Attached files

file filename
EX-32.1 - EXHIBIT 32.1 - RLJ Lodging Trustexhibit3219302017.htm
EX-31.2 - EXHIBIT 31.2 - RLJ Lodging Trustexhibit3129302017.htm
EX-31.1 - EXHIBIT 31.1 - RLJ Lodging Trustexhibit3119302017.htm

 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q 
 
ý
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended September 30, 2017

OR
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from                   to                  
 
Commission File Number 001-35169
  
 

RLJ LODGING TRUST
(Exact Name of Registrant as Specified in Its Charter)

 
Maryland
 
27-4706509
(State or Other Jurisdiction of Incorporation or Organization)
 
(I.R.S. Employer Identification No.)
 
3 Bethesda Metro Center, Suite 1000
 
 
Bethesda, Maryland
 
20814
(Address of Principal Executive Offices)
 
(Zip Code)
 
(301) 280-7777
(Registrant’s Telephone Number, Including Area Code)
  
 
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ý Yes  o No 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  ý Yes  o No 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer
 
ý
 
Accelerated filer
 
o
 
 
 
 
 
 
 
Non-accelerated filer
 
o (do not check if a smaller reporting company)
 
Smaller reporting company
 
o
 
 
 
 
 
 
 
 
 
 
 
Emerging growth company
 
o
 
 
 
 
 
 
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  o Yes  ý No 




Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. 
As of October 30, 2017, 174,910,524 common shares of beneficial interest of the Registrant, $0.01 par value per share, were outstanding.
 




TABLE OF CONTENTS
 
 
 
Page
 
 
 
 
 
 
 
 
 
 
 
Consolidated Financial Statements (unaudited)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


ii


PART I. FINANCIAL INFORMATION
 
Item 1.         Financial Statements.
RLJ Lodging Trust
Consolidated Balance Sheets
(Amounts in thousands, except share and per share data)
(unaudited)
 
September 30,
2017
 
December 31, 2016
Assets
 

 
 

Investment in hotel properties, net
$
5,977,524

 
$
3,367,776

Investment in unconsolidated joint ventures
24,959

 

Cash and cash equivalents
421,181

 
456,672

Restricted cash reserves
78,343

 
67,206

Hotel and other receivables, net of allowance of $614 and $182, respectively
70,818

 
26,018

Deferred income tax asset, net
68,642

 
44,614

Intangible assets, net
151,098

 
898

Prepaid expense and other assets
72,498

 
60,209

Total assets
$
6,865,063

 
$
4,023,393

Liabilities and Equity
 

 
 

Debt, net
$
2,885,739

 
$
1,582,715

Accounts payable and other liabilities
273,315

 
137,066

Deferred income tax liability
11,430

 
11,430

Advance deposits and deferred revenue
34,532

 
11,975

Accrued interest
16,305

 
3,444

Distributions payable
26,495

 
41,486

Total liabilities
3,247,816

 
1,788,116

Commitments and Contingencies (Note 11)


 


Equity
 
 
 

Shareholders’ equity:
 
 
 

Preferred shares of beneficial interest, $0.01 par value, 50,000,000 shares authorized
 
 
 
Series A Cumulative Convertible Preferred Shares, $0.01 par value, 12,950,000 shares authorized; 12,879,475 shares issued and outstanding, liquidation value of $328,266 at September 30, 2017
366,936

 

Common shares of beneficial interest, $0.01 par value, 450,000,000 shares authorized; 174,913,606 and 124,364,178 shares issued and outstanding at September 30, 2017 and December 31, 2016, respectively
1,749

 
1,244

Additional paid-in capital
3,206,193

 
2,187,333

Accumulated other comprehensive income (loss)
677

 
(4,902
)
(Distributions in excess of net earnings) retained earnings
(25,326
)
 
38,249

Total shareholders’ equity
3,550,229

 
2,221,924

Noncontrolling interest:
 

 
 

Noncontrolling interest in consolidated joint ventures
11,125

 
5,973

Noncontrolling interest in the Operating Partnership
11,463

 
7,380

Total noncontrolling interest
22,588

 
13,353

Preferred equity in a consolidated joint venture, liquidation value of $45,401 at September 30, 2017
44,430

 

Total equity
3,617,247

 
2,235,277

Total liabilities and equity
$
6,865,063

 
$
4,023,393

 
The accompanying notes are an integral part of these consolidated financial statements.

1


RLJ Lodging Trust
Consolidated Statements of Operations and Comprehensive Income
(Amounts in thousands, except share and per share data)
(unaudited)
 
For the three months ended September 30,
 
For the nine months ended September 30,
 
2017
 
2016
 
2017
 
2016
Revenue
 
 
 
 
 
 
 
Operating revenue
 
 
 
 
 
 
 
Room revenue
$
292,046

 
$
260,659

 
$
770,751

 
$
777,211

Food and beverage revenue
35,580

 
26,001

 
91,392

 
82,602

Other revenue
13,629

 
9,599

 
31,628

 
28,729

Total revenue
$
341,255

 
$
296,259

 
$
893,771

 
$
888,542

Expense
 

 
 

 
 
 
 
Operating expense
 

 
 

 
 
 
 
Room expense
$
69,380

 
$
59,671

 
$
176,523

 
$
173,783

Food and beverage expense
27,061

 
19,135

 
66,458

 
59,477

Management and franchise fee expense
29,571

 
29,607

 
86,110

 
90,869

Other operating expense
78,120

 
62,162

 
195,000

 
184,133

Total property operating expense
204,132

 
170,575

 
524,091

 
508,262

Depreciation and amortization
45,231

 
40,953

 
122,136

 
122,532

Property tax, insurance and other
23,618

 
20,575

 
60,929

 
60,032

General and administrative
9,506

 
7,215

 
28,757

 
23,522

Transaction costs
32,607

 
98

 
36,923

 
257

Total operating expense
315,094

 
239,416

 
772,836

 
714,605

Operating income
26,161

 
56,843

 
120,935

 
173,937

Other income
110

 
112

 
323

 
86

Interest income
1,157

 
430

 
2,306

 
1,240

Interest expense
(19,650
)
 
(14,552
)
 
(48,527
)
 
(44,233
)
Gain on settlement of investment in loan
2,670

 

 
2,670

 

Income before equity in income from unconsolidated joint ventures
10,448

 
42,833

 
77,707

 
131,030

Equity in income from unconsolidated joint ventures
57

 

 
57

 

Income before income tax expense
10,505

 
42,833

 
77,764

 
131,030

Income tax expense
(6,375
)
 
(1,439
)
 
(9,362
)
 
(5,397
)
Income from operations
4,130

 
41,394

 
68,402

 
125,633

Loss on sale of hotel properties
(19
)
 
(5
)
 
(49
)
 
(155
)
Net income
4,111

 
41,389

 
68,353

 
125,478

Net (income) loss attributable to noncontrolling interests:
 

 
 

 
 
 
 
Noncontrolling interest in consolidated joint ventures
(32
)
 
(32
)
 
5

 
(7
)
Noncontrolling interest in the Operating Partnership
(43
)
 
(183
)
 
(318
)
 
(553
)
Preferred distributions from a consolidated joint venture
(122
)
 

 
(122
)
 

Net income attributable to RLJ
3,914

 
41,174

 
67,918

 
124,918

Preferred dividends
(2,093
)
 

 
(2,093
)
 

Net income attributable to common shareholders
$
1,821

 
$
41,174

 
$
65,825

 
$
124,918

 
 
 
 
 
 
 
 
Basic per common share data:
 
 
 
 
 
 
 
Net income per share attributable to common shareholders
$
0.01

 
$
0.33

 
$
0.50

 
$
1.00

Weighted-average number of common shares
140,249,961

 
123,621,323

 
129,317,120

 
123,635,010

 
 
 
 
 
 
 
 

2


Diluted per common share data:
 
 
 
 
 
 
 
Net income per share attributable to common shareholders
$
0.01

 
$
0.33

 
$
0.50

 
$
1.00

Weighted-average number of common shares
140,307,269

 
123,836,452

 
129,399,177

 
123,859,753

 
 
 
 
 
 
 
 
Dividends declared per common share
$
0.33

 
$
0.33

 
$
0.99

 
$
0.99

 
 
 
 
 
 
 
 
Comprehensive income:
 
 
 
 
 
 
 
Net income
$
4,111

 
$
41,389

 
$
68,353

 
$
125,478

Unrealized gain (loss) on interest rate derivatives
1,746

 
9,470

 
5,579

 
(16,144
)
Comprehensive income
5,857

 
50,859

 
73,932

 
109,334

Comprehensive (income) loss attributable to the noncontrolling interest in consolidated joint ventures
(32
)
 
(32
)
 
5

 
(7
)
Comprehensive income attributable to the noncontrolling interest in the Operating Partnership
(43
)
 
(183
)
 
(318
)
 
(553
)
Comprehensive income attributable to the preferred distributions from a consolidated joint venture
(122
)
 

 
(122
)
 

Comprehensive income attributable to RLJ
$
5,660

 
$
50,644

 
$
73,497

 
$
108,774

 

The accompanying notes are an integral part of these consolidated financial statements.

3


RLJ Lodging Trust
Consolidated Statements of Changes in Equity
(Amounts in thousands, except share data)
(unaudited)
 
 
Shareholders’ Equity
 
Noncontrolling Interest
 
 
 
 
 
Preferred Stock
 
Common Stock
 
 
 
 
 
 
 
 
 
 
 
 
 
Shares
 
Amount
 
Shares
 
Par 
Value
 
Additional
Paid-in Capital
 
Retained Earnings (Distributions in excess of net earnings)
 
Accumulated Other Comprehensive
Income (Loss)
 
Operating
Partnership
 
Consolidated
Joint 
Ventures
 
Preferred Equity in a Consolidated Joint Venture
 
Total 
Equity
Balance at December 31, 2016

 
$

 
124,364,178

 
$
1,244

 
$
2,187,333

 
$
38,249

 
$
(4,902
)
 
$
7,380

 
$
5,973

 
$

 
$
2,235,277

Net income (loss)

 

 

 

 

 
67,918

 

 
318

 
(5
)
 
122

 
68,353

Unrealized gain on interest rate derivatives

 

 

 

 

 

 
5,579

 

 

 

 
5,579

Issuance of common shares

 

 
50,358,104

 
504

 
1,015,723

 

 

 

 

 

 
1,016,227

Issuance of Operating Partnership units

 

 

 

 

 

 

 
4,342

 

 

 
4,342

Issuance of Series A Cumulative Convertible Preferred Shares
12,879,475

 
366,936

 

 

 

 

 

 

 

 

 
366,936

Noncontrolling interest recorded in connection with the Mergers

 

 

 

 

 

 

 

 
5,157

 

 
5,157

Preferred equity in a consolidated joint venture

 

 

 

 

 

 

 

 

 
44,430

 
44,430

Issuance of restricted stock

 

 
425,076

 
4

 
(4
)
 

 

 

 

 

 

Amortization of share-based compensation

 

 

 

 
7,964

 

 

 

 

 

 
7,964

Shares acquired to satisfy minimum required federal and state tax withholding on vesting restricted stock

 

 
(105,378
)
 
(2
)
 
(2,214
)
 

 

 

 

 

 
(2,216
)
Shares acquired as part of a share repurchase program
 
 
 
 
(122,508
)
 
(1
)
 
(2,609
)
 

 

 

 

 
 
 
(2,610
)
Forfeiture of restricted stock

 

 
(5,866
)
 

 

 

 

 

 

 

 

Distributions on preferred shares

 

 

 

 

 
(2,093
)
 

 

 

 

 
(2,093
)
Distributions on common shares and units

 

 

 

 

 
(129,400
)
 

 
(577
)
 

 

 
(129,977
)
Preferred distributions to consolidated joint venture

 

 

 

 

 

 

 

 

 
(122
)
 
(122
)
Balance at September 30, 2017
12,879,475

 
$
366,936

 
174,913,606

 
$
1,749

 
$
3,206,193

 
$
(25,326
)
 
$
677

 
$
11,463

 
$
11,125

 
$
44,430

 
$
3,617,247

 

The accompanying notes are an integral part of these consolidated financial statements.


4


RLJ Lodging Trust
Consolidated Statements of Changes in Equity
(Amounts in thousands, except share data)
(unaudited)

 
Shareholders’ Equity
 
Noncontrolling Interest
 
 
 
Common Stock
 
 
 
 
 
 
 
 
 
 
 
Shares
 
Par Value
 
Additional Paid-in Capital
 
Retained Earnings
 
Accumulated Other Comprehensive Loss
 
Operating
Partnership
 
Consolidated
Joint Venture
 
Total Equity
Balance at December 31, 2015
124,635,675

 
$
1,246

 
$
2,195,732

 
$
2,439

 
$
(16,602
)
 
$
11,532

 
$
6,177

 
$
2,200,524

Net income (loss)

 

 

 
124,918

 

 
553

 
7

 
125,478

Unrealized loss on interest rate derivatives

 

 

 

 
(16,144
)
 

 

 
(16,144
)
Distributions to joint venture partner

 

 

 

 

 

 
(259
)
 
(259
)
Redemption of Operating Partnership units
335,250

 
3

 
4,322

 

 

 
(4,325
)
 

 

Issuance of restricted stock
581,544

 
6

 
(6
)
 

 

 

 

 

Amortization of share-based compensation

 

 
3,935

 

 

 

 

 
3,935

Share grants to trustees
2,554

 

 
57

 

 

 

 

 
57

Shares acquired to satisfy minimum required federal and state tax withholding on vesting restricted stock
(218,443
)
 
(2
)
 
(4,958
)
 

 

 

 

 
(4,960
)
Shares acquired as part of a share repurchase program
(610,607
)
 
(6
)
 
(13,265
)
 

 

 

 

 
(13,271
)
Forfeiture of restricted stock
(426,310
)
 
(4
)
 
4

 

 

 

 

 

Distributions on common shares and units

 

 

 
(123,417
)
 

 
(552
)
 

 
(123,969
)
Balance at September 30, 2016
124,299,663

 
$
1,243

 
$
2,185,821

 
$
3,940

 
$
(32,746
)
 
$
7,208

 
$
5,925

 
$
2,171,391



The accompanying notes are an integral part of these consolidated financial statements.

5


RLJ Lodging Trust
Consolidated Statements of Cash Flows
(Amounts in thousands)
(unaudited)
 
For the nine months ended September 30,
 
2017
 
2016
Cash flows from operating activities
 

 
 

Net income
$
68,353

 
$
125,478

Adjustments to reconcile net income to cash flow provided by operating activities:
 

 
 

Loss on sale of hotel properties
49

 
155

Gain on settlement of investment in loan
(2,670
)
 

Depreciation and amortization
122,136

 
122,532

Amortization of deferred financing costs
2,597

 
3,103

Other amortization
(104
)
 
563

Equity in income from unconsolidated joint ventures
(57
)
 

Distributions of income from unconsolidated joint ventures
750

 

Accretion of interest income on investment in loan
(664
)
 
(430
)
Share grants to trustees

 
57

Amortization of share-based compensation
7,964

 
3,935

Deferred income taxes
7,972

 
4,217

Changes in assets and liabilities:
 
 
 

Hotel and other receivables, net
(16,493
)
 
(12,119
)
Prepaid expense and other assets
74

 
(3,932
)
Accounts payable and other liabilities
28,411

 
7,856

Advance deposits and deferred revenue
(1,238
)
 
666

Accrued interest
(9,751
)
 
(1,677
)
Net cash flow provided by operating activities
207,329

 
250,404

Cash flows from investing activities
 

 
 

Acquisition of FelCor, net of cash acquired
(41,921
)
 

Proceeds from the sale of hotel properties, net
(49
)
 
2,629

Improvements and additions to hotel properties
(58,853
)
 
(58,881
)
Additions to property and equipment
(152
)
 
(211
)
Proceeds from the settlement of an investment in loan
12,792

 

Distributions from unconsolidated joint ventures in excess of earnings

 

Decrease (increase) in restricted cash reserves, net
5,901

 
(9,913
)
Net cash flow used in investing activities
(82,282
)
 
(66,376
)
Cash flows from financing activities
 

 
 

Borrowings under Revolver

 
51,000

Repayments under Revolver

 
(51,000
)
Proceeds from mortgage loans

 
11,000

Payments of mortgage loans principal
(3,168
)
 
(2,760
)
Repurchase of common shares under a share repurchase program
(2,610
)
 
(13,271
)
Repurchase of common shares to satisfy employee withholding requirements
(2,216
)
 
(4,960
)
Distributions on common shares
(150,701
)
 
(123,345
)
Distributions on Operating Partnership units
(667
)
 
(654
)
Payments of deferred financing costs
(1,050
)
 
(5,344
)
Preferred distributions - consolidated joint venture
(126
)
 

Distributions to joint venture partners

 
(259
)
Net cash flow used in financing activities
(160,538
)
 
(139,593
)
Net change in cash and cash equivalents
(35,491
)
 
44,435

Cash and cash equivalents, beginning of period
456,672

 
134,192

Cash and cash equivalents, end of period
$
421,181

 
$
178,627


 The accompanying notes are an integral part of these consolidated financial statements.

6


RLJ Lodging Trust
Notes to the Consolidated Financial Statements
(unaudited)

1.              Organization
 
RLJ Lodging Trust (the "Company") was formed as a Maryland real estate investment trust ("REIT") on January 31, 2011. The Company is a self-advised and self-administered REIT that acquires primarily premium-branded, focused-service and compact full-service hotels. The Company elected to be taxed as a REIT, for U.S. federal income tax purposes, commencing with its taxable year ended December 31, 2011.
 
Substantially all of the Company’s assets and liabilities are held by, and all of its operations are conducted through, RLJ Lodging Trust, L.P. (the "Operating Partnership"). The Company is the sole general partner of the Operating Partnership. As of September 30, 2017, there were 175,687,508 units of limited partnership interest in the Operating Partnership ("OP units") outstanding and the Company owned, through a combination of direct and indirect interests, 99.6% of the outstanding OP units.

As of September 30, 2017, the Company owned 159 hotel properties with approximately 31,350 rooms, located in 26 states and the District of Columbia.  The Company, through wholly-owned subsidiaries, owned a 100% interest in 155 of its hotel properties, a 98.3% controlling interest in the DoubleTree Metropolitan Hotel New York City, a 95% controlling interest in The Knickerbocker, and 50% interests in entities owning two hotel properties. The Company consolidates its real estate interests in the 157 hotel properties in which it holds a controlling financial interest, and the Company records the real estate interests in the two hotels in which it holds an indirect 50% interest using the equity method of accounting. The Company leases 158 of the 159 hotel properties to its taxable REIT subsidiaries ("TRS"), of which the Company owns a controlling financial interest.
 
2.              Merger with FelCor Lodging Trust Incorporated
 
On August 31, 2017 (the "Acquisition Date"), the Company, the Operating Partnership, Rangers Sub I, LLC, a wholly owned subsidiary of the Operating Partnership ("Rangers"), and Rangers Sub II, LP, a wholly owned subsidiary of the Operating Partnership ("Partnership Merger Sub"), consummated the transactions contemplated by the definitive Agreement and Plan of Merger (the "Merger Agreement"), dated as of April 23, 2017, with FelCor Lodging Trust Incorporated ("FelCor") and FelCor Lodging Limited Partnership ("FelCor LP") pursuant to which Partnership Merger Sub merged with and into FelCor LP, with FelCor LP surviving as a wholly owned subsidiary of the Operating Partnership (the "Partnership Merger"), and, immediately thereafter, FelCor merged with and into Rangers, with Rangers surviving as a wholly owned subsidiary of the Operating Partnership (the "REIT Merger" and, together with the Partnership Merger, the "Mergers").

Upon completion of the REIT Merger and under the terms of the Merger Agreement, each issued and outstanding share of common stock, par value $0.01 per share, of FelCor (other than shares held by any wholly owned subsidiary of FelCor or by the Company or any of its subsidiaries) was converted into the right to receive 0.362 (the "Common Exchange Ratio") common shares of beneficial interest, par value $0.01 per share, of the Company (the "Common Shares"), and each issued and outstanding share of $1.95 Series A cumulative convertible preferred stock, par value $0.01 per share, of FelCor was converted into the right to receive one $1.95 Series A Cumulative Convertible Preferred Share, par value $0.01 per share, of the Company (a "Series A Preferred Share").

Upon completion of the Partnership Merger and under the terms of the Merger Agreement, each limited partner of FelCor LP was entitled to elect to exchange its outstanding common limited partnership units in FelCor LP (the "FelCor LP Common Units") for a number of newly issued Common Shares based on the Common Exchange Ratio. Upon completion of the Partnership Merger, each outstanding FelCor LP Common Unit of any holder who did not make the foregoing election was converted into the right to receive a number of common limited partnership units in the Operating Partnership (the "OP Units") based on the Common Exchange Ratio. No fractional shares of units of Common Shares or OP Units were issued in the Mergers, and the value of any fractional interests was paid in cash.


7


The Company accounted for the Mergers under the acquisition method of accounting in ASC 805, Business Combinations. As a result of the Mergers, the Company acquired an ownership interest in the following 37 hotel properties: 
Hotel Property Name
 
Location
 
Ownership Interest
 
Management 
Company
 
Rooms
DoubleTree Suites by Hilton Austin
 
Austin, TX
 
100%
 
Hilton
 
188
DoubleTree Suites by Hilton Orlando - Lake Buena Vista
 
Orlando, FL
 
100%
 
Hilton
 
229
Embassy Suites Atlanta - Buckhead
 
Atlanta, GA
 
100%
 
Hilton
 
316
Embassy Suites Birmingham
 
Birmingham, AL
 
100%
 
Hilton
 
242
Embassy Suites Boston Marlborough
 
Marlborough, MA
 
100%
 
Hilton
 
229
Embassy Suites Dallas - Love Field
 
Dallas, TX
 
100%
 
Aimbridge Hospitality
 
248
Embassy Suites Deerfield Beach - Resort & Spa
 
Deerfield Beach, FL
 
100%
 
Hilton
 
244
Embassy Suites Fort Lauderdale 17th Street
 
Fort Lauderdale, FL
 
100%
 
Hilton
 
361
Embassy Suites Los Angeles - International Airport South
 
El Segundo, CA
 
100%
 
Hilton
 
349
Embassy Suites Mandalay Beach - Hotel & Resort
 
Oxnard, CA
 
100%
 
Hilton
 
250
Embassy Suites Miami - International Airport
 
Miami, FL
 
100%
 
Hilton
 
318
Embassy Suites Milpitas Silicon Valley
 
Milpitas, CA
 
100%
 
Hilton
 
266
Embassy Suites Minneapolis - Airport
 
Bloomington, MN
 
100%
 
Hilton
 
310
Embassy Suites Myrtle Beach - Oceanfront Resort
 
Myrtle Beach, SC
 
100%
 
Hilton
 
255
Embassy Suites Napa Valley
 
Napa, CA
 
100%
 
Hilton
 
205
Embassy Suites Orlando - International Drive South/Convention Center
 
Orlando, FL
 
100%
 
Hilton
 
244
Embassy Suites Phoenix - Biltmore
 
Phoenix, AZ
 
100%
 
Hilton
 
232
Embassy Suites San Francisco Airport - South San Francisco
 
San Francisco, CA
 
100%
 
Hilton
 
312
Embassy Suites San Francisco Airport - Waterfront
 
Burlingame, CA
 
100%
 
Hilton
 
340
Embassy Suites Secaucus - Meadowlands (1)
 
Secaucus, NJ
 
50%
 
Hilton
 
261
Hilton Myrtle Beach Resort
 
Myrtle Beach, SC
 
100%
 
Hilton
 
385
Holiday Inn San Francisco - Fisherman's Wharf
 
San Francisco, CA
 
100%
 
InterContinental Hotels
 
585
San Francisco Marriott Union Square
 
San Francisco, CA
 
100%
 
Marriott Hotel Services
 
400
Sheraton Burlington Hotel & Conference Center
 
Burlington, VT
 
100%
 
Marriott Hotel Services
 
309
Sheraton Philadelphia Society Hill Hotel
 
Philadelphia, PA
 
100%
 
Marriott Hotel Services
 
364
The Fairmont Copley Plaza
 
Boston, MA
 
100%
 
FRHI Hotels & Resorts
 
383
The Knickerbocker New York
 
New York, NY
 
95%
 
Highgate Hotels
 
330
The Mills House Wyndham Grand Hotel
 
Charleston, SC
 
100%
 
Wyndham
 
216
The Vinoy Renaissance St. Petersburg Resort & Golf Club
 
St. Petersburg, FL
 
100%
 
Marriott Hotel Services
 
361
Wyndham Boston Beacon Hill
 
Boston, MA
 
100%
 
Wyndham
 
304
Wyndham Houston - Medical Center Hotel & Suites
 
Houston, TX
 
100%
 
Wyndham
 
287
Wyndham New Orleans - French Quarter
 
New Orleans, LA
 
100%
 
Wyndham
 
374
Wyndham Philadelphia Historic District
 
Philadelphia, PA
 
100%
 
Wyndham
 
364
Wyndham Pittsburgh University Center
 
Pittsburgh, PA
 
100%
 
Wyndham
 
251
Wyndham San Diego Bayside
 
San Diego, CA
 
100%
 
Wyndham
 
600
Wyndham Santa Monica At The Pier
 
Santa Monica, CA
 
100%
 
Wyndham
 
132
Chateau LeMoyne - French Quarter, New Orleans (2)
 
New Orleans, LA
 
50%
 
InterContinental Hotels
 
171
 
 
 
 
 
 
 
 
11,215

(1)
The Company owns an indirect 50% ownership interest in the real estate at this hotel property and records the real estate interests using the equity method of accounting. The Company leases the hotel property to its TRS, of which the Company owns a controlling financial interest in the operating lessee, so the Company consolidates its ownership interest in the leased hotel.
(2)
The Company owns an indirect 50% ownership interest in this hotel property and accounts for its ownership interest using the equity method of accounting. This hotel property is operated without a lease.



8


The total consideration for the Mergers was approximately $1.4 billion, which included the Company issuing approximately 50.4 million common shares at $20.18 per share, to FelCor common stockholders, approximately 12.9 million Series A Preferred Shares at $28.49 per share, to former FelCor preferred stockholders, approximately 0.2 million OP Units at $20.18 per unit, to former FelCor LP limited partners, and cash. The total consideration consisted of the following (in thousands):
 
 
Total Consideration
Common Shares
 
$
1,016,227

Series A Preferred Shares
 
366,936

OP Units
 
4,342

Cash, net of cash acquired
 
41,921

Total consideration
 
$
1,429,426


The Company allocated the purchase price consideration as follows (in thousands):
 
 
August 31, 2017
Investment in hotel properties
 
$
2,673,629

Investment in unconsolidated joint ventures
 
25,651

Restricted cash reserves
 
17,038

Hotel and other receivables
 
28,308

Deferred income tax asset
 
32,000

Intangible assets
 
151,706

Prepaid expenses and other assets
 
22,525

Debt
 
(1,305,337
)
Accounts payable and other liabilities
 
(115,788
)
Advance deposits and deferred revenue
 
(23,795
)
Accrued interest
 
(22,612
)
Distributions payable
 
(4,312
)
Noncontrolling interest in consolidated joint ventures
 
(5,157
)
Preferred equity in a consolidated joint venture
 
(44,430
)
Total consideration
 
$
1,429,426


The estimated fair values for the assets acquired and the liabilities assumed are preliminary and are subject to change during the measurement period as additional information related to the inputs and assumptions used in determining the fair value of the assets and liabilities becomes available. Subsequent adjustments to the preliminary purchase price allocation are not expected to have a material impact to the Company's consolidated financial statements.

The Company used the following valuation methodologies, inputs, and assumptions to estimate the fair value of the assets acquired, the liabilities assumed, and the equity interests acquired:
 
Investment in hotel properties — The Company estimated the fair values of the land and improvements, buildings and improvements, and furniture, fixtures, and equipment at the hotel properties by using a combination of the market, cost, and income approaches. These valuation methodologies are based on significant Level 2 and Level 3 inputs in the fair value hierarchy, such as estimates of future income growth, capitalization rates, discount rates, capital expenditures, and cash flow projections at the respective hotel properties.
 
Investment in unconsolidated joint ventures — The Company estimated the fair value of its real estate interests in the unconsolidated joint ventures by using the same valuation methodologies for the investment in hotel properties noted above. The Company recognized the net assets acquired based on its respective ownership interest in the joint venture according to the joint venture agreement.

Deferred income tax asset — The Company estimated the fair value of the deferred income tax asset by estimating the amount of the net operating loss that will be utilized in future periods by the acquired taxable REIT subsidiaries. The Company then applied its applicable effective tax rate against the net operating losses to determine the appropriate

9


deferred tax asset to recognize. This valuation methodology is based on Level 2 and Level 3 inputs in the fair value hierarchy.

Intangible assets — The Company estimated the fair value of its below market lease intangible assets by calculating the present value of the difference between the contractual rental amounts paid according to the in-place lease agreements and the market rental rates for similar leased space, measured over a period equal to the remaining non-cancelable term of the lease. This valuation methodology is based on Level 2 and Level 3 inputs in the fair value hierarchy. The below market lease intangible assets are amortized as adjustments to rental expense over the remaining terms of the respective leases. The Company estimated the fair value of the advanced bookings intangible asset by using the income approach to determine the projected cash flows that a hotel property will receive as a result of future hotel room and guests events that have already been reserved and pre-booked at the hotel property as of the Acquisition Date. This valuation methodology is based on Level 3 inputs in the fair value hierarchy. The advanced bookings intangible asset is amortized to depreciation and amortization over the duration of the hotel room and guest event reservations period at the hotel property. The Company recognized the following intangible assets in the Mergers (dollars in thousands):
 
 
 
 
Weighted Average Amortization Period
(in Years)
Below market ground leases
 
$
128,181

 
53
Advanced bookings
 
15,146

 
1
Other intangible assets
 
8,379

 
6
Total intangible assets
 
$
151,706

 
45

Above market lease liabilities — The Company estimated the fair value of its above market lease liabilities by calculating the present value of the difference between the contractual rental amounts paid according to the in-place lease agreements and the market rental rates for similar leased space, measured over a period equal to the remaining non-cancelable term of the lease. This valuation methodology is based on Level 2 and Level 3 inputs in the fair value hierarchy. The Company recognized approximately $14.6 million of above market lease liabilities in the Mergers, which are included in accounts payable and other liabilities in the accompanying consolidated balance sheet. The above market lease liabilities are amortized as adjustments to rental expense over the remaining terms of the respective leases.

Debt — The Company estimated the fair value of the Senior Notes by using publicly available trading prices, market interest rates, and spreads for the Senior Notes, which are Level 2 and Level 3 inputs in the fair value hierarchy. The Company estimated the fair value of the mortgage loans using a discounted cash flow model and incorporated various inputs and assumptions for the effective borrowing rates for debt with similar terms and the loan to estimated fair value of the collateral, which are Level 3 inputs in the fair value hierarchy.

Noncontrolling interest in consolidated joint ventures — The Company estimated the fair value of the consolidated joint ventures by using the same valuation methodologies for the investment in hotel properties noted above. The Company then recognized the fair value of the noncontrolling interest in the consolidated joint ventures based on the joint venture partner's ownership interest in the consolidated joint venture. This valuation methodology is based on Level 2 and Level 3 inputs and assumptions in the fair value hierarchy.

Preferred equity in a consolidated joint venture — The Company estimated the fair value of the preferred equity in a consolidated joint venture by comparing the contractual terms of the preferred equity agreement to market-based terms of a similar preferred equity agreement, which is based on Level 3 inputs in the fair value hierarchy.

Restricted cash reserves, hotel and other receivables, prepaid expenses and other assets, accounts payable and other liabilities, advance deposits and deferred revenue, accrued interest, and distributions payable — The carrying amounts of the assets acquired, the liabilities assumed, and the equity interests acquired approximate fair value because of their short term maturities.


10


For the hotel properties acquired during the nine months ended September 30, 2017, the total revenues and net income from the date of acquisition through September 30, 2017 are included in the accompanying consolidated statements of operations as follows (in thousands):
 
For the one
month ended
September 30, 2017
Revenue
$
66,457

Net income
$
6,768

  
Other than the acquisition of FelCor, there were no other acquisitions of hotel properties during the nine months ended September 30, 2017.

The following table presents the costs that were incurred in connection with the Mergers (in thousands):
 
For the three months ended September 30, 2017
 
For the nine
month ended
September 30, 2017
Transaction costs
$
30,270

 
$
34,517

Integration costs
2,193

 
2,193

 
$
32,463

 
$
36,710


The transaction costs primarily related to transfer taxes and financial advisory, legal, and other professional service fees in connection with the Mergers. The integration costs primarily related to professional fees and employee-related costs, including compensation for transition employees. The merger-related costs noted above were expensed to transaction costs in the consolidated statements of operations.

The following unaudited condensed pro forma financial information presents the results of operations as if the Mergers had taken place on January 1, 2016.  The unaudited condensed pro forma financial information is not necessarily indicative of what the actual results of operations of the Company would have been assuming the Mergers had taken place on January 1, 2016, nor is it indicative of the results of operations for future periods.  The unaudited condensed pro forma financial information is as follows (in thousands):
 
For the three months ended September 30,
 
For the nine months ended September 30,
 
2017
 
2016
 
2017
 
2016
 
(unaudited)
Revenue
$
482,839

 
$
511,860

 
$
1,431,409

 
$
1,538,257

Net income attributable to common shareholders
$
37,820

 
$
57,379

 
$
114,710

 
$
154,282

Net income per share attributable to common shareholders - basic
$
0.22

 
$
0.33

 
$
0.66

 
$
0.89

Net income per share attributable to common shareholders - diluted
$
0.22

 
$
0.33

 
$
0.66

 
$
0.89

Weighted-average number of shares outstanding - basic
174,186,944

 
173,979,427

 
174,141,367

 
173,993,114

Weighted-average number of shares outstanding - diluted
174,244,252

 
174,194,556

 
174,223,424

 
174,217,857


3.              Summary of Significant Accounting Policies
 
The Company's Annual Report on Form 10-K for the year ended December 31, 2016 contains a discussion of the significant accounting policies. Other than noted below, there have been no other significant changes to the Company's significant accounting policies since December 31, 2016.

Basis of Presentation and Principles of Consolidation
 
The unaudited consolidated financial statements and related notes have been prepared on the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America ("GAAP") and in conformity with the rules and regulations of the Securities and Exchange Commission ("SEC") applicable to financial information. The unaudited financial statements include all adjustments that are necessary, in the opinion of management, to fairly state the

11


consolidated balance sheets, statements of operations and comprehensive income, statements of changes in equity and statements of cash flows.

The unaudited consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto as of and for the year ended December 31, 2016, included in the Company's Annual Report on Form 10-K filed with the SEC on February 23, 2017.

The consolidated financial statements include the accounts of the Company, the Operating Partnership and its wholly-owned subsidiaries, and joint ventures in which the Company has a majority voting interest and control. For the controlled subsidiaries that are not wholly-owned, the third-party ownership interest represents a noncontrolling interest, which is presented separately in the consolidated financial statements. The Company also records the real estate interests in two joint ventures in which it holds an indirect 50% interest using the equity method of accounting. All intercompany balances and transactions have been eliminated in consolidation.
 
Reclassifications
 
Certain prior year amounts in these financial statements have been reclassified to conform to the current year presentation with no impact to net income, shareholders’ equity or cash flows.
 
Use of Estimates
 
The preparation of the Company’s financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of certain assets and liabilities and the amounts of contingent assets and liabilities at the balance sheet date and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Investment in Unconsolidated Joint Ventures

If the Company determines that it does not have a controlling financial interest in a joint venture, either through a controlling financial interest in a variable interest entity or through the Company's voting interest in a voting interest entity, but the Company exercises significant influence over the operating and financial policies of the joint venture, the Company accounts for the joint venture using the equity method of accounting. Under the equity method of accounting, the Company's investment is adjusted each reporting period to recognize the Company's share of the net earnings or losses of the joint venture.

The Company periodically reviews the carrying value of its investment in unconsolidated joint ventures to determine if any circumstances may indicate that the carrying value of the investment exceeds its fair value on an other-than-temporary basis. When an impairment indicator is present, the Company will estimate the fair value of the investment, which will be determined by using internally developed discounted cash flow models, third-party appraisals, or if appropriate, the net sales proceeds from pending offers. If the estimated fair value is less than the carrying value, and management determines that the decline in value is considered to be other-than-temporary, the Company will recognize an impairment loss on its investment in the joint venture.

Recently Issued Accounting Pronouncements
 
In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2014-09, Revenue from Contracts with Customers, which supersedes or replaces nearly all GAAP revenue recognition guidance. The new guidance establishes a new control-based revenue recognition model that changes the basis for deciding when revenue is recognized over time or at a point in time and expands the disclosures about revenue. The new guidance also applies to sales of real estate and the new principles-based approach is largely based on the transfer of control of the real estate to the buyer. The guidance is effective for annual reporting periods beginning after December 15, 2017, and the interim periods within those annual periods, with early adoption permitted. The Company expects to adopt this new standard on January 1, 2018 using the modified retrospective transition method. Based on the Company's assessment, the adoption of this standard will not have a material impact on the Company's consolidated financial statements.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). The new guidance will require lessees to recognize a right-of-use asset and a lease liability for most of their leases on the balance sheet, and an entity will need to classify its leases as either an operating or finance lease in order to determine the income statement presentation. Leases with a term of 12 months or less will be accounted for similar to the existing guidance today for operating leases. Lessors will classify their leases using an approach that is substantially equivalent to the existing guidance today for operating, direct financing, or sales-type leases. Lessors may only capitalize the incremental direct costs of leasing, so any indirect costs of leasing will be

12


expensed as incurred. The new guidance requires an entity to separate the lease components from the non-lease components in a contract, with the lease components being accounted for in accordance with ASC 842 and the non-lease components being accounted for in accordance with other applicable accounting guidance. The guidance is effective for annual reporting periods beginning after December 15, 2018, and the interim periods within those annual periods, with early adoption permitted. The Company expects to adopt this new standard on January 1, 2019. The Company has not yet completed its analysis on this new standard, but it believes the application of the new standard will result in the recording of a right-of-use asset and a lease liability on the consolidated balance sheet for each of its ground leases and equipment leases, which represent the majority of the Company's current operating lease payments. The Company does not expect the adoption of this standard will materially affect its consolidated statements of operations.

In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230), Classification of Certain Cash Receipts and Cash Payments. This new guidance is intended to reduce the diversity in practice in how certain transactions are classified in the statement of cash flows. In addition, in November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230), Restricted Cash. This new guidance provides additional guidance related to transfers between cash and restricted cash and how entities present, in their statement of cash flows, the cash receipts and cash payments that directly affect the restricted cash accounts. Both of these ASUs will be effective for the annual reporting periods beginning after December 15, 2017, and the interim periods within those annual periods. Early adoption is permitted, provided that all of the amendments are adopted in the same period, and the guidance requires application using a retrospective transition method. The Company expects to adopt the new guidance on January 1, 2018. The adoption of ASU 2016-15 and ASU 2016-18 will modify the Company's current disclosures and classifications within the consolidated statement of cash flows, but such modifications are not expected to have a material impact on the Company's consolidated financial statements.

In January 2017, the FASB issued ASU 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business. The new guidance clarifies the definition of a business with the objective of adding guidance to assist companies and other reporting organizations with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The changes to the definition of a business will likely result in more acquisitions being accounted for as asset acquisitions across all industries. The guidance is effective for annual reporting periods beginning after December 15, 2017, and the interim periods within those annual periods. The Company expects to adopt this new guidance on January 1, 2018. Based on the Company's assessment, the Company will evaluate each future acquisition (or disposal) to determine whether it will be considered to be an acquisition (or disposal) of assets or a business. The Company does not believe the accounting for each future acquisition (or disposal) of assets or a business will be materially different, therefore, the adoption of this guidance will not have a material impact on the Company's consolidated financial statements.

In February 2017, the FASB issued ASU 2017-05, Other Income - Gains and Losses from the Derecognition of Nonfinancial Assets (Subtopic 610-20): Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets. The new guidance clarifies that ASC 610-20 applies to the derecognition of nonfinancial assets, including real estate, and in substance nonfinancial assets, which are defined as assets or a group of assets for which substantially all of the fair value consists of nonfinancial assets and the group or subsidiary is not a business. As a result of the new guidance, sales and partial sales of real estate assets will be accounted for similar to all other sales of nonfinancial and in substance nonfinancial assets. The guidance is effective for annual reporting periods beginning after December 15, 2017, and the interim periods within those annual periods, with early adoption permitted. The Company expects to adopt this new guidance on January 1, 2018. Based on the Company's assessment, the adoption of this guidance will not have a material impact on the Company's consolidated financial statements.

4.              Investment in Hotel Properties
 
Investment in hotel properties consisted of the following (in thousands):
 
September 30, 2017
 
December 31, 2016
Land and improvements
$
1,306,524

 
$
675,889

Buildings and improvements
5,004,884

 
3,050,043

Furniture, fixtures and equipment
736,135

 
595,816

 
7,047,543

 
4,321,748

Accumulated depreciation
(1,070,019
)
 
(953,972
)
Investment in hotel properties, net
$
5,977,524

 
$
3,367,776

 
For the three and nine months ended September 30, 2017, the Company recognized depreciation and amortization expense related to its investment in hotel properties of approximately $44.1 million and $120.8 million, respectively. For the three and

13


nine months ended September 30, 2016, the Company recognized depreciation and amortization expense related to its investment in hotel properties of approximately $40.9 million and $122.3 million, respectively.
 
Impairment
 
The Company determined that there was no impairment of any assets for either the three and nine months ended September 30, 2017 or 2016.

5.              Investment in Unconsolidated Joint Ventures

As of September 30, 2017, the Company owned 50% interests in joint ventures that owned two hotel properties. The Company also owned 50% interests in joint ventures that owned real estate and a condominium management business that are associated with two of our resort hotel properties. The Company accounts for the investments in these unconsolidated joint ventures under the equity method of accounting. The Company makes adjustments to the equity in income from unconsolidated joint ventures related to the difference between the Company's basis in the investment in the unconsolidated joint ventures as compared to the historical basis of the assets and liabilities of the joint ventures. As of September 30, 2017, the unconsolidated joint ventures' debt consisted entirely of non-recourse mortgage debt.

The following table summarizes the components of the Company's investments in unconsolidated joint ventures (in thousands):
 
September 30, 2017
Equity basis of the joint venture investments
$
930

Cost of the joint venture investments in excess of the joint venture book value
24,029

Investment in unconsolidated joint ventures
$
24,959


The following table summarizes the components of the Company's equity in income from unconsolidated joint ventures (in thousands):
 
For the one month ended September 30,
 
2017
Unconsolidated joint venture net income attributable to the Company
$
150

Depreciation of cost in excess of book value
(93
)
Equity in income from unconsolidated joint ventures
$
57


6.            Sale of Hotel Properties
 
During the nine months ended September 30, 2017, the Company did not sell any hotel properties.

During the nine months ended September 30, 2016, the Company sold one hotel property for a sale price of approximately $2.9 million. In conjunction with this transaction, the Company recorded a $0.2 million loss on sale which is included in the accompanying consolidated statement of operations.

The following table discloses the hotel property that was sold during the nine months ended September 30, 2016:
Hotel Property Name
 
Location
 
Sale Date
 
Rooms
Holiday Inn Express Merrillville
 
Merrillville, IN
 
February 22, 2016
 
62

 
 
 
 
Total
 
62


Investment in Loan

In November 2009, the Company purchased a mortgage loan that was collateralized by one hotel property. The loan matured on September 6, 2017. At the date of maturity, the Company's investment in loan receivable balance was $10.1 million and the Company received $12.8 million in net proceeds from the debtor. Accordingly, the Company recognized a gain on settlement of investment in loan of approximately $2.7 million.


14


7.              Debt
 
The Company's debt consisted of the following (in thousands):
 
September 30, 2017
 
December 31, 2016
Senior Notes
$
1,066,275

 
$

Revolver and Term Loans, net
1,170,540

 
1,169,308

Mortgage loans, net
648,924

 
413,407

Debt, net
$
2,885,739

 
$
1,582,715


Senior Notes

The Company's senior secured notes and the senior unsecured notes are collectively the "Senior Notes". The Company's Senior Notes consisted of the following (in thousands):
 
 
 
 
 
 
 
 
Outstanding Borrowings at
 
 
Number of Assets Encumbered
 
Interest Rate
 
Maturity Date
 
September 30, 2017
 
December 31, 2016
Senior secured notes (1) (2) (3)
 
9
 
5.63%
 
March 2023
 
$
555,046

 
$

Senior unsecured notes (1) (2) (4)
 
 
6.00%
 
June 2025
 
511,229

 

Total Senior Notes
 
 
 
 
 
 
 
$
1,066,275

 
$


(1)
Requires payments of interest only through maturity.
(2)
Includes $30.0 million and $36.2 million at September 30, 2017 related to fair value adjustments on the senior secured notes and the senior unsecured notes, respectively, that were assumed in the Mergers.
(3)
The Company has the option to redeem the senior secured notes beginning March 1, 2018 at a premium of 102.8%.
(4)
The Company has the option to redeem the senior unsecured notes beginning June 1, 2020 at a premium of 103.0%.

The Senior Notes are subject to customary financial covenants. As of September 30, 2017, the Company was in compliance with all financial covenants.

Revolver and Term Loans
 
The Company has the following unsecured credit agreements in place:

$600.0 million revolving credit facility with a scheduled maturity date of April 22, 2020 with a one-year extension option if certain conditions are satisfied (the "Revolver");
$400.0 million term loan with a scheduled maturity date of March 20, 2019 (the "$400 Million Term Loan Maturing 2019");
$225.0 million term loan with a scheduled maturity date of November 20, 2019 (the "$225 Million Term Loan Maturing 2019");
$400.0 million term loan with a scheduled maturity date of April 22, 2021 (the "$400 Million Term Loan Maturing 2021"); and
$150.0 million term loan with a scheduled maturity date of January 22, 2022 (the "$150 Million Term Loan Maturing 2022").

The $400 Million Term Loan Maturing 2019, the $225 Million Term Loan Maturing 2019, the $400 Million Term Loan Maturing 2021, and the $150 Million Term Loan Maturing 2022 are collectively the "Term Loans". The Revolver and Term Loans are subject to customary financial covenants. As of September 30, 2017 and December 31, 2016, the Company was in compliance with all financial covenants.
 

15


The Company's unsecured credit agreements consisted of the following (in thousands):
 
 
 
 
 
 
Outstanding Borrowings at
 
 
Interest Rate at September 30, 2017 (1)
 
Maturity Date
 
September 30, 2017
 
December 31, 2016
Revolver (2)
 
2.73%
 
April 2020
 
$

 
$

$400 Million Term Loan Maturing 2019
 
2.72%
 
March 2019
 
400,000

 
400,000

$225 Million Term Loan Maturing 2019
 
4.04%
 
November 2019
 
225,000

 
225,000

$400 Million Term Loan Maturing 2021
 
3.00%
 
April 2021
 
400,000

 
400,000

$150 Million Term Loan Maturing 2022
 
3.43%
 
January 2022
 
150,000

 
150,000

 
 
 
 
 
 
1,175,000

 
1,175,000

Deferred financing costs, net (3)
 
 
 
 
 
(4,460
)
 
(5,692
)
Total Revolver and Term Loans, net
 
 
 
 
 
$
1,170,540

 
$
1,169,308

 
(1)
Interest rate at September 30, 2017 gives effect to interest rate hedges.
(2)
At September 30, 2017 and December 31, 2016, there was $600.0 million and $400.0 million, respectively, of borrowing capacity on the Revolver. On August 31, 2017, the Company amended the Revolver to increase the borrowing capacity from $400.0 million to $600.0 million. The Company has the ability to further increase the borrowing capacity to $750.0 million, subject to certain lender requirements.
(3)
Excludes $2.7 million and $2.3 million as of September 30, 2017 and December 31, 2016, respectively, related to deferred financing costs on the Revolver, which are included in prepaid expense and other assets in the accompanying consolidated balance sheets.

Mortgage Loans
 
The Company's mortgage loans consisted of the following (in thousands):
 
 
 
 
 
 
 
 
 
 
Principal balance at
Lender
 
Number of Assets Encumbered
 
Interest Rate at September 30, 2017 (1)
 
Maturity Date
 
 
 
September 30, 2017
 
December 31, 2016
Wells Fargo (5)
 
4
 
4.04%
 
March 2018
 
(3)
 
$
144,000

 
$
146,250

Wells Fargo (2)
 
4
 
4.03%
 
October 2018
 
(4)
 
150,000

 
150,000

PNC Bank (2) (6)
 
5
 
3.33%
 
March 2021
 
(7)
 
85,000

 
85,000

Wells Fargo (9)
 
1
 
5.25%
 
June 2022
 
 
 
33,078

 
33,666

PNC Bank/Wells Fargo (10)
 
4
 
4.95%
 
October 2022
 
 
 
121,614

 

Prudential (11)
 
1
 
4.94%
 
October 2022
 
 
 
30,504

 

Scotiabank (2) (8) (12)
 
1
 
LIBOR + 3.00%
 
December 2017
 
 
 
85,514

 

 
 
20
 
 
 
 
 
 
 
649,710

 
414,916

Deferred financing costs, net
 
 
 
 
 
 
 
 
 
(786
)
 
(1,509
)
Total mortgage loans, net
 
 
 
 
 
 
 
 
 
$
648,924

 
$
413,407


(1)
Interest rate at September 30, 2017 gives effect to interest rate hedges.
(2)
Requires payments of interest only through maturity.
(3)
The maturity date may be extended for four one-year terms at the Company’s option, subject to certain lender requirements.
(4)
In October 2017, the Company extended the maturity date for a one-year term. The maturity date may be extended for three additional one-year terms at the Company's option, subject to certain lender requirements.
(5)
Two of the four hotels encumbered by the Wells Fargo loan are cross-collateralized.
(6)
The five hotels encumbered by the PNC Bank loan are cross-collateralized.
(7)
The maturity date may be extended for two one-year terms at the Company’s option, subject to certain lender requirements.
(8)
This mortgage loan can be extended for one year, subject to certain lender requirements.
(9)
Includes $0.9 million and $1.0 million at September 30, 2017 and December 31, 2016, respectively, related to a fair value adjustment on mortgage debt assumed in conjunction with an acquisition.
(10)
Includes $3.2 million at September 30, 2017 related to fair value adjustments on the mortgage loans that were assumed in the Mergers.
(11)
Includes $0.8 million at September 30, 2017 related to a fair value adjustment on the mortgage loan that was assumed in the Mergers.

16


(12)
Includes $0.5 million at September 30, 2017 related to a fair value adjustment on the mortgage loan that was assumed in the Mergers.
 
Certain mortgage agreements are subject to customary financial covenants. The Company was in compliance with all financial covenants at September 30, 2017 and December 31, 2016.

Interest Expense

The components of the Company's interest expense consisted of the following (in thousands):
 
 
For the three months ended September 30,
 
For the nine months ended September 30,
 
 
2017
 
2016
 
2017
 
2016
Senior Notes
 
$
3,980

 
$

 
$
3,980

 
$

Revolver and Term Loans
 
9,834

 
9,662

 
28,981

 
29,138

Mortgage loans
 
4,943

 
4,009

 
12,969

 
11,992

Amortization of deferred financing costs
 
893

 
881

 
2,597

 
3,103

Total interest expense
 
$
19,650

 
$
14,552

 
$
48,527

 
$
44,233

  

17


8.              Derivatives and Hedging
 
The Company's interest rate swaps consisted of the following (in thousands):
 
 
 
 
 
 
Notional value at
 
Fair value at
Hedge type
 
Interest rate
 
Maturity
 
September 30, 2017
 
December 31, 2016
 
September 30, 2017
 
December 31, 2016
Swap-cash flow
 
1.12%
 
November 2017
 
$
275,000

 
$
275,000

 
$
75

 
$
(558
)
Swap-cash flow
 
1.56%
 
March 2018
 
175,000

 
175,000

 
(223
)
 
(1,251
)
Swap-cash flow
 
1.64%
 
March 2018
 
175,000

 
175,000

 
(288
)
 
(1,413
)
Swap-cash flow
 
1.83%
 
September 2018
 
15,840

 
16,088

 
(65
)
 
(193
)
Swap-cash flow
 
1.75%
 
September 2018
 
15,840

 
16,088

 
(53
)
 
(172
)
Swap-cash flow
 
1.83%
 
September 2018
 
38,880

 
39,488

 
(160
)
 
(474
)
Swap-cash flow
 
1.75%
 
September 2018
 
39,840

 
40,462

 
(134
)
 
(433
)
Swap-cash flow
 
1.83%
 
September 2018
 
17,280

 
17,550

 
(71
)
 
(211
)
Swap-cash flow
 
1.75%
 
September 2018
 
16,320

 
16,575

 
(55
)
 
(177
)
Swap-cash flow
 
2.02%
 
March 2019
 
125,000

 
125,000

 
(945
)
 
(2,090
)
Swap-cash flow
 
1.94%
 
March 2019
 
100,000

 
100,000

 
(644
)
 
(1,505
)
Swap-cash flow
 
1.27%
 
March 2019
 
125,000

 
125,000

 
493

 
54

Swap-cash flow (1)
 
1.96%
 
March 2019
 
100,000

 
100,000

 
(517
)
 
(516
)
Swap-cash flow (1)
 
1.85%
 
March 2019
 
50,000

 
50,000

 
(184
)
 
(184
)
Swap-cash flow (1)
 
1.81%
 
March 2019
 
50,000

 
50,000

 
(159
)
 
(159
)
Swap-cash flow (1)
 
1.74%
 
March 2019
 
25,000

 
25,000

 
(57
)
 
(57
)