Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
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 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.”
Overview
Ashford Inc. is a Nevada corporation that provides products and services primarily to clients in the hospitality industry, including Ashford Trust and Braemar. We became a public company in November 2014, and our common stock is listed on the NYSE American. As of March 11, 2021, Mr. Monty J. Bennett, Ashford Inc.’s Chairman and Chief Executive Officer and the Chairman of Ashford Trust and Braemar, and his father, Mr. Archie Bennett, Jr., Chairman Emeritus of Ashford Trust, owned approximately 606,908 shares of our common stock, which represented an approximately 21.2% ownership interest in Ashford Inc., and owned 18,758,600 shares of our Series D Convertible Preferred Stock (the “Series D Convertible Preferred Stock”), which is exercisable (at an exercise price of $117.50 per share) into an additional approximate 3,991,191 shares of Ashford Inc. common stock, which if exercised as of March 11, 2021 would have increased Mr. Monty J. Bennett and Mr. Archie Bennett, Jr.’s ownership interest in Ashford Inc. to 67.1%.
We provide: (i) advisory services; (ii) asset management services; (iii) hotel management services; (iv) project management services; (v) event technology and creative communications solutions; (vi) mobile room keys and keyless entry solutions; (vii) watersports activities and other travel, concierge and transportation services; (viii) hypoallergenic premium room products and services; (ix) debt placement and related services; (x) real estate advisory and brokerage services; and (xi) wholesaler, dealer manager and other broker-dealer services. We conduct these activities and own substantially all of our assets primarily through Ashford LLC, Ashford Services and their respective subsidiaries.
We seek to grow through the implementation of two primary strategies: (i) increasing our assets under management; and (ii) pursuing third-party business to grow our other products and services businesses.
We are currently the advisor for Ashford Trust and Braemar. In our capacity as the advisor to Ashford Trust and Braemar, we are responsible for implementing the investment strategies and managing the day-to-day operations of Ashford Trust and Braemar and their respective hotels from an ownership perspective, in each case subject to the respective advisory agreements and the supervision and oversight of the respective boards of directors of Ashford Trust and Braemar. Ashford Trust is focused on investing in full-service hotels in the upscale and upper upscale segments in the U.S. that have RevPAR generally less than twice the national average. Braemar invests primarily in luxury hotels and resorts with RevPAR of at least twice the U.S. national average. Each of Ashford Trust and Braemar is a REIT as defined in the Internal Revenue Code, and the common stock of each of Ashford Trust and Braemar is traded on the NYSE.
As required for disclosure under the Enhanced Return Funding Program Agreement and Amendment No. 1 to the Fifth Amended and Restated Advisory Agreement, for the trailing twelve months ended December 31, 2020, the total incremental expenses incurred (including all reimbursable expenses), as reasonably determined, in connection with providing services to Braemar under the agreement was $10.8 million.
Recent Developments
COVID-19, Management’s Plans and Liquidity
In December 2019, COVID-19 was identified in Wuhan, China, which subsequently spread to other regions of the world, and has resulted in significant travel restrictions and extended shutdown of numerous businesses in every state in the United States. In March 2020, the World Health Organization declared COVID-19 to be a global pandemic. Our clients Ashford Trust and Braemar have reported that the negative impact on room demand within their respective portfolios stemming from COVID-19 is significant, which has resulted and is expected to result in significantly reduced occupancy and RevPAR. Furthermore, the prolonged presence of the virus has resulted in health and other government authorities imposing widespread restrictions on travel and other businesses. The hotel industry has experienced postponement or cancellation of a significant number of business conferences and similar events. Following the government mandates and health official orders, the Company dramatically reduced staffing and expenses at its products and services businesses and at our corporate office. COVID-19 has had a significant negative impact on the Company’s operations and financial results to date. In addition, one or more possible recurrences of COVID-19 cases could result in further reductions in business and personal travel and could cause
state and local governments to reinstate travel restrictions. The Company expects that the COVID-19 pandemic will continue to have a significant negative impact on the Company’s results of operations, financial position and cash flow in 2021 and potentially beyond. As a result, in March 2020, the Company reduced the cash compensation of its executive officers and other employees, amended payment terms pursuant to certain hotel management agreements to better manage corporate working capital, reduced planned capital expenditures, and significantly reduced operating expenses. On March 16, 2020, the Company announced that the Board had declared and the Company would pay 50% of the dividend which was due with respect to its Series D Convertible Preferred Stock for the first quarter of 2020. The declared $3.9 million dividends were paid on April 15, 2020. On June 24, 2020, the Company declared the remaining 50% or approximately $4.0 million of dividends, including compounding dividends, due with respect to its Series D Convertible Preferred Stock for the first quarter of 2020 which were paid on July 14, 2020. The Company did not declare dividends with respect to its Series D Convertible Preferred Stock for the second quarter of 2020. On September 14, 2020, the Board declared a dividend of $0.411875 per share which was due with respect to its Series D Convertible Preferred Stock for the third quarter of 2020. The declared $7.9 million dividends were paid on October 15, 2020. The Company did not declare dividends with respect to its Series D Convertible Preferred Stock for the fourth quarter of 2020. As of December 31, 2020, the Company had aggregate undeclared preferred stock dividends of approximately $16.3 million which relates to the second and fourth quarters of 2020.
When preparing financial statements, management has the responsibility to evaluate whether there are conditions or events, considered in the aggregate, that create substantial doubt about the Company’s ability to continue as a going concern within one year after the date that the financial statements are issued. In applying the accounting guidance, the Company considered its current financial condition and liquidity sources, including current funds available, forecasted future cash flows and its unconditional obligations due over the next 12 months.
We are required to maintain certain financial ratios under various debt and related agreements. If we violate covenants in any debt or related agreement, we could be required to repay all or a portion of our indebtedness before maturity at a time when we might be unable to arrange financing for such repayment on attractive terms, if at all. Violations of certain debt covenants may result in the inability of our portfolio companies to borrow unused amounts under their respective lines of credit. As of December 31, 2020, our $35 million Term Loan Agreement was in compliance with all covenants or other requirements. Debt held by our subsidiaries was either in compliance with all covenants or other requirements or had any covenant violations waived by the lender. Additionally, JSAV executed a credit agreement amendment on December 31, 2020, which extended the maturity date of the loan, waived previous covenant violations for the fiscal quarters ended June 30, 2020 and September 30, 2020, and replaced the previous covenants with a covenant which commences with the quarter ending March 31, 2023.
We cannot predict when hotel operating levels at our clients, Ashford Trust and Braemar, will return to normalized levels after the effects of the pandemic subside, whether our clients’ hotels will be forced to shut down operations or whether one or more governmental entities may impose additional travel restrictions due to a resurgence of COVID-19 cases in the future. As a result of these factors resulting from the impact of the pandemic, we are unable to estimate future financial performance with certainty. However, based primarily on our assessment of the ability of our key customers, Ashford Trust and Braemar, to pay their obligations to the Company in accordance with the advisory agreements, the Company has concluded that management’s current plan alleviates the substantial doubt about its ability to continue as a going concern. Additional factors considered in our assessment include our completed loan amendments, other agreements, our current cash on hand, our forecast of future operating results for the next 12 months from the date of this report and the actions we have taken to improve our liquidity. Facts and circumstances could change in the future that are outside of management’s control, such as changes in Ashford Trust’s and Braemar’s financial position and liquidity, additional government mandates, health official orders, travel restrictions and extended business shutdowns due to COVID-19. See note 17 to our consolidated financial statements.
In April of 2020, certain of our portfolio companies applied for and received loans from Key Bank, N.A., Comerica Bank and Centennial Bank under the Paycheck Protection Program (“PPP”) which was established under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”). All funds borrowed under the PPP were returned on or before May 7, 2020.
Other Developments
On March 13, 2020, the Company entered into the Extension Agreement, related to the Ashford Trust ERFP Agreement. Under the terms of the Extension Agreement, the remaining ERFP commitment funding deadline under the Ashford Trust ERFP Agreement of $11.4 million as of December 31, 2020 and December 31, 2019, has been extended from January 22, 2021 to December 31, 2022. See note 11 to our consolidated financial statements.
On March 13, 2020, Ashford Trust entered into the Ashford Trust Hotel Management Letter Agreement with the Company. In order to allow the Company to better manage our corporate working capital and to ensure the continued efficient operation of the Ashford Trust hotels managed by Remington, Ashford Trust agreed to pay the base fee and to reimburse all expenses for
Remington-managed hotels on a weekly basis for the preceding week, rather than on a monthly basis. The Ashford Trust Hotel Management Letter Agreement went into effect on March 13, 2020 and will continue until terminated by Ashford Trust.
On March 13, 2020, Braemar entered into the Braemar Hotel Management Letter Agreement with the Company. In order to allow the Company to better manage its corporate working capital and to ensure the continued efficient operation of the Braemar hotels managed by Remington, Braemar agreed to pay the base fee and to reimburse all expenses for Remington-managed hotels on a weekly basis for the preceding week, rather than on a monthly basis. The Braemar Hotel Management Letter Agreement went into effect on March 13, 2020 and will continue until terminated by Braemar.
On March 16, 2020, the Company announced that in light of the uncertainty created by the effects of the COVID-19, effective March 21, 2020, the base salary for its Chief Executive Officer, Mr. Monty J. Bennett, was temporarily reduced by 20% and the base salary for certain other Company officers, including its Chief Financial Officer and its other named executive officers, was temporarily reduced by 15% until the effects of COVID-19 have subsided and it has been determined that the Company is in a healthy financial position. Any amounts relinquished pursuant to the reduction may be paid by the Company in the future.
On March 16, 2020, the Company announced that in light of the uncertainty created by the effects of COVID-19, the annual cash retainer for each non-employee director serving on the Company’s Board would be temporarily reduced by 25% and would continue in effect until the Board determined in its discretion that the effects of COVID-19 had subsided. The Company also disclosed at that time that any amounts relinquished pursuant to the reduction in fees may be paid in the future, as determined by the Board in its discretion. On August 7, 2020, the Company announced that for fiscal year 2020, the directors will receive the full value of their annual cash retainer (without reduction). However, the full value of such cash retainer will be paid 25% in fully vested common shares and 75% in cash. The remaining quarterly installments of such retainer will be adjusted so that, for fiscal year 2020 in the aggregate, each director will have received 25% of the value of the full annual cash retainer in equity and the remaining 75% in cash. This arrangement does not apply to any additional cash retainers for committee service or service as lead director, which will continue to be paid in cash. The Board currently intends to continue this arrangement through our 2021 Annual Meeting of Stockholders, at which time the Board currently intends to re-examine the program.
On March 19, 2020, the Company amended and restated the senior revolving credit facility pursuant to a Fourth Amendment to the Term Loan Agreement. The Company converted and consolidated the existing $10 million borrowing under the senior revolving credit facility (which had been borrowed on a revolving basis) into a term loan and drew down the remaining $25 million balance of the senior revolving credit facility, borrowing $35 million under the term loan in the aggregate. The Term Loan Agreement has a four year term and a maximum principal amount of $35 million. Principal payments of 1.25% of the outstanding balance are payable on the last business day of each fiscal quarter commencing June 30, 2020. See note 7 to our consolidated financial statements.
On March 20, 2020, Lismore, a wholly owned subsidiary of the Company, entered into the Ashford Trust Agreement. Pursuant to the Ashford Trust Agreement, Lismore shall, during the term of the agreement (which commenced on March 20, 2020 and shall end on the date that is twelve months following the commencement date, or upon it being terminated by Ashford Trust on not less than thirty days written notice) negotiate the refinancing, modification or forbearance of the existing mortgage debt on Ashford Trust’s hotels. For the purposes of the Ashford Trust Agreement, financing shall include, without limitation, senior or subordinate loan financing, provided in any single transaction or a combination of transactions, including, mortgage loan financing, mezzanine loan financing, or subordinate loan financing encumbering the applicable hotel or unsecured loan financing.
On July 1, 2020, Lismore and Ashford Trust amended and restated the Ashford Trust Agreement with an effective date of April 6, 2020. Pursuant to the amended and restated agreement, the term of the agreement was extended to 24 months following the commencement date. In connection with the services to be provided by Lismore under the amended and restated agreement, Lismore received a fee of $2.6 million in three equal installments of $857,000 per month beginning July 20, 2020, and ending on September 20, 2020. Lismore is also entitled to receive a fee that is calculated and payable as follows: (i) a fee equal to 25 basis points (0.25%) of the amount of a loan, payable upon the acceptance by the applicable lender of any forbearance or extension of such loan, or in the case where a third-party agent or contractor engaged by Ashford Trust has secured an extension of the maturity date equal to or greater than 12 months of any such loan, then the amount payable to Lismore shall be reduced to 10 basis points (0.10%); (ii) a fee equal to 75 basis points (0.75%) of the amount of any principal reduction of a loan upon the acceptance by any lender of any principal reduction of such loan; and (iii) a fee equal to 150 basis points (1.50%) of the implied conversion value (but in any case, no less than 50% of the face value of such loan or loans) of a loan upon the acceptance by any lender of any debt to equity conversion of such loan.
At the time of amendment, Lismore had been paid approximately $8.3 million, in the aggregate, pursuant to the original agreement. Under the amended and restated agreement, Ashford Trust is still entitled, in the event that Ashford Trust does not complete, for any reason, extensions or forbearances during the term of the agreement equal to or greater than approximately $4.1 billion, to offset, against any fees Ashford Trust or its affiliates owe pursuant to the advisory agreement, a portion of the fee previously paid by Ashford Trust to Lismore equal to the product of (x) approximately $4.1 billion minus the amount of extensions or forbearances completed during the term of the agreement multiplied by (y) 0.125%. For the year ended December 31, 2020, the Company recognized revenue of $5.7 million. As of December 31, 2020, the Company recorded $7.3 million as deferred income of which $680,000 is subject to claw back. The deferred income related to the various Lismore fees described above will be recognized over the 24 month term of the agreement on a straight line basis as the service is rendered, only to the extent it is probable that a significant reversal of revenue will not occur. Constraints relating to variable consideration are resolved generally upon the closing of a transaction or financing event and the resulting change in the transaction price will be adjusted on a cumulative catch-up basis in the period a transaction or financing event closes. See note 17 to our consolidated financial statements.
On March 20, 2020, Lismore entered into the Braemar Agreement. Pursuant to the Braemar Agreement, Lismore shall, during the term of the agreement (which commenced on March 20, 2020 and shall end on the date that is twelve months following the commencement date, or upon it being terminated by Braemar on not less than thirty days written notice) negotiate the refinancing, modification or forbearance of the existing mortgage and mezzanine debt on Braemar’s hotels. For the purposes of the Braemar Agreement, financing shall include, without limitation, senior or subordinate loan financing, provided in any single transaction or a combination of transactions, including, mortgage loan financing, mezzanine loan financing, or subordinate loan financing encumbering the applicable hotel or unsecured loan financing.
In connection with the services provided by Lismore, Lismore shall be paid an advisory fee of up to 50 basis points (0.50%) of the aggregate amount of the modifications, forbearances or refinancings, of the Braemar Financings calculated and payable as follows: (i) 0.125% of the aggregate amount of potential Braemar Financings upon execution of the Braemar Agreement; (ii) 0.125% payable in six equal installments beginning April 20, 2020 and ending on September 20, 2020; provided, however, in the event Braemar does not complete, for any reason, Braemar Financings during the term of the Braemar Agreement equal to or greater than $1.1 billion, then Braemar shall offset, against any fees owed by Braemar or its affiliates pursuant to the advisory agreement, a portion of the fee paid by Braemar to Lismore pursuant to this section equal to the product of (x) the amount of Braemar Financings completed during the term of the Braemar Agreement minus $1.1 billion multiplied by (y) 0.125%; and (iii) 25 basis points (0.25%) payable upon the acceptance by the applicable lender of any Braemar Financing. For the year ended December 31, 2020, the Company recognized revenue of $2.6 million. As of December 31, 2020, the Company recorded $1.6 million as deferred income of which $682,000 is subject to claw back. The deferred income related to the various Lismore fees described above will be recognized over the 12 month term of the agreement on a straight line basis as the service is rendered, only to the extent it is probable that a significant reversal of revenue will not occur. Constraints relating to variable consideration are resolved generally upon the closing of a transaction or financing event and the resulting change in the transaction price will be adjusted on a cumulative catch-up basis in the period a transaction or financing event closes. See note 17 to our consolidated financial statements.
Effective May 13, 2020, Douglas A. Kessler, Senior Managing Director of the Company, voluntarily resigned from his employment and all other positions he held with the Company and its subsidiaries, affiliated entities, and entities that it advises (including his role as President and Chief Executive Officer at Ashford Trust) in order to pursue other professional opportunities. Effective May 14, 2020, Ashford Trust appointed J. Robison Hays, III to fill the role of President and Chief Executive Officer. In connection with this appointment, Mr. Hays will no longer serve as Ashford Trust’s Chief Strategy Officer. Additionally, Mr. Hays will cease to serve as the Company’s Co-President and Chief Strategy Officer and will serve instead as Senior Managing Director of the Company. Accordingly, Jeremy J. Welter’s title at the Company has changed from Co-President and Chief Operating Officer to President and Chief Operating Officer.
On May 15, 2020, the Company and its Chief Executive Officer, Mr. Monty J. Bennett, entered into a letter agreement pursuant to which, effective as of May 15, 2020 and continuing through and including the Company’s last payroll period in 2020, Mr. Monty J. Bennett will accept payment of his base salary (as previously reduced by mutual agreement of the Company and Mr. Monty J. Bennett) in the form of common stock of the Company, issued pursuant to the Company’s 2014 Incentive Plan, as amended. Each issuance of the Company’s common stock will occur on, or as soon as reasonably practicable following, each regular payroll date. The number of shares issued with respect to each payroll date will be equal to the cash salary which would have been paid, less any taxes withheld and benefits deductions, divided by the volume weighted average price per share of the Company’s common stock over all trading days in the period commencing on the first trading date in the applicable payroll period and ending on the last trading date immediately prior to the last day of the payroll period. The Board and Mr. Bennett agreed to effectuate this change to preserve Company liquidity as the Company navigates the effects of COVID-19.
On June 16, 2020, J. Robison Hays, III resigned from the Company’s Board. As previously disclosed in our Current Report on Form 8-K filed on April 30, 2020, Mr. Hays also ceased to serve as the Company’s Co-President and Chief Strategy Officer and was instead appointed to serve as Senior Managing Director of the Company. Mr. Hays will continue to serve as the Company’s Senior Managing Director following his Board resignation. These changes were made in order to allow Mr. Hays to focus his attention on his new position as President and Chief Executive Officer of Ashford Trust and to ensure that his interests are better aligned with those of Ashford Trust’s stockholders. The board resignation was effective June 16, 2020. There are no disagreements between Mr. Hays and the Company in connection with his resignation.
On August 26, 2020, the Company received notification (the “Notice”) from the NYSE American that it was not in compliance with the continued listing standards set forth in Sections 1003(a)(i) and (ii) of the NYSE American Company Guide (the “Company Guide”). Specifically, the Notice indicated that the Company was not in compliance with Sections 1003(a)(i) and 1003(a)(ii) of the Company Guide, requiring a listed company to have stockholders’ equity of (i) at least $2.0 million if it has reported losses from continuing operations or net losses in two of its three most recent fiscal years and (ii) at least $4.0 million if it has reported losses from continuing operations or net losses in three of its four most recent fiscal years. The Company reported a stockholders’ deficit of $159.2 million as of June 30, 2020, and had losses from continuing operations and/or net losses in each of its five most recent fiscal years, except for the fiscal year ended December 31, 2018. The Company submitted a plan to the NYSE American on September 24, 2020 addressing how it intends to regain compliance with Sections 1003(a)(i) and (ii) of the Company Guide by February 26, 2022, or sooner if the NYSE American determines that the nature and circumstances of the Company’s continued listing status warrant a shorter period of time.
The Company received notification from the NYSE American on October 29, 2020, that it had accepted the Company’s plan and granted a plan period through February 26, 2022. During the plan period, the Company will be subject to periodic review to determine if it is making progress consistent with the plan. If the Company does not regain compliance with the NYSE American listing standards by February 26, 2022, or if the Company does not make sufficient progress consistent with its plan, then the NYSE American may initiate delisting proceedings.
On October 16, 2020, the independent members of the Board provided Ashford Trust a 30-day deferral on the payment of: (i) approximately $3.0 million in base advisory fees due to the Company with respect to the month of October 2020; (ii) approximately $1.0 million in reimbursable expenses due to the Company with respect to the month of October 2020, payable under the amended and restated advisory agreement, as amended, with Ashford Trust and Ashford Trust OP; and (iii) $3.0 million of success fees earned by Lismore in the third quarter of 2020. The Board also accelerated approximately $506,000 in claw back credit due to Ashford Trust which, absent a waiver, would occur after the expiration of the Ashford Trust Agreement. In addition, the independent members of the Board provided to Ashford Trust a limited waiver of any claim against Ashford Trust and Ashford Trust’s affiliates, and each of their officers and directors, for breach of the advisory agreement and Ashford Trust Agreement or any damages that may have arisen in absence of the success fee deferrals.
On November 5, 2020, the independent members of the Board provided Ashford Trust: (i) a deferral on the payment of base advisory fees with respect to October 2020 in the amount of approximately $3.0 million that were previously deferred on October 16, 2020; (ii) a deferral on the payment of approximately $3.0 million of success fees earned by Lismore that were previously deferred on October 16, 2020; (iii) a deferral on the payment of approximately $3.0 million in base advisory fees due to the Company with respect to the month of November 2020; (iv) a deferral on the payment of any Lismore success fees that may be earned during November 2020, such that each such deferred payment shall be due and payable on December 1, 2020; and (v) a limited waiver of any claim against Ashford Trust and Ashford Trust’s affiliates, and each of their officers and directors, for breach of the advisory agreement and Ashford Trust Agreement or any damages that may have arisen in absence of the fee deferrals. In addition, the independent members of the Board waived the obligation of Ashford Trust to replace the FF&E owned by the Company at Ashford Trust’s Embassy Suites New York Manhattan Times Square hotel that was lost when Ashford Trust consummated a deed-in-lieu of foreclosure transaction with the mezzanine lender.
On November 26, 2020, the independent members of the Board provided Ashford Trust: (i) a deferral of the payment of the base advisory fees that were previously deferred for the months of October 2020 and November 2020; (ii) a deferral of approximately $3.0 million in base advisory fees with respect to the month of December 2020; (iii) a deferral of the payment of Lismore success fees that were previously deferred for the months of October 2020 and November 2020; (iv) a deferral of any Lismore success fees for the month of December 2020. The foregoing payments will now be due and payable on January 4, 2021. Additionally, the independent members of the board of directors of Ashford Inc. waived any claim against Ashford Trust and Ashford Trust’s affiliates and each of their officers and directors for breach of the advisory agreement and Ashford Trust Agreement or any damages that may have arisen in absence of such fee deferrals.
On December 28, 2020, the Company paid the remaining 25% of the 2019 annual bonuses awarded to certain executive officers of the Company, including the Company’s named executive officers, which had been delayed beyond their standard payment date in March 2020 in light of the uncertainty regarding COVID-19, to be paid no later than December 31, 2020. Such
bonuses were paid primarily in the form of fully vested shares of common stock issued under the Company’s 2014 Incentive Plan in lieu of cash. Mr. Monty J. Bennett, the Company’s Chief Executive Officer, received the entire remainder of his 2019 annual bonus in the form of common stock.
On December 31, 2020, we acquired all of the redeemable noncontrolling interests shares in JSAV for $150,000. As a result of the acquisition, our ownership in JSAV increased from approximately 88% to 100%. See note 7 to our consolidated financial statements.
On January 4, 2021, the independent members of the Board provided Ashford Trust: (i) a deferral of the payment of the base advisory fees that were previously deferred for the months of October 2020, November 2020 and December 2020; (ii) a deferral of approximately $2.8 million in base advisory fees with respect to the month of January 2021; (iii) a deferral of the payment of Lismore success fees that were previously deferred for the months of October 2020, November 2020 and December 2020; (iv) a deferral of any Lismore success fees for the month of January 2021. The foregoing payments will now be due and payable on January 11, 2021. Additionally, the independent members of the board of directors of Ashford Inc. waived any claim against Ashford Trust and Ashford Trust’s affiliates and each of their officers and directors for breach of the advisory agreement and Ashford Trust Agreement or any damages that may have arisen in absence of such fee deferrals.
On January 11, 2021, the independent members of the Board provided Ashford Trust an additional deferral of the base advisory fees and any Lismore success fees for the months of October 2020, November 2020, December 2020 and January 2021 that were previously deferred such that all such fees would be due and payable on the earlier of (x) January 18, 2021 and (y) immediately prior to the closing of Credit Agreement between Ashford Trust and Oaktree. On January 11, 2021, the Board provided Ashford Trust with the foregoing request. Additionally, the Board waived any claim against Ashford Trust and Ashford Trust’s affiliates and each of their officers and directors for breach of the advisory agreement and Ashford Trust Agreement or any damages that may have arisen in absence of such fee deferral. In accordance with the terms of the previously disclosed deferrals, Ashford Trust paid the Company $14.4 million on January 15, 2021.
On January 14, 2021, the Company entered into the Second Amended and Restated Advisory Agreement with Ashford Trust. The Second Amended and Restated Advisory Agreement amends and restates the terms of the Amended and Restated Advisory Agreement, dated June 10, 2015, as amended by the Enhanced Return Funding Program Agreement and Amendment No. 1 to the Amended and Restated Advisory Agreement, dated as of June 26, 2018. In connection with the transactions contemplated by the Credit Agreement, dated as of January 15, 2021 (the “Credit Agreement”), by and among Ashford Trust, Oaktree and the lenders party thereto, on January 15, 2021, the Company entered into the SNDA with Ashford Trust and Oaktree pursuant to which the Company agreed to subordinate to the prior repayment in full of all obligations under the Credit Agreement, (1) prior to the later of (i) the second anniversary of the Credit Agreement and (ii) the date accrued interest “in kind” is paid in full, advisory fees (other than reimbursable expenses) in excess of 80% of such fees paid during the fiscal year ended December 31, 2019, (2) any termination fee or liquidated damages amounts under the advisory agreement, or any amount owed under any enhanced return funding program in connection with the termination of the advisory agreement or sale or foreclosure of assets financed thereunder, and (3) any payments to Lismore in connection with the transactions contemplated by the Credit Agreement. See further discussion in note 17 to our consolidated financial statements.
On February 1, 2021, the base salaries for the Company’s executive officers (other than Mr. Bennett) and other employees were restored to their pre-reduction levels, and on February 3, 2021, the independent members of the Board of Directors of the Company restored Mr. Bennett’s salary to its pre-reduction level, effective as of February 1, 2021. In addition, and also effective as of February 1, 2021, the independent members of the Board of Directors ended the arrangement pursuant to which Mr. Bennett has been receiving his base salary in the form of common stock issued under the Company’s 2014 Incentive Plan, as amended, such that Mr. Bennett’s base salary will again be paid in cash.
Shareholder Rights Plan
On March 13, 2020, we adopted a shareholder rights plan by entering into a Rights Agreement, dated March 13, 2020, with ComputerShare Trust Company, N.A., as rights agent (the “Rights Agreement”). We intend for the shareholder rights plan to improve the bargaining position of the Board in the event of an unsolicited offer to acquire our outstanding shares of common stock. The Board implemented the rights plan by declaring a dividend of one preferred share purchase right (a “Right”) that was paid on March 23, 2020, for each outstanding share of our common stock on March 23, 2020 (the “Record Date”), to our stockholders of record on that date. Each of those Rights becomes exercisable on the Distribution Date (defined below) and entitles the registered holder to purchase from the Company one one-thousandth of a share of our Series E Preferred Stock, par value $0.001 per share, at a price of $275 per one one-thousandth of a share of our Series E Preferred Stock represented by such a right, subject to adjustment. The Rights Agreement expired on February 13, 2021.
Initially, the Rights will be attached to all certificates representing our common stock, and no separate certificates evidencing the Rights (the “Rights Certificates”) will be issued. The Rights Agreement provides that, until the date on which
the Rights separate and begin trading separately from our common stock (which we refer to as the “Distribution Date”) or earlier expiration or redemption of the Rights, (i) the Rights will be transferred with and only with the shares of our common stock, (ii) new certificates representing shares of our common stock issued after the Record Date or upon transfer or new issuance of shares of our common stock will contain a notation incorporating the Rights Agreement by reference, and (iii) the surrender for transfer of any certificates for shares of our common stock outstanding as of the Record Date, even without such notation or a copy of the Summary of Rights (as defined in the Rights Agreement) being attached thereto, will also constitute the transfer of the Rights associated with the shares of our common stock represented by such certificate. The Distribution Date will occur, and the Rights would separate and begin trading separately from the shares of our common stock, and Rights Certificates will be caused to evidence the Rights on the earlier to occur of:
i.10 business days following a public announcement, or the public disclosure of facts indicating, that a person or group of affiliated or associated persons has acquired Beneficial Ownership (as defined in the Rights Agreement) of 10% or more of the outstanding shares of common stock (referred to, subject to certain exceptions, as “Acquiring Persons”) (or, in the event an exchange of the Rights for shares of our common stock is effected in accordance with certain provisions of the Rights Agreement and the Board determines that a later date is advisable, then such later date that is not more than 20 days after such public announcement); or
ii.10 business days (or such later date as may be determined by action of the Board prior to such time as any person becomes an Acquiring Person) following the commencement of, or announcement of an intention to make, a tender offer or exchange offer, the consummation of which would result in the Beneficial Ownership by a person or group of 10% or more of the outstanding shares of our common stock.
The Rights also become exercisable if a person or group that already beneficially owns 10% or more of our common stock acquires any additional shares of our common stock without the approval of the Board, except that the Distribution Date will not occur as a result of our company, one of our subsidiaries, one of our employee benefit plans or a trustee for one of those plans, or Mr. Monty J. Bennett and certain of his affiliates and associates acquiring additional shares of our common stock, and those persons will not be Acquiring Persons.
If a person or group becomes an Acquiring Person at any time after the date of the Rights Agreement, with certain limited exceptions, the Rights will become exercisable for shares of our common stock (or, in certain circumstances, shares of our Series E Preferred Stock or other of our securities that are similar) having a value equal to two times the exercise price of the right. From and after the announcement that any person has become an Acquiring Person, if the Rights evidenced by a Rights Certificate are or were at any time on or after the earlier of (i) the date of such announcement or (ii) the Distribution Date acquired or beneficially owned by an Acquiring Person or an associate or affiliate of an Acquiring Person, such Rights shall become void, and any holder of such Rights shall thereafter have no right to exercise such Rights. In addition, if, at any time after a person becomes an Acquiring Person, (i) we consolidate with, or merge with and into, any other person; (ii) any person consolidates with us, or merges with and into us and we are the continuing or surviving corporation of such merger and, in connection with such merger, all or part of the shares of our common stock are or will be changed into or exchanged for stock or other securities of any other person (or of ours) or cash or any other property; or (iii) 50% or more of our consolidated assets or Earning Power (as defined in the Rights Agreement) are sold, then proper provision will be made so that each holder of a right will thereafter have the right to receive, upon the exercise of a right at the then current exercise price of the right, that number of shares of common stock of the acquiring company which at the time of such transaction will have a market value of two times the exercise price of the Right. Upon the occurrence of an event of the type described in this paragraph, if the Board so elects, we will deliver upon payment of the exercise price of a right an amount of cash or securities equivalent in value to the shares of common stock issuable upon exercise of a right. If we fail to meet that obligation within 30 days following of the announcement that a person has become an Acquiring Person, we must deliver, upon exercise of a right but without requiring payment of the exercise price then in effect, shares of our common stock (to the extent available) and cash equal in value to the difference between the value of the shares of our common stock otherwise issuable upon the exercise of a right and the exercise price then in effect. The Board may extend the 30-day period described above for up to an additional 60 days to permit the taking of action that may be necessary to authorize sufficient additional shares of our Common Stock to permit the issuance of such shares of our Common Stock upon the exercise in full of the Rights.
Discussion of Presentation
The discussion below relates to the financial condition and results of operations of Ashford Inc. and entities which it controls. The historical financial information is not necessarily indicative of our future results of operations, financial position and cash flows.
RESULTS OF OPERATIONS
This section of this Form 10-K generally discusses 2020 and 2019 items and year-to-year comparisons between 2020 and 2019. Discussions of 2019 items and year-to-year comparisons between 2019 and 2018 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, 2019.
Year Ended December 31, 2020 Compared to Year Ended December 31, 2019
The following table summarizes the changes in key line items from our consolidated statements of operations for the year ended December 31, 2020 and 2019 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
Favorable (Unfavorable)
|
|
|
|
|
|
|
2020
|
|
2019
|
|
|
|
$ Change
|
|
% Change
|
|
|
|
|
|
REVENUE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advisory services
|
$
|
45,247
|
|
|
$
|
44,184
|
|
|
|
|
$
|
1,063
|
|
|
2.4
|
%
|
|
|
|
|
|
Hotel management fees
|
17,126
|
|
|
4,526
|
|
|
|
|
12,600
|
|
|
278.4
|
%
|
|
|
|
|
|
Project management fees
|
8,936
|
|
|
25,584
|
|
|
|
|
(16,648)
|
|
|
(65.1)
|
%
|
|
|
|
|
|
Audio visual
|
37,881
|
|
|
110,609
|
|
|
|
|
(72,728)
|
|
|
(65.8)
|
%
|
|
|
|
|
|
Other
|
25,602
|
|
|
21,179
|
|
|
|
|
4,423
|
|
|
20.9
|
%
|
|
|
|
|
|
Cost reimbursement revenue
|
162,636
|
|
|
85,168
|
|
|
|
|
77,468
|
|
|
91.0
|
%
|
|
|
|
|
|
Total revenues
|
297,428
|
|
|
291,250
|
|
|
|
|
6,178
|
|
|
2.1
|
%
|
|
|
|
|
|
EXPENSES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and benefits
|
57,171
|
|
|
59,659
|
|
|
|
|
2,488
|
|
|
4.2
|
%
|
|
|
|
|
|
Cost of revenues for project management
|
3,521
|
|
|
5,853
|
|
|
|
|
2,332
|
|
|
39.8
|
%
|
|
|
|
|
|
Cost of revenues for audio visual
|
30,256
|
|
|
82,237
|
|
|
|
|
51,981
|
|
|
63.2
|
%
|
|
|
|
|
|
Depreciation and amortization
|
39,957
|
|
|
24,542
|
|
|
|
|
(15,415)
|
|
|
(62.8)
|
%
|
|
|
|
|
|
General and administrative
|
20,351
|
|
|
33,484
|
|
|
|
|
13,133
|
|
|
39.2
|
%
|
|
|
|
|
|
Impairment
|
188,837
|
|
|
—
|
|
|
|
|
(188,837)
|
|
|
|
|
|
|
|
|
Other
|
18,687
|
|
|
12,062
|
|
|
|
|
(6,625)
|
|
|
(54.9)
|
%
|
|
|
|
|
|
Reimbursed expenses
|
162,578
|
|
|
84,643
|
|
|
|
|
(77,935)
|
|
|
(92.1)
|
%
|
|
|
|
|
|
Total expenses
|
521,358
|
|
|
302,480
|
|
|
|
|
(218,878)
|
|
|
(72.4)
|
%
|
|
|
|
|
|
OPERATING INCOME (LOSS)
|
(223,930)
|
|
|
(11,230)
|
|
|
|
|
(212,700)
|
|
|
(1,894.0)
|
%
|
|
|
|
|
|
Equity in earnings (loss) of unconsolidated entities
|
212
|
|
|
(286)
|
|
|
|
|
498
|
|
|
174.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
(5,389)
|
|
|
(2,059)
|
|
|
|
|
(3,330)
|
|
|
(161.7)
|
%
|
|
|
|
|
|
Amortization of loan costs
|
(318)
|
|
|
(308)
|
|
|
|
|
(10)
|
|
|
(3.2)
|
%
|
|
|
|
|
|
Interest income
|
32
|
|
|
46
|
|
|
|
|
(14)
|
|
|
(30.4)
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Realized gain (loss) on investments
|
(386)
|
|
|
—
|
|
|
|
|
(386)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense)
|
(264)
|
|
|
3
|
|
|
|
|
(267)
|
|
|
(8,900.0)
|
%
|
|
|
|
|
|
INCOME (LOSS) BEFORE INCOME TAXES
|
(230,043)
|
|
|
(13,834)
|
|
|
|
|
(216,209)
|
|
|
(1,562.9)
|
%
|
|
|
|
|
|
Income tax (expense) benefit
|
14,255
|
|
|
(1,540)
|
|
|
|
|
15,795
|
|
|
1,025.6
|
%
|
|
|
|
|
|
NET INCOME (LOSS)
|
(215,788)
|
|
|
(15,374)
|
|
|
|
|
(200,414)
|
|
|
(1,303.6)
|
%
|
|
|
|
|
|
(Income) loss from consolidated entities attributable to noncontrolling interests
|
1,178
|
|
|
536
|
|
|
|
|
642
|
|
|
119.8
|
%
|
|
|
|
|
|
Net (income) loss attributable to redeemable noncontrolling interests
|
2,245
|
|
|
983
|
|
|
|
|
1,262
|
|
|
128.4
|
%
|
|
|
|
|
|
NET INCOME (LOSS) ATTRIBUTABLE TO THE COMPANY
|
(212,365)
|
|
|
(13,855)
|
|
|
|
|
(198,510)
|
|
|
(1,432.8)
|
%
|
|
|
|
|
|
Preferred dividends, declared and undeclared
|
(32,095)
|
|
|
(14,435)
|
|
|
|
|
(17,660)
|
|
|
(122.3)
|
%
|
|
|
|
|
|
Amortization of preferred stock discount
|
(2,887)
|
|
|
(1,928)
|
|
|
|
|
(959)
|
|
|
(49.7)
|
%
|
|
|
|
|
|
NET INCOME (LOSS) ATTRIBUTABLE TO COMMON STOCKHOLDERS
|
$
|
(247,347)
|
|
|
$
|
(30,218)
|
|
|
|
|
$
|
(217,129)
|
|
|
(718.5)
|
%
|
|
|
|
|
Net Income (Loss) Attributable to Common Stockholders. Net loss attributable to common stockholders increased $217.1 million to a $247.3 million loss for the year ended December 31, 2020 (“2020”) compared to the year ended December 31, 2019 (“2019”) as a result of the factors discussed below.
Total Revenues. Total revenues increased by $6.2 million, or 2.1%, to $297.4 million for 2020 compared to 2019 due to the following (in thousands):
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
Favorable (Unfavorable)
|
|
|
|
|
|
|
2020
|
|
2019
|
|
|
|
$ Change
|
|
% Change
|
|
|
|
|
|
|
|
Advisory services revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Base advisory fee (1) (9)
|
$
|
44,725
|
|
|
$
|
42,985
|
|
|
|
|
$
|
1,740
|
|
|
4.0
|
%
|
|
|
|
|
|
|
|
Incentive advisory fee (2)
|
—
|
|
|
678
|
|
|
|
|
(678)
|
|
|
(100.0)
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other advisory revenue (3)
|
522
|
|
|
521
|
|
|
|
|
1
|
|
|
0.2
|
%
|
|
|
|
|
|
|
|
Total advisory services revenue
|
45,247
|
|
|
44,184
|
|
|
|
|
1,063
|
|
|
2.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hotel management:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Base management fees
|
17,126
|
|
|
4,054
|
|
|
|
|
13,072
|
|
|
322.4
|
%
|
|
|
|
|
|
|
|
Incentive management fees
|
—
|
|
|
472
|
|
|
|
|
(472)
|
|
|
(100.0)
|
%
|
|
|
|
|
|
|
|
Total hotel management revenue (4)
|
17,126
|
|
|
4,526
|
|
|
|
|
12,600
|
|
|
278.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Project management revenue (5)
|
8,936
|
|
|
25,584
|
|
|
|
|
(16,648)
|
|
|
(65.1)
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Audio visual revenue (6)
|
37,881
|
|
|
110,609
|
|
|
|
|
(72,728)
|
|
|
(65.8)
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt placement and related fees (7)
|
8,412
|
|
|
1,998
|
|
|
|
|
6,414
|
|
|
321.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Claims management services (8)
|
226
|
|
|
210
|
|
|
|
|
16
|
|
|
7.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease revenue (9)
|
—
|
|
|
4,118
|
|
|
|
|
(4,118)
|
|
|
(100.0)
|
%
|
|
|
|
|
|
|
|
Other services (10)
|
16,964
|
|
|
14,853
|
|
|
|
|
2,111
|
|
|
14.2
|
%
|
|
|
|
|
|
|
|
Total other revenue
|
25,602
|
|
|
21,179
|
|
|
|
|
4,423
|
|
|
20.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost reimbursement revenue (11)
|
162,636
|
|
|
85,168
|
|
|
|
|
77,468
|
|
|
91.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
$
|
297,428
|
|
|
$
|
291,250
|
|
|
|
|
$
|
6,178
|
|
|
2.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
REVENUES BY SEGMENT (12)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
REIT advisory
|
$
|
70,169
|
|
|
$
|
84,701
|
|
|
|
|
$
|
(14,532)
|
|
|
(17.2)
|
%
|
|
|
|
|
|
|
|
Remington
|
149,673
|
|
|
47,287
|
|
|
|
|
102,386
|
|
|
216.5
|
%
|
|
|
|
|
|
|
|
Premier
|
11,604
|
|
|
30,580
|
|
|
|
|
(18,976)
|
|
|
(62.1)
|
%
|
|
|
|
|
|
|
|
JSAV
|
37,881
|
|
|
110,609
|
|
|
|
|
(72,728)
|
|
|
(65.8)
|
%
|
|
|
|
|
|
|
|
OpenKey
|
1,479
|
|
|
987
|
|
|
|
|
492
|
|
|
49.8
|
%
|
|
|
|
|
|
|
|
Corporate and other
|
26,622
|
|
|
17,086
|
|
|
|
|
9,536
|
|
|
55.8
|
%
|
|
|
|
|
|
|
|
Total revenues
|
$
|
297,428
|
|
|
$
|
291,250
|
|
|
|
|
$
|
6,178
|
|
|
2.1
|
%
|
|
|
|
|
|
|
________
(1)The increase in base advisory fee is primarily due to higher revenue of $2.3 million from Ashford Trust partially offset by lower revenue of $518,000 from Braemar.
(2) During the year ended December 31, 2020, the Company determined it was no longer probable Braemar would meet the minimum FCCR Condition requirement, as stated in the Braemar advisory agreement, related to the third year installment of Braemar’s 2018 incentive advisory fee. As such, the Company did not recognize any incentive fee revenue related to Braemar in the year ended December 31, 2020. The incentive advisory fee for 2019 includes the pro-rata portion of the second year installment of the Braemar 2018 incentive advisory fee in the amount of $678,000, which was paid in January 2020. Incentive fee payments are subject to meeting the December 31 FCCR Condition each year, as defined in our advisory agreements. Ashford Trust’s annual total stockholder return has not met the incentive fee threshold in any of the
annual measurement periods subsequent to the 2016 measurement period. Braemar’s annual total stockholder return did not meet the relevant incentive fee thresholds during the 2020, 2019 and 2017 measurement periods.
(3) Other advisory revenue remained steady. Other advisory revenue from Braemar is a result of the $5.0 million cash payment received upon stockholder approval of the Fourth Amended and Restated Braemar Advisory Agreement in June 2017. The payment is included in “deferred income” on our consolidated balance sheet and is being recognized evenly over the initial ten-year term of the agreement.
(4) The increase in hotel management revenue is due to our acquisition of Remington in November of 2019.
(5) The decrease in project management revenue is due to lower revenue from Ashford Trust and Braemar of $11.6 million and $6.4 million, respectively, due to reduced capital expenditures by our clients as a result of COVID-19, offset by an increase in project management revenue from third parties of $1.4 million.
(6) The $72.7 million decrease in audio visual revenue is the result of COVID-19.
(7) The increase in debt placement and related fee revenue is due to higher revenue of $4.6 million from Ashford Trust and higher revenue of $1.9 million from Braemar. Debt placement and related fees are earned by Lismore for providing debt placement, modification, forbearance and refinancing services. The increase is primarily due to Lismore’s respective agreements with Ashford Trust and Braemar for providing modifications, forbearances or refinancings of Ashford Trust and Braemar’s loans in the 2020 period due to the financial impact from COVID-19.
(8) Claims management services include revenue earned from providing insurance claim assessment and administration services to Ashford Trust and Braemar.
(9) In connection with our ERFP Agreements and legacy key money transaction with Ashford Trust and legacy key money transaction with Braemar, we lease FF&E to Ashford Trust and Braemar rent-free. Our ERFP leases entered into in 2018 with Ashford Trust commenced on December 31, 2018. Consistent with our accounting treatment prior to adopting ASU 2016-02, Leases (“ASU 2016-02”), other revenue for the year ended December 31, 2019, includes a portion of the base advisory fee for leases commencing prior to our adoption, which is equal to the estimated fair value of the lease payments that would have been made.
(10) The increase in other services revenue is primarily due to increased revenue from OpenKey and RED of $489,000 and $309,000, respectively, and a $2.7 million increase from our acquisition of Marietta in November of 2019 offset by a decrease in revenue from Pure Wellness of $1.3 million. Other services revenue primarily relates to other hotel services provided by our consolidated subsidiaries, OpenKey, RED and Pure Wellness to Ashford Trust, Braemar and other third-parties, and Marietta.
(11) The increase in cost reimbursement revenue is primarily due to an increase of cost reimbursement revenue of $89.8 million recognized in 2020 for hotel management services from our Remington subsidiary acquired in November of 2019, offset by a decrease in cost reimbursement revenue for advisory services of $11.5 million from 2019.
(12) See note 19 to our consolidated financial statements for discussion of segment reporting.
Salaries and Benefits Expense. Salaries and benefits expense decreased by $2.5 million, or 4.2%, to $57.2 million for 2020 compared to 2019. The change in salaries and benefits expense consisted of the following (in thousands):
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|
|
|
|
|
|
|
|
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|
|
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|
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|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
|
|
$ Change
|
|
|
|
|
Cash salaries and benefits:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salary expense
|
|
|
|
|
|
|
$
|
35,173
|
|
|
$
|
35,170
|
|
|
|
|
$
|
3
|
|
|
|
|
|
Bonus expense
|
|
|
|
|
|
|
13,574
|
|
|
14,314
|
|
|
|
|
(740)
|
|
|
|
|
|
Benefits related expenses
|
|
|
|
|
|
|
6,302
|
|
|
7,499
|
|
|
|
|
(1,197)
|
|
|
|
|
|
Total cash salaries and benefits
|
|
|
|
|
|
|
55,049
|
|
|
56,983
|
|
|
|
|
(1,934)
|
|
|
|
|
|
Non-cash equity-based compensation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock option grants (1)
|
|
|
|
|
|
|
4,347
|
|
|
8,313
|
|
|
|
|
(3,966)
|
|
|
|
|
|
Employee equity grant expense
|
|
|
|
|
|
|
787
|
|
|
95
|
|
|
|
|
692
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-cash equity-based compensation
|
|
|
|
|
|
|
5,134
|
|
|
8,408
|
|
|
|
|
(3,274)
|
|
|
|
|
|
Non-cash (gain) loss in deferred compensation plan (2)
|
|
|
|
|
|
|
(3,012)
|
|
|
(5,732)
|
|
|
|
|
2,720
|
|
|
|
|
|
Total salaries and benefits
|
|
|
|
|
|
|
$
|
57,171
|
|
|
$
|
59,659
|
|
|
|
|
$
|
(2,488)
|
|
|
|
|
________
(1)The decrease in stock option grant related expense in the year ended December 31, 2020 primarily relates to the forfeiture of 98,603 options from the voluntary resignation of Douglas A. Kessler, Senior Managing Director of the Company, in May of 2020 and due to the Company not issuing any stock option grants during the year ended December 31, 2020.
(2) The DCP obligation is recorded as a liability at fair value with changes in fair value reflected in earnings. The gains in 2020 and 2019 are primarily attributable to a decrease in the fair value of the DCP obligation. See note 16 to our consolidated financial statements.
Cost of Revenues for Project Management. Cost of revenues for project management decreased $2.3 million, or 39.8% to $3.5 million during 2020 compared to $5.9 million for 2019, due to reduced capital expenditures by our clients as a result of COVID-19.
Cost of Revenues for Audio Visual. Cost of revenues for audio visual decreased $52.0 million, or 63.2%, to $30.3 million during 2020 compared to $82.2 million for 2019, primarily due to a significant decline in business and cost control initiatives implemented by JSAV in the United States, Mexico and the Dominican Republic as a result of COVID-19.
Depreciation and Amortization Expense. Depreciation and amortization expense increased by $15.4 million, or 62.8%, to $40.0 million for 2020 compared to 2019, primarily as a result of an increase of $11.4 million in amortization of management contracts acquired in our acquisition of Remington in November 2019 and an increase of $2.4 million in depreciation related to ERFP assets. Depreciation and amortization expense for 2020 and 2019 excludes depreciation expense related to audio visual equipment of $4.9 million and $4.7 million, respectively, which is included in “cost of revenues for audio visual” and also excludes depreciation expense for 2020 and 2019 related to marine vessels in the amount of $795,000 and $441,000, respectively, which are included in “other” operating expense. Depreciation and amortization expense for 2019 excludes $1.5 million of depreciation expense of capitalized software included in “reimbursed expenses.”
General and Administrative Expense. General and administrative expenses decreased by $13.1 million, or 39.2%, to $20.4 million for 2020 compared to 2019. The change in general and administrative expense consisted of the following (in thousands):
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
|
|
$ Change
|
|
|
|
|
Professional fees (1)
|
|
|
|
|
|
|
$
|
5,357
|
|
|
$
|
16,090
|
|
|
|
|
$
|
(10,733)
|
|
|
|
|
|
Office expense
|
|
|
|
|
|
|
7,347
|
|
|
7,692
|
|
|
|
|
(345)
|
|
|
|
|
|
Public company costs
|
|
|
|
|
|
|
336
|
|
|
591
|
|
|
|
|
(255)
|
|
|
|
|
|
Director costs
|
|
|
|
|
|
|
1,390
|
|
|
1,458
|
|
|
|
|
(68)
|
|
|
|
|
|
Travel and other expense
|
|
|
|
|
|
|
5,720
|
|
|
7,317
|
|
|
|
|
(1,597)
|
|
|
|
|
|
Non-capitalizable - software costs
|
|
|
|
|
|
|
201
|
|
|
336
|
|
|
|
|
(135)
|
|
|
|
|
|
Total general and administrative
|
|
|
|
|
|
|
$
|
20,351
|
|
|
$
|
33,484
|
|
|
|
|
$
|
(13,133)
|
|
|
|
|
________
(1) The decrease in professional fees in 2020 is primarily due to transaction costs of $10.6 million incurred in 2019 primarily related to our acquisition of Remington, RED’s acquisition of Sebago and JSAV’s acquisition of BAV and curtailing G&A expenses in 2020 due to COVID-19.
Impairment. In 2020, as a result of our reduced cash flow projections and the significant decline in our market capitalization as a result of the COVID-19 pandemic, we concluded that sufficient indicators existed to require us to perform an interim quantitative assessment of goodwill and intangible assets. As a result, we recorded goodwill impairment charges of $180.8 million and intangible asset impairment charges of $8.0 million. There were no impairment charges for 2019. See notes 6 and 9 to our consolidated financial statements.
Other. Other operating expense was $18.7 million and $12.1 million for 2020 and 2019, respectively. Other operating expense includes cost of goods sold, depreciation, and royalties associated with OpenKey, RED and Pure Wellness and costs related to Marietta. The increase is primarily due to a loss on disposition of FF&E of $6.4 million in 2020 for FF&E leased to Ashford Trust at the Embassy Suites New York Manhattan Times Square which was sold by Ashford Trust in 2020. Other operating expense additionally includes a loss on sale of FF&E previously leased to Braemar of $1.6 million in 2020. The FF&E was purchased by Braemar upon the expiration of the underlying leases of FF&E. See note 17 to our consolidated financial statements.
Reimbursed Expenses. Reimbursed expenses increased $77.9 million to $162.6 million during 2020 compared to $84.6 million for 2019 primarily due to hotel management expenses incurred by our Remington subsidiary acquired in November of 2019.
Reimbursed expenses recorded may vary from cost reimbursement revenue recognized in the period due to timing differences between the costs we incur for centralized software programs and the related reimbursements we receive from Ashford Trust and Braemar. Over the long term, these timing differences are not designed to impact our economics, either positively or negatively. The timing differences consisted of the following (in thousands):
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
|
2020
|
|
2019
|
|
$ Change
|
|
|
Cost reimbursement revenue
|
$
|
162,636
|
|
|
$
|
85,168
|
|
|
$
|
77,468
|
|
|
|
Reimbursed expenses
|
162,578
|
|
|
84,643
|
|
|
77,935
|
|
|
|
Net total
|
$
|
58
|
|
|
$
|
525
|
|
|
$
|
(467)
|
|
|
Equity in Earnings (Loss) of Unconsolidated Entities. Equity in earnings (loss) of unconsolidated entities was earnings of $212,000 and a loss of $286,000 for 2020 and 2019, respectively. Equity in earnings (loss) of unconsolidated entities represents earnings (loss) in our equity method investment in REA Holdings. See note 2 to our consolidated financial statements.
Interest Expense. Interest expense increased to $5.4 million from $2.1 million for 2020 and 2019, respectively, related to increases in our Term Loan Agreement and notes payable, lines of credit and finance leases held by our consolidated subsidiaries. See notes 2 and 7 to our consolidated financial statements.
Amortization of Loan Costs. Amortization of loan costs was $318,000 and $308,000 for 2020 and 2019, respectively, related to our Term Loan Agreement and notes payable held by our consolidated subsidiaries. See notes 2 and 7 to our consolidated financial statements.
Interest Income. Interest income was $32,000 and $46,000 for 2020 and 2019, respectively.
Realized Gain (Loss) on Investments. Realized loss on investments was $386,000 for 2020. The realized loss on investments relates to losses on shares of common stock of Ashford Trust and Braemar purchased by Remington on the open market and held for the purpose of providing compensation to certain employees.
Other Income (Expense). Other expense was expense of $264,000 and income of $3,000 in 2020 and 2019, respectively.
Income Tax (Expense) Benefit. Income tax (expense) benefit changed by $15.8 million, from $1.5 million expense in 2019 to a $14.3 million benefit in 2020. Current tax expense changed by $4.7 million, from $3.5 million expense in 2019 to $8.2 million expense in 2020. Deferred tax (expense) benefit changed by $20.5 million from a $1.9 million benefit in 2019 to a $22.4 million benefit in 2020. The difference in income tax (expense) benefit is related to an increase in non-taxable or non-deductible GAAP items, primarily amortization and impairment, as well as a decrease in bonus depreciation.
(Income) Loss from Consolidated Entities Attributable to Noncontrolling Interests. The noncontrolling interests in consolidated entities were allocated a loss of $1.2 million in 2020 and a loss of $536,000 in 2019. See notes 2 and 13 to our consolidated financial statements for more details regarding ownership interests, carrying values and allocations.
Net (Income) Loss Attributable to Redeemable Noncontrolling Interests. The redeemable noncontrolling interests were allocated a loss of $2.2 million in 2020 and loss of $983,000 in 2019. Redeemable noncontrolling interests represented ownership interests in Ashford Holdings and certain of our consolidated subsidiaries. For a summary of ownership interests, carrying values and allocations, see notes 2 and 14 to our consolidated financial statements.
Preferred Dividends, Declared and Undeclared. Preferred dividends, declared and undeclared increased $17.7 million to $32.1 million during 2020 compared to $14.4 million for 2019, primarily due to the issuance of $275 million of Series D Convertible Preferred Stock in the acquisition of Remington Lodging in November 2019.
Amortization of Preferred Stock Discount. The amortization of preferred stock discount increased $1.0 million to $2.9 million during 2020 compared to $1.9 million from 2019, primarily due to the issuance of $275 million of Series D Convertible Preferred Stock in the acquisition of Remington Lodging in November 2019.
LIQUIDITY AND CAPITAL RESOURCES
COVID-19, Management’s Plans and Liquidity
In December 2019, COVID-19 was identified in Wuhan, China, which subsequently spread to other regions of the world, and has resulted in significant travel restrictions and extended shutdown of numerous businesses in every state in the United States. In March 2020, the World Health Organization declared COVID-19 to be a global pandemic. Our clients Ashford Trust and Braemar have reported that the negative impact on room demand within their respective portfolios stemming from COVID-19 is significant, which has resulted and is expected to result in significantly reduced occupancy and RevPAR. Furthermore, the prolonged presence of the virus has resulted in health and other government authorities imposing widespread restrictions on travel and other businesses. The hotel industry has experienced postponement or cancellation of a significant number of business conferences and similar events. Following the government mandates and health official orders, the Company dramatically reduced staffing and expenses at its products and services businesses and at our corporate office. COVID-19 has had a significant negative impact on the Company’s operations and financial results to date. In addition, one or more possible recurrences of COVID-19 cases could result in further reductions in business and personal travel and could cause state and local governments to reinstate travel restrictions. The Company expects that the COVID-19 pandemic will continue to have a significant negative impact on the Company’s results of operations, financial position and cash flow in 2021 and potentially beyond. As a result, in March 2020, the Company reduced the cash compensation of its executive officers and other employees, amended payment terms pursuant to certain hotel management agreements to better manage corporate working capital, reduced planned capital expenditures, and significantly reduced operating expenses. On March 16, 2020, the Company announced that the Board had declared and the Company would pay 50% of the dividend which was due with respect to its Series D Convertible Preferred Stock for the first quarter of 2020. The declared $3.9 million dividends were paid on April 15, 2020. On June 24, 2020, the Company declared the remaining 50% or approximately $4.0 million of dividends, including compounding dividends, due with respect to its Series D Convertible Preferred Stock for the first quarter of 2020 which were paid on July 14, 2020. The Company did not declare dividends with respect to its Series D Convertible Preferred Stock for the second quarter of 2020. On September 14, 2020, the Board declared a dividend of $0.411875 per share which was due with respect to its Series D Convertible Preferred Stock for the third quarter of 2020. The declared $7.9 million dividends were paid on October 15, 2020. The Company did not declare dividends with respect to its Series D Convertible Preferred Stock for the fourth quarter of 2020. As of December 31, 2020, the Company had aggregate undeclared preferred stock dividends of approximately $16.3 million which relates to the second and fourth quarters of 2020.
When preparing financial statements, management has the responsibility to evaluate whether there are conditions or events, considered in the aggregate, that create substantial doubt about the Company’s ability to continue as a going concern within one year after the date that the financial statements are issued. In applying the accounting guidance, the Company considered its current financial condition and liquidity sources, including current funds available, forecasted future cash flows and its unconditional obligations due over the next 12 months.
We are required to maintain certain financial ratios under various debt and related agreements. If we violate covenants in any debt or related agreement, we could be required to repay all or a portion of our indebtedness before maturity at a time when we might be unable to arrange financing for such repayment on attractive terms, if at all. Violations of certain debt covenants may result in the inability of our portfolio companies to borrow unused amounts under their respective lines of credit. As of December 31, 2020, our $35 million Term Loan Agreement was in compliance with all covenants or other requirements. Debt held by our subsidiaries was either in compliance with all covenants or other requirements or had any covenant violations waived by the lender. Additionally, JSAV executed a credit agreement amendment on December 31, 2020, which extended the maturity date of the loan, waived previous covenant violations for the fiscal quarters ended June 30, 2020 and September 30, 2020, and replaced the previous covenants with a covenant which commences with the quarter ending March 31, 2023. See additional details discussed in Loan Agreements below and in note 7 of our consolidated financial statements.
We cannot predict when hotel operating levels at our clients, Ashford Trust and Braemar, will return to normalized levels after the effects of the pandemic subside, whether our clients’ hotels will be forced to shut down operations or whether one or more governmental entities may impose additional travel restrictions due to a resurgence of COVID-19 cases in the future. As a result of these factors resulting from the impact of the pandemic, we are unable to estimate future financial performance with certainty. However, based primarily on our assessment of the ability of our key customers, Ashford Trust and Braemar, to pay their obligations to the Company in accordance with the advisory agreements, the Company has concluded that management’s current plan alleviates the substantial doubt about its ability to continue as a going concern. Additional factors considered in our assessment include our completed loan amendments, other agreements, our current cash on hand, our forecast of future operating results for the next 12 months from the date of this report and the actions we have taken to improve our liquidity. Facts and circumstances could change in the future that are outside of management’s control, such as changes in Ashford Trust’s and Braemar’s financial position and liquidity, additional government mandates, health official orders, travel restrictions and extended business shutdowns due to COVID-19. See note 17 to our consolidated financial statements.
Loan Agreements—On March 19, 2020, the Company amended and restated the senior revolving credit facility pursuant to a Fourth Amendment to the Term Loan Agreement. The Company converted and consolidated the existing $10 million borrowing under the senior revolving credit facility (which had been borrowed on a revolving basis) into a term loan and drew down the remaining $25 million balance of the senior revolving credit facility, borrowing $35 million under the term loan in the aggregate. Effective June 23, 2020, the Company and Bank of America N.A. executed the Fifth Amendment to the Term Loan Agreement. The Fifth Amendment (a) established a 0.50% LIBOR floor, (b) eliminated the consolidated net worth financial covenant, and (c) waived the violation of the consolidated net worth financial covenant that occurred on March 31, 2020. The Term Loan Agreement has a four year term and a maximum principal amount of $35 million. Principal payments of 1.25% of the outstanding balance are payable on the last business day of each fiscal quarter commencing June 30, 2020. Principal payment amounts are subject to maintaining a fixed charge coverage ratio below specified thresholds which if not met increase the principal payment due each quarter from 1.25% to 5.0% of the outstanding principal balance. The Company is also subject to certain financial covenants. See discussion above regarding covenant compliance and in note 7 of our consolidated financial statements.
On December 31, 2020, JSAV amended their credit agreement dated as of November 1, 2017 (the “JSAV Amendment”). As a result of the JSAV amendment, the credit agreement revised the maximum borrowing capacity of the revolving credit facility from $3.5 million to $3.0 million. The JSAV amendment additionally replaced JSAV’s previous term loan, draw term loan and equipment loans with a $20.0 million senior secured term loan. The JSAV amendment also extended the maturity date of JSAV’s obligations under the revolving credit facility and term loan to January 1, 2024, with the potential for a further one-year extension at JSAV’s option subject to satisfaction of certain conditions, including a payment of a one-time, permanent principal reduction of the term loan of not less than $2.5 million and other fees as of the date of JSAV’s election to extend. Pursuant to the JSAV Amendment, JSAV’s obligations to comply with certain financial and other covenants were waived as discussed below.
As a result of the JSAV Amendment, amounts borrowed under the revolving credit facility and the term loan will bear interest at the prime rate plus a margin of 1.25%, with the margin increasing by 0.25% beginning on July 1, 2021 and at the beginning of each successive quarter thereafter. JSAV will pay a commitment fee of 1.5% of the term loan in installments, with the possibility that the last $100,000 installment, scheduled to be paid on December 31, 2022, be forgiven if JSAV’s obligations under the JSAV Amendment have been satisfied in full in advance of that date. The JSAV Amendment suspended payments of principal under the term loan through December 2021. Commencing January 1, 2022, JSAV will be required to make monthly payments under the term loan of $200,000 through June 2022, $250,000 through December 2022 and $300,000 thereafter.
We are required to maintain certain financial ratios under various debt and related agreements. If we violate covenants in any debt or related agreement, we could be required to repay all or a portion of our indebtedness before maturity at a time when we might be unable to arrange financing for such repayment on attractive terms, if at all. Violations of certain debt covenants may result in the inability of our portfolio companies to borrow unused amounts under their respective lines of credit. As of December 31, 2020, our $35 million Term Loan Agreement was in compliance with all covenants or other requirements. Debt held by our subsidiaries was either in compliance with all covenants or other requirements or had any covenant violations waived by the lender. Additionally, upon execution of the credit amendment dated December 31, 2020, JSAV’s previous covenant violations for the fiscal quarters ended June 30, 2020 and September 30, 2020 were waived by the lender. The credit amendment also confirms that any direct material impact on the financial results and operations of JSAV arising from the March 13, 2020 declaration of the national emergency relating to COVID-19 and the federal, state and local measures related thereto will not be deemed to constitute a material adverse effect on JSAV for purposes of the credit agreement. The credit agreement additionally does not require JSAV to comply with financial and other covenants until March 31, 2023.
Due to the significant negative impact of COVID-19 on RED’s operations, RED’s loans were not in compliance with debt covenants pursuant to certain existing loan agreements as of December 31, 2020. Subsequent to the end of the year, RED’s covenant violations as of December 31, 2020 were waived by the lender. The Company does not expect RED will violate any loan covenants at RED’s next annual covenant reporting date of December 31, 2021. RED’s loans are secured by RED’s tangible assets and do not have recourse to Ashford Inc. with the exception of $3.8 million of debt held by the entity that conducts RED’s legacy U.S. Virgin Islands operations.
Certain segments of our business are capital intensive and may require additional financing from time to time. Any additional financings, if and when pursued, may not be available on favorable terms or at all, which could have a negative impact on our liquidity and capital resources. Aggregate portfolio companies’ notes payable, net was $29.1 million and $26.8 million as of December 31, 2020 and December 31, 2019, respectively. See discussion above regarding covenant compliance. For further discussion see note 7 to our consolidated financial statements.
Preferred stock dividends—On March 16, 2020, the Company announced that the Board had declared and the Company would pay 50% of the dividend which was due with respect to its Series D Convertible Preferred Stock for the first quarter of 2020. The declared $3.9 million dividends were paid on April 15, 2020. On June 24, 2020, the Company declared the remaining 50% or approximately $4.0 million of dividends, including compounding dividends, due with respect to its Series D Convertible Preferred Stock for the first quarter of 2020 which were paid on July 14, 2020. The Company did not declare dividends with respect to its Series D Convertible Preferred Stock for the second quarter of 2020. On September 14, 2020, the Board declared a dividend of $0.411875 per share which was due with respect to its Series D Convertible Preferred Stock for the third quarter of 2020. The declared $7.9 million dividends were paid on October 15, 2020. The Company did not declare dividends with respect to its Series D Convertible Preferred Stock for the fourth quarter of 2020. As of December 31, 2020, the Company had aggregate undeclared preferred stock dividends of approximately $16.3 million which relates to the second and fourth quarters of 2020. All dividends, declared and undeclared, are recorded as a reduction in net income (loss) in the period incurred in our consolidated statements of operations. All accrued dividends accumulate and compound until paid in cash or converted into common stock of the Company pursuant to the Certificate of Designation for the Series D Convertible Preferred Stock. Unpaid dividends, declared and undeclared, totaling $16.3 million at December 31, 2020, are recorded as a liability in our consolidated balance sheets as “dividends payable”.
The Board plans to revisit the dividend payment policy with respect to the Series D Convertible Preferred Stock on an ongoing basis. The Board believes that the deferral of certain preferred dividends will provide the Company with additional funds to meet its ongoing liquidity needs.
Each share of Series D Convertible Preferred Stock: (i) has a liquidation value of $25 per share; (ii) accrues cumulative dividends at the rate of: (a) 6.59% per annum until November 6, 2020; (b) 6.99% per annum from November 6, 2020 until November 6, 2021; and (c) 7.28% per annum thereafter, (iii) participates in any dividend or distribution on the common stock in addition to the preferred dividends; (iv) is convertible into voting common stock at $117.50 per share; and (v) provides for customary anti-dilution protections. In the event the Company fails to pay the dividends on the Series D Convertible Preferred Stock for two consecutive quarterly periods (a “Preferred Stock Breach”), then until such arrearage is paid in cash in full: (A) the dividend rate on the Series D Convertible Preferred Stock will increase to 10.00% per annum until no Preferred Stock Breach exists; (B) no dividends on the Company’s common stock may be declared or paid, and no other distributions or redemptions may be made, on the Company’s common stock; and (C) the Board will be increased by two seats and the holders of 55% of the outstanding Series D Convertible Preferred Stock will be entitled to fill such newly created seats. The Series D Convertible Preferred Stock is held primarily by Mr. Monty J. Bennett, the Chairman of our Board and our Chief Executive Officer, Mr. Archie Bennett, Jr., who is Mr. Monty J. Bennett’s father, one of our other executive officers and several other individuals.
To the extent not paid on April 15, July 15, October 15 and January 15 of each calendar year in respect of the quarterly periods ending on March 31, June 30, September 30 and December 31, respectively (each such date, a “Dividend Payment Date”), all accrued dividends on any share shall accumulate and compound on the applicable Dividend Payment Date whether or not declared by the Board and whether or not funds are legally available for the payment thereof. All accrued dividends shall remain accumulated, compounding dividends until paid in cash pursuant hereto or converted to common shares. See also note 14 to our consolidated financial statements.
ERFP Commitments—On June 26, 2018, the Company entered into the Ashford Trust ERFP Agreement with Ashford Trust. The independent members of the board of directors of each of the Company and Ashford Trust, with the assistance of separate and independent legal counsel, engaged to negotiate the Ashford Trust ERFP Agreement on behalf of the Company and Ashford Trust, respectively. On January 15, 2019, the Company entered into the Braemar ERFP Agreement (collectively with the Ashford Trust ERFP Agreement, the “ERFP Agreements”) with Braemar. The independent members of the board of directors of each of the Company and Braemar, with the assistance of separate and independent legal counsel, engaged to negotiate the Braemar ERFP Agreement on behalf of the Company and Braemar, respectively. Under the ERFP Agreements, the Company agreed to provide $50 million (each, an “Aggregate ERFP Amount” and collectively, the “Aggregate ERFP Amounts”) to each of Ashford Trust and Braemar (collectively, the “REITs”), respectively, in connection with each such REIT’s acquisition of hotels recommended by us, with the option to increase each Aggregate ERFP Amount to up to $100 million upon mutual agreement by the parties to the respective ERFP Agreement. Under each of the ERFP Agreements, the Company will pay each REIT 10% of each acquired hotel’s purchase price in exchange for FF&E at a property owned by such REIT, which will be subsequently leased by us to such REIT rent-free. Each of the REITs must provide reasonable advance notice to the Company to request ERFP funds in accordance with the respective ERFP Agreement. The ERFP Agreements require that the Company acquire the related FF&E either at the time of the property acquisition or at any time generally within two years of the respective REITs’ acquisition of the hotel property. The Company recognizes the related depreciation tax deduction at the time such FF&E is purchased by the Company and placed into service at the respective REIT’s hotel properties. However, the timing of the FF&E being purchased and placed into service is subject to uncertainties outside of the Company’s control that could delay the realization of any tax benefit associated with the purchase of FF&E.
On March 13, 2020, the Company entered into the Extension Agreement, related to the Ashford Trust ERFP Agreement. Under the terms of the Extension Agreement, the remaining ERFP commitment funding deadline under the Ashford Trust ERFP Agreement of $11.4 million as of December 31, 2020 and December 31, 2019, has been extended from January 22, 2021 to December 31, 2022. As of March 31, 2020, the Company has no remaining ERFP commitment to Braemar under the Braemar ERFP Agreement. See note 11 to our consolidated financial statements.
Other liquidity considerations—On December 5, 2017, the Board approved a stock repurchase program pursuant to which the Board granted a repurchase authorization to acquire shares of the Company’s common stock, having an aggregate value of up to $20 million. No shares were repurchased under the stock repurchase program during the year ended December 31, 2020.
In the first quarter of 2020, BAV achieved the maximum $3.0 million performance target. We subsequently paid $2.4 million in cash to the sellers of BAV consisting of a $1.5 million payment on May 7, 2020, and a $900,000 payment on December 31, 2020. The Company elected to settle the remainder of the contingent consideration in the form of cash instead of Ashford Inc. common stock. Pursuant to the Second Amendment to the Asset Purchase Agreement, which was executed on May 6, 2020, the Company was provided a $250,000 discount upon the election of cash settlement. The final amount paid in January 2021, net of the discount, was $350,000. On November 24, 2020, the Company paid the $500,000 of consideration to the BAV sellers pursuant to the Third Amendment to the Asset Purchase Agreement, which was executed on November 4, 2020. As of December 31, 2020, the Company had a total contingent consideration liability outstanding to the sellers of BAV of approximately $2.1 million, primarily related to the stock consideration collar associated with JSAV’s acquisition of BAV. See notes 5, 9 and 11 to our consolidated financial statements.
Additional information pertaining to other liquidity considerations of the Company can be found in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Recent Developments.”
Sources and Uses of Cash
As of December 31, 2020 and December 31, 2019, we had $45.3 million and $35.3 million of cash and cash equivalents, respectively, and $37.4 million and $17.9 million of restricted cash, respectively. Our principal sources of funds to meet our cash requirements include: net cash provided by operations, existing cash balances and borrowing on our existing lending agreements. Additionally, our principal uses of funds are expected to include possible operating shortfalls, capital expenditures, preferred dividends 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. Operating activities provided net cash flows of $32.2 million and $24.7 million for the years ended December 31, 2020 and 2019, respectively. The increase in cash flows provided by operating activities in the year ended December 31, 2020, was primarily due to an $11.8 million increase in current “other liabilities” as a result of the transfer of cash from Ashford Trust into a Company escrow account for insurance claims during 2020, in addition to cash payments from Ashford Trust and Braemar of $13.5 million and $4.1 million, respectively, related to their respective agreements with Lismore to seek modifications, forbearances or refinancings. Net cash flows provided by operating activities additionally includes increases in cash flows due to the timing of receipt of our receivables from Braemar, affiliates and third parties, offset due to the timing of receipt of our receivables from Ashford Trust and a decrease in earnings in the year ended December 31, 2020.
Net Cash Flows Provided by (Used in) Investing Activities. For the year ended December 31, 2020, net cash flows used in investing activities were $6.0 million. These cash flows consisted of capital expenditures of $2.8 million primarily for audio visual equipment, a $1.3 million working capital payment to the sellers of Remington Lodging related to the acquisition in November of 2019, $1.7 million for RED’s legacy U.S. Virgin Islands marine vessels and a $150,000 payment to acquire the remaining non-controlling interest in JSAV.
For the year ended December 31, 2019, net cash flows used in investing activities were $28.8 million due to the acquisition of BAV Services for $4.3 million ($5.0 million cash consideration less working capital adjustments of approximately $700,000), the acquisition of Sebago for $2.4 million ($2.5 million cash consideration less working capital adjustments of approximately $100,000) and the $2.2 million investment in REA Holdings. Capital expenditures include $13.1 million and $10.3 million related to our ERFP agreements with Ashford Trust and Braemar, respectively, $6.7 million of audio visual equipment and property and equipment, $1.9 million for RED’s legacy U.S. Virgin Islands marine vessels, and $314,000 for investments in unconsolidated entities. Net cash flows used in investing activities were offset by cash inflows of $12.1 million of cash acquired in the acquisition of Remington Lodging and $231,000 for proceeds from disposals of audio visual equipment.
Net Cash Flows Provided by (Used in) Financing Activities. For the year ended December 31, 2020, net cash flows provided by financing activities were $2.7 million. These cash flows consisted of $44.8 million of proceeds from borrowings on notes payable and $457,000 of contributions from noncontrolling interests in a consolidated entity. These were offset by $20.5 million of payments for dividends on our preferred stock, $17.8 million of payments on notes payable, $1.4 million of contingent consideration paid to the sellers of BAV, $1.1 million of net payments on our revolving credit facilities, $785,000 of payments on finance leases, net repayments in advances to employees of $584,000 associated with tax withholdings for restricted stock vesting and $375,000 of loan cost payments.
For the year ended December 31, 2019, net cash flows used in financing activities were $2.1 million. These cash flows consisted of $12.4 million of repurchases of common stock from Ashford Trust and Braemar which were subsequently retired, $9.7 million of payments for dividends on our preferred stock, $2.5 million of payments on notes payable, $627,000 of payments on finance lease liabilities, $63,000 in distributions to non-controlling interests, and $76,000 of loan cost payments. These were offset by $11.1 million of proceeds from borrowings on notes payable, $10.8 million of net borrowings on our revolving credit facilities, $980,000 of contributions from noncontrolling interests in a consolidated entity, and net employee advances of $353,000 associated with tax withholdings for restricted stock vesting.
Off-Balance Sheet Arrangements
In the normal course of business, we may form or invest in partnerships or joint ventures. We evaluate each partnership and joint venture to determine whether the entity is a variable interest entity (“VIE”). If the entity is determined to be a VIE, we assess whether we are the primary beneficiary and need to consolidate the entity. For further discussion see notes 1 and 2 to our consolidated financial statements.
Long-term liability of our subsidiary compensation plan
We do not record on the balance sheet the long-term liability portion of the Ashford Trust and Braemar shares purchased by Remington Lodging on the open market and held for the purpose of providing compensation to certain employees as granted under our subsidiary compensation plan. The long-term liability was $134,000 and $687,000 as of December 31, 2020 and December 31, 2019, respectively.
Contractual Obligations and Commitments
The table below summarizes future obligations as of December 31, 2020 (in thousands):
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Payments Due by Period
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< 1 Year
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1-3 Years
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3-5 Years
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>5 Years
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Total
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Contractual obligations:
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Long-term debt obligations
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$
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5,585
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$
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22,276
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$
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31,545
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$
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3,362
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$
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62,768
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Estimated interest obligations (1)
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2,509
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4,443
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621
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611
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8,184
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Finance lease obligations
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3,490
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8,125
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6,029
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83,402
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101,046
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Operating lease obligations
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5,192
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9,654
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8,409
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16,570
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39,825
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Subsidiary compensation plan
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89
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—
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—
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—
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89
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Deferred compensation plan (2)
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29
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336
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671
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671
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1,707
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Total contractual obligations
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$
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16,894
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$
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44,834
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$
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47,275
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$
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104,616
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$
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213,619
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__________
(1)For variable-rate indebtedness, interest obligations are estimated based on the LIBOR and Prime interest rates as of December 31, 2020. We have assumed that credit facility balances remain outstanding until maturity using the interest rates as of December 31, 2020.
(2)Distributions under the deferred compensation plan are made in cash, unless the participant has elected Ashford Inc. common stock as the investment option, in which any such distributions would be made in Ashford Inc. common stock. The deferred compensation plan obligation is carried at fair value based on the underlying investment(s). See note 16 to our consolidated financial statements.
Some of our loan agreements contain financial and other covenants. If we violate these covenants, we could be required to repay 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. See note 7 for discussion of our loan covenants at December 31, 2020.
In addition to the amounts discussed above, as of December 31, 2020, we had approximately $11.4 million of remaining purchase commitments related to our Ashford Trust ERFP Agreement and $0 of remaining purchase commitments related to our Braemar ERFP Agreement. See notes 11 and 17 to our consolidated financial statements.
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 consolidated financial condition and results of operations and requiring management’s most difficult, subjective, and complex judgments.
Revenue Recognition—Advisory services revenue is reported within our REIT Advisory segment and primarily consists of advisory fees that are recognized when services have been rendered. Advisory fees consist of base fees and incentive fees. For Ashford Trust, prior to June 26, 2018, the base fee was paid quarterly and ranged from 0.50% to 0.70% per annum of the total market capitalization ranging from less than $6.0 billion to greater than $10.0 billion plus the Key Money Asset Management Fee, as defined in the amended and restated advisory agreement, subject to certain minimums. Upon effectiveness of the Enhanced Return Funding Program Agreement and Amendment No. 1 to the Amended and Restated Advisory Agreement on June 29, 2018, the base fee is paid monthly and ranges from 0.50% to 0.70% per annum of the total market capitalization ranging from less than $6.0 billion to greater than $10.0 billion plus the Net Asset Fee Adjustment, as defined in the amended and restated advisory agreement, as amended, subject to certain minimums. For Braemar, prior to January 15, 2019, the base fee was paid monthly and was fixed at 0.70% of Braemar’s total market capitalization plus the Key Money Asset Management Fee, as defined in the advisory agreement, subject to certain minimums. Upon effectiveness of the Enhanced Return Funding Program Agreement and Amendment No. 1 to the Fifth Amended and Restated Advisory Agreement on January 15, 2019, the base fee is paid monthly and is fixed at 0.70% of Braemar’s total market capitalization plus the Net Asset Fee Adjustment, as defined in the advisory agreement, as amended, subject to certain minimums.
Incentive advisory fees are measured annually in each year that Ashford Trust’s and/or Braemar’s annual total stockholder return exceeds the average annual total stockholder return for each company’s respective peer group, subject to the Fixed Charge Coverage Ratio Condition (the “FCCR Condition”), as defined in the respective advisory agreements. Incentive advisory fees are paid over a three-year period and each payment is subject to the FCCR Condition, which relates to the ratio of adjusted EBITDA to fixed charges for Ashford Trust or Braemar, as applicable. Incentive advisory fees are a form of variable consideration and therefore must be (i) deferred until such fees are probable of not being subject to significant reversal, and (ii) tied to a performance obligation in the contract with the customer so that revenue recognition depicts the transfer of the related advisory services to the customer. Accordingly, the Company does not record incentive advisory fee revenue in interim periods prior to the fourth quarter of the year in which the incentive fee is measured. The first year installment of incentive advisory fees will generally be recognized only upon measurement in the fourth quarter of the first year of the three year period. The second and third year installments of incentive advisory fees are recognized as revenue on a pro-rata basis each quarter subject to meeting the FCCR Condition. During the year ended December 31, 2020, the Company determined it was no longer probable Braemar would meet the minimum FCCR Condition requirement, as stated in the Braemar advisory agreement, related to the third year installment of Braemar’s 2018 incentive advisory fee. As such, the Company did not recognize any incentive fee revenue related to Braemar in the year ended December 31, 2020.
Hotel management revenue is reported within our Remington segment and primarily consists of base management fees and incentive management fees. Base management fees and incentive management fees are recognized when services have been rendered. Remington receives base management fees of 3% of gross hotel revenue for managing the hotel employees and daily operations of the hotels, pursuant to the amended and restated hotel management agreements, subject to a specified floor (which is subject to increase annually based on increases in the consumer price index). Remington receives an incentive management fee equal to the lesser of 1% of each hotel’s annual gross revenue or the amount by which the respective hotel’s gross operating profit exceeds the hotel’s budgeted gross operating profit.
Project management revenue primarily consists of revenue generated within our Premier segment by providing development and construction, capital improvements, refurbishment, project management, and other services such as purchasing, interior design, architectural services, freight management, and construction management services at properties. Premier receives fees for these services and recognizes revenue over time as services are provided to the customer.
Audio visual revenue primarily consists of revenue generated within our JSAV segment by providing event technology services such as audio visual services, audio visual equipment rental, staging and meeting services and event-related communication systems as well as related technical support, to our customers in various venues including hotels and convention centers. Revenue is recognized in the period in which services are provided pursuant to the terms of the contractual arrangements with our customers. We also evaluate whether it is appropriate to present: (i) the gross amount that our customers
pay for our services as revenue, and the related commissions paid to the venue as cost of revenue; or (ii) the net amount (gross revenue less the related commissions paid to the venue) as revenue. We are responsible for the delivery of the services, including providing the necessary labor and equipment to perform the services. We are generally subject to inventory risk, have latitude in establishing prices and selecting suppliers and, while in many cases the venue bills the end customer on our behalf, we bear the risk of collection from the customer. The venues’ commissions are not dependent on collections. As a result, our revenue is primarily reported on a gross basis. Cost of revenues for audio visual principally includes commissions paid to venues, direct labor costs, the cost of equipment sub-rentals, depreciation of equipment, amortization of signing bonuses, as well as other costs such as supplies, freight, travel and other overhead from our venue and customer facing operations and any losses on equipment disposal.
Other revenue includes revenue provided by certain of our hospitality products and service businesses, including RED. RED’s revenue is primarily generated through the provision of watersports activities and ferry and excursion services. The revenue is recognized as services are provided based on contractual customer rates. Debt placement and related fees include revenue earned from providing placement, modifications, forbearances or refinancings of certain mortgage debt by Lismore. For certain agreements, the fees are recognized based on a stated percentage of the loan amount when services have been rendered and the subject loan is closed. For other agreements, deferred income related to the various Lismore fees will be recognized over the term of the agreement on a straight line basis as the service is rendered, only to the extent it is probable that a significant reversal of revenue will not occur. Constraints relating to variable consideration are resolved generally upon the closing of a transaction or financing event and the resulting change in the transaction price will be adjusted on a cumulative catch-up basis in the period a transaction or financing event closes. In connection with our ERFP Agreements and legacy key money transaction with Ashford Trust and legacy key money transaction with Braemar, we lease FF&E to Ashford Trust and Braemar rent-free. Our ERFP leases entered into in 2018 with Ashford Trust commenced on December 31, 2018. Consistent with our accounting treatment prior to adopting ASU 2016-02, Leases (“ASU 2016-02”), other revenue for the year ended December 31, 2019, includes a portion of the base advisory fee for leases commencing prior to our adoption, which is equal to the estimated fair value of the lease payments that would have been made.
Cost reimbursement revenue is recognized in the period we incur the related reimbursable costs. Under our advisory agreements, we are entitled to be reimbursed for certain costs we incur on behalf of Ashford Trust and Braemar, with no added mark-up. These costs primarily consist of expenses related to Ashford Securities, overhead, internal audit, risk management advisory services and asset management services, including compensation, benefits and travel expense reimbursements. We record cost reimbursement revenue for equity grants of Ashford Trust and Braemar common stock and LTIP units awarded to our officers and employees in connection with providing advisory services equal to the fair value of the award in proportion to the requisite service period satisfied during the period. We additionally are reimbursed by Ashford Trust for expenses incurred by Ashford Investment Management, LLC (“AIM”) for managing Ashford Trust’s excess cash under the Investment Management Agreement. AIM is not compensated for its services but is reimbursed for all costs and expenses. Effective December 31, 2020, the Investment Management Agreement with Ashford Trust has been terminated.
Under our project management agreements and hotel management agreements, we are entitled to be reimbursed for certain costs we incur on behalf of Ashford Trust, Braemar and other hotel owners, with no added mark-up. Project management costs primarily consist of costs for accounting, overhead and project manager services. Hotel management costs primarily consist of the properties’ payroll, payroll taxes and benefits related expenses at managed properties where we are the employer of the employees at the properties as provided for in our contracts with the Ashford Trust, Braemar and other hotel owners.
We recognize revenue within the “cost reimbursement revenue” in our consolidated statements of operations when the amounts may be billed to Ashford Trust, Braemar and other hotel owners, and we recognize expenses within “reimbursed expenses” in our consolidated statements of operations as they are incurred. This pattern of recognition results in temporary timing differences between the costs incurred for centralized software programs and the related reimbursements we receive from Ashford Trust and Braemar in our operating and net income. Over the long term, these programs and services are not designed to impact our economics, either positively or negatively.
Certain of our consolidated entities enter into contracts with customers that contain multiple performance obligations. For these contracts, we account for individual performance obligations separately if they are distinct. The transaction price is allocated to the separate performance obligations on a relative standalone selling price basis. We determine the standalone selling prices based on our consolidated entities’ overall pricing objectives taking into consideration market conditions and other factors, including the customer and the nature and value of the performance obligations within the applicable contracts.
Income Taxes—We are a taxable corporation for federal and state income tax purposes. Income tax expense includes U.S. federal and state income taxes, Mexico and Dominican Republic income taxes and U.S. Virgin Islands taxes. In accordance with authoritative accounting guidance, we account for income taxes using the asset and liability method under which deferred tax assets and liabilities are recognized for future tax consequences attributable to differences between our consolidated
financial statement carrying amounts of existing assets and liabilities and their respective income tax bases. Valuation allowances are recorded to reduce deferred tax assets to the amount that will more likely than not be realized.
The “Income Taxes” topic of the Financial 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 portfolio companies file income tax returns in the U.S. federal jurisdiction and various states and cities, beginning in 2017, in Mexico and the Dominican Republic and, beginning in 2018, in the U.S. Virgin Islands. Tax years 2016 through 2020 remain subject to potential examination by certain federal and state taxing authorities.
On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was signed into law and includes certain income tax provisions relevant to the business. The Company is required to recognize the effect on the consolidated financial statements in the period the law was enacted, which is the period ended March 31, 2020. The CARES Act did not have a material impact on the Company’s consolidated financial statements for the year ended December 31, 2020. The Company filed a claim to carryback the 2018 tax net operating loss to a prior year as provided for by the CARES Act. The Company expects to receive the carryback amount of approximately $1.0 million within the next 12 months.
On December 27, 2020, the Consolidated Appropriations Act, 2021 was signed into law and extends several COVID-19 tax related measures passed as part of the CARES Act. Among these is the extension of the deferral period of the remittance of Social Security taxes. The Company is required to recognize the effect on the consolidated financial statements in the period the law was enacted, which is the period ended December 31, 2020. The Company had deferred $2.5 million of Social Security taxes within “accounts payable and accrued expenses” in our consolidated balance sheet as of December 31, 2020 related to the Consolidated Appropriations Act.
Equity-Based Compensation—Our equity incentive plan provides for the grant of restricted or unrestricted shares of our common stock, share appreciation rights, performance shares, performance units and other equity-based awards or any combination of the foregoing. Equity-based compensation included in “salaries and benefits” is accounted for at fair value based on the market price of the shares/options on the date of grant in accordance with applicable authoritative accounting guidance. The fair value is charged to compensation expense on a straight-line basis over the vesting period of the shares/options. Grants of restricted stock to independent directors are recorded at fair value based on the market price of our shares at grant date, and this amount is fully expensed in “general and administrative” expense as the grants of stock are fully vested on the date of grant. Our officers and employees can be granted common stock and LTIP units from Ashford Trust and Braemar in connection with providing advisory services that result in expense, included in “reimbursed expenses,” equal to the grant date fair value of the award in proportion to the requisite service period satisfied during the period, as well as offsetting revenue in an equal amount included in “cost reimbursement revenue”.
Prior to the adoption of ASU 2018-07, Compensation—Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting (“ASU 2018-07”) in the third quarter of 2018, equity-based awards granted to non-employees were accounted for at fair value based on the market price of the awards at period end, which resulted in recording expense equal to the fair value of the award in proportion to the requisite service period satisfied during the period. After the adoption of ASU 2018-07 in the third quarter of 2018, equity-based awards granted to non-employees are measured at the grant date and expensed ratably over the vesting period based on the original measurement date as the grant date. This results in the recording of expense equal to the ratable amount of the grant date fair value based on the requisite service period satisfied during the period.
Acquisitions—We account for acquisitions and investments in businesses as business combinations if the target meets the definition of a business and (a) the target is a VIE and we are the target’s primary beneficiary, and therefore we must consolidate its financial statements, or (b) we acquire more than 50% of the voting interest of the target and it was not previously consolidated. We record business combinations using the acquisition method of accounting, which requires all of the assets acquired and liabilities assumed to be recorded at fair value as of the acquisition date. The excess of the purchase price over the estimated fair values of the net tangible and intangible assets acquired is recorded as goodwill. The application of the acquisition method of accounting for business combinations requires management to make significant estimates and assumptions in the determination of the fair value of assets acquired and liabilities assumed in order to properly allocate purchase price consideration between assets that are depreciated and amortized from goodwill. The fair value assigned to tangible and intangible assets acquired and liabilities assumed are based on management’s estimates and assumptions, as well as other information compiled by management, including valuations that utilize customary valuation procedures and techniques.
Significant assumptions and estimates include, but are not limited to, the cash flows that an asset is expected to generate in the future, the appropriate weighted-average cost of capital, and the cost savings expected to be derived from acquiring an asset, if applicable. If the actual results differ from the estimates and judgments used in these estimates, the amounts recorded in our consolidated financial statements may be exposed to potential impairment of the intangible assets and goodwill.
If our investment involves the acquisition of an asset or group of assets that does not meet the definition of a business, the transaction is accounted for as an asset acquisition. An asset acquisition is recorded at cost, which includes capitalizing transaction costs, and does not result in the recognition of goodwill.
Impairment of Goodwill—Goodwill is assigned to reporting units that are expected to benefit from the synergies of the business combination as of the acquisition date. We assess goodwill for impairment annually as of October 1, or more frequently, if events and circumstances indicate impairment may have occurred. During 2020, as a result of our reduced cash flow projections and the significant decline in our market capitalization as a result of the COVID-19 pandemic, we concluded that sufficient indicators existed to require us to perform multiple impairment assessments on our reporting units’ goodwill balances. In the evaluation of goodwill for impairment, we typically perform a quantitative assessment to determine whether the fair value of the goodwill is more likely than not impaired and record impairment charges based on the excess of the reporting unit's carrying amount over its fair value. We determine the fair value of a reporting unit based on a blended analysis of the present value of future cash flows and the market value approach. Periodically, we may choose to perform a qualitative assessment, prior to performing a quantitative analysis, to determine whether the fair value of the goodwill is more likely than not impaired. In considering the qualitative approach, we evaluate factors including, but not limited to, the operational stability and the overall financial performance of the reporting units. We concluded that our reporting units with remaining goodwill balances at December 31, 2020 were not at risk for impairment at that time. Changes in circumstances due to the potential long-term economic impact and near-term financial impacts of the COVID-19 pandemic could result in additional impairment losses of all or a portion of our remaining goodwill balances. We will continue to monitor and evaluate our results and evaluate the likelihood of any potential impairment charges at our reporting units. For additional information on our goodwill impairments recorded during 2020, see note 6 in the notes to the consolidated financial statements.
Recently Adopted Accounting Standards—In January 2017, the FASB issued ASU 2017-04, Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment (“ASU 2017-04”), which removes the requirement to compare the implied fair value of goodwill with its carrying amount as part of step 2 of the goodwill impairment test. As a result, under ASU 2017-04, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount and should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value. However, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. In addition, ASU 2017-04 clarifies that an entity should consider income tax effects from any tax deductible goodwill on the carrying amount of the reporting unit when measuring the goodwill impairment loss, if applicable. ASU 2017-04 is effective for fiscal years beginning after December 15, 2019. We adopted ASU 2017-04 effective January 1, 2020. See our Goodwill and Indefinite-Lived Intangible Assets accounting policy disclosed in note 6.
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement (“ASU 2018-13”). ASU 2018-13 modifies certain disclosure requirements related to fair value measurements including requiring disclosures on changes in unrealized gains and losses in other comprehensive income for recurring Level 3 fair value measurements and a requirement to disclose the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. The ASU is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. We adopted this standard effective January 1, 2020, and the adoption of this standard did not have a material impact on our consolidated financial statements and related disclosures.
In August 2018, the FASB issued ASU 2018-15, Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract (“ASU 2018-15”). ASU 2018-15 aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software and hosting arrangements that include an internal-use software license. The ASU is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. We elected to prospectively adopt ASU 2018-15 effective January 1, 2020, in our consolidated financial statements. The adoption of ASU 2018-15 resulted in reclassifying capitalized implementation costs of service contracts incurred in a hosting arrangement from “property and equipment, net” to “other assets” in our consolidated balance sheets. Amortization of the service contracts will continue to be recorded in “reimbursed expenses” in our consolidated statements of operations.
Recently Issued Accounting Standards—In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). ASU 2016-13 sets forth an
“expected credit loss” impairment model to replace the current “incurred loss” method of recognizing credit losses. The standard requires measurement and recognition of expected credit losses for most financial assets held. In November 2019, the FASB issued ASU 2019-10, Financial Instruments—Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842) (“ASU 2019-10”). ASU 2019-10 revised the mandatory adoption date for public business entities that meet the definition of a smaller reporting company to be effective for fiscal years beginning after December 15, 2022. Early adoption is permitted. We are currently evaluating the impact ASU 2016-13 and ASU 2019-10 may have on our consolidated financial statements and related disclosures.
In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848) (“ASU 2020-04”). ASU 2020-04 contains practical expedients for reference rate reform related activities that impact debt, leases, derivatives and other contracts. The guidance in ASU 2020-04 is optional and may be elected over time as reference rate reform activities occur. The Company continues to evaluate the impact of the guidance and may apply the elections as applicable as changes in the market occur.
In August 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.
For SEC filers, excluding smaller reporting companies, ASU 2020-06 is effective for fiscal years beginning after December 15, 2021 including interim periods within those fiscal years. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020. For all other entities, ASU 2020-06 is effective for fiscal years beginning after December 15, 2023, 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 are currently evaluating the impact that ASU 2020-06 may have on our consolidated financial statements and related disclosures.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Our primary market risk exposures consist of changes in interest rates on borrowings under our debt instruments that bear interest at variable rates that fluctuate with market interest rates as well as foreign currency exchange rate risk.
Interest Rate Risk—At December 31, 2020, our total indebtedness of $62.8 million included $60.2 million of variable-rate debt. The impact on our results of operations of a 100 basis point change in interest rate on the outstanding balance of variable-rate debt at December 31, 2020, would be approximately $602,000 annually. Interest rate changes have no impact on the remaining $2.5 million of fixed rate debt.
The amount above was determined based on the impact of a hypothetical interest rate on our borrowings and assumes no changes in our capital structure. As the information presented above includes only those exposures that existed at December 31, 2020, it does not consider exposures or positions that could arise after that date. Accordingly, the information presented herein has limited predictive value. As a result, the ultimate realized gain or loss with respect to interest rate fluctuations will depend on exposures that arise during the period, the hedging strategies at the time, and the related interest rates.
Foreign Exchange Risk—The majority of our revenues, expenses and capital purchases are transacted in U.S. dollars. On November 1, 2017, we acquired a controlling interest in JSAV, which has operations in Mexico and the Dominican Republic, and therefore we have exposure with respect to exchange rate fluctuations. Exchange rate gains or losses related to foreign currency transactions are recognized as transaction gains or losses in our income statement as incurred. We have chosen not to hedge foreign exchange risks related to our foreign currency denominated earnings and cash flows through the use of financial instruments. As of December 31, 2020, the impact to our net income of a 10% change (up or down) in the Mexican Peso exchange rate is estimated to be an increase or decrease of approximately $143,000 for the twelve months ended December 31, 2020. Operations in the Dominican Republic are not material.
Item 8. Financial Statements and Supplementary Data
Index to Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm
Board of Directors and Stockholders
Ashford Inc.
Dallas, Texas
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of Ashford Inc. (the “Company”) as of December 31, 2020 and 2019, the related consolidated statements of operations, comprehensive income (loss), equity (deficit), and cash flows for each of the three years in the period ended December 31, 2020, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that: (1) relates to an account or disclosure that is material to the consolidated financial statements and (2) involved especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the account or disclosure to which it may relate.
Acquisition of Remington Lodging’s Hotel Management Business - Fair Value of Intangible Assets
As discussed in Note 5 to the consolidated financial statements, the valuation of the acquired assets and liabilities associated with the acquisition of Remington Lodging’s hotel management business in November 2019 was finalized during the first quarter of 2020. The final fair value analysis resulted in a reduction of $40.9 million in the estimated fair value of the acquired management contracts and a reduction of $10.3 million in the related deferred tax liability, with a corresponding net increase in goodwill. The Company also recorded $1.3 million of working capital adjustments. The fair values of the acquired hotel management contracts intangible assets were estimated using various valuation techniques, including an income approach using cash flow projections.
The principal considerations for our determination that the estimated fair value of intangible assets from the acquisition of Remington Lodging’s hotel management business is a critical audit matter is due to the significant judgment used by management when developing the estimated fair value of these acquired intangible assets. Accordingly, this required a high degree of auditor judgment, subjectivity and effort in performing procedures and evaluating audit evidence related to management’s significant assumptions used within the estimated future cash flow projections, specifically revenue growth rates, profit margins and discount rates. In addition, the audit effort involved the use of personnel with specialized skills and knowledge in valuation methods to assist in reviewing the appropriateness of valuation methodologies and certain assumptions, including discount rates used, and evaluating the audit evidence obtained from these procedures.
The primary procedures we performed to address the critical audit matter included:
• Evaluating the reasonableness of revenue growth rate and profit margin assumptions by comparing to the historical performance of the acquired business and the revenue growth of Remington Lodging’s primary customers (Ashford Hospitality Trust, Inc. and Braemar Hotels & Resorts Inc.) and whether such assumptions are consistent with past performance, available relevant market industry data and evidence obtained in other areas of the audit; and
• Utilizing personnel with specialized skills and knowledge in valuation to assist in the evaluation of the appropriateness of the Company’s discounted cash flow model and the reasonableness of the discount rates used.
Goodwill and Intangible Assets Quantitative Impairment Assessments - Certain Reporting Units
As discussed in Notes 2 and 6 to the consolidated financial statements, the Company assesses goodwill and indefinite-lived intangible assets for impairment annually as of October 1, or more frequently, if events and circumstances indicate impairment may have occurred. The Company performed a goodwill impairment test for each quarter during 2020 as a result of the impact of the COVID-19 pandemic. During the first quarter of 2020, as a result of reduced cash flow projections and the significant decline in the Company’s market capitalization associated with the COVID-19 pandemic, the Company concluded that sufficient indicators existed to perform interim impairment assessments of goodwill and intangible assets for certain reporting units. As a result of the first quarter of 2020 assessment, the Company recognized impairment charges for goodwill and indefinite-lived trademarks totaling $170.6 million and $7.6 million, respectively. The fair value of the reporting units was estimated using a blended analysis of cash flow projections and the market value approach for goodwill and the relief from royalty method for trademarks. The Company’s impairment assessment during the fourth quarter of 2020 resulted in additional impairment of goodwill for one reporting unit totaling $10.2 million. The fair value estimate was based on the present value of future discounted cash flows.
We identified the quantitative assessments of goodwill and intangible assets for certain reporting units as a critical audit matter. Management applies significant judgment when developing the estimated fair value of each reporting unit. Accordingly, this required a high degree of auditor judgment, subjectivity and effort in performing procedures and evaluating audit evidence related to management’s significant assumptions within the estimated future cash flow projections, which include revenue growth rates, profit margins, discount rates used in the various valuation techniques, the use of the market value approach for goodwill and the relief from royalty method for trademarks, the uncertainty related to the timing and extent of economic recovery and the resulting adverse impacts attributed to the COVID-19 pandemic required significant management judgment. In addition, the audit effort involved the use of personnel with specialized skills and knowledge in valuation methods to assist in reviewing the appropriateness of valuation methodologies and assumptions, including discount rates used, and evaluating the audit evidence obtained from these procedures.
The primary procedures we performed to address the critical audit matter included:
• Evaluating the reasonableness of assumptions used in the Company’s estimates of fair values of certain reporting units, including the revenue growth rates and profit margins by comparing the projections to published industry data and analysts’ consensus of peers.
• Evaluating the reasonableness of management’s assumptions related to the extent of business disruption and timing of recovery by i) comparing management’s analysis of the expected business disruption attributed to the pandemic to actual results observed since the pandemic began during the quarter ended March 31, 2020 and ii) comparing management’s analysis of the timing of economic recovery to published industry forecasts and analysts’ consensus of peers in order to consider contradictory evidence regarding the expected impact of the COVID-19 disruption and timing of recovery; and
• Utilizing personnel with specialized skills and knowledge in valuation to assist in the evaluation of the appropriateness of the Company’s discounted cash flow model and the reasonableness of the market value approach for goodwill, relief from royalty method for trademarks, and discount rates used as inputs to estimate the fair values of certain reporting units.
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/s/ BDO USA, LLP
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We have served as the Company’s auditor since 2015.
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Dallas, Texas
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March 15, 2021
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ASHFORD INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share amounts)
|
|
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|
|
|
|
|
|
December 31, 2020
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|
December 31, 2019
|
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ASSETS
|
|
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|
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Current assets:
|
|
|
|
|
Cash and cash equivalents
|
$
|
45,270
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|
|
$
|
35,349
|
|
|
Restricted cash
|
37,396
|
|
|
17,900
|
|
|
Restricted investment
|
290
|
|
|
1,195
|
|
|
|
|
|
|
|
Accounts receivable, net
|
3,458
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|
|
7,241
|
|
|
Due from affiliates
|
353
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|
|
357
|
|
|
Due from Ashford Trust
|
13,198
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|
|
4,805
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|
|
Due from Braemar
|
2,142
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|
|
1,591
|
|
|
|
|
|
|
|
Inventories
|
1,546
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|
|
1,642
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|
|
Prepaid expenses and other
|
7,629
|
|
|
7,212
|
|
|
|
|
|
|
|
Total current assets
|
111,282
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|
|
77,292
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|
|
Investments in unconsolidated entities
|
3,687
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|
|
3,476
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|
|
Property and equipment, net ($12,972 and $11,981, respectively, attributable to VIEs)
|
88,760
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|
|
116,190
|
|
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Operating lease right-of-use assets
|
30,431
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|
|
31,699
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|
|
|
|
|
|
|
Goodwill
|
56,622
|
|
|
205,606
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|
|
Intangible assets, net ($3,409 and $3,640, respectively, attributable to VIEs)
|
271,432
|
|
|
347,961
|
|
|
Other assets
|
3,225
|
|
|
276
|
|
|
Total assets
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$
|
565,439
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|
|
$
|
782,500
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|
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LIABILITIES
|
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Current liabilities:
|
|
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Accounts payable and accrued expenses
|
$
|
40,378
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|
|
$
|
39,160
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|
|
Dividends payable
|
16,280
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|
|
4,725
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|
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Due to affiliates
|
1,471
|
|
|
1,011
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred income
|
12,738
|
|
|
233
|
|
|
Deferred compensation plan
|
29
|
|
|
35
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|
|
Notes payable, net ($972 and $1,053, respectively, attributable to VIEs)
|
5,347
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|
|
3,550
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|
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Finance lease liabilities
|
841
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|
|
572
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|
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Operating lease liabilities
|
3,691
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|
|
3,207
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|
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Other liabilities
|
29,905
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|
|
19,066
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|
|
Total current liabilities
|
110,680
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|
|
71,559
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|
|
|
|
|
|
|
Deferred income
|
8,621
|
|
|
13,047
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|
|
Deferred tax liability, net
|
37,904
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|
|
69,521
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|
|
Deferred compensation plan
|
1,678
|
|
|
4,694
|
|
|
Notes payable, net ($6,911 and $5,302, respectively, attributable to VIEs)
|
57,349
|
|
|
33,033
|
|
|
Finance lease liabilities
|
43,143
|
|
|
41,482
|
|
|
Operating lease liabilities
|
26,881
|
|
|
28,519
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|
|
Other liabilities
|
—
|
|
|
430
|
|
|
Total liabilities
|
286,256
|
|
|
262,285
|
|
|
Commitments and contingencies (note 11)
|
|
|
|
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MEZZANINE EQUITY
|
|
|
|
|
Series D Convertible Preferred Stock, $0.001 par value, 19,120,000 shares issued and outstanding, net of discount, as of December 31, 2020 and December 31, 2019
|
476,947
|
|
|
474,060
|
|
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Redeemable noncontrolling interests
|
1,834
|
|
|
4,131
|
|
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EQUITY (DEFICIT)
|
|
|
|
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Common stock, 100,000,000 shares authorized, $0.001 par value, 2,868,288 and 2,202,580 shares issued and outstanding at December 31, 2020 and December 31, 2019, respectively
|
3
|
|
|
2
|
|
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Additional paid-in capital
|
293,597
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|
|
285,825
|
|
|
Accumulated deficit
|
(491,483)
|
|
|
(244,084)
|
|
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Accumulated other comprehensive income (loss)
|
(1,156)
|
|
|
(216)
|
|
|
Treasury stock, at cost, 32,031 and 1,638 shares at December 31, 2020 and December 31, 2019, respectively
|
(438)
|
|
|
(131)
|
|
|
Total equity (deficit) of the Company
|
(199,477)
|
|
|
41,396
|
|
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Noncontrolling interests in consolidated entities
|
(121)
|
|
|
628
|
|
|
Total equity (deficit)
|
(199,598)
|
|
|
42,024
|
|
|
Total liabilities and equity (deficit)
|
$
|
565,439
|
|
|
$
|
782,500
|
|
See Notes to Consolidated Financial Statements.
ASHFORD INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
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|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Year Ended December 31,
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|
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2020
|
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2019
|
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2018
|
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REVENUE
|
|
|
|
|
|
|
|
|
|
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Advisory services
|
|
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|
|
$
|
45,247
|
|
|
$
|
44,184
|
|
|
$
|
47,913
|
|
|
Hotel management fees
|
|
|
|
|
17,126
|
|
|
4,526
|
|
|
—
|
|
|
Project management fees
|
|
|
|
|
8,936
|
|
|
25,584
|
|
|
8,802
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|
|
Audio visual
|
|
|
|
|
37,881
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|
|
110,609
|
|
|
81,186
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|
|
Other
|
|
|
|
|
25,602
|
|
|
21,179
|
|
|
13,068
|
|
|
Cost reimbursement revenue
|
|
|
|
|
162,636
|
|
|
85,168
|
|
|
44,551
|
|
|
Total revenues
|
|
|
|
|
297,428
|
|
|
291,250
|
|
|
195,520
|
|
|
EXPENSES
|
|
|
|
|
|
|
|
|
|
|
Salaries and benefits
|
|
|
|
|
57,171
|
|
|
59,659
|
|
|
45,310
|
|
|
Cost of revenues for project management
|
|
|
|
|
3,521
|
|
|
5,853
|
|
|
1,508
|
|
|
Cost of revenues for audio visual
|
|
|
|
|
30,256
|
|
|
82,237
|
|
|
64,555
|
|
|
Depreciation and amortization
|
|
|
|
|
39,957
|
|
|
24,542
|
|
|
7,919
|
|
|
General and administrative
|
|
|
|
|
20,351
|
|
|
33,484
|
|
|
27,551
|
|
|
Impairment
|
|
|
|
|
188,837
|
|
|
—
|
|
|
1,919
|
|
|
Other
|
|
|
|
|
18,687
|
|
|
12,062
|
|
|
3,250
|
|
|
Reimbursed expenses
|
|
|
|
|
162,578
|
|
|
84,643
|
|
|
44,347
|
|
|
Total expenses
|
|
|
|
|
521,358
|
|
|
302,480
|
|
|
196,359
|
|
|
OPERATING INCOME (LOSS)
|
|
|
|
|
(223,930)
|
|
|
(11,230)
|
|
|
(839)
|
|
|
Equity in earnings (loss) of unconsolidated entities
|
|
|
|
|
212
|
|
|
(286)
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
|
|
(5,389)
|
|
|
(2,059)
|
|
|
(959)
|
|
|
Amortization of loan costs
|
|
|
|
|
(318)
|
|
|
(308)
|
|
|
(241)
|
|
|
Interest income
|
|
|
|
|
32
|
|
|
46
|
|
|
329
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Realized gain (loss) on investments
|
|
|
|
|
(386)
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense)
|
|
|
|
|
(264)
|
|
|
3
|
|
|
(834)
|
|
|
INCOME (LOSS) BEFORE INCOME TAXES
|
|
|
|
|
(230,043)
|
|
|
(13,834)
|
|
|
(2,544)
|
|
|
Income tax (expense) benefit
|
|
|
|
|
14,255
|
|
|
(1,540)
|
|
|
10,364
|
|
|
NET INCOME (LOSS)
|
|
|
|
|
(215,788)
|
|
|
(15,374)
|
|
|
7,820
|
|
|
(Income) loss from consolidated entities attributable to noncontrolling interests
|
|
|
|
|
1,178
|
|
|
536
|
|
|
924
|
|
|
Net (income) loss attributable to redeemable noncontrolling interests
|
|
|
|
|
2,245
|
|
|
983
|
|
|
1,438
|
|
|
NET INCOME (LOSS) ATTRIBUTABLE TO THE COMPANY
|
|
|
|
|
(212,365)
|
|
|
(13,855)
|
|
|
$
|
10,182
|
|
|
Preferred dividends, declared and undeclared
|
|
|
|
|
(32,095)
|
|
|
(14,435)
|
|
|
(4,466)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of preferred stock discount
|
|
|
|
|
(2,887)
|
|
|
(1,928)
|
|
|
(730)
|
|
|
NET INCOME (LOSS) ATTRIBUTABLE TO COMMON STOCKHOLDERS
|
|
|
|
|
$
|
(247,347)
|
|
|
$
|
(30,218)
|
|
|
$
|
4,986
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME (LOSS) PER SHARE - BASIC AND DILUTED
|
|
|
|
|
|
|
|
|
|
|
Basic:
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to common stockholders
|
|
|
|
|
$
|
(108.30)
|
|
|
$
|
(12.03)
|
|
|
$
|
2.29
|
|
|
Weighted average common shares outstanding - basic
|
|
|
|
|
2,284
|
|
|
2,416
|
|
|
2,170
|
|
|
Diluted:
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to common stockholders
|
|
|
|
|
$
|
(108.30)
|
|
|
$
|
(13.55)
|
|
|
$
|
(2.11)
|
|
|
Weighted average common shares outstanding - diluted
|
|
|
|
|
2,284
|
|
|
2,568
|
|
|
2,332
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Notes to Consolidated Financial Statements.
ASHFORD INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
|
|
2020
|
|
2019
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME (LOSS)
|
|
|
|
|
$
|
(215,788)
|
|
|
$
|
(15,374)
|
|
|
$
|
7,820
|
|
|
OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment
|
|
|
|
|
(447)
|
|
|
448
|
|
|
(420)
|
|
|
Unrealized gain (loss) on restricted investment
|
|
|
|
|
(879)
|
|
|
(114)
|
|
|
—
|
|
|
Less reclassification for realized (gain) loss on restricted investment included in net income
|
|
|
|
|
386
|
|
|
—
|
|
|
—
|
|
|
COMPREHENSIVE INCOME (LOSS)
|
|
|
|
|
(216,728)
|
|
|
(15,040)
|
|
|
7,400
|
|
|
Comprehensive (income) loss attributable to noncontrolling interests
|
|
|
|
|
1,178
|
|
|
536
|
|
|
924
|
|
|
Comprehensive (income) loss attributable to redeemable noncontrolling interests
|
|
|
|
|
2,310
|
|
|
931
|
|
|
1,495
|
|
|
COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO THE COMPANY
|
|
|
|
|
$
|
(213,240)
|
|
|
$
|
(13,573)
|
|
|
$
|
9,819
|
|
See Notes to Consolidated Financial Statements.
ASHFORD INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EQUITY (DEFICIT)
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
Additional Paid-in Capital
|
|
Accumulated
Deficit
|
|
Accumulated Other Comprehensive Income (Loss)
|
|
Treasury Stock
|
|
Noncontrolling Interests in Consolidated Entities
|
|
Total
|
|
Convertible Preferred Stock
|
|
Redeemable Noncontrolling Interests
|
|
|
Shares
|
|
Amount
|
Shares
|
|
Amount
|
Shares
|
|
Amount
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 1, 2018
|
2,094
|
|
|
$
|
21
|
|
|
$
|
249,695
|
|
|
$
|
(219,396)
|
|
|
$
|
(135)
|
|
|
—
|
|
|
$
|
—
|
|
|
$
|
772
|
|
|
$
|
30,957
|
|
|
—
|
|
|
$
|
—
|
|
|
$
|
5,111
|
|
|
Equity-based compensation
|
6
|
|
|
—
|
|
|
10,009
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
10
|
|
|
10,019
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Issuance of common stock
|
280
|
|
|
3
|
|
|
18,928
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
18,931
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Acquisition of Premier
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
8,120
|
|
|
203,000
|
|
|
—
|
|
|
Discount on preferred shares
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(2,883)
|
|
|
—
|
|
|
Amortization of preferred stock discount
|
—
|
|
|
—
|
|
|
—
|
|
|
(730)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(730)
|
|
|
—
|
|
|
730
|
|
|
—
|
|
|
Dividends declared - preferred stock
|
—
|
|
|
—
|
|
|
—
|
|
|
(4,466)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(4,466)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Deferred compensation plan distribution
|
3
|
|
|
—
|
|
|
241
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
241
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Employee advances
|
—
|
|
|
—
|
|
|
(82)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(82)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OpenKey warrant issuance
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
26
|
|
|
26
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Purchase of OpenKey shares from noncontrolling interest holder
|
9
|
|
|
—
|
|
|
838
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
838
|
|
|
—
|
|
|
—
|
|
|
(838)
|
|
|
Acquisition of noncontrolling interest in consolidated entities
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(382)
|
|
|
(382)
|
|
|
—
|
|
|
—
|
|
|
55
|
|
|
Contributions from noncontrolling interests
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2,666
|
|
|
2,666
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Reallocation of carrying value
|
—
|
|
|
—
|
|
|
530
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,696)
|
|
|
(1,166)
|
|
|
—
|
|
|
—
|
|
|
1,166
|
|
|
Redemption value adjustment
|
—
|
|
|
—
|
|
|
—
|
|
|
168
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
168
|
|
|
—
|
|
|
—
|
|
|
(168)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributions to consolidated noncontrolling interests
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(14)
|
|
|
(14)
|
|
|
—
|
|
|
—
|
|
|
(300)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(363)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(363)
|
|
|
—
|
|
|
—
|
|
|
(57)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
—
|
|
|
—
|
|
|
—
|
|
|
10,182
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(924)
|
|
|
9,258
|
|
|
—
|
|
|
—
|
|
|
(1,438)
|
|
|
Balance at December 31, 2018
|
2,392
|
|
|
$
|
24
|
|
|
$
|
280,159
|
|
|
$
|
(214,242)
|
|
|
$
|
(498)
|
|
|
—
|
|
|
$
|
—
|
|
|
$
|
458
|
|
|
$
|
65,901
|
|
|
8,120
|
|
|
$
|
200,847
|
|
|
$
|
3,531
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
Additional Paid-in Capital
|
|
Accumulated
Deficit
|
|
Accumulated Other Comprehensive Income (Loss)
|
|
Treasury Stock
|
|
Noncontrolling Interests in Consolidated Entities
|
|
Total
|
|
Convertible Preferred Stock
|
|
Redeemable Noncontrolling Interests
|
|
|
Shares
|
|
Amount
|
Shares
|
|
Amount
|
Shares
|
|
Amount
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of common stock
|
—
|
|
|
—
|
|
|
(12,389)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(12,389)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Extinguishment of common stock
|
(412)
|
|
|
(4)
|
|
|
4
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Equity-based compensation
|
8
|
|
|
—
|
|
|
8,753
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(12)
|
|
|
8,741
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Treasury stock recognized upon reorganization
|
—
|
|
|
—
|
|
|
131
|
|
|
—
|
|
|
—
|
|
|
(2)
|
|
|
(131)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Change in par value of common stock upon reorganization
|
—
|
|
|
(20)
|
|
|
20
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Deemed contribution on Series B convertible preferred stock
|
—
|
|
|
—
|
|
|
—
|
|
|
1,161
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,161
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Extinguishment of Series B convertible preferred stock
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(8,120)
|
|
|
(202,282)
|
|
|
—
|
|
|
Exchange of Series B convertible preferred stock to Series D convertible preferred stock
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
8,120
|
|
|
203,000
|
|
|
—
|
|
|
Acquisition of Remington Lodging
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
11,000
|
|
|
275,000
|
|
|
—
|
|
|
Acquisition of BAV
|
60
|
|
|
1
|
|
|
3,747
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
3,748
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Acquisition of Sebago
|
135
|
|
|
1
|
|
|
4,538
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
4,539
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Investment in REA Holdings
|
17
|
|
|
—
|
|
|
887
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
887
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Discount on Series D convertible preferred stock
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(4,433)
|
|
|
—
|
|
|
Amortization of preferred stock discount
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,928)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,928)
|
|
|
—
|
|
|
1,928
|
|
|
—
|
|
|
Dividends declared - preferred stock
|
—
|
|
|
—
|
|
|
—
|
|
|
(14,435)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(14,435)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Deferred compensation plan distribution
|
3
|
|
|
—
|
|
|
113
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
113
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Employee advances
|
—
|
|
|
—
|
|
|
351
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
351
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Contributions from noncontrolling interests
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,038
|
|
|
1,038
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Reallocation of carrying value
|
—
|
|
|
—
|
|
|
(489)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(257)
|
|
|
(746)
|
|
|
—
|
|
|
—
|
|
|
746
|
|
|
Redemption value adjustment
|
—
|
|
|
—
|
|
|
—
|
|
|
(785)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(785)
|
|
|
—
|
|
|
—
|
|
|
785
|
|
|
Distributions to consolidated noncontrolling interests
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(63)
|
|
|
(63)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Foreign currency translation adjustment
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
396
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
396
|
|
|
—
|
|
|
—
|
|
|
52
|
|
|
Unrealized gain (loss) on available for sale securities
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(114)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(114)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Net income (loss)
|
—
|
|
|
—
|
|
|
—
|
|
|
(13,855)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(536)
|
|
|
(14,391)
|
|
|
—
|
|
|
—
|
|
|
(983)
|
|
|
Balance at December 31, 2019
|
2,203
|
|
|
$
|
2
|
|
|
$
|
285,825
|
|
|
$
|
(244,084)
|
|
|
$
|
(216)
|
|
|
(2)
|
|
|
$
|
(131)
|
|
|
$
|
628
|
|
|
$
|
42,024
|
|
|
19,120
|
|
|
$
|
474,060
|
|
|
$
|
4,131
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
Additional Paid-in Capital
|
|
Accumulated
Deficit
|
|
Accumulated Other Comprehensive Income (Loss)
|
|
Treasury Stock
|
|
Noncontrolling Interests in Consolidated Entities
|
|
Total
|
|
Convertible Preferred Stock
|
|
Redeemable Noncontrolling Interests
|
|
|
Shares
|
|
Amount
|
Shares
|
|
Amount
|
Shares
|
|
Amount
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity-based compensation
|
694
|
|
|
1
|
|
|
8,140
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
9
|
|
|
8,150
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of treasury stock
|
(2)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(2)
|
|
|
(18)
|
|
|
—
|
|
|
(18)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Forfeiture of restricted common shares
|
(28)
|
|
|
—
|
|
|
289
|
|
|
—
|
|
|
—
|
|
|
(28)
|
|
|
(289)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of preferred stock discount
|
—
|
|
|
—
|
|
|
—
|
|
|
(2,887)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(2,887)
|
|
|
—
|
|
|
2,887
|
|
|
—
|
|
|
Dividends declared and undeclared - preferred stock
|
—
|
|
|
—
|
|
|
—
|
|
|
(32,095)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(32,095)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Deferred compensation plan distribution
|
1
|
|
|
—
|
|
|
11
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
11
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Employee advances
|
—
|
|
|
—
|
|
|
(584)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(584)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition of noncontrolling interest in consolidated entities
|
—
|
|
|
—
|
|
|
303
|
|
|
785
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(12)
|
|
|
1,076
|
|
|
—
|
|
|
—
|
|
|
(1,301)
|
|
|
Contributions from noncontrolling interests
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
457
|
|
|
457
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Reallocation of carrying value
|
—
|
|
|
—
|
|
|
(387)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(25)
|
|
|
(412)
|
|
|
—
|
|
|
—
|
|
|
412
|
|
|
Redemption value adjustment
|
—
|
|
|
—
|
|
|
—
|
|
|
(837)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(837)
|
|
|
—
|
|
|
—
|
|
|
838
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(447)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(447)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Unrealized gain (loss) on available for sale securities
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(879)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(879)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Reclassification for realized loss (gain) on available for sale securities
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
386
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
386
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
—
|
|
|
—
|
|
|
—
|
|
|
(212,365)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,178)
|
|
|
(213,543)
|
|
|
—
|
|
|
—
|
|
|
(2,245)
|
|
|
Balance at December 31, 2020
|
2,868
|
|
|
$
|
3
|
|
|
$
|
293,597
|
|
|
$
|
(491,483)
|
|
|
$
|
(1,156)
|
|
|
(32)
|
|
|
$
|
(438)
|
|
|
$
|
(121)
|
|
|
$
|
(199,598)
|
|
|
19,120
|
|
|
$
|
476,947
|
|
|
$
|
1,835
|
|
See Notes to Consolidated Financial Statements.
ASHFORD INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2020
|
|
2019
|
|
2018
|
|
Cash Flows from Operating Activities
|
|
|
|
|
|
|
Net income (loss)
|
$
|
(215,788)
|
|
|
$
|
(15,374)
|
|
|
$
|
7,820
|
|
|
Adjustments to reconcile net income (loss) to net cash flows provided by (used in) operating activities:
|
|
|
|
|
|
|
Depreciation and amortization
|
45,674
|
|
|
31,142
|
|
|
13,308
|
|
|
|
|
|
|
|
|
|
Change in fair value of deferred compensation plan
|
(3,012)
|
|
|
(5,732)
|
|
|
(8,444)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity-based compensation
|
5,562
|
|
|
8,874
|
|
|
10,019
|
|
|
Equity in (earnings) loss in unconsolidated entities
|
(212)
|
|
|
286
|
|
|
—
|
|
|
Deferred tax expense (benefit)
|
(22,410)
|
|
|
(1,930)
|
|
|
(12,240)
|
|
|
Change in fair value of contingent consideration
|
436
|
|
|
4,244
|
|
|
338
|
|
|
Impairment
|
188,837
|
|
|
—
|
|
|
1,919
|
|
|
(Gain) loss on disposal of property and equipment
|
8,357
|
|
|
(25)
|
|
|
220
|
|
|
Amortization of other assets
|
1,286
|
|
|
—
|
|
|
—
|
|
|
Amortization of loan costs
|
318
|
|
|
308
|
|
|
241
|
|
|
Realized loss on restricted investments
|
386
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Write off of deferred loan costs
|
145
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in operating assets and liabilities, exclusive of the effect of acquisitions:
|
|
|
|
|
|
|
Accounts receivable
|
3,666
|
|
|
(1,210)
|
|
|
225
|
|
|
Due from affiliates
|
4
|
|
|
843
|
|
|
(45)
|
|
|
Due from Ashford Trust
|
(8,393)
|
|
|
160
|
|
|
8,916
|
|
|
Due from Braemar
|
1,265
|
|
|
116
|
|
|
205
|
|
|
Inventories
|
79
|
|
|
(397)
|
|
|
(132)
|
|
|
Prepaid expenses and other
|
—
|
|
|
(2,172)
|
|
|
(907)
|
|
|
Investment in unconsolidated entities
|
—
|
|
|
115
|
|
|
—
|
|
|
|
|
|
|
|
|
|
Operating lease right-of-use assets
|
3,764
|
|
|
2,048
|
|
|
—
|
|
|
Other assets
|
(116)
|
|
|
—
|
|
|
(84)
|
|
|
Accounts payable and accrued expenses
|
5,565
|
|
|
5,006
|
|
|
2,145
|
|
|
Due to affiliates
|
461
|
|
|
(1,314)
|
|
|
(954)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other liabilities
|
11,828
|
|
|
2,152
|
|
|
(658)
|
|
|
Operating lease liabilities
|
(3,650)
|
|
|
(2,021)
|
|
|
—
|
|
|
Deferred income
|
8,158
|
|
|
(420)
|
|
|
(373)
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities
|
32,210
|
|
|
24,699
|
|
|
21,519
|
|
|
Cash Flows from Investing Activities
|
|
|
|
|
|
|
Purchases of furniture, fixtures and equipment under the Ashford Trust ERFP Agreement
|
—
|
|
|
(13,089)
|
|
|
(16,100)
|
|
|
Purchases of furniture, fixtures and equipment under the Braemar ERFP Agreement
|
—
|
|
|
(10,300)
|
|
|
—
|
|
|
Additions to property and equipment
|
(2,846)
|
|
|
(6,654)
|
|
|
(8,942)
|
|
|
Proceeds from disposal of property and equipment, net
|
4
|
|
|
231
|
|
|
140
|
|
|
Additional purchase price paid for Remington working capital adjustment
|
(1,293)
|
|
|
—
|
|
|
—
|
|
|
Cash acquired in acquisition of Remington Lodging
|
—
|
|
|
12,056
|
|
|
—
|
|
|
Acquisition of BAV
|
—
|
|
|
(4,267)
|
|
|
—
|
|
|
Acquisition of Sebago
|
—
|
|
|
(2,426)
|
|
|
—
|
|
|
Investment in REA Holdings
|
—
|
|
|
(2,176)
|
|
|
—
|
|
|
Investments in unconsolidated entities
|
—
|
|
|
(314)
|
|
|
—
|
|
|
Cash acquired in acquisition of Premier
|
—
|
|
|
—
|
|
|
2,277
|
|
|
|
|
|
|
|
|
|
Acquisition of non-controlling interest in consolidated subsidiaries
|
(150)
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
Acquisition of assets related to RED
|
(1,745)
|
|
|
(1,892)
|
|
|
(5,474)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities
|
(6,030)
|
|
|
(28,831)
|
|
|
(28,099)
|
|
|
|
|
|
|
|
(Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2020
|
|
2019
|
|
2018
|
|
|
|
|
|
|
|
|
Cash Flows from Financing Activities
|
|
|
|
|
|
|
Proceeds from issuance of common stock
|
—
|
|
|
—
|
|
|
18,930
|
|
|
Purchases of common stock
|
—
|
|
|
(12,389)
|
|
|
—
|
|
|
Payments for dividends on preferred stock
|
(20,540)
|
|
|
(9,710)
|
|
|
(4,466)
|
|
|
Payments on revolving credit facilities
|
(15,723)
|
|
|
(46,808)
|
|
|
(20,881)
|
|
|
Borrowings on revolving credit facilities
|
14,660
|
|
|
57,647
|
|
|
21,878
|
|
|
Proceeds from notes payable
|
44,797
|
|
|
11,105
|
|
|
6,593
|
|
|
Payments on notes payable
|
(17,775)
|
|
|
(2,479)
|
|
|
(1,853)
|
|
|
Payments on finance lease liabilities
|
(785)
|
|
|
(627)
|
|
|
(123)
|
|
|
Payments of loan costs
|
(375)
|
|
|
(76)
|
|
|
(638)
|
|
|
Purchase of treasury stock
|
(18)
|
|
|
—
|
|
|
—
|
|
|
Employee advances
|
(584)
|
|
|
353
|
|
|
(82)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payment of contingent consideration
|
(1,384)
|
|
|
—
|
|
|
(1,196)
|
|
|
Contributions from noncontrolling interest
|
457
|
|
|
980
|
|
|
2,666
|
|
|
Distributions to noncontrolling interests in consolidated entities
|
—
|
|
|
(63)
|
|
|
(314)
|
|
|
Net cash provided by (used in) financing activities
|
2,730
|
|
|
(2,067)
|
|
|
20,514
|
|
|
Effect of foreign exchange rate changes on cash and cash equivalents
|
507
|
|
|
5
|
|
|
(47)
|
|
|
Net change in cash, cash equivalents and restricted cash
|
29,417
|
|
|
(6,194)
|
|
|
13,887
|
|
|
Cash, cash equivalents and restricted cash at beginning of period
|
53,249
|
|
|
59,443
|
|
|
45,556
|
|
|
Cash, cash equivalents and restricted cash at end of period
|
$
|
82,666
|
|
|
$
|
53,249
|
|
|
$
|
59,443
|
|
|
|
|
|
|
|
|
|
Supplemental Cash Flow Information
|
|
|
|
|
|
|
Interest paid
|
$
|
4,761
|
|
|
$
|
1,924
|
|
|
$
|
870
|
|
|
Income taxes paid
|
8,539
|
|
|
3,179
|
|
|
1,358
|
|
|
Supplemental Disclosure of Non-Cash Investing and Financing Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition of Remington Lodging through issuance of convertible preferred stock, less cash acquired
|
$
|
—
|
|
|
$
|
260,442
|
|
|
$
|
—
|
|
|
Acquisition of Premier through issuance of convertible preferred stock, less cash acquired
|
—
|
|
|
—
|
|
|
200,723
|
|
|
Ashford Inc. common stock consideration for BAV acquisition
|
—
|
|
|
3,748
|
|
|
—
|
|
|
Ashford Inc. common stock consideration for Sebago acquisition
|
—
|
|
|
4,539
|
|
|
—
|
|
|
Ashford Inc. common stock consideration for investment in REA Holdings
|
—
|
|
|
887
|
|
|
—
|
|
|
Distribution from deferred compensation plan
|
11
|
|
|
113
|
|
|
241
|
|
|
Capital expenditures accrued but not paid
|
494
|
|
|
968
|
|
|
618
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of OpenKey warrant
|
—
|
|
|
—
|
|
|
26
|
|
|
Finance lease additions
|
1,869
|
|
|
42,028
|
|
|
220
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ashford Inc. common stock consideration for purchase of OpenKey shares
|
—
|
|
|
—
|
|
|
838
|
|
|
Acquisition of noncontrolling interest in consolidated entities
|
—
|
|
|
—
|
|
|
327
|
|
|
|
|
|
|
|
|
|
Supplemental Disclosure of Cash, Cash Equivalents and Restricted Cash
|
|
|
|
|
|
|
Cash and cash equivalents at beginning of period
|
$
|
35,349
|
|
|
$
|
51,529
|
|
|
$
|
36,480
|
|
|
Restricted cash at beginning of period
|
17,900
|
|
|
7,914
|
|
|
9,076
|
|
|
Cash, cash equivalents and restricted cash at beginning of period
|
$
|
53,249
|
|
|
$
|
59,443
|
|
|
$
|
45,556
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
$
|
45,270
|
|
|
$
|
35,349
|
|
|
$
|
51,529
|
|
|
Restricted cash at end of period
|
37,396
|
|
|
17,900
|
|
|
7,914
|
|
|
Cash, cash equivalents and restricted cash at end of period
|
$
|
82,666
|
|
|
$
|
53,249
|
|
|
$
|
59,443
|
|
See Notes to Consolidated Financial Statements.
ASHFORD INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Organization and Description of Business
Ashford Inc. (the “Company”) is a Nevada corporation that provides products and services primarily to clients in the hospitality industry, including Ashford Hospitality Trust, Inc. (“Ashford Trust”) and Braemar Hotels & Resorts Inc. (“Braemar”). We became a public company in November 2014, and our common stock is listed on the NYSE American LLC (“NYSE American”). Unless the context otherwise requires, references to the “Company”, “we”, “us” or “Ashford Inc.” for the period before August 8, 2018 refer to our predecessor publicly-traded parent Ashford OAINC Inc. (formerly named Ashford Inc.) (“Old Ashford”), for the period from and including August 8, 2018 through November 6, 2019 refer to our predecessor publicly-traded parent Ashford OAINC II Inc., (formerly named Ashford Inc. and incorporated in Maryland) (“Maryland Ashford”), and for the period beginning on and including November 6, 2019, and thereafter refer to Ashford Inc., a Nevada corporation.
We provide: (i) advisory services; (ii) asset management services; (iii) hotel management services; (iv) project management services; (v) event technology and creative communications solutions; (vi) mobile room keys and keyless entry solutions; (vii) watersports activities and other travel, concierge and transportation services; (viii) hypoallergenic premium room products and services; (ix) debt placement and related services; (x) real estate advisory and brokerage services; and (xi) wholesaler, dealer manager and other broker-dealer services. We conduct these activities and own substantially all of our assets primarily through Ashford Hospitality Advisors, LLC (“Ashford LLC”), Ashford Hospitality Services, LLC (“Ashford Services”) and their respective subsidiaries.
We are currently the advisor for Ashford Trust and Braemar. In our capacity as the advisor to Ashford Trust and Braemar, we are responsible for implementing the investment strategies and managing the day-to-day operations of Ashford Trust and Braemar and their respective hotels from an ownership perspective, in each case subject to the respective advisory agreements and the supervision and oversight of the respective boards of directors of Ashford Trust and Braemar. Ashford Trust is focused on investing in full-service hotels in the upscale and upper upscale segments in the U.S. that have revenue per available room (“RevPAR”) generally less than twice the national average. Braemar invests primarily in luxury hotels and resorts with RevPAR of at least twice the U.S. national average. Each of Ashford Trust and Braemar is a real estate investment trust (“REIT”) as defined in the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”), and the common stock of each of Ashford Trust and Braemar is traded on the New York Stock Exchange (the “NYSE”).
We provide the personnel and services that we believe are necessary for each of Ashford Trust and Braemar to conduct their respective businesses. We may also perform similar functions for new or additional platforms. In our capacity as an advisor, we are not responsible for managing the day-to-day operations of the individual hotel properties owned by either Ashford Trust or Braemar, which duties are, and will continue to be, the responsibility of the hotel management companies that operate the hotel properties owned by Ashford Trust and Braemar. Additionally, Remington, which we acquired on November 6, 2019, operates certain of the hotel properties owned by Ashford Trust and Braemar.
Shareholder Rights Plan
On March 13, 2020, we adopted a shareholder rights plan by entering into a Rights Agreement, dated March 13, 2020, with ComputerShare Trust Company, N.A., as rights agent (the “Rights Agreement”). We intend for the shareholder rights plan to improve the bargaining position of the Company’s board of directors (the “Board”) in the event of an unsolicited offer to acquire our outstanding shares of common stock. The Board implemented the rights plan by declaring a dividend of one preferred share purchase right (a “Right”) that was paid on March 23, 2020, for each outstanding share of our common stock on March 23, 2020 (the “Record Date”), to our stockholders of record on that date. Each of those Rights becomes exercisable on the Distribution Date (defined below) and entitles the registered holder to purchase from the Company one one-thousandth of a share of our Series E Preferred Stock, par value $0.001 per share, at a price of $275 per one one-thousandth of a share of our Series E Preferred Stock represented by such a right, subject to adjustment. The Rights Agreement expired on February 13, 2021.
Initially, the Rights will be attached to all certificates representing our common stock, and no separate certificates evidencing the Rights (the “Rights Certificates”) will be issued. The Rights Agreement provides that, until the date on which the Rights separate and begin trading separately from our common stock (which we refer to as the “Distribution Date”) or earlier expiration or redemption of the Rights: (i) the Rights will be transferred with and only with the shares of our common stock; (ii) new certificates representing shares of our common stock issued after the Record Date or upon transfer or new issuance of shares of our common stock will contain a notation incorporating the Rights Agreement by reference; and (iii) the
ASHFORD INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
surrender for transfer of any certificates for shares of our common stock outstanding as of the Record Date, even without such notation or a copy of the Summary of Rights (as defined in the Rights Agreement) being attached thereto, will also constitute the transfer of the Rights associated with the shares of our common stock represented by such certificate. The Distribution Date will occur, and the Rights would separate and begin trading separately from the shares of our common stock, and Rights Certificates will be caused to evidence the Rights on the earlier to occur of:
i.10 business days following a public announcement, or the public disclosure of facts indicating, that a person or group of affiliated or associated persons has acquired Beneficial Ownership (as defined in the Rights Agreement) of 10% or more of the outstanding shares of our common stock (referred to, subject to certain exceptions, as “Acquiring Persons”) (or, in the event an exchange of the Rights for shares of our common stock is effected in accordance with certain provisions of the Rights Agreement and the Board determines that a later date is advisable, then such later date that is not more than 20 days after such public announcement); or
ii.10 business days (or such later date as may be determined by action of the Board prior to such time as any person becomes an Acquiring Person) following the commencement of, or announcement of an intention to make, a tender offer or exchange offer, the consummation of which would result in the Beneficial Ownership by a person or group of 10% or more of the outstanding shares of our common stock.
The Rights also become exercisable if a person or group that already beneficially owns 10% or more of our common stock acquires any additional shares of our common stock without the approval of the Board, except that the Distribution Date will not occur as a result of our company, one of our subsidiaries, one of our employee benefit plans or a trustee for one of those plans, or Mr. Monty J. Bennett and certain of his affiliates and associates acquiring additional shares of our common stock, and those persons will not be Acquiring Persons.
If a person or group becomes an Acquiring Person at any time after the date of the Rights Agreement, with certain limited exceptions, the Rights will become exercisable for shares of our common stock (or, in certain circumstances, shares of our Series E Preferred Stock or other of our securities that are similar) having a value equal to two times the exercise price of the right. From and after the announcement that any person has become an Acquiring Person, if the Rights evidenced by a Rights Certificate are or were at any time on or after the earlier of: (i) the date of such announcement; or (ii) the Distribution Date acquired or beneficially owned by an Acquiring Person or an associate or affiliate of an Acquiring Person, such Rights shall become void, and any holder of such Rights shall thereafter have no right to exercise such Rights. In addition, if, at any time after a person becomes an Acquiring Person: (i) we consolidate with, or merge with and into, any other person; (ii) any person consolidates with us, or merges with and into us and we are the continuing or surviving corporation of such merger and, in connection with such merger, all or part of the shares of our common stock are or will be changed into or exchanged for stock or other securities of any other person (or of ours) or cash or any other property; or (iii) 50% or more of our consolidated assets or Earning Power (as defined in the Rights Agreement) are sold, then proper provision will be made so that each holder of a right will thereafter have the right to receive, upon the exercise of a right at the then current exercise price of the right, that number of shares of common stock of the acquiring company which at the time of such transaction will have a market value of two times the exercise price of the Right. Upon the occurrence of an event of the type described in this paragraph, if the Board so elects, we will deliver upon payment of the exercise price of a right an amount of cash or securities equivalent in value to the shares of common stock issuable upon exercise of a right. If we fail to meet that obligation within 30 days following of the announcement that a person has become an Acquiring Person, we must deliver, upon exercise of a right but without requiring payment of the exercise price then in effect, shares of our common stock (to the extent available) and cash equal in value to the difference between the value of the shares of our common stock otherwise issuable upon the exercise of a right and the exercise price then in effect. The Board may extend the 30-day period described above for up to an additional 60 days to permit the taking of action that may be necessary to authorize sufficient additional shares of our Common Stock to permit the issuance of such shares of our Common Stock upon the exercise in full of the Rights.
COVID-19, Management’s Plans and Liquidity
In December 2019, COVID-19 was identified in Wuhan, China, which subsequently spread to other regions of the world, and has resulted in significant travel restrictions and extended shutdown of numerous businesses in every state in the United States. In March 2020, the World Health Organization declared COVID-19 to be a global pandemic. Our clients Ashford Trust and Braemar have reported that the negative impact on room demand within their respective portfolios stemming from COVID-19 is significant, which has resulted and is expected to result in significantly reduced occupancy and RevPAR. Furthermore, the prolonged presence of the virus has resulted in health and other government authorities imposing widespread restrictions on travel and other businesses. The hotel industry has experienced postponement or cancellation of a significant
ASHFORD INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
number of business conferences and similar events. Following the government mandates and health official orders, the Company dramatically reduced staffing and expenses at its products and services businesses and at our corporate office. COVID-19 has had a significant negative impact on the Company’s operations and financial results to date. In addition, one or more possible recurrences of COVID-19 cases could result in further reductions in business and personal travel and could cause state and local governments to reinstate travel restrictions. The Company expects that the COVID-19 pandemic will continue to have a significant negative impact on the Company’s results of operations, financial position and cash flow in 2021 and potentially beyond. As a result, in March 2020, the Company reduced the cash compensation of its executive officers and other employees, amended payment terms pursuant to certain hotel management agreements to better manage corporate working capital, reduced planned capital expenditures, and significantly reduced operating expenses. On March 16, 2020, the Company announced that the Board had declared and the Company would pay 50% of the dividend which was due with respect to its Series D Convertible Preferred Stock for the first quarter of 2020. The declared $3.9 million dividends were paid on April 15, 2020. On June 24, 2020, the Company declared the remaining 50% or approximately $4.0 million of dividends, including compounding dividends, due with respect to its Series D Convertible Preferred Stock for the first quarter of 2020 which were paid on July 14, 2020. The Company did not declare dividends with respect to its Series D Convertible Preferred Stock for the second quarter of 2020. On September 14, 2020, the Board declared a dividend of $0.411875 per share which was due with respect to its Series D Convertible Preferred Stock for the third quarter of 2020. The declared $7.9 million dividends were paid on October 15, 2020. The Company did not declare dividends with respect to its Series D Convertible Preferred Stock for the fourth quarter of 2020. As of December 31, 2020, the Company had aggregate undeclared preferred stock dividends of approximately $16.3 million which relates to the second and fourth quarters of 2020.
When preparing financial statements, management has the responsibility to evaluate whether there are conditions or events, considered in the aggregate, that create substantial doubt about the Company’s ability to continue as a going concern within one year after the date that the financial statements are issued. In applying the accounting guidance, the Company considered its current financial condition and liquidity sources, including current funds available, forecasted future cash flows and its unconditional obligations due over the next 12 months.
We are required to maintain certain financial ratios under various debt and related agreements. If we violate covenants in any debt or related agreement, we could be required to repay all or a portion of our indebtedness before maturity at a time when we might be unable to arrange financing for such repayment on attractive terms, if at all. Violations of certain debt covenants may result in the inability of our portfolio companies to borrow unused amounts under their respective lines of credit. As of December 31, 2020, our $35 million Term Loan Agreement was in compliance with all covenants or other requirements. Debt held by our subsidiaries was either in compliance with all covenants or other requirements or had any covenant violations waived by the lender. Additionally, JSAV executed a credit agreement amendment on December 31, 2020, which extended the maturity date of the loan, waived previous covenant violations for the fiscal quarters ended June 30, 2020 and September 30, 2020, and replaced the previous covenants with a covenant which commences with the quarter ending March 31, 2023. See note 7 for additional details.
We cannot predict when hotel operating levels at our clients, Ashford Trust and Braemar, will return to normalized levels after the effects of the pandemic subside, whether our clients’ hotels will be forced to shut down operations or whether one or more governmental entities may impose additional travel restrictions due to a resurgence of COVID-19 cases in the future. As a result of these factors resulting from the impact of the pandemic, we are unable to estimate future financial performance with certainty. However, based primarily on our assessment of the ability of our key customers, Ashford Trust and Braemar, to pay their obligations to the Company in accordance with the advisory agreements, the Company has concluded that management’s current plan alleviates the substantial doubt about its ability to continue as a going concern. Additional factors considered in our assessment include our completed loan amendments, other agreements, our current cash on hand, our forecast of future operating results for the next 12 months from the date of this report and the actions we have taken to improve our liquidity. Facts and circumstances could change in the future that are outside of management’s control, such as changes in Ashford Trust’s and Braemar’s financial position and liquidity, additional government mandates, health official orders, travel restrictions and extended business shutdowns due to COVID-19. See notes 7 and 17.
Other Developments
On March 13, 2020, the Company entered into the Extension Agreement (the “Extension Agreement”), related to the Ashford Trust Enhanced Return Funding Program (the “Ashford Trust ERFP Agreement”). Under the terms of the Extension Agreement, the remaining ERFP commitment funding deadline under the Ashford Trust ERFP Agreement of $11.4 million as of December 31, 2020 and December 31, 2019, has been extended from January 22, 2021 to December 31, 2022. See note 11.
ASHFORD INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
On March 16, 2020, the Company announced that in light of the uncertainty created by the effects of the COVID-19, effective March 21, 2020, the base salary for its Chief Executive Officer, Mr. Monty J. Bennett, was temporarily reduced by 20% and the base salary for certain other Company officers, including its Chief Financial Officer and its other named executive officers, was temporarily reduced by 15% until the effects of COVID-19 have subsided and it has been determined that the Company is in a healthy financial position. Any amounts relinquished pursuant to the reduction may be paid by the Company in the future.
On March 16, 2020, the Company announced that in light of the uncertainty created by the effects of COVID-19, the annual cash retainer for each non-employee director serving on the Company’s Board would be temporarily reduced by 25% and would continue in effect until the Board determined in its discretion that the effects of COVID-19 had subsided. The Company also disclosed at that time that any amounts relinquished pursuant to the reduction in fees may be paid in the future, as determined by the Board in its discretion. On August 7, 2020, the Company announced that for fiscal year 2020, the directors will receive the full value of their annual cash retainer (without reduction). However, the full value of such cash retainer will be paid 25% in fully vested common shares and 75% in cash. The remaining quarterly installments of such retainer will be adjusted so that, for fiscal year 2020 in the aggregate, each director will have received 25% of the value of the full annual cash retainer in equity and the remaining 75% in cash. This arrangement does not apply to any additional cash retainers for committee service or service as lead director, which will continue to be paid in cash.
On May 15, 2020, the Company and its Chief Executive Officer, Mr. Monty J. Bennett, entered into a letter agreement pursuant to which, effective as of May 15, 2020 and continuing through and including the Company’s last payroll period in 2020, Mr. Monty J. Bennett will accept payment of his base salary (as previously reduced by mutual agreement of the Company and Mr. Monty J. Bennett) in the form of common stock of the Company, issued pursuant to the Company’s 2014 Incentive Plan, as amended. Each issuance of the Company’s common stock will occur on, or as soon as reasonably practicable following, each regular payroll date. The number of shares issued with respect to each payroll date will be equal to the cash salary which would have been paid, less any taxes withheld and benefits deductions, divided by the volume weighted average price per share of the Company’s common stock over all trading days in the period commencing on the first trading date in the applicable payroll period and ending on the last trading date immediately prior to the last day of the payroll period. The Board and Mr. Bennett agreed to effectuate this change to preserve Company liquidity as the Company navigates the effects of COVID-19.
On December 28, 2020, the Company paid the remaining 25% of the 2019 annual bonuses awarded to certain executive officers of the Company, including the Company’s named executive officers, which had been delayed beyond their standard payment date in March 2020 in light of the uncertainty regarding COVID-19, to be paid no later than December 31, 2020. Such bonuses were paid primarily in the form of fully vested shares of common stock issued under the Company’s 2014 Incentive Plan in lieu of cash. Mr. Monty J. Bennett, the Company’s Chief Executive Officer, received the entire remainder of his 2019 annual bonus in the form of common stock.
On December 31, 2020, we acquired all of the redeemable noncontrolling interests shares in JSAV for $150,000. As a result of the acquisition, our ownership in JSAV increased from approximately 88% to 100%.
The accompanying consolidated financial statements reflect the operations of our advisory and asset management business, hospitality products and services business, and entities that we consolidate. In this report, the terms the “Company,” “we,” “us” or “our” refers to Ashford Inc. and all entities included in its consolidated financial statements.
2. Significant Accounting Policies
Basis of Presentation and Principles of Consolidation—The accompanying consolidated financial statements, include the accounts of Ashford Inc., its majority-owned subsidiaries and entities which it controls. All significant intercompany accounts and transactions between these entities have been eliminated in these historical consolidated financial statements.
A variable interest entity (“VIE”) must be consolidated by a reporting entity if the reporting entity is the primary beneficiary because it has (i) the power to direct the VIE’s activities that most significantly impact the VIE’s economic performance, and (ii) the obligation to absorb losses of the VIE or the right to receive benefits from the VIE. We determine whether we are the primary beneficiary of a VIE upon our initial involvement with the VIE and we reassess whether we are the primary beneficiary of a VIE on an ongoing basis. Our determination of whether we are the primary beneficiary of a VIE is based upon the facts and circumstances for each VIE and requires significant judgment.
ASHFORD INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Noncontrolling Interests—The following tables present information about noncontrolling interests in our consolidated subsidiaries, including those related to consolidated VIEs, as of December 31, 2020 and December 31, 2019 (in thousands):
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
|
Ashford
Holdings
|
|
JSAV (3)
|
|
OpenKey(4)
|
|
Pure
Wellness (5)
|
|
RED (6)
|
|
|
|
Ashford Inc. ownership interest
|
99.86
|
%
|
|
100.00
|
%
|
|
49.04
|
%
|
|
70.00
|
%
|
|
84.21
|
%
|
|
|
|
Redeemable noncontrolling interests(1) (2)
|
0.14
|
%
|
|
—
|
%
|
|
25.06
|
%
|
|
—
|
%
|
|
—
|
%
|
|
|
|
Noncontrolling interests in consolidated entities
|
—
|
%
|
|
—
|
%
|
|
25.90
|
%
|
|
30.00
|
%
|
|
15.79
|
%
|
|
|
|
|
100.00
|
%
|
|
100.00
|
%
|
|
100.00
|
%
|
|
100.00
|
%
|
|
100.00
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying value of redeemable noncontrolling interests
|
$
|
35
|
|
|
$
|
—
|
|
|
$
|
1,799
|
|
|
n/a
|
|
n/a
|
|
|
|
Redemption value adjustment, year-to-date
|
371
|
|
|
—
|
|
|
466
|
|
|
n/a
|
|
n/a
|
|
|
|
Redemption value adjustment, cumulative
|
486
|
|
|
784
|
|
|
2,563
|
|
|
n/a
|
|
n/a
|
|
|
|
Carrying value of noncontrolling interests
|
—
|
|
|
—
|
|
|
164
|
|
|
89
|
|
|
(374)
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|
|
|
|
Assets, available only to settle subsidiary’s obligations (7) (8)(10)
|
n/a
|
|
34,556
|
|
|
1,287
|
|
|
1,677
|
|
|
21,204
|
|
|
|
|
Liabilities (9)(10)
|
n/a
|
|
45,995
|
|
|
837
|
|
|
1,767
|
|
|
13,817
|
|
|
|
|
Notes payable (9)
|
n/a
|
|
20,000
|
|
|
—
|
|
|
—
|
|
|
7,627
|
|
|
|
|
Revolving credit facility (9)
|
n/a
|
|
1,106
|
|
|
—
|
|
|
100
|
|
|
247
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
|
Ashford
Holdings
|
|
JSAV (3)
|
|
OpenKey(4)
|
|
Pure
Wellness (5)
|
|
RED (6)
|
|
|
|
Ashford Inc. ownership interest
|
99.81
|
%
|
|
88.20
|
%
|
|
47.61
|
%
|
|
70.00
|
%
|
|
84.21
|
%
|
|
|
|
Redeemable noncontrolling interests(1) (2)
|
0.19
|
%
|
|
11.80
|
%
|
|
26.59
|
%
|
|
—
|
%
|
|
—
|
%
|
|
|
|
Noncontrolling interests in consolidated entities
|
—
|
%
|
|
—
|
%
|
|
25.80
|
%
|
|
30.00
|
%
|
|
15.79
|
%
|
|
|
|
|
100.00
|
%
|
|
100.00
|
%
|
|
100.00
|
%
|
|
100.00
|
%
|
|
100.00
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying value of redeemable noncontrolling interests
|
$
|
98
|
|
|
$
|
2,449
|
|
|
$
|
1,584
|
|
|
n/a
|
|
n/a
|
|
|
|
Redemption value adjustment, year-to-date
|
(63)
|
|
|
784
|
|
|
64
|
|
|
n/a
|
|
n/a
|
|
|
|
Redemption value adjustment, cumulative
|
115
|
|
|
784
|
|
|
2,097
|
|
|
n/a
|
|
n/a
|
|
|
|
Carrying value of noncontrolling interests
|
—
|
|
|
—
|
|
|
395
|
|
|
164
|
|
|
37
|
|
|
|
|
Assets, available only to settle subsidiary’s obligations (7)(8)(10)
|
n/a
|
|
56,824
|
|
|
1,881
|
|
|
1,852
|
|
|
19,277
|
|
|
|
|
Liabilities (9)(10)
|
n/a
|
|
44,542
|
|
|
510
|
|
|
1,671
|
|
|
10,652
|
|
|
|
|
Notes payable (9)
|
n/a
|
|
17,785
|
|
|
—
|
|
|
—
|
|
|
6,275
|
|
|
|
|
Revolving credit facility (9)
|
n/a
|
|
2,599
|
|
|
—
|
|
|
45
|
|
|
106
|
|
|
|
________
(1) Redeemable noncontrolling interests are included in the “mezzanine” section of our consolidated balance sheets as they may be redeemed by the holder for cash or registered shares in certain circumstances outside of the Company’s control. The carrying value of the noncontrolling interests is based on the greater of the accumulated historical cost or the redemption value, which is generally fair value.
(2) Redeemable noncontrolling interests in Ashford Holdings represent the members’ proportionate share of equity in earnings/losses of Ashford Holdings. Net income/loss attributable to the common unit holders is allocated based on the weighted average ownership percentage of the members’ interest.
(3) Represents ownership interests in JSAV, which we consolidate under the voting interest model. JSAV provides event technology and creative communications solutions in the hospitality industry. On December 31, 2020, we acquired all of the redeemable noncontrolling interests shares in JSAV for $150,000. As a result of the acquisition, our ownership in JSAV increased from approximately 88% to 100%. See also notes 1, 13 and 14.
(4) Represents ownership interests in OpenKey, a VIE for which we are considered the primary beneficiary and therefore we
ASHFORD INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
consolidate it. OpenKey is a hospitality focused mobile key platform that provides a universal smartphone app for keyless entry into hotel guest rooms. See also notes 1, 13 and 14.
(5) Represents ownership interests in Pure Wellness, a VIE for which we are considered the primary beneficiary and therefore we consolidate it. Pure Wellness provides hypoallergenic premium rooms in the hospitality industry. See also notes 1 and 13.
(6) Represents ownership interests in RED, a VIE for which we are considered the primary beneficiary and therefore we consolidate it. RED is a provider of watersports activities and other travel and transportation services and includes the entity that conducts RED’s legacy U.S. Virgin Islands operations and Sebago, a provider of watersports activities and excursion services based in Key West, Florida which was acquired by RED in 2019. We are provided a preferred return on our investment in RED’s legacy U.S. Virgin Islands operations and Sebago which is accounted for in our income allocation based on the applicable partnership agreement. See also notes 1 and 13.
(7) Total assets consist primarily of cash and cash equivalents, property and equipment, intangibles and other assets that can only be used to settle the subsidiaries’ obligations.
(8) The assets of Sebago are not available to settle the obligations of the entity that conducts RED’s legacy U.S. Virgin Islands operations.
(9) Liabilities consist primarily of accounts payable, accrued expenses and notes payable for which creditors do not have recourse to Ashford Inc. except in the case of the term loans and line of credit held by RED’s legacy U.S. Virgin Islands operations, for which the creditor has recourse to Ashford Inc.
(10) See our consolidated balance sheets for disclosure by line item of material assets and liabilities of the VIEs consolidated by the Company.
Investments in Unconsolidated Entities—We hold “investments in unconsolidated entities” in our consolidated balance sheets, which are considered to be variable interests and voting interests in the underlying entities. Certain of our investments in variable interests are not consolidated because we have determined that we are not the primary beneficiary. Certain other investments are not consolidated as the underlying entity does not meet the definition of a VIE and we do not control more than 50% of the voting interests. We review our “investments in unconsolidated entities” for impairment in each reporting period pursuant to the applicable authoritative accounting guidance. An investment is impaired when its estimated fair value is less than the carrying amount of our investment. No such impairment was recorded during the year ended December 31, 2020 and 2019.
We held an investment in an unconsolidated variable interest entity with a carrying value of $500,000 at December 31, 2020 and December 31, 2019. We account for the investment at estimated fair value based on recent observable transactions as we do not exercise significant influence over the entity. No equity in earnings (loss) of unconsolidated entities due to a change in fair value of the investment was recognized during the year ended December 31, 2020 and 2019. In the event that the assumptions used to estimate fair value change in the future, we may be required to record an impairment charge related to this investment.
Effective January 1, 2019, we acquired a 30% noncontrolling ownership interest in Real Estate Advisory Holdings LLC (“REA Holdings”), a real estate advisory firm that provides financing, advisory and property sales services primarily to clients in the hospitality and leisure industry, for a purchase price of approximately $3.0 million which was paid in the form of $2.1 million cash and the issuance of 16,529 shares of our common stock (approximately $890,000) to the seller. We have an option to acquire an additional 50% of the ownership interests in REA Holdings for $12.5 million beginning on January 1, 2022. Our investment in REA Holdings is accounted for under the equity method as we have significant influence over the voting interest entity.
ASHFORD INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table summarizes our carrying value and ownership interest in REA Holdings (in thousands):
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
December 31, 2019
|
|
Carrying value of the investment in REA Holdings
|
$
|
2,873
|
|
|
2,662
|
|
|
Ownership interest in REA Holdings
|
30
|
%
|
|
30
|
%
|
The following table summarizes our equity in earnings (loss) in REA Holdings (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
|
|
2020
|
|
2019
|
|
Equity in earnings (loss) in unconsolidated entities
|
|
|
|
|
$
|
212
|
|
|
$
|
(286)
|
|
Acquisitions—We account for acquisitions and investments in businesses as business combinations if the target meets the definition of a business and (a) the target is a VIE and we are the target’s primary beneficiary, and therefore we must consolidate its financial statements, or (b) we acquire more than 50% of the voting interest of the target and it was not previously consolidated. We record business combinations using the acquisition method of accounting, which requires all of the assets acquired and liabilities assumed to be recorded at fair value as of the acquisition date. The excess of the purchase price over the estimated fair values of the net tangible and intangible assets acquired is recorded as goodwill. The application of the acquisition method of accounting for business combinations requires management to make significant estimates and assumptions in the determination of the fair value of assets acquired and liabilities assumed in order to properly allocate purchase price consideration between assets that are depreciated and amortized from goodwill. The fair value assigned to tangible and intangible assets acquired and liabilities assumed are based on management’s estimates and assumptions, as well as other information compiled by management, including valuations that utilize customary valuation procedures and techniques. Significant assumptions and estimates include, but are not limited to, the cash flows that an asset is expected to generate in the future, the appropriate weighted-average cost of capital, and the cost savings expected to be derived from acquiring an asset, if applicable. If the actual results differ from the estimates and judgments used in these estimates, the amounts recorded in our consolidated financial statements may be exposed to potential impairment of the intangible assets and goodwill.
If our investment involves the acquisition of an asset or group of assets that does not meet the definition of a business, the transaction is accounted for as an asset acquisition. An asset acquisition is recorded at cost, which includes capitalizing transaction costs, and does not result in the recognition of goodwill.
Use of Estimates—The preparation of these consolidated financial statements in accordance with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents—Cash and cash equivalents include cash on hand or held in banks and short-term investments with an initial maturity of three months or less at the date of purchase.
Restricted Cash—As of December 31, 2020 and December 31, 2019, restricted cash of $37.4 million and $17.9 million, respectively, included $26.3 million and $10.7 million, respectively, of reserves for insurance claims and the associated ancillary costs. The restricted cash balance increased in 2020 primarily due to a transfer of $11.8 million of cash from Ashford Trust into an insurance claim related Company escrow account in the second quarter of 2020. At the beginning of each year, Ashford Inc.’s Risk Management department collects funds from the Ashford Trust and Braemar properties and their respective management companies in an amount equal to the actuarial forecast of that year’s expected casualty claims and associated fees. These funds are deposited into restricted cash and used to pay casualty claims throughout the year as they are incurred. The claim liability related to the restricted cash balance is included in current “other liabilities” in our consolidated balance sheets.
As of December 31, 2020 and December 31, 2019, restricted cash also included $5.9 million and $5.3 million, respectively, of reserves related to cash received from hotel properties under Remington’s management. The cash is funded by the hotel properties and used to pay certain centralized operating expenses as well as hotel employee bonuses. The liability related to the restricted cash balance for centralized billing is primarily included as a payable within “due from Ashford Trust” and “due from Braemar” in our consolidated balance sheets. The liability related to the restricted cash balance for hotel employee bonuses is included in “accounts payable and accrued expenses.” As of December 31, 2020 and December 31, 2019, restricted cash also included $1.5 million and $1.2 million, respectively, of reserves for Remington health insurance claims. Cash is collected primarily from Remington’s managed properties as well as certain of Ashford Inc.’s other subsidiaries to cover employee health
ASHFORD INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
insurance claims. The liability related to this restricted cash balance is included in current “other liabilities” in our consolidated balance sheets.
Restricted cash as of December 31, 2020 includes $3.7 million of cash related to Marietta which includes a $2.9 million reserve for capital improvements associated with the hotel’s renovation and $800,000 of cash held in an escrow account in accordance with the Marietta lease agreement. The liability related to the restricted cash balance for the hotel’s renovation is included in “accounts payable and accrued expenses.” The cash held in the escrow account is funded from hotel cash flows and can only be used for repairs and maintenance or capital improvements at the property. Restricted cash as of December 31, 2019 includes only the $800,000 of cash held in the escrow account.
Accounts Receivable—Accounts receivable consists primarily of receivables from customers of audio visual services. We maintain an allowance for doubtful accounts for estimated losses resulting from the inability of customers to make required payments for services. The allowance is recorded based on management’s judgment regarding our ability to collect as well as the age of the receivables. Accounts receivable are written off when they are deemed uncollectible.
Inventories—Inventories consist primarily of audio visual equipment and related accessories and are carried at the lower of cost or net realizable value using the first-in, first-out ("FIFO") valuation method.
Property and Equipment, net—Property and equipment, including assets acquired under finance leases, is depreciated using the straight-line method over estimated useful lives or lease terms if shorter. We record property and equipment at cost.
Impairment of Property and Equipment—Property and equipment are reviewed for impairment whenever events or changes in circumstances indicate that their carrying amounts may not be recoverable. Recoverability of the asset is measured by comparison of the carrying amount of the asset 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 asset. If our analysis indicates that the carrying value of the asset is not recoverable on an undiscounted cash flow basis, we recognize an impairment charge for the amount by which the asset net book value exceeds its estimated fair value, or fair value, less cost to sell. In evaluating impairment of assets, 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. Assets not yet placed into service are also reviewed for impairment whenever events or changes in circumstances indicate that all or a portion of the assets will not be placed into service. During the year ended December 31, 2020, as a result of the negative impact of the COVID-19 pandemic, we concluded that sufficient indicators existed to require us to perform recoverability tests by comparing the sum of the estimated undiscounted future cash flows attributable to the assets to the carrying values. Approximately $36,000 of impairment charges related to long-lived assets were recorded in 2020 based on the results of the recoverability tests. No impairment charges related to Property and Equipment were recorded in the year ended December 31, 2019. We recorded an impairment charge of $1.9 million for the year ended December 31, 2018. The impairment was recognized upon determination that a portion of capitalized software that was not eligible for reimbursement would not be placed into service.
Goodwill and Indefinite-Lived Intangible Assets—Goodwill is assigned to reporting units that are expected to benefit from the synergies of the business combination as of the acquisition date. Indefinite-lived intangible assets primarily include trademark rights resulting from our acquisition of Remington, JSAV and Sebago. We assess goodwill and indefinite-lived intangible assets, neither of which is amortized, for impairment annually as of October 1, or more frequently, if events and circumstances indicate impairment may have occurred. During 2020, as a result of our reduced cash flow projections and the significant decline in our market capitalization as a result of the COVID-19 pandemic, we concluded that sufficient indicators existed to require us to perform multiple impairment assessments on our reporting units’ goodwill balances. In the evaluation of goodwill for impairment, we typically perform a quantitative assessment to determine whether the fair value of the goodwill is more likely than not impaired and record impairment charges based on the excess of the reporting unit's carrying amount over its fair value. We determine the fair value of a reporting unit based on a blended analysis of the present value of future cash flows and the market value approach. Periodically, we may choose to perform a qualitative assessment, prior to performing a quantitative analysis, to determine whether the fair value of the goodwill is more likely than not impaired. In considering the qualitative approach, we evaluate factors including, but not limited to, the operational stability and the overall financial performance of the reporting units. We base our measurement of fair value of trademarks using the relief-from-royalty method. This method assumes that the trademarks have value to the extent that their owner is relieved of the obligation to pay royalties for the benefits received from them. For additional information on our goodwill and trademark impairments recorded during 2020, see note 6.
ASHFORD INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Definite-Lived Intangible Assets—Definite-lived intangible assets primarily include management contracts, customer relationships and boat slip rights resulting from our acquisitions. The Remington and Premier management contracts are not amortized on a straight-line basis, rather the assets are amortized in a manner that approximates the pattern of the assets’ economic benefit to the Company over an estimated useful life of 25 and 30 years, respectively. The JSAV, RED and Pure Wellness assets are amortized using the straight-line method over the estimated useful lives of the assets. We review the carrying amount of the assets whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. If the carrying amount is not recoverable, we record an impairment charge for the excess of the carrying amount over the fair value. During the year ended December 31, 2020, as a result of the negative impact of the COVID-19 pandemic, we concluded that sufficient indicators existed to require us to perform recoverability tests by comparing the sum of the estimated undiscounted future cash flows attributable to the assets to the carrying values.
Other Liabilities—As of December 31, 2020 and December 31, 2019, other liabilities included reserves in the amount of $26.3 million and $10.8 million, respectively, related primarily to Ashford Trust and Braemar properties’ insurance claims and related fees. The liability for casualty insurance claims and related fees is established based upon an analysis of historical data and actuarial estimates. We record the related funds received from Ashford Trust and Braemar in “restricted cash” in our consolidated balance sheets. As of December 31, 2020 and December 31, 2019, other liabilities also included $1.5 million and $2.2 million, respectively, of reserves for Remington health insurance claims, and reserves of $2.1 million and $4.6 million, respectively, for the fair value of contingent consideration due to the sellers of BAV. Other liabilities as of December 31, 2019 also included a $1.0 million accrual for contingent consideration due to the sellers of Sebago and $500,000 of the remaining purchase price due to the sellers of BAV Services (“BAV”) which were paid in 2020. See notes 5.
Revenue Recognition—See note 3.
Salaries and Benefits—Salaries and benefits are expensed as incurred. Salaries and benefits includes expense for equity grants of Ashford Trust and Braemar common stock and performance-based Long-Term Incentive Plan (“LTIP”) units awarded to our officers and employees in connection with providing advisory services equal to the grant date fair value of the award in proportion to the requisite service period satisfied during the period. There is an offsetting amount included in “advisory services” revenue. Salaries and benefits also includes expense for equity grants of the Company’s common stock to our officers and employees and changes in fair value in the deferred compensation plan liability. See notes 15and 16.
General and Administrative—General and administrative costs are expensed as incurred, and include advertising costs of $1.4 million, $1.5 million and $905,000 for the years ended December 31, 2020, 2019 and 2018, respectively.
Depreciation and Amortization—Our property and equipment, including assets acquired under finance leases, is depreciated on a straight-line basis over the estimated useful lives of the assets with useful lives ranging from less than a year to 33 years for our Marietta finance lease. Leasehold improvements are depreciated over the shorter of the lease term or the estimated useful life of the related assets. Property and equipment, excluding our RED vessels, are depreciated using the straight-line method over lives ranging from 3 to 7.5 years. Our RED vessels are depreciated using the straight-line method over a useful life of 20 years. While we believe our estimates are reasonable, a change in estimated useful lives could affect depreciation expense and net income/loss as well as resulting gains or losses on potential sales. See also the “Definite-Lived Intangible Assets” above.
Equity-Based Compensation—Our equity incentive plan provides for the grant of restricted or unrestricted shares of our common stock, share appreciation rights, performance shares, performance units and other equity-based awards or any combination of the foregoing. Equity-based compensation included in “salaries and benefits” is accounted for at fair value based on the market price of the shares/options on the date of grant in accordance with applicable authoritative accounting guidance. The fair value is charged to compensation expense on a straight-line basis over the vesting period of the shares/options. Grants of restricted stock to independent directors are recorded at fair value based on the market price of our shares at grant date, and this amount is fully expensed in “general and administrative” expense as the grants of stock are fully vested on the date of grant. Our officers and employees can be granted common stock and LTIP units from Ashford Trust and Braemar in connection with providing advisory services that result in expense, included in “reimbursed expenses,” equal to the grant date fair value of the award in proportion to the requisite service period satisfied during the period, as well as offsetting revenue in an equal amount included in “cost reimbursement revenue”.
Prior to the adoption of ASU 2018-07, Compensation—Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting (“ASU 2018-07”) in the third quarter of 2018, equity-based awards granted to non-employees were accounted for at fair value based on the market price of the awards at period end, which resulted in recording expense equal to the fair value of the award in proportion to the requisite service period satisfied during the period. After the
ASHFORD INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
adoption of ASU 2018-07 in the third quarter of 2018, equity-based awards granted to non-employees are measured at the grant date and expensed ratably over the vesting period based on the original measurement date as the grant date. This results in the recording of expense equal to the ratable amount of the grant date fair value based on the requisite service period satisfied during the period.
Other Comprehensive Income (Loss)—Comprehensive income consists of net income (loss), foreign currency translation adjustments and unrealized gain (loss) on restricted investments. The foreign currency translation adjustment represents the unrealized impact of translating the financial statements of the JSAV operations in Mexico and the Dominican Republic from their respective functional currencies to U.S. dollars. This amount is not included in net income and would only be realized upon the sale or upon complete or substantially complete liquidation of the foreign businesses. The unrealized gain (loss) on restricted investments includes the unrealized gain (loss) on available-for-sale securities associated with restricted investments awarded to certain employees of our subsidiaries. The accumulated other comprehensive income (loss) is presented on our consolidated balance sheets as of December 31, 2020 and 2019.
Due to Affiliates—Due to affiliates represents current payables resulting primarily from general and administrative expense, and property and equipment reimbursements. Due to affiliates is generally settled within a period not exceeding one year.
Due from Ashford Trust—Due from Ashford Trust represents current receivables related to advisory services fees, incentive fees, reimbursable expenses and service business expenses. Due from Ashford Trust is generally settled within a period not exceeding one year.
Due from Braemar—Due from Braemar represents current receivables related to advisory services fees, incentive fees, reimbursable expenses and service business expenses. Due from Braemar is generally settled within a period not exceeding one year.
Income (Loss) Per Share—Basic income (loss) per common share is calculated by dividing net income (loss) attributable to the Company by the weighted average common shares outstanding during the period using the two-class method prescribed by applicable authoritative accounting guidance. Diluted income (loss) per common share is calculated using the two-class method, or the treasury stock method, if more dilutive. Diluted income (loss) per common share reflects the potential dilution that could occur if securities or other contracts to issue common shares were exercised or converted into common shares, whereby such exercise or conversion would result in lower income per share. See note 18.
Leases—We determine if an arrangement is a lease at the inception of the contract. Lease ROU assets and lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date. As most of our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at the commencement date in determining the present value of future payments. Our lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Lease expense for minimum lease payments related to operating leases is recognized on a straight-line basis over the lease term. Lease expense for minimum lease payments related to financing leases is recognized using the effective interest method over the lease term. Short-term leases (less than twelve months) are not recorded on the balance sheet; we recognize lease expense for these leases on a straight-line basis over the lease term. See note 8.
Deferred Compensation Plan—Effective January 1, 2008, Ashford Trust established a nonqualified deferred compensation plan (“DCP”) for certain executive officers, which was assumed by the Company in connection with the separation from Ashford Trust. The plan allowed participants to defer up to 100% of their base salary and bonus and select an investment fund for measurement of the deferred compensation obligation. In connection with our spin-off and the assumption of the DCP obligation by the Company, the DCP was modified to give the participants various investment options, including Ashford Inc. common stock, for measurement that can be changed by the participant at any time. These modifications resulted in the DCP obligation being recorded as a liability in accordance with the applicable authoritative accounting guidance. Distributions under the DCP are made in cash, unless the participant has elected Ashford Inc. common stock as the investment option, in which case any such distributions would be made in Ashford Inc. common stock. The DCP is carried at fair value with changes in fair value reflected in “salaries and benefits” in our consolidated statements of operations. See note 16.
Income Taxes—We are a taxable corporation for federal and state income tax purposes. Income tax expense includes U.S. federal and state income taxes, Mexico and Dominican Republic income taxes and U.S. Virgin Islands taxes. In accordance with authoritative accounting guidance, we account for income taxes using the asset and liability method under which deferred tax assets and liabilities are recognized for future tax consequences attributable to differences between our consolidated
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
financial statement carrying amounts of existing assets and liabilities and their respective income tax bases. Valuation allowances are recorded to reduce deferred tax assets to the amount that will more likely than not be realized.
The “Income Taxes” topic of the Financial 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 portfolio companies file income tax returns in the U.S. federal jurisdiction and various states and cities, beginning in 2017, in Mexico and the Dominican Republic and, beginning in 2018, in the U.S. Virgin Islands. Tax years 2016 through 2020 remain subject to potential examination by certain federal and state taxing authorities.
On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was signed into law and includes certain income tax provisions relevant to the business. The Company is required to recognize the effect on the consolidated financial statements in the period the law was enacted, which is the period ended March 31, 2020. The CARES Act did not have a material impact on the Company’s consolidated financial statements for the year ended December 31, 2020. The Company filed a claim to carryback the 2018 tax net operating loss to a prior year as provided for by the CARES Act. The Company expects to receive the carryback amount of approximately $1.0 million within the next 12 months.
On December 27, 2020, the Consolidated Appropriations Act, 2021 was signed into law and extends several COVID-19 tax related measures passed as part of the CARES Act. Among these is the extension of the deferral period of the remittance of Social Security taxes. The Company is required to recognize the effect on the consolidated financial statements in the period the law was enacted, which is the period ended December 31, 2020. The Company had deferred $2.5 million of Social Security taxes within “accounts payable and accrued expenses” in our consolidated balance sheet as of December 31, 2020 related to the Consolidated Appropriations Act.
Recently Adopted Accounting Standards—In January 2017, the FASB issued ASU 2017-04, Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment (“ASU 2017-04”), which removes the requirement to compare the implied fair value of goodwill with its carrying amount as part of step 2 of the goodwill impairment test. As a result, under ASU 2017-04, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount and should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value. However, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. In addition, ASU 2017-04 clarifies that an entity should consider income tax effects from any tax deductible goodwill on the carrying amount of the reporting unit when measuring the goodwill impairment loss, if applicable. ASU 2017-04 is effective for fiscal years beginning after December 15, 2019. We adopted ASU 2017-04 effective January 1, 2020. See our Goodwill and Indefinite-Lived Intangible Assets accounting policy disclosed in note 6.
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement (“ASU 2018-13”). ASU 2018-13 modifies certain disclosure requirements related to fair value measurements including requiring disclosures on changes in unrealized gains and losses in other comprehensive income for recurring Level 3 fair value measurements and a requirement to disclose the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. The ASU is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. We adopted this standard effective January 1, 2020, and the adoption of this standard did not have a material impact on our consolidated financial statements and related disclosures.
In August 2018, the FASB issued ASU 2018-15, Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract (“ASU 2018-15”). ASU 2018-15 aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software and hosting arrangements that include an internal-use software license. The ASU is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. We elected to prospectively adopt ASU 2018-15 effective January 1, 2020, in our consolidated financial statements. The adoption of ASU 2018-15 resulted in reclassifying capitalized implementation costs of service contracts incurred in a hosting arrangement from “property and
ASHFORD INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
equipment, net” to “other assets” in our consolidated balance sheets. Amortization of the service contracts will continue to be recorded in “reimbursed expenses” in our consolidated statements of operations.
Recently Issued Accounting Standards—In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). ASU 2016-13 sets forth an “expected credit loss” impairment model to replace the current “incurred loss” method of recognizing credit losses. The standard requires measurement and recognition of expected credit losses for most financial assets held. In November 2019, the FASB issued ASU 2019-10, Financial Instruments—Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842) (“ASU 2019-10”). ASU 2019-10 revised the mandatory adoption date for public business entities that meet the definition of a smaller reporting company to be effective for fiscal years beginning after December 15, 2022. Early adoption is permitted. We are currently evaluating the impact ASU 2016-13 and ASU 2019-10 may have on our consolidated financial statements and related disclosures.
In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848) (“ASU 2020-04”). ASU 2020-04 contains practical expedients for reference rate reform related activities that impact debt, leases, derivatives and other contracts. The guidance in ASU 2020-04 is optional and may be elected over time as reference rate reform activities occur. The Company continues to evaluate the impact of the guidance and may apply the elections as applicable as changes in the market occur.
In August 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. For SEC filers, excluding smaller reporting companies, ASU 2020-06 is effective for fiscal years beginning after December 15, 2021 including interim periods within those fiscal years. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020. For all other entities, ASU 2020-06 is effective for fiscal years beginning after December 15, 2023, 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 are currently evaluating the impact that ASU 2020-06 may have on our consolidated financial statements and related disclosures.
3. Revenues
Revenue Recognition—Revenues are recognized when control of the promised goods or services is transferred to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services.
We determine revenue recognition through the following steps:
•Identification of the contract, or contracts, with a customer
•Identification of the performance obligations in the contract
•Determination of the transaction price
•Allocation of the transaction price to the performance obligations in the contract
•Recognition of revenue when, or as, we satisfy a performance obligation
In determining the transaction price, we include variable consideration only to the extent that it is probable that a significant reversal in the amount of cumulative revenue recognized would not occur when the uncertainty associated with the variable consideration is resolved.
The following provides detailed information on the recognition of our revenues from contracts with customers:
Advisory Services Revenue
ASHFORD INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Advisory services revenue is reported within our REIT Advisory segment and primarily consists of advisory fees that are recognized when services have been rendered. Advisory fees consist of base fees and incentive fees. For Ashford Trust, prior to June 26, 2018, the base fee was paid quarterly and ranged from 0.50% to 0.70% per annum of the total market capitalization ranging from less than $6.0 billion to greater than $10.0 billion plus the Key Money Asset Management Fee, as defined in the amended and restated advisory agreement, subject to certain minimums. Upon effectiveness of the Enhanced Return Funding Program Agreement and Amendment No. 1 to the Amended and Restated Advisory Agreement on June 29, 2018, the base fee is paid monthly and ranges from 0.50% to 0.70% per annum of the total market capitalization ranging from less than $6.0 billion to greater than $10.0 billion plus the Net Asset Fee Adjustment, as defined in the amended and restated advisory agreement, as amended, subject to certain minimums. For Braemar, prior to January 15, 2019, the base fee was paid monthly and was fixed at 0.70% of Braemar’s total market capitalization plus the Key Money Asset Management Fee, as defined in the advisory agreement, subject to certain minimums. Upon effectiveness of the Enhanced Return Funding Program Agreement and Amendment No. 1 to the Fifth Amended and Restated Advisory Agreement on January 15, 2019, the base fee is paid monthly and is fixed at 0.70% of Braemar’s total market capitalization plus the Net Asset Fee Adjustment, as defined in the advisory agreement, as amended, subject to certain minimums.
Incentive advisory fees are measured annually in each year that Ashford Trust’s and/or Braemar’s annual total stockholder return exceeds the average annual total stockholder return for each company’s respective peer group, subject to the Fixed Charge Coverage Ratio Condition (the “FCCR Condition”), as defined in the respective advisory agreements. Incentive advisory fees are paid over a three-year period and each payment is subject to the FCCR Condition, which relates to the ratio of adjusted EBITDA to fixed charges for Ashford Trust or Braemar, as applicable. Incentive advisory fees are a form of variable consideration and therefore must be (i) deferred until such fees are probable of not being subject to significant reversal, and (ii) tied to a performance obligation in the contract with the customer so that revenue recognition depicts the transfer of the related advisory services to the customer. Accordingly, the Company does not record incentive advisory fee revenue in interim periods prior to the fourth quarter of the year in which the incentive fee is measured. The first year installment of incentive advisory fees will generally be recognized only upon measurement in the fourth quarter of the first year of the three year period. The second and third year installments of incentive advisory fees are recognized as revenue on a pro-rata basis each quarter subject to meeting the FCCR Condition. During the year ended December 31, 2020, the Company determined it was no longer probable Braemar would meet the minimum FCCR Condition requirement, as stated in the Braemar advisory agreement, related to the third year installment of Braemar’s 2018 incentive advisory fee. As such, the Company did not recognize any incentive fee revenue related to Braemar in the year ended December 31, 2020.
Hotel Management Revenue
Hotel management revenue is reported within our Remington segment and primarily consists of base management fees and incentive management fees. Base management fees and incentive management fees are recognized when services have been rendered. Remington receives base management fees of 3% of gross hotel revenue for managing the hotel employees and daily operations of the hotels, pursuant to the amended and restated hotel management agreements, subject to a specified floor (which is subject to increase annually based on increases in the consumer price index). Remington receives an incentive management fee equal to the lesser of 1% of each hotel’s annual gross revenue or the amount by which the respective hotel’s gross operating profit exceeds the hotel’s budgeted gross operating profit.
Project Management Revenue
Project management revenue primarily consists of revenue generated within our Premier segment by providing development and construction, capital improvements, refurbishment, project management, and other services such as purchasing, interior design, architectural services, freight management, and construction management services at properties. Premier receives fees for these services and recognizes revenue over time as services are provided to the customer.
Audio Visual Revenue
Audio visual revenue primarily consists of revenue generated within our JSAV segment by providing event technology services such as audio visual services, audio visual equipment rental, staging and meeting services and event-related communication systems as well as related technical support, to our customers in various venues including hotels and convention centers. Revenue is recognized in the period in which services are provided pursuant to the terms of the contractual arrangements with our customers. We also evaluate whether it is appropriate to present: (i) the gross amount that our customers pay for our services as revenue, and the related commissions paid to the venue as cost of revenue; or (ii) the net amount (gross revenue less the related commissions paid to the venue) as revenue. We are responsible for the delivery of the services, including providing the necessary labor and equipment to perform the services. We are generally subject to inventory risk, have
ASHFORD INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
latitude in establishing prices and selecting suppliers and, while in many cases the venue bills the end customer on our behalf, we bear the risk of collection from the customer. The venues’ commissions are not dependent on collections. As a result, our revenue is primarily reported on a gross basis. Cost of revenues for audio visual principally includes commissions paid to venues, direct labor costs, the cost of equipment sub-rentals, depreciation of equipment, amortization of signing bonuses, as well as other costs such as supplies, freight, travel and other overhead from our venue and customer facing operations and any losses on equipment disposal.
Other Revenue
Other revenue includes revenue provided by certain of our hospitality products and service businesses, including RED. RED’s revenue is primarily generated through the provision of watersports activities and ferry and excursion services. The revenue is recognized as services are provided based on contractual customer rates. Debt placement and related fees include revenue earned from providing placement, modifications, forbearances or refinancings of certain mortgage debt by Lismore. For certain agreements, the fees are recognized based on a stated percentage of the loan amount when services have been rendered and the subject loan is closed. For other agreements, deferred income related to the various Lismore fees will be recognized over the term of the agreement on a straight line basis as the service is rendered, only to the extent it is probable that a significant reversal of revenue will not occur. Constraints relating to variable consideration are resolved generally upon the closing of a transaction or financing event and the resulting change in the transaction price will be adjusted on a cumulative catch-up basis in the period a transaction or financing event closes. In connection with our ERFP Agreements and legacy key money transaction with Ashford Trust and legacy key money transaction with Braemar, we lease FF&E to Ashford Trust and Braemar rent-free. Our ERFP leases entered into in 2018 with Ashford Trust commenced on December 31, 2018. Consistent with our accounting treatment prior to adopting ASU 2016-02, Leases (“ASU 2016-02”), other revenue for the year ended December 31, 2019, includes a portion of the base advisory fee for leases commencing prior to our adoption, which is equal to the estimated fair value of the lease payments that would have been made.
Cost Reimbursement Revenue
Cost reimbursement revenue is recognized in the period we incur the related reimbursable costs. Under our advisory agreements, we are entitled to be reimbursed for certain costs we incur on behalf of Ashford Trust and Braemar, with no added mark-up. These costs primarily consist of expenses related to Ashford Securities, overhead, internal audit, risk management advisory services and asset management services, including compensation, benefits and travel expense reimbursements. We record cost reimbursement revenue for equity grants of Ashford Trust and Braemar common stock and LTIP units awarded to our officers and employees in connection with providing advisory services equal to the fair value of the award in proportion to the requisite service period satisfied during the period. We additionally are reimbursed by Ashford Trust for expenses incurred by Ashford Investment Management, LLC (“AIM”) for managing Ashford Trust’s excess cash under the Investment Management Agreement. AIM is not compensated for its services but is reimbursed for all costs and expenses. Effective December 31, 2020, the Investment Management Agreement with Ashford Trust has been terminated.
Under our project management agreements and hotel management agreements, we are entitled to be reimbursed for certain costs we incur on behalf of Ashford Trust, Braemar and other hotel owners, with no added mark-up. Project management costs primarily consist of costs for accounting, overhead and project manager services. Hotel management costs primarily consist of the properties’ payroll, payroll taxes and benefits related expenses at managed properties where we are the employer of the employees at the properties as provided for in our contracts with the Ashford Trust, Braemar and other hotel owners.
We recognize revenue within the “cost reimbursement revenue” in our consolidated statements of operations when the amounts may be billed to Ashford Trust, Braemar and other hotel owners, and we recognize expenses within “reimbursed expenses” in our consolidated statements of operations as they are incurred. This pattern of recognition results in temporary timing differences between the costs incurred for centralized software programs and the related reimbursements we receive from Ashford Trust and Braemar in our operating and net income. Over the long term, these programs and services are not designed to impact our economics, either positively or negatively.
Certain of our consolidated entities enter into contracts with customers that contain multiple performance obligations. For these contracts, we account for individual performance obligations separately if they are distinct. The transaction price is allocated to the separate performance obligations on a relative standalone selling price basis. We determine the standalone selling prices based on our consolidated entities’ overall pricing objectives taking into consideration market conditions and other factors, including the customer and the nature and value of the performance obligations within the applicable contracts.
ASHFORD INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Deferred Income and Contract Balances
Deferred income primarily consists of customer billings in advance of revenue being recognized from our advisory agreements and other hospitality products and services contracts. Generally, deferred income that will be recognized within the next twelve months is recorded as current deferred income and the remaining portion is recorded as noncurrent. The increase in the deferred income balance is primarily driven by cash payments received or due in advance of satisfying our performance obligations, offset by revenue recognized that was included in the deferred income balance at the beginning of the period.
The following tables summarize our consolidated deferred income activity (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred Income
|
|
|
2020
|
|
2019
|
|
2018
|
|
Balance as of January 1
|
$
|
13,280
|
|
|
$
|
13,544
|
|
|
$
|
13,899
|
|
|
Increases to deferred income
|
23,033
|
|
|
8,137
|
|
|
7,781
|
|
|
Recognition of revenue (1)
|
(14,954)
|
|
|
(8,401)
|
|
|
(8,136)
|
|
|
Balance as of December 31
|
$
|
21,359
|
|
|
$
|
13,280
|
|
|
$
|
13,544
|
|
________
(1) Deferred income recognized in the year ended December 31, 2020, includes (a) $2.2 million of advisory revenue primarily related to our advisory agreements with Ashford Trust and Braemar, (b) $1.8 million of audio visual revenue, (c) $8.3 million of other revenue related to the Ashford Trust Agreement and the Braemar Agreement with Lismore (see note 17) and (d) $2.6 million of “other services” revenue earned by our hospitality products and services companies, excluding Lismore. Deferred income recognized in the year ended December 31, 2019, includes (a) $2.5 million of advisory revenue primarily related to our advisory agreements with Ashford Trust and Braemar, (b) $3.5 million of audio visual revenue and (c) $2.4 million of “other services” revenue earned by our hospitality products and services companies. Deferred income recognized in the year ended December 31, 2018, includes (a) $2.1 million of advisory revenue primarily related to our advisory agreements with Ashford Trust and Braemar, (b) $3.8 million of audio visual revenue and (c) $2.2 million of “other services” revenue earned by our hospitality products and services companies.
We do not disclose information about remaining performance obligations pertaining to contracts that have an original expected duration of one year or less. The transaction price allocated to remaining unsatisfied or partially unsatisfied performance obligations with an original expected duration exceeding one year was primarily related to (i) reimbursed software costs that will be recognized evenly over the period the software is used to provide advisory services to Ashford Trust and Braemar, (ii) a $5.0 million cash payment received in June 2017 from Braemar in connection with our Fourth Amended and Restated Braemar Advisory Agreement, which is recognized evenly over the 10-year initial contract period that we are providing Braemar advisory services, and (iii) debt placement and related fees that will be recognized over the term of the agreement on a straight line basis as the service is rendered, only to the extent it is probable that a significant reversal of revenue will not occur. Constraints relating to variable consideration are resolved generally upon the closing of a transaction or financing event and the resulting change in the transaction price will be adjusted on a cumulative catch-up basis in the period a transaction or financing event closes. See notes 1 and 17. Incentive advisory fees that are contingent upon future market performance are excluded as the fees are considered variable and not included in the transaction price at December 31, 2020.
The timing of revenue recognition may differ from the timing of payment by customers. We record a receivable when revenue is recognized prior to payment and we have an unconditional right to payment. Alternatively, when payment precedes the provision of the related services, we record deferred income until the performance obligations are satisfied. We had receivables related to revenues from contracts with customers of $3.5 million and $7.2 million included in “accounts receivable, net” primarily related to our hospitality products and services segment, $13.2 million and $4.8 million in “due from Ashford Trust”, and $2.1 million and $1.6 million included in “due from Braemar” related to REIT advisory services at December 31, 2020 and December 31, 2019, respectively. We had no significant impairments related to these receivables during the year ended December 31, 2020 and 2019. See note 17.
ASHFORD INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Disaggregated Revenue
Our revenues were comprised of the following for the years ended December 31, 2020, 2019 and 2018, respectively (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
|
|
2020
|
|
2019
|
|
2018
|
|
Advisory services revenue:
|
|
|
|
|
|
|
|
|
|
|
Base advisory fee
|
|
|
|
|
$
|
44,725
|
|
|
$
|
42,985
|
|
|
$
|
44,905
|
|
|
Incentive advisory fee
|
|
|
|
|
—
|
|
|
678
|
|
|
2,487
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other advisory revenue
|
|
|
|
|
522
|
|
|
521
|
|
|
521
|
|
|
Total advisory services revenue
|
|
|
|
|
45,247
|
|
|
44,184
|
|
|
47,913
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hotel management:
|
|
|
|
|
|
|
|
|
|
|
Base fee
|
|
|
|
|
17,126
|
|
|
4,054
|
|
|
—
|
|
|
Incentive fee
|
|
|
|
|
—
|
|
|
472
|
|
|
—
|
|
|
Total hotel management revenue
|
|
|
|
|
17,126
|
|
|
4,526
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Project management revenue
|
|
|
|
|
8,936
|
|
|
25,584
|
|
|
8,802
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Audio visual revenue
|
|
|
|
|
37,881
|
|
|
110,609
|
|
|
81,186
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt placement and related fees (2)
|
|
|
|
|
8,412
|
|
|
1,998
|
|
|
6,093
|
|
|
Claims management services
|
|
|
|
|
226
|
|
|
210
|
|
|
213
|
|
|
Lease revenue
|
|
|
|
|
—
|
|
|
4,118
|
|
|
1,005
|
|
|
Other services (3)
|
|
|
|
|
16,964
|
|
|
14,853
|
|
|
5,757
|
|
|
Total other revenue
|
|
|
|
|
25,602
|
|
|
21,179
|
|
|
13,068
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost reimbursement revenue
|
|
|
|
|
162,636
|
|
|
85,168
|
|
|
44,551
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
|
|
$
|
297,428
|
|
|
$
|
291,250
|
|
|
$
|
195,520
|
|
|
|
|
|
|
|
|
|
|
|
|
|
REVENUES BY SEGMENT (1)
|
|
|
|
|
|
|
|
|
|
|
REIT advisory
|
|
|
|
|
$
|
70,169
|
|
|
$
|
84,701
|
|
|
$
|
91,850
|
|
|
Remington
|
|
|
|
|
149,673
|
|
|
47,287
|
|
|
—
|
|
|
Premier
|
|
|
|
|
11,604
|
|
|
30,580
|
|
|
10,634
|
|
|
JSAV
|
|
|
|
|
37,881
|
|
|
110,609
|
|
|
81,186
|
|
|
OpenKey
|
|
|
|
|
1,479
|
|
|
987
|
|
|
999
|
|
|
Corporate and other
|
|
|
|
|
26,622
|
|
|
17,086
|
|
|
10,851
|
|
|
Total revenues
|
|
|
|
|
$
|
297,428
|
|
|
$
|
291,250
|
|
|
$
|
195,520
|
|
________
ASHFORD INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) We have five reportable segments: REIT Advisory, Remington, Premier, JSAV and OpenKey. We combine the operating results of RED, Marietta, Pure Wellness, Lismore and REA Holdings into an “all other” category, which we refer to as “Corporate and Other.” See note 19 for discussion of segment reporting.
(2) Debt placement and related fees are earned by Lismore for providing placement, modification, forbearance or refinancing services to Ashford Trust and Braemar.
(3) Other services revenue relates primarily to other hotel services provided by our consolidated subsidiaries OpenKey, RED and Pure Wellness, to Ashford Trust, Braemar and third parties, and the revenue of Marietta, which holds the leasehold rights to a single hotel and convention center property in Marietta, Georgia.
Geographic Information
Our REIT Advisory, Remington, Premier, OpenKey, and Corporate and Other reporting segments conduct their business within the United States. Our JSAV reporting segment conducts business in the United States, Mexico, and the Dominican Republic. The following table presents revenue from our JSAV reporting segment geographically for the years ended December 31, 2020, 2019 and 2018, respectively (in thousands):
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
|
|
2020
|
|
2019
|
|
2018
|
|
United States
|
|
|
|
|
$
|
28,923
|
|
|
$
|
88,583
|
|
|
$
|
60,241
|
|
|
Mexico
|
|
|
|
|
7,100
|
|
|
16,067
|
|
|
15,429
|
|
|
Dominican Republic
|
|
|
|
|
1,858
|
|
|
5,959
|
|
|
5,516
|
|
|
|
|
|
|
|
$
|
37,881
|
|
|
$
|
110,609
|
|
|
$
|
81,186
|
|
4. Property and Equipment, net
Property and equipment, net, consisted of the following (in thousands):
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2020
|
|
2019
|
|
Marietta Leasehold L.P. finance lease
|
|
$
|
44,294
|
|
|
$
|
44,294
|
|
|
Rental pool equipment
|
|
21,200
|
|
|
22,422
|
|
|
FF&E under the Ashford Trust ERFP Agreement
|
|
21,100
|
|
|
29,189
|
|
|
FF&E under the Braemar ERFP Agreement
|
|
1,420
|
|
|
10,300
|
|
|
Property and equipment
|
|
11,014
|
|
|
12,086
|
|
|
Marine vessels
|
|
11,262
|
|
|
10,709
|
|
|
Leasehold improvements
|
|
1,193
|
|
|
1,237
|
|
|
Computer software
|
|
657
|
|
|
6,446
|
|
|
Total cost
|
|
112,140
|
|
|
136,683
|
|
|
Accumulated depreciation
|
|
(23,380)
|
|
|
(20,493)
|
|
|
Property and equipment, net
|
|
$
|
88,760
|
|
|
$
|
116,190
|
|
For the years ended December 31, 2020, 2019 and 2018, depreciation expense was $18.0 million, $15.1 million and $4.0 million, respectively. Depreciation and amortization expense for the years ended December 31, 2020, 2019 and 2018 excludes depreciation expense related to audio visual equipment of $4.9 million, $4.7 million and $3.8 million, respectively, which is included in “cost of revenues for audio visual” and depreciation expense related to marine vessels of $795,000, $441,000, and $172,000, respectively, which is included in “other” operating expense. The years ended December 31, 2019 and 2018, exclude $1.5 million and $1.4 million of depreciation expense, respectively, of capitalized software included in “reimbursed expenses.”
ASHFORD INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. Acquisitions
Remington
On November 6, 2019, we completed the acquisition of Remington Lodging’s hotel management business and Marietta for $275 million in consideration in the form of 11,000,000 shares of Series D Convertible Preferred Stock of Ashford Inc. Remington provides hotel management services primarily to hotels owned by Ashford Trust and Braemar. Hotel management services consist of hotel operations, sales and marketing, revenue management, budget oversight, guest service, asset maintenance (not involving capital expenditures) and related services. The results of operations of Remington are included in our consolidated financial statements from the date of acquisition.
Marietta leases a single hotel and convention center property in Marietta, Georgia, from the City of Marietta and earns revenue from the operation of this hotel property. The hotel property is managed by Remington as part of the Hilton brand of hotels and offers hotel and conference center services. Marietta’s revenue and operating expenses are included in “other” revenue and “other” operating expenses, respectively, in the consolidated statements of operations. The lease, which expires on December 31, 2054, was classified as a finance lease. The right-of-use asset was adjusted at the acquisition date by approximately $4.2 million for favorable lease terms compared to market terms. The results of operations of Marietta are included in our consolidated financial statements from the date of acquisition.
The acquisition of Remington was recorded using the acquisition method of accounting in accordance with the authoritative guidance for business combinations, and the purchase price allocation was based on our valuation of the fair value of the tangible and intangible assets acquired and liabilities assumed at the date of acquisition. The fair values of the assets acquired were determined using various valuation techniques, including an income approach. The fair value measurements were primarily based on significant inputs that are not directly observable in the market and are considered Level 3 under the fair value measurements and disclosure framework. Key assumptions include cash flow projections of Remington and the discount rate applied to those cash flows. The excess of the purchase price over the estimated fair values of the identifiable net assets acquired was recorded as goodwill.
In the first quarter of 2020, prior to the interim quantitative assessment of Remington’s goodwill and intangible assets and resulting impairment charges (see note 6), we finalized the valuation of the acquired assets and liabilities associated with the acquisition as of the acquisition date. The final fair value analysis resulted in a $40.9 million adjustment to reduce the value of the acquired management contracts to their estimated fair value and a corresponding increase to goodwill on our consolidated balance sheets. We also recorded an adjustment of approximately $10.3 million to reduce the deferred tax liability and a corresponding decrease to goodwill. Additionally, the purchase price adjustment related to working capital was finalized and paid in the first quarter of 2020 resulting in a $1.3 million increase in the fair value of the purchase price.
The fair value of the purchase price and final allocation of the purchase price are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Series D Convertible Preferred Stock
|
|
$
|
275,000
|
|
|
Preferred stock discount
|
|
(2,550)
|
|
|
Working capital adjustments
|
|
1,341
|
|
|
Total fair value of purchase price
|
|
$
|
273,791
|
|
ASHFORD INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value
|
|
Estimated Useful Life
|
|
Current assets including cash
|
|
$
|
27,661
|
|
|
|
|
Assets acquired under finance leases (1)
|
|
44,294
|
|
|
35 years
|
|
Property and equipment, net
|
|
466
|
|
|
|
|
Operating lease right-of-use assets
|
|
24,649
|
|
|
|
|
Goodwill
|
|
175,653
|
|
|
|
|
Trademarks
|
|
10,400
|
|
|
|
|
Management contracts
|
|
107,600
|
|
|
22 years
|
|
Total assets acquired
|
|
390,723
|
|
|
|
|
Current liabilities
|
|
23,740
|
|
|
|
|
|
|
|
|
|
|
Finance lease liabilities, current
|
|
331
|
|
|
|
|
Operating lease liabilities, current
|
|
2,038
|
|
|
|
|
Deferred tax liability
|
|
28,439
|
|
|
|
|
Finance lease liabilities, non-current
|
|
39,773
|
|
|
|
|
Operating lease liabilities, non-current
|
|
22,611
|
|
|
|
|
Total assumed liabilities
|
|
116,932
|
|
|
|
|
Net assets acquired
|
|
$
|
273,791
|
|
|
|
________
(1) Assets acquired under finance leases are included in “property and equipment, net.”
We do not expect any of the goodwill balance to be deductible for tax purposes. The qualitative factors that make up the recorded goodwill include value associated with an assembled workforce and value attributable to growth opportunities to expand Remington’s hotel management services to third-party owners in the hospitality industry.
Results of Remington
The results of operations of Remington have been included in our results of operations since the acquisition date. Our consolidated statements of operations for the year ended December 31, 2020 and 2019 include total revenue from Remington of $149.7 million and $47.3 million, respectively. In addition, our consolidated statements of operations for the years ended December 31, 2020 and 2019 include a net loss from Remington of $133.4 million and $626,000, respectively. Net loss for the year ended December 31, 2020 includes goodwill impairment of $121.0 million and impairment of trademarks of $5.5 million incurred in the first quarter of 2020. The unaudited pro forma results of operations, as if the acquisition had occurred on January 1, 2019, are included below under “Pro Forma Financial Results.”
Sebago
On July 18, 2019, RED completed the acquisition of substantially all of the assets of Sebago, a provider of watersports activities and excursion services based in Key West, Florida. After giving effect to the transaction, Ashford Inc. owns an approximately 84% interest in the common equity of RED.
The purchase price consisted of approximately $2.5 million in cash (excluding transaction costs and working capital adjustments) funded by new RED term loans and $4.5 million in the form of Ashford Inc. common stock consisting of 135,366 shares issued on July 18, 2019 with an estimated fair value of approximately $4.5 million as of the acquisition date, subject to a six month stock consideration collar which the Company settled in the first quarter of 2020 with a cash payment of $1.0 million to the sellers of Sebago.
The acquisition of Sebago was recorded using the acquisition method of accounting in accordance with the authoritative guidance for business combinations, and the purchase price allocation was based on our valuation of the fair value of the tangible and intangible assets acquired and liabilities assumed at the date of acquisition. The fair values of the assets acquired were determined using various valuation techniques, including an income approach. The fair value measurements were primarily based on significant inputs that are not directly observable in the market and are considered Level 3 under the fair
ASHFORD INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
value measurements and disclosure framework. Key assumptions include cash flow projections of Sebago and the discount rate applied to those cash flows. The excess of the purchase price over the estimated fair values of the identifiable net assets acquired was recorded as goodwill. In the third quarter of 2020, we finalized the valuation of the assets acquired and liabilities associated with the acquisition.
The fair value of the purchase price and final allocation of the purchase price is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
2,500
|
|
|
Less working capital adjustments
|
|
(74)
|
|
|
Fair value of Ashford Inc. common stock issued
|
|
4,547
|
|
|
|
|
|
|
|
|
|
|
Purchase price consideration
|
|
$
|
6,973
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value
|
|
Estimated Useful Life
|
|
Current assets
|
|
$
|
76
|
|
|
|
|
Marine vessels
|
|
2,115
|
|
|
20 years
|
|
Property and equipment, net
|
|
1,635
|
|
|
20 years
|
|
Operating lease right-of-use assets
|
|
391
|
|
|
|
|
Goodwill
|
|
1,235
|
|
|
|
|
Trademarks
|
|
490
|
|
|
|
|
Boat slip rights
|
|
3,100
|
|
|
20 years
|
|
Total assets acquired
|
|
9,042
|
|
|
|
|
Current liabilities
|
|
291
|
|
|
|
|
|
|
|
|
|
|
Noncurrent liabilities
|
|
1,778
|
|
|
|
|
Total assumed liabilities
|
|
2,069
|
|
|
|
|
Net assets acquired
|
|
$
|
6,973
|
|
|
|
We expect approximately $1.2 million of the goodwill balance to be deductible by Ashford Inc. for tax purposes. The qualitative factors that make up the recorded goodwill include value associated with an assembled workforce and value attributable to expanding Sebago’s operations through our relationship with RED.
Results of Sebago
The results of operations of Sebago have been included in our results of operations since the acquisition date. Our consolidated statements of operations for the years ended December 31, 2020 and 2019, include total revenue from Sebago of $4.9 million and $2.6 million, respectively. Our consolidated statements of operations for the years ended December 31, 2020 and 2019, include net loss of $256,000 and net income $162,000, respectively, from Sebago. The unaudited pro forma results of operations, as if the acquisition had occurred on January 1, 2019, are included below under “Pro Forma Financial Results.”
BAV
On March 1, 2019, JSAV acquired a privately-held company, BAV. BAV is an audio visual rental, staging, and production company focused on meeting and special event services. As a result of the acquisition, our ownership interest in JSAV, which we consolidate under the voting interest model, increased from 85% to approximately 88%.
Pursuant to the asset purchase agreement, as amended on September 24, 2019, the purchase price consisted of: (i) $5.0 million in cash (excluding working capital adjustments) funded by an existing JSAV term loan; (ii) $3.5 million in the form of Ashford Inc. common stock consisting of 61,387 shares issued on March 1, 2019, with an estimated fair value of approximately $3.7 million as of the acquisition date; (iii) $500,000 payable in cash or Ashford Inc. common stock at our sole discretion to be issued 18 months after the acquisition date, subject to certain conditions; and (iv) contingent consideration related to the achievement of certain performance targets with an estimated fair value of approximately $1.4 million, payable, if earned, 12 to 18 months after the acquisition date.
ASHFORD INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In the first quarter of 2020, BAV achieved the maximum $3.0 million performance target. We subsequently paid $2.4 million in cash to the sellers of BAV consisting of a $1.5 million payment on May 7, 2020, and a $900,000 payment on December 31, 2020. The Company elected to settle the remainder of the contingent consideration in the form of cash instead of Ashford Inc. common stock. Pursuant to the Second Amendment to the Asset Purchase Agreement, which was executed on May 6, 2020, the Company was provided a $250,000 discount upon the election of cash settlement. The final amount paid in January 2021, net of the discount, was $350,000. On November 24, 2020, the Company paid the $500,000 of consideration to the BAV sellers pursuant to the Third Amendment to the Asset Purchase Agreement, which was executed on November 4, 2020.
Additionally, the transaction included a stock consideration collar with potential settlements at 12 months, 15 months and 18 months after the acquisition date dependent upon the 30-Day VWAP of Ashford Inc.’s common stock on each respective settlement date. A liability resulting from contingent consideration is remeasured to fair value at each reporting date until the contingency is resolved, with changes in fair value recognized in earnings within “other” operating expenses in our consolidated statements of operations. See note 9 for further discussion of the Company’s liabilities related to acquisition-related contingent consideration.
The acquisition of BAV was recorded using the acquisition method of accounting in accordance with the authoritative guidance for business combinations, and the purchase price allocation was based on our valuation of the fair value of the tangible and intangible assets acquired and liabilities assumed at the date of acquisition. The fair values of the assets acquired were determined using various valuation techniques, including an income approach. The fair value measurements were primarily based on significant inputs that are not directly observable in the market and are considered Level 3 under the fair value measurements and disclosure framework. Key assumptions include cash flow projections of BAV and the discount rate applied to those cash flows. The excess of the purchase price over the estimated fair values of the identifiable net assets acquired was recorded as goodwill. In the first quarter of 2020, we finalized the valuation of the acquired assets and liabilities associated with the acquisition.
The fair value of the purchase price and final allocation of the purchase price is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Term loan
|
|
$
|
5,000
|
|
|
Less working capital adjustments
|
|
(733)
|
|
|
Fair value of Ashford Inc. common stock issued
|
|
3,748
|
|
|
Consideration payable
|
|
500
|
|
|
Fair value of contingent consideration
|
|
1,384
|
|
|
Purchase price consideration
|
|
$
|
9,899
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value
|
|
Estimated Useful Life
|
|
Current assets
|
|
$
|
754
|
|
|
|
|
Property and equipment, net
|
|
1,983
|
|
|
5 years
|
|
Operating lease right-of-use assets
|
|
165
|
|
|
|
|
Goodwill
|
|
4,827
|
|
|
|
|
Trademarks
|
|
440
|
|
|
|
|
Customer relationships
|
|
2,800
|
|
|
15 years
|
|
Total assets acquired
|
|
10,969
|
|
|
|
|
Current liabilities
|
|
639
|
|
|
|
|
|
|
|
|
|
|
Noncurrent liabilities
|
|
431
|
|
|
|
|
Total assumed liabilities
|
|
1,070
|
|
|
|
|
Net assets acquired
|
|
$
|
9,899
|
|
|
|
We expect approximately $4.8 million of the goodwill balance to be deductible by Ashford Inc. for tax purposes. The qualitative factors that make up the recorded goodwill include value associated with an assembled workforce and value attributable to expanding BAV’s operations through our relationship with JSAV.
ASHFORD INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Results of BAV
The results of operations of BAV have been included in our results of operations since the acquisition date. Our consolidated statements of operations for the years ended December 31, 2020 and 2019, include total revenue from BAV of $4.5 million and $11.4 million, respectively. Our consolidated statements of operations for the years ended December 31, 2020 and 2019, include a net loss from BAV of $3.3 million and net income of $1.2 million, respectively. The unaudited pro forma results of operations, as if the acquisition had occurred on January 1, 2019, are included below under “Pro Forma Financial Results.”
Pro Forma Financial Results
The following table reflects the unaudited pro forma results of operations as if the Remington, Sebago and BAV acquisitions had occurred and the indebtedness associated with those acquisitions was incurred on January 1, 2019, and the removal of $923,000 and $10.6 million of transaction costs directly attributable to the acquisitions (net of the incremental tax expense) for the years ended December 31, 2020 and December 31, 2019 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
|
|
Total revenues
|
|
|
|
|
$
|
297,428
|
|
|
$
|
558,664
|
|
|
|
|
Net income (loss)
|
|
|
|
|
(214,994)
|
|
|
(864)
|
|
|
|
|
Net income (loss) attributable to common stockholders
|
|
|
|
|
(246,553)
|
|
|
(34,010)
|
|
|
|
6. Goodwill and Intangible Assets, net
Impairment of Goodwill and Intangible Assets —During 2020, as a result of our reduced cash flow projections and the significant decline in our market capitalization as a result of the COVID-19 pandemic, we recorded goodwill impairment charges of $180.8 million and intangible asset impairment charges of $8.0 million.
During the first quarter of 2020, we recognized goodwill impairment charges of $170.6 million, of which $121.0 million related to our Remington segment, and $49.5 million related to our Premier segment. We engaged a third-party valuation expert to assist us in performing an interim quantitative assessment to determine whether it was more likely than not that the carrying value of goodwill in our reporting units was impaired as of March 31, 2020. The fair value estimates for all reporting units were based on a blended analysis of the present value of future cash flows and the market value approach. See note 9.
Based on our quantitative assessment as of March 31, 2020, we determined that the fair values of Remington and Premier were less than the carrying values of these reporting units. The carrying value of Remington was reduced by a $5.5 million impairment of the Remington trademarks prior to assessing goodwill for impairment.
During the fourth quarter of 2020, we updated our goodwill impairment assessments and recorded impairment charges of $10.2 million related to our JSAV segment which represented all of its goodwill. We performed a detailed quantitative assessment of goodwill associated with our JSAV segment due to sustained under-performance and a less optimistic outlook of the segment’s forecasted operating results. The fair value estimate was based on the present value of future discounted cash flows. We also performed a qualitative assessment of goodwill associated with our Remington segment and concluded no impairment triggering event existed based on operating results consistent with the projections in the detailed quantitative assessment prepared in the first quarter of 2020.
All impairment charges were recorded in “impairment” on our consolidated statements of operations. As of December 31, 2020, our Remington segment had $54.6 million goodwill remaining and our Premier and JSAV segments had no goodwill remaining.
Intangible Assets
During the first quarter of 2020, we engaged a third-party valuation expert to assist in determining the fair value of our indefinite-lived trademarks. We recognized intangible asset impairment charges of $7.6 million related to trademarks within our
ASHFORD INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Remington and JSAV segments which resulted from changes in estimated future revenues. We updated this assessment in the fourth quarter of 2020 and recorded an additional impairment charge of $340,000 related to the JSAV trademarks. The Remington and JSAV trademarks were written down to $4.9 million and $1.2 million, respectively, based on a valuation using the relief-from-royalty method.
The changes in the carrying amount of goodwill for the years ended December 31, 2020 and December 31, 2019, are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Remington
|
|
Premier
|
|
JSAV
|
|
Corporate and Other
|
|
Consolidated
|
|
Balance at January 1, 2019
|
|
$
|
—
|
|
|
$
|
53,517
|
|
|
$
|
5,384
|
|
|
$
|
782
|
|
|
$
|
59,683
|
|
|
Changes in goodwill:
|
|
|
|
|
|
|
|
|
|
|
|
Additions (1)
|
|
143,854
|
|
|
—
|
|
|
4,827
|
|
|
1,235
|
|
|
149,916
|
|
|
Adjustments (2)
|
|
—
|
|
|
(3,993)
|
|
|
—
|
|
|
—
|
|
|
(3,993)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2019
|
|
143,854
|
|
|
49,524
|
|
|
10,211
|
|
|
2,017
|
|
|
205,606
|
|
|
Changes in goodwill:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments (3)
|
|
31,799
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
31,799
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impairments (4)
|
|
(121,048)
|
|
|
(49,524)
|
|
|
(10,211)
|
|
|
—
|
|
|
(180,783)
|
|
|
Balance at December 31, 2020
|
|
$
|
54,605
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
2,017
|
|
|
$
|
56,622
|
|
________
(1) The addition of approximately $143.9 million, $4.8 million and $1.2 million related to the preliminary valuation of assets and liabilities related to the acquisition of Remington, JSAV’s acquisition of BAV and RED’s acquisition of Sebago, respectively. See note 5.
(2) The adjustment to Premier goodwill is the result of finalizing our valuation of the acquired assets and liabilities associated with the acquisition of Premier. See note 5.
(3) The adjustment to Remington goodwill relates to changes in our final valuation of the acquired assets and liabilities associated with the acquisition of Remington. See note 5.
(4) See explanation above of impairment charges recognized during the year ended December 31, 2020.
ASHFORD INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Intangible assets, net as of December 31, 2020 and December 31, 2019, are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
December 31, 2019
|
|
|
|
Gross Carrying Amount
|
|
Impairment
|
Accumulated Amortization
|
Net Carrying Amount
|
|
Gross Carrying Amount
|
Accumulated Amortization
|
Net Carrying Amount
|
|
Definite-lived intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
Remington management contracts (1)
|
|
$
|
107,600
|
|
|
$
|
—
|
|
$
|
(16,237)
|
|
$
|
91,363
|
|
|
$
|
148,500
|
|
$
|
(2,436)
|
|
$
|
146,064
|
|
|
Premier management contracts
|
|
194,000
|
|
|
—
|
|
(29,428)
|
|
164,572
|
|
|
194,000
|
|
(16,830)
|
|
177,170
|
|
|
JSAV customer relationships
|
|
9,319
|
|
|
—
|
|
(3,291)
|
|
6,028
|
|
|
9,319
|
|
(2,173)
|
|
7,146
|
|
|
RED boat slip rights
|
|
3,100
|
|
|
—
|
|
(225)
|
|
2,875
|
|
|
3,100
|
|
(70)
|
|
3,030
|
|
|
Pure Wellness customer relationships
|
|
175
|
|
|
—
|
|
(131)
|
|
44
|
|
|
175
|
|
(96)
|
|
79
|
|
|
Other
|
|
47
|
|
|
(37)
|
|
(10)
|
|
—
|
|
|
44
|
|
(3)
|
|
41
|
|
|
|
|
$
|
314,241
|
|
|
$
|
(37)
|
|
$
|
(49,322)
|
|
$
|
264,882
|
|
|
$
|
355,138
|
|
$
|
(21,608)
|
|
$
|
333,530
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Carrying Amount
|
|
Impairment
|
Net Carrying Amount
|
|
|
Gross Carrying Amount
|
Impairment
|
Net Carrying Amount
|
|
Indefinite-lived intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Remington trademarks
|
|
$
|
10,400
|
|
|
$
|
(5,500)
|
|
$
|
4,900
|
|
|
|
$
|
10,300
|
|
$
|
—
|
|
$
|
10,300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
JSAV trademarks
|
|
3,641
|
|
|
(2,481)
|
|
1,160
|
|
|
|
3,641
|
|
—
|
|
3,641
|
|
|
RED trademarks
|
|
490
|
|
|
—
|
|
490
|
|
|
|
490
|
|
—
|
|
490
|
|
|
|
|
$
|
14,531
|
|
|
$
|
(7,981)
|
|
$
|
6,550
|
|
|
|
$
|
14,431
|
|
$
|
—
|
|
$
|
14,431
|
|
________
(1) In the first quarter of 2020, we finalized the valuation of the acquired assets and liabilities associated with the acquisition of Remington as of the acquisition date. The final fair value analysis resulted in a $40.9 million adjustment to reduce the value of the acquired management contracts to their estimated fair value and a corresponding increase to goodwill on our consolidated balance sheets. See note 5.
Amortization expense for definite-lived intangible assets was $27.7 million, $16.1 million and $5.3 million for the years ended December 31, 2020, 2019 and 2018, respectively. The useful lives of our customer relationships range from 5 to 15 years. Our Remington management contracts, Premier management contracts and boat slip rights intangible assets were assigned useful lives of 22, 30, and 20 years, respectively.
ASHFORD INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. Notes Payable, net
Notes payable—Notes payable, net consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Indebtedness
|
|
Borrower
|
|
Maturity
|
|
Interest Rate
|
|
December 31, 2020
|
|
December 31, 2019
|
|
Term loan (7)
|
|
Ashford Inc.
|
|
March 19, 2024
|
|
Base Rate (1) + 2.00% to2.25% or LIBOR (2) +3.00% to 3.25%
|
|
$
|
33,688
|
|
|
$
|
10,000
|
|
|
Term loan (5) (8)
|
|
JSAV
|
|
January 1, 2024
|
|
Prime Rate (4) + 1.25%
|
|
20,000
|
|
|
12,642
|
|
|
Revolving credit facility (5) (8)
|
|
JSAV
|
|
January 1, 2024
|
|
Prime Rate (4) + 1.25%
|
|
1,106
|
|
|
2,599
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equipment note (5) (8)
|
|
JSAV
|
|
See footnote (8)
|
|
One-Month LIBOR (3) + 3.25%
|
|
—
|
|
|
3,393
|
|
|
Draw term loan (5) (8)
|
|
JSAV
|
|
See footnote (8)
|
|
One-Month LIBOR (3) + 3.25%
|
|
—
|
|
|
1,750
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revolving credit facility (5) (10)
|
|
Pure Wellness
|
|
On demand
|
|
Prime Rate (4) + 1.00%
|
|
100
|
|
|
45
|
|
|
Term loan (6) (11)
|
|
RED
|
|
October 5, 2025
|
|
Prime Rate (4) + 1.75%
|
|
571
|
|
|
605
|
|
|
Revolving credit facility (6) (12)
|
|
RED
|
|
August 5, 2021
|
|
Prime Rate (4) + 1.75%
|
|
247
|
|
|
106
|
|
|
Draw term loan (6) (13)
|
|
RED
|
|
June 5, 2027
|
|
Prime Rate (4) + 1.75%
|
|
1,375
|
|
|
1,400
|
|
|
Term loan (6) (14)
|
|
RED
|
|
February 1, 2029
|
|
Prime Rate (4) + 2.00%
|
|
1,584
|
|
|
1,636
|
|
|
Term loan (5) (15)
|
|
RED
|
|
July 17, 2029
|
|
6.00% (14)
|
|
1,663
|
|
|
1,674
|
|
|
Term loan (5) (16)
|
|
RED
|
|
July 17, 2023
|
|
6.50%
|
|
859
|
|
|
960
|
|
|
Draw term loan (5) (17)
|
|
RED
|
|
August 5, 2028
|
|
Prime Rate (4) + 2.00%
|
|
1,575
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes payable
|
|
|
|
|
|
|
|
62,768
|
|
|
36,810
|
|
|
Capitalized default interest (9)
|
|
|
|
|
|
|
|
427
|
|
|
—
|
|
|
Deferred loan costs, net
|
|
|
|
|
|
|
|
(499)
|
|
|
(227)
|
|
|
Notes payable including capitalized default interest and deferred loan costs, net
|
|
|
|
|
|
|
|
62,696
|
|
|
36,583
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less current portion (18)
|
|
|
|
|
|
|
|
(5,347)
|
|
|
(3,550)
|
|
|
Notes payable, net - non-current
|
|
|
|
|
|
|
|
$
|
57,349
|
|
|
$
|
33,033
|
|
__________________
(1) Base Rate, as defined in the term loan agreement, is the greater of (i) the prime rate set by Bank of America, or (ii) federal funds rate plus 0.50%, or (iii) LIBOR plus 1.00%.
(2) Ashford Inc. may elect a 1, 2, 3 or 6 month LIBOR period for each borrowing.
(3) The one-month LIBOR rate was 0.14% and 1.76% at December 31, 2020 and December 31, 2019, respectively.
(4) Prime Rate was 3.25% and 4.75% at December 31, 2020 and December 31, 2019, respectively.
(5) Creditors do not have recourse to Ashford Inc.
(6) Creditors have recourse to Ashford Inc.
(7) On March 19, 2020, the Company amended and restated the senior revolving credit facility pursuant to a Fourth Amendment to the Term Loan Agreement. The Company converted and consolidated the existing $10 million borrowing under the senior revolving credit facility (which had been borrowed on a revolving basis) into a term loan and drew down the remaining $25 million balance of the senior revolving credit facility, borrowing $35 million under the term loan in the aggregate. Effective June 23, 2020, the Company and Bank of America N.A. executed the Fifth Amendment to the Term Loan Agreement. The Fifth Amendment (a) established a 0.50% LIBOR floor, (b) eliminated the consolidated net worth financial covenant, and (c) waived the violation of the consolidated net worth financial covenant that occurred on March 31, 2020. The Term Loan Agreement has a four year term and a maximum principal amount of $35 million. Principal payments of 1.25% of the outstanding balance are payable on the last business day of each fiscal quarter commencing June 30, 2020. Principal payment amounts are subject to maintaining a fixed charge coverage ratio below specified thresholds which if not met increase the principal payment due each quarter from 1.25% to 5.0% of the outstanding principal balance. The Company is also subject to certain financial covenants. See covenant compliance discussion below.
(8) On December 31, 2020, JSAV amended their credit agreement dated as of November 1, 2017 (the “JSAV Amendment”). As a result of the JSAV amendment, the credit agreement revised the maximum borrowing capacity of the revolving credit facility from $3.5 million to $3.0 million. The JSAV amendment additionally replaced JSAV’s previous term loan, draw term loan and equipment loans with a $20.0 million senior secured term loan. The JSAV amendment also extended the maturity date of JSAV’s obligations under the revolving credit facility and term loan to January 1, 2024, with the potential for a further one-year extension at JSAV’s option subject to satisfaction of certain conditions, including a payment of a
ASHFORD INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
one-time, permanent principal reduction of the term loan of not less than $2.5 million and other fees as of the date of JSAV’s election to extend. Pursuant to the JSAV Amendment, JSAV’s obligations to comply with certain financial and other covenants were waived as discussed below.
As a result of the JSAV Amendment, amounts borrowed under the revolving credit facility and the term loan will bear interest at the prime rate plus a margin of 1.25%, with the margin increasing by 0.25% beginning on July 1, 2021 and at the beginning of each successive quarter thereafter. JSAV will pay a commitment fee of 1.5% of the term loan in installments, with the possibility that the last $100,000 installment, scheduled to be paid on December 31, 2022, be forgiven if JSAV’s obligations under the JSAV Amendment have been satisfied in full in advance of that date. The JSAV Amendment suspended payments of principal under the term loan through December 2021. Commencing January 1, 2022, JSAV will be required to make monthly payments under the term loan of $200,000 through June 2022, $250,000 through December 2022 and $300,000 thereafter. In connection with the credit agreement dated as of November 1, 2017, JSAV entered into an interest rate cap with an initial notional amount totaling $5.0 million and a strike rate of 4.0%. The fair value of the interest rate cap at December 31, 2020 and December 31, 2019, was not material.
(9) As of December 31, 2020, the Company determined the JSAV Amendment was considered a troubled debt restructuring due to terms that allowed for deferred interest and the forgiveness of default interest and late charges. No gain or loss was recognized during the year ended December 31, 2020, as the carrying amount of the original loan was not greater than the undiscounted cash flows of the modified loans. Additionally, as a result of the troubled debt restructuring, all accrued default interest and late charges were capitalized into the JSAV term loan balance and will be amortized over the remaining term of the loan using the effective interest method. The amount of default interest and late charges capitalized into long-term debt as of December 31, 2020, was $427,000.
(10) On April 6, 2017, Pure Wellness entered into a $100,000 line of credit. On July 20, 2020, Pure Wellness increased the line of credit to $250,000.
(11) On March 23, 2018, RED entered into a term loan of $750,000.
(12) On August 5, 2020, RED renewed its $250,000 revolving credit facility.
(13) On February 27, 2019, RED entered into a draw term loan in the amount of $1.4 million.
(14) On August 31, 2018, RED entered into a term loan of $1.8 million.
(15) On July 18, 2019, in connection with the acquisition of Sebago, RED entered into a term loan of $1.7 million. The interest rate for the term loan is 6.0% for the first five years. After five years, the interest rate is equal to the Prime Rate plus 0.5% with a floor of 6.0%.
(16) On July 18, 2019, in connection with the acquisition of Sebago, RED entered into a term loan of $1.1 million.
(17) On March 24, 2020, RED entered into a draw term loan with a maximum aggregate principal amount of $1.9 million. The draw term loan requires payment of interest only until March 5, 2021.
(18) The current portion of “notes payable, net” primarily consists of $4.4 million related to our term loan which includes an expected increase in our quarterly principal payments from $438,000 to $1.8 million beginning in the third quarter of 2021 pursuant to our Term Loan Agreement’s fixed charge coverage ratio requirement, as discussed above.
We are required to maintain certain financial ratios under various debt and related agreements. If we violate covenants in any debt or related agreement, we could be required to repay all or a portion of our indebtedness before maturity at a time when we might be unable to arrange financing for such repayment on attractive terms, if at all. Violations of certain debt covenants may result in the inability of our portfolio companies to borrow unused amounts under their respective lines of credit. As of December 31, 2020, our $35 million Term Loan Agreement was in compliance with all covenants or other requirements. Debt held by our subsidiaries was either in compliance with all covenants or other requirements or had any covenant violations waived by the lender. Additionally, upon execution of the credit amendment dated December 31, 2020, JSAV’s previous covenant violations for the fiscal quarters ended June 30, 2020 and September 30, 2020 were waived by the lender. The credit amendment also confirms that any direct material impact on the financial results and operations of JSAV arising from the March 13, 2020 declaration of the national emergency relating to COVID-19 and the federal, state and local measures related thereto will not be deemed to constitute a material adverse effect on JSAV for purposes of the credit agreement. The credit agreement additionally does not require JSAV to comply with financial and other covenants until March 31, 2023.
Due to the significant negative impact of COVID-19 on RED’s operations, RED’s loans were not in compliance with debt covenants pursuant to certain existing loan agreements as of December 31, 2020. Subsequent to the end of the year, RED’s covenant violations as of December 31, 2020 were waived by the lender. The Company does not expect RED will violate any loan covenants at RED’s next annual covenant reporting date of December 31, 2021. RED’s loans are secured by RED’s
ASHFORD INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
tangible assets and do not have recourse to Ashford Inc. with the exception of $3.8 million of debt held by the entity that conducts RED’s legacy U.S. Virgin Islands operations. See note 1.
In April of 2020, certain of our portfolio companies applied for and received loans from Key Bank, N.A., Comerica Bank and Centennial Bank under the Paycheck Protection Program (“PPP”) which was established under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”). All funds borrowed under the PPP were returned on or before May 7, 2020.
Maturities and scheduled amortization of long-term debt as of December 31, 2020, assuming no extension of existing extension options for each of the following five years and thereafter are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2021
|
|
$
|
5,585
|
|
|
2022
|
|
10,646
|
|
|
2023
|
|
11,630
|
|
|
2024
|
|
30,832
|
|
|
2025
|
|
713
|
|
|
Thereafter
|
|
3,362
|
|
|
Total
|
|
$
|
62,768
|
|
8. Leases
We lease certain office space, warehouse facilities, vehicles and equipment under operating leases. Most leases include one or more options to renew, with renewal terms that can extend the lease term from one to 10 years. The exercise of lease renewal options is at our sole discretion. The Company leases office space from Remington Hotel Corporation (“RHC”), an affiliate owned by the Bennetts, at our corporate headquarters in Dallas, Texas. For the years ended December 31, 2020, 2019 and 2018, we recorded $3.4 million, $2.0 million and $489,000 in rent expense related to our corporate office lease with RHC. The increase in rent expense for the years ended December 31, 2020 and 2019 are due to our acquisition of Remington in November of 2019 and the timing of the commencement date of our office lease with RHC in August of 2018, respectively. Operating lease obligations expire at various dates with the latest maturity in 2028. Certain of our lease agreements include rental payments adjusted periodically for inflation. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants.
Our acquisition of Remington Lodging in November of 2019 included a lease of a single hotel and convention center property in Marietta, Georgia, from the City of Marietta. The lease is considered to be a finance lease and resulted in an increase to “property and equipment, net” and “finance lease liabilities” of approximately $44.3 million and $40.1 million, respectively. In addition to our lease with the City of Marietta, we lease certain equipment and boat slips under finance leases. The net book value of these assets is included in “property and equipment, net” in our consolidated balance sheets. Amortization of assets under finance leases is included in “depreciation and amortization” expense in our consolidated statement of operations.
ASHFORD INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2020 and 2019, our leased assets and liabilities consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Leases
|
|
Classification
|
December 31, 2020
|
|
December 31, 2019
|
|
Assets
|
|
|
|
|
|
|
Operating lease assets
|
|
Operating lease right-of-use assets
|
$
|
30,431
|
|
|
$
|
31,699
|
|
|
Finance lease assets
|
|
Property and equipment, net
|
45,789
|
|
|
46,233
|
|
|
Total leased assets
|
|
|
$
|
76,220
|
|
|
$
|
77,932
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
Current
|
|
|
|
|
|
|
Operating
|
|
Operating lease liabilities
|
$
|
3,691
|
|
|
$
|
3,207
|
|
|
Finance
|
|
Finance lease liabilities
|
841
|
|
|
572
|
|
|
Noncurrent
|
|
|
|
|
|
|
Operating
|
|
Operating lease liabilities
|
26,881
|
|
|
28,519
|
|
|
Finance
|
|
Finance lease liabilities
|
43,143
|
|
|
41,482
|
|
|
Total leased liabilities
|
|
|
$
|
74,556
|
|
|
$
|
73,780
|
|
We incurred the following lease costs related to our operating and finance leases (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease Cost
|
|
Classification
|
|
|
Year Ended December 31, 2020
|
|
Year Ended December 31, 2019
|
|
Operating lease cost
|
|
|
|
|
|
|
|
|
Rent expense
|
|
General and administrative
|
|
|
$
|
5,327
|
|
|
$
|
3,324
|
|
|
Rent expense
|
|
Cost of revenues for project management
|
|
|
—
|
|
|
127
|
|
|
Finance lease cost
|
|
|
|
|
|
|
|
|
Amortization of leased assets
|
|
Depreciation and amortization
|
|
|
1,458
|
|
|
384
|
|
|
Interest on lease liabilities
|
|
Interest expense
|
|
|
2,626
|
|
|
443
|
|
|
Total lease cost
|
|
|
|
|
$
|
9,411
|
|
|
$
|
4,278
|
|
For the year ended December 31, 2020 and 2019, cash paid amounts included in the measurement of lease liabilities included (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease Payments
|
Year Ended December 31, 2020
|
|
Year Ended December 31, 2019
|
|
Cash paid for amounts included in the measurement of lease liabilities:
|
|
|
|
|
Operating cash flows from operating leases
|
$
|
3,650
|
|
|
$
|
2,021
|
|
|
Financing cash flows from finance leases
|
$
|
785
|
|
|
627
|
|
|
|
|
|
|
ASHFORD INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2020, future minimum lease payments on operating and financing leases were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Leases
|
|
Finance Leases
|
|
|
|
2021
|
$
|
5,192
|
|
|
$
|
3,490
|
|
|
|
|
2022
|
4,911
|
|
|
3,564
|
|
|
|
|
2023
|
4,743
|
|
|
4,561
|
|
|
|
|
2024
|
4,471
|
|
|
3,073
|
|
|
|
|
2025
|
3,938
|
|
|
2,956
|
|
|
|
|
Thereafter
|
16,570
|
|
|
83,402
|
|
|
|
|
Total minimum lease payments
|
$
|
39,825
|
|
|
$
|
101,046
|
|
|
|
|
Imputed interest
|
(9,253)
|
|
|
(57,062)
|
|
|
|
|
Present value of minimum lease payments
|
$
|
30,572
|
|
|
$
|
43,984
|
|
|
|
Our weighted-average remaining lease terms (in years) and discount rates consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
December 31, 2019
|
|
Lease term and discount rate
|
|
|
|
|
Weighted-average remaining lease term
|
|
|
|
|
Operating leases (1)
|
9.93
|
|
10.95
|
|
Finance leases (2)
|
32.3
|
|
34.09
|
|
Weighted-average discount rate
|
|
|
|
|
Operating leases
|
5.2
|
%
|
|
5.2
|
%
|
|
Finance leases
|
6.2
|
%
|
|
6.2
|
%
|
__________________
(1) The weighted-average remaining lease term includes two optional 10 year extension periods for our JSAV headquarters in Irving, Texas, as failure to renew the lease would result in JSAV incurring significant relocation costs.
(2) The weighted-average remaining lease term includes the lease term of our finance lease with the City of Marietta which terminates December 31, 2054.
9. Fair Value Measurements
Fair Value Hierarchy—Our assets and liabilities measured at fair value, either on a recurring or a non-recurring basis, are classified in a hierarchy for disclosure purposes consisting of three levels based on the observability of inputs in the market place as discussed below:
•Level 1: Fair value measurements that are quoted prices (unadjusted) in active markets that we have the ability to access for identical assets or liabilities. Market price data generally is obtained from exchange or dealer markets.
•Level 2: Fair value measurements based on inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs include quoted prices for similar assets and liabilities in active markets, and inputs other than quoted prices that are observable for the asset or liability, such as interest rates and yield curves that are observable at commonly quoted intervals.
•Level 3: Fair value measurements based on valuation techniques that use significant inputs that are unobservable. The circumstances for using these measurements include those in which there is little, if any, market activity for the asset or liability.
ASHFORD INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Assets and Liabilities Measured at Fair Value on a Recurring Basis
The following tables present our assets and liabilities measured at fair value on a recurring basis aggregated by the level within which measurements fall in the fair value hierarchy (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quoted Market Prices (Level 1)
|
|
Significant Other
Observable Inputs (Level 2)
|
|
Significant Unobservable Inputs
(Level 3)
|
|
Total
|
|
|
December 31, 2020
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted Investment:
|
|
|
|
|
|
|
|
|
|
Ashford Trust common stock
|
$
|
88
|
|
(2)
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
88
|
|
|
|
Braemar common stock
|
202
|
|
(2)
|
—
|
|
|
—
|
|
|
202
|
|
|
|
Total
|
$
|
290
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
290
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contingent consideration
|
$
|
(1,735)
|
|
(1)
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(1,735)
|
|
|
|
Subsidiary compensation plan
|
—
|
|
|
(89)
|
|
(2)
|
—
|
|
|
(89)
|
|
|
|
Deferred compensation plan
|
(1,707)
|
|
|
—
|
|
|
—
|
|
|
(1,707)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
$
|
(3,442)
|
|
|
$
|
(89)
|
|
|
$
|
—
|
|
|
$
|
(3,531)
|
|
|
|
Net
|
$
|
(3,152)
|
|
|
$
|
(89)
|
|
|
$
|
—
|
|
|
$
|
(3,241)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
__________________
(1) Represents the fair value of the contingent consideration liability of $1.7 million related to the stock consideration collar associated with JSAV’s acquisition of BAV. The contingent consideration liabilities are reported as “other current liabilities” in our consolidated balance sheets. See notes 1 and 5.
(2) The assets acquired in our acquisition of Remington Lodging included shares of common stock of Ashford Trust and Braemar purchased by Remington Lodging on the open market and held for the purpose of providing compensation to certain employees. The compensation agreement liability is based on ratably accrued vested shares through December 31, 2020, which are exercisable upon vesting. The liability is the total accrued vested shares multiplied by the fair value of the quoted market price of the underlying investment.
ASHFORD INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quoted Market Prices (Level 1)
|
|
Significant Other
Observable Inputs (Level 2)
|
|
Significant Unobservable Inputs
(Level 3)
|
|
Total
|
|
|
December 31, 2019
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted Investment:
|
|
|
|
|
|
|
|
|
|
Ashford Trust common stock
|
$
|
768
|
|
(3)
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
768
|
|
|
|
Braemar common stock
|
427
|
|
(3)
|
—
|
|
|
—
|
|
|
427
|
|
|
|
Total
|
$
|
1,195
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,195
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contingent consideration
|
$
|
(2,668)
|
|
(1)
|
$
|
—
|
|
|
$
|
(2,959)
|
|
(2)
|
$
|
(5,627)
|
|
|
|
Subsidiary compensation plan
|
—
|
|
|
(415)
|
|
(3)
|
—
|
|
|
(415)
|
|
|
|
Deferred compensation plan
|
(4,729)
|
|
|
—
|
|
|
—
|
|
|
(4,729)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
$
|
(7,397)
|
|
|
$
|
(415)
|
|
|
$
|
(2,959)
|
|
|
$
|
(10,771)
|
|
|
|
Net
|
$
|
(6,202)
|
|
|
$
|
(415)
|
|
|
$
|
(2,959)
|
|
|
$
|
(9,576)
|
|
|
__________________
(1) Represents the fair value of the contingent consideration liability of $1.6 million related to the stock consideration collar associated with JSAV’s acquisition of BAV and $1.0 million related to the stock consideration collar associated with RED’s acquisition of Sebago. The contingent consideration liabilities related to BAV and Sebago are reported as “other current liabilities” in our consolidated balance sheets. See notes 1 and 5.
(2) Represents the fair value of the contingent consideration liability related to the achievement of certain performance targets associated with the acquisition of BAV, which is reported within “other current liabilities” in our consolidated balance sheets. See notes 1 and 5.
(3) The assets acquired in our acquisition of Remington Lodging included shares of common stock of Ashford Trust and Braemar purchased by Remington Lodging on the open market and held for the purpose of providing compensation to certain employees. The compensation agreement liability is based on ratably accrued vested shares through December 31, 2019, which are exercisable upon vesting. The liability is the total accrued vested shares multiplied by the fair value of the quoted market price of the underlying investment.
ASHFORD INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table presents the rollforward of our Level 3 contingent consideration liability (in thousands):
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Contingent Consideration Liability
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Balance at December 31, 2018
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$
|
—
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Acquisitions (1)
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(1,384)
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Gains (losses) included in earnings (2)
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|
(1,575)
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Dispositions and settlements
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—
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Transfers into/out of Level 3
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—
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Balance at December 31, 2019
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$
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(2,959)
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Acquisitions
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|
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—
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Gains (losses) included in earnings (2)
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(41)
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Dispositions and settlements
|
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|
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|
—
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Transfers into/out of Level 3 (1)
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3,000
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Balance at December 31, 2020
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$
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—
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__________________
(1) Includes JSAV’s initial contingent consideration associated with the acquisition of BAV in March of 2019. In the first quarter of 2020, BAV achieved the maximum $3.0 million performance target. We subsequently paid $2.4 million in cash to the sellers of BAV consisting of a $1.5 million payment on May 7, 2020, and a $900,000 payment on December 31, 2020. The Company elected to settle the remainder of the contingent consideration in the form of cash instead of Ashford Inc. common stock. Pursuant to the Second Amendment to the Asset Purchase Agreement, which was executed on May 6, 2020, the Company was provided a $250,000 discount upon the election of cash settlement. The final amount paid in January 2021, net of the discount, was $350,000. The liability of $350,000 as of December 31, 2020 owed to the sellers of BAV is reported in our consolidated balance sheets within “other liabilities.”
(2) Fair value adjustment reported as “other” operating expense in our consolidated statements of operations.
Assets Measured at Fair Value on a Non-recurring Basis
Our non-financial assets, such as goodwill, indefinite-lived intangible assets and long-lived assets are adjusted to fair value when an impairment charge is recognized. Such fair value measurements are based predominately on Level 3 inputs.
Goodwill
During 2020, as a result of our reduced cash flow projections and the significant decline in our market capitalization as a result of the COVID-19 pandemic, we recorded goodwill impairment charges of $180.8 million.
During the first quarter of 2020, we recognized goodwill impairment charges of $170.6 million, of which $121.0 million related to our Remington segment, and $49.5 million related to our Premier segment. We engaged a third-party valuation expert to assist us in performing an interim quantitative assessment in which we compared the fair value of the reporting units to their carrying value. The fair value estimates for all reporting units were based on a blended analysis of the present value of future cash flows and the market value approach, Level 3 inputs. The significant estimates used in the discounted cash flows model included our weighted average cost of capital, projected cash flows and the long-term rate of growth. Our cash flow assumptions were based on the actual historical performance of the reporting unit and took into account the recent severe and continued weakening of operating results as well as the anticipated rate of recovery due to the COVID-19 pandemic. The projected cash flows were based on management’s expectation of the timing of recovery from the economic downturn under various scenarios. The significant estimates used in the market approach model included identifying public companies engaged in businesses that are considered comparable to those of the reporting unit and assessing comparable revenue and earnings multiples in estimating the fair value of the reporting unit. The excess of the reporting unit's carrying value over our estimate of the fair value was recorded as the goodwill impairment charge in the first quarter of 2020.
ASHFORD INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
During the fourth quarter of 2020, we recorded goodwill impairment charges of $10.2 million related to our JSAV segment. We performed an annual quantitative assessment of goodwill for our JSAV segment due to sustained under-performance and a less optimistic outlook of the segment’s forecasted operating results. The fair value estimate was based on the present value of future discounted cash flows considered Level 3 inputs. The significant estimates used in the discounted cash flows model included our weighted average cost of capital, projected cash flows and the long-term rate of growth. Our cash flow assumptions were based on management’s expectation of the timing of recovery from the economic downturn. The excess of the reporting unit's carrying value over our estimate of the fair value was recorded as the goodwill impairment charge in the fourth quarter of 2020.
As of December 31, 2020, our Remington segment had $54.6 million goodwill remaining and our Premier and JSAV segments had no goodwill remaining. Changes in circumstances due to the potential long-term economic impact and near-term financial impacts of the COVID-19 pandemic could result in additional impairment losses of all or a portion of our remaining goodwill and intangible asset balances. We will continue to monitor and evaluate our results and evaluate the likelihood of any potential impairment charges at our reporting units.
Indefinite-Lived Intangible Assets
As a result of the negative impact of the COVID-19 pandemic on our business, we concluded that sufficient indicators existed to require us to perform an interim quantitative assessment of intangible assets as of March 31, 2020. During the first quarter of 2020, we engaged a third-party valuation expert to assist in determining the fair value of our indefinite-lived trademarks. We recognized intangible asset impairment charges of $7.6 million related to trademarks within our Remington and JSAV segments which resulted from changes in estimated future revenues. We updated this assessment in the fourth quarter of 2020 and recorded an additional impairment charge of $340,000 related to the JSAV trademarks. The Remington and JSAV trademarks were written down to $4.9 million and $1.2 million, respectively, based on a valuation using the relief-from-royalty method, which includes unobservable inputs including royalty rates and projected revenues.
Long-Lived Assets
Long-lived assets include property and equipment, finance and operating lease assets, and definite-lived intangible assets which primarily include Remington and Premier management contracts, JSAV customer relationships and RED boat slip rights resulting from our acquisitions. During the year ended December 31, 2020, as a result of the negative impact of the COVID-19 pandemic, we concluded that sufficient indicators existed to require us to perform recoverability tests by comparing the sum of the estimated undiscounted future cash flows attributable to the assets to the carrying values. Approximately $36,000 of impairment charges related to long-lived assets were recorded in 2020 based on the results of the recoverability tests.
Effect of Fair Value Measured Assets and Liabilities on Our Consolidated Statements of Operations
The following table summarizes the effect of fair value measured assets and liabilities on our consolidated statements of operations (in thousands):
ASHFORD INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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Gain (Loss) Recognized
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|
Year Ended December 31,
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2020
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2019
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2018
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Assets
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Restricted investment: (1)
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Ashford Trust common stock
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$
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(200)
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$
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—
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$
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—
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Braemar common stock
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(186)
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—
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—
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Goodwill
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(180,783)
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—
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—
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Intangible assets, net
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(8,018)
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|
—
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—
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Property and equipment, net
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(36)
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—
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|
(1,919)
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Total
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$
|
(189,223)
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|
$
|
—
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|
$
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(1,919)
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Liabilities
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Contingent consideration (2)
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$
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(436)
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|
$
|
(4,244)
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|
|
$
|
(338)
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|
|
Subsidiary compensation plan (3)
|
|
|
|
|
131
|
|
|
(47)
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|
|
|
—
|
|
|
|
Deferred compensation plan (3)
|
|
|
|
|
3,012
|
|
|
5,732
|
|
|
|
8,444
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Total
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|
|
$
|
2,707
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|
|
$
|
1,441
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|
|
|
$
|
8,106
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|
|
|
Net
|
|
|
|
|
$
|
(186,516)
|
|
|
$
|
1,441
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|
|
|
$
|
6,187
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__________________
(1) Represents the realized loss on shares of common stock of Ashford Trust and Braemar purchased by Remington on the open market and held for the purpose of providing compensation to certain employees.
(2) Represents the changes in fair value of the contingent consideration liabilities related to the level of achievement of certain performance targets and stock consideration collars associated with the acquisition of BAV. Changes in the fair value of contingent consideration are reported within “other” operating expense in our consolidated statements of operations. See note 5.
(3) Reported as a component of “salaries and benefits” in our consolidated statements of operations.
Restricted Investment
The historical cost and approximate fair values, together with gross unrealized gains and losses, of securities restricted for use in our subsidiary compensation plan are as follows (in thousands):
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|
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|
|
Historical Cost
|
|
Gross Unrealized Gains
|
|
Gross Unrealized Losses
|
|
Fair Value
|
|
Available-for-sale securities:
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
|
|
|
|
|
|
|
Equity securities (1)
|
$
|
1,169
|
|
|
$
|
—
|
|
|
$
|
(879)
|
|
|
$
|
290
|
|
__________________
(1) Distribution of $195,000 of available-for-sale securities were recognized in the year ended December 31, 2020. Unrealized gains and losses associated with available-for-sale securities are included within “accumulated other comprehensive income” in our consolidated balance sheets.
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|
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|
|
|
|
|
Historical Cost
|
|
Gross Unrealized Gains
|
|
Gross Unrealized Losses
|
|
Fair Value
|
|
Available-for-sale securities:
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
|
|
|
|
|
|
|
Equity securities (1)
|
$
|
1,309
|
|
|
$
|
—
|
|
|
$
|
(114)
|
|
|
$
|
1,195
|
|
__________________
ASHFORD INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) No distributions of available-for-sale securities occurred as of December 31, 2019. Unrealized losses associated with available-for-sale securities are included within “accumulated other comprehensive income” in our consolidated balance sheets.
10. Summary of Fair Value of Financial Instruments
Certain of our financial instruments are not measured at fair value on a recurring basis. The estimates presented are not necessarily indicative of the amounts at which these instruments could be purchased, sold or settled. The carrying amounts and estimated fair values of financial instruments were as follows (in thousands):
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|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
December 31, 2019
|
|
|
|
Carrying
Value
|
|
Estimated
Fair Value
|
|
Carrying
Value
|
|
Estimated
Fair Value
|
|
Financial assets measured at fair value:
|
|
|
|
|
|
|
|
|
|
Restricted investment
|
|
$
|
290
|
|
|
$
|
290
|
|
|
$
|
1,195
|
|
|
$
|
1,195
|
|
|
Financial liabilities measured at fair value:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred compensation plan
|
|
$
|
1,707
|
|
|
$
|
1,707
|
|
|
$
|
4,729
|
|
|
$
|
4,729
|
|
|
|
|
|
|
|
|
|
|
|
|
Contingent consideration
|
|
1,735
|
|
|
1,735
|
|
|
5,627
|
|
|
5,627
|
|
|
Financial assets not measured at fair value:
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
45,270
|
|
|
$
|
45,270
|
|
|
$
|
35,349
|
|
|
$
|
35,349
|
|
|
Restricted cash
|
|
37,396
|
|
|
37,396
|
|
|
17,900
|
|
|
17,900
|
|
|
Accounts receivable, net
|
|
3,458
|
|
|
3,458
|
|
|
7,241
|
|
|
7,241
|
|
|
Due from affiliates
|
|
353
|
|
|
353
|
|
|
357
|
|
|
357
|
|
|
Due from Ashford Trust
|
|
13,198
|
|
|
13,198
|
|
|
4,805
|
|
|
4,805
|
|
|
Due from Braemar
|
|
2,142
|
|
|
2,142
|
|
|
1,591
|
|
|
1,591
|
|
|
Investments in unconsolidated entities
|
|
3,687
|
|
|
3,687
|
|
|
3,476
|
|
|
3,476
|
|
|
Financial liabilities not measured at fair value:
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses
|
|
$
|
40,378
|
|
|
$
|
40,378
|
|
|
$
|
39,160
|
|
|
$
|
39,160
|
|
|
Dividends payable
|
|
16,280
|
|
|
16,280
|
|
|
4,725
|
|
|
4,725
|
|
|
Due to affiliates
|
|
1,471
|
|
|
1,471
|
|
|
1,011
|
|
|
1,011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other liabilities
|
|
28,170
|
|
|
28,170
|
|
|
13,868
|
|
|
13,868
|
|
|
Notes payable
|
|
62,768
|
|
|
59,629 to 65,906
|
|
36,810
|
|
|
34,705 to 38,359
|
Restricted investment. These financial assets are carried at fair value based on quoted market prices of the underlying investments. This is considered a Level 1 valuation technique.
Deferred compensation plan. The liability resulting from the deferred compensation plan is carried at fair value based on the closing prices of the underlying investments. This is considered a Level 1 valuation technique.
Contingent consideration. The liability associated with JSAV’s acquisition of BAV is carried at fair value based on the terms of the acquisition agreements and any changes to fair value are recorded in “other” operating expenses in our consolidated statements of operations. This is considered a Level 1 valuation technique. See note 9.
Cash, cash equivalents and restricted cash. These financial assets bear interest at market rates and have maturities of less than 90 days. The carrying values approximate fair value due to the short-term nature of these financial instruments. This is considered a Level 1 valuation technique.
Accounts receivable, net, due from affiliates, due from Ashford Trust, due from Braemar, accounts payable and accrued expenses, dividends payable, due to affiliates and other liabilities. The carrying values of these financial instruments approximate their fair values due primarily to the short-term nature of these financial instruments. This is considered a Level 1 valuation technique.
Investments in unconsolidated entities. The carrying value of the asset resulting from investment in unconsolidated entities approximates fair value based on recent observable transactions. This is considered a level 2 valuation technique. See note 2.
ASHFORD INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Notes payable. The fair value of notes payable is based on credit spreads on observable transactions of a similar nature and is considered a Level 2 valuation technique.
11. Commitments and Contingencies
Purchase Commitment—As of December 31, 2020, we had approximately $11.4 million of remaining purchase commitments related to our Ashford Trust ERFP Agreement which, under the Extension Agreement, must be fulfilled by December 31, 2022.
Contingent Consideration—We had total acquisition-related contingent consideration liabilities outstanding of approximately $2.1 million and $5.6 million as of December 31, 2020 and 2019, respectively, primarily related to the level of achievement of certain performance targets and stock consideration collars. See notes 5 and 9.
Litigation—In June 2020, each of the Company, Braemar, Ashford Trust, and Lismore, a subsidiary of the Company (collectively with the Company, Braemar, Ashford Trust and Lismore, the “Ashford Companies”), received an administrative subpoena from the SEC. The Company’s administrative subpoena requires the production of documents and other information since January 1, 2018 relating to, among other things, (i) related party transactions among the Ashford Companies (including the Ashford Trust Agreement and the Braemar Agreement pursuant to which each of Ashford Trust and Braemar engaged Lismore to negotiate the refinancing, modification or forbearance of certain mortgage debt) or between any of the Ashford Companies and any officer, director or owner of the Ashford Companies or any entity controlled by any such person, and (ii) the Company’s accounting policies, procedures and internal controls related to such related party transactions. In addition, in October 2020, Mr. Monty J. Bennett, the Chairman of our Board and our Chief Executive Officer, received an administrative subpoena from the SEC requesting testimony and the production of documents and other information substantially similar to the requests in the subpoenas received by the Ashford Companies. The Company and Mr. Monty J. Bennett are responding to the administrative subpoenas.
A class action lawsuit has been filed against one of the Company’s subsidiaries alleging violations of certain California employment laws. The court has entered an order granting class certification with respect to: (i) a statewide class of non-exempt employees who were allegedly deprived of rest breaks as a result of the subsidiary’s previous written policy requiring employees to stay on premises during rest breaks; and (ii) a derivative class of non-exempt former employees who were not paid for allegedly missed breaks upon separation from employment. Notices to potential class members were sent out on February 2, 2021. Potential class members have until April 4, 2021 to opt out of the class. While we believe it is reasonably possible that we may incur a loss associated with this litigation, because the class size has not yet been determined and there is uncertainty under California law with respect to a significant legal issue, we do not believe that any potential loss to the Company is reasonably estimable at this time. As of December 31, 2020, no amounts have been accrued.
We are also engaged in other various legal proceedings that have arisen but have not been fully adjudicated. To the extent the claims giving rise to these legal proceedings are not covered by insurance, they relate to the following general types of claims: employment matters, tax matters, matters relating to compliance with applicable law (for example, the American with Disabilities Act, the Unruh Civil Rights Act, and the Occupational Safety and Health Administration), and other general matters. The likelihood of loss for these legal proceedings is based on definitions within contingency accounting literature. For matters that are not covered by insurance, we realize a loss when we believe the loss is both probable and reasonably estimable. Based on the information available to us relating to these legal proceedings, and/or our experience in similar legal proceedings, we do not believe the ultimate resolution of these proceedings, either individually or in the aggregate, will have a material adverse effect on our consolidated financial position, results of operations, or cash flow. However, our assessment may change depending upon the development of these legal proceedings, and final results of these legal proceedings cannot be predicted with certainty. If we do not prevail in one or more of these legal matters, and the associated realized losses exceed our current estimates of the range of potential losses, our consolidated financial position, results of operations, or cash flows could be materially adversely affected in future periods.
ASHFORD INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
12. Income Taxes
The following table reconciles the income tax benefit at statutory rates to the actual income tax expense recorded (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2020
|
|
2019
|
|
2018
|
|
Income tax benefit at federal statutory income tax rate
|
$
|
48,534
|
|
|
$
|
2,955
|
|
|
$
|
534
|
|
|
State income tax expense, net of federal income tax benefit
|
2,675
|
|
|
(1,768)
|
|
|
804
|
|
|
Income passed through to common unit holders and noncontrolling interests
|
94
|
|
|
38
|
|
|
(36)
|
|
|
Permanent differences
|
(1,397)
|
|
|
(1,299)
|
|
|
(66)
|
|
|
Nondeductible impairment of goodwill
|
(35,820)
|
|
|
—
|
|
|
—
|
|
|
Valuation allowance
|
(1,051)
|
|
|
(1,043)
|
|
|
8,887
|
|
|
|
|
|
|
|
|
|
Other
|
1,220
|
|
|
(423)
|
|
|
241
|
|
|
Total income tax (expense) benefit
|
$
|
14,255
|
|
|
$
|
(1,540)
|
|
|
$
|
10,364
|
|
The components of income tax (expense) benefit are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2020
|
|
2019
|
|
2018
|
|
Current:
|
|
|
|
|
|
|
Federal
|
$
|
(7,116)
|
|
|
$
|
(1,309)
|
|
|
$
|
(439)
|
|
|
Foreign
|
25
|
|
|
(809)
|
|
|
(437)
|
|
|
State
|
(1,064)
|
|
|
(1,352)
|
|
|
(1,000)
|
|
|
Total current
|
(8,155)
|
|
|
(3,470)
|
|
|
(1,876)
|
|
|
Deferred:
|
|
|
|
|
|
|
Federal
|
17,938
|
|
|
2,828
|
|
|
10,646
|
|
|
Foreign
|
136
|
|
|
(189)
|
|
|
—
|
|
|
State
|
4,336
|
|
|
(709)
|
|
|
1,594
|
|
|
Total deferred
|
22,410
|
|
|
1,930
|
|
|
12,240
|
|
|
Total income tax (expense) benefit
|
$
|
14,255
|
|
|
$
|
(1,540)
|
|
|
$
|
10,364
|
|
Interest and penalties of $0, $11,000 and $6,000 were paid or were due to taxing authorities for the years ended December 31, 2020, 2019 and 2018, respectively.
ASHFORD INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
At December 31, 2020 and 2019, our net deferred tax asset (liability) and related valuation allowance on the consolidated balance sheets, consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
2020
|
|
2019
|
|
Prepaid expenses
|
$
|
(490)
|
|
|
$
|
(431)
|
|
|
Investments in unconsolidated entities and joint ventures
|
1,620
|
|
|
(2,430)
|
|
|
Capitalized acquisition costs
|
5,547
|
|
|
6,139
|
|
|
Deferred compensation
|
535
|
|
|
1,269
|
|
|
Accrued expenses
|
4,896
|
|
|
2,573
|
|
|
Equity-based compensation
|
9,764
|
|
|
8,722
|
|
|
Property and equipment
|
(2,664)
|
|
|
(7,940)
|
|
|
Intangibles
|
(58,656)
|
|
|
(79,295)
|
|
|
Deferred revenue
|
1,822
|
|
|
2,377
|
|
|
Net operating loss
|
5,585
|
|
|
4,307
|
|
|
Deferred tax asset (liability)
|
(32,041)
|
|
|
(64,709)
|
|
|
Valuation allowance
|
(5,863)
|
|
|
(4,812)
|
|
|
Net deferred tax asset (liability)
|
$
|
(37,904)
|
|
|
$
|
(69,521)
|
|
As of December 31, 2020, the Company has net operating loss carryforwards of approximately $24.3 million for tax purposes, which will be available to offset future taxable income, subject to certain limitations. If not used, $2.5 million and $3.4 million will expire in 2036 and 2037, respectively. The remaining $18.4 million of net operating losses have an indefinite carryforward period.
We evaluate the recoverability of our deferred tax assets quarterly to determine if valuation allowances are required or should be adjusted. We assess whether valuation allowances should be established against deferred tax assets based on consideration of all available evidence, both positive and negative, using a “more likely than not” standard. The analysis utilized in determining the valuation allowance involves considerable judgment and assumptions
During the third quarter of 2018, we determined that it was more likely than not that we would realize a significant portion of our deferred tax assets because we recorded a $43.7 million deferred tax liability in the third quarter of 2018, and the future reversal of deferred tax liabilities is a source of future taxable income that allows us to utilize our deferred tax assets. Accordingly, in the third quarter of 2018, we reversed the valuation allowance on our deferred tax assets by recording a $15.1 million deferred income tax benefit in the consolidated statement of operations. The deferred tax liability related to our Premier acquisition which totaled $43.7 million is the result of recording our book basis in Premier's acquired intangible assets at fair value while the tax basis of these assets was recorded using the seller's carryover basis, which is lower than fair value.
At December 31, 2018, we recorded a $4.0 million valuation allowance related primarily to Mexico and OpenKey deferred tax assets, which did not meet the more likely than not standard for recognition. We are able to recognize our remaining deferred tax assets based on future taxable income from reversing taxable temporary differences associated with the deferred tax liability recognized as a result of the Premier acquisition in the third quarter of 2018.
At December 31, 2020, there is a full valuation allowance on the deferred tax assets related to JSAV’s operations in Mexico and the Dominican Republic and OpenKey totaling $5.8 million.
ASHFORD INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A reconciliation of the unrecognized tax benefit is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2020
|
|
2019
|
|
2018
|
|
Balance at the beginning of the year
|
$
|
471
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Gross increases for tax positions of prior years
|
—
|
|
|
218
|
|
|
—
|
|
|
Gross decreases for tax positions of prior years
|
(471)
|
|
|
—
|
|
|
—
|
|
|
Gross increases for tax positions of current year
|
—
|
|
|
253
|
|
|
—
|
|
|
Gross decreases for tax positions of current year
|
—
|
|
|
—
|
|
|
—
|
|
|
Settlements with taxing authorities
|
—
|
|
|
—
|
|
|
—
|
|
|
Statute of limitations expirations
|
—
|
|
|
—
|
|
|
—
|
|
|
Balance at the end of year
|
$
|
—
|
|
|
$
|
471
|
|
|
$
|
—
|
|
The total amount of unrecognized tax benefits that could affect the Company’s effective tax rate if recognized was $0 as of December 31, 2020. The Company’s policy is to record penalty and interest as a component of income tax expense. The Company and its subsidiaries file income tax returns in the U.S. federal jurisdiction and various states and cities, and, beginning November 1, 2017, in Mexico and the Dominican Republic. Tax years 2016 through 2020 remain subject to potential examination by certain federal and state taxing authorities.
13. Equity (Deficit)
Equity Offering—For the year ended December 31, 2018, net proceeds from the public offering of our common stock after underwriting discount and offering expenses were approximately $18.9 million. On September 28, 2018, we completed a public offering of 270,000 shares of common stock at a price to the public of $74.50 per share, resulting in gross proceeds of $20.1 million. The net proceeds from the sale of the shares, after discounts and commissions to the underwriters and offering expenses, were approximately $18.2 million. We also sold an additional 10,000 shares of common stock to the underwriters on October 10, 2018, in connection with the underwriters’ partial exercise of their over-allotment option that had been granted to them in connection with the transaction. The net proceeds from the sale of the over-allotment shares, after discounts and commissions to the underwriters, were approximately $700,000.
Shareholder Rights Plan—On March 13, 2020, the Board adopted a shareholder rights plan (the “2020 Rights Agreement”). The 2020 Rights Agreement is intended to improve the bargaining position of the Board in the event of an unsolicited offer to acquire our outstanding shares of common stock. Pursuant to the 2020 Rights Agreement, the Board declared a dividend of one preferred share purchase right (a “Right”) payable on March 23, 2020, for each outstanding share of common stock, par value $0.001 per share, outstanding on March 23, 2020 to the stockholders of record on that date. Each Right initially entitles the registered holder to purchase from the Company one one-thousandth of a share of Series E Preferred Stock, par value $0.001 per share (the “Preferred Shares”), of the Company, at a price of $275 per one one-thousandth of a Preferred Share represented by a Right, subject to adjustment. The Rights become exercisable upon certain conditions, as defined in the rights agreement. At any time prior to the time any person or group becomes an Acquiring Person, as defined in the rights agreement, the Board may redeem the Rights in whole, but not in part, at a price of $0.001 per Right. The value of the Rights is de minimis.
Capital Stock—In accordance with Ashford Inc.’s charter, we are authorized to issue 200 million shares of capital stock, consisting of 100 million shares common stock, par value $0.001 per share, 50 million shares blank check common stock, par value $0.001 per share, and 50 million shares preferred stock, par value $0.001 per share, 19,120,000 of which is designated as Series D Convertible Preferred Stock.
ASHFORD INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Noncontrolling Interests in Consolidated Entities—See note 2 for details regarding ownership interests, carrying values and allocations related to noncontrolling interests in our consolidated subsidiaries.
The following table summarizes the (income) loss allocated to noncontrolling interests for each of our consolidated entities (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
|
|
2020
|
|
2019
|
|
2018
|
|
(Income) loss allocated to noncontrolling interests:
|
|
|
|
|
|
|
|
|
|
|
JSAV
|
|
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
58
|
|
|
OpenKey
|
|
|
|
|
670
|
|
|
624
|
|
|
826
|
|
|
RED
|
|
|
|
|
412
|
|
|
(105)
|
|
|
68
|
|
Pure Wellness
|
|
|
|
|
75
|
|
|
(9)
|
|
|
(28)
|
|
|
Other
|
|
|
|
|
21
|
|
|
26
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net (income) loss allocated to noncontrolling interests
|
|
|
|
|
$
|
1,178
|
|
|
$
|
536
|
|
|
$
|
924
|
|
14. Mezzanine Equity
Redeemable Noncontrolling Interests—Redeemable noncontrolling interests are included in the mezzanine section of our consolidated balance sheets as the ownership interests are redeemable for cash or registered shares outside of the Company’s control. See note 2 for tables summarizing the redeemable noncontrolling ownership interests and carrying values.
Redeemable noncontrolling interests in Ashford Holdings represents certain members’ proportionate share of equity and their allocable share of equity in earnings/loss of Ashford Holdings, which is an allocation of net income/loss attributable to the members based on the weighted average ownership percentage of these members’ interest. Beginning one year after issuance, each common unit of membership interest may be redeemed by the holder, for cash or registered shares in certain cases outside the Company’s control. Prior to April 6, 2017, the noncontrolling interests represented certain members’ proportionate share of equity and their allocable share of equity in earnings/loss of Ashford LLC. See note 1.
In connection with our spin-off, Ashford Trust OP unit holders received one common unit in Ashford LLC for every 55 common units held in Ashford Trust OP. Each holder of common units of Ashford LLC could then exchange up to 99% of the Ashford LLC common units for shares of Ashford Inc. common stock. During the year ended December 31, 2014, approximately 356,000 common units were exchanged for shares of Ashford Inc. common stock at the rate of one share of Ashford Inc. common stock for every 55 Ashford LLC common units. Following the completion of the exchange offer, Ashford LLC effected a reverse stock split of its common units such that each common unit was automatically converted into 1/55 of a common unit.
A summary of the activity of the member interest units is as follow (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2020
|
|
2019
|
|
2018
|
|
Units outstanding at beginning of year
|
4
|
|
|
4
|
|
|
4
|
|
|
|
|
|
|
|
|
|
Units redeemed for cash
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
Units outstanding at end of year
|
4
|
|
|
4
|
|
|
4
|
|
|
Units convertible/redeemable at end of year
|
4
|
|
|
4
|
|
|
4
|
|
Redeemable noncontrolling interest in other subsidiary common stock represented redeemable ownership interests in our consolidated subsidiaries, JSAV and OpenKey, for the years ended December 31, 2020 and 2019. See also notes 2, 5, 13 and 17 to our consolidated financial statements.
ASHFORD INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table summarizes the net (income) loss allocated to our redeemable noncontrolling interests (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
2018
|
|
|
Net (income) loss allocated to redeemable noncontrolling interests:
|
|
|
|
|
|
|
|
|
|
|
|
Ashford Holdings
|
|
|
|
|
$
|
432
|
|
|
$
|
54
|
|
|
$
|
(9)
|
|
|
|
JSAV
|
|
|
|
|
1,148
|
|
|
247
|
|
|
361
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OpenKey
|
|
|
|
|
665
|
|
|
682
|
|
|
1,086
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net (income) loss allocated to redeemable noncontrolling interests
|
|
|
|
|
$
|
2,245
|
|
|
$
|
983
|
|
|
$
|
1,438
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible Preferred Stock—Our convertible preferred stock is included in the mezzanine section of our consolidated balance sheets as the ownership interests are redeemable for cash or registered shares outside of the Company’s control.
On November 6, 2019, we completed the acquisition of Remington Lodging’s hotel management business and Marietta for $275 million, payable by the issuance of $275 million of a new Ashford Inc. Series D Convertible Preferred Stock. In the previous transaction for Remington Lodging’s project management business, the sellers received $203 million of Maryland Ashford’s Series B Convertible Preferred Stock. For the transaction involving Remington Lodging’s hotel management business, that $203 million of Maryland Ashford’s Series B Convertible Preferred Stock was exchanged, pursuant to a merger transaction whereby Maryland Ashford became our wholly-owned subsidiary, for $203 million of Series D Convertible Preferred Stock (such that, after the transactions, $478 million of Series D Convertible Preferred Stock, and no Series B Convertible Preferred Stock, was outstanding).
Each share of Series D Convertible Preferred Stock: (i) has a liquidation value of $25 per share; (ii) accrues cumulative dividends at the rate of: (a) 6.59% per annum until November 6, 2020; (b) 6.99% per annum from November 6, 2020 until November 6, 2021; and (c) 7.28% per annum thereafter, (iii) participates in any dividend or distribution on the common stock in addition to the preferred dividends; (iv) is convertible into voting common stock at $117.50 per share; and (v) provides for customary anti-dilution protections. In the event the Company fails to pay the dividends on the Series D Convertible Preferred Stock for two consecutive quarterly periods (a “Preferred Stock Breach”), then until such arrearage is paid in cash in full: (A) the dividend rate on the Series D Convertible Preferred Stock will increase to 10.00% per annum until no Preferred Stock Breach exists; (B) no dividends on the Company’s common stock may be declared or paid, and no other distributions or redemptions may be made, on the Company’s common stock; and (C) the Board will be increased by two seats and the holders of 55% of the outstanding Series D Convertible Preferred Stock will be entitled to fill such newly created seats. The Series D Convertible Preferred Stock is held primarily by Mr. Monty J. Bennett, the Chairman of our Board and our Chief Executive Officer, Mr. Archie Bennett, Jr., who is Mr. Monty J. Bennett’s father, one of our other executive officers and several other individuals.
To the extent not paid on April 15, July 15, October 15 and January 15 of each calendar year in respect of the quarterly periods ending on March 31, June 30, September 30 and December 31, respectively (each such date, a “Dividend Payment Date”), all accrued dividends on any share shall accumulate and compound on the applicable Dividend Payment Date whether or not declared by the Board and whether or not funds are legally available for the payment thereof. All accrued dividends shall remain accumulated, compounding dividends until paid in cash pursuant hereto or converted to common shares.
The Series D Convertible Preferred Stock is entitled to vote alongside our voting common stock on an as-converted basis, subject to applicable voting limitations.
So long as any shares of Series D Convertible Preferred Stock are outstanding, the Company is prohibited from taking specified actions without the consent of the holders of 55% of the outstanding Series D Convertible Preferred Stock, including: (i) modifying the terms, rights, preferences, privileges or voting powers of the Series D Convertible Preferred Stock; (ii) altering the rights; preferences or privileges of any capital stock of the Company so as to affect adversely the Series D Convertible Preferred Stock; (iii) issuing any security senior to the Series D Convertible Preferred Stock, or any shares of Series D Convertible Preferred Stock other than pursuant to the Combination Agreement dated May 31, 2019 between us, the Bennetts, Remington Holdings, L.P. and certain other parties, as amended (the “Combination Agreement”); (iv) entering into any agreement that expressly prohibits or restricts the payment of dividends on the Series D Convertible Preferred Stock or the common stock of the Company or the exercise of the Change of Control Put Option (as defined in the Combination Agreement); or (v) other than the payment of dividends on the Series D Convertible Preferred Stock or payments to purchase any of the Series D Convertible Preferred Stock, transferring all or a substantial portion of the Company’s or its subsidiaries’
ASHFORD INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
cash balances or other assets to a person other than the Company or its subsidiaries, other than by means of a dividend payable by the Company pro rata to the holders of the Company common stock (together with a corresponding dividend payable to the holders of the Series D Convertible Preferred Stock).
After June 30, 2026, we will have the option to purchase all or any portion of the Series D Convertible Preferred Stock, in $25.0 million increments, on a pro rata basis among all holders of the Series D Convertible Preferred Stock (subject to the ability of the holders to provide for an alternative allocation amongst themselves), at a price per share equal to: (i) $25.125; plus (ii) all accrued and unpaid dividends (provided any holder of Series D Convertible Preferred Stock shall be entitled to exercise its right to convert its shares of Series D Convertible Preferred Stock into common stock not fewer than five business days before such purchase is scheduled to close).
Under the applicable authoritative accounting guidance, the increasing dividend rate feature of the Series D Convertible Preferred Stock results in a discount that must be reflected in the fair value of the preferred stock, which was reflected in “Series D Convertible Preferred Stock, net of discount” on our consolidated balance sheets. For the years ended December 31, 2020 and 2019, we recorded $2.9 million and $1.9 million, respectively, of amortization related to preferred stock discounts.
On March 16, 2020, the Company announced that the Board had declared and the Company would pay 50% of the dividend which was due with respect to its Series D Convertible Preferred Stock for the first quarter of 2020. The declared $3.9 million dividends were paid on April 15, 2020. On June 24, 2020, the Company declared the remaining 50% or approximately $4.0 million of dividends, including compounding dividends, due with respect to its Series D Convertible Preferred Stock for the first quarter of 2020 which were paid on July 14, 2020. The Company did not declare dividends with respect to its Series D Convertible Preferred Stock for the second quarter of 2020. On September 14, 2020, the Board declared a dividend of $0.411875 per share which was due with respect to its Series D Convertible Preferred Stock for the third quarter of 2020. The declared $7.9 million dividends were paid on October 15, 2020. The Company did not declare dividends with respect to its Series D Convertible Preferred Stock for the fourth quarter of 2020. As of December 31, 2020, the Company had aggregate undeclared preferred stock dividends of approximately $16.3 million which relates to the second and fourth quarters of 2020. All dividends, declared and undeclared, are recorded as a reduction in net income (loss) in the period incurred in our consolidated statements of operations. All accrued dividends accumulate and compound until paid in cash or converted into common stock of the Company pursuant to the Certificate of Designation for the Series D Convertible Preferred Stock. Unpaid dividends, declared and undeclared, totaling $16.3 million at December 31, 2020, are recorded as a liability in our consolidated balance sheets as “dividends payable”.
Declared convertible preferred stock cumulative dividends for all issued and outstanding shares were as follows (in thousands, except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
|
|
2020
|
|
2019
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred dividends - declared
|
|
|
|
|
$
|
15,815
|
|
|
$
|
14,435
|
|
|
$
|
4,466
|
|
|
Preferred dividends per share - declared
|
|
|
|
|
$
|
0.8271
|
|
|
$
|
1.4775
|
|
|
$
|
0.5500
|
|
Aggregate undeclared convertible preferred stock cumulative dividends (in thousands, except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
December 31, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aggregate preferred dividends - undeclared
|
$
|
16,280
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
Aggregate preferred dividends - undeclared per share
|
$
|
0.8515
|
|
|
$
|
—
|
|
|
|
ASHFORD INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
15. Equity-Based Compensation
Under our 2014 Incentive Plan, we are authorized to grant 2,162,745 incentive stock awards in the form of shares of our common stock or securities convertible into shares of our common stock. As of December 31, 2020, 1,139 incentive stock award shares were available for future issuance under the 2014 Incentive Plan. As defined by the 2014 Incentive Plan, authorized shares automatically increase on January 1 of each year in an amount equal to 15% of the sum of (i) the fully diluted share count and (ii) the shares of common stock reserved for issuance under the Company’s deferred compensation plan less shares available under the 2014 Incentive Plan as of December 31 of the previous year. Pursuant to the plan, we have 682,139 shares of our common stock, or securities convertible into 682,139 shares of our common stock, available for issuance under our 2014 Incentive Plan, as of January 1, 2021.
Equity-based compensation expense is primarily recorded in “salaries and benefits expense” and REIT equity-based compensation expense is primarily recorded in “reimbursed expenses” in our consolidated statements of operations. The components of equity-based compensation expense for the year ended December 31, 2020 and 2019 are presented below by award type (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
|
|
2020
|
|
2019
|
|
2018
|
|
Equity-based compensation
|
|
|
|
|
|
|
|
|
|
|
Stock option amortization (1)
|
|
|
|
|
$
|
4,347
|
|
|
$
|
8,313
|
|
|
$
|
9,580
|
|
|
Employee equity grant expense (2)
|
|
|
|
|
787
|
|
|
95
|
|
|
—
|
|
|
Director and other non-employee equity grants expense (3)
|
|
|
|
|
428
|
|
|
466
|
|
|
439
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity-based compensation
|
|
|
|
|
$
|
5,562
|
|
|
$
|
8,874
|
|
|
$
|
10,019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other equity-based compensation
|
|
|
|
|
|
|
|
|
|
|
REIT equity-based compensation (4)
|
|
|
|
|
$
|
17,325
|
|
|
$
|
25,987
|
|
|
$
|
31,899
|
|
|
|
|
|
|
|
$
|
22,887
|
|
|
$
|
34,861
|
|
|
$
|
41,918
|
|
________
(1) As of December 31, 2020, the Company had approximately $3.1 million of total unrecognized compensation expense related to stock options that will be recognized over a weighted average period of 0.7 years. The year ended December 31, 2020, includes the forfeiture of 98,603 options from the voluntary resignation of Douglas A. Kessler, Senior Managing Director of the Company, in May of 2020.
(2) As of December 31, 2020, the Company had approximately $1.8 million of total unrecognized compensation expense related to restricted shares that will be recognized over a weighted average period of 2.0 years. Effective as of May 15, 2020, employee equity grant expense additionally includes common stock issued to Mr. Monty J. Bennett at fair value in lieu of cash for payment of his base salary pursuant to the Company’s 2014 Incentive Plan, as amended. See note 1.
(3) Grants of stock, restricted stock and stock units to independent directors and other non-employees are recorded at fair value based on the market price of our shares at grant date, and this amount is expensed in “general and administrative” expense. See “Equity-based Compensation” in note 2.
(4) REIT equity-based compensation expense is primarily recorded in “reimbursed expenses” and is associated with equity grants of Ashford Trust’s and Braemar’s common stock and LTIP units awarded to our officers and employees. See notes 2 and 17.
As of December 31, 2020, we had outstanding stock option awards and restricted stock awards, as follows:
Stock Options—The Company did not grant any stock option grants during the year ended December 31, 2020. During the years ended December 31, 2019 and 2018, we granted 300,000 and 267,000 stock options to employees with grant date fair values of, $7.9 million and $10.4 million, respectively. The grant price of the options was the market value of our stock on the date of grant. The options vest three years from the grant date with a maximum option term of ten years. The fair value of each option granted is estimated on the date of grant using the Black-Scholes option pricing model. Due to our lack of history, we do not have adequate historical exercise/cancellation behavior on which to base the expected life assumption. We were not able to use the “simplified” method as described in SAB 107 and 110 because the options remain exercisable for the full contractual term upon termination. Therefore, we used an adjusted simplified method, where any options expected to be forfeited over the term of the option were assumed to be exercised at full term and all other options were assumed to be exercised at the midpoint
ASHFORD INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
of the average time-to-vest and the full contractual term. We will continue to evaluate the expected life as we accumulate more data. Additionally, we do not have adequate historical stock price information on which to base the expected volatility assumption. In order to estimate volatility, we utilized the weighted average of our own stock price volatility based on daily data points over our full trading history and the average of the most recent historical volatilities of our peer group commensurate with the option’s expected life (or full history if the peer had insufficient trading history).
The weighted average assumptions used to value grant options are detailed below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
2019
|
|
2018
|
|
Weighted-average grant date fair value
|
|
|
$
|
26.42
|
|
|
$
|
38.93
|
|
|
Weighted average assumptions used:
|
|
|
|
|
|
|
Expected volatility
|
|
|
39.0
|
%
|
|
35.8
|
%
|
|
Expected term (in years)
|
|
|
6.5
|
|
6.5
|
|
Risk-free interest rate
|
|
|
2.6
|
%
|
|
2.7
|
%
|
|
Expected dividend yield
|
|
|
—
|
%
|
|
—
|
%
|
A summary of stock option activity is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Shares
|
|
Weighted Average Exercise Price
|
|
Weighted Average Contractual Term
|
|
Aggregate Intrinsic Value of In-the
Money Options
|
|
|
(In thousands)
|
|
(per share)
|
|
(In years)
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, January 1, 2018
|
972
|
|
|
$
|
62.17
|
|
|
7.67
|
|
$
|
29,974
|
|
|
Granted
|
267
|
|
|
94.96
|
|
|
10.00
|
|
—
|
|
|
Exercised
|
—
|
|
|
45.59
|
|
|
7.53
|
|
3
|
|
|
Forfeited, canceled or expired
|
(3)
|
|
|
62.28
|
|
|
8.82
|
|
7
|
|
|
Outstanding, December 31, 2018
|
1,236
|
|
|
$
|
69.26
|
|
|
7.21
|
|
$
|
2,126
|
|
|
Granted
|
300
|
|
|
61.12
|
|
|
10.00
|
|
—
|
|
|
Exercised
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Forfeited, canceled or expired
|
(2)
|
|
|
70.67
|
|
|
9.10
|
|
—
|
|
|
Outstanding, December 31, 2019
|
1,534
|
|
|
67.66
|
|
|
6.79
|
|
—
|
|
|
Granted
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Exercised
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Forfeited, canceled or expired
|
(100)
|
|
|
73.39
|
|
|
8.11
|
|
—
|
|
|
Outstanding, December 31, 2020
|
1,434
|
|
|
67.26
|
|
|
5.67
|
|
—
|
|
|
Options exercisable at December 31, 2020
|
986
|
|
|
$
|
63.46
|
|
|
4.72
|
|
$
|
—
|
|
The aggregate intrinsic value represents the difference between the exercise price of the stock options and the quoted closing common stock price as of the end of the period. At December 31, 2020, the Company had approximately $3.1 million of total unrecognized compensation expense, related to stock options that will be recognized over the weighted average period of 0.7 years.
ASHFORD INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Restricted Stock—A summary of our restricted stock activity, as it relates to equity-based compensation, is as follows (shares in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2020
|
|
2019
|
|
2018
|
|
|
Restricted Shares
|
|
Weighted Average
Price Per Share at Grant
|
|
Restricted Shares
|
|
Weighted Average
Price Per Share at Grant
|
|
Restricted Shares
|
|
Weighted Average
Price Per Share at Grant
|
|
Outstanding at beginning of year
|
—
|
|
|
$
|
—
|
|
|
—
|
|
|
$
|
—
|
|
|
—
|
|
|
$
|
—
|
|
|
Restricted shares granted (1)
|
686
|
|
|
7.43
|
|
|
5
|
|
|
31.79
|
|
|
6
|
|
|
73.02
|
|
|
Restricted shares vested
|
(417)
|
|
|
5.78
|
|
|
(5)
|
|
|
31.79
|
|
|
(6)
|
|
|
73.02
|
|
|
Restricted shares forfeited
|
(28)
|
|
|
10.28
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Outstanding at end of year
|
241
|
|
|
$
|
10.45
|
|
|
—
|
|
|
$
|
—
|
|
|
—
|
|
|
$
|
—
|
|
________
(1) Equity-based compensation expense of $1.0 million, $150,000 and $405,000 was recognized in connection with stock grants of 390,000, 5,000 and 6,000 to our employees and independent directors for the years ended December 31, 2020, 2019 and 2018, respectively. Restricted shares vested for the year ended December 31, 2020 includes 296,000 shares related to the payment of 25% of the 2019 annual bonuses awarded to certain executive officers of the Company, including the Company’s named executive officers, which was delayed beyond their standard payment date in March 2020. Restricted shares that vested for the year ended December 31, 2020 had a fair value of $2.4 million at the date of vesting.
Deferred Stock Units—Beginning in 2019 under our existing 2014 Incentive Plan, our independent directors may elect to receive Deferred Stock Units (“DSU”) which allows deferral of immediate vesting common shares granted in the period until the earlier of the end of the director’s service or a change of control in the Company. DSUs are fully vested as of the grant date and may only be settled in the Company’s common stock.
A summary of our DSU activity, as it relates to equity-based compensation, is as follows (shares in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2020
|
|
2019
|
|
|
|
|
DSUs
|
|
Weighted Average
Price Per Share at Grant
|
|
DSUs
|
|
Weighted Average
Price Per Share at Grant
|
|
|
|
|
|
Outstanding at beginning of year
|
7
|
|
|
$
|
31.79
|
|
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
DSUs granted (1)
|
37
|
|
|
6.12
|
|
|
7
|
|
|
31.79
|
|
|
|
|
|
|
DSUs settled
|
(1)
|
|
|
31.79
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
Outstanding at end of year
|
43
|
|
|
$
|
9.67
|
|
|
7
|
|
|
$
|
31.79
|
|
|
|
|
|
________
(1) Equity-based compensation expense of $225,000 and $225,000 was recognized in connection with grants of 37,000 and 7,000 immediately vested DSUs to our independent directors for the years ended December 31, 2020 and 2019, respectively.
ASHFORD INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
16. Employee Benefit Plans
Deferred Compensation Plan—We administer a non-qualified deferred compensation plan (“DCP”) for certain executive officers. The plan allowed participants to defer up to 100% of their base salary and bonus and select an investment fund for measurement of the deferred compensation obligation. For the periods the DCP was administered by Ashford Trust, the participants elected Ashford Trust common stock as their investment option. In accordance with the applicable authoritative accounting guidance, the deferred amounts and any dividends earned received equity treatment and were included in additional paid-in capital. In connection with our spin-off and the assumption of the DCP obligation by the Company, the DCP was modified to give the participants various investment options, including Ashford Inc. common stock, for measurement that can be changed by the participant at any time. These modifications resulted in the DCP obligation being recorded as a liability in accordance with the applicable authoritative accounting guidance. Distributions under the DCP are made in cash, unless the participant has elected Ashford Inc. common stock as the investment option, in which case any such distributions would be made in Ashford Inc. common stock. Additionally, the DCP obligation is carried at fair value with changes in fair value reflected in “salaries and benefits” in our consolidated statements of operations and comprehensive income (loss).
The following table summarizes the DCP activity (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
|
|
2020
|
|
2019
|
|
2018
|
|
Change in fair value
|
|
|
|
|
|
|
|
|
|
|
Unrealized gain (loss)
|
|
|
|
|
$
|
3,012
|
|
|
$
|
5,732
|
|
|
$
|
8,444
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributions
|
|
|
|
|
|
|
|
|
|
|
Fair value (1)
|
|
|
|
|
$
|
11
|
|
|
$
|
113
|
|
|
$
|
241
|
|
|
Shares (1)
|
|
|
|
|
1
|
|
|
3
|
|
|
3
|
|
________
(1) Distributions made to one participant.
As of December 31, 2020 and December 31, 2019 the carrying value of the DCP liability was $1.7 million and $4.7 million, respectively.
401(k) Plan—Ashford LLC sponsors a 401(k) Plan. It is a qualified defined contribution retirement plan that covers employees 21 years of age or older who have completed one year of service and work a minimum of 1,000 hours annually. The 401(k) Plan allows eligible employees to contribute, subject to Internal Revenue Service imposed limitations, to various investment funds. The Company makes matching cash contributions equal to 50% of up to the first 6% of an employee’s eligible compensation contributed to the 401(k) Plan. Participant contributions vest immediately, whereas company matches vest 25% annually. Our consolidated subsidiaries also sponsor qualified defined contributions. These 401(k) Plans cover employees 18 to 21 years of age or older with 0 to 1 year of service and offer company matches in discretionary amounts varying from 0% up to 100% of the first 3% of an employee’s eligible compensation and 50% of the next 2% of an employee’s eligible compensation contributed to the 401(k) Plan, with vesting periods varying from 0 to 6 years. Participant contributions vest immediately.
Due to the significant negative impact on the Company’s operations and financial results from COVID-19, Ashford LLC and our consolidated subsidiaries no longer offer the company matches to their respective 401(k) programs beginning in the second quarter of 2020. For the years ended December 31, 2020, 2019 and 2018, “salaries and benefits” expense on our consolidated statements of operations included matching expense of $884,000, $867,000, and $446,000, respectively. For the years ended December 31, 2020, 2019 and 2018, “cost of revenues for project management” on our consolidated statements of operations included matching expense of $46,000, $169,000 and $47,000, respectively.
Subsidiary Compensation Plan—Our Remington subsidiary has an employee compensation plan under which it awards to employees, subject to vesting, shares of Ashford Trust and Braemar common stock, which were purchased on the open market. The compensation plan liability is based on ratably accrued vested shares through December 31, 2020, which are exercisable upon vesting. As of December 31, 2020 and 2019, the subsidiary compensation plan accrued liability in the amount of $89,000 and $415,000, respectively, was recorded in “accounts payable and accrued expenses” in our consolidated balance sheets. For the year ended December 31, 2020 and 2019, the related gain of $131,000 and loss of $47,000, respectively, incurred
ASHFORD INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
subsequent to our acquisition of Remington in November 2019, was included in “salaries and benefits” in our consolidated statements of operations. See note 9.
17. Related Party Transactions
As an asset manager providing advisory services to Ashford Trust and Braemar, as well as holding an ownership interest in other businesses providing products and services to the hospitality industry, including Ashford Trust and Braemar, related party transactions are inherent in our business. Details of our related party transactions are presented below. See note 20 for details regarding concentration of risk and percentage of our consolidated subsidiaries’ total revenues earned from Ashford Trust and Braemar.
Ashford Trust—We are a party to an amended and restated advisory agreement, as amended, with Ashford Trust and Ashford Trust OP. Prior to June 26, 2018, the base fee was paid quarterly based on a declining sliding scale percentage of Ashford Trust’s total market capitalization plus the Key Money Asset Management Fee (defined as the aggregate gross asset value of all key money assets multiplied by 0.70%), subject to a minimum quarterly base fee, as payment for managing its day-to-day operations in accordance with its investment guidelines. Total market capitalization includes the aggregate principal amount of its consolidated indebtedness (including its proportionate share of debt of any entity that is not consolidated but excluding its joint venture partners’ proportionate share of consolidated debt). The range of base fees on the scale are between 0.50% and 0.70% per annum for total market capitalization that ranges from less than $6.0 billion to greater than $10.0 billion. Upon effectiveness of the Ashford Trust ERFP Agreement on June 29, 2018, the base fee is paid monthly as a percentage of Ashford Trust’s total market capitalization on a declining sliding scale plus the Net Asset Fee Adjustment, as defined in our advisory agreement, subject to a minimum monthly base fee.
On January 14, 2021, the Company entered into the Second Amended and Restated Advisory Agreement with Ashford Trust. The Second Amended and Restated Advisory Agreement amends and restates the terms of the Amended and Restated Advisory Agreement, dated June 10, 2015, as amended by the Enhanced Return Funding Program Agreement and Amendment No. 1 to the Amended and Restated Advisory Agreement, dated as of June 26, 2018. In connection with the transactions contemplated by the Credit Agreement, dated as of January 15, 2021 (the “Credit Agreement”), by and among Ashford Trust, Oaktree and the lenders party thereto, on January 15, 2021, the Company entered into the SNDA with Ashford Trust and Oaktree pursuant to which the Company agreed to subordinate to the prior repayment in full of all obligations under the Credit Agreement, (1) prior to the later of (i) the second anniversary of the Credit Agreement and (ii) the date accrued interest “in kind” is paid in full, advisory fees (other than reimbursable expenses) in excess of 80% of such fees paid during the fiscal year ended December 31, 2019, (2) any termination fee or liquidated damages amounts under the advisory agreement, or any amount owed under any enhanced return funding program in connection with the termination of the advisory agreement or sale or foreclosure of assets financed thereunder, and (3) any payments to Lismore in connection with the transactions contemplated by the Credit Agreement.
At December 31, 2020, the quarterly base fee was 0.70% per annum. Reimbursement for overhead, internal audit, risk management advisory services and asset management services, including compensation, benefits and travel expense reimbursements, are billed monthly to Ashford Trust based on a pro rata allocation as determined by the ratio of Ashford Trust’s net investment in hotel properties in relation to the total net investment in hotel properties for both Ashford Trust and Braemar. We also record advisory revenue for equity grants of Ashford Trust common stock and LTIP units awarded to our officers and employees in connection with providing advisory services equal to the grant date fair value of the award in proportion to the requisite service period satisfied during the period, as well as an offsetting expense in an equal amount included in “reimbursed expenses.” We are also entitled to an incentive advisory fee that is measured annually in each year that Ashford Trust’s annual total stockholder return exceeds the average annual total stockholder return for Ashford Trust’s peer group, subject to the FCCR Condition, as defined in our advisory agreement.
In addition, Premier is party to a master project management agreement with Ashford Trust OP and Ashford TRS Corporation, a subsidiary of Ashford Trust OP, and certain of its affiliates (collectively, “Ashford Trust TRS”) to provide comprehensive and cost-effective design, development, architectural, and project management services and a related mutual exclusivity agreement with Ashford Trust and Ashford Trust OP. On March 20, 2020, we amended the master project management agreement to provide that Premier’s fees shall be paid by Ashford Trust to Premier upon the completion of any work provided by third party vendors to Ashford Trust.
Further, Ashford Trust entered into hotel master management agreements with Remington Lodging (then wholly-owned by Mr. Monty J. Bennett and Mr. Archie Bennett, Jr.) governing the terms of Remington Lodging’s provision of hotel management services and project management services with respect to hotels owned or leased by Ashford Trust in 2003, as amended, and
ASHFORD INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2006. In connection with the Company’s acquisition of Premier from Remington Lodging in August 2018, Ashford Trust amended and restated the original hotel master management agreement to provide only for hotel management services to be provided to Ashford Trust’s TRSs by Remington Lodging by entering into the Consolidated, Amended and Restated Hotel Master Management Agreement dated as of August 8, 2018 (the “Ashford Trust Master Hotel management Agreement”).
In connection with the Company’s subsequent acquisition of Remington Lodging on November 6, 2019, Remington Lodging became a subsidiary of the Company, and the Ashford Trust Master Hotel Management Agreement between Remington Lodging and Ashford Trust remains in effect. Ashford Trust pays the Company a monthly hotel management fee equal to the greater of $14,000 per hotel (increased annually based on consumer price index adjustments) or 3% of gross revenue (the “base fee”) as well as annual incentive hotel management fees, if certain operational criteria are met and other general and administrative expense reimbursements. Under the original terms of the Ashford Trust Master Hotel Management Agreement, Ashford Trust paid us on the fifth day of each month for the base fees in the preceding month. On March 13, 2020, Ashford Trust entered into the Ashford Trust Hotel Management Letter Agreement with the Company. In order to allow the Company to better manage our corporate working capital and to ensure the continued efficient operation of the Ashford Trust hotels managed by Remington, Ashford Trust agreed to pay the base fee and to reimburse all expenses for Remington-managed hotels on a weekly basis for the preceding week, rather than on a monthly basis. The Ashford Trust Hotel Management Letter Agreement went into effect on March 13, 2020 and will continue until terminated by Ashford Trust.
On March 20, 2020, Lismore, a wholly owned subsidiary of the Company, entered into the Ashford Trust Agreement. Pursuant to the Ashford Trust Agreement, Lismore shall, during the term of the agreement (which commenced on March 20, 2020 and shall end on the date that is twelve months following the commencement date, or upon it being terminated by Ashford Trust on not less than thirty days written notice) negotiate the refinancing, modification or forbearance of the existing mortgage debt on Ashford Trust’s hotels. For the purposes of the Ashford Trust Agreement, financing shall include, without limitation, senior or subordinate loan financing, provided in any single transaction or a combination of transactions, including, mortgage loan financing, mezzanine loan financing, or subordinate loan financing encumbering the applicable hotel or unsecured loan financing.
On July 1, 2020, Lismore and Ashford Trust amended and restated the Ashford Trust Agreement with an effective date of April 6, 2020. Pursuant to the amended and restated agreement, the term of the agreement was extended to 24 months following the commencement date. In connection with the services to be provided by Lismore under the amended and restated agreement, Lismore received a fee of $2.6 million in three equal installments of $857,000 per month beginning July 20, 2020, and ending on September 20, 2020. Lismore is also entitled to receive a fee that is calculated and payable as follows: (i) a fee equal to 25 basis points (0.25%) of the amount of a loan, payable upon the acceptance by the applicable lender of any forbearance or extension of such loan, or in the case where a third-party agent or contractor engaged by Ashford Trust has secured an extension of the maturity date equal to or greater than 12 months of any such loan, then the amount payable to Lismore shall be reduced to 10 basis points (0.10%); (ii) a fee equal to 75 basis points (0.75%) of the amount of any principal reduction of a loan upon the acceptance by any lender of any principal reduction of such loan; and (iii) a fee equal to 150 basis points (1.50%) of the implied conversion value (but in any case, no less than 50% of the face value of such loan or loans) of a loan upon the acceptance by any lender of any debt to equity conversion of such loan.
At the time of amendment, Lismore had been paid approximately $8.3 million, in the aggregate, pursuant to the original agreement. Under the amended and restated agreement, Ashford Trust is still entitled, in the event that Ashford Trust does not complete, for any reason, extensions or forbearances during the term of the agreement equal to or greater than approximately $4.1 billion, to offset, against any fees Ashford Trust or its affiliates owe pursuant to the advisory agreement, a portion of the fee previously paid by Ashford Trust to Lismore equal to the product of (x) approximately $4.1 billion minus the amount of extensions or forbearances completed during the term of the agreement multiplied by (y) 0.125%. For the year ended December 31, 2020, the Company recognized revenue of $5.7 million. As of December 31, 2020, the Company recorded $7.3 million as deferred income of which $680,000 is subject to claw back. The deferred income related to the various Lismore fees described above will be recognized over the 24 month term of the agreement on a straight line basis as the service is rendered, only to the extent it is probable that a significant reversal of revenue will not occur. Constraints relating to variable consideration are resolved generally upon the closing of a transaction or financing event and the resulting change in the transaction price will be adjusted on a cumulative catch-up basis in the period a transaction or financing event closes. See the table below for details of the revenue recognized by the Company and note 3 for additional discussion of the related deferred income.
ASHFORD INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
On October 16, 2020, the independent members of the Board provided Ashford Trust a 30-day deferral on the payment of: (i) approximately $3.0 million in base advisory fees due to the Company with respect to the month of October 2020; (ii) approximately $1.0 million in reimbursable expenses due to the Company with respect to the month of October 2020, payable under the amended and restated advisory agreement, as amended, with Ashford Trust and Ashford Trust OP; and (iii) $3.0 million of success fees earned by Lismore in the third quarter of 2020. The Board also accelerated approximately $506,000 in claw back credit due to Ashford Trust which, absent a waiver, would occur after the expiration of the Ashford Trust Agreement. In addition, the independent members of the Board provided to Ashford Trust a limited waiver of any claim against Ashford Trust and Ashford Trust’s affiliates, and each of their officers and directors, for breach of the advisory agreement and Ashford Trust Agreement or any damages that may have arisen in absence of the success fee deferrals.
On November 5, 2020, the independent members of the Board provided Ashford Trust: (i) a deferral on the payment of base advisory fees with respect to October 2020 in the amount of approximately $3.0 million that were previously deferred on October 16, 2020; (ii) a deferral on the payment of approximately $3.0 million of success fees earned by Lismore that were previously deferred on October 16, 2020; (iii) a deferral on the payment of approximately $3.0 million in base advisory fees due to the Company with respect to the month of November 2020; (iv) a deferral on the payment of any Lismore success fees that may be earned during November 2020, such that each such deferred payment shall be due and payable on December 1, 2020; and (v) a limited waiver of any claim against Ashford Trust and Ashford Trust’s affiliates, and each of their officers and directors, for breach of the advisory agreement and Ashford Trust Agreement or any damages that may have arisen in absence of the fee deferrals. In addition, the independent members of the Board waived the obligation of Ashford Trust to replace the FF&E owned by the Company at Ashford Trust’s Embassy Suites New York Manhattan Times Square hotel that was lost when Ashford Trust consummated a deed-in-lieu of foreclosure transaction with the mezzanine lender. The Company recorded a related loss on disposal of FF&E of $6.4 million within “other” operating expense in our consolidated statements of operations for the year ended December 31, 2020. See “ERFP Commitments” below.
On November 26, 2020, the independent members of the Board provided Ashford Trust: (i) a deferral of the payment of the base advisory fees that were previously deferred for the months of October 2020 and November 2020; (ii) a deferral of approximately $3.0 million in base advisory fees with respect to the month of December 2020; (iii) a deferral of the payment of Lismore success fees that were previously deferred for the months of October 2020 and November 2020; (iv) a deferral of any Lismore success fees for the month of December 2020. The foregoing payments will now be due and payable on January 4, 2021. Additionally, the independent members of the board of directors of Ashford Inc. waived any claim against Ashford Trust and Ashford Trust’s affiliates and each of their officers and directors for breach of the advisory agreement and Ashford Trust Agreement or any damages that may have arisen in absence of such fee deferrals.
On January 4, 2021, the independent members of the Board provided Ashford Trust: (i) a deferral of the payment of the base advisory fees that were previously deferred for the months of October 2020, November 2020 and December 2020; (ii) a deferral of approximately $2.8 million in base advisory fees with respect to the month of January 2021; (iii) a deferral of the payment of Lismore success fees that were previously deferred for the months of October 2020, November 2020 and December 2020; (iv) a deferral of any Lismore success fees for the month of January 2021. The foregoing payments will now be due and payable on January 11, 2021. Additionally, the independent members of the board of directors of Ashford Inc. waived any claim against Ashford Trust and Ashford Trust’s affiliates and each of their officers and directors for breach of the advisory agreement and Ashford Trust Agreement or any damages that may have arisen in absence of such fee deferrals.
On January 11, 2021, the independent members of the Board provided Ashford Trust an additional deferral of the base advisory fees and any Lismore success fees for the months of October 2020, November 2020, December 2020 and January 2021 that were previously deferred such that all such fees would be due and payable on the earlier of (x) January 18, 2021 and (y) immediately prior to the closing of Credit Agreement between Ashford Trust and Oaktree. On January 11, 2021, the Board provided Ashford Trust with the foregoing request. Additionally, the Board waived any claim against Ashford Trust and Ashford Trust’s affiliates and each of their officers and directors for breach of the advisory agreement and Ashford Trust Agreement or any damages that may have arisen in absence of such fee deferral. In accordance with the terms of the previously disclosed deferrals, Ashford Trust paid the Company $14.4 million on January 15, 2021.
The following table summarizes the revenues and expenses related to Ashford Trust (in thousands):
ASHFORD INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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Year Ended December 31,
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2020
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2019
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2018
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REVENUES BY TYPE
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Advisory services revenue:
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|
Base advisory fee (7)
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$
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34,744
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|
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$
|
32,486
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|
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$
|
35,482
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|
|
|
|
|
|
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|
|
|
|
|
|
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|
|
|
|
|
|
Incentive advisory fee (1)
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|
|
|
|
—
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|
|
—
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|
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1,809
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|
|
|
|
|
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|
|
|
|
|
|
|
Total advisory services revenue
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34,744
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32,486
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37,291
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Hotel management:
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Base management fees
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15,923
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|
|
3,796
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|
|
—
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Incentive management fees
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|
|
—
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|
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434
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|
|
—
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Total hotel management revenue (2)
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|
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15,923
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|
|
4,230
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|
|
—
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|
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Project management revenue (3)
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4,964
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16,587
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|
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5,821
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Audio visual revenue (4)
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|
|
—
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|
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—
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|
|
88
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Other revenue
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Debt placement and related fees (5)
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5,853
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|
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1,294
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|
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5,094
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|
|
|
|
|
|
|
|
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Claims management services (6)
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|
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118
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|
75
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|
|
76
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Lease revenue (7)
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|
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—
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3,783
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|
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670
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Other services (8)
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1,496
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1,784
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|
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1,968
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Total other revenue
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7,467
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6,936
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7,808
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|
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Cost reimbursement revenue
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140,242
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|
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71,479
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|
|
35,581
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Total revenues
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$
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203,340
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|
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$
|
131,718
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|
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$
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86,589
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|
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|
|
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|
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REVENUES BY SEGMENT (9)
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REIT advisory
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$
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50,574
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|
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$
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63,345
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|
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$
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72,343
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Remington
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136,600
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|
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44,394
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|
|
—
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Premier
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6,800
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|
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20,004
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|
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7,096
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|
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JSAV
|
|
|
|
|
—
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|
|
—
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|
|
88
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|
OpenKey
|
|
|
|
|
234
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|
|
111
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|
|
97
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|
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Corporate and other
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9,132
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|
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3,864
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|
|
6,965
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|
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Total revenues
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|
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$
|
203,340
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|
|
$
|
131,718
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|
|
86,589
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|
|
|
|
|
|
|
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COST OF REVENUES
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|
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Cost of audio visual revenues (4)
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|
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$
|
2,241
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|
|
$
|
7,438
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|
|
$
|
3,444
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|
|
|
|
|
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|
|
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SUPPLEMENTAL REVENUE INFORMATION
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Audio visual revenue from guests at REIT properties (4)
|
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$
|
5,123
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|
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$
|
16,897
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|
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$
|
7,853
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________
(1) Incentive advisory fee for the year ended December 31, 2018, includes the third year installment of the 2016 incentive advisory fee, which was paid in January 2019. Incentive fee payments are subject to meeting the December 31 FCCR Condition each year, as defined in the Ashford Trust advisory agreement. Ashford Trust’s annual total stockholder return has not met the incentive fee threshold in any of the annual measurement periods subsequent to the 2016 measurement period.
ASHFORD INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(2) Hotel management revenue is reported within our Remington segment. Base management fees are recognized when services have been rendered. Remington receives base management fees of 3% of gross hotel revenue for managing the hotel employees and daily operations of the hotels, subject to a specified floor (which is subject to increase annually based on increases in the consumer price index). See note 3 for discussion of the hotel management revenue recognition policy.
(3) Project management revenue primarily consists of revenue generated within our Premier segment by providing design, development, architectural, and project management services for which Premier receives fees. See note 3 for discussion of the project management revenue recognition policy.
(4) JSAV primarily contracts directly with customers to whom it provides audio visual services. JSAV recognizes the gross revenue collected from their customers by the hosting hotel or venue. Commissions retained by the hotel or venue, including Ashford Trust, are recognized in “cost of revenues for audio visual” in our consolidated statements of operations. See note 3 for discussion of the audio visual revenue recognition policy.
(5) Debt placement and related fees are earned by Lismore for providing debt placement, modification, forbearance and refinancing services.
(6) Claims management services include revenue earned from providing insurance claim assessment and administration services.
(7) In connection with our ERFP Agreements and legacy key money transaction with Ashford Trust, we lease FF&E to Ashford Trust rent-free. Our ERFP leases entered into in 2018 commenced on December 31, 2018. Consistent with our accounting treatment prior to adopting ASU 2016-02, other revenue for the year ended December 31, 2019, includes a portion of the base advisory fee for leases commencing prior to our adoption, which is equal to the estimated fair value of the lease payments that would have been made.
(8) Other services revenue is primarily associated with other hotel products and services, such as mobile key applications and hypoallergenic premium rooms, provided to Ashford Trust by our consolidated subsidiaries, OpenKey and Pure Wellness.
(9) See note 19 for discussion of segment reporting.
The following table summarizes amounts due (to) from Ashford Trust, net at December 31, 2020 and 2019 associated primarily with the advisory services fee and other fees discussed above, as it relates to each of our consolidated entities (in thousands):
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December 31, 2020
|
|
December 31, 2019
|
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Ashford LLC
|
$
|
9,152
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$
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(621)
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AIM
|
(111)
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82
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Remington
|
498
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2,093
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Premier
|
(268)
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1,882
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JSAV
|
136
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|
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1,070
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OpenKey
|
12
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|
2
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Pure Wellness
|
359
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|
|
297
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|
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Lismore
|
3,420
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|
|
—
|
|
|
|
|
|
|
|
Due from Ashford Trust
|
$
|
13,198
|
|
|
$
|
4,805
|
|
Braemar—We are also a party to an amended and restated advisory agreement with Braemar and Braemar OP. Prior to January 15, 2019, the base fee was paid monthly calculated as 1/12th of 0.70% of Braemar’s total market capitalization plus the Key Money Asset Management Fee (defined in the advisory agreement as the aggregate gross asset value of all key money assets multiplied by 1/12th of 0.70%), subject to a minimum monthly base fee, as payment for managing its day-to-day operations in accordance with its investment guidelines. Total market capitalization includes the aggregate principal amount of Braemar’s consolidated indebtedness (including its proportionate share of debt of any entity that is not consolidated but excluding its joint venture partners’ proportionate share of consolidated debt). Upon effectiveness of the Braemar ERFP Agreement on January 15, 2019, the base fee is paid monthly calculated as 1/12th of 0.70% of Braemar’s total market capitalization plus the Net Asset Fee Adjustment, as defined in our advisory agreement, subject to a minimum monthly base fee. Reimbursement for overhead, internal audit, risk management advisory services and asset management services, including compensation, benefits and travel expense reimbursements, are billed monthly to Braemar based on a pro rata allocation as determined by the ratio of Braemar’s net investment in hotel properties in relation to the total net investment in hotel properties for both Ashford Trust and Braemar. We also record advisory revenue for equity grants of Braemar common stock and LTIP
ASHFORD INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
units awarded to our officers and employees in connection with providing advisory services equal to the grant date fair value of the award in proportion to the requisite service period satisfied during the period, as well as an offsetting expense in an equal amount included in “reimbursed expenses.” We are also entitled to an incentive advisory fee that is measured annually in each year that Braemar’s annual total stockholder return exceeds the average annual total stockholder return for Braemar’s peer group, subject to the FCCR Condition, as defined in the advisory agreement.
In addition, Premier is party to a master project management agreement with Braemar OP and Braemar TRS Yountville LLC, a limited liability company existing under the laws of the state of Delaware and wholly-owned subsidiary of Braemar OP (“Braemar TRS”) to provide comprehensive and cost-effective design, development, architectural, and project management services and a related mutual exclusivity agreement with Braemar and Braemar OP. On March 20, 2020, we amended the project management agreement to provide that Premier’s fees shall be paid by Braemar to Premier upon the completion of any work provided by third party vendors to Braemar.
In 2014, Braemar entered into a hotel master management agreement with Remington Lodging (then wholly-owned by Mr. Monty J. Bennett, our Chairman and Mr. Archie Bennett, Jr., who is Monty J. Bennett’s father.) governing the terms of Remington Lodging’s provision of hotel management services and project management services with respect to hotels owned or leased by Braemar. In connection with the Company’s acquisition of Premier from Remington Lodging in August 2018, Braemar amended and restated the original hotel master management agreement to provide only for hotel management services to be provided to Braemar’s TRSs by Remington Lodging by entering into the Amended and Restated Hotel Master Management Agreement dated as of August 8, 2018, which agreement we refer to below as the “Braemar master hotel management agreement.” In connection with the Company’s subsequent acquisition of Remington Lodging on November 6, 2019, Remington Lodging became a subsidiary of the Company, and the Braemar master hotel management agreement between Remington Lodging and Braemar remains in effect. Braemar pays the Company a monthly hotel management fee equal to the greater of $14,000 per hotel (increased annually based on consumer price index adjustments) or 3% of gross revenue (the “base fee”) as well as annual incentive hotel management fees, if certain operational criteria are met and other general and administrative expense reimbursements. Under the original terms of the Braemar master hotel management agreement, Braemar paid us on the fifth day of each month for the base fees in the preceding month. On March 13, 2020, Braemar entered into the Braemar Hotel Management Letter Agreement with the Company. In order to allow the Company to better manage its corporate working capital and to ensure the continued efficient operation of the Braemar hotels managed by Remington, Braemar agreed to pay the base fee and to reimburse all expenses for Remington-managed hotels on a weekly basis for the preceding week, rather than on a monthly basis. The Braemar Hotel Management Letter Agreement went into effect on March 13, 2020 and will continue until terminated by Braemar.
On March 20, 2020, Lismore entered into the Braemar Agreement. Pursuant to the Braemar Agreement, Lismore shall, during the term of the agreement (which commenced on March 20, 2020 and shall end on the date that is twelve months following the commencement date, or upon it being terminated by Braemar on not less than thirty days written notice) negotiate the refinancing, modification or forbearance of the existing mortgage and mezzanine debt on Braemar’s hotels. For the purposes of the Braemar Agreement, financing shall include, without limitation, senior or subordinate loan financing, provided in any single transaction or a combination of transactions, including, mortgage loan financing, mezzanine loan financing, or subordinate loan financing encumbering the applicable hotel or unsecured loan financing.
In connection with the services provided by Lismore, Lismore shall be paid an advisory fee of up to 50 basis points (0.50%) of the aggregate amount of the modifications, forbearances or refinancings, of the Braemar Financings calculated and payable as follows: (i) 0.125% of the aggregate amount of potential Braemar Financings upon execution of the Braemar Agreement; (ii) 0.125% payable in six equal installments beginning April 20, 2020 and ending on September 20, 2020; provided, however, in the event Braemar does not complete, for any reason, Braemar Financings during the term of the Braemar Agreement equal to or greater than $1.1 billion, then Braemar shall offset, against any fees owed by Braemar or its affiliates pursuant to the advisory agreement, a portion of the fee paid by Braemar to Lismore pursuant to this section equal to the product of (x) the amount of Braemar Financings completed during the term of the Braemar Agreement minus $1.1 billion multiplied by (y) 0.125%; and (iii) 25 basis points (0.25%) payable upon the acceptance by the applicable lender of any Braemar Financing. For the year ended December 31, 2020, the Company recognized revenue of $2.6 million. As of December 31, 2020, the Company recorded $1.6 million as deferred income of which $682,000 is subject to claw back. The deferred income related to the various Lismore fees described above will be recognized over the 12 month term of the agreement on a straight line basis as the service is rendered, only to the extent it is probable that a significant reversal of revenue will not occur. Constraints relating to variable consideration are resolved generally upon the closing of a transaction or financing event and the resulting change in the transaction price will be adjusted on a cumulative catch-up basis in the period a transaction or financing event closes.
ASHFORD INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table summarizes the revenues related to Braemar (in thousands):
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
|
|
2020
|
|
2019
|
|
2018
|
|
REVENUES BY TYPE
|
|
|
|
|
|
|
|
|
|
|
Advisory services revenue:
|
|
|
|
|
|
|
|
|
|
|
Base advisory fee (8)
|
|
|
|
|
$
|
9,981
|
|
|
$
|
10,499
|
|
|
$
|
9,423
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incentive advisory fee (1)
|
|
|
|
|
—
|
|
|
678
|
|
|
678
|
|
|
Other advisory revenue (2)
|
|
|
|
|
522
|
|
|
521
|
|
|
521
|
|
|
Total advisory services revenue
|
|
|
|
|
10,503
|
|
|
11,698
|
|
|
10,622
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hotel management:
|
|
|
|
|
|
|
|
|
|
|
Base management fees
|
|
|
|
|
1,037
|
|
|
248
|
|
|
—
|
|
|
Incentive management fees
|
|
|
|
|
—
|
|
|
38
|
|
|
—
|
|
|
Total hotel management revenue (3)
|
|
|
|
|
1,037
|
|
|
286
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Project management revenue (4)
|
|
|
|
|
2,127
|
|
|
8,547
|
|
|
2,979
|
|
|
Audio visual revenue (5)
|
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt placement and related fees (6)
|
|
|
|
|
2,559
|
|
|
704
|
|
|
999
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Claims management services (7)
|
|
|
|
|
108
|
|
|
135
|
|
|
137
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease revenue (8)
|
|
|
|
|
—
|
|
|
335
|
|
|
335
|
|
|
Other services (9)
|
|
|
|
|
1,140
|
|
|
1,277
|
|
|
857
|
|
|
Total other revenue
|
|
|
|
|
3,807
|
|
|
2,451
|
|
|
2,328
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost reimbursement revenue
|
|
|
|
|
19,908
|
|
|
13,556
|
|
|
8,927
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
|
|
$
|
37,382
|
|
|
$
|
36,538
|
|
|
$
|
24,856
|
|
|
|
|
|
|
|
|
|
|
|
|
|
REVENUES BY SEGMENT (10)
|
|
|
|
|
|
|
|
|
|
|
REIT advisory
|
|
|
|
|
$
|
19,581
|
|
|
$
|
21,334
|
|
|
$
|
19,507
|
|
|
Remington
|
|
|
|
|
10,534
|
|
|
2,754
|
|
|
—
|
|
|
Premier
|
|
|
|
|
2,848
|
|
|
10,123
|
|
|
3,493
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OpenKey
|
|
|
|
|
84
|
|
|
52
|
|
|
29
|
|
|
Corporate and other
|
|
|
|
|
4,335
|
|
|
2,275
|
|
|
1,827
|
|
|
Total revenues
|
|
|
|
|
$
|
37,382
|
|
|
$
|
36,538
|
|
|
$
|
24,856
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COST OF REVENUES
|
|
|
|
|
|
|
|
|
|
|
Cost of audio visual revenues (5)
|
|
|
|
|
$
|
495
|
|
|
$
|
561
|
|
|
$
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL REVENUE INFORMATION
|
|
|
|
|
|
|
|
|
|
|
Audio visual revenues from guests at REIT properties (5)
|
|
|
|
|
$
|
1,151
|
|
|
$
|
1,329
|
|
|
$
|
7
|
|
________
ASHFORD INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) During the year ended December 31, 2020, the Company determined it was no longer probable Braemar would meet the minimum FCCR Condition requirement, as stated in the Braemar advisory agreement, related to the third year installment of Braemar’s 2018 incentive advisory fee. As such, the Company did not recognize any incentive fee revenue related to Braemar in the year ended December 31, 2020. Incentive advisory fee for the year ended December 31, 2019, includes the pro-rata portion of the second year installment of the 2018 incentive advisory fee, which was paid in January 2020. Incentive advisory fee for the year ended December 31, 2018, includes the first year installment of the 2018 incentive advisory fee, which was paid in January 2019. Incentive fee payments are subject to meeting the December 31 FCCR Condition each year, as defined in the Braemar advisory agreement. Braemar’s annual total stockholder return did not meet the relevant incentive fee thresholds during the 2020, 2019 and 2017 measurement periods. See note 3.
(2) In connection with our Fourth Amended and Restated Braemar Advisory Agreement, a $5.0 million cash payment was made by Braemar upon approval by Braemar’s stockholders, which is recognized over the 10-year initial term.
(3) Hotel management revenue is reported within our Remington segment. Base management fees are recognized when services have been rendered. Remington receives base management fees of 3% of gross hotel revenue for managing the hotel employees and daily operations of the hotels, subject to a specified floor (which is subject to increase annually based on increases in the consumer price index). See note 3 for discussion of the hotel management revenue recognition policy.
(4) Project management revenue primarily consists of revenue generated within our Premier segment by providing design, development, architectural, and project management services for which Premier receives fees. See note 3 for discussion of the project management revenue recognition policy.
(5) JSAV primarily contracts directly with customers to whom it provides audio visual services. JSAV recognizes the gross revenue collected from their customers by the hosting hotel or venue. Commissions retained by the hotel or venue, including Braemar, are recognized in “cost of revenues for audio visual” in our consolidated statements of operations. See note 3 for discussion of the audio visual revenue recognition policy.
(6) Debt placement and related fees are earned by Lismore for providing debt placement, modification, forbearance and refinancing services.
(7) Claims management services include revenue earned from providing insurance claim assessment and administration services.
(8) In connection with our legacy key money transaction with Braemar which commenced prior to 2019, we lease FF&E to Braemar rent-free. Consistent with our accounting treatment prior to adopting ASU 2016-02, other revenue for the year ended December 31, 2019, includes a portion of the base advisory fee for leases commencing prior to our adoption, which is equal to the estimated fair value of the lease payments that would have been made.
(9) Other services revenue is primarily associated with other hotel products and services, such as mobile key applications, marine vessel transportation and hypoallergenic premium rooms, provided to Braemar by our consolidated subsidiaries, OpenKey, RED and Pure Wellness.
(10) See note 19 for discussion of segment reporting.
The following table summarizes amounts due (to) from Braemar, net at December 31, 2020 and 2019 associated primarily with the advisory services fee and other fees discussed above, as it relates to each of our consolidated entities (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
December 31, 2019
|
|
Ashford LLC
|
$
|
1,978
|
|
|
$
|
659
|
|
|
|
|
|
|
|
Remington
|
(162)
|
|
|
(99)
|
|
|
Premier
|
179
|
|
|
750
|
|
|
JSAV
|
2
|
|
|
173
|
|
|
OpenKey
|
3
|
|
|
—
|
|
|
RED
|
142
|
|
|
105
|
|
|
Pure Wellness
|
—
|
|
|
3
|
|
|
Due from Braemar
|
$
|
2,142
|
|
|
$
|
1,591
|
|
ASHFORD INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ERFP Commitments—On June 26, 2018, the Company entered into the Ashford Trust ERFP Agreement with Ashford Trust. The independent members of the board of directors of each of the Company and Ashford Trust, with the assistance of separate and independent legal counsel, engaged to negotiate the Ashford Trust ERFP Agreement on behalf of the Company and Ashford Trust, respectively. On January 15, 2019, the Company entered into the Braemar ERFP Agreement (collectively with the Ashford Trust ERFP Agreement, the “ERFP Agreements”) with Braemar. The independent members of the board of directors of each of the Company and Braemar, with the assistance of separate and independent legal counsel, engaged to negotiate the Braemar ERFP Agreement on behalf of the Company and Braemar, respectively. Under the ERFP Agreements, the Company agreed to provide $50 million (each, an “Aggregate ERFP Amount” and collectively, the “Aggregate ERFP Amounts”) to each of Ashford Trust and Braemar (collectively, the “REITs”), respectively, in connection with each such REIT’s acquisition of hotels recommended by us, with the option to increase each Aggregate ERFP Amount to up to $100 million upon mutual agreement by the parties to the respective ERFP Agreement. Under each of the ERFP Agreements, the Company will pay each REIT 10% of each acquired hotel’s purchase price in exchange for FF&E at a property owned by such REIT, which will be subsequently leased by us to such REIT rent-free. Each of the REITs must provide reasonable advance notice to the Company to request ERFP funds in accordance with the respective ERFP Agreement. The ERFP Agreements require that the Company acquire the related FF&E either at the time of the property acquisition or at any time generally within two years of the respective REITs’ acquisition of the hotel property. The Company recognizes the related depreciation tax deduction at the time such FF&E is purchased by the Company and placed into service at the respective REIT’s hotel properties. However, the timing of the FF&E being purchased and placed into service is subject to uncertainties outside of the Company’s control that could delay the realization of any tax benefit associated with the purchase of FF&E.
On March 13, 2020, the Company entered into the Extension Agreement, related to the Ashford Trust ERFP Agreement. Under the terms of the Extension Agreement, the remaining ERFP commitment funding deadline under the Ashford Trust ERFP Agreement of $11.4 million as of December 31, 2020 and December 31, 2019, has been extended from January 22, 2021 to December 31, 2022. As of March 31, 2020, the Company has no remaining ERFP commitment to Braemar under the Braemar ERFP Agreement. See note 11.
On August 19, 2020, Ashford Trust sold the Embassy Suites New York Manhattan Times Square. The hotel contained FF&E with a net book value of $6.4 million which was owned by the Company and leased to Ashford Trust rent-free pursuant to the Ashford Trust ERFP Agreement. On November 4, 2020, the independent members of the Board waived the requirement for Ashford Trust to provide replacement FF&E. As a result, the Company recorded a loss on disposal of FF&E of $6.4 million within “other” operating expense in our consolidated statements of operations for the year ended December 31, 2020.
On November 25, 2020, the Ashford Trust board of directors granted the Company in its sole and absolute discretion, the right to set-off against the remaining ERFP commitment of $11.4 million, the fees pursuant to the advisory agreement and Ashford Trust Agreement that have been or may be deferred by Ashford Inc. No fees relating to the advisory agreement and Ashford Trust Agreement were set-off against the remaining ERFP commitment as of December 31, 2020.
For the year ended December 31, 2020, Braemar purchased FF&E from the Company for $1.8 million upon expiration of the underlying leases of FF&E under the Braemar ERFP Agreement and legacy key money agreements. The Company recorded a loss on sale of the FF&E of $1.6 million which is included within “other” operating expense in our consolidated statement of operations for the year ended December 31, 2020.
Ashford Securities—On September 25, 2019, the Company announced the formation of Ashford Securities to raise capital in order to grow the Company’s existing and future platforms. In conjunction with the formation of Ashford Securities, Ashford Trust and Braemar entered into a contribution agreement with Ashford Inc. pursuant to which Ashford Trust and Braemar agreed to a combined contribution of up to $15.0 million to fund the operations of Ashford Securities. These costs were allocated initially to Ashford Trust and Braemar based on an allocation percentage of 75% to Ashford Trust and 25% Braemar. Upon reaching the earlier of $400 million in aggregate non-listed preferred equity offerings raised or June 10, 2023, there will be a true up (the “Initial True-up Date”) between Ashford Trust and Braemar whereby the actual expense reimbursements paid by each company will be based on the actual amount of capital raised by Ashford Trust and Braemar, respectively.
ASHFORD INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
On December 31, 2020, an Amended and Restated Contribution Agreement was entered into by the Company, Ashford Trust and Braemar with respect to expenses to be reimbursed by Ashford Securities. The Initial True-Up Date did not occur, and beginning on the effective date of the Amended and Restated Contribution Agreement, costs will be allocated based upon an allocation percentage of 50% to the Company, 50% to Braemar and 0% to Ashford Trust. Upon reaching the earlier of $400 million in aggregate non-listed preferred equity offerings raised or June 10, 2023, there will be an Amended and Restated true up (the “Amended and Restated True-up Date”) among the Company, Ashford Trust and Braemar whereby the actual expense reimbursement paid by each company will be based on the actual amount of capital raised by the Company, Ashford Trust and Braemar, respectively. After the Amended and Restated True-Up Date, the expense reimbursements will be allocated among the Company, Ashford Trust and Braemar quarterly based on the actual capital raised through Ashford Securities. Additionally, Braemar’s aggregate capital contributions under the Initial Contribution Agreement and the Amended and Restated Contribution Agreement shall not exceed $3.8 million unless otherwise agreed to in writing by Braemar.
As of December 31, 2020, Ashford Trust and Braemar have funded approximately $3.0 million and $996,000, respectively. The Company recognized $2.0 million and $896,000 of cost reimbursement revenue from Ashford Trust for the years ended December 31, 2020 and 2019, respectively, in our consolidated statements of operations. The Company recognized $719,000 and $347,000 of cost reimbursement revenue from Braemar for the years ended December 31, 2020 and 2019, respectively, in our consolidated statements of operations.
Other Related Party Transactions—Prior to our acquisition of Remington Lodging, we reimbursed Remington Lodging and its subsidiaries, which were beneficially owned by Mr. Monty J. Bennett, our chairman and chief executive officer and Mr. Archie Bennett, Jr., Ashford Trust’s chairman emeritus, for various overhead expenses, including rent, payroll, office supplies, travel and accounting. These charges were allocated based on various methodologies, including headcount and actual amounts incurred, and the allocations were approved quarterly by Ashford Inc. and Remington Lodging management. Reimbursements prior to our November 6, 2019 acquisition of Remington Lodging are included in “general and administrative” and “cost of revenues for project management” expenses on the consolidated statements of operations. The charges totaled $6.6 million for the years ended December 31, 2019 and 2018, respectively. The amounts due under these arrangements as of December 31, 2019, were included in “due to affiliates” on our consolidated balance sheets.
Ashford Trust held a 17.52% and 17.00% noncontrolling interest in OpenKey, and Braemar held an 8.18% and 8.58% noncontrolling interest in OpenKey as of December 31, 2020 and 2019, respectively. Ashford Trust invested $431,000, $647,000 and $667,000 in OpenKey during the years ended December 31, 2020, 2019 and 2018, respectively. Braemar invested $26,000, $332,000 and $2.0 million in OpenKey during the years ended December 31, 2020, 2019 and 2018, respectively. See also notes 1, 2, 13, and 14.
The Company or its affiliates provide to the Bennetts or their permitted designees certain services, including, but not limited to, accounting, tax and administrative services pursuant to that certain Transition Cost Sharing Agreement entered into in connection with Company’s acquisition of Remington Lodging from the Bennetts in November 2019. The gross amount of expenses and reimbursements for these transition services for the years ended December 31, 2020 and 2019 was $387,000 and $73,000, respectively.
Premier, a subsidiary of the Company, provides, from time to time, project management services to Mr. Monty J. Bennett related to the construction or maintenance of Mr. Bennett’s personal residential properties for which we are reimbursed. The gross amount of expenses and reimbursements for these project management services for the year ended December 31, 2020 and 2019 were $42,000 and $223,000.
The expenses and reimbursements for transition services and project management services are recorded on a net basis and, therefore, the reimbursed activity does not impact our consolidated statements of operations for the years ended December 31, 2020 and 2019.
An officer of JSAV owned the JSAV headquarters property including the adjoining warehouse space through December 2020 when it was sold to a third party. JSAV leases this property for $307,000 per year, with escalating lease payments based on increases in the Consumer Price Index. Rental expense for the years ended December 31, 2020, 2019 and 2018 was $308,000, $307,000, and $335,000, respectively.
At the beginning of each year, Ashford Inc.’s Risk Management department collects funds from the Ashford Trust and Braemar properties and their respective management companies in an amount equal to the actuarial forecast of that year’s expected casualty claims and associated fees. These funds are deposited into restricted cash and used to pay casualty claims throughout the year as they are incurred. The claim liability related to the restricted cash balance is included in current “other
ASHFORD INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
liabilities” in our consolidated balance sheets. See note 2.
18. Income (Loss) Per Share
The following table reconciles the amounts used in calculating basic and diluted income (loss) per share (in thousands, except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
|
|
2020
|
|
2019
|
|
2018
|
|
Net income (loss) attributable to common stockholders – basic and diluted:
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to the Company
|
|
|
|
|
$
|
(212,365)
|
|
|
$
|
(13,855)
|
|
|
$
|
10,182
|
|
|
Less: Dividends on preferred stock, declared and undeclared (1)
|
|
|
|
|
(32,095)
|
|
|
(14,435)
|
|
|
(4,466)
|
|
|
Less: Amortization of preferred stock discount
|
|
|
|
|
(2,887)
|
|
|
(1,928)
|
|
|
(730)
|
|
|
Add: Deemed Contribution on preferred stock
|
|
|
|
|
—
|
|
|
1,161
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: Undistributed net (income) allocated to unvested shares
|
|
|
|
|
—
|
|
|
—
|
|
|
(21)
|
|
|
Undistributed net income (loss) allocated to common stockholders
|
|
|
|
|
(247,347)
|
|
|
(29,057)
|
|
|
4,965
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributed and undistributed net income (loss) - basic
|
|
|
|
|
$
|
(247,347)
|
|
|
$
|
(29,057)
|
|
|
$
|
4,965
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of deferred compensation plan
|
|
|
|
|
—
|
|
|
(5,732)
|
|
|
(8,444)
|
|
|
Effect of incremental subsidiary shares
|
|
|
|
|
—
|
|
|
—
|
|
|
(1,447)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributed and undistributed net income (loss) - diluted
|
|
|
|
|
$
|
(247,347)
|
|
|
$
|
(34,789)
|
|
|
$
|
(4,926)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding – basic
|
|
|
|
|
2,284
|
|
|
2,416
|
|
|
2,170
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of deferred compensation plan shares
|
|
|
|
|
—
|
|
|
152
|
|
|
103
|
|
|
Effect of incremental subsidiary shares
|
|
|
|
|
—
|
|
|
—
|
|
|
59
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding – diluted
|
|
|
|
|
2,284
|
|
|
2,568
|
|
|
2,332
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) per share – basic:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) allocated to common stockholders per share
|
|
|
|
|
$
|
(108.30)
|
|
|
$
|
(12.03)
|
|
|
$
|
2.29
|
|
|
Income (loss) per share – diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) allocated to common stockholders per share
|
|
|
|
|
$
|
(108.30)
|
|
|
$
|
(13.55)
|
|
|
$
|
(2.11)
|
|
|
|
|
|
|
|
|
|
|
|
|
________
(1) As of December 31, 2020, the Company had aggregate undeclared preferred stock dividends of approximately $16.3 million. Undeclared dividends were deducted to arrive at net income attributable to common stockholders. See note 14.
ASHFORD INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Due to their anti-dilutive effect, the computation of diluted income (loss) per share does not reflect the adjustments for the following items (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
|
|
2020
|
|
2019
|
|
2018
|
|
Net income (loss) allocated to common stockholders is not adjusted for:
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to unvested restricted shares
|
|
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
21
|
|
|
Net income (loss) attributable to redeemable noncontrolling interests in Ashford Holdings
|
|
|
|
|
(432)
|
|
|
(54)
|
|
|
9
|
|
|
Net income (loss) attributable to redeemable noncontrolling interests in subsidiary common stock
|
|
|
|
|
(1,813)
|
|
|
(929)
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deemed contribution on preferred stock
|
|
|
|
|
—
|
|
|
(1,161)
|
|
|
—
|
|
|
Dividends on preferred stock, declared and undeclared
|
|
|
|
|
32,095
|
|
|
14,435
|
|
|
4,466
|
|
|
Amortization of preferred stock discount
|
|
|
|
|
2,887
|
|
|
1,928
|
|
|
730
|
|
|
Total
|
|
|
|
|
$
|
32,737
|
|
|
$
|
14,219
|
|
|
$
|
5,226
|
|
|
Weighted average diluted shares are not adjusted for:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of unvested restricted shares
|
|
|
|
|
23
|
|
|
11
|
|
|
9
|
|
|
Effect of assumed exercise of stock options
|
|
|
|
|
—
|
|
|
20
|
|
|
163
|
|
|
Effect of assumed conversion of Ashford Holdings units
|
|
|
|
|
4
|
|
|
4
|
|
|
4
|
|
|
Effect of incremental subsidiary shares
|
|
|
|
|
504
|
|
|
159
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of assumed conversion of preferred stock
|
|
|
|
|
4,111
|
|
|
1,837
|
|
|
575
|
|
|
Total
|
|
|
|
|
4,642
|
|
|
2,031
|
|
|
751
|
|
19. Segment Reporting
Our operating segments include: (a) REIT Advisory, which provides asset management and advisory services to other entities, (b) Remington, which provides hotel management services, (c) Premier, which provides comprehensive and cost-effective design, development, architectural, and project management services, (d) JSAV, which provides event technology and creative communications solutions services, (e) OpenKey, a hospitality focused mobile key platform that provides a universal smartphone app for keyless entry into hotel guest rooms, (f) RED, a provider of watersports activities and other travel and transportation services, (g) Marietta, which holds the leasehold rights to a single hotel and convention center property in Marietta, Georgia, (h) Pure Wellness, which provides hypoallergenic premium rooms in the hospitality industry, and (i) Lismore and REA Holdings, which provide debt placement and related services, real estate advisory services and brokerage services. For 2020, OpenKey, RED, Marietta, Pure Wellness and Lismore and REA Holdings do not meet aggregation criteria or the quantitative thresholds to individually qualify as reportable segments. However, we have elected to disclose OpenKey as a reportable segment. Accordingly, we have five reportable segments: REIT Advisory, Remington, Premier, JSAV and OpenKey. We combine the operating results of RED, Marietta, Pure Wellness and Lismore and REA Holdings into an “all other” sixth reportable segment, which we refer to as “Corporate and Other.” See footnote 3 for details of our segments’ material revenue generating activities.
Our chief operating decision maker (“CODM”) uses multiple measures of segment profitability for assessing performance of our business. Our reported measure of segment profitability is net income, although the CODM also focuses on adjusted EBITDA and adjusted net income, which exclude certain gains, losses and charges, to assess performance and allocate resources. Our CODM currently reviews assets at the corporate (consolidated) level and does not currently review segment assets to make key decisions on resource allocations.
ASHFORD INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Certain information concerning our segments for the years ended December 31, 2020, 2019, and 2018 are presented in the following tables (in thousands). Consolidated subsidiaries are reflected as of their respective acquisition dates or as of the date we were determined to be the primary beneficiary of variable interest entities.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2020
|
|
|
|
|
REIT Advisory
|
|
Remington
|
|
Premier
|
|
JSAV
|
|
OpenKey
|
|
Corporate and Other
|
|
Ashford Inc. Consolidated
|
|
|
|
|
|
|
|
|
|
|
|
REVENUE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advisory services
|
$
|
45,247
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
45,247
|
|
|
|
|
|
|
|
|
|
|
|
|
Hotel management fees
|
—
|
|
|
17,126
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
17,126
|
|
|
|
|
|
|
|
|
|
|
|
|
Project management fees
|
—
|
|
|
—
|
|
|
8,936
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
8,936
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Audio visual
|
—
|
|
|
—
|
|
|
—
|
|
|
37,881
|
|
|
—
|
|
|
—
|
|
|
37,881
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
237
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,479
|
|
|
23,886
|
|
|
25,602
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost reimbursement revenue (1)
|
24,685
|
|
|
132,547
|
|
|
2,668
|
|
|
—
|
|
|
—
|
|
|
2,736
|
|
|
162,636
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
70,169
|
|
|
149,673
|
|
|
11,604
|
|
|
37,881
|
|
|
1,479
|
|
|
26,622
|
|
|
297,428
|
|
|
|
|
|
|
|
|
|
|
|
|
EXPENSES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
9,131
|
|
|
13,943
|
|
|
12,628
|
|
|
1,968
|
|
|
19
|
|
|
2,268
|
|
|
39,957
|
|
|
|
|
|
|
|
|
|
|
|
|
Impairment
|
—
|
|
|
126,548
|
|
|
49,524
|
|
|
12,692
|
|
|
—
|
|
|
73
|
|
|
188,837
|
|
|
|
|
|
|
|
|
|
|
|
|
Other operating expenses (2)
|
8,035
|
|
|
12,751
|
|
|
7,930
|
|
|
45,125
|
|
|
4,044
|
|
|
52,101
|
|
|
129,986
|
|
|
|
|
|
|
|
|
|
|
|
|
Reimbursed expenses (1)
|
24,627
|
|
|
132,547
|
|
|
2,668
|
|
|
—
|
|
|
—
|
|
|
2,736
|
|
|
162,578
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
41,793
|
|
|
285,789
|
|
|
72,750
|
|
|
59,785
|
|
|
4,063
|
|
|
57,178
|
|
|
521,358
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING INCOME (LOSS)
|
28,376
|
|
|
(136,116)
|
|
|
(61,146)
|
|
|
(21,904)
|
|
|
(2,584)
|
|
|
(30,556)
|
|
|
(223,930)
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity in earnings (loss) of unconsolidated entities
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
212
|
|
|
212
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,253)
|
|
|
—
|
|
|
(4,136)
|
|
|
(5,389)
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of loan costs
|
—
|
|
|
—
|
|
|
—
|
|
|
(57)
|
|
|
—
|
|
|
(261)
|
|
|
(318)
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
32
|
|
|
32
|
|
|
|
|
|
|
|
|
|
|
|
|
Realized gain (loss) on investments
|
—
|
|
|
(386)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(386)
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense)
|
—
|
|
|
27
|
|
|
—
|
|
|
(48)
|
|
|
(6)
|
|
|
(237)
|
|
|
(264)
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME (LOSS) BEFORE INCOME TAXES
|
28,376
|
|
|
(136,475)
|
|
|
(61,146)
|
|
|
(23,262)
|
|
|
(2,590)
|
|
|
(34,946)
|
|
|
(230,043)
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax (expense) benefit
|
(8,066)
|
|
|
3,108
|
|
|
3,267
|
|
|
5,060
|
|
|
—
|
|
|
10,886
|
|
|
14,255
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME (LOSS)
|
$
|
20,310
|
|
|
$
|
(133,367)
|
|
|
$
|
(57,879)
|
|
|
$
|
(18,202)
|
|
|
$
|
(2,590)
|
|
|
$
|
(24,060)
|
|
|
$
|
(215,788)
|
|
|
|
|
|
|
|
|
|
|
|
________
(1) Our segments are reported net of eliminations upon consolidation. Approximately $9.4 million of hotel management revenue, cost reimbursement revenue and reimbursed expenses were eliminated in consolidation primarily for overhead expenses reimbursed to Remington including rent, payroll, office supplies, travel and accounting.
(2) Other operating expenses includes salaries and benefits, costs of revenues for project management, cost of revenues for audio visual, general and administrative expenses and other expenses.
ASHFORD INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2019
|
|
|
|
|
REIT Advisory
|
|
|
|
Remington
|
|
Premier
|
|
JSAV
|
|
OpenKey
|
|
Corporate and Other
|
|
Ashford Inc. Consolidated
|
|
|
|
|
|
|
|
|
|
|
|
REVENUE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advisory services
|
$
|
44,184
|
|
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
44,184
|
|
|
|
|
|
|
|
|
|
|
|
|
Hotel management
|
—
|
|
|
|
|
4,526
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
4,526
|
|
|
|
|
|
|
|
|
|
|
|
|
Project management fees
|
—
|
|
|
|
|
—
|
|
|
25,584
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
25,584
|
|
|
|
|
|
|
|
|
|
|
|
|
Audio visual
|
—
|
|
|
|
|
—
|
|
|
—
|
|
|
110,609
|
|
|
—
|
|
|
—
|
|
|
110,609
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
4,349
|
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
987
|
|
|
15,843
|
|
|
21,179
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost reimbursement revenue
|
36,168
|
|
|
|
|
42,761
|
|
|
4,996
|
|
|
—
|
|
|
—
|
|
|
1,243
|
|
|
85,168
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
84,701
|
|
|
|
|
47,287
|
|
|
30,580
|
|
|
110,609
|
|
|
987
|
|
|
17,086
|
|
|
291,250
|
|
|
|
|
|
|
|
|
|
|
|
|
EXPENSES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
6,778
|
|
|
|
|
2,459
|
|
|
12,494
|
|
|
1,995
|
|
|
27
|
|
|
789
|
|
|
24,542
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other operating expenses (2)
|
—
|
|
|
|
|
2,555
|
|
|
11,821
|
|
|
110,815
|
|
|
3,399
|
|
|
64,705
|
|
|
193,295
|
|
|
|
|
|
|
|
|
|
|
|
|
Reimbursed expenses (1)
|
35,643
|
|
|
|
|
42,761
|
|
|
4,996
|
|
|
—
|
|
|
—
|
|
|
1,243
|
|
|
84,643
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
42,421
|
|
|
|
|
47,775
|
|
|
29,311
|
|
|
112,810
|
|
|
3,426
|
|
|
66,737
|
|
|
302,480
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING INCOME (LOSS)
|
42,280
|
|
|
|
|
(488)
|
|
|
1,269
|
|
|
(2,201)
|
|
|
(2,439)
|
|
|
(49,651)
|
|
|
(11,230)
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity in earnings (loss) of unconsolidated entities
|
—
|
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(286)
|
|
|
(286)
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
—
|
|
|
|
|
—
|
|
|
—
|
|
|
(1,114)
|
|
|
(2)
|
|
|
(943)
|
|
|
(2,059)
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of loan costs
|
—
|
|
|
|
|
—
|
|
|
—
|
|
|
(55)
|
|
|
(35)
|
|
|
(218)
|
|
|
(308)
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
—
|
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
46
|
|
|
46
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense)
|
—
|
|
|
|
|
2
|
|
|
—
|
|
|
30
|
|
|
19
|
|
|
(48)
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME (LOSS) BEFORE INCOME TAXES
|
42,280
|
|
|
|
|
(486)
|
|
|
1,269
|
|
|
(3,340)
|
|
|
(2,457)
|
|
|
(51,100)
|
|
|
(13,834)
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax (expense) benefit
|
(9,861)
|
|
|
|
|
(140)
|
|
|
(1,248)
|
|
|
271
|
|
|
—
|
|
|
9,438
|
|
|
(1,540)
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME (LOSS)
|
$
|
32,419
|
|
|
|
|
$
|
(626)
|
|
|
$
|
21
|
|
|
$
|
(3,069)
|
|
|
$
|
(2,457)
|
|
|
$
|
(41,662)
|
|
|
$
|
(15,374)
|
|
|
|
|
|
|
|
|
|
|
|
________
(1) Our segments are reported net of eliminations upon consolidation. Approximately $1.4 million of hotel management revenue, cost reimbursement revenue and reimbursed expenses were eliminated in consolidation primarily for overhead expenses reimbursed to Remington including rent, payroll, office supplies, travel and accounting.
(2) Other operating expenses includes salaries and benefits, costs of revenues for project management, cost of revenues for audio visual, general and administrative expenses and other expenses.
ASHFORD INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2018
|
|
|
|
|
REIT Advisory
|
|
|
|
Premier
|
|
JSAV
|
|
OpenKey
|
|
Corporate and Other
|
|
Ashford Inc. Consolidated
|
|
|
|
|
|
|
|
|
|
|
|
REVENUE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advisory services
|
$
|
47,913
|
|
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
47,913
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Project management fees
|
—
|
|
|
|
|
8,802
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
8,802
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Audio visual
|
—
|
|
|
|
|
—
|
|
|
81,186
|
|
|
—
|
|
|
—
|
|
|
81,186
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
1,218
|
|
|
|
|
—
|
|
|
—
|
|
|
999
|
|
|
10,851
|
|
|
13,068
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost reimbursement revenue
|
42,719
|
|
|
|
|
1,832
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
44,551
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
91,850
|
|
|
|
|
10,634
|
|
|
81,186
|
|
|
999
|
|
|
10,851
|
|
|
195,520
|
|
|
|
|
|
|
|
|
|
|
|
|
EXPENSES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
706
|
|
|
|
|
4,358
|
|
|
2,221
|
|
|
27
|
|
|
607
|
|
|
7,919
|
|
|
|
|
|
|
|
|
|
|
|
|
Impairment
|
1,863
|
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
56
|
|
|
1,919
|
|
|
|
|
|
|
|
|
|
|
|
|
Other operating expenses (1)
|
—
|
|
|
|
|
3,428
|
|
|
79,193
|
|
|
4,510
|
|
|
55,043
|
|
|
142,174
|
|
|
|
|
|
|
|
|
|
|
|
|
Reimbursed expenses
|
42,515
|
|
|
|
|
1,832
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
44,347
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
45,084
|
|
|
|
|
9,618
|
|
|
81,414
|
|
|
4,537
|
|
|
55,706
|
|
|
196,359
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING INCOME (LOSS)
|
46,766
|
|
|
|
|
1,016
|
|
|
(228)
|
|
|
(3,538)
|
|
|
(44,855)
|
|
|
(839)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
—
|
|
|
|
|
—
|
|
|
(745)
|
|
|
—
|
|
|
(214)
|
|
|
(959)
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of loan costs
|
—
|
|
|
|
|
—
|
|
|
(47)
|
|
|
(25)
|
|
|
(169)
|
|
|
(241)
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
—
|
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
329
|
|
|
329
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense)
|
—
|
|
|
|
|
—
|
|
|
(883)
|
|
|
2
|
|
|
47
|
|
|
(834)
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME (LOSS) BEFORE INCOME TAXES
|
46,766
|
|
|
|
|
1,016
|
|
|
(1,903)
|
|
|
(3,561)
|
|
|
(44,862)
|
|
|
(2,544)
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax (expense) benefit
|
(11,146)
|
|
|
|
|
(239)
|
|
|
76
|
|
|
—
|
|
|
21,673
|
|
|
10,364
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME (LOSS)
|
$
|
35,620
|
|
|
|
|
$
|
777
|
|
|
$
|
(1,827)
|
|
|
$
|
(3,561)
|
|
|
$
|
(23,189)
|
|
|
$
|
7,820
|
|
|
|
|
|
|
|
|
|
|
|
________
(1) Other operating expenses includes salaries and benefits, costs of revenues for project management, cost of revenues for audio visual, general and administrative expenses and other expenses.
20. Concentration of Risk
During the years ended December 31, 2020, 2019 and 2018, our advisory revenue was primarily derived from our advisory agreements with Ashford Trust and Braemar. Additionally, Remington, Premier, OpenKey, RED, Pure Wellness and Lismore generated revenues through contracts with Ashford Trust and Braemar, as summarized in the table below, stated as a percentage of the consolidated subsidiaries’ total revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
|
|
2020
|
|
2019
|
|
2018
|
|
Percentage of total revenues from Ashford Trust and Braemar (1)
|
|
|
|
|
|
|
|
|
|
|
Remington
|
|
|
|
|
98.3
|
%
|
|
99.7
|
%
|
|
—
|
%
|
|
Premier
|
|
|
|
|
83.1
|
%
|
|
98.5
|
%
|
|
99.6
|
%
|
|
JSAV (2)
|
|
|
|
|
16.6
|
%
|
|
18.4
|
%
|
|
9.8
|
%
|
|
OpenKey
|
|
|
|
|
21.5
|
%
|
|
16.5
|
%
|
|
12.6
|
%
|
|
RED
|
|
|
|
|
9.8
|
%
|
|
10.8
|
%
|
|
51.7
|
%
|
|
Pure Wellness
|
|
|
|
|
73.7
|
%
|
|
60.1
|
%
|
|
58.8
|
%
|
|
Lismore
|
|
|
|
|
100.0
|
%
|
|
100.0
|
%
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
________
(1)See note 17 for details regarding our related party transactions.
(2)Represents percentage of revenues earned by JSAV from customers at Ashford Trust and Braemar hotels. See note 2 for the discussion of audio visual revenue recognition policy.
The carrying amounts of net assets related to our JSAV operations in Mexico and the Dominican Republic decreased to a net deficit of $389,000 and $30,000, respectively, as of December 31, 2020, from a net asset position of $2.3 million and $581,000 as of December 31, 2019. For discussion of revenues by geographic location see note 3.
ASHFORD INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Financial instruments that potentially subject us to significant concentrations of credit risk consist principally of cash, cash equivalents and accounts receivable. We are exposed to credit risk with respect to cash held at financial institutions that are in excess of the FDIC insurance limits of $250,000 and U.S. government treasury bond holdings. Our counterparties are investment grade financial institutions.
21. Selected Financial Quarterly Data (Unaudited)
The following is a summary of the quarterly results of operations for the years ended December 31, 2020 and 2019 (in thousands, except per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
Quarter
|
|
Second
Quarter
|
|
Third
Quarter
|
|
Fourth
Quarter
|
|
Full
Year
|
|
|
|
2020
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
$
|
133,842
|
|
|
$
|
45,598
|
|
|
$
|
55,868
|
|
|
$
|
62,120
|
|
|
$
|
297,428
|
|
|
|
|
Total operating expenses
|
312,293
|
|
|
56,737
|
|
|
70,502
|
|
|
81,826
|
|
|
521,358
|
|
|
|
|
Operating income (loss)
|
$
|
(178,451)
|
|
|
$
|
(11,139)
|
|
|
$
|
(14,634)
|
|
|
$
|
(19,706)
|
|
|
$
|
(223,930)
|
|
|
|
|
Net income (loss)
|
$
|
(178,240)
|
|
|
$
|
(8,918)
|
|
|
$
|
(14,140)
|
|
|
$
|
(14,490)
|
|
|
$
|
(215,788)
|
|
|
|
|
Net income (loss) attributable to the Company
|
$
|
(177,640)
|
|
|
$
|
(7,996)
|
|
|
$
|
(13,217)
|
|
|
$
|
(13,512)
|
|
|
$
|
(212,365)
|
|
|
|
|
Net income (loss) attributable to common stockholders
|
$
|
(186,325)
|
|
|
$
|
(16,731)
|
|
|
$
|
(21,983)
|
|
|
$
|
(22,308)
|
|
|
$
|
(247,347)
|
|
|
|
|
Basic:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to common stockholders per share (1)
|
$
|
(84.73)
|
|
|
$
|
(7.37)
|
|
|
$
|
(9.53)
|
|
|
$
|
(9.46)
|
|
|
$
|
(108.30)
|
|
|
|
|
Weighted average common shares outstanding - basic
|
2,199
|
|
|
2,269
|
|
|
2,306
|
|
|
2,359
|
|
|
2,284
|
|
|
|
|
Diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to common stockholders per share (1)
|
$
|
(84.73)
|
|
|
$
|
(7.37)
|
|
|
$
|
(9.53)
|
|
|
$
|
(9.46)
|
|
|
$
|
(108.30)
|
|
|
|
|
Weighted average common shares outstanding - diluted
|
2,199
|
|
|
2,269
|
|
|
2,306
|
|
|
2,359
|
|
|
2,284
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
Quarter
|
|
Second
Quarter
|
|
Third
Quarter
|
|
Fourth
Quarter
|
|
Full
Year
|
|
|
|
2019
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
$
|
63,320
|
|
|
$
|
63,466
|
|
|
$
|
56,889
|
|
|
$
|
107,575
|
|
|
$
|
291,250
|
|
|
|
|
Total operating expenses
|
60,778
|
|
|
62,523
|
|
|
63,690
|
|
|
115,489
|
|
|
302,480
|
|
|
|
|
Operating income (loss)
|
$
|
2,542
|
|
|
$
|
943
|
|
|
$
|
(6,801)
|
|
|
$
|
(7,914)
|
|
|
$
|
(11,230)
|
|
|
|
|
Net income (loss)
|
$
|
568
|
|
|
$
|
(329)
|
|
|
$
|
(6,591)
|
|
|
$
|
(9,022)
|
|
|
$
|
(15,374)
|
|
|
|
|
Net income (loss) attributable to the Company
|
$
|
710
|
|
|
$
|
112
|
|
|
$
|
(6,156)
|
|
|
$
|
(8,521)
|
|
|
$
|
(13,855)
|
|
|
|
|
Net income (loss) attributable to common stockholders
|
$
|
(2,572)
|
|
|
$
|
(3,163)
|
|
|
$
|
(9,428)
|
|
|
$
|
(15,055)
|
|
|
$
|
(30,218)
|
|
|
|
|
Basic:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to common stockholders per share (1)
|
$
|
(1.06)
|
|
|
$
|
(1.28)
|
|
|
$
|
(3.65)
|
|
|
$
|
(6.31)
|
|
|
$
|
(12.03)
|
|
|
|
|
Weighted average common shares outstanding - basic
|
2,419
|
|
|
2,462
|
|
|
2,580
|
|
|
2,202
|
|
|
2,416
|
|
|
|
|
Diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to common stockholders per share (1)
|
$
|
(1.13)
|
|
|
$
|
(3.00)
|
|
|
$
|
(3.94)
|
|
|
$
|
(6.31)
|
|
|
$
|
(13.55)
|
|
|
|
|
Weighted average common shares outstanding - diluted
|
2,449
|
|
|
2,717
|
|
|
2,782
|
|
|
2,206
|
|
|
2,568
|
|
|
|
_________________
(1) The sum of the basic and diluted income (loss) attributable to common stockholders per share for the four quarters in 2020 and 2019 may differ from the full year basic and diluted income (loss) attributable to common stockholders per share due to the required method of computing the weighted average diluted common shares in the respective periods.
ASHFORD INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
22. Subsequent Events
In January 2021, Remington executed two new hotel management contracts with a third-party hotel owner. In conjunction, Remington loaned approximately $2.9 million to the hotel owner. The loan requires interest only payments at an annual rate of 10% commencing on March 31, 2021. The principal balance and all accrued interest on the loan shall be due and payable to Remington in full on December 31, 2022.
On February 1, 2021, the base salaries for the Company’s executive officers (other than Mr. Bennett) and other employees were restored to their pre-reduction levels, and on February 3, 2021, the independent members of the Board of Directors of the Company restored Mr. Bennett’s salary to its pre-reduction level, effective as of February 1, 2021. In addition, and also effective as of February 1, 2021, the independent members of the Board of Directors ended the arrangement pursuant to which Mr. Bennett has been receiving his base salary in the form of common stock issued under the Company’s 2014 Incentive Plan, as amended, such that Mr. Bennett’s base salary will again be paid in cash.
Subsequent to December 31, 2020, we paid the remainder of contingent consideration due to the BAV Sellers in connection with the acquisition of BAV, including $350,000 related to the earn-out which was paid on January 11, 2021, and the final stock collar consideration payments in the amount of $870,000 and $888,000 which were paid on February 1, 2021 and March 4, 2021, respectively.
On March 9, 2021, we acquired all of the redeemable noncontrolling interests in OpenKey for a purchase price of approximately $1.9 million. Pursuant to the agreement, the purchase price will be paid to the seller in equal monthly installments over a seven year term and will include interest in arrears at an annualized rate of 4.0%. The purchase price is payable in Ashford Inc. common stock including a 10% premium or cash at our sole discretion. As a result of the acquisition, our ownership in OpenKey increased to 74.76% with the remainder held by noncontrolling interest holders, including 17.07% and 7.97% owned by Ashford Trust and Braemar, respectively. See note 17.