NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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1.
|
Organization and Description of Business
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Ashford Hospitality Trust, Inc., together with its subsidiaries (“Ashford”), is a self-advised real estate investment trust (“REIT”) focused on investing in the hospitality industry across all segments and in all methods including direct real estate, securities, equity, and debt. We commenced operations in August 2003 with the acquisition of
six
hotels in connection with our initial public offering. We own our lodging investments and conduct our business through Ashford Hospitality Limited Partnership ("AHLP"), our operating partnership. Ashford OP General Partner LLC, a wholly-owned subsidiary of Ashford Hospitality Trust, Inc., serves as the sole general partner of our operating partnership. In this report, terms such as the "Company,” “we,” “us,” or “our” refer to Ashford Hospitality Trust, Inc. and all entities included in its consolidated financial statements.
As of
September 30, 2012
, we owned interests in the following hotel properties (all located in the United States) and notes receivable:
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•
|
96
consolidated hotel properties ("legacy hotel properties"), including
92
directly owned and
four
owned through majority-owned investments in consolidated joint ventures, which represents
20,656
total rooms (or
20,395
net rooms excluding those attributable to our joint venture partners),
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|
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•
|
28
hotel properties owned through a
71.74%
common equity interest and a
50.0%
preferred equity interest in an unconsolidated joint venture (“PIM Highland JV”), which represents
8,084
total rooms (or
5,800
net rooms excluding those attributable to our joint venture partner),
|
|
|
•
|
94
hotel condominium units at WorldQuest Resort in Orlando, Florida, and
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|
•
|
a mezzanine loan with a carrying value of
$3.2 million
and a note with the city of Philadelphia, Pennsylvania of
$8.1 million
.
|
For federal income tax purposes, we have elected to be treated as a REIT, which imposes limitations related to operating hotels. As of
September 30, 2012
, our
96
legacy hotel properties were leased or owned by our wholly owned subsidiaries that are treated as taxable REIT subsidiaries for federal income tax purposes (collectively, these subsidiaries are referred to as “Ashford TRS”). Ashford TRS then engages third-party or affiliated hotel management companies to operate the hotels under management contracts. Hotel operating results related to these properties are included in the consolidated statements of operations. As of
September 30, 2012
, the
28
hotel properties owned by our unconsolidated joint venture, PIM Highland JV, are leased to its wholly owned subsidiary that is treated as a taxable REIT subsidiary for federal income tax purposes.
As of
September 30, 2012
, Remington Lodging & Hospitality, LLC, together with its affiliates (“Remington Lodging”), which is beneficially wholly owned by Mr. Archie Bennett, Jr., our Chairman, and Mr. Monty J. Bennett, our Chief Executive Officer, managed
45
of our
96
legacy hotel properties,
21
of the
28
PIM Highland JV hotel properties, and WorldQuest Resort. Third-party management companies managed the remaining hotel properties.
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2.
|
Significant Accounting Policies
|
Basis of Presentation
– The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. These consolidated financial statements include the accounts of Ashford, its majority-owned subsidiaries, and its majority-owned joint ventures in which it has a controlling interest. All significant intercompany accounts and transactions between consolidated entities have been eliminated in these consolidated financial statements. These consolidated financial statements and related notes should be read in conjunction with the consolidated financial statements and notes thereto included in our 2011 Annual Report to Shareholders on Form 10-K and Form 10-K/A filed with the Securities and Exchange Commission (“SEC”) on February 28, 2012 and March 26, 2012, respectively.
The following items affect reporting comparability related to our consolidated financial statements:
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•
|
Historical seasonality patterns at some of our properties cause fluctuations in our overall operating results. Consequently, operating results for the three and nine months ended
September 30, 2012
are not necessarily indicative of the results that may be expected for the year ending
December 31, 2012
.
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ASHFORD HOSPITALITY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
|
|
•
|
Marriott International, Inc. (“Marriott”) manages
40
of our legacy hotel properties. For these Marriott-managed hotels, the fiscal year reflects
twelve
weeks of operations in each of the first three quarters of the year and
16
weeks for the fourth quarter of the year. Therefore, in any given quarterly period, period-over-period results will have different ending dates. For Marriott-managed hotels, the third quarters of
2012
and
2011
ended September 7 and September 9, respectively.
|
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 financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.
Investments in Hotel Properties
– Hotel properties are generally stated at cost. However,
four
hotel properties contributed upon Ashford's formation in 2003 are stated at the predecessor's historical cost, net of impairment charges, if any, plus a partial step-up related to the acquisition of noncontrolling interests from third parties associated with certain of these properties. For hotel properties owned through our majority-owned joint ventures, the carrying basis attributable to the joint venture partners' minority ownership is recorded at the predecessor's historical cost, net of any impairment charges, while the carrying basis attributable to our majority ownership is recorded based on the allocated purchase price of our ownership interests in the joint ventures. All improvements and additions which extend the useful life of hotel properties are capitalized.
Impairment of Investment in Hotel Properties
– Hotel properties are reviewed for impairment whenever events or changes in circumstances indicate that their carrying amounts may not be recoverable. We test impairment by using current or projected cash flows over the estimated useful life of the asset. In evaluating impairment of hotel properties, we make many assumptions and estimates, including projected cash flows, expected holding period, and expected useful life. We may also use fair values of comparable assets. If an asset is deemed to be impaired, we record an impairment charge for the amount that the property's net book value exceeds its estimated fair value. In the second quarter of
2012
, we recognized an impairment charge of
$4.1 million
related to the Hilton hotel in Tucson, Arizona, which reduced its carrying value to
$19.7 million
and represented our estimate of its fair value.
No
other impairment charges were recorded for investment in hotel properties included in continuing operations for the
three and nine
months ended
September 30, 2012
and
2011
.
Notes Receivable
– Mezzanine loan financing, classified as notes receivable, represents loans held for investment and intended to be held to maturity. Accordingly, these notes are recorded at cost, net of unamortized loan origination costs and fees, loan purchase discounts, and allowance for losses when a loan is deemed to be impaired. Premiums, discounts, and net origination fees are amortized or accreted as an adjustment to interest income using the effective interest method over the life of the loan. We discontinue recording interest and amortizing discounts/premiums when the contractual payment of interest and/or principal is not received. Payments received on impaired nonaccrual loans are recorded as adjustments to impairment charges.
No
interest income was recorded for the
three and nine
months ended
September 30, 2012
and
2011
.
Variable interest entities (“VIEs”), as defined by authoritative accounting guidance, must be consolidated by their controlling interest beneficiaries if the VIEs do not effectively disperse risks among the parties involved. Our remaining mezzanine note receivable at
September 30, 2012
is secured by a hotel property and is subordinate to the controlling interest in the secured hotel property. Although the note receivable is considered to be a variable interest in the entity that owns the related hotel, we are not considered to be the primary beneficiary of the hotel property as a result of holding the loan. Therefore, we do not consolidate the hotel property for which we have provided financing. We will evaluate interests in entities acquired or created in the future to determine whether such entities should be consolidated. In evaluating VIEs, our analysis involves considerable management judgment and assumptions.
Impairment of Notes Receivable
– We review notes receivable for impairment each reporting period. A loan is impaired when, based on current information and events, collection of all amounts recorded as assets on the balance sheet is no longer considered probable. We apply normal loan review and underwriting procedures (as may be implemented or modified from time to time) in making that judgment.
When a loan is impaired, we measure impairment based on the present value of expected cash flows discounted at the loan’s effective interest rate against the value of the asset recorded on the balance sheet. We may also measure impairment based on a loan’s observable market price or the fair value of collateral if the loan is collateral-dependent. Loan impairments are recorded as a valuation allowance and a charge to earnings. Our assessment of impairment is based on considerable judgment and estimates.
No
impairment charges were recorded during the
three and nine
months ended
September 30, 2012
and
2011
. Valuation adjustments of
$5.1 million
and
$5.3 million
on previously impaired notes were credited to impairment charges during the
three and nine
months
ASHFORD HOSPITALITY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
ended
September 30, 2012
, respectively. Valuation adjustments of
$92,000
and
$4.7 million
on previously impaired notes were credited to impairment charges during the
three and nine
months ended
September 30, 2011
, respectively.
Investments in Unconsolidated Joint Ventures
– Investments in unconsolidated joint ventures, in which we have ownership interests ranging from
14.4%
to
71.74%
, are accounted for under the equity method of accounting by recording the initial investment and our percentage of interest in the joint ventures' net income (loss). We review investments in our unconsolidated joint ventures for impairment in each reporting period. An investment is impaired when its estimated fair value is less than the carrying amount of our investment. Any impairment is recorded in equity earnings (loss) in unconsolidated joint ventures.
No
such impairments were recorded in the
three and nine
months ended
September 30, 2012
and
2011
.
Our investments in unconsolidated joint ventures are considered to be variable interests in the underlying entities. VIEs, as defined by authoritative accounting guidance, 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, (ii) an implicit financial responsibility to ensure that the VIE operates as designed, and (iii) an obligation to absorb losses of the VIE or the right to receive benefits from the VIE. Because we do not have the power and financial responsibility to direct our unconsolidated joint ventures’ activities and operations, we are not considered to be the primary beneficiary of these joint ventures. Although we have a
71.74%
majority ownership in PIM Highland JV, all major decisions related to the joint venture, including establishment of policies and operating procedures with respect to business affairs and incurring obligations and expenditures, are subject to the approval of an executive committee, which is comprised of four persons with us and our joint venture partner each designating two of those persons. As a result, we utilize the equity accounting method with respect to PIM Highland JV, which had a carrying value of
$161.9 million
at
September 30, 2012
based on our share of the joint venture’s equity. We will evaluate the interests in entities acquired or created in the future to determine whether such entities should be consolidated. In evaluating VIEs, our analysis involves considerable management judgment and assumptions.
Assets Held for Sale and Discontinued Operations
– We classify assets as held for sale when management has obtained a firm commitment from a buyer and consummation of the sale is considered probable and expected within one year. In addition, we deconsolidate a property when we no longer hold legal title to the property/subsidiary. When deconsolidating a property/subsidiary, we recognize a gain or loss in net income measured as the difference between the combined fair values of any consideration received plus any retained noncontrolling investment in the former subsidiary at the date the subsidiary is deconsolidated and the carrying amount of the former property/subsidiary. The related operations of assets held for sale are reported as discontinued if a) such operations and cash flows can be clearly distinguished, both operationally and financially, from our ongoing operations, b) such operations and cash flows will be eliminated from ongoing operations once the disposal occurs, and c) we will not have any significant continuing involvement subsequent to the disposal.
During the
three and nine
months ended
September 30, 2011
, assets held for sale and discontinued operations included
four
hotel properties sold in 2011. The JW Marriott San Francisco in California, the Hilton Rye Town in New York, and the Hampton Inn Houston in Texas were sold in the first quarter of 2011 and the Hampton Inn hotel in Jacksonville, Florida, was sold in the third quarter of 2011. The
nine
months ended
September 30, 2011
included an impairment charge of
$6.2 million
related to the Hampton Inn hotel in Jacksonville, Florida and a net gain of
$2.6 million
related to sales of these hotels. There were
no
assets held for sale as of
September 30, 2012
and
no
discontinued operations for the
three and nine
months ended
September 30, 2012
.
Investments in Securities and Other
– Securities and other investments, including U.S. treasury bills, stocks, and put and call options of certain publicly traded companies, are recorded at fair value. Put and call options are considered derivatives. The fair value of these investments is based on the closing price as of the balance sheet date and is reported as “Investments in securities and other” or “Liabilities associated with investments in securities and other” in the consolidated balance sheets. On the consolidated statements of operations, net investment income, including interest income (expense), dividends and related costs incurred, and realized gains or losses, is reported as a component of “Other income” while unrealized gains and losses on these investments are reported as “Unrealized gain (loss) on investments."
Revenue Recognition
– Hotel revenues, including room, food, beverage, and ancillary revenues such as long-distance telephone service, laundry, parking, and space rentals, are recognized when services have been rendered. In
2011
, rental income represents income from leasing a hotel property to a third-party tenant on a triple-net operating lease, which included base rent recognized on a straight-line basis over the lease term and variable rent recognized when earned. The remaining
11%
ownership in this hotel property was assigned to us in December 2011 and the lease agreement was canceled. Interest income is recognized when earned. We discontinue recording interest and amortizing discounts/premiums when the contractual payment of interest and/or principal is not received. Asset management fees are recognized when services are rendered. Sales taxes collected from customers
ASHFORD HOSPITALITY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
and submitted to taxing authorities are not recorded in revenue.
Derivatives and Hedges
– We primarily use interest rate derivatives to hedge our risks and to capitalize on the historical correlation between changes in LIBOR (London Interbank Offered Rate) and RevPAR (Revenue per Available Room). Interest rate derivatives could include swaps, caps, floors, flooridors, and corridors. We assess the effectiveness of each hedging relationship by comparing changes in fair value or cash flows of the derivative hedging instrument with the changes in fair value or cash flows of the designated hedged item or transaction. We also use credit default swaps to hedge financial and capital market risk. All these derivatives are subject to master netting settlement arrangements and the credit default swaps are subject to credit support annexes. For credit default swaps, cash collateral is posted by us as well as our counterparty. We offset the fair value of the derivative and the obligation/right to return/reclaim cash collateral.
Derivatives are recorded at fair value and reported as “Derivative assets” or “Derivative liabilities” while credit default swaps are recorded at fair value as “Investments in securities and other” or “Liabilities associated with investments in securities and other” in the consolidated balance sheets. Accrued interest on non-hedge designated interest rate derivatives is included in “Accounts receivable, net” in the consolidated balance sheets. For interest rate derivatives designated as cash flow hedges:
|
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a)
|
the effective portion of changes in fair value is initially reported as a component of “Accumulated Other Comprehensive Income (Loss)” (“OCI”) in the equity section of the consolidated balance sheets and reclassified to interest expense in the consolidated statements of operations in the period during which the hedged transaction affects earnings, and
|
|
|
b)
|
the ineffective portion of changes in fair value is recognized directly in earnings as “Unrealized gain (loss) on derivatives” in the consolidated statements of operations.
|
For non-hedge designated interest rate derivatives and credit default swaps, changes in fair value are recognized in earnings as “Unrealized gain (loss) on derivatives” in the consolidated statements of operations.
Income Taxes
- As a REIT, we generally will not be subject to federal corporate income tax on the portion of our net income (loss) that does not relate to taxable REIT subsidiaries. However, Ashford TRS is treated as a taxable REIT subsidiary for federal income tax purposes. In accordance with authoritative accounting guidance, we account for income taxes related to Ashford TRS using the asset and liability method under which deferred tax assets and liabilities are recognized for future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. In addition, the analysis utilized by us in determining our deferred tax asset valuation allowance involves considerable management judgment and assumptions.
Recently Adopted Accounting Standards
– In May 2011, the FASB issued accounting guidance for common fair value measurement and disclosure requirements. The guidance requires disclosures of (i) quantitative information about the significant unobservable inputs used for Level 3 measurements; (ii) description of the valuation processes surrounding Level 3 measurements; (iii) narrative description of the sensitivity of recurring Level 3 measurements to unobservable inputs; (iv) hierarchy classification for items whose fair value is only disclosed in the footnotes; and (v) any transfers between Level 1 and 2 of the fair value hierarchy. The new accounting guidance is effective during interim and annual periods beginning after December 15, 2011. We have adopted this accounting guidance and provided the additional required disclosures in Notes 10, 11, and 12. The adoption of this accounting guidance did not affect our financial position or results of operations.
In December 2011, the FASB issued accounting guidance to clarify how to determine whether a reporting entity should derecognize the in-substance real estate upon loan defaults when it ceases to have a controlling interest in a subsidiary that is in-substance real estate. Under this guidance, a reporting entity would not satisfy the requirements to derecognize the in-substance real estate before the legal transfer of the real estate to the lender and the extinguishment of the related non-recourse indebtedness. That is, even if the reporting entity ceases to have a controlling financial interest, the reporting entity would continue to include the real estate, debt, and the results of the subsidiary’s operations in its consolidated financial statements until legal title to the real estate is transferred to legally satisfy the debt. The new accounting guidance is effective for fiscal years, and interim periods within those years, beginning on or after June 15, 2012. Early adoption is permitted. We adopted this accounting guidance during the third quarter of 2012. The impact on our financial position and result of operations of adopting the new derecognition requirements was to include the real estate, debt, and results of operations of our Hilton hotel in Tucson, Arizona in our consolidated balance sheet and statements of operations as of and for the three and nine months ended September 30, 2012, although the hotel was transferred to a court appointed receiver on August 15, 2012.
ASHFORD HOSPITALITY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
Recently Issued Accounting Standards
– In December 2011, the FASB issued accounting guidance to require disclosures about offsetting assets and liabilities. Entities are required to disclose both gross and net information about both instruments and transactions eligible for offset in the statement of financial position and instruments and transactions subject to an agreement similar to a master-netting arrangement. This scope includes financial instruments, derivatives, sale and repurchase agreements, reverse sale and repurchase agreements, and securities-borrowing and securities-lending arrangements. The new accounting guidance is effective for fiscal years, and interim periods within those years, beginning after January 1, 2013 and the disclosures should be reported retrospectively for all comparative periods presented. We do not expect any material impact on our financial position and results of operations from the adoption of this accounting guidance but will provide the required additional disclosures upon adoption.
Reclassifications
– Certain amounts in the consolidated financial statements for the
three and nine
months ended
September 30, 2011
have been reclassified to conform with the 2012 presentation. These reclassifications have no effect on our cash flows, equity, or net income (loss) previously reported.
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3.
|
Summary of Significant Transactions
|
Credit Facility Capacity Expansion
- On February 21, 2012, we expanded our borrowing capacity under our
$105.0 million
senior credit facility to an aggregate
$145.0 million
and
on September 24, 2012, we further expanded our borrowing capacity to an aggregate
$165.0 million
. We have an option, subject to lender approval, to further expand the facility to an aggregate size of
$225.0 million
. As part of the expansion an additional bank has been added to the bank line up in the senior credit facility.
At-the-Market Preferred Stock Offering
– On March 2, 2012, we commenced issuances of preferred stock under our at-the-market (“ATM”) program with an investment banking firm pursuant to which we may issue up to
700,000
shares of
8.55%
Series A Cumulative Preferred Stock and up to
700,000
shares of
8.45%
Series D Cumulative Preferred Stock at market prices up to
$30.0 million
in total proceeds. There were
no
issuances during the third quarter of 2012. During the
nine
months ended
September 30, 2012
, we issued
169,306
shares of
8.55%
Series A Cumulative Preferred Stock for gross proceeds of
$4.2 million
and
501,909
shares of
8.45%
Series D Cumulative Preferred Stock for gross proceeds of
$12.3 million
. Such proceeds, net of commissions and other expenses, were
$16.0 million
for the
nine
months ended
September 30, 2012
.
Refinanced our $167.2 Million Mortgage Loan
- On May 9, 2012, we refinanced our
$167.2 million
mortgage loan, due
May 2012
, and having an interest rate of
LIBOR plus 1.65%
, with a
$135.0 million
mortgage loan, due
May 2014
, and having an interest rate of
LIBOR plus 6.50%
. As a result, our Doubletree Guest Suites hotel property in Columbus, Ohio, which was one of
ten
hotels securing our
$167.2 million
mortgage loan, is no longer encumbered as
nine
hotels secure our
$135.0 million
mortgage loan.
Appointment of Receivership for our Hilton Hotel in Tucson, Arizona
- During the second quarter of 2012 we determined that this hotel was not to be held long-term as operating cash flows were not anticipated to cover principal and interest payments of the related
$19.7 million
debt secured by this hotel. In addition, regarding this loan, we ceased making principal and interest payments after
July 31, 2012
. Based on our assessment, which included marketing this hotel for sale, we concluded that the carrying value of this asset would not be recoverable. Consequently, in the second quarter of
2012
, we recognized an impairment charge of
$4.1 million
related to this hotel, which reduced its carrying value to
$19.7 million
and represented our estimate of its fair value. The impairment charge was based on methodologies discussed in Note 2, which are considered Level 3 valuation techniques. Effective
August 15, 2012
, via a consensual foreclosure with our lender, a receiver appointed by Pima County Superior Court in Arizona completed taking possession and full control of this hotel. The real estate, debt, and results of operations of this hotel will continue to be included in continuing operations in our consolidated balance sheets and statements of operations until the property is sold.
ASHFORD HOSPITALITY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
|
|
4.
|
Investments in Hotel Properties
|
Investments in hotel properties consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
September 30,
2012
|
|
December 31,
2011
|
|
|
|
|
Land
|
$
|
486,458
|
|
|
$
|
487,184
|
|
Buildings and improvements
|
2,794,293
|
|
|
2,779,828
|
|
Furniture, fixtures, and equipment
|
313,610
|
|
|
276,292
|
|
Construction in progress
|
9,494
|
|
|
5,841
|
|
Condominium properties
|
12,698
|
|
|
12,661
|
|
Total cost
|
3,616,553
|
|
|
3,561,806
|
|
Accumulated depreciation
|
(704,915
|
)
|
|
(603,907
|
)
|
Investment in hotel properties, net
|
$
|
2,911,638
|
|
|
$
|
2,957,899
|
|
As of
September 30, 2012
and
December 31, 2011
, in connection with the restructuring of a joint venture, we owned a note receivable of
$8.1 million
from the city of Philadelphia, Pennsylvania. The note bears interest at a rate of
12.85%
and matures in 2018.
In addition, as of
September 30, 2012
and
December 31, 2011
, we had
one
mezzanine loan receivable with a net carrying value of
$3.2 million
and
$3.1 million
, respectively, net of a valuation allowance of
$8.4 million
and
$8.7 million
, respectively. This note is secured by
one
hotel property, bears interest at a rate of
6.09%
, and matures in 2017. All required payments on this loan are current. Ongoing payments are treated as reductions of carrying value with related valuation allowance adjustments recorded as credits to impairment charges.
|
|
6.
|
Investment in Unconsolidated Joint Ventures
|
Effective March 10, 2011, PIM Highland JV, a
28
-hotel-property portfolio, became an investment in unconsolidated joint venture when we acquired a
71.74%
common equity interest and a
$25.0 million
, or
50%
, preferred equity interest earning an accrued but unpaid
15%
annual return with priority over common equity distributions. Although we have majority ownership in PIM Highland JV, all major decisions related to the joint venture, including establishment of policies and operating procedures with respect to business affairs and incurring obligations and expenditures, are subject to the approval of an executive committee, which is comprised of
four
persons with us and our joint venture partner each designating
two
of those persons. As a result, we utilize the equity accounting method with respect to PIM Highland JV, which had a carrying value of
$161.9 million
and
$179.5 million
at
September 30, 2012
and
December 31, 2011
, respectively. Upon its inception in 2011, PIM Highland JV recognized a gain of
$82.1 million
(which was finalized in the fourth quarter of 2011), of which our share was
$46.3 million
, related to a bargain purchase and settlement of a preexisting relationship.
Mortgage and mezzanine loans securing PIM Highland JV are nonrecourse to the borrowers, except for customary exceptions or carve-outs that trigger recourse liability to the borrowers in certain limited instances. Recourse obligations typically include only the payment of costs and liabilities suffered by the lenders as a result of the occurrence of certain bad acts on the part of the borrower. However, in certain cases, the carve-outs could trigger recourse obligations on the part of the borrower with respect to repayment of all or a portion of the outstanding principal amount of the loans. We have entered into customary guaranty agreements pursuant to which we guaranty payment of any recourse liabilities of the borrowers that result from non-recourse carve-outs (which include, but are not limited to, fraud, misrepresentation, willful conduct resulting in waste, misappropriations of rents following an event of default, voluntary bankruptcy filings, unpermitted transfers of collateral, and certain environmental liabilities). In the opinion of management, none of these guaranty agreements, either individually or in the aggregate, are likely to have a material adverse effect on our business, results of operations, or financial condition.
ASHFORD HOSPITALITY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
The following tables summarize the consolidated balance sheets as of
September 30, 2012
and
December 31, 2011
and the consolidated statements of operations for the three and nine months ended
September 30, 2012
, the three months ended
September 30, 2011
, and the period from March 10, 2011 (inception) through
September 30, 2011
of the PIM Highland JV (in thousands):
|
|
|
|
|
|
|
|
|
PIM Highland JV
|
Consolidated Balance Sheets
|
|
September 30,
2012
|
|
December 31,
2011
|
|
|
|
|
Total Assets
|
$
|
1,381,313
|
|
|
$
|
1,400,264
|
|
|
|
|
|
Total Liabilities
|
1,136,681
|
|
|
1,132,977
|
|
Members' equity
|
244,632
|
|
|
267,287
|
|
Total liabilities and members' equity
|
$
|
1,381,313
|
|
|
$
|
1,400,264
|
|
|
|
|
|
Our ownership interest in PIM Highland JV
|
$
|
161,873
|
|
|
$
|
179,527
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PIM Highland JV
|
Consolidated Statements of Operations
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
Nine Months Ended
September 30,
|
|
Period From March 10
to September 30,
|
|
2012
|
|
2011
|
|
2012
|
|
2011
|
|
|
|
|
|
|
|
|
Total revenue
|
$
|
100,033
|
|
|
$
|
97,438
|
|
|
$
|
306,087
|
|
|
$
|
228,912
|
|
Deprecation and amortization
|
(18,435
|
)
|
|
(17,832
|
)
|
|
(54,247
|
)
|
|
(41,354
|
)
|
Corporate, general, and administrative
|
(901
|
)
|
|
(849
|
)
|
|
(2,974
|
)
|
|
(1,818
|
)
|
Other operating expenses
|
(73,361
|
)
|
|
(73,816
|
)
|
|
(220,712
|
)
|
|
(182,704
|
)
|
Operating income
|
7,336
|
|
|
4,941
|
|
|
28,154
|
|
|
3,036
|
|
Interest expense and amortization of loan costs
|
(16,013
|
)
|
|
(15,088
|
)
|
|
(47,379
|
)
|
|
(33,963
|
)
|
Gain recognized at acquisition
(1)
|
—
|
|
|
3,634
|
|
|
—
|
|
|
79,006
|
|
Other expenses
|
(7
|
)
|
|
(345
|
)
|
|
(52
|
)
|
|
(1,985
|
)
|
Income tax expense
|
(914
|
)
|
|
(546
|
)
|
|
(3,378
|
)
|
|
(2,352
|
)
|
Net income (loss)
|
$
|
(9,598
|
)
|
|
$
|
(7,404
|
)
|
|
$
|
(22,655
|
)
|
|
$
|
43,742
|
|
|
|
|
|
|
|
|
|
Our equity in earnings (loss) of PIM Highland JV
|
$
|
(7,373
|
)
|
|
$
|
(6,228
|
)
|
|
$
|
(17,654
|
)
|
|
$
|
19,596
|
|
____________________________________
(1)
In the fourth quarter of 2011, upon completion of the purchase price allocation, this gain was adjusted to
$82.1 million
.
Additionally, as of
September 30, 2012
and
December 31, 2011
, we had a
14.4%
subordinated beneficial interest in a trust that holds the Four Seasons hotel property in Nevis, which had a
zero
carrying value.
ASHFORD HOSPITALITY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
|
|
7.
|
Assets Held for Sale and Discontinued Operations
|
During the
three and nine
months ended
September 30, 2011
, discontinued operations included
four
hotel properties sold in 2011. The JW Marriott San Francisco in California, the Hilton Rye Town in New York, and the Hampton Inn Houston in Texas were sold in the first quarter of 2011 and the Hampton Inn hotel in Jacksonville, Florida, was sold in the third quarter of 2011. The
nine
months ended
September 30, 2011
included an impairment charge of
$6.2 million
related to the Hampton Inn hotel in Jacksonville, Florida and a net gain of
$2.6 million
related to sales of these hotels.
The following table summarizes the operating results of the discontinued hotel properties (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
2012
|
|
2011
|
|
2012
|
|
2011
|
|
|
|
|
|
|
|
|
Hotel revenues
|
$
|
—
|
|
|
$
|
212
|
|
|
$
|
—
|
|
|
$
|
10,461
|
|
Hotel operating expenses
|
—
|
|
|
(140
|
)
|
|
—
|
|
|
(8,051
|
)
|
Operating income
|
—
|
|
|
72
|
|
|
—
|
|
|
2,410
|
|
Property taxes, insurance, and other
|
—
|
|
|
(16
|
)
|
|
—
|
|
|
(785
|
)
|
Depreciation and amortization
|
—
|
|
|
—
|
|
|
—
|
|
|
(392
|
)
|
Impairment charges
|
—
|
|
|
—
|
|
|
—
|
|
|
(6,237
|
)
|
Gain (loss) on disposal of properties
|
—
|
|
|
(407
|
)
|
|
—
|
|
|
2,554
|
|
Interest expense and amortization of loan costs
|
—
|
|
|
—
|
|
|
—
|
|
|
(687
|
)
|
Write-off of premiums, loan costs, and exit fees
|
—
|
|
|
—
|
|
|
—
|
|
|
(948
|
)
|
Loss from discontinued operations before income tax expense
|
—
|
|
|
(351
|
)
|
|
—
|
|
|
(4,085
|
)
|
Income tax expense
|
—
|
|
|
—
|
|
|
—
|
|
|
(85
|
)
|
Loss from discontinued operations
|
—
|
|
|
(351
|
)
|
|
—
|
|
|
(4,170
|
)
|
Income from discontinued operations attributable to noncontrolling interest in consolidated joint venture
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,031
|
)
|
Loss from discontinued operations attributable to redeemable noncontrolling interest in operating partnership
|
—
|
|
|
40
|
|
|
—
|
|
|
644
|
|
Loss from discontinued operations attributable to the Company
|
$
|
—
|
|
|
$
|
(311
|
)
|
|
$
|
—
|
|
|
$
|
(4,557
|
)
|
ASHFORD HOSPITALITY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
Indebtedness consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Indebtedness
|
Collateral
|
Maturity
|
Interest Rate
|
|
September 30, 2012
|
|
December 31, 2011
|
|
|
|
|
|
|
|
|
|
|
Mortgage loan
|
2 hotels
|
Aug-13
|
LIBOR (1) + 2.75%
|
|
$
|
142,667
|
|
|
$
|
145,667
|
|
|
Mortgage loan
(3)
|
5 hotels
|
Mar-14
|
LIBOR (1) + 4.50%
|
|
175,083
|
|
|
178,400
|
|
|
Mortgage loan
(2)
|
9 hotels
|
May-14
|
LIBOR (1) + 6.5%
|
|
135,000
|
|
|
—
|
|
|
Mortgage loan
|
1 hotel
|
May-14
|
8.32%
|
|
5,350
|
|
|
5,476
|
|
|
Mortgage loan
(2)
|
10 hotels
|
May-12
|
LIBOR (1) + 1.65%
|
|
—
|
|
|
167,202
|
|
|
Senior credit facility
(4)
|
Various
|
Sep-14
|
LIBOR (1) + 2.75% to 3.5%
|
|
—
|
|
|
—
|
|
|
Mortgage loan
(7)
|
1 hotel
|
Dec-14
|
Greater of 5.5% or LIBOR (1) + 3.5%
|
|
19,740
|
|
|
19,740
|
|
|
Mortgage loan
|
8 hotels
|
Dec-14
|
5.75%
|
|
105,246
|
|
|
106,863
|
|
|
Mortgage loan
|
10 hotels
|
Jul-15
|
5.22%
|
|
153,638
|
|
|
155,831
|
|
|
Mortgage loan
|
8 hotels
|
Dec-15
|
5.7%
|
|
97,394
|
|
|
98,786
|
|
|
Mortgage loan
(5)
|
5 hotels
|
Dec-15
|
12.72%
|
|
153,859
|
|
|
151,185
|
|
|
Mortgage loan
|
5 hotels
|
Feb-16
|
5.53%
|
|
110,945
|
|
|
112,453
|
|
|
Mortgage loan
|
5 hotels
|
Feb-16
|
5.53%
|
|
92,007
|
|
|
93,257
|
|
|
Mortgage loan
|
5 hotels
|
Feb-16
|
5.53%
|
|
79,699
|
|
|
80,782
|
|
|
Mortgage loan
(6)
|
1 hotel
|
Apr-17
|
5.91%
|
|
34,838
|
|
|
35,000
|
|
|
Mortgage loan
|
2 hotels
|
Apr-17
|
5.95%
|
|
127,665
|
|
|
128,251
|
|
|
Mortgage loan
|
3 hotels
|
Apr-17
|
5.95%
|
|
259,786
|
|
|
260,980
|
|
|
Mortgage loan
|
5 hotels
|
Apr-17
|
5.95%
|
|
115,071
|
|
|
115,600
|
|
|
Mortgage loan
|
5 hotels
|
Apr-17
|
5.95%
|
|
103,431
|
|
|
103,906
|
|
|
Mortgage loan
|
5 hotels
|
Apr-17
|
5.95%
|
|
157,382
|
|
|
158,105
|
|
|
Mortgage loan
|
7 hotels
|
Apr-17
|
5.95%
|
|
125,887
|
|
|
126,466
|
|
|
TIF loan
(6)
|
1 hotel
|
Jun-18
|
12.85%
|
|
8,098
|
|
|
8,098
|
|
|
Mortgage loan
|
1 hotel
|
Nov-20
|
6.26%
|
|
102,877
|
|
|
103,759
|
|
|
Mortgage loan
|
1 hotel
|
Apr-34
|
Greater of 6% or Prime + 1%
|
|
6,545
|
|
|
6,651
|
|
|
Total
|
|
|
|
|
$
|
2,312,208
|
|
|
$
|
2,362,458
|
|
|
____________________________________
(1)
LIBOR rates were
0.214%
and
0.295%
at
September 30, 2012
and
December 31, 2011
, respectively.
(2)
On May 9, 2012, we refinanced our
$167.2 million
mortgage loan, due
May 2012
, having an interest rate of
LIBOR plus 1.65%
, with a
$135.0 million
mortgage loan, due
May 2014
, having an interest rate of
LIBOR plus 6.50%
, which has three
one
-year extension options subject to satisfaction of certain conditions.
(3)
This mortgage loan has a
one
-year extension option subject to satisfaction of certain conditions.
(4)
On February 21, 2012, we expanded our borrowing capacity under our
$105.0 million
senior credit facility to an aggregate
$145.0 million
and on September 24, 2012, we expanded our borrowing capacity to an aggregate
$165.0 million
. We have an option, subject to lender approval, to further expand the facility to an aggregate size of
$225.0 million
. As part of the expansion an additional bank has been added to the bank line up in the senior credit facility. We may use up to
$10.0 million
for standby letters of credit.
(5)
This mortgage loan includes reverse amortization of
8%
on
$45.0 million
of the original principal balance plus
12%
on the cumulative reverse amortization. Since the date at which we obtained this loan, the reverse amortization has resulted in a principal increase of
$12.2 million
.
(6)
These loans are collateralized by the same property.
(7)
As of September 30, 2012, we were in default as a result of ceasing to make debt service payments beginning in August 2012.
We are required to maintain certain financial ratios under various debt and derivative agreements. If we violate covenants in any debt or derivative 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 us being unable to borrow unused amounts under a line of credit, even if repayment of some or all borrowings is not required. The assets of certain of our subsidiaries are pledged under non-recourse indebtedness and are not available to satisfy the debts and other obligations of Ashford or AHLP, our operating partnership, and the liabilities of such subsidiaries do not
ASHFORD HOSPITALITY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
constitute the obligations of Ashford or AHLP. Presently, our existing financial covenants are non-recourse and primarily relate to maintaining minimum debt coverage ratios, maintaining an overall minimum net worth, maintaining a maximum loan-to-value ratio, and maintaining an overall minimum total assets. As of
September 30, 2012
, we were in compliance in all material respects with all covenants or other requirements set forth in our debt and related agreements as amended, however, we were in default on a non-recourse loan collaterlized by the Hilton hotel in Tucson, Arizona, as a result of ceasing to make debt service payments beginning in August 2012.
We have derivative agreements that incorporate the loan covenant provisions of our senior credit facility requiring us to maintain certain minimum financial covenant ratios with respect to our indebtedness. Failure to comply with these covenant provisions would result in us being in default on any derivative instrument obligations covered by the applicable agreement. At
September 30, 2012
, we were in compliance with all the covenants under the senior credit facility and the fair value of derivatives that incorporate our senior credit facility covenant provisions was an asset of
$14.2 million
, consisting of interest rate derivatives.
|
|
9.
|
Income (Loss) Per Share
|
Basic income (loss) per common share is calculated using the two-class method by dividing net income (loss) attributable to common shareholders by the weighted average number of common shares outstanding during the period. Diluted income (loss) per common share is calculated using the two-class method, or treasury stock method if more dilutive, and 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. The following table reconciles the amounts used in calculating basic and diluted income (loss) per share (in thousands, except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
Nine Months Ended September 30,
|
|
2012
|
|
2011
|
|
2012
|
|
2011
|
Loss from continuing operations allocated to common shareholders:
|
|
|
|
|
|
|
|
Income (loss) from continuing operations attributable to the Company
|
$
|
(15,147
|
)
|
|
$
|
(20,906
|
)
|
|
$
|
(41,179
|
)
|
|
$
|
16,862
|
|
Less: Dividends on preferred stocks
|
(8,490
|
)
|
|
(7,415
|
)
|
|
(25,312
|
)
|
|
(38,741
|
)
|
Less: Dividends on common stock
|
(7,443
|
)
|
|
(6,712
|
)
|
|
(22,281
|
)
|
|
(18,552
|
)
|
Less: Dividends on unvested restricted shares
|
(55
|
)
|
|
(92
|
)
|
|
(215
|
)
|
|
(296
|
)
|
Less: Income from continuing operations allocated to unvested shares
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Undistributed loss from continuing operations
|
(31,135
|
)
|
|
(35,125
|
)
|
|
(88,987
|
)
|
|
(40,727
|
)
|
Add back: Dividends on common stock
|
7,443
|
|
|
6,712
|
|
|
22,281
|
|
|
18,552
|
|
Distributed and undistributed loss from continuing operations - basic and diluted
|
$
|
(23,692
|
)
|
|
$
|
(28,413
|
)
|
|
$
|
(66,706
|
)
|
|
$
|
(22,175
|
)
|
|
|
|
|
|
|
|
|
Loss from discontinued operations allocated to common shareholders:
|
|
|
|
|
|
|
|
Loss from discontinued operations - basic and diluted
|
$
|
—
|
|
|
$
|
(311
|
)
|
|
$
|
—
|
|
|
$
|
(4,557
|
)
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding:
|
|
|
|
|
|
|
|
Weighted average shares outstanding - basic and diluted
|
67,659
|
|
|
66,801
|
|
|
67,484
|
|
|
60,601
|
|
|
|
|
|
|
|
|
|
Basic loss per share:
|
|
|
|
|
|
|
|
Loss from continuing operations allocated to common shareholders per share
|
$
|
(0.35
|
)
|
|
$
|
(0.43
|
)
|
|
$
|
(0.99
|
)
|
|
$
|
(0.37
|
)
|
Loss from discontinued operations allocated to common shareholders per share
|
—
|
|
|
—
|
|
|
—
|
|
|
(0.07
|
)
|
Net loss allocated to common shareholders per share
|
$
|
(0.35
|
)
|
|
$
|
(0.43
|
)
|
|
$
|
(0.99
|
)
|
|
$
|
(0.44
|
)
|
|
|
|
|
|
|
|
|
Diluted loss per share:
|
|
|
|
|
|
|
|
Loss from continuing operations allocated to common shareholders per share
|
$
|
(0.35
|
)
|
|
$
|
(0.43
|
)
|
|
$
|
(0.99
|
)
|
|
$
|
(0.37
|
)
|
Loss from discontinued operations allocated to common shareholders per share
|
—
|
|
|
—
|
|
|
—
|
|
|
(0.07
|
)
|
Net loss allocated to common shareholders per share
|
$
|
(0.35
|
)
|
|
$
|
(0.43
|
)
|
|
$
|
(0.99
|
)
|
|
$
|
(0.44
|
)
|
ASHFORD HOSPITALITY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
Due to the anti-dilutive effect, the computation of diluted loss per diluted share does not reflect adjustments for the following items (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
Nine Months Ended September 30,
|
|
2012
|
|
2011
|
|
2012
|
|
2011
|
Income (loss) from continuing operations allocated to common shareholders is not adjusted for:
|
|
|
|
|
|
|
Income allocated to unvested restricted shares
|
$
|
55
|
|
|
$
|
91
|
|
|
$
|
215
|
|
|
$
|
295
|
|
Loss attributable to noncontrolling interest in operating partnership units
|
(2,665
|
)
|
|
(2,896
|
)
|
|
(6,902
|
)
|
|
563
|
|
Dividends on Series B-1 preferred stock
|
—
|
|
|
—
|
|
|
—
|
|
|
1,374
|
|
Total
|
$
|
(2,610
|
)
|
|
$
|
(2,805
|
)
|
|
$
|
(6,687
|
)
|
|
$
|
2,232
|
|
|
|
|
|
|
|
|
|
Weighted average diluted shares are not adjusted for:
|
|
|
|
|
|
|
|
Effect of unvested restricted shares
|
109
|
|
|
418
|
|
|
214
|
|
|
607
|
|
Effect of assumed conversion of operating partnership units
|
17,576
|
|
|
16,292
|
|
|
17,278
|
|
|
15,331
|
|
Effect of assumed conversion of Series B-1 preferred stock
|
—
|
|
|
—
|
|
|
—
|
|
|
3,345
|
|
Total
|
17,685
|
|
|
16,710
|
|
|
17,492
|
|
|
19,283
|
|
|
|
10.
|
Derivative Instruments and Hedging
|
Interest Rate Derivatives
– We are exposed to risks arising from our business operations, economic conditions, and financial markets. To manage these risks, we primarily use interest rate derivatives to hedge our debt and potentially improve cash flows. We also use non-hedge derivatives to capitalize on the historical correlation between changes in LIBOR and RevPAR. Interest rate derivatives may include interest rate swaps, caps, flooridors, and corridors. All these derivatives are subject to master netting settlement arrangements. The maturities on these instruments range from January 2013 to May 2014. To mitigate nonperformance risk, we routinely rely on a third party’s analysis of the creditworthiness of the counterparties, which supports our belief that the counterparties’ nonperformance risk is limited. All derivatives are recorded at fair value.
Credit Default Swap Derivatives
– In August 2011, we entered into credit default swap transactions for a notional amount of
$100.0 million
to hedge financial and capital market risk for an upfront cost of
$8.2 million
that was subsequently returned to us as collateral by our counterparty. A credit default swap is a derivative contract that functions like an insurance policy against the credit risk of an entity or obligation. The seller of protection assumes the credit risk of the reference obligation from the buyer (us) of protection in exchange for annual premium payments. If a default or a loss, as defined in the credit default swap agreements, occurs on the underlying bonds, then the buyer of protection is protected against those losses. The only liability for us, the buyer, is the annual premium and any change in value of the underlying CMBX index (if the trade is terminated prior to maturity). For all CMBX trades completed to date, we were the buyer of protection. Credit default swaps are subject to master netting settlement arrangements and credit support annexes. Assuming the underlying bonds pay off at par over their remaining average life, our total exposure for these trades is approximately
$8.5 million
. Cash collateral is posted by us as well as our counterparty. We offset the fair value of the derivative and the obligation/right to return/reclaim cash collateral. The change in market value of credit default swaps is settled net through posting cash collateral or reclaiming cash collateral between us and our counterparty when the change in market value is over
$250,000
. As of
September 30, 2012
and
December 31, 2011
, credit default swaps had a net carrying value of a liability of
$369,000
and
$2,000
, respectively, which is included in “Liabilities associated with investments in securities and other” in the consolidated balance sheets. For the
three and nine
months ended
September 30, 2012
, we recognized unrealized losses of
$1.4 million
and
$3.1 million
, respectively, that are included in “Unrealized loss on derivatives” in the consolidated statements of operations. For the
three and nine
months ended
September 30, 2011
, we recognized an unrealized gain of
$1.5 million
, which is included in “Unrealized loss on derivatives” in the consolidated statements of operations.
Investment in Securities and Other
– We invest in public securities, including stocks and put and call options, which are considered derivatives. At
September 30, 2012
, we had investments in these derivatives totaling
$0.9 million
and liabilities of
$0.6 million
. At
December 31, 2011
, we had investments in these derivatives totaling
$1.0 million
and liabilities of
$486,000
.
ASHFORD HOSPITALITY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
|
|
11.
|
Fair Value Measurements
|
Fair Value Hierarchy
– For disclosure purposes, financial instruments, whether measured at fair value on a recurring or nonrecurring basis or not measured at fair value, are classified in a hierarchy consisting of three levels based on the observability of valuation inputs in the market place as discussed below:
|
|
•
|
Level 1: Fair value measurements that are quoted prices (unadjusted) in active markets that we have the ability to access for identical assets or liabilities. Market price data generally is obtained from exchange or dealer markets.
|
|
|
•
|
Level 2: Fair value measurements based on inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs include quoted prices for similar assets and liabilities in active markets and inputs other than quoted prices that are observable for the asset or liability, such as interest rates and yield curves that are observable at commonly quoted intervals.
|
|
|
•
|
Level 3: Fair value measurements based on valuation techniques that use significant inputs that are unobservable. The circumstances for using these measurements include those in which there is little, if any, market activity for the asset or liability.
|
Fair values of interest rate swaps are determined using the market standard methodology of netting the discounted future fixed cash receipts/payments and the discounted expected variable cash payments/receipts. Fair values of interest rate caps, floors, flooridors, and corridors are determined using the market standard methodology of discounting the future expected cash receipts that would occur if variable interest rates fell below the strike rates of the floors or rise above the strike rates of the caps. Variable interest rates used in the calculation of projected receipts and payments on the swaps, caps, and floors are based on an expectation of future interest rates derived from observable market interest rate curves (LIBOR forward curves) and volatilities (Level 2 inputs). We also incorporate credit valuation adjustments (Level 3 inputs) to appropriately reflect both our own nonperformance risk and the respective counterparty’s nonperformance risk.
Fair values of credit default swaps are obtained from a third party who publishes various information including the index composition and price data (Level 2 inputs). The fair value of credit default swaps does not contain credit-risk-related adjustments as the change in fair value is settled net through posting cash collateral or reclaiming cash collateral between us and our counterparty.
Fair values of investments in securities and other and liabilities associated with investments in securities and other, including stocks, put and call options, and other investments, are based on their quoted market closing prices (Level 1 inputs).
When a majority of the inputs used to value our derivatives fall within Level 2 of the fair value hierarchy, the derivative valuations in their entirety are classified in Level 2 of the fair value hierarchy. However, when valuation adjustments associated with our derivatives utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by us and our counterparties, which we consider significant (
10%
or more) to the overall valuation of our derivatives, the derivative valuations in their entirety are classified in Level 3 of the fair value hierarchy. Transfers of inputs between levels are determined at the end of each reporting period. In determining the fair values of our derivatives at
September 30, 2012
, the LIBOR interest rate forward curve (Level 2 inputs) assumed an uptrend from
0.221%
to
0.328%
for the remaining term of our derivatives. Credit spreads (Level 3 inputs) used in determining the fair values of hedge and non-hedge designated derivatives assumed an uptrend in nonperformance risk for us and all of our counterparties through the maturity dates.
ASHFORD HOSPITALITY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
Assets and Liabilities Measured at Fair Value on a Recurring Basis
The following table presents 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)
|
|
Counterparty and Cash Collateral Netting (4)
|
|
Total
|
|
|
|
|
September 30, 2012:
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
Derivative Assets:
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate derivatives - non-hedges
|
$
|
—
|
|
|
$
|
24,331
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
24,331
|
|
(1)
|
|
Interest rate derivatives - hedges
|
—
|
|
|
10
|
|
|
—
|
|
|
—
|
|
|
10
|
|
(1)
|
|
Put and call options
|
891
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
891
|
|
(2)
|
|
Non-derivative Assets:
|
|
|
|
|
|
|
|
|
|
|
|
Equity and US treasury securities
|
23,407
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
23,407
|
|
(2)
|
|
Total
|
24,298
|
|
|
24,341
|
|
|
—
|
|
|
—
|
|
|
48,639
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
Derivative Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate derivatives - non-hedges
|
—
|
|
|
(10,094
|
)
|
|
—
|
|
|
—
|
|
|
(10,094
|
)
|
(1)
|
|
Credit default swaps
|
—
|
|
|
3,770
|
|
|
—
|
|
|
(4,139
|
)
|
|
(369
|
)
|
(3)
|
|
Short-equity put options
|
(180
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(180
|
)
|
(3)
|
|
Short-equity call options
|
(385
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(385
|
)
|
(3)
|
|
Short-common stock
|
(499
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(499
|
)
|
(3)
|
|
Non-derivative Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
Margin account balance
|
(1,595
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,595
|
)
|
(3)
|
|
Total
|
(2,659
|
)
|
|
(6,324
|
)
|
|
—
|
|
|
(4,139
|
)
|
|
(13,122
|
)
|
|
|
Net
|
$
|
21,639
|
|
|
$
|
18,017
|
|
|
$
|
—
|
|
|
$
|
(4,139
|
)
|
|
$
|
35,517
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2011:
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
Derivative Assets:
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate derivatives - non-hedges
|
$
|
—
|
|
|
$
|
59,397
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
59,397
|
|
(1)
|
|
Interest rate derivatives - hedges
|
—
|
|
|
12
|
|
|
—
|
|
|
—
|
|
|
12
|
|
(1)
|
|
Put and call options
|
1,011
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,011
|
|
(2)
|
|
Non-derivative Assets:
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities
|
20,363
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
20,363
|
|
(2)
|
|
Total
|
21,374
|
|
|
59,409
|
|
|
—
|
|
|
—
|
|
|
80,783
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
Derivative Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate derivatives - non-hedges
|
—
|
|
|
(21,491
|
)
|
|
—
|
|
|
—
|
|
|
(21,491
|
)
|
(1)
|
|
Credit default swaps
|
—
|
|
|
6,855
|
|
|
—
|
|
|
(6,857
|
)
|
|
(2
|
)
|
(3)
|
|
Short-equity put options
|
(71
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(71
|
)
|
(3)
|
|
Short-equity call options
|
(415
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(415
|
)
|
(3)
|
|
Non-derivative Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
Margin account balance
|
(1,758
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,758
|
)
|
(3)
|
|
Total
|
(2,244
|
)
|
|
(14,636
|
)
|
|
—
|
|
|
(6,857
|
)
|
|
(23,737
|
)
|
|
|
Net
|
$
|
19,130
|
|
|
$
|
44,773
|
|
|
$
|
—
|
|
|
$
|
(6,857
|
)
|
|
$
|
57,046
|
|
|
____________________________________
(1)
Reported net as “Derivative assets” in the consolidated balance sheets.
(2)
Reported as “Investments in securities and other” in the consolidated balance sheets.
(3)
Reported as “Liabilities associated with investments in securities and other” in the consolidated balance sheets.
(4)
Represents cash collateral posted by our counterparty.
ASHFORD HOSPITALITY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
Effect of Fair-Value-Measured Assets and Liabilities on Consolidated Statements of Operations
The following tables summarize the effect of fair-value-measured assets and liabilities on the consolidated statement of operations for the
three and nine
months ended
September 30, 2012
and
2011
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain (Loss) Recognized In Income
|
|
Interest Savings (Cost) Recognized In Income
|
|
Reclassified from Accumulated OCI
into Interest Expense
|
|
Three Months Ended September 30,
|
|
Three Months Ended September 30,
|
|
Three Months Ended September 30,
|
|
2012
|
|
2011
|
|
2012
|
|
2011
|
|
2012
|
|
2011
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
Derivative Assets:
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate derivatives
|
$
|
(12,632
|
)
|
|
$
|
(20,016
|
)
|
|
$
|
13,624
|
|
|
$
|
23,954
|
|
|
$
|
2
|
|
|
$
|
161
|
|
Put and call options
|
(870
|
)
|
|
(22
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Credit default swaps
|
—
|
|
|
1,470
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Non-derivative Assets:
|
|
|
|
|
|
|
|
|
|
|
|
Equity and US treasury securities
|
(82
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Total
|
(13,584
|
)
|
|
(18,568
|
)
|
|
13,624
|
|
|
23,954
|
|
|
2
|
|
|
161
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
Derivative Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate derivatives
|
4,654
|
|
|
1,818
|
|
|
(5,571
|
)
|
|
(5,752
|
)
|
|
—
|
|
|
—
|
|
Credit default swaps
|
(1,375
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Short-equity put options
|
582
|
|
|
(3,222
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Short-equity call options
|
914
|
|
|
69
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Short-common stock
|
(1
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Non-derivative Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
Short-equity securities
|
—
|
|
|
2,047
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Total
|
4,774
|
|
|
712
|
|
|
(5,571
|
)
|
|
(5,752
|
)
|
|
—
|
|
|
—
|
|
Net
|
$
|
(8,810
|
)
|
|
$
|
(17,856
|
)
|
|
$
|
8,053
|
|
|
$
|
18,202
|
|
|
$
|
2
|
|
|
$
|
161
|
|
Total combined
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate derivatives
|
$
|
(7,978
|
)
|
|
$
|
(18,197
|
)
|
|
$
|
8,053
|
|
|
$
|
18,202
|
|
|
$
|
2
|
|
|
$
|
161
|
|
Credit default swaps
|
(1,375
|
)
|
|
1,470
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Total derivatives
|
(9,353
|
)
|
(1)
|
(16,727
|
)
|
(1)
|
8,053
|
|
(2)
|
18,202
|
|
(2)
|
2
|
|
|
161
|
|
Unrealized loss on investments in securities and other
|
(48
|
)
|
(3)
|
(352
|
)
|
(3)
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Realized gain (loss) on investments in securities and other
|
591
|
|
(2)
|
(777
|
)
|
(2)
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Net
|
$
|
(8,810
|
)
|
|
$
|
(17,856
|
)
|
|
$
|
8,053
|
|
|
$
|
18,202
|
|
|
$
|
2
|
|
|
$
|
161
|
|
ASHFORD HOSPITALITY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain (Loss) Recognized In Income
|
|
Interest Savings (Cost) Recognized In Income
|
|
Reclassified from Accumulated OCI
into Interest Expense
|
|
Nine Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
2012
|
|
2011
|
|
2012
|
|
2011
|
|
2012
|
|
2011
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
Derivative Assets:
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate derivatives
|
$
|
(35,065
|
)
|
|
$
|
(51,166
|
)
|
|
$
|
40,454
|
|
|
$
|
71,106
|
|
|
$
|
26
|
|
|
$
|
553
|
|
Put and call options
|
(3,200
|
)
|
|
(22
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Credit default swaps
|
—
|
|
|
1,470
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Non-derivative Assets:
|
|
|
|
|
|
|
|
|
|
|
|
Equity and US treasury securities
|
3,932
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Total
|
(34,333
|
)
|
|
(49,718
|
)
|
|
40,454
|
|
|
71,106
|
|
|
26
|
|
|
553
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
Derivative Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate derivatives
|
11,396
|
|
|
(1,581
|
)
|
|
(16,466
|
)
|
|
(16,744
|
)
|
|
—
|
|
|
—
|
|
Credit default swaps
|
(3,084
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Short-equity put options
|
1,411
|
|
|
(3,184
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Short-equity call options
|
130
|
|
|
69
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Short-common stock
|
(1
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Non-derivative Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
Short-equity securities
|
—
|
|
|
2,047
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Total
|
9,852
|
|
|
(2,649
|
)
|
|
(16,466
|
)
|
|
(16,744
|
)
|
|
—
|
|
|
—
|
|
Net
|
$
|
(24,481
|
)
|
|
$
|
(52,367
|
)
|
|
$
|
23,988
|
|
|
$
|
54,362
|
|
|
$
|
26
|
|
|
$
|
553
|
|
Total combined
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate derivatives
|
$
|
(23,669
|
)
|
|
$
|
(52,746
|
)
|
|
$
|
23,988
|
|
|
$
|
54,362
|
|
|
$
|
26
|
|
|
$
|
553
|
|
Credit default swaps
|
(3,084
|
)
|
|
1,470
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Total derivatives
|
(26,753
|
)
|
(1)
|
(51,276
|
)
|
(1)
|
23,988
|
|
(2)
|
54,362
|
|
(2)
|
26
|
|
|
553
|
|
Unrealized gain on investments in securities and other
|
3,365
|
|
(3)
|
(314
|
)
|
(3)
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Realized loss on investments in securities and other
|
(1,093
|
)
|
(2)
|
(777
|
)
|
(2)
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Net
|
$
|
(24,481
|
)
|
|
$
|
(52,367
|
)
|
|
$
|
23,988
|
|
|
$
|
54,362
|
|
|
$
|
26
|
|
|
$
|
553
|
|
____________________________________
(1)
Reported as “Unrealized loss on derivatives” in the consolidated statements of operations.
(2)
Included in “Other income” in the consolidated statements of operations.
(3)
Reported as “Unrealized gain on investments” in the consolidated statements of operations.
For the
three and nine
months ended
September 30, 2012
, the change in fair values of our interest rate derivatives that were recognized as change in other comprehensive income totaled
$(28,000)
and
$(138,000)
, respectively. For the
three and nine
months ended
September 30, 2011
, the change in fair values of our interest rate derivatives that were recognized as change in other comprehensive income totaled
$0
and
$(16,000)
, respectively.
During the next twelve months, we expect
$59,000
of accumulated comprehensive loss will be reclassified to interest expense.
ASHFORD HOSPITALITY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
|
|
12.
|
Fair Value of Financial Instruments
|
Determining estimated fair values of our financial instruments such as notes receivable and indebtedness requires considerable judgment to interpret market data. Market assumptions and/or estimation methodologies used may have a material effect on estimated fair value amounts. Accordingly, estimates presented are not necessarily indicative of amounts at which these instruments could be purchased, sold, or settled. Carrying amounts and estimated fair values of financial instruments, for periods indicated, were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2012
|
|
December 31, 2011
|
|
Carrying
Value
|
|
Estimated
Fair Value
|
|
Carrying
Value
|
|
Estimated
Fair Value
|
Financial assets and liabilities measured at fair value:
|
|
|
|
|
|
|
|
Investments in securities and other
|
$
|
24,298
|
|
|
$
|
24,298
|
|
|
$
|
21,374
|
|
|
$
|
21,374
|
|
Derivative assets
|
$
|
14,247
|
|
|
$
|
14,247
|
|
|
$
|
37,918
|
|
|
$
|
37,918
|
|
Liabilities associated with investments in securities and other
|
$
|
3,028
|
|
|
$
|
3,028
|
|
|
$
|
2,246
|
|
|
$
|
2,246
|
|
|
|
|
|
|
|
|
|
Financial assets not measured at fair value:
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
146,393
|
|
|
$
|
146,393
|
|
|
$
|
167,609
|
|
|
$
|
167,609
|
|
Restricted cash
|
$
|
76,878
|
|
|
$
|
76,878
|
|
|
$
|
84,069
|
|
|
$
|
84,069
|
|
Accounts receivable
|
$
|
35,399
|
|
|
$
|
35,399
|
|
|
$
|
28,623
|
|
|
$
|
28,623
|
|
Notes receivable
|
$
|
11,297
|
|
|
$12,150 to $13,430
|
|
|
$
|
11,199
|
|
|
$11,715 to $12,947
|
|
Due from third-party hotel managers
|
$
|
64,239
|
|
|
$
|
64,239
|
|
|
$
|
62,747
|
|
|
$
|
62,747
|
|
|
|
|
|
|
|
|
|
Financial liabilities not measured at fair value:
|
|
|
|
|
|
|
|
Indebtedness
|
$
|
2,312,208
|
|
|
$2,183,211 to $2,413,023
|
|
|
$
|
2,362,458
|
|
|
$2,180,027 to $2,409,503
|
|
Accounts payable and accrued expenses
|
$
|
100,285
|
|
|
$
|
100,285
|
|
|
$
|
82,282
|
|
|
$
|
82,282
|
|
Dividends payable
|
$
|
18,259
|
|
|
$
|
18,259
|
|
|
$
|
16,941
|
|
|
$
|
16,941
|
|
Due to related party, net
|
$
|
2,456
|
|
|
$
|
2,456
|
|
|
$
|
2,569
|
|
|
$
|
2,569
|
|
Due to third-party hotel managers
|
$
|
2,035
|
|
|
$
|
2,035
|
|
|
$
|
1,602
|
|
|
$
|
1,602
|
|
Cash, cash equivalents, and restricted cash
. These financial assets bear interest at market rates and have maturities of less than
90
days. The carrying value approximates fair value due to the short-term nature. This is considered a Level 1 valuation technique.
Accounts receivable, due to/from related party or third-party hotel managers, accounts payable, accrued expenses, and dividends payable.
The carrying values of these financial instruments approximate their fair values due to the short-term nature of these financial instruments. This is considered a Level 1 valuation technique.
Notes receivable.
Fair values of notes receivable may be determined using similar loans with similar collateral. We relied on our internal analysis of what we believe a willing buyer would pay for these notes. We estimated the fair value of notes receivable to be approximately
7.55%
to
18.88%
higher than the carrying value of
$11.3 million
at
September 30, 2012
and approximately
4.6%
to
15.6%
higher than the carrying value of
$11.2 million
at
December 31, 2011
. This is considered a Level 2 valuation technique.
Investments in securities and other
. Investments in securities and other consist of a margin account balance, treasury bills, public equity securities, and put and call options. Fair values of these investments are based on quoted market closing prices at the balance sheet dates. See Notes 10 and 11 for a complete description of the methodology and assumptions utilized in determining fair values.
Indebtedness.
Fair value of indebtedness is determined using future cash flows discounted at current replacement rates for these instruments. For variable-rate instruments, cash flows are determined using a forward interest rate yield curve. Current replacement rates are determined by using the U.S. Treasury yield curve or the index to which these financial instruments are tied
ASHFORD HOSPITALITY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
and adjusted for credit spreads. Credit spreads take into consideration general market conditions, maturity, and collateral. We estimated the fair value of total indebtedness to be approximately
94.4%
to
104.4%
of the carrying value of
$2.3 billion
at
September 30, 2012
and approximately
92.3%
to
102.0%
of the carrying value of
$2.4 billion
at
December 31, 2011
. This is considered a Level 2 valuation technique.
Derivative assets and liabilities associated with investments in securities and other.
Fair values of interest rate derivatives are determined using the net present value of expected cash flows of each derivative based on the market-based interest rate curve and adjusted for credit spreads of us and our counterparties. Fair values of credit default swap derivatives are obtained from a third party who publishes the CMBX index composition and price data. Fair values of liabilities associated with investments in securities and other is determined based on quoted market closing prices at the balance sheet dates. See Notes 10 and 11 for a complete description of the methodology and assumptions utilized in determining fair values.
|
|
13.
|
Redeemable Noncontrolling Interests
|
Redeemable noncontrolling interests in the operating partnership represent the limited partners' proportionate share of equity in earnings/losses of the operating partnership, which is an allocation of net income/loss attributable to common unit holders based on the weighted average ownership percentage of these limited partners' common units and units issued under our Long-Term Incentive Plan (the “LTIP units”) that are vested throughout the period plus distributions paid to the limited partners with regard to Class B units. Class B common units have a fixed dividend rate of
7.2%
and priority in payment of cash dividends over common units but otherwise have no preference over common units. Beginning
one
year after issuance, each common unit of limited partnership interest (including each Class B common unit) may be redeemed for either cash or, at our sole discretion, one share of our common stock. Class B common units are convertible at the option of us or the holder into an equivalent number of common units any time after July 13, 2016.
LTIP units, which are issued to certain executives and employees as compensation, have vesting periods ranging from
three
to
five
years. Upon reaching economic parity with common units, each vested LTIP unit can be converted by the holder into
one
common partnership unit of the operating partnership which can then be redeemed for cash or, at our election, settled in our common stock. As of
September 30, 2012
, we have issued
5.7 million
LTIP units in total, of which all but
1.3 million
and
1.2 million
issued in March 2012 and May 2011, respectively, had reached full economic parity with the common units. All LTIP units issued had an aggregate value of
$52.6 million
at the date of grant which is being amortized over their vesting periods. Compensation expense of
$3.9 million
and
$11.5 million
was recognized for the
three and nine
months ended
September 30, 2012
, respectively, and
$2.5 million
and
$5.9 million
was recognized for the
three and nine
months ended
September 30, 2011
, respectively. The unamortized value of LTIP units was
$27.0 million
at
September 30, 2012
, which will be amortized over periods from
0.48
to
3.25
years. During the
three and nine
months ended
September 30, 2012
,
no
operating partnership units were presented for redemption or converted to shares of our common stock.
Redeemable noncontrolling interests, including vested LTIP units, in our operating partnership as of
September 30, 2012
and
December 31, 2011
were
$129.9 million
and
$112.8 million
, respectively, which represents ownership of our operating partnership of
12.58%
and
11.4%
, respectively. The carrying value of redeemable noncontrolling interests as of
September 30, 2012
and
December 31, 2011
included adjustments of
$84.4 million
and
$66.4 million
, respectively, to reflect the excess of the redemption value over the accumulated historical costs. Redeemable noncontrolling interests were allocated net income (loss) of
$(2.7) million
and
$(6.9) million
for the
three and nine
months ended
September 30, 2012
, respectively, and
$(2.9) million
and
$(1.2) million
for the
three and nine
months ended
September 30, 2011
, respectively. We declared cash distributions to operating partnership units of
$2.3 million
and
$6.8 million
for the
three and nine
months ended
September 30, 2012
, respectively, and
$2.0 million
and
$5.8 million
for the
three and nine
months ended
September 30, 2011
, respectively. These distributions are recorded as a reduction of redeemable noncontrolling interests in the operating partnership.
|
|
14.
|
Equity and Equity-Based Compensation
|
At-the-Market Preferred Stock Offering
– On March 2, 2012, we commenced issuances of preferred stock under our at-the-market (“ATM”) program with an investment banking firm pursuant to which we may issue up to
700,000
shares of
8.55%
Series A Cumulative Preferred Stock and up to
700,000
shares of
8.45%
Series D Cumulative Preferred Stock at market prices up to
$30.0 million
in total proceeds. There were
no
issuances during the third quarter of 2012. During the
nine
months ended
September 30, 2012
, we issued
169,306
shares of
8.55%
Series A Cumulative Preferred Stock for gross proceeds of
$4.2 million
and
501,909
shares of
8.45%
Series D Cumulative Preferred Stock for gross proceeds of
$12.3 million
. The aggregate proceeds, net of commissions and other expenses, were
$16.0 million
for the
nine
months ended
September 30, 2012
.
ASHFORD HOSPITALITY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
Common Dividends
– For
2012
and
2011
, the Board of Directors declared quarterly dividends of
$0.11
and
$0.10
per outstanding common share, respectively, with an annualized target of
$0.44
per share for
2012
.
Equity-Based Compensation
– We recognized compensation expense related to our equity-based-compensation plan of
$4.3 million
and
$13.7 million
for the
three and nine
months ended
September 30, 2012
, respectively, and
$3.1 million
and
$8.4 million
for the
three and nine
months ended
September 30, 2011
, respectively. Equity-based compensation expense includes costs associated with LTIP units discussed above. As of
September 30, 2012
, the unamortized amount of unvested shares of restricted equity was
$3.2 million
, which is being amortized over periods from
0.48
to
3.25
years.
Preferred Dividends
– During
2012
, the Board of Directors declared quarterly dividends of
$0.5344
per share for our
8.55%
Series A preferred stock,
$0.5281
per share for our
8.45%
Series D preferred stock, and
$0.5625
per share for our
9%
Series E preferred stock. During
2011
, the Board of Directors declared quarterly dividends of
$0.5344
per share for our
8.55%
Series A preferred stock and
$0.5281
per share for our
8.45%
Series D preferred stock. During the
three and nine
months ended
September 30, 2011
, the Board of Directors also declared dividends of
$0.5625
and
$1.01875
per share, respectively, for our
9%
Series E preferred stock.
Noncontrolling Interests in Consolidated Joint Ventures
– Noncontrolling joint venture partners, which have ownership interests ranging from
15%
to
25%
in
four
hotel properties and a total carrying value of
$16.3 million
and
$16.4 million
at
September 30, 2012
and
December 31, 2011
, respectively, are reported in equity in the consolidated balance sheets. Noncontrolling interests in consolidated joint ventures were allocated (loss) income of
$(219,000)
and
$(444,000)
for the
three and nine
months ended
September 30, 2012
, respectively, and
$(832,000)
and
$537,000
for the
three and nine
months ended
September 30, 2011
, respectively.
|
|
15.
|
Commitments and Contingencies
|
Restricted Cash
– Under certain management and debt agreements for our hotel properties existing at
September 30, 2012
, escrow payments are required for insurance, real estate taxes, and debt service. In addition, for certain properties based on the terms of the underlying debt and management agreements, we escrow
4%
to
6%
of gross revenues for capital improvements.
Franchise Fees
– Under franchise agreements for our hotel properties existing at
September 30, 2012
, we pay franchisor royalty fees between
2.5%
and
7.3%
of gross room revenue and, in some cases, food and beverage revenues. Additionally, we pay fees for marketing, reservations, and other related activities aggregating between
1%
and
3.75%
of gross room revenue and, in some cases, food and beverage revenues. These franchise agreements expire on varying dates between 2013 and 2030. When a franchise term expires, the franchisor has no obligation to renew the franchise. A franchise termination could have a material adverse effect on the operations or the underlying value of the affected hotel due to loss of associated name recognition, marketing support, and centralized reservation systems provided by the franchisor. A franchise termination could also have a material adverse effect on cash available for distribution to shareholders. In addition, if we breach the franchise agreement and the franchisor terminates a franchise prior to its expiration date, we may be liable for up to three times the average annual fees incurred for that property.
Our continuing operations incurred franchise fees of
$7.9 million
and
$23.1 million
for the
three and nine
months ended
September 30, 2012
, respectively, and
$7.4 million
and
$21.4 million
for the
three and nine
months ended
September 30, 2011
, respectively.
Management Fees
– Under management agreements for our hotel properties existing at
September 30, 2012
, we pay a) monthly property management fees equal to the greater of
$10,000
(CPI adjusted since 2003) or
3%
of gross revenues, or in some cases
2%
to
7%
of gross revenues, as well as annual incentive management fees, if applicable, b) market service fees on approved capital improvements, including project management fees of up to
4%
of project costs, for certain hotels, and c) other general fees at current market rates as approved by our independent directors, if required. These management agreements expire from 2012 through 2028, with renewal options. If we terminate a management agreement prior to its expiration, we may be liable for estimated management fees through the remaining term and liquidated damages or, in certain circumstances, we may substitute a new management agreement.
Taxes
- We and our subsidiaries file income tax returns in the federal jurisdiction and various states. Tax years 2008 through 2011 remain subject to potential examination by certain federal and state taxing authorities.
ASHFORD HOSPITALITY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
In September 2010, the Internal Revenue Service ("IRS") completed an audit of
one
of our taxable REIT subsidiaries that leases
two
of our hotel properties for the tax year ended December 31, 2007. The IRS issued a notice of proposed adjustment based on Internal Revenue Code (IRC) Section 482 that reduced the amount of rent we charged the taxable REIT subsidiary ("TRS"). We own a
75%
interest in the hotel properties and the TRS at issue. In connection with the TRS audit, the IRS selected our REIT for audit for the same tax year. In October 2011, the IRS issued an income tax adjustment to the REIT as an alternative to the TRS proposed adjustment. The REIT adjustment is based on the REIT
100%
federal excise tax on our share of the amount by which the rent was held to be greater than the arm's length rate. We strongly disagree with the IRS' position. We filed written protests with the IRS and requested an IRS Appeals Office review of the TRS and REIT cases simultaneously. The IRS granted the Appeals Office review and our representatives attended Appeals Office conferences in August and October of 2012. One or more additional conferences with the Appeals Office will be required to resolve our cases and we anticipate these will occur during the next eight months. In determining amounts payable by our TRS subsidiaries under our leases, we engaged a third party to prepare a transfer pricing study which concluded that the lease terms were consistent with arms' length terms as required by applicable Treasury regulations. However, if the IRS were to pursue the TRS case and prevail, the TRS would owe approximately
$1.1 million
of additional U.S. federal income taxes plus possible additional state income taxes of
$199,000
, net of federal benefit. Alternatively, if the IRS were to pursue the REIT case and prevail, our REIT would owe approximately
$4.6 million
of U.S. federal excise taxes. The excise taxes assessed on the REIT would be in lieu of the TRS additional income taxes. We believe the IRS transfer pricing methodologies applied in the audits contain flaws and that the IRS adjustments to the rent charged are inconsistent with the U.S. federal tax laws related to REITs and true leases. U.S federal income tax assessment statutes of limitations generally limit the time the IRS has to make assessments to within three years after a return is due or filed, whichever is later. As a result, the IRS requested that we agree to extend the assessment statute of limitations to September 30, 2013 for both the TRS and the REIT. We consented to the extensions in order to obtain additional time to prepare our written protests and to obtain an Appeals Office review for both the TRS and the REIT case.
In June 2012, the IRS completed audits of the same TRS and our REIT for the tax years ended December 31, 2008 and 2009. With respect to the 2009 tax year, the IRS has not proposed any adjustments to the TRS or the REIT. For the 2008 tax year, the IRS has issued notices of proposed adjustments for both the REIT and the TRS. The REIT adjustment is for
$3.3 million
of U.S. federal excise taxes and represents the amount by which the IRS asserts that the rent charged to the TRS was greater than the arms' length rate pursuant to IRC Section 482. The TRS adjustment is for
$1.6 million
of additional income which would equate to approximately
$467,000
of additional U.S. federal income taxes and potential state income taxes of
$83,000
, net of federal benefit. The TRS adjustment represents the IRS' imputation of compensation to the TRS under IRC Section 482 for agreeing to be a party to the lessor entity's bank loan agreement. We own a
75%
interest in the lessor entity. We strongly disagree with both of the IRS adjustments for the reasons noted under the 2007 audits, and in addition, we believe the IRS has misinterpreted certain terms of the lease, third party hotel management, and bank loan agreements. We have filed a written protest and requested an IRS Appeals Office review. In March 2012, the IRS requested and we consented to extend the statue of limitations for the TRS and REIT for the 2008 tax year to March 31, 2013.
With respect to both the 2007 and 2008 IRS audits, we believe we will prevail in the eventual settlement of the audits and that the settlements will not have a material adverse effect on our financial condition and results of operations. We have concluded that the positions reported on the tax returns under audit by the IRS are, solely on their technical merits, more-likely-than-not to be sustained upon examination.
During 2010, the Canadian taxing authorities selected our TRS subsidiary that leased our
one
Canadian hotel for audit for the tax years ended December 31, 2007, 2008, and 2009. The Canadian hotel was sold in June 2008 and the TRS ceased activity in Canada at that time. In May 2012, the Canadian taxing authorities issued their final letter of audit adjustments. Their adjustments are nominal in amount and did not result in the assessment of any additional taxes.
If we dispose of the
four
remaining properties contributed in connection with our initial public offering in 2003 in exchange for units of the operating partnership, we may be obligated to indemnify the contributors, including our Chairman and Chief Executive Officer, each of whom have substantial ownership interests, against the tax consequences of the sale. In addition, we agreed to use commercially reasonable efforts to maintain non-recourse mortgage indebtedness of at least
$16.0 million
, which allows contributors of the Las Vegas hotel property to defer gain recognition in connection with their contribution. Additionally, for certain periods of time, selling or transferring the Marriott Crystal Gateway in Arlington, Virginia, would require us to indemnify the entity from which we acquired the property if, as a result of such transactions, such entity would recognize a gain for federal tax purposes.
ASHFORD HOSPITALITY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
In general, tax indemnities equal the federal, state, and local income tax liabilities the contributor or their specified assignee incurs with respect to the gain allocated to the contributor. The contribution agreements’ terms generally require us to gross up tax indemnity payments for the amount of income taxes due as a result of such tax indemnities.
Potential Pension Liabilities
– Upon our 2006 acquisition of a hotel property, certain employees of such hotel were unionized and covered by a multi-employer defined benefit pension plan. At that time, no unfunded pension liabilities existed. Subsequent to our acquisition, such employees, who are employees of the hotel manager, Remington Lodging, elected to decertify from the union. At the time of this election, the union indicated unfunded pension liabilities may exist. The union filed a complaint with the National Labor Relations Board seeking, among other things, to overturn the decertification election. Pending the final determination of the decertification suit, including appeals, the pension fund entered into a settlement agreement with Remington Lodging providing that (a) Remington Lodging continues to make pension fund payments pursuant to the collective bargaining agreement, which requires annual installments of
$84,000
until the
20
th
year following the settlement agreement, and (b) if the union loses the suit, Remington Lodging will have an unfunded pension liability equal to the amount by which
$1.7 million
exceeds pension fund payments made by Remington Lodging since the settlement agreement. We agreed to indemnify Remington Lodging for the payment of the unfunded pension liability as set forth in the settlement agreement.
Litigation
– We are currently subject to litigation arising in the normal course of our business. In the opinion of management, none of these lawsuits or claims against us, either individually or in the aggregate, is likely to have a material adverse effect on our business, results of operations, or financial condition. In addition, management believes we have adequate insurance in place to cover any such significant litigation.
We operate in
two
business segments within the hotel lodging industry: direct hotel investments and hotel financing. Direct hotel investments refers to owning hotels through either acquisition or new development. We report operating results of direct hotel investments on an aggregate basis as substantially all of our hotel investments have similar economic characteristics and exhibit similar long-term financial performance. Hotel financing refers to owning subordinate hotel-related mortgages through acquisition or origination. We do not allocate corporate-level accounts to our operating segments, including corporate, general, and administrative expenses, non-operating interest income, interest expense and amortization of loan costs, and income tax expense/benefit. Financial information related to our reportable segments was as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct Hotel
Investments
|
|
Hotel
Financing
|
|
Corporate
|
|
Consolidated
|
Three Months Ended September 30, 2012:
|
|
|
|
|
|
|
|
Total revenue
|
$
|
230,169
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
230,169
|
|
|
|
|
|
|
|
|
|
Total hotel operating expenses
|
150,087
|
|
|
—
|
|
|
—
|
|
|
150,087
|
|
Property taxes, insurance, and other
|
11,876
|
|
|
—
|
|
|
—
|
|
|
11,876
|
|
Depreciation and amortization
|
34,200
|
|
|
—
|
|
|
—
|
|
|
34,200
|
|
Impairment charges
|
—
|
|
|
(5,066
|
)
|
|
—
|
|
|
(5,066
|
)
|
Corporate, general, and administrative
|
—
|
|
|
—
|
|
|
10,851
|
|
|
10,851
|
|
Total expenses (income)
|
196,163
|
|
|
(5,066
|
)
|
|
10,851
|
|
|
201,948
|
|
Operating income (loss)
|
34,006
|
|
|
5,066
|
|
|
(10,851
|
)
|
|
28,221
|
|
Equity in loss of unconsolidated joint ventures
|
(7,373
|
)
|
|
—
|
|
|
—
|
|
|
(7,373
|
)
|
Interest income
|
—
|
|
|
—
|
|
|
30
|
|
|
30
|
|
Other income
|
—
|
|
|
—
|
|
|
8,671
|
|
|
8,671
|
|
Interest expense and amortization of loan costs
|
—
|
|
|
—
|
|
|
(37,540
|
)
|
|
(37,540
|
)
|
Unrealized loss on investments
|
—
|
|
|
—
|
|
|
(48
|
)
|
|
(48
|
)
|
Unrealized loss on derivatives
|
—
|
|
|
—
|
|
|
(9,353
|
)
|
|
(9,353
|
)
|
Income (loss) from continuing operations before income taxes
|
26,633
|
|
|
5,066
|
|
|
(49,091
|
)
|
|
(17,392
|
)
|
Income tax expense
|
—
|
|
|
—
|
|
|
(639
|
)
|
|
(639
|
)
|
Income (loss) from continuing operations
|
$
|
26,633
|
|
|
$
|
5,066
|
|
|
$
|
(49,730
|
)
|
|
$
|
(18,031
|
)
|
|
|
|
|
|
|
|
|
As of September 30, 2012:
|
|
|
|
|
|
|
|
Total assets
|
$
|
3,258,116
|
|
|
$
|
3,666
|
|
|
$
|
223,250
|
|
|
$
|
3,485,032
|
|
ASHFORD HOSPITALITY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct Hotel
Investments
|
|
Hotel Financing
|
|
Corporate
|
|
Consolidated
|
Three Months Ended September 30, 2011:
|
|
|
|
|
|
|
|
Total revenue
|
$
|
214,587
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
214,587
|
|
|
|
|
|
|
|
|
|
Total hotel operating expenses
|
141,835
|
|
|
—
|
|
|
—
|
|
|
141,835
|
|
Property taxes, insurance, and other
|
12,297
|
|
|
—
|
|
|
—
|
|
|
12,297
|
|
Depreciation and amortization
|
33,776
|
|
|
—
|
|
|
—
|
|
|
33,776
|
|
Impairment charges
|
—
|
|
|
(92
|
)
|
|
—
|
|
|
(92
|
)
|
Transaction acquisition costs
|
—
|
|
|
—
|
|
|
27
|
|
|
27
|
|
Corporate, general, and administrative
|
—
|
|
|
—
|
|
|
9,094
|
|
|
9,094
|
|
Total expenses (income)
|
187,908
|
|
|
(92
|
)
|
|
9,121
|
|
|
196,937
|
|
Operating income (loss)
|
26,679
|
|
|
92
|
|
|
(9,121
|
)
|
|
17,650
|
|
Equity in loss of unconsolidated joint ventures
|
(6,228
|
)
|
|
—
|
|
|
—
|
|
|
(6,228
|
)
|
Interest income
|
—
|
|
|
—
|
|
|
11
|
|
|
11
|
|
Other income
|
—
|
|
|
—
|
|
|
17,349
|
|
|
17,349
|
|
Interest expense and amortization of loan costs
|
—
|
|
|
—
|
|
|
(34,530
|
)
|
|
(34,530
|
)
|
Write-off of deferred loan costs
|
—
|
|
|
—
|
|
|
(729
|
)
|
|
(729
|
)
|
Unrealized loss on investments
|
—
|
|
|
—
|
|
|
(352
|
)
|
|
(352
|
)
|
Unrealized loss on derivatives
|
—
|
|
|
—
|
|
|
(16,727
|
)
|
|
(16,727
|
)
|
Income (loss) from continuing operations before income taxes
|
20,451
|
|
|
92
|
|
|
(44,099
|
)
|
|
(23,556
|
)
|
Income tax expense
|
—
|
|
|
—
|
|
|
(1,077
|
)
|
|
(1,077
|
)
|
Income (loss) from continuing operations
|
$
|
20,451
|
|
|
$
|
92
|
|
|
$
|
(45,176
|
)
|
|
$
|
(24,633
|
)
|
|
|
|
|
|
|
|
|
As of September 30, 2011:
|
|
|
|
|
|
|
|
Total assets
|
$
|
3,348,145
|
|
|
$
|
3,661
|
|
|
$
|
276,597
|
|
|
$
|
3,628,403
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct Hotel
Investments
|
|
Hotel
Financing
|
|
Corporate
|
|
Consolidated
|
Nine Months Ended September 30, 2012:
|
|
|
|
|
|
|
|
Total revenue
|
$
|
705,189
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
705,189
|
|
|
|
|
|
|
|
|
|
Total hotel operating expenses
|
454,337
|
|
|
—
|
|
|
—
|
|
|
454,337
|
|
Property taxes, insurance, and other
|
34,556
|
|
|
—
|
|
|
—
|
|
|
34,556
|
|
Depreciation and amortization
|
102,739
|
|
|
—
|
|
|
—
|
|
|
102,739
|
|
Impairment charges
|
4,120
|
|
|
(5,253
|
)
|
|
—
|
|
|
(1,133
|
)
|
Corporate, general, and administrative
|
—
|
|
|
—
|
|
|
33,027
|
|
|
33,027
|
|
Total expenses
|
595,752
|
|
|
(5,253
|
)
|
|
33,027
|
|
|
623,526
|
|
Operating income (loss)
|
109,437
|
|
|
5,253
|
|
|
(33,027
|
)
|
|
81,663
|
|
Equity in loss of unconsolidated joint ventures
|
(17,654
|
)
|
|
—
|
|
|
—
|
|
|
(17,654
|
)
|
Interest income
|
—
|
|
|
—
|
|
|
84
|
|
|
84
|
|
Other income
|
—
|
|
|
—
|
|
|
22,988
|
|
|
22,988
|
|
Interest expense and amortization of loan costs
|
—
|
|
|
—
|
|
|
(109,334
|
)
|
|
(109,334
|
)
|
Unrealized gain on investments
|
—
|
|
|
—
|
|
|
3,365
|
|
|
3,365
|
|
Unrealized loss on derivatives
|
—
|
|
|
—
|
|
|
(26,753
|
)
|
|
(26,753
|
)
|
Income (loss) from continuing operations before income taxes
|
91,783
|
|
|
5,253
|
|
|
(142,677
|
)
|
|
(45,641
|
)
|
Income tax expense
|
—
|
|
|
—
|
|
|
(2,884
|
)
|
|
(2,884
|
)
|
Income (loss) from continuing operations
|
$
|
91,783
|
|
|
$
|
5,253
|
|
|
$
|
(145,561
|
)
|
|
$
|
(48,525
|
)
|
ASHFORD HOSPITALITY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct Hotel
Investments
|
|
Hotel Financing
|
|
Corporate
|
|
Consolidated
|
Nine Months Ended September 30, 2011:
|
|
|
|
|
|
|
|
Total revenue
|
$
|
656,476
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
656,476
|
|
|
|
|
|
|
|
|
|
Total hotel operating expenses
|
424,133
|
|
|
—
|
|
|
—
|
|
|
424,133
|
|
Property taxes, insurance, and other
|
34,953
|
|
|
—
|
|
|
—
|
|
|
34,953
|
|
Depreciation and amortization
|
99,580
|
|
|
—
|
|
|
—
|
|
|
99,580
|
|
Impairment charges
|
—
|
|
|
(4,748
|
)
|
|
—
|
|
|
(4,748
|
)
|
Gain on insurance settlements
|
(1,905
|
)
|
|
—
|
|
|
—
|
|
|
(1,905
|
)
|
Transaction acquisition costs
|
—
|
|
|
—
|
|
|
(791
|
)
|
|
(791
|
)
|
Corporate, general, and administrative
|
—
|
|
|
—
|
|
|
33,982
|
|
|
33,982
|
|
Total expenses
|
556,761
|
|
|
(4,748
|
)
|
|
33,191
|
|
|
585,204
|
|
Operating income (loss)
|
99,715
|
|
|
4,748
|
|
|
(33,191
|
)
|
|
71,272
|
|
Equity in earnings of unconsolidated joint ventures
|
19,596
|
|
|
—
|
|
|
—
|
|
|
19,596
|
|
Interest income
|
—
|
|
|
—
|
|
|
70
|
|
|
70
|
|
Other income
|
—
|
|
|
30,000
|
|
|
53,509
|
|
|
83,509
|
|
Interest expense and amortization of loan costs
|
—
|
|
|
—
|
|
|
(103,916
|
)
|
|
(103,916
|
)
|
Write-off of deferred loan costs
|
—
|
|
|
—
|
|
|
(729
|
)
|
|
(729
|
)
|
Unrealized loss on investments
|
—
|
|
|
—
|
|
|
(314
|
)
|
|
(314
|
)
|
Unrealized loss on derivatives
|
—
|
|
|
—
|
|
|
(51,276
|
)
|
|
(51,276
|
)
|
Income (loss) from continuing operations before income taxes
|
119,311
|
|
|
34,748
|
|
|
(135,847
|
)
|
|
18,212
|
|
Income tax expense
|
—
|
|
|
—
|
|
|
(2,407
|
)
|
|
(2,407
|
)
|
Income (loss) from continuing operations
|
$
|
119,311
|
|
|
$
|
34,748
|
|
|
$
|
(138,254
|
)
|
|
$
|
15,805
|
|
ASHFORD HOSPITALITY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)