What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-10-28 compared with 2021-07-29 · 169 added, 98 removed, 268 unchanged (50% of the section changed)

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• as a result of the COVID-19 pandemic, we suspended operations at some of our hotels and resorts.

Operations have recommenced and are improving, however, if continued improvement is interrupted, we may become out of compliance with maintenance covenants in certain of our debt facilities;

Operations have recommenced and are improving.

However, if continued improvement is interrupted, we may become out of compliance with maintenance covenants in certain of our debt facilities;

• world events impacting the ability or desire of people to travel may lead to a decline in demand for hotels;

7 unchanged sentences

• 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 and our ability to complete hotel dispositions in accordance with our business strategy;

• the timing and availability of potential hotel acquisitions, 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 Part II, Item 1A of this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K for the year ended December 31, 2020.

• the other factors discussed under Risk Factors in Part II, Item 1A of 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.

Except as otherwise required by the federal securities laws, we disclaim any obligations or undertaking to publicly release any updates or revisions to any forward-looking statement contained herein (or elsewhere) to reflect any change in our expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based.

COVID-19 and Liquidity Update

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

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.

In addition, to improve liquidity, we raised capital by issuing convertible notes and additional preferred shares.

As demand returned over the past several months, the result of an increase in vaccinations and corresponding lifting of governmental restrictions and recommendations, we have reopened our hotels and resorts.

As of June 30, 2021, 49 of our hotels and resorts were open, with operations remaining suspended at Villa Florence San Francisco on Union Square and Hotel Vitale.

Subsequent to June 30, 2021, we re-opened Villa Florence San Francisco on Union Square and commenced a renovation of Hotel Vitale with the intent to reopen the property at the completion of the renovation in the fourth quarter of 2021.

The COVID-19 pandemic has had a significant negative impact on our operations and financial results to date and we expect that it will continue to have a significant negative impact on our results of operations, financial position and cash flow in 2021.

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

In response, we implemented significant cost controls, salary reductions and temporarily suspended operations at 47 of our hotels and resorts in 2020.

In addition, to improve liquidity, we raised capital by issuing convertible notes and additional preferred shares as summarized below.

As demand has since improved as a result of an increase in vaccinations and corresponding lifting of governmental restrictions and recommendations, we gradually reopened our hotels and resorts.

As of September 30, 2021, all of our hotels and resorts were open, with the exception of Hotel Vitale, whose operations will remain suspended until the expected completion of renovations in the first quarter of 2022.

The COVID-19 pandemic has had a significant negative impact on our operations and financial results and is expected to continue to have a significant negative impact on our results of operations, financial position and cash flow for the remainder of 2021.

We cannot estimate when travel demand will fully recover.

However, leisure travel as a result of pent-up leisure demand has exceeded expectations, particularly at our warmer weather and resort properties.

In February 2021, we issued, at a 5.5% premium to par, an additional $250.0 million aggregate principal amount of the convertible notes originally issued in December 2020.

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

The net proceeds were used 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 items, 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, and to increase the interest rate spread.

For additional information regarding these amendments and the convertible notes, see Note 5, Debt, of the notes to our unaudited consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q.

In May 2021, we issued 9,200,000 6.375% Series G Cumulative Redeemable Preferred Shares at a public offering price of $25.00 per share for net proceeds of $222.6 million.

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

Based on the amendments to our credit agreements described in Note 1, Organization, of the notes to our unaudited financial statements of this Quarterly Report on Form 10-Q, expense and cash burn rate reductions, and our ability to raise additional liquidity through equity issuances, we believe we have sufficient liquidity to meet our obligations for the next twelve months.

However, we anticipate further recovery in 2022.

Leisure travel in the second and third quarters of 2021 exceeded expectations, particularly at our warmer weather and resort properties.

However, business travel continues to be substantially lower.

During the nine months ended September 30, 2021, we conducted the following transactions:

• On February 9, 2021, issued, at a 5.5% premium to par, an additional $250.0 million aggregate principal amount of the convertible notes originally issued in December 2020.

• On February 18, 2021, amended the agreements governing existing credit facilities, term loan facilities and unsecured senior notes to, among other items, waive financial covenants through the end of the first quarter of 2022, except for the minimum fixed charge coverage and minimum unsecured interest coverage ratios, which were extended through December 31, 2021.

• On April 1, 2021, sold the Sir Francis Drake for $157.6 million.

• On May 13, 2021, raised $222.6 million of net proceeds from the issuance of 9,200,000 6.375% Series G Cumulative Redeemable Preferred Shares.

• On June 10, 2021, sold The Roger New York for $19.0 million.

• On July 22, 2021, acquired the leasehold interest in Jekyll Island Club Resort for $94.0 million.

• On July 27, 2021, raised $242.1 million of net proceeds from the issuance of 10,000,000 5.70% Series H Cumulative Redeemable Preferred Shares.

• On August 21, 2021, redeemed all outstanding 6.375% Series D Cumulative Redeemable Preferred Shares.

• On August 22, 2021, redeemed all outstanding 6.50% Series C Cumulative Redeemable Preferred Shares.

• On September 9, 2021, sold Villa Florence San Francisco on Union Square for $87.5 million.

• On September 23, 2021, acquired the leasehold interest in Margaritaville Hollywood Beach Resort for $270.0 million, including the assumption of a $161.5 million mortgage loan.

• Repaid $428.0 million of debt, consisting of $338.0 million of term loans, $50.0 million of senior unsecured notes and $40.0 million on the senior unsecured credit facility.

Based on the amendments to our credit agreements, expense and cash burn rate reductions, and our ability to raise additional liquidity through equity issuances, we believe we 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 six months ended June 30, 2021 and 2020.

For the three months ended June 30, For the six months ended June 30,

The following table represents the key same-property hotel operating statistics for our hotels for the three and nine months ended September 30, 2021 and 2020.

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

2021 2020 2021 2020

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Same-Property Total RevPAR $ 209.02 $ 71.57 $ 140.53 $ 103.07

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 six months ended June 30, 2021 and 2020 includes information from all hotels owned as of June 30, 2021, except for Hotel Zena Washington DC (formerly Donovan Hotel), which was excluded because it was closed during the first and second quarters of 2020 for renovations.

Sir Francis Drake and The Roger New York were also excluded from the above schedule due to our disposition of these hotels in the second quarter of 2021.

While the operations of many of our hotels were temporarily suspended beginning in March 2020, the above table of hotel operating statistics for the three months ended September 30, 2021 and 2020, includes information from all of the hotels we owned as of September 30, 2021, except for Margaritaville Hollywood Beach Resort for the third quarter of 2021 and 2020, and Hotel Vitale for the third quarter of 2021 and 2020, as it was closed for renovation during the third quarter of 2021.

The above table of hotel operating statistics for the nine months ended September 30, 2021 and 2020, includes information from all of the hotels we owned as of September 30, 2021, except for the following:

Hotel Zena Washington DC, formerly known as Donovan Hotel, for the first and second quarters of 2021 and 2020, as it was closed for renovation during the first and second quarters of 2020;

Hotel Vitale for the third quarter of 2021 and 2020, as it was closed for renovation during the third quarter of 2021;

and Margaritaville Hollywood Beach Resort for the third quarter of 2021.

Also included in the above table is information for Sir Francis Drake and The Roger New York for the first quarter of 2021 and 2020;

and Villa Florence San Francisco on Union Square for the first and second quarters of 2021 and 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 six months ended June 30, 2021 and 2020 (in thousands):

For the three months ended June 30, For the six months ended June 30,

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, 2021 and 2020 (in thousands):

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

2021 2020 2021 2020

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Distribution to preferred shareholders (12,528) (8,139) (30,761) (24,417)

Issuance costs of redeemed preferred shares (8,043) — (8,043) —

FFO available to common share and unit holders $ 11,099 $ (82,065) $ (66,926) $ (172,938)

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

For the three months ended June 30, For the six months ended June 30,

The following table reconciles net income (loss) to EBITDA and EBITDA re for the three and nine months ended September 30, 2021 and 2020 (in thousands):

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

2021 2020 2021 2020

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Results of Operations

At June 30, 2021 and 2020, we had 51 and 54, respectively, wholly owned properties and leasehold interests.

At September 30, 2021 and 2020, we had 52 and 53, 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 and six months ended June 30, 2021 and 2020.

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

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The Roger New York New York, NY June 10, 2021

Comparison of the three months ended June 30, 2021 to the three months ended June 30, 2020

Villa Florence San Francisco on Union Square San Francisco, CA September 9, 2021

Acquisition Date

Jekyll Island Club Resort Jekyll Island, GA July 22, 2021

Margaritaville Hollywood Beach Resort Hollywood, FL September 23, 2021

Comparison of the three months ended September 30, 2021 to the three months ended September 30, 2020

Revenues — Total hotel revenues increased by $161.8 million primarily due to an increase in leisure travel demand during the summer travel season.

This increase in demand was the result of an increase in COVID-19 vaccination rates and corresponding decreases in infection rates and easing of governmental restrictions.

Most of our hotels suspended operations in March 2020 and operations remained suspended throughout the second quarter of 2020.

Hotel operating expenses — Total hotel operating expenses increased by $66.7 million primarily due to resuming operations at our comparable properties and returning demand in the second quarter of 2021.

Real estate taxes, personal property taxes, property insurance and ground rent — Real estate taxes, personal property taxes, property insurance and ground rent increased by $2.0 million primarily due to an increase in percentage ground rent, which is based on a percentage of revenues.

This increase in demand was the result of an increase in COVID-19 vaccination rates and easing of governmental restrictions.

Most of our hotels suspended operations in March 2020 and operations remained suspended throughout the third quarter of 2020.

Hotel operating expenses — Total hotel operating expenses increased by $77.1 million primarily due to resuming operations at our comparable properties and returning demand in the third quarter of 2021.

Depreciation and amortization — Depreciation and amortization expense decreased by $1.2 million primarily due to the sale of three hotels in 2020 and three hotels in 2021.

This was partially offset by the acquisition of two hotels in 2021.

Real estate taxes, personal property taxes, property insurance and ground rent — Real estate taxes, personal property taxes, property insurance and ground rent decreased by $1.7 million primarily due to a successful appeal of one property's real estate tax assessment.

This was partially offset by an increase in percentage ground rent due to an increase in revenues.

General and administrative — General and administrative expenses increased by $2.0 million primarily due to an increase in share-based compensation expense of $1.4 million.

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

(Gain) loss on sale of hotel properties — Gain on sale of hotel properties increased by $64.6 million primarily due to the sale of Sir Francis Drake in the second quarter of 2021.

Interest expense — Interest expense increased by $0.7 million primarily due to the write-off of deferred financing fees associated with the partial repayment of certain of the term loans during the second quarter of 2021.

Transaction costs — Transaction costs incurred during the third quarter of 2020 were the result of additional transfer taxes paid in connection with the LaSalle merger.

Transaction costs incurred during the third quarter of 2021 were immaterial.

Interest expense — Interest expense decreased by $4.6 million primarily due to decreased borrowings, as certain term loans, senior unsecured notes and amounts under our senior unsecured credit facility were paid down in 2021.

Income tax (expense) benefit — Income tax (expense) benefit is immaterial in 2021 as a result of the taxable REIT subsidiary continuing to incur a loss and a valuation allowance being recognized offsetting the deferred tax asset.

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 six months ended June 30, 2021 to the six months ended June 30, 2020

Revenues — Total hotel revenues decreased by $44.7 million, of which $29.3 million was due to the non-comparable properties and the balance was due to lower demand in the first quarter of 2021 compared to the prior year offset by an increase in revenues in the second quarter of 2021 as hotels reopened and leisure demand returned particularly at the resort properties.

Hotel operating expenses — Total hotel operating expenses decreased by $62.1 million, of which $21.7 million was due to the non-comparable properties and the balance was correlated to the decline in revenue noted above.

Depreciation and amortization — Depreciation and amortization expense decreased by $1.2 million primarily due to a decrease in assets resulting from the sales of three hotels in 2020 and two hotels in 2021.

The decrease was partially offset by an increase in depreciation and amortization expense related to recently renovated hotels, including Hotel Zena Washington DC (formerly Donovan Hotel).

General and administrative — General and administrative expenses decreased by $13.4 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.

Distributions to preferred shareholders — Distributions to preferred shareholders increased as a result of the issuance of the Series G and Series H Cumulative Redeemable Preferred Shares in May 2021 and July 2021, respectively.

The increase was partially offset by the redemption of the Series C and Series D Cumulative Redeemable Preferred Shares in August 2021.

Issuance costs of redeemed preferred shares — Issuance costs of redeemed preferred shares increased due to the redemption of the Series C and Series D Cumulative Redeemable Preferred Shares in August 2021.

These costs are included in the determination of net income (loss) attributable to common shareholders.

Comparison of the nine months ended September 30, 2021 to the nine months ended September 30, 2020

Revenues — Total hotel revenues increased by $117.1 million primarily in the second and third quarters of 2021 as hotels reopened and leisure travel demand increased during the spring and summer travel season.

This increase in demand was the result of an increase in COVID-19 vaccination rates and easing of governmental restrictions.

Most of our hotels suspended operations in March 2020 and operations remained suspended throughout the third quarter of 2020.

Hotel operating expenses — Total hotel operating expenses increased by $15.0 million primarily due to resuming operations at our comparable properties and returning demand in the second and third quarters of 2021.

Depreciation and amortization — Depreciation and amortization expense decreased by $2.4 million primarily due to the sale of three hotels in 2020 and three hotels in 2021.

This was partially offset by the acquisition of two hotels in 2021 and capital investments related to recently renovated hotels, including Hotel Zena.

General and administrative — General and administrative expenses decreased by $11.5 million primarily due to a decrease 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.

Impairment loss — We recognized an impairment loss of $14.9 million in 2021 related to one hotel.

We recognized an impairment loss of $20.6 million in 2020 related to the retail component of a hotel.

(Gain) loss on sale of hotel properties — We recognized a net gain on sale of $64.6 million in 2021 primarily due to the sale of Sir Francis Drake.

We recognized a net gain on sale of $117.4 million in 2020 primarily due to the sale of Sofitel Washington DC Lafayette Square and InterContinental Buckhead Atlanta.

Transaction costs — Transaction costs incurred during 2020 were the result of additional transfer taxes paid in connection with the LaSalle merger.

Transactions costs incurred during 2021 were immaterial.

Impairment loss — The Company recognized an impairment loss of $14.9 million in 2021 related to one hotel.

The Company recognized an impairment loss of $20.6 million in 2020 related to the retail component of a hotel.

(Gain) loss on sale of hotel properties — The Company recognized a net gain on sale of $64.7 million in 2021 primarily due to the sale of Sir Francis Drake.

The Company recognized a net gain on sale of $117.4 million in 2020 primarily due to the sale of InterContinental Buckhead Atlanta.

(Gain) loss and other operating expenses — (Gain) loss and other operating expenses decreased by $2.3 million primarily due to reductions in pre-opening, hotel management transition and franchise tax expenses.

Interest expense — Interest expense increased by $2.5 million primarily due to increased amortization and write-off of deferred financing fees as a result of the partial repayment of certain of the term loans during 2021.

Interest expense — Interest expense decreased by $2.1 million primarily due to decreased borrowings, as certain term loans, senior unsecured notes and amounts under our senior unsecured credit facility were paid down in 2021.

This was partially offset by increased amortization and write-off of deferred financing fees as a result of the partial repayment of certain of the term loans during 2021.

Income tax (expense) benefit — Income tax (expense) benefit was a benefit of $8.5 million in 2020 which was due to the deferred tax asset recognized in 2020 on the taxable REIT subsidiary's estimated loss.

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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.

This was partially offset by the redemption of the Series C and Series D Cumulative Redeemable Preferred Shares in August 2021.

These costs are included in the determination of net income (loss) attributable to common shareholders.

Table of Content

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Liquidity and Capital Resources

As of June 30, 2021, we had liquidity of $967.2 million, which includes cash and cash equivalents, restricted cash and the amount available on our senior unsecured revolving credit facility.

As of September 30, 2021, we had liquidity of $826.9 million, which includes cash and cash equivalents, restricted cash and the amount available on our senior unsecured revolving credit facility.

For further discussion on our liquidity and the impact of COVID-19, see Overview included in Part I, Item 2 of this Quarterly Report on Form 10-Q.

Table of Content

Our debt consisted of the following as of June 30, 2021 and December 31, 2020 (dollars in thousands):

Our debt consisted of the following as of September 30, 2021 and December 31, 2020 (dollars in thousands):

Balance Outstanding as of

Interest Rate Maturity Date June 30, 2021 December 31, 2020

Interest Rate Maturity Date September 30, 2021 December 31, 2020

Revolving credit facilities

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Total senior unsecured notes $ 49,818 $ 99,593

Mortgage loan

Margaritaville Hollywood Beach Resort Floating (7)

May 2022 161,500 —

Debt premium (discount), net (3,023) —

Deferred financing costs, net (464) —

Total mortgage loan $ 158,013 $ —

Total debt $ 2,384,230 $ 2,280,471

______________________

(1) Borrowings bear interest at floating rates equal to, at our 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) The Company has the option to extend the maturity date to January 2023, pursuant to certain terms and conditions and payment of an extension fee.

(2) We have the option to extend the maturity date to January 2023, pursuant to certain terms and conditions and payment of an extension fee.

(3) Borrowings bear interest at floating rates equal to, at our option, either (i) LIBOR plus an applicable margin or (ii) a Eurocurrency Rate (as defined in the applicable credit agreement) plus an applicable margin.

Table of Content

(4) 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 June 30, 2021, approximately $1.4 billion of the borrowings under the term loan facilities bore an effective weighted-average fixed interest rate of 4.12%, after taking into account interest rate swap agreements, and approximately $57.0 million bore a weighted-average floating interest rate of 2.67%.

As of September 30, 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 $7.0 million bore an effective weighted-average floating interest rate of 3.0%.

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%.

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

Table of Content

(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.

We intend to repay indebtedness incurred under our revolving credit facilities, unsecured term loans, convertible senior notes and senior unsecured notes out of our cash flows from operations and, as market conditions permit, from the net proceeds from issuances of additional equity or debt securities and dispositions of hotel properties.

For further discussion on the components of our overall debt, see Note 5, Debt, to our unaudited consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

(7) The loan bears interest at a floating rate equal to one-month LIBOR plus a weighted-average spread of 2.37%.

We have the option to extend the maturity date for up to two one-year periods.

We intend to repay indebtedness incurred under our revolving credit facilities, unsecured term loans, convertible senior notes, senior unsecured notes and mortgage loan out of our cash flows from operations and, as market conditions permit, from the net proceeds from issuances of additional equity or debt securities and dispositions of hotel properties.

In February 2021, we amended the agreements governing our existing credit facilities, term loan facilities and senior notes to, among other items, 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, and to increase the interest rate spread.

For further discussion on these amendments and on the components of our overall debt, see Note 5 , Debt, to our unaudited consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

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.

As of June 30, 2021, we had no outstanding borrowings, $5.8 million of outstanding letters of credit and borrowing capacity of $644.2 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.

As of September 30, 2021, we had no outstanding borrowings, $5.8 million of outstanding letters of credit and borrowing capacity of $644.2 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 the London Inter-bank Offered Rate ("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.

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As a result of the amendments described in Note 5, Debt, to our unaudited consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q, the spread on the borrowings is fixed at 2.40% during the waiver period.

As of June 30, 2021, we had no borrowings under the PHL Credit Facility.

As of September 30, 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.

For further discussion on our unsecured term loan facilities, see Note 5, Debt, to our unaudited consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

For further discussion on our unsecured term loan facilities and interest rate swap agreements, see Note 5, Debt, to our unaudited consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

Convertible Senior Notes

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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.

Table of Content

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.

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The Convertible Notes will mature on December 15, 2026.

The Company recorded coupon interest expense of $3.3 million and $6.1 million, respectively, for the three and six months ended June 30, 2021.

The Company recorded coupon interest expense of $3.3 million and $9.4 million for the three and nine months ended September 30, 2021, respectively.

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

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The conversion rate is subject to adjustment in certain circumstances.

As of June 30, 2021 and December 31, 2020, the if-converted value of the Convertible Notes did not exceed the principal amount.

Table of Content

As of September 30, 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.

1 unchanged sentence

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.

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The Company has $47.6 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 $2.4 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.

As a result of the amendments described in Note 5, Debt, to our unaudited consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q, 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 June 30, 2021, the Company was in compliance with all such debt covenants.

As of September 30, 2021, the Company was in compliance with all such debt covenants.

Mortgage Loan

On September 23, 2021, we assumed a $161.5 million loan secured by a first-lien mortgage on the leasehold interest of the Margaritaville Hollywood Beach Resort ("Margaritaville").

The loan requires interest-only payments based on a floating interest rate of one-month LIBOR plus a weighted-average spread of 2.37%.

The loan matures on May 9, 2022 and may be extended for up to two one-year periods.

If the loan is extended for the second of the two one-year periods, the interest rate spread will increase by 20 basis points for the second year only.

We intend to exercise the options to extend.

The loan is also subject to an interest rate cap agreement.

The loan is non-recourse to the Company except for customary carve-outs to the general non-recourse liability.

The loan contains customary provisions regarding events of default, as well as customary cash management, cash trap and lockbox provisions.

Cash trap provisions are triggered if performance of the hotel is below a certain threshold.

Once triggered, all of the cash flow generated by the hotel is deposited directly into lockbox accounts and then swept into cash management accounts for the benefit of our lender.

No event of default has occurred under the loan documents.

Margaritaville triggered the cash trap provisions prior to the acquisition, and therefore cash from hotel operations is being held by the lender in the cash management accounts and reflected as restricted cash in the accompanying consolidated balance sheets.

Cash will be released from the lockbox once the hotel reaches profitability levels that terminate the cash trap or the loan is paid off.

This loan may remain subject to cash trap provisions for a substantial period of time which could limit our liquidity and ability to pay dividends or reduce debt balances.

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Issuance of Shares of Beneficial Interest

Common Shares

On February 22, 2016, we announced that our Board of Trustees authorized a share repurchase program of up to $150.0 million of the Company's outstanding common shares.

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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 six months ended June 30, 2021.

As of June 30, 2021, $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 nine months ended September 30, 2021.

As of September 30, 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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On April 29, 2021, we filed a prospectus supplement with the SEC to sell up to $200.0 million of common shares under an "at the market" offering program (the "ATM program").

No common shares were issued or sold under the ATM program during the six months ended June 30, 2021.

As of June 30, 2021, $200.0 million of common shares remained available for issuance under the ATM program.

In May 2021, we issued 9,200,000 6.375% Series G Cumulative Redeemable Preferred Shares (the “Shares”) at a public offering price of $25.00 per share for net proceeds of $222.6 million.

The Shares may be redeemed, at the Company’s option, on or after May 13, 2026, 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.

No common shares were issued or sold under the ATM program during the nine months ended September 30, 2021.

As of September 30, 2021, $200.0 million of common shares remained available for issuance under the ATM program.

Preferred Shares

In May 2021, we issued 9,200,000 6.375% Series G Cumulative Redeemable Preferred Shares at a public offering price of $25.00 per share for net proceeds of $222.6 million.

These shares may be redeemed, at the Company’s option, on or after May 13, 2026, 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.

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

In July 2021, we issued 10,000,000 5.700% Series H Cumulative Redeemable Preferred Shares at a public offering price of $25.00 per share for net proceeds of $242.1 million.

These shares may be redeemed, at the Company’s option, on or after July 27, 2026, 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.

We used the net proceeds to redeem all outstanding 6.50% Series C Cumulative Redeemable Preferred Shares and 6.375% Series D Cumulative Redeemable Preferred Shares in August 2021.

For further discussion on our shares of beneficial interest, see Note 7, Equity , to our unaudited consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q.

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

Cash (Used in) Operations.

Our cash used in operating activities was $2.3 million for the six months ended June 30, 2021.

Our cash from operations includes the operating activities of the 51 hotels we owned as of June 30, 2021, offset by corporate expenses.

Our cash used in operating activities was $86.6 million for the six months ended June 30, 2020.

Our cash from operations includes the operating activities of the 54 hotels we owned as of June 30, 2020, offset by corporate expenses.

The negative cash flow from operations during the six months ended June 30, 2021 and 2020 is due to the reduced operations at our hotels as a result of COVID-19, including carrying costs on hotels that were temporarily suspended.

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Cash Provided by (Used in) Operations.

Our cash provided by operating activities was $44.3 million for the nine months ended September 30, 2021.

Our cash from operations includes the operating activities of the 52 hotels we owned as of September 30, 2021, offset by corporate expenses.

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.

The negative cash flow from operations during the nine months ended September 30, 2020 is due to the reduced operations at our hotels as a result of COVID-19, including carrying costs on hotels that were temporarily suspended.

Cash Provided by Investing Activities.

Our cash provided by investing activities was $127.8 million for the six months ended June 30, 2021.

During the six months ended June 30, 2021, we invested $27.0 million in improvements to our hotel properties, received $172.0 million from sales of hotel properties and placed deposits totaling $17.1 million on two hotel properties.

Our cash provided by investing activities was $230.4 million for the six months ended June 30, 2020.

During the six months ended June 30, 2020, we invested $89.6 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 $61.2 million for the six months ended June 30, 2021.

During the six months ended June 30, 2021, we repaid $40.0 million under the revolving credit facilities, received gross proceeds from the issuance of preferred shares of $230.0 million, paid $7.7 million in offering costs, received proceeds from the issuance of convertible notes and other debt of $268.6 million, repaid $338.0 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 $18.9 million in distributions, paid $9.6 million in financing fees, and paid $1.5 million in other transactions.

Our cash provided by financing activities was $152.1 million for the six months ended June 30, 2020.

During the six months ended June 30, 2020, we borrowed $760.1 million under the revolving credit facilities, repaid $535.1 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 $67.6 million in distributions, paid $3.6 million in financing fees related to the credit agreement amendments and paid $0.3 million in other transactions.

Our cash provided by investing activities was $11.1 million for the nine months ended September 30, 2021.

During the nine months ended September 30, 2021, we invested $52.8 million in improvements to our hotel properties, received $255.9 million from the sales of three hotel properties, purchased two hotel properties using cash of $191.0 million and placed deposits totaling $1.0 million on hotel properties.

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 three hotel properties.

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Cash Provided by (Used in) Financing Activities.

Our cash used in financing activities was $9.0 million for the nine months ended September 30, 2021.

During the nine months ended September 30, 2021, we repaid $40.0 million under the revolving credit facilities, received gross proceeds of $480.0 million from the issuance of our Series G and Series H Preferred Shares, used $250.0 million to redeem all our Series C and Series D Preferred Shares, paid $15.9 million in offering costs, received proceeds from the issuance of convertible notes and other debt of $268.6 million, repaid $388.0 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 $30.0 million in distributions, paid $10.1 million in financing fees, and paid $1.9 million in other transactions.

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 credit agreement amendments and paid $0.7 million in other transactions.

Capital Investments

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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 six months ended June 30, 2021, we invested $27.0 million in capital investments to reposition and improve our properties, primarily the renovation of the L'Auberge Del Mar.

For the nine months ended September 30, 2021, we invested $52.8 million in capital investments to reposition and improve our properties, primarily the renovations of Hotel Vitale, Southernmost Beach Resort and L'Auberge Del Mar.

Depending on market conditions, we expect to invest an additional $30.0 million to $40.0 million in capital investments during the remainder of 2021, including a $25.0 million transformation of Hotel Vitale.

The redevelopment is expected to be completed at year-end, at which time the hotel will reopen as 1 Hotel San Francisco.

We also commenced a $15.0 million renovation at Southernmost Beach Resort, which we expect will be completed in the fourth quarter.

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

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The Hotel Vitale redevelopment is expected to be completed in the first quarter of 2022, at which time the hotel will reopen as 1 Hotel San Francisco.

We also commenced a $15.0 million renovation at Southernmost Beach Resort, which we expect will be completed in the fourth quarter of 2021.

Contractual Obligations and Off-Balance Sheet Arrangements

The table below summarizes our contractual obligations as of June 30, 2021 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 September 30, 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

Mortgage loans (1)(7)

$ 172,416 $ 4,114 $ 168,302 $ — $ —

Term loans (2)

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Finance lease obligation (4)

52,115 909 1,877 1,962 47,367

Refundable membership initiation deposits (5)

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Total $ 4,388,947 $ 137,627 $ 1,628,302 $ 181,179 $ 2,441,839

______________________

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(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 June 30, 2021.

Interest expense is calculated based on the weighted-average interest rate for all outstanding credit facility borrowings as of September 30, 2021.

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

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The table above reflects only minimum fixed rent for all periods presented and does not include assumptions for CPI adjustments.

(5) Represents refundable initiation membership deposits from club members at LaPlaya Beach Resort and Club.

(5) Represents refundable initiation membership deposits from club members at LaPlaya Beach Resort & Club.

(6) Amounts represent purchase orders and contracts that have been executed for renovation projects at the properties.

We are committed to these purchase orders and contracts and anticipate making similar arrangements in the future with the existing properties or any future properties that we may acquire.

(7) Assumes the exercise of two one-year extension options.

Off-Balance Sheet Arrangements

As of June 30, 2021, we had no off-balance sheet arrangements.

As of September 30, 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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Derivatives expose the Company to credit risk in the event of non-performance by the counter parties under the terms of the interest rate hedge agreements.

The Company believes it minimizes the credit risk by transacting with major credit-worthy financial institutions.

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We believe it minimizes the credit risk by transacting with major credit-worthy financial institutions.

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

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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