XENIA HOTELS & RESORTS, INC. Management's Discussion and Analysis of Financial Condition and Results of Operations (form 10-Q)

Certain statements in this Quarterly Report on Form 10-Q, other than purely
historical information, are "forward-looking statements" within the meaning of
the Private Securities Litigation Reform Act of 1995, Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"). These statements include
statements about Xenia's plans, objectives, strategies, financial performance
and outlook, trends, the amount and timing of future cash distributions,
anticipated timing to close a pending transaction, prospects or future events
and involve known and unknown risks that are difficult to predict. As a result,
our actual financial results, performance, achievements or prospects may differ
materially from those expressed or implied by these forward-looking statements.
In some cases, you can identify forward-looking statements by the use of words
such as "may," "could," "expect," "intend," "plan," "seek," "anticipate,"
"believe," "estimate," "guidance," "predict," "potential," "continue," "likely,"
"will," "would," "illustrative" and variations of these terms and similar
expressions, or the negative of these terms or similar expressions. Such
forward-looking statements are necessarily based upon estimates and assumptions
that, while considered reasonable by Xenia and its management based on their
knowledge and understanding of the business and industry, are inherently
uncertain. These statements are not guarantees of future performance, and
stockholders should not place undue reliance on forward-looking statements.
Forward-looking statements in this Form 10-Q include, among others, statements
about our plans, strategies and the effects of the COVID-19 pandemic, including
on the demand for travel (including leisure travel and transient and group
business travel), capital expenditures and the timing of renovations, status of
transactions and escrow deposits, and derivations thereof, financial
performance, prospects or future events. There are a number of risks,
uncertainties and other important factors, many of which are beyond our control,
that could cause our actual results to differ materially from the
forward-looking statements contained in this Quarterly Report on Form 10-Q. Such
risks, uncertainties and other important factors include, among others: the
factors set forth under "Part I-Item IA. Risk Factors" and "Part II-Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations in our Annual Report on Form 10-K filed with the U.S. Securities and
Exchange Commission (the "SEC") on March 1, 2021, as may be updated elsewhere in
this report; and the information set forth in other Quarterly Reports on Form
10-Q and Current Reports on Form 8-K that we have filed or will file with the
SEC; the short- and longer-term effects of the COVID-19 pandemic, including on
the demand for travel (including leisure travel and transient and group business
travel), and levels of consumer confidence; actions that governments,
businesses, and individuals take in response to the COVID-19 pandemic or any
resurgence of the disease or its variants, including limiting or banning travel
and implementation of social distancing requirements; the impact of the COVID-19
pandemic, and actions taken in response to the COVID-19 pandemic or any
resurgence of the disease or its variants, on global and regional economies,
travel, and economic activity, including the duration and magnitude of its
impact on unemployment rates, impacts to supply chains, and consumer
discretionary spending; the broad distribution of COVID-19 vaccines and wide
acceptance by the general population of such vaccines and boosters; the
effectiveness of the vaccines; the ability of third-party managers or other
partners to successfully navigate the impacts of the COVID-19 pandemic including
labor shortages; the pace of recovery following the COVID-19 pandemic or any
resurgence of the disease or its variants; COVID-19 may cause us to incur
additional expenses (for example, depending on the length of furloughs for
employees at our hotels, we may be required to make severance payments to some
of the hotels furloughed employees); our ability to successfully negotiate
amendments and covenant waivers under our indebtedness; our ability to comply
with covenants; business, financial and operating risks inherent to real estate
investments and the lodging industry; seasonal and cyclical volatility in the
lodging industry; adverse changes in specialized industries, such as the
technology and/or tourism industries that result in a sustained downturn of
related businesses and corporate spending that may negatively impact our
revenues and results of operations; difficulties in procuring required products
caused by supply chain disruptions; macroeconomic and other factors beyond our
control that can adversely affect and reduce demand for hotel rooms, food and
beverage services, and/or meeting facilities, including inflation; contraction
in the global economy or low levels of economic growth; levels of spending in
business and leisure segments as well as consumer confidence; declines in
occupancy and average daily rate; fluctuations in the supply, due to hotel
construction and/or renovation and expansion of existing hotels, and demand for
hotel rooms; changes in the competitive environment in the lodging industry,
including due to consolidation of management companies, franchisors and online
travel agencies, and changes in the markets where we own hotels; events beyond
our control, such as war, terrorist or cyber-attacks, mass casualty events,
government shutdowns and closures, travel-related health concerns, and natural
disasters; cyber incidents and information technology failures, including
unauthorized access to our computer systems and/or vendors' computer systems,
and our third-party management companies' or franchisors' computer systems
and/or their vendors' computer systems; our inability to directly operate our
properties and reliance on third-party hotel management companies to operate and
manage our hotels; our ability to maintain good relationships with our
third-party hotel management companies and franchisors; our failure to maintain
brand operating standards; our ability to maintain our brand licenses at our
hotels; relationships with labor unions and changes in labor laws; loss of our
senior management team or key personnel; our ability to identify and consummate
acquisitions and dispositions of hotels; our ability to integrate and
successfully operate any hotel properties acquired in the future and the risks
associated with these hotel properties; the impact of hotel renovations,
repositioning, redevelopments and re-branding activities; our ability to access
capital for renovations and acquisitions on terms and at times that are
acceptable to us; the fixed cost nature of hotel ownership; our ability to
service, restructure or refinance our debt; changes in interest rates and
operating costs, including labor and service related costs; compliance with
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regulatory regimes and local laws; uninsured or under insured losses, including
those relating to natural disasters, terrorism or cyber-attacks; changes in
distribution channels, such as through internet travel intermediaries or
websites that facilitate short-term rental of homes and apartments from owners;
the amount of debt that we currently have or may incur in the future; provisions
in our debt agreements that may restrict the operation of our business; our
organizational and governance structure; our status as a real estate investment
trust ("REIT"); our taxable REIT subsidiary ("TRS") lessee structure; the cost
of compliance with and liabilities under environmental, health and safety laws;
adverse litigation judgments or settlements; changes in real estate and zoning
laws and increases in real property tax valuations or rates; changes in federal,
state or local tax law, including legislative, administrative, regulatory or
other actions affecting REITs; changes in governmental regulations or
interpretations thereof; and estimates relating to our ability to make
distributions to our stockholders in the future.
These factors are not necessarily all of the important factors that could cause
our actual financial results, performance, achievements or prospects to differ
materially from those expressed in or implied by any of our forward-looking
statements. Other unknown or unpredictable factors also could harm our results.
All forward-looking statements attributable to us or persons acting on our
behalf are expressly qualified in their entirety by the cautionary statements
set forth above. Forward-looking statements speak only as of the date they are
made, and we do not undertake or assume any obligation to update publicly any of
these forward-looking statements to reflect actual results, new information or
future events, changes in assumptions or changes in other factors affecting
forward-looking statements, except to the extent required by applicable laws. If
we update one or more forward-looking statements, no inference should be drawn
that we will make additional updates with respect to those or other
forward-looking statements.
The following discussion and analysis should be read in conjunction with the
Company's Unaudited Condensed Consolidated Financial Statements and accompanying
notes, which appear elsewhere in this Quarterly Report on Form 10-Q.
Overview
Xenia Hotels & Resorts, Inc. ("we", "us", "our", "Xenia" or the "Company") is a
self-advised and self-administered REIT that invests in uniquely positioned
luxury and upper upscale hotels and resorts with a focus on top 25 U.S. lodging
markets as well as key leisure destinations in the United States. As of
September 30, 2021, we owned 35 hotels, comprising 10,011 rooms, across 15
states. Our hotels are operated and/or licensed by industry leaders such as
Marriott, Hyatt, Kimpton, Fairmont, Loews, Hilton, and The Kessler Collection.
Impact of COVID-19 on our Business
In January 2020, confirmed cases of novel coronavirus and related respiratory
disease ("COVID-19") started appearing in the United States ("U.S."). By March
2020, COVID-19 was deemed a global pandemic by the World Health Organization.
This led federal, state and local governments in the United States to impose
measures intended to control its spread, including restrictions on freedom of
movement and business operations such as travel bans, border closings, business
closures, school closures, quarantines, shelter-in-place orders and social
distancing requirements, and also to implement phased, multi-step policies
governing re-opening regions of the country. The effects of the COVID-19
pandemic on the hotel industry have been significant and unprecedented with
global demand for lodging drastically reduced and occupancy levels reaching
historic lows in 2020. As a result of the COVID-19 pandemic, the majority of the
Company's hotels and resorts temporarily suspended operations for certain
periods of time during 2020. All of the Company's lodging properties had resumed
operations as of May 2021.
Leisure demand gradually improved during the second half of 2020, a trend that
accelerated during the first seven months of 2021 and the Company also began to
see increasing levels of demand for both business transient and group business
during the second quarter and into July 2021. In August and September 2021,
however, the Company began to experience a softening in demand due to the impact
of the Delta variant, a seasonal decline in leisure demand and a shift in the
timing of the Jewish holidays. Additionally, many companies delayed their office
re-openings and return to work timelines and we began to experience group
business cancellations for meetings being held in 2021 and the first quarter of
2022. As of September 30, 2021, COVID-19 case counts, positivity ratios and
hospitalizations had begun to decline in many parts of the U.S. Despite this
relative improvement, there remains significant uncertainty regarding the pace
of recovery and how long it will take for business travel and larger group
meetings to return to pre-pandemic levels. The Company may be impacted by, among
other things, the distribution and acceptance of COVID-19 vaccines, breakthrough
cases, and resurgences of COVID-19, including the Delta variant or other
variants, which continue to result in indoor mask mandates and other
restrictions. As the recovery continues, we expect that the pace will vary from
market to market and may be uneven in nature.
Our portfolio consists of luxury and upper upscale hotels and resorts, which
generally offer restaurant and bar venues, large meeting facilities and event
space, and amenities, including spas and golf courses, the majority of which
have resumed operations in accordance with state and local ordinances. However,
these amenities could be impacted again in the future in order to comply with
state and local ordinances, restrictions and safety measures to address
resurgences of the pandemic and/or to accommodate reduced levels of demand. We
currently expect that the recovery in lodging, particularly with respect to
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business transient and group business, will be gradual, likely inconsistent, and
may lag behind the recovery of other industries. Factors such as public health
(including a significant increase in new and variant strains of COVID-19 cases),
availability and effectiveness of COVID-19 vaccines and therapeutics, the level
of acceptance of the vaccine by the general population, waning immunity and the
economic and geopolitical environments may impact the timing, extent and pace of
such recovery.
We cannot predict with certainty when business levels will return to normalized
levels after the effects of the pandemic subside or whether hotels that have
recommenced operations will be forced to shut down operations or impose
additional restrictions due to a resurgence of COVID-19 cases, including the
Delta variant and other variants of the virus. Additionally, the effects of the
pandemic could materially and adversely affect our ability to consummate
acquisitions and dispositions of hotel properties in the near term as well as to
cause us to scale back or delay planned renovations and other projects. We
cannot predict the full extent and duration of the effects of the COVID-19
pandemic on our business, operating margins, results of operations, cash flows,
financial condition, the market price of our common stock, our ability to make
distributions to our shareholders, our access to equity and credit markets and
our ability to service our indebtedness.
Basis of Presentation
The accompanying condensed consolidated financial statements include the
accounts of the Company, the Operating Partnership, and XHR Holding. The
Company's subsidiaries generally consist of limited liability companies, limited
partnerships and the TRS. The effects of all inter-company transactions have
been eliminated. Corporate costs directly associated with our principal
executive offices, personnel and other administrative costs are reflected as
general and administrative expenses on the condensed consolidated statements of
operations and comprehensive loss.
Our Revenues and Expenses
Our revenue is primarily derived from hotel operations, including rooms revenue,
food and beverage revenue and other revenue, which consists of parking, spa,
resort fees, other guest services, and tenant leases, among other items.
Our operating costs and expenses consist of the costs to provide hotel services,
including rooms expense, food and beverage expense, other direct and indirect
operating expenses, and management and franchise fees. Rooms expense includes
housekeeping wages and associated payroll taxes, room supplies, laundry services
and front desk costs. Food and beverage expense primarily includes the cost of
food, beverages and associated labor. Other direct and indirect hotel expenses
include labor and other costs associated with the other operating department
revenue, as well as labor and other costs associated with general and
administrative departments, sales and marketing, information technology and
telecommunications, repairs and maintenance and utility costs. We enter into
management agreements with independent third-party management companies to
operate our hotels. The management companies typically earn base and incentive
management fees based on the levels of revenues and profitability of each
individual hotel.
Key Indicators of Operating Performance
We measure hotel results of operations and the operating performance of our
business by evaluating financial and nonfinancial metrics such as Revenue Per
Available Room ("RevPAR"); average daily rate ("ADR"); occupancy rate
("occupancy"); earnings before interest, income taxes, depreciation and
amortization for real estate ("EBITDAre") and Adjusted EBITDAre; and funds from
operations ("FFO") and Adjusted FFO. We evaluate individual hotel and
company-wide performance with comparisons to budgets, prior periods and
competing properties. RevPar, ADR, and occupancy may be impacted by
macroeconomic factors as well as regional and local economies and events. See
"Non-GAAP Financial Measures" for further discussion of the Company's use,
definitions and limitations of EBITDAre, Adjusted EBITDAre, FFO and Adjusted FFO
and the reasons management believes these financial measures are useful to
investors.
Results of Operations
Lodging Industry Overview
The impact of COVID-19 on the global and U.S. economy and the travel industry in
particular has been significant and unprecedented, causing a severe impact to
our operations beginning late in the first quarter of 2020 and continuing
through the third quarter of 2021. The improvements in occupancy and revenues
experienced by the industry during the first quarter of 2021 accelerated through
July 2021 largely driven by leisure transient demand along with an uptick in
business transient and group demand, however, in August and September 2021, the
industry was impacted by a surge in COVID-19 case counts, positivity ratios and
hospitalizations as a result of the Delta variant, which negatively impacted
demand and occupancy rates and resulted in group cancellations in 2021 and first
quarter of 2022. As of September 30, 2021, COVID-19 case counts, positivity
ratios and hospitalizations had begun to decline in many parts of the U.S. and
occupancy rebounded in October 2021. Despite this relative improvement, there is
still significant uncertainty regarding the pace of recovery and the length of
time it will take for business travel and larger group meetings to return to
pre-pandemic levels.
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The U.S. lodging industry has historically exhibited a strong correlation to
U.S. GDP, which increased at an estimated annual rate of approximately 2.0%
during the third quarter of 2021, according to the U.S. Department of Commerce,
slowing from the annual rate growth trend from the first and second quarters of
2021 of 6.3% and 6.7%, respectively. The increase during the third quarter
reflected increases in private inventory investment, personal consumption
expenditures, state and local government spending, and nonresidential fixed
investment that were partially offset by decreases in residential fixed
investment, federal government spending, and exports. In addition, the
unemployment rate fell to 4.8% in September from 5.9% in June 2021 and from 6.0%
in March 2021. The unemployment rate has declined considerably from the April
2020 high of 14.7% but remains well above the 3.5% rate in February 2020 prior
to the pandemic.
The U.S. lodging industry has been more acutely impacted by the COVID-19
pandemic than the overall U.S. economy and other industries and has not
experienced the same level of recovery as the U.S. economy which is largely due
to the persistence of the COVID-19 pandemic, recent increases in cases of the
Delta variant, continued and reinstated governmental restrictions on travel and
large gatherings, and sentiment towards business and leisure travel as a result
of the pandemic. Additionally, we expect it will take longer for the lodging
industry to return to pre-pandemic levels than it will for the broader economy
and many other industries. Further, we continue to monitor and evaluate the
challenges associated with the evolving workforce landscape, particularly
related to achieving the appropriate balance between hotel staffing levels and
demand as business at our hotels increases as well as ongoing supply chain
issues which may impact the hotels' ability to source operating supplies and
other materials.
Demand increased 42.9% and 35.6%, respectively, during the three and nine months
ended September 30, 2021. New hotel supply increased by 5.9% and 5.5%,
respectively, during the three and nine months ended September 30, 2021. The
significant increase in demand led to increases in industry RevPAR of 83.8% and
47.3% for the three and nine months ended September 30, 2021 compared to 2020,
which was driven by an increase in occupancy of 34.9% and 28.6% coupled with a
36.2% and 14.6% increase in ADR, respectively. All U.S. data for the three and
nine months ended September 30, 2021 are per industry reports.
Third Quarter 2021 Overview
Our total portfolio RevPAR, which includes the results of hotels sold or
acquired for the period of ownership by the Company, increased 200.1% and 70.3%
to $119.17 and $95.35 for the three and nine months ended September 30, 2021,
respectively, from $39.71 and $56.00 for the three and nine months ended
September 30, 2020, respectively, driven by a significant increase in leisure
transient business and improving business transient and corporate group demand
beginning late in the first quarter and accelerating into July 2021. In August
and September 2021, however, the Company began to experience a softening in
demand due to the impact of the Delta variant, a seasonal decline in leisure
demand and a shift in the timing of the Jewish holidays. The increase in total
portfolio RevPAR for the three and nine months ended September 30, 2021 over the
same period in 2020 was driven by increases in occupancy from 23.4% to 53.7% and
27.4% to 45.2%, respectively, and increases in ADR of 30.7% and 3.4%,
respectively.
The following table sets forth certain operating information for the three and
nine months ended September 30, 2021:
                                                 January            February            March             Three Months Ended
Total Portfolio Statistics                         2021               2021               2021               March 31, 2021
Occupancy (1)                                       23.1  %            32.4  %            42.7  %                    32.7     %
Average Daily Rate (1)                         $  170.41          $  183.57          $  202.07          $          188.68
RevPAR (1)                                     $   39.32          $   59.56          $   86.19          $           61.76


                                                  April               May                June           Three Months Ended June
Total Portfolio Statistics                         2021               2021               2021                  30, 2021
Occupancy (1)                                       46.0  %            47.1  %            53.5  %                    48.8     %
Average Daily Rate (1)                         $  216.03          $  215.49          $  210.98          $          214.03
RevPAR (1)                                     $   99.33          $  101.43          $  112.82          $          104.50


                                                   July              August           September            Three Months Ended
Total Portfolio Statistics                         2021               2021               2021              September 30, 2021
Occupancy                                           57.3  %            51.5  %            52.2  %                     53.7      %
Average Daily Rate                             $  221.69          $  214.95          $  229.24          $           221.91
RevPAR                                         $  127.13          $  110.61          $  119.78          $           119.17


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(1)  Includes Hyatt Regency Portland at the Oregon Convention Center which
recommenced operations in May 2021 after temporarily suspending operations in
March 2020.
Net loss decreased 57.6% for the three months ended September 30, 2021 compared
to 2020, which was primarily attributed to an increase in operating income of
$57.8 million from our current portfolio of 35 hotels as a result of a recovery
from the COVID-19 pandemic, a $4.4 million reduction in operating loss
attributed to four hotels sold during the fourth quarter of 2020 and a $7.2
million reduction in impairment loss. These increases were offset by a $26.8
million reduction in other income attributed to the recognition of deposits for
terminated transactions in 2020, a $6.5 million reduction in income tax benefit,
a $4.4 million increase in interest expense attributed to a higher
weighted-average interest rate offset by a reduction in weighted-average debt
outstanding and a $0.8 million increase in corporate general and administrative
expenses.
Net loss decreased 35.8% for the nine months ended September 30, 2021 compared
to 2020, which was primarily attributed to an increase in operating income of
$99.8 million from our current portfolio of 35 hotels as a result of a recovery
from the COVID-19 pandemic, a $17.3 million reduction in operating loss
attributed to four hotels sold during the fourth quarter of 2020, a $15.0
million reduction in impairment loss, a $2.2 million reduction in corporate
general and administrative expenses attributed to reductions in corporate
personnel and legal fees related to loan amendments and a $1.1 million increase
attributed to business interruption proceeds. These increases were offset by a
$31.8 million reduction in other income attributed to the recognition of
deposits for terminated transactions in 2020, a $17.2 million reduction in
income tax benefit, a $16.2 million increase in interest expense attributed to a
higher weighted-average interest rate and an increase in weighted-average debt
outstanding and a $1.4 million increase in loss on extinguishment of debt
attributed to the write off of unamortized debt issuance costs associated with
the repayment of debt.
Adjusted EBITDAre and Adjusted FFO attributable to common stock and unit holders
for the three and nine months ended September 30, 2021 increased 267.6% and
242.0%, and 150.0% and 105.4%, respectively, compared to 2020, which was
attributable to the extent and timing of the impact of the COVID-19 pandemic on
our results of operations. Refer to "Non-GAAP Financial Measures" for the
definition of these financial measures, a description of the reasons we believe
they are useful to investors as key supplemental measures of our operating
performance and the reconciliation of these non-GAAP financial measures to net
loss attributable to common stock and unit holders.
Operating Information Comparison
The following table sets forth certain operating information for the three and
nine months ended September 30, 2021 and 2020:
                                                                                          Nine Months Ended
                                                                                            September 30,
                                                                                       2021               2020                  Change

Number of properties at September 30                                                    35                 39                    (4)

Number of rooms at September 30                                                       10,011             11,245                (1,234)

Number of hotels open at September 30                                                   35                 37                    (2)
Number of rooms in hotels open at September 30                                        10,011             10,176                 (165)

Number of hotels with temporarily suspended operations at September 30

             -                  2                     (2)
Number of rooms in hotels with temporarily suspended operations at September 30         -                1,069                 (1,069)

                        Three Months Ended                                                Nine Months Ended
                           September 30,                                                    September 30,
                      2021               2020                  Change                  2021               2020                  Change
Total Portfolio
Statistics:
Occupancy (1)          53.7  %            23.4  %                3,030   bps            45.2  %            27.4  %                1,780   bps
ADR (1)           $  221.91          $  169.76                    30.7     %       $  211.13          $  204.19                     3.4     %
RevPAR (1)        $  119.17          $   39.71                   200.1     %       $   95.35          $   56.00                    70.3     %


(1)  For hotels disposed of during the period, operating results and statistics
are only included through the date of respective disposition. During the three
and nine months ended September 30, 2021 and 2020 includes hotels that had
suspended operations for a portion of or all of the periods presented.
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Revenues

Revenues consists of rooms, food and beverage, and other revenues from our hotels, as follows (in thousands):

                         Three Months Ended September
                                      30,                                                              Nine Months Ended September 30,
                            2021               2020             Increase            % Change               2021                2020             Increase            % Change
Revenues:
Rooms revenues          $  109,753          $ 41,081          $  68,672                 167.2  %       $  260,594          $ 172,550          $  88,044                  51.0  %
Food and
beverage revenues           44,004            11,762             32,242                 274.1  %          105,739             87,587             18,152                  20.7  %
Other revenues              19,027            11,111              7,916                  71.2  %           46,277             33,992             12,285                  36.1  %
Total revenues          $  172,784          $ 63,954          $ 108,830                 170.2  %       $  412,610          $ 294,129          $ 118,481                  40.3  %


Rooms revenues
Rooms revenues increased by $68.7 million, or 167.2%, to $109.8 million for the
three months ended September 30, 2021 from $41.1 million for the three months
ended September 30, 2020 primarily due to a recovery from the COVID-19 pandemic
which gained momentum starting late in the first quarter and accelerated into
July 2021. This increase is net of a reduction of $4.6 million attributed to the
sale of Marriott Napa Valley Hotel & Spa and Residence Inn Boston Cambridge in
October 2020 and Hotel Commonwealth and Renaissance Austin Hotel in November
2020 (collectively, "the four hotels sold in the fourth quarter of 2020").
Rooms revenues increased by $88.0 million, or 51.0%, to $260.6 million for the
nine months ended September 30, 2021 from $172.6 million for the nine months
ended September 30, 2020 primarily due to a recovery from the COVID-19 pandemic.
This increase is net of a reduction of $16.7 million attributed to the four
hotels sold in the fourth quarter of 2020.
Food and beverage revenues
Food and beverage revenues increased by $32.2 million, or 274.1%, to $44.0
million for the three months ended September 30, 2021 from $11.8 million for the
three months ended September 30, 2020 primarily due to a recovery from the
COVID-19 pandemic. The increase in food and beverage revenues was not materially
impacted by the four hotels sold in the fourth quarter of 2020.
Food and beverage revenues increased by $18.2 million, or 20.7%, to $105.7
million for the nine months ended September 30, 2021 from $87.6 million for the
nine months ended September 30, 2020 primarily due to the extent and timing of
the impact of the COVID-19 pandemic. This increase is net of a reduction of $5.0
million in food and beverage revenues attributed to the four hotels sold in the
fourth quarter of 2020.
Other revenues
Other revenues increased by $7.9 million, or 71.2%, to $19.0 million for the
three months ended September 30, 2021 from $11.1 million for the three months
ended September 30, 2020 primarily due to a recovery from the COVID-19 pandemic.
This increase includes $1.1 million in revenues from cancellations and attrition
and is net of a reduction of $1.2 million attributed to the four hotels sold in
the fourth quarter of 2020.
Other revenues increased by $12.3 million, or 36.1%, to $46.3 million for the
nine months ended September 30, 2021 from $34.0 million for the nine months
ended September 30, 2020 primarily due to a recovery from the COVID-19 pandemic.
This increase is net of reductions of $3.5 million in revenues from
cancellations and attrition and $2.3 million attributed to the four hotels sold
in the fourth quarter of 2020.
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Hotel Operating Expenses
Hotel operating expenses consist of the following (in thousands):
                     Three Months Ended September
                                  30,                                                             Nine Months Ended September 30,
                        2021               2020            Increase            % Change               2021                2020            Increase            % Change
Hotel operating
expenses:
Rooms expenses      $   27,099          $ 14,267          $ 12,832                  89.9  %       $   65,024          $  56,458          $  8,566                  15.2  %
Food and beverage
expenses                33,764            14,730            19,034                 129.2  %           80,534             75,451             5,083                   6.7  %
Other direct
expenses                 5,059             2,863             2,196                  76.7  %           12,993              9,763             3,230                  33.1  %
Other indirect
expenses                50,902            33,490            17,412                  52.0  %          132,276            130,297             1,979                   1.5  %
Management and
franchise fees           6,025             2,043             3,982                 194.9  %           15,009              9,212             5,797                  62.9  %
Total hotel
operating expenses  $  122,849          $ 67,393          $ 55,456                  82.3  %       $  305,836          $ 281,181          $ 24,655                   8.8  %


Total hotel operating expenses
In general, hotel operating costs fluctuate based on various factors, including
occupancy, labor costs, utilities and insurance costs. Luxury and upper upscale
hotels generally have higher fixed costs than other types of hotels due to the
level of services and amenities provided to guests.
Total hotel operating expenses increased $55.5 million, or 82.3%, to $122.8
million for the three months ended September 30, 2021 from $67.4 million for the
three months ended September 30, 2020 primarily due to increases in labor costs
resulting from increased staffing as business returns to our hotels and due to
the extent and timing of the impact of COVID-19. This increase is net of a
reduction of $5.1 million in hotel operating expenses attributed to the four
hotels sold in the fourth quarter of 2020.
Total hotel operating expenses increased $24.7 million, or 8.8%, to $305.8
million for the nine months ended September 30, 2021 from $281.2 million for the
nine months ended September 30, 2020 primarily due to the extent and timing of
the impact of COVID-19. This increase is net of a reduction of $23.3 million in
hotel operating expenses attributed to four hotels sold in the fourth quarter of
2020.
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Corporate and Other Expenses
Corporate and other expenses consist of the following (in thousands):
                       Three Months Ended September
                                   30,                                                                Nine Months Ended September 30,
                                                             Increase /
                          2021              2020             (Decrease)            % Change               2021                2020             Decrease            % Change
Depreciation and
amortization          $  32,076          $ 37,307          $    (5,231)                (14.0) %       $   98,281          $ 111,660          $ (13,379)                (12.0) %
Real estate taxes,
personal property
taxes and insurance       9,731            13,028               (3,297)                (25.3) %           31,268             39,800             (8,532)                (21.4) %
Ground lease expense  $     405          $    478          $       (73)                (15.3) %       $    1,187          $   1,604          $    (417)                (26.0) %
General and
administrative
expenses                  7,466             6,676                  790                  11.8  %           22,484             24,656             (2,172)                 (8.8) %
Gain on business
interruption
insurance                     -                 -                    -                     -  %           (1,116)                 -             (1,116)                    -  %
Acquisition,
terminated
transaction and
pre-opening expenses          -               146                 (146)               (100.0) %                -                994               (994)               (100.0) %
Impairment and other
losses                    1,759             8,942               (7,183)                (80.3) %           14,072             29,044            (14,972)                (51.5) %
Total corporate and
other expenses        $  51,437          $ 66,577          $   (15,140)                (22.7) %       $  166,176          $ 207,758          $ (41,582)             (20.0)%


Depreciation and amortization
Depreciation and amortization expense decreased $5.2 million, or 14.0%, and
$13.4 million, or 12.0%, to $32.1 million and $98.3 million for the three and
nine months ended September 30, 2021 from $37.3 million and $111.7 million for
the three and nine months ended September 30, 2020, respectively. These
decreases were primarily attributed to a reduction in depreciation expense
related to the four hotels sold in the fourth quarter of 2020 and due to the
timing of fully depreciated assets during the comparable periods.
Real estate taxes, personal property taxes and insurance
Real estate taxes, personal property taxes and insurance expense decreased $3.3
million, or 25.3%, and $8.5 million, or 21.4%, to $9.7 million and $31.3 million
for the three and nine months ended September 30, 2021 from $13.0 million and
$39.8 million for the three and nine months ended September 30, 2020,
respectively. These decreases were primarily attributed a reduction in expenses
related to the four hotels sold in the fourth quarter of 2020. The decrease for
the nine months ended September 30, 2021 includes a $1.5 million property tax
refund for a property sold in the fourth quarter of 2020.
Ground lease expense
Ground lease expense decreased $0.1 million, or 15.3%, and $0.4 million, or
26.0%, to $0.4 million and $1.2 million from $0.5 million and $1.6 million for
the three and nine months ended September 30, 2021, respectively. The decreases
were primarily attributable to the sale of the Hotel Commonwealth in November
2020. The decrease for the nine months ended September 30, 2021 includes a
reduction in percentage rent for a property undergoing renovation.
General and administrative expenses
General and administrative expenses increased $0.8 million, or 11.8%, to $7.5
million for the three months ended September 30, 2021 from $6.7 million for the
three months ended September 30, 2020 primarily due to increases in employee
compensation costs partially offset by a reduction in corporate related
expenses.
General and administrative expenses decreased $2.2 million, or 8.8%, to $22.5
million for the nine months ended September 30,
                                       36
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2021 from $24.7 million for the nine months ended September 30, 2020 primarily
due to reductions in corporate personnel, legal fees related to loan amendments
and employee retention credits.
Gain on business interruption insurance
Gain on business interruption insurance was $1.1 million for the nine months
ended September 30, 2021, which was attributed to insurance proceeds for a
portion of lost revenue associated with cancellations in 2020 related to the
COVID-19 pandemic.
Impairment and other losses
In June 2021, the Company concluded that it intended to sell the 352-room
Marriott Charleston Town Center, in Charleston, West Virginia and began
marketing the property. As a result of multiple bids from qualified buyers and
ongoing price discussions, management determined, based on a probability
weighted-average undiscounted cash flow analysis, that the hotel was impaired as
the estimated undiscounted cash flows were less than the carrying value of the
hotel as of June 30, 2021. Management determined the impairment loss as the
excess of carrying value over the estimated fair value. As a result, for the
three and six months ended June 30, 2021, the Company recorded an impairment
loss of approximately $12.3 million. In August 2021, the Company entered into an
agreement to sell the property for a sale price of $5.0 million and the buyer
funded an at-risk deposit. Upon meeting held for sale criteria, the Company
recorded an additional impairment loss of $0.3 million for the three and nine
months ended September 30, 2021 related to estimated closing costs. In addition,
during the three and nine months ended September 30, 2021, the Company recorded
an impairment loss of $0.5 million related to Loews New Orleans Hotel which
sustained damage from Hurricane Ida and expensed $1.0 million of
hurricane-related repair and cleanup costs.
During the three months ended September 30, 2020, the Company entered into an
agreement to sell the 492-room Renaissance Austin Hotel, in Austin, Texas for a
sale price of $70 million and, in October 2020, the buyer funded an at-risk
deposit. Based on the results of our probability weighted-average undiscounted
cash flow analysis, management determined the hotel was impaired as the
estimated undiscounted cash flows were less than the carrying value of the hotel
as of September 30, 2020. Management determined the impairment loss as the
excess of carrying value over the estimated fair value. As a result, for the
three and nine months ended September 30, 2020, the Company recorded an
impairment loss of approximately $8.9 million.
During the nine months ended September 30, 2020, the Company determined the
carrying values of goodwill related to Andaz Savannah and Bohemian Hotel
Savannah Riverfront, Autograph Collection, were in excess of their respective
fair values and therefore recorded a total impairment charge of $20.1 million.
The goodwill impairments were directly attributed to existing market weakness
due to new supply in the Savannah, Georgia market and the material adverse
impact that the COVID-19 pandemic had on the results of operations at each
hotel. The fair value was estimated using a ten-year discounted cash flows
approach.
Refer to Notes 2 and 7 in the accompanying condensed consolidated financial
statements for further discussion.
Non-Operating Income and Expenses
Non-operating income and expenses consist of the following (in thousands):
                                         Three Months Ended September 30,                                                                            

Nine Months Ended September 30,

                                        2021                            2020             Increase / (Decrease)            % Change                 2021                            2020             Increase / (Decrease)            % Change
Non-operating income and expenses:

Other income (expense)                    186                           26,965                 (26,779)                       (99.3) %            (2,503)                          29,335                 (31,838)                      (108.5) %
Interest expense                      (21,358)                         (17,006)                  4,352                         25.6  %           (59,799)                         (43,601)                 16,198                         37.2  %
Loss on extinguishment of debt              -                                -                       -                            -  %            (1,356)                               -                   1,356                            -  %
Income tax (expense) benefit              (43)                           6,448                  (6,491)                      (100.7) %              (377)                          16,849                 (17,226)                       102.2  %


Other income (expense)
Other income decreased $26.8 million, or 99.3%, and $31.8 million, or 108.5%, to
income of $0.2 million and an expense of $2.5 million, for the three and nine
months ended September 30, 2021 from income of $27.0 million and $29.3 million
for the three and nine months ended September 30, 2020, respectively. The
decrease was primarily attributed to recognizing $26.8 million and $28.8 million
during the three and nine months ended September 30, 2020, respectively, in
forfeited deposits that for terminated transactions during the periods then
ended. Additionally, the decrease for the nine months ended September 30,
                                       37
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2021 includes the recognition of $2.8 million of costs associated with the
termination of four interest rate hedges.
Interest expense
Interest expense increased $4.4 million, or 25.6%, and $16.2 million, or 37.2%,
to $21.4 million and $59.8 million for the three and nine months ended
September 30, 2021 from $17.0 million and $43.6 million for the three and nine
months ended September 30, 2020, respectively. The increase is primarily due to
an increase in the weighted-average interest rate offset by a decrease in the
outstanding debt as of September 30, 2021 compared to 2020. Refer to Note 5 in
the accompanying condensed consolidated financial statements for further
discussion.
Loss on extinguishment of debt
The loss on extinguishment of debt of $1.4 million for the nine months ended
September 30, 2021 was attributable to the write off of unamortized debt
issuance costs upon the early repayment of the corporate credit facility term
loan due to mature in August 2023 and one mortgage loan. No loans were repaid
during the nine months ended September 30, 2020.
Income tax (expense) benefit
Income tax benefit decreased $6.5 million, or 100.7%, and $17.2 million, or
102.2%, to an expense of $43 thousand and $0.4 million for the three and nine
months ended September 30, 2021 from an income tax benefit of $6.4 million and
$16.8 million for the three and nine months ended September 30, 2020,
respectively. The income tax benefit during the three and nine months ended
September 30, 2020 was primarily attributed to the net operating loss carryback
allowed for under the CARES Act.
Liquidity and Capital Resources
We expect to meet our short-term liquidity requirements from cash on hand, cash
flow from hotel operations, use of our unencumbered asset base, asset
dispositions, borrowings under our revolving credit facility, and proceeds from
various capital market transactions, including issuances of debt and equity
securities. The objectives of our cash management policy are to maintain the
availability of liquidity and minimize operational costs.
On a long-term basis, our objectives are to maximize revenue and profits
generated by our existing properties and acquired hotels, to further enhance the
value of our portfolio and produce an attractive current yield, as well as to
generate sustainable and predictable cash flow from our operations to distribute
to our common stock and unit holders. We believe successful improvements to the
performance of our portfolio will result in increased operating cash flows over
time. Additionally, we may meet our long-term liquidity requirements through
additional borrowings, the issuance of equity and debt securities, which may not
be available on advantageous terms or at all, and/or proceeds from the sales of
hotels.
Liquidity
As of September 30, 2021, we had $517.5 million of consolidated cash and cash
equivalents and $34.5 million of restricted cash and escrows. The restricted
cash as of September 30, 2021 primarily consisted of $25.8 million related to
furniture, fixtures and equipment replacement reserves as required per the terms
of our management and franchise agreements, cash held in restricted escrows of
$7.0 million primarily for real estate taxes and mortgage escrows and $1.7
million in deposits made for capital projects.
As of September 30, 2021, there was no outstanding balance on our revolving
credit facility and the full $523 million is available to be borrowed. Proceeds
from future borrowings may be used for working capital, general corporate or
other purposes permitted by the revolving credit agreement (subject to certain
additional restrictions during the covenant waiver period).
As a result of the material adverse impact on the results of operations
attributed to the COVID-19 pandemic, the Company's third-party managers
temporarily suspended required contributions to the furniture, fixture and
equipment replacement reserves. In addition, in certain cases, the Company has
the ability to utilize a portion of these cash balances for hotel operating
expenses. The usage of such replacement reserves may be subject to lender
approval for hotels encumbered by mortgage loans and is generally required to be
replenished. As of September 30, 2021, the Company had used $14.7 million of the
furniture, fixture and equipment replacement reserves for working capital
purposes, of which $4.8 million remains subject to replenishment requirements.
                                       38
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In May 2021, the Company amended the ATM Agreement to increase its size. As a
result, the Company had $200 million available for sale under the ATM Agreement
as of September 30, 2021. The terms of the amended revolving credit facility
impose restrictions on the use of proceeds raised from equity issuances.
We remain committed to increasing total shareholder returns through the
following priorities: (1) maximize revenue and profits generated by our existing
properties and acquired hotels, including the continued focused management of
expenses, (2) further enhance the value of our portfolio and produce an
attractive current yield and (3) generate sustainable and predictable cash flow
from our operations to distribute to our common stock and unit holders. Future
determinations regarding the declaration and payment of dividends will be at the
discretion of our Board of Directors and will depend on then-existing
conditions, including our results of operations, payout ratio, capital
requirements, financial condition, prospects, contractual arrangements, any
limitations on payment of dividends present in our current and future debt
agreements, maintaining our REIT status and other factors that our Board of
Directors may deem relevant.
Debt and Loan Covenants
As of September 30, 2021, our outstanding total debt was $1.5 billion and had a
weighted-average interest rate of 5.18%.
Mortgage Loans
Our mortgage loan agreements require contributions to be made to furniture,
fixtures and equipment replacement reserves, however, this requirement was
temporarily waived and we have the ability to utilize existing furniture,
fixtures and equipment replacement reserve funds for operating expenses, subject
to certain restrictions and a requirement to replenish any funds used. In
addition, certain quarterly financial covenants have been waived for a period of
time specified in the respective amended loan agreements and certain financial
covenants have been adjusted following the waiver periods.
Corporate Credit Facilities
Certain financial covenants related to our amended corporate credit facilities
have been suspended until the date that financial statements are required to be
delivered thereunder for the fiscal quarter ending June 30, 2022 (such period,
unless earlier terminated by the Operating Partnership in accordance with the
terms of the corporate credit facilities, the "covenant waiver period") and,
once quarterly testing resumes, certain financial covenants have been modified
through the first quarter in 2023. In addition, the amended corporate credit
facilities have certain restrictions and covenants which are applicable during
the covenant waiver period, including (i) mandatory prepayment requirements,
(ii) affirmative covenants related to the pledge of equity of certain
subsidiaries and (iii) negative covenants restricting certain acquisitions,
investments, capital expenditures, ground leases, and distributions. A minimum
liquidity covenant also applies during the covenant waiver period.
In May 2021, in connection with the closing of the 2021 Senior Notes, the
Company effectuated additional amendments to our revolving credit facility and
our one remaining corporate credit facility term loan. These additional
amendments, among other things, (i) extended the covenant waiver period under
the corporate credit facilities as provided above, (ii) increased the minimum
liquidity covenant during the covenant waiver period from $100 million to
$150 million and eliminated the minimum liquidity covenant after the covenant
waiver period ends, (iii) adjusted the mandatory prepayment requirements under
the corporate credit facilities to limit the requirement to repay loans using
net proceeds of certain asset sales and debt or equity issuances solely to the
Operating Partnership's revolving credit facility and (iv) increased the ability
for the Operating Partnership to acquire properties and increased capacity for
capital expenditures during the covenant waiver period under the corporate
credit facilities.
Senior Notes
The Operating Partnership issued $500 million of 6.375% Senior Notes (the "2020
Senior Notes'") during the year ended December 31, 2020. The 2020 Senior Notes
contain customary covenants that limit the Operating Partnership's ability and,
in certain circumstances, the ability of its subsidiaries, to borrow money,
create liens on assets, make distributions and pay dividends on or redeem or
repurchase stock, make certain types of investments, sell stock in certain
subsidiaries, enter into agreements that restrict dividends or other payments
from subsidiaries, enter into transactions with affiliates, issue guarantees of
indebtedness, and sell assets or merge with other companies. These limitations
are subject to a number of important exceptions and qualifications set forth in
the indenture. In addition, the 2020 Senior Notes indenture requires the
Operating Partnership to maintain total unencumbered assets as of each fiscal
quarter of at least 150% of total unsecured indebtedness, in each case
calculated on a consolidated basis.
In May 2021, the Operating Partnership issued $500 million of 4.875% Senior
Notes due in 2029 at a price equal to 100% of face value (the "2021 Senior
Notes) and used the net proceeds to repay in full the borrowings under our
revolving credit facility and prepay in full our corporate credit facility term
loan maturing in August 2023. The Company intends to use the remaining net
proceeds from the offering of the 2021 Senior Notes for general corporate
purposes.
                                       39
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Similar to the 2020 Senior Notes, the 2021 Senior Notes are fully and
unconditionally guaranteed, jointly and severally, by the Company and certain of
its subsidiaries that incur or guarantee any indebtedness under the Company's
corporate credit facilities, any additional first lien obligations, certain
other bank indebtedness or any other material capital markets indebtedness
(each, a "subsidiary guarantor" and together with the Company, the
"guarantors"). The 2021 Senior Notes are initially secured, subject to certain
permitted liens, by a first priority security interest in all of the equity
interests (the "collateral") of a material portion of the Operating
Partnership's subsidiaries, and any proceeds of such equity interests, which
collateral also secures obligations under the amended corporate credit
facilities on a first priority basis. The collateral securing the 2021 Senior
Notes will be released in full if the Operating Partnership achieves compliance
with certain financial covenant requirements under the corporate credit
facilities, after which the 2021 Senior Notes will be unsecured, which is
expected to occur prior to the maturity of the 2021 Senior Notes.
The 2021 Senior Notes contain customary covenants that limit the Operating
Partnership's ability and, in certain instances, the ability of its
subsidiaries, to borrow money, create liens on assets, make distributions and
pay dividends on or redeem or repurchase stock, make certain types of
investments, sell stock in certain subsidiaries, enter into agreements that
restrict dividends or other payments from subsidiaries, enter into transactions
with affiliates, issue guarantees of indebtedness, and sell assets or merge with
other companies. These limitations are subject to a number of important
exceptions and qualifications set forth in the indenture. In addition, the 2021
Senior Notes indenture requires the Operating Partnership to maintain total
unencumbered assets as of each fiscal quarter of at least 150% of total
unsecured indebtedness, in each case calculated on a consolidated basis.
The Operating Partnership may redeem the 2021 Senior Notes at any time prior to
June 1, 2024, in whole or in part, at a redemption price equal to 100% of the
accrued principal amount thereof plus unpaid interest, if any, to, but
excluding, the redemption date, plus a make-whole premium. The Operating
Partnership may redeem the 2021 Senior Notes at any time on or after June 1,
2024, in whole or in part, at a redemption price equal to (i) 102.438% of the
principal amount thereof, should such redemption occur before June 1, 2025, (ii)
101.219% of the principal amount thereof, should such redemption occur before
June 1, 2026, and (iii) 100.000% of the principal amount thereof, should such
redemption occur on or after June 1, 2026, in each case plus accrued and unpaid
interest, if any, to, but excluding, the redemption date.
In addition, at any time prior to June 1, 2024, the Operating Partnership may
redeem up to 40% of the original principal amount of the 2021 Senior Notes with
the net cash proceeds from certain equity offerings at a redemption price of
104.875% of the principal amount redeemed plus accrued and unpaid interest, if
any, to, but excluding, the redemption date, so long as at least 60% of the
aggregate principal amount of the 2021 Senior Notes remains outstanding
immediately after the occurrence of such redemption. Under certain
circumstances, until 120 days after the issue date, the Operating Partnership
may redeem in the aggregate up to 35% of the original aggregate principal amount
of the 2021 Senior Notes with the net cash proceeds of certain support received
by the Operating Partnership or any of its subsidiaries from a government
authority in connection with the COVID-19 global pandemic at a redemption price
of 102.4375% of the principal amount redeemed plus accrued and unpaid interest,
if any, to, but excluding, the redemption date, so long as at least 65% of the
aggregate principal amount of the 2021 Senior Notes remain outstanding
immediately after such redemption.
Debt Covenants
As of September 30, 2021, the Company was not in compliance with its debt
covenants on two mortgage loans which did not result in events of default but
allows the respective lenders the option to institute a cash sweep until
covenant compliance is achieved for a period of time specified in the respective
loan agreements. The cash sweeps permit the lenders to withdraw excess cash
generated by the property into a separate bank account that they control, which
may be used to reduce the outstanding loan balance.
As of June 30, 2021, the Company was not in compliance with its debt covenants
for three of its mortgage loans, which resulted in an event of default for each
mortgage loan. In July 2021, the Company amended the terms of these mortgage
loans to waive each event of default as of June 30, 2021 and to adjust covenant
calculations for five quarters following the waiver. As a result, the Company
was in compliance with each of these three loans as of September 30, 2021.
Derivatives
As of September 30, 2021, we had various interest rate swaps with an aggregate
notional amount of $315.0 million. These swaps fix a portion of the variable
interest rate on three of our mortgage loans for a portion of or the entire term
of the mortgage loan and fix LIBOR for a portion of or the entire term of our
one outstanding corporate credit facility term loan agented by KeyBank National
Association. The corporate credit facility term loan spread may vary, as it is
determined by the Company's leverage ratio. The applicable interest rate for the
corporate credit facility term loan has been set to the highest level of
grid-based pricing during the covenant waiver period. In addition, four interest
rate swaps were terminated in May 2021 in connection with the repayment of a
$56.8 million mortgage loan, the $150 million corporate credit facility term
loan agented by PNC Bank, National Association and the $163.1 million
outstanding balance on the revolving credit facility.
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Our ability to apply hedge accounting in the future could be impacted to the
extent that the payment terms of our loans change. The discontinuation of hedge
accounting could result in future changes in the fair market values of hedges
and/or a portion or all of the $6.2 million balance of accumulated other
comprehensive loss as of September 30, 2021 to be recognized on the condensed
consolidated statements of operations and comprehensive loss through net loss.
Any future defaults by the Company under the terms of its hedges, including
those which may arise from cross default provisions with loan agreements, could
result in the Company being immediately liable for the fair market value
liability of the defaulted hedges.
On March 5, 2021, the Financial Conduct Authority ("FCA") announced that USD
LIBOR will no longer be published after June 30, 2023. This announcement has
several implications, including setting the spread that may be used to
automatically convert contracts from LIBOR to the Secured Overnight Financing
Rate ("SOFR"). Additionally, banking regulators are encouraging banks to
discontinue new LIBOR debt issuance by December 31, 2021. Any changes adopted by
the FCA or other governing bodies in the method used for determining LIBOR may
result in a sudden or prolonged increase or decrease in reported LIBOR. If that
were to occur, our interest payments could change. In addition, uncertainty
about the extent and manner of future changes may result in interest rates
and/or payments that are higher or lower than if LIBOR were to remain available
in its current form.
As of September 30, 2021, we have various interest rate swaps with notional
amounts that have maturity dates ranging from 2022 to 2023 and that are indexed
to LIBOR. All of our contracts mature prior to June 30, 2023. While we expect
LIBOR to be available in substantially its current form through June 30, 2023,
it is possible that LIBOR will become unavailable prior to that date. This could
result, for example, if sufficient banks decline to make submissions to the
LIBOR administrator. In that case, the risks associated with the transition to
an alternative reference rate will be accelerated and magnified. The
introduction of an alternative rate also may create additional basis risk and
increased volatility as alternative rates are phased in and utilized in parallel
with LIBOR. In September 2021, two mortgage loans converted from LIBOR-based
interest rates to daily SOFR interest rates. These changes did not have a
significant impact on the Company's interest expense or on hedge accounting.
Capital Markets
We maintain an established "At-the-Market" ("ATM") program pursuant to an Equity
Distribution Agreement ("ATM Agreement") with Wells Fargo Securities, LLC,
Robert W. Baird & Co. Incorporated, Jefferies LLC, KeyBanc Capital Markets Inc.
and Raymond James & Associates, Inc. In accordance with the terms of the ATM
Agreement, we may from time to time offer and sell shares of common stock having
an aggregate offering price of up to $200 million. No shares were sold under the
ATM Agreement during the three and nine months ended September 30, 2021 and
2020.
Our Board of Directors has authorized a stock repurchase program pursuant to
which we are authorized to purchase up to $175 million of our outstanding common
stock in the open market, in privately negotiated transactions or otherwise,
including pursuant to Rule 10b5-1 plans (the "Repurchase Program"). Such
repurchases or exchanges, if any, will depend on prevailing market conditions,
our liquidity requirements, contractual restrictions and other factors. The
Repurchase Program does not have an expiration date. This Repurchase Program may
be suspended or discontinued at any time and does not obligate us to acquire any
particular amount of shares.
No shares were purchased as part of the Repurchase Program during the three and
nine months ended September 30, 2021. During the nine months ended September 30,
2020, 165,516 shares were repurchased under the Repurchase Program at a
weighted-average price of $13.68 per share for an aggregate purchase price
of $2.3 million. As of September 30, 2021, we had approximately $94.7 million
remaining under our share repurchase authorization. The terms of our amended
corporate credit facilities currently prohibit us from making repurchases of our
common stock until we achieve compliance with applicable debt covenants and our
covenant waiver period ends.
Capital Expenditures and Reserve Funds
We maintain each of our properties in good repair and condition and in
conformity with applicable laws and regulations, franchise agreements and
management agreements. Routine capital expenditures are administered by the
hotel management companies. However, we have approval rights over the capital
expenditures as part of the annual budget process for each of our properties.
From time to time, certain of our hotels may undergo renovations as a result of
our decision to expand or upgrade portions of the hotels, such as guest rooms,
public space, meeting space and/or restaurants, in order to better compete with
other hotels in our markets. In addition, upon the acquisition of a hotel we may
be required to complete a property improvement plan in order to bring the hotel
into compliance with the respective brand standards. If permitted by the terms
of the management agreement, funding for a renovation will first come from the
furniture, fixtures and equipment replacement reserves. We are obligated to
maintain reserve funds with respect to certain agreements with our hotel
management companies, franchisors and lenders to provide funds, generally 3% to
5% of hotel revenues, sufficient to cover the cost of certain capital
improvements to the hotels and to periodically replace and update furniture,
fixtures and equipment. Certain of the agreements require that we reserve this
cash in separate accounts. To the extent that the furniture, fixtures and
equipment replacement reserves are not available or adequate to cover the cost
of the renovation, we may fund a portion of the renovation with cash on hand,
                                       41
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borrowings from our revolving credit facility and/or other sources of available
liquidity. We have been, and will continue to be, prudent with respect to our
capital spending, taking into account our cash flows from operations.
As of September 30, 2021 and December 31, 2020, we had a total of $25.8 million
and $25.9 million, respectively, of furniture, fixtures and equipment
replacement reserves. During the three and nine months ended September 30, 2021
and 2020, we made total capital expenditures of $7.3 million and $19.2 million,
and $17.6 million and $58.2 million, respectively.
As a result of the material adverse impact on the results of operations
attributed to the COVID-19 pandemic, the Company's third-party managers
temporarily suspended required contributions to the furniture, fixture and
equipment replacement reserves. In addition, in certain cases, the Company has
the ability to utilize a portion of these cash balances for hotel operating
expenses. The usage of such replacement reserves may be subject to lender
approval for hotels encumbered by mortgage loans and is generally required to be
replenished. As of September 30, 2021, the Company had used $14.7 million of the
furniture, fixture and equipment replacement reserves for working capital
purposes, of which $4.8 million remains subject to replenishment requirements.
Off-Balance Sheet Arrangements
As of September 30, 2021, we had various contracts outstanding with
third-parties in connection with the renovation of certain of our hotel
properties. The remaining commitments under these contracts as of September 30,
2021 totaled $5.2 million.
Sources and Uses of Cash
Our principal sources of cash are cash flows from operations, borrowing under
debt financings, including draws on our revolving credit facility, and from
various types of equity offerings or the sale of our hotels. As a result of the
impact the COVID-19 pandemic has had on our business, certain sources of capital
may not be as readily available to us as they have been historically. Our
principal uses of cash are asset acquisitions, capital investments, routine debt
service and debt repayments, operating costs, corporate expenses and dividends.
We may also elect to use cash to buy back our common stock in the future under
the Repurchase Program. We are prohibited under the terms of the amended
corporate credit facilities from making repurchases of our common stock until we
achieve compliance with applicable debt covenants for a period of time and our
covenant waiver period ends.
Comparison of the Nine Months Ended September 30, 2021 to the Nine Months Ended
September 30, 2020
The table below presents summary cash flow information for the condensed
consolidated statements of cash flows (in thousands):
                                                                         

Nine Months Ended September 30,

                                                                     2021                                 2020
Net cash provided by (used in) operating activities                   29,353                                (43,711)
Net cash used in investing activities                                (16,626)                               (55,294)
Net cash provided by financing activities                            110,451                                271,407

Net increase in cash and cash equivalents and restricted cash

                                                                 123,178                                172,402

Cash and cash equivalents and restricted cash, at beginning of period

                                                            428,786                                194,946
Cash and cash equivalents and restricted cash, at end of
period                                                               551,964                                367,348


Operating
•Cash provided by operating activities was $29.4 million and cash used in
operating activities was $43.7 million for the nine months ended September 30,
2021 and 2020, respectively. Cash flows from operating activities generally
consist of the net cash generated by our hotel operations, partially offset by
the cash paid for interest, corporate expenses and other working capital
changes. Our cash flows from operating activities may also be affected by
changes in our portfolio resulting from hotel acquisitions, dispositions or
renovations. The net increase in cash from operating activities during the nine
months ended September 30, 2021 was primarily due to an increase in hotel
operating income attributed to a recovery from the impact of the COVID-19
pandemic net of reductions from the four hotels sold during the fourth quarter
of 2020. Refer to the "Results of Operations" section for further discussion of
our operating results for the three and nine months ended September 30, 2021 and
2020.
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Investing

•Cash used in investing activities was $16.6 million and $55.3 million for the
nine months ended September 30, 2021 and 2020, respectively. Cash used in
investing activities for the nine months ended September 30, 2021 was attributed
to $19.2 million in capital improvements at our hotel properties, which was
offset by $2.5 million of performance guaranty payments received that were
recorded as a reduction in the respective hotel's cost basis. Cash used in
investing activities for the nine months ended September 30, 2020 was attributed
to $58.2 million in capital improvements at our hotel properties, which was
offset by $2.9 million of performance guaranty payments received that were
recorded as a reduction in the respective hotel's cost basis.
Financing
•Cash provided by financing activities was $110.5 million and $271.4 million for
the nine months ended September 30, 2021 and 2020, respectively. Cash provided
by financing activities for the nine months ended September 30, 2021 was
attributed to $500.0 million in proceeds from the issuance of the 2021 Senior
Notes, offset by (i) the repayment of the revolving credit facility of $163.1
million, (ii) the repayment of one corporate credit facility term loan maturing
in 2023 totaling $150.0 million, (iii) the repayment of mortgage debt totaling
$56.8 million, (iv) payment of loan fees and issuance costs of $10.2 million,
(v) principal payments of mortgage debt totaling $4.9 million, (vi) redemption
of Operating Partnership Units for common stock and cash of $4.1 million, and
(vii) shares redeemed to satisfy tax withholding on vested share-based
compensation of $0.4 million. Cash provided by financing activities for the nine
months ended September 30, 2020 was attributed to a $340.0 million drawdown on
the revolving credit facility, $300 million in proceeds from the issuance of
2020 Senior Notes, which was offset by (i) payments on the revolving credit
facility totaling $193.8 million, (ii) principal payments on corporate credit
facility term loans totaling $87.6 million, (iii) payment of loan fees and
issuance costs of $10.8 million, (iv) principal payments of mortgage debt
totaling $1.5 million, (v) the payment of $63.2 million in dividends for common
stock and units, (vi) redemption of Operating Partnership Units for common stock
and cash of $8.6 million, (vii) the repurchase of common stock totaling $2.3
million, and (viii) shares redeemed to satisfy tax withholdings on vested share
based compensation of $0.8 million.
Contractual Obligations
The table below presents, on a consolidated basis, obligations and commitments
to make future payments under debt obligations and lease agreements as of
September 30, 2021 (in thousands):
                                                                         Payments due by period
                                                                                                                          More than 5
                                      Total             Less than 1 year           1-3 years           3-5 years             years

Debt maturities(1)                $ 1,911,352          $         18,890          $  159,493          $  979,511          $   753,458
Revolving Credit Facility               3,844                       401               3,182                 261                    -
Ground leases                          38,899                       415               3,316               3,316               31,852
Parking garage leases                   2,394                        40                 337                 346                1,671
Corporate office lease                  3,377                       110                 907                 957                1,403
Total                             $ 1,959,866          $         19,856          $  167,235          $  984,391          $   788,384


(1)  Includes principal and interest payments for both variable and fixed rate
loans. The variable rate interest payments were calculated based upon the
variable rate spread plus 1-month LIBOR as of September 30, 2021.
Non-GAAP Financial Measures
We consider the following non-GAAP financial measures to be useful to investors
as key supplemental measures of our operating performance: EBITDA, EBITDAre,
Adjusted EBITDAre, FFO and Adjusted FFO. These non-GAAP financial measures
should be considered along with, but not as alternatives to, net income or loss,
operating profit, cash from operations, or any other operating performance
measure as prescribed per GAAP.
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EBITDA, EBITDAre and Adjusted EBITDAre
EBITDA is a commonly used measure of performance in many industries and is
defined as net income or loss (calculated in accordance with GAAP)
excluding interest expense, provision for income taxes (including income taxes
applicable to sale of assets) and depreciation and amortization. We consider
EBITDA useful to investors in evaluating and facilitating comparisons of our
operating performance between periods and between REITs by removing the impact
of our capital structure (primarily interest expense) and asset base (primarily
depreciation and amortization) from our operating results, even though EBITDA
does not represent an amount that accrues directly to common stockholders. In
addition, EBITDA is used as one measure in determining the value of hotel
acquisitions and dispositions and, along with FFO and Adjusted FFO, is used by
management in the annual budget process for compensation programs.
We calculate EBITDAre in accordance with standards established by the National
Association of Real Estate Investment Trusts ("Nareit"). Nareit defines EBITDAre
as EBITDA plus or minus losses and gains on the disposition of depreciated
property, including gains or losses on change of control, plus impairments 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 further adjust EBITDAre to exclude the impact of non-controlling interests in
consolidated entities other than our Operating Partnership Units because our
Operating Partnership Units may be redeemed for common stock. We also adjust
EBITDAre for certain additional items such as depreciation and amortization
related to corporate assets, hotel property acquisition, terminated transaction
and pre-opening expenses, amortization of share-based compensation, non-cash
ground rent and straight-line rent expense, the cumulative effect of changes in
accounting principles, and other costs we believe do not represent recurring
operations and are not indicative of the performance of our underlying hotel
property entities. We believe it is meaningful for investors to understand
Adjusted EBITDAre attributable to all common stock and unit holders. We believe
Adjusted EBITDAre attributable to common stock and unit holders provides
investors with another useful financial measure in evaluating and facilitating
comparison of operating performance between periods and between REITs that
report similar measures.
FFO and Adjusted FFO
We calculate FFO in accordance with standards established by Nareit, as amended
in the December 2018 restatement white paper, which defines FFO as net income or
loss (calculated in accordance with GAAP), excluding real estate-related
depreciation, amortization and impairments, gains or losses from sales of real
estate, the cumulative effect of changes in accounting principles, similar
adjustments for unconsolidated partnerships and consolidated variable interest
entities, and items classified by GAAP as extraordinary. 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 industry
investors consider presentations of operating results for real estate companies
that use historical cost accounting to be insufficient by themselves. We believe
that the presentation of FFO provides useful supplemental information to
investors regarding operating performance by excluding the effect of real estate
depreciation and amortization, gains or losses from sales for real estate,
impairments of real estate assets, extraordinary items and the portion of these
items related to unconsolidated entities, all of which are based on historical
cost accounting and which may be of lesser significance in evaluating current
performance. We believe that the presentation of FFO can facilitate comparisons
of operating performance between periods and between REITs, even though FFO does
not represent an amount that accrues directly to common stockholders. 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
stock and unit holders, which includes our Operating Partnership Units because
our Operating Partnership Units may be redeemed for common stock. We believe it
is meaningful for the investor to understand FFO attributable to common stock
and unit holders.
We further adjust FFO for certain additional items that are not in Nareit's
definition of FFO such as hotel property acquisition, terminated transaction and
pre-opening expenses, amortization of debt origination costs and share-based
compensation, non-cash ground rent and straight-line rent expense, and other
items we believe do not represent recurring operations. We believe that Adjusted
FFO provides investors with useful supplemental information that may facilitate
comparisons of ongoing operating performance between periods and between REITs
that make similar adjustments to FFO and is beneficial to investors' complete
understanding of our operating performance.
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The following is a reconciliation of net loss to EBITDA, EBITDAre and Adjusted
EBITDAre attributable to common stock and unit holders for the three and nine
months ended September 30, 2021 and 2020 (in thousands):
                                                    Three Months Ended September 30,           Nine Months Ended September 30,
                                                        2021                2020                  2021                   2020
Net loss                                            $  (22,717)         $ (53,609)         $       (123,437)         $ (192,227)
Adjustments:
Interest expense                                        21,358             17,006                    59,799              43,601
Income tax expense (benefit)                                43             (6,448)                      377             (16,849)
Depreciation and amortization                           32,076             37,307                    98,281             111,660
EBITDA                                              $   30,760          $  

(5,744) $ 35,020 $ (53,815) Impairment of investment properties(1)

                     759              8,942                    13,072              29,044

EBITDAre                                            $   31,519          $   3,198          $         48,092          $  (24,771)

Reconciliation to Adjusted EBITDAre Depreciation and amortization related to corporate assets

$     (104)         $     (98)         $           (306)         $     (292)
Loss on extinguishment of debt                               -                  -                     1,356                   -

Acquisition, terminated transaction and pre-opening expenses

                                                     -                146                         -                 994
Amortization of share-based compensation expense(2)      2,875              2,265                     8,813               8,574
Non-cash ground rent and straight-line rent expense         33                 80                        84                 237

Other income attributed to deposits for terminated transactions(3)

                                              -            (26,750)                        -             (28,750)
Other non-recurring expenses(4)                          1,068                 38                     1,092               2,371

Adjusted EBITDAre attributable to common stock and unit holders

$   35,391          $ 

(21,121) $ 59,131 $ (41,637)

(1)  During the three and nine months ended September 30, 2021, the Company
recorded a $0.3 million and $12.6 million impairment loss, respectively, related
to Marriott Charleston Town Center, which was attributed to its net book value
exceeding the undiscounted cash flows over a shortened hold period.
Additionally, during the third quarter of 2021, Loews New Orleans Hotel was
impacted by Hurricane Ida and the Company recorded an impairment loss of $0.5
million, which represents the write off of the net book value of property
damaged during the storm. During the three and nine months ended September 30,
2020, the Company recorded an $8.9 million impairment loss related to
Renaissance Austin Hotel, which was attributed to its carrying value exceeding
the undiscounted cash flows over a shortened hold period. In addition, during
the nine months ended September 30, 2020, the Company recorded goodwill
impairments totaling $20.1 million for Andaz Savannah and Bohemian Hotel
Savannah Riverfront, Autograph Collection. The goodwill impairments were
directly attributed to existing market weakness due to new supply and the
material adverse impact that the COVID-19 pandemic had on the results of
operations at each hotel.
(2)  During the nine months ended September 30, 2020, the Company reduced its
corporate personnel in order to preserve capital over the long-term as a result
of the material adverse impact COVID-19 has had on the Company's results of
operations. As a result, during the nine months ended September 30, 2020, the
Company incurred accelerated amortization of $1.9 million related share-based
compensation expense.
(3)  During the three and nine months ended September 30, 2020, the Company
recognized other income of $26.8 million and $28.8 million, respectively, as a
result of forfeited deposits from terminated transactions.
(4) During the three and nine months ended September 30, 2021, the Company
recorded estimated hurricane-related repair and cleanup costs of $1.0 million
related to the damage sustained at Loews New Orleans Hotel during Hurricane Ida.
For the nine months ended September 30, 2020, the Company incurred $1.8 million
of non-recurring expenses for severance related costs in connection with the
reduction in corporate personnel. In addition, during the three and nine months
ended September 30, 2020, the Company incurred non-recurring legal costs of $38
thousand and $0.5 million, respectively, to amend the terms of its debt.

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The following is a reconciliation of net loss to FFO and Adjusted FFO attributable to common stock and unit holders for the three and nine months ended September 30, 2021 and 2020 (in thousands):

                                                      Three Months Ended September 30,           Nine Months Ended September 30,
                                                          2021                2020                  2021                   2020
Net loss                                              $  (22,717)         $

(53,609) $ (123,437) $ (192,227) Adjustments: Depreciation and amortization related to investment properties

                                                31,972             37,209                    97,975             111,368
Impairment of investment properties(1)                       759              8,942                    13,072              29,044

FFO attributable to common stock and unit holders $ 10,014 $

(7,458) $ (12,390) $ (51,815)

Reconciliation to Adjusted FFO
Loss on extinguishment of debt                        $        -          $ 

- $ 1,356 $ - Acquisition, terminated transaction and pre-opening expenses

                                                       -                146                         -                 994
Loan related costs, net of adjustment related to
non-controlling interests(2)                               1,291              1,122                     4,615               2,205
Amortization of share-based compensation expense(3)        2,875              2,265                     8,813               8,574
Non-cash ground rent and straight-line rent expense           33                 80                        84                 237

Other income attributed to deposits for terminated transactions(4)

                                                -            (26,750)                        -             (28,750)
Other non-recurring expenses(5)                            1,068                 38                     1,092               2,371

Adjusted FFO attributable to common stock and unit holders

$   15,281          $ 

(30,557) $ 3,570 $ (66,184)

(1)  During the three and nine months ended September 30, 2021, the Company
recorded a $0.3 million and $12.6 million impairment loss, respectively, related
to Marriott Charleston Town Center, which was attributed to its net book value
exceeding the undiscounted cash flows over a shortened hold period.
Additionally, during the third quarter of 2021, Loews New Orleans Hotel was
impacted by Hurricane Ida and the Company recorded an impairment loss of $0.5
million, which represents the write off of the net book value of property
damaged during the storm. During the three and nine months ended September 30,
2020, the Company recorded an $8.9 million impairment loss related to
Renaissance Austin Hotel, which was attributed to its carrying value exceeding
the undiscounted cash flows over a shortened hold period. In addition, during
the nine months ended September 30, 2020, the Company recorded goodwill
impairments totaling $20.1 million for Andaz Savannah and Bohemian Hotel
Savannah Riverfront, Autograph Collection. The goodwill impairments were
directly attributed to existing market weakness due to new supply and the
material adverse impact that the COVID-19 pandemic had on the results of
operations at each hotel.
(2)   Loan related costs include amortization of debt premiums, discounts and
deferred loan origination costs.
(3)  During the nine months ended September 30, 2020, the Company reduced its
corporate personnel in order to preserve capital over the long-term as a result
of the material adverse impact COVID-19 has had on the Company's results of
operations. As a result, during the nine months ended September 30, 2020, the
Company incurred accelerated amortization of $1.9 million related share-based
compensation expense.
(4)  During the three and nine months ended September 30, 2020, the Company
recognized other income of $26.8 million and $28.8 million, respectively, as a
result of forfeited deposits from terminated transactions.
(5) During the three and nine months ended September 30, 2021, the Company
recorded estimated hurricane-related repair and cleanup costs of $1.0 million
related to the damage sustained at Loews New Orleans Hotel during Hurricane Ida.
For the nine months ended September 30, 2020, the Company incurred $1.8 million
of non-recurring expenses for severance related costs in connection with the
reduction in corporate personnel. In addition, during the three and nine months
ended September 30, 2020, the Company incurred non-recurring legal costs of $38
thousand and $0.5 million, respectively, to amend the terms of its debt.
Use and Limitations of Non-GAAP Financial Measures
EBITDA, EBITDAre, Adjusted EBITDAre, FFO, and Adjusted FFO do not represent cash
generated from operating activities under GAAP and should not be considered as
alternatives to net income or loss, operating profit, cash flows from operations
or any other operating performance measure prescribed by GAAP. Although we
present and use EBITDA, EBITDAre, Adjusted EBITDAre, FFO and Adjusted FFO
because we believe they are useful to investors in evaluating and facilitating
comparisons of our operating performance between periods and between REITs that
report similar measures, the use of these non-GAAP measures has certain
limitations as analytical tools. These non-GAAP financial measures are not
measures of our liquidity, nor are they indicative of funds available to meet
our cash needs, including our ability to fund capital expenditures, contractual
commitments, working capital, service debt or make cash distributions. These
measurements do not reflect cash expenditures for long-term assets and other
items that we have incurred and will incur. These non-GAAP financial measures
may include funds that may not be available for discretionary use due to
functional requirements to conserve funds for capital expenditures, property
acquisitions, and other commitments and uncertainties. These non-GAAP financial
measures as presented may not be comparable to non-GAAP financial measures as
calculated by other real estate companies.
                                       46
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We compensate for these limitations by separately considering the impact of the
excluded items to the extent they are material to operating decisions or
assessments of our operating performance. Our reconciliations to the most
comparable GAAP financial measures, and our condensed consolidated statements of
operations and comprehensive loss, include interest expense, and other excluded
items, all of which should be considered when evaluating our performance, as
well as the usefulness of our non-GAAP financial measures. 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.
Critical Accounting Policies and Estimates
The preparation of financial statements in conformity with U.S. 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. Actual amounts may
differ significantly from these estimates and assumptions. We evaluate our
estimates, assumptions and judgments to confirm that they are reasonable and
appropriate on an ongoing basis, based on information that is then available to
us as well as our experience relating to various matters. All of our significant
accounting policies, including certain critical accounting policies, are
disclosed in our Annual Report on Form 10-K for the year ended December 31, 2020
and Note 2 in the accompanying condensed consolidated financial statements
included herein.
Inflation
We rely on the performance of the hotels to increase revenues to keep pace with
inflation. Generally, in a stable macroeconomic environment, our hotel operators
possess the ability to adjust room rates daily, except for group or corporate
rates contractually committed to in advance, although competitive pressures or
prevailing economic conditions may limit the ability of our operators to raise
rates faster than inflation or even at the same rate.
Seasonality
Demand in the lodging industry is affected by recurring seasonal patterns, which
are greatly influenced by overall economic cycles, the geographic locations of
the hotels and the customer mix at the hotels. The impact of the COVID-19
pandemic has disrupted, and is expected to continue to disrupt, our historical
seasonal patterns.
New Accounting Pronouncements Not Yet Implemented
See Note 2 in the accompanying condensed consolidated financial statements
included herein for additional information related to recently issued accounting
pronouncements.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
We are subject to market risk associated with changes in interest rates both in
terms of variable rate debt and the price of new fixed rate debt upon maturity
of existing debt and for acquisitions. Our exposure to market risk has not
materially changed from what we previously disclosed in our Annual Report on
Form 10-K for the year ended December 31, 2020.
Our interest rate risk management objectives are to limit the impact of interest
rate changes on earnings and cash flows and to lower our overall borrowing
costs. If market rates of interest on all of our variable rate debt as of
September 30, 2021 permanently increased or decreased by 1%, the increase or
decrease in interest expense on our variable rate debt would decrease or
increase future earnings and cash flows by approximately $0.3 million per annum.
If market rates of interest on all of our variable rate debt as of December 31,
2020 permanently increased or decreased by 1%, the increase or decrease in
interest expense on our variable rate debt would decrease or increase future
earnings and cash flows by approximately $2.4 million per annum.
With regard to our variable rate financing, we assess interest rate cash flow
risk by continually identifying and monitoring changes in interest rate
exposures that may adversely impact expected future cash flows and by evaluating
hedging opportunities. We maintain risk management control systems to monitor
interest rate cash flow risk attributable to both of our outstanding or
forecasted debt obligations as well as our potential offsetting hedge positions.
The risk management control systems involve the use of analytical techniques,
including cash flow sensitivity analysis, to estimate the expected impact of
changes in interest rates on our future cash flows.
We monitor interest rate risk using a variety of techniques, including
periodically evaluating fixed interest rate quotes on all variable rate debt and
the costs associated with converting to fixed rate debt. Also, existing fixed
and variable rate loans that are scheduled to mature in the next two years are
evaluated for possible early refinancing or extension due to consideration given
to current interest rates. We have taken significant steps in reducing our
variable rate debt exposure by paying off property-level
                                       47
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mortgage debt and entering into various interest rate swap agreements to hedge
the interest rate exposure risk related to several variable rate loans. Refer to
Note 5 in the accompanying condensed consolidated financial statements included
herein, for our debt principal amounts and weighted-average interest rates by
year and expected maturity to evaluate the expected cash flows and sensitivity
to interest rate changes. Refer to Note 6 in the accompanying condensed
consolidated financial statements for more information on our interest rate swap
derivatives.
We may continue to use derivative instruments to hedge exposures to changes in
interest rates on loans secured by our properties. To the extent we do, we are
exposed to credit risk and market risk. Credit risk is the failure of the
counterparty to perform under the terms of the derivative contract. We maintain
credit policies with regard to our counterparties that we believe reduce overall
credit risk. These policies include evaluating and monitoring our
counterparties' financial condition, including their credit ratings, and
entering into agreements with counterparties based on established credit limit
policies. Market risk is the adverse effect on the value of a financial
instrument that results from a change in interest rates. The market risk
associated with interest rate contracts is managed by establishing and
monitoring parameters that limit the types and degree of market risk that may be
undertaken.
The following table provides information about our financial instruments that
are sensitive to changes in interest rates. For debt obligations outstanding as
of September 30, 2021, the following table presents principal repayments and
related weighted-average interest rates by contractual maturity dates (in
thousands):
                                  2021             2022             2023              2024               2025            Thereafter            Total              Fair Value
Maturing debt(1):
Fixed rate debt(2)             $ 1,015          $ 4,653          $ 5,537          $ 249,160          $ 568,512          $ 655,765          $ 1,484,642          $ 1,535,832
Variable rate debt                   -                -                -             31,000                  -                  -               31,000               30,268

Total                          $ 1,015          $ 4,653          $ 5,537          $ 280,160          $ 568,512          $ 655,765          $ 1,515,642          $ 1,566,100
Weighted-average interest rate
on debt:
Fixed rate debt(2)                4.36  %          4.38  %          4.39  %            4.12  %            6.26  %            4.81  %              5.25  %             5.175  %
Variable rate debt                   -                -                -               1.98  %               -                  -                 1.98  %            1.8706  %


(1)  Excludes net mortgage loan premiums, discounts and unamortized deferred
loan costs. See Item 7A of our most recent Annual Report on Form 10-K and Note 5
in the accompanying condensed consolidated financial statements included herein.
(2)  Includes all fixed rate debt and all variable rate debt that was swapped to
fixed rates as of September 30, 2021.
Item 4. Controls and Procedures
Disclosure Controls and Procedures. As required by Rules 13a-15(b) and 15d-15(b)
under the Exchange Act, our management, including our principal executive
officer and our principal financial officer evaluated, as of the end of the
period covered by this quarterly report, the effectiveness of our disclosure
controls and procedures as defined in Rules 13a-15(e) and Rule 15d-15(e) of the
Exchange Act. Based on that evaluation, our principal executive officer and our
principal financial officer concluded that our disclosure controls and
procedures, as of the end of the period covered by this quarterly report, were
effective at a reasonable assurance level for the purpose of ensuring that
information required to be disclosed by us in this quarterly report is recorded,
processed, summarized and reported within the time periods specified by the
rules and forms of the Exchange Act and is accumulated and communicated to
management, including our principal executive officer and our principal
financial officer as appropriate, to allow timely decisions regarding required
disclosures.
Changes in Internal Control Over Financial Reporting. There has been no change
in the Company's internal control over financial reporting during the Company's
most recent fiscal quarter that has materially affected, or is reasonably likely
to materially affect, the Company's internal control over financial reporting.

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