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 23, 2022, 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 649,099 shares of our common stock, which represented an approximately 20.6% 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 convertible at a 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 23, 2022 would have increased Mr. Monty J. Bennett and Mr. Archie Bennett, Jr.’s ownership interest in Ashford Inc. to approximately 65.0%.
We provide: (i) advisory services; (ii) asset management services; (iii) hotel management services; (iv) design and construction and architectural 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 United States 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.
Recent Developments
COVID-19, Management’s Plans and Liquidity
In December 2019, COVID-19 was identified in Wuhan, China, and subsequently spread to other regions of the world, which has resulted in significant travel restrictions and extended shutdown of numerous businesses throughout the United States. In March 2020, the World Health Organization declared COVID-19 to be a global pandemic. 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 its 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 case surges could result in further reductions in business and personal travel and could cause state and local governments to reinstate travel restrictions. The Company expects that the COVID-19 pandemic may continue to have a significant negative impact on the Company’s results of operations, financial position and cash flow in 2022 and potentially beyond. As a result, in March 2020, the Company amended payment terms pursuant to certain hotel management agreements to better manage corporate working capital, reduced planned capital expenditures, significantly reduced operating expenses and reduced the cash compensation of its executive officers and other employees, including an
arrangement pursuant to which Mr. Monty J. Bennett received his base salary in the form of common stock issued under the Company’s 2014 Incentive Plan, as amended. Additionally, the Company did not declare dividends which were due with respect to its Series D Convertible Preferred Stock for the second and fourth quarters of 2020 and the second and fourth quarters of 2021. As of December 31, 2021, the Company had aggregate undeclared preferred stock dividends of approximately $34.6 million, which relates to the second and fourth quarters of 2020 and the second and fourth quarters of 2021. On March 9, 2022, the Company declared a dividend with respect to its Series D Covertible Preferred Stock for the first quarter of 2022. The declared $8.7 million of dividends are payable on April 15, 2022 to stockholders of record on March 31, 2022.
During the first quarter of 2021, base salaries for the Company’s executive officers and other employees were restored to pre-reduction levels and the arrangement by which Mr. Monty J. Bennett received his base salary in the form of common stock ended. Additionally, the Company declared $8.4 million in dividends in each of the first and third quarters of 2021 which were due with respect to its Series D Convertible Preferred Stock. The dividends were paid on April 15 and October 15, 2021, respectively.
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 to, among other things (i) revise the term and termination rights; (ii) fix the percentage used to calculate the base fee thereunder at 0.70% per annum; (iii) update the list of peer group members; (iv) suspend the requirement that Ashford Trust maintain a minimum Consolidated Tangible Net Worth until the first fiscal quarter beginning after June 30, 2023; and (v) revise the criteria that would constitute a Company Change of Control of Ashford Trust in order to provide Ashford Trust additional flexibility to dispose of underperforming assets negatively impacted by COVID-19. In connection with the transactions contemplated by the Credit Agreement, dated as of January 15, 2021 (as amended, the “Credit Agreement”), by and among Ashford Trust, Oaktree Capital Management L.P. (“Oaktree”) and the lenders party thereto, on January 15, 2021, the Company entered into a Subordination and Non-Disturbance Agreement (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 (the “Advisory Fee Cap”), (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 Capital II LLC (formerly known as Lismore Capital LLC) (“Lismore”) in connection with the transactions contemplated by the Credit Agreement. See further discussion in note 17 to our consolidated financial statements.
On October 12, 2021, Ashford Trust entered into Amendment No. 1 to the Credit Agreement (“Amendment No. 1”) with certain funds and accounts managed by Oaktree Capital Management, L.P., as lenders, and Oaktree, as administrative agent. Amendment No. 1, subject to the conditions set forth therein, among other things, suspends Ashford Trust’s obligation to subordinate fees due under the advisory agreement if at any point there is no accrued interest outstanding or any accrued dividends on any of Ashford Trust’s preferred stock and Ashford Trust has sufficient unrestricted cash to repay in full all outstanding loans under the Credit Agreement, as amended. On December 13, 2021, Ashford Trust paid the Company $7.2 million for advisory fees that had been deferred as a result of the $29.0 million annual Advisory Fee Cap.
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, 2021, our Term Loan Agreement was in compliance with all covenants or other requirements and debt held by our subsidiaries was in compliance with all covenants or other requirements.
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 again 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 clients, Ashford Trust and
Braemar, to pay their obligations to the Company in accordance with the advisory agreements and Ashford Trust’s payment in the fourth quarter of 2021 of previously deferred advisory fees, the Company has concluded that the facts and circumstances that previously gave rise to substantial doubt about the Company’s ability to continue as a going concern have been resolved. 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, which could subsequently change our assessment. See note 17 to our consolidated financial statements.
Other Developments
On December 31, 2020, we acquired all of the redeemable noncontrolling interest shares in Inspire Event Technologies Holdings, LLC (formerly Presentation Technologies, LLC), our subsidiary doing business as INSPIRE (formerly JSAV) (“INSPIRE”) for $150,000. As a result of the acquisition, our ownership in INSPIRE increased from approximately 88% to 100%.
During the first quarter of 2021, we paid the remainder of contingent consideration due to the sellers of BAV Services, Inc. (“BAV”) 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 amounts of $870,000 and $888,000 which were paid on February 1, 2021 and March 4, 2021, respectively.
On January 4, 2021, the independent members of the board of directors (the “Board”) of Ashford Inc. agreed to: (i) defer Ashford Trust’s payment of the base advisory fees that were previously deferred for the months of October 2020, November 2020 and December 2020; (ii) defer approximately $2.8 million in base advisory fees with respect to the month of January 2021; (iii) defer Ashford Trust’s payment of Lismore success fees that were previously deferred for the months of October 2020, November 2020 and December 2020; and (iv) defer payment of Ashford Trust’s Lismore success fees for the month of January 2021. As a result, the foregoing payments became due on January 11, 2021. Additionally, the independent members of 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 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. 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.
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 each quarter at an annual rate of 10% commencing on March 31, 2021. The principal balance and any outstanding accrued interest on the loan is due and payable to Remington in full on December 31, 2022. The note receivable is recorded within “accounts receivable, net” in our consolidated balance sheet as of December 31, 2021.
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 had 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.
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, as of March 9, 2021.
On May 3, 2021, we acquired shares in RED Hospitality & Leisure, LLC (“RED”) from a noncontrolling interest holder, increasing our ownership of RED from 84.21% to 97.87% effective retroactively to January 1, 2021, for a total purchase price of $200,000. The purchase price will be paid in the form of shares of the Company’s common stock, delivered quarterly in $25,000 increments, beginning on the closing date and ending on November 15, 2022. In the fourth quarter of 2021, the Company acquired the remaining shares in RED held by a noncontrolling interest holder for a total purchase price of $75,000. The purchase price was paid as of December 31, 2021 in the form of shares of common stock of the Company.
On August 10, 2021, the Company issued a press release announcing that on August 9, 2021 it had received a notification letter from the NYSE American that the Company has regained compliance with all of the NYSE American continued listing standards set forth in Part 10, Section 1003 of the NYSE American Company Guide (the “Company Guide”). The Company previously received a notification letter (the “Letter”) from the NYSE American on August 26, 2020, which indicated that the Company was not in compliance with the standards of Sections 1003(a)(i) and 1003(a)(ii) of the Company Guide. Pursuant to these Sections, the NYSE American will normally consider suspending dealings in, or removing from the list, securities of a listed company whose stockholders’ equity is less than (i) $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) $4.0 million if it has reported losses from continuing operations or net losses in three of its four most recent fiscal years (together, the “Stockholders’ Equity Standards”). However, Section 1003(a) of the Company Guide also states that the NYSE American will not normally consider suspending dealings in, or removing from the list, the securities of a listed company that falls below the Stockholders’ Equity Standards if the listed company is in compliance with the following two standards: (1) total value of market capitalization of at least $50 million or total assets and revenue of $50 million each in its last fiscal year, or in two of its last three fiscal years (the “First Standard”), and (2) the listed company has at least 1.1 million shares publicly held, a market value of publicly held shares of at least $15.0 million and 400 round lot shareholders (the “Second Standard”).
When the Company received the Letter, it was not in compliance with the Stockholders’ Equity Standards, but it was in compliance with the First Standard because it had total assets and total revenue of at least $50 million in its last fiscal year and was in compliance with the Second Standard, except that the current market value of publicly held shares was below $15.0 million. On September 24, 2020, the Company submitted to the NYSE American a compliance plan which detailed how it intended to regain compliance with Section 1003(a) by increasing the current market value of the publicly held shares above $15.0 million while maintaining compliance with all other requirements of the First and Second Standards. As a result of management’s efforts, the Company has come into compliance with the First and Second Standards, and the NYSE American has informed the Company that it has cured the previously cited deficiencies and is in full compliance with the continued listing standards set forth in Part 10, Section 1003 of the Company Guide. Effective at the start of trading on August 10, 2021, the “.BC” designation, signifying noncompliance with the NYSE American’s listing standards, was removed from the “AINC” trading symbol.
On October 1, 2021, the Company announced that JSAV completed a strategic rebranding and is now named INSPIRE. INSPIRE is a global event solution company specializing in audio-visual, staging and production.
On March 10, 2022, the Company entered into a Limited Waiver Under Advisory Agreement (“Braemar Limited Waiver”) with Braemar, Braemar OP, Braemar TRS and Ashford LLC. On March 15, 2022, the Company entered into a Limited Waiver Under Advisory Agreement (the “Ashford Trust Limited Waiver” and together with the Braemar Limited Waiver, the “Limited Waivers”) with Ashford Trust, Ashford Trust OP, Ashford Trust TRS and Ashford LLC. Pursuant to the Limited Waivers, the parties to the Second Amended and Restated Advisory Agreement and Fifth Amended and Restated Advisory Agreement waive the operation of any provision such agreement that would otherwise limit the ability of Ashford Trust or Braemar, as applicable, in its discretion, at its cost and expense, to award during the first and second fiscal quarters of calendar year 2022 (the “Waiver Period”), cash incentive compensation to employees and other representatives of the Company; provided that, pursuant to the Ashford Trust Limited Waiver, such awarded cash incentive compensation does not exceed $8,476,000, in the aggregate, during the Waiver Period.
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.
Restatement and Revisions of Previously Issued Financial Statements
As part of the Company’s financial statement close process and preparation of the 2021 Form 10-K, the Company identified errors in its historical financial statements within its Remington segment related to both the recognition of cost reimbursement revenue and reimbursed expenses for certain insurance costs and the timing of recognition of cost reimbursement revenue and reimbursed expenses for hotel management related salaries and benefits costs that are reimbursed from hotel owners. These costs are reported gross in the Company’s consolidated statements of operations in cost reimbursement revenue with an offsetting amount reported in reimbursed expenses. The Company determined that its interim consolidated financial statements for the quarterly periods ended March 31, 2021 and 2020, June 30, 2021 and 2020 and September 30, 2021 and 2020 were materially misstated and needed to be restated and are illustrated in detail in Note 21 to the consolidated financial statements. In addition, the Company determined that its annual consolidated financial statements for the years ended December 31, 2020 and 2019 were not materially misstated but needed to be revised. The error had no impact on the Company’s consolidated balance sheets, consolidated statements of other comprehensive income (loss), consolidated statements of equity (deficit) and consolidated statements of cash flows. Amounts and disclosures included in this Form 10-K have been revised to reflect the corrected presentation.
RESULTS OF OPERATIONS
This section of this Form 10-K generally discusses 2021 and 2020 items and year-to-year comparisons between 2021 and 2020. Discussions of 2020 items and year-to-year comparisons between 2020 and 2019 that are not included in this Form 10-K can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.
Year Ended December 31, 2021 Compared to Year Ended December 31, 2020 (As Revised)
The following table summarizes the changes in key line items from our consolidated statements of operations for the year ended December 31, 2021 and December 31, 2020 (As Revised) (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, | | | | Favorable (Unfavorable) |
| 2021 | | 2020 | | | | $ Change | | % Change |
REVENUE | | | | | | | | | |
Advisory services fees | $ | 47,566 | | | $ | 45,247 | | | | | $ | 2,319 | | | 5.1 | % |
Hotel management fees | 26,260 | | | 17,126 | | | | | 9,134 | | | 53.3 | % |
Design and construction fees | 9,557 | | | 8,936 | | | | | 621 | | | 6.9 | % |
Audio visual | 49,880 | | | 37,881 | | | | | 11,999 | | | 31.7 | % |
Other | 47,329 | | | 25,602 | | | | | 21,727 | | | 84.9 | % |
Cost reimbursement revenue | 203,975 | | | 158,559 | | | | | 45,416 | | | 28.6 | % |
Total revenues | 384,567 | | | 293,351 | | | | | 91,216 | | | 31.1 | % |
EXPENSES | | | | | | | | | |
Salaries and benefits | 65,251 | | | 57,171 | | | | | (8,080) | | | (14.1) | % |
Cost of revenues for design and construction | 4,105 | | | 3,521 | | | | | (584) | | | (16.6) | % |
Cost of revenues for audio visual | 38,243 | | | 30,256 | | | | | (7,987) | | | (26.4) | % |
Depreciation and amortization | 32,598 | | | 39,957 | | | | | 7,359 | | | 18.4 | % |
General and administrative | 26,288 | | | 20,351 | | | | | (5,937) | | | (29.2) | % |
Impairment | 1,160 | | | 188,837 | | | | | 187,677 | | | 99.4 | % |
Other | 18,199 | | | 18,687 | | | | | 488 | | | 2.6 | % |
Reimbursed expenses | 203,956 | | | 158,501 | | | | | (45,455) | | | (28.7) | % |
Total expenses | 389,800 | | | 517,281 | | | | | 127,481 | | | 24.6 | % |
OPERATING INCOME (LOSS) | (5,233) | | | (223,930) | | | | | 218,697 | | | 97.7 | % |
Equity in earnings (loss) of unconsolidated entities | (126) | | | 212 | | | | | (338) | | | (159.4) | % |
| | | | | | | | | |
| | | | | | | | | |
Interest expense | (5,144) | | | (5,389) | | | | | 245 | | | 4.5 | % |
Amortization of loan costs | (322) | | | (318) | | | | | (4) | | | (1.3) | % |
Interest income | 285 | | | 32 | | | | | 253 | | | 790.6 | % |
| | | | | | | | | |
| | | | | | | | | |
Realized gain (loss) on investments | (3) | | | (386) | | | | | 383 | | | 99.2 | % |
| | | | | | | | | |
Other income (expense) | (437) | | | (264) | | | | | (173) | | | (65.5) | % |
INCOME (LOSS) BEFORE INCOME TAXES | (10,980) | | | (230,043) | | | | | 219,063 | | | 95.2 | % |
Income tax (expense) benefit | 162 | | | 14,255 | | | | | (14,093) | | | (98.9) | % |
NET INCOME (LOSS) | (10,818) | | | (215,788) | | | | | 204,970 | | | 95.0 | % |
(Income) loss from consolidated entities attributable to noncontrolling interests | 678 | | | 1,178 | | | | | (500) | | | (42.4) | % |
Net (income) loss attributable to redeemable noncontrolling interests | 215 | | | 2,245 | | | | | (2,030) | | | (90.4) | % |
NET INCOME (LOSS) ATTRIBUTABLE TO THE COMPANY | (9,925) | | | (212,365) | | | | | 202,440 | | | 95.3 | % |
Preferred dividends, declared and undeclared | (35,000) | | | (32,095) | | | | | (2,905) | | | (9.1) | % |
Amortization of preferred stock discount | (1,053) | | | (2,887) | | | | | 1,834 | | | 63.5 | % |
NET INCOME (LOSS) ATTRIBUTABLE TO COMMON STOCKHOLDERS | $ | (45,978) | | | $ | (247,347) | | | | | $ | 201,369 | | | 81.4 | % |
Net Income (Loss) Attributable to Common Stockholders. Net loss attributable to common stockholders decreased $201.4 million to a $46.0 million loss for the year ended December 31, 2021 (“2021”) compared to the year ended December 31, 2020 (“2020”) as a result of the factors discussed below.
Total Revenues. Total revenues increased by $91.2 million, or 31.1%, to $384.6 million for 2021 compared to 2020 due to the following shown below (in thousands). Cost reimbursement revenue for the year ended December 31, 2020 was revised as stated in note 2 to our consolidated financial statements.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, | | | | Favorable (Unfavorable) | | | | |
| 2021 | | 2020 | | | | $ Change | | % Change | | | | | | |
Advisory services fees: | | | | | | | | | | | | | | | |
Base advisory fees (1) | $ | 47,045 | | | $ | 44,725 | | | | | $ | 2,320 | | | 5.2 | % | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
Other advisory revenue (2) | 521 | | | 522 | | | | | (1) | | | (0.2) | % | | | | | | |
Total advisory services fees revenue | 47,566 | | | 45,247 | | | | | 2,319 | | | 5.1 | % | | | | | | |
| | | | | | | | | | | | | | | |
Hotel management fees: | | | | | | | | | | | | | | | |
Base management fees | 21,291 | | | 17,126 | | | | | 4,165 | | | 24.3 | % | | | | | | |
Incentive management fees | 4,969 | | | — | | | | | 4,969 | | | | | | | | | |
Total hotel management fees revenue (3) | 26,260 | | | 17,126 | | | | | 9,134 | | | 53.3 | % | | | | | | |
| | | | | | | | | | | | | | | |
Design and construction fees revenue (4) | 9,557 | | | 8,936 | | | | | 621 | | | 6.9 | % | | | | | | |
| | | | | | | | | | | | | | | |
Audio visual revenue (5) | 49,880 | | | 37,881 | | | | | 11,999 | | | 31.7 | % | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
Other revenue: | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
Watersports, ferry and excursion services (6) | 23,867 | | | 9,663 | | | | | 14,204 | | | 147.0 | % | | | | | | |
Debt placement and related fees (7) | 12,384 | | | 8,412 | | | | | 3,972 | | | 47.2 | % | | | | | | |
| | | | | | | | | | | | | | | |
Claims management services (8) | 81 | | | 226 | | | | | (145) | | | (64.2) | % | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
Other services (9) | 10,997 | | | 7,301 | | | | | 3,696 | | | 50.6 | % | | | | | | |
Total other revenue | 47,329 | | | 25,602 | | | | | 21,727 | | | 84.9 | % | | | | | | |
| | | | | | | | | | | | | | | |
Cost reimbursement revenue (10) | 203,975 | | | 158,559 | | | | | 45,416 | | | 28.6 | % | | | | | | |
| | | | | | | | | | | | | | | |
Total revenues | $ | 384,567 | | | $ | 293,351 | | | | | $ | 91,216 | | | 31.1 | % | | | | | | |
| | | | | | | | | | | | | | | |
REVENUES BY SEGMENT (11) | | | | | | | | | | | | | | | |
REIT advisory | $ | 74,616 | | | $ | 70,169 | | | | | $ | 4,447 | | | 6.3 | % | | | | | | |
Remington | 197,802 | | | 145,596 | | | | | 52,206 | | | 35.9 | % | | | | | | |
Premier | 12,413 | | | 11,604 | | | | | 809 | | | 7.0 | % | | | | | | |
INSPIRE | 49,900 | | | 37,881 | | | | | 12,019 | | | 31.7 | % | | | | | | |
RED | 23,867 | | | 9,663 | | | | | 14,204 | | | 147.0 | % | | | | | | |
OpenKey | 1,965 | | | 1,479 | | | | | 486 | | | 32.9 | % | | | | | | |
Corporate and other | 24,004 | | | 16,959 | | | | | 7,045 | | | 41.5 | % | | | | | | |
Total revenues | $ | 384,567 | | | $ | 293,351 | | | | | $ | 91,216 | | | 31.1 | % | | | | | | |
________
(1)The increase in base advisory fees is primarily due to higher revenue of $1.5 million from Ashford Trust and higher revenue of $825,000 from Braemar. Advisory services fees earned from Ashford Trust during the year ended December 31, 2021, includes $7.2 million of advisory fees which were paid by Ashford Trust in December of 2021 that were previously deferred as a result of the $29.0 million annual Advisory Fee Cap. See note 3 for discussion of the advisory services fees revenue recognition policy.
(2) 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.
(3) The increase in hotel management fees revenue is primarily due to increases in incentive management fees of $4.2 million and $612,000 from Ashford Trust and Braemar, respectively, and higher base management fees from Ashford Trust, Braemar and third parties of $1.9 million and $1.3 million and $1.0 million, respectively, due to increased room demand within their respective portfolios compared to the 2020 period as the industry recovers from COVID-19.
(4) The increase in design and construction fees revenue is due to higher revenue from third parties of $1.5 million due to the Company increasing their number of contracts with third parties and the industry beginning to recover from COVID-19, combined with an increase of $103,000 in design and construction fees revenue from Braemar. This was offset by a decrease in design and construction fees revenue from Ashford Trust of $932,000.
(5) The $12.0 million increase is due to a recovery in operations as the industry recovers from COVID-19.
(6) The $14.2 million increase in watersports, ferry and excursion services revenue is due to $1.2 million in revenue from RED’s expansion in the Turks and Caicos Islands in 2021 and increased demand for RED’s recreational services in the U.S. Virgin Islands and Key West, Florida as the U.S. travel and hospitality industry continues to recover from COVID-19.
(7) The increase in debt placement and related fee revenue is due to higher revenue of $5.5 million from Ashford Trust and lower revenue of $1.6 million from Braemar. Debt placement and related fees are earned by Lismore for providing debt placement, modification, forbearance and refinancing services. The change is primarily due to Lismore’s agreement with Ashford Trust for providing modifications, forbearances or refinancing of Ashford Trust’s loans due to the financial impact from COVID-19. Lismore’s agreement with Braemar expired in March 2021.
(8) Claims management services include revenue earned from providing insurance claim assessment and administration services to Ashford Trust and Braemar.
(9) The increase in other services revenue is primarily due to higher revenue of $2.4 million and $822,000 in 2021 from Marietta and Pure Wellness, respectively, due to a recovery in 2021 compared to 2020. Other services revenue primarily relates to other hotel services provided by our consolidated subsidiaries, OpenKey, Pure Wellness and Marietta, to Ashford Trust, Braemar and other third parties.
(10) The increase in cost reimbursement revenue is primarily due to an increase in Remington’s cost reimbursement revenue of $43.1 million in 2021 due a recovery in operations in 2021 compared to 2020 and an increase of $2.3 million in cost reimbursement revenue in 2021 related to reimbursable advisory expenses for Ashford Trust and Braemar.
(11) See note 19 to our consolidated financial statements for discussion of segment reporting.
Salaries and Benefits Expense. Salaries and benefits expense increased by $8.1 million, or 14.1%, to $65.3 million for 2021 compared to 2020. The change in salaries and benefits expense consisted of the following (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | Year Ended December 31, | | | | | | | |
| | | | | | | 2021 | | 2020 | | | | $ Change | | | |
Salaries and benefits: | | | | | | | | | | | | | | | | |
Salary expense | | | | | | | $ | 38,164 | | | $ | 35,173 | | | | | $ | 2,991 | | | | |
Bonus expense | | | | | | | 15,547 | | | 13,574 | | | | | 1,973 | | | | |
Benefits related expenses | | | | | | | 6,011 | | | 6,302 | | | | | (291) | | | | |
Total salaries and benefits (1) | | | | | | | 59,722 | | | 55,049 | | | | | 4,673 | | | | |
Non-cash equity-based compensation: | | | | | | | | | | | | | | | | |
Stock option grants (2) | | | | | | | 2,641 | | | 4,347 | | | | | (1,706) | | | | |
Employee equity grant expense | | | | | | | 1,217 | | | 787 | | | | | 430 | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Total non-cash equity-based compensation | | | | | | | 3,858 | | | 5,134 | | | | | (1,276) | | | | |
Non-cash (gain) loss in deferred compensation plan (3) | | | | | | | 1,671 | | | (3,012) | | | | | 4,683 | | | | |
Total salaries and benefits | | | | | | | $ | 65,251 | | | $ | 57,171 | | | | | $ | 8,080 | | | | |
________
(1) The increase in total cash salaries and benefits is primarily due to an increase in corporate employees at the Company’s corporate headquarters and Remington compared to 2020 as the industry continues to recover from COVID-19. The increase is additionally due to an increase in RED’s corporate employees compared to 2020 as RED began operating in Turks and Caicos in 2021.
(2) The decrease in stock option grant related expense in 2021 primarily relates to the to the Company not issuing any stock option grants beginning in 2020 (when the Company began to issue restricted stock in lieu of stock options under its equity incentive program).
(3) The DCP obligation is recorded as a liability at fair value with changes in fair value reflected in earnings. The loss in 2021
and the gain in 2020 are primarily attributable to increases and decreases in the fair value of the DCP obligation, respectively, which is based on the Company’s common stock price. See note 15 to our consolidated financial statements.
Cost of Revenues for Design and Construction. Cost of revenues for design and construction increased $584,000, or 16.6% to $4.1 million during 2021 compared to $3.5 million for 2020 due to increased capital expenditures by our clients as the industry recovers from COVID-19.
Cost of Revenues for Audio Visual. Cost of revenues for audio visual increased $8.0 million, or 26.4%, to $38.2 million during 2021 compared to $30.3 million for 2020, primarily due to increased operations as the industry recovers from COVID-19.
Depreciation and Amortization Expense. Depreciation and amortization expense decreased by $7.4 million, or 18.4%, to $32.6 million for 2021 compared to 2020, primarily due to the expiration of the useful lives of assets leased to Ashford Trust and Braemar under the respective ERFP Agreements. Depreciation and amortization also decreased due to the write-off of $6.4 million of FF&E in the third quarter of 2020 related to FF&E formerly leased to Ashford Trust under the Ashford Trust ERFP Agreement upon Ashford Trust’s sale of the Embassy Suites New York Manhattan Times Square and the sale of FF&E in the fourth quarter of 2020 to Braemar for FF&E formerly leased to Braemar under the Braemar ERFP Agreement at the expiration of the lease. Depreciation and amortization expense for 2021 and 2020 excludes depreciation expense related to audio visual equipment of $5.0 million and $4.9 million, respectively, which is included in “cost of revenues for audio visual” and also excludes depreciation expense for 2021 and 2020 related to marine vessels in the amount of $929,000 and $795,000, respectively, which are included in “other” operating expense.
General and Administrative Expense. General and administrative expenses increased by $5.9 million, or 29.2%, to $26.3 million for 2021 compared to 2020. The change in general and administrative expense consisted of the following (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | Year Ended December 31, | | | | | | | |
| | | | | | | 2021 | | 2020 | | | | $ Change | | | |
Professional fees (1) | | | | | | | $ | 9,234 | | | $ | 5,357 | | | | | $ | 3,877 | | | | |
Office expense | | | | | | | 7,921 | | | 7,347 | | | | | 574 | | | | |
Public company costs | | | | | | | 669 | | | 336 | | | | | 333 | | | | |
Director costs | | | | | | | 2,007 | | | 1,390 | | | | | 617 | | | | |
Travel and other expense | | | | | | | 6,134 | | | 5,720 | | | | | 414 | | | | |
Non-capitalizable - software costs | | | | | | | 323 | | | 201 | | | | | 122 | | | | |
Total general and administrative | | | | | | | $ | 26,288 | | | $ | 20,351 | | | | | $ | 5,937 | | | | |
________
(1) The increase in professional fees in 2021 is primarily due to $2.3 million of expenses related to Ashford Securities to raise capital in order to grow the Company’s existing and future platforms. Expenses are allocated to the Company per the Amended and Restated Contribution Agreement entered into on December 31, 2020. See note 17 in our consolidated financial statements.
Impairment. During 2021, as a result of the strategic rebranding of our segment formerly known as JSAV to INSPIRE, we performed an impairment test and calculated the fair value of our indefinite-lived JSAV trademarks using the relief-from-royalty method which includes unobservable inputs including royalty rates and projected revenues for the time period that the Company is expected to benefit from the trademark. As a result of the evaluation, we recognized intangible asset impairment charges of $1.2 million, which was the full impairment of the indefinite-lived JSAV trademarks within the INSPIRE segment for 2021. 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 during the year ended December 31, 2020 of $180.8 million and intangible asset impairment charges of $8.0 million. See notes 5 and 9 to our consolidated financial statements.
Other. Other operating expense decreased $488,000, or 2.6%, to $18.2 million for 2021 compared to 2020. The decrease was primarily driven by a loss of $6.4 million due to the write-off of FF&E in the third quarter of 2020 related to FF&E formerly leased to Ashford Trust under the Ashford Trust ERFP Agreement upon Ashford Trust’s sale of the Embassy Suites New York Manhattan Times Square. The decrease in other operating expense in 2021 was offset by an increase in operating expenses from RED of $6.2 million compared to 2020 due to increased demand for RED’s recreational services. Other
operating expense includes cost of goods sold, royalties and operating expenses associated with OpenKey, RED, Pure Wellness and Marietta.
Reimbursed Expenses. Reimbursed expenses increased $45.5 million to $204.0 million during 2021 compared to $158.5 million for 2020 primarily due to an increase in hotel management expenses incurred by Remington due to a recovery in hotel operations in 2021 compared to 2020.
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 shown below (in thousands). Cost reimbursement revenue and reimbursed expenses for the year ended December 31, 2020 were revised as stated in note 2 to our consolidated financial statements.
| | | | | | | | | | | | | | | | | | |
| Year Ended December 31, | | | |
| 2021 | | 2020 | | $ Change | |
Cost reimbursement revenue | $ | 203,975 | | | $ | 158,559 | | | $ | 45,416 | | |
Reimbursed expenses | 203,956 | | | 158,501 | | | 45,455 | | |
Net total | $ | 19 | | | $ | 58 | | | $ | (39) | | |
Equity in Earnings (Loss) of Unconsolidated Entities. Equity in earnings (loss) of unconsolidated entities was a loss of $126,000 and earnings of $212,000 for 2021 and 2020, respectively. Equity in earnings (loss) of unconsolidated entities primarily represents earnings (loss) in our equity method investment in REA Holdings and an unconsolidated investment previously held by Remington accounted for under the equity method. See note 2 to our consolidated financial statements.
Interest Expense. Interest expense decreased to $5.1 million from $5.4 million for 2021 and 2020, respectively. Interest expense relates to our Term Loan Agreement and notes payable, lines of credit and finance leases held by our consolidated subsidiaries. See notes 2 and 6 to our consolidated financial statements.
Amortization of Loan Costs. Amortization of loan costs was $322,000 and $318,000 for 2021 and 2020, respectively, related to our Term Loan Agreement and notes payable held by our consolidated subsidiaries. See notes 2 and 6 to our consolidated financial statements.
Interest Income. Interest income was $285,000 and $32,000 for 2021 and 2020, respectively. The increase in 2021 is primarily due to interest income from Remington’s note receivable from a third-party hotel owner. See note 1 to our consolidated financial statements.
Realized Gain (Loss) on Investments. Realized loss on investments was $3,000 and $386,000 for 2021 and 2020, respectively. The realized loss on investments for 2021 and 2020 primarily relates to losses of $378,000 and $386,000, respectively, 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. The realized loss on investments for 2021 was offset by a gain of $375,000 on the sale of an unconsolidated investment previously held by Remington accounted for under the equity method.
Other Income (Expense). Other expense was $437,000 and $264,000 in 2021 and 2020, respectively.
Income Tax (Expense) Benefit. Income tax (expense) benefit changed by $14.1 million, from a $14.3 million benefit in 2020 to a $162,000 benefit in 2021. Current income tax expense changed by $3.3 million, from $8.2 million in expense in the 2020 period to $4.9 million in expense in the 2021 period. Deferred income tax benefit changed by $17.4 million from a $22.4 million benefit in the 2020 period to a $5.0 million benefit in the 2021 period. The difference in income tax (expense) benefit is related to a change in accrued liabilities, increase in operations and a decrease in non-deductible GAAP items, primarily impairment.
(Income) Loss from Consolidated Entities Attributable to Noncontrolling Interests. The noncontrolling interests in consolidated entities were allocated a loss of $678,000 in 2021 and a loss of $1.2 million in 2020. See notes 2 and 12 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 $215,000 in 2021 and loss of $2.2 million in 2020. 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 13 to our consolidated financial statements.
Preferred Dividends, Declared and Undeclared. Preferred dividends, declared and undeclared increased $2.9 million to $35.0 million during 2021 compared to $32.1 million for 2020, due to the increases in the dividend rate of the Series D Convertible Preferred Stock which occurred on November 6, 2021 and 2020 and due to accumulating and compounding dividends related to undeclared preferred stock dividends. See note 13 to our consolidated financial statements.
Amortization of Preferred Stock Discount. The amortization of preferred stock discount decreased $1.8 million to $1.1 million during 2021 compared to $2.9 million from 2020, primarily due to the increases in the dividend rate of the Series D Convertible Preferred Stock which occurred on November 6, 2021 and 2020. See note 13 to our consolidated financial statements.
Year Ended December 31, 2020 (As Revised) Compared to Year Ended December 31, 2019 (As Revised)
Cost reimbursement revenue and reimbursed expenses for the year ended December 31, 2020 (As Revised) compared to the year ended December 31, 2019 (As Revised) are summarized in the table below (in thousands):
| | | | | | | | | | | | | | | | | | |
| Year Ended December 31, | | | |
| 2020 | | 2019 | | $ Change | |
Cost reimbursement revenue | $ | 158,559 | | | $ | 80,946 | | | $ | 77,613 | | |
Reimbursed expenses | 158,501 | | | 80,421 | | | 78,080 | | |
Net total | $ | 58 | | | $ | 525 | | | $ | (467) | | |
Cost Reimbursement Revenue. Cost reimbursement revenue increased $77.6 million to $158.6 million during 2020 compared to $80.9 million for 2019 primarily due to cost reimbursement revenue earned from Remington due to the timing of the Remington acquisition in November of 2019, offset by a decrease in cost reimbursement revenue for advisory services from 2019.
Reimbursed Expenses. Reimbursed expenses increased $78.1 million to $158.5 million during 2020 compared to $80.4 million for 2019 primarily due to reimbursed hotel management expenses incurred by Remington due to the timing of the Remington acquisition in November of 2019, offset by a decrease in reimbursed expenses for advisory services from 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.
Restatement of Quarterly Financial Data
As disclosed in Note 21, the Company has restated its unaudited interim financial statements for the three months ended March 31, 2021 and 2020, the three and six months ended June 30, 2021 and 2020 and the three and nine months ended September 30, 2021 and 2020. Detailed restatements of the Company’s consolidated quarterly financial statements are provided in Note 21. The total impact of the previously unrecorded adjustments was: •a reduction in each of cost reimbursement revenue and reimbursed expenses of $1.6 million and $7.3 million for the three months ended March 31, 2021 and 2020, respectively;
•a reduction in each of cost reimbursement revenue and reimbursed expenses of $2.9 million and an increase in each of cost reimbursement revenue and reimbursed expenses of $2.4 million for the three months ended June 30, 2021 and 2020, respectively, and a reduction in each of cost reimbursement revenue and reimbursed expenses of $4.5 million and $4.9 million for the six months ended June 30, 2021 and 2020, respectively;
•an increase in each of cost reimbursement revenue and reimbursed expenses of $5.8 million and $3.9 million for the three months ended September 30, 2021 and 2020, respectively, and an increase in each of cost reimbursement revenue and reimbursed expenses of $1.3 million and a reduction in each of cost reimbursement revenue and reimbursed expenses of $1.0 million for the nine months ended September 30, 2021 and 2020, respectively.
The restatement does not affect operating income, net income or earnings per share. The restatement additionally does not affect the Company’s consolidated balance sheets, statements of other comprehensive income (loss), statements of equity (deficit) or statements of cash flows. The restatement impacted the cost reimbursement revenue and reimbursed expenses lines on the consolidated statements of operations for the periods noted above and related disclosures.
LIQUIDITY AND CAPITAL RESOURCES
COVID-19, Management’s Plans and Liquidity
In December 2019, COVID-19 was identified in Wuhan, China, and subsequently spread to other regions of the world, which has resulted in significant travel restrictions and extended shutdown of numerous businesses throughout the United States. In March 2020, the World Health Organization declared COVID-19 to be a global pandemic. 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 its 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 case surges could result in further reductions in business and personal travel and could cause state and local governments to reinstate travel restrictions. The Company expects that the COVID-19 pandemic may continue to have a significant negative impact on the Company’s results of operations, financial position and cash flow in 2022 and potentially beyond. As a result, in March 2020, the Company amended payment terms pursuant to certain hotel management agreements to better manage corporate working capital, reduced planned capital expenditures, significantly reduced operating expenses and reduced the cash compensation of its executive officers and other employees, including an arrangement pursuant to which Mr. Monty J. Bennett received his base salary in the form of common stock issued under the Company’s 2014 Incentive Plan, as amended. Additionally, the Company did not declare dividends which were due with respect to its Series D Convertible Preferred Stock for the second and fourth quarters of 2020 and the second and fourth quarters of 2021. As of December 31, 2021, the Company had aggregate undeclared preferred stock dividends of approximately $34.6 million, which relates to the second and fourth quarters of 2020 and the second and fourth quarters of 2021. On March 9, 2022, the Company declared a dividend with respect to its Series D Covertible Preferred Stock for the first quarter of 2022. The declared $8.7 million of dividends are payable on April 15, 2022 to stockholders of record on March 31, 2022.
During the first quarter of 2021, base salaries for the Company’s executive officers and other employees were restored to pre-reduction levels and the arrangement by which Mr. Monty J. Bennett received his base salary in the form of common stock ended. Additionally, the Company declared $8.4 million in dividends in each of the first and third quarters of 2021 which were due with respect to its Series D Convertible Preferred Stock. The dividends were paid on April 15 and October 15, 2021, respectively.
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 to, among other things (i) revise the term and termination rights; (ii) fix the percentage used to calculate the base fee thereunder at 0.70% per annum; (iii) update the list of peer group members; (iv) suspend the requirement that Ashford Trust maintain a minimum Consolidated Tangible Net Worth until the first fiscal quarter beginning after June 30, 2023; and (v) revise the criteria that would constitute a Company Change of Control of Ashford Trust in order to provide Ashford Trust additional flexibility to dispose of underperforming assets negatively impacted by COVID-19. In connection with the transactions contemplated by the Credit Agreement, dated as of January 15, 2021 (as amended, the “Credit Agreement”), by and among Ashford Trust, Oaktree Capital Management L.P. (“Oaktree”) and the lenders party thereto, on January 15, 2021, the Company entered into a Subordination and Non-Disturbance Agreement (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 (the “Advisory Fee Cap”), (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 Capital II LLC (formerly known as Lismore Capital LLC) (“Lismore”) in connection with the transactions contemplated by the Credit Agreement. See further discussion in note 17 to our consolidated financial statements.
On October 12, 2021, Ashford Trust entered into Amendment No. 1 to the Credit Agreement (“Amendment No. 1”) with certain funds and accounts managed by Oaktree Capital Management, L.P., as lenders, and Oaktree, as administrative agent. Amendment No. 1, subject to the conditions set forth therein, among other things, suspends Ashford Trust’s obligation to subordinate fees due under the advisory agreement if at any point there is no accrued interest outstanding or any accrued dividends on any of Ashford Trust’s preferred stock and Ashford Trust has sufficient unrestricted cash to repay in full all outstanding loans under the Credit Agreement, as amended. On December 13, 2021, Ashford Trust paid the Company $7.2 million for advisory fees that had been deferred as a result of the $29.0 million annual Advisory Fee Cap.
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, 2021, our Term Loan Agreement was in compliance with all covenants or other requirements and debt held by our subsidiaries was in compliance with all covenants or other requirements. See below and note 6 to our consolidated financial statements 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 again 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 clients, Ashford Trust and Braemar, to pay their obligations to the Company in accordance with the advisory agreements and Ashford Trust’s payment in the fourth quarter of 2021 of previously deferred advisory fees, the Company has concluded that the facts and circumstances that previously gave rise to substantial doubt about the Company’s ability to continue as a going concern have been resolved. 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, which could subsequently change our assessment. See note 17 to our consolidated financial statements.
Loan Agreements—On March 29, 2021, the Company amended its Term Loan Agreement (the “Term Loan Agreement”) with Bank of America, N.A. (as so amended, the “Seventh Amendment”). The Seventh Amendment (a) increases the required amortization rate from 1.25% to 2.50% each quarter commencing July 1, 2021, (b) requires the Company to maintain a minimum liquidity of $15.0 million at all times, including pro forma for preferred dividends, and (c) restricts dividends and stock repurchases, other than preferred dividends, so long as there is no default under the Term Loan Agreement. 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 2.50% to 5.0% of the outstanding principal balance. Upon signing the Seventh Amendment, the Company made a $5.0 million prepayment to Bank of America, N.A. as consideration for their execution and delivery of the Seventh Amendment. The Company is also subject to certain financial covenants. As of December 31, 2021, our Term Loan Agreement was in compliance with all covenants or other requirements and debt held by our subsidiaries was in compliance with all covenants or other requirements. The Company does not expect our Term Loan Agreement and debt held by our subsidiaries to violate any loan covenants within one year of the issuance of the financial statements. See discussion in “COVID-19, Management’s Plans and Liquidity” above.
As of December 31, 2021, principal and interest payment obligations related to the Company’s notes payable were as follows (in thousands):
| | | | | | | | | | | | | |
| Principal Payments (1) | | Interest Payments (2) | | |
2022 | $ | 6,584 | | | $ | 2,488 | | | |
2023 | 7,260 | | | 2,337 | | | |
2024 | 38,834 | | | 616 | | | |
2025 | 1,041 | | | 338 | | | |
2026 | 1,089 | | | 286 | | | |
Thereafter | 4,814 | | | 496 | | | |
Total payments | $ | 59,622 | | | $ | 6,561 | | | |
__________________(1) Principal payments assume no extension of existing extension options for each of the following five years and thereafter as of December 31, 2021.
(2) For variable-rate indebtedness, interest obligations are estimated based on the LIBOR and Prime interest rates as of December 31, 2021. We have assumed that credit facility balances remain outstanding until maturity using the interest rates as of December 31, 2021.
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 included in the Company’s principal payment obligations table were $30.6 million and $29.1 million as of December 31, 2021 and December 31, 2020, respectively. For further discussion see note 6 to our consolidated financial statements.
Preferred stock dividends—The Company declared dividends which were due with respect to its Series D Convertible Preferred Stock of $8.4 million for each of the first and third quarters of 2021 which were paid on April 15, 2021 and October 15, 2021, respectively. As of December 31, 2021, the Company had aggregate undeclared preferred stock dividends of approximately $34.6 million, which relates to the second and fourth quarters of 2020 and the second and fourth quarters of 2021. All dividends, declared and undeclared, are recorded as a reduction in net income (loss) attributable to common stockholders 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 $34.6 million and $16.3 million at December 31, 2021 and 2020, respectively, are recorded as a liability in our consolidated balance sheets as “dividends payable.” On March 9, 2022, the Company declared a dividend with respect to its Series D Covertible Preferred Stock for the first quarter of 2022. The declared $8.7 million of dividends are payable on April 15, 2022 to stockholders of record on March 31, 2022.
The independent members of the Board plan to revisit the dividend payment policy with respect to the Series D Convertible Preferred Stock on an ongoing basis. The independent members of the Board believe 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 or converted to common shares. See also note 13 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 deadline to fund the remaining ERFP commitment under the Ashford Trust ERFP Agreement of $11.4 million, was extended from January 22, 2021 to December 31, 2022. As of December 31, 2021, the Company has no remaining ERFP commitment to Braemar under the Braemar ERFP Agreement. See note 11 to our consolidated financial statements.
On April 20, 2021, the Company received written notice from Ashford Trust of Ashford Trust’s intention not to renew the Ashford Trust ERFP Agreement. As a result, the Ashford Trust ERFP Agreement terminated in accordance with its terms on June 26, 2021. The expiration of the Ashford Trust ERFP Agreement will have no impact on the Extension Agreement, which continues in full force and effect in accordance with its terms.
On November 8, 2021, the Company delivered written notice to Braemar of the Company’s intention not to renew the Braemar ERFP Agreement. As a result, the Braemar ERFP Agreement terminated in accordance with its terms on January 15, 2022. Braemar and the Company will continue to be parties to the Fifth Amended and Restated Advisory Agreement, dated April 23, 2018, as amended.
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, 2021.
During the first quarter of 2021, we paid the remainder of contingent consideration due to the sellers of BAV 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 amounts of $870,000 and $888,000 which were paid on February 1, 2021 and March 4, 2021, respectively.
As of December 31, 2021, future minimum lease payments on operating leases and financing leases were as follows (in thousands):
| | | | | | | | | | | | | |
| Operating Leases | | Finance Leases | | |
2022 | $ | 4,964 | | | $ | 3,548 | | | |
2023 | 4,799 | | | 4,553 | | | |
2024 | 4,529 | | | 3,064 | | | |
2025 | 3,998 | | | 2,948 | | | |
2026 | 3,728 | | | 2,948 | | | |
Thereafter | 12,887 | | | 80,338 | | | |
Total minimum lease payments | $ | 34,905 | | | $ | 97,399 | | | |
Imputed interest | (7,800) | | | (52,855) | | | |
Present value of minimum lease payments | $ | 27,105 | | | $ | 44,544 | | | |
Our deferred compensation plan has only one participant, Mr. Monty J. Bennett, our Chairman and Chief Executive Officer. Mr. Monty J. Bennett has elected to invest his deferred compensation account in our common stock. As a result, we have an obligation to issue approximately 196,000 shares of our common stock to Mr. Monty J. Bennett in quarterly installments over five years beginning in 2024. Mr. Monty J. Bennett may postpone all or a portion of the distributions, for a minimum of 5 years, if he notifies the Company 12 months prior to the scheduled distributions. As of December 31, 2021, the fair value of the DCP liability was $3.3 million.
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, 2021 and December 31, 2020, we had $37.6 million and $45.3 million of cash and cash equivalents, respectively, and $34.9 million and $37.4 million of restricted cash, respectively. Our principal sources of funds to meet our cash requirements include: net cash provided by operations and existing cash balances, which include borrowings from 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. Net cash flows provided by operating activities were $20.8 million for the year ended December 31, 2021 compared to net cash flows provided by operating activities of $32.2 million for the year ended December 31, 2020. The decrease in cash flows from operating activities in the year ended December 31, 2021 was primarily due to an increase in current “other liabilities” specific to the year ended December 31, 2020 as a result of the transfer of cash from Ashford Trust into a Company escrow account for insurance claims and increased cash payments received as deferred income in the year ended December 31, 2020 due to Ashford Trust and Braemar’s respective Lismore Agreements. The decrease in cash flows from operating activities was also due to the timing of receipt of our receivables from Braemar and third-parties. These decreases in cash flows provided by operating activities were offset by an increase in earnings due to a recovery in operations in 2021 from the effects of the COVID-19 pandemic in 2020 and the timing of receipt of our receivables from Ashford Trust in the year ended December 31, 2021.
Net Cash Flows Provided by (Used in) Investing Activities. For the year ended December 31, 2021, net cash flows used in investing activities were $9.4 million. These cash flows consisted of capital expenditures of $4.0 million, capital expenditures of $4.0 million for RED’s marine vessels, the issuance of a note receivable of $2.9 million, purchases of Ashford Trust and Braemar common stock related to Remington’s employee compensation plan of $873,000 and an investment in an unconsolidated entity of $250,000. These were offset by cash inflows of $2.1 million in proceeds received in 2021 from the sale of FF&E primarily to Ashford Trust and Braemar and cash inflows of $535,000 from Remington’s sale of an equity method investment during the year.
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 marine vessels and a $150,000 payment to acquire the remaining non-controlling interest in INSPIRE.
Net Cash Flows Provided by (Used in) Financing Activities. For the year ended December 31, 2021, net cash flows used in financing activities were $21.6 million. These cash flows consisted of $16.7 million of payments for dividends on our preferred stock, $8.7 million of payments on notes payable, $439,000 of payments on finance leases, purchases of $121,000 of treasury stock and $222,000 of loan cost payments. These were offset by $2.9 million of proceeds from borrowings on notes payable, $763,000 of net borrowings on our revolving credit facilities, $734,000 of contributions from noncontrolling interests in a consolidated entity, and net repayments in advances to employees of $180,000 associated with tax withholdings for restricted stock vesting.
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.
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—The following provides detailed information on the recognition of our revenues from contracts with customers:
Advisory Services Fees Revenue
Advisory services fees 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 January 14, 2021, the base fee was paid monthly and ranged from 0.50% to 0.70% per annum of the total market capitalization ranging from greater than $10.0 billion to less than $6.0 billion plus the Net Asset Fee Adjustment, as defined in the Amended and Restated Advisory Agreement, subject to certain minimums. 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 to, among other things, fix the percentage used to calculate the base fee thereunder at 0.70% per annum. In connection with the transactions contemplated by the Credit Agreement, 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 the Advisory Fee Cap, (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 note 1 and 17 to our consolidated financial statements.
Under the Second Amended and Restated Advisory Agreement, advisory fees earned each year from Ashford Trust in excess of the Advisory Fee Cap are a form of variable consideration that is constrained and deferred until such fees are probable of not being subject to significant reversal. The Advisory Fee Cap is $29.0 million each year as stated in the Credit Agreement. As a result, until the later of (i) the second anniversary of the Credit Agreement and (ii) the date accrued interest “in kind” is paid in full to Oaktree by Ashford Trust, base advisory fee revenue recognized each month is equal to the lesser of (1) base fees calculated as described above based on Ashford Trust’s market capitalization or (2) 1/12th of $29.0 million. Any cash received from Ashford Trust for base advisory fees in excess of revenue recognized is deferred until it is probable that the fees would no longer be constrained. Any portion of deferred advisory fees that becomes probable of being unconstrained during the same year in which the fees were earned will be recognized with a cumulative catch-up in the interim period in which the constraint is resolved. Any portion of deferred advisory fees that becomes probable of being unconstrained in a year subsequent to the year in which the fees were earned will be recognized in the interim period in which the constraint is resolved.
On October 12, 2021, Ashford Trust entered into Amendment No. 1 to the Credit Agreement (“Amendment No. 1”) with certain funds and accounts managed by Oaktree Capital Management, L.P., as lenders, and Oaktree, as administrative agent. Amendment No. 1, subject to the conditions set forth therein, among other things, suspends Ashford Trust’s obligation to subordinate fees due under the advisory agreement if at any point there is no accrued interest outstanding or any accrued dividends on any of Ashford Trust’s preferred stock and Ashford Trust has sufficient unrestricted cash to repay in full all outstanding loans under the Credit Agreement, as amended. On December 13, 2021, Ashford Trust paid the Company $7.2 million for advisory fees that had been deferred as a result of the $29.0 million annual Advisory Fee Cap. The $7.2 million payment was recorded as revenue in “advisory services fees” in our consolidated statements of operations for the year ended December 31, 2021.
For Braemar, 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 our advisory agreement with Braemar, 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. Braemar’s annual total stockholder return did not meet the relevant incentive fee thresholds during the 2021, 2020 and 2019 measurement periods. Ashford Trust’s annual stockholder return did not meet the relevant incentive fee thresholds during the 2021, 2020 and 2019 measurement periods.
Hotel Management Fees Revenue
Hotel management fees 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 Remington’s 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.
Design and Construction Fees Revenue
Design and construction fees revenue (formerly called project management revenue) primarily consists of revenue generated by our subsidiary, Premier Project Management LLC (“Premier”). Premier provides design and construction management services, capital improvements, refurbishment, project management, and other services such as purchasing, interior design, architectural services and freight management 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 INSPIRE 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
Other revenue includes revenue provided by certain of our 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 refinancing 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. 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. Prior to December 31, 2020, we additionally were reimbursed by Ashford Trust for expenses incurred by Ashford Investment Management, LLC (“AIM”) for managing Ashford Trust’s excess cash under an Investment Management Agreement with Ashford Trust. AIM was not compensated for its services but was reimbursed for all costs and expenses. Effective December 31, 2020, the Investment Management Agreement with Ashford Trust was 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. Design and construction 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 Ashford Trust, Braemar and other hotel owners.
We recognize revenue within “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.
Practical Expedients and Exemptions
We do not disclose the amount of variable consideration that we expect to recognize in future periods in the following circumstances:
(1) if we recognize the revenue based on the amount invoiced or services performed;
(2) if the consideration is allocated entirely to a wholly unsatisfied promise to transfer a distinct service that forms part of a single performance obligation, and the terms of the consideration relate specifically to our efforts to transfer, or to a specific outcome from transferring the service.
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 2017 through 2021 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 our 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 received the carryback amount of $1.0 million in March of 2021.
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 has deferred $1.3 million and $2.5 million of Social Security taxes within “accounts payable and accrued expenses” in our consolidated balance sheets as of December 31, 2021 and December 31, 2020, respectively, related to the Consolidated Appropriations Act, 2021.
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. The Company accounts for forfeitures when they occur. 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”.
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 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, INSPIRE 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. In the evaluation of goodwill for impairment, we typically perform a qualitative assessment 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 may choose to bypass the qualitative assessment and perform a quantitative assessment and compare the fair value of the reporting unit to the carrying value and, if applicable, record an impairment charge 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. Based on the results of our
annual impairment assessments, no impairment of goodwill was indicated as of October 1, 2021. Additionally, no indicators of impairment were identified from the date of our impairment assessments through December 31, 2021. 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.
During the third quarter of 2021, as a result of the strategic rebranding of our segment formerly known as JSAV to INSPIRE, we concluded sufficient indicators existed to require us to perform an assessment of INSPIRE’s JSAV trademark. We performed an impairment test and calculated the fair value of our indefinite-lived INSPIRE trademarks using the relief-from-royalty method which includes unobservable inputs including royalty rates and projected revenues for the time period that the Company is expected to benefit from the trademark. The relief-from-royalty 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, see note 5 to our consolidated financial statements.
Recently Adopted Accounting Standards—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. In January 2021, the FASB issued ASU 2021-01, Reference Rate Reform (Topic 848): Scope (“ASU 2021-01”) to provide guidance and relief for transitioning to alternative reference rates. ASU 2021-01 is effective immediately for all entities. There was no impact on our consolidated financial statements and related disclosures upon adoption of ASU 2020-04 and 2021-01, and the Company will continue to evaluate as reference rate reform activities occur.
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 August 2020, the FASB issued ASU 2020-06, Debt - Debt with Conversion and Other Options (Subtopic 470) 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, 2021, our total indebtedness of $59.6 million included $55.6 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, 2021, would be approximately $556,000 annually. Interest rate changes have no impact on the remaining $4.0 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, 2021, 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 INSPIRE, 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, 2021, 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 $54,000 for the twelve months ended December 31, 2021. Operations in the Dominican Republic are not material. RED’s operations outside of the U.S. are primarily transacted in U.S. dollars, which is the official currency of the Turks and Caicos Islands.
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, 2021 and 2020, 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, 2021, 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, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2021, 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 Matter
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of a critical audit matter 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 matter below, providing separate opinions on the critical audit matter or on the accounts or disclosures to which it relates.
Determination and Evaluation of Goodwill Triggering Events – Certain Reporting Units
As discussed in Notes 2 and 5 to the consolidated financial statements, the Company assesses goodwill for impairment annually as of October 1, or more frequently, if events and circumstances indicate impairment may have occurred. In the current year, the Company performed a qualitative assessment to determine whether the fair value of the goodwill is more likely than not impaired.
We identified the determination and evaluation of goodwill triggering events as a critical audit matter because such evaluation required the application of complex auditor judgment. Potential triggering events such as macroeconomic conditions, industry and market considerations, cost factors, historical and forecasted financial results, market capitalization and events specific to the entity and reporting units, required a higher degree of auditor judgment to evaluate. These possible triggering events could have a significant effect on the Company’s qualitative assessment and the determination of whether further quantitative analysis of goodwill impairment was required.
The primary procedures we performed to address this critical audit matter included the following:
•We evaluated the Company’s qualitative assessment of certain reporting units by considering macroeconomic indicators and evaluated information for industry and market conditions from industry research and association reports.
•We compared management’s forecasts related to the timing of economic recovery to analysts’ consensus of peers to evaluate the appropriateness of management’s forecasts.
•We analyzed financial performance of certain reporting units by comparing historical results to forecasted financial information, and evaluated the Company’s market capitalization, cost factors, and other entity and reporting-unit specific events.
| | | | | |
/s/ BDO USA, LLP | |
We have served as the Company’s auditor since 2015. | |
Dallas, Texas | |
March 25, 2022 | |
ASHFORD INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share amounts) | | | | | | | | | | | |
| December 31, 2021 | | December 31, 2020 |
ASSETS | | | |
Current assets: | | | |
Cash and cash equivalents | $ | 37,571 | | | $ | 45,270 | |
Restricted cash | 34,878 | | | 37,396 | |
Restricted investment | 576 | | | 290 | |
| | | |
Accounts receivable, net | 10,502 | | | 3,458 | |
Due from affiliates | 165 | | | 353 | |
Due from Ashford Trust | 2,575 | | | 13,198 | |
Due from Braemar | 1,144 | | | 2,142 | |
| | | |
Inventories | 1,555 | | | 1,546 | |
Prepaid expenses and other | 9,490 | | | 7,629 | |
| | | |
Total current assets | 98,456 | | | 111,282 | |
Investments in unconsolidated entities | 3,581 | | | 3,687 | |
Property and equipment, net ($86 and $12,972, respectively, attributable to VIEs) | 83,566 | | | 88,760 | |
Operating lease right-of-use assets | 26,975 | | | 30,431 | |
| | | |
Goodwill | 56,622 | | | 56,622 | |
Intangible assets, net ($9 and $3,409, respectively, attributable to VIEs) | 244,726 | | | 271,432 | |
Other assets | 870 | | | 3,225 | |
Total assets | $ | 514,796 | | | $ | 565,439 | |
LIABILITIES | | | |
Current liabilities: | | | |
Accounts payable and accrued expenses | $ | 39,897 | | | $ | 40,378 | |
Dividends payable | 34,574 | | | 16,280 | |
Due to affiliates | — | | | 1,471 | |
| | | |
| | | |
| | | |
Deferred income | 2,937 | | | 12,738 | |
Deferred compensation plan | — | | | 29 | |
Notes payable, net ($100 and $972, respectively, attributable to VIEs) | 6,725 | | | 5,347 | |
Finance lease liabilities | 1,065 | | | 841 | |
Operating lease liabilities | 3,628 | | | 3,691 | |
Other liabilities | 25,899 | | | 29,905 | |
Total current liabilities | 114,725 | | | 110,680 | |
| | | |
Deferred income | 7,968 | | | 8,621 | |
Deferred tax liability, net | 32,848 | | | 37,904 | |
Deferred compensation plan | 3,326 | | | 1,678 | |
Notes payable, net ($0 and $6,911, respectively, attributable to VIEs) | 52,669 | | | 57,349 | |
Finance lease liabilities | 43,479 | | | 43,143 | |
Operating lease liabilities | 23,477 | | | 26,881 | |
| | | |
Total liabilities | 278,492 | | | 286,256 | |
Commitments and contingencies (note 11) | | | |
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, 2021 and December 31, 2020 | 478,000 | | | 476,947 | |
Redeemable noncontrolling interests | 69 | | | 1,834 | |
EQUITY (DEFICIT) | | | |
Common stock, 100,000,000 shares authorized, $0.001 par value, 3,023,002 and 2,868,288 shares issued and outstanding at December 31, 2021 and December 31, 2020, respectively | 3 | | | 3 | |
Additional paid-in capital | 294,395 | | | 293,597 | |
Accumulated deficit | (534,999) | | | (491,483) | |
Accumulated other comprehensive income (loss) | (1,206) | | | (1,156) | |
Treasury stock, at cost, 49,686 and 32,031 shares at December 31, 2021 and December 31, 2020, respectively | (596) | | | (438) | |
Total equity (deficit) of the Company | (242,403) | | | (199,477) | |
Noncontrolling interests in consolidated entities | 638 | | | (121) | |
Total equity (deficit) | (241,765) | | | (199,598) | |
Total liabilities and equity (deficit) | $ | 514,796 | | | $ | 565,439 | |
See Notes to Consolidated Financial Statements.
ASHFORD INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
| | | | | | | | | | | | | | | | | | | | | |
| | | Year Ended December 31, |
| | | | | 2021 | | 2020 | | 2019 |
REVENUE | | | | | | | | | |
Advisory services fees | | | | | $ | 47,566 | | | $ | 45,247 | | | $ | 44,184 | |
Hotel management fees | | | | | 26,260 | | | 17,126 | | | 4,526 | |
Design and construction fees | | | | | 9,557 | | | 8,936 | | | 25,584 | |
Audio visual | | | | | 49,880 | | | 37,881 | | | 110,609 | |
Other | | | | | 47,329 | | | 25,602 | | | 21,179 | |
Cost reimbursement revenue | | | | | 203,975 | | | 158,559 | | | 80,946 | |
Total revenues | | | | | 384,567 | | | 293,351 | | | 287,028 | |
EXPENSES | | | | | | | | | |
Salaries and benefits | | | | | 65,251 | | | 57,171 | | | 59,659 | |
Cost of revenues for design and construction | | | | | 4,105 | | | 3,521 | | | 5,853 | |
Cost of revenues for audio visual | | | | | 38,243 | | | 30,256 | | | 82,237 | |
Depreciation and amortization | | | | | 32,598 | | | 39,957 | | | 24,542 | |
General and administrative | | | | | 26,288 | | | 20,351 | | | 33,484 | |
Impairment | | | | | 1,160 | | | 188,837 | | | — | |
Other | | | | | 18,199 | | | 18,687 | | | 12,062 | |
Reimbursed expenses | | | | | 203,956 | | | 158,501 | | | 80,421 | |
Total expenses | | | | | 389,800 | | | 517,281 | | | 298,258 | |
OPERATING INCOME (LOSS) | | | | | (5,233) | | | (223,930) | | | (11,230) | |
Equity in earnings (loss) of unconsolidated entities | | | | | (126) | | | 212 | | | (286) | |
| | | | | | | | | |
| | | | | | | | | |
Interest expense | | | | | (5,144) | | | (5,389) | | | (2,059) | |
Amortization of loan costs | | | | | (322) | | | (318) | | | (308) | |
Interest income | | | | | 285 | | | 32 | | | 46 | |
| | | | | | | | | |
| | | | | | | | | |
Realized gain (loss) on investments | | | | | (3) | | | (386) | | | — | |
| | | | | | | | | |
Other income (expense) | | | | | (437) | | | (264) | | | 3 | |
INCOME (LOSS) BEFORE INCOME TAXES | | | | | (10,980) | | | (230,043) | | | (13,834) | |
Income tax (expense) benefit | | | | | 162 | | | 14,255 | | | (1,540) | |
NET INCOME (LOSS) | | | | | (10,818) | | | (215,788) | | | (15,374) | |
(Income) loss from consolidated entities attributable to noncontrolling interests | | | | | 678 | | | 1,178 | | | 536 | |
Net (income) loss attributable to redeemable noncontrolling interests | | | | | 215 | | | 2,245 | | | 983 | |
NET INCOME (LOSS) ATTRIBUTABLE TO THE COMPANY | | | | | (9,925) | | | (212,365) | | | (13,855) | |
Preferred dividends, declared and undeclared | | | | | (35,000) | | | (32,095) | | | (14,435) | |
| | | | | | | | | |
Amortization of preferred stock discount | | | | | (1,053) | | | (2,887) | | | (1,928) | |
NET INCOME (LOSS) ATTRIBUTABLE TO COMMON STOCKHOLDERS | | | | | $ | (45,978) | | | $ | (247,347) | | | $ | (30,218) | |
| | | | | | | | | |
INCOME (LOSS) PER SHARE - BASIC AND DILUTED | | | | | | | | | |
Basic: | | | | | | | | | |
Net income (loss) attributable to common stockholders | | | | | $ | (16.68) | | | $ | (108.30) | | | $ | (12.03) | |
Weighted average common shares outstanding - basic | | | | | 2,756 | | | 2,284 | | | 2,416 | |
Diluted: | | | | | | | | | |
Net income (loss) attributable to common stockholders | | | | | $ | (16.68) | | | $ | (108.30) | | | $ | (13.55) | |
Weighted average common shares outstanding - diluted | | | | | 2,756 | | | 2,284 | | | 2,568 | |
| | | | | | | | | |
| | | | | | | | | |
See Notes to Consolidated Financial Statements.
ASHFORD INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(in thousands)
| | | | | | | | | | | | | | | | | | | | | |
| | | Year Ended December 31, |
| | | | | 2021 | | 2020 | | 2019 |
| | | | | | | | | |
NET INCOME (LOSS) | | | | | $ | (10,818) | | | $ | (215,788) | | | $ | (15,374) | |
OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX | | | | | | | | | |
Foreign currency translation adjustment | | | | | (19) | | | (447) | | | 448 | |
Unrealized gain (loss) on restricted investment | | | | | (409) | | | (879) | | | (114) | |
Less reclassification for realized (gain) loss on restricted investment included in net income | | | | | 378 | | | 386 | | | — | |
COMPREHENSIVE INCOME (LOSS) | | | | | (10,868) | | | (216,728) | | | (15,040) | |
Comprehensive (income) loss attributable to noncontrolling interests | | | | | 678 | | | 1,178 | | | 536 | |
Comprehensive (income) loss attributable to redeemable noncontrolling interests | | | | | 215 | | | 2,310 | | | 931 | |
COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO THE COMPANY | | | | | $ | (9,975) | | | $ | (213,240) | | | $ | (13,573) | |
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, 2019 | 2,392 | | | $ | 24 | | | $ | 280,159 | | | $ | (214,242) | | | $ | (498) | | | — | | | $ | — | | | $ | 458 | | | $ | 65,901 | | | 8,120 | | | $ | 200,847 | | | $ | 3,531 | |
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) | | | — | | | — | | | 837 | |
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 | | | $ | 1,834 | |
| | | | | | | | | | | | | | | | | | | | | | | |
Equity-based compensation | 169 | | | — | | | 4,296 | | | — | | | — | | | — | | | — | | | 3 | | | 4,299 | | | — | | | — | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | |
Purchase of treasury stock | (14) | | | — | | | — | | | — | | | — | | | (14) | | | (121) | | | — | | | (121) | | | — | | | — | | | — | |
Forfeiture of restricted common shares | (3) | | | — | | | 37 | | | — | | | — | | | (3) | | | (37) | | | — | | | — | | | — | | | — | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
Amortization of preferred stock discount | — | | | — | | | — | | | (1,053) | | | — | | | — | | | — | | | — | | | (1,053) | | | — | | | 1,053 | | | — | |
Dividends declared and undeclared - preferred stock | — | | | — | | | — | | | (35,000) | | | — | | | — | | | — | | | — | | | (35,000) | | | — | | | — | | | — | |
Deferred compensation plan distribution | 3 | | | — | | | 51 | | | — | | | — | | | — | | | — | | | — | | | 51 | | | — | | | — | | | — | |
Employee advances | — | | | — | | | 180 | | | — | | | — | | | — | | | — | | | — | | | 180 | | | — | | | — | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
Acquisition of noncontrolling interest in consolidated entities | — | | | — | | | (3,392) | | | 2,560 | | | — | | | — | | | — | | | 326 | | | (506) | | | — | | | — | | | (1,648) | |
Contributions from noncontrolling interests | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 734 | | | 734 | | | — | | | — | | | — | |
Reallocation of carrying value | — | | | — | | | (374) | | | — | | | — | | | — | | | — | | | 374 | | | — | | | — | | | — | | | — | |
Redemption value adjustment | — | | | — | | | — | | | (98) | | | — | | | — | | | — | | | — | | | (98) | | | — | | | — | | | 98 | |
| | | | | | | | | | | | | | | | | | | | | | | |
Foreign currency translation adjustment | — | | | — | | | — | | | — | | | (19) | | | — | | | — | | | — | | | (19) | | | — | | | — | | | — | |
Unrealized gain (loss) on available for sale securities | — | | | — | | | — | | | — | | | (409) | | | — | | | — | | | — | | | (409) | | | — | | | — | | | — | |
Reclassification for realized loss (gain) on available for sale securities | — | | | — | | | — | | | — | | | 378 | | | — | | | — | | | — | | | 378 | | | — | | | — | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
Net income (loss) | — | | | — | | | — | | | (9,925) | | | — | | | — | | | — | | | (678) | | | (10,603) | | | — | | | — | | | (215) | |
Balance at December 31, 2021 | 3,023 | | | $ | 3 | | | $ | 294,395 | | | $ | (534,999) | | | $ | (1,206) | | | (49) | | | $ | (596) | | | $ | 638 | | | $ | (241,765) | | | 19,120 | | | $ | 478,000 | | | $ | 69 | |
See Notes to Consolidated Financial Statements.
ASHFORD INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands) | | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2021 | | 2020 | | 2019 |
Cash Flows from Operating Activities | | | | | |
Net income (loss) | $ | (10,818) | | | $ | (215,788) | | | $ | (15,374) | |
Adjustments to reconcile net income (loss) to net cash flows provided by (used in) operating activities: | | | | | |
Depreciation and amortization | 38,497 | | | 45,674 | | | 31,142 | |
| | | | | |
Change in fair value of deferred compensation plan | 1,671 | | | (3,012) | | | (5,732) | |
| | | | | |
| | | | | |
Equity-based compensation | 4,553 | | | 5,562 | | | 8,874 | |
Equity in (earnings) loss in unconsolidated entities | 126 | | | (212) | | | 286 | |
Deferred tax expense (benefit) | (5,056) | | | (22,410) | | | (1,930) | |
Change in fair value of contingent consideration | 23 | | | 436 | | | 4,244 | |
Impairment | 1,160 | | | 188,837 | | | — | |
(Gain) loss on disposal of assets | 1,593 | | | 8,357 | | | (25) | |
Amortization of other assets | 1,039 | | | 1,286 | | | — | |
Amortization of loan costs | 322 | | | 318 | | | 308 | |
Realized loss on restricted investments | 378 | | | 386 | | | — | |
| | | | | |
| | | | | |
Other (gain) loss | (306) | | | 145 | | | — | |
| | | | | |
| | | | | |
| | | | | |
Changes in operating assets and liabilities, exclusive of the effect of acquisitions: | | | | | |
Accounts receivable | (4,180) | | | 3,666 | | | (1,210) | |
Due from affiliates | 188 | | | 4 | | | 843 | |
Due from Ashford Trust | 10,623 | | | (8,393) | | | 160 | |
Due from Braemar | (818) | | | 1,265 | | | 116 | |
Inventories | (666) | | | 79 | | | (397) | |
Prepaid expenses and other | (1,744) | | | — | | | (2,172) | |
Investment in unconsolidated entities | 69 | | | — | | | 115 | |
| | | | | |
Operating lease right-of-use assets | 3,713 | | | 3,764 | | | 2,048 | |
Other assets | 99 | | | (116) | | | — | |
Accounts payable and accrued expenses | 302 | | | 5,565 | | | 5,006 | |
Due to affiliates | (1,698) | | | 461 | | | (1,314) | |
| | | | | |
| | | | | |
Other liabilities | (4,029) | | | 11,828 | | | 2,152 | |
Operating lease liabilities | (3,724) | | | (3,650) | | | (2,021) | |
Deferred income | (10,481) | | | 8,158 | | | (420) | |
| | | | | |
Net cash provided by (used in) operating activities | 20,836 | | | 32,210 | | | 24,699 | |
Cash Flows from Investing Activities | | | | | |
Purchases of furniture, fixtures and equipment under the Ashford Trust ERFP Agreement | — | | | — | | | (13,089) | |
Purchases of furniture, fixtures and equipment under the Braemar ERFP Agreement | — | | | — | | | (10,300) | |
Additions to property and equipment | (4,044) | | | (2,846) | | | (6,654) | |
Proceeds from sale of property and equipment, net | 2,104 | | | 4 | | | 231 | |
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) | |
Investment in unconsolidated entity | (250) | | | — | | | (314) | |
| | | | | |
| | | | | |
Acquisition of non-controlling interest in consolidated subsidiaries | — | | | (150) | | | — | |
Purchase of common stock of related parties | (873) | | | — | | | — | |
Acquisition of assets related to RED | (4,030) | | | (1,745) | | | (1,892) | |
Proceeds from sale of equity method investment | 535 | | | — | | | — | |
Issuance of note receivable | (2,880) | | | — | | | — | |
Net cash provided by (used in) investing activities | (9,438) | | | (6,030) | | | (28,831) | |
| | | | | (Continued) |
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2021 | | 2020 | | 2019 |
| | | | | |
Cash Flows from Financing Activities | | | | | |
| | | | | |
Purchases of common stock | — | | | — | | | (12,389) | |
Payments for dividends on preferred stock | (16,706) | | | (20,540) | | | (9,710) | |
Payments on revolving credit facilities | (1,063) | | | (15,723) | | | (46,808) | |
Borrowings on revolving credit facilities | 1,826 | | | 14,660 | | | 57,647 | |
Proceeds from notes payable | 2,900 | | | 44,797 | | | 11,105 | |
Payments on notes payable | (8,737) | | | (17,775) | | | (2,479) | |
Payments on finance lease liabilities | (439) | | | (785) | | | (627) | |
Payments of loan costs | (222) | | | (375) | | | (76) | |
Purchase of treasury stock | (121) | | | (18) | | | — | |
Employee advances | 180 | | | (584) | | | 353 | |
| | | | | |
| | | | | |
| | | | | |
Payment of contingent consideration | — | | | (1,384) | | | — | |
Contributions from noncontrolling interest | 734 | | | 457 | | | 980 | |
Distributions to noncontrolling interests in consolidated entities | — | | | — | | | (63) | |
Net cash provided by (used in) financing activities | (21,648) | | | 2,730 | | | (2,067) | |
Effect of foreign exchange rate changes on cash and cash equivalents | 33 | | | 507 | | | 5 | |
Net change in cash, cash equivalents and restricted cash | (10,217) | | | 29,417 | | | (6,194) | |
Cash, cash equivalents and restricted cash at beginning of period | 82,666 | | | 53,249 | | | 59,443 | |
Cash, cash equivalents and restricted cash at end of period | $ | 72,449 | | | $ | 82,666 | | | $ | 53,249 | |
| | | | | |
Supplemental Cash Flow Information | | | | | |
Interest paid | $ | 5,022 | | | $ | 4,761 | | | $ | 1,924 | |
Income taxes paid (refunded), net | 6,628 | | | 8,539 | | | 3,179 | |
Supplemental Disclosure of Non-Cash Investing and Financing Activities | | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
Acquisition of Remington Lodging through issuance of convertible preferred stock, less cash acquired | $ | — | | | $ | — | | | $ | 260,442 | |
| | | | | |
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 | 51 | | | 11 | | | 113 | |
Capital expenditures accrued but not paid | 205 | | | 494 | | | 968 | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
Finance lease additions | — | | | 1,869 | | | 42,028 | |
| | | | | |
| | | | | |
| | | | | |
Acquisition of noncontrolling interest in consolidated entities with notes payable and common stock | 2,202 | | | — | | | — | |
| | | | | |
Supplemental Disclosure of Cash, Cash Equivalents and Restricted Cash | | | | | |
Cash and cash equivalents at beginning of period | $ | 45,270 | | | $ | 35,349 | | | $ | 51,529 | |
Restricted cash at beginning of period | 37,396 | | | 17,900 | | | 7,914 | |
Cash, cash equivalents and restricted cash at beginning of period | $ | 82,666 | | | $ | 53,249 | | | $ | 59,443 | |
| | | | | |
Cash and cash equivalents at end of period | $ | 37,571 | | | $ | 45,270 | | | $ | 35,349 | |
Restricted cash at end of period | 34,878 | | | 37,396 | | | 17,900 | |
Cash, cash equivalents and restricted cash at end of period | $ | 72,449 | | | $ | 82,666 | | | $ | 53,249 | |
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 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) design and construction and architectural 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 United States 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 operates certain hotel properties owned by Ashford Trust and Braemar.
COVID-19, Management’s Plans and Liquidity
In December 2019, COVID-19 was identified in Wuhan, China, and subsequently spread to other regions of the world, which has resulted in significant travel restrictions and extended shutdown of numerous businesses throughout the United States. In March 2020, the World Health Organization declared COVID-19 to be a global pandemic. 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 its 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 case surges could result in further reductions in business and personal travel and could cause state and local governments to reinstate travel restrictions. The Company expects that the COVID-19 pandemic may continue to have a significant negative impact on the Company’s results of operations, financial position and cash flow in 2022 and potentially beyond. As a result, in March 2020, the Company amended payment terms pursuant to certain hotel management agreements to better manage corporate working capital, reduced planned capital expenditures, significantly reduced operating expenses and reduced the cash compensation of its executive officers and other employees, including an arrangement pursuant to which Mr. Monty J. Bennett received his base salary in the form of common stock issued under the Company’s 2014 Incentive Plan, as amended. Additionally, the Company did not declare dividends which were due with respect to its Series D Convertible Preferred Stock for the second and fourth quarters of 2020 and the second and fourth
ASHFORD INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
quarters of 2021. As of December 31, 2021, the Company had aggregate undeclared preferred stock dividends of approximately $34.6 million, which relates to the second and fourth quarters of 2020 and the second and fourth quarters of 2021. On March 9, 2022, the Company declared a dividend with respect to its Series D Covertible Preferred Stock for the first quarter of 2022. The declared $8.7 million of dividends are payable on April 15, 2022 to stockholders of record on March 31, 2022.
During the first quarter of 2021, base salaries for the Company’s executive officers and other employees were restored to pre-reduction levels and the arrangement by which Mr. Monty J. Bennett received his base salary in the form of common stock ended. Additionally, the Company declared $8.4 million in dividends in each of the first and third quarters of 2021 which were due with respect to its Series D Convertible Preferred Stock. The dividends were paid on April 15 and October 15, 2021, respectively.
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 to, among other things (i) revise the term and termination rights; (ii) fix the percentage used to calculate the base fee thereunder at 0.70% per annum; (iii) update the list of peer group members; (iv) suspend the requirement that Ashford Trust maintain a minimum Consolidated Tangible Net Worth until the first fiscal quarter beginning after June 30, 2023; and (v) revise the criteria that would constitute a Company Change of Control of Ashford Trust in order to provide Ashford Trust additional flexibility to dispose of underperforming assets negatively impacted by COVID-19. In connection with the transactions contemplated by the Credit Agreement, dated as of January 15, 2021 (as amended, the “Credit Agreement”), by and among Ashford Trust, Oaktree Capital Management L.P. (“Oaktree”) and the lenders party thereto, on January 15, 2021, the Company entered into a Subordination and Non-Disturbance Agreement (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 (the “Advisory Fee Cap”), (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 Capital II LLC (formerly known as Lismore Capital LLC) (“Lismore”) in connection with the transactions contemplated by the Credit Agreement.
On October 12, 2021, Ashford Trust entered into Amendment No. 1 to the Credit Agreement (“Amendment No. 1”) with certain funds and accounts managed by Oaktree Capital Management, L.P., as lenders, and Oaktree, as administrative agent. Amendment No. 1, subject to the conditions set forth therein, among other things, suspends Ashford Trust’s obligation to subordinate fees due under the advisory agreement if at any point there is no accrued interest outstanding or any accrued dividends on any of Ashford Trust’s preferred stock and Ashford Trust has sufficient unrestricted cash to repay in full all outstanding loans under the Credit Agreement, as amended. On December 13, 2021, Ashford Trust paid the Company $7.2 million for advisory fees that had been deferred as a result of the $29.0 million annual Advisory Fee Cap. See notes 3 and 17.
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, 2021, our Term Loan Agreement was in compliance with all covenants or other requirements and debt held by our subsidiaries was in compliance with all covenants or other requirements.
ASHFORD INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
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 again 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 clients, Ashford Trust and Braemar, to pay their obligations to the Company in accordance with the advisory agreements and Ashford Trust’s payment in the fourth quarter of 2021 of previously deferred advisory fees, the Company has concluded that the facts and circumstances that previously gave rise to substantial doubt about the Company’s ability to continue as a going concern have been resolved. 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, which could subsequently change our assessment. See note 17.
Other Developments
On December 31, 2020, we acquired all of the redeemable noncontrolling interest shares in Inspire Event Technologies Holdings, LLC (formerly Presentation Technologies, LLC), our subsidiary doing business as INSPIRE (formerly JSAV) (“INSPIRE”) for $150,000. As a result of the acquisition, our ownership in INSPIRE increased from approximately 88% to 100%.
During the first quarter of 2021, we paid the remainder of contingent consideration due to the sellers of BAV Services, Inc. (“BAV”) 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 amounts of $870,000 and $888,000 which were paid on February 1, 2021 and March 4, 2021, respectively.
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 each quarter at an annual rate of 10% commencing on March 31, 2021. The principal balance and any outstanding accrued interest on the loan is due and payable to Remington in full on December 31, 2022. The note receivable is recorded within “accounts receivable, net” in our consolidated balance sheet as of December 31, 2021.
On March 9, 2021, we acquired all of the redeemable noncontrolling interests in OpenKey, Inc. (“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, as of March 9, 2021.
On May 3, 2021, we acquired shares in RED Hospitality & Leisure, LLC (“RED”) from a noncontrolling interest holder, increasing our ownership of RED from 84.21% to 97.87% effective retroactively to January 1, 2021, for a total purchase price of $200,000. The purchase price will be paid in the form of shares of the Company’s common stock, delivered quarterly in $25,000 increments, beginning on the closing date and ending on November 15, 2022. In the fourth quarter of 2021, the Company acquired the remaining shares in RED held by a noncontrolling interest holder for a total purchase price of $75,000. The purchase price was paid as of December 31, 2021 in the form of shares of common stock of the Company.
On October 1, 2021, the Company announced that JSAV completed a strategic rebranding and is now named INSPIRE. INSPIRE is a global event solution company specializing in audio-visual, staging and production.
ASHFORD INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
2. Significant Accounting Policies
Restatement and Revisions of Previously Issued Financial Statements—As part of the Company’s financial statement close process and preparation of the 2021 Form 10-K, the Company identified errors in its historical financial statements within its Remington segment related to both the recognition of cost reimbursement revenue and reimbursed expenses for certain insurance costs and the timing of recognition of cost reimbursement revenue and reimbursed expenses for hotel management related salaries and benefits costs that are reimbursed from hotel owners. These costs are reported gross in the Company’s consolidated statements of operations in cost reimbursement revenue with an offsetting amount reported in reimbursed expenses. The Company determined that its interim consolidated financial statements for the quarterly periods ended March 31, 2021 and 2020, June 30, 2021 and 2020 and September 30, 2021 and 2020 were materially misstated and needed to be restated and are illustrated in detail in Note 21 to the consolidated financial statements. In addition, the Company determined that its annual consolidated financial statements for the years ended December 31, 2020 and 2019 were not materially misstated but needed to be revised. The error had no impact on the Company’s consolidated balance sheets, consolidated statements of other comprehensive income (loss), consolidated statements of equity (deficit) and consolidated statements of cash flows. Amounts and disclosures included in this Form 10-K have been revised to reflect the corrected presentation. The table below sets forth the impact of the revisions on the Company’s annual consolidated financial statements (in thousands):
Years Ended December 31, 2020 and 2019 (As Revised)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Year Ended December 31, 2020 | | Year ended December 31, 2019 |
| | | | | As Previously Reported | | Adjustment | | As Revised | | As Previously Reported | | Adjustment | | As Revised |
REVENUE | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
Cost reimbursement revenue | | | | | $ | 162,636 | | | $ | (4,077) | | | $ | 158,559 | | | $ | 85,168 | | | $ | (4,222) | | | $ | 80,946 | |
Total revenues | | | | | 297,428 | | | (4,077) | | | 293,351 | | | 291,250 | | | (4,222) | | | 287,028 | |
EXPENSES | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
Reimbursed expenses | | | | | 162,578 | | | (4,077) | | | 158,501 | | | 84,643 | | | (4,222) | | | 80,421 | |
Total expenses | | | | | 521,358 | | | (4,077) | | | 517,281 | | | 302,480 | | | (4,222) | | | 298,258 | |
OPERATING INCOME (LOSS) | | | | | $ | (223,930) | | | $ | — | | | $ | (223,930) | | | $ | (11,230) | | | $ | — | | | $ | (11,230) | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
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 (continued)
Noncontrolling Interests—The following tables present information about noncontrolling interests in our consolidated subsidiaries, including those related to consolidated VIEs, as of December 31, 2021 and December 31, 2020 (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2021 |
| Ashford Holdings | | | | OpenKey(3) | | Pure Wellness (4) | | | | |
Ashford Inc. ownership interest | 99.87 | % | | | | 75.38 | % | | 70.00 | % | | | | |
Redeemable noncontrolling interests(1) (2) | 0.13 | % | | | | — | % | | — | % | | | | |
Noncontrolling interests in consolidated entities | — | % | | | | 24.62 | % | | 30.00 | % | | | | |
| 100.00 | % | | | | 100.00 | % | | 100.00 | % | | | | |
| | | | | | | | | | | |
Carrying value of redeemable noncontrolling interests | $ | 69 | | | | | n/a | | n/a | | | | |
Redemption value adjustment, year-to-date | 96 | | | | | n/a | | n/a | | | | |
Redemption value adjustment, cumulative | 581 | | | | | n/a | | n/a | | | | |
Carrying value of noncontrolling interests | n/a | | | | 479 | | | 159 | | | | | |
Assets, available only to settle subsidiary’s obligations (6)(9) | n/a | | | | 2,533 | | | 1,779 | | | | | |
Liabilities (8)(9) | n/a | | | | 424 | | | 1,643 | | | | | |
| | | | | | | | | | | |
Revolving credit facility (8) | n/a | | | | — | | | 100 | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| December 31, 2020 |
| Ashford Holdings | | | | OpenKey(3) | | Pure Wellness (4) | | RED (5) | | |
Ashford Inc. ownership interest | 99.86 | % | | | | 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 | % | | |
| | | | | | | | | | | |
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 | | | | | 2,563 | | | n/a | | n/a | | |
Carrying value of noncontrolling interests | n/a | | | | 164 | | | 89 | | | (374) | | | |
Assets, available only to settle subsidiary’s obligations (6)(7)(9) | n/a | | | | 1,287 | | | 1,677 | | | 21,204 | | | |
Liabilities (8)(9) | n/a | | | | 837 | | | 1,767 | | | 13,817 | | | |
Notes payable (8) | n/a | | | | — | | | — | | | 7,627 | | | |
Revolving credit facility (8) | n/a | | | | — | | | 100 | | | 247 | | | |
________
(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 OpenKey, a VIE for which we are considered the primary beneficiary and therefore we consolidate it. OpenKey is a hospitality focused mobile key platform that provides a universal smartphone app for keyless entry into hotel guest rooms. On March 9, 2021, we acquired all of the redeemable noncontrolling interests in OpenKey for a purchase price of approximately $1.9 million. See also notes 1 and 6.
ASHFORD INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(4) Represents ownership interests in PRE Opco, LLC (“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 and commercial office industry. See also notes 1 and 12.
(5) Represents ownership interests in RED, our wholly owned subsidiary as of December 31, 2021. During the year ended December 31, 2021, we acquired the remaining outstanding shares in RED from the previous noncontrolling interest holders, increasing our ownership of RED from 84.21% at the beginning of the year to 100.00%. RED is a provider of watersports activities and other travel and transportation services and includes RED’s operating subsidiaries that conduct RED’s legacy U.S. Virgin Islands and Turks and Caicos Islands operations and Sebago, a provider of watersports activities and excursion services based in Key West, Florida. Prior to our acquisition of RED’s noncontrolling interest, RED was a VIE for which we were considered the primary beneficiary and therefore consolidated it. We were provided a preferred return on our investment in RED which was accounted for in our income allocation based on the applicable partnership agreement. See also notes 1 and 12.
(6) 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.
(7) The assets of Sebago are not available to settle the obligations of RED’s operating subsidiaries that conduct RED’s legacy U.S. Virgin Islands and Turks and Caicos Islands operations.
(8) 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 loan and line of credit held by RED’s operating subsidiary that conducts RED’s legacy U.S. Virgin Islands operations. See note 6.
(9) 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 years ended December 31, 2021 and 2020.
We held an investment in an unconsolidated variable interest entity with a carrying value of $500,000 at December 31, 2021 and December 31, 2020. 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 years ended December 31, 2021 and 2020. 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.
Our investment in Real Estate Advisory Holdings LLC (“REA Holdings”) is accounted for under the equity method as we have significant influence over the voting interest entity. 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, which expires on the later of (i) February 28, 2024 and (ii) 30 business days following the completion date of the Company’s preliminary audit for calendar year 2023. The following table summarizes our carrying value and ownership interest in REA Holdings (in thousands):
| | | | | | | | | | | |
| December 31, 2021 | | December 31, 2020 |
Carrying value of the investment in REA Holdings | $ | 2,831 | | | 2,873 | |
Ownership interest in REA Holdings | 30 | % | | 30 | % |
ASHFORD INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The following table summarizes our equity in earnings (loss) in REA Holdings (in thousands): | | | | | | | | | | | | | | | | | | | | | |
| | | Year Ended December 31, |
| | | | | 2021 | | 2020 | | 2019 |
Equity in earnings (loss) in unconsolidated entities | | | | | $ | 13 | | | $ | 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.
ASHFORD INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Restricted Cash—Restricted cash was comprised of the following (in thousands):
| | | | | | | | | | | | | |
| December 31, 2021 | | December 31, 2020 | | |
REIT Advisory: | | | | | |
Insurance claim reserves (1) | $ | 24,588 | | | $ | 26,304 | | | |
| | | | | |
Remington: | | | | | |
Managed hotel properties’ reserves (2) | 6,923 | | | 5,908 | | | |
Insurance claim reserves (3) | 1,312 | | | 1,532 | | | |
Total Remington restricted cash | 8,235 | | | 7,440 | | | |
| | | | | |
INSPIRE: | | | | | |
Debt service related operating reserves (4) | 1,000 | | | — | | | |
| | | | | |
Marietta: | | | | | |
Capital improvement reserves (5) | 255 | | | 2,852 | | | |
Restricted cash held in escrow (6) | 800 | | | 800 | | | |
Total Marietta restricted cash | 1,055 | | | 3,652 | | | |
| | | | | |
| | | | | |
| | | | | |
Total restricted cash | $ | 34,878 | | | $ | 37,396 | | | |
| | | | | |
________(1) 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.
(2) Cash received from hotel properties managed by Remington is 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 which is presented net 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.”
(3) Cash reserves for health insurance claims are collected primarily from Remington’s managed properties as well as certain of Ashford Inc.’s other subsidiaries to cover employee health insurance claims. The liability related to this restricted cash balance is included in current “other liabilities.”
(4) Cash is restricted due to operating reserves required under INSPIRE’s amended credit agreement to service interest expense and projected operating costs. See note 6.
(5) Includes cash reserves for capital improvements associated with renovations at the hotel leased by our consolidated subsidiary, Marietta Leasehold LP, (“Marietta”), which holds the leasehold rights to a single hotel and convention center property in Marietta, Georgia. The liability related to the restricted cash balance for the hotel’s renovations are included in “accounts payable and accrued expenses.”
(6) Restricted cash is held in escrow in accordance with the Marietta lease agreement. The cash held in escrow is funded from hotel cash flows and can only be used for repairs and maintenance or capital improvements at the property.
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. As of December 31, 2021, accounts receivable also includes a note receivable due to Remington of approximately $2.9 million. See note 1.
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.
ASHFORD INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
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 the year ended December 31, 2020 based on the results of the recoverability tests. No impairment charges related to Property and Equipment were recorded in the years ended December 31, 2021 and 2019.
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, INSPIRE 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. In the evaluation of goodwill for impairment, we typically perform a qualitative assessment 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 may choose to bypass the qualitative assessment and perform a quantitative assessment and compare the fair value of the reporting unit to the carrying value and, if applicable, record an impairment charge 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. Based on the results of our annual impairment assessments, no impairment of goodwill was indicated as of October 1, 2021. Additionally, no indicators of impairment were identified from the date of our impairment assessments through December 31, 2021. 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.
During the third quarter of 2021, as a result of the strategic rebranding of our segment formerly known as JSAV to INSPIRE, we concluded sufficient indicators existed to require us to perform an assessment of INSPIRE’s JSAV trademark. We performed an impairment test and calculated the fair value of our indefinite-lived INSPIRE trademarks using the relief-from-royalty method which includes unobservable inputs including royalty rates and projected revenues for the time period that the Company is expected to benefit from the trademark. The relief-from-royalty 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, see note 5.
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 22 and 30 years, respectively. The INSPIRE, 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. For additional information on our definite-lived intangible assets, see note 5.
ASHFORD INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Other Liabilities—As of December 31, 2021 and December 31, 2020, other liabilities included reserves in the amount of $24.6 million and $26.3 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, 2021 and December 31, 2020, other liabilities also included $1.3 million and $1.5 million, respectively, relating to reserves for Remington health insurance claims, and liabilities of $0 and $2.1 million, respectively, for the fair value of contingent consideration due to the sellers of BAV.
Revenue Recognition—See note 3.
Salaries and Benefits—Salaries and benefits are expensed as incurred and include salaries and benefit related expenses for our officers and employees. 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 14 and 15.
General and Administrative—General and administrative costs are expensed as incurred, and include advertising costs of $1.5 million, $1.4 million and $1.5 million for the years ended December 31, 2021, 2020 and 2019, respectively.
Depreciation and Amortization—Our property and equipment, including assets acquired under finance leases, are 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. The Company accounts for forfeitures when they occur. 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”.
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 INSPIRE 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, 2021 and 2020.
Due to Affiliates—Due to affiliates represents current payables resulting primarily from general and administrative expense. 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.
ASHFORD INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
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 7.
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 15.
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 2017 through 2021 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 our 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 received the carryback amount of $1.0 million in March of 2021.
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 has deferred $1.3 million and $2.5 million of
ASHFORD INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Social Security taxes within “accounts payable and accrued expenses” in our consolidated balance sheets as of December 31, 2021 and December 31, 2020, respectively, related to the Consolidated Appropriations Act, 2021.
Recently Adopted Accounting Standards—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. In January 2021, the FASB issued ASU 2021-01, Reference Rate Reform (Topic 848): Scope (“ASU 2021-01”) to provide guidance and relief for transitioning to alternative reference rates. ASU 2021-01 is effective immediately for all entities. There was no impact on our consolidated financial statements and related disclosures upon adoption of ASU 2020-04 and 2021-01, and the Company will continue to evaluate as reference rate reform activities occur.
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 August 2020, the FASB issued ASU 2020-06, Debt - Debt with Conversion and Other Options (Subtopic 470) 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.
ASHFORD INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The following provides detailed information on the recognition of our revenues from contracts with customers:
Advisory Services Fees Revenue
Advisory services fees 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 January 14, 2021, the base fee was paid monthly and ranged from 0.50% to 0.70% per annum of the total market capitalization ranging from greater than $10.0 billion to less than $6.0 billion plus the Net Asset Fee Adjustment, as defined in the Amended and Restated Advisory Agreement, subject to certain minimums. 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 to, among other things, fix the percentage used to calculate the base fee thereunder at 0.70% per annum. In connection with the transactions contemplated by the Credit Agreement, 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 the Advisory Fee Cap, (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 note 1.
Under the Second Amended and Restated Advisory Agreement, advisory fees earned each year from Ashford Trust in excess of the Advisory Fee Cap are a form of variable consideration that is constrained and deferred until such fees are probable of not being subject to significant reversal. The Advisory Fee Cap is $29.0 million each year as stated in the Credit Agreement. As a result, until the later of (i) the second anniversary of the Credit Agreement and (ii) the date accrued interest “in kind” is paid in full to Oaktree by Ashford Trust, base advisory fee revenue recognized each month is equal to the lesser of (1) base fees calculated as described above based on Ashford Trust’s market capitalization or (2) 1/12th of $29.0 million. Any cash received from Ashford Trust for base advisory fees in excess of revenue recognized is deferred until it is probable that the fees would no longer be constrained. Any portion of deferred advisory fees that becomes probable of being unconstrained during the same year in which the fees were earned will be recognized with a cumulative catch-up in the interim period in which the constraint is resolved. Any portion of deferred advisory fees that becomes probable of being unconstrained in a year subsequent to the year in which the fees were earned will be recognized in the interim period in which the constraint is resolved.
On October 12, 2021, Ashford Trust entered into Amendment No. 1 to the Credit Agreement (“Amendment No. 1”) with certain funds and accounts managed by Oaktree Capital Management, L.P., as lenders, and Oaktree, as administrative agent. Amendment No. 1, subject to the conditions set forth therein, among other things, suspends Ashford Trust’s obligation to subordinate fees due under the advisory agreement if at any point there is no accrued interest outstanding or any accrued dividends on any of Ashford Trust’s preferred stock and Ashford Trust has sufficient unrestricted cash to repay in full all outstanding loans under the Credit Agreement, as amended. On December 13, 2021, Ashford Trust paid the Company $7.2 million for advisory fees that had been deferred as a result of the $29.0 million annual Advisory Fee Cap. The $7.2 million payment was recorded as revenue in “advisory services fees” in our consolidated statements of operations for the year ended December 31, 2021.
For Braemar, 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 our advisory agreement with Braemar, 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
ASHFORD INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
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. Braemar’s annual total stockholder return did not meet the relevant incentive fee thresholds during the 2021, 2020 and 2019 measurement periods. Ashford Trust’s annual stockholder return did not meet the relevant incentive fee thresholds during the 2021, 2020 and 2019 measurement periods.
Hotel Management Fees Revenue
Hotel management fees 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 Remington’s 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.
Design and Construction Fees Revenue
Design and construction fees revenue (formerly called project management revenue) primarily consists of revenue generated by our subsidiary, Premier Project Management LLC (“Premier”). Premier provides design and construction management services, capital improvements, refurbishment, project management, and other services such as purchasing, interior design, architectural services and freight management 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 INSPIRE 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
Other revenue includes revenue provided by certain of our 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 refinancing 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. Consistent with our accounting treatment prior to adopting ASU 2016-02, Leases (“ASU 2016-02”), other revenue for
ASHFORD INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
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. Prior to December 31, 2020, we additionally were reimbursed by Ashford Trust for expenses incurred by Ashford Investment Management, LLC (“AIM”) for managing Ashford Trust’s excess cash under an Investment Management Agreement with Ashford Trust. AIM was not compensated for its services but was reimbursed for all costs and expenses. Effective December 31, 2020, the Investment Management Agreement with Ashford Trust was 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. Design and construction 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 Ashford Trust, Braemar and other hotel owners.
We recognize revenue within “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.
Practical Expedients and Exemptions
We do not disclose the amount of variable consideration that we expect to recognize in future periods in the following circumstances:
(1) if we recognize the revenue based on the amount invoiced or services performed;
(2) if the consideration is allocated entirely to a wholly unsatisfied promise to transfer a distinct service that forms part of a single performance obligation, and the terms of the consideration relate specifically to our efforts to transfer, or to a specific outcome from transferring the service.
Deferred Income and Contract Balances
Deferred income primarily consists of customer billings in advance of revenue being recognized from our advisory agreements and other 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 change 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.
ASHFORD INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The following tables summarize our consolidated deferred income activity (in thousands):
| | | | | | | | | | | | | | | | | |
| Deferred Income |
| 2021 | | 2020 | | 2019 |
Balance as of January 1 | $ | 21,359 | | | $ | 13,280 | | | $ | 13,544 | |
Increases to deferred income | 11,774 | | | 23,033 | | | 8,137 | |
Recognition of revenue (1) | (22,228) | | | (14,954) | | | (8,401) | |
Balance as of December 31 | $ | 10,905 | | | $ | 21,359 | | | $ | 13,280 | |
________(1) Deferred income recognized in the year ended December 31, 2021, includes (a) $2.1 million of advisory revenue primarily related to our advisory agreements with Ashford Trust and Braemar, (b) $2.1 million of audio visual revenue, (c) $11.2 million of other revenue primarily related to the Ashford Trust Agreement with Lismore, which includes a $1.2 million cumulative catch-up adjustment to revenue which was previously considered constrained (see note 17), and (d) $6.9 million of “other services” revenue earned by our products and services companies, excluding Lismore. 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 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 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 note 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, 2021.
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 $7.6 million and $3.5 million included in “accounts receivable, net” primarily related to our products and services segment, $2.6 million and $13.2 million in “due from Ashford Trust”, and $1.1 million and $2.1 million included in “due from Braemar” related to REIT advisory services at December 31, 2021 and December 31, 2020, respectively. We had no significant impairments related to these receivables during the year ended December 31, 2021 and 2020. See note 17.
Disaggregated Revenue
Our revenues were comprised of the following for the years ended December 31, 2021, 2020 and 2019, respectively (in thousands) as shown below. Cost reimbursement revenue and reimbursed expenses for our Remington segment have been revised as stated in note 2 for the years ended December 31, 2020 and 2019. All revisions to prior period amounts stated within note 2 occurred within our Remington segment.
ASHFORD INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
| | | | | | | | | | | | | | | | | | | | | |
| | | Year Ended December 31, |
| | | | | 2021 | | 2020 | | 2019 |
Advisory services fees: | | | | | | | | | |
Base advisory fees | | | | | $ | 47,045 | | | $ | 44,725 | | | $ | 42,985 | |
Incentive advisory fees | | | | | — | | | — | | | 678 | |
| | | | | | | | | |
| | | | | | | | | |
Other advisory revenue | | | | | 521 | | | 522 | | | 521 | |
Total advisory services fees revenue | | | | | 47,566 | | | 45,247 | | | 44,184 | |
| | | | | | | | | |
Hotel management fees: | | | | | | | | | |
Base fees | | | | | 21,291 | | | 17,126 | | | 4,054 | |
Incentive fees | | | | | 4,969 | | | — | | | 472 | |
Total hotel management fees revenue | | | | | 26,260 | | | 17,126 | | | 4,526 | |
| | | | | | | | | |
Design and construction fees revenue | | | | | 9,557 | | | 8,936 | | | 25,584 | |
| | | | | | | | | |
Audio visual revenue | | | | | 49,880 | | | 37,881 | | | 110,609 | |
| | | | | | | | | |
Other revenue: | | | | | | | | | |
| | | | | | | | | |
Watersports, ferry and excursion services (1) | | | | | 23,867 | | | 9,663 | | | 9,354 | |
Debt placement and related fees (2) | | | | | 12,384 | | | 8,412 | | | 1,998 | |
Claims management services | | | | | 81 | | | 226 | | | 210 | |
Lease revenue | | | | | — | | | — | | | 4,118 | |
Other services (3) | | | | | 10,997 | | | 7,301 | | | 5,499 | |
Total other revenue | | | | | 47,329 | | | 25,602 | | | 21,179 | |
| | | | | | | | | |
Cost reimbursement revenue | | | | | 203,975 | | | 158,559 | | | 80,946 | |
| | | | | | | | | |
Total revenues | | | | | $ | 384,567 | | | $ | 293,351 | | | $ | 287,028 | |
| | | | | | | | | |
REVENUES BY SEGMENT (4) | | | | | | | | | |
REIT advisory | | | | | $ | 74,616 | | | $ | 70,169 | | | $ | 84,701 | |
Remington | | | | | 197,802 | | | 145,596 | | | 43,065 | |
Premier | | | | | 12,413 | | | 11,604 | | | 30,580 | |
INSPIRE | | | | | 49,900 | | | 37,881 | | | 110,609 | |
RED | | | | | 23,867 | | | 9,663 | | | 9,354 | |
OpenKey | | | | | 1,965 | | | 1,479 | | | 987 | |
Corporate and other | | | | | 24,004 | | | 16,959 | | | 7,732 | |
Total revenues | | | | | $ | 384,567 | | | $ | 293,351 | | | $ | 287,028 | |
________(1) Watersports, ferry and excursion services revenue is earned by RED, which includes the entity that conducts RED’s legacy U.S. Virgin Islands, the Turks and Caicos Islands operations and Sebago, a provider of watersports activities and excursion services based in Key West, Florida.
(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 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.
ASHFORD INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(4) We have six reportable segments: REIT Advisory, Remington, Premier, INSPIRE, RED and OpenKey. We combine the operating results of Marietta and Pure Wellness into an “all other” category, which we refer to as “Corporate and Other.” See note 19 for discussion of segment reporting.
Geographic Information
Our REIT Advisory, Remington, Premier, OpenKey, and Corporate and Other reporting segments conduct their business primarily within the United States. Our INSPIRE reporting segment conducts business in the United States, Mexico, and the Dominican Republic. RED conducts business in the United States and the Turks and Caicos Islands, a territory of the United Kingdom.
The following table presents revenue from INSPIRE and RED geographically for the years ended December 31, 2021, 2020 and 2019, respectively (in thousands):
| | | | | | | | | | | | | | | | | | | | | |
| | | Year Ended December 31, |
| | | | | 2021 | | 2020 | | 2019 |
INSPIRE: | | | | | | | | | |
United States | | | | | $ | 39,164 | | | $ | 28,923 | | | $ | 88,583 | |
Mexico | | | | | 7,724 | | | 7,100 | | | 16,067 | |
| | | | | | | | | |
Dominican Republic | | | | | 2,992 | | | 1,858 | | | 5,959 | |
Total audio visual revenue | | | | | $ | 49,880 | | | $ | 37,881 | | | $ | 110,609 | |
RED: | | | | | | | | | |
United States | | | | | $ | 22,665 | | | $ | 9,663 | | | $ | 9,354 | |
United Kingdom (Turks and Caicos Islands) | | | | | 1,202 | | | — | | | — | |
| | | | | | | | | |
Total watersports, ferry and excursion services | | | | | $ | 23,867 | | | $ | 9,663 | | | $ | 9,354 | |
4. Property and Equipment, net
Property and equipment, net, consisted of the following (in thousands):
| | | | | | | | | | | | | | |
| | December 31, |
| | 2021 | | 2020 |
Marietta Leasehold L.P. finance lease | | $ | 44,294 | | | $ | 44,294 | |
Rental pool equipment | | 20,498 | | | 21,200 | |
FF&E leased to Ashford Trust | | 19,688 | | | 21,100 | |
FF&E leased to Braemar | | 1,744 | | | 1,420 | |
Property and equipment | | 10,370 | | | 11,014 | |
Marine vessels | | 15,153 | | | 11,262 | |
Leasehold improvements | | 1,177 | | | 1,193 | |
Computer software | | 1,244 | | | 657 | |
Total cost | | 114,168 | | | 112,140 | |
Accumulated depreciation | | (30,602) | | | (23,380) | |
Property and equipment, net | | $ | 83,566 | | | $ | 88,760 | |
For the years ended December 31, 2021, 2020 and 2019, depreciation expense was $12.9 million, $18.0 million and $15.1 million, respectively. Depreciation and amortization expense for the years ended December 31, 2021, 2020 and 2019 excludes depreciation expense related to audio visual equipment of $5.0 million, $4.9 million and $4.7 million, respectively, which is included in “cost of revenues for audio visual” and depreciation expense related to marine vessels of $929,000, $795,000, and $441,000, respectively, which is included in “other” operating expense. The year ended December 31, 2019, excludes $1.5 million of depreciation expense of capitalized software included in “reimbursed expenses.”
ASHFORD INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
5. 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 during the year ended December 31, 2020 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 INSPIRE segment which represented all of its goodwill. We performed a detailed quantitative assessment of goodwill associated with our INSPIRE 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.
No impairment charges or any other adjustments related to goodwill were recorded for the year ended December 31, 2021. As of December 31, 2021 and 2020, our Remington segment had $54.6 million of goodwill remaining and our Premier and INSPIRE 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 Remington and INSPIRE 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 INSPIRE trademarks. The Remington and INSPIRE trademarks were written down to $4.9 million and $1.2 million, respectively, based on a valuation using the relief-from-royalty method.
During the third quarter of 2021, as a result of the strategic rebranding of our segment formerly known as JSAV to INSPIRE, we performed an impairment test and calculated the fair value of our indefinite-lived JSAV trademarks using the relief-from-royalty method which includes unobservable inputs including royalty rates and projected revenues for the time period that the Company is expected to benefit from the trademark. As a result of the evaluation, we recognized intangible asset impairment charges of $1.2 million, which was the full impairment of the indefinite-lived JSAV trademarks within the INSPIRE segment for the year ended December 31, 2021.
ASHFORD INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The changes in the carrying amount of goodwill for the years ended December 31, 2021 and December 31, 2020, are as follows (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Remington | | Premier | | INSPIRE | | RED | | Corporate and Other (1) | | Consolidated |
Balance at January 1, 2020 | | $ | 143,854 | | | $ | 49,524 | | | $ | 10,211 | | | $ | 1,235 | | | $ | 782 | | | $ | 205,606 | |
Changes in goodwill: | | | | | | | | | | | | |
Adjustments (2) | | 31,799 | | | — | | | — | | | — | | | — | | | 31,799 | |
Impairments (3) | | (121,048) | | | (49,524) | | | (10,211) | | | — | | | — | | | (180,783) | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
Balance at December 31, 2020 | | 54,605 | | | — | | | — | | | 1,235 | | | 782 | | | 56,622 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
Balance at December 31, 2021 | | $ | 54,605 | | | $ | — | | | $ | — | | | $ | 1,235 | | | $ | 782 | | | $ | 56,622 | |
________(1) Corporate and Other includes the goodwill from the Company’s acquisition of Pure Wellness.
(2) The adjustment to Remington goodwill relates to changes in our final valuation of the acquired assets and liabilities associated with the acquisition of Remington.
(3) See explanation above of impairment charges recognized during the year ended December 31, 2020. These impairment charges represent the accumulated impairments to date.
Intangible assets, net as of December 31, 2021 and December 31, 2020, are as follows (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2021 | | December 31, 2020 |
| | Gross Carrying Amount | | Impairment | Accumulated Amortization | Net Carrying Amount | | Gross Carrying Amount | Impairment | Accumulated Amortization | Net Carrying Amount |
Definite-lived intangible assets: | | | | | | | | | | | |
Remington management contracts | | $ | 107,600 | | | $ | — | | $ | (28,284) | | $ | 79,316 | | | $ | 107,600 | | $ | — | | $ | (16,237) | | $ | 91,363 | |
Premier management contracts | | 194,000 | | | — | | (41,619) | | 152,381 | | | 194,000 | | — | | (29,428) | | 164,572 | |
INSPIRE customer relationships | | 9,319 | | | — | | (4,409) | | 4,910 | | | 9,319 | | — | | (3,291) | | 6,028 | |
| | | | | | | | | | | |
RED boat slip rights | | 3,100 | | | — | | (380) | | 2,720 | | | 3,100 | | — | | (225) | | 2,875 | |
Pure Wellness customer relationships | | 175 | | | — | | (166) | | 9 | | | 175 | | — | | (131) | | 44 | |
Other | | — | | | — | | — | | — | | | 47 | | (37) | | (10) | | — | |
| | $ | 314,194 | | | $ | — | | $ | (74,858) | | $ | 239,336 | | | $ | 314,241 | | $ | (37) | | $ | (49,322) | | $ | 264,882 | |
| | | | | | | | | | | |
| | Gross Carrying Amount | | Impairment | Net Carrying Amount | | | Gross Carrying Amount | Impairment | Net Carrying Amount | |
Indefinite-lived intangible assets: | | | | | | | | | | | |
| | | | | | | | | | | |
Remington trademarks | | $ | 4,900 | | | $ | — | | $ | 4,900 | | | | $ | 10,400 | | $ | (5,500) | | $ | 4,900 | | |
| | | | | | | | | | | |
INSPIRE trademarks (1) | | 1,160 | | | (1,160) | | — | | | | 3,641 | | (2,481) | | 1,160 | | |
RED trademarks | | 490 | | | — | | 490 | | | | 490 | | — | | 490 | | |
| | $ | 6,550 | | | $ | (1,160) | | $ | 5,390 | | | | $ | 14,531 | | $ | (7,981) | | $ | 6,550 | | |
________
(1) See explanation of impairment charges above.
Amortization expense for definite-lived intangible assets was $25.6 million, $27.7 million and $16.1 million for the years ended December 31, 2021, 2020 and 2019, 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 (continued)
Expected future amortization expense of definite-lived intangible assets as of December 31, 2021 are as follows (in thousands):
| | | | | | | | |
| | |
2022 | | $ | 23,759 | |
2023 | | 22,146 | |
2024 | | 20,195 | |
2025 | | 17,803 | |
2026 | | 16,364 | |
Thereafter | | 139,069 | |
Total | | $ | 239,336 | |
6. Notes Payable, net
Notes payable—Notes payable, net consisted of the following (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Indebtedness | | Borrower | | Maturity | | Interest Rate | | December 31, 2021 | | December 31, 2020 |
Term loan (9) | | Ashford Inc. | | March 19, 2024 | | Base Rate (1) + 2.00% to 2.25% or LIBOR (2) (3) +3.00% to 3.25% | | $ | 27,271 | | | $ | 33,688 | |
Note payable (12) | | Ashford Inc. | | February 29, 2028 | | 4.00% | | 1,746 | | | — | |
Term loan (5) (7) (10) | | INSPIRE | | January 1, 2024 | | Prime Rate (4) + 1.75% | | 20,000 | | | 20,000 | |
Revolving credit facility (5) (7) (10) | | INSPIRE | | January 1, 2024 | | Prime Rate (4) + 1.75% | | 1,869 | | | 1,106 | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
Revolving credit facility (5) (13) | | Pure Wellness | | On demand | | Prime Rate (4) + 1.00% | | 100 | | | 100 | |
Term loan (6) (8) (19) | | RED | | October 5, 2025 | | Prime Rate (4) + 1.75% | | — | | | 571 | |
Revolving credit facility (6) (8) (14) (18) | | RED | | August 5, 2022 | | Prime Rate (4) + 1.75% | | — | | | 247 | |
Draw term loan (6) (8) (19) | | RED | | June 5, 2027 | | Prime Rate (4) + 1.75% | | — | | | 1,375 | |
Term loan (6) (8) (19) | | RED | | February 1, 2029 | | Prime Rate (4) + 2.00% | | — | | | 1,584 | |
Term loan (5) (8) (15) | | RED | | July 17, 2029 | | 6.00% (15) | | 1,641 | | | 1,663 | |
Term loan (5) (8) (16) | | RED | | July 17, 2023 | | 6.50% | | 607 | | | 859 | |
Draw term loan (5) (8) (18) | | RED | | August 5, 2028 | | Prime Rate (4) + 2.00% | | — | | | 1,575 | |
| | | | | | | | | | |
Term loan (5) (8) (17) | | RED | | August 5, 2029 | | Prime Rate (4) +2.00% | | 888 | | | — | |
Term loan (5) (8) (18) | | RED | | August 5, 2029 | | Prime Rate (4) + 2.00% | | 2,143 | | | — | |
Term loan (6) (8) (19) | | RED | | August 5, 2029 | | Prime Rate (4) + 1.75% | | 3,357 | | | — | |
Total notes payable | | | | | | | | 59,622 | | | 62,768 | |
Capitalized default interest, net (11) | | | | | | | | 290 | | | 427 | |
Deferred loan costs, net | | | | | | | | (518) | | | (499) | |
Notes payable including capitalized default interest and deferred loan costs, net | | | | | | | | 59,394 | | | 62,696 | |
| | | | | | | | | | |
Less current portion | | | | | | | | (6,725) | | | (5,347) | |
Total notes payable, net - non-current | | | | | | | | $ | 52,669 | | | $ | 57,349 | |
__________________
(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 0.10% and 0.14% at December 31, 2021 and December 31, 2020, respectively.
(4) Prime Rate was 3.25% and 3.25% at December 31, 2021 and December 31, 2020, respectively.
(5) Creditors do not have recourse to Ashford Inc.
(6) Creditors have recourse to Ashford Inc.
(7) INSPIRE’s revolving credit facility is collateralized primarily by INSPIRE’s accounts receivable with a carrying value of
ASHFORD INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
$5.0 million and $900,000 as of December 31, 2021 and 2020, respectively. INSPIRE’s term loan is collateralized by substantially all the assets of INSPIRE with a carrying value of $32.8 million and $34.6 million as of December 31, 2021 and 2020, respectively.
(8) RED’s loans are collateralized primarily by RED’s marine vessels and associated leases with a carrying value of $12.5 million and $11.0 million as of December 31, 2021 and 2020, respectively.
(9) On March 29, 2021, the Company amended its Term Loan Agreement (the “Term Loan Agreement”) with Bank of America, N.A. (as so amended, the “Seventh Amendment”). The Seventh Amendment (a) increases the required amortization rate from 1.25% to 2.50% each quarter commencing July 1, 2021, (b) requires the Company to maintain a minimum liquidity of $15.0 million at all times, including pro forma for preferred dividends, and (c) restricts dividends and stock repurchases, other than preferred dividends, so long as there is no default under the Term Loan Agreement. 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 2.50% to 5.0% of the outstanding principal balance. Upon signing the Seventh Amendment, the Company made a $5.0 million prepayment to Bank of America, N.A. as consideration for their execution and delivery of the Seventh Amendment. The Company is also subject to certain financial covenants. See covenant compliance discussion below.
(10) On December 31, 2020, INSPIRE amended its credit agreement dated as of November 1, 2017. As a result of the INSPIRE Amendment, the credit agreement revised the maximum borrowing capacity of the revolving credit facility from $3.5 million to $3.0 million. As of December 31, 2021, the amount unused under INSPIRE’s revolving credit facility was $1.1 million. The INSPIRE Amendment additionally replaced INSPIRE’s previous term loan, draw term loan and equipment loans with a $20.0 million senior secured term loan. The INSPIRE Amendment also extended the maturity date of INSPIRE’s obligations under the revolving credit facility and term loan to January 1, 2024, with the potential for a further one-year extension at INSPIRE’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 INSPIRE’s election to extend. Pursuant to the INSPIRE Amendment, INSPIRE’s obligations to comply with certain financial and other covenants was waived until March 31, 2023.
As a result of the INSPIRE 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. INSPIRE 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 INSPIRE’s obligations under the INSPIRE Amendment have been satisfied in full in advance of that date. The INSPIRE Amendment suspended payments of principal under the term loan through December 2021. Commencing January 1, 2022, INSPIRE 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. On September 22, 2021, the INSPIRE Amendment was further amended to reduce INSPIRE’s requirement to fund an operating reserve account from an initial amount of $3.0 million to $1.0 million. In connection with the credit agreement dated as of November 1, 2017, INSPIRE 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, 2021 and December 31, 2020, was not material.
(11) On December 31, 2020, the Company determined the INSPIRE 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, $427,000 of accrued default interest and late charges were capitalized into the INSPIRE term loan balance at December 31, 2020, and are amortized over the remaining term of the loan using the effective interest method.
(12) 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.
(13) 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. As of December 31, 2021, the amount unused under Pure Wellness’s revolving credit facility was $150,000.
(14) On July 23, 2021, RED renewed its $250,000 revolving credit facility. As of December 31, 2021, the amount unused under RED’s revolving credit facility was $250,000.
ASHFORD INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(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 July 23, 2021, RED entered into a new term loan agreement with a maximum principal amount of $900,000. RED will not be required to make any payments of principal until May 5, 2022.
(18) On July 23, 2021, RED consolidated the draw term loan previously maturing August 2028 and the outstanding balance for RED’s line of credit into a new term loan. RED is required to pay monthly installments of principal and interest commencing September 5, 2021 until the maturity date.
(19) On July 23, 2021, RED consolidated the draw term loan previously maturing June 2027 and two term loans previously maturing October 2025 and February 2029 into a new term loan. Commencing September 5, 2021, RED is required to pay monthly installments of principal and interest until the maturity date.
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, 2021, our Term Loan Agreement was in compliance with all covenants or other requirements and debt held by our subsidiaries was in compliance with all covenants or other requirements.
Maturities and scheduled amortization of long-term debt as of December 31, 2021, assuming no extension of existing extension options for each of the following five years and thereafter are as follows (in thousands):
| | | | | | | | |
| | |
2022 | | $ | 6,584 | |
2023 | | 7,260 | |
2024 | | 38,834 | |
2025 | | 1,041 | |
2026 | | 1,089 | |
Thereafter | | 4,814 | |
Total | | $ | 59,622 | |
7. 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, 2021, 2020 and 2019, we recorded $3.4 million, $3.4 million and $2.0 million in rent expense related to our corporate office lease with RHC. The increase in rent expense for the year ended December 31, 2020 is due to our acquisition of Remington in November of 2019. 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 statements of operations.
ASHFORD INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
As of December 31, 2021 and 2020, our leased assets and liabilities consisted of the following (in thousands):
| | | | | | | | | | | | | | | |
Leases | | Classification | December 31, 2021 | | December 31, 2020 |
Assets | | | | | |
Operating lease assets | | Operating lease right-of-use assets | $ | 26,975 | | | $ | 30,431 | |
Finance lease assets | | Property and equipment, net | 44,333 | | | 45,789 | |
Total leased assets | | | $ | 71,308 | | | $ | 76,220 | |
| | | | | |
Liabilities | | | | | |
Current | | | | | |
Operating | | Operating lease liabilities | $ | 3,628 | | | $ | 3,691 | |
Finance | | Finance lease liabilities | 1,065 | | | 841 | |
Noncurrent | | | | | |
Operating | | Operating lease liabilities | 23,477 | | | 26,881 | |
Finance | | Finance lease liabilities | 43,479 | | | 43,143 | |
Total leased liabilities | | | $ | 71,649 | | | $ | 74,556 | |
We incurred the following lease costs related to our operating and finance leases (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | Year Ended December 31, |
Lease Cost | | Classification | | | 2021 | | 2020 | | 2019 |
Operating lease cost | | | | | | | | | |
Rent expense (1) | | General and administrative | | | $ | 5,654 | | | $ | 5,327 | | | $ | 3,324 | |
Rent expense | | Cost of revenues for design and construction | | | — | | | — | | | 127 | |
Finance lease cost | | | | | | | | | |
Amortization of leased assets | | Depreciation and amortization | | | 1,455 | | | 1,458 | | | 384 | |
Interest on lease liabilities | | Interest expense | | | 2,727 | | | 2,626 | | | 443 | |
Total lease cost | | | | | $ | 9,836 | | | $ | 9,411 | | | $ | 4,278 | |
__________________
(1) The years ended December 31, 2021, 2020 and 2019 include short term lease expense of $442,000, $227,000 and $137,000, respectively.
For the year ended December 31, 2021, 2020 and 2019, cash paid amounts included in the measurement of lease liabilities included (in thousands):
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
Lease Payments | 2021 | | 2020 | | 2019 |
Cash paid for amounts included in the measurement of lease liabilities: | | | | | |
Operating cash flows from operating leases | $ | 3,713 | | | $ | 3,650 | | | $ | 2,021 | |
Financing cash flows from finance leases | $ | 439 | | | $ | 785 | | | $ | 627 | |
| | | | | |
ASHFORD INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
As of December 31, 2021, future minimum lease payments on operating leases and financing leases and total future minimum lease payments to be received were as follows (in thousands):
| | | | | | | | | | | | | | | | | |
| Operating Leases | | Finance Leases | | Sublease Payments to be Received |
2022 | $ | 4,964 | | | $ | 3,548 | | | $ | 211 | |
2023 | 4,799 | | | 4,553 | | | 215 | |
2024 | 4,529 | | | 3,064 | | | 105 | |
2025 | 3,998 | | | 2,948 | | | 83 | |
2026 | 3,728 | | | 2,948 | | | 83 | |
Thereafter | 12,887 | | | 80,338 | | | 159 | |
Total minimum lease payments (receipts) | $ | 34,905 | | | $ | 97,399 | | | $ | 856 | |
Imputed interest | (7,800) | | | (52,855) | | | |
Present value of minimum lease payments | $ | 27,105 | | | $ | 44,544 | | | |
Our weighted-average remaining lease terms (in years) and discount rates consisted of the following:
| | | | | | | | | | | | | | | | | |
| December 31, 2021 | | December 31, 2020 | | December 31, 2019 |
Lease term and discount rate | | | | | |
Weighted-average remaining lease term | | | | | |
Operating leases (1) | 9.34 | | 9.93 | | 10.95 |
Finance leases (2) | 31.49 | | 32.3 | | 34.09 |
Weighted-average discount rate | | | | | |
Operating leases | 5.2 | % | | 5.2 | % | | 5.2 | % |
Finance leases | 6.2 | % | | 6.2 | % | | 6.2 | % |
__________________(1) The weighted-average remaining lease term includes two optional 10 year extension periods for our INSPIRE headquarters in Irving, Texas, as failure to renew the lease would result in INSPIRE 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.
8. Accounts Payable and Accrued Expenses
Accounts payable and accrued expenses were comprised of the following (in thousands):
| | | | | | | | | | | |
| December 31, 2021 | | December 31, 2020 |
| | | |
Accounts payable | $ | 11,682 | | | $ | 15,145 | |
Accrued payroll expense | 23,648 | | | 21,741 | |
Accrued vacation expense | 3,427 | | | 2,516 | |
Accrued interest | 259 | | | 201 | |
Other accrued expenses | 881 | | | 775 | |
| | | |
Total accounts payable and accrued expenses | $ | 39,897 | | | $ | 40,378 | |
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.
ASHFORD INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
•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.
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, 2021 | | | | | | | | |
Assets | | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
Restricted Investment: | | | | | | | | |
Ashford Trust common stock | $ | 150 | | (1) | $ | — | | | $ | — | | | $ | 150 | | |
Braemar common stock | 426 | | (1) | — | | | — | | | 426 | | |
Total | $ | 576 | | | $ | — | | | $ | — | | | $ | 576 | | |
Liabilities | | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
Subsidiary compensation plan | $ | — | | | $ | (164) | | (1) | $ | — | | | $ | (164) | | |
Deferred compensation plan | (3,326) | | | — | | | — | | | (3,326) | | |
| | | | | | | | |
| | | | | | | | |
Total | $ | (3,326) | | | $ | (164) | | | $ | — | | | $ | (3,490) | | |
Net | $ | (2,750) | | | $ | (164) | | | $ | — | | | $ | (2,914) | | |
| | | | | | | | |
| | | | | | | | |
__________________
(1) The restricted investment includes 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. The compensation agreement liability is based on ratably accrued vested shares through December 31, 2021, 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 (continued)
| | | | | | | | | | | | | | | | | | | | | | | | |
| 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 INSPIRE’s acquisition of BAV. The contingent consideration liabilities are reported as “other current liabilities” in our consolidated balance sheets. See note 1.
(2) The restricted investment includes 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. 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 (continued)
The following table presents the rollforward of our Level 3 contingent consideration liability (in thousands):
| | | | | | | | | | |
| | | | | Contingent Consideration Liability | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
Balance at January 1, 2020 | | | | | $ | (2,959) | |
Acquisitions | | | | | — | |
Gains (losses) included in earnings (2) | | | | | (41) | |
Dispositions and settlements | | | | | — | |
Transfers into/out of Level 3 (1) | | | | | 3,000 | |
Balance at December 31, 2020 | | | | | $ | — | |
| | | | | |
| | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
__________________
(1) Includes INSPIRE’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.
ASHFORD INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
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 during the year ended December 31, 2020 of $180.8 million.
During the first quarter of 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 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.
During the fourth quarter of 2020, we recorded goodwill impairment charges of $10.2 million related to our INSPIRE segment. We performed an annual quantitative assessment of goodwill for our INSPIRE 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, 2021, our Remington segment had $54.6 million of goodwill remaining and our Premier and INSPIRE segments had no goodwill remaining. No impairment charges or any other adjustments related to goodwill were recorded for the year ended December 31, 2021. 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 INSPIRE 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 INSPIRE trademarks. The Remington and INSPIRE trademarks were written down to $4.9 million and $1.2 million, respectively, based on a valuation using the relief-from-royalty method.
During the third quarter of 2021, as a result of the strategic rebranding of our segment formerly known as JSAV to INSPIRE, we performed an impairment test and calculated the fair value of our indefinite-lived JSAV trademarks using the relief-from-royalty method which includes unobservable inputs including royalty rates and projected revenues for the time period that the Company is expected to benefit from the trademark. As a result of the evaluation, we recognized intangible asset impairment charges of $1.2 million, which was the full impairment of the indefinite-lived JSAV trademarks within the INSPIRE segment for the year ended December 31, 2021.
ASHFORD INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
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, INSPIRE 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):
| | | | | | | | | | | | | | | | | | | | | |
| | | | | Gain (Loss) Recognized |
| | Year Ended December 31, |
| | | | 2021 | | 2020 | | 2019 |
Assets | | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
Restricted investment: (1) | | | | | | | | | |
Ashford Trust common stock | | | | | $ | (336) | | | $ | (200) | | | $ | — | |
Braemar common stock | | | | | (42) | | | (186) | | | — | |
| | | | | | | | | |
Goodwill | | | | | — | | | (180,783) | | | — | |
Intangible assets, net | | | | | (1,160) | | | (8,018) | | | — | |
Property and equipment, net | | | | | — | | | (36) | | | — | |
Total | | | | | $ | (1,538) | | | $ | (189,223) | | | $ | — | |
Liabilities | | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
Contingent consideration (2) | | | | | $ | (23) | | | $ | (436) | | | $ | (4,244) | |
Subsidiary compensation plan (3) | | | | | (295) | | | 131 | | | (47) | |
Deferred compensation plan (3) | | | | | (1,671) | | | 3,012 | | | 5,732 | |
Total | | | | | $ | (1,989) | | | $ | 2,707 | | | $ | 1,441 | |
Net | | | | | $ | (3,527) | | | $ | (186,516) | | | $ | 1,441 | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
__________________
(1) Represents the realized gain (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.
(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):
| | | | | | | | | | | | | | | | | | | | | | | |
| Historical Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Fair Value |
Available-for-sale securities: | | | | | | | |
December 31, 2021 | | | | | | | |
Equity securities (1) | $ | 1,068 | | | $ | — | | | $ | (492) | | | $ | 576 | |
__________________
ASHFORD INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(1) Distribution of $855,000 of available-for-sale securities occurred in the year ended December 31, 2021. Unrealized gains and losses associated with available-for-sale securities are included within “accumulated other comprehensive income” in our consolidated balance sheets.
| | | | | | | | | | | | | | | | | | | | | | | |
| 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 had occurred as of 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.
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):
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2021 | | December 31, 2020 |
| | Carrying Value | | Estimated Fair Value | | Carrying Value | | Estimated Fair Value |
Financial assets measured at fair value: | | | | | | | | |
Restricted investment | | $ | 576 | | | $ | 576 | | | $ | 290 | | | $ | 290 | |
Financial liabilities measured at fair value: | | | | | | | | |
| | | | | | | | |
Deferred compensation plan | | $ | 3,326 | | | $ | 3,326 | | | $ | 1,707 | | | $ | 1,707 | |
| | | | | | | | |
Contingent consideration | | — | | | — | | | 1,735 | | | 1,735 | |
Financial assets not measured at fair value: | | | | | | | | |
Cash and cash equivalents | | $ | 37,571 | | | $ | 37,571 | | | $ | 45,270 | | | $ | 45,270 | |
Restricted cash | | 34,878 | | | 34,878 | | | 37,396 | | | 37,396 | |
Accounts receivable, net | | 7,622 | | | 7,622 | | | 3,458 | | | 3,458 | |
Notes receivable | | 2,880 | | | 2,880 | | | — | | | — | |
Due from affiliates | | 165 | | | 165 | | | 353 | | | 353 | |
Due from Ashford Trust | | 2,575 | | | 2,575 | | | 13,198 | | | 13,198 | |
Due from Braemar | | 1,144 | | | 1,144 | | | 2,142 | | | 2,142 | |
Investments in unconsolidated entities | | 3,581 | | | 3,581 | | | 3,687 | | | 3,687 | |
Financial liabilities not measured at fair value: | | | | | | | | |
Accounts payable and accrued expenses | | $ | 39,897 | | | $ | 39,897 | | | $ | 40,378 | | | $ | 40,378 | |
Dividends payable | | 34,574 | | | 34,574 | | | 16,280 | | | 16,280 | |
Due to affiliates | | — | | | — | | | 1,471 | | | 1,471 | |
| | | | | | | | |
| | | | | | | | |
Other liabilities | | 25,899 | | | 25,899 | | | 28,170 | | | 28,170 | |
Notes payable | | 59,622 | | | 56,641 to 62,603 | | 62,768 | | | 59,629 to 65,906 |
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.
ASHFORD INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Contingent consideration. The liability associated with INSPIRE’s acquisition of BAV was 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, notes receivable, 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 assets 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.
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, 2021, 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.
Litigation—On December 20, 2016, a class action lawsuit was filed against one of the Company’s subsidiaries in The Superior Court of the State of California in and for the County of Contra Costa 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. While we believe it is reasonably possible that we may incur a loss associated with this litigation, because there remains uncertainty under California law with respect to a significant legal issue, discovery relating to class members continues, and the trial judge retains discretion to award lower penalties than set forth in the applicable California employment laws, we do not believe that any potential loss to the Company is reasonably estimable at this time. As of December 31, 2021, no amounts have been accrued.
We are also engaged in other 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 ADA and similar state laws), and other general matters. The likelihood of loss for these legal proceedings is based on definitions within contingency accounting literature. We recognize a loss when we believe the loss is both probable and reasonably estimable. Legal costs associated with loss contingencies are expensed as incurred. 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.
12. Equity (Deficit)
Capital Stock—In accordance with the Company’s charter, we are authorized to issue 200 million shares of capital stock, consisting of 100 million shares of common stock, par value $0.001 per share, 50 million shares of blank check common stock, par value $0.001 per share, and 50 million shares of 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 (continued)
Shareholder Rights Plan—On March 13, 2020, the Board adopted a shareholder rights plan (the “2020 Rights Agreement”). The 2020 Rights Agreement was 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 was de minimis. The 2020 Rights Agreement expired on February 13, 2021.
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, |
| | | | | 2021 | | 2020 | | 2019 |
(Income) loss allocated to noncontrolling interests: | | | | | | | | | |
| | | | | | | | | |
OpenKey | | | | | $ | 799 | | | $ | 670 | | | 624 | |
RED | | | | | (51) | | | 412 | | | (105) | |
Pure Wellness | | | | | (70) | | | 75 | | | (9) | |
Other | | | | | — | | | 21 | | | 26 | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
Total net (income) loss allocated to noncontrolling interests | | | | | $ | 678 | | | $ | 1,178 | | | $ | 536 | |
13. 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. 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.
A summary of the activity of the member interest units is as follow (in thousands):
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2021 | | 2020 | | 2019 |
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 additionally includes redeemable ownership interests in the common stock of our consolidated subsidiary OpenKey for the years ended December 31, 2021 and 2020 and INSPIRE for the year ended December 31, 2020. See also notes 1, 2, and 17 to our consolidated financial statements.
ASHFORD INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The following table summarizes the net (income) loss allocated to our redeemable noncontrolling interests (in thousands):
| | | | | | | | | | | | | | | | | | | | | |
| | | Year Ended December 31, |
| | | | | 2021 | | 2020 | | 2019 |
Net (income) loss allocated to redeemable noncontrolling interests: | | | | | | | | | |
Ashford Holdings | | | | | $ | 63 | | | $ | 432 | | | $ | 54 | |
INSPIRE | | | | | — | | | 1,148 | | | 247 | |
| | | | | | | | | |
OpenKey | | | | | 152 | | | 665 | | | 682 | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
Total net (income) loss allocated to redeemable noncontrolling interests | | | | | $ | 215 | | | $ | 2,245 | | | $ | 983 | |
| | | | | | | | | |
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 design and construction 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 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 (continued)
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, 2021, 2020 and 2019, we recorded $1.1 million, $2.9 million and $1.9 million respectively, of amortization related to preferred stock discounts.
The Company declared dividends which were due with respect to its Series D Convertible Preferred Stock of $8.4 million for each of the first and third quarters of 2021 which were paid on April 15, 2021 and October 15, 2021, respectively. The Company did not declare dividends with respect to its Series D Convertible Preferred Stock for the second and fourth quarters of 2021. As of December 31, 2021, the Company had aggregate undeclared preferred stock dividends of approximately $34.6 million, which relates to the second and fourth quarters of 2020 and the second and fourth quarters of 2021. All dividends, declared and undeclared, are recorded as a reduction in net income (loss) attributable to common stockholders 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 $34.6 million and $16.3 million at December 31, 2021 and 2020, respectively, 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, |
| | | | | 2021 | | 2020 | | 2019 |
| | | | | | | | | |
Preferred dividends - declared | | | | | $ | 16,706 | | | $ | 15,815 | | | $ | 14,435 | |
Preferred dividends per share - declared | | | | | $ | 0.8737 | | | $ | 0.8271 | | | $ | 1.4775 | |
Aggregate undeclared convertible preferred stock cumulative dividends (in thousands, except per share amounts):
| | | | | | | | | | | | | |
| |
| December 31, 2021 | | December 31, 2020 | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
Aggregate preferred dividends - undeclared | $ | 34,574 | | | $ | 16,280 | | | |
| | | | | |
Aggregate preferred dividends - undeclared per share | $ | 1.8083 | | | $ | 0.8515 | | | |
ASHFORD INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
14. Equity-Based Compensation
Under our 2014 Incentive Plan, we are authorized to grant 2,843,745 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, 2021, 508,717 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 707,918 shares of our common stock, or securities convertible into 707,918 shares of our common stock, available for issuance under our 2014 Incentive Plan, as of January 1, 2022.
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 years ended December 31, 2021, 2020, and 2019 are presented below by award type (in thousands):
| | | | | | | | | | | | | | | | | | | | | |
| | | Year Ended December 31, |
| | | | | 2021 | | 2020 | | 2019 |
Equity-based compensation | | | | | | | | | |
Option amortization (1) | | | | | $ | 2,641 | | | $ | 4,347 | | | $ | 8,313 | |
Employee equity grant expense (2) | | | | | 1,217 | | | 787 | | | 95 | |
Director and other non-employee equity grants expense (3) | | | | | 695 | | | 428 | | | 466 | |
| | | | | | | | | |
| | | | | | | | | |
Total equity-based compensation | | | | | $ | 4,553 | | | $ | 5,562 | | | $ | 8,874 | |
| | | | | | | | | |
Other equity-based compensation | | | | | | | | | |
REIT equity-based compensation (4) | | | | | $ | 19,098 | | | $ | 17,325 | | | $ | 25,987 | |
| | | | | $ | 23,651 | | | $ | 22,887 | | | $ | 34,861 | |
________
(1) As of December 31, 2021, the Company had approximately $346,000 of total unrecognized compensation expense related to options that will be recognized over a weighted average period of 0.2 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, 2021, the Company had approximately $1.9 million of total unrecognized compensation expense related to restricted shares that will be recognized over a weighted average period of 1.7 years.
(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.
(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.
As of December 31, 2021, we had outstanding equity-based compensation awards as follows:
Stock Options—The Company did not grant any stock option grants during the years ended December 31, 2021 and 2020. During the year ended December 31, 2019, we granted 300,000 stock options to employees with grant date fair value of $7.9 million. 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 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,
ASHFORD INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
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 |
Weighted-average grant date fair value | | | | | $ | 26.42 | |
Weighted average assumptions used: | | | | | |
Expected volatility | | | | | 39.0 | % |
Expected term (in years) | | | | | 6.5 |
Risk-free interest rate | | | | | 2.6 | % |
Expected dividend yield | | | | | — | % |
A summary of stock option activity is as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Number of Options | | Weighted Average Exercise Price | | Weighted Average Contractual Term | | Aggregate Intrinsic Value of In-the Money Options |
| (In thousands) | | (per option) | | (In years) | | (In thousands) |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Outstanding, January 1, 2019 | 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 | | — | |
Granted | — | | | — | | | — | | | — | |
Exercised | — | | | — | | | — | | | — | |
Forfeited, canceled or expired | (3) | | | 69.51 | | | 7.67 | | — | |
Conversions to Class 2 LTIP Units | (631) | | | 62.72 | | | 4.80 | | — | |
Outstanding, December 31, 2021 | 800 | | | 70.84 | | | 4.56 | | — | |
Options exercisable at December 31, 2021 | 636 | | | $ | 73.33 | | | 3.89 | | $ | — | |
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, 2021, the Company had approximately $221,000 of total unrecognized compensation expense, related to stock options that will be recognized over the weighted average period of 0.2 years.
ASHFORD INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Class 2 LTIP Units—On September 10, 2021, the independent members of the Board of Directors of the Company approved Amendment No. 1 (the “Amendment”) to the Third Amended and Restated Limited Liability Company Agreement of Ashford Hospitality Holdings LLC (a subsidiary operating partnership of the Company), dated as of November 6, 2019 (the “LLC Agreement”). The purpose of the Amendment is to create a new class of Class 2 Long-Term Incentive Partnership Units (the “Class 2 LTIP Units”) in Ashford Hospitality Holdings LLC (“AHH”), which replicate the economics of a stock option granted by the Company by converting (prior to the applicable final conversion date) into a number of long-term incentive partnership units (the “LTIP Units”) in AHH based on the appreciation in a share of the Company’s common stock over the issue price of the applicable Class 2 LTIP Unit. LTIP Units are in turn convertible into common limited partnership units of AHH, which are themselves redeemable for cash or convertible into shares of the Company’s common stock on a 1-for-1 basis at the sole option of the Company. The Amendment was approved in order to provide certain executives of the Company the opportunity to substitute historical stock options granted by the Company with Class 2 LTIP Units awarded under the Company’s 2014 Incentive Plan, as amended, with such Class 2 LTIP Units having an issue price equal to the exercise price of the applicable substituted option, the same vesting conditions as the applicable substituted option and a final conversion date that is the same as the expiration date of the applicable substituted option. There was no incremental expense recognized upon conversion as the fair value of the Class 2 LTIP Units and the applicable substituted options were the same.
A summary of Class 2 LTIP Unit 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, 2021 | — | | | — | | | — | | | — | |
Granted | — | | | — | | | — | | | — | |
Exercised | — | | | — | | | — | | | — | |
Forfeited, canceled or expired | — | | | — | | | — | | | — | |
Conversions from stock options | 631 | | | 62.72 | | | 4.80 | | — | |
Outstanding, December 31, 2021 | 631 | | | 62.72 | | | 4.80 | | — | |
Options exercisable at December 31, 2021 | 541 | | | $ | 62.99 | | | 4.41 | | $ | — | |
The aggregate intrinsic value represents the difference between the exercise price of the Class 2 LTIP Units and the quoted closing common stock price as of the end of the period. At December 31, 2021, the Company had approximately $125,000 of total unrecognized compensation expense, related to Class 2 LTIP Units that will be recognized over the weighted average period of 0.2 years.
ASHFORD INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
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, |
| 2021 | | 2020 | | 2019 |
| 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 | 241 | | | $ | 10.45 | | | — | | | $ | — | | | — | | | $ | — | |
Restricted shares granted (1) | 172 | | | 9.03 | | | 686 | | | 7.43 | | | 5 | | | 31.79 | |
Restricted shares vested | (107) | | | 9.19 | | | (417) | | | 5.78 | | | (5) | | | 31.79 | |
Restricted shares forfeited | (3) | | | 9.87 | | | (28) | | | 10.28 | | | — | | | — | |
Outstanding at end of year | 303 | | | $ | 9.93 | | | 241 | | | $ | 10.45 | | | — | | | $ | — | |
________(1) Equity-based compensation expense of $580,000, $1.0 million and $150,000 was recognized in connection with stock grants of 172,000, 390,000 and 5,000 to our employees and independent directors for the years ended December 31, 2021, 2020 and 2019, respectively. Restricted shares granted and vested for the year ended December 31, 2020 includes 296,000 shares which immediately vested 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, 2021 had a fair value of $915,000 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, |
| 2021 | | 2020 | | 2019 |
| DSUs | | Weighted Average Price Per Share at Grant | | DSUs | | Weighted Average Price Per Share at Grant | | DSUs | | Weighted Average Price Per Share at Grant |
Outstanding at beginning of year | 43 | | | $ | 9.67 | | | 7 | | | $ | 31.79 | | | — | | | $ | — | |
DSUs granted (1) | 23 | | | 9.70 | | | 37 | | | 6.12 | | | 7 | | | 31.79 | |
DSUs settled | — | | | — | | | (1) | | | 31.79 | | | — | | | — | |
Outstanding at end of year | 66 | | | $ | 9.68 | | | 43 | | | $ | 9.67 | | | 7 | | | $ | 31.79 | |
________(1) Equity-based compensation expense of $225,000 was recognized in connection with grants of 23,000, 37,000 and 7,000 immediately vested DSUs to our independent directors for the years ended December 31, 2021, 2020 and 2019.
ASHFORD INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
15. 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, |
| | | | | 2021 | | 2020 | | 2019 |
Change in fair value | | | | | | | | | |
Unrealized gain (loss) | | | | | $ | (1,601) | | | $ | 3,012 | | | $ | 5,732 | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
Distributions | | | | | | | | | |
Fair value (1) | | | | | $ | 51 | | | $ | 11 | | | $ | 113 | |
Shares (1) | | | | | 3 | | | 1 | | | 3 | |
________
(1) Distributions made to one participant.
As of December 31, 2021 and December 31, 2020, the carrying value of the DCP liability was $3.3 million and $1.7 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 did not offer the company matches to their respective 401(k) programs beginning in the second quarter of 2020. For the years ended December 31, 2021, 2020 and 2019, “salaries and benefits” expense on our consolidated statements of operations included matching expense of $0, $884,000, and $867,000, respectively. For the years ended December 31, 2021, 2020 and 2019, “cost of revenues for design and construction” on our consolidated statements of operations included matching expense of $0, $46,000 and $169,000, respectively.
Subsidiary Compensation Plan—Remington 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, 2021, which are exercisable upon vesting. As of December 31, 2021 and 2020, the subsidiary compensation plan accrued liability in the amount of $164,000 and $89,000, respectively, was recorded in “accounts payable and accrued expenses” in our consolidated balance sheets. For the years ended December 31, 2021, 2020 and 2019, the related loss of $295,000, gain of $131,000, and loss of $47,000,
ASHFORD INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
respectively, incurred subsequent to our acquisition of Remington in November 2019, was included in “salaries and benefits” in our consolidated statements of operations. See note 9.
16. 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, |
| 2021 | | 2020 | | 2019 |
Income tax benefit at federal statutory income tax rate | $ | 2,261 | | | $ | 48,534 | | | $ | 2,955 | |
State income tax expense, net of federal income tax benefit | 437 | | | 2,675 | | | (1,768) | |
Income passed through to common unit holders and noncontrolling interests | (32) | | | 94 | | | 38 | |
Permanent differences | (1,086) | | | (1,397) | | | (1,299) | |
Nondeductible impairment of goodwill | — | | | (35,820) | | | — | |
Valuation allowance | (860) | | | (1,051) | | | (1,043) | |
| | | | | |
Other | (558) | | | 1,220 | | | (423) | |
Total income tax (expense) benefit | $ | 162 | | | $ | 14,255 | | | $ | (1,540) | |
The components of income tax (expense) benefit are as follows (in thousands):
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2021 | | 2020 | | 2019 |
Current: | | | | | |
Federal | $ | (4,192) | | | $ | (7,116) | | | $ | (1,309) | |
Foreign | (223) | | | 25 | | | (809) | |
State | (479) | | | (1,064) | | | (1,352) | |
Total current | (4,894) | | | (8,155) | | | (3,470) | |
Deferred: | | | | | |
Federal | 4,081 | | | 17,938 | | | 2,828 | |
Foreign | (203) | | | 136 | | | (189) | |
State | 1,178 | | | 4,336 | | | (709) | |
Total deferred | 5,056 | | | 22,410 | | | 1,930 | |
Total income tax (expense) benefit | $ | 162 | | | $ | 14,255 | | | $ | (1,540) | |
Interest of $32,000 and penalties of $0 and $11,000 were received from or were paid to taxing authorities for the years ended December 31, 2021, 2020 and 2019, respectively.
ASHFORD INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
At December 31, 2021 and 2020, our net deferred tax asset (liability) and related valuation allowance on the consolidated balance sheets, consisted of the following (in thousands):
| | | | | | | | | | | |
| December 31, |
| 2021 | | 2020 |
Prepaid expenses | $ | (698) | | | $ | (490) | |
Investments in unconsolidated entities and joint ventures | 15 | | | 1,620 | |
Capitalized acquisition costs | 5,575 | | | 5,547 | |
Deferred compensation | 850 | | | 535 | |
Accrued expenses | 2,045 | | | 4,896 | |
Equity-based compensation | 10,700 | | | 9,764 | |
Property and equipment | (5,106) | | | (2,664) | |
Intangibles | (47,061) | | | (58,656) | |
Deferred revenue | 1,120 | | | 1,822 | |
Net operating loss | 6,436 | | | 5,585 | |
Deferred tax asset (liability) | (26,124) | | | (32,041) | |
Valuation allowance | (6,724) | | | (5,863) | |
Net deferred tax asset (liability) | $ | (32,848) | | | $ | (37,904) | |
As of December 31, 2021, the Company has net operating loss carryforwards of approximately $30.0 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 $24.1 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.
At December 31, 2021, there is a full valuation allowance on the deferred tax assets related to OpenKey and related to INSPIRE’s operations in Mexico and the Dominican Republic, collectively totaling $6.7 million. 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 and Remington acquisitions.
A reconciliation of the unrecognized tax benefit is as follows (in thousands):
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2021 | | 2020 | | 2019 |
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, 2021. 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
ASHFORD INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
November 1, 2017, in Mexico and the Dominican Republic. Tax years 2017 through 2021 remain subject to potential examination by certain federal and state taxing authorities.
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.
Ashford Trust—We are a party to an amended and restated advisory agreement, as amended, with Ashford Trust and its operating subsidiary, Ashford Hospitality Limited Partnership (“Ashford Trust OP”). 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 to, among other things (i) revise the term and termination rights; (ii) fix the percentage used to calculate the base fee thereunder at 0.70% per annum; (iii) update the list of peer group members; (iv) suspend the requirement that Ashford Trust maintain a minimum Consolidated Tangible Net Worth until the first fiscal quarter beginning after June 30, 2023; and (v) revise the criteria that would constitute a Company Change of Control of Ashford Trust in order to provide Ashford Trust additional flexibility to dispose of underperforming assets negatively impacted by COVID-19. In connection with the transactions contemplated by the Credit Agreement, 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 the Advisory Fee Cap, (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 note 3 for discussion of the advisory services fees revenue recognition policy.
On October 12, 2021, Ashford Trust entered into Amendment No. 1 to the Credit Agreement (“Amendment No. 1”) with certain funds and accounts managed by Oaktree Capital Management, L.P., as lenders, and Oaktree, as administrative agent. Amendment No. 1, subject to the conditions set forth therein, among other things, suspends Ashford Trust’s obligation to subordinate fees due under the advisory agreement if at any point there is no accrued interest outstanding or any accrued dividends on any of Ashford Trust’s preferred stock and Ashford Trust has sufficient unrestricted cash to repay in full all outstanding loans under the Credit Agreement, as amended. On December 13, 2021, Ashford Trust paid the Company $7.2 million for advisory fees that had been deferred as a result of the $29.0 million annual Advisory Fee Cap. The $7.2 million payment was recorded as revenue in “advisory services fees” in our consolidated statements of operations for the year ended December 31, 2021.
At December 31, 2021, 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 cost reimbursement 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 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
ASHFORD INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
services and design and construction services with respect to hotels owned or leased by Ashford Trust in 2003, as amended, and 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 an agreement with Ashford Trust (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 years ended December 31, 2021 and 2020, the Company recognized revenue of $10.3 million and $5.7 million, respectively. As of December 31, 2021 and 2020, the Company recorded $2.4 million and $7.3 million, respectively, as deferred income. Additionally, the independent members of the Board 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. Such claw back credit was due to Ashford Trust in connection with certain properties Ashford Trust no longer owns. This amount was offset against base advisory fees. Approximately $149,000 may be offset against fees under the agreement that are eligible for claw back under the agreement. The deferred income related to the various Lismore fees described above are being 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
ASHFORD INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
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.
On January 4, 2021, the independent members of the board of directors (the “Board”) of Ashford Inc. agreed to: (i) defer Ashford Trust’s payment of the base advisory fees that were previously deferred for the months of October 2020, November 2020 and December 2020; (ii) defer approximately $2.8 million in base advisory fees with respect to the month of January 2021; (iii) defer Ashford Trust’s payment of Lismore success fees that were previously deferred for the months of October 2020, November 2020 and December 2020; and (iv) defer payment of Ashford Trust’s Lismore success fees for the month of January 2021. As a result, the foregoing payments became due on January 11, 2021. Additionally, the independent members of 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 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. 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.
ASHFORD INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The following table summarizes the revenues and expenses related to Ashford Trust (in thousands) as shown below. Cost reimbursement revenue and reimbursed expenses for our Remington segment have been revised as stated in note 2 for the years ended December 31, 2020 and 2019. All revisions to prior period amounts stated within note 2 occurred within our Remington segment.
| | | | | | | | | | | | | | | | | | | | | |
| | | Year Ended December 31, |
| | | | | 2021 | | 2020 | | 2019 |
REVENUES BY TYPE | | | | | | | | | |
Advisory services fees: | | | | | | | | | |
Base advisory fees (1) | | | | | $ | 36,239 | | | $ | 34,744 | | | $ | 32,486 | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
Hotel management fees: | | | | | | | | | |
Base management fees | | | | | 17,819 | | | 15,923 | | | 3,796 | |
Incentive management fees | | | | | 4,180 | | | — | | | 434 | |
Total hotel management fees revenue (2) | | | | | 21,999 | | | 15,923 | | | 4,230 | |
| | | | | | | | | |
Design and construction fees revenue (3) | | | | | 4,032 | | | 4,964 | | | 16,587 | |
| | | | | | | | | |
| | | | | | | | | |
Other revenue | | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
Debt placement and related fees (5) | | | | | 11,381 | | | 5,853 | | | 1,294 | |
| | | | | | | | | |
Claims management services (6) | | | | | 74 | | | 118 | | | 75 | |
| | | | | | | | | |
Lease revenue (7) | | | | | — | | | — | | | 3,783 | |
Other services (8) | | | | | 1,628 | | | 1,496 | | | 1,784 | |
Total other revenue | | | | | 13,083 | | | 7,467 | | | 6,936 | |
| | | | | | | | | |
Cost reimbursement revenue | | | | | 162,920 | | | 137,131 | | | 67,632 | |
| | | | | | | | | |
Total revenues | | | | | $ | 238,273 | | | $ | 200,229 | | | $ | 127,871 | |
| | | | | | | | | |
REVENUES BY SEGMENT (9) | | | | | | | | | |
REIT advisory | | | | | $ | 51,726 | | | $ | 50,574 | | | $ | 63,345 | |
Remington | | | | | 167,600 | | | 133,489 | | | 40,547 | |
Premier | | | | | 5,939 | | | 6,800 | | | 20,004 | |
| | | | | | | | | |
| | | | | | | | | |
OpenKey | | | | | 119 | | | 234 | | | 111 | |
Corporate and other | | | | | 12,889 | | | 9,132 | | | 3,864 | |
Total revenues | | | | | $ | 238,273 | | | $ | 200,229 | | | 127,871 | |
| | | | | | | | | |
COST OF REVENUES | | | | | | | | | |
Cost of revenues for audio visual (4) | | | | | $ | 2,969 | | | $ | 2,241 | | | $ | 7,438 | |
| | | | | | | | | |
SUPPLEMENTAL REVENUE INFORMATION | | | | | | | | | |
Audio visual revenue from guests at REIT properties (4) | | | | | $ | 6,734 | | | $ | 5,123 | | | $ | 16,897 | |
Watersports, ferry and excursion services from guests at REIT properties (4) | | | | | 545 | | | 125 | | | — | |
________
(1) Advisory services fees earned from Ashford Trust during the year ended December 31, 2021, includes $7.2 million of advisory fees which were paid by Ashford Trust in December of 2021 that were previously deferred as a result of the $29.0 million annual Advisory Fee Cap. See note 3 for discussion of the advisory services fees revenue recognition policy.
ASHFORD INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(2) Hotel management fees revenue is reported within our Remington segment. 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, 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 lessor of 1% of each hotels’s annual gross revenues or the amount by which the respective hotel’s gross operating profit exceeds the hotel’s budgeted gross operating profit. See note 3 for discussion of the hotel management fees revenue recognition policy.
(3) Design and construction fees 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 design and construction fees revenue recognition policy.
(4) INSPIRE and RED primarily contract directly with customers to whom they provide services. INSPIRE and RED recognize the gross revenue collected from their customers by the hosting hotel or venue. Commissions retained by the hotel or venue, including Ashford Trust, for INSPIRE and RED are recognized in “cost of revenues for audio visual” and “other” operating expense, respectively, in our consolidated statements of operations. See note 3 for discussion of the 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, 2021 and 2020 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, 2021 | | December 31, 2020 |
Ashford LLC | $ | 691 | | | $ | 9,152 | |
AIM | — | | | (111) | |
Remington | (44) | | | 498 | |
Premier | 737 | | | (268) | |
INSPIRE | 985 | | | 136 | |
OpenKey | 16 | | | 12 | |
Pure Wellness | 177 | | | 359 | |
Lismore | 13 | | | 3,420 | |
| | | |
Due from Ashford Trust | $ | 2,575 | | | $ | 13,198 | |
ASHFORD INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Braemar—We are also a party to an amended and restated advisory agreement with Braemar and its operating subsidiary Braemar Hospitality Limited Partnership (“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 cost reimbursement revenue for equity grants of Braemar 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 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 wholly owned subsidiary of Braemar OP 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 design and construction 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 an agreement with Braemar to negotiate the refinancing, modification or forbearance of the existing mortgage and mezzanine debt on Braemar’s hotels (the “Braemar Agreement”). The Braemar Agreement was terminated effective March 20, 2021. Upon entering into the Braemar Agreement, Braemar made an initial payment of approximately $1.4 million. Braemar also paid the Company a total of $1.4 million in six equal installments beginning April 20, 2020 and ending September 20, 2020, of which $681,000 was subject to claw back and was set-off against the cash payment of Braemar’s base advisory fees upon the termination of the Braemar Agreement in March 2021. Braemar additionally paid the Company approximately $1.4 million in success fees in connection with signed forbearance or other agreements, of which no amounts were available for claw back. In total, Braemar paid approximately $4.1 million under the Braemar Agreement. For the years ended December 31, 2021 and 2020, the Company recognized revenue of $853,000 and $2.6 million, respectively, related to the Braemar Agreement. As of December 31, 2021 and 2020, the Company recorded $0 and $1.6 million, respectively, as deferred income.
ASHFORD INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The following table summarizes the revenues and expenses related to Braemar (in thousands) as shown below. Cost reimbursement revenue and reimbursed expenses for our Remington segment have been revised as stated in note 2 for the years ended December 31, 2020 and 2019. All revisions to prior period amounts stated within note 2 occurred within our Remington segment.
ASHFORD INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
| | | | | | | | | | | | | | | | | | | | | |
| | | Year Ended December 31, |
| | | | | 2021 | | 2020 | | 2019 |
REVENUES BY TYPE | | | | | | | | | |
Advisory services fees: | | | | | | | | | |
Base advisory fees | | | | | $ | 10,806 | | | $ | 9,981 | | | $ | 10,499 | |
| | | | | | | | | |
| | | | | | | | | |
Incentive advisory fees (1) | | | | | — | | | — | | | 678 | |
Other advisory revenue (2) | | | | | 521 | | | 522 | | | 521 | |
Total advisory services fees revenue | | | | | 11,327 | | | 10,503 | | | 11,698 | |
| | | | | | | | | |
Hotel management fees: | | | | | | | | | |
Base management fees | | | | | 2,304 | | | 1,037 | | | 248 | |
Incentive management fees | | | | | 612 | | | — | | | 38 | |
Total hotel management fees revenue (3) | | | | | 2,916 | | | 1,037 | | | 286 | |
| | | | | | | | | |
Design and construction fees revenue (4) | | | | | 2,230 | | | 2,127 | | | 8,547 | |
| | | | | | | | | |
| | | | | | | | | |
Other revenue | | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
Watersports, ferry and excursion services (6) | | | | | 2,605 | | | 950 | | | 1,010 | |
Debt placement and related fees (7) | | | | | 1,003 | | | 2,559 | | | 704 | |
| | | | | | | | | |
Claims management services (8) | | | | | 7 | | | 108 | | | 135 | |
| | | | | | | | | |
Lease revenue (9) | | | | | — | | | — | | | 335 | |
Other services (10) | | | | | 192 | | | 190 | | | 267 | |
Total other revenue | | | | | 3,807 | | | 3,807 | | | 2,451 | |
| | | | | | | | | |
Cost reimbursement revenue | | | | | 30,394 | | | 18,898 | | | 13,239 | |
| | | | | | | | | |
Total revenues | | | | | $ | 50,674 | | | $ | 36,372 | | | $ | 36,221 | |
| | | | | | | | | |
REVENUES BY SEGMENT (11) | | | | | | | | | |
REIT advisory | | | | | $ | 22,911 | | | $ | 19,581 | | | $ | 21,334 | |
Remington | | | | | 18,345 | | | 9,524 | | | 2,437 | |
Premier | | | | | 3,009 | | | 2,848 | | | 10,123 | |
| | | | | | | | | |
RED | | | | | 2,605 | | | 950 | | | 1,010 | |
OpenKey | | | | | 38 | | | 84 | | | 52 | |
Corporate and other | | | | | 3,766 | | | 3,385 | | | 1,265 | |
Total revenues | | | | | $ | 50,674 | | | $ | 36,372 | | | $ | 36,221 | |
| | | | | | | | | |
COST OF REVENUES | | | | | | | | | |
Cost of revenues for audio visual (5) | | | | | $ | 998 | | | $ | 495 | | | $ | 561 | |
Other (5) | | | | | 421 | | | 149 | | | 14 | |
| | | | | | | | | |
SUPPLEMENTAL REVENUE INFORMATION | | | | | | | | | |
Audio visual revenues from guests at REIT properties (5) | | | | | $ | 2,175 | | | $ | 1,151 | | | $ | 1,329 | |
Watersports, ferry and excursion services from guests at REIT properties (5) | | | | | 2,117 | | | 550 | | | 347 | |
________
ASHFORD INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(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 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 2021, 2020 and 2019 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 fees revenue is reported within our Remington segment. 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, 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 lessor of 1% of each hotels’s annual gross revenues or the amount by which the respective hotel’s gross operating profit exceeds the hotel’s budgeted gross operating profit. See note 3 for discussion of the hotel management fees revenue recognition policy.
(4) Design and construction fees 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 design and construction fees revenue recognition policy.
(5) INSPIRE and RED primarily contract directly with third-party customers to whom they provide services. INSPIRE and RED recognize the gross revenue collected from their customers by the hosting hotel or venue. Commissions retained by the hotel or venue, including Braemar, for INSPIRE and RED are recognized in “cost of revenues for audio visual” and “other” operating expense, respectively, in our consolidated statements of operations. See note 3 for discussion of the revenue recognition policy.
(6) Watersports, ferry and excursion services revenue includes revenue that is earned by RED for providing services directly to Braemar rather than contracting with third-party customers.
(7) Debt placement and related fees are earned by Lismore for providing debt placement, modification, forbearance and refinancing services.
(8) Claims management services include revenue earned from providing insurance claim assessment and administration services.
(9) 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.
(10) Other services revenue is primarily associated with other hotel products and services, such as mobile key applications and hypoallergenic premium rooms, provided to Braemar by our consolidated subsidiaries, OpenKey and Pure Wellness.
(11) See note 19 for discussion of segment reporting.
The following table summarizes amounts due (to) from Braemar, net at December 31, 2021 and 2020 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, 2021 | | December 31, 2020 |
Ashford LLC | $ | 354 | | | $ | 1,978 | |
| | | |
Remington | (234) | | | (162) | |
Premier | 327 | | | 179 | |
INSPIRE | 494 | | | 2 | |
OpenKey | 2 | | | 3 | |
RED | 201 | | | 142 | |
| | | |
Due from Braemar | $ | 1,144 | | | $ | 2,142 | |
ASHFORD INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
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 furniture, fixtures and equipment (“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 deadline to fund the remaining ERFP commitment under the Ashford Trust ERFP Agreement of $11.4 million, was extended from January 22, 2021 to December 31, 2022. As of December 31, 2021, 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 independent members of 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.
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.
In the first quarter of 2021, Ashford Trust purchased FF&E from the Company at the fair market value of $82,000 upon expiration of the underlying leases of the FF&E under the Ashford Trust ERFP Agreement. The Company recorded a loss on sale of the FF&E of $107,000 which is included within “other” operating expense in our consolidated statements of operations. Additionally, on January 20, 2021, Ashford Trust sold Le Meridian. The hotel contained FF&E with a net book value of $399,000 which was owned by the Company and leased to Ashford Trust rent-free pursuant to the Ashford Trust ERFP Agreement. Pursuant to the agreement, Ashford Trust provided replacement FF&E to the Company in the third quarter of 2021 with a fair market value of $128,000, equal to the fair market value of the sold FF&E. The Company recorded a loss on disposal of FF&E of $271,000 within “other” operating expense in our consolidated statements of operations. The replacement FF&E was subsequently leased back to Ashford Trust rent-free.
During the second quarter of 2021, the Company purchased $1.6 million of FF&E from Braemar. The Company set-off the purchased FF&E against a $1.6 million outstanding receivable previously incurred by Braemar which was recorded in “due from Braemar” on our consolidated balance sheets as of December 31, 2020. The FF&E purchased by the Company was subsequently leased back to Braemar rent-free.
ASHFORD INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
In the second quarter of 2021, Braemar purchased FF&E from the Company at the fair market value of $144,000 upon expiration of the underlying leases of the FF&E under the Braemar ERFP Agreement. The Company recorded a loss on sale of the FF&E of $267,000 which is included within “other” operating expense in our consolidated statements of operations.
On April 20, 2021, the Company received written notice from Ashford Trust of Ashford Trust’s intention not to renew the Ashford Trust ERFP Agreement. As a result, the Ashford Trust ERFP Agreement terminated in accordance with its terms on June 26, 2021. The expiration of the Ashford Trust ERFP Agreement will have no impact on the Extension Agreement, which continues in full force and effect in accordance with its terms.
On November 8, 2021, the Company delivered written notice to Braemar of the Company’s intention not to renew the Braemar ERFP Agreement. As a result, the Braemar ERFP Agreement terminated in accordance with its terms on January 15, 2022. Braemar and the Company will continue to be parties to the Fifth Amended and Restated Advisory Agreement, dated April 23, 2018, as amended.
Ashford Securities—On September 25, 2019, the Company announced the formation of Ashford Securities LLC (“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 (the “Initial 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 or other debt or equity offerings through Ashford Securities 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.
On December 31, 2020, an Amended and Restated Contribution Agreement (the “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 or other debt or equity offerings through Ashford Securities 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, through Ashford Securities. 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, 2021, Ashford Trust and Braemar have funded approximately $3.5 million and $3.5 million, respectively. The Company recognized $0, $2.0 million and $896,000 of cost reimbursement revenue from Ashford Trust for the years ended December 31, 2021, 2020 and 2019, respectively, in our consolidated statements of operations. The Company recognized $2.6 million, $719,000 and $347,000 of cost reimbursement revenue from Braemar for the years ended December 31, 2021, 2020 and 2019, respectively, in our consolidated statements of operations. Cost reimbursement revenue from Braemar for the year ended December 31, 2021, includes $410,000 of dealer manager fees earned by Ashford Securities for the placement of Braemar’s non-listed preferred equity offerings.
Other Related Party Transactions—The Company leases office space from RHC, an affiliate owned by the Bennetts, at our corporate headquarters in Dallas, Texas. For the years ended December 31, 2021, 2020 and 2019, we recorded $3.4 million, $3.4 million and $2.0 million in rent expense related to our corporate office lease with RHC. See note 7.
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 design and construction” expenses on the consolidated statements of operations. The charges totaled $6.6 million for the year ended December 31, 2019.
ASHFORD INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
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 condensed consolidated balance sheets. See note 2.
Ashford Trust held a 16.65% and 17.52% noncontrolling interest in OpenKey, and Braemar held an 7.77% and 8.18% noncontrolling interest in OpenKey as of December 31, 2021 and 2020, respectively. Ashford Trust invested $500,000, $431,000 and $647,000 in OpenKey during the years ended December 31, 2021, 2020 and 2019, respectively. Braemar invested $233,000, $26,000 and $332,000 in OpenKey during the years ended December 31, 2021, 2020 and 2019, respectively. See also notes 1, 2, 12, and 13.
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 on November 6, 2019 in connection with Company’s acquisition of Remington from the Bennetts. The gross amount of expenses and reimbursements for these transition services for the years ended December 31, 2021, 2020 and 2019 were $405,000, $387,000 and $73,000 respectively.
Premier, a subsidiary of the Company, provides, from time to time, design and construction 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 design and construction services for the years ended December 31, 2021, 2020 and 2019 were $27,000, $42,000 and $223,000.
The expenses and reimbursements for transition services and design and construction 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, 2021, 2020 and 2019.
An officer of INSPIRE owned the INSPIRE headquarters property including the adjoining warehouse space through December 2020 when it was sold to a third party. Rental expense for the periods in which the INSPIRE headquarters was owned by an officer of INSPIRE were $308,000 and $307,000 for the years ended December 31, 2020 and 2019, respectively.
ASHFORD INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
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, |
| | | | | 2021 | | 2020 | | 2019 |
Net income (loss) attributable to common stockholders – basic and diluted: | | | | | | | | | |
Net income (loss) attributable to the Company | | | | | $ | (9,925) | | | $ | (212,365) | | | $ | (13,855) | |
Less: Dividends on preferred stock, declared and undeclared (1) | | | | | (35,000) | | | (32,095) | | | (14,435) | |
Less: Amortization of preferred stock discount | | | | | (1,053) | | | (2,887) | | | (1,928) | |
Add: Deemed Contribution on preferred stock | | | | | — | | | — | | | 1,161 | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
Undistributed net income (loss) allocated to common stockholders | | | | | (45,978) | | | (247,347) | | | (29,057) | |
| | | | | | | | | |
Distributed and undistributed net income (loss) - basic | | | | | $ | (45,978) | | | $ | (247,347) | | | $ | (29,057) | |
| | | | | | | | | |
Effect of deferred compensation plan | | | | | — | | | — | | | (5,732) | |
| | | | | | | | | |
| | | | | | | | | |
Distributed and undistributed net income (loss) - diluted | | | | | $ | (45,978) | | | $ | (247,347) | | | $ | (34,789) | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
Weighted average common shares outstanding: | | | | | | | | | |
Weighted average common shares outstanding – basic | | | | | 2,756 | | | 2,284 | | | 2,416 | |
| | | | | | | | | |
| | | | | | | | | |
Effect of deferred compensation plan shares | | | | | — | | | — | | | 152 | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
Weighted average common shares outstanding – diluted | | | | | 2,756 | | | 2,284 | | | 2,568 | |
| | | | | | | | | |
Income (loss) per share – basic: | | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
Net income (loss) allocated to common stockholders per share | | | | | $ | (16.68) | | | $ | (108.30) | | | $ | (12.03) | |
Income (loss) per share – diluted: | | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
Net income (loss) allocated to common stockholders per share | | | | | $ | (16.68) | | | $ | (108.30) | | | $ | (13.55) | |
| | | | | | | | | |
________(1) Undeclared dividends were deducted to arrive at net income (loss) attributable to common stockholders. See note 13.
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, |
| | | | | 2021 | | 2020 | | 2019 |
Net income (loss) allocated to common stockholders is not adjusted for: | | | | | | | | | |
| | | | | | | | | |
Net income (loss) attributable to redeemable noncontrolling interests in Ashford Holdings | | | | | $ | (63) | | | $ | (432) | | | $ | (54) | |
Net income (loss) attributable to redeemable noncontrolling interests in subsidiary common stock | | | | | (152) | | | (1,813) | | | (929) | |
| | | | | | | | | |
Deemed contribution on preferred stock | | | | | — | | | — | | | (1,161) | |
Dividends on preferred stock, declared and undeclared | | | | | 35,000 | | | 32,095 | | | 14,435 | |
Amortization of preferred stock discount | | | | | 1,053 | | | 2,887 | | | 1,928 | |
Total | | | | | $ | 35,838 | | | $ | 32,737 | | | $ | 14,219 | |
Weighted average diluted shares are not adjusted for: | | | | | | | | | |
| | | | | | | | | |
Effect of unvested restricted shares | | | | | 124 | | | 23 | | | 11 | |
Effect of assumed exercise of stock options | | | | | — | | | — | | | 20 | |
Effect of assumed conversion of Ashford Holdings units | | | | | 4 | | | 4 | | | 4 | |
Effect of incremental subsidiary shares | | | | | 145 | | | 504 | | | 159 | |
| | | | | | | | | |
Effect of assumed conversion of preferred stock | | | | | 4,265 | | | 4,111 | | | 1,837 | |
Total | | | | | 4,538 | | | 4,642 | | | 2,031 | |
ASHFORD INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
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) INSPIRE, 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 and (h) Pure Wellness, which provides hypoallergenic premium rooms in the hospitality and commercial office industry. For 2021, OpenKey, RED, Marietta and Pure Wellness do not meet the aggregation criteria or the quantitative thresholds to individually qualify as reportable segments. However, we have elected to disclose OpenKey as a reportable segment. Beginning December 31, 2021, the Company elected to additionally disclose RED as a reportable segment. As such, the Company has updated our presentation for the years ended December 31, 2020 and 2019 to align with the updated presentation. Accordingly, we have six reportable segments: REIT Advisory, Remington, Premier, INSPIRE, RED and OpenKey. We combine the operating results of Marietta and Pure Wellness into an “all other” seventh 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’s (“CODM”) primary measure of segment profitability is net income. Our CODM currently reviews assets at the consolidated level and does not currently review segment assets to make key decisions on resource allocations. Since such asset information by segment is not reviewed by our CODM, segment assets are not available for disclosure.
ASHFORD INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Certain information concerning our segments for the years ended December 31, 2021, 2020 and 2019 are presented in the following tables (in thousands). Cost reimbursement revenue and reimbursed expenses for our Remington segment have been revised as stated in note 2 for the years ended December 31, 2020 and 2019. All revisions to prior period amounts stated within note 2 occurred within our Remington segment. 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, 2021 |
| REIT Advisory | | Remington | | Premier | | INSPIRE | | RED | | OpenKey | | Corporate and Other | | Ashford Inc. Consolidated |
REVENUE | | | | | | | | | | | | | | | |
Advisory services fees | $ | 47,566 | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | 47,566 | |
Hotel management fees | — | | | 26,260 | | | — | | | — | | | — | | | — | | | — | | | 26,260 | |
Design and construction fees | — | | | — | | | 9,557 | | | — | | | — | | | — | | | — | | | 9,557 | |
| | | | | | | | | | | | | | | |
Audio visual | — | | | — | | | — | | | 49,880 | | | — | | | — | | | — | | | 49,880 | |
Other | 81 | | | 20 | | | — | | | — | | | 23,867 | | | 1,965 | | | 21,396 | | | 47,329 | |
Cost reimbursement revenue (1) | 26,969 | | | 171,522 | | | 2,856 | | | 20 | | | — | | | — | | | 2,608 | | | 203,975 | |
Total revenues | 74,616 | | | 197,802 | | | 12,413 | | | 49,900 | | | 23,867 | | | 1,965 | | | 24,004 | | | 384,567 | |
EXPENSES | | | | | | | | | | | | | | | |
Depreciation and amortization | 4,039 | | | 12,141 | | | 12,230 | | | 1,880 | | | 400 | | | 15 | | | 1,893 | | | 32,598 | |
Impairment | — | | | — | | | — | | | 1,160 | | | — | | | — | | | — | | | 1,160 | |
Other operating expenses (2) | 645 | | | 14,525 | | | 8,846 | | | 52,228 | | | 18,547 | | | 5,170 | | | 52,125 | | | 152,086 | |
Reimbursed expenses (1) | 26,949 | | | 171,522 | | | 2,856 | | | 20 | | | — | | | — | | | 2,609 | | | 203,956 | |
Total operating expenses | 31,633 | | | 198,188 | | | 23,932 | | | 55,288 | | | 18,947 | | | 5,185 | | | 56,627 | | | 389,800 | |
OPERATING INCOME (LOSS) | 42,983 | | | (386) | | | (11,519) | | | (5,388) | | | 4,920 | | | (3,220) | | | (32,623) | | | (5,233) | |
Equity in earnings (loss) of unconsolidated entities | — | | | (139) | | | — | | | — | | | — | | | — | | | 13 | | | (126) | |
Interest expense | — | | | — | | | — | | | (876) | | | (628) | | | — | | | (3,640) | | | (5,144) | |
Amortization of loan costs | — | | | — | | | — | | | (121) | | | (81) | | | — | | | (120) | | | (322) | |
Interest income | — | | | 277 | | | — | | | — | | | — | | | — | | | 8 | | | 285 | |
Realized gain (loss) on investments | — | | | (3) | | | — | | | — | | | — | | | — | | | — | | | (3) | |
Other income (expense) | — | | | 10 | | | — | | | (189) | | | (252) | | | 7 | | | (13) | | | (437) | |
INCOME (LOSS) BEFORE INCOME TAXES | 42,983 | | | (241) | | | (11,519) | | | (6,574) | | | 3,959 | | | (3,213) | | | (36,375) | | | (10,980) | |
Income tax (expense) benefit | (10,097) | | | (1,406) | | | 2,414 | | | 1,326 | | | (1,025) | | | — | | | 8,950 | | | 162 | |
NET INCOME (LOSS) | $ | 32,886 | | | $ | (1,647) | | | $ | (9,105) | | | $ | (5,248) | | | $ | 2,934 | | | $ | (3,213) | | | $ | (27,425) | | | $ | (10,818) | |
________
(1) Our segments are reported net of eliminations upon consolidation. Approximately $8.6 million of hotel management fees 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 design and construction, cost of revenues for audio visual, general and administrative expenses and other expenses.
ASHFORD INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2020 |
| REIT Advisory | | Remington | | Premier | | INSPIRE | | RED | | OpenKey | | Corporate and Other | | Ashford Inc. Consolidated |
REVENUE | | | | | | | | | | | | | | | |
Advisory services fees | $ | 45,247 | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | 45,247 | |
Hotel management fees | — | | | 17,126 | | | — | | | — | | | — | | | — | | | — | | | 17,126 | |
Design and construction fees | — | | | — | | | 8,936 | | | — | | | — | | | — | | | — | | | 8,936 | |
Audio visual | — | | | — | | | — | | | 37,881 | | | — | | | — | | | — | | | 37,881 | |
Other | 237 | | | — | | | — | | | — | | | 9,663 | | | 1,479 | | | 14,223 | | | 25,602 | |
Cost reimbursement revenue (1) | 24,685 | | | 128,470 | | | 2,668 | | | — | | | — | | | — | | | 2,736 | | | 158,559 | |
Total revenues | 70,169 | | | 145,596 | | | 11,604 | | | 37,881 | | | 9,663 | | | 1,479 | | | 16,959 | | | 293,351 | |
EXPENSES | | | | | | | | | | | | | | | |
Depreciation and amortization | 9,131 | | | 13,943 | | | 12,628 | | | 1,968 | | | 329 | | | 19 | | | 1,939 | | | 39,957 | |
Impairment | — | | | 126,548 | | | 49,524 | | | 12,692 | | | — | | | — | | | 73 | | | 188,837 | |
Other operating expenses (2) | 8,035 | | | 12,751 | | | 7,930 | | | 45,125 | | | 9,942 | | | 4,044 | | | 42,159 | | | 129,986 | |
Reimbursed expenses (1) | 24,627 | | | 128,470 | | | 2,668 | | | — | | | — | | | — | | | 2,736 | | | 158,501 | |
Total operating expenses | 41,793 | | | 281,712 | | | 72,750 | | | 59,785 | | | 10,271 | | | 4,063 | | | 46,907 | | | 517,281 | |
OPERATING INCOME (LOSS) | 28,376 | | | (136,116) | | | (61,146) | | | (21,904) | | | (608) | | | (2,584) | | | (29,948) | | | (223,930) | |
Equity in earnings (loss) of unconsolidated entities | — | | | — | | | — | | | — | | | — | | | — | | | 212 | | | 212 | |
Interest expense | — | | | — | | | — | | | (1,253) | | | (554) | | | — | | | (3,582) | | | (5,389) | |
Amortization of loan costs | — | | | — | | | — | | | (57) | | | (4) | | | — | | | (257) | | | (318) | |
Interest income | — | | | — | | | — | | | — | | | — | | | — | | | 32 | | | 32 | |
Realized gain (loss) on investments | — | | | (386) | | | — | | | — | | | — | | | — | | | — | | | (386) | |
Other income (expense) | — | | | 27 | | | — | | | (48) | | | (72) | | | (6) | | | (165) | | | (264) | |
INCOME (LOSS) BEFORE INCOME TAXES | 28,376 | | | (136,475) | | | (61,146) | | | (23,262) | | | (1,238) | | | (2,590) | | | (33,708) | | | (230,043) | |
Income tax (expense) benefit | (8,066) | | | 3,108 | | | 3,267 | | | 5,060 | | | 523 | | | — | | | 10,363 | | | 14,255 | |
NET INCOME (LOSS) | $ | 20,310 | | | $ | (133,367) | | | $ | (57,879) | | | $ | (18,202) | | | $ | (715) | | | $ | (2,590) | | | $ | (23,345) | | | $ | (215,788) | |
________
(1) Our segments are reported net of eliminations upon consolidation. Approximately $9.4 million of hotel management fees 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 design and construction, cost of revenues for audio visual, general and administrative expenses and other expenses.
ASHFORD INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year ended December 31, 2019 |
| REIT Advisory | | Remington | | Premier | | INSPIRE | | RED | | OpenKey | | Corporate and Other | | Ashford Inc. Consolidated |
REVENUE | | | | | | | | | | | | | | | |
Advisory services fees | $ | 44,184 | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | 44,184 | |
Hotel management fees | — | | | 4,526 | | | — | | | — | | | — | | | — | | | — | | | 4,526 | |
Design and construction fees | — | | | — | | | 25,584 | | | — | | | — | | | — | | | — | | | 25,584 | |
Audio visual | — | | | — | | | — | | | 110,609 | | | — | | | — | | | — | | | 110,609 | |
Other | 4,349 | | | — | | | — | | | — | | | 9,354 | | | 987 | | | 6,489 | | | 21,179 | |
Cost reimbursement revenue (1) | 36,168 | | | 38,539 | | | 4,996 | | | — | | | — | | | — | | | 1,243 | | | 80,946 | |
Total revenues | 84,701 | | | 43,065 | | | 30,580 | | | 110,609 | | | 9,354 | | | 987 | | | 7,732 | | | 287,028 | |
EXPENSES | | | | | | | | | | | | | | | |
Depreciation and amortization | 6,778 | | | 2,459 | | | 12,494 | | | 1,995 | | | 126 | | | 27 | | | 663 | | | 24,542 | |
| | | | | | | | | | | | | | | |
Other operating expenses (2) | — | | | 2,555 | | | 11,821 | | | 110,815 | | | 8,826 | | | 3,399 | | | 55,879 | | | 193,295 | |
Reimbursed expenses (1) | 35,643 | | | 38,539 | | | 4,996 | | | — | | | — | | | — | | | 1,243 | | | 80,421 | |
Total operating expenses | 42,421 | | | 43,553 | | | 29,311 | | | 112,810 | | | 8,952 | | | 3,426 | | | 57,785 | | | 298,258 | |
OPERATING INCOME (LOSS) | 42,280 | | | (488) | | | 1,269 | | | (2,201) | | | 402 | | | (2,439) | | | (50,053) | | | (11,230) | |
Equity in earnings (loss) of unconsolidated entities | — | | | — | | | — | | | — | | | — | | | — | | | (286) | | | (286) | |
Interest expense | — | | | — | | | — | | | (1,114) | | | (349) | | | (2) | | | (594) | | | (2,059) | |
Amortization of loan costs | — | | | — | | | — | | | (55) | | | (26) | | | (35) | | | (192) | | | (308) | |
Interest income | — | | | — | | | — | | | — | | | — | | | — | | | 46 | | | 46 | |
Other income (expense) | — | | | 2 | | | — | | | 30 | | | (37) | | | 19 | | | (11) | | | 3 | |
INCOME (LOSS) BEFORE INCOME TAXES | 42,280 | | | (486) | | | 1,269 | | | (3,340) | | | (10) | | | (2,457) | | | (51,090) | | | (13,834) | |
Income tax (expense) benefit | (9,861) | | | (140) | | | (1,248) | | | 271 | | | (510) | | | — | | | 9,948 | | | (1,540) | |
NET INCOME (LOSS) | $ | 32,419 | | | $ | (626) | | | $ | 21 | | | $ | (3,069) | | | $ | (520) | | | $ | (2,457) | | | $ | (41,142) | | | $ | (15,374) | |
________
(1) Our segments are reported net of eliminations upon consolidation. Approximately $1.4 million of hotel management fees 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 design and construction, cost of revenues for audio visual, general and administrative expenses and other expenses.
Geographic Information
For revenues by geographical locations, see note 3. The following table presents property and equipment, net by geographic area as of December 31, 2021 and 2020 (in thousands):
| | | | | | | | | | | |
| December 31, 2021 | | December 31, 2020 |
United States | $ | 80,879 | | | $ | 84,784 | |
Mexico | 2,119 | | | 3,662 | |
Dominican Republic | 365 | | | 314 | |
United Kingdom (Turks and Caicos Islands) | 203 | | | — | |
| $ | 83,566 | | | $ | 88,760 | |
ASHFORD INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
20. Concentration of Risk
During the years ended December 31, 2021, 2020 and 2019, 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. Remington’s percentage of total revenue has been revised to account for the revisions in cost reimbursement revenue as stated in note 2 for the years ended December 31, 2020 and 2019. All revisions to prior period amounts stated within note 2 occurred within our Remington segment.
| | | | | | | | | | | | | | | | | | | | | |
| | | Year Ended December 31, |
| | | | | 2021 | | 2020 | | 2019 |
Percentage of total revenues from Ashford Trust and Braemar (1) | | | | | | | | | |
Remington | | | | | 93.7 | % | | 97.9 | % | | 99.4 | % |
Premier | | | | | 72.1 | % | | 83.1 | % | | 98.5 | % |
INSPIRE (2) | | | | | 17.9 | % | | 16.6 | % | | 18.4 | % |
OpenKey | | | | | 8.0 | % | | 21.5 | % | | 16.5 | % |
RED | | | | | 10.9 | % | | 9.8 | % | | 10.8 | % |
Pure Wellness | | | | | 62.1 | % | | 73.7 | % | | 60.1 | % |
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 INSPIRE 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 INSPIRE operations in Mexico and the Dominican Republic decreased to a net deficit of $864,000 and $201,000, respectively, as of December 31, 2021, from a net deficit position of $389,000 and $30,000 as of December 31, 2020. The carrying amounts of net assets related to our RED operations in Turks and Caicos were $172,000 and $0 as of December 31, 2021 and 2020, respectively. For discussion of revenues by geographic location, see note 3.
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.
ASHFORD INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
21. Quarterly Financial Data (Unaudited)
As discussed in note 2, the Company determined that its interim consolidated financial statements for the quarterly periods ended March 31, 2021 and 2020, June 30, 2021 and 2020 and September 30, 2021 and 2020 were materially misstated and needed to be restated.
The tables below set forth the impact of the restatement on the previously issued condensed consolidated statements of operations (in thousands). The error had no impact on the Company’s condensed consolidated balance sheets, condensed consolidated statements of other comprehensive income (loss), condensed consolidated statements of equity (deficit) and condensed consolidated statements of cash flows.
ASHFORD INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Three Months Ended March 31, 2021 and 2020 (Unaudited, As Restated)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Three Months Ended March 31, 2021 | | Three Months Ended March 31, 2020 |
| | | | | As Previously Reported | | Adjustment | | As Restated | | As Previously Reported | | Adjustment | | As Restated |
REVENUE | | | | | | | | | | | | | | | |
Advisory services fees | | | | | $ | 9,927 | | | $ | — | | | $ | 9,927 | | | $ | 11,836 | | | $ | — | | | $ | 11,836 | |
Hotel management fees | | | | | 4,472 | | | — | | | 4,472 | | | 6,124 | | | — | | | 6,124 | |
Project management fees | | | | | 1,542 | | | — | | | 1,542 | | | 3,938 | | | — | | | 3,938 | |
Audio visual | | | | | 3,611 | | | — | | | 3,611 | | | 29,674 | | | — | | | 29,674 | |
Other | | | | | 10,629 | | | — | | | 10,629 | | | 6,691 | | | — | | | 6,691 | |
Cost reimbursement revenue | | | | | 33,752 | | | (1,565) | | | 32,187 | | | 75,579 | | | (7,282) | | | 68,297 | |
Total revenues | | | | | 63,933 | | | (1,565) | | | 62,368 | | | 133,842 | | | (7,282) | | | 126,560 | |
EXPENSES | | | | | | | | | | | | | | | |
Salaries and benefits | | | | | 15,776 | | | — | | | 15,776 | | | 16,310 | | | — | | | 16,310 | |
Cost of revenues for design and construction | | | | | 758 | | | — | | | 758 | | | 1,451 | | | — | | | 1,451 | |
Cost of revenues for audio visual | | | | | 4,386 | | | — | | | 4,386 | | | 20,430 | | | — | | | 20,430 | |
Depreciation and amortization | | | | | 8,139 | | | — | | | 8,139 | | | 9,969 | | | — | | | 9,969 | |
General and administrative | | | | | 5,268 | | | — | | | 5,268 | | | 6,183 | | | — | | | 6,183 | |
Impairment | | | | | — | | | — | | | — | | | 178,213 | | | — | | | 178,213 | |
Other | | | | | 3,611 | | | — | | | 3,611 | | | 4,226 | | | — | | | 4,226 | |
Reimbursed expenses | | | | | 33,680 | | | (1,565) | | | 32,115 | | | 75,511 | | | (7,282) | | | 68,229 | |
Total expenses | | | | | 71,618 | | | (1,565) | | | 70,053 | | | 312,293 | | | (7,282) | | | 305,011 | |
OPERATING INCOME (LOSS) | | | | | (7,685) | | | — | | | (7,685) | | | (178,451) | | | — | | | (178,451) | |
Equity in earnings (loss) of unconsolidated entities | | | | | (114) | | | — | | | (114) | | | 236 | | | — | | | 236 | |
Interest expense | | | | | (1,267) | | | — | | | (1,267) | | | (1,176) | | | — | | | (1,176) | |
Amortization of loan costs | | | | | (86) | | | — | | | (86) | | | (66) | | | — | | | (66) | |
Interest income | | | | | 63 | | | — | | | 63 | | | 28 | | | — | | | 28 | |
Realized gain (loss) on investments | | | | | (194) | | | — | | | (194) | | | (375) | | | — | | | (375) | |
Other income (expense) | | | | | (113) | | | — | | | (113) | | | (521) | | | — | | | (521) | |
INCOME (LOSS) BEFORE INCOME TAXES | | | | | (9,396) | | | — | | | (9,396) | | | (180,325) | | | — | | | (180,325) | |
Income tax (expense) benefit | | | | | 951 | | | — | | | 951 | | | 2,085 | | | — | | | 2,085 | |
NET INCOME (LOSS) | | | | | (8,445) | | | — | | | (8,445) | | | (178,240) | | | — | | | (178,240) | |
(Income) loss from consolidated entities attributable to noncontrolling interests | | | | | 95 | | | — | | | 95 | | | 160 | | | — | | | 160 | |
Net (income) loss attributable to redeemable noncontrolling interests | | | | | 176 | | | — | | | 176 | | | 440 | | | — | | | 440 | |
NET INCOME (LOSS) ATTRIBUTABLE TO THE COMPANY | | | | | (8,174) | | | — | | | (8,174) | | | (177,640) | | | — | | | (177,640) | |
Preferred dividends, declared and undeclared | | | | | (8,606) | | | — | | | (8,606) | | | (7,875) | | | — | | | (7,875) | |
Amortization of preferred stock discount | | | | | (316) | | | — | | | (316) | | | (810) | | | — | | | (810) | |
NET INCOME (LOSS) ATTRIBUTABLE TO COMMON STOCKHOLDERS | | | | | $ | (17,096) | | | $ | — | | | $ | (17,096) | | | $ | (186,325) | | | $ | — | | | $ | (186,325) | |
| | | | | | | | | | | | | | | |
INCOME (LOSS) PER SHARE - BASIC AND DILUTED | | | | | | | | | | | | | | | |
Basic: | | | | | | | | | | | | | | | |
Net income (loss) attributable to common stockholders | | | | | $ | (6.36) | | | $ | — | | | $ | (6.36) | | | $ | (84.73) | | | $ | — | | | $ | (84.73) | |
Weighted average common shares outstanding - basic | | | | | 2,686 | | | — | | | 2,686 | | | 2,199 | | | — | | | 2,199 | |
Diluted: | | | | | | | | | | | | | | | |
Net income (loss) attributable to common stockholders | | | | | $ | (6.36) | | | $ | — | | | $ | (6.36) | | | $ | (84.73) | | | $ | — | | | $ | (84.73) | |
Weighted average common shares outstanding - diluted | | | | | 2,686 | | | — | | | 2,686 | | | 2,199 | | | — | | | 2,199 | |
ASHFORD INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Three Months Ended June 30, 2021 and 2020 (Unaudited, As Restated)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Three Months Ended June 30, 2021 | | Three Months Ended June 30, 2020 |
| | | | | As Previously Reported | | Adjustment | | As Restated | | As Previously Reported | | Adjustment | | As Restated |
REVENUE | | | | | | | | | | | | | | | |
Advisory services fees | | | | | $ | 10,062 | | | $ | — | | | $ | 10,062 | | | $ | 11,430 | | | $ | — | | | $ | 11,430 | |
Hotel management fees | | | | | 6,515 | | | — | | | 6,515 | | | 3,691 | | | — | | | 3,691 | |
Project management fees | | | | | 1,867 | | | — | | | 1,867 | | | 2,052 | | | — | | | 2,052 | |
Audio visual | | | | | 9,451 | | | — | | | 9,451 | | | 970 | | | — | | | 970 | |
Other | | | | | 12,166 | | | — | | | 12,166 | | | 3,337 | | | — | | | 3,337 | |
Cost reimbursement revenue | | | | | 48,279 | | | (2,928) | | | 45,351 | | | 24,118 | | | 2,388 | | | 26,506 | |
Total revenues | | | | | 88,340 | | | (2,928) | | | 85,412 | | | 45,598 | | | 2,388 | | | 47,986 | |
EXPENSES | | | | | | | | | | | | | | | |
Salaries and benefits | | | | | 17,392 | | | — | | | 17,392 | | | 13,677 | | | — | | | 13,677 | |
Cost of revenues for design and construction | | | | | 1,022 | | | — | | | 1,022 | | | 878 | | | — | | | 878 | |
Cost of revenues for audio visual | | | | | 6,872 | | | — | | | 6,872 | | | 2,316 | | | — | | | 2,316 | |
Depreciation and amortization | | | | | 8,259 | | | — | | | 8,259 | | | 10,109 | | | — | | | 10,109 | |
General and administrative | | | | | 6,591 | | | — | | | 6,591 | | | 4,341 | | | — | | | 4,341 | |
Impairment | | | | | — | | | — | | | — | | | — | | | — | | | — | |
Other | | | | | 5,059 | | | — | | | 5,059 | | | 1,361 | | | — | | | 1,361 | |
Reimbursed expenses | | | | | 48,145 | | | (2,928) | | | 45,217 | | | 24,055 | | | 2,388 | | | 26,443 | |
Total expenses | | | | | 93,340 | | | (2,928) | | | 90,412 | | | 56,737 | | | 2,388 | | | 59,125 | |
OPERATING INCOME (LOSS) | | | | | (5,000) | | | — | | | (5,000) | | | (11,139) | | | — | | | (11,139) | |
Equity in earnings (loss) of unconsolidated entities | | | | | (58) | | | — | | | (58) | | | 17 | | | — | | | 17 | |
Interest expense | | | | | (1,288) | | | — | | | (1,288) | | | (1,246) | | | — | | | (1,246) | |
Amortization of loan costs | | | | | (45) | | | — | | | (45) | | | (90) | | | — | | | (90) | |
Interest income | | | | | 72 | | | — | | | 72 | | | 1 | | | — | | | 1 | |
Realized gain (loss) on investments | | | | | (179) | | | — | | | (179) | | | (11) | | | — | | | (11) | |
Other income (expense) | | | | | (172) | | | — | | | (172) | | | 66 | | | — | | | 66 | |
INCOME (LOSS) BEFORE INCOME TAXES | | | | | (6,670) | | | — | | | (6,670) | | | (12,402) | | | — | | | (12,402) | |
Income tax (expense) benefit | | | | | 697 | | | — | | | 697 | | | 3,484 | | | — | | | 3,484 | |
NET INCOME (LOSS) | | | | | (5,973) | | | — | | | (5,973) | | | (8,918) | | | — | | | (8,918) | |
(Income) loss from consolidated entities attributable to noncontrolling interests | | | | | 234 | | | — | | | 234 | | | 278 | | | — | | | 278 | |
Net (income) loss attributable to redeemable noncontrolling interests | | | | | 19 | | | — | | | 19 | | | 644 | | | — | | | 644 | |
NET INCOME (LOSS) ATTRIBUTABLE TO THE COMPANY | | | | | (5,720) | | | — | | | (5,720) | | | (7,996) | | | — | | | (7,996) | |
Preferred dividends, declared and undeclared | | | | | (8,633) | | | — | | | (8,633) | | | (7,940) | | | — | | | (7,940) | |
Amortization of preferred stock discount | | | | | (311) | | | — | | | (311) | | | (795) | | | — | | | (795) | |
NET INCOME (LOSS) ATTRIBUTABLE TO COMMON STOCKHOLDERS | | | | | $ | (14,664) | | | $ | — | | | $ | (14,664) | | | $ | (16,731) | | | $ | — | | | $ | (16,731) | |
| | | | | | | | | | | | | | | |
INCOME (LOSS) PER SHARE - BASIC AND DILUTED | | | | | | | | | | | | | | | |
Basic: | | | | | | | | | | | | | | | |
Net income (loss) attributable to common stockholders | | | | | $ | (5.31) | | | $ | — | | | $ | (5.31) | | | $ | (7.37) | | | $ | — | | | $ | (7.37) | |
Weighted average common shares outstanding - basic | | | | | 2,764 | | | — | | | 2,764 | | | 2,269 | | | — | | | 2,269 | |
Diluted: | | | | | | | | | | | | | | | |
Net income (loss) attributable to common stockholders | | | | | $ | (5.31) | | | $ | — | | | $ | (5.31) | | | $ | (7.37) | | | $ | — | | | $ | (7.37) | |
Weighted average common shares outstanding - diluted | | | | | 2,764 | | | — | | | 2,764 | | | 2,269 | | | — | | | 2,269 | |
ASHFORD INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Six Months Ended June 30, 2021 and 2020 (Unaudited, As Restated)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Six Months Ended June 30, 2021 | | Six Months Ended June 30, 2020 |
| | | | | As Previously Reported | | Adjustment | | As Restated | | As Previously Reported | | Adjustment | | As Restated |
REVENUE | | | | | | | | | | | | | | | |
Advisory services fees | | | | | $ | 19,989 | | | $ | — | | | $ | 19,989 | | | $ | 23,266 | | | $ | — | | | $ | 23,266 | |
Hotel management fees | | | | | 10,987 | | | — | | | 10,987 | | | 9,815 | | | — | | | 9,815 | |
Project management fees | | | | | 3,409 | | | — | | | 3,409 | | | 5,990 | | | — | | | 5,990 | |
Audio visual | | | | | 13,062 | | | — | | | 13,062 | | | 30,644 | | | — | | | 30,644 | |
Other | | | | | 22,795 | | | — | | | 22,795 | | | 10,028 | | | — | | | 10,028 | |
Cost reimbursement revenue | | | | | 82,031 | | | (4,493) | | | 77,538 | | | 99,697 | | | (4,894) | | | 94,803 | |
Total revenues | | | | | 152,273 | | | (4,493) | | | 147,780 | | | 179,440 | | | (4,894) | | | 174,546 | |
EXPENSES | | | | | | | | | | | | | | | |
Salaries and benefits | | | | | 33,168 | | | — | | | 33,168 | | | 29,987 | | | — | | | 29,987 | |
Cost of revenues for design and construction | | | | | 1,780 | | | — | | | 1,780 | | | 2,329 | | | — | | | 2,329 | |
Cost of revenues for audio visual | | | | | 11,258 | | | — | | | 11,258 | | | 22,746 | | | — | | | 22,746 | |
Depreciation and amortization | | | | | 16,398 | | | — | | | 16,398 | | | 20,078 | | | — | | | 20,078 | |
General and administrative | | | | | 11,859 | | | — | | | 11,859 | | | 10,524 | | | — | | | 10,524 | |
Impairment | | | | | — | | | — | | | — | | | 178,213 | | | — | | | 178,213 | |
Other | | | | | 8,670 | | | — | | | 8,670 | | | 5,587 | | | — | | | 5,587 | |
Reimbursed expenses | | | | | 81,825 | | | (4,493) | | | 77,332 | | | 99,566 | | | (4,894) | | | 94,672 | |
Total expenses | | | | | 164,958 | | | (4,493) | | | 160,465 | | | 369,030 | | | (4,894) | | | 364,136 | |
OPERATING INCOME (LOSS) | | | | | (12,685) | | | — | | | (12,685) | | | (189,590) | | | — | | | (189,590) | |
Equity in earnings (loss) of unconsolidated entities | | | | | (172) | | | — | | | (172) | | | 253 | | | — | | | 253 | |
Interest expense | | | | | (2,555) | | | — | | | (2,555) | | | (2,422) | | | — | | | (2,422) | |
Amortization of loan costs | | | | | (131) | | | — | | | (131) | | | (156) | | | — | | | (156) | |
Interest income | | | | | 135 | | | — | | | 135 | | | 29 | | | — | | | 29 | |
Realized gain (loss) on investments | | | | | (373) | | | — | | | (373) | | | (386) | | | — | | | (386) | |
Other income (expense) | | | | | (285) | | | — | | | (285) | | | (455) | | | — | | | (455) | |
INCOME (LOSS) BEFORE INCOME TAXES | | | | | (16,066) | | | — | | | (16,066) | | | (192,727) | | | — | | | (192,727) | |
Income tax (expense) benefit | | | | | 1,648 | | | — | | | 1,648 | | | 5,569 | | | — | | | 5,569 | |
NET INCOME (LOSS) | | | | | (14,418) | | | — | | | (14,418) | | | (187,158) | | | — | | | (187,158) | |
(Income) loss from consolidated entities attributable to noncontrolling interests | | | | | 329 | | | — | | | 329 | | | 438 | | | — | | | 438 | |
Net (income) loss attributable to redeemable noncontrolling interests | | | | | 195 | | | — | | | 195 | | | 1,084 | | | — | | | 1,084 | |
NET INCOME (LOSS) ATTRIBUTABLE TO THE COMPANY | | | | | (13,894) | | | — | | | (13,894) | | | (185,636) | | | — | | | (185,636) | |
Preferred dividends, declared and undeclared | | | | | (17,239) | | | — | | | (17,239) | | | (15,815) | | | — | | | (15,815) | |
Amortization of preferred stock discount | | | | | (627) | | | — | | | (627) | | | (1,605) | | | — | | | (1,605) | |
NET INCOME (LOSS) ATTRIBUTABLE TO COMMON STOCKHOLDERS | | | | | $ | (31,760) | | | $ | — | | | $ | (31,760) | | | $ | (203,056) | | | $ | — | | | $ | (203,056) | |
| | | | | | | | | | | | | | | |
INCOME (LOSS) PER SHARE - BASIC AND DILUTED | | | | | | | | | | | | | | | |
Basic: | | | | | | | | | | | | | | | |
Net income (loss) attributable to common stockholders | | | | | $ | (11.66) | | | $ | — | | | $ | (11.66) | | | $ | (90.81) | | | $ | — | | | $ | (90.81) | |
Weighted average common shares outstanding - basic | | | | | 2,724 | | | — | | | 2,724 | | | 2,236 | | | — | | | 2,236 | |
Diluted: | | | | | | | | | | | | | | | |
Net income (loss) attributable to common stockholders | | | | | $ | (11.66) | | | $ | — | | | $ | (11.66) | | | $ | (90.81) | | | $ | — | | | $ | (90.81) | |
Weighted average common shares outstanding - diluted | | | | | 2,724 | | | — | | | 2,724 | | | 2,236 | | | — | | | 2,236 | |
ASHFORD INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Three Months Ended September 30, 2021 and 2020 (Unaudited, As Restated)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Three Months Ended September 30, 2021 | | Three Months Ended September 30, 2020 |
| | | | | As Previously Reported | | Adjustment | | As Restated | | As Previously Reported | | Adjustment | | As Restated |
REVENUE | | | | | | | | | | | | | | | |
Advisory services fees | | | | | $ | 10,143 | | | $ | — | | | $ | 10,143 | | | $ | 10,832 | | | $ | — | | | $ | 10,832 | |
Hotel management fees | | | | | 7,750 | | | — | | | 7,750 | | | 3,777 | | | — | | | 3,777 | |
Project management fees | | | | | 2,202 | | | — | | | 2,202 | | | 1,790 | | | — | | | 1,790 | |
Audio visual | | | | | 15,108 | | | — | | | 15,108 | | | 3,114 | | | — | | | 3,114 | |
Other | | | | | 13,104 | | | — | | | 13,104 | | | 8,222 | | | — | | | 8,222 | |
Cost reimbursement revenue | | | | | 54,048 | | | 5,831 | | | 59,879 | | | 28,133 | | | 3,898 | | | 32,031 | |
Total revenues | | | | | 102,355 | | | 5,831 | | | 108,186 | | | 55,868 | | | 3,898 | | | 59,766 | |
EXPENSES | | | | | | | | | | | | | | | |
Salaries and benefits | | | | | 13,793 | | | — | | | 13,793 | | | 13,820 | | | — | | | 13,820 | |
Cost of revenues for design and construction | | | | | 1,032 | | | — | | | 1,032 | | | 703 | | | — | | | 703 | |
Cost of revenues for audio visual | | | | | 11,353 | | | — | | | 11,353 | | | 3,126 | | | — | | | 3,126 | |
Depreciation and amortization | | | | | 8,056 | | | — | | | 8,056 | | | 10,094 | | | — | | | 10,094 | |
General and administrative | | | | | 7,585 | | | — | | | 7,585 | | | 5,540 | | | — | | | 5,540 | |
Impairment | | | | | 1,160 | | | — | | | 1,160 | | | — | | | — | | | — | |
Other | | | | | 4,758 | | | — | | | 4,758 | | | 9,147 | | | — | | | 9,147 | |
Reimbursed expenses | | | | | 53,991 | | | 5,831 | | | 59,822 | | | 28,072 | | | 3,898 | | | 31,970 | |
Total expenses | | | | | 101,728 | | | 5,831 | | | 107,559 | | | 70,502 | | | 3,898 | | | 74,400 | |
OPERATING INCOME (LOSS) | | | | | 627 | | | — | | | 627 | | | (14,634) | | | — | | | (14,634) | |
Equity in earnings (loss) of unconsolidated entities | | | | | 12 | | | — | | | 12 | | | 48 | | | — | | | 48 | |
Interest expense | | | | | (1,290) | | | — | | | (1,290) | | | (1,259) | | | — | | | (1,259) | |
Amortization of loan costs | | | | | (78) | | | — | | | (78) | | | (86) | | | — | | | (86) | |
Interest income | | | | | 72 | | | — | | | 72 | | | — | | | — | | | — | |
Realized gain (loss) on investments | | | | | 370 | | | — | | | 370 | | | — | | | — | | | — | |
Other income (expense) | | | | | 29 | | | — | | | 29 | | | (44) | | | — | | | (44) | |
INCOME (LOSS) BEFORE INCOME TAXES | | | | | (258) | | | — | | | (258) | | | (15,975) | | | — | | | (15,975) | |
Income tax (expense) benefit | | | | | (98) | | | — | | | (98) | | | 1,835 | | | — | | | 1,835 | |
NET INCOME (LOSS) | | | | | (356) | | | — | | | (356) | | | (14,140) | | | — | | | (14,140) | |
(Income) loss from consolidated entities attributable to noncontrolling interests | | | | | 180 | | | — | | | 180 | | | 319 | | | — | | | 319 | |
Net (income) loss attributable to redeemable noncontrolling interests | | | | | 13 | | | — | | | 13 | | | 604 | | | — | | | 604 | |
NET INCOME (LOSS) ATTRIBUTABLE TO THE COMPANY | | | | | (163) | | | — | | | (163) | | | (13,217) | | | — | | | (13,217) | |
Preferred dividends, declared and undeclared | | | | | (8,762) | | | — | | | (8,762) | | | (7,985) | | | — | | | (7,985) | |
Amortization of preferred stock discount | | | | | (306) | | | — | | | (306) | | | (781) | | | — | | | (781) | |
NET INCOME (LOSS) ATTRIBUTABLE TO COMMON STOCKHOLDERS | | | | | $ | (9,231) | | | $ | — | | | $ | (9,231) | | | $ | (21,983) | | | $ | — | | | $ | (21,983) | |
| | | | | | | | | | | | | | | |
INCOME (LOSS) PER SHARE - BASIC AND DILUTED | | | | | | | | | | | | | | | |
Basic: | | | | | | | | | | | | | | | |
Net income (loss) attributable to common stockholders | | | | | $ | (3.31) | | | $ | — | | | $ | (3.31) | | | $ | (9.53) | | | $ | — | | | $ | (9.53) | |
Weighted average common shares outstanding - basic | | | | | 2,785 | | | — | | | 2,785 | | | 2,306 | | | — | | | 2,306 | |
Diluted: | | | | | | | | | | | | | | | |
Net income (loss) attributable to common stockholders | | | | | $ | (3.64) | | | $ | — | | | $ | (3.64) | | | $ | (9.53) | | | $ | — | | | $ | (9.53) | |
Weighted average common shares outstanding - diluted | | | | | 2,982 | | | — | | | 2,982 | | | 2,306 | | | — | | | 2,306 | |
ASHFORD INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Nine Months Ended September 30, 2021 and 2020 (Unaudited, As Restated)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Nine Months Ended September 30, 2021 | | Nine Months Ended September 30, 2020 |
| | | | | As Previously Reported | | Adjustment | | As Restated | | As Previously Reported | | Adjustment | | As Restated |
REVENUE | | | | | | | | | | | | | | | |
Advisory services fees | | | | | $ | 30,132 | | | $ | — | | | $ | 30,132 | | | $ | 34,098 | | | $ | — | | | $ | 34,098 | |
Hotel management fees | | | | | 18,737 | | | — | | | 18,737 | | | 13,592 | | | — | | | 13,592 | |
Project management fees | | | | | 5,611 | | | — | | | 5,611 | | | 7,780 | | | — | | | 7,780 | |
Audio visual | | | | | 28,170 | | | — | | | 28,170 | | | 33,758 | | | — | | | 33,758 | |
Other | | | | | 35,899 | | | — | | | 35,899 | | | 18,250 | | | — | | | 18,250 | |
Cost reimbursement revenue | | | | | 136,079 | | | 1,338 | | | 137,417 | | | 127,830 | | | (996) | | | 126,834 | |
Total revenues | | | | | 254,628 | | | 1,338 | | | 255,966 | | | 235,308 | | | (996) | | | 234,312 | |
EXPENSES | | | | | | | | | | | | | | | |
Salaries and benefits | | | | | 46,961 | | | — | | | 46,961 | | | 43,807 | | | — | | | 43,807 | |
Cost of revenues for design and construction | | | | | 2,812 | | | — | | | 2,812 | | | 3,032 | | | — | | | 3,032 | |
Cost of revenues for audio visual | | | | | 22,611 | | | — | | | 22,611 | | | 25,872 | | | — | | | 25,872 | |
Depreciation and amortization | | | | | 24,454 | | | — | | | 24,454 | | | 30,172 | | | — | | | 30,172 | |
General and administrative | | | | | 19,444 | | | — | | | 19,444 | | | 16,064 | | | — | | | 16,064 | |
Impairment | | | | | 1,160 | | | — | | | 1,160 | | | 178,213 | | | — | | | 178,213 | |
Other | | | | | 13,428 | | | — | | | 13,428 | | | 14,734 | | | — | | | 14,734 | |
Reimbursed expenses | | | | | 135,816 | | | 1,338 | | | 137,154 | | | 127,638 | | | (996) | | | 126,642 | |
Total expenses | | | | | 266,686 | | | 1,338 | | | 268,024 | | | 439,532 | | | (996) | | | 438,536 | |
OPERATING INCOME (LOSS) | | | | | (12,058) | | | — | | | (12,058) | | | (204,224) | | | — | | | (204,224) | |
Equity in earnings (loss) of unconsolidated entities | | | | | (160) | | | — | | | (160) | | | 301 | | | — | | | 301 | |
Interest expense | | | | | (3,845) | | | — | | | (3,845) | | | (3,681) | | | — | | | (3,681) | |
Amortization of loan costs | | | | | (209) | | | — | | | (209) | | | (242) | | | — | | | (242) | |
Interest income | | | | | 207 | | | — | | | 207 | | | 29 | | | — | | | 29 | |
Realized gain (loss) on investments | | | | | (3) | | | — | | | (3) | | | (386) | | | — | | | (386) | |
Other income (expense) | | | | | (256) | | | — | | | (256) | | | (499) | | | — | | | (499) | |
INCOME (LOSS) BEFORE INCOME TAXES | | | | | (16,324) | | | — | | | (16,324) | | | (208,702) | | | — | | | (208,702) | |
Income tax (expense) benefit | | | | | 1,550 | | | — | | | 1,550 | | | 7,404 | | | — | | | 7,404 | |
NET INCOME (LOSS) | | | | | (14,774) | | | — | | | (14,774) | | | (201,298) | | | — | | | (201,298) | |
(Income) loss from consolidated entities attributable to noncontrolling interests | | | | | 509 | | | — | | | 509 | | | 757 | | | — | | | 757 | |
Net (income) loss attributable to redeemable noncontrolling interests | | | | | 208 | | | — | | | 208 | | | 1,688 | | | — | | | 1,688 | |
NET INCOME (LOSS) ATTRIBUTABLE TO THE COMPANY | | | | | (14,057) | | | — | | | (14,057) | | | (198,853) | | | — | | | (198,853) | |
Preferred dividends, declared and undeclared | | | | | (26,001) | | | — | | | (26,001) | | | (23,800) | | | — | | | (23,800) | |
Amortization of preferred stock discount | | | | | (933) | | | — | | | (933) | | | (2,386) | | | — | | | (2,386) | |
NET INCOME (LOSS) ATTRIBUTABLE TO COMMON STOCKHOLDERS | | | | | $ | (40,991) | | | $ | — | | | $ | (40,991) | | | $ | (225,039) | | | $ | — | | | $ | (225,039) | |
| | | | | | | | | | | | | | | |
INCOME (LOSS) PER SHARE - BASIC AND DILUTED | | | | | | | | | | | | | | | |
Basic: | | | | | | | | | | | | | | | |
Net income (loss) attributable to common stockholders | | | | | $ | (14.93) | | | $ | — | | | $ | (14.93) | | | $ | (99.62) | | | $ | — | | | $ | (99.62) | |
Weighted average common shares outstanding - basic | | | | | 2,746 | | | — | | | 2,746 | | | 2,259 | | | — | | | 2,259 | |
Diluted: | | | | | | | | | | | | | | | |
Net income (loss) attributable to common stockholders | | | | | $ | (14.93) | | | $ | — | | | $ | (14.93) | | | $ | (99.62) | | | $ | — | | | $ | (99.62) | |
Weighted average common shares outstanding - diluted | | | | | 2,746 | | | — | | | 2,746 | | | 2,259 | | | — | | | 2,259 | |
ASHFORD INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
22. Subsequent Events
On March 10, 2022, the Company entered into a Limited Waiver Under Advisory Agreement (“Braemar Limited Waiver”) with Braemar, Braemar OP, Braemar TRS and Ashford LLC. On March 15, 2022, the Company entered into a Limited Waiver Under Advisory Agreement (the “Ashford Trust Limited Waiver” and together with the Braemar Limited Waiver, the “Limited Waivers”) with Ashford Trust, Ashford Trust OP, Ashford Trust TRS and Ashford LLC. Pursuant to the Limited Waivers, the parties to the Second Amended and Restated Advisory Agreement and Fifth Amended and Restated Advisory Agreement waive the operation of any provision such agreement that would otherwise limit the ability of Ashford Trust or Braemar, as applicable, in its discretion, at its cost and expense, to award during the first and second fiscal quarters of calendar year 2022 (the “Waiver Period”), cash incentive compensation to employees and other representatives of the Company; provided that, pursuant to the Ashford Trust Limited Waiver, such awarded cash incentive compensation does not exceed $8,476,000, in the aggregate, during the Waiver Period.
On March 17, 2022, in connection with the purchase and construction of marine vessels, RED entered into two closed-end non-revolving line of credit loans of $1.5 million each which convert to term loans once fully drawn. Each loan matures March 17, 2032, bearing an interest rate of 5.0% for the first three years. After three years, the interest rate is equal to the Prime Rate plus 0.5% with a floor of 5.0%. Each loan is non-recourse to the Company.