Quarterly Report (10-q)

Date : 11/14/2019 @ 9:50PM
Source : Edgar (US Regulatory)
Stock : Condor Hospitality Trust Inc (CDOR)
Quote : 11.05  0.01 (0.09%) @ 11:00PM

Quarterly Report (10-q)

 





 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



FORM 10-Q

 

    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended September 30, 2019



OR

 

    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934



For the transition period from ______ to ______.

 



Commission file number: 001-34087

 

CONDOR HOSPITALITY TRUST, INC.



(Exact name of registrant as specified in its charter)

 

Maryland

(State or other jurisdiction of

incorporation or organization)

 

52-1889548

(IRS Employer

Identification Number)

4800 Montgomery Lane Ste. 220, Bethesda, MD 20814

(Address of principal executive offices)

Telephone number: (402) 371-2520

 

Securities registered pursuant to Section 12(b) of the Act:







 

 

 

 

Title of each class  

 

Trading symbol

 

Name of each exchange on which registered

Common stock, par value $0.01 per share

 

CDOR

 

NYSE American



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



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



Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth company. See definitions of “large accelerated file,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12-b2 of the Exchange Act.





 

Large accelerated filer 

Accelerated filer 

Non-accelerated filer   

Small reporting company   



Emerging growth company    



If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act  YES   NO



Indicate by check mark whether the registrant is a shell company (as described in Rule 12b-2 of the Exchange Act).YES    NO 



As of November 8, 2019 there were 11,920,217 shares of common stock, par value $.01 per share, outstanding.



 



 


 

Condor Hospitality Trust, Inc. and Subsidiaries

Table of Contents

 







 

 

 



 

 

Page

Number



 

 

 

Part I.

FINANCIAL INFORMATION

 



 

 

 

Item 1.

Financial Statements

 



 

 

 



Consolidated Balance Sheets as of September 30, 2019 and December 31, 2018

3



 

 



Consolidated Statements of Operations for the Three and Nine Months ended September 30, 2019 and 2018

4



 

 



Consolidated Statements of Equity for the Three and Nine  Months ended September 30, 2019 and 2018

5



 

 



Consolidated Statements of Cash Flows for the Nine  Months ended September 30, 2019 and 2018

7



 

 

 



Notes to Consolidated Financial Statements

8



 

 

 

Item 2.

Management's Discussion and Analysis of Financial Condition and Results of Operations

31



 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

45



 

 

Item 4.

Controls and Procedures

46



 

 

Part II.

OTHER INFORMATION

 



 

 

Item 1.

Legal Proceedings

46



 

 

Item 1A.

Risk Factors

47



 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

47



 

 

Item 3.

Defaults Upon Senior Securities

47



 

 

Item 4.

Mine Safety Disclosures

47



 

 

Item 5.

Other Information

48



 

 

Item 6.

Exhibits

48

 



 

2

 


 

PART I.  FINANCIAL INFORMATION

 

Condor Hospitality Trust, Inc. and Subsidiaries

Consolidated Balance Sheets

(Unaudited - In thousands, except share and per share data)





 



   



 

 

 

 

 

 



 

As of



 

September 30, 2019

 

December 31, 2018



 

 

 

 

 

 

Assets

 

 

 

 

 

 

Investment in hotel properties, net

 

$

224,376 

 

$

230,178 

Investment in unconsolidated joint venture

 

 

4,649 

 

 

5,866 

Cash and cash equivalents

 

 

5,046 

 

 

4,151 

Restricted cash, property escrows

 

 

6,906 

 

 

5,005 

Accounts receivable, net

 

 

1,500 

 

 

1,290 

Prepaid expenses and other assets

 

 

1,131 

 

 

2,227 

Derivative assets, at fair value

 

 

428 

 

 

639 

Investment in hotel properties held for sale, net

 

 

 -

 

 

4,092 

Total Assets

 

$

244,036 

 

$

253,448 



 

 

 

 

 

 

Liabilities and Equity

 

 

 

 

 

 



 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

Accounts payable, accrued expenses, and other liabilities

 

$

7,993 

 

$

5,336 

Dividends and distributions payable

 

 

145 

 

 

2,330 

Derivative liabilities, at fair value

 

 

498 

 

 

 -

Convertible debt, at fair value

 

 

1,199 

 

 

1,000 

Long-term debt, net of deferred financing costs

 

 

134,017 

 

 

135,810 

Long-term debt related to hotel properties held for sale, net of deferred financing costs

 

 

 -

 

 

1,120 

Total Liabilities

 

 

143,852 

 

 

145,596 



 

 

 

 

 

 

Equity

 

 

 

 

 

 

Shareholders' Equity

 

 

 

 

 

 

Preferred stock, 40,000,000 shares authorized:

 

 

 

 

 

 

6.25% Series E, 925,000 shares authorized, $.01 par value, 925,000 shares outstanding, liquidation preference of $9,394 and  $9,250

 

 

10,050 

 

 

10,050 

Common stock, $.01 par value, 200,000,000 shares authorized; 11,916,309 and 11,886,003 shares outstanding

 

 

119 

 

 

119 

Additional paid-in capital

 

 

232,627 

 

 

231,805 

Accumulated deficit

 

 

(143,277)

 

 

(134,970)

Total Shareholders' Equity

 

 

99,519 

 

 

107,004 

Noncontrolling interest in consolidated partnership (Condor Hospitality Limited Partnership), redemption value of $623 and $435

 

 

665 

 

 

848 

Total Equity

 

 

100,184 

 

 

107,852 



 

 

 

 

 

 

Total Liabilities and Equity

 

$

244,036 

 

$

253,448 















See accompanying notes to consolidated financial statements.



 

3

 


 

Condor Hospitality Trust, Inc. and Subsidiaries

Consolidated Statements of Operations

(Unaudited - In thousands, except per share data)













 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 



 

Three months ended September 30,

 

Nine months ended September 30,



 

2019

 

2018

 

2019

 

2018

Revenue

 

 

 

 

 

 

 

 

 

 

 

 

Room rentals and other hotel services

 

$

14,666 

 

$

15,462 

 

$

46,746 

 

$

49,975 

Operating Expenses

 

 

 

 

 

 

 

 

 

 

 

 

Hotel and property operations

 

 

9,718 

 

 

10,148 

 

 

29,266 

 

 

31,318 

Depreciation and amortization

 

 

2,405 

 

 

2,423 

 

 

7,161 

 

 

7,126 

General and administrative

 

 

1,210 

 

 

1,599 

 

 

4,445 

 

 

5,073 

Acquisition and terminated transactions

 

 

 

 

96 

 

 

15 

 

 

186 

Equity transaction and strategic alternatives

 

 

1,052 

 

 

 -

 

 

1,886 

 

 

 -

Total operating expenses

 

 

14,386 

 

 

14,266 

 

 

42,773 

 

 

43,703 

Operating income

 

 

280 

 

 

1,196 

 

 

3,973 

 

 

6,272 

Net gain (loss) on disposition of assets

 

 

(14)

 

 

3,716 

 

 

 

 

5,587 

Equity (loss) in earnings of joint venture

 

 

(84)

 

 

(41)

 

 

595 

 

 

251 

Net gain (loss) on derivatives and convertible debt

 

 

(223)

 

 

116 

 

 

(916)

 

 

719 

Other expense, net

 

 

(27)

 

 

(23)

 

 

(80)

 

 

(57)

Interest expense

 

 

(1,912)

 

 

(2,154)

 

 

(6,169)

 

 

(6,173)

Impairment recovery, net

 

 

 -

 

 

 -

 

 

 -

 

 

93 

Earnings (loss) before income taxes

 

 

(1,980)

 

 

2,810 

 

 

(2,588)

 

 

6,692 

Income tax expense

 

 

(8)

 

 

(132)

 

 

(655)

 

 

(315)

Net earnings (loss)

 

 

(1,988)

 

 

2,678 

 

 

(3,243)

 

 

6,377 

Loss (earnings) attributable to noncontrolling interest

 

 

10 

 

 

(20)

 

 

17 

 

 

(47)

Net earnings (loss) attributable to controlling interests

 

 

(1,978)

 

 

2,658 

 

 

(3,226)

 

 

6,330 

Dividends declared and undeclared on preferred stock

 

 

(145)

 

 

(145)

 

 

(434)

 

 

(434)

Net earnings (loss) attributable to common shareholders

 

$

(2,123)

 

$

2,513 

 

$

(3,660)

 

$

5,896 



 

 

 

 

 

 

 

 

 

 

 

 

Earnings (Loss) per Share

 

 

 

 

 

 

 

 

 

 

 

 

Total - Basic Earnings (Loss) per Share

 

$

(0.18)

 

$

0.21 

 

$

(0.31)

 

$

0.50 

Total - Diluted Earnings (Loss) per Share

 

$

(0.18)

 

$

0.21 

 

$

(0.31)

 

$

0.49 



 

 

 

 

 

 

 

 

 

 

 

 

See accompanying notes to consolidated financial statements.



 



 

4

 


 

Condor Hospitality Trust, Inc. and Subsidiaries

Consolidated Statements of Equity

(Unaudited - In thousands, except per share amounts)













 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

Three months ended September 30, 2018



 

Shares of Preferred stock

 

Preferred stock

 

Shares of Common stock

 

Common stock

 

Additional paid-in capital

 

Accumulated deficit

 

Total Shareholders' equity

 

Noncontrolling interest

 

Total equity

Balance at June 30, 2018

 

 

925 

 

$

10,050 

 

 

11,882 

 

$

119 

 

$

231,474 

 

$

(131,739)

 

$

109,904 

 

$

1,449 

 

$

111,353 

Stock-based compensation

 

 

 -

 

 

 -

 

 

 

 

 -

 

 

232 

 

 

 -

 

 

232 

 

 

 -

 

 

232 

Issuance of common stock

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 

 

 -

 

 

 

 

 -

 

 

Dividends and distributions declared

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Stock ($0.195 per share)

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

(2,317)

 

 

(2,317)

 

 

 -

 

 

(2,317)

Series E Preferred Stock

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

(145)

 

 

(145)

 

 

 -

 

 

(145)

Common Units ($0.00375 per unit)

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

(18)

 

 

(18)

Redemption of common units

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

42 

 

 

 

 

 

42 

 

 

(202)

 

 

(160)

Net earnings

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

2,658 

 

 

2,658 

 

 

20 

 

 

2,678 

Balance at September 30, 2018

 

 

925 

 

$

10,050 

 

 

11,884 

 

$

119 

 

$

231,750 

 

$

(131,543)

 

$

110,376 

 

$

1,249 

 

$

111,625 













 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

Three months ended September 30, 2019



 

Shares of Preferred stock

 

Preferred stock

 

Shares of Common stock

 

Common stock

 

Additional paid-in capital

 

Accumulated deficit

 

Total Shareholders' equity

 

Noncontrolling interest

 

Total equity

Balance at June 30, 2019

 

 

925 

 

$

10,050 

 

 

11,911 

 

$

119 

 

$

232,405 

 

$

(141,154)

 

$

101,420 

 

$

771 

 

$

102,191 

Stock-based compensation

 

 

 -

 

 

 -

 

 

 

 

 -

 

 

126 

 

 

 -

 

 

126 

 

 

 -

 

 

126 

Dividends and distributions undeclared

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Series E Preferred Stock

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

(145)

 

 

(145)

 

 

-

 

 

(145)

Redemption of common units

 

 

 -

 

 

 -

 

 

 

 

 -

 

 

96 

 

 

 -

 

 

96 

 

 

(96)

 

 

 -

Net loss

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

(1,978)

 

 

(1,978)

 

 

(10)

 

 

(1,988)

Balance at September 30, 2019

 

 

925 

 

$

10,050 

 

 

11,917 

 

$

119 

 

$

232,627 

 

$

(143,277)

 

$

99,519 

 

$

665 

 

$

100,184 











See accompanying notes to consolidated financial statements.



5

 


 

Condor Hospitality Trust, Inc. and Subsidiaries

Consolidated Statements of Equity

(Unaudited - In thousands, except per share amounts)





 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

Nine months ended September 30, 2018



 

Shares of Preferred stock

 

Preferred stock

 

Shares of Common stock

 

Common stock

 

Additional paid-in capital

 

Accumulated deficit

 

Total Shareholders' equity

 

Noncontrolling interest

 

Total equity

Balance at December 31, 2017

 

 

925 

 

$

10,050 

 

 

11,834 

 

$

118 

 

$

230,727 

 

$

(130,489)

 

$

110,406 

 

$

1,408 

 

$

111,814 

Stock-based compensation

 

 

 -

 

 

 -

 

 

22 

 

 

 -

 

 

722 

 

 

 -

 

 

722 

 

 

 -

 

 

722 

Issuance of common stock

 

 

 -

 

 

 -

 

 

28 

 

 

 

 

259 

 

 

 -

 

 

260 

 

 

 -

 

 

260 

Issuance of common units

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

50 

 

 

50 

Dividends and distributions declared

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Stock ($0.585 per share)

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

(6,950)

 

 

(6,950)

 

 

 -

 

 

(6,950)

Series E Preferred Stock

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

(434)

 

 

(434)

 

 

 -

 

 

(434)

Common Units ($0.011 per unit)

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

(54)

 

 

(54)

Redemption of common units

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

42 

 

 

 -

 

 

42 

 

 

(202)

 

 

(160)

Net earnings

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

6,330 

 

 

6,330 

 

 

47 

 

 

6,377 

Balance at September 30, 2018

 

 

925 

 

$

10,050 

 

 

11,884 

 

$

119 

 

$

231,750 

 

$

(131,543)

 

$

110,376 

 

$

1,249 

 

$

111,625 







 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

Nine months ended September 30, 2019



 

Shares of Preferred stock

 

Preferred stock

 

Shares of Common stock

 

Common stock

 

Additional paid-in capital

 

Accumulated deficit

 

Total Shareholders' equity

 

Noncontrolling interest

 

Total equity

Balance at December 31, 2018

 

 

925 

 

$

10,050 

 

 

11,886 

 

$

119 

 

$

231,805 

 

$

(134,970)

 

$

107,004 

 

$

848 

 

$

107,852 

Stock-based compensation

 

 

 -

 

 

 -

 

 

29 

 

 

 -

 

 

720 

 

 

 -

 

 

720 

 

 

 -

 

 

720 

Dividends and distributions declared and undeclared

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Stock ($0.39 per share)

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

(4,647)

 

 

(4,647)

 

 

 -

 

 

(4,647)

Series E Preferred Stock

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

(434)

 

 

(434)

 

 

 -

 

 

(434)

Common Units ($0.0075 per unit)

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

(22)

 

 

(22)

Redemption of common units

 

 

 -

 

 

 -

 

 

 

 

 -

 

 

102 

 

 

 -

 

 

102 

 

 

(144)

 

 

(42)

Net loss

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

(3,226)

 

 

(3,226)

 

 

(17)

 

 

(3,243)

Balance at September 30, 2019

 

 

925 

 

$

10,050 

 

 

11,917 

 

$

119 

 

$

232,627 

 

$

(143,277)

 

$

99,519 

 

$

665 

 

$

100,184 



See accompanying notes to consolidated financial statements.

 

6

 


 

Condor Hospitality Trust, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

(Unaudited – In thousands)

 









 

 

 

 

 

 



 

Nine months ended September 30,



 

 

2019

 

 

2018

Cash flows from operating activities:

 

 

 

 

 

 

Net earnings (loss)

 

$

(3,243)

 

$

6,377 

Adjustments to reconcile net earnings (loss) to net cash provided by operating activities:

 

 

 

 

 

 

Depreciation and amortization expense

 

 

7,161 

 

 

7,126 

Net gain on disposition of assets

 

 

(9)

 

 

(5,587)

Net (gain) loss on derivatives and convertible debt

 

 

916 

 

 

(719)

Equity in earnings of joint venture

 

 

(595)

 

 

(251)

Distributions from cumulative earnings of joint venture

 

 

170 

 

 

187 

Amortization of deferred financing costs

 

 

981 

 

 

1,080 

Impairment recovery, net

 

 

 -

 

 

(93)

Stock-based compensation expense

 

 

901 

 

 

912 

Provision for deferred taxes

 

 

613 

 

 

294 

Changes in operating assets and liabilities:

 

 

 

 

 

 

(Increase) decrease in assets

 

 

477 

 

 

(623)

Increase in liabilities

 

 

2,233 

 

 

532 

Net cash provided by operating activities

 

 

9,605 

 

 

9,235 



 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

 

Additions to hotel properties

 

 

(1,229)

 

 

(1,527)

Distributions in excess of cumulative earnings from joint venture

 

 

1,643 

 

 

1,173 

Hotel acquisitions

 

 

 -

 

 

(35,643)

Net proceeds from sale of hotel assets

 

 

4,186 

 

 

19,690 

Net cash provided by (used in) investing activities

 

 

4,600 

 

 

(16,307)



 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

 

Deferred financing costs

 

 

(415)

 

 

(147)

Proceeds from long-term debt

 

 

1,500 

 

 

35,318 

Principal payments on long-term debt

 

 

(4,979)

 

 

(19,930)

Proceeds from common stock issuance

 

 

 -

 

 

260 

Redemption of common units

 

 

(42)

 

 

(160)

Tax withholdings on stock compensation

 

 

(181)

 

 

(190)

Cash dividends paid to common shareholders

 

 

(6,965)

 

 

(6,941)

Cash dividends paid to common unit holders

 

 

(34)

 

 

(54)

Cash dividends paid to preferred shareholders

 

 

(289)

 

 

(434)

Other items

 

 

(4)

 

 

 -

Net cash provided by (used in) financing activities

 

 

(11,409)

 

 

7,722 



 

 

 

 

 

 

Increase in cash, cash equivalents, and restricted cash

 

 

2,796 

 

 

650 

Cash, cash equivalents, and restricted cash beginning of period

 

 

9,156 

 

 

10,335 

Cash, cash equivalents, and restricted cash end of period

 

$

11,952 

 

$

10,985 



 

 

 

 

 

 

Supplemental cash flow information:

 

 

 

 

 

 

Interest paid

 

$

5,197 

 

$

5,052 

Income taxes paid, net of refunds

 

$

67 

 

$

66 



 

 

 

 

 

 

Schedule of noncash investing and financing activities:

 

 

 

 

 

 

Fair value of operating partnership common units issued in acquisitions

 

$

 -

 

$

50 















See accompanying notes to consolidated financial statements.



 

7

 


 

Condor Hospitality Trust, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited – 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”), a Maryland corporation, 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 September 30,  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, its 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”), for which we serve as general partner.  The operating partnership, including its various subsidiaries, 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 September 30, 2019, the Company owned 99.5% 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 annually. 



Agreement and Plan of Merger



On July 19, 2019, the Company, the operating partnership, NHT Operating Partnership, LLC (“Parent”), NHT REIT Merger Sub, LLC (“Merger Sub”) and NHT Operating Partnership II, LLC (“Merger OP,” and together with Parent and Merger Sub, the “Parent Parties”), entered into an Agreement and Plan of Merger (as amended from time to time, 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 by the Company’s Board of Directors (the “Company Board”). 



Pursuant to the terms and conditions in the Merger Agreement, upon completion of the Company Merger, each share of the Company’s common stock (other than treasury shares and shares held by the Parent Parties, which will be cancelled and retired and will cease to exist with no consideration being delivered in exchange therefor), par value $0.01 per share (the “Company common stock”), will be converted into the right to receive $11.10 per share in cash, and each share of 6.25% Series E Cumulative Convertible Preferred Stock (“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.  Upon completion of the Partnership Merger, each common unit of partnership interest in the operating partnership

8

 


 

Condor Hospitality Trust, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited – In thousands, except share and per share data)

 

(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 has agreed to exercise its right to acquire the remaining 20% equity interest of the Atlanta JV that it does not own, pursuant to the terms of the Atlanta JV organizational documents, with the purchase to be financed from the Company’s line of credit under its credit facility.  The acquisition of the remaining 20% equity interest of the Atlanta JV is expected to occur prior to the closing of the Mergers.



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.



The consummation of the Mergers is subject to certain customary closing conditions, including, among others, adoption and approval of the Merger Agreement and the transactions contemplated by the Merger Agreement, including, without limitation, the Company Merger (collectively, the “Merger Proposal”) by the affirmative vote of (1) a majority of the votes entitled to be cast by the holders of the Company common stock, and (2) the holders of 75% of the outstanding Series E preferred stock, voting as separate classes (the “Company Shareholder Approval”). A shareholders’ meeting was held on September 23, 2019 at which Company Shareholder Approval was obtained.



The Merger Agreement restricts the Company’s ability to solicit other acquisition proposals (as defined in the Merger Agreement), or to provide information to or engage in discussions with third parties regarding other acquisition proposals. Subject to certain conditions, the Company Board of Directors was permitted to change its recommendation with respect to the Merger Proposal in response to a superior proposal (as defined in the Merger Agreement) and, upon payment of a $9,540 termination fee, to terminate the Merger Agreement and enter into an agreement with respect to a superior proposal; provided such superior proposal occurred no later than August 18, 2019.  However, no such proposal was received by that date.



Upon a termination of the Merger Agreement, under certain circumstances, the Company will be required to pay a termination fee to Parent of $9,540. In certain other circumstances, Parent will be required to pay the Company a termination fee of $11,925 upon termination of the Merger Agreement.



If the Company notifies Parent that it is prepared to close and all conditions to Parent’s obligations to close are met, then Parent, at its option, may extend the closing time for a 30-day period (or such shorter period so as not to extend beyond December 31, 2019), provided, that no Parent Party is then in breach of the Merger Agreement in any material respect.  Parent may exercise an extension up to three times during the term of the Merger Agreement.



During the term of the Merger Agreement, the Company may not pay cash dividends to holders of the Company common stock or the Series E Preferred Stock, except the Company is permitted to declare and pay a dividend to shareholders during the month in which an extension option for the closing of the transactions contemplated by the Merger Agreement is exercised by Parent, subject to limitations as set forth in the Merger Agreement and the disclosure schedule delivered therewith that sets forth a limitation on the amount of any such dividends, and is based on available prior month adjusted funds from operations as calculated pursuant to the Merger Agreement.  The holders of the Series E Preferred Stock have agreed to waive accrual of any unpaid dividends between signing and closing.



9

 


 

Condor Hospitality Trust, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited – In thousands, except share and per share data)

 

On September 13, 2019, the Company and the other parties to the Merger Agreement entered into Amendment No. 1 (the “Amendment”) to the Merger Agreement.



In connection with the execution of the Debt Commitment Letter (defined below), Key (defined below) requested that customary provisions be added to the Merger Agreement regarding remedies of the Company against Key. Pursuant to Section 8.1 of the Merger Agreement, the Company, the operating partnership and the Parent Parties previously agreed that they would execute an amendment to add these customary provisions to the Merger Agreement in connection with the securing of committed financing. Other than as expressly modified by the Amendment, the Merger Agreement remains in full force and effect as originally executed.



On September 13, 2019, pursuant to Section 5.22 of the Merger Agreement, Parent delivered to the Company a commitment letter executed by KeyBank National Association (“Key”), together with all schedules and exhibits thereto (as modified, amended or supplemented from time to time, the “Debt Commitment Letter”), pursuant to which Key has committed to provide an approximately $181,260 senior secured term loan facility, on the terms and subject to the conditions set forth in the Debt Commitment Letter, for the purpose of funding a portion of the merger consideration and the obligations of the Parent Parties set forth in the Merger Agreement. The Debt Commitment Letter is customary in form and substance, and does not include any condition that is a “diligence out.” Accordingly, the amount set forth in the equity commitment letter delivered by Parent in connection with the Merger Agreement (the “Equity Commitment Letter”) was automatically and irrevocably reduced from $308,200 to $126,940. Key’s obligation to provide the debt financing under the Debt Commitment Letter is subject to customary conditions, including the following:



·

the concurrent closing of the Mergers in accordance in all material respects with the Merger Agreement;



·

the negotiation, execution and delivery of definitive documentation with respect to the debt financing consistent with the terms of the Debt Commitment Letter and which contain other provisions customary for this type of financing transaction;



·

the absence of a Company Material Adverse Effect (as defined in the Merger Agreement) since September 13, 2019;



·

the funding of the equity commitment pursuant to, and on the conditions set forth in, the Equity Commitment Letter; and



·

all actions or documents necessary to establish that Key will have a perfected first-priority lien and security interest (subject to liens permitted under the loan documents) in the collateral granted by Parent and under the credit facility, including, without limitation, repayment of any existing indebtedness secured by the collateral, shall have been taken or executed and delivered.



The commitment of Key under the Debt Commitment Letter expires on November 15, 2019, and may be extended to January 8, 2020, subject to Parent continuing to satisfy all conditions contained in the Debt Commitment Letter and payment of a fee equal to 0.15% of the commitment amount.



Basis of Presentation



The consolidated financial statements have been prepared in accordance with U.S. generally 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. 



We evaluate each of our investments and contractual relationships to determine whether they meet the guidelines for consolidation. Entities are consolidated if the determination is made that we are the primary beneficiary in a variable interest entity (“VIE”) or we maintain control of the asset through our voting interest or other rights in the operation of the entity.  The Company has concluded that our operating partnership meets the criteria to be considered a VIE of which the Company is the primary beneficiary and, accordingly, the Company consolidates the operating

10

 


 

Condor Hospitality Trust, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited – In thousands, except share and per share data)

 

partnership. The Company’s sole significant asset is its investment in the operating partnership, and consequently, substantially all of the Company’s assets and liabilities represent those assets and liabilities of the operating partnership. All of the Company’s debt is an obligation of the operating partnership.



The accompanying unaudited consolidated financial statements have been prepared in accordance with U.S. GAAP for interim financial information and with the general instructions to Form 10-Q and Rule 10-01 of Regulation S-X.  Accordingly, they do not include all of the information and notes required by U.S. GAAP for complete financial statements.  These unaudited consolidated financial statements include all adjustments considered necessary for a fair presentation of the consolidated financial statements for the periods presented. Interim results are not necessarily indicative of full-year performance for the year ending December 31, 2019 or any future period. These consolidated financial statements should be read in conjunction with the audited consolidated financial statements and accompanying notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018.



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 the real estate market can significantly impact hotel operating 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.



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 completed in 2018 were the acquisition of assets and as such acquisition costs were capitalized as part of these transactions (see Note 3). 



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.



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

11

 


 

Condor Hospitality Trust, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited – In thousands, except share and per share data)

 

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 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 consolidated statements of cash flows using the cumulative distributions 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 and Discontinued Operations



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 prior to that balance sheet date, 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. 



Only disposals representing a strategic shift in operations that have a major effect on an entity’s operations and financial results are presented as discontinued operations.  None of the dispositions completed in 2018 or 2019 to date have met this definition, and we anticipate that most of our hotel dispositions will not be classified as discontinued operations as most will not fit this definition.



At the end of each reporting period, if the fair value of a 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 decision not to sell.



12

 


 

Condor Hospitality Trust, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited – In thousands, except share and per share data)

 

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 costs which approximates fair value.



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. 



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.



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:







 

 

 

 

 

 

 

 

 

 

 

 



 

Three months ended September 30,

 

Nine months ended September 30,



 

2019

 

2018

 

2019

 

2018

Rooms

 

$

13,798 

 

$

14,710 

 

$

44,413 

 

$

47,598 

Food and beverages

 

 

318 

 

 

352 

 

 

1,073 

 

 

1,138 

Other

 

 

550 

 

 

400 

 

 

1,260 

 

 

1,239 

Total revenue

 

$

14,666 

 

$

15,462 

 

$

46,746 

 

$

49,975 



Income Taxes



The Company qualifies and intends to continue to qualify as a REIT under the applicable provisions of the Internal Revenue Code (the “Code”), as amended.  In general, under such Code provisions, an entity 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.  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 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 the consideration of available evidence, including tax planning strategies and projections for future taxable income over the periods in

13

 


 

Condor Hospitality Trust, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited – In thousands, except share and per share data)

 

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.



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 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 are 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).



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

14

 


 

Condor Hospitality Trust, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited – In thousands, except share and per share data)

 

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.



NOTE 2.  INVESTMENT IN HOTEL PROPERTIES



Investment in hotel properties consisted of the following at September 30, 2019 and December 31, 2018:





 

 

 

 

 

 

 

 

 

 

 

 



As of



 

September 30, 2019

 

December 31, 2018



 

Total

 

Held for sale

 

Held for use

 

Total

Land

 

$

20,201 

 

$

2,304 

 

$

20,200 

 

$

22,504 

Buildings, improvements, vehicle

 

 

206,950 

 

 

4,462 

 

 

206,821 

 

 

211,283 

Furniture and equipment

 

 

21,721 

 

 

719 

 

 

20,554 

 

 

21,273 

Initial franchise fees

 

 

1,784 

 

 

25 

 

 

1,784 

 

 

1,809 

Construction-in-progress

 

 

65 

 

 

 

 

323 

 

 

330 

Right of use asset

 

 

221 

 

 

 -

 

 

 -

 

 

 -

Investment in hotel properties

 

 

250,942 

 

 

7,517 

 

 

249,682 

 

 

257,199 

Less accumulated depreciation

 

 

(26,566)

 

 

(3,425)