ITEM 1. Financial Statements (unaudited)
ASHFORD HOSPITALITY TRUST, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(unaudited, in thousands, except share and per share amounts)
| | | | | | | | | | | |
| June 30, 2022 | | December 31, 2021 |
| ASSETS | | | |
| | | |
| | | |
| Investments in hotel properties, net | $ | 3,137,388 | | | $ | 3,230,710 | |
| Cash and cash equivalents | 537,822 | | | 592,110 | |
| Restricted cash | 125,995 | | | 99,534 | |
| | | |
Accounts receivable, net of allowance of $489 and $455, respectively | 57,165 | | | 37,720 | |
| Inventories | 3,538 | | | 3,291 | |
| Notes receivable, net | 4,889 | | | 8,723 | |
| Investments in unconsolidated entities | 10,949 | | | 11,253 | |
| Deferred costs, net | 3,829 | | | 5,001 | |
| Prepaid expenses | 11,354 | | | 13,384 | |
| Derivative assets | 11,132 | | | 501 | |
| Operating lease right-of-use assets | 44,218 | | | 44,575 | |
| Other assets | 13,639 | | | 16,150 | |
| Intangible assets | 797 | | | 797 | |
| | | |
| | | |
| Due from Ashford Inc., net | — | | | 25 | |
| Due from related parties, net | 6,232 | | | 7,473 | |
| Due from third-party hotel managers | 24,684 | | | 26,896 | |
| Assets held for sale | 36,535 | | | — | |
| Total assets | $ | 4,030,166 | | | $ | 4,098,143 | |
| LIABILITIES AND EQUITY/DEFICIT | | | |
| Liabilities: | | | |
| Indebtedness, net | $ | 3,843,543 | | | $ | 3,887,822 | |
| Accounts payable and accrued expenses | 132,060 | | | 117,650 | |
| Accrued interest payable | 10,995 | | | 15,432 | |
| Dividends and distributions payable | 3,104 | | | 3,104 | |
| | | |
| Due to Ashford Inc., net | 1,123 | | | — | |
| | | |
| Due to related parties, net | — | | | 728 | |
| Due to third-party hotel managers | 1,498 | | | 1,204 | |
| Intangible liabilities, net | 2,137 | | | 2,177 | |
| Operating lease liabilities | 44,874 | | | 45,106 | |
| | | |
| Other liabilities | 4,579 | | | 4,832 | |
| Liabilities related to assets held for sale | 30,688 | | | |
| Total liabilities | 4,074,601 | | | 4,078,055 | |
Commitments and contingencies (note 16) | | | |
| Redeemable noncontrolling interests in operating partnership | 21,308 | | | 22,742 | |
| Equity (deficit): | | | |
Preferred stock, $0.01 par value, 50,000,000 shares authorized: | | | |
| | | |
Series D Cumulative Preferred Stock, 1,174,427 shares issued and outstanding at June 30, 2022 and December 31, 2021 | 12 | | | 12 | |
Series F Cumulative Preferred Stock, 1,251,044 shares issued and outstanding at June 30, 2022 and December 31, 2021 | 12 | | | 12 | |
Series G Cumulative Preferred Stock, 1,531,996 shares issued and outstanding at June 30, 2022 and December 31, 2021 | 15 | | | 15 | |
Series H Cumulative Preferred Stock, 1,308,415 shares issued and outstanding at June 30, 2022 and December 31, 2021 | 13 | | | 13 | |
Series I Cumulative Preferred Stock, 1,252,923 shares issued and outstanding at June 30, 2022 and December 31, 2021 | 13 | | | 13 | |
Common stock, $0.01 par value, 400,000,000 shares authorized, 34,487,370 and 34,490,381 shares issued and outstanding at June 30, 2022 and December 31, 2021, respectively | 345 | | | 345 | |
| Additional paid-in capital | 2,382,197 | | | 2,379,906 | |
| Accumulated deficit | (2,448,350) | | | (2,382,970) | |
| | | |
| | | |
| Total equity (deficit) | (65,743) | | | (2,654) | |
| Total liabilities and equity/deficit | $ | 4,030,166 | | | $ | 4,098,143 | |
See Notes to Consolidated Financial Statements.
ASHFORD HOSPITALITY TRUST, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited, in thousands, except per share amounts)
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2022 | | 2021 | | 2022 | | 2021 | | |
| REVENUE | | | | | | | | | |
Rooms | $ | 275,528 | | | $ | 160,031 | | | $ | 470,858 | | | $ | 257,145 | | | |
Food and beverage | 54,316 | | | 19,840 | | | 91,076 | | | 27,743 | | | |
Other hotel revenue | 17,423 | | | 12,986 | | | 31,859 | | | 23,414 | | | |
Total hotel revenue | 347,267 | | | 192,857 | | | 593,793 | | | 308,302 | | | |
Other | 828 | | | 555 | | | 1,440 | | | 940 | | | |
Total revenue | 348,095 | | | 193,412 | | | 595,233 | | | 309,242 | | | |
| EXPENSES | | | | | | | | | |
Hotel operating expenses: | | | | | | | | | |
Rooms | 59,782 | | | 37,621 | | | 107,786 | | | 61,494 | | | |
Food and beverage | 37,610 | | | 13,298 | | | 64,782 | | | 19,676 | | | |
Other expenses | 111,452 | | | 76,072 | | | 203,500 | | | 131,841 | | | |
Management fees | 12,312 | | | 7,441 | | | 21,866 | | | 12,968 | | | |
Total hotel expenses | 221,156 | | | 134,432 | | | 397,934 | | | 225,979 | | | |
Property taxes, insurance and other | 17,289 | | | 17,128 | | | 33,748 | | | 34,599 | | | |
Depreciation and amortization | 50,896 | | | 55,595 | | | 103,016 | | | 113,222 | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
Advisory services fee | 12,277 | | | 19,554 | | | 25,663 | | | 31,715 | | | |
Corporate, general and administrative | 4,510 | | | 2,702 | | | 7,614 | | | 9,699 | | | |
Total expenses | 306,128 | | | 229,411 | | | 567,975 | | | 415,214 | | | |
| Gain (loss) on disposition of assets and hotel properties | 181 | | | 361 | | | 284 | | | 292 | | | |
| OPERATING INCOME (LOSS) | 42,148 | | | (35,638) | | | 27,542 | | | (105,680) | | | |
Equity in earnings (loss) of unconsolidated entities | (151) | | | (141) | | | (304) | | | (278) | | | |
Interest income | 526 | | | — | | | 577 | | | 13 | | | |
Other income (expense) | 84 | | | 245 | | | 185 | | | 474 | | | |
| Interest expense and amortization of discounts and loan costs | (48,393) | | | (35,736) | | | (91,952) | | | (69,000) | | | |
Write-off of premiums, loan costs and exit fees | (971) | | | (787) | | | (1,698) | | | (4,166) | | | |
Gain (loss) on extinguishment of debt | — | | | 10,604 | | | — | | | 10,604 | | | |
| | | | | | | | | |
Unrealized gain (loss) on derivatives | 6,074 | | | (3,236) | | | 9,285 | | | (2,317) | | | |
| INCOME (LOSS) BEFORE INCOME TAXES | (683) | | | (64,689) | | | (56,365) | | | (170,350) | | | |
Income tax (expense) benefit | (5,563) | | | (572) | | | (5,683) | | | (301) | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| NET INCOME (LOSS) | (6,246) | | | (65,261) | | | (62,048) | | | (170,651) | | | |
| (Income) loss attributable to noncontrolling interest in consolidated entities | — | | | 13 | | | — | | | 94 | | | |
| Net (income) loss attributable to redeemable noncontrolling interests in operating partnership | 76 | | | 956 | | | 448 | | | 3,227 | | | |
| NET INCOME (LOSS) ATTRIBUTABLE TO THE COMPANY | (6,170) | | | (64,292) | | | (61,600) | | | (167,330) | | | |
Preferred dividends | (3,104) | | | 2,709 | | | (6,207) | | | 3,527 | | | |
| Gain (loss) on extinguishment of preferred stock | — | | | (7,887) | | | — | | | 2,748 | | | |
| NET INCOME (LOSS) ATTRIBUTABLE TO COMMON STOCKHOLDERS | $ | (9,274) | | | $ | (69,470) | | | $ | (67,807) | | | $ | (161,055) | | | |
| | | | | | | | | |
| INCOME (LOSS) PER SHARE - BASIC AND DILUTED | | | | | | | | | |
| Basic: | | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| Net income (loss) attributable to common stockholders | $ | (0.27) | | | $ | (4.35) | | | $ | (1.98) | | | $ | (13.21) | | | |
| Weighted average common shares outstanding – basic | 34,330 | | | 15,957 | | | 34,300 | | | 12,178 | | | |
| Diluted: | | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| Net income (loss) attributable to common stockholders | $ | (0.27) | | | $ | (4.35) | | | $ | (1.98) | | | $ | (13.21) | | | |
| Weighted average common shares outstanding – diluted | 34,330 | | | 15,957 | | | 34,300 | | | 12,178 | | | |
See Notes to Consolidated Financial Statements.
ASHFORD HOSPITALITY TRUST, INC. AND SUBSIDIARIES
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) | $ | (6,246) | | | $ | (65,261) | | | $ | (62,048) | | | $ | (170,651) | | | |
Other comprehensive income (loss), net of tax: | | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
Total other comprehensive income (loss) | — | | | — | | | — | | | — | | | |
Comprehensive income (loss) | (6,246) | | | (65,261) | | | (62,048) | | | (170,651) | | | |
Less: Comprehensive (income) loss attributable to noncontrolling interest in consolidated entities | — | | | 13 | | | — | | | 94 | | | |
Less: Comprehensive (income) loss attributable to redeemable noncontrolling interests in operating partnership | 76 | | | 956 | | | 448 | | | 3,227 | | | |
Comprehensive income (loss) attributable to the Company | $ | (6,170) | | | $ | (64,292) | | | $ | (61,600) | | | $ | (167,330) | | | |
See Notes to Consolidated Financial Statements.
ASHFORD HOSPITALITY TRUST, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EQUITY (DEFICIT)
(unaudited, in thousands except per share amounts)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | Preferred Stock | | | | Additional
Paid-in
Capital | | Accumulated
Deficit | | | | Total | | Redeemable Noncontrolling
Interests in
Operating
Partnership |
| | | Series D | | Series F | | Series G | | Series H | | Series I | | Common Stock | | | | | |
| | | | | Shares | | Amount | | Shares | | Amount | | Shares | | Amount | | Shares | | Amount | | Shares | | Amount | | Shares | | Amount | | | | | |
| Balance at March 31, 2022 | | | | | 1,174 | | | $ | 12 | | | 1,251 | | | $ | 12 | | | 1,532 | | | $ | 15 | | | 1,308 | | | $ | 13 | | | 1,253 | | | $ | 13 | | | 34,479 | | | $ | 345 | | | $ | 2,381,191 | | | $ | (2,441,964) | | | | | $ | (60,363) | | | $ | 23,249 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Purchases of common stock | | | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (7) | | | — | | | (34) | | | — | | | | | (34) | | | — | |
| Equity-based compensation | | | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 1,118 | | | — | | | | | 1,118 | | | 1,023 | |
| Forfeitures of restricted shares | | | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (1) | | | — | | | — | | | — | | | | | — | | | — | |
| Issuance of restricted shares/units | | | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 16 | | | — | | | — | | | — | | | | | — | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Common stock offering costs | | | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (78) | | | — | | | | | (78) | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Dividends declared – preferred stock - Series D ($0.53/share) | | | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (620) | | | | | (620) | | | — | |
Dividends declared – preferred stock - Series F ($0.46/share) | | | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (576) | | | | | (576) | | | — | |
Dividends declared – preferred stock - Series G ($0.46/share) | | | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (706) | | | | | (706) | | | — | |
Dividends declared – preferred stock - Series H ($0.47/share) | | | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (614) | | | | | (614) | | | — | |
Dividends declared – preferred stock - Series I ($0.47/share) | | | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (588) | | | | | (588) | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Redemption value adjustment | | | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 2,888 | | | | | 2,888 | | | (2,888) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Net income (loss) | | | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (6,170) | | | | | (6,170) | | | (76) | |
| Balance at June 30, 2022 | | | | | 1,174 | | | $ | 12 | | | 1,251 | | | $ | 12 | | | 1,532 | | | $ | 15 | | | 1,308 | | | $ | 13 | | | 1,253 | | | $ | 13 | | | 34,487 | | | $ | 345 | | | $ | 2,382,197 | | | $ | (2,448,350) | | | | | $ | (65,743) | | | $ | 21,308 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | Preferred Stock | | | | Additional
Paid-in
Capital | | Accumulated
Deficit | | | | Total | | Redeemable Noncontrolling
Interests in
Operating
Partnership |
| | | Series D | | Series F | | Series G | | Series H | | Series I | | Common Stock | | | | | |
| | | | | Shares | | Amount | | Shares | | Amount | | Shares | | Amount | | Shares | | Amount | | Shares | | Amount | | Shares | | Amount | | | | | |
| Balance at December 31, 2021 | | | | | 1,174 | | | $ | 12 | | | 1,251 | | | $ | 12 | | | 1,532 | | | $ | 15 | | | 1,308 | | | $ | 13 | | | 1,253 | | | $ | 13 | | | 34,490 | | | $ | 345 | | | $ | 2,379,906 | | | $ | (2,382,970) | | | | | $ | (2,654) | | | $ | 22,742 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Purchases of common stock | | | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (21) | | | — | | | (152) | | | — | | | | | (152) | | | — | |
| Equity-based compensation | | | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 2,608 | | | — | | | | | 2,608 | | | 1,441 | |
| Forfeitures of restricted shares | | | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (1) | | | — | | | — | | | — | | | | | — | | | — | |
| Issuance of restricted shares/units | | | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 19 | | | — | | | — | | | — | | | | | — | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Common stock offering costs | | | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (165) | | | — | | | | | (165) | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Dividends declared – preferred stock - Series D ($1.06/share) | | | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (1,240) | | | | | (1,240) | | | — | |
Dividends declared – preferred stock - Series F ($0.92/share) | | | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (1,153) | | | | | (1,153) | | | — | |
Dividends declared – preferred stock - Series G ($0.92/share) | | | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (1,412) | | | | | (1,412) | | | — | |
Dividends declared – preferred stock - Series H ($0.94/share) | | | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (1,227) | | | | | (1,227) | | | — | |
Dividends declared – preferred stock - Series I ($0.94/share) | | | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (1,175) | | | | | (1,175) | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Redemption value adjustment | | | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 2,427 | | | | | 2,427 | | | (2,427) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Net income (loss) | | | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (61,600) | | | | | (61,600) | | | (448) | |
| Balance at June 30, 2022 | | | | | 1,174 | | | $ | 12 | | | 1,251 | | | $ | 12 | | | 1,532 | | | $ | 15 | | | 1,308 | | | $ | 13 | | | 1,253 | | | $ | 13 | | | 34,487 | | | $ | 345 | | | $ | 2,382,197 | | | $ | (2,448,350) | | | | | $ | (65,743) | | | $ | 21,308 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | Preferred Stock | | | | Additional
Paid-in
Capital | | Accumulated
Deficit | | Noncontrolling
Interests In
Consolidated
Entities | | Total | | Redeemable Noncontrolling
Interests in
Operating
Partnership |
| | | Series D | | Series F | | Series G | | Series H | | Series I | | Common Stock | | | | | |
| | | | | Shares | | Amount | | Shares | | Amount | | Shares | | Amount | | Shares | | Amount | | Shares | | Amount | | Shares | | Amount | | | | | |
| Balance at March 31, 2021 | | | | | 1,679 | | | $ | 17 | | | 2,038 | | | $ | 20 | | | 3,172 | | | $ | 32 | | | 2,002 | | | $ | 20 | | | 2,000 | | | $ | 20 | | | 11,014 | | | $ | 110 | | | $ | 1,846,171 | | | $ | (2,188,401) | | | $ | 85 | | | $ | (341,926) | | | $ | 24,683 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Equity-based compensation | | | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 2,259 | | | — | | | — | | | 2,259 | | | 846 | |
| Forfeitures of restricted shares | | | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (2) | | | — | | | — | | | — | | | — | | | — | | | — | |
| Issuance of restricted shares/units | | | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 238 | | | 2 | | | (2) | | | — | | | — | | | — | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Issuance of common stock | | | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 8,089 | | | 81 | | | 325,107 | | | — | | | — | | | 325,188 | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Conversion of operating partnership units | | | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 1 | | | — | | | 41 | | | — | | | — | | | 41 | | | (41) | |
| Redemption value adjustment | | | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (4,374) | | | — | | | (4,374) | | | 4,374 | |
| Extinguishment of preferred stock | | | | | (363) | | | (4) | | | (567) | | | (5) | | | (1,262) | | | (13) | | | (544) | | | (6) | | | (608) | | | (6) | | | 2,981 | | | 30 | | | 7,891 | | | (7,887) | | | — | | | — | | | — | |
| Net income (loss) | | | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (64,292) | | | (13) | | | (64,305) | | | (956) | |
| Balance at June 30, 2021 | | | | | 1,316 | | | $ | 13 | | | 1,471 | | | $ | 15 | | | 1,910 | | | $ | 19 | | | 1,458 | | | $ | 14 | | | 1,392 | | | $ | 14 | | | 22,321 | | | $ | 223 | | | $ | 2,181,467 | | | $ | (2,264,954) | | | $ | 72 | | | $ | (83,117) | | | $ | 28,906 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | Preferred Stock | | | | Additional
Paid-in
Capital | | Accumulated
Deficit | | Noncontrolling
Interests In
Consolidated
Entities | | Total | | Redeemable Noncontrolling
Interests in
Operating
Partnership |
| | | Series D | | Series F | | Series G | | Series H | | Series I | | Common Stock | | | | | |
| | | | | Shares | | Amount | | Shares | | Amount | | Shares | | Amount | | Shares | | Amount | | Shares | | Amount | | Shares | | Amount | | | | | |
| Balance at December 31, 2020 | | | | | 1,791 | | | $ | 18 | | | 2,891 | | | $ | 29 | | | 4,423 | | | $ | 44 | | | 2,669 | | | $ | 27 | | | 3,391 | | | $ | 34 | | | 6,436 | | | $ | 64 | | | $ | 1,809,455 | | | $ | (2,093,292) | | | $ | 166 | | | $ | (283,455) | | | $ | 22,951 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Purchases of common stock | | | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (1) | | | — | | | (46) | | | — | | | — | | | (46) | | | — | |
| Equity-based compensation | | | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 3,538 | | | — | | | — | | | 3,538 | | | 1,511 | |
| Forfeitures of restricted shares | | | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (2) | | | — | | | — | | | — | | | — | | | — | | | — | |
| Issuance of restricted shares/units | | | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 251 | | | 3 | | | (3) | | | — | | | — | | | — | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| PSU dividend claw back upon cancellation | | | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 178 | | | — | | | 178 | | | — | |
| Issuance of common stock | | | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 9,712 | | | 97 | | | 371,212 | | | — | | | — | | | 371,309 | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Conversion of operating partnership units | | | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 1 | | | — | | | 41 | | | — | | | — | | | 41 | | | (41) | |
| Performance LTIP dividend claw back upon cancellation | | | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 454 | |
| Redemption value adjustment | | | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (7,258) | | | — | | | (7,258) | | | 7,258 | |
| Extinguishment of preferred stock | | | | | (475) | | | (5) | | | (1,420) | | | (14) | | | (2,513) | | | (25) | | | (1,211) | | | (13) | | | (1,999) | | | (20) | | | 5,924 | | | 59 | | | (2,730) | | | 2,748 | | | — | | | — | | | — | |
| Net income (loss) | | | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (167,330) | | | (94) | | | (167,424) | | | (3,227) | |
| Balance at June 30, 2021 | | | | | 1,316 | | | $ | 13 | | | 1,471 | | | $ | 15 | | | 1,910 | | | $ | 19 | | | 1,458 | | | $ | 14 | | | 1,392 | | | $ | 14 | | | 22,321 | | | $ | 223 | | | $ | 2,181,467 | | | $ | (2,264,954) | | | $ | 72 | | | $ | (83,117) | | | $ | 28,906 | |
ASHFORD HOSPITALITY TRUST, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, in thousands)
| | | | | | | | | | | | | |
| Six Months Ended June 30, |
| 2022 | | 2021 | | |
| Cash Flows from Operating Activities | | | | | |
| Net income (loss) | $ | (62,048) | | | $ | (170,651) | | | |
| Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: | | | | | |
| | | | | |
| | | | | |
| Depreciation and amortization | 103,016 | | | 113,222 | | | |
| | | | | |
| Amortization of intangibles | 55 | | | 66 | | | |
| Recognition of deferred income | (250) | | | (249) | | | |
| Bad debt expense | 1,421 | | | 823 | | | |
| Deferred income tax expense (benefit) | 285 | | | 387 | | | |
| Equity in (earnings) loss of unconsolidated entities | 304 | | | 278 | | | |
| (Gain) loss on disposition of assets and hotel properties | (284) | | | (292) | | | |
| (Gain) loss on extinguishment of debt | — | | | (10,604) | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| Realized and unrealized (gain) loss on derivatives | (9,285) | | | 2,317 | | | |
| | | | | |
| Amortization of loan costs, discounts and capitalized default interest and write-off of premiums, loan costs and exit fees | 4,546 | | | (12,966) | | | |
| | | | | |
| Equity-based compensation | 4,049 | | | 5,049 | | | |
| | | | | |
| Non-cash interest income | (166) | | | (450) | | | |
| Paid-in kind interest expense | — | | | 14,907 | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| Changes in operating assets and liabilities, exclusive of the effect of dispositions of hotel properties: | | | | | |
| Accounts receivable and inventories | (22,213) | | | (17,980) | | | |
| Prepaid expenses and other assets | 3,828 | | | 1,332 | | | |
| Operating lease right-of-use assets | 262 | | | 241 | | | |
| Operating lease liabilities | (232) | | | (244) | | | |
| | | | | |
| Accounts payable and accrued expenses and accrued interest payable | 8,392 | | | (27,855) | | | |
| Due to/from related parties | 513 | | | (806) | | | |
| Due to/from third-party hotel managers | 2,506 | | | (6,079) | | | |
| Due to/from Ashford Inc., net | 975 | | | (5,050) | | | |
| | | | | |
| Other liabilities | (3) | | | (2) | | | |
| | | | | |
| Net cash provided by (used in) operating activities | 35,671 | | | (114,606) | | | |
| Cash Flows from Investing Activities | | | | | |
| Improvements and additions to hotel properties | (42,786) | | | (13,534) | | | |
| Net proceeds from disposition of assets and hotel properties | 783 | | | 7,291 | | | |
| | | | | |
| Proceeds from property insurance | 1,009 | | | 1,818 | | | |
| | | | | |
| | | | | |
| | | | | |
| Proceeds from note receivable | 4,000 | | | — | | | |
| | | | | |
| Net cash provided by (used in) investing activities | (36,994) | | | (4,425) | | | |
| Cash Flows from Financing Activities | | | | | |
| Borrowings on indebtedness, net of commitment fee | — | | | 195,500 | | | |
| Repayments of indebtedness | (11,877) | | | (5,782) | | | |
| Payments for loan costs and exit fees | (1,688) | | | (18,188) | | | |
| Payments for dividends and distributions | (6,207) | | | — | | | |
| Purchases of common stock | (118) | | | (48) | | | |
| | | | | |
| Payments for derivatives | (5,255) | | | (785) | | | |
| Proceeds from common stock offerings | — | | | 371,498 | | | |
| | | | | |
| | | | | |
| Common stock offering costs | (215) | | | — | | | |
| | | | | |
| | | | | |
| | | | | |
| Net cash provided by (used in) financing activities | (25,360) | | | 542,195 | | | |
| Net increase (decrease) in cash, cash equivalents and restricted cash (including cash, cash equivalents and restricted cash held for sale) | (26,683) | | | 423,164 | | | |
| Less: net (increase) decrease in cash, cash equivalents and restricted cash classified within assets held for sale | (1,144) | | | — | | | |
| Net increase (decrease) in cash, cash equivalents and restricted cash | (27,827) | | | 423,164 | | | |
| Cash, cash equivalents and restricted cash at beginning of period | 691,644 | | | 167,313 | | | |
| Cash, cash equivalents and restricted cash and at end of period | $ | 663,817 | | | $ | 590,477 | | | |
| | | | | |
| | | | | | | | | | | | | |
| Six Months Ended June 30, |
| 2022 | | 2021 | | |
| Supplemental Cash Flow Information | | | | | |
| Interest paid | $ | 93,467 | | | $ | 115,956 | | | |
| Income taxes paid (refunded) | 4,139 | | | 288 | | | |
| Supplemental Disclosure of Non-Cash Investing and Financing Activities | | | | | |
| Accrued but unpaid capital expenditures | $ | 13,798 | | | $ | 5,543 | | | |
| | | | | |
| Accrued stock offering costs | 58 | | | 187 | | | |
| | | | | |
| | | | | |
| Common stock purchases accrued but not paid | 34 | | | — | | | |
| | | | | |
| | | | | |
| | | | | |
| Non-cash extinguishment of debt | — | | | 9,604 | | | |
| Non-cash loan principal associated with default interest and late charges | — | | | 32,627 | | | |
| | | | | |
| Non-cash extinguishment of preferred stock | — | | | 183,826 | | | |
| Issuance of common stock from preferred stock exchanges | — | | | 181,078 | | | |
| Debt discount associated with embedded debt derivative | — | | | 43,681 | | | |
| Credit facility commitment fee | — | | | 4,500 | | | |
| | | | | |
| | | | | |
| Dividends and distributions declared but not paid | 3,104 | | | 236 | | | |
| | | | | |
| Supplemental Disclosure of Cash, Cash Equivalents and Restricted Cash | | | | | |
| Cash and cash equivalents at beginning of period | $ | 592,110 | | | $ | 92,905 | | | |
| | | | | |
| Restricted cash at beginning of period | 99,534 | | | 74,408 | | | |
| | | | | |
| Cash, cash equivalents and restricted cash at beginning of period | $ | 691,644 | | | $ | 167,313 | | | |
| | | | | |
| Cash and cash equivalents at end of period | $ | 537,822 | | | $ | 520,387 | | | |
| Cash and cash equivalents at end of period included in assets held for sale | 584 | | | — | | | |
| Restricted cash at end of period | 125,995 | | | 70,090 | | | |
| Restricted cash at end of period included in assets held for sale | 560 | | | — | | | |
| Cash, cash equivalents and restricted cash at end of period | 663,817 | | | 590,477 | | | |
| Cash, cash equivalents and restricted cash at end of period (including cash, cash equivalents and restricted cash held for sale) | $ | 664,961 | | | $ | 590,477 | | | |
See Notes to Consolidated Financial Statements.
ASHFORD HOSPITALITY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. Organization and Description of Business
Ashford Hospitality Trust, Inc., together with its subsidiaries (“Ashford Trust”), is a real estate investment trust (“REIT”). While our portfolio currently consists of upscale hotels and upper upscale full-service hotels, our investment strategy is predominantly focused on investing in upper upscale full-service hotels in the United States that have revenue per available room (“RevPAR”) generally less than twice the U.S. national average, and in all methods including direct real estate, equity, and debt. We currently anticipate future investments will predominantly be in upper upscale hotels. We own our lodging investments and conduct our business through Ashford Hospitality Limited Partnership (“Ashford Trust OP”), our operating partnership. Ashford OP General Partner LLC, a wholly-owned subsidiary of Ashford Trust, serves as the sole general partner of our operating partnership. In this report, terms such as the “Company,” “we,” “us,” or “our” refer to Ashford Hospitality Trust, Inc. and all entities included in its consolidated financial statements.
Our hotel properties are primarily branded under the widely recognized upscale and upper upscale brands of Hilton, Hyatt, Marriott and Intercontinental Hotel Group. As of June 30, 2022, we owned interests in the following assets:
•100 consolidated hotel properties, which represent 22,313 total rooms;
•79 hotel condominium units at WorldQuest Resort in Orlando, Florida (“WorldQuest”);
•15.8% ownership in OpenKey, Inc. (“OpenKey”) with a carrying value of approximately $2.5 million; and
•32.5% ownership in 815 Commerce Managing Member, LLC (“815 Commerce MM”), which is developing the Le Meridien Fort Worth, with a carrying value of approximately $8.5 million.
For U.S. federal income tax purposes, we have elected to be treated as a REIT, which imposes limitations related to operating hotels. As of June 30, 2022, our 100 hotel properties were leased or owned by our wholly-owned subsidiaries that are treated as taxable REIT subsidiaries for U.S. federal income tax purposes (collectively, these subsidiaries are referred to as “Ashford TRS”). Ashford TRS then engages third-party or affiliated hotel management companies to operate the hotels under management contracts. Hotel operating results related to these properties are included in the consolidated statements of operations.
We are advised by Ashford Hospitality Advisors LLC (“Ashford LLC”), a subsidiary of Ashford Inc., through an advisory agreement. All of the hotel properties in our portfolio are currently asset-managed by Ashford LLC. We do not have any employees. All of the services that might be provided by employees are provided to us by Ashford LLC.
We do not operate any of our hotel properties directly; instead we employ hotel management companies to operate them for us under management contracts. Remington Lodging & Hospitality, LLC (“Remington Hotels”), a subsidiary of Ashford Inc., manages 68 of our 100 hotel properties and WorldQuest. Third-party management companies manage the remaining hotel properties.
Ashford Inc. also provides other products and services to us or our hotel properties through certain entities in which Ashford Inc. has an ownership interest. These products and services include, but are not limited to, design and construction services, debt placement and related services, audio visual services, real estate advisory services, insurance claims services, hypoallergenic premium rooms, broker-dealer and distribution services and mobile key technology.
2. Significant Accounting Policies
Basis of Presentation—The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. These consolidated financial statements include the accounts of Ashford Hospitality Trust, Inc., its majority-owned subsidiaries, and its majority-owned joint ventures in which it has a controlling interest. All inter-company accounts and transactions between consolidated entities have been eliminated in these consolidated financial statements. We have condensed or omitted certain information and footnote disclosures normally included in financial statements presented in accordance with GAAP in the accompanying unaudited consolidated financial statements. We believe the disclosures made herein are adequate to prevent the information presented from being misleading. However, the financial statements should be read in conjunction with the consolidated financial statements and notes thereto
ASHFORD HOSPITALITY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
included in our 2021 Annual Report to Stockholders on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on February 28, 2022.
Ashford Trust OP is considered to be a variable interest entity (“VIE”), as defined by authoritative accounting guidance. A VIE must be consolidated by a reporting entity if the reporting entity is the primary beneficiary because it has (i) the power to direct the VIE’s activities that most significantly impact the VIE’s economic performance and (ii) the obligation to absorb losses of the VIE or the right to receive benefits from the VIE. All major decisions related to Ashford Trust OP that most significantly impact its economic performance, including but not limited to operating procedures with respect to business affairs and any acquisitions, dispositions, financings, restructurings or other transactions with sellers, purchasers, lenders, brokers, agents and other applicable representatives, are subject to the approval of our wholly-owned subsidiary, Ashford OP General Partner LLC, its general partner. As such, we consolidate Ashford Trust OP.
Historical seasonality patterns at some of our hotel properties cause fluctuations in our overall operating results. Consequently, operating results for the three and six months ended June 30, 2022, are not necessarily indicative of the results that may be expected for the year ending December 31, 2022.
The following dispositions affect reporting comparability of our consolidated financial statements:
| | | | | | | | | | | | | | | | | | | | |
Hotel Property | | Location | | Type | | Date |
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| Le Meridien Minneapolis | | Minneapolis, MN | | Disposition | | January 20, 2021 |
| SpringHill Suites Durham | | Durham, NC | | Disposition | | April 29, 2021 |
| SpringHill Suites Charlotte | | Charlotte, NC | | Disposition | | April 29, 2021 |
| | | | | | |
Use of Estimates—The preparation of these consolidated financial statements in accordance with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.
Recently Adopted Accounting Standards—In August 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2020-06, Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (“ASU 2020-06”), which simplifies the accounting for certain financial instruments with characteristics of liabilities and equity. This ASU (1) simplifies the accounting for convertible debt instruments and convertible preferred stock by removing the existing guidance in Accounting Standards Codification (“ASC”) 470-20, Debt: Debt with Conversion and Other Options, that requires entities to account for beneficial conversion features and cash conversion features in equity, separately from the host convertible debt or preferred stock; (2) revises the scope exception from derivative accounting in ASC 815-40 for freestanding financial instruments and embedded features that are both indexed to the issuer’s own stock and classified in stockholders’ equity, by removing certain criteria required for equity classification; and (3) revises the guidance in ASC 260, Earnings Per Share, to require entities to calculate diluted earnings per share (“EPS”) for convertible instruments by using the if-converted method. In addition, entities must presume share settlement for purposes of calculating diluted EPS when an instrument may be settled in cash or shares. For SEC filers, excluding smaller reporting companies, this ASU is effective for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. Entities should adopt the guidance as of the beginning of the fiscal year of adoption and cannot adopt the guidance in an interim reporting period. We adopted the standard effective January 1, 2022, and the adoption of this standard did not have a material impact on our consolidated financial statements.
Recently Issued Accounting Standards—In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848) (“ASU 2020-04”). ASU 2020-04 contains practical expedients for reference rate reform-related activities that impact debt, leases, derivatives and other contracts. The guidance in ASU 2020-04 is optional and may be elected over time as reference rate reform activities occur. The Company continues to evaluate the impact of the guidance and may apply the elections as applicable as changes in the market occur.
Reclassification—Certain amounts in the prior year financial statements have been reclassified to conform to the current year presentation.
ASHFORD HOSPITALITY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
3. Revenue
The following tables present our revenue disaggregated by geographical area (dollars in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, 2022 |
| Primary Geographical Market | | Number of Hotels | | Rooms | | Food and Beverage | | Other Hotel | | Other | | Total |
| Atlanta, GA Area | | 9 | | | $ | 17,559 | | | $ | 4,364 | | | $ | 1,183 | | | $ | — | | | $ | 23,106 | |
| Boston, MA Area | | 2 | | | 15,974 | | | 1,492 | | | 1,423 | | | — | | | 18,889 | |
| Dallas / Ft. Worth, TX Area | | 7 | | | 14,759 | | | 3,740 | | | 934 | | | — | | | 19,433 | |
| Houston, TX Area | | 3 | | | 6,216 | | | 2,131 | | | 202 | | | — | | | 8,549 | |
| Los Angeles, CA Metro Area | | 6 | | | 20,795 | | | 3,942 | | | 1,354 | | | — | | | 26,091 | |
| Miami, FL Metro Area | | 2 | | | 6,531 | | | 2,140 | | | 268 | | | — | | | 8,939 | |
| Minneapolis - St. Paul, MN | | 2 | | | 3,129 | | | 860 | | | 90 | | | — | | | 4,079 | |
| Nashville, TN Area | | 1 | | | 15,440 | | | 6,686 | | | 1,064 | | | — | | | 23,190 | |
| New York / New Jersey Metro Area | | 6 | | | 15,249 | | | 5,001 | | | 670 | | | — | | | 20,920 | |
| Orlando, FL Area | | 2 | | | 5,759 | | | 382 | | | 396 | | | — | | | 6,537 | |
| Philadelphia, PA Area | | 3 | | | 6,440 | | | 664 | | | 262 | | | — | | | 7,366 | |
| San Diego, CA Area | | 2 | | | 5,596 | | | 256 | | | 367 | | | — | | | 6,219 | |
| San Francisco - Oakland, CA Metro Area | | 7 | | | 16,986 | | | 1,431 | | | 756 | | | — | | | 19,173 | |
| Tampa, FL Area | | 2 | | | 6,588 | | | 1,653 | | | 329 | | | — | | | 8,570 | |
| Washington D.C. - MD - VA Area | | 9 | | | 35,115 | | | 6,581 | | | 2,159 | | | — | | | 43,855 | |
| Other Areas | | 37 | | | 82,149 | | | 12,934 | | | 5,652 | | | — | | | 100,735 | |
| Orlando WorldQuest | | — | | | 1,243 | | | 59 | | | 314 | | | — | | | 1,616 | |
| | | | | | | | | | | | |
| Corporate | | — | | | — | | | — | | | — | | | 828 | | | 828 | |
| Total | | 100 | | | $ | 275,528 | | | $ | 54,316 | | | $ | 17,423 | | | $ | 828 | | | $ | 348,095 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, 2021 |
| Primary Geographical Market | | Number of Hotels | | Rooms | | Food and Beverage | | Other Hotel | | Other | | Total |
| Atlanta, GA Area | | 9 | | | $ | 10,762 | | | $ | 1,800 | | | $ | 1,027 | | | $ | — | | | $ | 13,589 | |
| Boston, MA Area | | 2 | | | 4,299 | | | 355 | | | 894 | | | — | | | 5,548 | |
| Dallas / Ft. Worth, TX Area | | 7 | | | 9,504 | | | 1,303 | | | 583 | | | — | | | 11,390 | |
| Houston, TX Area | | 3 | | | 5,248 | | | 897 | | | 121 | | | — | | | 6,266 | |
| Los Angeles, CA Metro Area | | 6 | | | 12,670 | | | 1,618 | | | 1,263 | | | — | | | 15,551 | |
| Miami, FL Metro Area | | 2 | | | 5,296 | | | 892 | | | 196 | | | — | | | 6,384 | |
| Minneapolis - St. Paul, MN | | 2 | | | 1,869 | | | 544 | | | 66 | | | — | | | 2,479 | |
| Nashville, TN Area | | 1 | | | 6,873 | | | 2,242 | | | 672 | | | — | | | 9,787 | |
| New York / New Jersey Metro Area | | 6 | | | 7,343 | | | 1,734 | | | 446 | | | — | | | 9,523 | |
| Orlando, FL Area | | 2 | | | 4,462 | | | 167 | | | 408 | | | — | | | 5,037 | |
| Philadelphia, PA Area | | 3 | | | 4,014 | | | 220 | | | 161 | | | — | | | 4,395 | |
| San Diego, CA Area | | 2 | | | 2,916 | | | 104 | | | 358 | | | — | | | 3,378 | |
| San Francisco - Oakland, CA Metro Area | | 7 | | | 10,001 | | | 344 | | | 447 | | | — | | | 10,792 | |
| Tampa, FL Area | | 2 | | | 5,743 | | | 665 | | | 225 | | | — | | | 6,633 | |
| Washington D.C. - MD - VA Area | | 9 | | | 10,405 | | | 1,098 | | | 1,110 | | | — | | | 12,613 | |
| Other Areas | | 37 | | | 57,238 | | | 5,784 | | | 4,739 | | | — | | | 67,761 | |
| Orlando WorldQuest | | — | | | 1,077 | | | 67 | | | 242 | | | — | | | 1,386 | |
| Disposed properties | | 2 | | | 311 | | | 6 | | | 28 | | | — | | | 345 | |
| Corporate | | — | | | — | | | — | | | — | | | 555 | | | 555 | |
| Total | | 102 | | | $ | 160,031 | | | $ | 19,840 | | | $ | 12,986 | | | $ | 555 | | | $ | 193,412 | |
ASHFORD HOSPITALITY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Six Months Ended June 30, 2022 |
| Primary Geographical Market | | Number of Hotels | | Rooms | | Food and Beverage | | Other Hotel | | Other | | Total |
| Atlanta, GA Area | | 9 | | | $ | 31,205 | | | $ | 7,485 | | | $ | 2,349 | | | $ | — | | | $ | 41,039 | |
| Boston, MA Area | | 2 | | | 21,938 | | | 2,630 | | | 2,419 | | | — | | | 26,987 | |
| Dallas / Ft. Worth, TX Area | | 7 | | | 27,278 | | | 6,363 | | | 1,853 | | | — | | | 35,494 | |
| Houston, TX Area | | 3 | | | 11,783 | | | 3,689 | | | 392 | | | — | | | 15,864 | |
| Los Angeles, CA Metro Area | | 6 | | | 38,501 | | | 6,602 | | | 2,372 | | | — | | | 47,475 | |
| Miami, FL Metro Area | | 2 | | | 14,005 | | | 4,186 | | | 519 | | | — | | | 18,710 | |
| Minneapolis - St. Paul, MN | | 2 | | | 4,942 | | | 1,370 | | | 174 | | | — | | | 6,486 | |
| Nashville, TN Area | | 1 | | | 26,336 | | | 12,009 | | | 2,030 | | | — | | | 40,375 | |
| New York / New Jersey Metro Area | | 6 | | | 23,318 | | | 7,447 | | | 1,190 | | | — | | | 31,955 | |
| Orlando, FL Area | | 2 | | | 11,576 | | | 695 | | | 751 | | | — | | | 13,022 | |
| Philadelphia, PA Area | | 3 | | | 10,274 | | | 1,006 | | | 473 | | | — | | | 11,753 | |
| San Diego, CA Area | | 2 | | | 9,257 | | | 419 | | | 667 | | | — | | | 10,343 | |
| San Francisco - Oakland, CA Metro Area | | 7 | | | 27,343 | | | 2,404 | | | 1,371 | | | — | | | 31,118 | |
| Tampa, FL Area | | 2 | | | 14,211 | | | 3,028 | | | 624 | | | — | | | 17,863 | |
| Washington D.C. - MD - VA Area | | 9 | | | 51,834 | | | 9,431 | | | 3,471 | | | — | | | 64,736 | |
| Other Areas | | 37 | | | 144,662 | | | 22,205 | | | 10,553 | | | — | | | 177,420 | |
| Orlando WorldQuest | | — | | | 2,395 | | | 107 | | | 651 | | | — | | | 3,153 | |
| | | | | | | | | | | | |
| Corporate | | — | | | — | | | — | | | — | | | 1,440 | | | 1,440 | |
| Total | | 100 | | | $ | 470,858 | | | $ | 91,076 | | | $ | 31,859 | | | $ | 1,440 | | | $ | 595,233 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Six Months Ended June 30, 2021 |
| Primary Geographical Market | | Number of Hotels | | Rooms | | Food and Beverage | | Other Hotel | | Other | | Total |
| Atlanta, GA Area | | 9 | | | $ | 18,562 | | | $ | 3,013 | | | $ | 1,895 | | | $ | — | | | $ | 23,470 | |
| Boston, MA Area | | 2 | | | 5,938 | | | 411 | | | 1,558 | | | — | | | 7,907 | |
| Dallas / Ft. Worth, TX Area | | 7 | | | 15,660 | | | 1,906 | | | 1,144 | | | — | | | 18,710 | |
| Houston, TX Area | | 3 | | | 8,443 | | | 1,034 | | | 231 | | | — | | | 9,708 | |
| Los Angeles, CA Metro Area | | 6 | | | 21,241 | | | 2,299 | | | 2,060 | | | — | | | 25,600 | |
| Miami, FL Metro Area | | 2 | | | 8,761 | | | 1,213 | | | 336 | | | — | | | 10,310 | |
| Minneapolis - St. Paul, MN | | 2 | | | 2,647 | | | 689 | | | 115 | | | — | | | 3,451 | |
| Nashville, TN Area | | 1 | | | 8,938 | | | 2,937 | | | 1,395 | | | — | | | 13,270 | |
| New York / New Jersey Metro Area | | 6 | | | 9,900 | | | 2,057 | | | 854 | | | — | | | 12,811 | |
| Orlando, FL Area | | 2 | | | 7,127 | | | 286 | | | 739 | | | — | | | 8,152 | |
| Philadelphia, PA Area | | 3 | | | 6,140 | | | 285 | | | 271 | | | — | | | 6,696 | |
| San Diego, CA Area | | 2 | | | 4,710 | | | 155 | | | 565 | | | — | | | 5,430 | |
| San Francisco - Oakland, CA Metro Area | | 7 | | | 16,551 | | | 525 | | | 1,237 | | | — | | | 18,313 | |
| Tampa, FL Area | | 2 | | | 10,575 | | | 1,001 | | | 394 | | | — | | | 11,970 | |
| Washington D.C. - MD - VA Area | | 9 | | | 19,181 | | | 1,241 | | | 2,004 | | | — | | | 22,426 | |
| Other Areas | | 37 | | | 89,976 | | | 8,594 | | | 8,140 | | | — | | | 106,710 | |
| Orlando WorldQuest | | — | | | 1,706 | | | 89 | | | 413 | | | — | | | 2,208 | |
| Disposed properties | | 3 | | | 1,089 | | | 8 | | | 63 | | | — | | | 1,160 | |
| Corporate | | — | | | — | | | — | | | — | | | 940 | | | 940 | |
| Total | | 103 | | | $ | 257,145 | | | $ | 27,743 | | | $ | 23,414 | | | $ | 940 | | | $ | 309,242 | |
ASHFORD HOSPITALITY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
4. Investments in Hotel Properties, net
Investments in hotel properties, net consisted of the following (in thousands):
| | | | | | | | | | | |
| June 30, 2022 | | December 31, 2021 |
| Land | $ | 622,759 | | | $ | 626,917 | |
| Buildings and improvements | 3,667,696 | | | 3,711,006 | |
| Furniture, fixtures and equipment | 254,790 | | | 298,121 | |
| Construction in progress | 21,423 | | | 16,370 | |
| Condominium properties | 9,922 | | | 10,739 | |
| Total cost | 4,576,590 | | | 4,663,153 | |
| Accumulated depreciation | (1,439,202) | | | (1,432,443) | |
| Investments in hotel properties, net | $ | 3,137,388 | | | $ | 3,230,710 | |
5. Hotel Disposition, Impairment Charges and Assets Held For Sale
Hotel Dispositions
The results of operations for disposed hotel properties are included in net income (loss) through the date of disposition. See note 2 for a list of fiscal year 2021 hotel property dispositions. There were no hotel dispositions for the three and six months ended June 30, 2022. The following table includes condensed financial information from hotel property dispositions that occurred in 2021 for the three and six months ended June 30, 2021 (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2022 | | 2021 | | 2022 | | 2021 | | |
Total hotel revenue | $ | — | | | $ | 345 | | | $ | — | | | $ | 1,160 | | | |
| Total hotel operating expenses | — | | | (366) | | | — | | | (1,345) | | | |
| Gain (loss) on disposition of assets and hotel properties | — | | | 361 | | | — | | | 237 | | | |
| Property taxes, insurance and other | — | | | (23) | | | — | | | (141) | | | |
| Depreciation and amortization | — | | | (41) | | | — | | | (206) | | | |
| | | | | | | | | |
| Operating income (loss) | — | | | 276 | | | — | | | (295) | | | |
| | | | | | | | | |
| Interest expense and amortization of discounts and loan costs | — | | | (162) | | | — | | | (624) | | | |
| | | | | | | | | |
| Gain (loss) on extinguishment of debt | — | | | 10,604 | | | — | | | 10,604 | | | |
| | | | | | | | | |
| | | | | | | | | |
| Income (loss) before income taxes | — | | | 10,718 | | | — | | | 9,685 | | | |
| | | | | | | | | |
| (Income) loss before income taxes attributable to redeemable noncontrolling interests in operating partnership | — | | | (143) | | | — | | | (182) | | | |
| Net income (loss) before income taxes attributable to the Company | $ | — | | | $ | 10,575 | | | $ | — | | | $ | 9,503 | | | |
Impairment Charges
For the three and six months ended June 30, 2022 and 2021, no impairment charges were recorded.
Assets Held For Sale
On June 7, 2022, the Company entered into a purchase and sale agreement for the Ann Arbor Sheraton. At June 30, 2022, the Sheraton Ann Arbor was classified as held for sale in the consolidated balance sheet. We classify assets as held for sale when we have obtained a firm commitment from a buyer, and consummation of the sale is considered probable and expected within one year. Depreciation and amortization ceased as of the date the assets were deemed held for sale. Since the sale of the hotel property does not represent a strategic shift that has (or will have) a major effect on our operations or financial results, its results of operations were not reported as discontinued operations in the consolidated financial statements.
ASHFORD HOSPITALITY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
The major classes of assets and liabilities related to assets held for sale included in the consolidated balance sheet at June 30, 2022 were as follows:
| | | | | | |
| June 30, 2022 | |
| Assets | | |
| Investments in hotel properties, net | $ | 35,175 | | |
| Cash and cash equivalents | 584 | | |
| Restricted cash | 560 | | |
| Accounts receivable, net | 41 | | |
| Inventories | 50 | | |
| Deferred costs, net | 55 | | |
| Prepaid expenses | 67 | | |
| | |
| Other assets | 3 | | |
| | |
| | |
| | |
| Assets held for sale | $ | 36,535 | | |
| | |
| Liabilities | | |
| Indebtedness, net | $ | 29,700 | | |
| Accounts payable and accrued expenses | 915 | | |
| Accrued interest | 73 | | |
| | |
| | |
| | |
| | |
| | |
| | |
| Liabilities related to assets held for sale | $ | 30,688 | | |
| | |
6. Investments in Unconsolidated Entities
OpenKey, which is controlled and consolidated by Ashford Inc., is a hospitality-focused mobile key platform that provides a universal smart phone app and related hardware and software for keyless entry into hotel guest rooms. Our investment is recorded as a component of “investment in unconsolidated entities” in our consolidated balance sheets and is accounted for under the equity method of accounting as we have been deemed to have significant influence over the entity under the applicable accounting guidance. As of June 30, 2022, the Company has made investments in OpenKey totaling approximately $5.5 million.
As of June 30, 2022, the Company held an investment in 815 Commerce MM of approximately $8.5 million, which is developing the Le Meridien Fort Worth. Our investment is recorded as a component of “investment in unconsolidated entities” in our consolidated balance sheets and is accounted for under the equity method of accounting as we have been deemed to have significant influence over the entity under the applicable accounting guidance.
The following table summarizes our carrying value and ownership interest in unconsolidated entities:
| | | | | | | | | | | |
| June 30, 2022 | | December 31, 2021 |
| Carrying value of the investment in OpenKey (in thousands) | $ | 2,467 | | | $ | 2,771 | |
| Ownership interest in OpenKey | 15.8 | % | | 16.7 | % |
| Carrying value of the investment in 815 Commerce MM (in thousands) | $ | 8,482 | | | $ | 8,482 | |
| Ownership interest in 815 Commerce MM | 32.5 | % | | 32.5 | % |
The following table summarizes our equity in earnings (loss) of unconsolidated entities (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, | | Six Months Ended June 30, |
| | 2022 | | 2021 | | 2022 | | 2021 | | |
| OpenKey | | $ | (151) | | | $ | (141) | | | $ | (304) | | | $ | (278) | | | |
| | | | | | | | | | |
We review our investments in unconsolidated entities for impairment each reporting period pursuant to the applicable authoritative accounting guidance. An investment is impaired when its estimated fair value is less than the carrying amount of the investment. Any impairment is recorded in equity in earnings (loss) of unconsolidated entities. No impairment charges were recorded during the three and six months ended June 30, 2022 and 2021.
ASHFORD HOSPITALITY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
7. Indebtedness, net
Indebtedness consisted of the following (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | June 30, 2022 | | December 31, 2021 |
| Indebtedness | | Collateral | | Maturity | | Interest Rate (1) | | | | Debt Balance | | | | Debt Balance | | |
Mortgage loan (2) (3) | | 1 hotel | | July 2022 | | LIBOR (1) + 3.95% | | | | $ | — | | | | | $ | 33,200 | | | |
Mortgage loan (4) | | 17 hotels | | November 2022 | | LIBOR(1) + 3.00% | | | | 415,000 | | | | | 419,000 | | | |
Mortgage loan (5) | | 1 hotel | | November 2022 | | LIBOR(1) + 2.70% | | | | 25,000 | | | | | 25,000 | | | |
Mortgage loan (6) | | 1 hotel | | December 2022 | | LIBOR(1) + 2.25% | | | | 16,100 | | | | | 16,100 | | | |
Mortgage loan (7) | | 1 hotel | | January 2023 | | LIBOR(1) + 3.40% | | | | 37,000 | | | | | 37,000 | | | |
Mortgage loan (8) | | 8 hotels | | February 2023 | | LIBOR(1) + 3.07% | | | | 395,000 | | | | | 395,000 | | | |
Mortgage loan (9) | | 2 hotels | | March 2023 | | LIBOR(1) + 2.75% | | | | 240,000 | | | | | 240,000 | | | |
Mortgage loan (10) | | 19 hotels | | April 2023 | | LIBOR(1) + 3.20% | | | | 907,030 | | | | | 910,694 | | | |
| Mortgage loan | | 1 hotel | | June 2023 | | LIBOR(1) + 2.45% | | | | 73,450 | | | | | 73,450 | | | |
Mortgage loan (11) | | 7 hotels | | June 2023 | | LIBOR(1) + 3.65% | | | | 180,720 | | | | | 180,720 | | | |
Mortgage loan (11) | | 7 hotels | | June 2023 | | LIBOR(1) + 3.39% | | | | 174,400 | | | | | 174,400 | | | |
Mortgage loan (11) | | 5 hotels | | June 2023 | | LIBOR(1) + 3.73% | | | | 221,040 | | | | | 221,040 | | | |
Mortgage loan (11) | | 5 hotels | | June 2023 | | LIBOR(1) + 4.02% | | | | 262,640 | | | | | 262,640 | | | |
Mortgage loan (11) | | 5 hotels | | June 2023 | | LIBOR(1) + 2.73% | | | | 160,000 | | | | | 160,000 | | | |
Mortgage loan (11) | | 5 hotels | | June 2023 | | LIBOR(1) + 3.68% | | | | 215,120 | | | | | 215,120 | | | |
| Mortgage loan | | 1 hotel | | January 2024 | | 5.49% | | | | 6,419 | | | | | 6,492 | | | |
| Mortgage loan | | 1 hotel | | January 2024 | | 5.49% | | | | 9,368 | | | | | 9,474 | | | |
Term loan (12) | | Equity | | January 2024 | | 16.00% | | | | 200,000 | | | | | 200,000 | | | |
| Mortgage loan | | 1 hotel | | May 2024 | | 4.99% | | | | 5,941 | | | | | 6,150 | | | |
| Mortgage loan | | 1 hotel | | June 2024 | | LIBOR(1) + 2.00% | | | | 8,881 | | | | | 8,881 | | | |
| Mortgage loan | | 2 hotels | | August 2024 | | 4.85% | | | | 11,310 | | | | | 11,427 | | | |
| Mortgage loan | | 3 hotels | | August 2024 | | 4.90% | | | | 22,622 | | | | | 22,853 | | | |
Mortgage loan (13) | | 1 hotel | | November 2024 | | LIBOR(1) + 4.65% | | | | 84,000 | | | | | 84,000 | | | |
Mortgage loan (14) | | 3 hotels | | February 2025 | | 4.45% | | | | 50,098 | | | | | 50,098 | | | |
| Mortgage loan | | 1 hotel | | March 2025 | | 4.66% | | | | 23,606 | | | | | 23,883 | | | |
Mortgage loan (15) | | 1 hotel | | August 2025 | | LIBOR(1) + 3.80% | | | | 98,000 | | | | | 98,000 | | | |
| | | | | | | | | | 3,842,745 | | | | | 3,884,622 | | | |
| Premiums (discounts), net | | | | | | | | | | (27,167) | | | | | (32,777) | | | |
| Capitalized default interest and late charges | | | | | | | | | | 15,947 | | | | | 23,511 | | | |
| Deferred loan costs, net | | | | | | | | | | (11,979) | | | | | (15,440) | | | |
| Embedded debt derivative | | | | | | | | | | 23,997 | | | | | 27,906 | | | |
| Indebtedness, net | | | | | | | | | | $ | 3,843,543 | | | | | $ | 3,887,822 | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Indebtedness, net related to assets held for sale (3) | | 1 hotel | | December 2022 | | LIBOR (1) + 4.40% | | | | 29,700 | | | | | — | | | |
| | | | | | | | | | $ | 3,873,243 | | | | | $ | 3,887,822 | | | |
_____________________________
(1) LIBOR rates were 1.787% and 0.101% at June 30, 2022 and December 31, 2021, respectively.
(2) This mortgage loan has one one-year extension option, subject to satisfaction of certain conditions. This mortgage loan has a LIBOR floor of 0.25%.
(3) On June 7, 2022, we amended this mortgage loan. Terms of the amendment included a $3.2 million principal repayment, the maturity date was extended to December 2022, and the interest rate spread increased to 4.40%. This mortgage loan has a LIBOR floor of 0.25%.
(4) This mortgage loan has five one-year extension options, subject to satisfaction of certain conditions. The third one-year extension period began in November 2021. On March 2, 2022, we repaid $4.0 million of principal on this mortgage loan.
(5) This mortgage loan has three one-year extension options, subject to satisfaction of certain conditions. The second one-year extension option began in November 2021. This mortgage loan has a LIBOR floor of 1.25%.
(6) This mortgage loan has two one-year extension options, subject to satisfaction of certain conditions. This mortgage loan has a LIBOR floor of 0.25%.
(7) This mortgage loan has two one-year extension options, subject to satisfaction of certain conditions.
(8) This mortgage loan has five one-year extension options, subject to satisfaction of certain conditions. The third one-year extension period began in February 2022.
(9) This mortgage loan has five one-year extension options, subject to satisfaction of certain conditions. The second one-year extension period began in March 2022.
ASHFORD HOSPITALITY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
(10) This mortgage loan has five one-year extension options, subject to satisfaction of certain conditions. The third one-year extension period began in April 2022.
(11) This mortgage loan has five one-year extension options, subject to satisfaction of certain conditions. The third one-year extension period began in June 2022.
(12) This term loan has two one-year extension options, subject to satisfaction of certain conditions.
(13) This mortgage loan has two one-year extension options, subject to the satisfaction of certain conditions. This mortgage loan has a LIBOR floor of 0.10%.
(14) As of June 30, 2022, this mortgage loan was in default under the terms and conditions of the mortgage loan agreement. Default interest has been accrued, in accordance with the terms of the mortgage loan agreement, and is reflected in the Company’s consolidated balance sheets and statements of operations. On July 1, 2022, this mortgage loan was brought current and is no longer in default.
(15) This mortgage loan has one one-year extension option, subject to the satisfaction of certain conditions.
We recognized net premium (discount) amortization as presented in the table below (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| Line Item | 2022 | | 2021 | | 2022 | | 2021 | | |
| Interest expense, net of discount amortization | $ | (2,913) | | | $ | (228) | | | $ | (5,611) | | | $ | (2,693) | | | |
The amortization of the net premium (discount) is computed using a method that approximates the effective interest method, which is included in “interest expense and amortization of discounts and loan costs” in the consolidated statements of operations.
During the years ended December 31, 2021 and 2020 the Company entered into forbearance and other agreements which were evaluated to be considered troubled debt restructurings due to terms that allowed for deferred interest and the forgiveness of default interest and late charges. As a result of the troubled debt restructurings all accrued default interest and late charges were capitalized into the applicable loan balances and are being amortized over the remaining term of the loan using the effective interest method. The amount of default interest and late charges capitalized into the loan balance was $0 and $32.6 million during the three and six months ended June 30, 2021. No gain or loss was initially recognized as the carrying amount of the original loans was not greater than the undiscounted cash flows of the modified loans. The amount of the capitalized principal that was amortized during the three and six months ended June 30, 2022 and 2021, was $3.8 million and $7.6 million and $10.6 million and $27.6 million, respectively. These amounts are included in “interest expense and amortization of discounts and loan costs” in the consolidated statement of operations.
We have extension options relating to certain property level loans that will permit us to extend the maturity date of our loans if certain conditions are satisfied at the respective extension dates, including the achievement of debt yield targets required in order to extend such loans. To the extent we decide to extend the maturity date of the debt outstanding under the loans, we may be required to prepay a significant amount of the loans in order to meet the required debt yield targets.
We are required to maintain certain financial ratios under various debt and related agreements. If we violate covenants in any debt or related agreement, we could be required to repay all or a portion of our indebtedness before maturity at a time when we might be unable to arrange financing for such repayment on attractive terms, if at all. As of June 30, 2022, we were in compliance with all covenants related to mortgage loans for which we entered into forbearance and other agreements. We were also in compliance with all covenants under the senior secured term loan facility with Oaktree Capital Management L.P. (“Oaktree”) (the “Oaktree Credit Agreement”). The assets of certain of our subsidiaries are pledged under non-recourse indebtedness and are not available to satisfy the debts and other obligations of Ashford Trust or Ashford Trust OP, our operating partnership, and the liabilities of such subsidiaries do not constitute the obligations of Ashford Trust or Ashford Trust OP.
ASHFORD HOSPITALITY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
8. Notes Receivable, net and Other
Notes receivable, net are summarized in the table below (dollars in thousands):
| | | | | | | | | | | | | | | | | |
| Interest Rate | | June 30, 2022 | | December 31, 2021 |
Construction Financing Note (1) (4) | | | | | |
| Face amount | 7.0 | % | | $ | — | | | $ | 4,000 | |
| | | | | |
| | | | | |
Certificate of Occupancy Note (2) (4) | | | | | |
| Face amount | 7.0 | % | | $ | 5,250 | | | $ | 5,250 | |
Discount (3) | | | (361) | | | (527) | |
| | | 4,889 | | | 4,723 | |
| Notes receivable, net | | | $ | 4,889 | | | $ | 8,723 | |
____________________________________
(1) The outstanding principal balance and all accrued and unpaid interest was due and payable on or before the earlier of (i) the buyer closing on third-party institutional financing for the construction of improvements on the property, (ii) three years after the development commencement date, or (iii) July 9, 2024. On March 4, 2022, the Construction Financing Note was paid in full in the amount of $4.0 million.
(2) The outstanding principal balance and all accrued and unpaid interest is due and payable on or before July 9, 2025.
(3) The discount represents the imputed interest during the interest-free period. Interest begins accruing on July 9, 2023.
(4) The notes receivable are secured by the 1.65-acre land parcel adjacent to the Hilton St. Petersburg Bayfront.
No cash interest income was recorded for the three and six months ended June 30, 2022 and 2021.
We recognized discount amortization income as presented in the table below (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, | | Six Months Ended June 30, |
| Line Item | | 2022 | | 2021 | | 2022 | | 2021 | | |
| Other income (expense) | | $ | 84 | | | $ | 147 | | | $ | 166 | | | $ | 292 | | | |
As of June 30, 2022 and December 31, 2021, the expected credit loss associated with the notes receivables was immaterial.
For the three and six months ended June 30, 2021, we received reimbursement of $120,000 and $240,000, respectively, for parking fees and recognized income of $5,000 and $9,000, respectively, which is included in “other income (expense)” in the consolidated statements of operations while the parking parcel was in development.
On August 31, 2021, the parking parcel was completed and we obtained access to utilize the parking parcel.
For the three and six months ended June 30, 2022 and 2021, respectively, we recognized imputed interest income as presented in the table below (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, | | Six Months Ended June 30, |
| Line Item | | 2022 | | 2021 | | 2022 | | 2021 | | |
| Other income (expense) | | $ | — | | | $ | 79 | | | $ | — | | | $ | 157 | | | |
9. Derivative Instruments and Hedging
Interest Rate Derivatives—We are exposed to risks arising from our business operations, economic conditions and financial markets. To manage these risks, we primarily use interest rate derivatives to hedge our debt and our cash flows, which include interest rate caps. To mitigate the nonperformance risk, we routinely use a third-party’s analysis of the creditworthiness of the counterparties, which supports our belief that the counterparties’ nonperformance risk is limited. All derivatives are recorded at fair value.
ASHFORD HOSPITALITY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
The following table presents a summary of our interest rate derivatives entered into over each applicable period:
| | | | | | | | | | | | | | | | |
| Six Months Ended June 30, | |
| 2022 | | 2021 | | | |
| Interest rate caps: | | | | | | |
| Notional amount (in thousands) | $ | 2,873,651 | | (1) | $ | 3,206,301 | | (1) | | |
| Strike rate low end of range | 3.00 | % | | 3.00 | % | | | |
| Strike rate high end of range | 4.00 | % | | 4.00 | % | | | |
| Effective date range | January 2022 - June 2022 | | January 2021 - May 2021 | | | |
| Termination date range | January 2023 - July 2023 | | November 2021 - December 2022 | | | |
| Total cost (in thousands) | $ | 5,255 | | | $ | 534 | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
_______________
(1)These instruments were not designated as cash flow hedges.
We held interest rate instruments as summarized in the table below:
| | | | | | | | | | | | | | |
| June 30, 2022 | | December 31, 2021 | |
| Interest rate caps: | | | | |
| Notional amount (in thousands) | $ | 3,525,751 | | (1) | $ | 3,597,301 | | (1) |
| Strike rate low end of range | 2.00 | % | | 2.00 | % | |
| Strike rate high end of range | 4.00 | % | | 4.00 | % | |
| Termination date range | November 2022 - November 2024 | | February 2022 - November 2024 | |
| Aggregate principal balance on corresponding mortgage loans (in thousands) | $ | 3,504,500 | | | $ | 3,438,714 | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
_______________
(1)These instruments were not designated as cash flow hedges.
Compound Embedded Debt Derivative—Based on certain provisions in the Oaktree Credit Agreement, the Company is required to pay an exit fee. Under the applicable accounting guidance, the exit fee is considered an embedded derivative liability that meets the criteria for bifurcation from the debt host. There were other features that were bifurcated, but did not have a material value. The embedded debt derivative was initially measured at fair value and the fair value of the embedded debt derivative is estimated at each reporting period. See note 10.
10. Fair Value Measurements
Fair Value Hierarchy—For disclosure purposes, financial instruments, whether measured at fair value on a recurring or nonrecurring basis or not measured at fair value, are classified in a hierarchy consisting of three levels based on the observability of valuation inputs in the market place as discussed below:
•Level 1: Fair value measurements that are quoted prices (unadjusted) in active markets that we have the ability to access for identical assets or liabilities. Market price data generally is obtained from exchange or dealer markets.
•Level 2: Fair value measurements based on inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs include quoted prices for similar assets and liabilities in active markets and inputs other than quoted prices that are observable for the asset or liability, such as interest rates and yield curves that are observable at commonly quoted intervals.
•Level 3: Fair value measurements based on valuation techniques that use significant inputs that are unobservable. The circumstances for using these measurements include those in which there is little, if any, market activity for the asset or liability.
The fair value of interest rate caps are determined using the market standard methodology of discounting the future expected cash receipts that would occur if variable interest rates rise above the strike rates of the caps. Variable interest rates used in the calculation of projected receipts and payments on the caps are based on an expectation of future interest rates derived from observable market interest rate curves (LIBOR forward curves) and volatilities (Level 2 inputs). We also
ASHFORD HOSPITALITY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
incorporate credit valuation adjustments (Level 3 inputs) to appropriately reflect both our own nonperformance risk and the respective counterparty’s nonperformance risk.
When a majority of the inputs used to value our derivatives fall within Level 2 of the fair value hierarchy, the derivative valuations in their entirety are classified in Level 2 of the fair value hierarchy. However, when valuation adjustments associated with our derivatives utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by us and our counterparties, which we consider significant (10% or more) to the overall valuation of our derivatives, the derivative valuations in their entirety are classified in Level 3 of the fair value hierarchy. Transfers of inputs between levels are determined at the end of each reporting period. In determining the fair values of our derivatives at June 30, 2022, the LIBOR interest rate forward curve (Level 2 inputs) assumed an uptrend from 1.787% to 3.520% for the remaining term of our derivatives. Credit spreads (Level 3 inputs) used in determining the fair values of derivatives assumed an uptrend in nonperformance risk for us and all of our counterparties through the maturity dates.
The Company initially recorded an embedded debt derivative of $43.7 million, which was attributed to the compound embedded derivative liability associated with the Oaktree term loan.
The compound embedded derivative liability is considered a Level 3 measurement due to the utilization of significant unobservable inputs in the valuation, which were based on ‘with and without’ valuation models. Based on the terms and provisions of the Oaktree Credit Agreement, with the assistance of a valuation specialist, the Company utilized a risk neutral model to estimate the fair value of the embedded derivative features requiring bifurcation as of the respective issuance dates and as of the June 30, 2022 reporting date. The risk neutral model is designed to utilize market data and the Company’s best estimate of the timing and likelihood of the settlement events that are related to the embedded derivative features in order to estimate the fair value of the respective notes with these embedded derivative features.
The fair value of the notes with the derivative features is compared to the fair value of a plain vanilla note (excluding the derivative features), which is calculated based on the present value of the future default adjusted expected cash flows. The difference between the two values represents the fair value of the bifurcated derivative features as of each respective valuation date.
The key inputs to the valuation models that were utilized to estimate the fair value of the embedded debt derivative are described as follows:
•the default probability-weighted exit fee and prepayment cash flows are based on the contractual terms of the Oaktree Credit Agreement and the expectation of an acceleration event, including default, of the Company;
•the remaining term was determined based on the remaining time period to maturity of the related note with embedded features subject to valuation (as of the respective valuation date);
•the Company’s equity volatility estimate was based on the historical equity volatility of the Company, based on the remaining term of the respective loans;
•the risk-free rate was the discount rate utilized in the valuation and was determined based on reference to market yields for U.S. treasury debt instruments with similar terms;
•the recovery rate assumed upon occurrence of a default event was estimated based upon recovery rate data published by credit rating agencies specific to the seniority of the notes; and
•the probabilities and timing of a default-related acceleration event were estimated using an annualized probability of default which was implied from the debt issuance proceeds as of the issuance date, and updated utilizing relevant market data including market observed option-adjusted spreads as of June 30, 2022.
ASHFORD HOSPITALITY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
The following table includes a summary of the compound embedded derivative liabilities measured at fair value using significant unobservable (Level 3) inputs (in thousands):
| | | | | | |
| | Fair Value |
| Balance at January 1, 2021 | | $ | — | |
| Additions | | 43,681 | |
| Re-measurement of fair value | | (1,279) | |
| Balance at March 31, 2021 | | $ | 42,402 | |
| Re-measurement of fair value | | 2,676 | |
| Balance at June 30, 2021 | | $ | 45,078 | |
| Re-measurement of fair value | | (6,125) | |
| Balance at September 30, 2021 | | $ | 38,953 | |
| Re-measurement of fair value | | (11,047) | |
| Balance at December 31, 2021 | | $ | 27,906 | |
| Re-measurement of fair value | | (932) | |
| Balance at March 31, 2022 | | $ | 26,974 | |
| Re-measurement of fair value | | (2,977) | |
Balance at June 30, 2022 | | $ | 23,997 | |
Assets and Liabilities Measured at Fair Value on a Recurring Basis
The following table presents our assets and liabilities measured at fair value on a recurring basis aggregated by the level within which measurements fall in the fair value hierarchy (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Quoted Market Prices (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) | | | | Total | |
|
|
| June 30, 2022: | | | | | | | | | | |
| Assets | | | | | | | | | | |
| Derivative assets: | | | | | | | | | | |
| | | | | | | | | | |
| Interest rate derivatives - caps | $ | — | | | $ | 11,132 | | | $ | — | | | | | $ | 11,132 | | (1) |
| | | | | | | | | | |
| | | | | | | | | | |
| Total | $ | — | | | $ | 11,132 | | | $ | — | | | | | $ | 11,132 | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| Liabilities | | | | | | | | | | |
| | | | | | | | | | |
| Embedded debt derivative | $ | — | | | $ | — | | | $ | (23,997) | | | | | $ | (23,997) | | (2) |
| | | | | | | | | | |
| Net | $ | — | | | $ | 11,132 | | | $ | (23,997) | | | | | $ | (12,865) | | |
| | | | | | | | | | |
| December 31, 2021: | | | | | | | | | | |
| Assets | | | | | | | | | | |
| Derivative assets: | | | | | | | | | | |
| Interest rate derivatives - caps | $ | — | | | $ | 501 | | | $ | — | | | | | $ | 501 | | (1) |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| Total | $ | — | | | $ | 501 | | | $ | — | | | | | $ | 501 | | |
| Liabilities | | | | | | | | | | |
| Embedded debt derivative | $ | — | | | $ | — | | | $ | (27,906) | | | | | $ | (27,906) | | |
| Net | $ | — | | | $ | 501 | | | $ | (27,906) | | | | | $ | (27,405) | | (2) |
| | | | | | | | | | |
____________________________________
(1) Reported net as “derivative assets” in our consolidated balance sheets.
(2) Reported in “indebtedness, net” in our consolidated balance sheet.
ASHFORD HOSPITALITY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
Effect of Fair Value Measured Assets and Liabilities on Condensed Consolidated Statements of Operations
The following table summarizes the effect of fair value measured assets and liabilities on our consolidated statements of operations (in thousands):
| | | | | | | | | | | | | | | | | | | | | |
| Gain (Loss) Recognized in Income | | | | |
| Three Months Ended June 30, | | | | |
| 2022 | | 2021 | | | | | | | | |
| Assets | | | | | | | | | | | |
| Derivative assets: | | | | | | | | | | | |
| Interest rate derivatives - floors | $ | — | | | $ | (319) | | | | | | | | | |
| Interest rate derivatives - caps | 3,097 | | | (241) | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| Total | 3,097 | | | (560) | | | | | | | | | |
| Liabilities | | | | | | | | | | | |
| Derivative liabilities: | | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| Embedded debt derivative | 2,977 | | | (2,676) | | | | | | | | | |
| | | | | | | | | | | |
| Net | $ | 6,074 | | | $ | (3,236) | | | | | | | | | |
| | | | | | | | | | | |
| Total combined | | | | | | | | | | | |
| Interest rate derivatives - floors | $ | — | | | $ | (319) | | | | | | | | | |
| Interest rate derivatives - caps | 3,097 | | | (241) | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| Embedded debt derivative | 2,977 | | | (2,676) | | | | | | | | | |
| Unrealized gain (loss) on derivatives | 6,074 | | (1) | (3,236) | | (1) | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| Net | $ | 6,074 | | | $ | (3,236) | | | | | | | | | |
____________________________________
(1) Reported as “unrealized gain (loss) on derivatives” in our consolidated statements of operations.
| | | | | | | | | | | | | | |
| Gain (Loss) Recognized in Income | |
| Six Months Ended June 30, | |
| 2022 | | 2021 | |
| Assets | | | | |
| Derivative assets: | | | | |
| Interest rate derivatives - floors | $ | — | | | $ | (390) | | |
| Interest rate derivatives - caps | 5,376 | | | (530) | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| Total | 5,376 | | | (920) | | |
| | | | |
| Liabilities | | | | |
| Derivative liabilities: | | | | |
| | | | |
| Embedded debt derivative | 3,909 | | | (1,397) | | |
| Net | $ | 9,285 | | | $ | (2,317) | | |
| | | | |
| Total combined | | | | |
| Interest rate derivatives - floors | $ | — | | | $ | (390) | | |
| Interest rate derivatives - caps | 5,376 | | | (530) | | |
| | | | |
| | | | |
| Embedded debt derivative | 3,909 | | | (1,397) | | |
| Unrealized gain (loss) on derivatives | 9,285 | | (1) | (2,317) | | (1) |
| | | | |
| | | | |
| | | | |
| | | | |
| Net | $ | 9,285 | | | $ | (2,317) | | |
____________________________________
(1) Reported as “unrealized gain (loss) on derivatives” in our consolidated statements of operations.
ASHFORD HOSPITALITY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
11. Summary of Fair Value of Financial Instruments
Determining estimated fair values of our financial instruments such as notes receivable and indebtedness requires considerable judgment to interpret market data. Market assumptions and/or estimation methodologies used may have a material effect on estimated fair value amounts. Accordingly, estimates presented are not necessarily indicative of amounts at which these instruments could be purchased, sold, or settled. Carrying amounts and estimated fair values of financial instruments, for periods indicated, were as follows (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| June 30, 2022 | | December 31, 2021 |
| Carrying Value | | Estimated Fair Value | | Carrying Value | | Estimated Fair Value |
| Financial assets measured at fair value: | | | | | | | |
| | | | | | | |
| Derivative assets | $ | 11,132 | | | $ | 11,132 | | | $ | 501 | | | $ | 501 | |
| | | | | | | |
| Financial liabilities measured at fair value: | | | | | | | |
| Embedded debt derivative | $ | 23,997 | | | $ | 23,997 | | | $ | 27,906 | | | $ | 27,906 | |
| | | | | | | |
| Financial assets not measured at fair value: | | | | | | | |
Cash and cash equivalents (1) | $ | 538,406 | | | $ | 538,406 | | | $ | 592,110 | | | $ | 592,110 | |
Restricted cash (1) | 126,555 | | | 126,555 | | | 99,534 | | | 99,534 | |
Accounts receivable, net (1) | 57,206 | | | 57,206 | | | 37,720 | | | 37,720 | |
| Notes receivable, net | 4,889 | | | 4,645 to 5,134 | | 8,723 | | | 8,287 to 9,159 |
| Due from Ashford Inc., net | — | | | — | | | 25 | | | 25 | |
| Due from related parties, net | 6,232 | | | 6,232 | | | 7,473 | | | 7,473 | |
| Due from third-party hotel managers | 24,684 | | | 24,684 | | | 26,896 | | | 26,896 | |
| | | | | | | |
| Financial liabilities not measured at fair value: | | | | | | | |
Indebtedness (1) | $ | 3,845,578 | | | $3,475,706 to $3,841,566 | | $ | 3,851,845 | | | $3,407,210 to $3,765,858 |
Accounts payable and accrued expenses (1) | 132,975 | | | 132,975 | | | 117,650 | | | 117,650 | |
Accrued interest payable (1) | 11,068 | | | 11,068 | | | 15,432 | | | 15,432 | |
| Dividends and distributions payable | 3,104 | | | 3,104 | | | 3,104 | | | 3,104 | |
| Due to Ashford Inc., net | 1,123 | | | 1,123 | | | — | | | — | |
| | | | | | | |
| Due to related parties, net | — | | | — | | | 728 | | | 728 | |
| Due to third-party hotel managers | 1,498 | | | 1,498 | | | 1,204 | | | 1,204 | |
____________________________________
(1) Includes balances associated with assets held for sale and liabilities associated with assets held for sale as of June 30, 2022.
Cash, cash equivalents and restricted cash. These financial assets bear interest at market rates and have original maturities of less than 90 days. The carrying value approximates fair value due to their short-term nature. This is considered a Level 1 valuation technique.
Accounts receivable, net, accounts payable and accrued expenses, accrued interest payable, dividends and distributions payable, due to/from related parties, net, due to/from Ashford Inc., net and due to/from third-party hotel managers. The carrying values of these financial instruments approximate their fair values due to their short-term nature. This is considered a Level 1 valuation technique.
Notes receivable, net. The carrying amount of notes receivable, net approximates its fair value. We estimate the fair value of the notes receivable, net to be approximately 95.0% and 105.0% of the carrying value of $4.9 million at June 30, 2022 and approximately 95.0% to 105.0% of the carrying value of $8.7 million as of December 31, 2021.
Derivative assets and embedded debt derivative. See notes 9 and 10 for a complete description of the methodology and assumptions utilized in determining fair values.
Indebtedness. Fair value of indebtedness is determined using future cash flows discounted at current replacement rates for these instruments. Cash flows are determined using a forward interest rate yield curve. Current replacement rates are determined by using the U.S. Treasury yield curve or the index to which these financial instruments are tied and adjusted for credit spreads. Credit spreads take into consideration general market conditions, maturity, and collateral. We estimated the fair value of total indebtedness to be approximately 90.4% to 99.9% of the carrying value of $3.8 billion at June 30, 2022 and
ASHFORD HOSPITALITY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
approximately 88.5% to 97.8% of the carrying value of $3.9 billion at December 31, 2021. These fair value estimates are considered a Level 2 valuation technique.
12. Income (Loss) Per Share
Basic income (loss) per common share is calculated using the two-class method by dividing net income (loss) attributable to common stockholders by the weighted average number of common shares outstanding during the period. Diluted income (loss) per common share is calculated using the two-class method, or treasury stock method if more dilutive, and reflects the potential dilution that could occur if securities or other contracts to issue common shares were exercised or converted into common shares, whereby such exercise or conversion would result in lower income per share.
The following table reconciles the amounts used in calculating basic and diluted income (loss) per share (in thousands, except per-share amounts):
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2022 | | 2021 | | 2022 | | 2021 | | |
| Income (loss) allocated to common stockholders - basic and diluted: | | | | | | | | | |
| Income (loss) attributable to the Company | $ | (6,170) | | | $ | (64,292) | | | $ | (61,600) | | | $ | (167,330) | | | |
| Less: Dividends on preferred stock | (3,104) | | | — | | | (6,207) | | | — | | | |
Add: Dividend reversal on preferred stock, net (1) | — | | | 2,709 | | | — | | | 3,527 | | | |
| Add: Gain (loss) on extinguishment of preferred stock | — | | | (7,887) | | | — | | | 2,748 | | | |
| | | | | | | | | |
| | | | | | | | | |
| Add: Claw back of dividends on cancelled performance stock units | — | | | — | | | — | | | 178 | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| Distributed and undistributed income (loss) allocated to common stockholders - basic and diluted | $ | (9,274) | | | $ | (69,470) | | | $ | (67,807) | | | $ | (160,877) | | | |
| | | | | | | | | |
| | | | | | | | | |
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| | | | | | | | | |
| | | | | | | | | |
| Weighted average common shares outstanding: | | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| Weighted average shares outstanding - basic and diluted | 34,330 | | | 15,957 | | | 34,300 | | | 12,178 | | | |
| | | | | | | | | |
| Basic income (loss) per share: | | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| Net income (loss) allocated to common stockholders per share | $ | (0.27) | | | $ | (4.35) | | | $ | (1.98) | | | $ | (13.21) | | | |
| | | | | | | | | |
| Diluted income (loss) per share: | | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| Net income (loss) allocated to common stockholders per share | $ | (0.27) | | | $ | (4.35) | | | $ | (1.98) | | | $ | (13.21) | | | |
Due to their anti-dilutive effect, the computation of diluted income (loss) per share does not reflect adjustments for the following items (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, | | | |
| 2022 | | 2021 | | 2022 | | 2021 | | | |
| Income (loss) allocated to common stockholders is not adjusted for: | | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| Income (loss) attributable to redeemable noncontrolling interests in operating partnership | $ | (76) | | | $ | (956) | | (1) | $ | (448) | | | $ | (3,227) | | (1) | | |
| | | | | | | | | | |
| Total | $ | (76) | | | $ | (956) | | | $ | (448) | | | $ | (3,227) | | | | |
| | | | | | | | | | |
| Weighted average diluted shares are not adjusted for: | | | | | | | | | | |
| Effect of unvested restricted stock | — | | | 77 | | | — | | | 39 | | | | |
| Effect of unvested performance stock units | — | | | 37 | | | — | | | 18 | | | | |
| Effect of assumed conversion of operating partnership units | 281 | | | 243 | | | 258 | | | 222 | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| Effect of assumed issuance of shares for term loan exit fee | 1,745 | | | 1,745 | | | 1,745 | | | 1,599 | | | | |
| Total | 2,026 | | | 2,102 | | | 2,003 | | | 1,878 | | | | |
_______________
(1)Inclusive of preferred stock dividend of $36 and $56 for the three and six months ended June 30, 2021 allocated to redeemable noncontrolling interests in operating partnership.
ASHFORD HOSPITALITY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
13. Redeemable Noncontrolling Interests in Operating Partnership
Redeemable noncontrolling interests in the operating partnership represents the limited partners’ proportionate share of equity in earnings/losses of the operating partnership, which is an allocation of net income/loss attributable to the common unit holders based on the weighted average ownership percentage of these limited partners’ common units of limited partnership interest in the operating partnership (the “common units”) and the units issued under our Long-Term Incentive Plan (the “LTIP units”) that are vested. Each common unit may be redeemed for either cash or, at our sole discretion, up to one share of our REIT common stock, which is either: (i) issued pursuant to an effective registration statement; (ii) included in an effective registration statement providing for the resale of such common stock; or (iii) issued subject to a registration rights agreement.
LTIP units, which are issued to certain executives and employees of Ashford LLC as compensation, generally have vesting periods ranging from three years to five years. Additionally, certain independent members of the board of directors have elected to receive LTIP units as part of their compensation, which are fully vested upon grant. Upon reaching economic parity with common units, each vested LTIP unit can be converted by the holder into one common unit which can then be redeemed for cash or, at our election, settled in our common stock. An LTIP unit will achieve parity with the common units upon the sale or deemed sale of all or substantially all of the assets of the operating partnership at a time when our stock is trading at a level in excess of the price it was trading on the date of the LTIP issuance. More specifically, LTIP units will achieve full economic parity with common units in connection with (i) the actual sale of all or substantially all of the assets of the operating partnership or (ii) the hypothetical sale of such assets, which results from a capital account revaluation, as defined in the partnership agreement, for the operating partnership.
The compensation committee of the board of directors of the Company may authorize the issuance of Performance LTIP units to certain executive officers and directors from time to time. The award agreements provide for the grant of a target number of Performance LTIP units that will be settled in common units of Ashford Trust OP, if, when and to the extent the applicable vesting criteria have been achieved following the end of the performance and service period.
In March 2022, the Company granted approximately 1.2 million Performance LTIP units, representing 250% of the target, with a grant date fair value $10.02 per share and a vesting period of three years. During the second quarter, the Company’s stockholders approved an increase to the incentive stock plan, which is sufficient to cover the expected settlements as of June 30, 2022. The 2022 awards, which were originally classified as liability awards, are now classified as equity awards, within temporary equity, which resulted in a remeasurement of the award at a new fair value of $5.64 per share.
With respect to the 2020 award agreements, the number of Performance LTIP units actually earned may range from 0% to 200% of target based on achievement of specified absolute and relative total stockholder returns based on the formulas determined by the Company’s compensation committee on the grant date. The performance criteria for the Performance LTIP units are based on market conditions under the relevant literatures. The corresponding compensation cost is recognized ratably over the service period for the award as the service is rendered, based on the grant date fair value of the award, regardless of the actual outcome of the market condition.
With respect to the 2021 and 2022 award agreements, the criteria for the Performance LTIP units are based on performance conditions and market conditions under the relevant literature. The corresponding compensation cost is recognized, based on the grant date fair value of the award, ratably over the service period for the award as the service is rendered, which may vary from period to period, as the number of performance grants earned may vary based on the estimated probable achievement of certain performance targets (performance conditions). The number of Performance LTIP Units to be earned based on the applicable performance conditions is determined upon the final vesting date. The initial calculation of the Performance LTIP units earned can range from 0% to 200% of target, which is further subjected to a specified absolute total stockholder return modifier (market condition) based on the formulas determined by the Company’s compensation committee on the grant date. This will result in an adjustment (75% to 125%) of the initial calculation of the number of performance awards earned based on the applicable performance targets resulting in a final award calculation ranging from 0% to 250% of the target amount.
As of June 30, 2022, there were approximately 1.3 million Performance LTIP units outstanding, representing 200% of the target number granted for the 2020 grants and 250% for the 2021 and 2022 grants.
In May 2022, approximately 81,000 LTIP units were issued to independent directors with a fair value of approximately $450,000, which vested immediately upon grant and have been expensed during the three and six months ended June 30, 2022.
As of June 30, 2022, we have issued a total of approximately 1.6 million LTIP and Performance LTIP units, net of Performance LTIP cancellations. All LTIP and Performance LTIP units other than approximately 1.3 million units (1.2 million
ASHFORD HOSPITALITY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
of which are Performance LTIP units) have reached full economic parity with, and are convertible into, common units upon vesting.
The following table presents the common units redeemed and the fair value upon redemption (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, | | Six Months Ended June 30, |
| | 2022 | | 2021 | | 2022 | | 2021 | | |
| Common units converted to stock | | — | | | 1 | | | — | | | 1 | | | |
| Fair value of common units converted | | $ | — | | | $ | 41 | | | $ | — | | | $ | 41 | | | |
The following table presents the redeemable noncontrolling interest in Ashford Trust and the corresponding approximate ownership percentage:
| | | | | | | | | | | |
| June 30, 2022 | | December 31, 2021 |
| Redeemable noncontrolling interests (in thousands) | $ | 21,308 | | | $ | 22,742 | |
Cumulative adjustments to redeemable noncontrolling interests (1) (in thousands) | 184,329 | | | 186,756 | |
| Ownership percentage of operating partnership | 0.81 | % | | 0.63 | % |
____________________________________
(1) Reflects the excess of the redemption value over the accumulated historical costs.
We allocated net (income) loss to the redeemable noncontrolling interests and declared aggregate cash distributions to holders of common units and holders of LTIP units, as presented in the table below (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2022 | | 2021 | | 2022 | | 2021 | | |
| Allocated net (income) loss to the redeemable noncontrolling interests | $ | 76 | | | $ | 956 | | | $ | 448 | | | $ | 3,227 | | | |
| | | | | | | | | |
| Performance LTIP dividend claw back upon cancellation | — | | | — | | | — | | | (454) | | | |
14. Equity and Equity-Based Compensation
Common Stock Dividends—The board of directors did not declare a quarterly common stock dividend in 2022 or 2021.
Restricted Stock—We incur stock-based compensation expense in connection with restricted stock awarded to certain employees of Ashford LLC and its affiliates. We also issue common stock to certain of our independent directors, which vests immediately upon issuance.
In May 2022, approximately 16,000 shares of common stock were issued to independent directors with a fair value of approximately $90,000, which vested immediately upon grant and have been expensed during the three and six months ended June 30, 2022.
Performance Stock Units—The compensation committee of the board of directors of the Company may authorize the issuance of performance stock units (“PSUs”), which have a cliff vesting period of three years, to certain executive officers and directors from time to time. The award agreements provide for the grant of a target number of PSUs that will be settled in shares of common stock of the Company, if, when and to the extent the applicable vesting criteria have been achieved following the end of the performance and service period.
With respect to the 2020 award agreements, the number of PSUs actually earned may range from 0% to 200% of target based on achievement of specified absolute and relative total stockholder returns based on the formulas determined by the Company’s Compensation Committee on the grant date. The performance criteria for the PSUs are based on market conditions under the relevant literature. The corresponding compensation cost is recognized ratably over the service period for the award as the service is rendered, based on the grant date fair value of the award, regardless of the actual outcome of the market condition.
With respect to the 2021 and 2022 award agreements, the criteria for the PSUs are based on performance conditions and market conditions under the relevant literature. The corresponding compensation cost is recognized, based on the grant date fair value of the award, ratably over the service period for the award as the service is rendered, which may vary from period to period, as the number of PSUs earned may vary based on the estimated probable achievement of certain performance targets
ASHFORD HOSPITALITY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
(performance conditions). The number of PSUs to be earned based on the applicable performance conditions is determined upon the final vesting date. The initial calculation of PSUs earned can range from 0% to 200% of target, which is further subjected to a specified absolute total stockholder return modifier (market condition) based on the formulas determined by the Company’s compensation committee on the grant date. This will result in an adjustment (75% to 125%) of the initial calculation for the number of PSUs earned based on the applicable performance targets resulting in a final award calculation ranging from 0% to 250% of the target amount.
In March 2022, 34,000 PSUs with a fair value of $344,000 and a vesting period of three years were granted. The 2022 awards may be settled in cash or shares of common stock of the Company solely at the option of the Company. During the second quarter, the Company’s stockholders approved an increase to the incentive stock plan, which is sufficient to cover the expected settlements as of June 30, 2022. The 2022 awards, which were originally classified as liability awards, are now classified as equity awards, which resulted in a remeasurement of the award at a new fair value of $194,000.
Common Stock Resale Agreement—On September 9, 2021, the Company and M3A LP (“M3A”) entered into a purchase agreement (the “M3A Purchase Agreement”) pursuant to which the Company may issue or sell to M3A up to 6.0 million shares of the Company’s common stock from time to time during the term of the M3A Purchase Agreement. Meanwhile, both parties also entered into a registration rights agreement, pursuant to which the Company agreed to file a registration statement with the SEC covering the resale of shares of common stock that are issued to M3A under the M3A Purchase Agreement. The Company originally filed a registration statement on Form S-11 on September 10, 2021, which was declared effective by the SEC on September 29, 2021. In connection with the Company’s recent eligibility to use a Form S-3, the Company filed a registration statement on Form S-3, which was declared effective by the SEC on April 1, 2022, to replace the previous Form S-11 and to register for resale any future resales by M3A under the M3A Purchase Agreement. As of June 30, 2022, the Company had issued 900,000 shares. The Company did not issue any shares during the three and six months ended June 30, 2022 and 2021.
At-the-Market-Equity Distribution Agreement—On April 11, 2022, the Company entered into an equity distribution agreement (the “Virtu Equity Distribution Agreement”) with Virtu Americas LLC (“Virtu”), to sell from time to time shares of the Company’s common stock having an aggregate offering price of up to $100 million. We will pay Virtu a commission of approximately 1% of the gross sales price of the shares of our common stock sold. The Company may also sell some or all of the shares of our common stock to Virtu as principal for its own account at a price agreed upon at the time of sale. As of August 3, 2022, the Company has not issued any common stock pursuant to the Virtu Equity Distribution Agreement.
Preferred Dividends—The board of directors declared quarterly dividends per share as presented below:
| | | | | | | | | | | | |
| Three Months Ended June 30, | |
| 2022 | | 2021 | |
| | | | |
8.45% Series D Cumulative Preferred Stock | $ | 0.5281 | | | $ | — | | |
7.375% Series F Cumulative Preferred Stock | 0.4609 | | | — | | |
7.375% Series G Cumulative Preferred Stock | 0.4609 | | | — | | |
7.50% Series H Cumulative Preferred Stock | 0.4688 | | | — | | |
7.50% Series I Cumulative Preferred Stock | 0.4688 | | | — | | |
From December 8, 2020 through December 31, 2021, Ashford Trust entered into privately negotiated exchange agreements with certain holders of its 8.45% Series D Cumulative Preferred Stock, 7.375% Series F Cumulative Preferred Stock, 7.375% Series G Cumulative Preferred Stock, 7.50% Series H Cumulative Preferred Stock and 7.50% Series I Cumulative Preferred Stock in reliance on Section 3(a)(9) of the Securities Act of 1933, as amended (the “Securities Act”).
ASHFORD HOSPITALITY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
The table below summarizes the activity (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Three Months Ended June 30, 2021 | | Six Months Ended June 30, 2021 |
| | | | | | | | | Preferred Shares Tendered | | Common Shares Initially Issued | | Common Shares Issued (1) | | Preferred Shares Tendered | | Common Shares Initially Issued | | Common Shares Issued (1) |
8.45% Series D Cumulative Preferred Stock | | | | | | | | | 363 | | | 3,123 | | | 312 | | | 475 | | | 3,910 | | | 391 | |
7.375% Series F Cumulative Preferred Stock | | | | | | | | | 567 | | | 5,078 | | | 508 | | | 1,420 | | | 10,781 | | | 1,078 | |
7.375% Series G Cumulative Preferred Stock | | | | | | | | | 1,262 | | | 11,694 | | | 1,170 | | | 2,513 | | | 20,674 | | | 2,067 | |
7.50% Series H Cumulative Preferred Stock | | | | | | | | | 544 | | | 4,692 | | | 469 | | | 1,211 | | | 9,509 | | | 951 | |
7.50% Series I Cumulative Preferred Stock | | | | | | | | | 608 | | | 5,222 | | | 522 | | | 1,999 | | | 14,370 | | | 1,437 | |
| | | | | | | | | 3,344 | | | 29,809 | | | 2,981 | | | 7,618 | | | 59,244 | | | 5,924 | |
____________________________________
(1) Reflects the number of shares issued after the adjustment for the reverse stock split.
Stock Repurchases—On April 6, 2022 the board of directors approved a stock repurchase program pursuant to which the board of directors granted a repurchase authorization to acquire shares of the Company’s common stock and preferred stock having an aggregate value of up to $200 million. The board of directors’ authorization replaced the previous repurchase authorization that the board of directors’ authorized in December 2017. No shares of our common stock or preferred stock were repurchased during the three and six months ended June 30, 2022 and 2021, respectively.
15. Related Party Transactions
Ashford Inc.
Advisory Agreement
Ashford LLC, a subsidiary of Ashford Inc., acts as our advisor. Our chairman, Mr. Monty J. Bennett, also serves as chairman of the board of directors and chief executive officer of Ashford Inc.
On January 14, 2021, we entered into the Second Amended and Restated Advisory Agreement with Ashford LLC (the “Second Amended and Restated Advisory Agreement”). The Second Amended and Restated Advisory Agreement amends and restates the terms of the Amended and Restated Advisory Agreement, dated June 10, 2015, as amended by the Enhanced Return Funding Program Agreement and Amendment No. 1 to the Amended and Restated Advisory Agreement, dated as of June 26, 2018 to, among other items: (i) revise the term and termination rights; (ii) fix the percentage used to calculate the base fee thereunder at 0.70% per annum; (iii) update the list of peer group members; (iv) suspend the requirement that we maintain a minimum Consolidated Tangible Net Worth (as defined in the Second Amended and Restated Advisory Agreement) until the first fiscal quarter beginning after June 30, 2023; and (v) revise the criteria that would constitute a Company Change of Control (as defined in the Second Amended and Restated Advisory Agreement) in order to provide us additional flexibility to dispose of underperforming assets. In connection with the transactions contemplated by the Oaktree Credit Agreement on January 15, 2021, we entered into a Subordination and Non-Disturbance Agreement with Ashford Inc. and Oaktree pursuant to which we agreed to subordinate to the prior repayment in full of all obligations under the Oaktree Credit Agreement: (1) prior to the later of: (i) the second anniversary of the Oaktree Credit Agreement; and (ii) the date accrued interest “in kind” is paid in full, advisory fees (other than reimbursable expenses) in excess of 80% of such fees paid during the fiscal year ended December 31, 2019; (2) any termination fee or liquidated damages amounts under the advisory agreement, or any amount owed under the enhanced return funding program in connection with the termination of the advisory agreement or sale or foreclosure of assets financed thereunder; and (3) any payments to Lismore in connection with the transactions contemplated by the Oaktree Credit Agreement.
On March 15, 2022, we entered into a Limited Waiver Under Advisory Agreement (the “Limited Waiver”) with Ashford Trust OP, Ashford TRS Corporation (“TRS”), Ashford Inc. and Ashford Hospitality Advisors LLC (together with Ashford Inc., the “Advisor”). As previously disclosed, the Company, Ashford Trust OP, TRS and the Advisor are parties to a Second Amended and Restated Advisory Agreement, dated as of January 14, 2021 (the “Advisory Agreement”), which (i) allocates responsibility for certain employee costs between us and our advisor and (ii) permits our board of directors to issue annual equity awards in the Company or Ashford Trust OP to employees and other representatives of our advisor based on achievement by the Company of certain financial or other objectives or otherwise as our board of directors sees fit. Pursuant to the Limited Waiver the Company, Ashford Trust OP, TRS and the Advisor waived the operation of any provision in the advisory agreement that would otherwise limit our ability, in our discretion and at our cost and expense, to award during the
ASHFORD HOSPITALITY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
first and second fiscal quarters of calendar year 2022 cash incentive compensation to employees and other representatives of our advisor; provided that such awarded cash incentive compensation does not exceed $8.5 million, in the aggregate, during the waiver period.
The following table summarizes the advisory services fees incurred (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2022 | | 2021 | | 2022 | | 2021 | | |
| Advisory services fee | | | | | | | | | |
| Base advisory fee | $ | 8,613 | | | $ | 9,006 | | | $ | 17,348 | | | $ | 17,741 | | | |
Reimbursable expenses (1) | 2,364 | | | 1,621 | | | 4,935 | | | 3,212 | | | |
Equity-based compensation (2) | 1,451 | | | 2,455 | | | 3,380 | | | 4,290 | | | |
| Incentive fee | (151) | | | 6,472 | | | — | | | 6,472 | | | |
| Total advisory services fee | $ | 12,277 | | | $ | 19,554 | | | $ | 25,663 | | | $ | 31,715 | | | |
________
(1)Reimbursable expenses include overhead, internal audit, risk management advisory, asset management services and deferred cash awards.
(2) Equity-based compensation is associated with equity grants of Ashford Trust’s common stock, LTIP units and Performance LTIP units awarded to officers and employees of Ashford LLC.
Due from related parties, net as of June 30, 2022 and December 31, 2021 includes a $1.2 million security deposit paid to Remington Hotel Corporation, an entity indirectly owned by Mr. Monty J. Bennett and Mr. Archie Bennett, Jr., for office space allocated to us under our advisory agreement. It will be held as security for the payment of our allocated share of office space rental. If unused it will be returned to us upon lease expiration or earlier termination.
Pursuant to the Company’s hotel management agreements with each hotel management company, the Company bears the economic burden for casualty insurance coverage. Under the advisory agreement, Ashford Inc. secures casualty insurance policies to cover Ashford Trust, Braemar Hotels & Resorts Inc. (“Braemar”), their hotel managers, as needed, and Ashford Inc. The total loss estimates included in such policies are based on the collective pool of risk exposures from each party. Ashford Inc.’s risk management department manages the casualty insurance program. Each year Ashford Inc.’s risk management department collects funds from Ashford Trust, Braemar and their respective hotel management companies, to fund the casualty insurance program as needed, on an allocated basis.
Lismore
On March 20, 2020, Lismore Capital II LLC (formerly known as Lismore Capital LLC) (“Lismore”), a subsidiary of Ashford Inc., entered into an agreement with the Company to seek modifications, forbearances or refinancings of the Company’s loans (the “Lismore Agreement”). Pursuant to the Lismore Agreement, Lismore shall, during the agreement term (which commenced on March 20, 2020 and shall end on the date that is 12 months following the commencement date, or upon it being terminated by Ashford Trust on not less than 30 days’ written notice) negotiate the refinancing, modification or forbearance of the existing mortgage debt on Ashford Trust’s hotels. For the purposes of the Lismore Agreement, financing shall include, without limitation, senior or subordinate loan financing provided in any single transaction or a combination of transactions, including mortgage loan financing, mezzanine loan financing, or subordinate loan financing encumbering the applicable hotel or unsecured loan financing.
On July 1, 2020, the Company amended and restated the Lismore Agreement with an effective date of April 6, 2020. Pursuant to the amended and restated agreement, the term of the agreement was extended to 24 months following the commencement date. In connection with the services provided by Lismore under the amended and restated agreement, Lismore was entitled to receive a fee of approximately $2.6 million in three equal installments of approximately $857,000 per month beginning July 20, 2020, and ending on September 20, 2020. Lismore was also entitled to receive a fee that is calculated and payable as follows: (i) a fee equal to 25 basis points (0.25%) of the amount of a loan, payable upon the acceptance by the applicable lender of any forbearance or extension of such loan, or in the case where a third-party agent or contractor engaged by the Company has secured an extension of the maturity date equal to or greater than 12 months of any such loan, then the amount payable to Lismore shall be reduced to 10 basis points (0.10%); (ii) a fee equal to 75 basis points (0.75%) of the amount of any principal reduction of a loan upon the acceptance by any lender of any principal reduction of such loan; and (iii) a fee equal to 150 basis points (1.50%) of the implied conversion value (but in any case, no less than 50% percent of the face value of such loan or loans) of a loan upon the acceptance by any lender of any debt to equity conversion of such loan.
ASHFORD HOSPITALITY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
At the time of amendment, the Company had paid Lismore approximately $8.3 million, in the aggregate, pursuant to the original agreement. Under the amended and restated agreement, the Company is still entitled, in the event that the Company does not complete, for any reason, extensions or forbearances during the term of the agreement equal to or greater than approximately $4.1 billion, to offset, against any fees the Company or its affiliates owe pursuant to the advisory agreement, a portion of the fee previously paid by the Company to Lismore equal to the product of (x) approximately $4.1 billion minus the amount of extensions or forbearances completed during the term of the agreement multiplied by (y) 0.125%.
Upon entering into the agreement with Lismore, the Company made a payment of $5.1 million. No amounts under this payment can be clawed back. As of June 30, 2022, the Company has paid $5.1 million related to periodic installments of which approximately $5.0 million has been expensed in accordance with the agreement. Additionally, the independent members of the board of directors of Ashford Inc. accelerated approximately $506,000 in claw back credit due to Ashford Trust which, absent a waiver, would occur after the expiration of the Lismore Agreement. Such claw back credit was due to Ashford Trust in connection with certain properties Ashford Trust no longer owns. This amount was offset against base advisory fees. Approximately $149,000 may be offset against fees under the agreement that are eligible for claw back under the agreement. The $149,000 was offset against the April 2022 base advisory fee payment. Further, the Company has incurred approximately $8.7 million in success fees under the agreement in connection with each signed forbearance or other agreement, of which no amounts are available for claw back. For the three and six months ended June 30, 2022, the Company recognized expense of $0 and $643,000, respectively, which is included in “write-off of premiums, loan costs and exit fees.” For the three and six months ended June 30, 2021, the Company recognized expense of $643,000 and $4.3 million, respectively, which is included in “write-off of premiums, loan costs and exit fees.” The Lismore Agreement expired on April 6, 2022.
In June 2022 the Company entered into modification agreements on six mortgage loans associated with the terms of each loan’s extension options. In connection with the modification agreements the Company paid a fee of $607,000 to Lismore. Additionally the Company paid a fee of $83,000 to Lismore associated with the Ann Arbor Sheraton mortgage loan amendment.
Ashford Securities
On December 31, 2020, an Amended and Restated Contribution Agreement (the “Amended and Restated Contribution Agreement”) was entered into by Ashford Inc., Ashford Trust and Braemar with respect to expenses to be reimbursed to Ashford Securities LLC, a subsidiary of Ashford Inc. (“Ashford Securities”). Beginning on the effective date of the Amended and Restated Contribution Agreement, costs will be allocated based upon an allocation percentage of 50% to Ashford Inc., 50% to Braemar and 0% to Ashford Trust. Upon reaching the earlier of $400 million in aggregate non-listed preferred equity offerings raised, or June 10, 2023, there will be an amended and restated true up (the “Amended and Restated True-up Date”) among Ashford Inc., Ashford Trust and Braemar whereby the actual expense reimbursement paid by each company will be based on the actual amount of capital raised by Ashford Inc., Ashford Trust and Braemar, respectively, through Ashford Securities. After the Amended and Restated True-Up Date, the expense reimbursements will be allocated among Ashford Inc., Ashford Trust and Braemar quarterly based on the actual capital raised on their behalf, respectively, through Ashford Securities. On January 27, 2022, Ashford Trust, Braemar and Ashford Inc. entered into a Second Amended and Restated Contribution Agreement which provided for an additional $18 million in expenses to be reimbursed with all expenses allocated 45% to Ashford Trust, 45% to Braemar and 10% to Ashford Inc.
As of June 30, 2022, Ashford Trust has funded approximately $4.7 million. As of June 30, 2022 and December 31, 2021, $653,000 and $632,000, respectively, of the pre-funded amounts were included in “other assets” on our consolidated balance sheets.
The table below summarizes the amount Ashford Trust has expensed related to reimbursed operating expenses of Ashford Securities (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, | | Six Months Ended June 30, |
| Line Item | | 2022 | | 2021 | | 2022 | | 2021 | | |
| Corporate, general and administrative | | $ | 664 | | | $ | — | | | $ | 1,191 | | | $ | 19 | | | |
Enhanced Return Funding Program
The Enhanced Return Funding Program Agreement (the “ERFP Agreement”) generally provides that Ashford LLC will make investments to facilitate the acquisition of properties by Ashford Trust OP that are recommended by Ashford LLC, in an aggregate amount of up to $50 million (subject to increase to up to $100 million by mutual agreement). The investments will
ASHFORD HOSPITALITY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
equal 10% of the property acquisition price and will be made, either at the time of the property acquisition or at any time generally in the following three years, in exchange for hotel FF&E for use at the acquired property or any other property owned by Ashford Trust OP.
The initial term of the ERFP Agreement is two years (the “Initial Term”), unless earlier terminated pursuant to the terms of the ERFP Agreement. At the end of the Initial Term, the ERFP Agreement shall automatically renew for successive one-year periods (each such period a “Renewal Term”) unless either Ashford Inc. or Ashford Trust provides written notice to the other at least 60 days in advance of the expiration of the Initial Term or Renewal Term, as applicable, that such notifying party intends not to renew the ERFP Agreement.
As a result of the Embassy Suites New York Manhattan Times Square acquisition in 2019, under the ERFP Agreement, we are entitled to receive $19.5 million from Ashford LLC in the form of future purchases of hotel FF&E. In the second quarter of 2019, the Company sold $8.1 million of hotel FF&E from certain Ashford Trust hotel properties to Ashford LLC. On March 13, 2020, an extension agreement was entered into whereby the required FF&E acquisition date by Ashford LLC of the remaining $11.4 million was extended to December 31, 2022.
On November 25, 2020, the independent members of the board of directors of Ashford Trust granted Ashford Inc., in its sole and absolute discretion, the right to set-off against the Embassy Suites New York ERFP balance, the fees pursuant to the advisory agreement and Lismore Agreement that have been or may be deferred by Ashford Inc. On April 20, 2021, the Company delivered written notice to Ashford LLC of its intention not to renew the ERFP Agreement. As a result, the ERFP Agreement terminated in accordance with its terms at the end of the current term on June 26, 2021.
Design and Construction Services
In connection with Ashford Inc.’s August 8, 2018 acquisition of Remington Lodging’s design and construction business, we entered into a design and construction services agreement with Ashford Inc.’s subsidiary, Premier Project Management LLC (“Premier”), pursuant to which Premier provides design and construction services to our hotels, including construction management, interior design, architectural services, and the purchasing, freight management, and supervision of installation of FF&E and related services. Pursuant to the design and construction services agreement, we pay Premier: (a) design and construction fees of up to 4% of project costs; and (b) market service fees at current market rates with respect to construction management, interior design, FF&E purchasing, FF&E expediting/freight management, FF&E warehousing and FF&E installation and supervision. On March 20, 2020, we amended the design and construction services agreement to provide that Premier’s fees shall be paid by the Company to Premier upon the completion of any work provided by third-party vendors to the Company.
Hotel Management Services
At June 30, 2022, Remington Hotels managed 68 of our 100 hotel properties and the WorldQuest condominium properties.
We pay monthly hotel management fees equal to the greater of approximately $15,000 per hotel (increased annually based on consumer price index adjustments) or 3% of gross revenues as well as annual incentive management fees, if certain operational criteria were met and other general and administrative expense reimbursements primarily related to accounting services.
Pursuant to the terms of the Letter Agreement dated March 13, 2020 (the “Hotel Management Letter Agreement”), in order to allow Remington Hotels to better manage its corporate working capital and to ensure the continued efficient operation of our hotels, we agreed to pay the base fee and to reimburse all expenses on a weekly basis for the preceding week, rather than on a monthly basis. The Hotel Management Letter Agreement went into effect on March 13, 2020 and will continue until terminated by us.
We also have a mutual exclusivity agreement with Remington Hotels, pursuant to which: (i) we have agreed to engage Remington Hotels to provide management services with respect to any hotel we acquire or invest in, to the extent we have the right and/or control the right to direct the management of such hotel; and (ii) Remington Hotels has agreed to grant us a right of first refusal to purchase any opportunity to develop or construct a hotel that it identifies that meets our initial investment guidelines. We are not, however, obligated to engage Remington Hotels if our independent directors either: (i) unanimously vote to hire a different manager or developer; or (ii) by a majority vote elect not to engage such related party because either special circumstances exist such that it would be in the best interest of our Company not to engage such related party, or, based
ASHFORD HOSPITALITY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
on the related party’s prior performance, it is believed that another manager could perform the management or other duties materially better.
Braemar
As of December 31, 2021, the Company had a $728,000 payable to Braemar, included in “due to related parties, net” on our consolidated balance sheet. The payable related to a legal settlement between Ashford Trust and the City of San Francisco regarding a transfer tax matter associated with the transfer of The Clancy from Ashford Trust to Braemar upon Braemar’s 2013 spin-off from Ashford Trust. The transfer taxes were initially paid by Braemar at the time of the spin-off. In January 2022, the City of San Francisco remitted payment, which was then remitted to Braemar by the Company.
16. Commitments and Contingencies
Restricted Cash—Under certain management and debt agreements for our hotel properties existing at June 30, 2022, escrow payments are required for insurance, real estate taxes, and debt service. In addition, for certain properties based on the terms of the underlying debt and management agreements, we escrow 4% to 6% of gross revenues for capital improvements. The Company is currently working with its property managers and lenders in order to utilize lender and manager held reserves to fund operating shortfalls.
Franchise Fees—Under franchise agreements for our hotel properties existing at June 30, 2022, we pay franchisor royalty fees between 3% and 6% of gross rooms revenue and, in some cases, 1% to 3% of food and beverage revenues. Additionally, we pay fees for marketing, reservations, and other related activities aggregating between 1% and 4% of gross rooms revenue and, in some cases, food and beverage revenues. These franchise agreements expire on varying dates between 2023 and 2047. When a franchise term expires, the franchisor has no obligation to renew the franchise. A franchise termination could have a material adverse effect on the operations or the underlying value of the affected hotel due to loss of associated name recognition, marketing support, and centralized reservation systems provided by the franchisor. A franchise termination could also have a material adverse effect on cash available for distribution to stockholders. In addition, if we breach the franchise agreement and the franchisor terminates a franchise prior to its expiration date, we may be liable for up to three times the average annual fees incurred for that property.
The table below summarizes the franchise fees incurred (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, | | Six Months Ended June 30, |
| Line Item | | 2022 | | 2021 | | 2022 | | 2021 | | |
| Other hotel expenses | | $ | 16,561 | | | $ | 10,316 | | | $ | 28,173 | | | $ | 16,054 | | | |
Management Fees—Under hotel management agreements for our hotel properties existing at June 30, 2022, we pay monthly hotel management fees equal to the greater of approximately $15,000 per hotel (increased annually based on consumer price index adjustments) or 3% of gross revenues, or in some cases 2% to 7% of gross revenues, as well as annual incentive management fees, if applicable. These hotel management agreements expire from 2023 through 2038, with renewal options. If we terminate a hotel management agreement prior to its expiration, we may be liable for estimated management fees through the remaining term and liquidated damages or, in certain circumstances, we may substitute a new management agreement.
Income Taxes—We and our subsidiaries file income tax returns in the federal jurisdiction and various states. Tax years 2017 through 2021 remain subject to potential examination by certain federal and state taxing authorities.
Potential Pension Liabilities—Upon our 2006 acquisition of a hotel property, certain employees of such hotel were unionized and covered by a multi-employer defined benefit pension plan. At that time, no unfunded pension liabilities existed. Subsequent to our acquisition, a majority of employees, who are employees of the hotel manager, Remington Lodging, petitioned the employer to withdraw recognition of the union. As a result of the decertification petition, Remington Lodging withdrew recognition of the union. At the time of the withdrawal, the National Retirement Fund, the union’s pension fund, indicated unfunded pension liabilities existed. The National Labor Relations Board (“NLRB”) filed a complaint against Remington Lodging seeking, among other things, a ruling that Remington Lodging’s withdrawal of recognition was unlawful. The pension fund entered into a settlement agreement with Remington Lodging on November 1, 2011, providing that Remington Lodging will continue to make monthly pension fund payments pursuant to the collective bargaining agreement. As of June 30, 2022, Remington Lodging continues to comply with the settlement agreement by making the appropriate monthly pension fund payments. If Remington Lodging does not comply with the settlement agreement, we have agreed to indemnify Remington Lodging for the payment of the unfunded pension liability, if any, as set forth in the settlement agreement equal to
ASHFORD HOSPITALITY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
$1.7 million minus the monthly pension payments made by Remington Lodging since the settlement agreement. To illustrate, if Remington Lodging - as of the date a final determination occurs - has made monthly pension payments equaling $100,000, Remington Lodging’s remaining withdrawal liability would be the unfunded pension liability of $1.7 million minus $100,000 (or $1.6 million). This remaining unfunded pension liability would be paid to the pension fund in annual installments of $84,000 (but may be made monthly or quarterly, at Remington Lodging’s election), which shall continue for the remainder of 20 years, which is capped, unless Remington Lodging elects to pay the unfunded pension liability amount earlier.
Litigation—Palm Beach Florida Hotel and Office Building Limited Partnership, et al. v. Nantucket Enterprises, Inc. This litigation involves a landlord tenant dispute from 2008. This litigation was resolved in 2017 with the determination and reimbursement of attorney’s fees being the only remaining dispute. On July 26, 2018, we paid $544,000 as part of a settlement on certain legal fees. The negotiations relating to the potential payment of the remaining attorneys’ fees are still ongoing, pending the appeal of a contempt order against the Maraist Law Firm for failing to produce their fee records. As of June 30, 2022, we have accrued approximately $504,000 in legal fees, which represents the Company’s estimate of the amount of potential remaining legal fees that could be owed.
On December 4, 2015, Pedro Membrives filed a class action lawsuit against HHC TRS FP Portfolio LLC, Remington Lodging & Hospitality, LLC, Remington Holdings LLC, Mark A. Sharkey, Archie Bennett, Jr., Monty J. Bennett, Christopher Peckham, and any other related entities in the Supreme Court of New York, Nassau County, Commercial Division. On August 30, 2016, the complaint was amended to add Michele Spero as a Plaintiff and Remington Long Island Employers, LLC as a defendant. The lawsuit is captioned Pedro Membrives and Michele Spero, individually and on behalf of others similarly situated v. HHC TRS FP Portfolio LLC, Remington Lodging & Hospitality, LLC, Remington Holdings LLC, Remington Long Island Employers, LLC, et al., Index No. 607828/2015 (Sup. Ct. Nassau Cty.). The plaintiffs allege that the owner and management company of the Hyatt Regency Long Island hotel violated New York law by improperly retaining service charges rather than distributing them to employees. In 2017, the class was certified. On July 24, 2018, the trial court granted the plaintiffs’ motion for summary judgment on liability. The defendants appealed the summary judgment to the New York State Appellate Division, Second Department (the “Second Department”). The Second Department heard oral arguments in this matter on April 20, 2021, and on July 14, 2021, affirmed in part, and modified in part, the trial court’s summary judgement in favor of the plaintiffs. Based on the Second Department’s holding, all information produced during discovery, and the continuing cost and risk, to both sides, a settlement was reached, signed by the parties and approved by the Court in June 2022. The settlement requires the Company to establish a settlement fund. The Company previously recorded an accrual of approximately $4.2 million. As of June 30, 2022, the Company has paid $100,000 and the accrual is approximately $4.1 million.
On December 20, 2016, a class action lawsuit was filed against one of the Company’s hotel management companies in the Superior Court of the State of California in and for the County of Contra Costa alleging violations of certain California employment laws, which class action affects nine hotels owned by subsidiaries of the Company. The court has entered an order granting class certification with respect to: (1) a statewide class of non-exempt employees of our manager who were allegedly deprived of rest breaks as a result of our manager’s previous written policy requiring its employees to stay on premises during rest breaks; and (2) a derivative class of non-exempt former employees of our manager who were not paid for allegedly missed breaks upon separation from employment. Notices to potential class members were sent out on February 2, 2021. Potential class members had until April 4, 2021 to opt out of the class, however, the total number of employees in the class has not been definitively determined and is the subject of continuing discovery. While we believe it is reasonably possible that we may incur a loss associated with this litigation, because there remains uncertainty under California law with respect to a significant legal issue, discovery relating to class members continues, and the trial judge retains discretion to award lower penalties than set forth in the applicable California employment laws, we do not believe that any potential loss to the Company is reasonably estimable at this time. As of June 30, 2022, no amounts have been accrued.
We are also engaged in other legal proceedings that have arisen but have not been fully adjudicated. To the extent the claims giving rise to these legal proceedings are not covered by insurance, they relate to the following general types of claims: employment matters, tax matters and matters relating to compliance with applicable law (for example, the Americans with Disability Act and similar state laws). The likelihood of loss from these legal proceedings is based on the definitions within contingency accounting literature. We recognize a loss when we believe the loss is both probable and reasonably estimable. Based on the information available to us relating to these legal proceedings and/or our experience in similar legal proceedings, we do not believe the ultimate resolution of these proceedings, either individually or in the aggregate, will have a material adverse effect on our consolidated financial position, results of operations, or cash flow. However, our assessment may change depending upon the development of these legal proceedings, and the final results of these legal proceedings cannot be predicted with certainty. If we do not prevail in one or more of these legal matters, and the associated realized losses exceed our current
ASHFORD HOSPITALITY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
estimates of the range of potential losses, our consolidated financial position, results of operations, or cash flows could be materially adversely affected in future periods.
17. Segment Reporting
We operate in one business segment within the hotel lodging industry: direct hotel investments. Direct hotel investments refers to owning hotel properties through either acquisition or new development. We report operating results of direct hotel investments on an aggregate basis as substantially all of our hotel investments have similar economic characteristics. As of June 30, 2022 and December 31, 2021, all of our hotel properties were domestically located.
ITEM 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FORWARD-LOOKING STATEMENTS
The following discussion should be read in conjunction with the unaudited financial statements and notes thereto appearing elsewhere herein. This report contains forward-looking statements within the meaning of the federal securities laws. Ashford Hospitality Trust, Inc. (the “Company,” “we,” “our” or “us”) cautions investors that any forward-looking statements presented herein, or which management may express orally or in writing from time to time, are based on management’s beliefs and assumptions at that time.
Throughout this Form 10-Q, we make forward-looking statements that are subject to risks and uncertainties. Forward-looking statements are generally identifiable by use of forward-looking terminology such as “may,” “will,” “should,” “potential,” “intend,” “expect,” “anticipate,” “estimate,” “approximately,” “believe,” “could,” “project,” “predict,” or other similar words or expressions. Additionally, statements regarding the following subjects are forward-looking by their nature:
•the impact of the ongoing COVID-19 pandemic, including the resurgence of cases relating to the spread of the Delta, Omicron or other potential variants, on our business, financial condition, liquidity and results of operations;
•the impact of numerous governmental travel restrictions and other orders related to COVID-19 on our business including one or more possible recurrences of COVID-19 case surges causing state and local governments to reinstate travel restrictions;
•our business and investment strategy;
•anticipated or expected purchases or sales of assets;
•our projected operating results;
•completion of any pending transactions;
•our ability to restructure existing property level indebtedness;
•our ability to secure additional financing to enable us to operate our business during the pendency of COVID-related business weakness, which has materially impacted our operating cash flows and cash balances;
•our understanding of our competition;
•market trends;
•projected capital expenditures; and
•the impact of technology on our operations and business.
Such forward-looking statements are based on our beliefs, assumptions, and expectations of our future performance taking into account all information currently known to us. These beliefs, assumptions, and expectations can change as a result of many potential events or factors, not all of which are known to us. If a change occurs, our business, financial condition, liquidity, results of operations, plans, and other objectives may vary materially from those expressed in our forward-looking statements. You should carefully consider this risk when you make an investment decision concerning our securities. Additionally, the following factors could cause actual results to vary from our forward-looking statements:
•factors discussed in our Form 10-K for the year ended December 31, 2021, as filed with the Securities and Exchange Commission (“SEC”) on February 28, 2022, including those set forth under the sections titled “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Business,” and “Properties,” as supplemented by our subsequent Quarterly Reports on Form 10-Q and other filings under the Exchange Act;
•adverse effects of the COVID-19 pandemic, including a significant reduction in business and personal travel and travel restrictions in regions where our hotels are located, and one or more possible recurrences of COVID-19 case surges causing a further reduction in business and personal travel and potential reinstatement of travel restrictions by state or local governments;
•extreme weather conditions may cause property damage or interrupt business;
•actions by our lender to accelerate the loan balance and foreclose on the hotel properties that are security for our loan that is in default;
•actions by the lenders of the Oaktree Credit Agreement to foreclose on our assets which are pledged as collateral;
•general volatility of the capital markets and the market price of our common and preferred stock;
•general and economic business conditions affecting the lodging and travel industry;
•changes in our business or investment strategy;
•availability, terms, and deployment of capital;
•unanticipated increases in financing and other costs, including a rise in interest rates;
•changes in our industry and the market in which we operate, interest rates, or local economic conditions;
•the degree and nature of our competition;
•actual and potential conflicts of interest with Ashford Inc. and its subsidiaries (including Ashford LLC, Remington Hotels and Premier Project Management LLC (“Premier”)), Braemar and its subsidiaries, our executive officers and our non-independent directors;
•changes in personnel of Ashford LLC or the lack of availability of qualified personnel;
•changes in governmental regulations, accounting rules, tax rates and similar matters;
•legislative and regulatory changes, including changes to the Internal Revenue Code of 1986, as amended (the “Code”), and related rules, regulations and interpretations governing the taxation of real estate investment trusts (“REITs”);
•limitations imposed on our business and our ability to satisfy complex rules in order for us to qualify as a REIT for U.S. federal income tax purposes; and
•future sales and issuances of our common stock or other securities might result in dilution and could cause the price of our common stock to decline.
When considering forward-looking statements, you should keep in mind the matters summarized under “Item 1A. Risk Factors” in Part I of our 2021 Form 10-K filed on February 28, 2022 and this Quarterly Report, and the discussion in this Management’s Discussion and Analysis of Financial Condition and Results of Operations, could cause our actual results and performance to differ significantly from those contained in our forward-looking statements. Additionally, many of these risks and uncertainties are currently amplified by and will continue to be amplified by, or in the future may be amplified by, the COVID-19 outbreak and the numerous government travel restrictions imposed in response thereto. The extent to which COVID-19 impacts us will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the scope, severity and duration of the pandemic, the actions taken to contain the pandemic or mitigate its impact, and the direct and indirect economic effects of the pandemic and containment measures, among others. Accordingly, we cannot guarantee future results or performance. Readers are cautioned not to place undue reliance on any of these forward-looking statements, which reflect our views as of the date of this Quarterly Report. Furthermore, we do not intend to update any of our forward-looking statements after the date of this Quarterly Report to conform these statements to actual results and performance, except as may be required by applicable law.
EXECUTIVE OVERVIEW
General
As of June 30, 2022, we owned 100 consolidated hotel properties which represents 22,313 total rooms. Currently, all of our hotel properties are located in the United States.
Based on our primary business objectives and forecasted operating conditions, our current key priorities and financial strategies include, among other things:
•adjusting cost and operational models due to the impact of COVID-19 on the hotel industry;
•maintain maximum cash and cash equivalents liquidity;
•opportunistically exchange preferred stock into common stock;
•disposition of non-core hotel properties;
•pursuing capital market activities to enhance long-term stockholder value;
•implementing selective capital improvements designed to increase profitability;
•implementing effective asset management strategies to minimize operating costs and increase revenues;
•financing or refinancing hotels on competitive terms;
•utilizing hedges and derivatives to mitigate risks; and
•making other investments or divestitures that our board of directors deems appropriate.
Our current investment strategy is to focus on owning predominantly full-service hotels in the upper upscale segment in domestic markets that have revenue per available room (“RevPAR”) generally less than twice the national average. We believe that as supply, demand, and capital market cycles change, we will be able to shift our investment strategy to take advantage of
new lodging-related investment opportunities as they may develop. Our board of directors may change our investment strategy at any time without stockholder approval or notice. We will continue to seek ways to benefit from the cyclical nature of the hotel industry.
We are advised by Ashford LLC, a subsidiary of Ashford Inc., through an advisory agreement. All of the hotel properties in our portfolio are currently asset-managed by Ashford LLC. We do not have any employees. All of the services that might be provided by employees are provided to us by Ashford LLC.
We do not operate any of our hotel properties directly; instead we employ hotel management companies to operate them for us under management contracts. As of June 30, 2022, Remington Hotels, a subsidiary of Ashford Inc., managed 68 of our 100 hotel properties and WorldQuest. Third-party management companies managed the remaining hotel properties.
Ashford Inc. also provides other products and services to us or our hotel properties through certain entities in which Ashford Inc. has an ownership interest. These products and services include, but are not limited to, design and construction services, debt placement and related services, audio visual services, real estate advisory services, insurance claims services, hypoallergenic premium rooms, broker-dealer and distribution services and mobile key technology.
Mr. Monty J. Bennett is chairman and chief executive officer of Ashford Inc. and, together with Mr. Archie Bennett, Jr., as of June 30, 2022, owned approximately 610,246 shares of Ashford Inc. common stock, which represented an approximate 19.6% ownership interest in Ashford Inc., and owned 18,758,600 shares of Ashford Inc. Series D Convertible Preferred Stock, which is exercisable (at an exercise price of $117.50 per share) into an additional approximate 3,991,191 shares of Ashford Inc. common stock, which if exercised as of June 30, 2022, would have increased the Bennetts’ ownership interest in Ashford Inc. to 64.7%, provided that prior to August 8, 2023, the voting power of the holders of the Ashford Inc. Series D Convertible Preferred Stock is limited to 40% of the combined voting power of all of the outstanding voting securities of Ashford Inc. entitled to vote on any given matter. The 18,758,600 Series D Convertible Preferred Stock owned by Mr. Monty J. Bennett and Mr. Archie Bennett, Jr. include 360,000 shares owned by trusts.
Recent Developments
On September 10, 2021, the Company filed a registration statement on Form S-11, which was declared effective by the SEC on September 29, 2021, to register for resale under the Securities Act, 6,040,888 shares of Common Stock that may be issued to M3A under the M3A Purchase Agreement. In connection with the Company’s recent eligibility to use a Form S-3, the Company filed a Form S-3, which was declared effective by the SEC on April 1, 2022, to replace the previous Form S-11 and to register for resale any future resales by M3A under the M3A Purchase Agreement.
On March 4, 2022, the Company filed an initial registration statement on Form S-3 with the SEC, as amended on April 29, 2022, related to the Company’s non-traded Series J Preferred Stock and Series K Preferred Stock. The registration statement was declared effective by the SEC on May 4, 2022, and contemplates the offering of up to (i) 20.0 million shares of Series J Preferred Stock or Series K Preferred Stock in a primary offering and (ii) 8.0 million shares of Series J Preferred Stock or Series K Preferred Stock pursuant to a dividend reinvestment plan. On May 5, 2022, we filed our prospectus for the offering with the SEC. Ashford Securities, a subsidiary of Ashford Inc., serves as the dealer manager for the offering. On April 28, 2022, we filed with the State Department of Assessments and Taxation of the State of Maryland articles supplementary to our Articles of Amendment and Restatement classifying and designating an aggregate of 28,000,000 shares of our unissued and undesignated shares of preferred stock and provided for their issuance either as shares of Series J Preferred Stock or Series K Preferred Stock. We also caused our operating partnership to execute Amendment No. 10 to the Seventh Amended and Restated Agreement of Limited Partnership to amend the terms of our operating partnership to conform to the terms of the articles supplementary for the Series J Preferred Stock and Series K Preferred Stock. As of August 3, 2022, no shares of Series J Preferred Stock or Series K Preferred Stock have been issued.
On April 6, 2022 the board of directors approved a repurchase program pursuant to which the board of directors granted a repurchase authorization to acquire shares of the Company’s common stock and preferred stock having an aggregate value of up to $200 million. The board of directors’ authorization replaced the previous repurchase authorization that the board of directors’ authorized in December 2017.
On April 11, 2022, the Company entered into the Virtu Equity Distribution Agreement with Virtu, to sell from time to time shares of the Company’s common stock having an aggregate offering price of up to $100 million. We will pay Virtu a commission of approximately 1% of the gross sales price of the shares of our common stock sold. The Company may also sell some or all of the shares of our common stock to Virtu as principal for its own account at a price agreed upon at the time of sale. As of August 3, 2022, the Company has not issued any common stock pursuant to the Virtu Equity Distribution Agreement.
On April 15, 2022, Ashford Inc. and Ashford Hospitality Services, LLC, a subsidiary of Ashford Inc. (“Ashford Services”), agreed with Jeremy Welter, the Chief Operating Officer of Ashford Inc., that, effective on July 15, 2022, Mr. Welter would terminate employment with and service to Ashford Inc., Ashford Services and their affiliates. Mr. Welter is also the Chief Operating Officer of the Company and accordingly his service as Chief Operating Officer of the Company also ended on July 15, 2022.
On June 7, 2022, we amended our $33.2 million mortgage loan, secured by the Sheraton Ann Arbor hotel, which extended the maturity to December 2022 and included a $3.2 million principal repayment. The amended mortgage loan is interest only and bears interest at a rate of LIBOR + 4.40%, and has a LIBOR floor of 0.25%.
On July 1, 2022, the Bank of America Pool 3 mortgage loan was brought current and is no longer in default.
RESULTS OF OPERATIONS
Key Indicators of Operating Performance
We use a variety of operating and other information to evaluate the operating performance of our business. These key indicators include financial information that is prepared in accordance with GAAP as well as other financial measures that are non-GAAP measures. In addition, we use other information that may not be financial in nature, including statistical information and comparative data. We use this information to measure the operating performance of our individual hotels, groups of hotels and/or business as a whole. We also use these metrics to evaluate the hotels in our portfolio and potential acquisitions to determine each hotel’s contribution to cash flow and its potential to provide attractive long-term total returns. These key indicators include:
•Occupancy—Occupancy means the total number of hotel rooms sold in a given period divided by the total number of rooms available. Occupancy measures the utilization of our hotels’ available capacity. We use occupancy to measure demand at a specific hotel or group of hotels in a given period.
•ADR—ADR means average daily rate and is calculated by dividing total hotel rooms revenues by total number of rooms sold in a given period. ADR measures average room price attained by a hotel and ADR trends provide useful information concerning the pricing environment and the nature of the customer base of a hotel or group of hotels. We use ADR to assess the pricing levels that we are able to generate.
•RevPAR—RevPAR means revenue per available room and is calculated by multiplying ADR by the average daily occupancy. RevPAR is one of the commonly used measures within the hotel industry to evaluate hotel operations. RevPAR does not include revenues from food and beverage sales or parking, telephone or other non-rooms revenues generated by the property. Although RevPAR does not include these ancillary revenues, it is generally considered the leading indicator of core revenues for many hotels. We also use RevPAR to compare the results of our hotels between periods and to analyze results of our comparable hotels (comparable hotels represent hotels we have owned for the entire period). RevPAR improvements attributable to increases in occupancy are generally accompanied by increases in most categories of variable operating costs. RevPAR improvements attributable to increases in ADR are generally accompanied by increases in limited categories of operating costs, such as management fees and franchise fees.
RevPAR changes that are primarily driven by changes in occupancy have different implications for overall revenues and profitability than changes that are driven primarily by changes in ADR. For example, an increase in occupancy at a hotel would lead to additional variable operating costs (including housekeeping services, utilities and room supplies) and could also result in increased other operating department revenue and expense. Changes in ADR typically have a greater impact on operating margins and profitability as they do not have a substantial effect on variable operating costs.
Occupancy, ADR and RevPAR are commonly used measures within the lodging industry to evaluate operating performance. RevPAR is an important statistic for monitoring operating performance at the individual hotel level and across our entire business. We evaluate individual hotel RevPAR performance on an absolute basis with comparisons to budget and prior periods, as well as on a regional and company-wide basis. ADR and RevPAR include only rooms revenue. Rooms revenue is dictated by demand (as measured by occupancy), pricing (as measured by ADR) and our available supply of hotel rooms.
We also use funds from operations (“FFO”), Adjusted FFO, earnings before interest, taxes, depreciation and amortization for real estate (“EBITDAre”) and Adjusted EBITDAre as measures of the operating performance of our business. See “Non-GAAP Financial Measures.”
Revenue per available room, or RevPAR, is a commonly used measure within the hotel industry to evaluate hotel operations. RevPAR is defined as the product of the ADR charged and the average daily occupancy achieved. RevPAR does not include revenues from food and beverage or parking, telephone, or other guest services generated by the property. Although RevPAR does not include these ancillary revenues, it is generally considered the leading indicator of core revenues for many
hotels. We also use RevPAR to compare the results of our hotels between periods and to analyze results of our comparable hotels (comparable hotels represent hotels we have owned for the periods under comparison). RevPAR improvements attributable to increases in occupancy are generally accompanied by increases in most categories of variable operating costs. RevPAR improvements attributable to increases in ADR are generally accompanied by increases in limited categories of operating costs, such as management fees and franchise fees.
The following table summarizes changes in key line items from our consolidated statements of operations (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Favorable/
(Unfavorable)
Change | | Six Months Ended June 30, | | Favorable/
(Unfavorable)
Change |
| 2022 | | 2021 | | | 2022 | | 2021 | |
| Total revenue | $ | 348,095 | | | $ | 193,412 | | | $ | 154,683 | | | $ | 595,233 | | | $ | 309,242 | | | $ | 285,991 | |
| Total hotel operating expenses | (221,156) | | | (134,432) | | | (86,724) | | | (397,934) | | | (225,979) | | | (171,955) | |
| Property taxes, insurance and other | (17,289) | | | (17,128) | | | (161) | | | (33,748) | | | (34,599) | | | 851 | |
| Depreciation and amortization | (50,896) | | | (55,595) | | | 4,699 | | | (103,016) | | | (113,222) | | | 10,206 | |
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| Advisory services fee | (12,277) | | | (19,554) | | | 7,277 | | | (25,663) | | | (31,715) | | | 6,052 | |
| Corporate, general and administrative | (4,510) | | | (2,702) | | | (1,808) | | | (7,614) | | | (9,699) | | | 2,085 | |
| Gain (loss) on disposition of assets and hotel properties | 181 | | | 361 | | | (180) | | | 284 | | | 292 | | | (8) | |
| Operating income (loss) | 42,148 | | | (35,638) | | | 77,786 | | | 27,542 | | | (105,680) | | | 133,222 | |
| Equity in earnings (loss) of unconsolidated entities | (151) | | | (141) | | | (10) | | | (304) | | | (278) | | | (26) | |
| Interest income | 526 | | | — | | | 526 | | | 577 | | | 13 | | | 564 | |
| Other income (expense) | 84 | | | 245 | | | (161) | | | 185 | | | 474 | | | (289) | |
| Interest expense and amortization of discounts and loan costs | (48,393) | | | (35,736) | | | (12,657) | | | (91,952) | | | (69,000) | | | (22,952) | |
| Write-off of premiums, loan costs and exit fees | (971) | | | (787) | | | (184) | | | (1,698) | | | (4,166) | | | 2,468 | |
| Gain (loss) on extinguishment of debt | — | | | 10,604 | | | (10,604) | | | — | | | 10,604 | | | (10,604) | |
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| Unrealized gain (loss) on derivatives | 6,074 | | | (3,236) | | | 9,310 | | | 9,285 | | | (2,317) | | | 11,602 | |
| Income tax (expense) benefit | (5,563) | | | (572) | | | (4,991) | | | (5,683) | | | (301) | | | (5,382) | |
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| Net income (loss) | (6,246) | | | (65,261) | | | 59,015 | | | (62,048) | | | (170,651) | | | 108,603 | |
| (Income) loss attributable to noncontrolling interest in consolidated entities | — | | | 13 | | | (13) | | | — | | | 94 | | | (94) | |
| Net (income) loss attributable to redeemable noncontrolling interests in operating partnership | 76 | | | 956 | | | (880) | | | 448 | | | 3,227 | | | (2,779) | |
| Net income (loss) attributable to the Company | $ | (6,170) | | | $ | (64,292) | | | $ | 58,122 | | | $ | (61,600) | | | $ | (167,330) | | | $ | 105,730 | |
All hotel properties owned during the three and six months ended June 30, 2022 and 2021 have been included in our results of operations during the respective periods in which they were owned. Based on when a hotel property was acquired or disposed, operating results for certain hotel properties are not comparable for three and six months ended June 30, 2022 and 2021. The hotel properties listed below are not comparable hotel properties for the periods indicated and all other hotel properties are considered comparable hotel properties. The following dispositions affect reporting comparability related to our consolidated financial statements:
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Le Meridien Minneapolis (1) | | Minneapolis, MN | | Disposition | | January 20, 2021 |
SpringHill Suites Durham (1) | | Durham, NC | | Disposition | | April 29, 2021 |
SpringHill Suites Charlotte (1) | | Charlotte, NC | | Disposition | | April 29, 2021 |
____________________________________
(1) Collectively referred to as “Hotel Dispositions”
The following table illustrates the key performance indicators of all hotel properties and WorldQuest owned for the periods indicated:
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| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
| RevPAR (revenue per available room) | $ | 134.54 | | | $ | 77.86 | | | $ | 115.61 | | | $ | 62.65 | |
| Occupancy | 73.34 | % | | 57.06 | % | | 65.88 | % | | 49.65 | % |
| ADR (average daily rate) | $ | 183.45 | | | $ | 136.46 | | | $ | 175.49 | | | $ | 126.18 | |
The following table illustrates the key performance indicators of the 100 comparable hotel properties and WorldQuest that were included for the full three and six June 30, 2022 and 2021, respectively:
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| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
| RevPAR (revenue per available room) | $ | 134.54 | | | $ | 77.98 | | | $ | 115.61 | | | $ | 62.87 | |
| Occupancy | 73.34 | % | | 57.05 | % | | 65.88 | % | | 49.63 | % |
| ADR (average daily rate) | $ | 183.45 | | | $ | 136.68 | | | $ | 175.49 | | | $ | 126.66 | |
Comparison of the Three Months Ended June 30, 2022 and 2021
Net Income (Loss) Attributable to the Company. Net loss attributable to the Company decreased $58.1 million, from $64.3 million for the three months ended June 30, 2021 (the “2021 quarter”) to $6.2 million for the three months ended June 30, 2022 (the “2022 quarter”) as a result of the factors discussed below.
Revenue. Rooms revenue from our hotel properties and WorldQuest increased $115.5 million, or 72.2%, to $275.5 million in the 2022 quarter compared to the 2021 quarter. This increase is attributable to higher rooms revenue of $115.8 million at our comparable hotel properties and WorldQuest as our hotel properties recover from the effects of the COVID-19 pandemic partially offset by a decrease of $310,000 from our Hotel Dispositions. Our comparable hotel properties experienced an increase of 34.2% in room rates and 1,629 basis points in occupancy.
Food and beverage revenue increased $34.5 million, or 173.8%, to $54.3 million. This increase is attributable to higher sales of food and beverage of $34.5 million at our comparable hotel properties and WorldQuest as our hotel properties recover from the effects of the COVID-19 pandemic.
Other hotel revenue, which consists mainly of Internet access, parking, and spa revenue, increased $4.4 million, or 34.2%, to $17.4 million. This increase is primarily attributable to an increase of $4.4 million at our comparable hotel properties as our hotel properties recover from the effects of the COVID-19 pandemic. Other non-hotel revenue increased $273,000, or 49.2%, to $828,000 in the 2022 quarter as compared to the 2021 quarter.
Hotel Operating Expenses. Hotel operating expenses increased $86.7 million, or 64.5%, to $221.2 million. Hotel operating expenses consist of direct expenses from departments associated with revenue streams and indirect expenses associated with support departments and management fees. Direct expenses increased $46.6 million in the 2022 quarter as compared to the 2021 quarter, as our hotel properties recover from the effects of the COVID-19 pandemic, which was comprised of an increase of $46.7 million from our comparable hotel properties and WorldQuest partially offset by a decrease of $135,000 from our Hotel Dispositions. Direct expenses were 28.8% of total hotel revenue for the 2022 quarter and 27.7% for the 2021 quarter. Indirect expenses and management fees increased $40.2 million in the 2022 quarter as compared to the 2021 quarter, which was comprised of an increase of $40.4 million from our comparable hotel properties and WorldQuest as our hotel properties recover from the effects of the COVID-19 pandemic partially offset by a decrease of $231,000 from our Hotel Dispositions.
Property Taxes, Insurance and Other. Property taxes, insurance and other expense increased $161,000, or 0.9%, to $17.3 million during the 2022 quarter compared to the 2021 quarter, which was due to an increase of $184,000 from our comparable hotel properties and WorldQuest partially offset by a decrease of $23,000 at our Hotel Dispositions.
Depreciation and Amortization. Depreciation and amortization decreased $4.7 million, or 8.5%, to $50.9 million during the 2022 quarter compared to the 2021 quarter, which was primarily due to a decrease of $4.7 million from our comparable hotel properties and WorldQuest.
Advisory Services Fee. Advisory services fee decreased $7.3 million, or 37.2%, to $12.3 million in the 2022 quarter compared to the 2021 quarter. The advisory services fee represents fees incurred in connection with the advisory agreement between Ashford Inc. and the Company. In the 2022 quarter, the advisory services fee was comprised of a base advisory fee of $8.6 million, equity-based compensation of $1.5 million associated with equity grants of our common stock and LTIP units awarded to the officers and employees of Ashford Inc., reimbursable expenses of $2.4 million and an incentive fee reversal of $151,000. In the 2021 quarter, the advisory services fee was comprised of a base advisory fee of $9.0 million, equity-based compensation of $2.5 million associated with equity grants of our common stock and LTIP units awarded to the officers and employees of Ashford Inc., reimbursable expenses of $1.6 million and an incentive fee of $6.5 million.
Corporate, General and Administrative. Corporate, general and administrative expense increased $1.8 million, or 66.9%, to $4.5 million during the 2022 quarter compared to the 2021 quarter. The increase was primarily attributable to higher legal
and professional fees of $285,000, higher reimbursed operating expenses of Ashford Securities paid by Ashford Trust of $664,000, higher public company costs of $359,000, and higher other miscellaneous expenses of $473,000.
Gain (Loss) on Disposition of Assets and Hotel Properties. Gain on disposition of assets and hotel properties decreased $180,000 from $361,000 in the 2021 quarter to $181,000 in the 2022 quarter. The gain in the 2021 quarter of $361,000 was primarily related to a franchise fee reimbursement related to the disposition of the Embassy Suites New York Manhattan Times Square. The gain in the 2022 quarter was primarily related to the sale of three WorldQuest condominiums.
Equity in Earnings (Loss) of Unconsolidated Entities. Equity in loss of unconsolidated entities, which consists of our share of earnings/loss from OpenKey, was $151,000 in the 2022 quarter and $141,000 in the 2021 quarter.
Interest Income. Interest income was $526,000 and $0 for the 2022 quarter and the 2021 quarter, respectively.
Other Income (Expense). Other income (expense) changed $161,000 from other expense of $245,000 in the 2021 quarter, to other income of $84,000 in the 2022 quarter. In the 2022 quarter, we recorded miscellaneous income of $84,000. In the 2021 quarter, we recorded miscellaneous income of $245,000.
Interest expense and amortization of discounts and loan costs. Interest expense and amortization of discounts and loan costs increased $12.7 million, or 35.4%, to $48.4 million during the 2022 quarter compared to the 2021 quarter. The increase is primarily due to $3.8 million at our comparable hotel properties primarily due to higher LIBOR rates, a $2.4 million increase attributable to the amortization of the embedded debt derivative of the Oaktree loan and lower credits to interest expense of $6.5 million related to the amortization credit of default interest and late charges recorded on mortgage loans previously in default. These increases were partially offset by a decrease of $81,000 from our Hotel Dispositions. The average LIBOR rates in the 2022 quarter and the 2021 quarter were 1.02% and 0.10%, respectively.
Write-off of Premiums, Loan Costs and Exit Fees. Write-off of premiums, loan costs and exit fees increased $184,000 to $971,000 in the 2022 quarter compared to the 2021 quarter. In the 2022 quarter, we recognized Lismore fees of $690,000 related to loan modifications and $281,000 related to third-party fees, for a total of $971,000. In the 2021 quarter, we executed amendments with various lenders, which included deferral of debt service payments and allowed the use of reserves for property-level operating shortfalls and/or to cover debt service payments. In conjunction with these amendments, third-party fees incurred were $144,000 and Lismore fees incurred were $643,000, totaling $787,000.
Gain (loss) on extinguishment of debt. Gain on extinguishment of debt was $10.6 million in the 2021 quarter, which related to the foreclosure of the SpringHill Suites Durham and SpringHill Suites Charlotte.
Unrealized Gain (Loss) on Derivatives. Unrealized gain (loss) on derivatives changed $9.3 million from a loss of $3.2 million in the 2021 quarter to a gain of $6.1 million in the 2022 quarter. In the 2022 quarter, we recognized an unrealized gain of $3.0 million from the revaluation of the embedded debt derivative and an unrealized gain of $3.1 million associated with interest rate caps. In the 2021 quarter, we recognized an unrealized loss of $319,000 on interest rate floors, an unrealized loss of $241,000 associated with interest rate caps and a $2.7 million unrealized loss from the revaluation of the embedded debt derivative.
Income Tax (Expense) Benefit. Income tax expense increased $5.0 million, from $572,000 in the 2021 quarter to $5.6 million in the 2022 quarter. This change was primarily due to an increase in the profitability of our TRS entities in the 2022 quarter compared to the 2021 quarter.
(Income) Loss Attributable to Noncontrolling Interest in Consolidated Entities. Our noncontrolling interest partner in consolidated entities was allocated a loss of $13,000 in the 2021 quarter. On December 31, 2021, the Company acquired the remaining interest in the consolidated entities.
Net (Income) Loss Attributable to Redeemable Noncontrolling Interests in Operating Partnership. Noncontrolling interests in operating partnership were allocated net losses of $76,000 in the 2022 quarter and $448,000 in the 2021 quarter. Redeemable noncontrolling interests represented ownership interests of 0.81% and 1.36% in the operating partnership at June 30, 2022 and 2021, respectively.
Comparison of the Six Months Ended June 30, 2022 and 2021
Net Income (Loss) Attributable to the Company. Net loss attributable to the Company decreased $105.7 million from $167.3 million for the six months ended June 30, 2021 (the “2021 period”) to $61.6 million for the six months ended June 30, 2022 (the “2022 period”) as a result of the factors discussed below.
Revenue. Rooms revenue from our hotel properties and WorldQuest increased $213.7 million, or 83.1%, to $470.9 million in the 2022 period compared to the 2021 period. This increase is attributable to higher rooms revenue of $214.8 million at our comparable hotel properties and WorldQuest as our hotel properties recover from the effects of the COVID-19 pandemic, partially offset by a decrease of $1.1 million from our Hotel Dispositions. Our comparable hotel properties experienced an increase of 38.6% in room rates and an increase of 1,625 basis points in occupancy.
Food and beverage revenue increased $63.3 million, or 228.3%, to $91.1 million in the 2022 period compared to the 2021 period. This increase is attributable to higher sales of food and beverage of $63.3 million at our comparable hotel properties and WorldQuest as a result of the COVID-19 pandemic.
Other hotel revenue, which consists mainly of Internet access, parking, and spa revenue, increased $8.4 million, or 36.1%, to $31.9 million in the 2022 period compared to the 2021 period. This increase is attributable to higher other revenue of $8.5 million from our comparable hotel properties and WorldQuest as our hotel properties recover from the effects of the COVID-19 pandemic partially offset by a decrease of $43,000 from our Hotel Dispositions. Other revenue increased $500,000, or 53.2%, to $1,440,000 in the 2022 period compared to the 2021 period.
Hotel Operating Expenses. Hotel operating expenses increased $172.0 million, or 76.1%, to $397.9 million in the 2022 period compared to the 2021 period. Hotel operating expenses consist of direct expenses from departments associated with revenue streams and indirect expenses associated with support departments and management fees. Direct expenses increased $92.7 million in the 2022 period compared to the 2021 period, comprised of an increase of $93.2 million from our comparable hotel properties and WorldQuest as our hotel properties continue to recover from the effects of the COVID-19 pandemic and partially offset by a decrease of $452,000 from our Hotel Dispositions. Direct expenses were 30.0% of total hotel revenue for the 2022 period and 27.7% for the 2021 period. Indirect expenses and management fees increased $79.2 million in the 2022 period compared to the 2021 period, comprised of an increase of $80.1 million from our comparable hotel properties and WorldQuest as a result of the COVID-19 pandemic and partially offset by a decrease of $891,000 from our Hotel Dispositions.
Property Taxes, Insurance and Other. Property taxes, insurance and other expense decreased $851,000 or 2.5%, to $33.7 million in the 2022 period compared to the 2021 period, which was primarily due to a decrease of $142,000 from our Hotel Dispositions and $709,000 at our comparable hotel properties primarily due to real estate assessments or appeals that resulted in lower property taxes.
Depreciation and Amortization. Depreciation and amortization decreased $10.2 million or 9.0%, to $103.0 million in the 2022 period compared to the 2021 period, which consisted of lower depreciation of $206,000 as a result of our Hotel Dispositions and lower depreciation of $10.0 million at our comparable hotel properties and WorldQuest primarily due to fully depreciated assets.
Advisory Services Fee. Advisory services fee decreased $6.1 million, or 19.1%, to $25.7 million in the 2022 period compared to the 2021 period. The advisory services fee represents fees incurred in connection with the advisory agreement between Ashford Inc. and the Company. In the 2022 period, the advisory services fee was comprised of a base advisory fee of $17.3 million, equity-based compensation of $3.4 million associated with equity grants of our common stock and LTIP units awarded to the officers and employees of Ashford Inc. and reimbursable expenses of $4.9 million. In the 2021 period, the advisory services fee was comprised of a base advisory fee of $17.7 million, equity-based compensation of $4.3 million associated with equity grants of our common stock and LTIP units awarded to the officers and employees of Ashford Inc., reimbursable expenses of $3.2 million and an incentive fee of $6.5 million.
Corporate, General and Administrative. Corporate, general and administrative expense decreased $2.1 million, or 21.5%, to $7.6 million in the 2022 period compared to the 2021 period. The decrease was primarily attributable to lower legal and professional fees of $4.6 million, partially offset by higher reimbursed operating expenses of Ashford Securities paid by the Company of $1.2 million, higher public company costs of $497,000 and higher miscellaneous expenses of $773,000.
Gain (Loss) on Disposition of Assets and Hotel Properties. Gain (loss) on disposition of assets and hotel properties decreased $8,000, from a gain of $292,000 in the 2021 period to a gain of $284,000 in the 2022 period. The gain in the 2021 period was primarily related to a franchise fee reimbursement related to the disposition of the Embassy Suites New York Manhattan Times Square. The gain in the 2022 period was primarily related to a gain related to the sale of six WorldQuest condominiums.
Equity in Earnings (Loss) of Unconsolidated Entities. Equity in loss of unconsolidated entities was $304,000 in the 2022 period and $278,000 in the 2021 period, which consisted of our share of loss from OpenKey.
Interest Income. Interest income was $577,000 and $13,000 in the 2022 period and the 2021 period, respectively.
Other Income (Expense). In the 2022 period we recorded miscellaneous income of $185,000. In the 2021 period, we recorded miscellaneous income of $474,000.
Interest Expense and Amortization of Discounts and Loan Costs. Interest expense and amortization of discounts and loan costs increased $23.0 million, or 33.3%, to $92.0 million in the 2022 period compared to the 2021 period. The increase was primarily due to a $1.1 million increase at our comparable hotel properties primarily due to higher LIBOR rates, $4.5 million attributable to amortization of the embedded debt derivative and the Oaktree term loan as a result of it being outstanding for the all of 2022 and lower credits to interest expense of $17.6 million related to the amortization credit of default interest and late charges recorded on mortgage loans previously in default. These increases were partially offset by a decrease of $296,000 from our Hotel Dispositions. The average LIBOR rates in the 2022 period and the 2021 period were 0.62% and 0.11%, respectively.
Write-off of Premiums, Loan Costs and Exit Fees. Write-off of premiums, loan costs and exit fees decreased $2.5 million to $1.7 million in the 2022 period compared to the 2021 period. In the 2022 period, we recognized Lismore fees of $643,000 that reflects the amortization over the service period of the Lismore Agreement (see note 15 to our consolidated financial statements) and Lismore fees of $690,000 related to loan modifications and $365,000 related to third-party fees, totaling $1.7 million. In the 2021 period, we executed several amendments with various lenders, which included deferral of debt service payments and allowed the use of reserves for property-level operating shortfalls and/or to cover debt service payments. Lismore fees incurred in conjunction with these amendments were $4.3 million, which were partially offset by a net credit of $173,000 related to third-party fees, totaling $4.2 million.
Gain (loss) on extinguishment of debt. Gain on extinguishment of debt was $10.6 million in the 2021 period, which related to the foreclosure of the SpringHill Suites Durham and SpringHill Suites Charlotte.
Unrealized Gain (Loss) on Derivatives. Unrealized gain (loss) on derivatives changed $11.6 million from a loss of $2.3 million in the 2021 period to a gain of $9.3 million in the 2022 period. In the 2022 period, we recorded an unrealized gain of $3.9 million from the revaluation of the embedded debt derivative in the Oaktree Agreement and an unrealized gain of $5.4 million from interest rate caps. In the 2021 period, we recorded unrealized losses of $1.4 million from the revaluation of the embedded debt derivative, $390,000 from interest rate floors and $530,000 from interest rate caps.
Income Tax (Expense) Benefit. Income tax expense increased $5.4 million, from $301,000 in the 2021 period to $5.7 million in the 2022 period. This change was primarily due to an increase in the profitability of our TRS entities in the 2022 period compared to the 2021 period.
(Income) Loss from Consolidated Entities Attributable to Noncontrolling Interests. Our noncontrolling interest partner in consolidated entities were allocated a loss of $94,000 in the 2021 period. On December 31, 2021, the Company acquired the remaining interest in the consolidated entities.
Net (Income) Loss Attributable to Redeemable Noncontrolling Interests in Operating Partnership. Noncontrolling interests in operating partnership were allocated net losses of $448,000 and $3.2 million in the 2022 period and the 2021 period, respectively. Redeemable noncontrolling interests represented ownership interests of 0.81% and 1.36% in the operating partnership at June 30, 2022 and 2021, respectively.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity
The prolonged presence of COVID-19 has continued to impact the Company’s operating results and cash flows. However, the Company has taken significant steps to improve its operating results and liquidity and expects to achieve pre-pandemic RevPAR by 2023 and hotel operating levels by 2024. Additionally, as of June 30, 2022, the Company held cash and cash equivalents of $538.4 million and restricted cash of $126.6 million, the vast majority of which is comprised of lender and manager-held reserves. As of June 30, 2022, $24.7 million was also due to the Company from third-party hotel managers, most of which is held by one of the Company’s managers and is available to fund hotel operating costs.
In 2020, the Company ceased paying dividends on both its common stock and preferred stock. During the fourth quarter of 2021, the Company reinstated and caught up on all of its accrued preferred dividends and currently plans to pay dividends on its preferred stock going forward. The Company does not anticipate paying any dividends on its outstanding common stock for the foreseeable future.
Facts and circumstances related to COVID-19 could change in the future that are outside of management’s control that could impact future hotel operating results, future cash flows and our ability to pay dividends.
Based on our current level of operations, our cash flow from operations and our existing cash balances should be adequate to meet upcoming anticipated requirements for interest and principal payments on debt (excluding any potential final maturity payments), working capital, and capital expenditures for the next 12 months and dividends required to maintain our status as a REIT for U.S. federal income tax purposes. With respect to upcoming maturities, no assurances can be given that we will be able to refinance our upcoming maturities. Additionally, no assurances can be given that we will obtain additional financings or, if we do, what the amount and terms will be. Our failure to obtain future financing under favorable terms could adversely impact our ability to execute our business strategy or may result in lender foreclosure.
Our cash position from operations is affected primarily by macro industry movements in occupancy and rate as well as our ability to control costs. Further, interest rates can greatly affect the cost of our debt service as well as the value of any financial hedges we may put in place. We monitor industry fundamentals and interest rates very closely. Capital expenditures above our reserves will affect cash flow as well.
Certain of our loan agreements contain cash trap provisions that may be triggered if the performance of our hotels decline below a threshold. When these provisions are triggered, substantially all of the profit generated by our hotels is deposited directly into lockbox accounts and then swept into cash management accounts for the benefit of our various lenders. During a cash trap, certain disbursements from these hotel operating cash receipts, primarily other corporate general and administrative expenditures, would require consent of our lenders. These cash trap provisions have been triggered on nearly all of our mortgage loans containing cash trap provisions. As of June 30, 2022, 85% of our hotels were in cash traps and approximately $6.1 million of our restricted cash was subject to these cash traps. Additionally, at June 30, 2022, there was approximately $12.8 million of restricted cash associated with one mortgage loan that is no longer in a cash trap as of that date, which was subsequently released. Our loans may remain subject to cash trap provisions for a substantial period of time which could limit our flexibility and adversely affect our financial condition or our qualification as a REIT.
We have extension options relating to certain property level loans that will permit us to extend the maturity date of our loans if certain conditions are satisfied at the respective extension dates, including the achievement of debt yield targets required in order to extend such loans. To the extent we decide to extend the maturity date of the debt outstanding under the loans, we may be required to prepay a significant amount of the loans in order to meet the required debt yield targets. There can be no assurances that we will be able to meet the conditions for extensions pursuant to the respective terms of such loans.
We are required to maintain certain financial ratios under various debt and related agreements. If we violate covenants in any debt or related agreement, we could be required to repay all or a portion of our indebtedness before maturity at a time when we might be unable to arrange financing for such repayment on attractive terms, if at all. The assets of certain of our subsidiaries are pledged under non-recourse indebtedness and are not available to satisfy the debts and other obligations of Ashford Trust or Ashford Trust OP, our operating partnership, and the liabilities of such subsidiaries do not constitute the obligations of Ashford Trust or Ashford Trust OP. As of August 3, 2022, the Company is not expecting to be required to repay all or a portion of our indebtedness before maturity.
Mortgage and mezzanine loans are nonrecourse to the borrowers, except for customary exceptions or carve-outs that trigger recourse liability to the borrowers in certain limited instances. Recourse obligations typically include only the payment of costs and liabilities suffered by lenders as a result of the occurrence of certain bad acts on the part of the borrower. However, in certain cases, carve-outs could trigger recourse obligations on the part of the borrower with respect to repayment of all or a
portion of the outstanding principal amount of the loans. We have entered into customary guaranty agreements pursuant to which we guaranty payment of any recourse liabilities of the borrowers that result from non-recourse carve-outs (which include, but are not limited to, fraud, misrepresentation, willful conduct resulting in waste, misappropriations of rents following an event of default, voluntary bankruptcy filings, unpermitted transfers of collateral, and certain environmental liabilities). In the opinion of management, none of these guaranty agreements, either individually or in the aggregate, are likely to have a material adverse effect on our business, results of operations, or financial condition.
We have entered into certain customary guaranty agreements pursuant to which we guaranty payment of any recourse liabilities of our subsidiaries or joint ventures that may result from non-recourse carve-outs, which include, but are not limited to, fraud, misrepresentation, willful misconduct resulting in waste, misappropriations of rents following an event of default, voluntary bankruptcy filings, unpermitted transfers of collateral, delinquency of trade payables and certain environmental liabilities. Certain of these guarantees represent a guaranty of material amounts, and if we are required to make payments under those guarantees, our liquidity could be adversely affected.
We are committed to an investment strategy where we will pursue hotel-related investments as suitable situations arise. Funds for future hotel-related investments are expected to be derived, in whole or in part, from cash on hand, future borrowings under a credit facility or other loans, or proceeds from additional issuances of common stock, preferred stock (including net proceeds from the sale of any shares of Series J Preferred Stock or Series K Preferred Stock), or other securities, asset sales, and joint ventures. However, we have no formal commitment or understanding to invest in additional assets, and there can be no assurance that we will successfully make additional investments. We may, when conditions are suitable, consider additional capital raising opportunities.
Our existing hotel properties are mostly located in developed areas with competing hotel properties. Future occupancy, ADR, and RevPAR of any individual hotel could be materially and adversely affected by an increase in the number or quality of competitive hotel properties, home sharing companies or apartment operators offering short-term rentals in its market area. Competition could also affect the quality and quantity of future investment opportunities.
Debt Transactions
On June 7, 2022, we amended our $33.2 million mortgage loan, secured by the Sheraton Ann Arbor hotel, which extended the maturity to December 2022 and included a $3.2 million principal repayment. The amended mortgage loan is interest only and bears interest at a rate of LIBOR + 4.40%, and has a LIBOR floor of 0.25%.
On July 1, 2022, the Bank of America Pool 3 mortgage loan was brought current and is no longer in default.
Equity Transactions
On March 1, 2022, the Company filed a new universal shelf registration statement on Form S-3 with the SEC. The shelf registration statement provides for the registration of unspecified amounts of equity and debt securities with a maximum aggregate offering price of up to $300 million. The SEC declared the Form S-3 effective on April 1, 2022.
On March 4, 2022, the Company filed an initial registration statement on Form S-3 with the SEC, as amended on April 29, 2022, related to the Company’s non-traded Series J Preferred Stock and Series K Preferred Stock. The registration statement was declared effective by the SEC on May 4, 2022, and contemplates the offering of up to (i) 20.0 million shares of Series J Preferred Stock or Series K Preferred Stock in a primary offering and (ii) 8.0 million shares of Series J Preferred Stock or Series K Preferred Stock pursuant to a dividend reinvestment plan. On May 5, 2022, we filed our prospectus for the offering with the SEC. Ashford Securities, a subsidiary of Ashford Inc., serves as the dealer manager for the offering. On April 28, 2022, we filed with the State Department of Assessments and Taxation of the State of Maryland articles supplementary to our Articles of Amendment and Restatement classifying and designating an aggregate of 28,000,000 shares of our unissued and undesignated shares of preferred stock and provided for their issuance either as shares of Series J Preferred Stock or Series K Preferred Stock. We also caused our operating partnership to execute Amendment No. 10 to the Seventh Amended and Restated Agreement of Limited Partnership to amend the terms of our operating partnership to conform to the terms of the articles supplementary for the Series J Preferred Stock and Series K Preferred Stock. As of August 3, 2022, no shares of Series J Preferred Stock or Series K Preferred Stock have been issued. We intend to use the net proceeds from the sale of any shares of Series J Preferred Stock or Series K Preferred Stock for general corporate purposes, including, without limitation, payment of dividends on our outstanding capital stock, repayment of debt or other maturing obligations, financing future hotel-related investments, redemption of outstanding shares of our preferred stock, capital expenditures and working capital.
On September 9, 2021, the Company and M3A LP (“M3A”) entered into a purchase agreement (the “M3A Purchase Agreement”), which provides that subject to the terms and conditions set forth therein, the Company may sell to M3A up to approximately 6.0 million shares of common stock, from time to time during the term of the M3A Purchase Agreement. On
September 10, 2021, the Company filed a registration statement on Form S-11, which was declared effective by the SEC on September 29, 2021, to register for resale under the Securities Act, 6,040,888 shares of Common Stock that may be issued to M3A under the M3A Purchase Agreement. In connection with the Company’s recent eligibility to use a Form S-3, the Company filed a Form S-3, which was declared effective by the SEC on April 1, 2022, to replace the previous Form S-11 and to register for resale any future resales by M3A under the M3A Purchase Agreement. As of August 3, 2022, the Company has issued approximately 900,000 shares of common stock for gross proceeds of approximately $12.9 million under the M3A Purchase Agreement.
On April 6, 2022 the board of directors approved a stock repurchase program (the “Repurchase Program”) pursuant to which the board of directors granted a repurchase authorization to acquire shares of the Company’s common stock and preferred stock having an aggregate value of up to $200 million. The board of directors’ authorization replaced the 2017 Repurchase Program that the board of directors’ authorized in December 2017. No shares have been repurchased under the Repurchase Program.
On April 11, 2022, the Company entered into the Virtu Equity Distribution Agreement with Virtu, to sell from time to time shares of the Company’s common stock having an aggregate offering price of up to $100 million. We will pay Virtu a commission of approximately 1% of the gross sales price of the shares of our common stock sold. The Company may also sell some or all of the shares of our common stock to Virtu as principal for its own account at a price agreed upon at the time of sale. As of August 3, 2022, the Company has not issued any common stock pursuant to the Virtu Equity Distribution Agreement.
Sources and Uses of Cash
Our principal sources of funds to meet our cash requirements include cash on hand, cash flow from operations, capital market activities, property refinancing proceeds and asset sales. Additionally, our principal uses of funds are expected to include possible operating shortfalls, owner-funded capital expenditures, dividends, new investments, and debt interest and principal payments. Items that impacted our cash flow and liquidity during the periods indicated are summarized as follows:
Net Cash Flows Provided by (Used in) Operating Activities. Net cash flows provided by (used in) operating activities, pursuant to our consolidated statements of cash flows, which includes changes in balance sheet items, were $35.7 million and $(114.6) million for the six months ended June 30, 2022 and 2021, respectively. Cash flows used in operations were impacted by the COVID-19 pandemic, changes in hotel operations, our hotel dispositions in 2021 as well as the timing of collecting receivables from hotel guests, paying vendors, settling with derivative counterparties, settling with related parties and settling with hotel managers.
Net Cash Flows Provided by (Used in) Investing Activities. For the six months ended June 30, 2022, net cash flows used in investing activities were $37.0 million. Cash outflows consisted of $42.8 million for capital improvements made to various hotel properties partially offset by cash inflows of $783,000 from proceeds received from the sale of six WorldQuest condominium units, $1.0 million of proceeds from property insurance and $4.0 million of proceeds from notes receivable.
For the six months ended June 30, 2021, net cash flows used in investing activities were $4.4 million. Cash outflows primarily consisted of $13.5 million for capital improvements made to various hotel properties. Cash outflows were partially offset by cash inflows of $7.3 million from proceeds received from the sale of the Le Meridien Minneapolis and $1.8 million of proceeds from property insurance.
Net Cash Flows Provided by (Used in) Financing Activities. For the six months ended June 30, 2022, net cash flows provided by financing activities were $25.4 million. Cash outflows primarily consisted of $11.9 million for repayments of indebtedness, $1.7 million for payments of loan costs and exit fees, $6.2 million of payments for preferred dividends and $5.3 million of payments for derivatives.
For the six months ended June 30, 2021, net cash flows provided by financing activities were $542.2 million. Cash inflows primarily consisted of $195.5 million from borrowings on indebtedness, net of commitment fee and $371.5 million of net proceeds from issuances of common stock, partially offset by cash outflows of $5.8 million for repayments of indebtedness, $18.2 million for payments of loan costs and exit fees and $785,000 of payments for derivatives.
Dividend Policy. Distributions are authorized by our board of directors and declared by us based upon a variety of factors deemed relevant by our directors. The board of directors will continue to review our distribution policy on at least a quarterly basis. Our ability to pay distributions to our preferred or common stockholders will depend, in part, upon our receipt of distributions from our operating partnership. This, in turn, may depend upon receipt of lease payments with respect to our properties from indirect subsidiaries of our operating partnership, the management of our properties by our hotel managers and general business conditions (including the impact of the COVID-19 pandemic). Distributions to our stockholders are generally
taxable to our stockholders as ordinary income. However, since a portion of our investments are equity ownership interests in hotels, which result in depreciation and non-cash charges against our income, a portion of our distributions may constitute a non-taxable return of capital, to the extent of a stockholder’s tax basis in the stock. To the extent that it is consistent with maintaining our REIT status, we may maintain accumulated earnings of Ashford TRS in that entity.
On December 7, 2021, our board of directors reviewed and approved our 2022 dividend policy. We do not anticipate paying any dividends on our outstanding common stock for any quarter during 2022 and expect to pay dividends on our outstanding preferred stock during 2022. Declaration of dividends in 2022 on our preferred stock may require a determination by our board of directors, at the time of any determination, that the Company would continue to have positive equity on a fair value basis, among other considerations. Our board of directors will continue to review our dividend policy and make future announcements with respect thereto. We may incur indebtedness to meet distribution requirements imposed on REITs under the Code to the extent that working capital and cash flow from our investments are insufficient to fund required distributions. We may pay dividends in excess of our cash flow.
SEASONALITY
Our properties’ operations historically have been seasonal as certain properties maintain higher occupancy rates during the summer months, while certain other properties maintain higher occupancy rates during the winter months. This seasonality pattern can cause fluctuations in our quarterly lease revenue under our percentage leases. Quarterly revenue also may be adversely affected by renovations and repositionings, our managers’ effectiveness in generating business and by events beyond our control, such as the COVID-19 pandemic and government-issued travel restrictions in response, extreme weather conditions, natural disasters, terrorist attacks or alerts, civil unrest, government shutdowns, airline strikes or reduced airline capacity, economic factors and other considerations affecting travel. To the extent that cash flows from operations are insufficient during any quarter to enable us to make quarterly distributions to maintain our REIT status due to temporary or seasonal fluctuations in lease revenue, we expect to utilize cash on hand, borrowings and common stock to fund required distributions. However, we cannot make any assurances that we will make distributions in the future.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The preparation of our consolidated financial statements in accordance with accounting principles generally accepted in the United States requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. Our accounting policies that are critical or most important to understanding our financial condition and results of operations and that require management to make the most difficult judgments are described in our 2021 Form 10-K. There have been no material changes in these critical accounting policies.
NON-GAAP FINANCIAL MEASURES
The following non-GAAP presentations of EBITDA, EBITDAre, Adjusted EBITDAre, Funds From Operations (“FFO”) and Adjusted FFO are presented to help our investors evaluate our operating performance.
EBITDA is defined as net income (loss) before interest expense and amortization of discounts and loan costs, net, income taxes, depreciation and amortization, as adjusted to reflect only the Company’s portion of EBITDA of unconsolidated entities. In addition, we exclude impairment charges on real estate, and gain/loss on disposition of assets and hotel properties and gain/loss of unconsolidated entities to calculate EBITDAre, as defined by NAREIT.
We then further adjust EBITDAre to exclude certain additional items such as gain/loss on insurance settlements, write-off of premiums, loan costs and exit fees, other income/expense, net, transaction and conversion costs, legal, advisory and settlement costs, dead deal costs, advisory services incentive fee and stock/unit-based compensation and non-cash items such as amortization of unfavorable contract liabilities, gain/loss on extinguishment of debt, unrealized gains/losses on marketable securities and derivative instruments, as well as our portion of adjustments to EBITDAre of unconsolidated entities.
We present EBITDA, EBITDAre and Adjusted EBITDAre because we believe they reflect more accurately the ongoing performance of our hotel assets and other investments and provide more useful information to investors as they are indicators of our ability to meet our future debt payment requirements, working capital requirements and they provide an overall evaluation of our financial condition. EBITDA, EBITDAre and Adjusted EBITDAre as calculated by us may not be comparable to EBITDA, EBITDAre and Adjusted EBITDAre reported by other companies that do not define EBITDA, EBITDAre and Adjusted EBITDAre exactly as we define the terms. EBITDA, EBITDAre and Adjusted EBITDAre do not represent cash generated from operating activities determined in accordance with GAAP, and should not be considered as an alternative to
operating income (loss) or net income (loss) determined in accordance with GAAP as an indicator of performance or as an alternative to cash flows from operating activities as determined by GAAP as an indicator of liquidity.
The following table reconciles net income (loss) to EBITDA, EBITDAre and Adjusted EBITDAre (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2022 | | 2021 | | 2022 | | 2021 | | |
| Net income (loss) | $ | (6,246) | | | $ | (65,261) | | | $ | (62,048) | | | $ | (170,651) | | | |
| Interest expense and amortization of discounts and loan costs | 48,393 | | | 35,736 | | | 91,952 | | | 69,000 | | | |
| Depreciation and amortization | 50,896 | | | 55,595 | | | 103,016 | | | 113,222 | | |
| Income tax expense (benefit) | 5,563 | | | 572 | | | 5,683 | | | 301 | | | |
| Equity in (earnings) loss of unconsolidated entities | 151 | | | 141 | | | 304 | | | 278 | | | |
| | | | | | | | | |
| Company’s portion of EBITDA of unconsolidated entities | (151) | | | (140) | | | (304) | | | (275) | | | |
| EBITDA | 98,606 | | | 26,643 | | | 138,603 | | | 11,875 | | | |
| | | | | | | | | |
| (Gain) loss on disposition of assets and hotel properties | (181) | | | (361) | | | (284) | | | (292) | | | |
| | | | | | | | | |
| | | | | | | | | |
| EBITDAre | 98,425 | | | 26,282 | | | 138,319 | | | 11,583 | | | |
| Amortization of unfavorable contract liabilities | 42 | | | 53 | | | 95 | | | 106 | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| Write-off of premiums, loan costs and exit fees | 971 | | | 787 | | | 1,698 | | | 4,166 | | | |
| (Gain) loss on extinguishment of debt | — | | | (10,604) | | | — | | | (10,604) | | | |
| Other (income) expense, net | (84) | | | (245) | | | (185) | | | (474) | | | |
| Transaction and conversion costs | 914 | | | 413 | | | 1,573 | | | 1,922 | | | |
| Legal, advisory and settlement costs | 12 | | | 1,849 | | | 37 | | | 4,496 | | | |
| | | | | | | | | |
| Unrealized (gain) loss on derivatives | (6,074) | | | 3,236 | | | (9,285) | | | 2,317 | | | |
| Dead deal costs | 280 | | | — | | | 280 | | | 689 | | | |
| Uninsured remediation costs | — | | | — | | | — | | | 374 | | | |
| Stock/unit-based compensation | 2,038 | | | 3,105 | | | 4,049 | | | 5,049 | | | |
| Advisory services incentive fee | (151) | | | 6,472 | | | — | | | 6,472 | | | |
| | | | | | | | | |
| Company’s portion of adjustments to EBITDAre of unconsolidated entities | (1) | | | 2 | | | 11 | | | 12 | | | |
| Adjusted EBITDAre | $ | 96,372 | | | $ | 31,350 | | | $ | 136,592 | | | $ | 26,108 | | | |
We calculate FFO and Adjusted FFO in the following table. FFO is calculated on the basis defined by NAREIT, which is net income (loss) attributable to common stockholders, computed in accordance with GAAP, excluding gains or losses on disposition of assets and hotel properties, plus depreciation and amortization of real estate assets, impairment charges on real estate assets, and after adjustments for unconsolidated entities and noncontrolling interests in the operating partnership. Adjustments for unconsolidated entities are calculated to reflect FFO on the same basis. NAREIT developed FFO as a relative measure of performance of an equity REIT to recognize that income-producing real estate historically has not depreciated on the basis determined by GAAP. Our calculation of Adjusted FFO excludes gain/loss on extinguishment of debt, write-off of premiums, loan costs and exit fees, other income/expense, net transaction and conversion costs, legal, advisory and settlement costs, dead deal costs, and stock/unit-based compensation and non-cash items such as amortization of loan costs, amortization of the term loan discount, unrealized gains/losses on marketable securities and derivative instruments, as well as our portion of adjustments to FFO related to unconsolidated entities. We exclude items from Adjusted FFO that are either non-cash or are not part of our core operations in order to provide a period-over-period comparison of our operating results. We consider FFO and Adjusted FFO to be appropriate measures of our ongoing normalized operating performance as a REIT. We compute FFO in accordance with our interpretation of standards established by NAREIT, which may not be comparable to FFO reported by other REITs that either do not define the term in accordance with the current NAREIT definition or interpret the NAREIT definition differently than us. FFO and Adjusted FFO do not represent cash generated from operating activities as determined by GAAP and should not be considered as an alternative to a) GAAP net income or loss as an indication of our financial performance or b) GAAP cash flows from operating activities as a measure of our liquidity, nor is it indicative of funds available to satisfy our cash needs, including our ability to make cash distributions. However, to facilitate a clear understanding of our historical operating results, we believe that FFO and Adjusted FFO should be considered along with our net income or loss and cash flows reported in the consolidated financial statements.
The following table reconciles net income (loss) to FFO and Adjusted FFO (in thousands):