Notes to the Consolidated Financial Statements
(unaudited)
1
.
Organization
RLJ Lodging Trust (the "Company") was formed as a Maryland real estate investment trust ("REIT") on January 31, 2011. The Company is a self-advised and self-administered REIT that acquires primarily premium-branded, focused-service and compact full-service hotels. The Company elected to be taxed as a REIT, for U.S. federal income tax purposes, commencing with its taxable year ended December 31, 2011.
Substantially all of the Company’s assets and liabilities are held by, and all of its operations are conducted through, RLJ Lodging Trust, L.P. (the "Operating Partnership"). The Company is the sole general partner of the Operating Partnership. As of
September 30, 2017
, there were
175,687,508
units of limited partnership interest in the Operating Partnership ("OP units") outstanding and the Company owned, through a combination of direct and indirect interests,
99.6%
of the outstanding OP units.
As of
September 30, 2017
, the Company owned
159
hotel properties with approximately
31,350
rooms, located in
26
states and the District of Columbia. The Company, through wholly-owned subsidiaries, owned a
100%
interest in 155 of its hotel properties, a
98.3%
controlling interest in the DoubleTree Metropolitan Hotel New York City, a
95%
controlling interest in The Knickerbocker, and
50%
interests in entities owning two hotel properties. The Company consolidates its real estate interests in the
157
hotel properties in which it holds a controlling financial interest, and the Company records the real estate interests in the two hotels in which it holds an indirect
50%
interest using the equity method of accounting. The Company leases
158
of the
159
hotel properties to its taxable REIT subsidiaries ("TRS"), of which the Company owns a controlling financial interest.
2
.
Merger with FelCor Lodging Trust Incorporated
On August 31, 2017 (the "Acquisition Date"), the Company, the Operating Partnership, Rangers Sub I, LLC, a wholly owned subsidiary of the Operating Partnership ("Rangers"), and Rangers Sub II, LP, a wholly owned subsidiary of the Operating Partnership ("Partnership Merger Sub"), consummated the transactions contemplated by the definitive Agreement and Plan of Merger (the "Merger Agreement"), dated as of April 23, 2017, with FelCor Lodging Trust Incorporated ("FelCor") and FelCor Lodging Limited Partnership ("FelCor LP") pursuant to which Partnership Merger Sub merged with and into FelCor LP, with FelCor LP surviving as a wholly owned subsidiary of the Operating Partnership (the "Partnership Merger"), and, immediately thereafter, FelCor merged with and into Rangers, with Rangers surviving as a wholly owned subsidiary of the Operating Partnership (the "REIT Merger" and, together with the Partnership Merger, the "Mergers").
Upon completion of the REIT Merger and under the terms of the Merger Agreement, each issued and outstanding share of common stock, par value
$0.01
per share, of FelCor (other than shares held by any wholly owned subsidiary of FelCor or by the Company or any of its subsidiaries) was converted into the right to receive
0.362
(the "Common Exchange Ratio") common shares of beneficial interest, par value
$0.01
per share, of the Company (the "Common Shares"), and each issued and outstanding share of
$1.95
Series A cumulative convertible preferred stock, par value
$0.01
per share, of FelCor was converted into the right to receive one
$1.95
Series A Cumulative Convertible Preferred Share, par value
$0.01
per share, of the Company (a "Series A Preferred Share").
Upon completion of the Partnership Merger and under the terms of the Merger Agreement, each limited partner of FelCor LP was entitled to elect to exchange its outstanding common limited partnership units in FelCor LP (the "FelCor LP Common Units") for a number of newly issued Common Shares based on the Common Exchange Ratio. Upon completion of the Partnership Merger, each outstanding FelCor LP Common Unit of any holder who did not make the foregoing election was converted into the right to receive a number of common limited partnership units in the Operating Partnership (the "OP Units") based on the Common Exchange Ratio. No fractional shares of units of Common Shares or OP Units were issued in the Mergers, and the value of any fractional interests was paid in cash.
The Company accounted for the Mergers under the acquisition method of accounting in ASC 805,
Business Combinations.
As a result of the Mergers, the Company acquired an ownership interest in the following
37
hotel properties:
|
|
|
|
|
|
|
|
|
|
Hotel Property Name
|
|
Location
|
|
Ownership Interest
|
|
Management
Company
|
|
Rooms
|
DoubleTree Suites by Hilton Austin
|
|
Austin, TX
|
|
100%
|
|
Hilton
|
|
188
|
DoubleTree Suites by Hilton Orlando - Lake Buena Vista
|
|
Orlando, FL
|
|
100%
|
|
Hilton
|
|
229
|
Embassy Suites Atlanta - Buckhead
|
|
Atlanta, GA
|
|
100%
|
|
Hilton
|
|
316
|
Embassy Suites Birmingham
|
|
Birmingham, AL
|
|
100%
|
|
Hilton
|
|
242
|
Embassy Suites Boston Marlborough
|
|
Marlborough, MA
|
|
100%
|
|
Hilton
|
|
229
|
Embassy Suites Dallas - Love Field
|
|
Dallas, TX
|
|
100%
|
|
Aimbridge Hospitality
|
|
248
|
Embassy Suites Deerfield Beach - Resort & Spa
|
|
Deerfield Beach, FL
|
|
100%
|
|
Hilton
|
|
244
|
Embassy Suites Fort Lauderdale 17th Street
|
|
Fort Lauderdale, FL
|
|
100%
|
|
Hilton
|
|
361
|
Embassy Suites Los Angeles - International Airport South
|
|
El Segundo, CA
|
|
100%
|
|
Hilton
|
|
349
|
Embassy Suites Mandalay Beach - Hotel & Resort
|
|
Oxnard, CA
|
|
100%
|
|
Hilton
|
|
250
|
Embassy Suites Miami - International Airport
|
|
Miami, FL
|
|
100%
|
|
Hilton
|
|
318
|
Embassy Suites Milpitas Silicon Valley
|
|
Milpitas, CA
|
|
100%
|
|
Hilton
|
|
266
|
Embassy Suites Minneapolis - Airport
|
|
Bloomington, MN
|
|
100%
|
|
Hilton
|
|
310
|
Embassy Suites Myrtle Beach - Oceanfront Resort
|
|
Myrtle Beach, SC
|
|
100%
|
|
Hilton
|
|
255
|
Embassy Suites Napa Valley
|
|
Napa, CA
|
|
100%
|
|
Hilton
|
|
205
|
Embassy Suites Orlando - International Drive South/Convention Center
|
|
Orlando, FL
|
|
100%
|
|
Hilton
|
|
244
|
Embassy Suites Phoenix - Biltmore
|
|
Phoenix, AZ
|
|
100%
|
|
Hilton
|
|
232
|
Embassy Suites San Francisco Airport - South San Francisco
|
|
San Francisco, CA
|
|
100%
|
|
Hilton
|
|
312
|
Embassy Suites San Francisco Airport - Waterfront
|
|
Burlingame, CA
|
|
100%
|
|
Hilton
|
|
340
|
Embassy Suites Secaucus - Meadowlands (1)
|
|
Secaucus, NJ
|
|
50%
|
|
Hilton
|
|
261
|
Hilton Myrtle Beach Resort
|
|
Myrtle Beach, SC
|
|
100%
|
|
Hilton
|
|
385
|
Holiday Inn San Francisco - Fisherman's Wharf
|
|
San Francisco, CA
|
|
100%
|
|
InterContinental Hotels
|
|
585
|
San Francisco Marriott Union Square
|
|
San Francisco, CA
|
|
100%
|
|
Marriott Hotel Services
|
|
400
|
Sheraton Burlington Hotel & Conference Center
|
|
Burlington, VT
|
|
100%
|
|
Marriott Hotel Services
|
|
309
|
Sheraton Philadelphia Society Hill Hotel
|
|
Philadelphia, PA
|
|
100%
|
|
Marriott Hotel Services
|
|
364
|
The Fairmont Copley Plaza
|
|
Boston, MA
|
|
100%
|
|
FRHI Hotels & Resorts
|
|
383
|
The Knickerbocker New York
|
|
New York, NY
|
|
95%
|
|
Highgate Hotels
|
|
330
|
The Mills House Wyndham Grand Hotel
|
|
Charleston, SC
|
|
100%
|
|
Wyndham
|
|
216
|
The Vinoy Renaissance St. Petersburg Resort & Golf Club
|
|
St. Petersburg, FL
|
|
100%
|
|
Marriott Hotel Services
|
|
361
|
Wyndham Boston Beacon Hill
|
|
Boston, MA
|
|
100%
|
|
Wyndham
|
|
304
|
Wyndham Houston - Medical Center Hotel & Suites
|
|
Houston, TX
|
|
100%
|
|
Wyndham
|
|
287
|
Wyndham New Orleans - French Quarter
|
|
New Orleans, LA
|
|
100%
|
|
Wyndham
|
|
374
|
Wyndham Philadelphia Historic District
|
|
Philadelphia, PA
|
|
100%
|
|
Wyndham
|
|
364
|
Wyndham Pittsburgh University Center
|
|
Pittsburgh, PA
|
|
100%
|
|
Wyndham
|
|
251
|
Wyndham San Diego Bayside
|
|
San Diego, CA
|
|
100%
|
|
Wyndham
|
|
600
|
Wyndham Santa Monica At The Pier
|
|
Santa Monica, CA
|
|
100%
|
|
Wyndham
|
|
132
|
Chateau LeMoyne - French Quarter, New Orleans (2)
|
|
New Orleans, LA
|
|
50%
|
|
InterContinental Hotels
|
|
171
|
|
|
|
|
|
|
|
|
11,215
|
|
|
(1)
|
The Company owns an indirect
50%
ownership interest in the real estate at this hotel property and records the real estate interests using the equity method of accounting. The Company leases the hotel property to its TRS, of which the Company owns a controlling financial interest in the operating lessee, so the Company consolidates its ownership interest in the leased hotel.
|
|
|
(2)
|
The Company owns an indirect
50%
ownership interest in this hotel property and accounts for its ownership interest using the equity method of accounting. This hotel property is operated without a lease.
|
The total consideration for the Mergers was approximately
$1.4 billion
, which included the Company issuing approximately
50.4 million
common shares at
$20.18
per share, to FelCor common stockholders, approximately
12.9 million
Series A Preferred Shares at
$28.49
per share, to former FelCor preferred stockholders, approximately
0.2 million
OP Units at
$20.18
per unit, to former FelCor LP limited partners, and cash. The total consideration consisted of the following (in thousands):
|
|
|
|
|
|
|
|
Total Consideration
|
Common Shares
|
|
$
|
1,016,227
|
|
Series A Preferred Shares
|
|
366,936
|
|
OP Units
|
|
4,342
|
|
Cash, net of cash acquired
|
|
41,921
|
|
Total consideration
|
|
$
|
1,429,426
|
|
The Company allocated the purchase price consideration as follows (in thousands):
|
|
|
|
|
|
|
|
August 31, 2017
|
Investment in hotel properties
|
|
$
|
2,673,629
|
|
Investment in unconsolidated joint ventures
|
|
25,651
|
|
Restricted cash reserves
|
|
17,038
|
|
Hotel and other receivables
|
|
28,308
|
|
Deferred income tax asset
|
|
32,000
|
|
Intangible assets
|
|
151,706
|
|
Prepaid expenses and other assets
|
|
22,525
|
|
Debt
|
|
(1,305,337
|
)
|
Accounts payable and other liabilities
|
|
(115,788
|
)
|
Advance deposits and deferred revenue
|
|
(23,795
|
)
|
Accrued interest
|
|
(22,612
|
)
|
Distributions payable
|
|
(4,312
|
)
|
Noncontrolling interest in consolidated joint ventures
|
|
(5,157
|
)
|
Preferred equity in a consolidated joint venture
|
|
(44,430
|
)
|
Total consideration
|
|
$
|
1,429,426
|
|
The estimated fair values for the assets acquired and the liabilities assumed are preliminary and are subject to change during the measurement period as additional information related to the inputs and assumptions used in determining the fair value of the assets and liabilities becomes available. Subsequent adjustments to the preliminary purchase price allocation are not expected to have a material impact to the Company's consolidated financial statements.
The Company used the following valuation methodologies, inputs, and assumptions to estimate the fair value of the assets acquired, the liabilities assumed, and the equity interests acquired:
|
|
•
|
Investment in hotel properties — The Company estimated the fair values of the land and improvements, buildings and improvements, and furniture, fixtures, and equipment at the hotel properties by using a combination of the market, cost, and income approaches. These valuation methodologies are based on significant Level 2 and Level 3 inputs in the fair value hierarchy, such as estimates of future income growth, capitalization rates, discount rates, capital expenditures, and cash flow projections at the respective hotel properties.
|
|
|
•
|
Investment in unconsolidated joint ventures — The Company estimated the fair value of its real estate interests in the unconsolidated joint ventures by using the same valuation methodologies for the investment in hotel properties noted above. The Company recognized the net assets acquired based on its respective ownership interest in the joint venture according to the joint venture agreement.
|
|
|
•
|
Deferred income tax asset — The Company estimated the fair value of the deferred income tax asset by estimating the amount of the net operating loss that will be utilized in future periods by the acquired taxable REIT subsidiaries. The Company then applied its applicable effective tax rate against the net operating losses to determine the appropriate
|
deferred tax asset to recognize. This valuation methodology is based on Level 2 and Level 3 inputs in the fair value hierarchy.
|
|
•
|
Intangible assets — The Company estimated the fair value of its below market lease intangible assets by calculating the present value of the difference between the contractual rental amounts paid according to the in-place lease agreements and the market rental rates for similar leased space, measured over a period equal to the remaining non-cancelable term of the lease. This valuation methodology is based on Level 2 and Level 3 inputs in the fair value hierarchy. The below market lease intangible assets are amortized as adjustments to rental expense over the remaining terms of the respective leases. The Company estimated the fair value of the advanced bookings intangible asset by using the income approach to determine the projected cash flows that a hotel property will receive as a result of future hotel room and guests events that have already been reserved and pre-booked at the hotel property as of the Acquisition Date. This valuation methodology is based on Level 3 inputs in the fair value hierarchy. The advanced bookings intangible asset is amortized to depreciation and amortization over the duration of the hotel room and guest event reservations period at the hotel property. The Company recognized the following intangible assets in the Mergers (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average Amortization Period
(in Years)
|
Below market ground leases
|
|
$
|
128,181
|
|
|
53
|
Advanced bookings
|
|
15,146
|
|
|
1
|
Other intangible assets
|
|
8,379
|
|
|
6
|
Total intangible assets
|
|
$
|
151,706
|
|
|
45
|
|
|
•
|
Above market lease liabilities — The Company estimated the fair value of its above market lease liabilities by calculating the present value of the difference between the contractual rental amounts paid according to the in-place lease agreements and the market rental rates for similar leased space, measured over a period equal to the remaining non-cancelable term of the lease. This valuation methodology is based on Level 2 and Level 3 inputs in the fair value hierarchy. The Company recognized approximately
$14.6 million
of above market lease liabilities in the Mergers, which are included in accounts payable and other liabilities in the accompanying consolidated balance sheet. The above market lease liabilities are amortized as adjustments to rental expense over the remaining terms of the respective leases.
|
|
|
•
|
Debt — The Company estimated the fair value of the Senior Notes by using publicly available trading prices, market interest rates, and spreads for the Senior Notes, which are Level 2 and Level 3 inputs in the fair value hierarchy. The Company estimated the fair value of the mortgage loans using a discounted cash flow model and incorporated various inputs and assumptions for the effective borrowing rates for debt with similar terms and the loan to estimated fair value of the collateral, which are Level 3 inputs in the fair value hierarchy.
|
|
|
•
|
Noncontrolling interest in consolidated joint ventures — The Company estimated the fair value of the consolidated joint ventures by using the same valuation methodologies for the investment in hotel properties noted above. The Company then recognized the fair value of the noncontrolling interest in the consolidated joint ventures based on the joint venture partner's ownership interest in the consolidated joint venture. This valuation methodology is based on Level 2 and Level 3 inputs and assumptions in the fair value hierarchy.
|
|
|
•
|
Preferred equity in a consolidated joint venture — The Company estimated the fair value of the preferred equity in a consolidated joint venture by comparing the contractual terms of the preferred equity agreement to market-based terms of a similar preferred equity agreement, which is based on Level 3 inputs in the fair value hierarchy.
|
|
|
•
|
Restricted cash reserves, hotel and other receivables, prepaid expenses and other assets, accounts payable and other liabilities, advance deposits and deferred revenue, accrued interest, and distributions payable — The carrying amounts of the assets acquired, the liabilities assumed, and the equity interests acquired approximate fair value because of their short term maturities.
|
For the hotel properties acquired during the nine months ended September 30, 2017, the total revenues and net income from the date of acquisition through September 30, 2017 are included in the accompanying consolidated statements of operations as follows (in thousands):
|
|
|
|
|
|
For the one
month ended
September 30, 2017
|
Revenue
|
$
|
66,457
|
|
Net income
|
$
|
6,768
|
|
Other than the acquisition of FelCor, there were no other acquisitions of hotel properties during the nine months ended September 30, 2017.
The following table presents the costs that were incurred in connection with the Mergers (in thousands):
|
|
|
|
|
|
|
|
|
|
For the three months ended September 30, 2017
|
|
For the nine
month ended
September 30, 2017
|
Transaction costs
|
$
|
30,270
|
|
|
$
|
34,517
|
|
Integration costs
|
2,193
|
|
|
2,193
|
|
|
$
|
32,463
|
|
|
$
|
36,710
|
|
The transaction costs primarily related to transfer taxes and financial advisory, legal, and other professional service fees in connection with the Mergers. The integration costs primarily related to professional fees and employee-related costs, including compensation for transition employees. The merger-related costs noted above were expensed to transaction costs in the consolidated statements of operations.
The following unaudited condensed pro forma financial information presents the results of operations as if the Mergers had taken place on January 1, 2016. The unaudited condensed pro forma financial information is not necessarily indicative of what the actual results of operations of the Company would have been assuming the Mergers had taken place on January 1, 2016, nor is it indicative of the results of operations for future periods. The unaudited condensed pro forma financial information is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended September 30,
|
|
For the nine months ended September 30,
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
|
(unaudited)
|
Revenue
|
$
|
482,839
|
|
|
$
|
511,860
|
|
|
$
|
1,431,409
|
|
|
$
|
1,538,257
|
|
Net income attributable to common shareholders
|
$
|
37,820
|
|
|
$
|
57,379
|
|
|
$
|
114,710
|
|
|
$
|
154,282
|
|
Net income per share attributable to common shareholders - basic
|
$
|
0.22
|
|
|
$
|
0.33
|
|
|
$
|
0.66
|
|
|
$
|
0.89
|
|
Net income per share attributable to common shareholders - diluted
|
$
|
0.22
|
|
|
$
|
0.33
|
|
|
$
|
0.66
|
|
|
$
|
0.89
|
|
Weighted-average number of shares outstanding - basic
|
174,186,944
|
|
|
173,979,427
|
|
|
174,141,367
|
|
|
173,993,114
|
|
Weighted-average number of shares outstanding - diluted
|
174,244,252
|
|
|
174,194,556
|
|
|
174,223,424
|
|
|
174,217,857
|
|
3
.
Summary of Significant Accounting Policies
The Company's Annual Report on Form 10-K for the year ended
December 31, 2016
contains a discussion of the significant accounting policies. Other than noted below, there have been no other significant changes to the Company's significant accounting policies since
December 31, 2016
.
Basis of Presentation and Principles of Consolidation
The unaudited consolidated financial statements and related notes have been prepared on the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America ("GAAP") and in conformity with the rules and regulations of the Securities and Exchange Commission ("SEC") applicable to financial information. The unaudited financial statements include all adjustments that are necessary, in the opinion of management, to fairly state the
consolidated balance sheets, statements of operations and comprehensive income, statements of changes in equity and statements of cash flows.
The unaudited consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto as of and for the year ended
December 31, 2016
, included in the Company's Annual Report on Form 10-K filed with the SEC on February 23, 2017.
The consolidated financial statements include the accounts of the Company, the Operating Partnership and its wholly-owned subsidiaries, and joint ventures in which the Company has a majority voting interest and control. For the controlled subsidiaries that are not wholly-owned, the third-party ownership interest represents a noncontrolling interest, which is presented separately in the consolidated financial statements. The Company also records the real estate interests in
two
joint ventures in which it holds an indirect
50%
interest using the equity method of accounting. All intercompany balances and transactions have been eliminated in consolidation.
Reclassifications
Certain prior year amounts in these financial statements have been reclassified to conform to the current year presentation with no impact to net income, shareholders’ equity or cash flows.
Use of Estimates
The preparation of the Company’s financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of certain assets and liabilities and the amounts of contingent assets and liabilities at the balance sheet date and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Investment in Unconsolidated Joint Ventures
If the Company determines that it does not have a controlling financial interest in a joint venture, either through a controlling financial interest in a variable interest entity or through the Company's voting interest in a voting interest entity, but the Company exercises significant influence over the operating and financial policies of the joint venture, the Company accounts for the joint venture using the equity method of accounting. Under the equity method of accounting, the Company's investment is adjusted each reporting period to recognize the Company's share of the net earnings or losses of the joint venture.
The Company periodically reviews the carrying value of its investment in unconsolidated joint ventures to determine if any circumstances may indicate that the carrying value of the investment exceeds its fair value on an other-than-temporary basis. When an impairment indicator is present, the Company will estimate the fair value of the investment, which will be determined by using internally developed discounted cash flow models, third-party appraisals, or if appropriate, the net sales proceeds from pending offers. If the estimated fair value is less than the carrying value, and management determines that the decline in value is considered to be other-than-temporary, the Company will recognize an impairment loss on its investment in the joint venture.
Recently Issued Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2014-09,
Revenue from Contracts with Customers
, which supersedes or replaces nearly all GAAP revenue recognition guidance. The new guidance establishes a new control-based revenue recognition model that changes the basis for deciding when revenue is recognized over time or at a point in time and expands the disclosures about revenue. The new guidance also applies to sales of real estate and the new principles-based approach is largely based on the transfer of control of the real estate to the buyer. The guidance is effective for annual reporting periods beginning after December 15, 2017, and the interim periods within those annual periods, with early adoption permitted. The Company expects to adopt this new standard on January 1, 2018 using the modified retrospective transition method. Based on the Company's assessment, the adoption of this standard will not have a material impact on the Company's consolidated financial statements.
In February 2016, the FASB issued ASU 2016-02,
Leases (Topic 842)
. The new guidance will require lessees to recognize a right-of-use asset and a lease liability for most of their leases on the balance sheet, and an entity will need to classify its leases as either an operating or finance lease in order to determine the income statement presentation. Leases with a term of 12 months or less will be accounted for similar to the existing guidance today for operating leases. Lessors will classify their leases using an approach that is substantially equivalent to the existing guidance today for operating, direct financing, or sales-type leases. Lessors may only capitalize the incremental direct costs of leasing, so any indirect costs of leasing will be
expensed as incurred. The new guidance requires an entity to separate the lease components from the non-lease components in a contract, with the lease components being accounted for in accordance with ASC 842 and the non-lease components being accounted for in accordance with other applicable accounting guidance. The guidance is effective for annual reporting periods beginning after December 15, 2018, and the interim periods within those annual periods, with early adoption permitted. The Company expects to adopt this new standard on January 1, 2019. The Company has not yet completed its analysis on this new standard, but it believes the application of the new standard will result in the recording of a right-of-use asset and a lease liability on the consolidated balance sheet for each of its ground leases and equipment leases, which represent the majority of the Company's current operating lease payments. The Company does not expect the adoption of this standard will materially affect its consolidated statements of operations.
In August 2016, the FASB issued ASU 2016-15,
Statement of Cash Flows (Topic 230), Classification of Certain Cash Receipts and Cash Payments
. This new guidance is intended to reduce the diversity in practice in how certain transactions are classified in the statement of cash flows. In addition, in November 2016, the FASB issued ASU 2016-18,
Statement of Cash Flows (Topic 230), Restricted Cash.
This new guidance provides additional guidance related to transfers between cash and restricted cash and how entities present, in their statement of cash flows, the cash receipts and cash payments that directly affect the restricted cash accounts. Both of these ASUs will be effective for the annual reporting periods beginning after December 15, 2017, and the interim periods within those annual periods. Early adoption is permitted, provided that all of the amendments are adopted in the same period, and the guidance requires application using a retrospective transition method. The Company expects to adopt the new guidance on January 1, 2018. The adoption of ASU 2016-15 and ASU 2016-18 will modify the Company's current disclosures and classifications within the consolidated statement of cash flows, but such modifications are not expected to have a material impact on the Company's consolidated financial statements.
In January 2017, the FASB issued ASU 2017-01,
Business Combinations (Topic 805): Clarifying the Definition of a Business
. The new guidance clarifies the definition of a business with the objective of adding guidance to assist companies and other reporting organizations with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The changes to the definition of a business will likely result in more acquisitions being accounted for as asset acquisitions across all industries. The guidance is effective for annual reporting periods beginning after December 15, 2017, and the interim periods within those annual periods. The Company expects to adopt this new guidance on January 1, 2018. Based on the Company's assessment, the Company will evaluate each future acquisition (or disposal) to determine whether it will be considered to be an acquisition (or disposal) of assets or a business. The Company does not believe the accounting for each future acquisition (or disposal) of assets or a business will be materially different, therefore, the adoption of this guidance will not have a material impact on the Company's consolidated financial statements.
In February 2017, the FASB issued ASU 2017-05,
Other Income - Gains and Losses from the Derecognition of Nonfinancial Assets (Subtopic 610-20): Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets
. The new guidance clarifies that ASC 610-20 applies to the derecognition of nonfinancial assets, including real estate, and in substance nonfinancial assets, which are defined as assets or a group of assets for which substantially all of the fair value consists of nonfinancial assets and the group or subsidiary is not a business. As a result of the new guidance, sales and partial sales of real estate assets will be accounted for similar to all other sales of nonfinancial and in substance nonfinancial assets. The guidance is effective for annual reporting periods beginning after December 15, 2017, and the interim periods within those annual periods, with early adoption permitted. The Company expects to adopt this new guidance on January 1, 2018. Based on the Company's assessment, the adoption of this guidance will not have a material impact on the Company's consolidated financial statements.
4
.
Investment in Hotel Properties
Investment in hotel properties consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
September 30, 2017
|
|
December 31, 2016
|
Land and improvements
|
$
|
1,306,524
|
|
|
$
|
675,889
|
|
Buildings and improvements
|
5,004,884
|
|
|
3,050,043
|
|
Furniture, fixtures and equipment
|
736,135
|
|
|
595,816
|
|
|
7,047,543
|
|
|
4,321,748
|
|
Accumulated depreciation
|
(1,070,019
|
)
|
|
(953,972
|
)
|
Investment in hotel properties, net
|
$
|
5,977,524
|
|
|
$
|
3,367,776
|
|
For the
three and nine months ended September 30, 2017
, the Company recognized depreciation and amortization expense related to its investment in hotel properties of approximately
$44.1 million
and
$120.8 million
, respectively. For the
three and
nine months ended September 30, 2016
, the Company recognized depreciation and amortization expense related to its investment in hotel properties of approximately
$40.9 million
and
$122.3 million
, respectively.
Impairment
The Company determined that there was
no
impairment of any assets for either the
three and nine months ended September 30, 2017
or
2016
.
5
.
Investment in Unconsolidated Joint Ventures
As of September 30, 2017, the Company owned
50%
interests in joint ventures that owned
two
hotel properties. The Company also owned 50% interests in joint ventures that owned real estate and a condominium management business that are associated with two of our resort hotel properties. The Company accounts for the investments in these unconsolidated joint ventures under the equity method of accounting. The Company makes adjustments to the equity in income from unconsolidated joint ventures related to the difference between the Company's basis in the investment in the unconsolidated joint ventures as compared to the historical basis of the assets and liabilities of the joint ventures. As of September 30, 2017, the unconsolidated joint ventures' debt consisted entirely of non-recourse mortgage debt.
The following table summarizes the components of the Company's investments in unconsolidated joint ventures (in thousands):
|
|
|
|
|
|
September 30, 2017
|
Equity basis of the joint venture investments
|
$
|
930
|
|
Cost of the joint venture investments in excess of the joint venture book value
|
24,029
|
|
Investment in unconsolidated joint ventures
|
$
|
24,959
|
|
The following table summarizes the components of the Company's equity in income from unconsolidated joint ventures (in thousands):
|
|
|
|
|
|
For the one month ended September 30,
|
|
2017
|
Unconsolidated joint venture net income attributable to the Company
|
$
|
150
|
|
Depreciation of cost in excess of book value
|
(93
|
)
|
Equity in income from unconsolidated joint ventures
|
$
|
57
|
|
6
.
Sale of Hotel Properties
During the
nine months ended September 30, 2017
, the Company did not sell any hotel properties.
During the
nine months ended September 30, 2016
, the Company sold
one
hotel property for a sale price of approximately
$2.9 million
. In conjunction with this transaction, the Company recorded a
$0.2 million
loss on sale which is included in the accompanying consolidated statement of operations.
The following table discloses the hotel property that was sold during the
nine months ended September 30, 2016
:
|
|
|
|
|
|
|
|
|
Hotel Property Name
|
|
Location
|
|
Sale Date
|
|
Rooms
|
Holiday Inn Express Merrillville
|
|
Merrillville, IN
|
|
February 22, 2016
|
|
62
|
|
|
|
|
|
Total
|
|
62
|
|
Investment in Loan
In November 2009, the Company purchased a mortgage loan that was collateralized by one hotel property. The loan matured on September 6, 2017. At the date of maturity, the Company's investment in loan receivable balance was
$10.1 million
and the Company received
$12.8 million
in net proceeds from the debtor. Accordingly, the Company recognized a gain on settlement of investment in loan of approximately
$2.7 million
.
7
.
Debt
The Company's debt consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
September 30, 2017
|
|
December 31, 2016
|
Senior Notes
|
$
|
1,066,275
|
|
|
$
|
—
|
|
Revolver and Term Loans, net
|
1,170,540
|
|
|
1,169,308
|
|
Mortgage loans, net
|
648,924
|
|
|
413,407
|
|
Debt, net
|
$
|
2,885,739
|
|
|
$
|
1,582,715
|
|
Senior Notes
The Company's senior secured notes and the senior unsecured notes are collectively the "Senior Notes". The Company's Senior Notes consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding Borrowings at
|
|
|
Number of Assets Encumbered
|
|
Interest Rate
|
|
Maturity Date
|
|
September 30, 2017
|
|
December 31, 2016
|
Senior secured notes (1) (2) (3)
|
|
9
|
|
5.63%
|
|
March 2023
|
|
$
|
555,046
|
|
|
$
|
—
|
|
Senior unsecured notes (1) (2) (4)
|
|
—
|
|
6.00%
|
|
June 2025
|
|
511,229
|
|
|
—
|
|
Total Senior Notes
|
|
|
|
|
|
|
|
$
|
1,066,275
|
|
|
$
|
—
|
|
|
|
(1)
|
Requires payments of interest only through maturity.
|
|
|
(2)
|
Includes
$30.0 million
and
$36.2 million
at
September 30, 2017
related to fair value adjustments on the senior secured notes and the senior unsecured notes, respectively, that were assumed in the Mergers.
|
|
|
(3)
|
The Company has the option to redeem the senior secured notes beginning March 1, 2018 at a premium of
102.8%
.
|
|
|
(4)
|
The Company has the option to redeem the senior unsecured notes beginning June 1, 2020 at a premium of
103.0%
.
|
The Senior Notes are subject to customary financial covenants. As of
September 30, 2017
, the Company was in compliance with all financial covenants.
Revolver and Term Loans
The Company has the following unsecured credit agreements in place:
|
|
•
|
$600.0 million
revolving credit facility with a scheduled maturity date of April 22, 2020 with a
one
-year extension option if certain conditions are satisfied (the "Revolver");
|
|
|
•
|
$400.0 million
term loan with a scheduled maturity date of March 20, 2019 (the "$400 Million Term Loan Maturing 2019");
|
|
|
•
|
$225.0 million
term loan with a scheduled maturity date of November 20, 2019 (the "$225 Million Term Loan Maturing 2019");
|
|
|
•
|
$400.0 million
term loan with a scheduled maturity date of April 22, 2021 (the "$400 Million Term Loan Maturing 2021"); and
|
|
|
•
|
$150.0 million
term loan with a scheduled maturity date of January 22, 2022 (the "$150 Million Term Loan Maturing 2022").
|
The $400 Million Term Loan Maturing 2019, the $225 Million Term Loan Maturing 2019, the $400 Million Term Loan Maturing 2021, and the $150 Million Term Loan Maturing 2022 are collectively the "Term Loans". The Revolver and Term Loans are subject to customary financial covenants. As of
September 30, 2017
and
December 31, 2016
, the Company was in compliance with all financial covenants.
The Company's unsecured credit agreements consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding Borrowings at
|
|
|
Interest Rate at September 30, 2017 (1)
|
|
Maturity Date
|
|
September 30, 2017
|
|
December 31, 2016
|
Revolver (2)
|
|
2.73%
|
|
April 2020
|
|
$
|
—
|
|
|
$
|
—
|
|
$400 Million Term Loan Maturing 2019
|
|
2.72%
|
|
March 2019
|
|
400,000
|
|
|
400,000
|
|
$225 Million Term Loan Maturing 2019
|
|
4.04%
|
|
November 2019
|
|
225,000
|
|
|
225,000
|
|
$400 Million Term Loan Maturing 2021
|
|
3.00%
|
|
April 2021
|
|
400,000
|
|
|
400,000
|
|
$150 Million Term Loan Maturing 2022
|
|
3.43%
|
|
January 2022
|
|
150,000
|
|
|
150,000
|
|
|
|
|
|
|
|
1,175,000
|
|
|
1,175,000
|
|
Deferred financing costs, net (3)
|
|
|
|
|
|
(4,460
|
)
|
|
(5,692
|
)
|
Total Revolver and Term Loans, net
|
|
|
|
|
|
$
|
1,170,540
|
|
|
$
|
1,169,308
|
|
|
|
(1)
|
Interest rate at
September 30, 2017
gives effect to interest rate hedges.
|
|
|
(2)
|
At
September 30, 2017
and
December 31, 2016
, there was
$600.0 million
and
$400.0 million
, respectively, of borrowing capacity on the Revolver. On August 31, 2017, the Company amended the Revolver to increase the borrowing capacity from
$400.0 million
to
$600.0 million
. The Company has the ability to further increase the borrowing capacity to
$750.0 million
, subject to certain lender requirements.
|
|
|
(3)
|
Excludes
$2.7 million
and
$2.3 million
as of
September 30, 2017
and
December 31, 2016
, respectively, related to deferred financing costs on the Revolver, which are included in prepaid expense and other assets in the accompanying consolidated balance sheets.
|
Mortgage Loans
The Company's mortgage loans consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal balance at
|
Lender
|
|
Number of Assets Encumbered
|
|
Interest Rate at September 30, 2017 (1)
|
|
Maturity Date
|
|
|
|
September 30, 2017
|
|
December 31, 2016
|
Wells Fargo (5)
|
|
4
|
|
4.04%
|
|
March 2018
|
|
(3)
|
|
$
|
144,000
|
|
|
$
|
146,250
|
|
Wells Fargo (2)
|
|
4
|
|
4.03%
|
|
October 2018
|
|
(4)
|
|
150,000
|
|
|
150,000
|
|
PNC Bank (2) (6)
|
|
5
|
|
3.33%
|
|
March 2021
|
|
(7)
|
|
85,000
|
|
|
85,000
|
|
Wells Fargo (9)
|
|
1
|
|
5.25%
|
|
June 2022
|
|
|
|
33,078
|
|
|
33,666
|
|
PNC Bank/Wells Fargo (10)
|
|
4
|
|
4.95%
|
|
October 2022
|
|
|
|
121,614
|
|
|
—
|
|
Prudential (11)
|
|
1
|
|
4.94%
|
|
October 2022
|
|
|
|
30,504
|
|
|
—
|
|
Scotiabank (2) (8) (12)
|
|
1
|
|
LIBOR + 3.00%
|
|
December 2017
|
|
|
|
85,514
|
|
|
—
|
|
|
|
20
|
|
|
|
|
|
|
|
649,710
|
|
|
414,916
|
|
Deferred financing costs, net
|
|
|
|
|
|
|
|
|
|
(786
|
)
|
|
(1,509
|
)
|
Total mortgage loans, net
|
|
|
|
|
|
|
|
|
|
$
|
648,924
|
|
|
$
|
413,407
|
|
|
|
(1)
|
Interest rate at
September 30, 2017
gives effect to interest rate hedges.
|
|
|
(2)
|
Requires payments of interest only through maturity.
|
|
|
(3)
|
The maturity date may be extended for
four
one
-year terms at the Company’s option, subject to certain lender requirements.
|
|
|
(4)
|
In October 2017, the Company extended the maturity date for a one-year term. The maturity date may be extended for
three
additional
one
-year terms at the Company's option, subject to certain lender requirements.
|
|
|
(5)
|
Two
of the four hotels encumbered by the Wells Fargo loan are cross-collateralized.
|
|
|
(6)
|
The
five
hotels encumbered by the PNC Bank loan are cross-collateralized.
|
|
|
(7)
|
The maturity date may be extended for
two
one
-year terms at the Company’s option, subject to certain lender requirements.
|
|
|
(8)
|
This mortgage loan can be extended for one year, subject to certain lender requirements.
|
|
|
(9)
|
Includes
$0.9 million
and
$1.0 million
at
September 30, 2017
and
December 31, 2016
, respectively, related to a fair value adjustment on mortgage debt assumed in conjunction with an acquisition.
|
|
|
(10)
|
Includes
$3.2 million
at September 30, 2017 related to fair value adjustments on the mortgage loans that were assumed in the Mergers.
|
|
|
(11)
|
Includes
$0.8 million
at September 30, 2017 related to a fair value adjustment on the mortgage loan that was assumed in the Mergers.
|
|
|
(12)
|
Includes
$0.5 million
at September 30, 2017 related to a fair value adjustment on the mortgage loan that was assumed in the Mergers.
|
Certain mortgage agreements are subject to customary financial covenants. The Company was in compliance with all financial covenants at
September 30, 2017
and
December 31, 2016
.
Interest Expense
The components of the Company's interest expense consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended September 30,
|
|
For the nine months ended September 30,
|
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Senior Notes
|
|
$
|
3,980
|
|
|
$
|
—
|
|
|
$
|
3,980
|
|
|
$
|
—
|
|
Revolver and Term Loans
|
|
9,834
|
|
|
9,662
|
|
|
28,981
|
|
|
29,138
|
|
Mortgage loans
|
|
4,943
|
|
|
4,009
|
|
|
12,969
|
|
|
11,992
|
|
Amortization of deferred financing costs
|
|
893
|
|
|
881
|
|
|
2,597
|
|
|
3,103
|
|
Total interest expense
|
|
$
|
19,650
|
|
|
$
|
14,552
|
|
|
$
|
48,527
|
|
|
$
|
44,233
|
|
8
.
Derivatives and Hedging
The Company's interest rate swaps consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notional value at
|
|
Fair value at
|
Hedge type
|
|
Interest rate
|
|
Maturity
|
|
September 30, 2017
|
|
December 31, 2016
|
|
September 30, 2017
|
|
December 31, 2016
|
Swap-cash flow
|
|
1.12%
|
|
November 2017
|
|
$
|
275,000
|
|
|
$
|
275,000
|
|
|
$
|
75
|
|
|
$
|
(558
|
)
|
Swap-cash flow
|
|
1.56%
|
|
March 2018
|
|
175,000
|
|
|
175,000
|
|
|
(223
|
)
|
|
(1,251
|
)
|
Swap-cash flow
|
|
1.64%
|
|
March 2018
|
|
175,000
|
|
|
175,000
|
|
|
(288
|
)
|
|
(1,413
|
)
|
Swap-cash flow
|
|
1.83%
|
|
September 2018
|
|
15,840
|
|
|
16,088
|
|
|
(65
|
)
|
|
(193
|
)
|
Swap-cash flow
|
|
1.75%
|
|
September 2018
|
|
15,840
|
|
|
16,088
|
|
|
(53
|
)
|
|
(172
|
)
|
Swap-cash flow
|
|
1.83%
|
|
September 2018
|
|
38,880
|
|
|
39,488
|
|
|
(160
|
)
|
|
(474
|
)
|
Swap-cash flow
|
|
1.75%
|
|
September 2018
|
|
39,840
|
|
|
40,462
|
|
|
(134
|
)
|
|
(433
|
)
|
Swap-cash flow
|
|
1.83%
|
|
September 2018
|
|
17,280
|
|
|
17,550
|
|
|
(71
|
)
|
|
(211
|
)
|
Swap-cash flow
|
|
1.75%
|
|
September 2018
|
|
16,320
|
|
|
16,575
|
|
|
(55
|
)
|
|
(177
|
)
|
Swap-cash flow
|
|
2.02%
|
|
March 2019
|
|
125,000
|
|
|
125,000
|
|
|
(945
|
)
|
|
(2,090
|
)
|
Swap-cash flow
|
|
1.94%
|
|
March 2019
|
|
100,000
|
|
|
100,000
|
|
|
(644
|
)
|
|
(1,505
|
)
|
Swap-cash flow
|
|
1.27%
|
|
March 2019
|
|
125,000
|
|
|
125,000
|
|
|
493
|
|
|
54
|
|
Swap-cash flow (1)
|
|
1.96%
|
|
March 2019
|
|
100,000
|
|
|
100,000
|
|
|
(517
|
)
|
|
(516
|
)
|
Swap-cash flow (1)
|
|
1.85%
|
|
March 2019
|
|
50,000
|
|
|
50,000
|
|
|
(184
|
)
|
|
(184
|
)
|
Swap-cash flow (1)
|
|
1.81%
|
|
March 2019
|
|
50,000
|
|
|
50,000
|
|
|
(159
|
)
|
|
(159
|
)
|
Swap-cash flow (1)
|
|
1.74%
|
|
March 2019
|
|
25,000
|
|
|
25,000
|
|
|
(57
|
)
|
|
(57
|
)
|
Swap-cash flow (2)
|
|
1.80%
|
|
September 2020
|
|
33,000
|
|
|
33,000
|
|
|
28
|
|
|
111
|
|
Swap-cash flow (2)
|
|
1.80%
|
|
September 2020
|
|
82,000
|
|
|
82,000
|
|
|
70
|
|
|
277
|
|
Swap-cash flow (2)
|
|
1.80%
|
|
September 2020
|
|
35,000
|
|
|
35,000
|
|
|
30
|
|
|
118
|
|
Swap-cash flow
|
|
1.81%
|
|
October 2020
|
|
143,000
|
|
|
143,000
|
|
|
(425
|
)
|
|
(1,113
|
)
|
Swap-cash flow (3)
|
|
1.15%
|
|
April 2021
|
|
100,000
|
|
|
100,000
|
|
|
2,097
|
|
|
2,513
|
|
Swap-cash flow (3)
|
|
1.20%
|
|
April 2021
|
|
100,000
|
|
|
100,000
|
|
|
1,943
|
|
|
2,360
|
|
Swap-cash flow (3)
|
|
2.15%
|
|
April 2021
|
|
75,000
|
|
|
75,000
|
|
|
(735
|
)
|
|
(410
|
)
|
Swap-cash flow (3)
|
|
1.91%
|
|
April 2021
|
|
75,000
|
|
|
—
|
|
|
(176
|
)
|
|
—
|
|
Swap-cash flow
|
|
1.61%
|
|
June 2021
|
|
50,000
|
|
|
50,000
|
|
|
303
|
|
|
224
|
|
Swap-cash flow
|
|
1.56%
|
|
June 2021
|
|
50,000
|
|
|
50,000
|
|
|
410
|
|
|
352
|
|
Swap-cash flow
|
|
1.71%
|
|
June 2021
|
|
50,000
|
|
|
50,000
|
|
|
119
|
|
|
5
|
|
|
|
|
|
|
|
$
|
2,137,000
|
|
|
$
|
2,064,251
|
|
|
$
|
677
|
|
|
$
|
(4,902
|
)
|
|
|
(1)
|
Effective between the maturity of the existing swap in November 2017 and the maturity of the debt in March 2019.
|
|
|
(2)
|
Effective between the maturity of the existing swaps in September 2018 and September 2020.
|
|
|
(3)
|
Effective between the maturity of the existing swaps in March 2018 and the maturity of the debt in April 2021.
|
As of
September 30, 2017
and
December 31, 2016
, the aggregate fair value of the interest rate swap assets of
$5.6 million
and
$6.0 million
, respectively, was included in prepaid expense and other assets in the accompanying consolidated balance sheets. As of
September 30, 2017
and
December 31, 2016
, the aggregate fair value of the interest rate swap liabilities of
$4.9 million
and
$10.9 million
, respectively, was included in accounts payable and other liabilities in the accompanying consolidated balance sheets.
As of
September 30, 2017
, there was approximately
$0.7 million
of unrealized
gains
included in accumulated other comprehensive income related to interest rate hedges that are effective in offsetting the variable cash flows. As of
December 31, 2016
, there was approximately
$4.9 million
of unrealized
losses
included in accumulated other comprehensive loss related to interest rate hedges that are effective in offsetting the variable cash flows. There was
no
ineffectiveness recorded on the designated hedges during the
three and nine month periods ended September 30, 2017 and 2016
. For the
three and nine months ended September 30, 2017
, approximately
$1.3 million
and
$6.2 million
, respectively, of amounts included in
accumulated other comprehensive loss were reclassified into interest expense. For the
three and nine months ended September 30, 2016
, approximately
$4.0 million
and
$12.3 million
, respectively, of amounts included in accumulated other comprehensive loss were reclassified into interest expense. Approximately
$3.6 million
of the unrealized losses included in accumulated other comprehensive income (loss) at
September 30, 2017
is expected to be reclassified into interest expense within the next 12 months.
9
.
Fair Value
Fair Value Measurement
Fair value is defined as the price that would be received upon the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date in the principal or most advantageous market. The fair value hierarchy has three levels of inputs, both observable and unobservable:
|
|
•
|
Level 1 — Inputs include quoted market prices in an active market for identical assets or liabilities.
|
|
|
•
|
Level 2 — Inputs are market data, other than Level 1, that are observable either directly or indirectly. Level 2 inputs include quoted market prices for similar assets or liabilities, quoted market prices in an inactive market, and other observable information that can be corroborated by market data.
|
|
|
•
|
Level 3 — Inputs are unobservable and corroborated by little or no market data.
|
Fair Value of Financial Instruments
The Company used the following market assumptions and/or estimation methods:
|
|
•
|
Cash and cash equivalents, restricted cash reserves, hotel and other receivables, accounts payable and other liabilities — The carrying amounts reported in the consolidated balance sheets for these financial instruments approximate fair value because of their short term maturities.
|
|
|
•
|
Debt — The Company estimated the fair value of the Senior Notes by using publicly available trading prices, market interest rates, and spreads for the Senior Notes, which are Level 2 and Level 3 inputs in the fair value hierarchy. The Company estimated the fair value of the Revolver and Term Loans by using a discounted cash flow model and incorporating various inputs and assumptions for the effective borrowing rates for debt with similar terms, which are Level 3 inputs in the fair value hierarchy. The Company estimated the fair value of the mortgage loans using a discounted cash flow model and incorporating various inputs and assumptions for the effective borrowing rates for debt with similar terms and the loan to estimated fair value of the collateral, which are Level 3 inputs in the fair value hierarchy.
|
The fair value of the Company's debt was as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2017
|
|
December 31, 2016
|
|
Carrying Value
|
|
Fair Value
|
|
Carrying Value
|
|
Fair Value
|
Senior Notes
|
$
|
1,066,275
|
|
|
$
|
1,053,797
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Revolver and Term Loans, net
|
1,170,540
|
|
|
1,175,739
|
|
|
1,169,308
|
|
|
1,176,798
|
|
Mortgage loans, net
|
648,924
|
|
|
641,707
|
|
|
413,407
|
|
|
402,134
|
|
Debt, net
|
$
|
2,885,739
|
|
|
$
|
2,871,243
|
|
|
$
|
1,582,715
|
|
|
$
|
1,578,932
|
|
Recurring Fair Value Measurements
The following table presents the Company’s fair value hierarchy for those financial assets and liabilities measured at fair value on a recurring basis as of
September 30, 2017
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value at September 30, 2017
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
Interest rate swap asset
|
$
|
—
|
|
|
$
|
5,569
|
|
|
$
|
—
|
|
|
$
|
5,569
|
|
Interest rate swap liability
|
—
|
|
|
(4,892
|
)
|
|
—
|
|
|
(4,892
|
)
|
Total
|
$
|
—
|
|
|
$
|
677
|
|
|
$
|
—
|
|
|
$
|
677
|
|
The following table presents the Company’s fair value hierarchy for those financial assets and liabilities measured at fair value on a recurring basis as of
December 31, 2016
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value at December 31, 2016
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
Interest rate swap asset
|
$
|
—
|
|
|
$
|
6,014
|
|
|
$
|
—
|
|
|
$
|
6,014
|
|
Interest rate swap liability
|
—
|
|
|
(10,916
|
)
|
|
—
|
|
|
(10,916
|
)
|
Total
|
$
|
—
|
|
|
$
|
(4,902
|
)
|
|
$
|
—
|
|
|
$
|
(4,902
|
)
|
The fair values of the derivative financial instruments are determined using widely accepted valuation techniques including a discounted cash flow analysis on the expected cash flows for each derivative. The Company determined that the significant inputs, such as interest yield curves and discount rates, used to value its derivatives fall within Level 2 of the fair value hierarchy and that the credit valuation adjustments associated with the Company’s counterparties and its own credit risk utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by itself and its counterparties. As of
September 30, 2017
, the Company assessed the significance of the impact of the credit valuation adjustments on the overall valuation of its derivative positions and determined that the credit valuation adjustments were not significant to the overall valuation of its derivatives. As a result, the Company determined that its derivative valuations in their entirety are classified in Level 2 of the fair value hierarchy.
10
.
Income Taxes
The Company has elected to be taxed as a REIT under Sections 856 through 860 of the Internal Revenue Code of 1986, as amended (the "Code"), commencing with its taxable year ended December 31, 2011. To qualify as a REIT, the Company must meet a number of organizational and operational requirements, including a requirement that it distribute at least
90%
of its REIT taxable income, subject to certain adjustments and excluding any net capital gain, to shareholders. The Company’s intention is to adhere to the REIT qualification requirements and to maintain its qualification for taxation as a REIT. As a REIT, the Company is generally not subject to federal corporate income tax on the portion of taxable income that is distributed to shareholders. If the Company fails to qualify for taxation as a REIT in any taxable year, the Company will be subject to U.S. federal income taxes at regular corporate rates (including any applicable alternative minimum tax) and it may not be able to qualify as a REIT for four subsequent taxable years. As a REIT, the Company may be subject to certain state and local taxes on its income and property, and to federal income and excise taxes on undistributed taxable income. The Company’s taxable REIT subsidiaries ("TRS") will generally be subject to U.S. federal, state, and local income taxes at the applicable rates.
The Company accounts for income taxes using the asset and liability method. Under this method, deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to the differences between the financial statement carrying amounts of existing assets and liabilities and their respective income tax bases, and for net operating loss, capital loss and tax credit carryforwards. The deferred tax assets and liabilities are measured using the enacted income tax rates in effect for the year in which those temporary differences are expected to be realized or settled. The effect on the deferred tax assets and liabilities from a change in tax rates is recognized in earnings in the period when the new rate is enacted. However, deferred tax assets are recognized only to the extent that it is more likely than not that they will be realized based on consideration of all available evidence, including the future reversals of existing taxable temporary differences, future projected taxable income and tax planning strategies. 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.
The Company had
no
accruals for tax uncertainties as of
September 30, 2017
and
December 31, 2016
.
11
.
Commitments and Contingencies
Restricted Cash Reserves
The Company is obligated to maintain cash reserve funds for future capital expenditures at the hotels (including the periodic replacement or refurbishment of furniture, fixtures and equipment ("FF&E")) as determined pursuant to the management agreements, franchise agreements and/or mortgage loan documents. The management agreements, franchise agreements and/or mortgage loan documents require the Company to reserve cash ranging typically from
3.0%
to
5.0%
of the individual hotel’s revenues and maintain the reserves in restricted cash reserve escrows. Any unexpended amounts will remain the property of the Company upon termination of the management agreements, franchise agreements or mortgage loan documents. As of
September 30, 2017
and
December 31, 2016
, approximately
$78.3 million
and
$67.2 million
, respectively, was available in the restricted cash reserves for future capital expenditures, real estate taxes and insurance.
Litigation
Other than the legal proceedings mentioned below, neither the Company nor any of its subsidiaries is currently involved in any regulatory or legal proceedings that management believes will have a material and adverse effect on the Company's financial position, results of operations or cash flows.
Shareholder Litigation
The Company and several affiliated entities were named as defendants in four putative shareholder class action lawsuits filed in connection with RLJ's merger with FelCor. The first case,
Assad v. FelCor Lodging Trust, Inc. et al.
, Case No. 1:17-cv-01744 (D. Md.) (the “Assad Lawsuit”), named as defendants the Company and certain affiliated entities, as well as FelCor, its former directors, and FelCor LP. The Assad Lawsuit was filed on June 26, 2017 in the United States District Court for the District of Maryland (the "Maryland Court"). The second case,
Bagheri v. FelCor Lodging Trust, Inc., et al.
, Case No. 3:17-cv-01892 (the “Bagheri Lawsuit”), named as defendants the Company and certain affiliated entities, as well as FelCor, its former directors, and FelCor LP. The Bagheri Lawsuit was filed on July 17, 2017 in the United States District Court for the Northern District of Texas but was subsequently transferred to the Maryland Court. The third case,
Johnson v. FelCor Lodging Trust Inc., et al.,
Case No. 1:17-cv-01786 (D. Md.) (the "Johnson Lawsuit"), named as defendants FelCor and its former directors. The Johnson Lawsuit was filed on June 28, 2017 in the Maryland Court. The fourth case,
Sachs Investment Group v. FelCor Lodging Trust Inc., et al.,
Case No. 1:17-cv-01933 (D. Md.) (the "Sachs Lawsuit"), named as defendants FelCor and its former directors. The Sachs Lawsuit was filed on July 11, 2017 in the Maryland Court. Each of the lawsuits allege violations of the Securities and Exchange Act of 1934 (the “Exchange Act”) arising in connection with the filing of the Company's Registration Statement on Form S-4 (the "Registration Statement") that was filed in connection with the Company's merger with FelCor. The plaintiffs in the lawsuits sought, among other things, damages, rescission of the Mergers, changes to the Registration Statement, an award of attorney's fees, and declaratory relief stating that the defendants violated the Exchange Act.
On July 21, 2017, the plaintiff in the Johnson Lawsuit filed a motion for preliminary injunction seeking to enjoin the Mergers. On August 8, 2017, however, the plaintiff withdrew that motion and represented that certain supplemental disclosures made by FelCor had addressed the basis for its preliminary injunction request.
On August 10, 2017, an order was entered consolidating the three original Maryland cases under the caption
In Re FelCor Lodging Securities Litig
., Case No. 1:17-cv-1786 (the "Consolidated Action"). The Assad Lawsuit was designated as the lead case for the Consolidated Action. On September 28, 2017, the Bagheri Lawsuit was also consolidated into the Consolidated Action.
On August 11, 2017, the Maryland Court entered an order regarding the selection of a Lead Plaintiff for the Consolidated Action. No stockholder moved for appointment and no Lead Plaintiff was appointed by the Court.
On October 26, 2017, the plaintiff and defendants in the Bagheri Lawsuit filed a stipulation of voluntary dismissal without prejudice. The Maryland Court entered an order dismissing the lawsuit that same day, and ordered the clerk to close the case.
On November 2, 2017, the plaintiffs in the Assad, Johnson, and Sachs lawsuits filed a notice of voluntary dismissal without prejudice. The Maryland Court entered an order dismissing the lawsuit that same day.
Pension Trust Litigation
Prior to the Mergers, on March 24, 2016, an affiliate of InterContinental Hotels Group PLC ("IHG"), which was previously the hotel management company for three of FelCor's hotels (two of which were sold in 2006, and one of which was converted by FelCor into a Wyndham brand and operation in 2013), notified FelCor that the National Retirement Fund in which the employees at those hotels had participated had assessed a withdrawal liability of
$8.3 million
, with required quarterly payments including interest, in connection with the termination of IHG’s operation of those hotels. FelCor's hotel management agreements with IHG stated that it may be obligated to indemnify and hold IHG harmless for some or all of any amount ultimately contributed to the pension trust fund with respect to those hotels.
Based on the current assessment of the claim, the resolution of this matter may not occur until 2022.
As of September 30, 2017, the Company had accrued approximately
$5.7 million
for the future quarterly payments to the pension trust fund.
The Company plans to vigorously defend the underlying claims and, if appropriate, IHG’s demand for indemnification.
Management Agreements
As of
September 30, 2017
,
158
of the Company's hotel properties were operated pursuant to long-term management agreements with initial terms ranging from
3
to
25
years. This number includes certain hotel properties that receive the benefits of a franchise agreement pursuant to management agreements with Hilton (nineteen hotels), Hyatt (ten hotels), Marriott (eight hotels), Wyndham (eight hotels), and other hotel brands (two hotels). Each management company receives a base management fee generally between
3.0%
and
3.5%
of hotel revenues. Management agreements that include the benefits of a franchise agreement incur a base management fee generally between
2.0%
and
7.0%
of hotel revenues. The management companies are also eligible to receive an incentive management fee if hotel operating income, as defined in the management agreements, exceeds certain thresholds. The incentive management fee is generally calculated as a percentage of hotel operating income after the Company has received a priority return on its investment in the hotel. Management fees are included in management and franchise fee expense in the accompanying consolidated statements of operations. For the
three and nine months ended September 30, 2017
, the Company incurred management fee expense, including amortization of deferred management fees, of approximately
$10.9 million
and
$32.5 million
, respectively. For the
three and nine months ended September 30, 2016
, the Company incurred management fee expense, including amortization of deferred management fees, of approximately
$10.6 million
and
$34.2 million
, respectively.
The Wyndham management agreements guarantee minimum levels of annual net operating income at each of the Wyndham-managed hotels for each year of the initial 10-year term to 2023, subject to an aggregate
$100 million
limit over the term and an annual
$21.5 million
limit. During the one month ended September 30, 2017, the Company recorded
$1.2 million
for the pro-rata portion of the projected aggregate full-year guaranties. The Company recognized this amount as a reduction of Wyndham's contractual management and other fees.
Franchise Agreements
As of
September 30, 2017
,
110
of the Company’s hotel properties were operated under franchise agreements with initial terms ranging from
10
to
30
years. This number excludes certain hotel properties that receive the benefits of a franchise agreement pursuant to management agreements with Hilton (nineteen hotels), Hyatt (ten hotels), Marriott (eight hotels), Wyndham (eight hotels), and other hotel brands (two hotels), respectively. In addition, The Knickerbocker is not operated with a hotel brand so the hotel does not have a franchise agreement. Franchise agreements allow the hotel properties to operate under the respective brands. Pursuant to the franchise agreements, the Company pays a royalty fee, generally between
4.0%
and
6.0%
of room revenue, plus additional fees for marketing, central reservation systems and other franchisor costs generally between
1.0%
and
4.3%
of room revenue. Certain hotels are also charged a royalty fee of generally
3.0%
of food and beverage revenues. Franchise fees are included in management and franchise fee expense in the accompanying consolidated statements of operations. For the
three and nine months ended September 30, 2017
, the Company incurred franchise fee expense of approximately
$18.6 million
and
$53.6 million
, respectively. For the
three and nine months ended September 30, 2016
, the Company incurred franchise fee expense of approximately
$19.0 million
and
$56.6 million
, respectively.
12
.
Equity
Common Shares of Beneficial Interest
In 2015, the Company's board of trustees authorized a share repurchase program to acquire up to
$400.0 million
of the Common Shares through December 31, 2016. On February 17, 2017, the Company's board of trustees extended the duration of the share repurchase program to February 28, 2018 and increased the authorized amount that may be repurchased by
$40.0 million
to a total of
$440.0 million
. During the
nine months ended September 30, 2017
, the Company repurchased and retired
122,508
Common Shares for approximately
$2.6 million
. As of
September 30, 2017
, the share repurchase program had a remaining capacity of
$198.9 million
. During the
nine months ended September 30, 2016
, the Company repurchased and retired
610,607
Common Shares for approximately
$13.3 million
.
As a result of the REIT Merger, the Company issued
50.4 million
Common Shares at a price of
$20.18
per share to former FelCor common stockholders as consideration in the REIT Merger.
Series A Preferred Shares
On August 31, 2017, the Company designated and authorized the issuance of up to
12,950,000
$1.95
Series A Preferred Shares. The Company issued
12,879,475
Series A Preferred Shares, at a price of
$28.49
per share, to former FelCor preferred stockholders as consideration in the REIT Merger. The holders of the Series A Preferred Shares are entitled to receive dividends that are payable in cash in an amount equal to the greater of (i)
$1.95
per annum or (ii) the cash distributions declared or paid for the corresponding period on the number of Common Shares into which a Series A Preferred Share is then convertible.
Noncontrolling Interest
The Company consolidates the Operating Partnership, which is a majority-owned limited partnership that has a noncontrolling interest. The outstanding OP Units held by the limited partners are redeemable for cash, or at the option of the Company, for a like number of Common Shares. As a result of the Partnership Merger, the Operating Partnership issued
215,152
OP units at a price of
$20.18
per unit, to former FelCor LP limited partners as consideration in the Partnership Merger. As of September 30, 2017,
773,902
outstanding OP Units are held by the limited partners. During the
nine months ended September 30, 2016
, the Company issued
335,250
Common Shares in exchange for redeemed OP Units. The noncontrolling interest is included in the noncontrolling interest in the Operating Partnership on the consolidated balance sheets.
Consolidated Joint Venture Preferred Equity
The Company's joint venture that redeveloped The Knickerbocker raised
$45.0 million
(
$44.4 million
net of issuance costs) through the sale of redeemable preferred equity under the EB-5 Immigrant Investor Program. The purchasers receive a
3.25%
current annual return (which increases to
8%
if the Company does not redeem the equity interest before the fifth anniversary of the respective equity issuance), plus a
0.25%
non-compounding annual return payable at redemption. The preferred equity raised by the joint venture is included in preferred equity in a consolidated joint venture on the consolidated balance sheets.
13
.
Equity Incentive Plan
The Company may issue share-based awards to officers, employees, non-employee trustees and other eligible persons under the RLJ Lodging Trust 2015 Equity Incentive Plan (the "2015 Plan"). The 2015 Plan provides for a maximum of
7,500,000
Common Shares to be issued in the form of share options, share appreciation rights, restricted share awards, unrestricted share awards, share units, dividend equivalent rights, long-term incentive units, other equity-based awards and cash bonus awards.
Share Awards
From time to time, the Company may award unvested restricted shares under the 2015 Plan as compensation to officers, employees and non-employee trustees. The issued shares vest over a period of time as determined by the board of trustees at the date of grant. The Company recognizes compensation expense for time-based unvested restricted shares on a straight-line basis over the vesting period based upon the fair market value of the shares on the date of issuance, adjusted for forfeitures.
Non-employee trustees may also elect to receive unrestricted shares under the 2015 Plan as compensation that would otherwise be paid in cash for their services. The shares issued to non-employee trustees in lieu of cash compensation are unrestricted and include no vesting conditions. The Company recognizes compensation expense for the unrestricted shares issued in lieu of cash compensation on the date of issuance based upon the fair market value of the shares on that date.
A summary of the unvested restricted shares as of
September 30, 2017
is as follows:
|
|
|
|
|
|
|
|
|
2017
|
|
Number of
Shares
|
|
Weighted-Average
Grant Date Fair
Value
|
Unvested at January 1,
|
649,447
|
|
|
$
|
23.00
|
|
Granted
|
425,076
|
|
|
23.15
|
|
Vested
|
(271,551
|
)
|
|
23.67
|
|
Forfeited
|
(5,866
|
)
|
|
23.27
|
|
Unvested at September 30,
|
797,106
|
|
|
$
|
22.86
|
|
For the
three and nine months ended September 30, 2017
, the Company recognized approximately
$2.0 million
and
$6.7 million
, respectively, of share-based compensation expense related to restricted share awards. For the
three and nine months ended September 30, 2016
, the Company recognized approximately
$1.6 million
and
$5.0 million
, respectively, of share-based compensation expense related to restricted share awards, which includes a benefit of
$0.5 million
as a result of the forfeiture of unvested restricted shares upon the resignation of the Company's President and Chief Executive Officer in May 2016. As of
September 30, 2017
, there was
$16.6 million
of total unrecognized compensation costs related to unvested restricted share awards and these costs are expected to be recognized over a weighted-average period of
2.5
years. The total fair value of the shares vested (calculated as the number of shares multiplied by the vesting date share price) during the
nine months ended September 30, 2017
and
2016
was approximately
$5.7 million
and
$4.5 million
, respectively.
Performance Units
In July 2012, the Company awarded performance units to certain employees. The performance units vested over a
four
-year period, including
three years
of performance-based vesting (the "2012 performance units measurement period") plus an additional
one year
of time-based vesting. In July 2015, following the end of the 2012 performance units measurement period, the Company issued
838,934
restricted shares upon conversion of the performance units. Half of the restricted shares vested immediately and the remaining half vested in July 2016. In May 2016,
133,467
unvested restricted shares related to the conversion of the performance units were forfeited upon the resignation of the Company's President and Chief Executive Officer.
In May 2016, the Company awarded
280,000
performance units with a grant date fair value of
$10.31
per unit to certain employees. The performance units vest over a
four
-year period, including
three years
of performance-based vesting plus an additional
one year
of time-based vesting.
In February 2017, the Company awarded
259,000
performance units with a grant date fair value of
$14.93
per unit to certain employees. The performance units vest over a
four
-year period, including
three years
of performance-based vesting (the “2017 performance units measurement period”) plus an additional
one year
of time-based vesting. These performance units may convert into restricted shares at a range of
25%
to
150%
of the number of performance units granted contingent upon the Company achieving an absolute total shareholder return and a relative total shareholder return over the measurement period at specified percentiles of the peer group, as defined by the award. If at the end of the 2017 performance units measurement period the target criterion is met, then
50%
of the restricted shares will vest immediately. The remaining
50%
will vest one year later. The award recipients will not be entitled to receive any dividends prior to the date of conversion. For any restricted shares issued upon conversion, the award recipient will be entitled to receive payment of an amount equal to all dividends that would have been paid if such restricted shares had been issued at the beginning of the 2017 performance units measurement period. The fair value of the performance units is determined using a Monte Carlo simulation with the following assumptions: a risk-free interest rate of
1.57%
, volatility of
25.73%
, and an expected term equal to the requisite service period for the awards. The Company estimated the compensation expense for the performance units on a straight line basis using a calculation that recognizes
50%
of the grant date fair value over
three years
and
50%
of the grant date fair value over
four years
.
For the
three and nine months ended September 30, 2017
, the Company recognized approximately
$0.5 million
and
$1.3 million
, respectively, of share-based compensation expense related to the performance unit awards. For the
three and nine months ended September 30, 2016
, the Company recognized share-based compensation expense of
$0.3 million
and a share-based compensation benefit of
$1.1 million
, respectively, related to the performance unit awards, which includes a benefit of
$2.3 million
for the nine months ended September 30, 2016 as a result of the forfeiture of unvested restricted shares related to the conversion of the performance units upon the resignation of the Company's President and Chief Executive Officer in May
2016. As of
September 30, 2017
, there was
$4.8 million
of total unrecognized compensation cost related to the performance unit awards and these costs are expected to be recognized over a weighted-average period of
2.7
years.
As of
September 30, 2017
, there were
3,455,332
Common Shares available for future grant under the 2015 Plan.
14
.
Earnings per Common Share
Basic earnings per Common Share is calculated by dividing net income attributable to common shareholders by the weighted-average number of Common Shares outstanding during the period excluding the weighted-average number of unvested restricted shares outstanding during the period. Diluted earnings per Common Share is calculated by dividing net income attributable to common shareholders by the weighted-average number of Common Shares outstanding during the period, plus any shares that could potentially be outstanding during the period. The potential shares consist of the unvested restricted share grants and unvested performance units, calculated using the treasury stock method. Any anti-dilutive shares have been excluded from the diluted earnings per share calculation.
Unvested share-based payment awards that contain non-forfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are participating shares and are considered in the computation of earnings per share pursuant to the two-class method. If there were any undistributed earnings allocable to the participating shares, they would be deducted from net income attributable to common shareholders used in the basic and diluted earnings per share calculations.
The limited partners’ outstanding OP Units (which may be redeemed for Common Shares under certain circumstances) have been excluded from the diluted earnings per share calculation as there was no effect on the amounts for the
three and nine months ended September 30, 2017
and
2016
, since the limited partners’ share of income would also be added back to net income attributable to common shareholders.
The computation of basic and diluted earnings per Common Share is as follows (in thousands, except share and per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended September 30,
|
|
For the nine months ended September 30,
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Numerator:
|
|
|
|
|
|
|
|
Net income attributable to RLJ
|
$
|
3,914
|
|
|
$
|
41,174
|
|
|
$
|
67,918
|
|
|
$
|
124,918
|
|
Less: Preferred dividends
|
(2,093
|
)
|
|
—
|
|
|
(2,093
|
)
|
|
—
|
|
Less: Dividends paid on unvested restricted shares
|
(243
|
)
|
|
(204
|
)
|
|
(798
|
)
|
|
(891
|
)
|
Less: Undistributed earnings attributable to unvested restricted shares
|
—
|
|
|
(1
|
)
|
|
—
|
|
|
(8
|
)
|
Net income attributable to common shareholders excluding amounts attributable to unvested restricted shares
|
$
|
1,578
|
|
|
$
|
40,969
|
|
|
$
|
65,027
|
|
|
$
|
124,019
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
Weighted-average number of Common Shares - basic
|
140,249,961
|
|
|
123,621,323
|
|
|
129,317,120
|
|
|
123,635,010
|
|
Unvested restricted shares
|
57,308
|
|
|
194,210
|
|
|
82,057
|
|
|
224,743
|
|
Unvested performance units
|
—
|
|
|
20,919
|
|
|
—
|
|
|
—
|
|
Weighted-average number of Common Shares - diluted
|
140,307,269
|
|
|
123,836,452
|
|
|
129,399,177
|
|
|
123,859,753
|
|
|
|
|
|
|
|
|
|
Net income per share attributable to common shareholders - basic
|
$
|
0.01
|
|
|
$
|
0.33
|
|
|
$
|
0.50
|
|
|
$
|
1.00
|
|
|
|
|
|
|
|
|
|
Net income per share attributable to common shareholders - diluted
|
$
|
0.01
|
|
|
$
|
0.33
|
|
|
$
|
0.50
|
|
|
$
|
1.00
|
|
15
.
Supplemental Information to Statements of Cash Flows (in thousands)
|
|
|
|
|
|
|
|
|
|
For the nine months ended September 30,
|
|
2017
|
|
2016
|
Interest paid
|
$
|
34,170
|
|
|
$
|
42,807
|
|
|
|
|
|
Income taxes paid
|
$
|
1,107
|
|
|
$
|
1,560
|
|
|
|
|
|
Supplemental investing and financing transactions
|
|
|
|
In conjunction with the sale of hotel properties, the Company recorded the following:
|
|
|
|
Sale of hotel properties
|
$
|
—
|
|
|
$
|
2,850
|
|
Transaction costs
|
(49
|
)
|
|
(122
|
)
|
Operating prorations
|
—
|
|
|
(99
|
)
|
Proceeds from the sale of hotel properties, net
|
$
|
(49
|
)
|
|
$
|
2,629
|
|
|
|
|
|
Supplemental non-cash transactions (1)
|
|
|
|
Accrued capital expenditures
|
$
|
5,465
|
|
|
$
|
2,500
|
|
Redemption of OP Units
|
$
|
—
|
|
|
$
|
4,325
|
|
(1) Refer to Note 2, Merger with FelCor Lodging Trust, for information related to the non-cash investing and financing activities associated with the acquisition of FelCor.