NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1. Organization
Pebblebrook Hotel Trust (the "Company") was formed as a Maryland real estate investment trust in October 2009 to opportunistically acquire and invest in hotel properties located primarily in major United States cities, with an emphasis on major gateway coastal markets.
As of
March 31, 2019
, the Company owned
61
hotels with a total of
14,575
guest rooms. The hotels are located in the following markets: Atlanta (Buckhead), Georgia; Boston, Massachusetts; Chicago, Illinois; Key West, Florida; Miami (Coral Gables), Florida; Los Angeles, California (Beverly Hills, Santa Monica, and West Hollywood); Naples, Florida; Nashville, Tennessee; New York, New York; Philadelphia, Pennsylvania; Portland, Oregon; San Diego, California; San Francisco, California; Seattle, Washington; Stevenson, Washington; and Washington, D.C.
Substantially all of the Company’s assets are held by, and all of the Company's operations are conducted through, Pebblebrook Hotel, L.P. (the "Operating Partnership"). The Company is the sole general partner of the Operating Partnership. At
March 31, 2019
, the Company owned
99.7
% of the common limited partnership units issued by the Operating Partnership ("common units"). The remaining
0.3
% of the common units are owned by the other limited partners of the Operating Partnership. For the Company to qualify as a real estate investment trust ("REIT") under the Internal Revenue Code of 1986, as amended (the "Code"), it cannot operate the hotels it owns. Therefore, the Operating Partnership and its subsidiaries lease the hotel properties to subsidiaries of Pebblebrook Hotel Lessee, Inc. (collectively with its subsidiaries, "PHL") and LaSalle Hotel Lessee Inc. (collectively with its subsidiaries, "LHL"), the Company’s taxable REIT subsidiaries ("TRSs"), which in turn engage third-party eligible independent contractors to manage the hotels. PHL and LHL are consolidated into the Company’s financial statements.
Note 2. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying unaudited interim consolidated financial statements and related notes have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) and in conformity with the rules and regulations of the Securities and Exchange Commission (“SEC”) applicable to interim financial information. As such, certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been omitted in accordance with the rules and regulations of the SEC. These unaudited consolidated financial statements include all adjustments considered necessary for a fair presentation of the consolidated balance sheets, consolidated statements of operations and comprehensive income, consolidated statements of equity and consolidated statements of cash flows for the periods presented. Interim results are not necessarily indicative of full-year performance, as a result of the impact of seasonal and other short-term variations and the acquisitions and or dispositions of hotel properties. These consolidated financial statements should be read in conjunction with the audited consolidated financial statements and accompanying notes included in the Company’s Annual Report on Form 10-K for the year ended
December 31, 2018
.
The Company and its subsidiaries are separate legal entities and maintain records and books of account separate and apart from each other. The consolidated financial statements include all of the accounts of the Company and its subsidiaries and are presented in accordance with U.S. GAAP. All significant intercompany balances and transactions have been eliminated in consolidation.
Certain reclassifications have been made to the prior period’s financial statements to conform to the current year presentation.
Use of Estimates
The preparation of the financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities, and revenues and expenses. These estimates are prepared using management’s best judgment, after considering past, current and expected events and economic conditions. Actual results could differ from these estimates.
Fair Value Measurements
A fair value measurement is based on the assumptions that market participants would use in pricing an asset or liability in an orderly transaction. The hierarchy for inputs used in measuring fair value are as follows:
|
|
1.
|
Level 1 – Inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities.
|
|
|
2.
|
Level 2 – Inputs include quoted prices in active markets for similar assets and liabilities, quoted prices for identical or similar assets or liabilities in markets that are not active, and model-derived valuations whose inputs are observable.
|
|
|
3.
|
Level 3 – Model-derived valuations with unobservable inputs.
|
In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for disclosure purposes, the level within which the fair value measurement is categorized is based on the lowest level input that is significant to the fair value measurement.
The Company's financial instruments include cash and cash equivalents, restricted cash, accounts payable and accrued expenses. Due to their short maturities, the carrying amounts of these assets and liabilities approximate fair value. Marketable securities are carried at fair value using Level 1 inputs. See Note 5 to the accompanying financial statements for disclosures on the fair value of debt and derivative instruments.
Investment in Hotel Properties
Upon acquisition of a hotel property, the Company allocates the purchase price based on the fair value of the acquired land, land improvements, building, furniture, fixtures and equipment, identifiable intangible assets or liabilities, other assets and assumed liabilities. Identifiable intangible assets or liabilities typically arise from contractual arrangements in connection with the transaction, including terms that are above or below market compared to an estimated market agreement at the acquisition date. Acquisition-date fair values of assets and assumed liabilities are determined based on replacement costs, appraised values, and estimated fair values using methods similar to those used by independent appraisers and that use appropriate discount and/or capitalization rates and available market information. Hotel acquisitions are generally considered to be asset acquisitions defined by ASU 2017-01 and transaction costs related to asset acquisitions are capitalized. Acquisition costs related to business combinations are expensed as incurred and are included in general and administrative expenses on the consolidated statements of operations and comprehensive income.
Hotel renovations and replacements of assets that improve or extend the life of an asset are recorded at cost and depreciated over their estimated useful lives. Assets under capital leases are recorded at the present value of the minimum lease payments. Repair and maintenance costs are expensed as incurred.
Hotel properties are recorded at cost and depreciated using the straight-line method over an estimated useful life of
10
to
40 years
for buildings, land improvements, and building improvements and
1
to
10 years
for furniture, fixtures and equipment. Leasehold improvements are amortized over the shorter of the lease term or the useful lives of the related assets. Intangible assets arising from contractual arrangements are typically amortized over the life of the contract. The Company is required to make subjective assessments as to the useful lives and classification of properties for purposes of determining the amount of depreciation expense to reflect each year with respect to the assets. These assessments may impact the Company’s results of operations.
The Company reviews its investments in hotel properties for impairment whenever events or changes in circumstances indicate that the carrying value of the hotel properties may not be recoverable. Events or circumstances that may cause a review include, but are not limited to, when a hotel property experiences a current or projected loss from operations, when it becomes more likely than not that a hotel property will be sold before the end of its useful life, adverse changes in the demand for lodging at the properties due to declining national or local economic conditions and/or new hotel construction in markets where the hotels are located. When such conditions exist, the Company performs an analysis to determine if the estimated undiscounted future cash flows from operations and the proceeds from the ultimate disposition of a hotel exceed its carrying value. If the estimated undiscounted future cash flows are less than the carrying value of the asset, an adjustment to reduce the carrying value to the related hotel’s estimated fair market value is recorded and an impairment loss is recognized. 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 disposition, expected useful life and holding period, future required capital expenditures, and fair values, including consideration of capitalization rates, discount rates, and comparable selling prices. The Company will adjust its assumptions with respect to the remaining useful life of the hotel property when circumstances change or it is more likely than not that the hotel property will be sold prior to its previously expected useful life.
The Company will classify a hotel as held for sale and will cease recording depreciation expense when a binding agreement to sell the property has been signed under which the buyer has committed a significant amount of nonrefundable cash, approval of the Board of Trustees has been obtained,
no
significant financing contingencies exist, and the sale is expected to close within
one
year. If the fair value less costs to sell is lower than the carrying value of the hotel, the Company will record an impairment loss. The Company will classify the loss, together with the related operating results, as continuing or
discontinuing operations on the consolidated statements of operations and comprehensive income and classify the assets and related liabilities as held for sale on the consolidated balance sheets.
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. 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 point in time or over the time period that goods or services are provided to the customer. 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. Some contracts for rooms or food and beverage services require an upfront deposit which is recorded as deferred revenues (or contract liabilities) and recognized once the performance obligations are satisfied.
The Company recognizes revenue related to nonrefundable membership initiation fees and refundable membership initiation deposits over the expected life of an active membership. For refundable membership initiation deposits, the difference between the amount paid by the member and the present value of the refund obligation is deferred and recognized as other operating revenues on the consolidated statements of operations and comprehensive income over the expected life of an active membership. The present value of the refund obligation is recorded as a membership initiation deposit liability in the consolidated balance sheets and accretes over the nonrefundable term using the effective interest method using the Company's incremental borrowing rate. The accretion is included in interest expense.
Certain of the Company's hotels have retail spaces, restaurants or other spaces which the Company leases to third parties. Lease revenue is recognized on a straight-line basis over the life of the lease and included in other operating revenues in the Company's consolidated statements of operations and comprehensive income.
The Company collects sales, use, occupancy and similar taxes at its hotels which are presented on a net basis on the consolidated statements of operations and comprehensive income. 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.
Income Taxes
To qualify as a REIT for federal income tax purposes, the Company must meet a number of organizational and operational requirements, including a requirement that it currently distribute at least
90
percent of its adjusted taxable income to its shareholders. As a REIT, the Company generally is not subject to federal corporate income tax on that portion of its taxable income that is currently distributed to shareholders. The Company is subject to certain state and local taxes on its income and property, and to federal income and excise taxes on its undistributed taxable income. In addition, PHL and LHL, which leases the Company’s hotels from the Operating Partnership, is subject to federal and state income taxes. The Company accounts for income taxes using the asset and liability method under which deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Valuation allowances are provided if, based upon the weight of the available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized.
Share-based Compensation
The Company has adopted an equity incentive plan that provides for the grant of common share options, share awards, share appreciation rights, performance units and other equity-based awards. Equity-based compensation is measured at the fair value of the award on the date of grant and recognized as an expense on a straight-line basis over the vesting period. Share-based compensation 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 the Company's shares, expected dividend yield, expected term and assumptions of whether these awards will achieve parity with other operating partnership units or achieve performance thresholds.
Earnings Per Share
Basic earnings per share (“EPS”) is computed by dividing the net income (loss) available to common shareholders by the weighted-average number of common shares outstanding for the period. Diluted EPS is computed by dividing net income (loss)
available to common shareholders, as adjusted for dilutive securities, by the weighted-average number of common shares outstanding plus dilutive securities. Any anti-dilutive securities are excluded from the diluted per-share calculation.
Recent Accounting Standards
In February 2016, the FASB issued ASU 2016-02,
Leases
, which sets out the principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract (i.e., lessees and lessors). The new standard requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase by the lessee. This classification will determine whether lease expense is recognized based on an effective interest method or on a straight line basis over the term of the lease, respectively. A lessee is also required to record a right-of-use asset and a lease liability for all leases with a term of greater than 12 months regardless of their classification. 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. In July 2018, the FASB also issued 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 ground lease arrangements for which the Company is the lessee. See Notes 4 and 11 to the accompanying financial statements for additional disclosures of the adoption of this standard.
Note 3. Business Combinations and Acquisition and Disposition of Hotel Properties
Merger with LaSalle Hotel Properties
On November 30, 2018, the Company completed its merger with LaSalle Hotel Properties (“LaSalle”). Pursuant to the Agreement and Plan of Merger, dated as of September 6, 2018, as amended on September 18, 2018 (the “Merger Agreement”), by and among the Company, the Operating Partnership, Ping Merger Sub, LLC (“Merger Sub”), Ping Merger OP, LP (“Merger OP”), LaSalle and LaSalle Hotel Operating Partnership, L.P. (“LaSalle OP”).
Pursuant to the Merger Agreement, on November 30, 2018, Merger OP merged with and into LaSalle OP (the “Partnership Merger”) with LaSalle OP surviving as a subsidiary of the Operating Partnership. Immediately following the Partnership Merger, LaSalle merged with and into Merger Sub (the “Company Merger” and, together with the Partnership Merger, the “Mergers”) with Merger Sub surviving as a wholly owned subsidiary of the Company. On December 3, 2018, Merger Sub assigned all of its rights and obligations to the Company and was liquidated and dissolved.
Upon completion of the Company Merger and pursuant to the Merger Agreement, each issued and outstanding LaSalle common share of beneficial interest,
$0.01
par value per share ("LaSalle common shares") (other than the
10.8 million
LaSalle common shares held by the Company) was converted into the right to receive either (i)
0.92
of the Company's common shares and cash in lieu of fractional shares, if any; or (ii)
$37.80
in cash, subject to certain adjustments and to any applicable withholding tax (the “Cash Consideration”). The maximum number of LaSalle common shares that were eligible to be converted into the right to receive the Cash Consideration was equal to
30%
of the aggregate number of LaSalle common shares issued and outstanding immediately prior to completion of the Company Merger. The LaSalle common shares held by the Company were excluded from the cash election in the Company Merger and were cancelled. In addition, each issued and outstanding LaSalle
6.375%
Series I cumulative redeemable preferred share was converted into the right to receive
one
of the Company's
6.375%
Series E cumulative redeemable preferred shares and each issued and outstanding LaSalle
6.3%
Series J cumulative redeemable preferred share was converted into the right to receive
one
of the Company's
6.3%
Series F cumulative redeemable preferred shares.
Upon completion of the Partnership Merger and pursuant to the Merger Agreement, each common unit of LaSalle OP (a “LaSalle OP Common Unit”) that was issued and outstanding immediately prior to completion of the Partnership Merger, other than LaSalle OP Common Units held by LaSalle and its subsidiaries, was cancelled and converted into the right to receive
0.92
common units of the Operating Partnership, without interest. No fractional common shares or OP units were issued in the Mergers, and the value of any fractional interests was paid in cash.
The Company accounted for the Mergers under the acquisition method of accounting in
ASC 805, Business Combinations
. As a result of the Mergers, the Company acquired an ownership interest in the following
36
hotel properties:
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|
|
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|
|
|
|
Property
|
|
Location
|
|
Ownership Interest
|
|
Guest Rooms
|
Villa Florence San Francisco on Union Square
|
|
San Francisco, CA
|
|
100
|
%
|
|
189
|
|
Hotel Vitale
|
|
San Francisco, CA
|
|
100
|
%
|
|
200
|
|
The Marker San Francisco
|
|
San Francisco, CA
|
|
100
|
%
|
|
208
|
|
Hotel Spero
|
|
San Francisco, CA
|
|
100
|
%
|
|
236
|
|
Chaminade Resort & Spa
|
|
Santa Cruz, CA
|
|
100
|
%
|
|
156
|
|
Harbor Court Hotel San Francisco
|
|
San Francisco, CA
|
|
100
|
%
|
|
131
|
|
Viceroy Santa Monica Hotel
|
|
Santa Monica, CA
|
|
100
|
%
|
|
162
|
|
Le Parc Suite Hotel
|
|
West Hollywood, CA
|
|
100
|
%
|
|
154
|
|
Hotel Amarano Burbank
|
|
Burbank, CA
|
|
100
|
%
|
|
132
|
|
Montrose West Hollywood
|
|
West Hollywood, CA
|
|
100
|
%
|
|
133
|
|
Chamberlain West Hollywood Hotel
|
|
West Hollywood, CA
|
|
100
|
%
|
|
115
|
|
Grafton on Sunset
|
|
West Hollywood, CA
|
|
100
|
%
|
|
108
|
|
The Westin Copley Place, Boston
|
|
Boston, MA
|
|
100
|
%
|
|
803
|
|
The Liberty, A Luxury Collection Hotel, Boston
|
|
Boston, MA
|
|
99.99
|
%
|
|
298
|
|
Hyatt Regency Boston Harbor
|
|
Boston, MA
|
|
100
|
%
|
|
270
|
|
Onyx Hotel
|
|
Boston, MA
|
|
100
|
%
|
|
112
|
|
Sofitel Washington DC Lafayette Square
|
|
Washington, DC
|
|
100
|
%
|
|
237
|
|
George Hotel
|
|
Washington, DC
|
|
100
|
%
|
|
139
|
|
Mason & Rook Hotel
|
|
Washington, DC
|
|
100
|
%
|
|
178
|
|
Donovan Hotel
|
|
Washington, DC
|
|
100
|
%
|
|
193
|
|
Rouge Hotel
|
|
Washington, DC
|
|
100
|
%
|
|
137
|
|
Topaz Hotel
|
|
Washington, DC
|
|
100
|
%
|
|
99
|
|
Hotel Madera
|
|
Washington, DC
|
|
100
|
%
|
|
82
|
|
Paradise Point Resort & Spa
|
|
San Diego, CA
|
|
100
|
%
|
|
462
|
|
Hilton San Diego Gaslamp Quarter
|
|
San Diego, CA
|
|
100
|
%
|
|
286
|
|
Solamar Hotel
|
|
San Diego, CA
|
|
100
|
%
|
|
235
|
|
L'Auberge Del Mar
|
|
Del Mar, CA
|
|
100
|
%
|
|
121
|
|
Hilton San Diego Resort & Spa
|
|
San Diego, CA
|
|
100
|
%
|
|
357
|
|
The Heathman Hotel
|
|
Portland, OR
|
|
100
|
%
|
|
151
|
|
Southernmost Beach Resort
|
|
Key West, FL
|
|
100
|
%
|
|
262
|
|
The Marker Key West
|
|
Key West, FL
|
|
100
|
%
|
|
96
|
|
The Roger New York
|
|
New York, NY
|
|
100
|
%
|
|
194
|
|
Hotel Chicago Downtown, Autograph Collection
|
|
Chicago, IL
|
|
100
|
%
|
|
354
|
|
The Westin Michigan Avenue Chicago
|
|
Chicago, IL
|
|
100
|
%
|
|
752
|
|
Hotel Palomar Washington DC
|
(1)
|
Washington, DC
|
|
100
|
%
|
|
335
|
|
The Liaison Capitol Hill
|
(2)
|
Washington, DC
|
|
100
|
%
|
|
343
|
|
|
|
|
|
|
|
8,420
|
|
(1)
In February 2019, the Company sold this hotel property for
$141.5 million
.
(2)
In February 2019, the Company sold this hotel property for
$111.0 million
.
The total consideration for the Mergers was approximately
$4.1 billion
, which included the Company's issuance of approximately
61.4 million
common shares valued at
$34.92
per share to LaSalle common shareholders, the Company's issuance of
4.4 million
Series E Preferred Shares valued at
$23.10
per share to former LaSalle Series I preferred shareholders and
6.0 million
Series F Preferred Shares valued at
$22.10
per share to former LaSalle Series J preferred shareholders, the Operating Partnership's issuance of approximately
0.1 million
OP units valued at
$34.92
per unit to former LaSalle limited partners, and cash. Additionally, the Company's investment of
10.8 million
of LaSalle common shares valued at
$346.5 million
is included in the total consideration.
The total consideration, excluding the net working capital assumed, consisted of the following (in thousands):
|
|
|
|
|
|
|
|
Total Consideration
|
Common shares
|
|
$
|
2,144,057
|
|
Series E preferred shares
|
|
101,622
|
|
Series F preferred shares
|
|
132,600
|
|
OP units
|
|
4,665
|
|
Cash
|
|
1,719,150
|
|
Total consideration
|
|
$
|
4,102,094
|
|
The Company preliminarily allocated the purchase price as follows (in thousands):
|
|
|
|
|
|
|
|
November 30, 2018
|
Investment in hotel properties
|
|
$
|
4,120,370
|
|
Restricted cash reserves
|
|
14,784
|
|
Hotel and other receivables
|
|
34,669
|
|
Intangible assets
|
|
171,660
|
|
Prepaid expenses and other assets
|
|
47,808
|
|
Accounts payable and accrued expenses
|
|
(258,036
|
)
|
Deferred revenues
|
|
(23,816
|
)
|
Accrued interest
|
|
(2,496
|
)
|
Distributions payable
|
|
(2,744
|
)
|
Other
|
|
(105
|
)
|
Total consideration
|
|
$
|
4,102,094
|
|
The estimated fair values for the assets acquired and the liabilities assumed are preliminary and are subject to change during the measurement period as additional information related to the inputs and assumptions used in determining the fair value of the assets and liabilities becomes available. These estimated fair values are based on a valuation prepared by the Company with assistance of a third-party valuation specialist. The Company reviewed the inputs used by the third-party specialist as well as the allocation of the purchase price to ensure reasonableness. The Company and the third party valuation specialist have prepared the fair value estimates for each of the hotel properties acquired, and continue reviewing the underlying inputs and assumptions; therefore, the purchase price and its allocation, in their entirety, are not yet complete as of the date of this filing. Once the purchase price and allocation are complete, additional adjustment to the purchase price or allocation may occur.
The Company used the following valuation methodologies, inputs, and assumptions to estimate the fair value of the assets acquired, the liabilities assumed, and the equity interests acquired:
|
|
•
|
Investment in hotel properties — The Company estimated the fair values of the land and improvements, buildings and improvements, and furniture, fixtures, and equipment at the hotel properties by using a combination of the market, cost, and income approaches. These valuation methodologies are based on significant Level 2 and Level 3 inputs in the fair value hierarchy, such as estimates of future income growth, capitalization rates, discount rates, capital expenditures, and cash flow projections at the respective hotel properties.
|
|
|
•
|
Intangible assets — The Company estimated the fair value of its lease intangible assets by calculating the present value of the difference between the contractual rental amounts paid according to the in-place lease agreements and the market rental rates for similar leased space, measured over a period equal to the remaining non-cancellable term of the lease. This valuation methodology is based on Level 2 and Level 3 inputs in the fair value hierarchy. The market lease intangible assets are amortized as adjustments to ground rent expense over the remaining terms of the respective leases.
|
|
|
•
|
Above market lease liabilities — The Company estimated the fair value of its above market lease liabilities by calculating the present value of the difference between the contractual rental amounts paid according to the in-place lease agreements and the market rental rates for similar leased space, measured over a period equal to the remaining non-cancellable term of the lease. This valuation methodology is based on Level 2 and Level 3 inputs in the fair value
|
hierarchy. The above market lease liabilities are included in accounts payable and other liabilities in the accompanying consolidated balance sheet. The above market lease liabilities are amortized as adjustments to ground rent expense over the remaining terms of the respective leases.
|
|
•
|
Restricted cash reserves, hotel and other receivables, prepaid expenses and other assets, accounts payable and other liabilities, deferred revenues, accrued interest, and distributions payable — the carrying amounts of the assets acquired, the liabilities assumed, and the equity interests acquired approximate fair value because of their short term maturities.
|
For the hotel properties acquired during the Mergers, total revenues and operating income of
$184.0 million
and
$63.2 million
, respectively, for the three months ended
March 31, 2019
are included in the accompanying consolidated statements of operations and comprehensive income.
There were no acquisitions of hotel properties during the
three months ended
March 31, 2019
. For the
three months ended
March 31, 2019
, the Company incurred
$0.2 million
in transaction costs and
$2.2 million
in integration costs in connection with the Mergers. The transaction costs primarily related to transfer taxes, financial advisory fees, loan commitment fees, legal, and other professional service fees in connection with the Mergers. The integration costs primarily related to professional fees and employee-related costs. The merger-related costs noted above are included in transaction costs in the accompanying consolidated statements of operations and comprehensive income.
The following unaudited condensed pro forma financial information presents the results of operations as if the Mergers had taken place on January 1, 2017. The unaudited condensed pro forma financial information is not necessarily indicative of what the actual results of operations of the Company would have been assuming the Mergers had taken place on January 1, 2017, nor is it indicative of the results of operations for future periods. The unaudited condensed pro forma financial information is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended March 31,
|
|
|
2019
|
|
2018
|
|
|
(unaudited)
|
Total revenues
|
|
$
|
367,169
|
|
|
$
|
364,160
|
|
Operating income (loss)
|
|
$
|
29,937
|
|
|
$
|
41,729
|
|
Net income (loss) attributable to common shareholders
|
|
$
|
(2,504
|
)
|
|
$
|
9,315
|
|
Net income (loss) per share available to common shareholders — basic
|
|
$
|
(0.02
|
)
|
|
$
|
0.07
|
|
Net income (loss) per share available to common shareholders — diluted
|
|
$
|
(0.02
|
)
|
|
$
|
0.07
|
|
Disposition of Hotel Properties
The Company will report a disposed or held for sale hotel property or group of hotel properties in discontinued operations only if the disposal represents a strategic shift that has, or will have, a major effect on its operations and financial results. All other disposed hotel properties will have their operating results reflected within continuing operations on the Company's consolidated statements of operations and comprehensive income for all periods presented.
On
February 14, 2019
, the Company sold
The Liaison Capitol Hill
for
$111.0 million
and recognized
no
gain or loss on the disposition.
On
February 22, 2019
, the Company sold the
Hotel Palomar Washington DC
for
$141.5 million
and recognized
no
gain or loss on the disposition.
For the
three months ended
March 31, 2019
and
2018
, the Company's consolidated statements of operations and comprehensive income included operating (loss) income of
$(0.1) million
and
$0.9 million
, respectively, related to
The Grand Hotel Minneapolis
,
The Liaison Capitol Hill
and the
Hotel Palomar Washington DC
.
The sales of the hotel properties described above did not represent a strategic shift that had a major effect on the Company’s operations and financial results, and therefore, did not qualify as discontinued operations.
Note 4. Investment in Hotel Properties
Investment in hotel properties as of
March 31, 2019
and
December 31, 2018
consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
March 31,
2019
|
|
December 31, 2018
|
Land
|
$
|
1,029,685
|
|
|
$
|
1,056,862
|
|
Buildings and improvements
|
5,278,223
|
|
|
5,440,513
|
|
Furniture, fixtures and equipment
|
459,245
|
|
|
462,620
|
|
Right-of-use asset, operating leases
|
325,464
|
|
|
—
|
|
Capital lease asset
|
91,985
|
|
|
91,985
|
|
Construction in progress
|
24,406
|
|
|
25,643
|
|
Investment in hotel properties
|
$
|
7,209,008
|
|
|
$
|
7,077,623
|
|
Less: Accumulated depreciation
|
(593,750
|
)
|
|
(543,430
|
)
|
Investment in hotel properties, net
|
$
|
6,615,258
|
|
|
$
|
6,534,193
|
|
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 ground leases, all of which are operating leases. Since most of the Company's leases do not provide an implicit rate, the Company used incremental borrowing rates, which ranged from
5.5%
to
7.6%
. All of of these ground leases have long terms, ranging from
10 years
to
88 years
and the Company included the exercise of options to extend when it is reasonably certain the Company will exercise such option. See Note 11 for additional information about the ground leases. The right-of-use assets and liabilities are amortized to ground rent expense over the term of the underlying lease agreements. As of
March 31, 2019
, the Company's right-of-use assets of
$325.5 million
, which included favorable and unfavorable intangibles, are included in the Investment in Hotel Properties and its related lease liabilities of
$247.2 million
are presented in Accounts Payable and Accrued Expenses in the Company's consolidated balance sheets. The adoption of this standard had minimal impact on the Company's statements of operations and comprehensive income.
On September 10, 2017,
Hotel Colonnade Coral Gables, a Tribute Portfolio Hotel
("Hotel Colonnade") located in Coral Gables, Florida and
LaPlaya Beach Resort and Club
("LaPlaya") located in Naples, Florida were impacted by Hurricane Irma. Hotel Colonnade did not suffer any material damage and remained open. LaPlaya was closed in anticipation of the storm and re-opened in stages beginning in the fourth quarter of 2017 and was fully reopened in January 2018.
The Company’s insurance policies provide coverage for property damage, business interruption, and reimbursement for other costs that were incurred relating to damages sustained during Hurricane Irma. Insurance proceeds are subject to deductibles. As of June 30, 2018, the Company reached a final agreement with the insurance carriers related to LaPlaya totaling
$20.5 million
, and the Company recognized a gain of
$0.0 million
and
$4.9 million
for the
three months ended
March 31, 2019
and
2018
, respectively.
Note 5. Debt
The Company's debt consisted of the following as of
March 31, 2019
and
December 31, 2018
(dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance Outstanding as of
|
|
Interest Rate
|
|
Maturity Date
|
|
March 31, 2019
|
|
December 31, 2018
|
Revolving credit facilities
|
|
|
|
|
|
|
|
Senior unsecured credit facility
|
Floating
(1)
|
|
January 2022
|
|
$
|
—
|
|
|
$
|
170,000
|
|
PHL unsecured credit facility
|
Floating
(2)
|
|
January 2022
|
|
—
|
|
|
—
|
|
Total revolving credit facilities
|
|
|
|
|
$
|
—
|
|
|
$
|
170,000
|
|
|
|
|
|
|
|
|
|
Unsecured term loans
|
|
|
|
|
|
|
|
|
|
First Term Loan
|
Floating
(3)
|
|
January 2023
|
|
300,000
|
|
|
300,000
|
|
Second Term Loan
|
Floating
(3)
|
|
April 2022
|
|
65,000
|
|
|
65,000
|
|
Third Term Loan
|
Floating
(3)
|
|
January 2021
|
|
200,000
|
|
|
200,000
|
|
Fourth Term Loan
|
Floating
(3)
|
|
October 2024
|
|
110,000
|
|
|
110,000
|
|
Sixth Term Loan
|
|
|
|
|
|
|
|
Tranche 2020
|
Floating
(3)
|
|
December 2020
|
|
180,000
|
|
|
250,000
|
|
Tranche 2021
|
Floating
(3)
|
|
November 2021
|
|
300,000
|
|
|
300,000
|
|
Tranche 2022
|
Floating
(3)
|
|
November 2022
|
|
400,000
|
|
|
400,000
|
|
Tranche 2023
|
Floating
(3)
|
|
November 2023
|
|
400,000
|
|
|
400,000
|
|
Tranche 2024
|
Floating
(3)
|
|
January 2024
|
|
400,000
|
|
|
400,000
|
|
Total Sixth Term Loan
|
|
|
|
|
1,680,000
|
|
|
1,750,000
|
|
Total term loans at stated value
|
|
|
|
|
2,355,000
|
|
|
2,425,000
|
|
Deferred financing costs, net
|
|
|
|
|
(14,681
|
)
|
|
(15,716
|
)
|
Total term loans
|
|
|
|
|
$
|
2,340,319
|
|
|
$
|
2,409,284
|
|
|
|
|
|
|
|
|
|
|
|
Senior unsecured notes
|
|
|
|
|
|
|
|
|
|
Series A Notes
|
4.70%
|
|
December 2023
|
|
60,000
|
|
|
60,000
|
|
Series B Notes
|
4.93%
|
|
December 2025
|
|
40,000
|
|
|
40,000
|
|
Total senior unsecured notes at stated value
|
|
|
|
|
100,000
|
|
|
100,000
|
|
Deferred financing costs, net
|
|
|
|
|
(507
|
)
|
|
(531
|
)
|
Total senior unsecured notes
|
|
|
|
|
$
|
99,493
|
|
|
$
|
99,469
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage loans
|
|
|
|
|
|
|
|
|
|
The Westin San Diego Gaslamp Quarter
|
3.69%
|
|
January 2020
|
|
67,593
|
|
|
68,207
|
|
Deferred financing costs, net
|
|
|
|
|
(47
|
)
|
|
(62
|
)
|
Total mortgage loans
|
|
|
|
|
$
|
67,546
|
|
|
$
|
68,145
|
|
Total debt
|
|
|
|
|
$
|
2,507,358
|
|
|
$
|
2,746,898
|
|
________________________
(1)
Borrowings bear interest at floating rates equal to, at the Company's option, either (i) LIBOR plus an applicable margin or (ii) an Adjusted Base Rate (as defined in the applicable credit agreement) plus an applicable margin.
(2)
Borrowings bear interest at floating rates equal to, at the Company's option, either (i) LIBOR plus an applicable margin or (ii) an Eurocurrency Rate (as defined in the applicable credit agreement) plus an applicable margin.
(3)
Borrowings under the term loan facilities bear interest at floating rates equal to, at the Company's option, either (i) LIBOR plus an applicable margin or (ii) a Base Rate plus an applicable margin.
Unsecured Revolving Credit Facilities
The Company has a
$650.0 million
senior unsecured revolving credit facility maturing in
January 2022
, with options to extend the maturity date to
January 2023
, pursuant to certain terms and conditions and payment of an extension fee. As of
March 31, 2019
, the Company had
zero
outstanding borrowings and
$650.0 million
borrowing capacity remaining on its senior unsecured credit facility. Interest is paid on the periodic advances under the senior unsecured revolving credit facility at varying rates, based upon either LIBOR or the alternate base rate, plus an additional margin amount. The Company has the ability to further increase the aggregate borrowing capacity under the credit agreement to up to
$1.3 billion
, subject to lender approval. Borrowings on the revolving credit facility bear interest at LIBOR plus
1.45%
to
2.25%
, depending on the Company’s leverage ratio. Additionally, the Company is required to pay an unused commitment fee at an annual rate of
0.20%
or
0.30%
of the unused portion of the revolving credit facility, depending on the amount of borrowings outstanding. The credit agreement contains certain financial covenants, including a maximum leverage ratio, a minimum fixed charge coverage ratio, and a maximum percentage of secured debt to total asset value.
The Company also has a
$10.0 million
unsecured revolving credit facility (the "PHL Credit Facility") to be used for PHL's working capital and general corporate purposes. This credit facility has substantially similar terms as the Company's senior unsecured revolving credit facility and matures in
January 2022
. Borrowings on the PHL Credit Facility bear interest at LIBOR plus
1.45%
to
2.25%
, depending on the Company's leverage ratio. The PHL Credit Facility is subject to debt covenants substantially similar to the covenants under the Company's credit agreement that governs the Company's senior unsecured revolving credit facility. As of
March 31, 2019
, the Company had
no
borrowings under the PHL Credit Facility and had
$10.0 million
borrowing capacity remaining under the PHL Credit Facility.
Under the terms of the credit agreement for the unsecured revolving credit facility, one or more standby letters of credit, up to a maximum aggregate outstanding balance of
$30.0 million
, may be issued on behalf of the Company by the lenders under the unsecured revolving credit facility. The Company will incur a fee that shall be agreed upon with the issuing bank. Any outstanding standby letters of credit reduce the available borrowings on the senior unsecured revolving credit facility by a corresponding amount. Standby letters of credit of
$2.3 million
and
zero
were outstanding as of
March 31, 2019
and
December 31, 2018
, respectively.
As of
March 31, 2019
, the Company was in compliance with the debt covenants of the credit agreements that govern the unsecured revolving credit facilities.
Unsecured Term Loan Facilities
The Company has senior unsecured term loans with different maturities. Each unsecured term loan bears interest at a variable rate of a benchmark interest rate plus an applicable margin, depending on the Company's leverage ratio. Each of the term loan facilities is subject to debt covenants substantially similar to the covenants under the credit agreement that governs the revolving credit facility. In February 2019, the Company repaid
$70.0 million
of the tranche maturing in 2020 of the Company's sixth term loan. As of
March 31, 2019
, the Company was in compliance with all debt covenants of its term loan facilities. The Company entered into interest rate swap agreements to fix the LIBOR rate on a portion of these unsecured term loan facilities, see Derivative and Hedging Activities below.
Senior Unsecured Notes
The Company has outstanding
$60.0 million
of senior unsecured notes bearing a fixed interest rate of
4.70%
per annum and maturing in
December 2023
(the "Series A Notes") and
$40.0 million
of senior unsecured notes bearing a fixed interest rate of
4.93%
per annum and maturing in
December 2025
(the "Series B Notes"). The debt covenants of the Series A Notes and the Series B Notes are substantially similar to those of the Company's senior unsecured revolving credit facility. As of
March 31, 2019
, the Company was in compliance with all such debt covenants.
Mortgage Debt
The Company’s sole mortgage loan is secured by a first mortgage lien on the underlying hotel property. The mortgage is non-recourse to the Company except for customary carve-outs such as fraud or misapplication of funds.
Interest Expense
The components of the Company's interest expense consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended March 31,
|
|
|
2019
|
|
2018
|
Unsecured revolving credit facilities
|
|
$
|
1,400
|
|
|
$
|
1,485
|
|
Unsecured term loan facilities
|
|
21,865
|
|
|
5,522
|
|
Senior unsecured notes
|
|
1,198
|
|
|
1,198
|
|
Mortgage debt
|
|
626
|
|
|
647
|
|
Amortization of deferred financing fees
|
|
1,488
|
|
|
517
|
|
Other
|
|
2,751
|
|
|
442
|
|
Total interest expense
|
|
$
|
29,328
|
|
|
$
|
9,811
|
|
The Company estimates the fair value of its fixed rate debt by discounting the future cash flows of each instrument at estimated market rates, taking into consideration general market conditions and maturity of the debt with similar credit terms and is classified within Level 2 of the fair value hierarchy. The estimated fair value of the Company’s fixed rate debt (unsecured senior notes and mortgage loans) as of
March 31, 2019
and
December 31, 2018
was
$165.1 million
and
$164.3 million
, respectively.
Derivative and Hedging Activities
The Company enters into interest rate swap agreements to hedge against interest rate fluctuations. All of the Company's interest rate swaps are cash flow hedges. On January 1, 2018, the Company adopted ASU No. 2017-12,
Derivatives and Hedging: Targeted Improvements to Accounting for Hedging Activities.
All unrealized gains and losses on these hedging instruments are reported in accumulated other comprehensive income (loss) and are subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings.
The Company's interest rate swaps at
March 31, 2019
and
December 31, 2018
consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notional Value as of
|
Hedge Type
|
|
Interest Rate
|
|
Maturity
|
|
March 31, 2019
|
|
December 31, 2018
|
Swap - cash flow
|
|
1.57%
|
(1)
|
May 2019
|
|
$
|
100,000
|
|
|
$
|
100,000
|
|
Swap - cash flow
|
|
1.57%
|
(1)
|
May 2019
|
|
62,500
|
|
|
62,500
|
|
Swap - cash flow
|
|
1.57%
|
(1)
|
May 2019
|
|
15,000
|
|
|
15,000
|
|
Swap - cash flow
|
|
1.63%
|
|
January 2020
|
|
50,000
|
|
|
50,000
|
|
Swap - cash flow
|
|
1.63%
|
|
January 2020
|
|
50,000
|
|
|
50,000
|
|
Swap - cash flow
|
|
2.46%
|
|
January 2020
|
|
50,000
|
|
|
50,000
|
|
Swap - cash flow
|
|
2.46%
|
|
January 2020
|
|
50,000
|
|
|
50,000
|
|
Swap - cash flow
|
|
1.66%
|
|
January 2020
|
|
50,000
|
|
|
50,000
|
|
Swap - cash flow
|
|
1.66%
|
|
January 2020
|
|
50,000
|
|
|
50,000
|
|
Swap - cash flow
|
|
1.74%
|
|
January 2021
|
|
75,000
|
|
|
75,000
|
|
Swap - cash flow
|
|
1.75%
|
|
January 2021
|
|
50,000
|
|
|
50,000
|
|
Swap - cash flow
|
|
1.53%
|
|
January 2021
|
|
37,500
|
|
|
37,500
|
|
Swap - cash flow
|
|
1.53%
|
|
January 2021
|
|
37,500
|
|
|
37,500
|
|
Swap - cash flow
|
|
1.46%
|
(1)
|
January 2021
|
|
100,000
|
|
|
100,000
|
|
Swap - cash flow
|
|
1.47%
|
(1)
|
January 2021
|
|
47,500
|
|
|
47,500
|
|
Swap - cash flow
|
|
1.47%
|
(1)
|
January 2021
|
|
47,500
|
|
|
47,500
|
|
Swap - cash flow
|
|
1.47%
|
(1)
|
January 2021
|
|
47,500
|
|
|
47,500
|
|
Swap - cash flow
|
|
1.47%
|
(1)
|
January 2021
|
|
47,500
|
|
|
47,500
|
|
Swap - cash flow
|
|
2.60%
|
(2)
|
October 2021
|
|
55,000
|
|
|
55,000
|
|
Swap - cash flow
|
|
2.60%
|
(2)
|
October 2021
|
|
55,000
|
|
|
55,000
|
|
Swap - cash flow
|
|
1.78%
|
(1)
|
January 2022
|
|
100,000
|
|
|
100,000
|
|
Swap - cash flow
|
|
1.78%
|
(1)
|
January 2022
|
|
50,000
|
|
|
50,000
|
|
Swap - cash flow
|
|
1.79%
|
(1)
|
January 2022
|
|
30,000
|
|
|
30,000
|
|
Swap - cash flow
|
|
1.68%
|
|
April 2022
|
|
25,000
|
|
|
25,000
|
|
Swap - cash flow
|
|
1.68%
|
|
April 2022
|
|
25,000
|
|
|
25,000
|
|
Swap - cash flow
|
|
1.64%
|
|
April 2022
|
|
25,000
|
|
|
25,000
|
|
Swap - cash flow
|
|
1.64%
|
|
April 2022
|
|
25,000
|
|
|
25,000
|
|
Swap - cash flow
|
|
2.60%
|
(3)
|
January 2024
|
|
75,000
|
|
|
75,000
|
|
Swap - cash flow
|
|
2.60%
|
(3)
|
January 2024
|
|
50,000
|
|
|
50,000
|
|
Swap - cash flow
|
|
2.60%
|
(3)
|
January 2024
|
|
25,000
|
|
|
25,000
|
|
Swap - cash flow
|
|
2.60%
|
(3)
|
January 2024
|
|
75,000
|
|
|
75,000
|
|
Swap - cash flow
|
|
2.60%
|
(3)
|
January 2024
|
|
75,000
|
|
|
75,000
|
|
________________________
(1)
Swaps assumed in connection with the LaSalle merger on November 30, 2018.
(2)
Swaps became effective January 2019.
(3)
Swaps will be effective January 2020.
The Company records all derivative instruments at fair value in the consolidated balance sheets. Fair values of interest rate swaps are determined using the standard market methodology of netting the discounted future fixed cash receipts/payments and the discounted expected variable cash payments/receipts. Variable interest rates used in the calculation of projected receipts and payments on the swaps are based on an expectation of future interest rates derived from observable market interest rate curves (Overnight Index Swap curves) and volatilities (Level 2 inputs). Derivatives expose the Company to credit risk in the event of non-performance by the counterparties under the terms of the interest rate hedge agreements. The Company incorporates these counterparty credit risks in its fair value measurements. The Company believes it minimizes the credit risk by transacting with major creditworthy financial institutions.
As of
March 31, 2019
, the Company's derivative instruments were in both asset and liability positions, with an aggregate asset and liability fair values of
$11.1 million
and
$6.8 million
, respectively, in the accompanying consolidated balance sheets. For the
three months ended
March 31, 2019
and
2018
, there was
$(9.0) million
and
$5.3 million
in unrealized (loss) gain, respectively, recorded in accumulated other comprehensive income (loss). For the
three months ended
March 31, 2019
and
2018
, the Company reclassified
$(2.5) million
and
$0.3 million
, respectively, from accumulated other comprehensive income (loss) to interest expense. The Company expects approximately
$1.2 million
will be reclassified from accumulated other comprehensive income (loss) to interest expense in the next 12 months.
Note 6. Revenue
The Company presents revenue on a disaggregated basis in the consolidated statements of operations and comprehensive income. The following table presents revenues by geographic location for the
three months ended
March 31, 2019
and
2018
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended March 31,
|
|
|
2019
|
|
2018
|
San Francisco, CA
|
|
$
|
83,243
|
|
|
$
|
44,448
|
|
Los Angeles, CA
|
|
47,364
|
|
|
29,729
|
|
San Diego, CA
|
|
57,288
|
|
|
17,129
|
|
Boston, MA
|
|
47,532
|
|
|
12,318
|
|
Seattle, WA
|
|
6,641
|
|
|
6,421
|
|
Portland, OR
|
|
18,703
|
|
|
18,412
|
|
Washington DC
|
|
27,928
|
|
|
5,385
|
|
Southern FL
|
|
39,530
|
|
|
20,983
|
|
Chicago, IL
|
|
11,099
|
|
|
—
|
|
Other
(1)
|
|
27,841
|
|
|
26,230
|
|
|
|
$
|
367,169
|
|
|
$
|
181,055
|
|
(1)
Other includes: Atlanta (Buckhead), GA, Minneapolis, MN, Nashville, TN, New York City, NY, Philadelphia, PA and Santa Cruz, CA.
Payments from customers are primarily made when services are provided. Due to the short-term nature of the Company's contracts and the almost simultaneous receipt of payment, almost all of the contract liability balance at the beginning of the year is expected to be recognized as revenue over the following 12 months.
Note 7. Equity
Common Shares
The Company is authorized to issue up to
500,000,000
common shares of beneficial interest,
$0.01
par value per share (“common shares”). Each outstanding common share entitles the holder to one vote on each matter submitted to a vote of shareholders. Holders of the Company’s common shares are entitled to receive dividends when authorized by the Company's Board of Trustees.
On February 22, 2016, the Company announced that the Board of Trustees authorized a share repurchase program of up to
$150.0 million
of the Company's outstanding common shares. Under this program, the Company may repurchase its common shares from time to time in transactions on the open market or by private agreement. The Company may suspend or discontinue this program at any time. Upon repurchase by the Company, common shares cease to be outstanding and become authorized but unissued common shares. For the
three months ended
March 31, 2019
, the Company had
no
repurchases under this program and as of
March 31, 2019
,
$56.6 million
of common shares remained available for repurchase under this program.
On July 27, 2017, the Company announced that the Board of Trustees authorized a new share repurchase program of up to
$100.0 million
of the Company's outstanding common shares. Under this program, the Company may repurchase its common shares from time to time in transactions on the open market or by private agreement. The Company may suspend or discontinue this program at any time. This
$100.0 million
share repurchase program will commence upon completion of the Company's
$150.0 million
share repurchase program.
Common Dividends
The Company declared the following dividends on common shares/units for the
three months ended
March 31, 2019
:
|
|
|
|
|
|
|
|
|
|
Dividend per
Share/Unit
|
|
For the Quarter
Ended
|
|
Record Date
|
|
Payable Date
|
$
|
0.38
|
|
|
March 31, 2019
|
|
March 29, 2019
|
|
April 15, 2019
|
Preferred Shares
The Company is authorized to issue up to
100,000,000
preferred shares of beneficial interest,
$0.01
par value per share (“preferred shares”).
On November 30, 2018, in connection with the LaSalle merger, the Company issued
4,400,000
of its
6.375% Series E
Cumulative Redeemable Preferred Shares ("Series E Preferred Shares") and
6,000,000
of its
6.30% Series F
Cumulative Redeemable Preferred Shares ("Series F Preferred Shares").
The following Preferred Shares were outstanding as of
March 31, 2019
and
December 31, 2018
:
|
|
|
|
|
|
|
|
Security Type
|
|
As of March 31, 2019
|
|
As of December 31, 2018
|
6.50% Series C
|
|
5,000,000
|
|
|
5,000,000
|
|
6.375% Series D
|
|
5,000,000
|
|
|
5,000,000
|
|
6.375% Series E
|
|
4,400,000
|
|
|
4,400,000
|
|
6.30% Series F
|
|
6,000,000
|
|
|
6,000,000
|
|
|
|
20,400,000
|
|
|
20,400,000
|
|
The Series C Preferred Shares, Series D Preferred Shares, Series E Preferred Shares and Series F Preferred Shares (collectively, the “Preferred Shares”) rank senior to the common shares and on parity with each other with respect to payment of distributions. The Preferred Shares are cumulative redeemable preferred shares, do not have any maturity date and are not subject to mandatory redemption. The Company could not redeem the Series C Preferred Shares prior to March 18, 2018, may not redeem the Series D Preferred Shares prior to June 9, 2021, could not redeem the Series E Preferred Shares prior to March 4, 2018 and may not redeem the Series F Preferred Shares prior to May 25, 2021, except in limited circumstances relating to the Company’s continuing qualification as a REIT or as discussed below. On or after May 25, 2021 and June 9, 2021, the Company may, at its option, redeem the Series F Preferred Shares and Series D Preferred Shares, respectively, and at any time the Company may, at its option, redeem the Series C Preferred Shares or the Series E Preferred Shares, or both, in each case in whole or from time to time in part, by payment of
$25.00
per share, plus any accumulated, accrued and unpaid distributions through the date of redemption. Upon the occurrence of a change of control, as defined in the Company's declaration of trust, the result of which the Company’s common shares and the common securities of the acquiring or surviving entity are not listed on the New York Stock Exchange, the NYSE MKT or NASDAQ, or any successor exchanges, the Company may, at its option, redeem the Preferred Shares in whole or in part within
120
days following the change of control by paying
$25.00
per share, plus any accrued and unpaid distributions through the date of redemption. If the Company does not exercise its right to redeem the Preferred Shares upon a change of control, the holders of the Preferred Shares have the right to convert some or all of their shares into a number of the Company’s common shares based on defined formulas subject to share caps. The share cap on each Series C Preferred Share is
2.0325
common shares, on each Series D Preferred Share is
1.9794
common shares, on each Series E Preferred Share is
1.9372
common shares and on each Series F Preferred Share is
2.0649
common shares.
Preferred Dividends
The Company declared the following dividends on preferred shares for the
three months ended
March 31, 2019
:
|
|
|
|
|
|
|
|
|
|
|
|
Security Type
|
|
Dividend per
Share/Unit
|
|
For the Quarter
Ended
|
|
Record Date
|
|
Payable Date
|
6.50% Series C
|
|
$
|
0.41
|
|
|
March 31, 2019
|
|
March 29, 2019
|
|
April 15, 2019
|
6.375% Series D
|
|
$
|
0.40
|
|
|
March 31, 2019
|
|
March 29, 2019
|
|
April 15, 2019
|
6.375% Series E
|
|
$
|
0.40
|
|
|
March 31, 2019
|
|
March 29, 2019
|
|
April 15, 2019
|
6.30% Series F
|
|
$
|
0.39
|
|
|
March 31, 2019
|
|
March 29, 2019
|
|
April 15, 2019
|
Non-controlling Interest of Common Units in Operating Partnership
Holders of Operating Partnership units have certain redemption rights that enable the unit holders to cause the Operating Partnership to redeem their units in exchange for, at the Company’s option, cash per unit equal to the market price of the Company’s common shares at the time of redemption or the Company’s common shares on a
one
-for-
one
basis. The number of shares issuable upon exercise of the redemption rights will be adjusted upon the occurrence of share splits, mergers, consolidations or similar pro-rata share transactions, which otherwise would have the effect of diluting the ownership interests of the Operating Partnership's limited partners or the Company's shareholders.
As of
March 31, 2019
and
December 31, 2018
, the Operating Partnership had
236,351
long-term incentive partnership units (“LTIP units”) outstanding. Of the
236,351
LTIP units outstanding at
March 31, 2019
,
190,975
LTIP units have vested. Only vested LTIP units may be converted to common units of the Operating Partnership, which in turn can be tendered for redemption as described above.
On November 30, 2018, in connection with the LaSalle merger, the Company issued
133,605
OP units in the Operating Partnership to third-party limited partners of LaSalle OP. As of
March 31, 2019
and
December 31, 2018
, the Operating Partnership had
133,605
and
133,605
OP units held by third parties, respectively, excluding LTIP units.
Note 8. Share-Based Compensation Plan
The Company maintains the 2009 Equity Incentive Plan, as amended and restated (as amended, the "Plan"), to attract and retain independent trustees, executive officers and other key employees and service providers. The Plan provides for the grant of options to purchase common shares, share awards, share appreciation rights, performance units and other equity-based awards. Share awards under the Plan vest over a period determined by the Board of Trustees, generally over
three
to
five years
, with certain awards vesting over periods of up to
six years
. The Company pays or accrues for dividends on share-based awards. All share awards are subject to full or partial accelerated vesting upon a change in control and upon death or disability or certain other employment termination events as set forth in the award agreements. As of
March 31, 2019
, there were
1,037,919
common shares available for issuance under the Plan, assuming performance-based equity awards vest at target.
Service Condition Share Awards
From time to time, the Company awards restricted common shares under the Plan to members of the Board of Trustees, officers and employees. These shares generally vest over
three
to
five years
based on continued service or employment.
The following table provides a summary of service condition restricted share activity as of
March 31, 2019
:
|
|
|
|
|
|
|
|
|
Shares
|
|
Weighted-Average
Grant Date
Fair Value
|
Unvested at December 31, 2018
|
127,732
|
|
|
$
|
32.22
|
|
Granted
|
84,705
|
|
|
$
|
32.70
|
|
Vested
|
(66,276
|
)
|
|
$
|
30.20
|
|
Forfeited
|
—
|
|
|
$
|
—
|
|
Unvested at March 31, 2019
|
146,161
|
|
|
$
|
33.41
|
|
The fair value of each of these service condition restricted share awards is determined based on the closing price of the Company’s common shares on the grant date and compensation expense is recognized on a straight-line basis over the vesting period. For the
three months ended
March 31, 2019
and
2018
, the Company recognized approximately
$0.5 million
and
$0.4 million
, respectively, of share-based compensation expense related to these service condition restricted shares in the consolidated statements of operations and comprehensive income. As of
March 31, 2019
, there was
$4.4 million
of total unrecognized share-based compensation expense related to unvested restricted shares. The unrecognized share-based compensation expense is expected to be recognized over the weighted-average remaining vesting period of
2.2 years
.
Performance-Based Equity Awards
On December 13, 2013, the Board of Trustees approved a target award of
252,088
performance-based equity awards to officers and employees of the Company. The awards vest ratably, if at all, on January 1, 2016, 2017, 2018, 2019 and 2020. The actual number of common shares that ultimately vest will range from
0%
to
200%
of the target award and will be determined on each vesting date based upon the two performance criteria defined in the award agreements for the period of performance beginning on the grant date and ending on the applicable vesting date. In January 2016, the Company issued
25,134
of common shares which represented achieving
49%
of the
50,418
target number of shares for that measurement period.
In January 2017, the Company issued
12,285
of common shares which represented achieving
25%
of the
49,914
target number of shares for that measurement period. In January 2018, the Company issued
72,236
of common shares which represented achieving
145%
of the
49,914
target number of shares for that measurement period. In January 2019, the Company issued
35,471
of common shares which represented achieving
71%
of the
49,914
target number of shares for that measurement period.
On February 4, 2014, the Board of Trustees approved a target award of
66,483
performance-based equity awards to officers and employees of the Company. In January 2017, these awards vested and the Company issued
112,782
and
25,619
common shares to officers and non-executive management employees, respectively. The actual number of common shares that ultimately vested was based on the three performance criteria defined in the award agreements for the period of performance from January 1, 2014 through December 31, 2016.
On February 11, 2015, the Board of Trustees approved a target award of
44,962
performance-based equity awards to officers and employees of the Company. In January 2018, these awards vested and the Company issued
14,089
and
2,501
common shares to officers and non-executive management employees, respectively. The actual number of common shares that ultimately vested was based on the three performance criteria defined in the award agreements for the period of performance from January 1, 2015 through December 31, 2017.
On July 27, 2015, a target award of
771
performance-based equity awards was granted to an employee of the Company. In January 2018, these awards vested and the Company issued
1,079
common shares to the employee. The actual number of common shares that ultimately vested was based on the three performance criteria defined in the award agreements for the period of performance from January 1, 2016 through December 31, 2017.
On February 10, 2016, the Board of Trustees approved a target award of
100,919
performance-based equity awards to officers and employees of the Company. In January 2019, these awards vested and the Company issued
142,173
and
31,146
common shares to officers and employees, respectively. The actual number of common shares that ultimately vested was based on the three performance criteria defined in the award agreements for the period of performance from January 1, 2016 through December 31, 2018.
On February 15, 2017, the Board of Trustees approved a target award of
81,939
performance-based equity awards to officers and employees of the Company. These awards will vest, if at all, in 2020. The actual number of common shares that ultimately vest will range from
0%
to
200%
of the target award and will be determined in 2020 based on the two performance criteria defined in the award agreements for the period of performance from January 1, 2017 through December 31, 2019.
On February 14, 2018, the Board of Trustees approved a target award of
78,918
performance-based equity awards to officers and employees of the Company. These awards will vest, if at all, in 2021. The actual number of common shares that ultimately vest will range from
0%
to
200%
of the target award and will be determined in 2021 based on the two performance criteria defined in the award agreements for the period of performance from January 1, 2018 through December 31, 2020.
On February 13, 2019, the Board of Trustees approved a target award of
126,891
performance-based equity awards to officers and employees of the Company. These awards will vest, if at all, in 2022. The actual number of common shares that ultimately vest will range from
0%
to
200%
of the target award and will be determined in 2022 based on the two performance criteria defined in the award agreements for the period of performance from January 1, 2019 through December 31, 2021.
The grant date fair value of the performance awards, with market conditions, were determined using a Monte Carlo simulation method with the following assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
Performance Award Grant Date
|
|
Percentage of Total Award
|
|
Grant Date Fair Value by Component ($ in millions)
|
|
Volatility
|
|
Interest Rate
|
|
Dividend Yield
|
December 13, 2013
|
|
|
|
|
|
|
|
|
|
|
|
Relative Total Shareholder Return
|
|
50.00%
|
|
$4.7
|
|
29.00%
|
|
0.34% - 2.25%
|
|
2.40%
|
|
Absolute Total Shareholder Return
|
|
50.00%
|
|
$2.9
|
|
29.00%
|
|
0.34% - 2.25%
|
|
2.40%
|
|
|
|
|
|
|
|
|
|
|
|
|
February 4, 2014
|
|
|
|
|
|
|
|
|
|
|
|
Relative Total Shareholder Return
|
|
30.00%
|
|
$0.7
|
|
29.00%
|
|
0.62%
|
|
2.40%
|
|
Absolute Total Shareholder Return
|
|
30.00%
|
|
$0.5
|
|
29.00%
|
|
0.62%
|
|
2.40%
|
|
EBITDA Comparison
|
|
40.00%
|
|
$0.8
|
|
29.00%
|
|
0.62%
|
|
2.40%
|
|
|
|
|
|
|
|
|
|
|
|
|
February 11, 2015
|
|
|
|
|
|
|
|
|
|
|
|
Relative Total Shareholder Return
|
|
30.00%
|
|
$0.9
|
|
22.00%
|
|
1.02%
|
|
2.50%
|
|
Absolute Total Shareholder Return
|
|
40.00%
|
|
$0.7
|
|
22.00%
|
|
1.02%
|
|
2.50%
|
|
EBITDA Comparison
|
|
30.00%
|
|
$0.7
|
|
22.00%
|
|
1.02%
|
|
2.50%
|
|
|
|
|
|
|
|
|
|
|
|
|
July 27, 2015
|
|
|
|
|
|
|
|
|
|
|
|
Relative Total Shareholder Return
|
|
30.00%
|
|
—
|
(1)
|
22.00%
|
|
0.68%
|
|
2.50%
|
|
Absolute Total Shareholder Return
|
|
40.00%
|
|
—
|
(1)
|
22.00%
|
|
0.68%
|
|
2.50%
|
|
EBITDA Comparison
|
|
30.00%
|
|
—
|
(1)
|
22.00%
|
|
0.68%
|
|
2.50%
|
|
|
|
|
|
|
|
|
|
|
|
|
February 10, 2016
|
|
|
|
|
|
|
|
|
|
|
|
Relative Total Shareholder Return
|
|
70.00%
|
|
$1.6
|
|
25.00%
|
|
0.71%
|
|
3.00%
|
|
Absolute Total Shareholder Return
|
|
15.00%
|
|
$0.2
|
|
25.00%
|
|
0.71%
|
|
3.00%
|
|
EBITDA Comparison
|
|
15.00%
|
|
$0.4
|
|
25.00%
|
|
0.71%
|
|
3.00%
|
|
|
|
|
|
|
|
|
|
|
|
|
February 15, 2017
|
|
|
|
|
|
|
|
|
|
|
|
Relative and Absolute Total Shareholder Return
|
|
65.00% / 35.00%
|
|
$2.7
|
|
28.00%
|
|
1.27%
|
|
5.60%
|
|
|
|
|
|
|
|
|
|
|
|
|
February 14, 2018
|
|
|
|
|
|
|
|
|
|
|
|
Relative and Absolute Total Shareholder Return
|
|
65.00% / 35.00%
|
|
$3.5
|
|
28.00%
|
|
2.37%
|
|
4.70%
|
|
|
|
|
|
|
|
|
|
|
|
|
February 13, 2019
|
|
|
|
|
|
|
|
|
|
|
|
Relative and Absolute Total Shareholder Return
|
|
65.00% / 35.00%
|
|
$4.5
|
|
26.00%
|
|
2.52%
|
|
4.20%
|
(1)
Amounts round to zero.
In the table above, the Relative Total Shareholder Return and Absolute Total Shareholder Return components are market conditions as defined by ASC 718. The EBITDA Comparison component is a performance condition as defined by ASC 718, and, therefore, compensation expense related to this component will be reassessed at each reporting date based on the Company's estimate of the probable level of achievement, and the accrual of compensation expense will be adjusted as appropriate.
Dividends on unvested performance-based equity awards accrue over the vesting period and will be paid on the actual number of shares that vest at the end of the applicable period. The Company recognizes compensation expense on a straight-
line basis through the vesting date. As of
March 31, 2019
, there was approximately
$8.3 million
of unrecognized compensation expense related to these performance-based equity awards which will be recognized over the weighted-average remaining vesting period of
2.1 years
. For the
three months ended
March 31, 2019
and
2018
, the Company recognized
$1.1 million
and
$(1.0) million
, respectively, in expense related to these awards.
Long-Term Incentive Partnership Units
LTIP units, which are also referred to as profits interest units, may be issued to eligible participants for the performance of services to or for the benefit of the Operating Partnership. LTIP units are a class of partnership unit in the Operating Partnership and receive, whether vested or not, the same per-unit profit distributions as the other outstanding units in the Operating Partnership, which equal per-share distributions on common shares. LTIP units are allocated their pro-rata share of the Company's net income (loss). Vested LTIP units may be converted by the holder, at any time, into an equal number of common Operating Partnership units and thereafter will possess all of the rights and interests of a common Operating Partnership unit, including the right to redeem the common Operating Partnership unit for a common share in the Company or cash, at the option of the Operating Partnership.
As of
March 31, 2019
, the Operating Partnership had
two
classes of LTIP units, LTIP Class A and LTIP Class B units. All of the outstanding LTIP units are held by officers of the Company.
On December 13, 2013, the Board of Trustees approved a grant of
226,882
LTIP Class B units to executive officers of the Company. These LTIP units are subject to time-based vesting in
five
equal annual installments beginning
January 1, 2016
and ending on
January 1, 2020
. The fair value of each award was determined based on the closing price of the Company’s common shares on the grant date of
$29.19
per unit. The aggregate grant date fair value of the LTIP Class B units was
$6.6 million
.
As of
March 31, 2019
, the Company had
236,351
LTIP units outstanding. All unvested LTIP units will vest upon a change in control. As of
March 31, 2019
, of the
236,351
units outstanding,
190,975
LTIP units have vested.
For the
three months ended
March 31, 2019
and
2018
, the Company recognized
$0.3 million
and
$0.3 million
, respectively, in expense related to these LTIP units. As of
March 31, 2019
, there was
$0.8 million
of total unrecognized share-based compensation expense related to LTIP units. This unrecognized share-based compensation expense is expected to be recognized over the weighted-average remaining vesting period of
0.4 years
. The aggregate expense related to the LTIP unit grants is presented as non-controlling interest in the Company’s consolidated balance sheets.
Note 9. Income Taxes
The Company's TRSs, PHL and LHL, are subject to federal and state corporate income taxes at statutory tax rates. The Company has estimated its TRSs' income tax expense (benefit) for the
three months ended
March 31, 2019
using an estimated combined federal and state statutory tax rate of
30.0%
.
The Company files tax returns as prescribed by the tax laws of the jurisdictions in which it operates. In the normal course of business, the Company is subject to examination by federal, state and local jurisdictions, where applicable. As of
March 31, 2019
and
December 31, 2018
, the statute of limitations remains open for all major jurisdictions for tax years dating back to 2014.
Note 10. Earnings Per Share
The following is a reconciliation of basic and diluted earnings per common share (in thousands, except share and per-share data):
|
|
|
|
|
|
|
|
|
|
For the three months ended March 31,
|
|
2019
|
|
2018
|
Numerator:
|
|
|
|
Net income (loss) attributable to common shareholders
|
$
|
(2,504
|
)
|
|
$
|
20,386
|
|
Less: dividends paid on unvested share-based compensation
|
(73
|
)
|
|
(83
|
)
|
Net income (loss) available to common shareholders
|
$
|
(2,577
|
)
|
|
$
|
20,303
|
|
Denominator:
|
|
|
|
Weighted-average number of common shares — basic
|
130,431,074
|
|
|
68,876,444
|
|
Effect of dilutive share-based compensation
|
—
|
|
|
331,604
|
|
Weighted-average number of common shares — diluted
|
130,431,074
|
|
|
69,208,048
|
|
|
|
|
|
Net income (loss) per share available to common shareholders — basic
|
$
|
(0.02
|
)
|
|
$
|
0.29
|
|
Net income (loss) per share available to common shareholders — diluted
|
$
|
(0.02
|
)
|
|
$
|
0.29
|
|
For the
three months ended
March 31, 2019
and
2018
,
179,476
and
4,212
, respectively, of unvested service condition restricted shares and performance-based equity awards were excluded from diluted weighted-average common shares, as their effect would have been anti-dilutive. The LTIP and OP units held by the non-controlling interest holders have been excluded from the denominator of the diluted earnings per share as there would be no effect on the amounts since the limited partners' share of income (loss) would also be added or subtracted to derive net income (loss) available to common shareholders.
Note 11. Commitments and Contingencies
Management Agreements
The Company’s hotel properties are operated pursuant to management agreements with various management companies. The terms of these management agreements range from
1
year to
22
years, not including renewals, and
1
year to
52
years, including renewals. Many of the Company’s management agreements are terminable at will by the Company upon paying a termination fee and some are terminable by the Company upon sale of the property, with, in some cases, the payment of termination fees. Most of the agreements also provide the Company the ability to terminate based on failure to achieve defined operating performance thresholds. Termination fees range from
zero
to up to
seven
times the annual base management and incentive management fees, depending on the agreement and the reason for termination. Certain of the Company’s management agreements are non-terminable except upon the manager’s breach of a material representation or the manager’s failure to meet performance thresholds as defined in the management agreement.
The management agreements require the payment of a base management fee generally between
1%
and
4%
of hotel revenues. Under certain management agreements, the management companies are also eligible to receive an incentive management fee if hotel operating income, cash flows or other performance measures, as defined in the agreements, exceed certain performance thresholds. The incentive management fee is generally calculated as a percentage of hotel operating income after the Company has received a priority return on its investment in the hotel. Com
bined base and incentive management fees were
$9.5 million
and
$5.3 million
for the
three months ended
March 31, 2019
and
2018
, respectively. Base and incentive management fees are included in other direct and indirect expenses in the Company's consolidated statements of operations and comprehensive income.
Reserve Funds
Certain of the Company’s agreements with its hotel managers, franchisors and lenders have provisions for the Company to provide funds, typically
4.0%
of hotel revenues, sufficient to cover the cost of (a) certain non-routine repairs and maintenance to the hotels and (b) replacements and renewals to the hotels’ furniture, fixtures and equipment.
Restricted Cash
At
March 31, 2019
and
December 31, 2018
, the Company had
$25.7 million
and
$24.4 million
, respectively, in restricted cash, which consisted of reserves for replacement of furniture and fixtures or reserves to pay for real estate taxes or property insurance under certain hotel management agreements or loan agreements.
Ground and Hotel Leases
As of
March 31, 2019
, the following hotels were subject to leases as follows:
|
|
|
|
|
|
|
Lease Properties
|
|
Lease Type
|
|
Lease Expiration Date
|
|
Hotel Monaco Washington DC
|
|
Operating lease
|
|
November 2059
|
|
Argonaut Hotel
|
|
Operating lease
|
|
December 2059
|
|
Hotel Zelos San Francisco
|
|
Operating lease
|
|
June 2097
|
|
Hotel Zephyr Fisherman's Wharf
|
|
Operating lease
|
|
February 2062
|
|
Hotel Palomar Los Angeles Beverly Hills
|
|
Operating lease
|
|
January 2107
|
(1)
|
Union Station Hotel Nashville, Autograph Collection
|
|
Operating lease
|
|
December 2105
|
|
Southernmost Beach Resort
|
|
Operating lease
|
|
April 2029
|
|
Hyatt Regency Boston Harbor
|
|
Operating lease
|
|
April 2077
|
|
Hilton San Diego Resort & Spa
|
|
Operating lease
|
|
July 2068
|
|
Paradise Point Resort & Spa
|
|
Operating lease
|
|
May 2050
|
|
Hotel Vitale
|
|
Operating lease
|
|
March 2056
|
(2)
|
Viceroy Santa Monica Hotel
|
|
Operating lease
|
|
September 2065
|
|
The Westin Copley Place, Boston
|
|
Operating lease
|
|
December 2077
|
(3)
|
The Liberty, A Luxury Collection Hotel, Boston
|
|
Operating lease
|
|
May 2080
|
|
Hotel Zeppelin San Francisco
|
|
Operating and capital lease
|
|
June 2059
|
(4)
|
Harbor Court Hotel San Francisco
|
|
Capital lease
|
|
August 2052
|
|
The Roger New York
|
|
Capital lease
|
|
December 2044
|
|
(1)
The expiration date assumes the exercise of all
19
five
-year extension options.
(2)
The Company has the option, subject to certain terms and conditions, to extend the ground lease for
14 years
to
2070
.
(3)
No payments are required through maturity.
(4)
The Company has the option, subject to certain terms and conditions, to extend the ground lease for
30 years
to 2089.
The Company's leases may require minimum fixed rent payments, percentage rent payments based on a percentage of revenues in excess of certain thresholds or rent payments equal to the greater of a minimum fixed rent or percentage rent. Minimum fixed rent may be adjusted annually by increases in consumer price index ("CPI") and may be subject to minimum and maximum increases. Some leases also contain certain restrictions on modifications that can be made to the hotel structures due to their status as national historic landmark.
The Company records expense on a straight-line basis for leases that provide for minimum rental payments that increase in pre-established amounts over the remaining terms of the leases. Ground rent expense was
$7.6 million
and
$3.1 million
for the
three months ended
March 31, 2019
and
2018
, respectively. For the
three months ended
March 31, 2019
, fixed and variable ground rent expense were
$4.3 million
and
$3.3 million
, respectively. Ground rent expense is included in real estate taxes, personal property taxes, property insurance and ground rent in the Company's consolidated statements of operations and comprehensive income.
In January 2019, the Company acquired the ground lease underlying the land of the
Solamar Hotel
for
$6.9 million
.
Maturity of lease liabilities for the Company's operating leases is as follows (in thousands):
|
|
|
|
|
|
Year ending December 31,
|
|
|
2019 (excluding the three months ended March 31, 2019)
|
|
$
|
12,854
|
|
2020
|
|
17,345
|
|
2021
|
|
17,434
|
|
2022
|
|
17,505
|
|
2023
|
|
17,578
|
|
Thereafter
|
|
1,159,743
|
|
Total lease payments
|
|
$
|
1,242,459
|
|
Less: Imputed interest
|
|
(995,297
|
)
|
Present value of lease liabilities
|
|
$
|
247,162
|
|
Future minimum annual rental payments, including capital lease payments, assuming fixed rent for all periods and excludes percentage rent and CPI adjustments, prior to adoption of ASC 842 is as follows as of
December 31, 2018
(in thousands):
|
|
|
|
|
|
Year ending December 31,
|
|
|
2019
|
|
$
|
18,882
|
|
2020
|
|
19,091
|
|
2021
|
|
19,223
|
|
2022
|
|
19,325
|
|
2023
|
|
19,429
|
|
Thereafter
|
|
1,219,303
|
|
Total
|
|
$
|
1,315,253
|
|
Note 12. Supplemental Information to Statements of Cash Flows
|
|
|
|
|
|
|
|
|
|
For the three months ended March 31,
|
|
2019
|
|
2018
|
|
(in thousands)
|
Interest paid, net of capitalized interest
|
$
|
22,589
|
|
|
$
|
7,655
|
|
Income taxes paid
|
$
|
(163
|
)
|
|
$
|
—
|
|
Non-Cash Investing and Financing Activities:
|
|
|
|
Distributions payable on common shares/units
|
$
|
50,621
|
|
|
$
|
27,902
|
|
Distributions payable on preferred shares
|
$
|
7,558
|
|
|
$
|
3,442
|
|
Issuance of common shares for Board of Trustees compensation
|
$
|
740
|
|
|
$
|
662
|
|
Accrued additions and improvements to hotel properties
|
$
|
2,313
|
|
|
$
|
1,286
|
|
Right of use assets obtained in exchange for lease liabilities
|
$
|
247,162
|
|
|
$
|
—
|
|
Purchase of ground lease
|
$
|
16,444
|
|
|
$
|
—
|
|
Note 13. Subsequent Events
In April 2019, the Company entered into an agreement to sell the
Onyx Hotel
in Boston, Massachusetts to a third party for
$58.3 million
.