0001609471false2021Q312/31P5Y00016094712021-01-012021-09-30xbrli:shares0001609471us-gaap:CommonClassAMember2021-11-050001609471us-gaap:CommonClassBMember2021-11-05iso4217:USD00016094712021-09-3000016094712020-12-31iso4217:USDxbrli:shares0001609471us-gaap:CommonClassAMember2020-12-310001609471us-gaap:CommonClassAMember2021-09-300001609471us-gaap:CommonClassBMember2020-12-310001609471us-gaap:CommonClassBMember2021-09-300001609471us-gaap:OccupancyMember2021-07-012021-09-300001609471us-gaap:OccupancyMember2020-07-012020-09-300001609471us-gaap:OccupancyMember2021-01-012021-09-300001609471us-gaap:OccupancyMember2020-01-012020-09-300001609471us-gaap:FoodAndBeverageMember2021-07-012021-09-300001609471us-gaap:FoodAndBeverageMember2020-07-012020-09-300001609471us-gaap:FoodAndBeverageMember2021-01-012021-09-300001609471us-gaap:FoodAndBeverageMember2020-01-012020-09-300001609471us-gaap:HotelOtherMember2021-07-012021-09-300001609471us-gaap:HotelOtherMember2020-07-012020-09-300001609471us-gaap:HotelOtherMember2021-01-012021-09-300001609471us-gaap:HotelOtherMember2020-01-012020-09-3000016094712021-07-012021-09-3000016094712020-07-012020-09-3000016094712020-01-012020-09-300001609471us-gaap:PublicUtilitiesMember2021-07-012021-09-300001609471us-gaap:PublicUtilitiesMember2020-07-012020-09-300001609471us-gaap:PublicUtilitiesMember2021-01-012021-09-300001609471us-gaap:PublicUtilitiesMember2020-01-012020-09-300001609471us-gaap:ManagementServiceMember2021-07-012021-09-300001609471us-gaap:ManagementServiceMember2020-07-012020-09-300001609471us-gaap:ManagementServiceMember2021-01-012021-09-300001609471us-gaap:ManagementServiceMember2020-01-012020-09-300001609471us-gaap:CommonClassAMember2021-07-012021-09-300001609471us-gaap:CommonClassAMember2020-07-012020-09-300001609471us-gaap:CommonClassAMember2021-01-012021-09-300001609471us-gaap:CommonClassAMember2020-01-012020-09-300001609471us-gaap:CommonClassBMember2021-07-012021-09-300001609471us-gaap:CommonClassBMember2020-07-012020-09-300001609471us-gaap:CommonClassBMember2021-01-012021-09-300001609471us-gaap:CommonClassBMember2020-01-012020-09-300001609471us-gaap:CommonStockMemberus-gaap:CommonClassAMember2021-06-300001609471us-gaap:CommonStockMemberus-gaap:CommonClassBMember2021-06-300001609471us-gaap:AdditionalPaidInCapitalMember2021-06-300001609471us-gaap:AccumulatedDistributionsInExcessOfNetIncomeMember2021-06-300001609471us-gaap:AccumulatedOtherComprehensiveIncomeMember2021-06-300001609471us-gaap:ParentMember2021-06-300001609471us-gaap:NoncontrollingInterestMember2021-06-3000016094712021-06-300001609471us-gaap:AccumulatedDistributionsInExcessOfNetIncomeMember2021-07-012021-09-300001609471us-gaap:ParentMember2021-07-012021-09-300001609471us-gaap:NoncontrollingInterestMember2021-07-012021-09-300001609471us-gaap:AdditionalPaidInCapitalMember2021-07-012021-09-300001609471us-gaap:CommonStockMember2021-07-012021-09-300001609471us-gaap:AccumulatedOtherComprehensiveIncomeMember2021-07-012021-09-300001609471us-gaap:CommonStockMemberus-gaap:CommonClassAMember2021-09-300001609471us-gaap:CommonStockMemberus-gaap:CommonClassBMember2021-09-300001609471us-gaap:AdditionalPaidInCapitalMember2021-09-300001609471us-gaap:AccumulatedDistributionsInExcessOfNetIncomeMember2021-09-300001609471us-gaap:AccumulatedOtherComprehensiveIncomeMember2021-09-300001609471us-gaap:ParentMember2021-09-300001609471us-gaap:NoncontrollingInterestMember2021-09-300001609471us-gaap:CommonStockMemberus-gaap:CommonClassAMember2020-06-300001609471us-gaap:CommonStockMemberus-gaap:CommonClassBMember2020-06-300001609471us-gaap:AdditionalPaidInCapitalMember2020-06-300001609471us-gaap:AccumulatedDistributionsInExcessOfNetIncomeMember2020-06-300001609471us-gaap:AccumulatedOtherComprehensiveIncomeMember2020-06-300001609471us-gaap:ParentMember2020-06-300001609471us-gaap:NoncontrollingInterestMember2020-06-3000016094712020-06-300001609471us-gaap:AccumulatedDistributionsInExcessOfNetIncomeMember2020-07-012020-09-300001609471us-gaap:ParentMember2020-07-012020-09-300001609471us-gaap:NoncontrollingInterestMember2020-07-012020-09-300001609471us-gaap:AdditionalPaidInCapitalMember2020-07-012020-09-300001609471us-gaap:CommonStockMemberus-gaap:CommonClassAMember2020-07-012020-09-300001609471us-gaap:AccumulatedOtherComprehensiveIncomeMember2020-07-012020-09-300001609471us-gaap:CommonStockMemberus-gaap:CommonClassAMember2020-09-300001609471us-gaap:CommonStockMemberus-gaap:CommonClassBMember2020-09-300001609471us-gaap:AdditionalPaidInCapitalMember2020-09-300001609471us-gaap:AccumulatedDistributionsInExcessOfNetIncomeMember2020-09-300001609471us-gaap:AccumulatedOtherComprehensiveIncomeMember2020-09-300001609471us-gaap:ParentMember2020-09-300001609471us-gaap:NoncontrollingInterestMember2020-09-3000016094712020-09-300001609471us-gaap:CommonStockMemberus-gaap:CommonClassAMember2020-12-310001609471us-gaap:CommonStockMemberus-gaap:CommonClassBMember2020-12-310001609471us-gaap:AdditionalPaidInCapitalMember2020-12-310001609471us-gaap:AccumulatedDistributionsInExcessOfNetIncomeMember2020-12-310001609471us-gaap:AccumulatedOtherComprehensiveIncomeMember2020-12-310001609471us-gaap:ParentMember2020-12-310001609471us-gaap:NoncontrollingInterestMember2020-12-310001609471us-gaap:AccumulatedDistributionsInExcessOfNetIncomeMember2021-01-012021-09-300001609471us-gaap:ParentMember2021-01-012021-09-300001609471us-gaap:NoncontrollingInterestMember2021-01-012021-09-300001609471us-gaap:CommonStockMemberus-gaap:CommonClassAMember2021-01-012021-09-300001609471us-gaap:AdditionalPaidInCapitalMember2021-01-012021-09-300001609471us-gaap:AccumulatedOtherComprehensiveIncomeMember2021-01-012021-09-300001609471us-gaap:CommonStockMemberus-gaap:CommonClassBMember2021-01-012021-09-300001609471us-gaap:CommonStockMemberus-gaap:CommonClassAMember2019-12-310001609471us-gaap:CommonStockMemberus-gaap:CommonClassBMember2019-12-310001609471us-gaap:AdditionalPaidInCapitalMember2019-12-310001609471us-gaap:AccumulatedDistributionsInExcessOfNetIncomeMember2019-12-310001609471us-gaap:AccumulatedOtherComprehensiveIncomeMember2019-12-310001609471us-gaap:ParentMember2019-12-310001609471us-gaap:NoncontrollingInterestMember2019-12-3100016094712019-12-310001609471us-gaap:AccumulatedDistributionsInExcessOfNetIncomeMember2020-01-012020-09-300001609471us-gaap:ParentMember2020-01-012020-09-300001609471us-gaap:NoncontrollingInterestMember2020-01-012020-09-300001609471us-gaap:CommonStockMemberus-gaap:CommonClassAMember2020-01-012020-09-300001609471us-gaap:AdditionalPaidInCapitalMember2020-01-012020-09-300001609471us-gaap:CommonStockMemberus-gaap:CommonClassBMember2020-01-012020-09-300001609471us-gaap:AccumulatedOtherComprehensiveIncomeMember2020-01-012020-09-300001609471cwi2:HyattCentricFrenchQuarterVentureMember2021-01-012021-09-300001609471cwi2:HyattCentricFrenchQuarterVentureMember2020-01-012020-09-300001609471cwi2:CWIAndCWI2MergerMember2021-01-012021-09-300001609471cwi2:CWIAndCWI2MergerMember2020-01-012020-09-30xbrli:pure0001609471cwi2:WatermarkLodgingTrustOperatingPartnershipMember2021-09-300001609471cwi2:WatermarkCapitalMembersrt:ChiefExecutiveOfficerMember2021-01-012021-09-300001609471cwi2:WatermarkLodgingTrustOperatingPartnershipMembersrt:ChiefExecutiveOfficerMember2021-09-30cwi2:property0001609471srt:HotelMember2021-09-300001609471srt:HotelMemberus-gaap:ConsolidatedPropertiesMember2021-09-300001609471srt:HotelMemberus-gaap:UnconsolidatedPropertiesMember2021-09-300001609471cwi2:RedeemablePreferredStockBMember2021-09-300001609471cwi2:RedeemablePreferredStockBMembercwi2:ACPWatermarkInvestmentLLCMember2021-01-012021-09-300001609471us-gaap:ConsolidatedPropertiesMember2021-09-30cwi2:loan0001609471cwi2:WestinMinneapolisMemberus-gaap:SubsequentEventMemberus-gaap:DisposalGroupDisposedOfBySaleNotDiscontinuedOperationsMember2021-10-190001609471cwi2:CwiMember2020-04-13cwi2:variable_interest_entity0001609471us-gaap:VariableInterestEntityPrimaryBeneficiaryMember2021-09-300001609471us-gaap:VariableInterestEntityPrimaryBeneficiaryMember2020-12-310001609471us-gaap:CommonClassAMembercwi2:CwiMember2020-04-130001609471cwi2:W.P.CareyMemberus-gaap:CommonClassAMembercwi2:CwiMember2020-04-132020-04-130001609471cwi2:W.P.CareyMembercwi2:CwiMembercwi2:RedeemablePreferredStockAMember2020-04-132020-04-130001609471cwi2:W.P.CareyMembercwi2:CwiMembercwi2:RedeemablePreferredStockAMember2020-04-130001609471cwi2:CareyWatermarkInvestors2OperatingPartnershipMemberus-gaap:CommonClassAMembercwi2:WatermarkCapitalMembercwi2:CwiMember2020-04-132020-04-130001609471cwi2:CharlotteMarriottCityCenterMembercwi2:CwiMember2020-04-130001609471cwi2:CourtyardNashvilleHotelMembercwi2:CwiMember2020-04-130001609471cwi2:EmbassySuitesbyHiltonDenverDowntownConventionCenterMembercwi2:CwiMember2020-04-130001609471cwi2:LeMridienArlingtonMembercwi2:CwiMember2020-04-130001609471cwi2:MarriottSawgrassGolfResortandSpaMembercwi2:CwiMember2020-04-130001609471cwi2:RenaissanceAtlantaMidtownMembercwi2:CwiMember2020-04-130001609471cwi2:RitzCarltonBacaraMembercwi2:CwiMember2020-04-130001609471cwi2:RitzCarltonKeyBiscayneMembercwi2:CwiMember2020-04-130001609471cwi2:RitzCarltonSanFranciscoMembercwi2:CwiMember2020-04-130001609471cwi2:SanDiegoMarriottLaJollaMembercwi2:CwiMember2020-04-130001609471cwi2:SanJoseMarriottMembercwi2:CwiMember2020-04-130001609471cwi2:SeattleMarriottBellevueMembercwi2:CwiMember2020-04-130001609471cwi2:RitzCarltonBacaraMember2020-04-130001609471cwi2:RitzCarltonKeyBiscayneMember2020-04-130001609471cwi2:CwiMember2020-04-132020-04-130001609471cwi2:CwiMember2020-04-132020-09-300001609471us-gaap:TradeNamesMembercwi2:CwiMember2020-04-132020-04-130001609471cwi2:InPlaceLeasesMembercwi2:CwiMember2020-04-132020-04-130001609471cwi2:CwiMember2020-07-012020-09-300001609471cwi2:CwiMember2020-01-012020-09-3000016094712020-01-012020-12-310001609471cwi2:HyattCentricFrenchQuarterVentureMember2021-04-060001609471cwi2:HyattCentricFrenchQuarterVentureMember2021-04-062021-04-060001609471cwi2:HyattCentricFrenchQuarterVentureMember2021-04-062021-09-300001609471cwi2:CourtyardPittsburghShadysideMembercwi2:CourtyardPittsburghShadysideMemberus-gaap:DisposalGroupDisposedOfBySaleNotDiscontinuedOperationsMember2021-07-070001609471cwi2:SheratonAustinHotelAtTheCapitolMemberus-gaap:DisposalGroupDisposedOfBySaleNotDiscontinuedOperationsMember2021-07-072021-07-070001609471cwi2:CourtyardPittsburghShadysideMemberus-gaap:DisposalGroupDisposedOfBySaleNotDiscontinuedOperationsMember2021-01-012021-09-300001609471cwi2:CourtyardPittsburghShadysideMemberus-gaap:DisposalGroupDisposedOfBySaleNotDiscontinuedOperationsMember2021-07-012021-09-300001609471cwi2:SheratonAustinHotelAtTheCapitolMemberus-gaap:DisposalGroupDisposedOfBySaleNotDiscontinuedOperationsMember2021-05-052021-05-050001609471cwi2:SheratonAustinHotelAtTheCapitolMembercwi2:SheratonAustinHotelAtTheCapitolMemberus-gaap:DisposalGroupDisposedOfBySaleNotDiscontinuedOperationsMember2021-05-050001609471cwi2:SheratonAustinHotelAtTheCapitolMemberus-gaap:DisposalGroupDisposedOfBySaleNotDiscontinuedOperationsMember2021-01-012021-09-300001609471cwi2:CourtyardNashvilleHotelMembercwi2:CourtyardNashvilleHotelMemberus-gaap:DisposalGroupDisposedOfBySaleNotDiscontinuedOperationsMember2020-06-080001609471cwi2:CourtyardNashvilleHotelMemberus-gaap:DisposalGroupDisposedOfBySaleNotDiscontinuedOperationsMember2020-06-082020-06-080001609471cwi2:CourtyardNashvilleHotelMemberus-gaap:DisposalGroupDisposedOfBySaleNotDiscontinuedOperationsMember2020-01-012020-09-300001609471cwi2:LakeArrowheadResortAndSpaMemberus-gaap:DisposalGroupDisposedOfBySaleNotDiscontinuedOperationsMember2020-08-272020-08-270001609471cwi2:LakeArrowheadResortAndSpaMembercwi2:LakeArrowheadResortAndSpaMemberus-gaap:DisposalGroupDisposedOfBySaleNotDiscontinuedOperationsMember2020-08-270001609471cwi2:LakeArrowheadResortAndSpaMemberus-gaap:DisposalGroupDisposedOfBySaleNotDiscontinuedOperationsMember2021-01-012021-09-300001609471us-gaap:DiscontinuedOperationsHeldforsaleMember2021-09-300001609471us-gaap:DiscontinuedOperationsHeldforsaleMember2020-12-310001609471srt:HotelMember2020-01-012020-09-300001609471srt:HotelMember2020-09-300001609471cwi2:CWICWI2MergerAndHyattCentricFrenchQuarterVentureMember2021-07-012021-09-300001609471cwi2:CWICWI2MergerAndHyattCentricFrenchQuarterVentureMember2020-07-012020-09-300001609471cwi2:CWICWI2MergerAndHyattCentricFrenchQuarterVentureMember2021-01-012021-09-300001609471cwi2:CWICWI2MergerAndHyattCentricFrenchQuarterVentureMember2020-01-012020-09-300001609471cwi2:CWICWI2MergerAndHyattCentricFrenchQuarterVentureMemberus-gaap:CommonClassAMember2021-07-012021-09-300001609471cwi2:CWICWI2MergerAndHyattCentricFrenchQuarterVentureMemberus-gaap:CommonClassAMember2020-07-012020-09-300001609471cwi2:CWICWI2MergerAndHyattCentricFrenchQuarterVentureMemberus-gaap:CommonClassAMember2021-01-012021-09-300001609471cwi2:CWICWI2MergerAndHyattCentricFrenchQuarterVentureMemberus-gaap:CommonClassAMember2020-01-012020-09-300001609471cwi2:CWICWI2MergerAndHyattCentricFrenchQuarterVentureMemberus-gaap:CommonClassBMember2021-07-012021-09-300001609471cwi2:CWICWI2MergerAndHyattCentricFrenchQuarterVentureMemberus-gaap:CommonClassBMember2020-07-012020-09-300001609471cwi2:CWICWI2MergerAndHyattCentricFrenchQuarterVentureMemberus-gaap:CommonClassBMember2021-01-012021-09-300001609471cwi2:CWICWI2MergerAndHyattCentricFrenchQuarterVentureMemberus-gaap:CommonClassBMember2020-01-012020-09-300001609471cwi2:CWIAndCWI2MergerMember2020-09-30cwi2:room0001609471cwi2:RitzCarltonPhiladelphiaVentureMemberus-gaap:UnconsolidatedPropertiesMember2021-09-300001609471cwi2:RitzCarltonPhiladelphiaVentureMemberus-gaap:UnconsolidatedPropertiesMember2020-12-310001609471cwi2:HyattCentricFrenchQuarterVentureMemberus-gaap:UnconsolidatedPropertiesMember2021-09-300001609471cwi2:HyattCentricFrenchQuarterVentureMemberus-gaap:UnconsolidatedPropertiesMember2020-12-310001609471us-gaap:UnconsolidatedPropertiesMember2021-09-300001609471us-gaap:UnconsolidatedPropertiesMember2020-12-310001609471cwi2:RitzCarltonPhiladelphiaVentureMemberus-gaap:UnconsolidatedPropertiesMember2021-01-012021-09-300001609471cwi2:RitzCarltonPhiladelphiaVentureMemberus-gaap:UnconsolidatedPropertiesMember2021-07-012021-09-300001609471cwi2:HyattCentricFrenchQuarterVentureMemberus-gaap:UnconsolidatedPropertiesMember2021-01-012021-03-310001609471cwi2:RitzCarltonPhiladelphiaVentureMemberus-gaap:UnconsolidatedPropertiesMember2020-07-012020-09-300001609471cwi2:RitzCarltonPhiladelphiaVentureMemberus-gaap:UnconsolidatedPropertiesMember2020-01-012020-09-300001609471cwi2:RitzCarltonBacaraMemberus-gaap:UnconsolidatedPropertiesMember2021-07-012021-09-300001609471cwi2:RitzCarltonBacaraMemberus-gaap:UnconsolidatedPropertiesMember2020-07-012020-09-300001609471cwi2:RitzCarltonBacaraMemberus-gaap:UnconsolidatedPropertiesMember2021-01-012021-09-300001609471cwi2:RitzCarltonBacaraMemberus-gaap:UnconsolidatedPropertiesMember2020-01-012020-09-300001609471cwi2:MarriottSawgrassGolfResortandSpaMemberus-gaap:UnconsolidatedPropertiesMember2021-07-012021-09-300001609471cwi2:MarriottSawgrassGolfResortandSpaMemberus-gaap:UnconsolidatedPropertiesMember2020-07-012020-09-300001609471cwi2:MarriottSawgrassGolfResortandSpaMemberus-gaap:UnconsolidatedPropertiesMember2021-01-012021-09-300001609471cwi2:MarriottSawgrassGolfResortandSpaMemberus-gaap:UnconsolidatedPropertiesMember2020-01-012020-09-300001609471cwi2:HyattCentricFrenchQuarterVentureMemberus-gaap:UnconsolidatedPropertiesMember2021-07-012021-09-300001609471cwi2:HyattCentricFrenchQuarterVentureMemberus-gaap:UnconsolidatedPropertiesMember2020-07-012020-09-300001609471cwi2:HyattCentricFrenchQuarterVentureMemberus-gaap:UnconsolidatedPropertiesMember2021-01-012021-09-300001609471cwi2:HyattCentricFrenchQuarterVentureMemberus-gaap:UnconsolidatedPropertiesMember2020-01-012020-09-300001609471us-gaap:UnconsolidatedPropertiesMember2021-07-012021-09-300001609471us-gaap:UnconsolidatedPropertiesMember2020-07-012020-09-300001609471us-gaap:UnconsolidatedPropertiesMember2021-01-012021-09-300001609471us-gaap:UnconsolidatedPropertiesMember2020-01-012020-09-300001609471cwi2:RitzCarltonBacaraMembercwi2:CWIAndCWI2MergerMember2020-04-130001609471cwi2:VillaCondoRentalProgramsMembersrt:MinimumMember2021-01-012021-09-300001609471srt:MaximumMembercwi2:VillaCondoRentalProgramsMember2021-01-012021-09-300001609471cwi2:VillaCondoRentalProgramsMember2021-09-300001609471cwi2:VillaCondoRentalProgramsMember2020-12-310001609471us-gaap:TradeNamesMember2021-01-012021-09-300001609471us-gaap:TradeNamesMember2021-09-300001609471us-gaap:TradeNamesMember2020-12-310001609471srt:MinimumMemberus-gaap:OtherIntangibleAssetsMember2021-01-012021-09-300001609471srt:MaximumMemberus-gaap:OtherIntangibleAssetsMember2021-01-012021-09-300001609471us-gaap:OtherIntangibleAssetsMember2021-09-300001609471us-gaap:OtherIntangibleAssetsMember2020-12-310001609471us-gaap:CarryingReportedAmountFairValueDisclosureMemberus-gaap:FairValueInputsLevel3Member2021-09-300001609471us-gaap:CarryingReportedAmountFairValueDisclosureMemberus-gaap:FairValueInputsLevel3Member2020-12-310001609471us-gaap:EstimateOfFairValueFairValueDisclosureMemberus-gaap:FairValueInputsLevel3Member2020-12-310001609471us-gaap:EstimateOfFairValueFairValueDisclosureMemberus-gaap:FairValueInputsLevel3Member2021-09-300001609471us-gaap:CarryingReportedAmountFairValueDisclosureMemberus-gaap:FairValueInputsLevel3Memberus-gaap:SeriesAPreferredStockMember2021-09-300001609471us-gaap:CarryingReportedAmountFairValueDisclosureMemberus-gaap:FairValueInputsLevel3Memberus-gaap:SeriesBPreferredStockMember2021-09-300001609471us-gaap:CarryingReportedAmountFairValueDisclosureMemberus-gaap:FairValueInputsLevel3Memberus-gaap:SeriesAPreferredStockMember2020-12-310001609471us-gaap:CarryingReportedAmountFairValueDisclosureMemberus-gaap:FairValueInputsLevel3Memberus-gaap:SeriesBPreferredStockMember2020-12-310001609471us-gaap:EstimateOfFairValueFairValueDisclosureMemberus-gaap:FairValueInputsLevel3Memberus-gaap:SeriesAPreferredStockMember2021-09-300001609471us-gaap:EstimateOfFairValueFairValueDisclosureMemberus-gaap:FairValueInputsLevel3Memberus-gaap:SeriesBPreferredStockMember2021-09-300001609471us-gaap:EstimateOfFairValueFairValueDisclosureMemberus-gaap:FairValueInputsLevel3Memberus-gaap:SeriesAPreferredStockMember2020-12-310001609471us-gaap:EstimateOfFairValueFairValueDisclosureMemberus-gaap:FairValueInputsLevel3Memberus-gaap:SeriesBPreferredStockMember2020-12-310001609471srt:MinimumMemberus-gaap:MeasurementInputDiscountRateMember2020-09-300001609471srt:MaximumMemberus-gaap:MeasurementInputDiscountRateMember2020-09-300001609471srt:WeightedAverageMemberus-gaap:MeasurementInputDiscountRateMember2020-09-300001609471srt:MinimumMembercwi2:MeasurementInputCapitalizationRateMember2020-09-300001609471srt:MaximumMembercwi2:MeasurementInputCapitalizationRateMember2020-09-300001609471srt:WeightedAverageMembercwi2:MeasurementInputCapitalizationRateMember2020-09-300001609471us-gaap:InterestRateCapMemberus-gaap:OtherAssetsMemberus-gaap:DesignatedAsHedgingInstrumentMember2021-09-300001609471us-gaap:InterestRateCapMemberus-gaap:OtherAssetsMemberus-gaap:DesignatedAsHedgingInstrumentMember2020-12-310001609471us-gaap:InterestRateSwapMemberus-gaap:AccountsPayableAndAccruedLiabilitiesMemberus-gaap:DesignatedAsHedgingInstrumentMember2021-09-300001609471us-gaap:InterestRateSwapMemberus-gaap:AccountsPayableAndAccruedLiabilitiesMemberus-gaap:DesignatedAsHedgingInstrumentMember2020-12-310001609471us-gaap:DesignatedAsHedgingInstrumentMember2021-09-300001609471us-gaap:DesignatedAsHedgingInstrumentMember2020-12-310001609471us-gaap:AociIncludingPortionAttributableToNoncontrollingInterestMember2021-07-012021-09-300001609471us-gaap:AociIncludingPortionAttributableToNoncontrollingInterestMember2021-01-012021-09-300001609471us-gaap:AociIncludingPortionAttributableToNoncontrollingInterestMember2020-01-012020-09-300001609471us-gaap:ReclassificationOutOfAccumulatedOtherComprehensiveIncomeMemberus-gaap:AociIncludingPortionAttributableToNoncontrollingInterestMember2021-07-012021-09-300001609471us-gaap:ReclassificationOutOfAccumulatedOtherComprehensiveIncomeMemberus-gaap:AociIncludingPortionAttributableToNoncontrollingInterestMember2021-01-012021-09-300001609471us-gaap:ReclassificationOutOfAccumulatedOtherComprehensiveIncomeMemberus-gaap:AociIncludingPortionAttributableToNoncontrollingInterestMember2020-01-012020-09-30cwi2:derivative_instrument0001609471us-gaap:InterestRateSwapMemberus-gaap:CashFlowHedgingMemberus-gaap:DesignatedAsHedgingInstrumentMember2021-09-300001609471us-gaap:InterestRateSwapMemberus-gaap:CashFlowHedgingMemberus-gaap:DesignatedAsHedgingInstrumentMember2020-12-310001609471us-gaap:InterestRateCapMemberus-gaap:CashFlowHedgingMemberus-gaap:DesignatedAsHedgingInstrumentMember2021-09-300001609471us-gaap:InterestRateCapMemberus-gaap:CashFlowHedgingMemberus-gaap:DesignatedAsHedgingInstrumentMember2020-12-310001609471us-gaap:CashFlowHedgingMemberus-gaap:DesignatedAsHedgingInstrumentMember2021-09-300001609471us-gaap:CashFlowHedgingMemberus-gaap:DesignatedAsHedgingInstrumentMember2020-12-310001609471srt:MinimumMembercwi2:FixedInterestRateMember2021-09-300001609471srt:MaximumMembercwi2:FixedInterestRateMember2021-09-300001609471cwi2:FixedInterestRateMember2021-09-300001609471cwi2:FixedInterestRateMember2020-12-310001609471srt:MinimumMembercwi2:VariableInterestRateMember2021-09-300001609471srt:MaximumMembercwi2:VariableInterestRateMember2021-09-300001609471cwi2:VariableInterestRateMember2021-09-300001609471cwi2:VariableInterestRateMember2020-12-310001609471us-gaap:MortgagesMembercwi2:RitzCarltonKeyBiscayneMember2021-03-050001609471us-gaap:MortgagesMembercwi2:RitzCarltonKeyBiscayneMember2021-03-052021-03-050001609471us-gaap:MortgagesMembercwi2:EquinoxGolfResortSpaMember2021-03-150001609471us-gaap:MortgagesMembercwi2:EquinoxGolfResortSpaMember2021-03-152021-03-150001609471us-gaap:MortgagesMembercwi2:HyattCentricFrenchQuarterVentureMember2021-04-060001609471us-gaap:MortgagesMembercwi2:HyattCentricFrenchQuarterVentureMember2021-04-062021-04-060001609471cwi2:SeniorMortgageLoanMembercwi2:RitzCarltonFortLauderdaleMember2021-05-070001609471cwi2:RitzCarltonFortLauderdaleMembercwi2:MezzanineLoanMember2021-05-070001609471cwi2:RitzCarltonFortLauderdaleMember2021-05-072021-05-070001609471cwi2:SeniorMortgageLoanMembercwi2:RitzCarltonFortLauderdaleMember2021-05-072021-05-070001609471cwi2:RitzCarltonFortLauderdaleMembercwi2:MezzanineLoanMember2021-05-072021-05-070001609471cwi2:RitzCarltonFortLauderdaleMember2021-05-070001609471cwi2:RitzCarltonFortLauderdaleMember2021-01-012021-09-300001609471us-gaap:MortgagesMembercwi2:SeattleMarriottBellevueMember2021-06-080001609471cwi2:MezzanineLoanMembercwi2:SeattleMarriottBellevueMember2021-06-080001609471cwi2:MezzanineLoanMembercwi2:SeattleMarriottBellevueMember2021-06-082021-06-080001609471us-gaap:MortgagesMembercwi2:SeattleMarriottBellevueMember2021-01-012021-09-300001609471cwi2:SeniorMortgageLoanMembercwi2:RitzCarltonSantaBarbaraMember2021-06-090001609471cwi2:RitzCarltonSantaBarbaraMembercwi2:MezzanineLoanMember2021-06-090001609471cwi2:SeniorMortgageLoanMembercwi2:RitzCarltonSantaBarbaraMember2021-06-092021-06-090001609471cwi2:RitzCarltonSantaBarbaraMembercwi2:MezzanineLoanMember2021-06-092021-06-090001609471cwi2:RitzCarltonSantaBarbaraMember2021-06-092021-06-090001609471us-gaap:MortgagesMembercwi2:RenaissanceAtlantaMidtownMember2021-08-120001609471us-gaap:MortgagesMembercwi2:RenaissanceAtlantaMidtownMember2021-08-122021-08-120001609471us-gaap:MortgagesMembercwi2:CourtyardTimesSquareWestMember2021-06-01cwi2:franchise_agreement0001609471srt:MinimumMember2021-01-012021-09-300001609471srt:MaximumMember2021-01-012021-09-300001609471srt:MinimumMember2021-09-300001609471srt:MaximumMember2021-09-300001609471cwi2:MarriottBrandMember2021-09-300001609471cwi2:HiltonBrandMember2021-09-300001609471cwi2:IntercontinentalHotelsMember2021-09-300001609471cwi2:HyattBrandMember2021-09-300001609471srt:MinimumMembercwi2:RoomRevenueMember2021-09-300001609471srt:MaximumMembercwi2:RoomRevenueMember2021-09-300001609471srt:MinimumMembercwi2:FoodandBeverageRevenueMember2021-09-300001609471srt:MaximumMembercwi2:FoodandBeverageRevenueMember2021-09-300001609471us-gaap:FranchiseMember2021-07-012021-09-300001609471us-gaap:FranchiseMember2020-07-012020-09-300001609471us-gaap:FranchiseMember2021-01-012021-09-300001609471us-gaap:FranchiseMember2020-01-012020-09-300001609471us-gaap:FurnitureAndFixturesMember2021-09-300001609471us-gaap:FurnitureAndFixturesMember2020-12-310001609471cwi2:WatermarkLodgingTrustOperatingPartnershipMember2020-12-310001609471cwi2:WatermarkLodgingTrustOperatingPartnershipMembersrt:ChiefExecutiveOfficerMember2020-12-310001609471us-gaap:AociIncludingPortionAttributableToNoncontrollingInterestMember2020-07-012020-09-300001609471us-gaap:ReclassificationOutOfAccumulatedOtherComprehensiveIncomeMemberus-gaap:AociIncludingPortionAttributableToNoncontrollingInterestMember2020-07-012020-09-300001609471us-gaap:AociAttributableToNoncontrollingInterestMember2021-07-012021-09-300001609471us-gaap:AociAttributableToNoncontrollingInterestMember2020-07-012020-09-300001609471us-gaap:AociAttributableToNoncontrollingInterestMember2021-01-012021-09-300001609471us-gaap:AociAttributableToNoncontrollingInterestMember2020-01-012020-09-300001609471us-gaap:RestrictedStockUnitsRSUMembercwi2:A2015EquityIncentivePlanMember2021-01-012021-09-300001609471srt:ChiefExecutiveOfficerMemberus-gaap:RestrictedStockUnitsRSUMembercwi2:A2015EquityIncentivePlanMember2021-01-012021-09-300001609471us-gaap:ShareBasedCompensationAwardTrancheOneMembersrt:ChiefExecutiveOfficerMemberus-gaap:RestrictedStockUnitsRSUMembercwi2:A2015EquityIncentivePlanMember2021-01-012021-09-300001609471us-gaap:ShareBasedCompensationAwardTrancheTwoMembersrt:ChiefExecutiveOfficerMemberus-gaap:RestrictedStockUnitsRSUMembercwi2:A2015EquityIncentivePlanMember2021-01-012021-09-300001609471cwi2:PeriodOneMembercwi2:RedeemablePreferredStockAMember2020-04-132020-04-130001609471cwi2:PeriodTwoMembercwi2:RedeemablePreferredStockAMember2020-04-132020-04-130001609471cwi2:PeriodThreeMembercwi2:RedeemablePreferredStockAMember2020-04-132020-04-130001609471cwi2:PeriodTwoMembercwi2:RedeemablePreferredStockAMember2020-04-130001609471cwi2:PeriodOneMembercwi2:RedeemablePreferredStockAMember2020-04-130001609471cwi2:RedeemablePreferredStockBMembercwi2:ACPWatermarkInvestmentLLCMember2020-07-210001609471cwi2:RedeemablePreferredStockBMember2020-07-212020-07-210001609471cwi2:RedeemablePreferredStockBMember2020-07-210001609471cwi2:WarrantUnitsMembercwi2:ACPWatermarkInvestmentLLCMember2020-07-210001609471cwi2:ACPWatermarkInvestmentLLCMember2020-07-212020-07-210001609471cwi2:WarrantUnitsMember2020-07-210001609471cwi2:WarrantUnitsMember2021-09-300001609471cwi2:WarrantUnitsMember2020-12-310001609471cwi2:RedeemablePreferredStockBMembercwi2:ACPWatermarkInvestmentLLCMember2020-07-212020-07-210001609471cwi2:RedeemablePreferredStockBMember2021-01-012021-09-300001609471cwi2:RedeemablePreferredStockBMember2021-07-012021-09-300001609471cwi2:SeriesAAndSeriesBPreferredStockMember2021-09-300001609471cwi2:RedeemablePreferredStockAMember2021-09-300001609471cwi2:RedeemablePreferredStockAMember2020-12-310001609471cwi2:RedeemablePreferredStockBMember2020-12-3100016094712020-04-132020-04-130001609471srt:AffiliatedEntityMember2021-07-012021-09-300001609471srt:AffiliatedEntityMember2020-07-012020-09-300001609471srt:AffiliatedEntityMember2021-01-012021-09-300001609471srt:AffiliatedEntityMember2020-01-012020-09-300001609471us-gaap:AssetManagement1Membersrt:AffiliatedEntityMember2021-07-012021-09-300001609471us-gaap:AssetManagement1Membersrt:AffiliatedEntityMember2020-07-012020-09-300001609471us-gaap:AssetManagement1Membersrt:AffiliatedEntityMember2021-01-012021-09-300001609471us-gaap:AssetManagement1Membersrt:AffiliatedEntityMember2020-01-012020-09-3000016094712021-04-122021-04-120001609471cwi2:FormerAdvisorMembersrt:AffiliatedEntityMember2021-09-300001609471cwi2:FormerAdvisorMembersrt:AffiliatedEntityMember2021-01-012021-09-3000016094712019-10-222019-10-220001609471srt:MaximumMember2019-10-222019-10-220001609471cwi2:W.P.CareyMember2021-09-300001609471cwi2:W.P.CareyMember2020-12-310001609471cwi2:WestinMinneapolisMembercwi2:WestinMinneapolisMemberus-gaap:SubsequentEventMemberus-gaap:DisposalGroupDisposedOfBySaleNotDiscontinuedOperationsMember2021-10-190001609471us-gaap:MortgagesMembercwi2:WestinMinneapolisMemberus-gaap:SubsequentEventMemberus-gaap:DisposalGroupDisposedOfBySaleNotDiscontinuedOperationsMember2021-10-192021-10-190001609471cwi2:RitzCarltonFortLauderdaleVentureMemberus-gaap:SubsequentEventMembercwi2:RitzCarltonFortLauderdaleVentureMember2021-11-090001609471cwi2:RitzCarltonFortLauderdaleVentureMemberus-gaap:SubsequentEventMembercwi2:RitzCarltonFortLauderdaleVentureMember2021-11-092021-11-090001609471cwi2:RitzCarltonFortLauderdaleVentureMemberus-gaap:SubsequentEventMembercwi2:RitzCarltonFortLauderdaleVentureMembercwi2:RitzCarltonFortLauderdaleVentureMember2021-11-090001609471us-gaap:MortgagesMembercwi2:RitzCarltonSanFranciscoMemberus-gaap:SubsequentEventMember2021-11-10cwi2:extension0001609471us-gaap:MortgagesMembercwi2:RitzCarltonSanFranciscoMemberus-gaap:SubsequentEventMember2021-11-102021-11-10

UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
☑ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2021
or
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                     to                       
Commission File Number: 000-55461
CWI2-20210930_G1.JPG
WATERMARK LODGING TRUST, INC.
(Exact name of registrant as specified in its charter)
Maryland 46-5765413
(State of incorporation) (I.R.S. Employer Identification No.)
150 N. Riverside Plaza
Chicago, Illinois 60606
(Address of principal executive office) (Zip Code)
(847) 482-8600
(Registrant’s telephone numbers, including area code)

Securities registered pursuant to Section 12(b) of the Act: None

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

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer o Accelerated filer o Non-accelerated filer ☑
Smaller reporting company o Emerging growth company o

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

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

Registrant has 167,689,164 shares of Class A common stock, $0.001 par value, and 61,095,773 shares of Class T common stock, $0.001 par value, outstanding at November 5, 2021.


INDEX
Page No.
2
PART I — FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
3
4
5
6
8
9
33
48
49
PART II — OTHER INFORMATION
50
50
Item 6. Exhibits
51
52

Forward-Looking Statements

This Quarterly Report on Form 10-Q (this “Report”), including Management’s Discussion and Analysis of Financial Condition and Results of Operations, in Item 2 of Part I of this Report, contains forward-looking statements within the meaning of the federal securities laws. These forward-looking statements generally are identified by the words “believe,” “project,” “expect,” “anticipate,” “estimate,” “intend,” “strategy,” “plan,” “may,” “should,” “will,” “would,” “will be,” “will continue,” “will likely result,” and similar expressions. These statements are based on the current expectations of our management. Forward-looking statements in this Report include, among others, statements regarding: our expectations regarding the impacts on our business of the outbreak of the novel coronavirus (“COVID-19”) pandemic and the impact of hurricanes and other natural disasters on certain hotels, including the condition of the properties and cost estimates. It is important to note that our actual results could be materially different from those projected in such forward-looking statements. There are a number of risks and uncertainties that could cause actual results to differ materially from these forward-looking statements. Other unknown or unpredictable risks or uncertainties, like the risks related to effects of pandemics and global outbreaks of contagious diseases or the fear of such outbreaks, like the current COVID-19 pandemic, could also have material adverse effects on our business, financial condition, liquidity, results of operations, modified funds from operations (“MFFO”), and prospects. You should exercise caution in relying on forward-looking statements, as they involve known and unknown risks, uncertainties and other factors that may materially affect our future results, performance, achievements or transactions. Information on factors that could impact actual results and cause them to differ from what is anticipated in the forward-looking statements contained herein is included in this Report as well as in our other filings with the Securities and Exchange Commission (“SEC”), including but not limited to those described in Part I, Item 1A. Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2020 as filed with the SEC on March 12, 2021 (the “2020 Annual Report”). Except as required by federal securities laws and the rules and regulations of the SEC, we do not undertake to revise or update any forward-looking statements.

All references to “Notes” throughout the document refer to the footnotes to the consolidated financial statements of the registrant in Part I, Item 1. Financial Statements (Unaudited).

WLT 9/30/2021 10-Q – 1

Explanatory Note

Watermark Lodging Trust, Inc. (“WLT” or the “Company”) is the legal successor of Carey Watermark Investors 2 Incorporated (“CWI 2”). On April 13, 2020, a direct, wholly-owned subsidiary (“Merger Sub”) of CWI 2 merged with and into Carey Watermark Investors Incorporated (“CWI 1”) in an all-stock transaction in which the former stockholders of CWI 1 became stockholders of CWI 2 (the “Merger”). After giving effect to the Merger, CWI 1 became a wholly owned subsidiary of CWI 2 and CWI 2 changed its name to WLT. Immediately after the completion of the Merger, the former stockholders of CWI 1 owned approximately 60%, and the former stockholders of CWI 2 owned approximately 40%, of the outstanding common stock of WLT. Concurrently with the closing of the Merger, CWI 2 completed an internalization transaction through which it became self-managed.

For accounting and financial reporting purposes, the Merger is treated as a reverse acquisition. The financial information for WLT, as set forth herein has been prepared on a basis consistent with the foregoing and reflects CWI 1 as the accounting acquirer. Consequently, the historical financial information included herein as of any date, or for any periods prior to April 13, 2020 (the closing date of the Merger), is the pre-Merger financial information of CWI 1. The results of operations of CWI 2, as the acquired company for accounting and financial reporting purposes, are incorporated into WLT effective April 13, 2020.

As used throughout this document, unless the context indicates otherwise, the terms “WLT,” the “Company,” “we,” “our” and “us” mean:

•WLT beginning April 13, 2020, following the closing of the Merger; and;
•CWI 1 on a standalone basis for all periods prior to the closing of the Merger on April 13, 2020.

The term “CWI 2” refers to CWI 2 on a standalone basis for all periods prior to the closing of the Merger.

Accordingly, comparisons of the period to period financial information of WLT as set forth herein with those of CWI 1 and CWI 2 may not be meaningful.


WLT 9/30/2021 10-Q – 2

PART I — FINANCIAL INFORMATION
Item 1. Financial Statements.

WATERMARK LODGING TRUST, INC.
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(in thousands, except share and per share amounts)
September 30, 2021 December 31, 2020
Assets
Investments in real estate:
Hotels, at cost $ 3,184,741  $ 3,315,792 
Accumulated depreciation (386,845) (356,328)
Net investments in hotels 2,797,896  2,959,464 
Assets held for sale 27,919  — 
Equity investments in real estate 13,524  18,639 
Operating lease right-of-use assets 45,837  40,729 
Cash and cash equivalents 102,217  160,383 
Intangible assets, net 70,420  72,285 
Restricted cash 128,113  91,081 
Accounts receivable, net 96,102  46,010 
Other assets 38,564  30,735 
Total assets $ 3,320,592  $ 3,419,326 
Liabilities
Non-recourse debt, net, including debt attributable to Assets held for sale $ 2,132,518  $ 2,169,902 
Mandatorily redeemable preferred stock 247,141  214,158 
Accounts payable, accrued expenses and other liabilities 202,017  174,217 
Operating lease liabilities 84,072  74,633 
Total liabilities 2,665,748  2,632,910 
Commitments and contingencies (Note 10)
Equity
Class A common stock, $0.001 par value; 320,000,000 shares authorized; 167,661,941 and 167,441,281 shares, respectively, issued and outstanding
168  167 
Class T common stock, $0.001 par value; 80,000,000 shares authorized; 61,095,773 and 61,102,438 shares, respectively, issued and outstanding
61  61
Additional paid-in capital 1,657,415  1,655,554 
Distributions and accumulated losses (1,031,402) (911,863)
Accumulated other comprehensive loss (537) (724)
Total stockholders’ equity 625,705  743,195 
Noncontrolling interests 29,139  43,221 
Total equity 654,844  786,416 
Total liabilities and equity $ 3,320,592  $ 3,419,326 

See Notes to Consolidated Financial Statements.
WLT 9/30/2021 10-Q – 3

WATERMARK LODGING TRUST, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(in thousands, except share and per share amounts)
Three Months Ended September 30, Nine Months Ended September 30,
2021 2020 2021 2020
Revenues
Hotel Revenues
Rooms $ 131,193  $ 47,147  $ 298,430  $ 128,291 
Food and beverage 45,144  14,847  103,899  52,651 
Other operating revenue 22,290  11,248  55,685  27,059 
Business interruption income —  426  545  942 
Total Hotel Revenues 198,627  73,668  458,559  208,943 
Expenses
Rooms 28,733  12,321  66,563  37,358 
Food and beverage 32,593  14,059  76,366  46,484 
Other hotel operating expenses 8,161  3,646  20,286  10,829 
Property taxes, insurance, rent and other 23,182  22,913  71,634  58,952 
General and administrative 18,578  15,091  47,790  34,463 
Sales and marketing 14,622  6,384  34,876  21,955 
Repairs and maintenance 7,723  5,496  20,218  14,009 
Utilities 5,894  5,381  15,833  11,598 
Management fees 5,514  1,636  12,977  4,810 
Depreciation and amortization 28,647  31,920  89,374  82,629 
Total Hotel Operating Expenses 173,647  118,847  455,917  323,087 
Corporate general and administrative expenses 7,337  6,715  22,938  15,900 
Loss (gain) on property-related insurance claims, net 956  (1,030) (1,571) (1,030)
Transaction costs 345  27  345  18,376 
Asset management fees to affiliate —  —  —  3,795
Impairment charges —  —  —  120,220 
Total Expenses 182,285  124,559  477,629  480,348 
Operating Income (Loss) before net gain on sale of real estate 16,342  (50,891) (19,070) (271,405)
Net gain on sale of real estate 5,223  3,227  23,298  2,738 
Operating Income (Loss) 21,565  (47,664) 4,228  (268,667)
Interest expense (40,878) (38,719) (126,365) (83,449)
Net gain on change in control of interests —  —  8,612  22,250 
Loss on extinguishment of debt (1,111) —  (6,630) — 
Equity in losses of equity method investments in real
   estate, net 		(210) (3,201) (5,796) (31,139)
Other income and (expense) (88) (55) (244) 2 
Bargain purchase gain —  —  —  78,696 
Loss before income taxes (20,722) (89,639) (126,195) (282,307)
Benefit from (provision for) income taxes 529  1,549  (693) 7,525 
Net Loss (20,193) (88,090) (126,888) (274,782)
Loss attributable to noncontrolling interests 1,872  6,714  7,349  8,848 
Net Loss Attributable to the Company (18,321) (81,376) (119,539) (265,934)
Preferred dividends —  (401) —  (1,742)
Net Loss Attributable to Common Stockholders (18,321) (81,777) (119,539) (267,676)
Class A Common Stock
Net loss attributable to Common Stockholders $ (13,428) $ (59,880) $ (87,601) $ (214,394)
Basic and diluted weighted-average shares outstanding 167,661,942  167,571,806  167,582,962  153,838,492 
Basic and diluted loss per share $ (0.08) $ (0.35) $ (0.52) $ (1.38)
Class T Common Stock
Net loss attributable to Common Stockholders $ (4,893) $ (21,897) $ (31,938) $ (53,282)
Basic and diluted weighted-average shares outstanding 61,095,773 61,175,258 61,097,028 38,178,719
Basic and diluted loss per share $ (0.08) $ (0.35) $ (0.52) $ (1.38)
See Notes to Consolidated Financial Statements.
WLT 9/30/2021 10-Q – 4


WATERMARK LODGING TRUST, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (UNAUDITED)
(in thousands)
Three Months Ended September 30, Nine Months Ended September 30,
2021 2020 2021 2020
Net Loss $ (20,193) $ (88,090) $ (126,888) $ (274,782)
Other Comprehensive (Loss) Income
Unrealized (loss) gain on derivative instruments (17) 114  185  (625)
Comprehensive Loss (20,210) (87,976) (126,703) (275,407)
Amounts Attributable to Noncontrolling Interests
Net loss 1,872  6,714  7,349  8,848 
Unrealized loss (gain) on derivative instruments 4  (1) 2  (18)
  Comprehensive loss attributable to
      noncontrolling interests
1,876  6,713  7,351  8,830 
Comprehensive Loss Attributable to Common Stockholders $ (18,334) $ (81,263) $ (119,352) $ (266,577)

See Notes to Consolidated Financial Statements.

WLT 9/30/2021 10-Q – 5

WATERMARK LODGING TRUST, INC.
CONSOLIDATED STATEMENTS OF EQUITY (UNAUDITED)
(in thousands, except share and per share amounts)
WLT Stockholders
Common Stock Additional
Paid-In
Capital 		Distributions
and
Accumulated
Losses 		Accumulated
Other
Comprehensive Loss 		Total
Stockholders’
Equity 		Noncontrolling
Interests 		Total
Stockholders’
Equity
Class A Class T
Shares Amount Shares Amount
Balance at July 1, 2021 167,634,718  $ 168  61,095,773  $ 61  $ 1,656,363  $ (1,013,081) $ (524) $ 642,987  $ 30,639  $ 673,626 
Net loss (18,321) (18,321) (1,872) (20,193)
Shares issued under share incentive plans —  —  902 902  —  902 
Stock-based compensation to directors 27,223  —  150 150  —  150 
Contributions from noncontrolling interests —  376  376 
Other comprehensive loss (13) (13) (4) (17)
Balance at September 30, 2021
167,661,941  $ 168  61,095,773  $ 61  $ 1,657,415  $ (1,031,402) $ (537) $ 625,705  $ 29,139  $ 654,844 
Balance at July 1, 2020 167,565,204  $ 168  61,175,258  $ 61  $ 1,655,626  $ (748,646) $ (928) $ 906,281  $ 27,395  $ 933,676 
Net loss (81,376) (81,376) (6,714) (88,090)
Shares issued under share incentive plans —  —  392  392  392 
Stock-based compensation to directors 7,887  —  90  90  90 
Contributions from noncontrolling interests —  480  480 
Issuance of warrants —  30,357  30,357 
Fair value adjustment on reclassification of Series A Preferred Stock 2,754  2,754  2,754 
Preferred dividends (401) (401) (401)
Other comprehensive income 113  113  1  114 
Balance at September 30, 2020
167,573,091  $ 168  61,175,258  $ 61  $ 1,656,108  $ (827,669) $ (815) $ 827,853  $ 51,519  $ 879,372 















WLT 9/30/2021 10-Q – 6

WATERMARK LODGING TRUST, INC.
CONSOLIDATED STATEMENTS OF EQUITY (UNAUDITED)
(Continued)
(in thousands, except share and per share amounts)


WLT Stockholders
Common Stock Additional
Paid-In
Capital 		Distributions
and
Accumulated
Losses 		Accumulated
Other
Comprehensive Loss 		Total
Stockholders’
Equity 		Noncontrolling
Interests 		Total
Stockholders’
Equity
Class A Class T
Shares Amount Shares Amount
Balance at January 1, 2021 167,441,281  $ 167  61,102,438  $ 61  $ 1,655,554  $ (911,863) $ (724) $ 743,195  $ 43,221  $ 786,416 
Net loss (119,539) (119,539) (7,349) (126,888)
Shares issued under share incentive plans 140,721  1  1,455  1,456  1,456 
Stock-based compensation to directors 81,669 —  450 450  450 
Contributions from noncontrolling interests 376  376 
Distributions to noncontrolling interests —  (7,107) (7,107)
Other comprehensive income (loss) 187  187  (2) 185 
Repurchase of shares (1,730) —  (6,665) —  (44) (44) (44)
Balance at September 30, 2021
167,661,941  $ 168  61,095,773  $ 61  $ 1,657,415  $ (1,031,402) $ (537) $ 625,705  $ 29,139  $ 654,844 
Balance at January 1, 2020 130,083,865  $ 130  —  $ —  $ 1,209,691  $ (562,747) $ (172) $ 646,902  $ 50,977  $ 697,879 
Net loss (265,934) (265,934) (8,848) (274,782)
Shares issued to affiliates 417,261  —  4,761  4,761  4,761 
Redemption of special general partnership interest 2,840,549  3  (65,464) (65,461) 12,861  (52,600)
Merger consideration 94,480,247  95  496,485  496,580  (34,571) 462,009 
Merger recapitalization (61,175,258) (61) 61,175,258  61  —  — 
Shares issued, net of offering costs 925,762  1  10,514  10,515  10,515 
Shares issued under share incentive plans 56,533  —  734  734  734 
Stock-based compensation to directors 7,887  90  90  90 
Contributions from noncontrolling interest —  725  725 
Issuance of warrants —  30,357  30,357 
Fair value adjustment on reclassification of Series A Preferred Stock 2,754  2,754  2,754 
Preferred dividends (1,742) (1,742) (1,742)
Other comprehensive (loss) income (643) (643) 18  (625)
Repurchase of shares (63,755) —  (703) (703) (703)
Balance at September 30, 2020
167,573,091  $ 168  61,175,258  $ 61  $ 1,656,108  $ (827,669) $ (815) $ 827,853  $ 51,519  $ 879,372 

See Notes to Consolidated Financial Statements.
WLT 9/30/2021 10-Q – 7

WATERMARK LODGING TRUST, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(in thousands)
Nine Months Ended September 30,
2021 2020
Cash Flows — Operating Activities
Net loss $ (126,888) $ (274,782)
Adjustments to net loss:
Depreciation and amortization 89,374  82,629 
Amortization of fair value adjustments, deferred financing costs and other 33,151  18,763 
Asset management fees to affiliates settled in shares —  3,656 
Net gain on sale of real estate (23,298) (2,738)
Net gain on change in control of interests (8,612) (22,250)
  Net loss on extinguishment of debt 6,630  — 
 Equity in losses of equity method investments in real estate, net 5,796  31,139 
Amortization of stock-based compensation expense 2,523  1,113 
Gain on property-related insurance claims (1,571) (1,030)
Business interruption income (545) (942)
 Impairment charges —  120,220 
Bargain purchase gain —  (78,696)
Net decrease in operating lease right-of-use assets 3,754  3,635 
Funding of remediation work (2,049) — 
Net changes in other assets and liabilities 567  24,206 
Net increase in operating lease liabilities 1,102  966 
(Repayment) receipt of key money and other deferred incentive payments (748) 565 
Insurance proceeds for remediation work due to property damage 563  1,763 
Business interruption insurance proceeds 545  942 
Decrease in due to related parties and affiliates (517) (3,032)
Net Cash Used in Operating Activities (20,223) (93,873)
Cash Flows — Investing Activities
Proceeds from sale of real estate investments 126,822  89,398 
Capital expenditures (21,425) (16,983)
Property insurance proceeds 3,070  337 
Cash and restricted cash acquired with acquisition of remaining interest in Hyatt
   French Quarter Venture 		2,901  — 
Acquisition of remaining interest in Hyatt French Quarter Venture (2,098) — 
Capital contributions to equity investments in real estate (845) (3,063)
Distributions from equity investments 518  — 
Cash and restricted cash acquired in Merger —  109,475 
Payment of commitment fee —  (1,151)
Repayments of loan receivable —  58 
Net Cash Provided by Investing Activities 108,943  178,071 
Cash Flows — Financing Activities
Payments and prepayments of mortgage principal (280,630) (65,119)
Proceeds from mortgage financing 186,510  875 
Distributions to noncontrolling interests (7,107) — 
Deferred financing costs (4,817) (11,311)
Deposits for mortgage financing (1,592) — 
Debt extinguishment costs (1,088) — 
Payment of distribution and shareholder servicing fee (798) (2,307)
Other financing activities, net (288) 403 
Repurchase of shares (44) (703)
Proceeds from issuance of mandatorily redeemable preferred stock and warrants —  200,000 
Distributions paid —  (20,357)
Net proceeds from issuance of shares —  10,553 
Net Cash (Used in) Provided by Financing Activities (109,854) 112,034 
Change in Cash and Cash Equivalents and Restricted Cash During the Period
Net (decrease) increase in cash and cash equivalents and restricted cash (21,134) 196,232 
Cash and cash equivalents and restricted cash, beginning of period 251,464  125,304 
Cash and cash equivalents and restricted cash, end of period $ 230,330  $ 321,536 
See Notes to Consolidated Financial Statements.
WLT 9/30/2021 10-Q – 8

WATERMARK LODGING TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Note 1. Business

Organization

WLT, formerly known as CWI 2, is a self-managed, publicly owned, non-traded real estate investment trust (“REIT”) that, together with its consolidated subsidiaries, invests in, manages and seeks to enhance the value of, interests in lodging and lodging-related properties in the United States.

Substantially all of our assets and liabilities are held by, and all of our operations are conducted through CWI 2 OP, LP (the “Operating Partnership”) and we are a general partner and a limited partner of, and owned a 99.0% capital interest in, the Operating Partnership, as of September 30, 2021. Watermark Capital Partners, LLC (“Watermark Capital”), which is 100% owned by Mr. Michael G. Medzigian, our Chief Executive Officer, held the remaining 1.0% in the Operating Partnership as of September 30, 2021.

On April 13, 2020, Merger Sub merged with and into CWI 1 in an all-stock transaction in which the former stockholders of CWI 1 became stockholders of CWI 2 (the “Merger”). After giving effect to the Merger, CWI 1 became a wholly owned subsidiary of CWI 2 and CWI 2 changed its name to WLT. Concurrently with the closing of the Merger, CWI 2 completed an internalization transaction through which it became self-managed. See Note 3 for additional information.

Until April 13, 2020, we were managed by Carey Lodging Advisors, LLC (the “Advisor”), an indirect subsidiary of W. P. Carey Inc. (“WPC”). The Advisor managed our overall portfolio, including providing oversight and strategic guidance to the independent hotel operators that managed our hotels. CWA, LLC (the “CWI 1 Subadvisor”), a subsidiary of Watermark Capital, provided services to the Advisor, primarily relating to acquiring, managing, financing and disposing of our hotels and overseeing the independent operators that managed the day-to-day operations of our hotels. In addition, the CWI 1 Subadvisor provided us with the services of our Chief Executive Officer, subject to the approval of our independent directors.

We held ownership interests in 29 hotels as of September 30, 2021, including 28 hotels that we consolidated (“Consolidated Hotels”) and one hotel that we recorded as an equity investment (“Unconsolidated Hotels”).

COVID-19, Management’s Plans and Liquidity

The COVID-19 pandemic has had a material adverse effect on our business, results of operations, financial condition and cash flows and will continue to do so for the reasonably foreseeable future. As of November 12, 2021, all of our hotels are open but many are operating at significantly reduced levels of occupancy, staffing and expenses. While seasonal decline in leisure travel and the emergence of the Delta variant reduced near-term demand, we have generally seen improving demand at our properties as government-imposed restrictions and limitations on travel and large gatherings have loosened and as the vaccines have become more widely available. We expect the recovery to occur unevenly across our portfolio, with hotels that cater to business travel recovering more slowly than resort properties. Governmental and business efforts to encourage or mandate vaccinations, and public adoption rates of vaccines, impact the recovery from the COVID-19 pandemic and may have disruptive effects on certain segments of the labor market. Individual ability or desire to travel and corporate travel policies will continue to be impacted by the COVID-19 pandemic and affect the recovery of our properties. The ultimate severity and duration of the COVID-19 pandemic and its effects, and the emergence of variants, are uncertain, including whether COVID-19 will become endemic or cyclical in nature. Given these uncertainties, we cannot estimate with reasonable certainty the impact on our business, financial condition or near- or long-term financial or operational results.

As of September 30, 2021, we had cash and cash equivalents of $102.2 million. Additionally, under the terms of our agreements with the investors in the July Capital Raise, as defined and described in Note 13, we have the option to require the investors to purchase up to $150.0 million aggregate liquidation preference of additional shares of Series B Preferred Stock during the 18 months after the closing of the July Capital Raise for additional working capital needs, including the repayment, refinancing or restructuring of indebtedness, subject to our satisfaction of customary conditions. As of September 30, 2021, the mortgage loans for our Consolidated Hotels had an aggregate principal balance totaling $2.2 billion outstanding, all of which is mortgage indebtedness and is generally non-recourse, subject to customary non-recourse carve-outs, except that we have provided certain lenders with limited corporate guaranties aggregating $15.6 million for items such as taxes, deferred debt service and amounts drawn from furniture, fixtures and equipment reserves to pay expenses, in connection with loan
WLT 9/30/2021 10-Q – 9
Notes to Consolidated Financial Statements (Unaudited)
modification agreements. We have continued to work with our lenders to address loans with near-term mortgage maturities and have refinanced or extended the maturity date of seven Consolidated Hotel mortgage loans, aggregating $708.1 million of indebtedness, during the nine months ended September 30, 2021. Of the $2.2 billion aggregate principal balance indebtedness outstanding as of September 30, 2021, approximately $1.2 billion is scheduled to mature during the 12 months after the date of this Report, which included a total of $180.9 million that has subsequently been repaid as a result of a hotel disposition or refinancing (Note 15). If the Company is unable to repay, refinance or extend maturing mortgage loans, we may choose to market these assets for sale or the lenders may declare events of default and seek to foreclose on the underlying hotels or we may also seek to surrender properties back to the lender.

Our primary cash uses through September 30, 2022 are expected to be payment of debt service, costs associated with the refinancing or restructuring of indebtedness, funding corporate and hotel level operations, payment of real estate taxes and insurance and payment of preferred stock dividends. Our primary capital sources to meet such uses are expected to be funds generated by hotel operations, proceeds from the July Capital Raise, any additional issuances of Series B Preferred Stock and proceeds from additional asset sales.

We cannot predict with reasonable certainty when our hotels will return to normalized levels of operations after the effects of the COVID-19 pandemic subside or whether hotels will be forced to shut down operations or impose additional restrictions due to a resurgence of COVID-19 cases in the future.  Therefore, as a consequence of these unprecedented trends resulting from the impact of the COVID-19 pandemic, we are unable to estimate future financial performance with reasonable certainty.

Note 2. Basis of Presentation

Basis of Presentation

The unaudited consolidated financial statements and related notes have been prepared on the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and in conformity with the rules and regulations of the SEC applicable to financial information. The unaudited financial statements include all adjustments that are necessary, in the opinion of management, to fairly state the consolidated balance sheets, statements of operations, statements of comprehensive loss, statements of equity and statements of cash flows.

Our interim consolidated financial statements should be read in conjunction with our audited consolidated financial statements of and accompanying notes for the year ended December 31, 2020, as certain disclosures that would substantially duplicate those contained in the audited consolidated financial statements have not been included in this Report. Operating results for interim periods are not necessarily indicative of operating results for an entire year.

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts and the disclosure of contingent amounts in our consolidated financial statements and the accompanying notes. Actual results could differ from those estimates.

Merger

The Merger was accounted for as a business combination in accordance with current authoritative accounting guidance. CWI 1 was the accounting acquirer in the Merger as (i) CWI 1’s pre-merger stockholders had a majority of the voting power in the Company after the Merger and (ii) CWI 1 was significantly larger than CWI 2 when considering assets and revenues. As CWI 1 was the accounting acquirer while CWI 2 was the legal acquirer, the Merger was accounted for as a reverse acquisition, and therefore, the historical financial information included in the Company’s financial statements as of any date, or for any periods prior to April 13, 2020, represents the pre-merger information of CWI 1. The financial statements of the Company, as set forth herein, represent a continuation of the financial information of CWI 1 as the accounting acquirer, except that the equity structure of WLT is adjusted to reflect the equity structure of the legal acquirer, CWI 2, including for comparative periods, by applying the exchange ratio of 0.9106. See Note 3 for additional information.

WLT 9/30/2021 10-Q – 10
Notes to Consolidated Financial Statements (Unaudited)
Basis of Consolidation

Our consolidated financial statements reflect all of our accounts, including those of our controlled subsidiaries. The portions of equity in consolidated subsidiaries that are not attributable, directly or indirectly, to us are presented as noncontrolling interests. All significant intercompany accounts and transactions have been eliminated.

When we obtain an economic interest in an entity, we evaluate the entity to determine if it should be deemed a variable interest entity (“VIE”), and, if so, whether we are the primary beneficiary and are therefore required to consolidate the entity. There have been no significant changes in our VIE policies from what was disclosed in the 2020 Annual Report.

As of September 30, 2021 and December 31, 2020, we considered two and three entities to be VIEs, respectively, all of which we consolidated as we are considered the primary beneficiary. The following table presents a summary of selected financial data of consolidated VIEs included in the consolidated balance sheets (in thousands):
September 30, 2021 December 31, 2020
Net investments in hotels $ 363,760  $ 461,142 
Intangible assets, net 35,632  36,234 
Total assets 436,015  520,833 
Non-recourse debt, net $ 253,818  $ 327,597 
Total liabilities 283,022  354,193 

Cash, Cash Equivalents and Restricted Cash

The following table provides a reconciliation of cash and cash equivalents and restricted cash reported within the consolidated balance sheets to the consolidated statements of cash flows (in thousands):
September 30, 2021 December 31, 2020
Cash and cash equivalents
$ 102,217  $ 160,383 
Restricted cash
128,113  91,081 
Total cash and cash equivalents and restricted cash
$ 230,330  $ 251,464 

Note 3. Merger of CWI 1 and CWI 2

On April 13, 2020, the Merger of Merger Sub, with and into CWI 1, was completed in an all-stock transaction to create Watermark Lodging Trust, Inc. The Merger was effected pursuant to the Agreement and Plan of Merger, dated as of October 22, 2019 (as amended, the “Merger Agreement”), by and among CWI 2, CWI 1 and Merger Sub.

In accordance with the Merger Agreement, at the effective time of the Merger (the “effective time”) each issued and outstanding share of CWI 1’s common stock (or fraction thereof), $0.001 par value per share (“CWI 1 common stock”), was converted into the right to receive 0.9106 shares (the “exchange ratio”) of WLT Class A common stock, $0.001 par value per share (“WLT Class A common stock”). Also at the effective time, all CWI 1 restricted stock units (“RSUs”) outstanding and unvested immediately prior to the effective time were converted into a WLT RSU with respect to a whole number of shares of WLT Class A common stock equal to (i) the number of shares of CWI 1 common stock subject to such unvested CWI 1 RSU, multiplied by (ii) the exchange ratio.

Immediately following the effective time of the Merger, the internalization of the management of the Company (the “Internalization”) was consummated pursuant to the Internalization Agreement, dated as of October 22, 2019 (as amended, the “Internalization Agreement”), by and among CWI 1, CWI OP, LP, the Operating Partnership, WPC, Carey Watermark Holdings, LLC, CLA Holdings, LLC, Carey REIT II, Inc., WPC Holdco LLC, Carey Watermark Holdings 2, LLC, the Advisor, Watermark Capital, the CWI 1 Subadvisor and CWA2, LLC (the “CWI 2 Subadvisor” and together with CWI 1 Subadvisor, the “Subadvisors”).

In accordance with the Internalization Agreement, CWI OP, LP and the Operating Partnership redeemed the special general partnership interests held by Carey Watermark Holdings, LLC and Carey Watermark Holdings 2, LLC in CWI OP, LP and the Operating Partnership, respectively (the “Redemption”). As consideration for the Redemption and the other transactions
WLT 9/30/2021 10-Q – 11
Notes to Consolidated Financial Statements (Unaudited)
contemplated by the Internalization Agreement, WLT or the Operating Partnership (as applicable) issued equity consisting of (x) 2,840,549 shares of CWI 2 Class A common stock, to affiliates of WPC, (y) 1,300,000 shares of WLT Series A preferred stock, $0.001 par value per share, to affiliates of WPC, with a liquidation preference of $50.00 per share ($65,000,000 in the aggregate), and (z) 2,417,996 limited partnership units in the Operating Partnership, to affiliates of Watermark Capital. Following the Redemption, Carey Watermark Holdings, LLC and Carey Watermark Holdings 2, LLC have no further liability or obligation pursuant to the limited partnership agreements of CWI OP, LP or the Operating Partnership, respectively.

Immediately following the Redemption, the existing advisory agreements, as amended, between CWI 1 or CWI 2 (as applicable) and the Advisor, and the existing sub‑advisory agreements, as amended, between the Advisor and the Subadvisors (as applicable), were automatically terminated. The secured credit facilities entered into by CWI OP, LP or the Operating Partnership (as applicable) as borrower, and CWI 1 or CWI 2 (as applicable) as guarantor, with WPC as lender, each matured at the time of the expiration of such existing advisory agreements and the applicable loan agreements and loan documents were terminated. Neither CWI 1 nor CWI 2 had any outstanding obligations under the respective facilities.

As a result of the Merger, the Company acquired an ownership interest in the following 12 hotel properties: 
Hotels State Number
of Rooms 		% Acquired Hotel Type
Charlotte Marriott City Center NC 446 100% Full-Service
Courtyard Nashville Downtown TN 192 100% Select-Service
Embassy Suites by Hilton Denver-Downtown/Convention Center CO 403 100% Full-Service
Le Méridien Arlington VA 154 100% Full-Service
Marriott Sawgrass Golf Resort & Spa (a)
FL 514 50% Resort
Renaissance Atlanta Midtown Hotel GA 304 100% Full-Service
Ritz-Carlton Bacara, Santa Barbara (a)
CA 358 60% Resort
Ritz-Carlton Key Biscayne (b)
FL 443 19.3% Resort
Ritz-Carlton San Francisco CA 336 100% Full-Service
San Diego Marriott La Jolla CA 376 100% Full-Service
San Jose Marriott CA 510 100% Full-Service
Seattle Marriott Bellevue WA 384 100% Full-Service
4,420
___________
(a)Upon closing of the Merger, the Company owns 100% of this hotel.
(b)Upon closing of the Merger, the Company owns 66.7% of this hotel.

As the Merger is accounted for as a reverse acquisition, the fair value of the consideration transferred is measured based upon the number of shares of CWI 1 common stock, as the accounting acquirer, would theoretically have to issue to the stockholders of CWI 2 to achieve the same ratio of ownership in the combined company upon completion of the Merger and applying the fair value per implied share of CWI 1 common stock issued in consideration.

As a result, the implied shares of CWI 1 common stock issued in consideration was computed based on the number of outstanding shares of CWI 2 Class A and Class T common stock prior to the Merger divided by the exchange ratio of 0.9106.

(Dollars in thousands, except per share amounts)
Total Merger Consideration
Outstanding shares of CWI 2 Class A and Class T common stock prior to the Merger 94,480,247 
Exchange ratio 0.9106 
Implied shares of CWI 1 common stock issued in consideration 103,756,037 
Fair value per implied share of CWI 1 common stock issued in consideration $ 4.83271 
Fair value of implied shares of CWI 1 common stock issued in consideration 501,423 
Fair value of noncontrolling interest acquired (39,414)
Fair value of purchase consideration $ 462,009 

WLT 9/30/2021 10-Q – 12
Notes to Consolidated Financial Statements (Unaudited)
The following tables present a summary of assets acquired and liabilities assumed in this business combination, at the date of acquisition; as well as and revenues and earnings thereon, from the date of acquisition through September 30, 2020 (in thousands):
Purchase
Price Allocation
Assets
Net investments in hotels $ 1,556,383 
Operating lease right-of-use assets 974 
Cash and cash equivalents 71,881 
Intangible assets 10,200 
Restricted cash 37,594 
Accounts receivable, net 25,664 
Other assets 15,593 
Total Assets 1,718,289 
Liabilities
Non-recourse debt, net (1,002,753)
Accounts payable, accrued expenses and other liabilities (97,843)
Operating lease liabilities (1,874)
Due to related parties and affiliates (1,520)
Total Liabilities (1,103,990)
Total Identifiable Net Assets 614,299 
Fair value of CWI 1's equity interests in jointly-owned investments with CWI 2 prior to the merger (73,594)
Bargain purchase gain (78,696)
Fair value of purchase consideration $ 462,009 

From April 13, 2020 through September 30, 2020
Revenues $ 41,971 
Net loss $ (99,920)

We recognized a bargain purchase gain of $78.7 million in connection with the Merger resulting from the estimated fair values of the assets acquired net of liabilities assumed exceeding the consideration paid.

The Company used the following valuation methodologies, inputs, and assumptions to estimate the fair value of the assets acquired, the liabilities assumed, and the noncontrolling interests acquired:

Net investments in hotels — The Company estimated the fair values of the land, buildings and site improvements, and furniture, fixtures, and equipment at the hotel properties by using a combination of the income capitalization and sales comparison approaches. These valuation methodologies are based on significant Level 3 inputs in the fair value hierarchy, such as capitalization rates, discount rates, capital expenditures and net operating income at the respective hotel properties, including estimates of future income growth.

Intangible assets — The Company estimated the fair market value of the trade name through a relief-from-royalty discounted cash flow method whereby the Company valued the avoided third-party license payment for the right to employ the asset to earn benefits. Our intangibles are included in Intangible assets, net in the consolidated financial statements. Amortization of intangibles is included in Depreciation and amortization in the consolidated financial statements.

WLT 9/30/2021 10-Q – 13
Notes to Consolidated Financial Statements (Unaudited)
In connection with the Merger, we have recorded intangibles comprised as follows (life in years, dollars in thousands):
Weighted-Average Life Amount
Amortizable Intangible Assets
Trade name 8.0 $ 9,400 
In-place leases 3.2 800 
Total intangible assets $ 10,200 

Non-recourse debt — We determined the estimated fair value using a discounted cash flow model with rates that take into account the interest rate risk. We also considered the value of the underlying collateral, taking into account the quality of the collateral and the then-current interest rate, which are Level 3 inputs in the fair value hierarchy. We recognized a discount of approximately $69.5 million on the mortgage loans assumed in the Merger, which is included in non-recourse debt, net in the consolidated balance sheet. The discount is amortized over the remaining terms of the respective debt instruments as adjustments to interest expense in the consolidated statements of operations.

Noncontrolling interest — The Company estimated the fair value of the consolidated joint venture by using the same valuation methodologies for the investment in hotel properties noted above. The Company then recognized the fair value of the noncontrolling interest in the consolidated joint venture based on the joint venture partner's ownership interest in the consolidated joint venture. This valuation methodology is based on Level 3 inputs and assumptions in the fair value hierarchy.

Cash and cash equivalents, restricted cash, accounts receivable, net, other assets, accounts payable, accrued expenses and other liabilities, and due to related parties and affiliates —The carrying amounts of the assets acquired, the liabilities assumed, and the equity interests acquired approximate fair value because of their short term maturities.

Transaction costs are costs incurred in connection with the Merger and related transactions and included legal, accounting, financial advisory and other transaction costs and totaled less than $0.1 million and $18.4 million for the three and nine months ended September 30, 2020, respectively. These costs were expensed as incurred in the consolidated statements of operations.

Note 4. Net Investments in Hotels

Net investments in hotels are summarized as follows (in thousands):
September 30, 2021 December 31, 2020
Buildings $ 2,195,281  $ 2,289,031 
Land 603,748  627,296 
Building and site improvements 189,865  194,162 
Furniture, fixtures and equipment 172,779  193,517 
Construction in progress 23,068  11,786 
Hotels, at cost 3,184,741  3,315,792 
Less: Accumulated depreciation (386,845) (356,328)
Net investments in hotels $ 2,797,896  $ 2,959,464 

During the nine months ended September 30, 2021 and 2020, we retired fully depreciated furniture, fixtures and equipment aggregating $20.7 million and $19.0 million, respectively. During the nine months ended September 30, 2021 and 2020, we recorded net write-offs of fixed assets resulting from property damage insurance claims of $4.1 million and $2.5 million, respectively. Depreciation expense was $27.9 million and $31.2 million for the three months ended September 30, 2021 and 2020, respectively and $87.1 million and $80.8 million for the nine months ended September 30, 2021 and 2020, respectively.

As of September 30, 2021 and December 31, 2020, accrued capital expenditures were $1.2 million and $0.5 million, respectively, representing non-cash investing activity.

WLT 9/30/2021 10-Q – 14
Notes to Consolidated Financial Statements (Unaudited)
2021 Hotel Acquisition

On April 6, 2021, we acquired the remaining 20% interest in the Hyatt Centric French Quarter Venture from an unaffiliated third party for $2.1 million, which includes real estate and other hotel assets, net of assumed liabilities with a fair value totaling $11.3 million, as detailed in the table that follows, bringing our ownership interest to 100%. Subsequent to the acquisition, we consolidate our real estate interest in the hotel. We previously accounted for our interest in this venture under the equity method of accounting. Due to the change in control of this investment, we recorded a net gain on change in control of interest of $8.6 million, reflecting the difference between our carrying value and the preliminary estimated fair value of our previously held equity investment on April 6, 2021. We refinanced the $29.7 million non-recourse mortgage loan on the property (Note 9). This acquisition was accounted for as a business combination in accordance with authoritative accounting guidance.

The following tables present a summary of assets acquired and liabilities assumed in this business combination, at the date of acquisition; as well as and revenues and earnings thereon, from the date of acquisition through September 30, 2021 (in thousands):
Purchase
Price Allocation
Assets acquired at fair value:
Net investment in hotel $ 39,500 
Operating lease right-of-use assets 9,302 
Cash and cash equivalents 529 
Intangible assets 500 
Restricted cash 2,372 
Accounts receivable, net 967 
Other assets 1,292 
Total Assets 54,462 
Liabilities assumed at fair value:
Non-recourse debt, net (29,698)
Accounts payable, accrued expenses and other liabilities (4,177)
Operating lease liabilities (9,302)
Total Liabilities (43,177)
Total Identifiable Net Assets acquired at fair value 11,285 
Fair value of WLT’s equity interest in jointly-owned investment prior to acquisition (9,187)
Total cash consideration $ 2,098 

From April 6, 2021 through September 30, 2021
Revenues $ 4,740 
Net loss $ (4,300)

2021 Hotel Disposition

On July 7, 2021, we sold our 100% ownership interest in the Courtyard Pittsburgh Shadyside to an unaffiliated third-party and received net proceeds after the repayment of the related mortgage loan of approximately $3.2 million. We recognized a gain on sale of $5.2 million during the three and nine months ended September 30, 2021 and recognized a loss on extinguishment of debt of $1.1 million during the three and nine months ended September 30, 2021 in connection with this transaction.

On May 5, 2021, the Sheraton Austin Hotel at the Capitol venture sold the Sheraton Austin Hotel at the Capitol to an unaffiliated third-party. The venture received net proceeds of approximately $36.4 million from the sale after the repayment of the related mortgage loan. We previously owned an 80% controlling interest in the venture and consolidated our real estate interest in the hotel. We recognized a gain on sale of $18.1 million during the nine months ended September 30, 2021 and
WLT 9/30/2021 10-Q – 15
Notes to Consolidated Financial Statements (Unaudited)
recognized a loss on extinguishment of debt of $0.7 million during the nine months ended September 30, 2021 in connection with this transaction.

2020 Hotel Disposition

On June 8, 2020, we sold our 100% ownership interest in the Hutton Hotel Nashville to an unaffiliated third party, with net proceeds after the repayment of the related mortgage loan of approximately $26.8 million. We recognized a loss on sale of $0.5 million during the nine months ended September 30, 2020 in connection with this transaction.

On August 27, 2020, the Lake Arrowhead Resort and Spa venture sold the Lake Arrowhead Resort and Spa to an unaffiliated third party, with net proceeds after the repayment of the related mortgage loan of approximately $8.0 million. We owned a 97.35% controlling ownership interest in the venture. We recognized a gain on sale of $3.2 million during the three and nine months ended September 30, 2020 in connection with this transaction.

Assets and Liabilities Held for Sale

As of September 30, 2021, we had one property classified as held for sale, the Westin Minneapolis. This property was sold on October 19, 2021, resulting in a gain on the sale of real estate (Note 15). No properties were classified as held for sale as of December 31, 2020.

Below is a summary of our assets and liabilities held for sale (in thousands):
September 30, 2021
Net investment in hotel $ 27,812 
Other assets 107 
Assets held for sale $ 27,919 
Non-recourse debt, net $ 39,581 
Other liabilities held for sale $ 163 

Impairments

As a result of the adverse effect the COVID-19 pandemic has had, and continues to have, on our hotel operations, we reviewed all of our hotel properties for impairment and recognized impairment charges during the nine months ended September 30, 2020 totaling $120.2 million on six Consolidated Hotels with an aggregate fair value measurement of $266.6 million in order to reduce the carrying value of the properties to their estimated fair values. For five of the hotel properties, the fair value measurements were determined using a future net cash flow analysis, discounted for the inherent risk associated with each investment and for one property, the fair value measurement approximated its estimated selling price. No impairments were recognized during the three and nine months ended September 30, 2021 or the three months ended September 30, 2020.

WLT 9/30/2021 10-Q – 16
Notes to Consolidated Financial Statements (Unaudited)
Pro Forma Financial Information

The following unaudited consolidated pro forma financial information presents the results of operations as if the Merger had taken place on January 1, 2019 and as if the acquisition of the remaining 20% interest in the Hyatt Centric French Quarter Venture, had occurred on January 1, 2020. The unaudited consolidated pro forma financial information is not necessarily indicative of what the actual results of operations of the Company would have been assuming these transactions had taken place on the date listed above, nor is it indicative of the results of operations for future periods.  The unaudited consolidated pro forma financial information is as follows (in thousands):

(Dollars in thousands, except per share amounts)
Three Months Ended September 30, Nine Months Ended September 30,
2021 2020 2021 2020
Pro forma total revenues $ 198,627  $ 75,196  $ 459,833  $ 301,361 
Pro forma net loss $ (20,193) $ (89,584) $ (135,725) $ (355,827)
Pro forma net loss attributable to Common Stockholders $ (18,321) $ (82,870) $ (128,376) $ (343,270)
Pro forma loss per Class A share:
Net loss attributable to Common Stockholders $ (13,428) $ (60,681) $ (94,077) $ (251,411)
Basic and diluted pro forma weighted-average shares outstanding
167,661,942  167,571,806  167,582,962  167,567,658 
Basic and diluted pro forma loss per share $ (0.08) $ (0.36) $ (0.56) $ (1.50)
Pro forma loss per Class T share:
Net loss attributable to Common Stockholders $ (4,893) $ (22,189) $ (34,299) $ (91,859)
Basic and diluted pro forma weighted-average shares outstanding
61,095,773  61,175,258  61,097,028  61,175,258 
Basic and diluted pro forma loss per share $ (0.08) $ (0.36) $ (0.56) $ (1.50)

Pro forma net loss attributable to Common Stockholders reflects the following income and expenses related to the Merger as if the Merger had taken place on January 1, 2019: (i) bargain purchase gain of $78.7 million, (ii) transaction costs of $27.5 million through September 30, 2020 and (iii) net gain on change in control of interests of $22.3 million and the following income and expenses related to the acquisition of the remaining interest in the Hyatt Centric French Quarter Venture as if it had taken place on January 1, 2020: (i) gain on change in control of interests of $8.6 million.

Note 5. Equity Investments in Real Estate

As of September 30, 2021, we owned an equity interest in one Unconsolidated Hotel with an unrelated third party. We did not control the venture that owns this hotel, but we exercised significant influence over it. We accounted for this investment under the equity method of accounting (i.e., at cost, increased or decreased by our share of earnings or losses, less distributions, plus contributions and other adjustments required by equity method accounting, such as basis differences from acquisition costs paid to our former advisor that we incur and other-than-temporary impairment charges, if any).

Under the conventional approach of accounting for equity method investments, an investor applies its percentage ownership interest to the venture’s net income or loss to determine the investor’s share of the earnings or losses of the venture. This approach is inappropriate if the venture’s capital structure gives different rights and priorities to its investors. Therefore, we followed the hypothetical liquidation at book value (“HLBV”) method in determining our share of the ventures’ earnings or losses for the reporting period as this method better reflects our claim on the ventures’ book value at the end of each reporting period. Earnings for our equity method investments were recognized in accordance with each respective investment agreement and, where applicable, based upon the allocation of the investment’s net assets at book value as if the investment was hypothetically liquidated at the end of each reporting period.

WLT 9/30/2021 10-Q – 17
Notes to Consolidated Financial Statements (Unaudited)
The following table sets forth our ownership interests in our equity investments in real estate and their respective carrying values. The carrying values of these ventures are affected by the timing and nature of distributions (dollars in thousands):
Unconsolidated Hotels State Number
of Rooms 		% Owned Hotel Type Carrying Value at
September 30, 2021 December 31, 2020
Ritz-Carlton Philadelphia Venture (a)
PA 301  60.0  % Full-service $ 13,524  $ 18,157 
Hyatt Centric French Quarter Venture(b)
LA 254  80.0  % Full-service —  482 
555  $ 13,524  $ 18,639 
___________
(a)We contributed $0.8 million to this investment during the nine months ended September 30, 2021. During the third quarter of 2021, we also received a distribution of $0.5 million representing a return of previous capital contributions.
(b)We contributed $0.9 million to this investment during the first quarter of 2021. On April 6, 2021, we acquired the remaining 20% interest in the Hyatt Centric French Quarter Venture from an unaffiliated third party. Upon completion of the acquisition, the Company consolidates its 100% interest in this hotel (Note 4).

The following table sets forth our share of equity in losses from our Unconsolidated Hotels, which is based on the HLBV model, as well as certain amortization adjustments related to basis differentials from acquisitions of investments (in thousands):
Three Months Ended September 30, Nine Months Ended September 30,
Unconsolidated Hotels 2021 2020 2021 2020
Ritz-Carlton Philadelphia Venture $ (210) $ (3,074) $ (4,939) $ (9,975)
Ritz-Carlton Bacara, Santa Barbara Venture (a) (b)
—  —  —  (20,968)
Marriott Sawgrass Golf Resort & Spa Venture (a)
—  —  —  (58)
Hyatt Centric French Quarter Venture (c)
—  (127) (857) (138)
Total equity in losses of equity method investments in real estate, net $ (210) $ (3,201) $ (5,796) $ (31,139)
___________
(a) Upon closing of the Merger on April 13, 2020, the Company owns 100% of this hotel and consolidates its real estate interest in this hotel therefore these amounts represent the equity in losses for the respective periods prior to the Merger.
(b) Includes an other-than-temporary impairment charge of $17.8 million recognized on this investment during the nine months ended September 30, 2020 to reduce the carrying value of our equity investment in the venture to its estimated fair value.
(c) On April 6, 2021, we acquired the remaining 20% interest in the Hyatt Centric French Quarter Venture from an unaffiliated third party. Upon completion of the acquisition, the Company owns 100% of this hotel and consolidates its real estate interest in this hotel therefore these amounts represent the equity in losses for the respective periods prior to the acquisition (Note 4).

No other-than-temporary impairment charges were recognized during the nine months ended September 30, 2021.

As of September 30, 2021 and December 31, 2020, the unamortized basis differences on our equity investments were $1.5 million and $2.1 million, respectively. Net amortization of the basis differences reduced the carrying values of our equity investments by less than $0.1 million during both the three months ended September 30, 2021 and 2020 and by $0.1 million and $0.2 million for the nine months ended September 30, 2021 and 2020, respectively.

WLT 9/30/2021 10-Q – 18
Notes to Consolidated Financial Statements (Unaudited)
Note 6. Intangible Assets

Intangible assets are summarized as follows (dollars in thousands):
September 30, 2021 December 31, 2020
Amortization Period (Years) Gross Carrying Amount Accumulated
Amortization 		Net Carrying
Amount 		Gross Carrying Amount Accumulated Amortization Net Carrying Amount
Finite-Lived Intangible Assets
Villa/condo rental programs
45 - 55
$ 72,400  $ (10,660) $ 61,740  $ 72,400  $ (9,529) $ 62,871 
Trade name
8
9,400  (1,728) 7,672  9,400  (844) 8,556 
Other intangible assets
2 - 17
2,134  (1,126) 1,008  1,633  (775) 858 
Total intangible assets, net $ 83,934  $ (13,514) $ 70,420  $ 83,433  $ (11,148) $ 72,285 

Net amortization of intangibles was $0.8 million and $0.7 million for the three months ended September 30, 2021 and 2020 and $2.3 million and $1.9 million for the nine months ended September 30, 2021 and 2020, respectively. Amortization of intangibles is included in Depreciation and amortization and Property tax, insurance, rent and other in the consolidated financial statements.

Note 7. Fair Value Measurements

The fair value of an asset is defined as the exit price, which is the amount that would either be received when an asset is sold or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The guidance establishes a three-tier fair value hierarchy based on the inputs used in measuring fair value. These tiers are: Level 1, for which quoted market prices for identical instruments are available in active markets, such as money market funds, equity securities and U.S. Treasury securities; Level 2, for which there are inputs other than quoted prices included within Level 1 that are observable for the instrument, such as certain derivative instruments, including interest rate caps and swaps; and Level 3, for securities that do not fall into Level 1 or Level 2 and for which little or no market data exists, therefore requiring us to develop our own assumptions.

Items Measured at Fair Value on a Recurring Basis

Derivative Assets and Liabilities — Our derivative assets, which are included in Other assets in the consolidated financial statements, are comprised of interest rate caps and our derivative liabilities, which are included in Accounts payable, accrued expenses and other liabilities in the consolidated financial statements, are comprised of interest rate swaps (Note 8).

The valuation of our derivative instruments is determined using a discounted cash flow analysis on the expected cash flows of each derivative. This analysis reflects the contractual terms of the derivatives, including the period to maturity, as well as observable market-based inputs, including interest rate curves and implied volatilities. We incorporate credit valuation adjustments to appropriately reflect both our own nonperformance risk and the respective counterparty’s nonperformance risk in the fair value measurements. In adjusting the fair value of our derivative instruments for the effect of nonperformance risk, we have considered the impact of netting and any applicable credit enhancements, such as collateral postings and thresholds. These derivative instruments were classified as Level 2 as these instruments are custom, over-the-counter contracts with various bank counterparties that are not traded in an active market.

We did not have any transfers into or out of Level 1, Level 2 and Level 3 category of measurements during the nine months ended September 30, 2021 or 2020. Gains and losses (realized and unrealized) recognized on items measured at fair value on a recurring basis included in earnings are reported in Other income and (expense) in the consolidated financial statements.

Our non-recourse debt, net which we have classified as Level 3, had a carrying value of $2.1 billion and $2.2 billion as of September 30, 2021 and December 31, 2020, respectively, and an estimated fair value of $2.2 billion as of both September 30, 2021 and December 31, 2020. We determined the estimated fair value using a discounted cash flow model with rates that take into account the interest rate risk. We also considered the value of the underlying collateral, taking into account the quality of the collateral and the then-current interest rate.

Our Series A and Series B preferred stock, which we have classified as Level 3, had carrying values of $54.3 million and $192.9 million, respectively, as of September 30, 2021, and $52.0 million and $162.1 million, respectively, as of December 31,
WLT 9/30/2021 10-Q – 19
Notes to Consolidated Financial Statements (Unaudited)
2020, and estimated fair values of $59.9 million and $233.9 million, respectively, as of September 30, 2021, and $54.2 million and $194.9 million, respectively, as of December 31, 2020. We determined the estimated fair value using a discounted cash flow analysis of the interest and anticipated redemption payments associated with the preferred stock.

We estimated that our other financial assets and liabilities had fair values that approximated their carrying values as of both September 30, 2021 and December 31, 2020.

Items Measured at Fair Value on a Non-Recurring Basis (Including Impairment Charges)

We periodically assess whether there are any indicators that the value of our real estate investments may be impaired or that their carrying value may not be recoverable. Where the undiscounted cash flows for an asset are less than the asset’s carrying value when considering and evaluating the various alternative courses of action that may occur, we recognize an impairment charge to reduce the carrying value of the asset to its estimated fair value. Further, when we classify an asset as held for sale, we carry the asset at the lower of its current carrying value or its fair value, less estimated cost to sell. See Note 4 and Note 5 for a description of impairment charges recognized during the nine months ended September 30, 2020. No impairments were recognized during the three and nine months ended September 30, 2021 or the three months ended September 30, 2020.

The Company estimated the fair values of our long-lived real estate and related intangible assets using Level 3 inputs, using a combination of the income capitalization and sales comparison approaches, specifically utilizing a discounted cash flow analysis and recent comparable sales transactions. The estimate of the fair value of the assets for potential impairment, as discussed below, required the Company’s management to exercise significant judgment and make certain key assumptions, including, but not limited to, the following: (i) capitalization rate; (ii) discount rate; (iii) net operating income; and (iv) number of years the property will be held or benefit realized. There are inherent uncertainties in making these estimates, including the impact of the COVID-19 pandemic. For our estimate of the fair value of the assets for impairment tests for our long-lived real estate and related intangible assets during the nine months ended September 30, 2020, we used discount rates ranging from 7.0% to 10.5%, with a weighted-average rate of 8.4%, and capitalization rates ranging from 5.0% to 8.5%, with a weighted-average rate of 6.5%. 

See Note 13 for information on the measurement of fair value of the Series A and Series B Preferred Stock and Warrants.

Note 8. Risk Management and Use of Derivative Financial Instruments

Risk Management

In the normal course of our ongoing business operations, we encounter economic risk. There are two main components of economic risk that impact us: interest rate risk and market risk. We are primarily subject to interest rate risk on our interest-bearing assets and liabilities. Market risk includes changes in the value of our properties and related loans.

Derivative Financial Instruments

There have been no significant changes in our derivative financial instruments policies from what was disclosed in the 2020 Annual Report. At both September 30, 2021 and December 31, 2020, no cash collateral had been posted nor received for any of our derivative positions.
The following table sets forth certain information regarding our derivative instruments on our Consolidated Hotels (in thousands):
Derivatives Designated as Hedging Instruments Asset Derivatives Fair Value at Liability Derivatives Fair Value at
Balance Sheet Location September 30, 2021 December 31, 2020 September 30, 2021 December 31, 2020
Interest rate caps
Other assets
$ 214  $ 9  $ —  $ — 
Interest rate swaps
Accounts payable, accrued expenses and other liabilities
—  —  (3,126) (5,080)
$ 214  $ 9  $ (3,126) $ (5,080)

WLT 9/30/2021 10-Q – 20
Notes to Consolidated Financial Statements (Unaudited)
All derivative transactions with an individual counterparty are governed by a master International Swap and Derivatives Association agreement, which can be considered as a master netting arrangement; however, we report all our derivative instruments on a gross basis in our consolidated financial statements.

We recognized unrealized losses of $0.2 million and less than $0.1 million in Other comprehensive loss on derivatives in connection with our interest rate swaps and caps during the three months ended September 30, 2021 and 2020, respectively, and unrealized losses of $0.3 million and $0.9 million during the nine months ended September 30, 2021 and 2020, respectively.

We reclassified $0.2 million from Other comprehensive loss on derivatives into Interest expense during both the three months ended September 30, 2021 and 2020, and $0.5 million and $0.3 million during the nine months ended September 30, 2021 and 2020, respectively.

Amounts reported in Other comprehensive loss related to our interest rate swap and caps will be reclassified to Interest expense as interest is incurred on our variable-rate debt. As of September 30, 2021, we estimated that an additional $0.6 million will be reclassified as Interest expense during the next 12 months related to our interest rate swaps and caps.

Interest Rate Swaps and Caps

We are exposed to the impact of interest rate changes primarily through our borrowing activities. To limit this exposure, we attempt to obtain mortgage financing on a long-term, fixed-rate basis. However, from time to time, we or our investment partners may obtain variable-rate non-recourse mortgage loans and, as a result, may enter into interest rate swap or cap agreements with counterparties. Interest rate swaps, which effectively convert the variable-rate debt service obligations of a loan to a fixed rate, are agreements in which one party exchanges a stream of interest payments for a counterparty’s stream of cash flow over a specific period. The notional, or face, amount on which the swaps are based is not exchanged. An interest rate cap limits the effective borrowing rate of variable-rate debt obligations while allowing participants to share in downward shifts in interest rates. Our objective in using these derivatives is to limit our exposure to interest rate movements.

The interest rate swaps and caps that we had outstanding on our Consolidated Hotels as of September 30, 2021 and December 31, 2020 were designated as cash flow hedges and are summarized as follows (dollars in thousands): 
  Number of Instruments at Notional Amount at Fair Value at
Interest Rate Derivatives September 30, 2021 December 31, 2020 September 30, 2021 December 31, 2020 September 30, 2021 December 31, 2020
Interest rate swaps 2  2  $ 185,295  $ 187,550  $ (3,126) $ (5,080)
Interest rate caps 11  9  671,185  427,745  214  9 
$ 856,480  $ 615,295  $ (2,912) $ (5,071)

Credit Risk-Related Contingent Features

Some of the agreements we have with our derivative counterparties contain cross-default provisions that could trigger a declaration of default on our derivative obligations if we default, or are capable of being declared in default, on certain of our indebtedness. As of both September 30, 2021 and December 31, 2020, we had not been declared in default on any of our derivative obligations. The estimated fair value of our derivatives in a net liability position was $3.4 million and $5.3 million as of September 30, 2021 and December 31, 2020, respectively, which included accrued interest and any nonperformance risk adjustments. If we had breached any of these provisions as of September 30, 2021 or December 31, 2020, we could have been required to settle our obligations under these agreements at their aggregate termination value of $3.5 million and $5.6 million, respectively.

WLT 9/30/2021 10-Q – 21
Notes to Consolidated Financial Statements (Unaudited)
Note 9. Debt

Our debt consists of mortgage notes payable, which are collateralized by the assignment of hotel properties. The following table presents the non-recourse debt, net on our Consolidated Hotel investments (dollars in thousands):
Carrying Amount at
Interest Rate Range
Current Maturity Date Range (a)
September 30, 2021 December 31, 2020
Fixed rate
3.6% – 4.9%
06/21(b) – 04/24
$ 1,273,674  $ 1,286,839 
Variable rate (c)
2.4% – 9.0%
 01/22 – 06/24
858,844  883,063 
$ 2,132,518  $ 2,169,902 
___________
(a)Many of our mortgage loans have extension options, which are subject to certain conditions. The maturity dates in the table do not reflect the extension options.
(b)See discussion below on the Courtyard Times Square West mortgage loan, which matured on June 1, 2021.
(c)The interest rate range presented for these mortgage loans reflect the rates in effect as of September 30, 2021 through the use of an interest rate swap or cap, when applicable.

Pursuant to our mortgage loan agreements, our consolidated subsidiaries are subject to various operational and financial covenants, including minimum debt service coverage and debt yield ratios. Most of our mortgage loan agreements contain “lock-box” provisions, which permit the lender to access or sweep a hotel’s excess cash flow and could be triggered by the lender under limited circumstances, including the failure to maintain minimum debt service coverage ratios. If a lender requires that we enter into a cash management agreement, we would generally be permitted to spend an amount equal to our budgeted hotel operating expenses, taxes, insurance and capital expenditure reserves for the relevant hotel. The lender would then hold all excess cash flow after the payment of debt service in an escrow account until certain performance hurdles are met. As of September 30, 2021, we have effectively entered into cash management agreements with the lenders on 22 of our 28 Consolidated Hotel mortgage loans either because the minimum debt service coverage ratio was not met or as a result of a loan modification agreement. The cash management agreements generally permit cash generated from the operations of each hotel to fund the hotel’s operating expenses, debt service, taxes and insurance but restrict distributions of excess cash flow, if any, to the Company to fund corporate expenses.

Financing Activity During 2021

On March 5, 2021, we refinanced the $190.0 million Ritz-Carlton Key Biscayne non-recourse mortgage loan, which extended the maturity date of the loan from August 1, 2021 to August 1, 2023. The principal balance and interest rate remain unchanged. This refinancing was accounted for as a loan modification and no gain or loss was recognized.

On March 15, 2021, we refinanced the $45.5 million Equinox Golf Resort & Spa non-recourse mortgage loan, which extended the maturity date of the loan from March 1, 2021 to March 1, 2023. The principal balance and interest rate remain unchanged. This refinancing was accounted for as a loan modification and no gain or loss was recognized.

On April 6, 2021, we refinanced the $29.7 million Hyatt Centric French Quarter New Orleans non-recourse mortgage loan, which extended the maturity date of the loan from April 26, 2021 to April 6, 2023 and provides for a one-year extension option, subject to certain conditions. The principal balance remains unchanged and the loan has a floating annual interest rate that is subject to an interest rate cap. This refinancing was accounted for as a loan modification and no gain or loss was recognized.

On May 7, 2021, we refinanced the Ritz-Carlton Fort Lauderdale $47.0 million senior mortgage loan and the $28.3 million mezzanine loan with new mortgage loans of up to $61.1 million for the senior mortgage loan and up to $16.9 million for the mezzanine loan, with an aggregate $76.0 million funded at closing, comprised of $59.5 million for the senior mortgage loan and $16.5 million for the mezzanine loan. The loans have a maturity date of June 1, 2024, with two one-year extension options, subject to certain conditions. We recognized a loss on extinguishment of debt of $0.1 million during the nine months ended September 30, 2021.

On June 8, 2021, we refinanced the Seattle Marriott Bellevue $96.1 million non-recourse mortgage loan with a new mortgage loan of $104.8 million with a floating annual interest rate that is subject to an interest rate cap and a maturity date of June 8, 2024, with two one-year extension options, subject to certain conditions. We recognized a loss on extinguishment of debt of $4.8 million during the nine months ended September 30, 2021.
WLT 9/30/2021 10-Q – 22
Notes to Consolidated Financial Statements (Unaudited)

On June 9, 2021, we refinanced the Ritz-Carlton Santa Barbara, Bacara $175.0 million senior mortgage loan and the $55.0 million mezzanine loan, which extended the maturity dates of each loan from September 28, 2021 to September 28, 2022, and included principal paydowns of $4.2 million and $1.3 million, respectively. The interest rates remain unchanged. This refinancing was accounted for as a loan modification and no gain or loss was recognized.

On August 12, 2021, we refinanced the $49.0 million Renaissance Atlanta Midtown Hotel non-recourse mortgage loan, which extended the maturity date of the loan from August 8, 2021 to August 8, 2022 and provided for a one-year extension option, subject to certain conditions. The principal balance and interest rate remained unchanged. This refinancing was accounted for as a loan modification and no gain or loss was recognized.

Courtyard Times Square West

The $58.5 million outstanding mortgage loan on Courtyard Times Square West matured on June 1, 2021 and we have not paid off the outstanding principal balance. The loan does not have any cross-default provisions with our other mortgage obligations. We are currently in the process of exploring various options as it relates to this asset, including but not limited to, surrendering the property back to the lender.

Scheduled Debt Principal Payments

Scheduled debt principal payments during the remainder of 2021 and each of the next four calendar years following December 31, 2021 are as follows (in thousands):
Years Ending December 31, Total
2021 (remainder) $ 102,724 
2022 1,294,622 
2023 530,981 
2024 231,002 
2025 — 
Total principal payments 2,159,329 
Unamortized debt discount (19,207)
Unamortized deferred financing costs (7,604)
Total $ 2,132,518 

Note 10. Commitments and Contingencies

As of September 30, 2021, we were not involved in any material litigation. Various claims and lawsuits arising in the normal course of business are pending against us, including liens for which we may obtain a bond, provide collateral or provide an indemnity, but we do not expect the results of such proceedings to have a material adverse effect on our consolidated financial position, results of operations or cash flows.

Hotel Management Agreements

As of September 30, 2021, our hotel properties were operated pursuant to long-term management agreements with 10 different management companies, with initial terms ranging from five to 40 years. For hotels operated with separate franchise agreements, each management company receives a base management fee, generally ranging from 1.5% to 3.5% of hotel revenues. Twelve of our management agreements contain the right and license to operate the hotels under specified brands; no separate franchise agreements exist and no separate franchise fee is required for these hotels. The management agreements that include the benefit of a franchise agreement incur a base management fee ranging from 3.0% to 7.0% of hotel revenues. The management companies are generally also eligible to receive an incentive management fee, which is typically calculated as a percentage of operating profit, either (i) in excess of projections with a cap or (ii) after the owner has received a priority return on its investment in the hotel. We incurred management fee expense, including amortization of deferred management fees, of $5.5 million and $1.6 million for the three months ended September 30, 2021 and 2020, respectively, and $13.0 million and $4.8 million for the nine months ended September 30, 2021 and 2020, respectively.

WLT 9/30/2021 10-Q – 23
Notes to Consolidated Financial Statements (Unaudited)
Franchise Agreements

Fourteen of our hotel properties operated under franchise or license agreements with national brands that are separate from our management agreements. As of September 30, 2021, we had 9 franchise agreements with Marriott-owned brands, two with Hilton-owned brands, one with InterContinental Hotels-owned brands and two with a Hyatt-owned brand related to our hotels. Our typical franchise agreements have initial terms ranging from 15 to 25 years. Three of our hotels are not operated with a hotel brand so the hotels do not have franchise agreements. Generally, our franchise agreements provide for a license fee, or royalty, of 3.0% to 6.0% of room revenues and, if applicable, 2.0% to 3.0% of food and beverage revenue. In addition, we generally pay 1.0% to 4.5% of room revenues as marketing and reservation system contributions for the system-wide benefit of brand hotels. Franchise fees are included in sales and marketing expense in our consolidated financial statements. We incurred franchise fee expense, including amortization of deferred franchise fees, of $2.5 million and $0.9 million for the three months ended September 30, 2021 and 2020, respectively, and $5.5 million and $3.7 million for the nine months ended September 30, 2021 and 2020, respectively.
Capital Expenditures and Reserve Funds

With respect to our hotels that are operated under management or franchise agreements with major international hotel brands and for most of our hotels subject to mortgage loans, we are obligated to maintain furniture, fixtures and equipment reserve accounts for future capital expenditures sufficient to cover the cost of routine improvements and alterations at these hotels. The amount funded into each of these reserve accounts is generally determined pursuant to the management agreements, franchise agreements and/or mortgage loan documents for each of the respective hotels and typically ranges between 3.0% and 5.0% of the respective hotel’s total gross revenue. As of September 30, 2021 and December 31, 2020, $57.6 million and $51.0 million, respectively, was held in furniture, fixtures and equipment reserve accounts for future capital expenditures and is included in Restricted cash in the consolidated financial statements. In addition, due to the effects of the COVID-19 pandemic on our operations, we have been working with the brands, management companies and lenders and have used a portion of the available restricted cash reserves to cover operating costs at our properties, of which $2.3 million is subject to replenishment requirements as of September 30, 2021.

Renovation Commitments

Certain of our hotel franchise and loan agreements require us to make planned renovations to our hotels. Additionally, from time to time, certain of our hotels may undergo renovations as a result of our decision to upgrade portions of the hotels, such as guestrooms, public space, meeting space, and/or restaurants, in order to better compete with other hotels and alternative lodging options in our markets. As of September 30, 2021, we had various contracts outstanding with third parties in connection with the renovation of certain of our hotels. The remaining commitments under these contracts as of September 30, 2021 totaled $18.9 million. Funding for a renovation will first come from our furniture, fixtures and equipment reserve accounts, to the extent permitted by the terms of the management agreement. Should these reserves be unavailable or insufficient to cover the cost of the renovation, we will fund all or the remaining portion of the renovation with existing cash resources or other sources of available capital, including cash flow from operations.

Leases

Lease Obligations

We recognize an operating right-of-use asset and a corresponding lease liability for ground lease arrangements, hotel parking leases and various hotel equipment leases for which we are the lessee. Our leases have remaining lease terms ranging from less than one year to 90 years (excluding extension options not reasonably certain of being exercised).

WLT 9/30/2021 10-Q – 24
Notes to Consolidated Financial Statements (Unaudited)
Lease Cost

Certain information related to the total lease cost for operating leases is as follows (in thousands):

Three Months Ended September 30, Nine Months Ended September 30,
2021 2020 2021 2020
Fixed lease cost $ 3,494  $ 2,853  $ 9,789  $ 9,045 
Variable lease cost (a)
163  4  272  103 
Total lease cost $ 3,657  $ 2,857  $ 10,061  $ 9,148 
___________

(a)Our variable lease payments consist of payments based on a percentage of revenue.

Note 11. Loss Per Share and Equity

Loss Per Share
Three Months Ended September 30, Nine Months Ended September 30,
2021 2020 2021 2020
Net loss attributable to the Company $ (18,321) $ (81,376) $ (119,539) $ (265,934)
Less: Preferred dividends —  (401) —  (1,742)
Less: Fair value adjustment on reclassification of Series A Preferred Stock —  2,754  —  2,754 
Net loss attributable to WLT Stockholders including amounts attributable to fair value adjustment $ (18,321) $ (79,023) $ (119,539) $ (264,922)

The computation of basic and diluted earnings per share is as follows (in thousands, except share and per share amounts):

Three Months Ended September 30, 2021 Three Months Ended September 30, 2020
Basic and Diluted Weighted-Average
Shares Outstanding  		Allocation of Loss Basic and Diluted Loss Per Share  Basic and Diluted Weighted-Average
Shares Outstanding  		Allocation of Loss Basic and Diluted Loss
Per Share 
Class A common stock 167,661,942  $ (13,428) $ (0.08) 167,571,806  $ (57,863) $ (0.35)
Class T common stock 61,095,773  (4,893) (0.08) 61,175,258  (21,160) (0.35)
Net loss attributable to Common Stockholders including amounts attributable to fair value adjustment $ (18,321) $ (79,023)

Nine Months Ended September 30, 2021 Nine Months Ended September 30, 2020
Basic and Diluted Weighted-Average
Shares Outstanding  		Allocation of Loss Basic and Diluted Loss Per Share  Basic and Diluted Weighted-Average
Shares Outstanding  		Allocation of Loss Basic and Diluted Loss
Per Share 
Class A common stock 167,582,962  $ (87,601) $ (0.52) 153,838,492  $ (212,188) $ (1.38)
Class T common stock 61,097,028  (31,938) (0.52) 38,178,719  (52,734) (1.38)
Net loss attributable to Common Stockholders including amounts attributable to fair value adjustment $ (119,539) $ (264,922)

The allocation of net loss attributable to common stockholders is calculated based on the weighted-average shares outstanding for Class A common stock and Class T common stock for the period.

WLT 9/30/2021 10-Q – 25
Notes to Consolidated Financial Statements (Unaudited)
Noncontrolling Interest in the Operating Partnership

We consolidate the Operating Partnership, which is a majority-owned limited partnership that has a noncontrolling interest. As of September 30, 2021 and December 31, 2020, the Operating Partnership had 231,175,710 and 230,961,715 OP Units outstanding, respectively, of which 99.0% of the outstanding OP Units were owned by the Company, and the noncontrolling 1.0% ownership interest was beneficially owned by Mr. Medzigian as of both periods.

As of both September 30, 2021 and December 31, 2020, Mr. Medzigian indirectly owned 2,417,996 OP Units. The outstanding OP Units indirectly held by Mr. Medzigian are exchangeable on a one-for-one basis into shares of WLT Class A common stock. Additionally, we had 16,778,446 Warrant Units outstanding as of both September 30, 2021 and December 31, 2020. The noncontrolling interest is included in noncontrolling interest on the consolidated balance sheet.

Reclassifications Out of Accumulated Other Comprehensive Loss

The following table presents a reconciliation of changes in Accumulated other comprehensive loss by component for the periods presented (in thousands):
Three Months Ended September 30,
Gains and Losses on Derivative Instruments 2021 2020
Beginning balance $ (524) $ (928)
Other comprehensive loss before reclassifications (194) (45)
Amounts reclassified from accumulated other comprehensive loss to:
Interest expense 177  159 
Total 177  159 
Net current period other comprehensive (loss) income (17) 114 
Net current period other comprehensive loss (income) attributable to noncontrolling interests 4  (1)
Ending balance $ (537) $ (815)
Nine Months Ended September 30,
Gains and Losses on Derivative Instruments 2021 2020
Beginning balance $ (724) $ (172)
Other comprehensive loss before reclassifications (307) (891)
Amounts reclassified from accumulated other comprehensive loss to:
Interest expense 492  260 
Equity in losses of equity method investments in real estate, net —  6 
Total 492  266 
Net current period other comprehensive income (loss) 185  (625)
Net current period other comprehensive loss (income) attributable to noncontrolling interests 2  (18)
Ending balance $ (537) $ (815)

Share-Based Payments

During the nine months ended September 30, 2021, the Company granted 410,154 RSUs to employees under the 2015 Equity Incentive Plan, which generally vest over three years, subject to continued employment, and are forfeited if the recipient’s employment terminates prior to the vesting. The Company also granted 725,952 shares to the Chief Executive Officer that will vest over three years, with 75% of each tranche vesting with regard to time only based on continued employment and 25% of each tranche vesting subject to the Board of Directors’ approval of the Company’s or Mr. Medzigian’s performance.

Note 12. Income Taxes

We elected to be treated as a REIT and believe that we have been organized and have operated in such a manner to maintain our qualification as a REIT for federal and state income tax purposes. As a REIT, we are generally not subject to corporate level
WLT 9/30/2021 10-Q – 26
Notes to Consolidated Financial Statements (Unaudited)
federal income taxes on earnings distributed to our stockholders. Since inception, we have distributed at least 100% of our taxable income annually and intend to do so for the tax year ending December 31, 2021, if applicable. Accordingly, we have not included any provisions for federal income taxes related to the REIT in the accompanying consolidated financial statements for the nine months ended September 30, 2021. We conduct business in various states and municipalities within the United States, and, as a result, we or one or more of our subsidiaries file income tax returns in the U.S. federal jurisdiction and various state jurisdictions. As a result, we are subject to certain state and local taxes and a provision for such taxes is included in the consolidated financial statements.

Certain of our subsidiaries have elected taxable REIT subsidiary (“TRS”) status. A TRS may provide certain services considered impermissible for REITs and may hold assets that REITs may not hold directly. On April 20, 2020, the TRSs that were previously wholly-owned by CWI 1 were contributed into the wholly-owned WLT combined TRS in a tax-free restructuring. This restructuring resulted in a single federal tax filing for the WLT combined TRS, which included the contributed entities. The WLT combined TRS measures the deferred tax assets and liabilities of the combined entities based on the WLT combined TRS’s deferred tax rate.

The accompanying consolidated financial statements include an interim tax provision for our TRSs for the three and nine months ended September 30, 2021 and 2020. Current income tax benefit was $0.4 million for the three months ended September 30, 2021, and current income tax expense was $0.1 million for the three months ended September 30, 2020. Current income tax expense was $0.3 million for the nine months ended September 30, 2021 and current income tax benefit was $8.0 million for the nine months ended September 30, 2020. We have historically calculated the provision for income taxes during interim periods by applying an estimate of the annual effective tax rate for the full fiscal year to “ordinary” income or loss (pretax income or loss excluding unusual or infrequently occurring discrete items) for the interim period. We used a discrete effective tax rate method to calculate taxes for the three and nine months ended September 30, 2020 as we determined that, since estimates of “ordinary” income were unreliable due to the impact of the COVID-19 pandemic, the historical method would not provide a reliable estimate for the three and nine months ended September 30, 2020. For purposes of the interim period provision for the three and nine months ended September 30, 2021, we determined that our estimates of ordinary income were reliable, therefore we computed the interim provision consistent with our historical method.

In light of the COVID-19 outbreak during the first quarter of 2020, we monitored tax considerations and the potential impact on our consolidated financial statements. The Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) (U.S. federal legislation enacted on March 27, 2020 in response to the COVID-19 pandemic) provides that net operating losses generated in 2018, 2019, or 2020 may be carried back to offset taxable income earned during the five-year period prior to the year in which the net operating loss was generated. By carrying back certain net operating losses, we recognized a current tax benefit of $0.3 million and $8.3 million during the three and nine months ended September 30, 2020, which is included within current tax benefit described in the previous paragraph. No such benefit was recorded during the three and nine months ended September 30, 2021.

Our TRSs are subject to U.S. federal and state income taxes. As such, deferred tax assets and liabilities are established for temporary differences between the financial reporting basis and the tax basis of assets and liabilities at the enacted tax rates expected to be in effect when the temporary differences reverse. A valuation allowance for deferred tax assets is provided if we believe that it is more likely than not that we will not realize the tax benefit of deferred tax assets based on available evidence at the time the determination is made. A change in circumstances may cause us to change our judgment about whether a deferred tax asset will more likely than not be realized. We generally report any change in the valuation allowance through our income statement in the period in which such changes in circumstances occur. The majority of our deferred tax assets relate to net operating losses, accrued expenses and deferred key money liabilities. Due to significant negative evidence, including cumulative losses in the most recent three-year period, our assessment as of September 30, 2021 is that our net deferred tax assets are not more likely than not to be realized and we reported a valuation allowance against those balances. Benefit from (provision for) income taxes included deferred income tax benefit of $0.1 million and $1.7 million for the three months ended September 30, 2021 and 2020, respectively, and deferred income tax expense of $0.4 million and $0.5 million for the nine months ended September 30, 2021 and 2020, respectively.

WLT 9/30/2021 10-Q – 27
Notes to Consolidated Financial Statements (Unaudited)
Note 13. Mandatorily Redeemable Preferred Stock

As of both September 30, 2021 and December 31, 2020, we had authorized 50,000,000 shares of preferred stock, $0.001 par value per share.

Series A Preferred Stock

On April 13, 2020, we issued 1,300,000 shares of WLT Series A preferred stock, $0.001 par value per share, with a liquidation preference of $50.00 per share (the “Series A Preferred Stock”) to WPC.

Dividends

Dividends are comprised of cumulative preferential dividends that holders of the Series A Preferred Stock are entitled to receive at a rate of 5% per year, with the rate increasing to 7% on the second anniversary of the Merger and increasing to 8% on the third anniversary of the Merger. Dividends accrue annually. Any dividend payable on the Series A Preferred Stock will be computed on the basis of a 360-day year consisting of twelve 30-day months.

Redemption

Partial Redemption – On both April 13, 2023 and April 13, 2024, the holders of the Series A Preferred Stock may elect to have the Company redeem 25% of the shares of the Series A Preferred Stock outstanding as of the respective dates for cash at a redemption price per share equal to $50.00, plus all accrued and unpaid dividends thereon up to and including the date of redemption, without interest, to the extent the Company has funds legally available therefor.

Full Redemption – At the earlier of April 13, 2025 or a redemption event (as defined in the Articles Supplementary governing the Series A Preferred Stock), the holders of the Series A Preferred Stock may elect to have the Company redeem all of the outstanding shares of the Series A Preferred Stock for cash at a redemption price per share equal to $50.00, plus all accrued and unpaid dividends thereon up to and including the date of redemption, without interest, to the extent the Company has funds legally available therefor.

As a result of the issuance of the Series B Preferred Stock during the third quarter of 2020, which we concluded was within the scope of Accounting Standards Codification 480 and which we recorded as a liability as a result of its certainty to be redeemed, we reevaluated the classification of our Series A Preferred Stock and because of certain protective provisions that prohibit the Company from purchasing or redeeming capital stock of the Company for as long as any shares of Series A Preferred Stock remain outstanding (as more fully described in the Articles Supplementary governing the Series A Preferred Stock), we concluded that Series A Preferred Stock was now certain to be redeemed.

WLT 9/30/2021 10-Q – 28
Notes to Consolidated Financial Statements (Unaudited)
Series B Preferred Stock and Warrants

On July 21, 2020, we entered into a securities purchase agreement (the “Purchase Agreement”) with ACP Watermark Investment LLC (the “Purchaser”) and, solely with respect to a guaranty, certain other parties thereto. Pursuant to the Purchase Agreement, the Company, in a private placement made in reliance on an exemption from the registration requirements of the Securities Act of 1933, as amended, agreed to issue and sell to the Purchaser 200,000 shares of 12% Series B Cumulative Redeemable Preferred Stock, liquidation preference $1,000.00 per share (the “Series B Preferred Stock”) and warrants (the “Warrants”) to purchase 16,778,446 units of limited partnership interest of the Operating Partnership (“OP Units”) (“Warrant Units”), for an aggregate purchase price of $200.0 million (the “July Capital Raise”), both of which were issued on July 24, 2020. The Warrant exercise price is $0.01 per Warrant Unit, and the Warrants expire on July 24, 2027. The Warrant Units are recorded as noncontrolling interest in the consolidated balance sheets totaling $10.9 million and $19.8 million as of September 30, 2021 and December 31, 2020, respectively. The Warrants require that, if the Operating Partnership pays any distribution to holders of OP Units, then the Operating Partnership shall concurrently distribute the same securities, cash, indebtedness, rights or other property to the holders of Warrants as if the Warrants had been exercised into Warrant Units on the date of such distribution. The Warrants include a call option that will allow the Company to purchase Warrants, Warrant Units and Common Stock issued on redemption of Warrant Units from the purchaser or its transferees at a specified call price until the Common Stock is approved for trading on any securities exchange registered as a national securities exchange under Section 6 of the Securities and Exchange Act of 1934, as amended (or the equivalent thereof in a jurisdiction outside the United States).

The purchaser has also committed to provide, upon satisfaction of certain conditions, up to an additional $250.0 million to purchase additional shares of the Series B Preferred Stock during the 18 months following the consummation of the July Capital Raise, of which $150.0 million is allocated to working capital needs and other general corporate purposes and $100.0 million is allocated to approved acquisitions. Among other terms of the Series B Preferred Stock, the Series B Preferred Stock generally prohibits the Company from paying distributions on common stock or redeeming common stock unless the Company has first paid all accrued dividends (and dividends thereon) on the Series B Preferred Stock in cash for all past dividend periods and the current dividend period. There are certain exceptions for the payment of dividends on common stock required for the Company to maintain its REIT qualification, special circumstances redemptions of common stock and redemptions of common stock that are funded with proceeds from issuances of common stock under the Company's distribution reinvestment plan.

Dividends

The holders are entitled to receive cumulative dividends per share of Series B Preferred Stock at the rate of 12% per year. Dividends can be paid in cash or in the form of additional shares of Series B Preferred Stock with the value thereof equal to the liquidation preference of such shares, at the option of the Company. The dividends are cumulative, compound quarterly and accrue, whether or not earned or declared, from and after the date of issue. During the three and nine months ended September 30, 2021, we declared and paid dividends totaling $6.5 million and $24.5 million, respectively, which approximated fair value, in the form of 6,539 and 24,519 additional shares of Series B Preferred Stock, respectively.

Redemption

On July 24, 2025, the Company is obligated to redeem all shares of Series B Preferred Stock at a redemption price, payable in cash, equal to the then applicable liquidation preference plus all accrued and unpaid dividends. The Company, at its option, may redeem for cash, in whole or in part from time to time, any or all of the outstanding shares of Series B Preferred Stock upon giving the notice described in the Articles Supplementary governing the Series B Preferred Stock at a price determined in the Articles Supplementary.

Dividends accrued included in interest expense in the consolidated financial statements related to our Series A and Series B Preferred Stock as of September 30, 2021 totaled $6.4 million.
WLT 9/30/2021 10-Q – 29
Notes to Consolidated Financial Statements (Unaudited)

The following table presents the carrying value of our Series A and Series B Preferred Stock as of September 30, 2021 and December 31, 2020:
Series A Preferred Stock at Series B Preferred Stock at
September 30, 2021 December 31, 2020 September 30, 2021 December 31, 2020
Liquidation value $ 65,000  $ 65,000  $ 224,519  $ 200,000 
Fair value discount (14,310) (14,310) (30,358) (30,358)
50,690 50,690 194,161 169,642
Accumulated amortization of fair value discount 3,600 1,336 7,212 2,675
Deferred financing costs — — (11,177) (11,169)
Accumulated amortization of deferred financing costs — — 2,655 984
$ 54,290  $ 52,026  $ 192,851  $ 162,132 

Note 14. Agreements and Transactions with Related Parties

Pre-Merger Agreements with Our Advisor and Affiliates

Prior to the Merger, we had an advisory agreement with the Advisor (the “Advisory Agreement”) to perform certain services for us under a fee arrangement, including managing our overall business, our investments and certain administrative duties. The Advisor also had a subadvisory agreement with the CWI 1 Subadvisor (the “Subadvisory Agreement”) whereby the Advisor paid 20% of its fees earned under the Advisory Agreement to the CWI 1 Subadvisor in return for certain personnel services. Upon completion of the Merger on April 13, 2020, both the Advisory Agreement and Subadvisory Agreement were terminated.

The following tables present a summary of fees we paid, expenses we reimbursed and distributions we made to the Advisor, the CWI 1 Subadvisor and other affiliates, as described below, in accordance with the terms of those agreements (in thousands):
Three Months Ended September 30, Nine Months Ended September 30,
2021 2020 2021 2020
Amounts Included in the Consolidated Statements of Operations
Personnel and overhead reimbursements $ 75  $ 353  $ 279  $ 3,377 
Asset management fees —  —  —  3,795 
$ 75  $ 353  $ 279  $ 7,172 

Asset Management Fees, Disposition Fees and Loan Refinancing Fees

Prior to the Merger, we paid the Advisor an annual asset management fee equal to 0.50% of the aggregate average market value of our investments, as described in the Advisory Agreement. The Advisor was also entitled to receive disposition fees of up to 1.5% of the contract sales price of a property, as well as a loan refinancing fee of up to 1.0% of the principal amount of a refinanced loan, if certain conditions described in the Advisory Agreement were met. If the Advisor elected to receive all or a portion of its fees in shares of our common stock, the number of shares issued was determined by dividing the dollar amount of fees by our most recently published estimated net asset value per share (“NAV”). Upon completion of the Merger on April 13, 2020, the Advisory Agreement was terminated and these fees ceased being incurred. For the nine months ended September 30, 2020, we settled $4.8 million of asset management fees in shares of our common stock at the former Advisor’s election. No such fees were earned during the nine months ended September 30, 2021. As of September 30, 2021, the Advisor owned 12,208,243 shares (5.3%) of our total outstanding common stock. Asset management fees are included in Asset management fees to affiliate in the consolidated financial statements.

WLT 9/30/2021 10-Q – 30
Notes to Consolidated Financial Statements (Unaudited)
Personnel and Overhead Reimbursements/Reimbursable Costs

Prior to the Merger, under the terms of the Advisory Agreement, the Advisor generally allocated expenses of dedicated and shared resources, including the cost of personnel, rent and related office expenses, between us and CWI 2, based on total pro rata hotel revenues on a quarterly basis. Pursuant to the Subadvisory Agreement, after we reimbursed the Advisor, it would subsequently reimburse the CWI 1 Subadvisor for personnel costs and other charges, including the services of our Chief Executive Officer, subject to the approval of our Board of Directors. These reimbursements are included in Corporate general and administrative expenses and Due to related parties and affiliates in the consolidated financial statements. We also granted RSUs to employees of the CWI 1 Subadvisor pursuant to our 2010 Equity Incentive Plan. Upon completion of the Merger on April 13, 2020, both the Advisory Agreement and Subadvisory Agreement were terminated and those expenses ceased being incurred. Subsequent to the Merger, subject to the terms of the Transition Services Agreement, as discussed below, WPC is paid its costs of providing services under this agreement and will be reimbursed for all expenses of providing the services.

Available Cash Distributions

Prior to the Merger, Carey Watermark Holdings’ special general partner interest entitled it to receive distributions of 10% of Available Cash (as defined in the limited partnership agreement of CWI OP, LP) generated by CWI OP, LP, subject to certain limitations. In connection with the internalization of the management of the Company in connection with the Merger, CWI OP, LP and the Operating Partnership redeemed the special general partnership interests held by Carey Watermark Holdings, LLC and Carey Watermark Holdings 2, LLC in CWI OP, LP and the Operating Partnership, respectively. Following the redemption, Carey Watermark Holdings, LLC and Carey Watermark Holdings 2, LLC have no further liability or obligation pursuant to the limited partnership agreements of CWI OP, LP or the Operating Partnership, respectively.

Post-Merger Transactions with Affiliates

Transition Services Agreement

Pursuant to the Transition Services Agreement dated as of October 22, 2019 entered into between CWI 2 and WPC, WPC continued to make available to the Company all of the services that WPC provided to CWI 2 prior to the Merger and was paid its costs of providing the services and reimbursed for all expenses of providing the services. The term of the Transition Services Agreement was generally 12 months from the effective date of the internalization transaction, with certain services surviving for up to 18 months. The Transition Services Agreement expired on October 13, 2021; however, WPC and WLT entered into a side letter to address certain ongoing matters of an administrative nature. As of September 30, 2021 and December 31, 2020, the amount due to WPC was $0.1 million and $0.2 million, respectively.

Pursuant to the Transition Services Agreement dated as of October 22, 2019 entered into between CWI 2 and Watermark Capital, Watermark Capital will continue to make available to the Company all of the services that Watermark Capital provided to CWI 2 prior to the Merger and for the Company to provide certain services to Watermark Capital or its affiliates. Except with respect to particular services provided by the Company to Watermark Capital, the term of the Transition Services Agreement has expired. The Company, in its respective capacity as service provider under such Transition Services Agreement, will be paid its respective costs of providing the services and will be reimbursed for all expenses of providing the services.

WLT 9/30/2021 10-Q – 31
Notes to Consolidated Financial Statements (Unaudited)
Note 15. Subsequent Events

On October 19, 2021, we sold our 100% ownership interest in the Westin Minneapolis to an unaffiliated third-party and received net proceeds after the repayment of the related mortgage loan of approximately $9.1 million.

On November 9, 2021, we acquired the remaining 30% interest in the Ritz-Carlton Fort Lauderdale Venture from an unaffiliated third party for $25.4 million, which included costs associated with the termination of related agreements, bringing our ownership interest to 100%.

On November 10, 2021, we refinanced the $140.9 million Ritz-Carlton San Francisco non-recourse mortgage loan with a new mortgage loan of $149.2 million. The loan has a maturity date of November 1, 2024, with two one-year extension options, subject to certain conditions.






WLT 9/30/2021 10-Q – 32

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

Management’s Discussion and Analysis of Financial Condition and Results of Operations is intended to provide the reader with information that will assist in understanding our financial statements and the reasons for changes in certain key components of our financial statements from period to period. Management’s Discussion and Analysis of Financial Condition and Results of Operations also provides the reader with our perspective on our financial position and liquidity, as well as certain other factors that may affect our future results. Our Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the 2020 Annual Report and subsequent reports filed under the Securities Exchange Act of 1934, as amended (the “Exchange Act”).

Business Overview

We are a self-managed, publicly owned, non-traded REIT that invests in, manages and seeks to enhance the value of, interests in lodging and lodging-related properties in the United States. We own a diversified lodging portfolio, including full-service, select-service and resort hotels. Our results of operations were significantly affected by the COVID-19 pandemic, as discussed further below. Our results of operations are also significantly impacted by seasonality and by hotel renovations. Generally, during the renovation period, a portion of total rooms are unavailable and hotel operations are often disrupted, negatively impacting our results of operations. As of September 30, 2021, we held ownership interests in 29 hotels, with a total of 9,094 rooms.

Significant Developments

COVID-19 Pandemic

The COVID-19 pandemic has had a material adverse effect on our business, results of operations, financial condition and cash flows and will continue to do so for the reasonably foreseeable future. As of November 12, 2021, all of our hotels are open but many are operating at significantly reduced levels of occupancy, staffing and expenses. While seasonal decline in leisure travel and the emergence of the Delta variant reduced near-term demand, we have generally seen improving demand at our properties as government-imposed restrictions and limitations on travel and large gatherings have loosened and as the vaccines have become more widely available. We expect the recovery to occur unevenly across our portfolio, with hotels that cater to business travel recovering more slowly than resort properties. Governmental and business efforts to encourage or mandate vaccinations, and public adoption rates of vaccines, impact the recovery from the COVID-19 pandemic and may have disruptive effects on certain segments of the labor market. Individual ability or desire to travel and corporate travel policies will continue to be impacted by the COVID-19 pandemic and affect the recovery of our properties. The ultimate severity and duration of the COVID-19 pandemic and its effects, and the emergence of variants, are uncertain, including whether COVID-19 will become endemic or cyclical in nature. Given these uncertainties, we cannot estimate with reasonable certainty the impact on our business, financial condition or near- or long-term financial or operational results.

Of our $2.2 billion of Consolidated Hotel aggregate principal balance indebtedness outstanding as of September 30, 2021, approximately $1.2 billion is scheduled to mature during the 12 months after the date of this Report, which included a total of $180.9 million that has subsequently been repaid as a result of a hotel disposition or refinancing (Note 15). If the Company is unable to repay, refinance or extend maturing mortgage loans, we may choose to market these assets for sale or the lenders may declare events of default and seek to foreclose on the underlying hotels or we may also seek to surrender properties back to the lender. We have continued to work with our lenders to address loans with near-term mortgage maturities and have refinanced or extended the maturity date of seven Consolidated Hotel mortgage loans, aggregating $708.1 million of principal balance indebtedness, during the nine months ended September 30, 2021. If the Company is unable to repay, refinance or extend maturing mortgage loans, we may choose to market these assets for sale or the lenders may declare events of default and seek to foreclose on the underlying hotels or we may also seek to surrender properties back to the lender.
WLT 9/30/2021 10-Q – 33

Financial and Operating Highlights

(Dollars in thousands, except average daily rate (“ADR”) and revenue per available room (“RevPAR”))
Three Months Ended September 30, Nine Months Ended September 30,
2021 2020 2021 2020
Hotel revenues $ 198,627  $ 73,668  $ 458,559  $ 208,943 
Net loss attributable to Common Stockholders (18,321) (81,777) (119,539) (267,676)
Cash distributions paid —  —  —  20,357 
Net cash used in operating activities (20,223) (93,873)
Net cash provided by investing activities 108,943  178,071 
Net cash (used in) provided by financing activities (109,854) 112,034 
Supplemental Financial Measures: (a)
FFO attributable to Common Stockholders 6,342  (46,635) (53,766) (50,274)
MFFO attributable to Common Stockholders 18,226  (36,800) (18,213) (89,572)
Consolidated Hotel Operating Statistics (b)
Occupancy 60.4  % 25.7  % 47.6  % 26.2  %
ADR $ 268.80  $ 217.81  $ 256.18  $ 227.17 
RevPAR 162.31  55.95  121.98  59.63 
Comparable Consolidated Hotel Operating Statistics (c)
Occupancy (d)
61.1  % 25.9  % 48.6  % 30.1  %
ADR $ 270.62  $ 221.05  $ 259.84  $ 242.86 
RevPAR 165.26  57.21  126.15  73.07 
___________
(a)We consider funds from operations (“FFO”) and MFFO, which are supplemental measures that are not defined by GAAP (“non-GAAP measures”), to be important measures in the evaluation of our results of operations and capital resources. We evaluate our results of operations with a primary focus on the ability to generate cash flow necessary to meet our objective of funding distributions to stockholders. See Supplemental Financial Measures below for our definitions of these non-GAAP measures and reconciliations to their most directly comparable GAAP measures.
(b)Our consolidated hotel operating statistics represent statistical data for our Consolidated Hotels during our ownership period.
(c)Our comparable hotel operating statistics represent statistical data for Consolidated Hotels we owned as of the end of the reporting period, but excluding those hotels that we classified as held for sale. Statistical data prior to our ownership was included for hotels that were not owned for the entirety of the comparison periods. Due to the impact of COVID-19 on hotel operations, including the temporary suspension of operations at certain hotels, a comparison between the three and nine months ended September 30, 2021 to the same periods in 2020 are not meaningful, therefore we have included the operating statistics of our Comparable Consolidated Hotel Portfolio for the three and nine months ended September 30, 2019 for comparative purposes. Occupancy, ADR and RevPAR for our Comparable Consolidated Hotel Portfolio for the three months ended September 30, 2019 were 76.3%, $252.03 and $192.41, respectively, and 76.0%, $261.01 and $198.29, respectively, for the nine months ended September 30, 2019.
(d)Occupancy rates for our Comparable Consolidated Hotel Portfolio for July, August and September 2021 were 65.2%, 57.3% and 59.4%, respectively, as compared to occupancy rates for July, August and September 2020 of 20.9%, 26.0% and 30.9%, respectively.


WLT 9/30/2021 10-Q – 34

Portfolio Overview

The following table sets forth certain information for each of our Consolidated Hotels and our Unconsolidated Hotel as of September 30, 2021:
Hotels State Number
of Rooms 		% Owned Hotel Type
Consolidated Hotels
Charlotte Marriott City Center
NC 446 100% Full-Service
Courtyard Nashville Downtown
TN 192 100% Select-Service
Courtyard Times Square West
NY 224 100% Select-service
Embassy Suites by Hilton Denver-Downtown/Convention Center
CO 403 100% Full-Service
Equinox Golf Resort & Spa VT 199 100% Resort
Fairmont Sonoma Mission Inn & Spa
CA 226 100% Resort
Hawks Cay Resort (a)
FL 398 100% Resort
Hilton Garden Inn/Homewood Suites Atlanta Midtown
GA 228 100% Select-service
Holiday Inn Manhattan 6th Avenue Chelsea
NY 226 100% Full-service
Hyatt Centric French Quarter New Orleans (b)
LA 254 100% Full-service
Hyatt Place Austin Downtown
TX 296 100% Select-service
Le Méridien Arlington
VA 154 100% Full-Service
Le Méridien Dallas, The Stoneleigh
TX 176 100% Full-service
Marriott Kansas City Country Club Plaza
MO 295 100% Full-service
Marriott Raleigh City Center
NC 401 100% Full-service
Marriott Sawgrass Golf Resort & Spa
FL 514 100% Resort
Renaissance Atlanta Midtown Hotel
GA 304 100% Full-Service
Renaissance Chicago Downtown
IL 560 100% Full-service
Ritz-Carlton Bacara, Santa Barbara
CA 358 100% Resort
Ritz-Carlton Fort Lauderdale (c)
FL 198 70% Resort
Ritz-Carlton Key Biscayne (d)
FL 443 66.7% Resort
Ritz-Carlton San Francisco
CA 336 100% Full-Service
Sanderling Resort
NC 128 100% Resort
San Diego Marriott La Jolla
CA 376 100% Full-Service
San Jose Marriott
CA 510 100% Full-Service
Seattle Marriott Bellevue
WA 384 100% Full-Service
Westin Minneapolis (e)
MN 214 100% Full-Service
Westin Pasadena
CA 350 100% Full-Service
8,793
Unconsolidated Hotel
Ritz-Carlton Philadelphia
PA 301 60% Full-service
9,094
_________
(a)Includes 221 privately owned villas that participate in the villa/condo rental program as of September 30, 2021.
(b)On April 6, 2021, we acquired the remaining 20% interest in the Hyatt Centric French Quarter Venture from an unaffiliated third party, bringing our ownership interest to 100% (Note 4).
(c)Includes 32 condo-hotel units that participate in the villa/condo rental program as of September 30, 2021. Also, on November 9, 2021, we acquired the remaining 30% interest in the Ritz-Carlton Fort Lauderdale Venture from an unaffiliated third party, bringing our ownership interest to 100%.
(d)Includes 141 condo-hotel units that participate in the resort rental program as of September 30, 2021.
(e)On October 19, 2021, we sold our 100% ownership interest in the Westin Minneapolis to an unaffiliated third-party (Note 15).

WLT 9/30/2021 10-Q – 35

Results of Operations

We evaluate our results of operations with a primary focus on our ability to generate cash flow necessary to meet our objectives of funding distributions to stockholders and increasing the value in our real estate investments. As a result, our assessment of operating results gives less emphasis to the effect of unrealized gains and losses, which may cause fluctuations in net (loss) income for comparable periods but have no impact on cash flows, and to other non-cash charges, such as depreciation.
In addition, we use other information that may not be financial in nature, including statistical information, to evaluate the operating performance of our business, including occupancy rate, ADR and RevPAR. Occupancy rate, ADR and RevPAR are commonly used measures within the hotel industry to evaluate operating performance. RevPAR, which is calculated as the product of ADR and occupancy rate, is an important statistic for monitoring operating performance at our hotels. Our occupancy rate, ADR and RevPAR performance may be impacted by macroeconomic factors such as U.S. economic conditions, regional and local employment growth, personal income and corporate earnings, business relocation decisions, business and leisure travel, new hotel construction and the pricing strategies of competitors.

The results of operations for the three and nine months ended September 30, 2021 will not be comparable to the same periods in 2020 as a result of the impact of the COVID-19 pandemic, the Merger and hotel dispositions. Beginning in March 2020, we experienced a significant decline in occupancy and RevPAR. The economic downturn and restrictions on travel resulting from the COVID-19 pandemic has significantly impacted our business and the overall lodging industry. Additionally, as a result of the Merger, the historical financial information included herein as of any date, or for any periods, prior to April 13, 2020, represents the pre-merger financial information of CWI 1 on a stand-alone basis, therefore comparisons of the period to period financial information of WLT as set forth herein may not be meaningful.

WLT 9/30/2021 10-Q – 36

The following table presents our comparative results of operations (in thousands):
Three Months Ended September 30, Nine Months Ended September 30,
2021 2020 Change 2021 2020 Change
Hotel Revenues $ 198,627  $ 73,668  $ 124,959  $ 458,559  $ 208,943  $ 249,616 
Hotel Operating Expenses 173,647  118,847  54,800  455,917  323,087  132,830 
Corporate general and administrative expenses 7,337  6,715  622  22,938  15,900  7,038 
 Loss (gain) on property-related insurance claims, net 956  (1,030) 1,986  (1,571) (1,030) (541)
Transaction costs 345  27  318  345  18,376  (18,031)
 Asset management fees to affiliate —  —  —  —  3,795  (3,795)
Impairment charges —  —  —  —  120,220  (120,220)
Total Expenses 182,285  124,559  57,726  477,629  480,348  (2,719)
Operating Income (Loss) before net gain on sale of real estate 16,342  (50,891) 67,233  (19,070) (271,405) 252,335 
Net gain on sale of real estate 5,223  3,227  1,996  23,298  2,738  20,560 
Operating Income (Loss) 21,565  (47,664) 69,229  4,228  (268,667) 272,895 
    Interest expense (40,878) (38,719) (2,159) (126,365) (83,449) (42,916)
 Net gain on change in control of interests —  —  —  8,612  22,250  (13,638)
Loss on extinguishment of debt (1,111) —  (1,111) (6,630) —  (6,630)
            Equity in losses of equity method investments in
        real estate, net
(210) (3,201) 2,991  (5,796) (31,139) 25,343 
  Other income and (expense) (88) (55) (33) (244) 2  (246)
        Bargain purchase gain —  —  —  —  78,696  (78,696)
 Loss Before Income Taxes (20,722) (89,639) 68,917  (126,195) (282,307) 156,112 
Benefit from (provision for) income taxes 529  1,549  (1,020) (693) 7,525  (8,218)
Net Loss (20,193) (88,090) 67,897  (126,888) (274,782) 147,894 
Loss attributable to noncontrolling interests 1,872  6,714  (4,842) 7,349  8,848  (1,499)
Net Loss Attributable to the Company (18,321) (81,376) 63,055  (119,539) (265,934) 146,395 
Preferred dividends —  (401) 401  —  (1,742) 1,742 
Net Loss Attributable to Common Stockholders $ (18,321) $ (81,777) $ 63,456  $ (119,539) $ (267,676) $ 148,137 
Supplemental Financial Measure:(a)
MFFO Attributable to Common Stockholders $ 18,226  $ (36,800) $ 55,026  $ (18,213) $ (89,572) $ 71,359 
___________
(a)We consider MFFO, a non-GAAP measure, to be an important metric in the evaluation of our results of operations and capital resources. We evaluate our results of operations with a primary focus on the ability to generate cash flow necessary to meet our objective of funding distributions to stockholders. See Supplemental Financial Measures below for our definition of non-GAAP measures and reconciliations to their most directly comparable GAAP measures.

Hotel Revenues

For the three and nine months ended September 30, 2021 as compared to the same periods in 2020, hotel revenues increased by $125.0 million and $249.6 million, respectively. Our results for both the three and nine months ended September 30, 2020 were significantly impacted by the COVID-19 pandemic. Of the 29 Consolidated Hotels we held ownership interests in as of September 30, 2020, operations were suspended for either all or a portion of the second and third quarters of 2020 at 16 Consolidated Hotels (with six hotel closures beginning during March 2020) and were significantly reduced at the remaining 13 Consolidated Hotels. Additionally, as a result of the Merger, the historical financial information included for the period prior to April 13, 2020, represents the pre-Merger financial information of CWI 1 on a stand-alone basis, therefore comparisons of the period to period financial information of WLT as set forth herein may not be meaningful.

WLT 9/30/2021 10-Q – 37

Hotel Operating Expenses

Room expense, food and beverage expense and other operating department costs fluctuate based on various factors, including occupancy, labor costs, utilities and insurance costs.

For the three and nine months ended September 30, 2021 as compared to the same periods in 2020, aggregate hotel operating expenses increased by $54.8 million and $132.8 million, respectively. As discussed above, our results for the three and nine months ended September 30, 2020 were significantly impacted by the COVID-19 pandemic. Additionally, as a result of the Merger, the historical financial information included for the period prior to April 13, 2020, represents the pre-Merger financial information of CWI 1 on a stand-alone basis, therefore comparisons of the period to period financial information of WLT as set forth herein may not be meaningful.

Corporate General and Administrative Expenses

For the three and nine months ended September 30, 2021 as compared to the same periods in 2020, corporate general and administrative expenses increased by $0.6 million and $7.0 million, respectively, with the increase for the nine months ended September 30, 2021 as compared to the same period in 2020 primarily as a result of the impact of the Merger, with periods post-Merger reflecting the impact of the Company being self-managed and including the compensation of our employees for the periods following the internalization.

Transaction Costs

During the nine months ended September 30, 2020, transaction costs totaled $18.4 million, representing legal, accounting, investor relations and other transaction costs related to the Merger and related transactions.

Asset Management Fees to Affiliate

During the nine months ended September 30, 2020, asset management fees to affiliates totaled $3.8 million. Upon completion of the Merger on April 13, 2020, the Advisory Agreement was terminated and these fees ceased being incurred.

Impairment Charges

During the nine months ended September 30, 2020 we recognized impairment charges totaling $120.2 million on six Consolidated Hotels in order to reduce the carrying value of the properties to their estimated fair values, resulting from the adverse effect of the COVID-19 pandemic on our hotel operations. No impairments were recognized during the three and nine months ended September 30, 2021 or the three months ended September 30, 2020.

Our impairment charges are more fully described in Note 4.

Net Gain on Sale of Real Estate

During the three and nine months ended September 30, 2021, we recognized a gain on the sale of real estate of $5.2 million from the sale of our 100% ownership interest in the Courtyard Pittsburgh Shadyside to an unaffiliated third party.

During the nine months ended September 30, 2021, we recognized a gain on sale on real estate of $18.1 million from
the sale of the Sheraton Austin Hotel at the Capitol to an unaffiliated third-party by the Sheraton Austin Hotel at the Capitol venture. We owned an 80% controlling interest in the venture (Note 4).

During the three and nine months ended September 30, 2020, we recognized a gain on sale on real estate of $3.2 million from the sale of the Lake Arrowhead Resort and Spa to an unaffiliated third party by the Lake Arrowhead Resort and Spa venture. We owned an 97.35% controlling ownership interest in the venture.

During the nine months ended September 30, 2020, we recognized a loss on sale on real estate of $0.5 million from the sale of our 100% ownership interest in the Hutton Hotel Nashville to an unaffiliated third party.
WLT 9/30/2021 10-Q – 38


Interest Expense

For the three and nine months ended September 30, 2021, as compared to the same periods in 2020, interest expense increased by $2.2 million and $42.9 million, respectively, primarily due to an increase in the dividends recorded in connection with our Series A Preferred Stock and Series B Preferred Stock totaling $2.4 million and $16.8 million, respectively. Interest expense for the nine months ended September 30, 2021, as compared to the same period in 2020 also increased by $12.6 million as a result of an increase in the aggregate amortization of the debt discount related to the mortgage loans assumed in the Merger and the fair value discount related to the Series A Preferred Stock and Series B Preferred Stock and $11.4 million resulting from the assumption of the mortgage loans of the hotels acquired in the Merger.

Net Gain on Change in Control of Interests

During the nine months ended September 30, 2021, we recognized a gain on change in control of interests of $8.6 million in connection with our acquisition of the remaining 20% interest in the Hyatt Centric French Quarter Venture from an unaffiliated third party on April 6, 2021 (Note 4). We previously accounted for our jointly-owned interest in this venture under the equity method of accounting. Due to the change in control of this jointly owned investment, we recorded a net gain on change in control of interest reflecting the difference between our carrying value and the preliminary estimated fair value of our previously held equity investment on April 6, 2021. Subsequent to the acquisition, we own 100% of this hotel and consolidate our real estate interest in the hotel.

During the nine months ended September 30, 2020, we recognized a net gain on change in control of interests of $22.3 million in connection with our acquisition of the remaining 50% interests in the Marriott Sawgrass Golf Resort and Spa and the Ritz-Carlton Bacara, Santa Barbara in the Merger (Note 3). We previously accounted for our jointly-owned interest in these ventures under the equity method of accounting. Due to the change in control of this jointly owned investment, we recorded a net gain on change in control of interest reflecting the difference between our carrying values and the preliminary estimated fair values of our previously held equity investments on April 13, 2020, the date of the Merger. Subsequent to the Merger, we own 100% of these hotels and consolidate our real estate interests in the hotels.

Loss on Extinguishment of Debt

During the nine months ended September 30, 2021 we recognized a loss on extinguishment of debt of $6.6 million, comprised of a $4.8 million loss resulting from the refinancing of the Seattle Marriott Bellevue non-recourse mortgage loan, a $0.7 million loss in connection with the disposition of the Sheraton Austin Hotel at the Capitol, a $0.1 million loss resulting from the refinancing of the Ritz-Carlton Fort Lauderdale senior mortgage and mezzanine loans and a $1.1 million loss in connection with the disposition of the Courtyard Pittsburgh Shadyside.



WLT 9/30/2021 10-Q – 39


Equity in Losses of Equity Method Investments in Real Estate, Net

Equity in losses of equity method investments in real estate, net represents losses from our equity investments in Unconsolidated Hotels recognized in accordance with each investment agreement and based upon the allocation of the investment’s net assets at book value as if the investment were hypothetically liquidated at the end of each reporting period (Note 5). We are required to periodically compare an investment’s carrying value to its estimated fair value and recognize an impairment charge to the extent that the carrying value exceeds the estimated fair value and is determined to be other than temporary. We recognized $17.8 million of other-than-temporary impairment charges on our equity method investments in real estate during the nine months ended September 30, 2020. No such charges were recognized during the three and nine months ended September 30, 2021 or the three months ended September 30, 2020.

The following table sets forth our share of equity in losses from our Unconsolidated Hotels, which are based on the HLBV model, as well as certain amortization adjustments related to basis differentials from acquisitions of investments (in thousands):
Three Months Ended September 30, Nine Months Ended September 30,
Venture 2021 2020 2021 2020
Ritz-Carlton Philadelphia Venture (a)
$ (210) $ (3,074) $ (4,939) $ (9,975)
Ritz-Carlton Bacara, Santa Barbara Venture (b) (c)
—  —  —  (20,968)
Marriott Sawgrass Golf Resort & Spa Venture (b)
—  —  —  (58)
Hyatt Centric French Quarter Venture (d)
—  (127) (857) (138)
Total equity in losses of equity method investments in real estate, net $ (210) $ (3,201) $ (5,796) $ (31,139)
___________
(a)The results for the three and nine months ended September 30, 2021 reflect an improvement in the performance of the hotel during 2021 as compared to comparable periods in 2020.
(b)Upon closing of the Merger on April 13, 2020, the Company owns 100% of this hotel and consolidates its real estate interest in this hotel therefore the amounts for the nine months ended September 30, 2020 represent the equity in losses prior to the Merger.
(c)Includes an other-than-temporary impairment charge of $17.8 million recognized on this investment during the nine months ended September 30, 2020 to reduce the carrying value of our equity investment in the venture to its estimated fair value.
(d)On April 6, 2021, we acquired the remaining 20% interest in the Hyatt Centric French Quarter Venture from an unaffiliated third party, bringing our ownership interest to 100% (Note 4).

Bargain Purchase Gain

During the nine months ended September 30, 2020, we recognized a bargain purchase gain of $78.7 million in connection with the Merger resulting from the estimated fair values of the assets acquired net of liabilities assumed exceeding the consideration paid. See Note 3 for additional disclosure regarding the Merger.

Benefit from (Provision for) Income Taxes

For the three months ended September 30, 2021, we recognized a benefit from income taxes of $0.5 million compared to a benefit from income taxes of $1.5 million for the three months ended September 30, 2020 and for the nine months ended September 30, 2021, we recognized a provision for income taxes of $0.7 million compared to a benefit from income taxes of $7.5 million for the nine months ended September 30, 2020. Benefit from income taxes during the three and nine months ended September 30, 2020 included a $0.3 million and $8.3 million current tax benefit, respectively, resulting from carrying back certain net operating losses allowable under the CARES Act, partially offset for the nine months ended September 30, 2020 by a deferred expense due to the establishment of a valuation allowance of $2.5 million.

WLT 9/30/2021 10-Q – 40

Loss Attributable to Noncontrolling Interests

The following table sets forth our (income) loss attributable to noncontrolling interests (in thousands):
Three Months Ended September 30, Nine Months Ended September 30,
Venture 2021 2020 2021 2020
Sheraton Austin Hotel at the Capitol Venture (a)
$ (4) $ 476  $ (2,871) $ 922 
Ritz-Carlton Fort Lauderdale Venture (b)
321  1,297  175  2,751 
Ritz-Carlton Key Biscayne Venture (21) (13) (50) (946)
Operating Partnership — Noncontrolling interest (c)
1,576  4,954  10,095  6,121 
Loss attributable to noncontrolling interests $ 1,872  $ 6,714  $ 7,349  $ 8,848 
___________
(a)On May 5, 2021, the Sheraton Austin Hotel at the Capitol venture sold the Sheraton Austin Hotel at the Capitol to an unaffiliated third-party. The venture received net proceeds of approximately $36.4 million from the sale after the repayment of the related mortgage loan. We owned an 80% controlling interest in the venture.
(b)The results for the three and nine months ended September 30, 2021 reflect an improvement in the performance of the hotel during 2021 as compared to comparable periods in 2020.
(c)Reflects the OP Units’ and Warrant Units’ proportionate share of net loss.

Modified Funds from Operations

MFFO is a non-GAAP measure that we use to evaluate our business. For a definition of MFFO and a reconciliation to net income or loss attributable to Common Stockholders, see Supplemental Financial Measures below.

For the three and nine months ended September 30, 2021 as compared to the same period in 2020, MFFO increased by $55.0 million and $71.4 million, respectively. MFFO for the three and nine months ended September 30, 2020 reflects the impact of the COVID-19 pandemic on our hotel operations, beginning in March 2020. Additionally, as a result of the Merger, the historical financial information included for the period prior to April 13, 2020, represents the pre-Merger financial information of CWI 1 on a stand-alone basis, therefore comparisons of the period to period financial information of WLT as set forth herein may not be meaningful.

Liquidity and Capital Resources

Our primary cash uses over the next 12 months are expected to be payment of debt service, costs associated with the refinancing or restructuring of indebtedness, funding corporate and hotel level operations, payment of real estate taxes and insurance and payment of preferred stock dividends. Our primary capital sources to meet such uses are expected to be funds generated by hotel operations, cash on hand, any additional issuances of Series B Preferred Stock and proceeds from additional asset sales.

Due to the COVID-19 pandemic and as a result of numerous government mandates, health official mandates and significantly reduced demand, as of the date of this Report, the Company has limited operations at a number of hotel properties. Significant events affecting travel, including the COVID-19 pandemic, typically have an impact on booking patterns, with the full extent of the impact generally determined by the duration of the event and its impact on travel decisions. We believe the ongoing effects of the COVID-19 pandemic on our operations have had, and will continue to have, a material adverse impact on our financial results and liquidity, and such adverse impact may continue well beyond the containment of such outbreak.

WLT 9/30/2021 10-Q – 41

As of September 30, 2021, we had cash and cash equivalents of $102.2 million. Additionally, under the terms of our agreements with the investors in the July Capital Raise, as defined and described in Note 13, we have the option to require the investors to purchase up to $150.0 million aggregate liquidation preference of additional shares of Series B Preferred Stock during the 18 months after the closing of the July Capital Raise for additional working capital needs, including the repayment, refinancing or restructuring of indebtedness, subject to our satisfaction of customary conditions. As of September 30, 2021, the mortgage loans for our Consolidated Hotels had an aggregate principal balance totaling $2.2 billion outstanding, all of which is mortgage indebtedness and is generally non-recourse, subject to customary non-recourse carve-outs, except that we have provided certain lenders with limited corporate guaranties aggregating $15.6 million for items such as taxes, deferred debt service and amounts drawn from furniture, fixtures and equipment reserves to pay expenses, in connection with loan modification agreements. We have continued to work with our lenders to address loans with near-term mortgage maturities and have refinanced or extended the maturity date of seven Consolidated Hotel mortgage loans, aggregating $708.1 million of indebtedness, during the nine months ended September 30, 2021. Of the $2.2 billion aggregate principal balance indebtedness outstanding as of September 30, 2021, approximately $1.2 billion is scheduled to mature during the 12 months after the date of this Report, which included a total of $180.9 million that has subsequently been repaid as a result of a hotel disposition or refinancing. If the Company is unable to repay, refinance or extend maturing mortgage loans, we may choose to market these assets for sale or the lenders may declare events of default and seek to foreclose on the underlying hotels or we may also seek to surrender properties back to the lender.

In addition to raising capital in the July Capital Raise and through asset sales, we have taken various actions to help mitigate the effects of the COVID-19 pandemic on our operational results and to preserve our liquidity at both the operational and corporate level, including among others: reducing capital expenditures and reducing operating expenses, suspending distributions on and redemption of our common stock and temporarily suspending required contributions to the furniture, fixture and equipment replacement reserve at certain of our hotels.

Sources and Uses of Cash During the Period

Operating Activities — For the nine months ended September 30, 2021, net cash used in operating activities was $20.2 million as compared to $93.9 million for the nine months ended September 30, 2020. Net cash used in operating activities during 2020 reflects the impact of the COVID-19 pandemic on our hotel operations, beginning in March 2020.

Investing Activities — During the nine months ended September 30, 2021, net cash provided by investing activities was $108.9 million primarily as a result of $126.8 million in aggregate proceeds from the sale of Sheraton Austin Hotel at the Capitol and the Courtyard Pittsburgh Shadyside, partially offset by funding $21.4 million for capital expenditures at our Consolidated Hotels.

Financing Activities — Net cash used in financing activities for the nine months ended September 30, 2021 was $109.9 million primarily as a result of payments and prepayments of mortgage financing totaling $280.6 million, $7.1 million of distributions to noncontrolling interests, and $4.8 million of deferred financing costs, partially offset by $186.5 million of proceeds from mortgage financing.

Distributions and Redemptions

On March 18, 2020, in light of the impact that the COVID-19 pandemic has had on our business, we announced that we were suspending future distributions on our common stock. We also announced that redemptions would be suspended including, as of December 2, 2020, special circumstances redemptions. Requests for special circumstances redemptions may continue to be submitted, however, the Company will not take any action with regard to those requests until the Board of Directors has elected to lift the suspension and provided the terms and conditions for any continuation of the program. Distributions and redemptions in respect of future periods will be evaluated by the Board of Directors based on circumstances and expectations existing at the time of consideration, and are also subject to the terms of the Series A and Series B Preferred Stock.

Among other terms of the Series A and Series B Preferred Stock, the Series A and Series B Preferred Stock generally prohibits the Company from paying distributions on common stock or redeeming common stock unless all accrued dividends on the Series A and Series B Preferred Stock are paid in cash for all past dividend periods and the dividend for the current dividend period is also paid in cash. There are certain exceptions for the payment of dividends on common stock required for the Company to maintain its REIT qualification, special circumstances redemptions of common stock and redemptions of common stock that are funded with proceeds from issuances of common stock under the Company's distribution reinvestment plan.

WLT 9/30/2021 10-Q – 42

Summary of Financing

The table below summarizes our non-recourse debt, net (dollars in thousands):
September 30, 2021 December 31, 2020
Carrying Value
Fixed rate (a)
$ 1,273,674  $ 1,286,839 
Variable rate (a):
Amount subject to interest rate caps 507,255  362,193 
Amount subject to interest rate swaps 181,059  175,158 
Amount subject to floating interest rate 170,530  345,712 
858,844  883,063 
$ 2,132,518  $ 2,169,902 
Percent of Total Debt
Fixed rate 60  % 59  %
Variable rate 40  % 41  %
100  % 100  %
Weighted-Average Interest Rate at End of Period
Fixed rate 4.3  % 4.3  %
Variable rate (b)
4.0  % 4.1  %
_________
(a)Aggregate debt balance includes unamortized debt discount of $19.2 million and $46.5 million as of September 30, 2021 and December 31, 2020, respectively, and unamortized deferred financing costs totaling $7.6 million and $6.9 million as of September 30, 2021 and December 31, 2020, respectively.
(b)The impact of our derivative instruments is reflected in the weighted-average interest rates.

Covenants

Pursuant to our mortgage loan agreements, our consolidated subsidiaries are subject to various operational and financial covenants, including minimum debt service coverage and debt yield ratios. Most of our mortgage loan agreements contain “lock-box” provisions, which permit the lender to access or sweep a hotel’s excess cash flow and could be triggered by the lender under limited circumstances, including the failure to maintain minimum debt service coverage ratios. If a lender requires that we enter into a cash management agreement, we would generally be permitted to spend an amount equal to our budgeted hotel operating expenses, taxes, insurance and capital expenditure reserves for the relevant hotel. The lender would then hold all excess cash flow after the payment of debt service in an escrow account until certain performance hurdles are met. As of September 30, 2021, we have effectively entered into cash management agreements with the lenders on 22 of our 28 Consolidated Hotel mortgage loans either because the minimum debt service coverage ratio was not met or as a result of a loan modification agreement. The cash management agreements generally permit cash generated from the operations of each hotel to fund the hotel’s operating expenses, debt service, taxes and insurance but restrict distributions of excess cash flow, if any, to the Company to fund corporate expenses.

Courtyard Times Square West

The $58.5 million outstanding mortgage loan on Courtyard Times Square West matured on June 1, 2021 and we have not paid off the outstanding principal balance. The loan does not have any cross-default provisions with our other mortgage obligations. We are currently in the process of exploring various options as it relates to this asset, including but not limited to, surrendering the property back to the lender.

Cash Resources

At September 30, 2021, our cash resources consisted of cash and cash equivalents totaling $102.2 million, of which $46.0 million was designated as hotel operating cash and was held at our hotel operating properties.

WLT 9/30/2021 10-Q – 43

Cash Requirements

Our primary cash uses through September 30, 2022 are expected to be payments of debt service, real estate taxes and insurance, payment of preferred stock dividends, costs associated with the refinancing or restructuring of indebtedness and funding corporate and hotel level operations. Our primary capital sources to meet such uses are expected to be cash on hand, funds generated by hotel operations, any additional issuances of Series B Preferred Stock and proceeds from additional asset sales. We may satisfy certain debt maturities during this period by turning the properties back to the lenders.

Capital Expenditures and Reserve Funds

With respect to our hotels that are operated under management or franchise agreements with major international hotel brands and for most of our hotels subject to mortgage loans, we are obligated to maintain furniture, fixtures and equipment reserve accounts for future capital expenditures sufficient to cover the cost of routine improvements and alterations at these hotels. The amount funded into each of these reserve accounts is generally determined pursuant to the management agreements, franchise agreements and/or mortgage loan documents for each of the respective hotels and typically ranges between 3.0% and 5.0% of the respective hotel’s total gross revenue. As of September 30, 2021 and December 31, 2020, $57.6 million and $51.0 million, respectively, was held in furniture, fixtures and equipment reserve accounts for future capital expenditures and is included in Restricted cash in the consolidated financial statements. In addition, due to the effects of the COVID-19 pandemic on our operations, we have been working with the brands, management companies and lenders and have used a portion of the available restricted cash reserves to cover operating costs at our properties, of which $2.3 million is subject to replenishment as of September 30, 2021.

Supplemental Financial Measures

In the real estate industry, analysts and investors employ certain non-GAAP supplemental financial measures in order to facilitate meaningful comparisons between periods and among peer companies. Additionally, in the formulation of our goals and in the evaluation of the effectiveness of our strategies, we use FFO and MFFO, which are non-GAAP measures defined by our management. We believe that these measures are useful to investors to consider because they may assist them to better understand and measure the performance of our business over time and against similar companies. A description of FFO and MFFO, and reconciliations of these non-GAAP measures to the most directly comparable GAAP measures, are provided below.

FFO and MFFO

Due to certain unique operating characteristics of real estate companies, as discussed below, the National Association of Real Estate Investment Trusts (“NAREIT”), an industry trade group, has promulgated a non-GAAP measure known as FFO, which we believe to be an appropriate supplemental measure, when used in addition to and in conjunction with results presented in accordance with GAAP, to reflect the operating performance of a REIT. The use of FFO is recommended by the REIT industry as a supplemental non-GAAP measure. FFO is not equivalent to, nor a substitute for, net income or loss as determined under GAAP.

We define FFO, a non-GAAP measure, consistent with the standards established by the White Paper on FFO approved by the Board of Governors of NAREIT, as restated in December 2018. The White Paper defines FFO as net income or loss computed in accordance with GAAP, excluding gains or losses from sales of property, impairment charges on real estate, and depreciation and amortization from real estate assets; and after adjustments for unconsolidated partnerships and jointly owned investments. Adjustments for unconsolidated partnerships and jointly owned investments are calculated to reflect FFO. Our FFO calculation complies with NAREIT’s policy described above. However, NAREIT’s definition of FFO does not distinguish between the conventional method of equity accounting and the HLBV method of accounting for unconsolidated partnerships and jointly owned investments.

The historical accounting convention used for real estate assets requires straight-line depreciation of buildings and improvements, which implies that the value of real estate assets diminishes predictably over time, especially if such assets are not adequately maintained or repaired and renovated as required by relevant circumstances in order to maintain the value disclosed. We believe that, since real estate values historically rise and fall with market conditions, including inflation, interest rates, the business cycle, unemployment and consumer spending, presentations of operating results for a REIT using historical accounting for depreciation may be less informative. Historical accounting for real estate involves the use of GAAP. Any other method of accounting for real estate such as the fair value method cannot be construed to be any more accurate or relevant than the comparable methodologies of real estate valuation found in GAAP. Nevertheless, we believe that the use of FFO, which excludes the impact of real estate-related depreciation and amortization, as well as impairment charges of real estate-related
WLT 9/30/2021 10-Q – 44

assets, provides a more complete understanding of our performance to investors and to management; and when compared year over year, reflects the impact on our operations from trends in occupancy rates, operating costs, general and administrative expenses, and interest costs, which may not be immediately apparent from net income or loss. In particular, we believe it is appropriate to disregard impairment charges, as this is a fair value adjustment that is largely based on market fluctuations and assessments regarding general market conditions, which can change over time. An asset will only be evaluated for impairment if certain impairment indicators exist. For real estate assets held for investment and related intangible assets in which an impairment indicator is identified, we follow a two-step process to determine whether an asset is impaired and to determine the amount of the charge. First, we compare the carrying value of the property’s asset group to the estimated future net undiscounted cash flow that we expect the property’s asset group will generate, including any estimated proceeds from the eventual sale of the property’s asset group. It should be noted, however, that the property’s asset group’s estimated fair value is primarily determined using market information from outside sources such as broker quotes or recent comparable sales. In cases where the available market information is not deemed appropriate, we perform a future net cash flow analysis discounted for inherent risk associated with each asset to determine an estimated fair value. While impairment charges are excluded from the calculation of FFO described above due to the fact that impairments are based on estimated future undiscounted cash flows, it could be difficult to recover any impairment charges. However, FFO and MFFO, as described below, should not be construed to be more relevant or accurate than the current GAAP methodology in calculating net income or loss or in its applicability in evaluating the operating performance of the company. The method utilized to evaluate the value and performance of real estate under GAAP should be construed as a more relevant measure of operational performance and considered more prominently than the non-GAAP measures FFO and MFFO and the adjustments to GAAP in calculating FFO and MFFO.

Changes in the accounting and reporting promulgations under GAAP (for acquisition fees and expenses from a capitalization/depreciation model to an expensed-as-incurred model) were put into effect subsequent to the establishment of NAREIT’s definition of FFO. Management believes these cash-settled expenses, such as acquisition fees that are typically accounted for as operating expenses, do not affect our overall long-term operating performance. Publicly-registered, non-traded REITs typically have a significant amount of acquisition activity and are substantially more dynamic during their initial years of investment and operation. While other start-up entities may also experience significant acquisition activity during their initial years, we believe that non-traded REITs are unique in that they have a limited life with targeted exit strategies within a relatively limited time frame after acquisition activity ceases. Due to the above factors and other unique features of publicly registered, non-traded REITs, the Institute for Portfolio Alternatives (formerly known as the Investment Program Association) (“IPA”), an industry trade group, has standardized a measure known as MFFO, which the IPA has recommended as a supplemental measure for publicly registered non-traded REITs and which we believe to be another appropriate non-GAAP measure to reflect the operating performance of a non-traded REIT having the characteristics described above. MFFO is not equivalent to our net income or loss as determined under GAAP, and MFFO may not be a useful measure of the impact of long-term operating performance on value if we do not continue to operate with a limited life and targeted exit strategy, as currently intended. We believe that, because MFFO excludes costs that we consider more reflective of investing activities and other non-operating items included in FFO and also excludes acquisition fees and expenses that affect our operations only in periods in which properties are acquired, MFFO can provide, on a going forward basis, an indication of the sustainability (that is, the capacity to continue to be maintained) of our operating performance after the period in which we are acquiring properties and once our portfolio is in place. By providing MFFO, we believe we are presenting useful information that assists investors and analysts to better assess the sustainability of our operating performance now that our offering has been completed and once essentially all of our properties have been acquired. We also believe that MFFO is a recognized measure of sustainable operating performance by the non-traded REIT industry. Further, we believe MFFO is useful in comparing the sustainability of our operating performance, with the sustainability of the operating performance of other real estate companies that are not as involved in acquisition activities. MFFO should only be used to assess the sustainability of a company’s operating performance after a company’s offering has been completed and properties have been acquired, as it excludes acquisition costs that have a negative effect on a company’s operating performance during the periods in which properties are acquired.

We define MFFO consistent with the IPA’s Practice Guideline 2010-01, Supplemental Performance Measure for Publicly Registered, Non-Listed REITs: Modified Funds from Operations (the “Practice Guideline”), issued by the IPA in November 2010. This Practice Guideline defines MFFO as FFO further adjusted for the following items, included in the determination of GAAP net income or loss, as applicable: acquisition fees and expenses; accretion of discounts and amortization of premiums on debt investments; where applicable, payments of loan principal made by our equity investees accounted for under the HLBV model where such payments reduce our equity in earnings of equity method investments in real estate, nonrecurring impairments of real estate-related investments (i.e., infrequent or unusual, not reasonably likely to recur in the ordinary course of business); mark-to-market adjustments included in net income or loss; nonrecurring gains or losses included in net income or loss from the extinguishment or sale of debt, hedges, derivatives or securities holdings, where trading of such holdings is not a fundamental attribute of the business plan, unrealized gains or losses resulting from consolidation from, or deconsolidation to,
WLT 9/30/2021 10-Q – 45

equity accounting, and after adjustments for Consolidated and Unconsolidated Hotels, with such adjustments calculated to reflect MFFO on the same basis. The accretion of discounts and amortization of premiums on debt investments, unrealized gains and losses on hedges, derivatives or securities holdings, unrealized gains and losses resulting from consolidations, as well as other listed cash flow adjustments are adjustments made to net income or loss in calculating the cash flows provided by operating activities and, in some cases, reflect gains or losses that are unrealized and may not ultimately be realized.

Our MFFO calculation complies with the Practice Guideline described above. In calculating MFFO, we exclude acquisition-related expenses, fair value adjustments of derivative financial instruments and the adjustments of such items related to noncontrolling interests. Under GAAP, acquisition fees and expenses are characterized as operating expenses in determining operating net income or loss. These expenses are paid in cash by a company. All paid and accrued acquisition fees and expenses will have negative effects on returns to investors, the potential for future distributions, and cash flows generated by the company, unless earnings from operations or net sales proceeds from the disposition of other properties are generated to cover the purchase price of the property, these fees and expenses and other costs related to such property. Further, under GAAP, certain contemplated non-cash fair value and other non-cash adjustments are considered operating non-cash adjustments to net income or loss in determining cash flow from operating activities. We account for certain of our equity investments using the HLBV model which is based on distributable cash as defined in the operating agreement.

Our management uses MFFO and the adjustments used to calculate it in order to evaluate our performance against other non-traded REITs, which have limited lives with short and defined acquisition periods and targeted exit strategies shortly thereafter. As noted above, MFFO may not be a useful measure of the impact of long-term operating performance on value if we do not continue to operate in this manner. We believe that MFFO and the adjustments used to calculate it allow us to present our performance in a manner that takes into account certain characteristics unique to non-traded REITs, such as their limited life, defined acquisition period and targeted exit strategy, and is therefore a useful measure for investors. For example, acquisition costs are generally funded from the proceeds of our offering and other financing sources and not from operations. By excluding expensed acquisition costs, the use of MFFO provides information consistent with management’s analysis of the operating performance of the properties. Additionally, fair value adjustments, which are based on the impact of current market fluctuations and underlying assessments of general market conditions, but can also result from operational factors such as occupancy rates, may not be directly related or attributable to our current operating performance. By excluding such changes that may reflect anticipated and unrealized gains or losses, we believe MFFO provides useful supplemental information.

Presentation of this information is intended to provide useful information to investors as they compare the operating performance of different REITs, although it should be noted that not all REITs calculate FFO and MFFO the same way, so comparisons with other REITs may not be meaningful. Furthermore, FFO and MFFO are not necessarily indicative of cash flow available to fund cash needs and should not be considered as an alternative to net income or loss as an indication of our performance, as an alternative to cash flows from operations as an indication of our liquidity, or indicative of funds available to fund our cash needs including our ability to make distributions to our stockholders. FFO and MFFO should be reviewed in conjunction with other GAAP measurements as an indication of our performance.

Neither the SEC, NAREIT nor any other regulatory body has passed judgment on the acceptability of the adjustments that we use to calculate FFO or MFFO. In the future, the SEC, NAREIT or another regulatory body may decide to standardize the allowable adjustments across the non-traded REIT industry and we would have to adjust our calculation and characterization of FFO and MFFO accordingly.

WLT 9/30/2021 10-Q – 46

FFO and MFFO were as follows (in thousands):
Three Months Ended September 30, Nine Months Ended September 30,
2021 2020 2021 2020
Net loss attributable to Common Stockholders $ (18,321) $ (81,777) $ (119,539) $ (267,676)
Adjustments:
Depreciation and amortization of real property 28,687  31,966  89,498  82,791 
Net gain on sale of real estate (5,223) (3,227) (23,298) (2,738)
 Net gain on change in control of interests —  —  (8,612) (22,250)
Impairment charges —  —  —  120,220 
Proportionate share of adjustments for partially-owned entities — FFO adjustments (a)
1,199  6,403  8,185  39,379 
Total adjustments 24,663  35,142  65,773  217,402 
FFO attributable to Common Stockholders (as defined by NAREIT) 6,342  (46,635) (53,766) (50,274)
Adjustments:
Amortization of fair value adjustments 8,209  9,958  27,584  16,924 
 Straight-line and other rent adjustments 1,736  1,366  4,799  4,655 
    Net loss on extinguishment of debt 1,111  —  6,630  — 
   Loss (gain) on property-related insurance claims, net(b)
956  (1,030) (1,571) (1,030)
    Bargain purchase gain —  —  —  (78,696)
  Proportionate share of adjustments for partially owned
   entities — MFFO adjustments 		(473) (486) (2,234) 473 
   Transaction costs (b)
345  27  345  18,376 
Total adjustments 11,884  9,835  35,553  (39,298)
MFFO attributable to Common Stockholders $ 18,226  $ (36,800) $ (18,213) $ (89,572)
___________
(a)This adjustment includes an other-than-temporary impairment charge of $17.8 million recognized on our equity investment in the Ritz-Carlton Bacara, Santa Barbara Venture during the three months ended March 31, 2020 (Note 5).
(b)We have excluded these costs because of their non-recurring nature. By excluding such costs, management believes MFFO provides useful supplemental information that is comparable for each type of real estate investment and is consistent with management’s analysis of the investing and operating performance of our properties.

WLT 9/30/2021 10-Q – 47

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

Market Risk

We currently have limited exposure to financial market risks, including changes in interest rates. We currently have no foreign operations and are not exposed to foreign currency fluctuations.

Interest Rate Risk

The values of our real estate and related fixed-rate debt obligations are subject to fluctuations based on changes in interest rates. The value of our real estate is also subject to fluctuations based on local and regional economic conditions, which may affect our ability to refinance property-level mortgage debt when balloon payments are scheduled, if we do not choose to repay the debt when due. Interest rates are highly sensitive to many factors, including governmental monetary and tax policies, domestic and international economic and political conditions, and other factors beyond our control. An increase in interest rates would likely cause the fair value of our assets to decrease.

We are exposed to the impact of interest rate changes primarily through our borrowing activities. To limit this exposure, we generally seek non-recourse mortgage financing on a long-term, fixed-rate basis. However, from time to time, we or our joint investment partners have obtained, and may in the future obtain, variable-rate non-recourse mortgage loans, and, as a result, we have entered into, and may continue to enter into, interest rate swap agreements or interest rate cap agreements with counterparties. See Note 8 for additional information on our interest rate swaps and caps.

As of September 30, 2021, all of our debt bore interest at fixed rates, was swapped to a fixed rate or was subject to an interest rate cap, with the exception of three mortgage loans with an outstanding balance totaling $170.5 million. Our debt obligations are more fully described in Note 9 and Summary of Financing in Item 2 above. The following table presents principal cash outflows for our Consolidated Hotels based upon existing maturity dates of our debt obligations outstanding as of September 30, 2021 and excludes deferred financing costs (in thousands):
2021 (Remainder) 2022 2023 2024 2025 Total Fair Value
Fixed-rate debt $ 102,724  $ 711,600  $ 426,151  $ 50,252  $ —  $ 1,290,727  $ 1,278,822 
Variable-rate debt $ —  $ 583,022  $ 104,830  $ 180,750  $ —  $ 868,602  $ 873,562 

The estimated fair value of our fixed-rate debt and our variable-rate debt that currently bears interest at fixed rates or has effectively been converted to a fixed rate through the use of an interest rate swap, or that has been subject to an interest rate cap, is affected by changes in interest rates. A decrease or increase in interest rates of 1.0% would change the estimated fair value of this debt as of September 30, 2021 by an aggregate increase of $17.3 million or an aggregate decrease of $25.8 million, respectively. Annual interest expense on our variable-rate debt that is subject to an interest rate cap as of September 30, 2021 would increase or decrease by $5.1 million for each respective 1.0% change in annual interest rates.

WLT 9/30/2021 10-Q – 48

Item 4. Controls and Procedures.

Disclosure Controls and Procedures

Our disclosure controls and procedures include internal controls and other procedures designed to provide reasonable assurance that information required to be disclosed in this and other reports filed under the Exchange Act is recorded, processed, summarized and reported within the required time periods specified in the SEC’s rules and forms; and that such information is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosures. It should be noted that no system of controls can provide complete assurance of achieving a company’s objectives and that future events may impact the effectiveness of a system of controls.

Our Chief Executive Officer and Chief Financial Officer, after conducting an evaluation, together with members of our management, of the effectiveness of the design and operation of our disclosure controls and procedures as of September 30, 2021, have concluded that our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) were effective as of September 30, 2021 at a reasonable level of assurance.

Changes in Internal Control Over Financial Reporting

There have been no changes in our internal control over financial reporting during our most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

WLT 9/30/2021 10-Q – 49

PART II — OTHER INFORMATION

Item 2. Unregistered Sales of Equity Securities.

None.

Item 5. Other Information.

In an effort to promote employee retention, subsequent to the end of the quarter, the Company implemented a retention and severance plan for certain employees other than the chief executive officer. The retention portion of the plan provides for one-time bonus awards for senior management payable 60% in cash and 40% in Company common stock, based on the Company's current estimated NAV per share, on the 18 month anniversary of the commencement of the plan; provided, however, that payment will be accelerated in the event of a change in control transaction involving the Company. Retention awards payable to the Company's named executed officers are $750,000.00 for Ms. Sinha, $550,000.00 for Mr. Brendan Medzigian and $400,000.00 for Mr. Zinsmaster. Under the severance portion of the program, senior management, including Ms. Sinha, Mr. Brendan Medzigian and Mr. Zinsmaster, will be entitled to a cash payment equal to one times his or her annual base salary and specified annual bonus if he or she is terminated, other than for cause or due to voluntary resignation without good reason, within 18 months after a change in control transaction involving the Company.
WLT 9/30/2021 10-Q – 50

Item 6. Exhibits.

The following exhibits are filed with this Report. Documents other than those designated as being filed herewith are incorporated herein by reference.
Exhibit No. Description Method of Filing
10.32  Watermark Lodging Trust, Inc. Employee Retention and Severance Plan
Filed herewith
31.1  Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Filed herewith
31.2  Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Filed herewith
32  Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Filed herewith
101.INS XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL Document Filed herewith
101.SCH XBRL Taxonomy Extension Schema Document Filed herewith
101.CAL XBRL Taxonomy Extension Calculation Linkbase Document Filed herewith
101.DEF XBRL Taxonomy Extension Definition Linkbase Document Filed herewith
101.LAB XBRL Taxonomy Extension Label Linkbase Document Filed herewith
101.PRE XBRL Taxonomy Extension Presentation Linkbase Document Filed herewith
WLT 9/30/2021 10-Q – 51

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.
Watermark Lodging Trust, Inc.
Date: November 12, 2021
By: /s/ Mallika Sinha
Mallika Sinha
Chief Financial Officer
(Principal Financial and Accounting Officer)

WLT 9/30/2021 10-Q – 52

EXHIBIT INDEX

The following exhibits are filed with this Report. Documents other than those designated as being filed herewith are incorporated herein by reference.
Exhibit No. Description Method of Filing
10.32  Watermark Lodging Trust, Inc. Employee Retention and Severance Plan
31.1  Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2  Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32  Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL Document Filed herewith
101.SCH XBRL Taxonomy Extension Schema Document Filed herewith
101.CAL XBRL Taxonomy Extension Calculation Linkbase Document Filed herewith
101.DEF XBRL Taxonomy Extension Definition Linkbase Document Filed herewith
101.LAB XBRL Taxonomy Extension Label Linkbase Document Filed herewith
101.PRE XBRL Taxonomy Extension Presentation Linkbase Document Filed herewith
WLT 9/30/2021 10-Q – 53
EXHIBIT 10.32
WATERMARK LODGING TRUST, INC.

EMPLOYEE RETENTION AND SEVERANCE PLAN


This Employee Retention and Severance Plan (the "Plan") is established by Watermark Lodging Trust, Inc., a Maryland real estate investment trust (the "Company"), effective November, 2021.

1.Purpose of the Plan. The Company considers it essential to the operation of the Company that its executives and key employees be retained for a period of time as determined by its Board and management during a critical phase in the Company. The purpose of the Plan is to establish a retention and severance bonus plan to provide an incentive for employees to continue in the service of the Company. The Plan is meant to supplement and work independent of and in conjunction with (and not to replace) the Company's other compensation and benefit programs, such as its equity plans and other plans, in order to achieve the purposes discussed above.
2.Definitions.
2.1"Affiliate" means as to any Person, any other Person which, directly or indirectly, is controlled by, controls, or is under common control with, such first-mentioned Person.
2.2"Average Bonus" means the average of the annual bonuses earned by a Participant for the two full fiscal years prior to the fiscal year in which the Participant's employment terminates; provided, that, if the Participant has only been employed for one full fiscal year prior to the year in which his or her employment terminates, then “Average Bonus” means the annual bonus earned by the Participant for such full fiscal year.
2.3"Base Salary" means the Participant's annual base pay (excluding incentive pay, commissions, bonuses, expenses or expense allowances and other forms of variable compensation), at the rate in effect during the last regularly scheduled payroll period immediately preceding the date of termination. With respect to Participants who are non-exempt employees under applicable wage and hour laws, the Base Salary shall be based on the weekly rate, or hourly base rate, for a forty (40) hour week. In no event shall Base Salary include any overtime, bonuses, extended workweek, shift differential or other types of premium pay.
2.4"Board" means the Board of Directors of the Company, or the Compensation Committee thereof.
2.5"Cause" for termination shall mean a determination by the Board that any of the following events has occurred: (i) a Participant's indictment of, or the conviction or entry of a plea of guilty or nolo contendere to any felony, or any misdemeanor involving moral turpitude; (ii) a Participant's engagement in conduct which constitutes a material breach of a fiduciary duty or duty of loyalty, including without limitation,


misappropriation of funds or property of the Company, other than an occasional and de minimis use of Company property for personal purposes; (iii) a Participant's acts or omissions constituting gross negligence, recklessness or willful misconduct in the performance of his or her assigned duties for the Company; (iv) any act or omission by a Participant that has a demonstrated and material adverse impact on the Company's reputation for honesty and fair dealing or any other conduct that would reasonably be expected to result in injury to the reputation of the Company; (v) a Participant's insubordination, nonperformance or willful neglect of assigned duties; (vi) a Participant's willful failure to cooperate with a bona fide internal investigation or an investigation by regulatory or law enforcement authorities, after being instructed by the Company to cooperate, or a Participant's willful destruction or failure to preserve documents or other materials known to be relevant to such investigation or a Participant's willful inducement of others to fail to cooperate, destroy or fail to produce documents or other materials; (vii) a Participant's failure to perform the essential functions of his or her position, with or without reasonable accommodation if required by law; or (viii) a Participant's death.
2.6"Change in Control" means, in one or a series of related transactions, (i) the sale of all or substantially all of the assets of the Company to a Person that is not an Affiliate of the Company, (ii) the sale or transfer of the outstanding shares of capital stock of the Company, or (iii) the merger or consolidation of the Company with another Person or entity, in each case in clauses (ii) and (iii) above under circumstances in which the holders (together with any Affiliates of such holders) of the voting power of outstanding capital stock of the Company, immediately prior to such transaction, (A) own less than 50% in voting power of the outstanding capital stock of the Company, (B) do not have the right to elect a majority of the members of the Board, or (C) do not otherwise have the power to direct or cause the direction of the management or policies of the Company or the surviving or resulting entity immediately following such transaction.
2.7"Common Shares" means common shares of beneficial interests in the Company.
2.8"Disability" means the inability of a Participant to perform the Participant’s duties with the Company on a full-time basis for one hundred twenty (120) consecutive days within any twelve (12) month period as a result of a physical, mental or psychological incapacity or impairment.
2.9"Fair Market Value" means, on a given date, (i) if the Common Shares are listed on a national securities exchange, the closing sales price of the Common Shares reported on the primary exchange on which the Common Shares is listed and traded on such date, or, if there are no such sales on that date, then on the last preceding date on which such sales were reported; (ii) if the Common Shares are not listed on any national securities exchange but are quoted in an inter-dealer quotation system on a last sale basis, the average between the closing bid price and ask price reported on such date, or, if there is no such sale on that date, then on the last preceding date on which a sale was reported; or (iii) if the Common Shares are not listed on a national securities exchange or quoted in an inter-dealer quotation system on a last sale basis, the most recent estimated net asset
- 2 -


value per Common Share publicly announced by the Company or such other amount determined by the Board in good faith to be the fair market value of the Common Shares.
2.10"Good Reason" means the occurrence of one of the following events, without the Participant's prior written consent, provided such event is not corrected within 15 days following the Board's receipt of written or electronic notice of such event: (i) a requirement that the Participant work principally from a location outside the 50 mile radius from the Participant's principal work location or residence, except for required travel on the Company’s business to the extent substantially consistent with the Participant’s business travel obligations; (ii) failure to pay the Participant any compensation or benefits to which the Participant is entitled within 30 days of the date due; (iii) a material reduction in the Participant's annual base salary or annual bonus opportunity; (iv) the failure of the Company to obtain an agreement, reasonably satisfactory to the Participant, from any successor or assign of the Company to assume and agree to adopt this Plan and the Participant's Participation Agreement, if any, or (v) a material and adverse change in the Participant's title or responsibilities.
2.11"Participant" shall mean any employee of the Company who is entitled to participate in the Plan in accordance with Section 4.
2.12"Participation Agreement" means an agreement between a Participant and the Company in substantially the form of EXHIBIT B hereto.
2.13"Person" means any natural person, corporation, limited liability company, partnership, firm, joint venture, joint-stock company, trust, association, unincorporated entity or organization of any kind, governmental authority or other entity of any kind.
2.14"Retention Benefits" means the amount of the retention bonus payable to a Participant pursuant to his or her Participation Agreement.
2.15"Severance Amounts" means the amount of severance payable to a Participant pursuant to the terms of his or her Participation Agreement.
2.16"Target Annual Bonus" means an amount equal to one hundred percent (100%) of a Participant's target annual bonus opportunity for the fiscal year in which his or her employment with the Company terminates.
3.Interpretation and Administration of the Plan. The Plan will be interpreted and administered by the Board, whose actions in interpreting the terms of the Plan and administration of the Plan will be final and binding on all Participants; provided that the Board may delegate all or any portion of its authority hereunder to the Compensation Committee of the Board. The Board is authorized to interpret the Plan, correct any defect, supply any omission or reconcile any inconsistency in the manner and to the extent it deems necessary to carry out the purposes and intent of the Plan. No director will be liable for any good faith determination, act or omission in connection with the Plan.
- 3 -


4.Retention and Severance Benefits. The Participants listed on Exhibit A hereto shall be eligible to receive the Retention Benefits and Severance Amounts if the conditions for earning such benefits or amounts set forth in a Participant's Participation Agreement are satisfied.
5.Withholding of Compensation. The Company will withhold from any payments under the Plan any amount required to satisfy the income and employment tax withholding obligations arising under applicable federal and state laws in respect of the Retention Benefits and Severance Amounts. Each Participant is encouraged to contact his or her personal legal or tax advisors with respect to the benefits provided by the Plan. Neither the Company nor any of its employees, directors, officers or agents are authorized to provide any tax advice to Participants with respect to the benefits provided under the Plan.
6.No Guarantee of Employment. The Plan is intended to provide a financial incentive to Participants and is not intended to confer any rights to continued employment upon Participants, whose employment will remain at-will and subject to termination by either the Company or Participant at any time, with or without cause or notice, subject to the terms of an applicable employment agreement, if any.
7.Status as Creditor. A Participant's sole right under the Plan will be as a general unsecured creditor of the Company and the acquiring or surviving corporation.
8.No Assignment or Transfer by Participant. None of the rights, benefits, obligations or duties under the Plan may be assigned or transferred by any Participant except by will or under the laws of descent and distribution. Any purported assignment or transfer by any such Participant will be void.
9.Amendment and Termination of the Plan. The Plan may be amended or terminated by the Board, provided that no amendment will adversely affect the rights of a Participant hereunder without the prior written consent of such Participant. Notwithstanding the foregoing, any particular Participation Agreement may be amended to the detriment of a Participant solely with the written consent of such Participant.
10.Governing Law. The rights and obligations of a Participant under the Plan will be governed by and interpreted, construed and enforced in accordance with the laws of the State of Illinois without regard to its or any other jurisdiction's conflicts of laws principles.
11.Severability. If any provision of the Plan is held invalid or unenforceable, its invalidity or unenforceability will not affect any other provision of the Plan, and the Plan will be construed and enforced as if such provision had not been included.
12.Entire Agreement. The Plan and the executed Participation Agreements set forth all of the agreements and understandings between the Company and Participants with respect to the subject matter hereof, and supersedes and terminates all prior agreements and understandings between the Company and Participants with respect to the subject matter hereof.
13.Section 280G.
- 4 -


13.1Anything in this Plan to the contrary notwithstanding, in the event a nationally recognized independent accounting firm designated by the Company (the "Accounting Firm") shall determine that receipt of all payments or benefits by the Company and any subsidiary and each of their respective affiliates in the nature of compensation to or for a Participant's benefit, whether paid or payable pursuant to this Plan or otherwise (a "Payment"), would subject such Participant to the excise tax under Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code"), the Accounting Firm shall determine whether to reduce any of the Payments paid or payable pursuant to this Plan to the greatest amount that can be paid that would not result in the imposition of the excise tax under Section 4999 of the Code (the "Reduced Amount"). The Payments shall be reduced to the Reduced Amount only if the Accounting Firm determines that a Participant would have a greater Net After-Tax Receipt (as defined in paragraph 13.2) of aggregate Payments if the Participant's Agreement Payments were so reduced. If the Accounting Firm determines that a Participant would not have a greater Net After-Tax Receipt of aggregate Payments if the Participant's Payments were so reduced, then the Participant shall receive all Payments to which the Participant is entitled.
13.2For purposes of paragraph 13.1, "Net After-Tax Receipt" shall mean the present value (as determined in accordance with Sections 280G(b)(2)(A)(ii) and 280G(d)(4) of the Code) of a Payment net of all taxes imposed on a Participant with respect thereto under Sections 1 and 4999 of the Code and under applicable state and local laws, determined by applying the highest marginal rate under Section 1 of the Code and under state and local laws which applied to the Participant's taxable income for the immediately preceding taxable year, or such other rate(s) as the Accounting Firm determined to be likely to apply to the Participant in the relevant taxable year(s).
14.Section 409A.
14.1This Plan shall be interpreted to avoid any penalty sanctions under Section 409A of the Code ("Section 409A"). If any payment or benefit cannot be provided or made at the time specified herein without incurring sanctions under Section 409A, then such benefit or payment shall be provided in full at the earliest time thereafter when such sanctions will not be imposed. For purposes of Section 409A, (A) upon a termination of employment, a Participant shall have no ongoing obligations to the Company or its subsidiaries that would prevent the Participant from having a "separation from service" upon such termination within the meaning of such term under Section 409A; and (B) the right to a series of installment payments under this Plan is to be treated as a right to a series of separate payments. In no event shall a Participant, directly or indirectly, designate the calendar year of payment.
14.2Notwithstanding any provision in this Plan to the contrary, if, at the time of a Participant's separation from service with the Company, the Company has securities which are publicly traded on an established securities market, the Participant is a "specified employee" (as defined in Section 409A) and it is necessary to postpone the commencement of any severance payments and benefits otherwise payable pursuant to this Plan as a result of such separation from service to prevent any accelerated or
- 5 -


additional tax under Section 409A, then the Company will postpone the commencement of the payment or provision of any such payments or benefits hereunder (without any reduction in such payments or benefits ultimately paid or provided to the Participant) that are not otherwise exempt from Section 409A until the first payroll date that occurs after the date that is six (6) months following Participant's separation from service with the Company. If the Participant dies during the postponement period prior to the payment of any postponed amount, such amount shall be paid to the personal representative of the Participant's estate within sixty (60) days after the date of the Participant's death.
15.Execution. To record the adoption of the Plan as set forth herein, effective as of November, 2021, Watermark Lodging Trust, Inc. has caused its duly authorized officer to execute the same this 10th day of November, 2021.
Approved by the Board on October 6, 2021.

WATERMARK LODGING TRUST, INC.


/s/ Michael G. Medzigian            
By: Michael G. Medzigian
Title: Chairman & CEO

- 6 -


EXHIBIT A
Certain Participants

1. Paul J. Huff
2. Brendan Medzigian
3. Mallika Sinha
4. Samuel Zinsmaster




- 7 -


EXHIBIT B

WATERMARK LODGING TRUST, INC.
EMPLOYEE RETENTION AND SEVERANCE PLAN
PARTICIPATION AGREEMENT

    This Participation Agreement (the "Participation Agreement") is entered into by and between Watermark Lodging Trust, Inc., a Maryland real estate investment trust (the "Company"), and the undersigned employee of the Company, and is effective as of the date set forth below. Attached is a copy of the Watermark Lodging Trust, Inc. Employee Retention and Severance Plan (the "Plan"). Each capitalized term not defined in this Participation Agreement will have the meaning ascribed to such term in the Plan.
1.Retention Benefits.
1.1You are eligible to receive a $[●] Retention Benefit. You will receive the Retention Benefit if you remain actively employed full-time with the Company during the eighteen (18) month period immediately following the date hereof (the “Retention Period”). If such condition is satisfied, you will be paid the Retention Benefit on the date such eighteen (18) month period expires. Notwithstanding the foregoing, the Retention Period shall expire on the earlier of (i) immediately prior to a Change in Control of the Company, if (a) such date is earlier than the eighteen (18) month anniversary of the date hereof and you remain actively employed full-time with the Company through such Change in Control and (b) in connection with the Change in Control, the Company fails to obtain an agreement, reasonably satisfactory to the Board, from any successor or assign of the Company, to assume and agree to adopt this Plan and the Participant's Participation Agreement, and (ii) the three (3) month anniversary of a Change in Control of the Company if such anniversary is earlier than the eighteen (18) month anniversary of the date hereof and you remain actively employed full-time with the Company during such three (3) month period, and, you will be paid the Retention Benefit on the date of the Change in Control or such three (3) month anniversary, whichever is applicable. The Retention Period shall also expire in the event the Participant is terminated without Cause, in which event the Retention Benefit will be paid on the first regularly scheduled payroll date following termination.
1.2Sixty percent (60%) of the Retention Benefit will be payable in cash and forty percent (40%) will be payable in fully vested Common Shares based on the Fair Market Value of the Common Shares on the date the Retention Period expires; provided, however, that in the event there is a Change in Control prior to payment of the Retention Benefit, one hundred percent (100%) of the Retention Benefit will be payable in cash.
2.Severance Benefits.
1.1If the Company terminates your employment without Cause or you terminate your employment for Good Reason, in either case, within eighteen (18) months immediately following a Change in Control of the Company, subject to your compliance with this Section 2, you will be eligible to receive Severance Amounts.
- 8 -


1.2You will be eligible to receive a cash Severance Amount equal to the greater of (i) the sum of your Base Salary and Target Annual Bonus and (ii) the sum of your Base Salary and Average Bonus.
1.3In the event of any termination of employment, you will be entitled to your accrued and unpaid base salary, accrued and unused vacation benefits, and vested benefits under any employee benefit plan of the Company.
1.4As a condition to the payment of any Severance Amount under this Section 2, you will be required to execute within thirty days following the date of your termination a waiver and release of claims agreement (the “Release”) in favor of the Company and in a form determined by the Company. As specified in the applicable Release, you will have a certain number of calendar days to consider whether to execute such Release, and the right to revoke such Release within a certain number of days after execution (the “Revocation Period”). You must execute the Release and not revoke the Release in order to be entitled to benefits under this Section 2.
1.5Subject to the timing provisions of Section 14(a) of the Plan, the Severance Amount shall be paid in accordance with the Company's customary payroll practices in a lump sum in cash, subject to applicable tax withholding, during the first payroll period following the expiration of the revocation period of the Release. Notwithstanding the foregoing, if the period for consideration or revocation of the Release spans two taxable years, you shall be paid the Severance Amount during the later taxable year.
1.6For the avoidance of doubt, if you are entitled to severance or similar benefits pursuant to the terms of an employment agreement or severance or similar plan of the Company, you shall be entitled to greater of the severance benefits under either this Agreement or such other agreement or plan, but not both.
3.Confidentiality. You must keep this Agreement confidential. The Company may publicly disclose the fact that you have been offered this Agreement, the terms of this agreement, and/or your receipt of a retention bonus under this Agreement (the “Information”). If, prior to the Company’s public disclosure of any or all of the Information, either you disclose any or all of the Information to anyone other than your spouse or financial advisor or your spouse or financial advisor discloses any or all of the Information, this agreement will become void, and you agree to repay any payments already paid hereunder.
4.Employment at Will. This agreement is not an employment contract. Nothing in this agreement modifies your status as an employee at will or guarantees employment for any length of time.
5.Compliance with IRC Sections 409A and 457A of the Code. This Agreement is intended to comply with Sections 409A and 457A of the Code and will be interpreted accordingly. Notwithstanding anything herein to the contrary, if at the time of your termination of employment with the Company and its subsidiaries or affiliates you are a "specified employee" as defined in Section 409A of the Code and the deferral of the commencement of any payments or benefits otherwise payable hereunder as a result of such termination of employment
- 9 -


is necessary in order to prevent any accelerated or additional tax under Section 409A of the Code, then the Company will defer the commencement of the payment of any such payments or benefits hereunder (without any reduction in such payments or benefits ultimately paid or provided to you) and such payments shall be paid to you in a single lump sum as soon as practicable (and in all events within 15 days) after the date that is six months following your termination of employment with the Company and its subsidiaries or affiliates (or the earliest date as is permitted under Section 409A of the Code without any accelerated or additional tax). For purposes of Section 409A of the Code, each payment made under this Agreement shall be designated as a "separate payment" within the meaning of Section 409A of the Code, and references herein to your "termination of employment" shall refer to your separation from service with the Company and its affiliates within the meaning of Section 409A of the Code.




- 10 -


To indicate your acceptance of your designation as a Participant in the Plan, please sign a copy of this Participation Agreement in the space indicated below and return it to the undersigned on or before [●], 2021.


WATERMARK LODGING TRUST, INC.


By:                     
Name:
Title:

ACCEPTED AND ACKNOWLEDGED:

I hereby accept my designation as a Participant in the Watermark Lodging Trust, Inc. Employee Retention and Severance Plan.

Dated:    _______________________

By:     _______________________

Name:    _______________________

- 11 -


Exhibit 31.1

Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Michael G. Medzigian, certify that:

1.I have reviewed this Quarterly Report on Form 10-Q of Watermark Lodging Trust, Inc.;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an Annual Report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 12, 2021

/s/ Michael G. Medzigian    
Michael G. Medzigian
Chief Executive Officer



Exhibit 31.2

Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Mallika Sinha, certify that:

1.I have reviewed this Quarterly Report on Form 10-Q of Watermark Lodging Trust, Inc.;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an Annual Report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 12, 2021

/s/ Mallika Sinha    
Mallika Sinha
Chief Financial Officer



Exhibit 32

Certifications Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

In connection with the Quarterly Report of Watermark Lodging Trust, Inc. on Form 10-Q for the period ended September 30, 2021 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), each of the undersigned officers of Watermark Lodging Trust, Inc., does hereby certify, to the best of such officer’s knowledge and belief, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

1.The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2.The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Watermark Lodging Trust, Inc.

Date: November 12, 2021

/s/ Michael G. Medzigian    
Michael G. Medzigian
Chief Executive Officer

Date: November 12, 2021

/s/ Mallika Sinha    
Mallika Sinha
Chief Financial Officer

The certification set forth above is being furnished as an exhibit solely pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and is not being filed as part of the Report as a separate disclosure document of Watermark Lodging Trust, Inc. or the certifying officers.

A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to Watermark Lodging Trust, Inc. and will be retained by Watermark Lodging Trust, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.