EDGAR 10-K Filing

Company CIK: 929545
Filing Year: 2022
Filename: 929545_10-K_2022_0000929545-22-000004.json

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ITEM 1. BUSINESS
ITEM 1. BUSINESS
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 date of this Form 10-K.
Overview
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 most recently traded under the symbol “CDOR” on the NYSE American stock exchange (the “Exchange”). As the Company would no longer meet continued listing requirements of the Exchange upon the substantial liquidation dividend distribution on December 30, 2021 (see below under “Special Dividend Liquidation Distribution”) and after consultation with the Exchange, on December 10, 2021, the Company, in accordance with the authority granted by the Company’s board of directors, provided written notice to the Exchange of its intention to voluntarily delist its common stock, par value $0.01 (the “Common Stock”), on the Exchange. The Company filed a Form 25 with the Securities and Exchange Commission (“SEC”) and the Exchange relating to the delisting of the Common Stock on December 20, 2021, with the trading of its Common Stock on the Exchange suspended on December 31, 2021. The official delisting of the Common Stock was effective on December 31, 2021.
The Company is a self-administered real estate investment trust (“REIT”) for federal income tax purposes that previously specialized in the investment and ownership of high-quality select-service, limited-service, extended stay, and compact full service hotels. As of December 31, 2021, the Company owned no properties pursuant to the Hotel Purchase and Sale Agreement and the Plan of Liquidation as discussed below.
We were 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.
Hotel Purchase and Sale Agreement
On June 21, 2021, the Company announced that its board of directors (the “Company Board”) is evaluating strategic alternatives to enhance shareholder value. Following unanimous approval by the Company Board, on September 22, 2021, the Company and B9 Cowboy Mezz A LLC, a Delaware limited liability company and affiliate of Blackstone Real Estate Partners (the “Buyer”), entered into a Hotel Purchase and Sale Agreement (the “Purchase Agreement”). The Purchase Agreement provides that, upon the terms and subject to the conditions set forth therein, the Buyer will acquire Company’s portfolio of 15 hotels (the “Portfolio”) for a cash purchase price of $305.0 million (the “Portfolio Sale”), subject to certain credits and adjustments. At a special shareholder meeting (the “Special Stockholder Meeting”) commenced on November 12, 2021, the Portfolio Sale was approved by the Company shareholders.
On November 19, 2021, the Company completed the Portfolio Sale, and received cash proceeds, net of payment of related expenses and the repayment of the Company’s debt, totaling approximately $113.9 million.
Plan of Liquidation
On September 20, 2021 the Company Board unanimously approved a plan of complete liquidation and dissolution (the “Plan of Liquidation”) pursuant to which the Company would be liquidated and dissolved, subject to approval of the Plan of Liquidation (the “Liquidation Proposal”), including the liquidation and dissolution of the Company pursuant thereto, by the Company’s shareholders at the Special Stockholder Meeting. At the Special Stockholder Meeting completed on December 1, 2021, the Liquidation Proposal was approved by Company shareholders. Pursuant to the Plan of Liquidation and in accordance with the applicable provisions of law, the Company is authorized to do all other things reasonably necessary or advisable to complete the liquidation and dissolution of the Company. The Company is not required to obtain any further shareholder approval with respect to the liquidation and dissolution of the Company. Under the Plan of Liquidation, the Company Board may modify, amend or abandon the Plan of Liquidation, notwithstanding shareholder approval, to the extent permitted by the Maryland General Corporation Law (the “MGCL”). The Company has no present plans or intentions to modify, amend or abandon the Plan of Liquidation.
Special Dividend Liquidation Distribution
In accordance with the Plan of Liquidation, the Company Board approved a special dividend liquidation distribution of $7.94 per share of Common Stock to its stockholders of record as of the close of business on December 27, 2021. The special dividend liquidation distribution was paid on December 30, 2021. Upon completion of the winding-up process and dissolution, if any funds remain, such funds will be distributed to shareholders.
Structure and Tax Status
We conduct our business through a traditional umbrella partnership REIT, or UPREIT, in which our hotel properties were 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, 2021, we owned an approximate 99.9% ownership interest in the operating partnership.
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 leased 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 engaged 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.
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.
Employees
At December 31, 2021, the Company had one employee.
Available Information
Our telephone number is (301) 861-3305 and we currently maintain an Internet website located at www.condorhospitality.com. So long as we maintain our internet website, 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., P.O Box 153, Battle Creek, Nebraska, Attn: Corporate Secretary.
Our expectation is that in the course of winding up, the Company will discontinue its website. The SEC maintains an internet website at www.sec.gov that contains reports, proxy and information statements, and other information regarding issuers, including the Company, that file electronically with the SEC.

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ITEM 1A. RISK FACTORS
Item 1A. Risk Factors
The following discussion concerns the risks associated with our business and Plan of Liquidation 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.”
Risks Related to the Plan of Liquidation
Our board of directors may amend or terminate the Plan of Liquidation even though it has been approved by shareholders, if it determines that doing so is in the best interest of the Company and our shareholders.
Even though our shareholders have approved the Plan of Liquidation, at any time prior to the filing of the Articles of Dissolution, the Company Board may amend or terminate the Plan of Liquidation without further shareholder approval if it determines that doing so would be in the best interest of the Company and our shareholders. Thus, we may decide to conduct the liquidation differently than described in our filings with the SEC or not at all.
We may fail to continue to qualify as a REIT, which would reduce the amount of any potential distributions.
So long as we qualify as a REIT and distribute all of our taxable income each year, we generally will not be subject to federal income tax. While the Company Board does not presently intend to terminate our REIT status prior to the final liquidating distribution of our assets, if any, and our dissolution, pursuant to the Plan of Liquidation, the Company Board may take actions that would result in such a loss of REIT status. To qualify as a REIT, we must satisfy various ongoing requirements relating to the nature of our gross assets and income, the timing and amount of distributions and the composition of our shareholders. There can be no assurance that the Company will be able to maintain its REIT qualification. We may encounter difficulties satisfying these requirements as part of the liquidation process. If we lose our REIT status, we would be taxable as a corporation for federal income tax purposes and would be liable for federal income taxes, including any applicable alternative minimum tax, at the corporate rate with respect to our entire income from operations and from liquidating sales of our assets for the taxable year in which our qualification as a REIT terminates and in any subsequent years, and we would not be entitled to a tax deduction for distributions that we make. We would also be subject to increased state and local
taxes. As a result of these consequences, our failure to qualify as a REIT could substantially reduce the funds, if any, available for distribution to our shareholders.
We cannot determine at this time the amount or timing of final remaining distributions, if any, to our shareholders in connection with our liquidation because there are many factors, some of which are not within our control, that could affect the amount or timing of any such distributions, if any.
The remaining amounts, if any, that may ultimately be available for distribution to our shareholders are not yet fully known, there are many factors that may affect the amounts available for distribution to our shareholders, including, among other things, the operating costs and amounts to be set aside for claims, liabilities and other obligations prior to and during the liquidation and winding-up process, and the time required to complete our liquidation and winding up.
Additional liabilities and obligations could arise.
Following the sale of our hotels, we retained liabilities that must be satisfied prior to any final distribution to our shareholders, and some of those liabilities are uncertain. Significant time could be required to resolve some of these liabilities, which could impact both the timing and the amount of any potential final distribution to our shareholders. Also, some liabilities may involve third party disputes or may be beyond our control. We may have underestimated our existing obligations and liabilities or unanticipated or contingent liabilities may arise. For the foregoing reasons, among others, there can be no assurance as to the timing and amount of any final distributions, if any, to our shareholders.
If our transaction costs, liquidation costs or unpaid liabilities are greater than we expect, our liquidating distributions may be delayed or reduced.
Before making liquidating distributions, if any, to our shareholders, we will need to pay or arrange for the payment of all of our transaction costs in the liquidation, all other costs and all valid claims of our creditors. The Company Board may also decide to acquire one or more insurance policies covering unknown or contingent claims against us or them, for which we would pay a premium which has not yet been determined. The Company Board may also decide to establish a reserve fund to pay these contingent claims. The amounts of transaction costs in the liquidation are not yet final, so we have used estimates of these costs. To the extent that we have underestimated these costs in calculating our projections or we incur unforeseen additional costs, our actual liquidating distributions may be lower than our estimated range. In addition, if the claims of our creditors are greater than we have anticipated or we decide to acquire one or more insurance policies covering unknown or contingent claims against us, our liquidating distributions may be delayed or reduced. Further, if a reserve fund is established, payment of liquidating distributions, if any, to our shareholders may be delayed or reduced.
Distributing interests in a liquidating trust or conversion of the Company to another form of liquidating entity may cause you to recognize gain prior to the receipt of cash.
The REIT provisions of the Tax Code generally require that each year we distribute as dividends to our shareholders at least 90% of our REIT taxable income (determined without regard to the dividends paid deduction and by excluding any net capital gains). Our liquidating distributions generally will not qualify as deductible dividends for this purpose unless, among other things, we make such distributions within 24 months after the adoption of the Plan of Liquidation.
Conditions may arise which cause us not to be able to liquidate within such 24-month period. In such event, rather than retain our assets and risk losing our status as a REIT, we may elect, for tax purposes, to transfer our remaining assets and liabilities to a liquidating trust or convert the Company to a liquidating entity that is a limited liability company, partnership or a trust. In addition, the Company Board may cause the Company to transfer its remaining assets and liabilities to a liquidating trust or to convert the Company to another liquidating entity if the Company Board determines, in its discretion, that it is advantageous or appropriate to do so. Such a transfer or conversion would be treated as a distribution of our remaining assets to our shareholders, together with a contribution of the assets to the liquidating trust or other liquidating entity. As a result, you would recognize gain to the extent that your share of the cash and the net fair market value of any assets (less liabilities assumed) received or initially held by the liquidating trust or other liquidating entity was greater than your basis in your Company common stock, regardless of whether you contemporaneously receive a distribution of cash with which to satisfy any resulting tax liability, and
the Company may have withholding tax obligations with respect to foreign shareholders. In addition, it is possible that the fair market value of the assets received or initially held by the liquidating trust or other liquidating entity, as estimated for purposes of determining the extent of your gain at the time at which interests in the liquidating trust or other liquidating entity are distributed to the shareholders, will exceed the cash or fair market value of property received by the liquidating trust or other liquidating entity on a later sale of the assets. In this case, you could recognize a loss in a taxable year subsequent to the taxable year in which the gain was recognized, the deductibility of which may be limited under the Tax Code. The distribution to shareholders of interests in a liquidating trust or the conversion of the Company to a liquidating entity may also cause ongoing adverse tax consequences (particularly to tax-exempt and foreign shareholders, which may be required to file U.S. tax returns with respect to their share of income generated by the liquidating trust or other liquidating entity).
Stockholders may be liable to our creditors for the amount received from us if our reserve fund or the assets transferred to a liquidating trust are inadequate.
In the event that it should not be feasible, in the opinion of the Company Board, for the Company to pay, or adequately provide for, all of our debts and liabilities, or if the Company Board shall determine it is advisable, the Company Board may establish a liquidating trust to which the Company could distribute in kind its unsold assets.
Any reserve fund or assets transferred to a liquidating trust established by us may not be adequate to cover any contingent expenses and liabilities. Under Maryland law, if we make distributions and fail to maintain an adequate reserve fund or fail to transfer adequate assets in a liquidating trust for payment of our contingent expenses and liabilities, each shareholder could be held liable for payment to our creditors of such amounts owed to creditors which we fail to pay. The liability of any shareholder would be limited to the amount of such liquidating distributions previously received by such shareholder from us or the liquidating trust.
Accordingly, in such event, a shareholder could be required to return all such distributions received from the Company or the liquidating trust. If a shareholder has paid taxes on liquidating distributions previously received, a repayment of all or a portion of such amount could result in a shareholder incurring a net tax cost if the shareholder’s repayment of an amount previously distributed does not cause a commensurate reduction in taxes payable.

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

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ITEM 2. PROPERTIES
ITEM 2. PROPERTIES
The Company owned no properties as of December 31, 2021.

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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.

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

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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. As the Company would no longer meet continued listing requirements of the Exchange upon the substantial liquidation dividend distribution on December 30, 2021 and after consultation with the Exchange, on December 10, 2021, the Company, in accordance with the authority granted by the Company Board, provided written notice to the Exchange of its intention to voluntarily delist its Common Stock on the Exchange. The Company filed a Form 25 with the SEC and the Exchange relating to the delisting of the Common Stock on December 20, 2021, with the trading of its Common Stock on the Exchange suspended on December 31, 2021. The official delisting of the Common Stock was effective on December 31, 2021.
Special Dividend Liquidation Distribution
In accordance with the Plan of Liquidation, the Company Board approved a special dividend liquidation distribution of $7.94 per share of Common Stock to its stockholders of record as of the close of business on December 27, 2021. The special dividend liquidation distribution was paid on December 30, 2021. Upon completion of the winding-up process and dissolution, if any funds remain, such funds will be distributed to shareholders.
Shareholder Information
As of January 31, 2022, the approximate number of holders of record of our common stock was 107. However, because the majority of our common shares appear to be held by brokers and other institutions on behalf of shareholders, we believe that there are 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 Company Board based on expenditure requirements and the annual distribution requirements under the REIT provisions of the Code, and other factors that the Company Board deems relevant.
For income tax purposes, the distribution made in December 2021 (see “Special Dividend Liquidation Distribution” above) was characterized as a cash liquidation distribution. There were no distributions made in 2020. The distributions paid per share for the year ended December 31, 2019 was characterized as follows.
For the year ended December 31, 2019
Amount
%
Common Shares:
Ordinary income
$
-
-
Capital gain
-
-
Return of capital
0.585000
100%
Total
$
0.585000
100%
Series E Preferred Stock:
Ordinary income
$
-
-
Capital gain
-
-
Return of capital
0.468750
100%
Total
$
0.468750
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.
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.

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ITEM 6. SELECTED FINANCIAL DATA
ITEM 6. RESERVED

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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 period from January 1, 2021 through December 1, 2021 (the date on which the Liquidation Basis of Accounting was adopted) and the year ended December 31, 2020. Comparisons of 2020 financial information to the same information for 2019 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, 2020 as filed with the SEC on March 31, 2021.
Hotel Purchase and Sale Agreement
On June 21, 2021, the Company announced that its board of directors (the “Company Board”) is evaluating strategic alternatives to enhance shareholder value. Following unanimous approval by the Company Board, on September 22, 2021, the Company and B9 Cowboy Mezz A LLC, a Delaware limited liability company and affiliate of Blackstone Real Estate Partners (the “Buyer”), entered into a Hotel Purchase and Sale Agreement (the “Purchase Agreement”). The Purchase Agreement provides that, upon the terms and subject to the conditions set forth therein, the Buyer will acquire Company’s portfolio of 15 hotels (the “Portfolio”) for a cash purchase price of $305.0 million (the “Portfolio Sale”), subject to certain credits and adjustments. At a special shareholder meeting (the “Special Stockholder Meeting”) commenced on November 12, 2021, the Portfolio Sale was approved by the Company shareholders.
On November 19, 2021, the Company completed the Portfolio Sale, and received cash proceeds, net of payment of related expenses and the repayment of the Company’s debt, totaling approximately $113.9 million.
Plan of Liquidation
On September 20, 2021 the Company Board unanimously approved a plan of complete liquidation and dissolution (the “Plan of Liquidation”) pursuant to which the Company would be liquidated and dissolved, subject to approval of the Plan of Liquidation (the “Liquidation Proposal”), including the liquidation and dissolution of the Company pursuant thereto, by the Company’s shareholders at the Special Stockholder Meeting. At the Special Stockholder Meeting completed on December 1, 2021, the Liquidation Proposal was approved by Company shareholders. Pursuant to the Plan of Liquidation and in accordance with the applicable provisions of law, the Company is authorized to do all other things reasonably necessary or advisable to complete the liquidation and dissolution of the Company. The Company is not required to obtain any further shareholder approval with respect to the liquidation and dissolution of the Company. Under the Plan of Liquidation, the Company Board may modify, amend or abandon the Plan of Liquidation, notwithstanding shareholder approval, to the extent permitted by the Maryland General Corporation Law (the “MGCL”). The Company has no present plans or intentions to modify, amend or abandon the Plan of Liquidation.
Special Dividend Liquidation Distribution
In accordance with the Plan of Liquidation, the Company Board approved a special dividend liquidation distribution of $7.94 per share of Common Stock to its stockholders of record as of the close of business on December 27, 2021. The special dividend liquidation distribution was paid on December 30, 2021. Upon completion of the winding-up process and dissolution, if any funds remain, such funds will be distributed to shareholders.
Overview
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 most recently traded under the symbol “CDOR” on the NYSE American stock exchange (the “Exchange”). As the Company would no longer meet continued listing requirements of the Exchange upon the substantial liquidation dividend distribution on December 30, 2021 (see above under “Special Dividend Liquidation Distribution”) and after consultation with the Exchange, on December 10, 2021, the Company, in accordance with the authority granted by the Company’s board of directors, provided written notice to the Exchange of its intention to voluntarily delist its common stock, par value $0.01 (the “Common Stock”), on the Exchange. The Company filed a Form 25 with the Securities and Exchange Commission (“SEC”) and the Exchange relating to the delisting of the Common Stock on December 20, 2021, with the trading of its Common Stock on the Exchange suspended on December 31, 2021. The official delisting of the Common Stock was effective on December 31, 2021.
The Company is a self-administered real estate investment trust (“REIT”) for federal income tax purposes that specialized in the investment and ownership of high-quality select-service, limited-service, extended stay, and compact full service hotels. As of December 31, 2021, the Company owned no properties pursuant to the Hotel Purchase and Sale Agreement and the Plan of Liquidation as discussed below.
COVID-19 Pandemic
The novel coronavirus (COVID-19) has reduced travel significantly and adversely affected the hospitality industry in general. Since late March 2020, similar to the conditions affecting the hospitality industry as a whole, we experienced occupancy declines at many of our properties which required us to adjust our business operations.
As a result of the above factors, the Company took action at the corporate and hotel level, including, but not limited to:
Obtained significant modifications of its debt agreements.
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, all of which was forgiven in 2021.
Pursuing corporate cost reductions, including staffing reductions, resulting in decreased in general and administrative expenses compared to historical operations.
Capital improvement projects were suspended except for emergency circumstances.
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 were deemed necessary.
Hotel Property Portfolio Activity
Acquisitions
During the period from January 1, 2021 through December 1, 2021, there were no hotel acquisitions.
Dispositions
During the period from January 1, 2021 through December 1, 2021, pursuant to the Purchase Agreement discussed above, the Company sold its entire portfolio of 15 hotels for proceeds of $305.0 million, subject to certain credit and adjustments (See “Hotel and Purchase Agreement” above). The following properties were sold:
Hotel Name
City
State
Rooms
Acquisition Date
Company 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
08/22/2016
$43,550
Aloft
Leawood
KS
12/14/2016
$22,500
Home2 Suites
Lexington
KY
03/24/2017
$16,500
Home2 Suites
Round Rock
TX
03/24/2017
$16,750
Home2 Suites
Tallahassee
FL
03/24/2017
$21,500
Home2 Suites
Southaven
MS
04/14/2017
$19,000
Hampton Inn & Suites
Lake Mary
FL
06/19/2017
$19,250
Fairfield Inn & Suites
El Paso
TX
08/31/2017
$16,400
Residence Inn
Austin
TX
08/31/2017
$22,400
TownePlace Suites
Austin
TX
01/18/2018
$19,750
Home2 Suites
Summerville
SC
02/21/2018
$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.
Cash proceeds, net of the payment of related expenses and the repayment of the Company’s debt, totaled approximately $113.9 million.
Operating Performance Metrics
The following table presents our comparative same-store occupancy, ADR, and RevPAR for all our hotels owned at the time of the Portfolio Sale on November 19, 2021. 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.
For the period from January 1 through November 19, 2021
Year ended December 31, 2020
Occupancy
ADR
RevPAR
Occupancy
ADR
RevPAR
Total Same-Store Portfolio
68.31%
$
108.15
$
73.88
51.49%
$
99.00
$
50.98
Total same-store RevPAR increased by 44.9% in the 2021 period presented, with occupancy increasing by 32.7% and ADR increasing by 9.2%. This increased operating performance reflects the decreased impact of COVID-19 on the 2021 period.
Results of Operations
For the period from January 1 through December 1, 2021
Year ended December 31, 2020
Variance
Revenue
$
47,827
$
35,188
$
12,639
Hotel and property operations expense
(33,330)
(29,563)
(3,767)
Depreciation and amortization expense
(9,674)
(10,956)
1,282
General and administrative expense
(4,574)
(4,006)
(568)
Strategic alternatives, net
(754)
4,706
(5,460)
Net gain (loss) on disposition of assets
53,014
(18)
53,032
Equity in earnings of joint venture
-
(80)
Net gain (loss) on derivatives and convertible debt
6,330
(6,331)
12,661
Other income (expense), net
2,438
(65)
2,503
Interest expense
(9,404)
(8,481)
(923)
Loss on extinguishment of debt
(4,476)
-
(4,476)
Income tax benefit (expense)
(292)
(667)
Net earnings (loss)
$
47,105
$
(19,071)
$
66,176
Comparison of the period from January 1, 2021 through December 1, 2021 to the year ended December 31, 2020 (in thousands, except per share amounts)
Revenue
Revenue increased by a total of $12,639, or 35.9%, as a result of the increases in RevPAR resulting from the COVID-19 pandemic as discussed above and increased revenue resulting from the acquisition of the remaining interest in the Atlanta JV in the first quarter of 2020. These increases were partially offset by the decreased period of activity in 2021 as all portfolio hotels were sold on November 19, 2021.
Hotel and property operations expense
Hotel and property operations expense increased by $3,767. Hotel operating expenses were 69.6% of revenue in the 2021 period presented versus 84.0% of revenue in 2020.
Depreciation and amortization expense
Depreciation and amortization expense decreased by $1,282 as a result of the decreased period of activity in the 2021 period presented as all portfolio hotels were sold on November 19, 2021.
General and administrative expense
General and administrative expense increased by $568 driven by consulting and legal fees incurred in the 2021 period presented in preparation for the winding down of the Company.
Strategic alternatives, net
During both the 2021 period presented and 2020, significant expenses were recognized as strategic alternatives expenses, or costs incurred related to the Company’s strategic alternatives initiative. 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 related to a Merger Agreement that was terminated on September 18, 2020 by and among the Company, Condor Hospitality Limited Partnership, NHT Operating Partnership, LLC, NHT REIT Merger Sub, LLC and NHT Operating Partnership II, LLC.
Net gain/loss on disposition of assets
The gain on the disposition of assets in 2021 during the period presented related to the portfolio sale of all of the Company’s hotel properties which occurred on November 19, 2021.
Equity in earnings of joint venture
Equity in earnings of joint venture decreased by $80 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 gain/loss on derivatives and convertible debt
The increase in net gain on derivatives and convertible debt of $12,661 was driven by changes in the fair value of the Company’s convertible notes, largely of the 2020 Notes, due to increases and decreases in the Company’s stock price between the issuance of the 2020 Notes and period ends.
Other income/expense, net
The increase in other income was a result of a gain on the forgiveness of PPP loans totaling $2,299 during the second quarter of 2021.
Interest expense
Interest expense increased in total by $923 largely as a result of the issuance of the $10,000 face value 2020 Convertible Notes in November of 2020.
Loss on extinguishment of debt
The Company incurred a loss on extinguishment of debt in 2021 during the period presented as a result of the early repayment of debt as part of the portfolio sale on November 19, 2021.
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%. Beginning 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. This valuation allowance was maintained in 2021 with the majority of income tax expense in the 2021 period presented related to limitations placed on the use of operating losses against current period income.
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 period from January 1, 2021 to December 1, 2021 and the years ended December 31, 2020 and 2019 (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.
For the period from January 1 through December 1,
Year ended December 31,
Reconciliation of Net Earnings (Loss) to FFO and AFFO
Net earnings (loss)
$
47,105
$
(19,071)
$
(5,067)
Depreciation and amortization expense
9,674
10,956
9,568
Depreciation and amortization expense from JV
-
1,195
Net loss (gain) on disposition of assets
(53,014)
Net loss on disposition of assets from JV
-
-
FFO
3,765
(7,952)
5,734
Dividends declared and undeclared on preferred stock
(383)
(617)
(578)
FFO attributable to common shares and common units
3,382
(8,569)
5,156
Net loss (gain) on derivatives and convertible debt
(6,330)
6,331
1,071
Net loss on derivatives from JV
-
-
Acquisitions and terminated transactions expense
-
-
Strategic alternatives expense, net
(4,706)
2,110
Loss on extinguishment of debt
4,476
-
-
Loss on extinguishment of debt from JV
-
-
Stock-based compensation expense
1,026
Amortization of deferred financing fees
1,210
1,267
Amortization of deferred financing fees from JV
-
AFFO attributable to common shares and common units
$
3,642
$
(5,468)
$
11,251
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 period from January 1, 2021 through December 1, 2021 and the years ended December 31, 2020 and 2019 (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.
For the period from January 1 through December 1,
Year ended December 31,
Reconciliation of Net earnings (loss) to EBITDA, EBITDAre, Adjusted EBITDAre, and Hotel EBITDA
Net earnings (loss)
$
47,105
$
(19,071)
$
(5,067)
Interest expense
9,404
8,481
7,976
Interest expense from JV
-
2,140
Loss on extinguishment of debt
4,476
-
-
Loss on extinguishment of debt from JV
-
-
Income tax expense (benefit)
(375)
Depreciation and amortization expense
9,674
10,956
9,568
Depreciation and amortization expense from JV
-
1,195
EBITDA
70,951
16,887
Net (gain) loss on disposition of assets
(53,014)
Net loss on disposition of assets from JV
-
-
EBITDAre
17,937
16,925
Net (gain) loss on derivatives and convertible debt
(6,330)
6,331
1,071
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
12,811
2,177
21,171
General and administrative expense, excluding stock-based compensation expense
4,124
3,833
4,674
Other expense (income), net
(2,438)
Unallocated hotel and property operations expense
Hotel EBITDA
$
14,920
$
6,414
$
26,176
Revenue
$
47,827
$
35,188
$
61,052
JV revenue
-
1,218
10,133
Total Company and JV revenue
$
47,827
$
36,406
$
71,185
Hotel EBITDA as a percentage of revenue
31.2%
17.6%
36.8%
Liquidity, Capital Resources, and Equity Transactions
Liquidity Requirements
At December 31, 2021, the Company had $6.5 million of cash and cash equivalents, which the Company believes is sufficient to cover any future payments required to wind up the operations of the Company pursuant to the Plan of Liquidation, including our known liabilities and any unknown or contingent liabilities. We can provide no assurance on the amount or timing of any future liquidating distributions, if any. The actual amount of any future distributions, if any,
will be determined by the Company Board based on our actual wind up expenses and other factors that the Company Board deems relevant.
Significant Equity Transactions
The Company received put right notices from all holders of 6.25% Series E Cumulative Convertible Preferred Stock (“Series E Preferred Stock”) of the Company effective June 29, 2021 pursuant to which the holders of the Series E Preferred Stock gave notice of their election to exercise their right to require the Company to redeem all 925,000 shares of the Company’s outstanding Series E Preferred Stock held by them at a value per share equal to 130% of the $10 liquidation preference of the Series E Preferred Stock, plus accrued and unpaid dividends, on July 29, 2021. On July 29, 2021, the Company redeemed the Series E Preferred Stock with common stock by issuing 2,686,571 shares of common stock to the holders of the Series E Preferred Shares pursuant to the terms of the shares, based on the weighted market sale price average of the common stock for the 30 trading days through June 29, 2021 of $4.9021 per share. The Common Stock was issued in reliance on the exemption from registration set forth in Section 4(a)(2) of the Securities Act of 1933, as amended.
As the Company would no longer meet continued listing requirements of the Exchange upon the substantial liquidation dividend distribution on December 30, 2021 (see above under “Special Dividend Liquidation Distribution”) and after consultation with the Exchange, on December 10, 2021, the Company, in accordance with the authority granted by the Company Board, provided written notice to the Exchange of its intention to voluntarily delist its common stock, par value $0.01, on the Exchange. The Company filed a Form 25 with the SEC and the Exchange relating to the delisting of the Common Stock on December 20, 2021, with the trading of its Common Stock on the Exchange suspended on December 31, 2021. The official delisting of the Common Stock was effective on December 31, 2021.
In accordance with the Plan of Liquidation, the Company Board approved a special dividend liquidation distribution of $7.94 per share of Common Stock to its stockholders of record as of the close of business on December 27, 2021. The special dividend liquidation distribution was paid on December 30, 2021. Upon completion of the winding-up process and dissolution, if any funds remain, such funds will be distributed to shareholders.
Sources and Uses of Cash
Cash provided by (used in) Operating Activities. Our cash provided by (used in) operations was $0.4 million and ($0.8) million for the period from January 1, 2021 through December 1, 2021 and the year ended December 31, 2020, respectively, an increase of $1.2 million. This change in operating cash flow was driven by an increase in net income, after adjusting for non-cash items, of $2.0 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 $300.6 million and ($7.3) million for the period from January 1, 2021 through December 1, 2021 and the year ended December 31, 2020, respectively. The increase was driven by net cash receipts, after the payment of related expenses, of $301.3 million from the Portfolio Sale during the 2021 period presented and $7.2 million spent on the purchase of the remaining interest in the Atlanta JV during the first quarter of 2020.
Cash provided by (used in) Financing Activities. Our cash provided by (used in) financing activities was ($181.1) million and $7.2 million for the period from January 1, 2021 through December 1, 2021 and the year ended December 31, 2020, respectively. This change was driven primarily by the Company’s repayment of all its outstanding debt during the 2021 period presented following the Portfolio Sale as well as the issuance of $10.0 million in convertible notes in 2020.
Outstanding Indebtedness
At December 31, 2021, the Company has no outstanding debt. At December 31, 2020, excluding the Company’s two issuances of outstanding convertible debt, 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, $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%.
Significant Debt Transactions
During the second quarter of 2021, the Company’s three PPP loans, with balances totaling $2.3 million, were forgiven by the SBA.
On August 12, 2021, the Company entered into the tenth amendment to its credit facility with KeyBank which, among other things:
Provided that the Company may borrow up to $500,000 under the credit facility without lender approval, which is exclusive of the ability of the Company to borrow additional amounts with lender approval.
Increased the interest rate for the credit facility to LIBOR plus 4.00% or a base rate plus 3.00% as of August 31, 2021. The LIBOR rate is subject to a floor of 0.50%.
Waived the event of default that occurred as a result of the convertible notes issued in 2020 (see Note 7) not being converted to common stock or paid in full by July 1, 2021.
Amended the foregoing event of default provision to provide that it is an event of default if the convertible notes are not either converted to common stock or paid in full by October 31, 2021 (which was extended to November 30, 2021 on October 15, 2021).
Provided that the lenders will not declare a default, accelerate our indebtedness or otherwise take enforcement action on or before November 1, 2021 (which was later extended to November 30, 2021 on October 15, 2021) as a result of the cross-default that occurred as of May 27, 2021 due to the defaults under our loan agreement with OSK X, LLC, subject to the continuing satisfaction of certain conditions, including no breach or default of certain agreements, active pursuit of good faith defenses, the absence of certain legal proceedings or bankruptcy events and the maintenance of $6.0 million of liquidity.
On November 19, 2021, all of the Company’s debt was repaid concurrent with the execution of the Hotel Purchase and Sale Agreement. The Company’s debt repayment also included repayment of its outstanding Convertible Notes.
Contractual Obligations
The Company expects that it will have no significant obligations that will require capital as of December 31, 2021.
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.
Subsequent to the adoption of the Liquidation Basis of Accounting on December 1, 2021, we are required to estimate all costs and income we expect to incur and earn through the end of liquidation including the estimated amount of cash we expect to collect on the disposal of our assets and the estimated costs to dispose of our assets.
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.

---

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, 2021, given the Company’s progress through its Plan of Liquidation, no significant market risk remains.
Condor Hospitality Trust, Inc. and Subsidiaries
Index to Consolidated Financial Statements and Schedule III
Page
Report of Independent Registered Public Accounting Firm KPMG (PCAOB ID 185)
Consolidated Statement of Net Assets (Liquidation Basis) at December 31, 2021
Consolidated Balance Sheet (Going Concern Basis) as of December 31, 2020
Consolidated Statement of Changes in Net Assets (Liquidation Basis) for the period from December 1, 2021 through December 31, 2021
Consolidated Statements of Operations (Going Concern Basis) for the period from January 1, 2021 through December 1, 2021 and years ended December 31, 2020 and 2019
Consolidated Statements of Equity (Going Concern Basis) for the period from January 1, 2021 through December 1, 2021 and the years ended December 31, 2020 and 2019
Consolidated Statements of Cash Flows (Going Concern Basis) for the period from January 1, 2021 through December 1, 2021 and the years ended December 31, 2020 and 2019
Notes to Consolidated Financial Statements
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 sheet of Condor Hospitality Trust, Inc. and subsidiaries (the Company) as of December 31, 2020, the related consolidated statements of operations, equity, and cash flows for each of the years in the two-year period ended December 31, 2020 and the period from January 1, 2021 to December 1, 2021, the consolidated statement of net assets in liquidation as of December 31, 2021, the related consolidated statement of changes in net assets in liquidation for the period from December 1, 2021 to December 31, 2021, 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, the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2020 and the period from January 1, 2021 to December 1, 2021, its net assets in liquidation as of December 31, 2021, and the changes in its net assets in liquidation for the period from December 1, 2021 to December 31, 2021, in conformity with U.S. generally accepted accounting principles applied on the bases described below.
Adoption of Liquidation Basis
As discussed in Note 1 to the consolidated financial statements, the shareholders of the Company approved a Plan of Liquidation on December 1, 2021, and the Company commenced liquidation shortly thereafter. As a result, the Company has changed its basis of accounting for periods subsequent to December 1, 2021 from the going-concern basis to a liquidation basis.
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 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 purposes 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 risk of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures include 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 statement. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
Critical audit matters are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the consolidated financial statements; and (2) involved our especially challenging, subjective, or complex judgments. We determined that there are no critical audit matters
(signed) KPMG LLP
We have served as the Company’s auditor since 2001.
Chicago, Illinois
‎February 4, 2022
Condor Hospitality Trust, Inc. and Subsidiaries
Consolidated Statement of Net Assets
(Liquidation Basis)
(In thousands, except share and per share data)
As of December 31,
Assets
Cash and cash equivalents
$
6,507
Accounts receivable, net
Total Assets
$
6,804
Liabilities
Accounts payable, accrued expenses, and other liabilities
$
6,308
Total Liabilities
$
6,308
Net Assets in Liquidation
$
See accompanying notes to consolidated financial statements.
Condor Hospitality Trust, Inc. and Subsidiaries
Consolidated Balance Sheet
(Going Concern Basis)
(In thousands, except share and per share data)
As of December 31,
Assets
Investment in hotel properties, net
$
265,831
Cash and cash equivalents
3,686
Restricted cash, property escrows
3,794
Accounts receivable, net
Prepaid expenses and other assets
1,230
Total Assets
$
275,193
Liabilities and Equity
Liabilities
Accounts payable, accrued expenses, and other liabilities
$
5,372
Dividends and distributions payable
Land option liability
8,497
Derivative liabilities, at fair value
Convertible debt, at fair value
16,875
Long-term debt, net of deferred financing costs
166,526
Total Liabilities
198,912
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
10,050
Common stock, $.01 par value, 200,000,000 shares authorized;12,014,743 shares outstanding
Additional paid-in capital
233,332
Accumulated deficit
(167,263)
Total Shareholders' Equity
76,239
Noncontrolling interest in consolidated partnership (Condor Hospitality Limited Partnership), redemption value of $17
Total Equity
76,281
Total Liabilities and Equity
$
275,193
See accompanying notes to consolidated financial statements.
Condor Hospitality Trust, Inc. and Subsidiaries
Changes in Consolidated Statement of Net Assets
(Liquidation Basis)
(In thousands, except share and per share data)
For the period from December 1, 2021 to December 31, 2021
Net Assets in Liquidation, December 1, 2021
$
117,474
Declaration and payment of cash liquidating distribution
(116,978)
Net Assets in Liquidation, December 31, 2021
$
See accompanying notes to consolidated financial statements.
Condor Hospitality Trust, Inc. and Subsidiaries
Consolidated Statements of Operations
(Going Concern Basis)
(In thousands, except per share data)
asd
For the period from January 1 through December 1,
Year ended December 31,
Revenue
Room rentals and other hotel services
$
47,827
$
35,188
$
61,052
Operating Expenses
Hotel and property operations
33,330
29,563
38,769
Depreciation and amortization
9,674
10,956
9,568
General and administrative
4,574
4,006
5,700
Acquisition and terminated transactions
-
-
Strategic alternatives, net
(4,706)
2,110
Total operating expenses
48,332
39,819
56,185
Operating income (loss) before net gain (loss) on disposition of assets
(505)
(4,631)
4,867
Net gain (loss) on disposition of assets
53,014
(18)
(36)
Operating income (loss)
52,509
(4,649)
4,831
Equity in earnings (loss) of joint venture
-
Net gain (loss) on derivatives and convertible debt
6,330
(6,331)
(1,071)
Other income (expense), net
2,438
(65)
(104)
Interest expense
(9,404)
(8,481)
(7,976)
Loss on extinguishment of debt
(4,476)
-
-
Earnings (loss) before income taxes
47,397
(19,446)
(4,130)
Income tax benefit (expense)
(292)
(937)
Net earnings (loss)
47,105
(19,071)
(5,067)
(Income) loss attributable to noncontrolling interest
(12)
Net earnings (loss) attributable to controlling interests
47,093
(19,064)
(5,048)
Dividends declared and undeclared on preferred stock
(383)
(617)
(578)
Net earnings (loss) attributable to common shareholders
$
46,710
$
(19,681)
$
(5,626)
Earnings (Loss) per Share
Total - Basic Earnings (Loss) per Share
$
3.59
$
(1.59)
$
(0.48)
Total - Diluted Earnings (Loss) per Share
$
2.47
$
(1.59)
$
(0.48)
See accompanying notes to consolidated financial statements.
Condor Hospitality Trust, Inc. and Subsidiaries
Consolidated Statements of Equity
(Going Concern Basis)
(In thousands, except per share data)
For the period from January 1, 2021 through December 1, 2021 and years ended December 31, 2020 and 2019
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, 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
Stock-based compensation
-
-
-
-
-
Dividends and distributions undeclared
-
-
-
-
-
-
-
-
-
Series E Preferred Stock
-
-
-
-
-
(383)
(383)
-
(383)
Redemption of Series E Preferred stock
(925)
(10,050)
2,686
11,168
-
1,145
-
1,145
Redemption of common units
-
-
-
-
-
(9)
-
Net earnings
-
-
-
-
-
47,093
47,093
47,105
Balance at December 1, 2021
-
$
-
14,721
$
$
244,930
$
(120,553)
$
124,524
$
$
124,569
See accompanying notes to consolidated financial statements.
Condor Hospitality Trust, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(Going Concern Basis)
(In thousands)
For the period from January 1 through December 1,
Year ended December 31,
Cash flows from operating activities:
Net earnings (loss)
$
47,105
$
(19,071)
$
(5,067)
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization expense
9,674
10,956
9,568
Net (gain) loss on disposition of assets
(53,014)
Net (gain) loss on derivatives and convertible debt
(6,330)
6,331
1,071
Loss on extinguishment of debt
4,476
-
-
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
Principal forgiveness on long-term debt
(2,299)
-
-
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
(759)
(449)
(622)
Net cash provided by (used in) operating activities
(802)
9,252
Cash flows from investing activities:
Additions to hotel properties
(718)
(605)
(1,475)
Distributions in excess of cumulative earnings from joint venture
-
1,643
Hotel acquisitions
-
(7,193)
-
Net proceeds from sale of hotel assets
301,299
4,191
Net cash provided by (used in) investing activities
300,581
(7,314)
4,359
Cash flows from financing activities:
Deferred financing costs
(589)
(1,660)
(415)
Proceeds from long-term debt
4,584
47,264
1,500
Principal payments on long-term debt
(170,617)
(48,369)
(5,281)
Principal payments on convertible debt
(11,012)
-
-
Proceeds from convertible debt
-
10,000
-
Redemption of common units
-
-
(42)
Tax withholdings on stock compensation
(29)
(30)
(356)
Early repayment penalties
(2,992)
-
-
Extinguishment of interest rate cap
(413)
-
-
Cash dividends paid to common shareholders
-
-
(9,304)
Cash dividends paid to common unit holders
-
-
(36)
Cash dividends paid to preferred shareholders
-
-
(434)
Other items
(3)
(4)
(4)
Net cash provided by (used in) financing activities
(181,071)
7,201
(14,372)
Increase (decrease) in cash, cash equivalents, and restricted cash
119,865
(915)
(761)
Cash, cash equivalents, and restricted cash beginning of period
7,480
8,395
9,156
Cash, cash equivalents, and restricted cash end of period
$
127,345
$
7,480
$
8,395
Supplemental cash flow information:
Interest paid
$
9,092
$
7,272
$
6,732
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
$
(17)
$
$
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. Prior to December 31, 2021, the Company’s portfolio of hotel assets was liquidated and a plan of liquidation was undertaken as discussed further below. 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, 2021, 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 leased 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.
Hotel Purchase and Sale Agreement
On June 21, 2021, the Company announced that its board of directors (the “Company Board”) is evaluating strategic alternatives to enhance shareholder value. Following unanimous approval by the Company Board, on September 22, 2021, the Company and B9 Cowboy Mezz A LLC, a Delaware limited liability company and affiliate of Blackstone Real Estate Partners (the “Buyer”), entered into a Hotel Purchase and Sale Agreement (the “Purchase Agreement”). The Purchase Agreement provides that, upon the terms and subject to the conditions set forth therein, the Buyer will acquire Company’s portfolio of 15 hotels (the “Portfolio”) for a cash purchase price of $305,000 (the “Portfolio Sale”), subject to certain credits and adjustments. At a special shareholder meeting (the “Special Stockholder Meeting”) commenced on November 12, 2021, the Portfolio Sale was approved by the Company shareholders.
On November 19, 2021, the Company completed the Portfolio Sale, and received cash proceeds, net of payment of related expenses and the repayment of the Company’s debt, totaling approximately $113,900.
Plan of Liquidation
On September 20, 2021 the Company Board unanimously approved a plan of complete liquidation and dissolution (the “Plan of Liquidation”) pursuant to which the Company would be liquidated and dissolved, subject to approval of the Plan of Liquidation (the “Liquidation Proposal”), including the liquidation and dissolution of the Company pursuant thereto, by the Company’s shareholders at the Special Stockholder Meeting. At the Special Stockholder Meeting completed on December 1, 2021, the Liquidation Proposal was approved by Company shareholders. Pursuant to the Plan of Liquidation and in accordance with the applicable provisions of law, the Company is authorized to do all other things reasonably necessary or advisable to complete the liquidation and dissolution of the Company. The Company is not required to obtain any further shareholder approval with respect to the liquidation
Condor Hospitality Trust, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(In thousands, except share and per share data)
and dissolution of the Company. Under the Plan of Liquidation, the Company Board may modify, amend or abandon the Plan of Liquidation, notwithstanding shareholder approval, to the extent permitted by the Maryland General Corporation Law (the “MGCL”). The Company has no present plans or intentions to modify, amend or abandon the Plan of Liquidation.
Special Dividend Liquidation Distribution
In accordance with the Plan of Liquidation, the Company Board approved a special dividend liquidation distribution of $7.94 per share of Common Stock to its stockholders of record as of the close of business on December 27, 2021. The special dividend liquidation distribution was paid on December 30, 2021. Upon completion of the winding-up process and dissolution, if any funds remain, such funds will be distributed to shareholders.
Our common stock began trading on October 30, 1996 and most recently traded under the symbol “CDOR” on the NYSE American stock exchange (the “Exchange”). As the Company would no longer meet continued listing requirements of the Exchange upon the substantial liquidation dividend distribution on December 30, 2021 and after consultation with the Exchange, on December 10, 2021, the Company, in accordance with the authority granted by the Company Board, provided written notice to the Exchange of its intention to voluntarily delist its common stock, par value $0.01 (the “Common Stock”), on the Exchange. The Company filed a Form 25 with the Securities and Exchange Commission (“SEC”) and the Exchange relating to the delisting of the Common Stock on December 20, 2021, with the trading of its Common Stock on the Exchange suspended on December 31, 2021. The official delisting of the Common Stock was effective on December 31, 2021.
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.
Liquidation Basis of Accounting
The approval of the Plan of Liquidation by the Company’s shareholders on December 1, 2021 caused the Company’s basis of accounting to change from the going concern basis (“Going Concern Basis”) to the liquidation basis of accounting (“Liquidation Basis of Accounting”), which requires the Company’s assets to be measured at the estimated amounts of consideration the Company expects to collect in settling and disposing of its assets and liabilities are to be measured at the estimated amounts at which the liabilities are expected to be settled. All financial results and disclosures up through December 1, 2021, prior to adopting the Liquidation Basis of Accounting, are presented based on a Going Concern Basis, which presents assets and liabilities in the normal course of business. As a result, the balance sheet as of December 31, 2020, and the statements of operations, equity, and cash flows for the period January 1 through December 1, 2021 and the years ended December 31, 2020 and 2019 are presented on a Going Concern Basis, consistent with the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.
Condor Hospitality Trust, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(In thousands, except share and per share data)
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.
COVID-19 Pandemic
The novel coronavirus (COVID-19) has reduced travel significantly and adversely affected the hospitality industry in general. Since late March 2020, similar to the conditions affecting the hospitality industry as a whole, we experienced occupancy declines at many of our properties which required us to adjust our business operations.
As a result of the above factors, the Company took action at the corporate and hotel level, including, but not limited to:
Obtained significant modifications of its debt agreements.
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 $2,299, all of which was forgiven in 2021.
Pursuing corporate cost reductions, including staffing reductions, resulting in decreased in general and administrative expenses compared to historical operations.
Capital improvement projects were suspended except for emergency circumstances.
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 were deemed necessary.
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%
Condor Hospitality Trust, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(In thousands, except share and per share data)
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 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.
Condor Hospitality Trust, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(In thousands, except share and per share data)
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, 2021 and 2020. 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 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.
Condor Hospitality Trust, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(In thousands, except share and per share data)
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 period from January 1 through December 1,
For the year ended December 31,
Rooms
$
45,572
$
33,276
$
58,353
Food and beverage
1,370
Other
1,527
1,228
1,329
Total revenue
$
47,827
$
35,188
$
61,052
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. 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.
Condor Hospitality Trust, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(In thousands, except share and per share data)
With the exception of fixed rate debt (see Note 9) 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.
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 8).
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. The Company has elected to account for forfeitures of stock-based compensation as they occur.
Recently Adopted Accounting Standards
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
Land
$
34,928
Buildings, improvements, vehicle
244,041
Furniture and equipment
24,622
Initial franchise fees
1,784
Construction-in-progress
Right of use asset
Investment in hotel properties
305,560
Condor Hospitality Trust, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(In thousands, except share and per share data)
Less accumulated depreciation
(39,729)
Investment in hotel properties, net
$
265,831
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, the Company's right-of-use assets, net of $62 are included in Investment in hotel properties, net and its related lease liabilities of $62 are presented in Accounts payable, accrued expenses, and other liabilities in the Company's consolidated balance sheet. The adoption of this standard had minimal impact on the Company's consolidated statements of operations.
NOTE 3. ACQUISITION OF HOTEL PROPERTIES
The Company did not acquire any properties during the period from January 1, 2021 through December 1, 2021 or 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.
Condor Hospitality Trust, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(In thousands, except share and per share data)
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.
NOTE 4: DISPOSITION OF HOTEL PROPERTIES
As discussed above, following unanimous approval by the Company Board, on September 22, 2021, the Company entered into the Purchase Agreement which provided that the Company would sell its portfolio of 15 hotels for a cash purchase price of $305,000, subject to certain credits and adjustments. On November 19, 2021, the Company completed the Portfolio Sale and simultaneously settled all of the Company’s outstanding debt, resulting in a total gain on sale of $53,039 which is included in net gain/loss on disposition of assets on the consolidated statement of operations.
During the year ended December 31, 2020, no hotels were sold. During the year ended December 31, 2019, the Company sold one hotel resulting in a gain of $62 which is included in net gain/loss on disposition of assets on the consolidated statement of operations.
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.
Condor Hospitality Trust, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(In thousands, except share and per share data)
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 and $380 during the years ended December 31, 2020 and 2019, 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.
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 and $1,813 were received by the Company from the Atlanta JV during the years ended December 31, 2020 and 2019, respectively.
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 and 2019:
For the period of January 1 to February 14,
Year ended December 31,
Revenue
Room rentals and other hotel services
$
1,522
$
12,666
Operating Expenses
Hotel and property operations
8,084
Depreciation and amortization
1,494
Total operating expenses
1,141
9,578
Operating income
3,088
Net loss on disposition of assets
-
(2)
Net loss on derivative
-
(1)
Interest expense
(281)
(2,675)
Loss on extinguishment of debt
-
(172)
Net earnings (loss)
$
$
Condor allocated earnings (loss)
$
$
TWC allocated earnings (loss)
Net earnings (loss)
$
$
NOTE 6. NET ASSETS IN LIQUIDATION
The following is a reconciliation of Shareholders’ Equity under the Going Concern Basis of accounting to net assets in liquidation under the Liquidation Basis of Accounting as of December 1, 2021:
As of December 1, 2021
Total Equity, December 1, 2021 (Going Concern Basis)
$
124,569
Write-off of assets not recoverable in cash (1)
(1,463)
Accrual of future expenditures (2)
(5,632)
Net Assets in Liquidation, December 1, 2021 (Liquidation Basis)
$
117,474
(1) Write-off of assets that will not be converted into cash, including unamortized prepaid assets and investment in hotel properties for corporate use that will not be sold.
(2) Accrual of estimates of all future cash expenditures, including change of control payments, corporate severance, compensation costs, and legal and compliance fees.
Condor Hospitality Trust, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(In thousands, except share and per share data)
This estimate contains expected future cash outflows related to the Plan of Liquidation. The Liquidation Basis of Accounting requires the Company to estimate net cash flows from operations and to accrue all costs associated with implementing and completing the Plan of Liquidation. Actual amounts can vary significantly from estimated amounts due to, among other things, the timing and amounts associated with discharging known and contingent liabilities and the costs associated with the winding up of operations. These costs are estimated and are anticipated to be paid out over the liquidation period.
NOTE 7. LONG-TERM DEBT
Long-term debt related to wholly owned properties consisted of the following loans payable at December 31, 2020:
Lender
Balance at December 31, 2020
Interest rate at December 31, 2020
Maturity
Amortization provision
Properties encumbered at December 31, 2020
Fixed rate debt
Morgan Stanley Bank of America Merrill Lynch Trust 2014-C18
$
8,454
4.54%
08/2024
25 years
OSK X, LLC (1)
13,199
4.33%
12/2023 (5)
25 years
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
Variable rate debt
Wells Fargo
25,386
2.55% (2)
11/2022 (6)
30 years
KeyBank credit facility (3)
118,114
4% (4)
1/2023
Interest only
Total variable rate debt
143,500
Total long-term debt
$
168,332
Less: Deferred financing costs
(1,806)
Total long-term debt, net of deferred financing costs
$
166,526
(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 9).
(3) 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) Borrowings under the facility accrued interest based on a leverage-based pricing grid, at the Company’s option, at either LIBOR plus a spread of 3.25% or a base rate plus 2.25%.
(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 were made up of three separate loans received in April 2020. Monthly payments totaling $121 were scheduled to begin October 2021 if the loan or a portion of it was not forgiven. The entire amount of the loans was used for payroll, utilities, and interest, and was forgiven by the Small Business Association (“SBA”) during the second quarter of 2021.
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%.
As previously discussed, all of the Company’s debt was repaid in full on November 19, 2021 as part of the Portfolio Sale.
Condor Hospitality Trust, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(In thousands, except share and per share data)
NOTE 8: 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”) was required to be converted or is redeemed in whole (see Note 11). The 2016 Note was 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 accrued interest at 10.00% per annum, provided 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, provided for the capitalization of interest, and provided for the payment of all accrued and unpaid interest and principal on the maturity date. Each of the Notes also provided, 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, because the failure to make any such determination would reasonably be expected to constitute a breach of the directors’ duties under Maryland law.
The Company 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 $5,863, ($5,795), and ($80) during the period from January 1 to December 1, 2021 and the years ended December 31, 2020 and 2019, respectively. The fair value of the 2016 Note was 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 was based on the value of the note upon conversion due to the high probability associated with that event. Interest expense related to these notes was recorded separately from other changes in its fair value within interest expense each period.
Both the 2016 Note and the 2020 Notes were repaid in full on November 19, 2021 following the Portfolio Sale.
NOTE 9: 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 8) 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 (see Note 3) and in the valuation of stock-based compensation grants (see Note 13).
Condor Hospitality Trust, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(In thousands, except share and per share data)
Derivative Instruments
The Company utilized derivatives, such as interest rate swaps and caps, to manage its interest rate risk. The fair value of interest rate positions was 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 were based on an expectation of future interest rates derived from observable market interest rate curves and volatilities. These interest rate positions at December 31, 2020 were as follows. All derivative positions were settled as part of the settlement of debt with the Portfolio Sale on November 19, 2021.
Associated debt
Type
Terms
Effective Date
Maturity Date
Notional amount at December 31, 2020
Wells Fargo
Swap
Swaps 30-day LIBOR for fixed rate of 2.053%
11/2017
11/2022
$
25,386 (1)
(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 was a redemption right that allowed 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 11). This option required 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 were reported as either derivative assets or liabilities on the balance sheets and were 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 $467, ($536), and ($991), were recognized related to derivative instruments for the period from January 1 to December 1, 2021 and the years ended December 31, 2020 and 2019, 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)
There were no transfers between levels during the period from January 1 to December 1, 2021 or the years ended December 31, 2020 or 2019.
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:
Condor Hospitality Trust, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(In thousands, except share and per share data)
For the period January 1 to December 1,
Year ended December 31,
Convertible debt
Series E Preferred embedded redemption option
Convertible debt
Total
Fair value, beginning of period
$
(16,875)
$
$
(1,080)
$
(1,058)
Net gains (losses) recognized in earnings
5,863
(22)
(5,795)
(5,817)
Purchase and issuances
11,012
-
(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)
Total unrealized gains (losses) during the period included in earnings related to instruments held at end of period
$
5,863
$
(22)
$
(5,795)
$
(5,817)
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, 2020
Estimated fair value at December 31, 2020
$
166,526
$
167,349
NOTE 10. COMMON STOCK
The Company’s common stock is duly authorized, full paid, and non-assessable.
On July 29, 2021, the Company redeemed the Series E Preferred Stock with common stock by issuing 2,686,571 shares of common stock (see Note 11).
As the Company would no longer meet continued listing requirements of the Exchange upon the substantial liquidation dividend distribution and after consultation with the Exchange, on December 10, 2021, the Company, in accordance with the authority granted by the Company Board, provided written notice to the Exchange of its intention to voluntarily delist its common stock on the Exchange. The Company filed a Form 25 with the Securities and Exchange Commission and the Exchange relating to the delisting of the Common Stock on December 20, 2021, with the trading of its Common Stock on the Exchange suspended on December 31, 2021. The official delisting of the Common Stock was effective on December 31, 2021.
NOTE 11. PREFERRED STOCK
Series E Redeemable Convertible Preferred Stock
The Series E Preferred Stock ranked senior to the Company’s common stock and any other preferred stock issuances and received 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 failed to pay a dividend then during the period that dividends were not paid, additional dividends accrued at a rate of 9.50% per annum on the unpaid amount. Dividends on the Series E
Condor Hospitality Trust, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(In thousands, except share and per share data)
Preferred Stock accrued 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 were declared, and whether or not such dividends were prohibited by agreement.
The Company received put right notices from all holders of Series E Preferred Stock of the Company effective June 29, 2021 pursuant to which the holders of the Series E Preferred Stock gave notice of their election to exercise their right to require the Company to redeem all 925,000 shares of the Company’s outstanding Series E Preferred Stock held by them at a value per share equal to 130% of the $10 liquidation preference of the Series E Preferred Stock, plus accrued and unpaid dividends, on July 29, 2021. On July 29, 2021, the Company redeemed the Series E Preferred Stock with common stock by issuing 2,686,571 shares of common stock to the holders of the Series E Preferred Shares pursuant to the terms of the shares, based on the weighted market sale price average of the common stock for the 30 trading days through June 29, 2021 of $4.9021 per share. The Common Stock was issued in reliance on the exemption from registration set forth in Section 4(a)(2) of the Securities Act of 1933, as amended.
NOTE 12. NONCONTROLLING INTEREST OF COMMON UNITS IN THE OPERATING PARTNERSHIP
At December 31, 2021 and 2020, 213,904 and 219,183 of the operating partnership’s common units were outstanding, respectively, all of which were held by limited partners. The total redemption value for the common units was $0 and $17 at December 31, 2021 and 2020, respectively. Our ownership interest in the operating partnership as of both December 31, 2021 and 2020 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.
During the year ended December 31, 2021, 5,279 common units were converted into 102 shares of 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.
NOTE 13. 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, 2021, there were 433,110 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, 2021, 2020, and 2019:
Shares
Weighted-average grant date fair value
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
Granted
4,740
$
5.15
Vested
(33,668)
$
8.95
Unvested at December 31, 2021
-
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.
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
%
Condor Hospitality Trust, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(In thousands, except share and per share data)
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 period from January 1 through December 1, 2021, 23,479 shares were issued related to these performance awards with a grant date fair value totaling $171. 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.
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 20,807, 24,607, and 14,936 shares were issued to independent directors under the 2016 Stock Plan with respect to these fees during the period from January 1 through December 1, 2021 and the years ended December 31, 2020 and 2019, respectively.
Stock-Based Compensation Expense
The expense recognized in the consolidated financial statements for stock-based compensation related to employees and directors for the period from January 1 through December 1, 2021 and the years ended December 31, 2020 and 2019, was $450, $173, and $1,026, respectively, all of which is included in general and administrative expense.
NOTE 14. INCOME TAXES
For the period from January 1 through December 1, 2021 and the years ended December 2020 and 2019, the income tax expense related to the operating partnership included primarily certain state and local taxes totaling $99, $105, and $175 respectively.
The components of the income tax expense (benefit) from the TRS for the period from January 1, 2021 through December 1, 2021 and the years ended December 31, 2020 and 2019 were as follows:
Condor Hospitality Trust, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(In thousands, except share and per share data)
For the period from January 1 through December 1,
Year ended December 31,
Federal:
Current
$
$
-
$
-
Deferred
-
(550)
State and local:
Current
-
Deferred
-
(57)
Income tax expense (benefit)
$
$
(480)
$
Actual income tax expense of the TRS for the period from January 1 through December 1, 2021 and the years ended December 31, 2020 and 2019 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:
For the period from January 1 through December 1,
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
(801)
1,383
(124)
Return to provision adjustments
Other
-
(10)
Total income tax expense (benefit)
$
$
(480)
$
The tax effects of temporary differences that give rise to significant portions of deferred tax assets and deferred tax liabilities at December 31, 2021 and 2020 are as follows:
As of December 31, 2021
‎(Liquidation Basis)
As of December 31, 2020
‎(Going Concern Basis)
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
(941)
(1,742)
Total deferred tax assets
-
Deferred Liabilities
Tax depreciation in excess of book depreciation
-
Atlanta JV basis difference
-
-
Total deferred tax liabilities
-
Net deferred tax assets (liabilities)
$
-
$
-
Condor Hospitality Trust, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(In thousands, except share and per share data)
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. During the period from January 1 through December 1, 2021, as a result of a taxable gain in the TRS due to the Portfolio Sale, a portion of the valuation allowance was released to offset the gain, leaving a valuation allowance of $941 against the full net deferred tax asset position on December 1, 2021.
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, 2021 as determined for federal income tax purposes was $3,301. The availability of the loss carryforwards will expire in 2027 through 2034, with an indefinite carryforward for losses arising after December 31, 2017. These net operating losses are not expected to be realized as a result of the Plan of Liquidation as previously discussed.
As of December 31, 2021, the tax years that remain subject to examination by major tax jurisdictions generally include 2018 through 2021.
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.
For income tax purposes, the distribution made in December 2021 was characterized as a cash liquidation distribution. There were no distributions made in 2020. The distributions paid per share for the year ended December 31, 2019 was characterized as follows.
For the year ended December 31, 2019
Amount
%
Common Shares:
Ordinary income
$
-
-
Capital gain
-
-
Return of capital
0.585000
100%
Total
$
0.585000
100%
Series E Preferred Stock:
Ordinary income
$
-
-
Capital gain
-
-
Return of capital
0.468750
100%
Total
$
0.468750
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.
Condor Hospitality Trust, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(In thousands, except share and per share data)
NOTE 15. 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:
For the period from January 1 through December 1,
Year ended December 31,
Numerator: Basic
Net earnings (loss) attributable to common shareholders
$
46,710
$
(19,681)
$
(5,626)
Less: Allocation to participating securities
(75)
-
(38)
Net earnings (loss) attributable to common shareholders, net of amount allocated to participating securities
$
46,635
$
(19,681)
$
(5,664)
Numerator: Diluted
Net earnings (loss) attributable to common shareholders, net of amount allocated to participating securities
$
46,635
$
(19,681)
$
(5,664)
Interest and fair value adjustment on Convertible Notes
(4,212)
-
-
Series E Preferred Stock dividends
-
-
Total Diluted
$
42,806
$
(19,681)
$
(5,664)
Denominator
Weighted average number of common shares - Basic
13,008,279
11,966,982
11,856,113
Convertible Notes
3,950,501
-
-
Series E Preferred Stock
360,980
-
-
Weighted average number of common shares - Diluted
17,319,760
11,966,982
11,856,113
Earnings Per Share
Basic Earnings (Loss) per Share
$
3.59
$
(1.59)
$
(0.48)
Diluted Earnings (Loss) per Share
$
2.47
$
(1.59)
$
(0.48)
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:
For the period from January 1 through December 1,
Year ended December 31,
Unvested restricted stock
13,778
38,012
62,742
Series E Preferred Stock
-
668,111
668,111
2016 Convertible Note
-
97,269
97,269
2020 Convertible Note
-
459,016
-
Operating partnership common units (1)
4,177
4,215
54,330
Total potentially dilutive securities excluded from the denominator
17,955
1,266,623
882,452
Condor Hospitality Trust, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(In thousands, except share and per share data)
(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.
NOTE 16. COMMITMENTS AND CONTINGENCIES
Management Agreements
During the period of our hotel ownership, our TRS engaged 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 provided that the management companies had control of all operational aspects of the hotels, including employee-related matters. The management companies generally had to maintain each hotel under their management in good repair and condition and perform routine maintenance, repairs, and minor alterations. Additionally, the management companies were required to 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 required 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 was responsible for obtaining and maintaining certain insurance policies with respect to the hotels.
Each of the management companies employed by the TRS for the periods presented received 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 period from January 1 through December 1, 2021 and the years ended December 31, 2020 and 2019, base management fees incurred totaled $1,435, $1,042, and $1,813, respectively. For the period from January 1 through December 1, 2021 and the years ended December 31, 2020 and 2019, incentive management fees totaled $204, $0, and $141, respectively.
Franchise Agreements
For all periods presented prior to the Portfolio Sale, all of our properties operated under franchise licenses from national hotel companies. Under our franchise agreements, we were 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. Franchise fee expense totaled $3,614, $2,597, and $4,685, for period from January 1 through December 1, 2021 and the years ended December 31, 2020 and 2019, respectively.
Leases
Office lease expense totaled $19, $27, and $133 in the period from January 1 through December 1, 2021 and the years ended December 31, 2020 and 2019, respectively, and is included in general and administrative expense.
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 period from January 1 through December 1, 2021 and the years ended December 31, 2020 and 2019 was $35, $26, and $52, respectively, and is included in general and administrative expenses.
Condor Hospitality Trust, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(In thousands, except share and per share data)
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.
Condor Hospitality Trust, Inc. and Subsidiaries
Schedule III Real Estate and Accumulated Depreciation
As of December 1, 2021
(In thousands)
ASSET BASIS
Total
(a)
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
Additions
1,494
Disposals
(306,646)
Balance at December 1, 2021
$
ACCUMULATED DEPRECIATION
Total
(b)
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
Depreciation for the period ended December 1, 2021
9,669
Depreciation on assets sold or disposed
(49,056)
Balance at December 1, 2021
$
(a)The aggregate cost of land, buildings, furniture, and equipment for Federal income tax purposes is approximately $0 (unaudited)
(b)Depreciation is computed based upon the follow useful lives:
Buildings and improvements 15 - 40 years
Furniture and equipment 3 - 12 year

---

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, 2021. 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, 2021.
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.

---

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE
Executive Officers of the Company
In connection with the winding-up of the affairs of the Company, the Company simplified its executive officer group, with one person serving as the sole executive for the completion of the winding-up of the Company’s affairs.
J. William Blackham resigned from his positions as Chief Executive Officer and President of the Company effective December 24, 2021 as part of the simplification process. Mr. Blackham remains a director of the Company.
Jill Burger notified the Company resigned from her positions as Interim Chief Financial Officer and Chief Accounting Officer of the Company effective December 24, 2021 and effective December 25, 2021 was appointed President, Chief Executive Officer, Chief Financial Officer and Chief Accounting Officer of the Company.
Ms. Burger, age 49, joined the Company in February 2018 as Director of Accounting. Since November 2020, Ms. Burger has served as the Company’s Interim Chief Financial Officer and Chief Accounting Officer. Prior to joining the Company, Ms. Burger was employed with First National Bank of Omaha starting in February 2014, serving as a Senior Finance Manager for the Consumer Banking Group. Prior to First National Bank, Ms. Burger held multiple roles over an eighteen-year period in Accounting and Finance at Infogroup, Inc. She has extensive experience in managing accounting departments and providing financial reporting for both public and privately held companies. She is a graduate of the University of Northern Iowa and holds a Bachelor of Science degree in Accounting.
Ms. Burger’s salary is at a $140,000 annualized rate through June 30, 2022 and then at a $50,000 annualized rate from July 1, 2022 until the winding-up of the Company’s affairs is completed.
Directors
In connection with the winding-up of the affairs of the Company and reducing expenses, six directors have resigned and thereby reduced the size of the Board of Directors from nine members to three members. The following persons resigned as members of the Board of Directors and committees effective December 31, 2021: Thomas Calahan, Matias Gaivironsky, Drew Iadanza, Donald J. Landry, Brendan MacDonald and Saul Zang.
None of the director resignations were due to any disagreement with the Company or its management on any matter relating to the Company’s operations, policies or practices. Following the resignations, J. William Blackham, Daphne J. Dufresne and Daniel R. Elsztain continue as members of the Board of Directors.
J. William Blackham, Director. Mr. Blackham, age 68, was appointed President and Chief Executive Officer and a member of the board of directors on March 2, 2015. Mr. Blackham resigned as President and Chief Executive Officer on December 24, 2021, and remains as a director. Mr. Blackham, since 2008 to present, is a co-owner and the managing member of Trinity Investment Partners, LLC. Also since early 2011, he has served as the owner and managing member of Proximo Investments & Advisors, LLC, an investment and advisory company, and in various roles, including consultant, trustee and manager of affiliates, for Assured Administration, LLC. He was president and CEO of Eagle Hospitality, a hotel REIT which traded on the NYSE until its sale in 2007 and has been active for several decades in entities involved in real estate and hospitality development, acquisition and advisory services.
Mr. Blackham’s extensive experience as a leader of real estate ventures, his public hospitality REIT experience, and his proven capital raising experience provides the board with strong leadership and expertise in the hospitality REIT industry.
Daphne J. Dufresne, Director. Ms. Dufresne, age 49, is a Managing Partner of GenNx360 Capital Partners, a private equity firm focused on acquiring middle market industrial and business services companies, since January 2017. Prior to joining GenNx360 Capital Partners, Ms. Dufresne was a Managing Director of RLJ Equity Partners (“RLJ”), a private equity fund from December 2005 to June 2016. Ms. Dufresne participated in building the RLJ investment team, raising $230 million of institutional capital, and constructing a partnership with The Carlyle Group, a global private equity firm. Prior to RLJ, Ms. Dufresne was a Venture Partner during 2005 with Parish Capital Advisors, a $425 million fund of funds for emerging and experienced institutional investors and a Principal from 1999 to 2005 at Weston Presidio Capital, a private equity organization with $3.4 billion of assets under management. She also served as Associate Director in 1997 in the Bank of Scotland’s Structured Finance Group. Ms. Dufresne has been a director of United Natural Foods, Inc. since October 2016. Ms. Dufresne received her B.S. from the University of Pennsylvania and her M.B.A. from the Harvard Business School. Ms. Dufresne has been a director of the Company since June 2015.
Ms. Dufresne extensive experience with capital sources and capital raising provides the board with substantial experience and expertise in reviewing and improving the Company’s capital structure.
Daniel R. Elsztain, Director. Mr. Elsztain, age 49, obtained a degree in Economic Sciences from the Torcuato Di Tella University and has a Masters in Business Administration from the Austral IAE University. At present, he is a member of the board of IRSA Inversiones y Representaciones Sociedad Anónima (“IRSA”), a real estate public company listed both on the New York Stock Exchange (“NYSE”) and the Buenos Aires Stock Exchange (“BASE”), as well as its Chief Operating Officer and other executive capacities since 2004. He is a board member of Alto Palermo S.A. (APSA), a retail public company listed both on NASDAQ and BASE. Mr. Elsztain has been a director of the Company since February 2012.
His extensive experience in IRSA’s real estate operations and his participation on other public company boards provides the board with a source of substantial lodging and real estate knowledge.
Corporate Governance
The Company has adopted a Code of Business Conduct and Ethics that applies to the Company’s Chief Executive Officer, Chief Financial Officer and Chief Accounting Officer and has posted the Code of Business Conduct and Ethics on its Web site at www.condorhospitality.com. 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 applicable to the Company’s Chief Executive Officer, Chief Financial Officer and Chief Accounting Officer by posting that information on the Company’s Web site at www.condorhospitality.com.

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ITEM 11. EXECUTIVE COMPENSATION
ITEM 11. EXECUTIVE COMPENSATION
Summary Compensation Table
Name and Principal Position
Year
Salary ($)
Bonus ($)
Stock Awards ($)(1)
Option Awards ($)(1)
Non-Equity Incentive Plan Compensation(2)
All Other Compensation ($)(3)
Total ($)
J. William Blackham
400,000
-
171,397
-
400,000
2,942,233
3,913,630
Former President and Chief Executive Officer
400,000
-
-
-
390,000
17,878
807,878
400,000
-
139,016
-
386,000
16,534
941,550
Jill Burger
140,000
-
-
-
20,000
176,203
336,203
President Chief Executive Officer, Chief Financial Officer and Chief Accounting Officer
109,038
15,000
-
-
-
5,237
129,275
(1)
These columns reflect the grant date fair value of the stock awards granted in accordance with FASB Accounting Standards Codification Topic 718. Reflects conditionally approved stock award for Mr. Blackham for 2019. Stock awards include the value of restricted stock awarded. See footnote 13 to the Company’s consolidated financial statements for the fiscal year ended December 31, 2021 for the assumptions used in the valuation of these awards.
(2)
Reflects conditionally approved cash amounts earned by the executive officers under their annual incentive plans.
(3)
Amounts for Mr. Blackham in 2021 include contributions to the Company’s 401(k) plan of $11,600, change of control payments of $2,872,000, and other benefits of costs (including life insurance, disability, health, and vacation payouts) of $58,633. Mr. Blackham resigned as President and Chief Executive Officer on December 24, 2021. Amounts for Ms. Burger in 2021 include contributions to the Company’s 401(k) plan of $6,252, change of control payments of $155,000, and other benefits costs of $14,951. Amounts for the named executive officers represent contributions credited by the Company during 2020 and 2019 to its 401(k) plan, life insurance and long-term disability plan.
(4)
Ms. Burger was appointed Chief Financial Officer and Chief Accounting Officer in October 2020 and President and Chief Executive Officer, Chief Financial Officer and Chief Accounting Officer on December 25, 2021.
Grants of Plan-Based Awards for Fiscal 2021
Estimated Future Payout Under Non-Equity Incentive Plan Awards ($)(1)
Name
Grant Date
Threshold
Target
Maximum
J. William Blackham
03/23/2021
-
400,000
400,000
Jill Burger
03/23/2021
-
20,000
20,000
(1)
Non-equity incentive awards were made with respect to the executive officers’ 2020 incentive plans.
Director Compensation
Name
Fees Earned of Paid in Cash($)(1)
Stock Awards ($)(2)(3)
Option Awards ($)
Total ($)
Thomas Calahan
14,000
26,250
-
40,250
Daphne J. Dufresne
38,563
14,992
-
53,555
Daniel R. Elsztain
33,250
9,367
-
42,617
Matias I. Gaivironsky
36,750
3,750
-
40,500
Drew Iadanza
36,250
3,750
40,000
Donald J. Landry
33,250
16,675
-
49,925
Brendan MacDonald
15,500
31,867
-
47,367
Saul Zang
29,750
3,750
-
33,500
(1)
Directors receive an annual retainer of $30,000 paid in quarterly installments through and ending September 30, 2021 in cash and common stock and thereafter in cash only. Additionally, directors received fees of $1,000 per board meeting attended in person and $500 per telephonic board meeting. From time to time, directors, as authorized representatives of the board, engage in board duties outside of meetings, and receive fees for the performance of such additional board duties in an hourly or daily amount previously set by the board. Committee chairmen received compensation as follows: Audit Committee chairman annual retainer of $9,000, Nominating Committee chairman annual retainer of $1,500 and Compensation Committee chairman annual retainer of $1,500. Each Audit Committee member, other than the chairman, receives a fee of $750 per quarter. The chairman of the Investment Committee receives a monthly fee of $750, and the other members of the Investment Committee who are independent directors each receive a monthly fee of $500.
(2)
Stock awards consist of the grant date fair value of common stock issued as fees to independent directors. Through and ending on September 30, 2021, $5,000 of the annual retainer was paid in shares of restricted common stock of the Company, previously vesting in installments over 3 years and all remaining unvested stock vested on December 31, 2021. The number of restricted shares were determined for 2021 based on the closing price of the common stock on March 4, 2019 of $8.20. Through and ending on September 30, 2021, the directors were also permitted to make an annual voluntary election to receive any portion of the remaining balance of their annual retainer in the form of common stock valued at a 20% premium to the cash that would have otherwise been received, with the shares valued at the closing price of the common stock on the last trading day of the applicable calendar quarter. Through and ending on September 30, 2021, the fees of the members of the Investment Committee were paid quarterly in common stock issued under the 2016 Stock Plan, based on a value per share equal to the average of the closing price of the common stock during the first 20 trading days of the year, and after September 30, 2021 paid in cash only.
The Company had no outstanding equity awards or unvested restricted stock for any executive or director as of December 31, 2021.

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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
The following table sets forth the beneficial ownership of our common stock as of February 4, 2022, by the following persons (a) each stockholder known to us to beneficially own more than 5% of the outstanding shares of our common stock, (b) each director, (c) each executive officer and (d) all directors and executive officers as a group. A person has beneficial ownership over shares if he or she has or shares voting or investment power over the shares, or the right to acquire that power within 60 days of February 4, 2022.
With respect to our continuing qualification as a real estate investment trust, our Amended and Restated Articles of Incorporation (the “Articles”) contain an 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. Our Articles permit the board of directors, in its sole discretion, to exempt a person from this ownership limit if the person provides representations and undertakings that enable the board to determine that granting the exemption would not result in the Company losing its qualification as a real estate investment trust (a “REIT”). Under the Internal Revenue Service rules, REIT shares owned by certain entities are considered owned proportionately by owners of the entities for REIT qualification purposes. The holder of securities in excess of the ownership limit in the following table provided representations and undertakings necessary for the board to grant such an exemption.
Name of Beneficial Owner
Common Stock Beneficially Owned
Percent of Common Class (1)
Real Estate Strategies L.P.
4,754,198
(2)
32.27%
2 Church Street Hamilton DO HM CX, Bermuda
SREP III Flight - Investco, L.P.
4,185,933
(3)
28.40%
Two Embarcadero Center, Suite 480 San Francisco, CA
KGT Investments, LLC
1,034,189
(4)
7.02%
545 E. John Carpenter Freeway, Ste. 1400 Irving, TX 75062
Gardner Lewis Asset Management, L.P.
851,349
(5)
5.80%
285 Wilmington-West Chester Pike Chadds Ford, PA 19317
J. William Blackham
225,832
1.53%
Daniel R. Elsztain
7,860
Daphne J. Dufresne
16,312
Jill Burger
All directors and executive officers as a group (4 persons)
250,751
1.70%
(1)Unless otherwise indicated, beneficial ownership of any named individual does not exceed 1% of the outstanding class of securities.
(2)Based on information appearing in Amendment No. 10 to a Schedule 13D filed on August 11, 2021 by Real Estate Strategies L.P. (“Real Estate Strategies”), an investment vehicle indirectly controlled by IRSA Inversiones y Representaciones Sociedad Anónima (“IRSA”), an Argentinean-based publicly traded company, with the Securities and Exchange Commission (“SEC”), Real Estate Strategies and its affiliates have shared or separate voting and dispositive power over an aggregate of 4,754,198 shares of common stock. Real Estate Strategies and its affiliates, for purposes of Section 13(d)(3) of the Exchange Act, consists of Eduardo S. Elsztain, and the following entities controlled, either directly or indirectly, by Mr. Elsztain: Consultores Assets Management S.A. , Consultores Venture Capital Uruguay S.A., Agroinvestment S.A., Idalgir S.A., Consultores Venture Capital Ltd., Ifis Limited, Inversiones Financieras del Sur S.A., Cresud Sociedad Anónima Comercial, Inmobiliaria, Financiera y Agropecuaria, IRSA, Tyrus S.A., Jiwin S.A., Efanur SA and Real Estate Strategies.
(3)Based on information appearing in Amendment No. 7 to a Schedule 13D filed on September 28, 2021, and subsequent Form 4s, SREP III Flight-Investco, L.P., an affiliate of StepStone Group LP (“StepStone”).
(4)Based on information appearing in a Schedule 13D/A filed on November 19, 2021 KGT Investments, LLC. SGT Investments, L.P., Mahmood Khimji, Mehdi Khimji, Zachary Berger, Yaakev. The reporting persons reported that they may be deemed to constitute a group pursuant to Rule 13d-5(b), in which case each of the reporting persons could be deemed to beneficially own all the shares of common stock held by the other reporting persons; however, each of the reporting persons disclaimed beneficial ownership of the shares of common stock held by the other reporting persons except to the extent of their pecuniary interest therein (if any).
(5)Based on information appearing in a Schedule 13G filed on February 16, 2021 by Gardner Lewis Asset Management, L.P. and Gardner Lewis Asset Management, Inc. having shared voting and dispositive power with respect to 851,349 shares of common stock and Gardner Lewis Merger Arbitrage Ex Holdings, LLC and Gardner Lewis Merger Arbitrage EX Master Fund, Ltd with having shared voting and dispositive power with respect to 648,487 shares of common stock.
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, 2021:
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
-
$
-
433,110 (1)
Equity compensation plans not approved by security holders
-
-
-
Total
-
$
-
433,110
(1)Represents shares issuable under the Company’s 2016 Stock Plan.

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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Independence
The Company’s Articles of Incorporation (“Articles”) require that a majority of the board of directors are independent directors. The Articles define an independent director as a person who is not an officer or employee of the Company or an affiliate of (a) any advisor to the Company under an advisory agreement, (b) any lessee of any property of the Company, (c) any subsidiary of the Company, or (d) any partnership which is an affiliate of the Company.
Board of Directors
The current three-member board of directors is comprised of a majority of independent directors, as defined by the Articles. The board of directors has determined that the following directors are independent under the Articles: Ms. Dufresne and Mr. Elsztain.
The board of directors held eleven meetings in 2021. During 2021, all directors attended at least 75% of all board meetings and meetings of the committees on which they served.
The Company’s board of directors previously had four standing committees: an Investment Committee, Compensation Committee, Nominating Committee and an Audit Committee. In connection with the winding up and simplifying operations, all of the committees has been disbanded and the board handles all of these responsibilities as a full board. The board of directors may, from time to time, form other committees as circumstances warrant. Such committees have the authority and responsibility delegated to them by the board of directors.
Certain Relationships and Related Transactions
As of the date of this report, RES and SREP, by virtue of their significant voting power and certain governance
rights, each 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. And while we our winding up operations we do not intend to engage in business operations or elect new directors, nevertheless RES or SREP’s influence over our winding up may not be consistent with the interests of some or all of our shareholders.
Directors Designation Rights
The Company entered into an agreement on February 1, 2012 with RES and IRSA pursuant to which RES may designate the following number of directors to the board of directors if it beneficially owns the indicated percentage of voting power of the Company.
Voting Power
No. of Directors
34% or more
22% or more but less than 34%
14% or more but less than 22%
7% or more but less than 14%
The Company entered into an agreement on March 16, 2016 with SREP and StepStone pursuant to which StepStone may nominate the following number of directors if it beneficially owns the indicated percentage of voting power of the Company:
Voting Power
No. of Directors
22% or more but less than 34%
14% or more but less than 22%
7% or more but less than 14%
Each of RES and StepStone 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.

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ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The following table presents the fees for professional audit services rendered by KPMG LLP for the audit of the Company’s consolidated financial statements for the fiscal years ended December 31, 2021 and 2020, and fees billed for other services rendered by KPMG during those periods.
Year Ended December 31,
Audit Fees(1)
$
421,250
$
453,000
Audit Related Fees
-
-
Tax Fees(2)
225,801
251,000
All Other Fees
-
-
Total
$
647,051
$
704,000
(1)﻿Includes fees billed for professional services rendered by KPMG for the audit of the Company’s fiscal 2021 and 2020 annual financial statements, and review of the Company’s quarterly financial statements during 2021 and 2020.
(2)Includes fees billed for professional services rendered by KPMG for tax compliance, tax advice, and tax planning.
The Audit Committee has determined that the provision of the non-audit services performed by KPMG during the 2021 and 2020 fiscal years is compatible with maintaining KPMG’s independence from the Company.
Pursuant to the terms of the Company’s Audit Committee Charter, the Audit Committee is responsible for the appointment, compensation and oversight of the work performed by the Company’s independent accountants. The Audit Committee, or a designated member of the Audit Committee, must pre-approve all audit (including audit-related) and non-audit services performed by the independent accountants in order to assure that the provisions of such services do not impair the accountants’ independence. The Audit Committee has delegated interim pre-
approval authority to the Chairman of the Audit Committee. Any interim pre-approval of permitted non-audit services is required to be reported to the Audit Committee at its next scheduled meeting.
KPMG’s principal function is to audit the consolidated financial statements of the Company and its subsidiaries and, in connection with that audit, to review certain related filings with the SEC and to conduct limited reviews of the financial statements included in the Company’s quarterly reports.
PART IV

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ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
Financial Statements and Financial Statement Schedules
The following financial statements and financial statement schedule are included in this report on the pages listed below:
Page
Report of Independent Registered Public Accounting Firm KPMG (PCAOB ID 185)
Consolidated Statement of Net Assets (Liquidation Basis) at December 31, 2021
Consolidated Balance Sheet (Going Concern Basis) as of December 31, 2020
Consolidated Statement of Changes in Net Assets (Liquidation Basis) for the period from December 1, 2021 through December 31, 2021
Consolidated Statements of Operations (Going Concern Basis) for the period from January 1, 2021 through December 1, 2021 and years ended December 31, 2020 and 2019
Consolidated Statements of Equity (Going Concern Basis) for the period from January 1, 2021 through December 1, 2021 and the years ended December 31, 2020 and 2019
Consolidated Statements of Cash Flows (Going Concern Basis) for the period from January 1, 2021 through December 1, 2021 and the years ended December 31, 2020 and 2019
Notes to Consolidated Financial Statements
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.
Exhibits
2.1
Hotel Purchase and Sale Agreement, dated as of September 22, 2021, by and between the Company and B9 Cowboy Mezz A LLC (incorporated herein by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K (Commission file number 001-34087) dated September 20, 2021).
2.2
First Amendment to Hotel Purchase and Sale Agreement, dated as of October 1, 2021 by and between the Company and B9 Cowboy Mezz A LLC (incorporated herein by reference to Exhibit 2.2 to the Company’s Quarterly Report on Form 10-Q (Commission file number 001-34087) for the quarter ended September 30, 2021).
2.3
Second Amendment to Hotel Purchase and Sale Agreement, dated as of October 28, 2021 by and between the Company and B9 Cowboy Mezz A LLC (incorporated herein by reference to Exhibit 2.3 to the Company’s Quarterly Report on Form 10-Q (Commission file number 001-34087) for the quarter ended September 30, 2021).
2.4
Plan of Liquidation of the Company (incorporated herein by reference to Exhibit 2.2 to the Company’s Current Report on Form 8-K (Commission file number 001-34087) dated September 20, 2021).
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 September 20, 2021).
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
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).
10.3
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).
10.4
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).
10.5
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).
10.6
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).
10.7
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).
10.8
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).
10.9
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).
10.10
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).
10.11
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).
10.12
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).
10.13
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).
10.14
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).
10.15
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).
10.16
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).
10.17
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).
10.18
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).
10.19
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).
10.20
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).
10.21
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).
10.22
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).
10.23
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).
10.24
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).
10.25
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).
10.26
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.
10.27
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).
10.28
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).
10.29
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).
10.30
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.
10.31
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).
10.32
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).
10.33
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.
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, 2021, 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.
104*
Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)
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.
Management contracts and compensatory plans are set forth as Exhibits 10.21 through 10.33.
* Filed herewith.
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
February 4, 2022
/s/Jill Burger
Jill Burger
Chief Executive Officer
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.