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, 2020, the Company owned 15 hotels in eight states. 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, 2020, 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 historical trend has been disrupted as a result of COVID-19. For the year ended December 31, 2020, the first quarter of the year had higher revenue, operating income, and cash flow as hotel demand declined significantly as a result of COVID-19 beginning in March 2020.
Termination and Settlement of Agreement and Plan of Merger
On September 18, 2020, the Company terminated the Agreement and Plan and Merger, dated July 19, 2019, as amended (the “Merger Agreement”), by and among the Company, Condor Hospitality Limited Partnership (together with the Company, the “Company Parties”), 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”). Pursuant to the Merger Agreement, the Company was to be acquired by Parent in a merger transaction.
On October 15, 2020, the Company announced that the Company Parties entered into a settlement agreement (the “Settlement Agreement”) with NexPoint Advisors L.P. (“NexPoint Advisors”), NexPoint Hospitality Trust (TSVX: NHT) (“NHT”), and Parent Parties (NexPoint Advisors, NHT and Parent Parties collectively, the “NHT Parties”), following the Company’s previously announced termination of the Merger Agreement.
Pursuant to the Settlement Agreement, the NHT Parties made three payments to the Company totaling $7,000. All payments were received during the fourth quarter of 2020 and recorded as a reduction of strategic alternatives expense, net upon receipt. Upon timely payment of all of the Settlement Payments, the NHT Parties’ settlement liability was satisfied in full. In exchange for these payment obligations, the NHT Parties have been released from all claims or liabilities relating to the Merger Agreement. Pursuant to the Settlement Agreement, the Company Parties also have been released from all claims or liabilities relating to the Merger Agreement.
Condor Hospitality Trust, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(In thousands, except share and per share data)
Additionally, during the second quarter of 2020, the Company received nonrefundable cash of $500 from NHT Parties in connection with the then ongoing discussions concerning potential adjustments to restructure the transaction, which, in the event a transaction occurs, was to be credited against the acquisition purchase price. This deposit was recognized as a reduction of strategic alternatives expense, net upon the termination of the Merger Agreement on September 18, 2020.
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.
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 novel coronavirus (COVID-19) has reduced travel significantly and adversely affected the hospitality industry in general. The actual and threatened spread of COVID-19 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 the hospitality industry, and thus our business, will be affected by COVID-19 will largely depend on future developments which we cannot accurately predict, and the impact on customer travel, including the duration of the outbreak, the continued spread and treatment of COVID-19, and new information and developments that may emerge concerning the severity of COVID-19 and the actions to contain COVID-19 or treat its impact, among others. To the extent that travel activity in the U.S. is and will be materially and adversely affected by COVID-19, business and financial results of the hospitality industry, and thus our business and financial results, could be impacted.
Since late March 2020, similar to the conditions affecting the hospitality industry as a whole, we have experienced occupancy declines at many of our properties which have and will continue to require us to adjust our business operations, and will have had and will continue to have an impact on our operating income and may potentially impact future compliance with our debt covenants.
As a result of the above factors, the Company is and has taken actions at the corporate and hotel level, including, but not limited to:
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·
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Obtained significant modifications of its debt agreements, including extension of the credit facility to January 2, 2023 with an increase in credit availability and modifications and waivers of debt covenants, from the majority of the Company’s lenders.
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·
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Asset management working with hotel management companies to reduce all hotels operating expenses including, but not limited to, closing off multiple floors, staffing reductions and furloughs, utility consumption reductions, purchasing reductions and eliminations, contract services reductions and eliminations, food services closures, exercise facilities closures, and certain reduction and elimination of certain marketing expenditures.
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·
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Seeking potential alternative revenue sources through health care providers, government agencies, universities and airlines.
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Condor Hospitality Trust, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(In thousands, except share and per share data)
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·
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Obtaining Paycheck Protection Program (“PPP”) loans authorized under the recently congressionally approved Coronavirus Aid, Relief, and Economic Security (“CARES”) Act totaling $2.3 million (see Significant Debt Transactions below).
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·
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Pursuing corporate cost reductions, including staffing reductions, resulting in an approximately 30% decrease in general and administrative expenses compared to historical operations.
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·
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Capital improvement projects have been suspended except for emergency circumstances and will remain on hold for immediate future, with the potential for the suspension to continue through 2021.
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·
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The Company determined that it was advisable and the best business practice to cause a temporary closure of two of its hotels, the Solomons Hilton Garden Inn on April 20, 2020 and the Leawood Aloft on April 9, 2020. These hotels were both reopened on July 1, 2020 and no other hotel closures have been deemed necessary.
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We believe the ongoing effects of the COVID-19 pandemic on our operations have had, and will continue to have, a material negative impact on the hospitality industry, and thus on our financial results and liquidity, and such negative impact may continue beyond the containment of the pandemic. While we cannot assure you that the assumptions used to estimate our future liquidity will be correct, the Company believes it can generate the liquidity required to operate through the crisis through a combination of the continued operation of our portfolio with significant cost reduction measures in place, existing availability under our credit facility, and, if necessary, additional debt and equity financings. However, there can be no assurance that the Company will be able to obtain such financing on acceptable terms or at all.
Pursuant to the terms of the ninth amendment to the Company’s credit facility with KeyBank, it is an event of default if the convertible notes issued in 2020 (see Note 7) are not either converted to common stock or paid in full by July 1, 2021. The Company intends to not cause such an event of default by satisfying the convertible notes with the Rights Offering, which has a full backstop commitment (see Note 7), or otherwise satisfying the convertible notes with a sale of equity or negotiating an extension of the July 1, 2021 date with KeyBank.
Additionally, as of December 31, 2020 (see Note 6), the Company’s loans with Great Western Bank (financing the Leawood, Kansas Aloft) were purchased by OSK X, LLC, an equity fund affiliate of O’Brien Staley Partners, on December 24, 2020. The Company did not satisfy the financial covenants for these loans as of December 31, 2020, as was the case for the first three quarters of 2020. The Company has been advised by OSK X, LLC that it is in default for failure to comply with the financial covenants as of December 31, 2020 (unlike Great Western Bank that waived the covenants for the first three quarters of 2020). This default under our loan agreement with OSK X, LLC will not result in a cross-default under our credit facility until a 90-day cure period with respect to the default expires on May 27, 2021. The Company is continuing to pursue negotiating with OSK X, LLC to obtain waivers, and if waivers are unable to be obtained, the Company plans to refinance the debt with existing or new lenders which the Company believes it can successfully complete. However, waivers and the ability to refinance are at the discretion of the lenders, and there can be no assurance that the Company will be able to obtain such waivers or refinancing on acceptable terms or at all.
Based on a the current status of the OSK X, LLC loans and the guidance in U.S. GAAP that requires that, in making a determination for the one year period following the date of the financial statements, the Company cannot consider future fundraising activities or the likelihood of obtaining covenant waivers or amendments, all of which are outside of the Company's sole control, the Company has determined that there is substantial doubt about the Company’s ability to continue as a going concern for the one year period after the date the financial statements are issued. The consolidated financial statements have been prepared assuming that the Company will continue as a going concern and do not include any adjustments that might result from the outcome of this uncertainty.
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,
Condor Hospitality Trust, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(In thousands, except share and per share data)
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 and the Company’s purchase of the remaining 20% of the joint venture that owns the Atlanta Aloft property (the “Atlanta JV”) completed in 2020 were acquisitions of assets and as such acquisition costs were capitalized as part of these transactions.
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 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. In the evaluation of impairment of its hotel properties, the Company makes many assumptions and estimates including projected cash flows both from operations and eventual disposal, expected useful life and holding period, future required capital expenditures, and terminal capitalization rates. 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, prior to our acquisition of the remaining 20% interest in the Atlanta JV (see Note 3), 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
Condor Hospitality Trust, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(In thousands, except share and per share data)
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.
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, 2020 and 2019. 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
Condor Hospitality Trust, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(In thousands, except share and per share data)
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. 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.
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:
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For the year ended December 31,
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2020
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2019
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2018
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Rooms
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$
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33,276
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$
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58,353
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$
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62,036
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Food and beverage
|
|
684
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1,370
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1,524
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Other
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1,228
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1,329
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1,497
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Total revenue
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$
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35,188
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$
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61,052
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$
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65,057
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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
Condor Hospitality Trust, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(In thousands, except share and per share data)
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 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, 2020, 2019, and 2018, 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.
Condor Hospitality Trust, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(In thousands, except share and per share data)
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 and November 19, 2020 (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.
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
Condor Hospitality Trust, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(In thousands, except share and per share data)
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 Note 2 to the accompanying consolidated financial statements for additional disclosures related to the adoption of this standard.
NOTE 2. INVESTMENT IN HOTEL PROPERTIES
Investments in hotel properties consisted of the following at December 31:
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As of
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December 31, 2020
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December 31, 2019
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Land
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$
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34,928
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$
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20,200
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Buildings, improvements, vehicle
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244,041
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206,971
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Furniture and equipment
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24,622
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21,805
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Initial franchise fees
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1,784
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1,784
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Construction-in-progress
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123
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100
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Right of use asset
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62
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|
|
80
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Investment in hotel properties
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305,560
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250,940
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Less accumulated depreciation
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(39,729)
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(28,877)
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Investment in hotel properties, net
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$
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265,831
|
|
$
|
222,063
|
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. 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 6.4 years at December 31, 2020.
As of December 31, 2020 and 2019, the Company's right-of-use assets, net of $62 and $80, respectively, are included in Investment in hotel properties, net and its related lease liabilities of $62 and $81, respectively, 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.
Condor Hospitality Trust, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(In thousands, except share and per share data)
NOTE 3. ACQUISITION OF HOTEL PROPERTIES
The Company did not acquire any properties during the years ended December 31, 2020 or 2019.
On February 14, 2020, the Company purchased the remaining 20% interest in the Atlanta JV from our joint venture partner (see detailed description of the Atlanta JV in Note 5) for $7,300 as allowed by the purchase option included in the original joint venture agreements. The $7,300 was funded from the Company’s revolving secured Key Bank credit facility (the “credit facility’), and the Company became the primary obligator on the $34,080 New Term Loan (as defined in Note 5) as part of the transaction. As the Atlanta JV was previously accounted for under the equity method and the acquisition was considered the acquisition of assets, the liabilities assumed as part of the transaction were recorded at fair value while the assets purchased in the transaction were recorded based on a pro-rata fair value allocation of the total available basis, which included the fair value of liabilities assumed, the cash purchase price paid, the balance of the investment in the unconsolidated joint venture at the time of the acquisition, and the acquisition costs incurred. The purchase was recognized as follows:
|
|
|
Cash purchase price
|
$
|
7,300
|
Investment in unconsolidated joint venture
|
|
3,844
|
Acquisition costs
|
|
122
|
Total investment in net assets
|
$
|
11,266
|
|
|
|
Cash
|
$
|
125
|
Working capital
|
|
(462)
|
Land
|
|
14,728
|
Buildings, improvements, and vehicle
|
|
37,020
|
Furniture and equipment
|
|
2,432
|
Debt assumed at acquisition
|
|
(34,080)
|
Land option liability (1)
|
|
(8,497)
|
Total allocation to net assets
|
$
|
11,266
|
|
(1)
|
|
The purchase agreement includes a provision which permits the seller to purchase the surface parking lot north of the hotel exercisable for approximately seven years at less than market rates.
|
Included in the consolidated statements of operations for the year ended December 31, 2020 is total revenue of $3,449 and total operating losses of $1,773 related to the results of operations for Atlanta Aloft hotel since the date of its acquisition.
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 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 revenue 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)
All purchase price allocations were determined using Level 3 fair value inputs.
NOTE 4: DISPOSITION OF HOTEL PROPERTIES
As of December 31, 2020 and December 31, 2019, the Company had no hotels classified as held for sale.
During the year ended December 31, 2020, no hotels were sold. During the years ended December 31, 2019 and 2018, the Company sold one hotel and four hotels, respectively, resulting in total gains of $62 and $5,707, 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. Prior to the purchase of the remaining interest in the Atlanta JV on February 14, 2020 (see Note 3), the Company accounted for the Atlanta JV under the equity method. The Company owned 80% of the Atlanta JV with TWC owning the remaining 20%. The Atlanta JV was comprised of two companies: Spring Street Hotel Property II LLC, of which our operating partnership indirectly owned an 80% equity interest, and Spring Street Hotel OpCo II LLC, of which our TRS indirectly owned an 80% equity interest. TWC owned the remaining 20% equity interest in these two companies.
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 were 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 was included in full on the balance sheet of the Atlanta JV at December 31, 2019.
The New Term Loan matured 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 bore interest, at the Borrower’s option, at either LIBOR plus 2.25% or a base rate plus 1.25% and required monthly interest payments and principal was due on the maturity date. The Borrowers could, 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 New Term Loan was 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 New Term Loan was refinanced on May 13, 2020 with the Seventh Amendment to its credit facility with KeyBank.
The Atlanta JV agreement included buy-sell rights for both members (generally after three years of hotel ownership for Condor and after five years for TWC) and Condor had a purchase option for TWC’s Atlanta JV ownership interest exercisable between the third and fifth anniversary of the hotel closing.
Under the Atlanta JV agreement, the Atlanta JV was managed by TWC in accordance with business plans and budgets approved by both partners. Major decisions as detailed in the agreement also required joint approval. Condor could remove TWC as manager of the Atlanta JV and appoint a new manager only upon the occurrence of certain events. The Atlanta Aloft hotel was managed by Boast Hotel Management Company LLC (“Boast”), an affiliate of TWC. The Atlanta JV paid to Boast total management fees of $61, $380 and $333 during the years ended December 31, 2020, 2019, and 2018, respectively. The management of the Atlanta Aloft hotel was moved to Aimbridge Hospitality on March 1, 2020 following the acquisition of the remaining interest in the Atlanta JV by Condor.
Condor Hospitality Trust, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(In thousands, except share and per share data)
Net cash flow from the Atlanta JV was 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 were allocated in the same proportion as net cash flow. Losses were allocated based on pro-rata equity ownership. Cash distributions totaling $480, $1,813 and $1,662 were received by the Company from the Atlanta JV during the years ended December 31, 2020, 2019, and 2018, 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:
|
|
|
|
|
|
As of
|
|
|
December 31, 2019
|
Investment in hotel properties, net
|
|
$
|
45,547
|
Cash and cash equivalents
|
|
|
661
|
Accounts receivable, prepaid expenses, and other assets
|
|
|
279
|
Total Assets
|
|
$
|
46,487
|
Accounts payable, accrued expenses, and other liabilities
|
|
$
|
1,026
|
Land option liability
|
|
|
6,190
|
Long-term debt, net of deferred financing costs
|
|
|
33,966
|
Total Liabilities
|
|
|
41,182
|
Condor equity
|
|
|
4,244
|
TWC equity
|
|
|
1,061
|
Total Equity
|
|
|
5,305
|
Total Liabilities and Equity
|
|
$
|
46,487
|
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, 2020, 2019, and 2018:
|
|
|
|
|
|
|
|
|
|
|
|
For the period of January 1 to February 14,
|
|
Year ended December 31,
|
|
|
2020
|
|
2019
|
|
2018
|
Revenue
|
|
|
|
|
|
|
|
|
|
Room rentals and other hotel services
|
|
$
|
1,522
|
|
$
|
12,666
|
|
$
|
11,888
|
Operating Expenses
|
|
|
|
|
|
|
|
|
|
Hotel and property operations
|
|
|
960
|
|
|
8,084
|
|
|
7,855
|
Depreciation and amortization
|
|
|
181
|
|
|
1,494
|
|
|
1,444
|
Total operating expenses
|
|
|
1,141
|
|
|
9,578
|
|
|
9,299
|
Operating income
|
|
|
381
|
|
|
3,088
|
|
|
2,589
|
Net loss on disposition of assets
|
|
|
-
|
|
|
(2)
|
|
|
(197)
|
Net loss on derivative
|
|
|
-
|
|
|
(1)
|
|
|
(27)
|
Interest expense
|
|
|
(281)
|
|
|
(2,675)
|
|
|
(2,637)
|
Loss on extinguishment of debt
|
|
|
-
|
|
|
(172)
|
|
|
-
|
Net earnings (loss)
|
|
$
|
100
|
|
$
|
238
|
|
$
|
(272)
|
|
|
|
|
|
|
|
|
|
|
Condor allocated earnings (loss)
|
|
$
|
80
|
|
$
|
190
|
|
$
|
(218)
|
TWC allocated earnings (loss)
|
|
|
20
|
|
|
48
|
|
|
(54)
|
Net earnings (loss)
|
|
$
|
100
|
|
$
|
238
|
|
$
|
(272)
|
Condor Hospitality Trust, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(In thousands, except share and per share data)
NOTE 6. LONG-TERM DEBT
Long-term debt related to wholly owned properties consisted of the following loans payable at December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lender
|
|
Balance at December 31, 2020
|
|
Interest rate at December 31, 2020
|
|
Maturity
|
|
Amortization provision
|
|
Properties encumbered at December 31, 2020
|
|
Balance at December 31, 2019
|
Fixed rate debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Morgan Stanley Bank of America Merrill Lynch Trust 2014-C18
|
|
$
|
8,454
|
|
4.54%
|
|
08/2024
|
|
25 years
|
|
1
|
|
$
|
8,639
|
OSK X, LLC (1)
|
|
|
13,199
|
|
4.33%
|
|
12/2023 (5)
|
|
25 years
|
|
1
|
|
|
13,290
|
OSK X, LLC (1)
|
|
|
880
|
|
4.33%
|
|
12/2023 (5)
|
|
7 years
|
|
-
|
|
|
971
|
Paycheck Protection Program (7)
|
|
|
2,299
|
|
1.00%
|
|
05/2022
|
|
(7)
|
|
-
|
|
|
-
|
Total fixed rate debt
|
|
|
24,832
|
|
|
|
|
|
|
|
|
|
|
22,900
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variable rate debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wells Fargo
|
|
|
25,386
|
|
2.55% (2)
|
|
11/2022 (6)
|
|
30 years
|
|
3
|
|
|
25,612
|
KeyBank credit facility (3)
|
|
|
118,114
|
|
4.00% (4)
|
|
1/2023
|
|
Interest only
|
|
10
|
|
|
86,845
|
Total variable rate debt
|
|
|
143,500
|
|
|
|
|
|
|
|
15
|
|
|
112,457
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total long-term debt
|
|
$
|
168,332
|
|
|
|
|
|
|
|
|
|
$
|
135,357
|
Less: Deferred financing costs
|
|
|
(1,806)
|
|
|
|
|
|
|
|
|
|
|
(1,356)
|
Total long-term debt, net of deferred financing costs
|
|
$
|
166,526
|
|
|
|
|
|
|
|
|
|
$
|
134,001
|
(1) Both loans are collateralized by Aloft Leawood. These loans were formerly held by Great Western Bank prior to being purchased by OSK X, LLC on December 24, 2020.
(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) Prior to March 30, 2020, the $150,000 credit facility included 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 was based on a borrowing base formula for the pool of hotel properties securing the facility. The commitment fee on unused facility was 0.20%. Subsequent amendments to the credit facility in 2020 modified this availability to set the size of the facility at $130,000, of which $4,000 is reserved for the payment of interest under the facility. The ability to borrow under the credit facility is limited to payment of interest and fees under the credit facility and funding any shortfalls to an approved budget. The commitment fee on unused facility is 0.20% when the usage is over 50% of the total commitment and 0.25% when the usage under 50% of the commitment. Total unused availability under this credit facility was $11,886 at December 31, 2020.
(4) Prior to March 30, 2020, borrowings under the facility accrued 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). Subsequent amendments to the credit facility in 2020 increased the interest rate to LIBOR plus 3.25% or a base rate plus 2.25%, and further increased the interest rate spreads by 0.25% at six month intervals. The LIBOR floor was also increased to 0.50%.
(5) Term was extended for additional two years on December 2, 2020.
(6) Two one-year extension options subject to the satisfaction of certain conditions.
(7) The PPP loans are made up of three separate loans received in April 2020. Monthly payments totaling $121 are scheduled to begin October 2021 if the loan or a portion of it is not forgiven. The entire amount of the loans was used for payroll, utilities and interest, and therefore, management anticipates that the loans will be substantially forgiven. The Company completed and submitted to the Small Business Association applications for the forgiveness of two of the three PPP loans during the first quarter of 2021 and plans to submit the application for the third loan later in 2021. To the extent that they are not forgiven, the Company would be required to repay that portion at an interest rate of 1.00%.
At December 31, 2020, we had long-term debt of $168,332 with a weighted average term to maturity of 2.1 years and a weighted average interest rate of 3.79%. Of this total, at December 31, 2020, 24,832 was fixed rate debt with a weighted average term to maturity of 2.3 years and a weighted average interest rate of 4.09% and $143,500 was variable rate debt with a weighted average term to maturity of 2.0 years and a weighted average interest rate of 3.74%. 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%.
Condor Hospitality Trust, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(In thousands, except share and per share data)
Aggregate annual principal payments on debt for the next five years and thereafter are as follows:
|
|
|
|
|
|
|
Total
|
2021
|
$
|
1,412
|
2022
|
|
27,686
|
2023
|
|
131,394
|
2024
|
|
7,840
|
2025
|
|
-
|
Thereafter
|
|
-
|
Total
|
$
|
168,332
|
|
|
|
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:
|
·
|
|
Borrowing Base Debt Service Coverage Ratio: The ratio of adjusted net operating income from borrowing base properties to debt service for the credit facility (assuming a 30 year amortization) must be equal to or greater than (a) 1.00 to 1 as of the end of the fiscal quarters ending September 30, 2021 and December 31, 2021, (b) 1.25 to 1 as of the end of the fiscal quarters ending March 31, 2022 and June 30, 2022 and (c) 1.50 to 1 as of the end of the fiscal quarter ending September 30, 2022 and each fiscal quarter thereafter. For purposes of calculating compliance with the covenant, annualized results are used until June 30, 2022 when the calculation is based on the most recently ended four fiscal quarters.
|
|
·
|
|
Fixed Charge Coverage Ratio: The ratio of adjusted consolidated EBITDA to consolidated fixed charges must be equal to or greater than (a) 1.00 to 1 as of the end of the fiscal quarters ending September 30, 2021 and December 31, 2021, (b) 1.25 to 1 as of the end of the fiscal quarters ending March 31, 2022 and June 30, 2022 and (c) 1.50 to 1 as of the end of the fiscal quarter ending September 30, 2022 and each fiscal quarter thereafter. For purposes of calculating compliance with the covenant, annualized results are used until June 30, 2022 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 as-stabilized appraisals) cannot exceed 65%. The covenant is first tested on March 31, 2022.
|
|
·
|
|
Minimum Liquidity: Liquidity must be greater than or equal to $3,000. In addition, the Ninth Amendment provided that if liquidity is below $6,000, (a) the agent may engage a financial advisor to advise it with respect to the Company and the credit facility, (b) a $2,000 interest reserve must be maintained, (c) certain reporting must be completed on a weekly basis and (d) advances under the credit facility can only be made and applied pursuant to a cash flow waterfall.
|
We are also required to satisfy a debt yield financial covenant within our loan agreement relating to the three properties financed by Wells Fargo Bank. The loan agreement provides that if the Company fails to satisfy a debt yield (adjusted net cash flow / outstanding principal amount of the loan) of 10% at the end of any fiscal quarter, then a cash trap occurs. During a cash trap, the revenue generated from the hotels is directed to an account controlled by the lender and used to pay certain hotel expenses and debt service costs and fund certain reserves. Any excess funds are held by the lender as additional collateral. Failure to satisfy the debt yield and the occurrence of a cash trap do not constitute a default under the loan agreement.
In connection with the first amendment to the loan agreement entered into in May 2020, measurement of the debt yield was suspended until the measurement date occurring on March 31, 2021. The Company does not currently expect that it will satisfy the debt yield as of March 31, 2021 and that a cash trap will occur. Any cash trap will expire when the debt yield is equal to or greater than 10.5%.
Condor Hospitality Trust, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(In thousands, except share and per share data)
We are also required to satisfy various financial covenants within our loan agreement with OSK X, LLC relating to the Leawood, Kansas Aloft, including the following:
|
·
|
|
Property-Specific Pre-Distribution Debt Service Coverage Ratio. The ratio of adjusted net operating income for the Leawood, Kansas Aloft (before distributions) to debt service for the loans must be equal to or greater than (a) 1.00 to 1 as of the end of the fiscal quarters ending December 31, 2020, March 31, 2021 and June 30, 2021 and (b) 1.35 to 1 as of the end of the fiscal quarter ending September 30, 2021 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.
|
|
·
|
|
Property-Specific Post-Distribution Debt Service Coverage Ratio. The ratio of adjusted net operating income for the Leawood, Kansas Aloft (after distributions) to debt service for the loans must be equal to or greater than (a) 1.00 to 1 as of the end of the fiscal quarters ending December 31, 2020, March 31, 2021 and June 30, 2021 and (b) 1.35 to 1 as of the end of the fiscal quarter ending September 30, 2021 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.
|
|
·
|
|
Consolidated Debt Service Coverage Ratio. The ratio of consolidated adjusted net operating income for the Company to consolidated debt service must be equal to or greater than 1.05 to 1.
|
Certain of the terms used in the foregoing descriptions of the financial covenants within our credit facility and loan agreement have the meanings given to them in the credit facility and loan agreement, and certain of the financial covenants are subject to pro forma adjustments for acquisitions and sales of hotel properties and for specific capital events.
As a result of the actual and anticipated unprecedented negative impact of the COVID-19 virus on the hotel industry generally, the Company has received waivers of compliance with financial covenants from various lenders (including Great Western Bank with respect to the Leawood, Kansas Aloft) for the first three quarters of 2020. The Company and certain of its other lenders have also modified various financial covenants by suspending measurements, providing for lower covenants and/or using annualized results (including Great Western Bank with respect to the Leawood, Kansas Aloft).
On December 24, 2020, the Company’s loans with Great Western Bank (financing the Leawood, Kansas Aloft), with a December 31, 2020 balance of $14,079, were purchased by OSK X, LLC, an equity fund affiliate of O’Brien Staley Partners. The Company did not satisfy the financial covenants for these loans as of December 31, 2020, as was the case for the first three quarters of 2020. The Company has been advised by OSK X, LLC that it is in default for failure to comply with the financial covenants as of December 31, 2020 (unlike Great Western Bank that waived the covenants for the first three quarters of 2020). The Company is continuing to negotiate with OSK X, LLC to obtain waivers.
The loan documents with OSK X, LLC provide (a) that the Company has a 90 day cure period (ending on May 27, 2021) within which it can cure the defaults and (b) that OSK X, LLC is precluded from accelerating the loans and taking any action to foreclose on the Leawood, Kansas Aloft during the cure period. The Company also believes that there are serious questions under applicable law about whether OSK X, LLC has the ability to declare a default, accelerate the loans or foreclose on the Leawood, Kansas Aloft due to the impossibility of performance of financial covenants during the COVID-19 pandemic. The Company is diligently pursuing commitments from lenders to refinance the loans with OSK X, LLC during the cure period.
The Company intends to seek any available damages in the event of litigation that may result from the actions of OSK X, LLC.
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 the lenders under our credit facility to declare a default and accelerate our indebtedness to them if we default on our
Condor Hospitality Trust, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(In thousands, except share and per share data)
other loans and such default would permit that lender to accelerate our indebtedness under any such loan. The above-described defaults under our loan agreement with OSK X, LLC will not result in a cross-default under our credit facility until the 90-day cure period with respect to those defaults expires on May 27, 2021. As indicated above, the Company is diligently pursuing commitments from lenders to refinance the loans with OSK X, LLC in order to cure those defaults during the cure period.
As of December 31, 2020, other than with respect to our financial covenants for OSK X, LLC (as discussed above), 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), the Company issued to RES a Convertible Promissory Note (the “2016 Note”), bearing interest at 6.25% per annum, in the principal amount of $1,012 initially convertible into shares of 6.25% Series D Cumulative Convertible Preferred Stock (“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 2016 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 6.25% Series E Cumulative Convertible Preferred Stock (“Series E Preferred Stock”) is required to be converted or is redeemed in whole (see Note 10). The 2016 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.
On November 19, 2020, the Company entered into separate Convertible Promissory Notes and Loan Agreements (the “2020 Notes”) in favor of (a) SREP III Flight—Investco 2, L.P. (“SREP”), an affiliate of StepStone Group LP, for $7,220, and (b) Efanur S.A. (“Efanur”), an affiliate of IRSA Inversiones y Representaciones Sociedad Anónima, for $2,780. Pursuant to the 2020 Notes, the Company borrowed $10,000 from SREP and Efanur and used the proceeds to repay loans outstanding under the credit facility. Each of the 2020 Notes mature upon the earliest to occur of (a) the closing of a Rights Offering (as defined below) or a Non-Rights Offering Conversion (as defined below) in an amount equal to the outstanding principal balance of the respective Note, (b) the acceleration of the respective Note on or after the occurrence of an Event of Default (as defined in the respective Note) and (c) January 2, 2023. Additionally, there is an event of default under the credit facility if the 2020 Notes are not either converted to common stock or paid in full (subject to the terms of a subordination and standstill agreement in favor of KeyBank) by July 1, 2021.
Each of the 2020 Notes accrues interest at 10.00% per annum (exclusive of any portion of the principal that is used in a Rights Offering and, in the case of the Note in favor of SREP, any backstop commitment), provides for the interest rate to increase to 20% upon an Event of Default or if any amounts under the applicable Note are outstanding after May 31, 2021, provides for the capitalization of interest, and provides for the payment of all accrued and unpaid interest and principal on the maturity date. Each of the Notes also provides, subject to a Make Whole Fee (as defined in the respective Note) payable to SREP and Efanur, as applicable, for the interest rate to increase to 25% upon a determination by the disinterested members of the board of directors of the Company (a) not to proceed with, or to terminate, a Rights Offering, (b) to prohibit a Non-Rights Offering Conversion or (c) not to seek shareholder approval of the transactions contemplated by the Notes, including the issuance of shares of common stock of the Company and the conversion price (“Shareholder Approval”), because the failure to make any such determination would reasonably be expected to constitute a breach of the directors’ duties under Maryland law (a “Board Decision”).
Subject to receipt of Shareholder Approval or a Board Decision, SREP and Efanur may elect to convert the principal due under the applicable Note into common stock of the Company in connection with any future rights offering commenced by the Company for 4,000,000 shares of common stock of the Company at a price of $2.50 per share (a “Rights Offering”). Pursuant to the Note in favor of SREP, the Company has committed to offer to SREP the option
Condor Hospitality Trust, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(In thousands, except share and per share data)
to purchase any shares of common stock of the Company underlying any unexercised rights in any such Rights Offering.
The Company and SREP entered into a backstop commitment agreement related to the Rights Offering on December 7, 2020. Pursuant to the backstop commitment agreement, SREP will backstop the Rights Offering, if commenced, on a standby basis to facilitate the transaction, by the Company selling to SREP pursuant to an exemption from the registration requirements of Section 5 of the Securities Act provided under Section 4(a)(2) thereof and/or Regulation D thereunder and SREP purchasing an aggregate number of shares of common stock equal to (x) $10.0 million, minus (y) the aggregate proceeds of the Rights Offering divided by $2.50, at a price per share equal to $2.50, subject to the terms and conditions of the backstop commitment agreement. The obligations of SREP under the backstop commitment agreement are subject to certain conditions, which, among other conditions, include: (1) that the Rights Offering must occur on or prior to May 31, 2021, and (2) that the Company exempts SREP from the ownership limitation set forth in the Company’s articles of incorporation.
If any amounts remain unpaid on the applicable Note after May 31, 2021 (or, if earlier, the termination, rescission or rejection of the Rights Offering), subject to receipt of Shareholder Approval or a Board Decision, SREP and Efanur may elect to convert the principal due under the applicable Note into 4,000,000 shares of common stock of the Company at a price of $2.50 per share (a “Non-Rights Offering Conversion”).
The issuance of shares in a Rights Offering or Non-Rights Offering Conversion received requisite Shareholder Approval at a special meeting of shareholders on January 18, 2021.
In the event of a Board Decision in order to accept an unsolicited cash offer for newly issued common stock or securities convertible into common stock of the Company, then upon consummation of any such sale, the Company is required to pay SREP and Efanur a Make Whole Fee as set forth in their respective Note.
The Company has made an irrevocable election to record these notes 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 the notes. As such, gains and losses on the notes are included in net gain (loss) on derivatives and convertible debt within net earnings (loss) each reporting period. Gains (losses) related to these notes were recognized totaling ($5,795), ($80), and $69 during the years ended December 31, 2020, 2019, and 2018, respectively. The fair value of the 2016 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 2020 Note is based on the value of the note upon conversion due to the high probability associated with that event. Interest expense related to these notes 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 balances of the notes as of December 31, 2020:
|
|
|
|
|
|
|
|
|
|
Fair value as of December 31, 2020
|
|
Unpaid principal balance as of December 31, 2020
|
|
Fair value carrying amount (over)/under unpaid principal
|
2016 Note
|
$
|
1,115
|
|
$
|
1,012
|
|
$
|
(103)
|
2020 Notes
|
|
15,760
|
|
|
10,000
|
|
|
(5,760)
|
Total
|
$
|
16,875
|
|
$
|
11,012
|
|
$
|
(5,863)
|
Condor Hospitality Trust, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(In thousands, except share and per share data)
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, 2020, 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 2020 and 2018 (see Note 3), in the valuation of stock-based compensation grants (see Note 12), and in the assessment of impairment and recoveries of impairment during the year ended December 31, 2018.
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 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, 2020 and 2019 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Associated debt
|
|
Type
|
|
Terms
|
|
Effective Date
|
|
Maturity Date
|
|
Notional amount at December 31, 2020
|
|
Notional amount at December 31, 2019
|
Wells Fargo
|
|
Swap
|
|
Swaps 30-day LIBOR for fixed rate of 2.053%
|
|
11/2017
|
|
11/2022
|
|
$
|
25,386 (1)
|
|
$
|
25,612 (1)
|
Credit facility
|
|
Cap
|
|
Caps 30-day LIBOR at 3.35%
|
|
4/1/2019
|
|
10/2020
|
|
$
|
-
|
|
$
|
30,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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 (loss) 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 (losses) of ($536), ($991), and $248 were recognized related to derivative instruments for the years ended December 31, 2020, 2019, and 2018, 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, 2020
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
Interest rate derivatives
|
|
$
|
(880)
|
|
$
|
-
|
|
$
|
(880)
|
|
$
|
-
|
Series E Preferred embedded redemption option
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
Convertible debt
|
|
|
(16,875)
|
|
|
-
|
|
|
-
|
|
|
(16,875)
|
Total
|
|
$
|
(17,755)
|
|
$
|
-
|
|
$
|
(880)
|
|
$
|
(16,875)
|
Condor Hospitality Trust, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(In thousands, except share and per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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)
|
There were no transfers between levels during the years ended December 31, 2020, 2019, or 2018.
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
|
2020
|
|
|
2019
|
|
Series E Preferred embedded redemption option
|
|
Convertible debt
|
|
Total
|
|
Series E Preferred embedded redemption option
|
|
Convertible debt
|
|
Total
|
Fair value, beginning of period
|
$
|
22
|
|
$
|
(1,080)
|
|
$
|
(1,058)
|
|
$
|
289
|
|
$
|
(1,000)
|
|
$
|
(711)
|
Net gains (losses) recognized in earnings
|
|
(22)
|
|
|
(5,795)
|
|
|
(5,817)
|
|
|
(267)
|
|
|
(80)
|
|
|
(347)
|
Purchase and issuances
|
|
-
|
|
|
(10,000)
|
|
|
(10,000)
|
|
|
-
|
|
|
-
|
|
|
-
|
Sales and settlements
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
Gross transfers into Level 3
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
Gross transfers out of Level 3
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
Fair value, end of period
|
$
|
-
|
|
$
|
(16,875)
|
|
$
|
(16,875)
|
|
$
|
22
|
|
$
|
(1,080)
|
|
$
|
(1,058)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total unrealized gains (losses) during the period included in earnings related to instruments held at end of period
|
$
|
(22)
|
|
$
|
(5,795)
|
|
$
|
(5,817)
|
|
$
|
(267)
|
|
$
|
(80)
|
|
$
|
(347)
|
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,
|
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
Total
|
|
$
|
166,526
|
|
$
|
134,001
|
|
$
|
167,349
|
|
$
|
134,288
|
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. No impairments or recoveries of impairments were recognized during the years ended December 31, 2020 and 2019. During the year ended December 31, 2018, a recovery of impairment of $93 was recognized on one held for sale property that was subsequently sold during that year.
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 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, 2018, the Company 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 or 2020. 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
Series E Redeemable Convertible Preferred Stock
On February 28, 2017, the holders of the Company’s former 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 and additionally were granted $9,250 of newly created 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, additional dividends accrue at a rate of 9.50% per annum on the unpaid amount. 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.
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
Condor Hospitality Trust, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(In thousands, except share and per share data)
(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 is accounted for at fair value at each period end. These are considered Level 3 fair value measurements.
NOTE 11. NONCONTROLLING INTEREST OF COMMON UNITS IN THE OPERATING PARTNERSHIP
At both December 31, 2020 and 2019, 219,183 of the operating partnership’s common units were outstanding, all of which were held by limited partners. The total redemption value for the common units was $17 and $47 at December 31, 2020 and 2019, respectively. Our ownership interest in the operating partnership as of both December 31, 2020 and 2019 was 99.9%.
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.
No common units were redeemed during the year ended December 31, 2020. 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.
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, 2020, there were 482,136 common shares available for issuance under the 2016 Stock Plan.
Condor Hospitality Trust, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(In thousands, except share and per share data)
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, 2020, 2019, and 2018:
|
|
|
|
|
|
|
|
Shares
|
|
Weighted-average grant date fair value
|
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
|
Granted
|
|
4,775
|
|
$
|
5.52
|
Vested
|
|
(20,201)
|
|
$
|
10.01
|
Forfeited
|
|
(2,328)
|
|
$
|
9.14
|
Unvested at December 31, 2020
|
|
28,928
|
|
$
|
9.57
|
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 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.
Condor Hospitality Trust, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(In thousands, except share and per share data)
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. During the year ended December 31, 2020, there were no shares issued related to performance based share awards. During the year ended December 31, 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 year ended December 31, 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 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.
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 24,607, 14,936 and 11,503 shares were issued to independent directors under the 2016 Stock Plan with respect to these fees during the years ended December 31, 2020, 2019, and 2018, respectively.
Condor Hospitality Trust, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(In thousands, except share and per share data)
Stock-Based Compensation Expense
The expense recognized in the consolidated financial statements for stock-based compensation related to employees and directors for the years ended December 31, 2020, 2019, and 2018 was $173, $1,026, and $974, respectively, all of which is included in general and administrative expense. Total unrecognized compensation cost related to all awards at December 31, 2020 was $319, which is expected to be recognized over a weighted-average remaining service period of 1.7 years.
NOTE 13. INCOME TAXES
For the years ended December 2020, 2019, and 2018, the income tax expense related to the operating partnership included primarily certain state and local taxes totaling $105, $175, and $83, respectively.
The components of the income tax expense (benefit) from the TRS for the years ended December 31, 2020, 2019, and 2018 were as follows:
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
2020
|
|
2019
|
|
2018
|
Federal:
|
|
|
|
|
|
|
|
|
Current
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
Deferred
|
|
(550)
|
|
|
817
|
|
|
202
|
State and local:
|
|
|
|
|
|
|
|
|
Current
|
|
-
|
|
|
2
|
|
|
(8)
|
Deferred
|
|
70
|
|
|
(57)
|
|
|
58
|
Income tax expense (benefit)
|
$
|
(480)
|
|
$
|
762
|
|
$
|
252
|
Actual income tax expense of the TRS for the years ended December 31, 2020, 2019, and 2018 differs from the “expected” income tax expense (benefit) (computed by applying the appropriate U.S. federal income tax rate of 21% to earnings before income taxes) as a result of the following:
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
2020
|
|
2019
|
|
2018
|
Computed "expected" income tax (benefit) expense
|
$
|
(1,893)
|
|
$
|
403
|
|
$
|
191
|
State income taxes, net of federal income tax (benefit) expense
|
|
(240)
|
|
|
62
|
|
|
40
|
(Decrease) increase in valuation allowance
|
|
1,383
|
|
|
(124)
|
|
|
29
|
Return to provision adjustments
|
|
-
|
|
|
431
|
|
|
(16)
|
Adjustment to state net operating losses
|
|
248
|
|
|
-
|
|
|
-
|
Other
|
|
22
|
|
|
(10)
|
|
|
8
|
Total income tax expense (benefit)
|
$
|
(480)
|
|
$
|
762
|
|
$
|
252
|
Condor Hospitality Trust, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(In thousands, except share and per share data)
The tax effects of temporary differences that give rise to significant portions of deferred tax assets and deferred tax liabilities at December 31, 2020 and 2019 are as follows:
|
|
|
|
|
|
|
As of December 31,
|
|
2020
|
|
2019
|
Deferred Tax Assets
|
|
|
|
|
|
Accrued expenses and other
|
$
|
101
|
|
$
|
100
|
Net operating losses carried forward for federal income tax purposes
|
|
1,951
|
|
|
374
|
Net operating losses carried forward for state income tax purposes
|
|
424
|
|
|
455
|
AMT
|
|
-
|
|
|
58
|
Subtotal deferred tax assets
|
|
2,476
|
|
|
987
|
Valuation allowance
|
|
(1,742)
|
|
|
(359)
|
Total deferred tax assets
|
|
734
|
|
|
628
|
|
|
|
|
|
|
Deferred Liabilities
|
|
|
|
|
|
Tax depreciation in excess of book depreciation
|
|
734
|
|
|
909
|
Atlanta JV basis difference
|
|
-
|
|
|
140
|
Total deferred tax liabilities
|
|
734
|
|
|
1,049
|
Net deferred tax assets (liabilities)
|
$
|
-
|
|
$
|
(421)
|
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. Prior to 2020, it was determined by management that a valuation allowance against deferred tax assets was not required, with the exception of an allowance against certain state net operating losses, as management believed that it is more likely than not that remaining deferred tax assets will be realized. In 2020, as a result of the impact of the COVID-19 pandemic on the Company’s performance, the Company believes that a full valuation allowance against the net deferred tax asset position was necessary at December 31, 2020, which requires a valuation allowance of $1,742 as of that date.
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, 2020 as determined for federal income tax purposes was $1,951. The availability of the loss carryforwards will expire in 2027 through 2034, with an indefinite carryforward for losses arising after December 31, 2017.
As of December 31, 2020, the tax years that remain subject to examination by major tax jurisdictions generally include 2017 through 2020.
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.
Condor Hospitality Trust, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(In thousands, except share and per share data)
No distributions were paid in 2020. For income tax purposes, distributions paid per share for the years ended December 31, 2019 and 2018 were characterized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended December 31,
|
|
2019
|
|
2018
|
|
|
Amount
|
|
%
|
|
Amount
|
|
%
|
|
Common Shares:
|
|
|
|
|
|
|
|
|
|
|
Ordinary income
|
$
|
-
|
|
-
|
|
$
|
-
|
|
-
|
|
Capital gain
|
|
-
|
|
-
|
|
|
-
|
|
-
|
|
Return of capital
|
|
0.585000
|
|
100%
|
|
|
0.975000
|
|
100%
|
|
Total
|
$
|
0.585000
|
|
100%
|
|
$
|
0.975000
|
|
100%
|
|
|
|
|
|
|
|
|
|
|
|
|
Series E Preferred Stock:
|
|
|
|
|
|
|
|
|
|
|
Ordinary income
|
$
|
-
|
|
-
|
|
$
|
-
|
|
-
|
|
Capital gain
|
|
-
|
|
-
|
|
|
-
|
|
-
|
|
Return of capital
|
|
0.468750
|
|
100%
|
|
|
0.625000
|
|
100%
|
|
Total
|
$
|
0.468750
|
|
100%
|
|
$
|
0.625000
|
|
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,
|
|
2020
|
|
2019
|
|
2018
|
Numerator: Basic
|
|
|
|
|
|
|
|
|
Net earnings (loss) attributable to common shareholders
|
$
|
(19,681)
|
|
$
|
(5,626)
|
|
$
|
4,787
|
Less: Allocation to participating securities
|
|
-
|
|
|
(38)
|
|
|
(67)
|
Net earnings (loss) attributable to common shareholders, net of amount allocated to participating securities
|
$
|
(19,681)
|
|
$
|
(5,664)
|
|
$
|
4,720
|
|
|
|
|
|
|
|
|
|
Numerator: Diluted
|
|
|
|
|
|
|
|
|
Net earnings (loss) attributable to common shareholders, net of amount allocated to participating securities
|
$
|
(19,681)
|
|
$
|
(5,664)
|
|
$
|
4,720
|
Interest and fair value adjustment on Convertible Debt
|
|
-
|
|
|
-
|
|
|
(6)
|
Total Diluted
|
$
|
(19,681)
|
|
$
|
(5,664)
|
|
$
|
4,714
|
|
|
|
|
|
|
|
|
|
Denominator
|
|
|
|
|
|
|
|
|
Weighted average number of common shares - Basic
|
|
11,966,982
|
|
|
11,856,113
|
|
|
11,784,222
|
Performance Based Share Awards
|
|
-
|
|
|
-
|
|
|
4,285
|
Convertible Note
|
|
-
|
|
|
-
|
|
|
97,269
|
Weighted average number of common shares - Diluted
|
|
11,966,982
|
|
|
11,856,113
|
|
|
11,885,776
|
|
|
|
|
|
|
|
|
|
Earnings Per Share
|
|
|
|
|
|
|
|
|
Basic Earnings (Loss) per Share
|
$
|
(1.59)
|
|
$
|
(0.48)
|
|
$
|
0.40
|
Diluted Earnings (Loss) per Share
|
$
|
(1.59)
|
|
$
|
(0.48)
|
|
$
|
0.40
|
|
|
|
|
|
|
|
|
|
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,
|
|
2020
|
|
2019
|
|
2018
|
Unvested restricted stock
|
38,012
|
|
62,742
|
|
79,456
|
Warrants - Employees (2)
|
-
|
|
-
|
|
11,056
|
Series E Preferred Stock
|
668,111
|
|
668,111
|
|
668,111
|
2016 Convertible Note
|
97,269
|
|
97,269
|
|
-
|
2020 Convertible Note
|
459,016
|
|
-
|
|
-
|
Operating partnership common units (1)
|
4,215
|
|
54,330
|
|
86,255
|
Total potentially dilutive securities excluded from the denominator
|
1,266,623
|
|
882,452
|
|
844,878
|
|
(1)
|
|
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, 2020.
|
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, 2020 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, 2020, 2019, and 2018, base management fees incurred totaled $1,042, $1,813, and $1,779, respectively. For the years ended December 31, 2020, 2019, and 2018, incentive management fees totaled $0, $141, and $333, 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, 2020, all of our 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 $2,597, $4,685, and $4,834, for the years ended December 31, 2020, 2019, and 2018, respectively.
The franchisor of two of our hotels advised us in 2019 that both of the hotels have 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 agreement. While the Company believes that it has corrected all deficiencies, the franchisor has informed us that they are not reassessing the accountability status of any properties until at the earliest July 2021.
Leases
The Company has no land lease agreements in place related to properties owned at December 31, 2020 and had no land lease expense related to the years ended December 31, 2020, 2019, and 2018.
Each of the Company’s three office leases expired in 2019 with space currently now being rented month to month in one location. Office lease expense totaled $27, $133, and $160 in the years ended December 31, 2020, 2019, and
Condor Hospitality Trust, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(In thousands, except share and per share data)
2018, 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,
|
|
|
2021
|
$
|
21
|
2022
|
|
20
|
2023
|
|
4
|
2024
|
|
4
|
2025
|
|
4
|
Thereafter
|
|
21
|
Total lease payments
|
$
|
74
|
Less: Imputed interest
|
|
(12)
|
Present value of lease liabilities
|
$
|
62
|
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, 2020, 2019, and 2018 was $26, $52, and $71, 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.
NOTE 16. QUARTERLY OPERATING RESULTS (UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter ended (unaudited)
|
|
|
March 31, 2020
|
|
June 30, 2020
|
|
September 30, 2020
|
|
December 31, 2020
|
|
Total 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
13,227
|
|
$
|
4,811
|
|
$
|
8,841
|
|
$
|
8,309
|
|
$
|
35,188
|
Operating expenses
|
|
|
13,862
|
|
|
8,960
|
|
|
11,644
|
|
|
5,353
|
|
|
39,819
|
Operating income (loss)
|
|
|
(635)
|
|
|
(4,149)
|
|
|
(2,803)
|
|
|
2,956
|
|
|
(4,631)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss on dispositions of assets
|
|
|
(9)
|
|
|
(1)
|
|
|
(3)
|
|
|
(5)
|
|
|
(18)
|
Equity in earnings of joint venture
|
|
|
80
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
80
|
Net gain (loss) on derivatives and convertible debt
|
|
|
(759)
|
|
|
19
|
|
|
131
|
|
|
(5,722)
|
|
|
(6,331)
|
Other income (expense), net
|
|
|
(28)
|
|
|
(58)
|
|
|
(4)
|
|
|
25
|
|
|
(65)
|
Interest expense
|
|
|
(1,980)
|
|
|
(2,070)
|
|
|
(2,103)
|
|
|
(2,328)
|
|
|
(8,481)
|
Loss before income taxes
|
|
|
(3,331)
|
|
|
(6,259)
|
|
|
(4,782)
|
|
|
(5,074)
|
|
|
(19,446)
|
Income tax (expense) benefit
|
|
|
306
|
|
|
61
|
|
|
(27)
|
|
|
35
|
|
|
375
|
Net loss
|
|
|
(3,025)
|
|
|
(6,198)
|
|
|
(4,809)
|
|
|
(5,039)
|
|
|
(19,071)
|
Loss attributable to noncontrolling interest
|
|
|
1
|
|
|
2
|
|
|
2
|
|
|
2
|
|
|
7
|
Net loss attributable to controlling interests
|
|
|
(3,024)
|
|
|
(6,196)
|
|
|
(4,807)
|
|
|
(5,037)
|
|
|
(19,064)
|
Dividends undeclared on preferred stock
|
|
|
(145)
|
|
|
(144)
|
|
|
(169)
|
|
|
(159)
|
|
|
(617)
|
Net loss attributable to common shareholders
|
|
$
|
(3,169)
|
|
$
|
(6,340)
|
|
$
|
(4,976)
|
|
$
|
(5,196)
|
|
$
|
(19,681)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per Share (1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total - Basic Earnings (loss) per Share
|
|
$
|
(0.27)
|
|
$
|
(0.53)
|
|
$
|
(0.42)
|
|
$
|
(0.38)
|
|
$
|
(1.59)
|
Total - Diluted Earnings (loss) per Share
|
|
$
|
(0.27)
|
|
$
|
(0.53)
|
|
$
|
(0.42)
|
|
$
|
(0.38)
|
|
$
|
(1.59)
|
(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
|
Net 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.