ITEM 1.01 ENTRY INTO A MATERIAL DEFINITIVE AGREEMENT
As previously disclosed, Ashford Hospitality Trust, Inc. (“Ashford Trust” or the “Company”), Ashford Hospitality Limited Partnership (the “Operating Partnership”), Ashford TRS Corporation (“TRS”), Ashford Inc. (“AINC”) and Ashford Hospitality Advisors LLC (“Ashford LLC” and together with AINC, the “Advisor”) previously entered into the Enhanced Return Funding Program Agreement and Amendment No. 1 to the Amended and Restated Advisory Agreement, dated effective as of June 26, 2018 (the “ERFP Agreement”). Although the ERFP Agreement terminated in accordance with its terms on June 26, 2021, the Advisor remained obligated to provide TRS with approximately $11,400,000 related to Ashford Trust’s acquisition of the Embassy Suites Manhattan hotel (the “ES Manhattan ERFP Balance”), which such hotel constituted an Enhanced Return Hotel Asset (as defined in the ERFP Agreement).
Side Letter
On December 16, 2022, the Company entered into a Side Letter (the “Side Letter”) with the Operating Partnership, TRS and the Advisor, pursuant to which the parties agreed that on or before December 16, 2022, the Advisor will transfer to Ashford Trust all right, title and interest held by the Advisor and its subsidiaries in the Hilton Atlanta/Marietta Hotel and Conference Center (the “Marietta Hotel”) and, in exchange therefor, Ashford Trust will forgive, cancel and discharge in full the outstanding ES Manhattan ERFP Balance.
The Side Letter and the Purchase Agreement (as defined below) were approved by the independent directors of the Company after engaging an independent third-party to determine the current fair market value of the Marietta Hotel.
Purchase Agreement
On December 16, 2022, the Operating Partnership, a subsidiary of Ashford Trust, entered into an Agreement of Purchase and Sale (the “Purchase Agreement”) with Ashford LLC, pursuant to which, effective as of December 16, 2022, the Operating Partnership acquired one hundred percent (100%) of the equity interests in (i) Marietta Leasehold LP (the “Ground Lessee”), the ground lessee of the Marietta Hotel, and (ii) Marietta Leasehold GP LLC, the sole general partner of the Ground Lessee (collectively, the “Equity Interests”) and, in exchange therefor, Ashford Trust forgave, cancelled and discharged in full the outstanding ES Manhattan ERFP Balance.
The Purchase Agreement contains customary representations and warranties of Ashford LLC, including related to, among other items, the Equity Interests, compliance with laws, litigation and labor and employment matters. The Purchase Agreement also contains customary indemnification obligations of Ashford LLC, including with respect to representations and warranties, covenants and Ashford LLC’s operation of the Marietta Hotel prior to the closing, including related to liquor licenses. The representations and warranties, covenants and indemnities of Ashford LLC survive for one year after the closing. Ashford LLC’s aggregate liability for claims under the Purchase Agreement is $500,000; provided, that Ashford LLC shall not be liable for any claims except to the extent claims exceed $25,000 in the aggregate.
The Operating Partnership also made customary representations and warranties, including related to, among other items, organization, litigation and authority to enter into the Purchase Agreement.
All closing costs, including taxes and title transfer costs, were split equally between Ashford LLC and the Operating Partnership.
The foregoing description of the Side Letter, the Purchase Agreement and the transactions contemplated thereby does not purport to be complete and is subject to, and qualified in its entirety by, the full text of the Side Letter and the Purchase Agreement, copies of which are attached hereto as Exhibit 10.1 and Exhibit 10.2, respectively, and are incorporated by reference herein.