EDGAR 10-K Filing

Company CIK: 929545
Filing Year: 2021
Filename: 929545_10-K_2021_0000929545-21-000008.json

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ITEM 1. BUSINESS
ITEM 1. BUSINESS
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References to the “Company”, “we,” “our,” and “us,” refer to Condor Hospitality Trust, Inc., including, as the context requires, its direct and indirect subsidiaries. The descriptions of the Company in this Part I are as of the filing of this Form 10-K on March 18, 2021.
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Overview
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Condor Hospitality Trust, Inc. was incorporated in Virginia on August 23, 1994 and was reincorporated in Maryland on November 19, 2014. Our common stock began trading on October 30, 1996 and today trades under the symbol “CDOR” on the NYSE American stock exchange.
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The Company is a self-administered real estate investment trust (“REIT”) for federal income tax purposes that specializes in the investment and ownership of high-quality select-service, limited-service, extended stay, and compact full service hotels. As of December 31, 2020, the Company owned 15 hotels, representing 1,908 rooms, in eight states.
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We conduct our business through a traditional umbrella partnership REIT, or UPREIT, in which our hotel properties are owned by our operating partnership, Condor Hospitality Limited Partnership and its subsidiaries (the “operating partnership”), for which we serve as general partner. As of December 31, 2020, we owned an approximate 99.9% ownership interest in the operating partnership. In the future, the operating partnership may issue limited partnership interests to third parties from time to time in connection with our acquisition of hotel properties or the raising of capital.
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In order for the income from our hotel property investments to constitute “rents from real properties” for purposes of the gross income tests required by the Internal Revenue Service (“IRS”) for REIT qualification, the income we earn cannot be derived from the operation of any of our hotels. Therefore, the operating partnership and its subsidiaries lease our hotel properties to the Company’s wholly owned taxable REIT subsidiary, TRS Leasing, Inc., and its wholly owned subsidiaries (“the TRS”). The TRS in turn engages third-party eligible independent contractors to manage the hotels. Our independent management companies are not affiliated with us or our management team. The operating partnership, the TRS, and their respective subsidiaries are consolidated into the Company’s financial statements.
			
		
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We are engaged primarily in the business of owning equity interests in hotel properties and therefore our business is disclosed as one reportable segment. See the consolidated financial statements and notes thereto included in Item 8 of this Annual Report on Form 10-K for certain financial information required in this Item 1.
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In March 2020, the World Health Organization declared the novel coronavirus (COVID-19) to be a global pandemic and the virus has continued to spread throughout the United States and the world. As a result of this pandemic and subsequent government mandates and health official recommendations, hotel demand has been significantly reduced. See further discussion in Item 7 of this Annual Report on Form 10-K, Management's Discussion and Analysis of Financial Condition and Results of Operations.
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Termination and Settlement of Agreement and Plan of Merger
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On September 18, 2020, the Company terminated the Agreement and Plan and Merger, dated July 19, 2019, as amended (the “Merger Agreement”), by and among the Company, Condor Hospitality Limited Partnership (together with the Company, the “Company Parties”), NHT Operating Partnership, LLC (“Parent”), NHT REIT Merger Sub, LLC (“Merger Sub”) and NHT Operating Partnership II, LLC (“Merger OP”, and together with Parent and Merger Sub, the “Parent Parties”). Pursuant to the Merger Agreement, the Company was to be acquired by Parent in a merger transaction.
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On October 15, 2020, the Company announced that the Company Parties entered into a settlement agreement (the “Settlement Agreement”) with NexPoint Advisors L.P. (“NexPoint Advisors”), NexPoint Hospitality Trust (TSVX: NHT) (“NHT”), and Parent Parties (NexPoint Advisors, NHT and Parent Parties collectively, the “NHT Parties”), following the Company’s previously announced termination of the Merger Agreement.
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Pursuant to the Settlement Agreement, the NHT Parties made three payments to the Company totaling $7.0 million. All payments were received during the fourth quarter of 2020 and recorded as a reduction of strategic alternatives expense, net upon receipt. Upon timely payment of all of the Settlement Payments, the NHT Parties’ settlement liability was satisfied in full. In exchange for these payment obligations, the NHT Parties have been released from all claims or liabilities relating to the Merger Agreement. Pursuant to the Settlement Agreement, the Company Parties also have been released from all claims or liabilities relating to the Merger Agreement.
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Additionally, during the second quarter of 2020, the Company received nonrefundable cash of $0.5 million from NHT Parties in connection with the then ongoing discussions concerning potential adjustments to restructure the transaction, which, in the event a transaction occurs, was to be credited against the acquisition purchase price. This deposit was recognized as a reduction of strategic alternatives expense, net upon the termination of the Merger Agreement on September 18, 2020.
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Mission Statement
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Our mission is to provide to our shareholders attractive total returns for the lodging sector through (1) disciplined investment in high-quality select-service, limited-service, extended stay, and compact full service hotels, and (2) intensive asset management to achieve enhanced results.
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We strive to achieve this mission through the disciplined and efficient execution of the following Core Strategies:
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Acquisition Strategy
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Disposition Strategy
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Asset Management Strategy
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Financing Strategy
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We understand that we cannot achieve our mission alone and therefore work with the following independent businesses, who we collectively refer to as Business Partners, in the execution of our mission:
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Franchise Partners
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Hotel Management Company Partners
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Core Strategies
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Acquisition Strategy
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The objective of our acquisition strategy is to enable us to acquire assets that meet our target property characteristics and investment criteria at attractive valuations. We believe that our existing relationships with owners, operators, and developers of select-service hotels will provide us with access to certain off-market acquisition opportunities ahead of other real estate investors. Typically, off-market transactions lead to more attractive valuation outcomes. Our organizational documents do not limit the types of investments we can make; however, our intent is to execute the acquisition strategy as detailed herein.
We believe our target property characteristics and investment criteria, coupled with our ability to source off-market transactions, differentiates us from our peers and will enable us to achieve our mission to obtain attractive returns to our shareholders.
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Hotels purchased in and since 2012 are referred to throughout as “new investment platform” properties while properties owned prior to 2012 are referred to as “legacy” properties. The Company’s last remaining legacy property was sold in 2019.
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Target Property Characteristics
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Our target properties are high-quality select-service, limited-service, extended stay, and compact full service hotels located primarily in the top 100 Metropolitan Statistical Areas (“MSAs”), with a focus on the top 21 - 60 MSAs. From time to time, we may acquire assets outside these target MSAs if we are able to acquire the asset at an attractive valuation and have confidence in the value proposition of the property. If within a top 25 MSA, the asset will typically be located within an attractive sub- market of the larger MSA. The hotels we will look to acquire will be franchised under premium flags by brands such as Hilton, Marriott, IHG, and Hyatt and operated by third-party management companies.
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Investment Criteria
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We perform thorough due diligence and utilize extensive research to evaluate any target market or property. This due diligence and research may include, but is not limited to, analyzing the long-term economic outlook of an MSA, reviewing trends in local lodging demand and supply, assessing property condition and required capital investment, and understanding historical property financial performance. Specific investment criteria for hotels we are looking to acquire may include but are not limited to hotels that:
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operate under leading premium franchise brands and possess key attributes such as building design and décor that is consistent with current generation brand standards;
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are located within the top 100 MSAs, in close proximity to multiple demand drivers, including large corporations, regional hospitals, regional business hubs, recreational travel destinations, significant retail centers, and military installations, among others;
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are located within markets that have favorable economic, job growth, and demographic factors;
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have illustrated an ability to generate stabilized and dependable revenue and net operating income;
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were constructed less than ten years prior to our acquisition or have been recently significantly renovated to current brand standards, and have significant time (generally ten or more years) remaining on the existing franchise license;
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have some value-added growth potential through operating efficiencies, institutional asset management, repositioning, renovations, or rebranding;
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can be acquired at a discount to replacement cost; and/or
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can be acquired in off-market transactions.
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Select-service hotels typically generate most of their revenue from room rentals, have limited food and beverage outlets, contain less meeting space, and require fewer employees than traditional full-service hotels. We believe premium-branded upper-midscale and upscale select-service hotels have the potential to generate attractive risk-adjusted returns relative to other types of hotels due to their ability to achieve Revenue per Available Room (“RevPAR”) levels at or close to those achieved by traditional full-service hotels while achieving higher profit margins due to their more efficient operating model and less volatile cash flows.
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Disposition Strategy
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In 2019 we completed an approximate ten year process of transitioning our portfolio from economy hotels to high-quality select-service, limited-service, extended stay, and compact full service hotels. In order to achieve this objective, we have focused on disposing of legacy assets that do not meet the property characteristics and investment criteria discussed above. Since January 1, 2009, we have sold 123 hotels, of which 55 have been sold since January 1, 2015. The value unlocked from asset sales has been redeployed into newer, higher-quality assets meeting the acquisition strategy discussed above. Just as we carefully evaluate the hotels we plan to acquire, our asset management team has evaluated the timing and composition of the legacy hotels to be disposed of in a manner we believe will maximize returns for our shareholders.
Additionally, from time to time, we may undertake the sale of one or more hotels that meet the property characteristics and investment criteria discussed above. These disposition decisions are the result of a thorough analysis and typically in response to changes in market conditions, our current or projected return on our investment in the hotel, or other factors which we deem relevant to the disposition decision.
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Asset Management Strategy
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Through collaboration with our third-party operators, we seek to maximize value to our shareholders through improvements to our existing hotels’ operating results. We work toward this goal by constantly monitoring the performance of each individual hotel and identifying opportunities for value-enhancement through intensive asset management strategies. We will make recommendations to our third-party operators in all aspects of our hotels operations, including revenue management, physical design, guest experience, market positioning, and overall property strategy. Fundamentally, all strategies are focused on growing the revenue of a hotel, controlling expenses, and/or maximizing the guest experience to drive returns.
We work with our third-party operators to develop short-term and long-term capital investment plans that are focused on generating positive returns for our shareholders. The capital improvements may involve investments in expansions, additions, renovations, technology upgrades, and/or energy efficiency improvements.
Additionally, from time to time, we may come to the conclusion that a particular asset may provide greater returns to our shareholders after an extensive repositioning of the asset in the market. In these instances, capital investment in a greater amount than typical for an asset may be required to achieve the desired repositioning. These decisions will be made after a thorough analysis of the property, market conditions, and the potential for a positive return on investment that exceeds our investment hurdle rates.
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Financing Strategy
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Our financing strategy is to seek to minimize the cost of our capital in order to maximize the returns generated for our shareholders. We intend to finance our long-term growth with equity capital raises and debt financings that have staggered maturities. From time to time, when purchasing hotel properties, we may issue limited partnership interests in our operating partnership to third parties as full or partial consideration to sellers. Currently, our debt includes a revolving line of credit secured by certain hotels and mortgages secured by our hotel properties. In the future we plan on using the revolving credit facility, term loans, equity issuances, and mortgage debt financings to fund future acquisitions as well as for property redevelopments, return on investment initiatives, and working capital requirements.
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Since we are structured as an UPREIT, we may seek to issue limited partnership interest of our operating partnership for raising capital, or when acquiring hotel assets as full or partial consideration to sellers who may desire to take advantage of tax deferral on the sale of a hotel or participate in the income, and potential value appreciation, of our common stock.
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Business Partners
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Franchise Partners
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We believe that in order to achieve our mission we must partner with the right franchisors of quality brands in our target segments. To this end, we have built strong relationships with many of who we believe are the leading franchisors of the strongest brands in the segments we target, including Hilton, Marriott, IHG, and Hyatt. The franchisors provide a variety of benefits and value which include national advertising, marketing programs to
			
		
increase brand awareness, personnel training, and centralized reservation systems. We are constantly monitoring and evaluating the performance of these franchisors and their respective brands so that, when necessary, we can adapt our franchise partner strategy to maximize returns to our shareholders.
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Under our franchise agreements, we are required to pay franchise fees generally between 3.3% and 5.5% of room revenue, plus additional fees for marketing, central reservation systems, and other franchisor programs and services that amount to between 2.5% and 6.0% of room revenue. The franchise agreements typically have 10 to 25 year terms although certain agreements may be terminated by either party on certain anniversary dates specified in the agreements. Further, each agreement provides for early termination fees in the event the agreement is terminated before the stated term.
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Our 15 hotels owned at December 31, 2020 operate under the following national and independent brands:
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Franchise Brand
						
Number of Hotels
						
Number of Rooms
Aloft (1)
						
				
						
				
Courtyard by Marriott (1)
						
				
						
				
Fairfield Inn & Suites (1)
						
				
						
				
Hampton Inn & Suites (2)
						
				
						
				
Hilton Garden Inn (2)
						
				
						
				
Home2 Suites (2)
						
				
						
				
Hotel Indigo (3)
						
				
						
				
Residence Inn (1)
						
				
						
				
SpringHill Suites (1)
						
				
						
				
TownePlace Suites (1)
						
				
						
				
Total
						
				
						
1,908 				
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(1)
Aloft®, Courtyard by Marriott®, Fairfield Inn & Suites®, Residence Inn®, Springhill Suites®, and TownePlace Suites® are registered trademarks of Marriott International.
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Hampton Inn®, Hilton Garden Inn®, and Home2 Suites® are registered trademarks of Hilton Hotels Corporation.
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Hotel Indigo® is a registered trademark of InterContinental Hotels Group.
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The franchisor of two of our hotels advised us in 2019 that both of the hotels had dropped below the required level for guest satisfaction surveys, and that if the hotels do not achieve compliance, it reserves the right to elect to terminate the relevant franchise agreements. While the Company believes that it has corrected all deficiencies, the franchisor has informed us that they are not reassessing the accountability status of any properties until at the earliest July 2021.
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Hotel Management Company Partners
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As a REIT, we are not permitted to directly operate any of our hotels. We partner closely with some of who we believe are the leading hotel management companies in order to operate our hotels with the ultimate objective of improving same-store hotel performance throughout our portfolio. Each management agreement provides for a set term and is subject to early termination upon the occurrence of defaults and certain other events. As required under the REIT qualification rules, each manager must qualify as an “eligible independent contractor” during the term of the management agreement.
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Our 15 hotels owned at December 31, 2020 are operated by the following third-party management companies:
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Management Company
						
Number of Hotels
						
Number of Rooms
Aimbridge Hospitality
						
				
						
1,715 				
Cherry Cove Hospitality Management, LLC
						
				
						
				
InnVentures
						
				
						
				
Total
						
				
						
1,908 				
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Seasonality of Hotel Business
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Historically, as a result of the geographic areas in which we operate, the operations of our hotels have been seasonal in nature. Generally, occupancy rates, revenue, and operating income have been greater in the second and third quarters of the calendar year than in the first and fourth quarters, with the exception of our hotels located in Florida,
			
		
which experience peak demand in the first and fourth quarters of the year. The historical trend has been disrupted as a result of COVID-19. For the year ended December 31, 2020, the first quarter of the year had higher revenue, operating income, and cash flow as hotel demand declined significantly as a result of COVID-19 beginning in March 2020.
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Competition
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The hotel industry is highly competitive. Each of our hotels is located in a developed area that includes other hotel properties. The number of competitive hotel properties in a particular area could have a material adverse effect on revenue, occupancy, and the average daily room rate of our hotels or of hotel properties acquired in the future, and thus our financial results.
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We may compete for investment opportunities with entities that have substantially greater financial resources than us. These entities generally may be able to accept more risk than we can prudently manage. Competition in general may reduce the number of suitable investment opportunities for us and increase the bargaining power of property owners seeking to sell.
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Tax Status
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The Company qualifies and intends to continue to qualify as a REIT under the applicable provisions of the Internal Revenue Code (the “Code”), as amended. In general, under such Code provisions, a trust which has made the required election and, in the taxable year, meets certain requirements and distributes to its shareholders at least 90% of its REIT taxable income, will not be subject to federal income tax to the extent of the income currently distributed to shareholders. If we fail to qualify as a REIT in any taxable year, we will be subject to federal income tax on our taxable income at regular corporate income tax rates and generally will be unable to re-elect REIT status until the fifth calendar year after the year in which we failed to qualify as a REIT, unless we satisfy certain relief provisions. Even if the Company qualifies for taxation as a REIT, the Company may be subject to certain state and local taxes on its income and property, and to federal income and excise taxes on its undistributed taxable income. Taxable income from non-REIT activities managed through the TRS, which is taxed as a C-Corporation, is subject to federal, state, and local income taxes.
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Employees
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At December 31, 2020, the Company had six employees. The staff at our hotels are employed by our third-party hotel managers.
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Available Information
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Our executive offices are located at 1800 West Pasewalk Avenue, Suite 120, Norfolk, Nebraska 68701, our telephone number is (301) 861-3305, and we maintain an Internet website located at www.condorhospitality.com. Our annual reports on Form 10-K and quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to these reports are available free of charge on our website as soon as reasonably practicable after they are filed with the SEC. We also make available the charters of our board committees and our Code of Business Conduct and Ethics on our website. Copies of these documents are available in print to any shareholder who requests them. Requests should be sent to Condor Hospitality Trust, Inc., 1800 West Pasewalk Avenue, Suite 120, Norfolk, NE 68701, Attn: Corporate Secretary.
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ITEM 1A. RISK FACTORS
Item 1A. Risk Factors
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The following discussion concerns the risks associated with our business that should be reviewed and considered carefully. Our business faces many risks and the risks described below may not be the only risks we face. Other risks and uncertainties not presently known to us may also materially and adversely affect our business, the value of our shares, and our ability to pay dividends to our shareholders. Additionally, the risks detailed below are interrelated and should be considered as a whole. In connection with the forward-looking statements that appear in this Annual Report on Form 10-K, you should carefully review the section entitled “Forward-Looking Statements.”
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For presentation purposes only, we categorize the risk factors into four broad categories:
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Risk Related to Our Business & Operations
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Risks Related to Our Structure & Organization
			
		
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General Risks
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Risks Related to Our Business & Operations
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Failure of the economy to improve or remain stable may adversely affect our ability to execute our business strategies, which in turn would adversely affect our ability to make distributions to our stockholders.
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Our ability to execute our business strategy is affected by economic conditions, and we cannot assure you that economic fundamentals will improve or remain stable. The coronavirus pandemic and world events outside our control, such as terrorism, have adversely affected the economy. If events like these continue or reoccur, they may continue to adversely affect the economy in the future. An economic recession could have a dramatic impact on our financial results. In the event conditions in the economy do not improve or remain stable, our ability to execute our business strategies will be adversely effected, which in turn would adversely affect our ability to make distributions to our stockholders.
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The departure of any of our key personnel who have significant experience and relationships in the lodging industry, particularly our Chief Executive Officer, J. William Blackham, could materially and adversely affect us.
We depend on the experience and relationships of our executive officers, especially J. William Blackham, our Chief Executive Officer and a member of our board of directors, to manage our day-to-day operations and strategic business direction. Mr. Blackham has extensive experience in the lodging industry, during which time he has established an extensive network of lodging industry contacts and relationships, including relationships with national hotel brands, hotel owners, financiers, operators, commercial real estate brokers, developers and management companies. We can provide no assurances that Mr. Blackham, or any of our key personnel, will continue their employment with us. The loss of the services of any of the members of our management team, or any difficulty attracting and retaining other talented and experienced personnel, could adversely affect our ability to source potential investment opportunities, our relationship with national hotel brands and other industry participants and the execution of our business strategy. Our ability to replace key individuals may be difficult because of the limited number of individuals with the breadth of skills and experience needed to excel in the hotel industry and there can be no assurance that we would be able to hire, train, retain, or motivate such individuals. Further, such a loss could be negatively perceived by investors, which could reduce the market value of our common shares.
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If we are unable to successfully manage our growth, our operating results and financial condition could be adversely affected.
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Our ability to implement our business strategy and grow our business depends upon our senior executive officers’ business contacts and their ability to successfully hire, train, supervise and manage additional personnel. We may not be able to hire and train sufficient personnel or develop management, information and operating systems suitable for our expected growth. If we are unable to manage any future growth effectively, our operating results and financial condition could be adversely affected.
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Our future growth is dependent on obtaining new financing and if we cannot secure financing in the future, our growth will be limited.
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The success of our growth strategy will depend on access to capital through use of excess cash flow, borrowings or subsequent issuances of common shares or other securities. Acquisitions of new hotel properties will require significant additional capital and existing hotels will require periodic capital improvement initiatives to remain competitive. We may not be able to fund acquisitions or capital improvements solely from cash provided from our operating activities because we must distribute at least 90% of our taxable income (determined before the deduction for dividends paid and excluding any net capital gains) each year to satisfy the requirements for qualification as a REIT for federal income tax purposes. As a result, our ability to fund capital expenditures for acquisitions through retained earnings is very limited. Our ability to grow through acquisitions of hotels will be limited if we cannot obtain satisfactory debt or equity financing, which will depend on capital markets conditions. We cannot assure you that we will be able to obtain additional equity or debt financing or that we will be able to obtain such financing on favorable terms.
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Our lack of industry, brand, and/or geographic diversification could have an adverse effect on results.
Historically, we have exclusively bought ownership interest in hotels in the United States. As a result, we are subject to the risks inherent in investing in a single industry. A downturn in the U.S. hotel industry may have a pronounced effect on the amount of funds available to us for distribution or on the value of Company’s assets. Our business is subject to the risks that are common to the hotel industry and that are out of our control. Additionally, we may face risks associated with any geographic concentration or franchisor concentration.
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Our returns depend on management of our hotels by third parties.
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In order to qualify as a REIT, we cannot operate any hotel or participate in the decisions effecting the daily operations of any hotel. Under the REIT Modernization Act of 1999, REITs are permitted to lease their hotels to TRSs. However, a TRS, such as our TRS, may not operate or manage the leased hotels and, therefore, must enter into management agreements with third-party eligible independent contractors to manage the hotels. Thus, an independent operator under a management agreement with our TRS controls the daily operations of each of our hotels.
Under the terms of our management agreements, our ability to participate in operating decisions regarding the hotels is limited. We depend on our management companies to adequately operate our hotels as provided in the management agreements. We do not have the authority to require any hotel to be operated in a particular manner or to govern any particular aspect of the daily operations of any hotel (for instance, setting room rates). Thus, even if we believe our hotels are being operated inefficiently or in a manner that does not result in satisfactory occupancy rates, revenue per available room, and average daily rates, we may not be able to force our management companies to change their methods of operation of our hotels. We can only seek redress if a management company violates the terms of the management agreement with our TRS, and then only to the extent of the remedies provided for under the terms of the applicable management agreement. If any of the foregoing occurs at franchised hotels, our relationship with the franchisors may be damaged, and we may be in breach of one or more of our franchise agreements. Additionally, in the event that we need to replace a management company due to the termination of an existing management agreement, we may experience decreased occupancy and other significant disruptions at our hotels and in our operations generally.
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We may not be able to sell hotels on favorable terms.
Since January 1, 2015, we have sold 55 hotels and our business strategy includes the disposition of assets. We may not be able to sell such hotels on favorable terms, and such hotels may be sold at a loss. As with acquisitions, we face competition for buyers of our hotel properties. Other sellers of hotels may have the financial resources to dispose of their hotels on unfavorable terms that we would be unable to accept. If we cannot find buyers for any properties that are designated for sale, we will not be able to implement our disposition strategy. In the event that we cannot fully execute our disposition strategy or realize the benefits therefrom, we may not be able to fully execute our growth strategy. There cannot be any assurances that we will sell any hotels, including the hotels currently under contract for sale on the contracted terms or at all as the closing of the sale of such hotels is subject to the satisfaction of customary closing conditions, some of which may not be satisfied.
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We may record additional impairment charges on our properties which will negatively impact our results of operations.
We analyze our assets for impairment when events or circumstances occur that indicate an asset’s carrying value may not be recoverable. For impaired assets, we record an impairment charge equal to the excess of the property’s carrying value over its fair value. Factors, many of which are outside our control, such as increased local competition, age and condition of hotels, and national and local declines in the economy, may result in additional impairment charges, which will negatively affect our results of operations. We can provide no assurance that any impairment loss recognized would not be material to our results of operations.
We will likely seek to sell equity and/or debt securities to meet our need for additional cash, and we cannot assure you that such financing will be available and further, in connection with such sales our current shareholders could experience a material amount of dilution.
We may require additional cash resources based on business conditions and any acquisitions we may decide to pursue. We will likely seek to sell additional equity and/or debt securities. We cannot assure you that the sale of such securities will be available in amounts or on terms acceptable to us, if at all. If our board determines to sell
			
		
additional shares of common stock or other debt or equity securities, a material amount of dilution may cause the market price of the common stock to decline.
We face risks associated with the use of debt, including the ability to obtain debt financing and refinancing risk.
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We may not be able to successfully obtain debt financing or we may not be able to extend, refinance, or repay our existing debt due to a number of factors, including decreased property valuations, limited availability of credit, tightened lending standards, or deteriorating economic conditions. If we are unable to refinance our debt on acceptable terms, we may be forced to dispose of hotel properties on disadvantageous terms, potentially resulting in losses. We have placed mortgages on certain of our hotel properties, have assumed mortgages on other hotels we acquired and may place additional mortgages on certain of our hotels to secure other debt. To the extent we cannot meet any future debt service obligations, we will risk losing some or all of our hotel properties that are pledged to secure our obligations to foreclosure. If we lack the ability to raise debt or refinance existing debt, our ability to execute our business strategy will be significantly hampered and our financial results may be significantly affected.
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Our debt service obligations could adversely affect our operating results, may require us to liquidate our properties, and could limit our ability to make distributions to our stockholders.
We seek to maintain a total stabilized debt level of no more than 70% of our aggregate property investment at cost. We, however, may change or eliminate this target at any time without the approval of our stockholders. In the future, we and our subsidiaries may incur substantial additional debt, including secured debt. Incurring such debt could subject us to many risks, including the risks that:
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our cash flow from operations will be insufficient to make required payment of principal and interest;
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we may be more vulnerable to adverse economic and industry conditions;
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we may be required to dedicate a substantial portion of our cash flow from operations to the repayment of our debt, thereby reducing the cash available for distribution to our stockholders, funds available for operations and capital expenditures, future investment opportunities, or other purposes;
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the terms of any refinancing may not be as favorable as the terms of the debt being refinanced; and
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the use of leverage could adversely affect our stock price and our ability to make distributions to our stockholders
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Our results may be negatively affected by interest rate fluctuations and our attempts to hedge this risk may not be effective.
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At December 31, 2020, we had long-term debt of $168.3 million, of which $118.1 million is variable rate debt without an interest rate swap in place that effectively locks its interest rate. We may enter into new credit facilities or loans where the debt accrues interest at floating rates, or we may refinance debt that currently accrues interest at lower fixed rates. Higher interest rates could increase our debt service requirements and could reduce the amounts available for distribution to our stockholders, as well as reduce funds available for our operations, future investment opportunities, or other purposes. We may obtain in the future one or more forms of interest rate protection-in the form of swap agreements, interest rate cap contracts, or similar agreements-to “hedge” against the possible negative effects of interest rate fluctuations. However, we cannot assure you that any hedging will adequately mitigate the adverse effects of interest rate increases or that counterparties under these agreements will honor their obligations. In addition, we may be subject to risks of default by hedging counterparties. Adverse economic conditions could also cause the terms on which we borrow to be unfavorable.
Operating our hotels under franchise agreements could adversely affect distributions to our shareholders.
At December 31, 2020, all of our hotels operate under third party franchise agreements and we are subject to the risks of concentrating our hotel investments in several franchise brands. These risks include reductions in business following negative publicity related to any one of our particular brands. Risks associated with our brands could adversely affect our lease revenues and the amounts available for distribution to our shareholders.
The maintenance of the franchise licenses for our hotels is subject to our franchisors’ operating standards and other terms and conditions. Our franchisors periodically inspect our hotels to ensure that we and the TRS follow their standards. Failure to maintain these standards or other terms and conditions could result in a franchise license being canceled. For example, one of our franchisors advised us in February 2019 that two of our hotels have dropped below the required level for guest satisfaction surveys, and that if the hotels do not achieve compliance, it reserves the right to elect to terminate the franchise agreements. While the Company believes that it has corrected all
			
		
deficiencies, the franchisor has informed us that they are not reassessing the accountability status of any properties until at the earliest July 2021. As a condition of our continued holding of a franchise license, a franchisor could possibly require us to make capital expenditures, even if we do not believe the capital improvements are necessary or desirable or will result in an acceptable return on our investment. Nonetheless, we may risk losing a franchise license if we do not make franchisor-required capital expenditures.
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If a franchisor terminates the franchise license, we may try either to obtain a suitable replacement franchise or to operate the hotel without a franchise license. The loss of a franchise license could materially and adversely affect the operations or the underlying value of the hotel because of the loss of associated name recognition, marketing support, and centralized reservation systems provided by the franchisor. Loss of a franchise license for several of our hotels could materially and adversely affect our revenue. This loss of revenue could, therefore, also adversely affect our cash available for distribution to shareholders.
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Unanticipated expenses and insufficient demand for hotels we acquire in new geographic markets could adversely affect our profitability and our ability to make distributions to our stockholders.
We may develop or acquire hotels in geographic areas in which our management may have little or no operating experience and in which potential customers may not be familiar with our franchise brands. As a result, we may have to incur costs relating to the opening, operation and promotion of those new hotel properties that are substantially greater than those incurred in other areas. These hotels may attract fewer customers than our existing hotels, while at the same time, we may incur substantial additional costs with these new hotel properties. Unanticipated expenses and insufficient demand at a new hotel property, therefore, could adversely affect our profitability and our ability to make distributions to our stockholders.
Risks Related to our Organization and Structure
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Our failure to qualify as a REIT under the federal tax laws would result in adverse tax consequences.
The federal income tax laws governing REITs are complex and subject to revision.
We currently operate as a REIT under the federal income tax laws. The REIT qualification requirements are extremely complex and interpretations of the federal income tax laws governing qualification as a REIT are limited. Accordingly, we cannot be certain that we would be successful in operating so that we can qualify as a REIT. At any time, new laws, interpretations, or court decisions may change the federal tax laws or the federal income tax consequences of our qualification as a REIT. We have not applied for or obtained rulings from the IRS that we will qualify as a REIT.
Failure to qualify as a REIT would subject us to federal income tax.
If we fail to qualify as a REIT in any taxable year, we will be subject to federal income tax on our taxable income. We might need to borrow money or sell assets in order to pay any such tax. If we cease to be a REIT, we no longer would be required to distribute most of our taxable income to our stockholders. Unless we were entitled to relief under certain federal income tax laws, we could not re-elect REIT status during the four calendar years after the year in which we failed to qualify as a REIT.
Failure to make required distributions would subject us to tax.
In order to qualify as a REIT, we generally are required to distribute at least 90% of our REIT taxable income, determined without regard to the dividends paid deduction, each year to our stockholders. To the extent that we satisfy this distribution requirement, but distribute less than 100% of our taxable income, we will be subject to federal income tax on our undistributed taxable income. In addition, we will be subject to a 4% non-deductible excise tax if the actual amount that we pay out to our stockholders in a calendar year is less than a minimum amount specified under federal tax laws. As a result, for example, of differences between cash flow and the accrual of income and expenses for tax purposes, or of nondeductible expenditures, our REIT taxable income in any given year could exceed our cash available for distribution. In addition, to the extent we may retain earnings of the TRS in those subsidiaries, such amount of cash would not be available for distribution to our stockholders to satisfy the 90% distribution requirement. Accordingly, we may be required to borrow money or sell assets to make distributions sufficient to enable us to pay out enough of our taxable income to satisfy the distribution requirement and to avoid federal corporate income tax and the 4% non-deductible excise tax in a particular year.
			
		
The formation of the TRS increases our overall tax liability.
The TRS is subject to federal and state income tax on its taxable income, which in the case of the TRS currently consists and generally will continue to consist of revenues from the hotel properties leased by the TRS, net of the operating expenses for such properties and rent payments to us. Accordingly, although our ownership of the TRS allows us to participate in the operating income from our hotel properties in addition to receiving rent, that operating income is fully subject to income tax. Such taxes could be substantial. The after-tax net income of the TRS is available for distribution to us.
We incur a 100% excise tax on transactions with the TRS that are not conducted on an arm’s-length basis. For example, to the extent that the rent paid by the TRS exceeds an arm’s-length rental amount, such amount potentially is subject to the excise tax. We intend that all transactions between us and the TRS will continue to be conducted on an arm’s-length basis and, therefore, that the rent paid by the TRS to us will not be subject to the excise tax.
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Our TRS lessee structure subjects us to the risk of increased operating expenses.
Our hotel management agreements require us to bear the operating risks of our hotel properties. Our operating risks include not only changes in hotel revenue and changes in the TRS’s ability to pay the rent due under the leases, but also increased operating expenses, including, among other things:
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wage and benefits costs;
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repair and maintenance expenses;
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energy costs;
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property taxes;
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insurance costs; and
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other operating expenses.
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Any decreases in hotel revenue or increases in operating expenses could have a material adverse effect on our earnings and cash flows.
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Our ability to make distributions on our common and preferred stock is subject to fluctuations in our financial performance, operating results, and capital improvement requirements.
As a REIT, we generally are required to distribute annually at least 90% of our REIT taxable income, determined without regard to the dividends paid deduction, to our stockholders. Downturns in our operating results and financial performance or unanticipated capital improvements to our hotel properties may affect our ability to declare or pay distributions to our stockholders. Further, we may not generate sufficient cash in order to fund distributions to our stockholders, which may require us to sell assets or borrow money to satisfy the REIT distribution requirements.
Among the factors which could adversely affect our results of operations and our distributions to stockholders are reduced net operating profits or operating losses, increased debt service requirements, and capital expenditures at our hotel properties. Among the factors which could reduce our net operating profits are decreases in hotel property revenue and increases in hotel property operating expenses. Hotel property revenue can decrease for a number of reasons, including increased competition from a new supply of rooms and decreased demand for rooms. These factors can reduce both occupancy and room rates at our hotel properties.
The timing and amount of distributions are at the sole discretion of our Board of Directors, which will consider, among other factors, our actual results of operations, debt service requirements, capital expenditure requirements for our properties, and our operating expenses. We cannot guarantee future distributions.
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We have restrictive debt covenants that could adversely affect our ability to run our business.
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We are required to meet or maintain quarterly loan covenants with certain of our lenders. Weakness in the economy and the lodging industry at large may result in non-compliance with our loan covenants. Such noncompliance with our loan covenants may result in our lenders restricting the use of our operating funds for capital improvements to our existing hotels, including improvements required by our franchise agreements, or causing the debt maturity to accelerate. We cannot assure you that we can maintain compliance with our loan covenants and maintain our business strategy.
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Our restrictive debt covenants may jeopardize our tax status as a REIT.
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To maintain our REIT status, we generally must distribute at least 90% of our REIT taxable income to our stockholders annually. In addition, we are subject to a 4% non-deductible excise tax if the actual amount distributed to stockholders in a calendar year is less than a minimum amount specified under federal income tax laws. In the event we do not comply with our debt service obligations, our lenders may limit our ability to make distributions to our stockholders, which could adversely affect our REIT status.
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Our two largest shareholders hold significant voting power and have the right to designate directors, which provides these shareholders with significant power to influence our business and affairs.
Real Estate Strategies, L.P. (“RES”, which also includes affiliated entities) holds 27.8% and SREP III Flight-Investco, L.P. (“SREP”, which also includes affiliated entities) holds 24.2% of the common stock as of December 31, 2020. RES and SREP each have a contractual preemptive right, but not the obligation, to purchase up to their pro rata share (based on their ownership on a fully diluted basis) of any equity securities we offer in future offerings on the same terms as other investors. RES has had the right to designate up to four directors, and SREP has had the right to designate up to three directors, with the number of directors that each may designate based on their respective voting power. RES and SREP each currently have the right to separately designate three directors to our board of directors at the annual meeting of shareholders. Each of RES and SREP in their respective agreements with us has agreed to vote for the election of the incumbent members of the board of directors and their successors nominated by the nominating committee of the board of directors. As a consequence, the election of the six directors designated by RES and SREP is assured.
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By virtue of their voting power and board designation rights, preemptive right to purchase additional equity securities in future stock offerings and approval rights, RES and SREP, collectively and separately, have the power to significantly influence our business and affairs and the outcome of matters required to be submitted to shareholders for approval, including the election of our directors, amendments to our charter, mergers, or sales of assets. Their influence over our business and affairs may not be consistent with the interests of some or all of our other shareholders and might negatively affect the market price of our common stock.
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The holders of the Series E Preferred Stock have rights senior to holders of common stock.
RES and SREP, our two largest shareholders, own all of the issued and outstanding shares our 6.25% Series E Cumulative Convertible Preferred Stock (“Series E Preferred Stock”). The Series E Preferred Stock ranks senior to our common stock and any other preferred stock issuances and receives preferential cumulative cash dividends at a rate of 6.25% annually per annum of the $10.00 face value per share. If we fail to pay a dividend, then during the period that dividends are not paid, additional dividends accrue at a rate of 9.50% per annum on the unpaid amount. Dividends on the Series E Preferred Stock accrue whether or not we have earnings, whether or not there are funds legally available for the payment of such dividends, whether or not such dividends are declared, and whether or not such dividends are prohibited by agreement.
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The Series E Preferred Stock votes as a class on matters generally affecting the Series E Preferred Stock, and as long as 434,750 shares of Series E Preferred Stock (47% of the originally issued shares of Series E Preferred Stock) remain outstanding, then 75% approval of the Series E Preferred Stock will be required to approve merger, consolidation, liquidation or winding up of Condor, related party transactions exceeding $120,000, payment of dividends on common stock except from funds from operations or to maintain REIT status, the grant of exemptions from Condor’s charter limitation on ownership of 9.9% of any class or series of its securities (exclusive of persons currently holding exemptions), issuance of preferred stock, or commitment or agreement to do any of the foregoing.
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We may be subject to adverse legislative or regulatory tax changes that could increase our tax liability, reduce our operating flexibility and reduce the market price of our shares.
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At any time, the federal income tax laws governing REITs or the administrative and judicial interpretations of those laws may be amended or changed. We cannot predict when or if any new federal income tax law, regulation or administrative and judicial interpretation, or any amendment to any existing federal income tax law, regulation or administrative or judicial interpretation, will be adopted, promulgated or become effective and any such law, regulation or interpretation may take effect retroactively. We and our shareholders could be adversely affected by any such change in, or any new, federal income tax law, regulation or administrative and judicial interpretation.
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If our hotel managers do not qualify as "eligible independent contractors” the Company would likely fail to qualify as a REIT.
Rent paid by a lessee that is a "related party tenant" of ours will not be qualifying income for purposes of the two gross income tests applicable to REITs. We lease substantially all of our hotels to our TRS. The TRS will not be treated as a "related party tenant," and will not be treated as directly operating a lodging facility to the extent the TRS leases properties from us that are managed by an "eligible independent contractor." In addition, our TRS holding companies will fail to qualify as “taxable REIT subsidiaries” if they lease or own a lodging facility that is not managed by an “eligible independent contractor.”
If our hotel managers do not qualify as "eligible independent contractors," we would fail to qualify as a REIT. Each of the hotel management companies that enters into a management contract with our TRS must qualify as an "eligible independent contractor" under the REIT rules in order for the rent paid to us by our TRS to be qualifying income for our REIT income test requirements and for our TRS holding companies to qualify as “taxable REIT subsidiaries”. Among other requirements, in order to qualify as an eligible independent contractor a manager must not own more than 35% of our outstanding shares (by value) and no person or group of persons can own more than 35% of our outstanding shares and the ownership interests of the manager, taking into account only owners of more than 5% of our shares and, with respect to ownership interests in such managers that are publicly traded, only holders of more than 5% of such ownership interests. Complex ownership attribution rules apply for purposes of these 35% thresholds. Although we intend to monitor ownership of our shares by our property managers and their owners, there can be no assurance that these ownership levels will not be exceeded.
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If our leases with our TRS are not respected as true leases for federal income tax purposes, we would fail to qualify as a REIT.
To qualify as a REIT, we are required to satisfy two gross income tests, pursuant to which specified percentages of our gross income must be passive income, such as rent. For the rent paid pursuant to the hotel leases with our TRS, which should constitute substantially all of our gross income, to qualify for purposes of the gross income tests, the leases must be respected as true leases for federal income tax purposes and must not be treated as service contracts, joint ventures or some other type of arrangement. We have structured our leases, and intend to structure any future leases, so that the leases will be respected as true leases for federal income tax purposes, but there can be no assurance that the IRS will agree with this characterization, not challenge this treatment or that a court would not sustain such a challenge. If the leases were not respected as true leases for federal income tax purposes, we would not be able to satisfy either of the two gross income tests applicable to REITs and likely would fail to qualify for REIT status.
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We may be subject to the 100% prohibited transaction tax on the gain recognized on the hotels we sold.
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A REIT will incur a 100% tax on the net income derived from any sale or other disposition of property that the REIT holds primarily for sale to customers in the ordinary course of a trade or business. We undertook specific disposition programs beginning in 2001 (that included the sale of 23 hotels through December 31, 2004) and 2008 (that included the sale of 125 hotels through December 31, 2020). We held the disposed hotels for an average period of 14.5 years and did not acquire the hotels for purposes of resale. We believe that such sales are not prohibited transactions. However, if the IRS would successfully assert that we held such hotels primarily for sale in the ordinary course of our business, the gain from such sales could be subject to a 100% prohibited transaction tax.
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Complying with REIT requirements may cause us to forego attractive opportunities that could otherwise generate strong risk-adjusted returns and instead pursue less attractive opportunities, or none at all.
To continue to qualify as a REIT for federal income tax purposes, we must continually satisfy tests concerning, among other things, the sources of our income, the nature and diversification of our assets, the amounts we distribute to our stockholders and the ownership of our stock. Thus, compliance with the REIT requirements may hinder our ability to operate solely on the basis of generating strong risk-adjusted returns on invested capital for our stockholders.
Complying with REIT requirements may force us to liquidate otherwise attractive investments, which could result in an overall loss on our investments.
To continue to qualify as a REIT, we must also ensure that at the end of each calendar quarter at least 75% of the value of our assets consists of cash, cash items, government securities and qualified REIT real estate assets. The
			
		
remainder of our investment in securities (other than government securities and qualified real estate assets) generally cannot include more than 10% of the outstanding voting securities of any one issuer or more than 10% of the total value of the outstanding securities of any one issuer. In addition, in general, no more than 5% of the value of our assets (other than government securities and qualified real estate assets) can consist of the securities of any one issuer, and no more than 25% of the value of our total securities can be represented by securities of one or more TRSs. If we fail to comply with these requirements at the end of any calendar quarter, we must correct such failure within 30 days after the end of the calendar quarter to avoid losing our REIT status and suffering adverse tax consequences. If we fail to comply with these requirements at the end of any calendar quarter, we may be able to preserve our REIT status by benefiting from certain statutory relief provisions. Except with respect to a de minimis failure of the 5% asset test or the 10% vote or value test, we can maintain our REIT status only if the failure was due to reasonable cause and not to willful neglect. In that case, we will be required to dispose of the assets causing the failure within six months after the last day of the quarter in which we identified the failure, and we will be required to pay an additional tax of the greater of $50,000 or the product of the highest applicable tax rate (currently 35%) multiplied by the net income generated on those assets. As a result, we may be required to liquidate otherwise attractive investments.
Dividends payable by REITs do not qualify for the reduced tax rates available for some dividends.
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﻿The maximum U.S. federal income tax rate applicable to qualified dividend income payable to certain non-corporate U.S. holders is 20%. Dividends payable by REITs, however, generally are not eligible for the reduced qualified dividend rates. For taxable years beginning after December 31, 2017 and before January 1, 2026, under the recently enacted law informally known as the Tax Cuts and Jobs Act (“TCJA”), non-corporate taxpayers may deduct up to 20% of certain pass-through business income, including “qualified REIT dividends” (generally, dividends received by a REIT shareholder that are not designated as capital gain dividends or qualified dividend income), subject to certain limitations, resulting in an effective maximum U.S. federal income tax rate of 29.6% on such income. Although the reduced U.S. federal income tax rate applicable to qualified dividend income does not adversely affect the taxation of REITs or dividends payable by REITs, the more favorable rates applicable to regular corporate qualified dividends and the reduced corporate tax rate (currently 21%) could cause certain non-corporate investors to perceive investments in REITs to be relatively less attractive than investments in the stocks of non-REIT corporations that pay dividends, which could adversely affect the value of the shares of REITs, including our shares.
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Provisions of our charter and substantial voting power held by two shareholders may limit the ability of a third party to acquire control of our company.
In order to maintain our REIT qualification, no more than 50% in value of our outstanding capital stock may be owned, directly or indirectly, by five or fewer individuals (as defined in the federal income tax laws to include various kinds of entities) during the last half of any taxable year. Our articles of incorporation contain the ownership limitation, which prohibits both direct and indirect ownership of more than 9.9% of the outstanding shares of our common stock or 9.9% of any series of our preferred stock by any person, subject to several exceptions. Generally, any shares of our capital stock owned by affiliated owners will be added together for purposes of the ownership limitation.
Our articles of incorporation permit our board, in its sole discretion, to exempt a person from the 9.9% ownership limitation if the person provides representations and undertakings that enable our board to determine that granting the exemption would not result in the loss of our REIT qualification. Under the IRS rules, REIT shares owned by certain entities are considered owned proportionately by owners of the entities for REIT qualification purposes. RES and SREP each provided a letter at the time of the issuance of the common stock and Series E Preferred Stock that permitted our board to grant such an exemption. The stock ownership by RES and SREP, which was permitted with our board’s approval, represents such substantial voting power that it may limit the ability of a third party to acquire control of our company.
These ownership limitations may prevent an acquisition of control of our company by a third party without our board of directors’ approval, even if our stockholders believe the change of control is in their best interests. Our charter authorizes our board of directors to issue shares of common stock and shares of preferred stock, and to set the preferences, rights and other terms of the preferred stock. Furthermore, our board of directors may, without any action by the stockholders, amend our charter from time to time to increase or decrease the aggregate number of shares of stock of any class or series of preferred stock that we have authority to issue. Issuances of additional shares of stock may have the effect of delaying, deferring or preventing a transaction or a change in control of our company that might involve a premium to the market price of our common stock or otherwise be in our stockholders’ best interests.
			
		
Our ownership limitation may prevent a shareholder from engaging in certain transfers of our capital stock.
If anyone transfers shares in a way that would violate the ownership limitation described above or prevent us from continuing to qualify as a REIT under the federal income tax laws, we will consider the transfer to be null and void from the outset, and the intended transferee of those shares will be deemed never to have owned the shares. Those shares instead will be transferred to a trust for the benefit of a charitable beneficiary and will be either redeemed by our company or sold to a person whose ownership of the shares will not violate the ownership limitation. Anyone who acquires shares in violation of the ownership limitation or the other restrictions on transfer in our articles of incorporation bears the risk that he will suffer a financial loss when the shares are redeemed or sold if the market price of our stock falls between the date of purchase and the date of redemption or sale.
The ability of our board of directors to change our major corporate policies may not be in your interest.
Our board of directors determines our major corporate policies, including our acquisition, financing, growth, operations and distribution policies. Our board may amend or revise these and other policies from time to time without the vote or consent of our stockholders.
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General Risks
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Risks Related to the Hotel Industry
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The outbreak of the novel coronavirus (COVID-19) has reduced travel and adversely affected the hospitality industry in general.
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The outbreak of the novel coronavirus (COVID-19) has reduced travel and adversely affected the hospitality industry in general. The actual and threatened spread of coronavirus globally or in the regions in which we operate, or future widespread outbreak of infectious or contagious disease, such as influenza, coronavirus, measles, mumps, zika virus, or similar viruses, can continue to reduce national and international travel in general.
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The extent to which our business will continue to be affected by the coronavirus will largely depend on future developments which we cannot accurately predict, and its impact on customer travel, including the duration of the outbreak, the continued spread and treatment of the coronavirus, and new information and developments that may emerge concerning the severity of the coronavirus and the actions to contain the coronavirus or treat its impact, among others. To the extent that travel activity in the U.S. is and will be materially and adversely affected by the coronavirus, business and financial results of the hospitality industry, and thus our business and financial results, could be materially and adversely impacted.
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Since late March 2020, similar to the conditions affecting the hospitality industry as a whole, we have experienced occupancy declines at many of our properties which have and will continue to require us to adjust our business operations, and will have impact on our operating income and may potentially impact future compliance with our debt covenants.
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We face competition for the acquisition of hotels and we may not be successful in identifying or completing hotel acquisitions that meet our criteria, which may impede our growth.
One component of our business strategy is expansion through acquisitions, and we may not be successful in identifying or completing acquisitions that are consistent with our strategy. We compete with institutional pension funds, private equity investors, other REITs, hotel companies, and others who are engaged in the acquisition of hotels, most of whom have greater financial resources than we do. This competition for hotel investments may increase the price we pay for hotels and these competitors may succeed in acquiring the hotels we seek to acquire. Furthermore, our potential acquisition targets may find our competitors to be more attractive suitors because they may have greater marketing and financial resources, may be willing to pay more, or may have a more compatible operating philosophy. In addition, the number of entities competing for suitable hotels may increase in the future, which would increase demand for these hotels and the prices we must pay to acquire them. If we pay higher prices for hotels, our returns on investment and profitability may be reduced.
			
		
Future acquisitions may not yield the returns expected, may result in disruptions to our business, may strain management resources, may not be efficiently integrated into operations, and may result in stockholder dilution.
Our business strategy may not ultimately be successful and may not provide positive returns on our investments. Acquisitions may cause disruptions in our operations and divert management’s attention away from day-to-day operations. If the integration of our acquisitions into our management companies’ operations is not accomplished as efficiently as planned, we will not achieve the expected operating results from the acquisitions. The issuance of equity securities in connection with any acquisition could be substantially dilutive to our stockholders.
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The growth of Internet travel intermediaries could adversely affect the Company’s business and profitability.
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Although a majority of rooms sold via the Internet are sold through hotel franchisor websites, some of the Company’s hotel rooms are booked through Internet travel intermediaries, including but not limited to Travelocity.com, Expedia.com, and Priceline.com. These Internet travel intermediaries purchase rooms at a negotiated, net of fees, discount from participating hotels, which typically results in lower room rates than the Company’s franchisor or manager otherwise could have obtained. Although the Company’s managers and franchisors may have established agreements with many of these intermediaries that limit transaction fees for hotels, there be no assurance that the Company’s managers and franchisors will be able to renegotiate such agreements upon their expirations with terms as favorable as the provisions that exist today. Moreover, some of these Internet travel intermediaries are attempting to offer hotel guestrooms as a commodity, by increasing the importance of price and general indicators of quality (such as “three-star downtown hotel”) at the expense of brand identification. These agencies hope that consumers will eventually develop brand loyalties to their reservations system rather than to the brands under which our hotels are franchised. If the amount of sales made through Internet intermediaries increases significantly, guestroom revenue may flatten or decrease and our profitability may be adversely affected.
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We and our hotel managers rely on information technology in our operations, and any material failure, inadequacy, interruption or security failure of that technology could harm our business.
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We and our hotel managers rely on information technology networks and systems, including the Internet, to process, transmit and store electronic information, and to manage or support a variety of business processes, including financial transactions and records, personal identifying information, reservations, billing and operating data. We purchase some of our information technology from vendors, on whom our systems depend. We rely on commercially available systems, software, tools and monitoring to provide security for processing, transmission and storage of confidential customer information, such as individually identifiable information, including information relating to financial accounts. Although we have taken steps to protect the security of our information systems and the data maintained in those systems, it is possible that our safety and security measures will not be able to prevent the systems’ improper functioning or damage, or the improper access or disclosure of personally identifiable information such as in the event of cyber-attacks. In November 2018, Marriott announced a data security incident involving a guest reservation database. Security breaches, such as the one that occurred at Marriott, including physical or electronic break-ins, computer viruses, attacks by hackers and similar breaches, can create system disruptions, shutdowns or unauthorized disclosure of confidential information. Any failure to maintain proper function, security and availability of our information systems could interrupt our operations, damage our reputation, subject us to liability claims or regulatory penalties and could have a material adverse effect on our business, financial condition and results of operations and our ability to make distributions to our shareholders.
Uninsured and underinsured losses and our ability to satisfy our obligations could adversely affect our operating results and our ability to make distributions to our stockholders.
We intend to maintain comprehensive insurance on each of our hotel properties, including liability, fire, and extended coverage, of the type and amount we believe are customarily obtained for or by hotel owners. There are no assurances that current coverage will continue to be available at reasonable rates. Various types of catastrophic losses, like earthquakes and floods, or losses from foreign or domestic terrorist activities, may not be insurable or may not be economically insurable. Initially, we do not expect to obtain terrorism insurance on our hotel properties because it is costly. Lenders may require such insurance and our failure to obtain such insurance could constitute a default under loan agreements, if required by such agreements. Depending on our access to capital, liquidity and the value of the properties securing the effected loan in relation to the balance of the loan, a default could reduce our net income and limit our ability to obtain future financing.
In the event of a substantial loss, our insurance coverage may not be sufficient to cover the full current market value or replacement cost of our lost investment or the cash flows lost due to the interruption in operations. Should an
			
		
uninsured loss or a loss in excess of insured limits occur, we could lose all or a portion of the capital we have invested in a hotel, as well as the anticipated future revenue from the hotel. In that event, we might nevertheless remain obligated for any mortgage debt or other financial obligations related to the property. Inflation, changes in building codes and ordinances, environmental considerations and other factors might also keep us from using insurance proceeds to replace or renovate a hotel after it has been damaged or destroyed. Under those circumstances, the insurance proceeds we receive might be inadequate to restore our economic position on the damaged or destroyed property.
Our ability to make distributions to our shareholders may be affected by factors in the hotel industry that are beyond our control.
Our hotels are subject to various operating risks found throughout the hotel industry. Many of these risks are beyond our control. These include, among other things, the following:
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competitors with substantially greater marketing and financial resources than us;
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over-building in our markets, which adversely effects occupancy and revenues at our hotels;
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dependence on business and commercial travelers and tourism;
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terrorist incidents which may deter travel;
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widespread outbreaks of infectious or contagious disease, such as influenza, Coronavirus, measles, or mumps;
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increases in hotel operating costs, energy costs, airline fares and other expenses, which may affect travel patterns and reduce the number of business and commercial travelers and tourists; and
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adverse effects of general, regional and local economic conditions.
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These factors could adversely affect the amount of rent we receive from leasing our hotels and reduce the net operating profits of the TRS, which in turn could adversely affect our ability to make distributions to our shareholders. Decreases in room revenues of our hotels will result in reduced operating profits for the TRS and decreased lease revenues to our company under our current percentage leases with the TRS.
The hotel industry is seasonal in nature and may affect our cash flow.
Demand for our hotels is seasonal. We generally expect that we will have lower revenue, operating income, and cash flow in the first and fourth quarters and higher revenue, operating income and cash flow in the second and third quarters. These general trends are, however, influenced by overall economic cycles and the geographic locations of our hotels. To the extent that cash flow from operations is insufficient during any quarter, due to temporary or seasonal fluctuations in revenue, we expect to utilize cash on hand or borrowings under our credit facility to pay expenses, debt service or to make distributions to our equity holders.
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The cyclical nature of the lodging industry may cause fluctuations in our operating performance, which could have a material adverse effect on us.
The hotel industry is highly cyclical in nature. Fluctuations in lodging demand and, therefore, operating performance, are caused largely by general economic and local market conditions, which subsequently affects levels of business and leisure travel. In addition to general economic conditions, hotel room supply growth is an important factor that can affect the lodging industry's performance. Overbuilding has, in the past and will continue to have, the potential to further exacerbate the negative impact of an economic recession. Room rates and occupancy, and thus RevPAR, tend to increase when demand growth exceeds supply growth. We can provide no assurances regarding whether, or the extent to which, lodging demand will rebound or whether any such rebound will be sustained. An adverse change in lodging fundamentals in our markets could result in returns that are substantially below our expectations or result in losses, which could have a material adverse effect on us.
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Competition from other hotels in the markets in which we operate could have a material adverse effect on our results of operations.
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The lodging industry is highly competitive. Our hotels compete with other hotels for guests in each market in which our hotels operate based on a number of factors, including location, convenience, brand affiliation, guestroom rates, range of services and guest amenities or accommodations offered and quality of customer service. Competition is often specific to the individual markets in which our hotels are located and includes competition from existing and new hotels. Our competitors may have an operating model that enables them to offer guestrooms at lower rates than we can, which could result in our competitors increasing their occupancy at our expense. Competition could adversely affect our occupancy, Average Daily Rate (“ADR”) and RevPAR, and may require us to provide
			
		
additional amenities or make capital improvements that we otherwise would not have to make, which could reduce our profitability and could materially and adversely affect our results of operations.
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The increasing use by consumers of alternative lodging market places may adversely affect our profitability.
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Additional sources of competition, including alternative lodging marketplaces, such as HomeAway and Airbnb, which operate websites that market available furnished, privately-owned residential properties, including homes and condominiums, that can be rented on a nightly, weekly or monthly basis, may, as they become more accepted, lead to a reduced demand for conventional hotel guest rooms and to an increased supply of lodging alternatives. If the amount of bookings made through the use of alternative lodging market places increases significantly, room revenues may flatten or decrease and our profitability may be adversely affected.
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In the past, economic trends, terrorist acts, and military action have adversely affected the hotel industry generally, and similar future events could adversely affect the industry in the future.
Terrorist attacks and the after-effects (including the prospects for more terror attacks in the United States and abroad) have, in the past, substantially reduced business and leisure travel and lodging industry RevPAR generally. We cannot predict the extent to which these factors will directly or indirectly impact your investment in our securities, the lodging industry or our operating results in the future.
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Declining RevPAR at our hotels would reduce our net income and restrict our ability to fund capital improvements at our hotels and our ability to make distributions to stockholders necessary to maintain our status as a REIT. Additional terrorist attacks, acts of war or similar events could have further material adverse effects on the markets on which shares of our stock will trade, as well as on the lodging industry in general and our operations in particular.
The hotel business is capital intensive.
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Our hotels have an ongoing need for renovations and other capital improvements, including replacements, from time to time, of furniture, fixtures and equipment. The franchisors of our hotels also require periodic capital improvements as a condition of keeping the franchise licenses. The costs of all of these capital improvements could adversely affect our financial condition and reduce the amounts available for distribution to our shareholders. These renovations may give rise to the following risks:
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possible environmental problems;
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construction cost overruns and delays;
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a possible shortage of available cash to fund renovations and the related possibility that financing for these renovations may not be available to us on affordable terms; and
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uncertainties as to market demand or a loss of market demand after renovations have begun
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The lenders under some of the mortgage debt that we will assume will require us to set aside varying amounts each year for capital improvements at our hotels. We may not be able to fund capital improvements or acquisitions solely from cash provided from our operating activities and, thus, may need to raise capital in order to finance any required capital expenditures.
Noncompliance with governmental regulations could adversely affect our operating results.
Environmental Matters
Our hotel properties are subject to various federal, state, and local environmental laws. Under these laws, courts and government agencies have the authority to require the owner of a contaminated property to clean up the property, even if the owner did not know of or was not responsible for the contamination. These laws also apply to persons who owned a property at the time it became contaminated. In addition to the costs of cleanup, contamination can affect the value of a property and, therefore, an owner’s ability to borrow funds using the property as collateral.
Under these environmental laws, courts and government agencies also have the authority to require that a person who sent waste to a waste disposal facility, like a landfill or an incinerator, pay for the clean-up of that facility if it becomes contaminated and threatens human health or the environment. Furthermore, court decisions have established that third parties may recover damages for injury caused by property contamination. For instance, a person exposed to asbestos while staying in a hotel may seek to recover damages if he suffers injury from the asbestos. Lastly, some of these environmental laws restrict the use of a property or place conditions on various
			
		
activities at a property. One example is laws that require a business using chemicals to manage them carefully and to notify local officials that the chemicals are being used.
Our Company could be responsible for the costs discussed above if it found itself in one or more of these situations. The costs to clean up a contaminated property, to defend against a claim, or to comply with environmental laws could be material and could affect the funds available for distribution to our shareholders. To determine whether any costs of this nature might be required, we commission Phase I environmental site assessments, or “ESAs”, before we acquire our hotels, and at certain times have commissioned new ESAs for certain of our hotels in conjunction with a refinancing of the debt obligations of those hotels. These studies typically included a review of historical information and a site visit, but not soil or groundwater testing. We obtain the ESAs to help us identify whether we might be responsible for cleanup costs or other costs in connection with our hotels. The ESAs on our hotels did not reveal any environmental conditions that are likely to have a material adverse effect on our business, assets, results of operations, or liquidity. However, ESAs do not always identify all potential problems or environmental liabilities. Consequently, we may have material environmental liabilities of which we are unaware.
Americans with Disabilities Act and Other Changes in Governmental Rules and Regulations
Under the Americans with Disabilities Act of 1990, or ADA, all public accommodations must meet various federal requirements related to access and use by disabled persons. Compliance with the ADA’s requirements could require removal of access barriers and non-compliance could result in the U.S. government imposing fines or in private litigants obtaining damages. If we were required to make substantial modifications to our hotels, whether to comply with the ADA or other changes in governmental rules and regulations, our ability to make distributions to our shareholders and meet our other obligations could be adversely affected.
Risks Related to the Real Estate Industry
Illiquidity of real estate investments could significantly impede our ability to respond to adverse changes in the performance of our properties and harm our financial condition.
Because real estate investments are relatively illiquid, our ability to promptly sell one or more hotel properties or investments in our portfolio in response to changing economic, financial and investment conditions may be limited. The real estate market is affected by many factors that are beyond our control, including:
﻿
·
adverse changes in international, national, regional and local economic and market conditions;
·
changes in interest rates and in the availability, cost and terms of debt financing;
·
changes in governmental laws and regulations, fiscal policies and zoning ordinances and the related costs of compliance with laws and regulations, fiscal policies and ordinances;
·
the ongoing need for capital improvements, particularly in older structures;
·
changes in operating expenses; and
·
civil unrest, acts of God, including earthquakes, floods and other natural disasters and acts of war or terrorism, including the consequences of terrorist acts such as those that occurred on September 11, 2001, which may result in uninsured losses.
﻿
We cannot predict whether we will be able to sell any hotel property or investment for the price or on the terms set by us, or whether any price or other terms offered by a prospective purchaser would be acceptable to us. We also cannot predict the length of time needed to find a willing purchaser and to close the sale of a hotel property or loan.
We may be required to expend funds to correct defects or to make improvements before a hotel property can be sold. We cannot assure you that we will have funds available to correct those defects or to make those improvements. In acquiring a hotel property, we may agree to lock-out provisions that materially restrict us from selling that hotel property for a period of time or impose other restrictions, such as limitation on the amount of debt that can be placed or repaid on that hotel property. These facts and any others that would impede our ability to respond to adverse changes in the performance of our hotel properties could have a material adverse effect on our operating results and financial condition, as well as our ability to make distributions to stockholders.
Increases in property taxes would adversely affect our ability to make distributions to our shareholders.
Hotel properties are subject to real and personal property taxes. These taxes may increase as tax rates change and as the properties are assessed or reassessed by taxing authorities. In particular, our property taxes could increase following our hotel purchases as the acquired hotels are reassessed. If property taxes increase, our financial
			
		
condition, results of operations, and our ability to make distributions to our shareholders could be materially and adversely affected.
﻿
Our real estate may contain or develop harmful environmental challenges which could lead to liability for adverse health effects and costs of remediating the problem.
The presence or development of significant environmental challenges at any of our properties could require us to undertake a costly program to remediate the environmental challenge, which would reduce our cash available for distribution. In addition, the presence of a significant environmental challenge could expose us to liability from our guests, employees or our management companies and others if property damage or health concerns arise. Environmental challenges for hotels may include, but is not limited to, mold and bed bugs.
﻿

---

ITEM 1B. UNRESOLVED STAFF COMMENTS
ITEM 1B. UNRESOLVED STAFF COMMENTS
﻿
None.
﻿

---

ITEM 2. PROPERTIES
ITEM 2. PROPERTIES
﻿
Our Company headquarters is located in Norfolk, Nebraska. The following table sets forth certain information with respect to the hotels owned by us as of December 31, 2020:
﻿
﻿
						
						
						
						
						
						
						
						
						
						
Hotel Name
						
City
						
State
						
Rooms
						
Acquisition Date
						
Purchase Price
(in thousands)
Hilton Garden Inn
						
Dowell/Solomons
						
MD
						
				
						
05/25/2012
						
$11,500 				
SpringHill Suites
						
San Antonio
						
TX
						
				
						
10/01/2015
						
$17,500 				
Courtyard by Marriott
						
Jacksonville
						
FL
						
				
						
10/02/2015
						
$14,000 				
Hotel Indigo
						
College Park
						
GA
						
				
						
10/02/2015
						
$11,000 				
Aloft (1)
						
Atlanta
						
GA
						
				
						
08/22/2017
						
$43,550 				
Aloft
						
Leawood
						
KS
						
				
						
12/14/2017
						
$22,500 				
Home2 Suites
						
Lexington
						
KY
						
				
						
03/24/2018
						
$16,500 				
Home2 Suites
						
Round Rock
						
TX
						
				
						
03/24/2018
						
$16,750 				
Home2 Suites
						
Tallahassee
						
FL
						
				
						
03/24/2018
						
$21,500 				
Home2 Suites
						
Southaven
						
MS
						
				
						
04/14/2018
						
$19,000 				
Hampton Inn & Suites
						
Lake Mary
						
FL
						
				
						
06/19/2018
						
$19,250 				
Fairfield Inn & Suites
						
El Paso
						
TX
						
				
						
08/31/2018
						
$16,400 				
Residence Inn
						
Austin
						
TX
						
				
						
08/31/2018
						
$22,400 				
TownePlace Suites
						
Austin
						
TX
						
				
						
01/18/2019
						
$19,750 				
Home2 Suites
						
Summerville
						
SC
						
				
						
02/21/2019
						
$16,325 				
Total Rooms
						
						
						
						
						
1,908 				
						
						
						
$287,925 				
﻿
﻿
﻿
						
						
						
﻿
(1)
						
Represents the purchase statistics from the purchase of this hotel by the originally 80% owned unconsolidated Atlanta joint venture that owned the Atlanta Aloft property (the “Atlanta JV”). The Company purchased the remaining 20% interest in the Atlanta JV from our joint venture partner on February 14, 2020 for $7.3 million.
﻿
All of our properties are encumbered by either our revolving credit agreement or by mortgage debt at December 31, 2020. Additional property information is found in Item 8 Schedule III of this Annual Report on Form 10-K.
﻿

---

ITEM 3. LEGAL PROCEEDINGS
ITEM 3. LEGAL PROCEEDINGS
﻿
Various claims and legal proceedings arise in the ordinary course of business and may be pending against the Company and its properties. We are not currently involved in any material litigation, nor, to our knowledge, is any material litigation threatened against us. The Company has insurance to cover potential material losses and we believe it is not reasonably possible that such matters will have a material impact on our financial condition or results of operations.
﻿

---

ITEM 4. MINE SAFETY DISCLOSURE
ITEM 4. MINE SAFETY DISCLOSURES
﻿
Not applicable.
﻿
			
		
PART II
﻿

---

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
ITEM 5. MARKET FOR THE REGISTRANT’S COMMON EQUITY / RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
﻿
Market Information
﻿
The Company’s common stock began trading on the NYSE American under its current symbol “CDOR” at the open of market trading on July 21, 2017. The Company’s common stock previously traded on the NASDAQ Stock Market under the same symbol.
﻿
Shareholder Information
﻿
As of March 12, 2021, the approximate number of holders of record of our common stock was 68. However, because the vast majority of our common shares are held by brokers and other institutions on behalf of shareholders, we believe that there are considerably more beneficial holders of our common shares than record holders.
﻿
Distribution Information
﻿
Distributions to the extent of our current and accumulated earnings and profits for federal income tax purposes generally will be taxable to a shareholder as ordinary income. Distributions in excess of current and accumulated earnings and profits generally will be treated as a nontaxable reduction of the shareholder’s basis in such shareholder’s shares, to the extent thereof, and thereafter as taxable capital gain. Distributions that are treated as a reduction of the shareholder’s basis in its shares will have the effect of increasing the amount of gain, or reducing the amount of loss, recognized upon the sale of the shareholder’s shares.
﻿
The actual amount of future dividends will be determined by the Board of Directors based on the actual results of operations, economic conditions, capital expenditure requirements, the annual distribution requirements under the REIT provisions of the Code, and other factors that the Board of Directors deems relevant.
﻿
The Company is prohibited from making dividends under its revolving credit facility with Key Bank (the “credit facility”); provided, that the Company can (a) make an initial dividend that does not exceed 50% of the funds available for distribution for the prior three fiscal quarters and (b) make subsequent dividends that do not (in the aggregate) exceed 50% of the funds available for distribution for any period of four consecutive fiscal quarters. Any such dividend is subject to satisfaction of certain conditions, including (a) that no default has occurred and is continuing (or would occur as a result of the dividend), (b) that new appraisals or updates to existing appraisals are obtained with respect to the borrowing base properties, (c) that any preferred dividend must be included in the calculation of fixed charges as if paid in the preceding fiscal quarter, (d) that the Company must maintain at least $10.0 million of liquidity (after the dividend), (e) that the Company must maintain a 1.50 to 1 fixed charge coverage ratio for each of the prior three fiscal quarters and (f) that the Company must maintain a borrowing base leverage ratio of 60% or less.
﻿
There were no distributions made in 2020. For income tax purposes, distributions paid per share for the years ended December 31, 2019 and 2018 were characterized as follows:
﻿
﻿
						
						
						
						
						
						
						
						
						
						
﻿
For the year ended December 31,
﻿
						
						
﻿
Amount
						
%
						
Amount
						
%
						
Common Shares:
						
						
						
						
						
						
						
						
						
						
Ordinary income
$
-
						
-
						
$
-
						
-
						
Capital gain
						
-
						
-
						
						
-
						
-
						
Return of capital
						
0.585000 				
						
100% 				
						
						
0.975000 				
						
100% 				
						
Total
$
0.585000 				
						
100% 				
						
$
0.975000 				
						
100% 				
						
﻿
						
						
						
						
						
						
						
						
						
						
Series E Preferred Stock:
						
						
						
						
						
						
						
						
						
						
Ordinary income
$
-
						
-
						
$
-
						
-
						
Capital gain
						
-
						
-
						
						
-
						
-
						
Return of capital
						
0.468750 				
						
100% 				
						
						
0.625000 				
						
100% 				
						
Total
$
0.468750 				
						
100% 				
						
$
0.625000 				
						
100% 				
						
﻿
The common and preferred share distributions declared on December 11, 2018 and paid on January 3, 2019 and December 31, 2018, respectively, were treated as 2018 distributions for tax purposes. The common share
			
		
distribution declared on December 19, 2017 and paid on January 10, 2018 was treated as a 2018 distribution for tax purposes. The preferred share distribution declared on December 19, 2017 and paid on January 2, 2018 was treated as a 2017 distribution for tax purposes.
﻿
Shares Authorized for Issuance Under Equity Compensation Plans
﻿
See Part III, Item 12 for a description of securities authorized for issuance under our 2016 Stock Plan.
﻿
Share Performance
﻿
The following graph compares the yearly percentage change in the cumulative total shareholder return on our common stock for the period December 31, 2015 through December 31, 2020, with the cumulative total return on the SNL Securities Hotel REIT Index, the Russell 2000 Index, and the NYSE Composite Index for the same period. The SNL Hotel REIT Index is comprised of publicly traded REITs that focus on investments in hotel properties.
﻿
The comparison assumes a starting investment of $100 on December 31, 2015 in our common stock and in each of the indices shown and assumes that all dividends are reinvested. The performance graph is not necessarily indicative of future investment performance.
﻿
﻿
﻿

---

ITEM 6. SELECTED FINANCIAL DATA
ITEM 6. SELECTED FINANCIAL DATA
﻿
The following sets forth selected financial and operating data on a historical consolidated basis. The following information should be read in conjunction with “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our audited consolidated financial statements and related notes thereto, appearing elsewhere in this document.
﻿
﻿
						
						
						
						
						
						
						
						
						
						
						
						
						
						
﻿
As of and for the years ended December 31,
In thousands, except per share data
						
						
						
						
						
						
						
						
						
						
﻿
						
						
						
						
﻿
						
						
						
						
						
						
						
						
						
						
						
						
						
						
Revenue
						
						
						
						
						
						
						
						
						
						
						
						
						
						
Room rentals and other hotel services
$
35,188 				
						
$
61,052 				
						
$
65,057 				
						
$
55,453 				
						
$
50,647 				
Operating expense
						
						
						
						
						
						
						
						
						
						
						
						
						
						
Hotel and property operations
						
29,563 				
						
						
38,769 				
						
						
41,008 				
						
						
37,134 				
						
						
37,092 				
Depreciation and amortization
						
10,956 				
						
						
9,568 				
						
						
9,475 				
						
						
6,898 				
						
						
5,190 				
General and administrative
						
4,006 				
						
						
5,700 				
						
						
6,217 				
						
						
6,552 				
						
						
5,792 				
Acquisitions and terminated transactions
						
-
						
						
				
						
						
				
						
						
1,250 				
						
						
				
Equity transaction and strategic alternatives, net
						
(4,706) 				
						
						
2,110 				
						
						
-
						
						
				
						
						
-
Total operating expenses
						
39,819 				
						
						
56,185 				
						
						
56,905 				
						
						
52,177 				
						
						
48,624 				
Operating income (loss)
						
(4,631) 				
						
						
4,867 				
						
						
8,152 				
						
						
3,276 				
						
						
2,023 				
Net gain (loss) on disposition of assets
						
(18) 				
						
						
(36) 				
						
						
5,570 				
						
						
6,807 				
						
						
23,132 				
Equity in earnings (loss) of joint venture
						
				
						
						
				
						
						
(218) 				
						
						
				
						
						
(244) 				
Net gain (loss) on derivatives and convertible debt
						
(6,331) 				
						
						
(1,071) 				
						
						
				
						
						
				
						
						
6,377 				
Other income (expense), net
						
(65) 				
						
						
(104) 				
						
						
(83) 				
						
						
(111) 				
						
						
				
Interest expense
						
(8,481) 				
						
						
(7,976) 				
						
						
(8,326) 				
						
						
(5,174) 				
						
						
(4,710) 				
Loss on debt extinguishment
						
-
						
						
-
						
						
-
						
						
(967) 				
						
						
(2,187) 				
Impairment (loss) recovery, net
						
-
						
						
-
						
						
				
						
						
(2,151) 				
						
						
(1,477) 				
Earnings (loss) from continuing operations before income taxes
						
(19,446) 				
						
						
(4,130) 				
						
						
5,505 				
						
						
2,306 				
						
						
22,969 				
Income tax (expense) benefit
						
				
						
						
(937) 				
						
						
(335) 				
						
						
				
						
						
(125) 				
Earnings (loss) from continuing operations
						
(19,071) 				
						
						
(5,067) 				
						
						
5,170 				
						
						
2,901 				
						
						
22,844 				
Gain from discontinued operations, net of tax
						
-
						
						
-
						
						
-
						
						
-
						
						
				
Net earnings (loss)
						
(19,071) 				
						
						
(5,067) 				
						
						
5,170 				
						
						
2,901 				
						
						
23,522 				
(Earnings) loss attributable to noncontrolling interest
						
				
						
						
				
						
						
				
						
						
(20) 				
						
						
(727) 				
Net earnings (loss) attributable to controlling interests
						
(19,064) 				
						
						
(5,048) 				
						
						
5,365 				
						
						
2,881 				
						
						
22,795 				
Dividends declared and undeclared and in kind dividends deemed on preferred stock
						
(617) 				
						
						
(578) 				
						
						
(578) 				
						
						
(12,243) 				
						
						
(20,748) 				
Net earnings (loss) attributable to common shareholders
$
(19,681) 				
						
$
(5,626) 				
						
$
4,787 				
						
$
(9,362) 				
						
$
2,047 				
﻿
						
						
						
						
						
						
						
						
						
						
						
						
						
						
Weighted average number of common shares - basic
						
11,967 				
						
						
11,856 				
						
						
11,784 				
						
						
9,438 				
						
						
				
Weighted average number of common shares - diluted
						
11,967 				
						
						
11,856 				
						
						
11,886 				
						
						
9,438 				
						
						
5,536 				
﻿
						
						
						
						
						
						
						
						
						
						
						
						
						
						
Earnings per Share
						
						
						
						
						
						
						
						
						
						
						
						
						
						
Continuing operations - Basic
$
(1.59) 				
						
$
(0.48) 				
						
$
0.40 				
						
$
(1.00) 				
						
$
1.82 				
Discontinued operations - Basic
						
-
						
						
-
						
						
-
						
						
-
						
						
0.85 				
Total - Basic Earnings (Loss) per Share
$
(1.59) 				
						
$
(0.48) 				
						
$
0.40 				
						
$
(1.00) 				
						
$
2.67 				
Diluted Earnings Per Share (EPS)
						
						
						
						
						
						
						
						
						
						
						
						
						
						
Continuing operations - Diluted
$
(1.59) 				
						
$
(0.48) 				
						
$
0.40 				
						
$
(1.00) 				
						
$
0.78 				
Discontinued operations - Diluted
						
-
						
						
-
						
						
-
						
						
-
						
						
0.13 				
Total - Diluted Earnings (Loss) per Share
$
(1.59) 				
						
$
(0.48) 				
						
$
0.40 				
						
$
(1.00) 				
						
$
0.91 				
Balance sheet data
						
						
						
						
						
						
						
						
						
						
						
						
						
						
Total investment in hotel properties, net
$
265,831 				
						
$
222,063 				
						
$
234,270 				
						
$
219,580 				
						
$
114,871 				
Cash and cash equivalents
$
3,686 				
						
$
2,584 				
						
$
4,151 				
						
$
5,441 				
						
$
8,326 				
Total assets
$
275,193 				
						
$
236,941 				
						
$
253,448 				
						
$
242,980 				
						
$
140,665 				
Total debt, net of deferred financing costs, including convertible debt at fair value
$
183,401 				
						
$
135,081 				
						
$
137,930 				
						
$
121,650 				
						
$
64,035 				
Total equity
$
76,281 				
						
$
95,826 				
						
$
107,852 				
						
$
111,814 				
						
$
70,799 				
﻿
﻿
﻿
﻿
﻿
﻿
﻿
﻿

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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
﻿
The following discussion should be read in conjunction with the Consolidated Financial Statement and Notes thereto. This section includes discussion of financial information as of and for the year ended December 31, 2020 and provides comparisons to the same information as of and for the year ended December 31, 2019. Comparisons of 2019 financial information to the same information for 2018 can be found in Management's Discussion and Analysis of Financial Condition and Results of Operations in Part II, Item 7 of the Company's Annual Report on Form 10-K for the year ended December 31, 2019 as filed with the SEC on March 31, 2020.
﻿
Overview
﻿
Condor Hospitality Trust, Inc. is a self-administered REIT for federal income tax purposes that specializes in the investment and ownership of high-quality select-service, limited-service, extended stay, and compact full service hotels. Substantially all of our operations are conducted through Condor Hospitality Limited Partnership, our operating partnership, for which we serve as general partner. As of December 31, 2020, the Company owned 15 hotels, representing 1,908 rooms, in eight states.
﻿
COVID-19 Pandemic
﻿
The novel coronavirus (COVID-19) has reduced travel significantly and adversely affected the hospitality industry in general. The actual and threatened spread of COVID-19 globally or in the regions in which we operate, or future widespread outbreak of infectious or contagious disease, can continue to reduce national and international travel in general. The extent to which the hospitality industry, and thus our business, will be affected by COVID-19 will largely depend on future developments which we cannot accurately predict, and the impact on customer travel, including the duration of the outbreak, the continued spread and treatment of COVID-19, and new information and developments that may emerge concerning the severity of COVID-19 and the actions to contain COVID-19 or treat its impact, among others. To the extent that travel activity in the U.S. is and will be materially and adversely affected by COVID-19, business and financial results of the hospitality industry, and thus our business and financial results, could be impacted.
﻿
Since late March 2020, similar to the conditions affecting the hospitality industry as a whole, we have experienced occupancy declines at many of our properties which have and will continue to require us to adjust our business operations, and will have had and will continue to have an impact on our operating income and may potentially impact future compliance with our debt covenants.
﻿
As a result of the above factors, the Company is and has taken actions at the corporate and hotel level, including, but not limited to:
·
Obtained significant modifications of its debt agreements (see further discussion in Significant Debt Transactions below).
·
Asset management working with hotel management companies to reduce all hotels operating expenses including, but not limited to, closing off multiple floors, staffing reductions and furloughs, utility consumption reductions, purchasing reductions and eliminations, contract services reductions and eliminations, food services closures, exercise facilities closures, and certain reduction and elimination of certain marketing expenditures.
·
Seeking potential alternative revenue sources through health care providers, government agencies, universities and airlines.
·
Obtaining Paycheck Protection Program (“PPP”) loans authorized under the recently congressionally approved Coronavirus Aid, Relief, and Economic Security (“CARES”) Act totaling $2.3 million (see Significant Debt Transactions below).
·
Pursuing corporate cost reductions, including staffing reductions, resulting in an approximately 30% decrease in general and administrative expenses compared to historical operations.
·
Capital improvement projects have been suspended except for emergency circumstances and will remain on hold for immediate future, with the potential for the suspension to continue through 2021.
·
The Company determined that it was advisable and the best business practice to cause a temporary closure of two of its hotels, the Solomons Hilton Garden Inn on April 20, 2020 and the Leawood Aloft on April 9, 2020. These hotels were both reopened on July 1, 2020 and no other hotel closures have been deemed necessary.
﻿
			
		
Hotel Property Portfolio Activity
﻿
Acquisitions
﻿
During the year ended December 31, 2020, there were no hotel acquisitions.
﻿
On February 14, 2020, the Company purchased the remaining 20% interest in the Atlanta JV from our joint venture partner for $7.3 million as allowed by the purchase option included in the original joint venture agreements. The $7.3 million was funded from the Company’s credit facility, and the Company became the primary obligator on the $34.08 million New Term Loan (defined below) as part of the transaction.
﻿
The New Term Loan matured upon the earlier to occur of (a) consummation of the merger under the Merger Agreement (as discussed above) and (b) May 8, 2020. The New Term Loan was refinanced in May 2020 (see Significant Debt Transactions below). The New Term Loan bore interest, at the Borrower’s option, at either LIBOR plus 2.25% or a base rate plus 1.25% and required monthly interest payments and principal was due on the maturity date. The Borrowers could, at any time, voluntarily prepay the New Term Loan in whole or in part without premium or penalty (other than customary LIBOR breakage costs). The New Term Loan was secured by a first priority lien and security interest on the Aloft Atlanta hotel and the tangible and intangible personal property used in connection with such hotel, including inventory, equipment, fixtures, accounts and general intangibles and was guaranteed by the Company and certain of its subsidiaries.
﻿
As the Atlanta JV was previously accounted for under the equity method and the acquisition was considered the acquisition of assets, the liabilities assumed as part of the transaction were recorded at fair value while the assets purchased in the transaction were recorded based on a pro-rata fair value allocation of the total available basis, which included the fair value of liabilities assumed, the cash purchase price paid, the balance of the investment in unconsolidated joint venture at the time of the acquisition, and the acquisition costs incurred. The purchase was recognized as follows (in thousands):
﻿
﻿
﻿
						
						
Cash purchase price
$
7,300 				
Investment in unconsolidated joint venture
						
3,844 				
Acquisition costs
						
				
Total investment in net assets
$
11,266 				
﻿
						
						
Cash
$
				
Working capital
						
(462) 				
Land
						
14,728 				
Buildings, improvements, and vehicle
						
37,020 				
Furniture and equipment
						
2,432 				
Debt assumed at acquisition
						
(34,080) 				
Land option liability (1)
						
(8,497) 				
Total allocation to net assets
$
11,266 				
﻿
(1)
The purchase agreement includes a provision which permits the seller to purchase the surface parking lot north of the hotel exercisable for approximately seven years at less than market rates.
﻿
Dispositions
﻿
There were no dispositions during the year ended December 31, 2020.
﻿
Additionally, based on the criteria discussed in the footnotes to the consolidated financial statements, as of December 31, 2020 and 2019 no hotels were considered held for sale.
﻿
Operating Performance Metrics
﻿
The following table presents our comparative same-store occupancy, ADR, and RevPAR for all our hotels owned at December 31, 2020. The statistics for the Company’s two hotels that were temporarily closed due to the effects of COVID-19, the Solomons Hilton Garden Inn, which was closed on April 2, 2020 and reopened on July 1, 2020, and the Leawood Aloft, which was closed on April 9, 2020 and reopened on July 1, 2020, include only the periods that the properties were operational. With the exception of these COVID-19 related closures, same-store occupancy, ADR, and RevPAR reflect the performance of hotels during the entire period, regardless of our ownership during the period presented, including 100% of the operating results of the property owned by the Atlanta JV in which the
			
		
Company had an 80% interest prior to the purchase of the remaining 20% interest on February 14, 2020. Results for the hotels for periods prior to our ownership were provided to us by prior owners and have not been adjusted by us or audited or reviewed by our independent auditors.
﻿
﻿
﻿
﻿
						
						
						
						
						
						
						
						
						
						
						
						
						
						
						
﻿
Year ended December 31,
﻿
						
﻿
Occupancy
						
ADR
						
RevPAR
						
Occupancy
						
ADR
						
RevPAR
Total Same-Store Portfolio
51.49% 				
						
$
99.00 				
						
$
50.98 				
						
78.88% 				
						
$
125.09 				
						
$
98.68 				
﻿
						
						
						
						
						
						
						
						
						
						
						
						
						
						
						
﻿
						
						
						
						
						
						
						
						
						
						
						
						
						
						
						
Total same-store RevPAR decreased by 48.3% in 2020, with occupancy decreasing by 34.7% and ADR decreasing by 20.9%. The Company’s largest declines in RevPAR were at the Atlanta Aloft (61.2%), the San Antonio SpringHill Springs (60.4%), the Leawood Aloft (55.6%), the Round Rock Home2 Suites (54.4%), and the Austin TownePlace Suites (50.7%). The least impacted hotels included the Southaven Home2 Suites (33.2%) and the Tallahassee Home2 Suites (37.3%).
﻿
Results of Operations
﻿
						
						
						
						
						
						
						
						
﻿
Year ended December 31,
﻿
						
						
Variance
Revenue
$
35,188 				
						
$
61,052 				
						
$
(25,864) 				
Hotel and property operations expense
						
(29,563) 				
						
						
(38,769) 				
						
						
9,206 				
Depreciation and amortization expense
						
(10,956) 				
						
						
(9,568) 				
						
						
(1,388) 				
General and administrative expense
						
(4,006) 				
						
						
(5,700) 				
						
						
1,694 				
Acquisition and terminated transactions expense
						
-
						
						
(38) 				
						
						
				
Strategic alternatives, net
						
4,706 				
						
						
(2,110) 				
						
						
6,816 				
Net loss on disposition of assets
						
(18) 				
						
						
(36) 				
						
						
				
Equity in earnings of joint venture
						
				
						
						
				
						
						
(110) 				
Net loss on derivatives and convertible debt
						
(6,331) 				
						
						
(1,071) 				
						
						
(5,260) 				
Other expense, net
						
(65) 				
						
						
(104) 				
						
						
				
Interest expense
						
(8,481) 				
						
						
(7,976) 				
						
						
(505) 				
Income tax benefit (expense)
						
				
						
						
(937) 				
						
						
1,312 				
Net loss
$
(19,071) 				
						
$
(5,067) 				
						
$
(14,004) 				
﻿
Comparison of the year ended December 31, 2020 to the year ended December 31, 2019 (in thousands, except per share amounts)
﻿
Revenue
﻿
Revenue decreased by a total of $25,864, or 42.4%, as a result of the decreases in RevPAR resulting from the COVID-19 pandemic as discussed above, partially offset by $3,449 in increased revenue resulting from the acquisition of the remaining interest in the Atlanta JV in the first quarter of 2020. Additionally, decreased revenue from the Solomons Quality Inn, which was sold at the end of the first quarter of 2019, contributed $272 to the decrease in total revenue.
﻿
Expenses
﻿
Hotel and property operations expense decreased by $9,206. Increased operating expenses of $3,619 from the acquisition of the remaining interest in the Atlanta JV in the first quarter of 2020 were more than offset by decreased operating expenses due to decreased revenue and occupancy as discussed above. Decreases in operating expenses did not keep pace with the sudden and unexpected declines in revenue caused by the COVID-19 pandemic during 2020.
﻿
Depreciation and amortization expense increased by $1,388 as a result of the acquisition of the remaining interest in the Atlanta JV during the first quarter of 2020.
﻿
General and administrative expense decreased by $1,694 driven by decreased compensation costs and decreased travel, office rent, and miscellaneous expenses as a result of the COVID-19 pandemic and decreased corporate activity.
﻿
During both 2020 and 2019, significant expenses were recognized as strategic alternatives expenses, or costs incurred related to the Company’s strategic alternatives initiative that generated the Merger Agreement and handled the ultimate termination of that agreement as discussed further above with Termination and Settlement of
			
		
Agreement and Plan of Merger. Additionally, during the third and fourth quarters of 2020, expense reimbursements and termination fees totaling $7,500 were received and credited against strategic alternatives expense, net.
﻿
Interest expense increased by $505 as a result of an increase in debt outstanding, including the issuance of the $10,000 convertible note during the fourth quarter of 2020, due to the acquisition of the remaining interest in the Atlanta JV and cash needs resulting from the COVID-19 pandemic. The weighted average interest rate on long-term debt outstanding (not including the Company’s convertible notes) decreased due to changing market conditions from 4.22% at December 31, 2019 to 3.79% at December 31, 2020.
﻿
Equity in Earnings of Joint Venture
﻿
Equity in earnings of joint venture decreased by $110 between the periods as a result of the acquisition of the remaining interest in the Atlanta JV during the first quarter of 2020, after which point the results from the Atlanta JV were fully consolidated and no longer recorded as an equity method investment.
﻿
Net Loss on Derivatives and Convertible Debt
﻿
The increase in net losses on derivatives and convertible debt of $5,260 was driven by an increase in the fair value of the Company’s convertible notes, largely of the 2020 Notes, due to an increase in the Company’s stock price between the issuance of the 2020 Notes and December 31, 2020.
﻿
Income Tax Expense (Benefit)
﻿
Income tax expense in both periods was driven primarily by income (loss) earned by the TRS as well as miscellaneous state taxes owed by the Company. Management believes the combined federal and state income tax rate for the TRS will be approximately 24%. In 2020, after an assessment of the realizability of deferred tax assets based on projected reversals of deferred income tax liabilities, projected future taxable income, and tax planning strategies, the Company recognized a full valuation allowance against net deferred tax assets in the TRS, leading to a valuation allowance of $1,742 recorded as of December 31, 2020.
﻿
Non-GAAP Financial Measures
﻿
Non-GAAP financial measures are measures of our historical financial performance that are different from measures calculated and presented in accordance with accounting principles generally accepted in the United States of America (“GAAP”). We report Funds from Operations (“FFO”), Adjusted FFO (“AFFO”), Earnings Before Interest, Taxes, Depreciation, and Amortization (“EBITDA”), EBITDA for real estate (“EBITDAre”), Adjusted EBITDAre, and Hotel EBITDA as non-GAAP measures that we believe are useful to investors as key measures of our operating results and which management uses to facilitate a periodic evaluation of our operating results relative to those of our peers. Our non-GAAP measures should not be considered as an alternative to U.S. GAAP net earnings as an indication of financial performance or to U.S. GAAP cash flows from operating activities as a measure of liquidity. Additionally, these measures are not indicative of funds available to fund cash needs or our ability to make cash distributions as they have not been adjusted to consider cash requirements for capital expenditures, property acquisitions, debt service obligations, or other commitments.
﻿
Funds from Operations (“FFO”) and Adjusted FFO (“AFFO”)
﻿
We calculate FFO in accordance with the standards established by the National Association of Real Estate Investment Trusts (“NAREIT”), which defines FFO as net earnings or loss computed in accordance with GAAP, excluding gains or losses from sales of real estate assets, impairment, and the depreciation and amortization of real estate assets. FFO is calculated both for the Company in total and as FFO attributable to common shares and common units, which is FFO reduced by preferred stock dividends. AFFO is FFO attributable to common shares and common units adjusted to exclude items we do not believe are representative of the results from our core operations, including non-cash gains or losses on derivatives and convertible debt, stock-based compensation expense, amortization of certain fees, losses on debt extinguishment, and in-kind dividends above stated rates, and cash charges for acquisition and terminated transaction and strategic alternatives costs, net of related receipts. All REITs do not calculate FFO and AFFO in the same manner; therefore, our calculation may not be the same as the calculation of FFO and AFFO for similar REITs.
﻿
We consider FFO to be a useful additional measure of performance for an equity REIT because it facilitates an understanding of the operating performance of our properties without giving effect to real estate depreciation and
			
		
amortization, which assumes that the value of real estate assets diminishes predictably over time. Since real estate values have historically risen or fallen with market conditions, we believe that FFO provides a meaningful indication of our performance. We believe that AFFO provides useful supplemental information to investors regarding our ongoing operating performance that, when considered with net earnings and FFO, is beneficial to an investor’s understanding of our operating performance.
﻿
The following table reconciles net earnings (loss) to FFO and AFFO for the years ended December 31 (in thousands). All amounts presented include only our portion of the results of our unconsolidated Atlanta JV prior to our acquisition of the remaining 20% interest from our joint venture partner on February 14, 2020.
﻿
﻿
﻿
						
						
						
						
						
						
						
						
﻿
Year ended December 31,
Reconciliation of Net Earnings (Loss) to FFO and AFFO
						
						
Net earnings (loss)
$
(19,071) 				
						
$
(5,067) 				
						
$
5,170 				
Depreciation and amortization expense
						
10,956 				
						
						
9,568 				
						
						
9,475 				
Depreciation and amortization expense from JV
						
				
						
						
1,195 				
						
						
1,155 				
Net loss (gain) on disposition of assets
						
				
						
						
				
						
						
(5,570) 				
Net loss on disposition of assets from JV
						
-
						
						
				
						
						
				
Impairment recovery, net
						
-
						
						
-
						
						
(93) 				
FFO
						
(7,952) 				
						
						
5,734 				
						
						
10,294 				
Dividends declared and undeclared on preferred stock
						
(617) 				
						
						
(578) 				
						
						
(578) 				
FFO attributable to common shares and common units
						
(8,569) 				
						
						
5,156 				
						
						
9,716 				
Net loss (gain) on derivatives and convertible debt
						
6,331 				
						
						
1,071 				
						
						
(317) 				
Net loss on derivatives from JV
						
-
						
						
				
						
						
				
Acquisitions and terminated transactions expense
						
-
						
						
				
						
						
				
Strategic alternatives expense, net
						
(4,706) 				
						
						
2,110 				
						
						
-
Loss on extinguishment of debt from JV
						
-
						
						
				
						
						
-
Stock-based compensation expense
						
				
						
						
1,026 				
						
						
				
Amortization of deferred financing fees
						
1,210 				
						
						
1,267 				
						
						
1,443 				
Amortization of deferred financing fees from JV
						
				
						
						
				
						
						
				
AFFO attributable to common shares and common units
$
(5,468) 				
						
$
11,251 				
						
$
12,224 				
﻿
﻿
Earnings Before Interest, Taxes, Depreciation, and Amortization (“EBTIDA”), EBITDAre, Adjusted EBITDAre, and Hotel EBITDA
﻿
We calculate EBITDA, EBITDAre, and Adjusted EBITDAre by adding back to net earnings or loss certain non-operating expenses and certain non-cash charges which are based on historical cost accounting that we believe may be of limited significance in evaluating current performance. We believe these adjustments can help eliminate the accounting effects of depreciation and amortization and financing decisions and facilitate comparisons of core operating profitability between periods. In calculating EBITDA, we add back to net earnings or loss interest expense, loss on debt extinguishment, income tax expense, and depreciation and amortization expense. NAREIT adopted EBITDAre in order to promote an industry-wide measure of REIT operating performance. We adjust EBITDA by adding back net gain/loss on disposition of assets and impairment charges to calculate EBITDAre. To calculate Adjusted EBITDAre, we adjust EBITDAre to add back acquisition and terminated transactions expense and strategic alternatives costs, net of related receipts, which are cash charges. We also add back stock -based compensation expense and gain/loss on derivatives and convertible debt, which are non-cash charges. EBITDA, EBITDAre, and Adjusted EBITDAre, as presented, may not be comparable to similarly titled measures of other companies.
﻿
We believe EBITDA, EBITDAre, and Adjusted EBITDAre to be useful additional measures of our operating performance, excluding the impact of our capital structure (primarily interest expense), our asset base (primarily depreciation and amortization expense), and other items we do not believe are representative of the results from our core operations.
﻿
The Company further excludes general and administrative expenses, other non-operating income or expense, and certain hotel and property operations expenses that are not allocated to individual properties in assessing hotel performance (primarily certain general liability and other insurance costs, land lease costs, and office and banking fees) from Adjusted EBITDAre to calculate Hotel EBITDA. Hotel EBITDA, as presented, may not be comparable to similarly titled measures of other companies.
﻿
Hotel EBITDA is intended to isolate property level operational performance over which the Company’s hotel operators have direct control. We believe Hotel EBITDA is helpful to investors as it better communicates the comparability of our hotels’ operating results for all of the Company’s hotel properties and is used by management to measure the performance of the Company’s hotels and the effectiveness of the operators of the hotels.
			
		
﻿
The following table reconciles net earnings (loss) to EBITDA, EBITDAre, Adjusted EBITDAre, and Hotel EBITDA for the years ended December 31 (in thousands). All amounts presented include only our portion of the results of our unconsolidated Atlanta JV prior to our acquisition of the remaining 20% interest from our joint venture partner on February 14, 2020.
﻿
﻿
﻿
﻿
﻿
						
						
						
						
						
						
						
						
﻿
Year ended December 31,
Reconciliation of Net Earnings (Loss) to EBITDA, EBITDAre, Adjusted EBITDAre, and Hotel EBITDA
						
						
Net earnings (loss)
$
(19,071) 				
						
$
(5,067) 				
						
$
5,170 				
Interest expense
						
8,481 				
						
						
7,976 				
						
						
8,326 				
Interest expense from JV
						
				
						
						
2,140 				
						
						
2,109 				
Loss on extinguishment of debt from JV
						
-
						
						
				
						
						
-
Income tax expense (benefit)
						
(375) 				
						
						
				
						
						
				
Depreciation and amortization expense
						
10,956 				
						
						
9,568 				
						
						
9,475 				
Depreciation and amortization expense from JV
						
				
						
						
1,195 				
						
						
1,155 				
EBITDA
						
				
						
						
16,887 				
						
						
26,570 				
Net (gain) loss on disposition of assets
						
				
						
						
				
						
						
(5,570) 				
Net loss on disposition of assets from JV
						
-
						
						
				
						
						
				
Impairment recovery, net
						
-
						
						
-
						
						
(93) 				
EBITDAre
						
				
						
						
16,925 				
						
						
21,064 				
Net (gain) loss on derivatives and convertible debt
						
6,331 				
						
						
1,071 				
						
						
(317) 				
Net loss on derivative from JV
						
-
						
						
				
						
						
				
Stock-based compensation expense
						
				
						
						
1,026 				
						
						
				
Acquisition and terminated transactions expense
						
-
						
						
				
						
						
				
Strategic alternatives expense, net
						
(4,706) 				
						
						
2,110 				
						
						
-
Adjusted EBITDAre
						
2,177 				
						
						
21,171 				
						
						
21,948 				
General and administrative expense, excluding stock-based compensation expense
						
3,833 				
						
						
4,674 				
						
						
5,243 				
Other expense, net
						
				
						
						
				
						
						
				
Unallocated hotel and property operations expense
						
				
						
						
				
						
						
				
Hotel EBITDA
$
6,414 				
						
$
26,176 				
						
$
27,638 				
﻿
						
						
						
						
						
						
						
						
Revenue
$
35,188 				
						
$
61,052 				
						
$
65,057 				
JV revenue
						
1,218 				
						
						
10,133 				
						
						
9,510 				
Total Company and JV revenue
$
36,406 				
						
$
71,185 				
						
$
74,567 				
Hotel EBITDA as a percentage of revenue
						
17.6% 				
						
						
36.8% 				
						
						
37.1% 				
﻿
Liquidity and Capital Resources
﻿
Rights Offering
﻿
On December 7, 2020, the Company filed a registration statement with the SEC with respect to the Rights Offering. The registration statement has not become effective and the Company has not commenced the Rights Offering.
The Company and SREP entered into a backstop commitment agreement on December 7, 2020. Pursuant to the backstop commitment agreement, SREP will backstop the Rights Offering, if commenced, on a standby basis to facilitate the transaction, by the Company selling to SREP pursuant to an exemption from the registration requirements of Section 5 of the Securities Act provided under Section 4(a)(2) thereof and/or Regulation D thereunder and SREP purchasing an aggregate number of shares of common stock equal to (x) $10.0 million, minus (y) the aggregate proceeds of the Rights Offering divided by $2.50, at a price per share equal to $2.50, subject to the terms and conditions of the backstop commitment agreement. The obligations of SREP under the backstop commitment agreement are subject to certain conditions, which, among other conditions, include: (1) that the Rights Offering must occur on or prior to May 31, 2021, and (2) that the Company exempts SREP from the ownership limitation set forth in the Company’s articles of incorporation.
﻿
Liquidity Requirements
﻿
As previously discussed, due to the COVID-19 pandemic, the hospitality industry has experienced significant drops in demand. We believe the ongoing effects of the COVID-19 pandemic on our operations have had, and will continue to have, a material negative impact on the hospitality industry, and thus on our financial results and liquidity, and such negative impact may continue beyond the containment of the pandemic. While we cannot assure you that the assumptions used to estimate our future liquidity will be correct, the Company believes it can generate the liquidity required to operate through the crisis through a combination of the continued operation of our portfolio with significant cost reduction measures in place, existing availability under our credit facility, and, if necessary, additional debt and
			
		
equity financings. However, there can be no assurance that the Company will be able to obtain such financing on acceptable terms or at all.
﻿
At December 31, 2020, the Company had $3.7 million of cash and cash equivalents, $3.8 million of restricted cash on hand, and $11.9 million of unused availability under its credit facility, of which $4.0 million is available for use only to pay interest on the credit facility. Our short-term liquidity requirements consist primarily of operating expenses and other expenditures directly associated with our hotel properties, recurring maintenance and capital expenditures necessary to maintain our hotels in accordance with brand standards, interest expense and scheduled principal payments on outstanding indebtedness, restricted cash funding obligations, and the payment of dividends in accordance with the REIT requirements of the Code and as required in connection with our Series E Preferred Stock. We also presently expect to invest approximately $0.5 million to $1.5 million in capital expenditures related to hotel properties we currently own through March 31, 2022. As of December 31, 2020, contractual principal payments on our debt outstanding, including normal amortization, totaled $1.6 million through March 31, 2022.
﻿
Pursuant to the terms of the ninth amendment to the Company’s credit facility with KeyBank, it is an event of default if the convertible notes issued in 2020 (see discussion of 2020 Convertible Promissory Notes below) are not either converted to common stock or paid in full by July 1, 2021. The Company intends to not cause such an event of default by satisfying the convertible notes with the Rights Offering, which has a full backstop commitment (see discussion of Rights Offering above), or otherwise satisfying the convertible notes with a sale of equity or negotiating an extension of the July 1, 2021 date with KeyBank.
﻿
To maintain our REIT tax status, we generally must distribute at least 90% of our taxable income to our shareholders annually. In addition, we are subject to a 4% non-deductible excise tax if the actual amount distributed to shareholders in a calendar year is less than a minimum amount specified under the federal income tax laws. We have a general dividend policy of paying out approximately 100% of annual REIT taxable income. The actual amount of any future dividends will be determined by the Board of Directors based on our actual results of operations, economic conditions, capital expenditure requirements, and other factors that the Board of Directors deems relevant.
﻿
Additionally, as of December 31, 2020, as discussed in depth in Financial Covenants below, the Company’s loans with Great Western Bank (financing the Leawood, Kansas Aloft) were purchased by OSK X, LLC, an equity fund affiliate of O’Brien Staley Partners, on December 24, 2020. The Company did not satisfy the financial covenants for these loans as of December 31, 2020, as was the case for the first three quarters of 2020. The Company has been advised by OSK X, LLC that it is in default for failure to comply with the financial covenants as of December 31, 2020 (unlike Great Western Bank that waived the covenants for the first three quarters of 2020). This default under our loan agreement with OSK X, LLC will not result in a cross-default under our credit facility until a 90-day cure period with respect to the default expires on May 27, 2021. The Company is continuing to pursue negotiating with OSK X, LLC to obtain waivers, and if waivers are unable to be obtained, the Company plans to refinance the debt with existing or new lenders which the Company believes it can successfully complete. However, waivers and the ability to refinance are at the discretion of the lenders, and there can be no assurance that the Company will be able to obtain such waivers or refinancing on acceptable terms or at all.
﻿
Based on a the current status of the OSK X, LLC loans and the guidance in U.S. GAAP that requires that, in making a determination for the one year period following the date of the financial statements, the Company cannot consider future fundraising activities or the likelihood of obtaining covenant waivers or amendments, all of which are outside of the Company's sole control, the Company has determined that there is substantial doubt about the Company’s ability to continue as a going concern for the one year period after the date the financial statements are issued. The consolidated financial statements have been prepared assuming that the Company will continue as a going concern and do not include any adjustments that might result from the outcome of this uncertainty.
﻿
Sources and Uses of Cash
﻿
Cash provided by (used in) Operating Activities. Our cash provided by (used in) operations was ($0.8 million) and $9.3 million for the years ended December 31, 2020 and 2019, respectively, a decrease of $10.1 million. This change in operating cash flow was driven by a decrease in net income, after adjusting for non-cash items, of $9.6 million. Changes in operating assets and liabilities between the periods were individually insignificant.
﻿
Cash provided by (used in) Investing Activities. Our cash provided by (used in) investing activities was ($7.3 million) and $4.4 million for the years ended December 31, 2020 and 2019, respectively, a decrease of $11.7 million. The decrease in these cash flows in 2020 was driven by the $7.2 million in cash, net, spent in the first quarter of 2020 to acquire the remaining interest in the Atlanta JV as well as $4.2 million in cash received related to
			
		
the sale of hotel properties in the first quarter of 2019 that did not recur in 2020. Additionally, capital expenditures related to property maintenance and upgrades decreased by $0.9 million as a result of COVID-19 related cash constraints and distributions from the Atlanta JV declined by $1.2 million as a result of the purchase of the Atlanta JV after the receipt of only the first quarter 2020 distribution.
﻿
Cash provided by (used in) Financing Activities. Our cash provided by (used in) financing activities was $7.2 million and ($14.4 million) for the years ended December 31, 2020 and 2019, respectively, an increase of $21.6 million. This increase was primarily due to the issuance of $10.0 million in convertible notes in 2020 and dividends and distributions paid of $9.8 million in 2019 that did not recur in 2020 due to cash constraints as a result of the COVID-19 pandemic.
﻿
Outstanding Indebtedness
﻿
At December 31, 2020, excluding the Company’s two issuances of outstanding convertible debt (the 2020 issuance of which is discussed in depth in 2020 Convertible Promissory Notes below) we had long-term debt of $168.3 million with a weighted average term to maturity of 2.1 years and a weighted average interest rate of 3.79%. Of this total, at December 31, 2020, $24.8 million was fixed rate debt with a weighted average term to maturity of 2.3 years and a weighted average interest rate of 4.09% and $143.5 million was variable rate debt with a weighted average term to maturity of 2.0 years and a weighted average interest rate of 3.74%. At December 31, 2019, excluding the Company’s convertible debt, we had long-term debt of $135.4 million associated with assets held for use with a weighted average term to maturity of 1.5 years and a weighted average interest rate of 4.22%. Of this total, at December 31, 2019, $22.9 million was fixed rate debt with a weighted average term to maturity of 2.3 years and a weighted average interest rate of 4.41% and $112.5 million was variable rate debt with a weighted average term to maturity of 1.2 years and a weighted average interest rate of 4.18%.
﻿
Aggregate annual principal payments on debt for the next five years and thereafter are as follows (in thousands):
﻿
﻿
						
						
﻿
						
						
﻿
Total
				
$
1,412 				
				
						
27,686 				
				
						
131,394 				
				
						
7,840 				
				
						
-
Thereafter
						
-
Total
$
168,332 				
﻿
						
						
Significant Debt Transactions
﻿
On February 14, 2020, with the purchase of the remaining interest in the Atlanta JV (as discussed above), the Company became the primary obligator on the New Term Loan and drew an additional $7.3 million under its credit facility with KeyBank to fund the transaction. The New Term Loan was refinanced on May 13, 2020 with the Seventh Amendment to its credit facility with KeyBank as subsequently discussed.
﻿
On March 30, 2020, the Company entered into a Sixth Amendment to its credit facility with KeyBank which, among other things, made the following changes to the credit facility:
·
Set the size of the credit facility at $102.0 million and removed the ability to reborrow under the credit facility in the future (without lender approval).
·
Extended the maturity date of the credit facility to April 1, 2021, and provided for two extension options (six months and five months) with the satisfaction of certain conditions, including payment of extension fees, no defaults existing, delivery of evidence of pro forma compliance with financial covenants and delivery of updated appraisals.
·
Provided for principal prepayments with certain proceeds and cash flows through a cash management system / cash flow waterfall.
·
Implemented a collateral-specific minimum debt yield (ratio of adjusted net operating income for the borrowing base properties to indebtedness outstanding under the credit facility) of 10%. The covenant was first tested on September 30, 2020 and for purposes of calculating compliance with the covenant, annualized results are used until June 30, 2021 when the calculation is based on the most recently ended four fiscal quarters.
			
		
·
Maintained the maximum consolidated leverage ratio (ratio of consolidated total indebtedness to consolidated total asset value) of 60% but provided for updated appraisals to determine consolidated total asset value (if required by the lenders).
·
Modified the fixed charge coverage ratio (ratio of adjusted consolidated EBITDA) to consolidated fixed charges) to (a) 1.25 to 1 as of the end of the fiscal quarter ending September 30, 2020 and (b) 1.50 to 1 as of the end of the fiscal quarter ending December 31, 2020 and each fiscal quarter thereafter. For purposes of calculating compliance with the covenant, annualized results are used until June 30, 2021 when the calculation is based on the most recently ended four fiscal quarters.
·
Implemented a maximum borrowing base leverage ratio (ratio of indebtedness outstanding under the credit facility to borrowing base asset value (based on updated appraisals required by the lenders) of 65%. The covenant is first tested on June 30, 2021.
·
Eliminated the financial covenants regarding secured leverage ratio, tangible net worth and variable rate debt.
·
Modified the covenant on dividends and distributions to provide that no cash dividends or distributions may be made to common or preferred shareholders.
·
Modified the covenants on recourse debt and investments to provide that no additional recourse debt or investments will be permitted.
·
Added certain monthly reporting obligations.
·
Increased the interest rate for the credit facility to LIBOR plus 3.25% or a base rate plus 2.25%, and further increased the interest rate spreads by 0.25% at six month intervals. The LIBOR rate is subject to a floor of 0.25%.
·
Provided for an interest reserve account, which was funded with $1.72 million on March 30, 2020. The funds are available to make interest payments under the credit facility upon the satisfaction of certain conditions, including if the Company’s unrestricted cash balance is less than $1.5 million. The entirety of this reserve account was used to make interest payments in 2020.
﻿
On March 30, 2020, the Company entered into an agreement with Great Western Bank to defer the monthly principal and interest payments due under the loans on April 1, 2020, May 1, 2020, and June 1, 2020 until the maturity date in December 2021.
﻿
On April 4, 2020 and April 11, 2020, the Company obtained three PPP loans totaling $2.299 million that are recognized as long-term debt. The entire amount of the loans was used for payroll, utilities and interest, and therefore, management anticipates that the loans will be substantially forgiven. The Company completed and submitted to the Small Business Association applications for the forgiveness of two of the three PPP loans during the first quarter of 2021 and plans to submit the application for the third loan later in 2021. To the extent that they are not forgiven, the Company would be required to repay that portion at an interest rate of 1.00% with first installments beginning in October 2021 and final maturity in May 2022.
﻿
On May 12, 2020, the Company entered into an amendment to its loan agreement with Wells Fargo Bank which, among other things:
·
Suspended principal payments under the loan agreement until October 2020.
·
Suspended measurement of the debt yield for purposes of determining if a cash trap has occurred under the loan agreement until February 1, 2021.
·
Suspended payments to the monthly furniture, fixtures, and equipment (“FF&E”) reserve under the loan agreement until November 2020.
·
Permitted the withdrawal of $0.65 million from the FF&E reserve under the loan agreement between May 2020 and September 2020 to pay operating expenses of the borrowers thereunder, all of which was withdrawn for this purpose prior to September 30, 2020.
·
Provided for the allocation of 50% of the excess cash flow of the borrowers thereunder to the FF&E reserve starting in January 2021 and continuing until the FF&E reserve is replenished with $0.923 million.
·
Suspended the ability of the borrowers thereunder to make dividends and other distributions until the FF&E reserve is replenished.
﻿
On May 13, 2020, the Company entered into the Seventh Amendment to its credit facility with KeyBank which, among other things:
·
Increased the commitments under the credit facility from $102.0 million to $136.08 million and provided for an additional advance in order to refinance the New Term Loan related to the Aloft hotel located in downtown Atlanta, Georgia. At the closing of the amendment, the Company borrowed $34.08 million
			
		
under the credit facility to repay the New Term Loan and the hotel was added to the collateral pool of hotels securing the credit facility.
·
Increased the floor to LIBOR for purposes of calculating the applicable interest rate under the credit facility from 0.25% to 0.50%.
﻿
On May 13, 2020, the Company entered into an amendment to its loan agreement with Great Western Bank which, among other things, provides for the following modifications to the debt service coverage ratio covenant for the Leawood, Kansas Aloft collateral:
·
Reduced the pre-distribution covenant from 1.35x to 1.00x for March 31, 2021 and June 30, 2021.
·
Reduced the post-distribution covenant from 1.05x to 1.00x for March 31, 2021 and June 30, 2021.
·
Provided for the use of annualized results for purposes of measuring the covenants through March 31, 2021.
﻿
On July 20, 2020, the Company entered into an agreement with Great Western Bank to defer the monthly principal and interest payments due under the loans on July 1, 2020, August 1, 2020, and September 1, 2020 until the maturity date in December 2021.
﻿
On November 16, 2020, the Company entered into the Eighth Amendment to its credit facility with KeyBank which extended the initial testing date for the financial covenants on debt yield and fixed charge coverage ratio to November 30, 2020.
﻿
On November 19, 2020, the Company entered into the Ninth Amendment to its credit facility with KeyBank which, among other things:
·
Set the size of the credit facility provided at $130.0 million (of which $4.0 million is reserved for the payment of interest under the credit facility) and reinstated the ability to reborrow under the credit facility for (a) payment of interest and fees due under the credit facility and (b) funding any shortfalls to an approved budget for the Company. The Ninth Amendment requires that $10.0 million of proceeds from subordinated debt and $2.0 million of released FF&E reserves be used to repay loans outstanding under the credit facility, thereby reducing the balance outstanding under the credit facility to approximately $116.6 million. As a result, approximately $13.4 million was available on the date of the amendment for borrowing under the credit facility (of which $4.0 million is reserved for the payment of interest under the credit facility).
·
Extended the maturity date of the credit facility to January 2, 2023.
·
Implemented a borrowing base debt service coverage ratio (ratio of adjusted net operating income from borrowing base properties to debt service for the credit facility (assuming a 30 year amortization)) equal to (a) 1.00 to 1 as of the end of the fiscal quarters ending September 30, 2021 and December 31, 2021, (b) 1.25 to 1 as of the end of the fiscal quarters ending March 31, 2022 and June 30, 2022 and (c) 1.50 to 1 as of the end of the fiscal quarter ending September 30, 2022 and each fiscal quarter thereafter. For purposes of calculating compliance with the covenant, annualized results are used until June 30, 2022 when the calculation is based on the most recently ended four fiscal quarters.
·
Modified the fixed charge coverage ratio (ratio of adjusted consolidated EBITDA to consolidated fixed charges) to (a) 1.00 to 1 as of the end of the fiscal quarters ending September 30, 2021 and December 31, 2021, (b) 1.25 to 1 as of the end of the fiscal quarters ending March 31, 2022 and June 30, 2022 and (c) 1.50 to 1 as of the end of the fiscal quarter ending September 30, 2022 and each fiscal quarter thereafter. For purposes of calculating compliance with the covenant, annualized results are used until June 30, 2022 when the calculation is based on the most recently ended four fiscal quarters.
·
Modified the maximum borrowing base leverage ratio (ratio of indebtedness outstanding under the credit facility to borrowing base asset value (based on updated as-stabilized appraisals) of 65%. The covenant is first tested on March 31, 2022.
·
Implemented a minimum liquidity covenant of $3.0 million. In addition, the Ninth Amendment provided that if liquidity is below $6.0 million, (a) the agent may engage a financial advisor to advise it with respect to the Company and the credit facility, (b) a $2.0 million interest reserve must be maintained, (c) certain reporting must be completed on a weekly basis and (d) advances under the credit facility can only be made and applied pursuant to a cash flow waterfall. The Ninth Amendment also permitted the incurrence of subordinated debt to increase liquidity.
·
Created an event of default if the convertible notes issued in 2020 (see discussion of 2020 Convertible Promissory Notes below) are not either converted to common stock or paid in full (subject to the terms of a subordination and standstill agreement in favor of KeyBank) by July 1, 2021.
			
		
·
Eliminated a previously implemented cash flow sweep / cash flow waterfall with respect to the use of available cash.
·
Prohibited the payment of dividends; provided, that the Company can (a) make an initial dividend that does not exceed 50% of the funds available for distribution for the prior three fiscal quarters and (b) make subsequent dividends that do not (in the aggregate) exceed 50% of the funds available for distribution for any period of four consecutive fiscal quarters. Any such dividend is subject to satisfaction of certain conditions, including (a) that no default has occurred and is continuing (or would occur as a result of the dividend), (b) that new appraisals or updates to existing appraisals are obtained with respect to the borrowing base properties, (c) that any preferred dividend must be included in the calculation of fixed charges as if paid in the preceding fiscal quarter, (d) that the Company must maintain at least $10 million of liquidity (after the dividend), (e) that the Company must maintain a 1.50 to 1 fixed charge coverage ratio for each of the prior three fiscal quarters and (f) that the Company must maintain a borrowing base leverage ratio of 60% or less.
·
Eliminated the financial covenants regarding debt yield and consolidated leverage ratio.
·
Expanded certain reporting obligations.
﻿
On December 2, 2020, the Company provided notice to Great Western Bank extending the maturity date of the loans to December 1, 2023. On December 24, 2020, the Company’s loans with Great Western Bank were purchased by OSK X, LLC, an equity fund affiliate of O’Brien Stanley Partners.
﻿
2020 Convertible Promissory Notes
﻿
On November 19, 2020, the Company entered into separate Convertible Promissory Notes and Loan Agreements (the “Notes”) in favor of (a) SREP III Flight-Investco 2, L.P. (“SREP”), an affiliate of StepStone Group LP, for $7.22 million, and (b) Efanur S.A. (“Efanur”), an affiliate of IRSA Inversiones y Representaciones Sociedad Anónima, for $2.78 million. Pursuant to the Notes, the Company borrowed $10.0 million from SREP and Efanur and used the proceeds to repay loans outstanding under the credit facility. Each of the Notes matures upon the earliest to occur of (a) the closing of a Rights Offering (as defined below) or a Non-Rights Offering Conversion (as defined below) in an amount equal to the outstanding principal balance of the respective Note, (b) the acceleration of the respective Note on or after the occurrence of an Event of Default (as defined in the respective Note) and (c) January 2, 2023.
﻿
Each of the Notes accrues interest at 10.00% per annum (exclusive of any portion of the principal that is used in a Rights Offering and, in the case of the Note in favor of SREP, any backstop commitment), provides for the interest rate to increase to 20% upon an Event of Default or if any amounts under the applicable Note are outstanding after May 31, 2021, provides for the capitalization of interest, and provides for the payment of all accrued and unpaid interest and principal on the maturity date. Each of the Notes also provides, subject to a Make Whole Fee (as defined in the respective Note) payable to SREP and Efanur, as applicable, for the interest rate to increase to 25% upon a determination by the disinterested members of the board of directors of the Company (a) not to proceed with, or to terminate, a Rights Offering, (b) to prohibit a Non-Rights Offering Conversion or (c) not to seek shareholder approval of the transactions contemplated by the Notes, including the issuance of shares of common stock of the Company and the conversion price (“Shareholder Approval”), because the failure to make any such determination would reasonably be expected to constitute a breach of the directors’ duties under Maryland law (a “Board Decision”).
﻿
Subject to receipt of Shareholder Approval or a Board Decision, SREP and Efanur may elect to convert the principal due under the applicable Note into common stock of the Company in connection with any future rights offering commenced by the Company for 4,000,000 shares of common stock of the Company at a price of $2.50 per share (a “Rights Offering”). Pursuant to the Note in favor of SREP, the Company has committed to offer to SREP the option to purchase any shares of common stock of the Company underlying any unexercised rights in any such Rights Offering. As discussed previously, the Company and SREP have entered into a backstop agreement related to the Rights Offering.
﻿
If any amounts remain unpaid on the applicable Note after May 31, 2021 (or, if earlier, the termination, rescission or rejection of the Rights Offering), subject to receipt of Shareholder Approval or a Board Decision, SREP and Efanur may elect to convert the principal due under the applicable Note into 4,000,000 shares of common stock of the Company at a price of $2.50 per share (a “Non-Rights Offering Conversion”).
﻿
The issuance of shares in a Rights Offering or Non-Rights Offering Conversion received requisite Shareholder Approval at a special meeting of shareholders on January 18, 2021.
			
		
﻿
In the event of a Board Decision in order to accept an unsolicited cash offer for newly issued common stock or securities convertible into common stock of the Company, then upon consummation of any such sale, the Company is required to pay SREP and Efanur a Make Whole Fee as set forth in their respective Note.
﻿
SREP and Efanur have entered into separate subordination and standstill agreements with KeyBank that govern the rights of SREP and Efanur, as applicable, to seek payment under and enforce remedies under the applicable Note.
﻿
Financial Covenants
﻿
We are required to satisfy various financial covenants within our debt agreements, including the following financial covenants within our credit facility with KeyBank:
·
Borrowing Base Debt Service Coverage Ratio: The ratio of adjusted net operating income from borrowing base properties to debt service for the credit facility (assuming a 30 year amortization) must be equal to or greater than (a) 1.00 to 1 as of the end of the fiscal quarters ending September 30, 2021 and December 31, 2021, (b) 1.25 to 1 as of the end of the fiscal quarters ending March 31, 2022 and June 30, 2022 and (c) 1.50 to 1 as of the end of the fiscal quarter ending September 30, 2022 and each fiscal quarter thereafter. For purposes of calculating compliance with the covenant, annualized results are used until June 30, 2022 when the calculation is based on the most recently ended four fiscal quarters.
·
Fixed Charge Coverage Ratio: The ratio of adjusted consolidated EBITDA to consolidated fixed charges must be equal to or greater than (a) 1.00 to 1 as of the end of the fiscal quarters ending September 30, 2021 and December 31, 2021, (b) 1.25 to 1 as of the end of the fiscal quarters ending March 31, 2022 and June 30, 2022 and (c) 1.50 to 1 as of the end of the fiscal quarter ending September 30, 2022 and each fiscal quarter thereafter. For purposes of calculating compliance with the covenant, annualized results are used until June 30, 2022 when the calculation is based on the most recently ended four fiscal quarters.
·
Borrowing Base Leverage Ratio: The ratio of indebtedness outstanding under the credit facility to borrowing base asset value (based on updated as-stabilized appraisals) cannot exceed 65%. The covenant is first tested on March 31, 2022.
·
Minimum Liquidity: Liquidity must be greater than or equal to $3.0 million. In addition, the Ninth Amendment provided that if liquidity is below $6.0 million, (a) the agent may engage a financial advisor to advise it with respect to the Company and the credit facility, (b) a $2.0 million interest reserve must be maintained, (c) certain reporting must be completed on a weekly basis and (d) advances under the credit facility can only be made and applied pursuant to a cash flow waterfall.
﻿
We are also required to satisfy a debt yield financial covenant within our loan agreement relating to the three properties financed by Wells Fargo Bank. The loan agreement provides that if the Company fails to satisfy a debt yield (adjusted net cash flow / outstanding principal amount of the loan) of 10% at the end of any fiscal quarter, then a cash trap occurs. During a cash trap, the revenue generated from the hotels is directed to an account controlled by the lender and used to pay certain hotel expenses and debt service costs and fund certain reserves. Any excess funds are held by the lender as additional collateral. Failure to satisfy the debt yield and the occurrence of a cash trap do not constitute a default under the loan agreement.
﻿
In connection with the first amendment to the loan agreement entered into in May 2020, measurement of the debt yield was suspended until the measurement date occurring on March 31, 2021. The Company does not currently expect that it will satisfy the debt yield as of March 31, 2021 and that a cash trap will occur. Any cash trap will expire when the debt yield is equal to or greater than 10.5%.
﻿
We are also required to satisfy various financial covenants within our loan agreement with OSK X, LLC relating to the Leawood, Kansas Aloft, including the following:
·
Property-Specific Pre-Distribution Debt Service Coverage Ratio. The ratio of adjusted net operating income for the Leawood, Kansas Aloft (before distributions) to debt service for the loans must be equal to or greater than (a) 1.00 to 1 as of the end of the fiscal quarters ending December 31, 2020, March 31, 2021 and June 30, 2021 and (b) 1.35 to 1 as of the end of the fiscal quarter ending September 30, 2021 and each fiscal quarter thereafter. For purposes of calculating compliance with the covenant, annualized results are used until June 30, 2021 when the calculation is based on the most recently ended four fiscal quarters.
·
Property-Specific Post-Distribution Debt Service Coverage Ratio. The ratio of adjusted net operating income for the Leawood, Kansas Aloft (after distributions) to debt service for the loans must be equal to or greater than (a) 1.00 to 1 as of the end of the fiscal quarters ending December 31, 2020, March 31, 2021 and June 30, 2021 and (b) 1.35 to 1 as of the end of the fiscal quarter ending September 30, 2021 and each
			
		
fiscal quarter thereafter. For purposes of calculating compliance with the covenant, annualized results are used until June 30, 2021 when the calculation is based on the most recently ended four fiscal quarters.
·
Consolidated Debt Service Coverage Ratio. The ratio of consolidated adjusted net operating income for the Company to consolidated debt service must be equal to or greater than 1.05 to 1.
﻿
Certain of the terms used in the foregoing descriptions of the financial covenants within our credit facility and loan agreement have the meanings given to them in the credit facility and loan agreement, and certain of the financial covenants are subject to pro forma adjustments for acquisitions and sales of hotel properties and for specific capital events.
﻿
As a result of the actual and anticipated unprecedented negative impact of the COVID-19 virus on the hotel industry generally, the Company has received waivers of compliance with financial covenants from various lenders (including Great Western Bank with respect to the Leawood, Kansas Aloft) for the first three quarters of 2020. The Company and certain of its other lenders have also modified various financial covenants by suspending measurements, providing for lower covenants and/or using annualized results (including Great Western Bank with respect to the Leawood, Kansas Aloft).
﻿
On December 24, 2020, the Company’s loans with Great Western Bank (financing the Leawood, Kansas Aloft) with a December 31, 2020 balance of $14.1 million, were purchased by OSK X, LLC, an equity fund affiliate of O’Brien Staley Partners. The Company did not satisfy the financial covenants for these loans as of December 31, 2020, as was the case for the first three quarters of 2020. The Company has been advised by OSK X, LLC that it is in default for failure to comply with the financial covenants as of December 31, 2020 (unlike Great Western Bank that waived the covenants for the first three quarters of 2020). The Company is continuing to negotiate with OSK X, LLC to obtain waivers.
﻿
The loan documents with OSK X, LLC provide (a) that the Company has a 90 day cure period (ending on May 27, 2021) within which it can cure the defaults and (b) that OSK X, LLC is precluded from accelerating the loans and taking any action to foreclose on the Leawood, Kansas Aloft during the cure period. The Company also believes that there are serious questions under applicable law about whether OSK X, LLC has the ability to declare a default, accelerate the loans or foreclose on the Leawood, Kansas Aloft due to the impossibility of performance of financial covenants during the COVID-19 pandemic. The Company is diligently pursuing commitments from lenders to refinance the loans with OSK X, LLC during the cure period.
﻿
The Company intends to seek any available damages in the event of litigation that may result from the actions of OSK X, LLC.
﻿
If we fail to pay our indebtedness when due, fail to comply with covenants or otherwise default on our loans, unless waived, we could incur higher interest rates during the period of such loan defaults, be required to immediately pay our indebtedness, and ultimately lose our hotels through lender foreclosure if we are unable to obtain alternative sources of financing with acceptable terms. Our credit facility contains cross-default provisions which would allow the lenders under our credit facility to declare a default and accelerate our indebtedness to them if we default on our other loans and such default would permit that lender to accelerate our indebtedness under any such loan. The above-described defaults under our loan agreement with OSK X, LLC will not result in a cross-default under our credit facility until the 90-day cure period with respect to those defaults expires on May 27, 2021. As indicated above, the Company is diligently pursuing commitments from lenders to refinance the loans with OSK X, LLC in order to cure those defaults during the cure period.
﻿
As of December 31, 2020, other than with respect to our financial covenants for OSK X, LLC (as discussed above), we are not in default of any of our loans.
﻿
Contractual Obligations
﻿
Below is a summary of certain obligations that will require capital as of December 31, 2020 and the effect such obligations are expected to have on our future liquidity and cash flows (in thousands):
﻿
﻿
﻿
﻿
						
						
						
						
						
						
						
						
						
						
						
						
						
						
						
Contractual obligations
						
Total
						
						
2022-2023
						
2024-2025
						
2026 and After
Long-term debt including interest (1)
						
$
183,120 				
						
$
8,290 				
						
$
166,751 				
						
$
8,079 				
						
$
-
Equipment leases
						
						
				
						
						
				
						
						
				
						
						
				
						
						
				
Total contractual obligations
						
$
183,194 				
						
$
8,311 				
						
$
166,775 				
						
$
8,087 				
						
$
				
﻿
						
						
						
						
						
						
						
						
						
						
						
						
						
						
						
(1)
Interest rate payments on our variable rate debt have been estimated using interest rates in effect at December 31, 2020.
			
		
﻿
We have various standing or renewable contracts with vendors. These contracts are all cancelable with immaterial or no cancellation penalties. Contract terms are generally one year or less. We also have management agreements in place for the management and operation of our hotel properties.
﻿
Inflation
﻿
We rely on the performance of our hotels to increase revenues to keep pace with inflation. Generally, our hotel operators possess the ability to adjust room rates daily to reflect the effects of inflation. However, competitive pressures may limit the ability of our management companies to raise room rates.
﻿
Off Balance Sheet Financing Transactions
﻿
We have not entered into any off balance sheet financing transactions.
﻿
Critical Accounting Policies
﻿
Our consolidated financial statements have been prepared in conformity with U.S. GAAP, which requires management to make estimates and assumptions that effect 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. While we do not believe the reported amounts would be materially different, application of these policies involves the exercise of judgment and the use of assumptions as to future uncertainties and, as a result, actual results could differ from these estimates. We evaluate our estimates and judgments on an ongoing basis. We base our estimates on experience and on various other assumptions that are believed to be reasonable under the circumstances.
﻿
Critical accounting policies are those that are both important to the presentation of our financial condition and results of operations and require management’s most difficult, complex, or subjective judgments. We have identified the following principal accounting policies that have a material effect on our consolidated financial statements.
﻿
Investment in Hotel Properties
﻿
At the time of acquisition, the Company allocates the purchase price of assets to asset classes based on the fair value of the acquired real estate, furniture, fixtures, and equipment, and intangible assets, if any, and the fair value of liabilities assumed, including debt. Acquisition date fair values are determined based on replacement costs, appraised values, and estimated fair values using methods similar to those used by independent appraisers including discounted cash flows and capitalization rates.
﻿
Effective January 1, 2018, we adopted Financial Accounting Standards Board (“FASB”) Accounting Standards Update (“ASU”) No. 2017-01, Clarifying the Definition of a Business. As such, if substantially all of the fair value of the gross assets acquired are concentrated in a single identifiable asset or group of similar identifiable assets, the set is not considered a business. When we conclude that an acquisition meets this threshold, acquisition costs will be capitalized as part of our allocation of the purchase price of the acquired hotel properties. This guidance is applied prospectively. We concluded that all hotel acquisitions in 2018 and the Company’s purchase of the remaining 20% of the Atlanta JV completed in 2020 were acquisitions of assets and as such acquisition costs were capitalized as part of these transactions.
﻿
The Company’s investments in hotel properties are recorded at cost and are depreciated using the straight-line method over an estimated useful life of 15 to 40 years for buildings and improvements and 3 to 12 years for furniture and equipment.
﻿
Renovations and/or replacements that improve or extend the life of the hotel properties are capitalized and depreciated over their useful lives. Repairs and maintenance are expensed as incurred.
﻿
The initial fees incurred to enter into the franchise agreements are capitalized and amortized over the life of the franchise agreements using the straight-line method. Amortization expense is included in depreciation and amortization in the consolidated statements of operations.
﻿
On an ongoing basis, the Company reviews the carrying value of each held for use hotel to determine if certain circumstances, known as triggering events, exist indicating impairment to the carrying value of the hotel or that
			
		
depreciation periods should be modified. These triggering events include a significant change in the cash flows of or a significant adverse change in the business climate for a hotel. If facts or circumstances support the possibility of impairment, the Company will prepare an estimate of the undiscounted future cash flows, without interest charges, of the specific hotel and determine if the investment in such hotel is recoverable based on these undiscounted future cash flows. In the evaluation of impairment of its hotel properties, the Company makes many assumptions and estimates including projected cash flows both from operations and eventual disposal, expected useful life and holding period, future required capital expenditures, and terminal capitalization rates. If the investment is not recoverable based on this analysis, an impairment charge will be taken, if necessary, to reduce the carrying value of the hotel to the hotel’s estimated fair value.
﻿
Assets Held for Sale
﻿
A hotel is considered held for sale (a) when a contract for sale is entered into, a substantial, nonrefundable deposit has been committed by the purchaser, and sale is expected to occur within one year, or (b) if management has committed to and is actively engaged in a plan to sell the property, the property is available for sale in its current condition, and it is probable the sale will be completed within one year. If a hotel is considered held for sale as of the most recent balance sheet presented or was sold in any period presented, the hotel property and the debt it collateralizes are shown as held for sale in all periods presented. Depreciation of our hotels is discontinued at the time they are considered held for sale.
﻿
At the end of each reporting period, if the fair value of the held for sale property less costs to sell is lower than the carrying value of the hotel, the Company will record an impairment loss. Impairment losses on held for sale properties may be subsequently recovered up to the amount of the cumulative impairment losses taken while the property is held for sale should future revisions to fair value estimates be required. If active marketing ceases or the property no longer meets the criteria to be classified as held for sale, the property is reclassified to held for use and measured at the lower of its (a) carrying amount before the property was classified as held for sale, adjusted for any depreciation expense that would have been recognized had the property been continuously classified as held for use, or (b) its fair value at the date of the subsequent decision not to sell.
﻿
Gains on the sale of real estate are recognized when a property is sold or are deferred and recognized as income in subsequent periods as conditions requiring deferral are satisfied or expire without further cost to us.
﻿

---

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
﻿
Market risk includes risks that arise from changes in interest rates, foreign currency exchange rates, commodity prices, equity prices, and other market changes that effect market-sensitive instruments. At December 31, 2020, our market risk arises primarily from interest rate risk relating to variable rate borrowings and the market risk related to our convertible debt and the risk that its fair value will fluctuate following changes in the Company’s common stock price or changes in interest rates.
﻿
Interest Rate Sensitivity
﻿
We seek to limit the impact of interest rate changes on earnings and cash flows and to lower our overall borrowing costs by closely monitoring our variable rate debt and converting such debt to fixed rates when we deem such conversion advantageous. From time to time, we may enter into interest rate swap agreements or other interest rate hedging agreements. At December 31, 2020, we have an interest rate swap in place which effectively locks the variable interest rate on our Wells Fargo debt (December 31, 2020 balance of $25.4 million) at 4.44%. We do not intend to enter into derivative or interest rate transactions for speculative purposes.
﻿
			
		
The table below provides information about financial instruments that are sensitive to changes in interest rates. The table presents scheduled maturities, including the amortization of principal and related weighted-average interest rates for the debt maturing in each specified period (dollars in thousands) as of December 31, 2020. For the purposes of this presentation, the Wells Fargo debt is considered fixed rate debt as the variable interest rate is effectively locked with the previously discussed interest rate swap.
﻿
﻿
﻿
﻿
﻿
						
						
						
						
						
						
						
						
						
						
						
						
						
						
						
						
						
						
						
						
						
						
						
						
						
						
						
						
﻿
						
						
						
						
						
						
Thereafter
						
Total
Fixed rate debt
						
$
1,412 				
						
						
$
27,686 				
						
						
$
13,280 				
						
						
$
7,840 				
						
						
$
-
						
						
$
-
						
						
$
50,218 				
						
Average fixed interest rate
						
						
3.55 				
%
						
						
4.20 				
%
						
						
4.33 				
%
						
						
4.54 				
%
						
						
-
%
						
						
-
%
						
						
4.27 				
%
Variable rate debt
						
$
-
						
						
$
-
						
						
$
118,114 				
						
						
$
-
						
						
$
-
						
						
$
-
						
						
$
118,114 				
						
Average variable interest rate
						
						
-
%
						
						
-
%
						
						
4.00 				
%
						
						
-
%
						
						
-
%
						
						
-
%
						
						
4.00 				
%
Total debt
						
$
1,412 				
						
						
$
27,686 				
						
						
$
131,394 				
						
						
$
7,840 				
						
						
$
-
						
						
$
-
						
						
$
168,332 				
						
Total average interest rate
						
						
3.55 				
%
						
						
4.20 				
%
						
						
4.03 				
%
						
						
4.54 				
%
						
						
-
%
						
						
-
%
						
						
4.08 				
%
﻿
At December 31, 2020, approximately 29.8% of our outstanding debt is subject to fixed interest rates or effectively locked with an interest rate swap, while 70.2% of our debt is subject to floating rates. Assuming no increase in the level of our variable debt outstanding at December 31, 2020 and after giving effect to our interest rate swap, if interest rates increased by 1.0% our cash flow related to hotel properties held for use would decrease by approximately $0.7 million per year.
﻿
			
		
Condor Hospitality Trust, Inc. and Subsidiaries
Index to Consolidated Financial Statements and Schedule III
﻿
﻿
						
﻿
Page
﻿Report of Independent Registered Public Accounting Firm
﻿
						
﻿Consolidated Balance Sheets as of December 31, 2020 and 2019
﻿
						
﻿Consolidated Statements of Operations for years ended December 31, 2020, 2019, and 2018
﻿
						
﻿Consolidated Statements of Equity for the years ended December 31, 2020, 2019, and 2018
﻿
						
﻿Consolidated Statements of Cash Flows for the years ended December 31, 2020, 2019, and 2018
﻿
						
﻿Notes to Consolidated Financial Statements
﻿
						
﻿Schedule III - Real Estate and Accumulated Depreciation
﻿
						
﻿Notes to Schedule III - Real Estate and Accumulated Depreciation
﻿
			
		
Report of Independent Registered Public Accounting Firm
﻿
To the Stockholders and Board of Directors
Condor Hospitality Trust, Inc.:
﻿
Opinion on the Consolidated Financial Statements
﻿
We have audited the accompanying consolidated balance sheets of Condor Hospitality Trust, Inc. and subsidiaries (the Company) as of December 31, 2020 and 2019, the related consolidated statements of operations, equity, and cash flows for each of the years in the three-year period ended December 31, 2020, and the related notes and financial statement schedule III - Real Estate and Accumulated Depreciation (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2020, in conformity with U.S. generally accepted accounting principles.
﻿
Going Concern
﻿
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the Company has not met its financial covenants under a mortgage agreement as of December 31, 2020 and is currently in default on that mortgage, which under certain conditions may also result in a potential default on its credit facility due to a cross-default clause within the credit facility, which raises substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
﻿
Basis for Opinion
﻿
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
The assessment of hotel properties for potential impairment
As discussed in Note 1 to the consolidated financial statements, the Company reviews the carrying value of each held for use hotel property to determine if certain circumstances, known as triggering events, exist
			
		
indicating potential impairment to the carrying value. These triggering events include a significant change in the cash flows or holding period or a significant adverse change in the business climate for a hotel property. If a triggering event exists, the Company will prepare an estimate of the undiscounted future cash flows of the specific hotel property and determine if the investment in such hotel is recoverable based on these undiscounted future cash flows. In the evaluation of impairment of its hotel properties, the Company makes many assumptions and estimates when preparing projected cash flows both from operations and eventual disposition, including estimated hold period and expected terminal capitalization rates. The novel coronavirus (COVID-19) has reduced travel significantly and adversely affected the hospitality industry and resulted in a recoverability analysis being performed by the Company on all of the Company’s hotel properties. In addition, COVID-19 has increased uncertainty in future cash flow projections and hold periods. Investment in hotel properties was $266 million, or 97% of total assets as of December 31, 2020.
We identified the assessment of hotel properties for potential impairment as a critical audit matter. Significant auditor judgment was required to evaluate certain key assumptions, specifically, the judgments related to the Company’s estimated holding period, expected terminal capitalization rate, and projected undiscounted cash flows from operations, including the effects of COVID-19 and the resulting duration of the economic downturn. Changes in these judgments could have a significant impact on the determination of the recoverability of the carrying amount of the Company’s investments in its hotel properties.
The following are the primary procedures we performed to address this critical audit matter. We evaluated the Company’s projected cash flows by comparing it to information published in third-party industry reports evaluating the impact of COVID-19 on the hotel industry, including the resulting duration of the economic downturn. We evaluated the Company’s expected terminal capitalization rates by comparing to published third-party industry reports as well as the Company’s historical property sales. We assessed the Company’s estimated holding period by inquiring with Company management and those responsible for disposition activities and comparing to relevant documentation of its plans and inspecting documents, such as minutes of the board of directors. We also performed a sensitivity analysis over the projected cash flows, estimated hold period and the expected terminal capitalization rates of the Company’s hotel properties to assess the impact on the Company’s recoverability analysis.
﻿
(signed) KPMG LLP
﻿
We have served as the Company’s auditor since 2001.
﻿
McLean, Virginia
March 18, 2021
Condor Hospitality Trust, Inc. and Subsidiaries
Consolidated Balance Sheets
(In thousands, except share and per share data)
			
		
﻿
﻿
﻿
﻿
						
						
						
						
						
						
﻿
						
						
As of December 31,
﻿
						
						
﻿
						
						
						
						
						
						
Assets
						
						
						
						
						
						
Investment in hotel properties, net
						
$
265,831 				
						
$
222,063 				
Investment in unconsolidated joint venture
						
						
-
						
						
4,244 				
Cash and cash equivalents
						
						
3,686 				
						
						
2,584 				
Restricted cash, property escrows
						
						
3,794 				
						
						
5,811 				
Accounts receivable, net
						
						
				
						
						
1,099 				
Prepaid expenses and other assets
						
						
1,230 				
						
						
1,118 				
Derivative assets, at fair value
						
						
-
						
						
				
Total Assets
						
$
275,193 				
						
$
236,941 				
﻿
						
						
						
						
						
						
Liabilities and Equity
						
						
						
						
						
						
﻿
						
						
						
						
						
						
Liabilities
						
						
						
						
						
						
Accounts payable, accrued expenses, and other liabilities
						
$
5,372 				
						
$
5,523 				
Dividends and distributions payable
						
						
				
						
						
				
Land option liability
						
						
8,497 				
						
						
-
Derivative liabilities, at fair value
						
						
				
						
						
				
Convertible debt, at fair value
						
						
16,875 				
						
						
1,080 				
Long-term debt, net of deferred financing costs
						
						
166,526 				
						
						
134,001 				
Total Liabilities
						
						
198,912 				
						
						
141,115 				
﻿
						
						
						
						
						
						
Equity
						
						
						
						
						
						
Shareholders' Equity
						
						
						
						
						
						
Preferred stock, 40,000,000 shares authorized:
						
						
						
						
						
						
6.25% Series E, 925,000 shares authorized, $.01 par value, 925,000 shares outstanding, liquidation preference of $10,012 and $9,395
						
						
10,050 				
						
						
10,050 				
Common stock, $.01 par value, 200,000,000 shares authorized;12,014,743 and 11,993,608 shares outstanding
						
						
				
						
						
				
Additional paid-in capital
						
						
233,332 				
						
						
233,189 				
Accumulated deficit
						
						
(167,263) 				
						
						
(147,582) 				
Total Shareholders' Equity
						
						
76,239 				
						
						
95,777 				
Noncontrolling interest in consolidated partnership (Condor Hospitality Limited Partnership), redemption value of $17 and $47
						
						
				
						
						
				
Total Equity
						
						
76,281 				
						
						
95,826 				
﻿
						
						
						
						
						
						
Total Liabilities and Equity
						
$
275,193 				
						
$
236,941 				
﻿
See accompanying notes to consolidated financial statements.
			 		
Condor Hospitality Trust, Inc. and Subsidiaries
Consolidated Statements of Operations
(In thousands, except per share data)
			
		
﻿
﻿
﻿
﻿
﻿
﻿
asd
﻿
						
						
						
						
						
						
						
						
						
﻿
						
Year ended December 31,
﻿
						
						
						
Revenue
						
						
						
						
						
						
						
						
						
Room rentals and other hotel services
						
$
35,188 				
						
$
61,052 				
						
$
65,057 				
Operating Expenses
						
						
						
						
						
						
						
						
						
Hotel and property operations
						
						
29,563 				
						
						
38,769 				
						
						
41,008 				
Depreciation and amortization
						
						
10,956 				
						
						
9,568 				
						
						
9,475 				
General and administrative
						
						
4,006 				
						
						
5,700 				
						
						
6,217 				
Acquisition and terminated transactions
						
						
-
						
						
				
						
						
				
Strategic alternatives, net
						
						
(4,706) 				
						
						
2,110 				
						
						
-
Total operating expenses
						
						
39,819 				
						
						
56,185 				
						
						
56,905 				
Operating income (loss)
						
						
(4,631) 				
						
						
4,867 				
						
						
8,152 				
Net gain (loss) on disposition of assets
						
						
(18) 				
						
						
(36) 				
						
						
5,570 				
Equity in earnings (loss) of joint venture
						
						
				
						
						
				
						
						
(218) 				
Net gain (loss) on derivatives and convertible debt
						
						
(6,331) 				
						
						
(1,071) 				
						
						
				
Other expense, net
						
						
(65) 				
						
						
(104) 				
						
						
(83) 				
Interest expense
						
						
(8,481) 				
						
						
(7,976) 				
						
						
(8,326) 				
Impairment recovery, net
						
						
-
						
						
-
						
						
				
Earnings (loss) before income taxes
						
						
(19,446) 				
						
						
(4,130) 				
						
						
5,505 				
Income tax benefit (expense)
						
						
				
						
						
(937) 				
						
						
(335) 				
Net earnings (loss)
						
						
(19,071) 				
						
						
(5,067) 				
						
						
5,170 				
Loss attributable to noncontrolling interest
						
						
				
						
						
				
						
						
				
Net earnings (loss) attributable to controlling interests
						
						
(19,064) 				
						
						
(5,048) 				
						
						
5,365 				
Dividends declared and undeclared on preferred stock
						
						
(617) 				
						
						
(578) 				
						
						
(578) 				
Net earnings (loss) attributable to common shareholders
						
$
(19,681) 				
						
$
(5,626) 				
						
$
4,787 				
﻿
						
						
						
						
						
						
						
						
						
﻿
						
						
						
						
						
						
						
						
						
﻿
						
						
						
						
						
						
						
						
						
Earnings (Loss) per Share
						
						
						
						
						
						
						
						
						
Total - Basic Earnings (Loss) per Share
						
$
(1.59) 				
						
$
(0.48) 				
						
$
0.40 				
Total - Diluted Earnings (Loss) per Share
						
$
(1.59) 				
						
$
(0.48) 				
						
$
0.40 				
﻿
See accompanying notes to consolidated financial statements.
﻿
﻿
﻿
			 		
Condor Hospitality Trust, Inc. and Subsidiaries
Consolidated Statements of Equity
(In thousands, except per share data)
﻿
﻿
﻿
						
						
						
						
						
						
						
						
						
						
						
						
						
						
						
						
						
						
						
						
						
						
						
						
						
						
﻿
Years ended December 31, 2020, 2019, and, 2018
﻿
Shares of preferred stock
						
Preferred stock
						
Shares of common stock
						
Common stock
						
Additional paid-in capital
						
Accumulated deficit
						
Total shareholders' equity
						
Noncontrolling interest
						
Total equity
Balance at December 31, 2017
						
				
						
$
10,050 				
						
						
11,834 				
						
$
				
						
$
230,727 				
						
$
(130,489) 				
						
$
110,406 				
						
$
1,408 				
						
$
111,814 				
Stock-based compensation
						
-
						
						
-
						
						
				
						
						
-
						
						
				
						
						
-
						
						
				
						
						
-
						
						
				
Issuance of common stock
						
-
						
						
-
						
						
				
						
						
				
						
						
				
						
						
-
						
						
				
						
						
-
						
						
				
Issuance of common units
						
-
						
						
-
						
						
-
						
						
-
						
						
-
						
						
-
						
						
-
						
						
				
						
						
				
Dividends and distributions declared
						
						
						
						
						
						
						
						
						
						
						
						
						
						
						
						
						
						
						
						
						
						
						
						
						
						
Common Stock ($0.78 per share)
						
-
						
						
-
						
						
-
						
						
-
						
						
-
						
						
(9,268) 				
						
						
(9,268) 				
						
						
-
						
						
(9,268) 				
Series E Preferred Stock
						
-
						
						
-
						
						
-
						
						
-
						
						
-
						
						
(578) 				
						
						
(578) 				
						
						
-
						
						
(578) 				
Common Units ($0.015 per unit)
						
-
						
						
-
						
						
-
						
						
-
						
						
-
						
						
-
						
						
-
						
						
(67) 				
						
						
(67) 				
Redemption of common units
						
-
						
						
-
						
						
-
						
						
-
						
						
				
						
						
-
						
						
				
						
						
(348) 				
						
						
(298) 				
Net earnings
						
-
						
						
-
						
						
-
						
						
-
						
						
-
						
						
5,365 				
						
						
5,365 				
						
						
(195) 				
						
						
5,170 				
Balance at December 31, 2018
						
				
						
$
10,050 				
						
						
11,886 				
						
$
				
						
$
231,805 				
						
$
(134,970) 				
						
$
107,004 				
						
$
				
						
$
107,852 				
Stock-based compensation
						
-
						
						
-
						
						
				
						
						
-
						
						
				
						
						
-
						
						
				
						
						
-
						
						
				
Dividends and distributions declared and undeclared
						
						
						
						
						
						
						
						
						
						
						
						
						
						
						
						
						
						
						
						
						
						
						
						
						
						
Common Stock ($0.585 per share)
						
-
						
						
-
						
						
-
						
						
-
						
						
-
						
						
(6,986) 				
						
						
(6,986) 				
						
						
-
						
						
(6,986) 				
Series E Preferred Stock
						
-
						
						
-
						
						
-
						
						
-
						
						
-
						
						
(578) 				
						
						
(578) 				
						
						
-
						
						
(578) 				
Common Units ($0.011 per unit)
						
-
						
						
-
						
						
-
						
						
-
						
						
-
						
						
-
						
						
-
						
						
(23) 				
						
						
(23) 				
Redemption of common units
						
-
						
						
-
						
						
				
						
						
				
						
						
				
						
						
-
						
						
				
						
						
(757) 				
						
						
(42) 				
Net loss
						
-
						
						
-
						
						
-
						
						
-
						
						
-
						
						
(5,048) 				
						
						
(5,048) 				
						
						
(19) 				
						
						
(5,067) 				
Balance at December 31, 2019
						
				
						
$
10,050 				
						
						
11,994 				
						
$
				
						
$
233,189 				
						
$
(147,582) 				
						
$
95,777 				
						
$
				
						
$
95,826 				
Stock-based compensation
						
-
						
						
-
						
						
				
						
						
-
						
						
				
						
						
-
						
						
				
						
						
-
						
						
				
Dividends and distributions undeclared
						
						
						
						
						
						
						
						
						
						
						
						
						
						
						
						
						
						
						
						
						
						
						
						
						
						
Series E Preferred Stock
						
-
						
						
-
						
						
-
						
						
-
						
						
-
						
						
(617) 				
						
						
(617) 				
						
						
-
						
						
(617) 				
Net loss
						
-
						
						
-
						
						
-
						
						
-
						
						
-
						
						
(19,064) 				
						
						
(19,064) 				
						
						
(7) 				
						
						
(19,071) 				
Balance at December 31, 2020
						
				
						
$
10,050 				
						
						
12,015 				
						
$
				
						
$
233,332 				
						
$
(167,263) 				
						
$
76,239 				
						
$
				
						
$
76,281 				
﻿
﻿
See accompanying notes to consolidated financial statements.
			 		
Condor Hospitality Trust, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(In thousands)
			
		
﻿
﻿
﻿
						
						
						
						
						
						
						
						
﻿
Year ended December 31,
﻿
						
						
Cash flows from operating activities:
						
						
						
						
						
						
						
						
Net earnings (loss)
$
(19,071) 				
						
$
(5,067) 				
						
$
5,170 				
Adjustments to reconcile net earnings to net cash provided by operating activities:
						
						
						
						
						
						
						
						
Depreciation and amortization expense
						
10,956 				
						
						
9,568 				
						
						
9,475 				
Net (gain) loss on disposition of assets
						
				
						
						
				
						
						
(5,570) 				
Net (gain) loss on derivatives and convertible debt
						
6,331 				
						
						
1,071 				
						
						
(317) 				
Equity in (earnings) loss of joint venture
						
(80) 				
						
						
(190) 				
						
						
				
Distributions from cumulative earnings of joint venture
						
-
						
						
				
						
						
				
Amortization of deferred financing costs
						
1,210 				
						
						
1,267 				
						
						
1,443 				
Impairment recovery, net
						
-
						
						
-
						
						
(93) 				
Stock-based compensation expense
						
				
						
						
1,026 				
						
						
				
Provision for deferred taxes
						
(421) 				
						
						
				
						
						
				
Changes in operating assets and liabilities:
						
						
						
						
						
						
						
						
Decrease in assets
						
				
						
						
1,172 				
						
						
				
Decrease in liabilities
						
(449) 				
						
						
(622) 				
						
						
(1,665) 				
Net cash provided by (used in) operating activities
						
(802) 				
						
						
9,252 				
						
						
10,664 				
﻿
						
						
						
						
						
						
						
						
Cash flows from investing activities:
						
						
						
						
						
						
						
						
Additions to hotel properties
						
(605) 				
						
						
(1,475) 				
						
						
(1,982) 				
Distributions in excess of cumulative earnings from joint venture
						
				
						
						
1,643 				
						
						
1,475 				
Hotel acquisitions
						
(7,193) 				
						
						
-
						
						
(35,643) 				
Net proceeds from sale of hotel assets
						
				
						
						
4,191 				
						
						
19,696 				
Net cash provided by (used in) investing activities
						
(7,314) 				
						
						
4,359 				
						
						
(16,454) 				
﻿
						
						
						
						
						
						
						
						
Cash flows from financing activities:
						
						
						
						
						
						
						
						
Deferred financing costs
						
(1,660) 				
						
						
(415) 				
						
						
(147) 				
Proceeds from long-term debt
						
47,264 				
						
						
1,500 				
						
						
35,318 				
Principal payments on long-term debt
						
(48,369) 				
						
						
(5,281) 				
						
						
(20,265) 				
Proceeds from common stock issuance
						
-
						
						
-
						
						
				
Proceeds from convertible debt
						
10,000 				
						
						
-
						
						
-
Redemption of common units
						
-
						
						
(42) 				
						
						
(298) 				
Tax withholdings on stock compensation
						
(30) 				
						
						
(356) 				
						
						
(205) 				
Cash dividends paid to common shareholders
						
-
						
						
(9,304) 				
						
						
(9,257) 				
Cash dividends paid to common unit holders
						
-
						
						
(36) 				
						
						
(72) 				
Cash dividends paid to preferred shareholders
						
-
						
						
(434) 				
						
						
(723) 				
Other items
						
(4) 				
						
						
(4) 				
						
						
-
Net cash provided by (used in) financing activities
						
7,201 				
						
						
(14,372) 				
						
						
4,611 				
﻿
						
						
						
						
						
						
						
						
Decrease in cash, cash equivalents, and restricted cash
						
(915) 				
						
						
(761) 				
						
						
(1,179) 				
Cash, cash equivalents, and restricted cash beginning of year
						
8,395 				
						
						
9,156 				
						
						
10,335 				
Cash, cash equivalents, and restricted cash end of year
$
7,480 				
						
$
8,395 				
						
$
9,156 				
﻿
						
						
						
						
						
						
						
						
Supplemental cash flow information:
						
						
						
						
						
						
						
						
Interest paid
$
7,272 				
						
$
6,732 				
						
$
6,091 				
Income taxes paid
$
				
						
$
				
						
$
				
﻿
						
						
						
						
						
						
						
						
Schedule of noncash investing and financing activities:
						
						
						
						
						
						
						
						
Debt assumed in acquisitions
$
34,080 				
						
$
-
						
$
-
Increase in accrued liabilities related to insurance premium financing agreement
$
				
						
$
				
						
$
				
Land option liability in acquisition
$
8,497 				
						
$
-
						
$
-
Fair value of operating partnership common units issued in acquisitions
$
-
						
$
-
						
$
				
Fair value of operating partnership common units converted to common stock
$
-
						
$
				
						
$
-
﻿
See accompanying notes to consolidated financial statements.
﻿
﻿
Condor Hospitality Trust, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(In thousands, except share and per share data)
			
		
NOTE 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
﻿
Description of Business
﻿
Condor Hospitality Trust, Inc. (“Condor”) was incorporated in Virginia on August 23, 1994 and was reincorporated in Maryland on November 19, 2014. Condor is a self-administered real estate investment trust (“REIT”) for federal income tax purposes that specializes in the investment and ownership of high-quality select-service, limited-service, extended stay, and compact full service hotels. As of December 31, 2020, the Company owned 15 hotels in eight states. References to the “Company”, “we,” “our,” and “us” herein refer to Condor Hospitality Trust, Inc., including as the context requires, our direct and indirect subsidiaries.
﻿
The Company, through its wholly owned subsidiary, Condor Hospitality REIT Trust, owns a controlling interest in Condor Hospitality Limited Partnership (the “operating partnership”), and serves as its general partner. The operating partnership, including its various subsidiary partnerships, holds substantially all of the Company’s assets (with the exception of the furniture and equipment of all properties held by TRS Leasing, Inc.) and conducts all of its operations. At December 31, 2020, the Company owned 99.9% of the common operating units (“common units”) of the operating partnership with the remaining common units owned by other limited partners.
﻿
In order for the income from our hotel property investments to constitute “rents from real properties” for purposes of the gross income tests required by the Internal Revenue Service (“IRS”) for REIT qualification, the income we earn cannot be derived from the operation of any of our hotels. Therefore, the operating partnership and its subsidiaries lease our hotel properties to the Company’s wholly owned taxable REIT subsidiary, TRS Leasing, Inc., and its wholly owned subsidiaries (the “TRS”). The TRS in turn engages third-party eligible independent contractors to manage the hotels. The operating partnership, the TRS, and their respective subsidiaries are consolidated into the Company’s financial statements.
﻿
Historically, as a result of the geographic areas in which we operate, the operations of our hotels have been seasonal in nature. Generally, occupancy rates, revenue, and operating income have been greater in the second and third quarters of the calendar year than in the first and fourth quarters, with the exception of our hotels located in Florida, which experience peak demand in the first and fourth quarters of the year. The historical trend has been disrupted as a result of COVID-19. For the year ended December 31, 2020, the first quarter of the year had higher revenue, operating income, and cash flow as hotel demand declined significantly as a result of COVID-19 beginning in March 2020.
﻿
Termination and Settlement of Agreement and Plan of Merger
﻿
On September 18, 2020, the Company terminated the Agreement and Plan and Merger, dated July 19, 2019, as amended (the “Merger Agreement”), by and among the Company, Condor Hospitality Limited Partnership (together with the Company, the “Company Parties”), NHT Operating Partnership, LLC (“Parent”), NHT REIT Merger Sub, LLC (“Merger Sub”) and NHT Operating Partnership II, LLC (“Merger OP”, and together with Parent and Merger Sub, the “Parent Parties”). Pursuant to the Merger Agreement, the Company was to be acquired by Parent in a merger transaction.
﻿
On October 15, 2020, the Company announced that the Company Parties entered into a settlement agreement (the “Settlement Agreement”) with NexPoint Advisors L.P. (“NexPoint Advisors”), NexPoint Hospitality Trust (TSVX: NHT) (“NHT”), and Parent Parties (NexPoint Advisors, NHT and Parent Parties collectively, the “NHT Parties”), following the Company’s previously announced termination of the Merger Agreement.
﻿
Pursuant to the Settlement Agreement, the NHT Parties made three payments to the Company totaling $7,000. All payments were received during the fourth quarter of 2020 and recorded as a reduction of strategic alternatives expense, net upon receipt. Upon timely payment of all of the Settlement Payments, the NHT Parties’ settlement liability was satisfied in full. In exchange for these payment obligations, the NHT Parties have been released from all claims or liabilities relating to the Merger Agreement. Pursuant to the Settlement Agreement, the Company Parties also have been released from all claims or liabilities relating to the Merger Agreement.
Condor Hospitality Trust, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(In thousands, except share and per share data)
			
		
﻿
Additionally, during the second quarter of 2020, the Company received nonrefundable cash of $500 from NHT Parties in connection with the then ongoing discussions concerning potential adjustments to restructure the transaction, which, in the event a transaction occurs, was to be credited against the acquisition purchase price. This deposit was recognized as a reduction of strategic alternatives expense, net upon the termination of the Merger Agreement on September 18, 2020.
﻿
Basis of Presentation
The consolidated financial statements have been prepared in accordance with U.S. general accepted accounting principles (“U.S. GAAP”) and include the accounts of the Company, as well as the accounts of the operating partnership and its subsidiaries and our wholly owned TRS and its subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.
﻿
Estimates, Risks, and Uncertainties
﻿
The preparation of the consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that effect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements as well as revenue and expenses recognized during the reporting period. Actual results could differ from those estimates. Because the state of the economy and of the real estate market can significantly impact hotel operational performance and the estimated fair value of our assets, it is possible that the estimates and assumptions that have been utilized in the preparation of the consolidated financial statements could change.
﻿
The novel coronavirus (COVID-19) has reduced travel significantly and adversely affected the hospitality industry in general. The actual and threatened spread of COVID-19 globally or in the regions in which we operate, or future widespread outbreak of infectious or contagious disease, can continue to reduce national and international travel in general. The extent to which the hospitality industry, and thus our business, will be affected by COVID-19 will largely depend on future developments which we cannot accurately predict, and the impact on customer travel, including the duration of the outbreak, the continued spread and treatment of COVID-19, and new information and developments that may emerge concerning the severity of COVID-19 and the actions to contain COVID-19 or treat its impact, among others. To the extent that travel activity in the U.S. is and will be materially and adversely affected by COVID-19, business and financial results of the hospitality industry, and thus our business and financial results, could be impacted.
﻿
Since late March 2020, similar to the conditions affecting the hospitality industry as a whole, we have experienced occupancy declines at many of our properties which have and will continue to require us to adjust our business operations, and will have had and will continue to have an impact on our operating income and may potentially impact future compliance with our debt covenants.
﻿
As a result of the above factors, the Company is and has taken actions at the corporate and hotel level, including, but not limited to:
·
Obtained significant modifications of its debt agreements, including extension of the credit facility to January 2, 2023 with an increase in credit availability and modifications and waivers of debt covenants, from the majority of the Company’s lenders.
·
Asset management working with hotel management companies to reduce all hotels operating expenses including, but not limited to, closing off multiple floors, staffing reductions and furloughs, utility consumption reductions, purchasing reductions and eliminations, contract services reductions and eliminations, food services closures, exercise facilities closures, and certain reduction and elimination of certain marketing expenditures.
·
Seeking potential alternative revenue sources through health care providers, government agencies, universities and airlines.
Condor Hospitality Trust, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(In thousands, except share and per share data)
			
		
·
Obtaining Paycheck Protection Program (“PPP”) loans authorized under the recently congressionally approved Coronavirus Aid, Relief, and Economic Security (“CARES”) Act totaling $2.3 million (see Significant Debt Transactions below).
·
Pursuing corporate cost reductions, including staffing reductions, resulting in an approximately 30% decrease in general and administrative expenses compared to historical operations.
·
Capital improvement projects have been suspended except for emergency circumstances and will remain on hold for immediate future, with the potential for the suspension to continue through 2021.
·
The Company determined that it was advisable and the best business practice to cause a temporary closure of two of its hotels, the Solomons Hilton Garden Inn on April 20, 2020 and the Leawood Aloft on April 9, 2020. These hotels were both reopened on July 1, 2020 and no other hotel closures have been deemed necessary.
﻿
We believe the ongoing effects of the COVID-19 pandemic on our operations have had, and will continue to have, a material negative impact on the hospitality industry, and thus on our financial results and liquidity, and such negative impact may continue beyond the containment of the pandemic. While we cannot assure you that the assumptions used to estimate our future liquidity will be correct, the Company believes it can generate the liquidity required to operate through the crisis through a combination of the continued operation of our portfolio with significant cost reduction measures in place, existing availability under our credit facility, and, if necessary, additional debt and equity financings. However, there can be no assurance that the Company will be able to obtain such financing on acceptable terms or at all.
﻿
Pursuant to the terms of the ninth amendment to the Company’s credit facility with KeyBank, it is an event of default if the convertible notes issued in 2020 (see Note 7) are not either converted to common stock or paid in full by July 1, 2021. The Company intends to not cause such an event of default by satisfying the convertible notes with the Rights Offering, which has a full backstop commitment (see Note 7), or otherwise satisfying the convertible notes with a sale of equity or negotiating an extension of the July 1, 2021 date with KeyBank.
﻿
Additionally, as of December 31, 2020 (see Note 6), the Company’s loans with Great Western Bank (financing the Leawood, Kansas Aloft) were purchased by OSK X, LLC, an equity fund affiliate of O’Brien Staley Partners, on December 24, 2020. The Company did not satisfy the financial covenants for these loans as of December 31, 2020, as was the case for the first three quarters of 2020. The Company has been advised by OSK X, LLC that it is in default for failure to comply with the financial covenants as of December 31, 2020 (unlike Great Western Bank that waived the covenants for the first three quarters of 2020). This default under our loan agreement with OSK X, LLC will not result in a cross-default under our credit facility until a 90-day cure period with respect to the default expires on May 27, 2021. The Company is continuing to pursue negotiating with OSK X, LLC to obtain waivers, and if waivers are unable to be obtained, the Company plans to refinance the debt with existing or new lenders which the Company believes it can successfully complete. However, waivers and the ability to refinance are at the discretion of the lenders, and there can be no assurance that the Company will be able to obtain such waivers or refinancing on acceptable terms or at all.
﻿
Based on a the current status of the OSK X, LLC loans and the guidance in U.S. GAAP that requires that, in making a determination for the one year period following the date of the financial statements, the Company cannot consider future fundraising activities or the likelihood of obtaining covenant waivers or amendments, all of which are outside of the Company's sole control, the Company has determined that there is substantial doubt about the Company’s ability to continue as a going concern for the one year period after the date the financial statements are issued. The consolidated financial statements have been prepared assuming that the Company will continue as a going concern and do not include any adjustments that might result from the outcome of this uncertainty.
﻿
Investment in Hotel Properties
﻿
At the time of acquisition, the Company allocates the purchase price of assets to asset classes based on the fair value of the acquired real estate, furniture, fixtures, and equipment, and intangible assets, if any, and the fair value of liabilities assumed, including debt. Acquisition date fair values are determined based on replacement costs,
Condor Hospitality Trust, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(In thousands, except share and per share data)
			
		
appraised values, and estimated fair values using methods similar to those used by independent appraisers including discounted cash flows and capitalization rates.
﻿
Effective January 1, 2018, we adopted Financial Accounting Standards Board (“FASB”) Accounting Standards Update (“ASU”) No. 2017-01, Clarifying the Definition of a Business. As such, if substantially all of the fair value of the gross assets acquired are concentrated in a single identifiable asset or group of similar identifiable assets, the set is not considered a business. When we conclude that an acquisition meets this threshold, acquisition costs will be capitalized as part of our allocation of the purchase price of the acquired hotel properties. This guidance is applied prospectively. We concluded that all hotel acquisitions in 2018 and the Company’s purchase of the remaining 20% of the joint venture that owns the Atlanta Aloft property (the “Atlanta JV”) completed in 2020 were acquisitions of assets and as such acquisition costs were capitalized as part of these transactions.
﻿
The Company’s investments in hotel properties are recorded at cost and are depreciated using the straight-line method over an estimated useful life of 15 to 40 years for buildings and improvements and 3 to 12 years for furniture and equipment.
﻿
Renovations and/or replacements that improve or extend the life of the hotel properties are capitalized and depreciated over their useful lives. Repairs and maintenance are expensed as incurred.
﻿
The initial fees incurred to enter into the franchise agreements are capitalized and amortized over the life of the franchise agreements using the straight-line method. Amortization expense is included in depreciation and amortization in the consolidated statements of operations.
﻿
On an ongoing basis, the Company reviews the carrying value of each held for use hotel to determine if certain circumstances, known as triggering events, exist indicating impairment to the carrying value of the hotel or that depreciation periods should be modified. These triggering events include a significant change in the cash flows of or a significant adverse change in the business climate for a hotel. If facts or circumstances support the possibility of impairment, the Company will prepare an estimate of the undiscounted future cash flows, without interest charges, of the specific hotel and determine if the investment in such hotel is recoverable based on these undiscounted future cash flows. In the evaluation of impairment of its hotel properties, the Company makes many assumptions and estimates including projected cash flows both from operations and eventual disposal, expected useful life and holding period, future required capital expenditures, and terminal capitalization rates. If the investment is not recoverable based on this analysis, an impairment charge will be taken, if necessary, to reduce the carrying value of the hotel to the hotel’s estimated fair value.
﻿
Investment in Joint Venture
﻿
If it is determined that we do not have a controlling interest in a joint venture, either through our financial interest in a variable interest entity (“VIE”) or through our voting interest in a voting interest entity (“VOE”) and we have the ability to provide significant influence, the equity method of accounting is used. Under this method, the investment, originally recorded at cost, is adjusted to recognize our share of net earnings or losses of the affiliate as they occur, with losses limited to the extent of our investment in, advances to, and commitments to the investee. Pursuant to our Atlanta JV agreement, prior to our acquisition of the remaining 20% interest in the Atlanta JV (see Note 3), allocations of the profits and losses of our Atlanta JV may be allocated disproportionately to nominal ownership percentages due to specified preferred return rate thresholds.
﻿
Distributions received from a joint venture are classified in the statements of cash flows using the cumulative earnings approach. Distributions are classified as cash inflows from operating activities unless cumulative distributions, including those from prior periods not designated as a return of investment, exceed cumulative recognized equity in earnings of the joint venture. Excess distributions are classified as cash inflows from investing activities as a return of investment.
﻿
On an annual basis or at interim periods if events and circumstances indicate that the investment may be impaired, the Company reviews the carrying value of its investment in unconsolidated joint venture to determine if
Condor Hospitality Trust, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(In thousands, except share and per share data)
			
		
circumstances indicate impairment to the carrying value of the investment that is other than temporary. The investment is considered impaired if its estimated fair value is less than the carrying amount of the investment and that impairment is other than temporary.
﻿
Assets Held for Sale
﻿
A hotel is considered held for sale (a) when a contract for sale is entered into, a substantial, nonrefundable deposit has been committed by the purchaser, and sale is expected to occur within one year, or (b) if management has committed to and is actively engaged in a plan to sell the property, the property is available for sale in its current condition, and it is probable the sale will be completed within one year. If a hotel is considered held for sale as of the most recent balance sheet presented or was sold in any period presented, the hotel property and the debt it collateralizes are shown as held for sale in all periods presented. Depreciation of our hotels is discontinued at the time they are considered held for sale.
﻿
At the end of each reporting period, if the fair value of the held for sale property less costs to sell is lower than the carrying value of the hotel, the Company will record an impairment loss. Impairment losses on held for sale properties may be subsequently recovered up to the amount of the cumulative impairment losses taken while the property is held for sale should future revisions to fair value estimates be required. If active marketing ceases or the property no longer meets the criteria to be classified as held for sale, the property is reclassified to held for use and measured at the lower of its (a) carrying amount before the property was classified as held for sale, adjusted for any depreciation expense that would have been recognized had the property been continuously classified as held for use, or (b) its fair value at the date of the subsequent decision not to sell.
﻿
Gains on the sale of real estate are recognized when a property is sold or are deferred and recognized as income in subsequent periods as conditions requiring deferral are satisfied or expire without further cost to us.
﻿
Cash and Cash Equivalents and Restricted Cash
﻿
Cash and cash equivalents includes cash and highly liquid investments with original maturities of three months or less when acquired, and are carried at cost which approximates fair value. The Company maintained a major portion of its deposits with Huntington Bancshares Incorporated at December 31, 2020 and 2019. The balances on deposit at Huntington Bancshares Incorporated may at times exceed the federal deposit insurance limit, however, management believes that no significant credit risk exists with respect to the uninsured portion of these cash balances.
﻿
Restricted cash consists of cash held in escrow for the replacement of furniture and fixtures or for real estate taxes and property insurance as required under certain loan agreements.
﻿
Deferred Financing Costs
﻿
Direct costs incurred in financing transactions are capitalized as deferred financing costs and amortized to interest expense over the term of the related loan using the effective interest method. Deferred financing costs are presented on the balance sheets as a direct deduction from the associated debt liability.
﻿
Derivative Assets and Liabilities
﻿
In the normal course of business, the Company is exposed to the effects of interest rate changes, and the Company may enter into derivative instruments including interest rate swaps, caps, and collars to manage or economically hedge interest rate risk. Additionally, the Company is required to include on the balance sheets certain bifurcated embedded derivative instruments such as conversion and redemption features in convertible instruments and certain common stock warrants.
﻿
All derivatives recognized by the Company are reported as derivative assets and liabilities on the balance sheets and are adjusted to their fair value at each reporting date. Realized and unrealized gains and losses on derivative
Condor Hospitality Trust, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(In thousands, except share and per share data)
			
		
instruments are included in net gain on derivatives and convertible debt with the exception of realized gains and losses related to interest rate instruments which are included in interest expense on the statements of operations.
﻿
Noncontrolling Interest
﻿
Noncontrolling interest in the operating partnership represents the limited partners’ proportionate share of the equity in the operating partnership. Earnings and losses are allocated to noncontrolling interest in accordance with the weighted average percentage ownership of the operating partnership during the period.
﻿
Revenue Recognition
﻿
Revenue consists of amounts derived from hotel operations, including the sales of rooms, food and beverage, and other ancillary services. Room revenue is recognized over a customer's hotel stay at the daily contract rate. Revenue from food and beverage and other ancillary services is generated when a customer chooses to purchase goods or services separately from a hotel room and revenue is recognized on these distinct goods and services at the contract rate at the point in time or over the time period that goods or services are provided to the customer and the related performance obligations are fulfilled. Certain ancillary services are provided by third parties and the Company assesses whether it is the principal or agent in these arrangements. If the Company is the agent, revenue is recognized based upon the commission earned from the third party. If the Company is the principal, the Company recognizes revenue based upon the gross sales price. Accounts receivable primarily represents receivables from hotel guests who occupy hotel rooms and utilize hotel services. The Company maintains an allowance for doubtful accounts sufficient to cover estimated potential credit losses.
﻿
Sales, use, occupancy, and similar taxes collected from customers and remitted to governmental authorities are accounted for on a net basis and therefore are excluded from revenue in the consolidated statements of operations.
﻿
Hotel operating revenues can be disaggregated into the following categories to demonstrate how economic factors affect the nature, amount, timing, and uncertainty of revenue and cash flows:
﻿
﻿
﻿
						
						
						
						
						
						
						
						
﻿
For the year ended December 31,
﻿
						
						
Rooms
$
33,276 				
						
$
58,353 				
						
$
62,036 				
Food and beverage
						
				
						
						
1,370 				
						
						
1,524 				
Other
						
1,228 				
						
						
1,329 				
						
						
1,497 				
Total revenue
$
35,188 				
						
$
61,052 				
						
$
65,057 				
﻿
Income Taxes
﻿
The Company qualifies and intends to continue to qualify as a REIT under applicable provisions of the Internal Revenue Code (the “Code”), as amended. In general, under such Code provisions, a trust which has made the required election and, in the taxable year, meets certain requirements and distributes to its shareholders at least 90% of its REIT taxable income, will not be subject to federal income tax to the extent of the income currently distributed to shareholders. If we fail to qualify as a REIT in any taxable year, we will be subject to federal income tax on our taxable income at regular corporate income tax rates and generally will be unable to re-elect REIT status until the fifth calendar year after the year in which we failed to qualify as a REIT, unless we satisfy certain relief provisions. Even if the Company qualifies for taxation as a REIT, the Company may be subject to certain state and local taxes on its income and property, and to federal income and excise taxes on its undistributed taxable income. Except with respect to the TRS, the Company does not believe that it will be liable for significant federal or state income taxes in future years.
﻿
A REIT will incur a 100% tax on the net gain derived from any sale or other disposition of property that the REIT holds primarily for sale to customers in the ordinary course of a trade or business. We do not believe any of our hotels were held primarily for sale in the ordinary course of our trade or business. However, if the IRS would
Condor Hospitality Trust, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(In thousands, except share and per share data)
			
		
successfully assert that we held such hotels primarily for sale in the ordinary course of our business, the gain from such sales could be subject to a 100% prohibited transaction tax.
﻿
Taxable income from non-REIT activities managed through the TRS, which is taxed as a C-Corporation, is subject to federal, state, and local income taxes. We account for the federal income taxes of our TRS using the asset and liability method. Under this method, deferred income taxes are recognized for temporary differences between the financial reporting bases of assets and liabilities of the TRS and their respective tax bases and for operating loss and tax credit carryforwards based on enacted tax rates expected to be in effect when such amounts are realized or settled. However, deferred tax assets are recognized only to the extent that it is more likely than not that they will be realized based on consideration of available evidence, including tax planning strategies and projections for future taxable income over the periods in which the remaining deferred tax assets are deductible. In assessing the realizability of deferred tax assets, the Company considers whether it is more likely than not (defined as a likelihood of more than 50%) that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income.
﻿
The Company may recognize a tax benefit from an uncertain tax position when it is more-likely-than-not (defined as a likelihood of more than 50%) that the position will be sustained upon examination, including resolution of any related appeals or litigation processes, based on its technical merits. If a tax position does not meet the more-likely-than-not recognition threshold, despite the Company’s belief that its filing position is supportable, the benefit of that tax position is not recognized in the statements of operations. The Company recognizes interest and penalties, as applicable, related to unrecognized tax benefits as a component of income tax expense. The Company recognizes unrecognized tax benefits in the period that the uncertainty is eliminated by either affirmative agreement to the uncertain tax position by the applicable taxing authority or by expiration of the applicable statute of limitations. For the years ended December 31, 2020, 2019, and 2018, the Company did not record any uncertain tax positions.
﻿
Fair Value Measurements
﻿
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value measurements are utilized to determine the value of certain assets, liabilities, and equity instruments, to perform impairment assessments, to account for hotel acquisitions, in the valuation of stock-based compensation, and for disclosure purposes. Fair value measurements are classified into a three-tiered fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:
﻿
Level 1: Inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities.
﻿
Level 2: Directly or indirectly observable inputs other than quoted prices included in Level 1. Level 2 inputs may include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, and model-derived valuations whose inputs are observable.
﻿
Level 3: Unobservable inputs for which there is little or no market data, which require a reporting entity to develop its own assumptions.
﻿
Our estimates of fair value were determined using available market information and appropriate valuation methods. Considerable judgment is necessary to interpret market data and develop estimated fair value. The use of different market assumptions or valuation techniques may have a material effect on estimated fair value measurements. We classify assets and liabilities in the fair value hierarchy based on the lowest level of input that is significant to the fair value measurement.
﻿
With the exception of fixed rate debt (see Note 8) and other financial instruments carried at fair value, the carrying amounts of the Company’s financial instruments approximates their fair values due to their short-term nature or variable market-based interest rates.
﻿
Condor Hospitality Trust, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(In thousands, except share and per share data)
			
		
Fair Value Option
﻿
Under U.S. GAAP, the Company has the irrevocable option to report most financial assets and financial liabilities at fair value on an instrument by instrument basis, with changes in fair value reported in net earnings. This option was elected for the treatment of the Company’s convertible debt entered into on March 16, 2016 and November 19, 2020 (see Note 7).
﻿
Stock-Based Compensation
﻿
Stock-based compensation is measured at the fair value of the award on the date of grant and recognized as compensation expense on a straight-line basis over the requisite service period. Awards that contain a performance condition are reviewed at least quarterly to assess the achievement of the performance condition. Compensation expense will be adjusted when a change in the assessment of achievement of the specific performance condition level is determined to be probable. The determination of fair value of these awards is subjective and involves significant estimates and assumptions including expected volatility of our stock, expected dividend yield, expected term, and assumptions of whether these awards will achieve performance thresholds. We believe that the assumptions and estimates utilized are appropriate based on the information available to management at the point of measurement. Compensation cost is recognized as additional paid-in capital for awards of the Company’s common stock and as noncontrolling interest for LTIP awards of common units. The Company has elected to account for forfeitures of stock-based compensation as they occur.
﻿
Recently Adopted Accounting Standards
﻿
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers, which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The ASU replaced most existing revenue recognition guidance in U.S. GAAP when it became effective. The standard was effective for the Company on January 1, 2018 and was adopted on that date using the modified retrospective transition method. Due to the short-term nature of the Company’s revenue streams, the adoption of this standard had no impact on the Company’s revenue or net income, and therefore, no adjustment was recorded to the Company’s opening accumulated deficit. The adoption of this standard resulted in additional disclosures. Furthermore, for real estate sales to third parties, primarily a result of disposition of real estate in exchange for cash with few contingencies, the standard did not impact the recognition of our accounting for these sales.
﻿
In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Payment, which clarifies and provides specific guidance on eight cash flow classification issues with an objective to reduce the current diversity in practice. This guidance is effective for the Company for years beginning after December 15, 2017. The Company has adopted ASU 2016-15 for the year beginning on January 1, 2018. The adoption of ASU 2016-15 did not have a material impact on our consolidated financial statements.
﻿
In November 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash, which clarifies how companies should present restricted cash and restricted cash equivalents in the statement of cash flows. This guidance requires companies to show the changes in the total of cash, cash equivalents, and restricted cash equivalents in the statement of cash flows. This guidance is effective for the Company for years beginning after December 15, 2017, including interim periods within those years. The Company has adopted ASU 2016-18 for the year beginning on January 1, 2018. The adoption of ASU No. 2016-18 changed the presentation of the consolidated statements of cash flows for the Company to include changes to cash and cash equivalents and restricted cash for all periods presented.
﻿
In January 2017, the FASB issued ASU 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business, which clarifies the definition of a business to assist entities with evaluating whether transactions should be accounted for as acquisitions of assets or business combinations. As a result of the standard, we anticipate that the majority of our hotel purchases will be considered asset purchases as opposed to business combinations and as such the related acquisition costs will be capitalized. However, the determination will be made on a transaction-by-transaction basis. This standard is applied on a prospective basis and, therefore, it does not affect the accounting for
Condor Hospitality Trust, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(In thousands, except share and per share data)
			
		
any of our previous transactions. This standard was effective for annual periods beginning after December 15, 2017, although early adoption is permitted. The Company has adopted ASU 2017-01 for the year beginning on January 1, 2018.
﻿
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which superseded most existing lease guidance in U.S. GAAP. ASU 2016-02 requires, among other changes to the lease accounting guidance, lessees to recognize most leases on-balance sheet via a right of use asset and lease liability and additional qualitative and quantitative disclosures. In July 2018, the FASB issued ASU 2018-10, Codification Improvements to Topic 842, Leases, to clarify how to apply certain aspects of the new leases standard, and ASU 2018-11, Leases (Topic 842): Targeted Improvements, to give companies another option for transition and to provide lessors with a practical expedient to reduce the cost and complexity of implementing the new standard. The transition option allows companies to not apply the new leases standard in the comparative periods they present in their financial statements in the year of adoption. The Company adopted this standard on January 1, 2019. The Company elected the practical expedients allowed under the guidance and retained the original lease classification and historical accounting for initial direct costs for leases existing prior to the adoption date. The Company also elected not to restate prior periods for the impact of the adoption of the new standard. The adoption of this standard has resulted in the recognition of right-of-use assets and related liabilities to account for the Company's future obligations under the operating leases for which the Company is the lessee. See Note 2 to the accompanying consolidated financial statements for additional disclosures related to the adoption of this standard.
﻿
NOTE 2. INVESTMENT IN HOTEL PROPERTIES
﻿
Investments in hotel properties consisted of the following at December 31:
﻿
﻿
						
						
						
						
						
﻿
As of
﻿
December 31, 2020
						
December 31, 2019
Land
$
34,928 				
						
$
20,200 				
Buildings, improvements, vehicle
						
244,041 				
						
						
206,971 				
Furniture and equipment
						
24,622 				
						
						
21,805 				
Initial franchise fees
						
1,784 				
						
						
1,784 				
Construction-in-progress
						
				
						
						
				
Right of use asset
						
				
						
						
				
Investment in hotel properties
						
305,560 				
						
						
250,940 				
Less accumulated depreciation
						
(39,729) 				
						
						
(28,877) 				
Investment in hotel properties, net
$
265,831 				
						
$
222,063 				
﻿
On January 1, 2019, the Company adopted ASU 842, Leases, and applied it prospectively. At adoption, the Company also elected the practical expedients which permitted it to not reassess its prior conclusions about lease identification, classification, and initial direct costs. Consequently on January 1, 2019, the Company recognized right-of-use assets and related liabilities related to its operating leases. Since most of the Company's leases do not provide an implicit rate, the Company used incremental borrowing rates. The right-of-use assets and liabilities are amortized to rent expense, included in either Hotel and property operations expenses or General and administrative expenses depending on the nature of the lease, over the term of the underlying lease agreements. The weighted average remaining life of the Company’s operating leases, including options to extend when it is reasonably certain the Company will exercise such options, was 6.4 years at December 31, 2020.
﻿
As of December 31, 2020 and 2019, the Company's right-of-use assets, net of $62 and $80, respectively, are included in Investment in hotel properties, net and its related lease liabilities of $62 and $81, respectively, are presented in Accounts payable, accrued expenses, and other liabilities in the Company's consolidated balance sheets. The adoption of this standard had minimal impact on the Company's consolidated statements of operations.
﻿
﻿
﻿
﻿
﻿
﻿
Condor Hospitality Trust, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(In thousands, except share and per share data)
			
		
NOTE 3. ACQUISITION OF HOTEL PROPERTIES
﻿
The Company did not acquire any properties during the years ended December 31, 2020 or 2019.
﻿
On February 14, 2020, the Company purchased the remaining 20% interest in the Atlanta JV from our joint venture partner (see detailed description of the Atlanta JV in Note 5) for $7,300 as allowed by the purchase option included in the original joint venture agreements. The $7,300 was funded from the Company’s revolving secured Key Bank credit facility (the “credit facility’), and the Company became the primary obligator on the $34,080 New Term Loan (as defined in Note 5) as part of the transaction. As the Atlanta JV was previously accounted for under the equity method and the acquisition was considered the acquisition of assets, the liabilities assumed as part of the transaction were recorded at fair value while the assets purchased in the transaction were recorded based on a pro-rata fair value allocation of the total available basis, which included the fair value of liabilities assumed, the cash purchase price paid, the balance of the investment in the unconsolidated joint venture at the time of the acquisition, and the acquisition costs incurred. The purchase was recognized as follows:
﻿
﻿
﻿
						
						
Cash purchase price
$
7,300 				
Investment in unconsolidated joint venture
						
3,844 				
Acquisition costs
						
				
Total investment in net assets
$
11,266 				
﻿
						
						
Cash
$
				
Working capital
						
(462) 				
Land
						
14,728 				
Buildings, improvements, and vehicle
						
37,020 				
Furniture and equipment
						
2,432 				
Debt assumed at acquisition
						
(34,080) 				
Land option liability (1)
						
(8,497) 				
Total allocation to net assets
$
11,266 				
﻿
(1)
The purchase agreement includes a provision which permits the seller to purchase the surface parking lot north of the hotel exercisable for approximately seven years at less than market rates.
﻿
Included in the consolidated statements of operations for the year ended December 31, 2020 is total revenue of $3,449 and total operating losses of $1,773 related to the results of operations for Atlanta Aloft hotel since the date of its acquisition.
﻿
During the year ended December 31, 2018, the Company acquired two wholly owned hotel properties. The allocation of the purchase price based on fair value was as follows:
﻿
						
						
						
						
						
						
						
						
						
						
						
						
						
						
						
						
						
						
						
						
						
						
						
						
						
						
﻿
						
Date of acquisition
						
Land
						
Buildings, improvements, and vehicle
						
Furniture and equipment
						
Intangible asset
						
Total purchase price & acquisition costs (1)
						
Debt at acquisition (2)
						
						
Issuance of common units (3)
						
Net cash paid
TownePlace Suites
						
01/18/2018
						
$
1,435
						
$
16,459
						
$
1,729
						
$
						
$
19,813
						
$
19,813
						
$
-
						
$
-
Austin, TX
						
						
						
						
						
						
						
						
						
						
						
						
						
						
						
						
						
						
						
						
						
						
						
						
						
						
Home2 Suites
						
02/21/2018
						
						
						
						
13,485
						
						
1,854
						
						
						
						
16,390
						
						
14,818
						
						
						
						
1,522
Summerville, SC
						
						
						
						
						
						
						
						
						
						
						
						
						
						
						
						
						
						
						
						
						
						
						
						
						
						
Total
						
						
						
$
2,433
						
$
29,944
						
$
3,583
						
$
						
$
36,203
						
$
34,631
						
$
						
$
1,522
﻿
(1)
Contractual purchase price of $19,750 and $16,325 for Austin TownePlace Suites and Summerville Home2 Suites, respectively.
(2)
All debt was drawn from the credit facility at acquisition.
(3)
Total issuance of 259,685 common units. Common units may be redeemed at a rate of one common share for 52 common units (see Note 11).
﻿
Included in the consolidated statement of operations for the year ended December 31, 2018 are total revenue of $7,071 and total operating income of $1,610 which represent the results of operations for the two hotels acquired in 2018 since the date of acquisition.
Condor Hospitality Trust, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(In thousands, except share and per share data)
			
		
﻿
All purchase price allocations were determined using Level 3 fair value inputs.
﻿
﻿
﻿
﻿
﻿
﻿
﻿
﻿
NOTE 4: DISPOSITION OF HOTEL PROPERTIES
﻿
As of December 31, 2020 and December 31, 2019, the Company had no hotels classified as held for sale.
﻿
During the year ended December 31, 2020, no hotels were sold. During the years ended December 31, 2019 and 2018, the Company sold one hotel and four hotels, respectively, resulting in total gains of $62 and $5,707, respectively.
﻿
﻿
NOTE 5. INVESTMENT IN UNCONSOLIDATED JOINT VENTURE
﻿
On August 1, 2016, the Company entered into a joint venture with Three Wall Capital LLC and certain of its affiliates (“TWC”) to acquire an Aloft hotel in downtown Atlanta, Georgia. Prior to the purchase of the remaining interest in the Atlanta JV on February 14, 2020 (see Note 3), the Company accounted for the Atlanta JV under the equity method. The Company owned 80% of the Atlanta JV with TWC owning the remaining 20%. The Atlanta JV was comprised of two companies: Spring Street Hotel Property II LLC, of which our operating partnership indirectly owned an 80% equity interest, and Spring Street Hotel OpCo II LLC, of which our TRS indirectly owned an 80% equity interest. TWC owned the remaining 20% equity interest in these two companies.
﻿
The purchase was partially funded with a $33,750 term loan secured by the property. The term loan (the “Old Term Loan”), obtained from LoanCore Capital Credit REIT LLC, had an initial term of 24 months with three 12-month extension periods, which could be exercised at the Atlanta JV’s option subject to certain conditions and fees. The first of these extension options was exercised by the Atlanta JV on September 9, 2018. The loan was non-recourse to the Atlanta JV, subject to specified exceptions. The loan was also non-recourse to Condor, except for certain customary carve-outs which were guaranteed by the Company.
﻿
On August 9, 2019, the operating partnership and the owner and lessee of the Aloft Atlanta hotel in the Atlanta JV (Spring Street Hotel Property LLC and Spring Street Hotel OpCo LLC, respectively), as Borrowers, closed on a $34,080 term loan pursuant to a term loan agreement with KeyBank National Association and the other lenders party thereto, as Lenders, and KeyBank National Association, as Agent for the Lenders (the “New Term Loan”). The proceeds of the New Term Loan were used to repay the Old Term Loan, which was terminated following the repayment. The New Term Loan was included in full on the balance sheet of the Atlanta JV at December 31, 2019.
﻿
The New Term Loan matured upon the earlier to occur of (a) consummation of the merger under the Merger Agreement (see Note 1) and (b) February 9, 2020. The New Term Loan bore interest, at the Borrower’s option, at either LIBOR plus 2.25% or a base rate plus 1.25% and required monthly interest payments and principal was due on the maturity date. The Borrowers could, at any time, voluntarily prepay the New Term Loan in whole or in part without premium or penalty (other than customary LIBOR breakage costs). The New Term Loan was guaranteed by the Company and certain of its subsidiaries. On February 6, 2020, the maturity of the New Term Loan was extended to May 8, 2020. The New Term Loan was refinanced on May 13, 2020 with the Seventh Amendment to its credit facility with KeyBank.
﻿
The Atlanta JV agreement included buy-sell rights for both members (generally after three years of hotel ownership for Condor and after five years for TWC) and Condor had a purchase option for TWC’s Atlanta JV ownership interest exercisable between the third and fifth anniversary of the hotel closing.
﻿
Under the Atlanta JV agreement, the Atlanta JV was managed by TWC in accordance with business plans and budgets approved by both partners. Major decisions as detailed in the agreement also required joint approval. Condor could remove TWC as manager of the Atlanta JV and appoint a new manager only upon the occurrence of certain events. The Atlanta Aloft hotel was managed by Boast Hotel Management Company LLC (“Boast”), an affiliate of TWC. The Atlanta JV paid to Boast total management fees of $61, $380 and $333 during the years ended December 31, 2020, 2019, and 2018, respectively. The management of the Atlanta Aloft hotel was moved to Aimbridge Hospitality on March 1, 2020 following the acquisition of the remaining interest in the Atlanta JV by Condor.
Condor Hospitality Trust, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(In thousands, except share and per share data)
			
		
﻿
Net cash flow from the Atlanta JV was distributed each fiscal year first with a 10% preferred return on capital contributions to Condor, second with a 10% preferred return on capital contributions to TWC, and third with any remainder distributed to the partners based on their pro-rata equity ownership. Profits were allocated in the same proportion as net cash flow. Losses were allocated based on pro-rata equity ownership. Cash distributions totaling $480, $1,813 and $1,662 were received by the Company from the Atlanta JV during the years ended December 31, 2020, 2019, and 2018, respectively.
﻿
The following table represents the total assets, liabilities, and equity, including the Company’s share, of the Atlanta JV as of December 31, 2019:
﻿
						
						
						
﻿
						
As of
﻿
						
December 31, 2019
Investment in hotel properties, net
						
$
45,547 				
Cash and cash equivalents
						
						
				
Accounts receivable, prepaid expenses, and other assets
						
						
				
Total Assets
						
$
46,487 				
Accounts payable, accrued expenses, and other liabilities
						
$
1,026 				
Land option liability
						
						
6,190 				
Long-term debt, net of deferred financing costs
						
						
33,966 				
Total Liabilities
						
						
41,182 				
Condor equity
						
						
4,244 				
TWC equity
						
						
1,061 				
Total Equity
						
						
5,305 				
Total Liabilities and Equity
						
$
46,487 				
﻿
The table below provides the components of net earnings (loss), including the Company’s share of the Atlanta JV, for the years ended December 31, 2020, 2019, and 2018:
﻿
﻿
						
						
						
						
						
						
						
						
						
﻿
						
For the period of January 1 to February 14,
						
Year ended December 31,
﻿
						
						
						
Revenue
						
						
						
						
						
						
						
						
						
Room rentals and other hotel services
						
$
1,522 				
						
$
12,666 				
						
$
11,888 				
Operating Expenses
						
						
						
						
						
						
						
						
						
Hotel and property operations
						
						
				
						
						
8,084 				
						
						
7,855 				
Depreciation and amortization
						
						
				
						
						
1,494 				
						
						
1,444 				
Total operating expenses
						
						
1,141 				
						
						
9,578 				
						
						
9,299 				
Operating income
						
						
				
						
						
3,088 				
						
						
2,589 				
Net loss on disposition of assets
						
						
-
						
						
(2) 				
						
						
(197) 				
Net loss on derivative
						
						
-
						
						
(1) 				
						
						
(27) 				
Interest expense
						
						
(281) 				
						
						
(2,675) 				
						
						
(2,637) 				
Loss on extinguishment of debt
						
						
-
						
						
(172) 				
						
						
-
Net earnings (loss)
						
$
				
						
$
				
						
$
(272) 				
﻿
						
						
						
						
						
						
						
						
						
Condor allocated earnings (loss)
						
$
				
						
$
				
						
$
(218) 				
TWC allocated earnings (loss)
						
						
				
						
						
				
						
						
(54) 				
Net earnings (loss)
						
$
				
						
$
				
						
$
(272) 				
﻿
﻿
Condor Hospitality Trust, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(In thousands, except share and per share data)
			
		
NOTE 6. LONG-TERM DEBT
﻿
Long-term debt related to wholly owned properties consisted of the following loans payable at December 31:
﻿
﻿
﻿
						
						
						
						
						
						
						
						
						
						
						
						
						
						
﻿
						
						
						
						
						
						
						
						
						
						
						
						
						
						
Lender
						
Balance at December 31, 2020
						
Interest rate at December 31, 2020
						
Maturity
						
Amortization provision
						
Properties encumbered at December 31, 2020
						
Balance at December 31, 2019
Fixed rate debt
						
						
						
						
						
						
						
						
						
						
						
						
						
						
Morgan Stanley Bank of America Merrill Lynch Trust 2014-C18
						
$
8,454 				
						
4.54%
						
08/2024
						
25 years
						
						
$
8,639 				
OSK X, LLC (1)
						
						
13,199 				
						
4.33%
						
12/2023 (5)
						
25 years
						
						
						
13,290 				
OSK X, LLC (1)
						
						
				
						
4.33%
						
12/2023 (5)
						
7 years
						
-
						
						
				
Paycheck Protection Program (7)
						
						
2,299 				
						
1.00%
						
05/2022
						
(7)
						
-
						
						
-
Total fixed rate debt
						
						
24,832 				
						
						
						
						
						
						
						
						
						
						
22,900 				
﻿
						
						
						
						
						
						
						
						
						
						
						
						
						
						
Variable rate debt
						
						
						
						
						
						
						
						
						
						
						
						
						
						
Wells Fargo
						
						
25,386 				
						
2.55% (2)
						
11/2022 (6)
						
30 years
						
						
						
25,612 				
KeyBank credit facility (3)
						
						
118,114 				
						
4.00% (4)
						
1/2023
						
Interest only
						
						
						
86,845 				
Total variable rate debt
						
						
143,500 				
						
						
						
						
						
						
						
						
						
112,457 				
﻿
						
						
						
						
						
						
						
						
						
						
						
						
						
						
Total long-term debt
						
$
168,332 				
						
						
						
						
						
						
						
						
						
$
135,357 				
Less: Deferred financing costs
						
						
(1,806) 				
						
						
						
						
						
						
						
						
						
						
(1,356) 				
Total long-term debt, net of deferred financing costs
						
$
166,526 				
						
						
						
						
						
						
						
						
						
$
134,001 				
﻿
(1) Both loans are collateralized by Aloft Leawood. These loans were formerly held by Great Western Bank prior to being purchased by OSK X, LLC on December 24, 2020.
(2) Variable rate of 30-day LIBOR plus 2.39%, effectively fixed at 4.44% after giving effect to interest rate swap (see Note 8).
(3) Prior to March 30, 2020, the $150,000 credit facility included an accordion feature that would allow the credit facility to be increased to $400,000 with additional lender commitments. Available borrowing capacity under the credit facility was based on a borrowing base formula for the pool of hotel properties securing the facility. The commitment fee on unused facility was 0.20%. Subsequent amendments to the credit facility in 2020 modified this availability to set the size of the facility at $130,000, of which $4,000 is reserved for the payment of interest under the facility. The ability to borrow under the credit facility is limited to payment of interest and fees under the credit facility and funding any shortfalls to an approved budget. The commitment fee on unused facility is 0.20% when the usage is over 50% of the total commitment and 0.25% when the usage under 50% of the commitment. Total unused availability under this credit facility was $11,886 at December 31, 2020.
(4) Prior to March 30, 2020, borrowings under the facility accrued interest based on a leverage-based pricing grid, at the Company’s option, at either LIBOR plus a spread ranging from 2.25% to 3.00% (depending on leverage) or a base rate plus a spread ranging from 1.25% to 2.00% (depending on leverage). Subsequent amendments to the credit facility in 2020 increased the interest rate to LIBOR plus 3.25% or a base rate plus 2.25%, and further increased the interest rate spreads by 0.25% at six month intervals. The LIBOR floor was also increased to 0.50%.
(5) Term was extended for additional two years on December 2, 2020.
(6) Two one-year extension options subject to the satisfaction of certain conditions.
(7) The PPP loans are made up of three separate loans received in April 2020. Monthly payments totaling $121 are scheduled to begin October 2021 if the loan or a portion of it is not forgiven. The entire amount of the loans was used for payroll, utilities and interest, and therefore, management anticipates that the loans will be substantially forgiven. The Company completed and submitted to the Small Business Association applications for the forgiveness of two of the three PPP loans during the first quarter of 2021 and plans to submit the application for the third loan later in 2021. To the extent that they are not forgiven, the Company would be required to repay that portion at an interest rate of 1.00%.
﻿
At December 31, 2020, we had long-term debt of $168,332 with a weighted average term to maturity of 2.1 years and a weighted average interest rate of 3.79%. Of this total, at December 31, 2020, 24,832 was fixed rate debt with a weighted average term to maturity of 2.3 years and a weighted average interest rate of 4.09% and $143,500 was variable rate debt with a weighted average term to maturity of 2.0 years and a weighted average interest rate of 3.74%. At December 31, 2019, we had long-term debt of $135,357 with a weighted average term to maturity of 1.5 years and a weighted average interest rate of 4.22%. Of this total, at December 31, 2019, $22,900 was fixed rate debt with a weighted average term to maturity of 2.3 years and a weighted average interest rate of 4.41% and $112,457 was variable rate debt with a weighted average term to maturity of 1.2 years and a weighted average interest rate of 4.18%.
﻿
Condor Hospitality Trust, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(In thousands, except share and per share data)
			
		
Aggregate annual principal payments on debt for the next five years and thereafter are as follows:
﻿
﻿
						
						
﻿
						
						
﻿
Total
				
$
1,412 				
				
						
27,686 				
				
						
131,394 				
				
						
7,840 				
				
						
-
Thereafter
						
-
Total
$
168,332 				
﻿
						
						
﻿
Financial Covenants
﻿
We are required to satisfy various financial covenants within our debt agreements, including the following financial covenants within our credit facility with KeyBank:
·
Borrowing Base Debt Service Coverage Ratio: The ratio of adjusted net operating income from borrowing base properties to debt service for the credit facility (assuming a 30 year amortization) must be equal to or greater than (a) 1.00 to 1 as of the end of the fiscal quarters ending September 30, 2021 and December 31, 2021, (b) 1.25 to 1 as of the end of the fiscal quarters ending March 31, 2022 and June 30, 2022 and (c) 1.50 to 1 as of the end of the fiscal quarter ending September 30, 2022 and each fiscal quarter thereafter. For purposes of calculating compliance with the covenant, annualized results are used until June 30, 2022 when the calculation is based on the most recently ended four fiscal quarters.
·
Fixed Charge Coverage Ratio: The ratio of adjusted consolidated EBITDA to consolidated fixed charges must be equal to or greater than (a) 1.00 to 1 as of the end of the fiscal quarters ending September 30, 2021 and December 31, 2021, (b) 1.25 to 1 as of the end of the fiscal quarters ending March 31, 2022 and June 30, 2022 and (c) 1.50 to 1 as of the end of the fiscal quarter ending September 30, 2022 and each fiscal quarter thereafter. For purposes of calculating compliance with the covenant, annualized results are used until June 30, 2022 when the calculation is based on the most recently ended four fiscal quarters.
·
Borrowing Base Leverage Ratio: The ratio of indebtedness outstanding under the credit facility to borrowing base asset value (based on updated as-stabilized appraisals) cannot exceed 65%. The covenant is first tested on March 31, 2022.
·
Minimum Liquidity: Liquidity must be greater than or equal to $3,000. In addition, the Ninth Amendment provided that if liquidity is below $6,000, (a) the agent may engage a financial advisor to advise it with respect to the Company and the credit facility, (b) a $2,000 interest reserve must be maintained, (c) certain reporting must be completed on a weekly basis and (d) advances under the credit facility can only be made and applied pursuant to a cash flow waterfall.
﻿
We are also required to satisfy a debt yield financial covenant within our loan agreement relating to the three properties financed by Wells Fargo Bank. The loan agreement provides that if the Company fails to satisfy a debt yield (adjusted net cash flow / outstanding principal amount of the loan) of 10% at the end of any fiscal quarter, then a cash trap occurs. During a cash trap, the revenue generated from the hotels is directed to an account controlled by the lender and used to pay certain hotel expenses and debt service costs and fund certain reserves. Any excess funds are held by the lender as additional collateral. Failure to satisfy the debt yield and the occurrence of a cash trap do not constitute a default under the loan agreement.
﻿
In connection with the first amendment to the loan agreement entered into in May 2020, measurement of the debt yield was suspended until the measurement date occurring on March 31, 2021. The Company does not currently expect that it will satisfy the debt yield as of March 31, 2021 and that a cash trap will occur. Any cash trap will expire when the debt yield is equal to or greater than 10.5%.
﻿
Condor Hospitality Trust, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(In thousands, except share and per share data)
			
		
We are also required to satisfy various financial covenants within our loan agreement with OSK X, LLC relating to the Leawood, Kansas Aloft, including the following:
·
Property-Specific Pre-Distribution Debt Service Coverage Ratio. The ratio of adjusted net operating income for the Leawood, Kansas Aloft (before distributions) to debt service for the loans must be equal to or greater than (a) 1.00 to 1 as of the end of the fiscal quarters ending December 31, 2020, March 31, 2021 and June 30, 2021 and (b) 1.35 to 1 as of the end of the fiscal quarter ending September 30, 2021 and each fiscal quarter thereafter. For purposes of calculating compliance with the covenant, annualized results are used until June 30, 2021 when the calculation is based on the most recently ended four fiscal quarters.
·
Property-Specific Post-Distribution Debt Service Coverage Ratio. The ratio of adjusted net operating income for the Leawood, Kansas Aloft (after distributions) to debt service for the loans must be equal to or greater than (a) 1.00 to 1 as of the end of the fiscal quarters ending December 31, 2020, March 31, 2021 and June 30, 2021 and (b) 1.35 to 1 as of the end of the fiscal quarter ending September 30, 2021 and each fiscal quarter thereafter. For purposes of calculating compliance with the covenant, annualized results are used until June 30, 2021 when the calculation is based on the most recently ended four fiscal quarters.
·
Consolidated Debt Service Coverage Ratio. The ratio of consolidated adjusted net operating income for the Company to consolidated debt service must be equal to or greater than 1.05 to 1.
﻿
Certain of the terms used in the foregoing descriptions of the financial covenants within our credit facility and loan agreement have the meanings given to them in the credit facility and loan agreement, and certain of the financial covenants are subject to pro forma adjustments for acquisitions and sales of hotel properties and for specific capital events.
﻿
As a result of the actual and anticipated unprecedented negative impact of the COVID-19 virus on the hotel industry generally, the Company has received waivers of compliance with financial covenants from various lenders (including Great Western Bank with respect to the Leawood, Kansas Aloft) for the first three quarters of 2020. The Company and certain of its other lenders have also modified various financial covenants by suspending measurements, providing for lower covenants and/or using annualized results (including Great Western Bank with respect to the Leawood, Kansas Aloft).
﻿
On December 24, 2020, the Company’s loans with Great Western Bank (financing the Leawood, Kansas Aloft), with a December 31, 2020 balance of $14,079, were purchased by OSK X, LLC, an equity fund affiliate of O’Brien Staley Partners. The Company did not satisfy the financial covenants for these loans as of December 31, 2020, as was the case for the first three quarters of 2020. The Company has been advised by OSK X, LLC that it is in default for failure to comply with the financial covenants as of December 31, 2020 (unlike Great Western Bank that waived the covenants for the first three quarters of 2020). The Company is continuing to negotiate with OSK X, LLC to obtain waivers.
﻿
The loan documents with OSK X, LLC provide (a) that the Company has a 90 day cure period (ending on May 27, 2021) within which it can cure the defaults and (b) that OSK X, LLC is precluded from accelerating the loans and taking any action to foreclose on the Leawood, Kansas Aloft during the cure period. The Company also believes that there are serious questions under applicable law about whether OSK X, LLC has the ability to declare a default, accelerate the loans or foreclose on the Leawood, Kansas Aloft due to the impossibility of performance of financial covenants during the COVID-19 pandemic. The Company is diligently pursuing commitments from lenders to refinance the loans with OSK X, LLC during the cure period.
﻿
The Company intends to seek any available damages in the event of litigation that may result from the actions of OSK X, LLC.
﻿
If we fail to pay our indebtedness when due, fail to comply with covenants or otherwise default on our loans, unless waived, we could incur higher interest rates during the period of such loan defaults, be required to immediately pay our indebtedness, and ultimately lose our hotels through lender foreclosure if we are unable to obtain alternative sources of financing with acceptable terms. Our credit facility contains cross-default provisions which would allow the lenders under our credit facility to declare a default and accelerate our indebtedness to them if we default on our
Condor Hospitality Trust, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(In thousands, except share and per share data)
			
		
other loans and such default would permit that lender to accelerate our indebtedness under any such loan. The above-described defaults under our loan agreement with OSK X, LLC will not result in a cross-default under our credit facility until the 90-day cure period with respect to those defaults expires on May 27, 2021. As indicated above, the Company is diligently pursuing commitments from lenders to refinance the loans with OSK X, LLC in order to cure those defaults during the cure period.
﻿
As of December 31, 2020, other than with respect to our financial covenants for OSK X, LLC (as discussed above), we are not in default of any of our loans.
﻿
﻿
﻿
﻿
NOTE 7: CONVERTIBLE DEBT AT FAIR VALUE
﻿
As part of an agreement entered into on March 16, 2016 (the “Exchange Agreement”) with Real Estate Strategies, L.P. (“RES”, which also includes affiliated entities), the Company issued to RES a Convertible Promissory Note (the “2016 Note”), bearing interest at 6.25% per annum, in the principal amount of $1,012 initially convertible into shares of 6.25% Series D Cumulative Convertible Preferred Stock (“Series D Preferred Stock”), which could be subsequently converted into 97,269 shares of common stock. Following the conversion of all of the outstanding Series D Preferred Stock into common stock and the issuance of the Series E Preferred Stock on March 1, 2017, the 2016 Note was amended to be convertible directly into 97,269 shares of common stock at any time at the option of RES or automatically when the 6.25% Series E Cumulative Convertible Preferred Stock (“Series E Preferred Stock”) is required to be converted or is redeemed in whole (see Note 10). The 2016 Note is not convertible to the extent that a conversion would cause RES, together with its affiliates, to beneficially own more than 49% of the voting stock of the Company at the time of the conversion. Any conversion reduces the principal amount of the Note proportionally.
﻿
On November 19, 2020, the Company entered into separate Convertible Promissory Notes and Loan Agreements (the “2020 Notes”) in favor of (a) SREP III Flight-Investco 2, L.P. (“SREP”), an affiliate of StepStone Group LP, for $7,220, and (b) Efanur S.A. (“Efanur”), an affiliate of IRSA Inversiones y Representaciones Sociedad Anónima, for $2,780. Pursuant to the 2020 Notes, the Company borrowed $10,000 from SREP and Efanur and used the proceeds to repay loans outstanding under the credit facility. Each of the 2020 Notes mature upon the earliest to occur of (a) the closing of a Rights Offering (as defined below) or a Non-Rights Offering Conversion (as defined below) in an amount equal to the outstanding principal balance of the respective Note, (b) the acceleration of the respective Note on or after the occurrence of an Event of Default (as defined in the respective Note) and (c) January 2, 2023. Additionally, there is an event of default under the credit facility if the 2020 Notes are not either converted to common stock or paid in full (subject to the terms of a subordination and standstill agreement in favor of KeyBank) by July 1, 2021.
﻿
Each of the 2020 Notes accrues interest at 10.00% per annum (exclusive of any portion of the principal that is used in a Rights Offering and, in the case of the Note in favor of SREP, any backstop commitment), provides for the interest rate to increase to 20% upon an Event of Default or if any amounts under the applicable Note are outstanding after May 31, 2021, provides for the capitalization of interest, and provides for the payment of all accrued and unpaid interest and principal on the maturity date. Each of the Notes also provides, subject to a Make Whole Fee (as defined in the respective Note) payable to SREP and Efanur, as applicable, for the interest rate to increase to 25% upon a determination by the disinterested members of the board of directors of the Company (a) not to proceed with, or to terminate, a Rights Offering, (b) to prohibit a Non-Rights Offering Conversion or (c) not to seek shareholder approval of the transactions contemplated by the Notes, including the issuance of shares of common stock of the Company and the conversion price (“Shareholder Approval”), because the failure to make any such determination would reasonably be expected to constitute a breach of the directors’ duties under Maryland law (a “Board Decision”).
﻿
Subject to receipt of Shareholder Approval or a Board Decision, SREP and Efanur may elect to convert the principal due under the applicable Note into common stock of the Company in connection with any future rights offering commenced by the Company for 4,000,000 shares of common stock of the Company at a price of $2.50 per share (a “Rights Offering”). Pursuant to the Note in favor of SREP, the Company has committed to offer to SREP the option
Condor Hospitality Trust, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(In thousands, except share and per share data)
			
		
to purchase any shares of common stock of the Company underlying any unexercised rights in any such Rights Offering.
﻿
The Company and SREP entered into a backstop commitment agreement related to the Rights Offering on December 7, 2020. Pursuant to the backstop commitment agreement, SREP will backstop the Rights Offering, if commenced, on a standby basis to facilitate the transaction, by the Company selling to SREP pursuant to an exemption from the registration requirements of Section 5 of the Securities Act provided under Section 4(a)(2) thereof and/or Regulation D thereunder and SREP purchasing an aggregate number of shares of common stock equal to (x) $10.0 million, minus (y) the aggregate proceeds of the Rights Offering divided by $2.50, at a price per share equal to $2.50, subject to the terms and conditions of the backstop commitment agreement. The obligations of SREP under the backstop commitment agreement are subject to certain conditions, which, among other conditions, include: (1) that the Rights Offering must occur on or prior to May 31, 2021, and (2) that the Company exempts SREP from the ownership limitation set forth in the Company’s articles of incorporation.
﻿
If any amounts remain unpaid on the applicable Note after May 31, 2021 (or, if earlier, the termination, rescission or rejection of the Rights Offering), subject to receipt of Shareholder Approval or a Board Decision, SREP and Efanur may elect to convert the principal due under the applicable Note into 4,000,000 shares of common stock of the Company at a price of $2.50 per share (a “Non-Rights Offering Conversion”).
﻿
The issuance of shares in a Rights Offering or Non-Rights Offering Conversion received requisite Shareholder Approval at a special meeting of shareholders on January 18, 2021.
﻿
In the event of a Board Decision in order to accept an unsolicited cash offer for newly issued common stock or securities convertible into common stock of the Company, then upon consummation of any such sale, the Company is required to pay SREP and Efanur a Make Whole Fee as set forth in their respective Note.
﻿
The Company has made an irrevocable election to record these notes in its entirety at fair value utilizing the fair value option available under U.S. GAAP in order to more accurately reflect the economic value of the notes. As such, gains and losses on the notes are included in net gain (loss) on derivatives and convertible debt within net earnings (loss) each reporting period. Gains (losses) related to these notes were recognized totaling ($5,795), ($80), and $69 during the years ended December 31, 2020, 2019, and 2018, respectively. The fair value of the 2016 Note is determined using a trinomial lattice-based model, which is a generally accepted computational model typically used for pricing options and is considered a Level 3 fair value measurement. The fair value of the 2020 Note is based on the value of the note upon conversion due to the high probability associated with that event. Interest expense related to these notes is recorded separately from other changes in its fair value within interest expense each period.
﻿
The following table represents the difference between the fair value and the unpaid principal balances of the notes as of December 31, 2020:
﻿
﻿
						
						
						
						
						
						
						
						
﻿
Fair value as of December 31, 2020
						
Unpaid principal balance as of December 31, 2020
						
Fair value carrying amount (over)/under unpaid principal
2016 Note
$
1,115 				
						
$
1,012 				
						
$
(103) 				
2020 Notes
						
15,760 				
						
						
10,000 				
						
						
(5,760) 				
Total
$
16,875 				
						
$
11,012 				
						
$
(5,863) 				
﻿
﻿
﻿
﻿
Condor Hospitality Trust, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(In thousands, except share and per share data)
			
		
NOTE 8: FAIR VALUE MEASUREMENTS AND DERIVATIVE INSTRUMENTS
﻿
Our determination of fair value measurements is based on the assumptions that market participants would use in pricing the asset or liability. At December 31, 2020, the Company’s convertible debt (see Note 7) and certain derivative instruments were the only financial instruments measured in the consolidated financial statements at fair value on a recurring basis. Nonrecurring fair value measurements were utilized in the determination of the fair value of acquired hotel properties and related assumed debt in 2020 and 2018 (see Note 3), in the valuation of stock-based compensation grants (see Note 12), and in the assessment of impairment and recoveries of impairment during the year ended December 31, 2018.
﻿
Derivative Instruments
﻿
Currently, the Company uses derivatives, such as interest rate swaps and caps, to manage its interest rate risk. The fair value of interest rate positions is determined using the standard market methodology of netting the discounted expected future cash receipts and payments. Variable interest rates used in the calculation of projected receipts and payments on the positions are based on an expectation of future interest rates derived from observable market interest rate curves and volatilities. Derivatives expose the Company to credit risk in the event of non-performance by the counterparties under the terms of the agreements. The Company believes it minimizes this credit risk by transacting with major creditworthy financial institutions. These interest rate positions at December 31, 2020 and 2019 are as follows:
﻿
﻿
﻿
						
						
						
						
						
						
						
						
						
						
						
						
						
						
Associated debt
						
Type
						
Terms
						
Effective Date
						
Maturity Date
						
Notional amount at December 31, 2020
						
Notional amount at December 31, 2019
Wells Fargo
						
Swap
						
Swaps 30-day LIBOR for fixed rate of 2.053%
						
11/2017
						
11/2022
						
$
25,386 (1)
						
$
25,612 (1)
Credit facility
						
Cap
						
Caps 30-day LIBOR at 3.35%
						
4/1/2019
						
10/2020
						
$
-
						
$
30,000 				
﻿
						
						
						
						
						
						
						
						
						
						
						
						
						
						
(1)
Notional amounts amortize consistently with the principal amortization of the associated loans.
﻿
Included in the Series E Preferred Stock issued on March 1, 2017 is a redemption right that allows the Company to redeem up to a total of 490,250 shares of Series E Preferred Stock for specific percentages of its liquidation preference (see Note 10). This option requires bifurcation and was determined to be an asset with a fair value on the date of issuance of $150 using a trinomial lattice-based model, considered a Level 3 fair value measurement.
﻿
All derivatives recognized by the Company are reported as either derivative assets or liabilities on the balance sheets and are adjusted to their fair value at each reporting date. All gains and losses on derivative instruments are included in net gain (loss) on derivatives and convertible debt and with the exception of realized gains and losses related to the interest rate instruments, which are included in interest expense on the statements of operations. Net gains (losses) of ($536), ($991), and $248 were recognized related to derivative instruments for the years ended December 31, 2020, 2019, and 2018, respectively.
﻿
Recurring Fair Value Measurements
﻿
The following tables provide the fair value of the Company’s financial assets and (liabilities) carried at fair value and measured on a recurring basis:
﻿
﻿
﻿
﻿
﻿
﻿
						
						
						
						
						
						
						
						
						
						
						
						
﻿
						
Fair value at December 31, 2020
						
Level 1
						
Level 2
						
Level 3
Interest rate derivatives
						
$
(880) 				
						
$
-
						
$
(880) 				
						
$
-
Series E Preferred embedded redemption option
						
						
-
						
						
-
						
						
-
						
						
-
Convertible debt
						
						
(16,875) 				
						
						
-
						
						
-
						
						
(16,875) 				
Total
						
$
(17,755) 				
						
$
-
						
$
(880) 				
						
$
(16,875) 				
﻿
﻿
Condor Hospitality Trust, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(In thousands, except share and per share data)
			
		
﻿
						
						
						
						
						
						
						
						
						
						
						
						
﻿
						
Fair value at December 31, 2019
						
Level 1
						
Level 2
						
Level 3
Interest rate derivatives
						
$
(366) 				
						
$
-
						
$
(366) 				
						
$
-
Series E Preferred embedded redemption option
						
						
				
						
						
-
						
						
-
						
						
				
Convertible debt
						
						
(1,080) 				
						
						
-
						
						
-
						
						
(1,080) 				
Total
						
$
(1,424) 				
						
$
-
						
$
(366) 				
						
$
(1,058) 				
﻿
There were no transfers between levels during the years ended December 31, 2020, 2019, or 2018.
﻿
The following tables present a reconciliation of the beginning and ending balances of items measured at fair value on a recurring basis that use significant unobservable inputs (Level 3) and the related gains and losses recorded in the statements of operations during the periods:
﻿
﻿
﻿
						
						
						
						
						
						
						
						
						
						
						
						
						
						
						
						
						
﻿
Year ended December 31,
﻿
						
						
						
﻿
Series E Preferred embedded redemption option
						
Convertible debt
						
Total
						
Series E Preferred embedded redemption option
						
Convertible debt
						
Total
Fair value, beginning of period
$
				
						
$
(1,080) 				
						
$
(1,058) 				
						
$
				
						
$
(1,000) 				
						
$
(711) 				
Net gains (losses) recognized in earnings
						
(22) 				
						
						
(5,795) 				
						
						
(5,817) 				
						
						
(267) 				
						
						
(80) 				
						
						
(347) 				
Purchase and issuances
						
-
						
						
(10,000) 				
						
						
(10,000) 				
						
						
-
						
						
-
						
						
-
Sales and settlements
						
-
						
						
-
						
						
-
						
						
-
						
						
-
						
						
-
Gross transfers into Level 3
						
-
						
						
-
						
						
-
						
						
-
						
						
-
						
						
-
Gross transfers out of Level 3
						
-
						
						
-
						
						
-
						
						
-
						
						
-
						
						
-
Fair value, end of period
$
-
						
$
(16,875) 				
						
$
(16,875) 				
						
$
				
						
$
(1,080) 				
						
$
(1,058) 				
﻿
						
						
						
						
						
						
						
						
						
						
						
						
						
						
						
						
						
Total unrealized gains (losses) during the period included in earnings related to instruments held at end of period
$
(22) 				
						
$
(5,795) 				
						
$
(5,817) 				
						
$
(267) 				
						
$
(80) 				
						
$
(347) 				
﻿
Fair Value of Debt
﻿
The Company estimates the fair value of its fixed rate debt by discounting the future cash flows of each instrument at estimated market rates or credit spreads consistent with the maturity of debt obligations with similar credit risks. Credit spreads take into consideration general market conditions and maturity. The inputs utilized in estimating the fair value of debt are classified in Level 2 of the fair value hierarchy. Both the carrying value and the estimated fair value of the Company’s long-term debt, excluding convertible debt which is presented in the balance sheets at fair value, are presented in the table below net of deferred financing costs.
﻿
﻿
						
						
						
						
						
						
						
						
						
						
						
						
﻿
						
						
						
						
						
						
						
						
						
						
						
						
﻿
						
Carrying value at December 31,
						
Estimated fair value at December 31,
﻿
						
						
						
						
Total
						
$
166,526 				
						
$
134,001 				
						
$
167,349 				
						
$
134,288 				
﻿
Impaired Hotel Properties
﻿
In the performance of impairment analysis for both held for sale and held for use properties, fair value is determined with the assistance of independent real estate brokers and through the use of operating results and revenue multiples based on the Company’s experience with hotel sales as well as available industry information. For held for sale properties, estimated selling costs are based on our experience with similar asset sales. These are considered Level 3 fair value measurements. No impairments or recoveries of impairments were recognized during the years ended December 31, 2020 and 2019. During the year ended December 31, 2018, a recovery of impairment of $93 was recognized on one held for sale property that was subsequently sold during that year.
﻿
﻿
﻿
﻿
﻿
﻿
Condor Hospitality Trust, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(In thousands, except share and per share data)
			
		
NOTE 9. COMMON STOCK
﻿
The Company’s common stock is duly authorized, full paid, and non-assessable.
﻿
On September 20, 2017, the Company entered into an equity distribution agreement with KeyBanc Capital Markets Inc. and BMO Capital Markets Corp. (collectively, the “Sales Agents”), pursuant to which we may sell, from time to time, up to an aggregate sales price of $50,000, subject to decrease in compliance with General Instruction I.B.6 of Registration Statement on Form S-3, of shares of our common stock pursuant to a prospectus supplement we filed with the Securities and Exchange Commission (“SEC”) through the Sales Agents acting as sales agent and/or principal, through an at-the-market offering program (our “ATM program”). Pursuant to Instruction I.B.6 to Registration Statement on Form S-3, we may not sell more than the equivalent of one-third of our public float during any 12 consecutive months so long as our public float is less than $75,000.
﻿
During the year ended December 31, 2018, the Company sold 28,474 shares of common stock under the ATM program at an average sales price of $10.40 per share, for gross proceeds totaling $296 and net proceeds totaling $260. There were no sales under the ATM program in 2019 or 2020. Since the inception of the ATM program, we have sold 197,478 shares of common stock at an average sales price of $10.18 per share for gross proceeds totaling $2,011 and net proceeds totaling $1,879.
﻿
NOTE 10. PREFERRED STOCK
﻿
Series E Redeemable Convertible Preferred Stock
﻿
On February 28, 2017, the holders of the Company’s former Series D Preferred Stock voluntarily converted their shares into 6,004,957 shares of common stock at $10.40 per share pursuant to the terms of the preferred stock and additionally were granted $9,250 of newly created Series E Preferred Stock.
﻿
The Series E Preferred Stock ranks senior to the Company’s common stock and any other preferred stock issuances and receives preferential cumulative cash dividends at a rate of 6.25% per annum, payable quarterly of the $10.00 face value per share. If the Company fails to pay a dividend then during the period that dividends are not paid, additional dividends accrue at a rate of 9.50% per annum on the unpaid amount. Dividends on the Series E Preferred Stock accrue whether or not the Company has earnings, whether or not there are funds legally available for the payment of such dividends, whether or not such dividends are declared, and whether or not such dividends are prohibited by agreement.
﻿
Each share of Series E Preferred Stock is convertible, at the option of the holder, at any time on or after February 28, 2019, into a number of shares of common stock determined by dividing the conversion price of $13.845 into an amount equal to the $10.00 face value per share plus accrued and unpaid dividends, if any. Upon liquidation, each share of Series E Preferred Stock is entitled to $10.00 per share and accrued and unpaid dividends. The conversion price is subject to anti-dilution adjustments upon the occurrence of stock splits and stock dividends. Following a specific equity offering or offerings, from time to time a number of shares of Series E Preferred Stock automatically converts into common stock if the common stock trades at 120% of the conversion price for 60 trading days, and the number of shares converted will be determined by certain trading volumes measures.
﻿
The Company has rights to redeem up to 490,250 shares of the Series E Preferred Stock at prices from 110% to 130% of its liquidation value. The holders have put rights commencing March 16, 2021 to put the Series E Preferred Stock to the Company at 130% of its liquidation preference, which the Company can satisfy with cash or common stock. The Series E Preferred Stock votes as a class on matters generally affecting the Series E Preferred Stock, and as long as 434,750 shares of Series E Preferred Stock (47% of the originally issued shares of Series E Preferred Stock) remain outstanding, then 75% approval of the Series E Preferred Stock will be required to approve merger, consolidation, liquidation or winding up of the Company, related party transactions exceeding $120, payment of dividends on common stock except from funds from operations or to maintain REIT status, the grant of exemptions from the Company’s charter limitation on ownership of 9.9% of any class or series of its securities
Condor Hospitality Trust, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(In thousands, except share and per share data)
			
		
(exclusive of persons currently holding exemptions), issuance of preferred stock or commitment or agreement to do any of the foregoing.
﻿
The Series E Preferred Stock was determined to have a fair value of $9,900 on the date of issuance as measured using a trinomial lattice-based model. From this value, the embedded redemption option (see Note 8), which was determined to be an asset with a fair value on the date of issuance of $150 using the same model, was bifurcated and is accounted for at fair value at each period end. These are considered Level 3 fair value measurements.
﻿
﻿
﻿
﻿
﻿
NOTE 11. NONCONTROLLING INTEREST OF COMMON UNITS IN THE OPERATING PARTNERSHIP
﻿
At both December 31, 2020 and 2019, 219,183 of the operating partnership’s common units were outstanding, all of which were held by limited partners. The total redemption value for the common units was $17 and $47 at December 31, 2020 and 2019, respectively. Our ownership interest in the operating partnership as of both December 31, 2020 and 2019 was 99.9%.
﻿
Each limited partner of the operating partnership may, subject to certain limitations, require that the operating partnership redeem all or a portion of his or her common units at any time after a specified period following the date the units were acquired, by delivering a redemption notice to the operating partnership. When a limited partner tenders common units for redemption, the Company can, at its sole discretion, choose to purchase the units for either (1) a number of shares of Company common stock at a rate of one share of common stock for each 52 common units redeemed or (2) cash in an amount equal to the market value of the number of shares of Company common stock the limited partner would have received if the Company chose to purchase the units for common stock.
﻿
No common units were redeemed during the year ended December 31, 2020. During the year ended December 31, 2019, 259,685 common units were redeemed for cash totaling $42 and 2,802,256 common units were converted into 53,891 shares of common stock. During the year ended December 31, 2018, 1,528,803 common units were redeemed for cash totaling $298.
﻿
﻿
NOTE 12. STOCK-BASED COMPENSATION
﻿
The Company currently has in place the Condor 2016 Stock Plan, which was approved by the Company’s shareholders at the annual shareholders meeting on June 15, 2016. The 2016 Stock Plan authorizes the issuance of stock options, stock appreciation rights, restricted stock, restricted stock units, performance shares, deferred stock units, and other forms of stock-based compensation. The maximum number of shares of the Company’s common stock that may be issued under the 2016 Stock Plan is 761,538 following an amendment to the plan to increase the number of available shares by 300,000 that was approved by shareholders on May 17, 2018 at the annual meeting of shareholders. As of December 31, 2020, there were 482,136 common shares available for issuance under the 2016 Stock Plan.
﻿
Condor Hospitality Trust, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(In thousands, except share and per share data)
			
		
Service Condition Share Awards
﻿
From time to time, the Company awards restricted shares of common stock to employees, officers, and members of the Board of Directors under the 2016 Stock Plan. These shares generally vest ratably over five years for employees and officers and three years for members of the Board of Directors based on continued service or employment. Dividends paid on these restricted shares during the vesting period are not forfeited in the event that the shares fail to vest. The following table presents a summary of the service condition unvested share activity for the years ended December 31, 2020, 2019, and 2018:
﻿
﻿
﻿
						
						
						
						
						
﻿
						
Shares
						
Weighted-average grant date fair value
Unvested at December 31, 2017
						
95,832 				
						
$
10.54 				
Granted
						
23,191 				
						
$
10.28 				
Vested
						
(30,879) 				
						
$
10.56 				
Forfeited
						
(11,644) 				
						
$
10.33 				
Unvested at December 31, 2018
						
76,500 				
						
$
10.48 				
Granted
						
21,917 				
						
$
8.48 				
Vested
						
(50,328) 				
						
$
9.94 				
Forfeited
						
(1,407) 				
						
$
9.23 				
Unvested at December 31, 2019
						
46,682 				
						
$
10.16 				
Granted
						
4,775 				
						
$
5.52 				
Vested
						
(20,201) 				
						
$
10.01 				
Forfeited
						
(2,328) 				
						
$
9.14 				
Unvested at December 31, 2020
						
28,928 				
						
$
9.57 				
﻿
The fair value of the service condition unvested share awards was determined based on the closing price of the Company’s common stock on the grant date.
﻿
Market Based Share Awards
﻿
Pursuant to an amendment of an employment agreement on June 28, 2017, an executive officer may earn shares of common stock if certain market share prices of common stock are attained. Any such shares, if earned, will be issued under the 2016 Stock Plan or another shareholder approved plan. The executive officer will earn and be issued 36,692 common shares each time stock market price targets of $11.00 to $18.00 (in one dollar increments) per common share are first achieved prior to March 31, 2022 based on the weighted-average common stock price for 60 consecutive trading days. Additionally, the shares vest to the extent of the value received per share of common stock in connection with a change in control, with the payout in such case to be prorated for the portion of the value above a stock market price target but below the next stock market price target. The $11.00 tranche of this award vested on November 22, 2019.
﻿
The compensation cost related to awards that are contingent upon achieving a market based criteria is measured at the fair value of the award on the date of grant using the Monte Carlo simulation, including consideration of the market criteria, and amortized on a straight line basis over the derived performance period which is also estimated using this model. The Monte Carlo simulation method is a generally accepted statistical method used to generate a defined number of stock price paths in order to develop a reasonable estimate of the range of future expected stock prices of the Company and its peer group and minimize standard error and is considered a Level 3 fair value measurement.
﻿
Condor Hospitality Trust, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(In thousands, except share and per share data)
			
		
The grant date fair value of this award, including additional value assessed at the time of subsequent amendment of the award, totaling $1,380, was determined using the following assumptions:
﻿
﻿
﻿
						
						
						
Volatility
						
25.0 				
%
Stock price
						
$ 10.60
						
Dividend yield
						
7.4 				
%
Risk free interest rate
						
0.89% - 1.81% based upon expected time of vesting
						
﻿
Performance Based Share Awards
﻿
Pursuant to an amendment of an employment agreement on June 28, 2017, an executive officer may earn shares of common stock if certain operating results of the Company are obtained. Any such shares, if earned, will be issued under the 2016 Stock Plan or another shareholder approved plan. For each of the Company’s fiscal years 2017 through 2021, if the Company achieves between 85% and 101% of budgeted Funds from Operations (“FFO”) as approved by the Board of Directors, the executive shall earn and be issued between 11,741 and 19,569 shares of common stock, determined on a straight-line basis based on the percentage of budgeted FFO achieved. In addition, for any fiscal year in which the Company achieves in excess of 101% of budgeted FFO, an additional 391 shares of common stock will be earned for each two percent actual FFO exceeds 101% of budgeted FFO, up to a total of 3,910 additional shares of common stock per year.
﻿
The fair value of the performance based share awards is based on the closing price of the Company’s common stock on the grant date, discounted for estimated common stock dividends to be declared prior to the shares being issued. The grant date occurs on an annual basis when budgeted FFO is approved by the Board of Directors. During the year ended December 31, 2020, there were no shares issued related to performance based share awards. During the year ended December 31, 2019, 13,778 shares with a grant date fair value totaling $122 were awarded to the executive based on 2018 FFO. Simultaneously, 2,550 fully vested shares were issued to the executive with a fair value of $22 as a discretionary award. During the year ended December 31, 2018, 21,133 shares with a grant date fair value totaling $212 were awarded to the executive based on 2017 FFO.
﻿
Warrants
﻿
On March 2, 2015, the Company granted a warrant to an executive officer of the Company as an inducement material to the executive’s acceptance of employment. The Black-Scholes option pricing model was utilized at issuance for the determination of the fair value of the award. The warrant entitled the executive to purchase a total of 101,213 authorized but previously unissued shares of the Company’s common stock at a price of (i) $9.88 per share (the adjusted closing bid price of the common stock on Nasdaq on March 2, 2015) if at least one-third but not more than one-half of the shares were purchased on or prior to March 17, 2015, and (ii) $12.48 per share for shares purchased after that date. The warrant had a three-year term. The executive officer exercised the warrant in part to purchase 35,060 shares on March 11, 2015 at the price of $9.88 per share. The remaining warrant expired unexercised on March 2, 2018.
﻿
Director Fully Vested Share Compensation
﻿
Independent directors serving as members of the Investment Committee of the Board of Directors receive their monthly Investment Committee fees in the form of shares of the Company’s common stock. Certain independent directors serving as members of the Board of Directors also elect to receive a portion of their director fees in the form of shares of the Company’s common stock.
﻿
A total of 24,607, 14,936 and 11,503 shares were issued to independent directors under the 2016 Stock Plan with respect to these fees during the years ended December 31, 2020, 2019, and 2018, respectively.
﻿
Condor Hospitality Trust, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(In thousands, except share and per share data)
			
		
Stock-Based Compensation Expense
﻿
The expense recognized in the consolidated financial statements for stock-based compensation related to employees and directors for the years ended December 31, 2020, 2019, and 2018 was $173, $1,026, and $974, respectively, all of which is included in general and administrative expense. Total unrecognized compensation cost related to all awards at December 31, 2020 was $319, which is expected to be recognized over a weighted-average remaining service period of 1.7 years.
﻿
NOTE 13. INCOME TAXES
﻿
For the years ended December 2020, 2019, and 2018, the income tax expense related to the operating partnership included primarily certain state and local taxes totaling $105, $175, and $83, respectively.
﻿
The components of the income tax expense (benefit) from the TRS for the years ended December 31, 2020, 2019, and 2018 were as follows:
﻿
﻿
﻿
						
						
						
						
						
						
						
						
﻿
Year ended December 31,
﻿
						
						
Federal:
						
						
						
						
						
						
						
						
Current
$
-
						
$
-
						
$
-
Deferred
						
(550) 				
						
						
				
						
						
				
State and local:
						
						
						
						
						
						
						
						
Current
						
-
						
						
				
						
						
(8) 				
Deferred
						
				
						
						
(57) 				
						
						
				
Income tax expense (benefit)
$
(480) 				
						
$
				
						
$
				
﻿
Actual income tax expense of the TRS for the years ended December 31, 2020, 2019, and 2018 differs from the “expected” income tax expense (benefit) (computed by applying the appropriate U.S. federal income tax rate of 21% to earnings before income taxes) as a result of the following:
﻿
﻿
﻿
						
						
						
						
						
						
						
						
﻿
Year ended December 31,
﻿
						
						
Computed "expected" income tax (benefit) expense
$
(1,893) 				
						
$
				
						
$
				
State income taxes, net of federal income tax (benefit) expense
						
(240) 				
						
						
				
						
						
				
(Decrease) increase in valuation allowance
						
1,383 				
						
						
(124) 				
						
						
				
Return to provision adjustments
						
-
						
						
				
						
						
(16) 				
Adjustment to state net operating losses
						
				
						
						
-
						
						
-
Other
						
				
						
						
(10) 				
						
						
				
Total income tax expense (benefit)
$
(480) 				
						
$
				
						
$
				
﻿
Condor Hospitality Trust, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(In thousands, except share and per share data)
			
		
The tax effects of temporary differences that give rise to significant portions of deferred tax assets and deferred tax liabilities at December 31, 2020 and 2019 are as follows:
﻿
﻿
﻿
						
						
						
						
						
﻿
As of December 31,
﻿
						
Deferred Tax Assets
						
						
						
						
						
Accrued expenses and other
$
				
						
$
				
Net operating losses carried forward for federal income tax purposes
						
1,951 				
						
						
				
Net operating losses carried forward for state income tax purposes
						
				
						
						
				
AMT
						
-
						
						
				
Subtotal deferred tax assets
						
2,476 				
						
						
				
Valuation allowance
						
(1,742) 				
						
						
(359) 				
Total deferred tax assets
						
				
						
						
				
﻿
						
						
						
						
						
Deferred Liabilities
						
						
						
						
						
Tax depreciation in excess of book depreciation
						
				
						
						
				
Atlanta JV basis difference
						
-
						
						
				
Total deferred tax liabilities
						
				
						
						
1,049 				
Net deferred tax assets (liabilities)
$
-
						
$
(421) 				
﻿
In assessing the realizability of deferred tax assets, the Company considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The Company considers projected reversals of deferred income tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. Prior to 2020, it was determined by management that a valuation allowance against deferred tax assets was not required, with the exception of an allowance against certain state net operating losses, as management believed that it is more likely than not that remaining deferred tax assets will be realized. In 2020, as a result of the impact of the COVID-19 pandemic on the Company’s performance, the Company believes that a full valuation allowance against the net deferred tax asset position was necessary at December 31, 2020, which requires a valuation allowance of $1,742 as of that date.
﻿
After consideration of limitations related to a change in control as defined under Internal Revenue Code Section 382 following the Company’s common and preferred equity transactions, the TRS’s net operating loss carryforward at December 31, 2020 as determined for federal income tax purposes was $1,951. The availability of the loss carryforwards will expire in 2027 through 2034, with an indefinite carryforward for losses arising after December 31, 2017.
﻿
As of December 31, 2020, the tax years that remain subject to examination by major tax jurisdictions generally include 2017 through 2020.
﻿
Distributions to the extent of our current and accumulated earnings and profits for federal income tax purposes generally will be taxable to a shareholder as ordinary income. Distributions in excess of current and accumulated earnings and profits generally will be treated as a nontaxable reduction of the shareholder’s basis in such shareholder’s shares, to the extent thereof, and thereafter as taxable capital gain. Distributions that are treated as a reduction of the shareholder’s basis in its shares will have the effect of increasing the amount of gain, or reducing the amount of loss, recognized upon the sale of the shareholder’s shares.
﻿
Condor Hospitality Trust, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(In thousands, except share and per share data)
			
		
No distributions were paid in 2020. For income tax purposes, distributions paid per share for the years ended December 31, 2019 and 2018 were characterized as follows:
﻿
﻿
						
						
						
						
						
						
						
						
						
						
﻿
For the year ended December 31,
﻿
						
						
﻿
Amount
						
%
						
Amount
						
%
						
Common Shares:
						
						
						
						
						
						
						
						
						
						
Ordinary income
$
-
						
-
						
$
-
						
-
						
Capital gain
						
-
						
-
						
						
-
						
-
						
Return of capital
						
0.585000 				
						
100% 				
						
						
0.975000 				
						
100% 				
						
Total
$
0.585000 				
						
100% 				
						
$
0.975000 				
						
100% 				
						
﻿
						
						
						
						
						
						
						
						
						
						
Series E Preferred Stock:
						
						
						
						
						
						
						
						
						
						
Ordinary income
$
-
						
-
						
$
-
						
-
						
Capital gain
						
-
						
-
						
						
-
						
-
						
Return of capital
						
0.468750 				
						
100% 				
						
						
0.625000 				
						
100% 				
						
Total
$
0.468750 				
						
100% 				
						
$
0.625000 				
						
100% 				
						
﻿
The common and preferred share distributions declared on December 11, 2018 and paid on January 3, 2019 and December 31, 2018, respectively, were treated as 2018 distributions for tax purposes. The common share distribution declared on December 19, 2017 and paid on January 10, 2018 was treated as a 2018 distribution for tax purposes. The preferred share distribution declared on December 19, 2017 and paid on January 2, 2018 was treated as a 2017 distribution for tax purposes.
﻿
﻿
﻿
﻿
Condor Hospitality Trust, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(In thousands, except share and per share data)
			
		
NOTE 14. EARNINGS PER SHARE
﻿
The two-class method is utilized to compute earnings per common share (“EPS”) as our unvested restricted stock awards with non-forfeitable dividends are considered participating securities. Under the two-class method, losses are allocated only to those securities that have a contractual obligation to share in the losses of the Company. Our unvested restricted stock is not obligated to absorb Company losses and accordingly is not allocated losses. The following is a reconciliation of basic and diluted EPS:
﻿
﻿
						
						
						
						
						
						
						
						
﻿
						
						
						
						
						
						
						
						
﻿
Year ended December 31,
﻿
						
						
Numerator: Basic
						
						
						
						
						
						
						
						
Net earnings (loss) attributable to common shareholders
$
(19,681) 				
						
$
(5,626) 				
						
$
4,787 				
Less: Allocation to participating securities
						
-
						
						
(38) 				
						
						
(67) 				
Net earnings (loss) attributable to common shareholders, net of amount allocated to participating securities
$
(19,681) 				
						
$
(5,664) 				
						
$
4,720 				
﻿
						
						
						
						
						
						
						
						
Numerator: Diluted
						
						
						
						
						
						
						
						
Net earnings (loss) attributable to common shareholders, net of amount allocated to participating securities
$
(19,681) 				
						
$
(5,664) 				
						
$
4,720 				
Interest and fair value adjustment on Convertible Debt
						
-
						
						
-
						
						
(6) 				
Total Diluted
$
(19,681) 				
						
$
(5,664) 				
						
$
4,714 				
﻿
						
						
						
						
						
						
						
						
Denominator
						
						
						
						
						
						
						
						
Weighted average number of common shares - Basic
						
11,966,982 				
						
						
11,856,113 				
						
						
11,784,222 				
Performance Based Share Awards
						
-
						
						
-
						
						
4,285 				
Convertible Note
						
-
						
						
-
						
						
97,269 				
Weighted average number of common shares - Diluted
						
11,966,982 				
						
						
11,856,113 				
						
						
11,885,776 				
﻿
						
						
						
						
						
						
						
						
Earnings Per Share
						
						
						
						
						
						
						
						
Basic Earnings (Loss) per Share
$
(1.59) 				
						
$
(0.48) 				
						
$
0.40 				
Diluted Earnings (Loss) per Share
$
(1.59) 				
						
$
(0.48) 				
						
$
0.40 				
﻿
						
						
						
						
						
						
						
						
﻿
The following table summarizes the weighted average number of potentially dilutive securities that have been excluded from the denominator for the purpose of computing diluted EPS as they are antidilutive:
﻿
﻿
﻿
						
						
						
						
						
﻿
Year ended December 31,
﻿
						
						
Unvested restricted stock
38,012 				
						
62,742 				
						
79,456 				
Warrants - Employees (2)
-
						
-
						
11,056 				
Series E Preferred Stock
668,111 				
						
668,111 				
						
668,111 				
2016 Convertible Note
97,269 				
						
97,269 				
						
-
2020 Convertible Note
459,016 				
						
-
						
-
Operating partnership common units (1)
4,215 				
						
54,330 				
						
86,255 				
Total potentially dilutive securities excluded from the denominator
1,266,623 				
						
882,452 				
						
844,878 				
﻿
(1)
Common units have been omitted from the denominator for the purpose of computing diluted EPS since the effect of including these amounts in the numerator and denominator would have no impact on calculated EPS.
(2)
Amounts above are weighted average amounts outstanding for the period presented. These instruments were no longer outstanding at December 31, 2020.
﻿
Condor Hospitality Trust, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(In thousands, except share and per share data)
			
		
NOTE 15. COMMITMENTS AND CONTINGENCIES
﻿
Management Agreements
﻿
Our TRS engages eligible independent contractors as property managers for each of our hotels in accordance with the requirements for qualification as a REIT. The hotel management agreements provide that the management companies have control of all operational aspects of the hotels, including employee-related matters. The management companies must generally maintain each hotel under their management in good repair and condition and perform routine maintenance, repairs, and minor alterations. Additionally, the management companies must operate the hotels in accordance with the national franchise agreements that cover the hotels, which includes, as applicable, using franchisor sales and reservation systems and abiding by franchisors’ marketing standards. The management agreements generally require the TRS to fund debt service, working capital needs, and capital expenditures and to fund the management companies’ third-party operating expenses, except those expenses not related to the operation of hotels. The TRS also is responsible for obtaining and maintaining certain insurance policies with respect to the hotels.
﻿
Each of the management companies employed by the TRS at December 31, 2020 receives a base monthly management fee of 3.0% to 3.5% of gross hotel revenue, with incentives for performance which increase such fee to a maximum of 5.0%. For the years ended December 31, 2020, 2019, and 2018, base management fees incurred totaled $1,042, $1,813, and $1,779, respectively. For the years ended December 31, 2020, 2019, and 2018, incentive management fees totaled $0, $141, and $333, respectively.
﻿
The management agreements generally have initial terms of one to three years and renew for additional terms of one year unless either party to the agreement gives the other party written notice of termination at least 90 days before the end of a term. The Company may terminate a management agreement, subject to cure rights, if certain performance metrics tied to both individual hotel and total managed portfolio performance are not met. The Company may also terminate a management agreement with respect to a hotel at any time without reason upon payment of a termination fee. The management agreements terminate with respect to a hotel upon sale of the hotel, subject to certain notice requirements.
﻿
Franchise Agreements
﻿
As of December 31, 2020, all of our properties operate under franchise licenses from national hotel companies. Under our franchise agreements, we are required to pay franchise fees generally between 3.3% and 5.5% of room revenue, plus additional fees for marketing, central reservation systems, and other franchisor programs and services that amount to between 2.5% and 6.0% of room revenue. The franchise agreements typically have 10 to 25 year terms although certain agreements may be terminated by either party on certain anniversary dates specified in the agreements. Further, each agreement provides for early termination fees in the event the agreement is terminated before the stated term. Franchise fee expense totaled $2,597, $4,685, and $4,834, for the years ended December 31, 2020, 2019, and 2018, respectively.
﻿
The franchisor of two of our hotels advised us in 2019 that both of the hotels have dropped below the required level for guest satisfaction surveys, and that if the hotels do not achieve compliance, it reserves the right to elect to terminate the relevant franchise agreement. While the Company believes that it has corrected all deficiencies, the franchisor has informed us that they are not reassessing the accountability status of any properties until at the earliest July 2021.
﻿
Leases
﻿
The Company has no land lease agreements in place related to properties owned at December 31, 2020 and had no land lease expense related to the years ended December 31, 2020, 2019, and 2018.
﻿
Each of the Company’s three office leases expired in 2019 with space currently now being rented month to month in one location. Office lease expense totaled $27, $133, and $160 in the years ended December 31, 2020, 2019, and
Condor Hospitality Trust, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(In thousands, except share and per share data)
			
		
2018, respectively, and is included in general and administrative expense. The Company also has in place operating leases for miscellaneous equipment at its hotel properties.
﻿
The maturity of the lease liabilities for the Company’s operating leases is as follows:
﻿
﻿
﻿
						
						
Maturity of lease liabilities
						
						
Year ended December 31,
						
						
				
$
				
				
						
				
				
						
				
				
						
				
				
						
				
Thereafter
						
				
Total lease payments
$
				
Less: Imputed interest
						
(12) 				
Present value of lease liabilities
$
				
﻿
Benefit Plans
﻿
The Company has a qualified contributory retirement plan under Section 401(k) of the Code (the “401(k) Plan”) which covers all employees who meet certain eligibility requirements. Voluntary contributions may be made to the 401(k) Plan by employees. The 401(k) Plan is a Safe Harbor Plan and requires a mandatory employer contribution. The employer contribution expense for the years ended December 31, 2020, 2019, and 2018 was $26, $52, and $71, respectively, and is included in general and administrative expenses.
﻿
Litigation
﻿
﻿
﻿
Various claims and legal proceedings arise in the ordinary course of business and may be pending against the Company and its properties. We are not currently involved in any material litigation, nor, to our knowledge, is any material litigation threatened against us. The Company has insurance to cover potential material losses and we believe it is not reasonably possible that such matters will have a material impact on our financial condition or results of operations.
﻿
NOTE 16. QUARTERLY OPERATING RESULTS (UNAUDITED)
﻿
﻿
						
						
						
						
						
						
						
						
						
						
						
						
						
						
						
﻿
						
Quarter ended (unaudited)
﻿
						
March 31, 2020
						
June 30, 2020
						
September 30, 2020
						
December 31, 2020
						
Total 2020
﻿
						
						
						
						
						
						
						
						
						
						
						
						
						
						
						
Revenue
						
$
13,227 				
						
$
4,811 				
						
$
8,841 				
						
$
8,309 				
						
$
35,188 				
Operating expenses
						
						
13,862 				
						
						
8,960 				
						
						
11,644 				
						
						
5,353 				
						
						
39,819 				
Operating income (loss)
						
						
(635) 				
						
						
(4,149) 				
						
						
(2,803) 				
						
						
2,956 				
						
						
(4,631) 				
﻿
						
						
						
						
						
						
						
						
						
						
						
						
						
						
						
Net loss on dispositions of assets
						
						
(9) 				
						
						
(1) 				
						
						
(3) 				
						
						
(5) 				
						
						
(18) 				
Equity in earnings of joint venture
						
						
				
						
						
-
						
						
-
						
						
-
						
						
				
Net gain (loss) on derivatives and convertible debt
						
						
(759) 				
						
						
				
						
						
				
						
						
(5,722) 				
						
						
(6,331) 				
Other income (expense), net
						
						
(28) 				
						
						
(58) 				
						
						
(4) 				
						
						
				
						
						
(65) 				
Interest expense
						
						
(1,980) 				
						
						
(2,070) 				
						
						
(2,103) 				
						
						
(2,328) 				
						
						
(8,481) 				
Loss before income taxes
						
						
(3,331) 				
						
						
(6,259) 				
						
						
(4,782) 				
						
						
(5,074) 				
						
						
(19,446) 				
Income tax (expense) benefit
						
						
				
						
						
				
						
						
(27) 				
						
						
				
						
						
				
Net loss
						
						
(3,025) 				
						
						
(6,198) 				
						
						
(4,809) 				
						
						
(5,039) 				
						
						
(19,071) 				
Loss attributable to noncontrolling interest
						
						
				
						
						
				
						
						
				
						
						
				
						
						
				
Net loss attributable to controlling interests
						
						
(3,024) 				
						
						
(6,196) 				
						
						
(4,807) 				
						
						
(5,037) 				
						
						
(19,064) 				
Dividends undeclared on preferred stock
						
						
(145) 				
						
						
(144) 				
						
						
(169) 				
						
						
(159) 				
						
						
(617) 				
Net loss attributable to common shareholders
						
$
(3,169) 				
						
$
(6,340) 				
						
$
(4,976) 				
						
$
(5,196) 				
						
$
(19,681) 				
﻿
						
						
						
						
						
						
						
						
						
						
						
						
						
						
						
Earnings (loss) per Share (1)
						
						
						
						
						
						
						
						
						
						
						
						
						
						
						
Total - Basic Earnings (loss) per Share
						
$
(0.27) 				
						
$
(0.53) 				
						
$
(0.42) 				
						
$
(0.38) 				
						
$
(1.59) 				
Total - Diluted Earnings (loss) per Share
						
$
(0.27) 				
						
$
(0.53) 				
						
$
(0.42) 				
						
$
(0.38) 				
						
$
(1.59) 				
﻿
(1) Quarterly and total annual EPS are based on the weighted average number of shares outstanding during each quarter and the annual period. Due to rounding and differences in earnings and losses between the quarterly and annual periods, the sum of the quarterly EPS amounts may not equal the reported amounts for the year.
Condor Hospitality Trust, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(In thousands, except share and per share data)
			
		
﻿
﻿
						
						
						
						
						
						
						
						
						
						
						
						
						
						
						
﻿
						
Quarter ended (unaudited)
﻿
						
March 31, 2019
						
June 30, 2019
						
September 30, 2019
						
December 31, 2019
						
Total 2019
﻿
						
						
						
						
						
						
						
						
						
						
						
						
						
						
						
Revenue
						
$
15,903 				
						
$
16,177 				
						
$
14,666 				
						
$
14,306 				
						
$
61,052 				
Operating expenses
						
						
13,825 				
						
						
14,562 				
						
						
14,386 				
						
						
13,412 				
						
						
56,185 				
Operating income
						
						
2,078 				
						
						
1,615 				
						
						
				
						
						
				
						
						
4,867 				
﻿
						
						
						
						
						
						
						
						
						
						
						
						
						
						
						
Net gain (loss) on dispositions of assets
						
						
				
						
						
(16) 				
						
						
(14) 				
						
						
(45) 				
						
						
(36) 				
Equity in earnings (loss) of joint venture
						
						
				
						
						
				
						
						
(84) 				
						
						
(405) 				
						
						
				
Net loss on derivatives and convertible debt
						
						
(237) 				
						
						
(456) 				
						
						
(223) 				
						
						
(155) 				
						
						
(1,071) 				
Other expense, net
						
						
(29) 				
						
						
(24) 				
						
						
(27) 				
						
						
(24) 				
						
						
(104) 				
Interest expense
						
						
(2,163) 				
						
						
(2,094) 				
						
						
(1,912) 				
						
						
(1,807) 				
						
						
(7,976) 				
Earnings (loss) before income taxes
						
						
				
						
						
(809) 				
						
						
(1,980) 				
						
						
(1,542) 				
						
						
(4,130) 				
Income tax expense
						
						
(186) 				
						
						
(461) 				
						
						
(8) 				
						
						
(282) 				
						
						
(937) 				
Net earnings (loss)
						
						
				
						
						
(1,270) 				
						
						
(1,988) 				
						
						
(1,824) 				
						
						
(5,067) 				
Loss attributable to noncontrolling interest
						
						
				
						
						
				
						
						
				
						
						
				
						
						
				
Net earnings (loss) attributable to controlling interests
						
						
				
						
						
(1,264) 				
						
						
(1,978) 				
						
						
(1,822) 				
						
						
(5,048) 				
Dividends declared and undeclared on preferred stock
						
						
(145) 				
						
						
(144) 				
						
						
(145) 				
						
						
(144) 				
						
						
(578) 				
Net loss attributable to common shareholders
						
$
(129) 				
						
$
(1,408) 				
						
$
(2,123) 				
						
$
(1,966) 				
						
$
(5,626) 				
﻿
						
						
						
						
						
						
						
						
						
						
						
						
						
						
						
Earnings (loss) per Share (1)
						
						
						
						
						
						
						
						
						
						
						
						
						
						
						
Total - Basic Earnings (loss) per Share
						
$
(0.01) 				
						
$
(0.12) 				
						
$
(0.18) 				
						
$
(0.17) 				
						
$
(0.48) 				
Total - Diluted Earnings (loss) per Share
						
$
(0.01) 				
						
$
(0.12) 				
						
$
(0.18) 				
						
$
(0.17) 				
						
$
(0.48) 				
﻿
(1) Quarterly and total annual EPS are based on the weighted average number of shares outstanding during each quarter and the annual period. Due to rounding and differences in earnings and losses between the quarterly and annual periods, the sum of the quarterly EPS amounts may not equal the reported amounts for the year.
﻿
﻿
			 		
Condor Hospitality Trust, Inc. and Subsidiaries
Schedule III Real Estate and Accumulated Depreciation
As of December 31, 2020
(In thousands)
﻿
﻿
﻿
﻿
﻿
﻿
﻿
﻿
﻿
						
						
						
						
						
						
						
						
						
						
						
						
						
						
						
						
						
						
						
						
						
						
						
						
						
						
						
						
						
						
						
						
						
						
						
						
						
						
						
﻿
						
						
						
						
						
						
						
						
						
						
						
						
						
						
						
						
						
						
						
						
						
						
						
						
						
						
						
						
						
						
						
						
﻿
						
						
						
						
						
						
						
						
						
						
						
						
						
						
						
						
Additions, (dispositions), and (impairments)
						
						
						
						
						
						
						
						
						
						
						
						
						
						
						
﻿
						
						
						
						
						
						
						
Initial cost
						
Subsequent to acquisition
						
Gross amount at December 31, 2020
						
						
						
Brand
						
Location
						
Acquisition date
						
Encumbrance
						
Land
						
Buildings & Other
						
Furniture & equipment
						
Land
						
Buildings & Other
						
Furniture & equipment
						
Land
						
Buildings & Other
						
Furniture & equipment
						
Accumulated depreciation
						
Net book value
Hilton Garden Inn
						
Dowell, Maryland
						
05/25/2012
						
KEY
						
$
1,400 				
						
$
9,492 				
						
$
				
						
$
-
						
$
				
						
$
				
						
$
1,400 				
						
$
10,163 				
						
$
				
						
$
(3,045) 				
						
$
9,444 				
SpringHill Suites
						
San Antonio, Texas
						
10/01/2015
						
WELLS
						
						
1,597 				
						
						
14,353 				
						
						
1,550 				
						
						
-
						
						
				
						
						
				
						
						
1,597 				
						
						
14,475 				
						
						
1,640 				
						
						
(3,342) 				
						
						
14,370 				
Courtyard by Marriott
						
Jacksonville, Florida
						
10/02/2015
						
WELLS
						
						
2,100 				
						
						
11,050 				
						
						
				
						
						
-
						
						
				
						
						
				
						
						
2,100 				
						
						
11,386 				
						
						
1,093 				
						
						
(2,526) 				
						
						
12,053 				
Hotel Indigo
						
Atlanta, Georgia
						
10/02/2015
						
WELLS
						
						
				
						
						
8,700 				
						
						
1,500 				
						
						
-
						
						
				
						
						
				
						
						
				
						
						
8,859 				
						
						
1,785 				
						
						
(3,065) 				
						
						
8,379 				
Aloft
						
Leawood, Kansas
						
12/14/2016
						
OSK
						
						
3,339 				
						
						
18,046 				
						
						
1,115 				
						
						
-
						
						
				
						
						
1,537 				
						
						
3,339 				
						
						
18,415 				
						
						
2,652 				
						
						
(3,595) 				
						
						
20,811 				
Home2 Suites
						
Lexington, Kentucky
						
03/24/2017
						
KEY
						
						
				
						
						
14,204 				
						
						
1,351 				
						
						
-
						
						
				
						
						
				
						
						
				
						
						
14,363 				
						
						
1,518 				
						
						
(2,532) 				
						
						
14,254 				
Home2 Suites
						
Round Rock, Texas
						
03/24/2017
						
KEY
						
						
1,087 				
						
						
14,345 				
						
						
1,285 				
						
						
-
						
						
				
						
						
				
						
						
1,087 				
						
						
14,515 				
						
						
1,320 				
						
						
(2,407) 				
						
						
14,515 				
Home2 Suites
						
Tallahassee, Florida
						
03/24/2017
						
KEY
						
						
1,519 				
						
						
18,229 				
						
						
1,727 				
						
						
-
						
						
				
						
						
				
						
						
1,519 				
						
						
18,393 				
						
						
1,755 				
						
						
(3,120) 				
						
						
18,547 				
Home2 Suites
						
Southaven, Mississippi
						
04/14/2017
						
MS
						
						
1,311 				
						
						
16,792 				
						
						
				
						
						
-
						
						
				
						
						
				
						
						
1,311 				
						
						
16,972 				
						
						
1,000 				
						
						
(2,709) 				
						
						
16,574 				
Hampton Inn & Suites
						
Lake Mary, Florida
						
06/19/2017
						
KEY
						
						
1,200 				
						
						
16,432 				
						
						
1,773 				
						
						
-
						
						
				
						
						
				
						
						
1,200 				
						
						
16,736 				
						
						
1,979 				
						
						
(2,799) 				
						
						
17,116 				
Fairfield Inn & Suites
						
El Paso, Texas
						
08/31/2017
						
KEY
						
						
1,014 				
						
						
14,297 				
						
						
1,089 				
						
						
-
						
						
				
						
						
				
						
						
1,014 				
						
						
14,414 				
						
						
1,137 				
						
						
(2,053) 				
						
						
14,512 				
Residence Inn
						
Austin, Texas
						
08/31/2017
						
KEY
						
						
1,495 				
						
						
19,630 				
						
						
1,275 				
						
						
-
						
						
				
						
						
				
						
						
1,495 				
						
						
19,793 				
						
						
1,353 				
						
						
(2,514) 				
						
						
20,127 				
TownePlace Suites
						
Austin, Texas
						
01/18/2018
						
KEY
						
						
1,435 				
						
						
16,459 				
						
						
1,729 				
						
						
-
						
						
				
						
						
				
						
						
1,435 				
						
						
16,639 				
						
						
1,767 				
						
						
(2,144) 				
						
						
17,697 				
Home2 Suites
						
Summerville, SC
						
02/21/2018
						
KEY
						
						
				
						
						
13,491 				
						
						
1,854 				
						
						
-
						
						
				
						
						
				
						
						
				
						
						
13,682 				
						
						
1,890 				
						
						
(1,934) 				
						
						
14,636 				
Aloft
						
Atlanta, Georgia
						
02/14/2020
						
KEY
						
						
14,728 				
						
						
37,020 				
						
						
2,432 				
						
						
-
						
						
-
						
						
				
						
						
14,728 				
						
						
37,020 				
						
						
2,455 				
						
						
(1,603) 				
						
						
52,600 				
Subtotal Hotel Properties
						
						
						
						
						
						
						
						
34,928 				
						
						
242,540 				
						
						
20,750 				
						
						
-
						
						
3,285 				
						
						
3,520 				
						
						
34,928 				
						
						
245,825 				
						
						
24,270 				
						
						
(39,388) 				
						
						
265,635 				
Construction in progress
						
						
						
						
						
						
						
						
-
						
						
-
						
						
-
						
						
-
						
						
-
						
						
				
						
						
-
						
						
-
						
						
				
						
						
-
						
						
				
Office building
						
						
						
						
						
						
						
						
-
						
						
-
						
						
-
						
						
-
						
						
-
						
						
				
						
						
-
						
						
-
						
						
				
						
						
(341) 				
						
						
				
Total
						
						
						
						
						
						
						
$
34,928 				
						
$
242,540 				
						
$
20,750 				
						
$
-
						
$
3,285 				
						
$
3,995 				
						
$
34,928 				
						
$
245,825 				
						
$
24,745 				
						
$
(39,729) 				
						
$
265,769 				
﻿
﻿
﻿
﻿
﻿
			 		
Condor Hospitality Trust, Inc. and Subsidiaries
Notes to Schedule III Real Estate and Accumulated Depreciation
As of December 31, 2020
(In thousands)
			
		
Encumbrance codes refer to the following lenders:
﻿
﻿
						
						
						
KEY
KeyBank credit facility
OSK
OSK X, LLC
Wells
Wells Fargo
MS
Morgan Stanley Bank of America Merrill Lynch Trust 2014-C18
﻿
See accompanying report of independent registered public accounting firm
﻿
﻿
			 		
Condor Hospitality Trust, Inc. and Subsidiaries
Notes to Schedule III Real Estate and Accumulated Depreciation
As of December 31, 2020
(In thousands)
﻿
﻿
﻿
﻿
﻿
﻿
						
						
						
						
﻿
						
						
						
						
﻿
ASSET BASIS
						
Total
(a)
Balance at January 1, 2018
						
$
241,128 				
﻿
Additions
						
						
38,198 				
﻿
Disposals
						
						
(22,220) 				
﻿
Impairment loss, net
						
						
				
﻿
Balance at December 31, 2018
						
						
257,199 				
﻿
Additions
						
						
1,504 				
﻿
Disposals
						
						
(7,843) 				
﻿
Balance at December 31, 2019
						
						
250,860 				
﻿
Additions
						
						
54,759 				
﻿
Disposals
						
						
(121) 				
﻿
Balance at December 31, 2020
						
$
305,498 				
﻿
						
						
						
						
﻿
ACCUMULATED DEPRECIATION
						
Total
(b)
Balance at January 1, 2018
						
$
21,548 				
﻿
Depreciation for the period ended December 31, 2018
						
						
9,475 				
﻿
Depreciation on assets sold or disposed
						
						
(8,094) 				
﻿
Balance at December 31, 2018
						
						
22,929 				
﻿
Depreciation for the period ended December 31, 2019
						
						
9,563 				
﻿
Depreciation on assets sold or disposed
						
						
(3,615) 				
﻿
Balance at December 31, 2019
						
						
28,877 				
﻿
Depreciation for the period ended December 31, 2020
						
						
10,951 				
﻿
Depreciation on assets sold or disposed
						
						
(99) 				
﻿
Balance at December 31, 2020
						
$
39,729 				
﻿
						
						
						
						
﻿
(a)
The aggregate cost of land, buildings, furniture and equipment for Federal income tax purposes is approximately $259 million (unaudited).
﻿
(b)
Depreciation is computed based upon the following useful lives:
Buildings and improvements 15 - 40 years
Furniture and equipment 3 - 12 years
﻿
(c)
The Company has mortgages payable on the properties as noted. Additional mortgage information can be found in Note 6 to the consolidated financial statements.
﻿
﻿

---

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

---

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
﻿
None.
﻿

---

ITEM 9A. CONTROLS AND PROCEDURES
ITEM 9A. CONTROLS AND PROCEDURES
﻿
Disclosure Controls and Procedures
﻿
An evaluation was performed under the supervision of management, with the participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as defined in Rule 13a-15 of the rules promulgated under the Securities and Exchange Act of 1934, as amended. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of the period covered by this report, the Company’s disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed by the Company in the reports the Company files or submits under the Securities Exchange Act of 1934 was (a) accumulated and communicated to management, including the Company’s Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosures and (b) recorded, processed, summarized, and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms.
﻿
Other than as discussed below, no changes in the Company’s internal controls over financial reporting occurred during the last fiscal quarter covered by this report that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
﻿
Management’s Annual Report On Internal Control Over Financial Reporting
﻿
The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting as such term is defined in Securities Exchange Act Rule 13a-15(f). The Company carried out an evaluation under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the Company’s internal control over financial reporting as of December 31, 2019. The Company’s management used the framework in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations (COSO) to perform this evaluation. Based on that evaluation, the Company’s management concluded that the Company’s internal control over financial reporting was effective as of December 31, 2020.
﻿
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with policies or procedures may deteriorate.
﻿
This annual report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Internal control over financial reporting was not subject to attestation by our registered public accounting firm pursuant to rules of the Securities and Exchange Commission that permit us to provide only management’s report in this annual report.
﻿
Changes in Internal Control Over Financial Reporting
﻿
There have been no changes in our internal control over financial reporting that occurred during the last fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
﻿

---

ITEM 9B. OTHER INFORMATION
ITEM 9B. OTHER INFORMATION
﻿
None.
			
		
PART III
﻿

---

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE
﻿
The information required by this item is incorporated by reference to the Company’s definitive Proxy Statement for the 2021 Annual Meeting of Stockholders.
﻿
The Company has adopted a Code of Business Conduct and Ethics and Whistleblower Policy that applies to the Company’s Chief Executive Officer, Chief Financial Officer and Chief Accounting Officer and has posted the code on its website at www.condorhospitality.com through the “Investors” link. The Company intends to satisfy the disclosure requirement under Item 5.05 of Form 8-K relating to amendments to or waivers from any provision of the Code of Business Conduct and Ethics and Whistleblower Policy applicable to the Company’s Chief Executive Officer, Chief Financial Officer or Chief Accounting Officer by posting that information on the Company’s Web site at www.condorhospitality.com through the “Investors” link.
﻿

---

ITEM 11. EXECUTIVE COMPENSATION
ITEM 11. EXECUTIVE COMPENSATION
﻿
The information required by this item is incorporated by reference to the Company’s definitive Proxy Statement for the 2021 Annual Meeting of Stockholders.
﻿

---

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
﻿
Certain of the information required by this item is incorporated by reference to the Company’s definitive Proxy Statement for the 2021 Annual Meeting of Stockholders.
﻿
Equity Compensation Plan Information
The following table provides information about the Company’s common stock that may be issued upon exercise of options, warrants, and rights under existing equity compensation plans as of December 31, 2020:
﻿
						
						
						
						
						
						
						
						
						
						
						
Plan category
Number of securities
to be issued
upon exercise of outstanding
options, warrants, and rights
(a)
Weighted average
exercise price of
outstanding options,
warrants, and rights
(b)
Number of securities
remaining available
for future
issuance under equity
compensation plans (including
securities plans reflected
in column(a))
(c)
Equity compensation plans approved by security holders
-
$
-
482,136 (1)
Equity compensation plans not approved by security holders
-
-
-
Total
-
$
-
482,136
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(1)
Represents shares issuable under the Company’s 2016 Stock Plan. The maximum number of shares of the Company’s common stock that may be issued under the 2016 Stock Plan is 761,538. Additionally, an executive officer will be issued shares under the 2016 Stock Plan, if sufficient shares are then available under the 2016 Stock Plan, of 36,692 common shares each time stock market price targets of $12.00 to $18.00 (in one dollar increments) per common share are first achieved prior to March 31, 2022 based on the weighted-average common stock price for 60 consecutive
			
		
trading days (or upon a change in control with the award prorated for the portion between price targets), and between 11,741 and 23,479 shares annually if budgeted Funds from Operations targets are achieved.
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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
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The information required by this item is incorporated by reference to the Company’s definitive Proxy Statement for the 2021 Annual Meeting of Stockholders.
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ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
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The information required by this item is incorporated by reference to the Company’s definitive Proxy Statement for the 2021 Annual Meeting of Stockholders.
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PART IV
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ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
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Financial Statements and Financial Statement Schedules
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The following financial statements and financial statement schedule are included in this report on the pages listed below:
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Page
﻿Report of Independent Registered Public Accounting Firm
﻿Consolidated Balance Sheets as of December 31, 2020 and 2019
﻿Consolidated Statements of Operations for the Years Ended December 31, 2020, 2019, and 2018
﻿Consolidated Statements of Equity for the Years Ended December 31, 2020, 2019, and 2018
﻿Consolidated Statements of Cash Flows for the Years Ended December 31, 2020, 2019, and 2018
﻿Notes to Consolidated Financial Statements
﻿Schedule III - Real Estate and Accumulated Depreciation
﻿Notes to Schedule III - Real Estate and Accumulated Depreciation
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All other schedules for which provision is made in Regulation S-X are either not required to be included herein pursuant to the related instructions are inapplicable, or the related information is included in the footnotes to the applicable financial statement, and, therefore, have been omitted from this Item 15.
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Exhibits
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3.1
Amended and Restated Articles of Incorporation of the Company, as amended (incorporated herein by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K (Commission file number 001-34087) dated May 24, 2017).
3.2
Bylaws of the Company, as amended (incorporated herein by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K (Commission file number 001-34087) dated July 18, 2019).
4.1
Description of the Company’s Securities Registered pursuant to Section 12 of the Securities Exchange Act of 1934, as amended (incorporated herein by reference to Exhibit 4.1 to the Company’s Annual Report on Form 10-K (Commission file number 001-34087) for the year ended December 31, 2019).
			
		
10.1
Third Amended and Restated Agreement of Limited Partnership of Condor Hospitality Limited Partnership, as amended (incorporated herein by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q (Commission file number 001-34087) for the quarter ended September 30, 2016).
10.2
Loan Agreement dated as of December 14, 2016 among CDOR KCI Loft, LLC, TRS KCI Loft, LLC and Great Western Bank (incorporated herein by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K (Commission file number 001-34087) dated December 14, 2016).
10.3
Springing Unconditional Guaranty of Payment and Performance dated as of December 14, 2016 by the Company in favor of Great Western Bank (incorporated herein by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K (Commission file number 001-34087) dated December 14, 2016).
10.4
Limited Guaranty of Payment and Performance dated as of December 14, 2016 by the Company in favor of Great Western Bank (incorporated herein by reference to Exhibit 10.5 to the Company’s Current Report on Form 8-K (Commission file number 001-34087) dated December 14, 2016).
10.5
First Amendment to Loan Agreement dated as of March 9, 2019 among CDOR KCI Loft, LLC, TRS KCI Loft, LLC and Great Western Bank (incorporated herein by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K (Commission file number 001-34087) dated March 5, 2019).
10.6
Second Amendment to Loan Agreement dated as of March 30, 2020 among CDOR KCI Loft, LLC, TRS KCI Loft, LLC and Great Western Bank (incorporated herein by reference to Exhibit 10.86 to the Company’s Annual Report on Form 10-K (Commission file number 001-34087) for the year ended December 31, 2019).
10.7
Third Amendment to Loan Agreement dated as of May 13, 2020 among CDOR KCI Loft, LLC and TRS KCI Loft, LLC, as Borrowers, and Great Western Bank, as Lender (incorporated herein by reference to Exhibit 10.8 to the Company's Quarterly Report on Form 10-Q (Commission file number 001-34087) for the quarter ended March 31, 2020).
10.8
Fourth Amendment to Loan Agreement, effective as of June 30, 2020, among CDOR KCI Loft, LLC and TRS KCI Loft, LLC, as Borrowers, and Great Western Bank, as Lender (incorporated herein by reference to Exhibit 10.2 to the Company's Current Report on Form 8-K (Commission file number 001-34087) dated July 20, 2020).
10.9
Credit Agreement dated as of March 1, 2017 by and among Condor Hospitality Limited Partnership, as Borrower, Keybank National Association and the other lenders party thereto, as Lenders, and Keybank National Association, as Administrative Agent (incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K (Commission file number 001-34087) dated March 1, 2017).
10.10
Unconditional Guaranty of Payment and Performance dated as of March 1, 2017 by Condor Hospitality REIT Trust, the Company and the subsidiary guarantors party thereto (incorporated herein by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K (Commission file number 001-34087) dated March 1, 2017).
			
		
10.11
First Amendment to Credit Agreement dated as of May 11, 2017 among Condor Hospitality Limited Partnership, as Borrower, the Company and the subsidiary guarantors party thereto, as Guarantors, Keybank National Association and the other lenders party thereto, as Lenders, and Keybank National Association, as Administrative Agent (incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K (Commission file number 001-34087) dated May 11, 2017).
10.12
Second Amendment to Credit Agreement dated as of December 13, 2017 among Condor Hospitality Limited Partnership, as Borrower, the Company and the subsidiary guarantors party thereto, as Guarantors, Keybank National Association and the other lenders party thereto, as Lenders, and Keybank National Association, as Administrative Agent (incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K (Commission file number 001-34087) dated December 13, 2017).
10.13
Third Amendment to Credit Agreement dated as of March 9, 2019 among Condor Hospitality Limited Partnership, as Borrower, the Company and the subsidiary guarantors party thereto, as Guarantors, KeyBank National Association and the other lenders party thereto, as Lenders, and KeyBank National Association, as Administrative Agent (incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K (Commission file number 001-34087) dated March 5, 2019).
10.14
Fourth Amendment to Credit Agreement dated as of May 3, 2019 among Condor Hospitality Limited Partnership, as Borrower, the Company and the subsidiary guarantors party thereto, as Guarantors, KeyBank National Association and the other lenders party thereto, as Lenders, and KeyBank National Association, as Administrative Agent (incorporated herein by reference to Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q (Commission file number 001-34087) for the quarter ended March 31, 2019).
10.15
Fifth Amendment to Credit Agreement dated as of August 9, 2019 among Condor Hospitality Limited Partnership, as Borrower, the Company and the subsidiary guarantors party thereto, as Guarantors, KeyBank National Association and the other lenders party thereto, as Lenders, and KeyBank National Association, as Administrative Agent (incorporated herein by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q (Commission file number 001-34087) for the quarter ended June 30, 2019).
10.16
Sixth Amendment to Credit Agreement dated as of March 30, 2020 among Condor Hospitality Limited Partnership, as Borrower, the Company and the subsidiary guarantors party thereto, as Guarantors, KeyBank National Association and the other lenders party thereto, as Lenders, and KeyBank National Association, as Administrative Agent (incorporated herein by reference to Exhibit 10.83 to the Company’s Annual Report on Form 10-K (Commission file number 001-34087) for the year ended December 31, 2019).
10.17
Exhibit A to Sixth Amendment to Credit Agreement dated as of March 30, 2020 among Condor Hospitality Limited Partnership, as Borrower, the Company and the subsidiary guarantors party thereto, as Guarantors, KeyBank National Association and the other lenders party thereto, as Lenders, and KeyBank National Association, as Administrative Agent (incorporated herein by reference to Exhibit 10.84 to the Company’s Annual Report on Form 10-K (Commission file number 001-34087) for the year ended December 31, 2019).
			
		
10.18
Exhibit B to Sixth Amendment to Credit Agreement dated as of March 30, 2020 among Condor Hospitality Limited Partnership, as Borrower, the Company and the subsidiary guarantors party thereto, as Guarantors, KeyBank National Association and the other lenders party thereto, as Lenders, and KeyBank National Association, as Administrative Agent (incorporated herein by reference to Exhibit 10.85 to the Company’s Annual Report on Form 10-K (Commission file number 001-34087) for the year ended December 31, 2019).
10.19
Seventh Amendment to Credit Agreement dated as of May 13, 2020 among Condor Hospitality Limited Partnership, as Borrower, the Company and the other subsidiary guarantors party thereto, as Guarantors, KeyBank National Association and the other lenders party thereto, as Lenders, and KeyBank National Association, as Administrative Agent (incorporated herein by reference to Exhibit 10.6 to the Company's Quarterly Report on Form 10-Q (Commission file number 001-34087) for the quarter ended March 31, 2020).
10.20
Eighth Amendment to Credit Agreement dated as of November 16, 2020 among Condor Hospitality Limited Partnership, as Borrower, the Company and the subsidiary guarantors party thereto, as Guarantors, KeyBank National Association and the other lenders party thereto, as Lenders, and KeyBank National Association, as Administrative Agent (incorporated herein by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q (Commission file number 001-34087) for the quarter ended September 30, 2020).
10.21
Ninth Amendment to Credit Agreement dated as of November 18, 2020 among Condor Hospitality Limited Partnership, as Borrower, the Company and the subsidiary guarantors party thereto, as Guarantors, KeyBank National Association and the other lenders party thereto, as Lenders, and KeyBank National Association, as Administrative Agent (incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K (Commission file number 001-34087) dated November 18, 2020).
10.22
Exhibit A to Ninth Amendment to Credit Agreement dated as of November 18, 2020 among Condor Hospitality Limited Partnership, as Borrower, the Company and the subsidiary guarantors party thereto, as Guarantors, KeyBank National Association and the other lenders party thereto, as Lenders, and KeyBank National Association, as Administrative Agent (incorporated herein by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K (Commission file number 001-34087) dated November 18, 2020).
10.23
Exhibit B to Ninth Amendment to Credit Agreement dated as of November 18, 2020 among Condor Hospitality Limited Partnership, as Borrower, the Company and the subsidiary guarantors party thereto, as Guarantors, KeyBank National Association and the other lenders party thereto, as Lenders, and KeyBank National Association, as Administrative Agent (incorporated herein by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K (Commission file number 001-34087) dated November 18, 2020).
10.24
Loan Agreement dated as of October 4, 2017 between CDOR Jax Court, LLC, TRS Jax Court, LLC, CDOR Atl Indy, LLC, TRS Atl Indy, LLC, CDOR San Spring, LLC and TRS San Spring, LLC and Wells Fargo Bank, National Association (incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K (Commission file number 001-34087) dated October 4, 2017).
10.25
Guaranty of Recourse Obligations dated as of October 4, 2017 by the Company to Wells Fargo Bank, National Association (incorporated herein by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K (Commission file number 001-34087) dated October 4, 2017).
			
		
10.26
Cash Management Agreement dated as of October 4, 2017 by and among Wells Fargo Bank, National Association and CDOR Jax Court, LLC, TRS Jax Court, LLC, CDOR Atl Indy, LLC, TRS Atl Indy, LLC, CDOR San Spring, LLC and TRS San Spring, LLC (incorporated herein by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K (Commission file number 001-34087) dated October 4, 2017).
10.27
First Loan Modification Agreement dated as of May 12, 2020 among CDOR Jax Court, LLC, TRS Jax Court, LLC, CDOR Atl Indy, LLC, TRS Atl Indy, LLC, CDOR San Spring, LLC and TRS San Spring, LLC, as Borrowers, and Wells Fargo Bank, National Association, as Lender (incorporated herein by reference to Exhibit 10.7 to the Company's Quarterly Report on Form 10-Q (Commission file number 001-34087) for the quarter ended March 31, 2020).
10.28
Purchase Agreement, dated November 16, 2011, by and among the Company, Condor Hospitality Limited Partnership and Real Estate Strategies L.P. (incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K/A (Commission file number 001-34087) dated November 16, 2011).
10.29
Warrants issued to Real Estate Strategies L.P. dated February 1, 2012 and February 15, 2012 (incorporated herein by reference to Exhibit 10.39 to the Company’s Annual Report on Form 10-K (Commission file number 001-34087) for the year ended December 31, 2011).
10.30
Investor Rights and Conversion Agreement, dated February 1, 2012, by and among the Company, Real Estate Strategies L.P. and IRSA Inversiones y Representaciones Sociedad Anónima (incorporated herein by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K (Commission file number 001-34087) dated January 30, 2012).
10.31
Registration Rights Agreement, dated February 1, 2012, by and among the Company, Real Estate Strategies L.P. and IRSA Inversiones y Representaciones Sociedad Anónima (incorporated herein by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K (Commission file number 001-34087) dated January 30, 2012).
10.32
Directors Designation Agreement, dated February 1, 2012, by and among the Company, Real Estate Strategies L.P. and IRSA Inversiones y Representaciones Sociedad Anónima (incorporated herein by reference to Exhibit 10.5 to the Company’s Current Report on Form 8-K (Commission file number 001-34087) dated January 30, 2012).
10.33
Agreement, dated August 9, 2013, by and among the Company, Real Estate Strategies L.P. and IRSA Inversiones y Representaciones Sociedad Anonima (incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K (Commission file number 001-34087) dated August 9, 2013).
10.34
Agreement, dated July 23, 2015, between Real Estate Strategies L.P., IRSA Inversiones y Representaciones Sociedad Anonima and the Company (incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K (Commission file number 001-34087) dated July 23, 2015).
10.35
Warrant dated January 24, 2017 issued to Real Estate Strategies L.P. (incorporated herein by reference to Exhibit 10.5 to the Company’s Current Report on Form 8-K (Commission file number 001-34087) dated January 23, 2017).
10.36
Agreement, dated as of February 28, 2017, by and among Real Estate Strategies L.P., IRSA Inversiones y Representaciones Sociedad Anónima and the Company (incorporated herein by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K (Commission file number 001-34087) dated February 28, 2017).
			
		
10.37
Joinder Agreement dated June 29, 2018 by and among the Company, Real Estate Strategies L.P., IRSA Inversiones y Representaciones Sociedad Anonima, and Real Estate Investment Group VII L.P. (incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K (Commission file number 001-34087) dated June 29, 2018).
10.38
Convertible Promissory Note and Loan Agreement dated as of November 18, 2020 by the Company in favor of Efanur S.A. (incorporated herein by reference to Exhibit 10.5 to the Company’s Current Report on Form 8-K (Commission file number 001-34087) dated November 18, 2020).
10.39
Voting Agreement dated as of November 18, 2020 between Real Estate Investment Group VII L.P., Real Estate Strategies L.P., Efanur S.A. and the Company (incorporated herein by reference to Exhibit 10.7 to the Company’s Current Report on Form 8-K (Commission file number 001-34087) dated November 18, 2020).
10.40
Stock Purchase Agreement, dated as of March 16, 2016, between SREP III Flight-Investco, L.P. and the Company (incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K (Commission file number 001-34087) dated March 16, 2016).
10.41
Investor Rights Agreement, dated as of March 16, 2016, by and among SREP III Flight-Investco, L.P., StepStone Group Real Estate LP and the Company (incorporated herein by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K (Commission file number 001-34087) dated March 16, 2016).
10.42
Agreement, dated as of March 16, 2016, by and among Real Estate Strategies L.P., IRSA Inversiones y Representaciones Sociedad Anónima and the Company (incorporated herein by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K (Commission file number 001-34087) dated March 16, 2016).
10.43
Agreement, dated as of February 28, 2017, between SREP III Flight-Investco, L.P., StepStone Group Real Estate LP and the Company (incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K (Commission file number 001-34087) dated February 28, 2017).
10.44
Convertible Promissory Note and Loan Agreement dated as of November 18, 2020 by the Company in favor of SREP III Flight-Investco 2, L.P. (incorporated herein by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K (Commission file number 001-34087) dated November 18, 2020).
10.45
Voting Agreement dated as of November 18, 2020 between StepStone Group Real Estate LP, StepStone Rep III (GP), LLC, StepStone Group Real Estate Holdings LLC, SREP Flight-Investco, L.P. and the Company (incorporated herein by reference to Exhibit 10.6 to the Company’s Current Report on Form 8-K (Commission file number 001-34087) dated November 18, 2020).
10.46
Backstop Commitment Agreement dated as of December 7, 2020 between the Company and SREP III Flight-Investco 2, L.P. (incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K (Commission file number 001-34087) dated December 7, 2020).
10.47
The Company’s 2006 Stock Plan (incorporated herein by reference to Exhibit 10.31 to the Company’s Annual Report on Form 10-K (Commission file number 001-34087) for the year ended December 31, 2011).
10.48
Amendment to the Company’s 2006 Stock Plan dated May 28, 2009 (incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K (Commission file number 001-34087) dated May 28, 2009).
			
		
10.49
Amendment to the Company’s 2006 Stock Plan dated May 22, 2012 (incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K (Commission file number 001-34087) dated May 22, 2012).
10.50
Form of Stock Option Agreement (incorporated herein by reference to Exhibit 10.32 to the Company’s Annual Report on Form 10-K (Commission file number 001-34087) for the year ended December 31, 2011).
10.51
The Company’s 2016 Stock Plan (incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K (Commission file number 001-34087) dated June 15, 2016).
10.52
Amendment to the Company’s 2016 Stock Plan (incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K (Commission file number 001-34087) dated May 17, 2018.
10.53
Amended and Restated Employment Agreement dated March 2, 2015 by and between the Company and J. William Blackham, as amended and restated on September 16, 2016 (incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K (Commission file number 001-34087) dated September 16, 2016).
10.54
Common Stock Purchase Warrant dated March 2, 2015 between the Company and J. William Blackham (incorporated herein by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K (Commission file number 001-34087) dated March 2, 2015).
10.55
Amendment of Employment Agreement dated June 28, 2017 between J. William Blackham and the Company (incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K (Commission file number 001-34087) dated June 28, 2017).
10.56
Amendment of Employment Agreement dated April 10, 2018 between J. William Blackham and the Company (incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K (Commission file number 001-34087) dated April 10, 2018.
10.57
Form of Executive Officer and Director Indemnification Agreement (incorporated herein by reference to Exhibit 10.5 to the Company’s Quarterly Report on Form 10-Q (Commission file number 001-34087) for the quarter ended March 31, 2016).
10.58
Form of Restricted Stock Agreement (incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K (Commission file number 001-34087) dated March 29, 2017).
10.59
Form of Director Restricted Stock Agreement (incorporated herein by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K (Commission file number 001-34087) dated June 19, 2017).
14.1
Code of Business Conduct and Ethics and Whistleblower Policy (incorporated herein by reference to Exhibit 14.1 to the Company’s Current Report on Form 8-K (Commission file number 001-34087) dated May 17, 2018.
21.0*
Subsidiaries.
23.1*
Consent of KPMG LLP
31.1*
Section 302 Certification of Chief Executive Officer.
			
		
31.2*
Section 302 Certification of Chief Financial Officer.
32.1*
Section 906 Certifications.
101.1*
The following materials from the Company’s Annual Report on Form 10-K for the year ended December 31, 2020, formatted in XBRL (eXtensible Business Reporting Language): (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Operations, (iii) the Consolidated Statements of Equity, (iv) the Consolidated Statements of Cash Flows and (v) Notes to Consolidated Financial Statements.
Pursuant to Item 601 (b)(4) of Regulation S-K, certain instruments with respect to the Company’s long-term debt are not filed with this Form 10-K. The Company will furnish a copy of any such long-term debt agreement to the Securities and Exchange Commission upon request.
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Management contracts and compensatory plans are set forth as Exhibits 10.48 through 10.63.
* Filed herewith.
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Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto dually authorized
						
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March 18, 2021
/s/J. William Blackham
						
						
						
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J. William Blackham
						
						
						
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Chief Executive Officer
						
						
						
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Pursuant to the requirements of the Securities and Exchange Act of 1934, this report has been signed by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
						
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