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Section 1: 10-Q (10-Q)

20170331_10Q

 



UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



FORM 10-Q

 

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

For the Quarterly Period Ended March 31, 2017



OR

 

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



For the transition period from ______ to ______.

 



Commission file number: 001-34087

 

CONDOR HOSPITALITY TRUST, INC.



(Exact name of registrant as specified in its charter)

 

Maryland

(State or other jurisdiction of

incorporation or organization)

 

52-1889548

(IRS Employer

Identification Number)



4800 Montgomery Lane Ste. 220, Bethesda, MD 20814

(Address of principal executive offices)

Telephone number: (402) 371-2520

 



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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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      NO 



Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer” and “large accelerated filer” in Rule 12b-2 of the Exchange Act.





 

Large accelerated filer 

Accelerated filer 

Non-accelerated filer  (Do not check if a smaller reporting company)

Small reporting company 



Emerging growth company    



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



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



As of April 30, 2017 there were 11,554,691 shares of common stock, par value $.01 per share, outstanding.



 



 


 

Condor Hospitality Trust, Inc. and Subsidiaries

Table of Contents

 







 

 

 



 

 

Page

Number



 

 

 

Part I.

FINANCIAL INFORMATION

 



 

 

 

Item 1.

Financial Statements

 



 

 

 



Consolidated Balance Sheets as of March 31, 2017 and December 31, 2016

3



 

 



Consolidated Statements of Operations for the Three Months ended March 31, 2017 and 2016

4



 

 



Consolidated Statements of Equity for the Three  Months ended March 31, 2017 and 2016

5



 

 



Consolidated Statements of Cash Flows for the Three  Months ended March 31, 2017 and 2016

6



 

 

 



Notes to Consolidated Financial Statements

7



 

 

 

Item 2.

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

31



 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

46



 

 

Item 4.

Controls and Procedures

47



 

 

Part II.

OTHER INFORMATION

 



 

 

Item 1.

Legal Proceedings

47



 

 

Item 1A.

Risk Factors

47



 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

47



 

 

Item 3.

Defaults Upon Senior Securities

47



 

 

Item 4.

Mine Safety Disclosures

47



 

 

Item 5.

Other Information

47



 

 

Item 6.

Exhibits

48

 



 

2

 


 

PART I.  FINANCIAL INFORMATION

 

Condor Hospitality Trust, Inc. and Subsidiaries

Consolidated Balance Sheets

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





 



   



 

 

 

 

 

 



 

 

As of



 

March 31,

 

December 31,



 

2017

 

2016



 

 

 

 

 

 

Assets

 

 

 

 

 

 

Investment in hotel properties, net

 

$

150,652 

 

$

96,158 

Investment in unconsolidated joint venture

 

 

8,747 

 

 

9,036 

Cash and cash equivalents

 

 

15,032 

 

 

8,326 

Restricted cash, property escrows

 

 

4,131 

 

 

5,350 

Accounts receivable, net of allowance for doubtful accounts of $25 and $21

 

 

1,271 

 

 

1,416 

Prepaid expenses and other assets

 

 

1,396 

 

 

1,666 

Derivative assets, at fair value

 

 

137 

 

 

 -

Investment in hotel properties held for sale, net

 

 

12,013 

 

 

18,713 

Total Assets

 

$

193,379 

 

$

140,665 



 

 

 

 

 

 

Liabilities and Equity

 

 

 

 

 

 



 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

Accounts payable, accrued expenses, and other liabilities

 

$

5,796 

 

$

4,698 

Dividends payable

 

 

2,253 

 

 

1,125 

Derivative liabilities, at fair value

 

 

 -

 

 

Convertible debt, at fair value

 

 

1,075 

 

 

1,315 

Long-term debt, net of deferred financing costs

 

 

69,945 

 

 

56,775 

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

 

 

3,288 

 

 

5,945 

Total Liabilities

 

 

82,357 

 

 

69,866 



 

 

 

 

 

 

Redeemable preferred stock

 

 

 

 

 

 

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

 

 

10,050 

 

 

 -



 

 

 

 

 

 

Equity

 

 

 

 

 

 

Shareholders' equity

 

 

 

 

 

 

Preferred stock, 40,000,000 shares authorized:

 

 

 

 

 

 

6.25% Series D, 6,700,000 shares authorized, $.01 par value, 6,245,156 shares outstanding, liquidation preference of $63,427

 

 

 -

 

 

61,333 

Common stock, $.01 par value, 200,000,000 shares authorized; 11,554,282 and 762,590 shares outstanding

 

 

115 

 

 

Additional paid-in capital

 

 

226,119 

 

 

118,655 

Accumulated deficit

 

 

(128,230)

 

 

(112,024)

Total Shareholders' Equity

 

 

98,004 

 

 

67,972 

Noncontrolling interest in consolidated partnership (Condor Hospitality Limited Partnership), redemption value of $1,726 and $2,008

 

 

2,968 

 

 

2,827 

Total Equity

 

 

100,972 

 

 

70,799 



 

 

 

 

 

 

Total Liabilities and Equity

 

$

193,379 

 

$

140,665 

 



See accompanying notes to consolidated financial statements.



 

3

 


 

Condor Hospitality Trust, Inc. and Subsidiaries

Consolidated Statements of Operations

(Unaudited - In thousands, except per share data)

 













 

 

 

 

 

 



 

 

 



 

Three months ended March 31,



 

2017

 

2016

Revenue

 

 

 

 

 

 

Room rentals and other hotel services

 

$

10,361 

 

$

12,503 

Operating Expenses

 

 

 

 

 

 

Hotel and property operations

 

 

7,613 

 

 

9,711 

Depreciation and amortization

 

 

1,051 

 

 

1,409 

General and administrative

 

 

1,492 

 

 

1,448 

Acquisition and terminated transactions

 

 

502 

 

 

94 

Equity transactions

 

 

343 

 

 

 -

Total operating expenses

 

 

11,001 

 

 

12,662 

Operating loss

 

 

(640)

 

 

(159)

Net gain (loss) on disposition of assets

 

 

(3)

 

 

3,367 

Equity in earnings of joint venture

 

 

111 

 

 

 -

Net gain on derivatives and convertible debt

 

 

175 

 

 

6,117 

Other expense, net

 

 

(1)

 

 

(21)

Interest expense

 

 

(971)

 

 

(1,329)

Loss on debt extinguishment

 

 

(800)

 

 

(173)

Impairment loss, net

 

 

(271)

 

 

(793)

Earnings (loss) from continuing operations before income taxes

 

 

(2,400)

 

 

7,009 

Income tax expense

 

 

 -

 

 

 -

Earnings (loss) from continuing operations

 

 

(2,400)

 

 

7,009 

Gain from discontinued operations, net of tax

 

 

 -

 

 

678 

Net earnings (loss)

 

 

(2,400)

 

 

7,687 

Loss (earnings) attributable to noncontrolling interest

 

 

50 

 

 

(389)

Net earnings (loss) attributable to controlling interests

 

 

(2,350)

 

 

7,298 

Dividends declared and undeclared and in kind dividends deemed on preferred stock

 

 

(11,603)

 

 

(17,740)

Net loss attributable to common shareholders

 

$

(13,953)

 

$

(10,442)



 

 

 

 

 

 

Earnings per Share

 

 

 

 

 

 

Continuing operations - Basic and Diluted

 

$

(4.75)

 

$

(14.63)

Discontinued operations - Basic and Diluted

 

 

 -

 

 

0.91 

Total - Basic and Diluted Earnings per Share

 

$

(4.75)

 

$

(13.72)



 

 

 

 

 

 

See accompanying notes to consolidated financial statements.

 

 

 

 

 

 



 



 

4

 


 

Condor Hospitality Trust, Inc. and Subsidiaries

Consolidated Statements of Equity

(Unaudited - In thousands)

 





   





 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

Three months ended March 31, 2016



 

Shares of preferred stock

 

Preferred stock

 

Shares of common stock

 

Common stock

 

Additional paid-in capital

 

Accumulated deficit

 

Total shareholders' equity

 

Noncontrolling interest

 

Total equity

Balance at December 31, 2015

 

 

3,803 

 

$

38 

 

 

4,942 

 

$

49 

 

$

138,387 

 

$

(105,858)

 

$

32,616 

 

$

1,879 

 

$

34,495 

Stock-based compensation

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

27 

 

 

 -

 

 

27 

 

 

 -

 

 

27 

Long-term incentive plan

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

42 

 

 

42 

Reclassification of Series A and B Preferred

 

 

(803)

 

 

(8)

 

 

 -

 

 

 -

 

 

(7,390)

 

 

(5,028)

 

 

(12,426)

 

 

 -

 

 

(12,426)

Exchange of Series C Preferred and issuance of Series D Preferred

 

 

3,245 

 

 

61,419 

 

 

 -

 

 

 -

 

 

(12,517)

 

 

(20,416)

 

 

28,486 

 

 

 -

 

 

28,486 

Net earnings

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

7,298 

 

 

7,298 

 

 

389 

 

 

7,687 

Balance at March 31, 2016

 

 

6,245 

 

$

61,449 

 

 

4,942 

 

$

49 

 

$

118,507 

 

$

(124,004)

 

$

56,001 

 

$

2,310 

 

$

58,311 







 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

Three months ended March 31, 2017



 

Shares of preferred stock

 

Preferred stock

 

Shares of common stock

 

Common stock

 

Additional paid-in capital

 

Accumulated deficit

 

Total shareholders' equity

 

Noncontrolling interest

 

Total equity

Balance at December 31, 2016

 

 

6,245 

 

$

61,333 

 

 

763 

 

$

 

$

118,655 

 

$

(112,024)

 

$

67,972 

 

$

2,827 

 

$

70,799 

Stock-based compensation

 

 

 -

 

 

 -

 

 

14 

 

 

 -

 

 

34 

 

 

 -

 

 

34 

 

 

 -

 

 

34 

Long-term incentive plan

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

43 

 

 

43 

Conversion of Series D Preferred to common stock and issuance of Series E Preferred

 

 

(6,245)

 

 

(61,333)

 

 

6,005 

 

 

60 

 

 

61,273 

 

 

(10,903)

 

 

(10,903)

 

 

 -

 

 

(10,903)

Issuance of common stock

 

 

 -

 

 

 -

 

 

4,772 

 

 

47 

 

 

45,869 

 

 

 -

 

 

45,916 

 

 

 -

 

 

45,916 

Fractional common shares settled in reverse stock split

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

(1)

 

 

 -

 

 

(1)

 

 

 -

 

 

(1)

Issuance of common units

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

148 

 

 

148 

Series D Preferred dividends declared

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

(650)

 

 

(650)

 

 

 -

 

 

(650)

Series E Preferred dividends declared

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 

 

 

(50)

 

 

(50)

 

 

 -

 

 

(50)

Common stock dividends declared ($0.195 per share)

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

(2,253)

 

 

(2,253)

 

 

 -

 

 

(2,253)

Warrant exchange

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

289 

 

 

 -

 

 

289 

 

 

 -

 

 

289 

Net loss

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

(2,350)

 

 

(2,350)

 

 

(50)

 

 

(2,400)

Balance at March 31, 2017

 

 

 -

 

$

 -

 

 

11,554 

 

$

115 

 

$

226,119 

 

$

(128,230)

 

$

98,004 

 

$

2,968 

 

$

100,972 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



See accompanying notes to consolidated financial statements.



 

5

 


 

Condor Hospitality Trust, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

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

 









 

 

 

 

 

 



 

Three months ended March 31,



 

 

2017

 

 

2016

Cash flows from operating activities:

 

 

 

 

 

 

Net earnings (loss)

 

$

(2,400)

 

$

7,687 

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

 

 

 

 

 

 

Depreciation and amortization expense

 

 

1,051 

 

 

1,409 

Net loss (gain) on disposition of assets

 

 

 

 

(4,048)

Net gain on derivatives and convertible debt

 

 

(175)

 

 

(6,117)

Equity in earnings of joint venture

 

 

(111)

 

 

 -

Amortization of deferred financing costs

 

 

136 

 

 

175 

Loss on extinguishment of debt

 

 

800 

 

 

173 

Impairment loss

 

 

271 

 

 

793 

Stock-based compensation and long term incentive plan expense

 

 

77 

 

 

69 

Warrant issuance costs

 

 

289 

 

 

12 

Changes in operating assets and liabilities:

 

 

 

 

 

 

(Increase) decrease in assets

 

 

277 

 

 

(655)

Increase in liabilities

 

 

991 

 

 

1,411 

Net cash provided by operating activities

 

 

1,209 

 

 

909 



 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

 

Additions to hotel properties

 

 

(870)

 

 

(694)

Distribution in excess of cumulative earnings from joint venture

 

 

400 

 

 

 -

Deposit on hotel property

 

 

(188)

 

 

 -

Hotel acquisitions

 

 

(54,602)

 

 

 -

Proceeds from sale of hotel assets

 

 

6,508 

 

 

9,008 

Net changes in capital expenditure escrows

 

 

1,635 

 

 

954 

Net cash provided by (used in) investing activities

 

 

(47,117)

 

 

9,268 



 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

 

Deferred financing costs

 

 

(2,554)

 

 

(3)

Proceeds from long-term debt

 

 

89,000 

 

 

6,415 

Principal payments on long-term debt

 

 

(76,405)

 

 

(12,436)

Debt early extinguishment penalties

 

 

(454)

 

 

(113)

Proceeds from common stock issuance

 

 

45,916 

 

 

 -

Fractional common shares settled in reverse stock split

 

 

(1)

 

 

 -

Series A and B Preferred Stock redemption, including accumulated dividends

 

 

 -

 

 

(20,147)

Series D Preferred Stock issuance

 

 

 -

 

 

28,997 

Series E Preferred Stock issuance costs

 

 

(1,004)

 

 

 -

Cash dividends paid to common shareholders

 

 

(149)

 

 

 -

Cash dividends paid to preferred shareholders

 

 

(1,676)

 

 

(1,484)

Other items

 

 

(59)

 

 

(6)

Net cash provided by financing activities

 

 

52,614 

 

 

1,223 



 

 

 

 

 

 

Increase in cash and cash equivalents

 

 

6,706 

 

 

11,400 

Cash and cash equivalents, beginning of period

 

 

8,326 

 

 

4,870 

Cash and cash equivalents, end of period

 

$

15,032 

 

$

16,270 



 

 

 

 

 

 

Supplemental cash flow information:

 

 

 

 

 

 

Interest paid

 

$

798 

 

$

1,165 

Income taxes paid

 

$

88 

 

$

 -



 

 

 

 

 

 

Schedule of noncash investing and financing activities:

 

 

 

 

 

 

Fair value of CHLP common units issued in acquisitions

 

$

148 

 

$

 -

In kind dividends deemed on preferred stock

 

$

9,900 

 

$

23,960 



 

 

 

 

 

 

See accompanying notes to consolidated financial statements.

 

 

 

 

 

 



 

 

 

 

 

 

 



 

6

 


 

Condor Hospitality Trust, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

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

 





NOTE 1.  ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES



Description of Business



Condor Hospitality Trust, Inc. (“CDOR,” “Condor,” or the “Company”), which until July 15, 2015 was formerly named Supertel Hospitality, Inc., was incorporated in Virginia on August 23, 1994 and was reincorporated in Maryland on November 19, 2014. CDOR is a self-administered real estate investment trust (“REIT”) for federal income tax purposes that specializes in the investment and ownership of high quality select service, limited service, extended stay, and compact full service hotels.  As of March 31,  2017, the Company owned 20 hotels in 10 states, including one hotel owned through an 80% interest in an unconsolidated joint venture (the Atlanta JV”).



Condor, through its wholly owned subsidiary, Condor Hospitality REIT Trust (formerly Supertel Hospitality REIT Trust), owns a controlling interest in Condor Hospitality Limited Partnership (“CHLP”) (formerly Supertel Limited Partnership), for which we serve as general partner.  CHLP, including its various subsidiary partnerships, holds substantially all of the Company’s assets (with the exception of the furniture and equipment of 16 properties held by TRS Leasing, Inc.) and conducts all of its operations. At March 31, 2017, the Company owned 98.7% of the partnership operating units (“partnership units”) of CHLP with the remaining partnership units owned by other limited partners and long-term incentive plan unit holders. The Company’s 100% owned E&P Financing Limited Partnership no longer owns any assets or conducts any operations following the sale of its last remaining property in January 2016.



In order for the income from our hotel property investments to constitute “rents from real properties” for purposes of the gross income tests required by the Internal Revenue Service (“IRS”) for REIT qualification, the income we earn cannot be derived from the operation of any of our hotels.  Therefore, CHLP and its subsidiaries lease our hotel properties to the Company’s wholly owned taxable REIT subsidiary, TRS Leasing, Inc., and its wholly owned subsidiaries (the “TRS”). The TRS in turn engages third-party eligible independent contractors to manage the hotels. CHLP, the TRS, and their respective subsidiaries are consolidated into the Company’s financial statements. References to “we,” “our,” and “us” herein refer to Condor Hospitality Trust, Inc., including, as the context requires, its direct and indirect subsidiaries.



Historically, as a result of the geographic areas in which we operate, the operations of our hotels have been seasonal in nature.  Generally, occupancy rates, revenue, and operating income have been greater in the second and third quarters of the calendar year than in the first and fourth quarters, with the exception of our hotels located in Florida, which experience peak demand in the first and fourth quarters annually.  The results of the hotels acquired in and since 2015, because of their locations and chain scale, are expected to be less seasonal in nature than our legacy portfolio of assets.



Basis of Presentation



The consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) and include the accounts of the Company, as well as the accounts of CHLP and its subsidiaries and our wholly owned TRS and its subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation. 



Effective on March 15, 2017, the Company effected a reverse stock split of its common stock at a ratio of 1-for-6.5.  No fractional shares of common stock were issued as fractional shares were settled in cash. Unless otherwise noted, impacted amounts and share information included in the financial statements and notes thereto have been retroactively adjusted for the stock split as if such stock split occurred on the first day of the first period presented. Certain amounts in the notes to the financial statements may be slightly different than previously reported due to rounding of fractional shares as a result of the reverse stock split.



The accompanying unaudited consolidated financial statements have been prepared in accordance with U.S. GAAP for interim financial information and with the general instructions to Form 10-Q and Rule 10-01 of Regulation S-X. 

7

 


 

Condor Hospitality Trust, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

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

 

Accordingly, they do not include all of the information and notes required by U.S. GAAP for complete financial statements.  These unaudited consolidated financial statements include all adjustments considered necessary for a fair presentation of the financial statements for the periods presented. Interim results are not necessarily indicative of full-year performance for the year ending December 31, 2017 or any future period. These consolidated financial statements should be read in conjunction with the audited consolidated financial statements and accompanying notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016.



Estimates, Risks, and Uncertainties



The preparation of the consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that effect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements as well as revenue and expenses recognized during the reporting period.  Actual results could differ from those estimates.  Because the state of the economy and the real estate market can significantly impact hotel operating performance and the estimated fair value of our assets, it is possible that the estimates and assumptions that have been utilized in the preparation of the consolidated financial statements could change.



Investment in Joint Venture



If it is determined that we do not have a controlling interest in a joint venture, either through our financial interest in a variable interest entity (“VIE”) or through our voting interest in a voting interest entity (“VOE”) and we have the ability to provide significant influence, the equity method of accounting is used. Under this method, the investment, originally recorded at cost, is adjusted to recognize our share of net earnings or losses of the affiliate as they occur, with losses limited to the extent of our investment in, advances to, and commitments to the investee. Pursuant to our Atlanta JV agreement, allocations of the profits and losses of our Atlanta JV may be allocated disproportionately to nominal ownership percentages due to specified preferred return rate thresholds.



Distributions received from a joint venture are classified in the statement of cash flows using the cumulative distributions approach. Distributions are classified as cash inflows from operating activities unless cumulative distributions, including those from prior periods not designated as a return of investment, exceed cumulative recognized equity in earnings of the joint venture. Excess distributions are classified as cash inflows from investing activities as a return of investment.



On an annual basis or at interim periods if events and circumstances indicate that the investment may be impaired, the Company reviews the carrying value of its investment in unconsolidated joint venture to determine if circumstances indicate impairment to the carrying value of the investment that is other than temporary. The investment is considered impaired if its estimated fair value is less than the carrying amount of the investment and that impairment is other than temporary.



Assets Held for Sale and Discontinued Operations



A hotel is considered held for sale (a) when a contract for sale is entered into, a substantial, nonrefundable deposit has been committed by the purchaser, and sale is expected to occur within one year, or (b) if management has committed to and is actively engaged in a plan to sell the property, the property is available for sale in its current condition, and it is probable the sale will be completed within one year.  If a hotel is considered held for sale as of the most recent balance sheet presented or was sold prior to that balance sheet date, the hotel property and the debt it collateralizes are shown as held for sale in all periods presented. Depreciation of our hotels is discontinued at the time they are considered held for sale. 



Historically, we have presented the results of operations of hotel properties that have been sold or are considered held for sale as discontinued operations in all periods presented.  In April 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-08, Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity. The amendments in ASU 2014-08 changed the criteria for reporting a discontinued operation and require new disclosures of both discontinued operations and certain other significant

8

 


 

Condor Hospitality Trust, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

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

 

disposals that do not meet the definition of a discontinued operation. Only disposals representing a strategic shift in operations that have a major effect on an entity’s operations and financial results should be presented as discontinued operations subsequent to adoption. The Company adopted this pronouncement on October 1, 2014.  As a result of this adoption, only the operations of hotels meeting the criteria to be considered held for sale prior to October 1, 2014 are included in discontinued operations for all periods presented as no individual hotel disposition represents a strategic shift in operations or has a major effect on our operations or financial results.



Impairment Losses



On a quarterly basis, the Company reviews the carrying value of each held for use hotel to determine if certain circumstances, known as triggering events, exist indicating impairment to the carrying value of the hotel or that depreciation periods should be modified.  These triggering events include a significant change in the cash flows of or a significant adverse change in the business climate for a hotel.  If facts or circumstances support the possibility of impairment, the Company will prepare an estimate of the undiscounted future cash flows, without interest charges, of the specific hotel and determine if the investment in such hotel is recoverable based on these undiscounted future cash flows. If the investment is not recoverable based on this analysis, an impairment charge will be taken, if necessary, to reduce the carrying value of the hotel to the hotel’s fair value.



At the end of each reporting period, if the fair value of a held for sale property less costs to sell is lower than the carrying value of the hotel, the Company will record an impairment loss.  Impairment losses on held for sale properties may be subsequently recovered up to the amount of the cumulative impairment losses taken while the property is held for sale should future revisions to fair value estimates be required.  If active marketing ceases or the property no longer meets the criteria to be classified as held for sale, the property is reclassified to held for use and measured at the lower of its (a) carrying amount before the property was classified as held for sale, adjusted for any depreciation expense that would have been recognized had the property been continuously classified as held for use, or (b) its fair value at the date of the decision not to sell.



Income Taxes



The Company qualifies and intends to continue to qualify as a REIT under the applicable provisions of the Internal Revenue Code (the “Code”), as amended.  In general, under such Code provisions, a trust which has made the required election and, in the taxable year, meets certain requirements and distributes to its shareholders at least 90% of its REIT taxable income, will not be subject to federal income tax to the extent of the income currently distributed to shareholders.  A REIT will incur a 100% tax on the net gain derived from any sale or other disposition of property that the REIT holds primarily for sale to customers in the ordinary course of a trade or business. We do not believe any of our hotels were held primarily for sale in the ordinary course of our trade or business. However, if the IRS would successfully assert that we held such hotels primarily for sale in the ordinary course of our business, the gain from such sales could be subject to a 100% prohibited transaction tax.



Taxable income from non-REIT activities managed through the TRS, which is taxed as a C-Corporation, is subject to federal, state, and local income taxes.  We account for the federal income taxes of our TRS using the asset and liability method.  Under this method, deferred income taxes are recognized for temporary differences between the financial reporting bases of assets and liabilities of the TRS and their respective tax bases and for operating loss and tax credit carryforwards based on enacted tax rates expected to be in effect when such amounts are realized or settled.  However, deferred tax assets are recognized only to the extent that it is more likely than not that they will be realized based on the consideration of available evidence, including tax planning strategies and projections for future taxable income over the periods in which the remaining deferred tax assets are deductible.  In assessing the realizability of deferred tax assets, the Company considers whether it is more likely than not (defined as a likelihood of more than 50%) that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income.



Fair Value Measurements



Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value measurements are utilized to determine

9

 


 

Condor Hospitality Trust, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

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

 

the value of certain liabilities, to perform impairment assessments, to account for hotel acquisitions, and for disclosure purposes. Fair value measurements are classified into a three-tiered fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:



Level 1: Inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities.



Level 2: Directly or indirectly observable inputs other than quoted prices included in Level 1. Level 2 inputs may include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, and model-derived valuations whose inputs are observable.



Level 3: Unobservable inputs for which there is little or no market data, which require a reporting entity to develop its own assumptions.    



Our estimates of fair value were determined using available market information and appropriate valuation methods.  Considerable judgment is necessary to interpret market data and develop estimated fair value.  The use of different market assumptions or valuation techniques may have a material effect on estimated fair value measurements.  We classify assets and liabilities in the fair value hierarchy based on the lowest level of input that is significant to the fair value measurement.



With the exception of fixed rate debt (see Note 8) and other financial instruments carried at fair value, the carrying amounts of the Company’s financial instruments approximates their fair values due to their short-term nature or variable market-based interest rates.



Fair Value Option



Under U.S. GAAP, the Company has the irrevocable option to report most financial assets and financial liabilities at fair value on an instrument by instrument basis, with changes in fair value reported in net earnings.  This option was elected for the treatment of the Company’s convertible debt entered into on March 16, 2016 (see Note 7).



Recently Adopted Accounting Standards



In November 2014, the FASB issued ASU 2014-16, Derivatives and Hedging (Topic 815): Determining Whether the Host Contract in a Hybrid Financial Instrument Issued in the Form of a Share is More Akin to Debt or to Equity, which clarifies certain of the criteria for determining whether derivative features in a hybrid financial instrument should be separately recognized.  ASU 2014-16 is effective for fiscal years beginning after December 15, 2015 and permits either a retrospective or cumulative effect transition method.  ASU 2014-16 was adopted by the Company on January 1, 2016 and was utilized in determining the accounting for the 6.25% Series D Cumulative Convertible Preferred Stock (“Series D Preferred Stock”) issued in March 2016 and the 6.25% Series E Cumulative Convertible Preferred Stock (“Series E Preferred Stock”) issued in March 2017 (see Note 10).



In February 2015, the FASB issued ASU No. 2015-02, Consolidation - Amendments to the Consolidation Analysis, which amends the current consolidation guidance effecting both the VIE and VOE consolidation models. The standard does not add or remove any of the characteristics in determining if an entity is a VIE or VOE, but rather enhances the way the Company assesses some of these characteristics. The Company adopted this standard on January 1, 2016 and concluded that CHLP now meets the criteria to be considered a VIE of which the Company is the primary beneficiary and, accordingly, the Company continues to consolidate CHLP. The Company’s sole significant asset is its investment in CHLP, and consequently, substantially all of the Company’s assets and liabilities represent those assets and liabilities of CHLP. All of the Company’s debt is an obligation of CHLP.  This ASU was also used in the determination of the accounting for the Atlanta JV entered into in August 2016 (see Note 4).



In April 2015, the FASB issued ASU 2015-03, Simplifying the Presentation of Debt Issuance Costs, which requires debt issuance costs to be presented in the balance sheet as a direct deduction from the associated debt liability.  The Company adopted this standard on January 1, 2016 and presents all debt issuance costs as a direct deduction from

10

 


 

Condor Hospitality Trust, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

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

 

the carrying value of the debt liability. Adoption of this standard was applied retrospectively for all periods presented, effecting only the presentation of the balance sheet. The adoption of this standard did not have a material impact on the Company's financial position and had no impact on the results of operations or cash flows.



Recently Issued Accounting Standards



In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers, which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The ASU will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective.  The original updated accounting guidance was effective for annual and interim reporting periods in fiscal years beginning after December 15, 2016, however, in July 2015, the FASB approved a one year delay of the effective date to fiscal years beginning after December 15, 2017.  As such, the standard will be effective for the Company on January 1, 2018. The standard permits the use of either the retrospective or cumulative effect transition method. The Company has begun to evaluate each of its revenue streams under the new model. Based on preliminary assessments, the Company does not expect the adoption of this guidance to materially affect the amount or timing of revenue recognition for revenues from room, food and beverage, and other hotel level sales. Furthermore, for real estate sales to third parties, primarily a result of disposition of real estate in exchange for cash with few contingencies, we do not expect the standard to significantly impact the recognition of or accounting for these sales.



In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which supersedes most existing lease guidance in U.S. GAAP when it becomes effective. ASU 2016-02 requires, among other changes to the lease accounting guidance, lessees to recognize most leases on-balance sheet via a right of use asset and lease liability and additional qualitative and quantitative disclosures. ASU 2016-02 is effective for the Company for annual periods in fiscal years beginning after December 15, 2019, permits early adoption, and mandates a modified retrospective transition method. The Company is required to adopt ASU 2016-02 on January 1, 2020. The Company is evaluating the effect that ASU 2016-02 will have on its consolidated financial statements and related disclosures.



In August 2016, the FASB issued ASU-2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Payment, which clarifies and provides specific guidance on eight cash flow classification issues with an objective to reduce the current diversity in practice. This guidance is effective for the Company for years beginning after December 15, 2017 but earlier adoption is permitted. The Company does not anticipate that this guidance will have a material impact on its consolidated financial statements.



In November 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash, which clarifies how companies should present restricted cash and restricted cash equivalents in the statement of cash flows. This guidance requires companies to show the changes in the total of cash, cash equivalents, and restricted cash equivalents in the statement of cash flows. This guidance is effective for the Company for years beginning after December 15, 2017, including interim periods within those years and should be applied retroactively. Early adoption is permitted. The Company does not anticipate that this guidance will have a material impact on its consolidated financial statements.



In January 2017, the FASB issued ASU 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business, which clarifies the definition of a business to assist entities with evaluating whether transactions should be accounted for as acquisitions of assets or business combinations. As a result of the standard, we anticipate that the majority of our hotel purchases will be considered asset purchases as opposed to business combinations. However, the determination will be made on a transaction-by-transaction basis and we do not expect the determination to materially change the recognition of the assets and liabilities acquired. This standard will be applied on a prospective basis and, therefore, it does not affect the accounting for any of our previous transactions.  This standard will be effective for annual periods beginning after December 15, 2017, although early adoption is permitted.



Reclassifications



Certain amounts in prior year financial statements have been reclassified to conform to current year presentation.



11

 


 

Condor Hospitality Trust, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

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

 

Liquidity



We expect to meet our short-term liquidity requirements through net cash provided by operations, existing cash balances and working capital, short-term borrowings under our $90,000 secured revolving credit facility (the “credit facility”), and the release of restricted cash upon the satisfaction of usage requirements.  At March 31, 2017, the Company had $15,032 of cash and cash equivalents on hand and $20,901 of unused availability under its credit facility.  Our short-term liquidity requirements consist primarily of operating expenses and other expenditures directly associated with our hotel properties, recurring maintenance and capital expenditures necessary to maintain our hotels in accordance with brand standards, interest expense and scheduled principal payments on outstanding indebtedness, restricted cash funding obligations, and the payment of dividends in accordance with the REIT requirements of the Code and as required in connection with our Series E Preferred Stock. Prior to the consideration of any asset sales or our ability to refinance debt subsequent to March 31, 2017, contractual principal payments on our debt outstanding, which include only normal amortization, total $1,103 through June 30, 2018.  We also presently expect to invest approximately $4,000 to $5,000 in capital expenditures related to hotel properties we currently own through June 30, 2018.



To maintain our REIT tax status, we generally must distribute at least 90% of our taxable income to our shareholders annually.  In addition, we are subject to a 4% non-deductible excise tax if the actual amount distributed to shareholders in a calendar year is less than a minimum amount specified under the federal income tax laws.  We have a general dividend policy of paying out approximately 100% of annual REIT taxable income.  The actual amount of any future dividends will be determined by the Board of Directors based on our actual results of operations, economic conditions, capital expenditure requirements, and other factors that the Board of Directors deems relevant.



Our longer-term liquidity requirements consist primarily of the cost of acquiring additional hotel properties, renovations and other one-time capital expenditures that periodically are made related to our hotel properties, and scheduled debt payments, including maturing loans.  Possible sources of liquidity to fund debt maturities and acquisitions and to meet other obligations include additional secured or unsecured debt financings, proceeds from public or private issuances of debt or equity securities, and additional borrowings under our existing credit facility.



NOTE 2.  INVESTMENT IN HOTEL PROPERTIES



Investments in hotel properties consisted of the following at March 31, 2017 and December 31, 2016:





 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

As of



 

March 31, 2017

 

December 31, 2016



 

Held for sale

 

Held for use

 

Total

 

Held for sale

 

Held for use

 

Total

Land

 

$

1,794 

 

$

17,510 

 

$

19,304 

 

$

2,392 

 

$

14,020 

 

$

16,412 

Buildings, improvements, vehicle

 

 

14,166 

 

 

132,251 

 

 

146,417 

 

 

23,118 

 

 

85,565 

 

 

108,683 

Furniture and equipment

 

 

4,215 

 

 

17,790 

 

 

22,005 

 

 

5,427 

 

 

12,776 

 

 

18,203 

Construction-in-progress

 

 

17 

 

 

413 

 

 

430 

 

 

23 

 

 

63 

 

 

86 

Investment in hotel properties

 

 

20,192 

 

 

167,964 

 

 

188,156 

 

 

30,960 

 

 

112,424 

 

 

143,384 

Less accumulated depreciation

 

 

(8,179)

 

 

(17,312)

 

 

(25,491)

 

 

(12,247)

 

 

(16,266)

 

 

(28,513)

Investment in hotel properties, net

 

$

12,013 

 

$

150,652 

 

$

162,665 

 

$

18,713 

 

$

96,158 

 

$

114,871 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



NOTE 3.  ACQUISITION OF HOTEL PROPERTIES



On March 24, 2017, the Company acquired three wholly owned properties, the Home2 Suites Lexington University / Medical Center (Kentucky), the Home2 Suites Austin / Round Rock, and the Home 2 Suites Tallahassee State Capitol.  The allocation of the purchase price based on fair value, which was determined using Level 3 fair value inputs, was as included in the table below. 

12

 


 

Condor Hospitality Trust, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

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

 









 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



Land

 

Buildings, improvements, and vehicle

 

Furniture and equipment

 

Intangible asset

 

 

Total purchase price

 

Debt originated at acquisition

 

Issuance of CHLP partnership units

 

Net cash

Home2 Suites

$

905 

 

$

14,204 

 

$

1,351 

 

$

40 

 

$

16,500 

 

$

16,455 

 

$

45 

 

$

 -

Lexington, Kentucky

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Home2 Suites

 

1,087 

 

 

14,345 

 

 

1,285 

 

 

33 

 

 

16,750 

 

 

16,705 

 

 

45 

 

 

 -

Round Rock, Texas

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Home2 Suites

 

1,519 

 

 

18,229 

 

 

1,727 

 

 

25 

 

 

21,500 

 

 

21,442 

 

 

58 

 

 

 -

Tallahassee, Florida

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

$

3,511 

 

$

46,778 

 

$

4,363 

 

$

98 

 

$

54,750 

 

$

54,602 

 

$

148 

 

$

 -



The $54,750 purchase price was funded with a draw on the credit facility totaling $54,602 and the issuance of 593,896 partnership units from CHLP with a value of $148.



The Company had no acquisitions of wholly owned properties during the three months ended March 31, 2016.    



Pro Forma Results



In addition to the three properties discussed above, the Company also entered into the Atlanta JV which then acquired one hotel in August of 2016 (see Note 4) and the Company acquired one wholly owned property, the Aloft Leawood / Overland Park (Kansas City), for a purchase price of $22,500 on December 14, 2016.  The following condensed pro forma financial data is presented as if all acquisitions completed in 2017 had been completed on January 1, 2016 and as if all the acquisitions completed in 2016, including that completed by the Atlanta JV, had been completed on January 1, 2015.  Supplemental pro forma earnings were adjusted to exclude all acquisition expense recognized in the periods presented as if these acquisition costs had been incurred in prior periods but were not adjusted to remove the results of hotels sold during and between the periodsResults for periods prior to the Company’s ownership are based on information provided by the prior owners, adjusted for differences in interest expense, depreciation expense, and management fees following the Company’s ownership.  The condensed pro forma financial data is not necessarily indicative of what the actual results of operations of the Company would have been assuming the acquisitions had been consummated on January 1, 2016 or 2015, nor do they purport to represent the results of operations for future periods.







 

 

 

 

 

 



 

Three months ended March 31,



 

2017

 

2016

Total revenue

 

$

12,868 

 

$

16,541 

Operating income

 

$

424 

 

$

736 

Net loss attributable to common shareholders

 

$

(13,489)

 

$

(10,517)

Net loss per share attributable to common shareholders - Basic

 

$

(4.59)

 

$

(13.84)

Net loss per share attributable to common shareholders - Diluted

 

$

(4.59)

 

$

(13.84)

 

NOTE 4.  INVESTMENT IN UNCONSOLIDATED JOINT VENTURE



On August 1, 2016, the Company entered into a joint venture with Three Wall Capital LLC and certain of its affiliates (“TWC”) to acquire an Aloft hotel in downtown Atlanta, Georgia for $44,550 on August 22, 2016.  The Company accounts for the Atlanta JV under the equity method.  Condor owns 80% of the Atlanta JV with TWC owning the remaining 20%.  The Atlanta JV is comprised of two companies: Spring Street Hotel Property II LLC, of which CHLP indirectly owns an 80% equity interest, and Spring Street Hotel OpCo II LLC, of which our TRS indirectly owns an 80% equity interest.  TWC owns the remaining 20% equity interest in these two companies.



13

 


 

Condor Hospitality Trust, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

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

 

The purchase price for the Atlanta Aloft was partially paid with $33,750 of proceeds from a term loan secured by the property. The term loan, obtained from LoanCore Capital Credit REIT LLC, has an initial term of 24 months with three 12-month extension periods, which may be exercised at the Atlanta JV’s option subject to certain conditions and fees.  The interest rate is a floating rate calculated on the one-month LIBOR plus 5.0%, and as a condition to closing, the Atlanta JV purchased a LIBOR cap of 3.0%.  The current interest rate on the loan is 6.0%.  The loan is non-recourse to the Atlanta JV, subject to specified exceptions.  The loan is also non-recourse to Condor, except for certain customary carve-outs which are guaranteed by the Company.



Under the Atlanta JV agreement, the Atlanta JV is managed by TWC in accordance with business plans and budgets approved by both partners.  Major decisions as detailed in the agreement also require joint approval.  Condor may remove TWC as manager of the Atlanta JV and appoint a new manager only upon the occurrence of certain events.  The Atlanta Aloft hotel is managed by Boast Hotel Management Company LLC (“Boast”), an affiliate of TWC.  The Atlanta JV paid to Boast total management fees of $89 for the three months ended March 31, 2017.



Net cash flow and profits from the Atlanta JV will be distributed each fiscal year first with a 10% preferred return on capital contributions to Condor, second with a 10% preferred return on capital contributions to TWC, and third with any remainder distributed to the partners based on their pro-rata equity ownership. Losses are allocated based on pro-rata equity ownership. The Atlanta JV agreement also includes buy-sell rights for both members (generally after three years of hotel ownership for Condor and after five years for TWC) and Condor has a purchase option for TWC’s Atlanta JV ownership interest exercisable between the third and fifth anniversary of the hotel closing.



The following tables represent the total assets, liabilities, equity, and components of net earnings, including the Company’s share, of the Atlanta JV as of and for the three months ended March 31, 2017:







 

 

 



 

 



 

As of March 31, 2017

Investment in hotel properties, net

 

$

48,981 

Cash and cash equivalents

 

 

1,650 

Restricted cash, property escrows

 

 

739 

Accounts receivable, prepaid expenses, and other assets

 

 

543 

Total Assets

 

$

51,913 

Accounts payable, accrued expenses, and other liabilities

 

$

1,558 

Distribution payable

 

 

48 

Land option liability

 

 

6,189 

Long-term debt, net of deferred financing costs

 

 

33,212 

Total Liabilities

 

 

41,007 

Condor equity

 

 

8,747 

TWC equity

 

 

2,159 

Total Equity

 

 

10,906 

Total Liabilities and Equity

 

$

51,913 



 

 

 

14

 


 

Condor Hospitality Trust, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

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

 





 

 

 



 

Three months ended March 31, 2017

Revenue

 

 

 

Room rentals and other hotel services

 

$

2,989 

Operating Expenses

 

 

 

Hotel and property operations

 

 

1,861 

Depreciation and amortization

 

 

411 

Total operating expenses

 

 

2,272 

Operating income

 

 

717 

Net loss on disposition of assets

 

 

(1)

Interest expense

 

 

(605)

Net earnings

 

$

111 



 

 

 

Condor allocated earnings

 

$

111 

TWC allocated earnings

 

 

 -

Net earnings

 

$

111 





NOTE 5.  DISPOSITIONS OF HOTEL PROPERTIES AND DISCONTINUED OPERATIONS



As of March 31, 2017, the Company had five hotels classified as held for sale. At the beginning of 2017, the Company had seven hotels held for sale and during the three months ended March 31, 2017 sold two propertiesNone of the hotels reclassified as held for sale since the Company’s adoption of ASU 2014-08 on October 1, 2014 represent a strategic shift that has (or will have) a major effect on the entity’s operations and financial results.  As a result, only hotels classified as held for sale prior to October 1, 2014 (excluding those subsequently reclassified as held for use),  the last of which was sold in January 2016, are included in discontinued operations with all other hotels, including those subsequently sold or classified as held for sale, reported in continuing operations.



In the three months ended March 31, 2017 and 2016, the Company sold two and four hotels, respectively, resulting in total gains of $0 and $4,059, respectively, of which $0 and $3,378, respectively, was included in continuing operations.  The hotels sold during the three months ended March 31, 2017 had been previously impaired and recoveries of impairment totaling $80 were recognized upon their sale.



The Company allocates interest expense to discontinued operations for debt that is to be assumed or that is required to be repaid as a result of disposal transactions. The following table sets forth the components of discontinued operations for the three months ended March 31, 2016:  





 

 

 



 



 

Three months ended March 31, 2016

Revenue

 

$

Hotel and property operations expense

 

 

(4)

Net gain (loss) on disposition of assets

 

 

681 

Interest expense

 

 

(5)

Gain from discontinued operations, net of tax

 

$

678 



 

 

 

Capital expenditures

 

$

 -

 





15

 


 

Condor Hospitality Trust, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

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

 

NOTE 6.  LONG-TERM DEBT



On March 1, 2017, a significant portion of the Company’s debt (including all debt outstanding at December 31, 2016 with the exception of the two variable rate Western Alliance Bank loans and the two fixed rate Great Western Bank loans) was refinanced with the credit facility that matures on March 1, 2020.  The credit agreement was entered into with KeyBank National Association, as administrative agent and lender, KeyBanc Capital Markets Inc. and The Huntington National Bank, as joint leader arrangers, and other lenders and agents party thereto.



The credit agreement provides for a $90,000 senior secured credit facility and includes an accordion feature that would allow the credit facility to be increased to $400,000 with additional lender commitments. Subsequent to March 31, 2017, the Company closed on an increase in the credit facility from $90,000 to $150,000 (see Note 16).  Available borrowing capacity under the credit facility is based on a borrowing base formula for the pool of hotel properties securing the facility. As of the closing date, the collateral pool consisted of 14 hotel properties and total available borrowing capacity under the credit facility was $41,050.  At March 31, 2017, following the subsequent purchases and sales of hotels during the quarter (see Notes 3 and 5) and the common stock equity raise (see Note 9), the collateral pool consisted of 15 hotel properties and total available borrowing capacity under the  credit facility totaled $66,461.    



The credit facility is guaranteed by the Company and its material subsidiaries that do not have stand-alone financing. Borrowings under the credit facility accrue interest based on a leverage-based pricing grid, at the Company’s option, at either LIBOR plus a spread ranging from 2.25% to 3.00% (depending on leverage) or a base rate plus a spread ranging from 1.25% to 2.00% (depending on leverage). The credit facility matures in March 2020 and has two one-year extension options, subject to certain conditions, including the completion of specific capital achievements. The credit facility contains customary representations and warranties, covenants and events of default.



Upon the closing of the credit facility, $34,250 was immediately drawn down to repay existing debt and related expenses.  Prior to March 31, 2017, net proceeds from the Company’s hotel sales (see Note 5) were used to pay down a total of $6,440 on the credit facility, proceeds from the credit facility totaling $54,750 were used to fund the Company’s acquisitions plus related expenses (see Note 3), and a portion of the proceeds from the Company’s common stock offering totaling $37,000 (see Note 9) was used to pay down the credit facility.



Long-term debt related to wholly owned properties, including debt related to hotel properties held for sale, consisted of the following loans payable at March 31, 2017 and December 31, 2016:

16

 


 

Condor Hospitality Trust, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

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

 







 

 

 

 

 

 

 

 

 

 

 

 

 

 

Lender

 

 

Balance at March 31, 2017

 

Interest rate at March 31, 2017

 

Maturity

 

Amortization provision

 

Properties encumbered at March 31, 2017

 

 

Balance at December 31, 2016

Fixed rate debt

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Great Western Bank (1)

 

$

14,222 

 

4.33%

 

12/2021

 

25 years

 

 

$

14,326 

Great Western Bank (1)

 

 

1,547 

 

4.33%

 

12/2021

 

7 years

 

 -

 

 

1,599 

Western Alliance Bank

 

 

 -

 

 -

 

 -

 

 -

 

 -

 

 

4,806 

Western Alliance Bank