Chatham Lodging Trust
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Chatham Lodging Trust
is a self-advised, publicly-traded real estate investment trust focused primarily on
investing in upscale extended-stay hotels and premium-branded, select-service
hotels. Our high quality hotels are located in major markets with high barriers to
entry, near primary demand generators for both business and leisure guests. Our
primary objective is to generate attractive returns for our shareholders through
investing in hotel properties at prices that provide strong returns on invested
capital, paying meaningful dividends and generating long-term value appreciation.
Dear Shareholder,
I hope this letter finds each of our shareholders,
despite the sale of two hotels which were included in
interested parties and employees well. As we turn
our initial guidance, finished towards the upper end
the page and enter a new decade, Chatham will
of our guidance range, driven by incredible margin
be celebrating the tenth
anniversary of its initial public
offering in April, and we
appreciate your support over
the past ten years as we look
forward to further building
Chatham into the premier
owner of upscale, extended-stay
hotels and premium-branded,
select-service hotels.
Following RevPAR growth of
almost 1 percent in 2018, our
RevPAR declined 1.6 percent in
2019 as we absorbed the impact
Jeffrey H. Fisher
Chairman, Chief Executive Officer and President
of new supply. We faced tough comparisons to 2018
performance. Despite the 1.6
percent decline in RevPAR,
adjusted EBITDA was only
down 0.4 percent.
Some other noteworthy
accomplishments in 2019
include:
• generated a 22 percent
increase in other income of
$3.0 million due primarily to
the continued improvement
in parking revenue and
room-cancellation revenue
collections
given the significant amount of room revenue related
• gained RevPAR index of approximately
to the north Boston gas explosions and border patrol
60 basis points
demand in San Diego. Our RevPAR decline of 1.6
percent was at the lower end of our guidance range
of minus 1.5 percent to plus 0.5 percent.
I am pleased that our Adjusted Earnings Before
• reduced leverage to 34.1 percent from 34.7
percent based on the ratio of Chatham’s net
debt to investment in hotels, at cost
Interest, Taxes, Depreciation and Amortization
• commenced construction on the company’s first
(EBITDA) and adjusted Funds from Operation (FFO),
ground-up development since its initial public
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offering in 2010 in the Warner Center submarket
Most industry pundits would describe the lodging
of Los Angeles, Calif.
industry in 2019 and 2020 as late cycle, where
• raised approximately $7 million through the
company’s share plans with an average issuance
price of over $20 per share, using proceeds to
partially fund development
Revenue per Available Room (RevPAR) growth is
minimal, flat or negative and new supply is near
peak growth rates. Industry RevPAR growth was 0.9
percent in 2019, and STR is projecting 2020 industry
RevPAR growth to be flat and down 1.3 percent for
• sold two, non-core hotels for approximately $10
the upscale sector.
million at an approximate six percent net operating
On the supply and demand fronts, both were up
income capitalization rate
2.0 percent in 2019 and are projected to be at similar
• invested almost $36 million in capital improvements
at existing hotels
levels in 2020. New supply growth of approximately
2 percent is well below historical growth averages.
However, most new supply has been in the upscale
As evidenced by some of these operating
sector, which is the sector where most of our hotels
accomplishments in a challenging year, we firmly
are classified. Within the upscale sector, new supply
believe we have the best-in-class operating platform,
growth peaked at 6.0 percent in 2017, but is still
and our collaborative efforts with Island Hospitality
projected to be approximately 5 percent in 2020. The
really have paid off over the last couple of years.
silver lining is that within our competitive market
We are positioned exquisitely to quickly roll out
tracts, new supply growth has been and should
revenue enhancement and expense saving initiatives,
continue to be less than industry-wide upscale sector
properly assess their impact and decide whether to
growth. This should benefit our performance as the
move forward, tweak or cancel the initiatives. I’m
new supply is absorbed.
particularly pleased with the results from certain
To reiterate, given the state of the industry,
programs and innovative tools that have been
including dealing with the unknown effects from the
implemented to date and will be rolled out portfolio-
COVID-19 pandemic, I certainly am comforted that
wide moving forward. These initiatives and results
we have the platform to effectuate change and react
therefore drive home the huge benefit we derive from
quickly to changing circumstances. In our space,
working closely together.
pennies matter, and we will continue to work closely
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Chatham’s Brand Composition
Chatham’s Brand Composition
Chatham’s Top Markets
Chatham’s Top Markets
55% Residence Inn
55% Residence Inn
11% Homewood Suites
11% Homewood Suites
10% Hilton Garden Inn
10% Hilton Garden Inn
8% Courtyard
8% Courtyard
6% Hampton
6% Hampton
4% Hyatt Place
4% Hyatt Place
4% Embassy Suites
4% Embassy Suites
2% SpringHill Suites
2% SpringHill Suites
23% Silicon Valley
23% Silicon Valley
9% San Diego
9% San Diego
8% DC
8% DC
7% NH/ME
7% NH/ME
6% Los Angeles
6% Los Angeles
6% Houston
6% Houston
6% Greater NY
6% Greater NY
4% Boston
4% Boston
5% Seattle
5% Seattle
5% Dallas
5% Dallas
20% Other
20% Other
Based on the percentage of hotel EBITDA for the twelve months ended December 31, 2019
Based on the percentage of hotel EBITDA for the twelve months ended December 31, 2019
Based on the percentage of hotel EBITDA for the twelve months ended December 31, 2019
Based on the percentage of hotel EBITDA for the twelve months ended December 31, 2019
with Island Hospitality to maximize our top-line
We will continue to explore asset sales with
performance and minimize any margin erosion.
the intention of using those proceeds to invest in
Our outlook for 2020 is muted, with estimated
acquisitions or potential developments in an effort to
RevPAR growth of minus 1.25 percent to plus 0.25
grow Adjusted EBITDA and Adjusted FFO. We will
percent and margin erosion of approximately 120 basis
look at any value-added opportunities, and as we’ve
points, driving a decline in Adjusted FFO per Share to
stated previously, we may develop an additional hotel
$1.76 at the midpoint of our guidance from $1.85 in
or two over the next few years if the returns generate
2019. Our margins continue to be adversely impacted
the proper risk-adjusted return compared to buying a
by rising wage and benefit costs, which is the primary
hotel of similar quality in that same market.
operating focus for us in 2020.
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Additionally, we will add value by converting
existing space in our Residence Inn San Diego Mission
Valley and the Residence Inn Anaheim Garden Grove
into income-producing assets like we did in late
2018 with the SpringHill Suites Savannah where we
converted a seldom-used meeting space into a highly
profitable bar concept called Toasted Barrel. In 2019,
Toasted Barrel produced revenue of approximately
$350 thousand and profit of approximately $85
thousand, a noteworthy 24 percent margin and a
return on investment of over 20 percent in year one.
Those results are quite an accomplishment.
Thank you for your support. We truly appreciate it.
Sincerely,
Jeffrey H. Fisher
Chairman, Chief Executive Officer and President
March 4, 2020
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
☒
☐
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 2019
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: 001-34693
CHATHAM LODGING TRUST
(Exact Name of Registrant as Specified in Its Charter)
Maryland
(State or Other Jurisdiction of
Incorporation or Organization)
222 Lakeview Avenue, Suite 200
West Palm Beach, Florida
(Address of Principal Executive Offices)
27-1200777
(I.R.S. Employer
Identification No.)
33401
(Zip Code)
(561) 802-4477
(Registrant’s Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
Trading Symbol(s)
Name of Each Exchange on Which Registered
Common Shares of Beneficial Interest, par value $0.01 per share
CLDT
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. ☒ Yes ☐ No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. ☐ Yes ☒ No
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. ☒ Yes ☐ No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File
required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter
period that the registrant was required to submit and post such files). ☒ Yes ☐ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.
See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
☒
Accelerated filer
Non-accelerated filer
¨ (Do not check if a smaller reporting company)
Smaller reporting company
¨
☐
☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any
Emerging growth company
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
The aggregate market value of the 45,889,736 common shares of beneficial interest held by non-affiliates of the registrant was $856,939,318 based on
the closing sale price on the New York Stock Exchange for such common shares of beneficial interest as of June 30, 2019.
The number of common shares of beneficial interest outstanding as of February 26, 2020 was 46,956,110
Portions of the registrant's Definitive Proxy Statement for its 2020 Annual Meeting of Shareholders (to be filed with the Securities and Exchange
Commission on or before May 13, 2020) are incorporated by reference into this Annual Report on Form 10-K in response to Part III hereof.
DOCUMENTS INCORPORATED BY REFERENCE
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TABLE OF CONTENTS
PART I.
Business
Item 1.
Item 1A. Risk Factors
Item 1B. Unresolved Staff Comments
Item 2.
Properties
Legal Proceedings
Item 3.
Item 4. Mine Safety Disclosures
PART II.
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities
Selected Financial Data
Item 6.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
Item 8.
Consolidated Financial Statements and Supplementary Data
Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
Item 9.
Item 9A Controls and Procedures
Item 9B. Other Information
PART III.
Item 10. Trustees, Executive Officers and Corporate Governance
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Item 13. Certain Relationships and Related Transactions, and Trustee Independence
Item 14. Principal Accountant Fees and Services
Item 15. Exhibits and Financial Statement Schedules
PART IV
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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as
amended (the "Securities Act") and Section 21E of the Securities Exchange Act of 1934 as amended (the "Exchange Act"), and
as such may involve known and unknown risks, uncertainties, assumptions and other factors which may cause our actual
results, performance or achievements to be materially different from future results, performance or achievements expressed or
implied by such forward-looking statements. Forward-looking statements, which are based on certain assumptions and describe
our future plans, strategies and expectations, are generally identified by our use of words, such as "intend," "plan," "may,"
"should," "will," "project," "estimate," "anticipate," "believe," "expect," "continue," "potential," "opportunity," or similar
expressions, whether in the negative or affirmative. These forward-looking statements include information about possible or
assumed future results of our business, financial condition, liquidity, results of operations, plans and objectives. Statements
regarding the following subjects, among others, are forward-looking by their nature:
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purposes.
our business and investment strategy;
our forecasted operating results;
completion of hotel acquisitions;
completion of hotel developments;
our ability to obtain future financing arrangements;
our expected leverage levels;
our understanding of our competition;
market and lodging industry trends and expectations;
our investment in joint ventures;
anticipated capital expenditures; and
our ability to maintain our qualification as a real estate investment trust ("REIT") for federal income tax
The forward-looking statements are based on our beliefs, assumptions and expectations of our future performance,
taking into account all information available to us at the time the forward-looking statements are made. These beliefs,
assumptions and expectations can change as a result of many possible events or factors, not all of which are known to us. If a
change occurs, our business, prospects, financial condition, liquidity and results of operations may vary materially from those
expressed in our forward-looking statements. You should carefully consider these risks when you make an investment decision
concerning our common shares. Additionally, the following factors could cause actual results to vary from our forward-looking
statements:
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the factors included in this report, including those set forth under the sections titled “Business,” Risk Factors” and
“Management’s Discussion and Analysis of Financial Condition and Results of Operations” and in other reports
that we file with the United States Securities and Exchange Commission ("SEC"), or in other documents that we
publicly disseminate;
general volatility of the financial markets and the market price of our securities;
performance of the lodging industry in general;
business interruptions due to cyber attacks;
impacts on our business of a prolonged government shutdown;
decreased international travel because of geopolitical events, including terriorism, outbreaks of disease and current
U.S. government polices;
changes in our business or investment strategy;
availability, terms and deployment of capital;
availability of and our ability to attract and retain qualified personnel;
our leverage levels;
our capital expenditures;
changes in our industry and the markets in which we operate, interest rates or the general U.S. or international
economy;
our ability to maintain our qualification as a REIT for federal income tax purposes; and
the degree and nature of our competition.
All forward-looking statements speak only as of the date of this report or, in the case of any document incorporated by
reference, the date of that document. All subsequent written and oral forward-looking statements attributable to us or any
person acting on our behalf are qualified by the cautionary statements in this section. We undertake no obligation to update or
publicly release any revisions to forward-looking statements to reflect events, circumstances or changes in expectations after the
date of this report, except as required by law.
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Item 1. Business
PART I
Dollar amounts presented in this Item 1 are in thousands, except per share data.
Overview
Chatham Lodging Trust (“we,” “us” or the “Company”) was formed as a Maryland real estate investment trust
"(REIT") on October 26, 2009. We elected to be taxed as a REIT for federal income tax purposes commencing with our 2010
taxable year. The Company is internally-managed and invests primarily in upscale extended-stay and premium-branded select-
service hotels.
We had no operations prior to the consummation of our initial public offering ("IPO") in April 2010. The net proceeds
from our share offerings are contributed to Chatham Lodging, L.P., our operating partnership (the “Operating Partnership”), in
exchange for partnership interests. Substantially all of the Company’s assets are held by, and all of its operations are conducted
through, the Operating Partnership. Chatham Lodging Trust is the sole general partner of the Operating Partnership and owns
100% of the common units of limited partnership interest in the Operating Partnership ("common units"). Certain of the
Company's executive officers hold vested and unvested long-term incentive plan units in the Operating Partnership ("LTIP
Units"), which are presented as non-controlling interests on our consolidated balance sheets.
In January 2014, the Company established a $25 million dividend reinvestment and stock purchase plan (the "Prior
DRSPP"). We filed a new $50 million shelf registration statement for the dividend reinvestment and stock purchase plan (the
"New DRSPP" and together with the Prior DRSPP, the "DRSPPs") on December 28, 2017 to replace the prior program. Under
the DRSPPs, shareholders may purchase additional common shares by reinvesting some or all of the cash dividends received on
the Company's common shares. Shareholders may also make optional cash purchases of the Company's common shares subject
to certain limitations detailed in the prospectuses for the DRSPPs. During the year ended December 31, 2019, we issued
259,954 shares under the New DRSPP at a weighted average price of $20.09, which generated $5.2 million of proceeds. As of
December 31, 2019 and December 31, 2018, respectively, we had issued 1,768,000 and 1,508,046 shares under the DRSPPs at
a weighted average price of $21.33 and $21.55 per share, respectively. As of December 31, 2019, there were common shares
having a maximum aggregate sales price of approximately $27.9 million available for issuance under the New DRSPP.
In January 2014, the Company established an At the Market Equity Offering ("Prior ATM Plan") whereby, from time
to time, we may publicly offer and sell our common shares having an aggregate maximum offering price of up to $50 million
by means of ordinary brokers' transactions on the New York Stock Exchange (the "NYSE"), in negotiated transactions or in
transactions that are deemed to be "at the market" offerings as defined in Rule 415 under the Securities Act of 1933. We filed a
$100 million registration statement for a new ATM program (the "ATM Plan" and together with the Prior ATM Plan, the
"ATM Plans") on December 28, 2017 to replace the prior program. At the same time, the Company entered into sales
agreements with Cantor Fitzgerald & Co. ("Cantor"), Barclays Capital Inc. ("Barclays"), Robert W. Baird & Co. Incorporated
("Baird"), BTIG, LLC ("BTIG"), Citigroup Global Markets Inc. ("Citigroup"), Stifel, Nicolaus & Company, Incorporated
("Stifel") and Wells Fargo Securities, LLC ("Wells Fargo") as sales agents. During the year ended December 31, 2019, we
issued 103,590 shares under the ATM Plan at a weighted average price of $20.05, which generated $2.1 million of proceeds.
As of December 31, 2019 and December 31, 2018, respectively, we had issued 2,602,260 and 2,498,670 shares under the ATM
Plans at a weighted average price of $21.76 and $21.83 per share, respectively, in addition to the offerings discussed above.
As of December 31, 2019, there were common shares having a maximum aggregate sales price of approximately $90.4 million
available for issuance under the ATM Plan.
As of December 31, 2019, the Company owned 40 hotels with an aggregate of 6,092 rooms located in 15 states and the
District of Columbia. As of December 31, 2019, the Company also (i) held a 10.3% noncontrolling interest in a joint venture
(the “NewINK JV”) with affiliates of Colony Capital, Inc. ("CLNY"), which owns 46 hotels acquired from a joint venture (the
"Innkeepers JV") between the Company and Cerberus Capital Management (“Cerberus”), comprising an aggregate of 5,948
rooms and (ii) held a 10.0% noncontrolling interest in a separate joint venture (the "Inland JV") with CLNY, which owns 48
hotels acquired from Inland American Real Estate Trust, Inc. ("Inland"), comprising an aggregate of 6,402 rooms. We
sometimes use the term "JVs", which refers collectively to the NewINK JV and the Inland JV.
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To qualify as a REIT, the Company cannot operate its hotels. Therefore, the Operating Partnership and its subsidiaries
lease our wholly owned hotels to taxable REIT subsidiary lessees (“TRS Lessees”), which are wholly owned by the Company’s
taxable REIT subsidiary (“TRS”) holding company. The Company indirectly (i) owns its 10.3% interest in the 46 NewINK JV
hotels and (ii) owns its 10.0% interest in the 48 Inland JV hotels through the Operating Partnership. All of the NewINK JV
hotels and Inland JV hotels are leased to TRS Lessees, in which the Company indirectly owns noncontrolling interests through
its TRS holding company. Each hotel is leased to a TRS Lessee under a percentage lease that provides for rental payments
equal to the greater of (i) a fixed base rent amount or (ii) a percentage rent based on hotel room revenue. The initial term of
each of the TRS leases is 5 years. Lease revenue from each TRS Lessee is eliminated in consolidation.
The TRS Lessees have entered into management agreements with third-party management companies that provide
day-to-day management for the hotels. As of December 31, 2019, Island Hospitality Management Inc. (“IHM”), which is
52.5% owned by Jeffrey H. Fisher, the Company's Chairman, President and Chief Executive Officer, managed all 40 of the
Company’s wholly owned hotels. As of December 31, 2019, all of the NewINK JV hotels were managed by IHM. As of
December 31, 2019, 34 of the Inland JV hotels were managed by IHM and 14 hotels were managed by Marriott International,
Inc. ("Marriott").
As of December 31, 2019, our wholly owned hotels include upscale extended-stay hotels that operate under the
Residence Inn by Marriott® brand (sixteen hotels) and Homewood Suites by Hilton® brand (nine hotels), as well as premium-
branded select-service hotels that operate under the Courtyard by Marriott® brand (five hotels), the Hampton Inn or Hampton
Inn and Suites by Hilton® brand (three hotels), the Hilton Garden Inn by Hilton® brand (three hotels), the SpringHill Suites by
Marriott® brand (one hotel), the Hyatt Place® brand (two hotels) and all suite hotels that operate under the upper scale extended
stay Embassy Suites brand® (one hotel).
We primarily invest in upscale extended-stay hotels such as Homewood Suites by Hilton® and Residence Inn by
Marriott®. We also invest in upscale or upper upscale all suite hotels such as SpringHill Suites by Marriott® or Embassy
Suites.® Extended-stay and all-suite hotels typically have the following characteristics:
• principal customer base includes business travelers, whether short-term transient travelers or those on extended
assignments and corporate relocations;
• services and amenities include complimentary breakfast and evening hospitality hour, high-speed internet access, in-
room movie channels, limited meeting space, daily linen and room cleaning service, 24-hour front desk, guest
grocery services, and an on-site maintenance staff; and
• physical facilities include large suites, quality construction, full separate kitchens in each guest suite or suites that
include a wet bar, refrigerator and microwave, quality room furnishings, pool, and exercise facilities.
Additionally, we invest in premium-branded select-service hotels such as Courtyard by Marriott®, Hampton Inn®,
Hampton Inn and Suites by Hilton®, Hyatt Place® and Hilton Garden Inn by Hilton®. The service and amenity offerings of
these hotels typically include complimentary breakfast or a smaller for pay breakfast or evening dining option, high-speed
internet access, local calls, in-room movie channels, and daily linen and room cleaning service.
Financial Information About Industry Segments
We evaluate all of our hotels as a single industry segment because all of our hotels have similar economic
characteristics and provide similar services to similar types of customers. Accordingly, we do not report segment information.
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Business Strategy
Our primary objective is to generate attractive returns for our shareholders through investing in hotel properties
(whether wholly owned or through a joint venture) at prices that provide strong returns on invested capital, paying dividends
and generating long-term value appreciation. We believe we can create long-term value by pursuing the following strategies:
• Disciplined acquisition of hotel properties: We invest primarily in premium-branded upscale extended-stay and
select-service hotels with a focus on the 25 largest metropolitan markets in the United States. We focus on acquiring
hotel properties at prices below replacement cost in markets that have strong demand generators and where we
expect demand growth will outpace new supply. We also seek to acquire properties that we believe are
undermanaged or undercapitalized.
• Opportunistic hotel repositioning: We employ value-added strategies, such as re-branding, renovating, expanding or
changing management, when we believe such strategies will increase the operating results and values of the hotels
we acquire.
• Aggressive asset management: Although as a REIT we cannot operate our hotels, we proactively manage our third-
party hotel managers in seeking to maximize hotel operating performance. Our asset management activities seek to
ensure that our third-party hotel managers effectively utilize franchise brands' marketing programs, develop effective
sales management policies and plans, operate properties efficiently, control costs, and develop operational initiatives
for our hotels that increase guest satisfaction. As part of our asset management activities, we regularly review
opportunities to reinvest in our hotels to maintain quality, increase long-term value and generate attractive returns on
invested capital.
• Selective hotel development: We may consider developing a limited number of hotels in cases where we believe
newly developed hotels will generate attractive returns and enhance the quality of our hotel portfolio.
• Flexible selection of hotel management companies: We are flexible in our selection of hotel management companies
and select managers that we believe will maximize the performance of our hotels. We utilize independent
management companies, including IHM, a hotel management company 52.5% owned by Mr. Fisher that as of
December 31, 2019, managed all 40 of our wholly owned hotels, all of the hotels owned by the NewINK JV and 34
hotels owned by the Inland JV, with 14 hotels managed by Marriott. We believe this strategy increases the universe
of potential acquisition opportunities we can consider because many hotel properties are encumbered by long-term
management contracts.
• Selective investment in hotel debt: We may consider selectively investing in debt collateralized by hotel property if
we believe we can foreclose on or acquire ownership of the underlying hotel property in the relative near term. We
do not intend to invest in any debt where we do not expect to gain ownership of the underlying property or to
originate any debt financing.
We plan to maintain a prudent capital structure and intend to maintain our leverage over the long term at a ratio of net
debt to investment in hotels (at cost) (defined as our initial acquisition price plus the gross amount of any subsequent capital
investment and excluding any impairment charges) at a level that will be similar to the levels at which we have operated in the
past. A subsequent decrease in hotel property values will not necessarily cause us to repay debt to comply with this target. Our
debt coverage ratios currently are favorable and, as a result, we are comfortable in this leverage range and believe we have the
capacity and flexibility to take advantage of acquisition opportunities as they arise. At December 31, 2019, our leverage ratio
was approximately 34.1 percent, which decreased from 34.7 percent at December 31, 2018. Over time, we intend to finance
our growth with free cash flow, debt and issuances of common shares and/or preferred shares. Our debt may include mortgage
debt collateralized by our hotel properties and unsecured debt.
When purchasing hotel properties, we may issue common units in our Operating Partnership as full or partial
consideration to sellers who may desire to take advantage of tax deferral on the sale of a hotel or participate in the potential
appreciation in value of our common shares.
Competition
We face competition for investments in hotel properties from institutional pension funds, private equity investors,
REITs, hotel companies and others who are engaged in hotel investments. Some of these entities have substantially greater
financial and operational resources than we have or may be willing to use higher leverage. This competition may increase the
bargaining power of property owners seeking to sell, reduce the number of suitable investment opportunities available to us and
increase the cost of acquiring our targeted hotel properties.
6
The lodging industry is highly competitive. Our hotels compete with other hotels, and alternative lodging
marketplaces, for guests in each market in which they operate. Competitive advantage is based on a number of factors,
including location, convenience, brand affiliation, room rates, range of services and guest amenities or accommodations offered
and quality of customer service. Competition is often specific to the individual markets in which our hotels are located and
includes competition from existing and new hotels and alternative lodging market places. Competition could adversely affect
our occupancy rates, our average daily rates ("ADR") and revenue per available room (“RevPAR”), and may require us to
provide additional amenities or make capital improvements that we otherwise would not have to make, which may reduce our
profitability.
Seasonality
Demand for our hotels is affected by recurring seasonal patterns. Generally, we expect that we will have lower
revenue, operating income and cash flow in the first and fourth quarters and higher revenue, operating income and cash flow in
the second and third quarters. These general trends are, however, influenced by overall economic cycles and the geographic
locations of our hotels. To the extent that cash flow from operations is insufficient during any quarter, due to temporary or
seasonal fluctuations in revenue, we expect to utilize cash on hand or borrowings under our credit facility to pay expenses, debt
service or to make distributions to our equity holders.
Regulation
Our properties are subject to various covenants, laws, ordinances and regulations, including regulations relating to
common areas and fire and safety requirements. We believe each of our hotels has the necessary permits and approvals to
operate its business, and each is adequately covered by insurance.
Americans with Disabilities Act
Our properties must comply with Title III of the Americans with Disabilities Act of 1990 ("ADA") to the extent that
such properties are "public accommodations" as defined by the ADA. Under the ADA, all public accommodations must meet
federal requirements related to access and use by disabled persons. The ADA may require removal of structural barriers to
access by persons with disabilities in certain public areas of our properties where such removal is readily achievable. Although
we believe that the properties in which we own interests (including the properties owned by the JVs) substantially comply with
present requirements of the ADA, we have not conducted a comprehensive audit or investigation of all of these properties to
determine compliance, and one or more properties may not be fully compliant with the ADA.
If we or any of our joint ventures are required to make substantial modifications to our wholly owned or joint venture
hotel properties, whether to comply with the ADA or other changes in governmental rules and regulations, our financial
condition, results of operations, the market price of our common shares and our ability to make distributions to our shareholders
could be adversely affected. The obligation to make readily achievable accommodations is an ongoing one, and we will
continue to assess our properties and to make alterations as appropriate.
Environmental Regulations
Under various federal, state and local laws, ordinances and regulations, an owner of real property may be liable for the
costs of removal or remediation of certain hazardous or toxic substances on or in such property. Such laws often impose such
liability without regard to whether the owner knew of or was responsible for, the presence of such hazardous or toxic
substances. The cost of any required remediation and the owner's liability therefore as to any property are generally not limited
under such laws and could exceed the value of the property and/or the aggregate assets of the owner. The presence of such
substances, or the failure to properly remediate contamination from such substances, may adversely affect the owner's ability to
sell the real estate or to borrow funds using such property as collateral, which could have an adverse effect on our return from
such investment.
Furthermore, various court decisions have established that third parties may recover damages for injury caused by
release of hazardous substances and for property contamination. For instance, a person exposed to asbestos while working at or
staying in a hotel may seek to recover damages if he or she suffers injury from the asbestos. Lastly, some of these
environmental issues restrict the use of a property or place conditions on various activities. One example is laws that require a
business using chemicals to manage them carefully and to notify local officials if regulated spills occur.
7
Although it is our policy to require an acceptable Phase I environmental survey for all real property in which we invest
prior to our investment, such surveys are limited in scope. As a result, there can be no assurance that a Phase I environmental
survey will uncover any or all hazardous or toxic substances on a property prior to our investment in that property. We cannot
assure you that:
• there are not existing environmental liabilities related to our properties of which we are not aware;
• future laws, ordinances or regulations will not impose material environmental liability; or
• the current environmental condition of a hotel will not be affected by the condition of properties in the vicinity of the
hotel (such as the presence of leaking underground storage tanks) or by third parties unrelated to us.
Tax Status
We elected to be taxed as a REIT for federal income tax purposes commencing with our short taxable year ended
December 31, 2010 under the Internal Revenue Code of 1986, as amended (the “Code”). Our qualification as a REIT depends
upon our ability to meet, on a continuing basis, through actual investment and operating results, various complex requirements
under the Code relating to, among other things, the sources of our gross income, the composition and values of our assets, our
distribution levels and the diversity of ownership of our shares of beneficial interest. We believe that we are organized in
conformity with the requirements for qualification as a REIT under the Code and that our current and intended manner of
operation will enable us to continue to meet the requirements for qualification and taxation as a REIT for federal income tax
purposes.
As a REIT, we generally will not be subject to federal income tax on our REIT taxable income that we distribute to our
shareholders. Under the Code, REITs are subject to numerous organizational and operational requirements, including a
requirement that they distribute each year at least 90% of their REIT taxable income, determined without regard to the
deduction for dividends paid and excluding any net capital gains. If we fail to qualify for taxation as a REIT in any taxable year
and do not qualify for certain statutory relief provisions, our income for that year will be taxed at regular corporate rates, and
we will be disqualified from taxation as a REIT for the four taxable years following the year during which we ceased to qualify
as a REIT. Even if we qualify as a REIT for federal income tax purposes, we may still be subject to state and local taxes on our
income and assets and to federal income and excise taxes on our undistributed income. Additionally, any income earned by our
TRS Lessees will be fully subject to federal, state and local corporate income tax.
During the third quarter of 2018, we were notified that the tax return of our TRS was going to be examined by the
Internal Revenue Service for the tax year ended December 31, 2016. The examination remains open. We believe we do not
need to record a liability related to matters contained in the tax period open to examination. However, should we experience an
unfavorable outcome in the matter, such outcome could have a material impact on our results of operations, financial position
and cash flows.
Hotel Management Agreements
The management agreements with IHM have an initial term of five years and will automatically renew for two
successive five-year periods unless IHM provides written notice no later than 90 days prior to the then current term's expiration
date of their intent not to renew. The IHM management agreements provide for early termination at the Company’s option upon
sale of any IHM-managed hotel for no termination fee, with six months advance notice. The IHM management agreements may
be terminated for cause, including the failure of the managed hotel to meet specified performance levels. Base management
fees are calculated as a percentage of the hotel's gross room revenue. If certain financial thresholds are met or exceeded, an
incentive management fee is calculated as 10% of the hotel's net operating income less fixed costs, base management fees and a
specified return threshold. The incentive management fee is capped at 1% of gross hotel revenues for the applicable
calculation.
8
As of December 31, 2019, terms of our management agreements for our 40 wholly owned hotels were as follows
(dollars are not in thousands):
Property
Management
Company
Base
Management
Fee
Monthly
Accounting Fee
Monthly
Revenue
Management
Fee
Incentive
Management
Fee Cap
Homewood Suites by Hilton Boston-Billerica/ Bedford/ Burlington IHM
Homewood Suites by Hilton Minneapolis-Mall of America
Homewood Suites by Hilton Nashville-Brentwood
Homewood Suites by Hilton Dallas-Market Center
Homewood Suites by Hilton Hartford-Farmington
Homewood Suites by Hilton Orlando-Maitland
Hampton Inn & Suites Houston-Medical Center
Residence Inn Long Island Holtsville
Residence Inn White Plains
Residence Inn New Rochelle
Residence Inn Garden Grove
Residence Inn Mission Valley
Homewood Suites by Hilton San Antonio River Walk
Residence Inn Washington DC
Residence Inn Tysons Corner
Hampton Inn Portland Downtown
Courtyard Houston
Hyatt Place Pittsburgh North Shore
Hampton Inn Exeter
Hilton Garden Inn Denver Tech
Residence Inn Bellevue
Springhill Suites Savannah
Residence Inn Silicon Valley I
Residence Inn Silicon Valley II
Residence Inn San Mateo
Residence Inn Mountain View
Hyatt Place Cherry Creek
Courtyard Addison
Courtyard West University Houston
Residence Inn West University Houston
Hilton Garden Inn Burlington
Residence Inn San Diego Gaslamp
Hilton Garden Inn Marina del Rey
Residence Inn Dedham
Residence Inn Il Lugano
Hilton Garden Inn Portsmouth
Courtyard Summerville
Embassy Suites Springfield
Residence Inn Summerville
Courtyard Dallas
IHM
IHM
IHM
IHM
IHM
IHM
IHM
IHM
IHM
IHM
IHM
IHM
IHM
IHM
IHM
IHM
IHM
IHM
IHM
IHM
IHM
IHM
IHM
IHM
IHM
IHM
IHM
IHM
IHM
IHM
IHM
IHM
IHM
IHM
IHM
IHM
IHM
IHM
IHM
9
3.0 %
3.0 %
3.0 %
3.0 %
3.0 %
3.0 %
3.0 %
3.0 %
3.0 %
3.0 %
3.0 %
3.0 %
3.0 %
3.0 %
3.0 %
3.0 %
3.0 %
3.0 %
3.0 %
3.0 %
3.0 %
3.0 %
3.0 %
3.0 %
3.0 %
3.0 %
3.0 %
3.0 %
3.0 %
3.0 %
3.0 %
3.0 %
3.0 %
3.0 %
3.0 %
3.0 %
3.0 %
3.0 %
3.0 %
3.0 %
1,200
1,200
1,200
1,200
1,200
1,200
1,000
1,000
1,000
1,000
1,200
1,200
1,200
1,200
1,200
1,000
1,000
1,500
1,200
1,500
1,200
1,200
1,200
1,200
1,200
1,200
1,500
1,500
1,500
1,200
1,500
1,500
1,500
1,200
1,500
1,500
1,500
1,500
1,500
1,500
1,000
1,000
1,000
1,000
1,000
1,000
1,000
1,000
750
750
1,000
1,000
1,000
1,000
1,000
550
550
1,000
1,000
1,000
1,000
1,000
1,000
1,000
1,000
1,000
1,000
1,000
1,000
1,000
1,000
1,000
1,000
1,000
1,000
1,000
1,000
1,000
1,000
1,000
1.0 %
1.0 %
1.0 %
1.0 %
1.0 %
1.0 %
1.0 %
1.0 %
1.0 %
1.0 %
1.0 %
1.0 %
1.0 %
1.0 %
1.0 %
1.0 %
1.0 %
1.0 %
1.0 %
1.0 %
1.0 %
1.0 %
1.0 %
1.0 %
1.0 %
1.0 %
1.0 %
1.0 %
1.0 %
1.0 %
1.0 %
1.0 %
1.0 %
1.0 %
1.0 %
1.0 %
1.0 %
1.0 %
1.0 %
1.0 %
Management fees totaled approximately $10.8 million, $10.8 million and $9.9 million, respectively, for the years
ended December 31, 2019, 2018 and 2017. Incentive management fees, which are included in management fees, for the years
ended December 31, 2019, 2018 and 2017 were $0.1 million, $0.1 million and $0.2 million, respectively.
10
Hotel Franchise Agreements
The fees associated with the franchise agreements are calculated as a specified percentage of the hotel's gross room
revenue. Terms of the Company's franchise agreements for its 40 wholly owned hotels as of December 31, 2019 were as
follows:
Property
Franchise Company
Franchise/
Royalty Fee
Marketing/
Program Fee
Expiration
Homewood Suites by Hilton Boston-Billerica/ Bedford/ Burlington Promus Hotels, Inc.
Homewood Suites by Hilton Minneapolis-Mall of America
Promus Hotels, Inc.
Homewood Suites by Hilton Nashville-Brentwood
Homewood Suites by Hilton Dallas-Market Center
Homewood Suites by Hilton Hartford-Farmington
Homewood Suites by Hilton Orlando-Maitland
Promus Hotels, Inc.
Promus Hotels, Inc.
Promus Hotels, Inc
Promus Hotels, Inc.
Hampton Inn & Suites Houston-Medical Center
Hampton Inns Franchise LLC
Residence Inn Long Island Holtsville
Residence Inn White Plains
Residence Inn New Rochelle
Residence Inn Garden Grove
Residence Inn Mission Valley
Marriott International, Inc.
Marriott International, Inc.
Marriott International, Inc.
Marriott International, Inc.
Marriott International, Inc.
Homewood Suites by Hilton San Antonio River Walk
Promus Hotels, Inc.
Residence Inn Washington DC
Residence Inn Tysons Corner
Hampton Inn Portland Downtown
Courtyard Houston
Marriott International, Inc.
Marriott International, Inc.
Hampton Inns Franchise LLC
Marriott International, Inc.
Hyatt Place Pittsburgh North Shore
Hyatt Hotels, LLC
4.0 %
4.0 %
4.0 %
4.0 %
4.0 %
4.0 %
5.0 %
5.5 %
5.5 %
5.5 %
5.0 %
5.0 %
4.0 %
5.5 %
5.0 %
6.0 %
5.5 %
5.0 %
6.0 %
5.5 %
5.5 %
5.0 %
5.5 %
5.5 %
5.5 %
5.5 %
4.0 %
4.0 %
4.0 %
4.0 %
4.0 %
4.0 %
4.0 %
2.5 %
2.5 %
2.5 %
2.5 %
2.5 %
4.0 %
2.5 %
2.5 %
4.0 %
2.0 %
3.5 %
4.0 %
4.3 %
2.5 %
2.5 %
2.5 %
2.5 %
2.5 %
2.5 %
3.5 %
2.0 %
2.0 %
2.5 %
4.3 %
2.5 %
4.3 %
2.5 %
2.5 %
4.0 %
2.5 %
4.0 %
2.5 %
2.0 %
2025
2025
2025
2025
2025
2025
2035
2025
2030
2030
2031
2031
2026
2033
2031
2032
2030
2030
2031
2028
2033
2033
2029
2029
2029
2029
2034
2029
2029
2024
2029
2035
2030
2030
2045
2037
2037
2037
2038
2038
Hampton Inns Franchise LLC
Hilton Garden Inns Franchise LLC
Marriott International, Inc.
Marriott International, Inc.
Marriott International, Inc.
Marriott International, Inc.
Marriott International, Inc.
Marriott International, Inc.
Hyatt Hotels, LLC
3% to 5%
Marriott International, Inc.
Marriott International, Inc.
Marriott International, Inc.
Hilton Garden Inns Franchise LLC
Marriott International, Inc.
5.5 %
5.5 %
6.0 %
5.5 %
6.0 %
Hilton Franchise Holding LLC
3% to 5.5%
Marriott International, Inc.
Marriott International, Inc.
Marriott International, Inc.
Hilton Franchise Holding LLC
Marriott International, Inc.
6.0 %
3% to 6%
5.5 %
6.0 %
5.5 %
6.0 %
Marriott International, Inc.
4% to 6%
11
Hampton Inn Exeter
Hilton Garden Inn Denver Tech
Residence Inn Bellevue
Springhill Suites Savannah
Residence Inn Silicon Valley I
Residence Inn Silicon Valley II
Residence Inn San Mateo
Residence Inn Mountain View
Hyatt Place Cherry Creek
Courtyard Addison
Courtyard West University Houston
Residence Inn West University Houston
Hilton Garden Inn Burlington
Residence Inn San Diego Gaslamp
Hilton Garden Inn Marina del Rey
Residence Inn Dedham
Residence Inn Il Lugano
Courtyard Summerville
Embassy Suites Springfield
Residence Inn Summerville
Courtyard Dallas
Hilton Garden Inn Portsmouth
Hilton Garden Inns Franchise LLC
Franchise and marketing/program fees totaled approximately $25.9 million, $24.9 million and $23.2 million,
respectively, for the years ended December 31, 2019, 2018 and 2017.
Operating Leases
The Courtyard Altoona hotel was sold on May 7, 2019. The Courtyard Altoona hotel was subject to a ground lease
with an expiration date of April 30, 2029 and we had an extension option of up to 12 additional terms of five years each.
Monthly payments were determined by the quarterly average room occupancy of the hotel. Rent was equal to approximately
$8,400 per month when monthly occupancy was less than 85% and could increase up to approximately $20,000 per month if
occupancy was 100%, with minimum rent increased by two and one-half percent (2.5%) on an annual basis.
The Residence Inn San Diego Gaslamp hotel is subject to a ground lease with an expiration of January 31, 2065 and
we have an extension option of up to three additional terms of ten years each. Monthly payments are currently approximately
$40,300 per month and increase 10% every five years. The hotel is subject to supplemental rent payments annually calculated
as 5% of gross revenues during the applicable lease year, minus 12 times the monthly base rent scheduled for the lease year.
The Residence Inn New Rochelle hotel is subject to an air rights lease and a garage lease, each of which expires on
December 1, 2104. The lease agreements with the City of New Rochelle cover the space above the parking garage that is
occupied by the hotel as well as 128 parking spaces in a parking garage that is attached to the hotel. The annual base rent for the
garage lease is the hotel’s proportionate share of the city’s adopted budget for the operations, management and maintenance of
the garage and established reserves to fund for the cost of capital repairs. Aggregate rent for 2019 under these leases amounted
to approximately $29,000 per quarter.
The Hilton Garden Inn Marina del Rey hotel is subject to a ground lease with an expiration of December 31, 2067.
Minimum monthly payments are currently approximately $47,500 per month and a percentage rent payment equal to 5% to
25% of gross income based on the type of income less the minimum rent is due in arrears.
The Company entered into a corporate office lease in September 2015. The lease is for a term of 11 years and includes
a 12-month rent abatement period and certain tenant improvement allowances. The Company has a renewal option of up to two
successive terms of five years each. The Company shares the space with related parties and is reimbursed for the pro-rata share
of rentable space occupied by the related parties.
The Company is the lessee under ground, air rights, garage and office lease agreements for certain of its properties, all
of which qualify as operating leases as of December 31, 2019. The leases typically provide multi-year renewal options to
extend term as lessee at the Company's option. Option periods are included in the calculation of the lease obligation liability
only when options are reasonably certain to be exercised.
In calculating the Company's lease obligations under the various leases, the Company uses discount rates estimated to
be equal to what the Company would have to pay to borrow on a collateralized basis over a similar term, for an amount equal to
the lease payments, in a similar economic environment.
The following table includes information regarding the Company's leases for which it is the lessee, as of
December 31, 2019, for each of the next five calendar years and thereafter (in thousands):
Total Future Lease Payments
Amount
2020
2021
2022
2023
2024
Thereafter
Total lease payments
$
$
2,027
2,051
2,071
2,093
2,115
68,906
79,263
12
Employees
As of February 26, 2020, we had 39 employees, 32 of which are shared with or allocated to the NewINK JV, Inland JV
and Castleblack Owner Holding, LLC ("Castleblack"), an entity which is 2.5% owned by Mr. Fisher. All persons employed in
the day-to-day operations of our hotels are employees of the management companies engaged by our TRS Lessees to operate
such hotels. None of our employees are represented by a collective bargaining agreement, however, certain hotel level
employees of IHM are represented under a collective bargaining agreement.
Additional Material U.S. Federal Income Tax Considerations
The following is a summary of certain additional material federal income tax considerations with respect to the
ownership of our shares of beneficial interest. This summary supplements and should be read together with “Material U.S.
Federal Income Tax Considerations” in the prospectus dated January 4, 2017 and filed as part of our registration statement on
Form S-3ASR (No. 333-215418).
Tax Law Changes
The Tax Cuts and Jobs Act (“TCJA”) made many significant changes to the U.S. federal income tax laws
applicable to businesses and their owners, including REITs and their shareholders, and may lessen the relative competitive
advantage of operating as a REIT rather than as a C corporation. Pursuant to the TCJA, as of January 1, 2018, (1) the federal
income tax rate applicable to corporations is reduced to 21%, (2) the highest marginal individual income tax rate is reduced to
37% (through taxable years beginning before 2026), (3) the corporate alternative minimum tax is repealed, and (4) the backup
withholding rate for U.S. shareholders is reduced to 24%. In addition, for taxable years beginning before 2026 individuals,
estates and trusts may deduct up to 20% of certain pass-through income, including ordinary REIT dividends that are not “capital
gain dividends” or “qualified dividend income,” subject to certain limitations. For taxpayers qualifying for the full deduction,
the effective maximum tax rate on ordinary REIT dividends would be 29.6% (through taxable years beginning before 2026).
The maximum rate of withholding with respect to our distributions to non-U.S. shareholders that are treated as attributable to
gains from the sale or exchange of U.S. real property interests is also reduced from 35% to 21%. The deduction of net interest
expense is limited for all businesses; provided that certain businesses, including real estate businesses, may elect not to be
subject to such limitations and instead to depreciate their real property related assets over longer depreciable lives. To the
extent that our TRS or any other TRS we form has interest expense that exceeds its interest income, the net interest expense
limitation could potentially apply to such TRS. The reduced corporate tax rate will apply to our TRS and any other TRS we
form.
We urge you to consult your tax advisors regarding the impact of the TCJA on the purchase, ownership and sale of our
shares of beneficial interest.
Available Information
Our Internet website is www.chathamlodgingtrust.com. We make available free of charge through our website our
annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, Section 16 reports on Forms 3, 4
and 5 and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as
reasonably practicable after such documents are electronically filed with, or furnished to, the SEC. All reports that we have
filed with the SEC, including this annual report on Form 10-K, our quarterly reports on Form 10-Q and our current reports on
Form 8-K, can also be obtained free of charge from the SEC's website www.sec.gov. In addition, our website includes
corporate governance information, including the charters for committees of our Board of Trustees, our Corporate Governance
Guidelines, Conflict of Interest Policy and our Code of Business Conduct. This information is available in print to any
shareholder who requests it by writing to Investor Relations, Chatham Lodging Trust, 222 Lakeview Avenue, Suite 200, West
Palm Beach, FL 33401. The information on our website is not, and shall not be deemed to be, a part of this report or
incorporated into any other filings that we make with the SEC.
13
Item 1A. Risk Factors
Our business faces many risks. The risks described below may not be the only risks we face. Additional risks that we
do not yet know of or that we currently believe are immaterial may also impair our business operations. If any of the events or
circumstances described in the following risk factors actually occurs, our business, financial condition or results of operations
could suffer, our ability to make cash distributions to our shareholders could be impaired and the trading price of our common
shares could decline. You should know that many of the risks described may apply to more than just the subsection in which we
grouped them for the purpose of this presentation.
Risks Related to Our Business
Our investment policies are subject to revision from time to time at our Board of Trustees' discretion, which could diminish
shareholder returns below expectations.
Our investment policies may be amended or revised from time to time at the discretion of our Board of Trustees,
without a vote of our shareholders. Such discretion could result in investments that may not yield returns consistent with
investors' expectations.
We depend on the efforts and expertise of our key executive officers whose continued service is not guaranteed.
We depend on the efforts and expertise of our chief executive officer, as well as our other senior executives, to execute
our business strategy. The loss of their services, and our inability to find suitable replacements, could have an adverse effect on
our business.
If we are unable to successfully manage our growth, our operating results and financial condition could be adversely
affected.
Our ability to grow our business depends upon our senior executive officers' business contacts and their ability to
successfully hire, train, supervise and manage additional personnel. We may not be able to hire and train sufficient personnel or
develop management, information and operating systems suitable for our expected growth. If we are unable to manage any
future growth effectively, our operating results and financial condition could be adversely affected.
Our future growth depends on obtaining new financing and if we cannot secure financing in the future, our growth will be
limited.
The success of our growth strategy depends on access to capital through use of excess cash flow, borrowings or
subsequent issuances of common shares or other securities. Acquisitions of new hotel properties will require significant
additional capital and existing hotels (including those owned through joint ventures) require periodic capital improvement
initiatives to remain competitive. We may not be able to fund acquisitions or capital improvements solely from cash provided
from our operating activities because we must distribute at least 90% of our REIT taxable income (determined without regard to
the deduction for dividends paid and excluding any net capital gains) each year to satisfy the requirements for qualification as a
REIT for federal income tax purposes. As a result, our ability to fund capital expenditures for acquisitions through retained
earnings is very limited. Our ability to grow through acquisitions of hotels will be limited if we cannot obtain satisfactory debt
or equity financing, which will depend on capital markets conditions. We cannot assure you that we will be able to obtain
additional equity or debt financing or that we will be able to obtain such financing on favorable terms.
We may be unable to invest proceeds from offerings of our securities.
We will have broad authority to invest the net proceeds of any offering of our securities in any real estate investments
that we may identify in the future, or to repay debt, or for other corporate purposes and we may use those proceeds to make
investments with which you may not agree. In addition, our investment policies may be amended or revised from time to time
at the discretion of our Board of Trustees, without a vote of our shareholders. These factors will increase the uncertainty, and
thus the risk, of investing in our common shares. Our failure to apply the net proceeds of any offering effectively or to find
suitable hotel properties to acquire in a timely manner or on acceptable terms could result in returns that are substantially below
expectations or result in losses.
14
Until appropriate investments can be identified, we may invest the net proceeds of any offering of our securities in
interest-bearing short-term securities or money-market accounts that are consistent with our qualification as a REIT. These
investments are expected to provide a lower net return than we seek to achieve from our hotel properties. We may be unable to
invest the net proceeds on acceptable terms, or at all, which could delay shareholders from receiving an appropriate return on
their investment. We cannot assure you that we will be able to identify properties that meet our investment criteria, that we will
successfully consummate any investment opportunities we identify, or that investments we may make will generate income or
cash flow.
We must rely on third party management companies to operate our hotels in order to qualify as a REIT under the Code and,
as a result, we have less control than if we were operating the hotels directly.
To maintain our qualification as a REIT under the Code, third parties must operate our hotels. We lease each of our
hotels to our TRS Lessees. Our TRS Lessees, in turn, have entered into management agreements with third party management
companies to operate our hotels. While we expect to have some input on operating decisions for those hotels leased by our TRS
Lessees and operated under management agreements, we have less control than if we were managing the hotels ourselves. Even
if we believe that our hotels are not being operated efficiently, we may not be able to require an operator to change the way it
operates our hotels. If this is the case, we may decide to terminate the management agreement and potentially incur costs
associated with the termination. Additionally, Mr. Fisher, our Chairman and Chief Executive Officer, controls IHM, a hotel
management company that, as of December 31, 2019, managed 40 of our hotels, all of the 46 hotels owned by the NewINK JV,
and 34 of the hotels owned by the Inland JV, and may manage additional hotels that we acquire in the future. See "There may
be conflicts of interest between us and affiliates owned by our Chief Executive Officer" below.
Our management agreements could adversely affect the sale or financing of hotel properties and, as a result, our operating
results and ability to make distributions to our shareholders could suffer.
While we would prefer to enter into flexible management contracts that will provide us with the ability to replace hotel
managers on relatively short notice and with limited cost, we may enter into, or acquire properties subject to, management
contracts that contain more restrictive covenants. For example, the terms of some management agreements may restrict our
ability to sell a property unless the purchaser is not a competitor of the manager and assumes the related management
agreement and meets specified other conditions. Also, the terms of a long-term management agreement encumbering our
properties may reduce the value of the property. If we enter into or acquire properties subject to any such management
agreements, we may be precluded from taking actions that would otherwise be in our best interest or could cause us to incur
substantial expense, which could adversely affect our operating results and our ability to make distributions to shareholders.
Moreover, the management agreements that we use in connection with hotels managed by IHM were not negotiated on an
arm's-length basis due to Mr. Fisher's control of IHM and therefore may not contain terms as favorable to us as we could obtain
in an arm's-length transaction with a third party. See "There are conflicts of interest between us and affiliates owned by our
Chief Executive Officer" below.
The management of the hotels in our portfolio is currently concentrated in one hotel management company.
As of December 31, 2019, IHM managed all 40 of our wholly owned hotels, as well as all of the 46 hotels owned by
the NewINK JV and 34 of the 48 hotels owned by the Inland JV. As a result, a substantial portion of our revenues is generated
by hotels managed by IHM. This significant concentration of operational risk in one hotel management company makes us
more vulnerable economically than if our hotel management was more diversified among several hotel management companies.
Any adverse developments in IHM's business and affairs, financial strength or ability to operate our hotels efficiently and
effectively could have a material adverse effect on our business, financial condition, or results of operations and our ability to
make distributions to our shareholders. We cannot provide assurance that IHM will satisfy its obligations to us or effectively
and efficiently operate out hotel properties.
15
Our franchisors could cause us to expend additional funds on upgraded operating standards, which may reduce cash
available for distribution to shareholders.
Our hotels operate under franchise agreements, and we may become subject to the risks that are found in concentrating
our hotel properties in one or several franchise brands. Our hotel operators must comply with operating standards and terms and
conditions imposed by the franchisors of the hotel brands under which our hotels operate. Pursuant to certain of the franchise
agreements, certain upgrades are required approximately every six years, and the franchisors may also impose upgraded or new
brand standards, such as substantially upgrading the bedding, enhancing the complimentary breakfast or increasing the value of
guest awards under its ‘frequent guest' program, which can add substantial expense for the hotel. The franchisors also may
require us to make certain capital improvements to maintain the hotel in accordance with system standards, the cost of which
can be substantial and may reduce cash available for distribution to our shareholders.
Our franchisors may cancel or fail to renew our existing franchise licenses, which could adversely affect our operating
results and our ability to make distributions to shareholders.
Our franchisors periodically inspect our hotels to confirm adherence to the franchisors' operating standards. The failure
of a hotel to maintain standards could result in the loss or cancellation of a franchise license. We rely on our hotel managers to
conform to operational standards. In addition, when the term of a franchise license expires, the franchisor has no obligation to
issue a new franchise license. The loss of a franchise license could have a material adverse effect on the operations or the
underlying value of the affected hotel because of the loss of associated name recognition, marketing support and centralized
reservation systems provided by the franchisor. The loss of a franchise license or adverse developments with respect to a
franchise brand under which our hotels operate could also have a material adverse effect on our financial condition, results of
operations and cash available for distribution to shareholders.
Fluctuations in our financial performance, capital expenditure requirements and excess cash flow could adversely affect
our ability to make and maintain distributions to our shareholders.
As a REIT, we are required to distribute at least 90% of our REIT taxable income each year to our shareholders
(determined without regard to the deduction for dividends paid and excluding any net capital gains). In the event of downturns
in our operating results and financial performance or unanticipated capital improvements to our hotels (including capital
improvements that may be required by franchisors or joint venture partners), we may be unable to declare or pay distributions
to our shareholders, or maintain our then-current dividend rate. The timing and amount of distributions are in the sole discretion
of our Board of Trustees, which considers, among other factors, our financial performance, debt service obligations and
applicable debt covenants (if any), and capital expenditure requirements. We cannot assure you we will generate sufficient cash
in order to continue to fund distributions.
Among the factors which could adversely affect our results of operations and distributions to shareholders are
reductions in hotel revenues; increases in operating expenses at the hotels leased to our TRS Lessees; increased debt service
requirements, including those resulting from higher interest rates on our indebtedness; cash demands from the joint ventures
and capital expenditures at our hotels, including capital expenditures required by the franchisors of our hotels, and unknown
liabilities, such as environmental claims. Hotel revenue can decrease for a number of reasons, including increased competition
from new hotels and decreased demand for hotel rooms. These factors can reduce both occupancy and room rates at hotels and
could directly affect us negatively by:
• reducing the hotel revenue that we recognize with respect to hotels leased to our TRS Lessees; and
• correspondingly reducing the profits (or increasing the loss) of hotels leased to our TRS Lessees. We may be
unable to reduce many of our expenses in tandem with revenue declines, (or we may choose not to reduce
them for competitive reasons), and certain expenses may increase while our revenue declines.
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Future debt service obligations could adversely affect our overall operating results or cash flow and may require us to
liquidate our properties, which could adversely affect our ability to make distributions to our shareholders and our share
price.
We plan to maintain a prudent capital structure and intend to maintain our leverage over the long term at a ratio of net
debt to investment in hotels (at cost) (defined as our initial acquisition price plus the gross amount of any subsequent capital
investment and excluding any impairment charges) at a level that will be similar to the levels at which we have operated in the
past. A subsequent decrease in hotel property values will not necessarily cause us to repay debt to comply with this limitation.
Our debt coverage ratios currently are favorable and, as a result, we are comfortable at this leverage ratio and believe we have
the capacity and flexibility to take advantage of acquisition opportunities as they arise. As a result, we may be able to incur
substantial additional debt, including secured debt, in the future. Incurring additional debt could subject us to many risks,
including the risks that:
• operating cash flow will be insufficient to make required payments of expenses, principal and interest;
• our leverage may increase our vulnerability to adverse economic and industry conditions;
• we may be required to dedicate a substantial portion of our cash flow from operations to payments on our
debt, thereby reducing cash available for distribution to our shareholders, funds available for operations and
capital expenditures, future business opportunities or other purposes;
• the terms of any refinancing will not be as favorable as the terms of the debt being refinanced; and
• the terms of our debt may limit our ability to make distributions to our shareholders.
If we violate covenants in our debt agreements, we could be required to repay all or a portion of our indebtedness
before maturity at a time when we might be unable to arrange financing for such repayment on attractive terms, if at all.
If we are unable to repay our debt obligations in the future, we may be forced to refinance debt or dispose of or encumber
our assets, which could adversely affect distributions to shareholders.
If we do not have sufficient funds to repay our outstanding debt at maturity or before maturity in the event we breach
our debt agreements and our lenders exercise their right to accelerate repayment, we may be required to refinance the debt
through additional debt or additional equity financings. Covenants applicable to our existing and future debt could impair our
planned investment strategy and, if violated, result in a default. If we are unable to refinance our debt on acceptable terms, we
may be forced to dispose of hotel properties on disadvantageous terms, potentially resulting in losses. We have placed
mortgages on certain of our hotel properties, have assumed mortgages on other hotels we acquired and may place additional
mortgages on certain of our hotels to secure other debt. To the extent we cannot meet any future debt service obligations, we
will risk losing some or all of our hotel properties that are pledged to secure our obligations to foreclosure.
Interest expense on our debt may limit our cash available to fund our growth strategies and shareholder distributions.
Higher interest rates could increase debt service requirements on debt under our credit facility and any floating rate
debt that we incur in the future, as well as any amounts we seek to refinance, and could reduce the amounts available for
distribution to our shareholders, as well as reduce funds available for our operations, future business opportunities, or other
purposes. Interest expense on our credit facility is based on floating interest rates.
Failure to hedge effectively against interest rate changes may adversely affect our results of operations and our ability to
make shareholder distributions.
We may obtain in the future one or more forms of interest rate protection, such as swap agreements, interest rate cap
contracts or similar agreements, to hedge against the possible negative effects of interest rate fluctuations. However, such
hedging implies costs and we cannot assure you that any hedging will adequately relieve the adverse effects of interest rate
increases or that counterparties under these agreements will honor their obligations thereunder. Furthermore, any such hedging
agreements would subject us to the risk of incurring significant non-cash losses on our hedges due to declines in interest rates if
our hedges were not considered effective under applicable accounting standards.
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Changes in the method pursuant to which the LIBOR rates are determined and potential phasing out of LIBOR after 2021
may affect our financial results.
The chief executive of the United Kingdom Financial Conduct Authority ("FCA"), which regulates LIBOR, has
recently announced (the "FCA Announcement") that the FCA intends to stop compelling banks to submit rates for the
calculation of LIBOR after 2021. It is not possible to predict the effect of these changes, other reforms or the establishment of
alternative reference rates in the United Kingdom or elsewhere. Furthermore, in the United States, efforts to identify a set of
alternative U.S. dollar reference interest rates include proposals by the Alternative Reference Rates Committee of the Federal
Reserve Board and the Federal Reserve Bank of New York. The U.S. Federal Reserve, in conjunction with the Alternative
Reference Rates Committee, a steering committee comprised of large US financial institutions, is considering replacing U.S.
dollar LIBOR with the Secured Overnight Financing Rate (“SOFR”), a new index calculated based on short-term repurchase
agreements, backed by Treasury securities. The Federal Reserve Bank of New York began publishing SOFR rates in April
2018. The market transition away from LIBOR and towards SOFR is expected to be gradual and complicated. There are
significant differences between LIBOR and SOFR, such as LIBOR being an unsecured lending rate and SOFR a secured
lending rate, and SOFR is an overnight rate and LIBOR reflects term rates at different maturities. These and other differences
create the potential for basis risk between the two rates. The impact of any basis risk between LIBOR and SOFR may
negatively affect our operating results. Any of these alternative methods may result in interest rates that are higher than if
LIBOR were available in its current form, which could have a material adverse effect on results.
Any changes announced by the FCA, including the FCA Announcement, other regulators or any other successor
governance or oversight body, or future changes adopted by such body, in the method pursuant to which the LIBOR rates are
determined may result in a sudden or prolonged increase or decrease in the reported LIBOR rates. If that were to occur, the
level of interest payments we incur may change. In addition, although certain of our LIBOR based obligations provide for
alternative methods of calculating the interest rate payable on certain of our obligations if LIBOR is not reported, uncertainty as
to the extent and manner of future changes may result in interest rates and/or payments that are higher than, lower than or that
do not otherwise correlate over time with the interest rates and/or payments that would have been made on our obligations if
LIBOR rate was available in its current form.
Joint venture investments that we make could be adversely affected by our lack of decision-making authority, our reliance
on joint venture partners' financial condition and disputes between us and our joint venture partners.
We are co-investors with CLNY in each of the NewINK JV and Inland JV, which own 46 and 48 hotels, respectively,
and we may invest in additional joint ventures in the future. We may not be in a position to exercise decision-making authority
regarding the properties owned through the JVs or other joint ventures that we may invest in. Our joint venture partners may be
able to make certain important decisions about our joint venture and the joint venture properties without our approval or
consent. Investments in joint ventures may, under certain circumstances, involve risks not present when a third party is not
involved, including reliance on our joint venture partners and the possibility that joint venture partners might become bankrupt
or fail to fund their share of required capital contributions, thus exposing us to liabilities in excess of our share of the
investment. Joint venture partners may have business interests or goals that are inconsistent with our business interests or goals,
and may be in a position to take actions contrary to our policies or objectives. Such investments may also have the potential risk
of impasses on decisions, such as a sale, because neither we nor the partner would have full control over the partnership or joint
venture. Any disputes that may arise between us and our joint venture partners may result in litigation or arbitration that would
increase our expenses and prevent our officers and/or trustees from focusing their time and effort on our business.
Consequently, actions by, or disputes with, our joint venture partners might result in subjecting properties owned by the
partnership or joint venture to additional risk. In addition, we may in certain circumstances be liable for the actions of our third-
party partners.
It may be difficult for us to exit a joint venture after an impasse with our co-venturer.
In our joint ventures, there may be a potential risk of impasse in some joint venture decisions because our approval and
the approval of each co-venturer will be required for some decisions. The types of decisions that would require the approval of
each co-venturer would be determined under the joint venture agreement between the parties, but those types of decisions are
likely to include borrowing above a certain level or disposing of assets. In some instances, the co-venturer partner may be able
to effect the sale of joint venture properties or borrow funds without our approval or consent. In any joint venture, we may
have the right to buy our co-venturer’s interest or to sell our own interest on specified terms and conditions in the event of an
impasse regarding a sale. However, it is possible that neither party will have the funds necessary to complete such a buy-out. In
addition, we may experience difficulty in locating a third-party purchaser for our joint venture interest and in obtaining a
favorable sale price for the interest. As a result, it is possible that we may not be able to exit the relationship if an impasse
develops. In addition, there is no limitation under our declaration of trust and bylaws as to the amount of funds that we may
invest in joint ventures. Accordingly, we may invest a substantial amount of our funds in joint ventures, which ultimately may
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not be profitable as a result of disagreements with or among our co-venturers.
The Company does not have sole control of the JVs and may be required to contribute additional capital in the event of a
capital call.
The Company’s ownership interests in the JVs are subject to change in the event that we or CLNY call for additional
capital contributions to a JV that is necessary for the conduct of business, including contributions to fund costs and expenses
related to capital expenditures. CLNY may also approve certain actions by the JVs in which it participates without our consent,
including certain property dispositions conducted at arm’s length, certain actions related to the restructuring of the JVs and the
removal of us as managing member in the event we fail to fulfill our material obligations under the joint venture agreement.
Our Operating Partnership acts as guarantor under certain debt obligations of the JVs.
In connection with (i) the non-recourse mortgage loan secured by the NewINK JV properties and the related non-
recourse mezzanine loan secured by the membership interests in the owners of the NewINK JV properties and (ii) the non-
recourse mortgage loan secured by the Inland JV properties, the Operating Partnership provided the applicable lenders with
customary environmental indemnities, as well as guarantees of certain customary non-recourse carveout provisions such as
fraud, material and intentional misrepresentations and misapplication of funds. In some circumstances, such as the bankruptcy
of the applicable borrowers, the guarantees are for the full amount of the outstanding debt, but in most circumstances, the
guarantees are capped at 15% of the debt outstanding at the time in question (in the case of the NewINK JV loans) or 20% of
the debt outstanding at the time in question (in the case of the Inland JV loans). In connection with each of the NewINK JV and
Inland JV loans, the Operating Partnership has entered into a contribution agreement with its JV partner whereby the JV partner
is, in most cases, responsible to cover such JV partner’s pro rata share of any amounts due by the Operating Partnership under
the applicable guarantees and environmental indemnities.
We may from time to time make distributions to our shareholders in the form of our common shares, which could result in
shareholders incurring tax liability without receiving sufficient cash to pay such tax.
Although we have no current intention to do so, we may in the future distribute taxable dividends that are payable in
cash or common shares at the election of each shareholder. Taxable shareholders receiving such dividends will be required to
include the full amount of the dividend as ordinary income to the extent of our current and accumulated earnings and profits for
federal income tax purposes. As a result, shareholders may be required to pay income taxes with respect to such dividends in
excess of the cash dividends received. If a U.S. shareholder sells the common shares that it receives as a dividend in order to
pay this tax, the sales proceeds may be less than the amount included in income with respect to the dividend, depending on the
market price of our shares at the time of the sale. Furthermore, with respect to certain non-U.S. shareholders, we may be
required to withhold federal income tax with respect to such dividends, including in respect of all or a portion of such dividend
that is payable in common shares. In addition, if a significant number of our shareholders sell common shares in order to pay
taxes owed on dividends, it may put downward pressure on the trading price of our common shares.
Our conflict of interest policy may not be successful in eliminating the influence of future conflicts of interest that may arise
between us and our trustees, officers and employees.
We have adopted a policy that any transaction, agreement or relationship in which any of our trustees, officers or
employees has a direct or indirect pecuniary interest must be approved by a majority of our disinterested trustees. Other than
this policy, however, we have not adopted and may not adopt additional formal procedures for the review and approval of
conflict of interest transactions generally. As such, our policies and procedures may not be successful in eliminating the
influence of conflicts of interest.
There may be conflicts of interest between us and affiliates owned by our Chief Executive Officer.
Our Chief Executive Officer, Mr. Fisher, owned 52.5% of IHM, a hotel management company that, as of
December 31, 2019, managed 40 of our wholly owned hotels, all of the 46 hotels owned by the NewINK JV and 34 of the
hotels owned by the Inland JV, and may manage additional hotels that we acquire or own (wholly or through a joint venture) in
the future. Because Mr. Fisher is our Chairman and Chief Executive Officer and controls IHM, conflicts of interest may arise
between us and Mr. Fisher as to whether and on what terms new management contracts will be awarded to IHM, whether and
on what terms management agreements will be renewed upon expiration of their terms, enforcement of the terms of the
management agreements and whether hotels managed by IHM will be sold.
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Hotel development is subject to timing, cost, and other risks.
As of December 31, 2019, we were in the process of developing a hotel in Los Angeles, California. Hotel
development involves a number of risks, including the following:
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Possible environmental problems;
construction delays or cost overruns that may increase project costs;
receipt of and expense related to zoning, occupancy and other required governmental permits and authorizations;
development costs incurred for projects that are not pursued to completion;
acts of God such as earthquakes, hurricanes, floods or fires that could adversely affect a project;
inability to raise capital; and
governmental restrictions on the nature or size of a project.
We cannot provide assurance that any development project will be completed on time or within budget. Our inability
to complete a project on time or within budget could adversely affect our financial position, results of operations, and cash
flows or the market price of our stock.
Risks Related to the Lodging Industry
The lodging industry has experienced significant declines in the past and failure of the lodging industry to exhibit
improvement may adversely affect our ability to execute our business strategy.
The performance of the lodging industry has historically been closely linked to the performance of the general
economy and, specifically, growth in U.S. gross domestic product, or GDP. It is also sensitive to business and personal
discretionary spending levels. Declines in corporate budgets and consumer demand due to adverse general economic
conditions, risks affecting or reducing travel patterns, lower consumer confidence or adverse political conditions can lower the
revenues and profitability of our future hotel properties and therefore the net operating profits of our TRS.
A substantial part of our business strategy is based on the belief that the lodging markets in which we invest will
experience improving economic fundamentals in the future. We cannot predict the extent to which lodging industry
fundamentals will improve. In the event conditions in the industry do not improve, or deteriorate, our ability to execute our
business strategy would be adversely affected, which could adversely affect our financial condition, results of operations, the
market price of our common shares and our ability to make distributions to our shareholders.
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Our ability to make distributions to our shareholders may be affected by various operating risks common in the lodging
industry.
Hotel properties are subject to various operating risks common to the hotel industry, many of which are beyond our
control, including:
• competition from other hotel properties and alternative lodging market places in the markets in which we and our
joint ventures operate, some of which may have greater marketing and financial resources;
• an over-supply or over-building of hotel properties in the markets in which we and our joint ventures operate, which
could adversely affect occupancy rates and revenues;
• dependence on business and commercial travelers and tourism;
• increases in energy costs and other expenses and factors affecting travel, which may affect travel patterns and reduce
the number of business and commercial travelers and tourists;
• increases in operating costs due to inflation and other factors that may not be offset by increased room rates;
• necessity for periodic capital reinvestment to repair and upgrade hotel properties;
• changes in interest rates and in the availability, cost and terms of debt financing;
• changes in governmental laws and regulations, fiscal policies and zoning ordinances and the related costs of
compliance with laws and regulations, fiscal policies and ordinances;
• unforeseen events beyond our control, such as terrorist attacks, travel related health concerns including pandemics
and epidemics such as H1N1 influenza (swine flu), avian bird flu, SARS, Coronavirus and Zika virus, political
instability, regional hostilities, imposition of taxes or surcharges by regulatory authorities, travel related accidents
and unusual weather patterns, including natural disasters such as hurricanes, tsunamis, earthquakes, wildfires and
flooding;
• disruptions to the operations of our hotels caused by organized labor activities, including strikes, work stoppages or
slow downs;
• adverse effects of a downturn in the economy or in the hotel industry; and
• risk generally associated with the ownership of hotel properties and real estate, as we discuss in detail below.
These factors could reduce the net operating profits of our TRS and the rental income we receive from our TRS
Lessees, which in turn could adversely affect our ability to make distributions to our shareholders.
Competition for acquisitions may reduce the number of properties we can acquire.
We compete for hotel investment opportunities with competitors that may have a different tolerance for risk or have
substantially greater financial resources than are available to us. This competition may generally limit the number of hotel
properties that we are able to acquire and may also increase the bargaining power of hotel owners seeking to sell, making it
more difficult for us to acquire hotel properties on attractive terms, or at all.
Competition for guests may lower our hotels' revenues and profitability.
The upscale extended-stay and mid-price segments of the hotel business are highly competitive. Our hotels and those
of our JVs compete on the basis of location, room rates and quality, service levels, reputation, and reservation systems, among
many other factors. Competitors may have substantially greater marketing and financial resources than our operators or us. New
hotels create new competitors, in some cases without corresponding increases in demand for hotel rooms. The result in some
cases may be lower revenue, which would result in lower cash available for distribution to our shareholders.
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The seasonality of the hotel industry may cause fluctuations in our quarterly revenues that cause us to borrow money to
fund distributions to our shareholders.
Certain hotel properties we own or acquire in the future (wholly or through joint ventures) have business that is
seasonal in nature. This seasonality can be expected to cause quarterly fluctuations in revenues. Quarterly earnings may be
adversely affected by factors outside our control, including weather conditions and poor economic factors. As a result, we may
have to enter into short-term borrowings in order to offset these fluctuations in revenue and to make distributions to our
shareholders.
The cyclical nature of the lodging industry may cause the return on our investments to be substantially less than we expect.
The lodging industry is cyclical in nature. Fluctuations in lodging demand and, therefore, operating performance, are
caused largely by general economic and local market conditions, which subsequently affects levels of business and leisure
travel. In addition to general economic conditions, new hotel room supply is an important factor that can affect the lodging
industry's performance and overbuilding has the potential to further exacerbate the negative impact of an economic recession.
Room rates and occupancy, and thus RevPAR, tend to increase when demand growth exceeds supply growth. Decline in
lodging demand, or a continued growth in lodging supply, could result in returns that are substantially below expectations or
result in losses, which could have a material adverse effect on our business, financial condition, results of operations and our
ability to make distributions to our shareholders.
Due to our concentration in hotel investments, a downturn in the lodging industry would adversely affect our operations and
financial condition.
Our entire business is related to the hotel industry. Therefore, a downturn in the hotel industry, in general, will have a
material adverse effect on our revenues, net operating profits and cash available for distribution to our shareholders.
The ongoing need for capital expenditures at our hotel properties may adversely affect our business, financial condition and
results of operations and limit our ability to make distributions to our shareholders.
Hotel properties have an ongoing need for renovations and other capital improvements, including replacements, from
time to time, of furniture, fixtures and equipment. The franchisors of our hotels and those of our JVs also require periodic
capital improvements as a condition of keeping the franchise licenses. In addition, our lenders require us to set aside amounts
for capital improvements to our hotel properties. These capital improvements may give rise to the following risks:
• possible environmental problems;
• construction cost overruns and delays;
• possibility that revenues will be reduced temporarily while rooms or restaurants offered are out of service due
to capital improvement projects;
• a possible shortage of available cash to fund capital improvements and the related possibility that financing
for these capital improvements may not be available on affordable terms;
• uncertainties as to market demand or a loss of market demand after capital improvements have begun; and
• disputes with franchisors/managers regarding compliance with relevant management/franchise agreements.
The costs of all these capital improvements could adversely affect our business, financial condition, results of
operations and cash available for distribution to our shareholders.
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The increasing use by consumers of Internet travel intermediaries and alternative lodging market places may adversely
affect our profitability.
Some of our hotel rooms are booked through Internet travel intermediaries. As Internet bookings increase, these
intermediaries may be able to obtain higher commissions, reduced room rates or other significant contract concessions from us
and our management companies. Moreover, some of these Internet travel intermediaries are attempting to offer hotel rooms as a
commodity, by increasing the importance of price and general indicators of quality (such as "three-star downtown hotel") at the
expense of brand identification. These agencies hope that consumers will eventually develop brand loyalties to their
reservations system rather than to the brands under which our properties are franchised. Additional sources of competition,
including alternative lodging marketplaces, such as HomeAway and Airbnb, which operate websites that market available
furnished, privately-owned residential properties, including homes and condominiums, that can be rented on a nightly, weekly
or monthly basis, may, as they become more accepted, lead to a reduced demand for conventional hotel guest rooms and to an
increased supply of lodging alternatives. Although most of the business for our hotels is expected to be derived from traditional
channels, if the amount of bookings made through Internet intermediaries or the use of alternative lodging marketplaces
increases significantly, room revenues may flatten or decrease and our profitability may be adversely affected.
The need for business-related travel and, thus, demand for rooms in our hotels may be materially and adversely affected by
the increased use of business-related technology.
The increased use of teleconference and video-conference technology by businesses could result in decreased business
travel as companies increase the use of technologies that allow multiple parties from different locations to participate at
meetings without traveling to a centralized meeting location, such as our hotels. To the extent that such technologies play an
increased role in day-to-day business and the necessity for business-related travel decreases, demand for our hotel rooms may
decrease and we could be materially and adversely affected.
We and our hotel managers rely on information technology in our operations, and any material failure, inadequacy,
interruption or security failure of that technology could harm our business.
We and our hotel managers rely on information technology networks and systems, including the Internet, to process,
transmit and store electronic information, and to manage or support a variety of business processes, including financial
transactions and records, personal identifying information, reservations, billing and operating data. We purchase some of our
information technology from vendors, on whom our systems depend. We rely on commercially available systems, software,
tools and monitoring to provide security for processing, transmission and storage of confidential customer information, such as
individually identifiable information, including information relating to financial accounts. Although we have taken steps to
protect the security of our information systems and the data maintained in those systems, it is possible that our safety and
security measures will not be able to prevent the systems’ improper functioning or damage, or the improper access or disclosure
of personally identifiable information such as in the event of cyber attacks. Security breaches, including physical or electronic
break-ins, computer viruses, attacks by hackers and similar breaches, can create system disruptions, shutdowns or unauthorized
disclosure of confidential information. Any failure to maintain proper function, security and availability of our information
systems could interrupt our operations, damage our reputation, subject us to liability claims or regulatory penalties and could
have a material adverse effect on our business, financial condition and results of operations and our ability to make distributions
to our shareholders.
Future terrorist attacks or changes in terror alert levels could adversely affect travel and hotel demand.
Previous terrorist attacks and subsequent terrorist alerts have adversely affected the U.S. travel and hospitality
industries over the past several years, often disproportionately to the effect on the overall economy. The impact that terrorist
attacks in the U.S. or elsewhere could have on domestic and international travel and our business in particular cannot be
determined but any such attacks or the threat of such attacks could have a material adverse effect on our business, financial
condition and results of operations and our ability to finance our business, to insure our properties and to make distributions to
our shareholders.
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We may assume liabilities in connection with the acquisition of hotel properties, including unknown liabilities, which, if
significant, could adversely affect our business.
We may assume existing liabilities in connection with the acquisition of hotel properties, some of which may be
unknown or unquantifiable. Unknown liabilities might include liabilities for cleanup or remediation of undisclosed
environmental conditions, claims of hotel guests, vendors or other persons dealing with the seller of a particular hotel property,
tax liabilities, employment-related issues and accrued but unpaid liabilities whether incurred in the ordinary course of business
or otherwise. If the magnitude of such unknown liabilities is high, they could adversely affect our business, financial condition,
results of operations and our ability to make distributions to our shareholders.
Uninsured and underinsured losses could adversely affect our operating results and our ability to make distributions to our
shareholders.
We maintain comprehensive insurance on each of our hotel properties, including liability, terrorism, fire and extended
coverage, of the type and amount customarily obtained for or by hotel property owners. There can be no assurance that such
coverage will continue to be available at reasonable rates. Various types of catastrophic losses, like earthquakes and floods and
losses from foreign terrorist activities such as those on September 11, 2001 or losses from domestic terrorist activities such as
the Oklahoma City bombing, may not be insurable or may not be insurable on reasonable economic terms. Lenders may require
such insurance and failure to obtain such insurance could constitute a default under loan agreements. Depending on our access
to capital, liquidity and the value of the properties securing the affected loan in relation to the balance of the loan, a default
could have a material adverse effect on our results of operations and ability to obtain future financing.
In the event of a substantial loss, insurance coverage may not be sufficient to cover the full current market value or
replacement cost of the lost investment. Should an uninsured loss or a loss in excess of insured limits occur, we could lose all or
a portion of the capital we invested in a hotel property, as well as the anticipated future revenue from that particular hotel. In
that event, we might nevertheless remain obligated for any mortgage debt or other financial obligations related to the property.
Inflation, changes in building codes and ordinances, environmental considerations and other factors might also keep us from
using insurance proceeds to replace or renovate a hotel after it has been damaged or destroyed. Under those circumstances, the
insurance proceeds we receive might be inadequate to restore our economic position on the damaged or destroyed property.
Noncompliance with environmental laws and governmental regulations could adversely affect our operating results and our
ability to make distributions to shareholders.
Under various federal, state and local laws, ordinances and regulations, an owner of real property may be liable for the
costs of removal or remediation of certain hazardous or toxic substances on or in such property. Such laws often impose such
liability without regard to whether the owner knew of or was responsible for, the presence of such hazardous or toxic
substances. The cost of any required remediation and the owner's liability therefore as to any property are generally not limited
under such laws and could exceed the value of the property and/or the aggregate assets of the owner. The presence of such
substances, or the failure to properly remediate contamination from such substances, may adversely affect our or our joint
ventures' ability to sell the real estate or to borrow funds using such property as collateral, which could have an adverse effect
on our return from such investment. Moreover, the presence of such substance or the failure to properly mediate such
substances could adversely affect our operating results and our ability to make distributions to our shareholders.
Furthermore, various court decisions have established that third parties may recover damages for injury caused by
release of hazardous substances and for property contamination. For instance, a person exposed to asbestos while working at or
staying in a hotel may seek to recover damages if he or she suffers injury from the asbestos. Lastly, some of these
environmental issues restrict the use of a property or place conditions on various activities. One example is laws that require a
business using chemicals to manage them carefully and to notify local officials if regulated spills occur.
Although it is our policy to require an acceptable Phase I environmental survey for all real property in which we invest
prior to our investment, such surveys are limited in scope. As a result, there can be no assurance that a Phase I environmental
survey will uncover any or all hazardous or toxic substances on a property prior to our investment in that property. We cannot
assure you:
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• that there are no existing liabilities related to our properties of which we are not aware;
• that future laws, ordinances or regulations will not impose material environmental liability; or
• that the current environmental condition of a hotel will not be affected by the condition of properties in the
vicinity of the hotel (such as the presence of leaking underground storage tanks) or by third parties unrelated
to us.
Compliance with the ADA and other changes in governmental rules and regulations could substantially increase our cost of
doing business and adversely affect our operating results and our ability to make distributions to our shareholders.
Our hotel properties are subject to the ADA. Under the ADA, all places of public accommodation are required to meet
certain federal requirements related to access and use by disabled persons. Although we intend to continue to acquire assets that
are substantially in compliance with the ADA, we may incur additional costs of complying with the ADA at the time of
acquisition and from time-to-time in the future to stay in compliance with any changes in the ADA. A number of additional
federal, state and local laws exist that also may require modifications to our investments, or restrict certain further renovations
thereof, with respect to access thereto by disabled persons. Additional legislation may impose further burdens or restrictions on
owners with respect to access by disabled persons. If we were required to make substantial modifications at our properties to
comply with the ADA or other changes in governmental rules and regulations, our ability to make expected distributions to our
shareholders could be adversely affected.
In March 2012, a substantial number of changes to the Accessibility Guidelines under the ADA took effect. The new
guidelines caused some of our hotel properties to incur costs to become fully compliant.
If we are required to make substantial modifications to our hotel properties, whether to comply with the ADA or other
changes in governmental rules and regulations, our financial condition, results of operations, the market price of our common
shares and our ability to make distributions to our shareholders could be adversely affected. The obligation to make readily
achievable accommodations is an ongoing one, and we will continue to assess our properties and to make alterations as
appropriate.
The outbreak of widespread contagious disease, such as the Coronavirus, could reduce travel and adversely affect hotel
demand.
The widespread outbreak of infectious or contagious disease, such as H1N1 influenza (swine flu), avian bird flu, SARS,
Coronavirus and Zika virus, has reduced travel into and from the affected areas, including travel from the affected areas to the
U.S. Further outbreaks, especially in the U.S., could reduce travel and adversely affect the U.S. hotel industry generally and
our business in particular.
As of the date of this Annual Report on Form 10-K, the recent outbreak of the Coronavirus appears to be principally
concentrated in China, although cases have been confirmed in other countries and regions, and flights, trains, cruises, tours and
other travel related activities have been cancelled as a result, including cancellations that have affected travel to the U.S. The
extent to which our business may be affected by the Coronavirus will largely depend on future developments with respect to the
continued spread and treatment of the virus, which we cannot accurately predict. New information and developments may
emerge concerning the severity of the Coronavirus and the actions to contain the Coronavirus or treat its impact. To the extent
that travel activity in the U.S. is materially and adversely affected by the Coronavirus, our business and financial results could
be materially and adversely impacted.
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General Risks Related to Real Estate Industry
Illiquidity of real estate investments could significantly impede our ability to respond to adverse changes in the performance
of our hotel properties and adversely affect our financial condition.
Because real estate investments are relatively illiquid, our ability to promptly sell one or more hotel properties in our
portfolio in response to changing economic, financial and investment conditions may be limited. The real estate market is
affected by many factors that are beyond our control, including:
• adverse changes in international, national, regional and local economic and market conditions;
• changes in interest rates and in the availability, cost and terms of debt financing;
• changes in governmental laws and regulations, fiscal policies and zoning ordinances and the related costs of
compliance with laws and regulations, fiscal policies and ordinances;
• the ongoing need for capital improvements, particularly in older structures;
• changes in operating expenses; and
• civil unrest, acts of God, including earthquakes, wildfires, tornadoes, hurricanes, floods and other natural
disasters, which may result in uninsured losses, and acts of war or terrorism.
We may seek to sell hotel properties owned by us or any of the JVs in the future. There can be no assurance that we
will be able to sell any hotel property on acceptable terms.
If financing for hotel properties is not available or is not available on attractive terms, it will adversely impact the
ability of third parties to buy our hotels. As a result, we or our JVs may hold hotel properties for a longer period than we would
otherwise desire and may sell hotels at a loss.
We may be required to expend funds to correct defects or to make improvements before a hotel property can be sold.
We cannot assure you that we will have funds available to correct those defects or to make those improvements. In acquiring a
hotel property, we may agree to lock-out provisions that materially restrict us from selling that property for a period of time or
impose other restrictions, such as a limitation on the amount of debt that can be placed or repaid on that property. These factors
and any others that would impede our ability to respond to adverse changes in the performance of our properties could have a
material adverse effect on our operating results and financial condition, as well as our ability to make distributions to our
shareholders.
Increases in our property taxes would adversely affect our ability to make distributions to our shareholders.
Hotel properties are subject to real and personal property taxes. These taxes may increase as tax rates change and as
the properties are assessed or reassessed by taxing authorities. In particular, our property taxes could increase following our
hotel purchases as the acquired hotels are reassessed. If property taxes increase, our financial condition, results of operations
and our ability to make distributions to our shareholders could be materially and adversely affected.
Our hotel properties may contain or develop harmful mold, which could lead to liability for adverse health effects and costs
of remediating the problem.
When excessive moisture accumulates in buildings or on building materials, mold growth may occur, particularly if
the moisture problem remains undiscovered or is not addressed over a period of time. Some molds may produce airborne toxins
or irritants. Concern about indoor exposure to mold has been increasing, as exposure to mold may cause a variety of adverse
health effects and symptoms, including allergic or other reactions. As a result, the presence of mold to which hotel guests or
employees could be exposed at any of the properties in which we own an interest could require us to undertake a costly
remediation program to contain or remove the mold from the affected property, which could be costly. In addition, exposure to
mold by guests or employees, management company employees or others could expose us to liability if property damage or
health concerns arise.
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Risks Related to Our Organization and Structure
Our rights and the rights of our shareholders to take action against our trustees and officers are limited, which could limit
your recourse in the event of actions not in your best interests.
Under Maryland law generally, a trustee is required to perform his or her duties in good faith, in a manner he or she
reasonably believes to be in our best interests and with the care that an ordinarily prudent person in a like position would use
under similar circumstances. Under Maryland law, trustees are presumed to have acted with this standard of care. In addition,
our declaration of trust limits the liability of our trustees and officers to us and our shareholders for money damages, except for
liability resulting from:
• actual receipt of an improper benefit or profit in money, property or services; or
• active and deliberate dishonesty by the trustee or officer that was established by a final judgment as being material to
the cause of action adjudicated.
Our bylaws obligate us to indemnify our trustees and officers for actions taken by them in those capacities to the
maximum extent permitted by Maryland law. Our bylaws require us to indemnify each trustee or officer, to the maximum
extent permitted by Maryland law, in the defense of any proceeding to which he or she is made, or threatened to be made, a
party by reason of his or her service to us. In addition, we may be obligated to advance the defense costs incurred by our
trustees and officers. As a result, we and our shareholders may have more limited rights against our trustees and officers than
might otherwise exist absent the current provisions in our declaration of trust and bylaws or that might exist with other
companies.
Provisions of Maryland law may limit the ability of a third party to acquire control of our Company and may result in
entrenchment of management and diminish the value of our common shares.
Certain provisions of the Maryland General Corporation Law ("MGCL") applicable to Maryland real estate investment
trusts may have the effect of inhibiting a third party from making a proposal to acquire us or of impeding a change of control
under circumstances that otherwise could provide our common shareholders with the opportunity to realize a premium over the
then-prevailing market price of such shares, including:
• "Business combination" provisions that, subject to limitations, prohibit certain business combinations
between us and an "interested shareholder" (defined generally as any person who beneficially owns 10% or
more of the voting power of our shares) or an affiliate of any interested shareholder for five years after the
most recent date on which the shareholder becomes an interested shareholder, and thereafter imposes special
appraisal rights and special shareholder voting requirements on these combinations; and
• "Control share" provisions that provide that our "control shares" (defined as shares which, when aggregated
with other shares controlled by the shareholder, entitle the shareholder to exercise one of three increasing
ranges of voting power in electing trustees) acquired in a "control share acquisition" (defined as the direct or
indirect acquisition of ownership or control of "control shares") have no voting rights except to the extent
approved by our shareholders by the affirmative vote of at least two-thirds of all the votes entitled to be cast
on the matter, excluding all interested shares.
Additionally, Title 3, Subtitle 8 of the MGCL permits our Board of Trustees, without shareholder approval and
regardless of what is currently provided in our declaration of trust or bylaws, to implement certain takeover defenses, including,
but not limited to, the adoption of a classified board. In November 2013, our Board of Trustees opted in to Subtitle 8 and
adopted a classified board structure in order to protect shareholder value in the wake of what our Board considered to be an
unsolicited and inadequate proposal to acquire us. Although our Board subsequently took action in April 2015 to opt back out
of the provisions of Subtitle 8 and declassified our Board of Trustees, our Board may elect to opt back in to Subtitle 8 again in
the future. These provisions may have the effect of inhibiting a third party from making an acquisition proposal for our
company or of delaying, deferring or preventing a change in control of our company under the circumstances that otherwise
could provide our common shareholders with the opportunity to realize a premium over the then current market price.
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Provisions of our declaration of trust may limit the ability of a third party to acquire control of our Company and may result
in entrenchment of management and diminish the value of our common shares.
Our declaration of trust authorizes our Board of Trustees to issue up to 500,000,000 common shares and up to
100,000,000 preferred shares. In addition, our Board of Trustees may, without shareholder approval, amend our declaration of
trust to increase the aggregate number of our shares or the number of shares of any class or series that we have the authority to
issue and to classify or reclassify any unissued common shares or preferred shares and to set the preferences, rights and other
terms of the classified or reclassified shares. As a result, our Board of Trustees may authorize the issuance of additional shares
or establish a series of common or preferred shares that may have the effect of delaying or preventing a change in control of our
company, including transactions at a premium over the market price of our shares, even if shareholders believe that a change of
control is in their interest.
Failure to make required distributions would subject us to tax.
To maintain our qualifications as a REIT, each year we must distribute to our shareholders at least 90% of our REIT
taxable income, determined without regard to the deductions for dividends paid and excluding any net capital gain. To the
extent that we satisfy this distribution requirement, but distribute less than 100% of our taxable income, we will be subject to
federal corporate income tax on our undistributed REIT taxable income. In addition, we will be subject to a 4% nondeductible
excise tax if the actual amount that we pay out to our shareholders in a calendar year is less than a minimum amount specified
under the Code. Our only source of funds to make these distributions comes from distributions that we will receive from our
Operating Partnership. Accordingly, we may be required to borrow or raise capital on terms, or sell assets at prices or at times
we regard unfavorable or make taxable distributions of our capital shares or debt securities, to enable us to pay out enough of
our REIT taxable income to satisfy the distribution requirement and to avoid federal corporate income tax and the 4%
nondeductible excise tax in a particular year.
Failure to maintain our qualification as a REIT would subject us to federal income tax and potentially to state and local
taxes.
We elected to be taxed as a REIT for federal income tax purposes. However, qualification as a REIT involves the
application of highly technical and complex provisions of the Code, for which only a limited number of judicial and
administrative interpretations exist. Even an inadvertent or technical mistake could jeopardize our REIT qualification. Our
qualification as a REIT depends on our satisfaction of certain asset, income, organizational, distribution, shareholder ownership
and other requirements on a continuing basis.
Moreover, new tax legislation, administrative guidance or court decisions, in each instance potentially applicable with
retroactive effect, could make it more difficult or impossible for us to qualify as a REIT. If we were to fail to qualify as a REIT
in any taxable year, we would be subject to federal income tax on our taxable income at regular corporate rates and distributions
to shareholders would not be deductible by us in computing our taxable income. We may also be subject to state and local taxes
if we fail to qualify as a REIT. Any such corporate tax liability could be substantial and would reduce the amount of cash
available for distribution to our shareholders, which in turn could have an adverse impact on the value of our shares of
beneficial interest. If, for any reason, we failed to qualify as a REIT and we were not entitled to relief under certain Code
provisions, we would be unable to elect REIT status for the four taxable years following the year during which we ceased to so
qualify, which would negatively impact the value of our common shares.
Our TRS Lessee structure subjects us to the risk of increased hotel operating expenses that could adversely affect our
operating results and our ability to make distributions to our shareholders.
Our leases with our TRS Lessees require our TRS Lessees to pay rent based in part on revenues from our hotels. Our
operating risks include decreases in hotel revenues and increases in hotel operating expenses, which would adversely affect our
TRS Lessees' ability to pay rent due under the leases, including but not limited to the increases in wage and benefit costs, repair
and maintenance expenses, energy costs, property taxes, insurance costs and other operating expenses.
Increases in these operating expenses can have a significant adverse impact on our financial condition, results of
operations, the market price of our common shares and our ability to make distributions to our shareholders.
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Our TRS structure increases our overall tax liability.
Our TRS holding company is subject to applicable federal, state and local income tax on its taxable income, which
consists of the revenues from the hotel properties leased by our TRS Lessees, net of the operating expenses for such hotel
properties and rent payments to us. In certain circumstances, the ability of our TRS Lessees to deduct net interest expense
could be limited. Accordingly, although our ownership of our TRS Lessees allows us to participate in the operating income
from our hotel properties in addition to receiving rent, that operating income is fully subject to income tax. The after-tax net
income of our TRS holding company is available for distribution to us.
Our ownership of TRSs is limited and our transactions with our TRS will cause us to be subject to a 100% penalty tax on
certain income or deductions if those transactions are not conducted on arm's-length terms.
A REIT may own up to 100% of the stock of one or more TRSs. A TRS may hold assets and earn income that would
not be qualifying assets or income if held or earned directly by a REIT, including gross operating income from hotels that are
operated by eligible independent contractors pursuant to hotel management agreements. Both the subsidiary and the REIT must
jointly elect to treat the subsidiary as a TRS. A corporation of which a TRS directly or indirectly owns more than 35% of the
voting power or value of the stock will automatically be treated as a TRS. Overall, no more than 20% of the value of a REIT's
gross assets may consist of stock or securities of one or more TRSs. In addition, the TRS rules limit the deductibility of interest
paid or accrued by a TRS to its parent REIT to assure that the TRS is subject to an appropriate level of corporate taxation. The
rules also impose a 100% excise tax on certain transactions between a TRS and its parent REIT that are not conducted on an
arm's-length basis.
Our TRS holding company is subject to federal, foreign, state and local income tax on its taxable income, and its after-
tax net income is available for distribution to us but is not required to be distributed to us. We believe that the aggregate value
of the stock and securities of our TRS is and will continue to be less 20% of the value of our total gross assets (including our
TRS stock and securities). Furthermore, we will monitor the value of our respective investments in our TRS holding company
for the purpose of ensuring compliance with TRS ownership limitations. In addition, we will scrutinize all of our transactions
with our TRS holding company and our TRS Lessees to ensure that they are entered into on arm's-length terms to avoid
incurring the 100% excise tax described above. There can be no assurance, however, that we will be able to comply with the
20% limitation discussed above or to avoid application of the 100% excise tax discussed above.
If our leases with our TRS Lessees are not respected as true leases for federal income tax purposes, we would fail to qualify
as a REIT.
To qualify as a REIT, we are required to satisfy two gross income tests, pursuant to which specified percentages of our
gross income must be passive income, such as rent. For the rent paid pursuant to the hotel leases with our TRS Lessees, which
should constitute substantially all of our gross income, to qualify for purposes of the gross income tests, the leases must be
respected as true leases for federal income tax purposes and must not be treated as service contracts, joint ventures or some
other type of arrangement. We have structured our leases, and intend to structure any future leases, so that the leases will be
respected as true leases for federal income tax purposes, but there can be no assurance that the Internal Revenue Service ("IRS")
will agree with this characterization, not challenge this treatment or that a court would not sustain such a challenge. If the leases
were not respected as true leases for federal income tax purposes, we would not be able to satisfy either of the two gross income
tests applicable to REITs and likely would fail to qualify for REIT status.
Dividends payable by REITs do not qualify for the reduced tax rates available for some dividends.
The maximum U.S. federal income tax rate applicable to qualified dividend income payable to certain non-corporate
U.S. shareholders is 20%. Dividends payable by REITs, however, generally are not eligible for the reduced qualified dividend
rates. For taxable years beginning before January 1, 2026, non-corporate taxpayers may deduct up to 20% of certain pass-
through business income, including “qualified REIT dividends” (generally, dividends received by a REIT shareholder that are
not designated as capital gain dividends or qualified dividend income), subject to certain limitations, resulting in an effective
maximum U.S. federal income tax rate of 29.6% on such income. Although the reduced U.S. federal income tax rate applicable
to qualified dividend income does not adversely affect the taxation of REITs or dividends payable by REITs, the more
favorable rates applicable to regular corporate qualified dividends and the reduced corporate tax rate could cause certain non-
corporate investors to perceive investments in REITs to be relatively less attractive than investments in the stocks of non-REIT
corporations that pay dividends, which could adversely affect the value of the shares of REITs, including our shares.
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If our hotel managers do not qualify as "eligible independent contractors," we would fail to qualify as a REIT.
Rent paid by a lessee that is a "related party tenant" of ours will not be qualifying income for purposes of the two gross
income tests applicable to REITs. We lease all of our hotels to our TRS Lessees. A TRS Lessee will not be treated as a "related
party tenant," and will not be treated as directly operating a lodging facility to the extent the TRS Lessee leases properties from
us that are managed by an "eligible independent contractor." In addition, our TRS holding company will fail to qualify as a
“taxable REIT subsidiary” if it or any of our TRS Lessees lease or own a lodging facility that is not managed by an “eligible
independent contractor.”
If our hotel managers do not qualify as "eligible independent contractors," we would fail to qualify as a REIT. Each of
the hotel management companies that enters into a management contract with a TRS Lessee must qualify as an "eligible
independent contractor" under the REIT rules in order for the rent paid to us by the TRS Lessee to be qualifying income for our
REIT income test requirements and for our TRS holding company to qualify as a “taxable REIT subsidiary”. Among other
requirements, in order to qualify as an eligible independent contractor, a manager must not own more than 35% of our
outstanding shares (by value) and no person or group of persons can own more than 35% of our outstanding shares and the
ownership interests of the manager, taking into account only owners of more than 5% of our shares and, with respect to
ownership interests in such managers that are publicly traded, only holders of more than 5% of such ownership interests.
Complex ownership attribution rules apply for purposes of these 35% thresholds. Although we intend to monitor ownership of
our shares by our property managers and their owners, there can be no assurance that these ownership levels will not be
exceeded.
Our ownership limitations may restrict or prevent you from engaging in certain transfers of our common shares.
In order to satisfy the requirements for REIT qualification, no more than 50% in value of our outstanding shares may
be owned, directly or indirectly, by five or fewer individuals (as defined in the Code to include certain entities) at any time
during the last half of each taxable year. To assist us in satisfying the requirements for our REIT qualification, our declaration
of trust contains an ownership limit on each class and series of our shares. Under applicable constructive ownership rules, any
common shares owned by certain affiliated owners generally will be added together for purposes of the common share
ownership limit, and any shares of a given class or series of preferred shares owned by certain affiliated owners generally will
be added together for purposes of the ownership limit on such class or series.
If anyone transfers shares in a way that would violate the ownership limit, or prevent us from qualifying as a REIT
under the federal income tax laws, those shares instead will be transferred to a trust for the benefit of a charitable beneficiary
and will be either redeemed by us or sold to a person whose ownership of the shares will not violate the ownership limit. If this
transfer to a trust fails to prevent such a violation or our continued qualification as a REIT, then the initial intended transfer
shall be null and void from the outset. The intended transferee of those shares will be deemed never to have owned the shares.
Anyone who acquires shares in violation of the ownership limit or the other restrictions on transfer in our declaration of trust
bears the risk of suffering a financial loss when the shares are redeemed or sold if the market price of our shares falls between
the date of purchase and the date of redemption or sale.
Complying with REIT requirements may limit our ability to hedge effectively and may cause us to incur tax liabilities.
The REIT provisions of the Code substantially limit our ability to hedge our business. Under these provisions, any
income that we generate from transactions intended to hedge our interest rate or currency risks will be excluded from gross
income for purposes of the 75% and 95% gross income tests applicable to REITs if the instrument hedges or offsets a hedge of
(i) interest rate risk on liabilities incurred to carry or acquire real estate or (ii) risk of currency fluctuations with respect to any
item of income or gain that would be qualifying income under the 75% or 95% gross income tests applicable to REITs, and
such instrument is properly identified under applicable Treasury Regulations. To the extent that we enter into other types of
hedging transactions, the income from those transactions is likely to be treated as non-qualifying income for purposes of both of
the gross income tests. As a result of these rules, we intend to limit our use of advantageous hedging techniques or implement
those hedges through a TRS. This could increase the cost of our hedging activities because our TRS would be subject to tax on
gains or expose us to greater risks associated with changes in interest rates than we would otherwise want to bear. In addition,
losses in our TRS will generally not provide any tax benefit, except for being carried forward against future taxable income in
the TRS.
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The ability of our Board of Trustees to revoke our REIT qualification without shareholder approval may cause adverse
consequences to our shareholders.
Our declaration of trust provides that our Board of Trustees may revoke or otherwise terminate our REIT election,
without the approval of our shareholders, if it determines that it is no longer in our best interest to continue to qualify as a REIT.
If we cease to qualify as a REIT, we would become subject to federal income tax on our taxable income and would no longer be
required to distribute most of our taxable income to our shareholders, which may have adverse consequences on our total return
to our shareholders.
The ability of our Board of Trustees to change our major policies may not be in our shareholders’ interest.
Our Board of Trustees determines our major policies, including policies and guidelines relating to our acquisitions,
leverage, financing, growth, operations and distributions to shareholders and our continued qualification as a REIT. Our board
may amend or revise these and other policies and guidelines from time to time without the vote or consent of our shareholders.
Accordingly, our shareholders will have limited control over changes in our policies and those changes could adversely affect
our financial condition, results of operations, the market price of our common shares and our ability to make distributions to our
shareholders.
If we fail to maintain an effective system of internal controls, we may not be able to accurately determine our financial
results or prevent fraud. As a result, our investors could lose confidence in our reported financial information, which could
harm our business and the market value of our common shares.
Effective internal controls are necessary for us to provide reliable financial reports and effectively prevent fraud. We
may in the future discover areas of our internal controls that need improvement. Section 404 of the Sarbanes-Oxley Act of 2002
requires us to evaluate and report on our internal controls over financial reporting and have our independent auditors annually
issue their opinion on our internal control over financial reporting. As we grow our business and acquire new hotel properties,
directly or through joint ventures, with existing internal controls that may not be consistent with our own, our internal controls
will become more complex, and we will require significantly more resources to ensure our internal controls remain effective. If
we or our independent auditors discover a material weakness, the disclosure of that fact, even if quickly remedied, could reduce
the market value of our common shares. In particular, we will need to establish, or cause our third party hotel managers to
establish, controls and procedures to ensure that hotel revenues and expenses are properly recorded at our hotels. The existence
of any material weakness or significant deficiency would require management to devote significant time and incur significant
expense to remediate any such material weaknesses or significant deficiencies and management may not be able to remediate
any such material weaknesses or significant deficiencies in a timely manner. Any such failure could cause investors to lose
confidence in our reported financial information and adversely affect the market value of our common shares or limit our access
to the capital markets and other sources of liquidity.
Complying with REIT requirements may cause us to forego otherwise attractive opportunities or liquidate otherwise
attractive investments.
To qualify as a REIT for federal income tax purposes, we must continually satisfy tests concerning, among other
things, the sources of our income, the nature and diversification of our assets, the amounts we distribute to our shareholders and
the ownership of our shares of beneficial interest. In order to meet these tests, we may be required to forego investments we
might otherwise make. Thus, compliance with the REIT requirements may hinder our performance.
In particular, we must ensure that at the end of each calendar quarter, at least 75% of the value of our gross assets
consists of cash, cash items, government securities and qualified real estate assets. The remainder of our investment in securities
(other than government securities, securities that constitute qualified real estate assets and securities of our TRS) generally
cannot include more than 10% of the outstanding voting securities of any one issuer or more than 10% of the total value of the
outstanding securities of any one issuer. In addition, in general, no more than 5% of the value of our gross assets (other than
government securities, securities that constitute qualified real estate assets and securities of our TRS) can consist of the
securities of any one issuer, no more than 25% of the value of our assets can consist of debt of "publicly offered REITs" that is
not secured by real property, and no more than 20% of the value of our total gross assets can be represented by the securities of
one or more TRSs. If we fail to comply with these requirements at the end of any calendar quarter, we must correct the failure
within 30 days after the end of the calendar quarter or qualify for certain statutory relief provisions to avoid losing our REIT
qualification and suffering adverse tax consequences. As a result, we may be required to liquidate otherwise attractive
investments. These actions could have the effect of reducing our income and amounts available for distribution to our
shareholders.
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We may be subject to adverse legislative or regulatory tax changes that could reduce the market price of our shares.
At any time, the federal income tax laws governing REITs or the administrative interpretations of those laws may be
amended. We cannot predict when or if any new federal income tax law, regulation, or administrative interpretation, or any
amendment to any existing federal income tax law, regulation or administrative interpretation, will be adopted, promulgated or
become effective and any such law, regulation, or interpretation may take effect retroactively. We cannot predict the long-term
effect of any recent changes or any future law changes on REITs and their shareholders. We and our shareholders could be
adversely affected by any such change in, or any new, federal income tax law, regulation or administrative interpretation.
We have not established a minimum distribution payment level and we may be unable to generate sufficient cash flows from
our operations to make distributions to our shareholders at any time in the future.
We are generally required to distribute to our shareholders at least 90% of our REIT taxable income (determined
without regard to the deduction for dividends paid and excluding any net capital gains) each year for us to qualify as a REIT
under the Code, which requirement we currently intend to satisfy. To the extent we satisfy the 90% distribution requirement but
distribute less than 100% of our REIT taxable income, we will be subject to federal corporate income tax on our undistributed
taxable income. We have not established a minimum distribution payment level, and our ability to make distributions to our
shareholders may be adversely affected by the risk factors described in this Form 10-K. Subject to satisfying the requirements
for REIT qualification, we intend over time to make regular distributions to our shareholders. Our Board of Trustees has the
sole discretion to determine the timing, form and amount of any distributions to our shareholders. Our Board of Trustees makes
determinations regarding distributions based upon, among other factors, our historical and projected results of operations,
financial condition, cash flows and liquidity, satisfaction of the requirements for REIT qualification and other tax
considerations, capital expenditure and other expense obligations, debt covenants, contractual prohibitions or other limitations
and applicable law and such other matters as our Board of Trustees may deem relevant from time to time. Among the factors
that could impair our ability to make distributions to our shareholders are:
• our inability to realize attractive returns on our investments;
• unanticipated expenses that reduce our cash flow or non-cash earnings;
• decreases in the value of the underlying assets; and
• the fact that anticipated operating expense levels may not prove accurate, as actual results may vary from
estimates.
As a result, no assurance can be given that we will be able to continue to make distributions to our shareholders or that
the level of any distributions we do make to our shareholders will achieve a market yield or increase or even be maintained over
time, any of which could materially and adversely affect the market price of our common shares. Distributions could be
dilutive to our financial results and may constitute a return of capital to our investors, which would have the effect of reducing
each shareholder's basis in its common shares. We also could use borrowed funds or proceeds from the sale of assets to fund
distributions.
In addition, distributions that we make to our shareholders are generally taxable to our shareholders as ordinary
income. However, a portion of our distributions may be designated by us as long-term capital gains to the extent that they are
attributable to capital gain income recognized by us or may constitute a return of capital to the extent that they exceed our
earnings and profits as determined for tax purposes. A return of capital is not taxable, but has the effect of reducing the basis of
a shareholder's investment in our common shares.
Our senior unsecured revolving credit facility may limit our ability to pay dividends on common shares.
Under our senior unsecured revolving credit facility, our distributions may not exceed the greater of (i) 95% of
adjusted funds from operations (as defined in our senior unsecured revolving credit facility) for the preceding four-quarter
period or (ii) the amount required for us to maintain our status as a REIT. As a result, if we do not generate sufficient adjusted
funds from operations during the four quarters preceding any common share dividend payment date, we would not be able to
pay dividends to our common shareholders consistent with our past practice without causing a default under our senior
unsecured revolving credit facility. In the event of a default under our senior unsecured revolving credit facility, we would be
unable to borrow under our senior unsecured revolving credit facility and any amounts we have borrowed thereunder could
become due and payable.
32
The market price of our equity securities may vary substantially, which may limit your ability to liquidate your investment.
The trading prices of equity securities issued by REITs have historically been affected by changes in market interest
rates and other factors. One of the factors that may influence the price of our shares in public trading markets is the annual yield
from distributions on our common or preferred shares as compared to yields on other financial instruments. An increase in
market interest rates, or a decrease in our distributions to shareholders, may lead prospective purchasers of our shares to
demand a higher annual yield, which could reduce the market price of our equity securities.
Other factors that could affect the market price of our equity securities include the following:
• actual or anticipated variations in our quarterly results of operations;
• changes in market valuations of companies in the hotel or real estate industries;
• changes in expectations of future financial performance or changes in estimates of securities analysts;
• fluctuations in stock market prices and volumes;
• issuances of common shares or other securities in the future;
• the addition or departure of key personnel; and
• announcements by us or our competitors of acquisitions, investments or strategic alliances or changes thereto.
Because we have a smaller equity market capitalization compared to some other hotel REITs and our common shares
may trade in low volumes, the stock market price of our common shares may be susceptible to fluctuation to a greater extent
than companies with larger market capitalizations. As a result, your ability to liquidate your investment in our company may be
limited.
The number of shares available for future sale could adversely affect the market price of our common shares.
We cannot predict the effect, if any, of future sales of common shares, or the availability of common shares for future
sale, on the market price of our common shares. Sales of substantial amounts of common shares (including shares issued to our
trustees and officers), or the perception that these sales could occur, may adversely affect prevailing market prices for our
common shares.
We also may issue from time to time additional common shares or common units in our Operating Partnership in
connection with the acquisition of properties and we may grant demand or piggyback registration rights in connection with
these issuances. Sales of substantial amounts of our common shares or the perception that these sales could occur may
adversely affect the prevailing market price for our common shares or may impair our ability to raise capital through a sale of
additional equity securities. Our Equity Incentive Plan provides for grants of equity based awards up to an aggregate of
3,000,000 common shares and we may seek to increase shares available under our Equity Incentive Plan in the future. Our
New DRSPP permits the purchase of up to $50 million of our common shares through purchases and reinvestment of dividends
on our common shares.
Future offerings of debt or equity securities ranking senior to our common shares or incurrence of debt (including under
our credit facility) may adversely affect the market price of our common shares.
If we decide to issue debt or equity securities in the future ranking senior to our common shares or otherwise incur
indebtedness (including under our credit facility), it is possible that these securities or indebtedness will be governed by an
indenture or other instrument containing covenants restricting our operating flexibility and limiting our ability to make
distributions to our shareholders. Additionally, any convertible or exchangeable securities that we issue in the future may have
rights, preferences and privileges, including with respect to distributions, more favorable than those of our common shares and
may result in dilution to owners of our common shares. Because our decision to issue debt or equity securities in any future
offering or otherwise incur indebtedness will depend on market conditions and other factors beyond our control, we cannot
predict or estimate the amount, timing or nature of our future offerings or financings, any of which could reduce the market
price of our common shares and dilute the value of our common shares.
Item 1B. Unresolved Staff Comments
33
None.
Item 2. Properties
The following table sets forth certain operating information for our 40 wholly owned hotels as of December 31, 2019:
Location
Management
Company
Date of
Acquisition
Year
Opened
Number of
Rooms
Purchase
Price
Property
Homewood Suites by Hilton Boston-
Billerica/ Bedford/ Burlington
Homewood Suites by Hilton
Minneapolis-Mall of America
Homewood Suites by Hilton
Nashville-Brentwood
Billerica, Massachusetts
IHM
4/23/2010
1999
Bloomington, Minnesota
IHM
4/23/2010
1998
Homewood Suites by Hilton Dallas-
Market Center
Dallas, Texas
Brentwood, Tennessee
IHM
IHM
4/23/2010
1998
4/23/2010
1998
Farmington, Connecticut
IHM
4/23/2010
1999
Homewood Suites by Hilton
Hartford-Farmington
Homewood Suites by Hilton
Orlando-Maitland
Hampton Inn & Suites Houston-
Medical Center
Maitland, Florida
Houston, Texas
Residence Inn Long Island Holtsville
Holtsville, New York
Residence Inn White Plains
White Plains, New York
Residence Inn New Rochelle
New Rochelle, New York
Residence Inn Garden Grove
Garden Grove, California
Residence Inn Mission Valley
San Diego, California
Homewood Suites by Hilton San
Antonio River Walk
San Antonio, Texas
Residence Inn Washington DC
Washington, DC
Residence Inn Tysons Corner
Vienna, Virginia
Hampton Inn Portland Downtown
Portland, Maine
Courtyard Houston
Houston, Texas
Hyatt Place Pittsburgh North Shore
Pittsburgh, Pennsylvania
Hampton Inn Exeter
Exeter, New Hampshire
Hilton Garden Inn Denver Tech
Denver, Colorado
Residence Inn Bellevue
Bellevue, Washington
Springhill Suites Savannah
Savannah, Georgia
Residence Inn Silicon Valley I
Sunnyvale, CA
Residence Inn Silicon Valley II
Sunnyvale, CA
Residence Inn San Mateo
San Mateo, CA
Residence Inn Mountain View
Mountain View, CA
Hyatt Place Cherry Creek
Courtyard Addison
Glendale, CO
Addison, TX
Courtyard West University Houston
Houston, TX
Residence Inn West University
Houston
Houston, TX
Hilton Garden Inn Burlington
Burlington, MA
Residence Inn San Diego Gaslamp
San Diego, CA
Residence Inn Dedham
Dedham, MA
Residence Inn Il Lugano
Fort Lauderdale, FL
Hilton Garden Inn Marina del Rey
Marina del Rey, CA
Hilton Garden Inn Portsmouth
Portsmouth, NH
Summerville Courtyard
Summerville, SC
Embassy Suites Springfield
Springfield, VA
Summerville Residence Inn
Summerville, SC
Dallas DT Courtyard
Dallas, TX
IHM
IHM
IHM
IHM
IHM
IHM
IHM
IHM
IHM
IHM
IHM
IHM
IHM
IHM
IHM
IHM
IHM
IHM
IHM
IHM
IHM
IHM
IHM
IHM
IHM
IHM
IHM
IHM
IHM
IHM
IHM
IHM
IHM
IHM
IHM
4/23/2010
2000
7/2/2010
8/3/2010
9/23/2010
10/5/2010
7/14/2011
7/14/2011
7/14/2011
7/14/2011
7/14/2011
12/27/2012
2/5/2013
6/17/2013
8/9/2013
9/26/2013
10/31/2013
12/5/2013
6/9/2014
6/9/2014
6/9/2014
6/9/2014
8/29/2014
11/17/2014
11/17/2014
11/17/2014
11/17/2014
2/25/2015
7/17/2015
8/17/2015
9/17/2015
9/20/2017
11/15/2017
12/6/2017
8/27/2018
12/5/2018
1997
2004
1982
2000
2003
2003
1996
1974
2001
2011
2010
2010
2010
1999
2008
2009
1983
1985
1985
1985
1987
2000
2004
2004
1975
2009
2008
2013
1998
2006
2014
2013
2018
2018
147
144
121
137
121
143
120
124
135
127
200
192
146
103
121
125
197
178
111
180
231
160
231
248
160
144
199
176
100
120
180
240
81
105
136
131
96
219
96
167
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
12.5 million
18.0 million
11.3 million
10.7 million
11.5 million
9.5 million
16.5 million
21.3 million
21.2 million
21.0 million
43.6 million
52.5 million
32.5 million
29.4 million
37.0 million
28.0 million
34.8 million
40.0 million
15.2 million
27.9 million
71.8 million
39.8 million
92.8 million
102.0 million
72.7 million
56.4 million
32.0 million
24.1 million
20.1 million
29.4 million
33.0 million
90.0 million
22.0 million
33.5 million
45.1 million
43.5 million
20.2 million
68.0 million
20.8 million
49.0 million
Purchase
Price per
Room
Mortgage Debt
Balance
85,714
$
15.7 million
125,000
93,388
78,102
95,041
66,433
—
—
—
—
—
137,500
$
17.7 million
$
$
$
$
$
$
$
$
$
$
$
$
$
171,774
159,398
169,355
218,000
273,438
222,603
280,000
305,785
229,508
176,395
224,719
136,937
155,000
316,883
248,438
401,776
411,103
454,097
503,869
164,948
137,178
201,481
245,363
184,392
375,000
271,605
319,048
—
—
12.9 million
32.1 million
27.3 million
15.6 million
—
21.3 million
—
17.6 million
21.5 million
—
—
43.9 million
29.8 million
64.4 million
70.3 million
48.3 million
37.7 million
—
—
—
—
—
—
—
—
336,194
$
20.9 million
332,061
210,417
310,502
216,667
293,413
—
—
—
—
—
236,169
$497.0 million
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
Total
6,092
$1,460.6 million
We lease our headquarters at 222 Lakeview Avenue, Suite 200, West Palm Beach, FL 33401. The lease for our
headquarters has an initial term that expires in 2026 and the Company has an option to renew the lease for up to two successive
terms of five years each. The Residence Inn New Rochelle hotel is subject to an air rights lease and garage lease that each
expire on December 1, 2104. The Residence Inn San Diego Gaslamp hotel is subject to a ground lease with an expiration of
January 31, 2065. The Hilton Garden Inn Marina del Rey hotel is subject to a ground lease with an expiration of December 31,
2067. For more information on the leases to which we or our hotels are subject, see "Item 1. Business - Operating Leases".
34
Item 3. Legal Proceedings
The nature of the operations of the Company's hotels exposes those hotels, the Company and the Operating Partnership
to the risk of claims and litigation in the normal course of their business. IHM is currently a defendant in several class action
lawsuits pending in the state of California.
The first class action lawsuit was filed in the Santa Clara County Superior Court on October 21, 2016 under the title
Ruffy, et al, v. Island Hospitality Management, LLC, et al. Case No. 16-CV-301473 (“Ruffy”) and the second class action
lawsuit was filed on March 21, 2018 under the title Doonan, et al, v. Island Hospitality Management, LLC, et al. Case No 18-
CV-325187 (“Doonan”). The class actions relate to hotels operated by IHM in the state of California and owned by affiliates of
the Company and the NewINK JV, and/or certain third parties. The complaint alleges various wage and hour law violations
based on alleged misclassification of certain hotel managerial staff and violation of certain California statutes regarding
incorrect information contained on employee paystubs. The plaintiffs seek injunctive relief, money damages, penalties, and
interest. A settlement agreement has been negotiated and approved by the applicable courts for Ruffy and Doonan. As of
December 31, 2019, included in accounts payable and accrued expenses is $0.1 million which represents an estimate of the
Company’s total exposure to the Ruffy and Doonan litigations based on standard indemnification obligations under hotel
management agreements with IHM.
In addition, IHM is a defendant in the following series of interrelated class action lawsuits: Perez et al. v. Island
Hospitality Management III LLC et al. (United States District Court for the Central District of California, Case No. 2:18-
cv-04903-DMG-JPR) filed on March 15, 2018, Cruz v. Island Hospitality Management III LLC (Santa Clara County Superior
Court Case No. 19CV353655) filed on August 19, 2019, Leon et al. v. Island Hospitality Management III LLC (Orange County
Superior Court Case No. 30-2019-01050719-CU-OE-CXC) filed on April 2, 2019, and Vela v. Island Hospitality Management
LLC et al. (San Diego County Superior Court, Case No. 37-2019-0003525) filed on July 9, 2019 (collectively the “Perez class
actions”). The Perez class actions also relate to hotels operated by IHM in the state of California and owned by affiliates of the
Company and the NewINK JV, and/or certain third parties. The complaints allege various wage and hour law violations based
on alleged violation of certain California statutes regarding rest and meal breaks and wage statements. The plaintiffs seek
injunctive relief, money damages, penalties, and interest. Settlement agreements have been negotiated and currently await
approval by the applicable courts. As of December 31, 2019, included in accounts payable and accrued expenses is $0.6
million which represents an estimate of the Company’s total exposure to the Perez class actions based on standard
indemnification obligations under hotel management agreements with IHM.
Item 4. Mine Safety Disclosures
Not applicable.
35
Part II
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities
Market Information
Our common shares began trading on the NYSE, on April 16, 2010 under the symbol "CLDT".
Shareholder Information
On December 31, 2019, there were 365 registered holders of record of our common shares. This figure does not
include beneficial owners who hold shares in nominee name. However, because many of our common shares are held by
brokers and other institutions, we believe that there are many more beneficial holders of our common shares than record
holders. In order to comply with certain requirements related to our qualification as a REIT, our charter, subject to certain
exceptions, limits the number of common shares that may be owned by any single person or affiliated group to 9.8% of our
outstanding common shares.
The below graph provides a comparison of the five-year cumulative total return on our common shares from December
31, 2014 to the NYSE closing price per share on December 31, 2019 with the cumulative total return on the Russell 2000 Index
(the “Russell 2000”), the FTSE NAREIT All Equity REIT Index (the “NAREIT All Equity”) and the NAREIT Lodging/Resorts
Index (the “NAREIT Lodging”). The total return values were calculated assuming a $100 investment on December 31, 2014
with reinvestment of all dividends in (i) our common shares, (ii) the Russell 2000 Index, (iii) the NAREIT All Equity REIT
Index and (iv) the NAREIT Lodging/Resorts Index. The total return values include any dividends paid during the period.
Value of
initial
investment at
December 31,
2014
Value of
initial
investment at
December 31,
2015
Value of
initial
investment at
December 31,
2016
Value of
initial
investment at
December 31,
2017
Value of
initial
investment at
December 31,
2018
Value of
initial
investment at
December 31,
2019
Chatham Lodging Trust
Russell 2000 Index
FTSE NAREIT All
Equity REIT Index
FTSE NAREIT
Lodging/Resorts Index
$
$
$
$
100.00
100.00
100.00
$
$
$
74.09
95.59
102.29
$
$
$
79.55
115.95
111.79
$
$
$
93.90
132.94
122.14
$
$
$
77.89
118.30
117.14
$
$
$
86.68
148.49
150.01
100.00
$
75.58
$
93.98
$
100.71
$
87.80
$
101.54
36
Distribution Information
In order to maintain our qualification as a REIT, we must make distributions to our shareholders each year in an
amount equal to at least:
•
•
•
90% of our REIT taxable income determined without regard to the dividends paid deduction and excluding net capital
gains; plus
90% of the excess of our net income from foreclosure property over the tax imposed on such income by the Code;
minus
Any excess non-cash income (as defined in the Code).
Future distributions will be at the discretion of our board of trustees and will depend on our financial performance,
debt service obligations, applicable debt covenants (if any), capital expenditure requirements, maintenance of our REIT
qualification and other factors as our board of trustees deems relevant.
The following table sets forth information regarding the income tax characterization of regular distributions by the
Company on its common shares for the years ended December 31, 2019 and 2018, respectively:
Common shares:
Ordinary income
Return of capital
Total
2019
2018
$
$
1.0164
0.3036
1.32
77.0 % $
23.0 %
100 % $
1.1448
0.1752
1.32
86.7 %
13.3 %
100 %
37
Chatham Lodging TrustRussell 2000 IndexFTSE NAREIT All Equity REIT IndexFTSE NAREIT Lodging/Resorts Index12/31/1412/31/1512/31/1612/31/1712/31/1812/31/19$75$90$105$120$135$150 Equity Compensation Plan Information
The following table provides information, as of December 31, 2019, relating to our Equity Incentive Plan pursuant to
which grants of common share options, share awards, share appreciation rights, performance units, LTIP units and other equity-
based awards options may be granted from time to time. See Note 12 to our consolidated financial statements for additional
information regarding our Equity Incentive Plan.
Number of Securities to be
Issued Upon Exercise of
Outstanding Options,
Warrants and Rights
Weighted-Average Exercise
Price of Outstanding
Options, Warrants and
Rights
Number of Securities
Remaining Available for
Future Issuance under Equity
Compensation Plans
Equity compensation plans approved by security
holders¹
Equity compensation plans not approved by
security holders
Total
—
—
—
—
—
—
1,150,806
—
1,150,806
¹ Our Equity Incentive Plan was approved by our company's sole trustee and our company's sole shareholder prior to
completion of our IPO. The plan was amended and restated as of May 17, 2013 by our Board of Trustees to increase the
maximum number of shares available under the plan to 3,000,000 shares. The amended and restated plan was approved by our
shareholders at our 2013 annual meeting of shareholders.
Sale of Unregistered Securities
None.
Issuer Purchases of Equity Securities
We do not currently have a repurchase plan or program in place. However, we do provide employees, who have been
issued restricted common shares, the option of forfeiting shares to us to satisfy the minimum statutory tax withholding
requirements on the date their shares vest. Once shares are forfeited, they are not eligible to be reissued. There were no
common shares forfeited in the years ended December 31, 2019 and 2018, respectively, related to such repurchases.
38
Item 6. Selected Financial Data
The consolidated financial data included in the following table has been derived from the financial statements for the
last five years and includes the information required by Item 301 of Regulation S-K. The selected historical financial data
should be read in conjunction with "Management’s Discussion and Analysis of Financial Condition and Results of Operations,"
and the financial statements and notes thereto, both included in this Annual Report on Form 10-K.
Statement of Operations Data:
Total revenue
Hotel operating expenses
Depreciation and amortization
Impairment loss
Property taxes, ground rent and insurance
General and administrative
Other charges
Reimbursed costs from unconsolidated real estate entities
Total operating expenses
Operating income before gain (loss) on sale of hotel property
Interest and other income
Interest expense, including amortization of deferred fees
Loss on early extinguishment of debt
Gain (loss) on sale of hotel property
Income (loss) from unconsolidated real estate entities
Net gain (loss) from remeasurement and sales of investment in
unconsolidated real estate entities
Income before income tax benefit (expense)
Income tax benefit (expense)
Net income
Net income attributable to non-controlling interest
Net income attributable to common shareholders
Income per Common Share - Basic:
Net income attributable to common shareholders
Income per Common Share - Diluted:
Net income attributable to common shareholders
Weighted average number of common shares outstanding:
$
$
$
$
Year Ended
Year Ended
Year Ended
Year Ended
Year Ended
December 31,
2019
December 31,
2018
December 31,
2017
December 31,
2016
December 31,
2015
(In thousands, except share and per-share data)
$
328,328
$
324,230
$
301,844
$
295,871
$
276,950
174,251
51,505
—
24,717
14,077
1,441
5,670
271,661
56,667
190
(28,247)
—
(3,282)
(6,448)
—
18,880
—
18,880
(177)
18,703
0.39
0.39
$
$
$
$
170,562
48,169
—
23,678
14,120
3,806
5,743
266,078
58,152
462
(26,878)
—
(18)
(876)
—
30,842
28
30,870
(229)
30,641
0.66
0.66
$
$
$
$
155,679
46,292
6,663
20,916
12,825
523
5,908
248,806
53,038
30
148,777
48,775
—
21,564
11,119
510
6,190
236,935
58,936
51
(27,901)
(28,297)
—
3,327
1,582
—
30,076
(396)
29,680
(202)
29,478
0.73
0.73
$
$
$
$
(4)
3,327
718
(10)
34,721
301
35,022
(212)
34,810
0.82
0.81
$
$
$
$
136,994
48,981
—
18,581
11,677
1,451
3,743
221,427
55,523
264
(27,924)
(412)
—
2,411
3,576
33,438
(260)
33,178
(212)
32,966
0.87
0.86
Basic
Diluted
46,788,784
47,023,280
46,073,515
46,243,660
39,859,143
40,112,266
38,299,067
38,482,875
37,917,871
38,322,285
Other Data:
Net cash provided by operating activities
Net cash used in investing activities
Net cash provided by (used in) financing activities
Cash dividends declared per common share
86,234
(44,575)
(53,814)
1.32
86,215
(96,401)
6,024
1.32
86,689
(158,411)
71,171
1.30
87,669
(15,268)
(75,509)
1.30
81,842
(182,363)
106,480
1.28
39
As of
As of
As of
As of
As of
December 31,
2019
December 31,
2018
December 31,
2017
December 31,
2016
December 31,
2015
(In thousands)
Balance Sheet Data:
Investment in hotel properties, net
$
1,347,116
$
1,373,773
$
1,320,082
$
1,233,094
$
1,258,452
Investment in hotel properties under development
Cash and cash equivalents
Restricted cash
Investment in unconsolidated real estate entities
Right of use asset
Hotel receivables (net of allowance for doubtful
accounts)
Deferred costs, net
Prepaid expenses and other assets
Deferred tax asset, net
Total assets
Mortgage debt, net
Revolving credit facility
Accounts payable and accrued expenses
Distributions in excess of investments of
unconsolidated real estate entities
Lease liability
Distributions payable
Total liabilities
Total shareholders’ equity
$
$
20,496
6,620
13,562
17,969
21,270
4,626
4,271
2,615
29
—
7,192
25,145
21,545
—
4,495
5,070
2,431
58
—
9,333
27,166
24,389
—
4,047
4,646
2,523
30
12,118
25,083
20,424
—
4,389
4,642
2,778
426
21,036
19,273
23,618
—
4,433
5,365
5,052
—
1,438,574
$
1,439,709
$
1,392,216
$
1,302,954
$
1,337,229
495,465
$
501,782
$
506,316
$
530,323
$
539,623
90,000
33,012
15,214
23,717
6,142
663,550
762,377
81,500
33,692
9,650
—
5,667
632,291
797,466
32,000
31,692
6,582
—
5,846
582,436
803,162
52,500
27,782
6,017
—
4,742
621,364
676,742
65,580
25,100
2,703
—
7,221
640,227
692,871
Noncontrolling Interest in Operating Partnership
12,647
9,952
6,618
4,848
4,131
Total liabilities and equity
$
1,438,574
$
1,439,709
$
1,392,216
$
1,302,954
$
1,337,229
40
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
Overview
Chatham Lodging Trust (“we,” “us” or the “Company”) was formed as a Maryland real estate investment trust on
October 26, 2009. The Company is internally-managed and was organized to invest primarily in upscale extended-stay and
premium-branded select-service hotels. The Company has elected to be taxed as a real estate investment trust for federal
income tax purposes ("REIT").
The Company had no operations prior to the consummation of its IPO. The net proceeds from our share offerings are
contributed to Chatham Lodging, L.P., our operating partnership (the “Operating Partnership”), in exchange for partnership
interests. Substantially all of the Company’s assets are held by, and all operations are conducted through, the Operating
Partnership. The Company is the sole general partner of the Operating Partnership and owns 100% of the common units of
limited partnership interest in the Operating Partnership ("common units"). Certain of the Company’s employees hold vested
and unvested long-term incentive plan units in the Operating Partnership ("LTIP units"), which are presented as non-controlling
interests on our consolidated balance sheets.
As of December 31, 2019, the Company owned 40 hotels with an aggregate of 6,092 rooms located in 15 states and the
District of Columbia. The Company also (i) held a 10.3% noncontrolling interest in a joint venture (the “NewINK JV”) with
affiliates of Colony Capital, Inc. ("CLNY"), which was formed in the second quarter of 2014 to acquire 47 hotels from a joint
venture (the "Innkeepers JV") between the Company and Cerberus Capital Management (“Cerberus”), comprising an aggregate
of 5,948 rooms and (ii) held a 10.0% noncontrolling interest in a separate joint venture (the "Inland JV") with CLNY, which
was formed in the fourth quarter of 2014 to acquire 48 hotels from Inland American Real Estate Trust, Inc. ("Inland"),
comprising an aggregate of 6,402 rooms. We sometimes use the term "JVs" which refers collectively to the NewINK JV and
the Inland JV.
To qualify as a REIT, the Company cannot operate its hotels. Therefore, the Operating Partnership and its subsidiaries
lease each of the Company's wholly owned hotels to a taxable REIT subsidiary lessee (“TRS Lessee”), which is wholly owned
by the Company’s taxable REIT subsidiary (“TRS”) holding company. The Company indirectly (i) owns its 10.3% interest in
the 46 NewINK JV hotels and (ii) 10.0% interest in the 48 Inland JV hotels through the Operating Partnership. All of the
NewINK JV hotels and Inland JV hotels are leased to TRS Lessees, in which the Company indirectly owns or owned as
applicable, noncontrolling interests through its TRS holding company. Each hotel is leased to a TRS Lessee under a percentage
lease that provides for rental payments equal to the greater of (i) a fixed base rent amount or (ii) a percentage rent based on
hotel room revenue. The initial term of each of the TRS leases is 5 years. Lease revenue from each TRS Lessee is eliminated in
consolidation.
The TRS Lessees have entered into management agreements with third-party management companies that provide
day-to-day management for the hotels. As of December 31, 2019, Island Hospitality Management Inc. (“IHM”), which is
52.5% owned by Mr. Fisher, managed all 40 of the Company’s wholly owned hotels. As of December 31, 2019, all of the
NewINK JV hotels were managed by IHM. As of December 31, 2019, 34 of the Inland JV hotels were managed by IHM and 14
hotels were managed by Marriott International, Inc. ("Marriott").
Key Indicators of Operating Performance and Financial Condition
We measure financial condition and hotel operating performance by evaluating non-financial and financial metrics and
measures such as:
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Average Daily Rate (“ADR”), which is the quotient of room revenue divided by total rooms sold,
Occupancy, which is the quotient of total rooms sold divided by total rooms available,
Revenue Per Available Room (“RevPAR”), which is the product of occupancy and ADR, and does not include
food and beverage revenue, or other operating revenue,
Funds From Operations (“FFO”),
Adjusted FFO,
Earnings before interest, taxes, depreciation and amortization (“EBITDA”),
EBITDAre,
Adjusted EBITDA, and
Adjusted Hotel EBITDA.
41
We evaluate the hotels in our portfolio and potential acquisitions using these metrics to determine each hotel’s
contribution toward providing income to our shareholders through increases in distributable cash flow and increasing long-term
total returns through appreciation in the value of our common shares. RevPAR, ADR and Occupancy are hotel industry
measures commonly used to evaluate operating performance.
See “Non-GAAP Financial Measures” for further discussion of FFO, Adjusted FFO, EBITDA, EBITDAre, Adjusted
EBITDA and Adjusted Hotel EBITDA.
Results of Operations
Industry outlook
We believe that the lodging industry’s performance is correlated to the performance of the economy overall, and
specifically key economic indicators such as GDP growth, employment trends, corporate travel and corporate profits. Lodging
industry performance is also impacted by room supply growth, which is currently elevated in the Upscale segment in which
most of our hotels operate. Overall U.S. room supply increased 2.0% in 2019, but supply in the Upscale segment increased by
4.9% in 2019. Smith Travel Research is projecting U.S. hotel supply growth to increase to 1.9% in 2020. Continued supply
growth could negatively impact RevPAR growth. We are currently projecting 2020 RevPAR change of -1.25% to +0.25% as
compared to 2019.
Comparison of the year ended December 31, 2019 (“2019”) to the year ended December 31, 2018 (“2018”)
The section below provides a comparative discussion of our consolidated results of operations between fiscal 2019 and
2018. See Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual
Report on Form 10-K for the fiscal year ended December 31, 2018 for comparative a discussion of our consolidated results of
operations between fiscal 2018 and fiscal 2017.
Results of operations for the year ended December 31, 2019 include the operating activities of our 40 wholly owned
hotels that were owned for the entire period, partial period results for two hotels which were sold during the period, and our
investments in the NewINK JV and Inland JV. We sold one hotel in Altoona, PA on May 7, 2019 and one hotel in Washington,
PA on May 15, 2019. We acquired the Residence Inn by Marriott Summerville, SC on August 27, 2018 and the Courtyard by
Marriott Dallas Downtown, TX on December 5, 2018. Accordingly, the comparisons below are influenced by these
dispositions and acquisitions.
Revenue
Revenue, which consists primarily of room, food and beverage and other operating revenues from our wholly owned
hotels, was as follows for the periods indicated (dollars in thousands):
Room
Food and beverage
Other
Cost reimbursements from unconsolidated real estate entities
Total revenue
Year ended
December 31,
2019
296,267
$
December 31,
2018
295,897
$
9,824
16,567
5,670
8,880
13,710
5,743
$
328,328
$
324,230
% Change
0.1 %
10.6 %
20.8 %
(1.3)%
1.3 %
Total revenue increased $4.1 million to $328.3 million for the year ended December 31, 2019 compared to total
revenue of $324.2 million for the 2018 period. Total revenue related to the two hotels acquired during 2018 contributed $10.3
million of the increase, offset by a decrease of $3.2 million for the two hotels sold in 2019, with the 38 comparable hotels
owned by the Company throughout the 2019 and 2018 periods down $3.0 million. Since our hotels are primarily select service
or limited service hotels, room revenue is the primary revenue source as these hotels do not have significant food and beverage
revenue or large group conference facilities. Room revenue comprised 90.2% and 91.3%, respectively, of total revenue for the
years ended December 31, 2019 and December 31, 2018. Room revenue was $296.3 million and $295.9 million for the years
ended December 31, 2019 and 2018, respectively, the two hotels acquired during 2018 contributed $8.8 million of the increase,
42
offset by a decrease of $2.9 million for the two hotels sold in 2019, with the 38 comparable hotels owned by the Company
throughout the 2019 and 2018 periods down $5.5 million or 1.8%.
Food and beverage revenue was $9.8 million and $8.9 million for the years ended December 31, 2019 and 2018. Food
and beverage revenue related to the hotels acquired in 2018 contributed $0.8 million of the increase.
Other revenue comprised of parking, meeting room, gift shop, in-room movie and other ancillary amenities revenue,
was up $2.9 million for the year ended December 31, 2019. Hotels acquired in 2018 contributed $0.7 million to the increase
and the increase for the 38 comparable hotels related primarily to miscellaneous room revenue, restaurant lease income and
parking.
Cost reimbursements from unconsolidated real estate entities, comprised of payroll costs at the JVs and Castleblack,
which is 97.5% owned by affiliates of CLNY and 2.5% by Mr. Fisher, where the Company is the employer, were $5.7 million
and $5.7 million respectively, for the years ended December 31, 2019 and 2018. The cost reimbursements were offset by the
reimbursed costs from unconsolidated real estate entities included in operating expenses.
As reported by Smith Travel Research, industry RevPAR for the years ended December 31, 2019 and 2018 increased
0.9% and 2.9%, respectively, as compared to the years ended December 31, 2018 and 2017. RevPAR at our 40 wholly owned
hotels decreased 1.6% in 2019 and increased 0.9% in 2018 as compared to the respective prior year periods primarily due to
lower growth in the upscale segment in which most of our hotels operate and lower growth in our specific markets primarily
due to new supply.
In the table below, we present both actual and same property room revenue metrics. Actual Occupancy, ADR and
RevPAR metrics reflect the performance of the hotels for the actual days such hotels were owned by the Company during the
periods presented. Same property Occupancy, ADR, and RevPAR results for the 40 hotels wholly owned by the Company as
of December 31, 2019 and that have been in operation for a full year regardless of ownership during the period presented,
which is a non-GAAP financial measure. Results for the hotels for the periods prior to our ownership were provided to us by
prior owners and have not been adjusted by us.
For the years ended December 31,
2019
2018
Percentage Change
Same
Property (40
hotels)
Actual (42
hotels)
Same
Property (40
hotels)
Actual (42
hotels)
Same
Property (40
hotels)
Actual (42
hotels)
80.2 %
80.1 %
80.4 %
80.1 %
$
$
166.47
133.47
$
$
165.01
131.77
$
$
168.66
135.59
$
$
166.51
133.37
(0.3)%
(1.3)%
(1.6)%
— %
(0.9)%
(1.2)%
Occupancy
ADR
RevPAR
Same property RevPAR decreased 1.6% due to a decrease in occupancy of 0.3% and a decrease in ADR of 1.3%.
43
Hotel Operating Expenses
Hotel operating expenses consisted of the following for the periods indicated (dollars in thousands):
Year ended
December 31,
2019
December 31,
2018
% Change
Hotel operating expenses:
Room
Food and beverage expense
Telephone expense
Other expense
General and administrative
Franchise and marketing fees
Advertising and promotions
Utilities
Repairs and maintenance
Management fees
Insurance
$
65,270
$
63,877
8,396
1,638
4,039
25,641
25,850
6,043
10,867
14,321
10,822
1,364
7,312
1,766
3,296
25,567
24,864
6,227
10,835
14,710
10,754
1,354
Total hotel operating expenses
$
174,251
$
170,562
2.2 %
14.8 %
(7.2)%
22.5 %
0.3 %
4.0 %
(3.0)%
0.3 %
(2.6)%
0.6 %
0.7 %
2.2 %
Hotel operating expenses increased $3.7 million, or 2.2% to $174.3 million for the year ended December 31, 2019
from $170.6 million for the year ended December 31, 2018. The increase in total hotel operating expenses attributable to the
two hotels acquired in 2018 was $5.3 million, offset by a decrease of $1.9 million for the two hotels sold in 2019, while the 38
comparable hotels owned by the Company throughout the 2019 and 2018 periods increased $0.3 million.
Room expenses, which are the most significant component of hotel operating expenses, increased $1.4 million from
$63.9 million in 2018 to $65.3 million in 2019. Total room expenses attributable to the two hotels acquired in 2018 was $1.6
million, offset by a decrease of $0.7 million for the two hotels sold in 2019, while 38 comparable hotels owned by the Company
throughout the 2019 and 2018 periods increased $0.5 million. The increase in rooms expense at the 38 comparable hotels was
due primarily to increased labor costs.
The remaining hotel operating expenses increased $2.3 million, or 2.2%, from $106.7 million in 2018 to $109.0
million in 2019. The increase attributable to the two hotels acquired in 2018 was $3.7 million, offset by a decrease of $1.2
million for the two hotels sold in 2019, the while 38 comparable hotels owned by the Company throughout the 2019 and 2018
periods decreased $0.2 million.
Depreciation and Amortization
Depreciation and amortization expense increased $3.3 million from $48.2 million for the year ended December 31,
2018 to $51.5 million for the year ended December 31, 2019. The increase attributable to the two hotels acquired in 2018 was
$2.1 million, offset by a reduction of $0.4 million from the sale of the two hotels in 2019 and an increase at the 38 comparable
hotels owned by us throughout the 2019 and 2018 periods of $1.6 million due to renovations. Depreciation is generally
recorded on our assets over 40 years for buildings, 20 years for land improvements, 15 years for building improvements and
one to ten years for hotel furniture, fixtures and equipment from the date of acquisition on a straight-line basis. Depreciable
lives of hotel furniture, fixtures and equipment are generally assumed to be the difference between the date of acquisition and
the date that the furniture, fixtures and equipment will be replaced. Amortization of franchise fees is recorded on a straight-line
basis over the term of the respective franchise agreement.
Property Taxes, Ground Rent and Insurance
Total property taxes, ground rent and insurance expenses increased $1.0 million from $23.7 million for the year ended
December 31, 2018 to $24.7 million for the year ended December 31, 2019. The increase related to the two hotels acquired in
2018 was $1.3 million, offset by a reduction of $0.3 million from the two hotels sold in 2019.
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General and Administrative
General and administrative expenses principally consist of employee-related costs, including base payroll, bonuses and
amortization of restricted stock and awards of LTIP units. These expenses also include corporate operating costs, professional
fees and trustees’ fees. Total general and administrative expenses (excluding amortization of stock based compensation of $4.7
million and $4.2 million for the years ended December 31, 2019 and 2018, respectively) decreased $0.5 million, or 5%, to $9.4
million in 2019 from $9.9 million in 2018, with the decrease primarily due to franchise taxes.
Other Charges
Other charges decreased from $3.8 million for the year ended December 31, 2018 to $1.4 million for the year ended
December 31, 2019. The 2018 costs primarily consisted of the write off of previous expenditures related to previously planned
expansions at several of our Silicon Valley hotels. The Company has decided not to continue with these expansions at this time
and has expensed the costs associated with the planning of these expansions. The 2019 costs primarily consist of insurance
deductibles and the Company's share of expense related to a class action lawsuit in California (See Legal Proceedings in Part I).
Reimbursed Costs from Unconsolidated Real Estate Entities
Reimbursed costs from unconsolidated real estate entities, comprised of corporate payroll and office rent costs of the
NewINK JV and Inland JV and Castleblack which is 2.5% owned by Mr. Fisher, where the Company is the employer, were
$5.7 million and $5.7 million for the years ended December 31, 2019 and 2018, respectively. These reimbursed costs were
offset by the cost reimbursements from unconsolidated real estate entities included in revenues.
Loss on Sale of Hotel Property
Loss on the sale of hotel property increased $3.3 million for the year ended December 31, 2019 compared to the year
ended December 31, 2018 due to the sales of the Courtyard Altoona, PA on May 7, 2019 and the SpringHill Suites Washington,
PA on May 15, 2019 and no comparable loss in 2018.
Interest and Other Income
Interest on cash and cash equivalents and other income decreased from $462.0 thousand for the year ended December
31, 2018 to $190.0 thousand for the year ended December 31, 2019. The decrease is primarily related to fees received for
services provided to Castleblack, which is 97.5% owned by CLNY and 2.5% owned by Mr. Fisher.
Interest Expense, Including Amortization of Deferred Fees
Interest expense increased $1.3 million, or 4.8%, from $26.9 million for the year ended December 31, 2018 to $28.2
million for the year ended December 31, 2019. Interest expense is comprised of the following (dollars in thousands):
Year ended
December 31, 2019
23,652
$
December 31, 2018
23,911
$
Mortgage debt interest
Credit facility interest
Other fees
Amortization of deferred financing costs
3,106
569
920
Total
$
28,247
$
% Change
(1.1)%
135.1 %
(22.6)%
1.0 %
5.1 %
1,321
735
911
26,878
The increase in interest expense for the year ended December 31, 2019 as compared to year ended December 31, 2018
is primarily due to an increase in the interest expense on the Company's senior unsecured revolving credit facility due to an
increase in utilization of the credit facility for the year ended December 31, 2019 as compared to year ended December 31,
2018.
45
Loss from Unconsolidated Real Estate Entities
Loss from unconsolidated real estate entities increased $5.5 million from a loss of $0.9 million for the year ended
December 31, 2018 to a loss of $6.4 million for the year ended December 31, 2019. The increase is due primarily to
impairments recorded at three NewINK JV hotels and one Inland JV hotel in the year ended December 31, 2019.
Income Tax Benefit
Income tax benefit changed from a benefit of $28.0 thousand for the year ended December 31, 2018 to zero for the
year ended December 31, 2019. We are subject to income taxes based on the taxable income of our TRS Lessees at a combined
federal and state tax rate of approximately 25%. The Company's TRS is expecting taxable losses in 2020 and recognizes a full
valuation allowance equal to 100% of the net deferred tax assets, with the exception of the AMT tax credit, due to the
uncertainty of the TRS's ability to utilize these net deferred tax assets.
Net Income
Net income was $18.9 million for the year ended December 31, 2019, compared to net income of $30.9 million for the
year ended December 31, 2018. The decrease in our net income was due to the factors discussed above.
Material Trends or Uncertainties
We are not aware of any material trends or uncertainties, favorable or unfavorable, that may be reasonably
anticipated to have a material impact on either the capital resources or the revenues or income to be derived from the acquisition
and operation of properties, loans and other permitted investments, other than those referred to in this section and the risk
factors identified in the “Risk Factors” section of this Annual Report on this Form 10-K.
Non-GAAP Financial Measures
We consider the following non-GAAP financial measures useful to investors as key supplemental measures of our
operating performance: (1) FFO, (2) Adjusted FFO, (3) EBITDA, (4) EBITDAre, (5) Adjusted EBITDA and (6) Adjusted
Hotel EBITDA. These non-GAAP financial measures should be considered along with, but not as alternatives to, net income or
loss as prescribed by GAAP as a measure of our operating performance.
FFO, Adjusted FFO, EBITDA, EBITDAre, Adjusted EBITDA and Adjusted Hotel EBITDA do not represent cash
generated from operating activities under GAAP and should not be considered as alternatives to net income or loss, cash flows
from operations or any other operating performance measure prescribed by GAAP. FFO, Adjusted FFO, EBITDA, EBITDAre,
Adjusted EBITDA and Adjusted Hotel EBITDA are not measures of our liquidity, nor are FFO, Adjusted FFO, EBITDA,
EBITDAre, Adjusted EBITDA or Adjusted Hotel EBITDA indicative of funds available to fund our cash needs, including our
ability to make cash distributions. These measurements do not reflect cash expenditures for long-term assets and other items
that have been and will be incurred. FFO, Adjusted FFO, EBITDA, EBITDAre, Adjusted EBITDA and Adjusted Hotel
EBITDA may include funds that may not be available for management’s discretionary use due to functional requirements to
conserve funds for capital expenditures, property acquisitions, and other commitments and uncertainties.
We calculate FFO in accordance with standards established by the National Association of Real Estate Investment
Trusts ("NAREIT"), which defines FFO as net income or loss (calculated in accordance with GAAP), excluding gains or losses
from sales of real estate, impairment write-downs, the cumulative effect of changes in accounting principles, plus depreciation
and amortization (excluding amortization of deferred financing costs), and after adjustments for unconsolidated partnerships
and joint ventures following the same approach. We believe that the presentation of FFO provides useful information to
investors regarding our operating performance because it measures our performance without regard to specified non-cash items
such as real estate depreciation and amortization, gain or loss on sale of real estate assets and certain other items that we believe
are not indicative of the property level performance of our hotel properties. We believe that these items reflect historical cost of
our asset base and our acquisition and disposition activities and are less reflective of our ongoing operations, and that by
adjusting to exclude the effects of the items, FFO is useful to investors in comparing our operating performance between
periods and between REITs that report FFO using the NAREIT definition.
We calculate Adjusted FFO by further adjusting FFO for certain additional items that are not addressed in
NAREIT’s definition of FFO, including other charges, losses on the early extinguishment of debt and similar items related to
our unconsolidated real estate entities that we believe do not represent costs related to hotel operations. We believe that
Adjusted FFO provides investors with another financial measure that may facilitate comparisons of operating performance
between periods and between REITs that make similar adjustments to FFO.
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The following is a reconciliation of net income to FFO and Adjusted FFO for the years ended December 31, 2019,
2018 and 2017 (in thousands, except share data):
Funds From Operations (“FFO”):
Net income
Loss (gain) on sale of hotel property
Loss on the sale of assets within unconsolidated real estate entities
Depreciation
Impairment loss
Impairment loss from unconsolidated real estate entities
Adjustments for unconsolidated real estate entity items
FFO attributed to common share and unit holders
Other charges
Adjustments for unconsolidated real estate entity items
Adjusted FFO attributed to common share and unit holders
Weighted average number of common shares and units
Basic
Diluted
For the year ended
December 31,
2019
2018
2017
$
18,880
$
30,870
$
29,680
3,282
219
51,258
—
4,197
7,493
85,329
1,441
1,028
87,798
$
18
—
47,932
—
—
6,992
85,812
3,806
1,078
90,696
$
(3,327)
—
46,060
6,663
—
6,600
85,676
523
96
86,295
47,238,309
46,428,387
40,138,856
47,472,805
46,598,532
40,391,978
Diluted weighted average common share count used for calculation of adjusted FFO per share may differ from diluted
weighted average common share count used for calculation of GAAP Net Income per share by LTIP units, which may be
converted to common shares of beneficial interest and if Net Income per share is negative and Adjusted FFO is positive.
Unvested restricted shares and unvested LTIP units that could potentially dilute basic earnings per share in the future would not
be included in the computation of diluted loss per share for the periods where a loss has been recorded because they would have
been anti-dilutive for the periods presented.
Earnings before interest, taxes, depreciation and amortization ("EBITDA") is defined as net income or loss excluding:
(1) interest expense; (2) provision for income taxes, including income taxes applicable to sale of assets; (3) depreciation and
amortization; and (4) unconsolidated real estate entity items including interest, depreciation and amortization excluding gains
and losses from sales of real estate. We consider EBITDA useful to an investor in evaluating and facilitating comparisons of
our operating performance between periods and between REITs by removing the impact of our capital structure (primarily
interest expense) and asset base (primarily depreciation and amortization) from our operating results. In addition, EBITDA is
used as one measure in determining the value of hotel acquisitions and dispositions.
In addition to EBITDA, we present EBITDAre in accordance with NAREIT guidelines, which defines EBITDAre as
net income or loss excluding interest expense, income tax expense, depreciation and amortization expense, gains or losses from
sales of real estate, impairment, and adjustments for unconsolidated joint ventures. We believe that the presentation of
EBITDAre provides useful information to investors regarding the Company's operating performance and can facilitate
comparison of operating performance between periods and between REITs.
We also present Adjusted EBITDA which includes additional adjustments for items such as other charges, gains or
losses on extinguishment of indebtedness, transaction costs, amortization of share-based compensation and certain other
expenses that we consider outside the normal course of operations. We believe that Adjusted EBITDA provides useful
supplemental information to investors regarding our ongoing operating performance that, when considered with net income,
EBITDA and EBITDAre, is beneficial to an investor's understanding of our performance.
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The following is a reconciliation of net income to EBITDA, EBITDAre and Adjusted EBITDA for the years ended
December 31, 2019, 2018 and 2017 (in thousands):
Earnings Before Interest, Taxes, Depreciation and
Amortization (“EBITDA”):
Net income
Interest expense
Income tax (benefit) expense
Depreciation and amortization
Adjustments for unconsolidated real estate entity items
EBITDA
Impairment loss
Impairment loss from unconsolidated real estate entities
Loss (gain) on sale of hotel property
Loss on the sale of assets within unconsolidated real estate
entities
EBITDAre
Other charges
Adjustments for unconsolidated real estate entity items
Share based compensation
Adjusted EBITDA
For the year ended
December 31,
2019
2018
2017
$
18,880
$
30,870
$
29,680
28,247
26,878
—
51,505
18,214
116,846
—
4,197
3,282
219
(28)
48,169
16,495
122,384
—
—
18
—
27,901
396
46,292
14,650
118,919
6,663
—
(3,327)
—
124,544
122,402
122,255
1,441
293
3,806
1,081
523
136
4,719
$ 130,997
4,210
$ 131,499
3,784
$ 126,698
Adjusted Hotel EBITDA is defined as net income before interest, income taxes, depreciation and amortization,
corporate general and administrative, impairment loss, loss on early extinguishment of debt, other charges, interest and other
income, loses on sales of hotel properties and income or loss from unconsolidated real estate entities. We present Adjusted
Hotel EBITDA because we believe it is useful to investors in comparing our hotel operating performance between periods and
comparing our Adjusted Hotel EBITDA margins to those of our peer companies. Adjusted Hotel EBITDA represents the
results of operations for our wholly owned hotels only.
48
The following is a presentation of Adjusted Hotel EBITDA for the years ended December 31, 2019, 2018 and 2017 (in
thousands):
Net income
Add:
Interest expense
Income tax expense
Depreciation and amortization
Corporate general and administrative
Other charges
Impairment loss
Loss from unconsolidated real estate entities
Loss on sale of hotel property
Less:
Interest and other income
Gain on sale of hotel property
Income from unconsolidated real estate entities
Income tax benefit
For the year ended
December 31,
2019
18,880
28,247
—
51,505
14,077
1,441
—
6,448
3,282
(190)
—
—
—
2018
30,870
26,878
—
48,169
14,120
3,806
—
876
18
(462)
—
—
(28)
2017
29,680
27,901
396
46,292
12,825
523
6,663
—
—
(30)
(3,327)
(1,582)
—
Adjusted Hotel EBITDA
$ 123,690
$ 124,247
$119,341
•
•
•
•
•
•
•
•
•
Although we present FFO, Adjusted FFO, EBITDA, EBITDAre, Adjusted EBITDA and Adjusted Hotel
EBITDA because we believe they are useful to investors in comparing our operating performance between
periods and between REITs that report similar measures, these measures have limitations as analytical tools.
Some of these limitations are:
FFO, Adjusted FFO, EBITDA, EBITDAre, Adjusted EBITDA and Adjusted Hotel EBITDA do not reflect our
cash expenditures or future requirements for capital expenditures or contractual commitments;
FFO, Adjusted FFO, EBITDA, EBITDAre, Adjusted EBITDA and Adjusted Hotel EBITDA do not reflect
changes in, or cash requirements for, our working capital needs;
FFO, Adjusted FFO, EBITDA, EBITDAre, Adjusted EBITDA and Adjusted Hotel EBITDA do not reflect
funds available to make cash distributions;
EBITDA, EBITDAre, Adjusted EBITDA and Adjusted Hotel EBITDA do not reflect the significant interest
expense, or the cash requirements necessary to service interest or principal payments, on our debts;
Although depreciation and amortization are non-cash charges, the assets being depreciated and amortized may
need to be replaced in the future, and FFO, Adjusted FFO, EBITDA, EBITDAre, Adjusted EBITDA and
Adjusted Hotel EBITDA do not reflect any cash requirements for such replacements;
Non-cash compensation is and will remain a key element of our overall long-term incentive compensation
package, although we exclude it as an expense when evaluating our ongoing operating performance for a
particular period using Adjusted EBITDA;
Adjusted FFO, Adjusted EBITDA and Adjusted Hotel EBITDA do not reflect the impact of certain cash
charges (including acquisition transaction costs) that result from matters we consider not to be indicative of the
underlying performance of our hotel properties; and
Other companies in our industry may calculate FFO, Adjusted FFO, EBITDA, EBITDAre, Adjusted EBITDA
and Adjusted Hotel EBITDA differently than we do, limiting their usefulness as a comparative measure.
49
•
In addition, FFO, Adjusted FFO, EBITDA, EBITDAre, Adjusted EBITDA and Adjusted Hotel EBITDA do
not represent cash generated from operating activities as determined by GAAP and should not be considered as
alternatives to net income or loss, cash flows from operations or any other operating performance measure
prescribed by GAAP. FFO, Adjusted FFO, EBITDA, EBITDAre, Adjusted EBITDA and Adjusted Hotel
EBITDA are not measures of our liquidity. Because of these limitations, FFO, Adjusted FFO, EBITDA,
Adjusted EBITDA and Adjusted Hotel EBITDA should not be considered in isolation or as a substitute for
performance measures calculated in accordance with GAAP. We compensate for these limitations by relying
primarily on our GAAP results and using FFO, Adjusted FFO, EBITDA, EBITDAre, Adjusted EBITDA and
Adjusted Hotel EBITDA only supplementally. Our consolidated financial statements and the notes to those
statements included elsewhere are prepared in accordance with GAAP.
Sources and Uses of Cash
Our principal sources of cash include net cash from operations and proceeds from debt and equity issuances. Our
principal uses of cash include acquisitions, capital expenditures, operating costs, corporate expenditures, interest costs, debt
repayments and distributions to equity holders.
As of December 31, 2019 and December 31, 2018, we had cash and cash equivalents of approximately $6.6 million
and $7.2 million, respectively. Additionally, we had $160.0 million available under our $250.0 million senior unsecured
revolving credit facility as of December 31, 2019.
For the year ended December 31, 2019, net cash flows provided by operations were $86.2 million, driven by net
income of $18.9 million and by $66.8 million of non-cash items, including $52.4 million of depreciation and amortization and
$4.7 million of share-based compensation expense, $3.3 million of loss on the sale of hotels and losses of $6.4 million from
unconsolidated real estate entities. In addition, changes in operating assets and liabilities due to the timing of cash receipts,
payment for real estate taxes, payments of corporate compensation and payments from our hotels resulted in net cash inflow of
$0.5 million. Net cash flows used in investing activities were $44.6 million, primarily related to capital improvements on our 40
wholly owned hotels of $35.9 million, $12.2 million related to the development of a new hotel and the purchase of a parcel of
land for $8.2 million, offset by proceeds from the sale of the Altoona and Washington, PA hotels of $9.0 million and
distributions of $2.7 million received from unconsolidated real estate entities. Net cash flows used by financing activities were
$53.8 million, comprised of $7.3 million of common equity proceeds raised through sales under our ATM Plans and New
DRSPP, net borrowings on our unsecured credit facility of $8.5 million, offset by principal payments or payoffs on mortgage
debt of $6.7 million, payments of deferred financing and offering costs of $0.2 million, and distributions to shareholders and
LTIP unit holders of $62.7 million.
For the year ended December 31, 2018, net cash flows provided by operations were $86.2 million, driven by net
income of $30.9 million and by $54.1 million of non-cash items, including $49.1 million of depreciation and amortization and
$4.2 million of share-based compensation expense and losses of $0.8 million from unconsolidated real estate entities. In
addition, changes in operating assets and liabilities due to the timing of cash receipts, payment for real estate taxes, payments of
corporate compensation and payments from our hotels resulted in net cash inflow of $1.2 million. Net cash flows used in
investing activities were $96.4 million, primarily related the purchase of the Residence Inn Summerville for $21.0 million and
the Dallas Downtown Courtyard for $49.0 million, capital improvements on our 42 wholly owned hotels of $31.4 million,
reduced by distributions of $5.0 million received from unconsolidated real estate entities. Net cash flows provided by financing
activities were $6.0 million, comprised of $24.5 million of common equity proceeds raised through sales under our ATM Plans
and New DRSPP, net borrowings on our unsecured credit facility of $49.5 million, principal payments or payoffs on mortgage
debt of $4.9 million, payments of deferred financing and offering costs of $1.5 million, and distributions to shareholders and
LTIP unit holders of $61.6 million.
50
For the year ended December 31, 2017, net cash flows provided by operations were $86.7 million, driven by net
income of $29.7 million and by $56.9 million of non-cash items, including $46.9 million of depreciation and amortization, $6.7
million of impairment loss, $3.8 million of share-based compensation expense, distributions of $0.7 million received from
unconsolidated real estate entities and $0.4 million related to a deferred tax expense, offset by $1.6 million related to the income
from unconsolidated entities, offset by a gain on sale of hotel of $3.3 million. In addition, changes in operating assets and
liabilities due to the timing of cash receipts, payment for real estate taxes, payments of corporate compensation and payments
from our hotels resulted in net cash inflow of $3.4 million. Net cash flows used in investing activities were $158.4 million,
primarily related the purchase of the Hilton Garden Inn Portsmouth for $43.4 million, the purchase of the Summerville
Courtyard for $20.2 million, the Springfield Embassy Suites for $68.2 million and the purchase of a parcel of land in Los
Angeles for $6.5 million, capital improvements on our 40 wholly owned hotels of $30.2 million, $5.0 million related to our
Inland JV investment, reduced by proceeds from the sale of the Homewood Suites Carlsbad hotel of $12.5 million and
distributions of $2.6 million received from unconsolidated real estate entities. Net cash flows provided by financing activities
were $71.2 million, comprised of $150.7 million of common equity proceeds raised from our issuance of common shares in our
November 2017 underwritten public offering and through sales under our ATM Plans and DRSPPs, net repayments on our
unsecured credit facility of $20.5 million, principal payments or payoffs on mortgage debt of $4.2 million, payments of deferred
financing and offering costs of $2.1 million, and distributions to shareholders and LTIP unit holders of $52.7 million.
We have maintained a monthly dividend of $0.11 per share and LTIP unit since March 2016. On January 31, 2020,
we paid an aggregate of $5.2 million in dividends on our common shares and distributions on our LTIP units attributable to the
December 2019 monthly dividend.
Liquidity and Capital Resources
We plan to maintain a prudent capital structure and intend to maintain our leverage over the long term at a ratio of net
debt to investment in hotels (at cost) (defined as our initial acquisition price plus the gross amount of any subsequent capital
investment and excluding any impairment charges) at a level that will be similar to the levels at which we have operated in the
past. A subsequent decrease in hotel property values will not necessarily cause us to repay debt to comply with this limitation.
At December 31, 2019, our leverage ratio was approximately 34.1 percent, which decreased from 34.7 percent at December 31,
2018 based on the ratio of our net debt (total debt outstanding before deferred financing costs less unrestricted cash and cash
equivalents) to hotel investments at cost, including our JV investments. At December 31, 2019, we had total debt of $586.9
million at an average rate of approximately 4.6%. Our debt coverage ratios currently are favorable and we are comfortable in
this leverage range and believe we have the capacity and flexibility to take advantage of acquisition opportunities as they arise.
We intend to continue to fund our investments with a prudent balance of debt and equity. Our debt may include mortgage debt
collateralized by our hotel properties and unsecured debt.
At December 31, 2019 and 2018, we had $90.0 million and $81.5 million, respectively, in outstanding borrowings
under our senior unsecured revolving credit facility. At December 31, 2019, the maximum borrowing availability under our
senior unsecured revolving credit facility was $250.0 million. We also had mortgage debt on individual hotels aggregating
$496.9 million and $503.6 million at December 31, 2019 and 2018, respectively.
Our senior unsecured credit facility contains representations, warranties, covenants, terms and conditions customary
for credit facilities of this type, including a maximum leverage ratio, a minimum fixed charge coverage ratio and minimum net
worth financial covenants, limitations on (i) liens, (ii) incurrence of debt, (iii) investments, (iv) distributions, and (v) mergers
and asset dispositions, covenants to preserve corporate existence and comply with laws, covenants on the use of proceeds of the
senior unsecured revolving credit facility and default provisions, including defaults for non-payment, breach of representations
and warranties, insolvency, non-performance of covenants, cross-defaults and guarantor defaults. We were in compliance with
all financial covenants at December 31, 2019.
On March 8, 2018, we refinanced our senior unsecured credit facility with a new facility having a maturity date in
March 2023, which includes the option to extend the maturity by an additional year, and replaces our previous $250 million
senior unsecured credit facility that was scheduled to mature in 2020. At December 31, 2019, based on our current leverage
level, the borrowing cost under the facility is LIBOR plus 1.65 percent. We were in compliance with all financial covenants at
December 31, 2019.
51
In January 2014, we established a $25 million dividend reinvestment and stock purchase plan (the "Prior DRSPP").
We filed a new $50 million shelf registration statement for the dividend reinvestment and stock purchase plan (the "New
DRSPP" and together with the Prior DRSPP, the "DRSPPs") on December 28, 2017 to replace the prior expiring program.
Under the DRSPPs, shareholders may purchase additional common shares by reinvesting some or all of the cash dividends
received on the Company's common shares. Shareholders may also make optional cash purchases of the Company's common
shares subject to certain limitations detailed in the prospectuses for the DRSPPs. During the year ended December 31, 2019,
we issued 259,954 shares under the New DRSPP at a weighted average price of $20.09, which generated $5.2 million of
proceeds. As of December 31, 2019 and December 31, 2018, respectively, we had issued 1,768,000 and 1,508,046 shares
under the DRSPPs at a weighted average price of $21.33 and $21.55 per share, respectively. As of December 31, 2019, there
were common shares having a maximum aggregate sales price of approximately $27.9 million available for issuance under the
New DRSPP.
In January 2014, the Company established an At the Market Equity Offering ("Prior ATM Plan") whereby, from time
to time, we may publicly offer and sell our common shares having an aggregate maximum offering price of up to $50 million
by means of ordinary brokers' transactions on the New York Stock Exchange (the "NYSE"), in negotiated transactions or in
transactions that are deemed to be "at the market" offerings as defined in Rule 415 under the Securities Act of 1933. We filed a
$100 million registration statement for a new ATM program (the "ATM Plan" and together with the Prior ATM Plan, the
"ATM Plans") on December 28, 2017 to replace the prior program. At the same time, the Company entered into sales
agreements with Cantor Fitzgerald & Co. ("Cantor"), Barclays Capital Inc. ("Barclays"), Robert W. Baird & Co. Incorporated
("Baird"), BTIG, LLC ("BTIG"), Citigroup Global Markets Inc. ("Citigroup"), Stifel, Nicolaus & Company, Incorporated
("Stifel") and Wells Fargo Securities, LLC ("Wells Fargo") as sales agents. During the year ended December 31, 2019, we
issued 103,590 shares under the ATM Plan at a weighted average price of $20.05, which generated $2.1 million of proceeds.
As of December 31, 2019 and December 31, 2018, respectively, we had issued 2,602,260 and 2,498,670 shares under the ATM
Plans at a weighted average price of $21.76 and $21.83 per share, respectively, in addition to the offerings discussed above.
As of December 31, 2019, there were common shares having a maximum aggregate sales price of approximately $90.4 million
available for issuance under the ATM Plan.
We expect to meet our short-term liquidity requirements generally through net cash provided by operations, existing
cash balances and, if necessary, short-term borrowings under our senior unsecured revolving credit facility or through
encumbrance of any unencumbered hotels. We believe that our net cash provided by operations will be adequate to fund
operating obligations, pay interest on any borrowings and fund dividends in accordance with the requirements for qualification
as a REIT under the Code. We expect to meet our long-term liquidity requirements, such as hotel property acquisitions and debt
maturities or repayments through additional long-term secured and unsecured borrowings, the issuance of additional equity or
debt securities or the possible sale of existing assets.
We intend to continue to invest in hotel properties as suitable opportunities arise. We intend to finance our future
investments with free cash flow, the net proceeds from additional issuances of common and preferred shares, issuances of
common units in our Operating Partnership or other securities, borrowings or asset sales. The success of our acquisition strategy
depends, in part, on our ability to access additional capital through other sources. There can be no assurance that we will
continue to make investments in properties that meet our investment criteria. Additionally, we may choose to dispose of certain
hotels as a means to provide liquidity.
52
Capital Expenditures
We intend to maintain each hotel property in good repair and condition and in conformity with applicable laws and
regulations and in accordance with the franchisor’s standards and any agreed-upon requirements in our management and loan
agreements. After we acquire a hotel property, we may be required to complete a property improvement plan (“PIP”) in order to
be granted a new franchise license for that particular hotel property. PIPs are intended to bring the hotel property up to the
franchisor’s standards. Certain of our loans require that we escrow for property improvement purposes, at the hotels
collateralizing these loans, amounts up to 5% of gross revenue from such hotels. We intend to spend amounts necessary to
comply with any reasonable loan or franchisor requirement and otherwise to the extent that such expenditures are in the best
interest of the hotel. To the extent that we spend more on capital expenditures than is available from our operations, we intend
to fund those capital expenditures with available cash and borrowings under our senior unsecured revolving credit facility.
For the years ended December 31, 2019 and 2018, we invested approximately $35.9 million and $31.4 million,
respectively, on capital projects in our hotels. We expect to invest approximately $22.9 million on renovations, discretionary
and emergency expenditures on our existing hotels in 2020, including improvements required under any brand PIP.
We are developing a hotel in Los Angeles, CA on a parcel of land owned by us. We expect the total development
costs for construction of the hotel to be approximately $65.0 million, which includes the cost of the land. We have incurred
$20.5 million of costs to date, which included $6.6 million of the land acquisition costs and $13.9 million of other development
costs. We reclassified the $6.6 million of land acquisition costs from Land to Hotel Properties Under Development during the
year ended December 31, 2019 in conjunction with our development activities.
Related Party Transactions
We have entered into transactions and arrangements with related parties that could result in potential conflicts of
interest. See “Risks Related to Our Business” and Note 15, “Related Party Transactions”, to our consolidated financial
statements included in this Annual Report on Form 10-K. See also Item 13 of this Form 10-K.
Off-Balance Sheet Arrangements
We had no material off-balance sheet arrangements at December 31, 2019 other than non-recourse debt associated
with the NewINK JV and Inland JV as discussed below.
Contractual Obligations
The following table sets forth our contractual obligations as of December 31, 2019, and the effect these obligations are
expected to have on our liquidity and cash flow in future periods (in thousands).
Total
1.
2.
Contractual Obligations
Corporate office lease (1)
Payments Due by Period
Total
Less Than
One Year
One to Three
Years
Three to Five
Years
More Than Five
Years
$
5,806
$
812
$
1,684
$
1,770
$
Revolving credit facility, including interest (2)
Ground leases
Property loans, including interest (2)
99,518
73,457
572,968
4,359
1,215
32,571
95,159
2,438
76,916
—
2,438
447,550
$
751,749
$
38,957
$
176,197
$
451,758
$
1,540
—
67,366
15,931
84,837
The Company entered into a corporate office lease in 2015. The lease is for eleven years and includes a 12-month rent abatement period and
certain tenant improvement allowances. The Company will share the space with related parties and will be reimbursed for the pro-rata share of
rentable space occupied by related parties.
Does not reflect paydowns or additional borrowings under the senior unsecured revolving credit facility after December 31, 2019. Interest
payments are based on the interest rate in effect as of December 31, 2019. See Note 7, “Debt” to our consolidated financial statements for
additional information relating to our property loans.
In addition to the above listed obligations, we pay management and franchise fees to our hotel management companies
and franchisors based on the revenues of our hotels. The table above also does not include $22.9 million that we expect to
invest on renovations, discretionary and emergency capital expenditures on our existing hotels in 2020, or $44.5 million of
estimated remaining costs associated with our Los Angeles hotel development. Our contracts associated with these planned
53
capital expenditures contain clauses that allow us to cancel all or some portion of the work. If cancellation of a contract
occurred, our commitment would be any costs incurred up to the cancellation date, in addition to any costs associated with the
discharge of the contract.
The Company’s ownership interests in the NewINK JV and Inland JV are subject to change in the event that either we
or CLNY calls for additional capital contributions to the respective JVs necessary for the conduct of that JV's business,
including contributions to fund costs and expenses related to capital expenditures. We manage the NewINK JV and Inland JV
and will receive a promote interest in the applicable JV if it meets certain return thresholds. CLNY may also approve certain
actions related to the JVs without the Company’s consent, including certain property dispositions conducted at arm’s length,
certain actions related to the restructuring of the JVs and removal of the Company as managing member in the event the
Company fails to fulfill its material obligations under the respective joint venture agreements.
In connection with certain non-recourse mortgage loans in either the NewINK JV or Inland JV, our Operating
Partnership could require us to repay our pro rata share of portions of each respective JV's indebtedness in connection with
certain customary non-recourse carve-out provisions such as environmental conditions, misuse of funds and material
misrepresentations.
Inflation
Operators of hotels, in general, possess the ability to adjust room rates daily to reflect the effects of inflation. However,
competitive pressures may limit the ability of our management companies to raise room rates.
Critical Accounting Policies
We consider the following policies critical because they require estimates about matters that are inherently uncertain,
involve various assumptions and require management judgment. The preparation of the consolidated financial statements in
conformity with GAAP requires management to make estimates and assumptions that affect the reported amount of assets and
liabilities at the balance sheet date and the reported amounts of revenues and expenses during the reporting period. Actual
results may differ from these estimates and assumptions.
Investment in Hotel Properties
We allocate the purchase prices of hotel properties acquired based on the fair value of the acquired real estate,
furniture, fixtures and equipment, identifiable intangible assets and assumed liabilities. In making estimates of fair value for
purposes of allocating the purchase price, we utilize a number of sources of information that are obtained in connection with the
acquisition of a hotel property, including valuations performed by independent third parties and information obtained about
each hotel property resulting from pre-acquisition due diligence. Hotel property acquisition costs, such as transfer taxes, title
insurance, environmental and property condition reviews, and legal and accounting fees were expensed in 2016. The Company
early adopted ASU 2017-01 "Definition of a Business" which requires these costs to be capitalized for asset acquisitions. The
Company generally expects its hotel acquisitions will qualify as asset acquisitions.
Our hotel properties are carried at cost and are depreciated using the straight-line method over the estimated useful
lives of the assets, generally 40 years for buildings, 20 years for land improvements, 5 to 20 years for building improvements
and one to ten years for furniture, fixtures and equipment. Renovations and/or replacements at the hotel properties that improve
or extend the life of the assets are capitalized and depreciated over their useful lives, while repairs and maintenance are
expensed as incurred. Upon the sale or retirement of property and equipment, the cost and related accumulated depreciation are
removed from the Company’s accounts and any resulting gain or loss is recognized in the consolidated statements of
operations.
Our hotel properties are reviewed for impairment whenever events or changes in circumstances indicate that the
carrying value of the hotel properties may not be recoverable. Events or circumstances that may cause a review include, but are
not limited to, adverse changes in the demand for lodging at the properties due to declining national or local economic
conditions and/or new hotel construction in markets where the hotels are located. When these conditions exist, management will
perform an analysis to determine if the estimated undiscounted future cash flows, without interest charges, from operations and
the proceeds from the ultimate disposition of a hotel property exceed its carrying value. If the estimated undiscounted future
cash flows are less than the carrying amount, an adjustment to reduce the carrying amount to the related hotel property's
estimated fair market value is recorded and an impairment loss recognized. For the year ended December 31, 2017, the
Company incurred an impairment loss on its Washington SHS, PA hotel. For the years ended December 31, 2019 and 2018
there were no impairment losses.
54
For properties the Company considers held for sale, depreciation and amortization are no longer recorded and the
value the properties is recorded at the lower of depreciated cost or fair value, less costs to sell. If circumstances arise that were
previously considered unlikely, and, as a result, the Company decides not to sell a property previously classified as held for
sale, the Company will reclassify such property as held and used. Such property is measured at the lower of its carrying amount
(adjusted for any depreciation and amortization expense that would have been recognized had the property been continuously
classified as held and used) or fair value at the date of the subsequent decision not to sell. The Company classifies properties as
held for sale when all criteria within the Financial Accounting Standards Board's ("FASB") guidance on the impairment or
disposal of long-lived assets are met. As of December 31, 2019, we had no hotel properties held for sale.
Investment in Unconsolidated Real Estate Entities
If it is determined that the Company does not have a controlling interest in a joint venture, either through its financial
interest in a variable investment entity ("VIE") or in a voting interest entity, the equity method of accounting is used if the
company has the ability to exercise significant influence. Under this method, the investment, originally recorded at cost, is
adjusted to recognize the Company’s share of net earnings or losses of the affiliates as they occur rather than as dividends or
other distributions are received, advances to and commitments for the investee.
Investment in unconsolidated real estate entities are accounted for under the equity method of accounting and the
Company records its equity in earnings or losses under the hypothetical liquidation of book value (“HLBV”) method of
accounting due to the structures and the preferences we receive on the distributions from the joint ventures pursuant to the joint
venture agreements. Under this method, the Company recognizes income and loss in each period based on the change in
liquidation proceeds we would receive from a hypothetical liquidation of our investment based on depreciated book value.
Therefore, income or loss may be allocated disproportionately as compared to the ownership percentages due to specified
preferred return rate thresholds and may be more or less than actual cash distributions received and more or less than what the
In the event a basis difference is created between the carrying
Company may receive in the event of an actual liquidation.
amount of the Company's share of partner's capital, the resulting amount is allocated based on the assets of the investee and, if
assigned to depreciable or amortizable assets, then amortized as a component of income (loss) from unconsolidated real estate
entities.
On January 1, 2016, the Company adopted accounting guidance under Accounting Standards Codification (ASC)
Topic 810, "Consolidation,” modifying the analysis it must perform to determine whether it should consolidate certain types of
legal entities. The guidance does not amend the existing disclosure requirements for variable interest entities ("VIEs") or voting
interest model entities. The guidance, however, modified the requirements to qualify under the voting interest model. Under the
revised guidance, the Operating Partnership is a VIE of the Company. As the Operating Partnership is already consolidated in
the financial statements of the Company, the identification of this entity as a VIE has no impact on the consolidated financial
statements of the Company. There were no other legal entities qualifying under the scope of the revised guidance that were
consolidated as a result of the adoption. In addition, there were no other voting interest entities under prior existing guidance
determined to be variable interest entities under the revised guidance.
The Company periodically reviews the carrying value of its investment in unconsolidated joint ventures to determine if
circumstances indicate impairment to the carrying value of the investment that is other than temporary. When an impairment
indicator is present, the Company will estimate the fair value of the investment. The Company’s estimate of fair value takes
into consideration factors such as expected future operating income, trends and prospects, as well as other factors. This
determination requires significant estimates by management, including the expected cash flows to be generated by the assets
owned and operated by the joint venture. To the extent impairment has occurred, the loss will be measured as the excess of the
carrying amount over the fair value of the Company’s investment in the unconsolidated joint venture. As of December 31,
2019 and 2018, we had no JVs that were impaired.
Revenue Recognition
Revenue from hotel operations is recognized when rooms are occupied and when services are provided. Revenue
consists of amounts derived from hotel operations, including sales from room, meeting room, gift shop, in-room movie and
other ancillary amenities. Sales, use, occupancy, and similar taxes are collected and presented on a net basis (excluded from
revenues) in the accompanying consolidated statements of operations.
On January 1, 2018, the Company adopted accounting guidance under Accounting Standards Codification (ASU)
Topic 2014-09, "Revenue from Contracts with Customers" on a modified retrospective basis. Our current revenue streams are
not affected under the new model and we did not recognize a cumulative effect adjustment as part of the modified retrospective
method of adoption. Furthermore, the new accounting guidance will not materially impact the recognition of or the accounting
55
for disposition of hotels, since we primarily dispose of hotels to third parties in exchange for cash with few contingencies. As it
relates to capitalization of costs to acquire customer contracts, the Company has elected to use the Financial Accounting
Standards Board's ("FASB") practical expedient which allows us to expense costs to acquire customer contracts as they are
incurred due to their short-term nature for a specified number of nights that never exceed one year. This guidance applies to all
contracts as of the adoption date. The Company has applied all relevant disclosures of this standard.
Share-Based Compensation
We measure compensation expense for the restricted share awards based upon the fair market value of our common
shares at the date of grant. The Company measures compensation expense for the LTIP and Class A Performance units based
upon the Monte Carlo approach using volatility, dividend yield and a risk free interest rate in the valuation. Compensation
expense is recognized on a straight-line basis over the vesting period and is included in general and administrative expense in
the accompanying consolidated statements of operations. We pay dividends on vested and non-vested restricted shares, except
for performance-based shares for which dividends on unvested shares are not paid until these shares are vested. The Company
has also issued Class A Performance LTIP units from time to time as part of its compensation plan. Prior to vesting, holders of
Class A Performance LTIP Units will not be entitled to vote their Class A Performance LTIP units. In addition, under the terms
of the Class A Performance LTIP units, a holder of a Class A Performance LTIP unit will generally (i) be entitled to receive
10% of the distributions made on a common unit of the Operating Partnership during the period prior to vesting of such Class A
Performance LTIP unit (the “Pre-Vesting Distributions”), (ii) be entitled, upon the vesting of such Class A Performance LTIP
unit, to receive a special one-time “catch-up” distribution equal to the aggregate amount of distributions that were paid on a
common unit during the period prior to vesting of such Class A Performance LTIP unit minus the aggregate amount of Pre-
Vesting Distributions paid on such Class A Performance LTIP unit, and (iii) be entitled, following the vesting of such Class A
Performance LTIP unit, to receive the same amount of distributions paid on a common unit of the Operating Partnership.
Income Taxes
We elected to be taxed as a REIT for federal income tax purposes commencing with our 2010 taxable year. In order to
qualify as a REIT under the Code, we must meet certain organizational and operational requirements, including a requirement
to distribute at least 90% of our annual REIT taxable income to our shareholders (which is computed without regard to the
dividends paid deduction or net capital gain and which does not necessarily equal net income as calculated in accordance with
GAAP). As a REIT, we generally will not be subject to federal income tax to the extent we currently distribute our taxable
income to our shareholders. If we fail to qualify as a REIT in any taxable year, we will be subject to federal income tax on our
taxable income at regular corporate income tax rates and generally will not be permitted to qualify for treatment as a REIT for
federal income tax purposes for the four taxable years following the year during which qualification is lost unless the IRS grants
us relief under certain statutory provisions. Such an event could materially adversely affect our net income and net cash
available for distribution to shareholders. However, we believe we have been organized and that we operate in such a manner as
to qualify for treatment as a REIT.
Recently Issued Accounting Standards
On January 1, 2019, the Company adopted accounting guidance under Accounting Standards Codification (ASU)
2016-02 (“ASU 2016-02”), Leases, which relates to the accounting for leasing transactions. On February 25, 2016, the FASB
issued updated accounting guidance which sets out the principles for the recognition, measurement, presentation and disclosure
of leases for both parties to a contract (i.e., lessees and lessors). The new accounting guidance requires lessees to apply a dual
approach, classifying leases as either finance or operating leases based on whether or not the lease is effectively a financed
purchase by the lessee. The classification of the lease will determine whether lease expense is recognized based on an effective
interest method or on a straight-line basis over the term of the lease. A lessee is also required to record a right-of-use asset and a
lease liability for all leases. We adopted the new accounting guidance on January 1, 2019 and applied it based on the optional
transition method provided for, which allows entities to recognize a cumulative-effect adjustment to the balance sheet on the
adoption date. Upon adoption, we applied the package of practical expedients made available under the new accounting
guidance and also make an accounting policy election to not recognize right-of-use assets or lease liabilities for leases with
terms of 12 months or less. For our ground lease agreements and corporate office lease agreement, all of which are currently
accounted for as operating leases, we recognized lease liabilities of $25.7 million with corresponding right-of use assets of
$23.1 million on our consolidated balance sheet as of January 1, 2019.
56
On January 1, 2018, the Company adopted accounting guidance under 2016-15 ("ASU 2016-15"), Classification of
Certain Cash Receipts and Cash Payments, which clarifies and provides specific guidance on eight cash flow classification
issues with an objective to reduce the current diversity in practice. The Company has certain cash payments and receipts related
to debt extinguishment that are affected by the new standard. The Company has historically classified distributions received
from equity method investments under the cumulative earnings approach. As such, there was no impact due to application of
the new guidance. The Company applied the new guidance on a retrospective basis.
On January 1, 2018, the Company adopted accounting guidance under ASU 2016-18 ("ASU 2016-18"), Restricted
Cash, which requires that the statement of cash flows explain the change during the period in the total of cash, cash equivalents
and amounts generally described as restricted cash or restricted cash equivalents. This standard addresses presentation of
restricted cash in the consolidated statements of cash flows only. Restricted cash represents purchase price deposits held in
escrow for potential hotel acquisitions under contract and escrow reserves such as reserves for capital expenditures, property
taxes or insurance that are required pursuant to the Company's loans. The Company applied the new guidance on a
retrospective basis.
On January 5, 2017, the FASB issued ASU 2017-01 ("ASU 2017-01"), Definition of a Business, which resulted in
more acquisitions being accounted for as asset acquisitions across all industries, particularly real estate, pharmaceutical and oil
and gas. Application of the changes also affect the accounting for disposal transactions. The changes to the definition of a
business resulted in more of the Company's property acquisitions qualifying as asset acquisitions, which permits capitalization
of acquisition costs. This standard was effective for public business entities with a calendar year end in 2018 and all other
entities have an additional year to adopt. The Company adopted this guidance as of 2017. The adoption did not have a material
impact on our consolidated financial statements.
57
Item 7A. Quantitative and Qualitative Disclosures about Market Risk.
We may be exposed to interest rate changes primarily as a result of our assumption of long-term debt in connection
with our acquisitions and upon refinancing of existing debt. Our interest rate risk management objectives are to limit the impact
of interest rate changes on earnings and cash flows and to lower overall borrowing costs. To achieve these objectives, we seek
to borrow primarily at fixed rates or variable rates with the lowest margins available and, in some cases, with the ability to
convert variable rates to fixed rates. With respect to variable rate financing, we will assess interest rate risk by identifying and
monitoring changes in interest rate exposures that may adversely impact expected future cash flows and by evaluating hedging
opportunities.
The Company estimates the fair value of its fixed rate debt by discounting the future cash flows of each instrument at
estimated market rates. Rates take into consideration general market conditions, maturity and fair value of the underlying
collateral. The estimated fair value of the Company’s fixed rate debt at December 31, 2019 and December 31, 2018 was $501.5
million and $489.0 million, respectively.
At December 31, 2019, our consolidated debt was comprised of floating and fixed interest rate debt. The fair value of
our fixed rate debt indicates the estimated principal amount of debt having the same debt service requirements that could have
been borrowed at the date presented, at then current market interest rates. The following table provides information about the
maturities of our financial instruments as of December 31, 2019 that are sensitive to changes in interest rates (dollars in
thousands):
Floating rate:
Debt
Average interest rate (1)
Fixed rate:
Debt
Average interest rate
2020
2021
2022
2023
2024
Thereafter
Total
Fair Value
—
—
— 90,000
—
4.31 % $
—
—
—
—
— $ 90,000
4.31 %
—
$ 90,000
$9,536
4.68 %
$21,979
5.26 %
$9,954
4.63 % 4.66 %
$143,084 $296,387
4.64 %
$15,920
4.25 %
$ 496,860
4.66 %
$ 501,481
1. Weighted average interest rate based on borrowings at LIBOR of 1.80% plus a margin of 1.65% and a prime rate of 4.75% plus a margin of
0.65% at December 31, 2019.
We estimate that a hypothetical 100 basis point increase in the variable interest rate would result in additional interest
expense of approximately $0.9 million annually. This assumes that the amount outstanding under our floating rate debt remains
$90.0 million, the balance as of December 31, 2019.
58
Item 8. Consolidated Financial Statements and Supplementary Data
See our Consolidated Financial Statements and the Notes thereto beginning at page F-1 included in Item 15, which are
incorporated herein by reference.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
None.
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief
Financial Officer, we have evaluated the effectiveness of the design and operation of our disclosure controls and procedures
pursuant to Exchange Act Rule 13a-15(b) as of the end of the period covered by this report. Based on that evaluation, our Chief
Executive Officer and Chief Financial Officer have concluded that these disclosure controls and procedures are effective to
provide reasonable assurance that information required to be disclosed by us in reports we file or submit under the Exchange
Act is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms, and that
such information is accumulated and communicated to our management to allow timely decisions regarding required disclosure.
Changes in Internal Control over Financial Reporting
There have been no changes in our internal control over financial reporting that occurred during the last fiscal quarter
of 2019 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Management Annual Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting as
such term is defined in Exchange Act Rule 13a-15(f) and 15d- 15(f). A company’s internal control over financial reporting is a
process designed 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.
Our management assessed the effectiveness of our internal control over financial reporting as of December 31,
2019. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO) in “Internal Control-Integrated Framework” (2013 framework). Based on this assessment,
management has concluded that, as of December 31, 2019, our internal control over financial reporting is effective, based on
those criteria.
The effectiveness of our internal control over financial reporting as of December 31, 2019, has been audited by
PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report, which appears on
page F-2 of this Annual Report on Form 10-K.
Item 9B. Other Information
None.
59
Item 10. Trustees, Executive Officers and Corporate Governance
Part III
The information required by this item is incorporated by reference to the Company's Proxy Statement for the 2020
Annual Meeting of Shareholders to be held on May 13, 2020.
Item 11. Executive Compensation
The information required by this item is incorporated by reference to the Company's Proxy Statement for the 2020
Annual Meeting of Shareholders to be held on May 13, 2020.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information required by this item is incorporated by reference to the Company's Proxy Statement for the 2020
Annual Meeting of Shareholders to be held on May 13, 2020.
Item 13. Certain Relationships and Related Transactions, and Trustee Independence
The information required by this item is incorporated by reference to the Company's Proxy Statement for the 2020
Annual Meeting of Shareholders to be held on May 13, 2020.
Item 14. Principal Accountant Fees and Services
The information required by this item is incorporated by reference to the Company's Proxy Statement for the 2020
Annual Meeting of Shareholders to be held on May 13, 2020.
60
Item 15. Exhibits and Financial Statement Schedules
PART IV
1.
Financial Statements
Included herein at pages F-1 through F-7
2.
Financial Statement Schedules
The following financial statement schedule is included herein at page F-40:
Schedule III - Real Estate and Accumulated Depreciation as of December 31, 2019
All other schedules for which provision is made in Regulation S-X are either not required to be included herein under the
related instructions or are inapplicable or the related information is included in the footnotes to the applicable financial
statement and, therefore, have been omitted.
3. Exhibits
A list of exhibits required to be filed as part of this report on Form 10-K is set forth in the Exhibit Index, which immediately
follows this item and is incorporated by reference herein.
61
Exhibit
Number
Description of Exhibit
EXHIBIT INDEX
3.1
3.2
4.1
10.1*
10.2*
10.3*
10.4*
10.5*
10.6*
10.7*
10.8*
10.9*
10.10*
10.11*
10.12*
10.13*
10.14*
10.15*
10.16
10.17
10.18
10.19
10.20
10.21
10.22
10.23
10.24
10.25*
10.26*
Articles of Amendment and Restatement of Chatham Lodging Trust(12)
Second Amended and Restated Bylaws of Chatham Lodging Trust(1)
Description of the Company's Securities Registered Pursuant to Section 12 of the Securities Exchange Act
of 1934
Chatham Lodging Trust Equity Incentive Plan, Amended and Restated as of May 17, 2013 (2)
Employment Agreement between Chatham Lodging Trust and Jeffrey H. Fisher(12)
Employment Agreement between Chatham Lodging Trust and Peter Willis(12)
Employment Agreement between Chatham Lodging Trust and Dennis M. Craven(12)
Employment Agreement between Chatham Lodging Trust and Jeremy Wegner(3)
First Amendment to Employment Agreement of Peter Willis dated January 30, 2015(4)
First Amendment to Employment Agreement of Dennis Craven dated January 30, 2015(4)
Form of Indemnification Agreement between Chatham Lodging Trust and its officers and trustees(5)
Form of LTIP Unit Vesting Agreement(5)
Form of Share Award Agreement for Trustees(5)
Form of Share Award Agreement for Officers(6)
Share Award Agreement, dated as of June 1, 2015, between Chatham Lodging Trust and Jeremy Wegner(7)
LTIP Unit Award Agreement, dated as of June 1, 2015, between Chatham Lodging Trust, Chatham
Lodging, L.P. and Jeffrey Fisher (Outperformance Plan) (8)
LTIP Unit Award Agreement, dated as of June 1, 2015, between Chatham Lodging Trust, Chatham
Lodging, L.P. and Dennis Craven (Outperformance Plan) (8)
LTIP Unit Award Agreement, dated as of June 1, 2015, between Chatham Lodging Trust, Chatham
Lodging, L.P. and Peter Willis (Outperformance Plan) (8)
Agreement of Limited Partnership of Chatham Lodging, L.P.(5)
First Amendment to the Agreement of Limited Partnership of Chatham Lodging, L.P.(7)
Form of IHM Hotel Management Agreement(5)
Third Amended and Restated Limited Liability Company Agreement of INK Acquisition LLC, dated as of
June 9, 2014, by and between Platform Member-T, LLC and Chatham Lodging, L.P.(9)
Second Amended and Restated Limited Liability Company Agreement of INK Acquisition III, LLC, dated
as of June 9, 2014, by and between Platform Member Holdings-T Cam2, LLC and Chatham TRS Holding,
Inc.(9)
Loan Agreement, dated as of June 9, 2014, between Grand Prix Sili II, LLC, as borrower, and JP Morgan
Chase Bank, National Association, as lender.(9)
Limited Liability Company Agreement of IHP I Owner JV, LLC, dated as of November 17, 2014, by and
between Platform Member II-T, LLC and Chatham IHP, LLC.(10)
Limited Liability Company Agreement of IHP I OPs JV, LLC, dated as of November 17, 2014, by and
between Platform Member Holdings II-T Cam2, LLC and Chatham TRS Holding, Inc.(10)
Amended and Restated Credit Agreement, dated as of March 8, 2018, among Chatham Lodging Trust,
Chatham Lodging, L.P., the lenders party thereto and Barclays Bank PLC, as administrative agent.
Form of 2016 Time-Based LTIP Unit Award Agreement(12)
Form of 2016 Performance-Based LTIP Unit Award Agreement(12)
62
10.27*
10.28*
10.29
10.30
10.31
10.32
10.33
10.34
10.35
21.1
23.1
31.1
31.2
32.1
Form of 2017 Time-Based LTIP Unit Award Agreement(13)
Form of 2017 Performance-Based LTIP Unit Award Agreement(13)
Sales Agreement, dated December 28, 2017, by and among Chatham Lodging Trust, Chatham Lodging,
L.P. and Cantor Fitzgerald & Co.(14)
Sales Agreement, dated December 28, 2017, by and among Chatham Lodging Trust, Chatham Lodging,
L.P. and Barclays Capital Inc.(14)
Sales Agreement, dated December 28, 2017, by and among Chatham Lodging Trust, Chatham Lodging,
L.P. and BTIG, LLC(14)
Sales Agreement, dated December 28, 2017, by and among Chatham Lodging Trust, Chatham Lodging,
L.P. and Citigroup Global Markets Inc(14)
Sales Agreement, dated December 28, 2017, by and among Chatham Lodging Trust, Chatham Lodging,
L.P. and Robert W. Baird & Co. Incorporated(14)
Sales Agreement, dated December 28, 2017, by and among Chatham Lodging Trust, Chatham Lodging,
L.P. and Stifel, Nicolaus & Company, Incorporated(14)
Sales Agreement, dated December 28, 2017, by and among Chatham Lodging Trust, Chatham Lodging,
L.P. and Wells Fargo Securities(14)
List of Subsidiaries of Chatham Lodging Trust
PricewaterhouseCoopers LLP Consent to include Report on Financial Statements of Chatham Lodging
Trust
Certification of Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange
Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Certification of Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange
Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS**
The instance document does not appear in the interactive data file because its inline XBRL tags are
embedded within the inline XBRL document.
101.SCH**
Inline XBRL Taxonomy Extension Schema Document
101.CAL**
Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF**
Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB**
Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE**
Inline XBRL Taxonomy Extension Presentation Linkbase Document
104
*
**
Cover Page Interactive Data File - the cover page interactive data file does not appear in the interactive date
file because its XBRL tags are embedded within the inline XBRL document
Denotes management contract or compensation plan or arrangement in which trustees or officers are eligible to
participate.
Submitted electronically herewith. Attached as Exhibit 101 to this report are the following documents formatted in
XBRL (Extensible Business Reporting Language): (i) Consolidated Balance Sheets at December 31, 2019 and 2018; (ii)
Consolidated Statements of Operations for the years ended December 31, 2019, 2018 and 2017; (iii) Consolidated
Statements of Equity for the years ended December 31, 2019, 2018 and 2017; (iv) Consolidated Statements of Cash Flows
for the years ended December 31, 2019, 2018 and 2017; and (v) Notes to the Consolidated Financial Statements.
63
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
(9)
(10)
(11)
(12)
(13)
(14)
Incorporated by reference to the Registrant's Current Report on Form 8-K filed with the SEC on April 21,
2015 (File No. 001-34693).
Incorporated by reference to the Registrant's Definitive Proxy Statement on Schedule 14A filed on April
15, 2013 (File No. 001-34693).
Incorporated by reference to the Registrant’s Current Report on Form 8-K filed with the SEC on May 5,
2015 (File No. 001-34693).
Incorporated by reference to the Registrant's Current Report on Form 8-K filed with the SEC on February
5, 2015 (File No. 001-34693).
Incorporated by reference to Amendment No. 4 to the Registrant’s Registration Statement on Form S-11
filed with the SEC on February 12, 2010 (File No. 333-162889).
Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q filed with the SEC on August
13, 2010 (File No. 001-34693).
Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q filed with the SEC on August
6, 2015 (File No. 001-34693).
Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q filed with the SEC on August
6, 2015 (File No. 001-34693).
Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q filed with the SEC on August
11, 2014 (File No. 001-34693).
Incorporated by reference to the Registrant's Current Report on Form 8-K filed with the SEC on
November 30, 2014 (File No. 001-34693).
Incorporated by reference to the Registrant's Current Report on Form 8-K filed with the SEC on
November 30, 2015 (File No. 001-34693).
Incorporated by reference to the Registrant's Annual Report on Form 10-K filed with the SEC on February
29, 2016 (File No. 001-34693).
Incorporated by reference to the Registrant’s Quarterly Report on Form 10-Q filed with the SEC on May
9, 2017 (File No. 001-34693).
Incorporated by reference to the Registrant's Current Report on Form 8-K filed with the SEC on December
28, 2017 (File No. 001-34693).
64
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the registrant has duly
caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
SIGNATURE
Dated:
February 26, 2020
CHATHAM LODGING TRUST
/s/ JEFFREY H. FISHER
Jeffrey H. Fisher
Chairman of the Board, President and Chief
Executive Officer
(Principal Executive Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the dates indicated.
SIGNATURE
TITLE
DATE
/s/ JEFFREY H. FISHER
Jeffrey H. Fisher
/s/ JEREMY B. WEGNER
Jeremy B. Wegner
Chairman of the Board, President and Chief Executive
Officer (Principal Executive Officer)
February 26, 2020
Senior Vice President and Chief Financial Officer (Principal
Financial and Accounting Officer)
February 26, 2020
/s/ EDWIN B. BREWER, JR.
Trustee
Edwin B. Brewer, Jr.
/s/ THOMAS J. CROCKER
Trustee
Thomas J. Crocker
/s/ JACK P. DEBOER
Trustee
Jack P. DeBoer
/s/ MARY ELIZABETH
HIGGINS
Mary Elizabeth Higgins
Trustee
/s/ ROBERT PERLMUTTER
Trustee
Robert Perlmutter
/s/ ROLF E. RUHFUS
Trustee
Rolf E. Ruhfus
February 26, 2020
February 26, 2020
February 26, 2020
February 26, 2020
February 26, 2020
February 26, 2020
65
CHATHAM LODGING TRUST
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets at December 31, 2019 and 2018
Consolidated Statements of Operations for the years ended December 31, 2019, 2018 and 2017
Consolidated Statements of Equity for the years ended December 31, 2019, 2018 and 2017
Consolidated Statements of Cash Flows for the years ended December 31, 2019, 2018 and 2017
Notes to Consolidated Financial Statements
Financial Statement Schedule
Schedule III - Real Estate and Accumulated Depreciation at December 31, 2019
Page No.
F-2
F-4
F-5
F-6
F-7
F-9
F-38
F-1
Report of Independent Registered Public Accounting Firm
To the Board of Trustees and Shareholders of Chatham Lodging Trust
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of Chatham Lodging Trust and its subsidiaries (the
“Company”) as of December 31, 2019 and 2018, and the related consolidated statements of operations, of equity and of cash
flows for each of the three years in the period ended December 31, 2019, including the related notes and financial statement
schedule listed in the index appearing under Item 15(2) (collectively referred to as the “consolidated financial statements”). We
also have audited the Company's internal control over financial reporting as of December 31, 2019, based on criteria established
in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial
position of the Company as of December 31, 2019 and 2018, and the results of its operations and its cash flows for each of the
three years in the period ended December 31, 2019 in conformity with accounting principles generally accepted in the United
States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over
financial reporting as of December 31, 2019, based on criteria established in Internal Control - Integrated Framework (2013)
issued by the COSO.
Change in Accounting Principle
As discussed in Note 2 to the consolidated financial statements, the Company changed the manner in which it accounts for
leases in 2019.
Basis for Opinions
The Company's management is responsible for these consolidated financial statements, for maintaining effective internal
control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included
in the Management Annual Report on Internal Control over Financial Reporting appearing under Item 9A. Our responsibility is
to express opinions on the Company’s consolidated financial statements and on the Company's internal control over financial
reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight
Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S.
federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement,
whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material
respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement
of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks.
Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated
financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by
management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal
control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the
risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based
on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the
circumstances. We believe that our audits provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed 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. A company’s internal control over financial reporting includes those policies and procedures
that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit
F-2
preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with authorizations of management and directors of the
company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Critical Audit Matters
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial
statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or
disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or
complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated
financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate
opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Impairment of Investment in Hotel Properties
As described in Note 2 and Note 5 to the consolidated financial statements, as of December 31, 2019 the Company had a net
investment in hotel properties of $1.3 billion. Management periodically reviews hotel properties for impairment whenever
events or changes in circumstances indicate that the carrying value of the hotel properties may not be recoverable. Events or
circumstances that may cause a review by management include, but are not limited to, adverse changes in the demand for
lodging at the properties due to declining national or local economic conditions and/or new hotel construction in markets where
the hotels are located. When such conditions exist, management will perform an analysis to determine if the estimated
undiscounted future cash flows, without interest charges, from operations and the proceeds from the ultimate disposition of a
hotel property exceed its carrying value. If the estimated undiscounted future cash flows are less than the carrying amount, an
adjustment to reduce the carrying amount to the related hotel property's estimated fair market value is recorded and an
impairment loss recognized.
The principal considerations for our determination that performing procedures relating to the impairment of investment in hotel
properties is a critical audit matter are there was significant judgment by management when developing the undiscounted future
cash flows of the hotel properties. This in turn led to a high degree of auditor judgment, subjectivity, and effort in performing
procedures to evaluate management’s future cash flows and significant assumptions, including annual income and expense
growth rates, terminal value capitalization rates, and probability weightings.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall
opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to
management’s hotel properties impairment analysis, including controls over the valuation of the hotel properties. These
procedures also included, among others, testing management’s process for developing the undiscounted future cash flows,
evaluating the appropriateness of the model, evaluating the completeness of management’s impairment analysis and whether
there were any other indicators of impairment that were not considered by management, testing the completeness, accuracy, and
relevance of underlying data used in the model, and evaluating the significant assumptions used by management, including the
annual income and expense growth rates, terminal value capitalization rates, and probability weightings. Evaluating
management’s assumptions related to the annual income and expense growth rates, terminal value capitalization rates, and
probability weightings involved evaluating whether the assumptions used by management were reasonable considering (i) the
current and past performance of the reporting unit, (ii) the consistency with external market and industry data, (iii) historical
marketing and disposition experience of the Company, and (iv) whether these assumptions were consistent with evidence
obtained in other areas of the audit.
/s/ PricewaterhouseCoopers LLP
Fort Lauderdale, Florida
February 26, 2020
We have served as the Company’s auditor since 2009.
F-3
CHATHAM LODGING TRUST
Consolidated Balance Sheets
(In thousands, except share and per share data)
Assets:
Investment in hotel properties, net
Investment in hotel properties under development
Cash and cash equivalents
Restricted cash
Investment in unconsolidated real estate entities
Right of use asset, net
Hotel receivables (net of allowance for doubtful accounts of $451 and $264,
respectively)
Deferred costs, net
Prepaid expenses and other assets
Deferred tax asset, net
Total assets
Liabilities and Equity:
Mortgage debt, net
Revolving credit facility
Accounts payable and accrued expenses
Distributions and losses in excess of investments of unconsolidated real estate
entities
Lease liability, net
Distributions payable
Total liabilities
Commitments and contingencies (see note 14)
Equity:
Shareholders’ Equity:
Preferred shares, $0.01 par value, 100,000,000 shares authorized and unissued at
December 31, 2019 and 2018
Common shares, $0.01 par value, 500,000,000 shares authorized; 46,928,445
and 46,537,031 shares issued and outstanding at December 31, 2019 and 2018,
respectively
Additional paid-in capital
Retained earnings (distributions in excess of retained earnings)
Total shareholders’ equity
Noncontrolling Interests:
Noncontrolling interest in operating partnership
Total equity
Total liabilities and equity
December 31,
2019
December 31,
2018
$
1,347,116
$
1,373,773
20,496
6,620
13,562
17,969
21,270
4,626
4,271
2,615
29
—
7,192
25,145
21,545
—
4,495
5,070
2,431
58
$
$
$
$
1,438,574
495,465
90,000
33,012
15,214
23,717
6,142
1,439,709
501,782
81,500
33,692
9,650
—
5,667
663,550
632,291
—
469
904,273
(142,365)
762,377
12,647
775,024
—
465
896,286
(99,285)
797,466
9,952
807,418
$
1,438,574
$
1,439,709
The accompanying notes are an integral part of these consolidated financial statements.
F-4
CHATHAM LODGING TRUST
Consolidated Statements of Operations
(In thousands, except share and per share data)
Revenue:
Room
Food and beverage
Other
Cost reimbursements from unconsolidated real estate entities
Total revenue
Expenses:
Hotel operating expenses:
Room
Food and beverage
Telephone
Other hotel operating
General and administrative
Franchise and marketing fees
Advertising and promotions
Utilities
Repairs and maintenance
Management fees
Insurance
Total hotel operating expenses
Depreciation and amortization
Impairment loss
Property taxes, ground rent and insurance
General and administrative
Other charges
Reimbursable costs from unconsolidated real estate entities
Total operating expenses
Operating income before gain (loss) on sale of hotel property
Gain (loss) on sale of hotel property
Operating Income
Interest and other income
Interest expense, including amortization of deferred fees
Income (loss) from unconsolidated real estate entities
Income before income tax benefit (expense)
Income tax benefit (expense)
Net income
Net income attributable to non-controlling interest
Net income attributable to common shareholders
Income per Common Share - Basic:
Net income attributable to common shareholders (Note 11)
Income per Common Share - Diluted:
Net income attributable to common shareholders (Note 11)
Weighted average number of common shares outstanding:
Basic
Diluted
Distributions per common share:
For the year ended
December 31,
2019
2018
2017
$
296,267
$
295,897
$
278,466
9,824
16,567
5,670
328,328
65,270
8,396
1,638
4,039
25,641
25,850
6,043
10,867
14,321
10,822
1,364
174,251
51,505
—
24,717
14,077
1,441
5,670
271,661
56,667
(3,282)
53,385
190
(28,247)
(6,448)
18,880
—
18,880
(177)
18,703
0.39
0.39
46,788,784
47,023,280
1.32
8,880
13,710
5,743
324,230
63,877
7,312
1,766
3,296
25,567
24,864
6,227
10,835
14,710
10,754
1,354
170,562
48,169
—
23,678
14,120
3,806
5,743
266,078
58,152
(18)
58,134
462
(26,878)
(876)
30,842
28
30,870
(229)
30,641
0.66
0.66
46,073,515
46,243,660
1.32
6,255
11,215
5,908
301,844
59,151
5,342
1,647
2,886
23,639
23,247
5,380
9,944
13,317
9,898
1,228
155,679
46,292
6,663
20,916
12,825
523
5,908
248,806
53,038
3,327
56,365
30
(27,901)
1,582
30,076
(396)
29,680
(202)
29,478
0.73
0.73
39,859,143
40,112,266
1.32
$
$
$
$
$
$
$
$
$
$
$
$
The accompanying notes are an integral part of these consolidated financial statements.
F-5
CHATHAM LODGING TRUST
Consolidated Statements of Equity
(In thousands, except share and per share data)
Balance January 1, 2017
Common Shares
Shares
Amount
38,367,014
380
Additional
Paid - In
Capital
722,019
Accumulated
Deficit
Total
Shareholders’
Equity
Noncontrolling
Interest in
Operating
Partnership
(45,657)
676,742
4,848
Total
Equity
681,590
Issuance of shares pursuant to Equity
Incentive Plan
Issuance of shares, net of offering costs of
$2,149
Issuance of restricted time-based shares
Amortization of share based compensation
Dividends declared on common shares
($1.32 per share)
Distributions declared on LTIP units
($1.32 per unit)
Reallocation of noncontrolling interest
Net income
23,980
6,979,272
5,000
—
—
—
—
—
—
70
—
—
—
—
—
—
500
148,472
—
815
—
—
(76)
—
Balance, December 31, 2017
45,375,266
450
871,730
Issuance of shares pursuant to Equity
Incentive Plan
Issuance of shares, net of offering costs of
$518
Issuance of restricted time-based shares
Amortization of share based compensation
Dividends declared on common shares
($1.32 per share)
Distributions declared on LTIP units
($1.32 per unit)
Forfeited distributions on LTIP units
Net income
21,670
1,135,095
5,000
—
—
—
—
—
—
15
—
—
—
—
—
—
500
23,953
—
103
—
—
—
—
—
—
—
—
500
—
500
148,542
— 148,542
—
815
—
2,469
—
3,284
(52,839)
(52,839)
— (52,839)
—
—
—
(76)
29,478
(69,018)
29,478
803,162
—
—
—
—
500
23,968
—
103
(977)
76
202
(977)
—
29,680
6,618
809,780
—
—
—
3,607
500
23,968
—
3,710
(60,908)
(60,908)
— (60,908)
—
—
—
—
30,641
30,641
(1,154)
(1,154)
652
229
652
30,870
Balance, December 31, 2018
46,537,031
$
465
$ 896,286
$
(99,285) $
797,466
$
9,952
$807,418
Issuance of shares pursuant to Equity
Incentive Plan
Issuance of shares, net of offering costs of
$209
Amortization of share based compensation
Dividends declared on common shares
($1.32 per share)
Distributions declared on LTIP units
($1.32 per unit)
Reallocation of noncontrolling interest
Net income
27,870
363,544
—
—
—
—
—
—
4
—
—
—
—
—
500
7,087
63
—
—
337
—
—
—
—
500
7,091
63
—
—
4,206
500
7,091
4,269
(61,783)
(61,783)
— (61,783)
—
—
—
337
18,703
18,703
(1,351)
(1,351)
(337)
177
—
18,880
Balance, December 31, 2019
46,928,445
$
469
$ 904,273
$ (142,365) $
762,377
$
12,647
$775,024
The accompanying notes are an integral part of these consolidated financial statements.
F-6
CHATHAM LODGING TRUST
Consolidated Statements of Cash Flows
(In thousands)
Cash flows from operating activities:
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation
Amortization of deferred franchise fees
Amortization of deferred financing fees included in interest expense
Loss (gain) on sale of hotel property
Impairment loss
Loss on write-off of deferred franchise fee
Deferred tax expense (benefit)
Share based compensation
Loss (income) from unconsolidated real estate entities
Distributions from unconsolidated entities
Changes in assets and liabilities:
Right of use asset
Hotel receivables
Deferred costs
Prepaid expenses and other assets
Accounts payable and accrued expenses
Lease liability
Net cash provided by operating activities
Cash flows from investing activities:
Improvements and additions to hotel properties
Investment in hotel properties under development
Acquisition of hotel properties, net of cash acquired
Proceeds from sale of hotel properties, net
Distributions from unconsolidated entities
Investment in unconsolidated real estate entities
Net cash used in investing activities
Cash flows from financing activities:
Borrowings on revolving credit facility
Repayments on revolving credit facility
Payments on mortgage debt
Payments of financing costs
Payment of offering costs
Proceeds from issuance of common shares
Forfeited distributions - non vested shares
Distributions - common shares/units
Net cash provided by (used in) financing activities
Net change in cash, cash equivalents and restricted cash
Cash, cash equivalents and restricted cash, beginning of period
Cash, cash equivalents and restricted cash, end of period
Supplemental disclosure of cash flow information:
Cash paid for interest
Capitalized interest
Cash paid for income taxes
F-7
For the year ended
December 31,
2019
2018
2017
$
18,880
$
30,870
$
29,680
51,258
247
912
3,282
—
—
29
4,719
6,448
—
613
(102)
(17)
(308)
664
(391)
86,234
(35,859)
(12,224)
(8,171)
8,987
2,692
—
47,932
46,060
237
902
18
—
—
(28)
4,210
876
—
—
(437)
(243)
64
1,814
—
86,215
217
648
(3,327)
6,663
16
396
3,784
(1,582)
667
—
353
(935)
356
3,693
—
86,689
(31,417)
(30,233)
—
—
(70,020)
(138,248)
—
5,036
—
12,555
2,551
(5,036)
(44,575)
(96,401)
(158,411)
74,500
(66,000)
(6,695)
(48)
(209)
7,298
—
(62,660)
(53,814)
(12,155)
32,337
149,000
(99,500)
(4,899)
(955)
(518)
24,486
—
(61,590)
6,024
(4,162)
36,499
20,182
$
32,337
$
129,000
(149,500)
(4,160)
—
(2,149)
150,691
(94)
(52,617)
71,171
(551)
37,050
36,499
27,274
445
748
$
$
$
25,328
$
— $
$
887
26,541
—
710
$
$
$
$
Supplemental disclosure of non-cash investing and financing information:
On January 15, 2020, the Company issued 24,516 shares to its independent trustees pursuant to the Company’s Equity
Incentive Plan as compensation for services performed in 2019. On January 16, 2019, the Company issued 27,870 shares to its
independent trustees pursuant to the Company’s Equity Incentive Plan as compensation for services performed in 2018. On
January 16, 2018, the Company issued 21,670 shares to its independent trustees pursuant to the Company's Equity Incentive
Plan as compensation for services performed in 2017.
As of December 31, 2019, the Company had accrued distributions payable of $6.1 million. These distributions were paid
on January 31, 2020 except for $0.9 million related to accrued but unpaid distributions on unvested performance based shares
(See Note 12). As of December 31, 2018, the Company had accrued distributions payable of $5.7 million. These distributions
were paid on January 25, 2019 except for $0.5 million related to accrued but unpaid distributions on unvested performance
based shares. As of December 31, 2017, the Company had accrued distributions payable of $5.8 million. These distributions
were paid on January 26, 2018 except for $0.8 million related to accrued but unpaid distributions on unvested performance
based shares.
Accrued share based compensation of $0.5 million, $0.5 million and $0.5 million is included in accounts payable and
accrued expenses as of December 31, 2019, 2018 and 2017, respectively.
Accrued capital improvements of $3.8 million, $2.4 million and $2.4 million are included in accounts payable and
accrued expenses as of December 31, 2019, 2018, and 2017 respectively.
The accompanying notes are an integral part of these consolidated financial statements.
F-8
CHATHAM LODGING TRUST
Notes to the Consolidated Financial Statements
(Dollar amounts in thousands, except share and per share data)
1.
Organization
Chatham Lodging Trust (“we,” “us” or the “Company”) was formed as a Maryland real estate investment trust on
October 26, 2009. The Company is internally-managed and was organized to invest primarily in upscale extended-stay and
premium-branded select-service hotels. The Company has elected to be treated as a real estate investment trust for federal
income tax purposes ("REIT").
The Company had no operations prior to the consummation of its initial public offering ("IPO") in April 2010. The net
proceeds from our share offerings are contributed to Chatham Lodging, L.P., our operating partnership (the “Operating
Partnership”), in exchange for partnership interests. Substantially all of the Company’s assets are held by, and all operations are
conducted through, the Operating Partnership. The Company is the sole general partner of the Operating Partnership and owns
100% of the common units of limited partnership interest in the Operating Partnership ("common units"). Certain of the
Company’s executive officers hold vested and unvested long-term incentive plan units in the Operating Partnership ("LTIP
units"), which are presented as non-controlling interests on our consolidated balance sheets.
As of December 31, 2019, the Company owned 40 hotels with an aggregate of 6,092 (unaudited) rooms located in 15
states and the District of Columbia (unaudited). As of December 31, 2019, the Company also (i) held a 10.3% noncontrolling
interest in a joint venture (the “NewINK JV”) with affiliates of Colony Capital, Inc. ("CLNY"), which was formed in the
second quarter of 2014 to acquire 47 hotels from a joint venture (the "Innkeepers JV") between the Company and Cerberus
Capital Management (“Cerberus”), comprising an aggregate of 5,948 (unaudited) rooms, (ii) held a 10.0% noncontrolling
interest in a separate joint venture (the "Inland JV") with CLNY, which was formed in the fourth quarter of 2014 to acquire 48
hotels from Inland American Real Estate Trust, Inc. ("Inland"), comprising an aggregate of 6,402 (unaudited) rooms. We
sometimes use the term, "JVs", which refers collectively to the NewINK JV and Inland JV.
To qualify as a REIT, the Company cannot operate its hotels. Therefore, the Operating Partnership and its subsidiaries
lease the Company's wholly owned hotels to taxable REIT subsidiary lessees (“TRS Lessees”), which are wholly owned by the
Company’s taxable REIT subsidiary (“TRS”) holding company. The Company indirectly (i) owns its 10.3% interest in 46 of
the NewINK JV hotels and (ii) 10.0% interest in 48 of the Inland JV hotels. All of the NewINK JV hotels and Inland JV hotels
are leased to TRS Lessees, in which the Company indirectly owns a noncontrolling interests through its TRS holding company.
Each hotel is leased to a TRS Lessee under a percentage lease that provides for rental payments equal to the greater of (i) a
fixed base rent amount or (ii) a percentage rent based on hotel room revenue. The initial term of each of the TRS leases is 5
years. Lease revenue from each TRS Lessee is eliminated in consolidation.
The TRS Lessees have entered into management agreements with third-party management companies that provide
day-to-day management for the hotels. As of December 31, 2019, Island Hospitality Management Inc. (“IHM”), which is
52.5% owned by Mr. Fisher, managed all 40 of the Company’s wholly owned hotels. As of December 31, 2019, all of the
NewINK JV hotels were managed by IHM. As of December 31, 2019, 34 of the Inland JV hotels were managed by IHM and 14
hotels were managed by Marriott International, Inc. ("Marriott").
2.
Summary of Significant Accounting Policies
Basis of Presentation
The accompanying consolidated financial statements and related notes have been prepared in accordance with U.S.
generally accepted accounting principles (“GAAP”) and in conformity with the rules and regulations of the Securities and
Exchange Commission (“SEC”). These consolidated financial statements, in the opinion of management, include all
adjustments consisting of normal, recurring adjustments which are considered necessary for a fair statement of the consolidated
balance sheets, consolidated statements of operations, consolidated statements of equity, and consolidated statements of cash
flows for the periods presented.
The consolidated financial statements include all of the accounts of the Company and its wholly owned subsidiaries.
All intercompany balances and transactions are eliminated in consolidation.
F-9
Reclassifications
Certain prior period revenue and expense amounts in the consolidated financial statements have been reclassified to be
comparable to the current period presentations. The reclassification did not have any impact on the net income. In addition, in
accordance with the SEC’s Disclosure Update and Simplification release, dated August 18, 2018, the Company moved the Gain
(loss) on sale of hotel property line on the Company’s Consolidated Statements of Operations within Operating income for all
periods presented.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the balance sheet date and the reported amounts of
revenues and expenses during the reporting periods. Actual results could differ from those estimates.
Fair Value of Financial Instruments
The Company’s financial instruments include cash and cash equivalents, restricted cash, hotel receivables, accounts
payable and accrued expenses, distributions payable, mortgage debt and revolving credit facility. Due to their relatively short
maturities, the carrying values reported in the consolidated balance sheets for these financial instruments approximate fair value
except for mortgage debt and the revolving credit facility the fair value of which is separately disclosed in Note 7.
Investment in Hotel Properties
The Company allocates the purchase prices of hotel properties acquired based on the fair value of the acquired real
estate, furniture, fixtures and equipment, identifiable intangible assets and assumed liabilities. In making estimates of fair value
for purposes of allocating the purchase price, the Company utilizes a number of sources of information that are obtained in
connection with the acquisition of a hotel property, including valuations performed by independent third parties and
information obtained about each hotel property resulting from pre-acquisition due diligence. On January 1, 2017, the Company
early adopted ASU 2017-01 "Definition of a Business" and all acquisitions since then qualified as an asset acquisition and all
such acquisition costs have been capitalized.
The Company’s investments in hotel properties are carried at cost and are depreciated using the straight-line method
over the estimated useful lives of the assets, generally 40 years for buildings, 20 years for land improvements, 5 to 20 years for
building improvements and one to ten years for furniture, fixtures and equipment. Renovations and/or replacements at the hotel
properties that improve or extend the life of the assets are capitalized and depreciated over their useful lives, while repairs and
maintenance are expensed as incurred. Upon the sale or retirement of property and equipment, the cost and related accumulated
depreciation are removed from the Company’s accounts and any resulting gain or loss is recognized in the consolidated
statements of operations.
The Company will periodically review its hotel properties for impairment whenever events or changes in
circumstances indicate that the carrying value of the hotel properties may not be recoverable. Events or circumstances that may
cause a review include, but are not limited to, adverse changes in the demand for lodging at the properties due to declining
national or local economic conditions and/or new hotel construction in markets where the hotels are located. When such
conditions exist, management will perform an analysis to determine if the estimated undiscounted future cash flows, without
interest charges, from operations and the proceeds from the ultimate disposition of a hotel property exceed its carrying value. If
the estimated undiscounted future cash flows are less than the carrying amount, an adjustment to reduce the carrying amount to
the related hotel property's estimated fair market value is recorded and an impairment loss recognized. For the year ended
December 31, 2017, the Company incurred an impairment loss on its Washington SHS, PA hotel (See footnote 5). For the
years ended December 31, 2019 and 2018, there were no impairment losses.
For properties the Company considers held for sale, depreciation and amortization are no longer recorded and the
value the properties is recorded at the lower of depreciated cost or fair value, less costs to sell. If circumstances arise that were
previously considered unlikely, and, as a result, the Company decides not to sell a property previously classified as held for
sale, the Company will reclassify such property as held and used. Such property is measured at the lower of its carrying amount
(adjusted for any depreciation and amortization expense that would have been recognized had the property been continuously
classified as held and used) or fair value at the date of the subsequent decision not to sell. The Company classifies properties as
held for sale when all criteria within the Financial Accounting Standards Board's ("FASB") guidance on disposal of long-lived
assets are met. As of December 31, 2019 and 2018 the Company had no hotel properties held for sale.
F-10
Investment in Unconsolidated Real Estate Entities
If it is determined that the Company does not have a controlling interest in a joint venture, either through its financial
interest in a variable interest entity ("VIE") or in a voting interest entity, but does have the ability to exercise significant
influence, the equity method of accounting is used. Under this method, the investment, originally recorded at cost, is adjusted
to recognize the Company’s share of net earnings or losses of the affiliates as they occur rather than as dividends or other
distributions are received, advances to and commitments for the investee.
Investments in unconsolidated real estate entities are accounted for under the equity method of accounting and the
Company records its equity in earnings or losses under the hypothetical liquidation of book value (“HLBV”) method of
accounting due to the structures and the preferences we receive on the distributions from our joint ventures pursuant to the
respective joint venture agreements for those joint ventures. Under this method, the Company recognizes income and loss in
each period based on the change in liquidation proceeds it would receive from a hypothetical liquidation of its investment based
on depreciated book value. Therefore, income or loss may be allocated disproportionately as compared to the ownership
percentages due to specified preferred return rate thresholds and may be more or less than actual cash distributions received and
more or less than what the Company may receive in the event of an actual liquidation. In the event a basis difference is created
between the carrying amount of the Company's share of partner's capital, the resulting amount is allocated based on the assets of
the investee and, if assigned to depreciable or amortizable assets, then amortized as a component of income (loss) from
unconsolidated real estate entities.
The Company periodically reviews the carrying value of its investment in unconsolidated joint ventures to determine if
circumstances indicate impairment to the carrying value of the investment that is other than temporary. When an impairment
indicator is present, the Company will estimate the fair value of the investment. The Company’s estimate of fair value takes
into consideration factors such as expected future operating income, trends and prospects, as well as other factors. This
determination requires significant estimates by management, including the expected cash flows to be generated by the assets
owned and operated by the joint venture. To the extent impairment has occurred and is other than temporary, the loss will be
measured as the excess of the carrying amount over the fair value of the Company’s investment in the unconsolidated joint
venture. As of December 31, 2019 and 2018, no NewINK or Inland JV investments were impaired.
The Company will periodically review its NewINK and Inland JV hotel properties for impairment whenever events or
changes in circumstances indicate that the carrying value of the hotel properties may not be recoverable. Events or
circumstances that may cause a review include, but are not limited to, adverse changes in the demand for lodging at the
properties due to declining national or local economic conditions and/or new hotel construction in markets where the hotels are
located. When such conditions exist, management will perform an analysis to determine if the estimated undiscounted future
cash flows, without interest charges, from operations and the proceeds from the ultimate disposition of a hotel property exceed
its carrying value. If the estimated undiscounted future cash flows are less than the carrying amount, an adjustment to reduce
the carrying amount to the related hotel property's estimated fair market value is recorded and an impairment loss recognized.
For the year ended December 31, 2019 the company impaired three hotels in the NewINK JV portfolio and one hotel in the
Inland JV portfolio (See Note 6).
The Company evaluates the nature of the distributions from each of its unconsolidated joint ventures in order to
classify the distributions as either operating activities or investing activities in the consolidated statements of cash flows. Any
cash distribution that is considered to be a distribution of the earnings of the unconsolidated joint venture is presented as an
operating activity in the consolidated statements of cash flows. Any cash distribution that is considered to be a return of capital
from the unconsolidated joint venture is presented as an investing activity in the consolidated statements of cash flows.
Cash and Cash Equivalents
Cash and cash equivalents consist of cash on hand, demand deposits with financial institutions and short term liquid
investments with an original maturity of three months or less. Cash balances in individual banks may exceed federally insurable
limits.
Restricted Cash
Restricted cash represents purchase price deposits held in escrow for potential hotel acquisitions under contract and
escrows for reserves such as reserves for capital expenditures, property taxes or insurance that are required pursuant to the
Company’s loans or hotel management agreements. Restricted cash on the accompanying consolidated balance sheets at
December 31, 2019 and 2018 is $13.6 million and $25.1 million, respectively.
F-11
Hotel Receivables
Hotel receivables consist of amounts owed by guests staying in the hotels and amounts due from business and group
customers. An allowance for doubtful accounts is provided and maintained at a level believed to be adequate to absorb
estimated probable losses. At December 31, 2019 and 2018, the allowance for doubtful accounts was $0.5 million and $0.3
million, respectively.
Deferred Costs
Deferred costs consist of franchise agreement application fees for the Company’s hotels, costs associated with
potential future acquisitions and loan costs related to the Company’s senior unsecured revolving credit facility. Deferred costs
consisted of the following at December 31, 2019 and 2018 (in thousands):
December 31, 2019
December 31, 2018
Loan costs
Franchise fees
Other
Less accumulated amortization
Deferred costs, net
$
$
2,104
$
4,409
129
6,642
(2,371)
4,271
$
2,057
4,471
133
6,661
(1,591)
5,070
Franchise fees are recorded at cost and amortized over a straight-line basis over the term of the franchise agreements.
For the years ended December 31, 2019, 2018 and 2017, amortization expense related to franchise fees of $0.2 million, $0.2
million and $0.2 million, respectively, is included in depreciation and amortization in the consolidated statements of operations.
Amortization expense related to loan costs of $0.9 million, $0.9 million and $0.6 million for the years ended December 31,
2019, 2018 and 2017, respectively, is included in interest expense in the consolidated statements of operations.
Mortgage Debt, net
Mortgage debt, net consists of mortgage loans on certain hotel properties less the costs associated with acquiring those
loans. Mortgage debt consisted of the following at December 31, 2019 and 2018 (in thousands):
Mortgage debt
Deferred financing costs
Mortgage debt, net
December 31, 2019
December 31, 2018
$
$
496,860
(1,395)
495,465
$
$
503,555
(1,773)
501,782
Deferred financing loan costs are recorded at cost and amortized over the term of the loan applying the effective
interest rate method. For the years ended December 31, 2019, 2018 and 2017, amortization expense related to loan costs of
$0.4 million, $0.4 million, $0.1 million, respectively, is included in interest expense in the consolidated statement of operations.
Prepaid Expenses and Other Assets
The Company’s prepaid expenses and other assets consist of prepaid insurance, prepaid property taxes, deposits and
hotel supplies inventory.
F-12
Distributions and Losses in Excess of Investments in Unconsolidated Real Estate Entities
At times, certain of the Company’s investments in unconsolidated entities' share of cumulative allocated losses and
cash distributions received exceeds its cumulative allocated share of income and equity contributions. Although the Company
typically does not make any guarantees of its investments in unconsolidated real estate entities other than certain customary
non-recourse carve-out provisions, due to potential penalties along with potential upside from future financial returns, the
Company generally intends to make any required capital contributions to maintain its ownership percentage and as such will
record its share of cumulative allocated losses and cash distributions below zero. As a result, the carrying value of certain
investments in unconsolidated entities is negative. Unconsolidated entities with negative carrying values are included in cash
distributions and losses in excess of investments in unconsolidated entities in the Company’s consolidated balance sheets.
Revenue Recognition
Revenue from hotel operations is recognized when rooms are occupied and when services are provided. Revenue
consists of amounts derived from hotel operations, including sales from room, meeting room, gift shop, in-room movie and
other ancillary amenities. Sales, use, occupancy, and similar taxes are collected and presented on a net basis (excluded from
revenue) in the accompanying consolidated statements of operations.
Share-Based Compensation
The Company measures compensation expense for the restricted share awards based upon the fair market value of its
common shares at the date of grant. The Company measures compensation expense for the LTIP and Class A Performance units
based upon the Monte Carlo approach using volatility, dividend yield and a risk free interest rate in the valuation.
Compensation expense is recognized on a straight-line basis over the vesting period and is included in general and
administrative expense in the accompanying consolidated statements of operations. The Company pays dividends on vested and
non-vested restricted shares, except for performance-based shares, for which dividends on unvested shares are not paid until
those shares are vested. The Company has also issued Class A Performance LTIP units from time to time as part of its
compensation practices. Prior to vesting, holders of Class A Performance LTIP Units will not be entitled to vote their Class A
Performance LTIP units. In addition, under the terms of the Class A Performance LTIP units, a holder of a Class A
Performance LTIP unit will generally (i) be entitled to receive 10% of the distributions made on a common unit of the
Operating Partnership during the period prior to vesting of such Class A Performance LTIP unit (the “Pre-Vesting
Distributions”), (ii) be entitled, upon the vesting of such Class A Performance LTIP unit, to receive a special one-time “catch-
up” distribution equal to the aggregate amount of distributions that were paid on a common unit during the period prior to
vesting of such Class A Performance LTIP unit minus the aggregate amount of Pre-Vesting Distributions paid on such Class A
Performance LTIP unit, and (iii) be entitled, following the vesting of such Class A Performance LTIP unit, to receive the same
amount of distributions paid on a common unit of the Operating Partnership.
Earnings Per Share
A two class method is used to determine earnings per share. Basic earnings per share ("EPS") is computed by dividing
net income (loss) available for common shareholders, adjusted for dividends on unvested share grants, by the weighted average
number of common shares outstanding for the period. Diluted EPS is computed by dividing net income (loss) available for
common shareholders, adjusted for dividends or distributions, on unvested share grants and LTIP units, by the weighted
average number of common shares outstanding plus potentially dilutive securities such as share grants or shares issuable in the
event of conversion of common units. No adjustment is made for shares that are anti-dilutive during the period. The
Company’s restricted share awards and LTIP units that are subject solely to time-based vesting conditions are entitled to receive
dividends or distributions on the Company's common shares or the Operating Partnership's common units, respectively, if
declared. In addition, dividends on the Class A Performance LTIP units are paid the equivalent of 10% of the declared
dividends on the Company's common shares. The rights to these dividends or distributions declared are non-forfeitable. As a
result, the unvested restricted shares and LTIP units that are subject solely to time-based vesting conditions, as well as 10% of
the unvested Class A Performance LTIP units, qualify as participating securities requiring the allocation of earnings under the
two-class method to calculate EPS. The percentage of earnings allocated to these participating securities is based on the
proportion of the weighted average of these outstanding participating securities to the sum of the basic weighted average
common shares outstanding and the weighted average of these outstanding participating securities. Basic EPS is then computed
by dividing income less earnings allocable to these participating securities by the basic weighted average number of shares
outstanding. Diluted EPS is computed similar to basic EPS, except the weighted average number of shares outstanding is
increased to include the effect of potentially dilutive securities.
F-13
Income Taxes
The Company elected to be taxed as a REIT for federal income tax purposes. In order to qualify as a REIT under the
Internal Revenue Code of 1986, as amended, the Company must meet certain organizational and operational requirements,
including a requirement to distribute at least 90% of its annual REIT taxable income to its shareholders (which is computed
without regard to the dividends paid deduction or net capital gain and which does not necessarily equal net income as calculated
in accordance with GAAP). As a REIT, the Company generally will not be subject to federal income tax to the extent the
Company distributes its REIT taxable income to its shareholders. If the Company fails to qualify as a REIT in any taxable year,
the Company will be subject to federal income tax on its REIT taxable income at regular corporate income tax rates and
generally will not be permitted to qualify for treatment as a REIT for federal income tax purposes for the four taxable years
following the year during which qualification is lost unless the IRS grants the Company relief under certain statutory
provisions.
The Company leases its wholly owned hotels to TRS Lessees, which are wholly owned by the Company’s taxable
REIT subsidiary (a “TRS”) which, in turn is wholly owned by the Operating Partnership. Additionally, the Company indirectly
owns its interest in the hotels owned by the NewINK JV (46 hotels) and the Inland JV (48 hotels) through the Operating
Partnership. All of the NewINK JV hotels and Inland JV hotels are leased to TRS Lessees in which the Company indirectly
owns a noncontrolling interests through its TRS holding company. The TRS is subject to federal and state income taxes and the
Company accounts for taxes, where applicable, in accordance with the provisions of FASB Accounting Standards Codification
740 using the asset and liability method which recognizes deferred tax assets and liabilities for future tax consequences arising
from differences between financial statement carrying amounts and income tax bases. On December 22, 2017, the Tax Cuts
and Jobs Act, "TCJA" was enacted. The TCJA includes a number of changes to the existing U.S. tax code, most notably a
reduction of the U.S. corporate income tax rate from 35% to 21% effective for tax years beginning after December 31, 2017.
Changes in tax rates and tax laws are accounted for in the period of enactment. Therefore, as a result of the TCJA being signed
into law, the net deferred tax assets before valuation allowance were reduced by $0.6 million with a corresponding net
adjustment to current year tax expense for the remeasurement of the Company’s U.S. net deferred tax assets in 2017. Our
federal income tax expense for periods beginning in 2018 will be based on the new rate.
The Company accounts for income taxes using the asset and liability method. Under this method, deferred tax assets
and liabilities are recognized for the estimated future tax consequences attributable to the differences between the financial
statement carrying amounts of existing assets and liabilities and their respective income tax bases, and for net operating loss,
capital loss and tax credit carryforwards. The deferred tax assets and liabilities are measured using the enacted income tax rates
in effect for the year in which those temporary differences are expected to be realized or settled. The effect on the deferred tax
assets and liabilities from a change in tax rates is recognized in earnings in the period when the new rate is enacted. However,
deferred tax assets are recognized only to the extent that it is more likely than not that they will be realized based on
consideration of all available evidence, including the future reversals of existing taxable temporary differences, future projected
taxable income and tax planning strategies. Valuation allowances are provided if, based upon the weight of the available
evidence, it is more likely than not that some or all of the deferred tax assets will not be realized.
The Company performs an annual review for any uncertain tax positions and, if necessary, will record the expected future tax
consequences of uncertain tax positions in the consolidated financial statements.
As of December 31, 2019, the Company is no longer subject to U.S federal income tax examinations for years before
2016 and with few exceptions to state examinations before 2016. The Company evaluates whether a tax position of the
Company is more likely than not to be sustained upon examination, including resolution of any related appeals or litigation
processes, based on the technical merits of the position. For tax positions meeting the more likely than not threshold, the tax
amount recognized in the financial statements is reduced by the largest benefit that has a greater than fifty percent likelihood of
being realized upon ultimate settlement with the relevant taxing authority. The Company has reviewed its tax positions for open
tax years and has concluded no provision for income taxes is required in the Company's consolidated financial statements as of
December 31, 2019. Interest and penalties related to uncertain tax benefits, if any, in the future will be recognized as operating
expense.
During the third quarter of 2018, management was notified that the Company's TRS was going to be examined by the
Internal Revenue Service for the tax year ended December 31, 2016. The examination remains open. The Company believes it
does not need to record a liability related to matters contained in the tax period open to examination. However, should the
Company experience an unfavorable outcome in the matter, such outcome could have a material impact on its results of
operations, financial position and cash flows.
F-14
Leases
On January 1, 2019, the Company adopted accounting guidance under Accounting Standards Codification (ASU)
2016-02 (“ASU 2016-02”), Leases, which relates to the accounting for leasing transactions. On February 25, 2016, the FASB
issued updated accounting guidance which sets out the principles for the recognition, measurement, presentation and disclosure
of leases for both parties to a contract (i.e., lessees and lessors). The new accounting guidance requires lessees to apply a dual
approach, classifying leases as either finance or operating leases based on whether or not the lease is effectively a financed
purchase by the lessee. The classification of the lease will determine whether lease expense is recognized based on an effective
interest method or on a straight-line basis over the term of the lease. A lessee is also required to record a right-of-use asset and a
lease liability for all leases. We adopted the new accounting guidance on January 1, 2019 and applied it based on the optional
transition method provided for, which allows entities to recognize a cumulative-effect adjustment to the balance sheet on the
adoption date. Upon adoption, we applied the package of practical expedients made available under the new accounting
guidance and also make an accounting policy election to not recognize right-of-use assets or lease liabilities for leases with
terms of 12 months or less. For our ground lease agreements and corporate office lease agreement, all of which are currently
accounted for as operating leases, we recognized lease liabilities of $25.7 million with corresponding right-of use assets of
$23.1 million on our consolidated balance sheet as of January 1, 2019.
Segment Information
Management evaluates the Company's hotels as a single industry segment because all of the hotels have similar
economic characteristics and provide similar services to similar types of customers.
Recently Issued Accounting Standards
On January 1, 2018, the Company adopted accounting guidance under Accounting Standards Codification (ASU)
Topic 2014-09, "Revenue from Contracts with Customers" on a modified retrospective basis. Our current revenue streams are
not affected under the new model and we did not recognize a cumulative effect adjustment as part of the modified retrospective
method of adoption. Furthermore, the new accounting guidance will not materially impact the recognition of or the accounting
for disposition of hotels, since we primarily dispose of hotels to third parties in exchange for cash with few contingencies. As it
relates to capitalization of costs to acquire customer contracts, the Company has elected to use the Financial Accounting
Standards Board's ("FASB") practical expedient which allows us to expense costs to acquire customer contracts as they are
incurred due to their short-term nature for a specified number of nights that never exceed one year. This guidance applies to all
contracts as of the adoption date. The Company has applied all relevant disclosures of this standard.
On January 1, 2018, the Company adopted accounting guidance under 2016-15 ("ASU 2016-15"), Classification of
Certain Cash Receipts and Cash Payments, which clarifies and provides specific guidance on eight cash flow classification
issues with an objective to reduce the current diversity in practice. The Company has certain cash payments and receipts related
to debt extinguishment that are affected by the new standard. The Company has historically classified distributions received
from equity method investments under the cumulative earnings approach. As such, there was no impact due to application of
the new guidance. The Company applied the new guidance on a retrospective basis.
On January 1, 2018, the Company adopted accounting guidance under ASU 2016-18 ("ASU 2016-18"), Restricted
Cash, which requires that the statement of cash flows explain the change during the period in the total of cash, cash equivalents
and amounts generally described as restricted cash or restricted cash equivalents. This standard addresses presentation of
restricted cash in the consolidated statements of cash flows only. Restricted cash represents purchase price deposits held in
escrow for potential hotel acquisitions under contract and escrow reserves such as reserves for capital expenditures, property
taxes or insurance that are required pursuant to the Company's loans. The Company applied the new guidance on a
retrospective basis.
In August 2018, the SEC issued SEC Final Rule 33-10532, Disclosure Update and Simplification. The amendments
simplify or eliminate duplicative, overlapping, or outdated disclosure requirements. The amendments also add certain disclosure
requirements, such as requiring entities to disclose the current and comparative quarter and year-to-date changes in
shareholders' equity for interim periods. The amended rules are effective for reports filed on or after November 5, 2018.
However, the SEC issued Compliance & Disclosure Interpretation 105.09 that allows entities to defer the adoption of the new
disclosure requirement relating to changes in shareholders' equity for interim periods until the Form 10-Q for the quarterly
period that begins after November 5, 2018. The Company adopted the new disclosure requirement relating to changes in
shareholders' equity for interim periods on January 1, 2019. Based on the Company's assessment, the adoption of the new
disclosures did not have a material impact on the Company's consolidated financial statements.
F-15
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework -
Changes to the Disclosure Requirements for Fair Value Measurement. The guidance modifies the disclosure requirements for
fair value measurements by removing or modifying some of the disclosures, while also adding new disclosures. The guidance is
effective for annual reporting periods beginning after December 15, 2019, and the interim periods within those annual periods,
with early adoption permitted. The Company will adopt this new standard on January 1, 2020. Based on the Company's
assessment, the adoption of this standard is not expected to have a material impact on the Company's consolidated financial
statements.
3.
Acquisition of Hotel Properties
Hotel Purchase Price Allocation
We acquired the Residence Inn Summerville ("RI Summerville") hotel in Summerville, SC for $20.8 million on
August 27, 2018, the Dallas Downtown Courtyard ("Dallas DT") hotel in Dallas, TX for $49.0 million on December 5, 2018,
the Hilton Garden Inn Portsmouth ("Portsmouth") hotel in Portsmouth, NH for $43.4 million on September 20, 2017, the
Courtyard Summerville ("Summerville") hotel in Summerville, SC for $20.2 million on November 15, 2017 and the Embassy
Suites Springfield Embassy ("Springfield") hotel in Springfield, VA for $68.1 million on December 6, 2017. The allocation of
the purchase price of each of the hotels acquired by the Company, based on the fair value on the date of its acquisition, dollars
(in thousands):
Acquisition date
Number of rooms (unaudited)
Land
Building and improvements
Furniture, fixtures and equipment
Cash
Accounts receivable
Prepaid expenses and other assets
Accounts payable and accrued expenses
Net assets acquired, net of cash
RI Summerville
Dallas DT
HGI
Portsmouth
CY
Summerville
ES
Springfield
Total
8/27/2018
12/5/2018
9/20/2017
11/15/2017
12/6/2017
96
167
131
96
219
709
$
2,300 $
2,900 $
3,600 $
2,500 $
7,700 $ 19,000
17,060
1,234
42,760
3,340
37,630
2,120
16,923
58,807
173,180
730
1,490
8,914
—
—
—
(9)
5
8
68
(33)
8
32
12
(27)
1
1
28
(1)
3
—
129
(51)
17
41
237
(121)
$
20,585 $
49,043 $
43,367 $
20,181 $
68,075 $201,251
The value of the assets acquired was primarily based on a sales comparison approach (for land) and a depreciated
replacement cost approach (for building and improvements and furniture, fixtures and equipment). The sales comparison
approach uses inputs of recent land sales in the respective hotel markets. The depreciated replacement cost approach uses
inputs of both direct and indirect replacement costs using a nationally recognized authority on replacement cost information as
well as the age, square footage and number of rooms of the respective assets. Property acquisition costs of $0.1 million and
$0.1 million, respectively, were capitalized in 2019 and 2018.
The amount of revenue and operating income from the hotels acquired in 2018 and 2017 from their respective date of
acquisition through December 31, 2019 is as follows (in thousands):
Hilton Garden Inn Portsmouth, NH
Courtyard Summerville, SC
Embassy Suites Springfield, VA
Residence Inn Summerville, SC
Courtyard Dallas Downtown, TX
Total
For the Year Ended December 31, 2019
For the Year Ended December 31, 2018
Acquisition Date
Revenue
Operating Income
Revenue
Operating Income
9/20/17
11/15/17
12/6/17
8/27/18
12/5/18
$
$
9,660
$
3,773
$
9,160
$
3,846
14,284
3,645
7,833
1,302
5,035
1,250
2,479
3,969
13,886
875
258
39,268
$
13,839
$
28,148
$
3,629
1,261
4,887
30
(21)
9,786
F-16
On August 29, 2017, the Company purchased a parcel of land in Los Angeles County, California for $6.5 million and a
parcel of land in Silicon Valley, California on July 2, 2019 for $8.1 million.
4.
Disposition of Hotel Properties
On May 7, 2019, the Company sold the Courtyard by Marriott hotel in Altoona, PA for $4.6 million and recognized a
loss on the sale of the hotel property of $4.4 million. On May 15, 2019, the Company sold the SpringHill Suites by Marriott
hotel in Washington, PA for $5.1 million and recognized a gain on the sale of the hotel property of $1.1 million. Proceeds from
the sales were used to repay amounts outstanding on the Company's senior unsecured revolving credit facility. These sales did
not represent a strategic shift that had or will have a major effect on the Company's operations and financial results, and
therefore, did not qualify to be reported as discontinued operations.
On December 20, 2017, the Company sold the Homewood Suites by Hilton Carlsbad (North San Diego County) for
$33.0 million and recognized a gain on sale of a hotel property of $3.3 million. The buyer assumed the mortgage loan secured
by the hotel of $20.0 million. Proceeds from the sale were used to repay amounts outstanding on the Company's senior
unsecured revolving credit facility. This sale did not represent a strategic shift that had or will have a major effect on the
Company's operations and financial results, and therefore, did not qualify to be reported as discontinued operations.
During the years ended December 31, 2019, 2018 and 2017, the Company's consolidated statements of operations
included operating income related to the disposed hotels as follows: (in thousands):
Operating Income
For the years ended December 31,
2019
2018
2017
Homewood Suites Carlsbad
Courtyard Altoona, PA
SpringHill Suites Washington, PA
Total
$
$
$
$
— $
24 $
198 $
222 $
— $
517 $
718 $
1,235 $
2,791
743
433
3,967
5.
Investment in Hotel Properties
Investment in hotel properties, net
Investment in hotel properties, net as of December 31, 2019 and 2018 consisted of the following (in thousands):
Land and improvements
Building and improvements
Furniture, fixtures and equipment
Renovations in progress
Less: accumulated depreciation
Investment in hotel properties, net
December 31, 2019
296,884
$
December 31, 2018
296,253
$
1,216,849
1,214,780
81,707
31,589
1,627,029
(279,913)
73,411
25,370
1,609,814
(236,041)
$
1,347,116
$
1,373,773
F-17
During the year ended December 31, 2017, the Company identified indicators of impairment at its Washington SHS,
PA hotel, primarily due to decreased operating performance and continued economic weakness. As such, the Company was
required to perform a test of recoverability. This test compared the sum of the estimated future undiscounted cash flows
attributable to the hotel over our remaining anticipated holding period and its expected value upon disposition to our carrying
value for the hotel. The Company determined that the estimated undiscounted future cash flow attributable to the hotel did not
exceed its carrying value and an impairment existed. As a result, the Company recorded a $6.7 million impairment charge in
the consolidated statements of operations during the year ended December 31, 2017. Fair value was determined based on a
discounted cash flow model using our estimates of future cash flows and third-party market data, considered Level 3 inputs.
Investment in hotel properties under development
We are developing a hotel in Los Angeles, CA on a parcel of land owned by us. We have incurred $20.5 million of
costs to date, which included $6.6 million of the land acquisition costs and $13.9 million of other development costs. We
expect the total development costs for construction of the hotel to be approximately $65.0 million, which includes the cost of
the land. We reclassified the $6.6 million of land acquisition costs from Land to Hotel Properties Under Development during
the year ended December 31, 2019 in conjunction with the commencement of our development activities.
6.
Investment in Unconsolidated Entities
On June 9, 2014, the Company acquired a 10.3% interest in the NewINK JV, a joint venture between affiliates of
NorthStar Realty Finance Corp. ("NorthStar") and the operating partnership. The Company accounts for this investment under
the equity method. NorthStar merged with Colony Capital, Inc. ("Colony") on January 10, 2017 to form a new company,
CLNY, which owns an 89.7% interest and the Company owns a 10.3% interest in the NewINK JV. The values of NewINK JV
assets and liabilities were adjusted to reflect estimated fair market values at the time Colony merged with NorthStar. As of
December 31, 2019 and December 31, 2018, the Company's share of partners' capital in the NewINK JV is approximately $40.6
million and $47.5 million, respectively, and the total difference between the carrying amount of the investment and the
Company's share of partners' capital is approximately $55.8 million and $57.1 million (for which the basis difference related to
amortizing assets is being recognized over the life of the related assets as a basis difference adjustment). The Company serves
as managing member of the NewINK JV. During the years ended December 31, 2019 and 2018, the Company received cash
distributions from the NewINK JV as follows (in thousands):
Cash generated from other activities and excess cash
Total
For the year ended
December 31,
2019
2018
$
$
1,542
1,542
$
$
3,186
3,186
On November 17, 2014, the Company acquired a 10.0% interest in Inland JV, a joint venture between affiliates of
NorthStar and the Operating Partnership. The Company accounts for this investment under the equity method. NorthStar
merged with Colony Capital, Inc. ("Colony") on January 10, 2017 to form a new company, CLNY, which owns a 90.0%
interest in the Inland JV. The values of Inland JV assets and liabilities were adjusted to reflect estimated fair market values at
the time Colony merged with NorthStar. As of December 31, 2019 and 2018, the Company's share of partners capital in the
Inland JV was approximately $28.4 million and $32.3 million, respectively, and the total difference between the carrying
amount of the investment and the Company's share of partners' capital is approximately $10.4 million and $10.7 million,
respectively (for which the basis difference related to amortizing assets is being recognized over the life of the related assets as
a basis difference adjustment). The Company serves as managing member of the Inland JV. During the years ended December
31, 2019 and 2018, the Company received cash distributions from the Inland JV as follows (in thousands):
Cash generated from other activities and excess cash $
Total
$
1,150
1,150
$
$
1,850
1,850
For the year ended
December 31,
2019
2018
F-18
On May 9, 2017, the NewINK JV refinanced the $840.0 million loan collateralized by the 47 hotels with a new
$850.0 million loan with an interest rate of LIBOR plus a spread of 2.79% and had an initial maturity of June 7, 2019 and three
one-year extension options. The NewINK JV exercised the first extension and the maturity was extended to June 7, 2020. On
November 7, 2019, the NewINK JV refinanced the $850.0 million loan with a new $855.0 million, non-recourse loan from
Morgan Stanley Bank, N.A. JPMorgan Chase Bank, National Association, and Bank of America, N.A. (collectively the
"Lender"), collateralized by the 46 hotels. The new loan bears interest at a rate of LIBOR plus a spread of 2.82%, has an initial
maturity of November 7, 2021 and five one-year extension options.
On June 9, 2017, the Inland JV refinanced the $817.0 million loan collateralized by the 48 hotels with a new $780.0
million non-recourse loan with Column Financial, Inc. On June 9, 2017, the Company contributed an additional $5.0 million of
capital related to its share in the Inland JV to reduce the debt collateralized by the 48 hotels. The new loan bears interest at a
rate of LIBOR plus a spread of 3.3%, has an initial maturity of July 9, 2019 and three one-year extension options. The Inland
JV exercised the first extension and the maturity was extended to July 7, 2020.
The Company’s ownership interests in the JVs are subject to change in the event that either the Company or CLNY
calls for additional capital contributions to the respective JVs necessary for the conduct of business, including contributions to
fund costs and expenses related to capital expenditures. In connection with (i) the non-recourse mortgage loan secured by the
NewINK JV properties and the related non-recourse mezzanine loans secured by the membership interests in the owners of the
NewINK JV properties and (ii) the non-recourse mortgage loan secured by the Inland JV properties, the Operating Partnership
provided the applicable lenders with customary environmental indemnities, as well as guarantees of certain customary non-
recourse carveout provisions such as fraud, material and intentional misrepresentations and misapplication of funds. In some
circumstances, such as the bankruptcy of the applicable borrowers, the guarantees are for the full amount of the outstanding
debt, but in most circumstances, the guarantees are capped at 15% of the debt outstanding at the time in question (in the case of
the NewINK JV loans) or 20% of the debt outstanding at the time in question (in the case of the Inland JV loans). In
connection with each of the NewINK JV and Inland JV loans, the Operating Partnership has entered into a contribution
agreement with its JV partner whereby the JV partner is, in most cases, responsible to cover such JV partner’s pro rata share of
any amounts due by the Operating Partnership under the applicable guarantees and environmental indemnities. The Company
manages the JVs and will receive a promote interest in each applicable JV if it meets certain return thresholds for such JV.
CLNY may also approve certain actions by the JVs without the Company’s consent, including certain property dispositions
conducted at arm’s length, certain actions related to the restructuring of the applicable JV and removal of the Company as
managing member in the event the Company fails to fulfill its material obligations under the applicable joint venture agreement.
The Company's investments in the NewInk JV and the Inland JV are $(15.2) million and $18.0 million, respectively, at
December 31, 2019. The following tables sets forth the total assets, liabilities, equity and components of net income (loss),
including the Company's share, related to all JVs for the years ended December 31, 2019, 2018 and 2017 (in thousands):
Balance Sheet
Assets
December 31, 2019
December 31, 2018
December 31, 2017
Investment in hotel properties, net
$
2,221,718
$
2,309,396 $
2,363,726
Other assets
104,560
118,600
130,910
Total Assets
$
2,326,278
$
2,427,996 $
2,494,636
Liabilities
Mortgages and notes payable, net
$
1,612,217
$
1,606,334 $
1,597,351
Other Liabilities
Total Liabilities
34,948
1,647,165
37,051
1,643,385
38,773
1,636,124
Equity
Chatham Lodging Trust
Joint Venture Partner
Total Equity
Total Liabilities and
Equity
69,008
610,105
679,113
79,744
704,867
784,611
87,326
771,186
858,512
$
2,326,278
$
2,427,996 $
2,494,636
F-19
Revenue
Total hotel operating expenses
Hotel operating income
Impairment loss
Net loss from continuing operations
Loss on sale of hotels
Net loss
(Loss) income allocable to the Company
Basis difference adjustment
Total (loss) income from unconsolidated real estate entities
attributable to Chatham
For the year ended
December 31,
2019
2018
2017
496,485 $
498,507 $
329,879
329,756
166,606 $
168,751 $
487,174
294,280
192,894
41,132 $
(76,869) $
(2,129) $
(78,998) $
— $
(24,400) $
— $
(24,400) $
(8,044) $
1,596 $
(2,472) $
1,596 $
(6,448) $
(876) $
—
(107)
—
(107)
7
1,575
1,582
$
$
$
$
$
$
$
$
$
7.
Debt
The Company's mortgage loans and its senior unsecured revolving credit facility are collateralized by first-mortgage
liens on certain of the Company's properties. The mortgages are non-recourse except for instances of fraud or misapplication of
funds. Debt consisted of the following (in thousands):
F-20
Loan/Collateral
Senior Unsecured Revolving Credit Facility (1)
Residence Inn by Marriott New Rochelle, NY
Residence Inn by Marriott San Diego, CA
Homewood Suites by Hilton San Antonio, TX
Residence Inn by Marriott Vienna, VA
Courtyard by Marriott Houston, TX
Hyatt Place Pittsburgh, PA
Residence Inn by Marriott Bellevue, WA
Residence Inn by Marriott Garden Grove, CA
Residence Inn by Marriott Silicon Valley I, CA
Residence Inn by Marriott Silicon Valley II, CA
Residence Inn by Marriott San Mateo, CA
Residence Inn by Marriott Mountain View, CA
SpringHill Suites by Marriott Savannah, GA
Hilton Garden Inn Marina del Rey, CA
Interest
Rate
Maturity Date
12/31/19
Property
Carrying
Value
Balance Outstanding as of
December 31,
2019
December 31,
2018
4.31 %
March 8, 2022
$
— $
90,000
$
5.75 % September 1, 2021
4.66 % February 6, 2023
4.59 % February 6, 2023
4.49 % February 6, 2023
4.19 %
4.65 %
May 6, 2023
July 6, 2023
4.97 % December 6, 2023
4.79 %
4.64 %
4.64 %
4.64 %
4.64 %
4.62 %
4.68 %
April 6, 2024
July 1, 2024
July 1, 2024
July 1, 2024
July 1, 2024
July 6, 2024
July 6, 2024
18,756
44,939
29,914
32,006
31,158
34,941
64,015
38,793
79,377
85,006
64,718
52,677
34,567
39,200
13,956
16,410
12,936
27,272
15,563
21,291
17,559
21,520
43,857
32,053
64,406
70,270
48,305
37,670
29,817
20,931
15,693
17,717
81,500
13,361
27,885
15,916
21,782
17,976
21,989
44,680
32,620
64,800
70,700
48,600
37,900
30,000
21,355
15,965
18,026
Homewood Suites by Hilton Billerica, MA
4.32 % December 6, 2024
Hampton Inn & Suites Houston Medical Cntr., TX
4.25 %
January 6, 2025
Total debt before unamortized debt issue costs
$ 680,433
$
Unamortized mortgage debt issue costs
Total debt outstanding
$
586,860
(1,395)
585,465
585,055
(1,773)
583,282
1.
The interest rate for the senior unsecured revolving credit facility is variable and based on LIBOR plus an
applicable margin ranging from 1.55% to 2.3%, or prime plus an applicable margin of 0.55% to 1.3%.
On March 8, 2018, we refinanced our senior unsecured credit facility that was scheduled to mature in 2020 with a new
facility having a maturity date in March 2023, which includes the option to extend the maturity by an additional year.
Borrowing costs have been reduced by 0 to 15 basis points from comparable leverage-based pricing levels in our previous
credit facility. At December 31, 2019 current leverage level, the borrowing cost under the new facility is LIBOR plus 1.65
percent. We were in compliance with all financial covenants at December 31, 2019.
At December 31, 2019 and 2018, the Company had $90.0 million and $81.5 million, respectively, of outstanding
borrowings under its senior unsecured revolving credit facility. At December 31, 2019, the maximum borrowing availability
under the senior unsecured revolving credit facility was $250.0 million.
The Company estimates the fair value of its fixed rate debt by discounting the future cash flows of each instrument at
estimated market rates. All of the Company's mortgage loans are fixed-rate. Rates take into consideration general market
conditions, quality and estimated value of collateral and maturity of debt with similar credit terms and are classified within level
3 of the fair value hierarchy. The estimated fair value of the Company’s fixed rate debt as of December 31, 2019 and 2018 was
$501.5 million and $489.0 million, respectively.
The Company estimates the fair value of its variable rate debt by taking into account general market conditions and the
estimated credit terms it could obtain for debt with a similar maturity and that is classified within level 3 of the fair value
hierarchy. As of December 31, 2019, the Company’s only variable rate debt is under its senior unsecured revolving credit
facility. The estimated fair value of the Company’s variable rate debt as of December 31, 2019 and 2018 was $90 million and
$81.5 million, respectively.
As of December 31, 2019, the Company was in compliance with all of its financial covenants. At December 31, 2019,
the Company’s consolidated fixed charge coverage ratio was 3.0 and the bank covenant is 1.5. Future scheduled principal
payments of debt obligations as of December 31, 2019, for each of the next five calendar years and thereafter are as follows (in
thousands):
F-21
2020
2021
2022
2023
2024
Thereafter
Total debt before unamortized debt issue costs
Unamortized mortgage debt issue costs
Total debt outstanding
Amount
9,536
21,979
99,954
143,084
296,387
15,920
586,860
(1,395)
585,465
$
$
$
8.
Income Taxes
The components of income tax expense for the following periods are as follows (in thousands):
Current:
Federal
State
Current tax expense (benefit)
Deferred:
Federal
State
Deferred tax expense (benefit)
Total tax expense (benefit)
For the year ended
December 31,
2018
2017
2019
$
$
$
(29) $
—
(29) $
29
—
29
— $
— $
—
— $
(28)
—
(28)
(28) $
—
—
—
350
46
396
396
The difference between income tax expense and the amount computed by applying the statutory federal income tax
rate to the combined income of the Company's TRS before taxes were as follows (in thousands):
Book loss before income taxes of the TRS
Statutory rate of 21% for 2018 and after and 34% for prior
years applied to pre-tax income
$
$
For the year ended
December 31,
2019
2018
2017
(8,167) $
(6,040) $
(4,261)
(1,715) $
(1,268) $
(1,449)
Effect of state and local income taxes, net of federal tax benefit
(347)
(200)
Tax reform impact
Provision to return adjustment
Permanent adjustments
Change in valuation allowance
Valuation allowance release
Other
—
—
8
2,100
—
(46)
—
—
12
1,456
(28)
—
Total income tax (benefit) expense
$
— $
(28) $
(108)
644
5
13
1,289
—
2
396
Effective tax rate
— %
0.46 %
(9.29)%
F-22
On December 22, 2017, the TCJA was enacted. The TCJA includes a number of changes to the existing U.S. tax code,
most notably a reduction of the U.S. corporate income tax rate from 35% to 21% effective for tax years beginning after
December 31, 2017. Changes in tax rates and tax laws are accounted for in the period of enactment. Therefore, as a result of the
TCJA being signed into law, the net deferred tax assets before valuation allowance were reduced by $0.6 million with a
corresponding net adjustment to current year tax expense for the remeasurement of the Company’s U.S. net deferred tax assets
in 2017. Our federal income tax expense for periods beginning in 2018 will be based on the new rate.
At December 31, 2019, our TRS had a net deferred tax asset associated with future tax credits of $29 thousand. At
December 31, 2019 and 2018, the Company had valuation allowances against certain deferred tax assets totaling $5.6 million
and $3.3 million, respectively. The increase in valuation allowance was primarily from the increase in the net operating losses
incurred during the year. The tax effect of each type of temporary difference and carry forward that gives rise to the deferred
tax asset as of December 31, 2019 and 2018 are as follows (in thousands):
Total deferreds:
Allowance for doubtful accounts
Accrued compensation
AMT credit
Total book to tax difference in partnership
Net operating loss
Valuation allowance
Net deferred tax asset
For the year ended
December 31,
2019
2018
$
$
$
117
870
29
(103)
4,741
(5,625)
29
$
68
731
58
(193)
2,654
(3,260)
58
As of each reporting date, the Company's management considers new evidence, both positive and negative, that
could impact management's view with regard to future realization of net deferred tax assets. The Company's TRS is expecting
continued taxable losses in 2020. As of December 31, 2019, the TRS continues to recognize a full valuation allowance equal to
100% of the net deferred tax assets, with the exception of the AMT tax credit, due to the uncertainty of the TRS's ability to
utilize these net deferred tax assets. Management will continue to monitor the need for a valuation allowance.
F-23
9.
Dividends Declared and Paid
The Company declared regular common share dividends of $1.32 per share and distributions on LTIP units of $1.32
per unit for the year ended December 31, 2019. The dividends and distributions and their tax characterization were as follows:
Record
Date
Payment
Date
Common
share
distribution
amount
LTIP
unit
distribution
amount
Taxable
Ordinary
Income
Return of
Capital
Section 199A
Dividends
$ 0.0847
$
0.0253 $
0.11
0.11
0.11
0.33
0.11
0.11
0.11
0.33
0.11
0.11
0.11
0.33
0.11
0.11
0.11
0.33
0.0847
0.0847
$ 0.2541
$ 0.0847
0.0847
0.0847
$ 0.2541
$ 0.0847
0.0847
0.0847
$ 0.2541
$ 0.0847
0.0847
0.0847
$ 0.2541
$
$
$
$
$
$
$
$
0.0253
0.0253
0.0759 $
0.0253 $
0.0253
0.0253
0.0759 $
0.0253 $
0.0253
0.0253
0.0759 $
0.0253 $
0.0253
0.0253
0.0759 $
0.0847
0.0847
0.0847
0.2541
0.0847
0.0847
0.0847
0.2541
0.0847
0.0847
0.0847
0.2541
0.0847
0.0847
0.0847
0.2541
1.32
$ 1.0164
0.3036 $
1.0164
January
February
March
1st Quarter 2019
April
May
June
2nd Quarter 2019
July
August
September
3rd Quarter 2019
October
November
December
4th Quarter 2019
Total 2019
1/31/2019
2/22/2019 $
2/28/2019
3/29/2019
3/29/2019
4/26/2019
$
4/30/2019
5/31/2019 $
5/31/2019
6/28/2019
6/28/2019
7/26/2019
$
7/31/2019
8/30/2019 $
8/30/2019
9/27/2019
9/30/2019 10/25/2019
$
10/31/2019 11/29/2019 $
11/29/2019 12/27/2019
12/31/2019
1/31/2020
$
$
0.11
0.11
0.11
0.33
0.11
0.11
0.11
0.33
0.11
0.11
0.11
0.33
0.11
0.11
0.11
0.33
1.32
$
$
$
$
$
$
$
$
$
F-24
Record
Date
Payment
Date
Common
share
distribution
amount
LTIP
unit
distribution
amount
January
February
March
1st Quarter 2018
April
May
June
2nd Quarter 2018
July
August
September
3rd Quarter 2018
October
November
December
4th Quarter 2018
Total 2018
1/31/2018
2/23/2018 $
2/28/2018
3/30/2018
3/29/2018
4/27/2018
$
4/30/2018
5/25/2018 $
5/31/2018
6/29/2018
6/29/2018
7/27/2018
$
7/31/2018
8/31/2018 $
8/31/2018
9/28/2018
9/28/2018 10/26/2018
$
10/31/2018 11/30/2018 $
11/30/2018 12/28/2018
12/31/2018
1/25/2019
$
$
0.11
0.11
0.11
0.33
0.11
0.11
0.11
0.33
0.11
0.11
0.11
0.33
0.11
0.11
0.11
0.33
1.32
$
$
$
$
$
$
$
$
$
Taxable
Ordinary
Income
Return of
Capital
Section
199A
Dividends
$ 0.0954
$ 0.0146 $ 0.0954
0.0954
0.0954
0.0146
0.0146
0.0954
0.0954
$ 0.2862
$ 0.0438 $ 0.2862
$ 0.0954
$ 0.0146 $ 0.0954
0.0954
0.0954
0.0146
0.0146
0.0954
0.0954
$ 0.2862
$ 0.0438 $ 0.2862
$ 0.0954
$ 0.0146 $ 0.0954
0.0954
0.0954
0.0146
0.0146
0.0954
0.0954
$ 0.2862
$ 0.0438 $ 0.2862
$ 0.0954
$ 0.0146 $ 0.0954
0.0954
0.0954
0.0146
0.0146
0.0954
0.0954
$ 0.2862
$ 0.0438 $ 0.2862
0.11
0.11
0.11
0.33
0.11
0.11
0.11
0.33
0.11
0.11
0.11
0.33
0.11
0.11
0.11
0.33
1.32
$ 1.1448
$ 0.1752 $ 1.1448
For the year ended December 31, 2019, approximately 77.0% of the distributions paid to stockholders were considered
ordinary income and approximately 23.0% were considered return of capital. For the year ended December 31, 2018,
approximately 86.7% of the distributions paid to stockholders were considered ordinary income and approximately 13.3% were
considered return of capital.
F-25
10.
Shareholders' Equity
Common Shares
The Company is authorized to issue up to 500,000,000 common shares of beneficial interest, $.01 par value per share
("common shares"). Each outstanding common share entitles the holder to one vote on all matters submitted to a vote of shareholders.
Holders of the Company’s common shares are entitled to receive dividends when authorized by the Company's Board of Trustees. As
of December 31, 2019, 46,928,445 common shares were outstanding.
In January 2014, we established a $25 million dividend and reinvestment and stock purchase plan (the "Prior DRSPP"). We
filed a new $50 million shelf registration statement for the dividend reinvestment and stock purchase plan (the "New DRSPP" and
together with the Prior DRSPP, the "DRSPPs") on December 28, 2017 to replace the prior expiring program. Under the DRSPPs,
shareholders may purchase additional common shares by reinvesting some or all of the cash dividends received on the Company's
common shares. Shareholders may also make optional cash purchases of the Company's common shares subject to certain limitations
detailed in the prospectuses for the DRSPPs. During the year ended December 31, 2019, we issued 259,954 shares under the New
DRSPP at a weighted average price of $20.09, which generated $5.2 million of proceeds. As of December 31, 2019 and December 31,
2018, respectively, we had issued 1,768,000 and 1,508,046 shares under the DRSPPs at a weighted average price of $21.33 and $21.55
per share, respectively. As of December 31, 2019, there were common shares having a maximum aggregate sales price of
approximately $27.9 million available for issuance under the New DRSPP.
In January 2014, the Company established the Prior ATM Plan whereby, from time to time, the Company may publicly offer
and sell up to $50 million of its common shares by means of ordinary brokers' transactions on the New York Stock Exchange (the
"NYSE"), in negotiated transactions or in transactions that are deemed to be "at the market" offerings as defined in Rule 415 under the
Securities Act of 1933. We filed a $100 million registration statement for a new ATM program (the "ATM Plan" and together with the
Prior ATM Plan, the "ATM Plans") on December 28, 2017 to replace the prior program. At the same time, the Company entered into
sales agreements with Cantor Fitzgerald & Co. ("Cantor"), Barclays Capital Inc. ("Barclays"), Robert W. Baird & Co. Incorporated
("Baird"), BTIG, LLC ("BTIG"), Citigroup Global Markets Inc. ("Citigroup"), Stifel, Nicolaus & Company, Incorporated ("Stifel") and
Wells Fargo Securities, LLC ("Wells Fargo") as sales agents. During the year ended December 31, 2019, we issued 103,590 shares
under the ATM Plan at a weighted average price of $20.05, which generated $2.1 million of proceeds. As of December 31, 2019 and
December 31, 2018, respectively, we had issued 2,602,260 and 2,498,670 shares under the ATM Plans at a weighted average price of
$21.76 and $21.83 per share, respectively, in addition to the offerings above. As of December 31, 2019, there were common shares
having a maximum aggregate sales price of approximately $90.4 million available for issuance under the ATM Plan.
Preferred Shares
The Company is authorized to issue up to 100,000,000 preferred shares, $.01 par value per share. No preferred shares were
outstanding at December 31, 2019 and 2018.
Operating Partnership Units
Holders of common units in the Operating Partnership, if and when issued, will have certain redemption rights, which will
enable the unit holders to cause the Operating Partnership to redeem their units in exchange for, at the Company’s option, cash per unit
equal to the market price of the Company’s common shares at the time of redemption or for the Company’s common shares on a one-
for-one basis. The number of shares issuable upon exercise of the redemption rights will be adjusted upon the occurrence of share
splits, mergers, consolidations or similar pro-rata share transactions, which otherwise would have the effect of diluting the ownership
interests of limited partners or shareholders. As of December 31, 2019 and 2018, there were no Operating Partnership common units
held by unaffiliated third parties.
F-26
11.
Earnings Per Share
The two class method is used to determine earnings per share because unvested restricted shares and unvested LTIP
units are considered to be participating shares. The LTIP units held by the non-controlling interest holders, which may be
converted to common shares of beneficial interest, have been excluded from the denominator of the diluted earnings per share
calculation as there would be no effect on the amounts since limited partners' share of income or loss would also be added back
to net income or loss. Unvested restricted shares, unvested long-term incentive plan units and unvested Class A Performance
LTIP units that could potentially dilute basic earnings per share in the future would not be included in the computation of
diluted loss per share for the periods where a loss has been recorded, because they would have been anti-dilutive for the periods
presented. The following is a reconciliation of the amounts used in calculating basic and diluted net income per share (in
thousands, except share and per share data):
Numerator:
Net income
Dividends paid on unvested shares and LTIP units
Net income attributable to common shareholders
Denominator:
For the year ended
December 31,
2019
2018
2017
$
$
18,703
(297)
18,406
$
$
30,641
(310)
30,331
$
$
29,478
(235)
29,243
Weighted average number of common shares - basic
46,788,784
46,073,515
39,859,143
Effect of dilutive securities:
Unvested shares
Weighted average number of common shares - diluted
234,496
170,145
253,123
47,023,280
46,243,660
40,112,266
Basic income per Common Share:
Net income attributable to common shareholders per weighted average
common share
Diluted income per Common Share:
Net income attributable to common shareholders per weighted average
common share
$
$
0.39
$
0.66
$
0.73
0.39
$
0.66
$
0.73
F-27
12.
Equity Incentive Plan
The Company maintains its Equity Incentive Plan to attract and retain independent trustees, executive officers and
other key employees and service providers. The plan provides for the grant of options to purchase common shares, share
awards, share appreciation rights, performance units, and other equity-based awards. The plan was amended and restated as of
May 17, 2013 to increase the maximum number of shares available under the plan to 3,000,000 shares. Share awards under this
plan generally vest over three to five years, though compensation for the Company’s independent trustees includes shares
granted that vest immediately. The Company pays dividends on unvested shares and units, except for performance-based shares
and outperformance based units, for which dividends on unvested performance-based shares and units are accrued and not paid
until those shares or units vest. Certain awards may provide for accelerated vesting if there is a change in control. As of
December 31, 2019, there were 1,150,806 common shares available for issuance under the Equity Incentive Plan.
Restricted Share Awards
From time to time, the Company may award restricted shares under the Equity Incentive Plan as compensation to officers,
employees and non-employee trustees. The Company recognizes compensation expense for the restricted shares on a straight-
line basis over the vesting period based on the fair market value of the shares on the date of issuance.
A summary of the Company’s restricted share awards for the years ended December 31, 2019, 2018 and 2017 is as
follows:
December 31, 2019
December 31, 2018
December 31, 2017
Number of
Shares
Weighted -
Average Grant
Date Fair
Value
Number of
Shares
Weighted -
Average Grant
Date Fair
Value
Number of
Shares
Weighted -
Average Grant
Date Fair
Value
Non-vested at beginning of the period
8,334
$
Granted
Vested
Forfeited
Unvested at end of the period
—
(3,333)
—
5,001
$
18.52
—
18.80
—
18.33
57,514
$
5,000
(30,084)
(24,096)
8,334
$
23.78
17.40
26.24
21.21
18.52
110,825
$
5,000
(32,441)
(25,870)
57,514
$
22.05
20.20
25.77
13.17
23.78
As of December 31, 2019 and 2018, there were $0.1 million and $0.1 million, respectively, of unrecognized
compensation costs related to restricted share awards. As of December 31, 2019, these costs were expected to be recognized
over a weighted–average period of approximately 2.0 years. For the years ended December 31, 2019, 2018 and 2017, the
Company recognized approximately $0.1 million, $0.1 million and $0.8 million, respectively, of expense related to the
restricted share awards. This expense is included in general and administrative expenses in the accompanying consolidated
statements of operations.
Long-Term Incentive Plan Awards
LTIP units are a special class of partnership interests in the Operating Partnership which may be issued to eligible
participants for the performance of services to or for the benefit of the Company. Under the Equity Incentive Plan, each LTIP
unit issued is deemed equivalent to an award of one common share thereby reducing the number of shares available for other
equity awards on a one-for-one basis.
F-28
A summary of the Company's LTIP unit awards for the years ended years ended December 31, 2019, 2018 and
2017 is as follows:
December 31, 2019
December 31, 2018
December 31, 2017
Number of
Shares
Weighted -
Average Grant
Date Fair
Value
Number of
Shares
Weighted -
Average Grant
Date Fair
Value
Number of
Shares
Weighted -
Average Grant
Date Fair
Value
Non-vested at beginning of the period
476,398
$
Granted
Vested
Forfeited
221,853
(99,931)
—
17.73
18.73
16.55
482,056
244,917
$
$
(67,275) $
—
(183,300) $
Non-vested at end of period
598,320
$
18.30
476,398
$
16.58
16.94
16.42
14.13
17.73
295,551
223,922
$
$
(37,417) $
— $
482,056
$
14.36
19.20
14.73
—
16.58
Outperformance Plan LTIP Awards
On June 1, 2015, the Company's Operating Partnership granted 183,300 Class A Performance LTIP units, as
recommended by the Compensation Committee of the Board (the "Compensation Committee"), pursuant to long-term, multi-
year performance plan (the "Outperformance Plan"). As of June 1, 2018, the Class A Performance LTIP units did not meet the
required market based Total Shareholder Return ("TSR") measurements and therefore, the accrued dividends and units have
been forfeited. The Company will continue to amortize the remaining expense related to these awards through June 2020 due
to the awards being market based.
Time-Based LTIP Awards
On March 1, 2019, the Company’s Operating Partnership, upon the recommendation of the Compensation Committee,
granted 88,746 time-based awards (the “2019 Time-Based LTIP Unit Award”). The grants were made pursuant to award
agreements that provide for time-based vesting (the "LTIP Unit Time-Based Vesting Agreement").
Time-Based LTIP Unit Awards will vest ratably provided that the recipient remains employed by the Company
through the applicable vesting date, subject to acceleration of vesting in the event of the recipient’s death, disability, termination
without cause or resignation with good reason, or in the event of a change of control of the Company). Prior to vesting, a
holder is entitled to receive distributions on the LTIP Units that comprise the 2019 Time-Based LTIP Unit Awards and the prior
year LTIP unit Awards set forth in the table above.
Performance-Based LTIP Awards
On March 1, 2019, the Company’s Operating Partnership, upon the recommendation of the Compensation Committee,
also granted 133,107 performance-based awards (the "2019 Performance-Based LTIP Unit Awards"). The grants were made
pursuant to award agreements that have market based vesting conditions. The Performance-Based LTIP Unit Awards are
comprised of Class A Performance LTIP units that will vest only if and to the extent that (i) the Company achieves certain long-
term market based TSR criteria established by the Compensation Committee and (ii) the recipient remains employed by the
Company through the applicable vesting date, subject to acceleration of vesting in the event of the recipient’s death, disability,
termination without cause or resignation with good reason, or in the event of a change of control of the Company.
Compensation expense is based on an estimated value of $18.91 per 2019 Performance-Based LTIP Unit Award, which takes
into account that some or all of the awards may not vest if long-term market based TSR criteria are not met during the vesting
period.
F-29
The 2019 Performance-Based LTIP Unit Awards may be earned based on the Company's relative TSR performance
for the three-year period beginning on March 1, 2019 and ending on February 28, 2022. The 2019 Performance-Based LTIP
Unit Awards, if earned, will be paid out between 50% and 150% of target value as follows:
Threshold
Target
Maximum
Relative TSR Hurdles (Percentile)
Payout Percentage
25th
50th
75th
50%
100%
150%
Payouts at performance levels in between the hurdles will be calculated by straight-line interpolation.
The Company estimated the aggregate compensation cost to be recognized over the service period determined as of the
grant date under ASC 718, excluding the effect of estimated forfeitures, using the Monte Carlo Approach. In determining the
discounted value of the LTIP units, the Company considered the inherent uncertainty that the LTIP units would never reach
parity with the other common units of the Operating Partnership and thus have an economic value of zero to the grantee.
Additional factors considered in estimating the value of the LTIP units included discounts for illiquidity; expectations for future
dividends; risk free interest rates; stock volatility; and economic environment and market conditions.
The grant date fair value of the LTIPs and the assumptions used to estimate the values are as follows:
Outperformance Plan
2016 Time-Based LTIP Unit Awards
Grant Date
6/1/2015
1/28/2016
2016 Performance-Based LTIP Unit Awards
1/28/2016
2017 Time-Based LTIP Unit Awards
3/1/2017
2017 Performance-Based LTIP Unit Awards
3/1/2017
2018 Time-Based LTIP Unit Awards
3/1/2018
2018 Performance-Based LTIP Unit Awards
3/1/2018
2019 Time-Based LTIP Unit Awards
3/1/2019
2019 Performance-Based LTIP Unit Awards
3/1/2019
Number of
Units
Granted
183,300
Estimated
Value per
Unit
$14.13
Volatility
26%
Dividend
Yield
4.5%
Risk Free
Interest Rate
0.95%
72,966
39,285
89,574
134,348
97,968
146,949
88,746
133,107
$16.69
$11.09
$18.53
$19.65
$16.83
$17.02
$18.45
$18.91
28%
30%
24%
25%
26%
26%
21%
21%
—%
5.8%
—%
5.8%
—%
6.2%
—%
6.2%
0.79%
1.13%
0.92%
1.47%
2.07%
2.37%
2.57%
2.55%
The Company recorded $4.2 million, $3.6 million and $2.5 million in compensation expense related to the LTIP units
for years ended December 31, 2019, 2018 and 2017, respectively. As of December 31, 2019 and 2018, there was $4.9 million
and $5.0 million, respectively, of total unrecognized compensation cost related to LTIP units. This cost is expected to be
recognized over approximately 1.7 years, which represents the weighted average remaining vesting period of the LTIP units.
Board of Trustee Share Compensation
For 2019, 2018 and 2017, each independent trustee was compensated $0.1 million for their services. Each trustee may
elect to receive up to 100% of their compensation in the form of shares, but must receive at least 50% in the form of shares. In
January 2019, 2018 and 2017, the Company issued 27,870, 21,670 and 23,980 common shares, respectively, to its independent
trustees as compensation for services performed in 2018, 2017 and 2016, respectively. The quantity of shares was calculated
based on the average of the closing price for the Company’s common shares on the NYSE for the last ten trading days
preceding the reporting date. On January 15, 2020, the Company distributed 24,516 common shares to its independent trustees
for services performed in 2019.
F-30
13.
Leases
The Courtyard Altoona hotel was sold on May 7, 2019. The Courtyard Altoona hotel was subject to a ground lease
with an expiration date of April 30, 2029 and we had an extension option by the Company of up to 12 additional terms of five
years each. Monthly payments were determined by the quarterly average room occupancy of the hotel. Rent was equal to
approximately $8,400 per month when monthly occupancy was less than 85% and could increase up to approximately $20,000
per month if occupancy was 100%, with minimum rent increased by two and one-half percent (2.5%) on an annual basis.
The Residence Inn San Diego Gaslamp hotel is subject to a ground lease with an expiration of January 31, 2065 with
an extension option by the Company of up to three additional terms of ten years each. Monthly payments are currently
approximately $40,300 per month and increase 10% every 5 years. The hotel is subject to supplemental rent payments annually
calculated as 5% of gross revenues during the applicable lease year, minus 12 times the monthly base rent scheduled for the
lease year.
The Residence Inn New Rochelle hotel is subject to an air rights lease and garage lease that each expires on
December 1, 2104. The lease agreements with the City of New Rochelle cover the space above the parking garage that is
occupied by the hotel as well as 128 parking spaces in a parking garage that is attached to the hotel. The annual base rent for the
garage lease is the hotel’s proportionate share of the city’s adopted budget for the operations, management and maintenance of
the garage and established reserves to fund the cost of capital repairs. Aggregate rent for 2019 under these leases amounted to
approximately $29,000 per quarter.
The Hilton Garden Inn Marina del Rey hotel is subject to a ground lease with an expiration of December 31, 2067.
Minimum monthly payments are currently approximately $47,500 per month and a percentage rent payment less the minimum
rent is due in arrears equal to 5% to 25% of gross income based on the type of income.
The Company entered into a corporate office lease in September 2015. The lease is for a term of 11 years and includes
a 12-month rent abatement period and certain tenant improvement allowances. The Company has a renewal option of up to two
successive terms of five years each. The Company shares the space with related parties and is reimbursed for the pro-rata share
of rentable space occupied by the related parties.
The Company is the lessee under ground, air rights, garage and office lease agreements for certain of its properties, all
of which qualify as operating leases as of December 31, 2019. The leases typically provide multi-year renewal options to
extend term as lessee at the Company's option. Option periods are included in the calculation of the lease obligation liability
only when options are reasonably certain to be exercised.
In calculating the Company's lease obligations under the various leases, the Company uses discount rates estimated to
be equal to what the Company would have to pay to borrow on a collateralized basis over a similar term, for an amount equal to
the lease payments, in a similar economic environment.
The following table includes information regarding the Company's leases for which it is the lessee, as of
December 31, 2019, for each of the next five calendar years and thereafter (in thousands):
Total Future Lease Payments
2020
2021
2022
2023
2024
Thereafter
Total lease payments
Less: Imputed interest
Present value of lease liabilities
Amount
2,027
2,051
2,071
2,093
2,115
68,906
79,263
(55,546)
23,717
$
$
$
F-31
The following is a schedule of the minimum future payments required under the ground, air rights, garage leases and
office lease as of December 31, 2018, for each of the next five calendar years and thereafter:
Amount
$
2019
2020
2021
2022
2023
Thereafter
Total lease payments
$
2,065
2,132
2,157
2,182
2,206
71,661
82,403
For the year ended December 31, 2019, the Company incurred $1.2 million of fixed lease payments and $0.6 million
of variable lease payments, which are included in property taxes, ground rent and insurance in our consolidated statement of
operations.
The following tables include information regarding the right of use assets and lease liabilities of the Company as of
December 31, 2019:
Right of Use Asset
Lease Liability
Balance as of January 1, 2019
Amortization
Disposal
Balance as of December 31, 2019
$
$
23,091 $
(613)
(1,208)
21,270 $
25,715
(391)
(1,607)
23,717
Lease Term and Discount Rate
December 31, 2019
Weighted-average remaining lease term (years)
Weighted-average discount rate
40.81
6.55%
F-32
14.
Commitments and Contingencies
Litigation
The nature of the operations of the Company's hotels exposes those hotels, the Company and the Operating Partnership
to the risk of claims and litigation in the normal course of their business. IHM is currently a defendant in several class action
lawsuits pending in the state of California.
The first class action lawsuit was filed in the Santa Clara County Superior Court on October 21, 2016 under the title
Ruffy, et al, v. Island Hospitality Management, LLC, et al. Case No. 16-CV-301473 (“Ruffy”) and the second class action
lawsuit was filed on March 21, 2018 under the title Doonan, et al, v. Island Hospitality Management, LLC, et al. Case No 18-
CV-325187 (“Doonan”). The class actions relate to hotels operated by IHM in the state of California and owned by affiliates of
the Company and the NewINK JV, and/or certain third parties. The complaint alleges various wage and hour law violations
based on alleged misclassification of certain hotel managerial staff and violation of certain California statutes regarding
incorrect information contained on employee paystubs. The plaintiffs seek injunctive relief, money damages, penalties, and
interest. A settlement agreement has been negotiated and approved by the applicable courts for Ruffy and Doonan. As of
December 31, 2019, included in accounts payable and accrued expenses is $0.1 million which represents an estimate of the
Company’s total exposure to the Ruffy and Doonan litigations based on standard indemnification obligations under hotel
management agreements with IHM.
In addition, IHM is a defendant in the following series of interrelated class action lawsuits: Perez et al. v. Island
Hospitality Management III LLC et al. (United States District Court for the Central District of California, Case No. 2:18-
cv-04903-DMG-JPR) filed on March 15, 2018, Cruz v. Island Hospitality Management III LLC (Santa Clara County Superior
Court Case No. 19CV353655) filed on August 19, 2019, Leon et al. v. Island Hospitality Management III LLC (Orange County
Superior Court Case No. 30-2019-01050719-CU-OE-CXC) filed on April 2, 2019, and Vela v. Island Hospitality Management
LLC et al. (San Diego County Superior Court, Case No. 37-2019-0003525) filed on July 9, 2019 (collectively the “Perez class
actions”). The Perez class actions also relate to hotels operated by IHM in the state of California and owned by affiliates of the
Company and the NewINK JV, and/or certain third parties. The complaints allege various wage and hour law violations based
on alleged violation of certain California statutes regarding rest and meal breaks and wage statements. The plaintiffs seek
injunctive relief, money damages, penalties, and interest. Settlement agreements have been negotiated and currently await
approval by the applicable courts. As of December 31, 2019, included in accounts payable and accrued expenses is $0.6
million which represents an estimate of the Company’s total exposure to the Perez class actions based on standard
indemnification obligations under hotel management agreements with IHM.
Management Agreements
The management agreements with IHM have an initial term of five years and automatically renew for two five-year
periods unless IHM provides written notice to us no later than 90 days prior to the then current term's expiration date of their
intent not to renew. The IHM management agreements provide for early termination at the Company’s option upon sale of any
IHM-managed hotel for no termination fee, with six months advance notice. The IHM management agreements may be
terminated for cause, including the failure of the managed hotel to meet specified performance levels. Base management fees
are calculated as a percentage of the hotel's gross room revenue. If certain financial thresholds are met or exceeded, an
incentive management fee is calculated as 10% of the hotel's net operating income less fixed costs, base management fees and a
specified return threshold. The incentive management fee is capped at 1% of gross hotel revenues for the applicable
calculation.
As of December 31, 2019, terms of the Company's management agreements are (dollars are not in thousands):
F-33
Property
Homewood Suites by Hilton Boston-Billerica/ Bedford/
Burlington
Homewood Suites by Hilton Minneapolis-Mall of
America
Homewood Suites by Hilton Nashville-Brentwood
Homewood Suites by Hilton Dallas-Market Center
Homewood Suites by Hilton Hartford-Farmington
Homewood Suites by Hilton Orlando-Maitland
Hampton Inn & Suites Houston-Medical Center
Residence Inn Long Island Holtsville
Residence Inn White Plains
Residence Inn New Rochelle
Residence Inn Garden Grove
Residence Inn Mission Valley
Homewood Suites by Hilton San Antonio River Walk
Residence Inn Washington DC
Residence Inn Tysons Corner
Hampton Inn Portland Downtown
Courtyard Houston
Hyatt Place Pittsburgh North Shore
Hampton Inn Exeter
Hilton Garden Inn Denver Tech
Residence Inn Bellevue
Springhill Suites Savannah
Residence Inn Silicon Valley I
Residence Inn Silicon Valley II
Residence Inn San Mateo
Residence Inn Mountain View
Hyatt Place Cherry Creek
Courtyard Addison
Courtyard West University Houston
Residence Inn West University Houston
Hilton Garden Inn Burlington
Residence Inn San Diego Gaslamp
Hilton Garden Inn Marina del Rey
Residence Inn Dedham
Residence Inn Il Lugano
Hilton Garden Inn Portsmouth
Courtyard Summerville
Embassy Suites Springfield
Residence Inn Summerville
Courtyard Dallas
Management
Company
Base
Management
Fee
Monthly
Accounting
Fee
Monthly Revenue
Management Fee
Incentive
Management Fee
Cap
IHM
IHM
IHM
IHM
IHM
IHM
IHM
IHM
IHM
IHM
IHM
IHM
IHM
IHM
IHM
IHM
IHM
IHM
IHM
IHM
IHM
IHM
IHM
IHM
IHM
IHM
IHM
IHM
IHM
IHM
IHM
IHM
IHM
IHM
IHM
IHM
IHM
IHM
IHM
IHM
3.0 %
1,200
3.0 %
3.0 %
3.0 %
3.0 %
3.0 %
3.0 %
3.0 %
3.0 %
3.0 %
3.0 %
3.0 %
3.0 %
3.0 %
3.0 %
3.0 %
3.0 %
3.0 %
3.0 %
3.0 %
3.0 %
3.0 %
3.0 %
3.0 %
3.0 %
3.0 %
3.0 %
3.0 %
3.0 %
3.0 %
3.0 %
3.0 %
3.0 %
3.0 %
3.0 %
3.0 %
3.0 %
3.0 %
3.0 %
3.0 %
1,200
1,200
1,200
1,200
1,200
1,000
1,000
1,000
1,000
1,200
1,200
1,200
1,200
1,200
1,000
1,000
1,500
1,200
1,500
1,200
1,200
1,200
1,200
1,200
1,200
1,500
1,500
1,500
1,200
1,500
1,500
1,500
1,200
1,500
1,500
1,500
1,500
1,500
1,500
1,000
1,000
1,000
1,000
1,000
1,000
1,000
1,000
750
750
1,000
1,000
1,000
1,000
1,000
550
550
1,000
1,000
1,000
1,000
1,000
1,000
1,000
1,000
1,000
1,000
1,000
1,000
1,000
1,000
1,000
1,000
1,000
1,000
1,000
1,000
1,000
1,000
1,000
1.0 %
1.0 %
1.0 %
1.0 %
1.0 %
1.0 %
1.0 %
1.0 %
1.0 %
1.0 %
1.0 %
1.0 %
1.0 %
1.0 %
1.0 %
1.0 %
1.0 %
1.0 %
1.0 %
1.0 %
1.0 %
1.0 %
1.0 %
1.0 %
1.0 %
1.0 %
1.0 %
1.0 %
1.0 %
1.0 %
1.0 %
1.0 %
1.0 %
1.0 %
1.0 %
1.0 %
1.0 %
1.0 %
1.0 %
1.0 %
Management fees totaled approximately $10.8 million, $10.8 million and $9.9 million, respectively, for the years
ended December 31, 2019, 2018 and 2017. Incentive management fees paid to IHM for the years ended years ended December
31, 2019, 2018 and 2017 were $0.1 million, $0.1 million and $0.2 million, respectively.
F-34
Franchise Agreements
The fees associated with the franchise agreements are calculated as a specified percentage of the hotel's gross room
revenue. Terms of the Company's franchise agreements are as of December 31, 2019:
Property
Homewood Suites by Hilton Boston-Billerica/ Bedford/ Burlington
Homewood Suites by Hilton Minneapolis-Mall of America
Homewood Suites by Hilton Nashville-Brentwood
Homewood Suites by Hilton Dallas-Market Center
Homewood Suites by Hilton Hartford-Farmington
Homewood Suites by Hilton Orlando-Maitland
Hampton Inn & Suites Houston-Medical Center
Courtyard Altoona
Springhill Suites Washington
Residence Inn Long Island Holtsville
Residence Inn White Plains
Residence Inn New Rochelle
Residence Inn Garden Grove
Residence Inn Mission Valley
Homewood Suites by Hilton San Antonio River Walk
Residence Inn Washington DC
Residence Inn Tysons Corner
Hampton Inn Portland Downtown
Courtyard Houston
Hyatt Place Pittsburgh North Shore
Hampton Inn Exeter
Hilton Garden Inn Denver Tech
Residence Inn Bellevue
Springhill Suites Savannah
Residence Inn Silicon Valley I
Residence Inn Silicon Valley II
Residence Inn San Mateo
Residence Inn Mountain View
Hyatt Place Cherry Creek
Courtyard Addison
Courtyard West University Houston
Residence Inn West University Houston
Hilton Garden Inn Burlington
Residence Inn San Diego Gaslamp
Hilton Garden Inn Marina del Rey
Residence Inn Dedham
Residence Inn Il Lugano
Hilton Garden Inn Portsmouth
Courtyard Summerville
Embassy Suites Springfield
Residence Inn Summerville
Courtyard Dallas
F-35
Franchise/
Royalty Fee
Marketing/
Program Fee Expiration
4.0 %
4.0 %
4.0 %
4.0 %
4.0 %
4.0 %
5.0 %
5.5 %
5.0 %
5.5 %
5.5 %
5.5 %
5.0 %
5.0 %
4.0 %
5.5 %
5.0 %
6.0 %
5.5 %
5.0 %
6.0 %
5.5 %
5.5 %
5.0 %
5.5 %
5.5 %
5.5 %
5.5 %
3% to 5%
5.5 %
5.5 %
6.0 %
5.5 %
6.0 %
3% to 5.5%
6.0 %
3% to 6%
5.5 %
6.0 %
5.5 %
6.0 %
4% to 6%
4.0 %
4.0 %
4.0 %
4.0 %
4.0 %
4.0 %
4.0 %
2.0 %
2.5 %
2.5 %
2.5 %
2.5 %
2.5 %
2.5 %
4.0 %
2.5 %
2.5 %
4.0 %
2.0 %
3.5 %
4.0 %
4.3 %
2.5 %
2.5 %
2.5 %
2.5 %
2.5 %
2.5 %
3.5 %
2.0 %
2.0 %
2.5 %
4.3 %
2.5 %
4.3 %
2.5 %
2.5 %
4.0 %
2.5 %
4.0 %
2.5 %
2.0 %
2025
2025
2025
2025
2025
2025
2035
2030
2030
2025
2030
2030
2031
2031
2026
2033
2031
2032
2030
2030
2031
2028
2033
2033
2029
2029
2029
2029
2034
2029
2029
2024
2029
2035
2030
2030
2045
2037
2037
2037
2038
2038
Franchise and marketing/program fees totaled approximately $25.9 million, $24.9 million and $23.2 million,
respectively, for the years ended December 31, 2019, 2018 and 2017.
15.
Related Party Transactions
Prior to March 1, 2019, Mr. Fisher owned 51% of IHM. On March 1, 2019, Mr. Fisher acquired the 1.5% ownership
interest of an employee who was leaving IHM. As of December 31, 2019, Mr. Fisher owns 52.5% of IHM. As of December 31,
2019, the Company had hotel management agreements with IHM to manage 40 of its wholly owned hotels. As of
December 31, 2019, all 46 hotels owned by the NewINK JV and 34 of the 48 hotels owned by the Inland JV were managed by
IHM. Hotel management, revenue management and accounting fees accrued or paid to IHM for the hotels owned by the
Company for the years ended December 31, 2019, 2018 and 2017 were $10.8 million, $10.8 million and $9.2 million,
respectively. At December 31, 2019 and 2018, the amounts due to IHM were $0.7 million and $1.1 million, respectively.
Incentive management fees paid to IHM by the Company for the years ended December 31, 2019, 2018 and 2017 were $0.1
million, $0.1 million and $0.2 million, respectively. The Company provides services to Castleblack, which is 97.5% owned by
affiliates of CLNY and 2.5% owned by Mr. Fisher. For the years ended December 31, 2019 and 2018 the company provided
services of $0.1 million and $0.4 million, respectively.
Cost reimbursements from unconsolidated real estate entities revenue represents reimbursements of costs incurred on
behalf of the NewINK and Inland JVs and Castleblack. These costs relate primarily to corporate payroll costs at the NewINK
and Inland JVs and Castleblack where the Company is the employer and shared office expenses. As the Company records cost
reimbursements based upon costs incurred with no added markup, the revenue and related expense has no impact on the
Company’s operating income or net income. Cost reimbursements from the JVs are recorded based upon the occurrence of a
reimbursed activity.
Various shared office expenses and rent are paid by the Company and allocated to the NewINK JV, the Inland JV,
Castleblack and IHM based on the amount of square footage occupied by each entity. Insurance expenses for medical, workers
compensation and general liability are paid by the NewINK JV and allocated back to the hotel properties or applicable entity
for the years ended December 31, 2019, 2018 and 2017 were $7.4 million, $7.5 million and $6.8 million, respectively.
F-36
16.
Quarterly Operating Results (unaudited)
Quarter Ended - 2019
March 31
June 30
September 30 December 31
(in thousands, except share and per share data)
Total revenue
Total operating expenses
Operating income
Net income attributable to common shareholders
Income (loss) per common share, basic (1)
Income (loss) per common share, diluted (1)
$
75,679
$
87,874
$
90,080
$
65,786
9,893
1,613
0.03
0.03
71,741
16,133
9,437
0.20
0.20
70,182
19,898
10,002
0.21
0.21
74,695
67,234
7,461
(2,349)
(0.05)
(0.05)
Weighted average number of common shares outstanding:
Basic
Diluted
46,556,710
46,734,958
46,760,016
46,913,922
46,976,999
47,152,166
46,919,035
47,220,671
Quarter Ended - 2018
March 31
June 30
September 30 December 31
(in thousands, except share and per share data)
Total revenue
Total operating expenses
Operating income
Net income attributable to common shareholders
Income per common share, basic (1)
Income per common share, diluted (1)
$
72,915
$
85,374
$
88,897
$
62,630
10,285
2,848
0.06
0.06
66,237
19,137
13,387
0.29
0.29
68,522
20,375
14,580
0.31
0.31
77,044
68,707
8,337
(174)
—
—
Weighted average number of common shares outstanding:
Basic
Diluted
45,753,792
46,022,690
45,867,625
46,084,688
46,149,765
46,384,969
46,513,688
46,765,797
(1)
The sum of per share amounts for the four quarters may differ from the annual per share amounts due to the required method of computing
weighted-average number of common shares outstanding in the respective periods and share offerings that occurred during the year. Unvested restricted shares
and unvested LTIP units could potentially dilute basic earnings per share in the future were not included in the computation of diluted loss per share, for the
periods where a loss has been recorded, because they would have been anti-dilutive for the periods presented.
F-37
CHATHAM LODGING TRUST
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 2019
(in thousands)
Initial Cost
Gross Amount at End of Year
Description
Acquisition Encumbrances
Land
Year of
Buildings &
Improvements
Cost Cap.
Sub. To
Acq. Land
Cost Cap. Sub.
To Acq. Bldg &
Improvements
Land
Buildings &
Improvements
Total
Bldg &
Improvements
Accumulated
Depreciation
Year of
Original
Construction
Depreciation
Life
Homewood Suites Orlando - Maitland, FL
Homewood Suites Boston - Billerica, MA
Homewood Suites Minneapolis - Mall of
America, Bloomington, MN
Homewood Suites Nashville - Brentwood, TN
Homewood Suites Dallas - Market Center,
Dallas, TX
Homewood Suites Hartford - Farmington, CT
Hampton Inn & Suites Houston - Houston, TX
Residence Inn Holtsville - Holtsville, NY
Residence Inn White Plains - White Plains, NY
Residence Inn New Rochelle - New Rochelle,
NY
Residence Inn Garden Grove - Garden Grove,
CA
Residence Inn Mission Valley - San Diego, CA
Homewood Suites San Antonio - San Antonio,
TX
Residence Inn Washington DC - Washington,
DC
Residence Inn Tyson's Corner - Vienna, VA
Hampton Inn Portland Downtown - Portland,
ME
Courtyard Houston - Houston, TX
Hyatt Place Pittsburgh - Pittsburgh, PA
Hampton Inn & Suites Exeter - Exeter, NH
Hilton Garden Inn Denver Tech - Denver, CO
Residence Inn Bellevue - Bellevue, WA
SpringHill Suites Savannah - Savannah, GA
Residence Inn Silicon Valley I - Sunnyvale, CA
Residence Inn Silicon Valley II - Sunnyvale, CA
Residence Inn San Mateo - San Mateo, CA
Residence Inn Mt. View - Mountain View, CA
Hyatt Place Cherry Creek - Cherry Creek, CO
Courtyard Addison - Dallas, TX
2010
2010
2010
2010
2010
2010
2010
2010
2010
2010
2011
2011
2011
2011
2011
2012
2013
2013
2013
2013
2013
2013
2014
2014
2014
2014
2014
2014
—
$
1,800 $
7,200 $
34 $
5,174 $ 1,834 $
12,374 $
14,208 $
12,374 $
15,693
1,470
10,555
—
—
—
—
17,717
—
—
12,936
32,053
27,272
3,500
1,525
2,500
1,325
3,200
2,200
2,200
13,960
9,300
7,583
9,375
12,709
18,765
17,677
—
20,281
7,109
9,856
35,484
39,535
15,563
5,999
24,764
—
21,291
—
17,559
21,520
—
—
43,857
29,817
64,406
70,270
48,305
37,670
—
—
6,083
5,752
4,315
5,600
3,000
1,900
4,100
13,800
2,400
42,652
46,474
38,420
22,019
3,700
2,413
22,063
28,917
22,664
27,350
35,576
12,350
23,100
56,957
36,050
45,846
50,380
31,352
31,813
26,300
21,554
48
19
12
30
92
56
—
—
9
50
—
7
28
—
—
—
—
4
5
—
1
—
—
—
—
—
—
3,839
1,518
14,394
15,912
14,394
4,081
3,641
3,751
3,549
2,945
1,201
8,576
3,208
1,980
2,730
3,519
1,537
2,530
1,417
3,256
2,200
2,200
18,041
12,941
11,334
12,924
15,654
19,966
26,253
21,560
14,478
13,864
14,341
18,910
22,166
28,453
18,041
12,941
11,334
12,924
15,654
19,966
26,253
9
23,489
23,498
23,489
7,159
9,856
37,464
42,265
44,623
52,121
37,464
42,265
5,440
6,006
30,204
36,210
30,204
6,082
2,538
290
2,781
1,291
132
655
2,277
1,534
5,559
1,360
6,111
5,752
4,315
5,600
3,000
1,904
4,105
13,800
2,401
42,652
46,474
752
38,420
10,166
22,019
1,822
2,502
3,700
2,413
28,145
31,455
22,954
30,131
36,867
12,482
23,755
59,234
37,584
51,405
51,740
32,104
41,979
28,122
24,056
34,256
37,207
27,269
35,731
39,867
14,386
27,860
73,034
39,985
94,057
98,214
70,524
63,998
31,822
26,469
28,145
31,455
22,954
30,131
36,867
12,482
23,755
59,234
37,584
51,405
51,740
32,104
41,979
28,122
24,056
3,530
3,436
4,707
3,392
2,849
3,050
3,636
5,000
6,638
6,015
8,439
8,868
6,915
6,907
6,353
4,047
5,156
6,035
2,017
3,917
9,435
5,980
17,441
19,050
11,800
13,722
3,855
3,311
2000
1999
1998
1998
1998
1999
1997
2004
1982
2000
2003
2003
1996
1974
2001
2011
2010
2011
2010
1999
2008
2009
1983
1985
1985
1985
1987
2000
(1)
(1)
(1)
(1)
(1)
(1)
(1)
(1)
(1)
(1)
(1)
(1)
(1)
(1)
(1)
(1)
(1)
(1)
(1)
(1)
(1)
(1)
(1)
(1)
(1)
(1)
(1)
(1)
- continued -
F-38
Description
Year of
Acquisition Encumbrances
Land
Buildings &
Improvements
Cost Cap.
Sub. To
Acq. Land
Cost Cap.
Sub. To Acq.
Bldg &
Improvements
Land
Buildings &
Improvements
Total
Bldg &
Improvements
Accumulated
Depreciation
Year of
Original
Construction
Depreciation
Life
Initial Cost
Gross Amount at End of Year
Courtyard West University - Houston, TX
Residence Inn West University - Houston, TX
Hilton Garden Inn Burlington - Burlington, MA
Residence Inn Gaslamp - San Diego, CA
Hilton Garden Inn Marina del Rey, CA
Residence Inn Dedham, MA
Residence Inn Ft. Lauderdale, FL
Warner Center
Hilton Garden Inn Portsmouth, NH
Courtyard Summerville, SC
Embassy Suites Springfield, VA
Residence Inn Summerville, SC
Courtyard Dallas Downtown, TX
Sili III
Grand Total(s)
2014
2014
2014
2015
2015
2015
2015
2017
2017
2017
2017
2018
2018
2018
—
—
—
—
20,931
—
—
—
—
—
—
—
—
—
2,012
3,640
4,918
—
—
4,230
9,200
6,500
3,600
2,500
7,700
2,300
2,900
8,171
17,916
25,631
27,193
89,040
43,210
17,304
24,048
—
37,630
16,923
58,807
17,060
42,760
—
—
—
—
—
—
—
—
99
—
6
—
—
—
—
504
1,512
1,512
1,848
645
1,795
1,062
—
289
134
305
198
64
—
2,012
3,640
4,918
—
—
4,230
9,200
6,599
3,600
2,506
7,700
2,300
2,900
8,171
18,420
27,143
28,705
90,888
43,855
19,099
25,110
—
37,919
17,057
59,112
17,258
42,824
—
20,432
30,783
33,623
90,888
43,855
23,329
34,310
6,599
41,519
19,563
66,812
19,558
45,724
8,171
18,420
27,143
28,705
90,888
43,855
19,099
25,110
—
37,919
17,057
59,112
17,258
42,824
—
2,432
3,728
4,024
11,180
4,790
2,031
2,781
—
2,166
908
3,059
590
1,149
—
2004
2004
1975
2009
2013
1998
2008
2006
2014
2013
2018
2018
(1)
(1)
(1)
(1)
(1)
(1)
(1)
(1)
(1)
(1)
(1)
(1)
$ 302,983 $
1,116,982 $
500 $
99,724 $303,483 $
1,216,706 $1,520,189 $
1,216,706 $
224,339
(1) Depreciation is computed based upon the following estimated useful lives:
Building
Land improvements
Building improvements
Years
40
20
5-20
- continued
F-39
Notes:
(a) The change in total cost of real estate assets for the year ended is as
follows:
Balance at the beginning of the year
Acquisitions
Dispositions during the year
Capital expenditures and transfers from construction-in-
progress
Investment in Real Estate
2019
2018
2017
2016
2015
2014
$1,510,864 $
1,431,374 $
1,320,273 $ 1,306,192 $ 1,105,504
654,560
8,171
(17,889)
65,020
—
133,660
(33,053)
—
—
187,032
444,233
—
—
19,043
14,470
10,494
14,081
13,656
6,711
$1,520,189 $
1,510,864 $
1,431,374 $ 1,320,273 $ 1,306,192 $1,105,504
(b) The change in accumulated depreciation and amortization of real estate assets for the year ended is as follows:
Balance at the beginning of the year
Depreciation and amortization
Dispositions during the year
Balance at the end of the year
$
$
$
187,780 $
148,071 $
116,866 $
83,245 $
41,908
39,709
36,401
33,621
50,910
32,335
(5,349) $
— $
(5,196) $
— $
— $
28,980
21,930
—
224,339 $
187,780 $
148,071 $
116,866 $
83,245 $
50,910
(c) The aggregate cost of properties for federal income tax purposes (in thousands) is approximately $1,520.332 as of December 31, 2019.
F-40
Corporate Information
MANAGEMENT
Jeffrey H. Fisher
Chairman of the Board,
Chief Executive Officer
and President
Dennis Craven
Executive Vice President
and Chief Operating Officer
Eric Kentoff
Senior Vice President,
General Counsel
and Secretary
Jeremy Wegner
Senior Vice President
and Chief Financial Officer
INDEPENDENT REGISTERED CPA
PricewaterhouseCoopers LLP
401 East Las Olas Boulevard
Fort Lauderdale, FL 33301
BOARD OF TRUSTEES
SHAREHOLDER INFORMATION
Bill Brewer
Private Investor
Thomas J. Crocker
Chief Executive Officer
Crocker Partners, LLC
Jack P. DeBoer
Chairman
Consolidated Holdings, Inc.
Mary Beth Higgins
Chief Executive Officer
Affinity Gaming Inc.
Robert Perlmutter
Private Investor
Rolf E. Ruhfus
Chairman
and Chief Executive Officer
LodgeWorks Corporation
Investor Relations
Chatham Lodging Trust
222 Lakeview Avenue
Suite 200
West Palm Beach, FL 33401
Tel: 561.802.4477
Fax: 561.835.4125
ANNUAL MEETING
The annual meeting will be held
on Wednesday, May 13, 2020 at
9:00 a.m. in the Palms Meeting
Room. Address above.
TRANSFER AGENT
EQ Shareowner Services
PO Box 64945
St. Paul, MN 55164-0945
Locations
Seattle, WA: 4.7%
Minnesota: 1.5%
Denver, CO: 4.0%
Nashville, TN: 1.0%
Silicon Valley, CA: 22.3%
Los Angeles, CA: 6.0%
San Diego, CA: 9.1%
Dallas, TX: 5.8%
San Antonio, TX: 2.4%
Houston, TX: 7.0%
New Hampshire: 3.6%
Portland, ME: 1.8%
Massachusetts: 4.8%
Connecticut: 1.0%
New York: 5.0%
Pennsylvania: 2.6%
Washington, D.C.: 8.9%
Charleston, SC: 2.6%
Savannah, GA: 2.6%
Orlando, FL: 1.0%
Fort Lauderdale, FL: 2.3%
222 Lakeview Avenue
Suite 200
West Palm Beach, FL 33401
561.802.4477
www.chathamlodgingtrust.com
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