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OFFON

XENIA HOTELS & RESORTS, INC.

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

08/03/2021 | 04:20pm EDT
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, transient and group business, 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, transient and group
business, 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 and consumer discretionary spending; the broad
distribution of COVID-19 vaccines and wide acceptance by the general population
of such vaccines; 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; 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
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
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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 June 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. As of June 30, 2021, all of the Company's lodging
properties were open and operating.
Leisure demand gradually improved during the second half of 2020, a trend that
accelerated during the first two quarters of 2021. During the second quarter of
2021, the Company began to see increasing levels of demand for both business
transient and group business. Despite this improvement, there is still
significant uncertainty around whether this uptick will continue and how long it
will take for business travel 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 a resurgence of COVID-19, including the Delta
variant or other variants, which has increased in prevalence resulting in the
reimplementation of indoor mask mandates in some regions of the U.S.
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
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 and the economic and
geopolitical environments may impact the timing, extent and pace of such
recovery.
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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, management and franchise
fees, and other direct and indirect operating expenses. 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 second quarter of 2021. The improvements in occupancy and revenues
experienced by the industry late in the first quarter of 2021 accelerated in the
second quarter largely driven by leisure transient demand along with an uptick
in business transient and group demand. There has also been an increase in
prospects and bookings for group business for later in 2021 and in 2022.
The U.S. lodging industry has historically exhibited a strong correlation to
U.S. GDP, which increased at an estimated annual rate of approximately 6.5%
during the second quarter of 2021, according to the U.S. Department of Commerce,
continuing the annual rate growth trend from the third and fourth quarters of
2020 of 33.1% and 4.3% and from the first quarter of 2021 of 6.3%, respectively.
The increase during the second quarter reflected increases in personal
consumption expenditures, nonresidential fixed investment, exports, and state
and local government spending that were partially offset by decreases in private
inventory investment, residential fixed investment, and federal government
spending. In addition, the unemployment rate held steady at 5.9% in June 2021
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.
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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.
Demand increased 106.2% and 31.3%, respectively, during the three and six months
ended June 30, 2021. New hotel supply increased by 13.4% and 5.2%, respectively,
during the three and six months ended June 30, 2021. The significant increase in
demand led to increases in industry RevPAR of 160.4% and 27.4% for the three and
six months ended June 30, 2021 compared to 2020, which was driven by an increase
in occupancy of 81.9% and 24.9% coupled with a 43.2% and 2.0% increase in ADR,
respectively. All U.S. data for the three and six months ended June 30, 2021 are
per industry reports.
Second 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 1,436.8% and
29.6% to $104.50 and $83.25 for the three and six months ended June 30, 2021,
compared to $6.80 and $64.24 for the three and six months ended June 30, 2020,
respectively. The increase in our total portfolio RevPAR for the three and six
months ended June 30, 2021 compared to the same period in 2020 was driven
primarily by a significant increase in leisure transient business beginning late
in the first quarter and accelerating into the second quarter. We also started
to see improvement in business transient bookings during the second quarter. The
following table sets forth certain operating information for the three and six
months ended June 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


(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 57.9% for the three months ended June 30, 2021 compared to
2020, which was primarily attributed to an increase in operating income of $73.0
million from our current portfolio of 35 hotels as a result of a recovery from
the COVID-19 pandemic, an $8.4 million reduction in loss attributed to four
hotels sold during the fourth quarter of 2020 and a $1.7 million reduction in
corporate general and administrative expenses attributed to reductions in
corporate personnel and legal fees related to loan amendments. These amounts
were offset by an $8.6 million increase in impairment loss, a $6.1 million
increase in interest expense attributed to a higher weighted-average interest
rate offset by a reduction in weighted-average debt outstanding, a $5.0 million
reduction in other income, a $3.3 million reduction in income tax benefit, 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 the
corporate credit facility term loan due to mature in 2023 and one mortgage loan.
Net loss decreased 27.3% for the six months ended June 30, 2021 compared to
2020, which was primarily attributed to an increase in operating income of $42.0
million from our current portfolio of 35 hotels as a result of a recovery from
the COVID-19 pandemic, a $13.0 million reduction in loss attributed to four
hotels sold during the fourth quarter of 2020, a $7.8 million reduction in
impairment loss, a $2.9 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 amounts were offset by an $11.8 million
increase in interest expense attributed to a higher weighted-average interest
rate and an increase in weighted-average debt outstanding, a $10.7 million
reduction in income tax benefit, a $5.0 million reduction in other income 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 the
corporate credit facility term loan due to mature in 2023 and one mortgage loan.
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Adjusted EBITDAre and Adjusted FFO attributable to common stock and unit holders
for the three and six months ended June 30, 2021 increased 160.8% and 215.7%,
and 116.5% and 67.1%, 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
six months ended June 30, 2021 and 2020:
                                                                                               Six Months Ended June 30,
                                                                                                2021                 2020                  Change

Number of properties at June 30                                                                  35                   39                    (4)

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

Number of hotels open at June 30                                                                 35                   26                     9
Number of rooms in hotels open at June 30                                                      10,011               6,889                  3,122

Number of hotels with temporarily suspended operations at June 30

                      -                    13                    (13)

Number of rooms in hotels with temporarily suspended operations at June 30

                     -                  4,356                 (4,356)

                      Three Months Ended June 30,                                              Six Months Ended June 30,
                        2021                  2020                   Change                     2021                 2020                  Change
Total Portfolio
Statistics:
Occupancy (1)              48.8   %             3.7  %                  4,510   bps               40.8   %            29.5  %                1,130   bps
ADR (1)           $      214.03           $  182.36                      17.4     %       $     203.92           $  218.01                    (6.5)    %
RevPAR (1)        $      104.50           $    6.80                   1,436.8     %       $      83.25           $   64.24                    29.6     %


(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 six months ended June 30, 2021 and 2020 includes hotels that had suspended
operations for a portion of or all of the periods presented.
Revenues
Revenues consists of rooms, food and beverage, and other revenues from our
hotels, as follows (in thousands):
                            Three Months Ended June 30,                                                           Six Months Ended June 30,
                                                                                                                                                          Increase /
                               2021                 2020             Increase             % Change                 2021                  2020             (Decrease)             % Change
Revenues:
Rooms revenues          $        95,195          $  6,956          $  88,239                1,268.5  %       $      150,841          $ 131,470          $     19,371                  14.7  %
Food and
beverage revenues                40,143             2,097             38,046                1,814.3  %               61,735             75,825               (14,090)                (18.6) %
Other revenues                   16,636             5,772             10,864                  188.2  %               27,250             22,881                 4,369                  19.1  %
Total revenues          $       151,974          $ 14,825          $ 137,149                  925.1  %       $      239,826          $ 230,176          $      9,650                   4.2  %


Rooms revenues
Rooms revenues increased by $88.2 million, or 1,268.5%, to $95.2 million for the
three months ended June 30, 2021 from $7.0 million for the three months ended
June 30, 2020 primarily due to a recovery from the COVID-19 pandemic which
gained momentum starting late in the first quarter and accelerated in the second
quarter of 2021. This increase is net of a reduction of $0.8 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").
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Rooms revenues increased by $19.4 million, or 14.7%, to $150.8 million for the
six months ended June 30, 2021 from $131.5 million for the six months ended
June 30, 2020 primarily due to a recovery from the COVID-19 pandemic. This
increase is net of a reduction of $12.1 million attributed to the four hotels
sold in the fourth quarter of 2020.
Food and beverage revenues
Food and beverage revenues increased by $38.0 million, or 1,814.3%, to $40.1
million for the three months ended June 30, 2021 from $2.1 million for the three
months ended June 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 decreased by $14.1 million, or 18.6%, to $61.7
million for the six months ended June 30, 2021 from $75.8 million for the six
months ended June 30, 2020 primarily due to the extent and timing of the impact
of the COVID-19 pandemic. This decrease includes a reduction of $4.7 million in
food and beverage revenues attributed to the four hotels sold in the fourth
quarter of 2020.
Other revenues
Other revenues increased by $10.9 million, or 188.2%, to $16.6 million for the
three months ended June 30, 2021 from $5.8 million for the three months ended
June 30, 2020 primarily due to a recovery from the COVID-19 pandemic. This
increase is net of reductions of $1.8 million in revenues from cancellations and
attrition and $0.1 million attributed to the four hotels sold in the fourth
quarter of 2020.
Other revenues increased by $4.4 million, or 19.1%, to $27.3 million for the six
months ended June 30, 2021 from $22.9 million for the six months ended June 30,
2020 primarily due to a recovery from the COVID-19 pandemic. This increase is
net of reductions of $4.6 million in revenues from cancellations and attrition
and $1.1 million attributed to the four hotels sold in the fourth quarter of
2020.
Hotel Operating Expenses
Hotel operating expenses consist of the following (in thousands):
                        Three Months Ended June 30,                                                           Six Months Ended June 30,
                                                                                                                                                      Increase /
                           2021                 2020            Increase             % Change                  2021                  2020             (Decrease)            % Change
Hotel operating
expenses:
Rooms expenses      $        22,388          $  7,116          $ 15,272                   214.6  %       $       37,925          $  42,191          $    (4,266)                (10.1) %
Food and beverage
expenses                     28,592             7,749            20,843                   269.0  %               46,770             60,722              (13,952)                (23.0) %
Other direct
expenses                      4,736             1,507             3,229                   214.3  %                7,934              6,900                1,034                  15.0  %
Other indirect
expenses                     44,047            26,718            17,329                    64.9  %               81,374             96,807              (15,433)                (15.9) %
Management and
franchise fees                6,140              (161)            6,301                (3,913.7) %                8,984              7,169                1,815                  25.3  %
Total hotel
operating expenses  $       105,903          $ 42,929          $ 62,974                   146.7  %       $      182,987          $ 213,789          $   (30,802)                (14.4) %


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 $63.0 million, or 146.7%, to $105.9
million for the three months ended June 30, 2021 from $42.9 million for the
three months ended June 30, 2020 primarily due to the extent and timing of the
impact of COVID-19. This increase is net of a reduction of $3.7 million in hotel
operating expenses attributed to the four hotels sold in the fourth quarter of
2020.
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Despite increases in total revenues, total hotel operating expenses decreased
$30.8 million, or 14.4%, to $183.0 million for the six months ended June 30,
2021 from $213.8 million for the six months ended June 30, 2020. The decrease
was driven by lower hotel staffing levels throughout our portfolio during the
six months ended June 30, 2021 compared to 2020. We, and our third-party hotel
managers, 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 in order to attain attractive
operating margins. Further, in the second quarter of 2020, we incurred
furlough-related expenses for future healthcare and other commitments made to
furloughed employees. Finally, this decrease also includes a reduction of $18.2
million attributed to four hotels sold in the fourth quarter of 2020.
Corporate and Other Expenses
Corporate and other expenses consist of the following (in thousands):
                          Three Months Ended June 30,                                                            Six Months Ended June 30,
                                                                  Increase /
                            2021                 2020             (Decrease)             % Change                 2021                  2020             Decrease            % Change
Depreciation and
amortization          $       33,008          $ 37,263          $     (4,255)                (11.4) %       $       66,205          $  74,353          $  (8,148)                (11.0) %
Real estate taxes,
personal property
taxes and insurance           10,997            13,097                (2,100)                (16.0) %               21,537             26,772             (5,235)                (19.6) %
Ground lease expense             379               372                    
7                   1.9  %                  782              1,126               (344)                (30.6) %
General and
administrative
expenses                       8,096             9,829                (1,733)                (17.6) %               15,018             17,980             (2,962)                (16.5) %
Gain on business
interruption
insurance                          -                 -                     -                     -  %               (1,116)                 -             (1,116)                    -  %
Acquisition,
terminated
transaction and
pre-opening expenses               -               848                  (848)               (100.0) %                    -                848               (848)               (100.0) %
Impairment and other
losses                        12,313             3,735                 8,578                 229.7  %               12,313             20,102             (7,789)                (38.7)
Total corporate and
other expenses        $       64,793          $ 65,144          $       (351)                 (0.5) %       $      114,739          $ 141,181          $ (26,442)             (18.7)%


Depreciation and amortization
Depreciation and amortization expense decreased $4.3 million, or 11.4%, and $8.1
million, or 11.0%, to $33.0 million and $66.2 million for the three and six
months ended June 30, 2021 from $37.3 million and $74.4 million for the three
and six months ended June 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 $2.1
million, or 16.0%, and $5.2 million, or 19.6%, to $11.0 million and $21.5
million for the three and six months ended June 30, 2021 from $13.1 million and
$26.8 million for the three and six months ended June 30, 2020. The decreases
were primarily attributed a reduction in expenses related to the four hotels
sold in the fourth quarter of 2020. The decrease for the six months ended June
30, 2021 includes a $1.5 million property tax refund.
                                       35
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Ground lease expense
Ground lease expense decreased $0.3 million, or 30.6%, to $0.8 million from $1.1
million for the six months ended June 30, 2021, which was attributable to a
reduction in percentage rent on our ground leases related to decreases in
revenues due to the COVID-19 pandemic.
General and administrative expenses
General and administrative expenses decreased $1.7 million, or 17.6%, and $3.0
million, or 16.5%, to $8.1 million and $15.0 million for the three and six
months ended June 30, 2021 from $9.8 million and $18.0 million for the three and
six months ended June 30, 2020. The decreases were primarily attributed 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 six months
ended June 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 intends to sell the 352-room
Marriott Charleston Town Center, in Charleston, West Virginia and began
marketing the property. Based on multiple bids from qualified buyers and ongoing
price discussions, the Company expects the hotel will be sold for a price that
is less than its net book value. As a result, an impairment loss of
approximately $12.3 million was recorded for the three and six months ended June
30, 2021.
During the three and six months ended June 30, 2020, the Company recorded
goodwill impairment charges of $3.7 million and $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. Based on the fair
value estimated by management, the Company recorded an impairment charge, which
represented the carrying value in excess of estimated fair value.
Refer to Notes 2 and 6 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 June 30,                                                               Six Months Ended June 30,
                                                                            Increase /
                                         2021              2020             (Decrease)              % Change                 2021                        2020              Increase / (Decrease)            % Change

Non-operating income and expenses:


Other (expense) income               $  (2,805)         $  2,242          $     (5,047)                (225.1) %            (2,689)                      2,369                    (5,058)                      (213.5) %
Interest expense                       (19,691)          (13,571)                6,120                   45.1  %           (38,441)                    (26,595)                   11,846                         44.5  %
Loss on extinguishment of debt          (1,356)                -                 1,356                      -  %            (1,356)                          -                     1,356                            -  %
Income tax (expense) benefit              (169)            3,090                (3,259)                (105.5) %              (334)                     10,402                   (10,736)                       103.2  %


Other income (expense)
Other income decreased $5.0 million, or 225.1%, and $5.1 million, or 213.5%, to
an expense of $2.8 million and $2.7 million, for the three and six months ended
June 30, 2021 from income of $2.2 million and $2.4 million for the three and six
months ended June 30, 2020, respectively. The decrease was attributed to the
recognition of $2.8 million of costs associated with the termination of four
interest rate hedges for the three and six months ended June 30, 2021 as well a
$2.0 million deposit that was released from escrow for a terminated transaction
during the three and six months ended June 30, 2020.

                                       36
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Interest expense
Interest expense increased $6.1 million, or 45.1%, and $11.8 million, or 44.5%,
to $19.7 million and $38.4 million for the three and six months ended June 30,
2021 from $13.6 million and $26.6 million for the three and six months ended
June 30, 2020. The increase is primarily due to an increase in the
weighted-average interest rate offset by a decrease in the outstanding debt as
of June 30, 2021 compared to 2020. Refer to Note 4 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 three and six months
ended June 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.
Income tax (expense) benefit
Income tax benefit decreased $3.3 million, or 105.5%, and $10.7 million, or
103.2%, to an expense of $0.2 million and $0.3 million for the three and six
months ended June 30, 2021 from an income tax benefit of $3.1 million and $10.4
million for the three and six months ended June 30, 2020. The income tax benefit
during the three and six months ended June 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 June 30, 2021, we had $500.3 million of consolidated cash and cash
equivalents and $34.6 million of restricted cash and escrows. The restricted
cash as of June 30, 2021 primarily consisted of $25.3 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
$4.7 million primarily for real estate taxes and mortgage escrows, $3.9 million
for disposition-related holdbacks and $0.6 million in deposits made for capital
projects.
As of June 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. Usage of such replacement reserves may be subject to lender approval
for hotels encumbered by mortgage loans or may be required to be replenished. As
of June 30, 2021, the Company had used $13.5 million of the furniture, fixture
and equipment replacement reserves for working capital purposes, of which
$11.6 million remains subject to replenishment requirements.
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 June 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 cash conservation and 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
                                       37
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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 June 30, 2021, our outstanding total debt was $1.5 billion and had a
weighted-average interest rate of 5.12%.
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 currently 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 eliminate 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.
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
                                       38
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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 June 30, 2021, we were not in compliance with our debt covenants for three
of our mortgage loans, which resulted in events of default for each mortgage
loan. In July 2021, we amended the terms of these loans to waive each event of
default as of June 30, 2021 and to adjust the covenant calculations for five
quarters following the waiver. We were also not in compliance with our debt
covenants on two other mortgage loans which did not result in an event of
defaults but allows the respective lenders the option to initiate 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 pull excess
cash generated by the property into a separate bank account that they control,
which may be used to reduce the outstanding loan balances.
Derivatives
As of June 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.
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 $7.6 million balance of accumulated other
comprehensive loss as of June 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
                                       39
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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 June 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.
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 six months ended June 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
six months ended June 30, 2021. During the six months ended June 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 June 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,
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 June 30, 2021 and December 31, 2020, we had a total of $25.3 million and
$25.9 million, respectively, of furniture, fixtures and equipment replacement
reserves. During the three and six months ended June 30, 2021 and 2020, we made
total capital expenditures of $4.6 million and $11.9 million, and $18.4 million
and $40.6 million, respectively.
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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. Usage of such replacement reserves may be subject to lender approval
for hotels encumbered by mortgage loans or may be required to be replenished. As
of June 30, 2021, the Company had used $13.5 million of the furniture, fixture
and equipment replacement reserves for working capital purposes, of which
$11.6 million remains subject to replenishment requirements.
Off-Balance Sheet Arrangements
As of June 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 June 30, 2021 totaled $3.1 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 Six Months Ended June 30, 2021 to the Six Months Ended
June 30, 2020
The table below presents summary cash flow information for the condensed
consolidated statements of cash flows (in thousands):
                                                                   Six 

Months Ended June 30,

                                                                  2021                   2020

Net cash provided by (used in) operating activities $ 4,822

         $    (48,171)
Net cash used in investing activities                               (9,971)              (40,582)
Net cash provided by financing activities                          111,272               260,613

Net increase in cash and cash equivalents and restricted cash

                                                        $      106,123  

$ 171,860 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                                                      $      534,909          $    366,806


Operating
•Cash provided by operating activities was $4.8 million and cash used in
operating activities was $48.2 million for the six months ended June 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 six months ended
June 30, 2021 was primarily due to an increase in hotel operating income
attributed to the 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 six months ended June 30, 2021 and 2020.
Investing
•Cash used in investing activities was $10.0 million and $40.6 million for the
six months ended June 30, 2021, and 2020, respectively. Cash used in investing
activities for the six months ended June 30, 2021 was attributed to $11.9
million in capital improvements at our hotel properties, which was offset by
$1.9 million of performance guaranty payments that were recorded as a reduction
in the respective hotel's cost basis. Cash used in investing activities for the
six months ended June 30, 2020 was attributed to $40.6 million in capital
improvements at our hotel properties.
Financing
•Cash provided by financing activities was $111.3 million and $260.6 million for
the six months ended June 30, 2021, and 2020, respectively. Cash provided by
financing activities for the six months ended June 30, 2021 was attributed to
                                       41
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$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 $10.1 million, (v) principal
payments of mortgage debt totaling $4.2 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 six months ended June 30,
2020 was attributed to a $340.0 million drawdown on the revolving credit
facility, which was offset by (i) the payment of $63.2 million in dividends for
common stock and units, (ii) redemption of Operating Partnership Units for
common stock and cash of $8.6 million, (iii) the repurchase of common stock
totaling $2.3 million, (iv) shares redeemed to satisfy tax withholding on
vested-share based compensation of $0.8 million, (v) payment of loan fees
related to the amendments of $3.2 million, and (vi) principal payments of
mortgage debt totaling $1.4 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
June 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)                $ 1,933,124          $         41,456          $  161,544          $  981,759          $   748,365
Revolving Credit Facility               4,245                       802               3,182                 261                    -
Ground leases                          39,313                       829               3,316               3,316               31,852
Parking garage leases                   2,436                        82                 337                 346                1,671
Corporate office lease                  3,485                       218                 907                 957                1,403
Total                             $ 1,982,603          $         43,387          $  169,286          $  986,639          $   783,291


(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 June 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.
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.
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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.
                                       43
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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 six
months ended June 30, 2021 and 2020 (in thousands):
                                                        Three Months Ended June 30,                    Six Months Ended June 30,
                                                         2021                  2020                    2021                    2020
Net loss                                           $      (42,743)         $ (101,487)         $     (100,720)             $ (138,618)
Adjustments:
Interest expense                                           19,691              13,571                  38,441                  26,595
Income tax expense (benefit)                                  169              (3,090)                    334                 (10,402)
Depreciation and amortization                              33,008              37,263                  66,205                  74,353
EBITDA                                             $       10,125          $  (53,743)         $        4,260              $  (48,072)
Impairment and other losses(1)                             12,313               3,735                  12,313                  20,102

EBITDAre                                           $       22,438          $  (50,008)         $       16,573              $  (27,970)

Reconciliation to Adjusted EBITDAre Depreciation and amortization related to corporate assets

                                             $         (102)         $      (97)         $         (203)             $     (194)
Loss on extinguishment of debt                              1,356                   -                   1,356                       -
Acquisition, terminated transaction and
pre-opening expenses                                            -                 848                       -                     848
Amortization of share-based compensation
expense(2)                                                  3,643               4,268                   5,938                   6,308
Non-cash ground rent and straight-line rent
expense                                                        33                  80                      51                     158

Other income attributed to deposits for terminated transactions(3)

                                                 -              (2,000)                      -                  (2,000)
Other non-recurring expenses(2)                                20               1,891                      23                   2,333

Adjusted EBITDAre attributable to common stock and unit holders

                                       $       27,388          $  (45,018)         $       23,738              $  (20,517)


(1)  During the three and six months ended June 30, 2021, the Company recorded a
$12.3 million impairment loss related to Marriott Charleston Town Center, which
was attributed to its net book value exceeding the undiscounted cash flows over
a shortened expected hold period. During the three and six months ended June 30,
2020, the Company recorded goodwill impairments totaling $3.7 million and $20.1
million, respectively, 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 three and six months ended June 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 three and six months ended June 30, 2020,
the Company incurred accelerated amortization of $1.6 million and $1.9 million,
respectively, of related share-based compensation expense and non-recurring
expenses of $1.4 million and $1.8 million, respectively, for severance related
costs. In addition, during the three and six months ended June 30, 2020, the
Company incurred non-recurring legal costs of $0.5 million to amend the terms of
its debt, respectively.
(3)  During the three and six months ended June 30, 2020, the Company recognized
other income of $2.0 million as a result of forfeited deposits from terminated
transactions.

                                       44
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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 six months ended June 30, 2021 and 2020 (in thousands):

                                                           Three Months Ended June 30,                    Six Months Ended June 30,
                                                            2021                  2020                    2021                    2020
Net loss                                              $      (42,743)         $ (101,487)         $     (100,720)             $ (138,618)
Adjustments:

Depreciation and amortization related to investment properties

                                                    32,906              37,166                  66,002                  74,159
Impairment of investment properties(1)                        12,313               3,735                  12,313                  20,102

FFO attributable to common stock and unit holders $ 2,476

   $  (60,586)         $      (22,405)             $  (44,357)

Reconciliation to Adjusted FFO
Loss on extinguishment of debt                        $        1,356          $        -          $        1,356              $        -

Acquisition, terminated transaction and pre-opening expenses

                                                           -                 848                       -                     848
Loan related costs, net of adjustment related to
non-controlling interests(2)                                   1,558                 460                   3,324                   1,083
Amortization of share-based compensation expense(3)            3,643               4,268                   5,938                   6,308
Non-cash ground rent and straight-line rent expense               33                  80                      51                     158

Other income attributed to deposits for terminated transactions(4)

                                                    -              (2,000)                      -                  (2,000)
Other non-recurring expenses(3)                                   20               1,891                      23                   2,333

Adjusted FFO attributable to common stock and unit holders

                                               $        9,086          $  (55,039)         $      (11,713)             $  (35,627)


(1)  During the three and six months ended June 30, 2021, the Company recorded a
$12.3 million impairment loss related to Marriott Charleston Town Center, which
was attributed to its net book value exceeding the undiscounted cash flows over
a shortened expected hold period. During the three and six months ended June 30,
2020, the Company recorded goodwill impairments totaling $3.7 million and $20.1
million, respectively, 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 three and six months ended June 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 three and six months ended June 30, 2020,
the Company incurred accelerated amortization of $1.6 million and $1.9 million,
respectively, of related share-based compensation expense and non-recurring
expenses of $1.4 million and $1.8 million, respectively, for severance related
costs. In addition, during the three and six months ended June 30, 2020, the
Company incurred non-recurring legal costs of $0.5 million to amend the terms of
its debt, respectively.
(4)  During the three and six months ended June 30, 2020, the Company recognized
other income of $2.0 million as a result of forfeited deposits from terminated
transactions.
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.
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
                                       45
--------------------------------------------------------------------------------

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 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 June 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 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 4 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 5 in the accompanying condensed
consolidated financial statements for more information on our interest rate swap
derivatives.
                                       46
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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 June 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)           $ 1,839          $ 4,653          $ 5,537          $ 249,070          $ 568,512          $  655,764          $ 1,485,375          $ 1,418,369
Variable rate debt                 -                -                -             31,000                  -                   -               31,000              149,653

Total                        $ 1,839          $ 4,653          $ 5,537          $ 280,070          $ 568,512          $  655,764          $ 1,516,375          $ 1,568,022
Weighted-average interest
rate on debt:
Fixed rate debt(2)             4.43%            4.32%            4.28%             3.91%              6.20%               4.81%               5.19%                5.30%
Variable rate debt               -                -                -               2.03%                -                   -                 2.03%                4.00%


(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 4
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 June 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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