CONDOR HOSPITALITY TRUST, INC. : Other Events (form 8-K)

Item 8.01 Other Events

Supplement to Definitive Proxy Statement

This is a supplement to the Definitive Proxy Statement on Schedule 14A filed by Condor Hospitality Trust, Inc., a Maryland corporation (the "Company", "we" or "us"), with the Securities and Exchange Commission (the "SEC") on October 18, 2021 (the "Definitive Proxy Statement") and mailed to Company shareholders in connection with the solicitation of proxies for use at the special meeting of shareholders of the Company to be held on November 12, 2021 at 11:00 a.m. Eastern time in virtual-only format via live webcast at www.virtualshareholdermeeting.com/CDOR2021SM2 (there is no physical location for the special meeting). The Definitive Proxy Statement is amended and supplemented by the information set forth in this Current Report on Form 8-K, which should be read as part of, and in conjunction with, the information contained in the Definitive Proxy Statement. To the extent that information set forth below differs from information contained in the Definitive Proxy Statement, the information set forth below shall supersede such information contained in the Definitive Proxy Statement. Except as otherwise set forth below, the information set forth in the Definitive Proxy Statement remains unchanged, and capitalized terms used in this Current Report on Form 8-K but not otherwise defined herein have the meanings ascribed to those terms in the Definitive Proxy Statement.

On November 2, 2021, the Company has received a demand letter (the "Demand Letter") on behalf of a purported stockholder of the Company regarding the Definitive Proxy Statement. As of the date of this filing, the Company has not received any other demand letters or received notice of any litigation arising from our actions in connection with the Portfolio Sale or the Plan of Liquidation.

While the Company believes that no supplemental disclosure is required to be made to the Definitive Proxy Statement under applicable law and that the allegations and claims asserted in the Demand Letter are without merit, in order to reduce the risk of the Demand Letter delaying or adversely affecting the Portfolio Sale and to minimize the costs, risks and uncertainties inherent in defending the claims asserted in the Demand Letter, and without admitting any liability or wrongdoing, the Company has determined to voluntarily supplement the Definitive Proxy Statement as provided below.

Nothing in this Current Report on Form 8-K shall be deemed an admission of the legal necessity or materiality under applicable laws of any of the disclosures set forth herein. To the contrary, the Company specifically denies all allegations and claims in the Demand Letter that any additional disclosure was or is required.

This Current Report on Form 8-K and the disclosure provided herein does not affect the consideration to be paid to the Company in connection with the Portfolio or the timing of the special meeting of the Company's shareholders scheduled to be held on November 12, 2021 at 11:00 a.m. Eastern time as described in the Definitive Proxy Statement. The Company's board of directors continues to recommend that Company shareholders vote "FOR" the Portfolio Sale Proposal and "FOR" the other proposals being considered at the special meeting.

The following underlined language is added to the third full paragraph on page 27 of the Definitive Proxy Statement concerning the Background.

Following the issuance of the press release, HWE commenced marketing the Portfolio. Between June 21, 2021 and August 12, 2021 HWE contacted over 436 potential bidders of whom 126 executed non-disclosure agreements with customary terms, including Blackstone. Fifty-four of the non-disclosure agreements contain a provision restricting the counterparty from requesting that the Company waive an agreed-upon standstill without first securing the prior consent of the Company's board of directors. For the remaining non-disclosure agreements- including the prospective purchasers who submitted revised and improved offers - the standstill obligation terminated on September 22, 2021 upon the execution of the Purchase Agreement. Each party that entered into a non-disclosure agreement, including Blackstone, was provided access by HWE to a virtual data room which contained hotel property information and STR Reports. Jeffer Mangels Butler & Mitchell LLP ("Jeffer Mangels") and McGrath North, law firms representing the Company, drafted a hotel purchase and sale agreement, which HWE added to the virtual data room. During the marketing process, HWE, in consultation with Mr. Blackham, instructed the potential purchasers to submit initial indicative offers on August 12, 2021, of which eleven were received, and to submit best and final offers on August 20, 2021, of which seven were received. We refer to the eleven prospective purchasers who submitted indicative offers, aside from Buyer, as "Party B" through "Party K".

The following language is added to the fourth full paragraph on page 28 of the Definitive Proxy Statement concerning the Background.

Between August 23, 2021 and September 22, 2021, the Company's management and representatives of Blackstone and their respective counsel engaged in negotiations regarding the Portfolio Sale. There have been no communications regarding post-transaction employment, directorships and benefits.

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The table under the heading "THE PORTFOLIO SALE AND THE PLAN OF LIQUIDATION-Summary of Financial Analysis of our Financial Advisor-Analysis of Selected Precedent Portfolio Sale" on page 36 of the Proxy Statement is hereby revised, supplemented and replaced in its entirety as follows:

     Date            Owner/Buyer                      Seller            $/Key
    Jul-21 Flynn Properties, Varde Partners Apple Hospitality REIT     $98,922
    May-21 Davidson Kempner                 Starwood Capital           278,431
    Mar-21 Highgate Holdings, Cerberus      Colony Capital (REIT)      124,339
    Jan-20 Arbor Lodging Partners           BRE Select Hotels          143,893
    Dec-19 AHIP REIT                        TMI Hospitality (Starwood) 158,770
    Dec-19 Sharpen Capital                  AHIP REIT                   56,090
    Nov-19 Dune RE Partners LP              Schulte Hospitality        149,326
    Aug-19 Singerman Real Estate            RLJ Lodging Trust           82,971
    Jul-19 Choice Hotels                    Fillmore Cap Prtnrs        290,323
    Jun-19 BREIT                            RLJ Lodging Trust          122,314
    Apr-19 Arbor Lodging Partners           Summit Hotel Properties    165,644
    Jan-19 SREIT                            Noble Investment Group     216,446
    Nov-18 Blackstone                       PEG Development            229,130
    Oct-18 Unilmmo: Global                  Regent Partners            398,026
    Sep-18 PEG Development                  Blackstone                 123,574
    Mar-18 Jason Kotter                     Ameritel Inns              212,103
    Sep-17 Hospitality Props Trust          Blackstone                  83,485
    Jul-17 Aspect Investment Partners       Lightstone VP REIT II      129,820
    Jun-17 AHIP REIT                        MCR Development            173,305
    Jun-17 Summit Hotel Properties          Xenia                      200,492
    Oct-16 China Life                       Starwood Capital           131,709
    Oct-16 StepStone Real Estate            The Generation Cos          80,494

The following underlined language is added to the last sentence of the second paragraph under the heading "THE PORTFOLIO SALE AND THE PLAN OF LIQUIDATION-Summary of Financial Analysis of our Financial Advisor-Liquidation Analysis" on page 38 of the Proxy Statement.

KeyBanc further refined the analysis to focus on upper-midscale to upscale properties that more closely matched the type and quality of hotel property in Condor's Portfolio and subsequently applied a 15% portfolio premium to the average of the selected transactions, which premium percentage was determined based on KeyBanc's professional judgment and experience.

The second, third and fourth sentences of the second paragraph under the heading "THE PORTFOLIO SALE AND THE PLAN OF LIQUIDATION-Summary of Financial Analysis of our Financial Advisor-Discounted Cash Flow Analysis" beginning on page 38 of the Proxy Statement are hereby revised, supplemented and replaced in its entirety as follows:

The unlevered free cash flows were calculated by taking Hotel EBITDA and subtracting capital expenditures (assuming property improvement program costs of $12.5 million in each of 2022 and 2023 as directed by the Company), as follows:

                                               Financial Projections
                                       2022P   2023P   2024P   2025P   2026P
       Total Revenue                    $63.5   $76.6   $81.9   $86.0   $88.8
       Less: Hotel Operating Expenses ($42.9) ($49.3) ($51.6) ($53.6) ($55.2)
       Hotel EBITDA                     $20.7   $27.3   $30.4   $32.4   $33.6
       Less: Capital Expenditures     ($12.5) ($12.5)  ($3.3)  ($3.4)  ($3.6)
       Unlevered Free Cash Flow          $8.2   $14.8   $27.1   $29.0   $30.1

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The residual value of the Portfolio at the end of the forecast period, or "terminal value," was estimated by applying a range of plus or minus 5.0% to the average $ / key multiple of $165,891, which was based on the average of the Selected Portfolio Sale Comparables, and which was applied to the Portfolio key count, yielding the following low-end and high-end terminal values prior to discounting the values to the present time period:

 Low-End Terminal Value DCF Calculation    High-End Terminal Value DCF Calculation
# of Keys                          1,908  # of Keys                           1,908
$ / Key                           $157.6  $ / Key                            $174.2
Terminal Real Estate Value        $300.7  Terminal Real Estate Value         $332.3

The following is added below the Summary Financials table and associated footnotes on page 40 of the Definitive Proxy Statement concerning Financial Projections.

The following additional information is provided with respect to the calculations of the above financial projections (i) all line items used to calculate Hotel EBITDA; and (ii) projected net operating income and all underlying items. Projected cash flows were not calculated.

                             2022P         2023P         2024P          2025P          2026P
Revenue
Rooms                     $59,184,858   $71,638,351   $76,727,937    $80,542,800    $83,220,150
Food & Beverage             1,836,552     2,178,583     2,315,096      2,429,195      2,514,921
Other Operated Depts.       2,207,050     2,431,359     2,516,456      2,604,532      2,695,691
Miscellaneous Income          302,400       369,600       382,536        395,925        409,782
Total Revenue              63,530,860    76,617,892    81,942,026     85,972,452     88,840,544

Departmental Expenses
Rooms                      12,866,626    14,975,545    15,719,980     16,352,791     16,850,314
Food & Beverage             1,436,897     1,833,413     1,943,750      2,032,411      2,093,799
Other Operated Depts          652,228       743,023       765,313        788,273        811,921
Total Departmental         14,955,752    17,551,981    18,429,043     19,173,474     19,756,035
Expenses

Total Departmental Profit 48,575,108 59,065,911 63,512,983 66,798,978 69,084,509

Undistributed Oper.
Expenses
Admin & Gen                 4,989,600     5,399,880     5,561,876      5,728,733      5,900,595

Info. & Telecomm Systems 932,417 1,124,098 1,157,821 1,192,556 1,228,333 Franchise Fees

              6,338,959     7,679,757     8,227,992      8,647,733      8,935,063
Marketing                   2,974,896     3,545,338     3,651,698      3,761,249      3,874,086
Utility Costs               2,420,600     2,656,413     2,789,203      2,902,673      2,990,910
Property Oper. & Maint      2,286,832     2,727,266     2,809,084      2,893,356      2,980,157
Total Undistributed Oper.  19,943,304    23,132,752    24,197,675     25,126,300     25,909,143
Expenses

Gross Operating Profit     28,631,804    35,933,160    39,315,308     41,672,678     43,175,366

Management Fees             1,905,926     2,298,537     2,458,261      2,579,174      2,665,216
Income Before Fixed        26,725,879    33,634,623    36,857,047     39,093,505     40,510,149
Charges

Fixed Charges
Insurance                     939,106       967,279       996,298      1,026,186      1,056,972
Property Taxes              5,027,880     5,178,716     5,334,078      5,494,100      5,658,923
Rent                           84,780        85,108        87,661         90,291         92,999
Total Fixed Charges         6,066,766     6,300,103     6,489,106      6,683,779      6,884,293

Hotel EBITDA               20,659,113    27,334,520    30,367,941     32,409,726     33,625,857

Reserve for Replacement     2,541,234     3,064,716     3,277,681      3,438,898      3,553,622

Hotel NOI                  18,117,879    24,269,804    27,090,260     28,970,827     30,072,235



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Cautionary Statement Regarding Forward-Looking Statements

This Current Report on Form 8-K (including statements about the expected timing of the special meeting, the sale of the Company hotel portfolio) contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements, which are based on current expectations, estimates and projections about the industry and markets in which Condor Hospitality Trust, Inc. ("Condor"), operates and beliefs of and assumptions made by Condor management, involve uncertainties that could significantly affect the financial or operating results of Condor. Words such as "expects," "anticipates," "intends," "plans," "believes," "seeks," "estimates," "will," "should," "may," "projects," "could," "estimates" or variations of such words and other similar expressions are intended to identify such forward-looking statements, which generally are not historical in nature, but not all forward-looking statements include such identifying words. All statements that address operating performance, events or developments that we expect or anticipate will occur in the future - including statements relating to creating value for shareholders, benefits of the proposed transaction to shareholders and employees - are forward-looking statements. These statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions that are difficult to predict. Although we believe the expectations reflected in any forward-looking statements are based on reasonable assumptions, we can give no assurance that our expectations will be attained and therefore, actual outcomes and results may differ materially from what is expressed or forecasted in such forward-looking statements. For example, these forward-looking statements could be affected by factors including, without limitation, risks associated with (i) national, international, regional and local economic climates; (ii) the potential liability for a failure to meet regulatory requirements, including the maintenance of real estate investment trust status; (iii) risks associated with the ability to consummate the transactions; (iv) potential changes to tax legislation; (v) the potential impact of announcement of the proposed transaction or consummation of the proposed transactions on relationships, including with employees; (vi) the unfavorable outcome of any legal proceedings that may be instituted against Condor; (vii) impacts relating to COVID-19 or other pandemics or catastrophic events; and (viii) those additional risks and factors discussed in reports filed with the SEC by Condor from time to time, including those discussed under the heading "Risk Factors", the Definitive Proxy Statement and in its filed reports on Form 10-K and 10-Q. Except to the extent required by applicable law or regulation, Condor disclaims any duty to update any forward-looking statements contained in this communication or to otherwise update any of the above-referenced factors.

Additional Information and Where to Find It

The proposed transactions will be submitted to the Company's shareholders for their consideration. In connection with the proposed transactions, the Company has filed relevant materials with the SEC, including the Definitive Proxy Statement on Schedule 14A which was mailed to shareholders on October 18, 2021. This communication is not a substitute for the Definitive Proxy Statement or for any other document that the Company may file with the SEC and send to the Company's shareholders in connection with the proposed transaction. BEFORE MAKING ANY VOTING OR INVESTMENT DECISION WITH RESPECT TO THE PROPOSED TRANSACTIONS INVESTORS AND SECURITY HOLDERS OF THE COMPANY ARE URGED TO READ THE PROXY STATEMENT AND OTHER DOCUMENTS FILED WITH THE SEC CAREFULLY AND IN THEIR ENTIRETY WHEN THEY BECOME AVAILABLE BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION ABOUT THE PROPOSED TRANSACTIONS. Investors and security holders will be able to obtain free copies of the Definitive Proxy Statement (including this supplement), any amendments or supplements thereto and other relevant materials, and any other documents filed by the Company with the SEC through the website maintained by the SEC at http://www.sec.gov. In addition, copies of the documents filed by the Company with the SEC will be available free of charge on the Company's website at www.condorhospitality.com, or by contacting the Company at Investor Relations by phone at 301-861-3305 or by email at [e-mail]. or by requesting them in writing to Condor Hospitality Trust, Inc., 1800 West Pasewalk Avenue, Suite 120, Norfolk, Nebraska 68701, or by telephone at [phone].

Participants in the Solicitation

The Company and certain of its respective directors and executive officers and other members of management and employees may be deemed to be participants in the solicitation of proxies from the Condor shareholders in respect of the proposed transactions under the rules of the SEC. Information about Condor's directors and executive officers is available in Condor's proxy statements dated November 16, 2020, for its 2020 annual meeting, and December 14, 2020, for a 2021 special meeting, and its Annual Report on Form 10-K for the year ended December 31, 2020 and amendment thereto on Form 10-K/A filed with the SEC and subsequent reports which may be filed with the SEC. Other information regarding the participants in the proxy solicitation and a description of their direct and indirect interests, by security holdings or otherwise, are contained in the Definitive Proxy Statement and other relevant materials to be filed with the SEC regarding the transactions. Investors should read the Definitive Proxy Statement carefully before making any voting or investment decisions. You may obtain free copies of these documents from Condor using the sources indicated above.

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