ASHFORD HOSPITALITY TRUST: MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL POSITION AND RESULTS OF OPERATIONS (Form 10-Q)

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 ended December 31, 2020, as
filed with the Securities and Exchange Commission ("SEC") on March 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;
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•changes in our industry and the market in which we operate, interest rates, or
local economic conditions;
•the degree and nature of our competition;
•actual and potential conflicts of interest with Ashford Inc. and its
subsidiaries (including Ashford 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 of Ashford 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 the SEC 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 for U.S. federal income tax purposes; and
•future sales and issuances of our common stock or other securities might result
in dilution and could cause the price of our common stock to decline.
When considering forward-looking statements, you should keep in mind the matters
summarized under "Item 1A. Risk Factors" in Part I of our 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 of June 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 in the United States.
Based on our primary business objectives and forecasted operating conditions,
our current key priorities and financial strategies include, among other things:
•adjusting cost and operational models due to the impact of COVID-19 on the
hotel industry;
•maintain maximum cash and cash equivalents liquidity;
•opportunistically exchange preferred stock into common stock;
•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.
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Our current investment strategy is to focus on owning predominantly full-service
hotels in the upper upscale segment in domestic markets that have revenue per
available room ("RevPAR") generally less than twice the national average. We
believe that as supply, demand, and capital market cycles change, we will be
able to shift our investment strategy to take advantage of new lodging-related
investment opportunities as they may develop. Our board of directors may change
our investment strategy at any time without stockholder approval or notice. We
will continue to seek ways to benefit from the cyclical nature of the hotel
industry.
We are advised by Ashford LLC, a subsidiary of Ashford Inc., through an advisory
agreement. All of the hotel properties in our portfolio are currently
asset-managed by Ashford LLC. We do not have any employees. All of the services
that might be provided by employees are provided to us by Ashford LLC.
We do not operate any of our hotel properties directly; instead we employ hotel
management companies to operate them for us under management contracts. As of
June 30, 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 of June 30, 2021, owned
approximately 608,578 shares of Ashford Inc. common stock, which represented an
approximate 20.1% ownership interest in Ashford Inc., and owned 18,758,600
shares of Ashford Inc. Series D Convertible Preferred Stock, which is
exercisable (at an exercise price of $117.50 per share) into an additional
approximate 3,991,191 shares of Ashford Inc. common stock, which if exercised as
of June 30, 2021 would have increased the Bennetts' ownership interest in
Ashford Inc. to 65.6%, provided that prior to August 8, 2023, the voting power
of the holders of the Ashford Inc. Series D Convertible Preferred Stock is
limited to 40% of the combined voting power of all of the outstanding voting
securities of Ashford Inc. entitled to vote on any given matter. The 18,758,600
Series D Convertible Preferred Stock owned by Mr. Monty J. Bennett and Mr.
Archie Bennett, Jr. include 360,000 shares owned by trusts.
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 hotel industry and our portfolio have experienced the
postponement or cancellation of a significant number of business conferences and
similar events. Following the government mandates and health official orders, in
March 2020, the Company temporarily suspended operations at 23 of its 116 hotels
and dramatically reduced staffing and expenses at its hotels that remained
operational. As of June 30, 2021, operations at one of the Company's hotels
remained temporarily suspended. COVID-19 has had a significant negative impact
on the Company's operations and financial results to date. The full financial
impact of the reduction in hotel demand caused by the pandemic cannot be
reasonably estimated at this time due to uncertainty as to its severity and
duration. In addition, one or more possible recurrences of COVID-19 case surges
could result in further reductions in business and personal travel and could
cause state and local governments to reinstate travel restrictions. The Company
expects that the COVID-19 pandemic will continue to have a significant negative
impact on the Company's results of operations, financial position and cash flow
throughout 2021 and for the foreseeable future. As a result, the Company
suspended the quarterly cash dividend on its common stock beginning in the first
quarter of fiscal year 2020, suspended the quarterly cash dividend on its
preferred stock beginning in the second quarter of fiscal year 2020, reduced
planned capital expenditures, and worked closely with its hotel managers to
significantly reduce its hotels' operating expenses.
Beginning on April 1, 2020, we did not make principal or interest payments under
nearly all of our loans, which constituted an "Event of Default" as such term is
defined under the applicable loan documents. Pursuant to the terms of the
applicable loan documents, such an Event of Default caused an automatic increase
in the interest rate on our outstanding loan balance for the period such Event
of Default remains outstanding. Following an Event of Default, our lenders can
generally elect to accelerate all principal and accrued interest payments that
remain outstanding under the applicable loan agreement and foreclose on the
applicable hotel properties that are security for such loans.
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The Company continues to have discussions with its lenders about potential loan
modifications on its property level debt. As of August 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 June
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 June 30, 2021, the Company held cash and cash equivalents of $520.4
million and restricted cash of $70.1 million. 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 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 governmental entities may impose
additional travel restrictions due to a resurgence of COVID-19 cases in the
future. 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 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 management's current plan alleviates the
substantial doubt about its ability to continue as a going concern. 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;
•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; and
•as of June 30, 2021, the Company held cash and cash equivalents of $520.4
million and restricted cash of $70.1 million. The vast majority of the
restricted cash is comprised of lender and manager held reserves. The Company
has worked with its property managers and lenders in order to utilize lender and
manager held reserves to fund operating shortfalls. At June 30, 2021, there was
also $15.9 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.
Recent Developments
On April 20, 2021, the Company delivered written notice to Ashford LLC of its
intention not to renew the ERFP Agreement, through which Ashford LLC agreed to
make certain investments to facilitate the acquisition of properties by the
Operating Partnership that are recommended by Ashford LLC. As a result, the ERFP
Agreement terminated in accordance with its terms at the end of the current term
on June 26, 2021. We intend to amend the Second Amended and Restated Advisory
Agreement, dated January 14, 2021, to reflect certain changes necessary in
connection with the expiration of the ERFP Agreement.
In April 2021, the Company experienced a cumulative ownership change within the
meaning of Section 382 of the Code. Section 382 imposes substantial restrictions
on the utilization of net operating losses and other tax attributes in the event
of a
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cumulative ownership change of a corporation of more than 50% over a three year
period. Accordingly, a company's ability to use pre-change net operating loss
carryforwards and other tax attributes may be limited as prescribed under
Section 382. Management does not believe that the ownership change will have a
material impact on tax expense for the current year.
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 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 40,000 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 June 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 3.8 million shares of its common
stock from time to time during the term of the Second YA SEDA. As of August 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 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 August 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 a common stock purchase
agreement (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 4.6 million shares of common stock, from time to time during the term of the
B. Riley Purchase Agreement. As of August 4, 2021, the Company has issued
approximately 600,000 shares of common stock for gross proceeds of approximately
$9.4 million under the B. Riley Purchase Agreement.
On July 12, 2021, the Company made an additional investment in OpenKey of
approximately $250,000.
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.
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RevPAR changes that are primarily driven by changes in occupancy have different
implications for overall revenues and profitability than changes that are driven
primarily by changes in ADR. For example, an increase in occupancy at a hotel
would lead to additional variable operating costs (including housekeeping
services, utilities and room supplies) and could also result in increased other
operating department revenue and expense. Changes in ADR typically have a
greater impact on operating margins and profitability as they do not have a
substantial effect on variable operating costs.
Occupancy, ADR and RevPAR are commonly used measures within the lodging industry
to evaluate operating performance. RevPAR is an important statistic for
monitoring operating performance at the individual hotel level and across our
entire business. We evaluate individual hotel RevPAR performance on an absolute
basis with comparisons to budget and prior periods, as well as on a regional and
company-wide basis. ADR and RevPAR include only rooms revenue. Rooms revenue is
dictated by demand (as measured by occupancy), pricing (as measured by ADR) and
our available supply of hotel rooms.
We also use funds from operations ("FFO"), Adjusted FFO, earnings before
interest, taxes, depreciation and amortization for real estate ("EBITDAre") and
Adjusted EBITDAre as measures of the operating performance of our business. See
"Non-GAAP Financial Measures."
Revenue per available room, or RevPAR, is a commonly used measure within the
hotel industry to evaluate hotel operations. RevPAR is defined as the product of
the ADR charged and the average daily occupancy achieved. RevPAR does not
include revenues from food and beverage or parking, telephone, or other guest
services generated by the property. Although RevPAR does not include these
ancillary revenues, it is generally considered the leading indicator of core
revenues for many hotels. We also use RevPAR to compare the results of our
hotels between periods and to analyze results of our comparable hotels
(comparable hotels represent hotels we have owned for the periods under
comparison). RevPAR improvements attributable to increases in occupancy are
generally accompanied by increases in most categories of variable operating
costs. RevPAR improvements attributable to increases in ADR are generally
accompanied by increases in limited categories of operating costs, such as
management fees and franchise fees.
The following table summarizes changes in key line items from our consolidated
statements of operations (in thousands):

                                                Three Months Ended June 30,               Favorable/                   Six Months Ended June 30,                  Favorable/
                                                                                         (Unfavorable)                                                           (Unfavorable)
                                                 2021                  2020                 Change                     2021                    2020                 Change
Total revenue                              $      193,412          $   43,065          $      150,347          $      309,242              $  324,942          $      (15,700)
Total hotel operating expenses                   (134,432)            (66,555)                (67,877)               (225,979)               (268,265)                 42,286
Property taxes, insurance and other               (17,128)            (20,700)                  3,572                 (34,599)                (41,172)                  6,573
Depreciation and amortization                     (55,595)            (65,016)                  9,421                (113,222)               (131,366)                 18,144
Impairment charges                                      -             (27,605)                 27,605                       -                 (55,218)                 55,218

Advisory services fee                             (19,554)            (10,216)                 (9,338)                (31,715)                (25,515)                 (6,200)
Corporate, general and administrative              (2,702)             (4,708)                  2,006                  (9,699)                 (8,200)                 (1,499)
Gain (loss) on disposition of assets and              361                  (6)                    367                     292                   3,617                  (3,325)
hotel properties
Operating income (loss)                           (35,638)           (151,741)                116,103                (105,680)               (201,177)                 95,497
Equity in earnings (loss) of                         (141)                (79)                    (62)                   (278)                   (158)                   (120)
unconsolidated entities
Interest income                                         -                  41                     (41)                     13                     652                    (639)
Other income (expense)                                245              (3,149)                  3,394                     474                  (1,627)                  2,101
Interest expense and amortization of              (35,736)            (88,082)                 52,346                 (69,000)               (145,167)                 76,167
discounts and loan costs
Write-off of premiums, loan costs and exit           (787)             (1,935)                  1,148                  (4,166)                 (2,030)                 (2,136)

costs

Gain (loss) on extinguishment of debt              10,604                   -                  10,604                  10,604                       -                  10,604
Unrealized gain (loss) on marketable                    -                 479                    (479)                      -                    (998)                    998

securities

Unrealized gain (loss) on derivatives              (3,236)                192                  (3,428)                 (2,317)                  4,614                  (6,931)
Income tax (expense) benefit                         (572)              2,188                  (2,760)                   (301)                  1,885                  (2,186)

Net income (loss)                                 (65,261)           (242,086)                176,825                (170,651)               (344,006)                173,355
(Income) loss attributable to
noncontrolling interest in consolidated
entities                                               13                 120                    (107)                     94                     168                     (74)
Net (income) loss attributable to
redeemable noncontrolling interests in
operating partnership                                 956              37,350                 (36,394)                  3,227                  55,021                 (51,794)
Net income (loss) attributable to the      $      (64,292)         $ (204,616)         $      140,324          $     (167,330)             $ (288,817)         $      121,487
Company


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All hotel properties owned during the three and six months ended June 30, 2021
and 2020 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 six months ended June 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, 2020
Washington Hampton Inn Pittsburgh Meadow
Lands (1)                                         Pittsburgh, PA                    Disposition            August 19, 2020
Phoenix Hampton Inn Airport North (1)             Phoenix, AZ                       Disposition            August 19, 2020
Pittsburgh 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


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(1) Collectively referred to as “Hotel arrangements“The following table illustrates the key performance indicators for all hotel and WorldQuest properties owned for the periods indicated:

                                             Three Months Ended June 30,                 Six Months Ended June 30,
                                               2021                  2020                 2021                 2020
RevPAR (revenue per available room)      $       77.86           $   16.48          $      62.65           $   55.59
Occupancy                                        57.06   %           14.83  %              49.65   %           36.73  %
ADR (average daily rate)                 $      136.46           $  111.17          $     126.18           $  151.36

The following table illustrates the key performance indicators for the 100 comparable hotel properties and WorldQuest that were included for the three and six months ended. June 30, 2021 and 2020, respectively:

                                             Three Months Ended June 30,                 Six Months Ended June 30,
                                               2021                  2020                 2021                 2020
RevPAR (revenue per available room)      $       77.98           $   16.42          $      62.87           $   56.62
Occupancy                                        57.05   %           14.59  %              49.63   %           36.83  %
ADR (average daily rate)                 $      136.68           $  112.50          $     126.66           $  153.73


Comparison of the Three Months Ended June 30, 2021 and 2020
Net Income (Loss) Attributable to the Company. Net loss attributable to the
Company decreased $140.3 million, from $204.6 million for the three months ended
June 30, 2020 (the "2020 quarter") to $64.3 million for the three months ended
June 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 $122.6
million, or 327.4%, to $160.0 million in the 2021 quarter compared to 2020
quarter. This increase is attributable to higher rooms revenue of $126.1 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 $3.5 million from our Hotel Dispositions. Our comparable hotel properties
experienced an increase of 21.5% in room rates and 4,246 basis points in
occupancy.
Food and beverage revenue increased $18.6 million, or 1,557.5%, to $19.8
million. This increase is attributable to higher food and beverage revenue of
$18.6 million at our comparable hotel properties and WorldQuest as our hotel
properties recover from the effects of the COVID-19 pandemic.
Other hotel revenue, which consists mainly of Internet access, parking, spa and
business interruption revenue, increased $8.8 million, or 212.7%, to $13.0
million. This increase is primarily attributable to an increase of $9.1 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 $300,000 from
our Hotel Dispositions. Other non-hotel revenue increased $279,000, or 101.1%,
to $555,000 in 2021 quarter as compared to 2020 quarter.
Hotel Operating Expenses. Hotel operating expenses increased $67.9 million, or
102.0%, to $134.4 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 $36.3 million in the 2021 quarter as compared to 2020 quarter, as our
hotel properties recover from the effects of the COVID-19 pandemic, which was
comprised of an increase of $37.2 million from our comparable hotel properties
and WorldQuest partially offset by a decrease of $937,000 million from our Hotel
Dispositions. Direct expenses were 27.7% of total hotel revenue for 2021 quarter
and 40.1% for 2020 quarter. Indirect expenses and management fees increased
$31.6 million in the 2021 quarter as compared to 2020 quarter, which was
comprised of an increase of $36.1 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 $4.5 million from our Hotel
Dispositions.
Property Taxes, Insurance and Other. Property taxes, insurance and other expense
decreased $3.6 million, or 17.3%, to $17.1 million during 2021 quarter compared
to the 2020 quarter, which was due to a decrease of $2.5 million from our Hotel
Dispositions and $1.1 million at our comparable hotel properties and WorldQuest.
Depreciation and Amortization. Depreciation and amortization decreased $9.4
million, or 14.5%, to $55.6 million during 2021 quarter compared to 2020
quarter, which was primarily due to a decrease of $4.8 million from our Hotel
Dispositions and $4.6 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 $27.6 million. On July
9, 2020, the non-recourse mortgage loan secured by eight hotel properties
matured. The lender has provided notice of UCC sale, which provides that the
respective lender will 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 Pittsburgh Meadow Lands, $3.0 million
at the Pittsburgh Hampton Inn Waterfront West Homestead and $2.4 million at the
Stillwater Residence Inn. The impairment charges were based on methodologies
which include the development of 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 increased $9.3 million, or 91.4%,
to $19.6 million in the 2021 quarter compared to 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 $9.0 million, equity-based
compensation of $2.5 million, associated with equity grants of our common stock
and LTIP units awarded to the officers and employees of Ashford Inc.,
reimbursable expenses of $1.6 million and an incentive fee of $6.5 million. In
the 2020 quarter, the advisory services fee was comprised of a base advisory fee
of $8.6 million, equity-based compensation of $92,000, which is inclusive of a
$1.9 million credit related to PSU forfeitures, 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 $2.0 million, or 42.6%, to $2.7 million during 2021 quarter
compared to 2020 quarter. The decrease was primarily attributable to lower legal
and professional fees of $1.3 million, lower reimbursed operating expenses of
Ashford Securities paid by Ashford Trust of
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$316,000, lower investment management expenses of $263,000 and lower other
miscellaneous expenses of $220,000, partially offset by higher public company
costs of $92,000.
Gain (Loss) on Disposition of Assets and Hotel Properties. Gain (Loss) on
disposition of assets and hotel properties changed $367,000 from a loss of
$6,000 in the 2020 quarter to a gain of $361,000 in the 2021 quarter. The gain
in the 2021 quarter of $361,000 was primarily related to a franchise fee
reimbursement related to the disposition of the Embassy Suites New York
Manhattan Times Square.
Equity in Earnings (Loss) of Unconsolidated Entities. Equity in loss of
unconsolidated entities, which consists of our share of earnings/loss from
OpenKey, was $141,000 in the 2021 quarter and $79,000 in the 2020 quarter.
Interest Income. Interest income was $0 and $41,000 for 2021 quarter and 2020
quarter, respectively.
Other Income (Expense). Other income (expense) changed $3.4 million from other
expense of $3.1 million in the 2020 quarter, to other income of $245,000 in the
2021 quarter. In the 2021 quarter, we recorded miscellaneous income of $245,000.
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 $3.0 million on
interest rate floors. These expenses were partially offset by other income of
$118,000 and a realized gain on marketable securities of $4,000.
Interest expense and amortization of discounts and loan costs. Interest expense
and amortization of discounts and loan costs decreased $52.3 million, or 59.4%,
to $35.7 million during 2021 quarter compared to 2020 quarter. The decrease is
primarily due to a decrease of $5.6 million from our Hotel Dispositions, lower
default interest and late charges on mortgage loans previously in default of
$42.7 million, a credit to interest expense in the 2021 quarter of $10.8 million
related to the amortization of default interest and late charges recorded on
mortgage loans previously in default and a decrease of $2.6 million at our
comparable hotel properties primarily due to lower LIBOR rates. The average
LIBOR rates in the 2021 quarter and 2020 quarter were 0.10% and 0.35%,
respectively. These decreases were partially offset by an increase of $9.3
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 $1.1 million to $787,000 in the 2021 quarter
compared to the 2020 quarter. In the 2021 quarter, we executed amendments with
various lenders, which included deferral of debt service payments and allowed
the use of reserves for property-level operating shortfalls and/or to cover debt
service payments. In conjunction with these amendments, third-party fees
incurred were $144,000 and Lismore fees incurred were $643,000, totaling
$787,000. In the 2020 quarter, 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
$336,000 and fees paid to Lismore were $1.6 million, totaling $1.9 million.
Gain (loss) on extinguishment of debt. Gain on extinguishment of debt was $10.6
million in the 2021 quarter, which related to the foreclosure of the SpringHill
Suites Durham and SpringHill Suites Charlotte.
Unrealized Gain (Loss) on Marketable Securities. Unrealized gain (loss) on
marketable securities was $0 and $479,000 in the 2021 quarter and 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 (loss) on derivatives
changed $3.4 million from a gain of $192,000 in the 2020 quarter to a loss $3.2
million in the 2021 quarter. In the 2021 quarter, we recognized an unrealized
loss of $319,000 on interest rate floors, an unrealized loss of $241,000
associated with interest rate caps and $2.7 million unrealized loss from the
revaluation of the embedded debt derivative. In the 2020 quarter, we recognized
unrealized gains of $3.4 million on interest rate floors of which $3.0 million
is associated with the recognition of realized losses from the expiration of
interest rate floors, partially offset by an unrealized loss of $3.2 million
from CMBX tranches and $19,000 associated with interest rate caps.
Income Tax (Expense) Benefit. Income tax (expense) benefit changed $2.8
million, from an income tax benefit of $2.2 million in the 2020 quarter to
income tax expense of $572,000 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.
(Income) Loss Attributable to Noncontrolling Interest in Consolidated Entities.
Our noncontrolling interest partner in consolidated entities was allocated a
loss of $13,000 and $120,000 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 $37.4 million in the 2020 quarter and $1.0 million in
the 2021
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quarter. Redeemable noncontrolling interests represented ownership interests of
1.36% and 14.79% in the operating partnership at June 30, 2021 and 2020,
respectively.
Comparison of the Six Months Ended June 30, 2021 and 2020
Net Income (Loss) Attributable to the Company. Net loss attributable to the
Company decreased $121.5 million from $288.8 million for the six months ended
June 30, 2020 (the "2020 period") to $167.3 million for the six months ended
June 30, 2021 ( the "2021 period") as a result of the factors discussed below.
Revenue. Rooms revenue from our hotel properties and WorldQuest increased $3.9
million, or 1.5%, to $257.1 million in the 2021 period compared to the 2020
period. This increase is attributable to higher rooms revenue of $24.1 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 $20.2 million from our Hotel Dispositions. Our comparable hotel
properties experienced a decrease of 17.6% in room rates and an increase of
1,280 basis points in occupancy.
Food and beverage revenue decreased $21.4 million, or 43.6%, to $27.7 million in
the 2021 period compared to the 2020 period. This decrease is attributable
to lower food and beverage revenue of $20.4 million at our comparable hotel
properties and WorldQuest as a result of the COVID-19 pandemic and $1.0 million
from our Hotel Dispositions.
Other hotel revenue, which consists mainly of Internet access, parking, spa and
business interruption revenue, increased $1.9 million, or 8.9%, to $23.4 million
in the 2021 period compared to the 2020 period. This increase is attributable to
higher other revenue of $3.4 million from our comparable hotel properties and
WorldQuest as our hotel properties recover from the effects of the COVID-19
pandemic, partially offset by a decrease of $1.5 million from our Hotel
Dispositions.
Hotel Operating Expenses. Hotel operating expenses decreased $42.3 million,
or 15.8%, to $226.0 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 decreased $22.6 million in the 2021 period
compared to the 2020 period, comprised of a decrease of $16.2 million from our
comparable hotel properties and WorldQuest as a result of the COVID-19 pandemic
and $6.4 million from our Hotel Dispositions. Direct expenses were 27.7% of
total hotel revenue for the 2021 period and 33.4% for the 2020 period. Indirect
expenses and management fees decreased $19.7 million in the 2021 period compared
to the 2020 period, comprised of a decrease of $6.5 million from our comparable
hotel properties and WorldQuest as a result of the COVID-19 pandemic and $13.2
million from our Hotel Dispositions.
Property Taxes, Insurance and Other. Property taxes, insurance and other expense
decreased $6.6 million or 16.0%, to $34.6 million in the 2021 period compared to
the 2020 period, which was primarily due to a decrease of $5.0 million from our
Hotel Dispositions and $1.6 million at our comparable hotel properties.
Depreciation and Amortization. Depreciation and amortization decreased $18.1
million or 13.8%, to $113.2 million in the 2021 period compared to the 2020
period, which consisted of lower deprecation of $10.0 million as a result of our
Hotel Dispositions and lower depreciation of $8.2 million at our comparable
hotel properties and WorldQuest.
Impairment Charges. Impairment charges were $0 and $55.2 million in the 2021
period and the 2020 period, respectively. In the 2020 period, we recorded an
impairment charge in the first quarter 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 has provided notice of UCC sale,
which provides that the respective lender will 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 Pittsburgh
Meadow Lands, $3.0 million at the Pittsburgh Hampton Inn Waterfront West
Homestead and $2.4 million at the Stillwater Residence Inn. The impairment
charges were based on methodologies which include the development of 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 increased $6.2 million, or 24.3%,
to $31.7 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 $17.7 million, equity-based
compensation of $4.3 million associated with equity grants of our common stock
and LTIP units
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awarded to the officers and employees of Ashford Inc., reimbursable expenses of
$3.2 million and incentive fees of $6.5 million. In the 2020 period, the
advisory services fee was comprised of a base advisory fee of $17.5 million,
equity-based compensation of $4.6 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 $3.4 million.
Corporate, General and Administrative. Corporate, general and administrative
expense increased $1.5 million, or 18.3%, to $9.7 million in the 2021 period
compared to the 2020 period. The increase was primarily attributable to higher
legal and professional fees of $3.6 million partially offset by a decrease of
reimbursed operating expenses of Ashford Securities paid by Ashford Trust of
$1.0 million, lower investment management expenses of 701,000, lower
miscellaneous expenses of $397,000 and lower public company costs of $16,000.
Gain (Loss) on Disposition of Assets and Hotel Properties. Gain (loss) on
disposition of assets and hotel properties changed decreased $3.3 million, from
$3.6 million in the 2020 period to $292,000 in the 2021 period. The gain in the
2020 period related to the sale of the Annapolis Crowne Plaza. The gain in the
2021 period was primarily related to a franchise fee reimbursement related to
the disposition of the Embassy Suites New York Manhattan Times Square.
Equity in Earnings (Loss) of Unconsolidated Entities. Equity in loss of
unconsolidated entities, which consists of our share of earnings/loss from
OpenKey, was $278,000 in the 2021 period compared to $158,000 in the 2020
period.
Interest Income. Interest income was $13,000 and $652,000 in the 2021 period and
the 2020 period, respectively.
Other Income (Expense). Other income (expense) changed $2.1 million from expense
of $1.6 million in the 2020 period to income of $474,000 in the 2021 period. In
the 2021 period, we recorded miscellaneous income of $474,000. In the 2020
period, we recorded expense of $540,000 from CMBX premiums and interest paid on
collateral, a realized loss of $3.2 million on interest rate floors and other
expense of $2,000. These expenses were partially offset by a realized gain of
$2.1 million on sale of marketable securities 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 $76.2 million, or 52.5%,
to $69.0 million in the 2021 period compared to the 2020 period. The decrease is
primarily due to a decrease of $11.5 million from our Hotel Dispositions, a
decrease of $15.8 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 $40.0 million and a credit to interest expense in the
2021 period of $27.6 million related to the amortization of default interest and
late charges recorded on mortgage loans previously in default. These decreases
were partially offset by an increase of $18.7 million attributable to the
Oaktree term loan. The average LIBOR rates in the 2021 period and the 2020
period were 0.11% and 0.89%, respectively.
Write-off of Premiums, Loan Costs and Exit Fees. Write-off of premiums, loan
costs and exit fees increased $2.1 million to $4.2 million in the 2021 period
compared to the 2020 period. In the 2021 period, we executed several amendments
with various lenders, which included deferral of debt service payments and
allowed the use of reserves for property-level operating shortfalls and/or to
cover debt service payments. Lismore fees incurred in conjunction with these
amendments were $4.3 million, which were partially offset by a net credit of
$173,000 related to third-party fees, totaling $4.2 million. 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 $336,000 and fees paid to
Lismore were $1.6 million, totaling $1.9 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 $10.6
million in the 2021 period, which related to the foreclosure of the SpringHill
Suites Durham and SpringHill Suites Charlotte.
Unrealized Gain (Loss) on Marketable Securities. Unrealized gain (loss) on
marketable securities was $0 and $(1.0) 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 (loss) on derivatives
changed $6.9 million from a $4.6 million unrealized gain in the 2020 period to a
$2.3 million unrealized loss in the 2021 period. In the 2021 period, we recorded
unrealized losses of $1.4 million from the revaluation of the embedded debt
derivative, $390,000 from interest rate floors and $530,000 from interest rate
caps. In the 2020 period, we recognized unrealized gains of $696,000 related to
CMBX tranches, $4.0 million from interest rate floors of which $3.2 million is
associated with the recognition of realized losses from the expiration of
interest rate floors, partially offset by an unrealized loss of $70,000
associated with interest rate caps.
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Income Tax (Expense) Benefit. Income tax (expense) benefit changed $2.2
million, from an income tax benefit of $1.9 million in the 2020 period to income
tax expense of $301,000 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 $94,000 and $168,000 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 $3.2 million and $55.0 million in the 2021 period and
the 2020 period, respectively. Redeemable noncontrolling interests represented
ownership interests of 1.36% and 14.79% in the operating partnership at June 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 hotel industry and our portfolio have experienced the
postponement or cancellation of a significant number of business conferences and
similar events. Following the government mandates and health official orders, in
March 2020, the Company temporarily suspended operations at 23 of its 116 hotels
and dramatically reduced staffing and expenses at its hotels that remained
operational. As of June 30, 2021, operations at one of the Company's hotels
remained temporarily suspended. COVID-19 has had a significant negative impact
on the Company's operations and financial results to date. The full financial
impact of the reduction in hotel demand caused by the pandemic cannot be
reasonably estimated at this time due to uncertainty as to its severity and
duration. In addition, one or more possible recurrences of COVID-19 case surges
could result in further reductions in business and personal travel and could
cause state and local governments to reinstate travel restrictions. The Company
expects that the COVID-19 pandemic will continue to have a significant negative
impact on the Company's results of operations, financial position and cash flow
throughout 2021 and for the foreseeable future. As a result, the Company
suspended the quarterly cash dividend on its common stock beginning in the first
quarter of fiscal year 2020, suspended the quarterly cash dividend on its
preferred stock beginning in the second quarter of fiscal year 2020, reduced
planned capital expenditures, and worked closely with its hotel managers to
significantly reduce its hotels' operating expenses.
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. Beginning on April 1, 2020, we
did not make principal or interest payments under nearly all of our loans, which
constituted an "Event of Default" as such term is defined under the applicable
loan documents. Pursuant to the terms of the applicable loan documents, such an
Event of Default caused an automatic increase in the interest rate on our
outstanding loan balance for the period such Event of Default remains
outstanding. Following an Event of Default, our lenders can generally elect to
accelerate all principal and accrued interest payments that remain outstanding
under the applicable loan agreement and foreclose on the applicable hotel
properties that are security for such loans.
The Company continues to have discussions with its lenders about potential loan
modifications on its property level debt. As of August 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 June
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 June 30, 2021, the Company held cash and cash equivalents of $520.4
million and restricted cash of $70.1 million. 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 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 governmental entities may impose
additional travel restrictions due to a resurgence of COVID-19 cases in the
future. As a result of these factors arising from the impact of
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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 management's current plan alleviates the
substantial doubt about its ability to continue as a going concern. 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 may not 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 2021 and 2022
final debt 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.
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;
•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; and
•as of June 30, 2021, the Company held cash and cash equivalents of $520.4
million and restricted cash of $70.1 million. The vast majority of the
restricted cash comprises lender and manager held reserves. The Company has
worked with its property managers and lenders in order to utilize lender and
manager held reserves to fund operating shortfalls. At June 30, 2021, there was
also $15.9 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.
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 June 30, 2021,
approximately $298,000 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
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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 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.
Debt Transactions
On January 15, 2021, the Company entered into the Oaktree Credit Agreement 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
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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.
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 six months ended
June 30, 2021 pursuant to the Repurchase Program.
From January 1, 2021 through August 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 August 4, 2021, the Company
exchanged a total of 218,000 shares of its common stock for an aggregate of
136,000 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 June 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 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 June 30, 20211, all shares available under the Second Lincoln Park Purchase
Agreement were sold.
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 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 June 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 3,790,455 shares of its common
stock from time to time during the term of the Second YA SEDA. As of August 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.
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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 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 August 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 4.6 million shares of common
stock, from time to time during the term of the B. Riley Purchase Agreement. As
of August 4, 2021, the Company has issued approximately 600,000 shares of common
stock for gross proceeds of approximately $9.4 million under the B. Riley
Purchase Agreement. As of June 30, 2021, no shares available under the B. Riley
Purchase Agreement were sold.
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
$(114.6) million and $(64.8) million for the six months ended June 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 six months
ended June 30, 2021, net cash flows used in investing activities were $4.4
million. Cash outflows consisted of $13.5 million for capital improvements made
to various hotel properties, partially offset by cash inflows of $7.3 million
from proceeds received from the sale of the Le Meridien Minneapolis and $1.8
million of proceeds from property insurance.
For the six months ended June 30, 2020, net cash flows used in investing
activities were $25.0 million. Cash outflows primarily consisted of $29.8
million for capital improvements made to various hotel properties. Cash outflows
were partially offset by $4.7 million from proceeds received from the sale of
the Crowne Plaza Annapolis.
Net Cash Flows Provided by (Used in) Financing Activities. For the six months
ended June 30, 2021, net cash flows provided by financing activities were $542.2
million. Cash inflows consisted of $195.5 million from borrowings on
indebtedness, net of commitment fee and $371.5 million of net proceeds from
issuances of common stock, partially offset by cash outflows of $5.8 million for
repayments of indebtedness, $18.2 million for payments of loan costs and exit
fees and $785,000 of payments for derivatives.
For the six months ended June 30, 2020, net cash flows used in financing
activities were $47.7 million. Cash outflows primarily consisting of $96.3
million for repayments of indebtedness, $28.6 million for dividend payments to
common and preferred stockholders and unitholders and $10.3 million for payments
of loan costs and exit fees, partially offset by cash inflows of $88.0 million
from borrowings on indebtedness.
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
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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 June 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.
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.
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Table of contents The following table reconciles net income (loss) with EBITDA, EBITDAre and Adjusted EBITDAre (in thousands):

                                                               Three Months Ended June 30,                    Six Months Ended June 30,
                                                                2021                  2020                    2021                    2020
Net income (loss)                                         $      (65,261)         $ (242,086)         $     (170,651)             $ (344,006)
Interest expense and amortization of discounts and loan
costs                                                             35,736              88,082                  69,000                 145,167
Depreciation and amortization                                     55,595              65,016                 113,222                    131,366
Income tax expense (benefit)                                         572              (2,188)                    301                  (1,885)
Equity in (earnings) loss of unconsolidated entities                 141                  79                     278                     158

Share of the company in the EBITDA of non-consolidated entities (OpenKey)

                                                           (140)                (78)                   (275)                   (156)
EBITDA                                                            26,643             (91,175)                 11,875                 (69,356)
Impairment charges on real estate                                      -              27,605                       -                  55,218
(Gain) loss on disposition of assets and hotel properties           (361)                  6                    (292)                 (3,617)

EBITDAre                                                          26,282             (63,564)                 11,583                 (17,755)
Amortization of unfavorable contract liabilities                      53                  59                     106                     108

(Gain) loss on insurance settlements                                   -                (148)                      -                    (148)

Write-off of premiums, loan costs and exit fees                      787               1,935                   4,166                   2,030
(Gain) loss on extinguishment of debt                            (10,604)                  -                 (10,604)                      -
Other (income) expense, net                                         (245)              3,150                    (474)                  1,659
Transaction and conversion costs                                     413               1,794                   1,922                   2,535
Legal, advisory and settlement costs                               1,849                  40                   4,496                     185
Unrealized (gain) loss on marketable securities                        -                (479)                      -                     998
Unrealized (gain) loss on derivatives                              3,236                (192)                  2,317                  (4,614)
Dead deal costs                                                        -                  16                     689                     117
Uninsured remediation costs                                            -                   -                     374                       -
Non-cash stock/unit-based compensation                             3,105                 841                   5,049                   5,747
Advisory services incentive fee                                    6,472                   -                   6,472                       -

Company's portion of adjustments to EBITDAre of
unconsolidated entities (OpenKey)                                      2                   3                      12                       9
Adjusted EBITDAre                                         $       31,350          $  (56,545)         $       26,108              $   (9,129)


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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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