What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-04-29 compared with 2020-10-29 · 136 added, 138 removed, 205 unchanged (57% of the section changed)

17 unchanged sentences

• risks associated with the hotel industry, including competition, changes in visa and other travel policies by the U.S.

government making it less convenient, more difficult or less desirable for international travelers to enter the U.S., increases in employment costs, energy costs and other operating costs, or decreases in demand caused by events beyond our control including, without limitation, actual or threatened terrorist attacks, cyber attacks, any type of flu or disease-related pandemic, or downturns in general and local economic conditions;

government making it less convenient, more difficult or less desirable for international travelers to enter the U.S., increases in employment costs, energy costs and other operating costs, or decreases in demand caused by events beyond our control including, without limitation, actual or threatened terrorist attacks, natural disasters, cyber attacks, any type of flu or disease-related pandemic, or downturns in general and local economic conditions;

• the availability and terms of financing and capital and the general volatility of securities markets;

• our dependence on third-party managers of our hotels, including our inability to implement strategic business decisions directly;

• risks associated with the global economy and real estate industry, including environmental contamination and costs of complying with the Americans with Disabilities Act and similar laws;

• risks associated with the U.S.

and global economies, the cyclical nature of hotel properties and the real estate industry, including environmental contamination and costs of complying with new or existing laws, including the Americans with Disabilities Act and similar laws;

• interest rate increases;

• our possible failure to qualify as a REIT under the Code and the risk of changes in laws affecting REITs;

• the timing and availability of potential hotel acquisitions and our ability to identify and complete hotel acquisitions or dispositions in accordance with our business strategy;

• the timing and availability of potential hotel acquisitions and our ability to identify and complete hotel acquisitions and our ability to complete hotel dispositions in accordance with our business strategy;

• the possibility of uninsured losses;

• risks associated with redevelopment and repositioning projects, including delays and cost overruns;

• the other factors discussed under the heading "Risk Factors" in this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K for the year ended December 31, 2019 and under Item 8.01 of our Current Report on Form 8-K filed with the SEC on March 24, 2020.

• the other factors discussed under the heading "Risk Factors" in this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K for the year ended December 31, 2020.

Accordingly, there is no assurance that our expectations will be realized.

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In March 2020, the World Health Organization declared the novel coronavirus ("COVID-19") to be a global pandemic and the virus has continued to spread throughout the United States and the world.

As a result of this pandemic and subsequent government mandates and health official recommendations, hotel demand was nearly eliminated.

Following the government mandates and health official recommendations, we temporarily suspended operations at a majority of our hotels and resorts and dramatically reduced staffing and expenses at the hotels that remain operational.

Throughout the summer months, hotel industry demand improved from its historical lows seen in the second quarter, particularly as leisure customers sought to escape the confines of their homes and travel to safe, clean and trustworthy drive-to hotels and resorts that offer more space and outdoor experiences.

In the third quarter, our properties benefited from this trend, and we saw weekly improvements in hotel revenues, excluding Independence Day and Labor Day holiday weeks, which experienced outsized increases and meaningful rate increases over the prior year period.

We will continue to monitor business travel demand, which has seen a slight uptick in recent weeks, as we still anticipate group demand will be the slowest to return until there is clarity around a health and immunity solution for the country.

As of September 30, 2020, 35 of our hotels were open with operations of the remaining 18 hotels still temporarily suspended.

Subsequent to September 30, 2020, we re-opened 4 additional hotels and anticipate re-opening additional hotels when demand recovers.

COVID-19 has had a negative impact on our operations and financial results to date and we expect that the COVID-19 pandemic will continue to have a significant negative impact on our results of operations, financial position and cash flow for the remainder of 2020 and into 2021.

We cannot estimate when travel demand will recover.

As a result of this uncertainty, in March 2020, we fully drew down on our $650.0 million unsecured revolving credit facility, reduced the quarterly cash dividend on our common shares to one penny, reduced planned capital expenditures, reduced the compensation of our executive officers, board of trustees and employees, and, working closely with our hotel operating partners, significantly reduced our hotels' operating expenses.

On June 29, 2020, we amended our existing credit facilities, term loan facilities and senior notes.

Among other things, the amendments extended the maturity of a significant portion of a $300.0 million term loan from November 2021 to November 2022, waived existing financial covenants through the end of the first quarter of 2021 and provided substantially less restrictive financial covenants through the end of the second quarter of 2022.

As a result of this pandemic and subsequent government mandates, health official recommendations, corporate policy changes and individual responses, hotel demand was dramatically reduced.

In response, we implemented significant cost controls and salary reductions, and temporarily suspended operations at 47 of our hotels and resorts.

As demand has returned over the past year, we have reopened the majority of our hotels and resorts.

As of March 31, 2021, 40 of our hotels and resorts were open, with operations at the remaining 13 hotels still temporarily suspended.

In April 2021, we reopened an additional eight hotels and we anticipate reopening additional hotels as demand returns.

In February 2021, we issued, at a 5.5% premium to par, an additional $250.0 million aggregate principal amount of our 1.75% Convertible Senior Notes due 2026, which we initially issued in December 2020.

In connection with the pricing of the notes, we entered into privately negotiated capped call transactions with certain of the underwriters, their respective affiliates and/or other counterparties.

We used the net proceeds to reduce amounts outstanding under our senior unsecured revolving credit facility, unsecured term loans, and for general corporate purposes.

In February 2021, we amended the agreements governing our existing credit facilities, term loan facilities and senior notes to, among other things, increase the interest rate spread and waive financial covenants through the end of the first quarter of 2022 except for the minimum fixed charge coverage and minimum unsecured interest coverage ratio, which were extended through December 31, 2021.

Refer to "Note 5.

Debt" for additional information regarding the amendments.

Based on these amendments and the expense and cash flow reductions, we believe that we will have sufficient liquidity to meet our obligations for the next twelve months.

During the nine months ended September 30, 2020, other significant transactions included:

• Sold three hotel properties for an aggregate sales price of $387.0 million and recognized a gain of $117.4 million.

• Recognized an impairment loss of $20.6 million for a retail component of a hotel.

• Incurred expenses of approximately $10.7 million in connection with suspensions of operations at our hotels.

• Cancelled LTIP Class B units and time-based service condition awards granted in February 2020 and incurred full compensation expense of $16.0 million.

Debt" for additional information regarding these amendments and our convertible notes.

Based on these amendments and expense and cash burn rate reductions, we believe that we will have sufficient liquidity to meet our obligations for the next twelve months.

While we do not operate our hotel properties, both our asset management team and our executive management team monitor and work cooperatively with our hotel managers by advising and making recommendations in all aspects of our hotels’ operations, including property positioning and repositioning, revenue and expense management, operations analysis, physical design, renovation and capital improvements, guest experience and overall strategic direction.

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Hotel Operating Statistics

The following table represents the key same-property hotel operating statistics for our hotels for the three and nine months ended September 30, 2020 and 2019.

For the three months ended September 30, For the nine months ended September 30,

2020 2019 2020 2019

The following table represents the key same-property hotel operating statistics for our hotels for the three months ended March 31, 2021 and 2020.

For the three months ended March 31,

Same-Property Occupancy 18.8 % 56.7 %

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Same-Property Total RevPAR $ 70.83 $ 213.13

While the operations of many of our hotels were temporarily suspended beginning in March 2020, the above schedule of hotel results for the three and nine months ended September 30 includes information from all hotels owned as of September 30, 2020, except, for the first and second quarters in both 2020 and 2019, Hotel Zena Washington DC, formerly known as Donovan Hotel, because it was closed during the first and second quarters of 2020 for renovation and for the third quarter in both 2020 and 2019, Union Station Hotel Nashville, Autograph Collection, because it was sold in the third quarter of 2020.

While the operations of many of our hotels were temporarily suspended beginning in March 2020, the above schedule of hotel results for the three months ended March 31, 2020 includes information from all hotels owned as of March 31, 2021, except for Hotel Zena Washington DC (formerly Donovan Hotel) for the first quarter in both 2021 and 2020, because it was closed for renovations in the first quarter of 2020.

Non-GAAP Financial Measures

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By excluding the effect of real estate related depreciation and amortization including our share of the joint venture depreciation and amortization, gains (losses) from sales of real estate and impairments of real estate assets (including impairment of real estate related joint ventures), all of which are based on historical cost accounting and which may be of lesser significance in evaluating current performance, we believe that FFO provides investors a useful financial measure to evaluate our operating performance.

The following table reconciles net income (loss) to FFO and FFO available to common share and unit holders for the three and nine months ended September 30, 2020 and 2019 (in thousands):

For the three months ended September 30, For the nine months ended September 30,

2020 2019 2020 2019

The following table reconciles net income (loss) to FFO and FFO available to common share and unit holders for the three months ended March 31, 2021 and 2020 (in thousands):

For the three months ended March 31,

Net income (loss) $ (121,440) $ 42,068

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The white paper issued by Nareit entitled “Earnings Before Interest, Taxes, Depreciation and Amortization for Real Estate” defines EBITDA re as net income or loss (computed in accordance with U.S.

GAAP), excluding interest expense, income tax, depreciation and amortization, gains or losses on the disposition of depreciated property (including gains or losses on change of control),

impairment write-downs of depreciated property and of investments in unconsolidated affiliates caused by a decrease in value of depreciated property in the affiliate, and after comparable adjustments for our portion of these items related to unconsolidated affiliates.

GAAP), excluding interest expense, income tax, depreciation and amortization, gains or losses on the disposition of depreciated property (including gains or losses on change of control), impairment write-downs of depreciated property and of investments in unconsolidated affiliates caused by a decrease in value of depreciated property in the affiliate, and after comparable adjustments for our portion of these items related to unconsolidated affiliates.

We believe that EBITDA and EBITDA re provide investors useful financial measures to evaluate our operating performance, excluding the impact of our capital structure (primarily interest expense) and our asset base (primarily depreciation and amortization).

The following table reconciles net income (loss) to EBITDA and EBITDA re for the three and nine months ended September 30, 2020 and 2019 (in thousands):

For the three months ended September 30, For the nine months ended September 30,

2020 2019 2020 2019

The following table reconciles net income (loss) to EBITDA and EBITDA re for the three months ended March 31, 2021 and 2020 (in thousands):

For the three months ended March 31,

Net income (loss) $ (121,440) $ 42,068

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Results of Operations

At September 30, 2020 and 2019, we had 53 and 57, respectively, wholly owned properties and leasehold interests.

At March 31, 2021 and 2020, we had 53 and 54, respectively, wholly owned properties and leasehold interests.

All properties owned during these periods have been included in our results of operations during the respective periods since their dates of acquisition and through the dates of disposition, as applicable.

Based on when a property was acquired or disposed, operating results for certain properties are not comparable for the three months ended September 30, 2020 and 2019.

Based on when a property was acquired or disposed, operating results for certain properties are not comparable for the three months ended March 31, 2021 and 2020.

The properties listed in the table below are hereinafter referred to as "non-comparable properties" for the periods indicated and all other properties are referred to as "comparable properties":

Property Location Disposition Date

The Liaison Capitol Hill Washington, D.C.

February 14, 2019

Hotel Palomar Washington DC Washington, D.C.

February 22, 2019

Onyx Hotel Boston, MA May 29, 2019

Hotel Amarano Burbank Burbank, CA July 16, 2019

Rouge Hotel Washington, D.C.

September 12, 2019

Hotel Madera Washington, D.C.

September 26, 2019

Topaz Hotel Washington, D.C.

November 22, 2019

InterContinental Buckhead Atlanta Buckhead, GA March 6, 2020

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Union Station Hotel Nashville, Autograph Collection Nashville, TN July 29, 2020

Comparison of the three months ended September 30, 2020 to the three months ended September 30, 2019

Revenues — Total hotel revenues decreased by $346.6 million, of which $25.0 million was due to the non-comparable properties and the remaining decline was due to the decline in demand and suspension of operations since March 2020 as a result of the COVID-19 pandemic.

Hotel operating expenses — Total hotel operating expenses decreased by $176.5 million, of which $15.2 million was due to the non-comparable properties and the remaining decline was due to the decline in demand and suspension of operations since March 2020 as a result of the COVID-19 pandemic.

Depreciation and amortization — Depreciation and amortization expense decreased by $13.1 million due primarily to a decrease in assets resulting from the sales of hotels.

Real estate taxes, personal property taxes, property insurance and ground rent — Real estate taxes, personal property taxes, property insurance and ground rent decreased by $3.6 million primarily due to a decline in percentage ground rent which is based on a percentage of revenues.

General and administrative — General and administrative expenses decreased by $0.8 million primarily due to a decline in share-based compensation costs and reductions in compensation and other administrative costs as a result of the cost-cutting program put in place in response to the COVID-19 pandemic.

General and administrative expenses consist of employee compensation costs, legal and professional fees, insurance and other expenses.

Transaction costs — Transaction costs increased by $6.3 million due to additional transfer taxes paid in connection with the LaSalle merger.

(Gain) loss and other operating expenses — (Gain) loss and other operating expenses decreased $0.6 million primarily due to $0.8 million in hotel management transition expenses incurred in 2019 with so such expenses incurred in 2020.

Interest expense — Interest expense increased by $1.0 million as a result of increased borrowings compared to the same period in the prior year.

Other — Other income increased by $0.1 million due to interest income from higher cash balances from the drawdown on the unsecured revolving credit facility to enhance liquidity.

Income tax (expense) benefit — Income tax expense increased by $1.4 million due primarily to a valuation allowance recognized on our deferred tax assets in 2020.

As a result of the uncertainty around estimating future taxable income of our TRS, we have placed a valuation allowance on the net operating losses that are no longer more likely than not to be utilized.

Non-controlling interests — Non-controlling interests represent the allocation of income or loss of our Operating Partnership to the common units held by the LTIP and OP unit holders.

Comparison of the nine months ended September 30, 2020 to the nine months ended September 30, 2019

Revenues — Total hotel revenues decreased by $864.1 million, of which $80.9 million was due to the non-comparable properties and the remaining decline was due to the decline in demand and suspension of operations since March 2020 as a result of the COVID-19 pandemic.

Hotel operating expenses — Total hotel operating expenses decreased by $422.3 million, of which $48.4 million was due to the non-comparable properties and the remaining decline was due to the decline in demand and suspension of operations since March 2020 as a result of the COVID-19 pandemic offset by an increase of $10.7 million in expenses related to the suspended operations at the hotels.

Depreciation and amortization — Depreciation and amortization expense decreased by $9.3 million due to a decrease in assets resulting from sold hotels.

Real estate taxes, personal property taxes, property insurance and ground rent — Real estate taxes, personal property taxes, property insurance and ground rent decreased by $8.8 million primarily due to a decline in percentage ground rent which is based on a percentage of revenues.

General and administrative — General and administrative expenses increased by $12.5 million primarily due to $16.0 million in share-based compensation costs relating to the cancellation of the retention LTIP unit awards and time-based service condition awards, offset by the cost cutting program put in place in response to COVID-19.

Comparison of the three months ended March 31, 2021 to the three months ended March 31, 2020

Revenues — Total hotel revenues decreased by $185.5 million, of which $16.2 million was due to the non-comparable properties and the remaining decline was due to the decline in demand which began in March 2020 as a result of the COVID-19 pandemic.

The decline was partially offset by increases at Southermost Beach Resort, The Marker Key West Harbor Resort and Chaminade Resort & Spa and an increase at Hotel Zena Washington DC (formerly Donovan Hotel), which was closed during the first quarter of 2020 for renovation.

Hotel operating expenses — Total hotel operating expenses decreased by $128.8 million, of which $10.9 million was due to the non-comparable properties and the remaining decline was due to the decline in demand which began in March 2020 as a result of the COVID-19 pandemic.

Depreciation and amortization — Depreciation and amortization expense decreased by $0.4 million due primarily to a decrease in assets resulting from the sales of three hotels in 2020, partially offset by an increase in depreciation and amortization expense related to recently renovated hotels.

Real estate taxes, personal property taxes, property insurance and ground rent — Real estate taxes, personal property taxes, property insurance and ground rent decreased by $1.2 million primarily due to the sales of three hotels in 2020 and a decline in percentage ground rent which is based on a percentage of revenues.

General and administrative — General and administrative expenses decreased by $14.9 million primarily due to $16.0 million in share-based compensation costs relating to the cancellation of the retention LTIP unit awards and time-based service

condition awards in 2020.

General and administrative expenses consist of employee compensation costs, legal and professional fees, insurance and other expenses.

Transaction costs — Transaction costs increased by $2.9 million due to additional transfer taxes paid in connection with the LaSalle merger.

Impairment loss — We recognized an impairment loss of $20.6 million related to a retail component of a hotel.

There was no comparable transaction in 2019.

(Gain) loss on sale of hotel properties — (Gain) loss on sale of hotel properties increased by $117.4 million from the sale of three properties.

There was no comparable (gain) loss from disposed properties in 2019.

(Gain) loss and other operating expenses — (Gain) loss and other operating expenses decreased by $2.5 million due primarily to the $4.8 million in hotel management transition expense incurred in 2019.

Interest expense — Interest expense decreased by $9.3 million as a result of using proceeds from property sales to reduce outstanding debt since September 30, 2019 in addition to a decrease in interest rates in 2020.

Other — Other income increased by $0.4 million due to interest income from higher cash balances from the drawdown on the unsecured revolving credit facility to enhance liquidity.

Income tax (expense) benefit — Income tax (expense) benefit changed from an expense of $(5.9) million to a benefit of $8.5 million due primarily to an increase in taxable losses of our TRS as a result of suspended operations at our hotels during the nine months ended September 30, 2020 compared to the same period in the prior year.

Transaction costs — Transaction costs remained consistent compared to the prior year.

Impairment loss — Impairment loss decreased by $5.7 million.

For the three months ended March 31, 2021, we recognized an impairment loss of $14.9 million related to one hotel.

For the three months ended March 31, 2020, we recognized an impairment loss of $20.6 million related to a retail component of a hotel.

(Gain) loss on sale of hotel properties — Gain on sale of hotel properties was $117.4 million in 2020 as a result of the sale of the InterContinental Buckhead Atlanta and Sofitel Washington DC Lafayette Square hotels in the first quarter of 2020.

There were no property sales in the first quarter of 2021.

(Gain) loss and other operating expenses — (Gain) loss and other operating expenses decreased $1.0 million primarily due to reductions in pre-opening and hotel management transition expenses.

Interest expense — Interest expense increased by $1.7 million primarily due to an increase in the effective interest rate and the increase in amortization of deferred financing costs associated with unsecured term loans.

Other — Other income remained consistent compared to the prior year.

Income tax (expense) benefit — Income tax (expense) benefit decreased from a benefit of $10.7 million in 2020 to an immaterial expense in 2021 as a result of the valuation allowance recognized resulting from the uncertainty of utilizing net operating losses in future periods.

Non-controlling interests — Non-controlling interests represent the allocation of income or loss of our Operating Partnership to the common units held by the LTIP and OP unit holders.

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New Accounting Pronouncements Not Yet Implemented

See Note 2, “Summary of Significant Accounting Policies,” to our consolidated interim financial statements for additional information relating to recently issued accounting pronouncements.

See Note 2, “Summary of Significant Accounting Policies,” to our consolidated financial statements for additional information relating to recently issued accounting pronouncements.

Liquidity and Capital Resources

In March 2020, the World Health Organization declared the novel coronavirus ("COVID-19") to be a global pandemic and the virus has continued to spread throughout the United States and the world.

As a result of this pandemic and subsequent government mandates and health official recommendations, hotel demand was nearly eliminated.

As travel demand slowly recovered during the third quarter, as of September 30, 2020, 35 of our hotels were open, while operations at the remaining 18 hotels were still temporarily suspended.

COVID-19 has had a negative impact on our operations and financial results to date and we expect that the COVID-19 pandemic may ultimately have a significant impact on our results of operations, financial position and cash flow for the remainder of 2020.

As a result, in March 2020, we fully drew down on our $650.0 million unsecured revolving credit facility, reduced the quarterly cash dividend on our common shares to one penny, reduced planned capital expenditures, reduced the compensation of our executive officers, board of trustees and employees, and, working closely with our hotel operating partners, significantly reduced our hotels' operating expenses.

On June 29, 2020, we amended our existing credit facilities, term loan facilities and senior notes.

Refer to "Note 5.

Debt" for additional information regarding the amendments.

Based on these amendments and the expense and cash flow reductions, we believe that we will have sufficient liquidity to meet our obligations for the next twelve months.

Our debt consisted of the following as of September 30, 2020 and December 31, 2019 (dollars in thousands):

In March 2020, the World Health Organization declared COVID-19 to be a global pandemic and the virus has continued to spread throughout the United States and the world.

As a result of this pandemic and subsequent government mandates, health official recommendations corporate travel policy changes and individual responses, hotel demand was dramatically reduced.

As of March 31, 2021, 40 of our hotels and resorts were open with operations of the remaining 13 hotels still temporarily suspended.

This has had a material impact on the Company's liquidity.

In April 2021, we reopened an additional eight hotels and we anticipate reopening additional hotels as demand returns.

As of March 31, 2021, we had liquidity of $767.8 million, which includes cash and cash equivalents, restricted cash and the amount available on our revolving credit facility.

On April 1, 2021, we sold the Sir Francis Drake Hotel and received net proceeds from the sale of $157.6 million which further improved our liquidity.

Refer to the Overview in Item 7., "Management’s Discussion and Analysis of Financial Condition and Results of Operations," for additional information.

Our debt consisted of the following as of March 31, 2021 and December 31, 2020 (dollars in thousands):

Balance Outstanding as of

Interest Rate Maturity Date September 30, 2020 December 31, 2019

Interest Rate Maturity Date March 31, 2021 December 31, 2020

Revolving credit facilities

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Total term loans $ 1,589,752 $ 1,766,545

Convertible senior notes

Convertible senior notes 1.75% December 2026 750,000 500,000

Debt premium (discount), net 13,360 (113,099)

Deferred financing costs, net (18,645) (12,568)

Total convertible senior notes $ 744,715 $ 374,333

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

Series A Notes 5.15% (5)

December 2023 60,000 60,000

Series B Notes 5.38% (6)

December 2025 40,000 40,000

Total senior unsecured notes at stated value 100,000 100,000

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(3) Borrowings under the term loan facilities bear interest at floating rates equal to, at our option, either (i) LIBOR plus an applicable margin or (ii) a Base Rate plus an applicable margin.

As of September 30, 2020, approximately $1.6 billion of the borrowings under the term loan facilities bore an effective weighted-average fixed interest rate of 4.21%, after taking into account interest rate swap agreements, and approximately $345.0 million bore a weighted-average floating interest rate of 2.46%.

As of December 31, 2019, approximately $1.6 billion of the borrowings under the term loan facilities bore a weighted-average fixed interest rate of 3.43%, after taking into account interest rate swap agreements, and approximately $345.0 million bore a weighted-average floating interest rate of 3.32%.

As of March 31, 2021, approximately $1.4 billion of the borrowings under the term loan facilities bore an effective weighted-average fixed interest rate of 4.13%, after taking into account interest rate swap agreements, and approximately $168.0 million bore a weighted-average floating interest rate of 2.62%.

As of December 31, 2020, approximately $1.4 billion of the borrowings under the term loan facilities bore an effective weighted-average fixed interest rate of 4.19%, after taking into account interest rate swap agreements, and approximately $345.0 million bore a weighted-average floating interest rate of 2.46%.

(4) In February 2021, the majority of the remaining balance was extended to November 2022.

(5) In February 2021, the interest rate increased from 4.70% to 5.15%.

The increased interest rate is effective through the end of the waiver period.

(6) In February 2021, the interest rate increased from 4.93% to 5.38%.

The increased interest rate is effective through the end of the waiver period.

Unsecured Revolving Credit Facilities

We are party to 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.

In March 2020, as part of our plans to enhance liquidity due to the actual and anticipated impact of the COVID-19 pandemic, we fully drew down on this revolving credit facility.

As of September 30, 2020, we had $290.0 million of outstanding borrowings and borrowing capacity of $353.2 million remaining on our senior unsecured revolving 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.

As of March 31, 2021, we had no outstanding borrowings and borrowing capacity of $643.2 million remaining on our senior unsecured revolving 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, or spread.

The interest rate depends upon our leverage ratio pursuant to the provisions of the credit facility agreement.

As a result of the amendments described in Note 5.

Debt", the spread of the borrowings is fixed at 2.25% during the waiver period.

We have the ability to increase the aggregate borrowing capacity of our senior unsecured revolving credit facility to up to $1.3 billion, subject to lender approval.

"Debt," the spread on the borrowings is fixed at 2.40% during the waiver period.

We have the ability to increase the aggregate borrowing capacity of our senior unsecured revolving credit facility up to $1.3 billion, subject to lender approval.

We intend to repay indebtedness incurred under the senior unsecured revolving credit facility from time to time out of cash flows from operations and, as market conditions permit, from the net proceeds of issuances of additional equity and debt securities and from the net proceeds of dispositions of hotel properties.

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As a result of the amendments described in Note 5.

Debt", the spread of the borrowings is fixed at 2.25% during the waiver period.

As of September 30, 2020, we had no borrowings under the PHL Credit Facility.

"Debt," the spread on the borrowings is fixed at 2.40% during the waiver period.

As of March 31, 2021, we had no borrowings under the PHL Credit Facility.

Unsecured Term Loan Facilities

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We entered into interest rate swap agreements to fix the LIBOR rate on a portion of these unsecured term loans.

Information about our senior unsecured term loans is found in the table above and Note 5 to the accompanying consolidated financial statements.

Information about our senior unsecured term loans is found in the table above and Note 5.

"Debt" to the accompanying consolidated financial statements.

Convertible Senior Notes

In December 2020, the Company issued $500.0 million aggregate principal amount of 1.75% Convertible Senior Notes due December 2026 (the "Convertible Notes").

The net proceeds from this offering of the Convertible Notes were approximately $487.3 million after deducting the underwriting fees and other expenses paid by the Company.

In February 2021, the Company issued an additional $250.0 million aggregate principal amount of Convertible Notes.

These additional Convertible Notes were sold at a 5.5% premium to par and generated net proceeds of approximately $257.2 million after deducting the underwriting fees and other expenses paid by the Company of $6.5 million, which was offset by a premium received in the amount of $13.8 million.

The Convertible Notes are governed by an indenture (the “Base Indenture”) between the Company and The Bank of New York Mellon Trust Company, N.A., as trustee.

The Convertible Notes bear interest at a rate of 1.75% per annum, payable semi-annually in arrears on June 15th and December 15th of each year, beginning on June 15, 2021.

The Convertible Notes will mature on December 15, 2026.

The Company recorded coupon interest expense of $2.8 million for the three months ended March 31, 2021.

Prior to June 15, 2026, the Convertible Notes will be convertible only upon certain circumstances.

On and after June 15, 2026, holders may convert any of their Convertible Notes into the Company’s common shares of beneficial interest (“common shares”) at the applicable conversion rate at any time at their election two days prior to the maturity date.

The initial conversion rate is 39.2549 common shares per $1,000 principal amount of Convertible Notes, which represents an initial conversion price of approximately $25.47 per share.

The conversion rate is subject to adjustment in certain circumstances.

As of March 31, 2021 and December 31, 2020, the if-converted value of the Convertible Notes did not exceed the principal amount.

The Company may redeem for cash all or a portion of the Convertible Notes, at its option, on or after December 20, 2023 upon certain circumstances.

The redemption price will be equal to 100% of the principal amount of the Convertible Notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date.

If certain make-whole fundamental changes occur, the conversion rate for the Convertible Notes may be increased.

In connection with the Convertible Notes issuances, the Company entered into privately negotiated capped call transactions (the “Capped Call Transactions”) with certain of the underwriters of the offerings of the Convertible Notes or their respective affiliates and other financial institutions (the “Capped Call Counterparties”).

The Capped Call Transactions initially cover,

subject to anti-dilution adjustments substantially similar to those applicable to the Convertible Notes, the number of common shares underlying the Convertible Notes.

The Capped Call Transactions are expected generally to reduce the potential dilution to holders of common shares upon conversion of the Convertible Notes and/or offset the potential cash payments that the Company could be required to make in excess of the principal amount of any converted Convertible Notes upon conversion thereof, with such reduction and/or offset subject to a cap.

The upper strike price of the Capped Call Transactions is $33.0225 per share.

The cost of the Capped Call Transactions entered into in December 2020 and February 2021 was $38.3 million and $21.0 million, respectively, and was recorded within additional paid-in capital.

Senior Unsecured Notes

We have two unsecured notes 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 terms of the Series A Notes and the Series B Notes are substantially similar to those of our senior unsecured revolving credit facility, as amended and restated.

The Company has $60.0 million of senior unsecured notes outstanding 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 outstanding bearing a fixed interest rate of 4.93% per annum and maturing in December 2025 (the "Series B Notes").

As a result of the amendments described above, the interest rates of the Series A Notes and the Series B Notes are fixed at 5.15% and 5.38%, respectively, for the duration of the waiver period.

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, 2021, the Company was in compliance with all such debt covenants.

Issuance of Shares of Beneficial Interest

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We may suspend or discontinue this program at any time.

No common shares were repurchased by the Company under the share repurchase program during the nine months ended September 30, 2020.

As of September 30, 2020, $56.6 million of common shares remained available for repurchase under this program.

No common shares were repurchased by the Company under the share repurchase program during the three months ended March 31, 2021.

As of March 31, 2021, $56.6 million of common shares remained available for repurchase under this program.

On July 27, 2017, we announced that our board of trustees authorized a new share repurchase program of up to $100.0 million of the Company's outstanding common shares.

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Sources and Uses of Cash

Our principal sources of cash are cash from operations, borrowings under mortgage financings and other debt, draws on our credit facilities, proceeds from offerings of our equity securities and hotel property sales.

Our principal uses of cash are asset acquisitions, debt service, capital investments, operating costs, corporate expenses and dividends.

Cash (Used in) and Provided by Operations.

Our cash used in operating activities was $(146.9) million for the nine months ended September 30, 2020.

Our cash from operations includes the operating activities of the 53 hotels we owned as of September 30, 2020, offset by corporate expenses.

Our cash provided by operating activities was $316.1 million for the nine months ended September 30, 2019.

Our cash from operations includes the operating activities of the 57 hotels we owned as of September 30, 2019, offset by corporate expenses.

Cash Provided by Investing Activities.

Our cash provided by investing activities was $264.7 million for the nine months ended September 30, 2020.

During the nine months ended September 30, 2020, we invested $110.4 million in improvements to our hotel properties and received $375.1 million from sales of hotel properties.

Our cash provided by investing activities was $319.3 million for the nine months ended September 30, 2019.

During the nine months ended September 30, 2019, we invested $118.0 million in improvements to our hotel properties and received $437.9 million from sales of hotel properties.

Cash Provided by and Used In Financing Activities.

Our cash provided by financing activities was $42.3 million for the nine months ended September 30, 2020.

During the nine months ended September 30, 2020, we borrowed $760.1 million

under the revolving credit facilities, repaid $635.1 million under the revolving credit facilities, borrowed and repaid $13.0 million in other debt, repurchased $1.3 million of common shares for tax withholding purposes in connection with vested share-based equity awards, paid $77.1 million in distributions, paid $3.6 million in financing fees related to the debt amendments and paid $0.7 million in other transactions.

For the nine months ended September 30, 2019, cash used in financing activities was $686.4 million.

During the nine months ended September 30, 2019, we borrowed $211.9 million under the revolving credit facilities, repaid $281.9 million under the revolving credit facilities, repaid $451.8 million of debt, repurchased $4.0 million of common shares for tax withholding purposes in connection with vested share-based equity awards, paid $159.5 million in distributions and paid $1.1 million in other transactions.

Our cash used in operating activities was $7.1 million for the three months ended March 31, 2021.

Our cash from operations includes the operating activities of the 53 hotels we owned as of March 31, 2021, offset by corporate expenses.

The negative cash flow from operations during the quarter and decline from the prior year is due to the reduced operations at our hotels as a result of COVID-19, including carrying costs on hotels that are temporarily suspended.

Our cash provided by operating activities was $1.5 million for the three months ended March 31, 2020.

Our cash from operations includes the operating activities of the 54 hotels we owned as of March 31, 2020, offset by corporate expenses.

Cash (Used in) and Provided by Investing Activities.

Our cash used in investing activities was $9.7 million for the three months ended March 31, 2021.

During the three months ended March 31, 2021, we invested $9.6 million in improvements to our hotel properties.

Our cash provided by investing activities was $269.9 million for the three months ended March 31, 2020.

During the three months ended March 31, 2020, we invested $50.1 million in improvements to our hotel properties and received $320.0 million from sales of hotel properties.

Cash Provided by Financing Activities.

Our cash provided by financing activities was $5.1 million for the three months ended March 31, 2021.

During the three months ended March 31, 2021, we repaid $40.0 million under the revolving credit facilities, received proceeds from the issuance of convertible notes of $263.8 million, repaid $177.0 million in other debt, purchased $21.0 million in Capped Call Transactions, repurchased $0.7 million of common shares for tax withholding purposes in connection with vested share-based equity awards, paid $9.5 million in distributions, paid $9.6 million in financing fees, and paid $0.9 million in other transactions.

For the three months ended March 31, 2020, cash provided by financing activities was $418.5 million.

During the three months ended March 31, 2020, we borrowed $760.1 million under the revolving credit facilities, repaid $281.9 million under the revolving credit facilities, repurchased $1.3 million of common shares for tax withholding purposes in connection with vested share-based equity awards, paid $58.2 million in distributions and paid $0.2 million in other transactions.

Capital Investments

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In addition, after we acquire a hotel property, we are often required by the franchisor or brand manager, if there is one, to complete a property improvement plan (“PIP”) in order to bring the hotel property up to the franchisor’s or brand’s standards.

Generally, we expect to fund renovations and improvements with available cash, restricted cash, borrowings under our credit facility, or proceeds from new mortgage debt or equity offerings.

For the nine months ended September 30, 2020, we invested $110.4 million in capital investments to reposition and improve our properties.

Since the beginning of 2020, we have completed the transformational redevelopments of several hotels and resorts that were part of the LaSalle legacy portfolio acquired in late 2018, including Chaminade Resort & Spa, San Diego Mission Bay Resort (formerly Hilton San Diego Resort & Spa), Viceroy Washington DC (formerly Mason & Rook), Hotel Zena Washington DC (formerly Donovan Hotel), Viceroy Santa Monica Hotel and Le Parc Suite Hotel.

We expect total capital investments to be approximately $15.0 million to $20.0 million for the remainder of 2020.

Generally, we expect to fund renovations and improvements with available cash, restricted cash, borrowings under our credit facility or proceeds from new debt or equity offerings.

For the three months ended March 31, 2021, we invested $9.6 million in capital investments to reposition and improve our properties primarily the renovation of the L'Auberge Del Mar.

Depending on market conditions, we expect to invest an additional $60.0 million to $80.0 million in capital investments during the remainder of 2021.

However, as fundamentals improve, we will evaluate commencing additional previously planned major renovations and repositioning projects later in 2021.

Contractual Obligations and Off-Balance Sheet Arrangements

The table below summarizes our contractual obligations as of September 30, 2020 and the effect such obligations are expected to have on our liquidity and cash flow in future periods (in thousands):

The table below summarizes our contractual obligations as of March 31, 2021 and the effect such obligations are expected to have on our liquidity and cash flow in future periods (in thousands):

Payments due by period

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$ 1,732,527 $ 67,896 $ 1,552,924 $ 111,707 $ —

Convertible senior notes (1)

828,739 13,114 26,250 26,250 763,125

Unsecured notes (1)

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Borrowings under credit facilities (3)

299,506 7,351 292,155 — —

Hotel and ground leases (4)

1,240,360 17,240 34,639 35,012 1,153,469

Capital lease obligation 64,818 1,302 2,678 2,759 58,079

Finance lease obligation 64,702 1,337 2,733 2,825 57,807

Refundable membership initiation deposits (5)

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Total $ 4,032,610 $ 110,480 $ 1,689,545 $ 222,068 $ 2,010,517

____________________

(1) Amounts include principal and interest.

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(3) Amounts include principal and interest under the two revolving credit facilities.

Interest expense is calculated based on the weighted-average interest rate for all outstanding credit facility borrowings as of September 30, 2020.

Interest expense is calculated based on the weighted-average interest rate for all outstanding credit facility borrowings as of March 31, 2021.

It is assumed that the outstanding borrowings will be repaid upon maturity with fixed interest-only payments until then.

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Off-Balance Sheet Arrangements

As of September 30, 2020, we had no off-balance sheet arrangements.

As of March 31, 2021, we had no off-balance sheet arrangements.

We rely on the performance of the hotels to increase revenues to keep pace with inflation.

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Generally, our hotels have lower revenue, operating income and cash flow in the first quarter of each year and higher revenue, operating income and cash flow in the third quarter of each year.

The historical trend has been disrupted as a result of COVID-19.

Derivative Instruments

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The Company has interest rate swap agreements with an aggregate notional amount of $1.4 billion to hedge variable interest rates on our unsecured term loans.

In addition, as of September 30, 2020, the Company had interest rates swaps for an aggregate notional amount of $290.0 million which will become effective in the future as current swaps mature.

We have designated these pay-fixed, receive-floating interest rate swap derivatives as cash flow hedges.

For the three and nine months ended September 30, 2020, there was $9.7 million and $(44.9) million in unrealized (loss) gain, respectively, recorded in accumulated other comprehensive income (loss).

For the three and nine months ended September 30, 2019, there was $(7.9) million and $(38.0) million in unrealized (loss) gain, respectively, recorded in accumulated other comprehensive income (loss).

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis