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 June 30, 2022
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: 000-55461

WATERMARK LODGING TRUST, INC.

(Exact name of registrant as specified in its charter)

Maryland		46-5765413
(State of incorporation)		(I.R.S. Employer Identification No.)
150 N. Riverside Plaza
Chicago,	Illinois	60606
(Address of principal executive office)		(Zip Code)

(847) 482-8600

(Registrant’s telephone numbers, including area code)

Securities registered pursuant to Section 12(b) of the Act: None

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 þ No o

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 þ No o

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	o	Accelerated filer	o	Non-accelerated filer	☑
Smaller reporting company	o	Emerging growth company	o

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

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

Registrant has 168,091,251 shares of Class A common stock, $0.001 par value, and 61,095,773 shares of Class T common stock, $0.001 par value, outstanding at August 5, 2022.

INDEX

		Page No.
PART I — FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
	Consolidated Balance Sheets as of June 30, 2022 and December 31, 2021	2
	Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2022 and 2021	3
	Consolidated Statements of Comprehensive Income (Loss) for the Three and Six Months Ended    June 30, 2022 and 2021	4
	Consolidated Statements of Equity for the Three and Six Months Ended June 30, 2022 and 2021	5
	Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2022 and 2021	7
	Notes to Consolidated Financial Statements	8
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		25
Item 3. Quantitative and Qualitative Disclosures About Market Risk		37
Item 4. Controls and Procedures		38
PART II — OTHER INFORMATION
Item 2. Unregistered Sales of Equity Securities		39
Item 6. Exhibits		40
Signatures		41

Forward-Looking Statements

This Quarterly Report on Form 10-Q (this “Report”), including Management’s Discussion and Analysis of Financial Condition and Results of Operations, in Item 2 of Part I of this Report, contains forward-looking statements within the meaning of the federal securities laws. These forward-looking statements generally are identified by the words “believe,” “project,” “expect,” “anticipate,” “estimate,” “intend,” “strategy,” “plan,” “may,” “should,” “will,” “would,” “will be,” “will continue,” “will likely result,” and similar expressions. These statements are based on the current expectations of our management. Forward-looking statements in this Report include, among others, statements regarding: the closing of our pending acquisition by funds managed by Brookfield as discussed herein, the impact of the July 2020 Capital Raise (as defined herein), our expectations regarding the impacts on our business of the outbreak of the novel coronavirus (“COVID-19”) pandemic, the impact of hurricanes and other natural disasters on certain hotels, including the condition of the properties and cost estimates, and the impact of rising fuel prices and inflation generally on the travel industry and demand for hotels. It is important to note that our actual results could be materially different from those projected in such forward-looking statements. There are a number of risks and uncertainties that could cause actual results to differ materially from these forward-looking statements. Other unknown or unpredictable risks or uncertainties, like the risk that our pending merger may not close when anticipated if at all, risks related to effects of pandemics and global outbreaks of contagious diseases or the fear of such outbreaks, like the current COVID-19 pandemic, and risks relating to the outbreak of hostilities in Ukraine, could also have material adverse effects on our business, financial condition, liquidity, results of operations, modified funds from operations (“MFFO”), and prospects. You should exercise caution in relying on forward-looking statements, as they involve known and unknown risks, uncertainties and other factors that may materially affect our future results, performance, achievements or transactions. Information on factors that could impact actual results and cause them to differ from what is anticipated in the forward-looking statements contained herein is included in this Report as well as in our other filings with the Securities and Exchange Commission (“SEC”), including but not limited to those described in Part I, Item 1A. Risk Factors in our Annual Report on Form 10-K/A for the year ended December 31, 2021 as filed with the SEC on April 27, 2022 (the “2021 Annual Report”). Except as required by federal securities laws and the rules and regulations of the SEC, we do not undertake to revise or update any forward-looking statements.

All references to “Notes” throughout the document refer to the footnotes to the consolidated financial statements of the registrant in Part I, Item 1. Financial Statements (Unaudited).

WLT 6/30/2022 10-Q – 1

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements.

WATERMARK LODGING TRUST, INC.

CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(in thousands, except share and per share amounts)

	June 30, 2022		December 31, 2021
Assets
Investments in real estate:
Hotels, at cost	$	2,870,254	$	2,956,929
Accumulated depreciation	(391,537)		(383,337)
Net investments in hotels	2,478,717		2,573,592
Equity investment in real estate	12,272		12,705
Operating lease right-of-use assets	40,495		43,671
Cash and cash equivalents	205,713		249,478
Intangible assets, net	68,066		69,464
Restricted cash	106,870		99,000
Accounts receivable, net	90,291		82,925
Other assets	32,624		30,690
Total assets	$	3,035,048	$	3,161,525
Liabilities
Non-recourse debt, net	$	1,895,505	$	1,958,741
Mandatorily redeemable preferred stock	206,406		256,731
Accounts payable, accrued expenses and other liabilities	198,440		190,701
Operating lease liabilities	83,382		83,089
Total liabilities	2,383,733		2,489,262
Commitments and contingencies (Note 9)
Equity
Class A common stock, $0.001 par value; 320,000,000 shares authorized; 168,067,403 and 167,689,164 shares, respectively, issued and outstanding	168		168
Class T common stock, $0.001 par value; 80,000,000 shares authorized; 61,095,773 and 61,095,773 shares, respectively, issued and outstanding	61		61
Additional paid-in capital	1,643,653		1,642,495
Distributions and accumulated losses	(1,019,813)		(994,634)
Accumulated other comprehensive income	5,604		148
Total stockholders’ equity	629,673		648,238
Noncontrolling interests	21,642		24,025
Total equity	651,315		672,263
Total liabilities and equity	$	3,035,048	$	3,161,525

See Notes to Consolidated Financial Statements.

WLT 6/30/2022 10-Q – 2

WATERMARK LODGING TRUST, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

(in thousands, except share and per share amounts)

	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
Revenues
Hotel Revenues
Rooms	$	158,597	$	105,988	$	276,905	$	167,237
Food and beverage	73,304		37,291		123,265		58,755
Other operating revenue	24,849		20,380		46,674		33,395
Business interruption income	—		—		—		545
Total Hotel Revenues	256,750		163,659		446,844		259,932
Expenses
Rooms	33,187		23,204		60,536		37,830
Food and beverage	47,582		26,606		84,014		43,773
Other hotel operating expenses	8,858		7,341		16,569		12,125
Property taxes, insurance, rent and other	25,548		24,228		50,681		48,452
General and administrative	21,206		16,926		40,375		29,212
Sales and marketing	17,428		11,774		31,692		20,254
Management fees	8,795		4,950		15,194		7,463
Repairs and maintenance	7,975		6,938		15,593		12,495
Utilities	5,576		5,271		11,116		9,939
Depreciation and amortization	24,388		28,845		50,433		60,727
Total Hotel Operating Expenses	200,543		156,083		376,203		282,270
Corporate general and administrative expenses	8,383		8,344		15,864		15,601
Transaction costs	6,026		—		6,026		—
(Gain) loss on property-related insurance claims, net	—		(1,361)		250		(2,527)
Total Expenses	214,952		163,066		398,343		295,344
Operating Income (Loss) before gain on sale        of real estate, net	41,798		593		48,501		(35,412)
Gain on sale of real estate, net	11,344		18,075		11,344		18,075
Operating Income (Loss)	53,142		18,668		59,845		(17,337)
Interest expense	(37,294)		(43,104)		(71,831)		(85,487)
Equity in earnings (losses) of equity method investments     in real estate, net	847		(1,666)		(823)		(5,586)
Loss on extinguishment of debt	(136)		(5,519)		(13,999)		(5,519)
Other (expense) and income, net	(101)		(234)		368		(156)
Net gain on change in control of interests	—		8,612		—		8,612
Income (loss) before income taxes	16,458		(23,243)		(26,440)		(105,473)
Provision for income taxes	(293)		(1,097)		(823)		(1,222)
Net Income (Loss)	16,165		(24,340)		(27,263)		(106,695)
(Income) loss attributable to noncontrolling interests	(1,257)		(1,311)		2,084		5,477
Net Income (Loss) Attributable to Common      Stockholders	$	14,908	$	(25,651)	$	(25,179)	$	(101,218)
Class A Common Stock
Net income (loss) attributable to Common Stockholders	$	10,933	$	(18,799)	$	(18,460)	$	(74,170)
Basic and diluted weighted-average shares outstanding	168,024,120		167,617,993		167,857,568		167,542,818
Basic and diluted income (loss) per share	$	0.07	$	(0.11)	$	(0.11)	$	(0.44)
Class T Common Stock
Net income (loss) attributable to Common Stockholders	$	3,975	$	(6,852)	$	(6,719)	$	(27,048)
Basic and diluted weighted-average shares outstanding	61,095,773		61,095,773		61,095,773		61,097,666
Basic and diluted income (loss) per share	$	0.07	$	(0.11)	$	(0.11)	$	(0.44)

See Notes to Consolidated Financial Statements.

WLT 6/30/2022 10-Q – 3

WATERMARK LODGING TRUST, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (UNAUDITED)

(in thousands)

	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
Net Income (Loss)	$	16,165	$	(24,340)	$	(27,263)	$	(106,695)
Other Comprehensive Income (Loss)
Unrealized gain (loss) on derivative instruments	1,307		(37)		5,456		202
Comprehensive Income (Loss)	17,472		(24,377)		(21,807)		(106,493)
Amounts Attributable to Noncontrolling Interests
Net (income) loss	(1,257)		(1,311)		2,084		5,477
Unrealized gain on derivative instruments	—		—		—		(2)
Comprehensive (income) loss attributable to noncontrolling interests	(1,257)		(1,311)		2,084		5,475
Comprehensive Income (Loss) Attributable to Common Stockholders	$	16,215	$	(25,688)	$	(19,723)	$	(101,018)

See Notes to Consolidated Financial Statements.

WLT 6/30/2022 10-Q – 4

WATERMARK LODGING TRUST, INC.

CONSOLIDATED STATEMENTS OF EQUITY (UNAUDITED)

(in thousands, except share and per share amounts)

	WLT Stockholders
	Common Stock						Additional Paid-In Capital		Distributions and Accumulated Losses		Accumulated Other Comprehensive Income (Loss)		Total Stockholders’ Equity		Noncontrolling Interests		Total Stockholders’ Equity
	Class A			Class T
	Shares	Amount		Shares	Amount
Balance at April 1, 2022	167,689,164	$	168	61,095,773	$	61	$	1,643,271	$	(1,034,721)	$	4,297	$	613,076	$	20,385	$	633,461
Net income									14,908				14,908		1,257		16,165
Shares issued under share incentive plans	330,544	—					82						82				82
Stock-based compensation to directors	47,695	—					300						300				300
Other comprehensive income											1,307		1,307		—		1,307
Balance at June 30, 2022	168,067,403	$	168	61,095,773	$	61	$	1,643,653	$	(1,019,813)	$	5,604	$	629,673	$	21,642	$	651,315
Balance at April 1, 2021	167,466,774	$	167	61,095,773	$	61	$	1,655,956	$	(987,430)	$	(487)	$	668,267	$	36,435	$	704,702
Net (loss) income									(25,651)				(25,651)		1,311		(24,340)
Shares issued under share incentive plans	140,721	1					257						258				258
Stock-based compensation to directors	27,223	—					150						150				150
Distributions to noncontrolling interests													—		(7,107)		(7,107)
Other comprehensive loss											(37)		(37)		—		(37)
Balance at June 30, 2021	167,634,718	$	168	61,095,773	$	61	$	1,656,363	$	(1,013,081)	$	(524)	$	642,987	$	30,639	$	673,626

WLT 6/30/2022 10-Q – 5

WATERMARK LODGING TRUST, INC.

CONSOLIDATED STATEMENTS OF EQUITY (UNAUDITED)

(Continued)

(in thousands, except share and per share amounts)

	WLT Stockholders
	Common Stock						Additional Paid-In Capital		Distributions and Accumulated Losses		Accumulated Other Comprehensive Income (Loss)		Total Stockholders’ Equity		Noncontrolling Interests		Total Stockholders’ Equity
	Class A			Class T
	Shares	Amount		Shares	Amount
Balance at January 1, 2022	167,689,164	$	168	61,095,773	$	61	$	1,642,495	$	(994,634)	$	148	$	648,238	$	24,025	$	672,263
Net loss									(25,179)				(25,179)		(2,084)		(27,263)
Shares issued under share incentive plans	330,544	—					858						858				858
Stock-based compensation to directors	47,695	—					300						300				300
Distributions to noncontrolling interests													—		(299)		(299)
Other comprehensive income											5,456		5,456				5,456
Balance at June 30, 2022	168,067,403	$	168	61,095,773	$	61	$	1,643,653	$	(1,019,813)	$	5,604	$	629,673	$	21,642	$	651,315
Balance at January 1, 2021	167,441,281	$	167	61,102,438	$	61	$	1,655,554	$	(911,863)	$	(724)	$	743,195	$	43,221	$	786,416
Net loss									(101,218)				(101,218)		(5,477)		(106,695)
Shares issued under share incentive plans	140,721	1					553						554				554
Stock-based compensation to directors	54,446	—					300						300				300
Distributions to noncontrolling interests													—		(7,107)		(7,107)
Other comprehensive income											200		200		2		202
Repurchase of shares	(1,730)	—		(6,665)	—		(44)						(44)				(44)
Balance at June 30, 2021	167,634,718	$	168	61,095,773	$	61	$	1,656,363	$	(1,013,081)	$	(524)	$	642,987	$	30,639	$	673,626

See Notes to Consolidated Financial Statements.

WLT 6/30/2022 10-Q – 6

WATERMARK LODGING TRUST, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(in thousands)

	Six Months Ended June 30,
	2022		2021
Cash Flows — Operating Activities
Net loss	$	(27,263)	$	(106,695)
Adjustments to net loss:
Depreciation and amortization	50,433		60,727
Loss on extinguishment of debt	13,999		5,519
Amortization of fair value adjustments, deferred financing costs and other	12,621		22,985
Gain on sale of real estate, net	(11,344)		(18,075)
Amortization of stock-based compensation expense	2,341		1,471
Equity in losses of equity method investments in real estate, net	823		5,586
Loss (gain) on property-related insurance claims, net	250		(2,527)
Net gain on change in control of interests	—		(8,612)
Business interruption income	—		(545)
Net changes in other assets and liabilities	3,487		3,659
Net decrease in operating lease right-of-use assets	3,129		2,842
Insurance proceeds for remediation work due to property damage	1,285		413
Funding of remediation work	(1,170)		(2,027)
Net increase in operating lease liabilities	293		254
Repayment of key money and other deferred incentive payments	—		(748)
Business interruption insurance proceeds	—		545
Decrease in due to related parties and affiliates	—		(228)
Net Cash Provided by (Used in) Operating Activities	48,884		(35,456)
Cash Flows — Investing Activities
Capital expenditures	(16,276)		(13,169)
Property insurance proceeds	2,688		2,819
Capital contributions to equity investments in real estate	(390)		(790)
Proceeds from sale of real estate investments	124		106,833
Cash and restricted cash acquired with acquisition of remaining interest in     Hyatt French Quarter Venture	—		2,901
Acquisition of remaining interest in Hyatt French Quarter Venture	—		(2,098)
Net Cash (Used in) Provided by Investing Activities	(13,854)		96,496
Cash Flows — Financing Activities
Payments and prepayments of mortgage principal	(402,127)		(258,237)
Proceeds from mortgage financings	408,725		185,070
Redemption of Series A Preferred Stock	(65,000)		—
Deferred financing costs	(8,354)		(4,734)
Other financing activities, net	(3,870)		(789)
Distributions to noncontrolling interests	(299)		(7,107)
Payment of distribution and shareholder servicing fee	—		(798)
Repurchase of shares	—		(44)
Net Cash Used in Financing Activities	(70,925)		(86,639)
Change in Cash and Cash Equivalents and Restricted Cash During the Period
Net decrease in cash and cash equivalents and restricted cash	(35,895)		(25,599)
Cash and cash equivalents and restricted cash, beginning of period	348,478		251,464
Cash and cash equivalents and restricted cash, end of period	$	312,583	$	225,865

See Notes to Consolidated Financial Statements.

WLT 6/30/2022 10-Q – 7

WATERMARK LODGING TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Note 1. Business

Organization

Watermark Lodging Trust, Inc. (“WLT” or the “Company”), is a self-managed, publicly owned, non-traded real estate investment trust (“REIT”) that, together with its consolidated subsidiaries, invests in, manages and seeks to enhance the value of, interests in lodging and lodging-related properties in the United States.

Substantially all of our assets and liabilities are held by, and all of our operations are conducted through CWI 2 OP, LP (the “Operating Partnership”) and we are a general partner and a limited partner of, and owned a 99.0% capital interest in, the Operating Partnership, as of June 30, 2022. Watermark Capital Partners, LLC (“Watermark Capital”), which is 100% owned by Mr. Michael G. Medzigian, our Chief Executive Officer, held the remaining 1.0% in the Operating Partnership as of June 30, 2022.

We held ownership interests in 24 hotels as of June 30, 2022, including 23 hotels that we consolidated (“Consolidated Hotels”) and one hotel that we recorded as an equity investment (“Unconsolidated Hotels”).

Proposed Merger

On May 6, 2022, the Company, along with the Operating Partnership, entered into a definitive merger agreement with affiliates of private real estate funds managed by affiliates of Brookfield Asset Management Inc. (“Brookfield”) under which Brookfield will acquire all of the outstanding shares of common stock of the Company in an all-cash transaction. If the proposed merger is completed, holders of common stock of the Company will be entitled to receive $6.768 per share in cash for each share of our Class A common stock owned and $6.699 per share in cash for each share of our Class T common stock owned. We filed the definitive proxy statement with the SEC on June 15, 2022 and commenced mailing the proxy statement to our stockholders in late June 2022. Completion of the proposed transaction is subject to certain customary closing conditions, including the approval of our stockholders at a special meeting scheduled for September 9, 2022. The proposed merger is expected to close in the fourth quarter of 2022, although there can be no assurance that the proposed merger will be completed at such time or at all. During the three and six months ended June 30, 2022, we incurred expenses related to the proposed merger totaling approximately $6.0 million, which is included in Transaction costs in our consolidated statements of operations.

COVID-19, Management’s Plans and Liquidity

The COVID-19 pandemic has had a material adverse effect on our business, results of operations, financial condition and cash flows and will continue to do so for the reasonably foreseeable future. Although results improved relative to 2021, we cannot estimate with certainty when travel demand will fully recover or how new variants of COVID-19 could impact recovery. The ultimate severity and duration of the COVID-19 pandemic and its effects, the emergence of variants and the acceptance and effectiveness of vaccines are uncertain, including whether COVID-19 will become endemic or cyclical in nature. Given these uncertainties, we cannot estimate with reasonable certainty the impact on our business, financial condition or near- or long-term financial or operational results.

As of June 30, 2022, we had cash and cash equivalents of $205.7 million. As of June 30, 2022, the mortgage loans for our Consolidated Hotels had an aggregate principal balance totaling $1.9 billion outstanding, all of which is mortgage indebtedness and is generally non-recourse, subject to customary non-recourse carve-outs, except that we have provided certain lenders with limited corporate guaranties aggregating $34.0 million for items such as taxes, deferred debt service and amounts drawn from furniture, fixtures and equipment reserves to pay expenses, in connection with loan modification agreements. We have continued to work with our lenders to address loans with near-term mortgage maturities and have refinanced or extended the maturity date of seven Consolidated Hotel mortgage loans, aggregating $547.0 million of indebtedness, during the six months ended June 30, 2022. Of the $1.9 billion aggregate principal balance indebtedness outstanding as of June 30, 2022, approximately $1.0 billion is scheduled to mature during the 12 months after the date of this Report. If the Company is unable to repay, refinance or extend maturing mortgage loans, we may choose to market these assets for sale or the lenders may declare events of default and seek to foreclose on the underlying hotels or we may also seek to surrender properties back to the lender.

WLT 6/30/2022 10-Q – 8

Notes to Consolidated Financial Statements (Unaudited)

We cannot predict with reasonable certainty when our hotels will return to normalized levels of operations after the effects of the COVID-19 pandemic subside or whether hotels will be forced to shut down operations or impose additional restrictions due to a resurgence of COVID-19 cases in the future.  Therefore, as a consequence of these unprecedented trends resulting from the impact of the COVID-19 pandemic, we are unable to estimate future financial performance with reasonable certainty.

Note 2. Basis of Presentation

Basis of Presentation

The unaudited consolidated financial statements and related notes have been prepared on the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and in conformity with the rules and regulations of the SEC applicable to financial information. The unaudited financial statements include all adjustments that are necessary, in the opinion of management, to fairly state the consolidated balance sheets, statements of operations, statements of comprehensive loss, statements of equity and statements of cash flows.

Our interim consolidated financial statements should be read in conjunction with our audited consolidated financial statements of and accompanying notes for the year ended December 31, 2021,which are included in our 2021 Annual Report, as certain disclosures that would substantially duplicate those contained in the audited consolidated financial statements have not been included in this Report. Operating results for interim periods are not necessarily indicative of operating results for an entire year.

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts and the disclosure of contingent amounts in our consolidated financial statements and the accompanying notes. Actual results could differ from those estimates.

Basis of Consolidation

Our consolidated financial statements reflect all of our accounts, including those of our controlled subsidiaries. The portions of equity in consolidated subsidiaries that are not attributable, directly or indirectly, to us are presented as noncontrolling interests. All significant intercompany accounts and transactions have been eliminated.

When we obtain an economic interest in an entity, we evaluate the entity to determine if it should be deemed a variable interest entity (“VIE”), and, if so, whether we are the primary beneficiary and are therefore required to consolidate the entity. There have been no significant changes in our VIE policies from what was disclosed in the 2021 Annual Report.

As of both June 30, 2022 and December 31, 2021, we considered one entity to be a VIE, which we consolidated as we are considered the primary beneficiary. The following table presents a summary of selected financial data of the consolidated VIE included in the consolidated balance sheets (in thousands):

	June 30, 2022		December 31, 2021
Net investments in hotels	$	262,535	$	264,984
Intangible assets, net	28,489		28,819
Total assets	316,020		315,088
Non-recourse debt, net	$	176,549	$	178,029
Total liabilities	197,547		201,557

WLT 6/30/2022 10-Q – 9

Notes to Consolidated Financial Statements (Unaudited)

Cash, Cash Equivalents and Restricted Cash

The following table provides a reconciliation of cash and cash equivalents and restricted cash reported within the consolidated balance sheets to the consolidated statements of cash flows (in thousands):

	June 30, 2022		December 31, 2021
Cash and cash equivalents	$	205,713	$	249,478
Restricted cash	106,870		99,000
Total cash and cash equivalents and restricted cash	$	312,583	$	348,478

Note 3. Net Investments in Hotels

Net investments in hotels are summarized as follows (in thousands):

	June 30, 2022		December 31, 2021
Buildings	$	1,941,528	$	2,002,614
Land	554,752		574,648
Building and site improvements	188,632		187,019
Furniture, fixtures and equipment	150,774		166,316
Construction in progress	34,568		26,332
Hotels, at cost	2,870,254		2,956,929
Less: Accumulated depreciation	(391,537)		(383,337)
Net investments in hotels	$	2,478,717	$	2,573,592

During the six months ended June 30, 2022 and 2021, we retired fully depreciated furniture, fixtures and equipment aggregating $21.4 million and $19.1 million, respectively. During the six months ended June 30, 2022 and 2021, we recorded net write-offs of fixed assets resulting from property damage insurance claims of $2.7 million and $0.8 million, respectively. Depreciation expense was $23.7 million and $28.1 million for the three months ended June 30, 2022 and 2021, respectively, and $49.0 million and $59.2 million for the six months ended June 30, 2022 and 2021, respectively.

As of June 30, 2022 and December 31, 2021, accrued capital expenditures were $4.5 million and $1.0 million, respectively, representing non-cash investing activity.

2022 Hotel Disposition

On June 15, 2022, we sold our 100% ownership interest in the Holiday Inn Manhattan 6th Avenue Chelsea to an unaffiliated third-party, with the related mortgage loan totaling $74.1 million assumed by the acquirer. We received net proceeds of approximately $1.3 million in connection with the sale and we recognized a gain on sale of $11.3 million during the three and six months ended June 30, 2022.

WLT 6/30/2022 10-Q – 10

Notes to Consolidated Financial Statements (Unaudited)

2021 Hotel Acquisition

On April 6, 2021, we acquired the remaining 20% interest in the Hyatt Centric French Quarter Venture from an unaffiliated third party for $2.1 million, which includes real estate and other hotel assets, net of assumed liabilities with a fair value totaling $11.3 million, as detailed in the table that follows, bringing our ownership interest to 100%. We also refinanced the $29.7 million non-recourse mortgage loan on the property. Subsequent to the acquisition, we consolidated our real estate interest in the hotel. We previously accounted for our interest in this venture under the equity method of accounting. Due to the change in control of this investment, we recorded a net gain on change in control of interest of $8.6 million, reflecting the difference between our carrying value and the preliminary estimated fair value of our previously held equity investment on April 6, 2021. This acquisition was accounted for as a business combination in accordance with authoritative accounting guidance. We allocated the fair value of the hotel at the acquisition date based on the estimated fair value of the assets acquired and the liabilities assumed.

The following tables present a summary of assets acquired and liabilities assumed in this business combination, at the date of acquisition; as well as and revenues and earnings thereon, from the date of acquisition through June 30, 2021 (in thousands):

	Purchase Price Allocation
Assets acquired at fair value:
Net investment in hotel	$	39,500
Operating lease right-of-use assets	9,302
Cash and cash equivalents	529
Intangible assets	500
Restricted cash	2,372
Accounts receivable, net	967
Other assets	1,292
Total Assets	54,462
Liabilities assumed at fair value:
Non-recourse debt, net	(29,698)
Accounts payable, accrued expenses and other liabilities	(4,177)
Operating lease liabilities	(9,302)
Total Liabilities	(43,177)
Total Identifiable Net Assets acquired at fair value	11,285
Fair value of WLT’s equity interest in jointly-owned investment prior to acquisition	(9,187)
Total cash consideration	$	2,098

	From April 6, 2021 through June 30, 2021
Revenues	$	2,640
Net loss	$	(2,004)

2021 Hotel Disposition

On May 5, 2021, the Sheraton Austin Hotel at the Capitol venture sold the Sheraton Austin Hotel at the Capitol to an unaffiliated third-party. The venture received net proceeds of approximately $36.4 million from the sale after the repayment of the related mortgage loan. We previously owned an 80% controlling interest in the venture and consolidated our real estate interest in the hotel. During the three and six months ended June 30, 2021, we recognized a gain on sale of $18.1 million and a loss on extinguishment of debt of $0.7 million in connection with this transaction.

WLT 6/30/2022 10-Q – 11

Notes to Consolidated Financial Statements (Unaudited)

Pro Forma Financial Information

The following unaudited consolidated pro forma financial information presents the results of operations as if the acquisition of the remaining 20% interest in the Hyatt Centric French Quarter Venture, had occurred on January 1, 2020. The unaudited consolidated pro forma financial information is not necessarily indicative of what the actual results of operations of the Company would have been assuming this transaction had taken place on the date listed above, nor is it indicative of the results of operations for future periods.  The unaudited consolidated pro forma financial information is as follows (in thousands):

(Dollars in thousands, except per share amounts)

	Three Months Ended		Six Months Ended
	June 30, 2021		June 30, 2021
Pro forma total revenues	$	163,660	$	261,207
Pro forma net loss	$	(32,951)	$	(115,531)
Pro forma net loss attributable to Common Stockholders	$	(34,262)	$	(110,054)
Pro forma loss per Class A share:
Net loss attributable to Common Stockholders	$	(25,109)	$	(80,645)
Basic and diluted pro forma weighted-average shares outstanding	167,617,993		167,542,818
Basic and diluted pro forma loss per share	$	(0.15)	$	(0.48)
Pro forma loss per Class T share:
Net loss attributable to Common Stockholders	$	(9,153)	$	(29,409)
Basic and diluted pro forma weighted-average shares outstanding	61,099,580		61,097,666
Basic and diluted pro forma loss per share	$	(0.15)	$	(0.48)

Pro forma net loss attributable to Common Stockholders reflects the following income and expenses related to the acquisition of the remaining interest in the Hyatt Centric French Quarter Venture as if it had taken place on January 1, 2020: (i) gain on change in control of interests of $8.6 million.

Note 4. Equity Investments in Real Estate

As of June 30, 2022, we owned an equity interest in one Unconsolidated Hotel with an unrelated third party. We did not control the venture that owns this hotel, but we exercised significant influence over it. We accounted for this investment under the equity method of accounting (i.e., at cost, increased or decreased by our share of earnings or losses, less distributions, plus contributions and other adjustments required by equity method accounting, such as basis differences from acquisition costs paid to our former advisor that we incur and other-than-temporary impairment charges, if any).

Under the conventional approach of accounting for equity method investments, an investor applies its percentage ownership interest to the venture’s net income or loss to determine the investor’s share of the earnings or losses of the venture. This approach is inappropriate if the venture’s capital structure gives different rights and priorities to its investors. Therefore, we followed the hypothetical liquidation at book value (“HLBV”) method in determining our share of the ventures’ earnings or losses for the reporting period as this method better reflects our claim on the ventures’ book value at the end of each reporting period. Earnings for our equity method investments were recognized in accordance with each respective investment agreement and, where applicable, based upon the allocation of the investment’s net assets at book value as if the investment was hypothetically liquidated at the end of each reporting period.

WLT 6/30/2022 10-Q – 12

Notes to Consolidated Financial Statements (Unaudited)

The following table sets forth our ownership interest in our equity investment in real estate and its carrying value. The carrying value of this venture is affected by the timing and nature of distributions (dollars in thousands):

Unconsolidated Hotels	State	Number of Rooms	% Owned		Hotel Type	Carrying Value at
						June 30, 2022		December 31, 2021
Ritz-Carlton Philadelphia Venture (a)	PA	301	60.0	%	Full-service	$	12,272	$	12,705

___________

(a)We contributed $0.4 million to this investment during the six months ended June 30, 2022.

The following table sets forth our share of equity in earnings (losses) from our Unconsolidated Hotels, which is based on the HLBV model, as well as certain amortization adjustments related to basis differentials from acquisitions of investments (in thousands):

	Three Months Ended June 30,				Six Months Ended June 30,
Unconsolidated Hotels	2022		2021		2022		2021
Ritz-Carlton Philadelphia Venture	$	847	$	(1,666)	$	(823)	$	(4,729)
Hyatt Centric French Quarter Venture (a)	—		—		—		(857)
Total equity in earnings (losses) of equity method investments in real estate, net	$	847	$	(1,666)	$	(823)	$	(5,586)

___________

(a) On April 6, 2021, we acquired the remaining 20% interest in the Hyatt Centric French Quarter Venture from an unaffiliated third party. Upon completion of the acquisition, the Company owns 100% of this hotel and consolidated its real estate interest in this hotel therefore these amounts represent the equity in losses prior to the acquisition.

No other-than-temporary impairment charges were recognized during the three and six months ended June 30, 2022 or 2021.

As of June 30, 2022 and December 31, 2021, the unamortized basis difference on our equity investment was $1.4 million and $1.5 million, respectively. Net amortization of basis differences reduced the carrying values of our equity investments by less than $0.1 million during both the three months ended June 30, 2022 and 2021, and by $0.1 million and less than $0.1 million for the six months ended June 30, 2022 and 2021, respectively.

Note 5. Intangible Assets

Intangible assets are summarized as follows (dollars in thousands):

		June 30, 2022						December 31, 2021
	Amortization Period (Years)	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
Finite-Lived Intangible Assets
Villa/condo rental programs	45 - 55	$	72,400	$	(11,786)	$	60,614	$	72,400	$	(11,037)	$	61,363
Trade name	8	9,400		(2,607)		6,793		9,400		(2,024)		7,376
Other intangible assets	5 - 17	900		(241)		659		1,013		(288)		725
Total intangible assets, net		$	82,700	$	(14,634)	$	68,066	$	82,813	$	(13,349)	$	69,464

Net amortization of intangibles was $0.7 million and $0.8 million for the three months ended June 30, 2022 and 2021, respectively, and $1.4 million and $1.5 million for the six months ended June 30, 2022 and 2021, respectively. Amortization of intangibles is included in Depreciation and amortization and Property tax, insurance, rent and other in the consolidated financial statements.

WLT 6/30/2022 10-Q – 13

Notes to Consolidated Financial Statements (Unaudited)

Note 6. Fair Value Measurements

The fair value of an asset is defined as the exit price, which is the amount that would either be received when an asset is sold or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The guidance establishes a three-tier fair value hierarchy based on the inputs used in measuring fair value. These tiers are: Level 1, for which quoted market prices for identical instruments are available in active markets, such as money market funds, equity securities and U.S. Treasury securities; Level 2, for which there are inputs other than quoted prices included within Level 1 that are observable for the instrument, such as certain derivative instruments, including interest rate caps and swaps; and Level 3, for securities that do not fall into Level 1 or Level 2 and for which little or no market data exists, therefore requiring us to develop our own assumptions.

Items Measured at Fair Value on a Recurring Basis

Derivative Assets and Liabilities — Our derivative assets are included in Other assets in the consolidated financial statements and our derivative liabilities are included in Accounts payable, accrued expenses and other liabilities in the consolidated financial statements (Note 7).

The valuation of our derivative instruments is determined using a discounted cash flow analysis on the expected cash flows of each derivative. This analysis reflects the contractual terms of the derivatives, including the period to maturity, as well as observable market-based inputs, including interest rate curves and implied volatilities. We incorporate credit valuation adjustments to appropriately reflect both our own nonperformance risk and the respective counterparty’s nonperformance risk in the fair value measurements. In adjusting the fair value of our derivative instruments for the effect of nonperformance risk, we have considered the impact of netting and any applicable credit enhancements, such as collateral postings and thresholds. These derivative instruments were classified as Level 2 as these instruments are custom, over-the-counter contracts with various bank counterparties that are not traded in an active market.

We did not have any transfers into or out of Level 1, Level 2 and Level 3 category of measurements during the six months ended June 30, 2022 or 2021. Gains and losses (realized and unrealized) recognized on items measured at fair value on a recurring basis included in earnings are reported in Other (expense) and income, net in the consolidated financial statements.

Our non-recourse debt, net which we have classified as Level 3, had a carrying value of $1.9 billion and $2.0 billion as of June 30, 2022 and December 31, 2021, respectively, and an estimated fair value of $1.9 billion and $2.0 billion as of June 30, 2022 and December 31, 2021, respectively. We determined the estimated fair value using a discounted cash flow model with rates that take into account the interest rate risk. We also considered the value of the underlying collateral, taking into account the quality of the collateral and the then-current interest rate.

Our Series B preferred stock, which we have classified as Level 3, had a carrying value of $206.4 million and $201.7 million as of June 30, 2022 and December 31, 2021, respectively, and an estimated fair value of $242.8 million and $247.0 million as of June 30, 2022 and December 31, 2021, respectively.

Our Series A preferred stock, which we had classified as Level 3, had a carrying value of $55.1 million as of December 31, 2021 and an estimated fair value of $65.0 million as of December 31, 2021. On January 25, 2022, the Company redeemed the 1,300,000 shares of Series A Preferred Stock at the liquidation preference of $50.00 per share for a total of $65.0 million. See Note 12 for further discussion.

The fair values of the Series A and Series B Preferred Stock were primarily determined by a discounted cash flow analysis of the interest and anticipated redemption payments associated with the preferred stock. We classified this investment as Level 3 because the discounted cash flow valuation model incorporates unobservable inputs to determine its fair value.

We estimated that our other financial assets and liabilities had fair values that approximated their carrying values as of both June 30, 2022 and December 31, 2021.

WLT 6/30/2022 10-Q – 14

Notes to Consolidated Financial Statements (Unaudited)

Items Measured at Fair Value on a Non-Recurring Basis (Including Impairment Charges)

We periodically assess whether there are any indicators that the value of our real estate investments may be impaired or that their carrying value may not be recoverable. Where the undiscounted cash flows for an asset are less than the asset’s carrying value when considering and evaluating the various alternative courses of action that may occur, we recognize an impairment charge to reduce the carrying value of the asset to its estimated fair value. Further, when we classify an asset as held for sale, we carry the asset at the lower of its current carrying value or its fair value, less estimated cost to sell. We did not recognize any impairment charges during the three and six months ended June 30, 2022 or 2021.

Note 7. Risk Management and Use of Derivative Financial Instruments

Risk Management

In the normal course of our ongoing business operations, we encounter economic risk. There are two main components of economic risk that impact us: interest rate risk and market risk. We are primarily subject to interest rate risk on our interest-bearing assets and liabilities. Market risk includes changes in the value of our properties and related loans.

Derivative Financial Instruments

There have been no significant changes in our derivative financial instruments policies from what was disclosed in the 2021 Annual Report.

The following table sets forth certain information regarding our derivative instruments on our Consolidated Hotels (in thousands):

Derivatives Designated as Hedging Instruments		Asset Derivatives Fair Value at				Liability Derivatives Fair Value at
	Balance Sheet Location	June 30, 2022		December 31, 2021		June 30, 2022		December 31, 2021
Interest rate caps	Other assets	$	7,029	$	381	$	—	$	—
Interest rate swaps	Other assets	479		—		—		—
Interest rate swaps	Accounts payable, accrued expenses and other liabilities	—		—		—		(2,023)
		$	7,508	$	381	$	—	$	(2,023)

All derivative transactions with an individual counterparty are governed by a master International Swap and Derivatives Association agreement, which can be considered as a master netting arrangement; however, we report all our derivative instruments on a gross basis in our consolidated financial statements.

At both June 30, 2022 and December 31, 2021, no cash collateral had been posted nor received for any of our derivative positions.

We recognized unrealized gains of $1.3 million and unrealized losses of $0.2 million in Other comprehensive income (loss) on derivatives in connection with our interest rate swaps and caps during the three months ended June 30, 2022 and 2021, respectively, and unrealized gains of $5.3 million and unrealized losses of $0.1 million during the six months ended June 30, 2022 and 2021, respectively.

We reclassified less than $0.1 million and $0.2 million from Other comprehensive income (loss) on derivatives into Interest expense during the three months ended June 30, 2022 and 2021, respectively, and $0.2 million and $0.3 million during the six months ended June 30, 2022 and 2021, respectively.

Amounts reported in Other comprehensive income (loss) related to our interest rate swap and caps will be reclassified to Interest expense as interest is incurred on our variable-rate debt. As of June 30, 2022, we estimated that an additional $1.1 million will be reclassified, resulting in a reduction to interest expense, during the next 12 months related to our interest rate swaps and caps.

WLT 6/30/2022 10-Q – 15

Notes to Consolidated Financial Statements (Unaudited)

Interest Rate Swaps and Caps

We are exposed to the impact of interest rate changes primarily through our borrowing activities. To limit this exposure, we attempt to obtain mortgage financing on a long-term, fixed-rate basis. However, from time to time, we or our investment partners may obtain variable-rate non-recourse mortgage loans and, as a result, may enter into interest rate swap or cap agreements with counterparties. Interest rate swaps, which effectively convert the variable-rate debt service obligations of a loan to a fixed rate, are agreements in which one party exchanges a stream of interest payments for a counterparty’s stream of cash flow over a specific period. The notional, or face, amount on which the swaps are based is not exchanged. An interest rate cap limits the effective borrowing rate of variable-rate debt obligations while allowing participants to share in downward shifts in interest rates. Our objective in using these derivatives is to limit our exposure to interest rate movements.

The interest rate swaps and caps that we had outstanding on our Consolidated Hotels as of June 30, 2022 and December 31, 2021 were designated as cash flow hedges and are summarized as follows (dollars in thousands): 

	Number of Instruments at		Notional Amount at				Fair Value at
Interest Rate Derivatives	June 30, 2022	December 31, 2021	June 30, 2022		December 31, 2021		June 30, 2022		December 31, 2021
Interest rate caps	16	10	$	1,120,922	$	627,955	$	7,029	$	381
Interest rate swaps	2	2	185,295		185,295		479		(2,023)
			$	1,306,217	$	813,250	$	7,508	$	(1,642)

Credit Risk-Related Contingent Features

Some of the agreements we have with our derivative counterparties contain cross-default provisions that could trigger a declaration of default on our derivative obligations if we default, or are capable of being declared in default, on certain of our indebtedness. As of both June 30, 2022 and December 31, 2021, we had not been declared in default on any of our derivative obligations. The estimated fair value of our derivatives in a net liability position was $2.3 million as of December 31, 2021, which included accrued interest and any nonperformance risk adjustments. If we had breached any of these provisions as of December 31, 2021, we could have been required to settle our obligations under these agreements at their aggregate termination value of $2.3 million. As of June 30, 2022, no derivatives were in a net liability position.

Note 8. Debt

Our debt consists of mortgage notes payable, which are collateralized by the assignment of hotel properties. The following table presents the non-recourse debt, net on our Consolidated Hotel investments (dollars in thousands):

			Carrying Amount at
	Interest Rate Range	Current Maturity Date Range (a)	June 30, 2022		December 31, 2021
Fixed rate	3.9% – 4.7%	06/21(b) – 08/23	$	545,083	$	951,318
Variable rate (c)	3.3% – 9.9%	08/22 – 06/25	1,350,422		1,007,423
			$	1,895,505	$	1,958,741

___________

(a)Many of our mortgage loans have extension options, which are subject to certain conditions. The maturity dates in the table do not reflect the extension options.

(b)See discussion below on the Courtyard Times Square West mortgage loan, which matured on June 1, 2021.

(c)The interest rate range presented for these mortgage loans reflect the rates in effect as of June 30, 2022 through the use of an interest rate swap or cap, when applicable.

WLT 6/30/2022 10-Q – 16

Notes to Consolidated Financial Statements (Unaudited)

Pursuant to our mortgage loan agreements, our consolidated subsidiaries are subject to various operational and financial covenants, including minimum debt service coverage and debt yield ratios. Most of our mortgage loan agreements contain “lock-box” provisions, which permit the lender to access or sweep a hotel’s excess cash flow and could be triggered by the lender under limited circumstances, including the failure to maintain minimum debt service coverage ratios. If a lender requires that we enter into a cash management agreement, we would generally be permitted to spend an amount equal to our budgeted hotel operating expenses, taxes, insurance and capital expenditure reserves for the relevant hotel. The lender would then hold all excess cash flow after the payment of debt service in an escrow account until certain performance hurdles are met. As of June 30, 2022, we have effectively entered into cash management agreements with the lenders on 12 of our 23 Consolidated Hotel mortgage loans either because the minimum debt service coverage ratio was not met or as a result of a loan modification agreement. The cash management agreements generally permit cash generated from the operations of each hotel to fund the hotel’s operating expenses, debt service, taxes and insurance but restrict distributions of excess cash flow, if any, to the Company to fund corporate expenses.

Financing Activity During 2022

On January 14, 2022, we refinanced the $81.4 million San Diego Marriott La Jolla non-recourse mortgage loan with a new mortgage loan of $97.7 million, of which $83.2 million was funded at closing, with the remaining balance available to fund planned renovations at the hotel. The loan has a floating annual interest rate, subject to an interest rate cap, and a maturity date of January 2025, with two one-year extension options, subject to certain conditions. We recognized a loss on extinguishment of debt of $4.1 million during the six months ended June 30, 2022.

On January 21, 2022, we refinanced the $87.1 million San Jose Marriott non-recourse mortgage loan and the $34.6 million Le Méridien Arlington non-recourse mortgage loan with a new mortgage loan of $135.5 million encumbering both hotels, of which $126.2 million was funded at closing, with the remaining balance available to fund planned renovations at the hotel. The hotels encumbered by the mortgage loan are cross-collateralized. The loan has a floating annual interest rate, subject to an interest rate cap, and a maturity date of January 2025, with two one-year extension options, subject to certain conditions. We recognized a loss on extinguishment of debt of less than $0.1 million during the six months ended June 30, 2022.

On March 14, 2022, the $80.0 million outstanding non-recourse mortgage loan on Renaissance Chicago Downtown was modified to extend the maturity date from July 2022 to January 2023 and included a principal paydown of $4.0 million. This extension was accounted for as a loan modification and no gain or loss was recognized.

On April 29, 2022, we refinanced the $83.6 million Westin Pasadena non-recourse mortgage loan with a new mortgage loan of $86.4 million. The loan has a floating annual interest rate, subject to an interest rate cap, and a maturity date of May 2025, with two one-year extension options, subject to certain conditions. We recognized a loss on extinguishment of debt of less than $0.1 million during the three and six months ended June 30, 2022.

On May 11, 2022, we refinanced the $65.0 million Raleigh Marriott City Center non-recourse mortgage loan with a new mortgage loan of $68.0 million. The loan has a floating annual interest rate, subject to an interest rate cap, and a maturity date of May 2025, with two one-year extension options, subject to certain conditions. This refinancing was accounted for as a loan modification and no gain or loss was recognized.

On May 11, 2022, we refinanced the $103.0 million Charlotte Marriott City Center non-recourse mortgage loan with a new senior mortgage loan of $86.0 million and a $22.0 million mezzanine loan. The loans have floating annual interest rates, subject to an interest rate cap, and maturity dates of June 2025, each with two one-year extension options, subject to certain conditions. We recognized a loss on extinguishment of debt of $0.1 million during the three and six months ended June 30, 2022.

Financing Activity During 2021

On March 5, 2021, we refinanced the $190.0 million Ritz-Carlton Key Biscayne non-recourse mortgage loan, which extended the maturity date of the loan from August 2021 to August 2023. The principal balance and interest rate remain unchanged. This refinancing was accounted for as a loan modification and no gain or loss was recognized.

On March 15, 2021, we refinanced the $45.5 million Equinox Golf Resort & Spa non-recourse mortgage loan, which extended the maturity date of the loan from March 2021 to March 2023. The principal balance and interest rate remain unchanged. This refinancing was accounted for as a loan modification and no gain or loss was recognized.

WLT 6/30/2022 10-Q – 17

Notes to Consolidated Financial Statements (Unaudited)

On April 6, 2021, we refinanced the $29.7 million Hyatt Centric French Quarter New Orleans non-recourse mortgage loan, which extended the maturity date of the loan from April 2021 to April 2023 and provides for a one-year extension option, subject to certain conditions. The principal balance remains unchanged and the loan has a floating annual interest rate that is subject to an interest rate cap. This refinancing was accounted for as a loan modification and no gain or loss was recognized.

On May 7, 2021, we refinanced the Ritz-Carlton Fort Lauderdale $47.0 million senior mortgage loan and the $28.3 million mezzanine loan with new mortgage loans of up to $61.1 million for the senior mortgage loan and up to $16.9 million for the mezzanine loan, with an aggregate $76.0 million funded at closing, comprised of $59.5 million for the senior mortgage loan and $16.5 million for the mezzanine loan. The loans have a maturity date of June 2024, with two one-year extension options, subject to certain conditions. We recognized a loss on extinguishment of debt of $0.1 million during the three and six months ended June 30, 2021.

On June 8, 2021, we refinanced the Seattle Marriott Bellevue $96.1 million non-recourse mortgage loan with a new mortgage loan of $104.8 million with a floating annual interest rate that is subject to an interest rate cap and a maturity date of June 2024, with two one-year extension options, subject to certain conditions. We recognized a loss on extinguishment of debt of $4.8 million during the three and six months ended June 30, 2021.

Courtyard Times Square West

The $60.6 million outstanding mortgage loan on Courtyard Times Square West matured on June 1, 2021 and we have not paid off the outstanding principal balance. The loan does not have any cross-default provisions with our other mortgage obligations. We are currently in the process of exploring various options as it relates to this asset, including but not limited to, surrendering the property back to the lender.

Scheduled Debt Principal Payments

Scheduled debt principal payments during the remainder of 2022 and each of the next four calendar years following December 31, 2022 are as follows (in thousands):

Years Ending December 31,	Total
2022 (remainder)	$	655,795
2023	454,748
2024	329,910
2025	471,819
2026	—
Total principal payments	1,912,272
Unamortized deferred financing costs	(13,464)
Unamortized fair value discount	(3,303)
Total	$	1,895,505

Note 9. Commitments and Contingencies

As of June 30, 2022, we were not involved in any material litigation. Various claims and lawsuits arising in the normal course of business are pending against us, including liens for which we may obtain a bond, provide collateral or provide an indemnity, but we do not expect the results of such proceedings to have a material adverse effect on our consolidated financial position, results of operations or cash flows.

Hotel Management Agreements

As of June 30, 2022, our hotel properties were operated pursuant to long-term management agreements with eight different management companies, with initial terms ranging from five to 40 years. For hotels operated with separate franchise agreements, each management company receives a base management fee, generally ranging from 1.5% to 3.5% of hotel revenues. Eleven of our management agreements contain the right and license to operate the hotels under specified brands; no separate franchise agreements exist and no separate franchise fee is required for these hotels. The management agreements that include the benefit of a franchise agreement incur a base management fee ranging from 3.0% to 4.0% of hotel revenues. The

WLT 6/30/2022 10-Q – 18

Notes to Consolidated Financial Statements (Unaudited)

management companies are generally also eligible to receive an incentive management fee, which is typically calculated as a percentage of operating profit, either (i) in excess of projections with a cap or (ii) after the owner has received a priority return on its investment in the hotel. We incurred management fee expense, including amortization of deferred management fees, of $8.8 million and $5.0 million for the three months ended June 30, 2022 and 2021, respectively, and $15.2 million and $7.5 million for the six months ended June 30, 2022 and 2021, respectively.

Franchise Agreements

Ten of our hotel properties operated under franchise or license agreements with national brands that are separate from our management agreements. As of June 30, 2022, we had eight franchise agreements with Marriott-owned brands, one with Hilton-owned brands and one with a Hyatt-owned brand related to our hotels. Our typical franchise agreements have initial terms ranging from 15 to 25 years. Three of our hotels are not operated with a hotel brand so the hotels do not have franchise agreements. Generally, our franchise agreements provide for a license fee, or royalty, of 3.0% to 6.0% of room revenues and, if applicable, 2.0% to 3.0% of food and beverage revenue. In addition, we generally pay 1.0% to 4.0% of room revenues as marketing and reservation system contributions for the system-wide benefit of brand hotels. Franchise fees are included in sales and marketing expense in our consolidated financial statements. We incurred franchise fee expense, including amortization of deferred franchise fees, of $3.6 million and $2.0 million for the three months ended June 30, 2022 and 2021, respectively, and $5.8 million and $3.0 million for the six months ended June 30, 2022 and 2021, respectively.

Capital Expenditures and Reserve Funds

With respect to our hotels that are operated under management or franchise agreements with major international hotel brands and for most of our hotels subject to mortgage loans, we are obligated to maintain furniture, fixtures and equipment reserve accounts for future capital expenditures sufficient to cover the cost of routine improvements and alterations at these hotels. The amount funded into each of these reserve accounts is generally determined pursuant to the management agreements, franchise agreements and/or mortgage loan documents for each of the respective hotels and typically ranges between 3.0% and 5.0% of the respective hotel’s total gross revenue. As of June 30, 2022 and December 31, 2021, $54.8 million and $58.7 million, respectively, was held in furniture, fixtures and equipment reserve accounts for future capital expenditures and is included in Restricted cash in the consolidated financial statements. In addition, due to the effects of the COVID-19 pandemic on our operations, we have been working with the brands, management companies and lenders and have used a portion of the available restricted cash reserves to cover operating costs at our properties, of which $1.3 million is subject to replenishment requirements as of June 30, 2022.

Renovation Commitments

Certain of our hotel franchise and loan agreements require us to make planned renovations to our hotels. Additionally, from time to time, certain of our hotels may undergo renovations as a result of our decision to upgrade portions of the hotels, such as guestrooms, public space, meeting space, and/or restaurants, in order to better compete with other hotels and alternative lodging options in our markets. As of June 30, 2022, we had various contracts outstanding with third parties in connection with the renovation of certain of our hotels. The remaining commitments under these contracts as of June 30, 2022 totaled $56.5 million. Funding for a renovation will first come from our furniture, fixtures and equipment reserve accounts, to the extent permitted by the terms of the management agreement. Should these reserves be unavailable or insufficient to cover the cost of the renovation, we will fund all or the remaining portion of the renovation with existing cash resources or other sources of available capital, including cash flow from operations.

Leases

Lease Obligations

We recognize an operating right-of-use asset and a corresponding lease liability for ground lease arrangements, hotel parking leases and various hotel equipment leases for which we are the lessee. Our leases have remaining lease terms ranging from less than one year to 88 years (excluding extension options not reasonably certain of being exercised).

WLT 6/30/2022 10-Q – 19

Notes to Consolidated Financial Statements (Unaudited)

Lease Cost

Certain information related to the total lease cost for operating leases is as follows (in thousands):

	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
Fixed lease cost	$	3,470	$	3,446	$	6,944	$	6,296
Variable lease cost (a)	232		81		317		109
Total lease cost	$	3,702	$	3,527	$	7,261	$	6,405

___________

(a)Our variable lease payments consist of payments based on a percentage of revenue.

Note 10. Income (Loss) Per Share and Equity

Loss Per Share

The following table presents income (loss) per share (in thousands, except share and per share amounts):

	Three Months Ended June 30, 2022					Three Months Ended June 30, 2021
	Basic and Diluted Weighted-Average Shares Outstanding	Allocation of Income		Basic and Diluted Income Per Share		Basic and Diluted Weighted-Average Shares Outstanding	Allocation of Loss		Basic and Diluted Loss Per Share
Class A common stock	168,024,120	$	10,933	$	0.07	167,617,993	$	(18,799)	$	(0.11)
Class T common stock	61,095,773	3,975		0.07		61,095,773	(6,852)		(0.11)
Net income (loss) attributable to    Common Stockholders		$	14,908				$	(25,651)

	Six Months Ended June 30, 2022					Six Months Ended June 30, 2021
	Basic and Diluted Weighted-Average Shares Outstanding	Allocation of Loss		Basic and Diluted Loss Per Share		Basic and Diluted Weighted-Average Shares Outstanding	Allocation of Loss		Basic and Diluted Loss Per Share
Class A common stock	167,857,568	$	(18,460)	$	(0.11)	167,542,818	$	(74,170)	$	(0.44)
Class T common stock	61,095,773	(6,719)		(0.11)		61,097,666	(27,048)		(0.44)
Net loss attributable to Common    Stockholders		$	(25,179)				$	(101,218)

The allocation of net income (loss) attributable to common stockholders is calculated based on the weighted-average shares outstanding for Class A common stock and Class T common stock for the period.

Noncontrolling Interest in the Operating Partnership

We consolidate the Operating Partnership, which is a majority-owned limited partnership that has a noncontrolling interest. As of June 30, 2022 and December 31, 2021, the Operating Partnership had 231,581,172 and 231,202,933 OP Units outstanding, respectively, of which 99.0% of the outstanding OP Units were owned by the Company, and the noncontrolling 1.0% ownership interest was beneficially owned by Mr. Medzigian as of both period ends.

As of both June 30, 2022 and December 31, 2021, Mr. Medzigian indirectly owned 2,417,996 OP Units. The outstanding OP Units indirectly held by Mr. Medzigian are exchangeable on a one-for-one basis into shares of WLT Class A common stock. Additionally, we had 16,778,446 Warrant Units outstanding as of both June 30, 2022 and December 31, 2021. The noncontrolling interest is included in noncontrolling interest on the consolidated balance sheet.

WLT 6/30/2022 10-Q – 20

Notes to Consolidated Financial Statements (Unaudited)

Reclassifications Out of Accumulated Other Comprehensive Income (Loss)

The following table presents a reconciliation of changes in Accumulated other comprehensive income (loss) by component for the periods presented (in thousands):

	Three Months Ended June 30,
Gains on Derivative Instruments	2022		2021
Beginning balance	$	4,297	$	(487)
Other comprehensive income (loss) before reclassifications	1,275		(203)
Amounts reclassified from accumulated other comprehensive income    (loss) to:
Interest expense	32		166
Total	32		166
Net current period other comprehensive income (loss)	1,307		(37)
Net current period other comprehensive income attributable to     noncontrolling interests	—		—
Ending balance	$	5,604	$	(524)

	Six Months Ended June 30,
Gains on Derivative Instruments	2022		2021
Beginning balance	$	148	$	(724)
Other comprehensive income (loss) before reclassifications	5,253		(113)
Amounts reclassified from accumulated other comprehensive income    (loss) to:
Interest expense	203		315
Total	203		315
Net current period other comprehensive income	5,456		202
Net current period other comprehensive income attributable to     noncontrolling interests	—		(2)
Ending balance	$	5,604	$	(524)

Share-Based Payments

During the three and six months ended June 30, 2022, the Company granted 344,992 RSUs to employees under the 2015 Equity Incentive Plan, which generally vest over three years, subject to continued employment, and are forfeited if the recipient’s employment terminates prior to the vesting. The Company also granted 556,438 shares to the Chief Executive Officer that will vest over three years, with 75% of each tranche vesting subject to the Board of Directors’ approval of the Company’s or Mr. Medzigian’s performance and 25% of each tranche vesting with regard to time only based on continued employment.

During the three and six months ended June 30, 2021, the Company granted 410,154 RSUs to employees under the 2015 Equity Incentive Plan, which generally vest over three years, subject to continued employment, and are forfeited if the recipient’s employment terminates prior to the vesting. The Company also granted 725,952 shares to Mr. Medzigian that will vest over three years, with 75% of each tranche vesting with regard to time only based on continued employment and 25% of each tranche vesting subject to the Board of Directors’ approval of the Company’s or Mr. Medzigian’s performance.

Note 11. Income Taxes

We elected to be treated as a REIT and believe that we have been organized and have operated in such a manner to maintain our qualification as a REIT for federal and state income tax purposes. As a REIT, we are generally not subject to corporate level federal income taxes on earnings distributed to our stockholders. Since inception, we have distributed at least 100% of our taxable income annually and intend to do so for the tax year ending December 31, 2022, if applicable. Accordingly, we have not included any provisions for federal income taxes related to the REIT in the accompanying consolidated financial statements for the six months ended June 30, 2022 and 2021. We conduct business in various states and municipalities within the United States, and, as a result, we or one or more of our subsidiaries file income tax returns in the U.S. federal jurisdiction and various

WLT 6/30/2022 10-Q – 21

Notes to Consolidated Financial Statements (Unaudited)

state jurisdictions. As a result, we are subject to certain state and local taxes and a provision for such taxes is included in the consolidated financial statements.

Certain of our subsidiaries have elected taxable REIT subsidiary (“TRS”) status. A TRS may provide certain services considered impermissible for REITs and may hold assets that REITs may not hold directly.

The accompanying consolidated financial statements include an interim tax provision for our TRSs for the three and six months ended June 30, 2022 and 2021. Current income tax expense was less than $0.1 million and $0.5 million for the three months ended June 30, 2022 and 2021, respectively, and $0.2 million and $0.6 million for the six months ended June 30, 2022 and 2021, respectively. We have calculated the provision for income taxes during interim periods by applying an estimate of the annual effective tax rate for the full fiscal year to “ordinary” income or loss (pretax income or loss excluding unusual or infrequently occurring discrete items) for the interim period.

Our TRSs are subject to U.S. federal and state income taxes. As such, deferred tax assets and liabilities are established for temporary differences between the financial reporting basis and the tax basis of assets and liabilities at the enacted tax rates expected to be in effect when the temporary differences reverse. A valuation allowance for deferred tax assets is provided if we believe that it is more likely than not that we will not realize the tax benefit of deferred tax assets based on available evidence at the time the determination is made. A change in circumstances may cause us to change our judgment about whether a deferred tax asset will more likely than not be realized. We generally report any change in the valuation allowance through our income statement in the period in which such changes in circumstances occur. The majority of our deferred tax assets relate to net operating losses, accrued expenses and deferred key money liabilities. Due to significant negative evidence, including cumulative losses in the most recent three-year period, our assessment as of June 30, 2022 is that our net deferred tax assets are not more likely than not to be realized and we reported a valuation allowance against those balances. Provision for income taxes included deferred income tax expense of $0.3 million and $0.6 million for the three months ended June 30, 2022 and 2021, respectively, and $0.7 million and $0.6 million for the six months ended June 30, 2022 and 2021, respectively.

Note 12. Mandatorily Redeemable Preferred Stock

As of both June 30, 2022 and December 31, 2021, we had authorized 50,000,000 shares of preferred stock, $0.001 par value per share.

Series A Preferred Stock

On April 13, 2020, we issued 1,300,000 shares of WLT Series A preferred stock, $0.001 par value per share, with a liquidation preference of $50.00 per share (the “Series A Preferred Stock”) to WPC.

Redemption

Partial Redemption – On both April 13, 2023 and April 13, 2024, the holders of the Series A Preferred Stock may elect to have the Company redeem 25% of the shares of the Series A Preferred Stock outstanding as of the respective dates for cash at a redemption price per share equal to $50.00, plus all accrued and unpaid dividends thereon up to and including the date of redemption, without interest, to the extent the Company has funds legally available therefor.

Full Redemption – At the earlier of April 13, 2025 or a redemption event (as defined in the Articles Supplementary governing the Series A Preferred Stock), the holders of the Series A Preferred Stock may elect to have the Company redeem all of the outstanding shares of the Series A Preferred Stock for cash at a redemption price per share equal to $50.00, plus all accrued and unpaid dividends thereon up to and including the date of redemption, without interest, to the extent the Company has funds legally available therefor.

On January 25, 2022, the Company redeemed the 1,300,000 shares of Series A Preferred Stock at the liquidation preference of $50.00 per share for a total of $65.0 million. All accrued and unpaid dividends, which totaled $0.1 million, were paid at redemption. We recognized a loss of $9.7 million during the six months ended June 30, 2022 related to the write-off of the unamortized fair value discount at the date of redemption, which is included in Loss on extinguishment of debt in the consolidated statement of operations.

WLT 6/30/2022 10-Q – 22

Notes to Consolidated Financial Statements (Unaudited)

Series B Preferred Stock and Warrants

On July 21, 2020, we entered into a securities purchase agreement (the “Purchase Agreement”) with ACP Watermark Investment LLC (the “Purchaser”) and, solely with respect to a guaranty, certain other parties thereto. Pursuant to the Purchase Agreement, the Company, in a private placement made in reliance on an exemption from the registration requirements of the Securities Act of 1933, as amended, agreed to issue and sell to the Purchaser 200,000 shares of 12% Series B Cumulative Redeemable Preferred Stock, liquidation preference $1,000.00 per share (the “Series B Preferred Stock”) and warrants (the “Warrants”) to purchase 16,778,446 units of limited partnership interest of the Operating Partnership (“OP Units”) (“Warrant Units”), for an aggregate purchase price of $200.0 million (the “July 2020 Capital Raise”), both of which were issued on July 24, 2020. The Warrant exercise price is $0.01 per Warrant Unit, and the Warrants expire on July 24, 2027. The Warrant Units are recorded as noncontrolling interest in the consolidated balance sheets totaling $11.8 million and $13.7 million as of June 30, 2022 and December 31, 2021, respectively. The Warrants require that, if the Operating Partnership pays any distribution to holders of OP Units, then the Operating Partnership shall concurrently distribute the same securities, cash, indebtedness, rights or other property to the holders of Warrants as if the Warrants had been exercised into Warrant Units on the date of such distribution. The Warrants include a call option that will allow the Company to purchase Warrants, Warrant Units and Common Stock issued on redemption of Warrant Units from the purchaser or its transferees at a specified call price until the Common Stock is approved for trading on any securities exchange registered as a national securities exchange under Section 6 of the Securities and Exchange Act of 1934, as amended (or the equivalent thereof in a jurisdiction outside the United States).

Among other terms of the Series B Preferred Stock, the Series B Preferred Stock generally prohibits the Company from paying distributions on common stock or redeeming common stock unless the Company has first paid all accrued dividends (and dividends thereon) on the Series B Preferred Stock in cash for all past dividend periods and the current dividend period. There are certain exceptions for the payment of dividends on common stock required for the Company to maintain its REIT qualification, special circumstances redemptions of common stock and redemptions of common stock that are funded with proceeds from issuances of common stock under the Company's distribution reinvestment plan.

Dividends

The holders are entitled to receive cumulative dividends per share of Series B Preferred Stock at the rate of 12% per year. Dividends can be paid in cash or in the form of additional shares of Series B Preferred Stock with the value thereof equal to the liquidation preference of such shares, at the option of the Company. The dividends are cumulative, compound quarterly and accrue, whether or not earned or declared, from and after the date of issue.

Redemption

On July 24, 2025, the Company is obligated to redeem all shares of Series B Preferred Stock at a redemption price, payable in cash, equal to the then applicable liquidation preference plus all accrued and unpaid dividends. In the event of a change of control, as defined in the Articles Supplementary, the holders have the right, but not the obligation, to require the Company to redeem for cash, in whole or in part, the outstanding shares of Series B Preferred Stock owned by the holder at the applicable Optional Redemption Price in effect at the date of the Fundamental Change Notice, as defined in the Articles Supplementary. The Company, at its option, may redeem for cash, in whole or in part from time to time, any or all of the outstanding shares of Series B Preferred Stock upon giving the notice described in the Articles Supplementary governing the Series B Preferred Stock at a price determined in the Articles Supplementary.

Dividends accrued included in interest expense in the consolidated financial statements related to our Series A and Series B Preferred Stock as of June 30, 2022 and December 31, 2021 totaled $5.9 million and $6.5 million, respectively.

WLT 6/30/2022 10-Q – 23

Notes to Consolidated Financial Statements (Unaudited)

The following table presents the carrying value of our Series A and Series B Preferred Stock as of June 30, 2022 and December 31, 2021:

	Series A Preferred Stock at				Series B Preferred Stock at
	June 30, 2022		December 31, 2021		June 30, 2022		December 31, 2021
Liquidation value	$	—	$	65,000	$	231,255	$	231,255
Fair value discount	—		(14,310)		(30,358)		(30,358)
	—		50,690		200,897		200,897
Accumulated amortization of fair value discount	—		4,364		11,747		8,740
Deferred financing costs	—		—		(10,177)		(11,177)
Accumulated amortization of deferred financing costs	—		—		3,939		3,217
	$	—	$	55,054	$	206,406	$	201,677

WLT 6/30/2022 10-Q – 24

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

Management’s Discussion and Analysis of Financial Condition and Results of Operations is intended to provide the reader with information that will assist in understanding our financial statements and the reasons for changes in certain key components of our financial statements from period to period. Management’s Discussion and Analysis of Financial Condition and Results of Operations also provides the reader with our perspective on our financial position and liquidity, as well as certain other factors that may affect our future results. Our Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the 2021 Annual Report and subsequent reports filed under the Securities Exchange Act of 1934, as amended (the “Exchange Act”).

Business Overview

We are a self-managed, publicly owned, non-traded REIT that invests in, manages and seeks to enhance the value of, interests in lodging and lodging-related properties in the United States. We own a diversified lodging portfolio, including full-service, select-service and resort hotels. Our results of operations were significantly affected by the COVID-19 pandemic, as discussed further below. Our results of operations are also significantly impacted by seasonality and by hotel renovations. Generally, during the renovation period, a portion of total rooms are unavailable and hotel operations are often disrupted, negatively impacting our results of operations. As of June 30, 2022, we held ownership interests in 24 hotels, with a total of 7,907 rooms.

Significant Developments

Proposed Merger

On May 6, 2022, the Company, along with the Operating Partnership, entered into a definitive merger agreement with affiliates of private real estate funds managed by affiliates of Brookfield under which Brookfield will acquire all of the outstanding shares of common stock of the Company in an all-cash transaction. If the proposed merger is completed, holders of common stock of the Company will be entitled to receive $6.768 per share in cash for each share of our Class A common stock owned and $6.699 per share in cash for each share of our Class T common stock owned. We filed the definitive proxy statement with the SEC on June 15, 2022 and commenced mailing the proxy statement to our stockholders in late June 2022. Completion of the proposed transaction is subject to certain customary closing conditions, including the approval of our stockholders at a special meeting scheduled for September 9, 2022. The proposed merger is expected to close in the fourth quarter of 2022, although there can be no assurance that the proposed merger will be completed at such time or at all. During the three and six months ended June 30, 2022, we incurred expenses related to the proposed merger totaling approximately $6.0 million, which is included in Transaction costs in our consolidated statements of operations.

COVID-19 Pandemic

The COVID-19 pandemic has had a material adverse effect on our business, results of operations, financial condition and cash flows and will continue to do so for the reasonably foreseeable future. Although results improved relative to 2021, we cannot estimate with certainty when travel demand will fully recover or how new variants of COVID-19 could impact recovery. The ultimate severity and duration of the COVID-19 pandemic and its effects, the emergence of variants and the acceptance and effectiveness of vaccines are uncertain, including whether COVID-19 will become endemic or cyclical in nature. Given these uncertainties, we cannot estimate with reasonable certainty the impact on our business, financial condition or near- or long-term financial or operational results.

WLT 6/30/2022 10-Q – 25

Financial and Operating Highlights

(Dollars in thousands, except average daily rate (“ADR”) and revenue per available room (“RevPAR”))

	Three Months Ended June 30,						Six Months Ended June 30,
	2022			2021			2022			2021
Hotel revenues	$	256,750		$	163,659		$	446,844		$	259,932
Net income (loss) attributable to Common     Stockholders	14,908			(25,651)			(25,179)			(101,218)
Net cash provided by (used in) operating activities							48,884			(35,456)
Net cash (used in) provided by investing activities							(13,854)			96,496
Net cash used in financing activities							(70,925)			(86,639)
Supplemental Financial Measures: (a)
FFO attributable to Common Stockholders	26,591			(16,940)			4,847			(60,107)
MFFO attributable to Common Stockholders	36,517			(2,707)			35,738			(36,440)
Consolidated Hotel Operating Statistics (b)
Occupancy	70.5		%	51.8		%	62.1		%	41.3		%
ADR	$	315.30		$	248.32		$	314.24		$	247.07
RevPAR	222.35			128.57			195.12			102.09
Comparable Consolidated Hotel Operating Statistics (c)
Occupancy	70.5		%	52.0		%	61.9		%	41.5		%
ADR	$	318.53		$	269.64		$	319.35		$	270.52
RevPAR	224.61			140.14			197.64			112.14

___________

(a)We consider funds from operations (“FFO”) and MFFO, which are supplemental measures that are not defined by GAAP (“non-GAAP measures”), to be important measures in the evaluation of our results of operations and capital resources. We evaluate our results of operations with a primary focus on the ability to generate cash flow necessary to meet our objective of funding distributions to stockholders. See Supplemental Financial Measures below for our definitions of these non-GAAP measures and reconciliations to their most directly comparable GAAP measures.

(b)Our consolidated hotel operating statistics represent statistical data for our Consolidated Hotels during our ownership period.

(c)Our comparable hotel operating statistics represent statistical data for Consolidated Hotels we owned as of the end of the reporting period, but excluding those hotels that we classified as held for sale. Statistical data prior to our ownership was included for hotels that were not owned for the entirety of the comparison periods. Due to the impact of COVID-19 on hotel operations and the effect on comparability between periods, we have included the operating statistics of our Comparable Consolidated Hotel Portfolio for the three and six months ended June 30, 2019 for comparative purposes. Occupancy, ADR and RevPAR for our Comparable Consolidated Hotel Portfolio for the three and six months ended June 30, 2019 were 77.0%, $269.67 and $207.68, respectively, and 74.7%, $272.70 and $203.69, respectively.

WLT 6/30/2022 10-Q – 26

Portfolio Overview

The following table sets forth certain information for each of our Consolidated Hotels and our Unconsolidated Hotel as of June 30, 2022:

Hotels	State	Number of Rooms	% Owned	Hotel Type
Consolidated Hotels
Charlotte Marriott City Center	NC	446	100%	Full-Service
Courtyard Times Square West	NY	224	100%	Select-service
Embassy Suites by Hilton Denver-Downtown/Convention Center	CO	403	100%	Full-Service
Equinox Golf Resort & Spa	VT	199	100%	Resort
Fairmont Sonoma Mission Inn & Spa	CA	226	100%	Resort
Hawks Cay Resort (a)	FL	384	100%	Resort
Hyatt Centric French Quarter New Orleans (b)	LA	254	100%	Full-service
Le Méridien Arlington	VA	154	100%	Full-Service
Le Méridien Dallas, The Stoneleigh	TX	176	100%	Full-service
Marriott Kansas City Country Club Plaza	MO	295	100%	Full-service
Marriott Raleigh City Center	NC	401	100%	Full-service
Marriott Sawgrass Golf Resort & Spa	FL	514	100%	Resort
Renaissance Atlanta Midtown Hotel	GA	304	100%	Full-Service
Renaissance Chicago Downtown	IL	560	100%	Full-service
Ritz-Carlton Bacara, Santa Barbara	CA	358	100%	Resort
Ritz-Carlton Fort Lauderdale (c)	FL	198	100%	Resort
Ritz-Carlton Key Biscayne (d)	FL	426	66.7%	Resort
Ritz-Carlton San Francisco	CA	336	100%	Full-Service
Sanderling Resort	NC	128	100%	Resort
San Diego Marriott La Jolla	CA	376	100%	Full-Service
San Jose Marriott	CA	510	100%	Full-Service
Seattle Marriott Bellevue	WA	384	100%	Full-Service
Westin Pasadena	CA	350	100%	Full-Service
		7,606
Unconsolidated Hotel
Ritz-Carlton Philadelphia	PA	301	60%	Full-service
		7,907

_________

(a)Includes 207 privately owned villas that participate in the villa/condo rental program as of June 30, 2022.

(b)On April 6, 2021, we acquired the remaining 20% interest in the Hyatt Centric French Quarter Venture from an unaffiliated third party, bringing our ownership interest to 100%.

(c)Includes 32 condo-hotel units that participate in the villa/condo rental program as of June 30, 2022.

(d)Includes 135 condo-hotel units that participate in the resort rental program as of June 30, 2022.

Results of Operations

We evaluate our results of operations with a primary focus on our ability to generate cash flow necessary to meet our objectives of funding distributions to stockholders and increasing the value in our real estate investments. As a result, our assessment of operating results gives less emphasis to the effect of unrealized gains and losses, which may cause fluctuations in net (loss) income for comparable periods but have no impact on cash flows, and to other non-cash charges, such as depreciation.

In addition, we use other information that may not be financial in nature, including statistical information, to evaluate the operating performance of our business, including occupancy rate, ADR and RevPAR. Occupancy rate, ADR and RevPAR are commonly used measures within the hotel industry to evaluate operating performance. RevPAR, which is calculated as the product of ADR and occupancy rate, is an important statistic for monitoring operating performance at our hotels. Our occupancy rate, ADR and RevPAR performance may be impacted by macroeconomic factors such as U.S. economic conditions, regional and local employment growth, personal income and corporate earnings, business relocation decisions, business and leisure travel, new hotel construction and the pricing strategies of competitors.

WLT 6/30/2022 10-Q – 27

Beginning in March 2020, we experienced a significant decline in occupancy and RevPAR. The economic downturn and restrictions on travel resulting from the COVID-19 pandemic has significantly impacted our business and the overall lodging industry. Although results improved relative to 2021, we cannot estimate with certainty when travel demand will fully recover or how new variants of COVID-19 could impact recovery.

The following table presents our comparative results of operations (in thousands):

	Three Months Ended June 30,						Six Months Ended June 30,
	2022		2021		Change		2022		2021		Change
Hotel Revenues	$	256,750	$	163,659	$	93,091	$	446,844	$	259,932	$	186,912
Hotel Operating Expenses	200,543		156,083		44,460		376,203		282,270		93,933
Corporate general and administrative expenses	8,383		8,344		39		15,864		15,601		263
Transaction costs	6,026		—		6,026		6,026		—		6,026
(Gain) loss on property-related insurance claims, net	—		(1,361)		1,361		250		(2,527)		2,777
Total Expenses	214,952		163,066		51,886		398,343		295,344		102,999
Operating Income (Loss) before gain on sale of real estate, net	41,798		593		41,205		48,501		(35,412)		83,913
Gain on sale of real estate, net	11,344		18,075		(6,731)		11,344		18,075		(6,731)
Operating Income (Loss)	53,142		18,668		34,474		59,845		(17,337)		77,182
Interest expense	(37,294)		(43,104)		5,810		(71,831)		(85,487)		13,656
Equity in earnings (losses) of equity method investments in real estate, net	847		(1,666)		2,513		(823)		(5,586)		4,763
Loss on extinguishment of debt	(136)		(5,519)		5,383		(13,999)		(5,519)		(8,480)
Other (expense) and income, net	(101)		(234)		133		368		(156)		524
Net gain on change in control of interests	—		8,612		(8,612)		—		8,612		(8,612)
Income (loss) before income taxes	16,458		(23,243)		39,701		(26,440)		(105,473)		79,033
Provision for income taxes	(293)		(1,097)		804		(823)		(1,222)		399
Net Income (Loss)	16,165		(24,340)		40,505		(27,263)		(106,695)		79,432
(Income) loss attributable to noncontrolling interests	(1,257)		(1,311)		54		2,084		5,477		(3,393)
Net Income (Loss) Attributable to Common      Stockholders	$	14,908	$	(25,651)	$	40,559	$	(25,179)	$	(101,218)	$	76,039
Supplemental Financial Measure:(a)
MFFO Attributable to Common Stockholders	$	36,517	$	(2,707)	$	39,224	$	35,738	$	(36,440)	$	72,178

___________

(a)We consider MFFO, a non-GAAP measure, to be an important metric in the evaluation of our results of operations and capital resources. We evaluate our results of operations with a primary focus on the ability to generate cash flow necessary to meet our objective of funding distributions to stockholders. See Supplemental Financial Measures below for our definition of non-GAAP measures and reconciliations to their most directly comparable GAAP measures.

Hotel Revenues

For the three and six months ended June 30, 2022 as compared to the same periods in 2021, hotel revenues increased by $93.1 million and $186.9 million, respectively. We benefited from significant growth in demand due to an increase in vaccinations and corresponding loosening of government-imposed restrictions on travel and large gatherings relative to the prior years. The increase in room revenue was attributable to an increase in RevPAR resulting from an increase in demand as compared to the prior periods.

WLT 6/30/2022 10-Q – 28

Hotel Operating Expenses

Room expense, food and beverage expense and other operating department costs fluctuate based on various factors, including occupancy, labor costs, utilities and insurance costs.

For the three and six months ended June 30, 2022 as compared to the same periods in 2021, aggregate hotel operating expenses increased by $44.5 million and $93.9 million, respectively, with the increase in line with the change in revenue discussed above, driven by an increase in demand as compared to the prior periods.

Transaction Costs

For both the three and six months ended June 30, 2022 as compared to the same periods in 2021, transactions costs increased by $6.0 million. Transaction costs for the three and six months ended June 30, 2022 represented advisory, legal, accounting, investor relations and other transaction costs related to the proposed merger (Note 1).

Gain on Sale of Real Estate, Net

During the three and six months ended June 30, 2022, we recognized a gain on sale on real estate of $11.3 million resulting from the sale of the Holiday Inn Manhattan 6th Avenue Chelsea to an unaffiliated third-party.

During the three and six months ended June 30, 2021, we recognized a gain on sale on real estate of $18.1 million from

the sale of the Sheraton Austin Hotel at the Capitol to an unaffiliated third-party by the Sheraton Austin Hotel at the Capitol venture. We owned an 80% controlling interest in the venture.

Interest Expense

For the three and six months ended June 30, 2022, as compared to the same periods in 2021, interest expense decreased by $5.8 million and $13.7 million, respectively, primarily due to a decrease in the amortization of the fair value discount related to the mortgage loans assumed in the merger of Carey Watermark Investors Incorporated and Carey Watermark Investors 2 Incorporated in April 2020 of $5.3 million and $10.0 million, respectively, and a decrease of $3.1 million and $6.5 million, respectively, resulting from dispositions of hotels during 2021 and 2022 and payoff of related mortgage debt, partially offset by an increase in interest expense of $2.2 million and $2.5 million, respectively, resulting from refinancings and $0.9 million and $1.4 million, respectively, largely the result of an increase in the weighted average interest rate relative to the prior year periods.

Equity in Earnings (Losses) of Equity Method Investments in Real Estate, Net

Equity in income (losses) of equity method investments in real estate, net represents income (losses) from our equity investments in Unconsolidated Hotels recognized in accordance with each investment agreement and based upon the allocation of the investment’s net assets at book value as if the investment were hypothetically liquidated at the end of each reporting period (Note 4). We are required to periodically compare an investment’s carrying value to its estimated fair value and recognize an impairment charge to the extent that the carrying value exceeds the estimated fair value and is determined to be other than temporary.

The following table sets forth our share of equity in earnings (losses) from our Unconsolidated Hotels, which are based on the HLBV model, as well as certain amortization adjustments related to basis differentials from acquisitions of investments (in thousands):

	Three Months Ended June 30,				Six Months Ended June 30,
Venture	2022		2021		2022		2021
Ritz-Carlton Philadelphia Venture (a)	$	847	$	(1,666)	$	(823)	$	(4,729)
Hyatt Centric French Quarter Venture (b)	—		—		—		(857)
Total equity in earnings (losses) of equity method investments in real estate, net	$	847	$	(1,666)	$	(823)	$	(5,586)

___________

(a)The results for the three and six months ended June 30, 2022 reflect an improvement in the performance of the hotel during 2022 as compared to comparable periods in 2021.

WLT 6/30/2022 10-Q – 29

(b)On April 6, 2021, we acquired the remaining 20% interest in the Hyatt Centric French Quarter Venture from an unaffiliated third party. Upon completion of the acquisition, the Company owns 100% of this hotel and consolidates its real estate interest in this hotel therefore these amounts represent the equity in losses prior to the acquisition.

Loss on Extinguishment of Debt

During the six months ended June 30, 2022, we recognized a loss on extinguishment of debt of $14.0 million comprised primarily of a $9.7 million loss related to the Series A Preferred Stock redemption, representing the write-off of the unamortized fair value discount at the date of redemption and a $4.1 million loss resulting from the refinancing of the San Diego Marriott La Jolla non-recourse mortgage loan.

During the three and six months ended June 30, 2021 we recognized a loss on extinguishment of debt of $5.5 million, comprised of a $4.8 million loss resulting from the refinancing of the Seattle Marriott Bellevue non-recourse mortgage loan and a $0.7 million loss in connection with the disposition of the Sheraton Austin Hotel at the Capitol.

Provision for Income Taxes

For the three and six months ended June 30, 2022, as compared to the same periods in 2021, provision for income taxes decreased by $0.8 million and $0.4 million, respectively. Provision for income taxes for the three and six months ended June 30, 2021 included the establishment of a valuation allowance of $0.5 million in connection with the acquisition of the remaining 20% interest in the Hyatt Centric French Quarter Venture in April 2021, increasing deferred tax expense during the prior year periods.

(Income) Loss Attributable to Noncontrolling Interests

The following table sets forth our (income) loss attributable to noncontrolling interests (in thousands):

	Three Months Ended June 30,				Six Months Ended June 30,
Venture	2022		2021		2022		2021
Ritz-Carlton Key Biscayne Venture	$	(24)	$	(21)	(48)		(29)
Sheraton Austin Hotel at the Capitol Venture (a)	16		(3,383)		19		(2,867)
Ritz-Carlton Fort Lauderdale Venture (b)	—		(60)		—		(146)
Operating Partnership — Noncontrolling interest (c)	(1,249)		2,153		2,113		8,519
(Income) Loss attributable to noncontrolling    interests	$	(1,257)	$	(1,311)	$	2,084	$	5,477

___________

(a)On May 5, 2021, the Sheraton Austin Hotel at the Capitol venture sold the Sheraton Austin Hotel at the Capitol to an unaffiliated third-party. We owned an 80% controlling interest in the venture.

(b)On November 9, 2021, we acquired the remaining 30% interest in the Ritz-Carlton Fort Lauderdale Venture from an unaffiliated third party, bringing our ownership interest to 100%.

(c)Reflects the OP Units’ and Warrant Units’ proportionate share of net loss.

Modified Funds from Operations

MFFO is a non-GAAP measure that we use to evaluate our business. For a definition of MFFO and a reconciliation to net income or loss attributable to Common Stockholders, see Supplemental Financial Measures below.

For the three and six months ended June 30, 2022 as compared to the same periods in 2021, MFFO improved by $39.2 million and $72.2 million, respectively. Relative to the prior year periods, we benefited from significant growth in demand due to an increase in vaccinations and corresponding loosening of government-imposed restrictions on travel and large gatherings.

WLT 6/30/2022 10-Q – 30

Liquidity and Capital Resources

Our primary cash uses over the next 12 months are expected to be payment of debt service, costs associated with the refinancing or restructuring of indebtedness, funding corporate and hotel level operations, payment of real estate taxes and insurance and payment of preferred stock dividends. Our primary capital sources to meet such uses are expected to be funds generated by hotel operations, cash on hand and proceeds from additional asset sales.

The COVID-19 pandemic has had a material adverse effect on our business, results of operations, financial condition and cash flows and will continue to do so for the reasonably foreseeable future. Although results improved relative to 2021, we cannot estimate with certainty when travel demand will fully recover or how new variants of COVID-19 could impact recovery. The ultimate severity and duration of the COVID-19 pandemic and its effects, the emergence of variants and the acceptance and effectiveness of vaccines are uncertain, including whether COVID-19 will become endemic or cyclical in nature. Given these uncertainties, we cannot estimate with reasonable certainty the impact on our business, financial condition or near- or long-term financial or operational results.

As of June 30, 2022, we had cash and cash equivalents of $205.7 million. As of June 30, 2022, the mortgage loans for our Consolidated Hotels had an aggregate principal balance totaling $1.9 billion outstanding, all of which is mortgage indebtedness and is generally non-recourse, subject to customary non-recourse carve-outs, except that we have provided certain lenders with limited corporate guaranties aggregating $34.0 million for items such as taxes, deferred debt service and amounts drawn from furniture, fixtures and equipment reserves to pay expenses, in connection with loan modification agreements. We have continued to work with our lenders to address loans with near-term mortgage maturities and have refinanced or extended the maturity date of seven Consolidated Hotel mortgage loans, aggregating $547.0 million of indebtedness, during the six months ended June 30, 2022. Of the $1.9 billion aggregate principal balance indebtedness outstanding as of June 30, 2022, approximately $1.0 billion is scheduled to mature during the 12 months after the date of this Report. If the Company is unable to repay, refinance or extend maturing mortgage loans, we may choose to market these assets for sale or the lenders may declare events of default and seek to foreclose on the underlying hotels or we may also seek to surrender properties back to the lender.

Sources and Uses of Cash During the Period

Operating Activities — For the six months ended June 30, 2022, net cash provided by operating activities was $48.9 million as compared to net cash used in operating activities of $35.5 million for the six months ended June 30, 2021. Relative to the prior year period, we benefited from significant growth in demand due to an increase in vaccinations and corresponding loosening of government-imposed restrictions on travel and large gatherings.

Investing Activities — During the six months ended June 30, 2022, net cash used in investing activities was $13.9 million primarily as a result of funding $16.3 million for capital expenditures at our Consolidated Hotels, partially offset by the receipt of property insurance proceeds of $2.7 million.

Financing Activities — Net cash used in financing activities for the six months ended June 30, 2022 was $70.9 million primarily as a result of payments and prepayments of mortgage financing totaling $402.1 million, the redemption of the Series A Preferred Stock of $65.0 million and deferred financing costs of $8.4 million, partially offset by $408.7 million of proceeds from mortgage financings.

Distributions and Redemptions

On March 18, 2020, in light of the impact that the COVID-19 pandemic has had on our business, we announced that we were suspending future distributions on our common stock. We also announced that redemptions would be suspended including, as of December 2, 2020, special circumstances redemptions. Requests for special circumstances redemptions may continue to be submitted, however, the Company will not take any action with regard to those requests until the Board of Directors has elected to lift the suspension and provided the terms and conditions for any continuation of the program. Distributions and redemptions in respect of future periods will be evaluated by the Board of Directors based on circumstances and expectations existing at the time of consideration, and are also subject to the terms of the Series B Preferred Stock.

Among other terms of the Series B Preferred Stock, the Series B Preferred Stock generally prohibits the Company from paying distributions on common stock or redeeming common stock unless all accrued dividends on the Series B Preferred Stock are paid in cash for all past dividend periods and the dividend for the current dividend period is also paid in cash. There are certain exceptions for the payment of dividends on common stock required for the Company to maintain its REIT qualification, special

WLT 6/30/2022 10-Q – 31

circumstances redemptions of common stock and redemptions of common stock that are funded with proceeds from issuances of common stock under the Company's distribution reinvestment plan.

Summary of Financing

The table below summarizes our non-recourse debt, net (dollars in thousands):

	June 30, 2022			December 31, 2021
Carrying Value
Fixed rate (a)	$	545,083		$	951,318
Variable rate (a):
Amount subject to interest rate caps	970,463			507,919
Amount subject to floating interest rate	196,057			317,497
Amount subject to interest rate swaps	183,902			182,007
	1,350,422			1,007,423
	$	1,895,505		$	1,958,741
Percent of Total Debt
Fixed rate	29		%	49		%
Variable rate	71		%	51		%
	100		%	100		%
Weighted-Average Interest Rate at End of Period
Fixed rate	4.3		%	4.3		%
Variable rate (b)	5.1		%	4.0		%

_________

(a)Aggregate debt balance includes unamortized fair value discount of $3.3 million and $13.4 million as of June 30, 2022 and December 31, 2021, respectively, and unamortized deferred financing costs totaling $13.5 million and $7.6 million as of June 30, 2022 and December 31, 2021, respectively.

(b)The impact of our derivative instruments is reflected in the weighted-average interest rates.

Covenants

Pursuant to our mortgage loan agreements, our consolidated subsidiaries are subject to various operational and financial covenants, including minimum debt service coverage and debt yield ratios. Most of our mortgage loan agreements contain “lock-box” provisions, which permit the lender to access or sweep a hotel’s excess cash flow and could be triggered by the lender under limited circumstances, including the failure to maintain minimum debt service coverage ratios. If a lender requires that we enter into a cash management agreement, we would generally be permitted to spend an amount equal to our budgeted hotel operating expenses, taxes, insurance and capital expenditure reserves for the relevant hotel. The lender would then hold all excess cash flow after the payment of debt service in an escrow account until certain performance hurdles are met. As of June 30, 2022, we have effectively entered into cash management agreements with the lenders on 12 of our 23 Consolidated Hotel mortgage loans either because the minimum debt service coverage ratio was not met or as a result of a loan modification agreement. The cash management agreements generally permit cash generated from the operations of each hotel to fund the hotel’s operating expenses, debt service, taxes and insurance but restrict distributions of excess cash flow, if any, to the Company to fund corporate expenses.

Courtyard Times Square West

The $60.6 million outstanding mortgage loan on Courtyard Times Square West matured on June 1, 2021 and we have not paid off the outstanding principal balance. The loan does not have any cross-default provisions with our other mortgage obligations. We are currently in the process of exploring various options as it relates to this asset, including but not limited to, surrendering the property back to the lender.

WLT 6/30/2022 10-Q – 32

Cash Resources

At June 30, 2022, our cash resources consisted of cash and cash equivalents totaling $205.7 million, of which $61.7 million was designated as hotel operating cash and was held at our hotel operating properties.

Cash Requirements

Our primary cash uses through June 30, 2023 are expected to be payments of debt service, real estate taxes and insurance, payment of preferred stock dividends, costs associated with the refinancing or restructuring of indebtedness and funding corporate and hotel level operations. Our primary capital sources to meet such uses are expected to be cash on hand, funds generated by hotel operations and proceeds from additional asset sales. We may satisfy certain debt maturities during this period by turning the properties back to the lenders.

Capital Expenditures and Reserve Funds

With respect to our hotels that are operated under management or franchise agreements with major international hotel brands and for most of our hotels subject to mortgage loans, we are obligated to maintain furniture, fixtures and equipment reserve accounts for future capital expenditures sufficient to cover the cost of routine improvements and alterations at these hotels. The amount funded into each of these reserve accounts is generally determined pursuant to the management agreements, franchise agreements and/or mortgage loan documents for each of the respective hotels and typically ranges between 3.0% and 5.0% of the respective hotel’s total gross revenue. As of June 30, 2022 and December 31, 2021, $54.8 million and $58.7 million, respectively, was held in furniture, fixtures and equipment reserve accounts for future capital expenditures and is included in Restricted cash in the consolidated financial statements. In addition, due to the effects of the COVID-19 pandemic on our operations, we have been working with the brands, management companies and lenders and have used a portion of the available restricted cash reserves to cover operating costs at our properties, of which $1.3 million is subject to replenishment as of June 30, 2022.

Supplemental Financial Measures

In the real estate industry, analysts and investors employ certain non-GAAP supplemental financial measures in order to facilitate meaningful comparisons between periods and among peer companies. Additionally, in the formulation of our goals and in the evaluation of the effectiveness of our strategies, we use FFO and MFFO, which are non-GAAP measures defined by our management. We believe that these measures are useful to investors to consider because they may assist them to better understand and measure the performance of our business over time and against similar companies. A description of FFO and MFFO, and reconciliations of these non-GAAP measures to the most directly comparable GAAP measures, are provided below.

FFO and MFFO

Due to certain unique operating characteristics of real estate companies, as discussed below, the National Association of Real Estate Investment Trusts (“NAREIT”), an industry trade group, has promulgated a non-GAAP measure known as FFO, which we believe to be an appropriate supplemental measure, when used in addition to and in conjunction with results presented in accordance with GAAP, to reflect the operating performance of a REIT. The use of FFO is recommended by the REIT industry as a supplemental non-GAAP measure. FFO is not equivalent to, nor a substitute for, net income or loss as determined under GAAP.

We define FFO, a non-GAAP measure, consistent with the standards established by the White Paper on FFO approved by the Board of Governors of NAREIT, as restated in December 2018. The White Paper defines FFO as net income or loss computed in accordance with GAAP, excluding gains or losses from sales of property, impairment charges on real estate, and depreciation and amortization from real estate assets; and after adjustments for unconsolidated partnerships and jointly owned investments. Adjustments for unconsolidated partnerships and jointly owned investments are calculated to reflect FFO. Our FFO calculation complies with NAREIT’s policy described above. However, NAREIT’s definition of FFO does not distinguish between the conventional method of equity accounting and the HLBV method of accounting for unconsolidated partnerships and jointly owned investments.

The historical accounting convention used for real estate assets requires straight-line depreciation of buildings and improvements, which implies that the value of real estate assets diminishes predictably over time, especially if such assets are not adequately maintained or repaired and renovated as required by relevant circumstances in order to maintain the value disclosed. We believe that, since real estate values historically rise and fall with market conditions, including inflation, interest

WLT 6/30/2022 10-Q – 33

rates, the business cycle, unemployment and consumer spending, presentations of operating results for a REIT using historical accounting for depreciation may be less informative. Historical accounting for real estate involves the use of GAAP. Any other method of accounting for real estate such as the fair value method cannot be construed to be any more accurate or relevant than the comparable methodologies of real estate valuation found in GAAP. Nevertheless, we believe that the use of FFO, which excludes the impact of real estate-related depreciation and amortization, as well as impairment charges of real estate-related assets, provides a more complete understanding of our performance to investors and to management; and when compared year over year, reflects the impact on our operations from trends in occupancy rates, operating costs, general and administrative expenses, and interest costs, which may not be immediately apparent from net income or loss. In particular, we believe it is appropriate to disregard impairment charges, as this is a fair value adjustment that is largely based on market fluctuations and assessments regarding general market conditions, which can change over time. An asset will only be evaluated for impairment if certain impairment indicators exist. For real estate assets held for investment and related intangible assets in which an impairment indicator is identified, we follow a two-step process to determine whether an asset is impaired and to determine the amount of the charge. First, we compare the carrying value of the property’s asset group to the estimated future net undiscounted cash flow that we expect the property’s asset group will generate, including any estimated proceeds from the eventual sale of the property’s asset group. It should be noted, however, that the property’s asset group’s estimated fair value is primarily determined using market information from outside sources such as broker quotes or recent comparable sales. In cases where the available market information is not deemed appropriate, we perform a future net cash flow analysis discounted for inherent risk associated with each asset to determine an estimated fair value. While impairment charges are excluded from the calculation of FFO described above due to the fact that impairments are based on estimated future undiscounted cash flows, it could be difficult to recover any impairment charges. However, FFO and MFFO, as described below, should not be construed to be more relevant or accurate than the current GAAP methodology in calculating net income or loss or in its applicability in evaluating the operating performance of the company. The method utilized to evaluate the value and performance of real estate under GAAP should be construed as a more relevant measure of operational performance and considered more prominently than the non-GAAP measures FFO and MFFO and the adjustments to GAAP in calculating FFO and MFFO.

Changes in the accounting and reporting promulgations under GAAP (for acquisition fees and expenses from a capitalization/depreciation model to an expensed-as-incurred model) were put into effect subsequent to the establishment of NAREIT’s definition of FFO. Management believes these cash-settled expenses, such as acquisition fees that are typically accounted for as operating expenses, do not affect our overall long-term operating performance. Publicly-registered, non-traded REITs typically have a significant amount of acquisition activity and are substantially more dynamic during their initial years of investment and operation. While other start-up entities may also experience significant acquisition activity during their initial years, we believe that non-traded REITs are unique in that they have a limited life with targeted exit strategies within a relatively limited time frame after acquisition activity ceases. Due to the above factors and other unique features of publicly registered, non-traded REITs, the Institute for Portfolio Alternatives (formerly known as the Investment Program Association) (“IPA”), an industry trade group, has standardized a measure known as MFFO, which the IPA has recommended as a supplemental measure for publicly registered non-traded REITs and which we believe to be another appropriate non-GAAP measure to reflect the operating performance of a non-traded REIT having the characteristics described above. MFFO is not equivalent to our net income or loss as determined under GAAP, and MFFO may not be a useful measure of the impact of long-term operating performance on value if we do not continue to operate with a limited life and targeted exit strategy, as currently intended. We believe that, because MFFO excludes costs that we consider more reflective of investing activities and other non-operating items included in FFO and also excludes acquisition fees and expenses that affect our operations only in periods in which properties are acquired, MFFO can provide, on a going forward basis, an indication of the sustainability (that is, the capacity to continue to be maintained) of our operating performance after the period in which we are acquiring properties and once our portfolio is in place. By providing MFFO, we believe we are presenting useful information that assists investors and analysts to better assess the sustainability of our operating performance now that our offering has been completed and once essentially all of our properties have been acquired. We also believe that MFFO is a recognized measure of sustainable operating performance by the non-traded REIT industry. Further, we believe MFFO is useful in comparing the sustainability of our operating performance, with the sustainability of the operating performance of other real estate companies that are not as involved in acquisition activities. MFFO should only be used to assess the sustainability of a company’s operating performance after a company’s offering has been completed and properties have been acquired, as it excludes acquisition costs that have a negative effect on a company’s operating performance during the periods in which properties are acquired.

We define MFFO consistent with the IPA’s Practice Guideline 2010-01, Supplemental Performance Measure for Publicly Registered, Non-Listed REITs: Modified Funds from Operations (the “Practice Guideline”), issued by the IPA in November 2010. This Practice Guideline defines MFFO as FFO further adjusted for the following items, included in the determination of GAAP net income or loss, as applicable: acquisition fees and expenses; accretion of discounts and amortization of premiums on debt investments; where applicable, payments of loan principal made by our equity investees accounted for under the HLBV

WLT 6/30/2022 10-Q – 34

model where such payments reduce our equity in earnings of equity method investments in real estate, nonrecurring impairments of real estate-related investments (i.e., infrequent or unusual, not reasonably likely to recur in the ordinary course of business); mark-to-market adjustments included in net income or loss; nonrecurring gains or losses included in net income or loss from the extinguishment or sale of debt, hedges, derivatives or securities holdings, where trading of such holdings is not a fundamental attribute of the business plan, unrealized gains or losses resulting from consolidation from, or deconsolidation to, equity accounting, and after adjustments for Consolidated and Unconsolidated Hotels, with such adjustments calculated to reflect MFFO on the same basis. The accretion of discounts and amortization of premiums on debt investments, unrealized gains and losses on hedges, derivatives or securities holdings, unrealized gains and losses resulting from consolidations, as well as other listed cash flow adjustments are adjustments made to net income or loss in calculating the cash flows provided by operating activities and, in some cases, reflect gains or losses that are unrealized and may not ultimately be realized.

Our MFFO calculation complies with the Practice Guideline described above. In calculating MFFO, we exclude acquisition-related expenses, fair value adjustments of derivative financial instruments and the adjustments of such items related to noncontrolling interests. Under GAAP, acquisition fees and expenses are characterized as operating expenses in determining operating net income or loss. These expenses are paid in cash by a company. All paid and accrued acquisition fees and expenses will have negative effects on returns to investors, the potential for future distributions, and cash flows generated by the company, unless earnings from operations or net sales proceeds from the disposition of other properties are generated to cover the purchase price of the property, these fees and expenses and other costs related to such property. Further, under GAAP, certain contemplated non-cash fair value and other non-cash adjustments are considered operating non-cash adjustments to net income or loss in determining cash flow from operating activities. We account for certain of our equity investments using the HLBV model which is based on distributable cash as defined in the operating agreement.

Our management uses MFFO and the adjustments used to calculate it in order to evaluate our performance against other non-traded REITs, which have limited lives with short and defined acquisition periods and targeted exit strategies shortly thereafter. As noted above, MFFO may not be a useful measure of the impact of long-term operating performance on value if we do not continue to operate in this manner. We believe that MFFO and the adjustments used to calculate it allow us to present our performance in a manner that takes into account certain characteristics unique to non-traded REITs, such as their limited life, defined acquisition period and targeted exit strategy, and is therefore a useful measure for investors. For example, acquisition costs are generally funded from the proceeds of our offering and other financing sources and not from operations. By excluding expensed acquisition costs, the use of MFFO provides information consistent with management’s analysis of the operating performance of the properties. Additionally, fair value adjustments, which are based on the impact of current market fluctuations and underlying assessments of general market conditions, but can also result from operational factors such as occupancy rates, may not be directly related or attributable to our current operating performance. By excluding such changes that may reflect anticipated and unrealized gains or losses, we believe MFFO provides useful supplemental information.

Presentation of this information is intended to provide useful information to investors as they compare the operating performance of different REITs, although it should be noted that not all REITs calculate FFO and MFFO the same way, so comparisons with other REITs may not be meaningful. Furthermore, FFO and MFFO are not necessarily indicative of cash flow available to fund cash needs and should not be considered as an alternative to net income or loss as an indication of our performance, as an alternative to cash flows from operations as an indication of our liquidity, or indicative of funds available to fund our cash needs including our ability to make distributions to our stockholders. FFO and MFFO should be reviewed in conjunction with other GAAP measurements as an indication of our performance.

Neither the SEC, NAREIT nor any other regulatory body has passed judgment on the acceptability of the adjustments that we use to calculate FFO or MFFO. In the future, the SEC, NAREIT or another regulatory body may decide to standardize the allowable adjustments across the non-traded REIT industry and we would have to adjust our calculation and characterization of FFO and MFFO accordingly.

WLT 6/30/2022 10-Q – 35

FFO and MFFO were as follows (in thousands):

	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
Net Income (Loss) Attributable to Common      Stockholders	$	14,908	$	(25,651)	$	(25,179)	$	(101,218)
Adjustments:
Depreciation and amortization of real property	24,427		28,891		50,512		60,812
Gain on sale of real estate, net	(11,344)		(18,075)		(11,344)		(18,075)
Net gain on change in control of interests	—		(8,612)		—		(8,612)
Proportionate share of adjustments for partially-owned entities — FFO adjustments	(1,400)		6,507		(9,142)		6,986
Total adjustments	11,683		8,711		30,026		41,111
FFO attributable to Common Stockholders (as defined by NAREIT)	26,591		(16,940)		4,847		(60,107)
Adjustments:
Transaction costs (a)	6,026		—		6,026		—
Amortization of fair value adjustments	3,460		9,652		7,938		19,375
Straight-line and other rent adjustments	1,728		1,727		3,456		3,063
Net loss on extinguishment of debt	136		5,519		13,999		5,519
(Gain) loss on property-related insurance       claims, net (a)	—		(1,361)		250		(2,527)
Proportionate share of adjustments for partially        owned entities — MFFO adjustments	(1,424)		(1,304)		(778)		(1,763)
Total adjustments	9,926		14,233		30,891		23,667
MFFO attributable to Common Stockholders	$	36,517	$	(2,707)	$	35,738	$	(36,440)

___________

(a)We have excluded these costs because of their non-recurring nature. By excluding such costs, management believes MFFO provides useful supplemental information that is comparable for each type of real estate investment and is consistent with management’s analysis of the investing and operating performance of our properties.

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Item 3. Quantitative and Qualitative Disclosures About Market Risk.

Market Risk

We currently have limited exposure to financial market risks, including changes in interest rates. We currently have no foreign operations and are not exposed to foreign currency fluctuations.

Interest Rate Risk

The values of our real estate and related fixed-rate debt obligations are subject to fluctuations based on changes in interest rates. The value of our real estate is also subject to fluctuations based on local and regional economic conditions, which may affect our ability to refinance property-level mortgage debt when balloon payments are scheduled, if we do not choose to repay the debt when due. Interest rates are highly sensitive to many factors, including governmental monetary and tax policies, domestic and international economic and political conditions, and other factors beyond our control. An increase in interest rates would likely cause the fair value of our assets to decrease.

We are exposed to the impact of interest rate changes primarily through our borrowing activities. To limit this exposure, we generally seek non-recourse mortgage financing on a long-term, fixed-rate basis. However, from time to time, we or our joint investment partners have obtained, and may in the future obtain, variable-rate non-recourse mortgage loans, and, as a result, we have entered into, and may continue to enter into, interest rate swap agreements or interest rate cap agreements with counterparties. See Note 7 for additional information on our interest rate swaps and caps.

As of June 30, 2022, all of our debt bore interest at fixed rates, was swapped to a fixed rate or was subject to an interest rate cap, with the exception of two mortgage loans with an outstanding balance totaling $196.1 million. Our debt obligations are more fully described in Note 8 and Summary of Financing in Item 2 above. The following table presents principal cash outflows for our Consolidated Hotels based upon existing maturity dates of our debt obligations outstanding as of June 30, 2022 and excludes deferred financing costs and fair value discounts (in thousands):

	2022 (Remainder)		2023		2024		2025		2026		Total		Fair Value
Fixed-rate debt	$	197,658	$	350,099	$	—	$	—	$	—	$	547,757	$	547,360
Variable-rate debt	$	458,137	$	104,649	$	329,910	$	471,819	$	—	$	1,364,515	$	1,366,432

The estimated fair value of our fixed-rate debt and our variable-rate debt that currently bears interest at fixed rates or has effectively been converted to a fixed rate through the use of an interest rate swap, or that has been subject to an interest rate cap, is affected by changes in interest rates. A decrease or increase in interest rates of 1.0% would change the estimated fair value of this debt as of June 30, 2022 by an aggregate increase of $17.1 million or an aggregate decrease of $25.4 million, respectively. Annual interest expense on our variable-rate debt that is subject to an interest rate cap as of June 30, 2022 would increase or decrease by $9.7 million for each respective 1.0% change in annual interest rates.

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Item 4. Controls and Procedures.

Disclosure Controls and Procedures

Our disclosure controls and procedures include internal controls and other procedures designed to provide reasonable assurance that information required to be disclosed in this and other reports filed or submitted under the Exchange Act, is recorded, processed, summarized and reported within the required time periods specified in the SEC’s rules and forms; and that such information is accumulated and communicated to management, including our principal executive and financial officer, to allow timely decisions regarding required disclosures. It should be noted that no system of controls can provide complete assurance of achieving a company’s objectives and that future events may impact the effectiveness of a system of controls.

Our principal executive and financial officer, after conducting an evaluation, together with members of our management, of the effectiveness of the design and operation of our disclosure controls and procedures as of June 30, 2022, has concluded that our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) were effective as of June 30, 2022 at a reasonable level of assurance.

Changes in Internal Control Over Financial Reporting

There have been no changes in our internal control over financial reporting during our most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

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PART II — OTHER INFORMATION

Item 2. Unregistered Sales of Equity Securities.

None.

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Item 6. Exhibits.

The following exhibits are filed with this Report. Documents other than those designated as being filed herewith are incorporated herein by reference.

Exhibit No.	Description	Method of Filing
2.3	Agreement and Plan of Merger dated as of May 6, 2022 by and among Watermark Lodging Trust, Inc., CWI 2 OP, LP, The Parent Entities Named Herein, Ruby Merger Sub I LLC and Ruby Merger Sub II LP	Incorporated by reference to Exhibit 2.1 to Current Report on Form 8-K, filed on May 9, 2022
10.13	Watermark Lodging Trust, Inc. Amended and Restated Employee Retention and Severance Plan	Incorporated by reference to Exhibit 10.1 to Current Report on Form 8-K, filed on June 24, 2022
10.14	Amended and Restated Employment Agreement by and among Watermark Lodging Trust, Inc. and Michael G. Medzigian dated as of June 21, 2022	Incorporated by reference to Exhibit 10.2 to Current Report on Form 8-K, filed on June 24, 2022
31.1	Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002	Filed herewith
32	Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002	Filed herewith
101.INS	XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL Document	Filed herewith
101.SCH	XBRL Taxonomy Extension Schema Document	Filed herewith
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document	Filed herewith
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document	Filed herewith
101.LAB	XBRL Taxonomy Extension Label Linkbase Document	Filed herewith
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document	Filed herewith

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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.

			Watermark Lodging Trust, Inc.
Date:	August 11, 2022
		By:	/s/ Michael G. Medzigian
			Michael G. Medzigian
			Chief Executive Officer
			(Principal Executive and Financial Officer)
			/s/ Matthew W. Miller
			Matthew W. Miller
			Chief Accounting Officer
			(Principal Accounting Officer)

WLT 6/30/2022 10-Q – 41

EXHIBIT INDEX

The following exhibits are filed with this Report. Documents other than those designated as being filed herewith are incorporated herein by reference.

Exhibit No.	Description	Method of Filing
2.3	Agreement and Plan of Merger dated as of May 6, 2022 by and among Watermark Lodging Trust, Inc., CWI 2 OP, LP, The Parent Entities Named Herein, Ruby Merger Sub I LLC and Ruby Merger Sub II LP	Incorporated by reference to Exhibit 2.1 to Current Report on Form 8-K, filed on May 9, 2022
10.13	Watermark Lodging Trust, Inc. Amended and Restated Employee Retention and Severance Plan	Incorporated by reference to Exhibit 10.1 to Current Report on Form 8-K, filed on June 24, 2022
10.14	Amended and Restated Employment Agreement by and among Watermark Lodging Trust, Inc. and Michael G. Medzigian dated as of June 21, 2022	Incorporated by reference to Exhibit 10.2 to Current Report on Form 8-K, filed on June 24, 2022
31.1	Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002	Filed herewith
32	Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002	Filed herewith
101.INS	XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL Document	Filed herewith
101.SCH	XBRL Taxonomy Extension Schema Document	Filed herewith
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document	Filed herewith
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document	Filed herewith
101.LAB	XBRL Taxonomy Extension Label Linkbase Document	Filed herewith
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document	Filed herewith

WLT 6/30/2022 10-Q – 42