This section of this Form 10-K generally discusses 2021 and 2020 items and year-to-year comparisons between 2021 and 2020. Discussions of 2020 items and year-to-year comparisons between 2020 and 2019 that are not included in this Form 10-K can be found in "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Part II, Item 7 of the Company's Annual Report on Form 10-K for the year endedDecember 31, 2020 .
EXECUTIVE OVERVIEW
General
As of
represents 22,313 total rooms. Currently, all of our hotel properties are
located in
Based on our primary business objectives and forecasted operating conditions,
our current key priorities and financial strategies include, among other things:
•adjusting cost and operational models due to the impact of COVID-19 on the
hotel industry;
•maintain maximum cash and cash equivalents liquidity;
•opportunistically exchange preferred stock into common stock;
•disposition of non-core hotel properties;
•pursuing capital market activities to enhance long-term stockholder value;
•implementing selective capital improvements designed to increase profitability;
•implementing effective asset management strategies to minimize operating costs
and increase revenues;
•financing or refinancing hotels on competitive terms;
•utilizing hedges and derivatives to mitigate risks; and
•making other investments or divestitures that our board of directors deems
appropriate.
Our current investment strategy is to focus on owning predominantly full-service
hotels in the upper upscale segment in domestic markets that have revenue per
available room ("RevPAR") generally less than twice the national average. We
believe that as supply, demand, and capital market cycles change, we will be
able to shift our investment strategy to take advantage of new lodging-related
investment opportunities as they may develop. Our board of directors may change
our investment strategy at any time without stockholder approval or notice. We
will continue to seek ways to benefit from the cyclical nature of the hotel
industry.
Liquidity
InDecember 2019 , COVID-19 was identified inWuhan, China , subsequently spread to other regions of the world, and resulted in significant travel restrictions and the extended shutdown of numerous businesses throughoutthe United States . InMarch 2020 , theWorld Health Organization declared COVID-19 to be a global pandemic. Beginning in lateFebruary 2020 , we experienced a significant decline in occupancy and RevPAR, and we expect the occupancy and RevPAR declines associated with COVID-19 to continue. The prolonged presence of the virus resulted in health and other government authorities imposing widespread restrictions on travel and other businesses. OnJanuary 15, 2021 , the Company entered into the Credit Agreement with Oaktree comprised of (a) initial term loans in an aggregate principal amount of$200 million , (b) initial delayed draw term loans (the "Initial DDTL") in an aggregate principal amount of up to$150 million and (c) additional delayed draw term loans (the "Additional DDTL") in an aggregate principal amount of up to$100 million . OnOctober 12, 2021 , the Company and Ashford Truest OP entered into Amendment No. 1 to the Credit Agreement (Original Credit Agreement, as amended thereby, the "Credit Agreement"). 50 -------------------------------------------------------------------------------- As ofDecember 31, 2021 , the Company held cash and cash equivalents of$592.1 million and restricted cash of$99.5 million . The vast majority of the restricted cash comprises lender and manager held reserves. During 2020, the Company worked with its property managers and lenders in order to utilize lender and manager held reserves to fund operating shortfalls. The Company continues to have discussions with one of its lenders about a potential modification on its property level debt. OnNovember 23, 2021 , the Company announced that its board of directors declared cash dividends on the Company's 8.45% Series D Cumulative Preferred Stock, 7.375% Series F Cumulative Preferred Stock, 7.375% Series G Cumulative Preferred Stock, 7.50% Series H Cumulative Preferred Stock, and 7.50% Series I Cumulative Preferred Stock reflecting accrued and unpaid dividends for the quarters endedJune 30, 2020 ,September 30, 2020 ,December 31, 2020 ,March 31, 2021 ,June 30, 2021 , andSeptember 30, 2021 . The board of directors also declared cash dividends on the Company's 8.45% Series D Cumulative Preferred Stock, 7.375% Series F Cumulative Preferred Stock, 7.375% Series G Cumulative Preferred Stock, 7.50% Series H Cumulative Preferred Stock, and 7.50% Series I Cumulative Preferred Stock for the quarter endedDecember 31, 2021 . The Company has continued the suspension of its common stock dividend into 2022 in light of the ongoing uncertainty from the COVID-19 pandemic and to protect liquidity. 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. 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.
Recent Developments
OnJanuary 15, 2021 , the Company and Ashford Trust OP entered into the Oaktree Credit Agreement with Oaktree and the Administrative Agent. OnOctober 12, 2021 , the Company entered into Amendment No. 1 to the Oaktree Credit Agreement with Oaktree and the Administrative Agent. Amendment No. 1 to the Oaktree Credit Agreement, 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 paid-in-kind 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 Oaktree, 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 Oaktree Credit Agreement subject to certain upward or downward adjustments; and (v) provides that in the event prior to the termination of the Oaktree Credit Agreement, Oaktree elects 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 Oaktree shall be reduced by an amount equal to 25% of the amount of such excess consideration, subject to certain adjustments. OnNovember 19, 2021 , the Company entered into a Limited Waiver to the Oaktree Credit Agreement (the "Limited Waiver") with the guarantors party thereto, Oaktree and the Administrative Agent. Pursuant to the Limited Waiver, Oaktree and the Administrative Agent waived the Company's obligation to comply with the negative covenant set forth in the Oaktree Credit Agreement insofar as such negative covenant prohibits the declaration of any Restricted Payment (as defined in the Credit Agreement) constituting current or accrued dividends on the Company's preferred stock on or beforeNovember 30, 2021 . As a result of the Limited Waiver, effectiveNovember 19, 2021 , the Company is permitted to declare current and accrued dividends on the Company's preferred stock so long as such declared dividends are not made or paid until afterNovember 30, 2021 , and (i) no PIK Principal is then outstanding, and (ii) the aggregate amount of Unrestricted Cash (as defined in the Oaktree Credit Agreement), after giving effect to such Restricted Payment constituting current and accrued dividends on the Company's preferred stock, is not less than an amount equal to the sum of (x)$100,000,000 plus (y) the aggregate principal amount of delayed draw term loans advanced prior to the date thereof or contemporaneously therewith. 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 . In November of 2021, the Company made an initial investment of$8.5 million in 815Commerce Managing Member, LLC ("815 Commerce MM"), which is developing the Le Meridien Fort Worth. 51 --------------------------------------------------------------------------------
On
approximately
RESULTS OF OPERATIONS
Key Indicators of Operating Performance
We use a variety of operating and other information to evaluate the operating
performance of our business. These key indicators include financial information
that is prepared in accordance with GAAP as well as other financial measures
that are non-GAAP measures. In addition, we use other information that may not
be financial in nature, including statistical information and comparative data.
We use this information to measure the operating performance of our individual
hotels, groups of hotels and/or business as a whole. We also use these metrics
to evaluate the hotels in our portfolio and potential acquisitions to determine
each hotel's contribution to cash flow and its potential to provide attractive
long-term total returns. These key indicators include:
•Occupancy-Occupancy means the total number of hotel rooms sold in a given
period divided by the total number of rooms available. Occupancy measures the
utilization of our hotels' available capacity. We use occupancy to measure
demand at a specific hotel or group of hotels in a given period.
•ADR-ADR means average daily rate and is calculated by dividing total hotel
rooms revenues by total number of rooms sold in a given period. ADR measures
average room price attained by a hotel and ADR trends provide useful information
concerning the pricing environment and the nature of the customer base of a
hotel or group of hotels. We use ADR to assess the pricing levels that we are
able to generate.
•RevPAR-RevPAR means revenue per available room and is calculated by multiplying
ADR by the average daily occupancy. RevPAR is one of the commonly used measures
within the hotel industry to evaluate hotel operations. RevPAR does not include
revenues from food and beverage sales or parking, telephone or other non-rooms
revenues generated by the property. Although RevPAR does not include these
ancillary revenues, it is generally considered the leading indicator of core
revenues for many hotels. We also use RevPAR to compare the results of our
hotels between periods and to analyze results of our comparable hotels
(comparable hotels represent hotels we have owned for the entire period). RevPAR
improvements attributable to increases in occupancy are generally accompanied by
increases in most categories of variable operating costs. RevPAR improvements
attributable to increases in ADR are generally accompanied by increases in
limited categories of operating costs, such as management fees and franchise
fees.
RevPAR changes that are primarily driven by changes in occupancy have different
implications for overall revenues and profitability than changes that are driven
primarily by changes in ADR. For example, an increase in occupancy at a hotel
would lead to additional variable operating costs (including housekeeping
services, utilities and room supplies) and could also result in increased other
operating department revenue and expense. Changes in ADR typically have a
greater impact on operating margins and profitability as they do not have a
substantial effect on variable operating costs.
Occupancy, ADR and RevPAR are commonly used measures within the lodging industry
to evaluate operating performance. RevPAR is an important statistic for
monitoring operating performance at the individual hotel level and across our
entire business. We evaluate individual hotel RevPAR performance on an absolute
basis with comparisons to budget and prior periods, as well as on a regional and
company-wide basis. ADR and RevPAR include only rooms revenue. Rooms revenue is
dictated by demand (as measured by occupancy), pricing (as measured by ADR) and
our available supply of hotel rooms.
We also use funds from operations ("FFO"), Adjusted FFO, earnings before
interest, taxes, depreciation and amortization for real estate ("EBITDAre") and
Adjusted EBITDAre as measures of the operating performance of our business. See
"Non-GAAP Financial Measures."
Principal Factors Affecting Our Results of Operations
The principal factors affecting our operating results include overall demand for
hotel rooms compared to the supply of available hotel rooms, and the ability of
our third-party management companies to increase or maintain revenues while
controlling expenses.
Demand-The demand for lodging, including business travel, is directly correlated
to the overall economy; as GDP increases, lodging demand typically increases.
Historically, periods of declining demand are followed by extended periods of
relatively strong demand, which typically occurs during the growth phase of the
lodging cycle. Beginning in 2020, the COVID-19 pandemic had a direct impact on
demand.
Supply-The development of new hotels is driven largely by construction costs,
the availability of financing and expected performance of existing hotels.
Short-term supply is also expected to be below long-term averages. While the
industry is expected to have supply growth below historical averages, we may
experience supply growth, in certain markets, in excess of
52
--------------------------------------------------------------------------------
national averages that may negatively impact performance. Beginning in 2020, the
COVID-19 pandemic had a direct impact on supply.
We expect that our ADR, occupancy and RevPAR performance will be impacted by macroeconomic factors such as national and local employment growth, personal income and corporate earnings, GDP, consumer confidence, office vacancy rates and business relocation decisions, airport and other business and leisure travel, new hotel construction, the pricing strategies of competitors and currency fluctuations. In addition, our ADR, occupancy and RevPAR performance are dependent on the continued success of the Marriott, Hilton and Hyatt brands.
Revenue-Substantially all of our revenue is derived from the operation of
hotels. Specifically, our revenue is comprised of:
•Rooms revenue: Occupancy and ADR are the major drivers of rooms revenue. Rooms
revenue accounts for the substantial majority of our total revenue.
•Food and beverage revenue: Occupancy and the type of customer staying at the hotel are the major drivers of food and beverage revenue (i.e., group business typically generates more food and beverage business through catering functions when compared to transient business, which may or may not utilize the hotel's food and beverage outlets or meeting and banquet facilities).
•Other hotel revenue: Occupancy and the nature of the property are the main
drivers of other ancillary revenue, such as telecommunications, parking and
leasing services.
operating expenses:
•Rooms expense: These costs include housekeeping wages and payroll taxes,
reservation systems, room supplies, laundry services and front desk costs. Like
rooms revenue, occupancy is the major driver of rooms expense and, therefore,
rooms expense has a significant correlation to rooms revenue. These costs can
increase based on increases in salaries and wages, as well as the level of
service and amenities that are provided.
•Food and beverage expense: These expenses primarily include food, beverage and
labor costs. Occupancy and the type of customer staying at the hotel (i.e.,
catered functions generally are more profitable than restaurant, bar or other
on-property food and beverage outlets) are the major drivers of food and
beverage expense, which correlates closely with food and beverage revenue.
•Management fees: Base management fees are computed as a percentage of gross
revenue. Incentive management fees generally are paid when operating profits
exceed certain threshold levels.
•Other hotel expenses: These expenses include labor and other costs associated
with the other operating department revenues, as well as labor and other costs
associated with administrative departments, franchise fees, sales and marketing,
repairs and maintenance and utility costs.
Most categories of variable operating expenses, including labor costs such as
housekeeping, fluctuate with changes in occupancy. Increases in occupancy are
accompanied by increases in most categories of variable operating expenses,
while increases in ADR typically only result in increases in limited categories
of operating costs and expenses, such as franchise fees, management fees and
credit card processing fee expenses which are based on hotel revenues. Thus,
changes in ADR have a more significant impact on operating margins than changes
in occupancy.
53
--------------------------------------------------------------------------------
The following table summarizes the changes in key line items from our
consolidated statements of operations for the years ended
2020 and 2019 (in thousands):
Favorable (Unfavorable)
Year Ended December 31, Change
2021 2020 2019 2021 to 2020 2020 to 2019
Total revenue $ 805,411 $ 508,238 $ 1,502,759 $ 297,173 $ (994,521)
Total hotel expenses (576,806) (434,672) (952,674) (142,134) 518,002
Property taxes, insurance and other (67,904) (79,669) (84,112) 11,765 4,443
Depreciation and amortization (218,851) (252,765) (269,003) 33,914 16,238
Impairment charges - (91,721) (33,628) 91,721 (58,093)
Advisory service fee (52,313) (50,050) (63,632) (2,263) 13,582
Corporate, general and administrative (16,153) (28,048) (11,107) 11,895 (16,941)
Gain (loss) on disposition of assets and
hotel properties 1,449 (36,680) 26,126 38,129 (62,806)
Operating income (loss) (125,167) (465,367) 114,729 340,200 (580,096)
Equity in earnings (loss) of
unconsolidated entities (558) (448) (2,307) (110) 1,859
Interest income 207 672 3,067 (465) (2,395)
Other income (expense) 760 (16,998) 10,490 17,758 (27,488)
Interest expense and amortization of
discounts and loan costs (156,119) (247,381) (262,001) 91,262 14,620
Write-off of premiums, loan costs and exit
fees (10,612) (13,867) (2,841) 3,255 (11,026)
Gain (loss) on extinguishment of debt 11,896 90,349 - (78,453) 90,349
Unrealized gain (loss) on marketable
securities - (1,467) 1,896 1,467 (3,363)
Unrealized gain (loss) on derivatives 14,493 19,950 (4,494) (5,457) 24,444
Income tax benefit (expense) (5,948) 1,335 (1,218) (7,283) 2,553
Net income (loss) (271,048) (633,222) (142,679) 362,174 (490,543)
(Income) loss from consolidated entities
attributable to noncontrolling interests 73 338 112 (265) 226
Net (income) loss attributable to
redeemable noncontrolling interests in
operating partnership 3,970 89,008 28,932 (85,038) 60,076
Net income (loss) attributable to the
Company $ (267,005) $ (543,876) $ (113,635) $ 276,871 $ (430,241)
The following table illustrates the key performance indicators of the hotel
properties and WorldQuest included in our results of operations:
Year Ended December 31,
2021 2020
RevPAR (revenue per available room) $ 79.44 $ 45.87
Occupancy 55.62 % 34.31 %
ADR (average daily rate) $ 142.82 $ 133.70
The following table illustrates the key performance indicators of the 100 hotel
properties and WorldQuest that were included for the full years ended December
31, 2021 and 2020, respectively:
Year Ended December 31,
2021 2020
RevPar $ 79.61 $ 46.34
Occupancy 55.63 % 34.39 %
ADR $ 143.09 $ 134.76
54
--------------------------------------------------------------------------------
Comparison of the Year Ended
Net Income (Loss) Attributable to the Company. Net loss attributable to the
Company decreased
31, 2020
(“2021”) as a result of the factors discussed below.
Revenue. Rooms revenue from our hotel properties and WorldQuest increased$247.6 million , or 60.8%, to$655.1 million in 2021 compared to 2020. This increase is attributable to higher rooms revenue of$272.3 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$24.6 million from ourHotel Dispositions . Our comparable hotel properties experienced an increase of 6.2% in room rates and an increase of 2,124 basis points in occupancy. Food and beverage revenue increased$33.8 million , or 55.2%, to$94.9 million in 2021 compared to 2020. This increase is attributable to higher food and beverage revenue of$34.8 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 ourHotel Dispositions . Other hotel revenue, which consists mainly of Internet access, parking, and spa revenue, increased$15.3 million , or 40.3%, to$53.1 million in 2021 compared to 2020. This increase is attributable to higher other revenue of$17.3 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 ourHotel Dispositions .Hotel Operating Expenses . Hotel operating expenses increased$142.1 million , or 32.7%, to$576.8 million in 2021 compared to 2020. 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$76.6 million in 2021 compared to 2020, comprised of an increase of$84.3 million from our comparable hotel properties and WorldQuest as our hotel properties continue to recover from the effects of the COVID-19 pandemic and partially offset by$7.6 million from ourHotel Dispositions . Direct expenses were 29.9% of total hotel revenue for 2021 and 32.3% for 2020. Indirect expenses and management fees increased$65.5 million in 2021 compared to 2020, comprised of an increase of$81.7 million from our comparable hotel properties and WorldQuest as a result of the COVID-19 pandemic and partially offset by$16.3 million from ourHotel Dispositions . Property Taxes, Insurance and Other. Property taxes, insurance and other expense decreased$11.8 million or 14.8%, to$67.9 million in 2021 compared to 2020, which was primarily due to a decrease of$7.1 million from ourHotel Dispositions and$4.7 million at our comparable hotel properties. Depreciation and Amortization. Depreciation and amortization decreased$33.9 million or 13.4%, to$218.9 million in 2021 compared to 2020, which consisted of lower depreciation of$20.3 million as a result of ourHotel Dispositions and lower depreciation of$13.6 million at our comparable hotel properties and WorldQuest.
Impairment Charges. Impairment charges were
2020, respectively.
In the first quarter of 2020, we recorded an impairment charge of$27.6 million that was comprised of$13.9 million at theColumbus Hampton Inn Easton ,$10.0 million at the Canonsburg Homewood Suites Pittsburgh Southpointe and$3.7 million at thePhoenix 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 of 2020, we recorded an impairment charge of$27.6 million . OnJuly 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 ofJune 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 theColumbus 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 theWashington Hampton Inn Pittsburgh Meadow Lands ,$3.0 million at thePittsburgh Hampton Inn Waterfront West Homestead and$2.4 million at theStillwater Residence Inn . In the third quarter of 2020, we recorded an impairment charge of$29.9 million . In conjunction with the disposition of theW 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.
In the fourth quarter of 2020, we recorded an impairment charge of
as a result of changes to the expected holding period of the Minneapolis Le
Meridien.
55 -------------------------------------------------------------------------------- Advisory Services Fee. Advisory services fee increased$2.3 million , or 4.5%, to$52.3 million in 2021 compared to 2020. The advisory services fee represents fees incurred in connection with the advisory agreement between Ashford Inc. and the Company. In 2021, the advisory services fee was comprised of a base advisory fee of$36.2 million , equity-based compensation of$9.1 million associated with equity grants of our common stock and LTIP units awarded to the officers and employees of Ashford Inc. and reimbursable expenses of$6.9 million . In 2020, the advisory services fee was comprised of a base advisory fee of$34.7 million , equity-based compensation of$8.9 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$2.3 million credit related to PSU forfeitures, and reimbursable expenses of$6.4 million . Corporate, General and Administrative. Corporate, general and administrative expense decreased$11.9 million , or 42.4%, to$16.2 million in 2021 compared to 2020. The decrease was primarily attributable to lower legal and professional fees of$9.1 million , lower reimbursed operating expenses ofAshford Securities paid by the Company of$2.0 million , lower investment management expenses of$995,000 , lower stock-based compensation of$505,000 , partially offset by higher public company costs of$383,000 and higher miscellaneous expenses of$256,000 . Gain (Loss) on Disposition ofAssets and Hotel Properties. Gain (loss) on disposition of assets and hotel properties changed$38.1 million , from a loss of$36.7 million in 2020 to a gain of$1.4 million in 2021. The loss in 2020 was comprised of a$40.4 million loss related to the sale of theEmbassy Suites New York Manhattan Times Square , partially offset by a gain of$3.7 million related to the sale of theAnnapolis Crowne Plaza . The gain in 2021 was primarily related to a franchise fee reimbursement of$327,000 related to the disposition of theEmbassy Suites New York Manhattan Times Square , a gain of$1.0 million related to a payment to remove a deed restriction related to the prior disposition of a building and a gain related to the sale of five WorldQuest condominiums. Equity in Earnings (Loss) of Unconsolidated Entities. Equity in loss of unconsolidated entities was$558,000 in 2021, which consists of our share of loss from OpenKey of$540,000 and 815 Commerce MM of$18,000 . Equity in loss of unconsolidated entities was$448,000 in 2020, which consists of our share of loss from OpenKey.
Interest Income. Interest income was
respectively.
Other Income (Expense). Other income (expense) changed$17.8 million from expense of$17.0 million in 2020 to income of$760,000 in 2021. In 2021 we recorded miscellaneous income of$760,000 . In 2020, we recorded a realized loss of$9.6 million related to the terminated CMBX positions, a realized loss of$9.5 million on interest rate floors and expense of$811,000 from CMBX premiums and interest paid on collateral. These expenses were partially offset by a realized gain of$2.3 million on sale of marketable securities, other income of$585,000 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$91.3 million , or 36.9%, to$156.1 million in 2021 compared to 2020. The decrease is primarily due to a decrease of$12.9 million from ourHotel Dispositions , a decrease of$21.5 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$63.2 million and a credit to interest expense in 2021 of$35.7 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$42.1 million attributable to the Oaktree term loan. The average LIBOR rates in 2021 and 2020 were 0.10% and 0.52%, respectively. Write-off of Premiums, Loan Costs and Exit Fees. Write-off of premiums, loan costs and exit fees decreased$3.3 million to$10.6 million in 2021 compared to 2020. In 2021, we recognizedLismore fees of$5.6 million that reflects the amortization over the service period of the Lismore Agreement (see note 16 to our consolidated financial statements) and$80,000 related to third-party fees, totaling$5.7 million . Additionally, we wrote off$4.0 million of debt discount related to the payment of the PIK interest on the Oaktree financing and unamortized loan costs in the amount of$839,000 . In 2020, 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 andLismore fees incurred in conjunction with these amendments were$1.8 million and$12.1 million , respectively, totaling$13.8 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 2021, which primarily related to the foreclosure of the SpringHill Suites Durham and SpringHill Suites Charlotte in the amount of$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 theHilton Boston Back Bay loan. In 2020, 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 theColumbus Hampton Inn Easton , Canonsburg Homewood Suites Pittsburgh 56 -------------------------------------------------------------------------------- Southpointe, Billerica Courtyard, Wichita Courtyard,Washington Hampton Inn Pittsburgh Meadow Lands ,Pittsburgh Hampton Inn Waterfront West Homestead ,Stillwater Residence Inn , and thePhoenix Hampton Inn Airport North ; (ii)$4.3 million on our$145.0 million mortgage loan secured by theEmbassy Suites New York Manhattan Times Square ; (iii)$1.1 million on our$51.6 million mortgage loan secured by theW Minneapolis ; and (iv)$19.7 million on our$64.0 million mortgage loan secured by the Courtyard Louisville, Courtyard Ft.Lauderdale and theResidence Inn Lake Buena Vista .
Unrealized Gain (Loss) on
marketable securities was
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$5.5 million from$20.0 million in 2020 to$14.5 million in 2021. In 2021, we recorded an unrealized gain of$15.8 million from the revaluation of the embedded debt derivative in the Oaktree Agreement, partially offset by unrealized losses of$624,000 from interest rate floors and$657,000 from interest rate caps. In 2020, we recognized an unrealized gain of$10.0 million on CMBX tranches of which$9.6 million is associated with the recognition of realized losses,$10.1 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$130,000 associated with interest rate caps.
Income Tax (Expense) Benefit. Income tax (expense) benefit changed
million
expense of
the profitability of our TRS entities in 2021 compared to 2020.
(Income) Loss from Consolidated Entities Attributable to Noncontrolling
Interests. Our noncontrolling interest partner in consolidated entities were
allocated losses of
Net (Income) Loss Attributable to Redeemable Noncontrolling Interests inOperating Partnership . Noncontrolling interests in operating partnership were allocated net losses of$4.0 million and$89.0 million in 2021 and 2020, respectively. Redeemable noncontrolling interests represented ownership interests of 0.63% and 8.51% in the operating partnership atDecember 31, 2021 and 2020, respectively. 57 --------------------------------------------------------------------------------
Reverse Stock Splits
InJune 2020 , our board of directors approved a reverse stock split of our issued and outstanding common stock at a ratio of 1-for-10. This reverse stock split converted every ten issued and outstanding shares of common stock into one share of common stock. The reverse stock split was effective as of the close of business onJuly 15, 2020 . As a result of the reverse stock split, the number of outstanding shares of common stock was reduced from approximately 104.8 million shares to approximately 10.5 million shares on that date. Additionally, the number of outstanding common units, Long-Term Incentive Plan ("LTIP") units and Performance LTIP units was reduced from approximately 20.5 million units to approximately 2.1 million units on that date. All common stock, common units, LTIP units, Performance LTIP units, performance stock units and restricted stock as well as per share data related to these classes of equity have been revised in the accompanying consolidated financial statements to reflect this reverse stock split for all periods presented. OnJune 28, 2021 , our board of directors approved a reverse stock split of our issued and outstanding common stock at a ratio of 1-for-10. This reverse stock split converted every ten issued and outstanding shares of common stock into one share of common stock. The reverse stock split was effective as of the close of business onJuly 16, 2021 . As a result of the reverse stock split, the number of outstanding shares of common stock was reduced from approximately 265.1 million shares to approximately 26.5 million shares on that date. Additionally, the number of outstanding common units, Long-Term Incentive Plan ("LTIP") units and Performance LTIP units was reduced from approximately 4.0 million units to approximately 402,000 units on that date. All common stock, common units, LTIP units, Performance LTIP units, performance stock units and restricted stock as well as per share data related to these classes of equity have been revised in the accompanying consolidated financial statements to reflect this reverse stock split for all periods presented. The following sets forth selected data revised for the effects of the 1-for-10 reverse stock splits: Year Ended December 31, 2021 2020 2019 2018 2017 (in thousands, except per share amounts) Statements of Operations Data:
Diluted income (loss) per common share:
Net income (loss) attributable to common stockholders$ (12.43) $ (329.97)
(1)
Weighted average diluted common shares 21,844
1,576
(1) 998 (1) 973 (1) 952 (1)
Other Data: Cash dividends declared per common share $ - $ -$ 30.00 (1)$ 48.00 (1)$ 48.00 (1) ____________________
(1)Amounts revised for the effects of the 1-for-10 reverse stock splits.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity
InDecember 2019 , COVID-19 was identified inWuhan, China , subsequently spread to other regions of the world, and 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. Beginning in lateFebruary 2020 , we experienced a significant decline in occupancy and RevPAR and we expect the occupancy and RevPAR declines associated with COVID-19 to continue. The prolonged presence of the virus resulted in health and other government authorities imposing widespread restrictions on travel and other businesses. OnJanuary 15, 2021 , the Company entered into the Credit Agreement with Oaktree comprised of (a) initial term loans in an aggregate principal amount of$200 million , (b) Initial DDTL in an aggregate principal amount of up to$150 million and (c) Additional DDTL in an aggregate principal amount of up to$100 million . OnOctober 12, 2021 , the Company and Ashford Trust OP entered into Amendment No. 1 to the Oaktree Credit Agreement (Original Credit Agreement, as amended thereby, the "Credit Agreement"). See note 7 to our consolidated financial statements. As ofDecember 31, 2021 , the Company held cash and cash equivalents of$592.1 million and restricted cash of$99.5 million . The vast majority of the restricted cash comprises lender and manager held reserves. During 2020, the Company worked with its property managers and lenders in order to utilize lender and manager held reserves to fund operating shortfalls. The Company continues to have discussions with one of its lenders about a potential loan modification on its property level 58 -------------------------------------------------------------------------------- debt. AtDecember 31, 2021 , there was also$26.9 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. OnNovember 23, 2021 , the Company announced that its board of directors declared cash dividends on the Company's 8.45% Series D Cumulative Preferred Stock, 7.375% Series F Cumulative Preferred Stock, 7.375% Series G Cumulative Preferred Stock, 7.50% Series H Cumulative Preferred Stock, and 7.50% Series I Cumulative Preferred Stock reflecting accrued and unpaid dividends for the quarters endingJune 30, 2020 ,September 30, 2020 ,December 31, 2020 ,March 31, 2021 ,June 30, 2021 , andSeptember 30, 2021 . The board of directors also declared cash dividends on the Company's 8.45% Series D Cumulative Preferred Stock, 7.375% Series F Cumulative Preferred Stock, 7.375% Series G Cumulative Preferred Stock, 7.50% Series H Cumulative Preferred Stock, and 7.50% Series I Cumulative Preferred Stock for the quarter endedDecember 31, 2021 . The Company has continued the suspension of its common stock dividend into 2022 in light of the ongoing uncertainty from the COVID-19 pandemic and to protect liquidity. 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. 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 forU.S. federal income tax purposes. With respect to upcoming maturities, no assurances can be given that we will be able to refinance our upcoming maturities. Additionally, no assurances can be given that we will obtain additional financings or, if we do, what the amount and terms will be. Our failure to obtain future financing under favorable terms could adversely impact our ability to execute our business strategy or may result in lender foreclosure. Our cash position from operations is affected primarily by macro industry movements in occupancy and rate as well as our ability to control costs. Further, interest rates can greatly affect the cost of our debt service as well as the value of any financial hedges we may put in place. We monitor industry fundamentals and interest rates very closely. Capital expenditures above our reserves will affect cash flow as well. Certain of our loan agreements contain cash trap provisions that may be triggered if the performance of our hotels decline below a threshold. When these provisions are triggered, substantially all of the profit generated by our hotels is deposited directly into lockbox accounts and then swept into cash management accounts for the benefit of our various lenders. During a cash trap, certain disbursements from these hotel operating cash receipts, primarily other corporate general and administrative expenditures, would require consent of our lenders. These cash trap provisions have been triggered on nearly all of our mortgage loans containing cash trap provisions. As ofDecember 31, 2021 , 93% of our hotels were in cash traps and approximately$4.9 million of our restricted cash was 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. 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 ofAshford Trust or Ashford Trust OP, our operating partnership, and the liabilities of such subsidiaries do not constitute the obligations ofAshford Trust or Ashford Trust OP. As ofFebruary 24, 2022 , the Company is not expecting to be required to repay all or a portion of our indebtedness before maturity. Mortgage and mezzanine loans are nonrecourse to the borrowers, except for customary exceptions or carve-outs that trigger recourse liability to the borrowers in certain limited instances. Recourse obligations typically include only the payment of costs and liabilities suffered by lenders as a result of the occurrence of certain bad acts on the part of the borrower. However, in 59 -------------------------------------------------------------------------------- certain cases, carve-outs could trigger recourse obligations on the part of the borrower with respect to repayment of all or a portion of the outstanding principal amount of the loans. We have entered into customary guaranty agreements pursuant to which we guaranty payment of any recourse liabilities of the borrowers that result from non-recourse carve-outs (which include, but are not limited to, fraud, misrepresentation, willful conduct resulting in waste, misappropriations of rents following an event of default, voluntary bankruptcy filings, unpermitted transfers of collateral, and certain environmental liabilities). In the opinion of management, none of these guaranty agreements, either individually or in the aggregate, are likely to have a material adverse effect on our business, results of operations, or financial condition. We have entered into certain customary guaranty agreements pursuant to which we guaranty payment of any recourse liabilities of our subsidiaries or joint ventures that may result from non-recourse carve-outs, which include, but are not limited to, fraud, misrepresentation, willful misconduct resulting in waste, misappropriations of rents following an event of default, voluntary bankruptcy filings, unpermitted transfers of collateral, delinquency of trade payables and certain environmental liabilities. Certain of these guarantees represent a guaranty of material amounts, and if we are required to make payments under those guarantees, our liquidity could be adversely affected. We are committed to an investment strategy where we will pursue hotel-related investments as suitable situations arise. Funds for future hotel-related investments are expected to be derived, in whole or in part, from cash on hand, future borrowings under a credit facility or other loans, or proceeds from additional issuances of common stock, preferred stock, 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. Our estimated future obligations as ofDecember 31, 2021 include both current and long-term obligations. With respect to our indebtedness, as discussed in note 7 to our consolidated financial statements, we have current obligations of$3.3 billion and long-term obligations of$628.6 million . As ofDecember 31, 2021 , we held extension options for all our mortgage loans due in the next twelve months. We have amortization payments of approximately$6.7 million due in the next twelve months.
As discussed in note 18 to our consolidated financial statements, under our
operating leases we have current obligations of
obligations of
commitments of
Debt Transactions
OnJanuary 15, 2021 , the Company entered into the Oaktree Credit Agreement (as amended) with Oaktree and the Administrative Agent. The Oaktree Credit Agreement provides that, subject to the conditions set forth therein, Oaktree 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
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
60 -------------------------------------------------------------------------------- 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) throughDecember 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 ofNovember 9, 2020 . InFebruary 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 onApril 29, 2021 . 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%. 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 theHilton Boston Back Bay . OnOctober 12, 2021 , the Company entered into Amendment No. 1. to the Oaktree Credit Agreement with Oaktree and the Administrative Agent. Amendment No. 1 to the Oaktree Credit Agreement, 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 Oaktree 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 paid-in-kind 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 Oaktree 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 Oaktree Credit Agreement subject to certain upward or downward adjustments; and (v) provides that in the event prior to the termination of the Oaktree Credit Agreement, Oaktree elects 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 Oaktree shall be reduced by an amount equal to 25% of the amount of such excess consideration, subject to certain adjustments. OnNovember 19, 2021 , the Company entered into a Limited Waiver to the Oaktree Credit Agreement (the "Limited Waiver") with the guarantors party thereto, Oaktree and the Administrative Agent. Pursuant to the Limited Waiver, Oaktree and the Administrative Agent waived the Company's obligation to comply with the negative covenant set forth in the Oaktree Credit Agreement insofar as such negative covenant prohibits the declaration of any Restricted Payment (as defined in the Credit Agreement) constituting current or accrued dividends on the Company's preferred stock on or beforeNovember 30, 2021 . As a result of the Limited Waiver, effectiveNovember 19, 2021 , the Company is permitted to declare current and accrued dividends on the Company's preferred stock so long as such declared dividends are not made or paid until afterNovember 30, 2021 , and (i) no PIK Principal is then outstanding, and (ii) the aggregate amount of Unrestricted Cash (as defined in the Oaktree Credit Agreement), after giving effect to such Restricted Payment constituting current and accrued dividends on the Company's preferred stock, is not less than an amount equal to the sum of (x)$100,000,000 plus (y) the aggregate principal amount of delayed draw term loans advanced prior to the date thereof or contemporaneously therewith. 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 .
On
paid-in-kind interest that had been capitalized into the principal balance of
the term loan associated with the Oaktree Credit Agreement.
Equity Transactions
OnDecember 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 years endedDecember 31, 2021 . 2020 and 2019 pursuant to the Repurchase Program.
From
privately negotiated exchange agreements with certain holders of its 8.45%
Series D Cumulative Preferred Stock, par value
Cumulative
61 -------------------------------------------------------------------------------- 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. Prior to the reverse stock split, during the period fromJanuary 1, 2021 throughJuly 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 fromJuly 16, 2021 throughFebruary 24, 2022 , the Company exchanged a total of approximately 1.8 million shares of its common stock for an aggregate of approximately 978,000 shares of preferred stock. OnDecember 7, 2020 , the Company andLincoln Park Capital Fund, LLC ("Lincoln Park"), entered into a purchase agreement (the "FirstLincoln Park 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 shares of common stock for gross proceeds of approximately$25.1 million for the year endedDecember 31, 2021 . As ofDecember 31, 2021 , all shares available under the First Lincoln Park Purchase Agreement were sold. OnJanuary 22, 2021 , the Company entered into a Standby Equity Distribution Agreement (the "SEDA") withYA II PN, Ltd. , ("YA"), pursuant to which the Company will be able to sell up to 1.4 million shares of the Company's common stock 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 ofDecember 31, 2021 , all shares available under the SEDA were sold. OnMarch 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 SecondLincoln 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 ofDecember 31, 2021 , all shares available under theSecond Lincoln Park Purchase Agreement were sold. OnMay 17, 2021 , the Company andKeystone Capital Partners, LLC ("Keystone") entered into a common stock purchase agreement (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 ofDecember 31, 2021 , all shares available under the Keystone Purchase Agreement were sold. OnJune 7, 2021 , the Company entered into a second Standby Equity Distribution Agreement (the "SecondYA 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 SecondYA SEDA . As ofFebruary 24, 2022 , the Company has issued approximately 3.8 million shares of common stock for gross proceeds of approximately$165.4 million under the SecondYA SEDA . As ofDecember 31, 2021 , all shares available under the SecondYA SEDA were sold. OnJune 18, 2021 , the Company andSeven Knots, LLC ("Seven Knots) entered into a purchase agreement (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 ofFebruary 24, 2022 , 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. As ofDecember 31, 2021 , all shares available under the Seven Knots Purchase Agreement were sold. OnJuly 2, 2021 , the Company andB. Riley Principal Capital, LLC ("B. Riley") entered into a purchase agreement (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 approximately 4.6 million shares of common stock, from time to time during the term of the B. Riley Purchase Agreement. As ofFebruary 24, 2022 , 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. As ofDecember 31, 2021 , all shares available under the B. Riley Purchase Agreement were sold. OnSeptember 9, 2021 , the Company andM3A LP ("M3A") entered into a purchase agreement (the "M3A Purchase Agreement"), which provides that subject to the terms and conditions set forth therein, the Company may sell to M3A up to 62 -------------------------------------------------------------------------------- approximately 6.0 million shares of common stock, from time to time during the term of the M3A Purchase Agreement. As ofFebruary 24, 2022 , the Company has issued approximately 900,000 shares of common stock for gross proceeds of approximately$12.9 million under the M3A Purchase Agreement.
Sources and Uses of Cash
Our principal sources of funds to meet our cash requirements include cash on hand, cash flow from operations, capital market activities, property refinancing proceeds and asset sales. Additionally, our principal uses of funds are expected to include possible operating shortfalls, owner-funded capital expenditures, dividends, new investments, and debt interest and principal payments. Items that impacted our cash flow and liquidity during the periods indicated are summarized as follows: Net Cash Flows Provided by (Used in) Operating Activities. Net cash flows provided by (used in) operating activities, pursuant to our consolidated statements of cash flows, which includes changes in balance sheet items, were$(144.2) million and$(149.5) million for the years endedDecember 31, 2021 and 2020, respectively. Cash flows 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 year endedDecember 31, 2021 , net cash flows used in investing activities were$34.0 million . Cash outflows consisted of$36.7 million for capital improvements made to various hotel properties and$9.0 million of investments in unconsolidated entities partially offset by cash inflows of$9.0 million from proceeds received primarily from the sale of the Le Meridien Minneapolis and$2.8 million of proceeds from property insurance. For the year endedDecember 31, 2020 , net cash flows used in investing activities were$7.6 million . Cash outflows primarily consisted of$46.2 million for capital improvements made to various hotel properties,$1.1 million for the acquisition of meeting space adjacent to the Nashville Renaissance and a$430,000 investment in OpenKey. Cash outflows were partially offset by$38.8 million from proceeds received from the sale of the Crowne Plaza Annapolis andEmbassy Suites New York Manhattan Times Square and$1.4 million of proceeds from property insurance. Net Cash Flows Provided by (Used in) Financing Activities. For the year endedDecember 31, 2021 , net cash flows provided by financing activities were$702.6 million . Cash inflows consisted of$377.5 million from borrowings on indebtedness, net of commitment fee and$562.8 million of net proceeds from issuances of common stock, partially offset by cash outflows of$189.6 million for repayments of indebtedness,$27.8 million for payments of loan costs and exit fees,$18.6 million of payments for preferred dividends,$1.5 million of payments for derivatives and$200,000 for the acquisition of the remaining 15% noncontrolling interest in consolidated entities. For the year endedDecember 31, 2020 , net cash flows used in financing activities were$73.8 million . Cash outflows primarily consisting of$137.8 million for repayments of indebtedness,$28.6 million for dividend payments to common and preferred stockholders and unitholders and$26.7 million for payments of loan costs and exit fees, partially offset by cash inflows of$88.0 million from borrowings on indebtedness and$31.9 million of proceeds from sales of common stock. Dividend Policy. Distributions are authorized by our board of directors and declared by us based upon a variety of factors deemed relevant by our directors. The board of directors will continue to review our distribution policy on at least a quarterly basis. Our ability to pay distributions to our preferred or common stockholders will depend, in part, upon our receipt of distributions from our operating partnership. This, in turn, may depend upon receipt of lease payments with respect to our properties from indirect subsidiaries of our operating partnership, the management of our properties by our hotel managers and general business conditions (including the impact of the COVID-19 pandemic). Distributions to our stockholders are generally taxable to our stockholders as ordinary income. However, since a portion of our investments are equity ownership interests in hotels, which result in depreciation and non-cash charges against our income, a portion of our distributions may constitute a non-taxable return of capital, to the extent of a stockholder's tax basis in the stock. To the extent that it is consistent with maintaining our REIT status, we may maintain accumulated earnings ofAshford TRS in that entity. OnDecember 7, 2021 , our board of directors reviewed and approved our 2022 dividend policy. We do not anticipate paying any dividends on our outstanding common stock for any quarter during 2022 and expect to pay dividends on our outstanding Preferred Stock during 2022. Our board of directors will continue to review our dividend policy and make future announcements with respect thereto. We may incur indebtedness to meet distribution requirements imposed on REITs under the Code to the extent that working capital and cash flow from our investments are insufficient to fund required distributions. 63 --------------------------------------------------------------------------------
We may incur indebtedness to meet distribution requirements imposed on REITs
under the Code to the extent that working capital and cash flow from our
investments are insufficient to fund required distributions. We may pay
dividends in excess of our cash flow.
INFLATION
We rely entirely on the performance of our hotel properties and the ability of the hotel properties' managers to increase revenues to keep pace with inflation. Hotel operators can generally increase room rates, but competitive pressures may limit their ability to raise rates faster than inflation. Our general and administrative costs, real estate and personal property taxes, property and casualty insurance, labor costs and utilities are subject to inflation as well.
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 revenue. 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, cash generated through borrowings and issuances of common stock to fund required distributions. However, we cannot make any assurances that we will make distributions in the future. CRITICAL ACCOUNTING POLICIES Our significant accounting policies are fully described in note 2 to our consolidated financial statements included in Item 8. Financial Statements and Supplementary Data. We believe that the following discussion addresses our most critical accounting policies, representing those policies considered most vital to the portrayal of our financial condition and results of operations and require management's most difficult, subjective, and complex judgments. Impairment of Investments inHotel Properties-Hotel properties are reviewed for impairment whenever events or changes in circumstances indicate that their carrying amounts may not be recoverable. Recoverability of the hotel is measured by comparison of the carrying amount of the hotel to the estimated future undiscounted cash flows, which take into account current market conditions and our intent with respect to holding or disposing of the hotel. If our analysis indicates that the carrying value of the hotel is not recoverable on an undiscounted cash flow basis, we recognize an impairment charge for the amount by which the property's net book value exceeds its estimated fair value, or fair value, less cost to sell. In evaluating impairment of hotel properties, we make many assumptions and estimates, including projected cash flows, expected holding period, and expected useful life. Fair value is determined through various valuation techniques, including internally developed discounted cash flow models, comparable market transactions and third-party appraisals, where considered necessary. We recorded impairment charges of$0 ,$91.7 million and$33.6 million for the years endedDecember 31, 2021 , 2020 and 2019, respectively. See note 5 to our consolidated financial statements. Income Taxes-As a REIT, we generally are not subject to federal corporate income tax on the portion of our net income (loss) that does not relate to taxable REIT subsidiaries. However,Ashford TRS is treated as a TRS forU.S. federal income tax purposes. In accordance with authoritative accounting guidance, we account for income taxes related toAshford TRS using the asset and liability method under which deferred tax assets and liabilities are recognized for future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. In addition, the analysis utilized by us in determining our deferred tax asset valuation allowance involves considerable management judgment and assumptions. See note 19 to our consolidated financial statements. AtDecember 31, 2021 and 2020, we recorded a valuation allowance of$38.8 million and$40.0 million , respectively on the net deferred tax assets of our taxable REIT subsidiaries. At each reporting date, we evaluate whether it is more likely than not that we will utilize all or a portion of our deferred tax assets. We consider all available positive and negative evidence, including historical results of operations, projected future taxable income, carryback potential and scheduled reversals of deferred tax liabilities. AtDecember 31, 2021 , we had TRS net operating loss carryforwards forU.S. federal income tax purposes of$119.9 million , of which$10.1 million is subject to expiration and will begin to expire in 2022. The remainder was generated afterDecember 31, 2017 and is not subject to expiration under the Tax Cuts and Jobs Act. The loss carryforwards subject to expiration may be available to offset future taxable income, if any, in 2022 through 2027, with the remainder available to offset taxable income beyond 2027. The net operating loss carryforwards are subject to substantial limitation on 64 -------------------------------------------------------------------------------- their use. Management determined that it is more likely than not that as ofDecember 31, 2021 ,$38.8 million of our net deferred tax assets will not be realized, and a valuation allowance has been recorded accordingly. AtDecember 31, 2021 ,Ashford Hospitality Trust, Inc. , our REIT, had net operating loss carryforwards forU.S. federal income tax purposes of$885.2 million based on the latest filed tax returns. Of that amount,$426.1 million will begin to expire in 2023 and is available to offset future taxable income, if any, through 2036. The remainder was generated afterDecember 31, 2017 and is not subject to expiration under the Tax Cuts and Jobs Act. The net operating loss carryforwards are subject to substantial limitation on their use. The "Income Taxes" topic of theFinancial Accounting Standards Board's ("FASB") Accounting Standards Codification addresses the accounting for uncertainty in income taxes recognized in an enterprise's financial statements. The guidance requires us to determine whether tax positions we have taken or expect to take in a tax return are more likely than not to be sustained upon examination by the appropriate taxing authority based on the technical merits of the positions. Tax positions that do not meet the more likely than not threshold would be recorded as additional tax expense in the current period. We analyze all open tax years, as defined by the statute of limitations for each jurisdiction, which includes the federal jurisdiction and various states. We classify interest and penalties related to underpayment of income taxes as income tax expense. We and our subsidiaries file income tax returns in theU.S. federal jurisdiction and various states and cities. Tax years 2017 through 2021 remain subject to potential examination by certain federal and state taxing authorities.
RECENTLY ADOPTED ACCOUNTING STANDARDS
InJanuary 2020 , the FASB issued Accounting Standards Updates ("ASU") 2020-01, Investments -Equity Securities (Topic 321),Investments-Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815) - Clarifying the Interactions between Topic 321, Topic 323, and Topic 815 (a consensus of theEmerging Issues Task Force ) ("ASU 2020-01"), which clarifies the interaction between the accounting for equity securities, equity method investments, and certain derivative instruments. The ASU, among other things, clarifies that a company should consider observable transactions that require a company to either apply or discontinue the equity method of accounting under Topic 323,Investments-Equity Method and Joint Ventures , for the purposes of applying the measurement alternative in accordance with Topic 321 immediately before applying or upon discontinuing the equity method. ASU 2020-01 is effective for fiscal years beginning afterDecember 15, 2020 , and interim periods within those fiscal years and should be applied prospectively. We adopted the standard effectiveJanuary 1, 2021 , and the adoption of this standard did not have a material impact on our consolidated financial statements.
RECENTLY ISSUED ACCOUNTING STANDARDS
InMarch 2020 , the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848) ("ASU 2020-04"). ASU 2020-04 contains practical expedients for reference rate reform-related activities that impact debt, leases, derivatives and other contracts. The guidance in ASU 2020-04 is optional and may be elected over time as reference rate reform activities occur. The Company continues to evaluate the impact of the guidance and may apply the elections as applicable as changes in the market occur. InAugust 2020 , the FASB issued ASU 2020-06, Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity's Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity's Own Equity ("ASU 2020-06"), which simplifies the accounting for certain financial instruments with characteristics of liabilities and equity. This ASU (1) simplifies the accounting for convertible debt instruments and convertible preferred stock by removing the existing guidance in Accounting Standards Codification ("ASC") 470-20, Debt: Debt with Conversion and Other Options, that requires entities to account for beneficial conversion features and cash conversion features in equity, separately from the host convertible debt or preferred stock; (2) revises the scope exception from derivative accounting in ASC 815-40 for freestanding financial instruments and embedded features that are both indexed to the issuer's own stock and classified in stockholders' equity, by removing certain criteria required for equity classification; and (3) revises the guidance in ASC 260, Earnings Per Share, to require entities to calculate diluted earnings per share ("EPS") for convertible instruments by using the if-converted method. In addition, entities must presume share settlement for purposes of calculating diluted EPS when an instrument may be settled in cash or shares. We plan to adopt ASU 2020-06 effectiveJanuary 1, 2022 , and do not expect the adoption to have a material impact on our consolidated financial statements and related disclosures.
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.
65
--------------------------------------------------------------------------------
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):
Year Ended
2021 2020 2019
Net income (loss)
Interest expense and amortization of discounts and loan costs
156,119 247,381 262,001 Depreciation and amortization 218,851 252,765 269,003 Income tax expense (benefit) 5,948 (1,335) 1,218 Equity in (earnings) loss of unconsolidated entities 558 448 2,307
Company’s portion of EBITDA of unconsolidated entities (Ashford
Inc.)
- - 4,336 Company's portion of EBITDA of unconsolidated entities (OpenKey) (554) (446) (403) EBITDA 109,874 (134,409) 395,783 Impairment charges on real estate - 91,721 33,628 (Gain) loss on disposition of assets and hotel properties (449) 36,680 (26,126) EBITDAre 109,425 (6,008) 403,285 Amortization of unfavorable contract liabilities 211 227 176 (Gain) loss on insurance settlements - (625) (450) Write-off of premiums, loan costs and exit fees 10,612 13,867 2,841 (Gain) loss on extinguishment of debt (11,896) (90,349) - Other (income) expense, net (1,760) 17,029 (10,219) Transaction and conversion costs 3,033 16,309 2,329 Legal, advisory and settlement costs 7,371 1,409 1,660 Unrealized (gain) loss on marketable securities - 1,467 (1,896) Unrealized (gain) loss on derivatives (14,493) (19,950) 4,494 Dead deal costs 689 923 78 Uninsured remediation costs 341 - - Non-cash stock/unit-based compensation 10,095 10,746 19,717
Company’s portion of adjustments to EBITDAre of unconsolidated
entities (Ashford Inc.)
- - 2,941 Company's portion of adjustments to EBITDAre of unconsolidated entities (OpenKey) 16 28 49 Adjusted EBITDAre$ 113,644 $ (54,927) $ 425,005 66
--------------------------------------------------------------------------------
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, 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.
67
--------------------------------------------------------------------------------
The following table reconciles net income (loss) to FFO and Adjusted FFO (in
thousands):
Year Ended
2021 2020 2019
Net income (loss)
(Income) loss attributable to noncontrolling interest in
consolidated entities
73 338 112
Net (income) loss attributable to redeemable noncontrolling
interests in operating partnership
3,970 89,008 28,932 Preferred dividends (252) (32,117) (42,577) Gain (loss) on extinguishment of preferred stock (607) 55,477 - Net income (loss) attributable to common stockholders (267,864) (520,516) (156,212) Depreciation and amortization of real estate 218,708 252,590 268,778 (Gain) loss on disposition of assets and hotel properties (449) 36,680 (26,126)
Net income (loss) attributable to redeemable noncontrolling
interests in operating partnership
(3,970) (89,008) (28,932) Equity in (earnings) loss of unconsolidated entities 558 448 2,307 Impairment charges on real estate - 91,721 33,628
Company’s portion of FFO of unconsolidated entities (Ashford Inc.)
- - (4,030) Company's portion of FFO of unconsolidated entities (OpenKey) (556) (449) (396) FFO available to common stockholders and OP unitholders (53,573) (228,534) 89,017 (Gain) loss on extinguishment of preferred stock 607 (55,477) - Write-off of premiums, loan costs and exit fees 10,612 13,867 2,841 (Gain) loss on extinguishment of debt (11,896) (90,349) - (Gain) loss on insurance settlements - (625) (450) Other (income) expense, net (1,760) 17,029 (10,219) Transaction and conversion costs 3,407 16,309 2,329 Legal, advisory and settlement costs 7,371 1,409 1,660 Unrealized (gain) loss on marketable securities - 1,467 (1,896) Unrealized (gain) loss on derivatives (14,493) (19,950) 4,494 Dead deal costs 689 923 78 Uninsured remediation costs 341 - - Non-cash stock/unit-based compensation 10,095 10,746 19,717 Amortization of term loan exit fee 7,076 - - Amortization of loan costs 12,597 16,517 29,537
Company’s portion of adjustments to FFO of unconsolidated entities
(Ashford Inc.)
- - 8,319
Company’s portion of adjustments to FFO of unconsolidated entities
(OpenKey)
16 17 55 Adjusted FFO available to common stockholders and OP unitholders
68
——————————————————————————–
© Edgar Online, source
Leave a Reply
You must be logged in to post a comment.