Condor Hospitality Trust, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(In thousands, except share and per share data)
NOTE 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business
Condor Hospitality Trust, Inc. (“Condor”) was incorporated in Virginia on August 23, 1994 and was reincorporated in Maryland on November 19, 2014. Condor is a self-administered real estate investment trust (“REIT”) for federal income tax purposes that specializes in the investment and ownership of high-quality select-service, limited-service, extended stay, and compact full service hotels. As of December 31, 2019, the Company owned 15 hotels in eight states, including one hotel owned through an 80% interest in an unconsolidated joint venture (the “Atlanta JV”). References to the “Company”, “we,” “our,” and “us” herein refer to Condor Hospitality Trust, Inc., including as the context requires, our direct and indirect subsidiaries.
The Company, through its wholly owned subsidiary, Condor Hospitality REIT Trust, owns a controlling interest in Condor Hospitality Limited Partnership (the “operating partnership”), and serves as its general partner. The operating partnership, including its various subsidiary partnerships, holds substantially all of the Company’s assets (with the exception of the furniture and equipment of all properties held by TRS Leasing, Inc.) and conducts all of its operations. At December 31, 2019, the Company owned 99.9% of the common operating units (“common units”) of the operating partnership with the remaining common units owned by other limited partners.
In order for the income from our hotel property investments to constitute “rents from real properties” for purposes of the gross income tests required by the Internal Revenue Service (“IRS”) for REIT qualification, the income we earn cannot be derived from the operation of any of our hotels. Therefore, the operating partnership and its subsidiaries lease our hotel properties to the Company’s wholly owned taxable REIT subsidiary, TRS Leasing, Inc., and its wholly owned subsidiaries (the “TRS”). The TRS in turn engages third-party eligible independent contractors to manage the hotels. The operating partnership, the TRS, and their respective subsidiaries are consolidated into the Company’s financial statements.
Historically, as a result of the geographic areas in which we operate, the operations of our hotels have been seasonal in nature. Generally, occupancy rates, revenue, and operating income have been greater in the second and third quarters of the calendar year than in the first and fourth quarters, with the exception of our hotels located in Florida, which experience peak demand in the first and fourth quarters of the year. The results of the hotels acquired in and since 2015, because of their locations and chain scale, are less seasonal in nature than our legacy portfolio of assets.
Agreement and Plan of Merger
On July 19, 2019, the Company, the operating partnership (the Company and operating partnership, the “Company Parties”), NHT Operating Partnership, LLC (“NHT Parent”), NHT REIT Merger Sub, LLC (“NHT Merger Sub”) and NHT Operating Partnership II, LLC (“NHT Merger OP,” and together with NHT Parent and NHT Merger Sub, the “NHT Parent Parties”), entered into an Agreement and Plan of Merger (as amended from time to time, the “Merger Agreement”).
Closing of the acquisition did not occur on March 23, 2020, the contemplated closing date of the acquisition, and has not occurred as of the time of this filing. The Company Parties and the NHT Parties are in discussions concerning potential amendments to restructure the transaction, which will be disclosed if and when such amendments are agreed. There can be no assurance with respect to the outcome of such discussions, and the Company continues reviewing its options and reserves all rights and remedies under the Merger Agreement.
The Merger Agreement provides that, upon the terms and subject to the conditions set forth therein, Merger OP will merge with and into the operating partnership (the “Partnership Merger”), and, Merger Sub will merge with and into the Company (the “Company Merger” and, together with the Partnership Merger, the “Mergers”). Upon completion of the Partnership Merger, Merger OP will survive and the separate existence of the operating partnership will cease. Upon completion of the Company Merger, the Company will survive and the separate existence of Merger Sub will cease. The Mergers and the other transactions contemplated by the Merger Agreement were unanimously approved
Condor Hospitality Trust, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(In thousands, except share and per share data)
by the Company’s Board of Directors (the “Company Board”, and subsequently approved by the holders of the Company’s common stock (the “Company common stock”) and 6.25% Series E Cumulative Convertible Preferred Stock (the “Series E Preferred Stock”) at a special meeting of shareholders held on September 23, 2019.
Pursuant to the terms and conditions in the Merger Agreement, if the Company Merger is consummated, each share of the Company common stock (other than treasury shares and shares held by the NHT Parent Parties, which will be cancelled and retired and will cease to exist with no consideration being delivered in exchange therefor), will be converted into the right to receive $11.10 per share in cash, and each share of Series E Preferred Stock will be converted into the right to receive $10.00 in cash, each without interest and less any applicable withholding taxes. If the Partnership Merger consummated, each common unit of partnership interest in the operating partnership (excluding operating partnership common units held by the general partner of the operating partnership) will be converted into the right to receive $0.21346 in cash, without interest and less any applicable withholding taxes.
Pursuant to the terms and conditions of the Merger Agreement, each of the outstanding awards granted pursuant to the Company’s equity incentive plans will automatically become fully vested and all restrictions thereon will lapse, and thereafter, all Company common stock represented thereby will be considered outstanding for all purposes under the Merger Agreement and will only have the right to receive an amount equal to $11.10 in cash, without interest and less any applicable withholding taxes.
Pursuant to the terms of the Merger Agreement, the Company exercised its right to acquire the remaining 20% equity interest of the Atlanta JV that it did not own.
The Merger Agreement contains customary representations, warranties and covenants, including, among others, covenants by the Company to in all material respects carry on its business in the ordinary course of business consistent with past practice, subject to certain exceptions, during the period between the execution of the Merger Agreement and the consummation of the Mergers. The obligations of the parties to consummate the Mergers are not subject to any financing condition or the receipt of any financing by Parent, Merger Sub or Merger OP.
Upon a termination of the Merger Agreement, under certain circumstances, the Company will be required to pay a termination fee to Parent of $9.54 million. In certain other circumstances, including termination by the Company for the NHT Parties’ failure to close or for a material breach by the NHT Parties, NHT Parent will be required to pay the Company a termination fee of $11.925 million upon termination of the Merger Agreement.
During the term of the Merger Agreement, without the consent of the NHT Parties, the Company may not pay cash dividends to holders of the Company common stock or the Series E Preferred Stock. The holders of the Series E Preferred Stock have agreed to waive accrual of any unpaid dividends between signing and closing.
Basis of Presentation
The consolidated financial statements have been prepared in accordance with U.S. general accepted accounting principles (“U.S. GAAP”) and include the accounts of the Company, as well as the accounts of the operating partnership and its subsidiaries and our wholly owned TRS and its subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.
Effective on March 15, 2017, the Company effected a reverse stock split of its common stock at a ratio of 1-for-6.5. No fractional shares of common stock were issued as fractional shares were settled in cash. Impacted amounts and share information included in the consolidated financial statements and notes thereto have been adjusted for the stock split as if such stock split occurred on the first day of the periods presented. Certain amounts in the notes to the consolidated financial statements may be slightly different than previously reported due to rounding of fractional shares as a result of the reverse stock split.
Condor Hospitality Trust, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(In thousands, except share and per share data)
Estimates, Risks, and Uncertainties
The preparation of the consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that effect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements as well as revenue and expenses recognized during the reporting period. Actual results could differ from those estimates. Because the state of the economy and of the real estate market can significantly impact hotel operational performance and the estimated fair value of our assets, it is possible that the estimates and assumptions that have been utilized in the preparation of the consolidated financial statements could change.
The outbreak of the novel coronavirus (COVID-19) has reduced travel and adversely affected the hospitality industry in general. The actual and threatened spread of coronavirus globally or in the regions in which we operate, or future widespread outbreak of infectious or contagious disease, can continue to reduce national and international travel in general. The extent to which our business may be affected by the coronavirus will largely depend on future developments which we cannot accurately predict, and its impact on customer travel, including the duration of the outbreak, the continued spread and treatment of the coronavirus, and new information and developments that may emerge concerning the severity of the coronavirus and the actions to contain the coronavirus or treat its impact, among others. To the extent that travel activity in the U.S. is materially and adversely affected by the coronavirus, business and financial results of the hospitality industry, and thus our business and financial results, could be materially and adversely impacted.
In late March 2020, prior to the filing of this report, similar to the conditions affecting the hospitality industry as a whole, we experienced dramatic occupancy declines at many of our properties which will require us to adjust our business operations, and will have impact on our operating income and may potentially impact future compliance with our debt covenants.
Investment in Hotel Properties
At the time of acquisition, the Company allocates the purchase price of assets to asset classes based on the fair value of the acquired real estate, furniture, fixtures, and equipment, and intangible assets, if any, and the fair value of liabilities assumed, including debt. Acquisition date fair values are determined based on replacement costs, appraised values, and estimated fair values using methods similar to those used by independent appraisers including discounted cash flows and capitalization rates.
Effective January 1, 2018, we adopted Financial Accounting Standards Board (“FASB”) Accounting Standards Update (“ASU”) No. 2017-01, Clarifying the Definition of a Business. As such, if substantially all of the fair value of the gross assets acquired are concentrated in a single identifiable asset or group of similar identifiable assets, the set is not considered a business. When we conclude that an acquisition meets this threshold, acquisition costs will be capitalized as part of our allocation of the purchase price of the acquired hotel properties. This guidance is applied prospectively. We concluded that all hotel acquisitions in 2018 were acquisitions of assets and as such acquisition costs were capitalized as part of these transactions.
Prior to January 1, 2018, hotel acquisitions were considered business combinations and acquisition costs, such as transfer taxes, title insurance, environmental and property condition reviews, and legal and accounting fees, were expensed as incurred. These types of costs continue to be expensed if they are related to potential acquisitions that are not completed.
The Company’s investments in hotel properties are recorded at cost and are depreciated using the straight-line method over an estimated useful life of 15 to 40 years for buildings and improvements and 3 to 12 years for furniture and equipment.
Renovations and/or replacements that improve or extend the life of the hotel properties are capitalized and depreciated over their useful lives. Repairs and maintenance are expensed as incurred.
Condor Hospitality Trust, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(In thousands, except share and per share data)
The initial fees incurred to enter into the franchise agreements are capitalized and amortized over the life of the franchise agreements using the straight-line method. Amortization expense is included in depreciation and amortization in the consolidated statements of operations.
On an ongoing basis, the Company reviews the carrying value of each held for use hotel to determine if certain circumstances, known as triggering events, exist indicating impairment to the carrying value of the hotel or that depreciation periods should be modified. These triggering events include a significant change in the cash flows of or a significant adverse change in the business climate for a hotel. If facts or circumstances support the possibility of impairment, the Company will prepare an estimate of the undiscounted future cash flows, without interest charges, of the specific hotel and determine if the investment in such hotel is recoverable based on these undiscounted future cash flows. If the investment is not recoverable based on this analysis, an impairment charge will be taken, if necessary, to reduce the carrying value of the hotel to the hotel’s estimated fair value.
Investment in Joint Venture
If it is determined that we do not have a controlling interest in a joint venture, either through our financial interest in a variable interest entity (“VIE”) or through our voting interest in a voting interest entity (“VOE”) and we have the ability to provide significant influence, the equity method of accounting is used. Under this method, the investment, originally recorded at cost, is adjusted to recognize our share of net earnings or losses of the affiliate as they occur, with losses limited to the extent of our investment in, advances to, and commitments to the investee. Pursuant to our Atlanta JV agreement, allocations of the profits and losses of our Atlanta JV may be allocated disproportionately to nominal ownership percentages due to specified preferred return rate thresholds.
Distributions received from a joint venture are classified in the statements of cash flows using the cumulative earnings approach. Distributions are classified as cash inflows from operating activities unless cumulative distributions, including those from prior periods not designated as a return of investment, exceed cumulative recognized equity in earnings of the joint venture. Excess distributions are classified as cash inflows from investing activities as a return of investment.
On an annual basis or at interim periods if events and circumstances indicate that the investment may be impaired, the Company reviews the carrying value of its investment in unconsolidated joint venture to determine if circumstances indicate impairment to the carrying value of the investment that is other than temporary. The investment is considered impaired if its estimated fair value is less than the carrying amount of the investment and that impairment is other than temporary.
Assets Held for Sale
A hotel is considered held for sale (a) when a contract for sale is entered into, a substantial, nonrefundable deposit has been committed by the purchaser, and sale is expected to occur within one year, or (b) if management has committed to and is actively engaged in a plan to sell the property, the property is available for sale in its current condition, and it is probable the sale will be completed within one year. If a hotel is considered held for sale as of the most recent balance sheet presented or was sold in any period presented, the hotel property and the debt it collateralizes are shown as held for sale in all periods presented. Depreciation of our hotels is discontinued at the time they are considered held for sale.
At the end of each reporting period, if the fair value of the held for sale property less costs to sell is lower than the carrying value of the hotel, the Company will record an impairment loss. Impairment losses on held for sale properties may be subsequently recovered up to the amount of the cumulative impairment losses taken while the property is held for sale should future revisions to fair value estimates be required. If active marketing ceases or the property no longer meets the criteria to be classified as held for sale, the property is reclassified to held for use and measured at the lower of its (a) carrying amount before the property was classified as held for sale, adjusted for any depreciation expense that would have been recognized had the property been continuously classified as held for use, or (b) its fair value at the date of the subsequent decision not to sell.
Condor Hospitality Trust, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(In thousands, except share and per share data)
Gains on the sale of real estate are recognized when a property is sold or are deferred and recognized as income in subsequent periods as conditions requiring deferral are satisfied or expire without further cost to us.
Cash and Cash Equivalents and Restricted Cash
Cash and cash equivalents includes cash and highly liquid investments with original maturities of three months or less when acquired, and are carried at cost which approximates fair value. The Company maintained a major portion of its deposits with Huntington Bancshares Incorporated at December 31, 2019 and 2018. The balances on deposit at Huntington Bancshares Incorporated may at times exceed the federal deposit insurance limit, however, management believes that no significant credit risk exists with respect to the uninsured portion of these cash balances.
Restricted cash consists of cash held in escrow for the replacement of furniture and fixtures or for real estate taxes and property insurance as required under certain loan agreements.
Deferred Financing Costs
Direct costs incurred in financing transactions are capitalized as deferred financing costs and amortized to interest expense over the term of the related loan using the effective interest method. Deferred financing costs are presented on the balance sheets as a direct deduction from the associated debt liability.
Derivative Assets and Liabilities
In the normal course of business, the Company is exposed to the effects of interest rate changes, and the Company may enter into derivative instruments including interest rate swaps, caps, and collars to manage or economically hedge interest rate risk. Additionally, the Company is required to include on the balance sheets certain bifurcated embedded derivative instruments such as conversion and redemption features in convertible instruments and certain common stock warrants.
All derivatives recognized by the Company are reported as derivative assets and liabilities on the balance sheets and are adjusted to their fair value at each reporting date. Realized and unrealized gains and losses on derivative instruments are included in net gain on derivatives and convertible debt with the exception of realized gains and losses related to interest rate instruments which are included in interest expense on the statements of operations.
Noncontrolling Interest
Noncontrolling interest in the operating partnership represents the limited partners’ proportionate share of the equity in the operating partnership and long-term incentive plan (“LTIP”) units (see Note 12). Earnings and losses are allocated to noncontrolling interest in accordance with the weighted average percentage ownership of the operating partnership during the period.
Revenue Recognition
Revenue consists of amounts derived from hotel operations, including the sales of rooms, food and beverage, and other ancillary services. Room revenue is recognized over a customer's hotel stay at the daily contract rate. Revenue from food and beverage and other ancillary services is generated when a customer chooses to purchase goods or services separately from a hotel room and revenue is recognized on these distinct goods and services at the contract rate at the point in time or over the time period that goods or services are provided to the customer and the related performance obligations are fulfilled. Certain ancillary services are provided by third parties and the Company assesses whether it is the principal or agent in these arrangements. If the Company is the agent, revenue is recognized based upon the commission earned from the third party. If the Company is the principal, the Company recognizes revenue based upon the gross sales price. Accounts receivable primarily represents receivables from hotel guests who occupy hotel rooms and utilize hotel services. The Company maintains an allowance for doubtful accounts sufficient to cover estimated potential credit losses.
Condor Hospitality Trust, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(In thousands, except share and per share data)
Sales, use, occupancy, and similar taxes collected from customers and remitted to governmental authorities are accounted for on a net basis and therefore are excluded from revenue in the consolidated statements of operations.
Hotel operating revenues can be disaggregated into the following categories to demonstrate how economic factors affect the nature, amount, timing, and uncertainty of revenue and cash flows:
|
|
|
|
|
|
|
|
|
|
For the year ended December 31,
|
|
2019
|
|
2018
|
|
2017
|
Rooms
|
$
|
58,353
|
|
$
|
62,036
|
|
$
|
52,509
|
Food and beverage
|
|
1,370
|
|
|
1,524
|
|
|
1,554
|
Other
|
|
1,329
|
|
|
1,497
|
|
|
1,390
|
Total revenue
|
$
|
61,052
|
|
$
|
65,057
|
|
$
|
55,453
|
Income Taxes
The Company qualifies and intends to continue to qualify as a REIT under applicable provisions of the Internal Revenue Code (the “Code”), as amended. In general, under such Code provisions, a trust which has made the required election and, in the taxable year, meets certain requirements and distributes to its shareholders at least 90% of its REIT taxable income, will not be subject to federal income tax to the extent of the income currently distributed to 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 be unable to re-elect REIT status until the fifth calendar year after the year in which we failed to qualify as a REIT, unless we satisfy certain relief provisions. Even if the Company qualifies for taxation as a REIT, the Company may be subject to certain state and local taxes on its income and property, and to federal income and excise taxes on its undistributed taxable income. Except with respect to the TRS, the Company does not believe that it will be liable for significant federal or state income taxes in future years.
A REIT will incur a 100% tax on the net gain derived from any sale or other disposition of property that the REIT holds primarily for sale to customers in the ordinary course of a trade or business. We do not believe any of our hotels were held primarily for sale in the ordinary course of our trade or business. However, if the IRS would successfully assert that we held such hotels primarily for sale in the ordinary course of our business, the gain from such sales could be subject to a 100% prohibited transaction tax.
Taxable income from non-REIT activities managed through the TRS, which is taxed as a C-Corporation, is subject to federal, state, and local income taxes. We account for the federal income taxes of our TRS using the asset and liability method. Under this method, deferred income taxes are recognized for temporary differences between the financial reporting bases of assets and liabilities of the TRS and their respective tax bases and for operating loss and tax credit carryforwards based on enacted tax rates expected to be in effect when such amounts are realized or settled. However, deferred tax assets are recognized only to the extent that it is more likely than not that they will be realized based on consideration of available evidence, including tax planning strategies and projections for future taxable income over the periods in which the remaining deferred tax assets are deductible. In assessing the realizability of deferred tax assets, the Company considers whether it is more likely than not (defined as a likelihood of more than 50%) that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income.
The Company may recognize a tax benefit from an uncertain tax position when it is more-likely-than-not (defined as a likelihood of more than 50%) that the position will be sustained upon examination, including resolution of any related appeals or litigation processes, based on its technical merits. If a tax position does not meet the more-likely-than-not recognition threshold, despite the Company’s belief that its filing position is supportable, the benefit of that tax position is not recognized in the statements of operations. The Company recognizes interest and penalties, as applicable, related to unrecognized tax benefits as a component of income tax expense. The Company recognizes
Condor Hospitality Trust, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(In thousands, except share and per share data)
unrecognized tax benefits in the period that the uncertainty is eliminated by either affirmative agreement to the uncertain tax position by the applicable taxing authority or by expiration of the applicable statute of limitations. For the years ended December 31, 2019, 2018, and 2017, the Company did not record any uncertain tax positions.
Fair Value Measurements
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value measurements are utilized to determine the value of certain assets, liabilities, and equity instruments, to perform impairment assessments, to account for hotel acquisitions, in the valuation of stock-based compensation, and for disclosure purposes. Fair value measurements are classified into a three-tiered fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:
Level 1: Inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level 2: Directly or indirectly observable inputs other than quoted prices included in Level 1. Level 2 inputs may include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, and model-derived valuations whose inputs are observable.
Level 3: Unobservable inputs for which there is little or no market data, which require a reporting entity to develop its own assumptions.
Our estimates of fair value were determined using available market information and appropriate valuation methods. Considerable judgment is necessary to interpret market data and develop estimated fair value. The use of different market assumptions or valuation techniques may have a material effect on estimated fair value measurements. We classify assets and liabilities in the fair value hierarchy based on the lowest level of input that is significant to the fair value measurement.
With the exception of fixed rate debt (see Note 8) and other financial instruments carried at fair value, the carrying amounts of the Company’s financial instruments approximates their fair values due to their short-term nature or variable market-based interest rates.
Fair Value Option
Under U.S. GAAP, the Company has the irrevocable option to report most financial assets and financial liabilities at fair value on an instrument by instrument basis, with changes in fair value reported in net earnings. This option was elected for the treatment of the Company’s convertible debt entered into on March 16, 2016 (see Note 7).
Stock-Based Compensation
Stock-based compensation is measured at the fair value of the award on the date of grant and recognized as compensation expense on a straight-line basis over the requisite service period. Awards that contain a performance condition are reviewed at least quarterly to assess the achievement of the performance condition. Compensation expense will be adjusted when a change in the assessment of achievement of the specific performance condition level is determined to be probable. The determination of fair value of these awards is subjective and involves significant estimates and assumptions including expected volatility of our stock, expected dividend yield, expected term, and assumptions of whether these awards will achieve performance thresholds. We believe that the assumptions and estimates utilized are appropriate based on the information available to management at the point of measurement. Compensation cost is recognized as additional paid-in capital for awards of the Company’s common stock and as noncontrolling interest for LTIP awards of common units. The Company has elected to account for forfeitures of stock-based compensation as they occur.
Condor Hospitality Trust, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(In thousands, except share and per share data)
Recently Adopted Accounting Standards
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers, which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The ASU replaced most existing revenue recognition guidance in U.S. GAAP when it became effective. The standard was effective for the Company on January 1, 2018 and was adopted on that date using the modified retrospective transition method. Due to the short-term nature of the Company’s revenue streams, the adoption of this standard had no impact on the Company’s revenue or net income, and therefore, no adjustment was recorded to the Company’s opening accumulated deficit. The adoption of this standard resulted in additional disclosures. Furthermore, for real estate sales to third parties, primarily a result of disposition of real estate in exchange for cash with few contingencies, the standard did not impact the recognition of our accounting for these sales.
In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Payment, which clarifies and provides specific guidance on eight cash flow classification issues with an objective to reduce the current diversity in practice. This guidance is effective for the Company for years beginning after December 15, 2017. The Company has adopted ASU 2016-15 for the year beginning on January 1, 2018. The adoption of ASU 2016-15 did not have a material impact on our consolidated financial statements.
In November 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash, which clarifies how companies should present restricted cash and restricted cash equivalents in the statement of cash flows. This guidance requires companies to show the changes in the total of cash, cash equivalents, and restricted cash equivalents in the statement of cash flows. This guidance is effective for the Company for years beginning after December 15, 2017, including interim periods within those years. The Company has adopted ASU 2016-18 for the year beginning on January 1, 2018. The adoption of ASU No. 2016-18 changed the presentation of the consolidated statements of cash flows for the Company to include changes to cash and cash equivalents and restricted cash for all periods presented.
In January 2017, the FASB issued ASU 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business, which clarifies the definition of a business to assist entities with evaluating whether transactions should be accounted for as acquisitions of assets or business combinations. As a result of the standard, we anticipate that the majority of our hotel purchases will be considered asset purchases as opposed to business combinations and as such the related acquisition costs will be capitalized. However, the determination will be made on a transaction-by-transaction basis. This standard is applied on a prospective basis and, therefore, it does not affect the accounting for any of our previous transactions. This standard was effective for annual periods beginning after December 15, 2017, although early adoption is permitted. The Company has adopted ASU 2017-01 for the year beginning on January 1, 2018.
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which superseded most existing lease guidance in U.S. GAAP. ASU 2016-02 requires, among other changes to the lease accounting guidance, lessees to recognize most leases on-balance sheet via a right of use asset and lease liability and additional qualitative and quantitative disclosures. In July 2018, the FASB issued ASU 2018-10, Codification Improvements to Topic 842, Leases, to clarify how to apply certain aspects of the new leases standard, and ASU 2018-11, Leases (Topic 842): Targeted Improvements, to give companies another option for transition and to provide lessors with a practical expedient to reduce the cost and complexity of implementing the new standard. The transition option allows companies to not apply the new leases standard in the comparative periods they present in their financial statements in the year of adoption. The Company adopted this standard on January 1, 2019. The Company elected the practical expedients allowed under the guidance and retained the original lease classification and historical accounting for initial direct costs for leases existing prior to the adoption date. The Company also elected not to restate prior periods for the impact of the adoption of the new standard. The adoption of this standard has resulted in the recognition of right-of-use assets and related liabilities to account for the Company's future obligations under the operating leases for which the Company is the lessee. See Notes 2 and 15 to the accompanying consolidated financial statements for additional disclosures related to the adoption of this standard.
Condor Hospitality Trust, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(In thousands, except share and per share data)
NOTE 2. INVESTMENT IN HOTEL PROPERTIES
Investments in hotel properties consisted of the following at December 31:
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|
|
|
|
|
|
|
As of
|
|
December 31, 2019
|
|
December 31, 2018
|
|
Total
|
|
Held for sale
|
|
Held for use
|
|
Total
|
Land
|
$
|
20,200
|
|
$
|
2,304
|
|
$
|
20,200
|
|
$
|
22,504
|
Buildings, improvements, vehicle
|
|
206,971
|
|
|
4,462
|
|
|
206,821
|
|
|
211,283
|
Furniture and equipment
|
|
21,805
|
|
|
719
|
|
|
20,554
|
|
|
21,273
|
Initial franchise fees
|
|
1,784
|
|
|
25
|
|
|
1,784
|
|
|
1,809
|
Construction-in-progress
|
|
100
|
|
|
7
|
|
|
323
|
|
|
330
|
Right of use asset
|
|
80
|
|
|
-
|
|
|
-
|
|
|
-
|
Investment in hotel properties
|
|
250,940
|
|
|
7,517
|
|
|
249,682
|
|
|
257,199
|
Less accumulated depreciation
|
|
(28,877)
|
|
|
(3,425)
|
|
|
(19,504)
|
|
|
(22,929)
|
Investment in hotel properties, net
|
$
|
222,063
|
|
$
|
4,092
|
|
$
|
230,178
|
|
$
|
234,270
|
On January 1, 2019, the Company adopted ASU 842, Leases, and applied it prospectively. At adoption, the Company also elected the practical expedients which permitted it to not reassess its prior conclusions about lease identification, classification, and initial direct costs. Consequently on January 1, 2019, the Company recognized right-of-use assets and related liabilities related to its operating leases. Since most of the Company's leases do not provide an implicit rate, the Company used incremental borrowing rates, with a weighted average rate of 5.24% at December 31, 2019. The right-of-use assets and liabilities are amortized to rent expense, included in either Hotel and property operations expenses or General and administrative expenses depending on the nature of the lease, over the term of the underlying lease agreements. The weighted average remaining life of the Company’s operating leases, including options to extend when it is reasonably certain the Company will exercise such options, was 7.3 years at December 31, 2019.
As of December 31, 2019, the Company's right-of-use assets, net of $80 are included in Investment in hotel properties, net and its related lease liabilities of $81 are presented in Accounts payable, accrued expenses, and other liabilities in the Company's consolidated balance sheets. The adoption of this standard had minimal impact on the Company's consolidated statements of operations.
NOTE 3. ACQUISITION OF HOTEL PROPERTIES
The Company did not acquire any properties during the year ended December 31, 2019.
During the year ended December 31, 2018, the Company acquired two wholly owned hotel properties. The allocation of the purchase price based on fair value was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Date of acquisition
|
|
Land
|
|
Buildings, improvements, and vehicle
|
|
Furniture and equipment
|
|
Intangible asset
|
|
Total purchase price & acquisition costs (1)
|
|
Debt at acquisition (2)
|
|
|
Issuance of common units (3)
|
|
Net cash paid
|
TownePlace Suites
|
|
01/18/2018
|
|
$
|
1,435
|
|
$
|
16,459
|
|
$
|
1,729
|
|
$
|
190
|
|
$
|
19,813
|
|
$
|
19,813
|
|
$
|
-
|
|
$
|
-
|
Austin, TX
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home2 Suites
|
|
02/21/2018
|
|
|
998
|
|
|
13,485
|
|
|
1,854
|
|
|
53
|
|
|
16,390
|
|
|
14,818
|
|
|
50
|
|
|
1,522
|
Summerville, SC
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
$
|
2,433
|
|
$
|
29,944
|
|
$
|
3,583
|
|
$
|
243
|
|
$
|
36,203
|
|
$
|
34,631
|
|
$
|
50
|
|
$
|
1,522
|
|
(1)
|
|
Contractual purchase price of $19,750 and $16,325 for Austin TownePlace Suites and Summerville Home2 Suites, respectively.
|
|
(2)
|
|
All debt was drawn from the $150,000 secured revolving credit facility (the “credit facility”) at acquisition.
|
|
(3)
|
|
Total issuance of 259,685 common units. Common units may be redeemed at a rate of one common share for 52 common units (see Note 11).
|
Included in the consolidated statement of operations for the year ended December 31, 2018 are total revenues of $7,071 and total operating income of $1,610 which represent the results of operations for the two hotels acquired in 2018 since the date of acquisition.
Condor Hospitality Trust, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(In thousands, except share and per share data)
During the year ended December 31, 2017, the Company acquired seven wholly owned hotel properties. The allocation of the purchase price based on fair value was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hotel
|
|
Date of acquisition
|
|
Land
|
|
Buildings, improvements, and vehicle
|
|
Furniture and equipment
|
|
Intangible asset
|
|
Estimated earn out (1)
|
|
Total purchase price
|
|
Debt at acquisition (2)
|
|
Issuance of common units (3)
|
|
Net cash paid
|
Home2 Suites
|
|
03/24/2017
|
|
$
|
905
|
|
$
|
14,204
|
|
$
|
1,351
|
|
$
|
40
|
|
$
|
-
|
|
$
|
16,500
|
|
$
|
16,455
|
|
$
|
45
|
|
$
|
-
|
Lexington, KY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home2 Suites
|
|
03/24/2017
|
|
|
1,087
|
|
|
14,345
|
|
|
1,285
|
|
|
33
|
|
|
-
|
|
|
16,750
|
|
|
16,705
|
|
|
45
|
|
|
-
|
Round Rock, TX
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home2 Suites
|
|
03/24/2017
|
|
|
1,519
|
|
|
18,229
|
|
|
1,727
|
|
|
25
|
|
|
-
|
|
|
21,500
|
|
|
21,442
|
|
|
58
|
|
|
-
|
Tallahassee, FL
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home 2 Suites
|
|
04/14/2017
|
|
|
1,311
|
|
|
16,792
|
|
|
897
|
|
|
-
|
|
|
-
|
|
|
19,000
|
|
|
9,096
|
|
|
52
|
|
|
9,852
|
Southaven, MS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hampton Inn & Suites
|
|
06/19/2017
|
|
|
1,200
|
|
|
16,432
|
|
|
1,773
|
|
|
-
|
|
|
(155)
|
|
|
19,250
|
|
|
19,165
|
|
|
85
|
|
|
-
|
Lake Mary, FL
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fairfield Inn & Suites
|
|
08/31/2017
|
|
|
1,014
|
|
|
14,297
|
|
|
1,089
|
|
|
-
|
|
|
-
|
|
|
16,400
|
|
|
16,336
|
|
|
64
|
|
|
-
|
EL Paso, TX
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residence Inn
|
|
08/31/2017
|
|
|
1,495
|
|
|
19,630
|
|
|
1,275
|
|
|
-
|
|
|
-
|
|
|
22,400
|
|
|
22,314
|
|
|
86
|
|
|
-
|
Austin, TX
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
$
|
8,531
|
|
$
|
113,929
|
|
$
|
9,397
|
|
$
|
98
|
|
$
|
(155)
|
|
$
|
131,800
|
|
$
|
121,513
|
|
$
|
435
|
|
$
|
9,852
|
|
(1)
|
|
The Lake Mary purchase price was subject to a post-closing adjustment of up to $250 to be paid to the seller if the hotel achieved a stipulated hotel net operating income level in 2017. This contingent consideration was included in the purchase price allocation at its estimated fair value on the date of the acquisition. The full amount of $250 was paid to the seller in December of 2017 with the incremental amount paid over the estimated fair value included in acquisition and terminated transactions expenses.
|
|
(2)
|
|
Debt of $9,096 with Morgan Stanley Bank of America Merrill Lynch Trust 2014-C18 was assumed related to the Home2 Suites Southaven, MS acquisition. This loan remains outstanding at December 31, 2018. All other debt was drawn from the credit facility at acquisition.
|
|
(3)
|
|
Total issuance of 1,940,451 common units. Common units may be redeemed at a rate of one common share for 52 common units (see Note 11).
|
Included in the consolidated statement of operations for the year ended December 31, 2017 are total revenues of $17,455 and total operating income of $4,508 which represent the results of operations for the seven hotels acquired in 2017 since the date of acquisition.
All purchase price allocations were determined using Level 3 fair value inputs.
Pro Forma Results (Unaudited)
The following condensed pro forma financial data is presented as if the two acquisitions completed during the year ended December 31, 2018 were completed on January 1, 2017. Supplemental pro forma earnings in 2018 were adjusted to exclude all acquisition expenses recognized in the periods presented as if these acquisition costs had been incurred in prior periods but were not adjusted to remove the results of hotels sold during the periods presented. Results for periods prior to the Company’s ownership are based on information provided by the prior owners, adjusted for differences in interest expense, depreciation expense, and management fees following the Company’s ownership, and have not been audited or reviewed by our independent auditors. All hotels were in operation for all periods presented.
The condensed pro forma financial data is not necessarily indicative of what the actual results of operations of the Company would have been assuming the acquisitions had been consummated on January 1, 2017, nor do they purport to represent the results of operations for future periods.
Condor Hospitality Trust, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(In thousands, except share and per share data)
|
|
|
|
Year ended December 31,
|
|
2018
|
Total revenue
|
$
|
65,700
|
Operating income
|
$
|
8,500
|
Net earnings (loss) attributable to common shareholders
|
$
|
5,002
|
Net earnings (loss) per share - Basic
|
$
|
0.42
|
Net earnings (loss) per share - Diluted
|
$
|
0.41
|
NOTE 4: DISPOSITION OF HOTEL PROPERTIES
As of December 31, 2019, the Company had no hotels classified as held for sale. As of December 31, 2018, the Company had one hotel held for sale.
In 2019, 2018, and 2017, the Company sold one hotel, four hotels, and eight hotels, respectively, resulting in total gains of $62, $5,707, and $7,049, respectively.
NOTE 5. INVESTMENT IN UNCONSOLIDATED JOINT VENTURE
On August 1, 2016, the Company entered into a joint venture with Three Wall Capital LLC and certain of its affiliates (“TWC”) to acquire an Aloft hotel in downtown Atlanta, Georgia. The Company accounts for the Atlanta JV under the equity method. The Company owns 80% of the Atlanta JV with TWC owning the remaining 20%. The Atlanta JV is comprised of two companies: Spring Street Hotel Property II LLC, of which our operating partnership indirectly owns an 80% equity interest, and Spring Street Hotel OpCo II LLC, of which our TRS indirectly owns an 80% equity interest. TWC owns the remaining 20% equity interest in these two companies.
On August 22, 2016, the Atlanta JV closed on the acquisition of the Atlanta Aloft for a purchase price of $43,550, subject to working capital and similar adjustments. The purchase was partially funded with a $33,750 term loan secured by the property. The term loan (the “Old Term Loan”), obtained from LoanCore Capital Credit REIT LLC, had an initial term of 24 months with three 12-month extension periods, which could be exercised at the Atlanta JV’s option subject to certain conditions and fees. The first of these extension options was exercised by the Atlanta JV on September 9, 2018. The loan was non-recourse to the Atlanta JV, subject to specified exceptions. The loan was also non-recourse to Condor, except for certain customary carve-outs which are guaranteed by the Company.
On August 9, 2019, the operating partnership and the owner and lessee of the Aloft Atlanta hotel in the Atlanta JV (Spring Street Hotel Property LLC and Spring Street Hotel OpCo LLC, respectively), as Borrowers, closed on a $34,080 term loan pursuant to a term loan agreement with KeyBank National Association and the other lenders party thereto, as Lenders, and KeyBank National Association, as Agent for the Lenders (the “New Term Loan”). The proceeds of the New Term Loan were used to repay the Old Term Loan, which was terminated following the repayment. The New Term Loan is included in full on the balance sheet of the Atlanta JV at December 31, 2019.
The New Term Loan matures upon the earlier to occur of (a) consummation of the merger under the Merger Agreement (see Note 1) and (b) February 9, 2020. The New Term Loan bears interest, at the Borrower’s option, at either LIBOR plus 2.25% or a base rate plus 1.25%. The New Term Loan requires monthly interest payments and principal is due on the maturity date. The Borrowers may, at any time, voluntarily prepay the New Term Loan in whole or in part without premium or penalty (other than customary LIBOR breakage costs). The current interest rate on the New Term Loan on December 31, 2019 was 3.99%. The New Term Loan is secured by a first priority lien and security interest on the Aloft Atlanta hotel and the tangible and intangible personal property used in connection with such hotel, including inventory, equipment, fixtures, accounts and general intangibles. The New Term Loan is guaranteed by the Company and certain of its subsidiaries. On February 6, 2020, the maturity of the New Term Loan was extended to May 8, 2020. The Company plans to refinance this loan prior to maturity with our KeyBank credit facility if approved by the lenders. In the event this refinancing is not completed prior to maturity, KeyBank has provided a binding commitment to extend the maturity of the loan to April 1, 2021.
Condor Hospitality Trust, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(In thousands, except share and per share data)
The Atlanta JV agreement also includes buy-sell rights for both members (generally after three years of hotel ownership for Condor and after five years for TWC) and Condor has a purchase option for TWC’s Atlanta JV ownership interest exercisable between the third and fifth anniversary of the hotel closing. Subsequent to year end, on February 14, 2020, the Company purchased TWC’s interest in the Atlanta JV (see Note 17).
Under the Atlanta JV agreement, the Atlanta JV is managed by TWC in accordance with business plans and budgets approved by both partners. Major decisions as detailed in the agreement also require joint approval. Condor may remove TWC as manager of the Atlanta JV and appoint a new manager only upon the occurrence of certain events. The Atlanta Aloft hotel is managed by Boast Hotel Management Company LLC (“Boast”), an affiliate of TWC. The Atlanta JV paid to Boast total management fees of $380, $333 and $348 during the years ended December 31, 2019, 2018, and 2017, respectively.
Net cash flow from the Atlanta JV is distributed each fiscal year first with a 10% preferred return on capital contributions to Condor, second with a 10% preferred return on capital contributions to TWC, and third with any remainder distributed to the partners based on their pro-rata equity ownership. Profits are allocated in the same proportion as net cash flow. Losses are allocated based on pro-rata equity ownership. Cash distributions totaling $1,813, $1,662 and $1,479 were received by the Company from the Atlanta JV during the years ended December 31, 2019, 2018, and 2017, respectively.
The following table represents the total assets, liabilities, and equity, including the Company’s share, of the Atlanta JV as of December 31, 2019 and 2018:
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
2019
|
|
2018
|
Investment in hotel properties, net
|
|
$
|
45,547
|
|
$
|
46,933
|
Cash and cash equivalents
|
|
|
661
|
|
|
913
|
Restricted cash, property escrows
|
|
|
-
|
|
|
366
|
Accounts receivable, prepaid expenses, and other assets
|
|
|
279
|
|
|
294
|
Total Assets
|
|
$
|
46,487
|
|
$
|
48,506
|
Accounts payable, accrued expenses, and other liabilities
|
|
$
|
1,026
|
|
$
|
1,375
|
Land option liability
|
|
|
6,190
|
|
|
6,190
|
Long-term debt, net of deferred financing costs
|
|
|
33,966
|
|
|
33,608
|
Total Liabilities
|
|
|
41,182
|
|
|
41,173
|
Condor equity
|
|
|
4,244
|
|
|
5,866
|
TWC equity
|
|
|
1,061
|
|
|
1,467
|
Total Equity
|
|
|
5,305
|
|
|
7,333
|
Total Liabilities and Equity
|
|
$
|
46,487
|
|
$
|
48,506
|
The table below provides the components of net earnings (loss), including the Company’s share of the Atlanta JV, for the years ended December 31, 2019, 2018 and 2017:
Condor Hospitality Trust, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(In thousands, except share and per share data)
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
|
2019
|
|
2018
|
|
2017
|
Revenue
|
|
|
|
|
|
|
|
|
|
Room rentals and other hotel services
|
|
$
|
12,666
|
|
$
|
11,888
|
|
$
|
11,582
|
Operating Expenses
|
|
|
|
|
|
|
|
|
|
Hotel and property operations
|
|
|
8,084
|
|
|
7,855
|
|
|
7,585
|
Depreciation and amortization
|
|
|
1,494
|
|
|
1,444
|
|
|
1,425
|
Total operating expenses
|
|
|
9,578
|
|
|
9,299
|
|
|
9,010
|
Operating income
|
|
|
3,088
|
|
|
2,589
|
|
|
2,572
|
Net loss on disposition of assets
|
|
|
(2)
|
|
|
(197)
|
|
|
(8)
|
Net loss on derivative
|
|
|
(1)
|
|
|
(27)
|
|
|
(3)
|
Interest expense
|
|
|
(2,675)
|
|
|
(2,637)
|
|
|
(2,323)
|
Loss on extinguishment of debt
|
|
|
(172)
|
|
|
-
|
|
|
-
|
Net earnings (loss)
|
|
$
|
238
|
|
$
|
(272)
|
|
$
|
238
|
|
|
|
|
|
|
|
|
|
|
Condor allocated earnings (loss)
|
|
$
|
190
|
|
$
|
(218)
|
|
$
|
190
|
TWC allocated earnings (loss)
|
|
|
48
|
|
|
(54)
|
|
|
48
|
Net earnings (loss)
|
|
$
|
238
|
|
$
|
(272)
|
|
$
|
238
|
NOTE 6. LONG-TERM DEBT
Long-term debt related to wholly owned properties, including debt related to hotel properties held for sale, consisted of the following loans payable at December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lender
|
|
Balance at December 31, 2019
|
|
Interest rate at December 31, 2019
|
|
Maturity
|
|
Amortization provision
|
|
Properties encumbered at December 31, 2019
|
|
Balance at December 31, 2018
|
Fixed rate debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Morgan Stanley Bank of America Merrill Lynch Trust 2014-C18
|
|
$
|
8,639
|
|
4.54%
|
|
08/2024
|
|
25 years
|
|
1
|
|
$
|
8,817
|
Great Western Bank (1)
|
|
|
13,290
|
|
4.33%
|
|
12/2021 (5)
|
|
25 years
|
|
1
|
|
|
13,615
|
Great Western Bank (1)
|
|
|
971
|
|
4.33%
|
|
12/2021 (5)
|
|
7 years
|
|
-
|
|
|
1,171
|
Total fixed rate debt
|
|
|
22,900
|
|
|
|
|
|
|
|
|
|
|
23,603
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variable rate debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wells Fargo
|
|
|
25,612
|
|
3.76% (2)
|
|
11/2022 (6)
|
|
30 years
|
|
3
|
|
|
26,048
|
KeyBank credit facility (3)
|
|
|
86,845
|
|
4.30% (4)
|
|
10/2020 (7)
|
|
Interest only
|
|
9
|
|
|
89,487
|
Total variable rate debt
|
|
|
112,457
|
|
|
|
|
|
|
|
14
|
|
|
115,535
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total long-term debt
|
|
$
|
135,357
|
|
|
|
|
|
|
|
|
|
$
|
139,138
|
Less: Deferred financing costs
|
|
|
(1,356)
|
|
|
|
|
|
|
|
|
|
|
(2,208)
|
Total long-term debt, net of deferred financing costs
|
|
|
134,001
|
|
|
|
|
|
|
|
|
|
|
136,930
|
Less: Long-term debt related to hotel properties held for sale, net of deferred financing costs of $0 and $18
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
(1,120)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt related to hotel properties held for use, net of deferred financing costs of $1,356 and $2,190
|
|
$
|
134,001
|
|
|
|
|
|
|
|
|
|
$
|
135,810
|
(1) Both loans are collateralized by Aloft Leawood.
(2) Variable rate of 30-day LIBOR plus 2.39%, effectively fixed at 4.44% after giving effect to interest rate swap (see Note 8).
(3) $150,000 credit facility that includes an accordion feature that would allow the credit facility to be increased to $400,000 with additional lender commitments. Available borrowing capacity under the credit facility is based on a borrowing base formula for the pool of hotel properties securing the facility. Total unused availability under this credit facility was $9,020 at December 31, 2019. The commitment fee on unused facility is 0.20%. See Note 17 for changes occurring subsequent to December 31, 2019.
Condor Hospitality Trust, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(In thousands, except share and per share data)
(4) Borrowings under the facility accrue interest based on a leverage-based pricing grid, at the Company’s option, at either LIBOR plus a spread ranging from 2.25% to 3.00% (depending on leverage) or a base rate plus a spread ranging from 1.25% to 2.00% (depending on leverage); 30-day LIBOR for $30,000 notional capped at 3.35% after giving effect to market rate cap (see Note 8). See Note 17 for changes occurring subsequent to December 31, 2019.
(5) Term may be extended for additional two years subject to interest rate adjustments.
(6) Two one-year extension options subject to the satisfaction of certain conditions.
(7) See Note 17 for changes occurring subsequent to December 31, 2019.
At December 31, 2019, we had long-term debt of $135,357 with a weighted average term to maturity of 1.5 years and a weighted average interest rate of 4.22%. Of this total, at December 31, 2019, $22,900 was fixed rate debt with a weighted average term to maturity of 2.3 years and a weighted average interest rate of 4.41% and $112,457 was variable rate debt with a weighted average term to maturity of 1.2 years and a weighted average interest rate of 4.18%. At December 31, 2018, we had long-term debt of $138,000 associated with assets held for use with a weighted average term to maturity of 2.1 years and a weighted average interest rate of 5.15%. Of this total, at December 31, 2018, $23,604 was fixed rate debt with a weighted average term to maturity of 1.9 years and a weighted average interest rate of 4.41% and $114,396 was variable rate debt with a weighted average term to maturity of 2.9 years and a weighted average interest rate of 5.30%.
Debt is classified as held for sale if the properties collateralizing it are held for sale. Debt associated with assets held for sale is classified in the table below based on its contractual maturity although the balances are expected to be repaid within one year upon the sale of the related hotel properties. Aggregate annual principal payments on debt for the next five years and thereafter are as follows:
|
|
|
|
|
|
|
|
|
|
Total
|
2020
|
|
$
|
88,076
|
2021
|
|
|
14,341
|
2022
|
|
|
24,886
|
2023
|
|
|
214
|
2024
|
|
|
7,840
|
Thereafter
|
|
|
-
|
Total
|
|
$
|
135,357
|
|
|
|
|
As discussed further in the Subsequent Events footnote (see Note 17), on March 30, 2020, the Key Bank credit facility was amended to, among other things, extend the maturity date of the facility to April 1, 2021, providing also for two extension options (six months and five months). Following this modification, contractual debt maturities on debt outstanding at December 31, 2019 were as follows:
|
|
|
|
|
|
Total
|
2020
|
|
$
|
1,231
|
2021
|
|
|
101,186
|
2022
|
|
|
24,886
|
2023
|
|
|
214
|
2024
|
|
|
7,840
|
Thereafter
|
|
|
-
|
Total
|
|
$
|
135,357
|
Financial Covenants
We are required to satisfy various financial covenants within our debt agreements, including the following financial covenants within our credit facility with KeyBank:
|
·
|
|
Debt Yield: The ratio of adjusted net operating income for the borrowing base properties to indebtedness outstanding under the credit facility cannot be less than 10%. The covenant is first tested on September 30,
|
Condor Hospitality Trust, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(In thousands, except share and per share data)
2020 and for purposes of calculating compliance with the covenant, annualized results are used until June 30, 2021 when the calculation is based on the most recently ended four fiscal quarters.
|
|
·
|
|
Consolidated Leverage Ratio: The ratio of consolidated total indebtedness to consolidated total asset value cannot exceed 60%.
|
|
·
|
|
Fixed Charge Coverage Ratio: The ratio of adjusted consolidated EBITDA to consolidated fixed charges cannot be less than (a) 1.25 to 1 as of the end of the fiscal quarter ending September 30, 2020 and (b) 1.50 to 1 as of the end of the fiscal quarter ending December 31, 2020 and each fiscal quarter thereafter. For purposes of calculating compliance with the covenant, annualized results are used until June 30, 2021 when the calculation is based on the most recently ended four fiscal quarters.
|
|
·
|
|
Borrowing Base Leverage Ratio: The ratio of indebtedness outstanding under the credit facility to borrowing base asset value (based on updated appraisals required by the lenders) cannot exceed 65%. The covenant is first tested on June 30, 2021.
|
On March 30, 2020, our credit facility with KeyBank was amended to, among other things:
|
·
|
|
Implement a collateral-specific minimum debt yield (ratio of adjusted net operating income for the borrowing base properties to indebtedness outstanding under the credit facility) of 10%. The covenant is first tested on September 30, 2020 and for purposes of calculating compliance with the covenant, annualized results are used until June 30, 2021 when the calculation is based on the most recently ended four fiscal quarters.
|
|
·
|
|
Maintain the maximum consolidated leverage ratio (ratio of consolidated total indebtedness to consolidated total asset value) of 60% but provide for updated appraisals to determine consolidated total asset value (if required by the lenders).
|
|
·
|
|
Modify the fixed charge coverage ratio (ratio of adjusted consolidated EBITDA to consolidated fixed charges) to (a) 1.25 to 1 as of the end of the fiscal quarter ending September 30, 2020 and (b) 1.50 to 1 as of the end of the fiscal quarter ending December 31, 2020 and each fiscal quarter thereafter. For purposes of calculating compliance with the covenant, annualized results are used until June 30, 2021 when the calculation is based on the most recently ended four fiscal quarters. The covenant was previously 1.50 to 1 tested at the end of each fiscal quarter based on the most recently ended four fiscal quarters.
|
|
·
|
|
Implement a maximum borrowing base leverage ratio (ratio of indebtedness outstanding under the credit facility to borrowing base asset value (based on updated appraisals required by the lenders) of 65%. The covenant is first tested on June 30, 2021.
|
|
·
|
|
Eliminate the financial covenants regarding secured leverage ratio, tangible net worth and variable rate debt.
|
|
·
|
|
Modify the covenant on dividends and distributions to provide that no cash dividends or distributions may be made to common or preferred shareholders.
|
|
·
|
|
Modify the covenants on recourse debt and investments to provide that no additional recourse debt or investments will be permitted.
|
As a result of the anticipated impact of the COVID-19 virus on the hotel industry generally, the Company has received waivers from Great Western Bank with respect to compliance with its quarterly debt service coverage ratios (consolidated and for the Leawood Aloft collateral) for March 31, 2020 and June 30, 2020 and modifications for September 30, 2020 and December 31, 2020 (providing for lower collateral covenant and use of annualized results). The modification also provides for a three month deferral of principal and interest payments.
Certain of the terms used in the foregoing descriptions of the financial covenants within our credit facility have the meanings given to them in the credit facility, and certain of the financial covenants are subject to pro forma adjustments for acquisitions and sales of hotel properties and for specific capital events.
If we fail to pay our indebtedness when due, fail to comply with covenants or otherwise default on our loans, unless waived, we could incur higher interest rates during the period of such loan defaults, be required to immediately pay our indebtedness, and ultimately lose our hotels through lender foreclosure if we are unable to obtain alternative sources of financing with acceptable terms. Our credit facility contains cross-default provisions which would allow
Condor Hospitality Trust, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(In thousands, except share and per share data)
the lenders under our credit facility to declare a default and accelerate our indebtedness to them if we default on our other loans and such default would permit that lender to accelerate our indebtedness under any such loan.
As of December 31, 2019, we are not in default of any of our loans.
NOTE 7: CONVERTIBLE DEBT AT FAIR VALUE
As part of an agreement entered into on March 16, 2016 (the “Exchange Agreement”) with Real Estate Strategies, L.P. (“RES”, which also includes affiliated entities) (see Note 10), the Company issued to RES a Convertible Promissory Note (the “Note”), bearing interest at 6.25% per annum, in the principal amount of $1,012 initially convertible into shares of Series D Preferred Stock, which could be subsequently converted into 97,269 shares of common stock. Following the conversion of all of the outstanding Series D Preferred Stock into common stock and the issuance of the Series E Preferred Stock on March 1, 2017, the Note was amended to be convertible directly into 97,269 shares of common stock at any time at the option of RES or automatically when the Series E Preferred Stock is required to be converted or is redeemed in whole (see Note 10). The Note is not convertible to the extent that a conversion would cause RES, together with its affiliates, to beneficially own more than 49% of the voting stock of the Company at the time of the conversion. Any conversion reduces the principal amount of the Note proportionally.
The Company has made an irrevocable election to record this Note in its entirety at fair value utilizing the fair value option available under U.S. GAAP in order to more accurately reflect the economic value of this Note. As such, gains and losses on the Note are included in net gain on derivatives and convertible debt within net earnings each reporting period. Gains (losses) related to this Note were recognized totaling $(80), $69, and $246 during the years ended December 31, 2019, 2018, and 2017, respectively. The fair value of the Note is determined using a trinomial lattice-based model, which is a generally accepted computational model typically used for pricing options and is considered a Level 3 fair value measurement. The fair value of the Note on the date of issuance was determined to be equal to its principal amount. Interest expense related to this Note is recorded separately from other changes in its fair value within interest expense each period.
The following table represents the difference between the fair value and the unpaid principal balance of the Note as of December 31, 2019:
|
|
|
|
|
|
|
|
|
|
Fair value as of December 31, 2019
|
|
Unpaid principal balance as of December 31, 2019
|
|
Fair value carrying amount (over)/under unpaid principal
|
6.25% Convertible Debt
|
$
|
1,080
|
|
$
|
1,012
|
|
$
|
(68)
|
NOTE 8: FAIR VALUE MEASUREMENTS AND DERIVATIVE INSTRUMENTS
Our determination of fair value measurements is based on the assumptions that market participants would use in pricing the asset or liability. At December 31, 2019, the Company’s convertible debt (see Note 7) and certain derivative instruments were the only financial instruments measured in the consolidated financial statements at fair value on a recurring basis. Nonrecurring fair value measurements were utilized in the determination of the fair value of acquired hotel properties and related assumed debt in 2018 and 2017 (see Note 3), in accounting for the equity transactions that occurred in March 2017 (see Note 10), in the valuation of stock-based compensation grants (see Note 12), and in the assessment of impaired and potentially impaired hotels during the years ended December 31, 2019, 2018, and 2017.
Derivative Instruments
Currently, the Company uses derivatives, such as interest rate swaps and caps, to manage its interest rate risk. The fair value of interest rate positions is determined using the standard market methodology of netting the discounted expected future cash receipts and payments. Variable interest rates used in the calculation of projected receipts and
Condor Hospitality Trust, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(In thousands, except share and per share data)
payments on the positions are based on an expectation of future interest rates derived from observable market interest rate curves and volatilities. Derivatives expose the Company to credit risk in the event of non-performance by the counterparties under the terms of the agreements. The Company believes it minimizes this credit risk by transacting with major creditworthy financial institutions. These interest rate positions at December 31, 2019 and 2018 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Associated debt
|
|
Type
|
|
Terms
|
|
Effective Date
|
|
Maturity Date
|
|
Notional amount at December 31, 2019
|
|
Notional amount at December 31, 2018
|
Wells Fargo
|
|
Swap
|
|
Swaps 30-day LIBOR for fixed rate of 2.053%
|
|
11/2017
|
|
11/2022
|
|
$
|
25,612 (1)
|
|
$
|
26,048 (1)
|
Credit facility
|
|
Cap
|
|
Caps 30-day LIBOR at 2.50%
|
|
03/2017
|
|
03/2019
|
|
|
Not applicable
|
|
$
|
50,000
|
Credit facility
|
|
Cap
|
|
Caps 30-day LIBOR at 3.35%
|
|
4/1/2019
|
|
10/2020
|
|
$
|
30,000
|
|
|
Not applicable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Notional amounts amortize consistently with the principal amortization of the associated loans.
|
Included in the Series E Preferred Stock issued on March 1, 2017 is a redemption right that allows the Company to redeem up to a total of 490,250 shares of Series E Preferred Stock for specific percentages of its liquidation preference (see Note 10). This option requires bifurcation and was determined to be an asset with a fair value on the date of issuance of $150 using a trinomial lattice-based model, considered a Level 3 fair value measurement.
All derivatives recognized by the Company are reported as either derivative assets or liabilities on the balance sheets and are adjusted to their fair value at each reporting date. All gains and losses on derivative instruments are included in net gain on derivatives and convertible debt and with the exception of realized gains and losses related to the interest rate instruments, which are included in interest expense on the statements of operations. Net gains (loss) of $(991), $248, and $190 were recognized related to derivative instruments for the years ended December 31, 2019, 2018, and 2017, respectively.
Recurring Fair Value Measurements
The following tables provide the fair value of the Company’s financial assets and (liabilities) carried at fair value and measured on a recurring basis:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value at December 31, 2019
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
Interest rate derivatives
|
|
$
|
(366)
|
|
$
|
-
|
|
$
|
(366)
|
|
$
|
-
|
Series E Preferred embedded redemption option
|
|
|
22
|
|
|
-
|
|
|
-
|
|
|
22
|
Convertible debt
|
|
|
(1,080)
|
|
|
-
|
|
|
-
|
|
|
(1,080)
|
Total
|
|
$
|
(1,424)
|
|
$
|
-
|
|
$
|
(366)
|
|
$
|
(1,058)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value at December 31, 2018
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
Interest rate derivatives
|
|
$
|
350
|
|
$
|
-
|
|
$
|
350
|
|
$
|
-
|
Series E Preferred embedded redemption option
|
|
|
289
|
|
|
-
|
|
|
-
|
|
|
289
|
Convertible debt
|
|
|
(1,000)
|
|
|
-
|
|
|
-
|
|
|
(1,000)
|
Total
|
|
$
|
(361)
|
|
$
|
-
|
|
$
|
350
|
|
$
|
(711)
|
There were no transfers between levels during the years ended December 31, 2019, 2018, or 2017.
The following tables present a reconciliation of the beginning and ending balances of items measured at fair value on a recurring basis that use significant unobservable inputs (Level 3) and the related gains and losses recorded in the statements of operations during the periods:
Condor Hospitality Trust, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(In thousands, except share and per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
|
2019
|
|
|
2018
|
|
Series E Preferred embedded redemption option
|
|
Convertible debt
|
|
Total
|
|
Series E Preferred embedded redemption option
|
|
Convertible debt
|
|
Total
|
Fair value, beginning of period
|
$
|
289
|
|
$
|
(1,000)
|
|
$
|
(711)
|
|
$
|
314
|
|
$
|
(1,069)
|
|
$
|
(755)
|
Net gains (losses) recognized in earnings
|
|
(267)
|
|
|
(80)
|
|
|
(347)
|
|
|
(25)
|
|
|
69
|
|
|
44
|
Purchase and issuances
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
Sales and settlements
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
Gross transfers into Level 3
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
Gross transfers out of Level 3
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
Fair value, end of period
|
$
|
22
|
|
$
|
(1,080)
|
|
$
|
(1,058)
|
|
$
|
289
|
|
$
|
(1,000)
|
|
$
|
(711)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total unrealized gains (losses) during the period included in earnings related to instruments held at end of period
|
$
|
(267)
|
|
$
|
(80)
|
|
$
|
(347)
|
|
$
|
(25)
|
|
$
|
69
|
|
$
|
44
|
Fair Value of Debt
The Company estimates the fair value of its fixed rate debt by discounting the future cash flows of each instrument at estimated market rates or credit spreads consistent with the maturity of debt obligations with similar credit risks. Credit spreads take into consideration general market conditions and maturity. The inputs utilized in estimating the fair value of debt are classified in Level 2 of the fair value hierarchy. Both the carrying value and the estimated fair value of the Company’s long-term debt, excluding convertible debt which is presented in the balance sheets at fair value, are presented in the table below net of deferred financing costs.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying value at December 31,
|
|
Estimated fair value at December 31,
|
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
Held for use
|
|
$
|
134,001
|
|
$
|
135,810
|
|
$
|
134,288
|
|
$
|
134,773
|
Held for sale
|
|
|
-
|
|
|
1,120
|
|
|
-
|
|
|
1,120
|
Total
|
|
$
|
134,001
|
|
$
|
136,930
|
|
$
|
134,288
|
|
$
|
135,893
|
Impaired Hotel Properties
In the performance of impairment analysis for both held for sale and held for use properties, fair value is determined with the assistance of independent real estate brokers and through the use of operating results and revenue multiples based on the Company’s experience with hotel sales as well as available industry information. For held for sale properties, estimated selling costs are based on our experience with similar asset sales. These are considered Level 3 fair value measurements. The amount of impairment and recovery of previously recorded impairment recognized in the years ended December 31, 2019, 2018, and 2017 is shown in the tables below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
|
2019
|
|
2018
|
|
2017
|
|
|
Number of hotels
|
|
Impairment (loss) recovery
|
|
Number of hotels
|
|
Impairment (loss) recovery
|
|
Number of hotels
|
|
Impairment (loss) recovery
|
Continuing Operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sold hotels:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impairment loss
|
|
-
|
|
$
|
-
|
|
-
|
|
$
|
-
|
|
3
|
|
$
|
(2,231)
|
Recovery of impairment
|
|
-
|
|
|
-
|
|
1
|
|
|
93
|
|
2
|
|
|
80
|
Total net impairment (loss) recovery:
|
|
-
|
|
$
|
-
|
|
1
|
|
$
|
93
|
|
5
|
|
$
|
(2,151)
|
Condor Hospitality Trust, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(In thousands, except share and per share data)
NOTE 9. COMMON STOCK
The Company’s common stock is duly authorized, full paid, and non-assessable.
On January 24, 2017, the Company exchanged 23,160 warrants (the “New Warrants”) to purchase common stock of the Company for 576,923 warrants (the “Old Warrants”) held by RES. The number of New Warrants issued in exchange for the Old Warrants equaled the number of shares of common stock issuable upon exercise of the Old Warrants pursuant to a cashless exercise provisions of the Old Warrants. The New Warrants were exercisable for 23,160 shares of common stock, had an exercise price of $0.0065 for each common share, and would have expired on January 24, 2019. On the date of the exchange, the New Warrants had a fair value in excess of the Old Warrants of $289, which is reflected as equity transactions expense and an increase in additional paid-in capital as the exchange is assumed to be equivalent to the modification of an equity classified instrument. The New Warrants were exercised in full on September 28, 2017.
On February 28, 2017, the holders of the Series D Preferred Stock voluntarily converted their shares into 6,004,957 shares of common stock at $10.40 per share pursuant to the terms of the preferred stock (see Note 10).
Effective on March 15, 2017, the Company effected a reverse stock split of its common stock at a ratio of 1-for-6.5. No fractional shares of common stock were issued as fractional shares were settled in cash. A total of 73 shares were settled for $1. Impacted amounts and share information included in the consolidated financial statements and notes thereto have been adjusted for the stock split as if such stock split occurred on the first day of the periods presented.
On March 29, 2017, the Company sold in an underwritten public offering 4,772,500 shares of its common stock, including 622,500 shares issued pursuant to the full exercise of an option to purchase additional shares of common stock granted to the underwriters, at a public offering price per share of $10.50. Net proceeds, after the payment of related expenses, from this offering totaled $45,850.
The Company’s common stock began trading on the NYSE American under its current symbol “CDOR” beginning at the open of market trading on July 21, 2017. The Company’s common stock previously traded on the NASDAQ Stock Market.
On September 20, 2017, the Company entered into an equity distribution agreement with KeyBanc Capital Markets Inc. and BMO Capital Markets Corp. (collectively, the “Sales Agents”), pursuant to which we may sell, from time to time, up to an aggregate sales price of $50,000, subject to decrease in compliance with General Instruction I.B.6 of Registration Statement on Form S-3, of shares of our common stock pursuant to a prospectus supplement we filed with the Securities and Exchange Commission (“SEC”) through the Sales Agents acting as sales agent and/or principal, through an at-the-market offering program (our “ATM program”). Pursuant to Instruction I.B.6 to Registration Statement on Form S-3, we may not sell more than the equivalent of one-third of our public float during any 12 consecutive months so long as our public float is less than $75,000.
During the year ended December 31, 2017, we sold 169,004 shares of common stock under the ATM program at an average sales price of $10.15 per share for gross proceeds totaling $1,715 and net proceeds of $1,619. During the year ended December 31, 2018, we sold 28,474 shares of common stock under the ATM program at an average sales price of $10.40 per share, for gross proceeds totaling $296 and net proceeds totaling $260. There were no sales under the ATM program in 2019. Since the inception of the ATM program, we have sold 197,478 shares of common stock at an average sales price of $10.18 per share for gross proceeds totaling $2,011 and net proceeds totaling $1,879.
NOTE 10. PREFERRED STOCK
On March 16, 2016, the Company entered into a series of agreements providing for:
|
·
|
|
the issuance and sale of the Company’s Series D Preferred Stock under a private transaction to SREP III Flight-Investco, L.P. (“SREP”), an affiliate of StepStone Group LP;
|
Condor Hospitality Trust, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(In thousands, except share and per share data)
|
·
|
|
the exchange of all of the Company’s outstanding Series C Preferred Stock for Series D Preferred Stock; and
|
|
·
|
|
the cash redemption of all of the Company’s outstanding 8% Series A Cumulative Preferred Stock (“Series A Preferred Stock”) and 10% Series B Cumulative Preferred Stock (“Series B Preferred Stock”).
|
In connection with these transactions, the Company and SREP entered into a Stock Purchase Agreement (the “Stock Purchase Agreement”) dated March 16, 2016 pursuant to which the Company issued and sold 3,000,000 shares of Series D Preferred Stock to SREP on the March 16, 2016 for an aggregate purchase price of $30,000. The Stock Purchase Agreement required that $20,147 of the purchase price be deposited into an escrow account for the purpose of effecting the redemption of the Series A and Series B Preferred Stock, which was completed on April 15, 2016, and that the remaining amount of the purchase price be delivered to the Company.
Simultaneously, the Company entered into the Exchange Agreement with RES pursuant to which all 3,000,000 outstanding shares of Series C Preferred Stock were exchanged for 3,000,000 shares of Series D Preferred Stock. Under the Exchange Agreement, in lieu of payment of accrued and unpaid dividends in the amount of $4,947 on the Series C Preferred Stock, the Company (a) paid to RES an amount of cash equal to $1,484, (b) issued to RES 245,156 shares of Series D Preferred Stock (such that RES, IRSA Inversiones y Representaciones Sociedad Anónima (“IRSA”), and their affiliates do not beneficially own in excess of 49% of the voting stock of the Company) and (c) issued to RES a convertible promissory note, bearing interest at 6.25% per annum, in the principal amount of $1,012 (see Note 7).
On February 28, 2017, the holders of the Series D Preferred Stock voluntarily converted their shares into 6,004,957 shares of common stock at $10.40 per share pursuant to the terms of the preferred stock. The terms of the Series D Preferred Stock provided for automatic conversion following certain future common stock offerings, and also provided for potential additional payments to the holders depending on the sales price of common stock in the offerings. As a result of the voluntary conversion, the holders are no longer entitled to the potential payments. To induce the holders of the Series D Preferred Stock to voluntarily convert their shares, the Company issued the holders 925,000 shares of a new series of preferred stock, the Series E Preferred Stock.
The key terms of the remaining series of the Company’s preferred stock are discussed individually below.
Series D Preferred Stock
Following the execution of the Stock Purchase Agreement and Exchange Agreement on March 16, 2016, there were 6,245,156 shares of Series D Preferred Stock outstanding at December 31, 2016.
The Series D Preferred stockholders ranked senior to the Company’s common stock and any other preferred stock issuances and received preferential cumulative cash dividends at a rate of 6.25% per annum, payable quarterly in arrears on each March 31, June 30, September 30, and December 31, or, if not a business day, the next succeeding business day, of the $10.00 face value per share. Dividends on the Series D Preferred Stock accrued whether or not the Company had earnings, whether or not there were funds legally available for the payment of such dividends, whether or not such dividends were declared, and whether or not such dividends were prohibited by agreement. Whenever the dividends on the Series D Preferred Stock were in arrears for four consecutive quarters, then upon notice by holders of in the aggregate not less than 40% of the outstanding Series D Preferred Stock, the Company would (a) take all appropriate action reasonably within its means to maximize the assets legally available for paying such dividends and to monetize such assets (for example, but without limiting the generality of the foregoing, by selling or liquidating all of some of the Company’s assets or by selling the Company as a going concern), (b) pay out of all such assets legally available (including any proceeds from any sale or liquidation of such assets) the maximum possible amount of such unpaid dividends, and (c) thereafter, at any time and from time to time when additional assets of the Company (including any proceeds from any sale or liquidation of such assets) become legally available to pay such unpaid dividends, pay such remaining unpaid dividends until all dividends accumulated on the Series D Preferred Stock had been fully paid. Dividends on the Series D Preferred Stock were paid when due throughout the life of the instrument.
Condor Hospitality Trust, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(In thousands, except share and per share data)
Each share of Series D Preferred Stock was convertible, at the option of the holder, at any time into a number of shares of common stock determined by dividing the conversion price of $10.40 into an amount equal to the $10.00 face value per share plus accrued and unpaid dividends, if any. The conversion price was subject to anti-dilution adjustments upon the occurrence of stock splits and stock dividends. Each outstanding share of Series D Preferred Stock would be converted into a number of shares of common stock determined by dividing the conversion price of $10.40 into the $10.00 face value per share, which is equal to a rate of 0.9615385 shares of common stock for each share of Series D Preferred Stock, automatically upon closing of a Qualified Offering (defined as a single offering of common stock of at least $50,000 or up to three offerings in the aggregate of at least $75,000, all with certain minimum prices per share and a potential make whole payment required in certain scenarios) without any further action by the holders of such shares or the Company.
The Series D Preferred Stock was redeemable by the Company at any time subject to certain restrictions, in whole or in a partial redemption of up to $30,000, at $12.00 per share on or before March 16, 2019, $13.00 per share from March 16, 2019 to March 16, 2020, and $14.00 per share on or after March 16, 2020, plus all accrued and unpaid dividends. If a Qualified Offering has not occurred on or before September 30, 2021, holders that hold in the aggregate not less than 40% of the outstanding shares of the Series D Preferred Stock have the right to elect to have the Company fully liquidate in a commercially reasonable manner as determined by the Board of Directors of the Company to provide for liquidation distributions to the holders of the Series D Preferred Stock in an amount per share equal to $14.00 in cash plus accrued and unpaid dividends. Once this right had been exercised and the Company had been notified, the dividend rate on the Series D Preferred Stock after September 30, 2021 would increase from 6.25% per annum to 12.5% per annum. The holders of Series D Preferred Stock voted their Series D Preferred Stock as a single class with the holders of the common stock on all matters submitted to such holders for vote or consent. For each such vote or consent, each share of Series D Preferred Stock entitled the holder to cast one vote for each whole vote (rounded to the nearest whole number) that such holder would be entitled to cast had such holder converted its Series D Preferred Stock into shares of common stock as of the date immediately prior to the record date for determining the shareholders of the Company eligible to vote on any such matter.
The fair value of the Series D Preferred Stock was determined to be equal to its face value on the date of issuance.
As discussed above, on February 28, 2017, the holders of the Series D Preferred Stock voluntarily converted their shares into 6,004,957 shares of common stock at $10.40 per share pursuant to the terms of the preferred stock. At the time of conversion, the Series D holders were granted $9,250 of newly created Series E Preferred Stock.
Series E Redeemable Convertible Preferred Stock
Following the voluntary conversion of the Series D Preferred Stock on February 28, 2017, the only shares of preferred stock outstanding are 925,000 shares of Series E Preferred Stock.
The Series E Preferred Stock ranks senior to the Company’s common stock and any other preferred stock issuances and receives preferential cumulative cash dividends at a rate of 6.25% per annum, payable quarterly of the $10.00 face value per share. If the Company fails to pay a dividend then during the period that dividends are not paid, the dividend rate increases to 9.50% per annum. Dividends on the Series E Preferred Stock accrue whether or not the Company has earnings, whether or not there are funds legally available for the payment of such dividends, whether or not such dividends are declared, and whether or not such dividends are prohibited by agreement.
Each share of Series E Preferred Stock is convertible, at the option of the holder, at any time on or after February 28, 2019, into a number of shares of common stock determined by dividing the conversion price of $13.845 into an amount equal to the $10.00 face value per share plus accrued and unpaid dividends, if any. Upon liquidation, each share of Series E Preferred Stock is entitled to $10.00 per share and accrued and unpaid dividends. The conversion price is subject to anti-dilution adjustments upon the occurrence of stock splits and stock dividends. Following a specific equity offering or offerings, from time to time a number of shares of Series E Preferred Stock automatically converts into common stock if the common stock trades at 120% of the conversion price for 60 trading days, and the number of shares converted will be determined by certain trading volumes measures.
Condor Hospitality Trust, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(In thousands, except share and per share data)
The Company has rights to redeem up to 490,250 shares of the Series E Preferred Stock at prices from 110% to 130% of its liquidation value. The holders have put rights commencing March 16, 2021 to put the Series E Preferred Stock to the Company at 130% of its liquidation preference, which the Company can satisfy with cash or common stock. The Series E Preferred Stock votes as a class on matters generally affecting the Series E Preferred Stock, and as long as 434,750 shares of Series E Preferred Stock (47% of the originally issued shares of Series E Preferred Stock) remain outstanding, then 75% approval of the Series E Preferred Stock will be required to approve merger, consolidation, liquidation or winding up of the Company, related party transactions exceeding $120, payment of dividends on common stock except from funds from operations or to maintain REIT status, the grant of exemptions from the Company’s charter limitation on ownership of 9.9% of any class or series of its securities (exclusive of persons currently holding exemptions), issuance of preferred stock or commitment or agreement to do any of the foregoing.
The Series E Preferred Stock was determined to have a fair value of $9,900 on the date of issuance as measured using a trinomial lattice-based model. From this value, the embedded redemption option (see Note 8), which was determined to be an asset with a fair value on the date of issuance of $150 using the same model, was bifurcated and will be accounted for at fair value at each period end. These are considered Level 3 fair value measurements. The issuance of the Series E Preferred Stock is considered an inducement to convert the Series D Preferred Stock to common stock and as such, its fair value at issuance, plus related expenses totaling $1,210 in the year ended December 31, 2017, are reflected as a reduction of retained earnings and an increase in dividends declared and undeclared and in kind dividends deemed on preferred stock.
Impact of Preferred Stock on Net Earnings (Loss) Attributable to Common Shareholders
The components of dividends declared and undeclared and in kind dividends deemed on preferred stock are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
|
2019
|
|
2018
|
|
2017
|
Preferred D dividends accrued at stated rate
|
|
$
|
-
|
|
$
|
-
|
|
$
|
650
|
Preferred D inducement to convert
|
|
|
-
|
|
|
-
|
|
|
11,110
|
Preferred E dividends accrued at stated rate
|
|
|
578
|
|
|
578
|
|
|
483
|
Dividends declared and undeclared and in kind dividends deemed on preferred stock
|
|
$
|
578
|
|
$
|
578
|
|
$
|
12,243
|
NOTE 11. NONCONTROLLING INTEREST OF COMMON UNITS IN THE OPERATING PARTNERSHIP
At December 31, 2019 and 2018, 219,183 and 3,281,124 of the operating partnership’s common units were outstanding, respectively, all of which were held by limited partners. All LTIP units previously were cancelled on June 28, 2017 (see Note 12). The total redemption value for the common units was $47 and $435 at December 31, 2019 and 2018, respectively. Our ownership interest in the operating partnership as of December 31, 2019 and 2018 was 99.9% and 99.5%, respectively.
Each limited partner of the operating partnership may, subject to certain limitations, require that the operating partnership redeem all or a portion of his or her common units at any time after a specified period following the date the units were acquired, by delivering a redemption notice to the operating partnership. When a limited partner tenders common units for redemption, the Company can, at its sole discretion, choose to purchase the units for either (1) a number of shares of Company common stock at a rate of one share of common stock for each 52 common units redeemed or (2) cash in an amount equal to the market value of the number of shares of Company common stock the limited partner would have received if the Company chose to purchase the units for common stock.
Condor Hospitality Trust, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(In thousands, except share and per share data)
During the year ended December 31, 2019, 259,685 common units were redeemed for cash totaling $42 and 2,802,256 common units were converted into 53,891 shares of common stock. During the year ended December 31, 2018, 1,528,803 common units were redeemed for cash totaling $298. No common units were redeemed in 2017.
NOTE 12. STOCK-BASED COMPENSATION
The Company currently has in place the Condor 2016 Stock Plan, which was approved by the Company’s shareholders at the annual shareholders meeting on June 15, 2016. The 2016 Stock Plan authorizes the issuance of stock options, stock appreciation rights, restricted stock, restricted stock units, performance shares, deferred stock units, and other forms of stock-based compensation. The maximum number of shares of the Company’s common stock that may be issued under the 2016 Stock Plan is 761,538 following an amendment to the plan to increase the number of available shares by 300,000 that was approved by shareholders on May 17, 2018 at the annual meeting of shareholders. As of December 31, 2019, there were 511,518 common shares available for issuance under the 2016 Stock Plan.
Options
At December 31, 2016, the Company had a total of 865 vested stock options outstanding with a weighted average exercise price of $48.945 per share. These options expired unexercised on July 15, 2017.
Service Condition Share Awards
From time to time, the Company awards restricted shares of common stock to employees, officers, and members of the Board of Directors under the 2016 Stock Plan. These shares generally vest ratably over five years for employees and officers and three years for members of the Board of Directors based on continued service or employment. Dividends paid on these restricted shares during the vesting period are not forfeited in the event that the shares fail to vest. The following table presents a summary of the service condition unvested share activity for the years ended December 31, 2019, 2018, and 2017:
|
|
|
|
|
|
|
|
Shares
|
|
Weighted-average grant date fair value
|
Unvested at December 31, 2016
|
|
-
|
|
$
|
-
|
Granted
|
|
96,286
|
|
$
|
10.54
|
Vested
|
|
(234)
|
|
$
|
10.60
|
Forfeited
|
|
(220)
|
|
$
|
10.54
|
Unvested at December 31, 2017
|
|
95,832
|
|
$
|
10.54
|
Granted
|
|
23,191
|
|
$
|
10.28
|
Vested
|
|
(30,879)
|
|
$
|
10.56
|
Forfeited
|
|
(11,644)
|
|
$
|
10.33
|
Unvested at December 31, 2018
|
|
76,500
|
|
$
|
10.48
|
Granted
|
|
21,917
|
|
$
|
8.48
|
Vested
|
|
(50,328)
|
|
$
|
9.94
|
Forfeited
|
|
(1,407)
|
|
$
|
9.23
|
Unvested at December 31, 2019
|
|
46,682
|
|
$
|
10.16
|
The fair value of the service condition unvested share awards was determined based on the closing price of the Company’s common stock on the grant date.
Market Based Share Awards
Pursuant to an amendment of an employment agreement on June 28, 2017, an executive officer may earn shares of common stock if certain market share prices of common stock are attained. Any such shares, if earned, will be issued under the 2016 Stock Plan or another shareholder approved plan. The executive officer will earn and be
Condor Hospitality Trust, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(In thousands, except share and per share data)
issued 36,692 common shares each time stock market price targets of $11.00 to $18.00 (in one dollar increments) per common share are first achieved prior to March 31, 2022 based on the weighted-average common stock price for 60 consecutive trading days. Additionally, the shares vest to the extent of the value received per share of common stock in connection with a change in control, with the payout in such case to be prorated for the portion of the value above a stock market price target but below the next stock market price target. The $11.00 tranche of this award vested on November 22, 2019.
The compensation cost related to awards that are contingent upon achieving a market based criteria is measured at the fair value of the award on the date of grant using the Monte Carlo simulation, including consideration of the market criteria, and amortized on a straight line basis over the derived performance period which is also estimated using this model. The Monte Carlo simulation method is a generally accepted statistical method used to generate a defined number of stock price paths in order to develop a reasonable estimate of the range of future expected stock prices of the Company and its peer group and minimize standard error and is considered a Level 3 fair value measurement.
The grant date fair value of this award, including additional value assessed at the time of subsequent amendment of the award, totaling $1,380, was determined using the following assumptions:
|
|
|
|
Volatility
|
|
25.0
|
%
|
Stock price
|
|
$ 10.60
|
|
Dividend yield
|
|
7.4
|
%
|
Risk free interest rate
|
|
0.89% - 1.81% based upon expected time of vesting
|
|
Performance Based Share Awards
Pursuant to an amendment of an employment agreement on June 28, 2017, an executive officer may earn shares of common stock if certain operating results of the Company are obtained. Any such shares, if earned, will be issued under the 2016 Stock Plan or another shareholder approved plan. For each of the Company’s fiscal years 2017 through 2021, if the Company achieves between 85% and 101% of budgeted Funds from Operations (“FFO”) as approved by the Board of Directors, the executive shall earn and be issued between 11,741 and 19,569 shares of common stock, determined on a straight-line basis based on the percentage of budgeted FFO achieved. In addition, for any fiscal year in which the Company achieves in excess of 101% of budgeted FFO, an additional 391 shares of common stock will be earned for each two percent actual FFO exceeds 101% of budgeted FFO, up to a total of 3,910 additional shares of common stock per year.
The fair value of the performance based share awards is based on the closing price of the Company’s common stock on the grant date, discounted for estimated common stock dividends to be declared prior to the shares being issued. The grant date occurs on an annual basis when budgeted FFO is approved by the Board of Directors. The total grant date fair value of the 2019, 2018, and 2017 portions of this performance based share award, assuming that 100% of budgeted FFO is achieved, was $147, $169 and $191, respectively. During the first quarter of 2019, 13,778 shares with a grant date fair value totaling $122 were awarded to the executive based on 2018 FFO. Simultaneously, 2,550 fully vested shares were issued to the executive with a fair value of $22 as a discretionary award. During the first quarter of 2018, 21,133 shares with a grant date fair value totaling $212 were awarded to the executive based on 2017 FFO.
Warrants
On March 2, 2015, the Company granted a warrant to an executive officer of the Company as an inducement material to the executive’s acceptance of employment. The Black-Scholes option pricing model was utilized at issuance for the determination of the fair value of the award. The warrant entitled the executive to purchase a total of 101,213 authorized but previously unissued shares of the Company’s common stock at a price of (i) $9.88 per share (the adjusted closing bid price of the common stock on Nasdaq on March 2, 2015) if at least one-third but not more than one-half of the shares were purchased on or prior to March 17, 2015, and (ii) $12.48 per share for shares
Condor Hospitality Trust, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(In thousands, except share and per share data)
purchased after that date. The warrant had a three-year term. The executive officer exercised the warrant in part to purchase 35,060 shares on March 11, 2015 at the price of $9.88 per share. The remaining warrant expired unexercised on March 2, 2018.
LTIP Awards
On March 2, 2015, the Company granted an equity award of 5,263,152 LTIP units, representing profit interests in the operating partnership, to an executive officer of the Company. A Monte Carlo simulation was utilized at issuance for the determination of the fair value of the award. The LTIP units were to be earned in one-third increments upon the Company’s common stock achieving price per share milestones of $22.75, $29.25, and $35.75, respectively. Earned LTIP units were to vest in March 2018, or earlier upon a change in control of the Company, and upon vesting could be converted into operating partnership common units which could be redeemed at the rate of one share of common stock for each 52 earned LTIP units for up to 101,213 common shares. These LTIP units were cancelled on June 28, 2017 pursuant to an amendment of the employment agreement with the executive officer.
Director Fully Vested Share Compensation
Independent directors serving as members of the Investment Committee of the Board of Directors receive their monthly Investment Committee fees in the form of shares of the Company’s common stock. Certain independent directors serving as members of the Board of Directors also elect to receive a portion of their director fees in the form of shares of the Company’s common stock.
A total of 15,240, 11,503 and 5,369 shares were issued to independent directors under the 2016 Stock Plan with respect to these fees during the years ended December 31, 2019, 2018, and 2017, respectively.
Stock-Based Compensation Expense
The expense recognized in the consolidated financial statements for stock-based compensation, including the LTIP, related to employees and directors for the years ended December 31, 2019, 2018, and 2017 was $1,026, $974, and $1,237, respectively, all of which is included in general and administrative expense. Total unrecognized compensation cost related to all awards at December 31, 2019 was $527, which is expected to be recognized over a weighted-average remaining service period of 2.6 years.
NOTE 13. INCOME TAXES
For the years ended December 2019, 2018, and 2017, the income tax expense related to the operating partnership, including primarily Alternative Minimum Tax (“AMT”) in the years prior to 2018 and certain state and local taxes, totaled $175, $83, and $20, respectively.
The components of the income tax expense (benefit) from the TRS from continuing operations for the years ended December 31, 2019, 2018, and 2017 were as follows:
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
2019
|
|
2018
|
|
2017
|
Federal:
|
|
|
|
|
|
|
|
|
Current
|
$
|
-
|
|
$
|
-
|
|
$
|
33
|
Deferred
|
|
817
|
|
|
202
|
|
|
(615)
|
State and local:
|
|
|
|
|
|
|
|
|
Current
|
|
2
|
|
|
(8)
|
|
|
12
|
Deferred
|
|
(57)
|
|
|
58
|
|
|
(45)
|
Income tax expense (benefit)
|
$
|
762
|
|
$
|
252
|
|
$
|
(615)
|
Condor Hospitality Trust, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(In thousands, except share and per share data)
Actual income tax expense of the TRS for the years ended December 31, 2019, 2018, and 2017 differs from the “expected” income tax expense (benefit) (computed by applying the appropriate U.S. federal income tax rate of 21% in 2019 and 2018 and 34% in 2017 to earnings before income taxes) as a result of the following:
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
2019
|
|
2018
|
|
2017
|
Computed "expected" income tax (benefit) expense
|
$
|
403
|
|
$
|
191
|
|
$
|
546
|
State income taxes, net of federal income tax (benefit) expense
|
|
62
|
|
|
40
|
|
|
47
|
(Decrease) increase in valuation allowance
|
|
(124)
|
|
|
29
|
|
|
(1,097)
|
Return to provision adjustments
|
|
431
|
|
|
(16)
|
|
|
-
|
Other
|
|
(10)
|
|
|
8
|
|
|
(145)
|
AMT
|
|
-
|
|
|
-
|
|
|
34
|
Total income tax expense (benefit)
|
$
|
762
|
|
$
|
252
|
|
$
|
(615)
|
The tax effects of temporary differences that give rise to significant portions of deferred tax assets and deferred tax liabilities at December 31, 2019 and 2018 are as follows:
|
|
|
|
|
|
|
As of December 31,
|
|
2019
|
|
2018
|
Deferred Tax Assets
|
|
|
|
|
|
Accrued expenses and other
|
$
|
100
|
|
$
|
84
|
Net operating losses carried forward for federal income tax purposes
|
|
374
|
|
|
1,004
|
Net operating losses carried forward for state income tax purposes
|
|
455
|
|
|
615
|
AMT
|
|
58
|
|
|
117
|
Subtotal deferred tax assets
|
|
987
|
|
|
1,820
|
Valuation allowance
|
|
(359)
|
|
|
(483)
|
Total deferred tax assets
|
|
628
|
|
|
1,337
|
|
|
|
|
|
|
Deferred Liabilities
|
|
|
|
|
|
Tax depreciation in excess of book depreciation
|
|
909
|
|
|
714
|
Atlanta JV basis difference
|
|
140
|
|
|
223
|
Total deferred tax liabilities
|
|
1,049
|
|
|
937
|
Net deferred tax assets (liabilities)
|
$
|
(421)
|
|
$
|
400
|
In assessing the realizability of deferred tax assets, the Company considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The Company considers projected reversals of deferred income tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. As a result of this analysis, the Company believed that a full valuation allowance against the net deferred tax asset position was necessary at December 31, 2016 and as such no current or deferred federal income tax other than AMT was recognized in the year then ended. At December 31, 2017 and all subsequent periods, it was determined by management that a valuation allowance against deferred tax assets was no longer required, with the exception of an allowance against certain state net operating losses, as management believes that it is more likely than not that remaining deferred tax assets will be realized.
After consideration of limitations related to a change in control as defined under Internal Revenue Code Section 382 following the Company’s common and preferred equity transactions, the TRS’s net operating loss carryforward at December 31, 2019 as determined for federal income tax purposes was $1,779. The availability of the loss carryforwards will expire in 2027 through 2034.
On December 22, 2017, H.R. 1, originally known as the Tax Cuts and Jobs Act (“TCJA”), was enacted. The TCJA made many significant changes to the U.S. federal income tax laws as of January 1, 2018. Pursuant to this legislation, the federal income tax rate applicable to corporations was permanently reduced to 21% and the corporate
Condor Hospitality Trust, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(In thousands, except share and per share data)
alternative minimum tax was repealed, and the deduction of net interest expense was limited for all businesses, provided that certain businesses, including real estate businesses, may elect not to be subject to such limitations and instead to depreciate their real property related assets over longer depreciable lives. The interest limitation was determined not to have an impact on the Company’s calculation of taxable income.
The reduced 21% federal income tax rate applicable to corporations applied to taxable earnings reported for the full 2018 fiscal year. Accordingly, the Company has remeasured its net deferred tax assets using the lower federal tax rate that will apply when these amounts are expected to reverse. As a result, in the fourth quarter of 2017, we recognized tax expense of $304 resulting from the revaluation of U.S. net deferred tax assets.
As of December 31, 2019, the tax years that remain subject to examination by major tax jurisdictions generally include 2016 through 2019.
Distributions to the extent of our current and accumulated earnings and profits for federal income tax purposes generally will be taxable to a shareholder as ordinary income. Distributions in excess of current and accumulated earnings and profits generally will be treated as a nontaxable reduction of the shareholder’s basis in such shareholder’s shares, to the extent thereof, and thereafter as taxable capital gain. Distributions that are treated as a reduction of the shareholder’s basis in its shares will have the effect of increasing the amount of gain, or reducing the amount of loss, recognized upon the sale of the shareholder’s shares.
For income tax purposes, distributions paid per share for the years ended December 31, 2019, 2018, and 2017 were characterized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended December 31,
|
|
2019
|
|
2018
|
|
|
2017
|
|
Amount
|
|
%
|
|
Amount
|
|
%
|
|
Amount
|
|
%
|
Common Shares:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ordinary income
|
$
|
-
|
|
-
|
|
$
|
-
|
|
-
|
|
$
|
0.117000
|
|
20%
|
Capital gain
|
|
-
|
|
-
|
|
|
-
|
|
-
|
|
|
-
|
|
-
|
Return of capital
|
|
0.585000
|
|
100%
|
|
|
0.975000
|
|
100%
|
|
|
0.468000
|
|
80%
|
Total
|
$
|
0.585000
|
|
100%
|
|
$
|
0.975000
|
|
100%
|
|
$
|
0.585000
|
|
100%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series D Preferred Stock:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ordinary income
|
$
|
-
|
|
-
|
|
$
|
-
|
|
-
|
|
$
|
0.104160
|
|
100%
|
Capital gain
|
|
-
|
|
-
|
|
|
-
|
|
-
|
|
|
-
|
|
-
|
Return of capital
|
|
-
|
|
-
|
|
|
-
|
|
-
|
|
|
-
|
|
-
|
Total
|
$
|
-
|
|
-
|
|
$
|
-
|
|
-
|
|
$
|
0.104160
|
|
100%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series E Preferred Stock:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ordinary income
|
$
|
-
|
|
-
|
|
$
|
-
|
|
-
|
|
$
|
0.522569
|
|
100%
|
Capital gain
|
|
-
|
|
-
|
|
|
-
|
|
-
|
|
|
-
|
|
-
|
Return of capital
|
|
0.468750
|
|
100%
|
|
|
0.625000
|
|
100%
|
|
|
-
|
|
-
|
Total
|
$
|
0.468750
|
|
100%
|
|
$
|
0.625000
|
|
100%
|
|
$
|
0.522569
|
|
100%
|
The common and preferred share distributions declared on December 11, 2018 and paid on January 3, 2019 and December 31, 2018, respectively, were treated as 2018 distributions for tax purposes. The common share distribution declared on December 19, 2017 and paid on January 10, 2018 was treated as a 2018 distribution for tax purposes. The preferred share distribution declared on December 19, 2017 and paid on January 2, 2018 was treated as a 2017 distribution for tax purposes.
Condor Hospitality Trust, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(In thousands, except share and per share data)
NOTE 14. EARNINGS PER SHARE
The two-class method is utilized to compute earnings per common share (“EPS”) as our unvested restricted stock awards with non-forfeitable dividends are considered participating securities. Under the two-class method, losses are allocated only to those securities that have a contractual obligation to share in the losses of the Company. Our unvested restricted stock is not obligated to absorb Company losses and accordingly is not allocated losses. The following is a reconciliation of basic and diluted EPS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
2019
|
|
2018
|
|
2017
|
Numerator: Basic (1)
|
|
|
|
|
|
|
|
|
Net earnings (loss) attributable to common shareholders
|
$
|
(5,626)
|
|
$
|
4,787
|
|
$
|
(9,362)
|
Less: Allocation to participating securities
|
|
(38)
|
|
|
(67)
|
|
|
(56)
|
Net earnings (loss) attributable to common shareholders, net of amount allocated to participating securities
|
$
|
(5,664)
|
|
$
|
4,720
|
|
$
|
(9,418)
|
|
|
|
|
|
|
|
|
|
Numerator: Diluted (1)
|
|
|
|
|
|
|
|
|
Net earnings (loss) attributable to common shareholders, net of amount allocated to participating securities
|
$
|
(5,664)
|
|
$
|
4,720
|
|
$
|
(9,418)
|
Interest and fair value adjustment on Convertible Debt
|
|
-
|
|
|
(6)
|
|
|
-
|
Total Diluted
|
$
|
(5,664)
|
|
$
|
4,714
|
|
$
|
(9,418)
|
|
|
|
|
|
|
|
|
|
Denominator
|
|
|
|
|
|
|
|
|
Weighted average number of common shares - Basic
|
|
11,856,113
|
|
|
11,784,222
|
|
|
9,437,824
|
Performance Based Share Awards
|
|
-
|
|
|
4,285
|
|
|
-
|
Convertible Note
|
|
-
|
|
|
97,269
|
|
|
-
|
Weighted average number of common shares - Diluted
|
|
11,856,113
|
|
|
11,885,776
|
|
|
9,437,824
|
|
|
|
|
|
|
|
|
|
Earnings Per Share
|
|
|
|
|
|
|
|
|
Basic Earnings (Loss) per Share
|
$
|
(0.48)
|
|
$
|
0.40
|
|
$
|
(1.00)
|
Diluted Earnings (Loss) per Share
|
$
|
(0.48)
|
|
$
|
0.40
|
|
$
|
(1.00)
|
|
|
|
|
|
|
|
|
|
The following table summarizes the weighted average number of potentially dilutive securities that have been excluded from the denominator for the purpose of computing diluted EPS as they are antidilutive:
|
|
|
|
|
|
|
Year ended December 31,
|
|
2019
|
|
2018
|
|
2017
|
Outstanding stock options (2)
|
-
|
|
-
|
|
258
|
Unvested restricted stock
|
62,742
|
|
79,456
|
|
48,869
|
Warrants - RES (2)
|
-
|
|
-
|
|
53,608
|
Warrants - Employees (2)
|
-
|
|
11,056
|
|
66,153
|
Series D Preferred Stock (2)
|
-
|
|
-
|
|
970,606
|
Series E Preferred Stock
|
668,111
|
|
668,111
|
|
560,115
|
Convertible debt
|
97,269
|
|
-
|
|
97,269
|
LTIP common units (1) (2)
|
-
|
|
-
|
|
49,636
|
Operating partnership common units (1)
|
54,330
|
|
86,255
|
|
70,722
|
Total potentially dilutive securities excluded from the denominator
|
882,452
|
|
844,878
|
|
1,917,236
|
|
(1)
|
|
LTIP and common units have been omitted from the denominator for the purpose of computing diluted EPS since the effect of including these amounts in the numerator and denominator would have no impact on calculated EPS.
|
|
(2)
|
|
Amounts above are weighted average amounts outstanding for the period presented. These instruments were no longer outstanding at December 31, 2019.
|
Condor Hospitality Trust, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(In thousands, except share and per share data)
NOTE 15. COMMITMENTS AND CONTINGENCIES
Management Agreements
Our TRS engages eligible independent contractors as property managers for each of our hotels in accordance with the requirements for qualification as a REIT. The hotel management agreements provide that the management companies have control of all operational aspects of the hotels, including employee-related matters. The management companies must generally maintain each hotel under their management in good repair and condition and perform routine maintenance, repairs, and minor alterations. Additionally, the management companies must operate the hotels in accordance with the national franchise agreements that cover the hotels, which includes, as applicable, using franchisor sales and reservation systems and abiding by franchisors’ marketing standards. The management agreements generally require the TRS to fund debt service, working capital needs, and capital expenditures and to fund the management companies’ third-party operating expenses, except those expenses not related to the operation of hotels. The TRS also is responsible for obtaining and maintaining certain insurance policies with respect to the hotels.
Each of the management companies employed by the TRS at December 31, 2019 receives a base monthly management fee of 3.0% to 3.5% of gross hotel revenue, with incentives for performance which increase such fee to a maximum of 5.0%. For the years ended December 31, 2019, 2018, and 2017, base management fees incurred totaled $1,813, $1,779, and $1,700, respectively, all of which was included in continuing operations as hotel and property operations expense. For the years ended December 31, 2019, 2018, and 2017, incentive management fees totaled $141, $333, and $306, respectively.
The management agreements generally have initial terms of one to three years and renew for additional terms of one year unless either party to the agreement gives the other party written notice of termination at least 90 days before the end of a term. The Company may terminate a management agreement, subject to cure rights, if certain performance metrics tied to both individual hotel and total managed portfolio performance are not met. The Company may also terminate a management agreement with respect to a hotel at any time without reason upon payment of a termination fee. The management agreements terminate with respect to a hotel upon sale of the hotel, subject to certain notice requirements.
Franchise Agreements
As of December 31, 2019, all of our wholly owned properties operate under franchise licenses from national hotel companies. Under our franchise agreements, we are required to pay franchise fees generally between 3.3% and 5.5% of room revenue, plus additional fees for marketing, central reservation systems, and other franchisor programs and services that amount to between 2.5% and 6.0% of room revenue. The franchise agreements typically have 10 to 25 year terms although certain agreements may be terminated by either party on certain anniversary dates specified in the agreements. Further, each agreement provides for early termination fees in the event the agreement is terminated before the stated term. Franchise fee expense totaled $4,685, $4,834, and $3,800, for the years ended December 31, 2019, 2018, and 2017, respectively, all of which was included in continuing operations as hotel and property operations expense.
The franchisor of two of our hotels advised us in February 2019 that both of the hotels had dropped below the required level for guest satisfaction surveys, and that if the hotels do not achieve compliance, it reserves the right to elect to terminate the relevant franchise agreements. The Company is actively addressing the matter relating to the surveys and has plans in place which it believes will resolve these issues.
Leases
The Company has no land lease agreements in place related to properties owned at December 31, 2019. Land lease expense related to properties previously owned totaled $0, $0, and $9 for the years ended December 31, 2019, 2018, and 2017, respectively, included in hotel and property operations expense.
Condor Hospitality Trust, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(In thousands, except share and per share data)
The Company entered into three new office lease agreements in 2016, replacing all existing office lease agreements. All of these leases expired in 2019 with space currently being rented month to month. Office lease expense totaled $133, $160, and $154 in the years ended December 31, 2019, 2018, and 2017, respectively, and is included in general and administrative expense. The Company also has in place operating leases for miscellaneous equipment at its hotel properties.
The maturity of the lease liabilities for the Company’s operating leases is as follows:
|
|
|
Maturity of lease liabilities
|
|
|
Year ended December 31,
|
|
|
2020
|
$
|
22
|
2021
|
|
21
|
2022
|
|
20
|
2023
|
|
4
|
2024
|
|
4
|
Thereafter
|
|
25
|
Total lease payments
|
$
|
96
|
Less: Imputed interest
|
|
(15)
|
Present value of lease liabilities
|
$
|
81
|
As of December 31, 2018, prior to the adoption of ASC 842, the future minimum lease payments applicable to non-cancellable leases were as follows:
|
|
|
|
|
|
|
Lease rents
|
2020
|
|
$
|
138
|
2021
|
|
|
61
|
2022
|
|
|
47
|
2023
|
|
|
-
|
2024
|
|
|
-
|
|
|
$
|
246
|
|
|
|
|
Benefit Plans
The Company has a qualified contributory retirement plan under Section 401(k) of the Code (the “401(k) Plan”) which covers all employees who meet certain eligibility requirements. Voluntary contributions may be made to the 401(k) Plan by employees. The 401(k) Plan is a Safe Harbor Plan and requires a mandatory employer contribution. The employer contribution expense for the years ended December 31, 2019, 2018, and 2017 was $52, $71, and $67, respectively, and is included in general and administrative expenses.
Litigation
Various claims and legal proceedings arise in the ordinary course of business and may be pending against the Company and its properties. We are not currently involved in any material litigation, nor, to our knowledge, is any material litigation threatened against us. The Company has insurance to cover potential material losses and we believe it is not reasonably possible that such matters will have a material impact on our financial condition or results of operations.
On August 20, 2019, a putative class action complaint was filed against the Company and each of the Company directors, operating partnership, NHT Parent, NHT Merger Sub and NHT Merger Op, in the United States District Court for the District of Delaware under the caption Graham v. Condor Hospitality Trust, Inc., et al., Civil Action No. 1:19-cv-01552. The case was voluntarily dismissed by plaintiffs on January 28, 2020.
Condor Hospitality Trust, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(In thousands, except share and per share data)
A second putative class action complaint was filed on August 23, 2019 against the Company and each of the Company directors, the Operating Partnership, Parent, Merger Sub and Merger OP in the United States District Court for the District of Delaware under the caption Sabatini v. Condor Hospitality Trust, Inc., et al., Civil Action No. 1:19-cv-01564. These complaints asserted claims, purportedly brought on behalf of a class of shareholders, under Sections 14(a) and 20(a) of the Securities Exchange Act of 1934 and SEC Rule 14a-9, and alleged that the preliminary proxy statement filed by the Company with the Securities and Exchange Commission (“SEC”) on Schedule 14A on August 9, 2019 (the “Preliminary Proxy Statement”) contained materially incomplete and misleading disclosures. Each of the complaints sought, among other things, injunctive relief enjoining defendants from taking steps to consummate the proposed transactions and damages, along with fees and costs. The case was voluntarily dismissed by plaintiffs on January 28, 2020.
On August 26, 2019, a putative class action was filed against the Company and each of the Company’s directors in the United States District Court for the Southern District of New York under the caption Raul v. Condor Hospitality Trust, Inc., et al., Civil Action No. 1:19-cv-07968. The complaint asserted claims, purportedly brought on behalf of a class of shareholders, under Sections 14(a) and 20(a) of the Securities Exchange Act of 1934 and SEC Rule 14a-9 and alleged that the Preliminary Proxy Statement contained materially incomplete and misleading disclosures. The complaint sought, among other things, injunctive relief enjoining defendants from taking steps to consummate the proposed transaction and damages, along with fees and costs. The case was voluntarily dismissed by plaintiffs on November 19, 2019.
Pursuant to a Confidential Memorandum of Understanding dated September 16, 2019 between the plaintiffs in the above three actions and the Company, if the parties do not resolve any claim for fees and expenses related to the dismissed actions, the plaintiff may assert claims for fees, if at all, in the United States District Court of the District of Delaware.
NOTE 16. QUARTERLY OPERATING RESULTS (UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter ended (unaudited)
|
|
|
March 31, 2018
|
|
June 30, 2018
|
|
September 30, 2018
|
|
December 31, 2018
|
|
Total 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
16,679
|
|
$
|
17,834
|
|
$
|
15,462
|
|
$
|
15,082
|
|
$
|
65,057
|
Operating expenses
|
|
|
14,561
|
|
|
14,876
|
|
|
14,266
|
|
|
13,202
|
|
|
56,905
|
Operating income
|
|
|
2,118
|
|
|
2,958
|
|
|
1,196
|
|
|
1,880
|
|
|
8,152
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net gain (loss) on dispositions of assets
|
|
|
(24)
|
|
|
1,895
|
|
|
3,716
|
|
|
(17)
|
|
|
5,570
|
Equity in earnings (loss) of joint venture
|
|
|
229
|
|
|
63
|
|
|
(41)
|
|
|
(469)
|
|
|
(218)
|
Net gain (loss) on derivatives and convertible debt
|
|
|
447
|
|
|
156
|
|
|
116
|
|
|
(402)
|
|
|
317
|
Other expense
|
|
|
(14)
|
|
|
(20)
|
|
|
(23)
|
|
|
(26)
|
|
|
(83)
|
Interest expense
|
|
|
(1,928)
|
|
|
(2,091)
|
|
|
(2,154)
|
|
|
(2,153)
|
|
|
(8,326)
|
Impairment recovery, net
|
|
|
93
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
93
|
Earnings (loss) before income taxes
|
|
|
921
|
|
|
2,961
|
|
|
2,810
|
|
|
(1,187)
|
|
|
5,505
|
Income tax expense
|
|
|
(129)
|
|
|
(54)
|
|
|
(132)
|
|
|
(20)
|
|
|
(335)
|
Net earnings (loss)
|
|
|
792
|
|
|
2,907
|
|
|
2,678
|
|
|
(1,207)
|
|
|
5,170
|
(Earnings) loss attributable to noncontrolling interest
|
|
|
(6)
|
|
|
(21)
|
|
|
(20)
|
|
|
242
|
|
|
195
|
Earnings (loss) attributable to controlling interests
|
|
|
786
|
|
|
2,886
|
|
|
2,658
|
|
|
(965)
|
|
|
5,365
|
Dividends declared on preferred stock
|
|
|
(144)
|
|
|
(145)
|
|
|
(145)
|
|
|
(144)
|
|
|
(578)
|
Net earnings (loss) attributable to common shareholders
|
|
$
|
642
|
|
$
|
2,741
|
|
$
|
2,513
|
|
$
|
(1,109)
|
|
$
|
4,787
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per Share (1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total - Basic Earnings (loss) per Share
|
|
$
|
0.05
|
|
$
|
0.23
|
|
$
|
0.21
|
|
$
|
(0.10)
|
|
$
|
0.40
|
Total - Diluted Earnings (loss) per Share
|
|
$
|
0.05
|
|
$
|
0.23
|
|
$
|
0.21
|
|
$
|
(0.10)
|
|
$
|
0.40
|
(1) Quarterly and total annual EPS are based on the weighted average number of shares outstanding during each quarter and the annual period. Due to rounding and differences in earnings and losses between the quarterly and annual periods, the sum of the quarterly EPS amounts may not equal the reported amounts for the year.
Condor Hospitality Trust, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(In thousands, except share and per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter ended (unaudited)
|
|
|
March 31, 2019
|
|
June 30, 2019
|
|
September 30, 2019
|
|
December 31, 2019
|
|
Total 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
15,903
|
|
$
|
16,177
|
|
$
|
14,666
|
|
$
|
14,306
|
|
$
|
61,052
|
Operating expenses
|
|
|
13,825
|
|
|
14,562
|
|
|
14,386
|
|
|
13,412
|
|
|
56,185
|
Operating income
|
|
|
2,078
|
|
|
1,615
|
|
|
280
|
|
|
894
|
|
|
4,867
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net gain (loss) on dispositions of assets
|
|
|
39
|
|
|
(16)
|
|
|
(14)
|
|
|
(45)
|
|
|
(36)
|
Equity in earnings (loss) of joint venture
|
|
|
513
|
|
|
166
|
|
|
(84)
|
|
|
(405)
|
|
|
190
|
Net loss on derivatives and convertible debt
|
|
|
(237)
|
|
|
(456)
|
|
|
(223)
|
|
|
(155)
|
|
|
(1,071)
|
Other expense, net
|
|
|
(29)
|
|
|
(24)
|
|
|
(27)
|
|
|
(24)
|
|
|
(104)
|
Interest expense
|
|
|
(2,163)
|
|
|
(2,094)
|
|
|
(1,912)
|
|
|
(1,807)
|
|
|
(7,976)
|
Earnings (loss) before income taxes
|
|
|
201
|
|
|
(809)
|
|
|
(1,980)
|
|
|
(1,542)
|
|
|
(4,130)
|
Income tax expense
|
|
|
(186)
|
|
|
(461)
|
|
|
(8)
|
|
|
(282)
|
|
|
(937)
|
Net earnings (loss)
|
|
|
15
|
|
|
(1,270)
|
|
|
(1,988)
|
|
|
(1,824)
|
|
|
(5,067)
|
Loss attributable to noncontrolling interest
|
|
|
1
|
|
|
6
|
|
|
10
|
|
|
2
|
|
|
19
|
Earnings (loss) attributable to controlling interests
|
|
|
16
|
|
|
(1,264)
|
|
|
(1,978)
|
|
|
(1,822)
|
|
|
(5,048)
|
Dividends declared and undeclared on preferred stock
|
|
|
(145)
|
|
|
(144)
|
|
|
(145)
|
|
|
(144)
|
|
|
(578)
|
Net loss attributable to common shareholders
|
|
$
|
(129)
|
|
$
|
(1,408)
|
|
$
|
(2,123)
|
|
$
|
(1,966)
|
|
$
|
(5,626)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per Share (1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total - Basic Earnings (loss) per Share
|
|
$
|
(0.01)
|
|
$
|
(0.12)
|
|
$
|
(0.18)
|
|
$
|
(0.17)
|
|
$
|
(0.48)
|
Total - Diluted Earnings (loss) per Share
|
|
$
|
(0.01)
|
|
$
|
(0.12)
|
|
$
|
(0.18)
|
|
$
|
(0.17)
|
|
$
|
(0.48)
|
(1) Quarterly and total annual EPS are based on the weighted average number of shares outstanding during each quarter and the annual period. Due to rounding and differences in earnings and losses between the quarterly and annual periods, the sum of the quarterly EPS amounts may not equal the reported amounts for the year.
NOTE 17. SUBSEQUENT EVENTS
Purchase of Atlanta Aloft
On February 14, 2020, the Company purchased our joint venture partner’s interest in the Atlanta JV for $7,300. The purchase price was funded with cash drawn from the credit facility.
Agreement and Plan of Merger
As previously disclosed, the Company Parties and the NHT Parties entered into the Merger Agreement on July 19, 2019 and, since then, have agreed to multiple extensions of the closing of the mergers pursuant to amendments to the Merger Agreement.
Modification of KeyBank Credit Facility
On March 30, 2020, the Company entered into a Sixth Amendment to Credit Agreement among the operating partnership, as borrower, the Company and the subsidiary guarantors party thereto, as guarantors, KeyBank National Association and the other lenders party thereto, as lenders, and KeyBank National Association, as administrative agent (the “Sixth Amendment”). The Sixth Amendment amends the Credit Agreement dated as of March 1, 2017, as amended by the First Amendment dated as of May 11, 2017, Second Amendment dated as of December 13, 2017, Third Amendment dated as of March 8, 2019, Fourth Amendment dated as of May 3, 2019 and Fifth Amendment dated as of August 9, 2019 (collectively, the “Credit Agreement”). The Credit Agreement is described in the Company’s Current Reports on Form 8-K dated March 1, 2017, May 11, 2017, December 13, 2017 and March 5, 2019 and Quarterly Reports on Form 10-Q for the quarters ended March 31, 2019 and June 30, 2019, and is incorporated herein by reference.
The Sixth Amendment, among other things, makes the following changes to the Credit Agreement:
|
·
|
|
Sets the size of the credit facility provided under the Credit Agreement at $102,000,000 and removes the ability to reborrow under the credit facility in the future (without lender approval).
|
Condor Hospitality Trust, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(In thousands, except share and per share data)
|
·
|
|
Extends the maturity date of the credit facility to April 1, 2021, and provides for two extension options (six months and five months).
|
|
·
|
|
Provides for principal prepayments with certain proceeds and cash flows through a cash management system / cash flow waterfall.
|
|
·
|
|
Implements a collateral-specific minimum debt yield (ratio of adjusted net operating income for the borrowing base properties to indebtedness outstanding under the credit facility) of 10%. The covenant is first tested on September 30, 2020 and for purposes of calculating compliance with the covenant, annualized results are used until June 30, 2021 when the calculation is based on the most recently ended four fiscal quarters.
|
|
·
|
|
Maintains the maximum consolidated leverage ratio (ratio of consolidated total indebtedness to consolidated total asset value) of 60% but provides for updated appraisals to determine consolidated total asset value (if required by the lenders).
|
|
·
|
|
Modifies the fixed charge coverage ratio (ratio of adjusted consolidated EBITDA to consolidated fixed charges) to (a) 1.25 to 1 as of the end of the fiscal quarter ending September 30, 2020 and (b) 1.50 to 1 as of the end of the fiscal quarter ending December 31, 2020 and each fiscal quarter thereafter. For purposes of calculating compliance with the covenant, annualized results are used until June 30, 2021 when the calculation is based on the most recently ended four fiscal quarters.
|
|
·
|
|
Implements a maximum borrowing base leverage ratio (ratio of indebtedness outstanding under the credit facility to borrowing base asset value (based on updated appraisals required by the lenders) of 65%. The covenant is first tested on June 30, 2021.
|
|
·
|
|
Eliminates the financial covenants regarding secured leverage ratio, tangible net worth and variable rate debt.
|
|
·
|
|
Modifies the covenant on dividends and distributions to provide that no cash dividends or distributions may be made to common or preferred shareholders.
|
|
·
|
|
Modifies the covenants on recourse debt and investments to provide that no additional recourse debt or investments will be permitted.
|
|
·
|
|
Adds certain monthly reporting obligations.
|
|
·
|
|
Increases the interest rate for the credit facility to LIBOR plus 3.25% or a base rate plus 2.25%, and further increases the interest rate spreads by 0.25% at six month intervals. The LIBOR rate is subject to a floor of 0.25%.
|
Additionally, our mortgage loan with KeyBank which finances the Atlanta Aloft matures on May 8, 2020. The Company plans to refinance this loan prior to maturity with our KeyBank credit facility if approved by the lenders. In the event this refinancing is not completed prior to maturity, KeyBank has provided a binding commitment to extend the maturity of the loan to April 1, 2021.