RLJ Lodging Trust(RLJ) - 2022 Q1 - Quarterly Report

PART I. FINANCIAL INFORMATION This section provides a comprehensive overview of the company's financial performance and position Item 1. Financial Statements Presents the unaudited consolidated financial statements for Q1 2022, detailing balance sheets, operations, equity, cash flows, and accounting notes Consolidated Balance Sheets Presents the company's financial position at March 31, 2022, and December 31, 2021, detailing assets, liabilities, and equity Consolidated Balance Sheets (in thousands) | Metric | March 31, 2022 (in thousands) | December 31, 2021 (in thousands) | | :-------------------------------- | :----------------------------- | :----------------------------- | | Total assets | $4,921,657 | $5,148,976 | | Total liabilities | $2,500,865 | $2,735,109 | | Total equity | $2,420,792 | $2,413,867 | | Cash and cash equivalents | $479,047 | $665,341 | | Debt, net | $2,210,725 | $2,409,438 | - Total assets decreased from $5.15 billion at December 31, 2021, to $4.92 billion at March 31, 2022. Total liabilities also decreased from $2.74 billion to $2.50 billion, primarily driven by a reduction in net debt. Cash and cash equivalents saw a significant decrease from $665.34 million to $479.05 million[10] Statements of Operations and Comprehensive Income (Loss) Details the company's financial performance for Q1 2022 and 2021, including revenues, expenses, and net income/loss Statements of Operations and Comprehensive Income (Loss) (in thousands) | Metric | Three months ended March 31, 2022 (in thousands) | Three months ended March 31, 2021 (in thousands) | | :------------------------------------- | :--------------------------------------------- | :--------------------------------------------- | | Total revenues | $242,899 | $119,552 | | Total operating expenses | $242,613 | $172,294 | | Net loss | $(15,469) | $(79,117) | | Net loss attributable to common shareholders | $(21,526) | $(84,264) | | Basic and diluted net loss per common share | $(0.13) | $(0.51) | | Comprehensive income (loss) | $12,858 | $(62,397) | - Total revenues significantly increased by 103.1% from $119.55 million in Q1 2021 to $242.90 million in Q1 2022. Net loss attributable to common shareholders improved substantially from $(84.26 million) in Q1 2021 to $(21.53 million) in Q1 2022, leading to a reduced basic and diluted net loss per common share from $(0.51) to $(0.13)[12] Statements of Changes in Equity Outlines changes in the company's equity, including total equity, accumulated other comprehensive income, and common shares outstanding Statements of Changes in Equity (in thousands) | Metric | March 31, 2022 (in thousands) | December 31, 2021 (in thousands) | | :------------------------------------- | :----------------------------- | :----------------------------- |\n| Total Equity | $2,420,792 | $2,413,867 | | Accumulated Other Comprehensive Income (Loss) | $11,214 | $(17,113) | | Common Shares Outstanding | 166,843,586 | 166,503,062 | - Total equity increased slightly from $2.41 billion at December 31, 2021, to $2.42 billion at March 31, 2022. A notable change was the shift from an accumulated other comprehensive loss of $(17.11 million) to an income of $11.21 million, primarily due to unrealized gains on interest rate derivatives[17] Statements of Cash Flows Presents the company's cash flows from operating, investing, and financing activities for Q1 2022 and 2021 Statements of Cash Flows (in thousands) | Metric | Three months ended March 31, 2022 (in thousands) | Three months ended March 31, 2021 (in thousands) | | :--------------------------------------------- | :--------------------------------------------- | :--------------------------------------------- | | Net cash flow provided by (used in) operating activities | $10,291 | $(29,008) | | Net cash flow provided by (used in) investing activities | $9,791 | $(6,076) | | Net cash flow used in financing activities | $(211,650) | $(218,471) | | Net change in cash, cash equivalents, and restricted cash reserves | $(191,568) | $(253,555) | | Cash, cash equivalents, and restricted cash reserves, end of period | $522,301 | $681,235 | - Operating activities generated $10.29 million in cash in Q1 2022, a significant improvement from a $(29.01 million) usage in Q1 2021. Investing activities also turned positive, providing $9.79 million, primarily from hotel property sales. Financing activities continued to be a net use of cash, totaling $(211.65 million), mainly due to Revolver repayment[23] Notes to the Consolidated Financial Statements Details significant accounting policies, investments, debt, equity, and other financial activities supporting the consolidated financial statements 1. General Outlines RLJ Lodging Trust's business as a Maryland REIT, its hotel portfolio, and the material impact of the COVID-19 pandemic - RLJ Lodging Trust is a Maryland REIT owning primarily premium-branded, high-margin, focused-service and compact full-service hotels. As of March 31, 2022, the Company owned 97 hotel properties with approximately 21,400 rooms across 22 states and D.C., with 99.5% ownership in its Operating Partnership[26][27][28] - The COVID-19 pandemic has had, and is expected to continue to have, a material impact on the Company's financial results and liquidity, with the full extent of the impact remaining uncertain[29] 2. Summary of Significant Accounting Policies Summarizes the key accounting principles and estimates used in preparing the unaudited consolidated financial statements, noting no material changes - The unaudited consolidated financial statements are prepared in accordance with GAAP and SEC rules, including all necessary management adjustments. The Company's significant accounting policies remain largely unchanged from December 31, 2021, with no material impact from ASU 2020-04 (Reference Rate Reform)[30][31][36] - The preparation of financial statements involves estimates and assumptions, which have become more challenging due to the COVID-19 pandemic[35] 3. Investment in Hotel Properties Details the net investment in hotel properties, accumulated depreciation, and depreciation expense for the period, noting no impairment losses Investment in Hotel Properties (in thousands) | Metric | March 31, 2022 (in thousands) | December 31, 2021 (in thousands) | | :----------------------------- | :----------------------------- | :----------------------------- | | Investment in hotel properties, net | $4,155,048 | $4,219,116 | | Accumulated depreciation | $(1,471,994) | $(1,449,500) | | Depreciation expense (Q1) | $46,700 | $46,800 | - Net investment in hotel properties decreased from $4.22 billion at December 31, 2021, to $4.16 billion at March 31, 2022. The Company recognized approximately $46.70 million in depreciation expense for Q1 2022, consistent with $46.80 million in Q1 2021. No impairment losses were recorded in Q1 2022, compared to $5.90 million in Q1 2021[37][38] 4. Sale of Hotel Properties Reports the net gain and sales prices from hotel property dispositions for the three months ended March 31, 2022 and 2021 Sale of Hotel Properties (in thousands) | Metric | Three months ended March 31, 2022 (in thousands) | Three months ended March 31, 2021 (in thousands) | | :-------------------------------- | :--------------------------------------------- | :--------------------------------------------- | | Net gain on sale of hotel properties | $1,417 | $1,083 | | Sales price (Q1 2022) | $35,500 | N/A | | Sales price (Q1 2021) | N/A | $4,400 | - The Company recorded a net gain of $1.42 million from the sale of hotel properties in Q1 2022, up from $1.08 million in Q1 2021. In Q1 2022, one hotel (Marriott Denver Airport @ Gateway Park) was sold for approximately $35.50 million, while in Q1 2021, one hotel (Courtyard Houston Sugarland) was sold for approximately $4.40 million[39][40] 5. Revenue Analyzes the company's total revenues by category, highlighting significant increases in room, food and beverage, and other revenues Revenue by Type (in thousands) | Revenue Type | Q1 2022 (in thousands) | Q1 2021 (in thousands) | Change (in thousands) | | :------------- | :--------------------- | :--------------------- | :-------------------- | | Room revenue | $205,779 | $102,772 | $103,007 | | Food and beverage revenue | $20,901 | $6,242 | $14,659 | | Other revenue | $16,219 | $10,538 | $5,681 | | Total Revenue | $242,899 | $119,552 | $123,347 | - Total revenues increased by $123.35 million, or 103.1%, from $119.55 million in Q1 2021 to $242.90 million in Q1 2022, driven by significant increases across all revenue categories, particularly room revenue[41] 6. Debt Details the company's debt structure, including Senior Notes, Revolver, Term Loans, and Mortgage loans, and discusses compliance with covenants Debt Breakdown (in thousands) | Debt Type | March 31, 2022 (in thousands) | December 31, 2021 (in thousands) | | :-------------------- | :----------------------------- | :----------------------------- | | Senior Notes, net | $987,534 | $986,942 | | Revolver | $0 | $200,000 | | Term Loans, net | $815,439 | $815,004 | | Mortgage loans, net | $407,752 | $407,492 | | Total Debt, net | $2,210,725 | $2,409,438 | - Total net debt decreased by $198.71 million from $2.41 billion at December 31, 2021, to $2.21 billion at March 31, 2022, primarily due to the repayment of the $200.00 million Revolver balance. The Company was in compliance with all Senior Notes covenants as of March 31, 2022[42][44] - Financial maintenance covenants under Revolver and Term Loan agreements were waived through March 31, 2022, with modified thresholds for subsequent periods. The Company maintains a minimum liquidity level of $150.00 million, which it met[47][48] - Interest expense decreased by $3.33 million to $24.56 million in Q1 2022 from $27.90 million in Q1 2021, driven by lower average debt balances and effective interest rates[54] 7. Derivatives and Hedging Activities Examines the company's interest rate swap positions, fair values, and their impact on accumulated other comprehensive income (loss) and interest expense Derivatives and Hedging Activities (in thousands) | Metric | March 31, 2022 (in thousands) | December 31, 2021 (in thousands) | | :---------------------------------------------------------------- | :----------------------------- | :----------------------------- | | Aggregate fair value of interest rate swap liabilities | $4,494 | $21,465 | | Aggregate fair value of interest rate swap assets | $20,529 | $1,548 | | Unrealized gains in accumulated other comprehensive income (loss) | $11,200 | $(17,100) | | Reclassified to interest expense (Q1) | $4,900 | $7,300 | - The Company's interest rate swap positions shifted from a net liability of $(19.92 million) at December 31, 2021, to a net asset of $16.04 million at March 31, 2022. This change is reflected in the accumulated other comprehensive income (loss), which moved from an unrealized loss of $(17.10 million) to an unrealized gain of $11.20 million[56][57][58] - Approximately $3.30 million of unrealized losses from interest rate swaps are expected to be reclassified into earnings within the next 12 months[58] 8. Fair Value Provides the fair value measurements for the company's debt and derivative financial instruments, detailing valuation methodologies Fair Value of Debt (in thousands) | Debt Type | Carrying Value (March 31, 2022, in thousands) | Fair Value (March 31, 2022, in thousands) | | :------------------------ | :------------------------------------------ | :---------------------------------------- | | Senior Notes, net | $987,534 | $939,100 | | Revolver and Term Loans, net | $815,439 | $806,218 | | Mortgage loans, net | $407,752 | $403,211 | | Total Debt, net | $2,210,725 | $2,148,529 | - The fair value of the Company's total net debt was $2.15 billion at March 31, 2022, which was lower than its carrying value of $2.21 billion. Fair values for Senior Notes are based on Level 1 inputs, while Revolver, Term Loans, and Mortgage Loans use Level 2 and Level 3 inputs via discounted cash flow models[60][62] Fair Value of Derivatives (in thousands) | Derivative Type | Fair Value (March 31, 2022, in thousands) | Fair Value (December 31, 2021, in thousands) | | :-------------------- | :---------------------------------------- | :----------------------------------------- | | Interest rate swap asset | $20,529 | $1,548 | | Interest rate swap liability | $(4,494) | $(21,465) | | Total | $16,035 | $(19,917) | - Derivative financial instruments are valued using Level 2 inputs (interest yield curves, discount rates), with credit valuation adjustments considered insignificant to the overall valuation[63] 9. Income Taxes Explains the company's accounting for income taxes, including deferred tax assets and liabilities, and the maintenance of a full valuation allowance - The Company accounts for income taxes using the asset and liability method, recognizing deferred tax assets and liabilities. A full valuation allowance is maintained against deferred tax assets, and there were no accruals for tax uncertainties as of March 31, 2022, or December 31, 2021[64][65] 10. Commitments and Contingencies Details restricted cash reserves, cash trap events, and changes in management and franchise fee expenses for the period Commitments and Contingencies (in thousands) | Metric | March 31, 2022 (in thousands) | December 31, 2021 (in thousands) | | :-------------------------------- | :----------------------------- | :----------------------------- | | Restricted cash reserves | $43,254 | $48,528 | | Restricted cash due to cash trap events | $15,700 | $22,400 | | Management fee expense (Q1) | $7,900 | $3,200 | | Franchise fee expense (Q1) | $13,600 | $6,700 | - Restricted cash reserves for future capital expenditures and other obligations totaled $43.25 million at March 31, 2022. One mortgage loan was in a cash trap event at March 31, 2022, holding $15.70 million in restricted cash[66][67][52][53] - Management fee expense increased to $7.90 million in Q1 2022 from $3.20 million in Q1 2021, and franchise fee expense increased to $13.60 million from $6.70 million, reflecting increased hotel operations. The amortization of Wyndham termination payments reduced management and franchise fee expense by $1.00 million in Q1 2022, down from $4.60 million in Q1 2021[70][72][73] 11. Equity Reports on declared cash dividends, the approval of a new share repurchase program, and the company's ownership in its Operating Partnership - The Company declared a cash dividend of $0.01 per common share and $0.4875 per Series A Preferred Share for Q1 2022. A new share repurchase program of up to $250.00 million was approved on April 29, 2022, effective from May 9, 2022, to May 8, 2023[74][75] - As of March 31, 2022, the Company owned 99.5% of the Operating Partnership's OP units, with 771,831 OP units held by limited partners[27][77] 12. Equity Incentive Plan Details share-based compensation expense, unrecognized costs, and vesting schedules for restricted shares and performance unit awards Equity Incentive Plan Metrics | Metric | March 31, 2022 | | :------------------------------------ | :------------- | | Unvested restricted shares | 2,573,536 | | Weighted-average grant date fair value | $15.38 | | Share-based compensation expense (Q1) | $3,500 | | Unrecognized compensation costs | $29,800 | | Weighted-average recognition period | 2.2 years | - The Company recognized $3.50 million in share-based compensation expense for restricted share awards in Q1 2022, up from $1.90 million in Q1 2021. Total unrecognized compensation costs for unvested restricted share awards were $29.80 million, expected to be recognized over 2.2 years[81] - Performance unit awards granted in 2021 and 2022 vest over a three-year period, contingent on absolute and relative total shareholder return. In Q1 2022, $1.70 million in share-based compensation expense was recognized for performance units, with $16.50 million in unrecognized costs remaining[83][85] 13. Earnings per Common Share Presents the basic and diluted net loss per common share, reflecting the net loss attributable to common shareholders Earnings per Common Share | Metric | Three months ended March 31, 2022 | Three months ended March 31, 2021 | | :-------------------------------------------------------------------------------- | :-------------------------------- | :-------------------------------- | | Net loss attributable to common shareholders excluding amounts attributable to unvested restricted shares | $(21,552) | $(84,274) | | Weighted-average number of common shares - basic and diluted | 164,179,661 | 163,826,009 | | Net loss per share attributable to common shareholders - basic and diluted | $(0.13) | $(0.51) | - Basic and diluted net loss per common share improved to $(0.13) in Q1 2022 from $(0.51) in Q1 2021, reflecting a reduced net loss attributable to common shareholders[90] 14. Supplemental Information to Statements of Cash Flows Provides additional details on cash, cash equivalents, restricted cash, interest paid, income taxes paid, and proceeds from hotel sales Supplemental Cash Flow Information (in thousands) | Metric | Three months ended March 31, 2022 (in thousands) | Three months ended March 31, 2021 (in thousands) | | :------------------------------------------------ | :--------------------------------------------- | :--------------------------------------------- | | Cash, cash equivalents, and restricted cash reserves (end of period) | $522,301 | $681,235 | | Interest paid | $33,911 | $20,886 | | Income taxes paid | $6 | $134 | | Proceeds from the sale of hotel properties, net | $34,125 | $3,990 | | Accrued capital expenditures | $1,454 | $9,485 | - Interest paid increased to $33.91 million in Q1 2022 from $20.89 million in Q1 2021. Net proceeds from hotel sales significantly increased to $34.12 million in Q1 2022 from $3.99 million in Q1 2021[91] 15. Subsequent Events Reports on significant events occurring after the reporting period, including hotel sales, loan extensions, and credit facility amendments - In April 2022, the Company sold the SpringHill Suites Denver North Westminster and exercised the first extension option on a mortgage loan, extending its maturity to April 2023. The 2022 Share Repurchase Program was approved, and credit facility amendments were made to allow for share repurchases[92][93] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses financial condition and results, covering COVID-19 impact, key activities, revenue/expense drivers, and non-GAAP measures Statement Regarding Forward-Looking Information Highlights forward-looking statements, subject to risks and uncertainties from the COVID-19 pandemic, competition, regulations, and interest rates - The report contains forward-looking statements, which are subject to risks and uncertainties, particularly the ongoing impact of the COVID-19 pandemic on financial condition, operations, and the global economy. Other factors include competition, regulations, real estate conditions, natural disasters, and interest rates[95][96][97][98] Overview Provides a general description of RLJ Lodging Trust as a Maryland REIT, its focus on premium-branded hotels, and its portfolio size - RLJ Lodging Trust is a self-advised and self-administered Maryland REIT focused on premium-branded, high-margin, focused-service and compact full-service hotels in high-growth urban markets. As of March 31, 2022, the Company owned 97 hotel properties with approximately 21,400 rooms[100][101][102] COVID-19 Discusses the continued material impact of the COVID-19 pandemic on the company's financial results and liquidity, with uncertain long-term effects - The COVID-19 pandemic continues to materially impact the Company's financial results and liquidity, with potential lasting changes in consumer behavior. The full operational and financial impact remains uncertain[104][105] 2022 Significant Activities Summarizes key corporate actions in 2022, including debt repayment, hotel sales, loan extensions, and approval of a share repurchase program - Key activities in 2022 include: - Repayment of $200.00 million outstanding balance on the Revolver using cash on hand - Sale of two hotel properties for a combined sales price of approximately $50.00 million - Exercise of a one-year extension option on a mortgage loan, extending maturity to April 2023 - Approval of a new share repurchase program and amendment of credit facilities to allow for share repurchases[110] Our Customers Describes the company's primary customer base, consisting mainly of transient business or leisure travelers in major metropolitan areas - The majority of the Company's customers are transient business or leisure travelers, primarily in business districts of major metropolitan areas. Group business and extended-stay customers (five nights or longer) represent smaller components of the customer base[106][107][108] Our Revenues and Expenses Outlines the primary sources of revenue and categories of operating expenses, including third-party management fees - Revenues are primarily from room rentals, food and beverage, and other ancillary services (parking, resort fees, gift shop sales). Operating costs include room expense, food and beverage expense, management and franchise fees, and other operating expenses. Hotels are managed by third-party companies, with fees based on revenues and profitability[109][110] Key Indicators of Financial Performance Identifies key lodging industry metrics (ADR, Occupancy, RevPAR) and non-GAAP measures (FFO, EBITDA) used to evaluate operating performance - The Company uses ADR (Average Daily Rate), Occupancy, and RevPAR (Revenue per Available Room) as key lodging industry measures. Non-GAAP measures like FFO, Adjusted FFO, EBITDA, EBITDAre, and Adjusted EBITDA are also used to evaluate operating performance and facilitate comparisons[112][113] Critical Accounting Policies and Estimates States that financial statement preparation involves management estimates and assumptions, with no significant changes since December 31, 2021 - The preparation of financial statements requires management estimates and assumptions, which are continuously evaluated. No significant changes to critical accounting policies and estimates have occurred since December 31, 2021[114] Results of Operations Analyzes the company's financial performance, comparing Q1 2022 to Q1 2021, and detailing revenue and expense drivers Comparison of the three months ended March 31, 2022 to the three months ended March 31, 2021 Compares the company's financial results for Q1 2022 and Q1 2021, highlighting significant improvements due to increased demand Q1 2022 vs Q1 2021 Financial Comparison (in thousands) | Metric | Q1 2022 (in thousands) | Q1 2021 (in thousands) | $ Change | | :------------------------------------- | :--------------------- | :--------------------- | :------- | | Total revenues | $242,899 | $119,552 | $123,347 | | Total operating expenses | $242,613 | $172,294 | $70,319 | | Net loss attributable to common shareholders | $(21,526) | $(84,264) | $62,738 | - The Company experienced significant growth in demand in Q1 2022 due to easing government restrictions, leading to a substantial improvement in results of operations compared to Q1 2021. Total revenues increased by $123.35 million, while net loss attributable to common shareholders improved by $62.74 million[116][117] Revenues Analyzes the increase in total revenues for Q1 2022, primarily driven by higher room, food and beverage, and other revenues Revenue Breakdown (in thousands) | Revenue Type | Q1 2022 (in thousands) | Q1 2021 (in thousands) | $ Change | | :------------- | :--------------------- | :--------------------- | :------- | | Room revenue | $205,779 | $102,772 | $103,007 | | Food and beverage revenue | $20,901 | $6,242 | $14,659 | | Other revenue | $16,219 | $10,538 | $5,681 | | Total revenues | $242,899 | $119,552 | $123,347 | - Total revenues increased by $123.35 million, or 103.1%, in Q1 2022 compared to Q1 2021, primarily driven by a $103.01 million increase in room revenue due to higher demand and ADR. Comparable properties saw RevPAR increase to $107.39 from $53.54, though still below 2019 levels[119][120][121] - Food and beverage revenue increased by $14.66 million, and other revenue (including parking, resort fees, gift shop sales, and cancellation fees) increased by $5.68 million, both due to increased demand and higher occupancy[122][123] Property Operating Expenses Examines the increase in property operating expenses, driven by higher demand and management/franchise fees, partially offset by reduced amortization Property Operating Expenses (in thousands) | Expense Type | Q1 2022 (in thousands) | Q1 2021 (in thousands) | $ Change | | :-------------------------- | :--------------------- | :--------------------- | :------- | | Total property operating expenses | $159,039 | $88,464 | $70,575 | | Room expense (comparable properties) | $52,279 | $27,944 | $24,335 | | Management and franchise fee expense (comparable properties) | $19,770 | $4,940 | $14,830 | - Property operating expenses increased by $70.58 million to $159.04 million in Q1 2022, primarily due to increased demand. Management and franchise fee expense for comparable properties rose by $14.83 million, partially offset by a reduced benefit from Wyndham termination payment amortization ($1.00 million in Q1 2022 vs. $4.60 million in Q1 2021)[124][125][126] Depreciation and Amortization Reports that depreciation and amortization expense remained relatively stable in Q1 2022 compared to Q1 2021 Depreciation and Amortization (in thousands) | Metric | Q1 2022 (in thousands) | Q1 2021 (in thousands) | $ Change | | :-------------------------- | :--------------------- | :--------------------- | :------- | | Depreciation and amortization | $46,865 | $46,943 | $(78) | - Depreciation and amortization expense remained relatively stable at $46.86 million in Q1 2022, a slight decrease of $0.08 million from Q1 2021[127] Impairment Losses Notes no impairment losses recorded in Q1 2022, a significant improvement from the prior year Impairment Losses (in thousands) | Metric | Q1 2022 (in thousands) | Q1 2021 (in thousands) | $ Change | | :--------------- | :--------------------- | :--------------------- | :------- | | Impairment losses | $0 | $5,946 | $(5,946) | - No impairment losses were recorded in Q1 2022, a significant improvement from $5.95 million in Q1 2021 related to two hotel properties sold in May 2021[128] Property Tax, Insurance and Other Details the increase in property tax, insurance, and other expenses, primarily due to non-recurring items and higher premiums Property Tax, Insurance and Other (in thousands) | Metric | Q1 2022 (in thousands) | Q1 2021 (in thousands) | $ Change | | :-------------------------------- | :--------------------- | :--------------------- | :------- | | Property tax, insurance and other | $22,513 | $20,081 | $2,432 | - Property tax, insurance and other expenses increased by $2.43 million to $22.51 million in Q1 2022, primarily due to the non-recurrence of a $5.20 million real estate tax liability reversal in Q1 2021, and higher insurance premiums and ground lease rent[129] General and Administrative Reports an increase in general and administrative expenses, mainly driven by higher compensation and non-cash share-based compensation General and Administrative Expenses (in thousands) | Metric | Q1 2022 (in thousands) | Q1 2021 (in thousands) | $ Change | | :-------------------------- | :--------------------- | :--------------------- | :------- | | General and administrative | $14,134 | $10,800 | $3,334 | - General and administrative expenses increased by $3.33 million to $14.13 million in Q1 2022, mainly due to higher compensation expense, including non-cash share-based compensation[130] Other Income, net Highlights a significant increase in other income, net, primarily due to reclassification of unrealized gains from discontinued cash flow hedges Other Income, net (in thousands) | Metric | Q1 2022 (in thousands) | Q1 2021 (in thousands) | $ Change | | :---------------- | :--------------------- | :--------------------- | :------- | | Other income, net | $7,285 | $465 | $6,820 | - Other income, net, significantly increased by $6.82 million to $7.28 million in Q1 2022, primarily due to the reclassification of unrealized gains from accumulated other comprehensive income (loss) from discontinued cash flow hedges[131] Interest Expense Details the decrease in total interest expense, driven by lower average debt balances and effective interest rates, despite increased Senior Notes interest Interest Expense Breakdown (in thousands) | Expense Type | Q1 2022 (in thousands) | Q1 2021 (in thousands) | $ Change | | :------------------------------------------ | :--------------------- | :--------------------- | :------- | | Senior Notes | $9,743 | $5,942 | $3,801 | | Revolver and Term Loans | $9,968 | $17,178 | $(7,210) | | Mortgage loans | $3,210 | $3,454 | $(244) | | Amortization of deferred financing costs | $1,684 | $1,321 | $363 | | Non-cash interest expense related to interest rate hedges | $(44) | $0 | $(44) | | Total interest expense | $24,561 | $27,895 | $(3,334) | - Total interest expense decreased by $3.33 million to $24.56 million in Q1 2022, driven by lower average debt balances and effective interest rates, despite an increase in Senior Notes interest[132] Gain on Sale of Hotel Properties, net Reports the net gain from hotel property sales, noting an increase in Q1 2022 compared to Q1 2021 Gain on Sale of Hotel Properties, net (in thousands) | Metric | Q1 2022 (in thousands) | Q1 2021 (in thousands) | $ Change | | :-------------------------------- | :--------------------- | :--------------------- | :------- | | Gain on sale of hotel properties, net | $1,417 | $1,083 | $334 | - The Company recorded a net gain of $1.42 million from the sale of one hotel property for $35.50 million in Q1 2022, an increase from a $1.08 million gain on a $4.40 million sale in Q1 2021[133] Non-GAAP Financial Measures Explains the use of non-GAAP measures like FFO, Adjusted FFO, EBITDA, and Adjusted EBITDA to evaluate operating performance and facilitate comparisons - The Company uses FFO, Adjusted FFO, EBITDA, EBITDAre, and Adjusted EBITDA as key supplemental non-GAAP measures to evaluate operating performance and facilitate comparisons, as they remove the impact of capital structure and asset base from operating results[134][135][140][141][142] Non-GAAP Financial Measures (in thousands) | Metric | Q1 2022 (in thousands) | Q1 2021 (in thousands) | | :-------------------------------------------------------------------------------- | :--------------------- | :--------------------- | | FFO attributable to common shareholders and unitholders | $24,064 | $(32,635) | | Adjusted FFO attributable to common shareholders and unitholders | $23,894 | $(29,767) | | EBITDA | $56,382 | $(4,139) | | EBITDAre | $54,965 | $724 | | Adjusted EBITDA | $54,594 | $3,592 | - All non-GAAP measures showed significant improvement in Q1 2022 compared to Q1 2021, with FFO, Adjusted FFO, EBITDA, EBITDAre, and Adjusted EBITDA all turning positive or increasing substantially, reflecting improved operating performance[138][144] Liquidity and Capital Resources Assesses the company's liquidity position, including cash reserves, and outlines cash flow activities and capital expenditure funding - As of March 31, 2022, the Company had $522.30 million in cash, cash equivalents, and restricted cash reserves. Liquidity requirements include operating expenses, capital expenditures, debt payments, and distributions[145][146] Cash Flow Activities (in thousands) | Cash Flow Activity | Q1 2022 (in thousands) | Q1 2021 (in thousands) | | :--------------------------------------------- | :--------------------- | :--------------------- | | Net cash flow provided by (used in) operating activities | $10,291 | $(29,008) | | Net cash flow provided by (used in) investing activities | $9,791 | $(6,076) | | Net cash flow used in financing activities | $(211,650) | $(218,471) | - Operating cash flow turned positive to $10.29 million in Q1 2022 from a $29.01 million usage in Q1 2021. Investing activities provided $9.79 million, mainly from hotel sales, while financing activities used $211.65 million, primarily for Revolver repayment[147][148][150] - The Company maintains FF&E reserve accounts, typically funded by 3.0% to 5.0% of gross revenues, for future capital expenditures. As of March 31, 2022, approximately $30.70 million was held in these reserves[152][154] Item 3. Quantitative and Qualitative Disclosures About Market Risk Details the company's exposure to interest rate risk and its mitigation strategies through fixed-rate debt and derivative instruments - As of March 31, 2022, 53.9% of the Company's total indebtedness ($1.20 billion) was variable rate debt, with a weighted-average interest rate of 3.88%. However, after accounting for interest rate swaps, 100.0% of total indebtedness was effectively fixed[155] - The Company uses fixed-rate debt instruments and interest rate swaps to limit the impact of interest rate fluctuations on earnings and cash flows, and to lower overall borrowing costs, avoiding speculative derivative transactions[156] Debt Maturity and Interest Rate Profile (in thousands) | Debt Type | 2022 (in thousands) | 2023 (in thousands) | 2024 (in thousands) | 2025 (in thousands) | 2026 (in thousands) | Thereafter (in thousands) | Total (in thousands) | | :-------------------- | :------------------ | :------------------ | :------------------ | :------------------ | :------------------ | :------------------------ | :------------------- | | Fixed rate debt | $0 | $0 | $0 | $0 | $500,000 | $525,000 | $1,025,000 | | Weighted average interest rate (Fixed) | — % | — % | — % | — % | 3.75 % | 4.05 % | 3.90 % | | Variable rate debt | $200,000 | $418,662 | $181,000 | $400,000 | $0 | $0 | $1,199,662 | | Weighted average interest rate (Variable) | 3.30 % | 4.45 % | 2.95 % | 4.00 % | — % | — % | 3.88 % | | Total | $200,000 | $418,662 | $181,000 | $400,000 | $500,000 | $525,000 | $2,224,662 | - A 1.00% increase in market interest rates on variable rate debt not subject to swaps would have no impact on future earnings and cash flows due to existing hedging arrangements. However, a 1.00% rise in interest rates would decrease the fair value of fixed rate debt by approximately $47.20 million[155][159] Item 4. Controls and Procedures Confirms the effectiveness of the company's disclosure controls and procedures and reports no material changes in internal control over financial reporting - The Company's Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures were effective as of March 31, 2022[160] - There have been no material changes in the Company's internal control over financial reporting during the period ended March 31, 2022[161] PART II. OTHER INFORMATION Presents additional information including legal proceedings, risk factors, equity sales, defaults, mine safety, and shareholder meeting results Item 1. Legal Proceedings States that the company is not involved in any material legal or regulatory proceedings beyond routine business matters - The Company is not currently subject to any material litigation, nor is any material litigation threatened against it, beyond routine matters arising in the ordinary course of business[162] Item 1A. Risk Factors Refers to the Annual Report for a discussion of risk factors, noting no material changes since the previous filing - There have been no material changes to the risk factors previously disclosed in the Company's Annual Report[163] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds Reports no unregistered sales of equity securities and details share repurchases solely for employee tax withholding obligations - The Company did not sell any unregistered securities during Q1 2022[164] Share Repurchases for Employee Tax Withholding | Period | Total number of shares purchased (1) | Average price paid per share | | :--------------------------------------- | :--------------------------------- | :--------------------------- | | February 1, 2022 through February 28, 2022 | 87,626 | $14.48 | | Total (Q1 2022) | 87,626 | N/A | - The 87,626 shares repurchased in February 2022 were solely to satisfy employee tax withholding obligations related to the vesting of restricted common shares[165] Item 3. Defaults Upon Senior Securities States that there were no defaults upon senior securities during the reporting period - There were no defaults upon senior securities[166] Item 4. Mine Safety Disclosures Indicates that mine safety disclosures are not applicable to the company's operations - Mine safety disclosures are not applicable to the Company[167] Item 5. Other Information Provides final voting results from the 2022 Annual Meeting of Shareholders, covering trustee elections, auditor ratification, and executive compensation - At the 2022 Annual Meeting of Shareholders on April 29, 2022, trustees were elected, PricewaterhouseCoopers LLP was ratified as the independent registered public accounting firm, and the compensation paid to named executive officers was approved in an advisory vote[169] Election of Trustees Voting Results | Nominee | Votes For | Votes Against | Abstentions | Broker Non-Votes | | :------------------ | :---------- | :------------ | :---------- | :--------------- | | Robert L. Johnson | 137,771,141 | 2,430,741 | 675,310 | 10,181,077 | | Leslie D. Hale | 140,540,676 | 325,577 | 10,939 | 10,181,077 | | Evan Bayh | 136,686,135 | 4,179,037 | 12,020 | 10,181,077 | | Arthur R. Collins | 138,079,441 | 2,788,361 | 9,390 | 10,181,077 | | Nathaniel A. Davis | 127,627,868 | 13,236,803 | 12,521 | 10,181,077 | | Patricia L. Gibson | 139,664,243 | 1,197,774 | 15,175 | 10,181,077 | | Robert M. La Forgia | 139,266,448 | 1,597,851 | 12,893 | 10,181,077 | | Robert J. McCarthy | 139,547,817 | 1,316,483 | 12,892 | 10,181,077 | | Robin Zeigler | 132,577,496 | 8,287,267 | 12,429 | 10,181,077 | Ratification of PWC as independent registered public accounting firm | Votes For | Votes Against | Abstentions | Broker Non-Votes | | :---------- | :------------ | :---------- | :--------------- | | 147,832,763 | 3,209,356 | 16,150 | — | Advisory Vote to Approve Named Executive Officer Compensation | Votes For | Votes Against | Abstentions | Broker Non-Votes | | :---------- | :------------ | :---------- | :--------------- | | 36,852,166 | 104,002,223 | 22,803 | 10,181,077 | Item 6. Exhibits Lists all exhibits required to be filed by Regulation S-K, including various corporate documents and certifications - The exhibit index includes Articles of Amendment and Restatement of Declaration of Trust, Articles Supplementary, Third Amended and Restated Bylaws, CEO and CFO certifications (302 and 906), and Inline XBRL documents[173] Signatures Contains the signatures of the company's authorized officers, certifying the report on May 5, 2022 - The report is signed by Leslie D. Hale (President and CEO), Sean M. Mahoney (EVP and CFO), and Christopher A. Gormsen (SVP and Chief Accounting Officer) on May 5, 2022[175][176]