CONDOR HOSPITALITY TRUST, INC. Management's Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with our audited consolidated financial statements and Management's Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year endedDecember 31, 2020 and our unaudited interim consolidated financial statements included in this Quarterly Report on Form 10-Q.
References to "we," "our," "us," and the "Company" refer to
Forward-Looking Statements
Certain information both included and incorporated by reference in this Form 10-Q may contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and as such may involve known and unknown risks, uncertainties, and other factors which may cause our actual results, performance, or achievements to be materially different from future results, performance, or achievements expressed or implied by such forward-looking statements. These forward-looking statements are based on assumptions that management has made in light of experience in the business in which we operate, as well as management's perceptions of historical trends, current conditions, expected future developments, and other factors believed to be appropriate under the circumstances. These statements are not guarantees of performance or results. They involve risks, uncertainties (some of which are beyond our control), and assumptions. Management believes that these forward-looking statements are based on reasonable assumptions. Forward-looking statements, which are based on certain assumptions and describe our future plans, strategies, and expectations are generally identifiable by use of the words "may," "will," "should," "expect," "anticipate," "estimate," "believe," "intend," or "project" or the negative thereof or other variations thereon or comparable terminology. Factors which could have a material adverse effect on our operations and future prospects include, but are not limited to, changes in economic conditions generally and the real estate market specifically, legislative/regulatory changes (including changes to laws governing the taxation of real estate investment trusts), availability of capital, risks associated with debt financing, interest rates, competition, supply and demand for hotel rooms in our current and proposed market areas, policies and guidelines applicable to real estate investment trusts, risks related to uncertainty and disruption in global economic markets as a result of COVID-19 (commonly referred to as the coronavirus), and other risks and uncertainties described herein, and in our filings with theSecurities and Exchange Commission ("SEC") from time to time. These risks and uncertainties should be considered in evaluating any forward-looking statements contained or incorporated by reference herein. We caution readers not to place undue reliance on any forward-looking statements included in this report which speak only as of the date of this report. BackgroundCondor Hospitality Trust, Inc. ("Condor" or the "Company"), aMaryland corporation, is a self-administered real estate investment trust ("REIT") for federal income tax purposes that specializes in the investment and ownership of high quality select service, limited service, extended stay, and compact full service hotels. As ofJune 30, 2021 , the Company owned 15 hotels, representing 1,908 rooms, in eight states. We conduct our business through a traditional umbrella partnership REIT, or UPREIT, in which our hotel properties are owned by our operating partnership,Condor Hospitality Limited Partnership and its subsidiaries (the "operating partnership"), for which we serve as general partner. As ofJune 30, 2021 , we owned approximately 99.9% of the common operating units ("common units") in the operating partnership. In the future, the operating partnership may issue limited partnership interests to third parties from time to time in connection with our acquisition of hotel properties or the raising of capital. In order for the income from our hotel property investments to constitute "rents from real properties" for purposes of the gross income tests required by the Internal Revenue Service ("IRS") for REIT qualification, the income we earn cannot be derived from the operation of any of our hotels. Therefore, the operating partnership and its subsidiaries 32 -------------------------------------------------------------------------------- lease our hotel properties to the Company's wholly owned taxable REIT subsidiary,TRS Leasing, Inc. , and its wholly owned subsidiaries (the "TRS"). The TRS in turn engages third-party eligible independent contractors to manage the hotels. The operating partnership, the TRS, and their respective subsidiaries are consolidated into the Company's financial statements. OnJune 21, 2021 , the Company announced that its board of directors is evaluating strategic alternatives to enhance shareholder value. The Company has engaged the firm ofHodges Ward Elliott to market for sale the 15 hotels portfolio owned by the Company. Although the Company expects significant interest in the marketing initiative, there can be no assurance that a transaction will occur at the conclusion of the process. The Company may engage additional brokers and financial advisors as it deems appropriate. There can be no assurances that the exploration of strategic alternatives will result in any transaction or, should the board of directors approve a transaction, no assurances of the value to the Company's shareholders thereof.Condor Hospitality does not intend to discuss or disclose developments with respect to the process unless and until otherwise determined that further disclosure is appropriate or required by regulation or law. No formalized timetable has been established for the completion of the strategic review. Historically, as a result of the geographic areas in which we operate, the operations of our hotels have been seasonal in nature. Generally, occupancy rates, revenue, and operating income have been greater in the second and third quarters of the calendar year than in the first and fourth quarters, with the exception of our hotels located inFlorida , which experience peak demand in the first and fourth quarters annually.
COVID-19 Pandemic
The novel coronavirus (COVID-19) has reduced travel significantly and adversely affected the hospitality industry in general. The actual and threatened spread of COVID-19 globally or in the regions in which we operate, or future widespread outbreak of infectious or contagious disease, can continue to reduce national and international travel in general. The extent to which the hospitality industry, and thus our business, will be affected by COVID-19 will largely depend on future developments which we cannot accurately predict, and the impact on customer travel, including the duration of the outbreak, the continued spread and treatment of COVID-19, the impact of new virus variants, the pace of vaccination, and new information and developments that may emerge concerning the severity of COVID-19 and the actions to contain COVID-19 or treat its impact, among others. To the extent that travel activity in theU.S. is and will be materially and adversely affected by COVID-19, business and financial results of the hospitality industry, and thus our business and financial results, could be impacted.
Since late
As a result of the above factors, the Company is and has taken actions at the corporate and hotel level, including, but not limited to:
?Obtaining significant modifications of its debt agreements, including extension of the credit facility toJanuary 2, 2023 with an increase in credit availability and modifications and waivers of debt covenants, from the majority of the Company's lenders. ?Asset management working with hotel management companies to reduce all hotels operating expenses including, but not limited to, closing off multiple floors, staffing reductions and furloughs, utility consumption reductions, purchasing reductions and eliminations, contract services reductions and eliminations, food services closures, exercise facilities closures, and certain reduction and elimination of certain marketing expenditures.
?Seeking potential alternative revenue sources through health care providers, government agencies, universities and airlines.
?Obtaining Paycheck Protection Program ("PPP") loans authorized under the
recently congressionally approved Coronavirus Aid, Relief, and Economic Security
("CARES") Act totaling $2.3 million . The entire amount of the loans was used for
payroll, utilities, and interest, and therefore the loans were forgiven by the
Small Business Administration ("SBA") during the second quarter of 2021.
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?Pursuing corporate cost reductions, including staffing reductions, resulting in
an approximately 30% decrease in general and administrative expenses compared to
historical operations.
?Capital improvement projects have been suspended except for emergency circumstances and will remain on hold for immediate future, with the potential for the suspension to continue through 2021.
?The Company determined that it was advisable and the best business practice to cause a temporary closure of two of its hotels, theSolomons Hilton Garden Inn onApril 20, 2020 and the Leawood Aloft onApril 9, 2020 . These hotels were both reopened onJuly 1, 2020 and no other hotel closures have been deemed necessary. We believe the ongoing effects of the COVID-19 pandemic on our operations have had, and will continue to have, a material negative impact on the hospitality industry, and thus on our financial results and liquidity, and such negative impact may continue beyond the containment of the pandemic. While we cannot assure you that the assumptions used to estimate our future liquidity will be correct, the Company believes it can generate the liquidity required to operate through the crisis through a combination of the continued operation of our portfolio with significant cost reduction measures in place, existing availability under our credit facility, and, if necessary, additional debt and equity financings. However, there can be no assurance that the Company will be able to obtain such financing on acceptable terms or at all. The Company's loans withGreat Western Bank (financing theLeawood, Kansas Aloft) were purchased byOSK X, LLC , an equity fund affiliate ofO'Brien Staley Partners , onDecember 24, 2020 (see Note 6). The Company did not satisfy the financial covenants for these loans as ofJune 30, 2021 ,March 31, 2021 , orDecember 31, 2020 , as was the case for the first three quarters of 2020. The Company has been advised byOSK X, LLC that it is in default for failure to comply with the financial covenants as ofDecember 31, 2020 (unlikeGreat Western Bank that waived the covenants for the first three quarters of 2020). Under the loan documents withOSK X, LLC , (a) the 90-day cure period (ended onMay 27, 2021 ) within which the Company could cure the defaults has expired, (b) default interest at the rate of 8.33% began to accrue onMay 27, 2021 and (c)OSK X, LLC is entitled to accelerate the loans and foreclose on theLeawood, Kansas Aloft. However, the Company believes that there are serious questions under applicable law about whetherOSK X, LLC has the ability to declare a default, assess interest at the default rate, accelerate the loans or foreclose on theLeawood, Kansas Aloft due to the impossibility of performance of financial covenants during the COVID-19 pandemic. The Company intends to seek any available damages in the event of litigation that may result from the actions ofOSK X, LLC Our credit facility contains cross-default provisions which would allow the lenders under our credit facility to declare a default and accelerate our indebtedness to them if we default on our other loans and such default would permit that lender to accelerate our indebtedness under any such loan. The above-described defaults under our loan agreement withOSK X, LLC resulted in a cross-default under our credit facility as ofMay 27, 2021 . Pursuant to the terms of the tenth amendment to the credit facility (see Note 16), the lenders will not declare a default, accelerate our indebtedness or otherwise take enforcement action on or beforeNovember 1, 2021 as a result of the cross-default that occurred as ofMay 27, 2021 due to the above-described defaults under our loan agreement withOSK X, LLC , subject to the continuing satisfaction of certain conditions, including no breach or default of certain agreements, active pursuit of good faith defenses, the absence of certain legal proceedings or bankruptcy events and the maintenance of$6.0 million of liquidity. Based on a the current status of theOSK X, LLC loans and the guidance inU.S. GAAP that requires that, in making a determination for the one year period following the date of the financial statements, the Company cannot consider future fundraising activities or the likelihood of obtaining covenant waivers or amendments, all of which are outside of the Company's sole control, the Company has determined that there is substantial doubt about the Company's ability to continue as a going concern for the one year period after the date the financial statements are issued. The consolidated financial statements have been prepared assuming that the Company will continue as a going concern and do not include any adjustments that might result from the outcome of this uncertainty.
Portfolio Activity
The Company's investment strategy is to assemble a portfolio of premium-branded,
select-service hotels in the top 100 Metropolitan Statistical Areas ("MSAs")
with a particular focus on MSAs ranked between 20 to 60. Since restarting its
portfolio transformation in 2015, the Company has acquired 14 high-quality
select-service hotels
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representing 1,808 rooms in its target markets for a total purchase price of
$276.6 million . Additionally, during this time, the Company has sold 55 legacy
assets for a total gross sales price of $169.9 million . Additionally, on
February 14, 2020 , the Company purchased our joint venture partner's 20%
interest in the joint venture owning the Atlanta Aloft property (the "Atlanta
JV") for $7.3 million . The purchase price was funded with cash drawn from the
credit facility.
The following table sets forth certain information with respect to the hotels
owned by us as of
Purchase Price
Hotel Name City State Rooms Acquisition Date ?(in thousands)
Hilton Garden Inn Dowell/Solomons MD 100 05/25/2012 $11,500
SpringHill Suites San Antonio TX 116 10/01/2015 $17,500
Courtyard by Marriott Jacksonville FL 120
$14,000 Hotel Indigo College Park GA 142 10/02/2015$11,000 Aloft (1) Atlanta GA 254 08/22/2016$43,550 Aloft Leawood KS 156 12/14/2016$22,500 Home2 Suites Lexington KY 103 03/24/2017$16,500 Home2 Suites Round Rock TX 91 03/24/2017$16,750 Home2 Suites Tallahassee FL 132 03/24/2017$21,500 Home2 Suites Southaven MS 105 04/14/2017$19,000
Hampton Inn & Suites
Fairfield Inn & Suites El Paso TX 124
$16,400 Residence Inn Austin TX 120 08/31/2017$22,400 TownePlace Suites Austin TX 122 01/18/2018$19,750 Home2 Suites Summerville SC 93 02/21/2018$16,325 Totals 1,908$287,925
(1)Represents the purchase statistics from the purchase of this hotel by the
originally 80% owned unconsolidated Atlanta JV. The Company purchased the
remaining 20% interest in the Atlanta JV from our joint venture partner on
All of our properties are encumbered by either our credit facility or by
mortgage debt at
Acquisitions
OnFebruary 14, 2020 , the Company purchased the remaining 20% interest in the Atlanta JV from our joint venture partner for$7.3 million as allowed by the purchase option included in the original joint venture agreements. The$7.3 million was funded from the Company's credit facility, and the Company became the primary obligator on the$34.08 million New Term Loan (defined below) as part of the transaction. The New Term Loan matured upon the earlier to occur of (a) consummation of the merger under the Merger Agreement (see Note 1) and (b)May 8, 2020 . The New Term Loan was refinanced inMay 2020 through use of the credit facility. The New Term Loan bore interest, at the Borrower's option, at either LIBOR plus 2.25% or a base rate plus 1.25% and required monthly interest payments and principal is due on the maturity date. The Borrowers could, at any time, voluntarily prepay the New Term Loan in whole or in part without premium or penalty (other than customary LIBOR breakage costs). The New Term Loan was secured by a first priority lien and security interest on the Aloft Atlanta hotel and the tangible and intangible personal property used in connection with such hotel, including inventory, equipment, fixtures, accounts and general intangibles and was guaranteed by the Company and certain of its subsidiaries. 35 -------------------------------------------------------------------------------- As the Atlanta JV was previously accounted for under the equity method and the acquisition was considered the acquisition of assets, the liabilities assumed as part of the transaction were recorded at fair value while the assets purchased in the transaction were recorded based on a pro-rata fair value allocation of the total available basis, which included the fair value of liabilities assumed, the cash purchase price paid, the balance of the investment in unconsolidated joint venture at the time of the acquisition, and the acquisition costs incurred. The purchase was recognized as follows (in thousands): Cash purchase price$ 7,300
Investment in unconsolidated joint venture 3,844 Acquisition costs
122
Total investment in net assets $ 11,266
Cash $ 125
Working capital (462)
Land 14,728
Buildings, improvements, and vehicle 37,020 Furniture and equipment
2,432
Debt assumed at acquisition (34,080)
Land option liability (1) (8,497)
Total allocation to net assets $ 11,266 (1)The purchase agreement includes a provision which permits the seller to purchase the surface parking lot north of the hotel exercisable for approximately seven years at less than market rates.
Dispositions
There were no dispositions during the three or six months ended
Operating Performance Metrics
The following tables present our same-store occupancy, average daily rate
("ADR"), and RevPAR for all our hotels owned on June 30, 2021 . The statistics
for the Company's two hotels that were temporarily closed due to the effects of
COVID-19, the Solomons Hilton Garden Inn , which was closed on April 2, 2020 and
reopened on July 1, 2020 , and the Leawood Aloft, which was closed on April 9,
2020 and reopened on July 1, 2020 , include only the periods that the properties
were operational. With the exception of these COVID-19 related closures,
same-store occupancy, ADR, and RevPAR reflect the performance of hotels during
the entire period, regardless of our ownership during the period presented,
including 100% of the operating results of the property owned by the Atlanta JV
in which the Company had an 80% interest prior to the purchase of the remaining
20% interest on February 14, 2020 . Results for the hotels for periods prior to
our ownership were provided to us by prior owners and have not been adjusted by
us or audited or reviewed by our independent auditors.
Three months ended June 30,
2021 2020
Occupancy ADR RevPAR Occupancy ADR RevPAR
Total Same-Store Portfolio 72.43% $ 106.62 $ 77.22 33.89% $ 87.05 $ 29.50
Six months ended June 30,
2021 2020
Occupancy ADR RevPAR Occupancy ADR RevPAR
Total Same-Store Portfolio 65.98% $ 98.91 $ 65.26 49.94% $ 112.49 $ 56.18
Total same-store RevPAR increased by 161.8% in the second quarter of 2021,
driven by both an increase in occupancy of 113.7% and an increase in ADR of
22.5% caused by the decreased impact of the COVID-19 pandemic during the second
quarter of 2021. The largest increase in RevPAR during this period were at the
Leawood Aloft, the Solomons Hilton Garden Inn , the San Antonio SpringHill
Suites, and the El Paso Fairfield Inn & Suites .
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Total same-store RevPAR increased by 16.2% during the first half of 2021, driven
by an increase in occupancy of 32.1% which was partially offset by a decline in
ADR of 12.1%. The Company's largest increases in RevPAR during this period were
at the Southaven Home2 Suites, the Lexington Home2 Suites, and the Austin
TownePlace Suites. Three properties, the Leawood Aloft, the Solomons Hilton
Garden Inn , and the Atlanta Hotel Indigo , experienced declines in RevPar during
the first half of 2021.
Results of Operations
Comparison of the three months ended
Three months ended June 30,
2021 2020 Change
Revenue $ 14,108 $ 4,811 $ 9,297
Hotel and property operations expense (9,232) (5,089) (4,143)
Depreciation and amortization expense (2,648) (2,777)
129
General and administrative expense (1,151) (1,014)
(137)
Strategic alternatives, net (383) (80)
(303)
Net loss on disposition of assets (10) (1)
(9)
Equity in loss of joint venture - -
-
Net gain (loss) on derivatives and convertible debt (10,234) 19
(10,253)
Other income (expense), net 2,357 (58)
2,415
Interest expense (2,484) (2,070)
(414)
Income tax (expense) benefit (27) 61 (88) Net loss$ (9,704) $ (6,198) $ (3,506) Revenue
Revenue increased by a total of
Operating Expenses and Interest Expense
Hotel and property operations expense increased by
Depreciation and amortization expense and general and administrative expense remained relatively consistent between the second quarters of 2020 and 2021, decreasing by$129 and increasing by$137 between the periods, respectively.
Interest expense increased in total by
Strategic Alternatives, net
Expenses related to the exploration of strategic alternatives increased during the second quarter of 2021 due to the Company's exploration of strategic alternatives as previously discussed.
The change in the gain/loss on derivatives and convertible debt was driven by differences in the value of the Company's 2020 Convertible Notes, which were issued during the fourth quarter of 2020. These liability-classified notes saw an increase in their fair value of$10,360 during the second quarter of 2021.
Other Income / Expense, net
The increase in other income was a result of a gain on the forgiveness of PPP
loans totaling
Income Tax Benefit (Expense)
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Income tax expense in both periods was driven primarily by income (loss) earned
by the TRS as well as miscellaneous state taxes owed by the Company. Management
believes the combined federal and state income tax rate for the TRS will be
approximately 24%. Beginning with the second quarter of 2020, after an
assessment of the realizability of deferred tax assets based on projected
reversals of deferred income tax liabilities, projected future taxable income,
and tax planning strategies, the Company recognized a full valuation allowance
against net deferred tax assets, leading to minimal tax expense or benefit being
recognized through the second quarter of 2021.
Comparison of the six months ended June 30, 2021 to the six months ended June
30, 2020 (in thousands)
Six months ended June 30,
2021 2020 Change
Revenue $ 23,752 $ 18,038 $ 5,714 Hotel and property operations expense (16,911) (14,904) (2,007) Depreciation and amortization expense
(5,291) (5,487) 196
General and administrative expense (2,411) (2,207)
(204)
Strategic alternatives, net (423) (224)
(199)
Net loss on disposition of assets (13) (10)
(3)
Equity in earnings of joint venture - 80
(80)
Net loss on derivatives and convertible debt (8,246) (740) (7,506) Other income (expense), net 2,399 (86) 2,485 Interest expense (4,693) (4,050) (643) Income tax (expense) benefit (54) 367 (421) Net loss$ (11,891) $ (9,223) $ (2,668) Revenue Revenue increased by a total of$5,714 , or 31.7%, as a result of the increase in RevPAR resulting from the decreased impact of the COVID-19 pandemic as discussed above as well as increased revenue resulting from the acquisition of the remaining interest in the Atlanta JV in the first quarter of 2020.
Operating Expenses and Interest Expense
Hotel and property operations expense increased by
Depreciation and amortization expense and general and administrative expense
remained relatively consistent between the first halves of 2020 and 2021,
decreasing by
Interest expense increased in total by
Strategic Alternatives, net
Expenses related to the exploration of strategic alternatives increased during the second quarter of 2021 due to the Company's exploration of strategic alternatives as previously discussed.
The change in the gain/loss on derivatives and convertible debt was driven by differences in the value of the Company's 2020 Convertible Notes, which were issued during the fourth quarter of 2020. These liability-classified notes saw an increase in their fair value of$8,520 during the first half of 2021.
Other Income / Expense, net
The increase in other income was a result of a gain on the forgiveness of PPP
loans totaling
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Income Tax Benefit (Expense)
Income tax expense in both periods was driven primarily by income (loss) earned by the TRS as well as miscellaneous state taxes owed by the Company. Management believes the combined federal and state income tax rate for the TRS will be approximately 24%. Beginning with the second quarter of 2020, after an assessment of the realizability of deferred tax assets based on projected reversals of deferred income tax liabilities, projected future taxable income, and tax planning strategies, the Company recognized a full valuation allowance against net deferred tax assets, leading to minimal tax expense or benefit being recognized through the second quarter of 2021.
Non-GAAP Financial Measures
Non-GAAP financial measures are measures of our historical financial performance that are different from measures calculated and presented in accordance with accounting principles generally accepted inthe United States of America ("U.S. GAAP"). We report Funds from Operations ("FFO"), Adjusted FFO ("AFFO"), Earnings Before Interest, Taxes, Depreciation, and Amortization ("EBITDA"), EBITDA for real estate ("EBITDAre"), Adjusted EBITDAre, andHotel EBITDA as non-GAAP measures that we believe are useful to investors as key measures of our operating results and which management uses to facilitate a periodic evaluation of our operating results relative to those of our peers. Our non-GAAP measures should not be considered as an alternative toU.S. GAAP net earnings as an indication of financial performance or toU.S. GAAP cash flows from operating activities as a measure of liquidity. Additionally, these measures are not indicative of funds available to fund cash needs or our ability to make cash distributions as they have not been adjusted to consider cash requirements for capital expenditures, property acquisitions, debt service obligations, or other commitments.
Funds from Operations ("FFO") & Adjusted FFO ("AFFO")
We calculate FFO in accordance with the standards established by theNational Association of Real Estate Investment Trusts ("NAREIT"), which defines FFO as net earnings or loss computed in accordance with GAAP, excluding gains or losses from sales of real estate assets, impairment, and the depreciation and amortization of real estate assets. FFO is calculated both for the Company in total and as FFO attributable to common shares and common units, which is FFO reduced by preferred stock dividends. AFFO is FFO attributable to common shares and common units adjusted to exclude items we do not believe are representative of the results from our core operations, including non-cash gains or losses on derivatives and convertible debt, stock-based compensation expense, amortization of certain fees, losses on debt extinguishment, and in-kind dividends above stated rates, and cash charges for acquisition and terminated transaction and strategic alternatives costs, net of related receipts. All REITs do not calculate FFO and AFFO in the same manner; therefore, our calculation may not be the same as the calculation of FFO and AFFO for similar REITs. We consider FFO to be a useful additional measure of performance for an equity REIT because it facilitates an understanding of the operating performance of our properties without giving effect to real estate depreciation and amortization, which assumes that the value of real estate assets diminishes predictably over time. Since real estate values have historically risen or fallen with market conditions, we believe that FFO provides a meaningful indication of our performance. We believe that AFFO provides useful supplemental information to investors regarding our ongoing operating performance that, when considered with net earnings and FFO, is beneficial to an investor's understanding of our operating performance. 39 -------------------------------------------------------------------------------- The following table reconciles net earnings (loss) to FFO and AFFO for the three and six months endedJune 30, 2021 and 2020 (in thousands). All amounts presented include only our portion of the results of our unconsolidatedAtlanta JV prior to our acquisition of the remaining 20% interest from our joint venture partner onFebruary 14, 2020 . Three months ended June 30, Six months ended June 30, Reconciliation of Net loss to FFO and AFFO 2021 2020 2021 2020 Net loss$ (9,704) $ (6,198) $ (11,891) $ (9,223) Depreciation and amortization expense 2,648 2,777 5,291 5,487 Depreciation and amortization expense from JV - - - 145 Net loss on disposition of assets 10 1 13 10 FFO (7,046) (3,420) (6,587) (3,581) Dividends undeclared on preferred stock (166) (144) (329) (289) FFO attributable to common shares and common units (7,212) (3,564) (6,916) (3,870) Net (gain) loss on derivatives and convertible debt 10,234 (19) 8,246 740 Strategic alternatives expense, net 383 80 423 224 Stock-based compensation expense 112 82 211 166 Amortization of deferred financing fees 226 270 453 545 Amortization of deferred financing fees from JV - - - 93 AFFO attributable to common shares and common units$ 3,743 $ (3,151) $
2,417
Earnings Before Interest, Taxes, Depreciation, and Amortization ("EBITDA"),
EBITDAre, Adjusted EBITDAre, and
We calculate EBITDA, EBITDAre, and Adjusted EBITDAre by adding back to net earnings or loss certain non-operating expenses and certain non-cash charges which are based on historical cost accounting that we believe may be of limited significance in evaluating current performance. We believe these adjustments can help eliminate the accounting effects of depreciation and amortization and financing decisions and facilitate comparisons of core operating profitability between periods. In calculating EBITDA, we add back to net earnings or loss interest expense, loss on debt extinguishment, income tax expense, and depreciation and amortization expense. NAREIT adopted EBITDAre in order to promote an industry-wide measure of REIT operating performance. We adjust EBITDA by adding back net gain/loss on disposition of assets and impairment charges to calculate EBITDAre. To calculate Adjusted EBITDAre, we adjust EBITDAre to add back acquisition and terminated transactions expense and strategic alternatives expense, net of related receipts, which are cash charges. We also add back stock-based compensation expense and gain/loss on derivatives and convertible debt, which are non-cash charges. EBITDA, EBITDAre, and Adjusted EBITDAre, as presented, may not be comparable to similarly titled measures of other companies. We believe EBITDA, EBITDAre, and Adjusted EBITDAre to be useful additional measures of our operating performance, excluding the impact of our capital structure (primarily interest expense), our asset base (primarily depreciation and amortization expense), and other items we do not believe are representative of the results from our core operations. The Company further excludes general and administrative expenses, other non-operating income or expense, and certain hotel and property operations expenses that are not allocated to individual properties in assessing hotel performance (primarily certain general liability and other insurance costs and office and banking fees) from Adjusted EBITDAre to calculateHotel EBITDA .Hotel EBITDA , as presented, may not be comparable to similarly titled measures of other companies.Hotel EBITDA is intended to isolate property level operational performance over which the Company's hotel operators have direct control. We believeHotel EBITDA is helpful to investors as it better communicates the comparability of our hotels' operating results for all of the Company's hotel properties and is used by management to measure the performance of the Company's hotels and the effectiveness of the operators of the hotels. The following table reconciles net earnings (loss) to EBITDA, EBITDAre, Adjusted EBITDAre, andHotel EBITDA for the three and six months endedJune 30, 2021 and 2020 (in thousands). All amounts presented include 40
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only our portion of the results of our unconsolidated Atlanta JV prior to our
acquisition of the remaining 20% interest from our joint venture partner on
Three months ended June 30, Six months ended June 30,
Reconciliation of Net loss to EBITDA, EBITDAre,
Adjusted EBITDAre, and Hotel EBITDA 2021 2020 2021 2020
Net loss $ (9,704) $ (6,198) $ (11,891) $ (9,223)
Interest expense 2,484 2,070 4,693 4,050
Interest expense from JV - - - 225
Income tax expense (benefit) 27 (61) 54 (367)
Depreciation and amortization expense 2,648 2,777 5,291 5,487
Depreciation and amortization expense from JV - - - 145
EBITDA (4,545) (1,412) (1,853) 317
Net loss on disposition of assets 10 1 13 10
EBITDAre (4,535) (1,411) (1,840) 327
Net loss (gain) on derivatives and convertible
debt 10,234 (19) 8,246 740
Stock-based compensation expense 112 82 211 166
Strategic alternatives expense, net 383 80 423 224
Adjusted EBITDAre 6,194 (1,268) 7,040 1,457
General and administrative expense, excluding
stock compensation expense 1,039 932 2,200 2,041
Other (income) expense, net (2,357) 58 (2,399) 86
Unallocated hotel and property operations
expense 89 129 120 223
Hotel EBITDA $ 4,965 $ (149) $ 6,961 $ 3,807
Revenue $ 14,108 $ 4,811 $ 23,752 $ 18,038
JV revenue - - - 1,218
Condor and JV revenue $ 14,108 $ 4,811 $ 23,752 $ 19,256
Hotel EBITDA as a percentage of revenue 35.2% -3.1% 29.3% 19.8%
Liquidity, Capital Resources, and Equity Transactions
Rights Offering
OnDecember 7, 2020 , the Company filed a registration statement with theSEC with respect to the Rights Offering. The registration statement has not become effective and the Company has not commenced the Rights Offering. The Company and SREP entered into a backstop commitment agreement onDecember 7, 2020 . Pursuant to the backstop commitment agreement, SREP agreed to backstop the Rights Offering, if commenced on certain conditions, on a standby basis to facilitate the transaction, by the Company selling to SREP pursuant to an exemption from the registration requirements of Section 5 of the Securities Act provided under Section 4(a)(2) thereof and/or Regulation D thereunder and SREP purchasing an aggregate number of shares of common stock equal to (x)$10.0 million , minus (y) the aggregate proceeds of the Rights Offering divided by$2.50 , at a price per share equal to$2.50 , subject to the terms and conditions of the backstop commitment agreement. The obligations of SREP under the backstop commitment agreement are subject to certain conditions, which, among other conditions, include: (1) that the Rights Offering must occur on or prior toMay 31, 2021 , and (2) that the Company exempts SREP from the ownership limitation set forth in the Company's articles of incorporation. The Rights Offering did not occur on or prior toMay 31, 2021 and as ofJune 30, 2021 SREP (1) has not advised the Company if it will waive this condition to its obligation and (2) has not exercised its right to terminate the backstop commitment agreement.
Significant Equity Transactions
The Company received put right notices from all holders of Series E Preferred Stock of the Company effectiveJune 29, 2021 pursuant to which the holders of the Series E Preferred Stock gave notice of their election to exercise their right to require the Company to redeem all 925,000 shares of the Company's outstanding Series E Preferred Stock held by them at a value per share equal to 130% of the$10 liquidation preference of the Series E Preferred Stock, plus accrued and unpaid dividends, onJuly 29, 2021 . Subsequent to quarter end, onJuly 29, 2021 , the Company redeemed the Series E Preferred Stock with common stock by issuing 2,686,571 shares of common stock to the 41 -------------------------------------------------------------------------------- holders of the Series E Preferred Shares pursuant to the terms of the shares, based on the weighted market sale price average of the common stock for the 30 trading days throughJune 29, 2021 of$4.9021 per share. The Common Stock was issued in reliance on the exemption from registration set forth in Section 4(a)(2) of the Securities Act of 1933, as amended.
Liquidity Requirements
As previously discussed, due to the COVID-19 pandemic, the hospitality industry has experienced significant drops in demand. We believe the ongoing effects of the COVID-19 pandemic on our operations have had, and will continue to have, a material negative impact on the hospitality industry, and thus on our financial results and liquidity, and such negative impact may continue beyond the containment of the pandemic. While we cannot assure you that the assumptions used to estimate our future liquidity will be correct, the Company believes it can generate the liquidity required to operate through the crisis through a combination of the continued operation of our portfolio with significant cost reduction measures in place, existing availability under our credit facility, and, if necessary, additional debt and equity financings. However, there can be no assurance that the Company will be able to obtain such financing on acceptable terms or at all. AtJune 30, 2021 , the Company had$6.4 million of cash and cash equivalents,$5.3 million of restricted cash on hand, and$8.3 million of unused availability under its credit facility, of which$1.1 million is available for use only to pay interest on the credit facility. Our short-term liquidity requirements consist primarily of operating expenses and other expenditures directly associated with our hotel properties, recurring maintenance and capital expenditures necessary to maintain our hotels in accordance with brand standards, interest expense and scheduled principal payments on outstanding indebtedness, restricted cash funding obligations, and the payment of dividends in accordance with the REIT requirements of the Code and as required in connection with our Series E Preferred Stock. We also presently expect to invest approximately$0.5 million to$1.5 million in capital expenditures related to hotel properties we currently own throughSeptember 30, 2022 . As ofJune 30, 2021 , contractual principal payments on our debt outstanding, including normal amortization, totaled$1.1 million throughSeptember 30, 2022 . Pursuant to the terms of the ninth amendment to the credit facility, an event of default occurred when the convertible notes issued in 2020 (see Note 7) were not converted to common stock or paid in full byJuly 1, 2021 . The tenth amendment to the credit facility (see Note 16) waived this event of default and amended the provision to provide that it is an event of default if the convertible notes are not either converted to common stock or paid in full byOctober 31, 2021 . The Company intends to not cause such an event of default by satisfying the convertible notes with the Rights Offering, which has a full backstop commitment (see discussion of Rights Offering above), or otherwise satisfying the convertible notes with a sale of equity or negotiating an extension of theOctober 31, 2021 date withKeyBank . To maintain our REIT tax status, we generally must distribute at least 90% of our taxable income to our shareholders annually. In addition, we are subject to a 4% non-deductible excise tax if the actual amount distributed to shareholders in a calendar year is less than a minimum amount specified under the federal income tax laws. We have a general dividend policy of paying out approximately 100% of annual REIT taxable income. The actual amount of any future dividends will be determined by the Board of Directors based on our actual results of operations, economic conditions, capital expenditure requirements, and other factors that the Board of Directors deems relevant. Additionally, as discussed in depth in Financial Covenants below, onDecember 24, 2020 , the Company's loans withGreat Western Bank (financing theLeawood, Kansas Aloft), with aJune 30, 2021 balance of$14.0 million , were purchased byOSK X, LLC , an equity fund affiliate ofO'Brien Staley Partners . The Company did not satisfy the financial covenants for these loans as ofJune 30, 2021 ,March 31, 2021 andDecember 31, 2020 , as was the case for the first three quarters of 2020. The Company has been advised byOSK X, LLC that it is in default for failure to comply with the financial covenants as ofDecember 31, 2020 (unlikeGreat Western Bank that waived the covenants for the first three quarters of 2020). The Company is pursuing negotiations withOSK X, LLC to obtain waivers, and if waivers are unable to be obtained, the Company plans to refinance the debt with existing or new lenders which the Company believes it can successfully complete. However, waivers and the ability to refinance are at the discretion of the lenders, and there can be no assurance that the Company will be able to obtain such waivers or refinancing on acceptable terms or at all. 42 -------------------------------------------------------------------------------- Under the loan documents withOSK X, LLC , (a) the 90-day cure period (ended onMay 27, 2021 ) within which the Company could cure the defaults has expired, (b) default interest at the rate of 8.33% began to accrue onMay 27, 2021 and (c)OSK X, LLC is entitled to accelerate the loans and foreclose on theLeawood, Kansas Aloft. However, the Company believes that there are serious questions under applicable law about whetherOSK X, LLC has the ability to declare a default, assess interest at the default rate, accelerate the loans or foreclose on theLeawood, Kansas Aloft due to the impossibility of performance of financial covenants during the COVID-19 pandemic. The Company intends to seek any available damages in the event of litigation that may result from the actions ofOSK X, LLC . If we fail to pay our indebtedness when due, fail to comply with covenants or otherwise default on our loans, unless waived, we could incur higher interest rates during the period of such loan defaults, be required to immediately pay our indebtedness, and ultimately lose our hotels through lender foreclosure if we are unable to obtain alternative sources of financing with acceptable terms. Our credit facility contains cross-default provisions which would allow the lenders under our credit facility to declare a default and accelerate our indebtedness to them if we default on our other loans and such default would permit that lender to accelerate our indebtedness under any such loan. The above-described defaults under our loan agreement withOSK X, LLC resulted in a cross-default under our credit facility as ofMay 27, 2021 . Pursuant to the terms of the tenth amendment to the credit facility (see Note 16), the lenders will not declare a default, accelerate our indebtedness or otherwise take enforcement action on or beforeNovember 1, 2021 as a result of the cross-default that occurred as ofMay 27, 2021 due to the above-described defaults under our loan agreement withOSK X, LLC , subject to the continuing satisfaction of certain conditions, including no breach or default of certain agreements, active pursuit of good faith defenses, the absence of certain legal proceedings or bankruptcy events and the maintenance of$6.0 million of liquidity. As indicated above, the Company is pursuing negotiations withOSK X, LLC to obtain waivers, and if waivers are unable to be obtained, the Company plans to refinance the debt with existing or new lenders which the Company believes it can successfully complete. However, waivers and the ability to refinance are at the discretion of the lenders, and there can be no assurance that the Company will be able to obtain such waivers or refinancing on acceptable terms or at all. Based on a the current status of theOSK X, LLC loans and the guidance inU.S. GAAP that requires that, in making a determination for the one year period following the date of the financial statements, the Company cannot consider future fundraising activities or the likelihood of obtaining covenant waivers or amendments, all of which are outside of the Company's sole control, the Company has determined that there is substantial doubt about the Company's ability to continue as a going concern for the one year period after the date the financial statements are issued. The consolidated financial statements have been prepared assuming that the Company will continue as a going concern and do not include any adjustments that might result from the outcome of this uncertainty.
Sources and Uses of Cash
Cash provided by (used in) Operating Activities. Cash related to operations was$1.7 million and($1.9) million for the six months endedJune 30, 2021 and 2020, respectively. The increase in operating cash flows was the result of an increase in net income, after adjustment for non-cash items, of$5.1 million due to the decreased impact of the COVID-19 epidemic during the first two quarters of 2021 versus the first two quarters of 2020. Changes in operating assets and liabilities between the periods were individually insignificant. Cash used in Investing Activities. Cash used by investing activities was$0.5 million and$7.0 million for the six months endedJune 30, 2021 and 2020, respectively. The decrease in these outflows in 2021 was driven by the$7.2 million in cash, net, spent in the first quarter of 2020 to acquire the remaining interest in the Atlanta JV, partially offset by dividends received from the Atlanta JV before its purchase of$0.5 million during the period. Cash provided by Financing Activities. Cash provided by financing activities was$3.1 million and$10.9 million for the six months endedJune 30, 2021 and 2020, respectively. This decrease was primarily the result of cash drawn under the credit facility to acquire the remaining interest in the Atlanta JV during the first quarter of 2020. Outstanding Indebtedness
Significant Debt Transactionso
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During the three months ended
Subsequent to the end of the second quarter, on
?Provides that the Company may borrow up to$500,000 under the credit facility without lender approval, which is exclusive of the ability of the Company to borrow additional amounts with lender approval. ?Increased the interest rate for the credit facility to LIBOR plus 4.00% or a base rate plus 3.00% as ofAugust 31, 2021 . The LIBOR rate is subject to a floor of 0.50%. ?Waives the event of default that occurred as a result of the convertible notes issued in 2020 (see Note 7) not being converted to common stock or paid in full byJuly 1, 2021 . ?Amends the foregoing event of default provision to provide that it is an event of default if the convertible notes are not either converted to common stock or paid in full byOctober 31, 2021 . The Company intends to not cause such an event of default by satisfying the convertible notes with the Rights Offering, which has a full backstop commitment (see Note 7), or otherwise satisfying the convertible notes with a sale of equity or negotiating an extension of theOctober 31, 2021 date withKeyBank . ?Provides that the lenders will not declare a default, accelerate our indebtedness or otherwise take enforcement action on or beforeNovember 1, 2021 as a result of the cross-default that occurred as ofMay 27, 2021 due to the defaults under our loan agreement withOSK X, LLC , subject to the continuing satisfaction of certain conditions, including no breach or default of certain agreements, active pursuit of good faith defenses, the absence of certain legal proceedings or bankruptcy events and the maintenance of$6.0 million of liquidity.
Outstanding Debt
AtJune 30, 2021 , we had long-term debt of$169.2 million , with a weighted average term to maturity of 1.6 years and a weighted average interest rate of 4.34%. Of this total, atJune 30, 2021 ,$22.3 million was fixed rate debt with a weighted average term to maturity of 2.0 years and a weighted average interest rate of 6.91% and$146.9 million was variable rate debt with a weighted average term to maturity of 1.5 years and a weighted average interest rate of 3.95%. AtDecember 31, 2020 , excluding the Company's two issuances of outstanding convertible debt (the 2020 issuance of which is discussed in depth in 2020 Convertible Promissory Notes below) we had long-term debt of$168.3 million with a weighted average term to maturity of 2.1 years and a weighted average interest rate of 3.79%. Of this total, atDecember 31, 2020 ,$24.8 million was fixed rate debt with a weighted average term to maturity of 2.3 years and a weighted average interest rate of 4.09% and$143.5 million was variable rate debt with a weighted average term to maturity of 2.0 years and a weighted average interest rate of 3.74%.
Aggregate annual principal payments on debt for the remainder of 2021 and thereafter are as follows (in thousands):
Total
Remainder of 2021
2022 25,336
2023 135,587
2024 7,840
Total $ 169,198
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Financial Covenants
We are required to satisfy various financial covenants within our debt
agreements, including the following financial covenants within our credit
facility with
?Borrowing Base Debt Service Coverage Ratio: The ratio of adjusted net operating income from borrowing base properties to debt service for the credit facility (assuming a 30 year amortization) must be equal to or greater than (a) 1.00 to 1 as of the end of the fiscal quarters endingSeptember 30, 2021 andDecember 31, 2021 , (b) 1.25 to 1 as of the end of the fiscal quarters endingMarch 31, 2022 andJune 30, 2022 and (c) 1.50 to 1 as of the end of the fiscal quarter endingSeptember 30, 2022 and each fiscal quarter thereafter. For purposes of calculating compliance with the covenant, annualized results are used untilJune 30, 2022 when the calculation is based on the most recently ended four fiscal quarters. ?Fixed Charge Coverage Ratio: The ratio of adjusted consolidated EBITDA to consolidated fixed charges must be equal to or greater than (a) 1.00 to 1 as of the end of the fiscal quarters endingSeptember 30, 2021 andDecember 31, 2021 , (b) 1.25 to 1 as of the end of the fiscal quarters endingMarch 31, 2022 andJune 30, 2022 and (c) 1.50 to 1 as of the end of the fiscal quarter endingSeptember 30, 2022 and each fiscal quarter thereafter. For purposes of calculating compliance with the covenant, annualized results are used untilJune 30, 2022 when the calculation is based on the most recently ended four fiscal quarters. ?Borrowing Base Leverage Ratio: The ratio of indebtedness outstanding under the credit facility to borrowing base asset value (based on updated as-stabilized appraisals) cannot exceed 65%. The covenant is first tested onMarch 31, 2022 . ?Minimum Liquidity: Liquidity must be greater than or equal to$3,000 . In addition, the ninth amendment to the credit facility provided that if liquidity is below$6,000 , (a) the agent may engage a financial advisor to advise it with respect to the Company and the credit facility, (b) a$2,000 interest reserve must be maintained, (c) certain reporting must be completed on a weekly basis and (d) advances under the credit facility can only be made and applied pursuant to a cash flow waterfall. Pursuant to the terms of the ninth amendment to the credit facility, an event of default occurred when the convertible notes issued in 2020 (see Note 7) were not converted to common stock or paid in full byJuly 1, 2021 . The tenth amendment to the credit facility (see Note 16) waived this event of default and amended the provision to provide that it is an event of default if the convertible notes are not either converted to common stock or paid in full byOctober 31, 2021 . The Company intends to not cause such an event of default by satisfying the convertible notes with the Rights Offering, which has a full backstop commitment (see discussion of Rights Offering above), or otherwise satisfying the convertible notes with a sale of equity or negotiating an extension of theOctober 31, 2021 date withKeyBank . We are also required to satisfy a debt yield financial covenant within our loan agreement relating to the three properties financed byWells Fargo Bank . The loan agreement provides that if the Company fails to satisfy a debt yield (adjusted net cash flow / outstanding principal amount of the loan) of 10% at the end of any fiscal quarter, then a cash trap occurs. During a cash trap, the revenue generated from the hotels is directed to an account controlled by the lender and used to pay certain hotel expenses and debt service costs and fund certain reserves. Any excess funds are held by the lender as additional collateral. Failure to satisfy the debt yield and the occurrence of a cash trap do not constitute a default under the loan agreement. In connection with the first amendment to the loan agreement entered into inMay 2020 , measurement of the debt yield was suspended until the measurement date occurring onMarch 31, 2021 . The Company did not satisfy the debt yield as ofMarch 31, 2021 orJune 30, 2021 ; however, Wells Fargo has advised us by letter that it will not require implementation of the cash trap. This advice is terminable by Wells Fargo at any time. Any cash trap will expire when the debt yield is equal to or greater than 10.5%.
We are also required to satisfy various financial covenants within our loan
agreement with
?Property-Specific Pre-Distribution Debt Service Coverage Ratio. The ratio of adjusted net operating income for theLeawood, Kansas Aloft (before distributions) to debt service for the loans must be equal to or greater than (a) 1.00 to 1 as of the end of the fiscal quarters endingMarch 31, 2021 andJune 30, 2021 and (b) 1.35 to 1 as of the end of the fiscal quarter endingSeptember 30, 2021 and each fiscal quarter 45 -------------------------------------------------------------------------------- thereafter. For purposes of calculating compliance with the covenant, annualized results are used untilJune 30, 2021 when the calculation is based on the most recently ended four fiscal quarters. ?Property-Specific Post-Distribution Debt Service Coverage Ratio. The ratio of adjusted net operating income for theLeawood, Kansas Aloft (after distributions) to debt service for the loans must be equal to or greater than (a) 1.00 to 1 as of the end of the fiscal quarters endingMarch 31, 2021 andJune 30, 2021 and (b) 1.35 to 1 as of the end of the fiscal quarter endingSeptember 30, 2021 and each fiscal quarter thereafter. For purposes of calculating compliance with the covenant, annualized results are used untilJune 30, 2021 when the calculation is based on the most recently ended four fiscal quarters. ?Consolidated Debt Service Coverage Ratio. The ratio of consolidated adjusted net operating income for the Company to consolidated debt service must be equal to or greater than 1.05 to 1. Certain of the terms used in the foregoing descriptions of the financial covenants within our credit facility and loan agreement have the meanings given to them in the credit facility and loan agreement, and certain of the financial covenants are subject to pro forma adjustments for acquisitions and sales of hotel properties and for specific capital events. As a result of the actual and anticipated unprecedented negative impact of the COVID-19 virus on the hotel industry generally, the Company has received waivers of compliance with financial covenants from various lenders (includingGreat Western Bank with respect to theLeawood, Kansas Aloft) for the first three quarters of 2020. The Company and certain of its other lenders have also modified various financial covenants by suspending measurements, providing for lower covenants and/or using annualized results (includingGreat Western Bank with respect to theLeawood, Kansas Aloft). OnDecember 24, 2020 , the Company's loans withGreat Western Bank (financing theLeawood, Kansas Aloft), with aJune 30, 2021 balance of$13,964 , were purchased byOSK X, LLC , an equity fund affiliate ofO'Brien Staley Partners . The Company did not satisfy the financial covenants for these loans as ofJune 30, 2021 ,March 31, 2021 andDecember 31, 2020 , as was the case for the first three quarters of 2020. The Company has been advised byOSK X, LLC that it is in default for failure to comply with the financial covenants as ofDecember 31, 2020 (unlikeGreat Western Bank that waived the covenants for the first three quarters of 2020). The Company is pursuing negotiations withOSK X, LLC to obtain waivers, and if waivers are unable to be obtained, the Company plans to refinance the debt with existing or new lenders which the Company believes it can successfully complete. However, waivers and the ability to refinance are at the discretion of the lenders, and there can be no assurance that the Company will be able to obtain such waivers or refinancing on acceptable terms or at all. Under the loan documents withOSK X, LLC , (a) the 90-day cure period (ended onMay 27, 2021 ) within which the Company could cure the defaults has expired, (b) default interest at the rate of 8.33% began to accrue onMay 27, 2021 and (c)OSK X, LLC is entitled to accelerate the loans and foreclose on theLeawood, Kansas Aloft. However, the Company believes that there are serious questions under applicable law about whetherOSK X, LLC has the ability to declare a default, assess interest at the default rate, accelerate the loans or foreclose on theLeawood, Kansas Aloft due to the impossibility of performance of financial covenants during the COVID-19 pandemic.
The Company intends to seek any available damages in the event of litigation
that may result from the actions of
If we fail to pay our indebtedness when due, fail to comply with covenants or otherwise default on our loans, unless waived, we could incur higher interest rates during the period of such loan defaults, be required to immediately pay our indebtedness, and ultimately lose our hotels through lender foreclosure if we are unable to obtain alternative sources of financing with acceptable terms. Our credit facility contains cross-default provisions which would allow the lenders under our credit facility to declare a default and accelerate our indebtedness to them if we default on our other loans and such default would permit that lender to accelerate our indebtedness under any such loan. The above-described defaults under our loan agreement withOSK X, LLC resulted in a cross-default under our credit facility as ofMay 27, 2021 . Pursuant to the terms of the tenth amendment to the credit facility (see Note 16), the lenders will not declare a default, accelerate our indebtedness or otherwise take enforcement action on or beforeNovember 1, 2021 as a result of the cross-default that occurred as ofMay 27, 2021 due to the above-described defaults under our loan agreement withOSK X, LLC , subject to the continuing satisfaction of certain conditions, 46 -------------------------------------------------------------------------------- including no breach or default of certain agreements, active pursuit of good faith defenses, the absence of certain legal proceedings or bankruptcy events and the maintenance of$6.0 million of liquidity. As indicated above, the Company is pursuing negotiations withOSK X, LLC to obtain waivers, and if waivers are unable to be obtained, the Company plans to refinance the debt with existing or new lenders which the Company believes it can successfully complete. However, waivers and the ability to refinance are at the discretion of the lenders, and there can be no assurance that the Company will be able to obtain such waivers or refinancing on acceptable terms or at all.
As of
Contractual Obligations
Below is a summary of our contractual obligations as ofJune 30, 2021 and the effect such obligations are expected to have on our future liquidity and cash flows (in thousands): Payments due by period Contractual Remainder of obligations Total 2021 2022-2023 2024-2025 2026 and After
Long-term debt including interest (1)$ 182,643 $ 4,369 $ 170,195 $ 8,079 $ - Equipment leases 64 10 24 8 22 Total contractual obligations$ 182,707 $ 4,379 $ 170,219 $ 8,087 $ 22
(1)Interest rate payments on our variable rate debt have been estimated using
interest rates in effect at
We have various standing or renewable contracts with vendors. These contracts are all cancelable with immaterial or no cancellation penalties. Contract terms are generally one year or less. We also have management agreements in place for the management and operation of our hotel properties.
Off Balance Sheet Financing Transactions
We have not entered into any off balance sheet financing transactions.
Critical Accounting Policies
Our consolidated financial statements have been prepared in conformity withU.S. GAAP, which requires management to make estimates and assumptions that effect the reported amount of assets and liabilities at the date of our financial statements and the reported amounts of revenues and expenses during the reporting period. While we do not believe the reported amounts would be materially different, application of these policies involves the exercise of judgment and the use of assumptions as to future uncertainties and, as a result, actual results could differ from these estimates. We evaluate our estimates and judgments on an ongoing basis. We base our estimates on experience and on various other assumptions that are believed to be reasonable under the circumstances. Critical accounting policies are those that are both important to the presentation of our financial condition and results of operations and require management's most difficult, complex, or subjective judgments. All of our significant accounting policies, including certain critical accounting policies, are disclosed in our Annual Report on Form 10-K for the year endedDecember 31, 2020 .
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