss reclassified from Other comprehensive income to Interest expense	$	(2,403)	$	(2,330)	$	(7,087)	$	(5,067)
Total Interest expense in which the effects of cash flow hedges are recorded	Total Interest expense in which the effects of cash flow hedges are recorded	$	(10,904)	$	(9,450)		$	(32,665)	$	(30,068)		Total Interest expense in which the effects of cash flow hedges are recorded	$	(10,817)	$	(10,904)	$	(32,567)	$	(32,665)

NOTE 8 - EQUITY

Common Stock

The Company is authorized to issue up to 500,000,000 shares of common stock, $0.01 par value per ~~share.~~share (the "Common Stock"). Each outstanding share of our ~~common stock~~Common Stock entitles the holder to ~~one~~1 vote on all matters submitted to a vote of stockholders, including the election of directors and, except as may be provided with respect to any other class or series of stock, the holders of such shares possess the exclusive voting power.

On May 25, 2017, the Company and the Operating Partnership entered into separate sales agreements (collectively, the “Sales Agreements”) with several underwriters (the “Sales Agents”), pursuant to which the Company may sell our Common Stock having an aggregate offering price of up to $200.0 million (the “Shares”), from time to time through the Sales Agents, each acting as a sales agent and/or principal (the "2017 ATM Program"). To date, we have not sold any shares of our Common Stock under the 2017 ATM Program.

Changes in ~~common stock~~Common Stock during the nine months ended September 30, ~~2020~~2021 and ~~2019~~2020 were as follows:

For the
Nine Months Ended
September 30,
2020 2019
Beginning common shares outstanding 105,169,515 104,783,179
Grants under the Equity Plan 676,171 537,734
Common Unit redemptions 34,500 46,076
Annual grants to independent directors 93,810 40,455
Performance share and other forfeitures (212,643) (167,757)
Shares retained for employee tax withholding requirements (65,345) (74,340)
Ending common shares outstanding 105,696,008 105,165,347


	For the Nine Months Ended September 30,
	2021	2020
Beginning common shares outstanding	105,708,787	105,169,515

Grants under the Equity Plan	860,910	676,171
Common Unit redemptions	31,945	34,500

Annual grants to independent directors	60,546	93,810

Performance share and other forfeitures	(60,823)	(212,643)
Shares retained for employee tax withholding requirements	(155,605)	(65,345)
Ending common shares outstanding	106,445,760	105,696,008

Preferred Stock

The Company is authorized to issue up to 100,000,000 shares of preferred stock, $0.01 par value per share, of which ~~90,600,000~~89,600,000 is currently undesignated, ~~3,000,000 shares have been designated as 6.45% Series D Cumulative Redeemable Preferred Stock (the "Series D preferred shares") and~~ 6,400,000 shares have been designated as 6.25% Series E Cumulative Redeemable Preferred Stock (the "Series E preferred shares") and 4,000,000 shares have been designated as 5.875% Series F Cumulative Redeemable Preferred Stock (the "Series F preferred shares").

The Company completed the offering of 4,000,000 Series F preferred shares on August 12, 2021 for net proceeds of $96.6 million, after the underwriting discount and offering-related expenses of $3.4 million.

On September 4, 2021, the Company paid $75.0 million to redeem all 3,000,000 of its outstanding 6.45% Series D Cumulative Redeemable Preferred Stock at a redemption price of $25 per share plus accrued and unpaid dividends. The premium on redemption of $2.7 million was recorded as a reduction to retained earnings.

The Company's outstanding shares of preferred stock (collectively, “Preferred Shares”) rank senior to our common stock and on parity with each other with respect to the payment of dividends and distributions of assets in the event of a liquidation, dissolution, or winding up. The Preferred Shares do not have any maturity date and are not subject to mandatory redemption or sinking fund requirements. The Company may not redeem the Series DE or Series EF preferred shares prior to ~~June 28, 2021 and~~ November 13, 2022 and August 12, 2026, respectively, except in limited circumstances relating to the Company’s continuing qualification as a REIT or in connection with certain changes in control. After those dates, the Company may, at its option, redeem the applicable Preferred Shares, in whole or from time to time in part, by payment of $25 per share, plus any accumulated, accrued and unpaid distributions up to, but not including, the date of redemption. If the Company does not exercise its rights to redeem the Preferred Shares upon certain changes in control, the holders of the Preferred Shares have the right to convert some or all of their shares into a number of the Company’s common shares based on a defined formula, subject to a share cap, or alternative consideration. The share cap on each Series DE preferred share is ~~3.9216~~3.1686 shares of common stock and each Series EF preferred share is ~~3.1686~~5.8275 shares of common stock, all subject to certain adjustments.

The Company pays dividends at an annual rate of ~~$1.6125 for each Series D preferred share and~~ $1.5625 for each Series E preferred share and $1.46875 for each Series F preferred share. Dividend payments are made quarterly in arrears on or about the last day of February, May, August and November of each year.

Non-controlling Interests in Operating Partnership

Pursuant to the limited partnership agreement of our Operating Partnership, the unaffiliated third parties who hold Common Units in our Operating Partnership have the right to cause us to redeem their Common Units in exchange for cash based upon the fair value of an equivalent number of our shares of ~~common stock~~Common Stock at the time of redemption; however, the Company has the option to redeem Common Units with shares of our ~~common stock~~Common Stock on a 1-for-one basis. The number of shares of our ~~common stock~~Common Stock issuable upon redemption of Common Units may be adjusted upon the occurrence of certain events such as share dividend payments, share subdivisions or combinations.

At September 30, ~~2020~~2021 and December 31, ~~2019,~~2020, unaffiliated third parties owned ~~174,521~~129,797 and ~~209,021~~161,742 Common Units of the Operating Partnership, respectively, representing less than a 1% limited partnership interest in the Operating Partnership for each period.

We classify outstanding Common Units held by unaffiliated third parties as Non-controlling interests in the Operating Partnership, a component of equity in the Company’s Condensed Consolidated Balance Sheets. The portion of net income allocated to these Common Units is reported on the Company’s Condensed Consolidated Statements of Operations as Net income attributable to non-controlling interests of the Operating Partnership.

Non-controlling Interests in Joint Venture

In July 2019, the Company entered into a joint venture agreement with GIC, Singapore’s sovereign wealth fund, to acquire assets that align with the Company’s current investment strategy and criteria. The Company serves as general partner and asset manager of the joint venture and intends to invest 51% of the equity capitalization of the limited partnership, with GIC investing the remaining 49%. The Company earns fees for providing services to the joint venture and will have the potential to earn incentive fees based on the joint venture achieving certain return thresholds. As of September 30, ~~2020,~~2021, the joint venture owns the 5 hotel properties acquired in ~~2019.~~2019, the 6 hotels contributed to the joint venture in the second quarter of 2021 and the hotel acquired by the joint venture in the third quarter of 2021.

The joint venture owns the hotels through a master real estate investment trust (“Master REIT”) and subsidiary REITs (“Subsidiary REIT”). All of the hotels owned by the joint venture are leased to taxable REIT subsidiaries of the Subsidiary REITs (“Subsidiary REIT TRSs”). To qualify as a REIT, the Master REIT and each Subsidiary REIT must meet all of the REIT requirements summarized under “Note 2 - Basis of Presentation and Significant Accounting Policies - Income Taxes.” Taxable income related to the Subsidiary REIT TRSs is subject to federal, state and local income taxes at applicable tax rates.

We classify the Non-controlling interests in the joint venture as a component of equity in the Company’s Condensed Consolidated Balance Sheets. The portion of net income (losses) allocated to these non-controlling interests is reported on the Company’s Condensed Consolidated Statements of Operations as Net income (losses) attributable to non-controlling interests of the joint venture.

NOTE 9 - FAIR VALUE MEASUREMENT

The following table presents information about our financial instruments measured at fair value on a recurring basis at September 30, ~~2020~~2021 and December 31, ~~2019.~~2020. In instances in which the inputs used to measure fair value fall into different levels of the fair value hierarchy, we classify assets and liabilities based on the lowest level of input that is significant to the fair value measurement. Our assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability.

Disclosures concerning financial instruments measured at fair value are as follows (in thousands):


		Fair Value Measurements at September 30, 2020 using									Fair Value Measurements at September 30, 2021 using
		Level 1		Level 2		Level 3		Total			Level 1		Level 2		Level 3		Total
Assets:	Assets:									Assets:

Purchase Options related to real estate loans	Purchase Options related to real estate loans	$	0	$	0	$	8,138	$	8,138	Purchase Options related to real estate loans	$	—	$	—	$	2,800	$	2,800

Liabilities:	Liabilities:									Liabilities:
Interest rate swaps	Interest rate swaps	0		33,410		0		33,410		Interest rate swaps	—		21,020		—		21,020


		Fair Value Measurements at December 31, 2019 using									Fair Value Measurements at December 31, 2020 using
		Level 1		Level 2		Level 3		Total			Level 1		Level 2		Level 3		Total
Assets:	Assets:									Assets:

Purchase Options related to real estate loans	Purchase Options related to real estate loans	$	0	$	0	$	8,920	$	8,920	Purchase Options related to real estate loans	$	—	$	—	$	7,161	$	7,161
Liabilities:	Liabilities:									Liabilities:
Interest rate swaps	Interest rate swaps	0		16,177		0		16,177		Interest rate swaps	—		30,850		—		30,850

Our Purchase Options related to real estate loans do not have readily determinable fair values. The original fair value of each Purchase Option was estimated using a ~~binomial lattice or~~ Black-Scholes model.

Due to the adverse effects of the COVID-19 pandemic, we evaluated our Purchase Options for impairment during the nine months ended September 30, 2020. The fair value of each Purchase Option was estimated using the Black-Scholes model. The estimated fair values of the Purchase Options were based on unobservable inputs for which there is little or no market information available and required us to develop our own assumptions as follows (dollar amounts in thousands):

Real Estate Loan 1 Real Estate Loan 2 Real Estate Loan 3 Real Estate Loan 4
Exercise price $ 15,143 $ 17,377 $ 5,503 $ 37,800
Term 2.59 (1) (2) 2.68 (1) (2) 2.67 (1) (2) 1.42 (3)
Expected volatility 65.0 % 55.0 % 55.0 % 55.0 %
Risk-free rate 0.3 % 0.3 % 0.3 % 0.2 %
Expected annualized equity dividend yield 6.5 % 7.5 % 17.1 % 0 %


	Real Estate Loan 1				Real Estate Loan 2				Real Estate Loan 3
Exercise price	$	15,143			$	17,377			$	37,800

Term	2.59			(1) (2)	2.68			(1) (2)	1.42			(3)
Expected volatility	65.0		%		55.0		%		55.0		%
Risk-free rate	0.3		%		0.3		%		0.2		%
Expected annualized equity dividend yield	6.5		%		7.5		%		—		%

(1)The purchase option is currently exercisable.

(2)The option term is the period from April 1, 2020 through the fully extended original maturity dates of the respective mezzanine loans.

(3)The option term is the period from April 1, 2020 through the date in which the development project is completed and the option becomes exercisable.

During the ~~nine~~three months ended September 30, ~~2020,~~2021, we recorded a Loss on impairment and write-off of assets of ~~$0.8~~$4.4 million as follows (dollar amounts in thousands):

Real Estate Loan 1 Real Estate Loan 2 Real Estate Loan 3 Real Estate Loan 4
Purchase Option value at December 31, 2019 $ 2,382 $ 2,761 $ 977 $ 2,800
Loss on impairment of assets (782) 0 0 0
Purchase Option value at September 30, 2020 $ 1,600 $ 2,761 $ 977 $ 2,800


	Real Estate Loan 1		Real Estate Loan 2		Real Estate Loan 3
Purchase Option value at December 31, 2020	$	1,600	$	2,761	$	2,800
Loss on impairment and write-off of assets (1)	(1,600)		(2,761)		—
Purchase Option value at September 30, 2021	$	—	$	—	$	2,800

28(1)As of September 30, 2021, we reached an agreement with the borrowers of Real Estate Loans 1 and 2 for the full repayment of the loans in the fourth quarter of 2021, which would result in us forgoing the exercise of the purchase options. As a result, the Company wrote-off the carrying amount of the purchase options totaling $4.4 million as a Loss on impairment during the quarter ended September 30, 2021.

NOTE 10 - COMMITMENTS AND CONTINGENCIES

Restricted Cash

The Company maintains reserve funds for property taxes, insurance, capital expenditures and replacement or refurbishment of furniture, fixtures and equipment at some of our hotel properties in accordance with management, franchise or mortgage loan agreements. These agreements generally require us to reserve cash ranging from 2%2.0% to 5%5.0% of the revenues of the individual hotel in restricted cash escrow accounts. Any unused restricted cash balances revert to us upon the termination of the underlying agreement or may be released to us from the restricted cash escrow accounts upon proof of expenditures and approval from the lender or other party requiring the restricted cash reserves.

On April 13, 2020, as a result of the COVID-19 pandemic, Marriott International, Inc. (“Marriott”) agreed to allow us to use $1.6 million of cash deposited in FF&E Reserve Accounts for 7 of our Marriott-branded hotels managed by Marriott affiliates (“Marriott Hotels”) to pay for the working capital needs of the respective hotels. In addition, Marriott released $8.9 million to us from the FF&E Reserve Accounts (“Borrowed Reserve”) of the Marriott Hotels for general operational purposes. The Borrowed Reserve must be replenished into the respective FF&E Reserve Accounts in ~~ten~~10 equal monthly installments beginning on the date that is twelve months prior to the next scheduled renovation date for each of the Marriott Hotels (“Renovation Date”) or in a lump sum payment no later than sixty days prior to each respective Renovation Date. We do not expect to replenish any of the Borrowed Reserve over the next twelve months.

Furthermore, Marriott has suspended our obligation to fund monthly FF&E reserves for the Marriott Hotels through ~~March~~December 31, 2021. During January 2021, we transitioned the management of the Courtyard by Marriott - Fort Worth, TX from Marriott to Aimbridge Hospitality. As such, we are no longer obligated to replenish $0.5 million of the Borrowed Reserve.

At September 30, ~~2020~~2021 and December 31, ~~2019,~~2020, approximately ~~$17.5~~$25.5 million and ~~$27.6~~$18.2 million, respectively, was available in restricted cash reserve funds required by certain of our property managers, franchisors, or mortgage lenders for property taxes, insurance, capital expenditures and replacement or refurbishment of furniture, fixtures and equipment at our hotel properties.

Franchise Agreements

We expensed fees related to our franchise agreements of ~~$4.6~~$7.7 million and ~~$11.8~~$4.6 million for the three months ended September 30, ~~2020~~2021 and ~~2019,~~2020, respectively, and ~~$16.5~~$17.7 million and ~~$35.8~~$16.5 million for the nine months ended September 30, 2021 and 2020, ~~and 2019,~~ respectively.

Management Agreements

Our hotel properties operate pursuant to management agreements with various professional third-party management companies. We pay base management fees that are a percentage of gross room revenues and incentive management fees based on achievement of certain financial targets pursuant to contracts that generally have remaining terms of less than five years. Management fee expenses were ~~$1.3~~$2.9 million and ~~$3.7~~$1.3 million for the three months ended September 30, ~~2020~~2021 and ~~2019,~~2020, respectively, and ~~$5.1~~$6.8 million and ~~$13.3~~$5.1 million for the nine months ended September 30, ~~2020~~2021 and ~~2019,~~2020, respectively.

Litigation

We are involved from time to time in litigation arising in the ordinary course of business. There are currently no pending legal actions that we believe would have a material effect on our financial position or results of operations.

NOTE 11 - EQUITY-BASED COMPENSATION

Our currently outstanding equity-based awards were issued under the Equity Plan which provides for the granting of stock options, stock appreciation rights, restricted stock, restricted stock units, dividend equivalent rights, and other equity-based awards or incentive awards.

Stock options granted may be either incentive stock options or non-qualified stock options. Vesting terms may vary with each grant, and stock option terms are generally five to ten years. We have outstanding equity-based awards in the form of ~~stock options and~~ restricted stock awards. All of our outstanding equity-based awards are classified as equity awards.

Stock Options Granted Under our Equity Plan

~~As of September 30, 2020, we had~~The 235,000 ~~outstanding and exercisable~~ stock options ~~with a weighted average exercise price~~outstanding as of ~~$9.75 per share~~December 31, 2020 expired unexercised on February 13, 2021 and a weighted average contractual term of 0.4 years. At September 30, 2020, the exercise price of our outstanding and exercisable stock options exceeded the market price of our common stock, resulting in no intrinsic value.were forfeited.

Time-Based Restricted Stock Awards Made Pursuant to Our Equity Plan

The following table summarizes time-based restricted stock award activity under our Equity Plan for the nine months ended September 30, ~~2020:~~2021:

Number
of Shares Weighted Average
Grant Date
Fair Value Aggregate
Current Value
(per share) (in thousands)
Non-vested at December 31, 2019 448,467 $ 12.51 $ 5,534
Granted 299,562 8.47
Vested (172,170) 13.31
Forfeited (2,282) 8.64
Non-vested at September 30, 2020 573,577 $ 10.18 $ 2,971


	Number of Shares	Weighted Average Grant Date Fair Value		Aggregate Current Value
		(per share)		(in thousands)
Non-vested at December 31, 2020	573,577	$	10.18	$	5,168
Granted	536,980	10.27
Vested	(219,636)	11.20

Non-vested at September 30, 2021	890,921	$	9.98	$	8,580

The awards granted to our non-executive employees generally vest over a four-year period based on continuous service (20% on the first, second and third anniversary of the grant date and 40% on the fourth anniversary of the grant date).

The awards granted to our executive officers generally vest over a three-year period based on continuous service (25% on the first and second anniversary of the grant date and 50% on the third anniversary of the grant date) or in certain circumstances upon a change in control.

The holders of these awards have the right to vote the related shares of common stock and receive all dividends declared and paid whether or not vested. The fair value of time-based restricted stock awards granted is calculated based on the market value of our common stock on the date of grant.

Performance-Based Restricted Stock Awards Made Pursuant to Our Equity Plan

The following table summarizes performance-based restricted stock activity under the Equity Plan for the nine months ended September 30, ~~2020:~~2021:


		Number of Shares	Weighted Average Grant Date Fair Value (1)		Aggregate Current Value			Number of Shares	Weighted Average Grant Date Fair Value (1)		Aggregate Current Value
			(per share)		(in thousands)				(per share)		(in thousands)
Non-vested at December 31, 2019		755,991	$	14.31	$	9,329
Non-vested at December 31, 2020							Non-vested at December 31, 2020	922,239	$	11.65	$	8,309
Granted	Granted	376,609	9.38				Granted	323,930	14.05

Vested							Vested	(182,480)	13.73
Forfeited	Forfeited	(210,361)	17.13				Forfeited	(60,823)	13.73
Non-vested at September 30, 2020		922,239	$	11.65	$	4,777
Non-vested at September 30, 2021							Non-vested at September 30, 2021	1,002,866	$	11.92	$	9,658

(1) The amounts included in this column represent the expected future value of the performance-based restricted stock awards calculated using the Monte Carlo simulation valuation model.

Our performance-based restricted stock awards are market-based awards and are accounted for based on the fair value of our common stock on the grant date. The fair value of the performance-based restricted stock awards granted was estimated using a Monte Carlo simulation valuation model. These awards generally vest over a three-year period based on our percentile ranking within the SNL U.S. REIT Hotel Index at the end of the period or upon a change in control. The awards require continued service during the measurement period and are subject to the other conditions described in the Equity Plan or award document.

The number of shares the executive officers may earn under these awards range from 0zero shares to twice the number of shares granted based on our percentile ranking within the index at the end of the measurement period. In addition, a portion of the performance-based shares may be earned based on the Company's absolute total shareholder return calculated during the performance period. The holders of these grants have the right to vote the granted shares of common stock and any dividends declared will be accumulated and will be subject to the same vesting conditions as the awards. Further, if additional shares are earned based on our percentile ranking within the index, dividend payments will be issued as if the additional shares had been held throughout the measurement period.

Equity-Based Compensation Expense

Equity-based compensation expense included in Corporate general and administrative expenses in the Condensed Consolidated Statements of Operations for the three and nine months ended September 30, ~~2020~~2021 and ~~2019~~2020 was as follows (in thousands):


		For the Three Months Ended September 30,				For the Nine Months Ended September 30,					For the Three Months Ended September 30,				For the Nine Months Ended September 30,
		2020		2019		2020		2019			2021		2020		2021		2020
Time-based restricted stock	Time-based restricted stock	$	622	$	588	$	1,847	$	1,736	Time-based restricted stock	$	891	$	622	$	2,399	$	1,847
Performance-based restricted stock	Performance-based restricted stock	895		862		2,664		2,534		Performance-based restricted stock	1,001		895		2,879		2,664

Director stock	Director stock	0		0		447		496		Director stock	—		—		583		447
		$	1,517	$	1,450	$	4,958	$	4,766		$	1,892	$	1,517	$	5,861	$	4,958

We recognize equity-based compensation expense ratably over the vesting periods. The amount of expense may be subject to adjustment in future periods due to a change in the forfeiture assumptions.

Unrecognized equity-based compensation expense for all non-vested awards pursuant to our Equity Plan was ~~$8.9~~$12.2 million at September 30, ~~2020~~2021 and will be recorded as follows (in thousands):


		Total		2020		2021		2022		2023		2024			Total		2021		2022		2023		2024		2025
Time-based restricted stock	Time-based restricted stock	$	3,763	$	623	$	1,855	$	1,037	$	232	$	16	Time-based restricted stock	$	6,257	$	891	$	2,872	$	2,067	$	406	$	21
Performance-based restricted stock	Performance-based restricted stock	5,137		895		2,654		1,392		196		0		Performance-based restricted stock	5,914		1,001		2,927		1,731		255		—
		$	8,900	$	1,518	$	4,509	$	2,429	$	428	$	16		$	12,171	$	1,892	$	5,799	$	3,798	$	661	$	21

NOTE 12 - INCOME TAXES

As a REIT, we generally will not be subject to U.S. federal income tax on ordinary income and capital gains income generated by our REIT activities that we distribute to our stockholders. We are subject to federal and state income taxes on the earnings of our TRS Lessees. In addition, our Operating Partnership is subject to tax in a limited number of local and state jurisdictions.

The Company recorded income tax expense of $0.7 million for the three months ended September 30, 2021 and an income tax benefit of $0.1 million for the three months ended September 30, ~~2020 and a nominal income tax benefit for three months ended September 30, 2019.~~2020. The Company recorded income tax expense of ~~$1.6~~$1.1 million and ~~$1.0~~$1.6 million for the nine months ended September 30, ~~2020~~2021 and ~~2019,~~2020, respectively. The $1.6 million income tax expense ~~includes~~recorded in the nine months ended September 30, 2020 included a $2.1 million discrete non-cash deferred income tax related to the establishment of valuation allowances against our TRS Lessees’ deferred tax ~~assets recorded during the quarter ended March 31, 2020.~~assets. Due to the effects of the COVID-19 pandemic, certain of our TRS Lessees have incurred operating losses in the past and are expected to be in a cumulative loss for the foreseeable future. A cumulative loss is significant negative evidence that the realizability of our deferred tax assets at September 30, ~~2020~~2021 is not reasonably assured. Therefore, we have recorded a valuation allowance against substantially all our deferred tax assets at September 30, ~~2020.~~2021.

We had 0no unrecognized tax benefits at September 30, ~~2020.~~2021. We expect no significant changes in unrecognized tax benefits within the next year.

The ~~business tax provisions~~American Rescue Plan Act of ~~the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act"), which~~2021 was signed into law on March ~~27, 2020, include temporary changes to income and non-income-based tax laws.~~11, 2021. Some of the key income tax provisions include:

•Eliminating the 80% of taxable income limitations by allowing corporate entities to fully utilize net operating loss (NOL) carryforwards to offset taxable income in 2018, 2019, or 2020, and reinstating it for tax years after 2020;

•~~Allowing NOLs generated in 2018, 2019, or 2020, to be carried back five years;~~

•~~Increasing the net interest expense deduction limit to 50% of adjusted taxable income from 30% for the 2019 and 2020 tax years;~~

•~~Allowing taxpayers with alternative minimum tax credits to claim a refund for the entire amount~~An extension of the ~~credit instead of recovering the credit through refunds over a period of years, as required by the 2017 Tax Cut and Jobs Act;~~

•~~Allowing entities to deduct more of their charitable cash contributions made during calendar year 2020 by increasing the taxable income limitation to 25% from 10%; and~~

•~~Providing for an~~ employee retention tax credit ~~to offset the employer's share of payroll taxes~~through 2021. To be eligible for the ~~period between March 13, 2020 and December 31, 2020.~~credit in 2021, an organization’s gross receipts must be less than 80% of the same quarter in 2019. The credit is calculated based on ~~50%~~70% of qualifying wages, capped at ~~the first~~ $10,000 of ~~compensation.~~compensation each quarter in 2021. We ~~are~~expect a credit totaling approximately $1.3 million for the year ended December 31, 2021. As of September 30, 2021, we have received $0.9 million of this credit and expect to receive the remainder of the credit in the ~~process~~fourth quarter of ~~preparing~~2021 or early in 2022.

•Expanded limits on executive compensation deductions. Section 162(m) limits the deduction for compensation paid to each covered employee to $1 million for public companies. Covered employees generally include the CEO, CFO, and ~~submitting amended payroll~~the next three highest paid officers as determined under the SEC rules. For tax ~~filings~~years after December 31, 2026, Section 162(m) applies to ~~recoup an anticipated credit of approximately $0.3 million.~~

~~We anticipate that our TRS Lessees will generate a net operating loss in 2020. As such, we expect a $1.0 million future tax benefit from~~ the ~~NOL carry-back provisions provided in~~CEO, CFO, and the ~~CARES Act.~~next five highest paid employees.

NOTE 13 - EARNINGS PER SHARE

We apply the two-class method of computing earnings per share, which requires the calculation of separate earnings per share amounts for our non-vested time-based restricted stock awards with non-forfeitable dividends and for our common stock. Our non-vested time-based restricted stock awards with non-forfeitable rights to dividends are considered securities which participate in undistributed earnings with common stock. Under the two-class computation method, net losses are not allocated to participating securities unless the holder of the security has a contractual obligation to share in the losses. Our non-vested time-based restricted stock awards with non-forfeitable dividends do not have such an obligation so they are not allocated losses.

Below is a summary of the components used to calculate basic and diluted earnings per share (in thousands, except per share):

For the
Three Months Ended
September 30, For the
Nine Months Ended
September 30,
2020 2019 2020 2019
Numerator:
Net (loss) income $ (35,775) $ 11,626 $ (104,537) $ 73,595
Less: Preferred dividends (3,710) (3,710) (11,128) (11,128)
Allocation to participating securities 0 (81) (81) (254)
Attributable to non-controlling interest in Operating Partnership 70 (15) 203 (150)
Attributable to non-controlling interests in joint venture 1,159 (77) 4,049 (77)
Net (loss) income attributable to common stockholders, net of amount allocated to participating securities $ (38,256) $ 7,743 $ (111,494) $ 61,986
Denominator:
Weighted average common shares outstanding - basic 104,200 103,935 104,117 103,861
Dilutive effect of equity-based compensation awards 0 35 0 55
Weighted average common shares outstanding - diluted 104,200 103,970 104,117 103,916
(Loss) earnings per share:
Basic and diluted $ (0.37) $ 0.07 $ (1.07) $ 0.60


	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2021		2020		2021		2020
Numerator:
Net loss	$	(4,239)	$	(35,775)	$	(57,679)	$	(104,537)
Less: Preferred dividends	(3,750)		(3,710)		(11,168)		(11,128)
Premium on redemption of preferred stock	(2,710)		—		(2,710)		—
Allocation to participating securities	—		—		—		(81)
Attributable to non-controlling interest in Operating Partnership	10		70		98		203
Attributable to non-controlling interests in joint venture	(275)		1,159		3,020		4,049
Net loss attributable to common stockholders, net of amount allocated to participating securities	$	(10,964)	$	(38,256)	$	(68,439)	$	(111,494)
Denominator:
Weighted average common shares outstanding - basic and diluted	104,548		104,200		104,441		104,117


Loss per share:
Basic and diluted	$	(0.10)	$	(0.37)	$	(0.66)	$	(1.07)

~~All outstanding stock options were included in the computation of diluted earnings per share for the three and nine months ended September 30, 2019 due to their dilutive effect.~~ The Common Units held by the non-controlling interest holders have been excluded from the denominator of the diluted earnings per share calculation as there would be no effect on the amounts since the limited partners' share of income would also be added to derive net income attributable to common stockholders. ~~We had~~Our unvested performance-based restricted stock awards ~~of 922,239 shares for the three~~ and ~~nine months ended September 30, 2020 and 755,991 shares for the three and nine months ended September 30, 2019, which were~~outstanding convertible notes have been excluded from the denominator of the diluted earnings per share calculation as ~~the awards had not achieved the requisite performance conditions for vesting at each period end.~~their inclusion would be antidilutive.

NOTE 14 - SUBSEQUENT EVENTS

Dividends

On October ~~30, 2020,~~29, 2021, our Board of Directors declared cash dividends of ~~$0.403125 per share of 6.45% Series D Cumulative Redeemable Preferred Stock and~~ $0.390625 per share of 6.25% Series E Cumulative Redeemable Preferred Stock and $0.440625 per share of 5.875% Series F Cumulative Redeemable Preferred Stock. These dividends are payable November 30, ~~2020~~2021 to stockholders of record on November 16, ~~2020.~~2021.

Acquisition of Hotel Property Portfolio

On November 2, 2021, we entered into a definitive contribution agreement to acquire a 27-hotel portfolio totaling 3,709 guestrooms, 2 parking structures and various financial incentives through our joint venture with GIC for a total consideration of $822 million (the “Transaction”) from affiliates of NewcrestImage. The Company expects to fund its 51% equity contribution for the Transaction with a combination of common operating partnership units and preferred operating partnership units. The Company plans to issue 15.9 million common operating partnership units valued at $160 million to seller affiliates, based on the 10-day trailing VWAP of $10.0853 per unit and will result in an approximate 13% pro forma seller ownership interest. The Company will also issue $50 million of newly designated 5.25% Series Z preferred units. The preferred operating partnership units will be entitled to distributions at a rate of 5.25% per annum, may be redeemed by the holder on the 10th anniversary of the issuance date and may be called by the Company at any time after the 5th anniversary of the issuance date. GIC’s 49% estimated equity contribution of $208 million will be in the form of cash. The Company has secured a $410 million financing commitment from Bank of America and Wells Fargo Bank, which will be the primary debt financing for the Transaction.

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

Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with our audited Consolidated Financial Statements and Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Form 10-K for the year ended December 31, ~~2019~~2020 and our unaudited interim Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q.

Unless stated otherwise or the context otherwise requires, references in this report to “we,” “our,” “us,” “our company” or “the company” mean Summit Hotel Properties, Inc. and its consolidated subsidiaries.

Cautionary Statement about Forward-Looking Statements

This report contains certain forward-looking statements 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”). We intend such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995 and include this statement for purposes of complying with these safe harbor provisions. Forward-looking statements, which are based on certain assumptions and describe our future plans, strategies and expectations, are generally identifiable by use of the words “may,” “could,” “expect,” “intend,” “plan,” “seek,” “anticipate,” “believe,” “estimate,” “predict,” “forecast,” “project,” “potential,” “continue,” “likely,” “will,” “would” or similar expressions. Forward-looking statements in this report include, among others, statements about our business strategy, including acquisition and development strategies, industry trends, estimated revenues and expenses, ability to realize deferred tax assets and expected liquidity needs and sources (including capital expenditures and the ability to obtain financing or raise capital). You should not rely on forward-looking statements since they involve known and unknown risks, uncertainties and other factors that are, in some cases, beyond our control and which could materially affect actual results, performances or achievements. Factors that may cause actual results to differ materially from current expectations include, but are not limited to:

•the effects of the novel coronavirus (COVID-19) pandemic and other infectious disease outbreaks;

•potential changes in operations as a result of ~~laws~~regulations or ~~regulations~~changes in brand standards imposed in connection with, or changes in consumer behavior in response to, the COVID-19 pandemic;

•financing risks, including the risk of leverage and the corresponding risk of default on our existing indebtedness and potential inability to refinance or extend the maturities of our existing indebtedness;

•default by borrowers to which we lend or provide seller financing;

•global, national, regional and local economic and geopolitical conditions;

•levels of spending for business and leisure travel, as well as consumer confidence;

•supply and demand factors in our markets or sub-markets;

•the effect of alternative accommodations on our business;

•adverse changes in occupancy, average daily rate (“ADR”) and revenue per available room (“RevPAR”) and other hotel operating metrics;

•hostilities, including future terrorist attacks, or fear of hostilities that affect travel;

•financial condition of, and our relationships with, third-party property managers and franchisors;

•the degree and nature of our competition;

•increased interest rates;

•increased operating costs, including but not limited to labor costs;

•increased renovation costs, which may cause actual renovation costs to exceed our current estimates;

•changes in zoning laws;

•increases in real property taxes that are significantly higher than our expectations;

•risks associated with hotel acquisitions, including the ability to ramp up and stabilize newly acquired hotels with limited or no operating history or that require substantial amounts of capital improvements for us to earn ~~stabilized~~ economic returns consistent with our expectations at the time of acquisition;

•risks associated with dispositions of hotel properties, including our ability to successfully complete the sale of hotel properties under contract to be sold, including the risk that the purchaser may not have access to the capital needed to complete the purchase;

•the nature of our structure and transactions such that our federal and state taxes are complex and there is risk of successful challenges to our tax positions by the Internal Revenue Service ("IRS") or other federal and state taxing authorities;

•the recognition of taxable gains from the sale of hotel properties as a result of the inability to complete certain like-kind exchanges in accordance with Section 1031 of the Internal Revenue Code of 1986, as amended (the “IRC”);

•availability of and the abilities of our ~~ability~~property managers and us to retain qualified ~~personnel;~~personnel at our hotels and corporate offices;

•our failure to maintain our qualification as a real estate investment trust ("REIT") under the IRC;

•changes in our business or investment strategy;

•availability, terms and deployment of capital;

•general volatility of the capital markets and the market price of our common stock;

•environmental uncertainties and risks related to natural disasters;

•our ability to recover fully under third party indemnities or our existing insurance policies for insurable losses and our ability to maintain adequate or full replacement cost “all-risk” property insurance policies on our properties on commercially reasonable terms;

•the effect of a data breach or significant disruption of hotel operator information technology networks as a result of cyber-attacks that are greater than insurance coverages or indemnities from service providers;

•the effect on our interest rates ifwhen LIBOR is replaced with a new benchmark ~~or performs~~which may perform differently than ~~in the past;~~LIBOR;

•our ability to effectively manage our joint venture with our joint venture partner;

•current and future changes to the IRC;

•our ability to manage inflationary pressures related to commodities, labor and other costs of our business; and

•the other factors discussed under the heading "Risk Factors" included in our Annual Report on Form 10-K for the year ended December 31, ~~2019 and our Quarterly Report on Form 10-Q for the quarter ended June 30,~~ 2020.

Accordingly, there is no assurance that our expectations will be realized. Except as otherwise required by the federal securities laws, we disclaim any ~~obligations~~obligation or undertaking to publicly release any updates or revisions to any forward-looking statement contained herein (or elsewhere) to reflect any change in our expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based.

Overview

Summit Hotel Properties, Inc. is a self-managed hotel investment company that was organized in June 2010 and completed its initial public offering in February 2011. We focus on owning primarily premium-branded, select-service hotels. At September 30, ~~2020,~~2021, our portfolio consisted of 7273 hotels with a total of ~~11,288~~11,398 guestrooms located in 23 states. We own our hotels in fee simple, except for four hotels which are subject to ground leases. As of September 30, ~~2020~~2021, we own 100% of the outstanding equity interests in 6761 of our 7273 hotels. We own a 51% controlling interest in ~~five~~twelve hotels ~~acquired in 2019~~ through a joint venture. Our hotels are typically located in markets with multiple demand generators such as corporate offices and headquarters, retail centers, airports, state capitols, convention centers, and leisure attractions.

Our hotels operate under premium franchise brands owned by Marriott® International, Inc. (“Marriott”), Hilton® Worldwide (“Hilton”), Hyatt® Hotels Corporation (“Hyatt”) and InterContinental® Hotels Group (“IHG”).

We have elected to be taxed as a REIT for federal income tax purposes commencing with our short taxable year ended December 31, 2011. To qualify as a REIT, we cannot operate or manage our hotels. Accordingly, all of our hotels are leased to our taxable REIT subsidiaries ("TRS Lessees"). All of our hotels are operated pursuant to hotel management agreements between our TRS Lessees and professional third-party hotel management companies that are not affiliated with us as follows:


Management Company	Management Company	Number of Properties	Number of Guestrooms	Management Company	Number of Properties	Number of Guestrooms
Affiliates of Aimbridge Hospitality, including Interstate Management Company, LLC ~~(1)~~	Affiliates of Aimbridge Hospitality, including Interstate Management Company, LLC ~~(1)~~	33	5,133	Affiliates of Aimbridge Hospitality, including Interstate Management Company, LLC ~~(1)~~	34	5,336
OTO Development, LLC	OTO Development, LLC	15	2,164	OTO Development, LLC	15	2,164
Stonebridge Realty Advisors, Inc. and affiliates	Stonebridge Realty Advisors, Inc. and affiliates	9	1,312	Stonebridge Realty Advisors, Inc. and affiliates	9	1,312
Affiliates of Marriott, including Courtyard Management Corporation, SpringHill SMC Corporation and Residence Inn by Marriott, Inc.	Affiliates of Marriott, including Courtyard Management Corporation, SpringHill SMC Corporation and Residence Inn by Marriott, Inc.	7	1,176	Affiliates of Marriott, including Courtyard Management Corporation, SpringHill SMC Corporation and Residence Inn by Marriott, Inc.	6	973

White Lodging Services Corporation	White Lodging Services Corporation	4	791	White Lodging Services Corporation	4	791
American Liberty Hospitality, Inc.	American Liberty Hospitality, Inc.	2	372	American Liberty Hospitality, Inc.	2	372

Crestline Hotels & Resorts, LLC				Crestline Hotels & Resorts, LLC	2	198
Intercontinental Hotel Group Resources, Inc., an affiliate of IHG	Intercontinental Hotel Group Resources, Inc., an affiliate of IHG	1	252	Intercontinental Hotel Group Resources, Inc., an affiliate of IHG	1	252
Crestline Hotels & Resorts, LLC		1	88

Total	Total	72	11,288	Total	73	11,398

~~(1)~~
~~On October 25, 2019, Aimbridge Hospitality announced that it had completed a merger with Interstate Hotels & Resorts.~~

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Our typical hotel management agreement requires us to pay a base fee to our hotel manager calculated as a percentage of hotel revenues. In addition, our hotel management agreements generally provide that the hotel manager can earn an incentive fee for revenue or Earnings Before Interest, Taxes, Depreciation and Amortization ("EBITDA") over certain thresholds or based on a return over our required preferred return. Our TRS Lessees may employ other hotel managers in the future. We do not, and will not, have any ownership or economic interest in any of the hotel management companies engaged by our TRS Lessees.

Our revenues are derived from hotel operations and consist of room revenue, food and beverage revenue and other hotel operations revenue. Revenues from our other hotel operations consist of ancillary revenues related to meeting rooms and other customer services provided at certain of our hotel properties.

Industry Trends and Outlook

Room-night demand in the U.S. lodging industry is generally correlated to certain macroeconomic trends. Key drivers of lodging demand include changes in gross domestic product, corporate profits, capital investments, employment and more recently, travel-related health and safety restrictions. Volatility in the economy and risks arising from global and domestic political or economic conditions may cause slowing economic growth, which would have an adverse effect on lodging demand. ~~During the first nine months of 2020, the~~The global and U.S. economies, and the travel and lodging industries, have experienced a significant downturn as a result of the COVID-19 global ~~pandemic, which is expected~~pandemic. During the first nine months of 2021, we began to ~~continue until consumer confidence is restored and~~see a significant recovery in ~~hospitality~~hotel demand driven primarily by leisure travelers. Corporate transient and ~~travel-related~~group demand ~~occurs.~~remains significantly reduced from historical levels and is recovering more slowly than leisure demand.

Effects of COVID-19 Pandemic on Our Business

~~On January 30, 2020,~~The effects of the ~~World Health Organization (“WHO”) declared a public health emergency of international concern related to a novel coronavirus (“COVID-19”),~~COVID-19 pandemic and ~~on March 11, 2020,~~ the WHO declared COVID-19 to be a pandemic. By March 31, 2020, stay-at-home directives had been issued in many states across the United States and many local jurisdictions had additionally required the temporary closure of businesses deemed to be non-essential.

~~The~~ restrictions implemented in response to the COVID-19 pandemic have had a significant negative effect on the U.S. and global economies, including a rapid and sharp decline in all forms of travel, both domestic and international, and a significant decline in hotel demand. These conditions ~~have~~ resulted in a substantial decline from pre-pandemic levels in our revenues, profitability and cash flows from operations during the first nine months of 2020 and are expected to continue to materially adversely affect our operations and financial results until consumer confidence is restored and a recovery in hospitality and travel-related demand occurs. The COVID-19 pandemic has also led to a disruption and volatility of the capital markets for the hospitality and travel-related industries, which could increase our cost of and limit accessibility to capital.operations.

The COVID-19 pandemic caused the Company to temporarily suspend operations at six hotels containing 934 guestrooms in March 2020. An additional nine hotels, containing 1,278 guestrooms, each of which is adjacent to another of our hotels ("Sister Properties"), continued to accept reservations, but guests were directed to Sister Properties. In May of 2020, five hotels containing 682 guestrooms and four hotel properties adjacent to Sister Properties containing 506 guestrooms were re-opened. During the third quarter of 2020, two hotel properties adjacent to Sister Properties containing 309 guestrooms were re-opened. As of September 30, 2020, only one hotel with 252 guestrooms still has suspended operations and guests at three other hotels containing 463 guestrooms are being directed to Sister Properties.

The effects of the COVID-19 pandemic on our operations were the primary drivers of a 56.3% decline in RevPAR during the nine months ended September 30, 2020 in comparison to the nine months ended September 30, 2019. Furthermore, our income from hotel operations declined from $153.4 million during the nine months ended September 30, 2019 to $25.4 million for the nine months ended September 30, 2020. The COVID-19 pandemic will continue to materially adversely affect our operations and financial performance in the fourth quarter of 2020 and beyond. It is currently extremely difficult to predict how long the adverse effects of the COVID-19 pandemic will continue, when an economic recovery will commence and the length of time it will take for us to return to operational and financial performance that is consistent with our 2019 fiscal year.

Management’s Actions in Response to the Effects of COVID-19 on Our Operations

We have taken the following actions to mitigate the negative effects of the COVID-19 pandemic on our consolidated financial position, results of operations and cash flows:

Operational Adjustments

In response to the rapid decline in demand for room nights and loss of revenues as a result of the COVID-19 pandemic, we, along with our property managers, evaluated each hotel in our portfolio to determine if market conditions warranted the temporary suspension of operations, and to adjust labor cost structures for hotels that would continue to operate. Although the vast majority of our hotels have remained open, staffing levels have been ~~significantly~~ reduced to levels that safely and effectively maintain reasonable accommodations for our ~~guests. As such, our open hotels are generally operating with limited employees per shift and a limited housekeeping staff that are performing all the~~guests, including essential hotel functions ~~including enhanced~~such as cleaning and disinfecting to mitigate the spread of COVID-19. As demand at our hotels has increased, we have also increased staffing commensurately.

Financial Measures and Liquidity

~~We have taken~~Beginning in March 2020, we took significant ~~and decisive~~ action to enhance our overall liquidity position in response to the COVID-19 pandemic’s ~~initial effects and anticipated future effects~~effect on our financial position. ~~The following is a summary of certain measures that we have adopted in order to enhance our overall liquidity position:~~

•Borrowed a net amount of $50.0 million on our $400 million unsecured revolving credit facility (“$400 Million Revolver”) during the nine months ended September 30, 2020 to meet our near-term funding needs and ensured the availability of sufficient capacity under the $400 Million Revolver to provide adequate liquidity should we experience a protracted disruption in lodging demand.

•We amended loan agreements of our 2018 Unsecured Credit Facility, 2017 Term Loan and 2018 Term Loan to provide for financial covenant waivers through March 31, 2021, to modify or waive compliance with certain financial covenant measures for the final three quarters of 2021 and to accessFor additional borrowing capacity of $150.0 million under our $400 Million Revolver. At October 23, 2020, we had $35.3 million of consolidated unrestricted cash on hand and an additional $225.0 million of undrawn availability on our $400 Million Revolver, as amended by the First Amendment (as defined below). We have no debt maturing before November 2022.

•We amended our joint venture credit agreement to provide for a financial covenant waiver through March 31, 2021, to modify certain financial covenant measures through June 30, 2022, and to access additional availability to fund operating expense deficits and various capital expenditures.

•We suspended the declaration and payment of dividends on our common stock and operating partnership units. This will conserve an additional $19.0 million of cash quarterly, or $75.0 million on an annualized basis.

•We postponed all non-essential capital improvement projects planned for 2020 beyond those already substantially complete, which is expected to reduce previously planned total capital expenditures by at least $35.0 million, or over 50% based on the midpoint of our previously provided guidance range of total capital expenditures for 2020.

•We adopted comprehensive cost reduction initiatives, including the reduction of labor and temporary elimination of certain services and amenities, at all hotels. Certain labor costs and services or amenities have been added back on a limited basis as improvements in occupancy levels have supported. As described above, we temporarily suspended operations at certain hotelsinformation concerning such actions taken in response to ~~specific government mandates or as~~ the ~~result of adverse market conditions.~~

•~~We implemented a voluntary 25% temporary reduction of base salaries and fees, respectively, for executive officers and independent members~~effects of the ~~Board of Directors from April 2020 to June 2020.~~

•We furloughed approximately 25% of the corporate-level staff in April 2020. Certain of the furloughed staff have been reinstated during the second and third quarters of 2020 to meet specific needs of the Company as supported byCOVID-19 pandemic on our ~~operating performance, but the majority of the furloughed positions were permanently eliminated during the third quarter.~~

•~~We implemented temporary salary reductions~~business, please see our Annual Report on Form 10-K for the ~~majority of our remaining non-executive employees from April 2020 to June 2020.~~

•~~We implemented a temporary hiring freeze for any new corporate-level positions.~~

~~We are currently in compliance with all of our financial covenants under our various loan and mortgage agreements. We amended our loan agreements as follows:~~

~~First Amendment to $600.0 Million Senior Unsecured Credit Facility~~

On May 7, 2020, the Operating Partnership, as borrower, the Company, as parent guarantor, and each party executing the credit facility documentation as a subsidiary guarantor entered into the First Amendment to Credit Agreement (the “First Amendment”) of the Operating Partnership’s $600 million senior unsecured credit facility ( the "2018 Unsecured Credit Facility") with Deutsche Bank AG New York Branch, as administrative agent, and a syndicate of lenders.

~~The First Amendment provides that certain financial and other covenants under the 2018 Unsecured Credit Facility were waived or adjusted, for the periods described below:~~

•~~Waivers of all financial and certain other covenants in the 2018 Unsecured Credit Facility for the period April 1, 2020 through March 31, 2021; and~~

•~~Adjustments to certain financial covenants for the period April 1, 2021 through~~year ended December 31, ~~2021 including:~~

◦~~Increases in the Maximum Leverage Ratio, partially adjusting down beginning in the third quarter of 2021;~~

◦~~Reduction of the Minimum Consolidated Fixed Charge Coverage Ratio;~~

◦~~Increase of the Maximum Unsecured Leverage Ratio; and~~

◦~~Reduction of the Minimum Unsecured Interest Coverage Ratio;~~

•~~Increases to the Maximum Leverage Ratio for the calendar year 2022, adjusting down throughout 2022.~~

~~The interest rate during the periods of the financial and covenant waivers and adjustments will be set at Pricing Level VII, as defined in the 2018 Unsecured Credit Facility documents.~~

The First Amendment requires the borrower and certain subsidiaries to pledge to the secured parties all of the equity interests in the entities that own all properties included in the unencumbered asset pool supporting the facility (“Unencumbered Properties”), as well as the equity interests in the TRS lessees related to such Unencumbered Properties until the borrower meets certain conditions for their release.

The First Amendment confirmed that the borrower may advance up to an additional $100 million on the existing revolving facility. Furthermore, the First Amendment permits the borrower to advance an additional $50 million, in addition to the $100 million advance described in the preceding sentence, upon filing mortgages and related security agreements on all Unencumbered Properties, with such security documents to be released upon the borrower meeting certain conditions for their release.

Certain other typical limitations and conditions for credit facilities of this nature were included among the provisions in the First Amendment including, among other provisions, limitations on the use of revolving facility advances, certain restrictions on payments of dividends and establishment of a minimum liquidity requirement.

2020.

~~Third and Fourth Amendments to $225.0 Million 2018 Term Loan~~

The Operating Partnership, as borrower, the Company, as parent guarantor, and each party executing the credit facility documentation as a subsidiary guarantor entered into the Third Amendment to the First Amended and Restated Credit Agreement (the “Third Amendment”) and the Fourth Amendment to the First Amended and Restated Credit Agreement ("Fourth Amendment") of the Operating Partnership’s $225 million 2018 term loan ( the "2018 Term Loan") with KeyBank National Association, as administrative agent, and a syndicate of lenders on May 7, 2020 and August 6, 2020, respectively. The changes to the 2018 Term Loan effected by the Third Amendment are substantially similar to the changes described above effected by the First Amendment to the Company’s 2018 Unsecured Credit Facility. The Fourth Amendment lowered the loan pricing during the Amendment Period from Pricing Level VIII to Pricing Level VII, as defined in the 2018 Term Loan documents.

~~Second and Third Amendments to $225.0 Million 2017 Term Loan~~

The Operating Partnership, as borrower, the Company, as parent guarantor, and each party executing the credit facility documentation as a subsidiary guarantor entered into the Second Amendment to the Credit Agreement (the “Second Amendment”) and the Third Amendment to the Credit Agreement (the "Third Amendment") of the Operating Partnership’s $225 million 2017 term loan (the "2017 Term Loan") with KeyBank National Association, as administrative agent, and a syndicate of lenders on May 7, 2020 and August 6, 2020, respectively. The changes to the 2017 Term Loan effected by the Second Amendment are substantially similar to the changes described above effected by the First Amendment to the Company’s 2018 Unsecured Credit Facility. The Third Amendment lowered the loan pricing during the Amendment Period from Pricing Level VII to Pricing Level VI as defined in the 2017 Term Loan documents.

~~Second Amendment to $200 Million Joint Venture Credit Facility~~

On June 18, 2020, Summit JV MR 1, LLC (the "Borrower"), as borrower, Summit Hospitality JV, LP, as parent, and each party executing the credit facility documentation as a subsidiary guarantor, entered into the Second Amendment to Credit Agreement (the “Second Amendment”) of the Borrower's $200 million senior credit facility (the "Joint Venture Credit Facility") with Bank of America, N.A., as administrative agent, BofA Securities, Inc., as sole lead arranger and sole bookrunner, and a syndicate of lenders including Bank of America, N.A., KeyBank National Association, and Bank of Montreal, Chicago Branch.

~~Certain financial and other covenants under the Joint Venture Credit Facility were waived or adjusted, for the periods described below:~~

•Temporary waivers of the Consolidated Fixed Charge Coverage Ratio covenant and certain other covenants in the Joint Venture Credit Facility for the period June 18, 2020 until the date the Borrower is required to deliver to the lenders a compliance certificate for the period ending June 30, 2021 (“Covenant Waiver Period”); and

•~~Adjustments to the Borrowing Base Coverage Ratio beginning on June 18, 2020, and adjusting up through June 30, 2022.~~

The Second Amendment confirmed that the Borrower may make additional advances on the existing revolving facility. Prior to the expiration of the Covenant Waiver Period, advances are limited to the lesser of the aggregate facility amount and the aggregate Borrowing Base Asset Value multiplied by 55%, less all outstanding advances. Upon the expiration of the Covenant Waiver Period, advances are limited to the lesser of the aggregate facility amount, the aggregate Borrowing Base Asset Value multiplied by 55%, and the amount that would permit the Borrower to achieve the Borrowing Base Coverage Ratio then applicable, less all outstanding advances.

Certain other typical limitations and conditions for credit facilities of this nature were included among the provisions in the Second Amendment including, among other provisions, limitations on the use of revolving facility advances, certain restrictions on payments of dividends and limitations on investments and dispositions.

~~We retain the right to opt out of certain additional restrictive covenants upon demonstration of compliance with the required financial covenants.~~

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We expect that the operational, financial and liquidity measures that we have taken will allow us to meet our funding needs for ~~at least~~ the ~~next twelve months.~~foreseeable future. However, there is substantial uncertainty as to how long the economic hardship caused by the COVID-19 pandemic will last and the timing and rate of an economic recovery afterwards. As such, there can be no assurance that we will be able to maintain sufficient liquidity or secure additional capital in the future that may be necessary to operate our business without experiencing further deterioration of our operations, consolidated financial position or results of operations.

~~Use of FF&E Reserve Funds~~

On April 13, 2020, as a result of the COVID-19 pandemic, Marriott International, Inc. (“Marriott”) agreed to allow us to use $1.6 million of cash deposited in our restricted cash reserve for replacement of furniture, fixtures and equipment ("FF&E Reserve Accounts") for seven of our Marriott-branded hotels managed by Marriott affiliates (“Marriott Hotels”) to pay for the working capital needs of the respective hotels. In addition, Marriott released $8.9 million to us from the FF&E Reserve Accounts (“Borrowed Reserve”) of the Marriott Hotels for general operational purposes. The Borrowed Reserve must be replenished into the respective FF&E Reserve Accounts in ten equal monthly installments beginning on the date that is twelve months prior to the next scheduled renovation date for each of the Marriott Hotels (“Renovation Date”) or in a lump sum payment no later than sixty days prior to each respective Renovation Date. Furthermore, Marriott has suspended our obligation to fund monthly FF&E reserves for the Marriott Hotels through March 31, 2021.

~~Tax Relief~~

The business tax provisions of the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act"), which was signed into law on March 27, 2020, include temporary changes to income and non-income-based tax laws. Some of the key income tax provisions include:

•~~Allowing NOLs generated in 2018, 2019, or 2020, to be carried back five years;~~

•~~Increasing the net interest expense deduction limit to 50% of adjusted taxable income from 30% for the 2019 and 2020 tax years;~~

•Allowing taxpayers with alternative minimum tax credits to claim a refund for the entire amount of the credit instead of recovering the credit through refunds over a period of years, as required by the 2017 Tax Cut and Jobs Act;

•~~Allowing entities to deduct more of their charitable cash contributions made during calendar year 2020 by increasing the taxable income limitation to 25% from 10%; and~~

•Providing for an employee retention tax credit to offset the employer's share of payroll taxes for the period between March 13, 2020 and December 31, 2020. The credit is calculated based on 50% of qualifying wages, capped at the first $10,000 of compensation. We are in the process of preparing and submitting amended payroll tax filings to recoup an anticipated credit of approximately $0.3 million.

~~We anticipate that our TRS Lessees will generate a net operating loss in 2020. As such, we expect a $1.0 million future tax benefit from the NOL carry-back provisions provided in the CARES Act.~~

~~Modification of TRS Leases~~

All of our hotels are leased by either our Operating Partnership, or subsidiary REITs to our TRS Lessees. Economic challenges caused by the COVID-19 pandemic have resulted in the temporary suspension of operations of certain hotels and significantly reduced operations at the hotels that have remained open for business. Many of our TRS Lessees have temporarily suspended their payments of rents and may require lease modifications in the future to reflect the current market conditions and better enable the TRS Lessees to manage their operations and cash flows at reduced levels. The suspension or modification of the rents related to our TRS Lessees has no effect on our consolidated financial position or results of operations. However, it may increase the income of our TRS Lessees on a stand-alone basis.

Health and Well-being

All of our hotels are licensed with national franchise brands and we have worked closely with our brand partners to develop and implement comprehensive protocols for the safety and well-being of employees and ~~guests. The health and safety procedures at our hotels are designed and have been enhanced~~guests to address a broad spectrum of pathogens and viruses, including COVID-19 and ~~include personal hygiene such as frequent and thorough hand-washing,~~variants thereof. We continue to apply advanced cleaning ~~product specifications, availability of disinfecting products for our guests, and guestroom and common area cleaning procedures. Our hotels have increased~~procedures developed during the ~~frequency of cleaning throughout the hotels, with focused attention on high-touch areas such as entrances, public spaces, laundry rooms and staff offices. Additionally, many~~COVID-19 pandemic to all of our ~~hotels have implemented contactless guest check-in and check-out and modified grab-and-go food and beverage offerings.~~hotel properties.

Forward-looking Information and Use of Estimates

The full effects of the COVID-19 pandemic and its variants on our Company will depend on future developments, such as the ultimate duration and scope of the outbreak, its effect on our customers, brands and business partners, the rate at which normal economic conditions, operations, and the demand for lodging resume, and the magnitude of the recessionary conditions in any of our markets. Accordingly, the full effects on our Company cannot be determined at this time; however, despite the uncertainty of the effects of the COVID-19 pandemic, we expect our full year ~~2020~~2021 results of operations to be adversely affected. While the potential magnitude and duration of the business and economic effects of COVID-19 are uncertain, we believe that the nascent ~~and gradual~~ recovery in our business that began ~~in the second half of April~~during 2020 will ~~be sustained~~continue into the ~~fourth quarter of 2020~~year ending December 31, 2021 and operating performance will improve gradually over a multi-year period before reaching prior peak performance levels. We believe that a recovery in business conditions resulting in positive operating cash flows, together with cash on hand, and the current availability under our credit facilities, will provide sufficient liquidity to fund operations for at least the next twelve months. There can be no assurance that the assumptions used to evaluate the carrying amounts of our assets or to estimate our liquidity requirements will be correct. For additional information on the current and potential future effects of the COVID-19 pandemic, please see Item 1A. Risk Factors.

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Our Hotel Property Portfolio

At September 30, ~~2020,~~2021, our portfolio consisted of 7273 hotels with a total of ~~11,288~~11,398 guestrooms. According to current chain scales as defined by STR, Inc., two of our hotel properties with a total of 280 guestrooms are categorized as Upper-upscale hotels, 6061 of our hotel properties with a total of ~~9,537~~9,647 guestrooms are categorized as Upscale hotels and 10 of our hotel properties with a total of 1,471 guestrooms are categorized as Upper-midscale hotels. Information about our hotel properties as of September 30, ~~2020~~2021 is as follows:


Franchise/Brand	Franchise/Brand	Number of Hotel Properties	Number of Guestrooms	Franchise/Brand	Number of Hotel Properties	Number of Guestrooms
Marriott	Marriott			Marriott
Courtyard by Marriott	Courtyard by Marriott	15	2,761	Courtyard by Marriott	15	2,761
Residence Inn by Marriott	Residence Inn by Marriott	11	1,636	Residence Inn by Marriott	12	1,746
SpringHill Suites by Marriott	SpringHill Suites by Marriott	5	761	SpringHill Suites by Marriott	5	761
AC Hotel by Marriott	AC Hotel by Marriott	1	255	AC Hotel by Marriott	1	255
Marriott	Marriott	1	165	Marriott	1	165
Fairfield Inn & Suites by Marriott	Fairfield Inn & Suites by Marriott	1	140	Fairfield Inn & Suites by Marriott	1	140
Four Points by Sheraton	Four Points by Sheraton	1	101	Four Points by Sheraton	1	101
Total Marriott	Total Marriott	35	5,819	Total Marriott	36	5,929
Hilton	Hilton			Hilton
Hilton Garden Inn	Hilton Garden Inn	7	1,067	Hilton Garden Inn	7	1,067
Hampton Inn & Suites	Hampton Inn & Suites	7	986	Hampton Inn & Suites	7	986

Homewood Suites	Homewood Suites	2	251	Homewood Suites	2	251
DoubleTree by Hilton	DoubleTree by Hilton	1	210	DoubleTree by Hilton	1	210
Total Hilton	Total Hilton	17	2,514	Total Hilton	17	2,514
Hyatt	Hyatt			Hyatt
Hyatt Place	Hyatt Place	13	1,908	Hyatt Place	13	1,908
Hyatt House	Hyatt House	3	466	Hyatt House	3	466
Total Hyatt	Total Hyatt	16	2,374	Total Hyatt	16	2,374
IHG	IHG			IHG
Holiday Inn Express & Suites	Holiday Inn Express & Suites	2	345	Holiday Inn Express & Suites	2	345

Staybridge Suites	Staybridge Suites	1	121	Staybridge Suites	1	121
Hotel Indigo	Hotel Indigo	1	115	Hotel Indigo	1	115
Total IHG	Total IHG	4	581	Total IHG	4	581

Total	Total	72	11,288	Total	73	11,398

Hotel Property Portfolio Activity

We continuously consider ways in which to refine our portfolio to drive growth and create value. In the normal course of business, we evaluate opportunities to acquire additional properties that meet our investment criteria and opportunities to recycle capital through the disposition of properties. As such, the composition and size of our portfolio of properties may change materially over time. Significant changes to our portfolio of properties could have a material effect on our Condensed Consolidated Financial Statements.

On July 9, 2021, we acquired the 110-guestroom Residence Inn by Marriott in Steamboat Springs, CO for $33.0 million through our joint venture with GIC.

See “Note 3 - Investment in Hotel Properties, net” to the Condensed Consolidated Financial Statements for additional information concerning our asset acquisitions, development, and dispositions.

Results of Operations

The comparisons that follow should be reviewed in conjunction with the unaudited interim Condensed Consolidated Financial Statements included elsewhere in this Quarterly Report on Form 10-Q.

Comparison of the Three Months Ended September 30, ~~2020~~2021 with the Three Months Ended September 30, ~~2019~~2020

The following table contains key operating metrics for our total portfolio ~~and our same-store portfolio~~ for the three months ended September 30, ~~2020~~2021 compared with the three months ended September 30, ~~2019~~2020 (dollars in thousands, except ADR and RevPAR). ~~We define same-store hotels as properties that we owned as of September 30, 2020 and that we have owned or leased at all times since January 1, 2019.~~


		For the Three Months Ended September 30,												Quarter-over-Quarter				Quarter-over-Quarter					For the Three Months Ended September 30,												Quarter-over-Quarter				Quarter-over-Quarter
		2020						2019						Dollar Change				Percentage Change					2021						2020						Dollar Change				Percentage Change
		Total Portfolio (72 hotels)			Same-Store Portfolio (67 hotels)			Total Portfolio (70 hotels)			Same-Store Portfolio (67 hotels)			Total Portfolio (72/70 hotels)		Same-Store Portfolio (67 hotels)		Total Portfolio (72/70 hotels)		Same-Store Portfolio (67 hotels)			Total Portfolio (73 hotels)			Same-Store Portfolio (72 hotels)			Total Portfolio (73 hotels)			Same-Store Portfolio (72 hotels)			Total Portfolio (73 hotels)		Same-Store Portfolio (72 hotels)		Total Portfolio (73 hotels)		Same-Store Portfolio (72 hotels)
Revenues:	Revenues:																					Revenues:
Room	Room	$	48,636		$	43,590		$	123,112		$	120,581		$	(74,476)	$	(76,991)	(60.5)	%	(63.9)	%	Room	$	102,521		$	101,033		$	48,636		$	48,636		$	53,885	$	52,397	110.8	%	107.7	%
Food and beverage	Food and beverage	628			622			5,411			5,267			(4,783)		(4,645)		(88.4)	%	(88.2)	%	Food and beverage	2,097			2,082			628			628			1,469		1,454		233.9	%	231.5	%
Other	Other	3,148			2,897			5,162			5,095			(2,014)		(2,198)		(39.0)	%	(43.1)	%	Other	6,068			6,037			3,148			3,148			2,920		2,889		92.8	%	91.8	%
Total	Total	$	52,412		$	47,109		$	133,685		$	130,943		$	(81,273)	$	(83,834)	(60.8)	%	(64.0)	%	Total	$	110,686		$	109,152		$	52,412		$	52,412		$	58,274	$	56,740	111.2	%	108.3	%

Expenses:	Expenses:																					Expenses:
Room	Room	$	11,352		$	10,489		$	27,898		$	27,315		$	(16,546)	$	(16,826)	(59.3)	%	(61.6)	%	Room	$	22,186		$	21,927		$	11,352		$	11,352		$	10,834	$	10,575	95.4	%	93.2	%
Food and beverage	Food and beverage	520			519			4,437			4,270			(3,917)		(3,751)		(88.3)	%	(87.8)	%	Food and beverage	1,476			1,461			520			520			956		941		183.8	%	181.0	%
Other hotel operating expenses	Other hotel operating expenses	22,535			20,827			38,969			37,903			(16,434)		(17,076)		(42.2)	%	(45.1)	%	Other hotel operating expenses	34,713			34,302			22,535			22,535			12,178		11,767		54.0	%	52.2	%
Total	Total	$	34,407		$	31,835		$	71,304		$	69,488		$	(36,897)	$	(37,653)	(51.7)	%	(54.2)	%	Total	$	58,375		$	57,690		$	34,407		$	34,407		$	23,968	$	23,283	69.7	%	67.7	%

Operational Statistics:	Operational Statistics:																					Operational Statistics:
Occupancy	Occupancy	45.0		%	44.4		%	80.1		%	80.1		%	n/a		n/a		(43.8)	%	(44.6)	%	Occupancy	68.7		%	68.5		%	45.0		%	45.0		%	n/a		n/a		52.4	%	52.1	%
ADR	ADR	$	103.98		$	101.83		$	155.13		$	156.00		$	(51.15)	$	(54.17)	(33.0)	%	(34.7)	%	ADR	$	142.52		$	142.03		$	103.98		$	103.98		$	38.54	$	38.05	37.1	%	36.6	%
RevPAR	RevPAR	$	46.83		$	45.17		$	124.27		$	124.94		$	(77.44)	$	(79.77)	(62.3)	%	(63.8)	%	RevPAR	$	97.85		$	97.29		$	46.83		$	46.83		$	51.02	$	50.46	108.9	%	107.7	%

Changes from the three months ended September 30, ~~2020~~2021 compared with the three months ended September 30, ~~2019~~2020 were due to the following:

•Revenues. The ~~decline~~increase in ~~total and same-store~~ revenues was ~~primarily~~ due to ~~a significant~~an improvement in our business that has been primarily driven by leisure travel in the third quarter of 2021 as COVID-19 cases began to decline following the administration of vaccines and government restrictions in ~~occupancy as a result of the COVID-19 pandemic.~~many jurisdictions being eased or lifted. See "Industry Trends and Outlook - Effects of COVID-19 Pandemic on Our Business" for further information.

•RevPAR. The ~~declines~~increase in RevPAR ~~were primarily~~was due to ~~a significant decline~~an improvement in ~~occupancy~~our business that has been primarily driven by leisure travel in the third quarter of 2021 as ~~a result~~our business continues to recover from the negative effect of the COVID-19 pandemic. The increase in RevPAR during the current period is due to a 52.4% increase in occupancy and a 37.1% increase in ADR. See ~~"Industry~~"Industry Trends and Outlook - Effects of COVID-19 Pandemic on Our Business" for further information.

•Expenses. WeThe increase in expenses was driven by the increase in occupancy relative to the third quarter of 2020. The occupancy related increases have ~~taken~~been partially offset by comprehensive cost reduction initiatives, including the reduction of labor and temporary elimination of certain services and amenities, at all ~~hotels which led~~hotels. Although revenues have begun to ~~the significant decline in~~improve, we have maintained operating ~~expenses.~~costs at lower levels than pre-pandemic periods.

The following table includes other consolidated income and expenses for the three months ended September 30, ~~2020~~2021 compared with the three months ended September 30, ~~2019~~2020 (dollars in thousands).


		For the Three Months Ended September 30,									For the Three Months Ended September 30,
		2020		2019		Dollar Change		Percentage Change			2021		2020		Dollar Change		Percentage Change
Property taxes, insurance and other	Property taxes, insurance and other	$	11,007	$	10,696	$	311	2.9	%	Property taxes, insurance and other	$	10,679	$	11,007	$	(328)	(3.0)	%
Management fees	Management fees	1,335		3,676		(2,341)		(63.7)	%	Management fees	2,888		1,335		1,553		116.3	%
Depreciation and amortization	Depreciation and amortization	27,503		23,202		4,301		18.5	%	Depreciation and amortization	25,893		27,503		(1,610)		(5.9)	%
Corporate general and administrative	Corporate general and administrative	4,652		5,532		(880)		(15.9)	%	Corporate general and administrative	6,099		4,652		1,447		31.1	%

Gain (loss) on disposal of assets, net		211		(31)		242		780.6	%
Reversal of credit losses										Reversal of credit losses	(2,632)		—		(2,632)		(1)
Loss on impairment and write-off of assets										Loss on impairment and write-off of assets	4,361		—		4,361		(1)
Gain on disposal of assets, net										Gain on disposal of assets, net	—		211		(211)		(1)
Interest expense	Interest expense	10,904		9,450		1,454		15.4	%	Interest expense	10,817		10,904		(87)		(0.8)	%
Other income, net	Other income, net	1,278		1,808		(530)		(29.3)	%	Other income, net	2,250		1,278		972		76.1	%
Income tax benefit		132		24		108		450.0	%
Income tax expense (benefit)										Income tax expense (benefit)	695		(132)		827		(1)

(1)Not meaningful.

Changes from the three months ended September 30, ~~2020~~2021 compared with the three months ended September 30, ~~2019~~2020 were due to the following:

•Property Taxes, Insurance and Other. This ~~increase~~decrease is primarily due to ~~increased insurance premiums related~~a reduction in property taxes due to lower property tax assessments for 2021, which were based on our ~~casualty and general liability policies.~~lower operating performance during 2020 as a result of the negative effects of the COVID-19 pandemic.

•Management Fees. ~~This decrease~~The increase in management fees during the current period is primarily due to ~~reduced~~increased consolidated revenues ~~upon which management fees are based,~~ as our business has experienced a ~~result of~~steady improvement in performance during the ~~COVID-19 pandemic.~~three months ended September 30, 2021.

•Depreciation and Amortization. This ~~increase~~decrease is due to ~~incremental depreciation~~the effect of ~~$3.0 million associated with the hotels acquired in 2019 and an increase in depreciation expense of $1.6 million for the same-store portfolio as a result of renovation completions,~~certain assets becoming fully amortized, partially offset by ~~a decrease in depreciation expense of $0.2 million related to the hotel properties sold after June 30, 2019.~~capital expenditures.

•Corporate General and Administrative. ~~This decline~~The increase in corporate, general and administrative costs during the current period is primarily due to ~~decreases in~~higher incentive and other compensation ~~costs as a result of our comprehensive cost reduction initiatives in response to the COVID-19 pandemic.~~costs.

•~~Gain (Loss) on Disposal~~Reversal of ~~Assets~~credit losses. ~~The gain~~As of September 30, 2021, we reached an agreement with the borrowers of the mezzanine loans on ~~disposal~~two of ~~assets, net~~the remaining real estate development projects for the full repayment of the loans in the fourth quarter of 2021. Accordingly, the Company reversed the $2.6 million allowance for credit losses related to these two loans during the three months ended September 30, 2020 is due to the final true-up of accounts for properties sold in a prior period. The loss on disposal of assets, net for the three months ended September 30, 2019 is due to the write-off of assets as a result of hotel property renovations.

•~~Interest Expense. Interest expense increased as a result of increased borrowings, offset by declines in base interest rates.~~

•~~Other Income. This decrease is primarily due to a decline in interest income recorded on our mezzanine loans as a result of the interest deferrals granted to the mezzanine loan borrowers.~~2021. See "Note 4 - Investment in Real Estate Loans" to the Condensed Consolidated Financial Statements for further information.

•Loss on Impairment and Write-off of Assets. As of September 30, 2021, we reached an agreement with the borrowers of the mezzanine loans on two of the remaining real estate development projects for the full repayment of the loans in the fourth quarter of 2021, which would result in us foregoing the exercise of the purchase options. As such, the Company recorded a Loss on impairment during the three months ended September 30, 2021 to write-off the carrying amounts of the purchase options at September 30, 2021 totaling $4.4 million. See "Note 4 - Investment in Real Estate Loans" to the Condensed Consolidated Financial Statements for further information.

•Interest Expense. Interest expense decreased slightly due to a reduction in our weighted average interest rate, primarily due to the Convertible Notes Offering. This decline was partially offset by an increase in amortization of deferred financing costs, primarily related to the Convertible Notes Offering.

•Other Income, net. This increase is primarily due to the receipt of COVID-19 relief grants from certain jurisdictions in which we operate which were recorded as Other income during the three months ended September 30, 2021.

•Income Tax ~~(Benefit)~~ Expense. The Company recorded a ~~$0.1~~$0.7 million income tax ~~benefit~~expense during the three months ended September 30, 2021 primarily attributable to ~~a net operating loss carryback opportunity allowed under the CARES Act.~~current federal and state income taxes of our TRSs.

4437

Comparison of the Nine Months Ended September 30, ~~2020~~2021 with the Nine Months Ended September 30, ~~2019~~2020

The following table contains key operating metrics for our total portfolio ~~and our same-store portfolio~~ for the nine months ended September 30, ~~2020~~2021 compared with the nine months ended September 30, ~~2019~~2020 (dollars in thousands, except ADR and RevPAR). ~~We define same-store hotels as properties that we owned as of September 30, 2020 and that we have owned or leased at all times since January 1, 2019.~~


		Nine Months Ended September 30,																					For the Nine Months Ended September 30,
		2020						2019						Dollar Change				Percentage Change					2021						2020						Dollar Change				Percentage Change
		Total Portfolio (72 hotels)			Same-Store Portfolio (67 hotels)			Total Portfolio (70 hotels)			Same-Store Portfolio (67 hotels)			Total Portfolio (72/70 hotels)		Same-Store Portfolio (67 hotels)		Total Portfolio (72/70 hotels)		Same-Store Portfolio (67 hotels)			Total Portfolio (73 hotels)			Same-Store Portfolio (72 hotels)			Total Portfolio (73 hotels)			Same-Store Portfolio (72 hotels)			Total Portfolio (73 hotels)		Same-Store Portfolio (72 hotels)		Total Portfolio (73 hotels)		Same-Store Portfolio (72 hotels)
Revenues:	Revenues:																					Revenues:
Room	Room	$	171,067		$	155,750		$	382,868		$	367,836		$	(211,801)	$	(212,086)	(55.3)	%	(57.7)	%	Room	$	235,761		$	234,273		$	171,067		$	171,067		$	64,694	$	63,206	37.8	%	36.9	%
Food and beverage	Food and beverage	5,760			5,453			17,565			17,039			(11,805)		(11,586)		(67.2)	%	(68.0)	%	Food and beverage	4,656			4,641			5,760			5,760			(1,104)		(1,119)		(19.2)	%	(19.4)	%
Other	Other	9,406			8,665			15,134			14,821			(5,728)		(6,156)		(37.8)	%	(41.5)	%	Other	14,647			14,616			9,406			9,406			5,241		5,210		55.7	%	55.4	%
Total	Total	$	186,233		$	169,868		$	415,567		$	399,696		$	(229,334)	$	(229,828)	(55.2)	%	(57.5)	%	Total	$	255,064		$	253,530		$	186,233		$	186,233		$	68,831	$	67,297	37.0	%	36.1	%

Expenses:	Expenses:																					Expenses:
Room	Room	$	42,340		$	39,262		$	84,151		$	80,100		$	(41,811)	$	(40,838)	(49.7)	%	(51.0)	%	Room	$	52,320		$	52,061		$	42,340		$	42,340		$	9,980	$	9,721	23.6	%	23.0	%
Food and beverage	Food and beverage	4,890			4,538			13,596			13,004			(8,706)		(8,466)		(64.0)	%	(65.1)	%	Food and beverage	3,000			2,986			4,890			4,890			(1,890)		(1,904)		(38.7)	%	(38.9)	%
Other hotel operating expenses	Other hotel operating expenses	74,406			68,933			118,317			112,439			(43,911)		(43,506)		(37.1)	%	(38.7)	%	Other hotel operating expenses	88,672			88,260			74,406			74,406			14,266		13,854		19.2	%	18.6	%
Total	Total	$	121,636		$	112,733		$	216,064		$	205,543		$	(94,428)	$	(92,810)	(43.7)	%	(45.2)	%	Total	$	143,992		$	143,307		$	121,636		$	121,636		$	22,356	$	21,671	18.4	%	17.8	%

Operational Statistics:

Occupancy	Occupancy	43.6		%	43.2		%	79.4		%	79.5		%	n/a		n/a		(45.1)	%	(45.7)	%	Occupancy	61.4		%	61.3		%	43.6		%	43.6		%	n/a		n/a		40.9	%	40.7	%
ADR	ADR	$	126.97		$	125.56		$	159.62		$	161.57		$	(32.65)	$	(36.01)	(20.5)	%	(22.3)	%	ADR	$	124.28		$	124.02		$	126.97		$	126.97		$	(2.69)	$	(2.95)	(2.1)	%	(2.3)	%
RevPAR	RevPAR	$	55.31		$	54.19		$	126.70		$	128.45		$	(71.39)	$	(74.26)	(56.3)	%	(57.8)	%	RevPAR	$	76.28		$	76.02		$	55.31		$	55.31		$	20.97	$	20.71	37.9	%	37.4	%

Changes from the nine months ended September 30, ~~2020~~2021 compared with the nine months ended September 30, ~~2019~~2020 were due to the following:

•Revenues. The ~~decline~~increase in ~~total and same-store~~ revenues was ~~primarily~~ due to ~~a significant~~an improvement in our business that has been primarily driven by leisure travel in the first nine months of 2021 as COVID-19 cases began to decline following the administration of vaccines and government restrictions in ~~occupancy as a result of the COVID-19 pandemic.~~many jurisdictions being eased or lifted. See "Industry Trends and Outlook - Effects of COVID-19 Pandemic on Our Business" for further information.

•RevPAR. The ~~declines~~increase in RevPAR ~~were primarily~~was due to ~~a significant~~an improvement in our business that has been primarily driven by leisure travel in the first nine months of 2021 as COVID-19 cases began to decline following the administration of vaccines and government restrictions in ~~occupancy as a result of the COVID-19 pandemic.~~many jurisdictions being eased or lifted. See ~~"Industry~~"Industry Trends and Outlook - Effects of COVID-19 Pandemic on Our Business" for further information.

•Expenses. WeThe increase in expenses was driven by the increase in occupancy relative to the nine months ended September 30, 2020. The occupancy related increases have ~~taken~~been partially offset by comprehensive cost reduction initiatives, including the reduction of labor and temporary elimination of certain services and amenities, at all ~~hotels which led~~hotels. Although revenues have begun to ~~the significant decline in~~improve, we have maintained operating ~~expenses.~~costs at lower levels than pre-pandemic periods.

4538

The following table includes other consolidated income and expenses for the nine months ended September 30, ~~2020~~2021 compared with the nine months ended September 30, ~~2019~~2020 (dollars in thousands).


		For the Nine Months Ended September 30,									For the Nine Months Ended September 30,
		2020		2019		Dollar Change		Percentage Change			2021		2020		Dollar Change		Percentage Change
Property taxes, insurance and other	Property taxes, insurance and other	$	34,171	$	32,799	$	1,372	4.2	%	Property taxes, insurance and other	$	32,573	$	34,171	$	(1,598)	(4.7)	%
Management fees	Management fees	5,051		13,280		(8,229)		(62.0)	%	Management fees	6,757		5,051		1,706		33.8	%
Depreciation and amortization	Depreciation and amortization	82,147		72,517		9,630		13.3	%	Depreciation and amortization	79,776		82,147		(2,371)		(2.9)	%
Corporate general and administrative	Corporate general and administrative	14,635		17,442		(2,807)		(16.1)	%	Corporate general and administrative	18,283		14,635		3,648		24.9	%
Provision for credit losses		2,530		—		2,530		100.0	%
Loss on impairment of assets		782		1,685		(903)		(53.6)	%
Transaction costs										Transaction costs	3,849		—		3,849		(1)
(Reversal of) provision for credit losses										(Reversal of) provision for credit losses	(2,632)		2,530		(5,162)		(1)
Loss on impairment and write-off of assets										Loss on impairment and write-off of assets	4,361		782		3,579		457.7	%
Gain on disposal of assets, net	Gain on disposal of assets, net	176		39,655		(39,479)		(99.6)	%	Gain on disposal of assets, net	81		176		(95)		(54.0)	%
Interest expense	Interest expense	32,665		30,068		2,597		8.6	%	Interest expense	32,567		32,665		(98)		(0.3)	%
Other income, net	Other income, net	4,260		3,255		1,005		30.9	%	Other income, net	7,777		4,260		3,517		82.6	%
Income tax expense	Income tax expense	1,589		1,027		562		54.7	%	Income tax expense	1,075		1,589		(514)		(32.3)	%

(1)Not meaningful.

Changes from the nine months ended September 30, ~~2020~~2021 compared with the nine months ended September 30, ~~2019~~2020 were due to the following:

•Depreciation and Amortization. This ~~increase~~decrease is due to ~~incremental depreciation~~the effect of ~~$9.1 million associated with the hotels acquired in 2019 and an increase in depreciation expense of $2.8 million for the same-store portfolio as a result of renovation completions,~~certain assets becoming fully amortized, offset partially ~~offset~~ by ~~a decrease in depreciation expense of $2.3 million related to the hotel properties sold after December 31, 2018.~~capital expenditures.

•Corporate General and Administrative. This ~~decline~~increase is primarily due to ~~decreases in~~higher incentive and other compensation ~~costs as a result of our comprehensive cost reduction initiatives in response to the COVID-19 pandemic.~~costs.

•~~Provision for Credit Losses~~Transaction Costs. We evaluated our notes receivable for potential credit losses by estimating the fair value of the collateral supporting each note receivable at September 30, 2020 based on assumptions related to the expected future performance of the collateral assets and the resulting anticipated net selling value of the assets at capitalization rates that are common for the asset class. During the nine months ended September 30, ~~2020,~~2021, we ~~recorded a Provision for credit losses~~incurred costs of ~~$2.5~~$2.1 million ~~due~~in transfer taxes and legal fees related to the ~~effects~~contribution of six hotels to our joint venture. GIC, our joint venture partner, paid 49%, or $0.9 million, of the ~~COVID-19 pandemic.~~$1.8 million transfer tax which is reflected in non-controlling interest on our Condensed Consolidated Statement of Operations. We also recorded $1.7 million in transaction costs in pursuit of the acquisition of a company with a portfolio of hotel properties that ultimately was not consummated.

•~~Loss on Impairment~~(Reversal of) provision for credit losses. As of ~~Assets.~~ ~~Due to~~September 30, 2021, we reached an agreement with the ~~adverse effects~~borrowers of the ~~COVID-19 pandemic, we evaluated our purchase options~~mezzanine loans on two of the remaining real estate development projects for ~~impairment~~the full repayment of the loans in the fourth quarter of 2021. Accordingly, the Company reversed the $2.6 million allowance for credit losses related to these two loans during the nine months ended September 30, ~~2020. On the basis of our impairment evaluation, we recorded a Loss on impairment of assets of $0.8 million related to one of our purchase options. See~~ ~~"Note 9 - Fair Value Measurement"~~ to the Condensed Consolidated Financial Statements for further information. During the nine months ended September 30, 2019, the Company recorded an impairment charge of $1.7 million for the Hyatt Place - Chicago/Hoffman Estates to reduce the net carrying amount of the property to its estimated net fair market value of $5.9 million.

•~~Gain on Disposal of Assets.~~ ~~This decrease is primarily due to the sale of eight hotels in the nine months ended September 30, 2019 for a net gain of $40.8 million.~~

•~~Interest Expense. Interest expense increased as a result of increased borrowings, offset by declines in base interest rates.~~

•~~Other Income~~. This increase is primarily due to a decline in debt transaction costs of $1.5 million. This increase was partially offset by an increase in net casualty expense of $0.3 million and a reduction in interest income of $0.2 million. The decline in interest income was primarily due to the interest deferrals granted to the mezzanine loan borrowers.2021. See "Note 4 - Investment in Real Estate Loans" to the Condensed Consolidated Financial Statements for further information.

•Loss on Impairment and Write-off of Assets. As of September 30, 2021, we reached an agreement with the borrowers of the mezzanine loans on two of the remaining real estate development projects for the full repayment of the loans in the fourth quarter of 2021, which would result in us foregoing the exercise of the purchase options. As such, the Company recorded a Loss on impairment during the nine months ended September 30, 2021 to write-off the carrying amounts of the purchase options at September 30, 2021 totaling $4.4 million. See "Note 4 - Investment in Real Estate Loans" to the Condensed Consolidated Financial Statements for further information.

•Gain on Disposal of Assets. The gain on disposal of assets, net for the nine months ended September 30, 2021 is due to the receipt of a legal settlement related to properties sold in a prior period and the sale of shuttle vans at certain of our hotel properties.

•Interest Expense. Interest expense decreased as a result of a reduction in our weighted average interest rate, primarily due to the Convertible Notes Offering. This decline was offset by an increase in amortization of deferred financing costs, primarily related to the Convertible Notes Offering.

•Other Income, net. This increase is primarily due to the interest income recorded on our mezzanine loans as a result of the interest payments made in connection with the loan amendments completed during the nine months ended September 30, 2021. See "Note 4 - Investment in Real Estate Loans" to the Condensed Consolidated Financial Statements for further information. The Company also received COVID-19 relief grants from certain jurisdictions in which we operate which were recorded as Other income during the nine months ended September 30, 2021.

•Income Tax Expense. The Company recorded a $1.1 million income tax expense during the nine months ended September 30, 2021 primarily attributable to current federal and state income taxes of our TRSs. The $1.6 million income tax expense ~~includes~~recorded in the nine months ended September 30, 2020 included a $2.1 million discrete non-cash deferred income tax related to the establishment of valuation allowances against our TRS ~~Lessees’~~Lessees' deferred tax ~~assets recorded during the quarter ended March 31, 2020, offset by an income tax benefit attributable to a net operating loss carryback opportunity allowed under the CARES Act.~~assets.

Non-GAAP Financial Measures

We disclose certain “non-GAAP financial measures,” which are measures of our historical financial performance. Non-GAAP financial measures are financial measures not prescribed by Generally Accepted Accounting Principles ("GAAP"). These measures are as follows: (i) Funds From Operations (“FFO”) and Adjusted Funds from Operations ("AFFO"), (ii) Earnings before Interest, Taxes, Depreciation and Amortization ("EBITDA"), Earnings before Interest, Taxes, Depreciation and Amortization for Real Estate ("EBITDAre") and Adjusted EBITDAre (as described below). We caution investors that amounts presented in accordance with our definitions of non-GAAP financial measures may not be comparable to similar measures disclosed by other companies, since not all companies calculate these non-GAAP financial measures in the same manner. Our non-GAAP financial measures should be considered along with, but not as alternatives to, net income (loss) as a measure of our operating performance. Our non-GAAP financial measures may include funds that may not be available for our discretionary use due to functional requirements to conserve funds for capital expenditures, property acquisitions, debt service obligations and other commitments and uncertainties. Although we believe that our non-GAAP financial measures can enhance the understanding of our financial condition and results of operations, these non-GAAP financial measures are not necessarily better indicators of any trend as compared to a comparable measure prescribed by GAAP such as net income (loss).

FFO and AFFO

As defined by Nareit, FFO represents net income or loss (computed in accordance with GAAP), excluding preferred dividends, gains (or losses) from sales of real property, impairment losses on real estate assets, items classified by GAAP as extraordinary, the cumulative effect of changes in accounting principles, plus depreciation and amortization related to real estate assets, and adjustments for unconsolidated partnerships, and joint ventures. AFFO represents FFO excluding amortization of deferred financing costs, franchise fees, equity-based compensation expense, debt transaction costs, premiums on redemption of preferred shares, losses from net casualties, non-cash lease expense, non-cash interest income and non-cash income tax related adjustments to our deferred tax assets. Unless otherwise indicated, we present FFO and AFFO applicable to our common shares and common units. We present FFO and AFFO because we consider FFO and AFFO important supplemental measures of our operational performance and believe they are frequently used by securities analysts, investors and other interested parties in the evaluation of REITs, many of which present FFO and AFFO when reporting their results. FFO and AFFO are intended to exclude GAAP historical cost depreciation and amortization, which assumes that the value of real estate assets diminishes ratably over time. Historically, however, real estate values have risen or fallen with market conditions. Because FFO and AFFO exclude depreciation and amortization related to real estate assets, gains and losses from real property dispositions and impairment losses on real estate assets, FFO and AFFO provide performance measures that, when compared year over year, reflect the effect to operations from trends in occupancy, guestroom rates, operating costs, development activities and interest costs, providing perspective not immediately apparent from net income. Our computation of FFO differs slightly from the computation of Nareit-defined FFO related to the reporting of corporate depreciation and amortization ~~expense.~~expense, and adjustments related to provision for credit losses. Our computation of FFO may also differ from the methodology for calculating FFO used by other equity REITs and, accordingly, may not be comparable to such other REITs. FFO and AFFO should not be considered as alternatives to net income (loss) (computed in accordance with GAAP) as an indicator of our liquidity, nor are they indicative of funds available to fund our cash needs, including our ability to pay dividends or make distributions. Where indicated in this Quarterly Report on Form 10-Q, FFO is based on our computation of FFO and not the computation of Nareit-defined FFO unless otherwise noted.

4740

The following is a reconciliation of our GAAP net ~~income~~loss to FFO and AFFO for the three and nine months ended September 30, ~~2020~~2021 and ~~2019~~2020 (in thousands, except per share/unit amounts):


		For the Three Months Ended September 30,				For the Nine Months Ended September 30,					For the Three Months Ended September 30,				For the Nine Months Ended September 30,
		2020		2019		2020		2019			2021		2020		2021		2020
Net (loss) income		$	(35,775)	$	11,626	$	(104,537)	$	73,595
Net loss										Net loss	$	(4,239)	$	(35,775)	$	(57,679)	$	(104,537)
Preferred dividends	Preferred dividends	(3,710)		(3,710)		(11,128)		(11,128)		Preferred dividends	(3,750)		(3,710)		(11,168)		(11,128)

Loss (income) related to non-controlling interests in joint venture		1,159		(77)		4,049		(77)
Net (loss) income applicable to common shares and common units		(38,326)		7,839		(111,616)		62,390
Premium on redemption of preferred stock										Premium on redemption of preferred stock	(2,710)		—		(2,710)		—
(Income) loss related to non-controlling interests in joint venture										(Income) loss related to non-controlling interests in joint venture	(275)		1,159		3,020		4,049
Net loss applicable to common shares and common units										Net loss applicable to common shares and common units	(10,974)		(38,326)		(68,537)		(111,616)
Real estate-related depreciation	Real estate-related depreciation	27,388		23,098		81,802		72,200		Real estate-related depreciation	25,773		27,388		79,421		81,802
Loss on impairment of assets		—		—		782		1,685
(Gain) loss on disposal of assets, net		(211)		31		(176)		(39,655)
Provision for credit losses		—		—		2,530		—
Loss on impairment and write-off of assets										Loss on impairment and write-off of assets	4,361		—		4,361		782
Gain on disposal of assets, net										Gain on disposal of assets, net	—		(211)		(81)		(176)
Adjustments related to non-controlling interests in consolidated joint venture	Adjustments related to non-controlling interests in consolidated joint venture	(1,493)		(65)		(4,439)		(65)		Adjustments related to non-controlling interests in consolidated joint venture	(2,319)		(1,493)		(6,004)		(4,439)
FFO applicable to common shares and common units	FFO applicable to common shares and common units	(12,642)		30,903		(31,117)		96,555		FFO applicable to common shares and common units	16,841		(12,642)		9,160		(33,647)
(Reversal of) provision for credit losses (1)										(Reversal of) provision for credit losses (1)	(2,632)		—		(2,632)		2,530
Amortization of lease-related intangible assets, net	Amortization of lease-related intangible assets, net	22		34		65		105		Amortization of lease-related intangible assets, net	22		22		65		65
Amortization of deferred financing costs	Amortization of deferred financing costs	643		327		1,655		1,041		Amortization of deferred financing costs	1,115		643		3,239		1,655
Amortization of franchise fees	Amortization of franchise fees	115		104		345		317		Amortization of franchise fees	120		115		355		345
Equity-based compensation	Equity-based compensation	1,517		1,450		4,958		4,766		Equity-based compensation	1,892		1,517		5,861		4,958

Transaction costs										Transaction costs	—		—		3,849		—
Debt transaction costs	Debt transaction costs	65		12		336		1,847		Debt transaction costs	17		65		160		336

Premium on redemption of preferred stock										Premium on redemption of preferred stock	2,710		—		2,710		—
Non-cash interest income	Non-cash interest income	(757)		(694)		(2,297)		(1,713)		Non-cash interest income	(262)		(757)		(779)		(2,297)
Non-cash lease expense, net	Non-cash lease expense, net	101		104		275		383		Non-cash lease expense, net	131		101		388		275
Casualty losses, net	Casualty losses, net	117		231		407		82		Casualty losses, net	627		117		781		407
Increase in deferred tax asset valuation allowance	Increase in deferred tax asset valuation allowance	—		—		2,058		—		Increase in deferred tax asset valuation allowance	—		—		—		2,058
Adjustments related to non-controlling interests in consolidated joint venture	Adjustments related to non-controlling interests in consolidated joint venture	(78)		(1)		(235)		(1)		Adjustments related to non-controlling interests in consolidated joint venture	(97)		(78)		(1,176)		(235)
Severance payments	Severance payments	91		—		91		—		Severance payments	—		91		—		91
AFFO applicable to common shares and common units	AFFO applicable to common shares and common units	$	(10,806)	$	32,470	$	(23,459)	$	103,382	AFFO applicable to common shares and common units	$	20,484	$	(10,806)	$	21,981	$	(23,459)
Weighted average diluted common shares/common units (1)		104,375		104,310		104,302		104,318
FFO per common share/common unit	FFO per common share/common unit	$	(0.12)	$	0.30	$	(0.30)	$	0.93	FFO per common share/common unit	$	0.16	$	(0.12)	$	0.09	$	(0.32)
AFFO per common share/common unit		$	(0.10)	$	0.31	$	(0.22)	$	0.99
AFFO per common share/common unit (2)										AFFO per common share/common unit (2)	$	0.19	$	(0.10)	$	0.21	$	(0.22)
Weighted average diluted common shares/common units:										Weighted average diluted common shares/common units:
FFO and AFFO (3) (4)										FFO and AFFO (3) (4)	105,265		104,375		105,282		104,302

(1)The adjustment for Provision for credit losses has been reclassified from the calculation of FFO applicable to common shares and common units to the calculation of AFFO applicable to common shares and common units for the nine months ended September 30, 2020 to conform to the current period presentation.

(2)AFFO for the three and nine months ended September 30, 2021 has not been adjusted for interest related to our Convertible Notes for purposes of calculating AFFO per common share/common unit because we intend to settle the principal portion of the Convertible Notes in cash and we did not include in the denominator of our calculation of AFFO per common share/common unit the potential dilutive effect of shares that would be issued if the principal portion of the Convertible Notes were converted into shares of our common stock.

(3)Includes common units in the Operating Partnership held by limited partners (other than us and our subsidiaries) because the common units are redeemable for cash or, at our election, shares of our common stock.

(4)The weighted average diluted common shares/common units used to calculate FFO and AFFO per common share/common unit for the three and nine months ended September 30, 2021 includes the dilutive effect of our outstanding restricted stock awards. These shares were excluded from our weighted average shares outstanding used to calculate net loss per share because they would have been antidilutive. The weighted average common shares/common units used to calculate FFO and AFFO per common share/common unit for the three and nine months ended September 30, 2021 exclude the potential dilution related to our Convertible Notes as we intend to settle the principal value of the Convertible Notes in cash.

A reconciliation of weighted average diluted common shares to non-GAAP weighted average diluted common shares/common units for FFO and AFFO is as follows (in thousands):


	For the Three Months Ended September 30,		For the Nine Months Ended September 30,
	2021	2020	2021	2020
Weighted average dilutive common shares outstanding	104,548	104,200	104,441	104,117
Dilutive effect of restricted stock awards	425	48	410	33
Dilutive effect of shares issuable upon conversion of convertible debt	23,978	—	23,012	—
Adjusted weighted dilutive common shares outstanding	128,951	104,248	127,863	104,150

Non-GAAP adjustment for dilutive effects of common units	133	175	151	185
Non-GAAP adjustment for dilutive effects of restricted stock awards	159	(48)	280	(33)
Non-GAAP adjustment for dilutive effect of shares issuable upon conversion of convertible debt	(23,978)	—	(23,012)	—
Non-GAAP weighted dilutive common shares/common units outstanding	105,265	104,375	105,282	104,302

AFFO applicable to common shares and common units ~~decreased $43.3~~increased $31.3 million ~~or 133.3%,~~ for the three months ended September 30, ~~2020~~2021 compared to the same period of ~~2019~~2020 and ~~$126.8~~$45.4 million ~~or 122.7%,~~ for the nine months ended September 30, ~~2020~~2021 compared to the same period of ~~2019~~2020. These increases were due to ~~a significant decline~~an improvement in ~~occupancy~~our business that has been primarily driven by leisure travel in the first nine months of 2021 as ~~a result~~our business continues to recover from the negative effect of the COVID-19 pandemic. See "Industry Trends and Outlook - Effects of COVID-19 Pandemic on Our Business" for further information.

EBITDA, EBITDAre and Adjusted EBITDAre

EBITDA

EBITDA represents net income or loss, excluding: (i) interest, (ii) income tax expense and (iii) depreciation and amortization. We believe EBITDA is useful to an investor in evaluating our operating performance because it provides investors with an indication of our ability to incur and service debt, to satisfy general operating expenses, to make capital expenditures and to fund other cash needs or reinvest cash into our business. We also believe it helps investors meaningfully evaluate and compare the results of our operations from period to period by removing the effect of our asset base (primarily depreciation and amortization) from our operating results. Our management team also uses EBITDA as one measure in determining the value of acquisitions and dispositions.

EBITDAre and Adjusted EBITDAre

EBITDAre is based on EBITDA and is expected to provide additional relevant information about REITs as real estate companies in support of growing interest among generalist investors. EBITDAre is intended to be a supplemental non-GAAP performance measure that is independent of a company’s capital structure and will provide a uniform basis to measure the enterprise value of a company compared to other REITs.

EBITDAre, as defined by Nareit, is calculated as EBITDA, excluding: (i) loss and gains on disposition of property and (ii) asset impairments, if any. We believe EBITDAre is useful to an investor in evaluating our operating performance because it provides investors with an indication of our ability to incur and service debt, to satisfy general operating expenses, to make capital expenditures and to fund other cash needs or reinvest cash into our business. We also believe it helps investors meaningfully evaluate and compare the results of our operations from period to period by removing the effect of our asset base (primarily depreciation and amortization) from our operating results.

We make additional adjustments to EBITDAre when evaluating our performance, such as adjustments related to the provision for credit losses, because we believe that the exclusion of certain additional non-recurring or certain non-cash items described below provides useful supplemental information to investors regarding our ongoing operating performance. We believe that the presentation of Adjusted EBITDAre, when combined with the primary GAAP presentation of net income, is useful to an investor in evaluating our operating performance because it provides investors with an indication of our ability to incur and service debt, to satisfy general operating expenses, to make capital expenditures and to fund other cash needs or reinvest cash into our business. We also believe it helps investors meaningfully evaluate and compare the results of our operations from period to period by removing the effect of our asset base (primarily depreciation and amortization) from our operating results.

4942

The following is a reconciliation of our GAAP net ~~income~~loss to EBITDA, EBITDAre and Adjusted EBITDAre for the three and nine months ended September 30, ~~2020~~2021 and ~~2019~~2020 (in thousands):


		For the Three Months Ended September 30,				For the Nine Months Ended September 30,					For the Three Months Ended September 30,				For the Nine Months Ended September 30,
		2020		2019		2020		2019			2021		2020		2021		2020
Net (loss) income		$	(35,775)	$	11,626	$	(104,537)	$	73,595
Net loss										Net loss	$	(4,239)	$	(35,775)	$	(57,679)	$	(104,537)
Depreciation and amortization	Depreciation and amortization	27,503		23,202		82,147		72,517		Depreciation and amortization	25,893		27,503		79,776		82,147
Interest expense	Interest expense	10,904		9,450		32,665		30,068		Interest expense	10,817		10,904		32,567		32,665
Interest income	Interest income	(31)		(78)		(141)		(218)		Interest income	(4)		(31)		(6)		(141)
Income tax (benefit) expense		(132)		(24)		1,589		1,027
Income tax expense (benefit)										Income tax expense (benefit)	695		(132)		1,075		1,589
EBITDA	EBITDA	2,469		44,176		11,723		176,989		EBITDA	33,162		2,469		55,733		11,723
Loss on impairment of assets		—		—		782		1,685
Provision for credit losses		—		—		2,530		—
(Gain) loss on disposal of assets, net		(211)		31		(176)		(39,655)
Loss on impairment and write-off of assets										Loss on impairment and write-off of assets	4,361		—		4,361		782
Gain on disposal of assets, net										Gain on disposal of assets, net	—		(211)		(81)		(176)
EBITDAre	EBITDAre	2,258		44,207		14,859		139,019		EBITDAre	37,523		2,258		60,013		12,329
(Reversal of) provision for credit losses (1)										(Reversal of) provision for credit losses (1)	(2,632)		—		(2,632)		2,530
Amortization of lease-related intangible assets, net	Amortization of lease-related intangible assets, net	22		34		65		105		Amortization of lease-related intangible assets, net	22		22		65		65
Equity-based compensation	Equity-based compensation	1,517		1,450		4,958		4,766		Equity-based compensation	1,892		1,517		5,861		4,958

Transaction costs										Transaction costs	—		—		3,849		—
Debt transaction costs	Debt transaction costs	65		12		336		1,847		Debt transaction costs	17		65		160		336
Non-cash interest income	Non-cash interest income	(757)		(694)		(2,297)		(1,713)		Non-cash interest income	(262)		(757)		(779)		(2,297)
Non-cash lease expense, net	Non-cash lease expense, net	101		104		275		383		Non-cash lease expense, net	131		101		388		275
Casualty losses, net	Casualty losses, net	117		231		407		82		Casualty losses, net	627		117		781		407
Loss (income) related to non-controlling interests in joint venture		1,159		(77)		4,049		(77)
(Income) loss related to non-controlling interests in joint venture										(Income) loss related to non-controlling interests in joint venture	(275)		1,159		3,020		4,049
Adjustments related to non-controlling interests in consolidated joint venture	Adjustments related to non-controlling interests in consolidated joint venture	(2,034)		(66)		(6,245)		(66)		Adjustments related to non-controlling interests in consolidated joint venture	(3,019)		(2,034)		(8,744)		(6,245)
Severance payments	Severance payments	91		—		91		—		Severance payments	—		91		—		91
Adjusted EBITDAre	Adjusted EBITDAre	$	2,539	$	45,201	$	16,498	$	144,346	Adjusted EBITDAre	$	34,024	$	2,539	$	61,982	$	16,498

(1)The adjustment for Provision for credit losses has been reclassified from the calculation of EBITDAre to the calculation of Adjusted EBITDAre for the nine months ended September 30, 2020 to conform to the current period presentation.

Adjusted EBITDAre ~~decreased $42.7~~increased $31.5 million ~~or 94.4%,~~ for the three months ended September 30, ~~2020~~2021 compared to the same period of ~~2019~~2020 and ~~$127.8~~$45.5 million ~~or 88.6%,~~ for the nine months ended September 30, ~~2020~~2021 compared to the same period of ~~2019~~2020. These increases were due to ~~a significant~~an improvement in our business that has been primarily driven by leisure travel in the first nine months of 2021 as COVID-19 cases began to decline following the administration of vaccines and government restrictions in ~~occupancy as a result of the COVID-19 pandemic.~~many jurisdictions being eased or lifted. See "Industry Trends and Outlook - Effects of COVID-19 Pandemic on Our Business" for further information.

5043

Liquidity and Capital Resources

The effects of the COVID-19 pandemic have adversely affected our financial position and cash flows from operations. During the nine months ended September 30, 2020, we borrowed a net amount of $50.0 million on our $400 Million Revolver as a precautionary measure. Additionally, during the nine months ended September 30, 2020 we amended our loan agreements to provide additional borrowing capacity of $150.0 million. The COVID-19 pandemic has also significantly increased economic uncertainty and has led to disruption and volatility in the global capital ~~markets,~~markets. In addition, we have entered into modifications of our 2018 Senior Credit Facility, which ~~could increase the cost of and limit accessibility to capital. As such,~~restricts our ability to ~~raise capital through public or private offerings of our equity securities may~~use advances on the $400 Million Revolver for certain purposes, however, we continue to be ~~limited until capital markets recover toward pre-pandemic levels.~~able to access the $400 Million Revolver to fund operations, in addition to other items. Additionally, certain factors may have an adverse effect on our ability to access certain capital sources, including our financial performance, degree of leverage, the value of our unencumbered hotel properties, borrowing restrictions imposed by lenders, volatility in the equity and debt capital markets and other market conditions. Financing may not be available to us, or on terms that are attractive to us.

Our short-term liquidity requirements consist primarily of operating expenses and other expenditures directly associated with our hotel properties, recurring maintenance and capital expenditures necessary to maintain our hotel properties in accordance with internal and brand standards, capital expenditures to improve our hotel properties, hotel development costs, acquisitions, interest payments, settlement of interest rate swaps, scheduled principal payments on outstanding indebtedness, restricted cash funding obligations, mezzanine loan funding commitments, joint venture acquisitions and capital requirements, corporate overhead, and distributions to our stockholders when declared. Our long-term liquidity requirements consist primarily of the costs of acquiring additional hotel properties, renovations and other non-recurring capital expenditures that periodically are made with respect to our hotel properties, dividend distributions, and scheduled debt payments, including maturing loans.

To satisfy the requirements for qualification as a REIT, we must meet a number of organizational and operational requirements, including a requirement that we distribute annually at least 90% of our REIT taxable income to our stockholders, determined without regard to the deduction for dividends paid and excluding any net capital gains. We intend to distribute a sufficient amount of our taxable income to maintain our status as a REIT and to avoid tax on undistributed income. Because we anticipate distributing a substantial amount of our available cash from operations, if sufficient funds are not available to us from hotel dispositions, our senior revolving credit and term loan facilities and other loans, we may need to raise additional capital to grow our business.

~~We have provided mezzanine loans on four real estate development projects~~On January 7, 2021, we entered into an underwriting agreement pursuant to ~~fund up~~which the Company agreed to anoffer and sell $287.5 million aggregate ~~of $58.4 million for the development of four hotel properties. Three~~principal amount of the ~~real estate development loans,~~Company’s 1.50% convertible senior notes due 2026 (the “Convertible Notes"). The net proceeds from the Convertible Notes Offering, after deducting underwriting discounts and commissions and estimated offering expenses payable by the Company (including net proceeds from the full exercise by the underwriters of their over-allotment option to purchase additional Convertible Notes), were approximately $280.0 million before consideration of the Capped Call Transactions. These proceeds were used to pay the cost of the Capped Call Transactions and to partially repay outstanding obligations under the 2018 Senior Credit Facility and 2017 Term Loan.

The effective strike price of the Capped Call Transactions is initially $15.26, which ~~closed~~represents a premium of 75.0% over the last reported sale price of the common stock on the New York Stock Exchange on January 7, 2021, and is subject to certain adjustments under the terms of the Capped Call transactions. See “Note 5 – Debt,” for additional information concerning the Convertible Notes, Convertible Notes Offering and the Capped Call Transactions.

On May 1, 2021, the Company contributed a portfolio of six hotels containing 846 guestrooms to our consolidated joint venture with an affiliate of GIC, Singapore’s sovereign wealth fund. The estimated market value of the portfolio of hotel properties was $172.0 million and GIC contributed $84.3 million in cash for its 49% interest in the ~~fourth quarter of 2017, are fully funded. Each has a stated interest rate of 8.0% and an initial term of approximately three years. One~~joint venture after the completion of the ~~real estate development loans, which closed in~~transfer of the ~~third quarter of 2019, has $14.0 million funded as of September 30, 2020, and has a stated interest rate of 9.0% and an initial term of 30 months. As of September 30, 2020, we have funded $43.6~~six hotels. Net proceeds from the transaction were used to repay $62.5 million of our ~~loan commitments.~~senior debt and $20.9 million was recorded as Cash and cash equivalents.

~~We evaluated~~On July 9, 2021, we acquired the 110-guestroom Residence Inn by Marriott in Steamboat Springs, CO for $33.0 million through our notes receivable for potential credit losses by estimating the fair value of the collateral supporting each note receivable at September 30, 2020 based on assumptions related to the expected future performance of the collateral assets and the resulting anticipated net selling value of the assets at capitalization rates that are common for the asset class. Our current estimate of credit losses of $2.6 million as a result of the COVID-19 pandemic is recorded as an allowance for credit losses at September 30, 2020.joint venture with GIC.

~~We expect~~On August 12, 2021, the Company completed the offering of 4,000,000 Series F preferred shares for net proceeds of $96.6 million, after the underwriting discount and offering-related expenses of $3.4 million.

On September 4, 2021, the Company paid $75.0 million to ~~be able~~redeem all 3,000,000 of its outstanding 6.45% Series D Cumulative Redeemable Preferred Stock at a redemption price of $25 per share plus accrued and unpaid dividends.

The remaining net proceeds from the Series F preferred share offering was used to ~~meet~~repay $22.0 million of our liquidity requirements and other cash obligations from our cash and cash equivalents on hand at September 30, 2020 totaling $39.1 million and our additional borrowing capacity of $225.0 million under our 2018 Unsecured Credit Facility.senior debt.

5144

Outstanding Indebtedness

Subsequent to quarter-end, at at October ~~23, 2020,~~22, 2021, we had ~~loans of $345.0~~$200.0 million outstanding ~~under our 2018 Unsecured Credit Facility, which included borrowings of $200.0 million~~ on our $200 Million Term Loan, ~~and $145.0 million on our $400 Million Revolver. Additionally, we had $225.0~~$62.0 million outstanding on our 2017 Term Loan and $225.0 million outstanding on our 2018 Term Loan. Each of the credit facilities was supported by the 5246 hotel properties included in the credit facility borrowing ~~base.~~base and a pledge of the equity securities in each of the entities which own one of the 46 hotel properties, and the respective TRS Lessees. We also had $287.5 million of Convertible Notes outstanding.

Subsequent to quarter-end, at October ~~23, 2020,~~22, 2021, our subsidiary joint venture had ~~$141.5~~$143.5 million outstanding under our Joint Venture Credit Facility, which included borrowings of $75.0 million on its $75 million term loan and ~~$66.5~~$68.5 million on its $125 million revolving line of credit. The Joint Venture Credit Facility ~~was supported~~is secured primarily by a first priority pledge of the Borrower's equity interests in the subsidiaries that hold the five hotel borrowing base assets, and the related TRS entities, which wholly own the TRS lessees that lease each of the borrowing base assets. As of October 22, 2021, our subsidiary joint venture also owns seven hotel properties inthat are not collateral for the joint ~~venture.~~venture's senior unsecured credit facility (See Note 5 – Debt).

At September 30, ~~2020,~~2021, we have scheduled debt principal amortization payments during the next twelve months totaling ~~$3.9~~$4.0 million and no debt maturities. Currently, we have the capacity to pay these scheduled principal debt payments using cash on hand or draws under our $400 Million Revolver.

We intend to use our cash and cash equivalents of $39.1 million at September 30, 2020, our $225.0 million borrowing capacity under our 2018 Unsecured Credit Facility, utilize our Joint Venture Credit Facility, secure or assume term loan financing, or obtain new financing to fund cash requirements. We may not succeed in obtaining new financing on favorable terms, or at all, and we cannot predict the size or terms of future financings. Our failure to obtain new financing could adversely affect our ability to grow our business.

We have obtained financing through debt instruments having staggered maturities and intend to continue to do so in the future. Our debt includes, and may include in the future, debt secured by stock pledges, debt secured by first priority mortgage liens on certain hotel properties and unsecured debt. We believe that we will have adequate liquidity to meet the requirements for scheduled maturities and principal repayments. However, we can provide no assurance that we will be able to refinance our indebtedness as it becomes due and, if refinanced, whether such refinancing will be available on favorable terms.

Our outstanding indebtedness requires us to comply with various financial and other covenants. At September 30, ~~2020, no defaults existed under any~~2021, we are in compliance with all of the Company's loan agreements. On ~~May 7, 2020,~~February 5, 2021, the Company entered into certain amendments of the 2018 ~~Unsecured~~Senior Credit Facility, the 2018 Term Loan and the 2017 Term Loan that give us full access to ~~additional borrowing capacity of $150.0 million,~~the $400 Million Revolver (subject to certain conditions), provide for financial covenant waivers through March 31, ~~2021,~~2022, and modify certain financial covenant measures ~~for the final three quarters of 2021.~~through December 31, 2023.

Additionally, on ~~June 18, 2020,~~April 29, 2021, we amended the Joint Venture Credit Facility to provide for ~~a financial covenant waiver through March 31, 2021, to modify~~ certain financial covenant ~~measures through June 30, 2022,~~waivers and adjustments as described in “Note 5 – Debt” to ~~access additional availability for operating expense deficits and various capital expenditures.~~the Condensed Consolidated Financial Statements.

Certain mortgage agreements are subject to various maintenance covenants requiring the Company to maintain a minimum debt yield or debt service coverage ratio ("DSCR"). Failure to meet the debt yield or DSCR thresholds is not an event of default, but instead triggers a cash trap event. During a cash trap event, the lender or servicer of the mortgage loan controls cash outflows until the loan is covenant compliant. Certain cash trap events have been triggered, but thereThere are currently no defaults under any of the Company's mortgage loan agreements.

See "Note 5 - Debt" to the Condensed Consolidated Financial Statements for additional information concerning the loan amendments and our financing arrangements.

5245

A summary of our gross debt at September 30, ~~2020~~2021 is as follows (dollars in thousands):

Lender

Interest Rate

Amortization
Period (Years)

Maturity Date

Number of
Encumbered Properties

Principal Amount
Outstanding

Lender

Interest Rate

Amortization
Period (Years)

Maturity Date

Number of
Encumbered Properties

Principal Amount
Outstanding

$600 Million Senior Unsecured Credit and Term Loan Facility (1)

2018 Senior Credit Facility (1)

Deutsche Bank AG New York Branch

$400 Million Revolver

2.40% Variable

n/a

March 31, 2023

n/a

145,000

$400 Million Revolver

2.65% Variable

n/a

March 31, 2023

n/a

—

$200 Million Term Loan

2.35% Variable

n/a

April 1, 2024

n/a

200,000

$200 Million Term Loan

2.60% Variable

n/a

April 1, 2024

n/a

200,000

Total Senior Unsecured Credit Facility

345,000

Total Senior Credit and Term Loan Facility

200,000

Joint Venture Credit Facility (2)

Bank of America, N.A.

$125 Million Revolver

2.40% Variable

n/a

October 8, 2023

n/a

66,500

$125 Million Revolver

2.55% Variable

n/a

October 8, 2023

n/a

68,500

$75 Million Term Loan

2.35% Variable

n/a

October 8, 2023

n/a

75,000

$75 Million Term Loan

2.50% Variable

n/a

October 8, 2023

n/a

75,000

Total Joint Venture Credit Facility

141,500

Total Joint Venture Credit Facility

143,500

Unsecured Term Loans (1)

Term Loans (1)

KeyBank National Association

Term Loan

2.45% Variable

n/a

November 25, 2022

n/a

225,000

Term Loan

2.70% Variable

n/a

November 25, 2022

n/a

62,000

KeyBank National Association

Term Loan

2.15% Variable

n/a

February 14, 2025

n/a

225,000

Term Loan

2.40% Variable

n/a

February 14, 2025

n/a

225,000

Convertible Notes

1.50% Fixed

n/a

February 15, 2026

n/a

287,500

Secured Mortgage Indebtedness

MetaBank

4.44% Fixed

July 1, 2027

46,441

MetaBank

4.44% Fixed

July 1, 2027

45,352

KeyBank National Association

4.46% Fixed

February 1, 2023

19,160

KeyBank National Association

4.46% Fixed

February 1, 2023

18,671

4.52% Fixed

April 1, 2023

19,641

4.52% Fixed

April 1, 2023

19,151

4.30% Fixed

April 1, 2023

18,973

4.30% Fixed

April 1, 2023

18,484

4.95% Fixed

August 1, 2023

34,140

4.95% Fixed

August 1, 2023

33,358

Bank of the Cascades

2.15% Variable

December 19, 2024

(3)

8,291

Bank of the Cascades

2.08% Variable

December 19, 2024

(3)

8,024

4.30% Fixed

December 19, 2024

—

(3)

8,291

4.30% Fixed

December 19, 2024

—

(3)

8,024

Total Mortgage Loans

154,937

Total Mortgage Loans

151,064

Total Debt

1,091,437

Total Debt

1,069,064

(1)The ~~$600 Million~~2018 Senior ~~Secured~~ Credit ~~and Term Loan~~ Facility and ~~Unsecured~~ Term Loans are supported by a borrowing base of 5246 unencumbered hotel properties and ~~by pledges~~a pledge of the equity insecurities of the entities ~~(and affiliated entities)~~ that own and operate the 46 unencumbered hotels.

(2)The Joint Venture Credit Facility is secured by pledges of the equity in the entities (and affiliated entities) that own five of the ~~hotels.~~hotels owned by the joint venture.

(3)The Bank of Cascades mortgage loan is comprised of two promissory notes that are secured by the same collateral and cross-defaulted.

We are exposed to interest rate risk through our variable-rate debt. We manage this risk primarily by managing the amount, sources, and duration of our debt funding and through the use of derivative financial instruments. Specifically, we enter into derivative financial instruments to manage our exposure to known or expected cash payments related to our variable-rate debt. During the nine months ended September 30, ~~2020,~~2021, the fair value of our interest rate swaps ~~declined $17.2~~increased $9.8 million due to ~~a reduction~~an increase in ~~short term~~ interest ~~rates and a continued flattening of the forward yield curve.~~rate expectations. Each interest rate swap fixes the interest rates on portions of our variable interest rate ~~unsecured~~ indebtedness and converts LIBOR from a floating rate to average fixed rates ranging from 1.98% to 2.93%.

Capital Expenditures

During the nine months ended September 30, ~~2020,~~2021, we funded ~~$19.2~~$10.7 million in capital expenditures at our hotel properties. ~~As described under~~ ~~Item 2.~~Management’s Discussion and Analysis of Financial Condition and Results of Operations - Management’s Actions in Response to the Effects of COVID-19 on Our Operations - Financial Measures and Liquidity, we postponed all non-essential capital improvement projects planned for 2020 beyond those that are already substantially complete, which is expected to reduce previously planned total capital expenditures by at least $35.0 million for 2020. We anticipate spending an ~~estimated $23.0~~additional $4.3 million to ~~$25.0~~$9.3 million on capital expenditures across our portfolio during ~~fiscal year 2020.~~the remainder of 2021 assuming a reasonable recovery in lodging demand occurs throughout the remainder of the year. We expect to fund these expenditures through a combination of cash on hand, working capital, borrowings under our $400 Million Revolver, or other potential sources of capital, to the extent available to us.

Cash Flows

For the
Nine Months Ended
September 30,
2020 2019 Change
(in thousands)
Net cash (used in) provided by operating activities $ (21,391) $ 119,614 $ (141,005)
Net cash (used in) provided by investing activities (27,355) 56,799 (84,154)
Net cash provided by (used in) financing activities 35,520 (173,059) 208,579
Net change in cash, cash equivalents and restricted cash $ (13,226) $ 3,354 $ (16,580)


	For the Nine Months Ended September 30,
	2021		2020		Change
	(in thousands)
Net cash provided by (used in) operating activities	$	50,289	$	(21,391)	$	71,680
Net cash used in investing activities	(51,880)		(27,355)		(24,525)
Net cash provided by financing activities	47,866		35,520		12,346
Net change in cash, cash equivalents and restricted cash	$	46,275	$	(13,226)	$	59,501

Changes from the nine months ended September 30, ~~2020~~2021 compared to the nine months ended September 30, ~~2019~~2020 were due to the following:

•Cash provided by (used in) ~~provided by~~ operating activities. This ~~decrease~~increase primarily resulted from ~~a decrease~~an increase in net income of ~~$126.7~~$44.8 million after adjusting for non-cash items, such as depreciation and amortization and gains on the sale of assets, ~~due to the effects of the COVID-19 pandemic,~~ and net changes in working capital of ~~$14.3 million~~$26.9 million. The net changes in working capital were primarily due to ~~working capital changes. The overall decrease is primarily due to a significant decline~~decreases in ~~revenue as a result~~accrued expenses during the nine months ended September 30, 2020 driven by reduced operating activity resulting from the negative effects of the COVID-19 pandemic. Accrued expenses increased during the nine months ended September 30, 2021 due to an increase in accruals at our hotel properties driven by an increase in operating activity as we recover from the COVID-19 pandemic. The overall increase is due to an improvement in our business that has been primarily driven by leisure travel in the first nine months of 2021 as COVID-19 cases began to decline following the administration of vaccines and government restrictions in many jurisdictions being eased or lifted.

•Cash ~~(used in) provided by~~used in investing activities. This increase in cash used in investing activities is primarily due to the acquisition of a hotel property during the nine months ended September 30, 2021 totaling $33.2 million, partially offset by a reduction in ~~proceeds from asset dispositions~~capital expenditures of ~~$144.0 million, a contract termination payment~~$8.6 million. Capital expenditures were lower during the nine months ended September 30, 2021 compared with the same period for ~~historical asset dispositions in~~2020 because much of the capital expenditures for the nine months ended September 30, 2020 were incurred early in the year prior to the COVID-19 pandemic, after which capital expenditures were reduced to preserve liquidity.

•Cash provided by financing activities. Cash provided by financing activities for the nine months ended September 30, 2021 was primarily the result of ~~$2.2~~contributions from our joint venture partner of $101.7 million and ~~an increase in~~ net ~~real estate loan funding~~proceeds from the issuance of ~~$0.7~~preferred stock of $96.6 million, partially offset by ~~a decline in capital expenditures~~the redemption of ~~$27.5~~preferred stock totaling $75.0 million, net repayments of debt of $32.4 million including the proceeds from the convertible debt offering which were used to partially repay the $400 Million Revolver and 2017 Term Loan, the purchase of capped call options related to our convertible debt offering of $21.1 million, debt financing fees of $9.1 million and dividend payments of $11.2 million. Cash provided by financing activities for the nine months ended September 30, 2020 was primarily the result of net borrowings of approximately $68.7 million. The net borrowings were partially offset by dividend payments of approximately $30.5 million and financing fees of $2.8 million during the nine months ended September 30, ~~2020 and acquisitions of hotel properties of $32.3 million during the nine months ended September 30, 2019.~~

•~~Cash provided by (used in) financing activities~~. This increase is primarily due to an increase in net borrowings of $185.1 million and a reduction in dividends paid of $37.3 million, partially offset by a decline in contributions from joint venture partners of $13.2 million. Due to the effects of the COVID-19 pandemic on the Company, we have suspended the declaration and payment of dividends on our common stock and operating partnership units.2020.

5447

Contractual Obligations

The following table outlines the timing of required payments related to our long-term debt and other contractual obligations at September 30, ~~2020~~2021 (in thousands):


		Payments Due By Period											Payments Due By Period
		Total		Less than One Year		One to Three Years		Four to Five Years		More than Five Years			Total		Less than One Year		One to Three Years		Four to Five Years		More than Five Years
Debt obligations (1)	Debt obligations (1)	$	1,091,437	$	3,873	$	604,705	$	242,607	$	240,252	Debt obligations (1)	$	1,069,064	$	4,030	$	496,454	$	429,703	$	138,877
Currently projected interest (2)	Currently projected interest (2)	127,958		38,609		68,284		18,270		2,795		Currently projected interest (2)	103,659		36,647		53,900		12,100		1,012
Lease obligations (3)	Lease obligations (3)	35,231		2,096		3,085		1,825		28,225		Lease obligations (3)	33,143		1,983		2,026		1,834		27,300
Purchase obligations (4)	Purchase obligations (4)	2,563		2,563		—		—		—		Purchase obligations (4)	7,551		7,551		—		—		—
Total	Total	$	1,257,189	$	47,141	$	676,074	$	262,702	$	271,272	Total	$	1,213,417	$	50,211	$	552,380	$	443,637	$	167,189

(1)Amounts shown include amortization of principal and debt maturities.

(2)Interest payments on our variable rate debt have been estimated using the interest rates in effect at September 30, ~~2020,~~2021, after giving effect to our interest rate swaps.

(3)Amounts consist primarily of non-cancelable ground lease and corporate office lease obligations.

(4)This amount represents purchase orders and executed contracts for development or renovation projects at our hotel properties.

Critical Accounting Policies

For critical accounting policies, see "Note 2 - Basis of Presentation and Significant Accounting Policies" to the Condensed Consolidated Financial Statements.

Cybersecurity

The hospitality industry and certain of the major ~~hotel~~brand and franchise companies have recently experienced cybersecurity breaches. We are not aware of any material cybersecurity losses at any of our properties. We manage cybersecurity risks with our franchisors and property management companies. An important part of our cybersecurity risk mitigation efforts includes maintaining cybersecurity insurance and indemnifications in certain of our property management agreements. Our Board of Directors provides on-going oversight of management's approach to managing cybersecurity risks.

Item 3. Quantitative and Qualitative Disclosures about Market Risk.

Market risk includes risks that arise from changes in interest rates, foreign currency exchange rates, commodity prices, equity prices and other market changes that affect market-sensitive instruments. In pursuing our business strategies, the primary market risk to which we are exposed is interest rate risk. Our primary interest rate exposure is to 30-day LIBOR. We primarily use derivative financial instruments to manage interest rate risk.

Our interest rate derivatives are based on USD-LIBOR. In July 2017, the Financial Conduct Authority (“FCA”) that

regulates LIBOR announced it intends to stop compelling banks to submit rates for the calculation of LIBOR after 2021. As a result, the Federal Reserve Board and the Federal Reserve Bank of New York organized the Alternative Reference Rates Committee, which identified the Secured Overnight Financing Rate ("SOFR") as its preferred alternative to USD-LIBOR in derivatives and other financial contracts. The Company has contracts that are indexed to LIBOR and is monitoring and evaluating the related changes and risks. ~~The Company is not able to predict when~~ LIBOR will cease to be available ~~or when there will be sufficient liquidity in the SOFR markets. Any~~after 2021. The transition from LIBOR to SOFR or another benchmark interest rate will result in a different calculation of our variable interest rates that are currently indexed to LIBOR. ~~If adequate and reasonable means do not exist for ascertaining LIBOR and such circumstances are unlikely to be temporary, our~~Our loan agreements contain provisions for our lenders and us to ~~jointly~~ establish an alternative interest rate.

5548

At September 30, ~~2020,~~2021, we were party to four interest rate derivative agreements pursuant to which we receive variable-rate payments in exchange for making fixed-rate payments (dollars in thousands):

Contract date

Effective Date

Expiration Date

Notional Amount

October 2, 2017

January 29, 2018

January 31, 2023

100,000

October 2, 2017

January 29, 2018

January 31, 2023

100,000

June 11, 2018

September 28, 2018

September 30, 2024

75,000

June 11, 2018

December 31, 2018

December 31, 2025

125,000

400,000

At September 30, 2021, after giving effect to our interest rate derivative agreements, $830.5 million, or 78%, of our debt had fixed interest rates and $238.5 million, or 22%, had variable interest rates. The percentage of debt with fixed rates increased during the first nine months of 2021 primarily as the result of the issuance of $287.5 million of fixed rate Convertible Notes (See "Note 5 - Debt" to the Condensed Consolidated Financial Statements). At December 31, 2020, after giving effect to our interest rate derivative agreements, ~~$546.6~~$545.8 million, or ~~50.1%~~50%, of our debt had fixed interest rates and ~~$544.8~~$555.7 million, or 49.9%, had variable interest rates. At December 31, 2019, after giving effect to our interest rate derivative agreements, $549.2 million, or 53.7%, of our debt had fixed interest rates and $473.5 million, or 46.3%50%, had variable interest rates. Taking into consideration our existing interest rate swaps an increase or decrease in interest rates of 1.0% would decrease or increase, respectively, our cash flows by approximately ~~$5.4~~$2.4 million per year.

As our fixed-rate debts mature, they will become subject to interest rate risk. In addition, as our variable-rate debts mature, lenders may impose interest rate floors on new financing arrangements because of the low interest rates experienced during the past few years. At September 30, ~~2020,~~2021, we have scheduled debt principal amortization payments during the next twelve months totaling ~~$3.9~~$4.0 million and no debt maturities.

Item 4. Controls and Procedures.

Controls and Procedures

Disclosure Controls and Procedures

Our management evaluated, with the participation of our Chief Executive Officer and our Chief Financial Officer, the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) as of September 30, ~~2020.~~2021. Based on that evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that, as of September 30, ~~2020,~~2021, our disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed in the reports that 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

During the nine months ended September 30, 2020, our hotels were operating with significantly reduced staff as a result of the COVID-19 pandemic. As a result, some of the internal controls associated with our hotel operations, such as segregation of incompatible duties, could not fully operate in the manner in which they were designed under normal operating conditions. Therefore, we have increased our corporate oversight and review of hotel operations and financial information to mitigate the temporary inability of our hotels to fully function within their normal internal control structures.

There were no ~~other~~ changes in our internal control over financial reporting during the three-month period covered by this Quarterly Report on Form 10-Q, which were identified in connection with management’s evaluation required by Rules 13a-15(d) and 15d-15(d) under the Exchange Act, 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.

We are involved from time to time in litigation arising in the ordinary course of business; however, there are currently no pending legal actions that we believe would have a material adverse effect on our financial position or results of operations.

Item 1A. Risk Factors.

There have been no material changes from the risk factors disclosed in the “Risk Factors” section of our Annual Report on Form 10-K for the year ended December 31, ~~2019 and Quarterly Report on Form 10-Q for the quarter ended June 30,~~ 2020.

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.

5750

Item 6. Exhibits.

The following exhibits are filed as part of this report:


Exhibit
Number						Description of Exhibit

31.1†						Certification of Chief Executive Officer of Summit Hotel Properties, Inc. pursuant to Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2†						Certification of Chief Financial Officer of Summit Hotel Properties, Inc. pursuant to Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1††						Certification of Chief Executive Officer of Summit Hotel Properties, Inc. pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2††						Certification of Chief Financial Officer of Summit Hotel Properties, Inc. pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS						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 (1)
101.CAL						Inline XBRL Taxonomy Extension Calculation Linkbase Document (1)
101.DEF						Inline XBRL Taxonomy Extension Definition Linkbase Document (1)
101.LAB						Inline XBRL Taxonomy Extension Labels Linkbase Document (1)
101.PRE						Inline XBRL Taxonomy Presentation Linkbase Document (1)

† - Filed herewith

†† - Furnished herewith

(1) - Submitted electronically herewith

5851

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


	SUMMIT HOTEL PROPERTIES, INC. (registrant)

Date: November 3, ~~2020~~2021	By:	/s/ Jonathan P. Stanner
		Jonathan P. Stanner ~~Executive Vice~~ President, Chief ~~Financial~~Executive Officer and ~~Treasurer~~Director (principal ~~financial~~executive officer)

5952


	Shares of Preferred Stock	Preferred Stock		Shares of Common Stock	Common Stock		Additional Paid-In Capital		Accumulated Other Comprehensive Loss		Retained Earnings (Deficit) and Distributions		Total Stockholders’ Equity		Non-controlling Interests				Total Equity
															Operating Partnership		Joint Venture
Balance at June 30, 2020	9,400,000	$	94	105,696,833	$	1,057	$	1,194,178	$	(36,086)	$	(93,994)	$	1,065,249	$	1,332	$	64,955	$	1,131,536




Common stock redemption of common units	—	—		921	—		8		(1)		—		7		(7)		—		—
Dividends	—	—		—	—		—		—		(3,710)		(3,710)		—		—		(3,710)
Equity-based compensation	—	—		(1,746)	—		1,514		—		—		1,514		3		—		1,517


Other comprehensive income	—	—		—	—		—		2,827		—		2,827		7		—		2,834
Net loss	—	—		—	—		—		—		(34,546)		(34,546)		(70)		(1,159)		(35,775)
Balance at September 30, 2020	9,400,000	$	94	105,696,008	$	1,057	$	1,195,700	$	(33,260)	$	(132,250)	$	1,031,341	$	1,265	$	63,796	$	1,096,402

Balance at June 30, 2019	9,400,000	$	94	105,126,626	$	1,051	$	1,187,715	$	(16,236)	$	22,179	$	1,194,803	$	2,254	$	0	$	1,197,057

Contribution by non-controlling interest in joint venture	—	—		—	—		—		—		—		—		—		13,764		13,764
Common stock redemption of common units	—	—		40,000	1		383		(28)		—		356		(356)		—		—



Dividends	—	—		—	—		—		—		(22,610)		(22,610)		(46)		—		(22,656)
Equity-based compensation	—	—		(1,279)	—		1,447		—		—		1,447		3		—		1,450

Other	—	—		—	—		(44)		—		—		(44)		—		—		(44)
Other comprehensive loss	—	—		—	—		—		(4,131)		—		(4,131)		(9)		—		(4,140)
Net income	—	—		—	—		—		—		11,534		11,534		15		77		11,626
Balance at September 30, 2019	9,400,000	$	94	105,165,347	$	1,052	$	1,189,501	$	(20,395)	$	11,103	$	1,181,355	$	1,861	$	13,841	$	1,197,057