The following discussion and analysis should be read in conjunction with our consolidated financial statements and related notes included elsewhere in this report, as well as the information contained in our Annual Report, which is accessible on theSEC's website at www.sec.gov.
Statement Regarding Forward-Looking Information
The following information contains certain statements, other than purely
historical information, including estimates, projections, statements relating to
our business plans, objectives and expected operating results, and the
assumptions upon which those statements are based, that are "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995, Section 27A of the Securities Act and Section 21E of the Securities
Exchange Act of 1934, as amended. These forward-looking statements generally are
identified by the use of the words "believe," "project," "expect," "anticipate,"
"estimate," "plan," "may," "will," "will continue," "intend," "should," or
similar expressions. Although we believe that the expectations reflected in
such forward-looking statements are based upon reasonable assumptions, beliefs
and expectations, such forward-looking statements are not predictions of future
events or guarantees of future performance and our actual results could differ
materially from those set forth in the forward-looking statements.
Currently, one of the most significant factors that could cause actual outcomes
to differ materially from our forward-looking statements is the continued
adverse effect of the current pandemic of the novel coronavirus, or COVID-19, on
our financial condition, results of operations, cash flows and performance, the
real estate market and the global economy and
20
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financial markets. The extent to which the COVID-19 pandemic impacts us will
depend on future developments, which are highly uncertain and cannot be
predicted with certainty, including the duration of the pandemic and its impact
on the demand for travel and on levels of consumer confidence, the actions
governments, businesses and individuals take in response to the pandemic,
including limiting or banning travel, the impact of the COVID-19 pandemic and
actions taken in response to the pandemic on global and regional economies,
travel and economic activity, the speed and effectiveness of vaccine and
treatment developments and their deployment, including public adoption rates of
COVID-19 vaccines and booster shots, and their effectiveness against emerging
variants of COVID-19, and the pace of recovery when the COVID-19 pandemic
subsides, among others. Moreover, investors are cautioned to interpret many of
the risks identified under the section entitled "Risk Factors" in our Form 10-K
for the year ended December 31, 2021 as being heightened as a result of the
ongoing and numerous adverse impacts of the COVID-19 pandemic.
Additional factors that might cause such a difference include the following:
increased direct competition, changes in government regulations or accounting
rules, changes in local, national and global real estate conditions, declines in
the lodging industry, seasonality of the lodging industry, risks related to
natural disasters, such as earthquakes and hurricanes, hostilities, including
international military conflicts, future terrorist attacks or fear of
hostilities that affect travel, public health and/or economic activity and
epidemics and/or pandemics, including COVID-19, third-party operator risk,
change in operational costs, ramp up of the future economic recovery and
re-opening of hotels, our ability to obtain lines of credit or permanent
financing on satisfactory terms, changes in interest rates, inflation, duration
and access to capital through offerings of our common and preferred shares of
beneficial interest, or debt, our ability to identify suitable acquisitions, our
ability to close on identified acquisitions and integrate those businesses and
inaccuracies of our accounting estimates. Given these uncertainties, undue
reliance should not be placed on such statements.
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. We caution investors not to place undue reliance on
these forward-looking statements and urge investors to carefully review the
disclosures we make concerning risks and uncertainties in the sections entitled
"Forward-Looking Statements," "Risk Factors," and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" in our Annual Report,
as well as the risks, uncertainties and other factors discussed in this
Quarterly Report on Form 10-Q and identified in other documents filed by us with
the SEC .
Overview
We are a self-advised and self-administered Maryland REIT that owns primarily
premium-branded, high-margin, focused-service and compact full-service hotels.
We own a geographically diversified portfolio of hotels located in high-growth
urban markets that exhibit multiple demand generators and attractive long-term
growth prospects. We believe that our investment strategy allows us to generate
high levels of Revenue per Available Room ("RevPAR"), strong operating margins
and attractive returns.
Our strategy is to own primarily premium-branded, focused-service and compact
full-service hotels. Focused-service and compact full-service hotels typically
generate most of their revenue from room rentals, have limited food and beverage
outlets and meeting space, and require fewer employees than traditional
full-service hotels. We believe these types of hotels have the potential to
generate attractive returns relative to other types of hotels due to their
ability to achieve RevPAR levels at or close to those achieved by traditional
full-service hotels while achieving higher profit margins due to their more
efficient operating model and less volatile cash flows.
As of March 31, 2022 , we owned 97 hotel properties with approximately 21,400
rooms, located in 22 states and the District of Columbia . We owned, through
wholly-owned subsidiaries, a 100% interest in 95 of our hotel properties, a 95%
controlling interest in one hotel property, and a 50% non-controlling interest
in an entity owning one hotel property. We consolidate our real estate interests
in the 96 hotel properties in which we hold a controlling interest, and we
record the real estate interests in the one hotel property in which we hold a
50% non-controlling interest using the equity method of accounting. We lease 96
of the 97 hotel properties to our TRS, of which we own a controlling financial
interest.
For U.S. federal income tax purposes, we elected to be taxed as a REIT
commencing with our taxable year ended December 31, 2011 . Substantially all of
our assets and liabilities are held by, and all of our operations are conducted
through our Operating Partnership . We are the sole general partner of the
Operating Partnership . As of March 31, 2022 , we owned, through a combination of
direct and indirect interests, 99.5% of the units of limited partnership
interest in the OP units.
21
-------------------------------------------------------------------------------- Table of Contents COVID-19 The global outbreak of COVID-19 and the public health measures that have been undertaken in response have had, and will likely continue to have, an impact on the global economy and all aspects of our business. The effects of the COVID-19 pandemic could have lasting changes in consumer behavior that could create headwinds for our hotel properties. Since we cannot estimate when the COVID-19 pandemic and the responsive measures to combat it will end, we cannot estimate the ultimate operational and financial impact of the COVID-19 pandemic on our business. The effects of the COVID-19 pandemic have significantly impacted our operations, and combined with macroeconomic trends such as reduced business spending, including on travel, and increased unemployment, lead us to believe that the ongoing effects of the COVID-19 pandemic on our operations will continue to have a material impact on our financial results and liquidity.
2022 Significant Activities
Our significant activities reflect our commitment to creating long-term shareholder value through enhancing our hotel portfolio's quality, recycling capital and maintaining a prudent capital structure. The following significant activities have taken place in 2022:
•Paid off the
hand.
•Sold two hotel properties for a combined sales price of approximately
•Exercised a one-year extension option on a mortgage loan extending the maturity
to
•Approved a new share repurchase program and completed a credit facility
amendment to allow for repurchases of our shares.
Our Customers
The majority of our hotels consist of premium-branded, focused-service and compact full-service hotels. As a result of this property profile, the majority of our customers are transient in nature. Transient business typically represents individual business or leisure travelers. The majority of our hotels are located in business districts within major metropolitan areas. Accordingly, business travelers represent the majority of the transient demand at our hotels. As a result, macroeconomic factors impacting business travel have a greater effect on our business than factors impacting leisure travel. Group business is typically defined as a minimum of 10 guestrooms booked together as part of the same piece of business. Group business may or may not use the meeting space at any given hotel. Given the limited meeting space at the majority of our hotels, group business that utilizes meeting space represents a small component of our customer base.
A number of our hotel properties are affiliated with brands marketed toward
extended-stay customers. Extended-stay customers are generally defined as those
staying five nights or longer.
Our Revenues and Expenses
Our revenues are primarily derived from the operation of hotels, including the
sale of rooms, food and beverage revenue and other revenue, which consists of
parking fees, resort fees, gift shop sales and other guest service fees.
Our operating costs and expenses consist of the costs to provide hotel services,
including room expense, food and beverage expense, management and franchise fees
and other operating expenses. Room expense includes housekeeping and front
office wages and payroll taxes, reservation systems, room supplies, laundry
services and other costs. Food and beverage expense primarily includes the cost
of food, the cost of beverages and the associated labor costs. Other operating
expenses include labor and other costs associated with the other operating
department revenue, as well as labor and other costs associated with
administrative departments, sales and marketing, repairs and maintenance and
utility costs. Our hotels that are subject to franchise agreements are charged a
royalty fee, plus additional fees for marketing, central reservation systems and
other franchisor costs, in order for the hotel properties to operate under the
respective brands. Franchise fees are based on a percentage of room revenue and
for certain hotels additional franchise fees are charged for food and beverage
revenue. Our hotels are managed by independent, third-party management companies
under long-term agreements pursuant to which the management companies typically
earn base and incentive management fees based on the levels of revenues and
profitability of
22
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each individual hotel property. We generally receive a cash distribution from
the management companies on a monthly basis, which reflects hotel-level sales
less hotel-level operating expenses.
Key Indicators of Financial Performance
We use a variety of operating, financial and other information to evaluate the operating performance of our business. These key indicators include financial information that is prepared in accordance with GAAP as well as other financial measures that are non-GAAP measures. In addition, we use other information that may not be financial in nature, including industry standard statistical information and comparative data. We use this information to measure the operating performance of our individual hotels, groups of hotels and/or business as a whole. We also use these metrics to evaluate the hotels in our portfolio and potential acquisition opportunities to determine each hotel's contribution to cash flow and its potential to provide attractive long-term total returns. The key indicators include:
•Average Daily Rate (“ADR”)
•Occupancy
•RevPAR
ADR, Occupancy and RevPAR are commonly used measures within the lodging industry to evaluate operating performance. RevPAR is an important statistic for monitoring operating performance at the individual hotel property level and across our entire business. We evaluate individual hotel RevPAR performance on an absolute basis with comparisons to budget and prior periods, as well as on a regional and company-wide basis. ADR and RevPAR include only room revenue. We also use non-GAAP measures such as FFO, Adjusted FFO, EBITDA, EBITDAre and Adjusted EBITDA to evaluate the operating performance of our business. For a more in depth discussion of the non-GAAP measures, please refer to the "Non-GAAP Financial Measures" section.
Critical Accounting Policies and Estimates
The preparation of the financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amount of assets and liabilities at the date of our financial statements and the reported amounts of revenues and expenses during the reporting period. It is possible that the actual amounts may differ significantly from these estimates and assumptions. We evaluate our estimates, assumptions and judgments on an ongoing basis, based on information that is available to us, our business and industry experience, and various other matters that we believe are reasonable and appropriate for consideration under the circumstances. Our Annual Report contains a discussion of our critical accounting policies and estimates. There have been no significant changes to our critical accounting policies and estimates sinceDecember 31, 2021 .
Results of Operations
AtMarch 31, 2022 and 2021, we owned 97 and 102 hotel properties, respectively. Based on when a hotel property is acquired, sold or closed for renovation, the operating results for certain hotel properties are not comparable for the three months endedMarch 31, 2022 and 2021. The non-comparable properties include eight hotel properties that were sold or otherwise disposed and three acquisitions that were completed in 2021 and one disposition that was completed in 2022. COVID-19 During the three months endedMarch 31, 2022 , we benefited from significant growth in demand as the easing of government restrictions improved mobility and overall confidence in travel. These trends, combined with our continuing stringent cost containment initiatives, led to a significant improvement in our results of operations for the three months endedMarch 31, 2022 over the same period in the prior year. 23 -------------------------------------------------------------------------------- Table of Contents Comparison of the three months endedMarch 31, 2022 to the three months endedMarch 31, 2021 For the three months ended March 31, 2022 2021 $ Change (amounts in thousands) Revenues Operating revenues 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 Expenses Operating expenses Room expense 53,828 29,427 24,401 Food and beverage expense 16,169 4,556 11,613 Management and franchise fee expense 20,388 5,361 15,027 Other operating expense 68,654 49,120 19,534 Total property operating expenses 159,039 88,464 70,575 Depreciation and amortization 46,865 46,943 (78) Impairment losses - 5,946 (5,946) Property tax, insurance and other 22,513 20,081 2,432 General and administrative 14,134 10,800 3,334 Transaction costs 62 60 2 Total operating expenses 242,613 172,294 70,319 Other income, net 7,285 465 6,820 Interest income 172 384 (212) Interest expense (24,561) (27,895) 3,334 Gain on sale of hotel properties, net 1,417 1,083 334
Loss before equity in income (loss) from unconsolidated
joint ventures
(15,401) (78,705) 63,304
Equity in income (loss) from unconsolidated joint ventures 122
(298) 420 Loss before income tax expense (15,279) (79,003) 63,724 Income tax expense (190) (114) (76) Net loss (15,469) (79,117) 63,648
Net loss attributable to noncontrolling interests:
Noncontrolling interest in the
104 396 (292) Noncontrolling interest in consolidated joint ventures 118 736 (618) Net loss attributable to RLJ (15,247) (77,985) 62,738 Preferred dividends (6,279) (6,279) - Net loss attributable to common shareholders$ (21,526) $ (84,264) $ 62,738 24
-------------------------------------------------------------------------------- Table of Contents Revenues Total revenues increased$123.3 million to$242.9 million for the three months endedMarch 31, 2022 from$119.6 million for the three months endedMarch 31, 2021 . The increase was the result of a$103.0 million increase in room revenue, a$14.7 million increase in food and beverage revenue, and a$5.7 million increase in other revenue.
Room Revenue
Room revenue increased$103.0 million to$205.8 million for the three months endedMarch 31, 2022 from$102.8 million for the three months endedMarch 31, 2021 . The increase was the result of a$101.5 million increase in room revenue attributable to the comparable properties, and a$1.5 million increase in room revenue attributable to the non-comparable properties. The increase in room revenue from the comparable properties was attributable to an increase in RevPAR, including a significant increase in ADR, resulting from an increase in demand over the prior period. The increase was also attributable to the impact of hotels that were closed for all or a portion of the prior period being open for the entirety of the current period. Though RevPAR increased over the comparable period in 2021, it remained below the comparable period in 2019. The following are the year-to-date key hotel operating statistics for the comparable properties: For the three months ended March 31, 2022 2021 2019 Occupancy 61.2 % 44.6 % 76.4 % ADR$ 175.57 $ 120.05 $ 189.87 RevPAR$ 107.39 $ 53.54 $ 145.01 Food and Beverage Revenue Food and beverage revenue increased$14.7 million to$20.9 million for the three months endedMarch 31, 2022 from$6.2 million for the three months endedMarch 31, 2021 due to an increase in demand over the prior period. The increase was also attributable to the impact of hotels that were closed for all or a portion of the prior period being open for the entirety of the current period.
Other Revenue
Other revenue, which includes revenue derived from ancillary sources such as parking fees, resort fees, gift shop sales and other guest service fees, increased$5.7 million to$16.2 million for the three months endedMarch 31, 2022 from$10.5 million for the three months endedMarch 31, 2021 . The increase in other revenue was primarily attributable to an increase in parking, resort fees, and gift shop sales due to higher occupancy. Additionally, cancellation fees increased due to the spread of the Omicron variant of COVID-19 in early 2022. Property Operating Expenses Property operating expenses increased$70.6 million to$159.0 million for the three months endedMarch 31, 2022 from$88.5 million for the three months endedMarch 31, 2021 . The increase was due to a$71.1 million increase in property operating expenses attributable to the comparable properties, which was partially offset by a$0.6 million decrease in property operating expenses attributable to the non-comparable properties.
The components of our property operating expenses for the comparable properties
were as follows (in thousands):
For the three months ended March
31,
2022 2021 $ Change
Room expense $ 52,279 $ 27,944 $ 24,335
Food and beverage expense 15,747 4,470 11,277
Management and franchise fee expense 19,770 4,940 14,830
Other operating expense 66,555 45,868 20,687
Total property operating expenses $ 154,351 $ 83,222 $ 71,129
25
-------------------------------------------------------------------------------- Table of Contents The increase in property operating expenses attributable to the comparable properties was due an increase in demand over the prior period. Management and franchise fee expense for the three months endedMarch 31, 2022 and 2021 included a reduction in management and franchise fee expense of$1.0 million and$4.6 million , respectively, related to the recognition of the Wyndham termination payment. The decrease in the recognition of the Wyndham termination payment was due to certain of the Wyndham agreements expiring in 2021 coupled with the remaining agreements being extended and recognized over a longer period.
Depreciation and Amortization
Depreciation and amortization expense decreased
for the three months ended
months ended
Impairment Losses
During the three months endedMarch 31, 2021 , we recorded impairment losses of$5.9 million related to two hotel properties that were sold inMay 2021 . There was no impairment recorded during the three months endedMarch 31, 2022 .
Property Tax, Insurance and Other
Property tax, insurance and other expense increased$2.4 million to$22.5 million for the three months endedMarch 31, 2022 from$20.1 million for the three months endedMarch 31, 2021 . The increase was attributable to a$3.6 million increase in property tax, insurance and other expense attributable to the comparable properties, which was partially offset by a$1.2 million decrease in property tax, insurance and other expense attributable to the non-comparable properties. The increase in property tax, insurance and other expense attributable to the comparable properties was primarily attributable to a benefit of$5.2 million during the three months endedMarch 31, 2021 related to the reversal of accrued real estate tax liabilities in excess of the amounts owed for certain of ourCalifornia hotels acquired in our merger withFelCor Lodging Trust that did not recur in 2022. Additionally, the increase was attributable to an increase in insurance expense premiums and ground lease rent due to percentage rent obligations and increases based on the consumer price index. These increases were partially offset by decreases in other real estate tax assessments. General and Administrative General and administrative expense increased$3.3 million to$14.1 million for the three months endedMarch 31, 2022 from$10.8 million for the three months endedMarch 31, 2021 . The increase was primarily attributable to an increase in compensation expense, including non-cash compensation expense related to share-based awards granted during 2021.
Other Income, net
Other income increased$6.8 million to$7.3 million for the three months endedMarch 31, 2022 from$0.5 million for the three months endedMarch 31, 2021 . The increase was primarily attributable to the reclassification of unrealized gains from accumulated other comprehensive income (loss) due to the discontinuation of certain cash flow hedges. Interest Expense Interest expense decreased$3.3 million to$24.6 million for the three months endedMarch 31, 2022 from$27.9 million for the three months endedMarch 31, 2021 . Interest expense decreased due to lower average debt balances and lower effective interest rates after taking into account the impact of interest rate swaps in each of the periods. The components of our interest expense for the three months endedMarch 31, 2022 and 2021 were as follows (in thousands): For the three months ended March 31, 2022 2021 $ 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) - (44) Total interest expense$ 24,561 $ 27,895 $ (3,334) 26
-------------------------------------------------------------------------------- Table of Contents Gain on Sale of Hotel Properties, net During the three months endedMarch 31, 2022 , we sold one hotel property for a sales price of approximately$35.5 million and recorded a net gain on sale of approximately$1.4 million . During the three months endedMarch 31, 2021 , we sold one hotel property for a sales price of approximately$4.4 million and recorded a net gain on sale of approximately$1.1 million .
Non-GAAP Financial Measures
We consider the following non-GAAP financial measures useful to investors as key supplemental measures of our performance: (1) FFO, (2) Adjusted FFO, (3) EBITDA, (4) EBITDAre and (5) Adjusted EBITDA. These non-GAAP financial measures should be considered along with, but not as alternatives to, net income or loss as a measure of our operating performance. FFO, Adjusted FFO, EBITDA, EBITDAre, and Adjusted EBITDA, as calculated by us, may not be comparable to FFO, Adjusted FFO, EBITDA, EBITDAre and Adjusted EBITDA as reported by other companies that do not define such terms exactly as we define such terms.
Funds From Operations
We calculate funds from operations ("FFO") in accordance with standards
established by the National Association of Real Estate Investment Trusts
("NAREIT"), which defines FFO as net income or loss, excluding gains or losses
from sales of real estate, impairment, the cumulative effect of changes in
accounting principles, plus depreciation and amortization, and adjustments for
unconsolidated partnerships and joint ventures. Historical cost accounting for
real estate assets implicitly assumes that the value of real estate assets
diminishes predictably over time. Since real estate values instead have
historically risen or fallen with market conditions, most real estate industry
investors consider FFO to be helpful in evaluating a real estate company's
operations. We believe that the presentation of FFO provides useful information
to investors regarding our operating performance and can facilitate comparisons
of operating performance between periods and between REITs, even though FFO does
not represent an amount that accrues directly to common shareholders. Our
calculation of FFO may not be comparable to measures calculated by other
companies who do not use the NAREIT definition of FFO or do not calculate FFO
per diluted share in accordance with NAREIT guidance. Additionally, FFO may not
be helpful when comparing us to non-REITs. We present FFO attributable to common
shareholders, which includes our OP units, because our OP units may be redeemed
for common shares. We believe it is meaningful for the investor to understand
FFO attributable to all common shares and OP units.
We further adjust FFO for certain additional items that are not in NAREIT's
definition of FFO, such as hotel transaction costs, pre-opening costs, non-cash
income tax expense or benefit, the amortization of share-based compensation,
non-cash expense related to discontinued interest rate hedges, and certain other
expenses that we consider outside the normal course of operations. We believe
that Adjusted FFO provides useful supplemental information to investors
regarding our ongoing operating performance that, when considered with net
income and FFO, is beneficial to an investor's understanding of our operating
performance.
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The following table is a reconciliation of our GAAP net loss to FFO attributable
to common shareholders and unitholders and Adjusted FFO attributable to common
shareholders and unitholders for the three months ended March 31, 2022 and 2021
(in thousands):
For the three months
ended March 31,
2022 2021
Net loss $ (15,469) $ (79,117)
Preferred dividends (6,279) (6,279)
Depreciation and amortization 46,865 46,943
Gain on sale of hotel properties, net (1,417) (1,083)
Impairment losses - 5,946
Noncontrolling interest in consolidated joint ventures 118 736
Adjustments related to consolidated joint ventures (1) (49) (75)
Adjustments related to unconsolidated joint ventures (2) 295 294
FFO 24,064 (32,635)
Transaction costs 62 60
Amortization of share-based compensation 5,185 2,752
Non-cash income tax expense (135) -
Derivative gains in accumulated other comprehensive income (loss)
reclassified to earnings (3) (5,866) -
Other expenses (4) 584 56
Adjusted FFO $ 23,894 $ (29,767)
(1)Includes depreciation and amortization expense allocated to the
noncontrolling interest in the consolidated joint ventures.
(2)Includes our ownership interest in the depreciation and amortization expense
of the unconsolidated joint ventures.
(3)Reclassification of interest rate swap gains from accumulated other
comprehensive income (loss) to earnings for discontinued interest rate hedges.
(4)Represents expenses and income outside of the normal course of operations,
including $0.3 million of non-cash interest expense related to discontinued
interest rate hedges during the three months ended March 31, 2022 .
EBITDA and EBITDAre
Earnings before interest, taxes, depreciation and amortization ("EBITDA") is
defined as net income or loss excluding: (1) interest expense; (2) income tax
expense; and (3) depreciation and amortization expense. We consider EBITDA
useful to an investor in evaluating and facilitating comparisons of our
operating performance between periods and between REITs by removing the impact
of our capital structure (primarily interest expense) and asset base (primarily
depreciation and amortization expense) from our operating results. In addition,
EBITDA is used as one measure in determining the value of hotel acquisitions and
disposals.
In addition to EBITDA, we present EBITDAre in accordance with NAREIT guidelines,
which defines EBITDAre as net income or loss excluding interest expense, income
tax expense, depreciation and amortization expense, gains or losses from sales
of real estate, impairment, and adjustments for unconsolidated joint ventures.
We believe that the presentation of EBITDAre provides useful information to
investors regarding our operating performance and can facilitate comparisons of
operating performance between periods and between REITs.
We also present Adjusted EBITDA, which includes additional adjustments for items
such as hotel transaction costs, pre-opening costs, the amortization of
share-based compensation, non-cash expense related to discontinued interest rate
hedges, and certain other expenses that we consider outside the normal course of
operations. We believe that Adjusted EBITDA provides useful supplemental
information to investors regarding our ongoing operating performance that, when
considered with net income, EBITDA, and EBITDAre, is beneficial to an investor's
understanding of our operating performance.
28
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The following table is a reconciliation of our GAAP net loss to EBITDA, EBITDAre
and Adjusted EBITDA for the three months ended March 31, 2022 and 2021 (in
thousands):
For the three months
ended March 31,
2022 2021
Net loss $ (15,469) $ (79,117)
Depreciation and amortization 46,865 46,943
Interest expense, net of interest income 24,389 27,511
Income tax expense 190 114
Adjustments related to unconsolidated joint ventures (1) 407 410
EBITDA 56,382 (4,139)
Gain on sale of hotel properties, net (1,417) (1,083)
Impairment losses - 5,946
EBITDAre 54,965 724
Transaction costs 62 60
Amortization of share-based compensation 5,185 2,752
Derivative gains in accumulated other comprehensive income (loss)
reclassified to earnings (2) (5,866) -
Other expenses (3) 248 56
Adjusted EBITDA $ 54,594 $ 3,592
(1)Includes our ownership interest in the interest, depreciation, and
amortization expense of the unconsolidated joint ventures.
(2)Reclassification of interest rate swap gains from accumulated other
comprehensive income (loss) to earnings for discontinued interest rate hedges.
(3)Represents expenses and income outside of the normal course of operations.
Liquidity and Capital Resources
Our liquidity requirements consist primarily of the funds necessary to pay for operating expenses and other expenditures directly associated with our hotel properties, including:
•funds necessary to pay for the costs of acquiring hotel properties;
•redevelopments, conversions, renovations and other capital expenditures that
need to be made periodically to our hotel properties;
•recurring maintenance and capital expenditures necessary to maintain our hotel
properties in accordance with brand standards;
•interest expense and scheduled principal payments on outstanding indebtedness;
•distributions on common and preferred shares; and
•corporate and other general and administrative expenses.
As of
restricted cash reserves.
29 -------------------------------------------------------------------------------- Table of Contents Sources and Uses of Cash
Cash flows from Operating Activities
The net cash flow provided by operating activities totaled$10.3 million and the net cash flow used in operating activities totaled$29.0 million for the three months endedMarch 31, 2022 and 2021, respectively. Our cash flows provided by or used in operating activities generally consist of the net cash generated by or operating shortfalls from our hotel operations, the cash paid for corporate expenses and other working capital changes. Refer to the "Results of Operations" section for further discussion of our operating results for the three months endedMarch 31, 2022 and 2021.
Cash flows from Investing Activities
The net cash flow provided by investing activities totaled$9.8 million for the three months endedMarch 31, 2022 primarily due to the$34.1 million in proceeds from the sale of a hotel property. The net cash flow provided by investing activities was partially offset by$24.3 million in routine capital improvements and additions to our hotel properties. The net cash flow used in investing activities totaled$6.1 million for the three months endedMarch 31, 2021 primarily due to$9.9 million in routine capital improvements and additions to our hotel properties. The net cash flow used in investing activities was partially offset by$4.0 million in proceeds from the sale of a hotel property.
Cash flows from Financing Activities
The net cash flow used in financing activities totaled$211.7 million for the three months endedMarch 31, 2022 primarily due to the$200.0 million repayment of the outstanding balance on the Revolver,$7.9 million in distributions to shareholders and unitholders,$2.6 million in distributions to joint venture partners, and$1.3 million paid to repurchase common shares to satisfy employee tax withholding requirements. The net cash flow used in financing activities totaled$218.5 million for the three months endedMarch 31, 2021 primarily due to the$200.0 million pay down on the Revolver,$8.5 million in repayment of term loans,$7.9 million in distributions to shareholders and unitholders,$1.3 million paid to repurchase common shares to satisfy employee tax withholding requirements, and$0.9 million in scheduled mortgage loan principal payments.
Capital Expenditures and Reserve Funds
We maintain each of our hotel properties in good repair and condition and in conformity with applicable laws and regulations, franchise agreements and management agreements. The cost of routine improvements and alterations are paid out of FF&E reserves, which are funded by a portion of each hotel property's gross revenues. Routine capital expenditures may be administered by the property management companies. However, we have approval rights over the capital expenditures as part of the annual budget process for each of our hotel properties. From time to time, certain of our hotel properties may undergo renovations as a result of our decision to upgrade portions of the hotels, such as guestrooms, public space, meeting space, and/or restaurants, in order to better compete with other hotels and alternative lodging options in our markets. In addition, upon acquisition of a hotel property we often are required to complete a property improvement plan in order to bring the hotel up to the respective franchisor's standards. If permitted by the terms of the management agreement, funding for a renovation will first come from the FF&E reserves. To the extent that the FF&E reserves are not available or sufficient to cover the cost of the renovation, we will fund all or the remaining portion of the renovation with cash and cash equivalents on hand, our Revolver and/or other sources of available liquidity. With respect to some of our hotels that are operated under franchise agreements with major national hotel brands and for some of our hotels subject to first mortgage liens, we are obligated to maintain FF&E reserve accounts for future capital expenditures at these hotels. The amount funded into each of these reserve accounts is generally determined pursuant to the management agreements, franchise agreements and/or mortgage loan documents for each of the respective hotels, and typically ranges between 3.0% and 5.0% of the respective hotel's total gross revenue. As ofMarch 31, 2022 , approximately$30.7 million was held in FF&E reserve accounts for future capital expenditures. 30
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