WRMK Watermark Lodging Trust Inc (CE)

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FORM 10-K

☑						ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
						For the fiscal year ended December 31, 2021
or
☐						TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
						For the transition period from                     to

Maryland						46-5765413
(State of incorporation)						(I.R.S. Employer Identification No.)
150 N. Riverside Plaza
Chicago, Illinois						60606
(Address of principal executive office)						(Zip Code)

(Registrant’s telephone numbers, including area code)

Securities registered pursuant to Section 12(b) of the Act: None

Common Stock, Par Value $0.001 Per Share

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No þ

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No þ

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

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

Large accelerated filer o			Accelerated filer o			Non-accelerated filer þ
Smaller reporting company ☐			Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No R

Registrant has no active market for its common stock. Non-affiliates held 167,007,744 and 61,095,773 of Class A and Class T shares, respectively, of outstanding common stock at June 30, 2021.

As of March 21, 2022, there were 167,689,164 shares of Class A common stock and 61,095,773 shares of Class T common stock of registrant outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

For accounting and financial reporting purposes, the Merger is treated as a reverse acquisition. The financial information for WLT, as set forth herein, has been prepared on a basis consistent with the foregoing and reflects CWI 1 as the accounting acquirer. Consequently, the historical financial information included herein as of any date, or for any periods prior to April 13, 2020 (the closing date of the Merger), is the pre-Merger financial information of CWI 1. The results of operations of CWI 2, as the acquired company for accounting and financial reporting purposes, are incorporated into WLT effective April 13, 2020. See Note 3 of the financial statements included in this Report for more information.

									Page
PART I
			Item 1.			Business			5
			Item 1A.			Risk Factors			8
			Item 1B.			Unresolved Staff Comments			21
			Item 2.			Properties			22
			Item 3.			Legal Proceedings			23
			Item 4.			Mine Safety Disclosures			23
PART II
			Item 5.			Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities			24
			Item 6.			Reserved			25
			Item 7.			Management’s Discussion and Analysis of Financial Condition and Results of Operations			26
			Item 7A.			Quantitative and Qualitative Disclosures About Market Risk			41
			Item 8.			Financial Statements and Supplementary Data			42
			Item 9.			Changes in and Disagreements With Accountants on Accounting and Financial Disclosure			89
			Item 9A.			Controls and Procedures			89
			Item 9B.			Other Information			90
PART III
			Item 10.			Directors, Executive Officers and Corporate Governance			91
			Item 11.			Executive Compensation			91
			Item 12.			Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters			91
			Item 13.			Certain Relationships and Related Transactions, and Director Independence			91
			Item 14.			Principal Accounting Fees and Services			91
PART IV
			Item 15.			Exhibits and Financial Statement Schedules			92
			Item 16.			Form 10-K Summary			94
SIGNATURES

This Annual Report on Form 10-K (this “Report”), including Management’s Discussion and Analysis of Financial Condition and Results of Operations in Item 7 of Part II of this Report, contains forward-looking statements within the meaning of the federal securities laws. These forward-looking statements generally are identified by the words “believe,” “project,” “expect,” “anticipate,” “estimate,” “intend,” “strategy,” “plan,” “may,” “should,” “will,” “would,” “will be,” “will continue,” “will likely result,” and similar expressions. These statements are based on the current expectations of our management. Forward-looking statements in this Report include, among others, statements regarding: the impact of the Merger (as defined herein) and internalization that occurred in April 2020, the impact of the July 2020 Capital Raise (as defined herein), our expectations regarding the impacts on our business of the outbreak of the novel coronavirus (“COVID-19”) pandemic, the impact of hurricanes and other natural disasters on certain hotels, including the condition of the properties and cost estimates, and the impact of rising fuel prices and inflation generally on the travel industry and demand for hotels. It is important to note that our actual results could be materially different from those projected in such forward-looking statements. There are a number of risks and uncertainties that could cause actual results to differ materially from these forward-looking statements. Other unknown or unpredictable risks or uncertainties, like the risks related to effects of pandemics and global outbreaks of contagious diseases or the fear of such outbreaks, like the current COVID-19 pandemic, and risks relating to the outbreak of hostilities in Ukraine, could also have material adverse effects on our business, financial condition, liquidity, results of operations, modified funds from operations (“MFFO”), and prospects. You should exercise caution in relying on forward-looking statements, as they involve known and unknown risks, uncertainties, and other factors that may materially affect our future results, performance, achievements or transactions. Information on factors that could impact actual results and cause them to differ from what is anticipated in the forward-looking statements contained herein is included in this Report as well as in our other filings with the Securities and Exchange Commission (“SEC”), including but not limited to those described in Item 1A. Risk Factors of this

As of December 31, 2021, our portfolio was comprised of our full or partial ownership in 25 hotels with 8,163 guest rooms, all located in the United States. See Item 2. Properties.

As of December 31, 2021, our hotel portfolio, including both the hotels that we consolidate in our financial statements (“Consolidated Hotels”) (as further discussed in Note 4) and the hotel that we record as an equity investment in our financial statements (“Unconsolidated Hotel”) (as further discussed in Note 5), was 64% leveraged. Our organizational documents permit us to incur leverage of up to 75% of the total costs of our investments or 300% of our net assets (whichever is less), or a higher amount with the approval of a majority of our independent directors.

We had no employees prior to the Internalization in April 2020. As part of the Internalization, we hired substantially all of the former employees of Watermark Capital and a number of the former employees of WPC that had performed services for us. We made awards of restricted stock to key employees as means of incentivizing and retaining them. As of December 31, 2021, we had 32 employees.

As discussed further below under “Risks Related to Our Indebtedness and Financing Arrangements,” we have substantial indebtedness. Of the $2.0 billion Consolidated Hotel aggregate principal balance indebtedness outstanding as of December 31, 2021, approximately $1.2 billion is scheduled to mature during the 12 months after the date of this Report, which included a total of $121.7 million that has been refinanced subsequent to December 31, 2021 (Note 16). We have continued to work with our lenders to address loans with near-term mortgage maturities and during the year ended December 31, 2021, have refinanced or extended the maturity date of 11 Consolidated Hotel mortgage loans, aggregating $1.0 billion of indebtedness. As of December 31, 2021, we have effectively entered into cash management agreements with the lenders on 18 of our 24 Consolidated Hotel mortgage loans either because the minimum debt service coverage ratio was not met or as a result of a loan modification agreement. If the Company is unable to repay, refinance or extend maturing mortgage loans, we may choose to market these assets for sale or the lenders may declare events of default and seek to foreclose on the underlying hotels or we may also seek to surrender properties back to the lender.

The ability of the Company to execute its near- and longer-term business strategy depends on access to an appropriate blend of cash flow from our hotel operations, financing to address upcoming debt maturities, and potentially additional equity financing, joint venture financing and asset sales, the availability of which will be affected by the performance of our hotel portfolio as well as general market and economic conditions and other factors, many of which are beyond our control. The COVID-19 pandemic and the outbreak of hostilities in Ukraine have resulted in severe volatility and disruption in the financial markets generally, and for companies in the lodging sector. There can be no guarantee that financing will be available in sufficient amounts, on favorable terms or at all, to enable the Company to refinance upcoming debt maturities. If we are unable to repay, refinance or extend maturing mortgage loans, the lenders may declare events of default and seek to foreclose on the underlying hotels. In addition, if we fail to meet cash flow-related covenants in our loans, which has occurred with respect to 18 of our 24 Consolidated Hotel mortgage loans, as discussed above, the lender typically has the right to impose cash management restrictions that limit our ability to use the cash generated on the affected properties. Any such consequences could negatively affect our results of operations, financial condition, cash flows, ability to pay dividends and asset valuations.

Eighteen of our 25 hotels utilize brands owned by Marriott. As a result, our success is dependent in part on the continued success of their brands. A negative public image or other adverse event that affects those brands, such as business difficulties arising from the COVID-19 pandemic or the widely publicized cybersecurity incident that affected Marriott hotels in recent years, could adversely affect hotels operated under those brands. If a brand suffers a significant decline in appeal to the traveling public, the revenues and profitability of our hotels operated under that brand could be adversely affected.

Pursuant to our mortgage loan agreements, our consolidated subsidiaries are subject to various operational and financial covenants, including minimum debt service coverage and debt yield ratios. As discussed elsewhere in this Report in “Liquidity and Capital Resources,” as of December 31, 2021, the mortgage loans for our Consolidated Hotels had an aggregate principal balance totaling $2.0 billion outstanding, all of which is mortgage indebtedness and is generally non-recourse, subject to customary non-recourse carve-outs, except that we have provided certain lenders with limited corporate guaranties aggregating $17.0 million for items such as property taxes, deferred debt service and amounts drawn from furniture, fixtures and equipment reserves to pay expenses, in connection with loan modification agreements. We have continued to work with our lenders to address loans with near-term mortgage maturities and during the year ended December 31, 2021, have refinanced or extended the maturity date of 11 Consolidated Hotel mortgage loans, aggregating $1.0 billion of indebtedness. As of December 31, 2021, we have effectively entered into cash management agreements with the lenders on 18 of our 24 Consolidated Hotel mortgage loans either because the minimum debt service coverage ratio was not met or as a result of a loan modification agreement.

Of the $2.0 billion aggregate principal balance indebtedness outstanding as of December 31, 2021, approximately $1.2 billion is scheduled to mature during the 12 months after the date of this Report, which included a total of $121.7 million that has been refinanced subsequent to December 31, 2021. If we are unable to repay, refinance or extend maturing mortgage loans, or if we breach a covenant and do not get a waiver from the applicable lenders, the lenders may declare events of default and seek to foreclose on the underlying hotels or we may also seek to surrender properties back to the lender. If an event of default were to occur, we may need to continue seeking to raise capital through asset sales or strategic financing transactions, potentially on unfavorable terms, but there is no assurance as to the certainty or timing of any such transactions. Any such consequences could negatively affect our results of operations, financial condition, cash flows, ability to pay dividends, and asset valuations.

In light of the impact that the COVID-19 pandemic has had on our business, we have suspended distributions on and redemptions of our common stock. Requests for special circumstances redemptions may continue to be submitted, however, the Company will not take any action with regard to those requests until the Board of Directors has elected to lift the suspension and provided the terms and conditions for any continuation of the program. Distributions and redemptions in respect of future periods will be evaluated by the Board of Directors based on circumstances and expectations existing at the time of consideration, and are also subject to the terms of the Series B Preferred Stock.

Our common stockholders do not have preemptive rights to any shares of common stock issued by us in the future. The purchasers of our Series B Preferred Stock also acquired warrants to purchase 16,778,446 operating partnership units in our Operating Partnership at an exercise price of $0.01 per unit, which is equivalent to 6.75% of our fully diluted common equity as of the closing of the July 2020 Capital Raise, as defined in Note 14. The warrants are entitled to participate in all distributions on our common stock, on an as-exercised basis. Therefore, (i) if the 16,778,446 warrants are exercised, (ii) when we sell shares of common stock in the future, including those issued pursuant to our distribution reinvestment plan, (iii) when we issue shares

Hotels

State

Number of Rooms

% Owned

Hotel Type

Consolidated Hotels

Charlotte Marriott City Center

NC

446

100%

Full-Service

Courtyard Times Square West

NY

224

100%

Select-service

Embassy Suites by Hilton Denver-Downtown/Convention Center

CO

403

100%

Full-Service

Equinox Golf Resort & Spa

VT

199

100%

Resort

Fairmont Sonoma Mission Inn & Spa

CA

226

100%

Resort

Hawks Cay Resort (a)

FL

397

100%

Resort

Holiday Inn Manhattan 6th Avenue Chelsea

NY

226

100%

Full-service

Hyatt Centric French Quarter New Orleans (b)

LA

254

100%

Full-service

Le Méridien Arlington

VA

154

100%

Full-Service

Le Méridien Dallas, The Stoneleigh

TX

176

100%

Full-service

Marriott Kansas City Country Club Plaza

MO

295

100%

Full-service

Marriott Raleigh City Center

NC

401

100%

Full-service

Marriott Sawgrass Golf Resort & Spa

FL

514

100%

Resort

Renaissance Atlanta Midtown Hotel

GA

304

100%

Full-Service

Renaissance Chicago Downtown

IL

560

100%

Full-service

Ritz-Carlton Bacara, Santa Barbara

CA

358

100%

Resort

Ritz-Carlton Fort Lauderdale (c)

FL

198

100%

Resort

Ritz-Carlton Key Biscayne (d)

FL

443

66.7%

Resort

Ritz-Carlton San Francisco

CA

336

100%

Full-Service

Sanderling Resort

NC

128

100%

Resort

San Diego Marriott La Jolla

CA

376

100%

Full-Service

San Jose Marriott

CA

510

100%

Full-Service

Seattle Marriott Bellevue

WA

384

100%

Full-Service

Westin Pasadena

CA

350

100%

Full-Service

7,862

Unconsolidated Hotel

Ritz-Carlton Philadelphia

PA

301

60%

Full-service

8,163

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

The following table presents information regarding the 2015 Equity Incentive Plan as of December 31, 2021:

Plan Category						Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights (a)						Weighted Average Exercise Price of Outstanding Options, Warrants and Rights (b)						Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans
Equity compensation plans approved by security holders						1,614,212						—						3,488,337
Equity compensation plans not approved by security holders						—						—						—
						1,614,212						—						3,488,337

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion should be read in conjunction with our consolidated financial statements included in Item 8 of this Report and the matters described under Item 1A. Risk Factors. For discussion of our results of operations for the year ended December 31, 2020, please refer to Management’s Discussion and Analysis of Financial Condition and Results of Operations in the audited consolidated financial statements of WLT and accompanying notes as of and for the year ended December 31, 2020 filed on March 12, 2021.

Of our $2.0 billion of Consolidated Hotel aggregate principal balance indebtedness outstanding as of December 31, 2021, approximately $1.2 billion is scheduled to mature during the 12 months after the date of this Report, which included a total of $121.7 million that has been refinanced subsequent to December 31, 2021 (Note 16). We have continued to work with our lenders to address loans with near-term mortgage maturities and during the year ended December 31, 2021, have refinanced or extended the maturity date of 11 Consolidated Hotel mortgage loans, aggregating $1.0 billion of principal balance indebtedness. If the Company is unable to repay, refinance or extend maturing mortgage loans, we may choose to market these assets for sale or the lenders may declare events of default and seek to foreclose on the underlying hotels or we may also seek to surrender properties back to the lender.

						Years Ended December 31,
						2021						2020
Hotel revenues						$	655,920					$	279,101
Net loss attributable to Common Stockholders						(82,771)						(351,870)
Cash distributions paid						—						20,357
Net cash provided by (used in) operating activities						1,257						(154,021)
Net cash provided by investing activities						414,980						171,448
Net cash (used in) provided by financing activities						(319,223)						108,733
Supplemental Financial Measures: (a)
FFO attributable to Common Stockholders						(67,829)						(98,761)
MFFO attributable to Common Stockholders						(16,146)						(128,865)
Consolidated Hotel Operating Statistics (b)
Occupancy						50.2		%				25.9		%
ADR						$	261.51					$	221.66
RevPAR						131.29						57.49
Comparable Consolidated Hotel Operating Statistics (c)
Occupancy (d)						50.4		%				29.1		%
ADR						$	274.68					$	242.36
RevPAR						138.45						70.52

___________

(a)We consider funds from operations (“FFO”) and MFFO, which are supplemental measures not defined by GAAP (“non-GAAP measures”), to be important measures in the evaluation of our results of operations and capital resources. We evaluate our results of operations with a primary focus on the ability to generate cash flow necessary to meet our objective of funding distributions to stockholders. See Supplemental Financial Measures below for our definitions of these non-GAAP measures and reconciliations to their most directly comparable GAAP measures.

Hotel

State

Number of Rooms

% Owned

Hotel Type

Consolidated Hotels

Charlotte Marriott City Center

NC

446

100%

Full-Service

Courtyard Times Square West

NY

224

100%

Select-service

Embassy Suites by Hilton Denver-Downtown/Convention Center

CO

403

100%

Full-Service

Equinox Golf Resort & Spa

VT

199

100%

Resort

Fairmont Sonoma Mission Inn & Spa

CA

226

100%

Resort

Hawks Cay Resort (a)

FL

397

100%

Resort

Holiday Inn Manhattan 6th Avenue Chelsea

NY

226

100%

Full-service

Hyatt Centric French Quarter New Orleans (b)

LA

254

100%

Full-service

Le Méridien Arlington

VA

154

100%

Full-Service

Le Méridien Dallas, The Stoneleigh

TX

176

100%

Full-service

Marriott Kansas City Country Club Plaza

MO

295

100%

Full-service

Marriott Raleigh City Center

NC

401

100%

Full-service

Marriott Sawgrass Golf Resort & Spa

FL

514

100%

Resort

Renaissance Atlanta Midtown Hotel

GA

304

100%

Full-Service

Renaissance Chicago Downtown

IL

560

100%

Full-service

Ritz-Carlton Bacara, Santa Barbara

CA

358

100%

Resort

Ritz-Carlton Fort Lauderdale (c)

FL

198

100%

Resort

Ritz-Carlton Key Biscayne (d)

FL

443

66.7%

Resort

Ritz-Carlton San Francisco

CA

336

100%

Full-Service

Sanderling Resort

NC

128

100%

Resort

San Diego Marriott La Jolla

CA

376

100%

Full-Service

San Jose Marriott

CA

510

100%

Full-Service

Seattle Marriott Bellevue

WA

384

100%

Full-Service

Westin Pasadena

CA

350

100%

Full-Service

7,862

Unconsolidated Hotel

Ritz-Carlton Philadelphia

PA

301

60%

Full-service

8,163

						Years Ended December 31,
						2021						2020						Change
Hotel Revenues						$	655,920					$	279,101					$	376,819
Hotel Operating Expenses						639,400						434,327						205,073
Corporate general and administrative expenses						31,023						23,845						7,178
Gain on property-related insurance claims						(1,571)						(2,520)						949
Transaction costs						1,515						18,448						(16,933)
Impairment charges						—						120,220						(120,220)
Asset management fees to affiliate						—						3,795						(3,795)
Total Expenses						670,367						598,115						72,252
Operating Loss before net gain on sale of real estate						(14,447)						(319,014)						304,567
Net gain on sale of real estate						108,216						2,738						105,478
Operating Income (Loss)						93,769						(316,276)						410,045
Interest expense						(166,163)						(125,782)						(40,381)
Net loss on extinguishment of debt						(13,581)						(22)						(13,559)
Net gain on change in control of interests						8,612						22,250						(13,638)
Equity in losses of equity method investment in real estate, net						(5,575)						(35,026)						29,451
Other income (expense)						(501)						954						(1,455)
Bargain purchase gain						—						78,696						(78,696)
Loss Before Income Taxes						(83,439)						(375,206)						291,767
(Provision for) benefit from income taxes						(3,553)						7,930						(11,483)
Net Loss						(86,992)						(367,276)						280,284
Loss attributable to noncontrolling interests						4,221						17,148						(12,927)
Net Loss Attributable to the Company						(82,771)						(350,128)						267,357
Preferred dividends						—						(1,742)						1,742
Net Loss Attributable to Common Stockholders						$	(82,771)					$	(351,870)					$	269,099
Supplemental financial measure:(a)
MFFO Attributable to Common Stockholders						$	(16,146)					$	(128,865)					$	112,719

___________

(a)We consider MFFO, a non-GAAP measure, to be an important metric in the evaluation of our results of operations and capital resources. We evaluate our results of operations with a primary focus on the ability to generate cash flow necessary to meet our objective of funding distributions to stockholders. See Supplemental Financial Measures below for our definition of non-GAAP measures and reconciliations to their most directly comparable GAAP measures.

For the year ended December 31, 2021 as compared to the same period in 2020, corporate general and administrative expenses increased by $7.2 million, primarily as a result of the impact of the Merger, with periods post-Merger reflecting the impact of the Company being self-managed and including the compensation of our employees for the periods following the internalization, as well as an increase in professional fees. Professional fees include legal, accounting, investor relations and other consulting expenses incurred in the normal course of business.

Our impairment charges are more fully described in Note 4.

During the year ended December 31, 2020, we recognized a net gain on sale on real estate of $2.7 million, comprised of (i) a gain of $3.2 million from the sale of the Lake Arrowhead Resort and Spa to an unaffiliated third party by the Lake Arrowhead Resort and Spa Venture (of which we owned a 97.35% controlling ownership interest), partially offset by (ii) a loss on sale on real estate of $0.5 million from the sale of our 100% ownership interest in the Hutton Hotel Nashville to an unaffiliated third party.

During the year ended December 31, 2021, we recognized a gain on change in control of interests of $8.6 million in connection with our acquisition of the remaining 20% interest in the Hyatt Centric French Quarter Venture from an unaffiliated third party on April 6, 2021 (Note 4). We previously accounted for our jointly-owned interest in this venture under the equity method of accounting. Due to the change in control of this jointly owned investment, we recorded a net gain on change in control of interest reflecting the difference between our carrying value and the preliminary estimated fair value of our previously held equity investment on April 6, 2021. Subsequent to the acquisition, we own 100% of this hotel and consolidate our real estate interest in the hotel.

						Years Ended December 31,
Unconsolidated Hotels						2021						2020
Ritz-Carlton Philadelphia Venture (a)						$	(4,718)					$	(13,038)
Hyatt Centric French Quarter Venture (b)						(857)						(962)
Ritz-Carlton Bacara, Santa Barbara Venture (c) (d)						—						(20,968)
Marriott Sawgrass Golf Resort & Spa Venture (c)						—						(58)
Total equity in losses of equity method investments in real estate, net						$	(5,575)					$	(35,026)

During the year ended December 31, 2020, we recognized a bargain purchase gain of $78.7 million in connection with the Merger resulting from the estimated fair values of the assets acquired net of liabilities assumed exceeding the consideration paid. See Note 3 for additional disclosure regarding the Merger.

						Years Ended December 31,
Venture						2021						2020
Sheraton Austin Hotel at the Capitol Venture (a)						$	(2,871)					$	1,452
Ritz-Carlton Fort Lauderdale Venture (b)						145						3,144
Ritz-Carlton Key Biscayne Venture						(72)						(978)
Operating Partnership — Noncontrolling interest (c)						7,019						13,530
Total loss attributable to noncontrolling interests						$	4,221					$	17,148

(b)The results for the year ended December 31, 2021 reflect an improvement in the performance of the hotel during 2021 as compared to comparable periods in 2020. Additionally, on November 9, 2021, we acquired the remaining 30% interest in the Ritz-Carlton Fort Lauderdale Venture from an unaffiliated third party, bringing our ownership interest to 100%.

MFFO is a non-GAAP measure we use to evaluate our business. For a definition of MFFO and a reconciliation to net income attributable to WLT stockholders, see Supplemental Financial Measures below.

Our primary cash uses over the next 12 months are expected to be payment of debt service, costs associated with the refinancing or restructuring of indebtedness, funding corporate and hotel level operations, payment of real estate taxes and insurance, payment of preferred stock dividends and redemption of the Series A Preferred Stock, as defined in Note 14. Our primary capital sources to meet such uses are expected to be funds generated by hotel operations, cash on hand and proceeds from additional asset sales.

As of December 31, 2021, we had cash and cash equivalents of $249.5 million. As of December 31, 2021, the mortgage loans for our Consolidated Hotels had an aggregate principal balance totaling $2.0 billion outstanding, all of which is mortgage indebtedness and is generally non-recourse, subject to customary non-recourse carve-outs, except that we have provided certain lenders with limited corporate guaranties aggregating $17.0 million for items such as property taxes, deferred debt service and amounts drawn from furniture, fixtures and equipment reserves to pay expenses, in connection with loan modification agreements. We have continued to work with our lenders to address loans with near-term mortgage maturities and during the year ended December 31, 2021, have refinanced or extended the maturity date of 11 Consolidated Hotel mortgage loans, aggregating $1.0 billion of indebtedness. Of the $2.0 billion aggregate principal balance indebtedness outstanding as of December 31, 2021, approximately $1.2 billion is scheduled to mature during the 12 months after the date of this Report, which included a total of $121.7 million that has been refinanced subsequent to December 31, 2021. If the Company is unable to repay, refinance or extend maturing mortgage loans, we may choose to market these assets for sale or the lenders may declare events of default and seek to foreclose on the underlying hotels or we may also seek to surrender properties back to the lender.

Operating Activities — For the year ended December 31, 2021, net cash provided by operating activities was $1.3 million as compared to net cash used in operating activities of $154.0 million for the year ended December 31, 2020. Net cash used in operating activities during 2020 reflects the impact of the COVID-19 pandemic on our hotel operations, beginning in March 2020.

Investing Activities — During 2021, net cash provided by investing activities was $415.0 million, primarily as a result of $438.4 million in aggregate proceeds from the disposition of hotels during 2021, partially offset by funding of $28.7 million for capital expenditures at our Consolidated Hotels.

Financing Activities — During 2021, net cash used in financing activities was $319.2 million, primarily as a result of payments and prepayments of mortgage financing totaling $469.1 million, our acquisition of the 30% membership interest in the Ritz-Carlton Fort Lauderdale Venture for $23.9 million, $7.1 million of distributions to noncontrolling interests, $6.8 million of debt extinguishment costs and $6.4 million of deferred financing costs, partially offset by $195.4 million of proceeds from mortgage financing.

Operating Activities — For the year ended December 31, 2020, net cash used in operating activities was $154.0 million as compared to net cash provided by operating activities of $78.2 million for the year ended December 31, 2019. This change in operating cash flows primarily reflects the impact of the COVID-19 pandemic on our hotel operations, beginning in March 2020.

Investing Activities — During 2020, net cash provided by investing activities was $171.4 million, primarily as a result of $109.5 million of cash acquired in the Merger and proceeds of $89.4 million from the sales of the Hutton Hotel Nashville and Lake Arrowhead Resort and Spa, partially offset by funding of $24.0 million for capital expenditures at our Consolidated Hotels and capital contributions to equity investments in real estate totaling $6.6 million.

Financing Activities — During 2020, net cash provided by financing activities was $108.7 million, primarily as a result of the proceeds from the issuance of our Series B Preferred Stock of $200.0 million and proceeds from mortgage financing of $81.3 million, partially offset by payments of mortgage financing totaling $142.4 million, due largely to our 2020 disposition and refinancing activity, cash distributions paid to stockholders of $20.4 million and deferred financing costs paid of $15.2 million.

			December 31,
			2021						2020
Carrying Value
Fixed rate (a)			$	951,318					$	1,286,839
Variable rate (a):
Amount subject to interest rate caps			507,919						362,193
Amount subject to floating interest rate			317,497						345,712
Amount subject to interest rate swaps			182,007						175,158
			1,007,423						883,063
			$	1,958,741					$	2,169,902
Percent of Total Debt
Fixed rate			49		%				59		%
Variable rate			51		%				41		%
			100		%				100		%
Weighted-Average Interest Rate at End of Year
Fixed rate			4.3		%				4.3		%
Variable rate (b)			4.0		%				4.1		%

Ownership Interest at

Total Third-

Third-Party Debt

Venture

December 31, 2021

Total Assets

Party Debt

Maturity Date

Ritz-Carlton Philadelphia Venture

60%

$

82,760

$

63,916

02/2023

In connection with the purchase of hotels, we have independent environmental consultants conduct a Phase I environmental site assessment prior to purchase. Phase I site assessments are intended to discover and evaluate information regarding the environmental condition of the surveyed property and surrounding properties. None of the existing Phase I site assessments on our hotels revealed any past or present environmental condition that we believe would have a material adverse effect on our business, financial condition, liquidity or results of operations.

Our significant accounting policies are described in Note 2. Many of these accounting policies require judgment and the use of estimates and assumptions when applying these policies in the preparation of our consolidated financial statements. On a quarterly basis, we evaluate these estimates and judgments based on historical experience as well as other factors that we believe to be reasonable under the circumstances. These estimates are subject to change in the future if underlying assumptions or factors change. Certain accounting policies, while significant, may not require the use of estimates. Those accounting policies that require significant estimation and/or judgment are described under Critical Accounting Policies and Estimates in Note 2.

We define MFFO consistent with the IPA’s Practice Guideline 2010-01, Supplemental Performance Measure for Publicly Registered, Non-Listed REITs: Modified Funds from Operations (the “Practice Guideline”), issued by the IPA in November 2010. This Practice Guideline defines MFFO as FFO further adjusted for the following items, included in the determination of GAAP net income or loss, as applicable: acquisition fees and expenses; accretion of discounts and amortization of premiums on debt investments; where applicable, payments of loan principal made by our equity investees accounted for under the HLBV model where such payments reduce our equity in earnings of equity method investments in real estate, nonrecurring impairments of real estate-related investments (i.e., infrequent or unusual, not reasonably likely to recur in the ordinary course of business); mark-to-market adjustments included in net income or loss; nonrecurring gains or losses included in net income or loss from the extinguishment or sale of debt, hedges, derivatives or securities holdings, where trading of such holdings is not a fundamental attribute of the business plan, unrealized gains or losses resulting from consolidation from, or deconsolidation to, equity accounting, and after adjustments for Consolidated and Unconsolidated Hotels, with such adjustments calculated to reflect MFFO on the same basis. The accretion of discounts and amortization of premiums on debt investments, unrealized gains and losses on hedges, derivatives or securities holdings, unrealized gains and losses resulting from consolidations, as well

						Years Ended December 31,
						2021						2020
Net loss attributable to Common Stockholders						$	(82,771)					$	(351,870)
Adjustments:
Depreciation and amortization of real property						117,598						114,697
Net gain on sale of real estate						(108,216)						(2,738)
Net gain on change in control of interests						(8,612)						(22,250)
Income taxes associated with sale of real estate						2,810						—
Impairment charges						—						120,220
Proportionate share of adjustments for partially owned entities —    FFO adjustments (a)						11,362						43,180
Total adjustments						14,942						253,109
FFO attributable to Common Stockholders (as defined by NAREIT)						(67,829)						(98,761)
Amortization of fair value adjustments						33,982						26,685
Net loss on extinguishment of debt						13,581						22
Straight-line and other rent adjustments						6,583						5,979
Gain on property-related insurance claims, net (b)						(1,571)						(2,520)
Transaction costs (b)						1,515						18,448
Bargain purchase gain						—						(78,696)
Proportionate share of adjustments for partially owned entities — MFFO     adjustments						(2,407)						(22)
Total adjustments						51,683						(30,104)
MFFO attributable to Common stockholders						$	(16,146)					$	(128,865)

We are exposed to the impact of interest rate changes primarily through our borrowing activities. To limit this exposure, we generally seek non-recourse mortgage financing on a long-term, fixed-rate basis. However, from time to time, we or our joint investment partners have obtained, and may in the future obtain, variable-rate non-recourse mortgage loans, and, as a result, we have entered into, and may continue to enter into, interest rate swap agreements or interest rate cap agreements with counterparties. See Note 8 for additional information on our interest rate swaps and caps.

As of December 31, 2021, all of our debt bore interest at fixed rates, was swapped to a fixed rate or was subject to an interest rate cap, with the exception of four mortgage loans with an outstanding balance totaling $317.5 million. Our debt obligations are more fully described in Note 9 and under Liquidity and Capital Resources in Item 7 above. The following table presents principal cash outflows for our Consolidated Hotels based upon expected maturity dates of our debt obligations outstanding as of December 31, 2021 and excludes deferred financing costs (in thousands):

			2022						2023						2024						2025						2026						Thereafter						Total						Fair Value
Fixed-rate debt			$	535,341					$	427,059					$	—					$	—					$	—					$	—					$	962,400					$	962,879
Variable-rate debt			$	582,632					$	104,830					$	329,910					$	—					$	—					$	—					$	1,017,372					$	1,021,414

The estimated fair value of our fixed-rate debt and our variable-rate debt that currently bears interest at fixed rates or has effectively been converted to a fixed rate through the use of an interest rate swap, or that has been subject to an interest rate cap, is affected by changes in interest rates. A decrease or increase in interest rates of 1.0% would change the estimated fair value of this debt as of December 31, 2021 by an aggregate increase of $12.6 million or an aggregate decrease of $23.7 million, respectively. Annual interest expense on our variable-rate debt that is subject to an interest rate cap as of December 31, 2021 would increase or decrease by $5.1 million for each respective 1.0% change in annual interest rates.

TABLE OF CONTENTS			Page No.
Report of Independent Registered Public Accounting Firm (PCAOB ID 238)			43
Consolidated Balance Sheets as of December 31, 2021 and 2020			45
Consolidated Statements of Operations for the Years Ended December 31, 2021, 2020 and 2019			46
Consolidated Statements of Comprehensive Loss for the Years Ended December 31, 2021, 2020 and 2019			47
Consolidated Statements of Equity for the Years Ended December 31, 2021, 2020 and 2019			48
Consolidated Statements of Cash Flows for the Years Ended December 31, 2021, 2020 and 2019			50
Notes to Consolidated Financial Statements			52
Schedule II — Valuation and Qualifying Accounts for the Years Ended December 31, 2021, 2020 and 2019			86
Schedule III — Real Estate and Accumulated Depreciation as of December 31, 2021			87
Notes to Schedule III for the Years Ended December 31, 2021, 2020 and 2019			88

To the Board of Directors and Stockholders of Watermark Lodging Trust, Inc.

			December 31,
			2021						2020
Assets
Investments in real estate:
Hotels, at cost			$	2,956,929					$	3,315,792
Accumulated depreciation			(383,337)						(356,328)
Net investments in hotels			2,573,592						2,959,464
Equity investments in real estate			12,705						18,639
Operating lease right-of-use assets			43,671						40,729
Cash and cash equivalents			249,478						160,383
Intangible assets, net			69,464						72,285
Restricted cash			99,000						91,081
Accounts receivable, net			82,925						46,010
Other assets			30,690						30,735
Total assets			$	3,161,525					$	3,419,326
Liabilities and Equity
Non-recourse debt, net			$	1,958,741					$	2,169,902
Mandatorily redeemable preferred stock			256,731						214,158
Accounts payable, accrued expenses and other liabilities			190,701						174,217
Operating lease liabilities			83,089						74,633
Total liabilities			2,489,262						2,632,910
Commitments and contingencies (Note 10)
Equity
Class A common stock, $0.001 par value; 320,000,000 shares authorized; 167,689,164 and 167,441,281 shares, respectively, issued and outstanding			168						167
Class T common stock, $0.001 par value; 80,000,000 shares authorized; 61,095,773 and 61,102,438 shares, respectively, issued and outstanding			61						61
Additional paid-in capital			1,642,495						1,655,554
Distributions and accumulated losses			(994,634)						(911,863)
Accumulated other comprehensive income (loss)			148						(724)
Total stockholders’ equity			648,238						743,195
Noncontrolling interests			24,025						43,221
Total equity			672,263						786,416
Total liabilities and equity			$	3,161,525					$	3,419,326

			Years Ended December 31,
			2021						2020						2019
Revenues
Hotel Revenues
Rooms			$	423,634					$	171,544					$	387,769
Food and beverage			154,927						68,292						166,315
Other operating revenue			76,814						38,323						52,641
Business interruption income			545						942						4,338
Total Hotel Revenues			655,920						279,101						611,063
Expenses
Rooms			95,927						50,540						86,060
Food and beverage			113,806						61,532						114,239
Other hotel operating expenses			28,501						14,724						27,669
Property taxes, insurance, rent and other			95,844						79,879						72,236
General and administrative			67,870						42,353						54,831
Sales and marketing			50,308						29,013						57,330
Repairs and maintenance			28,427						19,683						19,932
Utilities			21,019						15,677						15,032
Management fees			20,264						6,436						16,864
Depreciation and amortization			117,434						114,490						76,621
Total Hotel Operating Expenses			639,400						434,327						540,814
Corporate general and administrative expenses			31,023						23,845						12,202
(Gain) loss on property-related insurance claims, net			(1,571)						(2,520)						372
Transaction costs			1,515						18,448						2,783
Impairment charges			—						120,220						—
Asset management fees to affiliate			—						3,795						14,052
Total Expenses			670,367						598,115						570,223
Operating (Loss) Income before net gain on sale of real estate			(14,447)						(319,014)						40,840
Net gain on sale of real estate			108,216						2,738						30,918
Operating Income (Loss)			93,769						(316,276)						71,758
Interest expense			(166,163)						(125,782)						(65,861)
Net loss on extinguishment of debt			(13,581)						(22)						(2,711)
Net gain on change in control of interests			8,612						22,250						—
Equity in losses of equity method investment in real estate, net			(5,575)						(35,026)						(1,018)
Other income (expense)			(501)						954						253
Bargain purchase gain			—						78,696						—
(Loss) income before income taxes			(83,439)						(375,206)						2,421
(Provision for) benefit from income taxes			(3,553)						7,930						(3,152)
Net Loss			(86,992)						(367,276)						(731)
Loss (Income) attributable to noncontrolling interests			4,221						17,148						(10,167)
Net Loss Attributable to the Company			(82,771)						(350,128)						(10,898)
Preferred dividends			—						(1,742)						—
Net Loss Attributable to Common Stockholders			$	(82,771)					$	(351,870)					$	(10,898)
Class A Common Stock
Net loss attributable to Common Stockholders			$	(60,659)					$	(274,928)					$	(10,898)
Basic and diluted weighted-average shares outstanding			167,609,507						157,288,346						128,978,410
Basic and diluted loss per share			$	(0.36)					$	(1.73)					$	(0.08)
Class T Common Stock
Net loss attributable to Common Stockholders			$	(22,112)					$	(76,942)					$	—
Basic and diluted weighted-average shares outstanding			61,096,711						43,957,081						—
Basic and diluted loss per share			$	(0.36)					$	(1.74)					$	—

			Years Ended December 31,
			2021						2020						2019
Net Loss			$	(86,992)					$	(367,276)					$	(731)
Other Comprehensive Income (Loss)
Unrealized gain (loss) on derivative instruments			875						(532)						130
Comprehensive Loss			(86,117)						(367,808)						(601)
Amounts Attributable to Noncontrolling Interests
Net loss (income)			4,221						17,148						(10,167)
Unrealized gain on derivative instruments			(22)						(20)						(16)
Comprehensive loss (income) attributable to noncontrolling interests			4,199						17,128						(10,183)
Comprehensive Loss Attributable to Common Stockholders			$	(81,918)					$	(350,680)					$	(10,784)

(in thousands, except share and per share amounts)

			WLT Stockholders
			Common Stock																								Additional Paid-In Capital						Distributions and Accumulated Losses						Accumulated Other Comprehensive (Loss) Income						Total Stockholders’ Equity						Noncontrolling Interests						Total Stockholders’ Equity
			Class A												Class T
			Shares						Amount						Shares						Amount
Balance at January 1, 2021			167,441,281						$	167					61,102,438						$	61					$	1,655,554					$	(911,863)					$	(724)					$	743,195					$	43,221					$	786,416
Net loss																																	(82,771)												(82,771)						(4,221)						(86,992)
Shares issued under share incentive plans			140,721						1																		2,068																		2,069												2,069
Stock-based compensation to directors			108,892						—																		600																		600												600
Contributions from noncontrolling interests																																													—						376						376
Distributions to noncontrolling interests																																													—						(7,107)						(7,107)
Purchase of membership interest from noncontrolling interest																											(15,683)												19						(15,664)						(8,266)						(23,930)
Other comprehensive income																																							853						853						22						875
Repurchase of shares			(1,730)						—						(6,665)						—						(44)																		(44)												(44)
Balance at December 31, 2021			167,689,164						$	168					61,095,773						$	61					$	1,642,495					$	(994,634)					$	148					$	648,238					$	24,025					$	672,263
Balance at January 1, 2020			130,083,865						$	130					—						$	—					$	1,209,691					$	(562,747)					$	(172)					$	646,902					$	50,977					$	697,879
Net loss																																	(350,128)												(350,128)						(17,148)						(367,276)
Shares issued to affiliates			417,261						—																		4761																		4,761												4,761
Redemption of special general partnership     interest			2,840,549						3																		(65,464)																		(65,461)						12,861						(52,600)
Merger consideration			94,480,247						95																		496,485																		496,580						(34,571)						462,009
Merger recapitalization			(61,175,258)						(61)						61,175,258						61						—																		—												—
Shares issued, net of offering costs			925,762						1																		10,514																		10,515												10,515
Shares issued under share incentive plans			63,490						—																		1,276																		1,276												1,276
Stock-based compensation to directors			35,110						—																		240																		240												240
Contributions from noncontrolling interests																																													—						725						725
Issuance of warrants																																													—						30,357						30,357
Fair value adjustment on reclassification of Series A Preferred Stock																																	2,754												2,754												2,754
Preferred dividends																																	(1,742)												(1,742)												(1,742)
Other comprehensive (loss) income																																							(552)						(552)						20						(532)
Repurchase of shares			(229,745)						(1)						(72,820)						—						(1,949)																		(1,950)												(1,950)
Balance at December 31, 2020			167,441,281						$	167					61,102,438						$	61					$	1,655,554					$	(911,863)					$	(724)					$	743,195					$	43,221					$	786,416