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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________________________________________________________________________________
FORM 10-Q
____________________________________________________________________________________
 
☒
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended September 30, 2024

OR 
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from                                to                               
 
Commission File Number:  001-35074
 
SUMMIT HOTEL PROPERTIES, INC.
(Exact name of registrant as specified in its charter)
_____________________________________________________________________________________
Maryland 27-2962512
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)  
 
13215 Bee Cave Parkway, Suite B-300
Austin, TX  78738
(Address of principal executive offices, including zip code)
 
(512) 538-2300
(Registrant’s telephone number, including area code)
________________________________________________________________________________

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, $0.01 par valueINNNew York Stock Exchange
Series E Cumulative Redeemable Preferred Stock, $0.01 par valueINN-PENew York Stock Exchange
Series F Cumulative Redeemable Preferred Stock, $0.01 par valueINN-PFNew 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 and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405) of this chapter during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). ☒ Yes  ☐ No
 



Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☒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
 
As of October 25, 2024, the number of outstanding shares of common stock of Summit Hotel Properties, Inc. was 108,417,648.


TABLE OF CONTENTS
 
  Page
   
   
 
Condensed Consolidated Balance Sheets — September 30, 2024 (Unaudited) and December 31, 2023
 
 
 
 
   
   
   
   
   
   
   
   
   
   
   
 
i



PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Summit Hotel Properties, Inc.
Condensed Consolidated Balance Sheets
(In thousands, except share amounts)
 
September 30, 2024December 31, 2023
(Unaudited)
ASSETS
Investments in lodging property, net$2,669,478 $2,736,975 
Investment in lodging property under development5,397 1,451 
Assets held for sale, net18,621 65,736 
Cash and cash equivalents51,698 37,837 
Restricted cash7,339 9,931 
Right-of-use assets, net33,454 34,814 
Trade receivables, net20,724 21,348 
Prepaid expenses and other16,647 8,865 
Deferred charges, net6,237 6,659 
Other assets7,688 15,632 
Total assets$2,837,283 $2,939,248 
LIABILITIES, REDEEMABLE NON-CONTROLLING INTERESTS
AND EQUITY
Liabilities:
Debt, net of debt issuance costs$1,336,095 $1,430,668 
Lease liabilities, net24,879 25,842 
Accounts payable6,130 4,827 
Accrued expenses and other96,679 81,215 
Total liabilities1,463,783 1,542,552 
Commitments and contingencies (Note 11)
— — 
Redeemable non-controlling interests50,219 50,219 
Equity:  
Preferred stock, $0.01 par value per share, 100,000,000 shares authorized:
  
6.25% Series E - 6,400,000 shares issued and outstanding at September 30, 2024 and December 31, 2023 (aggregate liquidation preference of $160,861 at September 30, 2024 and December 31, 2023, respectively)
64 64 
5.875% Series F - 4,000,000 shares issued and outstanding at September 30, 2024 and December 31, 2023 (aggregate liquidation preference of $100,506 at September 30, 2024 and December 31, 2023, respectively)
40 40 
Common stock, $0.01 par value per share, 500,000,000 shares authorized, 108,453,266 and 107,593,373 shares issued and outstanding at September 30, 2024 and December 31, 2023, respectively
1,085 1,076 
Additional paid-in capital1,244,335 1,238,896 
Accumulated other comprehensive income4,959 10,967 
Accumulated deficit and distributions in excess of retained earnings(339,047)(339,848)
Total stockholders’ equity911,436 911,195 
Non-controlling interests411,845 435,282 
Total equity1,323,281 1,346,477 
Total liabilities, redeemable non-controlling interests and equity$2,837,283 $2,939,248 
See Notes to the Condensed Consolidated Financial Statements

1

Summit Hotel Properties, Inc.
Condensed Consolidated Statements of Operations
(Unaudited)
(In thousands, except per share amounts)
Three Months Ended
September 30,		Nine Months Ended
September 30,
2024202320242023
Revenues:
Room$157,408 $161,712 $497,864 $498,982 
Food and beverage9,272 9,949 30,174 30,848 
Other10,127 10,155 30,814 28,862 
Total revenues176,807 181,816 558,852 558,692 
Expenses:
Room37,286 37,510 111,303 112,207 
Food and beverage7,289 7,684 23,130 23,679 
Other lodging property operating expenses56,330 55,826 170,061 169,780 
Property taxes, insurance and other13,250 14,369 40,822 43,308 
Management fees2,728 4,177 12,059 13,974 
Depreciation and amortization36,708 37,882 109,965 112,300 
Corporate general and administrative7,473 8,126 24,488 25,225 
Transaction costs10 — 10 24 
Recovery of credit losses— (250)— (500)
Total expenses161,074 165,324 491,838 499,997 
Gain (loss) on disposal of assets, net22 (16)28,439 (336)
Operating income15,755 16,476 95,453 58,359 
Other income (expense):
Interest expense(20,428)(22,020)(62,840)(65,177)
Interest income450 474 1,473 1,190 
Gain on extinguishment of debt— — 3,000 — 
Other income, net999 661 3,813 458 
Total other expense, net(18,979)(20,885)(54,554)(63,529)
(Loss) income from continuing operations before income taxes(3,224)(4,409)40,899 (5,170)
Income tax expense (Note 13)(332)(1,360)(2,924)(1,679)
Net (loss) income(3,556)(5,769)37,975 (6,849)
Less - Loss attributable to non-controlling interests3,908 4,955 362 9,306 
Net income (loss) attributable to Summit Hotel Properties, Inc. before preferred dividends352 (814)38,337 2,457 
Less - Distributions to and accretion of redeemable non-controlling interests(656)(656)(1,970)(1,970)
Less - Preferred dividends(3,968)(3,968)(11,906)(11,906)
Net (loss) income attributable to common stockholders$(4,272)$(5,438)$24,461 $(11,419)
(Loss) income per common share:
Basic$(0.04)$(0.05)$0.23 $(0.11)
Diluted$(0.04)$(0.05)$0.21 $(0.11)
Weighted-average common shares outstanding:
Basic106,033 105,650 105,891 105,510 
Diluted106,033 105,650 150,003 105,510 
See Notes to the Condensed Consolidated Financial Statements

2

Summit Hotel Properties, Inc.
Condensed Consolidated Statements of Comprehensive Income (Loss)
(Unaudited)
(In thousands)
Three Months Ended
September 30,		Nine Months Ended
September 30,
2024202320242023
Net (loss) income$(3,556)$(5,769)$37,975 $(6,849)
Other comprehensive (loss) income, net of tax:
Changes in fair value of derivative financial instruments(13,040)3,640 (7,907)10,225 
Comprehensive (loss) income(16,596)(2,129)30,068 3,376 
Comprehensive loss attributable to non-controlling interests7,475 4,140 2,261 5,375 
Comprehensive (loss) income attributable to Summit Hotel Properties, Inc.(9,121)2,011 32,329 8,751 
Distributions to and accretion on redeemable non-controlling interests(656)(656)(1,970)(1,970)
Preferred dividends and distributions(3,968)(3,968)(11,906)(11,906)
Comprehensive (loss) income attributable to common stockholders$(13,745)$(2,613)$18,453 $(5,125)
See Notes to the Condensed Consolidated Financial Statements

3

Summit Hotel Properties, Inc.
Condensed Consolidated Statements of Changes in Equity and Redeemable Non-controlling Interests
For the Three Months Ended September 30, 2024 and 2023
(Unaudited)
(In thousands, except share amounts)
Redeemable Non-controlling InterestsShares
 of Preferred
Stock		Preferred
Stock		Shares
of Common
Stock		Common
Stock		Additional
Paid-In Capital		Accumulated
Comprehensive
Income (Loss)		Accumulated
Deficit and
Distributions		Stockholders’
Equity		Non-controlling InterestsTotal
Equity
Balance at June 30, 2024$50,219 10,400,000 $104 108,276,243 $1,083 $1,242,436 $14,432 $(326,108)$931,947 $427,370 $1,359,317 
Adjustment of redeemable non-controlling interests to redemption value656 — — — — — — (656)(656)— (656)
Contributions by non-controlling interest in joint venture— — — — — — — — — 134 134 
Common stock redemption of common units— — — 5,000 — 47 — — 47 (47)— 
Dividends and distributions on common stock and common units— — — — — — — (8,667)(8,667)(1,275)(9,942)
Preferred dividends and distributions(656)— — — — — — (3,968)(3,968)— (3,968)
Joint venture partner distributions— — — — — — — — — (6,862)(6,862)
Equity-based compensation— — — 172,023 2 1,852 — — 1,854 — 1,854 
Other comprehensive loss— — — — — — (9,473)— (9,473)(3,567)(13,040)
Net income (loss)— — — — — — — 352 352 (3,908)(3,556)
Balance at September 30, 2024$50,219 10,400,000 $104 108,453,266 $1,085 $1,244,335 $4,959 $(339,047)$911,436 $411,845 $1,323,281 
Balance at June 30, 2023$50,219 10,400,000 $104 107,569,738 $1,076 $1,234,947 $18,007 $(304,888)$949,246 $462,730 $1,411,976 
Adjustment of redeemable non-controlling interests to redemption value656 — — — — — — (656)(656)— (656)
Common stock redemption of common units— — — 7,000 — 68 — — 68 (68)— 
Dividends and distributions on common stock and common units— — — — — — — (6,454)(6,454)(958)(7,412)
Preferred dividends and distributions(656)— — — — — — (3,968)(3,968)— (3,968)
Joint venture partner distributions— — — — — — — — — (4,518)(4,518)
Equity-based compensation— — — — — 1,867 — — 1,867 — 1,867 
Shares of common stock acquired for employee withholding requirements— — — (3,249)— (18)— — (18)— (18)
Other comprehensive income— — — — — — 2,825 — 2,825 815 3,640 
Net loss— — — — — — — (814)(814)(4,955)(5,769)
Balance at September 30, 2023$50,219 10,400,000 $104 107,573,489 $1,076 $1,236,864 $20,832 $(316,780)$942,096 $453,046 $1,395,142 
See Notes to the Condensed Consolidated Financial Statements

4

Summit Hotel Properties, Inc.
Condensed Consolidated Statements of Changes in Equity and Redeemable Non-controlling Interests
For the Nine Months Ended September 30, 2024 and 2023
(Unaudited)
(In thousands, except share amounts)
Redeemable Non-controlling InterestsShares
 of Preferred
Stock		Preferred
Stock		Shares
of Common
Stock		Common
Stock		Additional
Paid-In Capital		Accumulated
Comprehensive
Income (Loss)		Accumulated
Deficit and
Distributions		Stockholders’
Equity		Non-controlling InterestsTotal
Equity
Balance at December 31, 2023$50,219 10,400,000 $104 107,593,373 $1,076 $1,238,896 $10,967 $(339,848)$911,195 $435,282 $1,346,477 
Adjustment of redeemable non-controlling interests to redemption value1,970 — — — — — — (1,970)(1,970)— (1,970)
Contributions by non-controlling interest in joint venture— — — — — — — — — 356 356 
Common stock redemption of common units— — — 5,310 — 50 — — 50 (50)— 
Dividends and distributions on common stock and common units
— — — — — — — (23,660)(23,660)(3,507)(27,167)
Preferred dividends and distributions(1,970)— — — — — — (11,906)(11,906)(150)(12,056)
Joint venture partner distributions— — — — — — — — — (17,825)(17,825)
Equity-based compensation— — — 999,237 10 6,327 — — 6,337 — 6,337 
Shares of common stock acquired for employee withholding requirements— — — (144,654)(1)(938)— — (939)— (939)
Other comprehensive loss— — — — — — (6,008)— (6,008)(1,899)(7,907)
Net income (loss)— — — — — — — 38,337 38,337 (362)37,975 
Balance at September 30, 2024$50,219 10,400,000 $104 108,453,266 $1,085 $1,244,335 $4,959 $(339,047)$911,436 $411,845 $1,323,281 
Balance at December 31, 2022$50,219 10,400,000 $104 106,901,576 $1,069 $1,232,302 $14,538 $(288,200)$959,813 $448,137 $1,407,950 
Adjustment of redeemable non-controlling interests to redemption value1,970 — — — — — — (1,970)(1,970)— (1,970)
Sale of non-controlling interests in joint venture— — — — — — — — — 1,353 1,353 
Contributions by non-controlling interest in joint venture— — — — — — — — — 20,532 20,532 
Common stock redemption of common units— — — 7,000 — 68 — — 68 (68)— 
Dividends and distributions on common stock and common units
— — — — — — — (17,161)(17,161)(2,555)(19,716)
Preferred dividends and distributions(1,970)— — — — — — (11,906)(11,906)(161)(12,067)
Joint venture partner distributions— — — — — — — — — (8,673)(8,673)
Equity-based compensation— — — 848,942 8 5,905 — — 5,913 — 5,913 
Shares of common stock acquired for employee withholding requirements— — — (184,029)(1)(1,387)— — (1,388)— (1,388)
Other comprehensive income— — — — — — 6,294 — 6,294 3,931 10,225 
Other— — — — — (24)— — (24)(144)(168)
Net income (loss)— — — — — — — 2,457 2,457 (9,306)(6,849)
Balance at September 30, 2023$50,219 10,400,000 $104 107,573,489 $1,076 $1,236,864 $20,832 $(316,780)$942,096 $453,046 $1,395,142 
See Notes to the Condensed Consolidated Financial Statements

5

Summit Hotel Properties, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(In thousands)
Nine Months Ended September 30,
20242023
OPERATING ACTIVITIES
Net income (loss)$37,975 $(6,849)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization109,965 112,300 
Amortization of debt issuance costs4,880 4,379 
Recovery of credit losses— (500)
Equity-based compensation6,337 5,913 
(Gain) loss on disposal of assets, net(28,439)336 
Gain on extinguishment of debt(3,000)— 
Non-cash interest income(400)(433)
Debt transaction costs647 352 
Other210 623 
Changes in operating assets and liabilities:
Trade receivables, net625 (3,195)
Prepaid expenses and other(4,853)6,645 
Accounts payable798 1,005 
Accrued expenses and other9,393 2,591 
NET CASH PROVIDED BY OPERATING ACTIVITIES134,138 123,167 
INVESTING ACTIVITIES
Acquisitions of lodging properties— (44,614)
Improvements to lodging properties(61,529)(63,027)
Investment in lodging property under development(3,946)— 
Proceeds from tax incentive9,896 — 
Proceeds from asset dispositions, net92,168 27,632 
Escrow deposits(2,900)— 
Funding of real estate loans— (4,576)
Repayments of real estate loans— 250 
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES33,689 (84,335)
FINANCING ACTIVITIES
Proceeds from borrowings on revolving line of credit100,000 65,000 
Repayments of revolving line of credit(100,000)(65,000)
Principal payments on debt(94,138)(1,784)
Proceeds from the sale of non-controlling interests— 1,353 
Dividends and distributions paid on common stock and common units(27,024)(19,596)
Preferred dividends and distributions paid(14,026)(14,037)
Contributions by non-controlling interests in joint venture356 20,332 
Distributions to joint venture partners(17,825)(8,673)
Financing fees, debt transaction costs and other issuance costs(2,962)(10,272)
Repurchase of shares of common stock for withholding requirements(939)(1,388)
NET CASH USED IN FINANCING ACTIVITIES(156,558)(34,065)
Net change in cash, cash equivalents and restricted cash11,269 4,767 
CASH, CASH EQUIVALENTS AND RESTRICTED CASH  
Beginning of period47,768 61,808 
End of period$59,037 $66,575 
RECONCILIATION OF CASH, CASH EQUIVALENTS AND RESTRICTED CASH WITHIN THE CONDENSED CONSOLIDATED BALANCE SHEET TO THE AMOUNTS SHOWN IN THE STATEMENT OF CASH FLOWS ABOVE:
Cash and cash equivalents$51,698 $55,307 
Restricted cash7,339 11,268 
TOTAL CASH, CASH EQUIVALENTS AND RESTRICTED CASH$59,037 $66,575 
See Notes to the Condensed Consolidated Financial Statements

6

SUMMIT HOTEL PROPERTIES, INC. 
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
NOTE 1 - DESCRIPTION OF BUSINESS
 
General

Summit Hotel Properties, Inc. (the “Company”) is a self-managed lodging property investment company that was organized in June 2010 as a Maryland corporation. The Company holds both general and limited partnership interests in Summit Hotel OP, LP (the “Operating Partnership”), a Delaware limited partnership also organized in June 2010. Unless the context otherwise requires, “we,” “us,” and “our” refer to the Company and its consolidated subsidiaries.
 
We focus on owning lodging properties with efficient operating models that generate strong margins and investment returns. At September 30, 2024, our portfolio consisted of 96 lodging properties with a total of 14,255 guestrooms located in 24 states. At September 30, 2024, we own 100% of the outstanding equity interests in 54 of the 96 lodging properties. We own a 51% controlling interest in 39 lodging properties through a joint venture that was formed in July 2019 with USFI G-Peak, Ltd. ("GIC"), a private limited company incorporated in the Republic of Singapore (the "GIC Joint Venture"). We also own 90% equity interests in two separate joint ventures (the "Brickell Joint Venture" and the "Onera Joint Venture"). The Brickell Joint Venture owns two lodging properties, and the Onera Joint Venture owns one lodging property.

At September 30, 2024, 86% of our guestrooms were located in the top 50 metropolitan statistical areas (“MSAs”), 91% were located within the top 100 MSAs, and over 99% of our guestrooms operate under premium franchise brands owned by Marriott® International, Inc. (“Marriott”), Hilton® Worldwide (“Hilton”), Hyatt® Hotels Corporation (“Hyatt”), and InterContinental® Hotels Group (“IHG”).

Substantially all of our assets are held by, and all of our operations are conducted through, the Operating Partnership. Through a wholly-owned subsidiary, we are the sole general partner of the Operating Partnership. At September 30, 2024, we owned, directly and indirectly, approximately 87% of the Operating Partnership’s issued and outstanding common units of limited partnership interest (“Common Units”), and all of the Operating Partnership’s issued and outstanding 6.25% Series E and 5.875% Series F preferred units of limited partnership interest. NewcrestImage (as defined in Note 5 - Debt to the Condensed Consolidated Financial Statements) owns all of the issued and outstanding 5.25% Series Z Cumulative Perpetual Preferred Units (liquidation preference $25 per unit) of the Operating Partnership ("Series Z Preferred Units") as a result of the NCI Transaction (described in Note 5 - Debt to the Condensed Consolidated Financial Statements). We collectively refer to preferred units of limited partnership interests of our Operating Partnership as "Preferred Units."

Pursuant to the Operating Partnership’s partnership agreement, we have full, exclusive and complete responsibility and discretion in the management and control of the Operating Partnership, including the ability to cause the Operating Partnership to enter into certain major transactions including acquisitions, dispositions, refinancings, to make distributions to partners, and to cause changes in the Operating Partnership’s business activities.

We have elected to be taxed as a real estate investment trust (“REIT”) for federal income tax purposes. To qualify as a REIT, we cannot operate or manage our lodging properties. Accordingly, all of our lodging properties are leased to our taxable REIT subsidiaries (“TRS Lessees” or "TRSs") and managed by professional third-party lodging property management companies.

7

NOTE 2 - BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
 
Basis of Presentation
 
We prepare our Condensed Consolidated Financial Statements in conformity with U.S. Generally Accepted Accounting Principles (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X under the Securities Exchange Act of 1934, as amended, which requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the Condensed Consolidated Financial Statements and reported amounts of revenues and expenses in the reporting period. Actual results could differ from those estimates. As interim statements, the Condensed Consolidated Financial Statements do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring items) considered necessary for a fair presentation in accordance with GAAP have been included. Results for the three and nine months ended September 30, 2024 may not be indicative of the results that may be expected for the full year of 2024. For further information, please read the Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, 2023.

The accompanying Condensed Consolidated Financial Statements consolidate the accounts of all entities in which we have a controlling financial interest, as well as variable interest entities, if any, for which the Company is the primary beneficiary. All significant intercompany balances and transactions have been eliminated in the Condensed Consolidated Financial Statements.

We evaluate joint venture partnerships to determine if they should be consolidated based on whether the partners exercise joint control. For a joint venture where we exercise primary control and we also own a majority of the equity interests, we consolidate the joint venture partnership. We have consolidated the accounts of all of our joint venture partnerships in the accompanying Condensed Consolidated Financial Statements.

Use of Estimates

Our Condensed Consolidated Financial Statements are prepared in conformity with GAAP, which requires us to make estimates based on assumptions about current and, for some estimates, future economic and market conditions that affect reported amounts and related disclosures in our Condensed Consolidated Financial Statements. Although our current estimates contemplate current and expected future conditions, as applicable, it is reasonably possible that actual conditions could significantly differ from our expectations, which could materially affect our consolidated financial position and results of operations.

Trade Receivables and Current Estimate of Credit Losses

We grant credit to qualified guests, generally without collateral, in the form of trade accounts receivable. Trade receivables result from the rental of guestrooms and the sales of food, beverage, and banquet services and are payable under normal trade terms. Trade receivables also include credit and debit card transactions that are in the process of being settled. Trade receivables are stated at the amount billed to the guest and do not accrue interest. We regularly review the collectability of our trade receivables. A provision for losses is determined based on previous loss experience and current economic conditions. Our allowance for doubtful accounts was $0.1 million at both September 30, 2024 and December 31, 2023. Bad debt expense was $0.1 million and $0.2 million for the three months ended September 30, 2024 and 2023, respectively, and $0.3 million for each of the nine month periods ended September 30, 2024 and 2023.

Investments in Lodging Property, net
 
The Company allocates the purchase price of acquired lodging properties based on the relative fair values of the acquired land, land improvements, building, furniture, fixtures and equipment, identifiable intangible assets or liabilities, other assets, and assumed liabilities. Intangible assets may include certain value associated with the on-going operations of the lodging business being acquired as part of the property acquisition. Acquired intangible assets that derive their values from real property, or an interest in real property, are inseparable from that real property or interest in real property, do not produce or contribute to the production of income other than consideration for the use or occupancy of space, and are recorded as a component of the related real estate asset in our Condensed Consolidated Financial Statements. We allocate the purchase price of acquired lodging properties to land, building and furniture, fixtures and equipment based on independent third-party appraisals.

8

Our lodging properties and related assets are recorded at cost, less accumulated depreciation and amortization. We capitalize development costs and the costs of significant additions and improvements that materially upgrade, increase the value or extend the useful life of the property. These costs may include development, refurbishment, renovation, and remodeling expenditures, as well as certain indirect internal costs related to construction projects. If an asset requires a period of time in which to carry out the activities necessary to bring it to the condition necessary for its intended use, the interest cost incurred during that period as a result of expenditures for the asset is capitalized as part of the cost of the asset. We expense the cost of repairs and maintenance as incurred.
 
We generally depreciate our lodging properties and related assets using the straight-line method over their estimated useful lives as follows:

Classification Estimated Useful Lives
Buildings and improvements
6 to 40 years
Furniture, fixtures and equipment
2 to 15 years
 
We periodically re-evaluate asset lives based on current assessments of remaining utilization, which may result in changes in estimated useful lives. Such changes are accounted for prospectively and will increase or decrease future depreciation expense. 

When depreciable property and equipment is retired or disposed, the related costs and accumulated depreciation are removed from the balance sheet and any gain or loss is reflected in current operations. 

On a limited basis, we provide financing to developers of lodging properties for development projects. We evaluate these arrangements to determine if we participate in residual profits of the lodging property through the loan provisions or other agreements. Where we conclude that these arrangements are more appropriately treated as an investment in the real property, we reflect the loan in Investments in lodging property, net in our Condensed Consolidated Balance Sheets.

We monitor events and changes in circumstances for indicators that the carrying value of a lodging property or undeveloped land may be impaired. Additionally, we perform at least annual reviews to monitor the factors that could trigger an impairment. Factors that we consider for an impairment analysis include, among others: i) significant underperformance relative to historical or anticipated operating results, ii) significant changes in the manner of use of a property or the strategy of our overall business, including changes in the estimated holding periods for lodging properties and land parcels, iii) a significant increase in competition, iv) a significant adverse change in legal factors or regulations, v) changes in values of comparable land or lodging property sales, vi) significant negative industry or economic trends, and fair value less costs to sell of lodging properties held for sale relative to the contractual selling price. When such factors are identified, we prepare an estimate of the undiscounted future cash flows of the specific property and determine if the carrying amount of the asset is recoverable. If the carrying amount of the asset is not recoverable, we estimate the fair value of the property based on discounted cash flows or sales price if the property is under contract and an adjustment is made to reduce the carrying value of the property to its estimated net fair value.
 
Assets Held for Sale

We classify assets as Assets held for sale in the period in which certain criteria are met, including when the sale of the asset within one year is probable. Assets classified as Assets held for sale are no longer depreciated and are carried at the lower of carrying amount or its expected selling price less estimated costs of disposition (its fair value). We record a write-down when the carrying amounts of Assets held for sale exceed their fair value.

If we subsequently decide not to sell a long-lived asset (disposal group) classified in Assets held for sale, or if a long-lived asset (disposal group) no longer meets the Assets held for sale criteria, a long-lived asset (disposal group) is reclassified as Investments in lodging property, net in the period in which the Assets held for sale criteria are no longer met. A long-lived asset that is reclassified from Assets held for sale to Investments in lodging property, net is measured individually at the lower of either its:

i.)    Carrying amount before it was classified as Assets held for sale, adjusted for any depreciation (amortization) expense or impairment losses that would have been recognized had the asset (group) been continuously classified as Investments in lodging property, net; or
ii.)    Fair value at the date of the subsequent decision not to sell.

9

Segment Disclosure

Accounting Standards Codification (“ASC”) No. 280, Segment Reporting, establishes standards for reporting financial and descriptive information about an enterprise’s reportable segments. We have determined that we have one reportable operating segment for activities related to investing in real estate; thus, all required financial segment information is included in the Condensed Consolidated Financial Statements as a single operating segment because all of our lodging properties have similar economic characteristics, facilities, and services.

Exchange or Modification of Debt

We consider modifications or exchanges of debt as extinguishments in accordance with ASC No. 470, Debt, with gains or losses recognized in current earnings if the terms of the new debt and original instrument are substantially different. If the original and new debt instruments are substantially different, the original debt is derecognized and the new debt is initially recorded at fair value, with the difference recognized as an extinguishment gain or loss. Under an exchange or modification accounted for as a debt extinguishment, fees paid to the lenders are included in the gain or loss on extinguishment of debt. Costs incurred with third parties, such as legal fees, directly related to the exchange or modification are capitalized as deferred financing costs and amortized over the initial term of the new debt. Previously deferred fees and costs for existing debt are included in the calculation of gain or loss. Under an exchange or modification not accounted for as a debt extinguishment, fees paid to the lenders are reflected as additional debt discount and amortized as non-cash interest expense over the remaining initial term of the exchanged or modified debt. Furthermore, costs incurred with third parties, such as legal fees, directly related to the exchange or modification are expensed as incurred. Additionally, previously deferred fees and costs are amortized as non-cash interest expense over the remaining initial term of the exchanged or modified debt.

Government Grants

Government grants whose primary condition is for the purchase, construction or acquisition of long-term assets are accounted for in accordance with ASU 2021-10, Government Assistance. We record government grants in profit or loss on a systematic basis over the periods in which we recognize as expenses the related costs for which the grants are intended to compensate. Government grants related to assets are presented in our Condensed Consolidated Balance Sheets by deducting the grant in arriving at the carrying amount of the asset. Therefore, the grant is recognized in profit or loss over the life of the depreciable asset as a credit to depreciation expense.

New Accounting Standards

In November 2023, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2023-07, Segment Reporting (Topic 280). ASU 2023-07 will improve financial reporting by requiring disclosure of incremental segment information on an annual and interim basis for all public entities to enable investors to develop more decision-useful financial analyses. Although we operate only a single segment, ASU 2023-07 will require us to adhere to all disclosure requirements of the pronouncement which includes among other things, disclosures related to our chief operating decision maker. ASU 2023-07 is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. The adoption of ASU 2023-07 will not have a material effect on our Consolidated Financial Statements.

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. ASU 2023-09 includes amendments that further enhance income tax disclosures, primarily through standardization and disaggregation of rate reconciliation categories and income taxes paid by jurisdiction. ASU 2023-09 is effective for annual periods beginning after December 15, 2024. Early adoption is permitted for annual financial statements that have not yet been issued or made available for issuance. The adoption of ASU 2023-09 will not have a material effect on our Consolidated Financial Statements.

Reclassifications

A lodging property with a carrying amount of approximately $8.0 million that was classified as Assets held for sale at December 31, 2023 has been reclassified to Investments in lodging property, net during the three months ended September 30, 2024 as the lodging property no longer meets the Assets held for sale criteria as of that date. We recorded additional depreciation expense of $0.2 million during the three months ended September 30, 2024 related to depreciation expense that would have been recognized had the lodging property been continuously classified as Investments in lodging property, net.

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NOTE 3 - INVESTMENTS IN LODGING PROPERTY, NET
 
Investments in Lodging Property, net

Investments in lodging property, net is as follows (in thousands):
September 30, 2024December 31, 2023
Lodging buildings and improvements$2,800,853 $2,798,667 
Land374,213 375,413 
Furniture, fixtures and equipment281,758 269,682 
Construction in progress52,536 41,359 
Intangible assets32,267 39,954 
Real estate development loan, net4,576 4,176 
3,546,203 3,529,251 
Less accumulated depreciation and amortization(876,725)(792,276)
$2,669,478 $2,736,975 

Depreciation and amortization expense related to our lodging properties (excluding amortization of franchise fees) was $36.5 million and $37.7 million for the three months ended September 30, 2024 and 2023, respectively, and $109.5 million and $111.9 million for the nine months ended September 30, 2024 and 2023, respectively.

During the three months ended September 30, 2024, the GIC Joint Venture received a $9.9 million tax incentive payment from the City of Dallas related to the NCI Transaction (described in Note 5 - Debt to the Condensed Consolidated Financial Statements). We recorded the payment as a reduction to the accounting basis of the related depreciable assets during the three months ended September 30, 2024.

Lodging Property Acquisitions

We acquired the following properties during the nine months ended September 30, 2023 (in thousands):

Date AcquiredBrand/Hotel NameLocationGuestroomsPurchase
Price
June 2023Residence Inn by MarriottScottsdale, AZ120$29,000 
June 2023Nordic LodgeSteamboat Springs, CO4713,700 
Total167$42,700 

All of the acquisitions completed during the nine months ended September 30, 2023 were recorded as asset acquisitions. As such, we allocated the aggregate purchase price paid for each transaction to the net assets acquired based on their relative fair values. In determining relative fair values, we made significant estimates regarding replacement costs for the buildings and furniture, fixtures and equipment, and judgments related to certain market assumptions. Acquisition costs related to the transactions have been capitalized as part of the recorded amounts of the acquired net assets.

The allocation of the aggregate purchase prices to the fair value of assets and liabilities acquired for the above acquisitions is as follows (in thousands):
Nine Months Ended
September 30, 2023
Land$12,257 
Lodging buildings and improvements29,225 
Furniture, fixtures and equipment1,331 
Net assets acquired (1)
$42,813 

(1)    Net assets acquired during the nine months ended September 30, 2023 is based on an aggregate purchase price of $42.7 million plus transaction costs of $0.1 million. Additionally, during the nine months ended September 30, 2023, we capitalized $2.0 million related to contingent consideration paid to the seller of the Onera property in Fredericksburg, TX. See Note 9 - Non-controlling Interests and Redeemable Non-controlling Interests for details related to the Onera Joint Venture.

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We did not acquire any lodging properties during the three and nine months ended September 30, 2024.

Lodging Property Sales

The properties sold during the nine months ended September 30, 2024 were as follows:

Portfolio of Two Lodging Properties - New Orleans, LA

In April 2024, we completed the sale of the 202-guestroom Courtyard by Marriott and the 208-guestroom SpringHill Suites by Marriott, both located in New Orleans, LA, for an aggregate selling price of $73.0 million, which resulted in a gain of approximately $28.3 million that was recorded in the nine months ended September 30, 2024.

Hilton Garden Inn - Bryan (College Station), TX

In April 2024, we completed the sale of the 119-guestroom Hilton Garden Inn - Bryan (College Station), TX for $11.0 million. The net selling price of the lodging property approximated its net book value on the closing date.

Hyatt Place - Dallas (Plano), TX

In February 2024, we completed the sale of the 127-guestroom Hyatt Place - Dallas (Plano), TX for $10.3 million. We recorded a nominal gain on the sale during the nine months ended September 30, 2024 upon closing the transaction.

The properties sold during the nine months ended September 30, 2023 were as follows:

Sale of a Portfolio of Four Lodging Properties

In May 2023, we completed the sale of four lodging properties (the "Sale Portfolio") for an aggregate gross selling price of $28.1 million. The properties sold include the following:

Franchise/BrandLocationGuestrooms
Hyatt PlaceChicago (Lombard/Oak Brook), IL151
Hyatt PlaceChicago (Hoffman Estates), IL126
Hilton Garden InnMinneapolis (Eden Prairie), MN97
Holiday Inn Express & SuitesMinneapolis (Minnetonka), MN93
467

The sales proceeds approximated the net carrying amount of the Sale Portfolio at closing.

Additional Lodging Property Disposition

During the third quarter of 2024, we entered into a purchase and sale agreement to sell the 101-guestroom Four Points by Marriott San Francisco Airport hotel for an aggregate selling price of $17.7 million, at which time we reclassified the carrying value of the property to Assets held for sale, net. We closed on the sale of the property on October 23, 2024 according to the terms of the agreement and will recognize a gain of approximately $0.4 million in the fourth quarter of 2024.



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Assets Held for Sale, net

Assets held for sale, net is as follows (in thousands):
September 30, 2024December 31, 2023
Under Contract for Sale:
Four Points by Marriott - San Francisco, CA
$16,971 $— 
Courtyard by Marriott and SpringHill Suites - New Orleans, LA
— 43,504 
Hilton Garden Inn - Bryan (College Station), TX— 10,642 
Hyatt Place - Dallas (Plano), TX— 9,940 
Parcel of undeveloped land - San Antonio, TX1,225 1,225 
18,196 65,311 
Marketed for Sale:
Parcel of undeveloped land - Flagstaff, AZ425 425 
$18,621 $65,736 

The parcel of undeveloped land in San Antonio, TX is currently under contract to sell, and the sale is expected to close in the first quarter of 2025.

Intangible Assets

Intangible assets, net is as follows (in thousands):
<
September 30, 2024December 31, 2023
Indefinite-lived intangible assets:
Air rights$10,754 $10,754 
Other80 80 
10,834 10,834 
Finite-lived intangible assets:
Tax incentives