BRAEMAR HOTELS & RESORTS INC.
The following Management's Discussion and Analysis ("MD&A") is intended to help
the reader understand our results of operations and financial condition. This
MD&A is provided as a supplement to, and should be read in conjunction with, our
audited consolidated financial statements and the accompanying notes thereto
included in Item 8. In addition to historical financial information, the
following discussion and analysis contains forward-looking statements that
involve risks, uncertainties and assumptions. Our results and the timing of
selected events may differ materially from those anticipated in these
forward-looking statements as a result of many factors, including those
discussed under "Item 1A. Risk Factors" and elsewhere in this Annual Report on
Form 10-K. See "Forward-Looking Statements."
This section of this Form 10-K generally discusses 2021 and 2020 items and
year-to-year comparisons between 2021 and 2020. Discussions of 2019 items and
year-to-year comparisons between 2020 and 2019 that are not included in this
Form 10-K can be found in "Management's Discussion and Analysis of Financial
Condition and Results of Operations" in Part II, Item 7 of the Company's Annual
Report on Form 10-K for the year ended December 31, 2020 .
Overview
We are aMaryland corporation formed inApril 2013 that invests primarily in high revenue per available room ("RevPAR"), luxury hotels and resorts. High RevPAR, for purposes of our investment strategy, means RevPAR of at least twice the then-currentU.S. national average RevPAR for all hotels as determined bySmith Travel Research . Two times the 85 --------------------------------------------------------------------------------U.S. national average was$144 for the year endedDecember 31, 2021 . We have elected to be taxed as a REIT under the Code. We conduct our business and own substantially all of our assets through our operating partnership, Braemar OP. We operate in the direct hotel investment segment of the hotel lodging industry. As ofDecember 31, 2021 , we owned interests in 14 hotel properties in six states, theDistrict of Columbia andSt. Thomas, U.S. Virgin Islands with 3,875 total rooms, or 3,640 net rooms, excluding those attributable to our joint venture partner. The hotel properties in our current portfolio are predominantly located inU.S. urban markets and resort locations with favorable growth characteristics resulting from multiple demand generators. We own 12 of our hotel properties directly, and the remaining two hotel properties through an investment in a majority-owned consolidated entity. We are advised byAshford LLC , a subsidiary of Ashford Inc., through an advisory agreement. All of the hotel properties in our portfolio are currently asset-managed byAshford LLC . We do not have any employees. All of the services that might be provided by employees are provided to us byAshford LLC . We do not operate any of our hotel properties directly; instead we employ hotel management companies to operate them for us under management contracts. As ofDecember 31, 2021 ,Remington Hotels , a subsidiary of Ashford Inc., managed four of our 14 hotel properties. 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, broker-dealer and distribution services, audio visual services, real estate advisory services, insurance claims services, hypoallergenic premium rooms, watersport activities, travel/transportation services and mobile key technology.
Liquidity
InDecember 2019 , COVID-19 was identified inWuhan, China , subsequently spread to other regions of the world, and has resulted in significant travel restrictions and extended shutdown of numerous businesses throughoutthe United States . InMarch 2020 , theWorld Health Organization declared COVID-19 to be a global pandemic. Beginning in lateFebruary 2020 , we experienced a significant decline in occupancy and RevPAR associated with COVID-19 as we experienced significant reservation cancellations as well as a significant reduction in new reservations. The prolonged presence of the virus has resulted in health and other government authorities imposing widespread restrictions on travel and other businesses. As ofDecember 31, 2021 , the Company maintained unrestricted cash of$216.0 million and restricted cash of$47.4 million . The vast majority of the restricted cash comprises lender and manager held reserves. At the end of the year, there was also$27.5 million due to the Company from third-party hotel managers, which is primarily the Company's cash held by one of its property managers which is also available to fund hotel operating costs. For the year endedDecember 31, 2021 , cash flows provided by operating activities were approximately$64.0 million . OnMarch 4, 2022 , our board of directors declared a quarterly cash dividend of$0.01 per diluted share for the Company's common stock for the first quarter of 2022. Additionally, inMarch 2022 , the board of directors approved an update to our previously announced dividend policy for 2022 to revise our then-expectation to pay a quarterly dividend of$0.01 per share of common stock during 2022. The approval of our dividend policy does not commit our board of directors to declare future dividends with respect to any quantity or the amount thereof. We cannot predict when hotel operating levels will return to normalized levels after the effects of the pandemic fully subside, whether our hotels will be forced to shut down operations or whether one or more possible recurrences of COVID-19 case surges could result in further reductions in business and personal travel or potentially cause state and local governments to reinstate travel restrictions. Facts and circumstances could change in the future that are outside of management's control, such as additional government mandates, health official orders, travel restrictions and extended business shutdowns due to COVID-19.
Recent Developments
In
OnDecember 27, 2021 , the Company entered into a definitive agreement to acquire the 96-room Dorado Beach, aRitz-Carlton Reserve in Dorado,Puerto Rico . In addition, the Company is also acquiring the income stream attributable to 14 residential units adjacent to the property that participate in a rental management program. The acquisition is expected to close on or aboutMarch 11, 2022 , subject to certain customary closing conditions. The consideration consists of$104 million in cash and 6.0 million shares of Braemar common stock. The Company will also assume a mortgage loan with a principal balance of approximately$54 million . 86 -------------------------------------------------------------------------------- OnFebruary 2, 2022 , the Company refinanced its mortgage loan secured by thePark Hyatt Beaver Creek Resort & Spa , which had a final maturity date inApril 2022 . The new, non-recourse mortgage loan totals$70.5 million and has a two-year initial term with three one-year extension options, subject to the satisfaction of certain conditions. The mortgage loan is interest only and provides for a floating interest rate of SOFR + 2.86%
Key Indicators of Operating Performance
We use a variety of operating and other information to evaluate the operating
performance of our business. These key indicators include financial information
that is prepared in accordance with GAAP as well as other financial measures
that are non-GAAP measures. In addition, we use other information that may not
be financial in nature, including statistical information and comparative data.
We use this information to measure the operating performance of our individual
hotels, groups of hotels and/or business as a whole. We also use these metrics
to evaluate the hotels in our portfolio and potential acquisitions to determine
each hotel's contribution to cash flow and its potential to provide attractive
long-term total returns. These key indicators include:
•Occupancy. Occupancy means the total number of hotel rooms sold in a given
period divided by the total number of rooms available. Occupancy measures the
utilization of our hotels' available capacity. We use occupancy to measure
demand at a specific hotel or group of hotels in a given period.
•ADR. ADR means average daily rate and is calculated by dividing total hotel
rooms revenues by total number of rooms sold in a given period. ADR measures
average room price attained by a hotel and ADR trends provide useful information
concerning the pricing environment and the nature of the customer base of a
hotel or group of hotels. We use ADR to assess the pricing levels that we are
able to generate.
•RevPAR. RevPAR means revenue per available room and is calculated by
multiplying ADR by the average daily occupancy. RevPAR is one of the commonly
used measures within the hotel industry to evaluate hotel operations. RevPAR
does not include revenues from food and beverage sales or parking, telephone or
other non-rooms revenues generated by the property. Although RevPAR does not
include these ancillary revenues, it is generally considered the leading
indicator of core revenues for many hotels. We also use RevPAR to compare the
results of our hotels between periods and to analyze results of our comparable
hotels (comparable hotels represent hotels we have owned for the entire period).
RevPAR improvements attributable to increases in occupancy are generally
accompanied by increases in most categories of variable operating costs. RevPAR
improvements attributable to increases in ADR are generally accompanied by
increases in limited categories of operating costs, such as management fees and
franchise fees.
RevPAR changes that are primarily driven by changes in occupancy have different
implications for overall revenues and profitability than changes that are driven
primarily by changes in ADR. For example, an increase in occupancy at a hotel
would lead to additional variable operating costs (including housekeeping
services, utilities and room supplies) and could also result in increased other
operating department revenue and expense. Changes in ADR typically have a
greater impact on operating margins and profitability as they do not have a
substantial effect on variable operating costs.
Occupancy, ADR and RevPAR are commonly used measures within the lodging industry
to evaluate operating performance. RevPAR is an important statistic for
monitoring operating performance at the individual hotel level and across our
entire business. We evaluate individual hotel RevPAR performance on an absolute
basis with comparisons to budget and prior periods, as well as on a regional and
company-wide basis. ADR and RevPAR include only rooms revenue. Rooms revenue is
dictated by demand (as measured by occupancy), pricing (as measured by ADR) and
our available supply of hotel rooms.
We also use funds from operations ("FFO"), Adjusted FFO, earnings before
interest, taxes, depreciation and amortization for real estate ("EBITDAre") and
Adjusted EBITDAre as measures of the operating performance of our business. See
"Non-GAAP Financial Measures."
Principal Factors Affecting Our Results of Operations
The principal factors affecting our operating results include overall demand for
hotel rooms compared to the supply of available hotel rooms, and the ability of
our third-party management companies to increase or maintain revenues while
controlling expenses.
Demand. The demand for lodging, including business travel, is directly
correlated to the overall economy; as GDP increases, lodging demand typically
increases. Historically, periods of declining demand are followed by extended
periods of relatively strong demand, which typically occurs during the growth
phase of the lodging cycle. Beginning in 2020, the COVID-19 pandemic had a
direct impact on demand.
Supply. The development of new hotels is driven largely by construction costs,
the availability of financing and expected performance of existing hotels.
Short-term supply is also expected to be below long-term averages. While the
industry is
87
--------------------------------------------------------------------------------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.
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, Hyatt and Sofitel 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.
•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.
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--------------------------------------------------------------------------------RESULTS OF OPERATIONS
Year Ended
The following table summarizes changes in key line items from our consolidated
statements of operations for the years ended
Year Ended December 31, Favorable (Unfavorable)
2021 2020 $ Change % Change
Revenue
Rooms $ 280,568 $ 136,265 $ 144,303 105.9 %
Food and beverage 90,299 50,263 40,036 79.7
Other 56,675 40,446 16,229 40.1
Total hotel revenue 427,542 226,974 200,568 88.4
Expenses
Hotel operating expenses:
Rooms 59,818 38,054 (21,764) (57.2)
Food and beverage 75,177 46,246 (28,931) (62.6)
Other expenses 138,914 98,467 (40,447) (41.1)
Management fees 13,117 7,210 (5,907) (81.9)
Total hotel operating expenses 287,026 189,977 (97,049) (51.1)
Property taxes, insurance and other 34,997 28,483 (6,514) (22.9)
Depreciation and amortization 73,762 73,371 (391) (0.5)
Gain on legal settlement (917) - 917
Advisory services fee 22,641 18,486 (4,155) (22.5)
Transaction costs 563 - (563)
Corporate general and administrative 8,717 6,657 (2,060) (30.9)
Total expenses 426,789 316,974 (109,815) (34.6)
Gain (loss) on insurance settlement and disposition of assets
696 10,149 (9,453) (93.1)
Operating income (loss) 1,449 (79,851) 81,300 101.8
Equity in earnings (loss) of unconsolidated entity (252)
(217) (35) (16.1)
Interest income 48 176 (128) (72.7)
Other income (expense) - (5,126) 5,126 100.0Interest expense and amortization of discounts and loan costs
(30,901) (45,104) 14,203 31.5
Write-off of loan costs and exit fees (1,963) (3,920) 1,957 49.9
Unrealized gain (loss) on derivatives 32 4,959 (4,927) (99.4)
Income (loss) before income taxes (31,587) (129,083) 97,496 75.5
Income tax (expense) benefit (1,324) 4,406 (5,730) (130.0)
Net income (loss) (32,911) (124,677) 91,766 73.6
(Income) loss attributable to noncontrolling
interest in consolidated entities 2,650 6,436 (3,786) (58.8)
Net (income) loss attributable to redeemable
noncontrolling interests in operating partnership 3,597 12,979 (9,382) (72.3)
Net income (loss) attributable to the Company
$ (105,262) $ 78,598 74.7 % 89 -------------------------------------------------------------------------------- All hotel properties owned for the years endedDecember 31, 2021 and 2020 have been included in our results of operations during the respective periods in which they were owned. Based on when a hotel property was acquired or disposed of, operating results for certain hotel properties are not comparable for the years endedDecember 31, 2021 and 2020. The hotel properties listed below are not comparable hotel properties for the periods indicated and all other hotel properties are considered comparable hotel properties. The following acquisitions and dispositions affect reporting comparability related to our consolidated financial statements: Hotel Properties Location Acquisition/Disposition Acquisition/Disposition Date Mr. C Beverly Hills Hotel Los Angeles, California Acquisition August 5, 2021
The following table illustrates the key performance indicators of all hotel properties for the periods indicated:
Year Ended December 31,
2021 2020
Occupancy 52.47 % 30.27 %
ADR (average daily rate) $ 386.45 $ 329.83 RevPAR (revenue per available room)
$ 280,568 $ 136,265
Total hotel revenue (in thousands)
The following table illustrates the key performance indicators of the 13 hotel properties that were included for the years endedDecember 31, 2021 and 2020: Year Ended December 31, 2021 2020 Occupancy 52.29 % 30.27 % ADR (average daily rate)$ 387.47 $ 329.83
RevPAR (revenue per available room)
$ 276,038 $ 136,265
Total hotel revenue (in thousands)
Net Income (Loss) Attributable to the Company. Net loss attributable to the
Company decreased
Rooms Revenue. Rooms revenue increased$144.3 million , or 105.9%, to$280.6 million during 2021 compared to 2020. During 2021, we experienced a 2,220 basis point increase in occupancy and a 17.2% increase in room rates compared to 2020. The increase in rooms revenue is due to the hotel properties recovering from the COVID-19 pandemic as well as an increase of$4.5 million associated with the acquisition of the Mr.C Beverly Hills Hotel onAugust 5, 2021 . 90 --------------------------------------------------------------------------------
Fluctuations in rooms revenue between 2021 and 2020 is a result of the changes in occupancy and ADR between 2021 and 2020 as reflected in the table below (dollars in thousands):
Favorable (Unfavorable)
Occupancy
Hotel Property Rooms Revenue (change in bps) ADR (change in %)
Comparable
Capital Hilton (1) $ 2,178 1,132 (18.9) %
Marriott Seattle Waterfront 9,501 3,155 7.0 %
The Notary Hotel 4,540 1,274 6.3 %
The Clancy (2) 6,378 3,645 (38.0) %
Sofitel Chicago Magnificent Mile 8,443 1,906 43.6 %
Pier House Resort & Spa 12,817 2,642 38.9 %
The Ritz-Carlton St. Thomas 38,048 4,067 57.7 %
Park Hyatt Beaver Creek Resort & Spa 4,456 2,102 (16.6) %
Hotel Yountville 8,347 2,844 44.8 %
The Ritz-Carlton Sarasota 19,328 2,304 32.9 %
Hilton La Jolla Torrey Pines 7,368 1,996 16.2 %
Bardessono Hotel and Spa 10,924 2,759 46.6 %
The Ritz-Carlton Lake Tahoe 7,444 1,217 13.6 %
Total $ 139,772 2,202 17.5 %
Non-comparable
Mr. C Beverly Hills Hotel $ 4,531 n/a n/a
_______________
(1) The hotel was closed from
(2) The hotel was being renovated during 2020. Additionally the hotel was closed
from
Food and Beverage Revenue. Food and beverage revenue increased$40.0 million , or 79.7%, to$90.3 million during 2021 compared to 2020. This increase is primarily driven by the recovery from the COVID-19 pandemic. We experienced an aggregate increase in food and beverage revenue of$38.9 million at 12 comparable hotel properties as well as an increase of$1.7 million at the Mr.C Beverly Hills Hotel . These increases were partially offset by a decrease of$505,000 at theCapital Hilton .
Other
The increase is attributable to higher other hotel revenue of$20.3 million at 12 comparable hotel properties and an increase of$407,000 at the Mr.C Beverly Hills Hotel , partially offset by a decrease of$462,000 atCapital Hilton .
During 2020, we also recognized business interruption revenue of
Rooms Expense. Rooms expense increased$21.8 million , or 57.2%, to$59.8 million in 2021 compared to 2020. The increase is attributable to an aggregate increase in rooms expense of$20.6 million at 13 comparable hotel properties due to the hotel properties recovering from the COVID-19 pandemic and an increase of$1.2 million at the Mr.C Beverly Hills Hotel .
Food and Beverage Expense. Food and beverage expense increased
The increase is attributable to an aggregate increase of$28.7 million at 11 comparable hotel properties and an increase of$1.5 million at the Mr.C Beverly Hills Hotel , partially offset by an aggregate decrease of$1.2 million at theCapital Hilton andThe Notary Hotel . Other Operating Expenses. Other operating expenses increased$40.4 million , or 41.1%, to$138.9 million in 2021 compared to 2020. Hotel operating expenses consist of direct expenses from departments associated with revenue streams and indirect expenses associated with support departments and incentive management fees. We experienced an increase of$6.7 million in direct expenses and$33.7 million in indirect expenses and incentive management fees in 2021 compared to 2020. 91 -------------------------------------------------------------------------------- Direct expenses were 4.9% of total hotel revenue in 2021 and 6.2% in 2020. The increase in direct expenses is associated with higher revenues as all of our comparable hotel properties are recovering from the COVID-19 pandemic and an increase of$30,000 at the Mr.C Beverly Hills Hotel . The increase in indirect expenses is attributable to increases in (i) general and administrative costs of$9.2 million comprising an increase of$8.2 million at our 13 comparable hotel properties and$943,000 at the Mr.C Beverly Hills Hotel ; (ii) marketing costs of$8.3 million comprising an increase of$7.7 million at our 13 comparable hotel properties and$524,000 at the Mr.C Beverly Hills Hotel ; (iii) repairs and maintenance of$5.3 million comprising an increase of$5.0 million at our 13 comparable hotel properties and$314,000 at the Mr.C Beverly Hills Hotel ; (iv) lease expense of$976,000 comprising an increase of$953,000 at our 13 comparable hotel properties and$23,000 at the Mr.C Beverly Hills Hotel ; (v) energy costs of$3.6 million comprised of an increase of$3.3 million at our 13 comparable hotel properties and$309,000 at the Mr.C Beverly Hills Hotel ; and (vi) incentive management fees of$6.4 million comprising an increase of$6.4 million at our 13 comparable hotel properties and$65,000 at the Mr.C Beverly Hills Hotel . Management Fees. Base management fees increased$5.9 million , or 81.9%, to$13.1 million in 2021 compared to 2020. Management fees increased$5.8 million at 13 comparable hotel properties and$195,000 at the Mr.C Beverly Hills Hotel . Property Taxes, Insurance and Other. Property taxes, insurance and other increased$6.5 million , or 22.9%, to$35.0 million in 2021 compared to 2020. The increase is comprised of an aggregate increase of approximately$7.3 million at seven hotel properties. Approximately$6.6 million of the increase is primarily attributable to higher current year assessments at two hotel properties. The increase also includes$545,000 at the Mr.C Beverly Hills Hotel . These increases were partially offset by an aggregate decrease of approximately$1.4 million at six hotel properties. Depreciation and Amortization. Depreciation and amortization increased$391,000 , or 0.5%, to$73.8 million for 2021 compared to 2020. The increase is comprised of an increase of$972,000 at the Mr.C Beverly Hills Hotel and an aggregate increase of$2.6 million at The Clancy,Marriott Seattle Waterfront ,Hotel Yountville , TheRitz-Carlton St. Thomas ,The Ritz-Carlton Sarasota and TheRitz-Carlton Lake Tahoe . These increases are partially offset by an aggregate decrease of$3.2 million at seven comparable hotel properties as a result of fully depreciated assets. Advisory Services Fee. Advisory services fee increased$4.2 million , or 22.5%, to$22.6 million in 2021 compared to 2020 due to increases in the base advisory fee of$825,000 , reimbursable expenses of$507,000 , incentive fee of$678,000 as well as an increase in equity-based compensation of$2.1 million . In 2021, we recorded an advisory services fee of$22.6 million , which included a base advisory fee of$10.8 million , reimbursable expenses of$2.3 million and$9.5 million associated with equity grants of our common stock and LTIP units awarded to the officers and employees of Ashford Inc. In 2020, we recorded an advisory services fee of$18.5 million , which included a base advisory fee of$10.0 million , reimbursable expenses of$1.8 million and$7.4 million associated with equity grants of our common stock and LTIP units awarded to the officers and employees of Ashford Inc. and a credit to the incentive fee of$678,000 as a result of not meeting the FCCR threshold required for paying the final installment of the incentive fee incurred in 2018.
Gain on Legal Settlement. In 2021, we recognized a gain of
Transaction Costs. In 2021, we recognized
Corporate General and Administrative. Corporate general and administrative
expense was
Gain (loss) on Insurance Settlement and Disposition of Assets. In 2020, we
recognized a gain of
Equity in Earnings (Loss) of Unconsolidated Entity. In 2021 and 2020, we
recorded equity in loss of unconsolidated entity of
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Interest Income. Interest income decreased
Other Income (Expense). Other expense decreased$5.1 million , or 100.0% to$0 in 2021 compared to 2020. In 2020, we recorded a realized loss of$3.6 million and$1.3 million on our disposition of interest rate floors and CMBX credit default swaps, respectively. We also recorded expense of$191,000 related to CMBX premiums and interest paid on collateral. Interest Expense and Amortization of Discounts and Loan Costs. Interest expense and amortization of discounts and loan costs decreased$14.2 million , or 31.5%, to$30.9 million for 2021 compared to 2020. The decrease is primarily due to lower interest expense from a lower average LIBOR rate, a credit to interest expense related to the amortization of default interest and late charges recorded on loans that were previously in default and the repayment of our secured term loan. These decreases were partially offset by higher interest expense from our Convertible Senior Notes and the mortgage loan associated with the Mr.C Beverly Hills Hotel acquisition. The average LIBOR rates for 2021 and 2020 were 0.10% and 0.52%, respectively. Write-off of Loan Costs and Exit Fees. Write-off of loan costs and exit fees was$2.0 million in 2021. This included a$1.2 million write-off of unamortized loan costs upon the payoff of our secured term loan payoff and$387,000 of third-party fees from amendments executed 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. These third-party fees incurred in conjunction with these amendments were expensed in accordance with applicable accounting guidance. In addition, there was a write-off of loan costs of approximately$419,000 upon the$20 million pay-down of the mortgage loan assumed with the acquisition of the Mr.C Beverly Hills Hotel . Write-off of loan costs and exit fees was$3.9 million for 2020, resulting from amendments executed 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. These third-party fees incurred in conjunction with these amendments were expensed in accordance with applicable accounting guidance. Unrealized Gain (Loss) on Derivatives. Unrealized gain on derivatives of$32,000 for 2021 consisted of an unrealized gain of approximately$94,000 on warrants, partially offset by an unrealized loss of approximately$62,000 on interest rate caps. Unrealized gain on derivatives of$5.0 million for 2020 consisted of a$3.6 million unrealized gain on interest rate floors associated with the recognition of realized losses and a$1.4 million unrealized gain on CMBX credit default swaps associated with the recognition of realized losses, partially offset by an unrealized loss of$93,000 on interest rate caps.
Income Tax (Expense) Benefit. Income tax expense changed
(Income) Loss Attributable to Noncontrolling Interest in Consolidated Entities. Our noncontrolling interest partner in consolidated entities was allocated a loss of$2.7 million and$6.4 million for 2021 and 2020, respectively. At bothDecember 31, 2021 and 2020, noncontrolling interest in consolidated entities represented an ownership interest of 25% in two hotel properties held by one entity. Net (Income) Loss Attributable to Redeemable Noncontrolling Interests inOperating Partnership . Noncontrolling interests in operating partnership were allocated a net loss of$3.6 million and$13.0 million for 2021 and 2020, respectively. Redeemable noncontrolling interests represented ownership interests in Braemar OP of approximately 8.83% and 9.43% as ofDecember 31, 2021 and 2020, respectively. 93 --------------------------------------------------------------------------------
Indebtedness
The following table sets forth our indebtedness (dollars in thousands):
Outstanding
Number of Balance at
Assets December 31, Interest Rate at Maturity Fully Extended
Lender/Property(ies) Encumbered 2021 December 31, 2021 Amortization Date (1) Maturity Date
Securitized (2) 1 67,500 3.10 % Interest only Apr-2022 Apr-2022
Park Hyatt Beaver Creek Resort & Spa ,
Beaver Creek, CO
Securitized (3) 4 435,000 2.26 % Interest only Jun-2022 Jun-2025
The Notary Hotel , Philadelphia, PA
The Clancy, San Francisco, CA
Marriott Seattle Waterfront , Seattle, WA
Sofitel Chicago Magnificent Mile, Chicago,
IL
Apollo (4) 1 42,500 4.95 % Interest only Aug-2022 Aug-2024
The Ritz-Carlton, St. Thomas , USVI
BAML (5) 1 99,500 2.90 % Amortizing Apr-2023 Apr-2023
The Ritz-Carlton, Sarasota, FL
BAML (6) 1 51,000 2.80 % Interest only May-2023 May-2023
Hotel Yountville , Yountville, CA
BAML (6) 1 40,000 2.80 % Interest only Aug-2023 Aug-2023
Bardessono Hotel and Spa , Yountville, CA
BAML (7) 1 54,000 2.35 % Interest only Jan-2024 Jan-2024
The Ritz-Carlton, Lake Tahoe, CA
Prudential (8) 2 195,000 1.80 % Interest only Feb-2024 Feb-2024
Capital Hilton , Washington, D.C.
Hilton La Jolla Torrey Pines , La Jolla, CA
LoanCore (9) 1 30,000 5.10 % Interest only Aug-2024 Aug-2024
Mr. C Beverly Hills Hotel
BAML (10) 1 80,000 2.10 % Interest only Sep-2024 Sep-2024
Pier House Resort & Spa , Key West, FL
Convertible Senior Notes Equity 86,250 4.50 % Interest only June-2026 June-2026
Equity
Total/Weighted Average 14 $ 1,180,750 2.65 %
__________________
(1) Maturity date assumes no future extensions.
(2) Interest rate is variable at LIBOR plus 3.00%. This mortgage loan requires that we maintain an interest rate cap agreement with a counterparty, and the terms of that agreement provide for a LIBOR cap of 3.0%. This mortgage loan includes three one-year extension options subject to satisfaction of certain conditions, of which the third was exercised inApril 2021 . (3) Interest rate is variable at LIBOR plus 2.16%. This mortgage loan requires that we maintain an interest rate cap agreement with a counterparty, and the terms of that agreement provide for a LIBOR cap of 4.0%. This mortgage loan includes five one-year extension options subject to the satisfaction of certain conditions, of which the second was exercised inJune 2021 . (4) Interest rate is variable at LIBOR plus 3.95% with a LIBOR floor of 1.00%. This mortgage loan has three one-year extension options, subject to the satisfaction of certain conditions, of which the first was exercised inAugust 2021 . (5) Interest rate is variable at LIBOR plus 2.65% with a LIBOR floor of 0.25%. This mortgage loan requires that we maintain an interest rate cap agreement with a counterparty, and the terms of that agreement provide for a LIBOR cap of 3.5%. The mortgage loan was interest only untilJuly 1, 2021 , at which time it began amortizing 1% annually for the remaining term. The stated maturity isApril 2023 . (6) Interest rate is variable at LIBOR plus 2.55%, with a LIBOR floor of 0.25%. This mortgage loan requires that we maintain an interest rate cap agreement with a counterparty, and the terms of that agreement provide for a LIBOR cap of 3.5%. (7) Interest rate is variable at LIBOR plus 2.10%, with a LIBOR floor of 0.25%. This mortgage loan requires that we maintain an interest rate cap agreement with a counterparty, and the terms of that agreement provide for a LIBOR cap of 3.5%.
(8) Interest rate is variable at LIBOR plus 1.70%.
(9) Interest rate is variable at LIBOR plus 3.60%, with a LIBOR floor of 1.50%. This mortgage loan requires that we maintain an interest rate cap agreement with a counterparty, and the terms of that agreement provide for a LIBOR cap of 2.0%.
(10) Interest rate is variable at LIBOR plus 1.85%, with a LIBOR floor of 0.25%. This mortgage loan requires that we maintain an interest rate cap agreement with a counterparty, and the terms of that agreement provide for a LIBOR cap of 3.5%.
94
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In May 2021 , the Company issued $86.25 million aggregate principal amount of
4.50% Convertible Senior Notes due June 2026 (the "Convertible Senior Notes").
The net proceeds from this offering of the Convertible Senior Notes were
approximately $82.8 million after deducting the underwriting fees and other
expenses paid by the Company. A portion of the proceeds were used to fully repay
the secured term loan. See note 6 to our consolidated financial statements for a
full description of our Convertible Senior Notes.
On September 23, 2021 , the Company finalized an extension of its mortgage loans
for the Bardessono Hotel and Spa with a final maturity in August 2022 and the
Hotel Yountville with a final maturity in May 2022 . Each of the loans was
extended for one year beyond its original maturity on the same terms as the
original loan.
On February 2, 2022 , the Company refinanced its mortgage loan secured by the
Park Hyatt Beaver Creek Resort & Spa , which had a final maturity date in April
2022 . The new, non-recourse mortgage loan totals $70.5 million and has a
two-year initial term with three one-year extension options, subject to the
satisfaction of certain conditions. The mortgage loan is interest only and
provides for a floating interest rate of SOFR + 2.86%.
The following mortgage loans include various financial cash trap triggers. The
BAML Pier House mortgage loan, the BAML Bardessono mortgage loan, the BAML
Yountville mortgage loan, the BAML Sarasota mortgage loan and the BAML Lake
Tahoe mortgage loan all have a 1.20x debt service coverage ratio requirement.
The Park Hyatt Beaver Creek Resort & Spa mortgage loan, outstanding at December
31, 2021 , had a 10.0% debt yield requirement. The mortgage loan secured by four
hotel properties has a 7.5% debt yield requirement, and the Apollo mortgage loan
has a 12.0% debt yield requirement. When these provisions are triggered,
substantially all of the profits generated by the hotel properties securing such
loan are deposited directly into lockbox accounts and then swept into cash
management accounts for the benefit of our various lenders. This could affect
our liquidity and our ability to make distributions to our stockholders until
such time that a cash trap is no longer in effect for such loan.
As of December 31, 2021 , our $435 million mortgage loan, our $195 million
mortgage loan and our $54 million mortgage loan were in cash traps and
approximately $157,000 of our restricted cash was subject to these cash traps.
Additionally, at December 31, 2021 , there was approximately $2.4 million of
restricted cash, associated with two mortgage loans that were no longer in cash
traps as of that date, which was subsequently released.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity
InDecember 2019 , COVID-19 was identified inWuhan, China , subsequently spread to other regions of the world, and has resulted in significant travel restrictions and extended shutdown of numerous businesses throughoutthe United States . InMarch 2020 , theWorld Health Organization declared COVID-19 to be a global pandemic. Beginning in lateFebruary 2020 , we experienced a significant decline in occupancy and RevPAR associated with COVID-19 as we experienced significant reservation cancellations as well as a significant reduction in new reservations. The prolonged presence of the virus has resulted in health and other government authorities imposing widespread restrictions on travel and other businesses. As ofDecember 31, 2021 , the Company maintained unrestricted cash of$216.0 million and restricted cash of$47.4 million . The vast majority of the restricted cash comprises lender and manager held reserves. At the end of the year, there was also$27.5 million due to the Company from third-party hotel managers, which is primarily the Company's cash held by one of its property managers which is also available to fund hotel operating costs. For the year endedDecember 31, 2021 , cash flows provided by operating activities were approximately$64.0 million . OnMarch 4, 2022 , our board of directors declared a quarterly cash dividend of$0.01 per diluted share for the Company's common stock for the first quarter of 2022. Additionally, inMarch 2022 , the board of directors approved an update to our previously announced dividend policy for 2022 to revise our then-expectation to pay a quarterly dividend of$0.01 per share of common stock during 2022. The approval of our dividend policy does not commit our board of directors to declare future dividends with respect to any quantity or the amount thereof. We cannot predict when hotel operating levels will return to normalized levels after the effects of the pandemic fully subside, whether our hotels will be forced to shut down operations or whether one or more possible recurrences of COVID-19 case surges could result in further reductions in business and personal travel or potentially cause state and local governments to reinstate travel restrictions. Facts and circumstances could change in the future that are outside of management's control, such as additional government mandates, health official orders, travel restrictions and extended business shutdowns due to COVID-19. 95 -------------------------------------------------------------------------------- Our short-term liquidity requirements consist primarily of funds necessary to pay for operating expenses and other expenditures directly associated with our hotel properties, including:
•advisory fees payable to
•recurring maintenance necessary to maintain our hotel properties in accordance with brand standards;
•interest expense and scheduled principal payments on outstanding indebtedness, including our secured term loan (see "Contractual Obligations and Commitments");
•distributions, if any, in the form of dividends on our common stock, necessary to qualify for taxation as a REIT;
•dividends on our preferred stock; and
•capital expenditures to improve our hotel properties.
We expect to meet our short-term liquidity requirements generally through net cash provided by operations, capital market activities and existing cash balances.
Pursuant to the advisory agreement between us and our advisor, we must pay our advisor on a monthly basis a base advisory fee, subject to a minimum base advisory fee. The minimum base advisory fee is equal to the greater of: (i) 90% of the base fee paid for the same month in the prior fiscal year; and (ii) 1/12th of the "G&A Ratio" for the most recently completed fiscal quarter multiplied by our total market capitalization on the last balance sheet date included in the most recent quarterly report on Form 10-Q or annual report on Form 10-K that we file with theSEC . Thus, even if our total market capitalization and performance decline, we will still be required to make payments to our advisor equal to the minimum base advisory fee, which could adversely impact our liquidity and financial condition. Our long-term liquidity requirements consist primarily of funds necessary to pay for the costs of acquiring additional hotel properties and redevelopments, renovations, expansions and other capital expenditures that need to be made periodically with respect to our hotel properties and scheduled debt payments. We expect to meet our long-term liquidity requirements through various sources of capital, including future common and preferred equity issuances, existing working capital, net cash provided by operations, hotel mortgage indebtedness and other secured and unsecured borrowings. However, there are a number of factors that may have a material adverse effect on our ability to access these capital sources, including the current and ongoing effects of COVID-19 on our business and the hotel industry, the state of overall equity and credit markets, our degree of leverage, our unencumbered asset base and borrowing restrictions imposed by lenders (including as a result of any failure to comply with financial covenants in our existing and future indebtedness), general market conditions for REITs, our operating performance and liquidity and market perceptions about us. The success of our business strategy will depend, in part, on our ability to access these various capital sources. While management cannot provide any assurances, management believes that our cash flow from operations and our existing cash balances will be adequate to meet upcoming anticipated requirements for interest and principal payments on debt (excluding any potential final maturity principal 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. Our hotel properties will require periodic capital expenditures and renovation to remain competitive. In addition, acquisitions, redevelopments or expansions of hotel properties may require significant capital outlays. We may not be able to fund such capital improvements solely from net cash provided by operations because we must distribute annually at least 90% of our REIT taxable income, determined without regard to the deductions for dividends paid and excluding net capital gains, to qualify and maintain our qualification as a REIT, and we are subject to tax on any retained income and gains. As a result, our ability to fund capital expenditures, acquisitions or hotel redevelopment through retained earnings is very limited. Consequently, we expect to rely heavily upon the availability of debt or equity capital for these purposes. If we are unable to obtain the necessary capital on favorable terms, or at all, our financial condition, liquidity, results of operations and prospects could be materially and adversely affected. Certain of our loan agreements contain cash trap provisions that may be triggered if the performance of our hotel properties decline. When these provisions are triggered, substantially all of the profit generated by the hotel properties securing such loan is deposited directly into lockbox accounts and then swept into cash management accounts for the benefit of our various lenders. This could affect our liquidity and our ability to make distributions to our stockholders until such time that a cash trap is no longer in effect for such loan. These cash trap provisions have been triggered on some of our mortgage loans, as discussed above. 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. Our estimated future obligations as ofDecember 31, 2021 include both current and long-term obligations. With respect to our indebtedness, as discussed in note 6 to our consolidated financial statements, we have current obligations of$546.0 million and long-term obligations of$634.8 million . As ofDecember 31, 2021 , we held extension options to extend the principal for all 96 --------------------------------------------------------------------------------
of the debt due in the next twelve months except for
As discussed in note 17 to our consolidated financial statements, under our
operating leases we have current obligations of approximately
Equity Transactions
OnDecember 5, 2017 , our board of directors approved the stock repurchase program pursuant to which the board of directors granted a repurchase authorization to acquire shares of the Company's common stock, par value$0.01 per share and preferred stock having an aggregate value of up to$50 million . The board of directors' authorization replaced any previous repurchase authorizations. No shares were repurchased during the year endedDecember 31, 2021 , pursuant to this authorization. OnDecember 11, 2017 , we entered into equity distribution agreements with certain sales agents to sell from time to time shares of our common stock having an aggregate offering price of up to$50.0 million . Sales of shares of our common stock, if any, may be made in negotiated transactions or transactions that are deemed to be "at-the-market" offerings as defined in Rule 415 of the Securities Act, including sales made directly on the NYSE, the existing trading market for our common stock, or sales made to or through a market maker other than on an exchange or through an electronic communications network. We will pay each of the sales agents a commission, which in each case shall not be more than 2.0% of the gross sales price of the shares of our common stock sold through such sales agent. OnJuly 7, 2020 , we entered into a side letter (the "Side Letter") with the sales agents pursuant to which we agreed to pay all reasonable documented out-of-pocket expenses, including the reasonable fees and disbursements of counsel incurred by the sales agents, in connection with the ongoing services contemplated by the equity distribution agreements (subject to a$75,000 cap on certain expenses incurred inJune 2020 ). Pursuant to the Side Letter, the sales agents have agreed to reimburse us for up to$50,000 of such expenses, if the sales agents offer and sell an amount of our common stock with an aggregate offering price of$15,000,000 , and have agreed to reimburse us for up to an additional$50,000 of such expenses, provided the sales agents offer and sell an amount of our common stock with an aggregate offering price of$30,000,000 . As ofMarch 8, 2022 , the Company has sold approximately 7.4 million shares of common stock and received gross proceeds of approximately$30.8 million under this program. OnNovember 13, 2019 , we filed an initial registration statement with theSEC , as amended onJanuary 24, 2020 , for shares of our non-traded Series E Redeemable Preferred Stock (the "Series E Preferred Stock") and our non-traded Series M Redeemable Preferred Stock (the "Series M Preferred Stock"). The registration statement became effective onFebruary 21, 2020 , and contemplates the issuance and sale of up to 20,000,000 shares of Series E Preferred Stock or Series M Preferred Stock in a primary offering and up to 8,000,000 shares of Series E Preferred Stock or Series M Preferred Stock pursuant to a dividend reinvestment plan. OnFebruary 25, 2020 , we filed our prospectus with theSEC .Ashford Securities , a subsidiary of Ashford Inc., serves as the dealer manager and wholesaler of the Series E Preferred Stock and Series M Preferred Stock. OnApril 2, 2021 , the Company filed with theState Department of Assessments and Taxation of the State of Maryland (the "SDAT") articles supplementary to the Company's Articles of Amendment and Restatement that provided for: (i) reclassifying the existing 28,000,000 shares of Series E Preferred Stock and 28,000,000 shares of Series M Preferred Stock as unissued shares of preferred stock; (ii) reclassifying and designating 28,000,000 shares of the Company's authorized capital stock as shares of the Series E Preferred Stock (the "Series E Articles Supplementary"); and (iii) reclassifying and designating 28,000,000 shares of the Company's authorized capital stock as shares of the Series M Preferred Stock (the "Series M Articles Supplementary"). The Series E Articles Supplementary and Series M Articles Supplementary were filed to revise the preferred stock terms related to the dividend rate, our optional redemption right and certain other voting rights. The Company also caused its operating partnership to execute Amendment No. 5 to the Third Amended and Restated Agreement of Limited Partnership to amend the terms of its operating partnership agreement to conform to the terms of the Series E Articles Supplementary and Series M Articles Supplementary. As ofMarch 8, 2022 , the Company has issued approximately 2.9 million shares of Series E Preferred Stock and received net proceeds of approximately$65.4 million and issued approximately 37,000 shares of Series M Preferred Stock and received net proceeds of approximately$892,000 . The Company also issued approximately 4,000 shares of Series E Preferred Stock pursuant to the dividend reinvestment plan. OnDecember 4, 2019 , we entered into equity distribution agreements with certain sales agents to sell from time to time shares of our 5.50% Series B Cumulative Convertible Preferred Stock (the "Series B Convertible Preferred Stock") having an aggregate offering price of up to$40.0 million . Sales of shares of the Series B Convertible Preferred Stock may be made in negotiated transactions or transactions that are deemed to be "at-the-market" offerings as defined in Rule 415 of the Securities Act, including sales made directly on the NYSE, the existing trading market for the Series B Convertible Preferred Stock, or sales made to or through a market maker other than on an exchange or through an electronic communications network. We will 97 -------------------------------------------------------------------------------- pay each of the sales agents a commission, which in each case shall not be more than 2.0% of the gross sales price of the shares of the Series B Convertible Preferred Stock sold through such sales agents. Since the inception of the program, we issued approximately 63,000 shares of the Series B Convertible Preferred Stock through our "at-the-market" equity offering program resulting in gross proceeds of approximately$1.0 million before discounts and commissions to the selling agents of approximately$19,000 . OnFebruary 4, 2021 , the Company entered into a Standby Equity Distribution Agreement (the "SEDA") withYA II PN, Ltd. ("YA"), pursuant to which the Company will be able to sell up to 7,780,786 shares of its common stock (the "Commitment Amount") at the Company's request any time during the commitment period commencing onFebruary 4, 2021 , and terminating on the earliest of (i) the first day of the month next following the 36-month anniversary of the SEDA or (ii) the date on which YA shall have made payment of Advances (as defined in the SEDA) pursuant to the SEDA for shares of the Company's common stock equal to the Commitment Amount (the "Commitment Period"). Other than with respect to the Initial Advance (as defined below) the shares sold to YA pursuant to the SEDA would be purchased at 95% of the Market Price (as defined below) and would be subject to certain limitations, including that YA could not purchase any shares that would result in it owning more than 4.99% of the Company's common stock. "Market Price" means the lowest daily VWAP of the Company's common stock during the five consecutive trading days commencing on the trading day following the date the Company submits an advance notice to YA. "VWAP" means, for any trading day, the daily volume weighted average price of the Company's common stock for such date on the principal market as reported by Bloomberg L.P. during regular trading hours. At any time during the Commitment Period the Company may require YA to purchase shares of the Company's common stock by delivering a written notice to YA setting forth the Advance Shares (as defined in the SEDA) that the Company desires to issue and sell to YA (the "Advance Notice"). The Company may deliver an Advance Notice for an initial Advance for up to 1,200,000 Advance Shares (the "Initial Advance"). The preliminary purchase price per share for such shares shall be 100% of the average daily VWAP for the five consecutive trading days immediately prior to the date of the Advance Notice. Pursuant to the SEDA, we currently intend to use the net proceeds from any sale of the shares for working capital purposes, including the repayment of outstanding debt. There are no other restrictions on future financing transactions. The SEDA does not contain any right of first refusal, participation rights, penalties or liquidated damages. We are not required to pay any additional amounts to reimburse or otherwise compensate YA in connection with the transaction except for a$10,000 structuring fee. As ofMarch 8, 2022 , the Company has sold approximately 1.7 million shares of common stock and received proceeds of approximately$10.0 million under the SEDA. FromMarch 16, 2021 throughMarch 8, 2022 , Braemar entered into privately negotiated exchange agreements with certain holders of the Series B Convertible Preferred Stock in reliance on Section 3(a)(9) of the Securities Act. The Company agreed to exchange a total of approximately 2.0 million shares of its Series B Convertible Preferred stock for approximately 7.3 million shares of its common stock. OnApril 21, 2021 , the Company entered into a purchase agreement (the "Lincoln Park Purchase Agreement") withLincoln Park Capital Fund, LLC ("Lincoln Park"), pursuant to which the Company may issue or sell to Lincoln Park up to 8,893,565 shares of the Company's common stock from time to time during the term of the Lincoln Park Purchase Agreement. The issuance of the shares of common stock pursuant to the Lincoln Park Purchase Agreement has been registered pursuant to the Company's shelf registration statement on Form S-3 (the "Registration Statement"), and the related base prospectus included in the Registration Statement, as supplemented by a prospectus supplement filed with theSEC onApril 21, 2021 . The Company and Lincoln Park also entered into a registration rights agreement, pursuant to which the Company agreed to maintain the effectiveness of the Registration Statement. Upon entering into the Lincoln Park Purchase Agreement, the Company issued 15,000 shares of the Company's common stock as consideration for Lincoln Park's execution and delivery of the Lincoln Park Purchase Agreement. As ofMarch 8, 2022 , the Company has issued approximately 766,000 shares of common stock for gross proceeds of approximately$4.2 million under the Lincoln Park Purchase Agreement. OnMay 25, 2021 , the Company entered into an equity distribution agreement (the "VirtuMay 2021 EDA") withVirtu Americas LLC ("Virtu"), to sell from time to time shares of our common stock having an aggregate offering price of up to$50 million . We will pay Virtu a commission of approximately 1.0% 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, 2022 , the Company has sold approximately 8.3 million shares of common stock under the VirtuMay 2021 EDA and received gross proceeds of approximately$50.0 million . All shares of common stock under the VirtuMay 2021 EDA have been sold. OnJuly 12, 2021 , the Company entered into a second equity distribution agreement (the "VirtuJuly 2021 EDA")with Virtu to sell from time to time shares of our common stock having an aggregate offering price of up to$100 million . We will pay Virtu a commission of approximately 1.0% 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 98 --------------------------------------------------------------------------------
time of sale. As of
Debt Transactions
InMay 2021 , the Company issued$86.25 million aggregate principal amount of 4.50% Convertible Senior Notes dueJune 2026 (the "Convertible Senior Notes"). The net proceeds from this offering of the Convertible Senior Notes were approximately$82.8 million after deducting the underwriting fees and other expenses paid by the Company. The Convertible Senior Notes are governed by an indenture (the "Base Indenture") between the Company andU.S. Bank National Association , as trustee. The Convertible Senior Notes bear interest at a rate of 4.50% per annum, payable semi-annually in arrears onJune 1 andDecember 1 of each year, beginning onDecember 1, 2021 . The Convertible Senior Notes will mature onJune 1, 2026 . The Convertible Senior Notes are convertible at any time prior to the close of business on the business day immediately preceding the maturity date for cash, shares of the Company's common stock or a combination of cash and shares of the Company's common stock, at the election of the Company, based on an initial conversion rate of 157.7909 shares of the Company's common stock per$1,000 principal amount of notes (equivalent to a conversion price of approximately$6.34 per share of common stock), subject to adjustment of the conversion rate under certain circumstances. In addition, following the occurrence of certain corporate events, if the Company provides notice of redemption or if it exercises its option to convert the Convertible Senior Notes, the Company will, in certain circumstances, increase the conversion rate for a holder that converts its Convertible Senior Notes in connection with such corporate event, such notice of redemption, or such issuer conversion option, as the case may be. The Company may redeem the Convertible Senior Notes at the Company's option, in whole or in part, on any business day on or after the date of issuance if the last reported sale price per share of the Company's common stock has been at least 130% of the conversion price then in effect for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading day period ending on, and including, the trading day immediately preceding the date on which the Company provides a notice of redemption at a redemption price equal to 100% of the principal amount of the Convertible Senior Notes to be redeemed subject to certain adjustments, plus accrued and unpaid interest to, but excluding, the redemption date. OnSeptember 23, 2021 , the Company finalized an extension of its mortgage loans for theBardessono Hotel and Spa with a final maturity inAugust 2022 and theHotel Yountville with a final maturity inMay 2022 . Each of the loans was extended for one year beyond its original maturity on the same terms as the original loan. OnFebruary 2, 2022 , the Company refinanced its mortgage loan secured by thePark Hyatt Beaver Creek Resort & Spa , which had a final maturity date inApril 2022 . The new, non-recourse mortgage loan totals$70.5 million and has a two-year initial term with three one-year extension options, subject to the satisfaction of certain conditions. The mortgage loan is interest only and provides for a floating interest rate of SOFR + 2.86%.
Sources and Uses of Cash
We had approximately
We anticipate using funds to pay for (i) capital expenditures for our 14 hotel properties, estimated to be approximately$60 million to$70 million in fiscal year 2022 and (ii) debt interest payments are estimated to be approximately$30.2 million in 2022 based on future payments using the one month LIBOR rate as ofDecember 31, 2021 . This estimate will fluctuate based on changes in the one-month LIBOR rate. Net Cash Flows Provided by (Used in) Operating Activities. Net cash flows provided by (used in) operating activities were$64.0 million and$(50.3) million for the years endedDecember 31, 2021 and 2020, respectively. Cash flows from operations were impacted by the COVID-19 pandemic and changes in hotel operations of our 13 comparable hotel properties as well the acquisition of the Mr.C Beverly Hills Hotel onAugust 5, 2021 . Cash flows from operations are also impacted by the timing of working capital cash flows such as collecting receivables from hotel guests, paying vendors, settling with derivative counterparties, settling with related parties, settling with hotel managers and timing differences between the receipt of proceeds from business interruption insurance claims and the recognition of the related revenue. Net Cash Flows Provided by (Used in) Investing Activities. For the year endedDecember 31, 2021 , net cash flows used in investing activities were$41.7 million . These cash outflows were primarily attributable to$25.6 million of capital improvements made to various hotel properties, approximately$17.6 million associated with the acquisition of the Mr. C 99 --------------------------------------------------------------------------------
For the year endedDecember 31, 2020 , net cash flows used in investing activities were$16.5 million . These cash outflows were primarily attributable to$25.6 million of capital improvements made to various hotel properties offset by$9.0 million of insurance proceeds related to Hurricane Irma. Net Cash Flows Provided by (Used in) Financing Activities. For the year endedDecember 31, 2021 , net cash flows provided by financing activities were$128.0 million . Cash inflows primarily consisted of net proceeds of$83.2 million from the issuance of our Convertible Senior Notes,$102.5 million from the issuance of common stock,$36.9 million from the issuance of preferred stock and contributions of$1.2 million from a noncontrolling interest in consolidated entities. The cash inflows were partially offset by repayments of indebtedness of$84.2 million ,$9.1 million of dividend and distribution payments and$1.9 million of payments for loan costs and fees. For the year endedDecember 31, 2020 , net cash flows provided by financing activities were$49.6 million . Cash inflows primarily consisted of borrowings on indebtedness of$109.3 million , net proceeds of$13.3 million from the "at-the-market" common stock offering and$474,000 from the issuance of preferred stock, partially offset by repayments of indebtedness of$47.8 million ,$16.2 million of dividend and distribution payments,$6.5 million of payments for loan costs and fees associated with loan forbearance, and distributions of$2.6 million to the holder of a noncontrolling interest in consolidated entities.
Inflation
We rely entirely on the performance of our properties and the ability of the properties' managers to increase revenues to keep pace with inflation. Hotel operators can generally increase room rates rather quickly, 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, and utilities are subject to inflation as well.
Critical Accounting Policies
Our accounting policies are fully described in note 2 to our consolidated financial statements included in "Item 8. Financial Statements and Supplementary Data." We believe that the following discussion addresses our most critical accounting policies, representing those policies considered most vital to the portrayal of our financial condition and results of operations and require management's most difficult, subjective and complex judgments. Impairment of Investments in Hotel 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 the 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. Asset write-downs resulting from property damage are recorded up to the amount of the allocable property insurance deductible in the period that the property damage occurs. There was no impairment charge recorded for the year endedDecember 31, 2021 . Income Taxes. AtDecember 31, 2021 and 2020, we had a valuation allowance of approximately$17.3 million and$14.9 million , respectively, to partially reserve our deferred tax assets of our TRSs. 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. In evaluating the objective evidence that historical results provide, we consider three years of consolidated cumulative operating income (loss). AtDecember 31, 2021 , we had TRS net operating loss carry forwards forU.S. federal income tax purposes of$61.2 million , of which$52.3 million is 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. The loss carry forwards subject to expiration may be available to offset future taxable income, if any, for 2023 through 2034, with the remainder available to offset taxable income beyond 2034; however, there could be substantial limitations on their use imposed by the Code. Management determined that it is more likely than not that$17.3 million of our net deferred tax assets will not be realized and a valuation allowance has been recorded accordingly. 100 -------------------------------------------------------------------------------- The "Income Taxes" Topic of theFinancial Accounting Standards Board's ("FASB") Accounting Standards Codification ("ASC") addresses the accounting for uncertainty in income taxes recognized in an enterprise's financial statements. The guidance requires us to determine whether tax positions we have taken or expect to take in a tax return are more likely than not to be sustained upon examination by the appropriate taxing authority based on the technical merits of the positions. Tax positions that do not meet the more likely than not threshold would be recorded as additional tax expense in the current period. We analyze all open tax years, as defined by the statute of limitations for each jurisdiction, which includes the federal jurisdiction and various states. We classify interest and penalties related to underpayment of income taxes as income tax expense. We and our subsidiaries file income tax returns in theU.S. federal jurisdiction and various states and cities. Tax years 2017 through 2021 remain subject to potential examination by certain federal and state taxing authorities.
Recently Adopted Accounting Standards
InJanuary 2020 , the FASB issued ASU 2020-01, Investments -Equity Securities (Topic 321),Investments-Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815) - Clarifying the Interactions between Topic 321, Topic 323, and Topic 815 (a consensus of theEmerging Issues Task Force ) ("ASU 2020-01"), which clarifies the interaction between the accounting for equity securities, equity method investments, and certain derivative instruments. The ASU, among other things, clarifies that a company should consider observable transactions that require a company to either apply or discontinue the equity method of accounting under Topic 323,Investments-Equity Method and Joint Ventures , for the purposes of applying the measurement alternative in accordance with Topic 321 immediately before applying or upon discontinuing the equity method. ASU 2020-01 is effective for fiscal years beginning afterDecember 15, 2020 , and interim periods within those fiscal years and should be applied prospectively. We adopted the standard effectiveJanuary 1, 2021 , and the adoption of this standard did not have a material impact on our consolidated financial statements.
Recently Issued Accounting Standards
InMarch 2020 , the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848) ("ASU 2020-04"). ASU 2020-04 contains practical expedients for reference rate reform related activities that impact debt, leases, derivatives and other contracts. The guidance in ASU 2020-04 is optional and may be elected over time as reference rate reform activities occur. InJanuary 2021 , the FASB issued ASU 2021-01, Reference Rate Reform (Topic 848): Scope ("ASU 2021-01") to provide guidance and relief for transitioning to alternative reference rates. ASU 2021-01 is effective immediately for all entities. The Company continues to evaluate the impact of the guidance and may apply the elections as applicable as changes in the market occur. InAugust 2020 , the FASB issued ASU 2020-06, Debt - Debt with Conversion and Other Options (Subtopic 470- 20) and Derivatives and Hedging - Contracts in Entity's Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity's Own Equity ("ASU 2020-06"), which simplifies the accounting for certain financial instruments with characteristics of liabilities and equity. This ASU (1) simplifies the accounting for convertible debt instruments and convertible preferred stock by removing the existing guidance in 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 is 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 plan to adopt ASU 2020-06 through the modified retrospective method onJanuary 1, 2022 . Upon adoption, the Convertible Senior Notes will be recorded as a single debt instrument at amortized cost, instead of being recorded as both a liability and equity. The Company will also cease recording non-cash interest expense associated with amortization of the debt discount associated with the conversion features. The adoption of ASU 2020-06 will result in an adjustment to additional paid-in capital, accumulated deficit, and the carrying value of our Convertible Senior Notes. The impact of adopting ASU 2020-06 will be an increase to "indebtedness, net" and a decrease to stockholders' equity of approximately$5.6 million . We do not expect the adoption of this standard to have a material impact on our consolidated financial statements, beyond the impact to our Convertible Senior Notes described above.
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.
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EBITDA is defined as net income (loss) before interest expense and amortization
of loan costs, depreciation and amortization, income taxes, equity in (earnings)
loss of unconsolidated entity and after the Company's portion of EBITDA of
OpenKey. In addition, we excluded impairment on real estate, (gain) loss on
insurance settlement and disposition of assets and Company's portion of EBITDAre
of OpenKey from EBITDA to calculate EBITDA for real estate, or EBITDAre, as
defined by NAREIT.
We then further adjust EBITDAre to exclude certain additional items such as
amortization of favorable (unfavorable) contract assets (liabilities),
transaction and conversion costs, write-off of loan costs and exit fees, legal,
advisory and settlement costs, advisory services incentive fee, other/income
expense, Company's portion of adjustments to EBITDAre of OpenKey and non-cash
items such as unrealized gain/ loss on derivatives and stock/unit-based
compensation.
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 or net income
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) (unaudited):
Year Ended
2021 2020 2019
Net income (loss)
30,901 45,104 54,507
Depreciation and amortization 73,762 73,371 70,112
Income tax expense (benefit) 1,324 (4,406) 1,764
Equity in (earnings) loss of unconsolidated entity 252 217 199
Company's portion of EBITDA of OpenKey (250) (214) (195)
EBITDA 73,078 (10,605) 127,583
(Gain) loss on insurance settlement and disposition of assets (696) (10,149) (25,165)
EBITDAre 72,382 (20,754) 102,418
Amortization of favorable (unfavorable) contract assets (liabilities)
512 834 651
Transaction and conversion costs 2,637 1,370 2,076
Other (income) expense - 5,126 13,947
Write-off of loan costs and exit fees 1,963 3,920 647
Unrealized (gain) loss on investment in Ashford Inc. - - (7,872)
Unrealized (gain) loss on derivatives (32) (4,959) 1,103
Non-cash stock/unit-based compensation 10,204 7,892 7,943
Legal, advisory and settlement costs (208) 2,023 527
Company's portion of adjustments to EBITDAre of OpenKey 7 13 25
Adjusted EBITDAre $ 87,465 $ (4,535) $ 121,465
102-------------------------------------------------------------------------------- The following table reconciles net income (loss) to EBITDA attributable to the Company and OP unitholders on a property-by-property basis for each of our hotel properties owned and on a corporate basis during the year endedDecember 31, 2021 . The results of The Mr.C Beverly Hills Hotel are included from its acquisition date throughDecember 31, 2021 (in thousands) (unaudited): Year Ended December 31, 2021 Hilton La Park HyattJolla Torrey Sofitel ChicagoBardessono Hotel Pier House Beaver Creek The Notary
The Ritz-Carlton The Ritz-Carlton Marriott Seattle The Ritz-Carlton Mr. C Beverly
Corporate /
Capital Hilton Pines Magnificent Mile and SpaResort & Spa Hotel Yountville Resort & Spa Hotel The ClancySarasota Lake Tahoe WaterfrontSt. Thomas Hills Hotel Hotel Total Allocated(1) &Resorts Inc. Net income (loss)$ (11,082) $ 1,915 $ (10,181) $ 5,053 $ 13,411 $ 2,310$ 4,005 $ (6,261) $ (15,467) $ 15,342 $ 2,793$ (293)
- - - (117) (96) - - - - 1 1 - (671) 936 54 (54) -
Interest income - - - - - - - - (3) (22) - (12) (2) - (39) 39 -
Interest expense - - - 1,039 1,606 1,303 2,075 - - 3,518 1,205 54 2,134 644 13,578 15,117 28,695Amortization of loan costs - - - 162 294 180 14 - - 352 144 - 68 66 1,280 926 2,206 Depreciation and amortization 7,448 4,293 6,582 2,581 2,883 2,572 3,526 8,333 13,258 6,347 2,931 3,965 8,071 972 73,762 - 73,762 Income tax expense (benefit) - (43) - - - - - (7) - - - - 101 - 51 1,273 1,324 Non-hotel EBITDA ownership expense (income) 292 70 39 490 (59) 68 (11) (141) (5) 125 761 (157) 396 64 1,932 (1,932) -Hotel EBITDA including amounts attributable to noncontrolling interest (3,342) 6,235 (3,560) 9,208 18,039 6,433 9,609 1,924 (2,217) 25,663 7,835 3,557 27,550 1,052 107,986 (34,910) 73,076 Less: EBITDA adjustments attributable to consolidated noncontrolling interest 839 (1,562) - - - - - - - - - - - - (723) 723 - Equity in earnings (loss) of unconsolidated entities - - - - - - - - - - - - - - - 252 252 Company's portion of EBITDA of OpenKey - - - - - - - - - - - - - - - (250) (250)Hotel EBITDA attributable to the Company and OP unitholders$ (2,503) $ 4,673 $ (3,560) $ 9,208 $ 18,039 $ 6,433$ 9,609 $ 1,924 $ (2,217) $ 25,663 $ 7,835$ 3,557 $ 27,550 $ 1,052 $ 107,263 $ (34,185) $ 73,078 __________________
(1)Represents expenses not recorded at the individual hotel property level. (2)Includes allocated amounts which were not specific to hotel properties, such as gain on sale of hotel property, corporate taxes, insurance and legal expenses.
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The following table reconciles net income (loss) to EBITDA attributable to the
Company and OP unitholders on a property-by-property basis for each of our hotel
properties owned and on a corporate basis during the year ended December 31,
2020 (in thousands) (unaudited):
Year Ended December 31, 2020
Hilton La Park Hyatt
Jolla Torrey Sofitel Chicago Bardessono Pier House Beaver Creek The Notary The Ritz-Carlton The Ritz-Carlton Marriott Seattle The Ritz-Carlton Corporate / Braemar Hotels
Capital Hilton Pines
Magnificent Mile Hotel and Spa
Hotel The Clancy Sarasota Lake Tahoe Waterfront St. Thomas Hotel Total Allocated(1) & Resorts Inc.
Net income (loss) $ (12,722) $ (4,013) $ (12,230) $ (4,360) $ 766 $ (4,772) $ (2,204) $ (10,642) $ (16,177) $ (294) $ (3,913) $ (6,001) $ 4,844 $ (71,718) $ (52,959) $ (124,677)
Non-property adjustments (2) - - - 100 200 128 - - - 250 135 - (10,149) (9,336) 9,336 -
Interest income (12) (16) - - - - - (6) (9) (29) - (27) (1) (100) 100 -
Interest expense - - - 1,474 2,426 1,865 2,281 - - 4,634 1,769 - 2,283 16,732 24,963 41,695
Amortization of loan costs - - - 145 282 153 13 - - 334 136 - 104 1,167 2,242 3,409
Depreciation and amortization 7,648 5,032 6,667 3,126 3,006 2,441 4,562 8,768 12,028 5,992 2,772 3,949 7,380 73,371 - 73,371
Income tax expense (benefit) - (703) - - - - - (11) - - - - (83) (797) (3,609) (4,406)
Non-hotel EBITDA ownership
expense (income) 10 53 175 533 27 99 325 258 463 615 968 346 246 4,118 (4,118) -
Hotel EBITDA including amounts
attributable to noncontrolling
interest (5,076) 353 (5,388) 1,018 6,707 (86) 4,977 (1,633) (3,695) 11,502 1,867 (1,733) 4,624 13,437 (24,045) (10,608)
Less: EBITDA adjustments
attributable to consolidated
noncontrolling interest 1,269 (88) - - - - - - - - - - - 1,181 (1,181) -
Equity in earnings (loss) of
unconsolidated entities - - - - - - - - - - - - - - 217 217
Company's portion of EBITDA of
OpenKey - - - - - - - - - - - - - - (214) (214)
Hotel EBITDA attributable to
the Company and OP unitholders $ (3,807) $ 265 $ (5,388) $ 1,018 $ 6,707 $ (86) $ 4,977 $ (1,633) $ (3,695) $ 11,502 $ 1,867 $ (1,733) $ 4,624 $ 14,618 $ (25,223) $ (10,605)
_____________
(1)Represents expenses not recorded at the individual hotel property level. (2)Includes allocated amounts which were not specific to hotel properties, such as gain on sale of hotel property, corporate taxes, insurance and legal expenses.
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The following table reconciles net income (loss) to EBITDA attributable to the
Company and OP unitholders on a property-by-property basis for each of our hotel
properties owned and on a corporate basis during the year ended December 31,
2019 . The results of The Ritz-Carlton Lake Tahoe are included from its
acquisition date through December 31, 2019 (in thousands) (unaudited):
Year Ended December 31, 2019
Hilton La Park Hyatt
Capital Jolla Torrey Sofitel Chicago Bardessono Hotel Pier House Beaver Creek The Notary The Ritz-Carlton The Ritz-Carlton Marriott Seattle The Ritz-Carlton Corporate / Braemar Hotels
Hilton Pines Magnificent Mile and Spa Resort & Spa Hotel Yountville Resort & Spa Hotel The Clancy Sarasota Lake Tahoe Waterfront St. Thomas Hotel Total Allocated(1) & Resorts Inc.
Net income (loss) $ 6,220 $ 9,817 $ (24) $ (36) $ 8,303 $
868
606 $ 10,124 $ 30,595 $ 70,844 $ (69,648) $ 1,196
Non-property adjustments (2) - - - - (89) (9) - 1,186 - (23) - - (25,953) (24,888) 24,888 -
Interest income (57) (75) - - - - - (20) (16) (69) - (48) (2) (287) 287 -
Interest expense - - - 1,952 764 2,489 3,427 - - 5,847 2,294 - 3,087 19,860 30,304 50,164
Amortization of loan costs - - - 138 69 146 138 - - 318 129 - 154 1,092 3,251 4,343
Depreciation and amortization 7,915 5,616 6,659 3,108 2,615 2,576 4,495 8,369 10,355 7,715 4,426 3,976 2,476 70,301 (189) 70,112
Income tax expense (benefit) - 251 - - - - - (42) - - - - 77 286 1,478 1,764
Non-hotel EBITDA ownership
expense (income) 63 86 534 448 38 132 473 850 170 322 720 198 965 4,999 (4,999) -
Hotel EBITDA including
amounts attributable to
noncontrolling interest 14,141 15,695 7,169 5,610 11,700 6,202 10,142 9,850 14,248 13,626 8,175 14,250 11,399 142,207 (14,628) 127,579
Less: EBITDA adjustments
attributable to consolidated
noncontrolling interest (3,535) (3,924) - - - - - - - - - - - (7,459) 7,459 -
Equity in earnings (loss) of
unconsolidated entities - - - - - - - - - - - - - - 199 199
Company's portion of EBITDA
of OpenKey - - - - - - - - - - - - - - (195) (195)
Hotel EBITDA attributable to
the Company and OP
unitholders $ 10,606 $ 11,771 $ 7,169 $ 5,610 $ 11,700 $ 6,202 $ 10,142 $ 9,850 $ 14,248 $ 13,626 $ 8,175 $ 14,250 $ 11,399 $ 134,748 $ (7,165) $ 127,583
__________________
(1)Represents expenses not recorded at the individual hotel property level. (2)Includes allocated amounts which were not specific to hotel properties, such as gain on sale of hotel property, corporate taxes, insurance and legal expenses.
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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 insurance settlement and disposition of assets, plus
impairment charges on real estate, depreciation and amortization of real estate
assets, and after redeemable noncontrolling interests in the operating
partnership and adjustments for unconsolidated entities. 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 dividends on Series
B Convertible Preferred Stock, gain/loss on extinguishment of preferred stock,
transaction and conversion costs, write-off of loan costs and exit fees, legal,
advisory and settlement costs, advisory services incentive fee, other
income/expense and non-cash items such as interest expense on Convertible Senior
Notes, interest expense accretion on refundable membership club deposits,
amortization of loan costs, unrealized gain/loss on derivatives,
stock/unit-based compensation and the Company's portion of adjustments to FFO of
OpenKey. FFO and Adjusted FFO exclude amounts attributable to the portion of a
partnership owned by the third-party. 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 GAAP net income or loss as an
indication of our financial performance or GAAP cash flows from operating
activities as a measure of our liquidity. FFO and Adjusted FFO are also not
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 our
consolidated financial statements.
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The following table reconciles net income (loss) to FFO and Adjusted FFO (in
thousands) (unaudited):
Year Ended December 31,
2021 2020 2019
Net income (loss)
2,650 6,436 (2,032)
Net (Income) loss attributable to redeemable noncontrolling interests in operating partnership
3,597 12,979 1,207
Preferred dividends (8,745) (10,219) (10,142)
Gain (loss) on extinguishment of preferred stock (4,595) - -
Net income (loss) attributable to common stockholders (40,004) (115,481) (9,771)
Depreciation and amortization on real estate (1) 71,072 70,426 66,933
Net income (loss) attributable to redeemable noncontrolling interests in operating partnership
(3,597) (12,979) (1,207)
Equity in (earnings) loss of unconsolidated entity 252 217 199
(Gain) loss on insurance settlement and disposition of assets (696) (10,149) (25,165)
Company's portion of FFO of OpenKey (251) (216) (201)
FFO available to common stockholders and OP unitholders 26,776 (68,182) 30,788
Series B Convertible Preferred Stock dividends 4,747 6,919 6,842
(Gain) loss on extinguishment of preferred stock 4,595 - -
Transaction and conversion costs 2,637 1,370 2,076
Other (income) expense - 5,126 13,947
Interest expense on Convertible Senior Notes 3,378 - -
Interest expense accretion on refundable membership club benefits
772 818 864
Write-off of loan costs and exit fees 1,963 3,920 647
Amortization of loan costs (1) 2,121 3,332 4,263
Unrealized (gain) loss on investment in Ashford Inc. - - (7,872)
Unrealized (gain) loss on derivatives (32) (4,959) 1,103
Non-cash stock/unit-based compensation 10,204 7,892 7,943
Legal, advisory and settlement costs (208) 2,023 527
Company's portion of adjustments to FFO of OpenKey 7 13 28
Adjusted FFO available to common stockholders, OP unitholders, Series B Cumulative Convertible preferred stockholders and convertible note holders on an "as converted" basis
$ 56,960 $ (41,728) $ 61,156 ____________________
(1)Net of adjustment for noncontrolling interest in consolidated entities. The following table presents the amounts of the adjustments for noncontrolling interests for each line item:
Year Ended
2021 2020 2019
Depreciation and amortization on real estate $
(2,690)
Amortization of loan costs
(87) (77) (80)
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