Sunstone Hotel Investors, Inc.

SHO

US8678921011

Specialized REITs

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Apr. 10	Sunstone Hotel to Buy Hyatt Regency San Antonio Riverwalk	MT
Apr. 10	Sunstone Hotel Investors, Inc. agreed to acquire Hyatt Regency San Antonio Riverwalk Hotel from Hyatt Hotels Corporation (NYSE:H) for $220 million.	CI

SUNSTONE HOTEL INVESTORS : Management's Discussion and Analysis of Financial Condition and Results of Operations (form 10-Q)

May 05, 2021 at 02:30 pm EDT

Overview

Sunstone Hotel Investors, Inc. (the "Company," "we," "our" or "us") is a
Maryland corporation. We operate as a self-managed and self-administered real
estate investment trust ("REIT"). A REIT is a corporation that directly or
indirectly owns real estate assets and has elected to be taxable as a real
estate investment trust for federal income tax purposes. To qualify for taxation
as a REIT, the REIT must meet certain requirements, including regarding the
composition of its assets and the sources of its income. REITs generally are not
subject to federal income taxes at the corporate level as long as they pay
stockholder dividends equivalent to 100% of their taxable income. REITs are
required to distribute to stockholders at least 90% of their REIT taxable
income. We own, directly or indirectly, 100% of the interests of Sunstone Hotel
Partnership, LLC (the "Operating Partnership"), which is the entity that
directly or indirectly owns our hotel properties. We also own 100% of the
interests of our taxable REIT subsidiary, Sunstone Hotel TRS Lessee, Inc. (the
"TRS Lessee"), which, directly or indirectly, leases all of our hotels from the
Operating Partnership, and engages independent third-parties to manage our
hotels.



We own hotels that we consider to be Long-Term Relevant Real Estate® (or LTRR®)
in the United States, specifically hotels in urban and resort destination
locations that benefit from significant barriers to entry by competitors and
diverse economic drivers. As part of our ongoing portfolio management strategy,
on an opportunistic basis, we may also selectively sell hotel properties that we
believe do not meet our criteria of LTRR®. As of March 31, 2021, we had
interests in 17 hotels (the "17 Hotels") currently held for investment, which
average 530 rooms in size. All but two (the Boston Park Plaza and the Oceans
Edge Resort & Marina) of the 17 Hotels are operated under nationally recognized
brands such as Marriott, Hilton and Hyatt, which are among the most respected
and widely recognized brands in the lodging industry. Our two unbranded hotels
are located in top urban and resort destination markets that have enabled them
to establish awareness with both group and transient customers.



COVID-19 Impact and Response


In March 2020, the COVID-19 pandemic was declared a National Public Health
Emergency, which led to significant cancellations, corporate and government
travel restrictions and an unprecedented decline in hotel demand. As a result of
these cancellations, restrictions and the health concerns related to COVID-19,
we determined that it was in the best interest of our hotel employees and the
communities in which our hotels operate to temporarily suspend operations at the
majority of our hotels.



In response to the COVID-19 pandemic, we temporarily suspended operations at 14
of the 17 Hotels during March and April 2020, 13 of which have since resumed
operations as of May 1, 2021:




Hotel                                                 Suspension Date   Resumption Date
Oceans Edge Resort & Marina                           March 22, 2020    June 4, 2020
Embassy Suites Chicago                                April 1, 2020     July 1, 2020
Marriott Boston Long Wharf                            March 12, 2020    July 7, 2020
Hilton New Orleans St. Charles                        March 28, 2020    July 13, 2020
Hyatt Centric Chicago Magnificent Mile                April 6, 2020     July 13, 2020
JW Marriott New Orleans                               March 28, 2020    July 14, 2020
Hilton San Diego Bayfront                             March 23, 2020    August 11, 2020
Renaissance Washington DC                             March 26, 2020    August 24, 2020
Hyatt Regency San Francisco                           March 22, 2020    October 1, 2020
Renaissance Orlando at SeaWorld®                      March 20, 2020    October 1, 2020
The Bidwell Marriott Portland                         March 27, 2020    October 5, 2020
Wailea Beach Resort                                   March 25, 2020    November 1, 2020
Hilton Garden Inn Chicago Downtown/Magnificent Mile   March 27, 2020    April 1, 2021
Renaissance Westchester                               April 4, 2020




Three of the 17 Hotels remained open throughout the pandemic: the Boston Park
Plaza; the Embassy Suites La Jolla; and the Renaissance Long Beach. As a result
of the COVID-19-related temporary hotel suspensions and the reduced occupancy at
our open hotels, we, in conjunction with our third-party managers, decreased
operating expenses to preserve liquidity by implementing stringent operational
cost containment measures, including significantly reduced staffing levels,
limited food and beverage offerings, elimination of non-essential hotel services
and the temporary closure of various parts of the hotels. In addition, enhanced
cleaning procedures and revised operating standards were developed and
implemented.

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The following represents the status of the hotels we had interests in as of
March 31, 2021 and 2020:




                                                                   As of March 31,
                                                                   2021    2020 (1)
Number of hotels open                                                 15          9


Number of rooms in open hotels                                     8,308

4,511


Number of hotels with temporarily suspended operations                 2

Number of rooms in hotels with temporarily suspended operations 709


  6,099
Total number of hotels                                                17         20
Total number of rooms                                              9,017     10,610

(1) Includes three hotels that were open as of March 31, 2020, which were


     subsequently disposed of in the third and fourth quarters of 2020.


Our asset management team has worked closely with each hotel's third-party
manager to create detailed operating plans, including adherence to safety
precautions developed by the Center for Disease Control and Prevention and other
public health experts. We continue to closely monitor the safety measures at our
hotels, including frequent and enhanced cleaning and sanitation, contactless
check-in, the use of personal protective equipment by hotel employees and guests
and increased physical distancing throughout each hotel.



First Quarter 2021 Overview



Since our COVID-19-related occupancy low point of 1.6% in April 2020, we have
experienced slow but steady improvements in hotel demand. During January,
February and March 2021, as the number of COVID-19 cases decreased and the
vaccine distribution program increased, occupancy at the 17 Hotels accelerated
to 13.3%, 22.4% and 29.1%, respectively. In March 2021, the Embassy Suites La
Jolla, the Oceans Edge Resort & Marina, the Renaissance Washington DC and the
Wailea Beach Resort all achieved occupancies greater than 50.0%. We also
experienced demand increases, most significantly in leisure travel over the
President's Day weekend and during Spring Break, at our hotels in Long Beach,
New Orleans, Orlando and San Diego.



Leisure demand continues to accelerate and business transient and group demand,
which have been slower to return, are both demonstrating positive growth. While
the preponderance of recent group business has been composed primarily of
government, emergency management and medical-related groups, several of our
hotels have begun to host traditional group business, including corporate
groups. In March 2021, both the Renaissance Orlando at SeaWorld® and the Wailea
Beach Resort hosted traditional group events attracting attendance above their
contracted levels. We are beginning to see events with more guests and events
that take place over longer periods of time. A significant portion of the group
business on-the-books for the second half of 2021 continues to hold to their
contractual program dates, anticipating a continued improvement in conditions
allowing for groups to meet. We believe that the return of traditional business
transient and group business will ultimately depend on the speed and efficacy of
the vaccine distribution and the degree to which that allows us to return to
normal. We expect the demand recovery to extend past 2021, and we are encouraged
by the recent pace of future group bookings, which leads us to believe that our
portfolio will perform significantly better in the second half of 2021 and
specifically in the fourth quarter of 2021.



In response to the economic challenges caused by the COVID-19 pandemic, we
remain focused on maintaining our liquidity. While we continue to defer a
portion of our planned 2020 and 2021 non-essential capital improvements to our
portfolio, we are taking advantage of the low demand environment to perform
otherwise extremely disruptive capital projects. During the first quarter of
2021, we initiated projects at the Hilton San Diego Bayfront to convert a
previously leased restaurant space to meeting space and re-concept the ground
floor hotel restaurant, and at the Boston Park Plaza to convert a vacant retail
space to meeting space. Additional 2021 projects will include the reposition and
rebranding of the Renaissance Washington DC to The Westin Washington DC and the
addition of an adults-only pool at the Wailea Beach Resort.



During the first quarter of 2021, we continued our temporary suspensions of both
our stock repurchase program and our common stock quarterly dividend to preserve
additional liquidity. In anticipation of a return to normalcy post-COVID-19, our
board of directors reauthorized our existing stock repurchase program in
February 2021, allowing us to acquire up to $500.0 million of our common and
preferred stock. Future repurchases, however, will depend on the effects of the
COVID-19 pandemic and various other factors, including our obligations under our
various financing agreements and capital needs, as well as the price of our
common and preferred stock. At this time, we do not expect to pay a quarterly
dividend on our common stock for the remainder of the year. The resumption in
quarterly common dividends will be determined by our board of directors after
considering our obligations under our various financing agreements, projected
taxable income, compliance with our debt covenants, long-term operating
projections, expected capital requirements and risks affecting our business.

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We believe that the strong balance sheet we had going into the pandemic combined
with the steps we have taken to preserve our financial flexibility, will be
sufficient to allow us to navigate through this crisis. Given the unprecedented
impact of COVID-19 on the global market and our hotel operations, we cannot
assure you that our forecast or the assumptions we used to estimate our
liquidity requirements will be correct. The magnitude and duration of the
COVID-19 pandemic is uncertain, and we cannot accurately estimate its impact on
our business, financial condition or operational results with reasonable
certainty.



Operating Activities

Revenues. Substantially all of our revenues are derived from the operation of our hotels. Specifically, our revenues consist of the following:

Room revenue, which is comprised of revenue realized from the sale of rooms at

? our hotels and is driven by occupancy and the average daily room rate, or

"ADR," as defined below;

? Food and beverage revenue, which is comprised of revenue realized in the hotel


   food and beverage outlets as well as banquet and catering events; and

Other operating revenue, which includes ancillary hotel revenue and other items

primarily driven by occupancy such as telephone/internet, parking, spa,

facility and resort fees, entertainment and other guest services. Additionally,

? this category includes, among other things, attrition and cancellation revenue,

tenant revenue derived from hotel space and marina slips leased by third

parties, any business interruption proceeds and any performance guarantee or


   reimbursements to offset net losses.

Expenses. Our expenses consist of the following:

Room expense, which is primarily driven by occupancy and, therefore, has a

? significant correlation with room revenue. Additionally, this category includes

COVID-19-related wages and benefits for furloughed or laid off hotel employees;

Food and beverage expense, which is primarily driven by food and beverage sales

? and banquet and catering bookings and, therefore, has a significant correlation

with food and beverage revenue. Additionally, this category includes

COVID-19-related wages and benefits for furloughed or laid off hotel employees;

Other operating expense, which includes the corresponding expense of other

? operating revenue, advertising and promotion, repairs and maintenance,

utilities and franchise costs. Additionally, this category includes

COVID-19-related wages and benefits for furloughed or laid off hotel employees;

Property tax, ground lease and insurance expense, which includes the expenses

associated with property tax, ground lease and insurance payments, each of

? which is primarily a fixed expense, however property tax is subject to regular

revaluations based on the specific tax regulations and practices of each

municipality, along with our noncash operating lease expenses, general excise


   tax assessed by Hawaii and city taxes imposed by San Francisco;

Other property-level expenses, which includes our property-level general and

administrative expenses, such as payroll, benefits and other employee-related

expenses, contract and professional fees, credit and collection expenses,

? employee recruitment, relocation and training expenses, labor dispute expenses,

consulting fees, management fees and other expenses. Additionally, this

category includes COVID-19-related wages and benefits for furloughed or laid

off hotel employees, net of employee retention tax credits and industry grants


   received by our hotels;

Corporate overhead expense, which includes our corporate-level expenses, such

as payroll, benefits and other employee-related expenses, amortization of

? deferred stock compensation, business acquisition and due diligence expenses,

legal expenses, association, contract and professional fees, board of director

expenses, entity-level state franchise and minimum taxes, travel expenses,


   office rent and other customary expenses;

Depreciation and amortization expense, which includes depreciation on our hotel

buildings, improvements, furniture, fixtures and equipment ("FF&E"), along with

? amortization on our finance lease right-of-use asset, franchise fees and

certain intangibles. Additionally, this category includes depreciation and


   amortization related to FF&E for our corporate office; and




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Impairment losses, which includes the charges we have recognized to reduce the

? carrying values of certain hotels on our balance sheet to their fair values in

association with our impairment evaluations, along with the write-off of any


   development costs associated with abandoned projects.

Other Revenue and Expense. Other revenue and expense consists of the following:

Interest and other income (loss), which includes interest we have earned on our

restricted and unrestricted cash accounts, as well as any energy or other

? rebates, property insurance proceeds we have received, miscellaneous income,

contingency payments related to sold hotels and any gains or losses we have


   recognized on sales or redemptions of assets other than real estate
   investments;

Interest expense, which includes interest expense incurred on our outstanding

? fixed and variable rate debt and finance lease obligation, gains or losses on

interest rate derivatives, amortization of deferred financing costs, and any


   loan or waiver fees incurred on our debt;

Gain (loss) on extinguishment of debt, which includes gains related to the

resolution of contingencies on extinguished debt, or losses recognized on

? amendments or early repayments of mortgages or other debt obligations from the

accelerated amortization of deferred financing costs, along with any other


   costs incurred;




   Income tax provision, net, which includes federal and state income taxes

related to continuing operations charged to the Company net of any refunds

? received, any adjustments to deferred tax assets, liabilities or valuation

allowances, and any adjustments to unrecognized tax positions, along with any


   related interest and penalties incurred;

Loss (income) from consolidated joint venture attributable to noncontrolling

? interest, which includes the net loss (income) attributable to a third-party's

25.0% ownership interest in the joint venture that owns the Hilton San Diego


   Bayfront; and

Preferred stock dividends, which includes dividends accrued on our Series E

? Cumulative Redeemable Preferred Stock ("Series E preferred stock") and our

Series F Cumulative Redeemable Preferred Stock ("Series F preferred stock").

Operating Performance Indicators. The following performance indicators are commonly used in the hotel industry:

? Occupancy, which is the quotient of total rooms sold divided by total rooms


   available;

? Average daily room rate, or ADR, which is the quotient of room revenue divided


   by total rooms sold;

Revenue per available room, or RevPAR, which is the product of occupancy and

? ADR, and does not include food and beverage revenue, or other operating


   revenue;

Comparable RevPAR, which we define as the RevPAR generated by hotels we owned

as of the end of the reporting period, but excluding those hotels that we

classified as held for sale, those hotels that are undergoing a material

renovation or repositioning, those hotels whose operations have either been

temporarily suspended or significantly reduced and those hotels whose room

counts have materially changed during either the current or prior year. For

? hotels that were not owned for the entirety of the comparison periods,

comparable RevPAR is calculated using RevPAR generated during periods of prior

ownership. We refer to this subset of our hotels used to calculate comparable

RevPAR as our "Comparable Portfolio." Currently, we do not have a Comparable

Portfolio due to the temporary suspension of operations at certain hotels and

the incurrence of various extraordinary and non-recurring items. Comparisons


   between the first quarter of 2021 to the first quarter of 2020 are not
   meaningful;

RevPAR index, which is the quotient of a hotel's RevPAR divided by the average

RevPAR of its competitors, multiplied by 100. A RevPAR index in excess of 100

? indicates a hotel is achieving higher RevPAR than the average of its

competitors. In addition to absolute RevPAR index, we monitor changes in RevPAR


   index;

EBITDAre, which is net income (loss) excluding: interest expense; benefit or

provision for income taxes, including any changes to deferred tax assets,

? liabilities or valuation allowances and income taxes applicable to the sale of

assets; depreciation and amortization; gains or losses on disposition of

depreciated property (including gains or losses on change in control); and any


   impairment write-downs of depreciated property;




   Adjusted EBITDAre, excluding noncontrolling interest, which is EBITDAre

adjusted to exclude: the net income (loss) allocated to a third-party's 25.0%

? ownership interest in the joint venture that owns the Hilton San Diego

Bayfront, along with the noncontrolling partner's pro rata share of any

EBITDAre components; amortization of deferred stock




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compensation; amortization of favorable and unfavorable contracts; amortization

of right-of-use assets and liabilities; the cash component of ground lease

expense for our finance lease obligations that has been included in interest

expense; the impact of any gain or loss from undepreciated asset sales or

property damage from natural disasters; any lawsuit settlement costs; prior year

property tax assessments or credits; the write-off of development costs

associated with abandoned projects; property-level restructuring, severance and

management transition costs; debt resolution costs; and any other nonrecurring


  identified adjustments;

Funds from operations ("FFO") attributable to common stockholders, which is net

income (loss), excluding: preferred stock dividends; gains and losses from

? sales of property; real estate-related depreciation and amortization (excluding

amortization of deferred financing costs and right-of-use assets); any real

estate-related impairment losses; and the noncontrolling partner's pro rata


   share of net income (loss) and any FFO components; and

Adjusted FFO attributable to common stockholders, which is FFO attributable to

common stockholders adjusted to exclude: amortization of favorable and

unfavorable contracts; real estate-related amortization of right-of-use assets

and liabilities; noncash interest on our derivative and finance lease

obligations; income tax benefits or provisions associated with any changes to

deferred tax assets, liabilities or valuation allowances, the application of

? net operating loss carryforwards and uncertain tax positions; gains or losses

due to property damage from natural disasters; any lawsuit settlement costs;

prior year property tax assessments or credits; the write-off of development

costs associated with abandoned projects; non-real estate-related impairment

losses; property-level restructuring, severance and management transition

costs; debt resolution costs; the noncontrolling partner's pro rata share of

any Adjusted FFO components; and any other nonrecurring identified adjustments.

Factors Affecting Our Operating Results. The primary factors affecting our operating results include overall demand for hotel rooms, the pace of new hotel development, or supply, and the relative performance of our operators in increasing revenue and controlling hotel operating expenses.

Demand. The demand for lodging generally fluctuates with the overall economy.

Prior to COVID-19's designation as a National Public Health Emergency in March

2020, demand remained stable during the first two months of 2020, with RevPAR

at the 17 Hotels declining by 0.1% as compared to the first two months of 2019,

due to a 100 basis point decline in occupancy partially offset by a 1.3%

increase in the average daily rate. During March 2020, COVID-19 and the related

government and health official mandates in many markets virtually eliminated

? demand across our portfolio, resulting in first quarter 2020 RevPAR at the 17

Hotels declining 25.6% as compared to the first quarter of 2019, with a 0.4%

decline in the average daily rate and a 2,020 basis point decline in occupancy.

While continuing to improve from its trough in April 2020, demand remains

significantly lower than pre-COVID-19 levels. For the first quarter of 2021,

RevPAR at the 17 Hotels declined 69.5% as compared to the first quarter of

2020, with a 16.0% decline in the average daily rate and a 3,800 basis point

decline in occupancy. We cannot predict when or if the demand for our hotel


   rooms will return to pre-COVID-19 levels.

Supply. The addition of new competitive hotels affects the ability of existing

hotels to absorb demand for lodging and, therefore, impacts the ability to

drive RevPAR and profits. The development of new hotels is largely driven by

construction costs and expected performance of existing hotels. Prior to the

COVID-19 pandemic, U.S. hotel supply continued to increase. On a

? market-by-market basis, some markets experienced new hotel room openings at or

greater than historic levels, including in Boston, Los Angeles, New York City,

Orlando and Portland. Additionally, an increase in the supply of vacation

rental or sharing services such as Airbnb also affects the ability of existing

hotels to drive RevPAR and profits. We believe that both new hotel construction

and new hotel openings will be delayed or even cancelled in the near-term due


   to COVID-19's effect on the economy.

Revenues and expenses. We believe that marginal improvements in RevPAR index,

even in the face of declining revenues, are a good indicator of the relative

quality and appeal of our hotels, and our operators' effectiveness in

? maximizing revenues. Similarly, we also evaluate our operators' effectiveness

in minimizing incremental operating expenses in the context of increasing


   revenues or, conversely, in reducing operating expenses in the context of
   declining revenues.






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Operating Results. The following table presents our unaudited operating results
for our total portfolio for the three months ended March 31, 2021 and 2020,
including the amount and percentage change in the results between the two
periods.




                                                   Three Months Ended March 31,
                                          2021         2020        Change $      Change %

                                             (in thousands, except statistical data)
REVENUES
Room                                   $   34,219   $   127,400   $  (93,181)     (73.1) %
Food and beverage                           4,971        47,990      (43,019)     (89.6) %
Other operating                            11,443        15,822       (4,379)     (27.7) %
Total revenues                             50,633       191,212     (140,579)     (73.5) %
OPERATING EXPENSES
Hotel operating                            49,647       143,509      (93,862)     (65.4) %
Other property-level expenses              10,477        28,845      (18,368)     (63.7) %
Corporate overhead                          7,177         7,394         (217)      (2.9) %
Depreciation and amortization              30,770        36,746       (5,976)     (16.3) %
Impairment losses                               -       115,366     (115,366)    (100.0) %
Total operating expenses                   98,071       331,860     (233,789)     (70.4) %
Interest and other income (loss)            (379)         2,306       (2,685)    (116.4) %
Interest expense                          (7,649)      (17,507)         9,858       56.3 %
Gain on extinguishment of debt                222             -           222      100.0 %
Loss before income taxes                 (55,244)     (155,849)       100,605       64.6 %
Income tax provision, net                    (43)       (6,670)         6,627       99.4 %
NET LOSS                                 (55,287)     (162,519)       107,232       66.0 %
Loss from consolidated joint
venture attributable to
noncontrolling interest                     1,975           458         1,517      331.2 %
Preferred stock dividends                 (3,207)       (3,207)             -          - %
LOSS ATTRIBUTABLE TO COMMON
STOCKHOLDERS                           $ (56,519)   $ (165,268)   $   108,749       65.8 %

Operating Statistics. The following table includes comparisons of the key operating metrics for the 15 hotels open during the entire first quarter of 2021 (defined below) and the 17 Hotels.






                                                        Three Months Ended March 31,
                                   2021                            2020                           Change
                        Occ%      ADR       RevPAR     Occ%      ADR        RevPAR      Occ%         ADR      RevPAR
15 Hotels Open
During the Entire
First Quarter of
2021 (1)                23.4 %  $ 195.32    $ 45.70    60.4 %  $ 240.08    $ 145.01    (3,700) bps  (18.6) %  (68.5) %

17 Hotels               21.6 %  $ 195.32    $ 42.19    59.6 %  $ 232.45    $ 138.54    (3,800) bps  (16.0) %  (69.5) %

(1) 15 Hotels Open During the Entire First Quarter of 2021


                    Hotel                     Number of Rooms
  1 Boston Park Plaza                                   1,060
  2 Embassy Suites Chicago                                368
  3 Embassy Suites La Jolla                               340
  4 Hilton New Orleans St. Charles                        252
  5 Hilton San Diego Bayfront                           1,190
  6 Hyatt Centric Chicago Magnificent Mile                419
  7 Hyatt Regency San Francisco                           821
  8 JW Marriott New Orleans                               501
  9 Marriott Boston Long Wharf                            415
 10 Oceans Edge Resort & Marina                           175
 11 Renaissance Long Beach                                374
 12 Renaissance Orlando at SeaWorld®                      781
 13 Renaissance Washington DC                             807
 14 The Bidwell Marriott Portland                         258
 15 Wailea Beach Resort                                   547

    Total Number of Rooms                               8,308






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Summary of Operating Results. The following items significantly impact the year-over-year comparability of our operations:

COVID-19: In response to the COVID-19 pandemic, we temporarily suspended

operations at 14 of the 17 Hotels in March and April 2020. As of March 31,

2021, we have resumed operations at 12 hotels, resulting in a total of 15 open

hotels at the end of the first quarter of 2021; however, all operating hotels

? are running at significantly reduced capacity, with limited food and beverage

and ancillary offerings. As of March 31, 2021, two of the 17 Hotels remained

closed, the Hilton Garden Inn Chicago Downtown/Magnificent Mile and the

Renaissance Westchester. As a result, our revenues and operating expenses for

the three months ended March 31, 2021 and for the month of March 2020 have been

severely impacted as hotel demand has been decimated by the COVID-19 pandemic.

Property Dispositions: We sold the Renaissance Harborplace and the Renaissance

Los Angeles Airport in July 2020 and December 2020, respectively. In addition,

we assigned our leasehold interest in the Hilton Times Square to the hotel's

? mortgage holder in December 2020. As a result of these three hotel dispositions

(the "Three Disposed Hotels"), our revenues and operating expenses decreased

for the three months ended March 31, 2021 as compared to the same period in


   2020.

Room revenue. Room revenue decreased $93.2 million, or 73.1%, for the three months ended March 31, 2021 as compared to the three months ended March 31, 2020 as follows:

? Room revenue at the 17 Hotels decreased $79.3 million.

? The dispositions of the Three Disposed Hotels caused room revenue to decrease


   by $13.9 million.




Food and beverage revenue. Food and beverage revenue decreased $43.0 million, or
89.6%, for the three months ended March 31, 2021 as compared to the three months
ended March 31, 2020 as follows:

? Food and beverage revenue at the 17 Hotels decreased $39.4 million.

? The dispositions of the Three Disposed Hotels caused food and beverage revenue


   to decrease by $3.6 million.

Other operating revenue. Other operating revenue decreased $4.4 million, or 27.7%, for the three months ended March 31, 2021 as compared to the three months ended March 31, 2020 as follows:

Other operating revenue at the 17 Hotels decreased $2.8 million. The decrease

in other operating revenue at the 17 Hotels is net of a $4.0 million

? reimbursement to offset net losses at the Hyatt Regency San Francisco as

stipulated by the hotel's operating lease agreement with no corresponding

reimbursement recorded in the first quarter of 2020.

? The dispositions of the Three Disposed Hotels caused other operating revenue to


   decrease by $1.6 million.


Hotel operating expenses. Hotel operating expenses, which are comprised of room,
food and beverage, advertising and promotion, repairs and maintenance,
utilities, franchise costs, property tax, ground lease and insurance and other
hotel operating expenses decreased $93.9 million, or 65.4%, for the three months
ended March 31, 2021 as compared to the three months ended March 31, 2020 as
follows:

Hotel operating expenses at the 17 Hotels decreased $74.5 million. Hotel

? operating expenses in the first quarters of 2021 and 2020 include $0.1 million

and $6.5 million, respectively, of COVID-19-related expenses consisting of

additional wages and benefits for furloughed or laid off hotel employees.

The dispositions of the Three Disposed Hotels caused hotel operating expenses

to decrease by $19.4 million, which includes $0.7 million of COVID-19-related

? expenses recognized in the first quarter of 2020 consisting of additional wages

and benefits for furloughed or laid off hotel employees, offset by $1.0 million


   in prior year property tax refunds net of appeal fees.




Other property-level expenses. Other property-level expenses decreased $18.4
million, or 63.7%, for the three months ended March 31, 2021 as compared to the
three months ended March 31, 2020 as follows:

Other property-level expenses at the 17 Hotels decreased $13.4 million. Other

property-level expenses in the first quarter of 2021 includes a credit of $0.8

million, consisting of $0.9 million in employee retention tax credits available

under the Coronavirus Aid, Relief, and Economic Security Act (the "Tax

? Credits") received by our hotels, net of additional COVID-19-related wages and

benefits for furloughed or laid off hotel employees. Other property-level

expenses in the first quarter of 2020 includes $1.4 million of COVID-19-related

expenses consisting of additional wages and benefits for furloughed or laid off

hotel employees.

The dispositions of the Three Disposed Hotels caused other property-level

? expenses to decrease by $5.0 million, which includes $1.5 million of

COVID-19-related expenses recognized in the first quarter of 2020 consisting of


   additional wages and benefits for furloughed or laid off hotel employees.




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Corporate overhead expense. Corporate overhead expense decreased $0.2 million,
or 2.9%, during the three months ended March 31, 2021 as compared to the three
months ended March 31, 2020, due to decreased payroll and related expenses,
including the recognition of $0.3 million in available Tax Credits, and
decreased legal fees. These decreased expenses were partially offset by
increased amortization of deferred stock compensation.



Depreciation and amortization expense. Depreciation and amortization expense
decreased $6.0 million, or 16.3%, during the three months ended March 31, 2021
as compared to the three months ended March 31, 2020 as follows:

Depreciation and amortization expense related to the 17 Hotels decreased $1.1

million as reduced expenses due to our $15.4 million impairment of the

? depreciable assets at one of our hotels during 2020 and from fully depreciated

assets was partially offset by increased depreciation and amortization at our

newly renovated hotels.

The dispositions of the Three Disposed Hotels resulted in a decrease in

? depreciation and amortization of $4.9 million due in part to our $103.6 million


   impairment of the depreciable assets at two of the hotels during 2020.




Impairment losses. Impairment losses totaled zero and $115.4 million for the
three months ended March 31, 2021 and 2020, respectively. During the first
quarter of 2020, we recorded impairment losses of $107.9 million on the Hilton
Times Square, $5.2 million on the Renaissance Westchester, and $2.3 million
related to the abandonment of a potential project to expand one of our hotels.



Interest and other income (loss). Interest and other income (loss) for the three
months ended March 31, 2021 totaled a loss of $0.4 million as compared to income
of $2.3 million for the three months ended March 31, 2020. During the three
months ended March 31, 2021, we accrued a post-closing contingency of $0.4
million to the current owner of a hotel we sold in 2018. Only a nominal amount
of interest was recognized during the first quarter of 2021 due to declines in
interest rates and cash balances.



During the first quarter of 2020, we recognized $2.1 million in interest income
and $0.2 million in energy rebates due to energy efficient renovations at our
hotels.

Interest expense. We incurred interest expense as follows (in thousands):






                                                  Three Months Ended March 31,
                                                    2021               2020
Interest expense on debt and finance lease
obligation                                     $         7,783    $

10,728


Noncash interest on derivatives                          (869)

6,080


Amortization of deferred financing costs                   735


  699
Total interest expense                         $         7,649    $        17,507

Interest expense decreased $9.9 million, or 56.3%, during the three months ended March 31, 2021 as compared to the three months ended March 31, 2020.





Interest expense on our debt and finance lease obligation decreased $2.9 million
in the first quarter of 2021 as compared to the same period in 2020 primarily
due to our 2020 debt transactions, including the repayment of the loan secured
by the Renaissance Washington DC, our partial repayments of the senior notes and
our assignment of the loan secured by the Hilton Times Square to the hotel's
mortgage holder, along with decreased interest on our variable rate debt. These
decreases were partially offset by the amendments on our unsecured debt, which
increased the amount of interest charged on our term loans and senior notes and
increased the amortization of our deferred financing costs. In addition, noncash
changes in the fair market value of our derivatives caused interest expense to
decrease $6.9 million in the first quarter of 2021 as compared to the same
period in 2020.



Our weighted average interest rate per annum, including our variable rate debt
obligation, was approximately 3.8% and 3.6% at March 31, 2021 and 2020,
respectively. Approximately 70.6% and 59.2% of our outstanding notes payable had
fixed interest rates at March 31, 2021 and 2020, respectively.



Gain on extinguishment of debt. Gain on extinguishment of debt totaled $0.2
million and zero for the three months ended March 31, 2021 and 2020,
respectively. During the first quarter of 2021, we recognized a gain of $0.2
million associated with the assignment of the Hilton Times Square to the hotel's
mortgage holder due to a reassessment of the potential employee-related
obligations currently held in escrow.



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Income tax provision, net. Income tax provision, net was incurred as follows (in
thousands):




                                                     Three Months Ended March 31,
                                                      2021              2020

Current income tax (provision) benefit, net $ (43) $

745


Change in deferred tax asset valuation allowance             -

(7,415)


Total income tax provision, net                    $      (43)    $


(6,670)




We lease our hotels to the TRS Lessee and its subsidiaries, which are subject to
federal and state income taxes. In addition, we and the Operating Partnership
may also be subject to various state and local income taxes.

During the first quarter of 2021, we recognized a current income tax provision of $43,000, resulting from current state income tax expense.





During the first quarter of 2020, we recognized a current net income tax benefit
of $0.7 million, resulting from tax credits and refunds, net of combined current
federal and state income tax expense. In addition, we recorded a full valuation
allowance of $7.4 million on our deferred tax assets because we can no longer be
assured that we will be able to realize these assets due to uncertainties
regarding how long the COVID-19 pandemic will last or what the long-term impact
will be on our hotel operations.



Loss from consolidated joint venture attributable to noncontrolling interest.
Loss from consolidated joint venture attributable to noncontrolling interest,
which represents the outside 25.0% interest in the entity that owns the Hilton
San Diego Bayfront, totaled $2.0 million and $0.5 million for the three months
ended March 31, 2021 and 2020, respectively.



Preferred stock dividends. Preferred stock dividends totaled $3.2 million for
both the three months ended March 31, 2021 and 2020, comprised of $2.0 million
in preferred stock dividends on our Series E preferred stock and $1.2 million in
preferred stock dividends on our Series F preferred stock.



Non-GAAP Financial Measures. We use the following "non-GAAP financial measures"
that we believe are useful to investors as key supplemental measures of our
operating performance: EBITDAre; Adjusted EBITDAre, excluding noncontrolling
interest; FFO attributable to common stockholders; and Adjusted FFO attributable
to common stockholders. These measures should not be considered in isolation or
as a substitute for measures of performance in accordance with GAAP. In
addition, our calculation of these measures may not be comparable to other
companies that do not define such terms exactly the same as the Company. These
non-GAAP measures are used in addition to and in conjunction with results
presented in accordance with GAAP. They should not be considered as alternatives
to net income (loss), cash flow from operations, or any other operating
performance measure prescribed by GAAP. These non-GAAP financial measures
reflect additional ways of viewing our operations that we believe, when viewed
with our GAAP results and the reconciliations to the corresponding GAAP
financial measures, provide a more complete understanding of factors and trends
affecting our business than could be obtained absent this disclosure. We
strongly encourage investors to review our financial information in its entirety
and not to rely on a single financial measure.



We present EBITDAre in accordance with guidelines established by the National
Association of Real Estate Investment Trusts ("NAREIT"), as defined in its
September 2017 white paper "Earnings Before Interest, Taxes, Depreciation and
Amortization for Real Estate." We believe EBITDAre is a useful performance
measure to help investors evaluate and compare the results of our operations
from period to period in comparison to our peers. NAREIT defines EBITDAre as net
income (calculated in accordance with GAAP) plus interest expense, income tax
expense, depreciation and amortization, gains or losses on the disposition of
depreciated property (including gains or losses on change in control),
impairment write-downs of depreciated property and of investments in
unconsolidated affiliates caused by a decrease in the value of depreciated
property in the affiliate, and adjustments to reflect the entity's share of
EBITDAre of unconsolidated affiliates.



We make additional adjustments to EBITDAre when evaluating our performance
because we believe that the exclusion of certain additional items described
below provides useful information to investors regarding our operating
performance, and that the presentation of Adjusted EBITDAre, excluding
noncontrolling interest, when combined with the primary GAAP presentation of net
income, is beneficial to an investor's complete understanding of our operating
performance. In addition, we use both EBITDAre and Adjusted EBITDAre, excluding
noncontrolling interest as measures in determining the value of hotel
acquisitions and dispositions. We adjust EBITDAre for the following items, which
may occur in any period, and refer to this measure as Adjusted EBITDAre,
excluding noncontrolling interest:

Amortization of deferred stock compensation: we exclude the noncash expense

? incurred with the amortization of deferred stock compensation as this expense

is based on historical stock prices at the date of grant to our corporate


   employees and does not reflect the underlying performance of our hotels.




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Amortization of favorable and unfavorable contracts: we exclude the noncash

amortization of the favorable management contract asset recorded in conjunction

with our acquisition of the Hilton Garden Inn Chicago Downtown/Magnificent

Mile, along with the unfavorable tenant lease contracts recorded in conjunction

? with our acquisitions of the Boston Park Plaza and the Hilton Garden Inn

Chicago Downtown/Magnificent Mile. We exclude the noncash amortization of

favorable and unfavorable contracts because it is based on historical cost

accounting and is of lesser significance in evaluating our actual performance


   for the current period.

Amortization of right-of-use assets and liabilities: we exclude the

? amortization of our right-of-use assets and liabilities, as these expenses are

based on historical cost accounting and do not reflect the actual rent amounts

due to the respective lessors or the underlying performance of our hotels.

Finance lease obligation interest - cash ground rent: we include an adjustment

for the cash finance lease expense recorded on the building lease at the Hyatt

Centric Chicago Magnificent Mile. We determined that the building lease is a

? finance lease, and, therefore, we include a portion of the lease payment each

month in interest expense. We adjust EBITDAre for the finance lease in order to


   more accurately reflect the actual rent due to the hotel's lessor in the
   current period, as well as the operating performance of the hotel.

Undepreciated asset transactions: we exclude the effect of gains and losses on

? the disposition of undepreciated assets because we believe that including them

in Adjusted EBITDAre, excluding noncontrolling interest is not consistent with


   reflecting the ongoing performance of our assets.




   Gains or losses from debt transactions: we exclude the effect of finance

charges and premiums associated with the extinguishment of debt, including the

? acceleration of deferred financing costs from the original issuance of the debt

being redeemed or retired because, like interest expense, their removal helps

investors evaluate and compare the results of our operations from period to


   period by removing the impact of our capital structure.

Acquisition costs: under GAAP, costs associated with acquisitions that meet the

? definition of a business are expensed in the year incurred. We exclude the

effect of these costs because we believe they are not reflective of the ongoing


   performance of the Company or our hotels.

Noncontrolling interest: we exclude the noncontrolling partner's pro rata share

? of the net (income) loss allocated to the Hilton San Diego Bayfront

partnership, as well as the noncontrolling partner's pro rata share of any


   EBITDAre and Adjusted EBITDAre components.

Cumulative effect of a change in accounting principle: from time to time, the

FASB promulgates new accounting standards that require the consolidated

? statement of operations to reflect the cumulative effect of a change in

accounting principle. We exclude these one-time adjustments, which include the

accounting impact from prior periods, because they do not reflect our actual


   performance for that period.

Other adjustments: we exclude other adjustments that we believe are outside the

ordinary course of business because we do not believe these costs reflect our

actual performance for the period and/or the ongoing operations of our hotels.

? Such items may include: lawsuit settlement costs; prior year property tax

assessments or credits; the write-off of development costs associated with

abandoned projects; property-level restructuring, severance and management

transition costs; debt resolution costs; lease terminations; and property


   insurance proceeds or uninsured losses.




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The following table reconciles our unaudited net loss to EBITDAre and Adjusted EBITDAre, excluding noncontrolling interest for our total portfolio for the three months ended March 31, 2021 and 2020 (in thousands):






                                                            Three Months Ended March 31,
                                                              2021                2020
Net loss                                                 $      (55,287)    $      (162,519)
Operations held for investment:
Depreciation and amortization                                     30,770              36,746
Interest expense                                                   7,649              17,507
Income tax provision, net                                             43               6,670
Loss on sale of assets                                                70                   -


Impairment losses - hotel properties                                   -

113,064


EBITDAre                                                        (16,755)

11,468



Operations held for investment:
Amortization of deferred stock compensation                        2,752               2,207
Amortization of right-of-use assets and liabilities                (331)               (261)
Finance lease obligation interest - cash ground rent               (351)               (351)
Gain on extinguishment of debt                                     (222)                   -
Prior year property tax adjustments, net                           (827)                (81)
Impairment loss - abandoned development costs                          -               2,302
Noncontrolling interest:
Loss from consolidated joint venture attributable to
noncontrolling interest                                            1,975                 458
Depreciation and amortization                                      (810)               (804)
Interest expense                                                   (161)               (420)


Amortization of right-of-use asset and liability                      72                  72
Impairment loss - abandoned development costs                          -               (449)
Adjustments to EBITDAre, net                                       2,097               2,673

Adjusted EBITDAre, excluding noncontrolling interest $ (14,658) $ 14,141

Adjusted EBITDAre, excluding noncontrolling interest decreased $28.8 million, or 203.7%, in the first quarter of 2021 as compared to the same period in 2020 primarily due to the following:

Adjusted EBITDAre at the 17 Hotels decreased $37.7 million, or 167.2%, as

compared to the same period in 2020. Adjusted EBITDAre in the first quarter of

2021 includes a credit of $0.7 million, consisting of $0.9 million in available

Tax Credits received by our hotels, net of additional COVID-19-related wages

and benefits for furloughed or laid off hotel employees. In addition, Adjusted

? EBITDAre in the first quarter of 2021 includes $4.0 million in reimbursements

to offset net losses at the Hyatt Regency San Francisco as stipulated by the

hotel's operating lease agreement. In comparison, Adjusted EBITDAre in the

first quarter of 2020 includes $7.9 million in COVID-19-related expenses,

consisting of additional wages and benefits for furloughed or laid off hotel

employees, and no reimbursements recorded to offset net losses at the Hyatt

Regency San Francisco.

The Three Disposed Hotels recorded net negative Adjusted EBITDAre of $4.2

million in the first quarter of 2020. The Company recorded $2.2 million in

? COVID-19-related expenses for the Three Disposed Hotels during the first

quarter of 2020, consisting of additional wages and benefits for furloughed or


   laid off hotel employees.


We believe that the presentation of FFO attributable to common stockholders
provides useful information to investors regarding our operating performance
because it is a measure of our operations without regard to specified noncash
items such as real estate depreciation and amortization, any real estate
impairment loss and any gain or loss on sale of real estate assets, all of which
are based on historical cost accounting and may be of lesser significance in
evaluating our current performance. Our presentation of FFO attributable to
common stockholders conforms to the NAREIT definition of "FFO applicable to
common shares." Our presentation may not be comparable to FFO reported by other
REITs that do not define the terms in accordance with the current NAREIT
definition, or that interpret the current NAREIT definition differently than we
do.



We also present Adjusted FFO attributable to common stockholders when evaluating
our operating performance because we believe that the exclusion of certain
additional items described below provides useful supplemental information to
investors regarding our ongoing operating performance, and may facilitate
comparisons of operating performance between periods and our peer companies. We
adjust FFO attributable to common stockholders for the following items, which
may occur in any period, and refer to this measure as Adjusted FFO attributable
to common stockholders:



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