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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2021
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                     to                       
Commission File Number: 000-55461
cwi2-20211231_g1.jpg
WATERMARK LODGING TRUST, INC.
(Exact name of registrant as specified in its charter)
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)
(847) 482-8600
(Registrant’s telephone numbers, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
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
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer 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
The registrant incorporates by reference its definitive Proxy Statement with respect to its 2022 Annual Meeting of Stockholders, to be filed with the Securities and Exchange Commission within 120 days following the end of its fiscal year, into Part III of this Annual Report on Form 10-K.




Explanatory Note

Watermark Lodging Trust, Inc. (“WLT” or the “Company”) is the legal successor of Carey Watermark Investors 2 Incorporated (“CWI 2”). On April 13, 2020, a direct, wholly-owned subsidiary of CWI 2 (“Merger Sub”) merged with and into Carey Watermark Investors Incorporated (“CWI 1”) in an all-stock transaction in which the former stockholders of CWI 1 became stockholders of CWI 2 (the “Merger”). After giving effect to the Merger, CWI 1 became a wholly-owned subsidiary of CWI 2 and CWI 2 changed its name to WLT. Immediately after the completion of the Merger, the former stockholders of CWI 1 owned approximately 60%, and the former stockholders of CWI 2 owned approximately 40%, of the outstanding common stock of WLT. Concurrently with the closing of the Merger, CWI 2 completed an internalization transaction through which it became self-managed.

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.

As used throughout this document, unless the context indicates otherwise, the terms “WLT,” the “Company,” “we,” “our” and “us” mean:

WLT beginning April 13, 2020, following the closing of the Merger; and
CWI 1 on a standalone basis for all periods prior to the closing of the Merger on April 13, 2020.

The term “CWI 2” refers to CWI 2 on a standalone basis for all periods prior to the closing of the Merger.

Accordingly, comparisons of the period to period financial information of WLT as set forth herein with those of CWI 1 and CWI 2 may not be meaningful.





INDEX
Page
PART I
Item 1.
5
Item 1A.
8
Item 1B.
Item 2.
Item 3.
Item 4.
PART II
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
PART III
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
PART IV
Item 15.
Item 16.

Forward-Looking Statements

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
                     WLT 2021 10-K 3


Report. Except as required by federal securities laws and the rules and regulations of the SEC, we do not undertake to revise or update any forward-looking statements.

All references to “Notes” throughout the document refer to the footnotes to the consolidated financial statements of the registrant in Part II, Item 8. Financial Statements and Supplementary Data.
                     WLT 2021 10-K 4


PART I

Item 1. Business.

General Development of Business

Overview

WLT is a self-managed, publicly owned, non-traded real estate investment trust (“REIT”) that, together with its consolidated subsidiaries, invests in, manages and seeks to enhance the value of, interests in lodging and lodging-related properties in the United States. As a REIT, we are not subject to U.S. federal income taxation as long as we satisfy certain requirements, principally relating to the nature of our income, the level of our distributions to our stockholders and other factors. As of December 31, 2021, substantially all of our assets and liabilities are held by, and all of our operations are conducted through, CWI 2 OP, LP (the “Operating Partnership”) and we are a general partner and a limited partner of, and own a 99.0% capital interest in, the Operating Partnership. Watermark Capital Partners, LLC (“Watermark Capital”), which is 100% owned by Mr. Michael G. Medzigian, our Chief Executive Officer, holds the remaining 1.0% in the Operating Partnership as of December 31, 2021. In order to qualify as a REIT, we cannot operate hotels directly; therefore, we lease our hotels to our wholly-owned taxable REIT subsidiaries (“TRSs” and collectively the “TRS lessees”). As of December 31, 2021, we held ownership interests in 25 hotels, with a total of 8,163 rooms.

COVID-19 Pandemic

The COVID-19 pandemic has had a material adverse effect on our business, results of operations, financial condition and cash flows throughout 2021 and will continue to do so for the reasonably foreseeable future. As of March 28, 2022, all of our hotels are open but several continue to operate at reduced levels of occupancy and staffing. Although results improved relative to 2020, we cannot estimate with certainty when travel demand will fully recover or how new variants of COVID-19 could impact recovery. We have generally experienced improving demand at our properties as government-imposed restrictions and limitations on travel and large gatherings have loosened and as vaccines have become more widely available. We expect the recovery to continue to occur unevenly across our portfolio, with hotels that cater to business travel recovering more slowly than resort properties. Governmental and business efforts to encourage or mandate vaccinations and public adoption rates of vaccines have impacted and may continue to impact the recovery from the COVID-19 pandemic and have had and may continue to have disruptive effects on certain segments of the labor market. Individual ability or desire to travel and corporate travel policies will continue to be impacted by the COVID-19 pandemic and affect the recovery of our properties. The ultimate severity and duration of the COVID-19 pandemic and its effects, and the emergence of variants, are uncertain, including whether COVID-19 will become endemic or cyclical in nature. Given these uncertainties, we cannot estimate with reasonable certainty the impact on our business, financial condition or near- or long-term financial or operational results.

Estimated Net Asset Value

Our estimated net asset value (“NAV”) as of December 31, 2021 has been determined to be $6.29 per share of Class A stock and $6.22 per share of Class T stock, based on shares outstanding as of December 31,2021. Please see our Current Report on Form 8-K for additional information regarding the calculation of our NAVs.
                     WLT 2021 10-K 5



Narrative Description of Business

General

We are a publicly owned, non-traded REIT that strives to create value in the lodging industry with a focus on building and enhancing the value of a portfolio of interests in lodging and lodging related investments. We employ value-added strategies, such as re-branding, renovating, expanding or changing hotel operators, when we believe such strategies will increase the operating results and values of the hotels we acquire. We regularly review the hotels in our portfolio to ensure that they continue to meet our investment criteria. If we were to conclude that a hotel’s value has been maximized, or that it no longer fits within our financial or strategic criteria, we may seek to sell the hotel and use the net proceeds for investments in our existing or new hotels, or to reduce our overall leverage. While we do not operate our hotel properties, both our asset management team and our executive management team monitor and work cooperatively with our hotel operators in all aspects of our hotels' operations, including advising and making recommendations regarding property positioning and repositioning, revenue and expense management, operations analysis, physical design, renovation and capital improvements, guest experience and overall strategic direction. We believe that we can add significant value to our portfolio through our intensive asset management strategies. Our executive and asset management teams have significant experience in hotels, as well as in creating and implementing innovative asset management initiatives.

Our business was significantly impacted by the COVID-19 pandemic and the material reduction in demand experienced by our hotels and the lodging industry generally. See “Risk Factors - Risk Related to our Business and Operations - The effects of the COVID-19 pandemic continue to materially and adversely affect us and they are expected to continue to do so for the foreseeable future.”

As a REIT, we are allowed to own lodging properties, but are prohibited from operating these properties. In order to comply with applicable REIT qualification rules, we enter into leases with certain of our subsidiaries organized as TRSs. The TRS lessees in turn contract with independent property operators that manage the day-to-day operations of our properties.

The lodging properties we have acquired include full-service branded hotels located in urban settings, resort properties and select-service hotels. Full-service hotels generally provide a full complement of guest amenities, including food and beverage services, meeting and conference facilities, concierge and room service and valet parking, among others. Select-service hotels typically have limited food and beverage outlets and do not offer comprehensive business or banquet facilities. Resort properties may include smaller boutique hotels and large-scale integrated resorts. All of our investments to date have been in the United States, however, we may consider, and are not prohibited under our organizational documents from making, investments outside the United States.

Our Portfolio

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.

Holding Period

We generally intend to hold our investments in real property for an extended period depending on the type of investment. The determination of whether a particular asset should be sold or otherwise disposed of will be made after consideration of relevant factors, including prevailing economic conditions, with a view to achieving maximum capital appreciation for our stockholders while avoiding increases in risk. No assurance can be given that this objective will be realized.

Financing Strategies

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.

                     WLT 2021 10-K 6


Competition

The hotel industry is highly competitive. Hotels we acquire compete with other hotels for guests in our markets. Competitive factors include location, convenience, brand affiliation, room rates, range and the quality of services, facilities and guest amenities or accommodations offered. Competition in the markets in which our hotels operate include competition from existing, newly renovated and newly developed hotels in the relevant segments. Competition can adversely affect the occupancy, average daily rates (“ADR”), and revenue per available room (“RevPAR”) of our hotels, and thus our financial results, and may require us to provide additional amenities, incur additional costs or make capital improvements that we otherwise might not choose to make, which may adversely affect our profitability.

Seasonality

Certain lodging properties are seasonal in nature. Generally, occupancy rates and revenues are greater in the second and third quarters than in the first and fourth quarters. As a result of the seasonality of certain lodging properties, there may be quarterly fluctuations in results of operations of our properties. Quarterly financial results may be adversely affected by factors outside our control, including weather conditions and poor economic factors.

Certain Environmental and Regulatory Matters

Our hotel properties are subject to various federal, state and local environmental laws and regulations. In connection with our current or prior ownership or operation of hotels, we may potentially be liable for various environmental costs or liabilities (including investigation, clean-up and disposal of hazardous materials released at, on, under, in or from the property). Environmental laws and regulations typically impose responsibility without regard to whether the owner or operator knew of or was responsible for the presence of hazardous materials or contamination, and liability is often joint and several. As part of our efforts to mitigate these risks, we typically engage third parties to perform assessments of potential environmental risks when evaluating new acquisitions or if required to do so by a lender. Such environmental surveys are limited in scope, however, and we remain exposed to contaminates (e.g., such as asbestos and mold) and hazardous or regulated substances used during the routine operations of our hotels (e.g., swimming pool or dry cleaning chemicals). Our hotel properties incur costs to comply with environmental and health and safety laws and regulations and could be subject to fines and penalties for non-compliance.

We have not received written notice from any governmental authority of any material noncompliance, liability or claim relating to hazardous or toxic substances or other environmental matters in connection with any of our properties. And although we are not currently aware of any material environmental or health and safety claims pending or threatened against us, a claim may be asserted against us in the future that could have a material adverse effect on us.

Our properties must comply with Title III of the Americans with Disabilities Act of 1990 (the “ADA”) to the extent that such properties are “public accommodations” as defined by the ADA. We believe that our properties are substantially in compliance with the ADA, however, the obligation to make readily achievable accommodations is an ongoing one and we will continue to assess our properties and make alterations as appropriate.

In addition, our hotel properties are subject to state and local health and safety laws, regulations and mandates relating to their operations in light of the COVID-19 pandemic.

Human Capital Resources

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.

We experienced highly competitive conditions in the labor market in 2021, and we expect these conditions to continue for the foreseeable future. In 2021, we adopted a retention plan under which we granted restricted stock and/or cash awards to employees to incentivize them to remain with us.

The third party operators that manage our hotels are generally responsible for hiring and maintaining the labor force at the hotels. The operators implemented significant furloughs of hotel personnel in 2020 due to governmental shutdowns and lack of demand attributable to the COVID-19 pandemic.
                     WLT 2021 10-K 7



Corporate Information

Our principal executive offices are located at 150 North Riverside Plaza, Chicago, Illinois 60606.

We will supply to any stockholder, upon written request and without charge, a copy of this Report as filed with the SEC. Our filings can also be obtained for free on the SEC’s website at http://www.sec.gov. All filings we make with the SEC, including this Report, our quarterly reports on Form 10-Q, and our current reports on Form 8-K, as well as any amendments to those reports, are available for free on our website, http://www.watermarklodging.com, as soon as reasonably practicable after they are filed with or furnished to the SEC. We are providing our website address solely for the information of investors and do not intend for it to be an active link. We do not intend to incorporate the information contained on our website into this Report or other documents filed with or furnished to the SEC.

Our Code of Business Conduct and Ethics, which applies to all of our officers and our directors, is available on our website at http://www.watermarklodging.com. We intend to make available on our website any future amendments or waivers to our Code of Business Conduct and Ethics within four business days after any such amendments or waivers.

Item 1A. Risk Factors.

Our business, results of operations, financial condition, liquidity and ability to pay distributions could be materially adversely affected by various risks and uncertainties, including the conditions discussed below. These risk factors may affect our actual operating and financial results and could cause such results to differ materially from our expectations as expressed in any forward-looking statements. You should not consider this list exhaustive. New risk factors emerge periodically and we cannot assure you that the factors described below list all risks that may become material to us at any later time.

Risks Related to Our Business and Operations

The effects of the COVID-19 pandemic materially and adversely affected us, and are expected to continue to do so for the foreseeable future.

The full extent of the effects of the COVID-19 pandemic on the Company's business for the foreseeable future cannot be predicted with certainty. As of the date of this Report, all of our hotels are open but several continue to operate at reduced levels of occupancy and staffing.

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 Company expects that its operations for the foreseeable future will continue to be significantly impacted by the COVID-19 pandemic. As of March 28, 2022, all of our hotels are open but several continue to operate at reduced levels of occupancy and staffing. We expect the recovery to continue to occur unevenly across our portfolio, with hotels that cater to business travel recovering more slowly than resort properties. Governmental and business efforts to encourage or mandate vaccinations, and public adoption rates of vaccines, have impacted and continue to impact the recovery from the COVID-19 pandemic and have had and may continue to have disruptive effects on certain segments of the labor market. Individual ability or desire to travel and corporate travel policies will continue to be impacted by the COVID-19 pandemic and affect the recovery of our properties. The ultimate severity and duration of the COVID-19 pandemic and its effects, and the emergence of variants, are uncertain, including whether COVID-19 will become endemic or cyclical in nature. The Company has already incurred and may incur additional or continuing material costs to reconfigure the layout of its properties, add cleaning services and systems, and take other steps to seek to address customer concerns. Additionally, the disruption to our business caused by the COVID-19 pandemic has led and may continue to lead to triggering events that may indicate that the carrying value of
                     WLT 2021 10-K 8


certain of our assets, including investments in real estate, equity investments in real estate, and intangibles, may not be recoverable, resulting in impairment charges.

These and other effects of the COVID-19 pandemic are materially and adversely affecting our current business, results of operations, financial condition, cash flows, ability to meet financial covenants under financing arrangements, ability to pay dividends and asset valuations, and they are expected to continue to do so for the foreseeable future. The severity of the impact will depend on the duration of these conditions and on recovery in the travel and lodging industry.

The Company’s financial condition and results of operations will depend on access to cash flow and additional financing.

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.

The lodging industry is highly sensitive to trends in business and personal travel.

The performance of the lodging industry has historically been closely linked to the performance of the general economy and, specifically, growth in U.S. gross domestic product. The lodging industry is also sensitive to business and personal discretionary spending levels. The COVID-19 pandemic has materially adversely affected corporate budgets and consumer demand for travel and lodging. These trends are likely to continue. In particular, industry experts predict that business travel and group travel will be slower to recover from the COVID-19 pandemic than personal leisure travel. Most of our hotels have historically derived a significant portion of their business from business travel and group travel. The COVID-19 pandemic caused a significant decline in demand for our products and services. We cannot predict how long reduced demand will continue or its effect on occupancy levels and room rates. Significant recent increases in fuel prices and the outbreak of hostilities in Ukraine may also adversely affect business and personal travel demand. A continuing significant reduction in occupancy for room rates would continue to adversely impact our revenues and have a negative effect on our profitability.

We are subject to various operating risks common to the lodging industry.

Our hotel properties and lodging facilities are subject to various operating risks common to the lodging industry, many of which are beyond our control, including the risk described under this section “Risk Factors” and the following:

competition from other hotel properties or lodging facilities in our markets;
over-building of hotels in our markets, which would adversely affect occupancy and revenues at our hotels;
dependence on business and commercial travelers and tourism both of which have been materially adversely affected by the COVID-19 pandemic;
increases in energy costs and other expenses, which may affect travel patterns and reduce the number of business and commercial travelers and tourists;
increases in operating costs due to inflation and other factors that may not be offset by increased room rates;
competition for labor and increased costs of labor;
changes in governmental laws and regulations, fiscal policies and zoning ordinances, and the related compliance costs of such changes;
adverse effects of international, national, regional and local economic and market conditions;
unforeseen events beyond our control, such as terrorist attacks, travel related health concerns (including pandemics and epidemics such as COVID-19), political instability, governmental restrictions on travel, regional hostilities, imposition of taxes or surcharges by regulatory authorities, travel related accidents, climate change and unusual weather patterns (including natural disasters such as hurricanes, wildfires, tsunamis or earthquakes);
                     WLT 2021 10-K 9


adverse effects of a downturn in the lodging industry;
the seasonal nature of resort properties, which may cause fluctuations in our quarterly results; and
risks generally associated with the ownership of hotel properties and real estate, as discussed in other risk factors.

These risks could reduce our net operating profits, which in turn could adversely affect our ability to meet our obligations and make distributions to our stockholders.

We are subject to the risks of brand concentration.

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.

The cyclical nature of the lodging industry may cause fluctuations in our operating performance.

The lodging industry is highly cyclical in nature. Fluctuations in operating performance are caused largely by general economic and local market conditions, which affect business and leisure travel levels. In addition to general economic conditions, new hotel room supply is an important factor that can affect the lodging industry’s performance, and over-building has the potential to further exacerbate the negative impact of an economic recession. Room rates and occupancy, and thus RevPAR, tend to increase when demand growth exceeds supply growth. A decline in lodging demand, a substantial growth in lodging supply or a deterioration in the improvement of lodging fundamentals as forecast by industry analysts could result in returns that are substantially below expectations, or result in losses, which could have a material adverse effect on our business, financial condition, results of operations and our ability to make distributions to our stockholders.

We own hotels pursuant to ground leases, which could materially and adversely affect us.

We lease the land underlying four of our hotels from third-parties as of December 31, 2021. Purchasers may be disinterested in buying, and lenders may be disinterested in financing, properties subject to a ground lease, or lenders may condition any financing on receiving lender protection that the ground lessor is unwilling to provide. Accordingly, we may find it difficult to sell or finance a property subject to a ground lease, or may receive less proceeds in a sale or financing. To the extent that we are unable to sell or finance a hotel, or the proceeds of a sale or financing are decreased due to the existence of a ground lease, our business, financial condition, results of operations and our ability to make distributions to stockholders could be materially adversely affected.

We could have property losses that are not covered by insurance.

Our property insurance policies provide that all of the claims from each of our hotels resulting from a particular insurable event must be combined together for purposes of evaluating whether the aggregate limits and sub-limits contained in our policies have been exceeded. Therefore, if an insurable event occurs that affects more than one of our hotels, the claims from each affected hotel will be added together to determine whether the aggregate limit or sub-limits, depending on the type of claim, have been reached. If the total value of the loss exceeds the aggregate limits available, each affected hotel may only receive a proportional share of the amount of insurance proceeds provided for under the policy. We may incur losses in excess of insured limits, and as a result, may be even less likely to receive sufficient coverage for risks that affect multiple properties, such as earthquakes or catastrophic terrorist acts. Further, in the event a hotel is significantly damaged due to a casualty, restoring it may require compliance with updated zoning and use laws, which would likely be more restrictive and expensive, and could result in not being able to rebuild the hotel as it previously existed. In addition, catastrophic losses, such as those from successive or massive hurricanes or wildfires, could make the cost of insuring against such types of losses prohibitively expensive or difficult to obtain. Risks such as war, catastrophic terrorist acts, nuclear, biological, chemical or radiological attacks, climate change, pandemics and some environmental hazards may be deemed to fall completely outside the general coverage limits of our policies, may be uninsurable or may be too expensive to justify insuring against. We are in contact with our insurance carriers regarding coverage related to losses caused by the COVID-19 pandemic. Although there has been no final determination regarding insurance coverage related to losses caused by the COVID-19 pandemic, we understand that insurance carriers have generally been taking the position that losses caused by the COVID-19 pandemic are not insured. We intend to exercise our rights and remedies to the fullest extent possible in order to obtain insurance coverage related to losses caused by the COVID-19 pandemic, although any recovery is uncertain.

                     WLT 2021 10-K 10


We have encountered, and will likely continue to encounter, disputes concerning whether an insurance provider will pay a particular claim that we believe is covered under our policy. Should a loss in excess of insured limits or an uninsured loss occur, or should we be unsuccessful in obtaining coverage from an insurance carrier, we could lose all, or a portion of, the capital we have invested in a property, as well as the anticipated future revenue from the hotel. In such event, we may nevertheless remain obligated for any mortgage debt or other financial obligations related to the property.

We obtain terrorism insurance to the extent required by lenders or franchisors as a part of our all-risk property insurance program, as well as our general liability policy. However, our all-risk policies have limitations, such as per occurrence limits and sub-limits, which may have to be shared proportionally across participating hotels under certain loss scenarios. Also, all-risk insurers only have to provide terrorism coverage to the extent mandated by the Terrorism Risk Insurance Act for ‘‘certified’’ acts of terrorism - namely those that are committed on behalf of non-U.S. persons or interests. Furthermore, we do not have full replacement coverage at all of our hotels for acts of terrorism committed on behalf of U.S. persons or interests (‘‘non-certified’’ events) as our coverage for such incidents is subject to sub-limits and/or annual aggregate limits. In addition, property damage related to war and to nuclear, biological and chemical incidents is excluded under our policies. While the Terrorism Risk Insurance Act will reimburse insurers for losses resulting from nuclear, biological and chemical perils, it does not require insurers to offer coverage for these perils and, to date, insurers are not willing to provide this coverage, even with government reinsurance. As a result of the above, there remains uncertainty regarding the extent and adequacy of terrorism coverage that will be available to protect our interests in the event of future terrorist attacks that impact our properties.

We face possible risks associated with the physical effects of climate change.

We are subject to the risks associated with the physical effects of climate change, which can include more frequent or severe storms, hurricanes, flooding, droughts, fires and other extreme weather events, any of which could have a material adverse effect on our hotels, operating results and cash flows. To the extent climate change causes changes in weather patterns, increases in storm intensity could occur, and rising sea-levels causing damage to our hotels in coastal markets. Our hotel properties in Florida, Louisiana and California were adversely impacted by hurricanes, storms and wildfires in recent years. We could become subject to significant losses and/or repair costs that may or may not be fully covered by insurance. Other markets may experience prolonged variations in temperature or precipitation that may limit access to the water needed to operate our hotels or significantly increase energy costs, which may subject those hotels to additional regulatory burdens, such as limitations on water usage or stricter energy efficiency standards. Climate change also may affect our business by increasing the cost of (or making unavailable) property insurance on terms we find acceptable in areas most vulnerable to such events, increasing operating costs at our hotels, such as the cost of water or energy, and requiring us to expend funds as we seek to repair and protect our hotels against such risks. There can be no assurance that climate change will not have a material adverse effect on our hotels, financial position, operating results or cash flows.

Compliance with the ADA and the related regulations, rules and orders may adversely affect our financial condition.

Under the ADA, all public accommodations, including hotels, are required to meet certain federal requirements for access and use by disabled persons. Various state and local jurisdictions have also adopted requirements relating to the accessibility of buildings to disabled persons. We make every reasonable effort to ensure that our hotels substantially comply with the requirements of the ADA and other applicable laws. However, we could be liable for both governmental fines and payments to private parties if it were determined that our hotels are not in compliance with these laws. If we were required to make unanticipated major modifications to our hotels to comply with the requirements of the ADA and similar laws, it could materially adversely affect our ability to make distributions to our stockholders and to satisfy our other obligations.

Our participation in joint ventures creates additional risk.

From time to time, we have and may continue to participate in joint ventures to purchase assets. There are additional risks involved in joint venture transactions. As a co-investor in a joint venture, we may not be in a position to exercise sole decision-making authority relating to the property or the joint venture. In addition, there is the potential that our joint venture partner may become bankrupt or that we may have diverging or inconsistent economic or business interests. These diverging interests could, among other things, expose us to liabilities in the joint venture investment in excess of our proportionate share of those liabilities. The partition rights of each owner in a jointly owned property could reduce the value of each portion of the divided property. Further, if we have a fiduciary obligation to a co-investor it may conflict with our duties to our stockholders and any such conflict may result in a less favorable outcome to our stockholders.
                     WLT 2021 10-K 11



We may have difficulty selling our properties, potentially resulting in a lack of liquidity.

Real estate investments are generally less liquid than many other financial assets. The real estate market is affected by general economic conditions, availability of financing, interest rates and other factors beyond our control. The COVID-19 pandemic generally reduced the number of transactions taking place for lodging properties. Some of the other factors that could restrict our ability to sell properties include, but are not limited to:

inability to agree on a favorable price or on favorable terms;
restrictions on transfer imposed by lenders, franchisors, managers and other third parties;
the availability of financing for buyers of hotels; property condition, including environmental issues; and
lack of funds to correct defects or make improvements necessary for a sale.

Our inability to sell properties may result in our being unable to raise proceeds needed to repay maturing debt or in our owning lodging facilities that no longer fit within our business strategy. Holding these properties or selling them at a loss may affect our earnings and, in turn, could adversely affect the value of our portfolio. These factors could have a material adverse effect on our results of operations and financial condition, as well as our ability to pay distributions to stockholders.

Potential liability for environmental matters could adversely affect our financial condition.

Owners of real estate are subject to numerous federal, state and local environmental laws and regulations. Under these laws and regulations, a current or former owner of real estate may be liable for costs of remediating hazardous substances found on its property, whether or not they were responsible for its presence. Although we subject our properties to an environmental assessment prior to acquisition, we may not be made aware of all the environmental liabilities associated with a property prior to its purchase, or we or a subsequent owner may discover hidden environmental hazards after acquisition. The costs of investigation, remediation or removal of asbestos and hazardous substances may be substantial. In addition, the presence of hazardous substances on one of our properties, or the failure to properly remediate a contaminated property, could expose us to liability for third party claims and/or adversely affect our ability to sell the property or to borrow using the property as collateral.

Environmental laws may also impose restrictions on the manner in which property may be used or businesses may be operated, and these restrictions may require expenditures that may be material.

Future terrorist attacks or increased concern about terrorist activities, or the threat or outbreak of a pandemic disease, could adversely affect the travel and lodging industries and may affect the operations of our hotels.

As in the past, terrorist attacks or alerts in the United States and abroad, or the threat of, or actual outbreak of, pandemic disease could reduce both business and leisure travel, resulting in a decline in the lodging sector. Any kind of terrorist activity within the United States or elsewhere could negatively impact both domestic and international markets, as well as our business. Such attacks or threats of attacks could have a material adverse effect on our business, our ability to insure our properties and our operations. The threat of or actual outbreak of a pandemic disease could reduce business and leisure travel, which could have a material adverse effect on our business.

We are subject to general risks associated with the employment of hotel personnel, including competition for labor.

While third-party hotel managers are responsible for hiring and maintaining the labor force at each of our hotels, we are subject to many of the costs and risks generally associated with the hotel labor force. Increased labor costs due to tightened labor market conditions, collective bargaining activity, minimum wage initiatives and additional taxes or requirements to incur additional employee benefits costs may adversely impact our operating costs. We may also incur increased legal costs and indirect labor costs as a result of contract disputes or other events. Hotels where our managers have collective bargaining agreements with employees could be affected more significantly by labor force activities and additional hotels or groups of employees may become subject to additional collective bargaining agreements in the future. Increased labor organizational efforts or changes in labor laws could lead to disruptions in our operations, increase our labor costs, or interfere with the ability of our management to focus on executing our business strategies (e.g., by consuming management’s time and attention, limiting the ability of hotel managers to reduce workforces during economic downturns, etc.). In addition, from time to time, strikes, lockouts, boycotts, public demonstrations or other negative actions and publicity may disrupt hotel operations at any of our
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hotels, negatively impact our reputation or the reputation of our brands, cause us to lose guests, or harm relationships with the labor forces at our hotels.

We face risks relating to cybersecurity attacks, loss of confidential information and other business disruptions.

Our business is at risk from and may be impacted by cybersecurity attacks, including attempts to gain unauthorized access to our confidential data and other electronic security breaches. Such cyberattacks can range from individual attempts to gain unauthorized access to our or our independent hotel operators’ information technology systems to more sophisticated security threats. While we and our independent hotel operators employ a number of measures to prevent, detect and mitigate these threats including password protection, backup servers and annual penetration testing, there is no guarantee such efforts will be successful in preventing a cyberattack. Cybersecurity incidents could compromise the confidential information of financial transactions and records, personal identifying information, reservations, billing and operating data and disrupt and affect the efficiency of our business operations.

We and our independent hotel operators rely on information technology in our operations, and any material failure, inadequacy, interruption or security failure of that technology could harm our business.

We and our independent hotel operators rely on information technology networks and systems to process, transmit and store electronic information, and to manage or support a variety of business processes, including financial transactions and records, personal identifying information, reservations, billing and operating data. We and our independent hotel operators purchase some of our information technology from third-party vendors. Although we and our independent hotel operators have taken steps to protect the security of our information systems and the data maintained in those systems, our independent hotel operators have encountered information technology issues in the past and it is possible that such safety and security measures will not be able to prevent improper system functions, damage or the improper access or disclosure of personally identifiable information. Security breaches, including physical or electronic break-ins, computer viruses, attacks by hackers and similar breaches, can create system disruptions, shutdowns or unauthorized disclosure of confidential information. Any failure to maintain proper function, security and availability of information systems could interrupt our operations, damage our reputation, subject us to liability claims or regulatory penalties and could have a material adverse effect on our business, financial condition and results of operations.

We depend on the ability of the independent hotel operators to operate and manage our hotels.

As a REIT, we are allowed to own lodging properties, but are prohibited from operating them. Therefore, in order for us to satisfy certain REIT qualification rules, we enter into leases with the TRS lessees for each of our lodging properties. The TRS lessees in turn contract with independent hotel operators that manage the day-to-day operations of our properties. We may be limited in our ability to direct the actions of the independent hotel operators, particularly with respect to daily operations. Thus, even if we believe that our lodging properties are being operated in an unsatisfactory manner, we may not have sufficient rights under a particular property operating agreement to force the property operator to change its method of operation. Our results of operations, financial position, cash flows and ability to service debt and to make distributions to stockholders are, therefore, substantially dependent on the ability of the property operators to successfully operate our hotels. Some of our operating agreements may have lengthy terms, may not be terminable by us before the agreement’s expiration and may require the payment of substantial termination fees. Replacing a property operator may also result in significant disruptions at the affected hotels.

Our hotel management and franchise agreements limit operating flexibility.

We have entered into franchise or license agreements with nationally recognized lodging brands for most of our hotels. These franchise agreements contain specific standards for, and restrictions and limitations on, the operation and maintenance of our properties and our ability to make property improvements, in order to maintain uniformity within the franchise system. The franchisors also periodically inspect our properties to ensure that we maintain their standards. As a condition to the maintenance of a franchise license, a franchisor could also require us to make capital expenditures, even if we do not believe the improvements are necessary or desirable. A breach of the standards or other terms and conditions of the franchise agreements could result in the loss or termination of a franchise license. In addition, when terminating or changing the franchise affiliation of a property, we may be required to incur significant expenses or capital expenditures.

The loss of a franchise license and associated brand recognition and marketing support could have a material adverse effect upon the operations or the underlying value of the property and could materially and adversely affect our results of operations, financial position and cash flows, including our ability to service debt and make distributions to our stockholders.
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We face competition in the lodging industry, which may limit our profitability and returns to our stockholders.

The lodging industry is highly competitive. This competition could reduce occupancy levels and revenues at our properties, which would adversely affect our operations. We face competition from many sources, including from (i) other lodging facilities, both in the immediate vicinity and the geographic market where our lodging properties are located and (ii) nationally recognized lodging brands that we are not associated with. In addition, increases in operating costs due to inflation may not be offset by increased room rates. Some of our competitors may have substantially greater marketing and financial resources than us. If independent hotel operators are unable to compete successfully or if our competitors’ marketing strategies are effective, our results of operations, financial condition and ability to service debt may be adversely affected and may reduce the cash available for distribution to our stockholders.

We also face competition for investment opportunities. We face competition from other REITs, national lodging chains and other entities that may have substantially greater financial resources than us. If we are unable to compete successfully in the acquisition and management of our lodging properties, our results of operation and financial condition may be adversely affected and may reduce the cash available for distribution to our stockholders.

Risks Related to Our Indebtedness and Financing Arrangements

We are subject to risks from having substantial indebtedness and redeemable preferred stock.

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 addition to our indebtedness, at December 31, 2021, the liquidation value of our 12% Series B Cumulative Redeemable Preferred Stock (“Series B Preferred Stock”) outstanding was $231.3 million. The Series B Preferred Stock is redeemable at the option of the holder thereof under certain circumstances, including in connection with certain change of control and other extraordinary corporate transactions. The holders of the Series B Preferred Stock have the option to require us to redeem 100% of the then-outstanding shares in July 2025. If we fail to redeem in full, in cash, all the shares of Series B Preferred Stock required or sought by holders to be redeemed by the applicable deadline (i) the dividend rate will immediately be increased by 4% (unless an increased rate is already then in effect), (ii) no further dividends or distributions on, and no purchases of, common stock will be permitted, subject to certain exceptions, and (iii) the initial purchaser of the Series B Preferred Stock and its affiliates and permitted transferees will have the right to require us to sell certain assets and properties for net proceeds in an amount sufficient to pay all unpaid redemption amounts due, subject to the conditions specified in the Articles Supplementary governing the Series B Preferred Stock. There can be no assurance that we will have sufficient funds available when needed to satisfy our redemption obligations under the Series B Preferred Stock.

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Our debt incurrence may subject us to an increased risk of loss.

Our charter and bylaws do not restrict the form of indebtedness we may incur. The leverage we employ varies depending on our ability to obtain credit facilities, the loan-to-value and debt service coverage ratios of our assets, the yield on our assets, the targeted leveraged return we expect from our investment portfolio and our ability to meet ongoing covenants related to our asset mix and financial performance. Our return on our investments and cash available for distribution to our stockholders may be reduced to the extent that changes in market conditions cause the cost of our financing to increase relative to the income that we can derive from the assets we acquire. Debt service payments and lender cash management agreements have reduced, and may continue to reduce, our net income available for distributions to our stockholders. Moreover, we may not be able to meet our debt service obligations and, to the extent that we cannot, we risk the loss of some or all of our assets to foreclosure or sale to satisfy our debt obligations.

Our financial condition and ability to make distributions may be adversely affected by availability and terms of financing.

A reduction in available financing or increased interest rates for real-estate related investments may impact our financial condition by increasing our cost of borrowing, reducing our overall leverage (which may reduce our returns on investment) and making it more difficult for us to refinance maturing debt or obtain financing for ongoing acquisitions. The COVID-19 pandemic has adversely affected the availability of financing for lodging assets and will continue to do so for the foreseeable future.

The replacement of LIBOR may affect the value of certain of our financial obligations and could affect our results of operations or financial condition.

In July 2017, the U.K. Financial Conduct Authority, which regulates London Interbank Offered Rate (“LIBOR”), announced that it intends to stop persuading or compelling banks to submit LIBOR rates after 2021. In March 2021, ICE Benchmark Administration, the administrator of LIBOR, extended the transition dates of certain LIBOR tenors to June 30, 2023, after which LIBOR reference rates will cease to be provided. Despite this deferral, the LIBOR administrator has advised that no new contracts using U.S. Dollar LIBOR should be entered into after December 31, 2021. It is unknown whether any banks will continue to voluntarily submit rates for the calculation of LIBOR, or whether LIBOR will continue to be published by its administrator based on these submissions, or on any other basis, after such dates. Regulators, industry groups and certain committees, such as the Alternative Reference Rates Committee have, among other things, published recommended fallback language for LIBOR-linked financial instruments, identified recommended alternatives for certain LIBOR rates, such as the Secured Overnight Financing Rate as the recommended alternative to U.S. Dollar LIBOR, and proposed implementations of the recommended alternatives in floating rate financial instruments. It is currently unknown the extent to which these recommendations and proposals will be broadly accepted, whether they will continue to evolve, and what the effect of their implementation may be on the markets for floating-rate financial instruments. We are unable to predict the timing or effect of any changes, any establishment of alternative reference rates or any other reforms to LIBOR or any replacement of LIBOR that may be enacted in the United States, the United Kingdom or elsewhere. Such changes, reforms or replacements relating to LIBOR could have an adverse impact on the market for or value of any LIBOR-linked securities, loans, derivatives and other financial obligations or extensions of credit held by or due to us on our overall financial condition or results of operations.

Risks Related to Our Common Stock

The Company has suspended distributions and redemptions and future distributions and redemptions are restricted.

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.

Among other terms of the Series B Preferred Stock, the Series B Preferred Stock generally prohibits the Company from paying distributions on common stock or redeeming common stock unless all accrued and unpaid dividends on the Series B Preferred Stock are paid in cash for all past dividend periods and the dividend for the current dividend period is also paid in cash. There are certain exceptions for the payment dividends on common stock required for the Company to maintain its
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REIT qualification, special circumstances redemptions of common stock and redemptions of common stock that are funded with proceeds from issuances of common stock under the Company's distribution reinvestment plan.

The terms of our outstanding preferred equity securities could adversely affect our common stockholders and result in conflicts of interest.

Upon liquidation, holders of our Series B Preferred Stock will receive a distribution of our available assets before holders of our common stock. Our Series B Preferred Stock also has a preference on periodic dividends and limits our ability to make distributions to holders of shares of our common stock and to redeem shares of our common stock. The holders of our Series B Preferred Stock are currently entitled to elect two directors to our board of directors. The current holders of our Series B Preferred Stock hold interests in other hotels or hotel companies that may compete with us; therefore, their director representatives on our board may face conflicts of interest with respect to certain business matters. The terms of the Series B Preferred Stock also require that we redeem the shares at certain dates or upon the occurrence of certain events. See Note 14 for a more complete description of our Series B Preferred Stock. We cannot predict whether we may issue additional preferred stock in the future. These and other terms of our outstanding Series B Preferred Stock and additional preferred stock that we may issue in the future could adversely affect our common stockholders and result in conflicts of interest between our common and preferred stockholders, and for the directors elected by our preferred stockholders to our board.

Our NAVs may not be indicative of the price at which our shares would trade if they were listed on an exchange or actively traded by brokers.

The valuation methodologies underlying our NAVs involve subjective judgments. Valuations of real properties do not necessarily represent the price at which a willing buyer would purchase our properties; therefore, there can be no assurance that we would realize the values underlying our NAVs if we were to sell our assets and distribute the net proceeds to our stockholders. In addition, the values of our assets and debt are likely to fluctuate over time. Our NAVs may not be indicative of (i) the price at which shares would trade if they were listed on an exchange or actively traded by brokers, (ii) the proceeds that a stockholder would receive if we were liquidated or dissolved or (iii) the value of our portfolio at the time you dispose of your shares.

Our distributions in the past have exceeded, and may in the future exceed, our funds from operations (“FFO”).

Over the life of our company, the regular quarterly cash distributions we pay are expected to be principally sourced from our FFO. However, we have funded a portion of our cash distributions to date using net proceeds from our public offerings and, to a lesser extent, other sources; and there can be no assurance that our FFO will be sufficient to cover our future distributions. If our properties are not generating sufficient cash flow or our other expenses require it, we may need to use other sources of funds, such as proceeds from asset sales, borrowings or our distribution reinvestment plan to fund distributions in order to satisfy REIT requirements. If we fund distributions from borrowings, such financing will incur interest costs and need to be repaid.

Our distributions at any point in time may not reflect the current performance of our properties or our current operating cash flows.

Our charter permits us to make distributions from any source, including the sources described in the risk factor above. Because the amount we pay out in distributions has in the past exceeded, and may in the future continue to exceed, our FFO, distributions to stockholders may not reflect the current performance of our properties or our current operating cash flows. To the extent distributions exceed cash flow from operations, distributions may be treated as a return of investment and could reduce a stockholder’s basis in our stock. A reduction in a stockholder’s basis in our stock could result in the stockholder recognizing more gain upon the disposition of his or her shares, which in turn could result in greater taxable income to such stockholder.

Stockholders’ equity interests may be diluted.

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
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of common stock to our independent directors, (iv) when we issue shares of common stock under equity incentive plans or (v) if we issue additional common stock or other securities that are convertible into our common stock, then existing stockholders and investors that purchased their shares in our initial public offering will experience dilution of their percentage ownership in us. Depending on the terms of such transactions, most notably the offer price per share (which may be less than the per share proceeds received by us in our initial public offering) and the value of our properties and our other investments, existing common stockholders might also experience a dilution in the book value and NAV per share of their investment in us. The exercise of the warrants described above will result in dilution in the book value and NAV per share of our existing common stockholders due to the de minimis exercise price of the warrants.

Our board of directors may change our investment policies or revoke our REIT qualification without stockholder approval, which could alter the nature of your investment.

Except as otherwise provided in our charter, our investment policies, the methods for their implementation, and our other objectives, policies and procedures may be altered by a majority of our directors (including a majority of the independent directors), without the approval of our stockholders. Furthermore, our charter provides that the board of directors may revoke or otherwise terminate our REIT election, without the approval of our stockholders, if it determines that it is no longer in our best interest to continue to qualify as a REIT. As a result, the nature of your investment could change without your consent. A change in our investment strategy may, among other things, increase our exposure to interest rate risk, default risk and hotel property market fluctuations. If we cease to be a REIT, we will not be allowed a deduction for dividends paid to stockholders in computing our taxable income and we will be subject to federal income tax at regular corporate rates and state and local taxes. Any of the foregoing changes could materially adversely affect our ability to achieve our investment objectives and the returns we generate for our stockholders.

Our charter permits our board of directors to issue stock with terms that may subordinate the rights of the holders of our current common stock or discourage a third party from acquiring us.

Our board of directors may determine that it is in our best interest to classify or reclassify any unissued stock and establish the preferences, conversion or other rights, voting powers, restrictions, limitations as to distributions, qualifications, and terms or conditions of redemption of any such stock. Thus, our board of directors could authorize the issuance of such stock with terms and conditions that could subordinate the rights of the holders of our common stock or have the effect of delaying, deferring or preventing a change in control of us, including an extraordinary transaction (such as a merger, tender offer or sale of all or substantially all of our assets) that might provide a premium price for holders of our common stock. However, the issuance of preferred stock must also be approved by a majority of independent directors not otherwise interested in the transaction, who will have access at our expense to our legal counsel or to independent legal counsel. In addition, the board of directors, with the approval of a majority of the entire board and without any action by the stockholders, may amend our charter from time to time to increase or decrease the aggregate number of shares or the number of shares of any class or series that we have authority to issue. If our board of directors determines to take any such action, it will do so in accordance with the duties it owes to holders of our common stock.

Our NAVs are computed by us in part on information provided to a third party.

Our NAVs are computed by us relying in part upon an annual third-party appraisal of the fair market value of our real estate and third-party estimates of the fair market value of our debt. Any valuation includes the use of estimates. Because NAVs are estimated values and can change as interest rate and real estate markets fluctuate, there is no assurance that a stockholder will realize a particular NAV in connection with any liquidity event.

The lack of an active public trading market for our shares could make it difficult for stockholders to sell shares quickly or at all. We may amend, suspend or terminate our redemption plan without giving our stockholders advance notice.

There is no active public trading market for our shares and we do not expect one to develop. Moreover, we are not required to ever complete a liquidity event. Our share redemption plan is currently suspended and even if it reopens, stockholders should not rely on our redemption plan as a method to sell shares promptly. If the plan is reopened, it will likely continue to include numerous restrictions that will limit stockholders’ ability to sell their shares to us to an overall cap and our board of directors will be able to amend, suspend or terminate the plan without advance notice. Given these limitations, it may be difficult for stockholders to sell their shares promptly or at all. In addition, the price received for any shares sold prior to a liquidity event is likely to be less than the applicable NAV at that time. Investor suitability standards imposed by certain states may also make it more difficult for stockholders to sell their shares to someone in those states.
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Risks Related to Our Organization and Structure

Conflicts of interest may arise between holders of our common stock and holders of partnership interests in our Operating Partnership.

Our directors and officers have duties to us and our stockholders under Maryland law in connection with their management of us. At the same time, our Operating Partnership was formed in Delaware and we, as general partner, have duties under Delaware law to our Operating Partnership and the limited partners in connection with our management of our Operating Partnership. Our duties as general partner of our Operating Partnership may come into conflict with the duties of our directors and officers to us and our stockholders.

Under Delaware law, a general partner of a Delaware limited partnership owes its limited partners the duties of good faith and fair dealing. Other duties, including fiduciary duties, may be modified or eliminated in the partnership’s partnership agreement. The partnership agreement of our Operating Partnership provides that, for so long as we own a controlling interest in our Operating Partnership, any conflict that cannot be resolved in a manner not adverse to either our stockholders or the limited partners will be resolved in favor of our stockholders. The provisions of Delaware law that allow the fiduciary duties of a general partner to be modified by a partnership agreement have not been tested in a court of law, and we have not obtained an opinion of counsel covering the provisions set forth in the partnership agreement that purport to waive or restrict our fiduciary duties.

In addition, the partnership agreement expressly limits our liability by providing that we and our officers, directors, agents and employees will not be liable or accountable to our Operating Partnership for losses sustained, liabilities incurred or benefits not derived if we or our officers, directors, agents or employees acted in good faith. Furthermore, our Operating Partnership is required to indemnify us and our officers, directors, employees, agents and designees to the extent permitted by applicable law from, and against, any and all claims arising from operations of our Operating Partnership, unless it is established that: (i) the act or omission was committed in bad faith, was fraudulent or was the result of active and deliberate dishonesty; (ii) the indemnified party actually received an improper personal benefit in money, property or services; or (iii) in the case of a criminal proceeding, the indemnified person had reasonable cause to believe that the act or omission was unlawful. These limitations on liability do not supersede the indemnification provisions of our charter.

The ownership limit in our charter may discourage an advantageous takeover.

To assist us in meeting the REIT qualification rules, among other things, our charter prohibits the ownership by one person or affiliated group of more than 9.8% in value of our stock or more than 9.8% in value or number, whichever is more restrictive, of our outstanding shares of common stock, unless exempted (prospectively or retroactively) by our board of directors. This ownership limitation may discourage third parties from making a potentially attractive tender offer for our stockholders’ shares, thereby inhibiting a change of control in us.

Maryland law could restrict a change in control that is in our stockholders’ interest.

Provisions of Maryland law applicable to us prohibit business combinations with:

any person who beneficially owns, directly or indirectly, 10% or more of the voting power of our outstanding voting stock, referred to as an interested stockholder;
an affiliate or associate who, at any time within the two-year period prior to the date in question, was the beneficial owner of, directly or indirectly, 10% or more of the voting power of our then outstanding stock, also referred to as an interested stockholder; or
an affiliate of an interested stockholder.

These prohibitions last for five years after the most recent date on which the interested stockholder became an interested stockholder. Thereafter, any business combination must be recommended by our board of directors and approved by the affirmative vote of at least 80% of the votes entitled to be cast by holders of our outstanding voting shares and two-thirds of the votes entitled to be cast by holders of our outstanding voting stock (other than voting stock held by the interested stockholder or by an affiliate or associate of the interested stockholder). These requirements could have the effect of inhibiting a change in control of us even if a change in control were in our stockholders’ interest. These provisions of Maryland law do not apply, however, to business combinations that are approved or exempted by our board of directors prior to the time that someone becomes an interested stockholder. In addition, a person is not an interested stockholder if the board of directors approved in
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advance the transaction by which he or she otherwise would have become an interested stockholder. However, in approving a transaction, the board of directors may provide that its approval is subject to compliance, at or after the time of approval, with any terms and conditions determined by the board.

Tax Risks

While we believe that we are properly organized as a REIT in accordance with applicable law, we cannot guarantee that the Internal Revenue Service will find that we have qualified as a REIT.

We believe that we are organized in conformity with the requirements for qualification as a REIT under the Internal Revenue Code beginning with our 2008 taxable year and that our current and anticipated investments and plan of operation will enable us to meet and continue to meet the requirements for qualification and taxation as a REIT. Investors should be aware, however, that the Internal Revenue Service or any court could take a position different from our own. Given the highly complex nature of the rules governing REITs, the ongoing importance of factual determinations, and the possibility of future changes in our circumstances, no assurance can be given that we will qualify as a REIT for any particular year.

Furthermore, our qualification and taxation as a REIT will depend on our satisfaction of certain asset, income, organizational, distribution, stockholder ownership, and other requirements on a continuing basis. Our ability to satisfy the quarterly asset tests under applicable Internal Revenue Code provisions and Treasury Regulations will depend in part upon our board of directors’ good faith analysis of the fair market values of our assets, some of which are not susceptible to a precise determination. Our compliance with the REIT income and quarterly asset requirements also depends upon our ability to successfully manage the composition of our income and assets on an ongoing basis. While we believe that we will satisfy these tests, we cannot guarantee that this will be the case on a continuing basis.

In particular, if the IRS were to successfully challenge the status of our Operating Partnership as a partnership for U.S. federal income tax purposes, we would fail to qualify as a REIT, and we and our Operating Partnership would be subject to corporate-level taxes that would reduce our cash available to pay distributions.

If we fail to remain qualified as a REIT, we would be subject to federal income tax at corporate income tax rates, would not be able to deduct distributions to stockholders and may have to take unfavorable actions.

If, in any taxable year, we fail to qualify for taxation as a REIT and are not entitled to relief under the Internal Revenue Code, we will:
not be allowed a deduction for distributions to stockholders in computing our taxable income;
be subject to federal and state income tax on our taxable income at regular corporate rates; and
be barred from qualifying as a REIT for the four taxable years following the year when we were disqualified.

Any such corporate tax liability could be substantial and would reduce the amount of cash available for distributions to our stockholders, which in turn could have an adverse impact on the value of our common stock. This adverse impact could last for five or more years because, unless we are entitled to relief under certain statutory provisions, we will be taxed as a corporation beginning the year in which the failure occurs and for the following four years.

If we fail to qualify for taxation as a REIT, we may need to borrow funds or liquidate some investments to pay the additional tax liability. Were this to occur, funds available for investment would be reduced, our leverage would be increased and our future income may be reduced. REIT qualification involves the application of highly technical and complex provisions of the Internal Revenue Code to our operations, as well as various factual determinations concerning matters and circumstances not entirely within our control. There are limited judicial or administrative interpretations of these provisions. Although we plan to continue to operate in a manner consistent with the REIT qualification rules, we cannot assure you that we will qualify in a given year or remain so qualified.

If we fail to make required distributions, we may be subject to federal corporate income tax.

Quarterly distributions are determined, and subject to adjustment, by our board of directors. To continue to qualify and be taxed as a REIT, we will generally be required to distribute at least 90% of our REIT taxable income (determined without regard to the dividends-paid deduction and excluding net capital gain) each year to our stockholders. Generally, we expect to distribute all, or substantially all, of our REIT taxable income. If our cash available for distribution falls short of our estimates, we may be unable to maintain the proposed quarterly distributions that approximate our taxable income and we may fail to qualify for taxation as a REIT. In addition, our cash flows from operations may be insufficient to fund required distributions as a result of
                     WLT 2021 10-K 19


differences in timing between the actual receipt of income and the recognition of income for federal income tax purposes or the effect of nondeductible expenditures (e.g., capital expenditures, the creation of reserves, or required debt service or amortization payments). To the extent we satisfy the 90% distribution requirement, but distribute less than 100% of our REIT taxable income, we will be subject to federal corporate income tax on our undistributed taxable income. We will also be subject to a 4.0% nondeductible excise tax if the actual amount that we pay out to our stockholders for a calendar year is less than a minimum amount specified under the Internal Revenue Code. In addition, in order to continue to qualify as a REIT, any C-corporation earnings and profits to which we succeed must be distributed as of the close of the taxable year in which we accumulate or acquire such C-corporation’s earnings and profits.

The REIT rules may limit our ability to pursue otherwise attractive opportunities.

To qualify as a REIT for federal income tax purposes, we must continually satisfy tests concerning, among other things, the sources of our income, the nature and diversification of our assets (including mandatory holding periods prior to disposition), the amounts we distribute to our stockholders, and the ownership of our common stock. Compliance with these tests will require us to refrain from certain activities and may hinder our ability to make certain attractive investments or dispositions, including the purchase of non-qualifying assets, the expansion of non-real estate activities, and investments in the businesses to be conducted by our TRSs, thereby limiting our opportunities and the flexibility to change our business strategy. Furthermore, acquisition opportunities in domestic and international markets may be adversely affected if we need or require target companies to comply with certain REIT requirements prior to closing on acquisitions.

To meet our annual distribution requirements, we may be required to distribute amounts that may otherwise be used for our operations, including amounts that may be invested in future acquisitions, capital expenditures, or debt repayment; and it is possible that we might be required to borrow funds, sell assets, or raise equity to fund these distributions, even if the then-prevailing market conditions are not favorable for such transactions.

The REIT rules limit our hedging activities.

The REIT provisions of the Internal Revenue Code limit our ability to hedge assets and liabilities that are not incurred to acquire or carry real estate. Generally, income from hedging transactions that have been properly identified for tax purposes (which we enter into to manage interest rate risk with respect to borrowings to acquire or carry real estate assets) do not constitute “gross income” for purposes of the REIT gross income tests (such a hedging transaction is referred to as a “qualifying hedge”). In addition, if we enter into a qualifying hedge, but dispose of the underlying property (or a portion thereof) or the underlying debt (or a portion thereof) is extinguished, we can enter into a hedge of the original qualifying hedge, and income from the subsequent hedge will also not constitute “gross income” for purposes of the REIT gross income tests. To the extent that we enter into other types of hedging transactions, the income from those transactions is likely to be treated as non-qualifying income for purposes of the REIT gross income tests. As a result of these rules, we may need to limit our use of advantageous hedging techniques or implement those hedges through a TRS. This could increase the cost of our hedging activities because our TRSs could be subject to tax on income or gains resulting from such hedges or expose us to greater interest rate risks than we would otherwise want to bear. In addition, losses in any of our TRSs generally will not provide any tax benefit, except for being carried forward for use against future taxable income in the TRSs.

Our ability to fund distribution payments using cash generated through our TRSs may be limited.

Our ability to receive distributions from our TRSs is limited by the rules we must comply with in order to maintain our REIT status. In particular, at least 75% of our gross income for each taxable year as a REIT must be derived from real estate-related sources, which principally includes gross income from the leasing of our properties. Consequently, no more than 25% of our gross income may consist of dividend income from our TRSs and other non-qualifying income types. Thus, our ability to receive distributions from our TRSs is limited and may impact our ability to fund distributions to our stockholders using cash flows from our TRSs. Specifically, if our TRSs become highly profitable, we might be limited in our ability to receive net income from our TRSs in an amount required to fund distributions to our stockholders commensurate with that profitability.

Limitations imposed by the REIT rules on our use of TRSs may adversely affect us.

Overall, no more than 20% of the value of a REIT’s gross assets may consist of interests in TRSs; compliance with this limitation could limit our ability to grow our portfolio. The Internal Revenue Code limits the deductibility of interest paid or accrued by a TRS to its parent REIT to assure that the TRS is subject to an appropriate level of corporate taxation. The Internal Revenue Code also imposes a 100% excise tax on certain transactions between a TRS and its parent REIT that are not conducted on an arm’s-length basis. We monitor the value of investments in our TRSs in order to ensure compliance with TRS
                     WLT 2021 10-K 20


ownership limitations and will structure our transactions with our TRSs on terms that we believe are arm’s-length to avoid incurring the 100% excise tax described above. There can be no assurance, however, that we will be able to comply with the TRS ownership limitation or be able to avoid application of the 100% excise tax.

Dividends payable by REITs do not qualify for the reduced tax rates on dividend income from C corporations, which could cause investors to perceive investments in REITs to be relatively less attractive.

The maximum U.S. federal income tax rate for certain qualified dividends payable by C corporations to U.S. stockholders that are individuals, trusts and estates is 20%. Dividends payable by REITs, however, are generally not eligible for the reduced qualified dividend rate. However, for taxable years beginning after December 31, 2017 and before January 1, 2026, under the Tax Cuts and Jobs Act, noncorporate taxpayers may deduct up to 20% of certain qualified business income, including “qualified REIT dividends” (generally, dividends received by a REIT shareholder that are not designated as capital gain dividends or qualified dividend income), subject to certain limitations. Although the reduced U.S. federal income tax rate applicable to qualified dividends from C corporations does not adversely affect the taxation of REITs or dividends paid by REITs, the more favorable rates applicable to regular corporate dividends, together with the current corporate tax rate, could cause investors who are individuals, trusts and estates to perceive investments in REITs to be relatively less attractive than investments in the stocks of non-REIT corporations that pay dividends.

Even if we continue to qualify as a REIT, certain of our business activities will be subject to corporate level income tax.

Even if we qualify for taxation as a REIT, we may be subject to certain (i) federal, state and local taxes on our income and assets, (ii) taxes on any undistributed income and state or local income, and (iii) franchise, property, and transfer taxes. Moreover, net income from the sale of properties that are “dealer” properties sold by a REIT (a “prohibited transaction” under the Internal Revenue Code) will be subject to a 100% tax. In addition, we could be required to pay an excise or penalty tax under certain circumstances in order to utilize one or more relief provisions under the Internal Revenue Code to maintain qualification for taxation as a REIT, which could be significant in amount.

For taxable years beginning in 2018, partnership audits are conducted and collected at the partnership level. Unless the partnership makes a specific election or takes certain steps to require the partners to pay their tax on their allocable shares of the adjustment, it is possible that partnerships in which we directly or indirectly invest, including the Operating Partnership, would be required to pay additional taxes, interest and penalties as a result of an audit adjustment, which could adversely impact our interest in the partnership even if the taxes are attributable to another partner.

Any TRS assets and operations would continue to be subject, as applicable, to federal and state corporate income taxes and to foreign taxes in the jurisdictions in which those assets and operations are located. Any of these taxes would decrease our earnings and our cash available for distributions to stockholders.

We will also be subject to a federal corporate level tax at the highest regular corporate rate on all or a portion of the gain recognized from a sale of assets formerly held by any C corporation that we acquire on a carry-over basis transaction occurring within a five-year period after we acquire such assets, to the extent the built-in gain based on the fair market value of those assets on the date of acquisition is in excess of our then tax basis. Gains from the sale of an asset occurring after the specified period will not be subject to this corporate level tax. We expect to have only a de minimis amount of assets subject to these corporate tax rules and do not expect to dispose of any significant assets subject to these corporate tax rules.

In addition, although the Merger was intended to be treated as a tax-free reorganization for U.S. federal income tax purposes, if the Merger is determined not to have qualified for such tax-free treatment, or if CWI 1 is determined to have failed to qualify as a REIT for any period prior to the Merger, we could inherit certain tax liabilities of CWI 1 as its successor in the Merger.

Item 1B. Unresolved Staff Comments.

None.

                     WLT 2021 10-K 21


Item 2. Properties.

Our Hotels

The following table sets forth certain information for each of our Consolidated Hotels and our Unconsolidated Hotel at December 31, 2021:
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
_________
(a)Includes 220 privately owned villas that participate in the villa/condo rental program as of December 31, 2021.
(b)On April 6, 2021, we acquired the remaining 20% interest in the Hyatt Centric French Quarter Venture from an unaffiliated third party, bringing our ownership interest to 100% (Note 4).
(c)Includes 32 condo-hotel units that participate in the villa/condo rental program as of December 31, 2021. Also, 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% (Note 11).
(d)Includes 141 condo-hotel units that participate in the resort rental program at December 31, 2021.

Our Hotel Management and Franchise Agreements

Hotel Management Agreements

All of our hotels are managed by independent hotel operators pursuant to management or operating agreements, with many also subject to separate license agreements addressing matters pertaining to operation under the designated brand. As of December 31, 2021, we had management or operating agreements with nine different management companies. Under these agreements, the managers generally have sole responsibility and exclusive authority for all activities necessary for the day-to-day operation of the hotels, including establishing room rates; securing and processing reservations; procuring inventories,
                     WLT 2021 10-K 22


supplies and services; providing periodic inspection and consultation visits to the hotels by the managers’ technical and operational experts; and promoting and publicizing the hotels. The managers provide all managerial and other employees for the hotels; review the operation and maintenance of the hotels; prepare reports, budgets and projections; and provide other administrative and accounting support services to the hotels. These support services include planning and policy services, divisional financial services, product planning and development, employee staffing and training, corporate executive management and certain in-house legal services. We have certain approval rights over budgets, capital expenditures, significant leases and contractual commitments, and various other matters.

The initial terms of our management and operating agreements, including those that have been assumed at the time of the hotel acquisition, typically range from five to 40 years, with one or more renewal terms at the option of the manager. The management agreements condition the manager’s right to exercise options for specified renewal terms upon the satisfaction of specified economic performance criteria, or allow us to terminate at will with 30 to 60 days’ notice. For hotels operated with separate franchise agreements, the manager typically receives compensation in the form of a base management fee, which is calculated as a percentage (generally ranging from 1.5% to 3.5%) of annual gross revenues, and an incentive management fee, which is typically calculated as a percentage of operating profit, either (i) in excess of projections with a cap or (ii) after the owner has received a priority return on its investment in the hotel.

The management agreements relating to 11 of our hotels contain the right and license to operate the hotels under specified brands. No separate franchise agreements exist and no separate franchise fee is required for these hotels. These management agreements incur a base management fee ranging from 3.0% to 4.0% of hotel revenues.

Franchise Agreements

11 of our hotels operate under franchise or license agreements with national brands that are separate from our management agreements. As of December 31, 2021, we had eight franchise agreements with Marriott-owned brands, one with Hilton-owned brands, one with InterContinental Hotels-owned brands and one with a Hyatt-owned brand related to our hotels.

Typically, franchise agreements grant us the right to the use of the brand name, systems and marks with respect to specified hotels and establish various management, operational, record-keeping, accounting, reporting and marketing standards and procedures that the licensed hotel must comply with. In addition, the franchisor establishes requirements for the quality and condition of the hotel and its furniture, fixtures and equipment, and we are obligated to expend such funds as may be required to maintain the hotel in compliance with those requirements. Typically, our franchise agreements provide for a license fee, or royalty, of 3.0% to 6.0% of room revenues and, if applicable, 2.0% to 3.0% of food and beverage revenue. In addition, we generally pay 1.0% to 4.0% of room revenues as marketing and reservation system contributions for the system-wide benefit of brand hotels.

Our typical franchise agreement provides for a term of 15 to 25 years. Three of our hotels are not operated with a hotel brand so the hotels do not have franchise agreements. The agreements provide no renewal or extension rights and are not assignable. If we breach one of these agreements, in addition to losing the right to use the brand name for the applicable hotel, we may be liable, under certain circumstances, for liquidated damages equal to the fees paid to the franchisor with respect to that hotel during the three immediately preceding years.

Item 3. Legal Proceedings.

As of December 31, 2021, we were not involved in any material litigation.

Various claims and lawsuits arising in the normal course of business are pending against us. The results of these proceedings are not expected to have a material adverse effect on our consolidated financial position, results of operations or cash flows.

Item 4. Mine Safety Disclosures.

Not applicable.

                     WLT 2021 10-K 23


PART II

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

Unlisted Shares

There is no active public trading market for our shares. At March 21, 2022, there were 51,408 holders of record of our shares of common stock.

Unregistered Sales of Equity Securities

None.

Issuer Purchases of Equity Securities

None.

Securities Authorized for Issuance Under Equity Compensation Plans

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 
___________
(a)Reflects unvested restricted stock units granted under the 2015 Equity Incentive Plan.
(b)All restricted stock units are settled in shares of Class A Common Stock on a one-for-one basis and accordingly do not have a weighted-average exercise price.
                     WLT 2021 10-K 24


Item 6. Reserved

                     WLT 2021 10-K 25


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

Management’s Discussion and Analysis of Financial Condition and Results of Operations is intended to provide the reader with information that will assist in understanding our financial statements and the reasons for changes in certain key components of our financial statements from period to period. Management’s Discussion and Analysis of Financial Condition and Results of Operations also provides the reader with our perspective on our financial position and liquidity, as well as certain other factors that may affect our future results.

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.

Business Overview

We are a self-managed, publicly owned, non-traded REIT that invests in, manages and seeks to enhance the value of interests in lodging and lodging-related properties in the United States. We own a diversified lodging portfolio, including full-service, select-service and resort hotels. Our 2021 results of operations were significantly affected by the COVID-19 pandemic, as discussed further below. Our results of operations are also significantly impacted by seasonality and by hotel renovations. Generally, during the renovation period, a portion of total rooms are unavailable and hotel operations are often disrupted, negatively impacting our results of operations. As of December 31, 2021, we held ownership interests in 25 hotels, with a total of 8,163 rooms.

Significant Developments

COVID-19 Pandemic

The COVID-19 pandemic has had a material adverse effect on our business, results of operations, financial condition and cash flows throughout 2021 and will continue to do so for the reasonably foreseeable future. As of March 28, 2022, all of our hotels are open but several continue to operate at reduced levels of occupancy and staffing. Although results improved relative to 2020, we cannot estimate with certainty when travel demand will fully recover or how new variants of COVID-19 could impact recovery. We have generally experienced improving demand at our properties as government-imposed restrictions and limitations on travel and large gatherings have loosened and as vaccines have become more widely available. We expect the recovery to continue to occur unevenly across our portfolio, with hotels that cater to business travel recovering more slowly than resort properties. Governmental and business efforts to encourage or mandate vaccinations and public adoption rates of vaccines have impacted and may continue to impact the recovery from the COVID-19 pandemic and have had and may continue to have disruptive effects on certain segments of the labor market. Individual ability or desire to travel and corporate travel policies will continue to be impacted by the COVID-19 pandemic and affect the recovery of our properties. The ultimate severity and duration of the COVID-19 pandemic and its effects, and the emergence of variants, are uncertain, including whether COVID-19 will become endemic or cyclical in nature. Given these uncertainties, we cannot estimate with reasonable certainty the impact on our business, financial condition or near- or long-term financial or operational results.

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.

Other Events

While as of the date of this Report, we have not experienced adverse effects from significant recent increases in fuel prices and the outbreak of hostilities in Ukraine, each of these matters could adversely affect the travel and lodging industry, including
                     WLT 2021 10-K 26


demand for our hotels. It is too early to predict how long these circumstances may exist and their impact on our business in 2022 and thereafter.

Financial and Operating Highlights

(Dollars in thousands, except average daily rate (“ADR”) and revenue per available room (“RevPAR”))
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.
(b)Our consolidated hotel operating statistics represent statistical data for our Consolidated Hotels during our ownership period.
(c)Our comparable hotel operating statistics represent statistical data for Consolidated Hotels we owned as of the end of the reporting period. Statistical data prior to our ownership was included for hotels that were not owned for the entirety of the comparison periods. Due to the impact of COVID-19 on hotel operations, including the temporary suspension of operations at certain hotels, a comparison between the year ended December 31, 2021 to the same period in 2020 are not meaningful, therefore we have included the operating statistics of our Comparable Consolidated Hotel Portfolio for the year ended December 31, 2019 for comparative purposes. Occupancy, ADR and RevPAR for our Comparable Consolidated Hotel Portfolio for the year ended December 31, 2019 were 74.2%, $263.92 and $195.72, respectively.
(d)Occupancy rates for our Comparable Consolidated Hotel Portfolio for October, November and December 2021 were 59.9%, 58.6% and 54.6%, respectively, as compared to occupancy rates for October, November and December 2020 of 32.1%, 23.8% and 22.4%, respectively.

                     WLT 2021 10-K 27


Portfolio Overview

The following table sets forth certain information for each of our Consolidated Hotels and our Unconsolidated Hotel as of December 31, 2021:
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
_________
(a)Includes 220 privately owned villas that participate in the villa/condo rental program as of December 31, 2021.
(b)On April 6, 2021, we acquired the remaining 20% interest in the Hyatt Centric French Quarter Venture from an unaffiliated third party, bringing our ownership interest to 100% (Note 4).
(c)Includes 32 condo-hotel units that participate in the villa/condo rental program as of December 31, 2021. Also, 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% (Note 11).
(d)Includes 141 condo-hotel units that participate in the resort rental program at December 31, 2021.

Results of Operations

We evaluate our results of operations with a primary focus on our ability to generate cash flow necessary to meet our objectives of funding distributions to stockholders and increasing the value in our real estate investments. As a result, our assessment of operating results gives less emphasis to the effect of unrealized gains and losses, which may cause fluctuations in net income (loss) for comparable periods but have no impact on cash flows, and to other non-cash charges, such as depreciation.
In addition, we use other information that may not be financial in nature, including statistical information, to evaluate the operating performance of our business, including occupancy rate, ADR and RevPAR. Occupancy rate, ADR and RevPAR are commonly used measures within the hotel industry to evaluate operating performance. RevPAR, which is calculated as the product of ADR and occupancy rate, is an important statistic for monitoring operating performance at our hotels. Our occupancy rate, ADR and RevPAR performance may be impacted by macroeconomic factors such as U.S. economic
                     WLT 2021 10-K 28


conditions, regional and local employment growth, personal income and corporate earnings, business relocation decisions, business and leisure travel, new hotel construction and the pricing strategies of competitors.

The results of operations for the year ended December 31, 2021 will not be comparable to the same period in 2020 as a result of the impact of the COVID-19 pandemic, the Merger and hotel dispositions. Beginning in March 2020, we experienced a significant decline in occupancy and RevPAR. The economic downturn and restrictions on travel resulting from the COVID-19 pandemic has significantly impacted our business and the overall lodging industry. As discussed above, certain of our hotel properties temporarily suspended all operations and our other hotel properties had operated, and continue to operate, in a limited capacity. Additionally, as a result of the Merger, the historical financial information included herein as of any date, or for any periods, prior to April 13, 2020, represents the pre-merger financial information of CWI 1 on a stand-alone basis, therefore comparisons of the period to period financial information of WLT as set forth herein may not be meaningful.

The following table presents our comparative results of operations (in thousands):
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.

                     WLT 2021 10-K 29



Hotel Revenues

For the year ended December 31, 2021 as compared to the same period in 2020, hotel revenues increased by $376.8 million. Of the 24 Consolidated Hotels we held ownership interests in as of December 31. 2021, operations were suspended for either all or a portion of the second and third quarters of 2020 at 15 Consolidated Hotels (with five hotel closures beginning during March 2020) and were significantly reduced at the remaining nine Consolidated Hotels. Additionally, as a result of the Merger, the historical financial information included for the period prior to April 13, 2020, represents the pre-Merger financial information of CWI 1 on a stand-alone basis, therefore comparisons of the period to period financial information of WLT as set forth herein may not be meaningful.

Hotel Operating Expenses

Room expense, food and beverage expense and other operating department costs (including but not limited to expenses related to departments such as parking, spa and gift shops) fluctuate based on various factors, including occupancy, labor costs, utilities and insurance costs.

For the year ended December 31, 2021 as compared to the same period in 2020, aggregate hotel operating expenses increased by $205.1 million. As discussed above, our results for the year ended December 31, 2020 were significantly impacted by the COVID-19 pandemic. Additionally, as a result of the Merger, the historical financial information included for the period prior to April 13, 2020, represents the pre-Merger financial information of CWI 1 on a stand-alone basis, therefore comparisons of the period to period financial information of WLT as set forth herein may not be meaningful.

Corporate General and Administrative Expenses

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.

Transaction Costs

For the year ended December 31, 2021 as compared to the same period in 2020, transactions costs decreased by $16.9 million. Transaction costs for the year ended December 31, 2020 represented legal, accounting, investor relations and other transaction costs related to the Merger and related transactions.

Impairment Charges

During the year ended December 31, 2020, we recognized impairment charges totaling $120.2 million on six Consolidated Hotels in order to reduce the carrying value of the properties to their estimated fair values, resulting from the adverse effect of the COVID-19 pandemic on our hotel operations. No impairments were recognized during the year ended December 31, 2021.

Our impairment charges are more fully described in Note 4.

Asset Management Fees to Affiliate

For the year ended December 31, 2021 as compared to the same period in 2020, asset management fees to affiliates decreased by $3.8 million. Upon completion of the Merger on April 13, 2020 (Note 3), the Advisory Agreement was terminated and these fees ceased being incurred.

                     WLT 2021 10-K 30


Net Gain on Sale of Real Estate

During the year ended December 31, 2021, we recognized a net gain on sale on real estate of $108.2 million, comprised of (i) a gain of $18.1 million from the sale of the Sheraton Austin Hotel at the Capitol to an unaffiliated third-party by the Sheraton Austin Hotel at the Capitol Venture (we owned an 80% controlling interest in the venture); (ii) a gain of $5.2 million from the sale of our 100% ownership interest in the Courtyard Pittsburgh Shadyside to an unaffiliated third-party; (iii) a gain of $18.5 million from the sale of our 100% ownership interest in the Westin Minneapolis to an unaffiliated third-party; and (iv) a gain of $66.4 million from the sale of our 100% ownership interest in the Hilton Garden Inn/Homewood Suites Atlanta Midtown, Hyatt Place Austin Downtown and Courtyard Nashville Downtown to an unaffiliated third-party.

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.

Interest Expense

During the year ended December 31, 2021, as compared to the same period in 2020, interest expense increased by $40.4 million, primarily due to an increase in the dividends recorded in connection with our Series A Preferred Stock and Series B Preferred Stock totaling $17.6 million, an increase of $9.3 million as a result of the aggregate amortization of the debt discount related to the mortgage loans assumed in the Merger and the fair value discount related to the Series A Preferred Stock and Series B Preferred Stock and an increase of $11.6 million resulting from the assumption of the mortgage loans of the hotels acquired in the Merger.

Net Loss on Extinguishment of Debt

During the year ended December 31, 2021 we recognized a loss on extinguishment of debt of $13.6 million, comprised primarily of a $6.3 million aggregate loss in connection with the disposition of the Hilton Garden Inn/Homewood Suites Atlanta Midtown, Hyatt Place Austin Downtown and Courtyard Nashville Downtown, a $4.8 million loss resulting from the refinancing of the Seattle Marriott Bellevue non-recourse mortgage loan and a $1.1 million loss in connection with the disposition of the Courtyard Pittsburgh Shadyside.

Net Gain on Change in Control of Interests

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.

During the year ended December 31, 2020, we recognized a net gain on change in control of interests of $22.3 million in connection with our acquisition of the remaining 50% interests in the Marriott Sawgrass Golf Resort and Spa and the Ritz-Carlton Bacara, Santa Barbara in the Merger (Note 3). We previously accounted for our jointly-owned interest in these ventures 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 values and the preliminary estimated fair values of our previously held equity investments on April 13, 2020, the date of the Merger. Subsequent to the Merger, we own 100% of these hotels and consolidate our real estate interests in the hotels.

                     WLT 2021 10-K 31


Equity in Losses of Equity Method Investments in Real Estate, Net

Equity in losses of equity method investments in real estate, net represents losses from our equity investments in Unconsolidated Hotels recognized in accordance with each investment agreement and is based upon the allocation of the investment’s net assets at book value as if the investment were hypothetically liquidated at the end of each reporting period (Note 5). We are required to periodically compare an investment’s carrying value to its estimated fair value and recognize an impairment charge to the extent that the carrying value exceeds the estimated fair value and is determined to be other than temporary. We recognized $17.8 million of other-than-temporary impairment charges on our equity method investments in real estate during the year ended December 31, 2020. No such charges were recognized during the year ended December 31, 2021.

The following table sets forth our share of equity in losses from our Unconsolidated Hotels, which are based on the hypothetical liquidation at book value (“HLBV”) method, as well as certain amortization adjustments related to basis differentials from acquisitions of investments (in thousands):
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)
___________
(a)The decrease in our share of equity in losses for the year ended December 31, 2021 as compared to the same period in 2020 is primarily the result of an improvement in the performance of the hotel during 2021 as compared to 2020.
(b)On April 6, 2021, we acquired the remaining 20% interest in the Hyatt Centric French Quarter Venture from an unaffiliated third party, bringing our ownership interest to 100% (Note 4), therefore the amount for the year ended December 31, 2021 represents the equity in losses for the period prior to the acquisition.
(c)Upon closing of the Merger on April 13, 2020, the Company owns 100% of this hotel and consolidates its real estate interest in this hotel therefore the amount for the year ended December 31, 2020 represents the equity in losses for the period prior to the Merger.
(d)Includes an other-than-temporary impairment charge of $17.8 million recognized on this investment during the year ended December 31, 2020 to reduce the carrying value of our equity investment in the venture to its estimated fair value.

Bargain Purchase Gain

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.

(Provision for) Benefit from Income Taxes

For the year ended December 31, 2021, we recognized a provision for income taxes of $3.6 million compared to a benefit from income taxes of $7.9 million for the same period in 2020. Provision for income taxes for the year ended December 31, 2021 included $2.8 million related to income taxes resulting from the sale of the Courtyard Nashville Downtown during the fourth quarter of 2021. Benefit from income taxes during the year ended December 31, 2020 included an $8.3 million current tax benefit, resulting from carrying back certain net operating losses allowable under the CARES Act.
                     WLT 2021 10-K 32



Loss Attributable to Noncontrolling Interests

The following table sets forth our loss (income) attributable to noncontrolling interests (in thousands):
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 
___________
(a)On May 5, 2021, the Sheraton Austin Hotel at the Capitol Venture sold the Sheraton Austin Hotel at the Capitol to an unaffiliated third-party. The venture received net proceeds of approximately $36.4 million from the sale after the repayment of the related mortgage loan. We owned an 80% controlling interest in the venture.
(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%.
(c)Reflects the OP Units proportionate share of net loss for the years ended December 31, 2021 and 2020.

Modified Funds from Operations

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.

For the year ended December 31, 2021 as compared to 2020, MFFO increased by $112.7 million. MFFO for the year ended December 31, 2020 reflects the impact of the COVID-19 pandemic on our hotel operations, beginning in March 2020. Additionally, as a result of the Merger, the historical financial information included for the period prior to April 13, 2020, represents the pre-Merger financial information of CWI 1 on a stand-alone basis, therefore comparisons of the period to period financial information of WLT as set forth herein may not be meaningful.

Liquidity and Capital Resources

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 March 28, 2022, all of our hotels are open but several continue to operate at reduced levels of occupancy and staffing. Significant events affecting travel, including the COVID-19 pandemic, typically have an impact on booking patterns, with the full extent of the impact generally determined by the duration of the event and its impact on travel decisions. We believe the ongoing effects of the COVID-19 pandemic on our operations have had, and will continue to have, a material adverse impact on our financial results and liquidity, and such adverse impact may continue well beyond the containment of such outbreak.

                     WLT 2021 10-K 33


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.

Sources and Uses of Cash During the Year

2021

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.

2020

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.

Distributions and Redemptions

On March 18, 2020, in light of the impact that the COVID-19 pandemic has had on our business, we announced that we were suspending future distributions on our common stock. We also announced that redemptions would be suspended including, as of December 2, 2020, special circumstances redemptions. 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 A and Series B Preferred Stock.
                     WLT 2021 10-K 34



Among other terms of the Series A and Series B Preferred Stock, the Series A and Series B Preferred Stock generally prohibits the Company from paying distributions on common stock or redeeming common stock unless all accrued dividends on the Series A and Series B Preferred Stock are paid in cash for all past dividend periods and the dividend for the current dividend period is also paid in cash. There are certain exceptions for the payment of dividends on common stock required for the Company to maintain its REIT qualification, special circumstances redemptions of common stock and redemptions of common stock that are funded with proceeds from issuances of common stock under the Company's distribution reinvestment plan.


Summary of Financing

The table below summarizes our non-recourse debt, net (dollars in thousands):
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  %
_________
(a)Aggregate fixed and variable debt balance includes unamortized debt discount of $13.4 million and $46.5 million, respectively, and deferred financing costs totaling $7.6 million and $6.9 million, respectively, as of December 31, 2021 and 2020, respectively.
(b)The impact of our derivative instruments are reflected in the weighted-average interest rates.

Covenants

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. Most of our mortgage loan agreements contain “lock-box” provisions, which permit the lender to access or sweep a hotel’s excess cash flow and could be triggered by the lender under limited circumstances, including the failure to maintain minimum debt service coverage ratios. If a lender requires that we enter into a cash management agreement, we would generally be permitted to spend an amount equal to our budgeted hotel operating expenses, taxes, insurance and capital expenditure reserves for the relevant hotel. The lender would then hold all excess cash flow after the payment of debt service in an escrow account until certain performance hurdles are met. As of December 31, 2021, we have effectively entered into cash management agreements with the lenders on 18 of our 24 mortgage loans either because the minimum debt service coverage ratio was not met or as a result of a loan modification agreement. The cash management agreements generally permit cash generated from the operations of each hotel to fund the hotel’s operating expenses, debt service, taxes and insurance but restrict distributions of excess cash flow, if any, to the Company to fund corporate expenses.

Courtyard Times Square West

                     WLT 2021 10-K 35


The $58.6 million outstanding mortgage loan on Courtyard Times Square West matured on June 1, 2021 and we have not paid off the outstanding principal balance. The loan does not have any cross-default provisions with our other mortgage obligations. We are currently in the process of exploring various options as it relates to this asset, including but not limited to, surrendering the property back to the lender.

Cash Resources

As of December 31, 2021, our cash resources consisted of cash totaling $249.5 million, of which $44.6 million was designated as hotel operating cash and was held at our hotel operating properties.

Cash Requirements

Our primary cash uses through December 31, 2021 are expected to be payments of debt service, real estate taxes and insurance, payment of preferred stock dividends, costs associated with the refinancing or restructuring of indebtedness and funding corporate and hotel level operations. Our primary capital sources to meet such uses are expected to be cash on hand, funds generated by hotel operations and proceeds from additional asset sales. We may satisfy certain debt maturities during this period by turning the properties back to the lenders.

Capital Expenditures and Reserve Funds

With respect to our hotels that are operated under management or franchise agreements with major international hotel brands and for most of our hotels subject to mortgage loans, we are obligated to maintain furniture, fixtures and equipment reserve accounts for future capital expenditures sufficient to cover the cost of routine improvements and alterations at these hotels. The amount funded into each of these reserve accounts is generally determined pursuant to the management agreements, franchise agreements and/or mortgage loan documents for each of the respective hotels and typically ranges between 3.0% and 5.0% of the respective hotel’s total gross revenue. As of December 31, 2021 and 2020, $58.7 million and $51.0 million, respectively, was held in furniture, fixtures and equipment reserve accounts for future capital expenditures. In addition, due to the effects of the COVID-19 pandemic on our operations, we have been working with the brands, management companies and lenders and have used a portion of the available restricted cash reserves to cover operating costs at our properties, of which $1.3 million is subject to replenishment as of December 31, 2021.

Equity Method Investments

As of December 31, 2021, we owned an equity interest in one Unconsolidated Hotel. Our ownership interest and summarized financial information for this investment as of December 31, 2021 is presented below. Summarized financial information provided represents the total amounts attributable to this investment and does not represent our proportionate share (dollars in thousands):
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

Environmental Obligations

Our hotels are subject to various federal, state and local environmental laws. Under these laws, governmental entities have the authority to require the current owner of the property to perform or pay for the cleanup of contamination (including hazardous substances, waste or petroleum products) at, on, under or emanating from the property and to pay for natural resource damages arising from such contamination. Such laws often impose liability without regard to whether the owner or operator or other responsible party knew of, or caused such contamination, and the liability may be joint and several. Because these laws also impose liability on persons who owned the property at the time it became contaminated, it is possible we could incur cleanup costs or other environmental liabilities even after we sell properties. Contamination at, on, under or emanating from our properties also may expose us to liability to private parties for costs of remediation and/or personal injury or property damage. In addition, environmental laws may create liens on contaminated sites in favor of the government for damages and costs it incurs to address such contamination. If contamination is discovered on our properties, environmental laws also may impose restrictions on the manner in which the property may be used or businesses may be operated, and these restrictions may require substantial expenditures. Moreover, environmental contamination can affect the value of a property and, therefore, an owner’s ability to borrow funds using the property as collateral or to sell the property on favorable terms or at all. We are not aware of
                     WLT 2021 10-K 36


any past or present environmental liability for non-compliance with environmental laws that we believe would have a material adverse effect on our business, financial condition, liquidity or results of operations.

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.

Critical Accounting Estimates

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.

Supplemental Financial Measures

In the real estate industry, analysts and investors employ certain non-GAAP supplemental financial measures in order to facilitate meaningful comparisons between periods and among peer companies. Additionally, in the formulation of our goals and in the evaluation of the effectiveness of our strategies, we use FFO and MFFO, which are non-GAAP measures defined by our management. We believe that these measures are useful to investors to consider because they may assist them to better understand and measure the performance of our business over time and against similar companies. A description of FFO and MFFO, and reconciliations of these non-GAAP measures to the most directly comparable GAAP measures, are provided below.

FFO and MFFO

Due to certain unique operating characteristics of real estate companies, as discussed below, the National Association of Real Estate Investment Trusts (“NAREIT”), an industry trade group, has promulgated a non-GAAP measure known as FFO, which we believe to be an appropriate supplemental measure, when used in addition to and in conjunction with results presented in accordance with GAAP, to reflect the operating performance of a REIT. The use of FFO is recommended by the REIT industry as a supplemental non-GAAP measure. FFO is not equivalent to nor a substitute for net income or loss as determined under GAAP.

We define FFO, a non-GAAP measure, consistent with the standards established by the White Paper on FFO approved by the Board of Governors of NAREIT, as restated in December 2018. The White Paper defines FFO as net income or loss computed in accordance with GAAP, excluding gains or losses from sales of property, impairment charges on real estate, and depreciation and amortization from real estate assets; and after adjustments for unconsolidated partnerships and jointly owned investments. Adjustments for unconsolidated partnerships and jointly owned investments are calculated to reflect FFO. Our FFO calculation complies with NAREIT’s policy described above. However, NAREITs definition of FFO does not distinguish between the conventional method of equity accounting and the HLBV method of accounting for unconsolidated partnerships and jointly-owned investments.

The historical accounting convention used for real estate assets requires straight-line depreciation of buildings and improvements, which implies that the value of real estate assets diminishes predictably over time, especially if such assets are not adequately maintained or repaired and renovated as required by relevant circumstances in order to maintain the value disclosed. We believe that, since real estate values historically rise and fall with market conditions, including inflation, interest rates, the business cycle, unemployment and consumer spending, presentations of operating results for a REIT using historical accounting for depreciation may be less informative. Historical accounting for real estate involves the use of GAAP. Any other method of accounting for real estate such as the fair value method cannot be construed to be any more accurate or relevant than the comparable methodologies of real estate valuation found in GAAP. Nevertheless, we believe that the use of FFO, which excludes the impact of real estate-related depreciation and amortization, as well as impairment charges of real estate-related assets, provides a more complete understanding of our performance to investors and to management; and when compared year over year, reflects the impact on our operations from trends in occupancy rates, operating costs, general and administrative expenses, and interest costs, which may not be immediately apparent from net income or loss. In particular, we believe it is
                     WLT 2021 10-K 37


appropriate to disregard impairment charges, as this is a fair value adjustment that is largely based on market fluctuations and assessments regarding general market conditions, which can change over time. An asset will only be evaluated for impairment if certain impairment indicators exist. For real estate assets held for investment and related intangible assets in which an impairment indicator is identified, we follow a two-step process to determine whether an asset is impaired and to determine the amount of the charge. First, we compare the carrying value of the property’s asset group to the estimated future net undiscounted cash flow that we expect the property’s asset group will generate, including any estimated proceeds from the eventual sale of the property’s asset group. It should be noted, however, that the property’s asset group’s estimated fair value is primarily determined using market information from outside sources such as broker quotes or recent comparable sales. In cases where the available market information is not deemed appropriate, we perform a future net cash flow analysis discounted for inherent risk associated with each asset to determine an estimated fair value. While impairment charges are excluded from the calculation of FFO described above, due to the fact that impairments are based on estimated future undiscounted cash flows, it could be difficult to recover any impairment charges. However, FFO and MFFO, as described below, should not be construed to be more relevant or accurate than the current GAAP methodology in calculating net income or loss or in its applicability in evaluating the operating performance of the company. The method utilized to evaluate the value and performance of real estate under GAAP should be construed as a more relevant measure of operational performance and considered more prominently than the non-GAAP measures FFO and MFFO and the adjustments to GAAP in calculating FFO and MFFO.

Changes in the accounting and reporting promulgations under GAAP (for acquisition fees and expenses from a capitalization/depreciation model to an expensed-as-incurred model) were put into effect subsequent to the establishment of NAREITs definition of FFO. Management believes these cash-settled expenses, such as acquisition fees that are typically accounted for as operating expenses, do not affect our overall long-term operating performance. Publicly-registered, non-traded REITs typically have a significant amount of acquisition activity and are substantially more dynamic during their initial years of investment and operation. While other start-up entities may also experience significant acquisition activity during their initial years, we believe that non-traded REITs are unique in that they have a limited life with targeted exit strategies within a relatively limited time frame after acquisition activity ceases. Due to the above factors and other unique features of publicly registered, non-traded REITs, the Institute for Portfolio Alternatives (formerly known as the Investment Program Association) (“IPA”), an industry trade group, has standardized a measure known as MFFO, which the IPA has recommended as a supplemental measure for publicly registered non-traded REITs and which we believe to be another appropriate non-GAAP measure to reflect the operating performance of a non-traded REIT having the characteristics described above. MFFO is not equivalent to our net income or loss as determined under GAAP, and MFFO may not be a useful measure of the impact of long-term operating performance on value if we do not continue to operate with a limited life and targeted exit strategy, as currently intended. We believe that, because MFFO excludes costs that we consider more reflective of investing activities and other non-operating items included in FFO and also excludes acquisition fees and expenses that affect our operations only in periods in which properties are acquired, MFFO can provide, on a going forward basis, an indication of the sustainability (that is, the capacity to continue to be maintained) of our operating performance after the period in which we are acquiring properties and once our portfolio is in place. By providing MFFO, we believe we are presenting useful information that assists investors and analysts to better assess the sustainability of our operating performance now that our offering has been completed and once essentially all of our properties have been acquired. We also believe that MFFO is a recognized measure of sustainable operating performance by the non-traded REIT industry. Further, we believe MFFO is useful in comparing the sustainability of our operating performance, with the sustainability of the operating performance of other real estate companies that are not as involved in acquisition activities. MFFO should only be used to assess the sustainability of a companys operating performance after a companys offering has been completed and properties have been acquired, as it excludes acquisition costs that have a negative effect on a companys operating performance during the periods in which properties are acquired.

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
                     WLT 2021 10-K 38


as other listed cash flow adjustments are adjustments made to net income or loss in calculating the cash flows provided by operating activities and, in some cases, reflect gains or losses that are unrealized and may not ultimately be realized.

Our MFFO calculation complies with the Practice Guideline described above. In calculating MFFO, we exclude acquisition-related expenses, fair value adjustments of derivative financial instruments and the adjustments of such items related to noncontrolling interests. Under GAAP, acquisition fees and expenses are characterized as operating expenses in determining operating net income or loss. These expenses are paid in cash by a company. All paid and accrued acquisition fees and expenses will have negative effects on returns to investors, the potential for future distributions, and cash flows generated by the company, unless earnings from operations or net sales proceeds from the disposition of other properties are generated to cover the purchase price of the property, these fees and expenses and other costs related to such property. Further, under GAAP, certain contemplated non-cash fair value and other non-cash adjustments are considered operating non-cash adjustments to net income or loss in determining cash flow from operating activities. We account for certain of our equity investments using the HLBV model which is based on distributable cash as defined in the operating agreement.

Our management uses MFFO and the adjustments used to calculate it in order to evaluate our performance against other non-traded REITs, which have limited lives with short and defined acquisition periods and targeted exit strategies shortly thereafter. As noted above, MFFO may not be a useful measure of the impact of long-term operating performance on value if we do not continue to operate in this manner. We believe that MFFO and the adjustments used to calculate it allow us to present our performance in a manner that takes into account certain characteristics unique to non-traded REITs, such as their limited life, defined acquisition period and targeted exit strategy, and is therefore a useful measure for investors. For example, acquisition costs are generally funded from the proceeds of our offering and other financing sources and not from operations. By excluding expensed acquisition costs, the use of MFFO provides information consistent with managements analysis of the operating performance of the properties. Additionally, fair value adjustments, which are based on the impact of current market fluctuations and underlying assessments of general market conditions, but can also result from operational factors such as occupancy rates, may not be directly related or attributable to our current operating performance. By excluding such changes that may reflect anticipated and unrealized gains or losses, we believe MFFO provides useful supplemental information.

Presentation of this information is intended to provide useful information to investors as they compare the operating performance of different REITs, although it should be noted that not all REITs calculate FFO and MFFO the same way, so comparisons with other REITs may not be meaningful. Furthermore, FFO and MFFO are not necessarily indicative of cash flow available to fund cash needs and should not be considered as an alternative to net income or loss as an indication of our performance, as an alternative to cash flows from operations as an indication of our liquidity, or indicative of funds available to fund our cash needs including our ability to make distributions to our stockholders. FFO and MFFO should be reviewed in conjunction with other GAAP measurements as an indication of our performance.

Neither the SEC, NAREIT nor any other regulatory body has passed judgment on the acceptability of the adjustments that we use to calculate FFO or MFFO. In the future, the SEC, NAREIT or another regulatory body may decide to standardize the allowable adjustments across the non-traded REIT industry and we would have to adjust our calculation and characterization of FFO and MFFO accordingly.

                     WLT 2021 10-K 39


FFO and MFFO were as follows (in thousands):
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)
___________
(a)This adjustment includes an other-than-temporary impairment charge of $17.8 million recognized on our equity investment in the Ritz-Carlton Bacara, Santa Barbara Venture during the year ended December 31, 2020.
(b)We have excluded these costs because of their non-recurring nature. By excluding such costs, management believes MFFO provides useful supplemental information that is comparable for each type of real estate investment and is consistent with managements analysis of the investing and operating performance of our properties.
                     WLT 2021 10-K 40


Item 7A. Quantitative and Qualitative Disclosures About Market Risk.

Market Risk

We currently have limited exposure to financial market risks, including changes in interest rates. We currently have no foreign operations and are not exposed to foreign currency fluctuations.

Interest Rate Risk

The values of our real estate and related fixed-rate debt obligations are subject to fluctuations based on changes in interest rates. The value of our real estate is also subject to fluctuations based on local and regional economic conditions, which may affect our ability to refinance property-level mortgage debt when balloon payments are scheduled, if we do not choose to repay the debt when due. Interest rates are highly sensitive to many factors, including governmental monetary and tax policies, domestic and international economic and political conditions, and other factors beyond our control. An increase in interest rates would likely cause the fair value of our assets to decrease.

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.

                     WLT 2021 10-K 41


Item 8. Financial Statements and Supplementary Data.

TABLE OF CONTENTS Page No.

Financial statement schedules other than those listed above are omitted because the required information is given in the financial statements, including the notes thereto, or because the conditions requiring their filing do not exist.

                     WLT 2021 10-K 42


REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of Watermark Lodging Trust, Inc.
    
Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Watermark Lodging Trust, Inc. and its subsidiaries (the “Company”) as of December 31, 2021 and 2020, and the related consolidated statements of operations, of comprehensive loss, of equity and of cash flows for each of the three years in the period ended December 31, 2021, including the related notes and financial statement schedules listed in the accompanying index (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2021 in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits of these consolidated financial statements in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Acquisition of the Remaining Interest in Hyatt Centric French Quarter Venture – Valuation of the Net Investment in Hotel

As described in Note 4 to the consolidated financial statements, on April 6, 2021, the Company acquired the remaining 20% interest in the Hyatt Centric French Quarter Venture for $2.1 million, which includes real estate and other hotel assets, net of assumed liabilities with a fair value totaling $11.3 million, bringing the Company’s ownership interest to 100%. The acquisition resulted in the recognition of a net investment in hotel of $39.5 million. Management allocated the fair value of the hotel at acquisition based on the estimated fair value of the assets acquired and liabilities assumed. Management estimated the fair values of the land, building and site improvement, and furniture, fixtures, and equipment at the hotel property by using a combination of the income capitalization and sales comparison approaches. These valuation methodologies are based on significant Level 3 inputs in the fair value hierarchy, such as capitalization rates, discount rates and net operating income at the respective hotel properties, including estimates of future income growth.

The principal considerations for our determination that performing procedures relating to the valuation of the net investment in hotel from the acquisition of the remaining interest in Hyatt Centric French Quarter Venture is a critical audit matter are (i) the significant judgment by management when developing the fair value of the net investment in hotel; (ii) a high degree of auditor
                     WLT 2021 10-K 43


judgment, subjectivity, and effort in performing procedures and evaluating management’s significant assumptions related to capitalization rates, discount rates, and estimates of future income growth; and (iii) the audit effort involved the use of professionals with specialized skill and knowledge.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included, among others (i) testing management’s process for developing the fair value of the net investment in hotel; (ii) reading the respective purchase and sale agreement;
(iii) evaluating the appropriateness of the income capitalization and sales comparison approaches; (iv) testing the completeness and accuracy of data provided by management; and (v) evaluating the reasonableness of management’s significant assumptions related to capitalization rates, discount rates, and estimates of future income growth. Professionals with specialized skill and knowledge were used to assist in evaluating the appropriateness of the income capitalization and sales comparison approaches and the reasonableness of the capitalization rates, discount rates, and estimates of future income growth.

/s/ PricewaterhouseCoopers LLP
New York, NY
March 28, 2022

We have served as the Company's auditor since 2008.



                     WLT 2021 10-K 44


WATERMARK LODGING TRUST, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share amounts)
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 


See Notes to Consolidated Financial Statements.

                     WLT 2021 10-K 45


WATERMARK LODGING TRUST, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share and per share amounts)

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) $ — 
See Notes to Consolidated Financial Statements.
                     WLT 2021 10-K 46



WATERMARK LODGING TRUST, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(in thousands)
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)

See Notes to Consolidated Financial Statements.

                     WLT 2021 10-K 47


WATERMARK LODGING TRUST, INC.
CONSOLIDATED STATEMENTS OF EQUITY
(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  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  (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  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 

(Continued)

                     WLT 2021 10-K 48


WATERMARK LODGING TRUST, INC.
CONSOLIDATED STATEMENTS OF EQUITY
(Continued)
(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, 2019 127,144,688  $ 127  —  $ —  $ 1,174,900  $ (471,130) $ (286) $ 703,611  $ 53,771  $ 757,382 
Net (loss) income
(10,898) (10,898) 10,167  (731)
Shares issued, net of offering costs
3,760,578  42,898  42,902  42,902 
Shares issued to affiliates
1,236,528  14,114  14,115  14,115 
Contributions from noncontrolling interests —  175  175 
Distributions to noncontrolling interests
—  (13,152) (13,152)
Shares issued under share incentive plans
22,742  —  370  370  370 
Stock-based compensation to directors
18,400  —  210  210  210 
Distributions declared ($0.6260 and $0.0000 per share to Class A and Class T, respectively)
(80,719) (80,719) (80,719)
Other comprehensive income 114  114  16  130 
Repurchase of shares (2,099,071) (2) (22,801) (22,803) (22,803)
Balance at December 31, 2019 130,083,865  $ 130  —  $ —  $ 1,209,691  $ (562,747) $ (172) $ 646,902  $ 50,977  $ 697,879 

See Notes to Consolidated Financial Statements.
                     WLT 2021 10-K 49


WATERMARK LODGING TRUST, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Years Ended December 31,
2021 2020 2019
Cash Flows — Operating Activities
Net loss $ (86,992) $ (367,276) $ (731)
Adjustments to net loss:
Depreciation and amortization 117,434  114,490  76,621 
Net gain on sale of real estate (108,216) (2,738) (30,918)
Amortization of fair value adjustments, deferred financing costs and other 41,707  30,229  3,237 
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 investments in real estate, net 5,575  35,026  1,018 
Amortization of stock-based compensation 3,286  1,816  705 
(Gain) loss on property-related insurance claims (1,571) (2,520) 372 
Business interruption income (545) (942) (4,338)
Impairment charges —  120,220  — 
Bargain purchase gain —  (78,696) — 
Asset management fees to affiliates settled in shares —  3,656  14,052 
Net changes in other assets and liabilities 20,647  8,538  8,822 
Net decrease in operating lease right-of-use assets 5,405  4,887  6,688 
Funding of remediation work due to property damage (3,852) (1,025) (9,234)
Insurance proceeds for remediation work due to property damage 2,638  2,907  3,106 
Net increase in operating lease liabilities 1,244  1,064  1,335 
(Repayment) receipt of key money and other deferred incentive payments (748) 715  500 
Business interruption insurance proceeds 545  942  4,338 
Decrease in due to related parties and affiliates (269) (3,086) (3,540)
Distributions of earnings from equity method investments —  —  3,442 
Net Cash Provided by (Used in) Operating Activities 1,257  (154,021) 78,186 
Cash Flows — Investing Activities
Proceeds from sale of real estate investments 438,419  89,398  185,990 
Capital expenditures (28,739) (23,951) (37,227)
Property insurance proceeds 3,785  4,239  12,802 
Cash and restricted cash acquired with acquisition of remaining interest in Hyatt
   French Quarter Venture
2,901  —  — 
Acquisition of remaining interest in Hyatt French Quarter Venture (2,098) —  — 
Distributions from equity investments in excess of cumulative equity income 1,751  —  11,804 
Capital contributions to equity investments in real estate (1,039) (6,620) (3,835)
Cash and restricted cash acquired in the Merger —  109,475  — 
Payment of Watermark commitment fee —  (1,151) (2,950)
Repayments of loan receivable