RLJ LODGING TRUST The following discussion and analysis should be read in conjunction with our consolidated financial statements and related notes included elsewhere in this report, as well as the information contained in our Annual Report, which is accessible on theSEC's website at www.sec.gov.
Statement Regarding Forward-Looking Information
The following information contains certain statements, other than purely
historical information, including estimates, projections, statements relating to
our business plans, objectives and expected operating results, and the
assumptions upon which those statements are based, that are "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995, Section 27A of the Securities Act and Section 21E of the Securities
Exchange Act of 1934, as amended. These forward-looking statements generally are
identified by the use of the words "believe," "project," "expect," "anticipate,"
"estimate," "plan," "may," "will," "will continue," "intend," "should," or
similar expressions. Although we believe that the expectations reflected in
such forward-looking statements are based upon reasonable assumptions, beliefs
and expectations, such forward-looking statements are not predictions of future
events or guarantees of future performance and our actual results could differ
materially from those set forth in the forward-looking statements.
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Except as required by law, we undertake no obligation to update or revise
publicly any forward-looking statements, whether as a result of new information,
future events or otherwise. We caution investors not to place undue reliance on
these forward-looking statements and urge investors to carefully review the
disclosures we make concerning risks and uncertainties in the sections entitled
"Forward-Looking Statements," "Risk Factors," and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" in our Annual Report,
as well as the risks, uncertainties and other factors discussed in this
Quarterly Report on Form 10-Q and identified in other documents filed by us with
the SEC .
Overview
We are a self-advised and self-administered Maryland REIT that owns primarily
premium-branded, high-margin, focused-service and compact full-service hotels.
We own a geographically diversified portfolio of hotels located in high-growth
urban markets that exhibit multiple demand generators and attractive long-term
growth prospects. We believe that our investment strategy allows us to generate
high levels of Revenue per Available Room ("RevPAR"), strong operating margins
and attractive returns.
Our strategy is to own primarily premium-branded, focused-service and compact
full-service hotels. Focused-service and compact full-service hotels typically
generate most of their revenue from room rentals, have limited food and beverage
outlets and meeting space, and require fewer employees than traditional
full-service hotels. We believe these types of hotels have the potential to
generate attractive returns relative to other types of hotels due to their
ability to achieve RevPAR levels at or close to those achieved by traditional
full-service hotels while achieving higher profit margins due to their more
efficient operating model and less volatile cash flows.
As of June 30, 2022 , we owned 96 hotel properties with approximately 21,300
rooms, located in 22 states and the District of Columbia . We owned, through
wholly-owned subsidiaries, a 100% interest in 94 of our hotel properties, a 95%
controlling interest in one hotel property, and a 50% non-controlling interest
in an entity owning one hotel property. We consolidate our real estate interests
in the 95 hotel properties in which we hold a controlling interest, and we
record the real estate interests in the one hotel property in which we hold a
50% non-controlling interest using the equity method of accounting. We lease 95
of the 96 hotel properties to our TRS, of which we own a controlling financial
interest.
For U.S. federal income tax purposes, we elected to be taxed as a REIT
commencing with our taxable year ended December 31, 2011 . Substantially all of
our assets and liabilities are held by, and all of our operations are conducted
through our Operating Partnership . We are the sole general partner of the
Operating Partnership . As of June 30, 2022 , we owned, through a combination of
direct and indirect interests, 99.5% of the units of limited partnership
interest in the OP units.
2022 Significant Activities
Our significant activities reflect our commitment to creating long-term shareholder value through enhancing our hotel portfolio's quality, recycling capital and maintaining a prudent capital structure. The following significant activities have taken place in 2022:
•Paid off the
•Sold two hotel properties for a combined sales price of approximately
•Exercised a one-year extension option on a mortgage loan extending the maturity
to
•Purchased and retired approximately 4.2 million shares for
•Acquired the 124-room 21c
•Exited both the Covenant Relief Period and Leverage Relief Period under our Revolver and Term Loan agreements.
Our Customers
The majority of our hotels consist of premium-branded, focused-service and
compact full-service hotels. As a result of this property profile, the majority
of our customers are transient in nature. Transient business typically
represents individual business or leisure travelers. The majority of our hotels
are located in business districts within major metropolitan areas. Accordingly,
business travelers represent the majority of the transient demand at our hotels.
As a result, macroeconomic factors impacting business travel have a greater
effect on our business than factors impacting leisure travel.
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Group business is typically defined as a minimum of 10 guestrooms booked
together as part of the same piece of business. Group business may or may not
use the meeting space at any given hotel. Given the limited meeting space at the
majority of our hotels, group business that utilizes meeting space represents a
small component of our customer base.
A number of our hotel properties are affiliated with brands marketed toward extended-stay customers. Extended-stay customers are generally defined as those staying five nights or longer.
Our Revenues and Expenses
Our revenues are primarily derived from the operation of hotels, including the sale of rooms, food and beverage revenue and other revenue, which consists of parking fees, resort fees, gift shop sales and other guest service fees. Our operating costs and expenses consist of the costs to provide hotel services, including room expense, food and beverage expense, management and franchise fees and other operating expenses. Room expense includes housekeeping and front office wages and payroll taxes, reservation systems, room supplies, laundry services and other costs. Food and beverage expense primarily includes the cost of food, the cost of beverages and the associated labor costs. Other operating expenses include labor and other costs associated with the other operating department revenue, as well as labor and other costs associated with administrative departments, sales and marketing, repairs and maintenance and utility costs. Our hotels that are subject to franchise agreements are charged a royalty fee, plus additional fees for marketing, central reservation systems and other franchisor costs, in order for the hotel properties to operate under the respective brands. Franchise fees are based on a percentage of room revenue and for certain hotels additional franchise fees are charged for food and beverage revenue. Our hotels are managed by independent, third-party management companies under long-term agreements pursuant to which the management companies typically earn base and incentive management fees based on the levels of revenues and profitability of each individual hotel property. We generally receive a cash distribution from the management companies on a monthly basis, which reflects hotel-level sales less hotel-level operating expenses.
Key Indicators of Financial Performance
We use a variety of operating, financial and other information to evaluate the operating performance of our business. These key indicators include financial information that is prepared in accordance with GAAP as well as other financial measures that are non-GAAP measures. In addition, we use other information that may not be financial in nature, including industry standard statistical information and comparative data. We use this information to measure the operating performance of our individual hotels, groups of hotels and/or business as a whole. We also use these metrics to evaluate the hotels in our portfolio and potential acquisition opportunities to determine each hotel's contribution to cash flow and its potential to provide attractive long-term total returns. The key indicators include:
•Average Daily Rate ("ADR")
•Occupancy
•RevPAR
ADR, Occupancy and RevPAR are commonly used measures within the lodging industry
to evaluate operating performance. RevPAR is an important statistic for
monitoring operating performance at the individual hotel property level and
across our entire business. We evaluate individual hotel RevPAR performance on
an absolute basis with comparisons to budget and prior periods, as well as on a
regional and company-wide basis. ADR and RevPAR include only room revenue.
We also use non-GAAP measures such as FFO, Adjusted FFO, EBITDA, EBITDAre and
Adjusted EBITDA to evaluate the operating performance of our business. For a
more in depth discussion of the non-GAAP measures, please refer to the "Non-GAAP
Financial Measures" section.
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Critical Accounting Policies and Estimates
The preparation of the financial statements in conformity with GAAP requires
management to make estimates and assumptions that affect 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. It is possible
that the actual amounts may differ significantly from these estimates and
assumptions. We evaluate our estimates, assumptions and judgments on an ongoing
basis, based on information that is available to us, our business and industry
experience, and various other matters that we believe are reasonable and
appropriate for consideration under the circumstances. Our Annual Report
contains a discussion of our critical accounting policies and estimates. There
have been no significant changes to our critical accounting policies and
estimates since December 31, 2021 .
Results of Operations
AtJune 30, 2022 and 2021, we owned 96 and 100 hotel properties, respectively. Based on when a hotel property is acquired, sold or closed for renovation, the operating results for certain hotel properties are not comparable for the three and six months endedJune 30, 2022 and 2021. The non-comparable properties include ten hotel properties that were sold or otherwise disposed in 2022 and 2021 and three acquisitions that were completed in 2021. 26 -------------------------------------------------------------------------------- Table of Contents Comparison of the three months endedJune 30, 2022 to the three months endedJune 30, 2021 For the three months ended June 30, 2022 2021 $ Change (amounts in thousands) Revenues Operating revenues Room revenue$ 280,676 $ 166,554 $ 114,122 Food and beverage revenue 31,154 12,983 18,171 Other revenue 18,671 14,717 3,954 Total revenues 330,501 194,254 136,247 Expenses Operating expenses Room expense 65,793 42,898 22,895 Food and beverage expense 21,770 8,709 13,061 Management and franchise fee expense 26,067 12,630 13,437 Other operating expense 76,888 56,883 20,005 Total property operating expenses 190,518 121,120 69,398 Depreciation and amortization 46,922 46,915 7 Property tax, insurance and other 22,949 24,048 (1,099) General and administrative 13,348 12,133 1,215 Transaction costs 136 195 (59) Total operating expenses 273,873 204,411 69,462 Other income (expense), net 721 (9,720) 10,441 Interest income 347 220 127 Interest expense (23,855) (26,366) 2,511 (Loss) gain on sale of hotel properties, net (364) 103 (467) Loss on extinguishment of indebtedness, net - (6,207) 6,207
Income (loss) before equity in income from unconsolidated joint ventures
33,477 (52,127) 85,604
Equity in income from unconsolidated joint ventures 283 60 223
Income (loss) before income tax expense 33,760 (52,067) 85,827
Income tax expense (558) (154) (404)
Net income (loss) 33,202 (52,221) 85,423
Net (income) loss attributable to noncontrolling interests:
Noncontrolling interest in the
(125) 268 (393)
Noncontrolling interest in consolidated joint ventures (111) 506 (617)
Net income (loss) attributable to RLJ 32,966 (51,447) 84,413
Preferred dividends (6,279) (6,279) -
Net income (loss) attributable to common shareholders
$ (57,726) $ 84,413 27
-------------------------------------------------------------------------------- Table of Contents Revenues Total revenues increased$136.2 million to$330.5 million for the three months endedJune 30, 2022 from$194.3 million for the three months endedJune 30, 2021 . The increase was the result of a$114.1 million increase in room revenue, a$18.2 million increase in food and beverage revenue, and a$4.0 million increase in other revenue.
Room Revenue
Room revenue increased$114.1 million to$280.7 million for the three months endedJune 30, 2022 from$166.6 million for the three months endedJune 30, 2021 . The increase was the result of a$111.8 million increase in room revenue attributable to the comparable properties and a$2.4 million increase in room revenue attributable to the non-comparable properties. The increase in room revenue from the comparable properties was attributable to an increase in RevPAR resulting from an increase in demand as compared to the prior period. Though RevPAR increased over the comparable period in 2021, it remained below the comparable period in 2019.
The following are the quarter-to-date key hotel operating statistics for the comparable properties:
For the three months ended June 30,
2022 2021 2019
Occupancy 74.7 % 59.8 % 83.0 %
ADR $ 195.64 $ 143.39 $ 189.69
RevPAR $ 146.05 $ 85.78 $ 157.45
Food and Beverage Revenue
Food and beverage revenue increased $18.2 million to $31.2 million for the three
months ended June 30, 2022 from $13.0 million for the three months ended June
30, 2021 due to an increase in demand as compared to the prior period. The
increase in food and beverage revenue was due to an increase in group business
and the reopening of certain food and beverage outlets.
Other Revenue
Other revenue increased$4.0 million to$18.7 million for the three months endedJune 30, 2022 from$14.7 million for the three months endedJune 30, 2021 . The increase in other revenue was due to an increase in parking fees, resort fees, cancellation fees, and gift shop sales that corresponded to the increase in demand over the prior period.
Property Operating Expenses
Property operating expenses increased$69.4 million to$190.5 million for the three months endedJune 30, 2022 from$121.1 million for the three months endedJune 30, 2021 . The increase was due to a$70.6 million increase in property operating expenses attributable to the comparable properties, which was partially offset by a$1.2 million decrease in property operating expenses attributable to the non-comparable properties.
The components of our property operating expenses for the comparable properties were as follows (in thousands):
For the three months ended June
30,
2022 2021 $ Change
Room expense $ 64,297 $ 41,156 $ 23,141
Food and beverage expense 21,425 8,570 12,855
Management and franchise fee expense 25,023 11,914 13,109
Other operating expenses 74,990 53,527 21,463
Total property operating expenses $ 185,735 $
115,167
The increase in property operating expenses attributable to the comparable properties corresponded to an increase in demand over the prior period. Management and franchise fee expense for the three months endedJune 30, 2022 and 2021 included a reduction to management and franchise fee expense of$1.0 million and$4.5 million , respectively, related to the recognition of the Wyndham termination payment. The decrease in the recognition of the Wyndham termination payment was 28 -------------------------------------------------------------------------------- Table of Contents due to certain Wyndham agreements expiring in 2021 coupled with the remaining agreements being extended and recognized over a longer period.
Property Tax, Insurance and Other
Property tax, insurance and other expense decreased$1.1 million to$22.9 million for the three months endedJune 30, 2022 from$24.0 million for the three months endedJune 30, 2021 . The decrease was attributable to a$1.9 million decrease in property tax, insurance and other expense attributable to the non-comparable properties, which was partially offset by a$0.8 million increase in property tax, insurance and other expense attributable to the comparable properties. The increase in property tax, insurance and other expense attributable to the comparable properties was primarily attributable to an increase in insurance expense premiums and ground lease rent due to percentage rent obligations and increases based on the consumer price index. These increases were partially offset by decreases in real estate tax assessments and the beneficial impact of successful real estate tax appeals in the current period.
General and Administrative
General and administrative expense increased$1.2 million to$13.3 million for the three months endedJune 30, 2022 from$12.1 million for the three months endedJune 30, 2021 . The increase was primarily attributable to an increase in non-cash compensation expense and an increase in payroll tax expense due to payroll tax credits in the prior year that did not recur in the current year.
Other Income (Expense), net
Other income (expense), net increased$10.4 million to income of$0.7 million for the three months endedJune 30, 2022 from expense of$9.7 million for the three months endedJune 30, 2021 . The increase was primarily attributable to the reclassification of unrealized losses from accumulated other comprehensive income (loss) due to the discontinuation of certain cash flow hedges during the three months endedJune 30, 2021 .
Interest Expense
Interest expense decreased$2.5 million to$23.9 million for the three months endedJune 30, 2022 from$26.4 million for the three months endedJune 30, 2021 . Interest expense decreased due to lower average debt balances and lower effective interest rates after taking into account the impact of interest rate swaps in each of the periods. The components of our interest expense for the three months endedJune 30, 2022 and 2021 were as follows (in thousands): For the three months ended June 30, 2022 2021 $ Change Senior Notes$ 9,688 $ 6,685 $ 3,003 Revolver and Term Loans 9,136 14,023 (4,887) Mortgage loans 3,329 4,294 (965) Amortization of deferred financing costs 1,417 1,364 53 Undesignated interest rate swaps 285 - 285 Total interest expense$ 23,855 $ 26,366 $ (2,511)
Loss (Gain) on Sale of Hotel Properties, net
During the three months endedJune 30, 2022 , we sold one hotel property for a sales price of approximately$14.5 million and recorded a net loss on the sale of approximately$0.3 million . During the three months endedJune 30, 2021 , we sold two hotel properties for a sales price of approximately$13.3 million and recorded a net gain on sale of approximately$0.1 million . 29 -------------------------------------------------------------------------------- Table of Contents Comparison of the six months endedJune 30, 2022 to the six months endedJune 30, 2021 For the six months ended June 30, 2022 2021 $ Change (amounts in thousands) Revenues Operating revenues Room revenue$ 486,455 $ 269,326 $ 217,129 Food and beverage revenue 52,055 19,225 32,830 Other revenue 34,890 25,255 9,635 Total revenues 573,400 313,806 259,594 Expenses Operating expenses Room expense 119,621 72,325 47,296 Food and beverage expense 37,939 13,265 24,674 Management and franchise fee expense 46,456 17,991 28,465 Other operating expense 145,542 106,003 39,539 Total property operating expenses 349,558 209,584 139,974 Depreciation and amortization 93,787 93,858 (71) Impairment losses - 5,946 (5,946) Property tax, insurance and other 45,462 44,129 1,333 General and administrative 27,482 22,934 4,548 Transaction costs 198 255 (57) Total operating expenses 516,487 376,706 139,781 Other income (expense), net 8,006 (9,255) 17,261 Interest income 519 604 (85) Interest expense (48,416) (54,261) 5,845 Gain on sale of hotel properties, net 1,053 1,186 (133) Loss on extinguishment of indebtedness, net - (6,207) 6,207 Income (loss) before equity in income (loss) from unconsolidated joint ventures 18,075 (130,833) 148,908
Equity in income (loss) from unconsolidated joint ventures 405
(238) 643
Income (loss) before income tax expense 18,480 (131,071) 149,551
Income tax expense (748) (268) (480)
Net income (loss) 17,732 (131,339) 149,071
Net (income) loss attributable to noncontrolling interests:
Noncontrolling interest in the
(21) 664 (685)
Noncontrolling interest in consolidated joint ventures 7 1,242 (1,235)
Net income (loss) attributable to RLJ 17,718 (129,433) 147,151
Preferred dividends (12,557) (12,557) -
Net income (loss) attributable to common shareholders
$ (141,990) $ 147,151 30
-------------------------------------------------------------------------------- Table of Contents Revenues Total revenues increased$259.6 million to$573.4 million for the six months endedJune 30, 2022 from$313.8 million for the six months endedJune 30, 2021 . The increase was the result of a$217.1 million increase in room revenue, a$32.8 million increase in food and beverage revenue, and a$9.6 million increase in other revenue. Room Revenue Room revenue increased$217.1 million to$486.5 million for the six months endedJune 30, 2022 from$269.3 million for the six months endedJune 30, 2021 . The increase was the result of a$212.6 million increase in room revenue attributable to the comparable properties, and a$4.5 million increase in room revenue attributable to the non-comparable properties. The increase in room revenue from the comparable properties was attributable to an increase in RevPAR, including a significant increase in ADR, resulting from an increase in demand over the prior period. The increase was also attributable to the impact of hotels that were closed for all or a portion of the prior period being open for the entirety of the current period. Though RevPAR increased over the comparable period in 2021, it remained below the comparable period in 2019. The following are the year-to-date key hotel operating statistics for the comparable properties: For the six months ended June 30, 2022 2021 2019 Occupancy 67.9 % 52.3 % 79.7 % ADR$ 186.66 $ 133.49 $ 189.78 RevPAR$ 126.83 $ 69.76 $ 151.26 Food and Beverage Revenue Food and beverage revenue increased$32.8 million to$52.1 million for the six months endedJune 30, 2022 from$19.2 million for the six months endedJune 30, 2021 due to an increase in demand over the prior period. The increase in food and beverage revenue was due to an increase in group business and the reopening of certain food and beverage outlets. The increase was also attributable to the impact of hotels that were closed for all or a portion of the prior period being open for the entirety of the current period.
Other Revenue
Other revenue increased$9.6 million to$34.9 million for the six months endedJune 30, 2022 from$25.3 million for the six months endedJune 30, 2021 . The increase in other revenue was due to an increase in parking fees, resort fees, cancellation fees, and gift shop sales that corresponded to the increase in demand over the prior period.
Property Operating Expenses
Property operating expenses increased$140.0 million to$349.6 million for the six months endedJune 30, 2022 from$209.6 million for the six months endedJune 30, 2021 . The increase was due to a$141.4 million increase in property operating expenses attributable to the comparable properties, which was partially offset by a$1.4 million decrease in property operating expenses attributable to the non-comparable properties.
The components of our property operating expenses for the comparable properties were as follows (in thousands):
For the six months ended June 30,
2022 2021 $ Change
Room expense $ 116,354 $ 69,064 $ 47,290
Food and beverage expense 37,171 13,039 24,132
Management and franchise fee expense 44,686 16,822 27,864
Other operating expenses 141,301 99,190 42,111
Total property operating expenses $ 339,512 $
198,115
The increase in property operating expenses attributable to the comparable
properties was due to an increase in demand over the prior period. Management
and franchise fee expense for the six months ended
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reduction in management and franchise fee expense of $2.1 million and $9.1
million , respectively, related to the recognition of the Wyndham termination
payment. The decrease in the recognition of the Wyndham termination payment was
due to certain Wyndham agreements expiring in 2021 coupled with the remaining
agreements being extended and recognized over a longer period.
Impairment Losses
During the six months ended
Property Tax, Insurance and Other
Property tax, insurance and other expense increased$1.3 million to$45.5 million for the six months endedJune 30, 2022 from$44.1 million for the six months endedJune 30, 2021 . The increase was attributable to a$4.5 million increase in property tax, insurance and other expense attributable to the comparable properties, which was partially offset by a$3.1 million decrease in property tax, insurance and other expense attributable to the non-comparable properties. The increase in property tax, insurance and other expense attributable to the comparable properties was primarily attributable to a benefit of$5.4 million during the six months endedJune 30, 2021 related to the reversal of accrued real estate tax liabilities in excess of the amounts owed for certain of ourCalifornia hotels acquired in our merger withFelCor Lodging Trust that did not recur in 2022. Additionally, the increase was attributable to an increase in insurance expense premiums and ground lease rent due to percentage rent obligations and increases based on the consumer price index. These increases were partially offset by decreases in other real estate tax assessments and the beneficial impact of successful real estate tax appeals in the current period. General and Administrative General and administrative expense increased$4.5 million to$27.5 million for the six months endedJune 30, 2022 from$22.9 million for the six months endedJune 30, 2021 . The increase was primarily attributable to an increase in non-cash compensation expense and an increase in payroll tax expense due to payroll tax credits in the prior year that did not recur in the current year.
Other Income (Expense), net
Other income (expense), net increased$17.3 million to income of$8.0 million for the six months endedJune 30, 2022 from expense of$9.3 million for the six months endedJune 30, 2021 . The increase was primarily attributable to the reclassification of unrealized gains and losses from accumulated other comprehensive income (loss) due to the discontinuation of certain cash flow hedges in each of the periods.
Interest Expense
Interest expense decreased$5.8 million to$48.4 million for the six months endedJune 30, 2022 from$54.3 million for the six months endedJune 30, 2021 . Interest expense decreased due to lower average debt balances and lower effective interest rates after taking into account the impact of interest rate swaps in each of the periods. The components of our interest expense for the six months endedJune 30, 2022 and 2021 were as follows (in thousands): For the six months ended June 30, 2022 2021 $ Change Senior Notes$ 19,431 $ 12,627 $ 6,804 Revolver and Term Loans 19,104 31,201 (12,097) Mortgage loans 6,539 7,748 (1,209) Amortization of deferred financing costs 3,101 2,685 416 Non-cash interest expense related to interest rate hedges 241 - 241 Total interest expense$ 48,416 $ 54,261 $ (5,845) 32
-------------------------------------------------------------------------------- Table of Contents Gain on Sale of Hotel Properties, net During the six months endedJune 30, 2022 , we sold two hotel properties for a sales price of approximately$49.9 million and recorded a net gain on sale of approximately$1.1 million . During the six months endedJune 30, 2021 , we sold three hotel properties for a sales price of approximately$17.7 million and recorded a net gain on sale of approximately$1.2 million .
Non-GAAP Financial Measures
We consider the following non-GAAP financial measures useful to investors as key supplemental measures of our performance: (1) FFO, (2) Adjusted FFO, (3) EBITDA, (4) EBITDAre and (5) Adjusted EBITDA. These non-GAAP financial measures should be considered along with, but not as alternatives to, net income or loss as a measure of our operating performance. FFO, Adjusted FFO, EBITDA, EBITDAre, and Adjusted EBITDA, as calculated by us, may not be comparable to FFO, Adjusted FFO, EBITDA, EBITDAre and Adjusted EBITDA as reported by other companies that do not define such terms exactly as we define such terms.
Funds From Operations
We calculate funds from operations ("FFO") in accordance with standards
established by the National Association of Real Estate Investment Trusts
("NAREIT"), which defines FFO as net income or loss, excluding gains or losses
from sales of real estate, impairment, the cumulative effect of changes in
accounting principles, plus depreciation and amortization, and adjustments for
unconsolidated partnerships and joint ventures. Historical cost accounting for
real estate assets implicitly assumes that the value of real estate assets
diminishes predictably over time. Since real estate values instead have
historically risen or fallen with market conditions, most real estate industry
investors consider FFO to be helpful in evaluating a real estate company's
operations. We believe that the presentation of FFO provides useful information
to investors regarding our operating performance and can facilitate comparisons
of operating performance between periods and between REITs, even though FFO does
not represent an amount that accrues directly to common shareholders. Our
calculation of FFO may not be comparable to measures calculated by other
companies who do not use the NAREIT definition of FFO or do not calculate FFO
per diluted share in accordance with NAREIT guidance. Additionally, FFO may not
be helpful when comparing us to non-REITs. We present FFO attributable to common
shareholders, which includes our OP units, because our OP units may be redeemed
for common shares. We believe it is meaningful for the investor to understand
FFO attributable to all common shares and OP units.
We further adjust FFO for certain additional items that are not in NAREIT's
definition of FFO, such as hotel transaction costs, pre-opening costs, non-cash
income tax expense or benefit, the amortization of share-based compensation,
non-cash expense related to discontinued interest rate hedges, and certain other
expenses that we consider outside the normal course of operations. We believe
that Adjusted FFO provides useful supplemental information to investors
regarding our ongoing operating performance that, when considered with net
income and FFO, is beneficial to an investor's understanding of our operating
performance.
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Table of Contents The following table is a reconciliation of our GAAP net income (loss) to FFO attributable to common shareholders and unitholders and Adjusted FFO attributable to common shareholders and unitholders for the three and six months endedJune 30, 2022 and 2021 (in thousands):
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