cplg-20210630

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2021


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________ to _____________

Commission file number 001-38168

CorePoint Lodging Inc.

(Exact name of registrant as specified in its charter)

Maryland

82-1497742

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)

125 E. John Carpenter Freeway, Suite 1650

Irving,

Texas

75062

(Address of principal executive offices, including zip code)

(972) 893-3199

(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $0.01 par value per share	CPLG	New York Stock Exchange

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports); and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer	☐	Accelerated filer	☒
Non-accelerated filer	☐	Smaller reporting company	☒
		Emerging growth company	☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☒

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

The registrant had outstanding 58,464,569 shares of common stock as of July 30, 2021.

COREPOINT LODGING INC.

FORM 10-Q TABLE OF CONTENTS

FOR THE PERIOD ENDED JUNE 30, 2021


		Page No.
	SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS	1

PART I.	FINANCIAL INFORMATION	4

Item 1.	Financial Statements	4

	Condensed Consolidated Balance Sheets (Unaudited)	4
	Condensed Consolidated Statements of Operations (Unaudited)	5

	Condensed Consolidated Statements of Equity (Unaudited)	6
	Condensed Consolidated Statements of Cash Flows (Unaudited)	7
	Notes to Condensed Consolidated Financial Statements (Unaudited)	8

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	23
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	40
Item 4.	Controls and Procedures	41

PART II.	OTHER INFORMATION	42

Item 1.	Legal Proceedings	42
Item 1A.	Risk Factors	42
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	43
Item 3.	Defaults Upon Senior Securities	43
Item 4.	Mine Safety Disclosures	43
Item 5.	Other Information	43
Item 6.	Exhibits	44
Signatures		45

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q of CorePoint Lodging Inc. (together with its consolidated subsidiaries, “CorePoint,” “we,” “our,” “us,” or the “Company”) contains “forward-looking statements” within the meaning of the federal securities laws. All statements, other than statements of historical facts included in this Quarterly Report on Form 10-Q, including statements concerning our plans, objectives, goals, beliefs, business strategies, future events, business conditions, results of operations, financial position and our business outlook, business trends and other information referred to in this Quarterly Report on Form 10-Q are forward-looking statements. When used in this Quarterly Report on Form 10-Q, the words “estimates,” “expects,” “contemplates,” “anticipates,” “projects,” “plans,” “intends,” “believes,” “forecasts,” “may,” “will,” “should,” “could,” “seek” and variations of such words or similar expressions are intended to identify forward-looking statements. The forward-looking statements are not historical facts, and are based upon our current expectations, beliefs, estimates and projections, and various assumptions, many of which, by their nature, are inherently uncertain and beyond our control. Our expectations, beliefs, estimates and projections are expressed in good faith and we believe there is a reasonable basis for them. However, there can be no assurance that management’s expectations, beliefs, estimates and projections will result or be achieved, and actual results may vary materially from what is expressed in or indicated by the forward-looking statements.

There are a number of risks, uncertainties and other important factors, many of which are beyond our control, that could cause our actual results to differ materially from the forward-looking statements contained in this Quarterly Report on Form 10-Q. Such risks, uncertainties and other important factors that could cause actual results to differ include, among others, the risks, uncertainties and factors set forth under “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020, filed with the Securities and Exchange Commission (the “SEC”) on March 12, 2021, and this Quarterly Report on Form 10-Q, as such risk factors may be updated from time to time in our periodic filings with the SEC, and are accessible on the SEC’s website at www.sec.gov, and also include the following:

•we are exploring and evaluating potential strategic alternatives and there can be no assurance that we will be successful in identifying or completing any strategic alternative, that any such strategic alternative will result in additional value for our stockholders or that the process will not have an adverse impact on our business;

•the duration, severity and recovery from the novel coronavirus (“COVID-19”) pandemic is uncertain and could continue to have negative effects on our operations, liquidity, access to capital, and compliance with the agreements governing our indebtedness;

•we could experience increased operating expenses resulting from the COVID-19 pandemic and the recovery, including costs related to suspending and then resuming operations at hotels, increased cleaning due to regulatory requirements or traveler preferences, additional health and safety supplies, furloughing, re-hiring and retaining staff, increases in customer acquisition initiatives and marketing and increases related to general inflation in labor, goods and services if the demand for such items during the recovery exceeds supply;

•our business may be materially adversely affected if COVID-19 vaccines are ineffective or cause side effects, there are delays in the distribution of the vaccines or a general lack of acceptance by consumers of the vaccine or COVID-19 variants result in a new wave of infections such that the overall economy, and the hospitality business in particular, does not fully return to profitability levels experienced prior to the pandemic or requires an extended period to reach those levels;

•we may incur hotel operating expenses in anticipation, or in advance of, revenue increases resulting in increased operating losses until revenue increases are actually realized;

•we may be unable to access certain cash to meet our business or operating objectives during lender imposed cash traps, even if our results of operations continue to improve;

•we may be unable to execute our non-core hotel disposition strategy on satisfactory terms or in a timely manner;

•we are subject to the business and financial risks inherent to the lodging industry, including without limitation, operating requirements and adverse trends and preferences in consumer and business travel which are not consistent with our current business model and other hospitality services and require significant investment in order for us to remain competitive and grow our business, any of which could reduce our profits, the value of our properties and our ability to make distributions and limit opportunities for growth;

•macroeconomic and other factors beyond our control could adversely affect and reduce lodging demand;

•contraction in the United States and global economy or low levels of economic growth due to COVID-19 or other macroeconomic effects, including adverse effects related to reduced conventions, sporting events, concerts, school related and other event-driven travel could adversely affect our revenue and profitability business models as well as limit or slow our future growth;

•the geographic concentration of our hotels exposes our business to the effects of regional events and occurrences, such as the February 2021 winter storm in Texas, economies, regulations and labor and operating costs;

•our hotels operate in a highly competitive industry;

•our hotels are concentrated in the La Quinta brand and any deterioration in the quality or reputation of the La Quinta brand or our relationship with the La Quinta brand could have an adverse effect on our financial condition or results of operations;

•we are dependent on the performance of LQ Management L.L.C. (“LQM”) and other future third-party hotel managers and could be materially and adversely affected if LQM or such other third-party hotel managers do not properly manage our hotels or otherwise act in our best interests;

•if we are unable to maintain good relationships with LQM, La Quinta Franchising LLC (“LQ Franchising”) and other third-party hotel managers and franchisors, such hotel managers or franchisors may terminate our management or franchise agreements;

•provisions in our hotel franchise agreements may limit or restrict the sale of our hotels or impose brand standards that could adversely impact our ability to dispose of our hotels and adversely affect our results of operations and profitability;

•our efforts to renovate, develop or redevelop our hotels, including restorations related to property damages, could be delayed or become more expensive which could reduce profits or impair our ability to compete effectively;

•the lodging industry is subject to seasonal and cyclical volatility which may contribute to fluctuations in our financial condition and results of operations;

•severe weather, natural disasters or other events resulting in property damage, increased operating costs or disruption of hotel operations could adversely affect our results of operations and profitability;

•we are exposed to the inherent risks resulting from our investments in real estate, including the relative illiquidity of such investments, which could increase our costs, reduce our profits and limit our ability to respond to market conditions;

•cyber intrusions or data breaches or disruptions of our hotel franchisors’, managers’ or our own information technology systems could materially adversely affect our business;

•the growth of internet reservation channels could adversely affect our business and profitability;

•the growth of single family housing as a competitive alternative to traditional hospitality offerings could adversely affect our business and profitability;

•disruptions to the functioning or transition of the reservation systems, accounting systems or other technology programs, including the upgrades and resulting transitions of those systems or the deferral of system maintenance, for our hotels have in the past had and could in the future have an adverse effect on our business;

•disruptions to our ability to access capital at times and on terms reasonably acceptable to us may adversely affect our business and results of operations;

•a negative outcome in the results of the current or future audits by the Internal Revenue Service (“IRS”) could require us to pay additional taxes which could have a material adverse effect on our liquidity, or if the eventual settlement is protracted, the resulting uncertainty could increase our cost of or restrict our access to capital or prevent us from achieving our business objectives;

•stockholder activity may limit our ability to fully utilize our tax net operating loss carryforwards;

•our substantial indebtedness, upcoming maturities and compliance with terms of the agreements governing our existing indebtedness such as debt service payments, liquidity requirements and other financial requirements, as well as related covenant restrictions limiting new indebtedness, certain investments and restricted payments such as paying dividends on or repurchasing common stock, could adversely affect our financial condition, our ability to raise additional capital to fund our operations, our ability to operate our business, our ability to react to changes in the economy, our industry, our ability to pay dividends and our ability to pay our debts and could expose us to interest rate risk to the extent of our variable rate debt and divert our cash flow from operations to make debt payments;

•if we do not maintain our qualifications as a real estate investment trust for U.S. federal income tax purposes (a “REIT”), we will be taxed as a C corporation and could face a substantial tax liability; and

•affiliates of The Blackstone Group Inc. (“Blackstone”) own approximately 30% of our outstanding common stock and Blackstone’s interests may conflict with ours or yours in the future.

We caution you that the risks, uncertainties and other factors referenced above may not contain all of the risks, uncertainties and other factors that are important to you. In addition, we cannot assure you that we will realize the results, benefits or outcomes that we expect or anticipate or, even if substantially realized, that they will result in the consequences or affect us or our business in the way expected. There can be no assurance that (i) we have correctly measured or identified all of the factors affecting our business or the extent of these factors’ likely impact, (ii) the available information with respect to these factors on which such analysis is based is complete or accurate, (iii) such analysis is correct or (iv) our strategy, which is based in part on this analysis, will be successful. All forward-looking statements in this Quarterly Report on Form 10-Q apply only as of the date made and are expressly qualified in their entirety by the cautionary statements included in this Quarterly Report on Form 10-Q. Except as required by applicable law, we undertake no obligation to publicly update any forward-looking statement, whether as a result of new information, future developments or otherwise.

PART I ‑ FINANCIAL INFORMATION

Item 1. Financial Statements

CorePoint Lodging Inc.

Condensed Consolidated Balance Sheets (Unaudited)

($ in millions, except per share amounts)


	June 30, 2021		December 31, 2020
Assets:
Real estate:
Land	$	468	$	511
Buildings and improvements	1,689		1,813
Furniture, fixtures, and other equipment	256		293
Gross operating real estate	2,413		2,617
Less accumulated depreciation	(1,062)		(1,083)
Net operating real estate	1,351		1,534
Construction in progress	2		5
Total real estate, net	1,353		1,539

Right of use assets	15		16
Cash and cash equivalents	159		143
Accounts receivable	9		13
Other assets	69		55
Total Assets	$	1,605	$	1,766

Liabilities and Equity:
Liabilities:
Debt, net	$	638	$	810
Mandatorily redeemable preferred stock	15		15
Accounts payable and accrued expenses	54		48

Other liabilities	39		36

Total Liabilities	746		909
Commitments and contingencies
Equity:
Common stock, $0.01 par value per share; 1.0 billion shares authorized; 58.5 million and 58.0 million shares issued and outstanding as of June 30, 2021 and December 31, 2020, respectively	1		1
Additional paid-in-capital	968		963
Accumulated deficit	(112)		(109)
Noncontrolling interest	2		2
Total Equity	859		857
Total Liabilities and Equity	$	1,605	$	1,766

See Notes to Condensed Consolidated Financial Statements.

CorePoint Lodging Inc.

Condensed Consolidated Statements of Operations (Unaudited)

(in millions, except per share amounts)


	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
Revenues:
Rooms	$	135	$	70	$	230	$	213
Other	3		2		5		5
Total Revenues	138		72		235		218
Operating Expenses:
Rooms	56		40		103		119
Other departmental and support	20		15		39		39
Property tax, insurance and other	13		15		27		31
Management and royalty fees	14		7		23		21
Corporate general and administrative	7		6		14		14
Depreciation and amortization	37		42		75		82
Gain on sales of real estate	(42)		(9)		(52)		(32)
Gain on casualty	(2)		(1)		(3)		(3)
Impairment loss	—		52		—		54
Total Operating Expenses	103		167		226		325
Operating income (loss)	35		(95)		9		(107)
Other Income (Expense):
Interest expense	(7)		(12)		(14)		(26)
Other income (expense), net	—		(1)		2		2

Total Other Expenses	(7)		(13)		(12)		(24)
Income (loss) before income taxes	28		(108)		(3)		(131)
Income tax benefit	—		1		—		3


Net income (loss)	$	28	$	(107)	$	(3)	$	(128)

Weighted average common shares outstanding:
Weighted average common shares outstanding - basic	57.0		56.6		57.0		56.6
Weighted average common shares outstanding - diluted	58.5		56.6		57.0		56.6

Earnings (loss) per share:


Basic earnings (loss) per share	$	0.49	$	(1.89)	$	(0.05)	$	(2.26)
Diluted earnings (loss) per share	$	0.48	$	(1.89)	$	(0.05)	$	(2.26)

See Notes to Condensed Consolidated Financial Statements.

CorePoint Lodging Inc.

Condensed Consolidated Statements of Equity (Unaudited)

(in millions, except per share amounts)


	Common Stock			Additional Paid-in- Capital		Retained Earnings (Accumulated Deficit)		Noncontrolling Interest		Total Equity
	Shares	Par Value
Balance as of January 1, 2020	57.2	$	1	$	954	$	80	$	2	$	1,037

Net loss	—	—		—		(21)		—		(21)
Dividends on common stock ($0.20 per share)	—	—		—		(11)		—		(11)
Equity-based compensation	0.9	—		2		—		—		2





Balance as of March 31, 2020	58.1	$	1	$	956	$	48	$	2	$	1,007

Net loss	—	—		—		(107)		—		(107)

Equity-based compensation	0.1	—		3		—		—		3





Balance as of June 30, 2020	58.2	$	1	$	959	$	(59)	$	2	$	903











Balance as of January 1, 2021	58.0	$	1	$	963	$	(109)	$	2	$	857

Net loss	—	—		—		(31)		—		(31)

Equity-based compensation	0.6	—		4		—		—		4





Balance as of March 31, 2021	58.6	$	1	$	967	$	(140)	$	2	$	830

Net income	—	—		—		28		—		28

Equity-based compensation	—	—		2		—		—		2

Purchase of common stock	(0.1)	—		(1)		—		—		(1)



Balance as of June 30, 2021	58.5	$	1	$	968	$	(112)	$	2	$	859

See Notes to Condensed Consolidated Financial Statements.

CorePoint Lodging Inc.

Condensed Consolidated Statements of Cash Flows (Unaudited)

(in millions)


	Six Months Ended June 30,
	2021		2020
Cash flows from operating activities:
Net loss	$	(3)	$	(128)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization	75		82

Amortization of deferred costs and other assets	—		9
Gain on sales of real estate	(52)		(32)
Gain on casualty	(3)		(3)

Equity-based compensation expense	5		5
Impairment loss	—		54


Changes in assets and liabilities:
Accounts receivable	2		2
Other assets	6		—
Accounts payable and accrued expenses	6		(9)

Net cash provided by (used in) operating activities	36		(20)
Cash flows from investing activities:
Capital expenditures, primarily investments in existing real estate	(8)		(14)
Lender and other escrows	(10)		(10)
Insurance proceeds related to real estate casualties	5		9
Proceeds from sales of real estate	170		117
Net cash provided by investing activities	157		102
Cash flows from financing activities:
Proceeds from debt	—		110
Repayment of debt	(171)		(70)
Debt issuance costs	(1)		(1)

Payment of insurance financing	(4)		(6)
Dividends on common stock	—		(22)


Purchase of common stock	(1)		—

Net cash provided by (used in) financing activities	(177)		11
Increase in cash and cash equivalents	16		93
Cash and cash equivalents at the beginning of the period	143		101
Cash and cash equivalents at the end of the period	$	159	$	194

See Notes to Condensed Consolidated Financial Statements.

CorePoint Lodging Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited)

1. Organization and Basis of Presentation

Organization and Business

CorePoint Lodging Inc., a Maryland corporation, is a publicly traded (NYSE: CPLG) self-administered lodging real estate investment trust (“REIT”) strategically focused on the midscale and upper midscale lodging segments, with a portfolio of select-service hotels located in the United States (“U.S.”). As used herein, “CorePoint,” “we,” “us,” “our,” or the “Company” refer to CorePoint Lodging Inc. and its subsidiaries unless the context otherwise requires.

The following table sets forth the number of owned and joint venture hotels and approximate number of rooms as of June 30, 2021, December 31, 2020 and June 30, 2020, respectively:


	June 30, 2021		December 31, 2020		June 30, 2020
	Hotels	Rooms	Hotels	Rooms	Hotels	Rooms
Owned	174	23,600	208	27,600	239	31,200
Joint Venture	1	200	1	200	1	200
Totals	175	23,800	209	27,800	240	31,400

For U.S. federal income tax purposes, we made an election to be taxed as a REIT, effective May 31, 2018, with the filing of our U.S. federal income tax return for the year ended December 31, 2018. We believe that we are organized and operate in a REIT-qualified manner, and we intend to continue to operate as such. As a REIT, we are generally not subject to federal corporate income tax on the portion of our net income that is currently distributed to our stockholders. To maintain our REIT status, we are required to meet several requirements as provided by the Internal Revenue Code of 1986, as amended (the “Code”). These include that the Company cannot operate or manage our hotels. Therefore, we lease the hotel properties to CorePoint TRS L.L.C., our wholly-owned taxable REIT subsidiary (“CorePoint TRS”), which engages third-party eligible independent contractors to manage the hotels. CorePoint TRS is subject to federal, state and local income taxes. To maintain our REIT status, we must distribute annually at least 90% of our “REIT taxable income,” as defined by the Code, to our stockholders. We intend to continue to meet our distribution and other requirements as required by the Code.

Interim Unaudited Financial Information

The accompanying condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and should be read in conjunction with the consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2020. Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been omitted from this Quarterly Report on Form 10-Q pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). The results for the interim periods shown in this report are not necessarily indicative of future financial results. The accompanying condensed consolidated financial statements have not been audited by our independent registered public accounting firm. In the opinion of management, the accompanying unaudited condensed consolidated financial statements include all adjustments, including normal recurring items, necessary to present fairly our condensed consolidated financial position as of June 30, 2021 and December 31, 2020, and our condensed consolidated results of operations and cash flows for the periods ended June 30, 2021 and 2020.

The accompanying condensed consolidated financial statements include our accounts, as well as our wholly-owned subsidiaries and any consolidated variable interest entities (“VIEs”). We recognize noncontrolling interests for the proportionate share of operations for ownership interests not held by our stockholders. All intercompany transactions have been eliminated.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. These estimates include such items related to the accounting for: income taxes; impairment of long-lived assets, including applicable cash flow projections and fair value evaluations; and depreciation and amortization. Actual results could differ from those estimates.

2. Significant Accounting Policies and Recently Issued Accounting Standards

Investment in Real Estate

Property and equipment and other investments in real estate are stated at cost less accumulated depreciation computed using a straight-line method over the following estimated useful life of each asset. Buildings and improvements have an initial estimated useful life of five to 40 years and furniture, fixtures and other equipment have an estimated useful life of two to ten years.

We capitalize expenditures that increase the overall value of an asset or extend an asset’s life, typically associated with hotel refurbishments, renovations, and major repairs. Such costs primarily include third-party contract labor, materials, professional design and other direct costs, and during the redevelopment and renovation period, interest, real estate taxes and insurance costs. The interest, real estate taxes and insurance capitalization period begins when the activities related to the development have begun and ceases when the project is substantially complete, and the assets are held available for use or occupancy. Once such a project is substantially complete and the associated assets are ready for intended use, interest, real estate taxes and insurance costs are no longer capitalized. Construction in progress primarily includes capitalized costs for ongoing projects that have not yet been put into service. Normal maintenance and repair costs are expensed as incurred.

Impairment of Real Estate Related Assets

For our investments in real estate, we monitor events and changes in circumstances indicating that the carrying amounts of the real estate assets may not be recoverable during the expected holding period. When such events or changes are present, we assess the property’s recoverability by comparing the carrying amount of the asset to our estimate of the aggregate undiscounted future operating cash flows expected to be generated over the holding period of the asset including its eventual disposition. If the carrying amount exceeds the aggregate undiscounted future operating cash flows, we recognize an impairment loss to the extent the carrying amount exceeds the estimated fair value of the property. Any such impairment is treated for accounting purposes similar to an asset acquisition at the estimated fair value, which includes establishing a new cost basis and the elimination of the asset’s accumulated depreciation and amortization.

In evaluating our investments for impairment, we undergo continuous evaluations of property level performance and real estate trends, and management makes several estimates and assumptions, including, but not limited to, the projected date of disposition, estimated sales price and future cash flows of each property during our estimated holding period. If our analysis or assumptions regarding the projected cash flows expected to result from the use and eventual disposition of our properties change, we incur additional costs and expenses during the holding period, or our expected hold periods change, we may incur future impairment losses.

Sales of Real Estate

We classify hotels as held for sale when the criteria are met, in accordance with GAAP. At that time, we present the assets and obligations associated with the real estate held for sale separately in our condensed consolidated balance sheet, and we cease recording depreciation and amortization expense related to that asset. Real estate held for sale is reported at the lower of its carrying amount or its estimated fair value less estimated costs to sell.

Upon the disposition of a property, we recognize a gain or loss at a point in time when we determine control of the underlying asset has been transferred to the buyer. Our performance obligation is generally satisfied at the closing of the transaction. Any continuing involvement is analyzed as a separate performance obligation in the contract, and a portion of the sales price is allocated to each performance obligation. There is significant judgment applied to estimate the amount of any variable consideration identified within the sales price and assess its probability of occurrence based on current market information, historical transactions, and forecasted information that is reasonably available.

For sales of real estate (or assets classified as held for sale), we evaluate whether the disposition is a strategic shift that will have a major effect on our operations and financial results. When a disposition represents a strategic shift that will have a major effect on our operations and financial results, it will be classified as discontinued operations in our condensed consolidated financial statements for all periods presented.

Cash and Cash Equivalents

We classify all cash on hand, demand deposits with financial institutions, and short-term highly liquid investments with original maturities of three months or less to be cash equivalents. Cash and cash equivalents are stated at cost, which approximates fair market value. Our Revolver Credit Agreement requires us to maintain a minimum liquidity of cash and cash equivalents, as defined, at all times. See Note 5 “Debt” for additional information.

We classify cash and cash equivalents as restricted cash when contractual agreements or arrangements impose restrictions on our ability to access and utilize the cash and cash equivalent amounts for our operations.

Accounts Receivable

Accounts receivable primarily consists of receivables due from insurance settlements, hotel guests, credit card companies, our hotel manager, and hotel buyers with deferred purchase price arrangements. Our receivables are carried at estimated collectable amounts. We periodically evaluate our receivables for collectability based on expected losses incurred over the life of the receivable, considering our historical experience, the length of time receivables are past due and the financial condition of the debtor. Accounts receivable are written off when collection is not probable. We record uncollectible operating lease receipts as a direct offset to room revenues. Our insurance settlement receivables are recorded based upon the terms of our insurance policies and our estimates of insurance losses.

Debt and Deferred Debt Issuance Costs

Deferred debt issuance costs include costs incurred in connection with issuance of debt, including costs associated with the entry into our loan agreements and revolving credit facility, and are presented as a direct reduction from the carrying amount of debt. These debt issuance costs are deferred and amortized to expense on a straight-line basis over the term of the debt, which approximates the effective interest amortization method. This amortization expense is included as a component of interest expense. When debt is paid prior to its scheduled maturity date and the underlying terms are materially modified, the remaining carrying value of deferred debt issuance costs, along with certain other payments to lenders, is included in loss on extinguishment of debt.

Lessee Accounting

We determine if an arrangement is a lease at inception. Our operating lease agreements are primarily for ground leases and our corporate office lease, where the asset is classified within “right of use assets” and the operating lease liability is classified within “other liabilities” in our condensed consolidated balance sheets.

Right of use assets represent our right to use an underlying asset for the lease term, and lease liabilities represent our obligation to make lease payments arising from the lease. Right of use assets and operating lease liabilities are recognized at the commencement date based on the present value of lease payments over the lease term. Our variable lease payments consist of payments based on a rate or index established subsequent to the lease commencement date and non-lease services related to the ground lease, primarily real estate taxes. Variable lease payments are excluded from the right of use assets and operating lease liabilities and are recognized in the period in which the obligation for those payments is incurred. As our leases do not provide an implicit rate, we use our incremental borrowing rate. Our incremental borrowing rate is based on information available at the commencement date using our actual borrowing rates commensurate with the lease terms and a fully levered borrowing. Extension options on our leases are included in our minimum lease terms when they are reasonably certain to be exercised. In our evaluation of the lease term, we consider other arrangements, primarily our debt and franchise agreements, which may have economic consequences related to failure to renew certain ground leases. For accounting purposes, such lease terms are not adjusted unless the contractual terms are modified. Rental expense for lease payments related to operating leases is recognized on a straight-line basis over the lease term. We have elected to treat rent concessions related to the COVID-19 pandemic as variable lease payments.

Fair Value Measurement

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. In evaluating the fair value of both financial and non-financial assets and liabilities, GAAP establishes a fair value hierarchy, which prioritizes the inputs used in measuring fair value into three broad levels, which are as follows:

Level 1—Quoted prices in active markets for identical assets or liabilities.

Level 2—Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Valuations in this category are inherently less reliable than actively quoted market prices due to the degree of subjectivity involved in determining appropriate methodologies and the applicable underlying observable market assumptions. We consider contractual pricing from a hotel under contract for sale as a Level 2 input.

Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets and liabilities. These inputs cannot be validated by readily determinable market data and generally involve considerable judgment by management.

We use the highest level of observable market data if such data is available without undue cost and effort.

Derivative Instruments

We use derivative instruments as part of our overall strategy to manage our exposure to market risks associated with fluctuations in interest rates. We regularly monitor the financial stability and credit standing of the counterparties to our derivative instruments. We do not enter into derivative financial instruments for trading or speculative purposes.

We record all derivatives at fair value. On the date the derivative contract is entered into, we designate the derivative as one of the following: a hedge of a forecasted transaction or the variability of cash flows to be paid (“Cash Flow Hedge”), a hedge of the fair value of a recognized asset or liability (“Fair Value Hedge”), or an undesignated hedge instrument. As of June 30, 2021 and December 31, 2020, all of our derivative instruments were interest rate caps, and none are designated as hedge instruments. Changes in fair value of undesignated hedge instruments are recorded in current period earnings.

Revenue Recognition

Our revenues primarily consist of operating lease revenues from room rentals, which are accounted for under GAAP in accordance with lease accounting standards. Room revenue is recognized as earned on a daily basis, net of customer incentive discounts, cash rebates, and refunds. Other lease revenues primarily include lease revenue from restaurants, billboards and cell towers, all of which are operating leases. Such leases are recognized on a straight-line basis over the term of the lease when collections are considered probable and as earned and collected when collections are not considered probable. Uncollectible lease amounts are recorded as a direct offset to revenues.

As a lessor, our operating leases do not contain purchase options or require significant assumptions or judgments. Some of our operating leases contain extension options. For those with extension options we assess the likelihood such options will be exercised in determining the lease term.

Customer revenues include other hotel guest revenues generated by the incidental support of hotel operations and are recognized under the revenue accounting standard as the service obligation is completed.

Purchase of Common Stock

Purchases of common stock are recorded on the trade date at cost, including commissions and other costs, through a removal of the stated par value with the excess recorded as additional paid-in-capital.

Equity-Based Compensation

We have a stock-based incentive award plan for our employees and directors, which primarily includes time-based and performance-based awards. We recognize the cost of services received in an equity-based payment transaction with an employee or director as services are received and record either a corresponding increase in equity or a liability, depending on whether the instruments granted satisfy the equity or liability classification criteria. Measurement for these equity awards is the estimated fair value at the grant date of the equity instruments.

The equity-based compensation expense is recognized for awards earned or expected to be earned. Accordingly, the compensation expense for all equity awards is recognized straight-line over the vesting period of the last separately identified vesting portion of the award. Forfeitures for time-based and market-based performance awards are recognized as they occur. Performance awards with targets other than market-based are assessed at each balance sheet date with respect to the expected achievement of the target. Equity-based compensation expense is classified in corporate general and administrative expenses. Dividend equivalent cash payments related to unvested employee and director awards are charged to corporate general and administrative expenses. Dividends awarded as additional stock grants are included in equity-based compensation expense.

Earnings Per Share

Basic earnings (loss) per share is computed by dividing net income (loss) by the weighted average number of shares of common stock outstanding. Diluted earnings (loss) per share is computed by dividing net income (loss) by the weighted average number of shares of our common stock outstanding plus other potentially dilutive securities, except when the effect would be anti-dilutive. Dilutive securities primarily include equity-based awards issued under long-term incentive plans. Dilutive securities are excluded from the calculation of earnings per share for periods of net loss because the effect would be anti-dilutive. The earnings per share amounts are calculated using unrounded amounts and shares which may result in differences in rounding of the presented per share amounts.

Income Taxes

We are organized in conformity with and operate in a manner that allows us to be taxed as a REIT for U.S. federal income tax purposes. To the extent we continue to qualify as a REIT, we generally will not be subject to U.S. federal income tax on taxable income generated by our REIT activities that we distribute to our stockholders. Accordingly, no provision for U.S. federal income tax expense has been included in our accompanying condensed consolidated financial statements for the three and six months ended June 30, 2021 or 2020 related to our REIT operations; however, CorePoint TRS, our wholly-owned taxable REIT subsidiary, is subject to U.S. federal, state and local income taxes and we may be subject to state and local taxes. Our provision for income taxes differs from the statutory federal tax rate of 21%, due to the impact of our REIT election, recognition of valuation allowances, accelerated deductions for certain real estate expenditures and state income taxes. We have not recognized any income tax benefit for the three and six months ended June 30, 2021, as we believe the realization of a benefit is not more likely than not.

We use the asset and liability method of accounting for income taxes. Under this method, current income tax expense represents the amounts expected to be reported on our income tax returns, and deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. The deferred tax assets and liabilities are measured using the enacted tax rates that are expected to be applied to taxable income in the years in which those temporary differences are expected to reverse.

In determining our tax expense or benefit for financial statement reporting purposes, we must evaluate our compliance with the Code, including the transfer pricing determinations used in establishing rental payments between the REIT and CorePoint TRS. Accounting for income taxes requires, among others, interpretation of the Code, estimated tax effects of transactions, and evaluation of probabilities of sustaining tax positions, including realization of tax benefits. We recognize a valuation allowance for income tax benefits if it is more likely than not that all or a portion of the benefit will not be realized. We recognize tax positions only after determining that the relevant tax authority would more likely than not sustain the position following the audit. The final resolution of those assessments may subject us to additional taxes. In addition, we may incur expenses defending our positions during Internal Revenue Service (“IRS”) tax examinations, even if we are able to eventually sustain our position with the tax authorities.

Concentrations of Credit Risk and Business Risk

We have cash and cash equivalents deposited in certain financial institutions in excess of federally insured levels. As of June 30, 2021, approximately 50% of our total cash and cash equivalents were held in accounts fully covered by FDIC insurance or money market accounts collateralized by U.S. treasuries. For our remaining cash and cash equivalent accounts, we utilize financial institutions that we consider to be of high credit quality and consider the risk of default to be minimal. We have diversified our accounts with several banking institutions in an attempt to minimize exposure to any one of these institutions. We also monitor the creditworthiness of our customers and financial institutions before extending credit or making investments.

Substantially all of our revenues are derived from our lodging operations at our hotels. Lodging operations are particularly sensitive to adverse economic, social and competitive conditions and trends, including the COVID-19 pandemic, which could adversely affect our business, financial condition and results of operations.

We have a concentration of hotels operating in Florida, Texas and California. The number of hotels and percentages of total hotels as of June 30, 2021 and 2020, and the percentages of our total revenues, from these states for the six months ended June 30, 2021 and 2020, is as follows:


	June 30, 2021					June 30, 2020
	Number of Hotels	Percentage of Total Hotels		Percentage of Total Revenue		Number of Hotels	Percentage of Total Hotels		Percentage of Total Revenue

Florida	37	21	%	22	%	45	19	%	22	%
Texas	31	18	%	16	%	45	19	%	18	%
California	18	10	%	12	%	21	9	%	12	%
Total	86	49	%	50	%	111	47	%	52	%

Segment Reporting

Our hotel investments have similar economic characteristics and our service offerings and delivery of services are provided in a similar manner, using the same types of facilities and similar technologies. Our chief operating decision maker reviews our financial information on an aggregated basis. As a result, we have concluded that we have one operating and reportable business segment.

Principal Components of Expenses

As more fully explained in Note 8 “Commitments and Contingencies” our third-party management company is responsible for the day to day operations of our hotels. For many expenses, the manager directly contracts for the services in the capacity as a principal, and we reimburse our manager in accordance with the agreements. We present the following expense components and only classify the fee portion of expense as management and royalty fees. We classify all amounts owed to our manager and franchisor in accounts payable and accrued expenses.

Rooms — These expenses include hotel operating expenses of housekeeping, reservation systems (per our franchise agreements), room and breakfast supplies and front desk costs.

Other departmental and support — These expenses include hotel operating expenses that constitute non-room operating expenses, including parking, telecommunications, on-site administrative labor, sales and marketing, loyalty program, recurring repairs and maintenance and utility expenses.

Property tax, insurance and other — These expenses consist primarily of real and personal property taxes, other local taxes, ground rent, equipment rent and insurance for our hotel properties.

Newly Issued Accounting Standards

In March 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2020-04, Reference Rate Reform (Topic 848): Facilitation of Effects of Reference Rate Reform on Financial Reporting. The guidance provides optional expedients and exceptions related to the transition away from London Interbank Offered Rate (“LIBOR”) and other interbank offering rates to alternative reference rates. The expedients are applicable to contract modifications made and hedging relationships entered into on or before December 31, 2022. Our current debt agreements use LIBOR rates, but provide for alternative rates when LIBOR is no longer available. We do not expect the adoption of this guidance to have a material impact on our consolidated financial position and results of operations.

Recently Adopted Accounting Standards

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. The guidance enhances and simplifies various aspects of the current income tax guidance and reduces complexity by removing certain exceptions to the general framework. We adopted this guidance on January 1, 2021, and it did not have a material impact on our consolidated financial position and results of operations.

3. Investments in Real Estate

During the six months ended June 30, 2021, 34 hotels were sold for gross proceeds of $185 million resulting in a gain on sale of $52 million. During the six months ended June 30, 2020, 30 hotels were sold for gross proceeds of $129 million resulting in a gain on sale of $32 million.

We had no impairment loss for the three and six months ended June 30, 2021, however, we will continue to monitor events and changes in circumstances related to our real estate assets, including updated COVID-19 pandemic data and effects, analysis related to our operations, fair value, our holding periods and cash flow assumptions, that may indicate that the carrying amounts of our real estate assets may not be recoverable. Such changes in circumstances and analysis may result in impairment losses in future periods. For the three and six months ended June 30, 2020, we had $52 million and $54 million, respectively, of impairment loss primarily due to a lower valuation of certain of our properties related to the ongoing and updated impact of the COVID-19 pandemic on the lodging industry.

As of June 30, 2021, we have not recognized any potential insurance claims related to COVID-19 pandemic losses. Given the contractual and judicial uncertainty of those claims, we cannot provide any assessment of whether such claims are realizable.

4. Other Assets

The following table presents other assets as of June 30, 2021 and December 31, 2020 (in millions):


	June 30, 2021		December 31, 2020
Lender and other escrows	$	45	$	35
Prepaid expenses	14		8
Intangible assets, net	4		4
Federal and state tax receivables	4		5

Other assets	2		3
Total other assets	$	69	$	55

5. Debt

The following table presents the carrying amount of our debt as of June 30, 2021 and December 31, 2020 (in millions):


	June 30, 2021		December 31, 2020
CMBS Facility	$	564	$	725
Revolving Facility	75		85
	639		810
Less: unamortized debt issuance costs	(1)		—
Total debt, net	$	638	$	810

CMBS Facility

Certain indirect wholly-owned subsidiaries of CorePoint Lodging Inc. (collectively, the “CorePoint CMBS Borrower”), CorePoint TRS and CorePoint Operating Partnership L.P. (“CorePoint OP”) are parties to a loan agreement (the “CMBS Loan Agreement”) providing for a mortgage loan secured primarily by mortgages for substantially all of our wholly-owned and ground leased hotels, an excess cash flow pledge for five owned and ground leased hotels and other collateral customary for mortgage loans of this type (the “CMBS Facility”).

The CMBS Facility currently matures on June 9, 2022, with three remaining one-year extension options, exercisable at the CorePoint CMBS Borrower’s election, provided there is no event of default existing as of the commencement of the applicable extension period and the CorePoint CMBS Borrower either extends the current interest rate cap or purchases a new interest rate cap covering the extension period at a strike price as set forth in the CMBS Loan Agreement. No principal payments are due prior to the scheduled or extended maturity date. The CMBS Facility is pre-payable in whole or in part subject to payment of all accrued interest through the end of the applicable accrual period.

The CMBS Facility bears interest at a rate equal to the sum of an applicable margin plus one-month LIBOR. As of June 30, 2021 and December 31, 2020, one-month LIBOR was 0.10% and 0.14%, respectively. Interest is generally payable monthly. As of June 30, 2021, the weighted average applicable margin on the CMBS Facility was 2.96% and the weighted average interest rate was 3.06%. As of December 31, 2020, the weighted average applicable margin on the CMBS Facility was 2.82% and the weighted average interest rate was 2.96%. The applicable margin will increase by 15 basis points after June 2023 and an additional 10 basis points after June 2024. Additional prepayments, if any, will be applied to the lower interest bearing principal tranches, reducing total future interest expense but having the effect of increasing the applicable margin thereafter on the remaining outstanding principal balance. The applicable margins for the tranches range from 2.29% to 3.95%.

We may obtain the release of individual properties from the CMBS Facility provided that certain conditions of the CMBS Loan Agreement are satisfied. The most restrictive of these conditions provide that after giving effect to such release the debt yield for the CMBS Facility (generally defined as hotel property operating net income before interest, depreciation and a fixed amount of corporate general and administrative expenses divided by the outstanding principal balance of the CMBS Facility, “Debt Yield”) is not less than the greater of (x) 16.44% and (y) the lesser of (i) the Debt Yield in effect immediately prior to such release and (ii) 16.94% (such result the “Release Debt Yield”). However, if such release is in connection with the sale of a property to an unrelated third party, such sold property may be released if the CorePoint CMBS Borrower prepays an amount equal to the greater of (x) the allocated portion of the outstanding CMBS Facility plus a premium ranging from 5% to 10%, as defined in the CMBS Loan Agreement, and (y) the lesser of (i) the full net proceeds from the sale of the property received by us and (ii) the amount necessary to satisfy the Release Debt Yield. Accordingly, such CMBS Loan Agreement release provisions could affect our ability to sell properties or restrict the use of sale proceeds only to (or substantially to) the required partial prepayment of the CMBS Facility. Since May 2020, substantially all net sale proceeds have been paid under the CMBS Loan Agreement as required to release the collateralized property under the CMBS

Facility. During the six months ended June 30, 2021, primarily in connection with the sale of 34 secured hotel properties, $161 million of net proceeds were used to pay down the principal of the CMBS Facility.

The CMBS Facility lender has the right to control the disbursement of hotel operating cash receipts and to establish escrow reserves for the benefit of the lender (referred to as a “CMBS Facility cash trap”). Cash and cash equivalents and lender escrows subject to the CMBS Facility cash trap are generally available for hotel operations, interest payments and certain corporate administrative expenses. Certain disbursements, primarily other corporate and general and administrative expenditures, dividends to common stockholders and repurchases of our common stock, would require consent of the CMBS Facility lender. As of June 30, 2021, the cash and cash equivalents and lender escrows subject to the CMBS Facility cash trap were $62 million and $10 million, respectively. We will be subject to the CMBS Facility cash trap until we meet the applicable debt yield requirement for two consecutive quarters or prepay the loan in an amount such that we meet the required debt yield. There can be no assurance that our future operating performance will be adequate for us to meet the requirements to be released from the CMBS Facility cash trap provisions.

The CMBS Facility includes customary non-recourse carve-out guarantees, affirmative and negative covenants and events of default, including, among other things, guarantees for certain losses arising out of customary “bad-boy” acts of CorePoint OP and its affiliates and environmental matters (which will be recourse for environmental matters only to the CorePoint CMBS Borrower provided that the required environmental insurance is delivered to the lender), a full recourse guaranty with respect to certain bankruptcy events, restrictions on the ability of the CorePoint CMBS Borrower to incur additional debt and transfer, pledge or assign certain equity interests or its assets, and covenants requiring the CorePoint CMBS Borrower to exist as “special purpose entities,” maintain certain ongoing reserve funds and comply with other customary obligations for commercial mortgage-backed securities loan financings. As of June 30, 2021, we believe we were in compliance with these covenants.

The CorePoint CMBS Borrower has deposited in the loan servicer’s account $25 million in reserves for property improvement, environmental remediation and property insurance claims in progress and $4 million in reserves for unused property insurance deductibles, which funds may be periodically disbursed to the CorePoint CMBS Borrower throughout the term of the loan to cover such costs. These reserves are recorded in other assets.

Revolving Facility

CorePoint Lodging Inc., CorePoint Borrower L.L.C. (the “CorePoint Revolver Borrower”), CorePoint OP GP, L.L.C., and CorePoint OP are parties to a credit agreement, as amended (the “Revolver Credit Agreement”), providing for a revolving facility (the “Revolving Facility”). The CorePoint Revolver Borrower is our indirect wholly-owned subsidiary and the direct wholly-owned subsidiary of CorePoint OP. As of June 30, 2021, $75 million was outstanding under the Revolving Facility. In addition, as of June 30, 2021, there was $4 million in outstanding letters of credit issued under the Revolving Facility.

The Revolving Facility was amended in March 2021. In connection with the amendment, the Revolving Facility maturity was extended to May 2022 with no additional borrowings available. We made a scheduled monthly principal payment of $5 million in June 2021. We are required to make additional principal payments of $10 million during the third quarter of 2021 (the scheduled payments). We are required to make further principal payments (up to $10 million) in the fourth quarter of 2021 to the extent our liquidity (as defined in the Revolver Credit Agreement) exceeds $100 million. The amendment also reset the interest rate to either a base rate plus a margin of 5.0% per annum or an adjusted LIBOR rate plus a margin of 6.0% per annum, an increase of 100 basis points from the prior margins. With respect to base rate loans, interest will be payable at the end of each quarter. With respect to LIBOR loans, interest will be payable at the end of the selected interest period but no less frequently than quarterly. As of June 30, 2021 and December 31, 2020, the Revolving Facility interest rate was 6.13% and 5.19%, respectively.

Also in connection with the amendment, as of June 30, 2021 the Revolving Facility requires that we maintain a minimum liquidity of $80 million of cash and cash equivalents, as defined, at all times. The minimum liquidity amount is reduced on a dollar-for-dollar basis in respect of 100% of the scheduled principal payments detailed above to repay and reduce the commitments under the Revolving Facility, and 50% in respect of any additional repayment amounts utilized to repay and reduce commitments under the Revolving Facility.

The Revolving Facility lenders have rights to control the disbursement of our hotel operating cash receipts (referred to as the “Revolving Facility cash trap”). As of June 30, 2021, the cash and cash equivalents subject to the Revolving Facility cash trap, which is in addition to the CMBS cash trap, were $7 million. Cash and cash equivalents subject to the Revolving Facility cash trap are generally available for hotel operations, interest payments and certain corporate administrative expenses. Certain disbursements, primarily other corporate general and administrative expenditures, dividends to common stockholders and repurchases of our common stock, would require consent of our lenders. The terms of the CMBS Facility cash trap are senior to the Revolving Facility cash trap but are generally similar in scope and are not cumulative in the effect on our cash and cash equivalents. We will be subject to the Revolving Facility cash trap until we meet the applicable debt yield thresholds, which we may be unable to meet during the remainder of the term of the Revolving Facility.

The Revolving Facility also includes other covenants, representations and warranties customary for commercial revolver facilities. The obligations under the Revolving Facility are unconditionally and irrevocably guaranteed by CorePoint OP, CorePoint Lodging Inc. and CorePoint OP GP L.L.C. and, subject to certain exceptions, each of the CorePoint Revolver Borrower and its existing and future domestic subsidiaries that own equity interests in any CorePoint CMBS Borrower. Furthermore, CorePoint Lodging Inc., CorePoint OP GP L.L.C. and CorePoint OP each pledge certain equity interests in subsidiaries, representing substantially all of the Company’s hotel operations, as security for the obligations. As of June 30, 2021, we believe we were in compliance with these terms and covenants of the Revolver Credit Agreement.

6. Mandatorily Redeemable Preferred Stock

We have 15,000 shares of Cumulative Redeemable Series A Preferred Stock, par value $0.01 per share (the “Series A Preferred Stock”), held by an unrelated third party. The Series A Preferred Stock has an aggregate liquidation preference of $15 million, plus any accrued and unpaid dividends thereon. The Series A Preferred Stock is senior to our common stock with respect to dividends and with respect to dissolution, liquidation or winding up of the Company. Except as described below, cash dividends on the Series A Preferred Stock are paid quarterly at a rate of 13% per annum. If our leverage ratio, as defined, exceeds 7.5 to 1.0 as of the last day of any fiscal quarter, or if an event of default occurs (or has occurred and has not been cured) with respect to the Series A Preferred Stock, we are required to pay a cash dividend on the Series A Preferred Stock equal to 15% per annum. Our dividend rate on the Series A Preferred Stock will increase to 16.5% per annum if, at any time, we are both in breach of the leverage ratio covenant and an event of default occurs (or has occurred and has not been cured) with respect to the Series A Preferred Stock. Beginning July 1, 2020, we exceeded the 7.5 to 1.0 leverage ratio noted above, and accordingly, the Series A Preferred Stock dividend rate is currently at 15% per annum. The Series A Preferred Stock dividend rate will not return to 13% per annum until our leverage ratio is equal to or less than the applicable leverage ratio and we are not in an uncured event of default as of the last day of a fiscal quarter. There can be no assurance that our future operating performance will be adequate for us to meet the requirements to achieve the lower dividend rate.

The Series A Preferred Stock is mandatorily redeemable by us in 2028, upon the tenth anniversary of the date of issuance. Beginning in 2025, upon the seventh anniversary of the issuance of the Series A Preferred Stock, we may redeem the outstanding Series A Preferred Stock for an amount equal to its aggregate liquidation preference, plus any accrued but unpaid dividends. The holders of the Series A Preferred Stock may also require us to redeem the Series A Preferred Stock upon a change of control of the Company for an amount equal to its aggregate liquidation preference plus any accrued and unpaid dividends thereon (and a premium if the change of control occurs prior to the seventh anniversary of the issuance of the Series A Preferred Stock). Due to the fact that the Series A Preferred Stock is mandatorily redeemable, the preferred shares are classified as a liability on the accompanying condensed consolidated balance sheet, and dividends on these preferred shares are classified as interest expense in the accompanying condensed consolidated statements of operations.

Holders of Series A Preferred Stock generally have no voting rights. However, without the prior consent of the holders of a majority of the outstanding shares of Series A Preferred Stock, we are prohibited from (i) authorizing or issuing any additional shares of Series A Preferred Stock, or (ii) amending our charter or entering into, amending or altering any other agreement in any manner that would adversely affect the Series A Preferred Stock. Holders of shares of the Series A Preferred Stock have certain preemptive rights over issuances by us of any class or series of our stock ranking on parity with the Series A Preferred Stock. If we are either (a) in arrears on the payment of dividends that were due on the Series A Preferred Stock on six or more quarterly dividend payment dates, whether or not such dates are consecutive, or (b) in default of our obligations to redeem the Series A Preferred Stock on the tenth anniversary of its issuance or following a change of control, the preferred stockholders may designate a representative to attend meetings of our board of directors as a non-voting observer until all unpaid Series A Preferred Stock dividends have either been paid or declared with an amount sufficient for payment set aside for payment, or the shares required to be redeemed have been redeemed, as applicable. As of June 30, 2021, neither event described above has occurred.

7. Accounts Payable and Accrued Expenses and Other Liabilities

Accounts payable, accrued expenses and other liabilities include the following as of June 30, 2021 and December 31, 2020 (in millions):


	June 30, 2021		December 31, 2020
Real estate taxes	$	13	$	17
Due to hotel manager	10		7
Sales and occupancy taxes	6		3

Other accounts payable and accrued expenses	25		21
Total accounts payable and accrued expenses	$	54	$	48

Operating lease liabilities	$	18	$	20
Insurance financing	7		2
Below market leases, net	3		3
Other liabilities	11		11
Total other liabilities	$	39	$	36

8. Commitments and Contingencies

Hotel Management and Franchise Agreements

Management Fees

On May 30, 2018, we entered into separate hotel management agreements for each of our hotels with LQ Management L.L.C. (“LQM”), whereby we pay a fee equal to 5% of total gross revenues, as defined. The term of the management agreements is through May 30, 2038, subject to two renewals of five years each, at LQM’s option. There are penalties for early termination in connection with property sales, currently calculated at approximately 3 times the trailing twelve month management fee of the sold property. Management termination fees are deducted in the determination of our gain on sale of real estate assets. For the three months ended June 30, 2021 and 2020, management termination fees were $5 million and $1 million, respectively. For both of the six month periods ended June 30, 2021 and 2020, our management termination fees were $7 million.

LQM generally has sole responsibility for all activities necessary for the operation of our hotels, including establishing room rates, processing reservations and promoting and publicizing the hotels. LQM also provides all employees for the hotels, prepares reports, budgets and projections, and provides other administrative and accounting support services to the hotels. We have consultative and limited approval rights with respect to certain actions of LQM, including entering into long-term or high value contracts, engaging in certain actions relating to legal proceedings, approving the operating budget, making certain capital expenditures and the hiring of certain management personnel. We are also responsible for reimbursing LQM for certain costs incurred by LQM during the fulfillment of their duties, such as payroll costs for certain of their employees, general and workers’ compensation liability insurance and other costs that the manager incurs to operate the hotels.

For the three months ended June 30, 2021 and 2020, our management fee expense was $7 million and $3 million, respectively. For the six months ended June 30, 2021 and 2020, our management fee expense was $11 million and $10 million, respectively.

Royalty Fees

On May 30, 2018, we entered into separate hotel franchise agreements for each of our hotels with La Quinta Franchising LLC (“LQ Franchising”). Pursuant to the franchise agreements, we were granted a limited, non-exclusive license to use our franchisor’s brand names, marks and system in the operation of our hotels. The franchisor also may provide us with a variety of services and benefits, including centralized reservation systems, participation in customer loyalty programs, national advertising, marketing programs and publicity designed to increase brand awareness, as well as training of personnel. In return, we are required to operate franchised hotels consistent with the applicable brand standards.

Our franchise agreements require that we pay a 5% royalty fee on gross room revenue. There are penalties for early termination. For the three months ended June 30, 2021 and 2020, our royalty fee expense was $7 million and $4 million, respectively. For the six months ended June 30, 2021 and 2020, our royalty fee expense was $12 million and $11 million, respectively.

In addition to the royalty fee, the franchise agreements include a reservation fee of 2% of gross room revenues, a marketing fee of 2.5% of gross room revenues, a loyalty program fee of 5% of eligible room night revenues, and other miscellaneous ancillary fees. Reservation fees are included within rooms expense and the marketing fee and loyalty program fees are included within other departmental and support in the accompanying condensed consolidated statements of operations.

The term of the franchise agreements is through May 30, 2038, subject to one renewal of ten years, at our option, subject to certain conditions. There are penalties for early termination. Liquidated damages under the franchise agreement is currently calculated as approximately 7.5 times the trailing twelve month royalty fee, marketing fee and reservation fee of the identified property.

Our requirement to meet certain brand standards imposed by our franchisor includes requirements that we incur certain capital expenditures, generally ranging from $1,500 to $7,500 per hotel room (with various specific amounts within this range being applicable to different groups of our hotels) during a prescribed period generally ranging from two to eleven years. These amounts are over and above the capital expenditures we are required to make each year for recurring furniture, fixtures and equipment maintenance. However, these amounts that we are required to spend are subject to reduction, in varying degrees, by the amount of capital expenditures made for hotels in the applicable group over and above the capital expenditures required for the recurring maintenance in one or more years before receipt of the franchisor’s notice. The initial period during which the franchisor can notify us that we must make these capital expenditures is through 2028. At the franchisor’s discretion, subject to the franchise agreement provisions governing when such requirements may be imposed, the franchisor may provide a notice obligating us to meet those capital expenditure requirements generally within two to nine years of the notice. We expect to meet these requirements primarily through our recurring capital expenditure program. As of June 30, 2021, $15 million was held in lender escrows that can be used to fund these requirements.

Litigation

We are a party to a number of pending claims and lawsuits arising in the normal course of business. We do not consider our ultimate liability with respect to any such claims or lawsuits, or the aggregate of such claims and lawsuits, to be material in relation to our condensed consolidated financial condition, results of operations or our cash flows taken as a whole.

We maintain property and other liability insurance; however, certain losses or defense costs are within the retention or insurance deductible amount and are not covered by or are only partially covered by insurance policies. We regularly evaluate our ultimate liability costs with respect to such claims and lawsuits. We accrue costs from litigation as they become probable and estimable.

Tax Contingencies

We are subject to regular audits by federal and state tax authorities, which may result in additional tax liabilities. In 2018, La Quinta Holdings Inc. completed the distribution to its stockholders of all the then-outstanding shares of common stock of CorePoint Lodging Inc. following which we became an independent, self-administered, publicly traded company (the “Spin-Off”). Subsequently, La Quinta Holdings Inc. merged with Wyndham Hotels & Resorts, Inc. (“Wyndham”). Entities in existence prior to the Spin-Off are currently under audit by the Internal Revenue Service (the “IRS”) for tax years ended December 31, 2010 to 2013.

In 2014, the IRS commenced a tax audit, primarily related to transfer pricing for internal rents charged by our prior REIT. Subsequently, we have supplied information to the IRS supporting our position. In November 2019, the IRS issued notices of proposed adjustments (“NOPA”, also known as a 30-Day Letter) proposing a redetermined rent adjustment resulting in approximately $138 million of additional federal taxes, attributable to tax years 2010 and 2011, exclusive of penalties and interest. Additionally, the November 2019 NOPA proposed an adjustment resulting in the loss of tax operating loss carryforwards generated in tax years 2006 through 2009. We have agreed to indemnify Wyndham for any obligations and expenses arising from these IRS audits, including the legal and accounting defense expenses. The adjustment to the tax operating loss carryforwards, measured at the tax rates enacted during the year of utilization and exclusive of penalties and interest, is $31 million.

We and the IRS have respectively corresponded in disagreement with the other’s positions. The audit was transferred to the IRS Appeals office in 2020 and in April 2021, we and the IRS exam team met with the IRS Appeals office and each side presented their case. No resolution was achieved during the review by IRS Appeals, and in July 2021, we requested the matter to be heard in post-IRS Appeals mediation. The IRS, however, declined the request for mediation. As a result, we expect to receive a 90-day letter of adjustment from the IRS, which would require our agreement to take the matter to tax court or payment of the tax adjustment. The statute of limitations with respect to the IRS audit ends on December 31, 2021.

Based on our review of the tax matters and communications by the IRS, including their presentation to the IRS Appeals office, we have concluded and continue to conclude that the positions reported on our tax returns under audit by the IRS are, based on their technical merits, more likely than not to be sustained upon conclusion of the examination, including proceedings in mediation or tax court. Accordingly, as of June 30, 2021, we have not established any reserves related to this proposed adjustment or any other

issues reflected on the returns under examination. If, however, we are unsuccessful in challenging the IRS, an excise tax and/or additional taxes would be imposed on the REIT, or its taxable REIT subsidiary, related to the excess rent, and we would be responsible for additional income taxes, interest and penalties, which could adversely affect our financial condition, results of operations and cash flows and the trading price of our common stock. Such adjustments could also give rise to additional state income taxes. Such amounts would be in addition to expenses we may incur to defend our positions with the IRS, including legal costs, should the matter be resolved in tax court.

Purchase Commitments

As of June 30, 2021, we had approximately $13 million of purchase commitments related to certain continuing redevelopment and renovation projects and other hotel service contracts in the ordinary course of business. Approximately $9 million of this amount relates to long-term hotel service contracts payable over approximately three years.

Lease Commitments

As a lessee, our lessee arrangements are primarily for ground leases at certain of our hotels. These ground leases generally include base rents, which may be reset based on inflation indexes or pre-established increases, contingent rents based upon the respective hotel’s revenues, and reimbursement or primary responsibility for related real estate taxes and insurance expenses. The initial base terms for the leases are generally in excess of 25 years, with initial term maturities occurring between 2022 and 2096. As of June 30, 2021, the weighted average remaining lease term is 33 years and the weighted-average discount rate related to these leases was 8.80%. Many of these arrangements also contain renewal options at the conclusion of the initial lease term, generally at fair value or pre-set amounts. Our other leases primarily relate to our corporate office.

Rent expense was not significant for the three and six months ended June 30, 2021 or June 30, 2020. Contractual annual rent expense is less than $3 million for each of the next five years. Differences between amounts expensed and cash paid were not significant. Rent expense is included in property tax, insurance and other expenses in our condensed consolidated statements of operations.

9. Equity

Our board of directors has authorized a $50 million share repurchase program, with $21 million remaining available as of June 30, 2021. Under the share repurchase program, we may purchase common stock in the open market, in privately negotiated transactions or in such other manner as determined by us, including through repurchase plans complying with the rules and regulations of the SEC. The share repurchase program does not obligate us to repurchase any dollar amount or number of shares of common stock and the program may be suspended or discontinued at any time. Our Revolver Credit Agreement restricts us from making any purchases at this time. Accordingly, we have temporarily suspended purchases under the share repurchase program and no shares were acquired in 2020 or 2021.

The Revolver Credit Agreement also restricts our ability to pay cash dividends on our common stock unless required to meet REIT federal income tax requirements.

10. Revenues

Revenues for the three and six months ended June 30, 2021 and 2020 are comprised of the following components (in millions):


	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
Operating lease revenues:
Rooms	$	135	$	70	$	230	$	213
Other	1		1		2		2
Total lease revenues	136		71		232		215

Customer revenues	2		1		3		3
Total revenues	$	138	$	72	$	235	$	218

Other operating lease revenues primarily include lease arrangements for restaurants, billboards and cell towers. Customer revenues, which are classified within other revenues in the accompanying consolidated statements of operations, generally relate to

amounts generated by the incidental support of the hotel operations, including service fees, parking and food. For each of the three and six months ended June 30, 2021 and 2020, we had an insignificant amount of variable lease revenue.

11. Equity-Based Compensation

Our 2018 Omnibus Incentive Plan (the “Plan”) authorizes the grant of restricted stock awards (“RSAs”), restricted stock units (“RSUs”), Performance Stock Units (“PSUs”), non-qualified and incentive stock options, dividend equivalents, and other stock-based awards. Approximately eight million shares of common stock have been authorized for issuance under the Plan and approximately five million shares of common stock were available for issuance as of June 30, 2021.

The RSAs and RSUs are time-based and are not subject to future performance targets. The RSAs generally vest over one to three years. The RSUs generally vest over one to two years, with certain RSUs vesting immediately upon grant. RSAs and RSUs are initially recorded at the market price of our common stock at the time of the grant. The PSUs are subject to performance-based vesting, where the ultimate award is based on the achievement of established performance targets, generally over two to three years. As of June 30, 2021, performance targets related to relative and absolute total shareholder returns, as defined, are treated as market-based conditions and are recorded at the fair value of the award using a Monte Carlo simulation valuation model. The remaining PSUs are treated as non-market based and are recorded at fair value based on the period end assessment of achieving the performance targets. RSAs, RSUs and PSUs are subject to accelerated vesting in the event of certain defined events. For each of the three month periods ended June 30, 2021 and 2020, we recognized $3 million of equity-based compensation expense. For each of the six month periods ended June 30, 2021 and 2020, we recognized $5 million of equity-based compensation expense.

The following tables summarize the activity of our RSAs, RSUs, and PSUs during the six months ended June 30, 2021 and 2020:


	RSAs			PSUs			RSUs
	Number of Shares	Weighted-Average Grant Date Fair Value		Number of Shares	Weighted-Average Grant Date Fair Value		Number of Shares	Weighted-Average Grant Date Fair Value
Outstanding at January 1, 2021	1,031,482	$	11.09	1,348,451	$	5.85	290,443	$	4.52
Granted	560,444	$	8.61	463,648	$	9.86	114,562	$	9.91
Converted	(166,825)	$	23.87	(185,171)	$	6.57	—	$	—
Forfeited	(69,615)	$	8.10	(80,958)	$	7.07	—	$	—
Outstanding at June 30, 2021 (1)	1,355,486	$	8.65	1,545,970	$	6.90	405,005	$	6.04

__________

(1) As of June 30, 2021, no outstanding RSAs or PSUs were vested, and 319,742 outstanding RSUs were vested.


	RSAs			PSUs			RSUs
	Number of Shares	Weighted-Average Grant Date Fair Value		Number of Shares	Weighted-Average Grant Date Fair Value		Number of Shares	Weighted-Average Grant Date Fair Value
Outstanding at January 1, 2020	653,790	$	20.30	368,969	$	6.99	5,072	$	6.05
Granted	919,106	$	3.88	979,482	$	5.42	240,269	$	4.19
Converted	(67,637)	$	13.06	—	$	—	(4,787)	$	6.06

Outstanding at June 30, 2020 (1)	1,505,259	$	10.60	1,348,451	$	5.85	240,554	$	4.19

__________

(1) As of June 30, 2020, no outstanding RSAs and PSUs were vested, and 36,523 outstanding RSUs were vested.

RSAs are included in amounts for issued and outstanding common stock but are excluded in the computation of basic earnings (loss) per share.

12. Fair Value Measurements

Assets and Liabilities Measured at Fair Value on a Recurring Basis

We use interest rate cap arrangements with financial institutions to manage our exposure to interest rate changes for our loans that utilize floating interest rates. As of June 30, 2021, we had an interest rate cap with an aggregate notional value of $640 million, a strike rate of 0.75% and a fair value and net book value of less than $1 million. The interest rate cap terminates in June 2022.

Financial Instruments Not Reported at Fair Value

For those financial instruments not carried at fair value, the carrying amount and estimated fair values of our financial assets and liabilities were as follows as of June 30, 2021 and December 31, 2020 (in millions):


	June 30, 2021				December 31, 2020
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Debt - CMBS Facility(1)(2)	$	564	$	564	$	725	$	705
Debt - Revolving Facility(1)(2)	$	75	$	75	$	85	$	84
Mandatorily redeemable preferred stock(1)	$	15	$	16	$	15	$	15

____________________

(1)Classified as Level 3 under the fair value hierarchy.

(2)Carrying amount excludes unamortized debt issuance costs of $1 million as of June 30, 2021. We had no unamortized debt issuance costs as of December 31, 2020.

We estimate the fair value of our debt and mandatorily redeemable preferred stock by using risk adjusted discounted cash flow analysis and current market inputs for similar types of arrangements, including prepayment terms that are at our option. Fluctuations in these assumptions, including changes in market assessments related to the COVID-19 pandemic financial effects, may result in different estimates of fair value.

We believe the carrying amounts of our cash and cash equivalents, accounts receivable and lender and other escrows, and other liabilities approximate fair value as of June 30, 2021 and December 31, 2020, due to their short-term nature.

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

During 2020, we recorded non-cash impairment losses related to lower valuation of certain of our properties due to the ongoing impact of the COVID-19 pandemic on the lodging industry and final disposal costs related to a property previously impaired in 2019. Our process to estimate the fair value of an asset involves using the sales price of an executed sales agreement, which would be considered a Level 2 assumption within the fair value hierarchy. To the extent that this type of third-party information is unavailable, we estimate revenue multiples that we believe would be used by a third-party market participant in estimating the fair value of an asset. This is considered a Level 3 assumption within the fair value hierarchy.

We had no impairment loss for the six months ended June 30, 2021. The following table summarizes the assets which were measured at fair value on an nonrecurring basis and impaired during the year ended December 31, 2020 (in millions):


			Basis of Fair Value Measurements
	Fair Value of Assets at Impairment		Quoted Prices in Active Market for Identical Items (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3) (1)		Total Losses





Real estate (2)	$	310	$	—	$	7	$	303	$	52

____________________

(1) The Level 3 unobservable inputs consist of internally developed cash flow models and fair value estimates that included projections of revenues, expenses and capital expenditures and market valuations based on multiples of revenue generally ranging from 2.0x to 3.0x. These assumptions were based on trends and comparable transactions in the lodging industry; our historical data and experience; our budgets, including those prepared by our third-party hotel manager; lodging industry valuation trends; and micro- and macro-economic trends and projections. Our estimated fair values also considered factors related to our franchise and management agreements, requirements to meet certain brand standards and other potential costs to be incurred during our projected holding period.

(2) The fair value of impaired real estate assets was $310 million as of the June 30, 2020 impairment date. The carrying value of these real estate assets was $267 million as of December 31, 2020. The change in fair value from June 30, 2020 to the December 31, 2020 carrying value relates to $14 million of depreciation expense and $29 million due to sales of assets subsequent to the impairment date.

13. Related Party Transactions

As of June 30, 2021, affiliates of The Blackstone Group Inc. (“Blackstone”) beneficially owned approximately 30% of our outstanding shares of common stock and held horizontal risk retention certificates issued by the trust that holds our CMBS Facility indebtedness (“Class HRR Certificates”). As of both June 30, 2021 and December 31, 2020, the portion of our CMBS Facility outstanding balance that correlates to the Class HRR Certificates was $79 million. Total interest payments made to an affiliate of Blackstone as a holder of such Class HRR Certificates for each of the three month periods ended June 30, 2021 and 2020 were $1 million. Total interest payments made to an affiliate of Blackstone as a holder of such Class HRR Certificates for each of the six month periods ended June 30, 2021 and 2020 were $2 million.

14. Supplemental Disclosures of Cash Flow Information

The following table presents the supplemental cash flow information for the six months ended June 30, 2021 and 2020 (in millions):


	Six Months Ended June 30,
	2021		2020
Supplemental disclosure of cash flow information:
Interest paid during the period	$	14	$	20


Non-cash investing and financing activities:
Capital expenditures included in accounts payable and accrued expenses	$	—	$	2





Financing of insurance	$	9	$	11

15. Subsequent Events

Subsequent to June 30, 2021, we sold eight operating hotels with approximately 900 rooms for a gross sales price of $44 million, recognizing an estimated gain on sale of approximately $12 million. As of June 30, 2021, none of these hotels were classified as assets held for sale because the assets did not meet the accounting criteria established for such classification. We used $39 million of the net sales proceeds to pay down the principal on the CMBS Facility.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

This Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to help provide an understanding of our business and results of operations. This MD&A should be read in conjunction with our unaudited condensed consolidated financial statements and the related notes thereto included elsewhere in this Quarterly Report on Form 10-Q. This report, including the following MD&A, contains forward-looking statements regarding future events or trends that should be read in conjunction with the factors described under “Special Note Regarding Forward-Looking Statements” above in this Quarterly Report on Form 10-Q and “Risk Factors” in this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K for the fiscal year ended December 31, 2020 (“Annual Report on Form 10-K”). Actual results may differ materially from those projected in such statements as a result of the factors described under “Special Note Regarding Forward-Looking Statements” and in “Risk Factors” in this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K.

Overview

Our Business

CorePoint is a leading owner in the midscale and upper midscale select-service hotel segments, primarily all under the La Quinta brand. Our portfolio, as of June 30, 2021, consisted of 175 hotels representing approximately 23,800 rooms across 30 states in locations in or near employment centers, airports, and major travel thoroughfares. Approximately 50% of our revenue is derived from our hotels located in Florida, Texas and California and approximately 22% from the state of Florida alone. These hotels are currently experiencing higher levels of recovery from the COVID-19 pandemic disruptions than full-service hotels. Based on local economies, we expect these regions to continue to have improved travel demand, which would positively affect our operations. All but one of our hotels is wholly owned. We primarily derive our revenues from our select-service hotel operations, with approximately 98% of our revenues derived from daily room rentals.

Generally, our hotels include the land, related easements and rights, buildings, improvements, furniture, fixtures and equipment. As of June 30, 2021, we have 13 hotels located on land leased by us pursuant to ground leases with third parties.

Exploration of Strategic Alternatives

On July 13, 2021, we announced that our board of directors, working together with financial and legal advisors, has decided to explore strategic alternatives to maximize stockholder value. The board of directors intends to consider a full range of available strategic alternatives to maximize stockholder value, including a potential sale of the Company or other transactions. There is no set timetable for the board of directors to review alternatives, and there can be no assurance that the exploration of strategic alternatives will result in any transaction or other action. Any potential transaction or other strategic alternative, and the economic or other terms of any transaction, may be dependent on or impacted by a number of factors that may be beyond our control, including but not limited to: market conditions; industry trends, including as a result of the COVID-19 pandemic; the availability of financing for us or for potential buyers on reasonable terms; adverse developments in connection with current IRS audits and any payments anticipated or required to resolve such matters; adverse responses or actions taken by our major business relationships; and any adverse regulatory developments or determinations or adverse changes in, or interpretations of, U.S. tax and other laws, rules or regulations that could materially impact, delay or prevent completion of any transaction or other action. See “Part II, Item 1A. Risk Factors - We are exploring and evaluating potential strategic alternatives and there can be no assurance that we will be successful in identifying or completing any strategic alternative, that any such strategic alternative will result in additional value for our stockholders or that the process will not have an adverse impact on our business.”

Impact of the COVID-19 Pandemic

Update

Due to reduced COVID-19 infection rates in the U.S. and overall favorable trends in the economy, we have observed an increase in travel demand. This has resulted in improvements during the second quarter of 2021 in our operations and financial position on a sequential basis, as compared to the first quarter of 2021, as well as over the comparable period in 2020 (see charts below for further information).

During the COVID-19 pandemic, we believe our hotel portfolio generally performed better than the lodging industry as a whole, primarily in comparison to full service hotels in urban or resort destination areas, and specifically as a result of the following portfolio characteristics: (1) our select-service business model; (2) our predominant focus on the midscale and upper midscale chain scales; (3) location in suburban market locations, with a concentration in sunbelt states near multiple demand generators and stronger local economies; and (4) leisure travel and transient focus. We also believe our portfolio characteristics positioned us to benefit from pent-up travel demand. If travelers continue to be more comfortable traveling, and if businesses and travel destinations continue to re-open, we expect continued improvements in our operations. We have experienced a faster recovery in leisure travel. For the six months ended June 30, 2021, our Friday and Saturday occupancy, which is generally more attributable to leisure travelers, was 68%,

while our weekday occupancy, which is generally more attributable to business travelers, was approximately 54%. For our most recent quarter, the three months ended June 30, 2021, the trend toward leisure travel was even more pronounced as our Friday and Saturday occupancy was approximately 75%, while our weekday occupancy was approximately 58%. As the economy recovers, more businesses open and convention and related activity resumes, we expect increases in business travel, although with the potential for delays in the recovery due to COVID-19 variants or other reasons.

Operating Results

During March 2021, we reached the one year anniversary of COVID-19 being declared a global pandemic by the World Health Organization. The first quarter of 2020 had less than one month of the full impact of the operational disruptions due to the COVID-19 pandemic. Accordingly, we are monitoring our progress compared to the similar periods in 2020 and in 2019, the last full year of pre-COVID-19 pandemic operations. Beginning in March 2021, each of our monthly performance metrics have exceeded the comparable period of 2020.

As illustrated in the two charts below, we decreased our Comparable Hotel occupancy and Comparable Hotel RevPAR deficit in 2021 as compared to the comparable period in 2019. In January 2021, our deficit to the January 2019 Comparable Hotel occupancy was 1400 basis points. As of June 2021, the Comparable Hotel occupancy deficit as compared to the corresponding periods in 2019 was 700 basis points. Similarly, in January 2021 our Comparable Hotel RevPAR was approximately 44% less than January 2019. As of June 2021, Comparable Hotel RevPAR was approximately 8% less than the corresponding period in 2019. In July 2021, the Comparable Hotel occupancy deficit as compared to July 2019 was reduced further to approximately 400 basis points, and Comparable Hotel RevPAR for July 2021 surpassed July 2019 RevPAR by approximately 2%. We note that the number of Comparable Hotels in the charts below for July has been reduced to reflect the July 2021 sale of seven hotels.

2021 to 2020 to 2019 Comparison -Comparable Hotel Occupancy %

2021 to 2020 to 2019 Comparison -Comparable Hotel RevPAR

Cost Management

In response to the COVID-19 pandemic, along with our hotel manager, we put in place a number of actions to reduce portions of our operating expenses, primarily related to hotel labor, supplies and maintenance. These cost saving measures primarily began in April 2020 and have substantially continued into 2021. The most significant of these actions were the suspension of buffet style breakfast services, reduced hotel and housekeeping labor and deferred non-health or safety maintenance and capital expenditures. These expense savings were marginally offset by additional cleaning expenses and supplies and costs of furloughing hotel employees.

These expense controls have continued; however, as occupancy demand continues to improve, we have and will continue to restore some of the expenses related to the underlying cost controls. In particular, we expect to have increased hotel labor, particularly housekeeping staff, as our hotel manager initiated new incentive programs in June 2021 to recruit and retain staff, and grab and go breakfast options are now offered at most of our hotels. When possible, we have instituted and expect to continue to institute these changes and the corresponding increase in operating expenses in line with revenue increases; however, given that certain of these items require some lead time to hire staff and order supplies, we may experience increases in operating expenses in advance of the realization of increased revenues. This may result in temporary decreases in operating margins and cash flows. However, certain supply constraints may result in longer term operating cost increases. These may result from competition for labor, which may be exacerbated by a decreased supply of workers, government stimulus payments and minimum wage actions setting higher wage expectations. In addition, we have experienced expense increases that are outside of our direct control, such as increased travel commissions that have been shifting to more expensive online and franchisor sources. The COVID-19 pandemic has also contributed to certain raw material, energy, transportation and other supply constraints which are increasing costs.

We also have taken aggressive steps at the corporate level to control costs and preserve capital to mitigate the ongoing operational and financial impact in response to the COVID-19 pandemic. These initiatives include suspending our common stock dividend, restricting corporate travel and deferring all non-essential administrative expenses and capital expenditures. Similar to operating expense, these measures have continued into the first half of 2021. However, we anticipate certain administrative expense increases in 2021, primarily related to the resumption of travel and other activities.

Cash Flows

As a result of the operating disruptions of the COVID-19 pandemic, we experienced a net cash from operating activities deficit in the year ended December 31, 2020. However, for the six months ended June 30, 2021, we reported $36 million net cash provided by operating activities as compared to $20 million net cash used in operating activities for the six months ended June 30, 2020. This trend was primarily as a result of improved operations in the second quarter of 2021, which generated approximately $33 million of cash provided by operating activities, due to revenue improvements, operating control measures and reduced interest expense. Our controls over capital expenditures also improved our cash flows compared to 2020. During the six months ended June 30, 2021 we used $3 million for capital expenditures, net of collection of insurance proceeds, compared to $5 million for capital expenditures in the same period for 2020. As noted above, we are currently restricting our capital expenditures to only essential expenditures. However, as occupancy and revenues increase, we expect our capital expenditures to also increase. We also expect to receive an income tax refund of approximately $4 million during 2021 related to net operating loss carrybacks arising from the COVID-19 pandemic.

We expect future operations will continue to be affected by ongoing disruptions due to the COVID-19 pandemic and the positive effects from the recovery; however, due to uncertainties regarding the magnitude and timing of business and consumer travel, and the resumption of other activities, including in-person work, schools, colleges, sporting events, special events and conferences, we expect higher volatility in travel demand, with certain regions experiencing a greater or smaller recovery at any given time frame. There is also uncertainty as to the effects on travel from the COVID-19 variants, particularly whether travel will continue based on the most recent trends or whether there will be a reduction due to restrictions imposed from increased infections and local restrictions. Accordingly, we are unable to forecast our near term operating results. Until travel demand fully returns and stabilizes, we may experience future periodic improvements and declines in cash flows from operations which may extend into the remainder of 2021 and beyond.

We believe we have adequate liquidity in the near term to fund our operations. As of July 31, 2021, we had cash and cash equivalents of $167 million, an increase of $8 million from June 30, 2021. We believe this amount will be sufficient to fund our operations assuming the continuation of current conditions well into 2022. Should operations improve, we would expect further improvements in our cash position. (See “Liquidity and Capital Resources” below for additional discussion.)

Non-Core Hotel Disposition Strategy

Our strategy has identified opportunities to dispose of our lower performing hotels and we refer to these as our non-core hotels. These hotels are generally older and have lower RevPAR (defined below) and higher capital expenditure requirements. We anticipate the non-core disposition program will be completed by the end of 2022; however, this period may be extended or shortened

depending on market conditions, COVID-19 pandemic status and availability of capital for hotel purchasers. There can be no assurance as to the timing of any future sales, whether any approvals required under applicable franchise or ground lease agreements will be obtained or upon what terms, whether such sales will be completed at all, or, if completed, their effect on our future results.

The table below provides certain summary information of our core and non-core hotels as of June 30, 2021. Due to the disruptions to 2020 and 2021 RevPAR from the COVID-19 pandemic, we have provided RevPAR based on 2019 annual amounts. We believe the 2019 annual amounts are more comparable to historical metrics.


	Number of hotels	Approximate number of rooms	Average hotel age (years)	2019 RevPAR
Core	105	15,100	29	$	72.67
Non-Core	70	8,700	33	$	54.67
Total	175	23,800	30	$	66.08

During the six months ended June 30, 2021, we sold 34 non-core hotels for gross consideration of $185 million. Subsequent to June 30, 2021, we sold an additional eight non-core hotels for gross consideration of $44 million. As these hotels were among our lowest performing hotels, we believe these dispositions will positively impact portfolio RevPAR and gross margin. Further, as the net sales proceeds were substantially used to retire portions of our existing debt, these dispositions will reduce interest expense. We expect to also benefit from no longer incurring capital expenditures for these sold hotels, increasing the availability of liquidity for other uses.

Certain historical information related to the operating hotels sold during the six months ended June 30, 2021 is presented in the table below. Due to the disruptions to 2020 and 2021 metrics from the COVID-19 pandemic, we have provided metrics based on 2019 annual amounts. We believe the 2019 annual amounts provide measures that may be more comparable to historical metrics. As the COVID-19 pandemic continues over a longer period, these metrics as well as the number of hotel sales may be affected

($ amounts in millions, except for RevPAR and price per key):


2021 Quarterly Activity	Number of hotels sold	Approximate number of rooms	Gross sales price		Gain on sales		Approximate price per key (5)		Revenue multiple (1)
1st Quarter	9	1,100	$	42	$	10	$	39,000	2.5x
2nd Quarter	25	2,900	143		42		$	50,000	2.7x


2021	34	4,000	$	185	$	52	$	47,000	2.7x



2019 Annual Operating Data for Non-Core Hotels sold in the six months ended June 30, 2021	Amount
Revenues	$	69.3

RevPAR (2)	$	47.38
Hotel Adjusted EBITDAre (3)	$	13.5
Hotel Adjusted EBITDAre multiple (4)	13.7		x
FFO (3)	$	8.6

Capital expenditures	$	3.3

____________________

(1)Revenue multiple is calculated as the gross sales price divided by 2019 annual revenues. Closing costs, management termination fees and other costs from the sale of the hotels have not been deducted in the gross sales price and have generally averaged approximately 10% of the gross sales price.

(2)Our Comparable Hotel RevPAR for the year ended December 31, 2019 was $66.08 and our Comparable Hotel RevPAR for core hotels alone was $72.67.

(3)Hotel Adjusted EBITDAre and FFO are non-GAAP financial measures. See “Non-GAAP Financial Measures” below for definitions and limitations of these terms. The FFO amount includes the related annualized interest expense based on the actual debt principal paid down for each hotel sale using the June 30, 2021 interest rate of 3.06%. The FFO amount includes only directly associated hotel expenses and does not include any general and administrative or other corporate expenses.

(4)Hotel Adjusted EBITDAre multiple is calculated as gross sales price divided by 2019 Hotel Adjusted EBITDAre.

(5)Approximate price per key is defined as gross sales price divided by the total rooms for hotels sold.

As noted, the statistics above are based on the 2019 annual operating amounts. More current data would likely result in lower absolute amounts and higher multiples and yields as a result of the COVID-19 pandemic’s effects on hotel operations.

The sales closed to date have been on substantially similar terms and pricing as previously experienced prior to the pandemic. However, we may consider alternative terms in the future, including seller financing and limited price adjustments to attract qualified buyers on a timely basis. During the second quarter of 2021, we experienced continued demand for the non-core hotels as buyer revenue and operating expectations from the pandemic recovery are more favorable and capital for purchasers appears available.

However, there can be no assurance as to the timing of any future sales, whether any approvals required under applicable franchise agreements will be obtained or upon what terms, whether proposed federal income tax changes will affect buyer capital or demand and whether buyers will be able to complete such purchases, or, if completed, their effect on future results.

Hotel Capital Investment

During the six months ended June 30, 2021, we invested approximately $8 million in capital investments in our hotels. These represent approximately 3% of revenues for the six months ended June 30, 2021. We generally expect these capital expenditures to fall within a range of 5% to 10% of annual revenues, with quarterly variances due to seasonality of revenues and timing of capital expenditures. Due to the COVID-19 pandemic, we have and expect to continue to defer elective capital expenditures, with the exception of life safety or critical operational needs. Deferring capital expenditures may result in additional maintenance expenses when operations begin to improve and higher capital expenditures in future periods. However, to the extent we are able to complete the dispositions of non-core hotels, we anticipate that our total recurring maintenance and upgrade capital expenditures will decline on an absolute basis. We also anticipate that as operations improve deferred capital expenditures will increase and be given a priority from available liquidity.

Seasonality

The hotel industry is seasonal in nature. Generally, our revenues are greater in the second and third quarters than in the first and fourth quarters. The timing of holidays, local special events and weekends can also impact our quarterly results. The periods during which our properties experience higher revenues may depend on specific locations and accordingly may vary from property to property. This seasonality can be expected to cause quarterly fluctuations in revenue, profit margin, net earnings and cash provided by operating activities. Additionally, our quarterly results may be seasonally affected by the timing of certain marketing programs or hotel maintenance. In addition, certain of our manager and franchisor fees are based on revenues which, as noted above, vary by season. Further, the impact of disruptions due to the COVID-19 pandemic, the timing of opening of newly constructed or renovated hotels and the timing of any hotel dispositions may cause a variation of revenue and earnings from quarter to quarter. Accordingly, our results for any partial period may not be indicative of our full year results or trends.

Further, the COVID-19 pandemic began disrupting our operations during March 2020. The first quarter of 2020 was not affected by the COVID-19 pandemic until the last weeks of March 2020. Subsequent 2020 quarterly results will also have different levels of operating disruptions. Accordingly, certain comparisons of 2021 results to similar periods in 2020 should be reviewed in the context of the status of the COVID-19 pandemic. Due to the fluidity of these disruptive developments and the degree and timing of the related recovery, we are not able to accurately project the level of operations for 2021 or if and when we will achieve pre-pandemic operating levels on a stable basis.

Segment Reporting

Key components and factors affecting our results of operations

Revenues

Room revenues are primarily derived from room lease rentals at our hotels. We recognize room revenues on a daily basis, based on an agreed-upon daily rate, after the guest has stayed at one of our hotels. Customer incentive discounts, cash rebates, and refunds are recognized as a reduction of room revenues. Occupancy, hotel, and sales taxes collected from customers and remitted to the taxing authorities are excluded from revenues in our condensed consolidated statements of operations.

Principal Components of Revenues

Rooms. These revenues represent room lease rentals at our hotels and account for a substantial majority of our total revenue.

Other revenue. These revenues represent revenue generated by the incidental support of operations at our hotels, including charges to guests for vending commissions, meeting and banquet rooms, and other rental income from operating leases associated with leasing space for restaurants, billboards and cell towers.

Factors Affecting our Revenues

Hotel dispositions. As noted above, we continue dispositions of our non-core hotels. We sold 34 hotels during the six months ended June 30, 2021, and we sold or disposed of 62 hotels during the year ended December 31, 2020. The revenue from these sold or disposed hotels was $18 million and $46 million, for the six months ended June 30, 2021 and 2020, respectively.

Customer demand. Our customer mix includes both leisure travelers and business travelers. Customer demand for our products and services is closely linked to the performance of the general economy on both a national and regional basis and is sensitive to business and personal discretionary spending levels. As a result of the COVID-19 pandemic, leisure and business travel lodging demand continues to be impacted, and our mix of customers has changed to a higher proportion of leisure travelers which represents approximately two-thirds of our hotel portfolio. We are benefiting from “drive to” consumer demand, particularly for our hotels adjacent to highways and suburban areas. We are also benefiting from our hotel properties located in sunbelt states, primarily Florida, Texas and Southern California, that are experiencing an increase in post-pandemic travel demand. These areas are especially attractive to consumers looking for a two or three day trip. Weekend travel demand has been particularly high with occupancy rates at approximately 26% greater than weekday demand. Accordingly, we believe our customer demand is highly dependent on the timing and magnitude of the return of consumer and business travel, the proportion of the traveling population that is vaccinated and feels safe traveling, government assistance programs and the return of convention, sporting and other local events.

Supply. New room supply is an important factor that can affect the lodging industry’s performance. Room rates and occupancy, and thus RevPAR, tend to increase when demand growth exceeds supply growth and decline when supply growth exceeds demand growth. Our hotels have benefited from being open while competing hotels and substitute lodging options (e.g. homeowner rental programs) were temporarily closed or not fully operational; however, as travel demand increases, competition has increased and our competitive advantage has diminished or has been eliminated. Beginning in the third quarter of 2020, we noted instances where our hotels were losing pricing power relative to our competitors. We are also observing that many of the competitor hotels that temporarily closed in 2020 have re-opened. However, we do expect that the COVID-19 pandemic will reduce new supply coming into our markets, at least in the near term, as existing hotel projects were delayed and new projects would require some time for planning, governmental approvals and construction. The lodging industry in total may actually experience negative absorption during this lag, as some portion of the existing hotel stock may be taken out of operation.

Age and amenities. Newly constructed or remodeled hotels generally will drive higher room rates and occupancy than older properties with deferred maintenance. Similarly, hotels with greater and more current amenities, which are in demand by customers, will also be able to achieve higher room rates and occupancy. The average age of our hotels is approximately 30 years.

Expenses

Principal Components of Certain Expenses

Rooms. These expenses include hotel operating expenses of housekeeping, reservation systems (per our franchise agreements), room and breakfast supplies and front desk costs.

Other departmental and support. These expenses include hotel operating expenses that constitute non-room operating expenses, including parking, telecommunications, on-site administrative labor, sales and marketing, loyalty program, recurring repairs and maintenance and utility expenses.

Property tax, insurance and other. These expenses consist primarily of real and personal property taxes, other local taxes, ground rent, equipment rent and insurance.

Management and royalty fees. Management and royalty fees represent fees paid to third parties and are computed as a percentage of revenues.

Factors Affecting our Costs and Expenses

Variable expenses. Expenses associated with our room expenses are mainly affected by occupancy and correlate closely with their respective revenues. Housekeeping labor, travel agency commissions and consumable supplies are most clearly associated with occupancy. Actual charges relating to travel agency commissions depend on our revenue channel distribution mix. For the six months ended June 30, 2021, online travel agencies represented approximately 38% of our revenue channel mix. Our management and royalty fees are also primarily driven by our level of gross revenues or room revenues. Management fees represent 5% of total gross revenue and royalty fees represent 5% of our room revenues. In response to the COVID-19 pandemic, we implemented programs to reduce labor and consumable supplies (including eliminated or reduced breakfast offerings), and we have experienced reductions in royalty fees, management fees, travel agency commissions and supplies. However, as our revenue and occupancy demand returns, these expenses have increased and we expect will continue to increase. Limited labor supply and wage pressures have increased and we expect will increase labor costs, including through the impact of new incentive programs offered to recruit and retain staff. Further,

some of these costs must be incurred in advance of the realization of increased revenue, as staff must be hired and supplies procured in time to meet the demand. Accordingly, certain variable expenses may temporarily increase at times faster than revenues.

Fixed expenses. Many of the other expenses associated with our hotels are relatively fixed. These expenses include portions of administrative field staff salaries, rent expense, property taxes, insurance and utilities. Since we generally are unable to decrease these costs significantly or rapidly when demand for our hotels decreases, any resulting decline in our revenues can have a greater effect on our net cash flow, margins and profits. This effect can be especially pronounced during periods of economic contraction or slow economic growth, as was the case during the early stages of the COVID-19 pandemic. The effectiveness of our cost-cutting efforts was limited by the amount of fixed costs inherent in our business. An operating hotel requires a minimum number of staff to manage the hotel front desk and provide administrative support and maintain the property. As a result, we were unable to fully offset revenue reductions through cost cutting. Individuals employed at certain of our hotels are party to collective bargaining agreements with our hotel managers that may also limit the manager’s ability to make timely staffing or labor changes in response to declining revenues. In addition, any efforts to reduce costs, or to defer or cancel capital improvements, could adversely affect the economic value of our hotels. We have taken steps to date to reduce our fixed costs and expect to continue these efforts throughout 2021 until revenues return. However, as the economy appears to be in the recovery phase of the COVID-19 pandemic and as our revenues return to prior levels, we anticipate positive impacts on our net cash flow, margins and profits as the increases in these fixed labor and other expenses will be proportionately less than the increase in room revenues.

Changes in depreciation and amortization expense. Changes in depreciation expense are due to renovations of existing hotels, acquisition or development of new hotels, the disposition of existing hotels through sale or changes in estimates of the useful lives for new capital improvements. As we incur additions to our hotels or place new assets into service, we will be required to recognize additional depreciation expense on those assets. Conversely, impairment losses, which are effectively accelerated depreciation, will reduce future depreciation expenses at these hotels. Continued dispositions of non-core hotels will also reduce future depreciation.

Hotel dispositions. We continue dispositions of our non-core hotels, reducing hotel operating expenses. We sold 34 hotels during the six months ended June 30, 2021, and we sold or disposed of 62 hotels during the year ended December 31, 2020.

Age. As hotels age, maintenance expense tends to increase. These expenses include more frequent and higher costing repairs, higher utility and insurance expenses, increased supplies and higher labor costs. If these costs result in capitalized improvements, depreciation expense could increase over time as discussed above. Renovations and other hotel improvements can mitigate the maintenance expenses of older properties.

Key indicators of financial condition and operating performance

We use a variety of financial and other information in monitoring the financial condition and operating performance of our business. Some of this information is financial information that is prepared in accordance with GAAP, while other information may be financial in nature and may not be prepared in accordance with GAAP. Our management also uses other information that may not be financial in nature, including statistical information and comparative data that are commonly used within the lodging industry to evaluate hotel financial and operating performance. Our management uses this information to measure the performance of hotel properties and/or our business as a whole. Historical information is periodically compared to budgets, as well as against industry-wide information. We use this information for planning and monitoring our business, as well as in determining management and employee compensation.

Average daily rate (“ADR”) represents hotel room revenues divided by total number of rooms rented in a given period. ADR measures the average room price attained by a hotel or group of hotels, and ADR trends provide useful information concerning pricing policies and the nature of the guest base of a hotel or group of hotels. Changes in room rates have an impact on overall revenues and profitability. ADR is also used by the lodging industry to classify hotels by chain scale.

Occupancy represents the total number of rooms rented in a given period divided by the total number of rooms available at a hotel or group of hotels. Occupancy measures the utilization of our hotels’ available capacity, which may be affected from time to time by our repositioning, property casualties and other activities. Management uses occupancy to gauge demand at a specific hotel or group of hotels in a given period. Occupancy levels also help us determine achievable ADR levels as demand for hotel rooms increases or decreases.

Revenue per available room (“RevPAR”) is defined as the product of the ADR charged and the average daily occupancy achieved. RevPAR does not include bad debt expense or other ancillary, non-room revenues, such as food and beverage revenues or parking, telephone or other guest service revenues generated by a hotel, which are not significant for us.

RevPAR changes that are driven predominately by occupancy have different implications for overall revenue levels and incremental hotel operating profit than changes driven predominately by ADR. For example, increases in occupancy at a hotel would lead to increases in room and other revenues, as well as incremental operating costs (including, but not limited to, housekeeping services, utilities and room amenity costs). RevPAR increases due to higher ADR, however, would generally not result in additional operating costs, with the exception of those charged or incurred as a percentage of revenue, such as management and royalty fees, credit card fees and booking commissions. As a result, changes in RevPAR driven by increases or decreases in ADR generally have a greater effect on operating profitability at our hotels than changes in RevPAR driven by occupancy levels.

Comparable Hotels are defined as hotels that were active and operating in our system for at least one full calendar year as of the end of the applicable reporting period and were active and operating as of January 1st of the previous year. Comparable Hotels exclude: (i) hotels that sustained substantial property damage or other business interruption; (ii) hotels that are sold or classified as held for sale; or (iii) hotels in which comparable results are otherwise not available. Management uses Comparable Hotels as the basis upon which to evaluate ADR, occupancy, and RevPAR. Management calculates comparable ADR, Occupancy, and RevPAR using the same set of Comparable Hotels as defined above. Further, we report variances in comparable ADR, occupancy, and RevPAR between periods for the set of Comparable Hotels existing at the reporting date versus the results of the same set of hotels in the prior period. As of June 30, 2021, all 175 owned hotels have been classified as Comparable Hotels.

As an owner of hotels, we can capture the full benefit of increases in operating profits during periods of increasing demand or ADR. As demand and ADR increase over time, the pace of increase in operating profits typically is higher than the pace of increase of revenues. Hotel ownership is capital intensive, as we are responsible for the costs and capital expenditures for our hotels. The profits realized by us are generally significantly affected by economic downturns and declines in revenues. Given the performance disruptions from the COVID-19 pandemic and the resulting recovery, we expect increased volatility in revenues and operating profits during the near term.

The rent potential for a hotel is measured by its ADR and is primarily a factor of its chain scale, location, local demand drivers and competition. Our ADR and occupancy by chain scale groupings commonly used in the lodging industry for hotels owned as of June 30, 2021, for the twelve months ended June 30, 2021, are provided below to show the variation across chain scale for the properties we own:

Chain scale groupings are determined using lodging industry standards. Accordingly, as a result of the COVID-19 pandemic, certain hotels have experienced decreases in ADR which has resulted in a temporary reclassification to lower scales and we expect these to be reclassified to higher scales as ADR trends stabilize. The table below reflects our chain scale groupings for hotels owned as of June 30, 2021 using annual 2019 ADR and occupancy metrics. We believe the 2019 annual amounts provide measures that may be more comparable to historical metrics. There is no assurance as to when or whether these hotels will return to their 2019 operating levels. In addition, 70 of the hotels are classified as non-core and are included in our disposition program.


2019 Annual ADR and Occupancy for hotels owned as of June 30, 2021	Number of Hotels	ADR		Occupancy
Upper upscale	3	$	164.22	78.6	%
Upscale	18	$	130.40	71.2	%
Upper midscale	56	$	104.30	66.4	%
Midscale	88	$	84.71	67.4	%
Economy	10	$	63.61	68.0	%
Total	175	$	97.40	67.8	%

Non-GAAP Financial Measures

We also evaluate the performance of our business through certain other financial measures that are not recognized under GAAP. Each of these non-GAAP financial measures should be considered by investors as supplemental measures to GAAP performance measures such as total revenues, operating profit and net income. These measurements are not to be considered more relevant or accurate than the measurements presented in accordance with GAAP. In compliance with SEC requirements, our non-GAAP measurements are reconciled to the most directly comparable GAAP performance measurement. For all non-GAAP measurements, neither the SEC nor any other regulatory body has passed judgment on these non-GAAP measurements.

EBITDA, EBITDAre, Adjusted EBITDAre and Hotel Adjusted EBITDAre

“EBITDA.” Earnings before interest, income taxes, depreciation and amortization (“EBITDA”) is a commonly used measure in many REIT and non-REIT related industries. We believe EBITDA is useful in evaluating our operating performance because it provides an indication of our ability to incur and service debt, to satisfy general operating expenses, and to make capital expenditures. We calculate EBITDA excluding discontinued operations. EBITDA is intended to be a supplemental non-GAAP financial measure that is independent of a company’s capital structure.

“EBITDAre.” We present EBITDAre in accordance with guidelines established by the National Association of Real Estate Investment Trusts (“Nareit”). Nareit defines EBITDAre as EBITDA adjusted for gains or losses on the disposition of properties, impairments, and adjustments to reflect the entity’s share of EBITDAre of unconsolidated affiliates. We believe EBITDAre is a useful performance measure to help investors evaluate and compare the results of our operations from period to period.

“Adjusted EBITDAre.” Adjusted EBITDAre is calculated as EBITDAre adjusted for certain items, such as restructuring and separation transaction expenses, acquisition transaction expenses, stock-based compensation expense, severance expense, and other items not indicative of ongoing operating performance.

“Hotel Adjusted EBITDAre” measures property-level results at our hotels before corporate-level expenses and is a key measure of a hotel’s profitability. We present Hotel Adjusted EBITDAre to assist us and our investors in evaluating the ongoing operating performance of our properties.

We believe that EBITDA, EBITDAre, Adjusted EBITDAre and Hotel Adjusted EBITDAre provide useful information to investors about our financial condition and results of operations for the following reasons: (i) EBITDA, EBITDAre, Adjusted EBITDAre and Hotel Adjusted EBITDAre are among the measures used by our management to evaluate its operating performance and make day-to-day operating decisions; and (ii) EBITDA, EBITDAre, Adjusted EBITDAre and Hotel Adjusted EBITDAre are frequently used by securities analysts, investors, lenders and other interested parties as a common performance measure to compare results or estimate valuations across companies in and apart from our industry sector.

EBITDA, EBITDAre, Adjusted EBITDAre, and Hotel Adjusted EBITDAre have limitations as analytical tools and should not be considered either in isolation or as a substitute for net income (loss), cash flow or other methods of analyzing our results as reported under GAAP. Some of these limitations are that these measures:

• do not reflect changes in, or cash requirements for, our working capital needs;

• do not reflect our interest expense, or the cash requirements necessary to service interest or principal payments, on our indebtedness;

• do not reflect our tax expense or the cash requirements to pay our taxes;

• do not reflect historical cash expenditures or future requirements for capital expenditures or contractual commitments;

• EBITDAre, Adjusted EBITDAre and Hotel Adjusted EBITDAre do not include gains or losses on the disposition of properties which may be material to our operating performance and cash flow;

• Adjusted EBITDAre and Hotel Adjusted EBITDAre do not reflect the impact on earnings or changes resulting from matters that we consider not to be indicative of our future operations, including but not limited to impairment, acquisition and disposition activities and restructuring expenses;

• although depreciation, amortization and impairment are non-cash charges, the assets being depreciated, amortized or impaired will often have to be replaced, upgraded or repositioned in the future, and EBITDA, EBITDAre, Adjusted EBITDAre, and Hotel Adjusted EBITDAre do not reflect any cash requirements for such replacements; and

•other companies in our industry may calculate EBITDA, EBITDAre, Adjusted EBITDAre, and Hotel Adjusted EBITDAre differently, limiting their usefulness as comparative measures.

Because of these limitations, EBITDA, EBITDAre, Adjusted EBITDAre and Hotel Adjusted EBITDAre should not be considered as a replacement to net income (loss) presented in accordance with GAAP, discretionary cash available to us to reinvest in the growth of our business or as measures of cash that will be available to us to meet our obligations.

The following is a reconciliation of our net loss to EBITDA, EBITDAre, Adjusted EBITDAre and Hotel Adjusted EBITDAre for the three and six months ended June 30, 2021 and 2020 (in millions):


	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
Net income (loss)	$	28	$	(107)	$	(3)	$	(128)
Interest expense	7		12		14		26
Income tax benefit	—		(1)		—		(3)
Depreciation and amortization	37		42		75		82

EBITDA	72		(54)		86		(23)
Gain on sales of real estate	(42)		(9)		(52)		(32)
Gain on casualty	(2)		(1)		(3)		(3)
Impairment loss	—		52		—		54
EBITDAre	28		(12)		31		(4)
Equity-based compensation expense	3		3		5		5




Other, net	—		1		(2)		1
Adjusted EBITDAre	31		(8)		34		2
Corporate general and administrative expenses	4		3		9		8
Hotel Adjusted EBITDAre	$	35	$	(5)	$	43	$	10

Additional information:

•Other, net represents income and expenses that are not representative of our current or future operating performance. For the six months ended June 30, 2021, other, net includes $1 million of business interruption insurance proceeds. For the six months ended June 30, 2020, other, net includes $2 million of business interruption insurance proceeds. We had no business interruption proceeds for the three months ended June 30, 2021 or 2020.

•Corporate general and administrative expenses include the additional corporate-level expenses not already adjusted in calculating Adjusted EBITDAre.

Nareit FFO attributable to common stockholders and Adjusted FFO attributable to common stockholders

We present Nareit FFO attributable to common stockholders (as defined below) as non-GAAP measures of our performance. We calculate funds from operations (“FFO”) attributable to common stockholders for a given operating period in accordance with standards established by Nareit, as net income or loss (calculated in accordance with GAAP), excluding depreciation and amortization related to real estate, gains or losses on sales of certain real estate assets, impairment write-downs of real estate assets, discontinued operations, income taxes related to sales of certain real estate assets, and the cumulative effect of changes in accounting principles, plus similar adjustments for unconsolidated joint ventures. Adjustments for unconsolidated joint ventures are calculated to reflect our pro rata share of the FFO of those entities on the same basis. Since real estate values historically have risen or fallen with market conditions, many industry investors have considered presentation of operating results for real estate companies that use historical cost accounting to be insufficient by themselves. For these reasons, Nareit adopted the FFO metric in order to promote an industry wide measure of REIT operating performance. We believe Nareit FFO 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 FFO attributable to common stockholders when evaluating our performance because we believe that the exclusion of certain additional items described below provides useful supplemental information to investors regarding our ongoing operating performance. Management historically has made the adjustments detailed below in evaluating our performance and in our annual budget process. We believe that the presentation of Adjusted FFO provides useful supplemental information that is beneficial to an investor’s complete understanding of our operating performance. We adjust Nareit FFO attributable to common stockholders for the following items, and refer to this measure as Adjusted FFO attributable to common stockholders: transaction expense associated with the potential disposition of or acquisition of real estate or businesses; severance expense; share-based compensation expense; litigation gains and losses outside the ordinary course of business; amortization of debt issuance costs; reorganization costs and separation transaction expenses; loss on early extinguishment of debt; straight-line ground lease expense; casualty losses; deferred tax expense; and other items that we believe are not representative of our current or future operating performance.

Nareit FFO attributable to common stockholders and Adjusted FFO attributable to common stockholders have limitations as analytical tools and should not be considered either in isolation or as a substitute for net income (loss), cash flow or other methods of

analyzing our results as reported under GAAP. Nareit FFO is not an indication of our liquidity, nor is it indicative of funds available to fund our cash needs, including our ability to fund dividends. Nareit FFO is also not a useful measure in evaluating net asset value because impairments are taken into account in determining net asset value but not in determining Nareit FFO. Investors are cautioned that we may not recover any impairment charges in the future. Accordingly, Nareit FFO should be reviewed in connection with GAAP measurements. We believe our presentation of Nareit FFO is in accordance with the Nareit definition; however, our Nareit FFO may not be comparable to amounts calculated by other REITs.

The following table provides a reconciliation of net loss to Nareit FFO attributable to common stockholders and Adjusted FFO attributable to common stockholders for the three and six months ended June 30, 2021 and 2020 (in millions):


	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
Net income (loss)	$	28	$	(107)	$	(3)	$	(128)
Depreciation and amortization	37		42		75		82
Gain on sales of real estate	(42)		(9)		(52)		(32)
Gain on casualty	(2)		(1)		(3)		(3)
Impairment loss	—		52		—		54
Nareit defined FFO attributable to common stockholders	21		(23)		17		(27)
Equity-based compensation expense	3		3		5		5
Non-cash income tax expense (benefit)	—		(1)		—		1
Amortization expense of debt issuance costs	—		2		—		6




Other, net	—		1		(2)		1
Adjusted FFO attributable to common stockholders	$	24	$	(18)	$	20	$	(14)

Weighted average number of shares outstanding, diluted	58.5		56.6		58.3		56.6

Additional information:

•Weighted average number of shares outstanding, diluted presented above may differ from weighted average number of shares outstanding, diluted presented for GAAP purposes when there is a net loss and all potentially dilutive securities are anti-dilutive. There are no dilutive securities for purposes of calculating net loss or negative FFO.

The increases in each of our non-GAAP performance measures is primarily due to the 2020 disruptions from the COVID-19 pandemic. The 2021 increase in our operations is partially offset by the impact from the sale of hotels. As of June 30, 2021 we owned 175 hotels, compared to 240 hotels owned as of June 30, 2020. See further discussion below regarding operating activity and property sales.

Operational Overview

The following discussion provides an overview of our operations and transactions for the six months ended June 30, 2021 and should be read in conjunction with the full discussion of our operating results, liquidity, capital resources and risk factors included elsewhere in this Quarterly Report on Form 10-Q.

During the six months ended June 30, 2021, we reported net loss of $3 million as compared to net loss of $128 million for the same period in 2020. The decreased loss was primarily due to $54 million in impairment losses recorded in the six months ended June 30, 2020 that we did not have in 2021 and a gain on sales of real estate of $52 million, for the 34 hotels sold in the six months ended June 30, 2021. For the six months ended June 30, 2020, we sold 30 hotels and reported a gain on sales of real estate of $32 million. In addition, our Hotel Adjusted EBITDAre for the six months ended June 30, 2021improved $33 million over the same period in 2020 (see details in the tables below).

As of December 31, 2019, we identified 166 hotels as non-core with the intent to dispose of these hotels generally by the end of 2022. As of June 30, 2021, we have sold or disposed of 96 of these non-core hotels. These sold or disposed properties contributed $8 million in revenue for the three months ended June 30, 2021 as compared to $17 million in revenue for the three months ended June 30, 2020. These sold or disposed properties contributed $18 million in revenue for the six months ended June 30, 2021 as compared to $46 million in revenue for the six months ended June 30, 2020.

As of June 30, 2021, we have 70 remaining non-core hotels identified for disposition by the end of 2022. Our ability to enter into and to close sale contracts could be affected by the uncertainties related to the COVID-19 pandemic.

The following table provides additional information about Comparable Hotels and non-comparable hotels for the three and six months ended June 30, 2021 and 2020 (in millions):


	Comparable Hotels (1)				Non-comparable Hotels				Total
	Three Months Ended June 30,				Three Months Ended June 30,				Three Months Ended June 30,
	2021		2020		2021		2020		2021		2020


Total Revenues	$	130	$	55	$	8	$	17	$	138	$	72
Property-level expenses	(96)		(60)		(7)		(17)		(103)		(77)
Hotel Adjusted EBITDAre	$	34	$	(5)	$	1	$	—	$	35	$	(5)


	Comparable Hotels (1)				Non-comparable Hotels				Total
	Six Months Ended June 30,				Six Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020		2021		2020


Total Revenues	$	217	$	172	$	18	$	46	$	235	$	218
Property-level expenses	(175)		(161)		(17)		(47)		(192)		(208)
Hotel Adjusted EBITDAre	$	42	$	11	$	1	$	(1)	$	43	$	10

_____________

(1) Comparable Hotels includes the 175 hotels in our portfolio as of June 30, 2021. During the six months ended June 30, 2021, we sold 34 hotels, and during the year ended December 31, 2020, we sold or disposed of 62 hotels.

Results of Operations

Three months ended June 30, 2021 as compared to three months ended June 30, 2020

Revenues

Room revenues for the three months ended June 30, 2021 were $135 million as compared to $70 million for the three months ended June 30, 2020, an increase of $65 million or 92.9%. The increase was primarily driven by 137.8% higher RevPAR at our Comparable Hotels for the three months ended June 30, 2021 as compared to the prior year period. The increase in RevPAR was driven primarily by a 34.0% increase in ADR and an increase in occupancy of 2,750 basis points. This increase is primarily due to increased demand in 2021 due to the COVID-19 pandemic impact to 2020 demand, particularly for business and weekday travelers. We continue to experience increased demand for our hotels located in sunbelt states, particularly Florida, Texas and Southern California. We believe this demand particularly relates to weekend and leisure locations.

These increases were partially offset by a decline in revenues due to the sales of our non-core hotels. During the six months ended June 30, 2021, we sold 34 hotels. During the year ended December 31, 2020, we sold or disposed of 62 hotels. These 96 previously sold or disposed properties contributed $8 million in revenue for the three months ended June 30, 2021 as compared to $17 million of revenue in the three months ended June 30, 2020, a decrease of $9 million.

The following table summarizes our key operating statistics for our Comparable Hotels for the three months ended June 30, 2021 and 2020:


	Three Months Ended June 30,
	2021			2020
Occupancy	63.1		%	35.6		%
ADR	$	93.46		$	69.77
RevPAR	$	58.99		$	24.81

Expenses

Rooms expense was $56 million for the three months ended June 30, 2021 as compared to $40 million for the three months ended June 30, 2020, an increase of $16 million. The increase was primarily a result of the 2020 cost containment measures put in place in response to the COVID-19 pandemic. These cost reductions primarily related to housekeeping labor, suspension of buffet style breakfast, consumable supplies and travel agency commissions and were generally in line with the decrease in room revenues. This increase is partially offset by fewer operating hotels in the hotel portfolio in 2021 as compared to 2020. We may incur additional costs in future periods, such as staff re-hiring costs, full resumption of buffet style breakfasts, cleaning costs and additional hygiene costs due to increased occupancy, increased operating requirements or other factors. Labor costs may also be affected by supply constraints and wage pressures. Such increases could be temporarily higher than our increases in revenue for certain periods.

Other departmental and support was $20 million for the three months ended June 30, 2021 as compared to $15 million for the three months ended June 30, 2020, an increase of $5 million. The increase was primarily a result of the 2020 cost containment measures we put in place in response to the COVID-19 pandemic, primarily related to discretionary maintenance, partially offset by fewer operating hotels in the hotel portfolio in 2021 as compared to 2020.

Management and royalty fees were $14 million for the three months ended June 30, 2021 as compared to $7 million for the three months ended June 30, 2020, an increase of $7 million, due to increased revenue. Our management fees are computed as 5% of total gross revenue and royalty fees are computed as 5% of total gross room revenues.

Depreciation and amortization expenses were $37 million for the three months ended June 30, 2021 as compared to $42 million for the three months ended June 30, 2020, a decrease of $5 million. The decrease was primarily the result of the effects of hotel sales and prior year impairment cost basis adjustments.

Gain on sales of real estate was $42 million for the three months ended June 30, 2021 as a result of the sale of 25 properties. We had $9 million of gain on sales of real estate for the three months ended June 30, 2020, as the result of the sale of seven properties.

We had no impairment loss for the three months ended June 30, 2021. Impairment loss was $52 million for the three months ended June 30, 2020 primarily due to lower valuation of certain of our properties in 2020 related to the impact of the COVID-19 pandemic on the lodging industry.

Interest expense was $7 million for the three months ended June 30, 2021 as compared to $12 million for the three months ended June 30, 2020, a decrease of $5 million. The decrease was primarily due to lower borrowings due to the repayment of outstanding principal, primarily in connection with hotel sales. The interest rate and the amount outstanding on our CMBS Facility was 3.06% and $564 million, respectively, as of June 30, 2021, compared to 2.91% and $851 million, respectively, as of June 30, 2020. The interest rate and the amount outstanding on our Revolving Facility was 6.13% and $75 million, respectively, as of June 30, 2021, compared to 5.16% and $110 million, respectively, as of June 30, 2020.

Six months ended June 30, 2021 as compared to six months ended June 30, 2020

Revenues

Room revenues for the six months ended June 30, 2021 were $230 million as compared to $213 million for the six months ended June 30, 2020, an increase of $17 million or 8.0%. The increase was primarily driven by 27.3% higher RevPAR at our Comparable Hotels for the six months ended June 30, 2021 as compared to the prior year period. The increase in RevPAR was driven primarily by an increase in occupancy of 1,300 basis points. The increase in occupancy is primarily as a result of increased demand in 2021 as compared to the COVID-19 pandemic impact to 2020 demand, particularly for business and weekday travelers. We continue to experience increased demand for our hotels located in sunbelt states, particularly Florida, Texas and Southern California. We believe this demand particularly relates to weekend and leisure locations.

This increase was partially offset by a decline in revenues due to the sales of our non-core hotels. During the six months ended June 30, 2021, we sold 34 hotels. We sold or disposed of 62 hotels in 2020. These 96 sold or disposed properties contributed $18 million in revenue for the six months ended June 30, 2021, as compared to $46 million for the six months ended June 30, 2020, a decrease of $28 million.

Revenues were also affected by the continued impact of the second quarter 2019 Wyndham revenue platform and room rate booking systems conversions. As a part of the Wyndham Settlement reached in October 2019, Wyndham agreed to provide enhanced revenue tools, systems and processes, which would allow our room rate bookings to benefit from automated and more timely room rate adjustments, particularly during periods of increasing or high guest demand, similar to tools and systems that were in place prior to the 2019 platform conversion. The revenue tools have been in place since the beginning of 2021, and we are currently engaged in ongoing discussions with Wyndham regarding the rollout, implementation of certain enhancements and final acceptance of the revenue tool replacement. Based on our review and operating performance through the first six months of 2021, we do not expect that the revenue tools will have a significant incremental impact on our room revenues.

The following table summarizes our key operating statistics for our Comparable Hotels for the six months ended June 30, 2021 and 2020:


	Six Months Ended June 30,
	2021			2020
Occupancy	58.1		%	45.1		%
ADR	$	84.77		$	85.74
RevPAR	$	49.24		$	38.67

Operating expenses

Rooms expense was $103 million for the six months ended June 30, 2021 as compared to $119 million for the six months ended June 30, 2020, a decrease of $16 million. The decrease was primarily a result of fewer operating hotels in the hotel portfolio in 2021 as compared to 2020 and cost containment measures put in place as a result of the COVID-19 pandemic. These cost reductions primarily relate to housekeeping labor, consumable supplies and travel agency commissions. We may incur additional costs in future periods, such as staff re-hiring costs, cleaning costs, and additional hygiene costs due to increased occupancy, increased operating requirements or other factors. Such increases could be higher than our increases in revenue.

Depreciation and amortization expenses were $75 million for the six months ended June 30, 2021 as compared to $82 million for the six months ended June 30, 2020, a decrease of $7 million. The decrease was primarily the result of the effects of hotel sales and prior year impairment cost basis adjustments.

Gain on sales of real estate was $52 million for the six months ended June 30, 2021 as a result of the sale of 34 hotels. We had gain on sales of real estate of $32 million for the six months ended June 30, 2020 as the result of the sale of 30 properties.

We had no impairment loss for the six months ended June 30, 2021. Impairment loss was $54 million for the six months ended June 30, 2020 primarily due to lower valuation of certain of our properties related to the impact of the COVID-19 pandemic on the lodging industry.

Interest expense was $14 million for the six months ended June 30, 2021 as compared to $26 million for the six months ended June 30, 2020, a decrease of $12 million. The decrease was primarily due to lower borrowings due to the repayment of outstanding principal, primarily in connection with hotel sales. The interest rate and the amount outstanding on our CMBS Facility was 3.06% and $564 million, respectively, as of June 30, 2021, compared to 2.91% and $851 million, respectively, as of June 30, 2020. The interest rate and the amount outstanding on our Revolving Facility was 6.13% and $75 million, respectively, as of June 30, 2021, compared to 5.16% and $110 million, respectively, as of June 30, 2020.

Cash Flow Analysis

Six months ended June 30, 2021 as compared to six months ended June 30, 2020

Operating activities

Net cash provided by operating activities was $36 million for the six months ended June 30, 2021, as compared to net cash used in operating activities of $20 million for the six months ended June 30, 2020, an increase of $56 million. The increase was generally consistent with the increase in Hotel Adjusted EBITDAre, explained above, and interest expense reductions due to the debt repayments from the proceeds from the sales of real estate.

Investing activities

Net cash provided by investing activities during the six months ended June 30, 2021 was $157 million, as compared to $102 million for the six months ended June 30, 2020. The $55 million increase in net cash provided by investing activities was primarily attributable to a $53 million increase in proceeds from the sales of real estate and a $6 million decrease in capital expenditures. These increases were partially offset by a $4 million decrease in insurance proceeds related to real estate casualties. Due to the COVID-19 pandemic, we have reduced or deferred certain discretionary capital expenditures. We may incur higher levels of capital expenditures in future periods.

Financing activities

Net cash used in financing activities during the six months ended June 30, 2021 was $177 million as compared to $11 million provided by financing activities during the six months ended June 30, 2020. The $188 million decrease in net cash provided by financing activities was primarily due to the 2021 debt repayment of $171 million as compared to the 2020 net proceeds from debt, net of debt repayments of $40 million. We also had cash dividends paid on common stock of $22 million during the six months ended June 30, 2020 and no cash dividends paid on common stock during the six months ended June 30, 2021. We have suspended our common stock dividend for the near term.

Our debt repayments primarily relate to the use of real estate sale proceeds to partially retire our CMBS Facility debt, as well as repayments on the Revolving Facility. To the extent we continue disposing of real estate assets as a part of our property strategy review, we expect debt repayments to be a significant use of cash flow in financing activities. During the third quarter of 2021, we are scheduled to make additional principal payments of $10 million on the Revolving Facility. To the extent we generate certain excess liquidity, as defined in the Revolver Credit Agreement, we are required to make additional principal payments up to $10 million during the fourth quarter of 2021.

Liquidity and Capital Resources

Short-term liquidity

As of June 30, 2021, we had total cash and cash equivalents of $159 million, which is our current primary source of liquidity. Our known liquidity requirements primarily consist of funds necessary to pay for operating expenses associated with our hotels and other expenditures, including corporate expenses, legal costs, interest and scheduled principal payments on our outstanding indebtedness, capital expenditures for renovations and maintenance at our hotels and other purchase commitments, primarily related to prior years’ storm and other casualty damages. We have no borrowing availability under our Revolving Facility and require consent from the Revolving Facility lenders to incur certain other indebtedness. Our CMBS Facility currently requires that all proceeds from hotel sales are applied to principal repayments. Accordingly, hotel sales are not expected to be a significant source of liquidity in the near term.

For the six months ended June 30, 2021, we reported $36 million of net cash provided by operating activities and our cash and cash equivalents increased by $16 million. The increase was primarily due to improved operations in the second quarter of 2021, where we generated $33 million of net cash from operating activities. With the increased operating cash flow, we have been able to fund our Revolving Facility principal payments of $10 million and still increase cash and cash equivalents. We are required to make additional scheduled principal payments of $10 million during the third quarter 2021. We are required to make further principal payments (up to $10 million) in the fourth quarter of 2021 to the extent our liquidity (as defined in the Revolver Credit Agreement) exceeds $100 million. Accordingly, as our operations improve and cash and cash equivalents increase, we may be required to use up to $10 million of this increased liquidity to pay down the Revolving Facility.

Not included in our cash and cash equivalents is $45 million of lender escrows. These escrows are primarily held in reserve for future capital expenditures, as discussed below, hotel operations, insurance claim repairs and collateralized issued letters of credit.

As of June 30, 2021, we are subject to a cash trap on both our Revolving Facility and our CMBS Facility. Each of the cash traps impose restrictions on our use of cash, which, so long as there is no continuing event of default, generally allow for payment of our hotel operating expenses. Certain disbursements, primarily other corporate general and administrative expenditures, dividends to common stockholders and repurchases of our common stock, would require consent of our lenders. As of June 30, 2021, the cash and cash equivalents subject to these cash traps was $69 million. In the second quarter of 2021 we began to generate surplus operating cash from the hotels, where such surplus liquidity is controlled by our lenders for the disbursements noted above. Most uses of that cash for corporate purposes or payments to stockholders require lender consents. We expect to be subject to these cash traps for the foreseeable future. Accordingly, our cash balances and the source of those balances, including amounts subject to the cash traps, represent the critical determinant of our liquidity.

As of June 30, 2021, the Revolving Facility requires that we maintain a minimum liquidity of $80 million of cash and cash equivalents, as defined, at all times. The minimum liquidity amount is reduced on a dollar-for-dollar basis in respect of 100% of the scheduled principal payments detailed above to repay and reduce the commitments under the Revolving Facility, and 50% in respect of any additional repayment amounts utilized to repay and reduce commitments under the Revolving Facility.

As of July 31, 2021, we had no borrowing availability under the Revolving Facility, and we had cash and cash equivalents of approximately $167 million, of which $88 million was not subject to cash traps and is above the July 31, 2021 minimum liquidity requirement of $75 million. We believe that this cash will be adequate to meet anticipated requirements for operating expenses, debt service and other expenditures, including corporate expenses, payroll and related benefits, dividends to preferred stockholders, legal costs, and purchase commitments under existing operating conditions for the foreseeable future. To the extent that our hotel operations required additional liquidity, we would consider contributing additional funds into the cash traps.

Our CMBS Facility matures in June 2022 with three one-year extension options remaining. Our Revolving Facility matures in May 2022 with no extension options contractually available. Our future ability to extend or refinance these debts may be dependent on future operating results and our ability to meet contractual debt service payments and other obligations. If cash flow from our operating activities is insufficient, we may then have to seek other capital sources, which to a large degree will be dependent on the current status of the capital markets, the economy and the economic recovery, particularly in the lodging industry, related to the COVID-19 pandemic.

As we execute our disposition strategy, we expect to utilize a significant portion of the net sales proceeds to retire our CMBS Facility. Accordingly, the disposition strategy may reduce our outstanding debt, and the related interest expense, but may not be a significant source of immediate liquidity. However, as we reduce our total outstanding debt, we may reduce our interest expense and improve our ability to obtain other capital sources.

Hotel Sales

In the execution of our disposition strategy, during the six months ended June 30, 2021, we sold 34 hotels for gross sales consideration of $185 million. These properties produced approximately $14 million of annual Hotel Adjusted EBITDAre in 2019; however, these sold hotels also incurred approximately $3 million of annual capital expenditures during 2019. In addition, the annual interest savings from the partial debt repayment, based on interest rates as of June 30, 2021, is estimated at $5 million.

The provisions of our CMBS Facility require that a portion of, and in certain instances all, net proceeds from a secured hotel sale be applied to the outstanding principal balance. Due to disruptions from the COVID-19 pandemic, currently all sales proceeds are required to be applied to pay down debt and accordingly, net sales proceeds will not be a near term source of liquidity. However, as the principal balance is reduced and other factors change over time, particularly if operations improve or lower EBITDA earning hotels are sold, other uses of net disposition proceeds may be available to us. Further, any remaining net sales proceeds after any applicable debt paydowns are currently subject to our lender cash traps.

As of June 30, 2021, we have 70 remaining non-core hotels. These hotels are older, have lower RevPAR and higher capital expenditures. We anticipate we will complete the sale of these properties by the end of 2022. The volume and timing of future hotel sales activity could be dependent on the participation by lenders and continuation of these incentive programs as well as the timing, scope and success of vaccine deployments. Further, if the effects of the COVID-19 pandemic reduce buyer demand and valuations for hotels, we may decide to defer the disposition of those hotels to a period when sales prices are less impacted.

We believe the completion of our disposition strategy will reposition our hotel portfolio to be more focused on our key markets with younger hotels, higher RevPAR and less capital requirements. However, as we dispose of the non-core hotels we would expect to report decreased revenue and Hotel Adjusted EBITDAre.

Capital Expenditures and Commitments

Our capital expenditures are generally paid using cash on hand and, to the extent available, cash flows from operations, although other sources discussed herein may also be used. During the six months ended June 30, 2021, we invested $8 million in hotel related capital expenditures. During the six months ended June 30, 2020, we invested $14 million in capital expenditures. Capital expenditures for the year ended December 31, 2019, related to the 34 hotels sold during the six months ended June 30, 2021, were $3 million.

As of June 30, 2021, we had outstanding commitments under capital expenditure and other contracts of $13 million related to certain continuing redevelopment and renovation projects, casualty replacements, information technology enhancements and other hotel service contracts in the ordinary course of business. Approximately $9 million of this amount relates to long-term hotel service

contracts payable over approximately three years. As the services related to these contracts are standard for our hotel operations, we expect to continue these service contracts either with the current provider or a new provider at the end of the term; however, if cancellation of a contract occurred, our commitment would be any costs incurred up to the cancellation date, in addition to any costs associated with the discharge of the contract.

Due to the impact of the COVID-19 pandemic, we are currently deferring all non-committed, non-essential capital investments and expenditures, with the exception of life safety or critical operational needs, resulting in an expected annual capital spend estimate of $15 million to $20 million. As a result of deferring certain of these capital expenditures as a result of the pandemic, we may incur higher levels of capital expenditures in future periods. Should operations improve and provide additional liquidity, we expect to prioritize certain of these deferred capital expenditures. Such capital expenditures would likely preserve existing revenue rather than generate incrementally new revenues. Our ability to fund those capital expenditures will be dependent on cash flow from operations and other sources discussed. There is no assurance those funding sources will be available or of sufficient size when needed.

Long-term Liquidity

As of June 30, 2021, we had cash and cash equivalents of $159 million and no borrowing availability under our Revolving Facility. We do not expect to have any additional borrowing capacity under our Revolving Facility for the remainder of the Revolving Facility term. As discussed above, our loan agreements require that we maintain minimum liquidity requirements and subject us to lender cash traps. Due to the disruptions to our operations from the COVID-19 pandemic and the contractual lender requirements related to these lender provisions, we are uncertain when or if these provisions will be removed prior to the full maturity of each of these debts. Maintaining minimum cash amounts and being subject to cash traps and potential excess liquidity principal payments will restrict our access to portions of our cash on hand and affect our long-term liquidity, even if our operations improve in the future. Accordingly, these lender provisions may impair our access to liquidity for new investments, stockholder payments and other corporate initiatives. We will seek to amend or refinance these debts prior to their maturity, but there is no assurance such refinancings are available to us or on favorable terms.

The Revolving Facility matures in May 2022 with no extension options. We intend to fund the repayment of the outstanding principal, $70 million as of July 31, 2021, from existing cash and cash equivalents or proceeds from refinancing.

The CMBS Facility matures in June 2022 with three remaining one-year extension options. As of June 30, 2021, the outstanding principal balance on the CMBS Facility is $564 million, a reduction of $471 million from the initial aggregate principal amount of this debt, due primarily to proceeds from hotel sales. As discussed above, we expect that future hotel sales will also be applied to reduce the outstanding principal balance. Accordingly, we may refinance the existing CMBS Facility prior to the next scheduled maturity if favorable terms are available. Otherwise, we would expect to exercise our extension option.

The Series A Preferred Stock has a mandatory redemption repayment of $15 million by 2028, with elective redemption by us beginning in 2025. Due to exceeding a leverage ratio of 7.5 to 1.0, the Series A Preferred Stock dividend rate was set at 15% per annum, beginning July 1, 2020, an increase from the previous dividend rate of 13%. The Series A Preferred Stock dividend rate will not return to the previous rate of 13% per annum until our leverage ratio is equal to or less than 7.5 to 1.0 and we are not in an uncured event of default as of the last day of a fiscal quarter. Given the disruptions to our operations from the COVID-19 pandemic, there can be no assurance when or if our future operating performance will be adequate for us to reset the Series A Preferred Stock dividend rate to the previous 13% rate.

Other than the daily liquidity requirement under our Revolving Facility, the Revolving Facility, CMBS Facility and Series A Preferred Stock do not have financial covenant requirements that would provide rights for the holders to demand payment of the outstanding amounts due to covenant or financial metric requirements. However, as discussed above, failure to meet certain financial metric requirements have resulted in cash traps, an increased dividend rate and increased amounts of hotel sales proceeds to be used to pay down outstanding debt.

The Revolving Facility and CMBS Facility each uses London Interbank Offering Rate (“LIBOR”) as a benchmark for establishing the interest rate. As a result of reference rate reform, the LIBOR index for new contracts will cease as of December 31, 2021 and the LIBOR index will no longer be published after June 30, 2023. Our Revolving Facility and CMBS Facility provide for alternate interest rate calculations, which could be implemented prior to June 30, 2023. There is no assurance that such alternative interest rate calculations will not increase our cost of borrowing under the Revolving Facility and CMBS Facility or their refinanced debt.

We may also access other debt and equity capital sources, which may include refinancing of the CMBS Facility. However, due to restrictions from the Revolving Facility, our access to such sources may require us to fully retire and terminate the Revolving Facility. Further, due to operating disruptions from the COVID-19 pandemic, such capital sources may require significant cash

reserves. Accordingly, there is no assurance that such capital sources would be available to us or that net proceeds available would be sufficient to retire the Revolving Facility or provide significant net liquidity to us.

Dividends and Share Repurchases

Dividends are authorized at the discretion of our board of directors based on an analysis of our prior performance, market distribution rates of our industry peer group, our desire to minimize our income tax liability, expectations of performance for future periods, including actual and anticipated operating cash flow, changes in market capitalization rates for investments suitable for our portfolio, capital expenditure needs, dispositions, general financial condition and other factors that our board of directors deems relevant. The board’s decision will be influenced, in part, by its obligation to ensure that we maintain our status as a REIT.

To date, income tax capital gains have not been a significant factor in our taxable income. However, as we execute our disposition strategy, we may recognize increased capital gains, which may result in additional regular or special distributions. Such distributions are not required in order to maintain REIT status and are at the discretion of our board of directors.

Our Revolver Credit Agreement restricts our ability to pay cash dividends on our common stock, except in circumstances when such dividends are required to maintain our REIT tax status.

On March 21, 2019, our board of directors authorized a $50 million share repurchase program. Due to restrictions imposed by the covenants governing our indebtedness, our share repurchase program has been temporarily suspended and no share repurchases have been made under the program since September 2019. As of June 30, 2021, approximately $21 million remained available for share repurchases under the program authorized by our board of directors.

Off-balance Sheet Arrangements

We currently have no off-balance sheet arrangements that have or are reasonably likely to have a current or future material effect on our financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

New Accounting Pronouncements

See Note 2 “Significant Accounting Policies and Recently Issued Accounting Standards” to our condensed consolidated financial statements included elsewhere in this report for a description of recently adopted accounting pronouncements.

Critical Accounting Policies and Estimates

The preparation of our financial statements in accordance with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the condensed consolidated financial statements, the reported amounts of revenues and expenses during the reporting periods and the related disclosures in the condensed consolidated financial statements and accompanying footnotes. On an ongoing basis, we evaluate these estimates and judgments based on historical experiences and various other factors that are believed to reflect the current circumstances. While we believe our estimates, assumptions and judgments are reasonable, they are based on information presently available. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K describes the critical accounting estimates used in preparation of our condensed consolidated financial statements.

There have been no material changes to our significant accounting policies or other new significant estimates that are considered material to our condensed consolidated financial statements as compared to the critical accounting policies and estimates as described in our Annual Report on Form 10-K.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Not applicable.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

As of June 30, 2021, our management, with the participation of our principal executive officer and principal financial officer, has evaluated our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired controls objectives. Based upon that evaluation, our principal executive officer and principal financial officer have concluded that, as of June 30, 2021, our disclosure controls and procedures were effective at a reasonable assurance level.

Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the quarter covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II ‑ OTHER INFORMATION

Item 1. Legal Proceedings

We are not currently party to, and none of our properties are currently subject to, any material legal proceedings. From time to time, we are a party to various claims and legal proceedings that arise in the ordinary course of business.

Item 1A. Risk Factors

For information regarding factors that could affect the Company's results of operations, financial condition and liquidity, see the risk factors discussed in “Part I - Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2020. The following additional risk factor should be read in conjunction with the risk factors contained in our Annual Report on Form 10-K.

We are exploring and evaluating potential strategic alternatives and there can be no assurance that we will be successful in

identifying or completing any strategic alternative, that any such strategic alternative will result in additional value for our

stockholders or that the process will not have an adverse impact on our business.

On July 13, 2021, we announced that our board of directors, in consultation with financial and legal advisors, has commenced a process to review and consider a broad range of potential strategic alternatives to enhance stockholder value, which could result in, among other things: a merger, consolidation or business combination; further property sales or liquidation of our assets; potential acquisitions, dispositions or recapitalizations, in one or more transactions; changes to our business; or continuing to operate with our current business plan and strategy. However, there can be no assurance that this process will result in the identification or consummation of any transaction or other action or in any improvement in our business, financial condition or results of operations. Any potential transaction or other strategic alternative, and the economic and other terms of any transaction, may be dependent upon or impacted by a number of factors that may be beyond our control, including, but not limited to: market conditions; industry trends, including in reaction to the COVID-19 pandemic; the availability of financing for us or for potential buyers on reasonable terms; adverse developments in connection with current IRS audits and any payments anticipated or required to resolve such matters; and any adverse regulatory developments or determinations or adverse changes in, or interpretations of, U.S. tax and other laws, rules or regulations that could materially impact, delay or prevent completion of any transaction or other action.

There is no timetable for the completion of the process of exploring strategic alternatives and the process may be disruptive to our business operations and, if we are unable to effectively manage the process, our business, financial condition and results of

operations could be adversely affected. In addition, the process, or any resulting transaction or change in our business plan and strategy, could divert the attention of management from our business, could negatively impact our ability to attract, retain and motivate

key employees or our third-party management companies’ ability to attract, retain and motivate hotel employees, and could expose us to potential litigation. In addition, we expect to incur substantial expenses associated with identifying and evaluating potential strategic alternatives.

No decision has been made with respect to any transaction and we cannot assure you that any potential transaction or other

strategic alternative or action, if identified, evaluated and consummated, will provide greater value to our stockholders than that reflected in the current price of our common stock. We do not intend to comment regarding the progress or status of the review process unless we determine that further disclosure is appropriate or required by law. As a consequence, perceived uncertainties related to our future may result in the loss of potential business opportunities and volatility in the market price of our common stock.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

(a)Unregistered Sales of Securities

None.

(b)Use of Proceeds

None.

(c)Issuer Purchases of Equity Securities

The following table sets forth information with respect to shares of our common stock we purchased for the quarter ended June 30, 2021:


Period	Total Number of Shares Purchased (1)	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (2)	Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (2)
April 1 through April 30, 2021	5,177	$	9.58	—	$	21,060,769
May 1 through May 31, 2021	57,838	$	10.49	—	$	21,060,769
June 1 through June 30, 2021	—	$	—	—	$	21,060,769
Total	63,015	$	10.42	—

_________

(1)Reflects shares purchased to satisfy tax withholding obligations incurred upon the vesting of restricted stock under our 2018 Omnibus Incentive Plan.

(2)On March 21, 2019, our board of directors authorized a $50 million share repurchase program. We may purchase shares of common stock in the open market, in privately negotiated transactions or in such other manner as determined by us, including through repurchase plans complying with the rules and regulations of the SEC. The share repurchase program does not obligate us to repurchase any dollar amount or number of shares of common stock and the program may be suspended or discontinued at any time. Due to restrictions imposed by the covenants governing our indebtedness, our share repurchase program has been temporarily suspended.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

Item 6. Exhibits

The following is a list of all exhibits filed or furnished as part of this report:


Exhibit No.			Description

2.1			Separation and Distribution Agreement, dated as of January 17, 2018, by and between La Quinta Holdings Inc. and CorePoint Lodging Inc. (incorporated by reference to Exhibit 2.1 to the Registrant’s Registration Statement on Form 10/A filed on April 3, 2018 (File no. 001-38168))
31.1			Certification of Periodic Report by Chief Executive Officer under Section 302 of the Sarbanes-Oxley Act of 2002
31.2			Certification of Periodic Report by Chief Financial Officer under Section 302 of the Sarbanes-Oxley Act of 2002
32.1			Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith)
32.2			Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith)
101			The following materials from the Company’s Quarterly Report on Form 10-Q for the six months ended June 30, 2021 formatted in Inline Extensible Business Reporting Language (iXBRL): (i) the Consolidated Statements of Operations, (ii) the Consolidated Balance Sheets, (iii) the Consolidated Statements of Cash Flows, (iv) the Consolidated Statements of Equity and (v) related notes.
104			Cover Page Interactive Data file (formatted as Inline XBRL and contained in Exhibit 101)

The agreements and other documents filed as exhibits to this report are not intended to provide factual information or other disclosure other than with respect to the terms of the agreements or other documents themselves, and you should not rely on them for that purpose. In particular, any representations and warranties made by us in these agreements or other documents were made solely within the specific context of the relevant agreement or document and may not describe the actual state of affairs as of the date they were made or at any other time.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


		COREPOINT LODGING INC.
		(Registrant)

Date:	August 5, 2021	By:	/s/ Keith A. Cline
			Keith A. Cline
			President and Chief Executive Officer
			(Principal Executive Officer)

Date:	August 5, 2021	By:	/s/ Daniel E. Swanstrom II
			Daniel E. Swanstrom II
			Executive Vice President and Chief Financial Officer
			(Principal Financial Officer)

Date:	August 5, 2021	By:	/s/ Howard Garfield
			Howard Garfield
			Senior Vice President, Chief Accounting Officer and Treasurer
			(Principal Accounting Officer)