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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-K
 
  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the fiscal year ended December 31, 2020
 
OR
 
   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:  001-35074
 
SUMMIT HOTEL PROPERTIES, INC.
(Exact name of registrant as specified in its charter)
 
Maryland 27-2962512
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)  
 
13215 Bee Cave Parkway, Suite B-300
Austin, TX  78738
(Address of principal executive offices, including zip code)
 
(512) 538-2300
(Registrant’s telephone number, including area code)
 
Securities registered pursuant to Section 12(b) of the Act:
 
Title of each classTrading Symbol(s) Name of each exchange on which registered
Common Stock, par value $0.01 per shareINN New York Stock Exchange
6.45% Series D Cumulative Redeemable Preferred Stock, par value $0.01 per shareINN-PD New York Stock Exchange
6.25% Series E Cumulative Redeemable Preferred Stock, par value $0.01 per shareINN-PE New York Stock Exchange
 
Securities registered pursuant to Section 12(g) of the Act:
None
 
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.   Yes   No
 
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.   Yes   No
 
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.   Yes   No
 
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files).   Yes   No
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company in Rule 12b-2 of the Exchange Act.
 



Large accelerated filer Accelerated filer
Non-accelerated filer
 
Smaller reporting company
 Emerging growth company
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.
 
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of
the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C.
7262(b)) by the registered public accounting firm that prepared or issued its audit report.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).   Yes   No
 
The aggregate market value of the registrant’s voting and non-voting common equity held by non-affiliates of the registrant’s as of June 30, 2020 was $612,440,206 based on the closing sale price of the registrant’s common stock on the New York Stock Exchange as of June 30, 2020.
 
As of February 15, 2021 the number of outstanding shares of common stock of Summit Hotel Properties, Inc. was 105,708,787.
 
DOCUMENTS INCORPORATED BY REFERENCE
 
Portions of the registrant’s Definitive Proxy Statement on Schedule 14A for its 2021 annual meeting of stockholders, to be filed with the Securities and Exchange Commission not later than 120 days after the end of the fiscal year pursuant to Regulation 14A, are incorporated herein by reference into Part III, Items 10, 11, 12, 13 and 14.




ANNUAL REPORT ON FORM 10-K
FISCAL YEAR ENDED DECEMBER 31, 2020
SUMMIT HOTEL PROPERTIES, INC.
 
TABLE OF CONTENTS
 
  Page
 
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
 
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
  
 
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
 
Item 15.




CAUTIONARY STATEMENT ABOUT FORWARD-LOOKING STATEMENTS
 
This report contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). We intend such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995 and include this statement for purposes of complying with these safe harbor provisions. Forward-looking statements, which are based on certain assumptions and describe our future plans, strategies and expectations, are generally identifiable by use of the words “may,” “could,” “expect,” “intend,” “plan,” “seek,” “anticipate,” “believe,” “estimate,” “predict,” “forecast,” “project,” “potential,” “continue,” “likely,” “will,” “would” or similar expressions. Forward-looking statements in this report include, among others, statements about our business strategy, including acquisition and development strategies, industry trends, estimated revenues and expenses, ability to realize deferred tax assets and expected liquidity needs and sources (including capital expenditures and the ability to obtain financing or raise capital). You should not rely on forward-looking statements since they involve known and unknown risks, uncertainties and other factors that are, in some cases, beyond our control and which could materially affect actual results, performances or achievements. Factors that may cause actual results to differ materially from current expectations include, but are not limited to:
 
the effects of the novel coronavirus (COVID-19) pandemic and other infectious disease outbreaks;
potential changes in operations as a result of regulations imposed in connection with, or changes in consumer behavior in response to, the COVID-19 pandemic;
financing risks, including the risk of leverage and the corresponding risk of default on our existing indebtedness and potential inability to refinance or extend the maturities of our existing indebtedness;
default by borrowers to which we lend or provide seller financing;
global, national, regional and local economic and geopolitical conditions;
levels of spending for business and leisure travel, as well as consumer confidence;
supply and demand factors in our markets or sub-markets;
the effect of alternative accommodations on our business;
adverse changes in, occupancy, average daily rate (“ADR”) and revenue per available room (“RevPAR”) and other hotel operating metrics;
hostilities, including future terrorist attacks, or fear of hostilities that affect travel;
financial condition of, and our relationships with, third-party property managers and franchisors;
the degree and nature of our competition;
increased interest rates;
increased operating costs, including but not limited to labor costs;
increased renovation costs, which may cause actual renovation costs to exceed our current estimates;
changes in zoning laws;
increases in real property taxes that are significantly higher than our expectations;
risks associated with hotel acquisitions, including the ability to ramp up and stabilize newly acquired hotels with limited or no operating history or that require substantial amounts of capital improvements for us to earn economic returns consistent with our expectations at the time of acquisition;
risks associated with dispositions of hotel properties, including our ability to successfully complete the sale of hotel properties under contract to be sold, including the risk that the purchaser may not have access to the capital needed to complete the purchase;
the nature of our structure and transactions such that our federal and state taxes are complex and there is risk of successful challenges to our tax positions by the Internal Revenue Service (“IRS”) or other federal and state taxing authorities;
the recognition of taxable gains from the sale of hotel properties as a result of the inability to complete certain like-kind exchanges in accordance with Section 1031 of the Internal Revenue Code of 1986, as amended (the “IRC”);
availability of and our ability to retain qualified personnel;
our failure to maintain our qualification as a real estate investment trust (“REIT”) under the IRC;
changes in our business or investment strategy;
availability, terms and deployment of capital;
general volatility of the capital markets and the market price of our common stock;
environmental uncertainties and risks related to natural disasters;
our ability to recover fully under third party indemnities or our existing insurance policies for insurable losses and our ability to maintain adequate or full replacement cost "all-risk" property insurance policies on our properties on commercially reasonable terms;
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the effect of a data breach or significant disruption of hotel operator information technology networks as a result of cyber-attacks that are greater than insurance coverages or indemnities from service providers;
the effect on our interest rates if LIBOR is replaced with a new benchmark or performs differently than in the past;
our ability to effectively manage our joint venture with our joint venture partner;
current and future changes to the IRC; and
the other factors discussed in “Part I – Item 1A. – Risk Factors” in this report.
 
Accordingly, there is no assurance that our expectations will be realized. Except as otherwise required by the federal securities laws, we disclaim any obligation or undertaking to publicly release any updates or revisions to any forward-looking statement contained herein (or elsewhere) to reflect any change in our expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based.

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PART I
Item 1.        Business.
 
Unless the context otherwise requires, all references to “we”, “us,” “our,” or the “Company” refer to Summit Hotel Properties, Inc. and its consolidated subsidiaries.
 
Overview
 
Summit Hotel Properties, Inc. is a self-managed hotel investment company that was organized in June 2010 and completed its initial public offering in February 2011. We focus on owning primarily premium-branded, select-service hotels. At December 31, 2020, our portfolio consisted of 72 hotels with a total of 11,288 guestrooms located in 23 states. We own our hotels in fee simple, except for four hotels which are subject to ground leases. As of December 31, 2020, we own 100% of the outstanding equity interests in 67 of 72 of our hotels. We own a 51% controlling interest in five hotels acquired in 2019 through a joint venture.

As of December 31, 2020, 92% of our guestrooms were located in the top 50 metropolitan statistical areas (“MSAs”), 97% were located within the top 100 MSAs and all of our hotel guestrooms operated under premium franchise brands owned by Marriott® International, Inc. (“Marriott”), Hilton® Worldwide (“Hilton”), Hyatt® Hotels Corporation (“Hyatt”) and InterContinental® Hotels Group (“IHG”). Our hotels are typically located in markets with multiple demand generators such as corporate offices and headquarters, retail centers, airports, state capitols, convention centers, universities, and leisure attractions.

Substantially all of our assets are held by, and all of our operations are conducted through, our operating partnership, Summit Hotel OP, LP (the “Operating Partnership”). Through a wholly-owned subsidiary, we are the sole general partner of the Operating Partnership. At December 31, 2020, we owned, directly and indirectly, approximately 99.8% of the Operating Partnership’s issued and outstanding common units of limited partnership interest (“Common Units”), and all of the Operating Partnership’s issued and outstanding Series D and Series E preferred units of limited partnership interest (“Preferred Units”). Pursuant to the Operating Partnership’s partnership agreement, we have full, exclusive and complete responsibility and discretion in the management and control of the Operating Partnership, including the ability to cause the Operating Partnership to enter into certain major transactions including acquisitions, dispositions and refinancings, to make distributions to partners and to cause changes in the Operating Partnership’s business activities.
 
We have elected to be taxed as a REIT for federal income tax purposes.  To qualify as a REIT, we cannot operate or manage our hotels. Accordingly, all of our hotels are leased to our taxable REIT subsidiaries ("TRS lessees").  All of our hotels are operated pursuant to hotel management agreements between our TRS lessees and professional third-party hotel management companies that are not affiliated with us.  We have one reportable segment as defined by generally accepted accounting principles (“GAAP”). See "Part II – Item 8. Financial Statements and Supplementary Data – Note 2 – Basis of Presentation and Significant Accounting Policies" to our Consolidated Financial Statements.
 
Our corporate offices are located at 13215 Bee Cave Parkway, Suite B-300, Austin, TX 78738.  Our telephone number is (512) 538-2300.  Our website is www.shpreit.com.  The information contained on, or accessible through, our website is not incorporated by reference into this report and should not be considered a part of this report.
 
Business Strategy
 
Our portfolio consists of premium-branded hotels in favorable locations with efficient operating models. Our approach to creating value includes the following:

Prudently allocating capital which includes, among other things, targeted capital investment and strategic transactions;
Evolving our portfolio by selling assets with lower operating margins, RevPAR growth opportunities or risk-adjusted return profiles and purchasing assets with higher operating margins, RevPAR growth opportunities or risk-adjusted return profiles; and
Intensive asset management.
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Our industry and business have been materially affected during the year ended December 31, 2020 as a result of the COVID-19 pandemic, including a substantial decline in our revenues, profitability and cash flows from operations. See additional discussion under “Part II – Item 7. – Management’s Discussion and Analysis of Financial Condition and Results of Operations - Effects of COVID-19 Pandemic on Our Business.” We expect that the COVID-19 pandemic will continue to have a material adverse effect on our operations and financial results until an effective vaccine is broadly distributed, government restrictions are lifted, consumer confidence is restored and a recovery in hospitality and travel-related demand occurs. However, we expect that when we are able to return to historical operational and financial performance levels, our strategy will enable us to continue to create long-term value. The key elements of our strategy that we believe will allow us to create long-term value include the following:

Focus on Premium-Branded Hotels with Efficient Operating Models. We focus on hotels with efficient operating models that are primarily in the Upscale segment of the lodging industry, as defined by Smith Travel Research ("STR"). We believe that our focus on this segment provides us the opportunity to achieve strong, risk-adjusted returns across multiple lodging cycles for several reasons, including:

RevPAR Growth.  We believe that our hotels will experience long-term demand growth and demand will recover to levels more in-line with pre-pandemic demand based on the characteristics of our portfolio after the industry has recovered from the effects of the COVID-19 pandemic.

Stable Cash Flow Potential.  Our hotels are generally operated with fewer employees than full-service hotels that offer more amenities including more extensive food and beverage options, which we believe enables us to generate higher operating margins and cash flows with less volatility.

Broad Customer Base.  Our target brands deliver consistently high-quality hotel accommodations with value-oriented pricing that we believe appeals to a wide range of customers, including both business and leisure travelers. We believe that our hotels are particularly popular with frequent travelers who seek to stay in hotels operating under Marriott, Hilton, Hyatt, or IHG brands, which offer strong loyalty rewards programs.

Enhanced Diversification and Lower Capital Requirements.  Premium-branded hotels with efficient operating models generally require less capital to acquire, build, or maintain on an absolute and a per-key basis, than hotels in the Upper-Upscale and Luxury segments of the industry. As a result, we can diversify our investment capital into ownership of a larger number of hotels than we could in more expensive segments.
 
Capitalize on Investments in Our Hotels.  We believe in the benefits of strategically investing capital in our properties to ensure they are in good physical condition and facilitate market leading financial performance. Over the past three years, we have invested $148.5 million in capital improvements to our hotels. We believe these investments produce attractive returns, and we intend to continue to invest capital to upgrade our hotels with strategic renovations and brand-required hotel property improvement plans.
 
External Growth Through Acquisitions.  We intend to continue to opportunistically grow through acquisitions of existing hotels either through wholly owned or joint venture structures using a disciplined approach, while maintaining a prudent capital structure. We generally target hotels with efficient operating models that meet one or more of the following acquisition criteria:
 
potential for strong risk-adjusted returns and are located in the top 50 MSAs and other select markets;
can operate under leading franchise brands, which may include but are not limited to brands owned by Marriott, Hilton, Hyatt, and IHG;
located in close proximity to multiple demand generators, such as corporate offices and headquarters, retail centers, airports, state capitols, convention centers, universities, and leisure attractions, with a diverse source of potential guests, including corporate, government and leisure travelers;
located in markets with barriers to entry due to lengthy or challenging real estate entitlement processes or other factors;
can be acquired at a discount to replacement cost; and
provide an opportunity to add value through operating efficiencies, repositioning, renovating or rebranding.
 
Strategic Hotel Sales.  We strive to maximize our return on invested capital and we periodically review our hotels to determine if any significant changes to markets or our hotels have occurred or are anticipated to occur that would warrant the sale of a hotel or hotels.  We intend to continue to pursue a disciplined capital allocation strategy designed to maximize the
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value of our investments by selectively selling hotel properties that we believe are no longer consistent with our investment strategy or whose returns on invested capital appear to have been maximized. To the extent that we sell hotel properties, we may redeploy the capital into acquisition and capital investment opportunities that we believe have the potential to generate better risk-adjusted returns or repay outstanding indebtedness. We expect to generate these improvements with our proactive asset management approach and by investing in our hotels to enhance their quality and attractiveness, increase their long-term value and generate more favorable returns on our invested capital. Alternatively, we may redeploy our capital into the purchase of assets with a higher potential long-term return.
 
Selectively Develop Hotels.  We endeavor to identify attractive opportunities to selectively partner with experienced hotel developers to acquire, upon completion, newly constructed hotels that meet our acquisition criteria.  We will consider unique opportunities to develop hotels utilizing our own capital if and when circumstances warrant.
 
Selective Mezzanine Lending. We seek to identify select opportunities to provide mezzanine lending to developers, where we also have the opportunity to acquire the hotel at or after the completion of the development project.

Due to the modifications of the covenants in our 2018 Senior Credit Facility (defined below), most of the transactional strategies described above are governed by certain lender guided thresholds, or otherwise subject to lender approval. See “Part II. – Item 7. – Management’s Discussion and Analysis of Financial Condition and Results of Operations - Management’s Actions in Response to the Effects of COVID-19 on Our Operations – Financial Measures and Liquidity” for further information.

Our Financing Strategy
 
We rely on cash generated through operations, working capital, borrowings under our $600 million senior revolving and term loan facility (the "2018 Senior Credit Facility"), term debt, repayment of notes receivable, proceeds from the issuance of securities, the strategic sale of hotels, contributions from joint venture partners, and the release of restricted cash upon satisfaction of the usage requirements to finance our business. Our joint venture also operates with borrowings under a $200 million credit facility (the "Joint Venture Credit Facility"). We have obtained certain financial covenant waivers from our senior credit facility lenders through March 31, 2022 and we have obtained certain modifications to financial covenant measures through December 31, 2023, both as described below under “Part II. – Item 7. – Management’s Discussion and Analysis of Financial Condition and Results of Operations - Management’s Actions in Response to the Effects of COVID-19 on Our Operations – Financial Measures and Liquidity.” The covenant waivers will make the full capacity under the $400 Million Revolver (as defined below) available to us during those time periods to provide adequate liquidity should we experience a continued disruption in lodging demand.

While the ratio will vary from time to time, we have historically intended to limit our ratio of net debt to Adjusted EBITDAre, which may be adjusted for non-cash and non-recurring items, to no more than 6.5x. For purposes of calculating this ratio, we exclude preferred stock from indebtedness. 

As a result of the negative financial effects of the COVID-19 pandemic on our business as described below under “Part II. – Item 7. – Management’s Discussion and Analysis of Financial Condition and Results of Operations - Effects of COVID-19 Pandemic on Our Business,” we experienced a material decline in our Adjusted EBITDAre during the year ended December 31, 2020. As a result, our net debt to Adjusted EBITDAre as of December 31, 2020 is significantly higher than our target of 6.5x. However, we intend to limit our ratio of net debt to Adjusted EBITDAre, which may be adjusted for non-cash and non-recurring items, to more normal levels once we have recovered from the negative effects of the COVID-19 pandemic and we are able to return to pre-pandemic operating and financial performance.

In July 2019, the Company entered into a joint venture with GIC, Singapore’s sovereign wealth fund, to acquire assets that align with the Company’s current investment strategy and criteria. The Company serves as general partner and asset manager of the joint venture and intends to invest 51% of the equity capitalization of the limited partnership, with GIC investing the remaining 49%. The joint venture intends to finance assets with an anticipated 50% overall leverage target. The Company earns fees for providing services to the joint venture and will have the potential to earn incentive fees based on the joint venture achieving certain return thresholds. As of December 31, 2020, the joint venture owns the five hotel properties acquired in 2019.

Historically, we financed our long-term growth with borrowings under our 2018 Senior Credit Facility, term loans, contributions from joint venture partners, and proceeds from the strategic sale of hotels. Our debt includes, and may include in the future, debt secured by stock pledges, mortgage debt secured by hotels and unsecured debt.  As of December 31, 2020, we had $1.1 billion in outstanding indebtedness, including $142.5 million under the Joint Venture Credit Facility.
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Subsequent to December 31, 2020, as described under “Part II – Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources,” we entered into an underwriting agreement (the “Underwriting Agreement”) on January 7, 2021 with the several underwriters named on Schedule I therein (the “Underwriters”), for whom BofA Securities, Inc. and Deutsche Bank Securities Inc. acted as representatives, pursuant to which we agreed to offer and sell $287.5 million aggregate principal amount of the Company’s 1.50% convertible senior notes due 2026 (such notes, the “Convertible Notes,” and such offering, the “Convertible Notes Offering”). In the Underwriting Agreement, we made certain customary representations, warranties and covenants and agreed to indemnify the Underwriters against certain liabilities, including liabilities under the Securities Act of 1933, as amended. The closing of the Convertible Notes Offering occurred on January 12, 2021.

The net proceeds from the Convertible Notes Offering, after deducting underwriting discounts and commissions and estimated offering expenses payable by the Company (including net proceeds from the full exercise by the underwriters of their over-allotment option to purchase additional Convertible Notes), were approximately $279.8 million before consideration of the $21.1 million privately negotiated capped call transactions (the "Capped Call Transactions").    

When purchasing hotel properties, subject to restrictions contained in the 2018 Senior Credit Facility, the Operating Partnership may issue Common Units or Preferred Units as full or partial consideration to sellers who may be interested in taking advantage of the opportunity to defer taxable gains on the sale of a property or participate in the potential appreciation in the value of our common stock.

Competition
 
We face competition for investments in hotel properties from institutional pension funds, private equity investors, REITs, hotel companies and others who are engaged in hotel acquisitions and investments. Some of these entities have substantially greater financial and operational resources than we have. This competition may increase the bargaining power of property owners seeking to sell, reduce the number of suitable investment opportunities available to us and increase the cost of acquiring targeted hotel properties.
 
The lodging industry is highly competitive. Our hotels compete with other hotels and alternative accommodations for guests in their respective markets based on a number of factors, including location, convenience, brand affiliation, quality of the physical condition of the hotel, guestroom rates, range of services and guest amenities or accommodations offered and quality of customer service. Competition is often specific to the individual markets in which our hotels are located and includes competition from existing and new hotels. Competition could adversely affect our occupancy rates, our ADR and our RevPAR, and may require us to provide additional amenities or make capital improvements that we otherwise would not have to make, which may reduce our profitability.
 
Seasonality
 
Certain segments of the hotel industry are seasonal in nature.  Leisure travelers tend to travel more during the summer.  Business travelers occupy hotels relatively consistently throughout the year, but decreases in business travel occur during summer and the winter holidays.  The hotel industry is also seasonal based upon geography.  Hotels in the southern U.S. tend to have higher occupancy rates during the winter months.  Hotels in the northern U.S. tend to have higher occupancy rates during the summer months.
 
Regulation
 
Our properties are subject to various covenants, laws, ordinances and regulations, including regulations relating to accessibility, fire and safety requirements. We believe each of our hotels has the necessary permits and approvals to operate its business.
 
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Americans with Disabilities Act of 1990 (“ADA”)
 
Our properties must comply with Title III of the ADA to the extent that they are “public accommodations” as defined by the ADA. Under the ADA, all public accommodations must meet federal requirements related to access and use by disabled persons. The ADA may require removal of structural barriers to access by persons with disabilities in certain public areas of our properties where removal is readily achievable. Although we believe the properties in our portfolio substantially comply with present requirements of the ADA, a determination to the contrary could require removal of access barriers and non-compliance could result in litigation costs, costs to remediate deficiencies, U.S. government fines or in damages to private litigants. The obligation to make readily achievable accommodations is an ongoing one, and we will continue to assess our properties and to make alterations as appropriate in this respect.
 
Environmental, Health and Safety Matters
 
Our hotels and undeveloped land parcels are subject to various federal, state and local environmental laws that impose liability for contamination. Under these laws, governmental entities have the authority to require us, as the current owner of the property, to perform or pay for the cleanup of contamination (including hazardous substances, waste, or petroleum products) at, on, under or emanating from the property and to pay for natural resource damages arising from contamination.  These laws often impose liability without regard to whether the owner or operator or other responsible party knew of, or caused the contamination, and the liability may be joint and several.  Because these laws also impose liability on persons who owned a property at the time it became contaminated, we could incur cleanup costs or other environmental liabilities even after we sell properties. Contamination at, on, under or emanating from our properties also may expose us to liability to private parties for costs of remediation, personal injury and death or property damage.  In addition, environmental liens may be created on contaminated sites in favor of the government for damages and costs it incurs to address contamination.  If contamination is discovered on our properties, environmental laws also may impose restrictions on the manner in which our property may be used or our businesses may be operated, and these restrictions may require substantial expenditures. Moreover, environmental contamination can affect the value of a property and therefore, an owner’s ability to borrow funds using the property as collateral or to sell the property on favorable terms or at all. Furthermore, persons who sent waste to a waste disposal facility, such as a landfill or an incinerator, may be liable for costs associated with cleanup of that facility.
 
Some of our properties may have contained historical uses which involved the use or storage of hazardous chemicals and petroleum products (for example, storage tanks, gas stations and dry-cleaning operations) which if released, could have affected our properties. In addition, some of our properties may be near or adjacent to other properties that have contained or currently contain storage tanks containing petroleum products or conducted or currently conduct operations which use other hazardous or toxic substances. Releases from these adjacent or surrounding properties could affect our properties and we may be liable for any associated cleanup.

Independent environmental consultants conducted Phase I environmental site assessments on all of our properties prior to acquisition and we intend to conduct Phase I environmental site assessments on properties we acquire in the future. Phase I site assessments are intended to discover and evaluate information regarding the environmental condition of the surveyed properties and surrounding properties. These assessments do not generally include soil sampling, subsurface investigations or comprehensive asbestos surveys. In some cases, the Phase I environmental site assessments were conducted by another entity such as a lender, and we may not have the authority to rely on such reports. None of the Phase I environmental site assessments of the hotel properties in our portfolio revealed any past or present environmental condition that we believe could have a material adverse effect on our business, financial position or results of operations. In addition, the Phase I environmental site assessments may also have failed to reveal all environmental conditions, liabilities or compliance concerns. The Phase I environmental site assessments were completed at various times and material environmental conditions, liabilities or compliance concerns may have arisen after the review was completed or may arise in the future; and future laws, ordinances or regulations may impose material additional environmental liability.
 
In addition, our hotels (including our real property, operations and equipment) are subject to various federal, state and local environmental, health and safety regulatory requirements that address a wide variety of issues, including, but not limited to, the potential transmission of infectious diseases such as COVID-19, the existence of mold and other airborne contaminants above regulatory thresholds, the registration, maintenance and operation of our boilers and storage tanks, the supply of potable water to our guests, air emissions from emergency generators, storm water and wastewater discharges, protection of natural resources, asbestos, lead-based paint, and waste management. Some of our hotels also routinely handle and use hazardous or regulated substances and wastes as part of their operations (for example, swimming pool chemicals or biological waste). Our hotels incur costs, and in certain situations, may be required to limit operations, to comply with these environmental, health and safety laws and regulations and if these regulatory requirements are not met or unforeseen events result in the discharge of dangerous or toxic substances at our hotels, we could be subject to fines and penalties for non-compliance with applicable laws
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and material liability from third parties for harm to the environment, damage to real property or personal injury or death. We are aware of no past or present environmental liability for non-compliance with environmental, health and safety laws and regulations that we believe would have a material adverse effect on our business, financial position or results of operations.

Environmental, Social and Governance (ESG) Matters

Our ongoing commitment to our environment, our communities and our stakeholders is an important part of our core responsibility to be more sustainable, inclusive and equitable. Since establishing our Corporate Responsibility program in 2017, we have built upon our sustainability objectives, from tracking metrics related to our consumption, waste, recycling and greenhouse gas emissions, to setting measurable, science-based reduction targets for energy, water and carbon, and to committing to improve the efficiency of our buildings and promote sustainable operations through our energy management program. Additionally, we have expanded charitable engagement with our community through the Summit Foundation, our 501(c)(3) nonprofit organization, and have broadened our social programs to enhance connectivity among our employees, partners and stakeholders to ensure that we champion an environment of diversity and inclusivity.

For more information on these and our other sustainability practices, including environmental and social metrics and results, please see our current sustainability report available on our website at https://www.shpreit.com/responsibility.

Tax Status
 
REIT Election

We have elected to be taxed as a REIT for federal income tax purposes. Our qualification as a REIT depends upon our ability to meet, on a continuing basis, through actual investment and operating results, various complex requirements under the IRC relating to, among other things, the sources of our gross income, the composition and values of our assets, the timing and amount of our dividend distributions and the diversity of ownership of our stock. We believe that we have been organized and have operated in conformity with the requirements for qualification as a REIT under the IRC and that our current and intended manner of operation will enable us to continue to meet the requirements for qualification and taxation as a REIT for federal income tax purposes.
 
For the income from our hotel operations to constitute “rents from real property” for purposes of the gross income tests required for REIT qualification, we cannot directly operate any of our hotel properties.  Accordingly, all of our hotels are leased to our TRS lessees. Summit Hotel TRS, Inc. is a “taxable REIT subsidiary,” which is a corporate subsidiary of a REIT that jointly elects with the REIT to be treated as a TRS and pays federal income tax at regular corporate rates on its taxable income. In addition, for the hotels owned in our joint venture, we have separate taxable REIT subsidiaries (collectively with Summit Hotel TRS, Inc., our "TRSs"). We will lease newly acquired hotels to our existing TRSs or additional TRSs in the future.  Our TRS lessees pay rent to us that will qualify as “rents from real property,” provided that the TRS lessees engage “eligible independent contractors” to manage our hotels.  All of our hotels are operated pursuant to hotel management agreements with professional third-party hotel management companies.  We believe each of the third-party managers qualifies as an “eligible independent contractor” under the IRC.
 
As a REIT, we generally will not be subject to federal income tax on our REIT taxable income that we distribute as dividends to our stockholders.  Under the IRC, REITs are subject to numerous organizational and operational requirements, including a requirement that they distribute each year at least 90% of their taxable income, subject to certain adjustments and excluding any net capital gains.  If we fail to qualify for taxation as a REIT in any taxable year and do not qualify for certain statutory relief provisions, our income for that year will be taxed at regular corporate rates, and we will be unable to re-elect REIT status until the fifth calendar year after the year in which we failed to qualify as a REIT, unless we satisfy certain relief provisions.  Even if we qualify as a REIT for federal income tax purposes, we may still be subject to state and local taxes on our income and assets and to federal income and excise taxes on our undistributed income.  Additionally, any income earned by our TRSs will be fully subject to federal, state and local corporate income tax.


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Human Capital Resources
 
As of February 15, 2021, we had 46 corporate employees. None of our corporate employees are represented by a labor union or covered by a collective bargaining agreement. All persons employed in the day-to-day operations of the hotels are employees of our third-party independent management companies engaged by our TRS lessee or its subsidiaries to operate such hotels.

In March 2020, we temporarily closed our corporate office due to the COVID-19 pandemic, and our employees began to work remotely. We provided various office supplies and resources to our employees as needed to allow them to perform their work remotely. Local regulations allowed our corporate office to re-open in May 2020, but we have allowed employees to continue to work remotely if desired. We have implemented COVID-19 protection protocols in order to minimize the spread of COVID-19 in our corporate office. All of our employees have received training on these protocols, and are required to sign an acknowledgement of such protocols prior to returning to the corporate office.

Our employees are vital to the success of our Company. We are committed to cultivating a culture of connectedness based on our primary values of passion, integrity, and excellence and strive to create an inspiring and inclusive work environment where our employees feel motivated and empowered to produce exceptional results for the Company. We strive to always be guided by our fundamental values and ethical standards to provide our team members with a fair and equitable work environment. We annually distribute and require acknowledgement of an employee handbook to all employees that provides direction on relevant policies related to conducting our business in accordance with our core values.

Our human capital resource objectives include, as applicable, identifying, recruiting, retaining and incentivizing our employees. To attract and retain top talent, we have designed our compensation and benefits programs to provide a balanced and effective reward structure, including:

Subsidized medical, dental and vision insurance;
Life and disability insurance;
Stock grant program;
401(k) savings and retirement plan with Company Safe Harbor contribution;
Paid family leave; and
Employee education programs

We believe that our compensation and employee benefits are competitive and allow us to attract and retain skilled employees throughout our Company. We frequently benchmark our compensation and benefits package against those in both our industry and in similar disciplines.

We have established social programs with the goal of promoting a culture of unity and collaboration among our various departments through career and personal development opportunities designed to inspire all of those involved. Our career and personal development focus on four main principles: (1) communication and teamwork; (2) networking and mentorship; (3) leadership development; and (4) work-life balance. In addition, we have a formal annual goal setting and performance review process for our employees.

We believe that equal employment opportunity is a fundamental principle and do not tolerate discrimination against any person on the basis of race, color, religious creed, sex, age, gender, gender identity, national origin, ancestry, present or past history of mental disability, learning disability, physical disability, marital status, pregnancy, genetic information, sexual orientation or any other protected characteristic as established by law, in recruiting, hiring, compensation, benefits, termination or any other terms or conditions of employment. Our employees have multiple avenues available through which concerns or inappropriate behavior can be reported, including a confidential hotline. All concerns or reports of inappropriate behavior are promptly investigated with appropriate action taken to address such concerns or behavior.

We are committed to maintaining a work culture that treats all employees fairly and with respect, promotes inclusivity and provides equal opportunities for advancement based on merit. At December 31, 2020, females constituted approximately 40% of our workforce, and ethnic and racial minorities constituted approximately 13% of our workforce. We intend to continue using a combination of targeted recruiting, talent development and internal promotion strategies to expand the diversity of our employee base across all roles and functions.
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Available Information
 
Our Internet website is located at www.shpreit.com. Copies of the charters of the committees of our board of directors, our code of business conduct and ethics and our corporate governance guidelines are available on our website. We will provide timely disclosures of amendments and waivers to the aforementioned documents, if any, via website posting. All reports that we have filed with the Securities and Exchange Commission (“SEC”) including this Annual Report on Form 10-K, our quarterly reports on Form 10-Q and our current reports on Form 8-K, can be obtained free of charge from the SEC’s website at www.sec.gov or through our website. The information contained on, or accessible through the SEC’s website or our website is not incorporated by reference into this report and should not be considered a part of this report.

Item 1A.    Risk Factors.
 
Summary of Risk Factors

Risks Related to Our Business

Risks related to achieving revenue and net income growth
Risks related to acquisitions
Risks of taxable gains as a result of hotel dispositions
Risks related to our third-party property management companies
Risks related to hotel management and franchise agreements
Risks related to outstanding indebtedness including our ability to hedge our interest rate exposure
Risks related to retaining key personnel
Risks related to cyber security
Risks related to the management of our joint venture
Risks related to organized labor

Risks Related to the Lodging Industry

Risks related to the outbreak of the Coronavirus or an outbreak of other highly infectious or contagious diseases
Risks related to adverse changes in economic conditions
Risks related to competition from other hotels and alternative accommodations
Risks inherent to the ownership of hotels and the markets in which we operate
Risks related to hotel development and other capital expenditures
Risks related to uninsured and underinsured losses
Risks related to changes in consumer trends and preferences

Risks Related to the Real Estate Industry and Real Estate-Related Investments

Risks related to the illiquidity of real estate investments
Risks related to compliance with the laws, regulations and covenants that apply to our hotels
Risks related to right-of-use assets on which certain of our hotels are located
Risks related to adverse changes in income and property tax rates or amendments to tax regimes that increase our state and local tax liabilities

Risks Related to Our Organization and Structure

Risks related to our fiduciary duties as the general partner of our Operating Partnership
Risks related to the provisions of our charter
Risks related to the provisions of Maryland law
Risks related to the limited rights of our stockholders
Risks related to actions taken by our board of directors
Risks related to being a holding company with no direct operations
Risks related to maintaining an effective system of internal controls

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Risks Related to Ownership of Our Securities

Risks related to the continued listing of our securities on a nationally-recognized exchange
Risks related to expected distributions
Risks related to stock price volatility
Risks related to the issuance of debt or equity securities

Risks Related to Our Status as a REIT

Risks related to compliance with REIT regulations
Risks related to our TRS structure, including increased tax liabilities and operating costs
Risks that transactions with our TRSs are not conducted on arm’s-length terms
Risks that hotel management companies may not qualify as “eligible independent contractors,” or our hotels may not be considered “qualified lodging facilities”
Risks that the 100% prohibited transactions tax may limit our ability to dispose of our properties
Risks related to adverse legislative or regulatory tax changes
Risks related to our REIT distribution requirements
Risks that our Operating Partnership could be treated as a publicly traded partnership taxable as a corporation for federal income tax purposes
Risks that stockholders may be restricted from acquiring or transferring certain amounts of our stock
Risks that the IRS could determine that certain payments we have received in the nature of liquidated damages may not be ignored for purposes of the gross income tests applicable to REITs
 
The following risk factors address the material risks concerning our business. If any of the risks discussed in this report were to occur, our business, prospects, financial condition, results of operation and our ability to service our debt and make distributions to our stockholders could be materially and adversely affected and the market price per share of our stock could decline significantly. Some statements in this report, including statements in the following risk factors, constitute forward-looking statements. Please refer to the section entitled “Cautionary Statement About Forward-Looking Statements.” The discussion of the potential effect of the following risk factors on our financial results relates to our consolidated financial position, consolidated results of operations and cash flows.

Risks Related to Our Business
 
Our business strategy, future results of operations and growth prospects are dependent on achieving revenue and net income growth from anticipated increases in demand for hotel guestrooms and general economic conditions.
 
Our business strategy includes achieving continued revenue and cash flow growth from anticipated improvement in demand for hotel guestrooms driven by long-term economic growth. We, however, cannot provide any assurances that demand for hotel guestrooms will increase from current levels or continue to exceed the growth of new supply, or the time or extent of any demand growth that we do experience. If demand does not continue to increase as the economy grows, or if there is a slowdown in the general economy resulting in weakening demand, our operating results and growth prospects could be adversely affected. As a result, any slowdown in economic growth or an economic downturn could adversely affect our future results of operations and our growth prospects.
 
The COVID-19 pandemic has materially adversely affected and may continue to materially adversely affect our financial position and results of operations. We are unable to predict when restrictive regulatory measures may be reduced or eliminated, if or when our guests will return to their pre-pandemic travel patterns, or how quickly our operations will return to levels consistent with recent fiscal years after the restrictive measures are reduced or eliminated. See additional risk factor discussion below related to the COVID-19 pandemic.

Our expenses may not decrease if our revenue decreases.
 
Many of the expenses associated with owning and operating hotels, such as debt service payments, property taxes, insurance, utilities, and certain employee compensation costs are relatively fixed. They do not necessarily decrease directly with a reduction in revenue at the hotels and may be subject to increases that are not related to the performance of our hotels or the increase in the rate of inflation. Also, as of December 31, 2020, four of our hotels are subject to third-party ground leases which generally require periodic increases in rent payments. Our ability to pay these rents could be adversely affected if our hotel revenues do not increase at the same or a greater rate than the increases in rental payments under the ground leases.

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Additionally, certain costs, such as wages, benefits and insurance, may exceed the rate of inflation in any given period. In the event of a significant decrease in demand, our hotel managers may not be able to reduce the size of hotel work forces in order to decrease compensation costs. Our managers also may be unable to offset any fixed or increased expenses with higher room rates. Any of our efforts to reduce operating costs also could adversely affect the future growth of our business and the value of our hotel properties.

We may be unable to complete acquisitions that would grow our business.
 
Our growth strategy includes the disciplined acquisition of hotels as opportunities arise, which may be subject to restrictions related to our debt covenants. Our ability to acquire hotels on satisfactory terms or at all is subject to the following significant risks:
 
we may be unable to acquire, or may be forced to acquire at significantly higher prices, desired hotels because of competition from other real estate investors, including other real estate operating companies, REITs and investment funds;
we may be unable to obtain the necessary debt or equity financing to consummate an acquisition or, if obtainable, financing may not be on satisfactory terms; and
agreements for the acquisition of hotels are typically subject to customary conditions to closing, including satisfactory completion of due diligence investigations and the receipt of franchisor and lender consents, and we may spend significant time and incur significant transaction costs on potential acquisitions that we do not consummate.
 
Our inability to complete hotel acquisitions on favorable terms or at all, could adversely affect our financial position, results of operations, and cash flows or the market price of our stock.

The sale of certain hotel properties could result in significant tax liabilities unless we are able to defer the taxable gain through like-kind exchanges under Section 1031 of the IRC ("1031 Exchanges").
 
From time to time, we structure asset sales for possible inclusion in like-kind exchanges within the meaning of Section 1031 of the IRC. The ability to complete a like-kind exchange depends on many factors, including, among others, identifying and acquiring suitable replacement property within limited time periods, and the ownership structure of the properties being sold and acquired.  Therefore, we are not always able to sell an asset as part of a like-kind exchange. When successful, a like-kind exchange enables us to defer the taxable gain on the asset sold. Our inability to defer the taxable gain resulting from the sales of certain hotel properties, could adversely affect our financial position, results of operations, and cash flows or the market price of our stock.
 
We may fail to successfully integrate acquired hotels or achieve expected operating performance.
 
Our ability to successfully integrate newly acquired hotels or achieve expected operating performance is subject to the following risks:
 
we may not possess the same level of familiarity with the dynamics and market conditions of any new markets that we may enter, which could result in us paying too much for hotels in new markets or not have the hotels achieve their maximum potential;
market conditions may result in lower than expected occupancy and guestroom rates;
we may acquire hotels without any recourse, or with only limited recourse, for liabilities, whether known or unknown, such as cleanup of environmental contamination, claims by tenants, vendors or other persons against the former owners of the hotels and claims for indemnification by general partners, directors, officers and others indemnified by the former owners of the hotels;
we may need to spend more than anticipated amounts to make necessary improvements or renovations to our newly acquired hotels;
we may be unable to quickly and efficiently integrate new acquisitions, particularly acquisitions of portfolios of hotels, into our existing operations; and
the negative effect of the COVID-19 pandemic on our financial performance and the uncertainty related to the recovery of our business more in-line with our long-term performance.
 
The inability of our acquired hotels to meet our operating performance expectations could adversely affect our financial position, results of operations, and cash flows or the market price of our stock.
 
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We may assume liabilities in connection with the acquisition of hotel properties, including unknown liabilities.
 
We may assume existing liabilities in connection with the acquisition of hotel properties, some of which may be unknown or unquantifiable on the acquisition date.  Unknown liabilities might include liabilities for cleanup or remediation of undisclosed environmental conditions, claims of hotel guests, vendors or other persons dealing with the seller of a particular hotel property, tax liabilities, employment-related issues and accrued but unpaid liabilities whether incurred in the ordinary course of business or otherwise.  If the magnitude of such unknown liabilities is high, they could adversely affect our financial position, results of operations, and cash flows or the market price of our stock.
 
We may not be able to cause our hotel management companies to operate any of our hotels in a manner that is satisfactory to us, and termination of our hotel management agreements may be costly and disruptive.
 
To qualify as a REIT, we cannot operate or manage our hotels.  Accordingly, all of our hotels are leased to TRS lessees of our TRSs.  All of our hotels are operated pursuant to hotel management agreements with independent hotel management companies, each of which must qualify as an “eligible independent contractor” to operate our hotels. As a result, our financial position, results of operations and our ability to service debt and make distributions to stockholders are dependent on the ability of our hotel management companies to operate our hotels successfully. Any failure of our hotel management companies to provide quality services and amenities or maintain a quality brand name and reputation could have a negative effect on their ability to operate our hotels and could have a material adverse effect on our financial position, results of operations and cash flows.

Even if we believe a hotel is being operated inefficiently or in a manner that does not result in satisfactory operating results, we will have limited ability to require the hotel management company to change its method of operation. We generally attempt to resolve issues with our hotel management companies through discussions and negotiations, but otherwise will only be able to seek redress if a hotel management company violates the terms of the applicable hotel management agreement, and then only to the extent of the remedies provided for under the terms of the hotel management agreement. If we replace the hotel management company of any of our hotels, we may be required to pay a substantial termination fee and we may experience significant disruptions at the affected hotel.
 
Furthermore, we have certain indemnifications from our property managers that generally protect us from financial losses due to the gross negligence or willful misconduct of our property managers. However, the indemnifications may be insufficient or the property manager may not have the financial wherewithal to support their indemnification obligation to us. As such, the indemnification may not provide us with sufficient protection against third-party claims resulting from the gross negligence or willful misconduct of our property managers in the operation of our hotels.

Our hotel managers or their affiliates manage, and in some cases own, have invested in, or provided credit support or operating guarantees to hotels that compete with our hotels, all of which may result in conflicts of interest. As a result, our hotel managers may in the future make decisions regarding competing lodging facilities that are not or would not be in our best interest.
 
Certain of our hotels are managed by affiliates of the franchisors for such hotels.  In these situations, the management agreement and the franchise agreement are typically combined into one document.  Thus, the termination of the management agreement due to poor performance or breach of the management agreement by the management company could also terminate our franchise license.  Thus, we may have very limited options to remedy poor hotel management performance if we desire to retain the franchise license.

These conditions could adversely affect our financial position, results of operations, and cash flows or the market price of our stock.
 
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The management of a large number of hotels in our portfolio is currently concentrated with one hotel management company.
 
As of December 31, 2020, Aimbridge Hospitality (“Aimbridge”) or its affiliates managed 33 of our 72 hotels.  Thus, a substantial portion of our revenues is generated by hotels managed by Aimbridge, which acquired one of our other property managers, Interstate Hotels and Resorts, Inc., in 2019.  This significant concentration of operational risk in one hotel management company makes us more vulnerable economically than if our hotel management was more evenly diversified among several hotel management companies. Any adverse developments in Aimbridge's business, financial strength or ability to operate our hotels efficiently and effectively could have a material adverse effect on our results of operations. We cannot provide assurance that Aimbridge will satisfy its obligations to us or effectively and efficiently operate our hotel properties. The failure or inability of Aimbridge to satisfy its obligations to us or effectively and efficiently operate our hotel properties could adversely affect our financial position, results of operations, and cash flows or the market price of our stock.
 
Restrictive covenants and other provisions in hotel management and franchise agreements could preclude us from taking actions with respect to the sale, refinancing or rebranding of a hotel that would otherwise be in our best interest.
 
Our hotel management agreements and franchise agreements generally contain restrictive covenants and other provisions that do not provide us with flexibility to sell, refinance or rebrand a hotel without the consent of the manager or franchisor. For example, the terms of some of these agreements may restrict our ability to sell a hotel unless the purchaser is not a competitor of the hotel management company or franchisor, assumes the related agreement and meets specified other conditions. In addition, our franchise agreements restrict our ability to rebrand particular hotels without the consent of the franchisor, which could result in significant operational disruptions and litigation if we do not obtain the consent. We could be forced to pay consent or termination fees to hotel managers or franchisors under these agreements as a condition to changing management or franchise brands of our hotels, and these fees could deter us from taking actions that would otherwise be in our best interest or could cause us to incur substantial expense.

These conditions could adversely affect our financial position, results of operations, and cash flows or the market price of our stock.
 
We are required to expend funds to maintain franchisor operating standards and we may experience a loss of a franchise license or a decline in the value of a franchise brand.
 
Our hotels operate under franchise agreements, and the maintenance of franchise licenses for our hotels is subject to our franchisors’ operating standards and other terms and conditions. We expect that franchisors will periodically inspect our hotels to ensure that we, our TRS lessees and our hotel management companies maintain our franchisors’ standards. Failure by us, our TRS lessees or our hotel management companies to maintain these standards or other terms and conditions could result in a franchise license being terminated. If a franchise license terminates due to our failure to make required improvements or to otherwise comply with its terms, we could also be liable to the franchisor for a termination payment, which varies by franchisor and by hotel. As a condition of our continued holding of a franchise license, a franchisor could also require us to make capital improvements to our hotels, even if we do not believe the improvements are necessary or desirable or would result in an acceptable return on our investment.
 
The loss of a franchise license could materially and adversely affect the operations or the underlying value of the hotel because of the loss of associated name recognition, marketing support and centralized reservation systems provided by the franchisor. Because our hotels are concentrated with a limited number of franchise brands, a loss of all of the licenses for a particular franchise could adversely affect our financial position, results of operations, and cash flows or the market price of our stock.
 
Negative publicity related to one of the franchise brands or the general decline of a brand also may adversely affect the underlying value of our hotels or result in a reduction in business.

We rely on external sources of capital to fund future capital needs, and if we encounter difficulty in obtaining such capital, we may not be able to make future acquisitions necessary to grow our business or meet maturing obligations.
 
To qualify as a REIT under the IRC, we are required, among other things, to distribute each year to our stockholders at least 90% of our REIT taxable income, determined without regard to the dividends paid deduction and excluding any net capital gain. Because of this distribution requirement, we may not be able to fund, from cash retained from operations, all of our future capital needs, including capital needed to make investments and to satisfy or refinance maturing obligations.
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We expect to continue to rely on external sources of capital, including debt and equity financing, and contributions from joint venture partners related to joint venture activities, to fund future capital needs. Part of our strategy involves the use of additional debt financing to supplement our equity capital which may include our revolving credit and term loan facilities, mortgage financing and other unsecured financing. Our ability to effectively implement and accomplish our business strategy will be affected by our ability to obtain and use additional leverage in sufficient amounts and on favorable terms. However, the capital environment is often characterized by extended periods of limited availability of both debt and equity financing, increasing financing costs, stringent credit terms and significant volatility. We may not be able to secure first mortgage financing or increase the availability under, extend the maturity of or refinance our revolving credit and term loan facilities.  If we are unable to obtain needed capital on satisfactory terms or at all, we may not be able to make the investments needed to expand our business, or to meet our obligations and commitments as they mature. Our access to capital will depend upon a number of factors over which we have little or no control, including general market conditions, the market’s perception of our current and potential future earnings and cash distributions and the market price of the shares of our common stock. We may not be in a position to take advantage of attractive investment opportunities for growth if we are unable to access the capital markets on a timely basis or on favorable terms.
 
We have a significant amount of debt, and our organizational documents have no limitation on the amount of additional indebtedness that we may incur in the future.
 
We have a significant amount of debt.  In the future, we may incur additional indebtedness to finance future hotel acquisitions, capital improvements and development activities and other general corporate purposes. In addition, there are no restrictions in our charter or bylaws that limit the amount or percentage of indebtedness that we may incur or restrict the form in which our indebtedness will be incurred (including recourse or non-recourse debt or cross-collateralized debt).
 
A substantial level of indebtedness could have adverse consequences for our business, results of operations and financial position because it could, among other things:
 
require us to dedicate a substantial portion of our cash flow from operations to make principal and interest payments on our indebtedness, thereby reducing our cash flow available to fund working capital, capital expenditures and other general corporate purposes, including to pay dividends on our common stock and our preferred stock as currently contemplated or necessary to satisfy the requirements for qualification as a REIT;
increase our vulnerability to general adverse economic and industry conditions and limit our flexibility in planning for, or reacting to, changes in our business and our industry;
limit our ability to borrow additional funds or refinance indebtedness on favorable terms or at all to expand our business or ease liquidity constraints; and
place us at a competitive disadvantage relative to competitors that have less indebtedness.
 
Generally, our mortgage debt carries maturity dates or call dates such that the loans become due prior to their full amortization.  It may be difficult to refinance or extend the maturity of such loans on terms acceptable to us, or at all, and we may not have sufficient borrowing capacity on our 2018 Senior Credit Facility to repay any amounts that we are unable to refinance.  Although we believe that we will be able to refinance or extend the maturity of these loans, or will have the capacity to repay them, if necessary, using draws under our 2018 Senior Credit Facility, there can be no assurance that our 2018 Senior Credit Facility will be available to repay such maturing debt, as draws under our 2018 Senior Credit Facility are subject to limitations based upon our unencumbered assets and certain financial covenants.

These conditions could adversely affect our financial position, results of operations, and cash flows or the market price of our stock.

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The agreements governing our indebtedness place restrictions on us and our subsidiaries, reducing operational flexibility and creating default risks.
 
The agreements governing our indebtedness contain covenants that place restrictions on us and our subsidiaries. These covenants may restrict, among other activities, our and our subsidiaries’ ability to:
 
 merge, consolidate or transfer all or substantially all of our or our subsidiaries’ assets;
sell, transfer, pledge or encumber our stock or the ownership interests of our subsidiaries;
 incur additional debt or place mortgages on our unencumbered hotels;
make certain investments in hotel or other assets;
enter into, terminate or modify leases for our hotels and hotel management and franchise agreements;
make certain expenditures, including capital expenditures;
 pay dividends on or repurchase our capital stock; and
enter into certain transactions with affiliates.
 
These covenants could impair our ability to grow our business, take advantage of attractive business opportunities or successfully compete. Our ability to comply with financial and other covenants may be affected by events beyond our control, including prevailing economic, financial and industry conditions. A breach of any of these covenants or covenants under any other agreements governing our indebtedness could result in an event of default. Cross-default provisions in our debt agreements could cause an event of default under one debt agreement to trigger an event of default under our other debt agreements. Upon the occurrence of an event of default under any of our debt agreements, the lenders could exercise their remedies available under the terms of the loan agreements, which could include accelerating outstanding debt to be immediately due and payable. If we were unable to repay or refinance the accelerated debt, the lenders could proceed against any assets pledged to secure that debt, including foreclosing on or requiring the sale of our hotels, and the proceeds from the sale of these hotels may not be sufficient to repay such debt in full.
 
These conditions could adversely affect our financial position, results of operations, and cash flows or the market price of our stock.

Secured debt obligations expose us to the possibility of foreclosure, which could result in the loss of our investment in any hotel subject to mortgage debt or equity pledges.
 
All of our long-term debt existing as of December 31, 2020 is secured by mortgages on our hotel properties and related assets or pledges of the equity in our hotel-ownership and TRS lessee subsidiaries or both. Incurring mortgages, equity pledges and other secured debt obligations increases our risk of property losses because defaults on secured indebtedness may result in foreclosure actions initiated by lenders and ultimately our loss of the hotels securing such loans or of the entities whose equity is pledged to secure such loans, which would include a loss of all of such entity's assets. For tax purposes, a foreclosure of any of our hotels would be treated as a sale of the hotel for a purchase price equal to the outstanding balance of the debt secured by the mortgage. If the outstanding balance of the debt secured by the mortgage exceeds our tax basis in the hotel, we would recognize taxable income on foreclosure, but would not receive any cash proceeds, which could hinder our ability to meet the REIT distribution requirements imposed by the IRC. We may assume or incur new mortgage or other secured indebtedness on the hotels and entities in our portfolio or hotels and entities that we acquire in the future. Any default under any one of our secured debt obligations may increase the risk of our default on our other indebtedness.
    
These conditions could adversely affect our financial position, results of operations, and cash flows or the market price of our stock.
 
An increase in interest rates would increase our interest costs on our variable rate debt and could have broader effects on the cost of capital for real estate companies and real estate asset values.
 
With respect to our existing and future variable-rate debt, an increase in interest rates would increase our interest payments and reduce our cash flow available for other general corporate purposes, including funding of working capital, capital improvements to our hotels, acquisitions of additional hotels, or dividends, among other things. In addition, rising interest rates could limit our ability to refinance existing debt when it matures and increase interest costs on any debt that is refinanced. Further, an increase in interest rates could increase the cost of capital for real estate assets which, in turn, could have a negative effect on real estate asset values generally, and our hotel properties specifically.  

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In addition, certain of our variable rate indebtedness uses LIBOR as a benchmark for establishing the rate of interest and may be hedged with LIBOR-based interest rate derivatives. LIBOR is the subject of recent national, international and other regulatory guidance and proposals for reform. As a result of this activity, LIBOR is likely to be replaced with a new benchmark or perform differently than in the past. The consequences of these developments cannot be entirely predicted, but could include an increase in the cost of our variable rate indebtedness.

See “Part II Item 7A. — Quantitative and Qualitative Disclosures about Market Risk.”

These conditions could adversely affect our financial position, results of operations, and cash flows or the market price of our stock.
 
We hedge our interest rate exposure to manage our exposure to interest rate volatility, however, such arrangements may adversely affect us.
 
We have entered into four interest rate swaps having an aggregate notional amount of $400.0 million at December 31, 2020, to hedge against interest rate increases on certain of our outstanding variable-rate indebtedness. In the future, we may manage our exposure to interest rate volatility by using hedging arrangements, such as interest rate swaps, caps, and collars. Hedging arrangements involve the risk that the arrangement may fail to protect or adversely affect us because, among other things:
 
interest rate hedging can be expensive, particularly during periods of volatile interest rates;
available interest rate hedges may not correspond directly with the interest rate risk for which protection is sought;
the duration of the hedge may not match the duration of the related liability;
the credit quality of the hedging counterparty owing money on the hedge may be downgraded to such an extent that it impairs our ability to collect, sell, or assign our side of the hedging transaction; and
the hedging counterparty owing money in the hedging transaction may default on its obligation to pay.
 
As a result of any of the foregoing, our hedging transactions, which are intended to limit losses and exposure to interest rate volatility, could adversely affect our financial position, results of operations, and cash flows or the market price of our stock. At December 31, 2020, our interest rate swaps were in a liability position totaling $30.9 million (see "Part II – Item 8. – Financial Statements and Supplementary Data – Note 8 – Derivative Financial Instruments and Hedging").
 
Our success depends on key personnel whose continued service is not guaranteed.
 
We depend on the efforts and expertise of our management team to manage our day-to-day operations and strategic business activities.  The loss of services from any of the members of our management team, and our inability to find suitable replacements on a timely basis, could adversely affect our financial position, results of operations, and cash flows or the market price of our stock.

Effective January 15, 2021, our Board of Directors appointed our Chief Financial Officer, Jon Stanner, as President and Chief Executive Officer of the Company. Our current Chairman and former President and Chief Executive Officer, Daniel P. Hansen, transitioned to the role of Executive Chairman of the Board effective January 15, 2021. We are currently engaged in a search for a qualified individual to fill the role of Chief Financial Officer for the Company. Any delay or significant disruption in the transition of these roles could have an adverse effect on our operations or financial performance.

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System security risks, data protection breaches, cyber-attacks and systems integration issues could disrupt our internal operations or services provided to guests at our hotels, and any such disruption could reduce our expected revenue, increase our expenses, damage our reputation and adversely affect our stock price.

We and our third-party managers and franchisors rely on information technology networks and systems, including the Internet, to process, transmit and store electronic customer information. These systems require the collection and retention of large volumes of hotel guests’ personally identifiable information, including credit card numbers. We purchase some of our information technology from vendors, on whom our systems depend. We rely on commercially available systems, software, tools and monitoring to provide security for processing, transmission and storage of confidential customer information, such as personally identifiable information, including information relating to financial accounts. Although we have taken steps to protect the security of our information systems and the data maintained in those systems, it is possible that our safety and security measures will not be able to prevent the systems’ improper functioning or damage, or the improper access or disclosure of personally identifiable information such as in the event of cyber-attacks. Cyber criminals may be able to penetrate our network security, or the network security of our third-party managers and franchisors, and misappropriate or compromise our confidential information or that of our hotel guests, create system disruptions or cause the shutdown of our hotels. Computer programmers and hackers also may be able to develop and deploy viruses, worms and other malicious software programs that attack our computer systems, or the computer systems operated by our third-party managers and franchisors, or otherwise exploit any security vulnerabilities of our respective networks. In addition, sophisticated hardware and operating system software and applications that we and our third-party managers or franchisors may procure from outside companies may contain defects in design or manufacture, including “bugs” and other problems that could unexpectedly interfere with our internal operations or the operations at our hotels. The costs to eliminate or alleviate cyber or other security problems, bugs, viruses, worms, malicious software programs and security vulnerabilities could be significant, and efforts to address these problems may not be successful and could result in interruptions, delays, cessation of service and loss of existing or potential business at our hotels. Many of the information systems and networks used to operate our hotel properties are managed by our third-party property managers or franchisors and are not under our control. Any compromise of the function, security and availability of the information networks managed by our third-party property managers or franchisors could result in disruptions to operations, delayed sales or bookings, lost guest reservations, increased costs and lower margins. Any of these events could adversely affect our financial results, stock price and reputation, result in misstated financial reports and subject us to potential litigation and liability.
 
Portions of our information technology infrastructure or the information technology infrastructure of our third-party managers and franchisors also may experience interruptions, delays or cessations of service or produce errors in connection with systems integration or migration work that takes place from time to time. We or our third-party managers and franchisors may not be successful in implementing new systems and transitioning data, which could cause business disruptions and be expensive, time consuming, disruptive and resource-intensive. Such disruptions could adversely impact the ability of our third-party managers and franchisors to fulfill reservations for guestrooms and other services offered at our hotels.
 
Although we work with our third-party property managers and franchisors to protect the security of our information systems, and the data maintained in these systems, there can be no assurance that the security measures we have taken will prevent failures, inadequacies or interruptions in system services, or that system security will not be breached through physical or electronic break-ins, computer viruses or attacks by hackers. The increased level of sophistication and volume of attacks in recent years make it more difficult to predict the effect of a future breach. In addition, we rely on the security systems of our third-party managers and franchisors to protect proprietary and customer information from these threats.
 
All of our third-party property managers carry cyber insurance policies to protect and offset a portion of potential costs that may be incurred from a security breach. Additionally, we currently have cyber insurance policies to provide supplemental coverage above the coverage carried by our third-party managers. Despite various precautionary steps to protect our hotels from losses resulting from cyber-attacks, any occurrence of a cyber-attack could still result in losses at our properties, which could affect our results of operations. To date, we are not currently aware of any cyber incidents that we believe to be material or that could have a material adverse effect on the business, financial condition and results of operations of the Company.

Any of these items could adversely affect our financial position, results of operations, and cash flows or the market price of our stock.

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Joint venture investments could be adversely affected by a lack of sole decision-making authority with respect to such investments, disputes with joint venture partners and the financial condition of joint venture partners.
 
We have in the past and may in the future enter into strategic joint ventures with unaffiliated investors to acquire, develop, improve or dispose of hotels, thereby reducing the amount of capital required by us to make investments and diversifying our capital sources for growth. We may not have sole decision-making authority with respect to these investments, and as a result we may not be able to take actions which are in the best interest of our stockholders.  Further, disputes between us and our joint venture partners may result in litigation or arbitration which could increase our expenses and prevent our officers and directors from focusing their time and effort on our business and could result in subjecting the hotels owned by the applicable joint venture to additional risks.

In July 2019, the Company entered into a joint venture with GIC, Singapore’s sovereign wealth fund, to acquire assets that align with the Company’s current investment strategy and criteria. The Company serves as general partner and asset manager of the joint venture and intends to invest 51% of the equity capitalization of the limited partnership, with GIC investing the remaining 49%. Certain transactions, including, but not limited to, asset acquisitions, hotel dispositions, and venture financing, require the approval of all parties. The Company earns fees for providing services to the joint venture and will have the potential to earn incentive fees based on the joint venture achieving certain return thresholds. As of December 31, 2020, the joint venture owns the five hotel properties acquired in 2019.
 
If a joint venture partner becomes bankrupt or otherwise defaults on its obligations under a joint venture agreement, we and any other remaining joint venture partners would generally remain liable for the joint venture liabilities. Furthermore, if a joint venture partner becomes bankrupt or otherwise defaults on its obligations under a joint venture agreement, we may be unable to continue the joint venture other than by purchasing such joint venture partner’s interests or the underlying assets at a premium to the market price. If any of the above risks are realized, it could adversely affect our financial position, results of operations, and cash flows or the market price of our stock.

Actions by organized labor could have a material adverse effect on our business.
 
We believe that unions are generally becoming more aggressive about organizing workers at hotels in certain locations and in certain cases are demanding changes to work rules or conditions that are potentially more costly to owners.  If the workers employed by the third-party hotel management companies that manage our hotels unionize in the future, potential labor activities at any affected hotel could significantly increase the administrative, labor and legal expenses of the third-party hotel management company that we have engaged to manage that hotel, which likely would adversely affect the operating results of the hotel properties. If hotels in our portfolio are unionized, this could adversely affect our financial position, results of operations, and cash flows or the market price of our stock.

Risks Related to the Lodging Industry

The outbreak of any highly infectious or contagious diseases, could adversely affect the number of guests visiting our hotel properties and disrupt our operations, resulting in a material adverse effect on our business, financial condition, results of operations and cash flows.

Our business is sensitive to the willingness and ability of our customers to travel. The outbreak of any highly infectious or contagious diseases, such as COVID-19, may result in decreases in travel to and from, and economic activity in, areas in which we operate, and may adversely affect the number of guests that visit our hotel properties. The spread of highly infectious or contagious diseases could cause severe disruptions in air and other forms of travel that reduce the number of guests visiting our hotel properties. This could disrupt our operations and we could experience a material adverse effect on our business, financial condition, results of operations and cash flows. The COVID-19 pandemic has had a material adverse effect on our operations and financial performance. Management cannot predict the extent to which disruptions in travel as a result of infectious disease outbreaks, such as COVID-19, will continue to have a material adverse effect on our business, financial condition, results of operations and cash flows.

The novel coronavirus (COVID-19) pandemic has disrupted and may further disrupt our business, which could further materially adversely affect our operations, financial position and results of operations.

The COVID-19 pandemic has materially adversely affected and may continue to materially adversely affect our financial position and results of operations. The extent to which the COVID-19 pandemic will affect our business, liquidity, financial condition, and results of operations, will depend on numerous evolving factors that we may not be able to accurately
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predict or assess, including the duration and scope of the pandemic; the negative effect on the domestic and global economies; the short and long-term effects on the demand for guestrooms and levels of consumer confidence; the short and long-term effects on business travel or group demand for guestrooms; our ability to successfully mitigate the effects caused by the pandemic; government action, including restrictions on travel; increased unemployment; and reductions in business and consumer discretionary spending. Even if COVID-19 does not continue to spread significantly, the perceived risk of infection or health risk may adversely affect consumer confidence, which will adversely affect our business, liquidity, financial condition and results of operations. We have been and could continue to be adversely affected by government restrictions on public gatherings, shelter-in-place orders and government-mandated or voluntary temporary suspension of operations of certain of our properties. We are unable to predict when restrictive measures may be reduced or eliminated or how quickly our operations will return to levels consistent with recent fiscal years after the restrictive measures are reduced or eliminated.
 
Economic conditions may adversely affect the lodging industry.
 
The performance of the lodging industry has historically been directly correlated to the performance of the general economy and, specifically, growth in U.S. gross domestic product (“GDP”). The lodging industry is also sensitive to business and personal discretionary spending levels. Declines in corporate budgets and consumer demand due to adverse general economic conditions, risks affecting or reducing travel patterns, lower consumer confidence or adverse political conditions can lower the revenue and profitability of our assets and therefore the net operating profits of our investments. Economic weakness could adversely affect our financial position, results of operations, and cash flows or the market price of our stock.
 
We experience a high level of competition from other hotels and alternative accommodations in the markets in which we operate.
 
The lodging industry is highly competitive. Our hotels compete with other hotels for guests in each market in which our hotels operate based on a number of factors, including location, convenience, brand affiliation, guestroom rates, range of services and guest amenities or accommodations offered and quality of customer service. We also compete with numerous owners and operators of vacation ownership resorts, as well as companies that offer alternative accommodations, such as Airbnb and similar organizations, which operate websites that market available furnished, privately-owned residential properties, including homes and condominiums, that can be rented on a nightly, weekly or monthly basis. Competition will often be specific to the individual markets in which our hotels are located and includes competition from existing and new hotels as well as alternative accommodations. The price transparency of the lodging industry could lead to difficulty in increasing ADR as our competitors may offer guestrooms at lower rates than we can, which could result in our competitors increasing their occupancy at our expense. Competition could adversely affect our occupancy, ADR and RevPAR, and may require us to provide additional amenities or make capital improvements that we otherwise would not have to make.

These conditions could adversely affect our financial position, results of operations, and cash flows or the market price of our stock.
 
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Our operating results and ability to make distributions to our stockholders may be adversely affected by the risks inherent to the ownership of hotels and the markets in which we operate.
 
Hotels have different economic characteristics than many other real estate assets. A typical office property owner, for example, has long-term leases with third-party tenants, which provide a relatively stable long-term stream of revenue. By contrast, our hotels are subject to various operating risks common to the lodging industry, many of which are beyond our control, including the following:
 
relatively short-duration occupancies;
dependence on business and commercial travelers and tourism;
over-building of hotels in our markets, which could adversely affect occupancy and revenue at the hotels we acquire;
increases in energy costs and other expenses affecting travel, which may affect travel patterns and reduce the number of business and commercial travelers and tourists;
increases in operating costs, including increased real estate and personal property taxes, due to inflation and other factors that may not be offset by increased guestroom rates;
potential increases in labor costs at our hotels, including as a result of unionization of the labor force, and increasing health care insurance expense;
changes in governmental laws and regulations, fiscal policies and zoning ordinances and the related costs of compliance with laws and regulations, fiscal policies and ordinances;
adverse effects of international, national, regional and local economic and market conditions; and
unforeseen events beyond our control, such as instability in the national, European or global economy, terrorist attacks, travel-related health concerns including pandemics and epidemics, travel-related environmental concerns including water contamination and air pollution, political instability, regional hostilities, increases in fuel prices, imposition of taxes or surcharges by regulatory authorities and travel-related accidents and unusual weather patterns, including natural disasters such as hurricanes.

These conditions could adversely affect our financial position, results of operations, and cash flows or the market price of our stock.

We have significant ongoing needs to make capital expenditures at our hotels, which require us to devote funds to these purposes.
 
Our hotels have an ongoing need for renovations and other capital improvements, including replacements, from time to time, of furniture, fixtures and equipment. Our franchisors also require periodic capital improvements as a condition of keeping the franchise licenses. In addition, lenders and hotel management companies may require that we set aside annual amounts for capital improvements to our assets. These capital improvements and replacements may give rise to the following risks: 

 
possible environmental problems;                 
construction cost overruns and delays;
a possible shortage of available cash to fund capital improvements and replacements and, the related possibility that financing for these capital improvements may not be available to us on affordable terms; and
uncertainties as to market demand or a loss of market demand after capital improvements and replacements have begun.
 
These conditions could adversely affect our financial position, results of operations, and cash flows or the market price of our stock.
 
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Hotel development is subject to timing, budgeting and other risks.
 
We have in the past and may in the future develop hotels or acquire hotels that are under development as suitable opportunities arise, taking into consideration general economic conditions. Hotel development involves a number of risks, including the following: 

possible environmental problems;
construction cost overruns and delays;
receipt of and expense related to zoning, occupancy and other required governmental permits and authorizations;
development costs incurred for projects that are not pursued to completion;
acts of God such as earthquakes, hurricanes, floods or fires that could adversely affect a project;
inability to raise capital; and
governmental restrictions on the nature or size of a project.
 
To the extent we develop hotels or acquire hotels under development, we cannot provide assurance that any development project will be completed on time or within budget. Our inability to complete a project on time or within budget could adversely affect our financial position, results of operations, and cash flows or the market price of our stock.
 
Customers may increasingly use Internet travel intermediaries.
 
Our hotel guestrooms can be booked through Internet travel intermediaries, including, but not limited to Expedia.com and Booking.com, and their portfolio of companies (commonly referred to as "online travel agents" or "OTA's"). As these Internet bookings increase, these intermediaries may be able to obtain higher commissions, reduced guestroom rates or other significant contract concessions from our management companies. Moreover, some of these Internet travel intermediaries are attempting to offer hotel guestrooms as a commodity, by increasing the importance of price and general indicators of quality (such as “three-star downtown hotel”) at the expense of brand identification. These agencies hope that consumers will eventually develop brand loyalties to their reservations system rather than to the brands under which our hotels are franchised. If the amount of sales made through Internet intermediaries increases significantly, guestroom revenue may flatten or decrease, which could adversely affect our financial position, results of operations, and cash flows or the market price of our stock.
 
We could incur uninsured and underinsured losses.
 
We intend to maintain comprehensive insurance on our hotels, including liability, fire and extended coverage, of the type and amount we believe are customarily obtained for or by owners of hotels similar to our hotels. Various types of catastrophic losses, such as hurricanes, floods and earthquakes, acts of terrorism, data breaches, losses related to business disruption from disputes with franchisors, or losses from customer litigation, may not be insurable or may not be economically insurable. In the event of a substantial loss, our insurance coverage may not be sufficient to cover the operating loss or the full market value or replacement cost of our lost investment. Should an uninsured loss or a loss in excess of insured limits occur, we could lose all or a portion of the capital we have invested in a hotel, as well as the anticipated future revenue from the hotel. In that event, we might nevertheless remain obligated for any mortgage debt or other financial obligations related to the asset. Loan covenants, inflation, changes in building codes and ordinances, environmental considerations and other factors might also keep us from using insurance proceeds to replace or renovate an asset after it has been damaged or destroyed. Under those circumstances, the insurance proceeds we receive might be inadequate to restore our economic position on the damaged or destroyed hotels.

These conditions could adversely affect our financial position, results of operations, and cash flows or the market price of our stock.

Consumer trends and preferences, particularly with respect to younger generations, could change away from select-service hotels.

Consumer trends and preferences continuously change, especially within younger generations.   Many new hotel brands have been introduced over recent years to specifically address the perceived unique needs and preferences of younger travelers.  As our portfolio is concentrated in select-service hotels, significant consumer shifts in preferences away from select-service hotels could adversely affect our financial position, results of operations, and cash flows or the market price of our stock.

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Risks Related to the Real Estate Industry and Real Estate-Related Investments
 
Illiquidity of real estate investments could significantly impede our ability to respond to adverse changes in the performance of our hotels or to adjust our portfolio in response to changes in economic and other conditions.
 
Our ability to promptly sell one or more hotels in our portfolio in response to changing economic, financial and investment conditions may be limited. We cannot predict whether we will be able to sell any hotels for the price or on the terms set by us, or whether any price or other terms offered by a prospective purchaser would be acceptable to us. We also cannot predict the length of time needed to find a willing purchaser and to close the sale of an asset. The real estate market is affected by many factors that are beyond our control, including:
 
adverse changes in international, national, regional and local economic and market conditions;
changes in interest rates and in the availability, cost and terms of debt financing;
changes in governmental laws and regulations, fiscal policies and zoning ordinances and the related costs of compliance with laws and regulations, fiscal policies and ordinances;
the ongoing need for capital improvements, particularly in older structures, that may require us to expend funds to correct defects or to make improvements before an asset can be sold;
changes in operating expenses; and
civil unrest, acts of God, including earthquakes, floods and other natural disasters, which may result in uninsured losses, and acts of war or terrorism, environmental uncertainties, or outbreaks of highly infectious diseases or pandemics, such as COVID-19.
 
These conditions could adversely affect our financial position, results of operations, and cash flows or the market price of our stock.

We could incur significant costs related to government regulation and litigation over environmental, health and safety matters.
 
Our hotels and development land parcels are subject to various federal, state and local environmental laws that impose liability for contamination. Under these laws, governmental entities have the authority to require us, as the current or former owner of the property, to perform or pay for the cleanup of contamination (including hazardous substances, waste or petroleum products) at or emanating from the property and to pay for natural resource damage arising from contamination. These laws often impose liability without regard to whether the owner or operator knew of, or caused the contamination. We can also be liable to private parties for costs of remediation, personal injury and death and/or property damage resulting from contamination at or emanating from our properties. Moreover, environmental contamination can affect the value of a property and, therefore, an owner’s ability to borrow funds using the property as collateral or to sell the property on favorable terms or at all. Furthermore, persons who sent waste to a waste disposal facility, such as a landfill or an incinerator, may be liable for costs associated with cleanup of that facility.
 
In addition, our hotels (including our real property, operations and equipment) are subject to various federal, state and local environmental, health and safety regulatory requirements that address a wide variety of issues, including, but not limited to the registration, maintenance and operation of our boilers and storage tanks, air emissions from emergency generators, storm water and wastewater discharges, asbestos, lead-based paint, mold and mildew, and waste management. Some of our hotels also routinely handle or use hazardous or regulated substances and waste in their operations (for example, swimming pool chemicals or biological waste). Our hotels incur costs to comply with these environmental, health and safety laws and regulations and if these regulatory requirements are not met or unforeseen events result in the discharge of dangerous or toxic substances at our hotels, we could be subject to fines and penalties for non-compliance with applicable laws and material liability from third parties for harm to the environment, damage to real property or personal injury and death. We are aware of no past or present environmental liability for non-compliance with environmental, health and safety laws and regulations that we believe would have a material adverse effect on our business, assets or results of operations.

Certain hotels we currently own or those we acquire in the future contain, may contain, or may have contained, asbestos-containing material (“ACM”). Environmental, health and safety laws require that ACM be properly managed and maintained, and include requirements to undertake special precautions, such as removal or abatement, if ACM would be disturbed during maintenance, renovation, or demolition of a building. These laws regarding ACM may impose fines and penalties on building owners, employers and operators for failure to comply with these requirements or expose us to third-party liability.

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These conditions could adversely affect our financial position, results of operations, and cash flows or the market price of our stock.
 
Compliance with the laws, regulations and covenants that apply to our hotels, including permit, license and zoning requirements, may adversely affect our ability to make future acquisitions or renovations, result in significant costs or delays and adversely affect our growth strategy.
 
Our hotels are subject to various covenants and local laws and regulatory requirements, including permitting and licensing requirements which can restrict the use of our properties and increase the cost of acquisition, development and operation of our hotels. Our hotels are also subject to regulations intended to address the risk of highly infectious diseases, such as COVID-19, which can restrict certain hotel activities and result in increased costs. In addition, federal and state laws and regulations, including laws such as the ADA, impose further restrictions on our operations. Under the ADA, all public accommodations must meet federal requirements related to access and use by disabled persons. We have not conducted a comprehensive audit or investigation of all of our properties to determine our compliance. As such, some of our hotels currently may be in noncompliance with the ADA. If one or more of the hotels in our portfolio is not in compliance with the ADA or any other regulatory requirements, we may be required to incur additional costs to bring the hotel into compliance and we might incur damages or governmental fines. In addition, existing requirements may change and future requirements may require us to make significant unanticipated expenditures.

These conditions could adversely affect our financial position, results of operations, and cash flows or the market price of our stock.
 
We have fixed obligations related to right-of-use assets on which certain of our hotels are located.
 
If we default on the terms of any of our right-of-use assets, such as ground leases, air rights or other intangible assets, and are unable to cure the default in a timely manner, we may be liable for damages and could lose our leasehold interest in the applicable property and interest in the hotel on the applicable property. An event of default that is not timely cured could adversely affect our financial position, results of operations, and cash flows or the market price of our stock.
 
The states and localities in which we own material amounts of property or conduct material business operations could raise their income and property tax rates or amend their tax regimes in a manner that increases our state and local tax liabilities.
 
We and our subsidiaries are subject to income tax and other taxes by states and localities in which we conduct business. Additionally, we are and will continue to be subject to property taxes in states and localities in which we own property, and our TRS lessees are and will continue to be subject to state and local corporate income tax.  As these states and localities seek additional sources of revenue, they may, among other steps, raise income and property tax rates or amend their tax regimes to eliminate for state income tax purposes the favorable tax treatment REITs enjoy for federal income tax purposes. We cannot predict when or if any states or localities would make any such changes, or what form those changes would take. If states and localities in which we own material amounts of property or conduct material amounts of business make changes to their tax rates or tax regimes that increase our state and local tax liabilities, such increases could adversely affect our financial position, results of operations, and cash flows or the market price of our stock.
 
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Risks Related to Our Organization and Structure
 
Our fiduciary duties as the general partner of our Operating Partnership could create conflicts of interest.
 
We, through our wholly-owned subsidiary that serves as the sole general partner of our Operating Partnership, have fiduciary duties to our Operating Partnership’s limited partners, the discharge of which may conflict with the interests of our stockholders. The limited partners of our Operating Partnership have agreed for so long as we own a controlling interest in our Operating Partnership that, in the event of a conflict between the duties owed by our directors to our company and the duties that we owe, in our capacity as the sole general partner of our Operating Partnership, to the limited partners, our directors must give priority to the interests of our stockholders. In addition, those persons holding Common Units have the right to vote on certain amendments to the limited partnership agreement (which require approval by a majority interest of the limited partners, including us) and individually to approve certain amendments that would adversely affect their rights, as well as the right to vote on mergers and consolidations of the general partner or us in certain limited circumstances. These voting rights may be exercised in a manner that conflicts with the interests of our stockholders. For example, we cannot adversely affect the limited partners’ rights to receive distributions, as set forth in the limited partnership agreement, without their consent, even though modifying such rights might be in the best interest of our stockholders generally.
 
Provisions of our charter may limit the ability of a third party to acquire control of us by authorizing our board of directors to issue additional securities.
 
Our board of directors may, without stockholder approval, amend our charter to increase or decrease the aggregate number of our shares or the number of shares of any class or series that we have the authority to issue and to classify or reclassify any unissued shares of common stock or preferred stock, and set the preferences, rights and other terms of the classified or reclassified shares. As a result, our board of directors may authorize the issuance of additional shares or establish a series of common or preferred stock that may have the effect of delaying or preventing a change in control of our company, including transactions at a premium over the market price of our shares, even if stockholders believe that a change in control is in their interest. These provisions, along with the restrictions on ownership and transfer contained in our charter and certain provisions of Maryland law described below, could discourage unsolicited acquisition proposals or make it more difficult for a third party to gain control of us, which could adversely affect the market price of our securities.
 
Provisions of Maryland law may limit the ability of a third party to acquire control of us by requiring our board of directors or stockholders to approve proposals to acquire our company or effect a change in control.
 
Certain provisions of the Maryland General Corporation Law (the “MGCL”) applicable to Maryland corporations may have the effect of inhibiting a third party from making a proposal to acquire us or of impeding a change in control under circumstances that otherwise could provide our stockholders with the opportunity to realize a premium over the then-prevailing market price of such shares, including “business combination” and “control share” provisions.
 
By resolution of our board of directors, we have opted out of the business combination provisions of the MGCL and provided that any business combination between us and any other person is exempt from the business combination provisions of the MGCL, provided that the business combination is first approved by our board of directors (including a majority of directors who are not affiliates or associates of such persons). In addition, pursuant to a provision in our bylaws, we have opted out of the control share provisions of the MGCL. However, our board of directors may by resolution elect to opt in to the business combination provisions of the MGCL and we may, by amendment to our bylaws, opt in to the control share provisions of the MGCL in the future.
 
Our rights and the rights of our stockholders to take action against our directors and officers are limited.
 
Under Maryland law, generally, a director will not be liable if he or she performs his or her duties in good faith, in a manner he or she reasonably believes to be in our best interests and with the care that an ordinarily prudent person in a like position would use under similar circumstances. In addition, our charter limits the liability of our directors and officers to us and our stockholders for money damages, except for liability resulting from:
 
actual receipt of an improper benefit or profit in money, property or services; or
active and deliberate dishonesty by the director or officer that was established by a final judgment as being material to the cause of action adjudicated.
 
Our charter authorizes us to indemnify our directors and officers for actions taken by them in those capacities to the maximum extent permitted by Maryland law. Our bylaws require us to indemnify each director and officer, to the maximum
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extent permitted by Maryland law, in the defense of any proceeding to which he or she is made, or threatened to be made, a party by reason of his or her service to us. In addition, we may be obligated to advance the defense costs incurred by our directors and officers. As a result, we and our stockholders may have more limited rights against our directors and officers than might otherwise exist absent the current provisions in our charter and bylaws or that might exist with other companies.

Our stockholders have limited voting rights and our charter contains provisions that make removal of our directors difficult.
 
Our shares of common stock are the only class of our securities that carry full voting rights. Voting rights for holders of our preferred stock exist primarily with respect to the ability to elect two additional directors to our board of directors in the event that six quarterly dividends (whether or not consecutive) payable on the preferred stock are in arrears, and with respect to voting on amendments to our charter or articles supplementary relating to the preferred stock that materially and adversely affect the rights of the holders of preferred stock or create additional classes or series of senior equity securities. Further, our charter provides that a director may be removed only for cause (as defined in our charter) and then only by the affirmative vote of holders of shares entitled to cast at least two-thirds of the votes entitled to be cast generally in the election of directors. Our charter also provides that vacancies on our board of directors may be filled only by a majority of the remaining directors in office, even if less than a quorum. These requirements prevent stockholders from removing directors except for cause and with a substantial affirmative vote and from replacing directors with their own nominees and may prevent a change in control of our company or effect other management changes that are in the best interests of our stockholders.
 
The ability of our board of directors to change our major policies without the consent of stockholders may not be in our stockholders’ interest.
 
Our board of directors determines our major policies, including policies and guidelines relating to our acquisitions, leverage, financing, growth, operations and distributions to stockholders. Our board of directors may amend or revise these and other policies and guidelines from time to time without the vote or consent of our stockholders. Accordingly, our stockholders will have limited control over changes in our policies and those changes could adversely affect our financial position, results of operations, and cash flows or the market price of our stock.
 
Our board of directors has the ability to revoke our REIT qualification without stockholder approval.
 
Our charter provides that our board of directors may revoke or otherwise terminate our REIT election, without the approval of our stockholders, if it determines that it is no longer in our best interest to continue to qualify as a REIT. If we cease to be a REIT, we would become subject to federal income tax on our taxable income and would no longer be required to distribute most of our taxable income to our stockholders, which may have adverse consequences on the total return to our stockholders.
 
We are a holding company with no direct operations. As a result, we rely on funds received from our Operating Partnership to pay liabilities and dividends, our stockholders’ claims will be structurally subordinated to all liabilities of our Operating Partnership and our stockholders will not have any voting rights with respect to our Operating Partnership activities, including the issuance of additional Common Units or Preferred Units.
 
We are a holding company and conduct all of our operations through our Operating Partnership. We do not have, apart from our ownership of our Operating Partnership, any independent operations. As a result, we rely on distributions from our Operating Partnership to pay any dividends we might declare on shares of our common or preferred stock. We also rely on distributions from our Operating Partnership to meet any of our obligations, including tax liabilities on taxable income allocated to us from our Operating Partnership (which might make distributions to us that do not equal the tax on such allocated taxable income).
 
In addition, because we are a holding company, stockholders’ claims will be structurally subordinated to all existing and future liabilities and obligations (whether or not for borrowed money) of our Operating Partnership and its subsidiaries. Therefore, in the event of our bankruptcy, liquidation or reorganization, claims of our stockholders will be satisfied only after all of our and our Operating Partnership’s and its subsidiaries’ liabilities and obligations have been paid in full.
 
We own approximately 99.8% of the Common Units in the Operating Partnership, all of the issued and outstanding 6.45% Series D Cumulative Redeemable Preferred Units of the Operating Partnership (“Series D Preferred Units”), and all of the issued and outstanding 6.25% Series E Cumulative Redeemable Preferred Units of the Operating Partnership ("Series E Preferred Units"). We refer to the Series D Preferred Units and Series E Preferred Units collectively as Preferred Units.  Any future issuances by our Operating Partnership of additional Common Units or Preferred Units could reduce our ownership
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percentage in our Operating Partnership. Because our common stockholders do not directly own any Common Units or Preferred Units, they will not have any voting rights with respect to any such issuances or other partnership-level activities of the Operating Partnership.

If we are unable to maintain an effective system of internal controls, we may not be able to produce and report accurate financial information on a timely basis or prevent fraud.
 
A system of internal controls that is well designed and properly functioning is critical for us to produce and report accurate and reliable financial information and effectively prevent fraud. We must also rely on the quality of the internal control environments of our third-party property managers who provide us with financial information related to our hotel properties. At times, we may identify areas of internal controls that are not properly functioning as designed, that need improvement or that must be developed to ensure that we have an adequate system of internal controls. Section 404 of the Sarbanes-Oxley Act of 2002 requires us to evaluate and report on our internal controls over financial reporting and have our independent auditors annually issue their own opinion on our internal controls over financial reporting. We cannot be certain that we will be successful in maintaining adequate internal controls over our financial reporting and processes. Additionally, as we grow our business, our internal controls will become more complex and we will require significantly more resources to ensure that our internal controls remain effective. If we or our independent auditors discover a material weakness, the disclosure of that fact, even if promptly remedied, could cause our stockholders to lose confidence in our financial results, which could reduce the market value of our common shares. Additionally, the existence of any material weakness or significant deficiency could require management to devote substantial time and incur significant expense to remediate any such conditions.  There can be no assurance that management will be able to remediate any material weaknesses in a timely manner.
 
Risks Related to Ownership of Our Securities
 
The New York Stock Exchange (“NYSE”) or another nationally-recognized exchange may not continue to list our securities.
 
Our common stock trades on the NYSE under the symbol “INN,” our 6.45% Series D Cumulative Redeemable Preferred Stock trades on the NYSE under the symbol “INN-PD,” and our 6.25% Series E Cumulative Redeemable Preferred Stock trades on the NYSE under the symbol "INN-PE." In order for our securities to remain listed, we are required to meet the continued listing requirements of the NYSE or, in the alternative, any other nationally-recognized exchange to which we apply. We may be unable to satisfy those listing requirements, and there is no guarantee our securities will remain listed on a nationally-recognized exchange. If our securities are delisted from the NYSE or another nationally-recognized exchange, we could face significant material adverse consequences, including:
 
a limited availability of market quotations for our securities;
a limited ability of our stockholders to make transactions in our securities;
additional trading restrictions being placed on us;
reduced liquidity with respect to our securities;
a determination that our common stock is “penny stock,” which will require brokers trading in our common stock to adhere to more stringent rules, possibly resulting in a reduced level of trading activity in the secondary trading market for the common stock;
a limited amount of news and analyst coverage; and
a decreased ability to issue additional securities or obtain additional financing in the future.
 
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The cash available for distribution may not be sufficient to make distributions at expected levels and we may use borrowed funds or funds from other sources to make distributions.
 
Distributions declared by us will be authorized by our board of directors in its sole discretion out of funds legally available for distribution and will depend upon a number of factors, including limitations imposed by our credit facilities, restrictions under applicable law and the capital requirements of our company. All distributions will be made at the discretion of our board of directors and will depend on our earnings, our financial condition, the requirements for qualification as a REIT, restrictions under applicable law and other factors as our board of directors may deem relevant from time to time. We may be required to fund distributions from working capital, borrowings under our 2018 Senior Credit Facility, proceeds of future stock offerings or a sale of assets to the extent distributions exceed earnings or cash flows from operations. Funding distributions from working capital would restrict our operations. If we borrow from our 2018 Senior Credit Facility to pay distributions, we would be more limited in our ability to execute our strategy of using our 2018 Senior Credit Facility to fund acquisitions or capital expenditures. Finally, selling assets may require us to dispose of assets at a time or in a manner that is not consistent with our disposition strategy. If we borrow to fund distributions, our leverage ratios and future interest costs would increase, thereby reducing our earnings and cash available for distribution from what they otherwise would have been. We may not be able to make distributions in the future. In addition, some of our distributions may be considered a return of capital for income tax purposes. If we decide to make distributions in excess of our current and accumulated earnings and profits, such distributions would generally be considered a return of capital for federal income tax purposes to the extent of the holder’s adjusted tax basis in their shares. A return of capital is not taxable, but it has the effect of reducing the holder’s adjusted tax basis in its investment. If distributions exceed the adjusted tax basis of a holder’s shares, they will be treated as gain from the sale or exchange of such stock.

The market price of our stock may be volatile due to numerous circumstances beyond our control.
 
The trading prices of equity securities issued by REITs and other real estate companies historically have been affected by changes in market interest rates. One of the factors that may influence the market price of our common or preferred stock is the annual yield from distributions on our common or preferred stock, respectively, as compared to yields on other financial instruments. An increase in market interest rates, or a decrease in our distributions to stockholders, may lead prospective purchasers of our common or preferred stock to demand a higher annual yield, which could reduce the market price of our common or preferred stock, respectively.
 
Other factors that could affect the market price of our stock include the following:
 
actual or anticipated variations in our quarterly results of operations;
increases in interest rates;
changes in market valuations of companies in the lodging industry;
changes in expectations of future financial performance or changes in estimates of securities analysts;
fluctuations in stock market prices and volumes;
our issuances of common stock, preferred stock, or other securities in the future;
the inclusion of our common stock and preferred stock in equity indices, which could induce additional purchases;
the exclusion of our common stock and preferred stock from equity indices;
the addition or departure of key personnel;
announcements by us or our competitors of acquisitions, investments or strategic alliances;
unforeseen events beyond our control, such as instability in the national, European or global economy, terrorist attacks, travel-related health concerns including pandemics and epidemics, political instability, regional hostilities, increases in fuel prices, imposition of taxes or surcharges by regulatory authorities and travel-related accidents and unusual weather patterns, including natural disasters; and
changes in the tax laws or regulations to which we are subject.
 
The market’s perception of our growth potential and our current and potential future cash distributions, whether from operations, sales or refinancings, as well as the real estate market value of the underlying assets, may cause our common and preferred stock to trade at prices that differ from our net asset value per share. If we retain operating cash flow for investment purposes, working capital reserves or other purposes, these retained funds, while increasing the value of our underlying assets, may not correspondingly increase the market price of our common and preferred stock. Our failure to meet the market’s expectations with regard to future earnings and distributions likely would adversely affect the market price of our common and preferred stock.
 
The trading market for our stock may rely in part on the research and reports that industry or financial analysts publish about us or our business. We do not control these analysts. Furthermore, if one or more of the analysts who do cover us
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downgrades our stock or our industry, or the stock of any of our competitors, the price of our stock could decline. If one or more of these analysts ceases coverage of our company, we could lose attention in the market, which in turn could cause the price of our stock to decline.
 
The number of shares of our common stock and preferred stock available for future sale could adversely affect the market price per share of our common stock and preferred stock, respectively, and future sales by us of shares of our common stock, preferred stock, or issuances by our Operating Partnership of Common Units may be dilutive to existing stockholders.
 
Sales of substantial amounts of shares of our common stock or preferred stock in the public market, or upon exchange of Common Units or exercise of any equity awards, or the perception that such sales might occur, could adversely affect the market price of our common stock and preferred stock. As of February 15, 2021, a total of 161,742 Common Units are redeemable and could be converted into shares of our common stock and sold into the public market. The exchange of Common Units for common stock, the vesting of any equity-based awards granted to certain directors, executive officers and other employees under the 2011 Equity Incentive Plan which was amended and restated effective June 15, 2015 (as amended and restated, the “Equity Plan”), the issuance of our common stock or Common Units in connection with hotel, portfolio or business acquisitions and other issuances of our common stock or Common Units could have an adverse effect on the market price of the shares of our common stock.
 
We may execute future offerings of debt securities, which would be senior to our common and preferred stock upon liquidation, and issuances of equity securities (including Common Units).
 
In the future we may offer debt securities and issue equity securities, including Common Units, preferred stock or other preferred shares that may be senior to our common stock for purposes of dividend distributions or upon liquidation. Upon liquidation, holders of our debt securities and our preferred shares will receive distributions of our available assets prior to the holders of our common stock. Holders of our common stock are not entitled to preemptive rights or other protections against us offering senior debt or equity securities. Therefore, additional common share issuances, directly or through convertible or exchangeable securities (including Common Units), warrants or options, will dilute the holdings of our existing common stockholders and such issuances or the perception of such issuances may reduce the market price of our common stock. In addition, new issues of preferred stock could have a preference on liquidating distributions and a preference on dividend payments that could limit our ability to pay a dividend or make another distribution to the holders of our common stock. Because our decision to issue securities in any future offering will depend on market conditions and other factors beyond our control, we cannot predict or estimate the amount, timing or nature of future issuances. Thus, our stockholders bear the risk of our future offerings reducing the market price of our common stock and diluting their interest in us.
 
Risks Related to Our Status as a REIT
 
Failure to remain qualified as a REIT would cause us to be taxed as a regular corporation.
 
The REIT rules and regulations are highly technical and complex.  We believe that our organization and method of operation has enabled us to meet the requirements for qualification and taxation as a REIT commencing with our short taxable year ended December 31, 2011. However, we cannot provide assurance that we will remain qualified as a REIT.
 
Failure to qualify as a REIT could result from a number of situations, including, without limitation:
 
if the leases of our hotels to our TRS lessees are not respected as true leases for federal income tax purposes;
if our Operating Partnership is treated as a publicly traded partnership taxable as a corporation for federal income tax purposes;
if our existing or future hotel management companies do not qualify as “eligible independent contractors” or if our hotels are not “qualified lodging facilities,” as required by federal income tax law; or
if we fail to meet any of the required REIT qualifications.

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If we fail to qualify as a REIT in any taxable year, we will face serious tax consequences that will substantially reduce the funds available for distributions to our stockholders because:
 
we would not be allowed a deduction for dividends paid to stockholders in computing our taxable income and would be subject to federal income tax at regular corporate rates (at a rate of 21%);
we could be subject to increased state and local taxes; and
unless we are entitled to relief under certain federal income tax laws, we could not re-elect REIT status until the fifth calendar year after the year in which we failed to qualify as a REIT.
 
In addition, if we fail to qualify as a REIT, we will no longer be required to make distributions. As a result of all these factors, our failure to qualify as a REIT could impair our ability to expand our business and raise capital, and it could adversely affect the value of our stock.
 
Even if we continue to qualify as a REIT, we may face other tax liabilities.
 
Even if we continue to qualify for taxation as a REIT, we may be subject to certain federal, state and local taxes on our income and assets including, but not limited to taxes on any undistributed income, tax on income from some activities conducted as a result of a foreclosure, and state or local income, property and transfer taxes. In addition, our TRSs are subject to regular corporate federal, state and local taxes. Any of these taxes would decrease cash available for distributions to stockholders.
 
Failure to make required distributions would subject us to federal corporate income tax.
 
We intend to operate in a manner so as to qualify as a REIT for federal income tax purposes. To qualify as a REIT, we generally are required to distribute at least 90% of our REIT taxable income, determined without regard to the dividends paid deduction and excluding any net capital gain, each year to our stockholders. To the extent that we satisfy this distribution requirement, but distribute less than 100% of our REIT taxable income, we will be subject to federal corporate income tax on our undistributed taxable income. In addition, we will be subject to a 4% non-deductible excise tax if the actual amount that we pay out to our stockholders in a calendar year is less than a minimum amount specified under the IRC.

We have significant REIT distribution requirements to maintain our status as a REIT.
 
To satisfy the requirements for qualification as a REIT and to meet the REIT distribution requirements, we may need to borrow funds on a short-term basis or sell assets, even if the then-prevailing market conditions are not favorable for these borrowings or sales. Our cash flows from operations may be insufficient to fund required distributions as a result of differences in timing between the actual receipt of income and the recognition of income for federal income tax purposes, limits on our ability or the ability of certain of our subsidiaries to deduct interest expense from borrowings under Section 163(j) of the IRC, the effect of non-deductible capital expenditures, the creation of reserves, required debt service or amortization payments. Our REIT distribution requirements could adversely affect our liquidity and may force us to borrow funds or sell assets during unfavorable market conditions or pay taxable stock dividends. The insufficiency of our cash flows to cover our distribution requirements could have an adverse effect on our ability to raise short- and long-term debt or sell equity securities to fund distributions required to maintain our qualification as a REIT.
 
The formation of our TRSs increases our overall tax liability.
 
Our TRSs are subject to federal, state and local income tax on their taxable income, which typically consists of the revenue from the hotels leased by our TRS lessees, net of the operating expenses for such hotels and rent payments to us. In certain circumstances, the ability of our TRSs to deduct interest expense or utilize net operating loss carryforwards for federal income tax purposes may be limited. Accordingly, although our ownership of our TRSs allows us to participate in the operating income from our hotels in addition to receiving rent, that operating income will be fully subject to income tax. The after-tax net income of our TRSs is available for distribution to us.
 
Our TRS lessee structure subjects us to the risk of increased hotel operating expenses.
 
Our leases with our TRS lessees require our TRS lessees to pay us rent based in part on revenue from our hotels. Our operating risks include decreases in hotel revenue and increases in hotel operating expenses, including but not limited to increases in wage and benefit costs, repair and maintenance expenses, energy costs and other operating expenses, which would adversely affect our TRSs’ ability to pay us rent due under the leases. Increases in these operating expenses could adversely affect our financial position, results of operations, and cash flows or the market price of our stock.
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Our Operating Partnership could be treated as a publicly traded partnership taxable as a corporation for federal income tax purposes.
 
Although we believe that our Operating Partnership will be treated as a partnership for federal income tax purposes, no assurance can be given that the IRS will not successfully challenge that position. If the IRS were to successfully contend that our Operating Partnership should be treated as a publicly traded partnership taxable as a corporation, we would fail to meet the 75% gross income test and certain of the asset tests applicable to REITs and, unless we qualified for certain statutory relief provisions, we would cease to qualify as a REIT. Also, our Operating Partnership would become subject to federal, state and local income tax, which would reduce significantly the amount of cash available for debt service and for distribution to us.
 
Our current hotel management companies, or any other hotel management companies that we may engage in the future may not qualify as “eligible independent contractors,” or our hotels may not be considered “qualified lodging facilities.”
 
Rent paid by a lessee that is a “related party tenant” of ours will not be qualifying income for purposes of the two gross income tests applicable to REITs. An exception is provided, however, for leases of “qualified lodging facilities” to a TRS so long as the hotels are managed by an “eligible independent contractor” and certain other requirements are satisfied. We lease all of our hotels to our TRS lessees. All of our hotels are operated pursuant to hotel management agreements with Aimbridge and other hotel management companies, each of which we believe qualifies as an “eligible independent contractor.”  Among other requirements, to qualify as an eligible independent contractor, the hotel manager must not own, directly or through its stockholders, more than 35% of our outstanding shares, and no person or group of persons can own more than 35% of our outstanding shares and the shares (or ownership interest) of the hotel manager, taking into account certain ownership attribution rules. The ownership attribution rules that apply for purposes of these 35% thresholds are complex, and monitoring actual and constructive ownership of our shares by our hotel managers and their owners may not be practical. Accordingly, there can be no assurance that these ownership levels will not be exceeded.

In addition, for a hotel management company to qualify as an eligible independent contractor, such company or a related person must be actively engaged in the trade or business of operating “qualified lodging facilities” (as defined below) for one or more persons not related to the REIT or its TRS at each time that such company enters into a hotel management contract with a TRS or its TRS lessee. As of the date hereof, we believe each of our hotel management companies operates qualified lodging facilities for certain persons who are not related to us or our TRSs. However, no assurances can be provided that our hotel management companies or any other hotel managers that we may engage in the future will in fact comply with this requirement. Failure to comply with this requirement would require us to find other managers for future contracts and if we hired a management company without knowledge of the failure, it could jeopardize our status as a REIT.
 
Finally, each property with respect to which our TRS lessees pay rent must be a “qualified lodging facility.” A “qualified lodging facility” is a hotel, motel or other establishment more than one-half of the dwelling units in which are used on a transient basis, including customary amenities and facilities, provided that no wagering activities are conducted at or in connection with such facility by any person who is engaged in the business of accepting wagers and who is legally authorized to engage in such business at or in connection with such facility. As of the date hereof, we believe that the properties that are leased to our TRS lessees are qualified lodging facilities. Although we intend to monitor future acquisitions and improvements of properties, REIT provisions of the IRC provide only limited guidance for making determinations under the requirements for qualified lodging facilities, and there can be no assurance that these requirements will be satisfied. If any of our properties are not deemed to be a "qualified lodging facility," we may fail to qualify as a REIT.
 
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Our ownership of our TRSs are subject to limitations and our transactions with our TRSs could cause us to be subject to a 100% penalty tax on certain income or deductions if those transactions are not conducted on arm’s-length terms.
 
Overall, no more than 20% of the value of a REIT’s assets may consist of stock or securities of one or more TRSs. In addition, the IRC limits the deductibility of interest paid or accrued by a TRS to its parent REIT to provide assurance that the TRS is subject to an appropriate level of corporate taxation. The IRC also imposes a 100% excise tax on certain transactions between a TRS and its parent REIT that are not conducted on an arm’s-length basis. Economic challenges caused by the COVID-19 pandemic have resulted in the temporary suspension of operations of certain hotels and significantly reduced operations at the hotels that have remained open for business. Most of our TRS lessees have been granted rent abatements for rent deficiencies in December of 2020. Subsequent to December 31, 2020, prospective lease modifications are expected to be entered into with most of our TRS leases to reflect the current market conditions and better enable the TRS lessees to manage their operations and cash flows at reduced levels. See further discussion below under “Part II – Item 7. – Management’s Discussion and Analysis of Financial Condition and Results of Operations - Management’s Actions in Response to the Effects of COVID-19 on Our Operations – Modification of TRS Leases.” We monitor the value of our investment in our TRSs for the purpose of ensuring compliance with TRS ownership limitations and structure our transactions with our TRSs on terms that we believe are arm’s-length to avoid incurring the 100% excise tax described above. There can be no assurance, however, that we will be able to comply with the 20% TRS limitations or to avoid application of the 100% excise tax.
 
If any subsidiary REIT failed to qualify as a REIT, we could be subject to higher taxes and could fail to remain qualified as a REIT.

We own and may in the future own interests in entities that have elected to be taxed as a REIT under the U.S. federal income tax laws (each, a “subsidiary REIT”). A subsidiary REIT is subject to the various REIT qualification requirements and other limitations described herein that are applicable to us. If any of our subsidiary REITs were to fail to qualify as a REIT, then (i) such subsidiary REIT would become subject to U.S. federal income tax and (ii) our ownership of shares in such subsidiary REIT would cease to be a qualifying asset for purposes of the asset tests applicable to REITs. If any subsidiary REIT was to fail to qualify as a REIT, it is possible that we would fail certain of the asset tests applicable to REITs, in which event we would fail to qualify as a REIT unless we could avail ourselves of certain relief provisions. We may make “protective” TRS elections with respect to our subsidiary REITs and may implement other protective arrangements intended to avoid such an outcome if a subsidiary REIT was not to qualify as a REIT, but there can be no assurance that such “protective” election and other arrangements will be effective to avoid the resulting adverse consequences to us. Moreover, even if the “protective” TRS election was to be effective in the event of the failure of our subsidiary REIT to maintain its qualification as a REIT, such subsidiary REIT would be subject to federal income tax and we cannot assure you that we would not fail to satisfy the requirement that not more than 20 percent of the value of our total assets may be represented by the securities of one or more TRSs. In this event, we would fail to qualify as a REIT unless we or such subsidiary REIT could avail ourselves or itself of certain relief provisions.

We may be subject to adverse legislative or regulatory tax changes.
 
At any time, the federal income tax laws governing REITs or the administrative interpretations of those laws may be amended. We cannot predict when or if any new federal income tax law, regulation, or administrative interpretation, or any amendment to any existing federal income tax law, regulation or administrative interpretation, will be adopted, promulgated or become effective and any such law, regulation, or interpretation may take effect retroactively. We and our stockholders could be adversely affected by any such change in, or any new, federal income tax law, regulation or administrative interpretation and we could experience a reduction in the price of our stock. We cannot predict the long-term effect of any recent changes or any future law changes on REITs and their stockholders.
 
Stockholders may be restricted from acquiring or transferring certain amounts of our stock.
 
The stock ownership restrictions of the IRC for REITs and the 9.8% stock ownership limit in our charter may inhibit market activity in our capital stock and restrict our business combination opportunities.
 
To qualify as a REIT for each taxable year, five or fewer individuals, as defined in the IRC, may not own, beneficially or constructively, more than 50% in value of our issued and outstanding stock at any time during the last half of a taxable year. Attribution rules in the IRC determine if any individual or entity beneficially or constructively owns our capital stock under this requirement. Additionally, at least 100 persons must beneficially own our capital stock during at least 335 days of a taxable year for each taxable year. To help ensure that we meet these tests, our charter restricts the acquisition and ownership of shares of our capital stock.
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Our charter, with certain exceptions, authorizes our directors to take such actions as are necessary and desirable to preserve our qualification as a REIT. Unless exempted by our board of directors, our charter prohibits any person from beneficially or constructively owning more than 9.8% in value or number of shares, whichever is more restrictive, of the outstanding shares of any class or series of our capital stock. Our board of directors may not grant an exemption from these restrictions to any proposed transferee whose ownership in excess of 9.8% of the value of our outstanding shares would result in our failing to qualify as a REIT. These restrictions on transferability and ownership will not apply, however, if our board of directors determines that it is no longer in our best interest to continue to qualify as a REIT.

We may pay taxable dividends in our common stock and cash, in which case stockholders may sell shares of our common stock to pay tax on such dividends.
 
We may distribute taxable dividends that are payable in cash and common stock at the election of each stockholder.  Under IRS Revenue Procedure 2017-45, as a publicly offered REIT, as long as at least 20% of the total dividend is available in cash and certain other requirements are satisfied, the IRS will treat the stock distribution as a dividend (to the extent applicable rules treat such distribution as being made out of our earnings and profits). If we made a taxable dividend payable in cash and common stock, taxable stockholders receiving such dividends will be required to include the full amount of the dividend as ordinary income to the extent of our current and accumulated earnings and profits, as determined for federal income tax purposes. As a result, stockholders may be required to pay income tax with respect to such dividends in excess of the cash dividends received. If a U.S. stockholder sells the common stock that it receives as a dividend to pay this tax, the sales proceeds may be less than the amount included in income with respect to the dividend, depending on the market price of our common stock at the time of the sale. Furthermore, with respect to certain non-U.S. stockholders, we may be required to withhold federal income tax with respect to such dividends, including in respect of all or a portion of such dividend that is payable in common stock. If we made a taxable dividend payable in cash and our common stock and a significant number of our stockholders determine to sell shares of our common stock to pay taxes owed on dividends, it may put downward pressure on the trading price of our common stock. We do not currently intend to pay a taxable dividend of our common stock and cash.
 
The 100% prohibited transactions tax may limit our ability to dispose of our properties, and we could incur a material tax liability if the IRS successfully asserts that the 100% prohibited transaction tax applies to some or all of our past or future dispositions.
 
A REIT’s net income from prohibited transactions is subject to a 100% tax. In general, prohibited transactions are sales or other dispositions of property, other than foreclosure property, held primarily for sale to customers in the ordinary course of business. We have selectively disposed of certain of our properties in the past and intend to make additional dispositions in the future.  Although a safe harbor to the characterization of the sale of property by a REIT as a prohibited transaction is available, some of our past dispositions may not have qualified for that safe harbor and some or all of our future dispositions may not qualify for that safe harbor. We believe that our past dispositions will not be treated as prohibited transactions, and we may avoid disposing of property that may be characterized as held primarily for sale to customers in the ordinary course of business. Consequently, we may choose not to engage in certain sales of our properties or may conduct such sales through our TRSs, which would be subject to federal and state income taxation as a corporation.  Moreover, no assurance can be provided that the IRS will not assert that some or all of our past or future dispositions are subject to the 100% prohibited transactions tax.  If the IRS successfully imposes the 100% prohibited transactions tax on some or all of our dispositions, the resulting tax liability could be material.
 
The IRS could determine that certain payments we have received in the nature of liquidated damages may not be ignored for purposes of the gross income tests applicable to REITs.
 
In connection with our purchases and sales of properties, we have received payments in the nature of liquidated damages. The IRC does not specify the treatment of litigation settlements and liquidated damages for purposes of the gross income tests applicable to REITs.  The IRS has issued private letter rulings to other taxpayers ruling that such payments will be ignored for purposes of the gross income tests. A private letter ruling can be relied upon only by the taxpayer to whom it was issued. Based on the IRS’s private letters rulings and the advice of our tax advisors, we believe these payments should be ignored for purposes of the gross income tests.  No assurance can be provided that the IRS will not successfully challenge that position.  In the event of a successful challenge, we believe that we would be able to maintain our REIT status if we qualified to use a REIT “savings clause” and paid the required penalty.

Item 1B.    Unresolved Staff Comments.
 
None.
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Item 2.        Properties.
 
Our Portfolio
 
A list of our hotel properties as of December 31, 2020 is included in the table below.  According to current chain scales as defined by STR, as of December 31, 2020, two of our hotel properties with a total of 280 guestrooms are categorized as Upper-upscale hotels, 60 of our hotel properties with a total of 9,537 guestrooms are categorized as Upscale hotels and 10 of our hotel properties with a total of 1,471 guestrooms are categorized as Upper-midscale hotels.  Hotel information for the year ended December 31, 2020 is as follows:

Franchise/Brand LocationSTR Chain Scale Number of
Guestrooms
Marriott  
AC Hotel by Marriott(1)
Atlanta, GAUpscale255 
Courtyard by Marriott(1)
Indianapolis, INUpscale297 
Courtyard by Marriott(1)
Fort Lauderdale, FLUpscale261 
Courtyard by Marriott(1)
Nashville, TNUpscale226 
Courtyard by Marriott(1)
New Haven, CTUpscale207 
Courtyard by Marriott(1)
Fort Worth, TXUpscale203 
Courtyard by Marriott(1)
New Orleans (Convention), LAUpscale202 
Courtyard by Marriott(1)
Pittsburgh, PAUpscale183 
Courtyard by Marriott(1)
Charlotte, NCUpscale181 
Courtyard by Marriott(1)
Atlanta (Decatur), GAUpscale179 
Courtyard by Marriott(1)
Phoenix (Scottsdale), AZUpscale153 
Courtyard by Marriott(1)
New Orleans (Metairie), LAUpscale153 
Courtyard by Marriott(1)
Atlanta (Downtown), GAUpscale150 
Courtyard by Marriott(1)
New Orleans (French Quarter), LAUpscale140 
Courtyard by Marriott(1)
Kansas City, MOUpscale123 
Courtyard by Marriott(1)
Dallas (Arlington), TXUpscale103 
Fairfield Inn & Suites by Marriott(2)
Louisville, KYUpper-midscale140 
Four Points by Sheraton(2)
San Francisco, CAUpscale101 
Marriott(1)
Boulder, COUpper-upscale165 
Residence Inn by Marriott(4)
Portland (Downtown), ORUpscale258 
Residence Inn by Marriott(1)
Baltimore (Downtown), MDUpscale189 
Residence Inn by Marriott(1)
Cleveland, OHUpscale175 
Residence Inn by Marriott(1)
Atlanta, GAUpscale160 
Residence Inn by Marriott(1)
Boston (Watertown), MAUpscale150 
Residence Inn by Marriott(1)
Baltimore (Hunt Valley), MDUpscale141 
Residence Inn by Marriott(2)(3)
Portland (Portland Airport at Cascade Station), ORUpscale124 
Residence Inn by Marriott(4)
Portland (Hillsboro), ORUpscale122 
Residence Inn by Marriott(1)
New Orleans (Metairie), LAUpscale120 
Residence Inn by Marriott(1)
Branchburg, NJUpscale101 
Residence Inn by Marriott(1)
Dallas (Arlington), TXUpscale96 
SpringHill Suites by Marriott(1)
New Orleans, LAUpscale208 
SpringHill Suites by Marriott(2)
Louisville, KYUpscale198 
SpringHill Suites by Marriott(1)
Indianapolis, INUpscale156 
SpringHill Suites by Marriott(1)
Phoenix (Scottsdale), AZUpscale121 
SpringHill Suites by Marriott(1)
Nashville, TNUpscale78 
Total Marriott (35 hotel properties) 5,819 
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Franchise/BrandLocationSTR Chain ScaleNumber of
Guestrooms
Hilton  
DoubleTree(1)
San Francisco, CAUpscale210 
Hampton Inn & Suites(2)
Minneapolis, MNUpper-midscale211 
Hampton Inn & Suites(1)(3)
Austin, TXUpper-midscale209 
Hampton Inn & Suites(1)
Tampa (Ybor City), FLUpper-midscale138 
Hampton Inn & Suites(1)
Baltimore, MDUpper-midscale116 
Hampton Inn & Suites(1)
Ventura (Camarillo), CAUpper-midscale116 
Hampton Inn & Suites(1)
San Diego (Poway), CAUpper-midscale108 
Hampton Inn & Suites(4)
Silverthorne, COUpper-midscale88 
Hilton Garden Inn(1)
Houston (Energy Corridor), TXUpscale190 
Hilton Garden Inn(1)(3)
Houston (Galleria), TXUpscale182 
Hilton Garden Inn(4)
San Francisco, CAUpscale169 
Hilton Garden Inn(4)
San Jose (Milpitas), CAUpscale161 
Hilton Garden Inn(1)
Boston (Waltham), MAUpscale148 
Hilton Garden Inn(1)
Greenville, SCUpscale120 
Hilton Garden Inn(1)
Minneapolis (Eden Prairie), MNUpscale97 
Homewood Suites(1)
Aliso Viejo (Laguna Beach), CAUpscale129 
Homewood Suites(1)
Tucson, AZUpscale122 
Total Hilton (17 hotel properties) 2,514 
Hyatt  
Hyatt House(1)
Orlando, FLUpscale168 
Hyatt House(1)
Miami, FLUpscale163 
Hyatt House(2)
Denver (Englewood), COUpscale135 
Hyatt Place(1)
Minneapolis, MNUpscale213 
Hyatt Place(1)
Chicago (Downtown), ILUpscale206 
Hyatt Place(2)
Phoenix (Mesa), AZUpscale152 
Hyatt Place(2)
Chicago (Lombard), ILUpscale151 
Hyatt Place(2)
Orlando (Convention), FLUpscale150 
Hyatt Place(2)
Orlando (Universal), FLUpscale150 
Hyatt Place(1)(3)
Portland (Portland Airport/Cascade Station), ORUpscale136 
Hyatt Place(2)
Denver (Lone Tree), COUpscale127 
Hyatt Place(2)
Phoenix (Scottsdale), AZUpscale126 
Hyatt Place(2)
Denver (Englewood), COUpscale126 
Hyatt Place(2)
Chicago (Hoffman Estates), ILUpscale126 
Hyatt Place(2)
Baltimore (Owing Mills), MDUpscale123 
Hyatt Place(1)
Long Island (Garden City), NYUpscale122 
Total Hyatt (16 hotel properties) 2,374 
IHG  
Holiday Inn Express & Suites(1)
San Francisco, CAUpper-midscale252 
Holiday Inn Express & Suites(1)
Minneapolis (Minnetonka), MNUpper-midscale93 
Hotel Indigo(1)
Asheville, NCUpper-upscale115 
Staybridge Suites(1)
Denver (Glendale), COUpscale121 
Total IHG (4 hotel properties) 581 
Total Portfolio (72 hotel properties) 11,288 
 
(1)    These hotel properties are included in our borrowing base for our senior revolving credit and term loan facilities at December 31, 2020.
(2)    These hotel properties are subject to mortgage debt at December 31, 2020.  For additional information concerning our mortgage debt and lenders, see "Part II – Item 7. – Management’s Discussion and Analysis of Financial Condition and Results of Operations Outstanding Indebtedness,” and "Part II – Item 8. – Financial Statements and Supplementary Data – Note 6 – Debt.
(3)    These hotel properties are subject to ground leases as described below in “Our Hotel Operating Agreements — Ground Leases.”
(4)    We own a 51% controlling interest in these hotel properties through a consolidated joint venture. These hotel properties are included in the borrowing base for the joint venture's credit facility.

    
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In addition to our hotel property portfolio, we own two parcels of undeveloped land. One of the parcels is designated as held for sale. The parcels are generally suitable for the development of new hotel properties or the development of restaurants.  When unique opportunities to develop hotels utilizing our own resources arise, we may develop our own hotels on occasion. We may also sell these parcels in the future if and when market conditions warrant if we opt not to develop our own hotels on these parcels. To reduce the risk of incurring a prohibited transaction tax on any sales, we may transfer some or all of these parcels to our TRSs.
 
Our Hotel Operating Agreements
 
Ground Leases
 
At December 31, 2020, four of our hotel properties are subject to ground lease agreements that cover all of the land underlying the respective hotel property.
 
The Residence Inn by Marriott located in Portland (Portland Airport at Cascade Station), OR is subject to a ground lease with an initial lease termination date of June 30, 2084 with one option to extend for an additional 14 years. Ground rent for the initial lease term was prepaid in full at the time we acquired the leasehold interest. If the option to extend is exercised, monthly ground rent will be charged based on a formula established in the ground lease.
The Hyatt Place located in Portland (Portland Airport/Cascade Station), OR is subject to a ground lease with a lease termination date of June 30, 2084 with one option to extend for an additional 14 years. Ground rent for the initial lease term was prepaid in full at the time we acquired the leasehold interest. If the option to extend is exercised, monthly ground rent will be charged based on a formula established in the ground lease.
The Hampton Inn & Suites located in Austin (Downtown/Convention Center), TX is subject to a ground lease with an initial lease termination date of May 31, 2050. Annual ground rent currently is estimated to be $0.2 million for 2021 including performance based incentive rent.  Annual rent is increased every five years with the next adjustment coming in 2025.
The Hilton Garden Inn located in Houston (Galleria), TX is subject to a ground lease with an initial lease termination date of April 20, 2053 with one option to extend for an additional 10 years. Annual ground rent currently is estimated to be $0.4 million for 2021 including performance based incentive rent.  Annual rent is increased every five years with the next adjustment coming in 2023.
 
These ground leases generally require us to make rental payments and payments for our share of charges, costs, expenses, assessments and liabilities, including real property taxes and utilities.  Furthermore, these ground leases generally require us to obtain and maintain insurance covering the subject property.

Franchise Agreements
 
At December 31, 2020, all of our hotel properties operate under franchise agreements, or similar agreements, that allow for access to reservation systems, with Marriott, Hilton, Hyatt, or IHG. We believe that the public’s perception of the quality associated with a branded hotel is an important feature in its attractiveness to guests. Franchisors provide a variety of benefits to franchisees, including centralized reservation systems, national advertising, marketing programs and publicity designed to increase brand awareness, loyalty programs, training of personnel and maintenance of operational quality at hotels across the brand system.
 
The terms of our franchise agreements generally range from 10 to 20 years with various extension provisions. Each franchisor receives franchise fees ranging from 2% to 6% of each hotel property’s room revenue, and some agreements require that we pay marketing fees of up to 4% of room revenue. In addition, some of these franchise agreements require that we deposit into a reserve fund for capital expenditures up to 5% of the hotel property’s gross or room revenues depending on the franchisor to insure we comply with the franchisors’ standards and requirements. We also pay fees to our franchisors for services such as reservation and information systems. 
 
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Hotel Management Agreements
 
At December 31, 2020, all of our hotel properties are operated pursuant to hotel management agreements with professional third-party hotel management companies as follows:
 
Management CompanyNumber of
Properties
Number of
Guestrooms
Affiliates of Aimbridge Hospitality, including Interstate Management Company, LLC (1)(2)
33 5,133 
OTO Development, LLC15 2,164 
Stonebridge Realty Advisors, Inc. and affiliates1,312 
Affiliates of Marriott, including Courtyard Management Corporation, SpringHill SMC Corporation and Residence Inn by Marriott, Inc.1,176 
White Lodging Services Corporation791 
American Liberty Hospitality, Inc.372 
InterContinental Hotel Group Resources, Inc., an affiliate of IHG252 
Crestline Hotels & Resorts, LLC88 
Total72 11,288 

(1) On October 25, 2019, Aimbridge Hospitality announced that it had completed a merger with Interstate Hotels and Resorts. 
(2) On January 5, 2021, we transitioned the property management of one property containing 203 guestrooms from an affiliate of Marriott to Aimbridge Hospitality. 
    
Our typical hotel management agreement requires us to pay a base fee to our hotel manager calculated as a percentage of total hotel revenues.  In addition, our hotel management agreements generally provide that the hotel manager can earn an incentive fee upon achieving EBITDA over certain thresholds.  Our TRS lessees may employ other hotel managers in the future.  We do not, and will not, have any ownership or economic interest in any of the hotel management companies engaged by our TRS lessees.
 
Item 3.        Legal Proceedings.
 
We are involved from time to time in litigation arising in the ordinary course of business; however, there are currently no pending legal actions that we believe would have a material adverse effect on our financial position or results of operations.
 
Item 4.        Mine Safety Disclosures.
 
Not applicable.

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PART II

Item 5.    Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
 
Market Information
 
Our common stock began trading on the NYSE on February 9, 2011 under the symbol “INN.”  Prior to that time, there was no public trading market for our common stock. The last reported sale price for our common stock as reported on the NYSE on February 15, 2021 was $9.69 per share. 
 
Stockholder Information
 
As of February 15, 2021, our common stock was held of record by 289 holders and there were 105,708,787 shares of our common stock outstanding.
 
Distribution Information
 
As a REIT, we must distribute annually to our stockholders an amount at least equal to 90% of our REIT taxable income, determined without regard to the deduction for dividends paid and excluding any net capital gain. We will be subject to income tax on our taxable income that is not distributed and to an excise tax to the extent that certain percentages of our taxable income are not distributed by specified dates. Our cash available for distribution may be less than the amount required to meet the distribution requirements for REITs under the IRC and we may be required to borrow money, sell assets or issue capital stock to satisfy the distribution requirements to maintain our REIT status.
 
The timing and frequency of distributions will be authorized by our Board of Directors, in its sole discretion, and declared by us based upon a variety of factors deemed relevant by our directors, including financial condition, restrictions under applicable law and loan agreements, capital requirements and the REIT requirements of the IRC. Our ability to make distributions will generally depend on receipt of distributions from the Operating Partnership, which depends primarily on lease payments from our TRS lessees with respect to our hotels.
 
We are generally restricted from declaring or paying any distributions or setting aside any funds for the payment of distributions on our common stock unless full cumulative distributions on our preferred stock have been declared and either paid or set aside for payment in full for all past distribution periods.

As a result of the negative financial effects of the COVID-19 pandemic on our business, we suspended the declaration and payment of dividends on our common stock and operating partnership units as described below under “Part II – Item 7. – Management’s Discussion and Analysis of Financial Condition and Results of Operations - Management’s Actions in Response to the Effects of COVID-19 on Our Operations – Financial Measures and Liquidity.” In addition, as a result of the modification of our 2018 Senior Credit Facility, 2017 Term Loan (defined below) and 2018 Term Loan (defined below), we are restricted from declaring and paying dividends on our common stock and operating partnership units, other than distributions required to maintain our REIT status, until such time as the financial and other covenant waivers and adjustments under such facilities are no longer effective.

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Item 6.        Selected Financial Data.
 
The following information should be read in conjunction with “Part II Item 7. – Management’s Discussion and Analysis of Financial Condition and Results of Operationsand our audited Consolidated Financial Statements and related notes thereto, appearing elsewhere in this Form 10-K.

(in thousands, except per share amounts)20202019201820172016
Statement of Operations Data     
Revenues:     
Room$215,506 $505,342 $523,439 $479,934 $443,270 
Food and beverage6,444 23,785 24,225 21,359 19,777 
Other12,513 20,221 19,606 14,084 10,888 
Total revenues234,463 549,348 567,270 515,377 473,935 
Expenses:   
Room53,784 112,244 119,724 108,715 97,358 
Food and beverage5,416 18,552 19,191 16,734 14,841 
Other hotel operating expenses96,506 158,181 159,173 144,526 134,420 
Property taxes, insurance and other44,691 44,220 43,339 37,419 30,250 
Management fees6,276 16,575 18,521 18,210 18,812 
Depreciation and amortization109,619 99,445 101,013 85,927 72,406 
Corporate general and administrative20,985 23,622 21,509 19,597 19,292 
Hotel property acquisition costs— — — 354 3,492 
Provision for credit losses4,821 — — — — 
Loss on impairment and write-off of assets1,759 2,521 1,075 — 577 
Total expenses343,857 475,360 483,545 431,482 391,448 
(Loss) gain on disposal of assets, net(16)45,418 41,474 43,209 49,855 
Operating (loss) income(109,410)119,406 125,199 127,104 132,342 
Other income (expense):   
Interest expense(43,300)(41,030)(41,944)(29,687)(28,091)
Other income, net4,841 5,472 6,949 3,778 2,560 
Total other expense(38,459)(35,558)(34,995)(25,909)(25,531)
(Loss) income from continuing operations before income taxes(147,869)83,848 90,204 101,195 106,811 
Income tax (expense) benefit(1,376)(1,500)922 (1,674)1,450 
Net (loss) income(149,245)82,348 91,126 99,521 108,261 
Less: Loss (income) attributable to non-controlling interests:   
Operating Partnership271 (157)(205)(307)(456)
Joint venture5,635 419 — — — 
Net (loss) income attributable to Summit Hotel Properties, Inc.(143,339)82,610 90,921 99,214 107,805 
Preferred dividends(14,838)(14,838)(16,671)(17,408)(18,232)
Premium on redemption of preferred stock— — (3,277)(2,572)(2,125)
Net (loss) income attributable to common stockholders$(158,177)$67,772 $70,973 $79,234 $87,448 
(Loss) earnings per share:    
Basic and diluted$(1.52)$0.65 $0.68 $0.79 $1.00 
Weighted average common shares outstanding:     
Basic104,141 103,887 103,623 99,406 86,874 
Diluted104,141 103,939 103,842 99,780 87,343 
Dividends per share$0.18 $0.72 $0.72 $0.67 $0.55 
Balance Sheet Data    
Total assets$2,233,019 $2,355,683 $2,222,297 $2,209,874 $1,718,505 
Debt$1,094,745 $1,016,163 $958,712 $868,236 $652,414 
Total equity$1,052,063 $1,243,390 $1,192,144 $1,277,376 $1,013,470 

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Item 7.        Management’s Discussion and Analysis of Financial Condition and Results of Operations.
 
Industry Trends and Outlook
 
Room-night demand in the U.S. lodging industry is generally correlated to certain macroeconomic trends. Key drivers of lodging demand include changes in gross domestic product, corporate profits, capital investments, employment and more recently, travel-related health and safety restrictions and concerns. Volatility in the economy and risks arising from global and domestic political or economic conditions may cause slowing economic growth, which would have an adverse effect on lodging demand. During the twelve months ended December 31, 2020, the global and U.S. economies, and the travel and lodging industries, experienced a significant downturn as a result of the COVID-19 global pandemic, which is expected to continue until an effective vaccine is broadly distributed, government restrictions are lifted, consumer confidence is restored and a recovery in hospitality and travel-related demand occurs.

Effects of COVID-19 Pandemic on Our Business

On January 30, 2020, the World Health Organization (“WHO”) declared a public health emergency of international concern related to a novel coronavirus (“COVID-19”), and on March 11, 2020, the WHO declared COVID-19 to be a pandemic. By March 31, 2020, stay-at-home directives had been issued in many states across the United States and many local jurisdictions had additionally required the temporary closure of businesses deemed to be non-essential.

The restrictions implemented in response to the COVID-19 pandemic have had a significant negative effect on the U.S. and global economies, including a rapid and sharp decline in all forms of travel, both domestic and international, and a significant decline in hotel demand. These conditions have resulted in a substantial decline in our revenues, profitability and cash flows from operations during the twelve months ended December 31, 2020 and are expected to continue to materially adversely affect our operations and financial results until an effective vaccine is broadly distributed, government restrictions are lifted, consumer confidence is restored and a recovery in hospitality and travel-related demand occurs. The COVID-19 pandemic has also led to a disruption and volatility of the capital markets for the hospitality and travel-related industries, which could increase our cost of and limit accessibility to capital.

The COVID-19 pandemic caused the Company to temporarily suspend operations at six hotels containing 934 guestrooms in March 2020. An additional nine hotels, containing 1,278 guestrooms, each of which is adjacent to another of our hotels ("Sister Properties"), continued to accept reservations, but guests were directed to Sister Properties. In May of 2020, five hotels containing 682 guestrooms and four hotel properties adjacent to Sister Properties containing 506 guestrooms were re-opened. During the second half of 2020, three hotel properties adjacent to Sister Properties containing 430 guestrooms were re-opened. As of December 31, 2020, only one hotel with 252 guestrooms still has suspended operations and guests at two other hotels containing 342 guestrooms are being directed to Sister Properties.

The effects of the COVID-19 pandemic on our operations were the primary drivers of a 58.1% decline in RevPAR during the twelve months ended December 31, 2020 in comparison to the twelve months ended December 31, 2019. Furthermore, our income from hotel operations declined from $199.6 million during the twelve months ended December 31, 2019 to $27.8 million for the twelve months ended December 31, 2020. The COVID-19 pandemic is likely to continue to materially adversely affect our operations and financial performance in 2021 and potentially beyond, until an effective vaccine is broadly distributed, government restrictions are lifted, consumer confidence is restored and a recovery in hospitality and travel-related demand occurs. It is currently extremely difficult to predict how long the adverse effects of the COVID-19 pandemic will continue, when an economic recovery will commence and the length of time it will take for us to return to operational and financial performance that is consistent with past performance.


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Management’s Actions in Response to the Effects of COVID-19 on Our Operations

We have taken the following actions to mitigate the negative effects of the COVID-19 pandemic on our consolidated financial position, results of operations and cash flows:

Operational Adjustments

In response to the rapid decline in demand for room nights and loss of revenues as a result of the COVID-19 pandemic, we, along with our property managers, evaluated each hotel in our portfolio to determine if market conditions warranted the temporary suspension of operations, and to adjust labor cost structures for hotels that would continue to operate. Although the majority of our hotels have remained open, staffing levels have been significantly reduced to levels that safely and effectively maintain reasonable accommodations for our guests. As such, our open hotels are generally operating with limited employees per shift and a limited housekeeping staff that are performing all the essential hotel functions, including enhanced cleaning and disinfecting to mitigate the spread of COVID-19.

Financial Measures and Liquidity

We have taken significant action to enhance our overall liquidity position in response to the COVID-19 pandemic’s effect on our financial position. The following is a summary of certain measures that we have adopted in order to enhance our overall liquidity position:

We further amended loan agreements of our 2018 Senior Credit Facility, 2017 Term Loan (defined below) and 2018 Term Loan (defined below) to provide for financial covenant waivers through March 31, 2022, to obtain certain modifications to financial covenant measures through December 31, 2023 and to access the full borrowing capacity under our $400 million revolving credit facility (“$400 Million Revolver”) subject to certain conditions. At February 15, 2021, we had $24.6 million of consolidated unrestricted cash on hand and an additional $380.0 million of undrawn availability on our $400 Million Revolver, as amended by the Third Amendment (as defined below). We have no debt maturing before November 2022.
We completed the offering of $287.5 million of Convertible Notes in January 2021 and used a portion of the proceeds to repay the outstanding borrowings under our $400 Million Revolver and to partially repay outstanding balances under our term loan obligations. These transactions ensured the availability of sufficient capacity under the $400 Million Revolver to provide adequate liquidity should we experience a continued disruption in lodging demand.
We amended our joint venture credit agreement to provide for a financial covenant waiver through March 31, 2021, to modify certain financial covenant measures through June 30, 2022, and to access additional availability to fund operating expense deficits and various capital expenditures.
We suspended the declaration and payment of dividends on our common stock and operating partnership units beginning in the first quarter of 2020. This conserves an additional $19.0 million of cash quarterly, or $75.0 million on an annualized basis.
We postponed all non-essential capital improvement projects planned for 2020 beyond those already substantially complete and expect to continue to postpone most non-essential capital improvement projects for the foreseeable future.
We adopted comprehensive cost reduction initiatives, including the reduction of labor and temporary elimination of certain services and amenities, at all hotels. Certain labor costs and services or amenities have been added back on a limited basis as improvements in occupancy levels have supported. As described above, we temporarily suspended operations at certain hotels in response to specific government mandates or as the result of adverse market conditions.
We implemented a voluntary 25% temporary reduction of base salaries and fees, respectively, for executive officers and independent members of the Board of Directors for a portion of 2020.
We furloughed approximately 25% of the corporate-level staff in April 2020. Certain of the furloughed staff were reinstated during 2020 to meet specific needs of the Company as supported by our operating performance, but the majority of the furloughed positions were permanently eliminated during the third quarter.
We implemented temporary salary reductions for the majority of our remaining non-executive employees for a portion of 2020.
We implemented a temporary hiring freeze for any new corporate-level positions.
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We are currently in compliance with all of our financial covenants under our various loan and mortgage agreements. We amended our loan agreements as follows:

First, Second and Third Amendment to $600.0 Million Senior Credit Facility

On May 7, 2020, the Operating Partnership, as borrower, the Company, as parent guarantor, and each party executing the credit facility documentation as a subsidiary guarantor entered into the First Amendment to Credit Agreement (the “First Amendment”) of the Operating Partnership’s 2018 Senior Credit Facility with Deutsche Bank AG New York Branch, as administrative agent, and a syndicate of lenders. Such parties further amended the 2018 Senior Credit Facility on January 6, 2021 by entering into the Second Amendment to Credit Agreement (the “Second Amendment”), and again on February 5, 2021 by entering into the Third Amendment to Credit Agreement (the “Third Amendment,” collectively with the First Amendment, the “Credit Facility Amendments”).

The First Amendment provides that certain financial and other covenants under the 2018 Senior Credit Facility were waived or adjusted, for the periods described below, with the further adjustments to such covenants made pursuant to the Third Amendment, as indicated below:

Waivers of key financial and certain other covenants in the 2018 Senior Credit Facility for the period April 1, 2020 through March 31, 2021, which period was extended through March 31, 2022; and
Beginning on April 1, 2022, adjustments to certain key financial covenants go into effect through December 31, 2022 including:
Reduction of the Minimum Consolidated Fixed Charge Coverage Ratio;
Increase of the Maximum Unsecured Leverage Ratio; and
Reduction of the Minimum Unsecured Interest Coverage Ratio;
Increases to the Maximum Leverage Ratio, adjusting down beginning in the second quarter of 2022 and continuing through calendar year 2023.

The interest rate during the periods of the financial and covenant waivers and adjustments was set at Pricing Level VII in the First Amendment, and re-set at Pricing Level VIII in the Third Amendment as defined in the 2018 Senior Credit Facility documents and Third Amendment, respectively.

The Credit Facility Amendments require the borrower and certain subsidiaries to pledge to the secured parties all of the equity interests in the entities that own all properties included in the unencumbered asset pool supporting the facility (“Unencumbered Properties”), as well as the equity interests in the TRS lessees related to such Unencumbered Properties until the borrower meets certain conditions for their release.

The Second Amendment permitted the Company to make the Convertible Notes Offering, as described in “Part II – Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources.”

The First Amendment confirmed that the borrower may advance up to an additional $100 million on the existing revolving facility. Such provision was revised in the Third Amendment to allow the borrower to advance up to an additional $350 million on the existing revolving facility. Furthermore, the Credit Facility Amendments permit the borrower to advance an additional $50 million, in addition to the $100 million and $350 million advances described in the preceding sentences, upon filing mortgages and related security agreements on all Unencumbered Properties, with such security documents to be released upon the borrower meeting certain conditions for their release.

The Third Amendment revises the restrictions that were previously placed on certain investments in assets, equity offerings and securing of permitted indebtedness to permit the borrower and Company to take such actions, provided that (i) portions of the proceeds from such events will be used to pay down the balance of the 2018 Senior Credit Facility, the 2018 Term Loan (defined below) and 2017 Term Loan (defined below) in accordance with the terms of the Third Amendment, and (ii) the borrower and Company comply with the other conditions to taking such actions, including maintaining a minimum of $150 million in liquidity.

Certain other typical limitations and conditions for credit facilities of this nature were included among the provisions in the First Amendment including, among other provisions, limitations on the use of revolving facility advances, certain restrictions on payments of dividends and establishment of a minimum liquidity requirement.
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Third, Fourth, Fifth and Sixth Amendments to $225.0 Million 2018 Term Loan

The Operating Partnership, as borrower, the Company, as parent guarantor, and each party executing the credit facility documentation as a subsidiary guarantor entered into the Third Amendment to the First Amended and Restated Credit Agreement (the “Third Term Amendment”), the Fourth Amendment to the First Amended and Restated Credit Agreement (the "Fourth Term Amendment"), the Fifth Amendment to the First Amended and Restated Credit Agreement (the "Fifth Term Amendment"), and the Sixth Amendment to the First Amended and Restated Credit Agreement (the "Sixth Term Amendment") of the Operating Partnership’s $225 million 2018 term loan ( the "2018 Term Loan") with KeyBank National Association, as administrative agent, and a syndicate of lenders on May 7, 2020, August 6, 2020, January 6, 2021 and February 5, 2021, respectively. The changes to the 2018 Term Loan effected by the Third Term Amendment, Fifth Term Amendment and Sixth Term Amendment are substantially similar to the changes described above effected by the First Amendment, Second Amendment and Third Amendment to the Company’s 2018 Senior Credit Facility.

Second, Third, Fourth and Fifth Amendments to $225.0 Million 2017 Term Loan

The Operating Partnership, as borrower, the Company, as parent guarantor, and each party executing the credit facility documentation as a subsidiary guarantor entered into the Second Amendment to the Credit Agreement (the “Second 2017 Term Amendment”), the Third Amendment to the Credit Agreement (the "Third 2017 Term Amendment"), the Fourth Amendment to the Credit Agreement (the "Fourth 2017 Term Amendment") and the Fifth Amendment to the Credit Agreement (the "Fifth 2017 Term Amendment") of the Operating Partnership’s $225 million 2017 term loan (the "2017 Term Loan") with KeyBank National Association, as administrative agent, and a syndicate of lenders on May 7, 2020, August 6, 2020, January 6, 2021 and February 5, 2021, respectively. The changes to the 2017 Term Loan effected by the Second 2017 Term Amendment, Fourth 2017 Term Amendment and Fifth 2017 Term Amendment are substantially similar to the changes described above effected by the First Amendment, Second Amendment and Third Amendment to the Company’s 2018 Senior Credit Facility.

Second Amendment to $200 Million Joint Venture Credit Facility

On June 18, 2020, Summit JV MR 1, LLC (the "Borrower"), as borrower, Summit Hospitality JV, LP, as parent, and each party executing the credit facility documentation as a subsidiary guarantor, entered into the Second Amendment to Credit Agreement (the “JV Second Amendment”) of the Borrower's $200 million senior credit facility (the "Joint Venture Credit Facility") with Bank of America, N.A., as administrative agent, BofA Securities, Inc., as sole lead arranger and sole bookrunner, and a syndicate of lenders including Bank of America, N.A., KeyBank National Association, and Bank of Montreal, Chicago Branch.

Certain financial and other covenants under the Joint Venture Credit Facility were waived or adjusted, for the periods described below:

Temporary waivers of the Consolidated Fixed Charge Coverage Ratio covenant and certain other covenants in the Joint Venture Credit Facility for the period June 18, 2020 until the date the Borrower is required to deliver to the lenders a compliance certificate for the period ending June 30, 2021 (“Covenant Waiver Period”); and
Adjustments to the Borrowing Base Coverage Ratio beginning on June 18, 2020, and adjusting up through June 30, 2022.

The JV Second Amendment confirmed that the Borrower may make additional advances on the existing revolving facility. Prior to the expiration of the Covenant Waiver Period, advances are limited to the lesser of the aggregate facility amount and the aggregate Borrowing Base Asset Value multiplied by 55%, less all outstanding advances. Upon the expiration of the Covenant Waiver Period, advances are limited to the lesser of the aggregate facility amount, the aggregate Borrowing Base Asset Value multiplied by 55%, and the amount that would permit the Borrower to achieve the Borrowing Base Coverage Ratio then applicable, less all outstanding advances.

Certain other typical limitations and conditions for credit facilities of this nature were included among the provisions in the JV Second Amendment including, among other provisions, limitations on the use of revolving facility advances, certain restrictions on payments of dividends and limitations on investments and dispositions.

We retain the right to opt out of certain additional restrictive covenants upon demonstration of compliance with the required financial covenants.

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We expect that the operational, financial and liquidity measures that we have taken will allow us to meet our funding needs for at least the next twelve months and beyond. However, there is substantial uncertainty as to how long the economic hardship caused by the COVID-19 pandemic will last and the timing and rate of an economic recovery afterwards.

Use of FF&E Reserve Funds

On April 13, 2020, as a result of the COVID-19 pandemic, Marriott agreed to allow us to use $1.6 million of cash deposited in our restricted cash reserve for replacement of furniture, fixtures and equipment ("FF&E Reserve Accounts") for seven of our Marriott-branded hotels managed by Marriott affiliates (“Marriott Hotels”) to pay for the working capital needs of the respective hotels. In addition, Marriott released $8.9 million to us from the FF&E Reserve Accounts (“Borrowed Reserve”) of the Marriott Hotels for general corporate purposes. The Borrowed Reserve must be replenished into the respective FF&E Reserve Accounts in ten equal monthly installments beginning on the date that is twelve months prior to the next scheduled renovation date for each of the Marriott Hotels (“Renovation Date”) or in a lump sum payment no later than sixty days prior to each respective Renovation Date. Furthermore, Marriott has suspended our obligation to fund monthly FF&E reserves for the Marriott Hotels through December 31, 2021. We do not expect to replenish any of the Borrowed Reserve over the next twelve months.

Tax Relief

The business tax provisions of the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act"), which was signed into law on March 27, 2020, include temporary changes to income and non-income-based tax laws. Some of the key income tax provisions include:

Eliminating the 80% of taxable income limitations by allowing corporate entities to fully utilize net operating loss (NOL) carryforwards to offset taxable income in 2018, 2019, or 2020, and reinstating it for tax years after 2020;
Allowing NOLs generated in 2018, 2019, or 2020, to be carried back five years. Our TRSs generated net operating losses in 2020. As such, we expect a $1.0 million future tax benefit from the NOL carry-back provisions provided in the CARES Act;
Increasing the net interest expense deduction limit to 50% of adjusted taxable income from 30% for the 2019 and 2020 tax years;
Allowing taxpayers with alternative minimum tax credits to claim a refund for the entire amount of the credit instead of recovering the credit through refunds over a period of years, as required by the 2017 Tax Cut and Jobs Act;
Allowing entities to deduct more of their charitable cash contributions made during calendar year 2020 by increasing the taxable income limitation to 25% from 10%; and
Providing for an employee retention tax credit to offset the employer's share of payroll taxes for the period between March 13, 2020 and December 31, 2020. The credit is calculated based on 50% of qualifying wages, capped at the first $10,000 of compensation. We submitted amended payroll tax filings to recoup an anticipated credit of approximately $0.3 million.

The Consolidated Appropriations Act, 2021 signed into law on December 27, 2020 provided extended COVID-19 relief provisions and additional economic stimulus. Key tax provisions in this legislation included:

Temporary allowance of a full deduction for business meals paid or incurred between December 31, 2020 and January 1, 2023.
An expansion of employee retention tax credit provided under the CARES Act for the period January 1, 2021 to June 30, 2021. The credit is calculated based on 70% of qualifying wages, capped at $10,000 of compensation each of the first two quarters in 2021. We anticipate a credit of approximately $0.7 million in 2021.
An expansion of the charitable contribution provisions for corporations under the CARES Act.

Modification of TRS Leases

All of our hotels are leased by either our Operating Partnership or subsidiary REITs to our TRS lessees. Economic challenges caused by the COVID-19 pandemic have resulted in the temporary suspension of operations of certain hotels and significantly reduced operations at the hotels that have remained open for business. Most of our TRS lessees have been granted rent abatements for rent deficiencies in December of 2020. Subsequent to December 31, 2020, prospective lease modifications are expected to be entered into with most of our TRS lessees to reflect the current market conditions and better enable the TRS lessees to manage their operations and cash flows at reduced levels. The deferral, abatement or modification of the rents
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related to our TRS lessees has no effect on our consolidated financial position or results of operations. However, it may increase the income of our TRS lessees on a stand-alone basis.

Health and Well-being

All of our hotels are licensed with national franchise brands and we have worked closely with our brand partners to develop and implement comprehensive protocols for the safety and well-being of employees and guests. The health and safety procedures at our hotels are designed and have been enhanced to address a broad spectrum of pathogens and viruses, including COVID-19, and include personal hygiene such as frequent and thorough hand-washing, cleaning product specifications, availability of disinfecting products for our guests, and guestroom and common area cleaning procedures. Our hotels have increased the frequency of cleaning throughout the hotels, with focused attention on high-touch areas such as entrances, public spaces, laundry rooms and staff offices. Additionally, many of our hotels have implemented contactless guest check-in and check-out and modified grab-and-go food and beverage offerings.

Forward-looking Information and Use of Estimates

The full effects of the COVID-19 pandemic on our Company will depend on future developments, such as the ultimate duration and scope of the outbreak, its effect on our customers, brands and business partners, the rate at which normal economic conditions, operations, and the demand for lodging resume, and the magnitude of the recessionary conditions in any of our markets. Accordingly, the full effects on our Company cannot be determined at this time; however, despite the uncertainty of the effects of the COVID-19 pandemic, we expect our full year 2021 results of operations to be adversely affected. While the potential magnitude and duration of the business and economic effects of COVID-19 are uncertain, we believe that the nascent recovery in our business that began during 2020 will continue into the year ended December 31, 2021 and operating performance will improve gradually over a multi-year period before reaching prior peak performance levels. We believe that a recovery in business conditions resulting in positive operating cash flows, together with cash on hand, and the current availability under our credit facilities, will provide sufficient liquidity to fund operations for at least the next twelve months. There can be no assurance that the assumptions used to evaluate the carrying amounts of our assets or to estimate our liquidity requirements will be correct. For additional information on the current and potential future effects of the COVID-19 pandemic, please see "Part I – Item 1A. – Risk Factors."

Operating Performance Metrics
 
We use a variety of performance indicators and other information to evaluate the financial condition and operating performance of our business. These key indicators include financial information that is prepared in accordance with GAAP, as well as other financial information that is not prepared in accordance with GAAP. In addition, we use other information that may not be financial in nature, including statistical information and comparative data. We use this information to measure the performance of individual hotel properties, groups of hotel properties and/or our business as a whole. We periodically compare historical information to our internal budgets as well as industry-wide information. These key indicators include:
 
Occupancy — Occupancy represents the total number of guestrooms occupied divided by the total number of guestrooms available.
Average Daily Rate (ADR) — ADR represents total room revenues divided by the total number of guestrooms occupied.
Revenue Per Available Room (RevPAR) — RevPAR is the product of ADR and Occupancy.
 
Occupancy, ADR and RevPAR are commonly used measures within the hotel industry to evaluate operating performance. RevPAR is an important metric for monitoring operating performance at the individual hotel property level and across our business as a whole. We evaluate individual hotel RevPAR performance on an absolute basis with comparisons to budget and prior periods, as well as on a company-wide and market-by-market basis. ADR and RevPAR are based only on room revenue. Room revenue depends on demand (as measured by occupancy), pricing (as measured by ADR), and our available supply of hotel guestrooms. Our ADR, occupancy and RevPAR performance may be affected by macroeconomic factors such as regional and local employment growth, personal income and corporate earnings, office vacancy rates and business relocation decisions, air travel and other business and leisure travel, new hotel property construction, and the pricing strategies of competitors. In addition, our ADR, occupancy and RevPAR performance is dependent on the continued success of our franchisors and brands.

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Hotel Property Portfolio Activity
 
We continuously evaluate alternatives to refine our portfolio to drive growth and create value. In the normal course of business, we evaluate opportunities to acquire additional properties that meet our investment criteria and opportunities to recycle capital through the disposition of properties. As such, the composition and size of our portfolio of properties may change materially over time. Significant changes to our portfolio of properties could have a material effect on our Consolidated Financial Statements.

See “Part II Item 8. – Financial Statements and Supplementary Data –Note 3 - Investment in Hotel Properties, net” to the Consolidated Financial Statements for additional information concerning our asset acquisitions, development, and dispositions.

Hotel Revenues and Operating Expenses
 
Our revenues are derived from hotel operations and consist of room revenue, food and beverage revenue and other revenue. As a result of our focus on select-service hotels, substantially all of our revenues are related to the sales of hotel guestrooms. Our other revenue consists of ancillary revenues related to meeting rooms, parking and other guest services provided at certain of our hotel properties.
 
Our hotel operating expenses consist primarily of expenses incurred in the day-to-day operation of our hotel properties. Many of our expenses are fixed, such as essential hotel staff, real estate taxes, insurance, and depreciation. These expenses generally do not decrease even if the revenues at our hotel properties decrease. 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 associated labor costs. Other operating expenses include labor and other costs associated with administrative departments, sales and marketing, repairs and maintenance, utility costs and franchise fees.

As discussed above under “Part II – Item 7. – Management’s Discussion and Analysis of Financial Condition and Results of Operations - Management’s Actions in Response to the Effects of COVID-19 on Our Operations – Operational Adjustments,” in response to the rapid decline in demand for room nights and loss of revenues as a result of the COVID-19 pandemic, we, along with our property managers, evaluated each hotel in our portfolio to determine if market conditions warranted the temporary suspension of operations, and to adjust labor cost structures for hotels that would continue to operate. Although the majority of our hotels have remained open, staffing levels have been significantly reduced to levels that safely and effectively maintain reasonable accommodations for our guests. As such, our open hotels are generally operating with limited employees per shift and a limited housekeeping staff that are performing all the essential hotel functions, including enhanced cleaning and disinfecting to mitigate the spread of COVID-19.

46


Results of Operations
 
The comparisons that follow should be reviewed in conjunction with the Consolidated Financial Statements included elsewhere in this Form 10-K.
 
Comparison of 2020 to 2019
 
The following table contains key operating metrics for our total portfolio and our same-store portfolio for 2020 compared with 2019 (dollars in thousands, except ADR and RevPAR).  We define same-store hotels as properties that we owned as of December 31, 2020 and that we have owned at all times since January 1, 2019.
 
 20202019Year-over-Year
Dollar Change
Year-over-Year
Percentage Change
Total 
Portfolio
(72 hotels)
Same-Store
Portfolio
(67 hotels)
Total 
Portfolio
(72 hotels)
Same-Store
Portfolio
(67 hotels)
Total 
Portfolio
(72 hotels)
Same-Store
Portfolio
(67 hotels)
Total 
Portfolio
(72 hotels)
Same-Store
Portfolio
(67 hotels)
Revenues:
Room$215,506 $196,138 $505,342 $480,169 $(289,836)$(284,031)(57.4)%(59.2)%
Food and beverage6,444 6,118 23,785 22,839 (17,341)(16,721)(72.9)%(73.2)%
Other12,513 11,546 20,221 19,503 (7,708)(7,957)(38.1)%(40.8)%
Total$234,463 $213,802 $549,348 $522,511 $(314,885)$(308,709)(57.3)%(59.1)%
Expenses:
Room$53,784 $49,827 $112,244 $106,253 $(58,460)$(56,426)(52.1)%(53.1)%
Food and beverage5,416 5,047 18,552 17,534 (13,136)(12,487)(70.8)%(71.2)%
Other hotel operating expenses96,506 89,406 158,181 148,864 (61,675)(59,458)(39.0)%(39.9)%
Total$155,706 $144,280 $288,977 $272,651 $(133,271)$(128,371)(46.1)%(47.1)%
Occupancy43.3 %43.0 %78.5 %78.6 %n/an/a(44.8)%(45.3)%
ADR$120.36 $118.83 $158.45