ASHFORD HOSPITALITY TRUST, INC. FORWARD-LOOKING STATEMENTS
The following discussion should be read in conjunction with the unaudited financial statements and notes thereto appearing elsewhere herein. This report contains forward-looking statements within the meaning of the federal securities laws.Ashford Hospitality Trust, Inc. (the "Company," "we," "our" or "us") cautions investors that any forward-looking statements presented herein, or which management may express orally or in writing from time to time, are based on management's beliefs and assumptions at that time. Throughout this Form 10-Q, we make forward-looking statements that are subject to risks and uncertainties. Forward-looking statements are generally identifiable by use of forward-looking terminology such as "may," "will," "should," "potential," "intend," "expect," "anticipate," "estimate," "approximately," "believe," "could," "project," "predict," or other similar words or expressions. Additionally, statements regarding the following subjects are forward-looking by their nature: •the impact of the ongoing COVID-19 pandemic, including the resurgence of cases relating to the spread of the Delta, Omicron or other potential variants, on our business, financial condition, liquidity and results of operations; •the impact of numerous governmental travel restrictions and other orders related to COVID-19 on our business including one or more possible recurrences of COVID-19 case surges causing state and local governments to reinstate travel restrictions;
•our business and investment strategy;
•anticipated or expected purchases or sales of assets;
•our projected operating results;
•completion of any pending transactions;
•our ability to restructure existing property level indebtedness;
•our ability to secure additional financing to enable us to operate our business during the pendency of COVID-related business weakness, which has materially impacted our operating cash flows and cash balances;
•our understanding of our competition;
•market trends;
•projected capital expenditures; and
•the impact of technology on our operations and business.
Such forward-looking statements are based on our beliefs, assumptions, and expectations of our future performance taking into account all information currently known to us. These beliefs, assumptions, and expectations can change as a result of many potential events or factors, not all of which are known to us. If a change occurs, our business, financial condition, liquidity, results of operations, plans, and other objectives may vary materially from those expressed in our forward-looking statements. You should carefully consider this risk when you make an investment decision concerning our securities. Additionally, the following factors could cause actual results to vary from our forward-looking statements: •factors discussed in our Form 10-K for the year endedDecember 31, 2021 , as filed with theSecurities and Exchange Commission ("SEC") onFebruary 28, 2022 , including those set forth under the sections titled "Risk Factors," "Management's Discussion and Analysis of Financial Condition and Results of Operations," "Business," and "Properties," as supplemented by our subsequent Quarterly Reports on Form 10-Q and other filings under the Exchange Act; •adverse effects of the COVID-19 pandemic, including a significant reduction in business and personal travel and travel restrictions in regions where our hotels are located, and one or more possible recurrences of COVID-19 case surges causing a further reduction in business and personal travel and potential reinstatement of travel restrictions by state or local governments;
•extreme weather conditions may cause property damage or interrupt business;
•actions by our lender to accelerate the loan balance and foreclose on the hotel properties that are security for our loan that is in default;
•actions by the lenders of the Oaktree Credit Agreement to foreclose on our assets which are pledged as collateral;
•general volatility of the capital markets and the market price of our common and preferred stock;
•general and economic business conditions affecting the lodging and travel industry;
•changes in our business or investment strategy;
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--------------------------------------------------------------------------------•availability, terms, and deployment of capital;
•unanticipated increases in financing and other costs, including a rise in interest rates;
•changes in our industry and the market in which we operate, interest rates, or local economic conditions;
•the degree and nature of our competition;
•actual and potential conflicts of interest with Ashford Inc. and its
subsidiaries (including
•changes in personnel of
•changes in governmental regulations, accounting rules, tax rates and similar matters;
•legislative and regulatory changes, including changes to the Internal Revenue Code of 1986, as amended (the "Code"), and related rules, regulations and interpretations governing the taxation of real estate investment trusts ("REITs");
•limitations imposed on our business and our ability to satisfy complex rules in
order for us to qualify as a REIT for
•future sales and issuances of our common stock or other securities might result in dilution and could cause the price of our common stock to decline.
When considering forward-looking statements, you should keep in mind the matters summarized under "Item 1A. Risk Factors" in Part I of our 2021 Form 10-K filed onFebruary 28, 2022 and this Quarterly Report, and the discussion in this Management's Discussion and Analysis of Financial Condition and Results of Operations, could cause our actual results and performance to differ significantly from those contained in our forward-looking statements. Additionally, many of these risks and uncertainties are currently amplified by and will continue to be amplified by, or in the future may be amplified by, the COVID-19 outbreak and the numerous government travel restrictions imposed in response thereto. The extent to which COVID-19 impacts us will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the scope, severity and duration of the pandemic, the actions taken to contain the pandemic or mitigate its impact, and the direct and indirect economic effects of the pandemic and containment measures, among others. Accordingly, we cannot guarantee future results or performance. Readers are cautioned not to place undue reliance on any of these forward-looking statements, which reflect our views as of the date of this Quarterly Report. Furthermore, we do not intend to update any of our forward-looking statements after the date of this Quarterly Report to conform these statements to actual results and performance, except as may be required by applicable law.
EXECUTIVE OVERVIEW
General
As of
Based on our primary business objectives and forecasted operating conditions, our current key priorities and financial strategies include, among other things:
•adjusting cost and operational models due to the impact of COVID-19 on the hotel industry;
•maintain maximum cash and cash equivalents liquidity;
•opportunistically exchange preferred stock into common stock;
•disposition of non-core hotel properties;
•pursuing capital market activities to enhance long-term stockholder value;
•implementing selective capital improvements designed to increase profitability;
•implementing effective asset management strategies to minimize operating costs and increase revenues;
•financing or refinancing hotels on competitive terms;
•utilizing hedges and derivatives to mitigate risks; and
•making other investments or divestitures that our board of directors deems appropriate.
Our current investment strategy is to focus on owning predominantly full-service
hotels in the upper upscale segment in domestic markets that have revenue per
available room ("RevPAR") generally less than twice the national average. We
believe that as supply, demand, and capital market cycles change, we will be
able to shift our investment strategy to take advantage of
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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
March 31, 2022 , Remington Hotels , a subsidiary of Ashford Inc., managed 68 of
our 100 hotel properties and WorldQuest. Third-party management companies
managed the remaining hotel properties.
Ashford Inc. also provides other products and services to us or our hotel
properties through certain entities in which Ashford Inc. has an ownership
interest. These products and services include, but are not limited to, design
and construction services, debt placement and related services, audio visual
services, real estate advisory services, insurance claims services,
hypoallergenic premium rooms, broker-dealer and distribution services and mobile
key technology.
Mr. Monty J. Bennett is chairman and chief executive officer of Ashford Inc.
and, together with Mr. Archie Bennett , Jr., as of March 31, 2022 , owned
approximately 610,246 shares of Ashford Inc. common stock, which represented an
approximate 19.6% ownership interest in Ashford Inc., and owned 18,758,600
shares of Ashford Inc. Series D Convertible Preferred Stock, which is
exercisable (at an exercise price of $117.50 per share) into an additional
approximate 3,991,191 shares of Ashford Inc. common stock, which if exercised as
of March 31, 2022 , would have increased the Bennetts' ownership interest in
Ashford Inc. to 64.8%, provided that prior to August 8, 2023 , the voting power
of the holders of the Ashford Inc. Series D Convertible Preferred Stock is
limited to 40% of the combined voting power of all of the outstanding voting
securities of Ashford Inc. entitled to vote on any given matter. The 18,758,600
Series D Convertible Preferred Stock owned by Mr. Monty J. Bennett and Mr.
Archie Bennett , Jr. include 360,000 shares owned by trusts.
Recent Developments
OnJanuary 27, 2022 Ashford Trust ,Braemar and Ashford Inc. entered into a Second Amended and Restated Contribution Agreement withAshford Securities , which provides for an additional$18 million inAshford Securities expenses to be reimbursed (with all expenses allocated 45% toAshford Trust , 45% to Braemar and 10% to Ashford Inc.) OnMarch 1, 2022 , the Company filed a new universal shelf registration statement on Form S-3 with theSEC . The shelf registration statement provides for the registration of unspecified amounts of equity and debt securities with a maximum aggregate offering price of up to$300 million . TheSEC declared the Form S-3 effective onApril 1, 2021 . OnSeptember 10, 2021 , the Company filed a registration statement on Form S-11, which was declared effective by theSEC onSeptember 29, 2021 , to register for resale under the Securities Act, 6,040,888 shares of Common Stock that may be issued to M3A under the M3A Purchase Agreement. In connection with the Company's recent eligibility to use a Form S-3, the Company filed a Form S-3, which was declared effective by theSEC onApril 1, 2022 , to replace the previous Form S-11 and to register for resale any future resales by M3A under the M3A Purchase Agreement. OnMarch 3, 2022 , the Company filed a resale registration statement on Form S-3, which was declared effective by theSEC onApril 1, 2022 , to register for resale 1,745,260 shares of common stock issuable upon the exercise of certain warrants issuable pursuant to the terms of the Oaktree Credit Agreement. In connection with the Company's recent eligibility to use a Form S-3, the Company filed the Form S-3 to replace a previously filed Form S-11, which registered for resale the common stock underlying the warrants that was declared effective by theSEC onNovember 2, 2021 . OnMarch 4, 2022 , the Company filed an initial registration statement on Form S-3 with theSEC , as amended onApril 29, 2022 , related to the Company's non-traded Series J Redeemable Preferred Stock ("Series J Preferred Stock") and Series K Redeemable Preferred Stock ("Series K Preferred Stock"). The registration statement was declared effective by theSEC onMay 4, 2022 , and contemplates the offering of up to (i) 20.0 million shares of Series J Preferred Stock or Series K Preferred Stock in a primary offering and (ii) 8.0 million shares of Series J Preferred Stock or Series K Preferred Stock pursuant to a dividend reinvestment plan.Ashford Securities serves as the dealer manager for the offering. As ofMay 4, 2022 , no shares of Series J Preferred Stock or Series K Preferred Stock have been issued. OnMarch 15, 2022 , we entered into a Limited Waiver Under Advisory Agreement (the "Limited Waiver") with Ashford Trust OP,Ashford TRS Corporation ("TRS"), Ashford Inc. andAshford Hospitality Advisors LLC (together with Ashford Inc., the "Advisor"). As previously disclosed, the Company, Ashford Trust OP, TRS and the Advisor are parties to a Second Amended and Restated Advisory Agreement, dated as ofJanuary 14, 2021 (the "Advisory Agreement"), which (i) allocates 34 -------------------------------------------------------------------------------- responsibility for certain employee costs between us and our advisor and (ii) permits our board of directors to issue annual equity awards in the Company or Ashford Trust OP to employees and other representatives of our advisor based on achievement by the Company of certain financial or other objectives or otherwise as our board of directors sees fit. Pursuant to the Limited Waiver the Company, Ashford Trust OP, TRS and the Advisor waived the operation of any provision in the advisory agreement that would otherwise limit our ability, in our discretion and at our cost and expense, to award during the first and second fiscal quarters of calendar year 2022 cash incentive compensation to employees and other representatives of our advisor; provided that such awarded cash incentive compensation does not exceed$8.5 million , in the aggregate, during the waiver period. OnApril 6, 2022 the board of directors approved a repurchase program pursuant to which the board of directors granted a repurchase authorization to acquire shares of the Company's common stock and preferred stock having an aggregate value of up to$200 million . The board of directors' authorization replaced the previous repurchase authorization that the board of directors' authorized inDecember 2017 .
On
In connection with the At-The-Market Program, onApril 11, 2022 , the Company entered into the Virtu Equity Distribution Agreement, relating to the offer and sale of shares of the Company's common stock, with an aggregate offering price of up to$100 million . The shares of common stock were issued pursuant a shelf registration statement on Form S-3 (Registration No. 333-263150), declared effective by theSEC onApril 1, 2022 , and a prospectus supplement datedApril 11, 2022 , filed with theSEC pursuant to Rule 424(b) under the Securities Act. As ofMarch 31, 2022 , the Company has not issued any common stock pursuant to the Virtu Equity Distribution Agreement. OnApril 15, 2022 , Ashford Inc. and Ashford Services, agreed withJeremy Welter , the Chief Operating Officer of Ashford Inc., that, effective on the Resignation Date,Mr. Welter would terminate employment with and service to Ashford Inc., Ashford Services and their affiliates.Mr. Welter is also the Chief Operating Officer of the Company and Braemar and accordingly his service as Chief Operating Officer of each of the Company and Braemar will also end effective as of the Resignation Date. RESULTS OF OPERATIONS
Key Indicators of Operating Performance
We use a variety of operating and other information to evaluate the operating
performance of our business. These key indicators include financial information
that is prepared in accordance with GAAP as well as other financial measures
that are non-GAAP measures. In addition, we use other information that may not
be financial in nature, including statistical information and comparative data.
We use this information to measure the operating performance of our individual
hotels, groups of hotels and/or business as a whole. We also use these metrics
to evaluate the hotels in our portfolio and potential acquisitions to determine
each hotel's contribution to cash flow and its potential to provide attractive
long-term total returns. These key indicators include:
•Occupancy-Occupancy means the total number of hotel rooms sold in a given
period divided by the total number of rooms available. Occupancy measures the
utilization of our hotels' available capacity. We use occupancy to measure
demand at a specific hotel or group of hotels in a given period.
•ADR-ADR means average daily rate and is calculated by dividing total hotel
rooms revenues by total number of rooms sold in a given period. ADR measures
average room price attained by a hotel and ADR trends provide useful information
concerning the pricing environment and the nature of the customer base of a
hotel or group of hotels. We use ADR to assess the pricing levels that we are
able to generate.
•RevPAR-RevPAR means revenue per available room and is calculated by multiplying
ADR by the average daily occupancy. RevPAR is one of the commonly used measures
within the hotel industry to evaluate hotel operations. RevPAR does not include
revenues from food and beverage sales or parking, telephone or other non-rooms
revenues generated by the property. Although RevPAR does not include these
ancillary revenues, it is generally considered the leading indicator of core
revenues for many hotels. We also use RevPAR to compare the results of our
hotels between periods and to analyze results of our comparable hotels
(comparable hotels represent hotels we have owned for the entire period). RevPAR
improvements attributable to increases in occupancy are generally accompanied by
increases in most categories of variable operating costs. RevPAR improvements
attributable to increases in ADR are generally accompanied by increases in
limited categories of operating costs, such as management fees and franchise
fees.
RevPAR changes that are primarily driven by changes in occupancy have different
implications for overall revenues and profitability than changes that are driven
primarily by changes in ADR. For example, an increase in occupancy at a hotel
would
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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 March 31, Favorable/
(Unfavorable)
2022 2021 Change
Total revenue $
247,138
(176,778) (91,547) (85,231)
Property taxes, insurance and other (16,459) (17,471) 1,012
Depreciation and amortization (52,120) (57,627) 5,507
Advisory services fee (13,386) (12,161) (1,225)
Corporate, general and administrative (3,104) (6,997) 3,893
Gain (loss) on disposition of assets and hotel properties 103 (69) 172
Operating income (loss) (14,606) (70,042) 55,436
Equity in earnings (loss) of unconsolidated entities (153) (137) (16)
Interest income 51 13 38
Other income (expense) 101 229 (128)Interest expense and amortization of discounts and loan costs (43,559)
(33,264) (10,295)
Write-off of premiums, loan costs and exit fees (727) (3,379) 2,652
Unrealized gain (loss) on derivatives 3,211 919 2,292
Income tax (expense) benefit (120) 271 (391)
Net income (loss) (55,802) (105,390) 49,588
(Income) loss attributable to noncontrolling interest in consolidated entities
- 81 (81)
Net (income) loss attributable to redeemable noncontrolling interests in operating partnership
372 2,271 (1,899)
Net income (loss) attributable to the Company $
(55,430)
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All hotel properties owned during the three months ended March 31, 2022 and 2021
have been included in our results of operations during the respective periods in
which they were owned. Based on when a hotel property was acquired or disposed,
operating results for certain hotel properties are not comparable for three
months ended March 31, 2022 and 2021. The hotel properties listed below are not
comparable hotel properties for the periods indicated and all other hotel
properties are considered comparable hotel properties. The following
dispositions affect reporting comparability related to our consolidated
financial statements:
Hotel Properties Location Type Date
Le Meridien Minneapolis (1) Minneapolis, MN Disposition January 20, 2021
SpringHill Suites Durham (1) Durham, NC Disposition April 29, 2021
SpringHill Suites Charlotte (1) Charlotte, NC Disposition April 29, 2021
____________________________________
(1) Collectively referred to as "
The following table illustrates the key performance indicators of the hotel properties and WorldQuest included in our results of operations:
Three Months Ended March 31,
2022 2021
RevPAR (revenue per available room)$ 96.46 $ 47.40 Occupancy 58.33 % 42.22 % ADR (average daily rate)$ 165.36 $ 112.25 The following table illustrates the key performance indicators of the 100 hotel properties and WorldQuest that were included in our results of operations for the full three months endedMarch 31, 2022 and 2021: Three Months Ended March 31, 2022 2021 RevPAR$ 96.46 $ 47.58 Occupancy 58.33 % 42.13 % ADR$ 165.36 $ 112.93
Comparison of the Three Months Ended
Net Income (Loss) Attributable to the Company. Net loss attributable to the Company decreased$47.6 million from$103.0 million for the three months endedMarch 31, 2021 (the "2021 quarter") to$55.4 million for the three months endedMarch 31, 2022 (the "2022 quarter") as a result of the factors discussed below. Revenue. Rooms revenue from our hotel properties and WorldQuest increased$98.2 million , or 101.1%, to$195.3 million in the 2022 quarter compared to the 2021 quarter. This increase is attributable to higher rooms revenue of$99.0 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$779,000 from ourHotel Dispositions . Our comparable hotel properties experienced an increase of 46.4% in room rates and an increase of 1,620 basis points in occupancy. Food and beverage revenue increased$28.9 million , or 365.1%, to$36.8 million in the 2022 quarter compared to the 2021 quarter. This increase is attributable to higher food and beverage revenue of$28.9 million at our comparable hotel properties and WorldQuest as a result of the COVID-19 pandemic. Other hotel revenue, which consists mainly of Internet access, parking, and spa revenue, increased$4.0 million , or 38.4%, to$14.4 million in the 2022 quarter compared to the 2021 quarter. This increase is attributable to higher other revenue of$4.0 million from our comparable hotel properties and WorldQuest as our hotel properties recover from the effects of the COVID-19 pandemic. Other revenue increased$227,000 , or 59.0%, to$612,000 in the 2022 quarter compared to the 2021 quarter.Hotel Operating Expenses . Hotel operating expenses increased$85.2 million , or 93.1%, to$176.8 million in the 2022 quarter compared to the 2021 quarter. Hotel operating expenses consist of direct expenses from departments associated with 37 -------------------------------------------------------------------------------- revenue streams and indirect expenses associated with support departments and management fees. Direct expenses increased$46.2 million in the 2022 quarter compared to the 2021 quarter, comprised of an increase of$46.5 million from our comparable hotel properties and WorldQuest as our hotel properties continue to recover from the effects of the COVID-19 pandemic and partially offset by a decrease of$317,000 from ourHotel Dispositions . Direct expenses were 31.8% of total hotel revenue for the 2022 quarter and 27.8% for the 2021 quarter. Indirect expenses and management fees increased$39.1 million in the 2022 quarter compared to the 2021 quarter, comprised of an increase of$39.7 million from our comparable hotel properties and WorldQuest as a result of the COVID-19 pandemic and partially offset by a decrease of$654,000 from ourHotel Dispositions . Property Taxes, Insurance and Other. Property taxes, insurance and other expense decreased$1.0 million or 5.8%, to$16.5 million in the 2022 quarter compared to the 2021 quarter, which was primarily due to a decrease of$119,000 from ourHotel Dispositions and$893,000 at our comparable hotel properties primarily due to real estate assessments or appeals that resulted in lower property taxes.
Depreciation and Amortization. Depreciation and amortization decreased
Advisory Services Fee. Advisory services fee increased$1.2 million , or 10.1%, to$13.4 million in the 2022 quarter compared to the 2021 quarter. The advisory services fee represents fees incurred in connection with the advisory agreement between Ashford Inc. and the Company. In the 2022 quarter, the advisory services fee was comprised of a base advisory fee of$8.7 million , equity-based compensation of$1.9 million associated with equity grants of our common stock and LTIP units awarded to the officers and employees of Ashford Inc., reimbursable expenses of$1.8 million and an incentive fee of$151,000 . In the 2021 quarter, the advisory services fee was comprised of a base advisory fee of$8.7 million , equity-based compensation of$1.8 million associated with equity grants of our common stock and LTIP units awarded to the officers and employees of Ashford Inc. and reimbursable expenses of$1.6 million . Corporate, General and Administrative. Corporate, general and administrative expense decreased$3.9 million , or 55.6%, to$3.1 million in the 2022 quarter compared to the 2021 quarter. The decrease was primarily attributable to lower legal and professional fees of$4.8 million , partially offset by higher reimbursed operating expenses ofAshford Securities paid by the Company of$508,000 , higher public company costs of$138,000 and higher miscellaneous expenses of$274,000 . Gain (Loss) on Disposition ofAssets and Hotel Properties. Gain (loss) on disposition of assets and hotel properties changed$172,000 , from a loss of$69,000 in the 2021 quarter to a gain of$103,000 in the 2022 quarter. The loss in the 2021 quarter was primarily comprised of a$124,000 loss related to the sale of the Le Meridien inMinneapolis, Minnesota . The gain in the 2022 quarter was primarily related to a gain related to the sale of three WorldQuest condominiums.
Equity in Earnings (Loss) of Unconsolidated Entities. Equity in loss of
unconsolidated entities was
Interest Income. Interest income was
Other Income (Expense). In the 2022 quarter we recorded miscellaneous income of
Interest Expense and Amortization of Discounts and Loan Costs. Interest expense and amortization of discounts and loan costs increased$10.3 million , or 30.9%, to$43.6 million in the 2022 quarter compared to the 2021 quarter. The increase was primarily due to a$2.1 million increase attributable to the Oaktree term loan as a result of it being outstanding for the entire 2022 quarter and lower credits to interest expense of$11.1 million related to the amortization credit of default interest and late charges recorded on mortgage loans previously in default. These increases were partially offset by a decrease of$215,000 from ourHotel Dispositions and a decrease of$2.7 million at our comparable hotel properties primarily due to lower deferred loan costs amortization. The average LIBOR rates in the 2022 quarter and the 2021 quarter were 0.23% and 0.12%, respectively. Write-off of Premiums, Loan Costs and Exit Fees. Write-off of premiums, loan costs and exit fees decreased$2.7 million to$727,000 in the 2022 quarter compared to the 2021 quarter. In the 2022 quarter, we recognizedLismore fees of$643,000 that reflects the amortization over the service period of theLismore Agreement (see note 15 to our consolidated financial statements) and$84,000 related to third-party fees, totaling$727,000 . In the 2021 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.Lismore fees incurred in conjunction with these amendments were$3.7 million , which were partially offset by a net credit of$316,000 related to third party fees. 38 -------------------------------------------------------------------------------- Unrealized Gain (Loss) on Derivatives. Unrealized gain on derivatives increased$2.3 million from$919,000 in the 2021 quarter to$3.2 million in the 2022 quarter. In the 2022 quarter, we recorded an unrealized gain of$932,000 from the revaluation of the embedded debt derivative in the Oaktree Agreement and unrealized gains of$2.3 million from interest rate caps. In the 2021 quarter, we recognized an unrealized gain of$1.3 million from the revaluation of the embedded debt derivative offset by unrealized losses of$71,000 from interest rate floors and$289,000 from interest rate caps. Income Tax (Expense) Benefit. Income tax (expense) benefit changed$391,000 , from an income tax benefit of$271,000 in the 2021 quarter to income tax expense of$120,000 in the 2022 quarter. This change was primarily due to an increase in the profitability of our TRS entities in the 2022 quarter compared to the 2021 quarter. (Income) Loss from Consolidated Entities Attributable to Noncontrolling Interests. Our noncontrolling interest partner in consolidated entities were allocated losses of$0 and$81,000 in the 2022 quarter and the 2021 quarter, respectively. OnDecember 31, 2021 , the Company acquired the remaining interest in the consolidated entities. Net (Income) Loss Attributable to Redeemable Noncontrolling Interests inOperating Partnership . Noncontrolling interests in operating partnership were allocated net losses of$372,000 and$2.3 million in the 2022 quarter and the 2021 quarter, respectively. Redeemable noncontrolling interests represented ownership interests of 0.63% and 2.42% in the operating partnership atMarch 31, 2022 and 2021, respectively. 39 --------------------------------------------------------------------------------
LIQUIDITY AND CAPITAL RESOURCES
Liquidity
The prolonged presence of COVID-19 has continued to impact the Company's operating results and cash flows. However, the Company has taken significant steps to improve its operating results and liquidity and expects to achieve pre-pandemic RevPAR by 2023 and hotel operating levels by 2024. Additionally, as ofMarch 31, 2022 , the Company held cash and cash equivalents of$548.6 million and restricted cash of$102.3 million , the vast majority of which is comprised of lender and manager-held reserves. As ofMarch 31, 2022 ,$21.9 million was also due to the Company from third-party hotel managers, most of which is held by one of the Company's managers and is available to fund hotel operating costs. In 2020, the Company ceased paying dividends on both its common stock and preferred stock. During the fourth quarter of 2021, the Company reinstated and caught up on all of its accrued preferred dividends and currently plans to pay dividends on its preferred stock going forward. The Company does not anticipate paying any dividends on its outstanding common stock for the foreseeable future.
Facts and circumstances related to COVID-19 could change in the future that are outside of management's control that could impact future hotel operating results, future cash flows and our ability to pay dividends.
Based on our current level of operations, our cash flow from operations and our existing cash balances should be adequate to meet upcoming anticipated requirements for interest and principal payments on debt (excluding any potential final maturity payments), working capital, and capital expenditures for the next 12 months and dividends required to maintain our status as a REIT forU.S. federal income tax purposes. With respect to upcoming maturities, no assurances can be given that we will be able to refinance our upcoming maturities. Additionally, no assurances can be given that we will obtain additional financings or, if we do, what the amount and terms will be. Our failure to obtain future financing under favorable terms could adversely impact our ability to execute our business strategy or may result in lender foreclosure. Our cash position from operations is affected primarily by macro industry movements in occupancy and rate as well as our ability to control costs. Further, interest rates can greatly affect the cost of our debt service as well as the value of any financial hedges we may put in place. We monitor industry fundamentals and interest rates very closely. Capital expenditures above our reserves will affect cash flow as well. Certain of our loan agreements contain cash trap provisions that may be triggered if the performance of our hotels decline below a threshold. When these provisions are triggered, substantially all of the profit generated by our hotels is deposited directly into lockbox accounts and then swept into cash management accounts for the benefit of our various lenders. During a cash trap, certain disbursements from these hotel operating cash receipts, primarily other corporate general and administrative expenditures, would require consent of our lenders. These cash trap provisions have been triggered on nearly all of our mortgage loans containing cash trap provisions. As ofMarch 31, 2022 , 90% of our hotels were in cash traps and approximately$10.3 million of our restricted cash was subject to these cash traps. Our loans may remain subject to cash trap provisions for a substantial period of time which could limit our flexibility and adversely affect our financial condition or our qualification as a REIT. We have extension options relating to certain property level loans that will permit us to extend the maturity date of our loans if certain conditions are satisfied at the respective extension dates, including the achievement of debt yield targets required in order to extend such loans. To the extent we decide to extend the maturity date of the debt outstanding under the loans, we may be required to prepay a significant amount of the loans in order to meet the required debt yield targets. There can be no assurances that we will be able to meet the conditions for extensions pursuant to the respective terms of such loans. We are required to maintain certain financial ratios under various debt and related agreements. If we violate covenants in any debt or related agreement, we could be required to repay all or a portion of our indebtedness before maturity at a time when we might be unable to arrange financing for such repayment on attractive terms, if at all. The assets of certain of our subsidiaries are pledged under non-recourse indebtedness and are not available to satisfy the debts and other obligations ofAshford Trust or Ashford Trust OP, our operating partnership, and the liabilities of such subsidiaries do not constitute the obligations ofAshford Trust or Ashford Trust OP. As ofMay 4, 2022 , the Company is not expecting to be required to repay all or a portion of our indebtedness before maturity. Mortgage and mezzanine loans are nonrecourse to the borrowers, except for customary exceptions or carve-outs that trigger recourse liability to the borrowers in certain limited instances. Recourse obligations typically include only the payment of costs and liabilities suffered by lenders as a result of the occurrence of certain bad acts on the part of the borrower. However, in certain cases, carve-outs could trigger recourse obligations on the part of the borrower with respect to repayment of all or a portion of the outstanding principal amount of the loans. We have entered into customary guaranty agreements pursuant to 40 -------------------------------------------------------------------------------- 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.
Equity Transactions
OnDecember 5, 2017 , the board of directors reapproved a stock repurchase program (the " 2017 Repurchase Program") pursuant to which the board of directors granted a repurchase authorization to acquire shares of the Company's common stock 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 months endedMarch 31, 2022 pursuant to the 2017 Repurchase Program. OnApril 6, 2022 the board of directors approved a stock repurchase program (the "Repurchase Program") pursuant to which the board of directors granted a repurchase authorization to acquire shares of the Company's common stock and preferred stock having an aggregate value of up to$200 million . The board of directors' authorization replaced the 2017 Repurchase Program that the board of directors' authorized inDecember 2017 . OnMarch 1, 2022 , the Company filed a new universal shelf registration statement on Form S-3 with theSEC . The shelf registration statement provides for the registration of unspecified amounts of equity and debt securities with a maximum aggregate offering price of up to$300 million . TheSEC declared the Form S-3 effective onApril 1, 2022 . OnMarch 4, 2022 , the Company filed an initial registration statement on Form S-3 with theSEC , as amended onApril 29, 2022 , related to the Company's non-traded Series J Preferred Stock and Series K Preferred Stock. The registration statement was declared effective by theSEC onMay 4, 2022 , and contemplates the offering of up to (i) 20.0 million shares of Series J Preferred Stock or Series K Preferred Stock in a primary offering and (ii) 8.0 million shares of Series J Preferred Stock or Series K Preferred Stock pursuant to a dividend reinvestment plan.Ashford Securities serves as the dealer manager for the offering. As ofMay 4, 2022 , no shares of Series J Preferred Stock or Series K Preferred Stock have been issued. OnSeptember 9, 2021 , the Company andM3A LP ("M3A") entered into a purchase agreement (the "M3A Purchase Agreement"), which provides that subject to the terms and conditions set forth therein, the Company may sell to M3A up to approximately 6.0 million shares of common stock, from time to time during the term of the M3A Purchase Agreement. As ofMay 4, 2022 , the Company has issued approximately 900,000 shares of common stock for gross proceeds of approximately$12.9 million under the M3A Purchase Agreement. OnSeptember 10, 2021 , the Company filed a registration statement on Form S-11, which was declared effective by theSEC onSeptember 29, 2021 , to register for resale under the Securities Act, 6,040,888 shares of Common Stock that may be issued to M3A under the M3A Purchase Agreement. In connection with the Company's recent eligibility to use a Form S-3, the Company filed a Form S-3, which was declared effective by theSEC onApril 1, 2022 , to replace the previous Form S-11 and to register for resale any future resales by M3A under the M3A Purchase Agreement. 41 --------------------------------------------------------------------------------
On
In connection with the At-The-Market Program, onApril 11, 2022 , the Company entered into the Virtu Equity Distribution Agreement, relating to the offer and sale of shares of the Company's common stock, with an aggregate offering price of up to$100 million . The shares of common stock were issued pursuant a shelf registration statement on Form S-3 (Registration No. 333-263150), declared effective by theSEC onApril 1, 2022 , and a prospectus supplement datedApril 11, 2022 , filed with theSEC pursuant to Rule 424(b) under the Securities Act. As ofMarch 31, 2022 , the Company has not issued any common stock pursuant to the Virtu Equity Distribution Agreement.
Sources and Uses of Cash
Our principal sources of funds to meet our cash requirements include cash on hand, cash flow from operations, capital market activities, property refinancing proceeds and asset sales. Additionally, our principal uses of funds are expected to include possible operating shortfalls, owner-funded capital expenditures, dividends, new investments, and debt interest and principal payments. Items that impacted our cash flow and liquidity during the periods indicated are summarized as follows: Net Cash Flows Provided by (Used in) Operating Activities. Net cash flows provided by (used in) operating activities, pursuant to our consolidated statements of cash flows, which includes changes in balance sheet items, were$(14.5) million and$(91.9) million for the three months endedMarch 31, 2022 and 2021, respectively. Cash flows used in operations were impacted by the COVID-19 pandemic, changes in hotel operations, our hotel dispositions in 2021 as well as the timing of collecting receivables from hotel guests, paying vendors, settling with derivative counterparties, settling with related parties and settling with hotel managers. Net Cash Flows Provided by (Used in) Investing Activities. For the three months endedMarch 31, 2022 , net cash flows used in investing activities were$17.3 million . Cash outflows consisted of$22.7 million for capital improvements made to various hotel properties partially offset by cash inflows of$357,000 from proceeds received from the sale of three WorldQuest condominium units,$962,000 of proceeds from property insurance and$4.0 million of proceeds from notes receivable. For the three months endedMarch 31, 2021 , net cash flows used in investing activities were$1.1 million . Cash outflows primarily consisted of$9.1 million for capital improvements made to various hotel properties. Cash outflows were partially offset by cash inflows of$7.3 million from proceeds received from the sale of the Le Meridien Minneapolis and$670,000 of proceeds from property insurance. Net Cash Flows Provided by (Used in) Financing Activities. For the three months endedMarch 31, 2022 , net cash flows provided by financing activities were$8.9 million . Cash outflows primarily consisted of$4.7 million for repayments of indebtedness,$146,000 for payments of loan costs and exit fees,$3.1 million of payments for preferred dividends and$856,000 of payments for derivatives. For the three months endedMarch 31, 2021 , net cash flows provided by financing activities were$218.8 million . Cash inflows primarily consisted of$195.5 million from borrowings on indebtedness, net of commitment fee and$45.5 million of net proceeds from issuances of common stock, partially offset by cash outflows of$4.3 million for repayments of indebtedness,$17.5 million for payments of loan costs and exit fees and$292,000 of payments for derivatives. Dividend Policy. Distributions are authorized by our board of directors and declared by us based upon a variety of factors deemed relevant by our directors. The board of directors will continue to review our distribution policy on at least a quarterly basis. Our ability to pay distributions to our preferred or common stockholders will depend, in part, upon our receipt of distributions from our operating partnership. This, in turn, may depend upon receipt of lease payments with respect to our properties from indirect subsidiaries of our operating partnership, the management of our properties by our hotel managers and general business conditions (including the impact of the COVID-19 pandemic). Distributions to our stockholders are generally taxable to our stockholders as ordinary income. However, since a portion of our investments are equity ownership interests in hotels, which result in depreciation and non-cash charges against our income, a portion of our distributions may constitute a non-taxable return of capital, to the extent of a stockholder's tax basis in the stock. To the extent that it is consistent with maintaining our REIT status, we may maintain accumulated earnings ofAshford TRS in that entity. OnDecember 7, 2021 , our board of directors reviewed and approved our 2022 dividend policy. We do not anticipate paying any dividends on our outstanding common stock for any quarter during 2022 and expect to pay dividends on our outstanding preferred stock during 2022. Declaration of dividends in 2022 on our preferred stock may require a determination by our board of directors, at the time of any determination, that the Company would continue to have positive equity on a fair value basis, among other considerations. Our board of directors will continue to review our dividend policy and make future announcements with respect thereto. We may incur indebtedness to meet distribution requirements imposed on REITs under the 42 -------------------------------------------------------------------------------- Code to the extent that working capital and cash flow from our investments are insufficient to fund required distributions. We may pay dividends in excess of our cash flow. SEASONALITY Our properties' operations historically have been seasonal as certain properties maintain higher occupancy rates during the summer months, while certain other properties maintain higher occupancy rates during the winter months. This seasonality pattern can cause fluctuations in our quarterly lease revenue under our percentage leases. Quarterly revenue also may be adversely affected by renovations and repositionings, our managers' effectiveness in generating business and by events beyond our control, such as the COVID-19 pandemic and government-issued travel restrictions in response, extreme weather conditions, natural disasters, terrorist attacks or alerts, civil unrest, government shutdowns, airline strikes or reduced airline capacity, economic factors and other considerations affecting travel. To the extent that cash flows from operations are insufficient during any quarter to enable us to make quarterly distributions to maintain our REIT status due to temporary or seasonal fluctuations in lease revenue, we expect to utilize cash on hand, borrowings and common stock to fund required distributions. However, we cannot make any assurances that we will make distributions in the future.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The preparation of our consolidated financial statements in accordance with accounting principles generally accepted inthe United States requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. Our accounting policies that are critical or most important to understanding our financial condition and results of operations and that require management to make the most difficult judgments are described in our 2021 Form 10-K. There have been no material changes in these critical accounting policies.
NON-GAAP FINANCIAL MEASURES
The following non-GAAP presentations of EBITDA, EBITDAre, Adjusted EBITDAre, Funds From Operations ("FFO") and Adjusted FFO are presented to help our investors evaluate our operating performance.
EBITDA is defined as net income (loss) before interest expense and amortization
of discounts and loan costs, net, income taxes, depreciation and amortization,
as adjusted to reflect only the Company's portion of EBITDA of unconsolidated
entities. In addition, we exclude impairment charges on real estate, and
gain/loss on disposition of assets and hotel properties and gain/loss of
unconsolidated entities to calculate EBITDAre, as defined by NAREIT.
We then further adjust EBITDAre to exclude certain additional items such as
gain/loss on insurance settlements, write-off of premiums, loan costs and exit
fees, other income/expense, net, transaction and conversion costs, legal,
advisory and settlement costs, dead deal costs, advisory services incentive fee
and stock/unit-based compensation and non-cash items such as amortization of
unfavorable contract liabilities, gain/loss on extinguishment of debt,
unrealized gains/losses on marketable securities and derivative instruments, as
well as our portion of adjustments to EBITDAre of unconsolidated entities.
We present EBITDA, EBITDAre and Adjusted EBITDAre because we believe they
reflect more accurately the ongoing performance of our hotel assets and other
investments and provide more useful information to investors as they are
indicators of our ability to meet our future debt payment requirements, working
capital requirements and they provide an overall evaluation of our financial
condition. EBITDA, EBITDAre and Adjusted EBITDAre as calculated by us may not be
comparable to EBITDA, EBITDAre and Adjusted EBITDAre reported by other companies
that do not define EBITDA, EBITDAre and Adjusted EBITDAre exactly as we define
the terms. EBITDA, EBITDAre and Adjusted EBITDAre do not represent cash
generated from operating activities determined in accordance with GAAP, and
should not be considered as an alternative to operating income (loss) or net
income (loss) determined in accordance with GAAP as an indicator of performance
or as an alternative to cash flows from operating activities as determined by
GAAP as an indicator of liquidity.
43
--------------------------------------------------------------------------------The following table reconciles net income (loss) to EBITDA, EBITDAre and Adjusted EBITDAre (in thousands):
Three Months Ended
2022 2021
Net income (loss) $ (55,802) $ (105,390)
Interest expense and amortization of discounts and loan costs 43,559 33,264
Depreciation and amortization 52,120 57,627
Income tax expense (benefit) 121 (271)
Equity in (earnings) loss of unconsolidated entities 153 137
Company's portion of EBITDA of unconsolidated entities (153) (135)
EBITDA 39,998 (14,768)
(Gain) loss on disposition of assets and hotel properties (103) 69
EBITDAre 39,895 (14,699)
Amortization of unfavorable contract liabilities 53 53
Write-off of premiums, loan costs and exit fees 727 3,379
Other (income) expense, net (101) (229)
Transaction and conversion costs 659 1,509
Legal, advisory and settlement costs 25 2,647
Unrealized (gain) loss on derivatives (3,211) (919)
Dead deal costs - 689
Uninsured remediation costs - 374
Stock/unit-based compensation 2,011 1,944
Advisory services incentive fee 151 -
Company's portion of adjustments to EBITDAre of unconsolidated entities
2 10
Adjusted EBITDAre $ 40,211 $ (5,242)
44-------------------------------------------------------------------------------- We calculate FFO and Adjusted FFO in the following table. FFO is calculated on the basis defined by NAREIT, which is net income (loss) attributable to common stockholders, computed in accordance with GAAP, excluding gains or losses on disposition of assets and hotel properties, plus depreciation and amortization of real estate assets, impairment charges on real estate assets, and after adjustments for unconsolidated entities and noncontrolling interests in the operating partnership. Adjustments for unconsolidated entities are calculated to reflect FFO on the same basis. NAREIT developed FFO as a relative measure of performance of an equity REIT to recognize that income-producing real estate historically has not depreciated on the basis determined by GAAP. Our calculation of Adjusted FFO excludes gain/loss on extinguishment of debt, write-off of premiums, loan costs and exit fees, other income/expense, net transaction and conversion costs, legal, advisory and settlement costs, dead deal costs, and stock/unit-based compensation and non-cash items such as amortization of loan costs, amortization of the term loan discount, unrealized gains/losses on marketable securities and derivative instruments, as well as our portion of adjustments to FFO related to unconsolidated entities. We exclude items from Adjusted FFO that are either non-cash or are not part of our core operations in order to provide a period-over-period comparison of our operating results. We consider FFO and Adjusted FFO to be appropriate measures of our ongoing normalized operating performance as a REIT. We compute FFO in accordance with our interpretation of standards established by NAREIT, which may not be comparable to FFO reported by other REITs that either do not define the term in accordance with the current NAREIT definition or interpret the NAREIT definition differently than us. FFO and Adjusted FFO do not represent cash generated from operating activities as determined by GAAP and should not be considered as an alternative to a) GAAP net income or loss as an indication of our financial performance or b) GAAP cash flows from operating activities as a measure of our liquidity, nor is it indicative of funds available to satisfy our cash needs, including our ability to make cash distributions. However, to facilitate a clear understanding of our historical operating results, we believe that FFO and Adjusted FFO should be considered along with our net income or loss and cash flows reported in the consolidated financial statements.
The following table reconciles net income (loss) to FFO and Adjusted FFO (in thousands):
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