Chatham
Lodging Trust
2021 Annual Report
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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.
Chatham’s Brand
Chatham’s Brand
Composition
Composition
46% Residence Inn
46% Residence Inn
13% Homewood Suites
13% Homewood Suites
11% Hampton Inn
11% Hampton Inn
10% Courtyard
10% Courtyard
6% Hilton Garden
6% Hilton Garden
5% SpringHill Suites
5% SpringHill Suites
9% Other
9% Other
Chatham’s
Top Markets
Chatham’s
Top Markets
13% NH/ME
13% NH/ME
11% Greater NY
11% Greater NY
9% Silicon Valley
9% Silicon Valley
7% Dallas
7% Dallas
7% Los Angeles
7% Los Angeles
7% Houston
7% Houston
6% San Diego
6% San Diego
5% DC
5% DC
35% Other
35% Other
Based on the percentage of hotel EBITDA for the
Based on the percentage of hotel EBITDA for the
twelve months ended December 31, 2021
twelve months ended December 31, 2021
Based on the percentage of hotel EBITDA for the
Based on the percentage of hotel EBITDA for the
twelve months ended December 31, 2021
twelve months ended December 31, 2021
Dear Shareholder,
Jeffrey H. Fisher
Chairman, Chief Executive
Officer and President
AS the COVID-19 pandemic recedes further in the rear-view mirror, I’d like to reflect
upon our remarkable accomplishments during this most difficult time, which will go
down as the worst era in the history of our lodging industry, and emphasize the value I
believe is forthcoming to all our shareholders and constituents.
As we turn the page to 2022 healthier than most of our peers, I am thankful for the
remarkable efforts of our teams at Chatham and Island Hospitality, as well as their
significant accomplishments that placed us in a great position moving forward with an
outstanding portfolio. Our teams are more energized than ever to deliver great results
and meaningfully enhance shareholder value.
Chatham is emerging from the pandemic with an even stronger balance sheet, more
buying capacity and an even higher quality portfolio by executing numerous, meaningful
transactions.
Chatham L odging Trust
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We minimized cash burn throughout the pandemic
development known as Austin’s “second downtown”
by generating impressive operating results. Chatham
with more than 4.2 million square feet of office space
was the second fastest hotel REIT to become corporate
and 1.8 million square feet of retail space, plus another
cash flow positive. In 2021, we generated positive cash
2.8 million additional square feet (SF) of office space
flow before capital expenditures of $12 million, and,
expected to be delivered over the next two years
excluding principal amortization, cash flow was $20
and another 3.8 million SF of office space planned
million. Since April 2020, essentially the start of the
thereafter. These two hotels are performing great,
pandemic for our portfolio, cumulative cash burn before
and that market is poised to explode with the return to
capital expenditures was $16 million. When excluding
office for most companies.
principal amortization, however, cash burn was zero,
a remarkable achievement given the significant
challenges faced during the worst era in the history of
the lodging industry.
Additionally, we are thrilled to have completed and
recently opened the 170-room Home2 Suites Woodland
Hills Los Angeles within Warner Center. Warner Center
currently generates significant standalone demand
Throughout the pandemic, Chatham preserved its
with 10 million SF of office space with approximately
capital structure and enhanced its liquidity by generating
50,000 employees, almost 8 million SF of retail space
increased liquidity of $185 million through the issuance
and is home to over 20,000 residents. The city of Los
of $120 million of preferred equity in June 2021, the
Angeles introduced the Warner Center 2035 Plan, a
issuance of $25 million of common equity, the issuance
development blueprint that emphasizes mixed-use
of a $40 million loan on the Warner Center Development
and transit-oriented development, walkability and
and getting multiple amendments to its credit facility
sustainability with a goal of further urbanizing the
that maintained our ability to opportunistically sell and
zoning district. The Warner Center 2035 Plan facilitates
buy hotels.
Since April 2020, we have repaid a $13 million
mortgage, paid principal amortization of almost $16
million and paid down borrowings on our credit facility
by $103 million. In fact, over this same period, we had
the creation of a Regional Center where people can live,
work and play. The plan encompasses approximately
1,100 acres and allows for a net increase of 12.5 million
SF of office, 2.3 million SF of retail and 23.5 million SF of
new residential apartments (across 20,000 units).
the largest reduction in net debt of all hotel REITs. We
Just prior to printing our annual report, we acquired the
should exit our covenant waiver period on our credit
beachside 111-room Hilton Garden Inn Destin Miramar
facility within the next six months, further enhancing
Beach, Fla., in an off-market transaction for $31 million.
our financial flexibility. We have no debt maturities in
Recently opened in 2020, the hotel is within walking
2022 and only $114 million maturing in 2023.
distance of the pristine white sands of the Gulf of Mexico.
During 2021, the company acquired two, high-quality,
premium-branded, extended-stay hotels comprising
269 rooms in Austin, Texas, at the Domain for $71
million. The Domain is a rapidly growing mixed-use
The hotel’s location in Miramar Beach is well situated
in relation to the thriving Santa Rosa Beach and Destin
markets. This hotel will generate strong cash flow and
represents our third youngest hotel, and its RevPAR will
2
202 1 Annual Re port
amount to a 2022 RevPAR premium of approximately
to work wherever they want or the “satellite employee”
50% over our current portfolio. Additionally, the hotel
traveler who lives away from their corporate office and
further diversifies Chatham’s portfolio by adding a
is asked to return periodically to his/her corporate or
predominantly leisure hotel and expands the company’s
designated office. Having the highest concentration of
presence in the Sunbelt, which we believe will continue
extended-stay rooms of any lodging REIT at 60%, our
to benefit from population growth.
portfolio will benefit from the business travel resurgence
These four hotels are expected to generate a yield
over 8% in the first year of stabilized results and will
contribute meaningful hotel EBITDA growth in 2022
and these new types of travelers who are looking for
longer stays in a room that will be comfortable and
provide all the daily necessities.
and 2023. We expect to be active recycling out of
For us, our largest market, Silicon Valley, and other
hotels that might be older and require extensive capital
technology dependent markets, such as Bellevue,
expenditures or exhibit lower growth characteristics
Washington, are poised to significantly outperform
and into newer hotels that fit our long-term investment
and deliver outsized earnings growth as the business
criteria. We have emerged from the pandemic with a
traveler returns, international travel opens, technology-
stronger balance sheet and have the capacity to make
related training and product development resumes and,
value-enhancing acquisitions and generate incremental
importantly, the intern programs return. These five
cash flow.
Operationally, performance has started to pick up since
the beginning of the year with RevPAR and weekday
occupancy significantly growing each month of 2022.
RevPAR was $67 in January, $89 in February and
hotels are going to generate substantial hotel EBITDA
growth for us in 2022 and 2023 as they produced
approximately $35 million of hotel EBITDA in 2019
compared to a mere $5 million of Hotel EBITDA in 2020
and only $7 million in 2021.
has jumped to $105 through March 14, 2022. If the
From an operating margin standpoint, we have
fourteen-day level holds for the balance of the month,
implemented intense cost-control mechanisms across
it will represent the third-highest monthly RevPAR since
the portfolio. Originally used to protect liquidity in the
the start of the pandemic. Weekday occupancy, an
early days of the pandemic, the controls are helping us
indicator for the business traveler, was 48% in January,
deliver strong operating margins on much lower RevPAR
rising to 59% in February and has spiked to 67%
compared to pre-pandemic levels. Looking at our
through the first fourteen days of March. These are
2021 fourth quarter, which is a good indicator as our
encouraging trends.
We firmly believe that business travel is going to return
with a vengeance as companies re-invest in customer
relationships, employee development and a new type
of traveler emerges—the “bleisure” traveler who is able
hotels were in essence fully staffed, our 2021 fourth
quarter gross operating profit margins were a strong
41% on RevPAR of $92, only down 100 basis points
to 2019 when RevPAR was $26 higher at $118. We
expect our operating margins will exceed 2019 levels as
RevPAR recovers.
Chatham L odging Trust
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Having no deferred maintenance entering
the
group. We formed an ESG committee comprised of
pandemic allowed us to significantly reduce our capital
members of management and our Board of Trustees
expenditures and preserve liquidity. We reduced our
that will oversee our commitment to DEI.
2020 expenditures to approximately $14 million and
further reduced that by 50 percent to approximately
$7 million in 2021. We will be very judicious with our
capital expenditures moving forward and expect to
commence renovations at a handful of hotels in 2022.
In early 2021, we launched the Corporate Responsibility
section of our website and are keenly aware of our
responsibilities with respect to all things Environmental,
Social and Governance (ESG). This portion of our
website includes our Corporate Responsibility Report
and highlights our past achievements and refreshed
approach
to
sustainability,
social matters and
governance. We published a supplement to our Report
this quarter that includes disclosures in compliance
with Global Reporting Initiative (GRI), Sustainability
Last year was yet another difficult year across all fronts,
and I’m proud of the efforts made by our employees
across the country. Our successes in 2021 result from
the great teams we have at Chatham and Island.
I want to close by reminding everyone that our strong
performance to-date and our expected performance
moving forward will be significantly enhanced in
2022 and 2023 by three key factors: first, tremendous
upside in our tech-driven markets; second, meaningful,
incremental, new cash flow from our Austin and Destin
acquisitions, as well as the opening of our new Home2
Suites Woodland Hills Los Angeles; and third, recycling
capital from the sales of lower tier hotels into higher
returning acquisitions.
Accounting Standards Board (SASB) and Task Force on
Thank you for your support and continued confidence
Climate-related Financial Disclosures (TCFD).
in Chatham Lodging Trust’s leadership and associates.
Chatham is fully committed to sustainability, social
matters and proper corporate governance. In 2021, we
We hope to see many of our shareholders and key
constituents in person in 2022.
announced that the accompanying proxy statement
Sincerely,
would include a proposal for approval to allow
shareholders the right to amend our corporate bylaws.
Also, we fully intend to participate in the Global Real
Estate Sustainability Benchmark (GRESB) assessment
in 2022.
We are committed to Diversity, Equity and Inclusion
(DEI), and I have joined the CEO Action for Diversity
and Inclusion initiative, personally pledging to continue
advancing diversity and inclusion within our workplace
and our Board of Trustees. During 2021, we added two
trustees, and our Board now consists of two women
Jeffrey H. Fisher
Chairman, Chief Executive
Officer and President
and one person from an underrepresented minority
March 14, 2022
4
202 1 Annual Re port
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, 2021
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number: 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, $0.01 par value per share
6.625% Series A Cumulative Redeemable Preferred Shares
CLDT
CLDT-PA
New York Stock Exchange
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 every Interactive Data File required to be submitted pursuant to Rule 405 of
Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such
files). ☒ Yes ☐ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an
emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and "emerging growth company" in
Rule 12b-2 of the Exchange Act.
Large accelerated filer
Non-accelerated filer
☐
¨
Accelerated filer
Smaller reporting company
Emerging growth company
☒
☐
☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any
new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management's assessment of the effectiveness of its internal
control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C.7262(b)) by the registered public accounting firm that prepared or
issued its audit report. ☒
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 47,731,159 common shares of beneficial interest held by non-affiliates of the registrant was $614,300,016 based on
the closing sale price on the New York Stock Exchange for such common shares of beneficial interest as of June 30, 2021.
The number of common shares of beneficial interest outstanding as of February 25, 2022 was 48,804,085.
Portions of the registrant's Definitive Proxy Statement for its 2022 Annual Meeting of Shareholders (to be filed with the Securities and Exchange
Commission on or before April 30, 2022) 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
[Reserved]
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
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
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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our business and investment strategy;
our forecasted operating results;
completion of hotel acquisitions and dispositions;
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 U.S. federal income tax
purposes.
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 travel because of geopolitical events, including terrorism, outbreaks of disease like the novel
coronavirus ("COVID-19") and current U.S. government policies;
the ultimate geographic spread, severity and duration of pandemics such as the recent outbreak of COVID-19,
actions that may be taken by governmental authorities to contain or address the impact of such pandemics, and the
potential negative impacts of such pandemics on the global economy and our financial condition and results of
operations;
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;
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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 U.S. 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. New risks and uncertainties arise over
time and it is not possible to predict those events or how they may affect us. 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. Such forward-looking statements should be read in light of the risk factors identified in
the "Risk Factors" section of this Annual Report on Form 10-K.
4
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 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.
As of December 31, 2021, the Company owned 41 hotels with an aggregate of 6,169 rooms located in 16 states and the
District of Columbia. Prior to September 23, 2021, the Company held a 10.0% noncontrolling interest in a joint venture (the
"Inland JV") with affiliates of Colony Capital, Inc. ("CLNY"), which owned 48 hotels acquired from Inland American Real
Estate Trust, Inc. ("Inland"), comprising an aggregate of 6,402 rooms. Chatham sold its interest in the Inland JV in September
2021. Prior to March 18, 2021, the Company also held a 10.3% noncontrolling interest in a joint venture (the “NewINK JV”)
with affiliates of CLNY, which owned 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. Chatham sold its interest in the NewINK
JV in March 2021 for $2.8 million.
To maintain our qualification 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. 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, 2021, Island Hospitality Management Inc. (“IHM”), which is 100%
owned by Jeffrey H. Fisher, the Company's Chairman, President and Chief Executive Officer, managed all of the Company’s
hotels.
As of December 31, 2021, our hotels include upscale extended-stay hotels that operate under the Residence Inn by
Marriott® brand (seventeen hotels), Homewood Suites by Hilton® brand (seven hotels), and the TownePlace Suites by Marriott®
brand (one hotel), 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
(four 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 Embassy Suites® brand (one hotel).
We primarily invest in upscale extended-stay hotels such as Homewood Suites by Hilton®, Residence Inn by
Marriott®, Home2 Suites by Hilton®, and TownePlace Suites by Marriott®. We also invest in upscale or upper upscale all-suite
hotels such as SpringHill Suites by Marriott® and 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.
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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.
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 manager in seeking to maximize hotel operating performance. Our asset management activities seek to
ensure that our third-party hotel manager effectively utilizes 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 100% owned by Mr. Fisher that as of
December 31, 2021, managed all of our hotels. 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. We have maintained a leverage ratio between the high 20s and the low 50s. A subsequent decrease in hotel property
values will not necessarily cause us to repay debt to comply with this target. At December 31, 2021, our leverage ratio was
approximately 30.6 percent, which decreased from 35.8 percent at December 31, 2020. 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,
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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.
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. Furthermore, we have experienced,
and continue to experience, heightened competition due to the ongoing COVID-19 pandemic due to, among other factors: (i)
increased fears regarding travel and lodging, which has lowered the number of domestic and international travelers, and (ii)
governmental responses to the ongoing COVID-19 pandemic, which have restricted lodging operations. 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 our hotel properties 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 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 ongoing, 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
7
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 site assessment 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 site assessment 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 (the "IRS") for the tax year ended December 31, 2016. During the third quarter of 2021, we were also
notified that various entities related to the Company are being examined by the State of New Hampshire for the tax years ended
December 31, 2019 and 2018. Both examinations remain open. We believe we do not need to record a liability related to
matters contained in the tax periods open to examination. However, should we experience an unfavorable outcome in either of
the matters, such outcome could have a material impact on our results of operations, financial position and cash flows.
8
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.
9
As of December 31, 2021, terms of our management agreements for our 41 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
3.0 % $
1,200 $
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
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
Residence Inn Austin Northwest/The Domain Area
TownePlace Suites Austin Northwest/The Domain Area
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
10
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
1,000
1,000
1,000
1,000
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
1,500
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
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
1,000
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 %
1.0 %
Management fees totaled approximately $7.2 million, $5.3 million and $10.8 million, respectively, for the years ended
December 31, 2021, 2020 and 2019.
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 our franchise agreements for our hotels as of December 31, 2021 were as follows:
11
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
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
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
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
Marriott International, Inc.
Marriott International, Inc.
Marriott International, Inc.
Hilton Garden Inns Franchise LLC
Marriott International, Inc.
Hilton Franchise Holding LLC
Marriott International, Inc.
Marriott International, Inc.
Hilton Garden Inn Portsmouth
Hilton Garden Inns Franchise LLC
4.0 %
4.0 %
4.0 %
4.0 %
4.0 %
4.0 %
6.0 %
5.5 %
5.5 %
5.5 %
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 %
5.0 %
5.5 %
5.5 %
6.0 %
5.5 %
6.0 %
5.5 %
6.0 %
6.0 %
5.5 %
6.0 %
5.5 %
6.0 %
4.0 %
4.0 %
4.0 %
4.0 %
4.0 %
4.0 %
4.0 %
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 %
2.5 %
2.0 %
2025
2025
2025
2025
2025
2025
2035
2025
2030
2030
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
2036
2041
Courtyard Summerville
Embassy Suites Springfield
Residence Inn Summerville
Courtyard Dallas
Marriott International, Inc.
Hilton Franchise Holding LLC
Marriott International, Inc.
Marriott International, Inc.
4.0% to 6.0%
Residence Inn Austin Northwest/The Domain Area
Marriott International, Inc.
5.5% to 6.0%
TownePlace Suites Austin Northwest/The Domain Area
Marriott International, Inc.
3.0% to 5.5%
Franchise and marketing/program fees totaled approximately $16.6 million, $11.6 million and $25.9 million,
respectively, for the years ended December 31, 2021, 2020 and 2019.
12
Operating Leases
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
$44,400 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 2021 under these leases amounted
to approximately $30,000 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, 2021. The leases typically provide multi-year renewal options to
extend the 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, the Company uses discount rates estimated to equal 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, 2021, for each of the next five calendar years and thereafter (in thousands):
Total Future Lease Payments
Amount
2022
2023
2024
2025
2026
Thereafter
Total lease payments
$
$
2,072
2,093
2,115
2,186
1,894
64,825
75,185
13
Human Capital
As of February 25, 2022, we had 17 employees. 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.
Our key human capital management objectives are to attract, recruit, hire, develop and promote a deep and diverse set
of talent that translates into a strong and successful workforce. To support these objectives, our human resource programs are
designed to develop talent to prepare employees for critical roles and leadership positions for the future; reward and support
employees through competitive pay and benefit programs; enhance our culture through efforts to foster, promote and preserve a
culture of diversity and inclusion; and invest in technology, tools, and resources to enable employees at work.
Corporate Responsibility
We are committed to creating value while being responsible stewards at our hotels, in the community, and in our
industry. While 2020 presented tumultuous challenges, the new reality we experienced reinforced our desire to formalize our
historical efforts relating to Environmental, Social, and Governance (ESG) issues into a more structured corporate
responsibility strategy. We are proud to have published our first Corporate Responsibility Report in March 2021, which is
available on our website at www.chathamlodgingtrust.com.
In January 2022, this report was enhanced to include reporting with standards from the Global Reporting Initiative
(GRI), Sustainability Accounting Standards Board (SASB) and Task Force on Climate-related Financial Disclosures (TCFD).
This updated report also includes the addition of 2018 and 2019 waste data.
In February 2022, the Company established a standalone Environmental Social and Governance Committee made up
of members of the Board of Trustees and Management.
Environmental and Sustainability
Our initiatives are intended to improve energy efficiency at our hotels but also to enhance the value and profitability of
our hotels. Among these energy efficiency programs are the installation of energy efficient lighting, guestroom “smart”
thermostats that adjust room conditions based upon occupancy status, low-flow toilet systems, and recycling laundry water. We
are committed to seeking new environmental initiatives to implement across our portfolio.
Corporate Citizenship and Community Impact
The Company prioritizes the need to invest in the communities in which our properties are located. In addition, we
have made a significant effort to give back to the local charitable organizations in the West Palm Beach area, where our
corporate office is located. In combination with IHM, we have engaged in events for charitable organizations in a number of
ways including participating in race events for charity, collecting food and feeding those in need, and reading and providing
gifts to underprivileged children during the holidays. Our employees' volunteer efforts have directly added value to our local
community.
Diversity, Equity and Inclusion
The Company maintains a strong focus on achieving its objectives with respect to diversity, equity and inclusion. In
August 2021, the Company increased racial and gender diversity in the composition of its board. 25.0% of Chatham's board
members are female and 12.5% identify as members of an underrepresented group. In January 2022, the Company and the CEO
became proud participants in the CEO Action for Diversity and Inclusion™ pledge. As part of the pledge, the Company
commits to cultivate a diverse and inclusive workplace environment with the free exchange of ideas.
14
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.
15
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.
SUMMARY
Risks Related to Our Business
• The current COVID-19 pandemic has had, and may continue to have, or a future pandemic could have, adverse effects on
our financial condition, results of operations, cash flows and performance.
• Our investment policies are subject to revision from time to time at our Board of Trustees' discretion.
• We depend on the efforts and expertise of our key executive officers whose continued service is not guaranteed.
• Our future growth depends on obtaining new financing.
• We must rely on third-party management companies to operate our hotels in order to qualify as a REIT.
• The management of the hotels in our portfolio is currently concentrated in one hotel management company.
• Our franchisors could cause us to expend additional funds on upgraded operating standards.
• Our franchisors may cancel or fail to renew our existing franchise licenses.
• Fluctuations in our financial performance, capital expenditure requirements and excess cash flow could adversely affect our
ability to make distributions.
• Future debt service obligations could adversely affect our overall operating results or cash flow and may require us to
liquidate our properties.
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.
Interest expense on our debt may limit our cash available to fund growth strategies and shareholder distributions.
•
•
• Failure to hedge effectively against interest rate changes may adversely affect us.
• Changes in the method pursuant to which the LIBOR rates are determined and phasing out of LIBOR after 2021 may affect
•
our financial results.
Joint venture investments that we may 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 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.
• 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.
• There may be conflicts of interest between us and affiliates owned by our Chief Executive Officer.
• Hotel development is subject to timing, cost, and other risks.
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.
• Our ability to make distributions to our shareholders may be affected by operating risks in the lodging industry.
• Competition for acquisitions may reduce the number of properties we can acquire.
• Competition for guests may lower our hotels' revenues and profitability.
• The cyclical nature of the lodging industry may adversely affect the return on our investments.
• Due to our concentration therein, a downturn in the lodging industry would adversely affect our business.
• The ongoing need for capital expenditures at our hotel properties may adversely affect our business.
16
• The increasing use by consumers of Internet travel intermediaries and alternative lodging market places may adversely
affect our profitability.
• The need for business-related travel may be adversely affected by the use of business-related technology.
• 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.
• Future terrorist attacks or changes in terror alert levels could adversely affect travel and hotel demand.
• We may assume liabilities in connection with the acquisition of hotel properties, including unknown liabilities.
• Uninsured and underinsured losses could adversely affect our operating results.
• We face risks associated with natural disasters and the direct and indirect physical effects of climate change, which may
include more frequent and more severe storms, hurricanes, flooding, droughts and wildfires, any of which could have a
material adverse effect on our hotel properties, operations, cash flows and financing options.
• Noncompliance with environmental laws and governmental regulations could adversely affect our business.
• Compliance with the ADA and other changes in governmental rules and regulations could substantially increase our cost of
doing business.
• The outbreak of widespread contagious disease, such as COVID-19, could reduce travel.
General Risks Related to the 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.
Increases in our property taxes would adversely affect our ability to make distributions to our shareholders.
• Our hotel properties may contain or develop harmful mold, which could lead to liabilities and remediation costs.
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.
• Provisions of Maryland law may limit the ability of a third party to acquire control of our Company.
• Provisions of our declaration of trust may limit the ability of a third party to acquire control of our Company.
• Failure to make required distributions would subject us to tax.
• Failure to maintain our qualification as a REIT would subject us to federal income tax and potentially other taxes.
• Our TRS Lessee structure subjects us to the risk of increased hotel operating expenses.
• Our TRS structure increases our overall tax liability.
• 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.
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.
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• Dividends payable by REITs do not qualify for the reduced tax rates available for some dividends.
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If our hotel managers do not qualify as "eligible independent contractors," we would fail to qualify as a REIT.
• Our ownership limitations may restrict or prevent you from engaging in certain transfers of our common shares.
• The ability of our Board of Trustees to revoke our REIT qualification without shareholder approval may cause adverse
consequences to our shareholders.
• The ability of our Board of Trustees to change our major policies may not be in our shareholders’ interest.
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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 value of our shares.
• Complying with REIT requirements may cause us to forego otherwise attractive opportunities or liquidate otherwise
attractive investments.
• We may be subject to adverse legislative or regulatory tax changes.
• We may be unable to generate sufficient cash flows from our operations to make distributions to our shareholders at any
time in the future.
• Our revolving credit facility may limit our ability to pay dividends on common shares.
• The market price of our equity securities may vary substantially.
• The number of shares available for future sale could adversely affect the market price of our common shares.
• Future offerings of debt or equity securities or incurrence of debt may adversely affect the market price of our common
shares.
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Risks Related to Our Business
The current COVID-19 pandemic has had, and may continue to have, or a future pandemic could have, adverse effects on
our financial condition, results of operations, cash flows and performance.
The global pandemic caused by the coronavirus known as COVID-19 has had a severe and negative impact on both
the U.S. economy and the global economy. Financial markets experienced significant volatility in 2020 and 2021, which is
expected to continue over the upcoming quarters. Globally and throughout the United States, federal and local governments
have instituted quarantines, restrictions on travel, school closings, "shelter in place" orders, and restrictions on types of
businesses that may continue operations. These restrictions have had a severe impact on the U.S. lodging industry and some of
our hotels continue to operate at a significantly reduced occupancy.
While the uncertainty regarding the continuing severity and duration of the COVID-19 pandemic precludes any
prediction as to the ultimate adverse impact of COVID-19, the spread of COVID-19 has resulted in, and may continue to result
in, significant disruption of the global financial markets and a high rate of unemployment in the United States. Although the
FDA has approved certain therapies and vaccines for use and distribution to most people, there remain uncertainties as to the
overall efficacy of the vaccines, especially as new variants of COVID-19 emerge, which can have a higher level of resistance to
the vaccines. Until such therapies and vaccines are widely administered and remain effective, the pandemic and public and
private responses to the pandemic may lead to deterioration of economic conditions, an economic downturn and/or a recession,
at a global scale, which could materially affect our performance, financial condition, results of operations and cash flows.
The following factors should be considered since the COVID-19 pandemic has significantly adversely affected the
ability of our hotel managers to successfully operate our hotels and has had, or the continued and prolonged effects of the
COVID-19 pandemic may have, a significant adverse effect on our financial condition, results of operations and cash flows:
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significant reduction of operations at some of our properties;
a variety of factors related to the COVID-19 pandemic have caused, and are expected to continue to cause, a sharp
decline in group, business and leisure travel, including but not limited to (i) restrictions on travel mandated by
governmental entities or voluntarily imposed by employers, (ii) the postponement or cancellation of conventions and
conferences, music and arts festivals, sporting events and other large public gatherings, (iii) the closure of amusement
parks, museums and other tourist attractions, (iv) the closure of colleges and universities, and (v) negative public
perceptions of travel and public gatherings in light of the perceived risks associated with COVID-19;
travelers are, and may continue to be, wary to travel where, or because, they may view the risk of contagion as
increased and contagion or virus-related deaths linked or alleged to be linked to travel to our properties, whether
accurate or not, may injure our reputation;
travelers may be dissuaded from traveling due to possible enhanced COVID-19-related screening measures and
vaccine mandates which have been or may be implemented across multiple markets we serve;
travelers may be dissuaded from traveling due to the concern that additional travel restrictions implemented between
their departure and return may affect their ability to return to their homes;
commercial airline service has been reduced or previously suspended to many of the areas in which our hotels are
located, and if scheduled airline service does not increase or return to normal levels it could negatively affect our
revenues;
there remain uncertainties as to the amount of vaccine available for distribution, particularly internationally, the
public’s willingness and ability to get vaccinated and the overall efficacy of the vaccines, especially as new strains of
COVID-19 have emerged or may emerge;
the reduced economic activity could also result in an economic recession, and increased unemployment, which could
negatively impact future ability or desire to travel lodging demand and, therefore, our revenues, even when temporary
restrictions are not in place;
a decrease in the ancillary revenue from amenities at our properties;
the financial impact of the COVID-19 pandemic could negatively impact our future compliance with the financial
covenants of our credit facility or other debt obligations, and result in a default and potentially an acceleration of
indebtedness which would adversely affect our financial condition and liquidity;
difficulty in accessing debt and equity capital on attractive terms, or at all, and a severe disruption and instability in the
global financial markets or deteriorations in credit and financing conditions may affect our access to capital;
the general decline in business activity and demand for real estate transactions adversely affecting our ability to
acquire additional properties;
the potential negative impact on the health of our personnel, particularly if a significant number of them are impacted,
could result in a deterioration in our ability to ensure business continuity during and after this disruption;
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the increase in number of our employees working remotely has increased certain risks to our business, including
increased demand on our information technology resources and systems, greater potential for phishing and other
cybersecurity attacks, and an increase in the number of points of potential attack;
we may be subject to increased risks related to employee matters, including increased employment litigation and
claims for severance or other benefits tied to termination or furloughs as a result of reduced operations prompted by
the effects of the pandemic; and
the reduction in our cash flows caused the suspension of dividends during the first quarter of 2020, and continued
suspension through 2021, and could impact our ability to pay dividends to our stockholders at expected levels in the
future.
The rapid development and fluidity of the COVID-19 pandemic make it extremely difficult to assess the pandemic's
full adverse economic impact, and future impact, on our financial condition, results of operations, cash flows and performance.
In addition, an outbreak of another disease or similar public health threat, or fear of such an event, that affects travel demand,
travel behavior or travel restrictions could have a material adverse impact on our business, financial condition and operating
results. Outbreaks of other diseases could also result in increased government restrictions and regulation, such as those actions
described above or otherwise, which could adversely affect our operations.
The effects of the COVID-19 pandemic also could intensify or otherwise affect many of the other risk factors
enumerated in this Annual Report on Form 10-K.
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.
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.
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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, 2021, managed all of our hotels, 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.
The management of the hotels in our portfolio is currently concentrated in one hotel management company.
As of December 31, 2021, IHM managed all 41 of our hotels. As a result, a substantial portion of our revenue 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.
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 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
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in order 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.
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.
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.
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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.
Changes in the method pursuant to which the LIBOR rates are determined and 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 may 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 were co-investors with CLNY in each of the NewINK JV and the Inland JV, which owned 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 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.
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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. 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 100% of IHM, a hotel management company that, as of December 31,
2021, managed all of our hotels, 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.
Hotel development is subject to timing, cost, and other risks.
As of December 31, 2021, 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 this development project, or any other 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 shares.
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.
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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.
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 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 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 COVID-19, H1N1 influenza (swine flu), avian bird flu, SARS 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
slowdowns;
• 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 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.
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
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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 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.
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.
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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 manager 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.
Our hotel manager carries a cyber insurance policy to protect and offset a portion of potential costs that may be
incurred from a security breach. Additionally, we currently have a cyber insurance policy to provide supplemental coverage
above the coverage carried by our third-party manager. Despite various precautionary steps to protect our hotels from losses
resulting from cyber-attacks, however, any occurrence of a cyber-attack could still result in losses at our properties, which could
affect our results of operations. We are not aware of any cyber incidents that we believe to be material or that could have a
material adverse effect on our business, financial condition and results of operations.
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, 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.
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.
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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.
We face risks associated with natural disasters and the direct and indirect physical effects of climate change, which may
include more frequent and more severe storms, hurricanes, flooding, droughts and wildfires, any of which could have a
material adverse effect on our hotel properties, operations, cash flows and financing options.
We are subject to the risks associated with the direct and indirect physical effects of climate change, which can include
more frequent and more severe storms, hurricanes, flooding, droughts and wildfires, any of which could have a material adverse
effect on our hotels, operating results and cash flows. To the extent climate change causes changes in weather patterns, our
markets, particularly our coastal markets, could experience increases in storm frequency and intensity and rising sea levels
causing damage to our hotels. As a result, we could become subject to significant losses and repair costs that may not be fully
covered by insurance. Our markets in more remote locations may experience prolonged variations in temperature or
precipitation that may limit access to the water needed to operate our hotels or significantly increase energy costs, which may
subject those hotels to additional regulatory burdens, such as limitations on water usage or stricter energy efficiency standards.
Climate change also may affect our business by increasing the cost of (or even making unavailable) property insurance on terms
we find acceptable in areas most vulnerable to such events, increasing operating costs at our hotels, such as the cost of water or
energy, and requiring us to expend funds as we seek to mitigate, repair and protect our hotels against such risks. A tightening of
credit markets for, or a reduction in the availability of capital to, borrowers whose assets are in areas that are particularly
adversely affected by the effects of climate change may reduce our ability to obtain financing on favorable terms, or at all,
thereby increasing financing costs and/or requiring us to accept financing with increased restrictions and/or significantly higher
interest rates, which could have a material adverse effect on our financial condition, results of operations, the market price of
our common shares and our ability to make distributions to our shareholders.
We are subject to operational risks associated with complying with increased environmental-related regulations, aligning
with investor requirements concerning environmental issues and meeting shifting consumer preferences with regard to the
environment. In an effort to mitigate the impact of climate change, our hotels could become subject to increased governmental
regulations mandating energy efficiency standards, the usage of sustainable energy sources and updated equipment
specifications, which may require additional capital investments or increased operating costs. Climate change may also affect
our business by causing a shift in consumer preferences for sustainable travel. Our hotels may be subject to additional costs to
manage consumer expectations for sustainable buildings and hotel operations.
There can be no assurance that climate change will not have a material adverse effect on our hotels, operating results or
cash flows.
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 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.
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Although it is our policy to require an acceptable Phase I environmental site assessment 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 site assessment 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 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.
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 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 COVID-19, could reduce travel and adversely affect hotel
demand.
The widespread outbreak of infectious or contagious disease, such as COVID-19 H1N1 influenza (swine flu), avian bird
flu, SARS 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.
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.
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 in the future. There can be no assurance that we will be able to sell
any hotel property on acceptable terms.
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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 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. 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.
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.
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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.
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.
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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.
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 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.
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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 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.
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.
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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.
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 value of our 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.
33
Complying with REIT requirements may cause us to forego otherwise attractive opportunities or liquidate otherwise
attractive investments.
To maintain our qualification 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.
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. Several recent proposals have
been made that would make substantial changes to the U.S. federal income tax laws generally. We cannot predict whether any
of these proposed changes will become law, or the long-term effect of any future law changes on REITs and their shareholders
generally. 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 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.
34
As a result, no assurance can be given that we will be able 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 revolving credit facility may limit our ability to pay dividends on common shares.
Under our 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 revolving credit facility. In the event
of a default under our revolving credit facility, we would be unable to borrow under our revolving credit facility and any
amounts we have borrowed thereunder could become due and payable.
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.
35
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
Current DRSPP (defined below) 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 or incurrence of debt 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
None.
36
Item 2. Properties
The following table sets forth certain operating information for our hotels as of December 31, 2021:
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
Location
Date of
Acquisition
Year
Opened
Number
of
Rooms
Purchase Price
Purchase
Price per
Room
Mortgage Debt
Balance
Billerica, Massachusetts
4/23/2010
1999
147
$
12.5 million
$
85,714
$
15.1 million
Bloomington, Minnesota
4/23/2010
1998
144
$
18.0 million
$
125,000
Brentwood, Tennessee
4/23/2010
1998
121
$
11.3 million
$
93,388
Dallas, Texas
4/23/2010
1998
137
$
10.7 million
$
78,102
Farmington, Connecticut
4/23/2010
1999
121
$
11.5 million
$
95,041
Maitland, Florida
4/23/2010
2000
143
$
9.5 million
$
66,433
—
—
—
—
—
Hampton Inn & Suites Houston-
Medical Center
Houston, Texas
Residence Inn Long Island Holtsville Holtsville, New York
7/2/2010
8/3/2010
Residence Inn White Plains
White Plains, New York
9/23/2010
Residence Inn New Rochelle
New Rochelle, New York
10/5/2010
Residence Inn Garden Grove
Garden Grove, California
7/14/2011
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
7/14/2011
7/14/2011
7/14/2011
12/27/2012
2/5/2013
Hyatt Place Pittsburgh North Shore
Pittsburgh, Pennsylvania
6/17/2013
Hampton Inn Exeter
Exeter, New Hampshire
Hilton Garden Inn Denver Tech
Denver, Colorado
8/9/2013
9/26/2013
Residence Inn Bellevue
Bellevue, Washington
10/31/2013
Springhill Suites Savannah
Savannah, Georgia
12/5/2013
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
Residence Inn Austin Northwest/The
Domain Area
Austin, TX
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
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
120
124
135
127
200
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
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
16.5 million
21.3 million
21.2 million
21.0 million
43.6 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
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
137,500
$
17.1 million
171,774
159,398
169,355
—
—
—
218,000
$
30.8 million
222,603
$
14.8 million
280,000
—
305,785
$
20.2 million
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
—
16.7 million
20.5 million
—
—
42.1 million
28.9 million
62.4 million
68.1 million
46.8 million
36.5 million
$
$
$
$
$
$
$
$
—
—
—
—
—
—
—
—
336,194
$
20.0 million
332,061
210,417
310,502
216,667
293,413
—
—
—
—
—
—
—
TownePlace Suites Austin
Northwest/The Domain Area
Austin, TX
8/3/2021
2021
137
$
34.3 million
$
250,000
8/3/2021
2016
132
$
37.0 million
$
280,000
Total
6,169
$ 1,479.4 million $
239,804
$ 439.9 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
37
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".
Item 3. Legal Proceedings
The Company is subject to various claims, lawsuits and legal proceedings, including routine litigation arising in the
ordinary course of business, regarding the operation of its hotels, its managers and other Company matters. While it is not
possible to ascertain the ultimate outcome of such matters, the Company believes that the aggregate identifiable amount of such
liabilities, if any, will not have a material adverse impact on its financial condition or results of operations.
Chatham RIMV LLC (a wholly owned subsidiary of the Company) is a defendant in a lawsuit brought by the City of
San Diego and other related entities, San Diego Housing Commission et al. v. Neil et al. (Superior Court of California, County
of San Diego, Case No. 37-2021-00033006-CU-BC-CTL) filed in connection with the sale of the Residence Inn Mission Valley
to the City of San Diego. The City of San Diego is seeking a return of monies spent on the acquisition as well as a declaration
that the purchase agreement executed in connection with the acquisition is void. At the time of this filing, the City of San Diego
and the other Plaintiffs have made no allegations of wrongdoing by Chatham RIMV LLC or any other Company entity. We
believe this lawsuit is without merit and we are defending our case vigorously. As of December 31, 2021, we have accrued
$40 thousand related to legal costs incurred to date. At this time we believe potential future costs related to this lawsuit are not
probable and estimable.
Refer to Note 14 “Commitments and Contingencies” of the notes to consolidated financial statements for discussion of
all litigation matters, which is incorporated by reference herein and is considered an integral part of Part I, Item 3 “Legal
Proceedings”.
Item 4. Mine Safety Disclosures
Not applicable.
38
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, 2021, there were 300 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, 2016 to the NYSE closing price per share on December 31, 2021 with the cumulative total return on the Russell 2000 Index
(the “Russell 2000”), the FTSE Nareit All Equity REITs Index (the “FTSE Nareit All Equity REITs”) and the FTSE Nareit
Lodging/Resorts Index (the “FTSE Nareit Lodging”). The total return values were calculated assuming a $100 investment on
December 31, 2016 with reinvestment of all dividends in (i) our common shares, (ii) the Russell 2000, (iii) the FTSE Nareit All
Equity REITs and (iv) the FTSE Nareit Lodging. The total return values include any dividends paid during the period.
Value of initial investment at December 31,
2016
2017
2018
2019
2020
2021
Chatham Lodging Trust
Russell 2000
FTSE Nareit All Equity REITs
FTSE Nareit Lodging
$
$
$
$
100.00 $
118.04 $
97.92 $
108.96 $
65.09 $
100.00 $
114.65 $
102.02 $
128.06 $
153.62 $
100.00 $
104.77 $
96.03 $
118.08 $
107.00 $
100.00 $
101.61 $
83.82 $
91.21 $
68.37 $
82.68
176.39
145.06
80.79
39
Chatham Lodging TrustRussell 2000FTSE Nareit All Equity REITsFTSE Nareit Lodging12/31/1612/31/1712/31/1812/31/1912/31/2012/31/21607590105120135150165180
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 shares for the years ended December 31, 2021 and 2020, respectively:
Common shares:
Ordinary income
Return of capital
Total
Series A preferred shares:
Ordinary income
Return of capital
Total
$
$
$
$
2021
—
—
—
2020
— % $
— %
— % $
—
0.2200
0.2200
— %
100.0 %
100.0 %
0.89713
100.0 % $
—
— %
0.89713
100.0 % $
—
—
—
— %
— %
— %
Equity Compensation Plan Information
The following table provides information, as of December 31, 2021, 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
—
—
—
—
—
—
579,825
—
579,825
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.
40
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, 2021 and 2020, respectively, related to such repurchases.
Item 6. [Reserved]
41
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
COVID-19 Pandemic
The lodging industry has been significantly impacted by the COVID-19 pandemic. Steps have been taken to restrict
inbound international travel and there has been a significant decline in domestic travel. The full impact of the COVID-19
pandemic on the lodging industry continues to evolve and will depend on future developments including the continuing severity
and duration of the pandemic, and the possibility of additional subsequent widespread outbreaks and variant strains and the
impact of actions taken in response, people's willingness to travel and the strength and timing of an economic recovery. All of
these factors are uncertain, and the full impact of the COVID-19 pandemic on the lodging industry and the Company cannot be
predicted at this time. The full magnitude of the impact of the COVID-19 pandemic on the Company’s financial condition,
liquidity and future results of operations will depend on future developments which are highly uncertain. The Company has
taken actions to mitigate the operating and financial impact of the COVID-19 pandemic including suspending common share
dividends, reducing capital expenditures, obtaining credit facility covenant waivers and temporarily reducing executive
compensation.
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 invests primarily in upscale extended-stay and premium-branded
select-service hotels in geographically diverse markets with high barriers to entry near strong demand generators. 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, 2021, the Company owned 41 hotels with an aggregate of 6,169 rooms located in 16 states and the
District of Columbia. Prior to September 23, 2021, the Company held a 10.0% noncontrolling interest in a joint venture (the
"Inland JV") with affiliates of Colony Capital, Inc. ("CLNY"), which owned 48 hotels acquired from Inland American Real
Estate Trust, Inc. ("Inland"), comprising an aggregate of 6,402 rooms. Chatham sold its interest in the Inland JV in September
2021. Prior to March 18, 2021, the Company also held a 10.3% noncontrolling interest in a joint venture (the “NewINK JV”)
with affiliates of CLNY, which owned 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. Chatham sold its interest in the NewINK
JV in March 2021 for $2.8 million.
To qualify as a REIT, the Company cannot operate its hotels. Therefore, the Operating Partnership and its subsidiaries
lease the Company's hotels to taxable REIT subsidiary lessees (“TRS Lessees”), which are wholly owned by the Company’s
taxable REIT subsidiary (“TRS”) holding company. Each hotel is leased to a TRS Lessee under a percentage lease that provides
for rental payments equal to the greater of (i) a fixed base rent amount or (ii) a percentage rent based on hotel revenue. The
initial term of each of the TRS leases is 5 years. Lease revenue from each TRS Lessee is eliminated in consolidation.
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, 2021, Island Hospitality Management Inc. (“IHM”), which is 100%
owned by Mr. Fisher, managed all 41 of the Company’s hotels.
42
Key Indicators of Operating Performance and Financial Condition
We measure financial condition and hotel operating performance by evaluating non-financial and financial metrics and
measures such as:
•
•
•
•
•
•
•
•
•
Average Daily Rate (“ADR”), which is the quotient of room revenue divided by total rooms sold,
Occupancy, which is the quotient of total rooms sold divided by total rooms available,
Revenue Per Available Room (“RevPAR”), which is the product of occupancy and ADR, and does not include
food and beverage revenue, or other operating revenue,
Funds From Operations (“FFO”),
Adjusted FFO,
Earnings before interest, taxes, depreciation and amortization (“EBITDA”),
EBITDAre,
Adjusted EBITDA, and
Adjusted Hotel EBITDA.
We evaluate the hotels in our portfolio and potential acquisitions using these metrics to determine each hotel’s
contribution toward providing income to our shareholders through increases in distributable cash flow and increasing long-term
total returns through appreciation in the value of our common shares. RevPAR, ADR and Occupancy are hotel industry
measures commonly used to evaluate operating performance.
See “Non-GAAP Financial Measures” for further discussion of FFO, Adjusted FFO, EBITDA, EBITDAre, Adjusted
EBITDA and Adjusted Hotel EBITDA.
Results of Operations
Industry outlook
The lodging industry has been severely impacted by the COVID-19 pandemic and there has been a significant decline
in travel relative to 2019, but trends are improving and we expect continued strong growth in 2022 relative to 2021. Smith
Travel Research reported that U.S. lodging industry RevPAR increased 58.2% for the year ended December 31, 2021, with
RevPAR down 27.7% in the first quarter of 2021, up 160.4% in the second quarter of 2021, up 83.8% in the third quarter of
2021 and up 96.4% in the fourth quarter of 2021. We expect that in 2022, RevPAR will continue to increase significantly versus
2021 and 2020, but remain below the RevPAR levels achieved in 2019.
Comparison of the year ended December 31, 2021 to the year ended December 31, 2020
The section below provides a comparative discussion of our consolidated results of operations between fiscal year
2021 and 2020. 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, 2020 for comparative a discussion of our consolidated
results of operations between fiscal 2020 and fiscal 2019.
Results of operations for the year ended December 31, 2021 include the operating activities of our 41 wholly owned
hotels that were owned for the entire period and two hotels located in Austin, TX which were acquired on August 3, 2021. We
sold our investment in the NewINK JV on March 18, 2021, sold our investment in the Inland JV on September 23, 2021, and
sold one hotel in San Diego, CA on November 24, 2020. The comparisons below are influenced by the COVID-19 pandemic,
the acquisition of two hotels, the sale of our investments in the NewINK JV and the Inland JV, and the disposition of one hotel.
43
Revenue
Revenue, which consists primarily of room, food and beverage and other operating revenues from our hotels, was as
follows for the periods indicated (dollars in thousands):
Room
Food and beverage
Other
Cost reimbursements from unconsolidated entities
Total revenue
For the year ended
December 31,
2021
December 31,
2020
% Change
$
187,369 $
130,564
3,525
11,350
1,731
2,718
7,589
4,045
$
203,975 $
144,916
43.5 %
29.7 %
49.6 %
(57.2) %
40.8 %
Total revenue increased $59.1 million to $204.0 million for the year ended December 31, 2021 compared to total
revenue of $144.9 million for the 2020 period. The increase in total revenue primarily was related to the recovery from the
COVID-19 pandemic and the two hotels acquired in 2021. The two hotels acquired in 2021 contributed $4.1 million in total
revenue. This was partially offset by a decrease in total revenue related to the hotel sold in 2020 of $6.3 million. Since all of 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 91.9% and 90.1%,
respectively, of total revenue for the years ended December 31, 2021 and 2020. Room revenue was $187.4 million and $130.6
million for the years ended December 31, 2021 and 2020, respectively, and the increase in room revenue primarily was related
to the recovery from the COVID-19 pandemic and the two hotels acquired in 2021. This was partially offset by a decrease in
room revenue related to the hotel sold in 2020 was $5.8 million.
Food and beverage revenue was $3.5 million and $2.7 million for the years ended December 31, 2021 and 2020,
respectively. The increase in food and beverage revenue primarily was related to an increase in occupancies at our hotels due to
the recovery from the COVID-19 pandemic.
Other revenue comprised of parking, meeting room, gift shop, in-room movie and other ancillary amenities revenue,
was up $3.8 million for the year ended December 31, 2021. The increase in other operating revenue primarily was related to an
increase in occupancies at our hotels due to the recovery from the COVID-19 pandemic.
Reimbursed costs from unconsolidated entities were $1.7 million and $4.0 million for the years ended December 31,
2021 and 2020, respectively. The cost reimbursements were offset by the reimbursed costs from unconsolidated entities
included in operating expenses. The decrease in cost reimbursements primarily was related to the sale of the NewINK JV.
As reported by Smith Travel Research, U.S. lodging industry RevPAR for the years ended December 31, 2021 and
2020 increased 58.2% and decreased 47.5%, respectively, as compared to the years ended December 31, 2020 and 2019. Smith
Travel Research reported that U.S. lodging industry RevPAR decreased 27.7% in the first quarter, increased 160.4% in the
second quarter, increased 83.8% in the third quarter and increased 96.4% in the fourth quarter of 2021. We expect that in 2022,
RevPAR will continue to increase significantly versus 2021 and 2020, but remain below the RevPAR levels achieved in 2019.
44
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, 2021 and that have been in operation for a full year regardless of our ownership during the period presented,
which is a non-GAAP financial measure. Results for the hotels for the periods prior to our ownership were provided to us by
prior owners and have not been adjusted by us.
For the year ended
December 31, 2021
December 31, 2020
% Change
Same
Property (40
hotels)
Actual (41
hotels)
Same
Property (40
hotels)
Actual (40
hotels)
Same
Property (40
hotels)
Actual (41/40
hotels)
64.6 %
64.6 %
48.1 %
48.6 %
$ 132.68
$ 132.42
$ 119.39
$ 120.84
$ 85.71
$ 85.54
$ 57.45
$ 58.76
34.3 %
11.1 %
49.2 %
32.9 %
9.6 %
45.6 %
Occupancy
ADR
RevPAR
Same property RevPAR increased 49.2% due to an increase in occupancy of 34.3% and an increase in ADR of 11.1%.
Hotel Operating Expenses
Hotel operating expenses consisted of the following for the periods indicated (dollars in thousands):
For the year ended
December 31,
2021
December 31,
2020
% 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
$
40,396 $
31,883
2,404
1,502
2,299
20,424
16,560
3,721
10,255
11,784
7,156
2,792
2,456
1,451
1,629
16,733
11,608
3,983
9,229
9,799
5,289
1,438
Total hotel operating expenses
$
119,293 $
95,498
26.7 %
(2.1) %
3.5 %
41.1 %
22.1 %
42.7 %
(6.6) %
11.1 %
20.3 %
35.3 %
94.2 %
24.9 %
Hotel operating expenses increased $23.8 million, or 24.9%, to $119.3 million for the year ended December 31, 2021
from $95.5 million for the year ended December 31, 2020. The primary cause of the increase in hotel operating expenses was
related to the increase in revenues and occupancy caused by the recovery from the COVID-19 pandemic and the two hotels
acquired in 2021. The two hotels acquired in 2021 contributed $1.9 million in hotel operating expenses. The decrease in hotel
operating expenses related to the hotel sold in 2020 was $3.5 million.
Room expenses, which are the most significant component of hotel operating expenses, increased $8.5 million from
$31.9 million in 2020 to $40.4 million in 2021. The increase in room expenses primarily was related to an increase in
occupancy and revenues at our hotels due to the recovery from the COVID-19 pandemic and the two hotels acquired in 2021.
The decrease in room expenses related to the hotel sold in 2020 was $1.2 million.
45
The remaining hotel operating expenses increased $15.3 million, or 24.0%, from $63.6 million in 2020 to $78.9
million in 2021. The increase in other remaining expenses primarily was related to an increase in occupancies and revenues at
our hotels due to the recovery from the COVID-19 pandemic and the two hotels acquired in 2021. The decrease in other
remaining expenses related to the hotel sold in 2020 was $2.4 million.
Depreciation and Amortization
Depreciation and amortization expense increased $0.3 million from $53.9 million for the year ended December 31,
2020 to $54.2 million for the year ended December 31, 2021. The increase was primarily due to the two hotels acquired in 2021
partially offset by the sale of one hotel. 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.
Impairment Loss
Impairment loss was $5.6 million for the year ended December 31, 2021. There was no impairment loss in 2020. The
loss in 2021 is due to the impairment recorded at a hotel that is under contract to be sold. The hotel is not presented as held for
sale at this point given uncertainties around whether the sale will ultimately close.
Impairment Loss on Investment in Unconsolidated Real Estate Entities
Impairment loss on investment in unconsolidated real estate entities decreased $15.3 million for the year ended
December 31, 2021. The Company recorded an impairment of the entire carrying value of $15.3 million on our investment in
the Inland JV during the year ended December 31, 2020 related to a decline in operating performance caused by the COVID-19
pandemic.
Property Taxes, Ground Rent and Insurance
Total property taxes, ground rent and insurance expenses increased $0.8 million from $23.0 million for the year ended
December 31, 2020 to $23.8 million for the year ended December 31, 2021. The increase attributable to the two hotels acquired
in 2021 was $0.3 million offset by $0.7 million related to the one hotel sold in 2020. The remaining increase was primarily
related to increased property insurance premiums across the portfolio of hotels.
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 $4.8
million and $4.6 million for the years ended December 31, 2021 and 2020, respectively) increased $3.9 million to $10.9 million
in 2021 from $7.0 million in 2020, with the increase primarily due to the Company's decision to temporarily reduce
compensation in the year ended December 31, 2020 due to the COVID-19 pandemic and the sales of the NewINK JV and the
Inland JV in 2021 which reimbursed the Company for some of its general and administrative expenses prior to their sales.
Other Charges
Other charges decreased from $4.4 million for the year ended December 31, 2020 to $0.7 million for the year ended
December 31, 2021. Other charges primarily includes severance costs related to the departure of our former Chief Investment
Officer during the year ended December 31, 2020 and deductibles for insurance claims.
Reimbursable Costs from Unconsolidated Entities
Reimbursable costs from unconsolidated entities, comprised of corporate payroll and rent costs were $1.7 million and
$4.0 million for the years ended December 31, 2021 and 2020, respectively. The cost reimbursements were offset by the
cost reimbursements from unconsolidated entities included in revenues. The decrease in cost reimbursements primarily was
related to the sale of the NewINK JV.
46
(Loss) gain on Sale of Hotel Property
(Loss) gain on the sale of hotel property increased $21.1 million for the year ended December 31, 2021 compared to
the year ended December 31, 2020 due to the sale of the Residence Inn Mission Valley on November 24, 2020, which resulted
in a gain of $21.1 million.
Interest and Other Income
Interest on cash and cash equivalents and other income was $0.2 million for the year ended December 31, 2020
compared to $0.2 million for the year ended December 31, 2021.
Interest Expense, Including Amortization of Deferred Fees
Interest expense decreased $3.7 million, or 13.0%, from $28.1 million for the year ended December 31, 2020 to $24.5
million for the year ended December 31, 2021. Interest expense is comprised of the following (dollars in thousands):
For the year ended
December 31, 2021
December 31, 2020
% Change
Mortgage debt interest
$
21,081 $
Credit facility interest and unused fees
Interest rate cap
Construction loan interest
Capitalized interest
Amortization of deferred financing costs
3,441
(52)
2,117
(3,551)
1,424
Total
$
24,460 $
23,227
5,001
25
202
(1,473)
1,140
28,122
(9.2) %
(31.2) %
(308.0) %
948.0 %
141.1 %
24.9 %
(13.0) %
The decrease in interest expense for the year ended December 31, 2021 as compared to the year ended December 31,
2020 is primarily due to a decrease in mortgage debt interest from the sale of the Residence Inn Mission Valley in November
2020 and the repayment of the mortgage loan on that property, the repayment of the mortgage loan on the Residence Inn New
Rochelle in April 2021, and a reduction of the outstanding balance on the revolving credit facility.
Loss from Unconsolidated Real Estate Entities
Loss from unconsolidated real estate entities decreased $6.2 million from a loss of $7.4 million for the year ended
December 31, 2020 to a loss of $1.2 million for the year ended December 31, 2021. The decrease is primarily due to the sale of
the NewINK JV.
Gain on Sale of Investment in Unconsolidated Real Estate Entities
Gain on sale of investment in unconsolidated real estate entities was $23.8 million for the year ended December 31,
2021. There was no gain on sale of investment in unconsolidated real estate entities in 2020. The gain in 2021 is due to the sale
of the NewINK JV.
Income Tax Expense
Income tax expense remained unchanged at zero for the year ended December 31, 2020 and 2021. 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 2022 and recognizes a full valuation allowance equal to 100% of the net
deferred tax assets due to the uncertainty of the TRS's ability to utilize these net deferred tax assets.
47
Net Loss
Net loss was $18.8 million for the year ended December 31, 2021, compared to net loss of $77.0 million for the year
ended December 31, 2020. The change in net loss was primarily due to an increase in occupancy and revenues at our hotels due
to the recovery from the COVID-19 pandemic, the sale of the NewINK JV which resulted in a large gain on sale of investment
in unconsolidated real estate entities, and the other 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 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, costs associated with the departure of our former Chief Investment Officer, losses
on the early extinguishment of debt and similar items related to our unconsolidated real estate entities that we believe do not
represent costs related to hotel operations. We believe that Adjusted FFO provides investors with another financial measure that
may facilitate comparisons of operating performance between periods and between REITs that make similar adjustments to
FFO.
48
The following is a reconciliation of net (loss) income to FFO and Adjusted FFO for the years ended December 31,
2021, 2020 and 2019 (in thousands, except share data):
Funds From Operations (“FFO”):
Net (loss) income
Preferred dividends
For the year ended
December 31,
2021
2020
2019
$
(18,845) $
(77,020) $
18,880
(3,975)
—
—
Net (loss) income attributable to common shares and common units
(22,820)
(77,020)
18,880
Loss (gain) on sale of hotel property
Loss on the sale of assets within unconsolidated real estate entities
21
—
Gain on sale of investment in unconsolidated real estate entities
(23,817)
Depreciation
Impairment loss
Impairment loss on investment in unconsolidated real estate entities
Impairment loss within the 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
(21,116)
3,282
2
—
219
—
53,627
51,258
—
15,282
1,388
4,434
(23,403)
4,385
9
(19,009)
—
—
4,197
7,493
85,329
1,441
1,028
87,798
53,967
5,640
—
—
568
13,559
711
46
14,316 $
$
49,281,763
47,635,600
47,238,309
49,490,938
47,635,600
47,472,805
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.
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, costs associated with the departure of our former Chief Investment Officer,
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.
49
The following is a reconciliation of net (loss) income to EBITDA, EBITDAre and Adjusted EBITDA for the years
ended December 31, 2021, 2020 and 2019 (in thousands):
Earnings Before Interest, Taxes, Depreciation and Amortization (“EBITDA”):
Net (loss) income
Interest expense
Depreciation and amortization
Adjustments for unconsolidated real estate entity items
EBITDA
Impairment loss
Impairment loss on investment in unconsolidated real estate entities
Impairment loss within the unconsolidated real estate entities
Loss (gain) on sale of hotel property
Loss on the sale of assets within unconsolidated real estate entities
Gain on sale of investment in 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,
2021
2020
2019
$ (18,845) $ (77,020) $ 18,880
24,460
54,215
1,184
61,014
5,640
—
—
21
—
(23,817)
28,122
53,871
8,965
13,938
—
15,282
1,388
(21,116)
2
—
28,247
51,505
18,214
116,846
—
—
4,197
3,282
219
—
42,858
9,494
124,544
711
46
4,385
9
1,441
293
4,823
4,719
$ 48,438 $ 18,485 $ 130,997
4,597
Adjusted Hotel EBITDA is defined as net income before interest, income taxes, depreciation and amortization,
corporate general and administrative, impairment loss, loss on early extinguishment of debt, other charges, interest and other
income, losses on sales of hotel properties and income or loss from unconsolidated real estate entities. We present Adjusted
Hotel EBITDA because we believe it is useful to investors in comparing our hotel operating performance between periods and
comparing our Adjusted Hotel EBITDA margins to those of our peer companies. Adjusted Hotel EBITDA represents the results
of operations for our wholly owned hotels only.
50
The following is a presentation of Adjusted Hotel EBITDA for the years ended December 31, 2021, 2020 and 2019 (in
thousands):
Net (loss) income
Add:
Interest expense
Depreciation and amortization
Corporate general and administrative
Other charges
Impairment loss
Loss from unconsolidated real estate entities
Impairment loss on investment in unconsolidated real estate entities
Loss on sale of hotel property
Less:
Interest and other income
Gain on sale of hotel property
For the year ended
December 31,
2021
2020
2019
$
(18,845) $ (77,020) $ 18,880
24,460
54,215
15,752
711
5,640
1,231
—
21
28,122
28,247
53,871
51,505
11,564
14,077
4,385
1,441
—
7,424
15,282
—
6,448
—
—
3,282
(243)
(179)
(190)
—
(21,116)
—
—
Gain on sale of investment in unconsolidated real estate entities
(23,817)
—
Adjusted Hotel EBITDA
$
59,125 $ 22,333 $ 123,690
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.
51
•
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.
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, 2021, our leverage ratio was approximately 30.6%, which decreased from 35.8% at December 31, 2020 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. At December 31, 2021, we had total debt of $544.9 million at an average rate of approximately 4.7%.
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, 2021 and 2020, we had $70.0 million and $135.3 million, respectively, in outstanding borrowings
under our revolving credit facility. We had $35.0 million and $13.3 million in outstanding borrowings under our construction
loan for the Warner Center hotel development at December 31, 2021 and 2020, respectively. At December 31, 2021, the
maximum borrowing availability under our revolving credit facility was $250.0 million. We also had mortgage debt on
individual hotels aggregating $439.9 million and $461.1 million at December 31, 2021 and 2020, respectively.
Our revolving credit facility contains representations, warranties, covenants, terms and conditions customary for credit
facilities of this type, including a maximum leverage ratio, a minimum fixed charge coverage ratio and minimum net worth
financial covenants, limitations on (i) liens, (ii) incurrence of debt, (iii) investments, (iv) distributions, and (v) mergers and asset
dispositions, covenants to preserve corporate existence and comply with laws, covenants on the use of proceeds of the revolving
credit facility and default provisions, including defaults for non-payment, breach of representations and warranties, insolvency,
non-performance of covenants, cross-defaults and guarantor defaults. We were in compliance with all financial covenants at
December 31, 2021.
On October 26, 2021, Chatham executed an amendment to its credit facility which extended a waiver of financial
covenants until June 30, 2022, provided for the immediate exercise of an option to extend the maturity of the entire $250
million facility through March 8, 2023, and added two six-month options to further extend the maturity of the facility through
March 8, 2024 from lenders representing $227.5 million of commitments. In conjunction with the amendment, Chatham
provided credit facility lenders with equity pledges on three unencumbered hotels. The spread on the facility did not change as a
result of the amendment. The amendment places limits on the Company’s ability to incur debt, pay dividends, and make capital
expenditures during the covenant waiver period. During the covenant waiver period interest will be calculated as LIBOR
(subject to a 0.5% floor) plus a spread of 2.50% if borrowings remain at or below $200 million and a spread of 3.0% if
borrowings exceed $200 million. As of December 31, 2021, the Company was in compliance with all of its modified financial
covenants.
Our mortgage debt agreements contain “cash trap” provisions that are triggered when the hotel’s operating results fall
below a certain debt service coverage ratio or debt yield. When these provisions are triggered, all of the excess cash flow
generated by the hotel is deposited directly into cash management accounts for the benefit of our lenders until a specified debt
service coverage ratio or debt yield is reached. Such provisions do not allow the lender the right to accelerate repayment of the
underlying debt. As of December 31, 2021, the debt service coverage ratios or debt yields for eight of our mortgage loans were
below the minimum thresholds such that the cash trap provision of each respective loan could be enforced. As of December 31,
2021, none of our mortgage debt lenders has enforced cash trap provisions. We do not expect that such cash traps will affect our
ability to satisfy our short-term liquidity requirements.
52
In December 2017, we established a $50 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 "Current
DRSPP" and together with the Prior DRSPP, the "DRSPP") on December 22, 2020 to replace the Prior DRSPP. 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 DRSPP. During the year ended December 31, 2021, we issued 149,686
shares under the Current DRSPP at a weighted average price of $13.77, which generated $2.1 million of proceeds. As of
December 31, 2021, there were common shares having a maximum aggregate sales price of approximately $47.9 million
available for issuance under the Current DRSPP.
In December 2017, we established an "at-the-market" offering program (the "Prior ATM Plan") whereby, from time to
time, we may publicly offer and sell our common shares having an aggregate maximum offering price up to $100 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, as
amended. We filed a $100 million registration statement for a new ATM program (the "ATM Plan") on January 5, 2021 to
replace the prior program. At the same time, the Company entered into a sales agreement with Cantor Fitzgerald & Co.,
Barclays Capital Inc., BMO Capital Markets Corp., BofA Securities, Inc., BTIG, LLC, Citigroup Global Markets Inc., Regions
Securities LLC, Stifel, Nicolaus & Company, Incorporated and Wells Fargo Securities as sales agents. During the year ended
December 31, 2021, we issued 1,595,528 shares under the ATM Plan at a weighted average price of $14.13 per share, which
generated $22.5 million of proceeds. As of December 31, 2021, there were common shares having a maximum aggregate sales
price of approximately $77.5 million available for issuance under the ATM Plan.
We expect to meet our short-term liquidity requirements generally through existing cash balances and availability
under our credit facility. We believe that our existing cash balances and availability under our credit facility will be adequate to
fund operating obligations, pay interest on any borrowings and fund dividends in accordance with the requirements for
qualification as a REIT under the Code. We expect to meet our long-term liquidity requirements, such as hotel property
acquisitions and debt maturities or repayments through additional long-term secured and unsecured borrowings, the issuance of
additional equity or debt securities or the possible sale of existing assets.
The COVID-19 pandemic has caused, and is continuing to cause, significant disruption in the financial markets both
globally and in the United States, and will continue to impact, possibly materially, our business, financial condition and results
of operations. We cannot predict the degree, or duration, to which our operations will be affected by the COVID-19 outbreak,
and the effects could be material. While we believe the liquidity provided by our unrestricted cash and credit facility
availability, and aggressive cost reduction initiatives will enable us to fund our current obligations for the foreseeable future,
COVID-19 has resulted in significant disruption of global financial markets, which could have a negative impact on our ability
to access capital in the future. Because the situation is ongoing, and because the duration and severity remain unclear, it is
difficult to forecast any impacts on our future results.
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.
We had no material off-balance sheet arrangements at December 31, 2021.
Sources and Uses of Cash
Our principal sources of cash include net cash from operations, availability under our revolving credit facility, 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.
Cash, cash equivalents, and restricted cash totaled $29.9 million as of December 31, 2021, a decrease of $1.6 million
from December 31, 2020, primarily due to net cash provided by operating activities of $28.8 million, net cash used in investing
activities of $(101.9) million, and net cash provided by financing activities $71.6 million.
53
Cash from Operations
Net cash flows provided by operating activities increased $48.7 million to $28.8 million in 2021 compared to ($19.9)
million in 2020. The increase in cash from operating activities was primarily due to improving operating results from our hotels
which generated RevPAR growth of 45.6% in 2021 versus 2020.
Investing Activities Cash Flows
Net cash flows used in investing activities increased $128.7 million to $101.9 million in 2021 compared to ($26.8)
million in 2020. For the year ended December 31, 2021, net cash flows used in investing activities of $101.9 million consisted
of $71.3 million related to the acquisitions of the RI Austin and TPS Austin hotels, $9.5 million related to capital improvements
on our 41 wholly owned hotels and $23.9 million related to the development of the Home2 Suites Warner Center, offset by $2.8
million of proceeds from the sale of an unconsolidated real estate entity (the NewINK JV). For the year ended December 31,
2020, net cash flows provided by investing activities of $26.8 million consisted of $14.4 million related to capital
improvements on our 39 wholly owned hotels and $23.2 million related to the development of the Home2 Suites Warner
Center, offset by proceeds from the sale of the San Diego, CA hotel of $64.4 million.
We expect to invest approximately $23.7 million on renovations, discretionary and emergency expenditures on our
existing hotels in 2022, including improvements required under any brand PIP, and expect to spend $2.4 million in 2022 on the
Home2 Suites Warner Center development.
Financing Activities Cash Flows
Net cash flows provided by financing activities increased $67.2 million to $71.6 million in 2021 compared to $4.4
million in 2020. For the year ended December 31, 2021, net cash flows provided by financing activities of $71.6 million were
comprised of $115.9 million of net proceeds from our Series A Preferred Shares offering, $24.6 million of common equity
proceeds raised through sales under our DRSPPs and ATM Plan, and net borrowings on our construction loan of $21.7 million,
offset by net repayments of our senior unsecured revolving credit facility of $65.3 million, amortization payments on mortgage
debt of $8.7 million and the repayment of the $12.5 million mortgage loan on the Residence Inn New Rochelle, payments of
financing and offering costs of $1.6 million, distributions to unit holders of $0.3 million and distributions on preferred shares of
$2.3 million. For the year ended December 31, 2020, net cash flows provided by financing activities of $4.4 million were
comprised of $0.2 million of common equity proceeds raised through sales under our Prior DRSPP, net borrowings on our
credit facility of $45.3 million, and net borrowing on our construction loan of $13.2 million, offset by principal payments on
mortgage debt of $35.7 million, payments of deferred financing and offering costs of $2.4 million, and distributions to
shareholders and LTIP unit holders of $16.2 million.
We declared total dividends of $0 and $0 per common share and LTIP unit for the year ended December 31, 2021 and
$0.22 and $0.22 per common share and LTIP unit for the year ended December 31, 2020, respectively. We declared total
dividends of $0.89713 and $0 per Series A preferred share for the years ended December 31, 2021 and 2020, respectively.
Material Cash Requirements
Our material cash requirements include the following contractual obligations:
•
•
At December 31, 2021, we had total debt principal and interest obligations of $582.7 million with $34.7 million of
principal and interest payable within the next 12 months from year-end 2021. See Note 7, “Debt” to our consolidated
financial statements for additional information relating to our property loans and revolving credit facility.
Lease payments due within the next 12 months from year-end 2021 total $2.1 million. See Note 13, “Leases” to our
consolidated financial statements for additional information relating to our corporate office and ground leases.
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.
54
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 Estimates
We consider the following estimates 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 as asset acquisitions 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.
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 periodically reviewed for impairment whenever events or changes in circumstances indicate
that the carrying value of the hotel properties may not be recoverable over management's estimated holding period.This
estimated holding period incorporates management’s intent and ability to hold the hotel properties over the estimated holding
period. 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, 2021, we recorded an impairment loss on a hotel that is under
contract for sale (See Note 5). For the year ended December 31, 2020, 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 the impairment or
disposal of long-lived assets are met. As of December 31, 2021, we had no hotel properties held for sale.
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.
55
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 Time-Based and Performance-Based LTIP
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 and Time-Based LTIP units. The Company has also issued Performance-Based LTIP units as part of its
compensation plan. Under the terms of the Performance-Based LTIP units, a holder of a Performance-Based 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 Performance-Based LTIP unit (the “Pre-Vesting Distributions”), (ii) be entitled, upon the vesting
of such Performance-Based 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 Performance-Based LTIP unit minus
the aggregate amount of Pre-Vesting Distributions paid on such Performance-Based LTIP unit, and (iii) be entitled, following
the vesting of such Performance-Based 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.
56
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, 2021 and 2020 was $443.4 million and
$462.6 million, respectively.
At December 31, 2021, 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, 2021 that are sensitive to changes in interest rates (dollars in
thousands):
2022
2023
2024
2025
2026
Thereafter
Total
Fair Value
Floating rate:
Debt
Average interest rate
$ —
—
$ 70,000
3.43 %
$ 35,007
7.75 %
$ —
—
$ —
—
$ —
—
$ 105,007 $ 105,030
4.87 %
Fixed rate:
Debt
Average interest rate
$ 9,249
4.63 %
$ 117,919 $ 296,811 $ 15,947
4.66 %
4.64 %
4.25 %
$ —
—
$ —
—
$ 439,926 $ 443,387
4.63 %
Our credit facility is currently subject to a 0.5% LIBOR floor and our construction loan is subject to a 0.25% LIBOR
floor. At December 31, 2021 1-month LIBOR was 0.10%. We estimate that a hypothetical 100 basis points increase in LIBOR
would result in additional interest of approximately $0.7 million annually. This assumes that the amount of floating rate debt
outstanding on our revolving credit facility remains $70 million and the amount outstanding on our construction loan remains
$35.0 million, the balance as of December 31, 2021.
57
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 2021 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,
2021. 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, 2021, 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, 2021, 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.
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Not applicable.
58
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 2022
Annual Meeting of Shareholders to be held on May 24, 2022.
Item 11. Executive Compensation
The information required by this item is incorporated by reference to the Company's Proxy Statement for the 2022
Annual Meeting of Shareholders to be held on May 24, 2022.
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 2022
Annual Meeting of Shareholders to be held on May 24, 2022.
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 2022
Annual Meeting of Shareholders to be held on May 24, 2022.
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 2022
Annual Meeting of Shareholders to be held on May 24, 2022.
59
Item 15. Exhibits and Financial Statement Schedules
PART IV
1.
Financial Statements
See the Index to Consolidated Financial Statements at pages F-1
2.
Financial Statement Schedules
The following financial statement schedule is included herein at page F-35:
Schedule III - Real Estate and Accumulated Depreciation as of December 31, 2021
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.
60
Exhibit
Number
Description of Exhibit
EXHIBIT INDEX
3.1
3.2
3.3
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
Articles of Amendment and Restatement of Chatham Lodging Trust(12)
Second Amended and Restated Bylaws of Chatham Lodging Trust(1)
Articles Supplementary to the Company's Declaration of Trust designating the 6.625% Series A
Cumulative Redeemable Preferred Shares of Beneficial Interest, $0.01 par value per share(19)
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)
Second Amendment to the Agreement of Limited Partnership of Chatham Lodging, L.P.(20)
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.(14)
61
10.26*
10.27*
10.28*
10.29*
10.30*
10.31
10.32
10.33
10.34
21.1
23.1
31.1
31.2
32.1
Form of 2016 Time-Based LTIP Unit Award Agreement(12)
Form of 2016 Performance-Based LTIP Unit Award Agreement(12)
Form of 2017 Time-Based LTIP Unit Award Agreement(13)
Form of 2017 Performance-Based LTIP Unit Award Agreement(13)
Separation Agreement and General Release, dated as of March 5, 2020, by and between Chatham Lodging
Trust and Peter Willis(15)
First Amendment to Amended and Restated Credit Agreement, dated as of May 6, 2020, among Chatham
Lodging Trust, as parent guarantee, Chatham Lodging L.P., as borrower, the several banks and other
financial institutions or entities that are parties thereto, as lenders and Barclays Bank PLC, as
administrative agent(16)
Third Amendment to Amended and Restated Credit Agreement, dated as of December 16, 2020, among
Chatham Lodging Trust, as parent guarantee, Chatham Lodging L.P., as borrower, the several banks and
other financial institutions or entities that are parties thereto, as lenders and Barclays Bank PLC, as
administrative agent(17)
Sales Agreement, dated January 5, 2021, by and among Chatham Lodging Trust, Chatham Lodging, L.P.
and Cantor Fitzgerald & Co., Barclays Capital Inc., BMO Capital Markets Corp., BofA Securities, Inc.,
BTIG, LLC, Citigroup Global Markets Inc., Regions Securities LLC, Stifel, Nicolaus & Company,
Incorporated and Wells Fargo Securities, LLC(18)
Fourth Amendment to Amended and Restated Credit Agreement, dated October 26, 2021, among Chatham
Lodging Trust, Chatham Lodging, L.P., as borrower, the several banks and other financial institutions or
entities that are parties thereto, as lenders, and Barclays Bank PLC, as administrative agent.
List of Subsidiaries of Chatham Lodging Trust
PricewaterhouseCoopers LLP Consent of Independent Registered Public Accounting Firm
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, 2021 and 2020; (ii)
Consolidated Statements of Operations for the years ended December 31, 2021, 2020 and 2019; (iii) Consolidated
Statements of Equity for the years ended December 31, 2021, 2020 and 2019; (iv) Consolidated Statements of Cash Flows
for the years ended December 31, 2021, 2020 and 2019; and (v) Notes to the Consolidated Financial Statements.
62
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
(9)
(10)
(11)
(12)
(13)
(14)
(15)
(16)
(17)
(18)
(19)
(20)
Incorporated by reference to the Company's Current Report on Form 8-K filed with the SEC on April 21,
2015 (File No. 001-34693).
Incorporated by reference to the Company's Definitive Proxy Statement on Schedule 14A filed on April
15, 2013 (File No. 001-34693).
Incorporated by reference to the Company’s Current Report on Form 8-K filed with the SEC on May 5,
2015 (File No. 001-34693).
Incorporated by reference to the Company'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 Company’s Registration Statement on Form S-11
filed with the SEC on February 12, 2010 (File No. 333-162889).
Incorporated by reference to the Company's Quarterly Report on Form 10-Q filed with the SEC on August
13, 2010 (File No. 001-34693).
Incorporated by reference to the Company's Quarterly Report on Form 10-Q filed with the SEC on August
6, 2015 (File No. 001-34693).
Incorporated by reference to the Company's Quarterly Report on Form 10-Q filed with the SEC on August
6, 2015 (File No. 001-34693).
Incorporated by reference to the Company's Quarterly Report on Form 10-Q filed with the SEC on August
11, 2014 (File No. 001-34693).
Incorporated by reference to the Company's Current Report on Form 8-K filed with the SEC on November
30, 2014 (File No. 001-34693).
Incorporated by reference to the Company's Current Report on Form 8-K filed with the SEC on November
30, 2015 (File No. 001-34693).
Incorporated by reference to the Company's Annual Report on Form 10-K filed with the SEC on February
29, 2016 (File No. 001-34693).
Incorporated by reference to the Company's Quarterly Report on Form 10-Q filed with the SEC on May 9,
2017 (File No. 001-34693).
Incorporated by reference to the Company's Annual Report on Form 10-K filed with the SEC on February
25, 2019 (File No. 001-34693).
Incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed with the
SEC on March 6, 2020 (File No. 001-34693).
Incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed with the
SEC on May 6, 2020 (File No. 001-34693).
Incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed with the
SEC on December 17, 2020 (File No. 001-34693).
Incorporated by reference to Exhibit 1.1 to the Company's Current Report on Form 8-K filed with the SEC
on January 5, 2021 (File No. 001-34693).
Incorporated by reference to Exhibit 3.3 to the Company's Registration Statement on Form 8-A filed with
the SEC on June 25, 2021 (File No. 001-34693).
Incorporated by reference to Exhibit 3.2 to the Company's Current Report on Form 8-K filed with the SEC
on June 28, 2021 (File No. 001-34693).
63
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 25, 2022
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 25, 2022
Senior Vice President and Chief Financial Officer (Principal
Financial and Accounting Officer)
February 25, 2022
February 25, 2022
February 25, 2022
February 25, 2022
February 25, 2022
February 25, 2022
February 25, 2022
February 25, 2022
/s/ EDWIN B. BREWER, JR.
Trustee
Edwin B. Brewer, Jr.
/s/ THOMAS J. CROCKER
Trustee
Thomas J. Crocker
/s/ DAVID GRISSEN
Trustee
David Grissen
/s/ MARY ELIZABETH
HIGGINS
Mary Elizabeth Higgins
Trustee
/s/ ROBERT PERLMUTTER
Trustee
Robert Perlmutter
/s/ ROLF E. RUHFUS
Trustee
Rolf E. Ruhfus
/s/ ETHEL ISAACS WILLIAMS
Trustee
Ethel Isaacs Williams
64
CHATHAM LODGING TRUST
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm (PCAOB ID: 238)
Consolidated Balance Sheets at December 31, 2021 and 2020
Consolidated Statements of Operations for the years ended December 31, 2021, 2020 and 2019
Consolidated Statements of Equity for the years ended December 31, 2021, 2020 and 2019
Consolidated Statements of Cash Flows for the years ended December 31, 2021, 2020 and 2019
Notes to Consolidated Financial Statements
Financial Statement Schedule
Schedule III - Real Estate and Accumulated Depreciation at December 31, 2021
Page No.
F-2
F-4
F-5
F-6
F-7
F-9
F-33
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, 2021 and 2020, 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, 2021, including the related notes and financial statement
schedule listed in the accompanying index (collectively referred to as the “consolidated financial statements”). We also have
audited the Company's internal control over financial reporting as of December 31, 2021, 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, 2021 and 2020, and the results of its operations and its cash flows for each of the
three years in the period ended December 31, 2021 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, 2021, based on criteria established in Internal Control - Integrated Framework (2013)
issued by the COSO.
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
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.
F-2
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 Evaluation of Investments in Hotel Properties
As described in Notes 2 and 5 to the consolidated financial statements, as of December 31, 2021, the Company had an
investment in hotel properties, net of $1.3 billion and for the year ended December 31, 2021, there was an impairment loss of
$5.6 million. Management periodically reviews its hotel properties for impairment whenever events or changes in
circumstances indicate that the carrying value of the hotel properties may not be recoverable over management’s estimated
holding period. This estimated holding period incorporates management’s intent and ability to hold the hotel properties over the
estimated holding period. 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 and management has identified uncertainty surrounding the
recoverability of the hotel property carrying value, management will perform an analysis to determine if the estimated
undiscounted future cash flows, without interest charges, from operations and the estimated 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 evaluation of
investments in hotel properties is a critical audit matter are the significant judgments by management when evaluating whether
events or changes in circumstances indicate that the carrying value of the hotel properties may not be recoverable over
management’s estimated holding period. This in turn led to a high degree of auditor judgment and subjectivity in performing
procedures and evaluating audit evidence relating to management’s intent and ability to hold its hotel properties and
management’s assessment of economic conditions of the Company’s hotels.
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 the
impairment evaluation of the Company’s investments in hotel properties, including controls over management’s evaluation of
whether events or changes in circumstances indicate that the carrying value of hotel properties may not be recoverable. These
procedures also included, among others, testing management’s process for evaluating whether events or changes in
circumstances indicate that the carrying value may not be recoverable. Testing management’s process included evaluating
management’s intent and ability to hold its hotel properties over the estimated holding period, evaluating management’s
assessment of economic conditions, and considering whether the assessment of economic conditions of the Company’s hotels
were consistent with external industry data and evidence obtained in other areas of the audit.
/s/ PricewaterhouseCoopers LLP
Hallandale Beach, Florida
February 25, 2022
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
Right of use asset, net
Hotel receivables (net of allowance for doubtful accounts of $382 and $248,
respectively)
Deferred costs, net
Prepaid expenses and other assets
Total assets
Liabilities and Equity:
Mortgage debt, net
Revolving credit facility
Construction loan
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; 4,800,000 and
0 shares issued and outstanding at December 31, 2021 and 2020, respectively
Common shares, $0.01 par value, 500,000,000 shares authorized; 48,768,890
and 46,973,473 shares issued and outstanding at December 31, 2021 and 2020,
respectively
Additional paid-in capital
Accumulated deficit
Total shareholders’ equity
Noncontrolling Interests:
Noncontrolling interest in operating partnership
Total equity
Total liabilities and equity
December 31,
2021
December 31,
2020
$ 1,282,870 $
1,265,174
67,554
19,188
10,681
19,985
3,003
4,627
2,791
43,651
21,124
10,329
20,641
1,688
5,384
2,266
$ 1,410,699 $
1,370,257
$
439,282 $
70,000
35,007
27,718
—
22,696
1,803
596,506
460,145
135,300
13,325
25,374
19,951
23,233
469
677,797
48
—
487
1,048,070
(251,103)
797,502
470
906,000
(228,718)
677,752
16,691
814,193
14,708
692,460
$ 1,410,699 $
1,370,257
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
Reimbursable costs from unconsolidated 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
Impairment loss on investment in unconsolidated real estate entities
Property taxes, ground rent and insurance
General and administrative
Other charges
Reimbursable costs from unconsolidated entities
Total operating expenses
Operating (loss) income before (loss) gain on sale of hotel property
(Loss) gain on sale of hotel property
Operating (loss) income
Interest and other income
Interest expense net of amounts capitalized, including amortization of
deferred fees
Loss from unconsolidated real estate entities
Gain on sale of investment in unconsolidated real estate entities
(Loss) income before income tax expense
Income tax expense
Net (loss) income
Net loss (income) attributable to non-controlling interest
Net (loss) income attributable to Chatham Lodging Trust
Preferred dividends
Net (loss) income attributable to common shareholders
(Loss) income per Common Share - Basic:
Net (loss) income attributable to common shareholders (Note 11)
(Loss) income per Common Share - Diluted:
Net (loss) 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,
2020
2019
2021
$
187,369 $
3,525
11,350
1,731
203,975
130,564 $
2,718
7,589
4,045
144,916
296,267
9,824
16,567
5,670
328,328
40,396
2,404
1,502
2,299
20,424
16,560
3,721
10,255
11,784
7,156
2,792
119,293
54,215
5,640
—
23,826
15,752
711
1,731
221,168
(17,193)
(21)
(17,214)
243
31,883
2,456
1,451
1,629
16,733
11,608
3,983
9,229
9,799
5,289
1,438
95,498
53,871
—
15,282
23,040
11,564
4,385
4,045
207,685
(62,769)
21,116
(41,653)
179
(24,460)
(1,231)
23,817
(18,845)
—
(18,845)
435
(18,410)
(3,975)
(22,385) $
(28,122)
(7,424)
—
(77,020)
—
(77,020)
997
(76,023)
—
(76,023) $
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
—
18,703
(0.46) $
(1.62) $
0.39
(0.46) $
(1.62) $
0.39
$
$
$
48,349,027
48,349,027
$
— $
46,961,039
46,961,039
.22 $
46,788,784
47,023,280
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)
Preferred Shares
Common Shares
Shares
Amount
Shares
Amount
Additional
Paid - In
Capital
Accumulated
Deficit
Total
Shareholders’
Equity
Noncontrolling
Interest in
Operating
Partnership
Total
Equity
Balance, January 1, 2019
— $
—
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
—
—
—
—
—
—
—
Balance, December 31, 2019
— $
Issuance of shares pursuant
to Equity Incentive Plan
Issuance of shares, net of
offering costs of $49
Amortization of share based
compensation
Dividends declared on
common shares ($0.22 per
share)
Distributions declared on
LTIP units ($0.22 per unit)
Reallocation of
noncontrolling interest
Net loss
—
—
—
—
—
—
—
Balance, December 31, 2020
— $
—
27,870
—
363,544
—
—
—
—
—
—
4
—
—
—
—
—
500
7,087
63
—
—
337
—
—
—
—
500
7,091
—
—
500
7,091
63
4,206
4,269
(61,783)
(61,783)
—
(61,783)
—
—
—
337
(1,351)
(1,351)
(337)
—
18,703
18,703
177
18,880
46,928,445 $
469
$ 904,273
$
(142,365) $
762,377
$
12,647
$ 775,024
24,516
20,512
—
—
—
—
—
—
1
—
—
—
—
—
450
133
30
—
—
1,114
—
—
—
—
450
134
30
—
—
450
134
4,406
4,436
(10,330)
(10,330)
—
(10,330)
—
—
—
(234)
(234)
1,114
(1,114)
—
(76,023)
(76,023)
(997)
(77,020)
46,973,473 $
470
$ 906,000
$
(228,718) $
677,752
$
14,708
$ 692,460
Issuance of preferred shares,
net of offering costs of
$4,063
Issuance of common shares
pursuant to Equity Incentive
Plan
Issuance of common shares,
net of offering costs of $822
Issuance of restricted time-
based shares
Amortization of share based
compensation
Forfeited distributions on
LTIP units
Dividends accrued on
preferred shares
Reallocation of
noncontrolling interest
Net loss
4,800,000
—
—
115,889
115,937
—
115,937
—
—
—
—
—
—
—
—
—
40,203
—
1,745,214
10,000
—
—
—
—
—
450
23,773
—
43
—
—
—
17
—
—
—
—
—
—
—
—
—
—
—
—
450
23,790
—
43
—
—
—
—
450
23,790
—
4,293
4,336
40
—
40
(3,975)
(3,975)
(3,975)
1,915
—
—
(18,410)
1,915
(18,410)
(1,915)
—
(435)
(18,845)
Balance, December 31, 2021
4,800,000 $
48,768,890 $
487
$ 1,048,070 $
(251,103) $
797,502
$
16,691
$ 814,193
—
—
—
—
—
—
—
—
—
—
—
—
—
—
48
—
—
—
—
—
—
48
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 (loss) income
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation
Amortization of deferred franchise fees
Amortization of deferred financing fees included in interest expense
Loss (gain) on sale of hotel property
Gain on sale of unconsolidated real estate entities
Impairment loss
Impairment loss on investment in unconsolidated real estate entities
Deferred tax expense
Share based compensation
Accelerated share based compensation for employee severance
Loss from unconsolidated real estate 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 (used in) 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
Proceeds from sale of unconsolidated real estates entities
Net cash (used in) provided by investing activities
Cash flows from financing activities:
Borrowings on revolving credit facility
Repayments on revolving credit facility
Borrowings on construction loan
Payments on mortgage debt
Payments of financing costs
Payment of offering costs on common shares
Proceeds from issuance of common shares
Payment of offering costs on preferred shares
Proceeds from issuance of preferred shares
Distributions - common shares/units
Distributions - preferred shares
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, net of amounts capitalized
Capitalized interest
Cash paid for income taxes
-continued-
F-7
For the year ended
December 31,
2020
2019
2021
$
(18,845) $
(77,020) $
18,880
53,967
248
1,825
21
(23,817)
5,640
—
—
4,823
—
1,231
656
(1,314)
(327)
(526)
5,732
(537)
28,777
(9,505)
(23,903)
(71,335)
—
—
2,800
53,627
244
1,275
(21,116)
—
—
15,282
29
4,597
288
7,424
629
2,940
(6)
292
(7,962)
(484)
(19,961)
(14,487)
(23,155)
—
64,448
—
—
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
—
(101,943)
26,806
(44,575)
90,000
(155,300)
21,682
(21,190)
(736)
(822)
24,612
(4,063)
120,000
(282)
(2,319)
71,582
(1,584)
31,453
86,000
(40,700)
13,325
(35,744)
(2,351)
(49)
182
—
—
74,500
(66,000)
—
(6,695)
(48)
(209)
7,298
—
—
(16,237)
(62,660)
—
4,426
11,271
20,182
—
(53,814)
(12,155)
32,337
20,182
$
29,869 $
31,453
$
$
$
$
25,931 $
28,119
3,551 $
387 $
1,473
328
$
$
$
25,328
—
887
Supplemental disclosure of non-cash investing and financing information:
On January 18, 2022, the Company issued 34,672 shares to its independent trustees pursuant to the Company’s Equity
Incentive Plan as compensation for services performed in 2021. On January 15, 2021, the Company issued 40,203 shares to its
independent trustees pursuant to the Company’s Equity Incentive Plan as compensation for services performed in 2020. 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.
As of December 31, 2021, the Company had accrued distributions payable of $1.8 million. As of December 31, 2020, the
Company had accrued distributions payable of $0.5 million. As of December 31, 2019, the Company had accrued distributions
payable of $6.1 million.
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, 2021, 2020 and 2019, respectively.
Accrued capital improvements of $1.0 million, $4.5 million and $3.8 million are included in accounts payable and
accrued expenses as of December 31, 2021, 2020, and 2019 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, 2021, the Company owned 41 hotels with an aggregate of 6,169 (unaudited) rooms located in 16
states and the District of Columbia (unaudited). Prior to September 23, 2021, the Company held a 10.0% noncontrolling interest
in a joint venture (the "Inland JV") with affiliates of Colony Capital, Inc. ("CLNY"), which owned 48 hotels acquired from
Inland American Real Estate Trust, Inc. ("Inland"), comprising an aggregate of 6,402 (unaudited) rooms. Chatham sold its
interest in the Inland JV in September 2021. Prior to March 18, 2021, the Company also held a 10.3% noncontrolling interest in
a joint venture (the “NewINK JV”) with affiliates of CLNY, which owned 46 hotels acquired from a joint venture (the
"Innkeepers JV") between the Company and Cerberus Capital Management (“Cerberus”), comprising an aggregate of 5,948
(unaudited) rooms. Chatham sold its interest in the NewINK JV in March 2021 for $2.8 million.
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. 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, 2021, Island Hospitality Management Inc. (“IHM”), which is 100%
owned by Jeffrey H. Fisher, the Company's Chairman, President and Chief Executive Officer, managed all 41 of the Company’s
hotels.
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.
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.
F-9
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 as asset acquisitions 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.
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.
Management periodically reviews its hotel properties for impairment whenever events or changes in circumstances
indicate that the carrying value of the hotel properties may not be recoverable over management's estimated holding period.
This estimated holding period incorporates management’s intent and ability to hold the hotel properties over the estimated
holding period. 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 and management has identified uncertainty surrounding the
recoverability of the hotel property carrying value, management will perform an analysis to determine if the estimated
undiscounted future cash flows, without interest charges, from operations and the estimated 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, 2021, the Company incurred an impairment loss
on one hotel property (See Note 5). For the years ended December 31, 2020 and 2019, 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, 2021 and 2020 the Company 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 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
F-10
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. During the year ended December 31, 2020, the Company recorded an impairment of the entire carrying value of $15.3
million on our investment in the Inland JV related to a decline in operating performance caused by the COVID-19 pandemic
(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. Restricted cash on the accompanying consolidated balance sheets at December 31, 2021 and 2020 is $10.7
million and $10.3 million, respectively.
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, 2021 and 2020, the allowance for doubtful accounts was $0.4 million and $0.2
million, respectively.
F-11
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, 2021 and 2020 (in thousands):
Loan costs
Franchise fees
Other
Less accumulated amortization
Deferred costs, net
December 31, 2021
December 31, 2020
$
$
5,174 $
4,619
19
9,812
(5,185)
4,627 $
4,455
4,311
75
8,841
(3,457)
5,384
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, 2021, 2020 and 2019, 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 $1.5 million, $0.9 million and $0.5 million for the years ended December 31,
2021, 2020 and 2019, 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, 2021 and 2020 (in thousands):
Mortgage debt
Deferred financing costs
Mortgage debt, net
December 31, 2021
December 31, 2020
$
$
439,926 $
(644)
439,282 $
461,116
(971)
460,145
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, 2021, 2020 and 2019, amortization expense related to mortgage loan
costs of $0.3 million, $0.4 million, $0.4 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.
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 exceeded its cumulative allocated share of income and equity contributions. Although the Company
typically did 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 intended to make any required capital contributions to maintain its ownership percentage and as such recorded its
share of cumulative allocated losses and cash distributions below zero. As a result, the carrying value of certain investments in
unconsolidated entities was 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.
F-12
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. Cash received prior to customer arrival is recorded as an
advanced deposit from the customer and is recognized as revenue at the time of occupancy.
Room revenue is generated through short-term contracts with customers whereby customers agree to pay a daily rate
for the right to occupy hotel rooms for one or more nights. Our performance obligations are fulfilled at the end of each night
that the customers have the right to occupy the rooms. Room revenues are recognized daily at the contracted room rate in effect
for each room night.
Food and beverage revenues are generated when customers purchase food and beverage at a hotel's restaurant, bar or
other facilities. Our performance obligations are fulfilled at the time that food and beverage is purchased and provided to our
customers.
Other revenues such as for parking, cancellation fees, meeting space or telephone services are recognized at the point
in time or over the time period that the associated good or service is provided.
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. 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.
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, 2021, the Company is no longer subject to U.S federal income tax examinations for years before
2018 and with few exceptions to state examinations before 2018. 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, 2021. 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. During the third quarter of 2021, management was notified
that various entities related to the Company are being examined by the State of New Hampshire for the tax years ended
December 31, 2019 and 2018. Both examinations remain open. The Company believes it does not need to record a liability
related to matters contained in the tax periods open to examination. However, should the Company experience an unfavorable
outcome in either of the matters, such outcome could have an 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. The Company 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, the Company 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 the ground lease agreements and corporate office lease agreement, all of which are
currently accounted for as operating leases, the Company 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
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.
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 has adopted this new standard on January 1, 2020. The adoption of this standard
did not have a material impact on the Company's consolidated financial statements.
3.
Acquisition of Hotel Properties
On August 3, 2021, the Company acquired both the Residence Inn Austin Northwest/The Domain Area ("RI Austin")
hotel in Austin, TX for $37.0 million and the TownePlace Suites Austin Northwest/The Domain Area ("TPS Austin") hotel in
Austin, TX for $34.3 million. The Company allocated the purchase price of each hotel acquired based on the estimated fair
values of the assets on the date of acquisition. 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 were capitalized in 2021.
On July 2, 2019, the Company purchased a parcel of land in Silicon Valley, California for $8.1 million.
F-15
4.
Disposition of Hotel Properties
On November 24, 2020, the Company sold the Residence Inn Mission Valley hotel in San Diego, CA for $67.0 million
and recognized a gain on the sale of the hotel property of $21.1 million. The balance of the mortgage loan of $26.7 million was
repaid with proceeds from the sale. Additional proceeds were used to repay amounts outstanding on the Company's revolving
credit facility.
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 revolving credit facility.
The sales did not represent a strategic shift that had or will have a major effect on the Company's operations and
financial results and did not qualify to be reported as discontinued operations.
5.
Investment in Hotel Properties
Investment in hotel properties, net
Investment in hotel properties, net as of December 31, 2021 and 2020 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, 2021
December 31, 2020
$
291,768 $
287,049
1,258,845
1,195,276
91,110
7,869
84,381
11,225
1,649,592
1,577,931
(366,722)
(312,757)
$
1,282,870 $
1,265,174
During the year ended December 31, 2021, the Company entered into a purchase and sale agreement to sell a hotel
property with a net book value of $28.3 million. The Company recorded an impairment loss of $5.6 million to write down the
hotel property to fair value. The sale of the hotel property may close during the first quarter of 2022. This hotel is not presented
as held for sale at this point given uncertainties around whether the sale will ultimately close.
Investment in hotel properties under development
We are developing a Home2 Suites by Hilton hotel in the Warner Center submarket of Los Angeles, CA on a parcel of
land owned by us. We have incurred $67.6 million of costs to date, which includes $6.6 million of land acquisition costs and
$61.0 million of other development costs. We expect the total development costs for construction of the hotel to be
approximately $70.0 million, which includes the cost of the land. This hotel opened on January 24, 2022.
F-16
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. NorthStar merged with Colony Capital, Inc.
("Colony") on January 10, 2017 to form a new company, CLNY, which owned a 89.7% interest and the Company owned a
10.3% interest in the NewINK JV. Chatham sold its interest in the NewINK JV in March 2021 for $2.8 million which resulted
in Chatham recording a gain on sale of investment in unconsolidated real estate entities of $23.8 million during the year ended
December 31, 2021. The Company accounted for this investment under the equity method.
On November 17, 2014, the Company acquired a 10.0% interest in the Inland JV, a joint venture between affiliates of
NorthStar and the Operating Partnership. NorthStar merged with Colony on January 10, 2017 to form a new company, CLNY,
which owned a 90.0% interest in the Inland JV. During the year ended December 31, 2020, the Company determined that an
other than temporary decline in the value of its equity investment in the Inland JV had occurred and recorded an impairment of
$15.3 million which brought the Company's basis in the Inland JV to zero. Chatham sold its interest in the Inland JV in
September 2021. The sale did not generate a gain or loss. The Company accounted for this investment under the equity method.
The Company's recorded investments in the NewInk JV and the Inland JV were $0 and $0, respectively, at
December 31, 2021. The following tables set forth the total assets, liabilities, equity, and components of net loss, including the
Company's share, related to all JVs for the years ended December 31, 2021, 2020 and 2019 (in thousands):
Balance Sheet
Assets
December 31, 2021
December 31, 2020
December 31, 2019
Investment in hotel properties, net
$
Other assets
Total Assets
$
— $
—
— $
1,604,501 $
79,136
1,683,637 $
2,221,718
104,560
2,326,278
Liabilities
Mortgages and notes payable, net
$
— $
1,622,305 $
1,612,217
Other liabilities
Total Liabilities
Equity
Chatham Lodging Trust
Joint Venture Partner
Total Equity
—
—
—
—
—
80,423
1,702,728
34,948
1,647,165
(1,835)
(17,256)
(19,091)
69,008
610,105
679,113
Total Liabilities and Equity $
— $
1,683,637 $
2,326,278
F-17
Revenue
Total hotel operating expenses
Impairment loss
Hotel operating income
Net loss from continuing operations
Loss on sale of hotels
Net loss
Loss allocable to the Company
Basis difference adjustment
Total loss from unconsolidated real estate
entities attributable to the Company
For the year ended
December 31,
2021
2020
2019
$
24,690
$
246,694
$
496,485
24,106
—
216,846
578,217
329,879
41,132
584
$
29,848
$
166,606
(13,109) $
(701,880) $
(76,869)
—
$
(15) $
(2,129)
(13,109) $
(701,895) $
(78,998)
(1,347) $
(8,420) $
(8,044)
116
$
996
$
1,596
(1,231) $
(7,424) $
(6,448)
$
$
$
$
$
$
$
7.
Debt
The Company's mortgage loans 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. The Company's credit facility is secured
by pledges of its equity interests in certain properties. Debt consisted of the following (in thousands):
Loan/Collateral
Revolving Credit Facility (1)
Construction loan (2)
Residence Inn by Marriott New Rochelle, NY
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
Homewood Suites by Hilton Billerica, MA
Hampton Inn & Suites Houston Medical Cntr., TX
Total debt before unamortized debt issue costs
Unamortized mortgage debt issue costs
Total debt outstanding
Interest
Rate
Maturity Date
12/31/21
Property
Carrying
Value
Balance Outstanding as of
December 31,
2021
December 31,
2020
3.43 %
7.75 %
5.75 %
4.59 %
4.49 %
4.19 %
4.65 %
4.97 %
4.79 %
4.64 %
4.64 %
4.64 %
4.64 %
4.62 %
4.68 %
4.32 %
4.25 %
March 8, 2023
$
697,911 $
70,000 $
135,300
August 4, 2024
September 1, 2021
February 6, 2023
February 6, 2023
May 6, 2023
July 6, 2023
December 6, 2023
April 6, 2024
July 1, 2024
July 1, 2024
July 1, 2024
July 1, 2024
July 6, 2024
July 6, 2024
December 6, 2024
January 6, 2025
67,554
—
27,634
29,931
29,258
32,697
60,851
39,712
71,675
79,649
59,812
45,254
32,481
37,217
12,214
15,100
35,007
—
14,808
20,243
16,673
20,515
42,089
30,839
62,374
68,054
46,781
36,481
28,873
20,024
15,114
17,058
13,325
12,602
15,195
20,780
17,126
21,031
42,998
31,463
63,418
69,192
47,564
37,092
29,358
20,490
15,411
17,396
$ 1,338,950 $
544,933 $
609,741
(644)
(971)
$
544,289 $
608,770
1. The interest rate for the revolving credit facility is variable and based on LIBOR (subject to a 0.5% floor) plus a spread
of 2.50% if borrowings remain at or below $200 million and a spread of 3.0% if borrowings exceed $200 million. At
December 31, 2021 and 2020, the Company had $70.0 million and $135.3 million, respectively, of outstanding
borrowings under its $250.0 million revolving credit facility. Credit facility lenders representing $227.5 million of
F-18
commitments have provided two six-month extension options that would extend the final maturity of these
commitments to March 8, 2024, if exercised. The Company can exercise the extension options as long as there is no
default.
2. On August 4, 2020, a subsidiary of the Company entered into an agreement with affiliates of Mack Real Estate Credit
Strategies to obtain a loan with a total commitment of up to $40 million to fund the remaining construction costs of the
Warner Center hotel development. The loan has an initial term of 4 years and there are two six-month extension
options. The rate on the loan is LIBOR, subject to a 0.25% floor, plus a spread of 7.5%.
At December 31, 2021 and 2020, the Company had $70.0 million and $135.3 million, respectively, of outstanding
borrowings under its revolving credit facility. At December 31, 2021, the maximum borrowing availability under the 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, 2021 and 2020 was
$443.4 million and $462.6 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, 2021, the Company’s variable rate debt consists of its revolving credit facility and its
construction loan. The estimated fair value of the Company’s variable rate debt as of December 31, 2021 and 2020 was $105.0
million and $148.6 million, respectively.
On October 26, 2021, Chatham executed an amendment to its credit facility which extended a waiver of financial
covenants until June 30, 2022, provided for the immediate exercise of an option to extend the maturity of the entire $250
million credit facility through March 8, 2023, and added two six-month options to further extend the maturity of the credit
facility through March 8, 2024 from lenders representing $227.5 million of commitments. In conjunction with the amendment,
Chatham provided credit facility lenders with equity pledges on three unencumbered hotels. The spread on the credit facility did
not change as a result of the amendment. The amendment places limits on the Company’s ability to incur debt, pay dividends,
and make capital expenditures during the covenant waiver period. During the covenant waiver period interest will be calculated
as LIBOR (subject to a 0.5% floor) plus a spread of 2.50% if borrowings remain at or below $200 million and a spread of 3.0%
if borrowings exceed $200 million. As of December 31, 2021, the Company was in compliance with all of its modified
financial covenants.
Our mortgage debt agreements contain “cash trap” provisions that are triggered when the hotel’s operating results
fall below a certain debt service coverage ratio or debt yield. When these provisions are triggered, all of the excess cash flow
generated by the hotel is deposited directly into cash management accounts for the benefit of our lenders until a specified debt
service coverage ratio or debt yield is reached. Such provisions do not allow the lender the right to accelerate repayment of the
underlying debt. As of December 31, 2021, the debt service coverage ratios or debt yields for eight of our mortgage loans were
below the minimum thresholds such that the cash trap provision of each respective loan could be enforced. As of December 31,
2021, none of our mortgage debt lenders have enforced cash trap provisions. We do not expect that such cash traps will affect
our ability to satisfy our short-term liquidity requirements.
Future scheduled principal payments of debt obligations as of December 31, 2021, for each of the next five calendar
years and thereafter are as follows (in thousands):
F-19
2022
2023
2024
2025
2026
Thereafter
Total debt before unamortized debt issue costs
Unamortized mortgage debt issue costs
Total debt outstanding
Amount
$
9,249
187,919
331,818
15,947
—
—
$
544,933
(644)
$
544,289
Accounting for Derivative Instruments
The Company has entered into interest rate cap agreements to hedge against interest rate fluctuations related to the
construction loan for the Warner Center hotel. The Company records its derivative instruments on the balance sheet at their
estimated fair values. Changes in the fair value of the derivatives are recorded each period in current earnings or in other
comprehensive income, depending on whether a derivative is designated as part of a hedging relationship and, if it is, depending
on the type of hedging relationship. The Company's interest rate caps are not designated as a hedge but to eliminate the
incremental cost to the Company if the one-month LIBOR were to exceed 3.5%. Accordingly, the interest rate caps are
recorded on the balance sheet under prepaid expenses and other assets at the estimated fair value and realized and unrealized
changes in the fair value are reported in the consolidated statements of operations. As of December 31, 2021, the fair value of
the interest rate caps were $61 thousand.
8.
Income Taxes
The components of income tax expense for the following periods are as follows (in thousands):
For the year ended
December 31,
2020
2021
2019
Current:
Federal
State
Current tax expense (benefit)
$
$
Deferred:
Federal
State
Deferred tax expense (benefit)
Total income tax expense (benefit) $
— $
—
— $
—
—
—
— $
(29) $
—
(29) $
29
—
29
— $
(29)
—
(29)
29
—
29
—
F-20
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 (dollars in thousands):
Book loss before income taxes of the TRS
Statutory rate of 21% for 2018 and after
Effect of state and local income taxes, net of federal tax benefit
Permanent adjustments
Change in valuation allowance
Valuation allowance release
Other
Total income tax (benefit) expense
For the year ended
December 31,
2021
2020
2019
(24,391)
$
(4,838)
$
(8,167)
(5,122)
$
(1,016)
$
(1,715)
(1,049)
8
5,977
—
186
—
(253)
4
1,445
—
(180)
$
—
$
(347)
8
2,100
—
(46)
—
$
$
$
Effective tax rate
— %
— %
— %
At December 31, 2021 and 2020, the Company had valuation allowances against certain deferred tax assets totaling
$13.0 million and $7.1 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, 2021 and 2020 are as follows (in thousands):
For the year ended
December 31,
2021
2020
Gross deferred tax assets:
Allowance for doubtful accounts
Accrued compensation
Net operating loss
Gross deferred tax assets
Less: Valuation Allowance
Total deferred tax assets net of valuation allowance
Gross deferred tax liabilities:
Total book/tax difference in partnership
Gross deferred tax liabilities:
Net, deferred tax assets:
$
$
$
$
$
$
$
99 $
521
12,427
13,047 $
(13,047) $
— $
— $
— $
— $
133
547
6,541
7,221
(7,070)
151
(151)
(151)
—
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 2021. As of December 31, 2021, the TRS continues to recognize a full valuation allowance equal to
100% of the net deferred tax assets. Management will continue to monitor the need for a valuation allowance.
The TRS has income tax NOL carryforwards for Federal and various states of approximately $48.0 million and
$48.0 million, respectively. The loss carryforwards begin to expire starting in 2038 for Federal purposes and in 2031 and
thereafter for state purposes.
F-21
9.
Dividends Declared and Paid
Common Dividends
The Company suspended common share dividends beginning after the payment of the March 27, 2020 dividend due to
a decline in operating performance caused by the COVID-19 pandemic. During the year ended December 31, 2020, the
Company declared total common share dividends of $0.22 per share and distributions on LTIP units of $0.22 per unit. There
were no common share dividends declared during the year ended December 31, 2021. 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
1/31/2020
2/28/2020 $
0.11 $
0.11 $
— $ 0.1100 $
2/28/2020
3/27/2020
0.11
0.11
—
0.1100
$
0.22 $
0.22 $
— $ 0.2200 $
—
—
—
January
February
Total 2020
Preferred Dividends
During the year ended December 31, 2021, the Company declared total dividends of $0.89713 per share of 6.625%
Series A Cumulative Redeemable Preferred Shares. The preferred dividends and their tax characterization were as follows:
September
December
Total 2021
Record
Date
Payment
Date
Dividend Per
Preferred
Share
Taxable
Ordinary
Income
Return of
Capital
Section
199A
Dividends
9/30/2021
10/15/2021 $ 0.48307 $ 0.48307 $
— $ 0.48307
12/31/2021
1/18/2022
$ 0.41406 $ 0.41406 $
— $ 0.41406
$ 0.89713 $ 0.89713 $
— $ 0.89713
For the year ended December 31, 2021, 100.0% of the distributions paid to stockholders were considered ordinary
income. For the year ended December 31, 2020, 100.0% of the distributions paid to stockholders were considered return of
capital.
10.
Shareholders' Equity
Common Shares
The Company is authorized to issue up to 500,000,000 common shares of beneficial interest, $0.01 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, 2021, 48,768,890 common shares were outstanding.
F-22
In December 2017, we established a $50 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 "Current
DRSPP" and together with the Prior DRSPP, the "DRSPPs") on December 22, 2020 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, 2021, we issued 149,686
shares under the Current DRSPP at a weighted average price of $13.77, which generated $2.1 million of proceeds. As of
December 31, 2021, there were common shares having a maximum aggregate sales price of approximately $47.9 million
available for issuance under the Current DRSPP.
In December 2017, we established an "at-the-market" equity offering program (the "Prior ATM Plan") whereby, from
time to time, we may publicly offer and sell our common shares having an aggregate offering price up to $100 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, as
amended. We filed a $100 million registration statement for a new ATM program (the "ATM Plan") on January 5, 2021 to
replace the prior program. At the same time, the Company entered into a sales agreement with Cantor Fitzgerald & Co.,
Barclays Capital Inc., BMO Capital Markets Corp., BofA Securities, Inc., BTIG, LLC, Citigroup Global Markets Inc., Regions
Securities LLC, Stifel, Nicolaus & Company, Incorporated and Wells Fargo Securities as sales agents. In accordance with the
terms of the sales agreement, the Company may from time to time offer, and sell shares of its common stock having an
aggregate offering price of up to $100 million. During the year ended December 31, 2021, we issued 1,595,528 shares under the
ATM Plan at a weighted average price of $14.13 per share, which generated $22.5 million of gross proceeds. As of
December 31, 2021, there were common shares having a maximum aggregate sales price of approximately $77.5 million
available for issuance under the ATM Plan.
Preferred Shares
The Company is authorized to issue up to 100,000,000 preferred shares, $0.01 par value per share, in one or more
series.
On June 30, 2021, the Company issued 4,800,000 6.625% Series A Cumulative Redeemable Preferred Shares of
Beneficial Interest, $0.01 par value per share (the “Series A Preferred Shares”), and received net proceeds of approximately
$115.9 million. The Series A Preferred Shares rank senior to the Company’s common shares with respect to the payment of
dividends and distributions of assets in the event of a liquidation, dissolution, or winding up. The Series A Preferred Shares do
not have any maturity date and are not subject to mandatory redemptions or sinking fund requirements. The distribution rate is
6.625% per annum of the $25.00 liquidation preference, which is equivalent to $1.65625 per annum per Series A Preferred
Share. Distributions on the Series A Preferred Shares are payable quarterly in arrears with the first distribution on the Series A
Preferred Shares paid on October 15, 2021. The Company may not redeem the Series A Preferred Shares before June 30, 2026
except in limited circumstances to preserve the Company's status as a REIT for federal income tax purposes and upon the
occurrence of a change of control. On and after June 30, 2026, the Company may, at its option, redeem the Series A Preferred
Shares, in whole or from time to time in part, by paying $25.00 per share, plus any accrued and unpaid distributions to, but not
including, the date of redemption. Upon the occurrence of a change of control, as defined in the Company's declaration of trust,
the result of which the Company’s common shares and the common securities of the acquiring or surviving entity are not listed
on the New York Stock Exchange, the NYSE MKT or NASDAQ, or any successor exchanges, the Company may, at its option,
redeem the Series A Preferred Shares in whole or in part within 120 days following the change of control by paying $25.00 per
share, plus any accrued and unpaid distributions through the date of redemption. If the Company does not exercise its right to
redeem the Series A Preferred Shares upon a change of control, the holders of the Series A Preferred Shares have the right to
convert some or all of their shares into a number of the Company’s common shares based on defined formulas subject to share
caps. The share cap on each Series A Preferred Share is 3.701 common shares. As of December 31, 2021, 4,800,000 preferred
shares were issued and outstanding. During the year ended December 31, 2021, the Company accrued preferred share dividends
of $4.0 million.
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
F-23
the effect of diluting the ownership interests of limited partners or shareholders. As of December 31, 2021, there were 976,102
vested Operating Partnership LTIP units held by current and former employees.
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 (loss) income attributable to common shareholders
Dividends paid on unvested shares and units
Net (loss) income attributable to common shareholders
Denominator:
For the year ended
December 31,
2021
2020
2019
$
(22,385) $
(76,023) $
18,703
—
(50)
(297)
$
(22,385) $
(76,073) $
18,406
Weighted average number of common shares - basic
48,349,027
46,961,039
46,788,784
Effect of dilutive securities:
Unvested shares
Weighted average number of common shares - diluted
Basic (loss) income per Common Share:
—
—
234,496
48,349,027
46,961,039
47,023,280
Net (loss) income attributable to common shareholders per weighted average
basic common share
$
(0.46) $
(1.62) $
0.39
Diluted (loss) income per Common Share:
Net (loss) income attributable to common shareholders per weighted average
diluted common share
$
(0.46) $
(1.62) $
0.39
F-24
12.
Equity Incentive Plan
The Company maintains its Equity Incentive Plan to attract and retain independent trustees, executive officers and
other key employees. 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, 2021, there were
579,825 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, 2021, 2020 and 2019 is as
follows:
December 31, 2021
December 31, 2020
December 31, 2019
Number of
Shares
Weighted -
Average Grant
Date Fair
Value
Number of
Shares
Weighted -
Average Grant
Date Fair
Value
Number of
Shares
Weighted -
Average Grant
Date Fair
Value
Non-vested at beginning of the period
1,667 $
Granted
Vested
Unvested at end of the period
10,000
(1,667)
10,000 $
17.40
11.47
17.40
11.47
5,001 $
—
(3,334)
1,667 $
18.33
—
18.80
17.40
8,334 $
—
(3,333)
5,001 $
18.52
—
18.80
18.33
As of December 31, 2021 and 2020, there were $99.7 thousand and $28.5 thousand, respectively, of unrecognized
compensation costs related to restricted share awards. As of December 31, 2021, these costs were expected to be recognized
over a weighted–average period of approximately 2.6 years. For the years ended December 31, 2021, 2020 and 2019, the
Company recognized approximately $43.5 thousand, $30.0 thousand and $62.7 thousand, 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.
A summary of the Company's LTIP unit awards for the years ended years ended December 31, 2021, 2020 and
2019 is as follows:
December 31, 2021
December 31, 2020
December 31, 2019
Number of
Units
Weighted -
Average Grant
Date Fair
Value
Number of
Units
Weighted -
Average Grant
Date Fair
Value
Number of
Units
Weighted -
Average Grant
Date Fair
Value
Non-vested at beginning of the period
669,609 $
Granted
Vested
Forfeited
330,945
(219,451)
(16,925)
Non-vested at end of period
764,178 $
598,320 $
325,507
(254,218)
—
18.30
13.42
18.82
—
476,398 $
221,853
(99,931)
—
669,609 $
15.73
598,320 $
17.73
18.73
16.55
—
18.30
15.73
14.55
16.39
17.02
15.00
F-25
Time-Based LTIP Awards
On March 1, 2021, the Company’s Operating Partnership, upon the recommendation of the Compensation Committee,
granted 132,381 time-based awards (the “2021 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 2021 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, 2021, the Company’s Operating Partnership, upon the recommendation of the Compensation Committee,
also granted 198,564 performance-based awards (the "2021 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 $15.91 per 2021 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.
The 2021 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, 2021 and ending on February 29, 2024. The 2021 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:
F-26
2016 Time-Based LTIP Unit Awards
Grant Date
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
2020 Time-Based LTIP Unit Awards
3/1/2020
2020 Performance-Based LTIP Unit Awards
3/1/2020
2021 Time-Based LTIP Unit Awards
3/1/2021
2021 Performance-Based LTIP Unit Awards
3/1/2021
Number of
Units
Granted
Estimated
Value per
Unit
Volatility
Dividend
Yield
Risk-Free
Interest Rate
72,966
39,285
89,574
134,348
97,968
146,949
88,746
133,107
130,206
195,301
132,381
198,564
$16.69
$11.09
$18.53
$19.65
$16.83
$17.02
$18.45
$18.91
$13.05
$13.66
$12.52
$15.91
28%
30%
24%
25%
26%
26%
21%
21%
20%
20%
78%
64%
—%
5.8%
—%
5.8%
—%
6.2%
—%
6.2%
—%
8.1%
—%
3.4%
0.79%
1.13%
0.92%
1.47%
2.07%
2.37%
2.57%
2.55%
1.06%
0.90%
0.08%
0.30%
The Company recorded $4.3 million, $4.4 million and $4.2 million in compensation expense related to the LTIP units
for years ended December 31, 2021, 2020 and 2019, respectively. As of December 31, 2021 and 2020, there was $5.4 million
and $4.9 million, respectively, of total unrecognized compensation cost related to LTIP units. This cost is expected to be
recognized over approximately 1.8 years, which represents the weighted average remaining vesting period of the LTIP units.
Board of Trustee Share Compensation
For 2021, 2020 and 2019, 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 58% in the form of shares. In
January 2021, 2020 and 2019, the Company issued 40,203, 24,516 and 27,870 common shares, respectively, to its independent
trustees as compensation for services performed in 2020, 2019 and 2018, 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 18, 2022, the Company distributed 34,672 common shares to its independent trustees
for services performed in 2021.
13.
Leases
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 $44,400 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 2021 under these leases amounted to
approximately $30,000 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.
F-27
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, 2021. 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 total minimum lease payments for which it is the
lessee, as of December 31, 2021, for each of the next five calendar years and thereafter (in thousands):
Total Future Lease Payments
2022
2023
2024
2025
2026
Thereafter
Total lease payments
Less: Imputed interest
Present value of lease liabilities
Amount
2,072
2,093
2,115
2,186
1,894
64,825
75,185
(52,489)
22,696
$
$
$
The following table includes information regarding the Company's total minimum lease payments for which it is the
lessee, as of December 31, 2020, for each of the next five calendar years and thereafter (in thousands):
Total Future Lease Payments
2021
2022
2023
2024
2025
Thereafter
Total lease payments
Less: Imputed interest
Present value of lease liabilities
Amount
2,051
2,071
2,093
2,115
2,186
66,720
77,236
(54,003)
23,233
$
$
$
For the year ended December 31, 2021, the Company made $1.2 million of fixed lease payments and $0.0 million of
variable lease payments related to hotel ground leases, which are included in property taxes, ground rent and insurance in our
consolidated statement of operations. For the year ended December 31, 2021, the Company made $0.8 million of fixed lease
payments related to its corporate office lease, which are included in general and administrative expense 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, 2021:
F-28
Right of Use Asset
Lease Liability
Balance as of January 1, 2021
Amortization
Balance as of December 31, 2021
$
$
20,641 $
(656)
19,985 $
23,233
(537)
22,696
Lease Term and Discount Rate
December 31, 2021
Weighted-average remaining lease term (years)
Weighted-average discount rate
40.55
6.60%
14.
Commitments and Contingencies
Litigation
The Company is subject to various claims, lawsuits and legal proceedings, including routine litigation arising in the
ordinary course of business, regarding the operation of its hotels, its managers and other Company matters. While it is not
possible to ascertain the ultimate outcome of such matters, the Company believes that the aggregate identifiable amount of such
liabilities, if any, will not have a material adverse impact on its financial condition or results of operations.
Chatham RIMV LLC (a wholly owned subsidiary of the Company) is a defendant in a lawsuit brought by the City of
San Diego and other related entities, San Diego Housing Commission et al. v. Neil et al. (Superior Court of California, County
of San Diego, Case No. 37-2021-00033006-CU-BC-CTL) filed in connection with the sale of the Residence Inn Mission Valley
to the City of San Diego. The City of San Diego is seeking a return of monies spent on the acquisition as well as a declaration
that the purchase agreement executed in connection with the acquisition is void. At the time of this filing, the City of San Diego
and the other Plaintiffs have made no allegations of wrongdoing by Chatham RIMV LLC or any other Company entity. We
believe this lawsuit is without merit and we are defending our case vigorously. As of December 31, 2021, we have accrued
$40 thousand related to legal costs incurred to date. At this time we believe potential future costs related to this lawsuit are not
probable and estimable.
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.
F-29
As of December 31, 2021, terms of the Company's management agreements are (dollars are not in thousands):
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
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
Residence Inn Austin Northwest/The Domain Area
TownePlace Suites Austin Northwest/The Domain Area
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
IHM
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 %
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
$1,000
$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
$1,500
$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
$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
$1,000
$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 %
1.0 %
Management fees totaled approximately $7.2 million, $5.3 million and $10.8 million, respectively, for the years ended
December 31, 2021, 2020 and 2019. Incentive management fees paid to IHM for the years ended years ended December 31,
2021, 2020 and 2019 were $0.0 million, $0.0 million and $0.1 million, respectively.
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, 2021:
F-30
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
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
Residence Inn Austin Northwest/The Domain Area
TownePlace Suites Austin Northwest/The Domain Area
Franchise/
Royalty Fee
Marketing/
Program Fee
Expiration
4.0 %
4.0 %
4.0 %
4.0 %
4.0 %
4.0 %
6.0 %
5.5 %
5.5 %
5.5 %
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 %
5.0 %
5.5 %
5.5 %
6.0 %
5.5 %
6.0 %
5.5 %
6.0 %
6.0 %
5.5 %
6.0 %
5.5 %
6.0 %
4.0% to 6.0%
5.5% to 6.0%
3.0% to 5.5%
4.0 %
4.0 %
4.0 %
4.0 %
4.0 %
4.0 %
4.0 %
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 %
2.5 %
2.0 %
2025
2025
2025
2025
2025
2025
2035
2025
2030
2030
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
2036
2041
Franchise and marketing/program fees totaled approximately $16.6 million, $11.6 million and $25.9 million,
respectively, for the years ended December 31, 2021, 2020 and 2019.
F-31
15.
Related Party Transactions
Prior to March 18, 2021, Mr. Fisher owned 52.5% of IHM. During the year ended December 31, 2021, Mr. Fisher
acquired the remaining 47.5% ownership interest and as of December 31, 2021, Mr. Fisher owns 100% of IHM. As of
December 31, 2021, the Company had hotel management agreements with IHM to manage all 41 of its hotels. 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, 2021, 2020 and 2019 were $7.2 million, $5.3 million and $10.8 million, respectively. At
December 31, 2021 and 2020, the amounts due to IHM were $0.3 million and $0.3 million, respectively. Incentive management
fees paid to IHM by the Company for the years ended December 31, 2021, 2020 and 2019 were $0.0 million, $0.0 million and
$0.1 million, respectively.
Cost reimbursements from unconsolidated entities revenue represent reimbursements of costs incurred on behalf of the
NewINK JV, the Inland JV and IHM. These costs relate primarily to corporate payroll costs at the NewINK JV and the Inland
JV where the Company was the employer and office expenses shared with these entities and IHM. Various shared office
expenses and rent are paid by the Company and allocated to IHM based on the amount of square footage occupied by each
entity. 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 are recorded based upon the
occurrence of a reimbursed activity.
F-32
CHATHAM LODGING TRUST
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 2021
(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
—
$ 1,800 $
7,200 $
34 $
5,212 $ 1,834 $
12,412 $ 14,246 $
12,412 $
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
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
2012
2013
2013
2013
2013
2013
2013
2014
2014
2014
2014
2014
2014
3,993
1,518
14,548
16,066
14,548
4,277
3,802
4,518
3,662
3,147
1,321
9,585
3,519
1,537
2,530
1,417
3,260
2,200
2,200
18,237
13,102
12,101
13,037
15,856
20,086
27,262
21,756
14,639
14,631
14,454
19,116
22,286
29,462
18,237
13,102
12,101
13,037
15,856
20,086
27,262
4,736
4,545
6,109
4,459
3,959
4,060
4,473
6,124
8,834
6,934
9
27,215
27,224
27,215
7,779
5,518
7,166
41,002
48,168
41,002
10,869
5,602
6,005
30,366
36,371
30,366
8,957
6,477
2,752
369
2,947
1,506
189
675
6,111
5,752
4,315
5,600
3,005
1,904
4,105
2,444
13,800
1,703
2,401
6,016
42,652
28,540
31,669
23,033
30,297
37,082
12,539
23,775
59,401
37,753
51,862
34,651
37,421
27,348
35,897
40,087
14,443
27,880
73,201
40,154
94,514
7,428
46,474
57,808
104,282
5448
38,420
10,244
22,019
1,868
2,645
3,700
2,413
36,800
42,057
28,168
24,199
75,220
64,076
31,868
26,612
28,540
31,669
23,033
30,297
37,082
12,539
23,775
59,401
37,753
51,862
57,808
36,800
42,057
28,168
24,199
8,836
8,215
5,235
6,935
8,037
2,675
5,153
12,596
8,056
24,462
26,790
16,780
19,466
5,452
4,791
2000
1999
1998
1998
1998
1999
1997
2004
1982
2000
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)
15,114
1,470
10,555
—
—
—
—
17,058
—
—
—
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
30,839
7,109
35,484
14,808
5,999
24,764
—
20,243
—
16,673
20,515
—
—
42,089
28,873
62,374
68,054
46,781
36,481
—
—
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
60
—
—
9
57
6
28
—
—
—
5
4
5
—
1
—
—
—
—
—
—
- continued -
F-33
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
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 - Woodland Hills, CA
Hilton Garden Inn - Portsmouth, NH
Courtyard - Summerville, SC
Embassy Suites - Springfield, VA
Residence Inn - Summerville, SC
Courtyard Dallas Downtown - Dallas, TX
Silicon Valley III - Sunnyvale, CA
Residence Inn Austin Northwest/The Domain
Area - Austin, TX
TownePlace Suites Austin Northwest/The
Domain Area - Austin, TX
2014
2014
2014
2015
2015
2015
2015
2017
2017
2017
2017
2018
2018
2018
2021
2021
—
—
—
—
20,024
—
—
35,007
—
—
—
—
—
—
—
—
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
—
2,400
33,346
2,300
29,347
—
—
—
10
—
—
14
99
—
7
—
—
—
—
—
—
1451
1,688
2,012
3,640
(3,850)
4,918
10
—
4,230
9,214
6,599
3,600
2,507
7,700
2,300
2,900
8,171
2,134
917
2,159
1,987
—
610
220
416
256
140
—
84
59
19,367
27,319
23,343
91,174
44,127
19,463
26,035
—
38,240
17,143
59,223
17,316
42,900
—
21,379
30,959
28,261
91,184
44,127
23,693
35,249
6,599
41,840
19,650
66,923
19,616
45,800
8,171
19,367
27,319
23,343
91,174
44,127
19,463
26,035
—
38,240
17,143
59,223
17,316
42,900
—
2,400
33,430
35,830
33,430
2,300
29,406
31,706
29,406
3,542
5,270
5,685
15,987
7,078
3,209
4,241
—
4,107
1772
6,029
1,478
3,300
—
346
304
2004
2004
1975
2009
2013
1998
2008
2006
2014
2013
2018
2018
2016
2021
(1)
(1)
(1)
(1)
(1)
(1)
(1)
(1)
(1)
(1)
(1)
(1)
(1)
(1)
Grand Total(s)
$ 297,827 $ 1,140,140 $
540 $
118,553 $ 298,367 $ 1,258,693 $ 1,557,060 $ 1,258,693 $
300,731
(1) Depreciation is computed based upon the following estimated useful lives:
Building
Land improvements
Building improvements
Years
40
20
5-20
- continued -
F-34
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
2021
2020
2019
2018
2017
2016
2015
$ 1,488,830 $ 1,520,189 $ 1,510,864 $ 1,431,374 $ 1,320,273 $ 1,306,192
1,105,504
67,393
—
8,171
65,020
133,660
—
(52,770)
(17,889)
—
(33,053)
—
—
187,032
—
837
21,411
19,043
14,470
10,494
14,081
13,656
Investment in Real Estate
$ 1,557,060 $ 1,488,830 $ 1,520,189 $ 1,510,864 $ 1,431,374 $ 1,320,273 $ 1,306,192
(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
2021
2020
2019
2018
2017
2016
2015
$
257,344 $
224,339 $
187,780 $
148,071 $
116,866 $
83,245
43,387
42,145
41,908
39,709
36,401
33,621
—
(9,140)
(5,349)
—
(5,196)
—
50,910
32,335
—
$
300,731 $
257,344 $
224,339 $
187,780 $
148,071 $
116,866 $
83,245
(c) The aggregate cost of properties for federal income tax purposes (in thousands) is approximately $1,557,212 as of December 31, 2021.
F-35
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
333 SE 2nd Avenue
Miami, FL 33131
BOARD OF TRUSTEES
Bill Brewer
Private Investor
Thomas J. Crocker
Founding Partner
Crocker Partners, LLC
David J. Grissen
Retired Group President,
Marriott, Intl.
Mary Beth Higgins
Chief Executive Officer
Affinity Gaming
Robert Perlmutter
Private Investor
Rolf E. Ruhfus
Chairman
and Chief Executive Officer
LodgeWorks Corporation
Ethel Isaacs Williams
Private Investor
SHAREHOLDER INFORMATION
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 Tuesday, May 24, 2022 at
10:00 a.m. in the Palms Meeting
Room. Address above.
TRANSFER AGENT
EQ Shareowner Services
PO Box 64945
St. Paul, MN 55164-0854
High-Quality Hotels in High-Quality Markets
Seattle, WA: 3%
Minnesota: 1%
Denver, CO: 3%
Nashville, TN: 2%
Silicon Valley, CA: 9%
Los Angeles, CA: 7%
San Diego, CA: 6%
Dallas, TX: 7%
Austin, TX: 3%
San Antonio, TX: 2%
Houston, TX: 7%
New Hampshire: 7%
Portland, ME: 6%
Massachusetts: 1%
Connecticut: 2%
New York: 11%
Pennsylvania: 3%
Washington, D.C.: 5%
Charleston, SC: 4%
Savannah, GA: 5%
Orlando, FL: 2%
Fort Lauderdale, FL: 4%
Based on the percentage of hotel EBITDA for the twelve months ended December 31, 2021.
222 Lakeview Avenue
Suite 200
West Palm Beach, FL 33401
561.802.4477
www.chathamlodgingtrust.com
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