ASHFORD HOSPITALITY TRUST, INC. This section of this Form 10-K generally discusses 2022 and 2021 items and year-to-year comparisons between 2022 and 2021. Discussions of 2021 items and year-to-year comparisons between 2021 and 2020 that are not included in this Form 10-K can be found in "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Part II, Item 7 of the Company's Annual Report on Form 10-K for the year endedDecember 31, 2021 .
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:
•maintain significant 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;
•modifying or extending property-level indebtedness;
•utilizing hedges and derivatives to mitigate risks;
•pursue opportunistic value-add additions to our hotel portfolio: 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 RevPAR generally less than twice the national average. We believe that as supply, demand, and capital market cycles change, we will be able to shift our investment strategy to take advantage of new lodging-related investment opportunities as they may develop. Our board of directors may change our investment strategy at any time without stockholder approval or notice. We will continue to seek ways to benefit from the cyclical nature of the hotel industry.
Liquidity
As ofDecember 31, 2022 , the Company held cash and cash equivalents of$417.1 million and restricted cash of$142.0 million . The vast majority of the restricted cash comprises lender and manager held reserves. OnJanuary 11, 2023 , the Company announced that its board of directors declared cash dividends on the Company's 8.45% Series D Cumulative Preferred Stock, 7.375% Series F Cumulative Preferred Stock, 7.375% Series G Cumulative Preferred Stock, 7.50% Series H Cumulative Preferred Stock, and 7.50% Series I Cumulative Preferred Stock for the first quarter endingMarch 31, 2023 . The Company also announced that its board of directors declared cash dividends on the Company's Series J Redeemable Preferred Stock equal to a quarterly rate of$0.50 per share, payable as follows:$0.1666 per share was paid onFebruary 15, 2023 to stockholders of record as ofJanuary 31, 2023 ;$0.1666 per share will be paid onMarch 15, 2023 to stockholders of record as ofFebruary 28, 2023 ; and$0.1666 per share will be paid onApril 17, 2023 to stockholders of record as ofMarch 31, 2023 ; and declared a monthly cash dividend for the Company's Series K Redeemable Preferred Stock equal to a quarterly rate of$0.5125 per share, payable as follows:$0.1708 per share was paid onFebruary 15, 2023 to stockholders of record as ofJanuary 31, 2023 ;$0.1708 per share will be paid onMarch 15, 2023 to stockholders of record as ofFebruary 28, 2023 ; and$0.1708 per share will be paid onApril 17, 2023 to stockholders of record as ofMarch 31, 2023 . The Company has continued the suspension of its common stock dividend into 2023.
Recent Developments
InAugust 2022 , given the recent increases in interest rates on short-termU.S. Treasury securities, the independent members of our board of directors approved the engagement of our Advisor to proactively manage and invest the Company's excess cash in short-termU.S. Treasury securities (the "Cash Management Strategy"). As consideration for the Advisor's 48 -------------------------------------------------------------------------------- services under this engagement, the Company will pay the Advisor an annual fee equal to 20 basis points (0.20%) of the average daily balance of the Company's excess cash invested by the Advisor (the "Cash Management Fee") in this strategy. The Cash Management Fee will be calculated and payable monthly in arrears. Investment of the Company's excess cash pursuant to the Cash Management Strategy commenced inOctober 2022 . OnNovember 9, 2022 , we amended our$25.0 million mortgage loan, secured by the La Posada de Santa Fe. Terms of the amendment replaced the variable interest rate of LIBOR + 2.70% with SOFR + 2.80%. OnNovember 9, 2022 , we amended our$98.0 million mortgage loan, secured by theBoston Back Bay Hilton . Terms of the amendment replaced the variable interest rate of LIBOR + 3.80% with SOFR + 3.91%. OnDecember 7, 2022 , we amended our$8.9 million mortgage loan, secured by the Fort Worth Ashton hotel. Terms of the amendment replaced the variable interest rate of LIBOR + 2.00% with SOFR + 2.00%. OnDecember 15, 2022 , we amended our$16.1 million mortgage loan, secured by the Atlanta Indigo. Terms of the amendment replaced the variable interest rate of LIBOR + 2.25% with SOFR + 2.85%. Additionally, we repaid$810,000 of principal and exercised the first one-year extension option. OnDecember 16, 2022 , our operating partnership entered into an Agreement of Purchase and Sale withAshford LLC , pursuant to which, effective as ofDecember 16, 2022 , our operating partnership acquired one hundred percent (100%) of the equity interests in (i)Marietta Leasehold LP (the "Lessee"), the lessee of theMarietta Hotel , and (ii)Marietta Leasehold GP LLC , the sole general partner of the Lessee and, in exchange therefor, the Company forgave, cancelled and discharged in full the outstanding ES Manhattan ERFP Balance. See note 17 to our consolidated financial statements. OnDecember 22, 2022 , we amended our$37.0 million mortgage loan, secured by theLe Pavillon Hotel inNew Orleans, Louisiana . The new mortgage loan totals$37.0 million and provides for an interest rate of SOFR + 4.00% with a 0.50% SOFR floor. The mortgage loan has a two-year term with three one-year extension options, subject to the satisfaction of certain conditions. OnFebruary 9, 2023 , the Company amended its JP Morgan Chase - 8 hotel mortgage loan, which had a current maturity inFebruary 2023 . As part of the amendment, the Company repaid$50.0 million in principal, exercised the 2023 loan extension and reduced the 2024 debt yield extension test from 9.25% to 8.50%.
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."
Principal Factors Affecting Our Results of Operations
The principal factors affecting our operating results include overall demand for hotel rooms compared to the supply of available hotel rooms, and the ability of our third-party management companies to increase or maintain revenues while controlling expenses. Demand-The demand for lodging, including business travel, is directly correlated to the overall economy; as GDP increases, lodging demand typically increases. Historically, periods of declining demand are followed by extended periods of relatively strong demand, which typically occurs during the growth phase of the lodging cycle. Beginning in 2020, the COVID-19 pandemic had a direct impact on demand but we have seen demand recover in 2022. Supply-The development of new hotels is driven largely by construction costs, the availability of financing and expected performance of existing hotels. Short-term supply is also expected to be below long-term averages. While the industry is expected to have supply growth below historical averages, we may experience supply growth, in certain markets, in excess of national averages that may negatively impact performance. Beginning in 2020, the COVID-19 pandemic had a direct impact on supply. As the economy recovers from COVID-19, we have experienced supply growth in certain markets. We expect that our ADR, occupancy and RevPAR performance will be impacted by macroeconomic factors such as national and local employment growth, personal income and corporate earnings, GDP, consumer confidence, office vacancy rates and business relocation decisions, airport and other business and leisure travel, new hotel construction, the pricing strategies of competitors and currency fluctuations. In addition, our ADR, occupancy and RevPAR performance are dependent on the continued success of the Marriott, Hilton and Hyatt brands.
Revenue-Substantially all of our revenue is derived from the operation of hotels. Specifically, our revenue is comprised of:
•Rooms revenue: Occupancy and ADR are the major drivers of rooms revenue. Rooms revenue accounts for the substantial majority of our total revenue.
•Food and beverage revenue: Occupancy and the type of customer staying at the hotel are the major drivers of food and beverage revenue (i.e., group business typically generates more food and beverage business through catering functions when compared to transient business, which may or may not utilize the hotel's food and beverage outlets or meeting and banquet facilities).
•Other hotel revenue: Occupancy and the nature of the property are the main drivers of other ancillary revenue, such as telecommunications, parking and leasing services.
•Rooms expense: These costs include housekeeping wages and payroll taxes,
reservation systems, room supplies, laundry services and front desk costs. Like
rooms revenue, occupancy is the major driver of rooms expense and, therefore,
rooms expense has a significant correlation to rooms revenue. These costs can
increase based on increases in salaries and wages, as well as the level of
service and amenities that are provided.
•Food and beverage expense: These expenses primarily include food, beverage and
labor costs. Occupancy and the type of customer staying at the hotel (i.e.,
catered functions generally are more profitable than restaurant, bar or other
on-property food and beverage outlets) are the major drivers of food and
beverage expense, which correlates closely with food and beverage revenue.
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•Management fees: Base management fees are computed as a percentage of gross
revenue. Incentive management fees generally are paid when operating profits
exceed certain threshold levels.
•Other hotel expenses: These expenses include labor and other costs associated
with the other operating department revenues, as well as labor and other costs
associated with administrative departments, franchise fees, sales and marketing,
repairs and maintenance and utility costs.
Most categories of variable operating expenses, including labor costs such as
housekeeping, fluctuate with changes in occupancy. Increases in occupancy are
accompanied by increases in most categories of variable operating expenses,
while increases in ADR typically only result in increases in limited categories
of operating costs and expenses, such as franchise fees, management fees and
credit card processing fee expenses which are based on hotel revenues. Thus,
changes in ADR have a more significant impact on operating margins than changes
in occupancy.
The following table summarizes the changes in key line items from our
consolidated statements of operations for the years ended December 31, 2022 ,
2021 and 2020 (in thousands):
Year Ended December 31, Favorable (Unfavorable) Change
2022 2021 2020 2022 to 2021 2021 to 2020
Total revenue $ 1,240,859 $ 805,411 $ 508,238 $ 435,448 $ 297,173
Total hotel expenses (835,993) (576,806) (434,672) (259,187) (142,134)
Property taxes, insurance and other (67,338) (67,904) (79,669) 566 11,765
Depreciation and amortization (201,797) (218,851) (252,765) 17,054 33,914
Impairment charges - - (91,721) - 91,721
Advisory service fee (49,897) (52,313) (50,050) 2,416 (2,263)
Corporate, general and administrative (9,879) (16,153) (28,048) 6,274 11,895
Gain (loss) on disposition of assets and
hotel properties 300 1,449 (36,680) (1,149) 38,129
Operating income (loss) 76,255 (125,167) (465,367) 201,422 340,200
Equity in earnings (loss) of
unconsolidated entities (804) (558) (448) (246) (110)
Interest income 4,777 207 672 4,570 (465)
Other income (expense) 415 760 (16,998) (345) 17,758
Interest expense and amortization of
discounts and loan costs (226,995) (156,119) (247,381) (70,876) 91,262
Write-off of premiums, loan costs and exit
fees (3,536) (10,612) (13,867) 7,076 3,255
Gain (loss) on extinguishment of debt - 11,896 90,349 (11,896) (78,453)
Unrealized gain (loss) on marketable
securities - - (1,467) - 1,467
Realized and unrealized gain (loss) on
derivatives 15,166 14,493 19,950 673 (5,457)
Income tax benefit (expense) (6,336) (5,948) 1,335 (388) (7,283)
Net income (loss) (141,058) (271,048) (633,222) 129,990 362,174
(Income) loss from consolidated entities
attributable to noncontrolling interests - 73 338 (73) (265)
Net (income) loss attributable to
redeemable noncontrolling interests in
operating partnership 1,233 3,970 89,008 (2,737) (85,038)
Net income (loss) attributable to the
Company $ (139,825) $ (267,005) $ (543,876) $ 127,180 $ 276,871
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Comparison of Year Ended
All hotel properties owned during the years endedDecember 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 the years endedDecember 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 acquisitions and dispositions affect reporting comparability related to our consolidated financial statements: Hotel Property 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 Sheraton Ann Arbor (1) Ann Arbor, MI Disposition September 1, 2022 Hilton Marietta (2) Marietta, GA Acquisition December 16, 2022
____________________________________
(1) Collectively referred to as "
(2) Referred to as "
The following table illustrates the key performance indicators of the hotel properties and WorldQuest included in our results of operations:
Year Ended December 31,
2022 2021
RevPAR (revenue per available room) $ 118.89 $ 79.44
Occupancy 67.56 % 55.62 %
ADR (average daily rate) $ 175.98 $ 142.82
The following table illustrates the key performance indicators of the 99 hotel
properties and WorldQuest that were included in our results of operations for
the full years ended December 31, 2022 and 2021, respectively:
Year Ended December 31,
2022 2021
RevPAR $ 119.07 $ 79.78
Occupancy 67.64 % 55.78 %
ADR $ 176.03 $ 143.04 Comparison of the Years Ended
Net Income (Loss) Attributable to the Company. Net loss attributable to the
Company decreased
Revenue. Rooms revenue from our hotel properties and WorldQuest increased$318.9 million , or 48.7%, to$974.0 million in 2022 compared to 2021. This increase is attributable to higher rooms revenue of$319.7 million at our comparable hotel properties and WorldQuest as our hotel properties recover from the effects of the COVID-19 pandemic, an increase of$205,000 from ourHotel Acquisitions and a decrease of$975,000 from ourHotel Dispositions . Our comparable hotel properties experienced an increase of 23.1% in room rates and an increase of 1,186 basis points in occupancy. Food and beverage revenue increased$101.8 million , or 107.2%, to$196.7 million in 2022 compared to 2021. This increase is attributable to higher sales of food and beverage of$101.4 million at our comparable hotel properties and WorldQuest as a result of the COVID-19 pandemic, an increase of$123,000 from ourHotel Acquisitions and an increase of$268,000 from ourHotel Dispositions . Other hotel revenue, which consists mainly of Internet access, parking, and spa revenue, increased$14.2 million , or 26.7%, to$67.3 million in 2022 compared to 2021. This increase is attributable to higher other revenue of$14.2 million from our comparable hotel properties and WorldQuest as our hotel properties recover from the effects of the COVID-19 pandemic. 52 --------------------------------------------------------------------------------
Other revenue increased
Hotel Operating Expenses . Hotel operating expenses increased$259.2 million , or 44.9%, to$836.0 million in 2022 compared to 2021. 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$141.3 million in 2022 compared to 2021, comprised of an increase of$141.4 million from our comparable hotel properties and WorldQuest as our hotel properties continue to recover from the effects of the COVID-19 pandemic and an increase of$60,000 from ourHotel Acquisitions , partially offset by a decrease of$98,000 from ourHotel Dispositions . Direct expenses were 30.8% of total hotel revenue for 2022 and 29.9% for 2021. Indirect expenses and management fees increased$117.9 million in 2022 compared to 2021, comprised of an increase of$118.8 million from our comparable hotel properties and WorldQuest as our hotel properties continue to recover from the effect of the COVID-19 pandemic and an increase of$149,000 from ourHotel Acquisitions , partially offset by a decrease of$1.1 million from ourHotel Dispositions . Property Taxes, Insurance and Other. Property taxes, insurance and other expense decreased$566,000 or 0.8%, to$67.3 million in 2022 compared to 2021, which was primarily due to a decrease of$341,000 from our comparable hotel properties and WorldQuest and a decrease of$229,000 from ourHotel Dispositions . Depreciation and Amortization. Depreciation and amortization decreased$17.1 million or 7.8%, to$201.8 million in 2022 compared to 2021, which consisted of lower depreciation of$1.4 million from ourHotel Dispositions and lower depreciation of$15.7 million at our comparable hotel properties and WorldQuest primarily due to fully depreciated assets. Advisory Services Fee. Advisory services fee decreased$2.4 million , or 4.6%, to$49.9 million in 2022 compared to 2021. The advisory services fee represents fees incurred in connection with the advisory agreement between Ashford Inc. and the Company. In 2022, the advisory services fee was comprised of a base advisory fee of$34.8 million , equity-based compensation of$5.2 million associated with equity grants of our common stock and LTIP units awarded to the officers and employees of Ashford Inc. and reimbursable expenses of$9.9 million . In 2021, the advisory services fee was comprised of a base advisory fee of$36.2 million , equity-based compensation of$9.1 million associated with equity grants of our common stock and LTIP units awarded to the officers and employees of Ashford Inc. and reimbursable expenses of$6.9 million . Corporate, General and Administrative. Corporate, general and administrative expense decreased$6.3 million , or 38.8%, to$9.9 million in 2022 compared to 2021. The decrease was primarily attributable to lower legal and professional fees of$5.0 million and a revision to the estimated contribution amount associated with the Second Amended and Restated Contribution Agreement withAshford Securities that resulted in a net credit to expense of$2.6 million . These decreases were partially offset by higher public company costs of$239,000 and higher miscellaneous expenses of$1.1 million . Gain (Loss) on Disposition ofAssets and Hotel Properties. Gain on disposition of assets and hotel properties decreased$1.1 million , from$1.4 million in 2021 to$300,000 in 2022. The gain in 2021 was primarily related to a franchise fee reimbursement of$327,000 related to the disposition of theEmbassy Suites New York Manhattan Times Square , a gain of$1.0 million related to a payment to remove a deed restriction related to the prior disposition of a building and a gain related to the sale of five WorldQuest condominiums. The gain in 2022 was primarily related to a gain related to the sale of six WorldQuest condominiums. Equity in Earnings (Loss) of Unconsolidated Entities. Equity in loss of unconsolidated entities was$804,000 in 2022, which consisted of our share of loss of$668,000 in OpenKey and$136,000 in the Napa resort investment and$558,000 in 2021, which consisted of our share of loss of$540,000 in OpenKey and$18,000 in 815 Commerce MM. Interest Income. Interest income was$4.8 million and$207,000 in 2022 and 2021, respectively. The increase in 2022 interest income is due to the increase in interest rates. Other Income (Expense). Other income decreased$345,000 from$760,000 in 2021 to$415,000 in 2022. In 2022 we recorded miscellaneous income of$415,000 . In 2021, we recorded miscellaneous income of$760,000 . Interest Expense and Amortization of Discounts and Loan Costs. Interest expense and amortization of discounts and loan costs increased$70.9 million , or 45.4%, to$227.0 million in 2022 compared to 2021. The increase was primarily due to a$49.5 million increase in interest expense at our comparable hotel properties primarily due to higher LIBOR rates,$5.3 million attributable to amortization of the embedded debt derivative in the Oaktree Credit Agreement as a result of it being outstanding for all of 2022 and lower credits to interest expense of$16.7 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$571,000 from ourHotel Dispositions . The average LIBOR rates in 2022 and 2021 were 1.91% and 0.10%, respectively. 53 -------------------------------------------------------------------------------- Write-off of Premiums, Loan Costs and Exit Fees. Write-off of premiums, loan costs and exit fees decreased$7.1 million to$3.5 million in 2022 compared to 2021. In 2022, we recognizedLismore fees of$768,000 related to theLismore Agreement (see note 17 to our consolidated financial statements) andLismore fees of$863,000 related to loan modifications and extensions. We wrote off unamortized loan costs of$265,000 and a pro-rata write-off of the Oaktree loan discount in the amount of$514,000 upon making a$4.0 million pay down on the Oaktree loan. Additionally, we incurred third-party fees of$1.1 million . In 2021, we recognizedLismore fees of$5.6 million that reflects the amortization over the service period of the Lismore Agreement (see note 17 to our consolidated financial statements) and$80,000 related to third-party fees, totaling$5.7 million . Additionally, we wrote off$4.0 million of debt discount related to the payment of the PIK interest on the Oaktree financing and unamortized loan costs in the amount of$839,000 . Gain (loss) on extinguishment of debt. Gain on extinguishment of debt was$11.9 million in 2021, which primarily related to the foreclosure of theSpringHill Suites Durham and SpringHill Suites Charlotte in the amount of$10.6 million and a gain of$1.4 million related to the write-off of capitalized default interest that was being amortized as a credit to interest expense related to the refinance of theHilton Boston Back Bay loan. Realized and Unrealized Gain (Loss) on Derivatives. Realized and unrealized gain on derivatives increased$673,000 from$14.5 million in 2021 to$15.2 million in 2022. In 2022, we recorded an unrealized gain of$4.2 million from the revaluation of the embedded debt derivative in the Oaktree Credit Agreement, an unrealized gain of$6.6 million from interest rate caps. and a realized gain of$4.4 million related to payments from counterparties on interest rate caps. In 2021, we recorded an unrealized gain of$15.8 million from the revaluation of the embedded debt derivative in the Oaktree Agreement, partially offset by unrealized losses of$624,000 from interest rate floors and$657,000 from interest rate caps. Income Tax (Expense) Benefit. Income tax expense increased$388,000 , from$5.9 million in 2021 to$6.3 million in 2022. This increase was primarily due to an increase in the profitability of ourAshford TRS entities due to the continued recovery from the COVID-19 pandemic in 2022 compared to 2021.
(Income) Loss from Consolidated Entities Attributable to Noncontrolling
Interests. Our noncontrolling interest partner in consolidated entities was
allocated a loss of
Net (Income) Loss Attributable to Redeemable Noncontrolling Interests inOperating Partnership . Noncontrolling interests in operating partnership were allocated net losses of$1.2 million and$4.0 million in 2022 and 2021, respectively. Redeemable noncontrolling interests represented ownership interests of 0.91% and 0.63% in the operating partnership atDecember 31, 2022 and 2021, respectively.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity
As ofDecember 31, 2022 , the Company held cash and cash equivalents of$417.1 million and restricted cash of$142.0 million , the vast majority of which is comprised of lender and manager-held reserves. As ofDecember 31, 2022 ,$22.5 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. AtDecember 31, 2022 , our net debt to gross assets was 68.7%. 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 and are impacted by inflation. 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 would require consent of our lenders. These cash trap 54 -------------------------------------------------------------------------------- provisions have been triggered on nearly all of our mortgage loans containing cash trap provisions. As ofDecember 31, 2022 , 79% of our hotels were in cash traps and approximately$33.7 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. If we violate covenants in our debt agreements, 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. 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 (including net proceeds from the sale of any shares of Series J Preferred Stock or Series K Preferred Stock), or other securities, asset sales, and joint ventures. However, we have no formal commitment or understanding to invest in additional assets, and there can be no assurance that we will successfully make additional investments. We may, when conditions are suitable, consider additional capital raising opportunities. Our existing hotel properties are mostly located in developed areas with competing hotel properties. Future occupancy, ADR, and RevPAR of any individual hotel could be materially and adversely affected by an increase in the number or quality of competitive hotel properties, home sharing companies or apartment operators offering short-term rentals in its market area. Competition could also affect the quality and quantity of future investment opportunities. Our estimated future obligations as ofDecember 31, 2022 include both current and long-term obligations. With respect to our indebtedness, as discussed in note 7 to our consolidated financial statements, we have current obligations of$3.3 billion and long-term obligations of$547.6 million . As ofDecember 31, 2022 , we have$98.5 million of mortgage loans that have final maturities in 2023. We hold extension options for the remaining mortgage loans due in the next twelve months. We have amortization payments of approximately$3.2 million due in the next twelve months.
As discussed in note 19 to our consolidated financial statements, under our
operating and finance leases we have current obligations of
55
--------------------------------------------------------------------------------Debt Transactions
OnJune 7, 2022 , we amended our$33.2 million mortgage loan, secured by the Sheraton Ann Arbor hotel, which extended the maturity toDecember 2022 and included a$3.2 million principal repayment. The amended mortgage loan was interest only and bears interest at a rate of LIBOR + 4.40%, and had a LIBOR floor of 0.25%. OnSeptember 1, 2022 , we completed the sale of the Sheraton Ann Arbor and repaid the$30.0 million mortgage loan with the proceeds from the sale.
On
OnDecember 15, 2022 , we amended our$16.1 million mortgage loan, secured by the Atlanta Indigo. Terms of the amendment replaced the variable interest rate of LIBOR + 2.25% with SOFR + 2.85%. Additionally, we paid down$810,000 of principal. This loan has two one-year extension options, subject to satisfaction of certain conditions. The first one-year extension period began inDecember 2022 . OnDecember 22, 2022 , we amended our$37.0 million mortgage loan, secured by theLe Pavillon Hotel inNew Orleans, Louisiana . The terms of the amendment provides for an interest rate of SOFR + 4.00% with a 0.50% SOFR floor. The mortgage loan has a two-year term with three one-year extension options, subject to the satisfaction of certain conditions. The mortgage loan is secured by theLe Pavillon Hotel . OnFebruary 9, 2023 , the Company amended its JP Morgan Chase - 8 hotel mortgage loan, which had a current maturity inFebruary 2023 . As part of the amendment, the Company repaid$50.0 million in principal, exercised the 2023 loan extension and reduced the 2024 debt yield extension test from 9.25% to 8.50%.
Equity Transactions
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. 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. As ofMarch 8, 2023 , the Company has issued approximately 900,000 shares of common stock for gross proceeds of approximately$12.9 million under the M3A Purchase Agreement. 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. OnMay 5, 2022 , we filed our prospectus for the offering with theSEC .Ashford Securities , a subsidiary of Ashford Inc., serves as the dealer manager for the offering. OnApril 28, 2022 , we filed with theState Department of Assessments and Taxation of the State of Maryland (the "SDAT") articles supplementary to our Charter classifying and designating an aggregate of 28,000,000 shares of our unissued and undesignated shares of preferred stock and provided for their issuance either as shares of Series J Preferred Stock or Series K Preferred Stock. We also caused our operating partnership to execute Amendment No. 10 to the Seventh Amended and Restated Agreement of Limited Partnership to amend the terms of our operating partnership to conform to the terms of the articles supplementary for the Series J Preferred Stock and Series K Preferred Stock. We intend to use the net proceeds from the sale of any shares of Series J Preferred Stock or Series K Preferred Stock for general corporate purposes, including, without limitation, payment of dividends on our outstanding capital stock, repayment of debt or other maturing obligations, financing future hotel-related investments, redemption of outstanding shares of our preferred stock, capital expenditures and working capital. OnSeptember 14, 2022 , we filed with the SDAT new articles supplementary to our Charter with respect to our Series J Preferred Stock and Series K Preferred Stock to remove (i) references to our option to list the preferred stock in the redemption provisions and (ii) and the provisions regarding certain change of control conversion rights (which were only triggered upon a listing of the preferred stock). All other terms of the Series J Preferred Stock and the Series K Preferred Stock (including, preferences, conversion or other rights, voting powers, restrictions, limitations as to dividends, qualifications, or terms or conditions of redemption) remain unchanged by the filing of the new articles supplementary. We also caused our operating 56 --------------------------------------------------------------------------------
partnership to execute Amendment No. 11 to the Seventh Amended and Restated
Agreement of Limited Partnership to conform to the terms of the Series J
Preferred Stock and Series K Preferred Stock, respectively, as set forth in the
new articles supplementary. As of
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 . No shares have been repurchased under the Repurchase Program. OnApril 11, 2022 , the Company entered into the Virtu Equity Distribution Agreement with Virtu, to sell from time to time shares of the Company's common stock having an aggregate offering price of up to$100 million . We will pay Virtu a commission of approximately 1% of the gross sales price of the shares of our common stock sold. The Company may also sell some or all of the shares of our common stock to Virtu as principal for its own account at a price agreed upon at the time of sale. As ofMarch 8, 2023 , 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$39.2 million and$(144.2) million for the years endedDecember 31, 2022 and 2021, respectively. Cash flows provided by (used in) operations were impacted by the COVID-19 pandemic, changes in hotel operations, our hotel dispositions in 2021 and 2022, our hotel acquisition in 2022 as well as the timing of collecting receivables from hotel guests, paying vendors, settling with derivative counterparties, settling with related parties and settling with hotel managers. Net Cash Flows Provided by (Used in) Investing Activities. For the year endedDecember 31, 2022 , net cash flows used in investing activities were$70.3 million . Cash outflows consisted of$103.8 million for capital improvements made to various hotel properties and a$9.1 million investment in unconsolidated entities partially offset by cash inflows of$35.0 million from proceeds received from the sale of the Sheraton Ann Arbor and six WorldQuest condominium units,$1.9 million of net cash acquired in the acquisition ofMarietta Leasehold LP ,$1.6 million of proceeds from property insurance and proceeds of$4.0 million from the payment of a note receivable. For the year endedDecember 31, 2021 , net cash flows used in investing activities were$34.0 million . Cash outflows primarily consisted of$36.7 million for capital improvements made to various hotel properties and$9.0 million of investments in unconsolidated entities. Cash outflows were partially offset by cash inflows of$9.0 million from proceeds received from the sale of the Le Meridien Minneapolis and$2.8 million of proceeds from property insurance. Net Cash Flows Provided by (Used in) Financing Activities. For the year endedDecember 31, 2022 , net cash flows used in financing activities were$101.5 million . Cash outflows primarily consisted of$50.9 million for repayments of indebtedness,$3.1 million for payments of loan costs and exit fees,$12.4 million of payments for preferred dividends,$316,000 of purchases of common stock and$40.1 million of payments for derivatives, partially offset by$1.6 million of borrowings on indebtedness,$1.1 million of net proceeds from preferred stock offerings and$2.9 million of proceeds from in-the-money interest rate caps. For the year endedDecember 31, 2021 , net cash flows provided by financing activities were$702.6 million . Cash inflows primarily consisted of$377.5 million from borrowings on indebtedness, net of commitment fee and$562.8 million of net proceeds from issuances of common stock, partially offset by cash outflows of$189.6 million for repayments of indebtedness,$27.8 million for payments of loan costs and exit fees,$18.6 million of payments for preferred dividends,$1.5 million of payments for derivatives and$200,000 for the acquisition of the remaining 15% noncontrolling interest in consolidated entities. 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 57 -------------------------------------------------------------------------------- properties from indirect subsidiaries of our operating partnership, the management of our properties by our hotel managers and general business conditions. 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 6, 2022 , our board of directors reviewed and approved our 2023 dividend policy. We do not anticipate paying any dividends on our outstanding common stock for any quarter during 2023 and expect to pay dividends on our outstanding Preferred Stock during 2023. Our board of directors will continue to review our dividend policy and make future announcements with respect thereto. We may incur indebtedness to meet distribution requirements imposed on REITs under the Code to the extent that working capital and cash flow from our investments are insufficient to fund required distributions.
We may incur indebtedness to meet distribution requirements imposed on REITs under the Code to the extent that working capital and cash flow from our investments are insufficient to fund required distributions. We may pay dividends in excess of our cash flow.
INFLATION
We rely entirely on the performance of our hotel properties and the ability of the hotel properties' managers to increase revenues to keep pace with inflation. Hotel operators can generally increase room rates, but competitive pressures may limit their ability to raise rates faster than inflation. Our general and administrative costs, real estate and personal property taxes, property and casualty insurance, labor costs and utilities are subject to inflation as well.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Our significant accounting policies are fully described in note 2 to our consolidated financial statements included in Item 8. Financial Statements and Supplementary Data. We believe that the following discussion addresses our most critical accounting policies, representing those policies considered most vital to the portrayal of our financial condition and results of operations and require management's most difficult, subjective, complex judgments and can include significant estimates. Impairment of Investments inHotel Properties-Hotel properties are reviewed for impairment whenever events or changes in circumstances indicate that their carrying amounts may not be recoverable. Recoverability of the hotel is measured by comparison of the carrying amount of the hotel to the estimated future undiscounted cash flows, which take into account current market conditions and our intent with respect to holding or disposing of the hotel. If our analysis indicates that the carrying value of the hotel is not recoverable on an undiscounted cash flow basis, we recognize an impairment charge for the amount by which the property's net book value exceeds its estimated fair value, or fair value, less cost to sell. In evaluating impairment of hotel properties, we make many assumptions and estimates, including projected cash flows, expected holding period, and expected useful life. Fair value is determined through various valuation techniques, including internally developed discounted cash flow models, comparable market transactions and third-party appraisals, where considered necessary. We recorded impairment charges of$0 ,$0 and$91.7 million for the years endedDecember 31, 2022 , 2021 and 2020, respectively. See note 5 to our consolidated financial statements. Income Taxes-As a REIT, we generally are not subject to federal corporate income tax on the portion of our net income (loss) that does not relate to taxable REIT subsidiaries. However,Ashford TRS is treated as a TRS forU.S. federal income tax purposes. In accordance with authoritative accounting guidance, we account for income taxes related toAshford TRS using the asset and liability method under which deferred tax assets and liabilities are recognized for future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. In addition, the analysis utilized by us in determining our deferred tax asset valuation allowance involves considerable management judgment and assumptions. See note 20 to our consolidated financial statements. AtDecember 31, 2022 and 2021, we recorded a valuation allowance of$31.2 million and$38.8 million , respectively on the net deferred tax assets of our taxable REIT subsidiaries. At each reporting date, we evaluate whether it is more likely than not that we will utilize all or a portion of our deferred tax assets. We consider all available positive and negative evidence, including historical results of operations, projected future taxable income, carryback potential and scheduled reversals of deferred tax liabilities. AtDecember 31, 2022 , we had TRS net operating loss carryforwards ("NOLs") forU.S. federal income tax purposes of$90.3 million , however our utilization of such NOLs to offset TRS taxable income is limited to approximately$7.3 million per year through 2025, and$1.2 million per year thereafter under Section 382 of the Internal Revenue Code. NOLs become subject to an annual limitation in the event of certain cumulative changes in the ownership of significant shareholders over a three-year 58 -------------------------------------------------------------------------------- period in excess of 50%, as defined under Section 382 of the Internal Revenue Code. Also in total$9.9 million of our TRS NOLs are subject to expiration and will begin to expire in 2023. The remainder was generated afterDecember 31, 2017 and is not subject to expiration under the Tax Cuts and Jobs Act. AtDecember 31, 2022 ,Ashford Hospitality Trust, Inc. , our REIT, had NOLs forU.S. federal income tax purposes of$1.1 billion based on the latest filed tax returns. Utilization of the REIT NOLs subject to Section 382 are limited to approximately$37.2 million per year through 2025, and$9.4 million per year thereafter.$426.1 million of our net operating loss carryforward will begin to expire in 2023 and is available to offset future taxable income, if any, through 2036. The remainder was generated afterDecember 31, 2017 and is not subject to expiration under the Tax Cuts and Jobs Act. The "Income Taxes" topic of theFinancial Accounting Standards Board's ("FASB") Accounting Standards Codification addresses the accounting for uncertainty in income taxes recognized in an enterprise's financial statements. The guidance requires us to determine whether tax positions we have taken or expect to take in a tax return are more likely than not to be sustained upon examination by the appropriate taxing authority based on the technical merits of the positions. Tax positions that do not meet the more likely than not threshold would be recorded as additional tax expense in the current period. We analyze all open tax years, as defined by the statute of limitations for each jurisdiction, which includes the federal jurisdiction and various states. We classify interest and penalties related to underpayment of income taxes as income tax expense. We and our subsidiaries file income tax returns in theU.S. federal jurisdiction and various states and cities. Tax years 2018 through 2022 remain subject to potential examination by certain federal and state taxing authorities.
RECENTLY ADOPTED ACCOUNTING STANDARDS
InAugust 2020 , the FASB issued Accounting Standards Update ("ASU") 2020-06, Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity's Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity's Own Equity ("ASU 2020-06"), which simplifies the accounting for certain financial instruments with characteristics of liabilities and equity. This ASU (1) simplifies the accounting for convertible debt instruments and convertible preferred stock by removing the existing guidance in Accounting Standards Codification ("ASC") 470-20, Debt: Debt with Conversion and Other Options, that requires entities to account for beneficial conversion features and cash conversion features in equity, separately from the host convertible debt or preferred stock; (2) revises the scope exception from derivative accounting in ASC 815-40 for freestanding financial instruments and embedded features that are both indexed to the issuer's own stock and classified in stockholders' equity, by removing certain criteria required for equity classification; and (3) revises the guidance in ASC 260, Earnings Per Share, to require entities to calculate diluted earnings per share ("EPS") for convertible instruments by using the if-converted method. In addition, entities must presume share settlement for purposes of calculating diluted EPS when an instrument may be settled in cash or shares. ForSEC filers, excluding smaller reporting companies, this ASU was effective for fiscal years beginning afterDecember 15, 2021 , including interim periods within those fiscal years. Entities should adopt the guidance as of the beginning of the fiscal year of adoption and cannot adopt the guidance in an interim reporting period. We adopted the standard effectiveJanuary 1, 2022 , and the adoption of this standard did not have a material impact on our consolidated financial statements. InMarch 2020 , the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848) ("ASU 2020-04"), which provides optional guidance throughDecember 31, 2022 to ease the potential burden in accounting for, or recognizing the effects of, reference rate reform on financial reporting. InJanuary 2021 , the FASB issued 2021-01, Reference Rate Reform (Topic 848), Scope, which further clarified the scope of the reference rate reform optional practical expedients and exceptions outlined in Topic 848. The amendments in ASU Nos. 2020-04 and 2021-01 apply to contract modifications that replace a reference rate affected by reference rate reform, providing optional expedients regarding the measurement of hedge effectiveness in hedging relationships that have been modified to replace a reference rate. The Company applied the optional expedient in evaluating debt modifications converting from LIBOR to SOFR. There was no material impact as a result of this adoption. NON-GAAP FINANCIAL MEASURES
The following non-GAAP presentations of EBITDA, EBITDAre, Adjusted EBITDAre, 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, advisory services incentive fee and stock/unit-based compensation and non-cash items such as amortization of
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--------------------------------------------------------------------------------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 are useful to an investor in evaluating our operating performance because it provides investors with an indication of our ability to incur and service debt, to satisfy general operating expenses, to make capital expenditures and to fund other cash needs or reinvest cash into our business. We also believe it helps investors meaningfully evaluate and compare the results of our operations from period to period by removing the effect of our asset base (primarily depreciation and amortization) from our operating results. Our management team also uses EBITDA as one measure in determining the value of acquisitions and dispositions. EBITDA, EBITDAre and Adjusted EBITDAre as calculated by us may not be comparable to EBITDA, EBITDAre and Adjusted EBITDAre reported by other companies that do not define EBITDA, EBITDAre and Adjusted EBITDAre exactly as we define the terms. EBITDA, EBITDAre and Adjusted EBITDAre do not represent cash generated from operating activities determined in accordance with GAAP, and should not be considered as an alternative to operating income (loss) or net income (loss) determined in accordance with GAAP as an indicator of performance or as an alternative to cash flows from operating activities as determined by GAAP as an indicator of liquidity.
The following table reconciles net income (loss) to EBITDA, EBITDAre and Adjusted EBITDAre (in thousands):
Year Ended
2022 2021 2020
Net income (loss)
226,995 156,119 247,381
Depreciation and amortization 201,797 218,851 252,765
Income tax expense (benefit) 6,336 5,948 (1,335)
Equity in (earnings) loss of unconsolidated entities 804 558 448
Company's portion of EBITDA of unconsolidated entities (674) (554) (446)
EBITDA 294,200 109,874 (134,409)
Impairment charges on real estate - - 91,721
(Gain) loss on disposition of assets and hotel properties (300) (449) 36,680
EBITDAre 293,900 109,425 (6,008)
Amortization of unfavorable contract liabilities 181 211 227
(Gain) loss on insurance settlements (342) - (625)
Write-off of premiums, loan costs and exit fees 3,536 10,612 13,867
(Gain) loss on extinguishment of debt - (11,896) (90,349)
Other (income) expense, net (4,797) (1,760) 17,029
Transaction and conversion costs (2,300) 3,033 16,309
Legal, advisory and settlement costs 1,936 7,371 1,409
Unrealized (gain) loss on marketable securities - - 1,467
Unrealized (gain) loss on derivatives (10,781) (14,493) (19,950)
Dead deal costs - 689 923
Uninsured remediation costs - 341 -
Stock/unit-based compensation 5,998 10,095 10,746
Company's portion of adjustments to EBITDAre of unconsolidated
entities 16 16 28
Adjusted EBITDAre $ 287,347 $ 113,644 $ (54,927)
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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 extinguishment of preferred stock, write-off of premiums, loan
costs and exit fees, other income/expense, net transaction and conversion costs,
legal, advisory and settlement costs, stock/unit-based compensation, gain/loss
on insurance settlements and non-cash items such as deemed dividends on
redeemable preferred stock, 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 present FFO and
Adjusted FFO because we consider FFO and Adjusted FFO important supplemental
measures of our operational performance and believe they are frequently used by
securities analysts, investors and other interested parties in the evaluation of
REITs, many of which present FFO and Adjusted FFO when reporting their results.
FFO and Adjusted FFO are intended to exclude GAAP historical cost depreciation
and amortization, which assumes that the value of real estate assets diminishes
ratably over time. Historically, however, real estate values have risen or
fallen with market conditions. Because FFO and Adjusted FFO exclude depreciation
and amortization related to real estate assets, gains and losses from real
property dispositions and impairment losses on real estate assets, FFO and
Adjusted FFO provide performance measures that, when compared year over year,
reflect the effect to operations from trends in occupancy, guestroom rates,
operating costs, development activities and interest costs, providing
perspective not immediately apparent from net income. 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 we do. 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.
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The following table reconciles net income (loss) to FFO and Adjusted FFO (in
thousands):
Year Ended December 31,
2022 2021 2020
Net income (loss)
- 73 338
Net (income) loss attributable to redeemable noncontrolling interests in operating partnership
1,233 3,970 89,008
Preferred dividends (12,433) (252) (32,117)
Deemed dividends on redeemable preferred stock (946) - -
Gain (loss) on extinguishment of preferred stock - (607) 55,477
Net income (loss) attributable to common stockholders (153,204) (267,864) (520,516)
Depreciation and amortization of real estate 201,797 218,708 252,590
(Gain) loss on disposition of assets and hotel properties (300) (449) 36,680
Net income (loss) attributable to redeemable noncontrolling interests in operating partnership
(1,233) (3,970) (89,008)
Equity in (earnings) loss of unconsolidated entities 804 558 448
Impairment charges on real estate - - 91,721
Company's portion of FFO of unconsolidated entities (771) (556) (449)
FFO available to common stockholders and OP unitholders 47,093 (53,573) (228,534)
Deemed dividends on redeemable preferred stock 946 - -
(Gain) loss on extinguishment of preferred stock - 607 (55,477)
Write-off of premiums, loan costs and exit fees 3,536 10,612 13,867
(Gain) loss on extinguishment of debt - (11,896) (90,349)
(Gain) loss on insurance settlements (342) - (625)
Other (income) expense, net (412) (1,760) 17,029
Transaction and conversion costs (2,300) 3,407 16,309
Legal, advisory and settlement costs 1,936 7,371 1,409
Unrealized (gain) loss on marketable securities - - 1,467
Unrealized (gain) loss on derivatives (10,781) (14,493) (19,950)
Dead deal costs - 689 923
Uninsured remediation costs - 341 -
Stock/unit-based compensation 5,998 10,095 10,746
Amortization of term loan exit fee 11,948 7,076 -
Amortization of loan costs 9,672 12,597 16,517
Company's portion of adjustments to FFO of unconsolidated entities
16 16 17
Adjusted FFO available to common stockholders and OP
unitholders $ 67,310 $ (28,911) $ (316,651)
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