What changed in this filing

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Item 2. Management’s Discussion and Analysis

2020-11-06 compared with 2020-08-06 · 96 added, 94 removed, 314 unchanged (38% of the section changed)

9 unchanged sentences

The extent to which COVID-19 impacts us, our hotel managers, tenants and guests at our hotels will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the scope, severity and duration of the pandemic, the actions taken to contain the pandemic or mitigate its effect, additional closures that may be mandated or advisable even after the reopening of certain of our hotels on a limited basis, whether due to an increased number of COVID-19 cases or otherwise, and the direct and indirect economic effects of the pandemic and containment measures, among others.

Moreover, investors are cautioned to interpret many of the risks identified in the risk factors discussed in this 10-Q and incorporated by reference from our Quarterly Report on Form 10-Q for the quarter ended March 31, 2020 and our Annual Report on Form 10-K for the year ended December 31, 2019 as being heightened as a result of the ongoing and numerous adverse impacts of COVID-19.

Moreover, investors are cautioned to interpret many of the risks identified in the risk factors discussed in our Quarterly Reports on Form 10-Q for the quarters ended March 31, 2020 and June 30, 2020 and our Annual Report on Form 10-K for the year ended December 31, 2019 as being heightened as a result of the ongoing and numerous adverse impacts of COVID-19.

All such forward-looking statements are based on current expectations of management and therefore involve estimates and assumptions that are subject to risks, uncertainties and other factors that could cause actual results to differ materially from the results expressed in the statements.

You should not put undue reliance on any forward-looking statements and we urge investors to carefully review the disclosures we make concerning risks and uncertainties in Item 1A:

“Risk Factors” in this Quarterly Report on Form 10-Q, our Quarterly Report on Form 10-Q for the quarter ended March 31, 2020 and our Annual Report on Form 10-K for the year ended December 31, 2019, as such factors may be updated from time to time in our periodic filings with the SEC, which are accessible on the SEC’s website at www.sec.gov, as well as risks, uncertainties and other factors discussed in this Quarterly Report on Form 10-Q.

“Risk Factors” in this Quarterly Report on Form 10-Q, our Quarterly Reports on Form 10-Q for the quarters ended March 31, 2020 and June 30, 2020 and our Annual Report on Form 10-K for the year ended December 31, 2019, as such factors may be updated from time to time in our periodic filings with the SEC, which are accessible on the SEC’s website at www.sec.gov, as well as risks, uncertainties and other factors discussed in this Quarterly Report on Form 10-Q.

Except as required by law, we undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise.

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Our consolidated hotels operating segment is our only reportable segment.

Refer to Note 12 :

Refer to No te 12 :

“ Business Segment Information ” in our unaudited condensed consolidated financial statements included elsewhere within this Quarterly Report on Form 10-Q for additional information regarding our operating segments.

4 unchanged sentences

The effects of COVID-19, including related government restrictions, border closings, quarantining, “shelter-in-place” orders and “social distancing,” have had and continue to have a significant adverse effect on the hospitality industry, including our business, and have contributed to a significant decrease in business and consumer spending, with a particularly dramatic effect on travel and hospitality spending.

In March and April 2020, travel restrictions and mandated closings of non-essential businesses were imposed, which resulted in temporary suspensions of operations at certain of our hotels and significantly reduced capacity at the remainder of our hotels.

In March and April 2020, travel restrictions and mandated closings of non-essential businesses were imposed, which resulted in temporary suspensions of operations at certain of our hotels, the majority of which have now reopened, and significantly reduced capacity at the remainder of our hotels.

Temporary closings of other restaurants and hotels across entire regions also contributed to severely reduced overall lodging demand.

There continues to be significant cancellations of existing reservations, including the vast majority of group business and events throughout the remainder of 2020 and significant reductions in new reservations.

There continues to be significant cancellations of existing reservations, including the vast majority of group business and events throughout the remainder of 2020 and the first-half of 2021 and significant reductions in new reservations.

Since the beginning of March, we have experienced a significant decline in occupancy, Average Daily Rate (“ADR”) and Revenue per Available Room (“RevPAR”) associated with the COVID-19 pandemic throughout our consolidated portfolio, which resulted in a decline in our operating cash flow.

Changes in our monthly pro-forma metrics, which exclude results from property dispositions and include results from property acquisitions, for the first six months of 2020 as compared to the same period in 2019 are as follows:

Changes in our monthly pro-forma metrics, which exclude results from property dispositions and include results from property acquisitions, for the first nine months of 2020 as compared to the same period in 2019 and pro-forma occupancy are as follows:

Pro-forma ADR

1 unchanged sentence

Pro-forma RevPAR

Pro-forma Occupancy

We believe that imposed or re-imposed government restrictions and the economic recession associated with COVID-19 will continue to significantly affect our business.

1 unchanged sentence

We do not expect to realize a material improvement in our results until medical advances (e.g., therapeutics, vaccines) are made available that will allow business traveler and general consumer confidence related to risks associated with the COVID-19 pandemic to improve and various government restrictions on travel, freedom of movement and the operations of our hotels are lifted.

Although we were able to recommence operations at reduced capacity at certain of our previously suspended hotels during the second quarter, there remains considerable uncertainty as to both the time it will take to see travel and demand for lodging and travel-related experiences increase and the long-term impacts on consumer attitudes to travel, and we cannot predict whether our reopened hotels will be forced to suspend operations again or decrease capacity in the future, including as a result of government regulation, an increase in the number of COVID-19 cases or changes in business and other consumer preferences for travel.

Although we were able to recommence operations at reduced capacity at most of our previously suspended hotels during the second and third quarters, there remains considerable uncertainty as to both the time it will take to see travel and demand for lodging and travel-related experiences increase and the long-term impacts on consumer attitudes to travel, and we cannot predict whether our reopened hotels will be forced to suspend operations again or decrease capacity in the future, including as a result of government regulation, an increase in the number of COVID-19 cases or changes in business and other consumer preferences for travel.

The pandemic has had a prolonged effect on travel within and to the United States, where all of our properties are located.

In addition, due to the effects of COVID-19, during the six months ended June 30, 2020, we recognized $607 million of impairment losses for goodwill and $88 million of impairment losses primarily related to one of our hotels resulting from a significant decline in market value.

In addition, due to the effects of COVID-19, during the nine months ended September 30, 2020, we recognized $607 million of impairment losses for goodwill and $90 million of impairment losses primarily related to one of our hotels resulting from a significant decline in market value.

Further, economic uncertainty generally will make it more difficult to execute on our external growth strategy.

These factors lead us to believe that our operating results will continue to be adversely affected by COVID-19 through at least the remainder of 2020.

We and our hotel managers have taken various actions to mitigate the effect on our business including cost saving initiatives to reduce costs at our hotels.

During the first quarter of 2020, we temporarily suspended operations at 38 of our 60 hotels, deferred approximately $150 million of the $200 million in capital expenditures previously budgeted for 2020, reduced expected 2020 capital spending to approximately $50 million, suspended dividend payments following the payment of the first quarter 2020 dividend, which was paid on April 15, 2020, and fully drew our $1 billion revolving credit facility (the “Revolver”) as a precautionary measure to increase liquidity and preserve financial flexibility in light of the current uncertainty resulting from the COVID-19 pandemic.

These factors lead us to believe that our operating results will continue to be adversely affected by COVID-19 through the remainder of 2020 and at least the early part of 2021.

We and our hotel managers have taken various actions to mitigate the e ffect on our business including cost saving initiatives to reduce costs at our hotels.

During the first quarter of 2020, we temporarily suspended operations at 38 of our 60 hotels, deferred approximately $ 150 million of the $ 200 million in capital expe nditures previously budgeted for 2020, reduced expected 2020 capital spending to approximately $50 million, suspended dividend payments following the payment of the first quarter 2020 dividend, which was paid on April 15, 2020, and drew on our $1 billion r evolving credit facility (the “Revolver”) as a precautionary measure to increase liquidity and preserve financial flexibility in light of the current uncertainty resulting from the COVID-19 pandemic.

In May 2020, despite headwinds in the debt market, Park Intermediate Holdings LLC (our “ Operating Company”), PK Domestic Property LLC (“PK Domestic”) and PK Finance Co-Issuer Inc.

(“PK Finance”) issued an aggregate of $650 million 7.500% senior secured

notes due 2025 (“Senior Secured Notes”).

We used $219 million of the net proceeds to partially repay the Revolver and $69 million of the net proceeds to partially repay th e term loan we entered into in December 2016 (“2016 Term Loan”).

(“PK Finance”) issued an aggregate of $650 million 7.500% senior secured notes due 2025 (“2025 Senior Secured Notes”).

We used $219 million of the net proceeds to partially repay the Revolver and $69 million of the net proceeds to partially repay the term loan due December 2021 (“2016 Term Loan”).

We also repaid an additional $100 million of the Revolver with existing cash.

In Septembe r 2020, we issued an aggregate of $725 million of senior secured notes due 2028 (“2028 Senior Secured Notes”).

Net proceeds from the 2028 Senior Secured Notes offering were used to repay the 2016 Term Loan in full and to repay $80 million of our outstandi ng balance under the Revolver, which may be redrawn.

Since originally suspending operations, we have commenced the phased reopening of 26 of our hotels at limited capacity.

The timing of fully reopening our hotels will depend primarily on government restrictions imposed or re-imposed, health official recommendations and market demand.

The status of our hotels as of August 5, 2020 is as follows:

Consolidated Hotels

Percentage of

Operations suspended

Unconsolidated Hotels

Percentage of

Operations suspended

We continue to proactively pursue alternative sources of revenue from applicable government authorities and hospitals, such as providing temporary lodging for first responders, other medical personnel, military personnel, displaced guests and residents of communities where our hotels are located.

We are also pursuing potential opportunities with colleges and universities to house students for their upcoming school year as they look to mitigate potential COVID-19 exposures within their student population.

The status of our hotels as of November 6, 2020 is as follows:

Number of Hotels

Consolidated Open

Consolidated Suspended

Total Consolidated

Unconsolidated Open

We cannot predict whether we will be able to resume operations at any of our other suspended hotels or whether our reopened hotels will be forced to suspend operations again in the future.

However, we currently expect to open an additional 2 hotels during the fourth quarter of 2020, which would bring the total open hotel count to 50 hotels and account for 74% of our total room count, with the remaining 10 suspended hotels expected to open by the first quarter of 2021.

In addition, the operating environment for us and our hotel managers could remain challenging if the current economic recession extends beyond the lifting of government restrictions and reopening of our hotels.

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Occupancy levels also help us determine achievable ADR levels as demand for rooms increases or decreases.

Average Da ily Rate

Average Daily Rate

ADR represents rooms revenue divided by total number of room nights sold in a given period.

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However, given the significant effect of COVID-19 on most of our hotels and the lack of comparability to prior periods, we do not believe this supplemental information is useful to us or our investors at this time.

Under “Results of Operations” below, we have provided information on the effects from acquisitions, dispositions and other factors to our results of operations for the three and six months ended June 30, 2020 as compared to the three and six months ended June 30, 2019.

Under “Results of Operations” below, we have provided information on the effects from acquisitions, dispositions and other factors to our results of operations for the three and nine months ended September 30, 2020 as compared to the three and nine months ended September 30, 2019.

Change from other factors primarily relates to the effects of COVID-19.

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The following table provides a reconciliation of Net (loss) income to Hotel Adjusted EBITDA:

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

(in millions)

7 unchanged sentences

investments in affiliates

(Gain) loss on sales of assets, net

Loss (gain) on sales of assets, net

Acquisition costs

1 unchanged sentence

Share-based compensation expense

Impairment loss and casualty gain, net

Impairment and casualty loss, net

Adjusted EBITDA

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Share-based compensation expense;

Casualty gains or losses;

Other items that we believe are not representative of our current or future operating performance.

The following table provides a reconciliation of net (loss) income attributable to stockholders to Nareit FFO attributable to stockholders and Adjusted FFO attributable to stockholders:

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

(in millions, except per share amounts)

3 unchanged sentences

noncontrolling interests

(Gain) loss on sales of assets, net

Loss (gain) on sales of assets, net

Gain on sale of investments in affiliates (1)

4 unchanged sentences

Nareit FFO attributable to stockholders

Casualty loss (gain), net

Acquisition costs

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Included in other loss, net.

For the six months ended June 30, 2020, includes $26 million of tax expense on hotels sold during the period.

For the nine months ended September 30, 2020, includes $30 million of tax expense on hotels sold during the period.

Per share amounts are calculated based on unrounded numbers.

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As a result of the Merger, we acquired 18 hotels, two of which were disposed of in December 2019.

The results of operations of these hotels for the three and six months ended June 30, 2019 are not included in our consolidated results.

The results of operations of these hotels prior to acquisition for the three and nine months ended September 30, 2019 are not included in our consolidated results.

Property Dispositions:

Since January 1, 2019, we disposed of 8 consolidated hotels excluding the 2 hotels acquired in the Merger that were subsequently sold.

As a result of these dispositions, our revenues and operating expenses decreased for the three and six months ended June 30, 2020 as compared to the same periods in 2019.

As a result of these dispositions, our revenues and operating expenses decreased for the three and nine months ended September 30, 2020 as compared to the same periods in 2019.

The results of operations during our period of ownership of these hotels are included in our consolidated results.

1 unchanged sentence

The economic recession resulting from the spread of COVID-19 has and is expected to continue to significantly affect our business.

Consequently, the results of our portfolio during the three and six months ended June 30, 2020 will not be comparable to the same periods in 2019.

Consequently, the results of our portfolio during the three and nine months ended September 30, 2020 will not be comparable to the same periods in 2019.

Hotel Revenues and Operating Expenses

Three Months Ended June 30,

Three Months Ended September 30,

(in millions)

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Change from other factors primarily relates to the effects of COVID-19.

Six Months Ended June 30,

Nine Months Ended September 30,

(in millions)

8 unchanged sentences

Change from other factors primarily relates to the effects of COVID-19.

Other Revenue and Operating Expenses

The decrease in other revenue and other operating expense primarily relates to the effects of COVID-19.

Other Revenue

Three Months Ended June 30,

Six Months Ended June 30,

Other revenue and Other expense

During the three months ended September 30, 2020, we permanently suspended operations at two of our three laundry facilities and expect to permanently suspend operations at our third laundry facility in the fourth quarter of 2020.

The decrease in support revenue is due to lower cost reimbursements as a result of these operations being suspended at most hotels that have a service arrangement with Hilton Grand Vacations (“HGV”).

Three Months Ended September 30,

Nine Months Ended September 30,

Percent Change

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Total other revenue

Other Expense

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

Percent Change

6 unchanged sentences

Corporate general and administrative

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

Percent Change

4 unchanged sentences

Share-based compensation expense

Acquisition costs

Disposition costs

1 unchanged sentence

Total corporate general and administrative

Acquisition costs of $6 million for both the three and six months ended June 30, 2019 primarily relate to costs incurred in connection with the entry into the Merger Agreement with Chesapeake.

Impairment loss and casualty gain, net

During the six months ended June 30, 2020, we recognized a net loss of $694 million primarily as a result of $607 million of impairment losses related to our goodwill and $88 million of impairment losses primarily related to one of our hotels, and our inability to recover the carrying value because of COVID-19.

Acquisition costs

During the nine months ended September 30, 2020, we incurred $10 million of acquisition costs, primarily as a result of $9 million of transfer tax in connection with the Merger Agreement with Chesapeake based on new information received during the period.

Acquisition costs of $59 million and $65 million for the three and nine months ended September 30, 2019, respectively, primarily related to costs incurred in connection with the entry into the Merger Agreement with Chesapeake.

Impairment and casualty loss, net

During the nine months ended September 30, 2020, we recognized a net loss of $696 million primarily as a result of $607 million of impairment losses related to our goodwill and $90 million of impairment losses primarily related to one of our hotels, and our inability to recover the carrying value because of COVID-19.

Gain on sales of assets, net

During the six months ended June 30, 2020, we recognized a net gain of $63 million primarily as a result of the sale of two of our consolidated hotels.

During the nine months ended September 30, 2020, we recognized a net gain of $62 million primarily as a result of the sale of two of our consolidated hotels.

Refer to Note 3:

“Acquisitions and Dispositions” in our unaudited condensed consolidated financial statements included elsewhere within this Quarterly Report on Form 10-Q for additional information.

During the three and six months ended June 30, 2019, we recognized a loss of $12 million and a net gain of $19 million, respectively, as a result of the sale of five of our consolidated hotels.

During the nine months ended September 30, 2019, we recognized a net gain of $20 million as a result of the sale of five of our consolidated hotels.

Non-operating Income and Expenses

Interest expense

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

Percent Change

1 unchanged sentence

(in millions)

SF and HHV CMBS Loans (1)

3 unchanged sentences

2025 Senior Secured Notes

2028 Senior Secured Notes

Total interest expense

In October 2016, we entered into a $725 million CMBS loan secured by the Hilton San Francisco Union Square and the Parc 55 Hotel San Francisco (“SF CMBS Loan”) and a $1.275 billion CMBS loan secured by the Hilton Hawaiian Village Waikiki Beach Resort (“HHV CMBS Loan”).

Percentage change is not meaningful.

The 2016 Term Loan was entered into in December 2016, with a maturity date of December 2021.

We repaid the 2016 Term Loan by $50 million and $69 million in December 2019 and June 2020, respectively.

The 2016 Term Loan was fully repaid in September 2020.

In August 2019, the Company, Park Intermediate Holdings LLC and PK Domestic entered into a credit agreement with Bank of America, N.A.

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On December 31, 2019, we repaid $180 million of the 2019 Term Facility.

During the second quarter of 2020, we repaid $319 million of the Revolver.

Interest expense increased during three and six months ended June 30, 2020 as compared to the same periods in 2019 as a result of $310 million in mortgage loans assumed in connection with th e Merger, borrowings under the 2019 Term Facility to fund the Merger, the $1 billion drawn under the Revolver in March 2020 (of which $319 million was repaid during the second quarter of 2020), and the issuance of our $650 million Senior Secured Notes.

Interest expense increased during three and nine months ended September 30, 2020 as compared to the same periods in 2019 as a result of $310 million in mortgage loans assumed in conn ection with the Merger, borrowings under the 2019 Term Facility to fund the Merger, the $1 billion drawn under the Revolver in March 2020 (of which $319 million and $80 million was repaid during the second and third quarters of 2020, respectively), and the issuances of our $650 million 2025 Senior Secured Notes and $725 million 2028 Senior Secured Notes, partially offset by a decrease in interest expense as a result of the full repayment of the 2016 Term Loan in September 2020.

Income tax expense

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

Percent Change

3 unchanged sentences

Income tax expense

Income tax expense for the six months ended June 30, 2020 includes $26 million of income tax expense from hotels sold during the period, partially offset by a TRS income tax benefit of $16 million from utilizing the NOL carryback provisions of the CARES Act.

Income tax expense for the nine months ended September 30, 2020 includes $30 million of income tax expense from hotels sold during the period, partially offset by a TRS income tax benefit of $20 million from utilizing the NOL carryback provisions of the CARES Act.

Refer to Note 9:

“Income Taxes” in our unaudited condensed consolidated financial statements included elsewhere within this Quarterly Report on Form 10-Q for additional information

Income tax expense for the three and six months ended June 30, 2019 includes $4 million and $10 million, respectively, of income tax liabilities associated with our taxable operations.

Income tax expense for the nine months ended September 30, 2019 includes $7 million of income tax liabilities associated with our taxable operations and $2 million of built-in gain tax recognized on hotels disposed during 2019, beyond that of our previously recognized deferred tax liabilities.

Liquidity and Capital Resources

We seek to maintain sufficient amounts of liquidity with an appropriate balance of cash, debt and equity to provide financial flexibility.

As of June 30, 2020, we had total cash and cash equivalents of approximately $1.3 billion and $35 million of restricted cash.

As of September 30, 2020, we had total cash and cash equivalents of approximately $1.1 billion and $35 million of restricted cash.

Restricted cash primarily consists of cash restricted as to use by our debt agreements and reserves for capital expenditures in accordance with certain of our management agreements.

As a result of the economic uncertainty resulting from the effects of COVID-19 including decreased occupancy, ADR and RevPAR at our hotels, as described above under “Recent Events–COVID-19 Effect on Our Business”, we expect our cash flow from operations through at least the remainder of 2020 to be significantly lower than in the past.

We have taken several steps to preserve capital and increase liquidity, including fully drawing $1 billion from our Revolver in March 2020, issuing $650 million of Senior Secured Notes in May 2020 (a portion of which was used to partially repay amounts outstanding under our Revolver and 2016 Term Loan), suspending our dividend following the payment of the first quarter 2020 dividend and implementing various cost saving initiatives at our hotels including:

As a result of the economic uncertainty resulting from the effects of COVID-19 including decreased occupancy, ADR and RevPAR at our hotels, as described above under “Recent Events–COVID-19 Effect on Our Business”, we expect our cash flow from operations through the remainder of 2020 and the first-half of 2021 to be significantly lower than in the past.

We have taken several steps to preserve capital and increase liquidity, including drawing $1 billion from our Revolver in March 2020, issuing $650 million of 2025 Senior Secured Notes in May 2020 (a portion of which was used to partially repay amounts outstanding under our Revolver and 2016 Term Loan), issuing $725 million of 2028 Senior Secured Notes in September 2020 (a portion of which was used to repay the 2016 Term Loan in full as well as a portion of the Revolver), suspending our dividend following the payment of the first quarter 2020 dividend and implementing various cost saving initiatives at our hotels including:

temporary suspension of operations at certain hotels and selected restaurants and other businesses and outlets and deferrals of approximately $150 million of the $200 million in capital expenditures budgeted for 2020.

We will continue to assess when the deferred capital expenditures will resume or if any of the deferred expenditures will be cancelled.

While operations have been suspended or significantly reduced at most of our hotels, the duration and extent of the effects of COVID-19 remain unknown, and we cannot predict whether our reopened hotels will be forced to suspend operations again in the future.

Assuming that our hotel suspensions of operations were to expand such that hotel operations were suspended at all 60 of our hotels (including restaurants and other business and outlets) and room and other revenues were also zero between the months of August and December of 2020, we currently estimate that our average monthly cash burn for that period would be approximately $65 million, of which $42 million consists of the estimated average monthly hotel funding for hotel expenses and $23 million consists of the estimated average monthly corporate-level expenses.

The estimated hotel-level cash burn rate approximates working capital funding needs and includes hotel fixed costs at each of our hotels while activities are suspended.

The estimated corporate-level cash burn consists primarily of principal and interest payments on outstanding debt and corporate general and administrative expenses, such as salary, wages and benefits.

This estimate does not take into account capital expenditures or any possible alternative sources of revenue that may arise or any hotel property dispositions for the remainder of the year or payment of future cash dividends, if any.

The estimated cash burn amount has not been reduced by any amount available to us under existing or future debt facilities, or proceeds from issuance of any additional debt, equity or equity-linked securities.

We currently believe, as a result of the above-mentioned cost-reduction efforts and the overall strength of our balance sheet, based on the estimated cash burn rates described above and absent any debt required to be repaid in the event of default, we would expect to have sufficient liquidity to withstand the suspension of operations at all our hotels for two years.

With the net proceeds from our Revolver borrowing s during 2020, net proceeds from the offering of our Senior Secured Notes and the proceeds from the sales of two consolidated hotels during the first quarter of 2020, we currently believe we have sufficient liquidity to pay our 2020 debt maturities and fun d other short-term liquidity obligations.

We are maintaining higher than historical cash levels due to the continued uncertainty surrounding COVID-19, and we intend to do so until markets stabilize and demand in the lodging industry begins to recover.

In a ddition, we also may take other actions to improve our liquidity, such as the issuance of additional debt, equity or equity-linked securities, if we determine that doing so would be beneficial to us.

While operations have been significantly reduced, and in some cases remain suspended, at most of our hotels, the duration and extent of the effects of COVID-19 remain unknown, and we cannot predict whether our reopened hotels will be forced to suspend operations again in the future.

Based on our average monthly burn rate of $50 million for the third quarter which takes into account current operations from both open and suspended hotels and uses an accrual-based methodology, and as a result of the above-mentioned cost-reduction efforts and the overall strength of our balance sheet, absent any debt required to be repaid, we currently expect to have over two and a half years of liquidity available to meet our financial obligations.

This estimate does not take into account capital expenditures (which were reduced by 75% in 2020 to approximately $4 million per month) or any possible alternative sources of revenue that may arise or any hotel property dispositions for the remainder of the year or payment of future cash dividends, if any.

The estimated burn rate amount has not been reduced by any amount available to us under existing or future debt facilities, or proceeds from issuance of any additional debt, equity or equity-linked securities.

With the net proceeds from our Revolver borrowings during 2020, net proceeds from the offering of our 2025 Senior Secured Notes and 2028 Senior Secured Notes and the proceeds from the sales of two consolidated hotels during the first quarter o f 2020, we have sufficient liquidity to pay our 2021 debt maturities and to fund other short-term liquidity obligations.

We are maintaining higher than historical cash levels due to the continued uncertainty surrounding COVID-19, and we intend to do so unt il markets stabilize and demand in the lodging industry begins to recover.

In addition, we also may take other actions to improve our liquidity, such as the issuance of additional debt, equity or equity-linked securities, if we determine that doing so woul d be beneficial to us.

However, there can no assurance as to the timing of any such issuance, which may be in the near term, or that any such additional financing will be completed on favorable terms, or at all.

Additionally, in May 2020, we amended our credit and term loan facilities to suspend compliance with all existing financial covenants tested through and including March 31, 2021 and to adjust the levels of particular financial covenants after such period.

As part of the amendment process, we (i) agreed to comply with a monthly minimum liquidity covenant, to pledge equity in certain subsidiaries to secure the facilities, and for certain subsidiaries to become guarantors under the facilities, and (ii) exercised our two six-month extension options on our Revolver to extend its maturity to December 24, 2021.

The amendments also added additional covenants that restrict our ability to make dividend and distribution payments (except to the extent required to maintain REIT status) and stock repurchases, make prepayments of other indebtedness, make capital expenditures, conduct asset dispositions or transfers and make investments, including acquisitions or mergers, in each case subject to various exceptions.

We expect to be in compliance with financial covenants for the quarter ended June 30, 2021 (the first quarter for which compliance is required following the amendments).

If we are unable to comply with such covenants for the quarter ended June 30, 2021, we will negotiate with our lenders to amend such covenants as needed and believe we will be able to reach an agreement in advance as we did with the previous amendments.

Our known short-term liquidity requirements primarily consist of funds necessary to pay for operating expenses and other expenditures, including reimbursements to our hotel manager for payroll and related benefits, costs associated with the operation of our hotels, interest and scheduled principal payments on our outstanding indebtedness (including the Senior Secured Notes), capital expenditures for renovations and maintenance at our hotels (to the extent not deferred for 2020), corporate general and administrative expenses, and, when resumed, dividends to our stockholders.

In May and September 2020, we amended our credit facilities, which in addition to providing enhanced liquidity, extending the maturity of the Revolver and extending the waiver period for the testing of the financial covenants, placed certain restrictions on the Company.

Refer to Note 7:

“Debt” in our unaudited condensed consolidated financial statements included elsewhere within this Quarterly Report on Form 10-Q for additional information.

Our known short-term liquidity requirements primarily consist of funds necessary to pay for operating expenses and other expenditures, including reimbursements to our hotel manager for payroll and related benefits, costs associated with the operation of our hotels, interest and scheduled principal payments on our outstanding indebtedness (including the 2025 Senior Secured Notes and 2028 Senior Secured Notes), capital expenditures for renovations and maintenance at our hotels (to the extent not deferred for 2020), corporate general and administrative expenses, and, when resumed, dividends to our stockholders.

Many of the other expenses associated with our hotels are relatively fixed, including portions of rent expense, property taxes and insurance.

1 unchanged sentence

Our long-term liquidity requirements primarily consist of funds necessary to pay for scheduled debt maturities, capital improvements at our hotels (to the extent not cancelled or deferred), and costs associated with potential acquisitions.

Despite the impact of COVID-19 on the global economy, including a sustained decline in our performance, we were able to access the debt capital markets during the second quarter of 2020 and complete our inaugural senior secured notes offering.

Despite the impact of COVID-19 on the global economy, including a sustained decline in our performance, we were able to access the debt capital markets during the second and third quarters of 2020 and complete our inaugural notes offering for our 2025 Senior Secured Notes as well as the offering of our 2028 Senior Secured Notes.

However, it may be difficult or costly for us to raise additional debt or equity capital in the future to fund long-term liquidity requirements.

10 unchanged sentences

During the three months ended March 31, 2020 , we repurchased 4.6 million shares of our common stock for a total purchase price of $66 million.

No common stock was repurchased during the three months ended June 30, 2020.

As of June 30, 2020 , approximately $234 million remained available for stock repurchases.

No common stock was repurchased during the three months ended June 30, 2020 or three months ended September 30, 2020.

As of September 30, 2020 , approximately $234 million remained available for stock repurchases.

The timing of stock repurchases and the number of shares to be repurchased will depend upon prevailing market conditions and other factors, and we may suspend the repurchase program at any time.

2 unchanged sentences

The following tables summarize our net cash flows and key metrics related to our liquidity:

Six Months Ended June 30,

Nine Months Ended September 30,

Percent Change

1 unchanged sentence

Net cash (used in) provided by operating activities

Net cash provided by investing activities

Net cash provided by (used in) financing activities

Net cash provided by (used in) investing activities

Net cash provided by financing activities

Percentage change is not meaningful.

1 unchanged sentence

Cash flow from operating activities are primarily generated from the operating income or losses generated at our hotels.

The $402 million decrease in net cash provided by operating activities for the six months ended June 30, 2020 compared to the six months ended June 30, 2019 was primarily due to a decrease in cash from operations related to the effects of COVID-19 coupled with an increase in cash paid for interest of $19 million.

The $623 million decrease in net cash provided by operating activities for the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019 was primarily due to a decrease in cash from operations related to the effects of COVID-19 coupled with an increase in cash paid for interest of $28 million.

Investing Activities

The $150 million in net cash provided by investing activities for the six months ended June 30, 2020 was primarily attributable to $207 million in net proceeds received from the sale of hotels, partially offset by $56 million in capital expenditures.

The $111 million in net cash provided by investing activities for the six months ended June 30, 2019 was primarily attributable to the $229 million in net proceeds received from the sale of hotels, partially offset by $120 million used for capital expenditures for property and equipment at our hotels.

The $136 million in net cash provided by investing activities for the nine months ended September 30, 2020 was primarily attributable to $207 million in net proceeds received from the sale of hotels, partially offset by $70 million in capital expenditures.

The $855 million in net cash used in investing activities for the nine months ended September 30, 2019 was primarily attributable to the $913 million used in the acquisition of Chesapeake and $182 million used for capital expenditures for property and equipment at our hotels, partially offset by $230 million in net proceeds received from the sale of hotels.

Financing Activities

The $931 million in net cash provided by financing activities for the six months ended June 30, 2020 is primarily attributable to borrowings of $1 billion from our Revolver as a result of COVID-19, the issuance of our $650 million Senior Secured Notes, partially offset by $392 million of debt repayments, $241 million in dividends paid and the repurchase of 4.5 million shares of our common stock for $66 million.

The $300 million in net cash used in financing activities for the six months ended June 30, 2019 is primarily attributable to $291 million in dividends paid.

The $921 million in net cash provided by financing activities for the nine months ended September 30, 2020 is primarily attributable to borrowings of $1 billion from our Revolver as a result of COVID-19, the issuance of our $650 million 2025 Senior Secured Notes and $725 million 2028 Senior Secured Notes, partially offset by $1.1 billion of debt repayments, $241 million in dividends paid and the repurchase of 4.5 million shares of our common stock for $66 million.

The $445 million in net cash provided by financing activities for the nine months ended September 30, 2019 is primarily attributable to borrowings of $850 million from the 2019 Term Facility entered into in September 2019 to fund the Merger, partially offset by $382 million in dividends paid.

As a REIT, we are required to distribute at least 90% of our REIT taxable income, determined without regard to the deduction for dividends paid and excluding net capital gain, to our stockholders on an annual basis.

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April 15, 2020

As of June 30, 2020, our total indebtedness was approximately $5.1 billion, including $681 million of borrowings from our Revolver and $650 million of Senior Secured Notes, as disclosed above, and excluding approximately $225 million of our share of debt of investments in affiliates.

As of September 30, 2020, our total indebtedness was approximately $5.1 billion, including $601 million of borrowings from our Revolver, $650 million of 2025 Senior Secured Notes and $725 million of 2028 Senior Secured Notes, as disclosed above, and excluding approximately $225 million of our share of debt of investments in affiliates.

Substantially all the debt of such unconsolidated affiliates is secured solely by the affiliates’ assets or is guaranteed by other partners without recourse to us.

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Off-Balance Sheet Arrangements

Our off-balance sheet arrangements as of June 30, 2020 included construction contract commitments of approximately $29 million for capital expenditures at our properties.

Our off-balance sheet arrangements as of September 30, 2020 included construction contract commitments of approximately $23 million for capital expenditures at our properties.

Our contracts contain clauses that allow us to cancel all or some portion of the work.

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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