NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
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 December 31, 2020, our portfolio consisted of 72 hotels with a total of 11,288 guestrooms located in 23 states. At December 31, 2020, we own 100% of the outstanding equity interests in 67 of 72 of our hotels. We own a 51% controlling interest in five 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”). 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 twelve months ended December 31, 2020 and are expected to continue to materially adversely affect our operations and financial results until an effective vaccine is broadly distributed, government restrictions are lifted, 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.
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 second half of 2020, three hotel properties adjacent to Sister Properties containing 430 guestrooms were re-opened. As of December 31, 2020, only one hotel with 252 guestrooms still has suspended operations and guests at two other hotels containing 342 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 several actions to mitigate the effects of the COVID-19 pandemic on the Company, including the following:
•Further amended loan agreements of our 2018 Senior Credit Facility, 2017 Term Loan and 2018 Term Loan (each defined below) to provide for financial covenant waivers through March 31, 2022, to obtain certain modifications to financial covenant measures through December 31, 2023 and to access the full borrowing capacity under our $400 million revolving credit facility ("$400 Million Revolver") subject to certain conditions. We have no debt maturing before November 2022.
•Completed the offering of $287.5 million of Convertible Notes (as defined in "Part II – Item 8. – Financial Statements and Supplementary Data – Note 6 – Debt") in January 2021 and used a portion of the proceeds to repay the outstanding borrowings under our $400 Million Revolver and to partially repay outstanding balances under our term
loan obligations. These transactions ensured the availability of sufficient capacity under the $400 Million Revolver to provide adequate liquidity should we experience a continued disruption in lodging demand.
•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 beginning in the first quarter of 2020. This conserves 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 and expect to continue to postpone all non-essential capital improvement projects for the foreseeable future.
•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 hotels 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 of the Board of Directors for a portion of 2020.
•Furloughed approximately 25% of the corporate-level staff in April 2020. Certain of the furloughed staff were reinstated during 2020 to meet specific needs of the Company as supported by our operating performance, but the majority of the furloughed positions were permanently eliminated during the third quarter.
•Implemented temporary salary reductions for the majority of our remaining non-executive employees for a portion of 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 and beyond.
NOTE 2 –– BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
We prepare our Consolidated Financial Statements in conformity with U.S. Generally Accepted Accounting Principles (“GAAP”), which requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the Consolidated Financial Statements and reported amounts of revenues and expenses in the reporting period. Actual results could differ from those estimates.
The accompanying 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 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 (see "Part II – Item 8. – Financial Statements and Supplementary Data – Note 9 – Equity - Non-controlling Interests in Joint Venture") in our accompanying Consolidated Financial Statements.
Segment Disclosure
Accounting Standards Codification (“ASC”) Topic 280, Segment Reporting, establishes standards for reporting financial and descriptive information about an enterprise’s reportable segments. We have determined that we have one reportable segment, for activities related to investing in real estate. Our investments in real estate are geographically diversified and the chief operating decision makers evaluate operating performance on an individual asset level. As each of our assets has similar economic characteristics, the assets have been aggregated into one reportable segment.
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 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.
We generally depreciate our hotel properties and related assets using the straight-line method over their estimated useful lives as follows:
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Classification
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Estimated Useful Lives
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Buildings and improvements
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6 to 40 years
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Furniture, fixtures and equipment
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2 to 15 years
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We periodically re-evaluate asset lives based on current assessments of remaining utilization, which may result in changes in estimated useful lives. Such changes are accounted for prospectively and will increase or decrease future depreciation expense.
When depreciable property and equipment is retired or disposed, the related costs and accumulated depreciation are removed from the balance sheet and any gain or loss is reflected in current operations.
On a limited basis, we provide financing to developers of hotel properties for development projects. We evaluate these arrangements to determine if we participate in residual profits of the hotel property through the loan provisions or other agreements. Where we conclude that these arrangements are more appropriately treated as an investment in the hotel property, we reflect the loan as an Investment in hotel properties, net in our 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 the carrying amount of the asset is not recoverable, 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 our hotel properties and identified no impairment at December 31, 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 December 31, 2020 and identified no impairment.
Assets Held for Sale
We periodically review our hotel properties and our undeveloped land based on established criteria such as age, type of franchise, adverse economic and competitive conditions, and strategic fit to identify properties that we believe are either non-strategic or no longer complement our business. Based on our review, we periodically market properties for sale that no longer meet our investment criteria. We also periodically receive unsolicited external inquiries that result in the sale of hotel properties.
We classify assets as Assets held for sale in the period in which certain criteria are met, including when the sale of the asset within one year is probable. Assets classified as Assets held for sale are no longer depreciated and are carried at the lower of carrying amount or fair value less selling costs.
Variable Interest Entities
We consolidate variable interest entities (each a “VIE”) if we determine that we are the primary beneficiary of the entity. When evaluating the accounting for a VIE, we consider the purpose for which the VIE was created, the importance of each of the activities in which it is engaged and our decision-making role, if any, in those activities that significantly determine the entity’s economic performance relative to other economic interest holders. We determine our rights, if any, to receive benefits or the obligation to absorb losses that could potentially be significant to the VIE by considering the economic interest in the entity, regardless of form, which may include debt, equity, management and servicing fees, or other contractual arrangements. We consider other relevant factors including each entity’s capital structure, contractual rights to earnings or obligations for losses, subordination of our interests relative to those of other investors, contingent payments, and other contractual arrangements that may be economically significant.
Additionally, we have in the past and may in the future enter into purchase and sale transactions in accordance with Section 1031 of the Internal Revenue Code of 1986, as amended (“IRC”), for the exchange of like-kind property to defer taxable gains on the sale of real estate properties (“1031 Exchange”). For reverse transactions under a 1031 Exchange in which we purchase a new property prior to selling the property to be matched in the like-kind exchange (we refer to a new property being acquired by us in the 1031 Exchange prior to the sale of the related property as a “Parked Asset”), legal title to the Parked Asset is held by a qualified intermediary engaged to execute the 1031 Exchange until the sale transaction and the 1031 Exchange is completed. We retain essentially all of the legal and economic benefits and obligations related to a Parked Asset prior to completion of a 1031 Exchange. As such, a Parked Asset is included in our Consolidated Balance Sheets and Consolidated Statements of Operations as a consolidated VIE until legal title is transferred to us upon completion of the 1031 Exchange.
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.
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 $0.4 million at December 31, 2020 and $0.2 million at December 31, 2019. Bad debt expense was $0.6 million, $0.5 million and $0.6 million for the years ended December 31, 2020, 2019 and 2018, respectively.
Leases
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), which changed lessee accounting to reflect 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 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 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 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 in connection with a hotel disposition 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 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 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.
Deferred Charges, net
Initial franchise fees are capitalized and amortized over the term of the franchise agreement using the straight-line method.
Deferred Financing Fees
Debt issuance costs are presented as a direct deduction from the carrying value of the debt liability on the Consolidated Balance Sheets. Debt issuance costs are amortized as a component of interest expense over the term of the related debt using the straight-line method, which approximates the interest method.
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 Consolidated Balance Sheets within equity, separately from stockholders’ equity. Revenue, expenses and net income attributable to both the Company and the non-controlling interests are reported in the Consolidated Statements of Operations.
Our Consolidated Financial Statements include non-controlling interests related to common units of limited partnership interests (“Common Units”) in the Operating Partnership held by unaffiliated third parties and third-party ownership of a 49% interest in a consolidated joint venture (See "Part II – Item 8. – Financial Statements and Supplementary Data – Note 9 – Equity – Non-controlling Interest in Joint Venture" for further information).
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 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 for parking, cancellation fees, meeting space or telephone 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 Consolidated Statement 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.
Sales and Other Taxes
We have operations in states and municipalities that impose sales or other taxes on certain sales. We collect these taxes from our customers and remit the entire amount to the various governmental units. The taxes collected and remitted are excluded from revenues and are included in accrued expenses until remitted.
Equity-Based Compensation
Our 2011 Equity Incentive Plan, which was amended and restated effective June 15, 2015 (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 initial public offering 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. We have elected to account for forfeitures as they occur. 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 forfeitures or modification of previously granted awards.
Derivative Financial Instruments and Hedging
All derivative financial instruments are recorded at fair value in our Consolidated Balance Sheets. We use interest rate derivatives to hedge our risks on variable-rate debt. Interest rate derivatives could include interest rate swaps, caps and collars. 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. The change in the fair value of the hedging instruments is recorded in Other comprehensive income. Amounts in Other comprehensive income will be reclassified to Interest expense in our 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 IRC. 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, subject to certain adjustments and excluding any capital gain. As a REIT, we generally will not be subject to federal income tax (other than taxes paid by our 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 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 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 TRSs are subject to federal, state and local income taxes at applicable tax rates. Our consolidated income tax provision includes the income tax provision related to the operations of the 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 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 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 December 31, 2020 is not reasonably assured. Therefore, we have recorded a valuation allowance against substantially all of our deferred tax assets at December 31, 2020.
We perform a review of any uncertain tax positions and if necessary will record expected future tax consequences of uncertain tax positions in the financial statements.
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:
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Level 1:
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Observable inputs such as quoted prices in active markets.
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Level 2:
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Directly or indirectly observable inputs, other than quoted prices in active markets.
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Level 3:
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Unobservable inputs in which there is little or no market information, which require a reporting entity to develop its own assumptions.
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Assets and liabilities measured at fair value are based on one or more of the following valuation techniques:
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Market approach:
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Prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities.
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Cost approach:
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Amount required to replace the service capacity of an asset (replacement cost).
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Income approach:
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Techniques used to convert future amounts to a single amount based on market expectations (including present-value, option-pricing, and excess-earnings models).
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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, that do not have readily determinable fair values. Under the alternative, our purchase options are 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.
Use of Estimates
Our 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 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 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.
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 certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. ASU No. 2019-12 is effective for our fiscal year commencing on January 1, 2021, with early adoption permitted. The adoption of ASU No. 2019-12 did 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 did 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 "Part II – Item 8. – Financial Statements and Supplementary Data – Note 6 – 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 at December 31, 2020 and 2019 include (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
Land
|
|
$
|
319,603
|
|
|
$
|
319,603
|
|
|
Hotel buildings and improvements
|
|
2,066,986
|
|
|
2,049,384
|
|
|
Furniture, fixtures and equipment
|
|
173,351
|
|
|
173,128
|
|
|
Construction in progress
|
|
8,903
|
|
|
9,388
|
|
|
Intangible assets
|
|
11,231
|
|
|
11,231
|
|
|
Real estate development loan
|
|
16,508
|
|
|
5,485
|
|
|
|
|
2,596,582
|
|
|
2,568,219
|
|
|
Less - accumulated depreciation
|
|
(490,636)
|
|
|
(383,987)
|
|
|
|
|
$
|
2,105,946
|
|
|
$
|
2,184,232
|
|
During the year ended December 31, 2019, 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 Consolidated Balance Sheets at December 31, 2020 and 2019 (See "Part II – Item 8. – Financial Statements and Supplementary Data – Note 4 – Investment in Real Estate Loans" for further information).
Depreciation expense was $109.2 million, $99.0 million, and $100.5 million for the years ended December 31, 2020, 2019 and 2018, respectively.
Intangible assets included in Investment in hotel properties, net in our Consolidated Balance Sheets include the following (in thousands):
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|
|
|
|
|
|
|
|
|
|
|
Weighted Average Amortization Period (in Years)
|
|
2020
|
|
2019
|
|
Intangible assets:
|
|
|
|
|
|
|
|
Air rights (1)
|
|
n/a
|
|
$
|
10,754
|
|
|
$
|
10,754
|
|
|
|
|
|
|
|
|
|
|
In-place lease agreements
|
|
1
|
|
397
|
|
|
397
|
|
|
Other
|
|
n/a
|
|
80
|
|
|
80
|
|
|
|
|
|
|
11,231
|
|
|
11,231
|
|
|
Less - accumulated amortization
|
|
|
|
(310)
|
|
|
(224)
|
|
|
Intangible assets, net
|
|
|
|
$
|
10,921
|
|
|
$
|
11,007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
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|
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|
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|
|
|
|
(1) In conjunction with the acquisition of the Courtyard by Marriott - Charlotte, NC, the Company acquired certain air rights related to the hotel property.
Future amortization expense is expected to be as follows (in thousands):
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
Finite-Lived Intangible Assets
|
|
|
|
2021
|
|
$
|
87
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hotel Property Acquisitions
We did not acquire any hotel properties during 2020. Hotel property acquisitions in 2019 were as follows (in thousands):
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|
|
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|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
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|
|
|
|
|
Date Acquired
|
|
Franchise/Brand
|
|
Location
|
|
Guestrooms
|
|
Purchase
Price
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
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|
|
|
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|
|
|
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|
|
Year Ended December 31, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
August 6, 2019
|
|
Hampton Inn & Suites
|
|
Silverthorne, CO
|
|
88
|
|
|
$
|
25,500
|
|
|
|
|
|
|
|
|
|
October 8, 2019
|
|
Portfolio Purchase - four properties(1)
|
|
various(1)
|
|
710
|
|
|
249,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
798
|
|
|
$
|
274,500
|
|
(2)
|
|
|
|
|
|
|
(1) On October 8, 2019, we acquired a portfolio of four hotels for an aggregate purchase price of $249.0 million. The hotels acquired included the Hilton Garden Inn - San Francisco, CA, the Hilton Garden Inn - San Jose (Milpitas), CA, the Residence Inn by Marriott - Portland (Downtown), OR, and the Residence Inn by Marriott - Portland (Hillsboro), OR.
(2) The net assets acquired in 2019 were purchased for $274.5 million plus the purchase of adjacent land parcels totaling $2.4 million, $1.0 million of net working capital assets and capitalized transaction costs of $0.4 million. We own a 51% controlling interest in these hotel properties through a consolidated joint venture.
The allocation of the aggregate purchase prices to the fair value of assets and liabilities acquired for the above acquisitions is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
Land
|
|
|
|
$
|
44,868
|
|
|
Hotel buildings and improvements
|
|
|
|
219,410
|
|
|
|
|
|
|
|
|
Furniture, fixtures and equipment
|
|
|
|
12,995
|
|
|
Other assets
|
|
|
|
1,103
|
|
|
Total assets acquired
|
|
|
|
278,376
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less other liabilities
|
|
|
|
(79)
|
|
|
Net assets acquired (1)
|
|
|
|
$
|
278,297
|
|
(1) The net assets acquired in 2019 were purchased for $274.5 million plus the purchase of adjacent land parcels totaling $2.4 million, $1.0 million of net working capital assets and capitalized transaction costs of $0.4 million.
All hotel purchases completed in 2019 were deemed to be the acquisition of assets. Therefore, acquisition costs related to these transactions have been capitalized as part of the recorded amount of the acquired assets.
On January 31, 2019, we exercised our option pursuant to a ground lease agreement to purchase the land upon which our Residence Inn by Marriott in Baltimore (Hunt Valley), MD is located for $4.2 million, which resulted in a termination of obligations under the ground lease. As a result, this hotel property is no longer subject to a ground lease.
On December 4, 2019, we exercised our right to acquire a fee simple interest in the land upon which our Hyatt Place in Garden City, NY is located for nominal consideration. As a result, the hotel is no longer subject to a PILOT (payment in lieu of taxes) lease with the Town of Hempstead Industrial Development Authority.
The results of operations of acquired hotel properties are included in the Consolidated Statements of Operations beginning on their respective acquisition dates. The following unaudited pro forma information includes operating results for 72 hotels owned as of December 31, 2020 as if all such hotels had been owned by us since January 1, 2019. For hotels acquired by us after January 1, 2019 (the "Acquired Hotels"), we have included in the unaudited pro forma information the financial results of each of the Acquired Hotels for the period from January 1, 2019 to the date the Acquired Hotels were purchased by us (the "Pre-Acquisition Period"). The financial results for the Pre-Acquisition Period were provided by the third-party owner of such Acquired Hotel prior to purchase by us and such information has not been audited or reviewed by our auditors or adjusted by us. For hotels sold by us between January 1, 2019 and December 31, 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 unaudited pro forma amounts exclude the gain or loss on the sale of hotel properties during the years ended December 31, 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 December 31, 2020 for the twelve months ended December 31, 2020 and 2019 is as follows (in thousands, except per share):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
Revenues
|
|
$
|
234,463
|
|
|
$
|
572,262
|
|
|
Income from hotel operations
|
|
$
|
27,792
|
|
|
$
|
215,372
|
|
|
|
|
|
|
|
|
Net (loss) income (1)
|
|
$
|
(149,399)
|
|
|
$
|
57,909
|
|
|
Net (loss) income attributable to common stockholders, net of amount allocated to participating securities and non-controlling interests (2)
|
|
$
|
(158,411)
|
|
|
$
|
33,671
|
|
|
Basic and diluted net (loss) income per share attributable to common stockholders (2)
|
|
$
|
(1.52)
|
|
|
$
|
0.32
|
|
|
|
|
|
|
|
(1) Unaudited pro forma amounts include depreciation expense, property tax expense, interest expense, income tax expense, loss on impairment of assets and corporate general and administrative expenses totaling $214.0 million and $197.1 million for the twelve months ended December 31, 2020 and 2019, respectively.
(2) Unaudited pro forma amounts include depreciation expense, property tax expense, interest expense, income tax expense, loss on impairment of assets and corporate general and administrative expenses totaling $204.9 million and $193.8 million for the twelve months ended December 31, 2020 and 2019, respectively.
Asset Sales
We did not sell any hotel properties in 2020. A summary of the dispositions in 2019 is as follows (dollars in thousands):
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Disposition Date
|
|
Franchise/Brand
|
|
Location
|
|
Guestrooms
|
|
Gross Sales Price
|
|
Aggregate Gain, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2019
|
|
|
|
|
|
|
|
|
|
|
|
February 12, 2019
|
|
Portfolio Sale - two properties(1)
|
|
Charleston, WV (1)
|
|
130
|
|
|
$
|
11,600
|
|
|
$
|
4,163
|
|
|
April 17, 2019
|
|
Portfolio Sale - six properties (2)
|
|
various (2)
|
|
815
|
|
|
135,000
|
|
|
36,626
|
|
|
November 8, 2019
|
|
Portfolio Sale - two properties (3)
|
|
Birmingham, AL (3)
|
|
225
|
|
|
21,800
|
|
|
4,857
|
|
|
Total
|
|
|
|
|
|
1,170
|
|
|
$
|
168,400
|
|
|
$
|
45,646
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) The portfolio included the Country Inn & Suites and the Holiday Inn Express in Charleston, WV.
(2) The portfolio included the SpringHill Suites in Minneapolis (Bloomington), MN, the Hampton Inn & Suites in Minneapolis (Bloomington), MN, the Residence Inn in Salt Lake City, UT, the Hyatt Place in Dallas (Arlington), TX, the Hampton Inn in Santa Barbara (Goleta), CA, and the Hampton Inn in Boston (Norwood), MA. The sale resulted in a net gain of $36.6 million based on a gross aggregate sales price of $135.0 million, or a net aggregate sales price of $133.0 million after a buyer credit of $2.0 million.
(3) The portfolio included the Hilton Garden Inn in Birmingham (Lakeshore), AL and the Hilton Garden Inn in Birmingham (Liberty Park), AL.
Loss on Impairment and Write-off of Assets
During the year ended December 31, 2020, the Company recorded a charge to Loss on impairment and write-off of assets of $1.8 million on its purchase options related to real estate development loans. See "Part II – Item 8. – Financial Statements and Supplementary Data – Note 10 – Fair Value Measurement" for further information.
During the year ended December 31, 2020, one of the real estate development loans with a principal balance of $3.8 million was repaid in full as described in “Part II – Item 8. – Financial Statements and Supplementary Data – Note 4 – Investment in Real Estate Loans.” As the Company elected not to exercise its purchase option related to this development project, a Loss on impairment and write-off of assets of $1.0 million was recorded to write-off the carrying amount of the purchase option.
During the year ended December 31, 2019, the Company recorded an impairment charge of $1.7 million for the Hyatt Place - Chicago (Hoffman Estates) to reduce the net carrying amount of the property to its estimated net fair market value of $5.9 million, which was determined by an independent third-party appraisal.
During the year ended December 31, 2019, the Company also recorded impairment charges on two land parcels to reduce the net carrying amounts of the properties to their estimated fair market values based on independent third-party appraisals and a purchase contract for the sale of one of the land parcels that is expected to be completed in 2021.
NOTE 4 — INVESTMENT IN REAL ESTATE LOANS
Investment in real estate loans, net at December 31, 2020 and 2019 is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
Real estate loans
|
|
$
|
28,671
|
|
|
$
|
32,831
|
|
|
Unamortized discount
|
|
—
|
|
|
(1,895)
|
|
|
Allowance for credit losses
|
|
(4,982)
|
|
|
—
|
|
|
|
|
$
|
23,689
|
|
|
$
|
30,936
|
|
The amortized cost bases of our Investment in real estate loans, net approximate their fair value.
Real Estate Development Loans
We provided mezzanine loans on three real estate development projects to fund up to an aggregate of $29.6 million for the development of three hotel properties. The three real estate development loans closed in the fourth quarter of 2017 and each has a stated interest rate of 8% and an initial term of approximately three years. We have separate options related to each loan (each the "Initial Option") to purchase a 90% interest in each joint venture that owns the respective hotel upon completion of construction. The Initial Options are exercisable while the related real estate development loan is outstanding. We also have the right to purchase the remaining interests in each joint venture at future dates, generally five years after we exercise our Initial Option. We recorded the aggregate estimated fair value of the Initial Options totaling $6.1 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 $1.7 million and $2.1 million during the years ended December 31, 2020 and 2019, respectively. During the year ended December 31, 2020, we recorded a Loss on impairment of assets of $1.8 million related to two of the purchase options. See "Part II – Item 8. – Financial Statements and Supplementary Data – Note 10 – Fair Value Measurement" for further information.
During the year ended December 31, 2020, one of the real estate development loans with a principal balance of $3.8 million was repaid in full. As the Company elected not to exercise its purchase option related to this development project, a Loss on impairment and write-off of assets of $1.0 million was recorded to write-off the carrying amount of the purchase option.
The COVID-19 pandemic has adversely affected the operations of the hotels that collateralize our mezzanine loans. As a result, our mezzanine borrowers have requested, and we have granted, deferrals of interest payments through March 5, 2021. Therefore, we have suspended the recognition of interest income for these loans until the cash interest payments are received. At December 31, 2020, the amortized cost basis of the two real estate development loans was $26.3 million and we have recorded an allowance for credit losses of $2.6 million related to these loans. During the year ended December 31, 2020, we recorded interest income of $0.5 million related to these loans and non-cash interest income of $1.4 million due to the amortization of the related discounts. We are currently in negotiations with the borrowers to extend, restructure, or obtain full or partial repayment of the outstanding principal balance and related accrued interest. The current maturity dates for the loans are March 5, 2021.
During the year ended December 31, 2019, 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. The loan closed in the third quarter of 2019 and has a stated interest rate of 9%. In November 2020, we extended the maturity date of the loan from February 15, 2022 to May 15, 2022. The loan is secured by a second mortgage on the development project and a pledge of the equity in the project owner. As of December 31, 2020, we have funded $17.7 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 interest in the hotel five years after the completion of construction. We have issued a $10.0 million letter of credit under our senior 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 on our Consolidated Balance Sheets at December 31, 2020. Interest income on the mezzanine loan will be recorded in our 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. During the years ended December 31, 2020 and 2019, we amortized $1.1 million and $0.4 million, respectively, as non-cash interest income. Including the amortization of the contra-asset, the current effective interest rate on this loan is approximately 13.8%.
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 two, 3.5 year second mortgage notes with a blended interest rate of 7.38% that are further collateralized by a personal guarantee from the principal of the borrower. As of December 31, 2020, there was $2.4 million outstanding on the seller-financing loans. We are in negotiations with the borrower to secure repayment of the outstanding balance and unpaid interest on the loans. There can be no assurance that we will be successful in our negotiations with the borrower such that we will be able to secure full repayment of the outstanding obligations. As such, we have recorded an allowance for credit losses in an amount equal to the outstanding balance of the loans at December 31, 2020. Additionally, we have suspended the recognition of interest income for these loans until the cash interest payments are received.
NOTE 5 — SUPPLEMENTAL BALANCE SHEET INFORMATION
Assets Held for Sale, net
Assets held for sale at December 31, 2020 and 2019 consists of a land parcel in Flagstaff, AZ, which is currently under contract for sale.
During the year ended December 31, 2019, we recognized a loss on impairment of assets of $0.1 million to reduce the carrying value of the land parcel in Flagstaff, AZ to its estimated net sales price based on a pending sales contract that is expected to close in 2021.
Restricted Cash
Restricted cash at December 31, 2020 and 2019 was as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
FF&E reserves
|
|
$
|
16,094
|
|
|
$
|
25,664
|
|
|
Property taxes
|
|
1,469
|
|
|
1,728
|
|
|
|
|
|
|
|
|
Other
|
|
614
|
|
|
203
|
|
|
|
|
$
|
18,177
|
|
|
$
|
27,595
|
|
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% to 5% 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 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 corporate 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 December 31, 2021. We do not expect to replenish any of the Borrowed Reserve over the next twelve months.
Prepaid Expenses and Other
Prepaid expenses and other at December 31, 2020 and 2019 included the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
Prepaid insurance
|
|
$
|
4,123
|
|
|
$
|
3,501
|
|
|
Other
|
|
3,018
|
|
|
3,311
|
|
|
Prepaid taxes
|
|
2,622
|
|
|
2,032
|
|
|
|
|
$
|
9,763
|
|
|
$
|
8,844
|
|
Deferred Charges
Deferred charges at December 31, 2020 and 2019 were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
Initial franchise fees
|
|
$
|
6,795
|
|
|
$
|
6,615
|
|
|
Less - accumulated amortization
|
|
(2,366)
|
|
|
(1,906)
|
|
|
|
|
$
|
4,429
|
|
|
$
|
4,709
|
|
Amortization expense for the years ended December 31, 2020, 2019, and 2018 was $0.5 million, $0.4 million and $0.5 million, respectively.
Other Assets
Other assets at December 31, 2020 and 2019 included the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
Purchase options related to real estate loans
|
|
$
|
7,161
|
|
|
$
|
8,920
|
|
|
Other
|
|
1,013
|
|
|
981
|
|
|
Deferred tax asset, net
|
|
2
|
|
|
2,138
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
8,176
|
|
|
$
|
12,039
|
|
Accrued Expenses and Other
Accrued expenses and other at December 31, 2020 and 2019 included the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
Derivative financial instruments
|
|
$
|
30,850
|
|
|
$
|
16,177
|
|
|
Accrued property, sales and income taxes
|
|
17,713
|
|
|
21,392
|
|
|
Accrued salaries and benefits
|
|
6,632
|
|
|
11,625
|
|
|
Other accrued expenses at hotels
|
|
5,922
|
|
|
13,274
|
|
|
Other
|
|
2,793
|
|
|
8,209
|
|
|
Accrued interest
|
|
1,189
|
|
|
1,082
|
|
|
|
|
|
|
|
|
|
|
$
|
65,099
|
|
|
$
|
71,759
|
|
NOTE 6 –– DEBT
At December 31, 2020 and 2019, our indebtedness was comprised of borrowings under the 2018 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), 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 3.43% and 3.95% at December 31, 2020 and 2019, respectively.
$600 Million Senior 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 credit facility (the “2018 Senior Credit Facility”) with Deutsche Bank AG New York Branch, as administrative agent, and a syndicate of lenders. The 2018 Senior Credit Facility is comprised of the $400 Million Revolver and a $200.0 million term loan facility (the “$200 Million Term Loan”). At December 31, 2020, we had $355.0 million borrowed and $165.0 million available to borrow plus an additional $50.0 million available to borrow subject to certain security requirements to be provided to the lender.
First, Second and Third Amendment to $600.0 Million Senior 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 2018 Senior Credit Facility with Deutsche Bank AG New York Branch, as administrative agent, and a syndicate of lenders. Such parties further amended the 2018 Senior Credit Facility on January 6, 2021 by entering into the Second Amendment to Credit Agreement (the “Second Amendment”), and again on February 5, 2021 by entering into the Third Amendment to Credit Agreement (the “Third Amendment,” collectively with the First Amendment, the “Credit Facility Amendments”).
The First Amendment provides that certain financial and other covenants under the 2018 Senior Credit Facility were waived or adjusted, for the periods described below, with the further adjustments to such covenants made pursuant to the Third Amendment, as indicated below:
•Waivers of key financial and certain other covenants in the 2018 Senior Credit Facility for the period April 1, 2020 through March 31, 2021, which period was extended through March 31, 2022; and
•Beginning on April 1, 2022, adjustments to certain other 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; and
◦Reduction of the Minimum Unsecured Interest Coverage Ratio;
•Increases to the Maximum Leverage Ratio, adjusting down beginning in the second quarter of 2022 and continuing through calendar year 2023.
The interest rate during the periods of the financial and covenant waivers and adjustments was set at Pricing Level VII in the First Amendment, and re-set at Pricing Level VIII in the Third Amendment as defined in the 2018 Senior Credit Facility documents and Third Amendment, respectively.
The Credit Facility 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.
On January 6, 2021, the borrower, the Company and the parties to the 2018 Senior Credit Facility entered into the Second Amendment which permitted the Company to complete the Convertible Notes Offering (defined below).
The First Amendment confirmed that the borrower may advance up to an additional $100 million on the existing revolving facility. Such provision was revised in the Third Amendment to allow the borrower to advance up to an additional $350 million on the existing revolving facility. Furthermore, the Credit Facility Amendments permit the borrower to advance an additional $50 million, in addition to the $100 million and $350 million advances described in the preceding sentences, 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 Third Amendment revises the restrictions that were previously placed on certain investments in assets, equity offerings and securing of permitted indebtedness to permit the borrower and Company to take such actions, provided that (i) portions of the proceeds from such events will be used to pay down the balance of the 2018 Senior Credit Facility, the 2018 Term Loan (defined below) and 2017 Term Loan (defined below) in accordance with the terms of the Third Amendment, and (ii) the borrower and Company comply with the other conditions to 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, among other provisions, limitations on the use of revolving facility advances, certain restrictions on payments of dividends and establishment of a minimum liquidity requirement.
At December 31, 2020, 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 December 31, 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.
Third, Fourth, Fifth and Sixth 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 Term Amendment”), the Fourth Amendment to the First Amended and Restated Credit Agreement ("Fourth Term Amendment"), the Fifth Amendment to the First Amended and Restated Credit Agreement ("Fifth Term Amendment"), and the Sixth Amendment to the First Amended and Restated Credit Agreement ("Sixth Term 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, August 6, 2020, January 6, 2021 and February 5, 2021 respectively. The changes to the 2018 Term Loan effected by the Third Term Amendment, Fifth Term Amendment and Sixth Term Amendment are substantially similar to the changes described above effected by the First Amendment, Second Amendment and Third Amendment to the Company’s 2018 Senior Credit Facility.
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 Term Amendment and Fourth Term 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 December 31, 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 Term Amendment and Sixth Term Amendment 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 December 31, 2020, we were in compliance with all financial covenants.
Unencumbered Assets. The Third Term 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 term loan (the "2017 Term Loan") with KeyBank National Association, as administrative agent, and a syndicate of lenders listed in the loan documentation.
Second, Third, Fourth and Fifth 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 2017 Term Amendment”), the Third Amendment to the Credit Agreement (the "Third 2017 Term Amendment"), the Fourth Amendment to the Credit Agreement (the "Fourth 2017 Term Amendment") and the Fifth Amendment to the Credit Agreement (the "Fifth 2017 Term Amendment") of the Operating Partnership’s 2017 Term Loan with KeyBank National Association, as administrative agent, and a syndicate of lenders on May 7, 2020, August 6, 2020, January 6, 2021 and February 5, 2021, respectively. The changes to the 2017 Term Loan effected by the Second 2017 Term Amendment, Fourth 2017 Term Amendment and Fifth 2017 Term Amendment are substantially similar to the changes described above effected by the First Amendment, Second Amendment and Third Amendment to the Company’s 2018 Senior Credit Facility.
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 2017 Term Amendment and Third 2017 Term Amendment such that during the Amendment Period the applicable margin will be 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 December 31, 2020 was 2.45%.
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 2017 Term Amendment and Fifth 2017 Term Amendment 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 amendments to the Company’s 2018 Senior Credit Facility. At December 31, 2020, we were in compliance with all financial covenants.
Unencumbered Assets. The Second 2017 Term 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 2017 Term Loan are limited by the value of the Unencumbered Assets.
Joint Venture Credit Facility
On October 8, 2019, Summit JV MR 1, LLC (the “Borrower”), as borrower, Summit Hospitality JV, LP (the “Parent”), as parent, and each party executing the credit facility documentation as a subsidiary guarantor, entered into a $200 million credit facility (the “Joint Venture Credit Facility”) with Bank of America, N.A., as administrative agent and sole initial lender, and BofA Securities, Inc., as sole lead arranger and sole bookrunner.
The Parent is the joint venture including the Operating Partnership and an affiliate of GIC, Singapore's sovereign wealth fund. See "Part II – Item 8. – Financial Statements and Supplementary Data – Note 9 – Equity – Non-controlling Interests in Joint 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.
The Joint Venture Credit Facility is comprised of a $125 million revolving credit facility (the “$125 Million Revolver”) and a $75 million term loan (the “$75 Million Term Loan”). The Joint Venture Credit Facility has an accordion feature which will allow us to increase the total commitments by up to $300 million, for aggregate potential borrowings of up to $500 million on the Joint Venture Credit Facility.
The $125 Million Revolver and the $75 Million Term Loan will mature on October 8, 2023. Each individually can be extended for a single consecutive twelve-month period at the Joint Venture's option, subject to certain conditions.
Interest is paid on revolving credit advances at varying rates based upon, at the Borrower's option, either (i) 1-, 2-, 3-, or 6-month LIBOR, plus a margin of 2.15% for Eurodollar rate advances, or (ii) LIBOR, plus a margin of 2.15% for LIBOR floating rate advances. The applicable margin for a term loan advance shall be five basis points less than revolving credit advances referenced above.
Second Amendment to $200 Million Joint Venture Credit Facility
On June 18, 2020, the 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 “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.
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 JV 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 JV 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.
At December 31, 2020, we were in compliance with all financial covenants.
Borrowing Base Assets. The Joint Venture Credit Facility is secured primarily by a first priority pledge of the Borrower's equity interests in the subsidiaries that hold the borrowing base assets, and the related TRS entities, which wholly own the TRS Lessees that lease each of the borrowing base assets.
MetaBank Loan
On June 30, 2017, we entered into a $47.6 million secured, non-recourse loan with MetaBank (the "MetaBank Loan"). During the year ended December 31, 2017, we borrowed $47.6 million on the MetaBank Loan and used the proceeds to pay down the principal balance of our former $300 million revolving credit facility. The MetaBank Loan provides for a fixed interest rate of 4.44% and originally provided for interest only payments for 18 months following the closing date. On January 31, 2019, we entered into a modification agreement, at no additional cost, that increased the interest-only period from 18 months to 24 months following the closing date. Beginning August 1, 2019, the loan amortizes over 25 years through the maturity date of July 1, 2027. The MetaBank Loan is secured by three 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. The next covenant measurement date is December 31, 2021.
At December 31, 2020 and 2019 our outstanding indebtedness was as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lender
|
|
Reference
|
|
Interest
Rate
|
|
Amortization Period
(Years)
|
|
Maturity Date
|
|
Number of
Properties
Encumbered
|
|
Balance at
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
|
|
|
12/31/2020
|
|
2020
|
|
2019
|
|
$600 Million Senior Credit and Term Loan Facility (1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deutsche Bank AG New York Branch
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$400 Million Revolver
|
|
|
|
2.40% Variable
|
|
n/a
|
|
March 31, 2023
|
|
n/a
|
|
$
|
155,000
|
|
|
$
|
75,000
|
|
|
$200 Million Term Loan
|
|
|
|
2.35% Variable
|
|
n/a
|
|
April 1, 2024
|
|
n/a
|
|
200,000
|
|
|
200,000
|
|
|
Total Senior Credit and Term Loan Facility
|
|
|
|
|
|
|
|
|
|
|
|
355,000
|
|
|
275,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Joint Venture Credit Facility (2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank of America, N.A.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$125 Million Revolver
|
|
|
|
2.40% Variable
|
|
n/a
|
|
October 8, 2023
|
|
n/a
|
|
67,500
|
|
|
65,000
|
|
|
$75 Million Term Loan
|
|
|
|
2.35% Variable
|
|
n/a
|
|
October 8, 2023
|
|
n/a
|
|
75,000
|
|
|
75,000
|
|
|
Total Joint Venture Credit Facility
|
|
|
|
|
|
|
|
|
|
|
|
142,500
|
|
|
140,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Term Loans (1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Term Loan (KeyBank National Association, as Administrative Agent)
|
|
|
|
2.45% Variable
|
|
n/a
|
|
November 25, 2022
|
|
n/a
|
|
225,000
|
|
|
225,000
|
|
|
Term Loan (KeyBank National Association, as Administrative Agent)
|
|
|
|
2.15% Variable
|
|
n/a
|
|
February 14, 2025
|
|
n/a
|
|
225,000
|
|
|
225,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Secured Mortgage Indebtedness
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
KeyBank National Association
|
|
(3)
|
|
4.46% Fixed
|
|
30
|
|
February 1, 2023
|
|
3
|
|
19,039
|
|
|
19,510
|
|
|
|
|
(4)
|
|
4.52% Fixed
|
|
30
|
|
April 1, 2023
|
|
3
|
|
19,520
|
|
|
19,992
|
|
|
|
|
(5)
|
|
4.30% Fixed
|
|
30
|
|
April 1, 2023
|
|
3
|
|
18,852
|
|
|
19,323
|
|
|
|
|
(6)
|
|
4.95% Fixed
|
|
30
|
|
August 1, 2023
|
|
2
|
|
33,947
|
|
|
34,695
|
|
|
MetaBank
|
|
(7)
|
|
4.44% Fixed
|
|
25
|
|
July 1, 2027
|
|
3
|
|
46,172
|
|
|
47,226
|
|
|
Bank of Cascades
|
|
(8)
|
|
2.14% Variable
|
|
25
|
|
December 19, 2024
|
|
1
|
|
8,224
|
|
|
8,490
|
|
|
|
|
(8)
|
|
4.30% Fixed
|
|
25
|
|
December 19, 2024
|
|
—
|
|
8,224
|
|
|
8,490
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Mortgage Loans
|
|
|
|
|
|
|
|
|
|
15
|
|
153,978
|
|
|
157,726
|
|
|
Total Debt
|
|
|
|
|
|
|
|
|
|
|
|
1,101,478
|
|
|
1,022,726
|
|
|
Unamortized debt issuance costs
|
|
|
|
|
|
|
|
|
|
|
|
(6,733)
|
|
|
(6,563)
|
|
|
Debt, net of issuance costs
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,094,745
|
|
|
$
|
1,016,163
|
|
(1) The $600 million Senior Revolving Credit and Term Loan Facility and Term Loans are supported by a borrowing base of 52 unencumbered hotel properties and a pledge of the equity securities of the entities that own the 52 properties and their affiliates. On January 12, 2021, we closed the Convertible Notes Offering of $287.5 million and used a portion of the proceeds to repay all of the $160.0 million of outstanding obligations under the $400 Million Revolver and $98.5 million of the outstanding balance of the 2017 Term Loan.
(2) The Joint Venture Credit Facility is secured by pledges of the equity in the entities (and affiliated entities) that own the hotels.
(3) On January 25, 2013, we closed on a $29.4 million loan with a fixed rate of 4.46% and a maturity of February 1, 2023. This loan is secured by three of the Hyatt Place hotels we acquired in October 2012. These hotels are located in Chicago (Lombard), IL; Denver (Lone Tree), CO; and Denver (Englewood), CO. This loan is subject to defeasance costs if prepaid. On March 19, 2019, we defeased $6.3 million of the principal balance to have the encumbrance released on
one property, the Hyatt Place in Arlington, TX, to facilitate the sale of the property. As a result of this transaction, we recorded debt transaction costs of $0.6 million in 2019 primarily related to the debt defeasance premium.
(4) On March 7, 2013, we closed on a $22.7 million loan with a fixed rate of 4.52% and a maturity of April 1, 2023. This loan is secured by three of the Hyatt hotels we acquired in October 2012. These hotels include a Hyatt House in Denver (Englewood), CO and Hyatt Place hotels in Baltimore (Owings Mills), MD and Scottsdale, AZ. This loan is subject to defeasance if prepaid.
(5) On March 8, 2013, we closed on a $22.0 million loan with a fixed rate of 4.30% and a maturity of April 1, 2023. This loan is secured by the three Hyatt Place hotels we acquired in January 2013. These hotels are located in Chicago (Hoffman Estates), IL; Orlando (Convention), FL; and Orlando (Universal), FL. This loan is subject to defeasance if prepaid.
(6) On July 22, 2013, we closed on a $38.7 million loan with a fixed rate of 4.95% and a maturity of August 1, 2023. This loan is secured by two Marriott hotels we acquired in May 2013. These hotels include a Fairfield Inn & Suites and SpringHill Suites in Louisville, KY. This loan is subject to defeasance if prepaid.
(7) On June 30, 2017, we entered into the MetaBank Loan. The MetaBank Loan is secured by the Hampton Inn & Suites in Minneapolis, MN, the Four Points by Sheraton Hotel & Suites in South San Francisco, CA, and the Hyatt Place in Mesa, AZ. The MetaBank Loan is subject to a prepayment penalty if prepaid prior to April 1, 2027.
(8) On December 19, 2014, we refinanced our loan with Bank of the Cascades and increased the amount financed by $7.9 million. As part of the refinance the loan was split into two notes. Note A carries a variable interest rate of 30-day LIBOR plus 200 basis points and Note B carries a fixed interest rate of 4.3%. Both notes have amortization periods of 25 years and maturity dates of December 19, 2024. The Bank of Cascades mortgage loan is comprised of two promissory notes that are secured by the same collateral and cross-defaulted.
There are currently no defaults under any of the Company's mortgage loan agreements.
Our total fixed-rate and variable-rate debt at December 31, 2020 and 2019, after giving effect to our interest rate derivatives, is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
Percentage
|
|
2019
|
|
Percentage
|
|
Fixed-rate debt
|
|
$
|
545,754
|
|
|
50
|
%
|
|
$
|
549,236
|
|
|
54
|
%
|
|
Variable-rate debt
|
|
555,724
|
|
|
50
|
%
|
|
473,490
|
|
|
46
|
%
|
|
|
|
$
|
1,101,478
|
|
|
|
|
$
|
1,022,726
|
|
|
|
Contractual principal payments for each of the next five years are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
2021
|
|
$
|
3,912
|
|
|
2022
|
|
229,072
|
|
|
2023
|
|
385,935
|
|
|
2024
|
|
216,105
|
|
|
2025
|
|
226,319
|
|
|
Thereafter
|
|
40,135
|
|
|
|
|
$
|
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):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
|
|
|
|
Carrying
Value
|
|
Fair Value
|
|
Carrying
Value
|
|
Fair Value
|
|
Valuation Technique
|
|
Fixed-rate debt
|
|
$
|
145,754
|
|
|
$
|
143,244
|
|
|
$
|
149,236
|
|
|
$
|
151,268
|
|
|
Level 2 - Market approach
|
At December 31, 2020 and 2019, 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 “Part II – Item 8. – Financial Statements and Supplementary Data – Note 8 – Derivative Financial Instruments and Hedging.”
Convertible Senior Notes and Capped Call Options
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 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 $279.8 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 February 15, 2026, the Convertible Notes will be convertible only upon certain circumstances and during certain periods. Prior to August 15, 2025, 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.
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 approximately $11.99 per share of common stock. The conversion rate is subject to adjustment in certain circumstances.
On January 7, 2021, in connection with the pricing of the Convertible Notes, and on January 8, 2021, in connection with the full exercise by the Underwriters of their option to purchase additional Convertible Notes pursuant to the 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 principal amount of any converted Convertible Notes upon conversion thereof, with such reduction or offset subject to a cap.
The effective strike price of the 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 certain adjustments under the terms of the Capped Call transactions.
NOTE 7 –– 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 78 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. In 2020, 2019, and 2018, we recorded gross third party tenant income of $1.9 million, $2.2 million, and $1.7 million, respectively, which were recorded in Other income in the Consolidated Statements 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 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 assets and related liabilities. The right-of-use assets and related liabilities include renewal options reasonably certain to be exercised. We base our lease
calculations on our estimated incremental borrowing rate. As of December 31, 2020, our weighted average incremental borrowing rate was 4.9%.
In 2020, 2019, and 2018, the Company's total operating lease cost was $3.1 million, $3.3 million, and $3.6 million, respectively, and the operating cash outflows from operating leases was $2.8 million, $3.0 million, and $3.6 million, respectively. As of December 31, 2020, the weighted average operating lease term was 28.25 years.
On January 31, 2019, we exercised our option pursuant to a ground lease agreement to purchase the land upon which our hotel property in Baltimore (Hunt Valley), MD is located for $4.2 million, which resulted in a termination of obligations under the ground lease.
On December 4, 2019, we exercised our right to acquire a fee simple interest in the land upon which our Hyatt Place in Garden City, NY is located for nominal consideration. As a result, the hotel is no longer subject to a PILOT (payment in lieu of taxes) lease with the Town of Hempstead Industrial Development Authority.
Operating lease maturities as of December 31, 2020 are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
2021
|
|
$
|
2,066
|
|
|
2022
|
|
1,842
|
|
|
2023
|
|
970
|
|
|
2024
|
|
910
|
|
|
2025
|
|
912
|
|
|
Thereafter
|
|
27,994
|
|
|
Total lease payments (1)
|
|
34,694
|
|
|
Less imputed interest
|
|
(16,256)
|
|
|
Total
|
|
$
|
18,438
|
|
(1) Certain payments above include future increases to the minimum fixed rent based on the Consumer Price Index in effect at the initial measurement of the lease balances.
NOTE 8 — DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING
We are exposed to interest rate risk through our variable-rate debt. We manage this risk primarily by managing the amount, sources, and duration of our debt funding and through the use of derivative financial instruments. Specifically, we enter into derivative financial instruments to manage our exposure to known or expected cash payments related to our variable-rate debt. The maximum length of time over which we have hedged our exposure to variable interest rates with our existing derivative financial instruments is approximately seven years.
Our objectives in using derivative financial instruments are to add stability to interest expense and to manage our exposure to interest rate movements. To accomplish these objectives, we primarily use interest rate swaps as part of our interest rate risk management strategy. Our interest rate swaps are designated as cash flow hedges and involve the receipt of variable-rate payments from a counterparty in exchange for making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount.
Our agreements with our derivative counterparties contain provisions such that if we default, or can be declared in default, on any of our indebtedness, then we could also be declared in default on our derivative financial instruments.
Information about our derivative financial instruments at December 31, 2020 and 2019 is as follows (dollar amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average Annual Effective Fixed Rate
|
|
Notional Amount
|
|
Fair Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contract date
|
|
Effective Date
|
|
Expiration Date
|
|
|
December 31, 2020
|
|
December 31, 2019
|
|
December 31, 2020
|
|
December 31, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
October 2, 2017
|
|
January 29, 2018
|
|
January 31, 2023
|
|
1.98
|
%
|
|
$
|
100,000
|
|
|
$
|
100,000
|
|
|
$
|
(3,831)
|
|
|
$
|
(1,316)
|
|
|
October 2, 2017
|
|
January 29, 2018
|
|
January 31, 2023
|
|
1.98
|
%
|
|
100,000
|
|
|
100,000
|
|
|
(3,853)
|
|
|
(1,350)
|
|
|
June 11, 2018
|
|
September 28, 2018
|
|
September 30, 2024
|
|
2.87
|
%
|
|
75,000
|
|
|
75,000
|
|
|
(7,371)
|
|
|
(4,389)
|
|
|
June 11, 2018
|
|
December 31, 2018
|
|
December 31, 2025
|
|
2.93
|
%
|
|
125,000
|
|
|
125,000
|
|
|
(15,795)
|
|
|
(9,122)
|
|
|
|
|
|
|
|
|
|
|
$
|
400,000
|
|
|
$
|
400,000
|
|
|
$
|
(30,850)
|
|
|
$
|
(16,177)
|
|
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 December 31, 2020 and 2019, 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 Consolidated Balance Sheets. We are not required to post any collateral related to these agreements and we 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 Consolidated Statements of Operations in the period in which the hedged item affects earnings. In 2021, we estimate that an additional $9.3 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):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
2018
|
|
Loss recognized in Accumulated other comprehensive loss on derivative financial instruments
|
|
$
|
(22,090)
|
|
|
$
|
(15,327)
|
|
|
$
|
(3,050)
|
|
|
Loss reclassified from Accumulated other comprehensive loss to Interest expense
|
|
$
|
(7,417)
|
|
|
$
|
(731)
|
|
|
$
|
(150)
|
|
|
|
|
|
|
|
|
|
|
Total interest expense and other finance expense presented in the Consolidated Statement of Operations in which the effects of cash flow hedges are recorded
|
|
$
|
(43,300)
|
|
|
$
|
(41,030)
|
|
|
$
|
(41,944)
|
|
NOTE 9 — EQUITY
Common Stock
The Company is authorized to issue up to 500,000,000 shares of common stock, $0.01 par value per share (the "Common Stock"). Each outstanding share of our Common Stock entitles the holder to one 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 each of Robert W. Baird & Co. Incorporated, Raymond James & Associates, Inc., Merrill Lynch, Pierce, Fenner & Smith Incorporated, Deutsche Bank Securities Inc., RBC Capital Markets, LLC, KeyBanc Capital Markets Inc., Canaccord Genuity Inc. (this agreement was terminated on September 29, 2017), Jefferies LLC, BB&T Capital Markets, a division of BB&T Securities, LLC, and BTIG, LLC (collectively, 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"). At the same time, the Company terminated each of the sales agreements entered into in connection with its prior at-the-market offering program. To date, we have not sold any shares of our Common Stock under the 2017 ATM Program.
Changes in Common Stock during the years ended December 31, 2020 and 2019 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
Beginning common shares outstanding
|
|
105,169,515
|
|
|
104,783,179
|
|
|
|
|
|
|
|
|
Grants under the Equity Plan
|
|
676,171
|
|
|
537,734
|
|
|
Common Unit redemptions
|
|
47,279
|
|
|
50,244
|
|
|
|
|
|
|
|
|
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
|
|
105,708,787
|
|
|
105,169,515
|
|
At December 31, 2020 and 2019, the Company had reserved 13,760,920 and 14,365,537 shares of Common Stock, respectively, for the issuance of Common Stock (i) upon the exercise of stock options, issuance of time-based restricted stock awards, issuance of performance-based restricted stock awards, grants of director stock awards, or other awards issued pursuant to our Equity Plan, (ii) upon redemption of Common Units, or (iii) under the 2017 ATM Program.
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 is currently undesignated and 3,000,000 shares have been designated as 6.45% Series D Cumulative Redeemable Preferred Stock (the "Series D preferred shares") and 6,400,000 shares have been designated as 6.25% Series E Cumulative Redeemable Preferred Stock (the "Series E preferred shares").
The Company's preferred shares (collectively, “Preferred Shares”) rank senior to our Common Stock and on parity with each other with respect to the payment of dividends and distributions of assets in the event of a liquidation, dissolution, or winding up. The Preferred Shares do not have any maturity date and are not subject to mandatory redemption or sinking fund requirements. The Company may not redeem the Series D preferred shares or Series E preferred shares prior to June 28, 2021 and November 13, 2022, respectively, except in limited circumstances relating to the Company’s continuing qualification as a REIT or in connection with certain changes in control. After those dates, the Company may, at its option, redeem the applicable Preferred Shares, in whole or from time to time in part, by payment of $25 per share, plus any accumulated, accrued and unpaid distributions up to, but not including, the date of redemption. If the Company does not exercise its rights to redeem the Preferred Shares upon certain changes in control, the holders of the Preferred Shares have the right to convert some or all of their shares into a number of the Company’s common shares based on a defined formula, subject to a share cap, or alternative consideration. The share cap on each Series D preferred share is 3.9216 shares of Common Stock and each Series E preferred share is 3.1686 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. 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 at the time of redemption; however, the Company has the option to redeem with shares of our Common Stock on a one-for-one basis. The number of shares of our Common Stock issuable upon redemption of Common Units may be adjusted upon the occurrence of certain events such as share dividend payments, share subdivisions or combinations.
At December 31, 2020 and 2019, unaffiliated third parties owned 161,742 and 209,021, respectively, of Common Units of the Operating Partnership, representing less than a 1% limited partnership interest in the Operating Partnership.
We classify outstanding Common Units held by unaffiliated third parties as non-controlling interests in the Operating Partnership, a component of equity in the Company’s Consolidated Balance Sheets. The portion of net income allocated to these Common Units is reported on the Company’s Consolidated Statement of Operations as net income attributable to non-controlling interests of the Operating Partnership.
Non-controlling Interests in Joint Venture
In July 2019, the Company entered into a joint venture with GIC, Singapore’s sovereign wealth fund, to acquire assets that align with the Company’s current investment strategy and criteria. The Company serves as general partner and asset manager of the joint venture and intends to invest 51% of the equity capitalization of the limited partnership, with GIC investing the remaining 49%. The Company earns fees for providing services to the joint venture and will have the potential to earn incentive fees based on the joint venture achieving certain return thresholds. As of December 31, 2020, the joint venture owns the five hotel properties acquired in 2019.
The joint venture owns the hotels through a master real estate investment trust (“Master REIT”) and subsidiary REITs (“Subsidiary REITs”). 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 must meet all of the REIT requirements summarized under “Part II – Item 8. – Financial Statements and Supplementary Data – 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 Consolidated Balance Sheets. The portion of net income allocated to the non-controlling interests is reported on the Company’s Consolidated Statements of Operations as net income attributable to non-controlling interests of the joint venture.
NOTE 10 — FAIR VALUE MEASUREMENT
The following table presents information about our financial instruments measured at fair value on a recurring basis as of December 31, 2020 and 2019. In instances in which the inputs used to measure fair value fall into different levels of the fair value hierarchy, we classify assets and liabilities based on the lowest level of input that is significant to the fair value measurement. Our assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the asset or liability.
Disclosures concerning financial instruments measured at fair value are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurement at December 31, 2020 using
|
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase options related to real estate loans
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
7,161
|
|
|
$
|
7,161
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
|
—
|
|
|
30,850
|
|
|
—
|
|
|
30,850
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurement at December 31, 2019 using
|
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase options related to real estate loans
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
8,920
|
|
|
$
|
8,920
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
|
—
|
|
|
16,177
|
|
|
—
|
|
|
16,177
|
|
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 year ended December 31, 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
|
(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
|
%
|
|
—
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) The purchase option is currently exercisable.
(2) The option term is the period from April 1, 2020 through the fully extended 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 year ended December 31, 2020, we recorded a Loss on impairment and write-off of assets of $1.8 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 and write-off of assets
|
|
(782)
|
|
|
—
|
|
|
(977)
|
|
(1)
|
—
|
|
|
Purchase option value at December 31, 2020
|
|
$
|
1,600
|
|
|
$
|
2,761
|
|
|
$
|
—
|
|
|
$
|
2,800
|
|
(1) Real estate loan 3 was repaid in full during the year ended December 31, 2020. As the Company elected not to exercise its purchase option, we have recorded a Loss on impairment and write-off of assets of $1.0 million.
There were no transfers between Level 1 and Level 2 of the fair value hierarchy during the years ended December 31, 2020 or 2019.
NOTE 11 — COMMITMENTS AND CONTINGENCIES
Franchise Agreements
All of our hotel properties operate under franchise agreements with major hotel franchisors. The terms of our franchise agreements generally range from 10 to 20 years with various extension provisions. Each franchisor receives franchise fees ranging from 2% to 6% of each hotel property’s gross revenue, and some agreements require that we pay marketing fees of up to 4% of gross revenue. In addition, some of these franchise agreements require that we deposit a percentage of the hotel property’s gross revenue, generally not more than 5%, into a reserve fund for capital expenditures. We also pay fees to our franchisors for services related to reservation and information systems. In 2020, 2019, and 2018, we expensed fees related to our franchise agreements of $20.7 million, $47.8 million, and $47.7 million, respectively.
Management Agreements
Our hotel properties operate pursuant to management agreements with various professional third-party management companies. The terms of our management agreements range from month-to-month to twenty-five years with various extension provisions. Each management company receives a base management fee, generally a percentage of total hotel property revenues. In some cases there are also monthly fees for certain services, such as accounting, based on the number of guestrooms. Generally there are also incentive fees based on attaining certain financial thresholds. In 2020, 2019, and 2018, we expensed fees related to our hotel management agreements of $6.3 million, $16.6 million, and $18.5 million, respectively.
Litigation
We are involved from time to time in litigation arising in the ordinary course of business. We are not currently aware of any actions against us that would have a material effect on our financial condition or results of operations.
NOTE 12 — EQUITY-BASED COMPENSATION
Our currently outstanding equity-based awards were issued under our Equity Plan which provides for the granting of stock options, stock appreciation rights, restricted stock, restricted stock units, dividend equivalent rights, and other equity-based awards or incentive awards.
Stock options granted may be either incentive stock options or non-qualified stock options. Vesting terms may vary with each grant, and stock option terms are generally five to ten years. We have outstanding equity-based awards in the form of stock options and restricted stock awards. All of our outstanding equity-based awards are classified as equity.
Stock Options Granted Under Our Equity Plan
As of December 31, 2020, 2019 and 2018, we had 235,000 outstanding and exercisable stock options. At December 31, 2020, the stock options had a weighted average exercise price of $9.75 and a weighted average contractual term of 0.2 years.
At December 31, 2020, the exercise price of our outstanding and exercisable stock options exceeded the market price of our Common Stock, resulting in no intrinsic value. At December 31, 2019, the intrinsic value of outstanding and exercisable options was $0.6 million. At December 31, 2018, the exercise price of our outstanding and exercisable stock options exceeded the market price of our Common Stock, resulting in no intrinsic value.
Time-Based Restricted Stock Awards Made Pursuant to Our Equity Plan
The following table summarizes time-based restricted stock activity under our Equity Plan for 2020 and 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Shares
|
|
Weighted Average
Grant Date Fair Value
per Share
|
|
Aggregate
Current Value
|
|
|
|
|
|
|
|
(in thousands)
|
|
Non-vested December 31, 2018
|
|
370,152
|
|
|
$
|
13.40
|
|
|
|
|
Granted
|
|
235,407
|
|
|
11.32
|
|
|
|
|
Vested
|
|
(154,801)
|
|
|
12.82
|
|
|
|
|
Forfeited
|
|
(2,291)
|
|
|
12.65
|
|
|
|
|
Non-vested December 31, 2019
|
|
448,467
|
|
|
12.51
|
|
|
|
|
Granted
|
|
299,562
|
|
|
8.47
|
|
|
|
|
Vested
|
|
(172,170)
|
|
|
13.31
|
|
|
|
|
Forfeited
|
|
(2,282)
|
|
|
8.64
|
|
|
|
|
Non-vested December 31, 2020
|
|
573,577
|
|
|
$
|
10.18
|
|
|
$
|
5,168
|
|
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.
During the years ended December 31, 2020, 2019, and 2018, the total fair value of time-based restricted stock awards that vested was $2.3 million, $2.0 million and $2.8 million, respectively.
Performance-Based Restricted Stock Awards Made Pursuant to Our Equity Plan
The following table summarizes performance-based restricted stock activity under our Equity Plan for 2020 and 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Shares
|
|
Weighted Average
Grant Date Fair Value
per Share
|
|
Aggregate
Current Value
|
|
|
|
|
|
|
|
(in thousands)
|
|
Non-vested December 31, 2018
|
|
708,227
|
|
|
$
|
14.75
|
|
|
|
|
Granted
|
|
302,327
|
|
|
12.81
|
|
|
|
|
Vested
|
|
(89,097)
|
|
|
13.77
|
|
|
|
|
Forfeited
|
|
(165,466)
|
|
|
13.77
|
|
|
|
|
Non-vested December 31, 2019
|
|
755,991
|
|
|
14.31
|
|
|
|
|
Granted
|
|
376,609
|
|
|
9.38
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
(210,361)
|
|
|
17.13
|
|
|
|
|
Non-vested December 31, 2020
|
|
922,239
|
|
|
$
|
11.65
|
|
|
$
|
8,309
|
|
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 zero 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.
The fair value of performance-based restricted stock awards granted was estimated using a Monte Carlo simulation valuation model and the following assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
2018
|
|
Expected dividend yield
|
|
8.16
|
%
|
|
6.17
|
%
|
|
5.33
|
%
|
|
Expected stock price volatility
|
|
23.7
|
%
|
|
23.2
|
%
|
|
25.7
|
%
|
|
Risk-free interest rate
|
|
0.53
|
%
|
|
2.43
|
%
|
|
2.41
|
%
|
|
Monte Carlo iterations
|
|
100,000
|
|
|
100,000
|
|
|
100,000
|
|
|
Weighted average estimated fair value of performance-based restricted stock awards
|
|
$
|
9.38
|
|
|
$
|
12.81
|
|
|
$
|
13.73
|
|
The expected dividend yield was calculated based on our annual expected dividend payments at the time of grant. The expected volatility was based on historical price changes of our Common Stock for a period comparable to the performance period. The risk-free interest rates were interpolated from the Federal Reserve Bond Equivalent Yield rates for “on-the-run” U.S. Treasury securities.
Director Stock Awards Made Pursuant to Our Equity Plan
During the years ended December 31, 2020 and 2019, we granted 93,810 and 40,455 shares of Common Stock, respectively, to our non-employee directors as a part of our director compensation program. These grants were made pursuant to our Equity Plan and were vested upon grant.
Equity-Based Compensation Expense
Equity-based compensation expense included in Corporate General and Administrative expense in the Consolidated Statements of Operations for the years ended December 31, 2020, 2019, and 2018 was as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
2018
|
|
|
|
|
|
|
|
|
|
Time-based restricted stock
|
|
$
|
2,470
|
|
|
$
|
2,327
|
|
|
$
|
2,384
|
|
|
Performance-based restricted stock
|
|
3,559
|
|
|
3,396
|
|
|
3,727
|
|
|
Director stock
|
|
447
|
|
|
496
|
|
|
554
|
|
|
|
|
$
|
6,476
|
|
|
$
|
6,219
|
|
|
$
|
6,665
|
|
We recognize equity-based compensation expense ratably over the vesting terms. The amount of expense may be subject to adjustment in future periods due to a change in the forfeiture assumptions.
Unrecognized equity-based compensation expense for all non-vested awards pursuant to our Equity Plan was $7.4 million at December 31, 2020 as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
2021
|
|
2022
|
|
2023
|
|
2024
|
|
Time-based restricted stock
|
|
$
|
3,140
|
|
|
$
|
1,855
|
|
|
$
|
1,037
|
|
|
$
|
232
|
|
|
$
|
16
|
|
|
Performance-based restricted stock
|
|
4,242
|
|
|
2,654
|
|
|
1,392
|
|
|
196
|
|
|
—
|
|
|
|
|
$
|
7,382
|
|
|
$
|
4,509
|
|
|
$
|
2,429
|
|
|
$
|
428
|
|
|
$
|
16
|
|
NOTE 13 — BENEFIT PLANS
On August 1, 2011, we initiated a qualified contributory retirement plan (the “Plan”) under Section 401(k) of the IRC, which covers all full-time employees who meet certain eligibility requirements. Voluntary contributions may be made to the Plan by employees. The Plan is a Safe Harbor Plan and requires a mandatory employer contribution. The employer contribution expense for the years ended December 31, 2020, 2019 and 2018 was $0.3 million, $0.3 million, and $0.2 million, respectively.
NOTE 14 — INCOME TAXES
We have elected to be taxed as a REIT. As a REIT, we are generally not subject to corporate level income taxes on taxable income we distribute to our shareholders. We believe we have met the annual REIT distribution requirement by distribution of at least 90% of our taxable income to our shareholders.
Income related to our TRSs is subject to federal, state and local taxes at applicable tax rates. Our consolidated tax provision includes the income tax provision related to the operations of the TRSs as well as state and local income taxes related to the Operating Partnership. Due to the adverse effects of the COVID-19 pandemic, certain of our TRSs have incurred operating losses and are expected to be in a cumulative loss for the foreseeable future. As such, the realizability of our deferred tax assets at December 31, 2020 is not reasonably assured. Therefore, we have recorded a valuation allowance against substantially all of our deferred tax assets at December 31, 2020.
The components of income tax expense (benefit) for the years ended December 31, 2020, 2019, and 2018 are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
2018
|
|
Current:
|
|
|
|
|
|
|
|
Federal
|
|
$
|
(904)
|
|
|
$
|
869
|
|
|
$
|
(67)
|
|
|
State and local
|
|
224
|
|
|
643
|
|
|
(425)
|
|
|
Deferred:
|
|
|
|
|
|
|
|
Federal
|
|
1,548
|
|
|
(32)
|
|
|
(279)
|
|
|
State and local
|
|
508
|
|
|
20
|
|
|
(151)
|
|
|
|
|
|
|
|
|
|
|
Income tax expense (benefit)
|
|
$
|
1,376
|
|
|
$
|
1,500
|
|
|
$
|
(922)
|
|
Below is a reconciliation between the provision for income taxes and the amounts computed by applying the federal statutory income tax rate to the income or loss before taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
2018
|
|
Statutory federal income tax provision
|
|
$
|
(31,052)
|
|
|
$
|
17,608
|
|
|
$
|
18,943
|
|
|
Nontaxable income of the REITs
|
|
19,963
|
|
|
(16,996)
|
|
|
(19,073)
|
|
|
|
|
|
|
|
|
|
|
State income taxes, net of federal tax benefit
|
|
(3,079)
|
|
|
568
|
|
|
266
|
|
|
Provision to return and deferred adjustment
|
|
(16)
|
|
|
(6)
|
|
|
75
|
|
|
Effect of permanent differences and other
|
|
319
|
|
|
326
|
|
|
(184)
|
|
|
Tax benefit from deduction for partnership distributions
|
|
—
|
|
|
—
|
|
|
(949)
|
|
|
|
|
|
|
|
|
|
|
Change in valuation allowance
|
|
15,241
|
|
|
—
|
|
|
—
|
|
|
Income tax provision (benefit)
|
|
$
|
1,376
|
|
|
$
|
1,500
|
|
|
$
|
(922)
|
|
The Company evaluates its deferred tax assets each reporting period to determine if it is more-likely-than-not that those assets will be realized. In its evaluation, the Company assesses available positive and negative evidence to estimate whether sufficient future taxable income will be generated to permit use of the Company’s existing deferred tax assets. At December 31, 2020, certain TRSs had a three-year cumulative loss. As such, realizability of the Company's deferred tax assets is not reasonably assured. Therefore, a valuation allowance of $15.2 million was recorded against the balance of deferred tax assets at December 31, 2020.
Deferred tax assets and liabilities are included within Other assets in the accompanying Consolidated Balance Sheets.
Significant components of our TRSs deferred tax assets (liabilities) are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
Tax carryforwards
|
|
$
|
13,521
|
|
|
$
|
38
|
|
|
|
|
|
|
|
|
Accrued expenses
|
|
1,537
|
|
|
2,068
|
|
|
Other
|
|
185
|
|
|
32
|
|
|
|
|
|
|
|
|
Valuation allowance
|
|
(15,241)
|
|
|
—
|
|
|
Net deferred tax assets
|
|
$
|
2
|
|
|
$
|
2,138
|
|
|
|
|
|
|
|
|
Gross deferred tax assets
|
|
$
|
15,267
|
|
|
$
|
2,172
|
|
|
Gross deferred tax liabilities
|
|
(24)
|
|
|
(34)
|
|
|
Valuation allowance
|
|
(15,241)
|
|
|
—
|
|
|
Net deferred tax assets
|
|
$
|
2
|
|
|
$
|
2,138
|
|
At December 31, 2020, our TRSs had federal net operating losses of $48.7 million which are not subject to expiration and state net operating losses of $50.8 million, which expire beginning in 2025. At December 31, 2020, Summit Hotel Properties Inc. and our Subsidiary REITs had federal net operating loss carryforwards of $54.9 million and $1.9 million, respectively, which are not subject to expiration.
We had no unrecognized tax benefits at December 31, 2020 or in the three year period then ended. We expect no significant increase or decrease in unrecognized tax benefits due to changes in tax positions within one year of December 31, 2020. We have no material interest or penalties relating to unrecognized tax benefits in the Consolidated Statements of Operations for the years ended December 31, 2020, 2019 or 2018 or in the Consolidated Balance Sheets as of December 31, 2020 or 2019.
We file U.S. and state income tax returns in jurisdictions with varying statutes of limitations. In general, we are not subject to tax examinations by tax authorities for years before 2016.
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:
•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. Our TRSs generated net operating losses in 2020. As such, we expect a $1.0 million future tax benefit from the NOL carry-back provisions provided in the CARES Act;
•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 submitted amended payroll tax filings to recoup a credit of approximately $0.3 million.
The Consolidated Appropriations Act, 2021 signed into law on December 27, 2020 provided extended COVID-19 relief provisions and additional economic stimulus. Key tax provisions in this legislation included:
•Temporary allowance of a full deduction for business meals paid or incurred between December 31, 2020 and January 1, 2023.
•An expansion of employee retention tax credit provided under the CARES Act for the period January 1, 2021 to June 30, 2021. The credit is calculated based on 70% of qualifying wages, capped at $10,000 of compensation each of the first two quarters in 2021. We anticipate a credit of approximately $0.7 million in 2021.
•An expansion of the charitable contribution provisions for corporations under the CARES Act.
Characterization of Distributions
For income tax purposes, distributions paid consist of ordinary income and capital gains or a combination thereof. For the years ended December 31, 2020, 2019, and 2018 distributions paid per share were characterized as follows (unaudited):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
2018
|
|
|
|
Amount
|
|
%
|
|
Amount
|
|
%
|
|
Amount
|
|
%
|
|
Common Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ordinary income
|
|
$
|
0.0944
|
|
|
52.46
|
%
|
|
$
|
0.6132
|
|
|
85.16
|
%
|
|
$
|
0.7200
|
|
|
100.00
|
%
|
|
Capital gain distributions
|
|
—
|
|
|
—
|
%
|
|
0.1068
|
|
|
14.84
|
%
|
|
—
|
|
|
—
|
%
|
|
Return of capital
|
|
0.0856
|
|
|
47.54
|
%
|
|
—
|
|
|
—
|
%
|
|
—
|
|
|
—
|
%
|
|
Total
|
|
$
|
0.1800
|
|
|
100.00
|
%
|
|
$
|
0.7200
|
|
|
100.00
|
%
|
|
$
|
0.7200
|
|
|
100.00
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred Stock - Series C
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ordinary income
|
|
$
|
—
|
|
|
—
|
%
|
|
$
|
—
|
|
|
—
|
%
|
|
$
|
0.5393
|
|
|
100.00
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
—
|
|
|
—
|
%
|
|
$
|
—
|
|
|
—
|
%
|
|
$
|
0.5393
|
|
|
100.00
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred Stock - Series D
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ordinary income
|
|
$
|
0.4031
|
|
|
25.00
|
%
|
|
$
|
1.3732
|
|
|
85.16
|
%
|
|
$
|
1.6125
|
|
|
100.00
|
%
|
|
Capital gain distributions
|
|
—
|
|
|
—
|
%
|
|
0.2393
|
|
|
14.84
|
%
|
|
—
|
|
|
—
|
%
|
|
Return of capital
|
|
1.2094
|
|
|
75.00
|
%
|
|
—
|
|
|
—
|
%
|
|
—
|
|
|
—
|
%
|
|
Total
|
|
$
|
1.6125
|
|
|
100.00
|
%
|
|
$
|
1.6125
|
|
|
100.00
|
%
|
|
$
|
1.6125
|
|
|
100.00
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred Stock - Series E
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ordinary income
|
|
$
|
0.3906
|
|
|
25.00
|
%
|
|
$
|
1.3307
|
|
|
85.16
|
%
|
|
$
|
1.5625
|
|
|
100.00
|
%
|
|
Capital gain distributions
|
|
—
|
|
|
—
|
%
|
|
0.2318
|
|
|
14.84
|
%
|
|
—
|
|
|
—
|
%
|
|
Return of capital
|
|
1.1719
|
|
|
75.00
|
%
|
|
—
|
|
|
—
|
%
|
|
—
|
|
|
—
|
%
|
|
Total
|
|
$
|
1.5625
|
|
|
100.00
|
%
|
|
$
|
1.5625
|
|
|
100.00
|
%
|
|
$
|
1.5625
|
|
|
100.00
|
%
|
The common dividends that were taxable to our stockholders in 2020 were 52.46% ordinary income and 47.54% return of capital. The 2020 Preferred D and Preferred E dividends were 25.0% ordinary income and 75.0% return of capital. The 2020 ordinary income dividends are eligible for the 20% deduction provided by Section 199A for qualified REIT dividends.
The dividends that were taxable to our stockholders in 2019 were 85.16% ordinary income and 14.84% capital gain distributions. The 2019 capital gain distribution was 100% related to unrecaptured Section 1250 gain. The 2019 ordinary income dividends are eligible for the 20% deduction provided by Section 199A for qualified REIT dividends.
The dividends that were taxable to our stockholders in 2018 were 100% ordinary income and were eligible for the 20% deduction provided by Section 199A for qualified REIT dividends.
NOTE 15 — EARNINGS PER SHARE
We apply the two-class method of computing earnings per share, which requires the calculation of separate earnings per share amounts for our non-vested time-based restricted stock awards with non-forfeitable dividends and for our Common Stock. Our non-vested time-based restricted stock awards with non-forfeitable rights to dividends are considered securities which participate in undistributed earnings with Common Stock. Under the two-class computation method, net losses are not allocated to participating securities unless the holder of the security has a contractual obligation to share in the losses. Our non-vested time-based restricted stock awards with non-forfeitable dividends do not have such an obligation so they are not allocated losses.
All outstanding stock options were included in the computation of diluted earnings per share for the years ended December 31, 2019 and 2018 due to their dilutive effect. The Common Units held by the non-controlling interest holders have been excluded from the denominator of the diluted earnings per share as there would be no effect on the amounts since the limited partners' share of income would also be added to derive net income attributable to common stockholders. For the years ended December 31, 2020, 2019, and 2018, we had unvested performance-based restricted stock awards of 922,239 shares, 755,991 shares and 453,664 shares, respectively, which were excluded from the denominator of the diluted earnings per share as the awards had not achieved the requisite performance conditions for vesting at each period end.
Below is a summary of the components used to calculate basic and diluted earnings per share (in thousands, except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
2018
|
|
Numerator:
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$
|
(149,245)
|
|
|
$
|
82,348
|
|
|
$
|
91,126
|
|
|
Less: Preferred dividends
|
|
(14,838)
|
|
|
(14,838)
|
|
|
(16,671)
|
|
|
Premium on redemption of preferred stock
|
|
—
|
|
|
—
|
|
|
(3,277)
|
|
|
Allocation to participating securities
|
|
(81)
|
|
|
(309)
|
|
|
(271)
|
|
|
Attributable to non-controlling interest in Operating Partnership
|
|
271
|
|
|
(157)
|
|
|
(205)
|
|
|
Attributable to non-controlling interest in joint venture
|
|
5,635
|
|
|
419
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income attributable to common stockholders, net of amount allocated to participating securities
|
|
$
|
(158,258)
|
|
|
$
|
67,463
|
|
|
$
|
70,702
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
Weighted average common shares outstanding - basic
|
|
104,141
|
|
|
103,887
|
|
|
103,623
|
|
|
Dilutive effect of equity-based compensation awards
|
|
—
|
|
|
52
|
|
|
219
|
|
|
Weighted average common shares outstanding - diluted
|
|
104,141
|
|
|
103,939
|
|
|
103,842
|
|
|
|
|
|
|
|
|
|
|
(Loss) earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
$
|
(1.52)
|
|
|
$
|
0.65
|
|
|
$
|
0.68
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTE 16 — SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
Selected quarterly financial data for the years ended December 31, 2020 and 2019 are as follows (in thousands, except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
|
|
First
Quarter
|
|
Second
Quarter
|
|
Third
Quarter
|
|
Fourth
Quarter
|
|
Total revenues
|
|
$
|
108,385
|
|
|
$
|
25,436
|
|
|
$
|
52,412
|
|
|
$
|
48,230
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(16,214)
|
|
|
$
|
(52,548)
|
|
|
$
|
(35,775)
|
|
|
$
|
(44,708)
|
|
|
Net loss attributable to Summit Hotel Properties, Inc.
|
|
$
|
(15,322)
|
|
|
$
|
(50,417)
|
|
|
$
|
(34,546)
|
|
|
$
|
(43,054)
|
|
|
Loss per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
$
|
(0.18)
|
|
|
$
|
(0.52)
|
|
|
$
|
(0.37)
|
|
|
$
|
(0.45)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
|
|
First
Quarter
|
|
Second
Quarter
|
|
Third
Quarter
|
|
Fourth
Quarter
|
|
Total revenues
|
|
$
|
138,952
|
|
|
$
|
142,930
|
|
|
$
|
133,685
|
|
|
$
|
133,781
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
12,900
|
|
|
$
|
49,069
|
|
|
$
|
11,626
|
|
|
$
|
8,753
|
|
|
Net income attributable to Summit Hotel Properties, Inc.
|
|
$
|
12,877
|
|
|
$
|
48,957
|
|
|
$
|
11,534
|
|
|
$
|
9,242
|
|
|
Earnings per share:
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
$
|
0.09
|
|
|
$
|
0.43
|
|
|
$
|
0.07
|
|
|
$
|
0.05
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTE 17 — SUBSEQUENT EVENTS
Management and Board of Directors Transitions
On December 17, 2020, we announced the appointment of Jonathan P. Stanner to be President and Chief Executive Officer of the Company effective January 15, 2021. Mr. Stanner previously served as our Executive Vice President, Chief Financial Officer and Treasurer since April 1, 2018 and served as our Executive Vice President and Chief Investment Officer from April 17, 2017 through March 31, 2018. Our current Chairman and former President and Chief Executive Officer, Daniel P. Hansen transitioned to the role of Executive Chairman of the Board effective January 15, 2021.
On December 17, 2020, the Board of Directors of the Company (the “Board”) adopted a resolution that increased the size of the Board from 6 to 7 members effective January 15, 2021 with Mr. Stanner being elected a Director to fill the newly created directorship.
Debt Transactions
Amendment of 2018 Senior Credit Facility, 2018 Term Loan and 2017 Term Loan
On January 6, 2021, we entered into the Second Amendment, the Fourth 2017 Term Amendment and the Fifth Term Amendment which permitted the Company to complete the Convertible Notes Offering as described in "Part II – Item 8. – Financial Statements and Supplementary Data – Note 6 – Debt."
On February 5, 2021, we entered into the Third Amendment, the Fifth 2017 Term Amendment, and the Sixth Term Amendment as described in "Part II – Item 8. – Financial Statements and Supplementary Data – Note 6 – Debt."
Convertible Notes Offering
On January 7, 2021, we entered into a Convertible Notes Offering to sell $287.5 million aggregate principal amount of the Company’s 1.50% convertible senior notes due 2026 as described in "Part II – Item 8. – Financial Statements and Supplementary Data – Note 6 – Debt."
Capped Call Transactions
On January 7, 2021, we entered into Capped Call Transactions in connection with our Convertible Notes Offering as described in "Part II – Item 8. – Financial Statements and Supplementary Data – Note 6 – Debt."
Equity Transactions
On January 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. These dividends are payable February 26, 2021 to stockholders of record on February 12, 2021.
SUMMIT HOTEL PROPERTIES, INC
Schedule III - Real Estate and Accumulated Depreciation
December 31, 2020
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Initial Cost
|
|
Cost Capitalized Subsequent to Acquisition
|
|
Total Cost
|
|
|
|
|
|
|
|
Location
|
|
Franchise
|
|
Year Acquired/ Constructed
|
|
Land
|
|
Building & Improvements
|
|
Land, Building & Improvements
|
|
Land
|
|
Building & Improvements
|
|
Total
|
|
Accumulated Depreciation
|
|
Total Cost Net of Accumulated Depreciation
|
|
Mortgage Debt
|
|
|
|
Aliso Viejo, CA
|
|
Homewood Suites
|
|
2017
|
|
$
|
5,599
|
|
|
$
|
32,367
|
|
|
$
|
401
|
|
|
$
|
5,599
|
|
|
$
|
32,768
|
|
|
$
|
38,367
|
|
|
$
|
(5,467)
|
|
|
$
|
32,900
|
|
|
$
|
—
|
|
|
|
|
Arlington, TX
|
|
Courtyard
|
|
2012
|
|
1,497
|
|
|
15,573
|
|
|
(391)
|
|
|
1,497
|
|
|
15,182
|
|
|
16,679
|
|
|
(4,515)
|
|
|
12,164
|
|
|
—
|
|
|
|
|
Arlington, TX
|
|
Residence Inn
|
|
2012
|
|
1,646
|
|
|
15,440
|
|
|
135
|
|
|
1,646
|
|
|
15,575
|
|
|
17,221
|
|
|
(4,842)
|
|
|
12,379
|
|
|
—
|
|
|
|
|
Asheville, NC
|
|
Hotel Indigo
|
|
2015
|
|
2,100
|
|
|
34,755
|
|
|
1,153
|
|
|
2,100
|
|
|
35,908
|
|
|
38,008
|
|
|
(8,286)
|
|
|
29,722
|
|
|
—
|
|
|
|
|
Atlanta, GA
|
|
Courtyard
|
|
2012
|
|
2,050
|
|
|
27,969
|
|
|
3,095
|
|
|
2,050
|
|
|
31,064
|
|
|
33,114
|
|
|
(6,692)
|
|
|
26,422
|
|
|
—
|
|
|
|
|
Atlanta, GA
|
|
Residence Inn
|
|
2016
|
|
3,381
|
|
|
34,820
|
|
|
932
|
|
|
3,381
|
|
|
35,752
|
|
|
39,133
|
|
|
(5,894)
|
|
|
33,239
|
|
|
—
|
|
|
|
|
Atlanta, GA
|
|
AC Hotel
|
|
2017
|
|
5,670
|
|
|
51,922
|
|
|
630
|
|
|
5,670
|
|
|
52,552
|
|
|
58,222
|
|
|
(7,568)
|
|
|
50,654
|
|
|
—
|
|
|
|
|
Austin, TX
|
|
Hampton Inn & Suites
|
|
2014
|
|
—
|
|
(2)
|
56,394
|
|
|
5,027
|
|
|
—
|
|
|
61,421
|
|
|
61,421
|
|
|
(12,067)
|
|
|
49,354
|
|
|
—
|
|
|
|
|
Austin, TX
|
|
Corporate Office
|
|
2017
|
|
—
|
|
|
6,048
|
|
|
(273)
|
|
|
—
|
|
|
5,775
|
|
|
5,775
|
|
|
(2,870)
|
|
|
2,905
|
|
|
—
|
|
|
|
|
Baltimore, MD
|
|
Hampton Inn & Suites
|
|
2017
|
|
2,205
|
|
|
16,013
|
|
|
5,465
|
|
|
2,205
|
|
|
21,478
|
|
|
23,683
|
|
|
(2,427)
|
|
|
21,256
|
|
|
—
|
|
|
|
|
Baltimore, MD
|
|
Residence Inn
|
|
2017
|
|
1,986
|
|
|
37,016
|
|
|
6,335
|
|
|
1,986
|
|
|
43,351
|
|
|
45,337
|
|
|
(6,665)
|
|
|
38,672
|
|
|
—
|
|
|
|
|
Boulder, CO
|
|
Marriott
|
|
2016
|
|
11,115
|
|
|
49,204
|
|
|
9,017
|
|
|
11,115
|
|
|
58,221
|
|
|
69,336
|
|
|
(9,899)
|
|
|
59,437
|
|
|
—
|
|
|
|
|
Branchburg, NJ
|
|
Residence Inn
|
|
2015
|
|
2,374
|
|
|
24,411
|
|
|
356
|
|
|
2,374
|
|
|
24,767
|
|
|
27,141
|
|
|
(5,861)
|
|
|
21,280
|
|
|
—
|
|
|
|
|
Brisbane, CA
|
|
DoubleTree
|
|
2014
|
|
3,300
|
|
|
39,686
|
|
|
1,327
|
|
|
3,300
|
|
|
41,013
|
|
|
44,313
|
|
|
(13,952)
|
|
|
30,361
|
|
|
—
|
|
|
|
|
Camarillo, CA
|
|
Hampton Inn & Suites
|
|
2013
|
|
2,200
|
|
|
17,366
|
|
|
467
|
|
|
2,200
|
|
|
17,833
|
|
|
20,033
|
|
|
(6,925)
|
|
|
13,108
|
|
|
—
|
|
|
|
|
Charlotte, NC
|
|
Courtyard
|
|
2017
|
|
—
|
|
|
41,094
|
|
|
1,580
|
|
|
—
|
|
|
42,674
|
|
|
42,674
|
|
|
(6,474)
|
|
|
36,200
|
|
|
—
|
|
|
|
|
Chicago, IL
|
|
Hyatt Place
|
|
2016
|
|
5,395
|
|
|
68,355
|
|
|
230
|
|
|
5,395
|
|
|
68,585
|
|
|
73,980
|
|
|
(12,326)
|
|
|
61,654
|
|
|
—
|
|
|
|
|
Cleveland, OH
|
|
Residence Inn
|
|
2017
|
|
10,075
|
|
|
33,340
|
|
|
1,835
|
|
|
10,075
|
|
|
35,175
|
|
|
45,250
|
|
|
(5,842)
|
|
|
39,408
|
|
|
—
|
|
|
|
|
Decatur, GA
|
|
Courtyard
|
|
2015
|
|
4,046
|
|
|
34,151
|
|
|
3,907
|
|
|
4,046
|
|
|
38,058
|
|
|
42,104
|
|
|
(7,580)
|
|
|
34,524
|
|
|
—
|
|
|
|
|
Eden Prairie, MN
|
|
Hilton Garden Inn
|
|
2013
|
|
1,800
|
|
|
11,211
|
|
|
191
|
|
|
1,800
|
|
|
11,402
|
|
|
13,202
|
|
|
(4,462)
|
|
|
8,740
|
|
|
—
|
|
|
|
|
Englewood, CO
|
|
Hyatt Place
|
|
2012
|
|
2,000
|
|
|
11,950
|
|
|
(279)
|
|
|
2,000
|
|
|
11,671
|
|
|
13,671
|
|
|
(4,572)
|
|
|
9,099
|
|
|
19,039
|
|
|
(1)
|
|
Englewood, CO
|
|
Hyatt House
|
|
2012
|
|
2,700
|
|
|
16,267
|
|
|
501
|
|
|
2,700
|
|
|
16,768
|
|
|
19,468
|
|
|
(7,214)
|
|
|
12,254
|
|
|
19,520
|
|
|
(1)
|
|
Fort Lauderdale, FL
|
|
Courtyard
|
|
2017
|
|
37,950
|
|
|
47,002
|
|
|
3,825
|
|
|
37,950
|
|
|
50,827
|
|
|
88,777
|
|
|
(8,051)
|
|
|
80,726
|
|
|
—
|
|
|
|
|
Fort Worth, TX
|
|
Courtyard
|
|
2017
|
|
1,920
|
|
|
38,070
|
|
|
9,560
|
|
|
1,920
|
|
|
47,630
|
|
|
49,550
|
|
|
(6,238)
|
|
|
43,312
|
|
|
—
|
|
|
|
|
Garden City, NY
|
|
Hyatt Place
|
|
2012
|
|
4,200
|
|
|
27,775
|
|
|
337
|
|
|
4,283
|
|
|
28,029
|
|
|
32,312
|
|
|
(6,756)
|
|
|
25,556
|
|
|
—
|
|
|
|
|
Glendale, CO
|
|
Staybridge Suites
|
|
2011
|
|
2,100
|
|
|
10,151
|
|
|
493
|
|
|
2,100
|
|
|
10,644
|
|
|
12,744
|
|
|
(4,273)
|
|
|
8,471
|
|
|
—
|
|
|
|
|
Greenville, SC
|
|
Hilton Garden Inn
|
|
2013
|
|
1,200
|
|
|
14,566
|
|
|
3,124
|
|
|
1,200
|
|
|
17,690
|
|
|
18,890
|
|
|
(4,867)
|
|
|
14,023
|
|
|
—
|
|
|
|
|
Hillsboro, OR
|
|
Residence Inn
|
|
2019
|
|
4,943
|
|
|
42,541
|
|
|
307
|
|
|
4,943
|
|
|
42,848
|
|
|
47,791
|
|
|
(2,324)
|
|
|
45,467
|
|
|
—
|
|
|
|
|
Hoffman Estates, IL
|
|
Hyatt Place
|
|
2013
|
|
1,900
|
|
|
8,917
|
|
|
(1,756)
|
|
|
1,900
|
|
|
7,161
|
|
|
9,061
|
|
|
(3,645)
|
|
|
5,416
|
|
|
18,852
|
|
|
(1)
|
SUMMIT HOTEL PROPERTIES, INC
Schedule III - Real Estate and Accumulated Depreciation
December 31, 2020
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Initial Cost
|
|
Cost Capitalized Subsequent to Acquisition
|
|
Total Cost
|
|
|
|
|
|
|
|
Location
|
|
Franchise
|
|
Year Acquired/ Constructed
|
|
Land
|
|
Building & Improvements
|
|
Land, Building & Improvements
|
|
Land
|
|
Building & Improvements
|
|
Total
|
|
Accumulated Depreciation
|
|
Total Cost Net of Accumulated Depreciation
|
|
Mortgage Debt
|
|
|
|
Houston, TX
|
|
Hilton Garden Inn
|
|
2014
|
|
$
|
—
|
|
(2)
|
$
|
41,838
|
|
|
$
|
4,353
|
|
|
$
|
—
|
|
|
$
|
46,191
|
|
|
$
|
46,191
|
|
|
$
|
(11,535)
|
|
|
$
|
34,656
|
|
|
$
|
—
|
|
|
|
|
Houston, TX
|
|
Hilton Garden Inn
|
|
2014
|
|
2,800
|
|
|
33,777
|
|
|
3,222
|
|
|
2,800
|
|
|
36,999
|
|
|
39,799
|
|
|
(7,078)
|
|
|
32,721
|
|
|
—
|
|
|
|
|
Hunt Valley, MD
|
|
Residence Inn
|
|
2015
|
|
—
|
|
|
35,436
|
|
|
1,417
|
|
|
1,076
|
|
|
35,777
|
|
|
36,853
|
|
|
(7,925)
|
|
|
28,928
|
|
|
—
|
|
|
|
|
Indianapolis, IN
|
|
SpringHill Suites
|
|
2013
|
|
4,012
|
|
|
27,910
|
|
|
(631)
|
|
|
4,012
|
|
|
27,279
|
|
|
31,291
|
|
|
(6,707)
|
|
|
24,584
|
|
|
—
|
|
|
|
|
Indianapolis, IN
|
|
Courtyard
|
|
2013
|
|
7,788
|
|
|
54,384
|
|
|
(2,035)
|
|
|
7,788
|
|
|
52,349
|
|
|
60,137
|
|
|
(12,472)
|
|
|
47,665
|
|
|
—
|
|
|
|
|
Kansas City, MO
|
|
Courtyard
|
|
2017
|
|
3,955
|
|
|
20,608
|
|
|
2,337
|
|
|
3,955
|
|
|
22,945
|
|
|
26,900
|
|
|
(3,785)
|
|
|
23,115
|
|
|
—
|
|
|
|
|
Lombard, IL
|
|
Hyatt Place
|
|
2012
|
|
1,550
|
|
|
17,351
|
|
|
(316)
|
|
|
1,550
|
|
|
17,035
|
|
|
18,585
|
|
|
(6,240)
|
|
|
12,345
|
|
|
—
|
|
|
(1)
|
|
Lone Tree, CO
|
|
Hyatt Place
|
|
2012
|
|
1,300
|
|
|
11,704
|
|
|
(142)
|
|
|
1,314
|
|
|
11,548
|
|
|
12,862
|
|
|
(4,776)
|
|
|
8,086
|
|
|
—
|
|
|
(1)
|
|
Louisville, KY
|
|
Fairfield Inn & Suites
|
|
2013
|
|
3,120
|
|
|
24,231
|
|
|
(503)
|
|
|
3,120
|
|
|
23,728
|
|
|
26,848
|
|
|
(6,882)
|
|
|
19,966
|
|
|
33,947
|
|
|
(1)
|
|
Louisville, KY
|
|
SpringHill Suites
|
|
2013
|
|
4,880
|
|
|
37,361
|
|
|
(612)
|
|
|
4,880
|
|
|
36,749
|
|
|
41,629
|
|
|
(10,640)
|
|
|
30,989
|
|
|
—
|
|
|
(1)
|
|
Mesa, AZ
|
|
Hyatt Place
|
|
2017
|
|
2,400
|
|
|
19,848
|
|
|
988
|
|
|
2,400
|
|
|
20,836
|
|
|
23,236
|
|
|
(4,432)
|
|
|
18,804
|
|
|
46,172
|
|
|
(1)
|
|
Metairie, LA
|
|
Courtyard
|
|
2013
|
|
1,860
|
|
|
25,168
|
|
|
633
|
|
|
1,860
|
|
|
25,801
|
|
|
27,661
|
|
|
(8,651)
|
|
|
19,010
|
|
|
—
|
|
|
|
|
Metairie, LA
|
|
Residence Inn
|
|
2013
|
|
1,791
|
|
|
23,386
|
|
|
471
|
|
|
1,791
|
|
|
23,857
|
|
|
25,648
|
|
|
(9,448)
|
|
|
16,200
|
|
|
—
|
|
|
|
|
Miami, FL
|
|
Hyatt House
|
|
2015
|
|
4,926
|
|
|
40,087
|
|
|
1,482
|
|
|
4,926
|
|
|
41,569
|
|
|
46,495
|
|
|
(10,915)
|
|
|
35,580
|
|
|
—
|
|
|
|
|
Milpitas, CA
|
|
Hilton Garden Inn
|
|
2019
|
|
7,921
|
|
|
46,141
|
|
|
543
|
|
|
7,921
|
|
|
46,684
|
|
|
54,605
|
|
|
(2,971)
|
|
|
51,634
|
|
|
—
|
|
|
|
|
Minneapolis, MN
|
|
Hyatt Place
|
|
2013
|
|
—
|
|
|
34,026
|
|
|
1,799
|
|
|
—
|
|
|
35,825
|
|
|
35,825
|
|
|
(8,952)
|
|
|
26,873
|
|
|
—
|
|
|
|
|
Minneapolis, MN
|
|
Hampton Inn & Suites
|
|
2015
|
|
3,502
|
|
|
35,433
|
|
|
215
|
|
|
3,502
|
|
|
35,648
|
|
|
39,150
|
|
|
(9,103)
|
|
|
30,047
|
|
|
—
|
|
|
(1)
|
|
Minnetonka, MN
|
|
Holiday Inn Express & Suites
|
|
2013
|
|
1,000
|
|
|
7,662
|
|
|
223
|
|
|
1,000
|
|
|
7,885
|
|
|
8,885
|
|
|
(3,119)
|
|
|
5,766
|
|
|
—
|
|
|
|
|
Nashville, TN
|
|
SpringHill Suites
|
|
2004
|
|
777
|
|
|
5,598
|
|
|
336
|
|
|
777
|
|
|
5,934
|
|
|
6,711
|
|
|
(3,711)
|
|
|
3,000
|
|
|
—
|
|
|
|
|
Nashville, TN
|
|
Courtyard
|
|
2016
|
|
8,792
|
|
|
62,759
|
|
|
8,280
|
|
|
8,792
|
|
|
71,039
|
|
|
79,831
|
|
|
(11,373)
|
|
|
68,458
|
|
|
—
|
|
|
|
|
New Haven, CT
|
|
Courtyard
|
|
2017
|
|
11,990
|
|
|
51,497
|
|
|
1,654
|
|
|
11,990
|
|
|
53,151
|
|
|
65,141
|
|
|
(6,724)
|
|
|
58,417
|
|
|
—
|
|
|
|
|
New Orleans, LA
|
|
Courtyard
|
|
2013
|
|
1,944
|
|
|
25,120
|
|
|
3,399
|
|
|
1,944
|
|
|
28,519
|
|
|
30,463
|
|
|
(10,766)
|
|
|
19,697
|
|
|
—
|
|
|
|
|
New Orleans, LA
|
|
Courtyard
|
|
2013
|
|
2,490
|
|
|
34,220
|
|
|
1,623
|
|
|
2,490
|
|
|
35,843
|
|
|
38,333
|
|
|
(12,574)
|
|
|
25,759
|
|
|
—
|
|
|
|
|
New Orleans, LA
|
|
SpringHill Suites
|
|
2013
|
|
2,046
|
|
|
33,270
|
|
|
6,140
|
|
|
2,046
|
|
|
39,410
|
|
|
41,456
|
|
|
(12,845)
|
|
|
28,611
|
|
|
—
|
|
|
|
|
Orlando, FL
|
|
Hyatt Place
|
|
2013
|
|
3,100
|
|
|
11,343
|
|
|
(400)
|
|
|
3,100
|
|
|
10,943
|
|
|
14,043
|
|
|
(4,351)
|
|
|
9,692
|
|
|
—
|
|
|
(1)
|
|
Orlando, FL
|
|
Hyatt Place
|
|
2013
|
|
2,716
|
|
|
11,221
|
|
|
719
|
|
|
2,716
|
|
|
11,940
|
|
|
14,656
|
|
|
(4,532)
|
|
|
10,124
|
|
|
—
|
|
|
(1)
|
|
Orlando, FL
|
|
Hyatt House
|
|
2018
|
|
2,800
|
|
|
34,423
|
|
|
123
|
|
|
2,800
|
|
|
34,546
|
|
|
37,346
|
|
|
(5,624)
|
|
|
31,722
|
|
|
—
|
|
|
|
|
Owings Mills, MD
|
|
Hyatt Place
|
|
2012
|
|
2,100
|
|
|
9,799
|
|
|
(13)
|
|
|
2,100
|
|
|
9,786
|
|
|
11,886
|
|
|
(3,718)
|
|
|
8,168
|
|
|
—
|
|
|
(1)
|
|
Pittsburgh, PA
|
|
Courtyard
|
|
2017
|
|
1,652
|
|
|
40,749
|
|
|
6,013
|
|
|
1,652
|
|
|
46,762
|
|
|
48,414
|
|
|
(6,030)
|
|
|
42,384
|
|
|
—
|
|
|
|
|
Portland, OR
|
|
Hyatt Place
|
|
2009
|
|
—
|
|
(2)
|
14,700
|
|
|
707
|
|
|
—
|
|
|
15,407
|
|
|
15,407
|
|
|
(5,296)
|
|
|
10,111
|
|
|
—
|
|
|
|
|
Portland, OR
|
|
Residence Inn
|
|
2009
|
|
—
|
|
(2)
|
15,629
|
|
|
386
|
|
|
—
|
|
|
16,015
|
|
|
16,015
|
|
|
(6,307)
|
|
|
9,708
|
|
|
16,448
|
|
|
(1)
|
|
Portland, OR
|
|
Residence Inn
|
|
2019
|
|
12,813
|
|
|
76,868
|
|
|
539
|
|
|
12,813
|
|
|
77,407
|
|
|
90,220
|
|
|
(6,081)
|
|
|
84,139
|
|
|
—
|
|
|
|
|
Poway, CA
|
|
Hampton Inn & Suites
|
|
2013
|
|
2,300
|
|
|
14,728
|
|
|
1,269
|
|
|
2,300
|
|
|
15,997
|
|
|
18,297
|
|
|
(4,869)
|
|
|
13,428
|
|
|
—
|
|
|
|
|
San Francisco, CA
|
|
Hilton Garden Inn
|
|
2019
|
|
12,346
|
|
|
45,730
|
|
|
294
|
|
|
12,346
|
|
|
46,024
|
|
|
58,370
|
|
|
(2,969)
|
|
|
55,401
|
|
|
—
|
|
|
|
|
San Francisco, CA
|
|
Holiday Inn Express & Suites
|
|
2013
|
|
15,545
|
|
|
49,469
|
|
|
3,992
|
|
|
15,545
|
|
|
53,461
|
|
|
69,006
|
|
|
(16,002)
|
|
|
53,004
|
|
|
—
|
|
|
|
|
San Francisco, CA
|
|
Four Points
|
|
2014
|
|
1,200
|
|
|
21,397
|
|
|
3,058
|
|
|
1,200
|
|
|
24,455
|
|
|
25,655
|
|
|
(6,593)
|
|
|
19,062
|
|
|
—
|
|
|
(1)
|
SUMMIT HOTEL PROPERTIES, INC
Schedule III - Real Estate and Accumulated Depreciation
December 31, 2020
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Initial Cost
|
|
Cost Capitalized Subsequent to Acquisition
|
|
Total Cost
|
|
|
|
|
|
|
|
Location
|
|
Franchise
|
|
Year Acquired/ Constructed
|
|
Land
|
|
Building & Improvements
|
|
Land, Building & Improvements
|
|
Land
|
|
Building & Improvements
|
|
Total
|
|
Accumulated Depreciation
|
|
Total Cost Net of Accumulated Depreciation
|
|
Mortgage Debt
|
|
|
|
Scottsdale, AZ
|
|
Hyatt Place
|
|
2012
|
|
$
|
1,500
|
|
|
$
|
10,171
|
|
|
$
|
(315)
|
|
|
$
|
1,500
|
|
|
$
|
9,856
|
|
|
$
|
11,356
|
|
|
$
|
(3,537)
|
|
|
$
|
7,819
|
|
|
$
|
—
|
|
|
(1)
|
|
Scottsdale, AZ
|
|
Courtyard
|
|
2003
|
|
3,225
|
|
|
12,571
|
|
|
3,706
|
|
|
3,225
|
|
|
16,277
|
|
|
19,502
|
|
|
(6,970)
|
|
|
12,532
|
|
|
—
|
|
|
|
|
Scottsdale, AZ
|
|
SpringHill Suites
|
|
2003
|
|
2,195
|
|
|
9,496
|
|
|
1,779
|
|
|
2,195
|
|
|
11,275
|
|
|
13,470
|
|
|
(4,936)
|
|
|
8,534
|
|
|
—
|
|
|
|
|
Silverthorne, CO
|
|
Hampton Inn & Suites
|
|
2019
|
|
6,845
|
|
|
21,125
|
|
|
636
|
|
|
6,845
|
|
|
21,761
|
|
|
28,606
|
|
|
(1,149)
|
|
|
27,457
|
|
|
—
|
|
|
|
|
Tampa, FL
|
|
Hampton Inn & Suites
|
|
2012
|
|
3,600
|
|
|
20,366
|
|
|
4,559
|
|
|
3,600
|
|
|
24,925
|
|
|
28,525
|
|
|
(6,190)
|
|
|
22,335
|
|
|
—
|
|
|
|
|
Tucson, AZ
|
|
Homewood Suites
|
|
2017
|
|
2,570
|
|
|
22,802
|
|
|
1,093
|
|
|
2,570
|
|
|
23,895
|
|
|
26,465
|
|
|
(4,444)
|
|
|
22,021
|
|
|
—
|
|
|
|
|
Waltham, MA
|
|
Hilton Garden Inn
|
|
2017
|
|
10,644
|
|
|
21,713
|
|
|
6,196
|
|
|
10,644
|
|
|
27,909
|
|
|
38,553
|
|
|
(4,001)
|
|
|
34,552
|
|
|
—
|
|
|
|
|
Watertown, MA
|
|
Residence Inn
|
|
2018
|
|
25,083
|
|
|
45,917
|
|
|
259
|
|
|
25,083
|
|
|
46,176
|
|
|
71,259
|
|
|
(4,549)
|
|
|
66,710
|
|
|
—
|
|
|
|
|
Land Parcels
|
|
Land Parcels
|
|
|
|
4,645
|
|
|
—
|
|
|
(2,720)
|
|
|
1,925
|
|
|
—
|
|
|
1,925
|
|
|
—
|
|
|
1,925
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
$
|
323,075
|
|
|
$
|
2,123,406
|
|
|
$
|
124,287
|
|
|
$
|
321,528
|
|
|
$
|
2,249,240
|
|
|
$
|
2,570,768
|
|
|
$
|
(490,326)
|
|
|
$
|
2,080,442
|
|
|
$
|
153,978
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Properties cross-collateralize the related loan, refer to "Part II – Item 8. – Financial Statements and Supplementary Data – Note 6 – Debt" in the Consolidated Financial Statements.
(2) Properties subject to ground lease, refer to "Part II – Item 8. – Financial Statements and Supplementary Data – Note 7 – Leases" in the Consolidated Financial Statements.
SUMMIT HOTEL PROPERTIES, INC
Schedule III - Real Estate and Accumulated Depreciation
December 31, 2020
(in thousands)
(a) ASSET BASIS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
2018
|
|
Reconciliation of land, buildings and improvements:
|
|
|
|
|
|
|
|
Balance at beginning of period
|
|
$
|
2,553,428
|
|
|
$
|
2,406,269
|
|
|
$
|
2,355,723
|
|
|
Additions to land, buildings and improvements
|
|
19,918
|
|
|
336,480
|
|
|
151,829
|
|
|
Disposition of land, buildings and improvements
|
|
(2,578)
|
|
|
(186,800)
|
|
|
(100,208)
|
|
|
Impairment loss
|
|
—
|
|
|
(2,521)
|
|
|
(1,075)
|
|
|
Balance at end of period
|
|
$
|
2,570,768
|
|
|
$
|
2,553,428
|
|
|
$
|
2,406,269
|
|
(b) ACCUMULATED DEPRECIATION
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
2018
|
|
Reconciliation of accumulated depreciation:
|
|
|
|
|
|
|
|
Balance at beginning of period
|
|
$
|
383,763
|
|
|
$
|
351,821
|
|
|
$
|
290,066
|
|
|
Depreciation
|
|
109,159
|
|
|
99,013
|
|
|
100,545
|
|
|
Depreciation on assets sold or disposed
|
|
(2,596)
|
|
|
(67,071)
|
|
|
(38,790)
|
|
|
Balance at end of period
|
|
$
|
490,326
|
|
|
$
|
383,763
|
|
|
$
|
351,821
|
|
(c) The aggregate cost of real estate for Federal income tax purposes was approximately $2,390 million.
(d) Depreciation is computed based upon the following useful lives:
Buildings and improvements 6-40 years
Furniture and equipment 2-15 years
(e) We have mortgages payable on the properties as noted. Additional mortgage information can be found in "Part II – Item 8. – Financial Statements and Supplementary Data – Note 6 – Debt" to the Consolidated Financial Statements.
(f) The negative balance for costs capitalized subsequent to acquisition include out-parcels sold, disposal of assets, and recorded impairment losses.