RLJ Lodging Trust (RLJ)

Item 7.   Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis should be read in conjunction with our accompanying consolidated financial statements, the related notes included thereto, and Item 1A., "Risk Factors", all of which appear elsewhere in this Annual Report on Form 10-K.

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Overview

We are a self-advised and self-administered Maryland REIT that owns primarily premium-branded, rooms-oriented, high-margin, focused-service and compact full-service hotels located within heart of demand locations. Our hotels are concentrated in markets that we believe exhibit multiple demand generators and attractive long-term growth prospects. We believe premium-branded, focused-service and compact full-service hotels with these characteristics generate high levels of RevPAR, strong operating margins and attractive returns. Focused-service and compact full-service hotels typically generate most of their revenue from room rentals, have limited food and beverage outlets and meeting space and require fewer employees than traditional full-service hotels. We believe these types of hotels have the potential to generate attractive returns relative to other types of hotels due to their ability to achieve RevPAR levels at or close to those achieved by traditional full-service hotels, while achieving higher profit margins due to their more efficient operating model and less volatile cash flows.

Our Customers

The majority of our hotels consist of premium-branded, focused-service and compact full-service hotels. As a result of this property profile, the majority of our customers are transient in nature. Transient business typically represents individual business or leisure travelers. The majority of our hotels are located in business districts within major metropolitan areas. Accordingly, business travelers represent the majority of the transient demand at our hotels. As a result, macroeconomic factors impacting business travel have a greater effect on our business than factors impacting leisure travel.

Group business is typically defined as a minimum of 10 guestrooms booked together as part of the same piece of business. Group business may or may not use the meeting space at any given hotel. Given the limited meeting space at the majority of our hotels, group business that utilizes meeting space represents a small component of our customer base.

A number of our hotel properties are affiliated with brands marketed toward extended-stay customers. Extended-stay customers are generally defined as those staying five nights or longer.

Key Indicators of Operating Performance

We use a variety of operating, financial and other information to evaluate the operating performance of our business. These key indicators include financial information that is prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") as well as other financial measures that are non-GAAP measures. In addition, we use other information that may not be financial in nature, including industry standard statistical information and comparative data. We use this information to measure the operating performance of our individual hotels, groups of hotels and/or business as a whole. We also use these metrics to evaluate the hotels in our portfolio and potential acquisition opportunities to determine each hotel's contribution to cash flow and its potential to provide attractive long-term total returns. The key indicators include:

•Average Daily Rate — ADR represents the total hotel room revenues divided by the total number of rooms sold in a given period. ADR measures the average room price attained by a hotel and ADR trends provide useful information concerning the pricing environment and the nature of the customer base at a hotel or group of hotels. We use ADR to assess the pricing levels that we are able to generate, as changes in rates have a greater impact on operating margins and profitability than changes in Occupancy.

•Occupancy — Occupancy represents the total number of hotel rooms sold in a given period divided by the total number of rooms available. Occupancy measures the utilization of our hotels' available capacity. We use Occupancy to measure demand at a specific hotel or group of hotels in a given period. Additionally, Occupancy levels help us determine the achievable ADR levels.

•Revenue Per Available Room — RevPAR is the product of ADR and Occupancy. RevPAR does not include non-room revenues, such as food and beverage revenue or other revenue. We use RevPAR to identify trend information with respect to room revenues from comparable hotel properties and to evaluate hotel performance on a regional basis.

RevPAR changes that are primarily driven by changes in Occupancy have different implications for overall revenues and profitability than the changes that are driven primarily by changes in ADR. For example, an increase in Occupancy at a hotel would lead to additional variable operating costs (including housekeeping services, utilities and room supplies) and could also result in an increase in other revenue and other operating expense. Changes in ADR typically have a greater impact on operating margins and profitability as they only have a limited effect on variable operating costs.

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ADR, Occupancy and RevPAR are commonly used measures within the lodging industry to evaluate operating performance. RevPAR is an important statistic for monitoring operating performance at the individual hotel property level and across our entire business. We evaluate individual hotel RevPAR performance on an absolute basis with comparisons to budget and prior periods, as well as on a regional and company-wide basis. ADR and RevPAR include only room revenue. Room revenue comprised approximately 81.9% of our total revenues for the year ended December 31, 2024, and it is dictated by demand (as measured by Occupancy), pricing (as measured by ADR) and our available supply of hotel rooms.

We also use non-GAAP measures such as FFO, Adjusted FFO, EBITDA, EBITDAre and Adjusted EBITDA to evaluate the operating performance of our business. For a more in depth discussion of these non-GAAP measures, please refer to the "Non-GAAP Financial Measures" section. In addition, we use Hotel EBITDA, a non-GAAP financial measure, to assess operating performance. For a more in depth discussion of Hotel EBITDA, please refer to Note 15, Segment Information, to the consolidated financial statements included elsewhere in this Annual Report on Form 10-K.

Principal Factors Affecting Our Results of Operations

The principal factors affecting our operating results include the overall demand for lodging compared to the supply of available hotel rooms and other lodging options, and the ability of our independent managers to increase or maintain revenues while controlling expenses.

•Demand — The demand for lodging, especially business travel, generally fluctuates with the overall economy. Historically, periods of declining demand are followed by extended periods of relatively strong demand, which typically occurs during the growth phase of the lodging cycle.

•Supply — The development of new hotels is driven largely by construction costs, the availability of financing, the expected performance of existing hotels and other lodging options.

We expect that our ADR, Occupancy and RevPAR performance will be impacted by macroeconomic factors such as regional and local employment growth, government spending, personal income and corporate earnings, office vacancy rates, business relocation decisions, airport activity, business and leisure travel demand, new hotel construction and the pricing strategies of our competitors. In addition, our ADR, Occupancy and RevPAR performance are dependent on the continued success of the Marriott, Hilton and Hyatt hotel brands.

•Revenues — Substantially all of our revenues are derived from the operation of hotels. Specifically, our revenues are comprised of:

◦Room revenue — Occupancy and ADR are the major drivers of room revenue. Room revenue accounts for the majority of our total revenues.

◦Food and beverage revenue — Occupancy, the nature of the hotel property and the type of customer staying at the hotel are the major drivers of food and beverage revenue (i.e., group business typically generates more food and beverage revenue through catering functions as compared to transient business, which may or may not utilize the hotel's food and beverage outlets).

◦Other revenue — Occupancy and the nature of the hotel property are the main drivers of other ancillary revenue, such as parking fees, resort fees, gift shop sales and other guest service fees. Some hotels, due to the limited focus of the services offered and size or space limitations at the hotel, may not have the type of facilities that generate other revenue.

•Property Operating Expenses — The components of our property operating expenses are as follows:

◦Room expense — These expenses include housekeeping and front office wages and payroll taxes, reservation systems, room supplies, laundry services and other room-related costs. Like room revenue, Occupancy is the major driver of room expense. These costs can increase based on an increase in salaries and wages, as well as the level of service and amenities that are provided at the hotel property.

◦Food and beverage expense — These expenses primarily include food, beverage and labor costs. Occupancy and the type of customer staying at the hotel (i.e., catered functions are generally more profitable than restaurant, bar, and other food and beverage outlets that are located on the hotel property) are the major drivers of food and beverage expense, which correlates closely with food and beverage revenue.

◦Management and franchise fee expense — A base management fee is computed as a percentage of gross hotel revenues. An incentive management fee is typically paid when the hotel's operating income exceeds certain

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thresholds, and it is generally calculated as a percentage of hotel operating income after we have received a priority return on our investment in the hotel. A franchise fee is computed as a percentage of room revenue, plus an additional percentage of room revenue for marketing, central reservation systems and other franchisor costs. Certain hotels will also pay an additional franchise fee which is computed as a percentage of food and beverage revenue. For a more in depth discussion of the management and franchise fees, please refer to the "Our Hotel Properties — Management Agreements" and "Our Hotel Properties — Franchise Agreements" sections.

◦Other operating expenses — These expenses include labor and other costs associated with the sources of our other revenue, as well as the labor and other costs associated with the administrative departments, sales and marketing, repairs and maintenance, and utility costs at the hotel properties.

Most categories of variable operating expenses, including labor costs, fluctuate with changes in Occupancy. Increases in Occupancy are accompanied by increases in most categories of variable operating expenses, while increases in ADR typically only result in increases in certain categories of operating costs and expenses, such as management fees, franchise fees, travel agency commissions, and credit card processing fees, all of which are based on hotel revenues. Therefore, changes in ADR have a more significant impact on operating margins than changes in Occupancy.

Inflation

We rely on the performance of our hotel properties to increase revenues to keep pace with inflation. Generally, our hotel management companies possess the ability to adjust room rates daily, except for group or corporate rates contractually committed to in advance, although competitive pressures may limit the ability of our operators to raise rates faster than the rate of inflation or even at the same rate. High inflation may also have an adverse effect on our operating expenses, including, but not limited to, labor, supplies, repairs and maintenance, as these costs could increase at a faster rate than any increase in our revenues. Inflation could also have an adverse effect on consumer spending, which could impact Occupancy levels at our hotel properties and, in turn, our own results of operations.

2024 Significant Activities

Our significant activities reflect our commitment to creating long-term shareholder value through enhancing our hotel portfolio's quality, recycling capital and maintaining a prudent capital structure. During the year ended December 31, 2024, the following significant activities took place:

•Acquired a fee simple interest in the land at our Wyndham Boston Beacon Hill hotel property for approximately $125.0 million.

•Exercised one-year extension options on $181.0 million in mortgage loans to extend the maturities to April 2025.

•Fully repaid a $200.0 million maturing mortgage loan with a $200.0 million draw on our Revolver.

•Approved the 2024 Share Repurchase Program to acquire up to an aggregate of $250.0 million of common and preferred shares from May 9, 2024 to May 8, 2025.

•Sold two hotel properties for a combined sales price of approximately $20.8 million.

•Acquired the 110-room Hotel Teatro in Denver, Colorado for $35.5 million.

•Entered into a new $500.0 million Term Loan, the proceeds of which were used to repay our $400.0 million Term Loan maturing in 2025 and $100.0 million of borrowings under our Revolver.

•Repurchased and retired approximately 2.3 million common shares for approximately $22.0 million.

Results of Operations

At December 31, 2024 and 2023, we owned 96 and 97 hotel properties, respectively.  Based on when a hotel property is acquired or sold, the operating results for certain hotel properties are not comparable for the years ended December 31, 2024 and 2023.  The non-comparable properties include two hotel properties that were sold and one hotel property that was acquired in 2024.

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For similar operating and financial data and discussion of our results for the year ended December 31, 2023 compared to our results for the year ended December 31, 2022, refer to Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” under Part II of our annual report on Form 10-K for the year ended December 31, 2023, which was filed with the SEC on February 27, 2024 and is incorporated herein by reference.

Comparison of the year ended December 31, 2024 to the year ended December 31, 2023

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Revenues

Total revenues increased $43.9 million to $1.4 billion for the year ended December 31, 2024, from $1.3 billion for the year ended December 31, 2023. The increase was a result of a $26.6 million increase in room revenue, an $11.5 million increase in food and beverage revenue, and a $5.8 million increase in other revenue.

Room Revenue

Room revenue increased $26.6 million to $1.1 billion for the year ended December 31, 2024, from $1.1 billion for the year ended December 31, 2023.  The increase was the result of a $25.6 million increase in room revenue attributable to the comparable properties and was primarily due to an increase in corporate and group travel.

The following are the key hotel operating statistics for the comparable properties:

Food and Beverage Revenue

Food and beverage revenue increased $11.5 million to $153.1 million for the year ended December 31, 2024, from $141.6 million for the year ended December 31, 2023. The increase in food and beverage revenue was primarily due to increases in outlet revenue and banquet and catering revenue.

Other Revenue

Other revenue, which includes revenue derived from ancillary sources such as parking fees, resort fees, gift shop sales and other guest service fees, increased $5.8 million to $94.7 million for the year ended December 31, 2024, from $88.9 million for the year ended December 31, 2023.  The increase in other revenue was primarily due to an increase in parking and resort fees.

Property Operating Expenses

Property operating expenses increased $43.3 million to $877.9 million for the year ended December 31, 2024, from $834.7 million for the year ended December 31, 2023. The increase was due to a $41.0 million increase in property operating expenses attributable to the comparable properties and a $2.3 million increase in property operating expenses attributable to the non-comparable properties.

The components of our property operating expenses for the comparable properties were as follows (in thousands):

The increase in property operating expenses attributable to the comparable properties was primarily due to increases in wages and benefits, as well as increases in room and food and beverage expenses, and increases in other operating expenses, primarily due to increases in sales and marketing, utilities, and administrative expenses.

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Property Tax, Insurance and Other

Property tax, insurance and other expense increased $6.8 million to $107.0 million for the year ended December 31, 2024, from $100.2 million for the year ended December 31, 2023.  The increase was primarily attributable to increases in property tax assessments and property insurance premiums.

General and Administrative

General and administrative expense decreased $4.2 million to $54.8 million for the year ended December 31, 2024, from $59.0 million for the year ended December 31, 2023.  The decrease was primarily attributable to a decrease in non-cash compensation expense related to certain share-based awards granted during 2021 that became fully vested during the second quarter of 2024.

Other Income, net

Other income, net increased $1.0 million to $5.3 million for the year ended December 31, 2024, from $4.4 million for the year ended December 31, 2023.  The increase was primarily attributable to an increase in COVID-19 relief awards during the year ended December 31, 2024.

Interest Income

Interest income decreased $2.4 million to $17.3 million for the year ended December 31, 2024, from $19.7 million for the year ended December 31, 2023. The decrease was attributable to lower average cash balances, partially offset by higher interest rates.

Interest Expense

Interest expense increased $12.6 million to $111.4 million for the year ended December 31, 2024, from $98.8 million for the year ended December 31, 2023. The increase was attributable to higher base interest rates on our unhedged variable rate debt combined with an increase in the amount of our debt that was unhedged. The components of our interest expense for the years ended December 31, 2024 and 2023 were as follows (in thousands):

Gain (Loss) on Sale of Hotel Properties, net

During the year ended December 31, 2024, we sold two hotel properties for a combined sales price of approximately

$20.8 million and recorded a net gain on the sales of approximately $8.3 million. There were no hotels sold during the year ended December 31, 2023.

Non-GAAP Financial Measures

We consider the following non-GAAP financial measures useful to investors as key supplemental measures of our performance: (1) FFO, (2) Adjusted FFO, (3) EBITDA, (4) EBITDAre and (5) Adjusted EBITDA. These non-GAAP financial measures should be considered along with, but not as alternatives to, net income as a measure of our operating performance. FFO, Adjusted FFO, EBITDA, EBITDAre, and Adjusted EBITDA, as calculated by us, may not be comparable to FFO, Adjusted FFO, EBITDA, EBITDAre and Adjusted EBITDA as reported by other companies that do not define such terms exactly as we define such terms.

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Funds From Operations

We calculate FFO in accordance with standards established by the National Association of Real Estate Investment Trusts ("NAREIT"), which defines FFO as net income or loss, excluding gains or losses from sales of real estate, impairment, the cumulative effect of changes in accounting principles, plus depreciation and amortization, and adjustments for unconsolidated partnerships and joint ventures. Historical cost accounting for real estate assets implicitly assumes that the value of real estate assets diminishes predictably over time. Since real estate values instead have historically risen or fallen with market conditions, most real estate industry investors consider FFO to be helpful in evaluating a real estate company’s operations. We believe that the presentation of FFO provides useful information to investors regarding our operating performance and can facilitate comparisons of operating performance between periods and between REITs, even though FFO does not represent an amount that accrues directly to common shareholders. Our calculation of FFO may not be comparable to measures calculated by other companies who do not use the NAREIT definition of FFO or do not calculate FFO per diluted share in accordance with NAREIT guidance. Additionally, FFO may not be helpful when comparing us to non-REITs. We present FFO attributable to common shareholders, which includes our OP units, because our OP units may be redeemed for common shares. We believe it is meaningful for the investor to understand FFO attributable to all common shares and OP units.

We further adjust FFO for certain additional items that are not in NAREIT’s definition of FFO, such as transaction costs, pre-opening costs, gains or losses on extinguishment of indebtedness, amortization of share-based compensation, non-cash income tax expense or benefit, non-cash interest expense related to discontinued interest rate hedges, derivative gains or losses in accumulated other comprehensive income reclassified to earnings, and certain other income or expenses that we consider outside the normal course of operations. We believe that Adjusted FFO provides useful supplemental information to investors regarding our ongoing operating performance that, when considered with net income and FFO, is beneficial to an investor’s understanding of our operating performance.

The following table is a reconciliation of our GAAP net income to FFO attributable to common shareholders and unitholders and Adjusted FFO attributable to common shareholders and unitholders for the years ended December 31, 2024 and 2023 (in thousands):

(1)Includes depreciation and amortization expense allocated to the noncontrolling interest in the consolidated joint venture.

(2)Includes our ownership interest in the depreciation and amortization expense of the unconsolidated joint venture.

(3)Represents expenses related to the brand conversions of certain hotel properties prior to opening.

(4)Represents expenses and income outside of the normal course of operations.

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EBITDA and EBITDAre

EBITDA is defined as net income or loss excluding: (1) interest expense; (2) provision for income taxes, including income taxes applicable to sales of assets; and (3) depreciation and amortization expense. We consider EBITDA useful to an investor in evaluating and facilitating comparisons of our operating performance between periods and between REITs by removing the impact of our capital structure (primarily interest expense) and asset base (primarily depreciation and amortization expense) from our operating results.  In addition, EBITDA is used as one measure in determining the value of hotel acquisitions and disposals.

In addition to EBITDA, we present EBITDAre in accordance with NAREIT guidelines, which defines EBITDAre as net income or loss excluding interest expense, income tax benefit or expense, depreciation and amortization expense, gains or losses from sales of real estate, impairment, and adjustments for unconsolidated joint ventures. We believe that the presentation of EBITDAre provides useful information to investors regarding our operating performance and can facilitate comparisons of operating performance between periods and between REITs.

We also present Adjusted EBITDA, which includes additional adjustments for items such as transaction costs, pre-opening costs, gains or losses on extinguishment of indebtedness, amortization of share-based compensation, derivative gains or losses in accumulated other comprehensive income reclassified to earnings, and certain other income or expenses that we consider outside the normal course of operations. We believe that Adjusted EBITDA provides useful supplemental information to investors regarding our ongoing operating performance that, when considered with net income, EBITDA and EBITDAre, is beneficial to an investor’s understanding of our operating performance.

The following table is a reconciliation of our GAAP net income to EBITDA, EBITDAre and Adjusted EBITDA for the years ended December 31, 2024 and 2023 (in thousands):

(1)Includes our ownership interest in the interest, depreciation, and amortization expense of the unconsolidated joint venture.

(2)Represents expenses related to the brand conversions of certain hotel properties prior to opening.

(3)Represents expenses and income outside of the normal course of operations.

Liquidity and Capital Resources

As of December 31, 2024, we had $433.3 million of cash, cash equivalents, and restricted cash reserves as compared to $555.3 million at December 31, 2023. In addition, we had $500.0 million available on our Revolver at December 31, 2024.

Our principal uses of capital for the year ended December 31, 2024 were our acquisition of a fee simple interest in our Wyndham Boston Beacon Hill hotel property, the purchase of a hotel property, capital improvements and additions to hotel properties, repayment of a portion of our Revolver, repayments of a Term Loan and a mortgage loan, the repurchase of common shares under our share repurchase programs, and distributions on common and preferred shares. Our principal sources

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of capital for the year ended December 31, 2024 were cash generated from operations, the sales of two hotel properties, and borrowings under our Revolver and on a new Term Loan.

Material Cash Requirements

Our expected material cash requirements for the twelve months ending 2025 and thereafter are comprised of (i) contractually obligated expenditures; and (ii) other essential cash requirements as follows:

Contractually Obligated Expenditures

We are party to various contractual obligations involving commitments to make payments to third parties. These obligations impact our short-term and long-term liquidity and capital resource needs. Our material short and long-term cash commitments primarily consist of debt obligations and ground lease payments related to certain of our hotel properties.

As of December 31, 2024, we had approximately $2.2 billion in debt outstanding with a weighted average interest rate of 4.58%, of which $181.0 million is scheduled to become due in the succeeding 12 months, excluding extension options. As of December 31, 2024, our total future minimum lease payments were $580.1 million, of which $9.7 million is scheduled to become due in the succeeding 12 months. For details regarding our indebtedness and lease obligations, refer to Note 7, Debt, and Note 10, Commitments and Contingencies, to the consolidated financial statements included elsewhere in this Annual Report on Form 10-K.

Other Essential Cash Requirements

Our other short-term cash requirements consist primarily of the funds necessary to pay for operating expenses and other expenditures directly associated with our hotel properties, including:

•recurring maintenance and capital expenditures necessary to maintain our hotel properties in accordance with brand standards and capital expenditures required for hotel brand conversions;

•distributions, including those necessary to qualify for taxation as a REIT; and

•corporate and other general and administrative expenses.

We expect to meet our short-term cash requirements generally through the net cash provided by operations, existing cash balances, short-term borrowings under our Revolver, proceeds from the sale of hotel properties, proceeds from financings, and proceeds from public offerings of common shares.

Our other long-term cash requirements consist primarily of the funds necessary to pay for costs of acquiring additional hotel properties, renovations and other capital expenditures that need to be made periodically with respect to our hotel properties, and any other value enhancing projects.

Sources and Uses of Cash

Cash flows from Operating Activities

The net cash flow provided by operating activities totaled $285.4 million and $315.1 million for the years ended December 31, 2024 and 2023, respectively. The cash flows provided by operating activities generally consist of the net cash generated by our hotel operations, cash paid for corporate expenses and other working capital changes. Refer to the "Results of Operations" section for further discussion of our operating results for the years ended December 31, 2024 and 2023.

Cash flows from Investing Activities

The net cash flow used in investing activities totaled $275.7 million for the year ended December 31, 2024 primarily due to a $122.8 million acquisition of a fee simple interest in our Wyndham Boston Beacon Hill hotel property, a $35.9 million acquisition of a hotel property, and $136.5 million in capital improvements and additions to our hotel properties and other assets. The net cash flow used in investing activities was partially offset by $19.5 million in proceeds from the sales of two hotel properties.

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The net cash flow used in investing activities totaled $134.7 million for the year ended December 31, 2023 primarily due to $132.3 million in capital improvements and additions to our hotel properties and other assets and a purchase deposit of $2.4 million.

Cash flows from Financing Activities

The net cash flow used in financing activities totaled $131.7 million for the year ended December 31, 2024. The sources of cash included $500.0 million in borrowings on a Term Loan and $200.0 million in borrowings on our Revolver. The uses of cash included $400.0 million in repayment of a Term Loan, $200.0 million in repayment of a maturing mortgage loan, $100.0 million in repayment of our Revolver, $22.0 million paid to repurchase common shares under our share repurchase programs, $95.3 million in distributions to shareholders and unitholders, $9.0 million paid to repurchase common shares to satisfy employee tax withholding requirements, and $5.4 million in deferred financing cost payments.

The net cash flow used in financing activities totaled $161.5 million for the year ended December 31, 2023 primarily due to

$76.0 million paid to repurchase common shares under our share repurchase programs, $74.5 million in distributions to

shareholders and unitholders, $4.4 million paid to repurchase common shares to satisfy employee tax withholding requirements,

and $7.9 million in deferred financing cost payments.

Capital Expenditures and Reserve Funds

We maintain each of our hotel properties in good repair and condition and in conformity with applicable laws and regulations, franchise agreements and management agreements. The cost of routine improvements and alterations are paid out of FF&E reserves, which are funded by a portion of each hotel property’s gross revenues. Routine capital expenditures may be administered by the property management companies. However, we have approval rights over the capital expenditures as part of the annual budget process for each of our hotel properties.

From time to time, certain of our hotel properties may undergo renovations as a result of our decision to upgrade portions of the hotels, such as guestrooms, public space, meeting space, and/or restaurants, in order to better compete with other hotels and alternative lodging options in our markets. In addition, upon acquisition of a hotel property we often are required to complete a property improvement plan in order to bring the hotel up to the respective franchisor’s standards. If permitted by the terms of the management agreement, funding for a renovation will first come from the FF&E reserves. To the extent that the FF&E reserves are not available or sufficient to cover the cost of the renovation, we will fund all or the remaining portion of the renovation with cash and cash equivalents on hand, our Revolver and/or other sources of available liquidity.

With respect to some of our hotels that are operated under franchise agreements with major national hotel brands and for some of our hotels subject to first mortgage liens, we are obligated to maintain FF&E reserve accounts for future capital expenditures at these hotels. The amount funded into each of these reserve accounts is generally determined pursuant to the management agreements, franchise agreements and/or mortgage loan documents for each of the respective hotels, and typically ranges between 3.0% and 5.0% of the respective hotel’s total gross revenue. As of December 31, 2024, approximately $23.5 million was held in FF&E reserve accounts for future capital expenditures.

Critical Accounting Estimates

The preparation of the financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amount of assets and liabilities at the date of our financial statements and the reported amounts of revenues and expenses during the reporting period. We consider our accounting policies over impairment and purchase price allocation to be our critical accounting estimates. See Note 2 to our consolidated financial statements for further descriptions of such accounting policies. We have set forth below the accounting policies that we believe require material subjective or complex judgments and have the most significant impact on our financial condition and results of operations. It is possible that the actual amounts may differ significantly from these estimates and assumptions. We evaluate our estimates, assumptions and judgments on an ongoing basis, based on information that is available to us, our business and industry experience, and various other matters that we believe are reasonable and appropriate for consideration under the circumstances.

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Impairment

We assess the carrying value of our investments in hotel properties whenever events or changes in circumstances indicate that the carrying amounts may not be recoverable.  Hotel property recoverability is measured by comparing the carrying amount to the projected undiscounted future cash flows expected to be generated from the operation and the eventual disposition of the hotel properties over the estimated hold period, which take into account current market conditions and our intent with respect to holding or disposing of the hotel properties.  If our analysis indicates that the carrying value is not recoverable on a projected undiscounted cash flow basis, we will recognize an impairment loss for the amount by which the carrying value exceeds the fair value. The determination of fair value is subjective and is based in part on assumptions and estimates that could differ materially from actual results in future periods. The fair value is determined through various valuation techniques, including internally developed discounted cash flow models, comparable market transactions, third-party appraisals, the net sales proceeds from pending offers, or the net sales proceeds from transactions that closed subsequent to the end of the reporting period. The use of projected future cash flows is based on assumptions that are consistent with a market participant’s future expectations for the travel industry and the economy in general, including discount rates, sales proceeds in the reversion year, average daily rates, Occupancy rates, operating expenses and capital expenditures, and our intent with respect to holding or disposing of the underlying hotel properties. Fair value may also be based on assumptions including, but not limited to, room revenue multiples and comparable sales adjusted for capital expenditures, if necessary.

Purchase Price Allocation

Our acquisitions generally consist of land, land improvements, buildings, building improvements, furniture, fixtures and equipment, inventory, and assumed debt. We allocate the purchase price among the assets acquired and the liabilities assumed based on their respective fair values at the date of acquisition. We estimate the fair values of the assets acquired and the liabilities assumed by using a combination of the market, cost and income approaches. We determine the fair value by using market data and independent appraisals available to us and making numerous estimates and assumptions, such as estimates of future income growth, replacement cost per unit, value per acre or buildable square foot, capitalization rates, discount rates, borrowing rates, market rental rates, capital expenditures and cash flow projections at the respective hotel properties. The determination of fair value is subjective and is based in part on assumptions and estimates that could differ materially from actual results in future periods.

Item 7.   Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis should be read in conjunction with our accompanying consolidated financial statements, the related notes included thereto, and Item 1A., "Risk Factors", all of which appear elsewhere in this Annual Report on Form 10-K.

Overview

We are a self-advised and self-administered Maryland REIT that owns primarily premium-branded, rooms-oriented, high-margin, focused-service and compact full-service hotels located within heart of demand locations. Our hotels are concentrated in markets that we believe exhibit multiple demand generators and attractive long-term growth prospects. We believe premium-branded, focused-service and compact full-service hotels with these characteristics generate high levels of RevPAR, strong operating margins and attractive returns. Focused-service and compact full-service hotels typically generate most of their revenue from room rentals, have limited food and beverage outlets and meeting space and require fewer employees than traditional full-service hotels. We believe these types of hotels have the potential to generate attractive returns relative to other types of hotels due to their ability to achieve RevPAR levels at or close to those achieved by traditional full-service hotels, while achieving higher profit margins due to their more efficient operating model and less volatile cash flows.

Our Customers

The majority of our hotels consist of premium-branded, focused-service and compact full-service hotels. As a result of this property profile, the majority of our customers are transient in nature. Transient business typically represents individual business or leisure travelers. The majority of our hotels are located in business districts within major metropolitan areas. Accordingly, business travelers represent the majority of the transient demand at our hotels. As a result, macroeconomic factors impacting business travel have a greater effect on our business than factors impacting leisure travel.

Group business is typically defined as a minimum of 10 guestrooms booked together as part of the same piece of business. Group business may or may not use the meeting space at any given hotel. Given the limited meeting space at the majority of our hotels, group business that utilizes meeting space represents a small component of our customer base.

A number of our hotel properties are affiliated with brands marketed toward extended-stay customers. Extended-stay customers are generally defined as those staying five nights or longer.

Key Indicators of Operating Performance

We use a variety of operating, financial and other information to evaluate the operating performance of our business. These key indicators include financial information that is prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") as well as other financial measures that are non-GAAP measures. In addition, we

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use other information that may not be financial in nature, including industry standard statistical information and comparative data. We use this information to measure the operating performance of our individual hotels, groups of hotels and/or business as a whole. We also use these metrics to evaluate the hotels in our portfolio and potential acquisition opportunities to determine each hotel's contribution to cash flow and its potential to provide attractive long-term total returns. The key indicators include:

•Average Daily Rate — ADR represents the total hotel room revenues divided by the total number of rooms sold in a given period. ADR measures the average room price attained by a hotel and ADR trends provide useful information concerning the pricing environment and the nature of the customer base at a hotel or group of hotels. We use ADR to assess the pricing levels that we are able to generate, as changes in rates have a greater impact on operating margins and profitability than changes in Occupancy.

•Occupancy — Occupancy represents the total number of hotel rooms sold in a given period divided by the total number of rooms available. Occupancy measures the utilization of our hotels' available capacity. We use Occupancy to measure demand at a specific hotel or group of hotels in a given period. Additionally, Occupancy levels help us determine the achievable ADR levels.

•Revenue Per Available Room — RevPAR is the product of ADR and Occupancy. RevPAR does not include non-room revenues, such as food and beverage revenue or other revenue. We use RevPAR to identify trend information with respect to room revenues from comparable hotel properties and to evaluate hotel performance on a regional basis.

RevPAR changes that are primarily driven by changes in Occupancy have different implications for overall revenues and profitability than the changes that are driven primarily by changes in ADR. For example, an increase in Occupancy at a hotel would lead to additional variable operating costs (including housekeeping services, utilities and room supplies) and could also result in an increase in other revenue and other operating expense. Changes in ADR typically have a greater impact on operating margins and profitability as they only have a limited effect on variable operating costs.

ADR, Occupancy and RevPAR are commonly used measures within the lodging industry to evaluate operating performance. RevPAR is an important statistic for monitoring operating performance at the individual hotel property level and across our entire business. We evaluate individual hotel RevPAR performance on an absolute basis with comparisons to budget and prior periods, as well as on a regional and company-wide basis. ADR and RevPAR include only room revenue. Room revenue comprised approximately 82.6% of our total revenues for the year ended December 31, 2023, and it is dictated by demand (as measured by Occupancy), pricing (as measured by ADR) and our available supply of hotel rooms.

We also use non-GAAP measures such as FFO, Adjusted FFO, EBITDA, EBITDAre and Adjusted EBITDA to evaluate the operating performance of our business. For a more in depth discussion of the non-GAAP measures, please refer to the "Non-GAAP Financial Measures" section.

Principal Factors Affecting Our Results of Operations

The principal factors affecting our operating results include the overall demand for lodging compared to the supply of available hotel rooms and other lodging options, and the ability of our third-party management companies to increase or maintain revenues while controlling expenses.

•Demand — The demand for lodging, especially business travel, generally fluctuates with the overall economy. Historically, periods of declining demand are followed by extended periods of relatively strong demand, which typically occurs during the growth phase of the lodging cycle.

•Supply — The development of new hotels is driven largely by construction costs, the availability of financing, the expected performance of existing hotels and other lodging options.

We expect that our ADR, Occupancy and RevPAR performance will be impacted by macroeconomic factors such as regional and local employment growth, government spending, personal income and corporate earnings, office vacancy rates, business relocation decisions, airport activity, business and leisure travel demand, new hotel construction and the pricing strategies of our competitors. In addition, our ADR, Occupancy and RevPAR performance are dependent on the continued success of the Marriott, Hilton and Hyatt hotel brands.

•Revenues — Substantially all of our revenues are derived from the operation of hotels. Specifically, our revenues are comprised of:

◦Room revenue — Occupancy and ADR are the major drivers of room revenue. Room revenue accounts for the majority of our total revenues.

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◦Food and beverage revenue — Occupancy, the nature of the hotel property and the type of customer staying at the hotel are the major drivers of food and beverage revenue (i.e., group business typically generates more food and beverage revenue through catering functions as compared to transient business, which may or may not utilize the hotel's food and beverage outlets).

◦Other revenue — Occupancy and the nature of the hotel property are the main drivers of other ancillary revenue, such as parking fees, resort fees, gift shop sales and other guest service fees. Some hotels, due to the limited focus of the services offered and size or space limitations at the hotel, may not have the type of facilities that generate other revenue.

•Property Operating Expenses — The components of our property operating expenses are as follows:

◦Room expense — These expenses include housekeeping and front office wages and payroll taxes, reservation systems, room supplies, laundry services and other room-related costs. Like room revenue, Occupancy is the major driver of room expense. These costs can increase based on an increase in salaries and wages, as well as the level of service and amenities that are provided at the hotel property.

◦Food and beverage expense — These expenses primarily include food, beverage and labor costs. Occupancy and the type of customer staying at the hotel (i.e., catered functions are generally more profitable than restaurant, bar, and other food and beverage outlets that are located on the hotel property) are the major drivers of food and beverage expense, which correlates closely with food and beverage revenue.

◦Management and franchise fee expense — A base management fee is computed as a percentage of gross hotel revenues. An incentive management fee is typically paid when the hotel's operating income exceeds certain thresholds, and it is generally calculated as a percentage of hotel operating income after we have received a priority return on our investment in the hotel. A franchise fee is computed as a percentage of room revenue, plus an additional percentage of room revenue for marketing, central reservation systems and other franchisor costs. Certain hotels will also pay an additional franchise fee which is computed as a percentage of food and beverage revenue. For a more in depth discussion of the management and franchise fees, please refer to the "Our Hotel Properties — Management Agreements" and "Our Hotel Properties — Franchise Agreements" sections.

◦Other operating expenses — These expenses include labor and other costs associated with the sources of our other revenue, as well as the labor and other costs associated with the administrative departments, sales and marketing, repairs and maintenance, and utility costs at the hotel properties.

Most categories of variable operating expenses, including labor costs, fluctuate with changes in Occupancy. Increases in Occupancy are accompanied by increases in most categories of variable operating expenses, while increases in ADR typically only result in increases in certain categories of operating costs and expenses, such as management fees, franchise fees, travel agency commissions, and credit card processing fees, all of which are based on hotel revenues. Therefore, changes in ADR have a more significant impact on operating margins than changes in Occupancy.

Inflation

We rely on the performance of our hotel properties to increase revenues to keep pace with inflation. Generally, our hotel management companies possess the ability to adjust room rates daily, except for group or corporate rates contractually committed to in advance, although competitive pressures may limit the ability of our operators to raise rates faster than the rate of inflation or even at the same rate. High inflation may also have an adverse effect on our operating expenses, including, but not limited to, labor, supplies, repairs and maintenance, as these costs could increase at a faster rate than any increase in our revenues. Inflation could also have an adverse effect on consumer spending, which could impact Occupancy levels at our hotel properties and, in turn, our own results of operations.

2023 Significant Activities

Our significant activities reflect our commitment to creating long-term shareholder value through enhancing our hotel portfolio's quality, recycling capital and maintaining a prudent capital structure. During the year ended December 31, 2023, the following significant activities took place:

•Successfully launched our hotel conversion of The Pierside Hotel, an independent lifestyle property located in Santa Monica, California.

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•Exercised one-year extension options on approximately $224.7 million of certain Term Loans to extend the maturities to January 2024 (subsequently refinanced and extended to May 2026, as described below).

•Received $95.0 million in borrowings on a Term Loan amended in November 2022 and utilized the proceeds to pay off approximately $94.0 million of maturing Term Loans.

•Exercised the final one-year extension option on a mortgage loan to extend the maturity to April 2024.

•Entered into $525.0 million in new interest rate swap agreements as $425.0 million in swaps expired.

•Approved the 2023 Share Repurchase Program to acquire up to an aggregate of $250.0 million of common and preferred shares from May 9, 2023 to May 8, 2024.

•Converted the Hotel Indigo New Orleans Garden District to the Hotel Tonnelle New Orleans, a Tribute Portfolio Hotel.

•Refinanced approximately $224.7 million in Term Loans and recast our $600.0 million Revolver to extend the maturity dates to May 2026 and May 2027, respectively.

•Converted our 21c Hotel in Nashville, Tennessee to The Bankers Alley Hotel, a Tapestry Collection by Hilton.

•Repurchased and retired approximately 7.5 million common shares for approximately $76.0 million.

Results of Operations

At both December 31, 2023 and 2022, we owned 97 hotel properties.  Based on when a hotel property is acquired, sold or closed for renovation, the operating results for certain hotel properties are not comparable for the years ended December 31, 2023 and 2022.  The non-comparable properties include two hotel properties that were sold and one acquisition that was completed in 2022.

For similar operating and financial data and discussion of our results for the year ended December 31, 2022 compared to our results for the year ended December 31, 2021, refer to Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” under Part II of our annual report on Form 10-K for the year ended December 31, 2022, which was filed with the SEC on February 28, 2023 and is incorporated herein by reference.

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Comparison of the year ended December 31, 2023 to the year ended December 31, 2022

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Revenues

Total revenues increased $131.9 million to $1.3 billion for the year ended December 31, 2023, from $1.2 billion for the year ended December 31, 2022. The increase was a result of a $92.6 million increase in room revenue, a $24.6 million increase in food and beverage revenue, and a $14.7 million increase in other revenue.

Room Revenue

Room revenue increased $92.6 million to $1.1 billion for the year ended December 31, 2023, from $1.0 billion for the year ended December 31, 2022.  The increase was the result of a $90.1 million increase in room revenue attributable to the comparable properties and a $2.5 million increase in room revenue attributable to the non-comparable properties. The increase in room revenue from the comparable properties was due to an increase in RevPAR resulting from recoveries in business and group travel and the ramping up of our recently converted hotels.

The following are the key hotel operating statistics for the comparable properties:

Food and Beverage Revenue

Food and beverage revenue increased $24.6 million to $141.6 million for the year ended December 31, 2023, from $117.0 million for the year ended December 31, 2022. The increase in food and beverage revenue was primarily due to an increase in banquet and catering revenues from group business and new food and beverage outlets at our recently converted hotels.

Other Revenue

Other revenue, which includes revenue derived from ancillary sources such as parking fees, facility fees, gift shop sales and other guest service fees, increased $14.7 million to $88.9 million for the year ended December 31, 2023, from $74.2 million for the year ended December 31, 2022.  The increase in other revenue was primarily due to an increase in parking fees, resort and facility fees (including new resort and facility fees implemented during the prior year), and miscellaneous other sales and fees that corresponded to the increase in demand over the prior period.

Property Operating Expenses

Property operating expenses increased $90.3 million to $834.7 million for the year ended December 31, 2023, from $744.4 million for the year ended December 31, 2022. The increase was due to an $86.2 million increase in property operating expenses attributable to the comparable properties and a $4.1 million increase in property operating expenses attributable to the non-comparable properties.

The components of our property operating expenses for the comparable properties were as follows (in thousands):

The increase in property operating expenses attributable to the comparable properties was primarily due to increases in wages and benefits, sales and marketing expenses, and fees and costs based on revenue, including management fees. Management and franchise fee expense for the year ended December 31, 2022 included a reduction of $4.1 million related to the recognition of the Wyndham termination payments, which were fully recognized as of December 31, 2022.

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Depreciation and Amortization

Depreciation and amortization expense decreased $5.8 million to $179.1 million for the year ended December 31, 2023, from $184.9 million for the year ended December 31, 2022. The decrease was primarily attributable to furniture, fixtures and equipment that were fully depreciated in 2022, partially offset by an increase in depreciation and amortization expense related to recently renovated hotels.

Property Tax, Insurance and Other

Property tax, insurance and other expense increased $13.2 million to $100.2 million for the year ended December 31, 2023, from $87.0 million for the year ended December 31, 2022.  The increase was attributable to an increase in insurance premiums and property taxes. The increase was also attributable to an increase in ground rent expense primarily due to increases in percentage rent obligations and consumer price index adjustments for certain of our ground leases.

General and Administrative

General and administrative expense increased $2.7 million to $59.0 million for the year ended December 31, 2023, from $56.3 million for the year ended December 31, 2022.  The increase in general and administrative expense was primarily attributable to an increase in compensation expense.

Other Income, net

Other income, net decreased $5.1 million to $4.4 million for the year ended December 31, 2023, from $9.5 million for the year ended December 31, 2022.  The decrease was primarily attributable to the reclassification of unrealized gains from accumulated other comprehensive income due to the discontinuation of certain cash flow hedges during the year ended December 31, 2022.

Interest Income

Interest income increased $15.2 million to $19.7 million for the year ended December 31, 2023, from $4.6 million for the year ended December 31, 2022. The increase was attributable to our corporate and hotel-level cash earning higher interest rates due to increases in the federal funds rate.

Interest Expense

Interest expense increased $5.7 million to $98.8 million for the year ended December 31, 2023, from $93.2 million for the year ended December 31, 2022. Interest expense increased due to higher interest rates on our unhedged variable rate debt combined with an increase in the amount of our debt that was unhedged, partially offset by the impact of lower average debt balances. The components of our interest expense for the years ended December 31, 2023 and 2022 were as follows (in thousands):

(Loss) Gain on Sale of Hotel Properties, net

During the year ended December 31, 2022, we sold two hotel properties for a combined sales price of approximately

$49.9 million and recorded a net gain on sale of approximately $1.0 million. There were no hotels sold during the year ended December 31, 2023.

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Non-GAAP Financial Measures

We consider the following non-GAAP financial measures useful to investors as key supplemental measures of our performance: (1) FFO, (2) Adjusted FFO, (3) EBITDA, (4) EBITDAre and (5) Adjusted EBITDA. These non-GAAP financial measures should be considered along with, but not as alternatives to, net income as a measure of our operating performance. FFO, Adjusted FFO, EBITDA, EBITDAre, and Adjusted EBITDA, as calculated by us, may not be comparable to FFO, Adjusted FFO, EBITDA, EBITDAre and Adjusted EBITDA as reported by other companies that do not define such terms exactly as we define such terms.

Funds From Operations

We calculate FFO in accordance with standards established by the National Association of Real Estate Investment Trusts ("NAREIT"), which defines FFO as net income or loss, excluding gains or losses from sales of real estate, impairment, the cumulative effect of changes in accounting principles, plus depreciation and amortization, and adjustments for unconsolidated partnerships and joint ventures. Historical cost accounting for real estate assets implicitly assumes that the value of real estate assets diminishes predictably over time. Since real estate values instead have historically risen or fallen with market conditions, most real estate industry investors consider FFO to be helpful in evaluating a real estate company’s operations. We believe that the presentation of FFO provides useful information to investors regarding our operating performance and can facilitate comparisons of operating performance between periods and between REITs, even though FFO does not represent an amount that accrues directly to common shareholders. Our calculation of FFO may not be comparable to measures calculated by other companies who do not use the NAREIT definition of FFO or do not calculate FFO per diluted share in accordance with NAREIT guidance. Additionally, FFO may not be helpful when comparing us to non-REITs. We present FFO attributable to common shareholders, which includes our OP units, because our OP units may be redeemed for common shares. We believe it is meaningful for the investor to understand FFO attributable to all common shares and OP units.

We further adjust FFO for certain additional items that are not in NAREIT’s definition of FFO, such as transaction costs, pre-opening costs, gains or losses on extinguishment of indebtedness, amortization of share-based compensation, non-cash income tax expense or benefit, non-cash interest expense related to discontinued interest rate hedges, derivative gains or losses in accumulated other comprehensive income reclassified to earnings, and certain other income or expenses that we consider outside the normal course of operations. We believe that Adjusted FFO provides useful supplemental information to investors regarding our ongoing operating performance that, when considered with net income and FFO, is beneficial to an investor’s understanding of our operating performance.

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The following table is a reconciliation of our GAAP net income to FFO attributable to common shareholders and unitholders and Adjusted FFO attributable to common shareholders and unitholders for the years ended December 31, 2023 and 2022 (in thousands):

(1)Includes depreciation and amortization expense allocated to the noncontrolling interest in the consolidated joint venture.

(2)Includes our ownership interest in the depreciation and amortization expense of the unconsolidated joint venture.

(3)Represents expenses related to the brand conversions of certain hotel properties prior to opening.

(4)Reclassification of interest rate swap gains from accumulated other comprehensive income to earnings for discontinued interest rate hedges.

(5)Represents expenses and income outside of the normal course of operations. For the year ended December 31, 2023, other expenses included one-time management company transition costs of $0.6 million.

EBITDA and EBITDAre

EBITDA is defined as net income or loss excluding: (1) interest expense; (2) provision for income taxes, including income taxes applicable to sales of assets; and (3) depreciation and amortization expense. We consider EBITDA useful to an investor in evaluating and facilitating comparisons of our operating performance between periods and between REITs by removing the impact of our capital structure (primarily interest expense) and asset base (primarily depreciation and amortization expense) from our operating results.  In addition, EBITDA is used as one measure in determining the value of hotel acquisitions and disposals.

In addition to EBITDA, we present EBITDAre in accordance with NAREIT guidelines, which defines EBITDAre as net income or loss excluding interest expense, income tax benefit or expense, depreciation and amortization expense, gains or losses from sales of real estate, impairment, and adjustments for unconsolidated joint ventures. We believe that the presentation of EBITDAre provides useful information to investors regarding our operating performance and can facilitate comparisons of operating performance between periods and between REITs.

We also present Adjusted EBITDA, which includes additional adjustments for items such as transaction costs, pre-opening costs, gains or losses on extinguishment of indebtedness, amortization of share-based compensation, derivative gains or losses in accumulated other comprehensive income reclassified to earnings, and certain other income or expenses that we consider outside the normal course of operations. We believe that Adjusted EBITDA provides useful supplemental information to investors regarding our ongoing operating performance that, when considered with net income, EBITDA and EBITDAre, is beneficial to an investor’s understanding of our operating performance.

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The following table is a reconciliation of our GAAP net income to EBITDA, EBITDAre and Adjusted EBITDA for the years ended December 31, 2023 and 2022 (in thousands):

(1)Includes our ownership interest in the interest, depreciation, and amortization expense of the unconsolidated joint venture.

(2)Represents expenses related to the brand conversions of certain hotel properties prior to opening.

(3)Reclassification of interest rate swap gains from accumulated other comprehensive income to earnings for discontinued interest rate hedges.

(4)Represents expenses and income outside of the normal course of operations. For the year ended December 31, 2023, other expenses included one-time management company transition costs of $0.6 million.

Liquidity and Capital Resources

As of December 31, 2023, we had $555.3 million of cash, cash equivalents, and restricted cash reserves as compared to $536.4 million at December 31, 2022. In addition, we had $600.0 million available on our Revolver at December 31, 2023.

Our principal uses of capital for the year ended December 31, 2023 were capital improvements and additions to hotel properties, the repurchase of common shares under our share repurchase programs, and distributions on common and preferred shares. Our principal source of capital for the year ended December 31, 2023 was cash generated from operations.

Material Cash Requirements

Our expected material cash requirements for the twelve months ending 2024 and thereafter are comprised of (i) contractually obligated expenditures; and (ii) other essential cash requirements.

Contractually Obligated Expenditures

We are party to various contractual obligations involving commitments to make payments to third parties. These obligations impact our short-term and long-term liquidity and capital resource needs. Our material short and long-term cash commitments primarily consist of debt obligations and ground lease payments related to certain of our hotel properties.

As of December 31, 2023, we had approximately $2.2 billion in debt outstanding with a weighted average interest rate of 4.12%, of which $381.0 million is scheduled to become due in the succeeding 12 months. As of December 31, 2023, our total future minimum lease payments were $592.7 million, of which $10.4 million is scheduled to become due in the succeeding 12 months. For details regarding our indebtedness and lease obligations, refer to Note 7, Debt, and Note 10, Commitments and Contingencies, to the consolidated financial statements included elsewhere in this Annual Report on Form 10-K.

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Other Essential Cash Requirements

Our other short-term cash requirements consist primarily of the funds necessary to pay for operating expenses and other expenditures directly associated with our hotel properties, including:

•recurring maintenance and capital expenditures necessary to maintain our hotel properties in accordance with brand standards and capital expenditures required for hotel brand conversions;

•distributions, including those necessary to qualify for taxation as a REIT; and

•corporate and other general and administrative expenses.

We expect to meet our short-term cash requirements generally through the net cash provided by operations, existing cash balances, short-term borrowings under our Revolver, proceeds from the sale of hotel properties, proceeds from financings, and proceeds from public offerings of common shares.

Our other long-term cash requirements consist primarily of the funds necessary to pay for costs of acquiring additional hotel properties, renovations and other capital expenditures that need to be made periodically with respect to our hotel properties, and any other value enhancing projects.

Sources and Uses of Cash

Cash flows from Operating Activities

The net cash flow provided by operating activities totaled $315.1 million and $256.5 million for the years ended December 31, 2023 and 2022, respectively. The cash flows provided by operating activities generally consist of the net cash generated by our hotel operations, cash paid for corporate expenses and other working capital changes. Refer to the "Results of Operations" section for further discussion of our operating results for the years ended December 31, 2023 and 2022.

Cash flows from Investing Activities

The net cash flow used in investing activities totaled $134.7 million for the year ended December 31, 2023 primarily due to $132.3 million in capital improvements and additions to our hotel properties and other assets and a purchase deposit of $2.4 million.

The net cash flow used in investing activities totaled $135.5 million for the year ended December 31, 2022 primarily due to

a $59.3 million acquisition of a hotel property and $124.3 million in capital improvements and additions to our hotel properties.

These were partially offset by $48.1 million of net cash proceeds from the sale of two hotel properties.

Cash flows from Financing Activities

The net cash flow used in financing activities totaled $161.5 million for the year ended December 31, 2023 primarily due to $76.0 million paid to repurchase common shares under our share repurchase programs, $74.5 million in distributions to shareholders and unitholders, $4.4 million paid to repurchase common shares to satisfy employee tax withholding requirements, and $7.9 million in deferred financing cost payments.

The net cash flow used in financing activities totaled $298.5 million for the year ended December 31, 2022 primarily due to

$200.0 million in repayment of the outstanding balance on the Revolver, $57.6 million paid to repurchase common shares under

a share repurchase program, $38.5 million in distributions to shareholders and unitholders, $2.6 million in distributions to joint

venture partners, $3.6 million paid to repurchase common shares to satisfy employee tax withholding requirements, and $1.3

million in deferred financing cost payments. The net cash flow used in financing activities was partially offset by $5.0 million

in borrowing on a Term Loan.

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Capital Expenditures and Reserve Funds

We maintain each of our hotel properties in good repair and condition and in conformity with applicable laws and regulations, franchise agreements and management agreements. The cost of routine improvements and alterations are paid out of FF&E reserves, which are funded by a portion of each hotel property’s gross revenues. Routine capital expenditures may be administered by the property management companies. However, we have approval rights over the capital expenditures as part of the annual budget process for each of our hotel properties.

From time to time, certain of our hotel properties may undergo renovations as a result of our decision to upgrade portions of the hotels, such as guestrooms, public space, meeting space, and/or restaurants, in order to better compete with other hotels and alternative lodging options in our markets. In addition, upon acquisition of a hotel property we often are required to complete a property improvement plan in order to bring the hotel up to the respective franchisor’s standards. If permitted by the terms of the management agreement, funding for a renovation will first come from the FF&E reserves. To the extent that the FF&E reserves are not available or sufficient to cover the cost of the renovation, we will fund all or the remaining portion of the renovation with cash and cash equivalents on hand, our Revolver and/or other sources of available liquidity.

With respect to some of our hotels that are operated under franchise agreements with major national hotel brands and for some of our hotels subject to first mortgage liens, we are obligated to maintain FF&E reserve accounts for future capital expenditures at these hotels. The amount funded into each of these reserve accounts is generally determined pursuant to the management agreements, franchise agreements and/or mortgage loan documents for each of the respective hotels, and typically ranges between 3.0% and 5.0% of the respective hotel’s total gross revenue. As of December 31, 2023, approximately $32.0 million was held in FF&E reserve accounts for future capital expenditures.

Critical Accounting Estimates

The preparation of the financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amount of assets and liabilities at the date of our financial statements and the reported amounts of revenues and expenses during the reporting period. We consider our accounting policies over impairment and purchase price allocation to be our critical accounting estimates. See Note 2 to our consolidated financial statements for further descriptions of such accounting policies. We have set forth below the accounting policies that we believe require material subjective or complex judgments and have the most significant impact on our financial condition and results of operations. It is possible that the actual amounts may differ significantly from these estimates and assumptions. We evaluate our estimates, assumptions and judgments on an ongoing basis, based on information that is available to us, our business and industry experience, and various other matters that we believe are reasonable and appropriate for consideration under the circumstances.

Impairment

We assess the carrying value of our investments in hotel properties whenever events or changes in circumstances indicate that the carrying amounts may not be recoverable.  Hotel property recoverability is measured by comparing the carrying amount to the projected undiscounted future cash flows expected to be generated from the operation and the eventual disposition of the hotel properties over the estimated hold period, which take into account current market conditions and our intent with respect to holding or disposing of the hotel properties.  If our analysis indicates that the carrying value is not recoverable on a projected undiscounted cash flow basis, we will recognize an impairment loss for the amount by which the carrying value exceeds the fair value. The determination of fair value is subjective and is based in part on assumptions and estimates that could differ materially from actual results in future periods. The fair value is determined through various valuation techniques, including internally developed discounted cash flow models, comparable market transactions, third-party appraisals, the net sales proceeds from pending offers, or the net sales proceeds from transactions that closed subsequent to the end of the reporting period. The use of projected future cash flows is based on assumptions that are consistent with a market participant’s future expectations for the travel industry and the economy in general, including discount rates, sales proceeds in the reversion year, average daily rates, Occupancy rates, operating expenses and capital expenditures, and our intent with respect to holding or disposing of the underlying hotel properties. Fair value may also be based on assumptions including, but not limited to, room revenue multiples and comparable sales adjusted for capital expenditures, if necessary.

Purchase Price Allocation

Our acquisitions generally consist of land, land improvements, buildings, building improvements, furniture, fixtures and equipment, inventory, and assumed debt. We allocate the purchase price among the assets acquired and the liabilities assumed based on their respective fair values at the date of acquisition. We estimate the fair values of the assets acquired and the liabilities assumed by using a combination of the market, cost and income approaches. We determine the fair value by using

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market data and independent appraisals available to us and making numerous estimates and assumptions, such as estimates of future income growth, replacement cost per unit, value per acre or buildable square foot, capitalization rates, discount rates, borrowing rates, market rental rates, capital expenditures and cash flow projections at the respective hotel properties. The determination of fair value is subjective and is based in part on assumptions and estimates that could differ materially from actual results in future periods.

Item 7.   Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis should be read in conjunction with our accompanying consolidated financial statements, the related notes included thereto, and Item 1A., "Risk Factors", all of which appear elsewhere in this Annual Report on Form 10-K.

Overview

We are a self-advised and self-administered Maryland REIT that owns primarily premium-branded, rooms-oriented, high-margin, focused-service and compact full-service hotels located within heart of demand locations. Our hotels are concentrated in markets that we believe exhibit multiple demand generators and attractive long-term growth prospects. We believe premium-branded, focused-service and compact full-service hotels with these characteristics generate high levels of RevPAR, strong operating margins and attractive returns. Focused-service and compact full-service hotels typically generate most of their revenue from room rentals, have limited food and beverage outlets and meeting space and require fewer employees than traditional full-service hotels. We believe these types of hotels have the potential to generate attractive returns relative to other types of hotels due to their ability to achieve RevPAR levels at or close to those achieved by traditional full-service hotels, while achieving higher profit margins due to their more efficient operating model and less volatile cash flows.

Our Customers

The majority of our hotels consist of premium-branded, focused-service and compact full-service hotels. As a result of this property profile, the majority of our customers are transient in nature. Transient business typically represents individual business or leisure travelers. The majority of our hotels are located in business districts within major metropolitan areas. Accordingly, business travelers represent the majority of the transient demand at our hotels. As a result, factors impacting business travel have a greater effect on our business than factors impacting leisure travel.

Group business is typically defined as a minimum of 10 guestrooms booked together as part of the same piece of business. Group business may or may not use the meeting space at any given hotel. Given the limited meeting space at the majority of our hotels, group business that utilizes meeting space represents a small component of our customer base.

A number of our hotel properties are affiliated with brands marketed toward extended-stay customers. Extended-stay customers are generally defined as those staying five nights or longer.

Key Indicators of Operating Performance

We use a variety of operating, financial and other information to evaluate the operating performance of our business. These key indicators include financial information that is prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") as well as other financial measures that are non-GAAP measures. In addition, we use other information that may not be financial in nature, including industry standard statistical information and comparative data. We use this information to measure the operating performance of our individual hotels, groups of hotels and/or business as a whole. We also use these metrics to evaluate the hotels in our portfolio and potential acquisition opportunities to determine each hotel's contribution to cash flow and its potential to provide attractive long-term total returns. The key indicators include:

•Average Daily Rate — ADR represents the total hotel room revenues divided by the total number of rooms sold in a given period. ADR measures the average room price attained by a hotel and ADR trends provide useful information concerning the pricing environment and the nature of the customer base at a hotel or group of hotels. We use ADR to assess the pricing levels that we are able to generate, as changes in rates have a greater impact on operating margins and profitability than changes in occupancy.

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•Occupancy — Occupancy represents the total number of hotel rooms sold in a given period divided by the total number of rooms available. Occupancy measures the utilization of our hotels' available capacity. We use occupancy to measure demand at a specific hotel or group of hotels in a given period. Additionally, occupancy levels help us determine the achievable ADR levels.

•Revenue Per Available Room — RevPAR is the product of ADR and occupancy. RevPAR does not include non-room revenues, such as food and beverage revenue or other revenue. We use RevPAR to identify trend information with respect to room revenues from comparable hotel properties and to evaluate hotel performance on a regional basis.

RevPAR changes that are primarily driven by changes in occupancy have different implications for overall revenues and profitability than the changes that are driven primarily by changes in ADR. For example, an increase in occupancy at a hotel would lead to additional variable operating costs (including housekeeping services, utilities and room supplies) and could also result in an increase in other revenue and other operating expense. Changes in ADR typically have a greater impact on operating margins and profitability as they only have a limited effect on variable operating costs.

ADR, Occupancy and RevPAR are commonly used measures within the lodging industry to evaluate operating performance. RevPAR is an important statistic for monitoring operating performance at the individual hotel property level and across our entire business. We evaluate individual hotel RevPAR performance on an absolute basis with comparisons to budget and prior periods, as well as on a regional and company-wide basis. ADR and RevPAR include only room revenue. Room revenue comprised approximately 84.0% of our total revenues for the year ended December 31, 2022, and it is dictated by demand (as measured by occupancy), pricing (as measured by ADR) and our available supply of hotel rooms.

We also use non-GAAP measures such as FFO, Adjusted FFO, EBITDA, EBITDAre and Adjusted EBITDA to evaluate the operating performance of our business. For a more in depth discussion of the non-GAAP measures, please refer to the "Non-GAAP Financial Measures" section.

Principal Factors Affecting Our Results of Operations

The principal factors affecting our operating results include the overall demand for lodging compared to the supply of available hotel rooms and other lodging options, and the ability of our third-party management companies to increase or maintain revenues while controlling expenses.

•Demand — The demand for lodging, especially business travel, generally fluctuates with the overall economy. Historically, periods of declining demand are followed by extended periods of relatively strong demand, which typically occurs during the growth phase of the lodging cycle.

•Supply — The development of new hotels is driven largely by construction costs, the availability of financing, the expected performance of existing hotels and other lodging options.

We expect that our ADR, Occupancy and RevPAR performance will be impacted by macroeconomic factors such as regional and local employment growth, government spending, personal income and corporate earnings, office vacancy rates, business relocation decisions, airport activity, business and leisure travel demand, new hotel construction and the pricing strategies of our competitors. In addition, our ADR, Occupancy and RevPAR performance are dependent on the continued success of the Marriott, Hilton and Hyatt hotel brands.

•Revenues — Substantially all of our revenues are derived from the operation of hotels. Specifically, our revenues are comprised of:

◦Room revenue — Occupancy and ADR are the major drivers of room revenue. Room revenue accounts for the majority of our total revenues.

◦Food and beverage revenue — Occupancy, the nature of the hotel property and the type of customer staying at the hotel are the major drivers of food and beverage revenue (i.e., group business typically generates more food and beverage revenue through catering functions as compared to transient business, which may or may not utilize the hotel's food and beverage outlets).

◦Other revenue — Occupancy and the nature of the hotel property are the main drivers of other ancillary revenue, such as parking fees, resort fees, gift shop sales and other guest service fees. Some hotels, due to the limited focus of the services offered and size or space limitations at the hotel, may not have the type of facilities that generate other revenue.

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•Property Operating Expenses — The components of our property operating expenses are as follows:

◦Room expense — These expenses include housekeeping and front office wages and payroll taxes, reservation systems, room supplies, laundry services and other room-related costs. Like room revenue, occupancy is the major driver of room expense. These costs can increase based on an increase in salaries and wages, as well as the level of service and amenities that are provided at the hotel property.

◦Food and beverage expense — These expenses primarily include food, beverage and labor costs. Occupancy and the type of customer staying at the hotel (i.e., catered functions are generally more profitable than restaurant, bar, and other food and beverage outlets that are located on the hotel property) are the major drivers of food and beverage expense, which correlates closely with food and beverage revenue.

◦Management and franchise fee expense — A base management fee is computed as a percentage of gross hotel revenues. An incentive management fee is typically paid when the hotel's operating income exceeds certain thresholds, and it is generally calculated as a percentage of hotel operating income after we have received a priority return on our investment in the hotel. A franchise fee is computed as a percentage of room revenue, plus an additional percentage of room revenue for marketing, central reservation systems and other franchisor costs. Certain hotels will also pay an additional franchise fee which is computed as a percentage of food and beverage revenue. For a more in depth discussion of the management and franchise fees, please refer to the "Our Hotel Properties — Management Agreements" and "Our Hotel Properties — Franchise Agreements" sections.

◦Other operating expense — These expenses include labor and other costs associated with the sources of our other revenue, as well as the labor and other costs associated with the administrative departments, sales and marketing, repairs and maintenance, and utility costs at the hotel properties.

Most categories of variable operating expenses, including labor costs, fluctuate with changes in occupancy. Increases in occupancy are accompanied by increases in most categories of variable operating expenses, while increases in ADR typically only result in increases in certain categories of operating costs and expenses, such as management fees, franchise fees, travel agency commissions, and credit card processing fees, all of which are based on hotel revenues. Therefore, changes in ADR have a more significant impact on operating margins than changes in occupancy.

Inflation

We rely on the performance of our hotel properties to increase revenues to keep pace with inflation. Generally, our hotel management companies possess the ability to adjust room rates daily, except for group or corporate rates contractually committed to in advance, although competitive pressures may limit the ability of our operators to raise rates faster than the rate of inflation or even at the same rate. Increased inflation may also have an adverse effect on our operating expenses, including, but not limited to, labor, supplies, repairs and maintenance, as these costs could increase at a faster rate than any increase in our revenues. Inflation could also have an adverse effect on consumer spending, which could impact occupancy levels at our hotel properties and, in turn, our own results of operations.

2022 Significant Activities

Our significant activities reflect our commitment to creating long-term shareholder value through enhancing our hotel portfolio's quality, recycling capital and maintaining a flexible capital structure. During the year ended December 31, 2022, the following significant activities took place:

•Paid off the $200.0 million outstanding balance on our Revolver using cash on hand.

•Sold two hotel properties for a combined sales price of approximately $49.9 million.

•Exercised a one-year extension option on a mortgage loan extending the maturity to April 2023, with a second one-year extension option still remaining.

•Purchased and retired approximately 4.9 million shares for $57.6 million under a new share repurchase program.

•Acquired the 124-room 21c Hotel in Nashville, Tennessee for $59.0 million.

•Satisfied the requirements to exit all COVID-related restrictions under our Revolver and Term Loan agreements.

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•Amended a Term Loan agreement to increase the amount of the Term Loan up to $200.0 million and extend the maturity to January 2026.

•Provided notice to the lenders that we would be exercising our one-year extension option on approximately $225.0 million of the principal balances on certain Term Loans, extending the maturities to January 2024.

Results of Operations

At December 31, 2022 and 2021, we owned 97 and 98 hotel properties, respectively.  Based on when a hotel property is acquired, sold, or otherwise disposed, the operating results for certain hotel properties are not comparable for the years ended December 31, 2022 and 2021.  The non-comparable properties include ten hotels that were sold or otherwise disposed in 2022 and 2021 and four hotels that were acquired in 2022 and 2021.

For similar operating and financial data and discussion of our results for the year ended December 31, 2021 compared to our results for the year ended December 31, 2020, refer to Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” under Part II of our annual report on Form 10-K for the year ended December 31, 2021, which was filed with the SEC on February 24, 2022 and is incorporated herein by reference.

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Comparison of the year ended December 31, 2022 to the year ended December 31, 2021

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Revenues

Total revenues increased $408.0 million to $1.2 billion for the year ended December 31, 2022, from $785.7 million for the year ended December 31, 2021. The increase was a result of a $334.6 million increase in room revenue, a $58.0 million increase in food and beverage revenue, and a $15.4 million increase in other revenue.

Room Revenue

Room revenue increased $334.6 million to $1.0 billion for the year ended December 31, 2022, from $667.9 million for the year ended December 31, 2021.  The increase was the result of a $323.4 million increase in room revenue attributable to the comparable properties and a $11.2 million increase in room revenue attributable to the non-comparable properties. The increase in room revenue from the comparable properties was attributable to an increase in RevPAR, including a significant increase in ADR, resulting from an increase in leisure travel, as well as some recoveries in business and group bookings, as compared to the prior period. Though RevPAR increased compared to 2021, it remained below pre-pandemic levels.

The following are the key hotel operating statistics for the comparable properties:

Food and Beverage Revenue

Food and beverage revenue increased $58.0 million to $117.0 million for the year ended December 31, 2022, from $59.0 million for the year ended December 31, 2021. The increase was the result of a $56.2 million increase in food and beverage revenue attributable to the comparable properties and a $1.9 million increase in food and beverage revenue attributable to the non-comparable properties. The increase in food and beverage revenue attributable to the comparable properties was primarily due to an increase in banquet and catering revenues from group business and the reopening of certain food and beverage outlets.

Other Revenue

Other revenue, which includes revenue derived from ancillary sources such as parking fees, resort fees, gift shop sales and other guest service fees, increased $15.4 million to $74.2 million for the year ended December 31, 2022, from $58.8 million for the year ended December 31, 2021.  The increase was the result of a $14.3 million increase in other revenue attributable to the comparable properties and a $1.1 million increase in other revenue attributable to the non-comparable properties. The increase in other revenue attributable to the comparable properties was primarily due to an increase in parking fees, resort and facility fees (including new resort and facility fees implemented during the prior year and current year), and gift shop sales that corresponded to the increase in demand over the prior period.

Property Operating Expenses

Property operating expenses increased $232.9 million to $744.4 million for the year ended December 31, 2022, from $511.5 million for the year ended December 31, 2021. The increase was due to a $234.8 million increase in property operating expenses attributable to the comparable properties, which was partially offset by a $1.9 million decrease in property operating expenses attributable to the non-comparable properties.

The components of our property operating expenses for the comparable properties were as follows (in thousands):

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The increase in property operating expenses attributable to the comparable properties corresponded to an increase in demand over the prior period. Management and franchise fee expense for the years ended December 31, 2022 and 2021 included a reduction in management and franchise fee expense of $4.1 million and $14.1 million, respectively, related to the recognition of the $36.0 million Wyndham termination payment received in 2019. The decrease in the recognition of the Wyndham termination payment was due to certain Wyndham agreements expiring in 2021. The termination payments were fully recognized as of December 31, 2022.

Depreciation and Amortization

Depreciation and amortization expense decreased $2.9 million to $184.9 million for the year ended December 31, 2022, from $187.8 million for the year ended December 31, 2021. The decrease was the result of a $1.3 million decrease in depreciation and amortization expense attributable to the comparable properties and a $1.6 million decrease in depreciation and amortization expense attributable to the non-comparable properties. The decrease in depreciation and amortization expense

attributable to the comparable properties was primarily related to furniture, fixtures and equipment that were fully depreciated in 2021, partially offset by an increase in depreciation and amortization expense related to recently acquired and recently renovated hotels.

Impairment Losses

During the year ended December 31, 2021, we recorded impairment losses of $144.8 million. The impairment losses included $5.9 million related to two hotel properties that were sold in May 2021 and $138.9 million related to the DoubleTree

Metropolitan New York City that was sold in December 2021. There was no impairment loss recorded during the year ended December 31, 2022.

Property Tax, Insurance and Other

Property tax, insurance and other expense decreased $1.9 million to $87.0 million for the year ended December 31, 2022, from $88.9 million for the year ended December 31, 2021.  The decrease was attributable to a $5.7 million decrease in property tax, insurance and other expense attributable to the non-comparable properties, which was partially offset by a $3.8 million increase in property tax, insurance and other expense attributable to the comparable properties. The increase in property tax, insurance and other expense attributable to the comparable properties was attributable to recognizing a larger benefit during the year ended December 31, 2021 than during the year ended December 31, 2022 related to the reversal of accrued real estate tax liabilities in excess of the amounts owed for certain of our California hotels acquired in our merger with FelCor Lodging Trust. Additionally, the increase was attributable to an increase in property insurance premiums and an increase in ground rent expense due to rent owed as a percentage of revenue and the impact of ground rent increases due to annual consumer price index adjustments.

General and Administrative

General and administrative expense increased $8.8 million to $56.3 million for the year ended December 31, 2022, from $47.5 million for the year ended December 31, 2021.  The increase in general and administrative expense was primarily attributable to an increase in share-based compensation expense, as well as an increase in payroll tax expense due to payroll tax credits in the prior year that did not recur in the current year.

Other Income (Expense), net

Other income (expense), net increased $17.1 million to income of $9.5 million for the year ended December 31, 2022, from expense of $7.6 million for the year ended December 31, 2021.  The increase was primarily attributable to the reclassification of unrealized gains and losses from accumulated other comprehensive income (loss) due to the discontinuation of certain cash flow hedges in each of the periods.

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Interest Expense

Interest expense decreased $13.2 million to $93.2 million for the year ended December 31, 2022, from $106.4 million for the year ended December 31, 2021. Interest expense decreased due to lower average debt balances and lower effective interest rates due to financing transactions that closed during the year ended December 31, 2021, as well as the impact of exiting the covenant relief period during 2022 under our Revolver and Term Loan agreements. The components of our interest expense for the years ended December 31, 2022 and 2021 were as follows (in thousands):

Gain (Loss) on Sale of Hotel Properties, net

During the year ended December 31, 2022, we sold two hotel properties for an aggregate sales price of approximately

$49.9 million and recorded a net gain on the sales of approximately $1.0 million. During the year ended December 31, 2021, we sold seven hotel properties for an aggregate sales price of approximately $208.5 million and recorded a net loss on the sales of approximately $2.4 million.

Non-GAAP Financial Measures

We consider the following non-GAAP financial measures useful to investors as key supplemental measures of our performance: (1) FFO, (2) Adjusted FFO, (3) EBITDA, (4) EBITDAre and (5) Adjusted EBITDA. These non-GAAP financial measures should be considered along with, but not as alternatives to, net income as a measure of our operating performance. FFO, Adjusted FFO, EBITDA, EBITDAre, and Adjusted EBITDA, as calculated by us, may not be comparable to FFO, Adjusted FFO, EBITDA, EBITDAre and Adjusted EBITDA as reported by other companies that do not define such terms exactly as we define such terms.

Funds From Operations

We calculate FFO in accordance with standards established by the National Association of Real Estate Investment Trusts ("NAREIT"), which defines FFO as net income or loss, excluding gains or losses from sales of real estate, impairment, the cumulative effect of changes in accounting principles, plus depreciation and amortization, and adjustments for unconsolidated partnerships and joint ventures. Historical cost accounting for real estate assets implicitly assumes that the value of real estate assets diminishes predictably over time. Since real estate values instead have historically risen or fallen with market conditions, most real estate industry investors consider FFO to be helpful in evaluating a real estate company’s operations. We believe that the presentation of FFO provides useful information to investors regarding our operating performance and can facilitate comparisons of operating performance between periods and between REITs, even though FFO does not represent an amount that accrues directly to common shareholders. Our calculation of FFO may not be comparable to measures calculated by other companies who do not use the NAREIT definition of FFO or do not calculate FFO per diluted share in accordance with NAREIT guidance. Additionally, FFO may not be helpful when comparing us to non-REITs. We present FFO attributable to common shareholders, which includes our OP units, because our OP units may be redeemed for common shares. We believe it is meaningful for the investor to understand FFO attributable to all common shares and OP units.

We further adjust FFO for certain additional items that are not in NAREIT’s definition of FFO, such as transaction costs, pre-opening costs, gains or losses on extinguishment of indebtedness, amortization of share-based compensation, non-cash income tax expense or benefit, non-cash interest expense related to discontinued interest rate hedges, corporate and property-level severance, derivative gains or losses in accumulated other comprehensive income (loss) reclassified to earnings, and certain other income or expenses that we consider outside the normal course of operations. We believe that Adjusted FFO provides useful supplemental information to investors regarding our ongoing operating performance that, when considered with net income and FFO, is beneficial to an investor’s understanding of our operating performance.

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The following table is a reconciliation of our GAAP net income (loss) to FFO attributable to common shareholders and unitholders and Adjusted FFO attributable to common shareholders and unitholders for the years ended December 31, 2022 and 2021 (in thousands):

(1)Includes depreciation and amortization expense, impairment loss and loss on sale of hotel allocated to the noncontrolling interest in the consolidated joint ventures.

(2)Includes our ownership interest in the depreciation and amortization expense of the unconsolidated joint ventures.

(3)The year ended December 31, 2021 includes severance for associates at hotels operating under collective bargaining agreements.

(4)Reclassification of interest rate swap (gains) losses from accumulated other comprehensive income (loss) to earnings for discontinued interest rate hedges.

(5)Represents expenses and income outside of the normal course of operations including debt modification costs, legal and other costs, and hurricane-related costs that were not reimbursed by insurance.

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EBITDA and EBITDAre

EBITDA is defined as net income or loss excluding: (1) interest expense; (2) provision for income taxes, including income taxes applicable to sales of assets; and (3) depreciation and amortization. We consider EBITDA useful to an investor in evaluating and facilitating comparisons of our operating performance between periods and between REITs by removing the impact of our capital structure (primarily interest expense) and asset base (primarily depreciation and amortization) from our operating results.  In addition, EBITDA is used as one measure in determining the value of hotel acquisitions and disposals.

In addition to EBITDA, we present EBITDAre in accordance with NAREIT guidelines, which defines EBITDAre as net income or loss excluding interest expense, income tax benefit or expense, depreciation and amortization expense, gains or losses from sales of real estate, impairment, and adjustments for unconsolidated joint ventures. We believe that the presentation of EBITDAre provides useful information to investors regarding our operating performance and can facilitate comparisons of operating performance between periods and between REITs.

We also present Adjusted EBITDA, which includes additional adjustments for items such as transaction costs, pre-opening costs, gains or losses on extinguishment of indebtedness, amortization of share-based compensation, corporate and property-level severance, derivative gains or losses in accumulated other comprehensive income (loss) reclassified to earnings, and certain other income or expenses that we consider outside the normal course of operations. We believe that Adjusted EBITDA provides useful supplemental information to investors regarding our ongoing operating performance that, when considered with net income, EBITDA and EBITDAre, is beneficial to an investor’s understanding of our operating performance.

The following table is a reconciliation of our GAAP net income (loss) to EBITDA, EBITDAre and Adjusted EBITDA for the years ended December 31, 2022 and 2021 (in thousands):

(1)Includes our ownership interest in the interest, depreciation, and amortization expense of the unconsolidated joint ventures.

(2)The year ended December 31, 2021 includes severance for associates at hotels operating under collective bargaining agreements.

(3)Reclassification of interest rate swap (gains) losses from accumulated other comprehensive income (loss) to earnings for discontinued interest rate hedges.

(4)Represents expenses and income outside of the normal course of operations including debt modification costs, legal and other costs, and hurricane-related costs that were not reimbursed by insurance.

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Liquidity and Capital Resources

As of December 31, 2022, we had $536.4 million of cash, cash equivalents, and restricted cash reserves as compared to $713.9 million at December 31, 2021. In addition, we had $600.0 million available on our Revolver at December 31, 2022.

Our principal uses of capital for the year ended December 31, 2022 were our purchase of one hotel property, repayment of the outstanding balance on our Revolver, capital improvements and additions to hotel properties, and the repurchase of common shares under our share repurchase program. Our principal sources of capital for the year ended December 31, 2022 were cash generated from operations and the sale of two hotel properties.

Material Cash Requirements

Our expected material cash requirements for the twelve months ending 2023 and thereafter are comprised of (i) contractually obligated expenditures; and (ii) other essential cash requirements.

Contractually Obligated Expenditures

We are party to various contractual obligations involving commitments to make payments to third parties. These obligations impact our short-term and long-term liquidity and capital resource needs. Our material short and long-term cash commitments primarily consist of debt obligations and ground lease payments related to certain of our hotel properties.

As of December 31, 2022, we had approximately $2.2 billion in debt outstanding with a weighted average interest rate of 3.57%, of which $294.0 million is scheduled to become due in the succeeding 12 months, excluding the Term Loans for which we exercised our one year extension option in January 2023. As of December 31, 2022, our total future minimum lease payments were $586.3 million, of which $11.6 million is scheduled to become due in the succeeding 12 months. For details regarding our indebtedness and lease obligations, refer to Note 7, Debt, and Note 10, Commitments and Contingencies, to the consolidated financial statements included elsewhere in this Annual Report on Form 10-K.

Other Essential Cash Requirements

Our other short-term cash requirements consist primarily of the funds necessary to pay for operating expenses and other expenditures directly associated with our hotel properties, including:

•recurring maintenance and capital expenditures necessary to maintain our hotel properties in accordance with brand standards;

•distributions, including those necessary to qualify for taxation as a REIT; and

•corporate and other general and administrative expenses.

We expect to meet our short-term cash requirements generally through the net cash provided by operations, existing cash balances, short-term borrowings under our Revolver, proceeds from the sale of hotel properties, proceeds from financings, and proceeds from public offerings of common shares.

Our other long-term cash requirements consist primarily of the funds necessary to pay for costs of acquiring additional hotel properties, renovations and other capital expenditures that need to be made periodically with respect to our hotel properties, and any other value enhancing projects.

Sources and Uses of Cash

Cash flows from Operating Activities

The net cash flow provided by operating activities totaled $256.5 million and $43.0 million for the years ended December 31, 2022 and 2021, respectively. The cash flows provided by operating activities generally consist of the net cash generated by our hotel operations, cash paid for corporate expenses and other working capital changes. Refer to the "Results of Operations" section for further discussion of our operating results for the years ended December 31, 2022 and 2021.

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Cash flows from Investing Activities

The net cash flow used in investing activities totaled $135.5 million for the year ended December 31, 2022 primarily due to a $59.3 million acquisition of a hotel property and $124.3 million in capital improvements and additions to our hotel properties. These were partially offset by $48.1 million of net cash proceeds from the sale of two hotel properties.

The net cash flow used in investing activities totaled $24.6 million for the year ended December 31, 2021 primarily due to $174.7 million used to purchase three hotel properties and $48.3 million in routine capital improvements and additions to our hotel properties. These were partially offset by $198.6 million of net cash proceeds from the sale of seven hotel properties.

Cash flows from Financing Activities

The net cash flow used in financing activities totaled $298.5 million for the year ended December 31, 2022 primarily due to $200.0 million in repayment of the outstanding balance on the Revolver, $57.6 million paid to repurchase common shares under a share repurchase program, $38.5 million in distributions to shareholders and unitholders, $2.6 million in distributions to joint venture partners, $3.6 million paid to repurchase common shares to satisfy employee tax withholding requirements, and $1.3 million in deferred financing cost payments. The net cash flow used in financing activities was partially offset by $5.0 million in borrowing on a Term Loan.

The net cash flow used in financing activities totaled $239.3 million for the year ended December 31, 2021 primarily due to the redemption of the $475.0 million senior notes due 2025 with a redemption premium of $9.5 million, $356.3 million in repayment of Term Loans, $200.0 million in repayment of the Revolver, $149.2 million in repayment of mortgage loans, $31.8 million in distributions to shareholders and unitholders, $14.8 million in deferred financing cost payments, $2.5 million paid to repurchase common shares, and $1.5 million in scheduled mortgage loan principal payments. The net cash flow used in financing activities was partially offset by $1.0 billion in gross proceeds from the issuances of the senior notes.

Capital Expenditures and Reserve Funds

We maintain each of our hotel properties in good repair and condition and in conformity with applicable laws and regulations, franchise agreements and management agreements. The cost of all such routine improvements and alterations are paid out of FF&E reserves, which are funded by a portion of each hotel property’s gross revenues. Routine capital expenditures are administered by the property management companies. However, we have approval rights over the capital expenditures as part of the annual budget process for each of our hotel properties.

From time to time, certain of our hotel properties may undergo renovations as a result of our decision to upgrade portions of the hotels, such as guestrooms, public space, meeting space, and/or restaurants, in order to better compete with other hotels and alternative lodging options in our markets. In addition, upon acquisition of a hotel property we often are required to complete a property improvement plan in order to bring the hotel up to the respective franchisor’s standards. If permitted by the terms of the management agreement, funding for a renovation will first come from the FF&E reserves. To the extent that the FF&E reserves are not available or sufficient to cover the cost of the renovation, we will fund all or the remaining portion of the renovation with cash and cash equivalents on hand, our Revolver and/or other sources of available liquidity.

With respect to some of our hotels that are operated under franchise agreements with major national hotel brands and for some of our hotels subject to first mortgage liens, we are obligated to maintain FF&E reserve accounts for future capital expenditures at these hotels. The amount funded into each of these reserve accounts is generally determined pursuant to the management agreements, franchise agreements and/or mortgage loan documents for each of the respective hotels, and typically ranges between 3.0% and 5.0% of the respective hotel’s total gross revenue. As of December 31, 2022, approximately $22.1 million was held in FF&E reserve accounts for future capital expenditures.

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Critical Accounting Estimates

The preparation of the financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amount of assets and liabilities at the date of our financial statements and the reported amounts of revenues and expenses during the reporting period. We consider our accounting policies over investment in hotel properties and revenue recognition to be our critical accounting estimates. See Note 2 to our consolidated financial statements for further descriptions of such accounting policies. We have set forth below the accounting policies that we believe require material subjective or complex judgments and have the most significant impact on our financial condition and results of operations. It is possible that the actual amounts may differ significantly from these estimates and assumptions. We evaluate our estimates, assumptions and judgments on an ongoing basis, based on information that is available to us, our business and industry experience, and various other matters that we believe are reasonable and appropriate for consideration under the circumstances.

Impairment

We assess the carrying value of our investments in hotel properties whenever events or changes in circumstances indicate that the carrying amounts may not be recoverable.  Hotel property recoverability is measured by comparing the carrying amount to the projected undiscounted future cash flows expected to be generated from the operation and the eventual disposition of the hotel properties over the estimated hold period, which take into account current market conditions and our intent with respect to holding or disposing of the hotel properties.  If our analysis indicates that the carrying value is not recoverable on a projected undiscounted cash flow basis, we will recognize an impairment loss for the amount by which the carrying value exceeds the fair value. The determination of fair value is subjective and is based in part on assumptions and estimates that could differ materially from actual results in future periods. The fair value is determined through various valuation techniques, including internally developed discounted cash flow models, comparable market transactions, third-party appraisals, the net sales proceeds from pending offers, or the net sales proceeds from transactions that closed subsequent to the end of the reporting period. The use of projected future cash flows is based on assumptions that are consistent with a market participant’s future expectations for the travel industry and the economy in general, including discount rates, sales proceeds in the reversion year, average daily rates, occupancy rates, operating expenses and capital expenditures, and our intent with respect to holding or disposing of the underlying hotel properties. Fair value may also be based on assumptions including, but not limited to, room revenue multiples and comparable sales adjusted for capital expenditures, if necessary.

Purchase Price Allocation

Our acquisitions generally consist of land, land improvements, buildings, building improvements, furniture, fixtures and equipment, inventory, and assumed debt. We allocate the purchase price among the assets acquired and the liabilities assumed based on their respective fair values at the date of acquisition. We estimate the fair values of the assets acquired and the liabilities assumed by using a combination of the market, cost and income approaches. We determine the fair value by using market data and independent appraisals available to us and making numerous estimates and assumptions, such as estimates of future income growth, replacement cost per unit, value per acre or buildable square foot, capitalization rates, discount rates, borrowing rates, market rental rates, capital expenditures and cash flow projections at the respective hotel properties. The determination of fair value is subjective and is based in part on assumptions and estimates that could differ materially from actual results in future periods.

Item 7.   Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis should be read in conjunction with our accompanying consolidated financial statements, the related notes included thereto, and Item 1A., "Risk Factors", all of which appear elsewhere in this Annual Report on Form 10-K.

Overview

We are a self-advised and self-administered Maryland REIT that owns primarily premium-branded, high-margin, focused-service and compact full-service hotels. Our hotels are concentrated in markets that we believe exhibit multiple demand generators and attractive long-term growth prospects. We believe premium-branded, focused-service and compact full-service hotels with these characteristics generate high levels of RevPAR, strong operating margins and attractive returns. Focused-service and compact full-service hotels typically generate most of their revenue from room rentals, have limited food and beverage outlets and meeting space and require fewer employees than traditional full-service hotels. We believe these types of hotels have the potential to generate attractive returns relative to other types of hotels due to their ability to achieve RevPAR levels at or close to those achieved by traditional full-service hotels, while achieving higher profit margins due to their more efficient operating model and less volatile cash flows.

COVID-19

The global outbreak of COVID-19 and the public health measures that have been undertaken in response have had, and will likely continue to have, a material adverse impact on the global economy and all aspects of our business. Significant events affecting travel, including the COVID-19 pandemic, typically have an impact on booking patterns, with the full extent of the impact generally determined by the duration of the event and its impact on travel decisions. The effects of the COVID-19 pandemic could have lasting changes in consumer behavior that could create headwinds for our hotel properties. Since we cannot estimate when the COVID-19 pandemic and the responsive measures to combat it will end, we cannot estimate the ultimate operational and financial impact of the COVID-19 pandemic on our business.

The effects of the COVID-19 pandemic have significantly impacted our operations, and combined with macroeconomic trends such as reduced business spending, including on travel, and a labor shortage, which has led to higher labor costs, lead us to believe that the ongoing effects of the COVID-19 pandemic on our operations will continue to have an adverse impact on our financial results.

For more information, see "Part I - Item 1A. Risk Factors" included elsewhere in this Annual Report on Form 10-K.

Our Customers

The majority of our hotels consist of premium-branded, focused-service and compact full-service hotels. As a result of this property profile, the majority of our customers are transient in nature. Transient business typically represents individual business or leisure travelers. The majority of our hotels are located in business districts within major metropolitan areas. Accordingly, business travelers represent the majority of the transient demand at our hotels. As a result, the effects of COVID-19 and other factors impacting business travel have a greater effect on our business than factors impacting leisure travel.

Group business is typically defined as a minimum of 10 guestrooms booked together as part of the same piece of business. Group business may or may not use the meeting space at any given hotel. Given the limited meeting space at the majority of our hotels, group business that utilizes meeting space represents a small component of our customer base.

A number of our hotel properties are affiliated with brands marketed toward extended-stay customers. Extended-stay customers are generally defined as those staying five nights or longer.

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Key Indicators of Operating Performance

We use a variety of operating, financial and other information to evaluate the operating performance of our business. These key indicators include financial information that is prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") as well as other financial measures that are non-GAAP measures. In addition, we use other information that may not be financial in nature, including industry standard statistical information and comparative data. We use this information to measure the operating performance of our individual hotels, groups of hotels and/or business as a whole. We also use these metrics to evaluate the hotels in our portfolio and potential acquisition opportunities to determine each hotel's contribution to cash flow and its potential to provide attractive long-term total returns. The key indicators include:

•Average Daily Rate — ADR represents the total hotel room revenues divided by the total number of rooms sold in a given period. ADR measures the average room price attained by a hotel and ADR trends provide useful information concerning the pricing environment and the nature of the customer base at a hotel or group of hotels. We use ADR to assess the pricing levels that we are able to generate, as changes in rates have a greater impact on operating margins and profitability than changes in occupancy.

•Occupancy — Occupancy represents the total number of hotel rooms sold in a given period divided by the total number of rooms available. Occupancy measures the utilization of our hotels' available capacity. We use occupancy to measure demand at a specific hotel or group of hotels in a given period. Additionally, occupancy levels help us determine the achievable ADR levels.

•Revenue Per Available Room — RevPAR is the product of ADR and occupancy. RevPAR does not include non-room revenues, such as food and beverage revenue or other revenue. We use RevPAR to identify trend information with respect to room revenues from comparable hotel properties and to evaluate hotel performance on a regional basis.

RevPAR changes that are primarily driven by changes in occupancy have different implications for overall revenues and profitability than the changes that are driven primarily by changes in ADR. For example, an increase in occupancy at a hotel would lead to additional variable operating costs (including housekeeping services, utilities and room supplies) and could also result in an increase in other revenue and other operating expense. Changes in ADR typically have a greater impact on operating margins and profitability as they only have a limited effect on variable operating costs.

ADR, Occupancy and RevPAR are commonly used measures within the lodging industry to evaluate operating performance. RevPAR is an important statistic for monitoring operating performance at the individual hotel property level and across our entire business. We evaluate individual hotel RevPAR performance on an absolute basis with comparisons to budget and prior periods, as well as on a regional and company-wide basis. ADR and RevPAR include only room revenue. Room revenue comprised approximately 85.0% of our total revenues for the year ended December 31, 2021, and it is dictated by demand (as measured by occupancy), pricing (as measured by ADR) and our available supply of hotel rooms.

We also use non-GAAP measures such as FFO, Adjusted FFO, EBITDA, EBITDAre and Adjusted EBITDA to evaluate the operating performance of our business. For a more in depth discussion of the non-GAAP measures, please refer to the "Non-GAAP Financial Measures" section.

Principal Factors Affecting Our Results of Operations

The principal factors affecting our operating results include the overall demand for lodging compared to the supply of available hotel rooms and other lodging options, and the ability of our third-party management companies to increase or maintain revenues while controlling expenses.

•Demand — The demand for lodging, especially business travel, generally fluctuates with the overall economy. Historically, periods of declining demand are followed by extended periods of relatively strong demand, which typically occurs during the growth phase of the lodging cycle.

•Supply — The development of new hotels is driven largely by construction costs, the availability of financing, the expected performance of existing hotels and other lodging options.

We expect that our ADR, Occupancy and RevPAR performance will be impacted by macroeconomic factors such as regional and local employment growth, government spending, personal income and corporate earnings, office vacancy rates, business relocation decisions, airport activity, business and leisure travel demand, new hotel construction and the pricing strategies of our competitors. In addition, our ADR, Occupancy and RevPAR performance are dependent on the continued success of the Marriott, Hilton and Hyatt hotel brands.

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•Revenues — Substantially all of our revenues are derived from the operation of hotels. Specifically, our revenues are comprised of:

◦Room revenue — Occupancy and ADR are the major drivers of room revenue. Room revenue accounts for the majority of our total revenues.

◦Food and beverage revenue — Occupancy, the nature of the hotel property and the type of customer staying at the hotel are the major drivers of food and beverage revenue (i.e., group business typically generates more food and beverage revenue through catering functions as compared to transient business, which may or may not utilize the hotel's food and beverage outlets).

◦Other revenue — Occupancy and the nature of the hotel property are the main drivers of other ancillary revenue, such as parking fees, resort fees, gift shop sales and other guest service fees. Some hotels, due to the limited focus of the services offered and size or space limitations at the hotel, may not have the type of facilities that generate other revenue.

•Property Operating Expenses — The components of our property operating expenses are as follows:

◦Room expense — These expenses include housekeeping and front office wages and payroll taxes, reservation systems, room supplies, laundry services and other room-related costs. Like room revenue, occupancy is the major driver of room expense. These costs can increase based on an increase in salaries and wages, as well as the level of service and amenities that are provided at the hotel property.

◦Food and beverage expense — These expenses primarily include food, beverage and labor costs. Occupancy and the type of customer staying at the hotel (i.e., catered functions are generally more profitable than restaurant, bar, and other food and beverage outlets that are located on the hotel property) are the major drivers of food and beverage expense, which correlates closely with food and beverage revenue.

◦Management and franchise fee expense — A base management fee is computed as a percentage of gross hotel revenues. An incentive management fee is typically paid when the hotel's operating income exceeds certain thresholds, and it is generally calculated as a percentage of hotel operating income after we have received a priority return on our investment in the hotel. A franchise fee is computed as a percentage of room revenue, plus an additional percentage of room revenue for marketing, central reservation systems and other franchisor costs. Certain hotels will also pay an additional franchise fee which is computed as a percentage of food and beverage revenue. For a more in depth discussion of the management and franchise fees, please refer to the "Our Hotel Properties — Management Agreements" and "Our Hotel Properties — Franchise Agreements" sections.

◦Other operating expense — These expenses include labor and other costs associated with the sources of our other revenue, as well as the labor and other costs associated with the administrative departments, sales and marketing, repairs and maintenance, and utility costs at the hotel properties.

Most categories of variable operating expenses, including labor costs, fluctuate with changes in occupancy. Increases in occupancy are accompanied by increases in most categories of variable operating expenses, while increases in ADR typically only result in increases in certain categories of operating costs and expenses, such as management fees, franchise fees, travel agency commissions, and credit card processing fees, all of which are based on hotel revenues. Therefore, changes in ADR have a more significant impact on operating margins than changes in occupancy.

2021 Significant Activities

Our significant activities reflect our commitment to creating long-term shareholder value through enhancing our hotel portfolio's quality, recycling capital and maintaining a flexible capital structure. During the year ended December 31, 2021, the following significant activities took place:

•We issued $500.0 million aggregate principal amount of 2029 Senior Notes (as defined below) that bear interest at a rate of 4.00% per annum. We used the net proceeds of the offering to redeem all of the outstanding 2025 Senior Notes (as defined below).

•We issued $500.0 million aggregate principal amount of 2026 Senior Notes (as defined below) that bear interest at a rate of 3.75% per annum. We used the net proceeds of the offering to repay $335.5 million of our Term Loans (as defined below) and $142.2 million of our mortgage loans.

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•We amended our Revolver (as defined below) and Term Loans, which included a waiver of quarterly financial covenants through the first quarter of 2022. The amendments also included adding a one-year extension option on approximately $225.0 million on our two 2023 maturing term loans.

•We extended the maturity of $100.0 million of our $150.0 million Term Loan (as defined below) from January 2022 to June 2023, with an additional one-year extension option to June 2024.

•We sold seven hotel properties in seven separate transactions for a combined sales price of approximately $208.5 million.

•We acquired the 186-room Hampton Inn and Suites Atlanta Midtown, 205-room AC Hotel Boston Downtown, and 170-room Moxy Denver Cherry Creek for $58.0 million, $89.0 million, and $51.3 million, respectively.

Results of Operations

At December 31, 2021 and 2020, we owned 98 and 103 hotel properties, respectively.  Based on when a hotel property is acquired, sold, or otherwise disposed, the operating results for certain hotel properties are not comparable for the years ended December 31, 2021 and 2020.  For the comparison between the years ended December 31, 2021 and 2020, the non-comparable properties include nine hotels that were sold or otherwise disposed and three hotels acquired between January 1, 2020 and December 31, 2021.

For similar operating and financial data and discussion of our results for the year ended December 31, 2020 compared to our results for the year ended December 31, 2019, refer to Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” under Part II of our annual report on Form 10-K for the year ended December 31, 2020, which was filed with the SEC on February 26, 2021 and is incorporated herein by reference.

COVID-19

Beginning in March 2020, we experienced a significant decline in occupancy and RevPAR due to the COVID-19 pandemic. In response to the government-mandated stay-in-place orders and the significant reduction in demand due to the COVID-19 pandemic, we initially suspended operations at 57 hotels. As stay-in-place restrictions were lifted, we developed a framework to open hotels in a socially and financially responsible manner. Based on this framework, we began reopening hotels during the quarter ended June 30, 2020. During the year ended December 31, 2021, we benefited from significant growth in demand as a result of increased vaccine distribution, easing of government restrictions and pent-up leisure demand. These trends, combined with our reopening strategy and continuing stringent cost containment initiatives, led to a significant improvement in our results of operations for the year ended December 31, 2021 as compared to the same period in 2020.

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Comparison of the year ended December 31, 2021 to the year ended December 31, 2020

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Revenues

Total revenues increased $312.6 million to $785.7 million for the year ended December 31, 2021, from $473.1 million for the year ended December 31, 2020. The increase was a result of a $270.1 million increase in room revenue, a $18.6 million increase in food and beverage revenue, and a $23.9 million increase in other revenue.

Room Revenue

Room revenue increased $270.1 million to $667.9 million for the year ended December 31, 2021, from $397.8 million for the year ended December 31, 2020.  The increase was the result of a $275.7 million increase in room revenue attributable to the comparable properties, which was partially offset by a $5.6 million decrease in room revenue attributable to the non-comparable properties. The increase in room revenue from the comparable properties was attributable to an increase in RevPAR primarily resulting from an increase in demand as a result of increased vaccine distribution, easing of government restrictions, and pent-up demand for leisure travel. Though RevPAR increased over the comparable period in 2020 due to these factors, it remained below the comparable period in 2019.

The following are the key hotel operating statistics for the comparable properties:

Food and Beverage Revenue

Food and beverage revenue increased $18.6 million to $59.0 million for the year ended December 31, 2021, from $40.4 million for the year ended December 31, 2020. The increase was the result of a $19.5 million increase in food and beverage revenue attributable to the comparable properties, which was partially offset by a $0.5 million decrease in food and beverage revenue attributable to the non-comparable properties. The increase in food and beverage revenue attributable to the comparable properties was primarily due to an increase in demand as a result of increased vaccine distribution, easing of government restrictions, and pent-up demand for leisure travel.

Other Revenue

Other revenue, which includes revenue derived from ancillary sources such as parking fees, resort fees, gift shop sales and other guest service fees, increased $23.9 million to $58.8 million for the year ended December 31, 2021, from $34.9 million for the year ended December 31, 2020.  The increase in other revenue was primarily due to an increase in demand as a result of increased vaccine distribution, easing of government restrictions, and pent-up demand for leisure travel.

Property Operating Expenses

Property operating expenses increased $120.0 million to $511.5 million for the year ended December 31, 2021, from $391.6 million for the year ended December 31, 2020. The increase was due to a $139.5 million increase in property operating expenses attributable to the comparable properties, which was partially offset by a $19.4 million decrease in property operating expenses attributable to the non-comparable properties. The reasons underlying such changes are illustrated in the following chart and accompanying paragraph.

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The components of our property operating expenses for the comparable properties owned at December 31, 2021 and 2020, respectively, were as follows (in thousands):

The increase in property operating expenses attributable to the comparable properties was due to an increase in occupancy over the prior period due to an increase in demand as a result of increased vaccine distribution, easing of government restrictions, and pent-up demand for leisure travel. The occupancy-related increase in property operating expenses was partially offset by continuing stringent cost containment initiatives. Management and franchise fee expense for the years ended December 31, 2021 and 2020 included a reduction in management and franchise fee expense of $14.1 million and $17.8 million, respectively, related to the recognition of the Wyndham termination payment.

Depreciation and Amortization

Depreciation and amortization expense decreased $6.4 million to $187.8 million for the year ended December 31, 2021, from $194.2 million for the year ended December 31, 2020. The decrease was the result of a $5.2 million decrease in depreciation and amortization expense attributable to the comparable properties and a $1.2 million decrease in depreciation and amortization expense attributable to the non-comparable properties. The decrease in depreciation and amortization expense

attributable to the comparable properties was primarily related to furniture, fixtures and equipment that were fully depreciated in 2020, partially offset by an increase in depreciation and amortization expense related to recently acquired and recently renovated hotels.

Impairment Losses

During the year ended December 31, 2021, we recorded impairment losses of $144.8 million. The impairment losses included $5.9 million related to two hotel properties that were sold in May 2021 and $138.9 million related to the DoubleTree

Metropolitan New York City that was sold in December 2021.

Property Tax, Insurance and Other

Property tax, insurance and other expense decreased $14.6 million to $88.9 million for the year ended December 31, 2021, from $103.5 million for the year ended December 31, 2020.  The decrease was attributable to a $13.0 million decrease in property tax, insurance and other expense attributable to the comparable properties and a $1.6 million decrease in property tax, insurance and other expense attributable to the non-comparable properties. The decrease in property tax, insurance and other expense attributable to the comparable properties was primarily attributable to a decrease in real estate tax assessments, including final assessments of certain of our California hotels acquired in our merger with FelCor Lodging Trust, which resulted in a benefit of $5.4 million that was recorded during the year ended December 31, 2021. The decrease in real estate tax assessments was partially offset by an increase in insurance premiums and an increase in percentage rent obligations for certain of our ground leases.

General and Administrative

General and administrative expense increased $6.4 million to $47.5 million for the year ended December 31, 2021, from $41.1 million for the year ended December 31, 2020.  The increase in general and administrative expense was primarily attributable to an increase in compensation-related expenses, primarily from non-cash compensation expense related to share-based awards granted during 2021, and an increase in debt modification, legal, and other costs outside the normal course of operations.

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Other (Expense) Income, net

Other expense increased $9.6 million to $7.6 million for the year ended December 31, 2021, from income of $1.9 million for the year ended December 31, 2020.  The increase was primarily attributable to the reclassification of unrealized losses from accumulated other comprehensive loss due to the termination of certain interest rate swap agreements that were previously designated against debt that was repaid with proceeds from the issuance of our 2026 Senior Notes.

Interest Expense

The components of our interest expense for the years ended December 31, 2021 and 2020 were as follows (in thousands):

Interest expense increased $6.2 million to $106.4 million for the year ended December 31, 2021, from $100.2 million for the year ended December 31, 2020. Interest expense was impacted by the $1.0 billion in gross proceeds from the issuance of new senior notes, the $484.4 million redemption of the existing senior notes, $356.3 million in repayment of term loans, $200.0 million in repayment on the Revolver, and $149.2 million in repayment of mortgage loans during year ended December 31, 2021. Additionally, interest expense on our variable rate debt increased due to higher effective interest rates after taking into account the impact of interest rate swaps in each of the periods.

(Loss) Gain on Sale of Hotel Properties, net

During the year ended December 31, 2021, we sold seven hotel properties for an aggregate sales price of approximately

$208.5 million and recorded a net loss on sales of $2.4 million. During the year ended December 31, 2020, we sold one hotel property for a sale price of approximately $4.9 million and recorded a net gain on sale of $2.7 million.

Equity in Loss from Unconsolidated Joint Ventures

Equity in loss from unconsolidated joint ventures decreased $8.0 million to $0.5 million for the year ended December 31, 2021 from $8.5 million for the year ended December 31, 2020. The decrease is primarily attributable to an impairment loss of $6.5 million in one of our unconsolidated joint ventures in 2020 that did not recur in 2021, and an increase in demand as compared to the prior period.

Income Taxes

As part of our structure, we own TRSs that are subject to U.S. federal and state income taxes. Income tax expense decreased $50.8 million to $1.2 million for the year ended December 31, 2021, from $52.0 million for the year ended December 31, 2020. The decrease in income tax expense was primarily due to recording a valuation allowance on 100% of our net deferred tax assets during the year ended December 31, 2020.

Non-GAAP Financial Measures

We consider the following non-GAAP financial measures useful to investors as key supplemental measures of our performance: (1) FFO, (2) Adjusted FFO, (3) EBITDA, (4) EBITDAre and (5) Adjusted EBITDA. These non-GAAP financial measures should be considered along with, but not as alternatives to, net income as a measure of our operating performance. FFO, Adjusted FFO, EBITDA, EBITDAre, and Adjusted EBITDA, as calculated by us, may not be comparable to FFO, Adjusted FFO, EBITDA, EBITDAre and Adjusted EBITDA as reported by other companies that do not define such terms exactly as we define such terms.

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Funds From Operations

We calculate funds from operations ("FFO") in accordance with standards established by the National Association of Real Estate Investment Trusts ("NAREIT"), which defines FFO as net income or loss, excluding gains or losses from sales of real estate, impairment, the cumulative effect of changes in accounting principles, plus depreciation and amortization, and adjustments for unconsolidated partnerships and joint ventures. Historical cost accounting for real estate assets implicitly assumes that the value of real estate assets diminishes predictably over time. Since real estate values instead have historically risen or fallen with market conditions, most real estate industry investors consider FFO to be helpful in evaluating a real estate company’s operations. We believe that the presentation of FFO provides useful information to investors regarding our operating performance and can facilitate comparisons of operating performance between periods and between REITs, even though FFO does not represent an amount that accrues directly to common shareholders. Our calculation of FFO may not be comparable to measures calculated by other companies who do not use the NAREIT definition of FFO or do not calculate FFO per diluted share in accordance with NAREIT guidance. Additionally, FFO may not be helpful when comparing us to non-REITs. We present FFO attributable to common shareholders, which includes our OP units, because our OP units may be redeemed for common shares. We believe it is meaningful for the investor to understand FFO attributable to all common shares and OP units.

We further adjust FFO for certain additional items that are not in NAREIT’s definition of FFO, such as hotel transaction costs, pre-opening costs, non-cash income tax expense or benefit, the amortization of share-based compensation, and certain other income or expenses that we consider outside the normal course of operations. We believe that Adjusted FFO provides useful supplemental information to investors regarding our ongoing operating performance that, when considered with net income and FFO, is beneficial to an investor’s understanding of our operating performance.

The following table is a reconciliation of our GAAP net loss to FFO attributable to common shareholders and unitholders and Adjusted FFO attributable to common shareholders and unitholders for the years ended December 31, 2021 and 2020 (in thousands):

(1)Includes depreciation and amortization expense, impairment loss and loss on sale of hotel allocated to the noncontrolling interest in the consolidated joint ventures.

(2)Includes our ownership interest in the depreciation and amortization expense and impairment loss of the unconsolidated joint ventures.

(3)The year ended December 31, 2021 includes severance for associates at hotels operating under collective bargaining agreements. The year ended December 31, 2020 includes $6.7 million related to severance for associates at our New York City hotels operating under collective bargaining agreements.

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(4)Reclassification of unrealized losses from accumulated other comprehensive loss due to the termination of certain interest rate swap agreements that were previously designated against debt that was repaid with proceeds from the issuance of our 2026 Senior Notes.

(5)Represents income and expenses outside of the normal course of operations including debt modification costs, legal and other costs, and hurricane-related costs that were not reimbursed by insurance. Other income for the year ended December 31, 2020 includes a benefit of $1.8 million due to the reversal of an excess accrued liability related to a labor matter.

EBITDA and EBITDAre

Earnings before interest, taxes, depreciation and amortization ("EBITDA") is defined as net income or loss excluding: (1) interest expense; (2) provision for income taxes, including income taxes applicable to sales of assets; and (3) depreciation and amortization. We consider EBITDA useful to an investor in evaluating and facilitating comparisons of our operating performance between periods and between REITs by removing the impact of our capital structure (primarily interest expense) and asset base (primarily depreciation and amortization) from our operating results.  In addition, EBITDA is used as one measure in determining the value of hotel acquisitions and disposals.

In addition to EBITDA, we present EBITDAre in accordance with NAREIT guidelines, which defines EBITDAre as net income or loss excluding interest expense, income tax benefit or expense, depreciation and amortization expense, gains or losses from sales of real estate, impairment, and adjustments for unconsolidated joint ventures. We believe that the presentation of EBITDAre provides useful information to investors regarding our operating performance and can facilitate comparisons of operating performance between periods and between REITs.

We also present Adjusted EBITDA, which includes additional adjustments for items such as gains or losses on extinguishment of indebtedness, transaction costs, the amortization of share-based compensation, pre-opening costs, and certain other income or expenses that we consider outside the normal course of operations. We believe that Adjusted EBITDA provides useful supplemental information to investors regarding our ongoing operating performance that, when considered with net income, EBITDA and EBITDAre, is beneficial to an investor’s understanding of our operating performance.

The following table is a reconciliation of our GAAP net loss to EBITDA, EBITDAre and Adjusted EBITDA for the years ended December 31, 2021 and 2020 (in thousands):

(1)Includes our ownership interest in the interest, depreciation, and amortization expense of the unconsolidated joint ventures.

(2)Includes our ownership interest in the impairment loss of one of our unconsolidated joint ventures.

(3)The year ended December 31, 2021 includes severance for associates at hotels operating under collective bargaining agreements. The year ended December 31, 2020 includes $6.7 million related to severance for associates at our New York City hotels operating under collective bargaining agreements.

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(4)Reclassification of unrealized losses from accumulated other comprehensive loss due to the termination of certain interest rate swap agreements that were previously designated against debt that was repaid with proceeds from the issuance of our 2026 Senior Notes.

(5)Represents income and expenses outside of the normal course of operations including debt modification costs, legal and other costs, and hurricane-related costs that were not reimbursed by insurance. Other income for the year ended December 31, 2020 includes a benefit of $1.8 million due to the reversal of an excess accrued liability related to a labor matter.

Liquidity and Capital Resources

As of December 31, 2021, we had $713.9 million of cash, cash equivalents, and restricted cash reserves as compared to $934.8 million at December 31, 2020. In addition, we had $400.0 million available on our $600.0 million Revolver at December 31, 2021. In February 2022, we paid off the outstanding balance on the Revolver using cash on hand.

Our principal uses of capital for the year ended December 31, 2021 were our purchases of three hotel properties, redemption of the 2025 Senior Notes (as defined below), repayment of a portion of our Revolver, and repayment of certain term loans and mortgages. Our principal sources of capital for the year ended December 31, 2021 was cash generated from operations, the sale of seven hotel properties, and the issuance of the senior notes.

Material Cash Requirements

Our expected material cash requirements for the twelve months ending 2022 and thereafter are comprised of (i) contractually obligated expenditures; and (ii) other essential cash requirements.

Contractually Obligated Expenditures

We are party to various contractual obligations involving commitments to make payments to third parties. These obligations impact our short-term and long-term liquidity and capital resource needs. Our material short and long-term cash commitments primarily consist of debt obligations, and ground lease payments related to certain of our hotel properties.

As of December 31, 2021, we had approximately $2.4 billion in debt outstanding with a weighted average interest rate of 3.94%, of which $200.0 million is scheduled to become due in the succeeding 12 months, excluding available extension options. As of December 31, 2021, our total future minimum lease payments were $600.1 million, of which $11.5 million is scheduled to become due in the succeeding 12 months. For details regarding our indebtedness and lease obligations, refer to Note 8, Debt, and Note 11, Commitments and Contingencies, to the consolidated financial statements included elsewhere in this Annual Report on Form 10-K.

Other Essential Cash Requirements

Our other short-term cash requirements consist primarily of the funds necessary to pay for operating expenses and other expenditures directly associated with our hotel properties, including:

•recurring maintenance and capital expenditures necessary to maintain our hotel properties in accordance with brand standards;

•operating shortfalls in hotel properties with low occupancy;

•distributions necessary to qualify for taxation as a REIT; and

•corporate and other general and administrative expenses.

We expect to meet our short-term cash requirements generally through the net cash provided by operations, existing cash balances, short-term borrowings under our Revolver, proceeds from the sale of hotel properties, proceeds from financings, and proceeds from public offerings of common shares.

Our other long-term cash requirements consist primarily of the funds necessary to pay for costs of acquiring additional hotel properties, renovations and other capital expenditures that need to be made periodically with respect to our hotel properties, and any other value enhancing projects.

During the year ended December 31, 2021, we entered into two amendments to our Revolver and Term Loans. The amendment suspends the testing of all existing financial maintenance covenants under the Revolver and the Term Loan

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agreements for all periods through and including the fiscal quarter ending March 31, 2022 (the “Covenant Relief Period”). In addition, for the five quarterly reporting periods following the Covenant Relief Period, the amendments modify certain covenant thresholds. We are also subject to various restrictions such as the ability to incur additional indebtedness, repurchase shares, dividends and distributions limitations, and limitations around capital expenditures and acquisitions.

Sources and Uses of Cash

Cash flows from Operating Activities

The net cash flow provided by operating activities totaled $43.0 million and the net cash flow used in operating activities totaled $168.7 million for the years ended December 31, 2021 and 2020, respectively. The cash flows provided by or used in operating activities generally consist of the net cash generated by or operating shortfalls from our hotel operations, cash paid for corporate expenses and other working capital changes. Refer to the "Results of Operations" section for further discussion of our operating results for the years ended December 31, 2021 and 2020.

Cash flows from Investing Activities

The net cash flow used in investing activities totaled $24.6 million for the year ended December 31, 2021 primarily due to $174.7 million used to purchase three hotel properties and $48.3 million in routine capital improvements and additions to our hotel properties. These were partially offset by $198.6 million of net cash proceeds from the sale of seven hotel properties.

The net cash flow used in investing activities totaled $66.7 million for the year ended December 31, 2020 primarily due to $73.3 million in routine capital improvements and additions to our hotel properties, partially offset by $5.2 million of net cash proceeds from the sale of a hotel property.

Cash flows from Financing Activities

The net cash flow used in financing activities totaled $239.3 million for the year ended December 31, 2021 primarily due to the $484.4 million redemption of the 2025 Senior Notes, $356.3 million in repayment of term loans, $200.0 million in repayment on the Revolver, $149.2 million in repayment of mortgage loans, $31.8 million in distributions to shareholders and unitholders, $14.8 million in deferred financing cost payments, $2.5 million paid to repurchase common shares, and $1.5 million in scheduled mortgage loan principal payments. The net cash flow used in financing activities was partially offset by $1.0 billion in gross proceeds from the issuances of the senior notes.

The net cash flow provided by financing activities totaled $243.0 million for the year ended December 31, 2020 primarily due to $400.0 million in borrowings on our revolving credit facility. This was offset by $86.5 million in distributions to shareholders and unitholders, $64.2 million paid to repurchase common shares, $4.1 million in deferred financing cost payments, and $3.4 million in scheduled mortgage loan principal payments.

Capital Expenditures and Reserve Funds

We maintain each of our hotel properties in good repair and condition and in conformity with applicable laws and regulations, franchise agreements and management agreements. The cost of all such routine improvements and alterations are paid out of FF&E reserves, which are funded by a portion of each hotel property’s gross revenues. Routine capital expenditures are administered by the property management companies. However, we have approval rights over the capital expenditures as part of the annual budget process for each of our hotel properties.

From time to time, certain of our hotel properties may undergo renovations as a result of our decision to upgrade portions of the hotels, such as guestrooms, public space, meeting space, and/or restaurants, in order to better compete with other hotels and alternative lodging options in our markets. In addition, upon acquisition of a hotel property we often are required to complete a property improvement plan in order to bring the hotel up to the respective franchisor’s standards. If permitted by the terms of the management agreement, funding for a renovation will first come from the FF&E reserves. To the extent that the FF&E reserves are not available or sufficient to cover the cost of the renovation, we will fund all or the remaining portion of the renovation with cash and cash equivalents on hand, our Revolver and/or other sources of available liquidity.

With respect to some of our hotels that are operated under franchise agreements with major national hotel brands and for some of our hotels subject to first mortgage liens, we are obligated to maintain FF&E reserve accounts for future capital expenditures at these hotels. The amount funded into each of these reserve accounts is generally determined pursuant to the management agreements, franchise agreements and/or mortgage loan documents for each of the respective hotels, and typically

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ranges between 3.0% and 5.0% of the respective hotel’s total gross revenue. As of December 31, 2021, approximately $26.6 million was held in FF&E reserve accounts for future capital expenditures.

Critical Accounting Estimates

The preparation of the financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amount of assets and liabilities at the date of our financial statements and the reported amounts of revenues and expenses during the reporting period. We consider our accounting policies over investment in hotel properties and revenue recognition to be our critical accounting estimates. See Note 2 to our consolidated financial statements for further descriptions of such accounting policies. We have set forth below the accounting policies that we believe require material subjective or complex judgments and have the most significant impact on our financial condition and results of operations. It is possible that the actual amounts may differ significantly from these estimates and assumptions. We evaluate our estimates, assumptions and judgments on an ongoing basis, based on information that is available to us, our business and industry experience, and various other matters that we believe are reasonable and appropriate for consideration under the circumstances.

Impairment

We assess the carrying value of our investments in hotel properties whenever events or changes in circumstances indicate that the carrying amounts may not be recoverable.  Hotel property recoverability is measured by comparing the carrying amount to the projected undiscounted future cash flows expected to be generated from the operation and the eventual disposition of the hotel properties over the estimated hold period, which take into account current market conditions and our intent with respect to holding or disposing of the hotel properties.  If our analysis indicates that the carrying value is not recoverable on a projected undiscounted cash flow basis, we will recognize an impairment loss for the amount by which the carrying value exceeds the fair value. The determination of fair value is subjective and is based in part on assumptions and estimates that could differ materially from actual results in future periods. The fair value is determined through various valuation techniques, including internally developed discounted cash flow models, comparable market transactions, third-party appraisals, the net sales proceeds from pending offers, or the net sales proceeds from transactions that closed subsequent to the end of the reporting period. The use of projected future cash flows is based on assumptions that are consistent with a market participant’s future expectations for the travel industry and the economy in general, including discount rates, sales proceeds in the reversion year, average daily rates, occupancy rates, operating expenses and capital expenditures, and our intent with respect to holding or disposing of the underlying hotel properties. Fair value may also be based on assumptions including, but not limited to, room revenue multiples and comparable sales adjusted for capital expenditures, if necessary.

Purchase Price Allocation

Our acquisitions generally consist of land, land improvements, buildings, building improvements, furniture, fixtures and equipment, inventory, and assumed debt. We allocate the purchase price among the assets acquired and the liabilities assumed based on their respective fair values at the date of acquisition. We estimate the fair values of the assets acquired and the liabilities assumed by using a combination of the market, cost and income approaches. We determine the fair value by using market data and independent appraisals available to us and making numerous estimates and assumptions, such as estimates of future income growth, replacement cost per unit, value per acre or buildable square foot, capitalization rates, discount rates, borrowing rates, market rental rates, capital expenditures and cash flow projections at the respective hotel properties. The determination of fair value is subjective and is based in part on assumptions and estimates that could differ materially from actual results in future periods.