Chatham Lodging Trust(CLDT) - 2019 Q1 - Quarterly Report

PART I. FINANCIAL INFORMATION This section presents Chatham Lodging Trust's financial statements, management's discussion and analysis, market risk disclosures, and controls and procedures for the quarter ended March 31, 2019 Item 1. Financial Statements This section provides Chatham Lodging Trust's unaudited consolidated financial statements and comprehensive notes for Q1 2019 Consolidated Balance Sheets This statement details the company's assets, liabilities, and equity as of March 31, 2019, and December 31, 2018 Consolidated Balance Sheets (in thousands) | Metric | March 31, 2019 (unaudited) | December 31, 2018 | |:---|:---|:---| | Assets: ||| | Investment | $1,372,077 | $1,373,773 | | Cash | $11,199 | $7,192 | | Total Assets | $1,464,111 | $1,439,709 | | Liabilities: ||| | Mortgage | $500,568 | $501,782 | | Revolving | $97,000 | $81,500 | | Total Liabilities | $669,194 | $632,291 | | Equity: ||| | Total Shareholders' Equity | $784,588 | $797,466 | | Total Equity | $794,917 | $807,418 | | Total Liabilities and Equity | $1,464,111 | $1,439,709 | - Total assets increased by $24.4 million from December 31, 2018, to March 31, 2019, primarily driven by an increase in cash[8] - Total liabilities increased by $36.9 million, mainly due to an increase in revolving credit facility borrowings[8] Consolidated Statements of Operations This statement presents the company's revenues, expenses, and net income for the three months ended March 31, 2019 and 2018 Consolidated Statements of Operations (in thousands) | Metric | March 31, 2019 | March 31, 2018 | |:---|:---|:---| | Total Revenue | $75,679 | $72,915 | | Total Operating Expenses | $65,786 | $62,647 | | Operating Income | $9,893 | $10,251 | | Net Income | $1,628 | $2,868 | | Net Income Attributable to Common Shareholders | $1,613 | $2,848 | | Income per Common Share - Basic | $0.03 | $0.06 | | Income per Common Share - Diluted | $0.03 | $0.06 | - Total revenue increased by $2.76 million (3.8%) year-over-year, primarily driven by room revenue growth[12] - Net income attributable to common shareholders decreased by $1.235 million (43.4%) year-over-year, leading to a 50% reduction in basic and diluted EPS[12] Consolidated Statements of Equity This statement outlines changes in the company's equity for the three months ended March 31, 2019 and 2018 Consolidated Statements of Equity (in thousands) | Metric | March 31, 2019 | March 31, 2018 | |:---|:---|:---| | Balance, January 1 | $807,418 | $809,780 | | Issuance of shares pursuant to Equity Incentive Plan | $500 | $500 | | Issuance of shares, net of offering costs | $93 | $10,282 | | Amortization of share based compensation | $947 | $792 | | Dividends declared on common shares | $(15,367) | $(15,141) | | Distributions declared on LTIP units | $(302) | $(283) | | Net income | $1,628 | $2,868 | | Balance, March 31 | $794,917 | $808,798 | - Total equity decreased from $807.4 million at January 1, 2019, to $794.9 million at March 31, 2019, primarily due to dividends declared exceeding net income[18] Consolidated Statements of Cash Flows This statement details the cash inflows and outflows from operating, investing, and financing activities for Q1 2019 and Q1 2018 Consolidated Statements of Cash Flows (in thousands) | Cash Flow Activity | For the three months ended March 31, 2019 | For the three months ended March 31, 2018 | |:---|:---|:---| | Net cash provided by operating activities | $13,311 | $13,426 | | Net cash used in investing activities | $(11,741) | $(5,928) | | Net cash used in financing activities | $(1,366) | $(5,196) | | Net change in cash, cash equivalents and restricted cash | $204 | $2,302 | | Cash, cash equivalents and restricted cash, end of period | $32,541 | $38,801 | - Net cash provided by operating activities remained stable year-over-year, at $13.3 million in Q1 2019[22] - Net cash used in investing activities significantly increased to $11.7 million in Q1 2019 from $5.9 million in Q1 2018, mainly due to higher capital improvements to hotel properties[22] - Net cash used in financing activities decreased to $1.4 million in Q1 2019 from $5.2 million in Q1 2018, driven by higher net borrowings on the revolving credit facility[22] Notes to the Consolidated Financial Statements This section provides detailed explanations and disclosures supporting the consolidated financial statements 1. Organization This note describes Chatham Lodging Trust's business structure, hotel portfolio, and equity offering plans - Chatham Lodging Trust is a Maryland REIT, internally-managed, investing primarily in upscale extended-stay and premium-branded select-service hotels[27] - As of March 31, 2019, the Company wholly owned 42 hotels (6,283 rooms) and held noncontrolling interests in two joint ventures (NewINK JV and Inland JV) owning 47 and 48 hotels, respectively[31] - The Company utilizes an 'At the Market' (ATM) equity offering plan with approximately $92.4 million available for issuance and a Dividend Reinvestment and Stock Purchase Plan (DRSPP) with approximately $33.0 million available[28][29] 2. Summary of Significant Accounting Policies This note outlines the key accounting principles and recent standard adoptions impacting the financial statements - The Company adopted ASU 2016-02, Leases, on January 1, 2019, recognizing lease liabilities of $25.7 million and corresponding right-of-use assets of $23.1 million on its consolidated balance sheet[39] - Interim financial statements are unaudited and include all normal, recurring adjustments necessary for fair presentation, but are not necessarily indicative of full-year performance[35] 3. Acquisition of Hotel Properties This note details the hotel properties acquired by the company in 2018 and their financial contributions - In 2018, the Company acquired Residence Inn Summerville for $20.8 million and Courtyard Dallas Downtown for $49.0 million[41] Acquisition of Hotel Properties (in thousands) | Hotel | Acquisition Date | Revenue (3 months ended March 31, 2019) | Operating Income (3 months ended March 31, 2019) | |:---|:---|:---|:---|\ | Residence Inn Summerville, SC | 08/27/2018 | $800 | $254 | | Courtyard Dallas Downtown, TX | 12/5/2018 | $2,001 | $797 | | Total | | $2,801 | $1,051 | 4. Allowance for Doubtful Accounts This note reports the stable allowance for doubtful accounts as of March 31, 2019 - The allowance for doubtful accounts remained stable at $0.3 million as of March 31, 2019, and December 31, 2018[43] 5. Investment in Hotel Properties This note provides a breakdown of the company's net investment in hotel properties Investment in Hotel Properties (in thousands) | Asset Category | March 31, 2019 | December 31, 2018 | |:---|:---|:---| | Land and improvements | $296,260 | $296,253 | | Building and improvements | $1,222,728 | $1,214,780 | | Furniture, fixtures and equipment | $78,237 | $73,411 | | Renovations in progress | $23,594 | $25,370 | | Less: accumulated depreciation | $(248,742) | $(236,041) | | Investment in hotel properties, net | $1,372,077 | $1,373,773 | - Net investment in hotel properties slightly decreased by $1.7 million from December 31, 2018, to March 31, 2019, primarily due to increased accumulated depreciation[45] 6. Investment in Unconsolidated Entities This note details the company's equity method investments in joint ventures and their financial contributions - The Company holds a 10.3% noncontrolling interest in NewINK JV and a 10.0% noncontrolling interest in Inland JV, both accounted for under the equity method[46] - Cash distributions from both NewINK JV and Inland JV were $0 for the three months ended March 31, 2019, compared to $719 thousand and $300 thousand, respectively, in the prior year period[46] Investment in Unconsolidated Entities (in thousands) | Metric | For the three months ended March 31, 2019 | For the three months ended March 31, 2018 | |:---|:---|:---| | Revenue (Combined JVs) | $112,120 | $110,174 | | Operating income (Combined JVs) | $33,566 | $32,150 | | Total income from unconsolidated real estate entities attributable to the Company | $(1,123) | $(754) | 7. Debt This note outlines the company's debt structure, including revolving credit facilities and mortgage debt, and compliance with covenants Debt (in thousands) | Debt Type | March 31, 2019 Balance Outstanding | December 31, 2018 Balance Outstanding | |:---|:---|:---| | Senior Unsecured Revolving Credit Facility | $97,000 | $81,500 | | Mortgage Debt (various properties) | $502,247 | $501,782 | | Total Debt Outstanding | $597,568 | $583,282 | - Total debt outstanding increased by $14.286 million from December 31, 2018, to March 31, 2019, primarily due to increased borrowings on the revolving credit facility[52] - The Company was in compliance with all financial covenants as of March 31, 2019, with a consolidated fixed charge coverage ratio of 3.3 against a covenant of 1.5[57] 8. Income Taxes This note explains the company's income tax position, including the Taxable REIT Subsidiary's (TRS) tax expense and valuation allowance - The Company's Taxable REIT Subsidiary (TRS) is subject to federal and state income taxes but reported $0 income tax expense for the three months ended March 31, 2019 and 2018[59] - The TRS expects increased taxable losses in 2019 and maintains a full valuation allowance against its deferred tax assets due to uncertainty of utilization[60] 9. Dividends Declared and Paid This note details the dividends declared on common shares and distributions on LTIP units for Q1 2019 Dividends Declared and Paid (per share/unit) | Period | Common Share Amount | LTIP Unit Amount | |:---|:---|:---| | 1st Quarter 2019 Total | $0.33 | $0.33 | | Total 2019 | $0.33 | $0.33 | - The Company declared total common share dividends of $0.33 per share and distributions on LTIP units of $0.33 per unit for the three months ended March 31, 2019[63] 10. Earnings Per Share This note presents the basic and diluted earnings per common share for Q1 2019 and Q1 2018 Earnings Per Share (in thousands, except per share data) | Metric | For the three months ended March 31, 2019 | For the three months ended March 31, 2018 | |:---|:---|:---| | Net income attributable to common shareholders | $1,613 | $2,848 | | Basic Income per Common Share | $0.03 | $0.06 | | Diluted Income per Common Share | $0.03 | $0.06 | | Weighted average number of common shares outstanding - Basic | 46,556,710 | 45,753,792 | | Weighted average number of common shares outstanding - Diluted | 46,734,958 | 46,022,690 | - Basic and diluted EPS decreased by 50% from $0.06 in Q1 2018 to $0.03 in Q1 2019, reflecting lower net income attributable to common shareholders[64] 11. Equity Incentive Plan This note describes the company's equity incentive plan, including available shares and compensation expense for LTIP awards - The Company maintains an Equity Incentive Plan to attract and retain key personnel, with 1,372,659 common shares available for issuance as of March 31, 2019[66] - In Q1 2019, the Company granted 88,746 time-based LTIP awards and 133,107 performance-based LTIP awards, with compensation expense recognized over the vesting period[73][75] Equity Incentive Plan (in millions) | Metric | For the three months ended March 31, 2019 | For the three months ended March 31, 2018 | |:---|:---|:---| | Compensation expense related to LTIP units | $0.9 | $0.7 | | Total unrecognized compensation cost related to LTIP units (as of March 31) | $8.2 | $7.8 | 12. Leases This note details the company's lease agreements, including liabilities, remaining terms, and discount rates - The Company is a lessee under ground, air rights, garage, and office lease agreements for certain properties, all qualifying as operating leases[86] Lease Metrics (in thousands, except years and percentage) | Lease Metric | As of March 31, 2019 | |:---|:---|\ | Present value of lease liabilities | $25,623 | | Weighted-average remaining lease term (years) | 40.16 | | Weighted-average discount rate | 6.57% | - For Q1 2019, the Company incurred $0.5 million in fixed lease payments and $39.0 thousand in variable lease payments[90] 13. Commitments and Contingencies This note discloses legal proceedings, management fees, and franchise and marketing fees - The Company is a defendant in two class action lawsuits related to alleged wage and hour law violations at hotels managed by Island Hospitality Management LLC (IHM), with an estimated exposure of $0.1 million as of March 31, 2019[92] - Management fees paid to IHM totaled $2.5 million in Q1 2019, up from $2.4 million in Q1 2018[94] - Franchise and marketing fees increased to $5.9 million in Q1 2019 from $5.5 million in Q1 2018[95] 14. Related Party Transactions This note details transactions with related parties, including management fees paid to Island Hospitality Management LLC (IHM) - Jeffrey H. Fisher, the Company's Chairman, President, and CEO, owns 51% of Island Hospitality Management LLC (IHM), which manages all 42 wholly-owned hotels and most JV hotels[34][96] - Hotel management, revenue management, and accounting fees paid to IHM for Company-owned hotels were $2.5 million in Q1 2019 and $2.4 million in Q1 2018[96] - Cost reimbursements from unconsolidated real estate entities (NewINK JV, Inland JV, and Castleblack) were $1.5 million for both Q1 2019 and Q1 2018, with no impact on operating or net income[97] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section analyzes Chatham Lodging Trust's financial condition, operating results, liquidity, and capital resources for Q1 2019, including industry outlook and key accounting policies Overview This section provides a high-level description of Chatham Lodging Trust's business model and financial position - Chatham Lodging Trust is a self-advised hotel investment company focused on upscale extended-stay and premium-branded select-service hotels[103] - As of March 31, 2019, the Company's leverage ratio was 35.1% (net debt to hotel investments at cost), with total debt of $599.2 million at an average interest rate of approximately 4.7%[105] - The Company operates as a REIT, leasing its hotels to Taxable REIT Subsidiary (TRS) Lessees, which engage independent contractors for management[107] Statement Regarding Forward-Looking Information This statement cautions readers about forward-looking information, which is subject to various risks and uncertainties - The report contains forward-looking statements subject to risks such as economic conditions, competition, regulations, real estate conditions, operating costs, and interest rates[102] - The Company does not undertake to publicly release revisions to forward-looking statements[102] Financial Condition and Operating Performance Metrics This section lists the key financial and operational metrics used to evaluate the company's performance - Key financial metrics used include Revenue Per Available Room (RevPAR), Average Daily Rate (ADR), Occupancy, Funds From Operations (FFO), Adjusted FFO, EBITDA, EBITDAre, Adjusted EBITDA, and Adjusted Hotel EBITDA[108] - These metrics are used to evaluate hotel performance, income contribution, and long-term total returns for shareholders[109] Results of Operations This section analyzes the company's operational performance, including revenue, expenses, and net income, for Q1 2019 compared to Q1 2018 Industry Outlook This section provides an overview of the lodging industry's performance and projections, including supply growth and RevPAR changes - Lodging industry performance is correlated with economic indicators like GDP growth, employment, and corporate profits, which appear healthy[112] - U.S. hotel supply growth is projected to increase by 1.9% in 2019, potentially impacting RevPAR growth[112] - The Company projects a 2019 RevPAR change of -1.5% to +0.5% compared to 2018[112] Comparison of the three months ended March 31, 2019 to the three months ended March 31, 2018 This section provides a detailed comparative analysis of the company's financial performance for the first quarter of 2019 versus 2018 Revenues This section analyzes the changes in total revenue and its components, including room, food and beverage, and other revenues Revenues (in thousands) | Revenue Category | March 31, 2019 | March 31, 2018 | % Change | |:---|:---|:---|:---|\ | Room | $68,085 | $66,251 | 2.8% | | Food and beverage | $2,427 | $2,098 | 15.7% | | Other | $3,676 | $3,027 | 21.4% | | Cost reimbursements from unconsolidated real estate entities | $1,491 | $1,539 | (3.1)% | | Total Revenue | $75,679 | $72,915 | 3.8% | Key Operating Metrics (in thousands, except percentages) | Metric | Same Property (40 hotels) March 31, 2019 | Actual (42 hotels) March 31, 2019 | Same Property (40 hotels) March 31, 2018 | Actual (40 hotels) March 31, 2018 | % Change Same Property | % Change Actual | |:---|:---|:---|:---|:---|:---|:---|\ | Occupancy | 76.0% | 75.8% | 75.6% | 75.6% | 0.5% | 0.3% | | ADR | $159.33 | $158.92 | $161.74 | $161.74 | (1.5)% | (1.7)% | | RevPAR | $121.12 | $120.43 | $122.31 | $122.31 | (1.0)% | (1.5)% | - Total revenue increased by $2.8 million, with $2.8 million of this increase attributed to two hotels acquired in 2018[114] - Same property RevPAR decreased by 1.0% due to a 1.5% decrease in ADR, partially offset by a 0.5% increase in occupancy[122] Hotel Operating Expenses This section details the changes in various hotel operating expenses, including labor, franchise fees, and utilities Hotel Operating Expenses (in thousands) | Expense Category | March 31, 2019 | March 31, 2018 | % Change | |:---|:---|:---|:---|\ | Room | $15,570 | $14,553 | 7.0% | | Food and beverage | $2,009 | $1,740 | 15.5% | | Telephone | $433 | $459 | (5.7)% | | Other | $939 | $721 | 30.2% | | General and administrative | $6,167 | $6,033 | 2.2% | | Franchise and marketing fees | $5,932 | $5,525 | 7.4% | | Advertising and promotions | $1,533 | $1,565 | (2.0)% | | Utilities | $2,750 | $2,699 | 1.9% | | Repairs and maintenance | $3,611 | $3,624 | (0.4)% | | Management fees | $2,544 | $2,437 | 4.4% | | Insurance | $338 | $333 | 1.5% | | Total Hotel Operating Expenses | $41,826 | $39,689 | 5.4% | - Total hotel operating expenses increased by $2.1 million (5.4%), with $1.4 million attributed to newly acquired hotels and the remainder due to rising labor and benefit costs at comparable hotels[125] Depreciation and Amortization This section explains the increase in depreciation and amortization expense, primarily due to recent hotel acquisitions - Depreciation and amortization expense increased by $0.8 million to $12.8 million in Q1 2019, with $0.6 million of the increase from hotels acquired in 2018[128] Property Taxes, Ground Rent and Insurance This section details the increase in property taxes, ground rent, and insurance expenses, largely due to acquired hotels - These expenses increased by $0.4 million to $6.2 million in Q1 2019, with $0.3 million of the increase from hotels acquired in 2018[129] General and Administrative This section explains the decrease in general and administrative expenses, excluding stock-based compensation - General and administrative expenses (excluding stock-based compensation) decreased by $0.3 million to $2.4 million in Q1 2019, mainly due to lower professional fees, travel, and office expenses[130] Other Charges This section highlights the shift from other income to an expense, primarily due to an insurance charge - Other charges shifted from an income of $14.0 thousand in Q1 2018 to an expense of $17.0 thousand in Q1 2019, primarily due to an insurance charge[131] Reimbursed Costs from Unconsolidated Real Estate Entities This section notes the stable reimbursed costs from joint ventures, which offset revenue without impacting operating income - Reimbursed costs remained stable at $1.5 million for both Q1 2019 and Q1 2018, offsetting corresponding revenue and having no impact on operating income[132] Interest and Other Income This section explains the increase in interest and other income, mainly from services provided to Castleblack - Interest and other income increased by $53 thousand to $55 thousand in Q1 2019, mainly due to fees from services provided to Castleblack[133] Interest Expense, Including Amortization of Deferred Fees This section details the increase in total interest expense, primarily due to higher utilization of the revolving credit facility Interest Expense, Including Amortization of Deferred Fees (in thousands) | Expense Category | March 31, 2019 | March 31, 2018 | % Change | |:---|:---|:---|:---|\ | Mortgage debt interest | $5,860 | $5,917 | (1.0)% | | Credit facility interest and unused fees | $1,104 | $472 | 133.9% | | Amortization of deferred financing costs | $233 | $242 | (3.7)% | | Total | $7,197 | $6,631 | 8.5% | - Total interest expense increased by $0.6 million (8.5%) in Q1 2019, primarily due to higher utilization of the senior unsecured revolving credit facility[135] Loss from Unconsolidated Real Estate Entities This section explains the increased loss from joint ventures, mainly due to higher interest on floating rate debt - Loss from unconsolidated real estate entities increased to $1.1 million in Q1 2019 from $0.8 million in Q1 2018, mainly due to higher interest on floating rate debt at the JVs[136] Income Tax Expense This section reports the consistent zero income tax expense for the TRS due to expected taxable losses and a full valuation allowance - Income tax expense remained $0.0 million for both Q1 2019 and Q1 2018, as the TRS expects taxable losses and recognizes a full valuation allowance against deferred tax assets[137] Net Income This section summarizes the decrease in net income for Q1 2019, driven by various operational and financial factors - Net income decreased to $1.6 million in Q1 2019 from $2.9 million in Q1 2018, driven by the factors discussed above[138] Material Trends or Uncertainties This section confirms no new material trends or uncertainties beyond those previously disclosed - The Company is not aware of any material trends or uncertainties, favorable or unfavorable, beyond those disclosed in this report and its Annual Report on Form 10-K[139] Non-GAAP Financial Measures This section explains the company's use of non-GAAP financial measures to evaluate operating performance and their limitations - The Company uses non-GAAP financial measures such as FFO, Adjusted FFO, EBITDA, EBITDAre, Adjusted EBITDA, and Adjusted Hotel EBITDA to supplement GAAP measures for evaluating operating performance[141] Non-GAAP Financial Measures (in thousands) | Metric | For the three months ended March 31, 2019 | For the three months ended March 31, 2018 | |:---|:---|:---| | Net income | $1,628 | $2,868 | | FFO attributable to common share and unit holders | $16,156 | $16,541 | | Adjusted FFO attributable to common share and unit holders | $16,173 | $16,539 | | EBITDA | $25,952 | $25,443 | | EBITDAre | $25,952 | $25,460 | | Adjusted EBITDA | $27,028 | $26,353 | | Adjusted Hotel EBITDA | $26,196 | $25,912 | - These non-GAAP measures have limitations, as they do not reflect cash expenditures, working capital needs, or funds available for distributions[154] Sources and Uses of Cash This section outlines the primary sources and applications of the company's cash, including operating activities, investing, and financing - Principal cash sources include net cash from operations and debt/equity issuances; principal uses include acquisitions, capital expenditures, operating costs, debt repayments, and distributions[158] - As of March 31, 2019, cash, cash equivalents, and restricted cash totaled $32.5 million, with $153.0 million available under the $250.0 million revolving credit facility[159] - Net cash provided by operations was $13.3 million in Q1 2019, while net cash used in investing activities was $11.7 million and net cash used in financing activities was $1.4 million[160] Liquidity and Capital Resources This section discusses the company's financial flexibility, leverage, and strategies for meeting short-term and long-term funding needs - The Company's leverage ratio was 35.1% at March 31, 2019, with total debt of $599.2 million at an average interest rate of approximately 4.7%[164] - The Company expects to meet short-term liquidity needs through operations, existing cash, and its revolving credit facility, and long-term needs through additional borrowings, equity issuances, or asset sales[168] - The senior unsecured credit facility was refinanced in March 2018, extending maturity to March 2023 with an option for an additional year, and reducing borrowing costs[167] Dividend Policy This section outlines the company's policy to distribute nearly all its annual taxable income as dividends - The Company's policy is to distribute approximately 100% of its annual taxable income as dividends[170] - The current monthly dividend and distribution rate is $0.11 per common share and LTIP unit, totaling $0.33 for Q1 2019[170] Capital Expenditures This section details the company's investments in hotel properties and planned expenditures for the remainder of 2019 - Capital investments in hotels were $11.7 million in Q1 2019, up from $6.9 million in Q1 2018[173] - The Company plans to invest an additional $20.5 million in renovations, discretionary, and emergency expenditures for the remainder of 2019[173] Off-Balance Sheet Arrangements This section confirms the absence of material off-balance sheet arrangements, except for non-recourse debt related to joint ventures - The Company had no material off-balance sheet arrangements at March 31, 2019, other than non-recourse debt associated with the NewINK JV and Inland JV[174] - The Operating Partnership could be required to repay its pro rata share of JV indebtedness under certain non-recourse carve-out provisions[174] Contractual Obligations This section presents a table summarizing the company's contractual obligations and their payment schedules Contractual Obligations (in thousands) | Obligation | Total | Less Than One Year | One to Three Years | Three to Five Years | More Than Five Years | |:---|:---|:---|:---|:---|:---|\ | Corporate office lease | $6,401 | $595 | $1,643 | $1,727 | $2,436 | | Revolving credit facility, including interest | $111,162 | $4,370 | $8,969 | $97,823 | — | | Ground leases | $78,848 | $955 | $2,646 | $2,661 | $72,586 | | Property loans, including interest | $596,360 | $23,455 | $78,109 | $174,647 | $320,149 | | Total | $792,771 | $29,375 | $91,367 | $276,858 | $395,171 | - Total contractual obligations amount to $792.8 million, with the largest portion ($395.2 million) due in more than five years[176] Inflation This section discusses the hotel industry's ability to adjust room rates in response to inflation, subject to competitive pressures - Hotel operators can generally adjust room rates daily to reflect inflation, but competitive pressures may limit this ability[181] Seasonality This section describes the seasonal nature of demand for the company's hotels, impacting revenue and cash flow - Demand for the Company's hotels is seasonal, with lower revenue, operating income, and cash flow typically in the first and fourth quarters, and higher in the second and third quarters[182] Critical Accounting Policies This section states that financial statements are prepared using GAAP, requiring management estimates and assumptions - The consolidated financial statements are prepared in conformity with GAAP, requiring management estimates and assumptions that could differ from actual results[183] Recently Issued Accounting Standards This section refers to Note 2 for details on recently adopted accounting standards - Refer to Note 2, Summary of Significant Accounting Policies, for details on recently issued accounting standards[184] Item 3. Quantitative and Qualitative Disclosures about Market Risk This section discusses the Company's exposure to market risks, primarily interest rate changes, and its strategies to manage these risks - The Company is exposed to interest rate changes from long-term debt and aims to limit impact on earnings/cash flows by borrowing at fixed or low-margin variable rates with conversion options[186] Market Risk Disclosures (in thousands) | Debt Type | 2019 | 2020 | 2021 | 2022 | 2023 | 2024 | Thereafter | Total/Weighted Average | Fair Value | |:---|:---|:---|:---|:---|:---|:---|:---|:---|:---|\ | Floating rate debt | — | — | — | $97,000 | — | — | — | $97,000 | $97,000 | | Average interest rate (floating) | — | — | — | 4.56% | — | — | — | 4.56% | | | Fixed rate debt | $5,684 | $9,536 | $21,962 | $9,954 | $142,545 | $296,658 | $15,908 | $502,247 | $503,579 | | Average interest rate (fixed) | 4.69% | 4.68% | 5.26% | 4.63% | 4.66% | 4.64% | 4.25% | 4.66% | | - A hypothetical 100 basis points increase in the variable interest rate would result in approximately $1.0 million in additional annual interest expense, assuming $97.0 million outstanding floating rate debt[189] Item 4. Controls and Procedures This section confirms the effectiveness of the Company's disclosure controls and procedures and reports no material changes in internal control over financial reporting during the last fiscal quarter - The Chief Executive Officer and Chief Financial Officer concluded that disclosure controls and procedures were effective as of March 31, 2019, providing reasonable assurance for timely and accurate reporting[192] - There have been no material changes in internal control over financial reporting during the last fiscal quarter[193] PART II. OTHER INFORMATION This section provides additional information, including legal proceedings, risk factors, equity sales, defaults, and exhibits Item 1. Legal Proceedings This section discloses ongoing legal proceedings, specifically two class action lawsuits against Island Hospitality Management LLC (IHM) related to wage and hour law violations, with an estimated exposure of $0.1 million for the Company - IHM is a defendant in two class action lawsuits alleging wage and hour law violations and incorrect employee paystubs in California[194] - As of March 31, 2019, the Company's estimated total exposure to the litigation is $0.1 million, included in accounts payable[194] Item 1A. Risk Factors This section states that there have been no material changes to the risk factors previously disclosed in the Company's Annual Report on Form 10-K for the year ended December 31, 2018 - No material changes have occurred in the risk factors described in the Company's Annual Report on Form 10-K for the year ended December 31, 2018[195] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section indicates that there were no unregistered sales of equity securities or use of proceeds to report for the period - There were no unregistered sales of equity securities and use of proceeds to report[197] Item 3. Defaults Upon Senior Securities This section reports that there were no defaults upon senior securities during the period - There were no defaults upon senior securities[199] Item 4. Mine Safety Disclosures This section states that mine safety disclosures are not applicable to the Company's operations - Mine safety disclosures are not applicable to the Company[201] Item 5. Other Information This section indicates that there is no other information to report for the period - There is no other information to report[203] Item 6. Exhibits This section lists the exhibits filed as part of the report, including organizational documents, certifications from the CEO and CFO, and XBRL taxonomy documents - Exhibits include Articles of Amendment and Restatement, Second Amended and Restated Bylaws, CEO and CFO certifications (pursuant to Rule 13a-14(a)/15d-14(a) and 18 U.S.C. 1350), and XBRL Taxonomy Extension documents[205]