ASHFORD HOSPITALITY TRUST, INC. 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 COVID-19 and numerous governmental travel restrictions and other orders 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. 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 endedDecember 31, 2020 , as filed with theSecurities and Exchange Commission ("SEC") onMarch 15, 2021 , 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; •ongoing negotiations with our lenders regarding potential forbearance or the exercise by our lenders of their remedies for default under our loan agreements; •actions by our lenders to accelerate loan balances and foreclose on the hotel properties that are security for our loans that are in default; •actions by the lenders of our senior secured term loan 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; 43 -------------------------------------------------------------------------------- Table of Contents •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 (includingAshford Hospitality Advisors LLC ("Ashford LLC "),Remington Hotels ,Premier Project Management LLC ("Premier"), Braemar Hotels & Resorts Inc. (together with its subsidiaries, "Braemar"), our executive officers and our non-independent directors; •the expenditures, disruptions and uncertainties associated with a potential proxy contest; •changes in personnel ofAshford LLC or the lack of availability of qualified personnel; •changes in governmental regulations, accounting rules, tax rates and similar matters; •our ability to implement effective internal controls; •the timing or outcome of theSEC investigation; •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 forU.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 2020 10-K 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 ofSeptember 30, 2021 , we owned 100 consolidated hotel properties, including 98 hotel properties directly owned, and two hotel properties owned through a majority-owned investment in a consolidated entity, which represents 22,313 total rooms, or 22,286 net rooms excluding those attributable to our partner. Currently, all of our hotel properties are located inthe 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; •negotiate forbearance and other agreements with lenders as necessary with respect to our loans that are in default; •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. 44 -------------------------------------------------------------------------------- Table of Contents 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 byAshford LLC , a subsidiary of Ashford Inc., through an advisory agreement. All of the hotel properties in our portfolio are currently asset-managed byAshford LLC . We do not have any employees. All of the services that might be provided by employees are provided to us byAshford 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 ofSeptember 30, 2021 ,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 ofSeptember 30, 2021 , owned approximately 609,413 shares of Ashford Inc. common stock, which represented an approximate 20.2% 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 ofSeptember 30, 2021 , would have increased the Bennetts' ownership interest in Ashford Inc. to 65.6%, provided that prior toAugust 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. COVID-19, Management's Plans and Liquidity InDecember 2019 , COVID-19 was identified inWuhan, China , subsequently spread to other regions of the world, and has resulted in significant travel restrictions and extended shutdown of numerous businesses throughoutthe United States . InMarch 2020 , theWorld Health Organization declared COVID-19 to be a global pandemic. Since lateFebruary 2020 , we have experienced a significant decline in occupancy and RevPAR and we expect the significant occupancy and RevPAR declines associated with COVID-19 to continue as we experienced significant reservation cancellations as well as a significant reduction in new reservations. The prolonged presence of the virus has resulted in health and other government authorities imposing widespread restrictions on travel and other businesses. The Company continues to have discussions with two of its lenders about potential loan modifications on its property level debt. See note 7 to our consolidated financial statements. OnJanuary 15, 2021 , the Company entered into a senior secured term loan facility comprised of (a) initial term loans in an aggregate principal amount of$200 million , (b) initial delayed draw term loans in an aggregate principal amount of up to$150 million and (c) additional delayed draw term loans in an aggregate principal amount of up to$100 million . See note 7 to our consolidated financial statements. As ofSeptember 30, 2021 , the Company held cash and cash equivalents of$673.0 million and restricted cash of$85.0 million . The vast majority of the restricted cash comprises lender and manager held reserves. AtSeptember 30, 2021 , there was also$24.1 million due to the Company from third-party hotel managers, which is primarily the Company's cash held by one of its property managers which is also available to fund hotel operating costs. During 2020, the Company worked with its property managers and lenders in order to utilize lender and manager held reserves to fund operating shortfalls. InDecember 2020 , the board of directors approved our dividend policy for 2021, which continued the suspension of the Company's dividend into 2021 in light of the ongoing uncertainty from the COVID-19 pandemic and to protect liquidity. We are currently experiencing significant variability in the operating cash flows of our hotel properties. We are also taking several steps to reduce our cash utilization and potentially raise additional capital. The Company is also working more generally to contain costs while it experiences a significant decline in occupancy and RevPAR. The Company continues to suspend its quarterly cash dividend on its common and preferred stock and to look for opportunities to renegotiate cash obligations where possible. The Company continues to work closely with its hotel managers to significantly reduce its hotel operating expenses. The Company is 45 -------------------------------------------------------------------------------- Table of Contents dependent on its hotel managers to make appropriate staffing decisions and to appropriately reduce staffing when market conditions are poor. We cannot predict when hotel operating levels will return to normalized levels after the effects of the pandemic subside, whether our hotels will be forced to shut down operations or whether one or more possible recurrences of COVID-19 case surges could result in further reductions in business and personal travel or potentially cause state and local governments to reinstate travel restrictions. As a result of these factors arising from the impact of the pandemic, we are unable to estimate future financial performance with certainty. However, based on our completed senior secured term loan facility withOaktree Capital Management L.P. and forbearance and other agreements with our property-level lenders, our current unrestricted and restricted cash on hand, our current cash utilization and forecast of future operating results for the next 12 months from the date of this report, and the actions we have taken to improve our liquidity, the Company has concluded that the facts and circumstances that previously gave rise to substantial doubt about the Company's ability to continue as a going concern within one year after the date that the financial statements are issued have been resolved. Facts and circumstances could change in the future that are outside of management's control, such as additional government mandates, health official orders, travel restrictions and extended business shutdowns due to COVID-19. The spread of COVID-19 and the recent developments surrounding the global pandemic are having significant negative impacts on our business. In response to the impact of COVID-19 on the hospitality industry, the Company is deploying numerous strategies and protocols to provide financial flexibility going forward to navigate this crisis, including: •the Company has reduced its planned spending for capital expenditures for fiscal year 2021; •the Company has suspended its common stock dividends; •the Company has suspended its preferred stock dividends; and •the Company has taken proactive and aggressive actions to protect liquidity and reduce corporate expenses through the curtailment of all non-essential expenses and will continue to take all necessary additional actions to preserve capital and liquidity. Recent Developments OnJuly 2, 2021 , the Company andB. Riley , entered into the B. Riley Purchase Agreement, which provides that subject to the terms and conditions set forth therein, the Company may sell toB. Riley up to 4.6 million shares of common stock, from time to time during the term of the B. Riley Purchase Agreement. As ofNovember 4, 2021 , the Company has issued approximately 4.6 million shares of common stock for gross proceeds of approximately$68.0 million under the B. Riley Purchase Agreement. OnJuly 12, 2021 , the Company made an additional investment in OpenKey of approximately$250,000 . OnAugust 25, 2021 , we refinanced our$97.0 million mortgage loan secured by theHilton Boston Back Bay inBoston, Massachusetts . The new mortgage loan totals$98.0 million and provides for an interest rate of LIBOR + 3.80%. mortgage loan has a four-year term with a one-year extension option, subject to the satisfaction of certain conditions. The mortgage loan is secured by theHilton Boston Back Bay . OnSeptember 9, 2021 , the Company and M3A entered into 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. As ofNovember 4, 2021 , the Company has issued approximately 300,000 shares of common stock for gross proceeds of approximately$4.3 million under the M3A Purchase Agreement. OnOctober 12, 2021 , the Company entered into Amendment No. 1 to the Oaktree Credit Agreement with the Lenders and the Administrative Agent. Amendment No. 1, subject to the conditions set forth therein, among other items: (i) extends the commitment period of the Initial DDTL and Additional DDTL from 30 months to 42 months after the initial closing date of the Credit Agreement, if the Initial Term Loans are repaid in full prior to the expiration of such commitment period (the "DDTL Commitment Period"); (ii) suspends the Company's obligations to comply with certain covenants during the DDTL Commitment Period if no Loans or accrued interest thereon are outstanding; (iii) suspends the Company's obligation to subordinate fees due under the advisory agreement if at any point there is no accrued interest outstanding or any accrued dividends on any of the Company's preferred stock and the Company has sufficient unrestricted cash to repay in full all outstanding Loans; (iv) permits the Lenders to, at any time, elect to receive the exit fee in warrants for the purchase of common stock of the Company equal to 19.9% of all common stock outstanding on the closing date of the senior secured credit facility subject to certain upward or downward adjustments; and (v) provides that in the event prior to the termination of the facility, the Lenders elect to receive the exit fee in warrants and any of such warrants are sold at a price per share of common stock in 46 -------------------------------------------------------------------------------- Table of Contents excess of$40 , all obligations owing to the Lenders shall be reduced by an amount equal to 25% of the amount of such excess consideration, subject to certain adjustments. OnNovember 1, 2021 , we refinanced our$78.6 million mortgage loan, secured by theMarriott Gateway Crystal City inArlington, Virginia . The new mortgage loan totals$86.0 million . The initial funding for the loan was$84.0 million , with the additional$2.0 million available to fund debt service for the first 30 months of the loan, if needed. The new mortgage loan is interest only and provides for an interest rate of LIBOR + 4.65%. The mortgage loan has a three-year term with two one-year extension options, subject to the satisfaction of certain conditions. The mortgage loan is secured by theMarriott Gateway Crystal City . RESULTS OF OPERATIONSKey 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 47 -------------------------------------------------------------------------------- Table of Contents 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 September 30, Favorable/ Nine Months Ended September 30, Favorable/ (Unfavorable) (Unfavorable) 2021 2020 Change 2021 2020 Change Total revenue$ 247,434 $ 93,043 $ 154,391 $ 556,676 $ 417,985 $ 138,691 Total hotel operating expenses (172,342) (83,150) (89,192) (398,321) (351,415)
(46,906)
Property taxes, insurance and other (17,222) (20,876) 3,654 (51,821) (62,048)
10,227
Depreciation and amortization (53,069) (62,909) 9,840 (166,291) (194,275) 27,984 Impairment charges - (29,926) 29,926 - (85,144) 85,144 Advisory services fee (7,395) (12,333) 4,938 (39,110) (37,848) (1,262) Corporate, general and administrative (2,414) (8,004) 5,590 (12,113) (16,204)
4,091
Gain (loss) on disposition of assets and 103 (40,370) 40,473 395 (36,753) 37,148 hotel properties Operating income (loss) (4,905) (164,525) 159,620 (110,585) (365,702) 255,117 Equity in earnings (loss) of (145) (121) (24) (423) (279) (144) unconsolidated entities Interest income 124 12 112 137 664 (527) Other income (expense) 208 (6,179) 6,387 682 (7,806) 8,488 Interest expense and amortization of (43,003) (66,994) 23,991 (112,003) (212,161)
100,158
discounts and loan costs Write-off of premiums, loan costs and exit (1,034) (9,469) 8,435 (5,200) (11,499)
6,299
fees
Gain (loss) on extinguishment of debt 1,292 90,325 (89,033) 11,896 90,325
(78,429)
Unrealized gain (loss) on marketable - (758) 758 - (1,756)
1,756
securities
Unrealized gain (loss) on derivatives 6,029 6,449 (420) 3,712 11,063 (7,351) Income tax (expense) benefit (2,615) (366) (2,249) (2,916) 1,519 (4,435) Net income (loss) (44,049) (151,626) 107,577 (214,700) (495,632) 280,932 (Income) loss attributable to noncontrolling interest in consolidated entities (10) 72 (82) 84 240 (156) Net (income) loss attributable to redeemable noncontrolling interests in operating partnership 367 22,273 (21,906) 3,594 77,294
(73,700)
Net income (loss) attributable to the
$ 85,589 $ (211,022) $ (418,098) $ 207,076 Company 48
-------------------------------------------------------------------------------- Table of Contents All hotel properties owned during the three and nine months endedSeptember 30, 2021 and 2020, respectively, 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 the three and nine months endedSeptember 30, 2021 and 2020. 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 acquisitions and dispositions affect reporting comparability related to our consolidated financial statements: Hotel Property Location Type Date Crowne Plaza Annapolis (1) Annapolis, MD Disposition March 9, 2020 Columbus Hampton Inn Easton (1) Columbus, OH Disposition August 19, 2020 Stillwater Residence Inn (1) Stillwater, OK Disposition August 19, 2020Washington Hampton Inn Pittsburgh Meadow Lands (1) Pittsburgh, PA Disposition August 19, 2020 Phoenix Hampton Inn Airport North (1) Phoenix, AZ Disposition August 19, 2020Pittsburgh Hampton Inn Waterfront West Homestead (1) Pittsburgh, PA Disposition August 19, 2020 Wichita Courtyard by Marriott Old Town (1) Wichita, KS Disposition August 19, 2020 Canonsburg Homewood Suites Pittsburgh Southpointe (1) Pittsburgh, PA Disposition August 19, 2020 Billerica Courtyard by Marriott Boston (1) Boston, MA Disposition August 19, 2020 Embassy Suites New York Manhattan Times Square (1) New York, NY Disposition August 19, 2020 W Minneapolis (1) Minneapolis, MN Disposition September 15, 2020 Courtyard Louisville (1) Louisville, KY Disposition September 21, 2020 Courtyard Ft. Lauderdale (1) Ft. Lauderdale, FL Disposition September 21, 2020 Residence Inn Lake Buena Vista (1) Lake Buena Vista, FL Disposition September 21, 2020 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 "
Three Months Ended September 30, Nine Months Ended September 30,
2021 2020 2021 2020
RevPAR (revenue per available room) $ 97.59 $ 35.72 $ 74.37 $ 49.07
Occupancy 62.80 % 30.81 % 54.06 % 34.78 %
ADR (average daily rate) $ 155.39 $ 115.96 $ 137.56 $ 141.06 The following table illustrates the key performance indicators of the 100
comparable hotel properties and WorldQuest that were included for the full three
and nine months ended
Three Months Ended September 30, Nine Months Ended September 30,
2021 2020 2021 2020
RevPAR (revenue per available room) $ 97.59 $ 36.59 $ 74.57 $ 49.89
Occupancy 62.80 % 31.21 % 54.07 % 34.94 %
ADR (average daily rate) $ 155.39 $ 117.25 $ 137.91 $ 142.79
Comparison of the Three Months Ended September 30, 2021 and 2020
Net Income (Loss) Attributable to the Company. Net loss attributable to the
Company decreased $85.6 million , from $129.3 million for the three months ended
September 30, 2020 (the "2020 quarter") to $43.7 million for the three months
ended September 30, 2021 (the "2021 quarter") as a result of the factors
discussed below.
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Revenue. Rooms revenue from our hotel properties and WorldQuest increased $122.5
million , or 153.9%, to $202.1 million in the 2021 quarter compared to the 2020
quarter. This increase is attributable to higher rooms revenue of $126.3 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 $3.8 million from our Hotel Dispositions . Our comparable hotel properties
experienced an increase of 32.5% in room rates and 3,159 basis points in
occupancy.
Food and beverage revenue increased $24.7 million , or 494.9%, to $29.7 million .
This increase is attributable to higher food and beverage revenue of $24.8
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 $37,000 from our Hotel Dispositions .
Other hotel revenue, which consists mainly of Internet access, parking, and spa
revenue, increased $6.8 million , or 84.2%, to $14.9 million . This increase is
primarily attributable to an increase of $7.3 million at our comparable hotel
properties as our hotel properties recover from the effects of the COVID-19
pandemic partially offset by a decrease of $460,000 from our Hotel Dispositions .
Other non-hotel revenue increased $294,000 , or 88.3%, to $627,000 in the 2021
quarter as compared to the 2020 quarter.
Hotel Operating Expenses . Hotel operating expenses increased $89.2 million , or
107.3%, to $172.3 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 $48.2 million in the 2021 quarter as compared to the 2020 quarter, as
our hotel properties recover from the effects of the COVID-19 pandemic, which
was comprised of an increase of $49.2 million from our comparable hotel
properties and WorldQuest partially offset by a decrease of $1.0 million from
our Hotel Dispositions . Direct expenses were 30.1% of total hotel revenue for
the 2021 quarter and 28.1% for the 2020 quarter. Indirect expenses and
management fees increased $41.0 million in the 2021 quarter as compared to the
2020 quarter, which was comprised of an increase of $43.6 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 2.7
million from our Hotel Dispositions .
Property Taxes, Insurance and Other. Property taxes, insurance and other expense
decreased $3.7 million , or 17.5%, to $17.2 million during the 2021 quarter
compared to the 2020 quarter, which was due to a decrease of $1.9 million from
our Hotel Dispositions and $1.8 million at our comparable hotel properties and
WorldQuest.
Depreciation and Amortization. Depreciation and amortization decreased $9.8
million , or 15.6%, to $53.1 million during the 2021 quarter compared to the 2020
quarter, which was primarily due to a decrease of $3.3 million from our Hotel
Dispositions and $6.5 million from our comparable hotel properties and
WorldQuest.
Impairment Charges. In the 2021 quarter, the Company did not record an
impairment charge.
In the 2020 quarter, we recorded an impairment charge of $29.9 million . The
impairment charge of $29.9 million was related to the disposition of the W
Minneapolis . In conjunction with this disposition, we engaged a third party
valuation expert to assist in determining the fair value of the hotel property.
The impairment charge resulted from the difference between the estimated fair
value of the property and the net book value and was based on methodologies that
included the discounted cash flow method of the income approach with support
based on the market approach, which are considered Level 3 valuation techniques.
Advisory Services Fee. Advisory services fee decreased $4.9 million , or 40.0%,
to $7.4 million in the 2021 quarter compared to the 2020 quarter. The advisory
services fee represents fees incurred in connection with the advisory agreement
between Ashford Inc. and the Company. In the 2021 quarter, the advisory services
fee was comprised of a base advisory fee of $9.5 million , equity-based
compensation of $2.0 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 $6.5
million . In the 2020 quarter, the advisory services fee was comprised of a base
advisory fee of $8.7 million , equity-based compensation of $2.1 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 .
Corporate, General and Administrative. Corporate, general and administrative
expense decreased $5.6 million , or 69.8%, to $2.4 million during the 2021
quarter compared to the 2020 quarter. The decrease was primarily attributable to
lower legal and professional fees of $4.3 million , lower reimbursed operating
expenses of Ashford Securities paid by Ashford Trust of $685,000 , lower
investment management expenses of $234,000 , lower stock-based compensation of
$302,000 and lower other miscellaneous expenses of $295,000 , partially offset by
higher public company costs of $200,000 .
Gain (Loss) on Disposition of Assets and Hotel Properties. Gain (Loss) on
disposition of assets and hotel properties changed $40.5 million from a loss of
$40.4 million in the 2020 quarter to a gain of $103,000 in the 2021 quarter. The
loss in the
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2020 quarter of $40.4 million was related to the disposition of the Embassy
Suites New York Manhattan Times Square . The gain in the 2021 quarter was
primarily related to the sale of two 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 $145,000 in the 2021 quarter and $121,000 in the 2020 quarter.
Interest Income. Interest income was $124,000 and $12,000 for the 2021 quarter
and the 2020 quarter, respectively.
Other Income (Expense). Other income (expense) changed $6.4 million from other
expense of $6.2 million in the 2020 quarter, to other income of $208,000 in the
2021 quarter. In the 2021 quarter, we recorded miscellaneous income of $209,000 .
In the 2020 quarter, we recorded other expense of $271,000 related to CMBX
premiums and interest paid on collateral and a realized loss of $6.3 million on
interest rate floors. These expenses were partially offset by other income of
$337,000 and a realized gain on marketable securities of $34,000 .
Interest expense and amortization of discounts and loan costs. Interest expense
and amortization of discounts and loan costs decreased $24.0 million , or 35.8%,
to $43.0 million during the 2021 quarter compared to the 2020 quarter. The
decrease is primarily due to a decrease of $3.6 million from our Hotel
Dispositions , lower default interest and late charges on mortgage loans
previously in default of $26.8 million , a credit to interest expense in the 2021
quarter of $4.3 million related to the amortization credit of default interest
and late charges recorded on mortgage loans previously in default and a decrease
of $513,000 at our comparable hotel properties primarily due to lower LIBOR
rates. The average LIBOR rates in the 2021 quarter and the 2020 quarter were
0.09% and 0.16%, respectively. These decreases were partially offset by an
increase of $11.2 million attributable to the Oaktree term loan.
Write-off of Premiums, Loan Costs and Exit Fees. Write-off of premiums, loan
costs and exit fees decreased $8.4 million to $1.0 million in the 2021 quarter
compared to the 2020 quarter. In the 2021 quarter, we recognized Lismore fees of
$643,000 that reflects the amortization over the service period of the Lismore
Agreement. Additionally, we wrote off unamortized loan costs in the amount of
$332,000 and recognized a prepayment penalty of $63,000 related to the Hilton
Boston Back Bay loan refinance. In the 2020 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 $295,000 and Lismore fees incurred were $9.2 million , totaling
$9.5 million .
Gain (loss) on extinguishment of debt. Gain on extinguishment of debt was $1.3
million in the 2021 quarter, which primarily related to the write off of
capitalized default interest that was being amortized as a credit to interest
expense related to the refinance of the Hilton Boston Back Bay loan. In the 2020
quarter, we recorded a gain on extinguishment of debt of $90.3 million . The gain
was comprised of (i) $65.2 million on our $144.2 million mortgage loan secured
by the Columbus Hampton Inn Easton , Canonsburg Homewood Suites Pittsburgh
Southpointe, Billerica Courtyard, Wichita Courtyard, Washington Hampton Inn
Pittsburgh Meadow Lands , Pittsburgh Hampton Inn Waterfront West Homestead ,
Stillwater Residence Inn , and the Phoenix Hampton Inn Airport North ; (ii) $4.3
million on our $145.0 million mortgage loan secured by the Embassy Suites New
York Manhattan Times Square ; (iii) $1.1 million on our $51.6 million mortgage
loan secured by the W Minneapolis ; and (iv) $19.7 million on our $64.0 million
mortgage loan secured by the Courtyard Louisville, Courtyard Ft. Lauderdale and
the Residence Inn Lake Buena Vista .
Unrealized Gain (Loss) on Marketable Securities . Unrealized gain (loss) on
marketable securities was $0 and $758,000 in the 2021 quarter and the 2020
quarter, respectively, which was based on changes in closing market prices
during the quarter. All marketable securities were sold in 2020.
Unrealized Gain (Loss) on Derivatives. Unrealized gain on derivatives decreased
$420,000 from $6.4 million in the 2020 quarter to $6.0 million in the 2021
quarter. In the 2021 quarter, we recognized an unrealized gain of $6.1 million
from the revaluation of the embedded debt derivative, partially offset by an
unrealized loss of $72,000 on interest rate floors and an unrealized loss of
$25,000 associated with interest rate caps. In the 2020 quarter, we recognized
an unrealized gain of $6.3 million on interest rate floors, which is associated
with the recognition of realized losses from the expiration of interest rate
floors and a gain of $323,000 from CMBX tranches, partially offset by an
unrealized loss of $59,000 associated with interest rate caps and a $95,000 loss
on interest rate floors.
Income Tax (Expense) Benefit. Income tax (expense) benefit increased $2.2
million , from $366,000 in the 2020 quarter to $2.6 million in the 2021 quarter.
This change was primarily due to an increase in the profitability of our TRS
entities in the 2021 quarter compared to the 2020 quarter.
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(Income) Loss Attributable to Noncontrolling Interest in Consolidated Entities.
Our noncontrolling interest partner in consolidated entities was allocated
income of $10,000 and a loss of $72,000 in the 2021 quarter and the 2020
quarter, respectively.
Net (Income) Loss Attributable to Redeemable Noncontrolling Interests in
Operating Partnership . Noncontrolling interests in operating partnership were
allocated net losses of $367,000 in the 2021 quarter and $22.3 million in the
2020 quarter. Redeemable noncontrolling interests represented ownership
interests of 0.77% and 13.73% in the operating partnership at September 30, 2021
and 2020, respectively.
Comparison of the Nine Months Ended September 30, 2021 and 2020
Net Income (Loss) Attributable to the Company. Net loss attributable to the
Company decreased $207.1 million from $418.1 million for the nine months ended
September 30, 2020 (the "2020 period") to $211.0 million for the nine months
ended September 30, 2021 ( the "2021 period") as a result of the factors
discussed below.
Revenue. Rooms revenue from our hotel properties and WorldQuest increased $126.4
million , or 38.0%, to $459.3 million in the 2021 period compared to the 2020
period. This increase is attributable to higher rooms revenue of $150.4 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 $24.0 million from our Hotel Dispositions . Our comparable hotel
properties experienced a decrease of 3.4% in room rates and an increase of 1,913
basis points in occupancy.
Food and beverage revenue increased $3.3 million , or 6.2%, to $57.5 million in
the 2021 period compared to the 2020 period. This increase is attributable
to higher food and beverage revenue of $4.4 million at our comparable hotel
properties and WorldQuest as a result of the COVID-19 pandemic, partially offset
by a decrease of $1.1 million from our Hotel Dispositions .
Other hotel revenue, which consists mainly of Internet access, parking, and spa
revenue, increased $8.7 million , or 29.5%, to $38.4 million in the 2021 period
compared to the 2020 period. This increase is attributable to higher other
revenue of $10.7 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 $2.0 million from our Hotel Dispositions .
Hotel Operating Expenses . Hotel operating expenses increased $46.9 million ,
or 13.3%, to $398.3 million in the 2021 period compared to the 2020 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 $25.6 million in the 2021 period
compared to the 2020 period, comprised of an increase of $33.0 million from our
comparable hotel properties and WorldQuest as a result of the COVID-19 pandemic
and partially offset by $7.4 million from our Hotel Dispositions . Direct
expenses were 28.8% of total hotel revenue for the 2021 period and 32.2% for the
2020 period. Indirect expenses and management fees increased $21.3 million in
the 2021 period compared to the 2020 period, comprised of an increase of $37.0
million from our comparable hotel properties and WorldQuest as a result of the
COVID-19 pandemic and partially offset by $15.7 million from our Hotel
Dispositions .
Property Taxes, Insurance and Other. Property taxes, insurance and other expense
decreased $10.2 million or 16.5%, to $51.8 million in the 2021 period compared
to the 2020 period, which was primarily due to a decrease of $6.8 million from
our Hotel Dispositions and $3.4 million at our comparable hotel properties.
Depreciation and Amortization. Depreciation and amortization decreased $28.0
million or 14.4%, to $166.3 million in the 2021 period compared to the 2020
period, which consisted of lower deprecation of $13.3 million as a result of our
Hotel Dispositions and lower depreciation of $14.7 million at our comparable
hotel properties and WorldQuest.
Impairment Charges. Impairment charges were $0 and $85.1 million in the 2021
period and the 2020 period, respectively.
In the first quarter of 2020 we recorded an impairment charge of $27.6 million
that was comprised of $13.9 million at the Columbus Hampton Inn Easton , $10.0
million at the Canonsburg Homewood Suites Pittsburgh Southpointe and $3.7
million at the Phoenix Hampton Inn Airport North as a result of reduced
estimated cash flows resulting from the COVID-19 pandemic and changes to the
expected holding periods of these hotel properties.
In the second quarter we recorded an impairment charge of $27.6 million . On July
9, 2020 , the non-recourse mortgage loan secured by eight hotel properties
matured. The lender provided notice of UCC sale, which provided that the
respective lender would sell the subsidiaries of the Company that own the
respective hotels in a public auction. As a result, as of June 30, 2020 , the
estimated fair value of each hotel property was compared to its carrying value.
The impairment charge was comprised of $1.7 million at the Columbus Hampton Inn
Easton , $1.8 million at the Canonsburg Homewood Suites Pittsburgh Southpointe,
$9.5 million at the Billerica Courtyard, $6.1 million at the Wichita Courtyard,
$3.0 million at the Washington Hampton Inn
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Pittsburgh Meadow Lands, $3.0 million at the Pittsburgh Hampton Inn Waterfront
West Homestead and $2.4 million at the Stillwater Residence Inn .
In the third quarter of 2020 we recorded an impairment charge of $29.9 million .
In conjunction with the disposition of the W Minneapolis , we engaged a
third-party valuation expert to assist in determining the fair value of the
hotel property. The impairment charge was $29.9 million , the difference between
the estimated fair value of the property and the net book value.
Advisory Services Fee. Advisory services fee increased $1.3 million , or 3.3%, to
$39.1 million in the 2021 period compared to the 2020 period. The advisory
services fee represents fees incurred in connection with the advisory agreement
between Ashford Inc. and the Company. In the 2021 period, the advisory services
fee was comprised of a base advisory fee of $27.2 million , equity-based
compensation of $5.2 million associated with equity grants of our common stock
and LTIP units awarded to the officers and employees of Ashford Inc.,
reimbursable expenses of $6.7 million . In the 2020 period, the advisory services
fee was comprised of a base advisory fee of $26.1 million , equity-based
compensation of $6.8 million associated with equity grants of our common stock
and LTIP units awarded to the officers and employees of Ashford Inc., which is
inclusive of a $1.9 million credit related to PSU forfeitures, and reimbursable
expenses of $5.0 million .
Corporate, General and Administrative. Corporate, general and administrative
expense decreased $4.1 million , or 25.2%, to $12.1 million in the 2021 period
compared to the 2020 period. The decrease was primarily attributable to lower
legal and professional fees of $664,000 , lower reimbursed operating expenses of
Ashford Securities paid by Ashford Trust of $1.7 million , lower investment
management expenses of $935,000 , lower stock-based compensation of $406,000 ,
lower miscellaneous expenses of $588,000 , partially offset by higher public
company costs of $184,000 .
Gain (Loss) on Disposition of Assets and Hotel Properties. Gain (loss) on
disposition of assets and hotel properties changed $37.1 million , from a loss of
$36.8 million in the 2020 period to a gain of $395,000 in the 2021 period. The
loss in the 2020 period was comprised of a $40.4 million loss related to the
sale of the Embassy Suites New York Manhattan Times Square , partially offset by
a gain of $3.6 million related to the sale of the Annapolis Crowne Plaza . The
gain in the 2021 period was primarily related to a franchise fee reimbursement
of $327,000 related to the disposition of the Embassy Suites New York Manhattan
Times Square and a gain related to the sale of two 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 $423,000 in the 2021 period compared to $279,000 in the 2020
period.
Interest Income. Interest income was $137,000 and $664,000 in the 2021 period
and the 2020 period, respectively.
Other Income (Expense). Other income (expense) changed $8.5 million from expense
of $7.8 million in the 2020 period to income of $682,000 in the 2021 period. In
the 2021 period, we recorded miscellaneous income of $683,000 . In the 2020
period, we recorded expense of $811,000 from CMBX premiums and interest paid on
collateral and a realized loss of $9.5 million on interest rate floors. These
expenses were partially offset by a realized gain of $2.1 million on sale of
marketable securities, other income of $336,000 and dividend income of $31,000 .
Interest Expense and Amortization of Discounts and Loan Costs. Interest expense
and amortization of discounts and loan costs decreased $100.2 million , or 47.2%,
to $112.0 million in the 2021 period compared to the 2020 period. The decrease
is primarily due to a decrease of $15.1 million from our Hotel Dispositions , a
decrease of $16.3 million at our comparable hotel properties primarily due to
lower LIBOR rates, lower default interest and late charges on mortgage loans
previously in default of $66.8 million and a credit to interest expense in the
2021 period of $31.9 million related to the amortization credit of default
interest and late charges recorded on mortgage loans previously in default.
These decreases were partially offset by an increase of $29.9 million
attributable to the Oaktree term loan. The average LIBOR rates in the 2021
period and the 2020 period were 0.10% and 0.64%, respectively.
Write-off of Premiums, Loan Costs and Exit Fees. Write-off of premiums, loan
costs and exit fees decreased $6.3 million to $5.2 million in the 2021 period
compared to the 2020 period. In the 2021 period, we recognized Lismore fees of
$5.0 million that reflects the amortization over the service period of the
Lismore Agreement, which were partially offset by a net credit of $177,000
related to third-party fees, totaling $4.8 million . Additionally, we wrote off
unamortized loan costs in the amount of $332,000 and prepayment penalty of
$63,000 related to the Hilton Boston Back Bay loan refinance. In the 2020
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.
Third-party fees incurred in conjunction with these amendments were $678,000 and
fees paid to Lismore were $10.7 million , totaling $11.4 million . We also
wrote-off unamortized loan costs of $47,000 and incurred other costs of $48,000
as a result of a loan refinance.
Gain (loss) on extinguishment of debt. Gain on extinguishment of debt was $11.9
million in the 2021 period, which primarily related to the foreclosure of the
SpringHill Suites Durham and SpringHill Suites Charlotte in the amount of
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$10.6 million and a gain of $1.4 million related to the write off of capitalized
default interest that was being amortized as a credit to interest expense
related to the refinance of the Hilton Boston Back Bay loan.
In the 2020 period, we recorded a gain on extinguishment of debt of $90.3
million . The gain was comprised of (i) $65.2 million on our $144.2 million
mortgage loan secured by the Columbus Hampton Inn Easton , Canonsburg Homewood
Suites Pittsburgh Southpointe, Billerica Courtyard, Wichita Courtyard,
Washington Hampton Inn Pittsburgh Meadow Lands , Pittsburgh Hampton Inn
Waterfront West Homestead , Stillwater Residence Inn , and the Phoenix Hampton Inn
Airport North ; (ii) $4.3 million on our $145.0 million mortgage loan secured by
the Embassy Suites New York Manhattan Times Square ; (iii) $1.1 million on our
$51.6 million mortgage loan secured by the W Minneapolis ; and (iv) $19.7 million
on our $64.0 million mortgage loan secured by the Courtyard Louisville,
Courtyard Ft. Lauderdale and the Residence Inn Lake Buena Vista .
Unrealized Gain (Loss) on Marketable Securities . Unrealized gain (loss) on
marketable securities was $0 and $(1.8) million in the 2021 period and the 2020
period, respectively, which was based on changes in closing market prices during
the period. All marketable securities were sold in 2020.
Unrealized Gain (Loss) on Derivatives. Unrealized gain on derivatives decreased
$7.4 million from $11.1 million in the 2020 period to $3.7 million in the 2021
period. In the 2021 period, we recorded unrealized gain of $4.7 million from the
revaluation of the embedded debt derivative, partially offset by unrealized
losses of $462,000 from interest rate floors and $554,000 from interest rate
caps. In the 2020 period, we recognized unrealized gains of $1.0 million related
to CMBX tranches, $10.2 million from interest rate floors of which $9.5 million
is associated with the recognition of realized losses from the expiration of
interest rate floors, partially offset by an unrealized loss of $129,000
associated with interest rate caps.
Income Tax (Expense) Benefit. Income tax (expense) benefit changed $4.4
million , from an income tax benefit of $1.5 million in the 2020 period to income
tax expense of $2.9 million in the 2021 period. This change was primarily due to
an increase in the profitability of our TRS entities in the 2021 period compared
to the 2020 period.
(Income) Loss from Consolidated Entities Attributable to Noncontrolling
Interests. Our noncontrolling interest partner in consolidated entities were
allocated losses of $84,000 and $240,000 in the 2021 period and the 2020 period,
respectively.
Net (Income) Loss Attributable to Redeemable Noncontrolling Interests in
Operating Partnership . Noncontrolling interests in operating partnership were
allocated net losses of $3.6 million and $77.3 million in the 2021 period and
the 2020 period, respectively. Redeemable noncontrolling interests represented
ownership interests of 0.77% and 13.73% in the operating partnership at
September 30, 2021 and 2020, respectively.
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LIQUIDITY AND CAPITAL RESOURCES
COVID-19, Management's Plans and Liquidity
In December 2019 , COVID-19 was identified in Wuhan, China , subsequently spread
to other regions of the world, and has resulted in significant travel
restrictions and extended shutdown of numerous businesses throughout the United
States . In March 2020 , the World Health Organization declared COVID-19 to be a
global pandemic. Since late February 2020 , we have experienced a significant
decline in occupancy and RevPAR and we expect the significant occupancy and
RevPAR declines associated with COVID-19 to continue as we experienced
significant reservation cancellations as well as a significant reduction in new
reservations. The prolonged presence of the virus has resulted in health and
other government authorities imposing widespread restrictions on travel and
other businesses.
The Company continues to have discussions with two of its lenders about
potential loan modifications on its property level debt. As of November 4, 2021 ,
forbearance agreements have been executed on most, but not all of our loans. In
the aggregate, we have entered into forbearance and other agreements with
varying terms and conditions that conditionally waive or defer payment defaults
for loans with a total outstanding principal balance of approximately
$3.6 billion out of approximately $3.7 billion in property level debt
outstanding as of September 30, 2021 . See note 7 to our consolidated financial
statements.
On January 15, 2021 , the Company entered into a senior secured term loan
facility comprised of (a) initial term loans in an aggregate principal amount of
$200 million , (b) initial delayed draw term loans in an aggregate principal
amount of up to $150 million and (c) additional delayed draw term loans in an
aggregate principal amount of up to $100 million . See note 7 to our consolidated
financial statements.
As of September 30, 2021 , the Company held cash and cash equivalents of $673.0
million and restricted cash of $85.0 million . The vast majority of the
restricted cash comprises lender and manager held reserves. At September 30,
2021 , there was also $24.1 million due to the Company from third-party hotel
managers, which is primarily the Company's cash held by one of its property
managers which is also available to fund hotel operating costs. During 2020, the
Company worked with its property managers and lenders in order to utilize lender
and manager held reserves to fund operating shortfalls. In December 2020 , the
board of directors approved our dividend policy for 2021, which continued the
suspension of the Company's dividend into 2021 in light of the ongoing
uncertainty from the COVID-19 pandemic and to protect liquidity. We are also
taking several steps to reduce our cash utilization and potentially raise
additional capital. The Company is also working more generally to contain costs
while it experiences a significant decline in occupancy and RevPAR. The Company
continues to suspend its quarterly cash dividend on its common and preferred
stock and to look for opportunities to renegotiate cash obligations where
possible. The Company continues to work closely with its hotel managers to
significantly reduce its hotel operating expenses. The Company is dependent on
its hotel managers to make appropriate staffing decisions and to appropriately
reduce staffing when market conditions are poor.
We cannot predict when hotel operating levels will return to normalized levels
after the effects of the pandemic subside, whether our hotels will be forced to
shut down operations or whether one or more possible recurrences of COVID-19
case surges could result in further reductions in business and personal travel
or potentially cause state and local governments to reinstate travel
restrictions. As a result of these factors arising from the impact of the
pandemic, we are unable to estimate future financial performance with certainty.
However, based on our completed senior secured term loan facility with Oaktree
and forbearance and other agreements with our property-level lenders, our
current unrestricted and restricted cash on hand, our current cash utilization
and forecast of future operating results for the next 12 months from the date of
this report, and the actions we have taken to improve our liquidity, the Company
has concluded that the facts and circumstances that previously gave rise to
substantial doubt about the Company's ability to continue as a going concern
within one year after the date that the financial statements are issued have
been resolved. Facts and circumstances could change in the future that are
outside of management's control, such as additional government mandates, health
official orders, travel restrictions and extended business shutdowns due to
COVID-19.
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.
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The spread of COVID-19 and the recent developments surrounding the global
pandemic are having significant negative impacts on our business. In response to
the impact of COVID-19 on the hospitality industry, the Company is deploying
numerous strategies and protocols to provide financial flexibility going forward
to navigate this crisis, including:
•the Company has reduced its planned spending for capital expenditures for
fiscal year 2021;
•the Company has suspended its common stock dividends;
•the Company has suspended its preferred stock dividends; and
•the Company has taken proactive and aggressive actions to protect liquidity and
reduce corporate expenses through the curtailment of all non-essential expenses
and will continue to take all necessary additional actions to preserve capital
and liquidity.
Pursuant to the advisory agreement between us and our advisor, we must pay our
advisor on a monthly basis a base management fee, subject to a minimum base
management fee. The minimum base management fee is equal to the greater of: (i)
90% of the base fee paid for the same month in the prior fiscal year; and (ii)
1/12th of the "G&A Ratio" for the most recently completed fiscal quarter
multiplied by our total market capitalization on the last balance sheet date
included in the most recent quarterly report on Form 10-Q or annual report on
Form 10-K that we file with the SEC . Thus, even if our total market
capitalization and performance decline, we will still be required to make
payments to our advisor equal to the minimum base management fee, which could
adversely impact our liquidity and financial condition.
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 get
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 September 30, 2021 ,
approximately $360,000 of our cash and cash equivalents were subject to these
cash traps. 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.
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 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.
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
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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, 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 January 15, 2021 , the Company entered into the Oaktree Credit Agreement (as
amended) with certain funds and accounts managed by Oaktree Capital Management,
L.P. (the "Lenders" or "Oaktree") and Oaktree Fund Administration, LLC , as
administrative agent (the "Administrative Agent"). The Oaktree Credit Agreement
provides that, subject to the conditions set forth therein, the Lenders will
make available to the borrower a senior secured term loan facility comprised of
(a) initial term loans (the "Initial Term Loan") in an aggregate principal
amount of $200 million , (b) initial delayed draw term loans in an aggregate
principal amount of up to $150 million (the "Initial DDTL") and (c) additional
delayed draw term loans in an aggregate principal amount of up to $100 million
(the "Additional DDTL," and together with the Initial Term Loan and the Initial
DDTL, collectively, the "Loans"), in each case to fund general corporate
operations of the Company and its subsidiaries.
The Loans under the Oaktree Credit Agreement will bear interest (a) with respect
to the Initial Term Loan and the Initial DDTL, at an annual rate equal to 16%
for the first two years, reducing to 14% thereafter and (b) with respect to the
Additional DDTL, at an annual rate equal to 18.5% for the first two years,
reducing to 16.5% thereafter. Interest payments on the Loans will be due and
payable in arrears on the last business day of March, June, September and
December of each calendar year and the maturity date. For the first two years
following the closing of the Oaktree Credit Agreement, the Borrower will have
the option to pay accrued interest "in kind" by adding such amount of accrued
interest to the outstanding principal balance of the Loans (such interest, "PIK
Interest"). The initial maturity date of the Oaktree Credit Agreement (the
"Maturity Date") shall be three years, with two optional one-year extensions
subject to satisfaction of certain terms and conditions. The Lenders shall,
subject to certain terms, have the ability to make protective advances to the
Borrower pursuant to the terms of the Oaktree Credit Agreement to cure defaults
with respect to mortgage and mezzanine-level indebtedness of subsidiaries of the
Borrower having principal balances in excess of $400 million .
On February 9, 2021 , the Company executed an agreement regarding existing
defaults and extension options for the MS 17 Pool loan pursuant to which (a) the
Company paid to the lender all current and past due debt service and tax reserve
contributions, and (b) the lender suspended all FF&E reserve contributions (for
the furniture, fixtures and equipment reserve accounts generally reserved to
finance capital improvements to the property) through December 2021 .
Additionally, the modification agreement lowers the debt yield extension test
for the fifth extension option from 10.38% to 8.0%. Finally, the forbearance
agreement provides that the second extension option is deemed exercised as of
November 9, 2020 .
In February 2021 the Company was informed by its lender that it had initiated
foreclosure proceedings for the foreclosure of the SpringHill Suites Durham and
SpringHill Suites Charlotte, which secured the Company's $19.4 million mortgage
loan. The foreclosure proceedings were completed on April 29, 2021 .
On August 25, 2021 , we refinanced our $97.0 million mortgage loan, secured by
the Hilton Boston Back Bay in Boston, Massachusetts . The new mortgage loan
totals $98.0 million and provides for an interest rate of LIBOR + 3.80%. The
mortgage loan has a four-year term with a one-year extension option, subject to
the satisfaction of certain conditions. The mortgage loan is secured by the
Hilton Boston Back Bay .
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On October 12, 2021 , the Company entered into Amendment No. 1. to the Oaktree
Credit Agreement with the Lenders and the Administrative Agent. Amendment No. 1,
subject to the conditions set forth therein, among other items: (i) extends the
commitment period of the Initial DDTL and Additional DDTL from 30 months to 42
months after the initial closing date of the Credit Agreement, if the Initial
Term Loans are repaid in full prior to the expiration of such commitment period
(the "DDTL Commitment Period"); (ii) suspends the Company's obligations to
comply with certain covenants during the DDTL Commitment Period if no Loans or
accrued interest thereon are outstanding; (iii) suspends the Company's
obligation to subordinate fees due under the advisory agreement if at any point
there is no accrued interest outstanding or any accrued dividends on any of the
Company's preferred stock and the Company has sufficient unrestricted cash to
repay in full all outstanding Loans; (iv) permits the Lenders to, at any time,
elect to receive the exit fee in warrants for the purchase of common stock of
the Company equal to 19.9% of all common stock outstanding on the closing date
of the senior secured credit facility subject to certain upward or downward
adjustments; and (v) provides that in the event prior to the termination of the
facility, the Lenders elect to receive the exit fee in warrants and any of such
warrants are sold at a price per share of common stock in excess of $40 , all
obligations owing to the Lenders shall be reduced by an amount equal to 25% of
the amount of such excess consideration, subject to certain adjustments.
On November 1, 2021 , we refinanced our $78.6 million mortgage loan, secured by
the Marriott Gateway Crystal City in Arlington, Virginia . The new mortgage loan
totals $86.0 million . The initial funding for the loan was $84.0 million , with
the additional $2.0 million available to fund debt service for the first 30
months of the loan, if needed. The new mortgage loan is interest only and
provides for an interest rate of LIBOR + 4.65%. The mortgage loan has a
three-year term with two one-year extension options, subject to the satisfaction
of certain conditions. The mortgage loan is secured by the Marriott Gateway
Crystal City .
Equity Transactions
On December 5, 2017 , the board of directors reapproved 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, par value $0.01 per share having an aggregate value of up to $200
million . The board of directors' authorization replaced any previous repurchase
authorizations. No shares were repurchased during the three and nine months
ended September 30, 2021 pursuant to the Repurchase Program.
From January 1, 2021 through November 4, 2021 , the Company entered into
privately negotiated exchange agreements with certain holders of its 8.45%
Series D Cumulative Preferred Stock, par value $0.01 per share, 7.375% Series F
Cumulative Preferred Stock, par value $0.01 per share, 7.375% Series G
Cumulative Preferred Stock, par value $0.01 per share, 7.50% Series H Cumulative
Preferred Stock, par value $0.01 per share and 7.50% Series I Cumulative
Preferred Stock, par value $0.01 per share in reliance on Section 3(a)(9) of the
Securities Act of 1933, as amended (the "Securities Act"). Prior to the reverse
stock split, during the period from January 1, 2021 through July 15, 2021 , the
Company exchanged a total of 59.7 million shares of its common stock for an
aggregate of 7.7 million shares of preferred stock. After the reverse stock
split the shares of common stock were adjusted to approximately 6.0 million.
During the period from July 16, 2021 through November 4, 2021 , the Company
exchanged a total of approximately 1.8 million shares of its common stock for an
aggregate of approximately 958,000 shares of preferred stock.
On December 7, 2020 , the Company and Lincoln Park Capital Fund, LLC ("Lincoln
Park"), entered into a purchase agreement. Upon entering into the First Lincoln
Park Purchase Agreement, the Company issued 19,084 shares of common stock as
consideration for Lincoln Park's execution and delivery of the First Lincoln
Park Purchase Agreement. Under the First Lincoln Park Purchase Agreement the
Company issued approximately 1.0 million of common stock for gross proceeds of
approximately $25.1 million .
On January 22, 2021 , the Company entered into the SEDA with YA, pursuant to
which the Company will be able to sell the Commitment Amount at the Company's
request any time during the commitment period. The Company has issued
approximately 1.4 million shares of common stock for gross proceeds of
approximately $40.6 million under the SEDA. As of September 30, 2021 , all shares
available under the SEDA were sold.
On March 12, 2021 , the Company and Lincoln Park entered into a Second Lincoln
Park Purchase Agreement (the "Second Lincoln Park Purchase Agreement"), which
provided that subject to the terms and conditions set forth therein, the Company
may issue or sell to Lincoln Park up to approximately 2.1 million shares of the
Company's common stock, from time to time during the term of the Second Lincoln
Park Purchase Agreement. Upon entering into the Second Lincoln Park Purchase
Agreement, the Company issued 16,266 shares of common stock as consideration for
Lincoln Park's execution and delivery of the Purchase Agreement. The Company has
issued approximately 2.0 million shares of common stock for gross proceeds of
approximately $43.4 million under the Second Lincoln Park Purchase Agreement. As
of September 30 , 20211, all shares available under the Second Lincoln Park
Purchase Agreement were sold.
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On May 17, 2021 , the Company and Keystone, entered into the Keystone Purchase
Agreement, which provides that subject to the terms and conditions set forth
therein, the Company may sell to Keystone up to approximately 3.1 million shares
of the Company's common stock, from time to time during the term of the Keystone
Purchase Agreement. Upon entering into the Keystone Purchase Agreement, the
Company issued 40,323 shares of common stock as consideration for Keystone's
execution and delivery of the Keystone Purchase Agreement. The Company issued
approximately 3.1 million shares of common stock for gross proceeds of
approximately $148.0 million . As of September 30, 2021 , all shares available
under the Keystone Purchase Agreement were sold.
On June 7, 2021 , the Company entered into the Second YA SEDA with YA, pursuant
to which the Company will be able to sell up to approximately 3.8 million shares
of its common stock from time to time during the term of the Second YA SEDA . As
of November 4, 2021 , the Company has issued approximately 3.8 million shares of
common stock for gross proceeds of approximately $165.4 million under the Second
YA SEDA .
On June 18, 2021 , the Company and Seven Knots, entered into the Seven Knots
Purchase Agreement, which provides that subject to the terms and conditions set
forth therein, the Company may sell to Seven Knots up to approximately 4.0
million shares of common stock of the Company, from time to time during the term
of the Seven Knots Purchase Agreement. As of November 4, 2021 , the Company has
issued approximately 4.0 million shares of common stock for gross proceeds of
approximately $81.3 million under the Seven Knots Purchase Agreement.
On July 2, 2021 , the Company and B. Riley , entered into the B. Riley Purchase
Agreement, which provides that subject to the terms and conditions set forth
therein, the Company may sell to B. Riley up to approximately 4.6 million shares
of common stock, from time to time during the term of the B. Riley Purchase
Agreement. As of November 4, 2021 , approximately 4.6 million shares of common
stock for gross proceeds of approximately $68.0 million under the B. Riley
Purchase Agreement.
On September 9, 2021 the Company and M3A, entered into 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.
As of November 4, 2021 , the Company has issued approximately 300,000 shares of
common stock for gross proceeds of approximately $4.3 million under the M3A
Purchase 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
$(113.5) million and $(98.9) million for the nine months ended September 30,
2021 and 2020, respectively. Cash flows provided by/used in operations were
impacted by the COVID-19 pandemic, changes in hotel operations, our hotel
dispositions in 2020 and 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 nine months
ended September 30, 2021 , net cash flows used in investing activities were $9.7
million . Cash outflows consisted of $19.0 million for capital improvements made
to various hotel properties, partially offset by cash inflows of $7.5 million
from proceeds received primarily from the sale of the Le Meridien Minneapolis
and $2.0 million of proceeds from property insurance.
For the nine months ended September 30, 2020 , net cash flows used in investing
activities were $3.9 million . Cash outflows primarily consisted of $41.6 million
for capital improvements made to various hotel properties. Cash outflows were
partially offset by $38.8 million from proceeds received from the sale of the
Crowne Plaza Annapolis and Embassy Suites New York Manhattan Times Square .
Net Cash Flows Provided by (Used in) Financing Activities. For the nine months
ended September 30, 2021 , net cash flows provided by financing activities were
$713.9 million . Cash inflows consisted of $293.5 million from borrowings on
indebtedness, net of commitment fee and $548.4 million of net proceeds from
issuances of common stock, partially offset by cash outflows of $106.7 million
for repayments of indebtedness, $20.5 million for payments of loan costs and
exit fees and 824,000 of payments for derivatives.
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For the nine months ended September 30, 2020 , net cash flows used in financing
activities were $85.0 million . Cash outflows primarily consisting of $131.8
million for repayments of indebtedness, $28.6 million for dividend payments to
common and preferred stockholders and unitholders and $23.4 million for payments
of loan costs and exit fees, partially offset by cash inflows of $88.0 million
from borrowings on indebtedness and $11.3 million of proceeds from sales of
common stock.
Dividend Policy. In December 2020 , the board of directors approved our dividend
policy for 2021, which continued the suspension of the Company's dividend into
2021 in light of the ongoing uncertainty from the COVID-19 pandemic and to
protect liquidity. The board of directors will continue to review our dividend
policy and make future announcements with respect thereto.
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.
OFF-BALANCE SHEET ARRANGEMENTS
In the normal course of business, we form partnerships or joint ventures that
operate certain hotels. We evaluate each partnership and joint venture to
determine whether the entity is a VIE. If the entity is determined to be a VIE,
we assess whether we are the primary beneficiary and need to consolidate the
entity. For further discussion of the Company's VIEs, see note 2 to our
consolidated financial statements.
CONTRACTUAL OBLIGATIONS
There have been no material changes, outside of the ordinary course of business,
as of September 30, 2021 , to contractual obligations specified in the table of
contractual obligations included in the section "Management's Discussion and
Analysis of Financial Condition and Results of Operations" included in our 2020
Form 10-K, other than in February 2021 , the Company was informed by its lender
that it had initiated foreclosure proceedings for the foreclosure of the
SpringHill Suites Durham and SpringHill Suites Charlotte, which secured the
Company's $19.4 million mortgage loan. The foreclosure process was completed on
April 29, 2021 . Also, the Company remains in default on its $50.1 million
mortgage loan secured by the Overland Park Courtyard Kansas City, Residence Inn
Salt Lake City and Residence Inn Orlando and its $6.3 million mortgage loan
secured by the Manchester Courtyard.
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 2020 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.
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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, uninsured remediation costs,
advisory services incentive fee and non-cash items such as amortization of
unfavorable contract liabilities, gain/loss on extinguishment of debt, non-cash
stock/unit-based compensation, 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 September 30, Nine Months Ended September 30,
2021 2020 2021 2020
Net income (loss) $ (44,049) $ (151,626) $ (214,700) $ (495,632)
Interest expense and amortization of discounts and loan
costs 43,003 66,994 112,003 212,161
Depreciation and amortization 53,069 62,909 166,291 194,275
Income tax expense (benefit) 2,615 366 2,916 (1,519)
Equity in (earnings) loss of unconsolidated entities 145 121 423 279
Company's portion of EBITDA of unconsolidated entities (OpenKey)
(144) (121) (419) (277)
EBITDA 54,639 (21,357) 66,514 (90,713)
Impairment charges on real estate - 29,926 - 85,144
(Gain) loss on disposition of assets and hotel properties (103)
40,370 (395) 36,753
EBITDAre 54,536 48,939 66,119 31,184
Amortization of unfavorable contract liabilities 52 57 158 165
(Gain) loss on insurance settlements - - - (148)
Write-off of premiums, loan costs and exit fees 1,034 9,469 5,200 11,499
(Gain) loss on extinguishment of debt (1,292) (90,325) (11,896) (90,325)
Other (income) expense, net (209) 6,179 (683) 7,838
Transaction and conversion costs 332 5,795 2,254 8,330
Legal, advisory and settlement costs 2,435 226 6,932 411
Unrealized (gain) loss on marketable securities - 758 - 1,756
Unrealized (gain) loss on derivatives (6,029) (6,449) (3,712) (11,063)
Dead deal costs - 28 689 144
Uninsured remediation costs (33) - 341 -
Non-cash stock/unit-based compensation 2,490 2,593 7,539 8,340
Advisory services incentive fee (6,472) - - -
Company's portion of adjustments to EBITDAre of
unconsolidated entities (OpenKey) 2 3 14 12
Adjusted EBITDAre $ 46,846 $ (22,727) $ 72,955 $ (31,857)
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Table of Contents 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, 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, uninsured remediation costs and non-cash items such as non-cash stock/unit-based compensation, amortization of loan costs, amortization of the term loan discount, advisory services incentive fee, 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):
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