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Section 1: 10-Q (10-Q)

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inn:contract inn:Loan inn:hotel inn:Room inn:State iso4217:USD xbrli:shares xbrli:pure xbrli:shares inn:Property iso4217:USD
 
 
 
 
 
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, 2020

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:  001-35074
 
SUMMIT HOTEL PROPERTIES, INC.
(Exact name of registrant as specified in its charter)
_____________________________________________________________________________________
Maryland
 
27-2962512
(State or other jurisdiction
 
(I.R.S. Employer Identification No.)
of incorporation or organization)
 
 
 
13215 Bee Cave Parkway, Suite B-300
Austin, TX  78738
(Address of principal executive offices, including zip code)
 
(512) 538-2300
(Registrant’s telephone number, including area code)
________________________________________________________________________________

Securities registered pursuant to Section 12(b) of the Act:
Title of each class
 
Trading Symbol(s)
 
Name of each exchange on which registered
Common Stock, $0.01 par value
 
INN
 
New York Stock Exchange
Series D Cumulative Redeemable Preferred Stock, $0.01 par value
 
INN-PD
 
New York Stock Exchange
Series E Cumulative Redeemable Preferred Stock, $0.01 par value
 
INN-PE
 
New York Stock Exchange

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 website, 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, a non-accelerated filer, 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. (Check one):
Large accelerated filer
Accelerated filer
Non-accelerated filer
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 is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  No
 
As of April 30, 2020, the number of outstanding shares of common stock of Summit Hotel Properties, Inc. was 105,603,023.
 
 
 
 
 



TABLE OF CONTENTS
 
 
 
Page
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
i




PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Summit Hotel Properties, Inc.
Condensed Consolidated Balance Sheets
(in thousands, except share amounts)
 
 
 
March 31, 2020
 
December 31, 2019
 
 
(Unaudited)
 
 
ASSETS
 
 

 
 

Investment in hotel properties, net
 
$
2,169,314

 
$
2,184,232

Undeveloped land
 
1,500

 
1,500

Assets held for sale, net
 
425

 
425

Cash and cash equivalents
 
131,267

 
42,238

Restricted cash
 
28,597

 
27,595

Investment in real estate loans, net
 
28,958

 
30,936

Right-of-use assets, net
 
29,577

 
29,884

Trade receivables, net
 
11,356

 
13,281

Prepaid expenses and other
 
8,297

 
8,844

Deferred charges, net
 
4,594

 
4,709

Other assets
 
9,235

 
12,039

Total assets
 
$
2,423,120

 
$
2,355,683

LIABILITIES AND EQUITY
 
 

 
 

Liabilities:
 
 

 
 

Debt, net of debt issuance costs
 
$
1,135,019

 
$
1,016,163

Lease liabilities
 
19,384

 
19,604

Accounts payable
 
5,725

 
4,767

Accrued expenses and other
 
76,097

 
71,759

Total liabilities
 
1,236,225

 
1,112,293

Commitments and contingencies (Note 10)
 


 


Equity:
 
 

 
 

Preferred stock, $0.01 par value per share, 100,000,000 shares authorized:
 
 

 
 

6.45% Series D - 3,000,000 shares issued and outstanding at March 31, 2020 and December 31, 2019 (aggregate liquidation preference of $75,417 at March 31, 2020 and December 31, 2019, respectively)
 
30

 
30

6.25% Series E - 6,400,000 shares issued and outstanding at March 31, 2020 and December 31, 2019 (aggregate liquidation preference of $160,861 at March 31, 2020 and December 31, 2019, respectively)
 
64

 
64

Common stock, $0.01 par value per share, 500,000,000 shares authorized, 105,574,400 and 105,169,515 shares issued and outstanding at March 31, 2020 and December 31, 2019, respectively
 
1,056

 
1,052

Additional paid-in capital
 
1,191,964

 
1,190,949

Accumulated other comprehensive loss
 
(35,044
)
 
(16,034
)
Distributions in excess of retained earnings
 
(39,868
)
 
(2,283
)
Total stockholders’ equity
 
1,118,202

 
1,173,778

Non-controlling interests in operating partnership
 
1,658

 
1,809

Non-controlling interests in joint venture (Note 8)
 
67,035

 
67,803

Total equity
 
1,186,895

 
1,243,390

Total liabilities and equity
 
$
2,423,120

 
$
2,355,683

 
See Notes to the Condensed Consolidated Financial Statements

1


Summit Hotel Properties, Inc.
Condensed Consolidated Statements of Operations
(Unaudited)
(in thousands, except per share amounts)
 
 
For the
Three Months Ended
March 31,
 
 
2020
 
2019
Revenues:
 
 

 
 

Room
 
$
98,603

 
$
128,100

Food and beverage
 
4,884

 
6,020

Other
 
4,898

 
4,832

Total revenues
 
108,385

 
138,952

Expenses:
 
 

 
 

Room
 
24,573

 
27,840

Food and beverage
 
4,037

 
4,538

Other hotel operating expenses
 
35,283

 
39,859

Property taxes, insurance and other
 
11,698

 
11,408

Management fees
 
3,072

 
5,146

Depreciation and amortization
 
27,079

 
25,536

Corporate general and administrative
 
4,668

 
5,990

Provision for credit losses
 
2,530

 

Loss on impairment of assets
 
782

 

Total expenses
 
113,722

 
120,317

(Loss) gain on disposal of assets, net
 
(3
)
 
4,166

Operating (loss) income
 
(5,340
)
 
22,801

Other income (expense):
 
 

 
 

Interest expense
 
(11,012
)
 
(10,852
)
Other income, net
 
2,106

 
1,301

Total other income (expense)
 
(8,906
)
 
(9,551
)
(Loss) income from continuing operations before income taxes
 
(14,246
)
 
13,250

Income tax expense (Note 12)
 
(1,968
)
 
(350
)
Net (loss) income
 
(16,214
)
 
12,900

Less - Loss (income) attributable to non-controlling interests:
 
 
 
 
Operating Partnership
 
37

 
(23
)
Joint venture
 
855

 

Net (loss) income attributable to Summit Hotel Properties, Inc.
 
(15,322
)
 
12,877

Preferred dividends
 
(3,709
)
 
(3,709
)
Net (loss) income attributable to common stockholders
 
$
(19,031
)
 
$
9,168

(Loss) earnings per share:
 
 
 
 
Basic and diluted
 
$
(0.18
)
 
$
0.09

Weighted average common shares outstanding:
 
 

 
 

Basic
 
103,995

 
103,749

Diluted
 
103,995

 
103,837

 
See Notes to the Condensed Consolidated Financial Statements

2


Summit Hotel Properties, Inc.
Condensed Consolidated Statements of Comprehensive Income
(Unaudited)
(in thousands)
 
 
For the
Three Months Ended
March 31,
 
 
2020
 
2019
Net (loss) income
 
$
(16,214
)
 
$
12,900

Other comprehensive (loss) income, net of tax:
 
 

 
 

Changes in fair value of derivative financial instruments
 
(19,044
)
 
(5,558
)
Comprehensive (loss) income
 
(35,258
)
 
7,342

Less - Comprehensive loss (income) attributable to non-controlling interests:
 
 

 
 

Operating Partnership
 
74

 
(9
)
Joint venture
 
855

 

Comprehensive (loss) income attributable to Summit Hotel Properties, Inc.
 
(34,329
)
 
7,333

Preferred dividends
 
(3,709
)
 
(3,709
)
Comprehensive (loss) income attributable to common stockholders
 
$
(38,038
)
 
$
3,624

 
See Notes to the Condensed Consolidated Financial Statements


3


Summit Hotel Properties, Inc.
Condensed Consolidated Statements of Changes in Equity
For the Three Months Ended March 31, 2020 and 2019
(Unaudited)
(in thousands, except share amounts)
 
 
Shares
 of Preferred
Stock
 
Preferred
Stock
 
Shares
of
Common
Stock
 
Common
Stock
 
Additional
Paid-In Capital
 
Accumulated Other
Comprehensive
Income (Loss)
 
Retained Earnings
and
Distributions
 
Total
Stockholders’
Equity
 
Non-controlling Interests
 
Total
Equity
 
 
 
 
 
 
 
 
 
 
Operating
Partnership
 
Joint
Venture
 
Balance at December 31, 2019
 
9,400,000

 
$
94

 
105,169,515

 
$
1,052

 
$
1,190,949

 
$
(16,034
)
 
$
(2,283
)
 
$
1,173,778

 
$
1,809

 
$
67,803

 
$
1,243,390

Contribution by non-controlling interests in joint venture
 

 

 

 

 

 

 

 

 

 
577

 
577

Common stock redemption of common units
 

 

 
4,956

 

 
46

 
(3
)
 

 
43

 
(43
)
 

 

Dividends
 

 

 

 

 

 

 
(22,263
)
 
(22,263
)
 
(37
)
 
(490
)
 
(22,790
)
Equity-based compensation
 

 

 
465,274

 
5

 
1,467

 

 

 
1,472

 
3

 

 
1,475

Shares acquired for employee withholding requirements
 

 

 
(65,345
)
 
(1
)
 
(468
)
 

 

 
(469
)
 

 

 
(469
)
Other
 

 

 

 

 
(30
)
 

 

 
(30
)
 

 

 
(30
)
Other comprehensive loss
 

 

 

 

 

 
(19,007
)
 

 
(19,007
)
 
(37
)
 

 
(19,044
)
Net loss
 

 

 

 

 

 

 
(15,322
)
 
(15,322
)
 
(37
)
 
(855
)
 
(16,214
)
Balance at March 31, 2020
 
9,400,000

 
$
94

 
105,574,400

 
$
1,056

 
$
1,191,964

 
$
(35,044
)
 
$
(39,868
)
 
$
1,118,202

 
$
1,658

 
$
67,035

 
$
1,186,895

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at December 31, 2018
 
9,400,000

 
$
94

 
104,783,179

 
$
1,048

 
$
1,185,310

 
$
(1,441
)
 
$
4,838

 
$
1,189,849

 
$
2,295

 
$

 
$
1,192,144

Dividends
 

 

 

 

 

 

 
(21,956
)
 
(21,956
)
 
(47
)
 

 
(22,003
)
Equity-based compensation
 

 

 
370,826

 
4

 
1,345

 

 

 
1,349

 
3

 

 
1,352

Shares acquired for employee withholding requirements
 

 

 
(73,892
)
 
(1
)
 
(833
)
 

 

 
(834
)
 

 

 
(834
)
Other
 

 

 

 

 
(32
)
 

 

 
(32
)
 

 

 
(32
)
Other comprehensive loss
 

 

 

 

 

 
(5,544
)
 

 
(5,544
)
 
(14
)
 

 
(5,558
)
Net income
 

 

 

 

 

 

 
12,877

 
12,877

 
23

 

 
12,900

Balance at March 31, 2019
 
9,400,000

 
$
94

 
105,080,113

 
$
1,051

 
$
1,185,790

 
$
(6,985
)
 
$
(4,241
)
 
$
1,175,709

 
$
2,260

 
$

 
$
1,177,969

 
See Notes to the Condensed Consolidated Financial Statements


4


Summit Hotel Properties, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(in thousands)
 
 
For the
Three Months Ended
March 31,
 
 
2020
 
2019
OPERATING ACTIVITIES
 
 
 
 

Net (loss) income
 
$
(16,214
)
 
$
12,900

Adjustments to reconcile net (loss) income to net cash provided by operating activities:
 
 
 
 
Depreciation and amortization
 
27,079

 
25,536

Amortization of deferred financing costs
 
457

 
381

Loss on impairment of assets
 
782

 

Provision for credit losses
 
2,530

 

Equity-based compensation
 
1,475

 
1,352

Deferred tax asset, net
 
2,058

 

Loss (gain) on disposal of assets, net
 
3

 
(4,166
)
Non-cash interest income
 
(791
)
 
(507
)
Debt transaction costs
 
1

 
713

Other
 
108

 
149

Changes in operating assets and liabilities:
 
 

 
 

Trade receivables, net
 
1,925

 
(9,645
)
Prepaid expenses and other
 
411

 
746

Accounts payable
 
1,334

 
(510
)
Accrued expenses and other
 
(13,852
)
 
3,291

NET CASH PROVIDED BY OPERATING ACTIVITIES
 
7,306

 
30,240

INVESTING ACTIVITIES
 
 

 
 

Acquisition of hotel properties and land
 

 
(4,178
)
Improvements to hotel properties
 
(11,050
)
 
(17,248
)
Proceeds from asset dispositions, net
 

 
11,310

Funding of real estate loans
 
(1,670
)
 
(500
)
Proceeds from principal payments on real estate loans
 

 
300

NET CASH USED IN INVESTING ACTIVITIES
 
(12,720
)
 
(10,316
)
FINANCING ACTIVITIES
 
 

 
 

Proceeds from issuance of debt
 
165,000

 
45,000

Principal payments on debt
 
(45,931
)
 
(42,326
)
Dividends paid
 
(23,031
)
 
(22,668
)
Proceeds from contribution by non-controlling interests in joint venture
 
577

 

Financing fees on debt and other issuance costs
 
(701
)
 
(713
)
Repurchase of common shares for withholding requirements
 
(469
)
 
(834
)
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES
 
95,445

 
(21,541
)
Net change in cash, cash equivalents and restricted cash
 
90,031

 
(1,617
)
CASH, CASH EQUIVALENTS AND RESTRICTED CASH
 
 

 
 

Beginning of period
 
69,833

 
72,556

End of period
 
$
159,864

 
$
70,939

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
 
 

 
 

Cash payments for interest
 
$
9,977

 
$
11,879

Accrued improvements to hotel properties
 
$
3,924

 
$
5,306

Cash payments for income taxes, net of refunds
 
$
27

 
$
(1,049
)
 
See Notes to the Condensed Consolidated Financial Statements

5


SUMMIT HOTEL PROPERTIES, INC.
 
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
 
NOTE 1 - DESCRIPTION OF BUSINESS
 
General

Summit Hotel Properties, Inc. (the “Company”) is a self-managed hotel investment company that was organized on June 30, 2010 as a Maryland corporation. The Company holds both general and limited partnership interests in Summit Hotel OP, LP (the “Operating Partnership”), a Delaware limited partnership also organized on June 30, 2010. Unless the context otherwise requires, “we,” “us,” and “our” refer to the Company and its consolidated subsidiaries.
 
We focus on owning primarily premium-branded hotels with efficient operating models primarily in the Upscale segment of the lodging industry. At March 31, 2020, our portfolio consisted of 72 hotels with a total of 11,288 guestrooms located in 23 states. As of March 31, 2020, we own 100% of the outstanding equity interests in 67 of our 72 hotels. We own a 51% controlling interest in five hotels that we acquired in 2019 through a joint venture. We have elected to be taxed as a real estate investment trust (“REIT”) for federal income tax purposes. To qualify as a REIT, we cannot operate or manage our hotels. Accordingly, all of our hotels are leased to our taxable REIT subsidiaries (“TRS Lessees”).

Risks and Uncertainties
 
The Company is subject to risks and uncertainties as a result of the effects of the novel coronavirus, designated as COVID-19 (“COVID-19”). The extent of the effects of the COVID-19 pandemic on the Company's business is highly uncertain and difficult to predict, as the response to the pandemic varies by state and municipalities within states. The Company first began to experience effects from COVID-19 in March 2020, when the World Health Organization (“WHO”) declared a public health emergency of international concern related to COVID-19 and the U.S. Centers for Disease Control and Prevention (“CDC”) issued warnings against holding or attending gatherings larger than 50 people, including conferences, festivals, parades, concerts, sporting events and weddings. By March 31, 2020, stay-at-home directives had been issued in many states across the United States and many local jurisdictions had additionally required the temporary closure of businesses deemed to be non-essential. These actions have had a significant negative effect on the U.S. and global economies, including a rapid and sharp decline in all forms of travel, both domestic and international, and a significant decline in the demand for hotels and guestrooms. These conditions have resulted in a substantial decline in our revenues, profitability and cash flows from operations during the first quarter of 2020 and are expected to continue to materially adversely affect our operations and financial results until travel and business restrictions are eased, stay-at-home directives are lifted, consumer confidence is restored and an economic recovery commences. The COVID-19 pandemic has also significantly increased economic uncertainty and has led to disruption and volatility in the global capital markets, which could increase our cost of, and limit accessibility to, capital. 


6


The COVID-19 pandemic has caused the Company to temporarily suspend operations at 6 hotels containing 934 guestrooms. An additional 9 hotels, containing 1,278 guestrooms, each of which is adjacent to another of our hotels, continue to accept reservations, but guests are being directed to stay at the adjacent properties. The Company has taken several actions to mitigate the effects of the COVID-19 pandemic on the Company, including the following:

Borrowed an additional net amount of $100.0 million on our $400 million unsecured revolving credit facility during the three months ended March 31, 2020 and an additional $25.0 million on April 1, 2020;
Amended certain loan agreements to provide for a financial covenant waiver through March 31, 2021, to modify certain financial covenant measures for the final three quarters of 2021 and to access additional borrowing capacity of $150.0 million under our $400 Million Revolver;
Suspended the declaration and payment of dividends on our common stock and operating partnership units;
Postponed all non-essential capital improvement projects planned for 2020 beyond those already substantially complete;
Adopted comprehensive cost reduction initiatives, including the reduction of labor and temporary elimination of certain services and amenities at all hotels;
Negotiated the temporary suspension of FF&E funding requirements for certain of our hotels and facilitated the interim or permanent use of cash deposited in the FF&E Reserve Accounts of certain of our hotels for general working capital purposes;
Implemented a voluntary 25% temporary reduction of base salaries and fees, respectively, for executive officers and independent members of the Board of Directors;
Furloughed approximately 25% of the corporate-level staff and implemented temporary salary reductions for the majority of employees not subject to furlough; and
Implemented a temporary hiring freeze for any new corporate-level positions.

It is currently extremely difficult to predict how long the effects of the COVID-19 pandemic on the Company will continue, when an economic recovery will commence, and the length of time it will take for us to return to operational and financial performance that is consistent with our most recent fiscal year.

NOTE 2 - BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
 
Basis of Presentation
 
We prepare our Condensed Consolidated Financial Statements in conformity with U.S. Generally Accepted Accounting Principles (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Accordingly, the Condensed Consolidated Financial Statements do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring items) considered necessary for a fair presentation in accordance with GAAP have been included. Results for the three months ended March 31, 2020 may not be indicative of the results that may be expected for the full year of 2020. For further information, please read the Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, 2019.

The accompanying Condensed Consolidated Financial Statements consolidate the accounts of all entities in which we have a controlling financial interest, as well as variable interest entities for which the Company is the primary beneficiary. All significant intercompany balances and transactions have been eliminated in the Condensed Consolidated Financial Statements.

We evaluate joint venture partnerships to determine if they should be consolidated based on whether the partners exercise joint control. For a joint venture where we exercise primary control and we also own a majority of the equity interests, we consolidate the joint venture partnership. We have consolidated the accounts of our joint venture partnership with GIC in our accompanying Condensed Consolidated Financial Statements. See "Note 8 - Equity - Non-controlling Interests in Joint Venture" for further information.
 

7


Investment in Hotel Properties
 
The Company allocates the purchase price of acquired hotel properties based on the fair value of the acquired land, land improvements, building, furniture, fixtures and equipment, identifiable intangible assets or liabilities, other assets and assumed liabilities. Intangible assets may include certain value associated with the on-going operations of the hotel business being acquired as part of the hotel property acquisition. Acquired intangible assets that derive their values from real property or an interest in real property, are inseparable from that real property or interest in real property, and do not produce or contribute to the production of income other than consideration for the use or occupancy of space, are recorded as a component of the related real estate asset in our Condensed Consolidated Financial Statements. We allocate the purchase price of acquired hotel properties to land, building and furniture, fixtures and equipment based on third-party independent appraisals.
 
If substantially all of the fair value of the gross assets acquired are concentrated in a single identifiable asset or group of similar identifiable assets, the asset or asset group is not considered a business. When we conclude that an acquisition meets this threshold, acquisition costs will be capitalized as part of our allocation of the purchase price of the acquired hotel properties.

Our hotel properties and related assets are recorded at cost, less accumulated depreciation. We capitalize hotel development costs and the costs of significant additions and improvements that materially upgrade, increase the value or extend the useful life of the property. These costs may include hotel development, refurbishment, renovation, and remodeling expenditures, as well as certain indirect internal costs related to construction projects. If an asset requires a period of time in which to carry out the activities necessary to bring it to the condition necessary for its intended use, the interest cost incurred during that period as a result of expenditures for the asset is capitalized as part of the cost of the asset. We expense the cost of repairs and maintenance as incurred.

On a limited basis, we provide financing to developers of hotel properties for development projects. We evaluate these arrangements to determine if we participate in residual profits of the hotel property through the loan provisions or other agreements. Where we conclude that these arrangements are more appropriately treated as an investment in the hotel property, we reflect the loan as Investment in hotel properties, net in our Condensed Consolidated Balance Sheets.

We monitor events and changes in circumstances for indicators that the carrying value of a hotel property or undeveloped land may be impaired. Additionally, we perform at least annual reviews to monitor the factors that could trigger an impairment.  Factors that we consider for an impairment analysis include, among others: i) significant underperformance relative to historical or anticipated operating results, ii) significant changes in the manner of use of a property or the strategy of our overall business, including changes in the estimated holding periods for hotel properties and land parcels, iii) a significant increase in competition, iv) a significant adverse change in legal factors or regulations, v) changes in values of comparable land or hotel sales, and vi) significant negative industry or economic trends. When such factors are identified, we prepare an estimate of the undiscounted future cash flows of the specific property and determine if the carrying amount of the asset is recoverable. If an impairment is identified, we estimate the fair value of the property based on discounted cash flows or sales price if the property is under contract and an adjustment is made to reduce the carrying value of the property to its estimated fair value. Due to the adverse effects of the COVID-19 pandemic across our entire portfolio of hotel properties, our impairment evaluation was completed for all of our hotel properties and we identified no impairment at March 31, 2020.
 
Intangible Assets

We amortize intangible assets with determined finite useful lives using the straight-line method. We do not amortize intangible
assets with indefinite useful lives, but we evaluate these assets for impairment annually or at interim periods if events or
circumstances indicate that the asset may be impaired. Due to the effects of the COVID-19 pandemic, we evaluated our intangible assets for impairment at March 31, 2020 and identified no impairment.

Trade Receivables and Credit Policies

We grant credit to qualified customers, generally without collateral, in the form of trade accounts receivable. Trade receivables
result from the rental of hotel guestrooms and the sales of food, beverage, and banquet services and are payable under normal
trade terms. Trade receivables also include credit and debit card transactions that are in the process of being settled. Trade
receivables are stated at the amount billed to the customer and do not accrue interest. We regularly review the collectability of our trade receivables. A provision for losses is determined on the basis of previous loss experience and current economic conditions. Our allowance for doubtful accounts was $0.4 million and $0.2 million at March 31, 2020 and December 31, 2019, respectively, and bad debt expense was $0.3 million and $0.1 million for three months ended March 31, 2020 and 2019, respectively.


8


Leases

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), which changed lessee accounting to reflect the financial liability and right-of-use assets that are inherent to leasing an asset on the balance sheet. We adopted ASU No. 2016-02 on January 1, 2019. A lessee is also required to record a right-of-use asset and a lease liability for all leases with a term of greater than 12 months regardless of their classification. In July 2018, the FASB issued ASU 2018-10, Codification Improvements to Topic 842, Leases, to clarify how to apply certain aspects of ASC No. 842, Leases. In July 2018, the FASB also issued ASU 2018-11, Leases (Topic 842): Targeted Improvements, to give companies another option for transition and to provide lessors with a practical expedient to reduce the cost and complexity of implementing the new standard. The transition option allows companies to not apply the new lease standard in the comparative periods they present in their financial statements in the year of adoption. The Company elected certain practical expedients allowed under the guidance and retained the original lease classification and historical accounting for initial direct costs for leases existing prior to the adoption date. The Company also elected not to restate prior periods for the effect of the adoption of the new standard. In accordance with ASU No. 2016-02, we reclassified certain existing lease-related assets and liabilities to Right-of-use assets as of January 1, 2019. The adoption of ASU No. 2016-02 resulted in the recognition of incremental Right-of-use assets and related Lease liabilities of $23.6 million on the Condensed Consolidated Balance Sheet as of January 1, 2019.

Notes Receivables

We selectively provide mezzanine financing to developers, where we also have the opportunity to acquire the hotel at or after the completion of the development project, and we also may provide seller financing under limited circumstances. We classify notes receivable as held-to-maturity and carry the notes receivable at cost less the unamortized discount, if any. On January 1, 2020, we adopted ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326), which requires a financial asset (or a group of financial assets) measured at amortized cost to be presented at the net amount expected to be collected. The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of the financial asset(s) to present the net carrying value at the amount expected to be collected on the financial asset. The measurement of expected credit losses is based on relevant information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. We routinely evaluate our notes receivable for collectability. Probable losses on notes receivable are recognized in a valuation account that is deducted from the amortized cost basis of the notes receivable and recorded as Provision for credit losses in our Condensed Consolidated Statements of Operations.

Cash and Cash Equivalents
 
We consider all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. At times, cash on deposit may exceed the federally insured limit. We maintain our cash with high credit quality financial institutions.
 
Restricted Cash
 
Restricted cash consists of certain funds maintained in escrow for property taxes, insurance, and certain capital expenditures. Funds may be disbursed from the account upon proof of expenditures and approval from the lender or other party requiring the restricted cash reserves.
 
Revenue Recognition
 
In accordance with ASU No. 2014-09, revenues from the operation of our hotels are recognized when guestrooms are occupied, services have been rendered or fees have been earned. Revenues are recorded net of any discounts and sales and other taxes collected from customers. Revenues consist of room sales, food and beverage sales, and other hotel revenues and are presented on a disaggregated basis on our Condensed Consolidated Statements of Operations.

Room revenue is generated through short-term contracts with customers whereby customers agree to pay a daily rate for the right to occupy hotel rooms for one or more nights. Our performance obligations are fulfilled at the end of each night that the customers have the right to occupy the rooms. Room revenues are recognized daily at the contracted room rate in effect for each room night.

Food and beverage revenues are generated when customers purchase food and beverage at a hotel's restaurant, bar or other facilities. Our performance obligations are fulfilled at the time that food and beverage is purchased and provided to our customers.


9


Other revenues such as for parking, meeting space or communication services are recognized at the point in time or over the time period that the associated good or service is provided. Ancillary services such as parking at certain hotels are provided by third parties and we assess whether we are the principal or agent in such arrangements. If we are determined to be the agent, revenue is recognized based upon the commission paid to us by the third party for the services rendered to our customers. If we are determined to be the principal, revenues are recognized based upon the gross contract price of the service provided. Certain of our hotels have retail spaces, restaurants or other spaces that we lease to third parties. Lease revenues are recognized on a straight­ line basis over the respective lease terms and are included in Other income on our Condensed Consolidated Statements of Operations.

Cash received prior to customer arrival is recorded as an advance deposit from the customer and is recognized as revenue at the time of occupancy.

Equity-Based Compensation
 
Our 2011 Equity Incentive Plan, which was amended and restated effective June 15, 2015 (as amended, the “Equity Plan”), provides for the grant of stock options, stock appreciation rights, restricted stock, restricted stock units, dividend equivalent rights, and other stock-based awards. We account for the stock options granted upon completion of our IPO at fair value using the Black-Scholes option-pricing model and we account for all other awards of equity, including time-based and performance-based stock awards, using the grant date fair value of those equity awards. Restricted stock awards with performance-based vesting conditions are market-based awards tied to total stockholder return and are valued using a Monte Carlo simulation model in accordance with ASC Topic 718, Compensation — Stock Compensation. We expense the fair value of awards under the Equity Plan ratably over the vesting period and market-based awards are not adjusted for performance. The amount of stock-based compensation expense may be subject to adjustment in future periods due to a change in forfeiture assumptions or modification of previously granted awards.
 
Derivative Financial Instruments and Hedging
 
We use interest rate derivatives to hedge our risks on variable-rate debt. Interest rate derivatives could include swaps, caps, collars, and floors. We assess the effectiveness of each hedging relationship by comparing changes in fair value or cash flows of the derivative financial instrument with the changes in fair value or cash flows of the designated hedged item or transaction. All derivative financial instruments are recorded at fair value as a net asset or liability in our Condensed Consolidated Balance Sheets.
 
The change in the fair value of the hedging instruments is recorded in Other comprehensive income. Amounts deferred in Other comprehensive income will be reclassified to Interest expense in our Condensed Consolidated Statements of Operations in the period in which the hedged item affects earnings.

Income Taxes

We have elected to be taxed as a REIT under certain provisions of the Internal Revenue Code. To qualify as a REIT, we must meet certain organizational and operational requirements, including a requirement to distribute annually to our stockholders at least 90% of our REIT taxable income, determined without regard to the deduction for dividends paid and excluding net capital gains, which does not necessarily equal net income as calculated in accordance with GAAP. As a REIT, we generally will not be subject to federal income tax (other than taxes paid by our TRS Lessees at regular corporate income tax rates) to the extent we distribute 100% of our REIT taxable income to our stockholders. If we fail to qualify as a REIT in any taxable year, we will be subject to federal income tax on our taxable income at regular corporate income tax rates and generally will be unable to re-elect REIT status until the fifth calendar year after the year in which we failed to qualify as a REIT, unless we satisfy certain relief provisions.

Substantially all of our assets are held by and all of our operations are conducted through either our Operating Partnership or our subsidiary REITs. Partnerships are not subject to U.S. federal income taxes as revenues and expenses pass through to and are taxed on the owners. Generally, the states and cities where partnerships operate follow the U.S. federal income tax treatment. However, there are a limited number of local and state jurisdictions that tax the taxable income of the Operating Partnership. Accordingly, we provide for income taxes in these jurisdictions for the Operating Partnership.

Taxable income related to our TRS Lessees are subject to federal, state and local income taxes at applicable tax rates. Our interim tax provision includes the income tax provision related to the operations of the TRS Lessees as well as state and local income taxes related to the Operating Partnership.


10


Where required, we account for federal and state income taxes using the asset and liability method. Deferred tax assets and liabilities are recognized for: i) the future tax consequences attributable to differences between carrying amounts of existing assets and liabilities based on GAAP and the respective carrying amounts for tax purposes, and ii) operating losses and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date of the change in tax rates. However, deferred tax assets are recognized only to the extent it is more likely than not that they will be realized based on consideration of available evidence. Valuation allowances are provided if, based upon the weight of the available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized.

We perform a quarterly review for any uncertain tax positions. The Company had no accruals for uncertain tax positions as of March 31, 2020 and December 31, 2019.

Fair Value Measurement
 
Fair value measures are classified into a three-tiered fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:
 
Level 1:
 
Observable inputs such as quoted prices in active markets.
Level 2:
 
Directly or indirectly observable inputs, other than quoted prices in active markets.
Level 3:
 
Unobservable inputs in which there is little or no market information, which require a reporting entity to develop its own assumptions.

 
Assets and liabilities measured at fair value are based on one or more of the following valuation techniques:
 
Market approach:
 
Prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities.
Cost approach:
 
Amount required to replace the service capacity of an asset (replacement cost).
Income approach:
 
Techniques used to convert future amounts to a single amount based on market expectations (including present-value, option-pricing, and excess-earnings models).


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 estimation methods may have a material effect on the estimated fair value amounts. 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.
 
We have elected a measurement alternative for equity investments, such as our purchase options, that do not have readily determinable fair values. Under the alternative, our purchase options are measured at cost, less any impairment, plus or minus changes resulting from observable price changes in orderly transactions for an identical or similar investment of the same issuer, if any.

Non-controlling Interests 

Non-controlling interests represent the portion of equity in a consolidated entity held by owners other than the consolidating parent. Non-controlling interests are reported in the Condensed Consolidated Balance Sheets within equity, separately from stockholders’ equity. Revenue, expenses and net income attributable to both the Company and the non-controlling interests are reported in the Condensed Consolidated Statements of Operations. 

Our Condensed Consolidated Financial Statements include non-controlling interests related to common units of limited partnership interests (“Common Units”) in the Operating Partnership held by unaffiliated third parties and third-party ownership of a 49% interest in a consolidated joint venture. See "Note 8 - Equity - Non-controlling Interests in Joint Venture" for further information.

11



Use of Estimates
 
Our Condensed Consolidated Financial Statements are prepared in conformity with GAAP, which requires us to make estimates based on assumptions about current and, for some estimates, future economic and market conditions that affect reported amounts and related disclosures in our Condensed Consolidated Financial Statements. Although our current estimates contemplate current and expected future conditions, as applicable, it is reasonably possible that actual conditions could materially differ from our expectations, which could materially affect our expectations for our consolidated financial position and results of operations. In particular, a number of estimates have been and will continue to be affected by the ongoing COVID-19 pandemic.

The evaluation of the carrying amounts of our assets described above requires that we make projections of the future estimated cash flows and residual values of the assets or underlying collateral based on assumptions derived from available information about future market conditions that will affect these projections. While the potential magnitude and duration of the business and economic effects of the COVID-19 pandemic are uncertain, our analysis of the future estimated cash flows, values of the assets or underlying collateral assumes that we will begin to experience a recovery in our business during the second half of 2020 and operating performance will improve gradually over a multi-year period before reaching prior peak performance levels.

The severity, magnitude and duration, of the COVID-19 pandemic, as well as its economic consequences, are uncertain, rapidly changing and difficult to predict. As such, there can be no assurance that our forecasts and underlying assumptions will be realized. As a result, our accounting estimates and assumptions may change over time, and actual results may differ materially from our expectations. We will continue to monitor the effects of the COVID-19 pandemic in future quarters. If actual results differ from our forecasts, this may result in future impairments of hotel properties, intangible assets, right-of-use assets, or investment securities such as our purchase options, or in incremental credit losses on our notes receivables.

New Accounting Standards

In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which is intended to simplify various aspects related to accounting for income taxes. ASU No. 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. ASU No. 2019-12 is effective for our fiscal year commencing on January 1, 2021, with early adoption permitted. The adoption of ASU No. 2019-12 will not have a material effect on our consolidated financial position or results of operations.

In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848). ASU No. 2020-04 contains practical expedients for reference rate reform related activities that affect debt, leases, derivatives and other contracts. The guidance in ASU No. 2020-04 is optional and may be elected over time as reference rate reform activities occur. During 2020, the Company has elected to apply the hedge accounting expedients related to probability and the assessments of effectiveness for future LIBOR-indexed cash flows to assume that the index upon which future hedged transactions will be based matches the index on the corresponding derivatives. Application of these expedients preserves the presentation of derivatives consistent with past presentation. The Company continues to evaluate the effect of the guidance and may apply other elections as applicable as additional changes in the market occur.


12


NOTE 3 - INVESTMENT IN HOTEL PROPERTIES, NET
 
Investment in Hotel Properties, net

Investment in hotel properties, net is as follows (in thousands):
 
 
 
March 31, 2020
 
December 31, 2019
Hotel buildings and improvements
 
$
2,050,923

 
$
2,049,384

Land
 
319,603

 
319,603

Furniture, fixtures and equipment
 
180,868

 
173,128

Construction in progress
 
10,229

 
9,388

Intangible assets
 
11,231

 
11,231

Real estate development loan
 
7,433

 
5,485

 
 
2,580,287

 
2,568,219

Less - accumulated depreciation and amortization
 
(410,973
)
 
(383,987
)
 
 
$
2,169,314

 
$
2,184,232



We provided a mezzanine loan to fund up to $28.9 million for a mixed-use development project that includes a hotel property, retail space, and parking. We have classified the mezzanine loan as Investment in hotel properties, net in our Condensed Consolidated Balance Sheets at March 31, 2020 and December 31, 2019. See "Note 4 - Investment in Real Estate Loans" for further information.

Asset Sales

We did not sell any hotel properties during the three months ended March 31, 2020.

On February 12, 2019, we completed the sale of two hotel properties, the Country Inn & Suites - Charleston, WV and the Holiday Inn Express - Charleston, WV, for an aggregate sales price of $11.6 million. The sale of these properties resulted in the realization of an aggregate gain of $4.2 million for the three months ended March 31, 2019.

Hotel Property Acquisitions

We did not acquire any hotel properties during the three months ended March 31, 2020 or 2019. On January 31, 2019, we exercised our option pursuant to a ground lease agreement to purchase the land upon which our Residence Inn by Marriott in Baltimore (Hunt Valley), MD is located for $4.2 million, which resulted in a termination of obligations under the ground lease. As a result, this hotel property is no longer subject to a ground lease.


13


The results of operations of acquired properties are included in the Condensed Consolidated Statements of Operations beginning on their respective acquisition dates. The following unaudited pro forma information includes operating results for 72 hotels owned as of March 31, 2020 as if all such hotels had been owned by us since January 1, 2019.  For hotels acquired by us after January 1, 2019 (the "Acquired Hotels"), we have included in the pro forma information the financial results of each of the Acquired Hotels for the period prior to acquisition by us (the "Pre-acquisition Period"). The financial results for the Pre-Acquisition Period were provided by the third-party owner of such Acquired Hotel prior to purchase by us and such information has not been audited or reviewed by our auditors or adjusted by us. For hotels sold by us between January 1, 2019 and March 31, 2020 (the "Disposed Hotels"), the unaudited pro forma information excludes the financial results, including gains on disposal of assets, of each of the Disposed Hotels for the period of ownership by us from January 1, 2019 through the date that the Disposed Hotels were sold by us. The unaudited pro forma information is included to enable comparison of results for the current reporting period to results for the comparable period of the prior year and is not indicative of what actual results of operations would have been had the hotel acquisitions and dispositions taken place on or before January 1, 2019. The pro forma amounts exclude the gain or loss on the sale of hotel properties during the three months ended March 31, 2020 and 2019. This information does not purport to be indicative of or represent results of operations for future periods.

The unaudited condensed pro forma financial information for the 72 hotel properties owned at March 31, 2020 for the three months ended March 31, 2020 and 2019 is as follows (in thousands, except per share):
 
 
 
For the
Three Months Ended
March 31,
 
 
2020
 
2019
Revenues
 
$
108,385

 
$
141,756

Income from hotel operations
 
$
29,725

 
$
53,808

Net (loss) income (1)
 
$
(16,213
)
 
$
15,603

Net (loss) income attributable to common stockholders, net of amount allocated to participating securities (1)
 
$
(19,111
)
 
$
8,814

Basic and diluted net (loss) income per share attributable to common stockholders (1)
 
$
(0.18
)
 
$
0.08


(1)
Pro forma amounts include depreciation expense, property tax expense, interest expense, income tax expense, loss on impairment of assets and other corporate expenses totaling $56.6 million and $47.9 million for the three months ended March 31, 2020 and 2019, respectively.

Assets Held for Sale

Assets held for sale at March 31, 2020 and December 31, 2019 included a land parcel in Flagstaff, AZ with a carrying amount of $0.4 million. The land parcel is currently under contract for sale and is expected to close prior to December 31, 2020.


14


NOTE 4 — INVESTMENT IN REAL ESTATE LOANS

Investment in real estate loans, net is as follows (in thousands):

 
 
March 31, 2020
 
December 31, 2019
Real estate loans
 
$
32,870

 
$
32,831

Unamortized discount
 
(1,382
)
 
(1,895
)
Allowance for credit losses
 
(2,530
)
 

 
 
$
28,958

 
$
30,936



The amortized cost bases of our Investment in real estate loans, net approximate their fair value. The amortized cost bases and fair value of our Investment in real estate loans, net at March 31, 2020, by contractual maturity are as follows: $27.0 million in 2020 and $2.0 million in 2021.

Real Estate Development Loans

We provided mezzanine loans on three real estate development projects to fund up to an aggregate of $29.6 million for the development of three hotel properties. The three real estate development loans closed in the fourth quarter of 2017 and each has a stated interest rate of 8% and an initial term of approximately three years.  Interest income on the mezzanine loans will be recorded in our Condensed Consolidated Statement of Operations as it is earned. As of March 31, 2020, we have funded the full amount of $29.6 million. We have separate options related to each loan (each the "Initial Option") to purchase a 90% interest in each joint venture that owns the respective hotel upon completion of construction. We also have the right to purchase the remaining interests in each joint venture at future dates, generally five years after we exercise our Initial Option. We have recorded the original aggregate estimated fair value of each Initial Option totaling $6.1 million in Other assets and as a discount to the related real estate loans. The discount will be amortized as a component of non-cash interest income over the initial term of the real estate loans using the straight-line method, which approximates the interest method. We recorded amortization of the discount of $0.5 million during the three months ended March 31, 2020 and 2019. During the three months ended March 31, 2020, we recorded a Loss on impairment of assets of $0.8 million related to one of the purchase options. See "Note 9 - Fair Value Measurement" for further information.

We provided a mezzanine loan to fund up to $28.9 million for a mixed-use development project that includes a hotel property, retail space, and parking. The loan closed in the third quarter of 2019 and has a stated interest rate of 9% and an initial term of 30 months. The loan is secured by a second mortgage on the development project and a pledge of the equity in the project owner. As of March 31, 2020, we have funded $9.5 million of the loan commitment. Upon completion of construction, we have an option to purchase a 90% interest in the hotel (the “Initial Purchase Option”). We also have the right to purchase the remaining interest in the hotel five years after the completion of construction. We have issued a $10.0 million letter of credit under our senior unsecured credit facility to secure the exercise of the Initial Purchase Option. As such, we have classified the loan as Investment in hotel properties, net in our Condensed Consolidated Balance Sheets at March 31, 2020. Interest income on the mezzanine loan will be recorded in our Consolidated Statement of Operations as it is earned. We have recorded the aggregate estimated fair value of the Initial Purchase Option totaling $2.8 million in Other assets and as a contra-asset to Investment in hotel properties, net. The contra-asset will be amortized as a component of non-cash interest income over the term of the real estate development loan using the straight-line method, which approximates the interest method. During the three months ended March 31, 2020, we amortized $0.3 million as non-cash interest income.

Seller-Financing Loans

On June 29, 2018 we sold the Holiday Inn in Duluth, GA and the Hilton Garden Inn in Duluth, GA for an aggregate selling price of $24.9 million. We provided seller financing totaling $3.6 million on the sale of these properties under two, 3.5-year notes with a blended interest rate of 7.38% secured by a $3.0 million second mortgage. As of March 31, 2020, there was $2.6 million outstanding on the seller-financing loans.


15


Current Estimate of Credit Losses

We evaluated our notes receivable for potential credit losses by estimating the fair value of the collateral supporting each note receivable at March 31, 2020 based on assumptions related to the expected future performance of the collateral assets and the resulting anticipated net selling value of the assets at capitalization rates that are common for the asset class. Our current estimate of credit losses of $2.5 million is recorded as an allowance for credit losses at March 31, 2020 as a result of the effects of the COVID-19 pandemic.

NOTE 5 - DEBT
 
At March 31, 2020 and December 31, 2019, our indebtedness was comprised of borrowings under our 2018 Unsecured Credit Facility (as defined below), the 2018 Term Loan (as defined below), the 2017 Term Loan (as defined below), the Joint Venture Credit Facility (as defined below), and indebtedness secured by first priority mortgage liens on various hotel properties. The weighted average interest rate, after giving effect to our interest rate derivatives, for all borrowings was 3.48% at March 31, 2020 and 3.95% at December 31, 2019.

Debt, net of debt issuance costs, is as follows (in thousands):

 
 
March 31, 2020
 
December 31, 2019
Revolving debt
 
$
260,000

 
$
140,000

Term loans
 
725,000

 
725,000

Mortgage loans
 
156,796

 
157,726

 
 
1,141,796

 
1,022,726

Unamortized debt issuance costs
 
(6,777
)
 
(6,563
)
Debt, net of debt issuance costs
 
$
1,135,019

 
$
1,016,163



On April 1, 2020, we borrowed an additional $25.0 million on our $400 Million Revolver (as defined below).

We have entered into interest rate swaps to partially fix the interest rates on a portion of our variable interest rate indebtedness. See "Note 7 - Derivative Financial Instruments and Hedging" to the Condensed Consolidated Financial Statements for additional information. Our total fixed-rate and variable-rate debt, after considering our interest rate derivative agreements that are currently effective, is as follows (in thousands):
 
 
 
March 31, 2020
 
Percentage
 
December 31, 2019
 
Percentage
Fixed-rate debt
 
$
548,372

 
48%
 
$
549,236

 
54%
Variable-rate debt
 
593,424

 
52%
 
473,490

 
46%
 
 
$
1,141,796

 
 
 
$
1,022,726

 
 


Information about the fair value of our fixed-rate debt that is not recorded at fair value is as follows (in thousands):
 
 
 
March 31, 2020
 
December 31, 2019
 
 
 
 
Carrying
Value
 
Fair Value
 
Carrying
Value
 
Fair Value
 
Valuation Technique
Fixed-rate debt
 
$
148,372

 
$
148,502

 
$
149,236

 
$
151,268

 
Level 2 - Market approach

 
At March 31, 2020 and December 31, 2019, we had $400.0 million of debt with variable interest rates that had been converted to fixed interest rates through derivative financial instruments which are carried at fair value.  Differences between carrying value and fair value of our fixed-rate debt are primarily due to changes in interest rates. Inherently, fixed-rate debt is subject to fluctuations in fair value as a result of changes in the current market rate of interest on the valuation date. For additional information on our use of derivatives as interest rate hedges, refer to "Note 7 - Derivative Financial Instruments and Hedging."


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$600 Million Senior Unsecured Credit Facility 

On December 6, 2018, the Operating Partnership, as borrower, the Company, as parent guarantor, and each party executing the loan documentation as a subsidiary guarantor, entered into a $600.0 million senior unsecured credit facility (the “2018 Unsecured Credit Facility”) with Deutsche Bank AG New York Branch, as administrative agent, and a syndicate of lenders. The 2018 Unsecured Credit Facility is comprised of a $400.0 million revolving credit facility (the “$400 Million Revolver”) and a $200.0 million term loan facility (the “$200 Million Term Loan”). At March 31, 2020, we had $395.0 million borrowed and $139.3 million available to borrow. 

The 2018 Unsecured Credit Facility has an accordion feature which will allow the Company to increase the total commitments by an aggregate of up to $300.0 million.  The $400 Million Revolver will mature on March 31, 2023 and can be extended to March 31, 2024 at the Company’s option, subject to certain conditions. The $200 Million Term Loan will mature on April 1, 2024.  

The interest rate on the 2018 Unsecured Credit Facility is based on a pricing grid ranging from 140 basis points to 215 basis points plus LIBOR for the $400 Million Revolver and 135 basis points to 210 basis points plus LIBOR for the $200 Million Term Loan, depending upon the Company's leverage ratio. The interest rate at March 31, 2020 for the $200 Million Term Loan was 2.69%

Financial and Other Covenants.  We are required to comply with various financial and other covenants to draw and maintain borrowings under the 2018 Unsecured Credit Facility. At March 31, 2020, we were in compliance with all financial covenants.

Unencumbered Assets. The 2018 Unsecured Credit Facility is unsecured.  However, borrowings under the 2018 Unsecured Credit Facility are limited by the value of hotel assets that qualify as unencumbered assets. At March 31, 2020, the Company had 52 unencumbered hotel properties (the "Unencumbered Properties") supporting the 2018 Unsecured Credit Facility. 

First Amendment to 2018 Unsecured Credit Facility

On May 7, 2020, the Operating Partnership, as borrower, the Company, as parent guarantor, and each party executing the credit facility documentation as a subsidiary guarantor entered into the First Amendment to Credit Agreement (the “First Amendment”) of the Operating Partnership’s 2018 Unsecured Credit Facility with Deutsche Bank AG New York Branch, as administrative agent, and a syndicate of lenders.

The First Amendment provides that certain financial and other covenants under the 2018 Unsecured Credit Facility were waived or adjusted, for the periods described below:

Waivers of all financial and certain other covenants in the 2018 Unsecured Credit Facility for the period April 1, 2020 through March 31, 2021; and
Adjustments to certain financial covenants for the period April 1, 2021 through December 31, 2021 including:
Increases in the Maximum Leverage Ratio, adjusting down each quarter of 2021;
Reduction of the Minimum Consolidated Fixed Charge Coverage Ratio;
Increase of the Maximum Unsecured Leverage Ratio; and
Reduction of the Minimum Unsecured Interest Coverage Ratio;
Increases to the Maximum Leverage Ratio for the calendar year 2022, adjusting down throughout 2022.

The interest rate during the periods of the financial and covenant waivers and adjustments will be set at Pricing Level VII, as defined in the 2018 Unsecured Credit Facility documents.

The First Amendment requires the borrower and certain subsidiaries to pledge to the secured parties all of the equity interests in the entities that own the Unencumbered Properties, as well as the equity interests in the TRS lessees related to such Unencumbered Properties until the borrower meets certain conditions for their release.

The First Amendment confirmed that the borrower may advance up to an additional $100 million on the $400 Million Revolver. Furthermore, the First Amendment permits the borrower to advance an additional $50 million, in addition to the $100 million advance described in the preceding sentence, upon filing mortgages and related security agreements on all Unencumbered Properties, with such security documents to be released upon the borrower meeting certain conditions for their release.


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Certain other typical limitations and conditions for credit facilities of this nature were included among the provisions in the First Amendment including, among other provisions, limitations on the use of revolving facility advances, certain restrictions on payments of dividends and establishment of a minimum liquidity requirement.

Unsecured Term Loans

2018 Term Loan
 
On February 15, 2018, our Operating Partnership, as borrower, the Company, as parent guarantor, and each party executing the term loan documentation as a subsidiary guarantor, entered into a new $225.0 million unsecured term loan (the “2018 Term Loan”) with KeyBank National Association, as administrative agent, and a syndicate of lenders listed in the loan documentation, which is fully drawn as of March 31, 2020. The 2018 Term Loan has an accordion feature that allows us to increase the total commitments by $150.0 million prior to the maturity date of February 14, 2025, subject to certain conditions. 

We pay interest on advances at varying rates, based upon, at our option, either (i) 1-, 2-, 3-, or 6-month LIBOR, plus a LIBOR margin between 1.80% and 2.55%, depending upon our leverage ratio (as defined in the loan documents), or (ii) the applicable base rate, which is the greatest of the administrative agent’s prime rate, the federal funds rate plus 0.50%, and 1-month LIBOR plus 1.00%, plus a base rate margin between 0.80% and 1.55%, depending upon our leverage ratio.  We are required to pay other fees, including customary arrangement and administrative fees. The interest rate at March 31, 2020 was 2.49%.

On February 18, 2020, the Company repriced the 2018 Term Loan, lowering the interest rate to a LIBOR margin between 1.35% and 1.90%, depending on our leverage ratio. All other material provisions of the loan remain unchanged, including the maturity date of the loan which remains February 14, 2025. The Company expects to realize approximately $0.9 million of annual interest expense savings as a result of the transaction through the remaining term of the loan.

Financial and Other Covenants.  We are required to comply with various financial and other covenants to draw and maintain borrowings under the 2018 Term Loan. At March 31, 2020, we were in compliance with all financial covenants.

Unencumbered Assets.  The 2018 Term Loan is unsecured.  However, borrowings under the term loan are limited by the value of the assets that qualify as unencumbered assets.  At March 31, 2020, the Unencumbered Properties also supported the 2018 Term Loan.

Third Amendment to 2018 Term Loan

On May 7, 2020, the Operating Partnership, as borrower, the Company, as parent guarantor, and each party executing the credit facility documentation as a subsidiary guarantor entered into the Third Amendment to the First Amended and Restated Credit Agreement (the “Third Amendment”) of the Operating Partnership’s 2018 Term Loan with KeyBank National Association, as administrative agent, and a syndicate of lenders. The changes to the 2018 Term Loan effected by the Third Amendment are substantially similar to the changes described above effected by the First Amendment to the Company’s 2018 Unsecured Credit Facility.

2017 Term Loan

On September 26, 2017, our Operating Partnership, as borrower, the Company, as parent guarantor, and each party executing the term loan documentation as a subsidiary guarantor, entered into a $225.0 million unsecured term loan (the "2017 Term Loan") with KeyBank National Association, as administrative agent, and a syndicate of lenders listed in the loan documentation.

The 2017 Term Loan has an accordion feature which allows us to increase the total commitments by an aggregate of $175.0 million prior to the maturity date, subject to certain conditions. The 2017 Term Loan matures on November 25, 2022.

We pay interest on advances at varying rates, based upon, at our option, either (i) 1-, 2-, 3-, or 6-month LIBOR, plus a LIBOR margin between 1.45% and 2.20%, depending upon our leverage ratio (as defined in the loan documents), or (ii) the applicable base rate, which is the greatest of the administrative agent’s prime rate, the federal funds rate plus 0.50%, and 1-month LIBOR plus 1.00%, plus a base rate margin between 0.45% and 1.20%, depending upon our leverage ratio. We are required to pay other fees, including customary arrangement and administrative fees.

Financial and Other Covenants.  We are required to comply with a series of financial and other covenants to draw and maintain borrowings under the 2017 Term Loan. At March 31, 2020, we were in compliance with all financial covenants.

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Unencumbered Assets.  The 2017 Term Loan is unsecured.  However, borrowings under the term loan are limited by the value of the assets that qualify as unencumbered assets.  At March 31, 2020, the Unencumbered Properties also supported the 2017 Term Loan.

We have drawn the entire $225.0 million available under the 2017 Term Loan. The interest rate at March 31, 2020 was 2.74%.

Second Amendment to 2017 Term Loan

On May 7, 2020, the Operating Partnership, as borrower, the Company, as parent guarantor, and each party executing the credit facility documentation as a subsidiary guarantor entered into the Second Amendment to the Credit Agreement (the “Second Amendment”) of the Operating Partnership’s 2017 Term Loan with KeyBank National Association, as administrative agent, and a syndicate of lenders. The changes to the 2017 Term Loan effected by the Second Amendment are substantially similar to the changes described above effected by the First Amendment to the Company’s 2018 Unsecured Credit Facility.

$200 Million Credit Facility
 
On October 8, 2019, Summit JV MR 1, LLC (the “Borrower”), as borrower, Summit Hospitality JV, LP (the “Parent”), as parent, and each party executing the credit facility documentation as a subsidiary guarantor, entered into a $200 million credit facility (the “Joint Venture Credit Facility”) with Bank of America, N.A., as administrative agent and sole initial lender, and BofA Securities, Inc., as sole lead arranger and sole bookrunner.
 
The Parent is the joint venture including the Operating Partnership and an affiliate of GIC, Singapore's sovereign wealth fund. See "Note 8 - Equity - Non-controlling Interests in Joint Venture" for additional information. The Operating Partnership and the Company are not borrowers or guarantors of the Joint Venture Credit Facility. The Joint Venture Credit Facility is guaranteed by all of the Borrower’s existing and future subsidiaries, subject to certain exceptions.
 
The Joint Venture Credit Facility is comprised of a $125 million revolving credit facility (the “$125 Million Revolver”) and a $75 million term loan (the “$75 Million Term Loan”). The Joint Venture Credit Facility has an accordion feature which will allow us to increase the total commitments by up to $300 million, for aggregate potential borrowings of up to $500 million on the Joint Venture Credit Facility.
 
The $125 Million Revolver and the $75 Million Term Loan will mature on October 8, 2023. Each individually can be extended for a single consecutive twelve-month period at the Joint Venture's option, subject to certain conditions.
 
Interest is paid on revolving credit advances at varying rates based upon, at the Borrower's option, either (i) 1-, 2-, 3-, or 6-month LIBOR, plus a margin of 2.15% for Eurodollar rate advances, or (ii) LIBOR, plus a margin of 2.15% for LIBOR floating rate advances, or (iii) the applicable base rate, which is the greatest of the administrative agent’s prime rate, the federal funds rate plus 0.50%, and 1-month LIBOR plus 1.00%, plus a base rate margin of 1.15%. The applicable margin for a term loan advance shall be five basis points less than revolving credit advances referenced above.
 
Borrowing Base Assets. The Joint Venture Credit Facility is secured primarily by a first priority pledge of the Borrower's equity interests in the subsidiaries that hold the borrowing base assets, and the related TRS entities, which wholly own the TRS Lessees that lease each of the borrowing base assets.
 
Financial and Other Covenants. In addition, the Borrower is required to comply with a series of financial and other covenants in order to borrow under the Joint Venture Credit Facility. At March 31, 2020, we were in compliance with all financial covenants.

Metabank Loan

On June 30, 2017, we entered into a $47.6 million secured, non-recourse loan with MetaBank (the "MetaBank Loan"). During the year ended December 31, 2017, we drew $47.6 million on the MetaBank Loan and used the proceeds to pay down the principal balance of our former $300 million revolving credit facility. The MetaBank Loan provides for a fixed interest rate of 4.44% and originally provided for interest-only payments for 18 months following the closing date. On January 31, 2019, we entered into a modification agreement, at no additional cost, that increased the interest-only period from 18 months to 24 months following the closing date. Beginning August 1, 2019, the loan amortizes over 25 years through the maturity date of July 1, 2027. The MetaBank Loan is secured by three hotels and is subject to a prepayment penalty if prepaid prior to April 1, 2027.

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Mortgage Loans

At March 31, 2020, we had mortgage loans totaling $156.8 million that are secured primarily by first mortgage liens on 15 hotel properties.

On March 19, 2019, we had a mortgage loan of $26.2 million that was secured by four hotel properties. We defeased $6.3 million of the principal to have the encumbrance released on one hotel property, the Hyatt Place in Arlington, TX, to facilitate the sale of the hotel property. As a result of this transaction, we recorded debt transaction costs of $0.6 million primarily related to the debt defeasance premium. The mortgage loan remains outstanding and is secured by the remaining three hotel properties.

NOTE 6 - LEASES

The Company has operating leases related to the land under certain hotel properties, conference centers, parking spaces, automobiles, our corporate office and other miscellaneous office equipment. These leases have remaining terms of 1 year to 78 years, some of which include options to extend the leases for additional years. The exercise of lease renewal options is at our sole discretion. Certain leases also include options to purchase the leased property. Leases with an initial term of 12 months or less are not recorded on the balance sheet; we recognize lease expense for these leases on a straight-line basis over the lease term.

Certain of our lease agreements include rental payments based on a percentage of revenue over contractual levels and others include rental payments adjusted periodically for inflation. Our lease agreements do not contain any material residual value guarantees or restrictive covenants that materially affect our business. In addition, we rent or sublease certain owned real estate to third parties. In the three months ended March 31, 2020 and 2019, we recorded gross third-party tenant income of $0.5 million and $0.5 million, respectively, which were recorded in Other income in the Condensed Consolidated Statement of Operations.

On January 1, 2019, the Company adopted ASC No. 842, Leases, and recognized right-of-use lease assets and related liabilities.  The right-of-use assets and related liabilities include renewal options reasonably certain to be exercised.  We base our lease calculations on our estimated incremental borrowing rate. As of March 31, 2020, our weighted average incremental borrowing rate was 4.9%.

During the three months ended March 31, 2020 and 2019, the Company's total operating lease cost was $0.9 million and $1.0 million, respectively, and the operating cash outflows from operating leases was $0.8 million and $0.9 million, respectively. As of March 31, 2020, the weighted average operating lease term was 28.3 years.

On January 31, 2019, we exercised our option pursuant to a ground lease agreement to purchase the land upon which our hotel property in Baltimore (Hunt Valley), MD is located for $4.2 million, which resulted in a termination of obligations under the ground lease.

Operating lease maturities as of March 31, 2020 are as follows (in thousands):